Prouty v. Lake Shore & Michigan Southern Railway Co.

Majority

p. 363

John S. Prouty, Respondent, v. The Lake Shore and Michigan Southern Railway Company et al., Appellants.

(Argued February 11, 1873;

decided April 1, 1873.)

Headnote

Where two or more railroad companies are consolidated, as far as the creditors of one of the original companies are concerned, the consolidated company is successor of the old company, but in respect to the properties of the other companies it is a new and independent company, and such creditors have no claim against it upon their, original contracts but only by virtue of its assumption of the obligations of the old companies.

So also the officers of the new company, so far as the trust devolves upon them of managing the property formerly of the old company, occupy in relation to its creditors the position of successors to the officers of the old company, and are bound by all proceedings had"against them, but as to the properties formerly of the other companies they are successors to the officers of those companies, against whom such creditors have no right of action upon their original contracts.

Accordingly held, that where an action had been commenced against .the M. S. & H. I. B. B. Co. and its officers upon a contract with the company, which company was consolidated with others into the L. S. & M. S. B. Co., and where the report of a referee had been made directing judgment for the amount claimed, and restraining defendant from making any dividends until the amount'was paid, that a subsequent order,, substituting the consolidated company and its officers as defendants, was error, as it made them liable upon the original contracts and subjected them and all the funds and property of the consolidated company to the restraint adjudged against the old company.

Appeal from order of the General Term of the Supreme Court in the first judicial department, affirming an order of Special Term substituting the present defendants in the place of the original defendants herein.

The action was begun May 28, 1869, against the Michigan

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Southern & Northern Indiana Railroad Company, a foreign corporation, and against its directors and treasurer, to recover a balance of certain dividends, on certain guaranteed ten per cent stock issued by that company in 1857, and denominated “construction stock,” which dividends were, as is alleged, agreed to be paid in preference to dividends on the common stock. It was charged that the company did not pay dividends on this “ construction stock,” as guaranteed by it, but, on the contrary, treated it and the common stock alike in the payment of dividends, without discrimination.

That the plaintiff is the- owner of 484 shares of such stock; that he has received whatever dividends the company declared, but that he received payment thereof under protest; that the company (M. S. & N. I. R. R. Co.) guaranteed the payment of the ten per cent on such “ construction stock,” and had, between 1857 and 1863, realized net earnings primarily applicable to the payment thereof.

The plaintiff prayed that an accounting be had, and that the company (M. S. & N. I. R. R. Co.) be adjudged to pay him and all others similarly situated the balance of such ten per cent dividends, he claiming for himself some $40,000 and upwards; also, that the company be restrained from paying any other dividends till the balance due of the ten per cent dividend be first paid.

The original defendant, the M. S. & N. I. R. Co., consolidated in Máy, 1869, with a company known as the Lake Shore Railway Company, under the náme of “The Lake Shore & Michigan Southern Railway Company,” and in August, 1869, this latter company consolidated with the Buffalo & Erie R. R. Co., under its then name (“ The Lake Shore & Michigan Southern Railway Co.”), pursuant to the Laws of the States ofNew York, Pennsylvania, Ohio, Indiana, Michigan and Illinois, thus forming a continuous line of railway from Buffalo to Chicago.

May 20, 1869 (chap. 917, page 2399,- Laws of 1869), the State of New York passed a law in the nature of an enabling act, authorizing railroad corporations of this State to eonsoli

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date with roads of this and other States, forming continuous lines. The action was referred May 12, 1870.

It does not appear that the appellants had any knowledge or information of, or in any way participated in the trial or proceedings before the referee.

The referee’s report was made in April, 1872. It makes no reference whatever to the appellants or to any of the consolidations.

The referee directed judgment in favor of defendants for the amount of the dividends claimed, with interest, and also that the M. S. & N. I. R. Co., its officers, agents, etc., and their successors, be restrained from laying out, expending, disposing of, or in any manner charging the property and assets of the company, or its rights and franchises, until the payment of said amount, etc.

After the coming in of this report, a motion was made that the Lake Shore & Michigan Southern Railway Company, its directors and treasurer, should be substituted as defendants in place of the original defendants, which motion was granted, and the order thereupon is the one appealed from.

James Matthews for the appellants.

The consolidation oí the corporations was only a union of interests, and not a surrender of personal identity or corporate existence by either corporation. (Farnum v. Blackstone, C. Corp., 1 Sumner, 46, 62; Racine & Miss. R. R. Co. v. Farmers' L. and T. Co., 49 Ill., 331 , 348, 349; 9 Am. Law Reg. [N. S.], 260; Ohio & Miss. R. R. Co. v. Wheeler, 1 Black, 297 ; Bk. Augusta v. Earl, 13 Peters, 512.) More than a year has elapsed since the alleged disability, and the court had no power to substitute. (Code, § 121; Coon v. Knapp, 13 How. Pr. 176 ; Green v. Bates, 7 id., 296 ; Chapman v. Foster, 15 id., 241, 242 ; Kissam v. Hamilton, 20 id., 369,377; Allen v. Walter, 10 Abb., 379 ; In re Borsdorf, 17 id., 169; 2 Whittaker’s Pr., 208; Moore v. Hamilton, 44 N. Y., 672 .) There is no way of bringing a party into court against his wiH except by summons. (Akin v. Albany North. R. R. Co., 14

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How. Pr., 338 .) The laws under which the companies were consolidated provide, for the continuance of each for the purposes of pre-existing obligations. (Compiled Laws Mich. 1871, § 2, "448, p. 770; 1 Stat. Ohio, § 166, p. 328; Laws Penn., Purdon’s Dig. [Brightly, 1700-1871], § 26, pp. 841, 842; 2 Laws N. Y. 1869, p. 2402, § 5.)

Luden Birdseye for the respondent.

After the consolidation all debts due to or rights of action vested in either of the previously existing companies vested in the new company. (London Br. & S. C. R. Co. v. Goodwin, 3 Exch., 320 [1 Rev. Cas., 177]; East Union R. Co. v. Cochrane, 24 Eng. L. and Eq., 495.) There was nothing which required proceedings under section 121 of the Code.

In so far as the property formerly of the Michigan Southern and Northern Indiana Railroad Company is concerned, the present .consolidated company is the successor of the former company; but in respect to the properties of the other companies, which have joined in the consolidation, it is a new and independent company as to the creditors of the old Michigan Southern and Northern Indiana Railroad Company, and they have no claim upon such new company under their original contracts, but only by virtue of the assumption by the new company of the obligations of the several corporations which united in the consolidation. So of the individual defendants. In so far as the trust devolves upon them of managing the property formerly of the old company, they occupy, in relation to the plaintiff, the position of successors to the individual defendants named in the complaint, and are bound by all proceedings had against their predecessors. But as to the other properties which have come under their charge, they are successors to officers of other companies against whom the plaintiff had no right of action upon his original contract. Therefore, both , as to the corporation defendant, and the individual defendants brought in by the order of substitution, if the only effect of

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the substitution was to continue against them proceedings which affected the property of the original defendants, the case would be simply one of the substitution of new parties representing the same interests as the original defendants, and this might properly be done by motion within one- year. (Code, § 121.)

But the effect of the substitution in the present case is much more extensive. It not only continues the proceedings against the successors of the original defendants, but against a corporation, and the treasurer and directors thereof having control of and being vested with the property formerly of two other companies, not originally liable upon the contract, by virtue of which the plaintiff claims; and subjects the property of those two companies to a decision rendered subsequently to the consolidation in an action to which they were not parties.

In the action as originally brought, the defendant being a foreign corporation, a judgment could only be enforced against such of the property of the defendant as could be found within this' State, and by personal remedies against such of the officers as resided within this State, or were here found and served with process in the action. By the decision of the referee, the directors and treasurer of the original corporation defendant were not only required to pay the amount found due to the plaintiff for back dividends, but were also restrained from making any disposition of the funds, effects or property of the corporation defendant or any part thereof, and from declaring or paying any dividends on its common stock, until the claims of the plaintiff, and all other holders of the guaranteed stock described in the complaint, should be satisfied in full. The substitution of the present consolidated company and its officers as defendants in place of the old Michigan Southern Company and its officers, the original defendants, makes all these provisions obligatory upon the substituted defendants, and subjects them and all the funds and property of the consolidated company to the restraint adjudged against the old Michigan Southern Company.

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It may be that the obligations which the consolidated company has assumed render it just that such a judgment should ultimately be rendered against it. But however clearly it may appear that the plaintiff and those in whose behalf the action purports to be brought are entitled to such a remedy, it can legally be obtained only in an action against the parties affected, founded upon their assumption of the liabilities of others, and.not by the summary process of a motion to insert their names as defendants, and thus to apply to them an adjudication previously made against the original debtors.

The order appealed from should be reversed, with costs.

All concur except Peckham, J., not voting.

Order reversed.