Higgins v. California Petroleum & Asphalt Co.

California Supreme Court Nov 19, 1898 No. L. A. No. 431Published

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Holding. The court held that a corporation formed to take over the assets of a lessee corporation, while leaving the lease with the original entity, is liable for royalties as the 'alter ego' of the original lessee, rendering the transfer constructively fraudulent.

Issues

Whether a successor corporation is liable for the lease obligations of its predecessor when the transfer of assets is effectively a reorganization to evade royalty payments.
Whether a transfer of property that leaves the original lessee without assets while a new entity mines the land constitutes a constructively fraudulent transaction.

Disposition. affirmed

Quotations verified verbatim against the opinion

“the court below was justified in holding that the new company was only the old one under another name; and that being so, it is plain that their responsibility to Higgins was not impaired by this merely nominal transfer.”

“we think that such a transfer as against the holder of an existing obligation is constructively fraudulent as a matter of law.”

Synopsis

Mining—Joint Lease by Several Owners—Rights of Lessors and Grantees.—If a joint lease of adjacent parts of a mine by adjoining owners of the several parts, reserving royalties as rent to be paid jointly to the lessors, contains no covenants as between the lessors, either of them, or the grantee of either of them, may mine on his portion of the leased premises, without incurring any liability to the other lessor.

Id.—Conveyance of One Lessor to Lessee—Covenant for Royalty.— Upon conveyance by one of the lessors to the lessee, the right of such lessee as owner to work the part of the mine conveyed without liability to the other lessor is in abeyance, and the lessee is not by such conveyance absolved from the covenant to pay royalty to the other lessor.

Id.—Conveyance by Lessee to Third Person.—In case of conveyance by the lessee to a third person not an assignee of the lease, the right to work the part of the mine conveyed without liability to ■ the other lessor is revived in favor of such third person.

Id.—Identity of Corporations Lessee and Grantee—Finding.—A finding that a lessee corporation which received a conveyance from one of the lessors was identical with its alleged grantee, and that the mining operations conducted by the grantee corporation were, in reality, conducted by the lessee corporation, supported by evidence that the new corporation was substantially a reorganization of the old one, and was only the old one under a new name, for the purpose of evading the obligations of the lease, is sufficient to sustain a judgment against both corporations for royalties in favor of the other lessor for mining done after the transfer from the old to the new corporation.

Id.—Nominal Transfer—Constructive Fraud.—A mere nominal transfer by a lessee corporation to another corporation organized for the same purpose, with the same officers and the same place of business, without any consideration to the lessee corporation for the transfer, which was evidently made to prevent the lessor from collecting royalties under the lease, is constructively fraudulent as matter of law as against such lessor, and does not affect the responsibility of both corporations to him for the royalties reserved in the lease.

THE COURT. This is an action by one of the lessors in a lease of certain asphalt mines to recover royalties reserved in the lease. The facts as to the lease, and the conveyance by Mary A. Ashley, the other lessor, to the California Petroleum and Asphalt Company of a portion of the leased premises, are set out in the case of Higgins v. California etc. Co., 109 Cal. 304, and need not be here repeated. After the decision of that case the defendant therein conveyed to the Alcatraz Asphalt Company, a corporation (also made a defendant in this case), the [375]property so conveyed to it by Mary A. Asliley. Since that conveyance the latter corporation has rained and taken from the premises so conveyed to it large quantities of bituminous rock, for which royalties are claimed by the plaintiff. Prior to that conveyance the former company had also mined and taken from the same premises other bituminous rock, for which the plaintiff also claims royalties. The plaintiff had judgment against the former company for the royalties accruing prior to the transfer to the latter company, and against both companies for those accruing after that transfer. Prom the latter portion of the judgment both companies have appealed, but no appeal has been taken from the former portion.

The appellants contend that the latter company, being the owner of the land, and not being an assignee of the lease, is not liable on the covenants of the lease, and that the former company had done no mining on the land after the transfer, and therefore cannot be held liable for any royalties subsequently accruing.

The lease in question contains no covenants as between the lessors, and therefore either of them, or the grantee of either of them, might mine bituminous rock on his portion of the leased premises without incurring any liability to the other lessor. When Mary A. Ashley conveyed her land to the lessee this right fell into abeyance, because the lessee, as decided in the case referred to, was not by that conveyance absolved from its covenant to Higgins; but upon the conveyance by it to a third person, not an assignee of the lease, this right would revive in favor of its grantee; and such grantee would not he liable to Higgins for any mining it might do on that portion of the land. If this were the whole case, the judgment would therefore be erroneous.

But the court below found in substance that the California Petroleum and Asphalt Company and the Alcatraz Asphalt Company (its alleged grantee) are identical, and that the mining operations conducted by the latter company on this land were in reality conducted by the former company. On this ground, the respondent contends that both companies are liable for the royalties in question.

Higgins v. California Petroleum & Asphalt Co.

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