confer new corporate powers upon the New York corporation. Except for that act it could not have entered into the agreement of consolidation. So, also, it purports to grant corporate powers to the consolidated company. But it remains true, nevertheless, that concurrent legislation of the other states was essential to the completion of the consolidation, and it is to be inferred from the agreed statement that similar legislation to the act of 1869 was enacted in the several states.

We are of opinion that the proper and equitable construction of the act of 1886, imposing an organization tax on railroads "incorporated under the laws of New York," does not bring the defendant within its provisions. This conclusion has support in the cases of State Treasurer v. Auditor-General, 46 Mich. 224; C. & N. W. Railway Co. v. Auditor-General, 53 id. 79, and O. & M. Railway Co. v. People, 123 Ill. 467.

We desire to refer also to the dissenting opinion of Landon, J., in the court below.

The judgment of the General Term should be reversed and judgment ordered for the defendant on the case presented.

All concur.

Judgment reversed.

CLEARWATER V. MEREDITH et al.1

I Wallace (68 S. U.) Reports 25 (1863).

IN February, 1853, the legislature of the State of Indiana passed an act providing for the merging and consolidation of railways then organized or that should be subsequently organized. July 12, 1853, Clearwater sold a tract of land to Meredith and others for $10,000, taking 200 shares of the C. C. & C. Short Line Railway Company's stock in payment; Meredith and they, however, by written contract guaranteed to Clearwater that the stock should be worth par in Cincinnati on the first of October, 1855.

Before the first of October, 1855, the Short Line Railway was merged and consolidated with another railway company, forming one joint-stock company out of said two companies."

Assumpsit by Clearwater against Meredith and others on the contract. The declaration set forth the fact and assigned for breach that the stock was not worth par at the time and place stipulated, but on the contrary, was of no value at all.

'Facts condensed.

*

MR. JUSTICE DAVIS. If Clearwater was a consenting party to a proceeding which, of itself, put it out of the power of the defendants to perform their contract, he cannot recover, for "promisors will be discharged from all liability when the nonperformance of their obligation is caused by the act or the fault of the other contracting party."

The Cincinnati, Cambridge and Chicago Short Line Railway Company, whose stock was guaranteed, was, as stated in the pleadings, organized under a general act of the State of Indiana, providing for the incorporation of railroad companies. This act was passed May 11, 1852, and contained no provision permitting railroad corporations to consolidate their stock. It can readily be seen that the interests of the public, as well as the perfection of the railway system, called for the exercise of a power by which different lines of road could be united. Accordingly on the 23d of February, 1853, the general assembly of Indiana passed an act allowing any railway company that had been organized to intersect and unite their road with any other road constructed or in progress of construction, and to merge and consolidate their stock; and on the 4th of March, 1853, the privileges of the act were extended to railroad companies that should afterward be organized.

The power of the legislature to confer such authority cannot be questioned, and without the authority railroad corporations organized separately could not merge and consolidate their interests. But in conferring the authority, the legislature never intended to compel a dissenting stockholder to transfer his interest because a majority of the stockholders consented to the consolidation. Even if the legislature had manifested an obvious purpose to do so, the act would have been illegal, for it would have impaired the obligation of a contract. There was no reservation of power in the act under which the Cincinnati, Cambridge and Chicago Short Line Railway was organized, which gave authority to make material changes in the purposes for which the corporation was created, and without such a reservation in no event could a dissenting stockholder be bound.

When any person takes stock in a railroad corporation, he has entered into a contract with the company that his interests shall be subject to the direction and control of the proper authorities of the corporation to accomplish the object for which the company was organized. He does not agree that the improvements to which he subscribed should be changed in its purposes and character, at the will and pleasure of a majority of the stockholders, so that new responsibilities, and it may be new hazards, are added to the original

undertaking. He may be very willing to embark in one enterprise, and unwilling to engage in another; to assist in building a short line. railway, and averse to risking his money in one having a longer line of transit.

But it is no very important change which would work a dissolution of the contract. It must be such a change that a new and different business is superadded to the original undertaking. The act of the legislature of Indiana allowing railroad corporations to merge and consolidate their stock, was an enabling act — was permissive, not mandatory. It simply gave the consent of the legislature to whatever could lawfully be done and which without that consent could not be done at all. By virtue of this act the consolidations in the plea stated were made. Clearwater, before the consolidation, was a stockholder in one corporation created for a given purpose. After it he was a stockholder in another and different corporation, with other privileges, powers, franchises and stockholders. The effect of the consolidation 'was a dissolution of the three corporations, and at the same instant the creation of a new corporation with property, liabilities and stockholders, derived from those passing out of existence." * * And the act of consolidation was not void because the state assented to it, but a nonconsenting stockholder was discharged. Clearwater could have prevented this consolidation had he chosen to do so; instead of that he gave his assent to it, and merged his own stock in the new adventure. If a majority of the stockholders of the corporation of which he was a member had undertaken to transfer his interest against his wish, they would have been enjoined. There was no power to force him to join the new corporation, and to receive stock. in it on the surrender of his stock in the old company. By his own act he has destroyed the stock to which the guaranty attached, and made it impossible for the defendants to perform their agreement. After the act of consolidation the stock could not have any separate, distinct market value. There was, in fact, no longer any stock of the Cincinnati, Cambridge and Chicago Short Line Railway.

*

Meredith and his co-defendants undertook that the stock should be at par in Cincinnati, if it maintained the same separate and independent existence that it had when they gave their guaranty. Their undertaking did not extend to another stock, created afterward, with which they had no concern and which might be better or worse than the one guaranteed. It is not material whether the new stock was worth more or less than the old. It is sufficient that it is another stock, and represented other interests.

Affirmed.

* * *

CONSOLIDATION.

Meaning. By consolidation is meant a merging of two or more corporations into one corporate body, whereby their powers, properties, rights and privileges, together with their obligations and duties inure to and devolve upon the new corporate body. Legislative sanction is necessary, and the effect of the consolidation, whether the old companies are dissolved, a new one takes their place, or whether the identity of one remains and the others disappear, or whether there is simply a combination of the two or more identities, will all depend upon the statute, which must guide in each particular instance.

To make a valid consolidation, both parties must be competent (Louisville, etc., Ry. Co. v. Kentucky, 161 U. S. 677), i. e., the legislative authority must be given to each constituent. Penn. Ry. Co. v. St. Louis, etc., Ry. Co., 118 U. S. 290. Consolidation, while dependent upon the will of the state, cannot, however, be forced upon corporations (Mason v. Finch, 28 Mich. 282), but if the corporations choose to consolidate, they subject themselves to the laws then in force, for the effect of consolidation depends upon the will and purpose of the legislature and not of the corporations (State v. Maine, etc., Ry. Co., 66 Me. 488; Charlotte, etc., Ry. Co. v. Gibbes, 27 S. C. 385), and this authority may be expressed either by charter or by independent statute. Philadelphia, etc., Ry. Co. v. Maryland, 10 How. (51 U. S.) 376. Originally, consolidation was authorized by special acts, but general statutes have been enacted in most of the states allowing consolidation and these statutes are both permissive and restrictive. The permissive statutes allow consolidation of various kinds of corporations under various conditions, while restrictive statutes have tried to prevent the consolidation of corporations when consolidation would tend to stifle competition or create monopolies.

The common-law rule.- Corporations have no power at common law to consolidate or form partnerships (Whitterton Mills v. Upton, 10 Gray (Mass.) 582; People v. North River, etc., Ref. Co., 121 N. Y. 582), for the charter measures the corporate powers, and the general rule of interpretation is that the corporation may do only those things authorized by the charter; lack of prohibition will not be taken as consent on the part of the state.

While this is the general rule in England and most of our states, the policy in New York seems to have been to allow the fullest scope for the consolidation of noncompeting railroads. Woodruff v. Erie Ry. Co., 93 N. Y. 609.

Shareholders' rights under.— Stockholders cannot be forced into a consolidated company, and their rights in this respect are not affected by the legality of the consolidation. The relief usually sought is injunction to prevent, but it is not so clear that a stockholder can prevent consolidation, provided the majority desire to consolidate and legislative permission is secured. Kean v. Johnson, 9 N. J. Eq. 401; Black v. D. & H. Canal Co., 24 id. 455; Treadwell v. Salisbury Co., 7 Gray (Mass.), 393.

Provision is usually made for dissenting stockholders who refuse to come in, whereby their rights are secured. Upon principle and in the absence of statute, a shareholder ought to be able to prevent consolidation on the constitutional ground of an impairment of contract (Stevens v. Rutland, etc., Ry. Co., 29 Vt. 545; Kean v. Johnson, 9 N. J. Eq. 401), yet this is met by the stockholders' agreement to abide by the majority rule; and it seems that where the majority, in good faith, decide that a sale or consolidation is the

only solution, all the stockholder can do is to seek the aid of equity in securing his rights. Treadwell v. Salisbury Co., 7 Gray (Mass.) 393.

Where a corporate combination has been adjudged illegal and void, a shareholder in it can force an accounting and distribution of the assets. Havemeyer v. Brooklyn Sugar Ref. Co., 26 Abb. N. C. 157.

The statute allowing consolidation usually regulates the liability of the consolidated company, and may impose not only all the burdens and all the liabilities of the old companies, but new and additional burdens and liabilities. Of course, statute may relieve the consolidated company from burdens and liabilities. In the absence of express provisions, the general rule is that where corporations are consolidated the consolidated company takes the property and franchises of the old companies subject to the same burdens which attached under the original charters.

"For the purpose of answering for the liabilities of the constituent corporations the consolidated company should be deemed to be merely the same as each of its constituents, their existence continued in it, under the new form and name, their liabilities still existing as before, and capable of enforcement aganst the new company in the same way as if no change had occurred in its organization or name." Indianapolis, etc., Ry. Co. v. Jones, 29 Ind. 465. See also Mt. Pleasant v. Beckwith, 100 U. S. 514; Western Union Ry. Co. v. Smith, 75 Ill. 496; Boardman v. Lake Shore, etc., Ry. Co., 84 N. Y. 157.

Creditors Rights Under:- If a new corporation is formed and the constituent companies are dissolved, creditors cannot maintain actions against them after dissolution, unless their existence be continued for the purpose of adjusting their liabilities. The only remedy is against the consolidated company, or in equity against the assets of the consolidating companies in the hands of the consolidated company. Creditors of a corporation cannot prevent consolidation or dissolution, but they cannot be deprived of their rights to follow the property of the corporation into the hands of the consolidated corporation. Chicago, etc., Ry. Co. v. Moffit, 75 Ill. 524; New Bedford Ry. Co. v. Old Colony Co., 120 Mass. 397; Campton v. Wabash Ry. Co., 45 Ohio St. 592.- Ed.

(b) Reorganization.

MEMPHIS & LITTLE ROCK RAILROAD CO. 7. RAILROAD COMMISSIONERS.

112 United States 609 (1884).

MATTHEWS, J., delivered the opinion of the court. He recited the facts and continued:

The case of the plaintiff in error rests entirely upon the words of the ninth section of the act of incorporation of the Memphis & Little Rock Railroad Co., of January 11, 1853, by which it was empowered to borrow money "on the credit of the company and on the mortgage of its charter and works." It is argued that these words confer power upon the company to convey to its bondholders,