SECTION EIGHT.

Lightner v. Boston & Albany R. R. Co., 1 Lowell 338.

Same subject continued.

Case in Federal Court (Massachusetts) for an infringement of a patent.

Plaintiff was patentee of axle boxes and granted licenses to the Boston & Worcester and Western Railroad corporations, respectively. Defendant corporation was formed by the consolidation of those two corporations under the act of Massachusetts of 1867, by which the consolidated corporation "should have, hold and enjoy all the powers, rights, privileges and franchises, property, claims, demands and estates which at the time of such union were held and enjoyed by either of the then existing corporations." Judgment for defendant.

LOWELL, J. "I can not see that the union of the two lines under one management can affect the plaintiff unfavorably." If two persons are licensed to use a patent and they afterward become partners they would still be authorized to make the use. "It is true that defendant corporation is distinct from either of the component corporations, but that is mere matter of detail and convenience. The old corporations have never been dissolved, and might well enough be held to exist for all purposes for which their continuance is necessary, as indeed the statute says they shall continue for certain purposes.'

ors, 19 Wall. 248; Black v. Canal Co., 9 C. E. Green 455; Brice's Ultra Vires, 539-40.

The consolidation created a new, distinct and independent corporation, deriving its powers from both states, and invested with all the various rights, franchises and property of its components. Cases, supra, and M. & L. R. R. Co. v. Lomax, 7 Ind. 406: Paine v. Lake Erie, 31 Ind. 283; 28 Conn. 289, and 26 Conn. 549; Shaw v. N. C. R. R. Co., 16 Gray 407; Hamilton Mutual Ins. Co. v. Hobart, 2 Gray 543; P. & W. R. R, Co. v. Maryland, 10 How. 376-388; 18 Wall. 200; 14

Wall. 654; Bush v. Johnson, 21 Ind. 299; 6 Vroom (N. J.) 325; 4 Biss. 78; 9 C. E. Green 453; 33 N. Y. 421.

Citations in the opinion in addition to the foregoing, as to meaning of "amalgamation." Empire Assn. Co. Ex parte Bagshaw (L. R. 4 Eq. 341, 347); Ultra Vires, 510; In re Bank of Hindustan, Higg's Case, 2 H. & M. 666; Green's Brice's Ultra Vires, 509– 510, note; Eaton & Hamilton R. R. Co. v. Hunt, 20 Ind. 457.

'Note to this case, No. 8343 Federal Cases, cites Montross v. Mabie, 30 Fed. Rep. 236; Lane v. Locke, 150 U. S. 193; 14 S. C. R. 79.

CHAPTER VIII.

THE SUCCESSIVE CORPORATIONS ARE NOT IDENTICAL.

The act of consolidation effects a dissolution of the old corporations and the creation of a new one with property, liabilities and stockholders derived from those passing out of existence.

The constituent corporations remain as before; each has its own entity as a citizen of the state which created it, but the consolidation also has its own identity and may transact its business in, and is deemed a citizen of, any of the states of which the constituents are citizens; formed of three, it is in effect a corporate trinity, having a citizenship identical with each constituent.

Status of the consolidation may be determinable from the text of the statute; being referred to as a new corporation, it must be deemed to be one.

Purchasing all the property of the old corporation, does not invest the new one with "the right to be a corporation;" such right is derived only from the state and the recipient becomes thereby a new corporation.

Identity of purpose by two corporations organized by the same persons in different states, though under the same name, does not make identity of corporate entity.

New powers, new franchises, new stockholders and an additional line of railroad are factors determining that the consolidation may be a different entity from the constituent.

The status of the constituents may be preserved for some purposes and the new corporation may also acquire an entity of its own.

The existence of the new corporation commences with the date of the consolidation.

SECTION ONE.

Clearwater v. Meredith, 1 Wallace, 25.

The consolidation creates a new corporation and dissolves the old

ones.

Meredith guaranteed to Clearwater that the latter's stock in the Short Line Railway would maintain a certain value.

Thereafter said road was consolidated with two others; it is held that this creates a new corporation, dissolves the old ones, materially changes Meredith's undertaking and releases him. Following is opinion in full:

In order to arrive at a correct solution of this question, it is important to consider whether the plea is a good one; for a demurrer, whenever interposed, reaches back through the whole record, and "seizes hold of the first defective pleading." The plea in controversy confesses the original cause of action, but sets up matter which has arisen subsequent to it, to avoid the obligation to perform it. It acknowledges that the guaranty was given as claimed, but insists that the consolidation of the interests and stock of the three railroad companies necessarily destroyed and rendered worthless and of no value the guaranteed stock, and that Clearwater, having consented to the transfer, is in no position to claim redress from Meredith and his co-defendants.

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 can not recover, for promisors will be discharged from all liability when the non-performance of their obligation is caused by the act or the fault of the other contracting party. 2 Parsons on Contracts, 188.

The Cincinnati, Cambridge and Chicago Short Line Railroad 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 February, 1853, the General Assembly of Indiana passed an act allowing any railroad 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 can

not 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 & 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 improvement to which he subscribed should be changed in its purposes and character, at the will and pleasure of the majority of the stockholders, so that new responsibilities, and it may be new hazards, are added to the original undertaking. He may be 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 not every unimportant 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 Hartford, etc., R. R. Co. v. Crosswell, 5 Hill 383; Banet v. The Alton, etc., R. R., 13 Ill. 510. 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." McMahan v. Morrison, 16 Ind. 172. And the act of consolidation was not void because the state assented to it, but a non-consenting stockholder was discharged. McCray v. Junction Railroad Co., 9 Ind. 358. 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 interests against his wish, they would have been enjoined. Lauman v. Lebanon Valley Railroad, 30 Pa. St. 46. 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 guarantee. 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.

But it is said that the plea is defective because it does not aver that the consolidation was an act done without the consent of the defendants. The pleadings do not aver that the defendants were stockholders in any of the roads whose interests were merged, and if they were not, it is not easy to see what right they had to interpose objections to consolidation, nor how their consent was necessary to carry out the