29

and Virginia to build a single line of railroad in both, it seems that a forfeiture of the charter may be decreed in North Carolina for failure to build part of the line in Virginia; a corporation chartered in two States may be restrained as to all its corporate acts by the courts of either State; 30 but it has been held that the ultra vires act of such a corporation cannot be ratified by the legislature of only one of the incorporating States.31 Where this composite corporate body acts through its agents in a State where it is not incorporated, it would seem to be a partnership of the several corporations, which would then be jointly liable.32

The anomalous position of such a composite corporation is obvious. While for instance it is allowed to hold its meetings and keep its books in one of the incorporating States, that State may at any time annul its charter; the effect of which. would be that it would merely cease to be a corporation of that State, without ceasing to be a valid corporation in the other State.33 It could therefore hold no more meetings in the former State, since the charter of the latter State could have no effect to make it a corporation there; yet while the former State permitted it to exist, a meeting there bound it as a corporation in the latter State. In short, the former State is able to confer upon it, as a corporation of the latter State, a power which the latter State itself cannot confer.

§ 776. Consolidation of corporations by one State.

The process of reincorporating is a process of multiplication. The further tendency of business is not toward multiplication, but toward consolidation. Of the two theoretically

29 Attorney General v. Petersburg & R. R. R., 6 Ired. (N. C.) 456, 472, per Ruffin, C. J.

30 State v. No. Cent. Ry., 18 Md. 193, 213; Freight Discrimination Cases, 95 N. C. 434.

31 Fisk v. Chicago, R. I. & P. R. R., 53 Barb. (N. Y.) 513.

32 Bissell v. Michigan So. & N. I. Ry., 22 N. Y. 258.

33 Kahl v. Memphis & C. R. R., 95 Ala. 337; Hart v. B. H. & E. R. R., 40 Conn. 524.

independent corporations chartered by two States, or of two such corporations really independent in origin, it is desired to make a single corporation. This is accomplished by consolidating the two corporations into one.

Such consolidation can be effected only by legislation.34 A private agreement between the corporations to become one could have no legal effect, for since the original incorporations can only be accomplished by law, so the consolidation, if it is to create a new legal person from the union of the existing elements, must also be a creature of law.

The simplest method of consolidation consists in one of the States which created an existing corporation, or even a third State, granting a new charter; thus creating an entirely new corporation into which the old corporations may be completely merged, or to which they may transfer their entire business. This new corporation is of course an ordinary and simple corporation of the State which grants the charter, and stands in the same relation to the State as any of its corporations; it may be taxed as a domestic corporation,35 its actions may be controlled by the State like those of any domestic corporation,36 it may without a special grant of right take land by eminent domain on the same terms as a domestic corporation,37 and its domicil is in the State.38

§ 777. Effect on the constituent corporations.

The creation of the new corporation does not of itself put an end to the existence of the old ones, which may remain in existence indefinitely; indeed, it is often desirable to continue

34 Pearce v. Railroad, 21. How. 441, 16 L. ed. 184; Continental Tr. Co. v. Toledo, S. L. & K. C. R. R., 82 Fed. 642; American L. & T. Co. v. Minnesota & N. W. R. R., 157 Ill. 641, 42 N. E. 153; New York & S. Can. Co. v. Fulton Bank, 7 Wend. (N. Y.) 412.

35 Ashley v. Ryan, 153 U. S. 436, 38 L. ed. 773.

36 Smith v. Lake Shore & M. S. Ry., 114 Mich. 460, 72 N. W. 328.

37 Toledo, A. A. & G. T. Ry. v. Dunlap, 47 Mich. 456, 11 N. W. 271.

38 Stone v. Farmers' L. & T. Co., 116 U. S. 307, 29 L. ed. 636; Trester v. Mo. Pac. Ry., 33 Neb. 171, 49 N. W. 1110.

39

the old corporations in existence in order to preserve valuable franchises which would not pass to the new corporation.3 But on the other hand the new charter may provide for the old organizations coming to an end. Thus where it was provided that all stock in the old corporations should be called in and replaced by stock of the new corporation, that would work a dissolution of the old corporations so far as they were within the control of the State chartering the new corporation, that is, of all corporations chartered by that State. The legislature having power to dissolve its old corporation as well as to create the new one, it could not more effectually indicate its intention to do so.

"It is impossible to conceive of a corporation existing without stock or certificates representing the interests of the corporators in the organization. Now, if the act provides that these certificates shall be surrendered, and certificates in another company issued in their place, what becomes of the prior companies? Who are their stockholders, who their officers? If the stock in the new company is sold, what interest in the prior companies passes by the sale? There can be but one answer to these questions. The property and franchises of the prior companies are gone as much as if they had formally surrendered their charters. The new company may doubtless receive by transmission from its constituent companies their property, rights, privileges, and franchises, including any immunity from taxation; but it receives them as an heir receives the estate of his ancestor, or as a grantee receives the estate of his grantor, by inheritance, succession, or purchase. The result is not a mere union or partnership of two companies, nor the merger of the franchises of one in another, but the extinguishment of one and the creation of another in its place.'

21 40

39 Keokuk & W. R. R. v. Missouri, 152 U. S. 301, 38 L. ed. 450, and cases cited.

40 Brown, J., in Keokuk & W. R. R. v. Missouri, supra; and see Eaton & H. R. R. v. Hunt, 20 Ind. 457.

§ 778. Consolidation by the joint act of two States.

When the consolidation of corporations of two States takes place not by means of a charter granted by a single State, but by permission given by both States, the position of the corporation is rather difficult to determine. In neither State, it is clear, is it a foreign corporation.41 Since two States, as we have seen, cannot create a single corporation, the consolidated body must at least constitute as many corporations as there are States concerned,42 each corporation being subject to the laws (as for instance those regulating business or concerning taxation) of its own State,43 and having the powers of the constituent corporation of that State.44 And so where one of the States forbade a mortgage, such mortgage given by the consolidated corporation was void as to the property in that State.45

§ 779. Nature of such consolidated corporation.

Are these separate corporations merely the original corporations, which by the consolidation have been permitted to form an extra-legal business combination, or is there in addition a new corporation, or rather a set of new corporations, either succeeding to the business of the old corporations without effecting a dissolution of them, or entirely superseding them?

41 Muller v. Dows, 94 U. S. 444, 24 L. ed. 207; Winn v. Wabash R. R., 118 Fed. 55; In re St. Paul & N. P. Ry., 36 Minn. 85, 30 N. W. 432; State v. Chicago, B. & Q. R. R., 25 Neb. 156, 41 N. W. 125; Smith v. Boston, C. & M. R. R., 33 N. H. 337; In re Sage, 70 N. Y. 220; Sprague v. Hartford Ry., 5 R. I. 233.

42 Nashua & L. R. R. v. Boston & L. R. R., 136 U. S. 356, 34 L. ed. 363; Pac. Ry. v. Mo. Pac. Ry., 23 Fed. 565; Mo. Pac. Ry. v. Meeh, 69 Fed. 753; Continental Tr. Co. v. Toledo, S. L. & K. C. R. R., 82 Fed. 642; Chicago & W. I. R. R. v. Lake Shore & M. S. Ry., 10 Biss. 122, 5 Fed. 19; Racine & M. R. R. v. Farmers' L. & T. Co., 49 Ill. 331, 348, 95 A. D. 595.

43 Stone v. Farmers' L. & T. Co., 116 U. S. 307, 29 L. ed. 636; Quincy R. R. Bridge Co. v. Adams County, 88 Ill. 615; Ohio & M. R. R. v. Weber, 96 Ill. 443; Chicago & N. W. Ry. v. Auditor General, 53 Mich. 79; Sprague v. Hartford Ry., 5 R. I. 233.

44 Mead v. New York, etc., R. R., 45 Conn. 199.

45 Pittsburgh & S. L. R. R. v. Rothschild, (Pa.) 4 Cent. 107, 4 Atl. 385.

It has been urged by

This question is not easy to answer. high authority that the permission to consolidate, not being accompanied by a new charter from any one State, does not create a corporation; that the consolidated body formed in accordance with the permission of the States concerned is at most a corporation de facto, or perhaps only a business union of the several companies under a common name, the old corporations still exercising their several powers in their respective States in the name of the consolidation.46 It is clear that the constituent corporations do not necessarily or generally cease to exist.47 But it is certain that no corporation de facto can be recognized if there can be no corporation de jure, 48 and if they do cease to exist it must be because each State has so provided, which is not a natural interpretation, because neither State, in authorizing the consolidation, "can have intended to abandon all jurisdiction over its own corporation created by itself."' 50 But though the old corporations usually continue in existence, a new association of some sort is undoubtedly formed, a community of stock and interest between the companies; there is almost invariably a new set of books opened, new stock issued, new stockholders and new officers provided for the consolidated company. This, it would seem, is sufficient to create a new commercial entity, and since it results from permission given by law the new entity constitutes a legal person.51 But this new person is not created by the law of any one State. Concurrent legislation of all the States was essential to the completion of the consolidation.52

46 Cooley, J., in State Treasurer v. Auditor General, 46 Mich. 224. 47 Ohio & M. Ry. v. People, 123 Ill. 467, 14 N. E. 874.

48 American L. & T. Co. v. Minnesota & N. W. R. R., 157 Ill. 641, 42 N. E. 153.

49 People v. New York, C. & S. L. R. R., 129 N. Y. 474, 29 N. E. 959.

50 Field, J., in Nashua & L. Corp. v. Boston & L. Corp., 136 U. S. 356, 34 L. ed. 363.

51 St. Louis, I. M. & S. Ry. v. Berry, 113 U. S. 465, 28 L. ed. 1055; Winn v. Wabash R. R., 118 Fed. 55.

52 People v. New York, C. & S. L. R. R., 129 N. Y. 474, 29 N. E. 959.