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all and singular the rights, privileges, and franchises of each of said corporations, parties to the same, and all the property, real, personal, and mixed, and debts due on account of subscriptions of stock or other things in action, shall be deemed to be transferred and vested in such new corporation without fur ther act or deed; and all property, all rights of way, and all other interests, shall be as effectually the property of the new corporation as they were of the former corporations, parties to said agreement; and the title to real estate, either by deed, gift, grant, or by appropriations under the laws of this state, shall not be deemed to revert or be impaired by reason of this act: provided, that all rights of creditors, and all liens upon the property of either of said corporations, shall be preserved unimpaired, and the respective corporations may be deemed to be in existence to preserve the same; and all debts, liabilities, and duties of either of said companies shall henceforth attach to said new corporation and be enforced against it to the same extent as if said debts, liabilities, and duties had been contracted by it."
"Sec. 7. Suits may be brought and maintained against such new company in the courts of this state for all causes of action in the same manner as against other railroad companies in this state." 1 Swan & C. St. 327, 328.
The statute of Indiana, in force at the same time, upon the subject of consolidation, was as follows: "Any railroad company heretofore organized, under the general or special laws of this state, shall have the power to intersect, join, and unite their railroad with any other railroad constructed or in progress of construction in this state, or in any adjoining state, at such point on the state line, or at any other point, as may be mutually agreed upon by said companies; and such railroad companies are authorized to merge and consolidate the stock of the respective companies, making one joint-stock company of the two railroads thus connected, upon such terms as may be by them mutually agreed upon, in accordance with the laws of the adjoining state, with whose road or roads connections are thus formed: provided, their charters authorize said railroads to go to the state line, or to such point of intersection." St. Feb. 23, 1853, § 1; 1 Gavin & H. St. 526.
The only provision of the statutes of Illinois, cited in argument, was the provision that "such consolidation may take place whenever the said companies shall respectively agree upon the terms and conditions of the same." St. Feb. 28, 1854, c. 9, § 2; 1 Gross, St. 537.
Wager Swayne and H. S. Greene, for appellant. C. W. Hassler, for appellees. R. P. Ranney, E. C. Sprague, and Geo. F. Comstock filed brief (by leave of court) in behalf of parties interested on side of appellees.
GRAY, J. The claim of the holders of the equipment bonds to a lien on the property of the Toledo, Wabash & Western Railway Company was asserted upon several grounds.
1. It was contended that the property of the Toledo & Wabash Railway Company was a trust fund for all its creditors, and that upon the consolidation the Toledo, Wabash & Western Railway Company took the property of the Toledo & Wabash Railway Company charged with the payment of all its debts. The property of a corporation is doubtless a trust fund for the payment of its debts, in the sense that when the corporation is lawfully dissolved and all its business wound up, or when it is insolvent, all its creditors are entitled in equity to have their debts paid out of the corporate property before any distribution thereof among the stockholders. It is also true, in the case of a corporation, as in that of a natural person, that any conveyance of property of the debtor, without authority of law, and in fraud of existing creditors, is void as against them. Story, Eq. Jur. § 1252; Curran v. Arkansas, 15 How. 304; Graham v. Railroad Co. 102 U. S. 148, 161; Railroad Co. v. Howard, 7 Wall. 392; Goodin v. Cincinnati & Whitewater Canal Co, 18 Ohio St. 169. But upon the consolidation, under express authority of statute, of two or more solvent corporations, the business of the old corporations is not
wound up, nor their property sequestrated or distributed, but the very object of the consolidation, and of the statutes which permit it, is to continue the business of the old corporations. Whether the old corporations are dissolved into the new corporation, or are continued in existence under a new name and with new powers, and whether, in either case, the consolidated company takes the property of each of the old corporations charged with a lien for the payment of the debts of that corporation, depend upon the terms of the agreement of consolidation, and of the statutes under whose authority that consolidation is effected. In the present case, before the consolidation, no lien of any kind existed in favor of the equipment bonds; and the consolidation was made under and pursuant to statutes of Ohio, Indiana, and Illinois, passed before the issue of those bonds, and to which the contract of the bondholders was therefore subject.
The effect of the Ohio consolidation act was to merge the old corporations into the new one, which took their place, succeeded to their property, and assumed their liabilities. Shields v. Ohio, 95 U. S. 319; Railroad Co. v. Georgia, 98 U. S. 359. The liability imposed by that statute upon the new corporation for the debts of the old ones is the same as theirs, neither greater nor less. The provision of section 5, that "all rights of creditors, and all liens upon the property of either of said corporations, shall be preserved unimpaired," clearly distinguishes debts secured by lien from debts not so secured, and indicates no intention to create a new lien in favor of creditors who before had none, but simply preserves to each class of creditors the rights belonging to it before the consolidation. The further provisions of this section, that "the respective corporations may be deemed to be in existence to preserve the same," and that all debts of either of the old companies shall henceforth attach to the new corporation, and be enforced against it to the same extent as if it had contracted them, lead to the same conclusion.
The statute of Indiana is less specific in its provisions, but expressly authorizes railroad companies within the state to consolidate with railroad companies in an adjoining state, "in accordance with the laws of the adjoining state;" and, as is well settled by decisions of the supreme court of Indiana, does not give to unsecured creditors of the old companies any lien or precedence as against a subsequent mortgage of the consolidated property. Mo Mahan v. Morrison, 16 Ind. 172; Indianapolis, C. & L. R. Co. v. Jones, 29 Ind. 465; Paine v. Lake Erie & L. R. Co. 31 Ind. 283, 349; Jeffersonville, M. & I. R. Co. v. Hendricks, 41 Ind. 48.
It was not suggested in argument that there was any material difference in the statutes of Illinois upon the subject. This court therefore concurs in opinion with the circuit court, that the mere fact of consolidation, under these statutes, did not create any lien in favor of the equipment bonds.
2. It was next contended that the stipulation in the agreement of consolidation that the bonds and debts therein specified of the former companies shall "be protected by the said consolidated company" created a lien in their favor. But it is only "as to the principal and interest as they shall respectively fall due," and "according to the true meaning and effect" of the instruments or bonds which are the evidence of the debts, that it is stipulated that the debts shall "be protected by the said consolidated company;" and the stipulation covers debts secured by mortgage as well as unsecured debts. The agreement "to protect" referring to the time of payment, and "the true meaning and effect" of the equipment bonds having been to create only a personal and unsecured debt of one of the former companies, the words "shall be protected" must have the same meaning which they ordinarily have in promises of men of business "to protect" drafts or other debts, not made or contracted by themselves; that is to say, a personal obligation to see that they are paid at maturity.
3. It was further contended that, by the transfer of the property of the
Toledo & Wabash Railway Company to the consolidated corporation, and the enumeration of the equipment bonds in the basis on which the former company entered into the consolidation, those bonds were part of the consideration of the transfer, and that the case comes within the principle of a vendor's lien for unpaid purchase money. But we are unable to perceive any analogy be tween the two cases. The doctrine of vendor's lien applies only to sales of real estate. The consolidation of the stock and property of several corporations into one was not a sale; and it did not affect real estate only, but included franchises and personal property.
4. The remaining question is whether the holders of the equipment bonds have acquired any lien, under the provisions of the mortgage executed in 1867 by the consolidated company of all its franchises and property, to secure the payment of new bonds to be issued by that company. It is true that the object of that mortgage, as appears by its recitals, was that the whole of the debts of the consolidated company, including the debts of either of the companies out of which it had been formed, whether secured by mortgage or, as in the case of the equipment bonds, not secured at all, "should be consolidated into one and the same mortgage debt, upon equitable principles." The mortgage accordingly provided that $13,300,000 of the new bonds should be retained, in order "to retire, in such manner and upon such terms as the directors of said company may from time to time prescribe," a like amount of the earlier bonds. But that mortgage secured only bonds issued under it, and those bonds were all to be payable in 40 years from its date. The directors were authorized to exchange such bonds for existing bonds, and it is possible that any holders of existing bonds might have compelled such an exchange by seasonably applying for it. But the company could not compel any bondholder to accept, as a substitute for the bonds which he held, new bonds payable at a later period. The equipment bonds were payable according to their terms in 1883, and the bonds issued under the new mortgage would not be payable until 1907. The holders of the equipment bonds might prefer to hold without security their bonds payable in 16 years, rather than to take instead bonds secured by mortgage, payable 24 years later. They took no steps to obtain such an exchange for more than 8 years after the execution of the mortgage of 1867, nor until after the institution of proceedings to foreclose the subsequent mortgage, executed by the company in 1873, to secure the payment of a new issue of bonds. The lien created by the latter mortgage took precedence of any claims which were not already secured by any prior mortgage. When the whole property of the consolidated company was sold under the decree of foreclosure of the mortgage of 1873, subject only to prior mortgages and liens, the purchasers took the property free from all debts not so secured.
The necessary conclusion is that the property sold under the decree of foreclosure is not subject to any lien in favor of the holders of the equipment bonds.
(114 U. S. 606)
WURTS and another v. HOAGLAND and others, Com'rs, etc.
(May 4, 1885.)
CONSTITUTIONAL LAW-NEW JERSEY DRAIN LAW OF 1871-FOURTEENTH AMENDMENT.
The statute of New Jersey of March 8, 1871, providing for the drainage of any tract of low or marshy land within the state, upon proceedings instituted by at least five owners of separate lots of land included in the tract, and not objected to by the owners of the greater part of the tract, and for the assessment by commissioners, after notice and hearing, of the expenses upon all the owners, does not deprive them of their property without due process of law, nor deny to them the equal protection of the laws, within the meaning of the fourteenth amendment of the constitution of the United States.
In Error to the Supreme Court of the State of New Jersey.
This was a writ of error by the devisees of Mary V. Wurts to reverse a* judgment confirming an assessment of commissioners for the drainage of lands under the statute of New Jersey of March 8, 1871, the material provisions of which are as follows:
By section 1 "the board of managers of the geological survey, on the application of at least five owners of separate lots of land included in any tract of land in this state which is subject to overflow from freshets, or which is usually in a low, marshy, boggy, or wet condition," are authorized to examine the tract, and, if they deem it for the interest of the public and of the landowners to be affected thereby, then to make surveys, and decide upon and adopt a system of drainage, and report it to the supreme court of the state; and thereupon the court, upon reasonable notice published in a newspaper circulating in the county where the tract is, shall appoint three commissioners to superintend and carry out the system of drainage so adopted and reported: "provided, that if, at the time fixed for such appointment of commissioners, it shall appear to the court by the written remonstrance of the owners of a majority of the said low and wet lands, duly authenticated by affidavit, that they are opposed to the drainage thereof at the common expense, then the said court shall not appoint such commissioners."
By section 2, the commissioners shall cause the tract to be drained in accordance with the general plan of the board of managers, and, after the completion of the work, report to the supreme court the expense thereof, together with a general description of the lands which, in their judgment, ought to contribute to the expense. Notice of the report shall be published for four weeks, in order that any persons interested may examine the report, and file objections to it. If any such objections are filed within the four weeks, the supreme court shall determine upon the same in a summary manner. and, without further notice, make an order directing the commissioners "to distribute and assess the amount of said expense, and interest, upon the lands contained within the territory reported by them originally, or as corrected by the supreme court, in proportion, as near as they can judge, to the benefit derived from said drainage, by the several parcels of land to be assessed." The assessment, when completed, shall be deposited in some convenient place for inspection by the parties interested, and notice of the completion of the assessment, and of the place where it is deposited, published for six weeks, designating a time and place when and where the commissioners will meet to hear objections to the assessment; and the commissioners, having heard and decided upon such objections as shall be made to them, shall proceed to complete their assessment and file it in the clerk's office of the supreme court, and notice of the filing shall be published for four weeks, after which, if no objections have been made to the assessment, it shall be confirmed by the court; any objections filed within the four weeks the supreme court shall hear and determine in a summary manner, but "shall not reverse said assessment, or any part thereof, except for some error in law, or in the principles of assessment, made or committed by said commissioners." If for any such cause the assessment, or any part thereof, shall be reversed, it shall be referred to the commissioners, to be corrected accordingly, and, when it shall have been corrected and filed, like proceedings shall be had, until the court shall finally confirm the assessment; and thereupon the commissioners shall publish notice for four weeks, requiring the several owners, or other parties interested in the lands assessed, to pay their assessments.
By section 3 further provisions are made for collecting the assessment by demand on the owner of the lands assessed, and if he cannot be found, or neglects or refuses to pay, then by sale of his land for the least number of years that any person will take the same.
By section 5 the commissioners may from time to time borrow the necessary moneys to carry on the work of draining the lands, and give their bonds
as such commissioners therefor, and pledge for the repayment thereof the assessment to be made as aforesaid.
By proceedings had in accordance with this statute, the board of managers of the geographical survey, upon the application of more than five owners of separate lots of land situated in the tract of land known as the "Great Meadows, on the Pequest river, examined and surveyed the entire tract, and reported a plan for draining it to the supreme court, and on November 15, 1872, three commissioners were appointed to carry the plan into execution. Pending the proceedings, on March 19, 1874, a supplemental statute was passed, by section 2 of which, "if the said commissioners, after having commenced the drainage of such tract, and proceeded therewith, shall, before the drainage of the same shall be completed, be compelled to suspend the completion thereof, from any inability at that time to raise the money required therefor, they shall proceed to ascertain the tracts of land benefited or intended to be benefited by said drainage, and the relative proportions in which the said respective tracts have been or will be benefited thereby, and also the expenses already incurred in said drainage and, as near as may be, the additional expenses required for the completion thereof," and make and report to the court an assessment of such expenses. In accordance with that provision of the statute of 1874, the commissioners, before completing the work, made and reported to the court an assessment based upon an estimate of contemplated benefits, which was, for that reason, upon objections filed by Mrs. Wurts, set aside by an order of the supreme court, affirmed by the court of errors. 39 N. J. Law, 433; 41 N. J. Law, 175.
On May 17, 1879, after the completion of the work, the commissioners made a report to the court, pursuant to the statute of 1871, showing the expense to have been $107,916.07. No objections to that report having been filed, after four weeks' notice, the court, on June 23d, ordered the commissioners to distribute that sum "upon the lands mentioned in their said report, in proportion, as nearly as they can judge, to the benefit derived from said drainage by the several parcels of land to be assessed." The commissioners made an assessment accordingly, the proportion of which on the lands of Mrs. Wurts was $13,347.84, and after notice to and hearing of all parties who desired to object to the assessment, reported it to the supreme court, which directed it to be modified as to certain lands of other parties lying outside the original survey, and in other respects confirmed the assessment, notwithstanding objections made to it by the devisees of Mrs. Wurts; and its judgment was affirmed in the court of errors. 42 N. J. Law, 553; 43 N. J. Law, 456. The judgment of the court of errors was the final judgment in the case, and this writ of error was addressed to the supreme court, because at the time of suing out the writ of error the record had been transmitted to that court, and was in its possession. 105 U. S. 701.
The error assigned was that "the act of March 8, 1871, upon which the said judgment and proceedings are founded, violates the constitution of the United States in this, that it deprives the plaintiffs in error of their property without due process of law, and denies to them the equal protection of the laws, and violates the first section of the fourteenth amendment to the constitution of the United States."
GRAY, J. General laws authorizing the drainage of tracts of swamp and low lands, by commissioners appointed upon proceedings instituted by some of the owners of the lands, and the assessment of the whole expense of the work upon all the lands within the tract in question, have long existed in the state of New Jersey, and have been sustained and acted on by her courts, under the constitution of 1776, as well as under that of 1844. St. Dec. 23, 1783, Wilson's Laws, 382; Nov. 29, 1788, and Nov 24, 1792, Patterson's
S. U. Shipman and Saml. Dickson, for plaintiffs in error. for defendants in error.