corporation to be organized with the ulterior purpose of a consolidation with another. Thus under the statutes of Indiana railroad corporations may acquire by purchase, or consolidate with, other or intersecting lines; and the organization of a railroad corporation, with the view of ultimately consolidating upon equitable terms and in accordance with the provisions of the statute, with one already existing, is not against public policy. So it has been said that, in view of the legislation of Illinois, great liberality is exercised in regard to contracts for consolidation between different railroad companies. The language of the court was that both by the legislation of the State and by the construction of the same by its highest court great encouragement has been given to the union of lines of railroad for the purpose of having them operated under some general management, the result of which has been the consolidation of many lines of road which were originally separate and distinct, but which are now operated under a uniform system. It should be further observed that by the general language which has been used in legislation, authorizing the union and consolidation of many lines of road, the means by which the result is to be attained, have not been clearly designated, but have been left to be adjusted by contracts mutually executed between the parties. The public policy of the State of New York, as manifested by numerous acts of its legisla ture, has usually been not only to afford the fullest scope for the consolidation and reorganization of non-competing railroads and railroad corporations, but also for the transfer of the use of such roads and their franchises by one corporation to another. Still, perhaps, it may be said that the public policy of most of the American Commonwealths is adverse to the consolidation of parallel or competing railways. It has been argued that as the public has an interest in the proper administration of the powers conferred by the charter, and as the comfort and

1 Hill v. Nisbet, 100 Ind. 341.

2 Hill v. Nisbet, 100 Ind. 341.

3 Dimpfel v. Ohio &c. R. Co., 8 Rep. 641.

State v. Atchison &c. R. Co., 24 Neb. 143; s. c. (1888) 4 Ry. & Corp. Law J. 86.

6 East Anglian Ry. Co. v. Eastern

4 Woodruff v. Erie Ry. Co., 93 N. Y. Counties Ry. Co., 11 Com. B. 775.

609, 615, per Ruger, C. J.

safety of the railway may be seriously impaired if the money supposed to be necessary for its maintenance and set apart therefor by the act of incorporation, be expended in other undertakings not contemplated when the act was obtained, such a diversion of the corporate funds is illegal. But this consideration seems more properly addressed to the question of the consent of shareholders. For, as a matter of fact, the comfort and safety of the public have been usually promoted by the consolidation of railways. Nevertheless, it is tenaciously held that a railroad can not, without the consent of the State, transfer to others the rights and powers conferred by its charter and relieve itself of the duties which the grant imposes upon it. And so, when a corporation like a railroad company has been granted a franchise intended in a large measure to be exercised for the public good, the due performance of those functions being the consideration of the public grant, any contract which disables the corporation from performing those functions is a violation of the contract with the State and is void as against public policy. As opposed to this statement of the ground of the rule against consolidation, there is much in the consolida tion of railroads to commend itself to the public view of the The magnificent service that exists to-day in various parts of the country, such as fast through passenger trains, fast freight service, etc., could not have been perfected if the original corporations still operated the railroads. If it were absolutely certain that no monopolistic conditions would be created, the ideal state would be reached in regard to the rail

case.

East Anglian Ry. Co. v. Eastern Counties Ry. Co., 11 Com. B. 775.

2 Thomas v. The Railroad, 101 U. S. 71; American Union Telegraph Co. v. Union Pacific Ry. Co., 1 McCrary, 188; Troy &c. R. Co. v. Boston &c. R. Co. 86 N. Y. 107; Abbott v. Johnstown &c. R. Co., 80 N. Y. 27; s. c. 36 Am. Rep. 572; Middlesex R. Co. v. Boston &c. R. Co., 115 Mass. 347; Stewart's Appeal, 56 Pa. St. 413; Wood v. Bedford &c. R. Co., 8 Phila. 94; Tippecanoe County v. Lafayette

&c. R. Co., 50 Ind. 85; Winch v. Birkenhead &c. Ry. Co., 5 De Gex & S. 562.

Thomas v. The Railroad, 101 U. S. 71; Peoria &c. Ry. Co. v. Coal Valley Manuf. Co., 68 Ill. 489; Chambers v. Manchester &c. Ry. Co., 5 Best & Sm. 588; London &c. Ry. Co. v. London &c. Ry. Co., 5 Jur. N. S. 801; McGregor v. Dover &c. Ry. Co., 17 Jur. 21; East Anglian Ry. Co. v. Eastern Counties Ry. Co., 11 C. B. 775.

road service if all the railroads of the country were under one general control. The consolidation of railroads tends to bring the standard of each of the integral parts to the highest level. No line is able, for any length of time, to maintain a radical difference in the character of the various portions of its road. Its own welfare necessitates uniformity in this regard, and the force of public opinion materially assists in that direction.1

§ 331. Prohibitions of consolidation.— In New York it is expressly enacted that no companies or corporations of that State whose railroads run on parallel or competing lines shall be authorized by the act to merge or consolidate. Prohibitions against "consolidation" are used in the broadest sense, as an absolute inhibition of any joining or uniting of stock, property, franchises or earnings, in whole or in part, by companies owning parallel or competing lines. But it has been held in New York that a lease of a parallel and competing line for four hundred and seventy-five years was not tantamount to a consolidation within this prohibition. In statutes providing for the consolidation of railways which are "constructed so as to permit the passage of burden or passenger cars over any two or more such roads continuously without break of gauge or interruption," the word "continuously " is construed to be restrictive, and exclusive of parallel or competing lines. So, the fact that a railroad company, empowered by its charter "to join stock or consolidate with any other railway company running in the same direction," is forbidden to "rent, sell, lease, or consolidate with any parallel or competing railroad," does not impliedly authorize it to sell its road and franchises to a company whose road, though not a parallel or competing line, does not run in the same general direction.

1J. N. Faithorn, letter to Hon. T. M. Cooley, 7 Ry. & Corp. L. J. 321, 323. 2 N. Y. Laws of 1869, ch. 917, § 9. 3 State v. Atchison &c. R. Co., (1888) 24 Neb. 143; s. c. 4 Ry. & Corp. L. J. 86, 91, construing Neb. Const. art. xi, § 3. In the foregoing case the prohibition was held to extend to leases of parallel or competing lines. Acc. State v. Vanderbilt, 37 Ohio St. 590.

4 Gere v. New York &c. R. Co., (1885) 19 Abb. N. C. 202.

5 State v. Atchison &c. R. Co., (1888) 24 Neb. 143; s. c. 4 Ry. & Corp. L. J. 86, 89, citing State v. Vanderbilt, 37 Ohio St. 590, construing a similar statute in Ohio, where it was held that two roads running parallel and near each other for sixty miles, had no authority to consolidate.

A railroad company authorized to purchase, sell, lease, join stocks, unite, or consolidate with any connecting railroad company has no power to purchase a road which does not connect with that which the company is authorized to construct, though it may have built or purchased a line connecting therewith. A railroad, by its relations to other roads, may be a competing line with a road with which it is not parallel, and does not connect, within the meaning of an act forbidding it to consolidate with a competing road. With respect to connecting or intersecting railways, however, so located as not to be natural competitors for the business of the same district of country, there is generally no principle of public policy rendering their consolidation invalid.2

§ 332. Power of the legislature to authorize.- The power of the legislature to confer authority upon existing companies to consolidate or amalgamate is unquestioned. A State may

1 East Line &c. R. Co. v. State, (1889) 75 Tex. 434; s. c. 7 Ry. & Corp. L. J. 308. In that case it was further decided that under Const. Tex. art. 10, sec. 8, providing that no railroad company in existence at its adoption, "shall have the benefit of any future legislation, except on condition of complete acceptance of all the provisions of this constitution," an admission by a company in pleading, that it is subject to the general laws and constitution now in force, is an admission of the acceptance of the benefits of subsequent legislation, such as subjects it to the provisions (article 10, § 6) forbidding a sale to a railroad company organized in another State. As Rev. Stat. Tex. art. 2805, makes it the duty of the attorney-general, unless otherwise expressly directed by law, to seek the forfeiture of the charter of a corporation which has, by any act or omission, misuser or non-user, forfeited the same, the right of the State to demand a forfeiture of the charter of a railroad company which

has sold its road and franchise to a foreign company in violation of the constitution, failed to keep up its organization, and allowed its road to become unsafe, is not waived by the provisions of Sayles' Civil Stat. Tex. art. 4247a, § 2, which provides for quo warranto against a corporation carrying on business in violation of Const. Tex. art. 10, $$ 5, 6, (forbidding sale to or consolidation with a competing or foreign company,) to enforce the penalties therefor, and an injunction against future violation, and appointment of a receiver.

2 Woodruff v. Erie &c. Ry. Co., 93 N. Y. 615; State v. Vanderbilt, 37 Ohio St. 590; State v. Atchison &c. R. Co., (1888) 24 Neb. 143; s. c. 4 Ry. & Corp. L. J. 86; Hill v. Nisbet, 100 Ind. 341.

3 Clearwater v. Meredith, 1 Wall. 39; Black v. Delaware &c. Co., 22 N. J. Eq. 130; s. c. 24 N. J. Eq. 455; Clinch v. Financial Co., L. R. 5 Eq. 450.

authorize two or more existing corporations to organize themselves into a new corporation just as it may authorize individuals to incorporate themselves. But corporations are not such "persons" as are themselves authorized to form other corporations. And a corporation manufacturing a lot of desks for another corporation is not so connected in interest with it as to be an employee thereof. The legislature may incorporate a new and distinct corporation out of two or more previously existing corporations and its powers may be designated by reference to the charters of other companies as well as by special enumeration. While the legislature can not ordinarily compel the consolidation of private corporations, it may do so under a statute giving it power to alter, revoke or annul charters. Furthermore, the legislature has power to validate defective consolidations, where it could have authorized them in the first instance. Therefore defective consolidations may be validated by legislative recognition of the new corporation. Conversely, the legislature may prohibit consolidation where the right at pleasure to alter, amend, or repeal the charter of a company has been reserved. power to consolidate, given by a charter, however, is in the nature of a franchise or privilege, and is a contract between the corporation and the State, which can not be withdrawn by subsequent legislation, in the absence of a reservation of power to withdraw it, either in the particular charter or in the constitution or a general law.10

1 State Treasurer v. Auditor-General, 46 Mich. 224, 233.

2 Factors' &c. Ins. Co. v. New Harbor Protection Co., 37 La. Ann. 233. 3 Dukes v. Love, (1884) 97 Ind. 341. 4 McMahan v. Morrison, (1861) 16 Ind. 120; s. c. 79 Am. Dec. 418; Railroad Co. v. Maine, 96 U. S. 499; State v. Maine Cent. R. Co., 66 Me. 500. 5 Mason v. Finch, 28 Mich. 282. Cf. Pennsylvania College Cases, 13 Wall. 190, 212.

The

Ind. 407, 413; Racine &c. R. Co. v.
Farmers' &c. Co., 49 Ill. 331.

8 Meade v. New York &c. R. Co., 45 Conn. 199; McCauley v. Columbus &c. R. Co., 83 Ill. 348.

9 The company's consent to a supplementary act prohibiting it from entering into any consolidation, combination, or contract with any other company in the same business is not necessary, and, if consent were necessary, the subsequent exercise of

6 Pennsylvania College Cases, 13 corporate functions is sufficient eviWall. 190.

7 Mitchell v. Deeds, 49 Ill. 416, 419; Fisher v. Evansville &c. R. Co., 17

dence of acceptance. Gibbs v. Consolidated Gas Co., (1889) 130 U. S. 396. 10 Zimmer v. State, 30 Ark. 677.