§ 4795. Jurisdiction, parties and procedure in actions to prevent or set aside consolidation. The suit by a dissenting stockholder need not necessarily be one to set aside the consolidation but may be merely for a restoration of the property of one of the constituent companies.88 Minority stockholders will not be permitted to enjoin a sale, if there is an adequate remedy at law, it has been held,89 although it has also been held that a dissenting stockholder is not barred from relief in equity because of an adequate remedy at law against the consolidated company for damages for the conversion of his stock.00 If it is sought to enjoin the consolidation of several railroad companies having continuous lines extending through several states, the first federal court applied to should dispose of the question without permitting separate suits in each state.91 Where a consolidation has been fraudulently brought about by the directors and majority stockholders, both such stockholders and directors may be joined in a suit by a minority stockholder without rendering the bill multifarious. In such case there is a common point of litigation and the rights of all parties in such matter may be settled by one decree.92 In a suit by stockholders to set aside a consolidation, receivers of some of the constituent companies are not necessary parties. 93 In a suit to enjoin a consolidation, filed in the name of a state, minority stockholders have been held necessary parties, they not being represented by a holding company made a defendant.94 88 Jones v. Missouri-Edison Elec. Co., 144 Fed. 765, 776. 89 Tanner v. Lindell R. Co., 180 Mo. 1, 103 Am. St. Rep. 534, 79 S. W. 155. 90 Jones V. Missouri-Edison Elec. Co., 144 Fed. 765, 777. 91 Dady v. Georgia & A. Ry., 112 Fed. 838. 92 Jones V. Missouri-Edison Elec. Co., 144 Fed. 765. 93 Continental Securities Co. v. Interborough Rapid Transit Co., 165 Fed. 945. 94 It was alleged that all stock holders of the Northern Securities Company were stockholders in the Great Northern and Northern Pacific Companies, and hence the claim was made that the stockholders in these two companies were sufficiently represented by the Securities Company. It was conceded, however, that but a majority of the stockholders of said railroad companies were stockholders in the Securities Company. Clearly, therefore, the minority stockholders of the railroad companies were not represented by the Securities Company, and to have granted the prayer of the bill, where the Securities Company only was made a party, would necessitate the granting of a prayer affecting the interest of parties not joined or represented. And, continuing its opinion the court said: "The directors of the Great Northern and Northern Pacific Railway Companies are appointed to represent and protect not merely the private and pecuniary interests of the stockholders, but the rights of the public at large, which is deeply concerned in the proper and advantageous management of these public highways. It is not The bill by a dissenting stockholder is not multifarious because it joins several causes of action for the same demand or relief.95 If a consolidation is set aside, stock in the consolidated company issued to a controlling stockholder of one of the constituent companies and his associates is subject to cancellation because without consideration.96 If § 4796. Rights against consolidated company-In general. there is no provision in the consolidation agreement or in the statutes in regard thereto, a dissenting stockholder, provided the consolidation or merger is valid notwithstanding his consent, has no rights against the consolidated or absorbing company.97 § 4797. As dependent on consolidation agreement. Oftentimes the consolidation agreement itself expressly provides that dissenting stockholders shall have certain rights, such as that of being paid cash for their stock or other provisions. A dissenting stockholder, entitled by the consolidation agreement to continue to have the right to share proportionately "in accordance with the existing respective rights of said two classes of stock in the earnings and assets" of his constituent company, as if the consolidation had not taken place, has no absolute right to a proportionate share of the earnings of the old company but only to such dividends as might be declared out of the earnings.98 § 4798. Action for value of shares. A dissenting stockholder cannot demand of the consolidated company payment in cash for his sufficient to say that the Attorney General, or the Governor, or even the legislature of the State, can be conclusively deemed to represent the public interests in such a controversy as that presented by the bill. Even a state, when it voluntarily becomes a complainant in a court of equity, cannot claim to represent both sides of the controversy. Not only have the stockholders, be they few or many, a right to be heard, through the officers and directors whom they have legally selected to represent them, but the general interests of the public, which might be deeply affected by the decree of the court, are entitled to be heard; and that, when the state is the shares of stock, where the consolidation is a lawful one without regard to his consent, unless it is otherwise provided by statute,1 although there are decisions which have often been cited as holding the contrary, but which were in reality cases where the consolidation was unauthorized and wrongful as to such stockholder or otherwise not binding on him. Independently of statute, a dissenting stockholder is entitled, it seems, to recover the value of his stock from the consolidated company, where his rights are not foreclosed by the consolidation, as, for instance, in case of fraud. So where a sale of all corporate property is illegally made by corporate officers without the consent of the stockholders, a dissenting stockholder may sue the purchasing company for the value of his stock." 99 Mayfield v. Alton Railway, Gas & Electric Co., 198 Ill. 528, 65 N. E. 100, aff'g 100 Ill. App. 614; Alton Railway, Gas & Electric Co. v. Mayfield, 95 Ill. App. 146. Where one subscribes to stock of a corporation authorized by its articles or by statute to consolidate, he will be deemed to have subscribed in contemplation of possible exercise of the authority by the corporation, and will not be heard to complain if the authority be exercised. He cannot in such case assert that he has been forced into membership in a corporation in violation of his contract. Jones v. Missouri-Edison Elec. Co., 135 Fed. 153; Traer v. Lucas Prospecting Co., 124 Iowa 107, 99 N. W. 290. 1 See § 4765, supra. 2 State v. Bailey, 16 Ind. 46, 79 Am. Dec. 405; Lauman v. Lebanon Valley R. Co., 30 Pa. St. 42, 72 Am. Dec. 685; International & G. N. R. Co. v. Bremond, 53 Tex. 96. 3 Thus, in International & G. N. R. Co. v. Bremond, supra, the consolidation was held unauthorized and wrongful. In Lauman v. Lebanon Valley R. Co., supra, the act of consolidation was passed, it seems, after the creation of the constituent companies, and for that reason it was properly held his rights could not be foreclosed by the majority stock holders although the statute authorized a consolidation on a majority vote. The Indiana case merely cites the Pennsylvania case as so holding, without comment, and without following it. 4 Southern Mut. Aid Ass'n V. Blount, 112 Va. 214, 70 S. E. 487. Delay in suing as bar, see § 4794, supra. If the consolidation has been unlawfully effected, because without his consent, he may maintain an action against the consolidated corporation to recover the value of his interest in the consolidating corporation. Ervin v. Oregon R. & Nav. Co., 27 Fed. 635; Taylor v. Earle, 8 Hun (N. Y.) 1; Lauman v. Lebanon Valley R. Co., 30 Pa. St. 42, 72 Am. Dec. 685; International & G. N. R. Co. v. Bremond, 53 Tex. 96. He may recover such value in money, and cannot be compelled to take shares of stock in the consolidated corporation. Taylor v. Earle, 8 Hun (N. Y.) 1; Frothingham v. Barney, 6 Hun (N. Y.) 366; McVicker v. Ross, 55 Barb. (N. Y.) 247. 5 Jones V. Missouri-Edison Elec. Co., 144 Fed. 765, 776. 6 Bridges v. Southern Bell Telephone & Telegraph Co., 12 Ga. App. 108, 76 S. E. 996. As elsewhere noted, the statutory remedy of appraisement is often held not to preclude the right of a dissenting stockholder to sue in equity for the value of his stock." Where a consolidation was held improper as against minority stockholders, but the rehabilitation of a constituent company was practically impossible, and such dissenting stockholders sued for the value of their shares, it was held that such value must not be determined according to a single method to the exclusion of a great mass of other evidence upon the subject. They are entitled in such a case, to recover interest at the statutory rate from the date of the consolidation.9 § 4799. Statutory proceedings for appraisement of value of stock. In some states the statutes expressly provide for certain proceedings to be taken on behalf of stockholders who dissent from the act of consolidation, whereby the market value of their stock is appraised and the company is required to pay them the value as so fixed, or the like.10 This statutory remedy given dissatisfied stockholders can be invoked only by those who bring themselves within the statute,11 and the proceedings generally must be instituted by the actual owner of the stock rather than the record owner of stock which in reality belongs to another.12 Where dissenting stockholders proceed under the statute to have the value of their stock appraised, the good-will of the company should be valued.13 There seems to be some conflict in the decisions as to whether this remedy is exclusive. In some cases it has been held to be exclusive,14 7 See § 4799, infra. 8 Jones v. Missouri-Edison Elec. Co., 233 Fed. 49. See also same case in 203 Fed. 945, aff'g 199 Fed. 64. 9 Jones V. Missouri-Edison Elec. Co., 233 Fed. 49. 10 Douglass v. Concord & M. R. R., 72 N. H. 26, 54 Atl. 883; In re Rogers, 102 N. Y. App. Div. 466, 92 N. Y. Supp. 465. Procedure under Ohio statute, see Pittsburgh, C. & St. L. Ry. Co. v. Garrett, 50 Ohio St. 405, 34 N. E. 493. In the official syllabus of a New Jersey case, Chancellor Pitney said that the section ought to be liberally construed in aid of the proposed remedy; and that the procedure should not be hampered by technical conditions that are not expressed in the language of the statute." New Jersey & H. River R. Co. v. American Electrical Works, 82 N. J. L. 391, 81 Atl. 989, aff'g 81 N. J. L. 34, 78 Atl. 670. 11 Barnett v. Philadelphia Market Co., 218 Pa. 649, 67 Atl. 912, holding that, under Pennsylvania statute, stockholder must have voted against the consolidation or merger. 12 In re Rogers, 102 N. Y. App. Div. 466, 92 N. Y. Supp. 465. 13 In re Seaich, 170 N. Y. App. Div. 686, 156 N. Y. Supp. 579. 14 The statutory remedy for assessing the value of stock owned by those but in most of the decisions the contrary view is held by the courts.15 On sustaining a consolidation, against an attack by dissenting stockholders, it seems that the decree should give such stockholders the option to take stock in the new corporation or recover the value of their shares in the old company as of the date of the sale as provided for by statute.16 § 4800. Rights against corporate officers. The fact that consolidation has taken place without the consent of a stockholder gives him no right to sue persons who were officers of the corporation at the time the consolidation was effected.17 § 4801. Effect on subscription to stock. This has been already noticed.18 A dissenting stockholder may set up as a defense to an action to hold him for his subscription to the stock of a constituent company that the statutory provisions relating to consolidation were not substantially complied with, even though there is a de facto consolidated corporation.19 XI. REMEDIES AND PROCEDURE RELATING TO ACTIONS BY OR AGAINST COMPANIES § 4802. Remedies of creditors where transfer of property is fraudulent. The remedies of creditors of a corporation, the assets of which have been fraudulently transferred to another corporation, are not the same in all jurisdictions. For a full treatment of the objecting to the sale or consolidation is exclusive and must be followed. Spencer v. Seaboard Air Line R. Co., 137 N. C. 107, 1 L. R. A. (N. S.) 604, 49 S. E. 96. 15 Barnett v. Philadelphia Market Co., 218 Pa. 649, 67 Atl. 912, where statute used the word "may," and it was held stockholder could resort to equity to obtain actual payment for his stock." The statutory remedy of dissenting stockholders by applying for an appraisement of the value of their stock is not exclusive and does not preclude a suit to enjoin the consolidation. Colby v. Equitable Trust Co., 55 N. Y. Misc. 355, 106 N. Y. Supp. 801, rev'd on other grounds 124 N. Y. App. Div. 262, 108 N. Y. Supp. 978. "Although the consolidating statute took away from him the right to defeat the consolidation by refusing to assent to it, it did not take away from him the right to refuse to surrender his stock for stock in the new corporation, or to refuse to take anything for it less than its actual value at the date of the consolidation." Winfree v. Riverside Cotton Mills, 113 Va. 717, 75 S. E. 309. 16 See Lazenby V. International Cotton Mills Corporation, 174 N. Y. App. Div. 906, 160 N. Y. Supp. 1. 17 International & G. N. R. Co. v. Bremond, 53 Tex. 96. 18 See $648, supra. |