This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The effect of the dissolution of a corporation upon its contracts and contractual rights and liabilities is a question upon which there is a conflict of authority, due to the survival of primitive theories in some jurisdictions, and to their displacement by modern ideas in others.1
The original theory was that the dissolution of a corporation was equivalent to the death of a natural person; that in the absence of statute the death of a natural person discharged all his contracts, including both his contractual rights and his contractual liabilities; and that since no statute of administration had been passed in the case of corporations, as it eventually was in the case of natural persons, the dissolution of a corporation caused its realty to escheat to the grantor or to be forfeited to the crown,2 its personalty to be forfeited to the crown; and all debts, whether owing by it or owing to it, to be discharged.3 Even though prior debts remain in force and can be collected out of the assets of the corporation, scire facias will not lie against the corporation after dissolution to revive a dormant judgment.4 In some jurisdictions this theory still persists as to executory contracts.5 An executory contract of sale is discharged by the appointment of a receiver for the property of the vendor corporation, and an injunction against its making use of its own property.6 A contract whereby A guarantees to B that a given corporation will pay dividends upon its corporate stock at a certain rate for seven years, is discharged as to the remaining period by the dissolution of such corporation at the end of five years.7 Appointing a receiver for a mutual insurance company and adjudging it insolvent cancels all policies.8 A contract by an insurance company with an agent has been held to be discharged by the dissolution of the corporation by the state as insolvent.9 A contract by which A agrees with a corporation to cut logs and haul them and transport them to a mill, is discharged by the dissolution of the corporation, so that A can not present a claim for the loss of future profits as damages.10
8 Penas v. Cherveny, 135 Minn. 427, L. R. A. 1917E, 655, 161 N. W. 130.
9 Penas v. Cherveny, 135 Minn. 427, L. R. A. 1917E, 655, 161 N. W. 130.
10 Penas v. Cherveny, 135 Minn. 427, L. R. A. 1917E, 655, 161 N. W. 130.
11 Hughes v. Wamsutta Mills, 93 Mass. (11 All.) 201; Kowalski v. McAdoo, - N. J. -, 107 Atl. 477.
12 Hughes v. Wamsutta Mills, 93 Mass. (11 All.) 201.
13 Hughes v. Wamsutta Mills, 93 Mass. (11 All.) 201.
14 Kowalski v. McAdoo, - N. J. -, 107 Atl. 477.
15 Kowalski v. McAdoo, - X. J. -, 107 Atl. 477.
1 0n this subject see, Voluntary Transfers of Corporate Undertakings, by Edward H. Warren, 30 Harvard Law Review 333; The Effect of Failure to Perform Contracts Made Prior to Receivership, by Chas. P. Hine, 24 Yale Law Journal 111.
2 As to which disposition was to be made of its realty the early cases were in conflict. For various views see, Johnson v. Norway, Winch 37; Southwell v. Ward, Popham 91; Case of Dean and Chapter of Norwich, 3 Coke 73a; Rolle's Abridgment 816, Eschete A(l); 2 Kyd on Corporations 516.
For a recent case holding that on dissolution of a corporation not for profit its realty belongs to the government, see Church of Jesus Christ of the Latter Day Saints v. United States, 136 U. S. 1, 34 L. ed. 478.
3 Connecticut. For discussions of the original common law theory, see National Pahquioque Bank v. First National Bank, 36 Conn. 325, 4 Am. Rep. 80.
Delaware. Commercial Bank v. Lockwood, 2 Harr. (Del.) 8.
Georgia. Hightower v. Thornton, 8 Ga. 486, 52 Am. Dec. 412.
Mississippi. Commercial Bank v. Chambers, 8 S. M. & M. 9.
North Carolina. Fox v. Horah, 36 N. Car. (1 Tred. Eq.) 3a8, 36 Am. Dec. 48.
Tennessee. White v. Campbell, 24, Tenn. (5 Humph.) 38.
4 Mumma v. Potomac Co., 33 U. S. (8 Pet.) 281, 8 L. ed. 945.
5 United States. Malcomson v. Wap-poo Mills, 88 Fed. 680.
Maine. Read v. Frankfort Bank, 23 Me. 318.
New York. People v. Globe Mutual Life Ins. Co., 91 N. Y. 174; Lorillard v. Clyde, 142 N. Y. 456, 24 L. R. A. 113, 37 N. E. 489.
Wisconsin. Boyd v. Fire Association, 116 Wis. 155, 96 Am. St. Rep. 948, 61 L. R. A. 918, 90 N. W. 1086, 94 N. W. 171.
6 Malcomson v. Wappoo Mills, 88 Fed. 680. (Whether such property was specific or general, and whether the corporation was dissolved or not, are questions which the court does not appear to have considered.)
For the effect of the appointment of a receiver without dissolution, see Sec. 2688, note 4, and Sec. 2702.
The dissolution of a corporation terminates a contract to which the corporation is not a party, by which the dividends of such corporation are guaranteed.11