or wrongs committed by the succeeding corporation, unless the circumstances are such as to make it liable under some principle of the law of agency.60 A railroad company, for example, is not liable for personal injuries or injuries to stock or other property, caused in the operation of its road after it has been sold under a decree of foreclosure, and has thus passed out of its possession and control.61

The old corporation may, of course, be released from liability for its debts by a valid agreement between it and its creditors, as in the case of an agreement between a corporation and its creditors and another corporation, by which the latter agrees to assume the former's debts, and the creditors agree to the change of debtors. Here there is a novation, and the creditors' remedy after the agreement is against the new corporation only.62 The creditors must be parties to the agreement in order that the old corporation may be released, since a creditor cannot be compelled to assent to a change of debtors.63 Of course, a promise by a creditor of a corporation to look to another corporation for payment of his claim is not binding unless supported by a consideration. A promise by a corporation to pay part of its indebtedness with stock in a proposed new corporation, and the balance in cash and notes of the new corporation, is no consideration, so long as it is unperformed, for a promise by a creditor to subscribe for his proportion of the stock of the new corporation, and to accept the same, with the cash and notes, in full satisfaction of his claim, since the corporation has no power to bind the proposed new corporation, and such an agreement is revocable, therefore, at any time before actual performance.64

VII. RIGHTS AND LIABILITIES OF ASSENTING STOCKHOLDERS

§ 4764. In general. The right of stockholders to object to a consolidation, and the various rights and remedies of dissenting stock

60 When a corporation permits a newly organized corporation to absorb all its assets and do business in its name, it is liable for obligations so contracted, as it assumes to be a principal in such transactions. Davis Provision Co. v. Fowler Bros., 20 N. Y. App. Div. 626, 47 N. Y. Supp. 205, aff'd 163 N. Y. 580, 57 N. E. 1108. 61 Western R. Co. v. Davis, 66 Ala. 578.

62 See Friedenwald Co. v. Asheville Tobacco Works & Cigarette Co., 117 N. C. 544, 23 S. E. 490; Savings Bank v. Sachtleben, 67 Tex. 420, 3 S. W. 733.

63. See Cole v. Millerton Iron Co., 133 N. Y. 164, 28 Am. St. Rep. 615, 30 N. E. 847.

64 Providence Albertype Co. v. Kent & Stanley Co., 19 R. I. 561, 35 Atl. 152.

holders, are elsewhere stated.65 What is now to be considered is the rights and liabilities of stockholders after a valid consolidation to which they assent. Unless otherwise provided by statute,66 stockholders of the constituent companies do not, as said in one case,67 become stockholders of the consolidated company merely by virtue of the consolidation, but they have the right to become such stockholders according to the terms of the consolidation agreement.68 Of course, a stockholder in a constituent company cannot be compelled to accept stock in the consolidated company.6

69

§ 4765. Rights as dependent upon statute and consolidation agreement General rule. When corporations are consolidated under legislative authority, the rights of the stockholders depend upon the statute under which the consolidation is effected and the agreement to consolidate, in so far as it is not in violation of the statute. The statute or the agreement, or both, generally provide that the consolidated corporation shall issue shares of its stock to the stockholders of the consolidating corporations, and sometimes provide that it shall pay cash to those of the stockholders who shall elect to take such payment instead of stock.7 .70 Of course, if a stockholder in a constituent company has not paid for his stock, he is not entitled to a paid up certificate of stock in the consolidated company, at least if he does not tender the balance due on his stock.71

Stockholders of the consolidating corporations may maintain an

65 See §§ 4790-4801, infra.

66 See next section.

67 Ridgway v. Griswold, 1 McCrary 151, Fed. Cas. No. 11,819.

68 See next section.

69 See Frothingham v. Barney, 13 Hun (N. Y.) 366, 372.

70 Construction of such a statute or agreement, see Butterfield v. Spencer, 1 Bosw. (N. Y.) 1; In re Myers' Estate, 238 Pa. 195, 86 Atl. 89.

In construing the rights of shareholders under consolidation agreements, it has been held in one case that a provision for forfeiture of shares of stock in the consolidated company, for failure to pay a subscription, applied only to the common stock and not to the preferred stock. Dreyfus v. Old Colony Trust Co., 218 Mass. 546, 106 N. E. 154.

Right to obtain payment in cash, see § 4764, supra.

71 Where, after a subscriber for stock in a corporation has paid ten per cent thereon, the corporation is consolidated with another under an agreement by which the stockholders are to receive consolidated stock in place of their original stock, a stockholder cannot compel the consolidated corporation to issue to him full paid certificates of stock, on account of his subscription, where there is no proof that he has paid more than the ten per cent, or that he was entitled to full paid stock in the original corporation. Babcock v. Schuylkill & L. Val. R. Co., 133 N. Y. 420, 31 N. E. 30, aff'g 60 Hun 583, 15 N. Y. Supp. 193.

72

action directly against the consolidated corporation to compel the issue of stock to them in accordance with the agreement of consolidation, or to recover damages for its failure or refusal to do so; and the fact that the consolidated corporation has issued to a constituent company the amount of the new stock due to its shareholders is no defense, where the suing stockholder did not consent.73 Nor is it any defense to show that the plaintiff has refused to pay his share of the debts of his old company, if there is no proof that payment thereof was made a condition precedent to his right to stock in the new corporation, or that he has been assessed for such payment, or that there is a lien for such payment on the new stock. Where, upon consolidation, stock of the new company is turned over to the president of one of the constituent companies for distribution among its stockholders, one stockholder cannot sue alone to obtain his share of the stock but the action must be brought by all the stockholders or by one in a representative capacity.75

The statute under which a consolidation is effected, or the articles or agreement of consolidation, may be such as to constitute the stockholders of the consolidating corporations stockholders of the consolidated corporation, without any further action on their part or on the part of the consolidated corporation.76 But a corporation which has exchanged all its property for stock in another corporation does not, by a mere resolution concerning the disposition of such stock, make its individual stockholders shareholders in the corporation which is sued the stock.77

72 Fee v. New Orleans Gas Light Co., 35 La. Ann. 413; Anthony v. American Glucose Co., 66 Hun (N. Y.) 634, 21 N. Y. Supp. 667, aff'd 146 N. Y. 407, 41 N. E. 23.

73 Anthony v. American Glucose Co., 66 Hun (N. Y.) 634, 21 N. Y. Supp. 667, aff'd 146 N. Y. 407, 41 N. E. 23. But if the consolidated company turns over shares of its stock to agents of a constituent company, according to the consolidation agreement, for distribution, it is not liable to a pledgee of stock in the constituent company for a conversion of such shares after they have passed into the hands of such agents. Cleveland City Ry. Co. v. First Nat. Bank, 68 Ohio St. 582, 67 N. E. 1075.

So where a corporation transfers all

its property to another company in exchange for stock in the latter company, which stock is delivered to the former company for distribution among its stockholders, the company transferring the stock is not bound to see that the proper persons are recog nized as stockholders and that each receives his share of the stock exchanged. Kimball v. Success Min. Co., 38 Utah 78, 110 Pac. 872.

74 Anthony v. American Glucose Co., supra.

75 Knickerbocker v. Conger, 110 N. Y. App. Div. 125, 97 N. Y. Supp. 127. 76 See Copeland v. Minong Min. Co.,

33 Mich. 2.

77 Kimball v. Success Min. Co., 38 Utah 78, 110 Pac. 872.

When an agreement of consolidation is entered into between the stockholders of corporations, as provided by a statute authorizing consolidation, and providing for such an agreement, it is only the terms of this agreement that are binding upon the consolidated company. It is not bound by any secret agreement between the stockholders of the consolidating companies.78

An officer of a constituent company is not entitled to shares of stock in the consolidated company for his services as provided for by a resolution of the constituent company, where not authorized by any of the terms of the consolidation agreement nor ratified at any subsequent meeting by the stockholders of either of the constituent companies or of the consolidated company.79

§ 4766. Agreement to exchange stock. An exchange of part of his stock by a stockholder under a consolidation does not bind him to exchange the balance.80 Where a consolidation agreement requires an exchange of shares, proof of the approval of the consolidation shows an agreement to exchange; but where a stockholder is not required to exchange, proof of the approval of the consolidation does not show an agreement to exchange.81

§ 4767. Rights of holders of unexchanged stock. If the consolidation agreement provides that holders of unexchanged stock shall be entitled to share proportionately in the earnings and assets of the consolidated company, just as if there had been no consolidation, they are entitled to an accounting where the earnings of their company have been used to pay dividends to stockholders of the consolidated company, and cannot be compelled to elect to take a decree against the consolidated company for dividends.8 82

§ 4768. Contract to exchange bonds for stock. Consolidations ordinarily terminate the right of bondholders to exchange their bonds for stock in the constituent companies, although the decisions as

78 Trenton Passenger Ry. Co. v. Wilson, 55 N. J. Eq. 273, 37 Atl. 476.

79 United Gold & Platinum Mines Co. v. Smith, 44 N. Y. Misc. 567, 90 N. Y. Supp. 199.

80 Miller v. Chicago & A. R. Co., 193 Fed. 41, aff'g 176 Fed. 379.

81 Miller v. Chicago & A. R. Co., supra.

82 Miller v. Chicago & A. R. Co., 204

83

Fed. 436, rev'g 198 Fed. 695. See also same case, 171 Fed. 253.

83 Parkinson v. West End St. Ry. Co., 173 Mass. 446, 53 N. E. 891, reviewing and distinguishing earlier Massachusetts cases.

The Massachusetts statute of 1879 (chapter 151), "authorizing" an increase in the capital stock of a street railway company, and appropriating

to this matter are more or less conflicting.84 In a Massachusetts case, a railroad company, having leased its road, issued bonds guaranteed by the lessee, and which provided that the holders might convert them into shares of its (the lessor's) stock at par at any time after the completion of its road. After the road was completed, the two corporations were consolidated under a statute which provided that the corporation so established should be subject to "all the duties, restrictions, obligations, debts, and liabilities to which, at the time of the union," either of said corporations might be subject, and that "all claims and contracts against either corporation" might be enforced by suit or action, to be commenced and prosecuted against the new corporation. After the consolidation, a holder of such bonds made a demand upon the new corporation for shares of stock as provided therein, but offered to accept in satisfaction of his demand shares of stock in the new corporation, and the demand was refused. It was held that the new corporation was bound by the provision in the bonds, and that the bondholder could maintain an action against it. to recover the damages occasioned to him by its refusal of his demand.85 In a later case, it appearing that the corporations were consolidated on the footing of perfect equality between the shares of their stock and the shares of stock in the new corporation, it was held that the new corporation was bound to deliver its own shares in exchange for the bonds, or to pay the damages occasioned by its refusal to do so.86

§ 4769. Prior rights as to dividends. A consolidation terminates the future right to cumulative dividends on preferred stock of one

a portion of such stock to the payment or redemption of certain bonds of the company, which the holders thereof should be entitled to convert into stock at maturity, does not entitle a holder of such bonds to stock in the successor of such corporation, with which it was consolidated before the stock authorized by the statute was issued, and before maturity of the bonds. Parkinson v. West End St. Ry. Co., 173 Mass. 446, 53 N. E. 891.

So where one company sells its property to another, the purchasing company, it seems, is ordinarily not under the obligation of the selling company to exchange bonds of the

selling company for common stock. Lisman v. Milwaukee, L. S. & W. Ry. Co., 161 Fed. 472, aff'd 170 Fed. 1020 (mem. dec.).

84 See Rosenkrans v. Lafayette, B. & M. R. Co., 18 Fed. 513; Tagart v. Northern Cent. Ry. Co., 29 Md. 557; India Mut. Ins. Co. v. Worcester, N. & R. R. Co. (Mass.), 25 N. E. 975; Child v. New York & N. E. R. Co., 129 Mass. 170.

See also § 1007, supra.

85 John Hancock Mut. Life Ins. Co. v. Worcester, N. & R. R. Co., 149 Mass. 214, 21 N. E. 364.

80 Day v. Worcester, N. & R. R. Co., 151 Mass. 302, 23 N. E. 824,