James v. Fitchburg Railroad

The plaintiff had a recovery against the’ uefendant upon certain past due interest coupons of the bonds of the Troy and Boston Railroad Company. The payment of the bonds and coupons is secured by a mortgage given by the company in 1874, to trustees, upon' the real estate and property of the Troy and Boston Railroad Company. The principal of the bonds falls due in 1924. The mortgage contains no covenant to pay the bonds or post-foreclosure deficiency.

The defendant is a new corporation formed by the consolidation, in June, 1887, of the Troy and' Boston Railroad Company and the former Fitchburg Railroad Company, made by an agreement under, and in pursuance of, chapter 917, Laws of 1869. The liability of the defendant, the pew corporation, upon these past due coupons, if any, exists by virtue of the terms of the aforesaid act of consolidation.-

The act provides for the consolidation of two or more railroads, coming within the terms of the statute, by organizing a new corporation to which all the property and franchises of the roads joining in the consolidation are to be transferred. It is manifestly the purpose of the act to place the new company completely in the shoes of the constituent companies with respect to their property and franchises, and also with respect to their debts and liabilities except, as provided in the fourth and fifth sections of the act.

By section 4 all real estate, personal property, rights, franchises, privileges and exemptions of the old companies became vested in the new.

Section o provides, “ the rights of all creditors of and all liens upon the property of either of said corporations, parties to said agreement and act, shall be preserved unimpaired, and the respective corporations shall be deemed to continue in existence to preserve the same, and all debts and liabilities incurred by either of said corporations, except mortgages, shall thenceforth attach to such new corporation, and be enforced against it and its property to the same extent as if said debts or liabilities had been incurred or contracted by it.”

The question presented by this appeal is: do the words “ except mortgages ” exempt the new company from present liability upon the past due coupons in suit? The contention of the plaintiff is that the coupons are not mortgages, that the bonds are not mortgages, that the present action does

The new company by the terms of the act is liable for “ all debts and liabilities incurred by either of said corporations, except mortgages.” In the legislative mind mortgages were either debts or liabilities. The exception is made out of the class previously mentioned. We can argue that mortgages are neither debts nor liabilities and áre made, not incurred, but it is clear that the legislature did not pause over technical distinctions nor search for technical accuracy. They used language of very common use, in the sense of its common acceptation Debts and liabilities secured by mortgage are usually regarded as already protected. We can suppose this to have been the reason for the exception. A case may arise-— the present may be such a case — in which the mortgage security is inadequate ; if so, we can conceive that it either is unprovided for, or that the justice of making a third party, succeeding to the over-incumbered property, liable for such debts of the insolvent constituent, was denied, or that to the extent that the mortgaged property fails to pay the mortgage debt, to that extent when the fact appears, the debt is not secured and, therefore, not within the exception of the statute, and hence the liability of the new company exists, but meanwhile is undeterminable.

However this may be, we are to interpret the statute as we find it, giving full effect to its words in the sense which the legislature, as we can gather it from the act itself, employed them.

Ingalls, J., concurs.

(dissenting).—By articles of agreement executed about June 25, 1887, the Fitchburgh Eailroad Company and the Troy and Boston Eailroad Company consolidated into one company, the defendant. At that time there were outstanding, among others, three bonds of the Troy and Boston Railroad Company, one for $10,000, two for $5,000 each, belonging to plaintiff, dated March 29, 1887, payable in 1924, with coupons. These bonds, with others, were secured by a mortgage executed by said Troy and Boston Railroad Company to trustees for $1,500,000. By the terms thereof the railroad company mortgaged all its property, rights and franchises then owned or thereafter to be acquired ; and agreed to execute all needful conveyances to convey all such property and all that might be acquired.

At the time of commencing this action $700 was due and unpaid on the aforesaid three bonds.

By one of the clauses of the consolidated agreement the defendant, the Consolidated Company, was to possess all the property and franchises of each party ; and was to be subject to all “the debts and liabilities to which either party hereto is subject, excepting so far as the consolidated company is not liable for the mortgages of the Troy and Boston Railroad Company, and bonds and coupons secured thereby, according to the provisions of section 5, chap-, ter 917, of the laws of the state of New York, passed in 1869.”

The plaintiff recovered in the court below and the defendant appeals.

Section 3 of the consolidated act says that on perfecting and filing the agreement, “the said corporations, parties thereto, shall be deemed and taken to be one corporation by the name provided in agreement and act, but said act of consolidation shall not release said new corporation from any of the restrictions, disabilities or duties of the several corporations so consolidated.” We see then that the consolidation is not a sale by one corporation to another; but it is an act by which the two become one and the duties of the two now become the duties of the one.

In section 5 the second clause provides that no suit, etc., pending in which either of the corporations shall be a party shall be abated, but the new corporation may on motion be substituted as a party. If then, at the time of consolidation, an action at law had been pending against the Troy and Boston Railroad Company, on past due coupons, the present defendant might, after consolidation have been sub

Section 4 strips the two consolidating corporations of all their property, and transfers it all to the new corporation. Not only all existing property and franchises, but all future ability to earn anything is taken from the old corporation, and given to the new A mere creditor of one of the old corporation can no longer collect anything from it.

It seems to me that it would be quite doubtful whether this could be legally done, if the statute did not continue to the creditor against the consolidated corporation the same rights which he had had against either of the old corporations. And as the property formerly belonging to each of the two corporations can, to a great extent, be no longer kept distinct, but has become blended in one ownership, the new owner is made directly liable for the debts of each of the old corporations.

It would seem that. this result would almost necessarily follow from the whole structure and provisions of the statute and from the nature of the two bodies which may be coiisolidated under it.

But to make this beyond doubt, section 5 provides “the rights of all creditors * * * of either of said corporations' * "* * shall be preserved unimpaired.” Now can the' fights of' a creditor be said to be unimpaired if there is no longer any person who may be sued in an action at law to recover the debt, and no longer any property, or possibility of future property, subject to execution therefor ? Before this consolidation, the present plaintiff might have sued on these coupons when payable. And on recovering judgment, he might have enforced it on any property he could find .(other than that mortgaged). If it be said that everything tangible was mortgaged, he might perhaps * * * have reached debts due the corporation, or he might have had the remedies provided by section 1784 of the Code. But, now, the defendant insists, he can have none of these.

The defendant admits that if the plaintiff were a mere creditor, all these rights would remain to him against the consolidated corporation. But it urges that inasmuch as there is a mortgage given to cover the plaintiff’s debt, his right to sue on the bond and coupons is cut off by the consolidation. And it matters not, on the argument of the defendant, whether the mortgage is practically any security or not. It may be utterly valueless to the plaintiff. But it is very valuable as a protection to the defendant.

This view rests on the following clause in that section: “'All.debts and liabilities incurred"by either of said corpo

I cannot construe those words to mean, ‘ ‘ except that where a debt is secured by a mortgage, the corporation shall be liable only for a deficiency.” That might be a good law; but there is no such thing in the statute. If the words “exceptmortgages”relieve the defendant from liability, they must do so without any consideration whether the mortgage was a sufficient security for the debt or not.

Now, in view of what has been already said in reference to the first clause of this section, and a part of the third section, the defendant’s construction should not be adopted if any other can by found.

These railroad mortgages often have (this one has) a clause for embracing within their lien all after-acquired property. Now, there is made a consolidation of two railroads. Are the mortgages which had been executed by each to be extended, by virtue of such clauses contained in them, so as to embrace the property newly acquired by the consolidation % That is, is the mortgage of the Troy and Boston Bailroad Company to extend over the property of the old Fitchburg Bailroad Company in the same manner as if it had belonged to the Troy and Boston Bailroad originally % Possibly, to guard against such a construction, “mortgages” were excepted from “all debts and liabilities.” This clause is in the mortgage; this agreement for further assurance might be a liability on which a question might arise. Hence, it may be the exception. But whether that is the intention or not, we ought not to give these two words a meaning at variance with other provisions of the statute, contrary to sound principle and unjust tó creditors.

It is plain that strictly a mortgage is not a debt. And it is equally plain that, in ordinary language, the word is often used to include the debt to .which a mortgage is collateral.

I think, in construing the phrase here, we should rather consider the general scope of the act and the rights of the creditors of the old corporation.

It would seem strange that the legislature should intend to give to a mere creditor an advantage over one who held a worthless fifth mortgage, or that they should intend to deprive one who had sold land to one of the consolidated

But it is argued by defendant that if one corporation were largely indebted on its mortgages and the other but little, it would be unjust that the bond holder of the former should collect their debts out of property of the new corporation which had largely belonged to the latter. But that same injustice (if it be such) would exist if the one corporation vyere largely indebted on debts not secured by mortgage and the other but little indebted. The truth is that the condition of the two is in every case known and provided for in the consolidated agreement.

It is urged by the defendant that it is only by virtue of the clause above cited from the fifth section of the consolidation statute that this defendant is liable for debts of the old corporations; that without it all such debts would be extinguished. Angell & Ames on Corp., 750. It is quite immaterial what the common law was on the civil death of a corporation. It has not been the law of this state for many years that such debts were extinguished by the civil death of the corporation.-

Furthermore, the consolidation statute does not contemplate the civil death of either corporation. On the contrary, it says: “The said corporations, parties thereto (to the agreement) shall be deemed and taken to be one corporation.” It does not destroy; it perpetuates under another name, “the name provided in said agreement.” Certainly the continued existence of a corporation under a new name would not change its liability for existing debts. Therefore, as I think, even without the clause above cited from the fifth section, the two corporations, which are now claimed and taken to be one, continue now, in their united condition, liable for all debts and liabilities existing at the consolidation. There has been no amendment of the charters or dissolution of the corporations. Only the two corporations are become one. And that one, by the very force of the transaction, must succeed to all the rights and be subject to all the debts of each.

The construction which the defendant gives deprives the plaintiff of all legal remedy on his contract, except so far as it has been already, secured by mortgage. _ If this can be done as to contracts' to which a mortgage is collateral, it can be done as to other contracts. And the legislature might.declare that the consolidated corporation should not be liable for any of the old debts. Thus they would deprive the party of all legal remedy. . But this cannot be constitutionally done. Cool. Const. Lim., 354.

I think the judgment should be affirmed, with costs