of legislative authority permitting that to be done, diminishes its capital to the extent of the shares so purchased. * If such purchases effect a reduction of the capital stock, then, as that method of reducing the stock is not the method prescribed by the Code, it must of necessity be an unlawful method." But it is settled that to save itself from an apprehended loss a corporation may acquire its own shares. Here there is no merger; the shares may be

1 Burke v. Smith, 111 Md. 626; Maryland Trust Co. v. Bank, 102 Md. 608. It was also said in the latter case that, from the want of power in the corporation to release an unpaid subscription to its stock, it follows as a necessary consequence that the corporation is without authority to buy its own shares. The corporation involved was one whose shares were subject to an extra statutory liability in favor of creditors which was, pro tanto, destroyed by the transaction complained of, but the language of the opinion is sweeping in its scope—perhaps unintentionally so. The true test, it is submitted, regards not the fact of purchase, but the purpose and result in the particular case.

See the authorities collated in 61 L. R. A. 621 and 25 L. R. A. (N. S.) 50. See also, Leland v. Hayden, 102 Mass. 542; 2 Thompson Corp., sec. 2062; 18 L. R. A. 252, note. In Gilchrist v. Highfield, 140 Wis. 476, it is said that the great weight of authority is in favor of the proposition that a corporation may purchase its own stock, when the power is not intended to be exercised for an illegitimate or fraudulent purpose, and when no rights of creditors are affected. This case is exhaustively annotated in 17 Anno. Cas. 1261.

2 American Co. v. Haven, 101 Mass. 398; Williams v. Savage Mfg. Co., 3 Md. Ch. 450. National banks are forbidden to lend money on the security, or become the purchaser, of their own shares, except to prevent loss from any debt previously contracted; but a violation of the law does not make the transaction void. Lantry v. Wallace, 182 U. S. 537; Bank v. Stewart, 107 U. S. 676; Bank v. Bank, 39 Md. 600, affirmed, 92 U. S. 122.

re-issued; but pending re-issue the corporation cannot vote them.1

A similar diversity of opinion exists as to the right of a corporation to acquire the shares of another. The right is denied, sometimes on the ground of public policy and sometimes as foreign to the scope of the charter.2 Other decisions sustain the right to acquire even a controlling interest resulting in the suppression of competition,—so long as no fraud is practiced upon the minority stockholders of the corporation controlled. The formation of a corporation for the purpose of holding the shares of another is generally held not to be unlawful unless the result is to violate some statute declarative of public policy; or to "freeze out" the minority in the subsidiary company.*

§ 39. Consolidation. There is no inherent power in a corporation to make a change so organic as that involved in consolidating with another. The consent of all the members is not enough without the consent of the state; nor can the permission of the state, without more, authorize a consolidation over the opposition of a single dissenting

1 Code 1911, Art. 23, sec. 18, provides that “No corporation shall directly or indirectly vote any shares of its own stock, except such as it holds *** as trustee ***"

2 Bank v. Kennedy, 167 U. S. 362; De la Vergne Co. v. Bank, 175 U. S. 40; and see notes in Law. Ed. 44, p. 65; People v. Gas Co., 130 Ill. 268: 8 L. R. A. 497.

3 Cannon v. Brush Electric Co., 96 Md. 446; Davis v. Electric Co., 77 Md. 35; Booth v. Robinson, 55 Md. 419. See Code (1911), Art. 23, secs. 7 and 302.

4 For "Holding Companies" see Northern Securities Co. v. United States, 193 U. S. 197; and generally, Machen on Corporations, secs. 52, 59, 60 and 302, and notes to Morel v. Hoge, 130 Ga. 625 in 16 L. R. A. (N. S.) 1136. Compare United States v. Union Pac. R. Co., 226 U. S. 61.

member.

If a law existing at corporate birth vests the power in some given proportion of the shareholders, the minority must be taken as assenting. And if the state has reserved the power to amend the charter, it may vest the power of consolidation in a majority of the members;2 or it may revoke an existing power of consolidation. But, however granted, the power, being statutory, must be exercised according to the terms of the grant and upon these terms the results of consolidation depend. It follows consequently, that most of the decisions deal with the construction of some particular statute or charter rather than with general principles of law. The chief matters for attention are these:

First. The general incorporation law provides that any two or more corporations organized under any law of this State-presumably including both general and special lawswhich have been incorporated for the purpose of carrying on, in whole or in part, any kind of business of the same or similar nature, may consolidate, provided that the transaction is approved by the directors of each corporation and also by two-thirds in interest of the stock outstanding and entitled to vote. A certificate in prescribed form is required

1 Ferguson v. Meredith, 68 U. S. 25.

2 This is the prevailing opinion. See 7 Thompson Corp., sec. 8231. In Maryland, all charters granted since the Constitution of 1851 took effect may be repealed, and within certain limitations, amended. See post, Chap. XIX.

Pearsall v. Railroad Co., 161 U. S. 646; Gibbs v. Consol. Gas Co., 130 U. S. 396.

• Code 1911, Art 23, sec. 29; note special provisions for particular classes of corporations,-e. g. railroads, sec. 283; lighting companies, sec. 151. Provision is made by sec. 31 for the rights of dissenting shareholders.

to be executed and recorded, whereupon "all the property and assets belonging to said former separate corporations of whatsoever nature and description, and all the powers and rights and all debts and liabilities of said former separate corporations of whatsoever nature and description, shall, upon such recording, as aforesaid, be devolved upon said new consolidated corporation, which shall be regarded as substituted by operation of law in the room and stead of said former separate corporations."

The provisions just quoted govern corporations having a capital stock. For the consolidation of corporations having no capital stock, special provision is made.1 These may unite with corporations incorporated for a similar purpose and having no capital stock, provided that a majority of the members of each of the corporations entering the consolidation assent thereto. A certificate in form prescribed is required to be executed and recorded, whereupon "all the property and assets belonging to said former separate corporations and all their powers and rights and all the debts and liabilities of said former separate corporations shall be devolved upon said new consolidated corporation, and every devise or bequest in favor of either of the former separate corporations which it would have been capable of taking shall devolve upon said new consolidated corporation, which shall be regarded as substituted by operation of law in the place and stead of said former separate corporations."

Second. In the proper sense of the word, consolidation results in the creation of a new entity into which the constituent corporations are merged and dissolved; but sometimes the result contemplated by the enabling statute is a union or alliance of two or more corporations rather than

1 Code 1911, Art. 23, sec. 89.

a true consolidation. The distinction is important. If a new corporation has been born and the former ones have passed away, its rights and powers are determined by the law existing at the date of its birth, and the immunities, exemptions, and those powers of the constituent companies which are in their nature personal, may be held to have died with them.1 Particularly is this true of a special exemption

1 In Diggs v. Fidelity Co., 112 Md. 50, the court, speaking of the effect of a consolidation on the un-issued bonds secured by the mortgage of a constituent corporation, said:

"Both the statute under which this consolidation was made and the decisions of this Court in construing similar consolidations require us to hold that the corporate existence and powers of both the Gas and the Power Company perished in the process of consolidation and that the resultant Consolidated Company was a new and separate corporation and that the rights then conferred on it were acquired by a new and special grant from the State and did not accrue to it by way of transfer from the constituent corporations or either of them *** It is true that the means adopted by the Legislature to carry into effect its purposes involved the extinction of the life of the constituent corporation and the creation of a new corporation which is a legal unit and not a mere association or aggregation of coexisting corporations. The rights and powers received by it, from the State, at its formation, although identical in character with those which had been possessed by the extinct constituent corporations, are its own rights and powers and are exercisable by it alone. The property and franchises formerly held by the extinct constituent corporations, which devolved through the consolidation on the new corporation, thereby became its own and are held by it in its own right with the same powers of use and disposition as those enjoyed by other corporate owners of property and the respective portions of it which came from the several constituents no longer have any separate legal existence. It may in its discretion apply particular portions of its property to like uses and in the same enterprises to those in which they had been formerly employed by the constituent corporations from which they came,