John Hancock Mutual Life Insurance v. Worcester, Nashua, & Rochester Railroad

Holmes, J. The plaintiff is the holder of bonds which were issued by the Nashua and Rochester Railroad, and guaranteed by the Worcester and Nashua Railroad, and which gave the holder the right to convert them into stock of the former corporation, at par, at any time after the completion of its road, — all by express authority of special statute. The road has been completed, and since then the two railroad corporations have been consolidated under a statute authorizing it. The statute subjects the new corporation to all the contracts of the old, in terms to be stated. The plaintiff has made a demand upon the new corporation, which has been refused, and the question is, whether it can recover damages for the refusal, or whether its right to convert the bonds into stock was ended, or at least limited in point of time by the consolidation. It is argued that the contract to exchange stock for bonds depended on the continued existence of the contracting corporation, the stock of which was to be delivered, and that the bonds cannot be taken to have bound the Nashua and Rochester Railroad to continue in existence. We have no occasion to controvert these or any other general propositions advanced for the defendant. Neither do we lay down any general proposition in deciding for the plaintiff. We deal only with this particular consolidation. When these bonds were issued, the obligor’s road was under a long lease to the Worcester and Nashua Railroad. The latter was required by statute to guarantee the bonds. It paid the interest directly to the bondholders, and after a time it mortgaged its road as a further security. Soon after the bonds were issued, the Worcester and Nashua road was authorized to buy the bonds and stock of the Nashua and Rochester Railroad, with a proviso requiring the former to exchange the stock of the latter for its bonds on presentation. Subsequently the consolidation was authorized, and was car-' ried through. The parties in uniting may not have dealt on a footing of perfect equality, as a dividend of three per cent per annum was paid the stockholders in the old corporations from the dates of the last dividends declared to the time of the union. [220] The dates of the last dividends declared by the two corporations are said to have been different. But the Legislature contemplated equality. It dealt with the shares in both of the old corporations as exactly equal to the shares in the new. These were to be exchanged share for share, and “upon such other equal terms for each such share as may be mutually agreed upon.” Under such circumstances the addition of the franchise of another corporation.to that of the obligor was represented by a determinate number of shares in the new corporation, that is to say, by a number equal to the number of shares in the corporation thus united to the obligor. In substance, the case is not different from what it would have been if the Nashua and Rochester Railroad had been authorized to issue the same amount of full paid stock, and to build an extension of its road over what was actually the Worcester and Nashua Railroad, and then to change its name. It is usual for consolidating statutes to introduce more or less of the element of succession, or continuity of legal person as to existing rights and duties, notwithstanding the fact that in other respects the old and new corporations are not the same; e. g. Boston & Providence Railroad v. Midland Railroad, 1 Gray, 340, 359; Abbott v. New York & New England Railroad, 145 Mass. 450, 453; Pullman's Palace Car Co. v. Missouri Pacific Railway, 115 U. S. 587. It is for the Legislature to say how far the new corporation shall be, as it were, the heir, executor, or continuer of the old. In the case at bar, we have to take into account the intimate connection of the two corporations with each other and with these bonds, the knowledge which the Legislature must be presumed to have had, the terms of the consolidation, and the very strong provisions on the question before us. The act reads : “ The corporation so established shall ... be subject to all' the duties, restrictions, obligations, debts, and liabilities to which, at the time of the union, either of said corporations is subject.” And “ all claims and contracts . . . against either corporation may be enforced by suit or action, to be 'commenced and prosecuted . . . against the corporation to be established under this act.” We are of opinion that these words are too strong for the defendant’s argument, and that, whether [221] the plaintiff was entitled to demand shares in the new company or not, it was entitled to hold the defendant to its predecessor’s contract. When the defendant failed to deliver stock, either in the new company or the old, on demand, it became liable to the damages agreed as of that date. As in our view the plaintiff’s right to demand stock was unabridged by the consolidation, its acceptance of interest from the new corporation had no more effect than acceptance of it from the old one. It had a right to make its election when it chose. Judgment for the plaintiff affirmed.