Whiting v. MaLden & M.R. Co.

• Decision Date: 22 May 1909
• Citation: 202 Mass. 298,88 N.E. 907
• Parties: WHITING v. MALDEN & M. R. CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

202 Mass. 298

88 N.E. 907

WHITING v. MALDEN & M. R. CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

May 22, 1909

COUNSEL

J. B. Warner and H. L. Harding, for plaintiff.

Gaston Snow & Saltonstall, for defendants.

OPINION

KNOWLTON C.J.

This report brings before us questions founded on the plaintiff's exceptions to the twenty-fourth, twenty-fifth and twenty-fixth findings of the master in his original report, in connection with the pleadings and other facts in the case. The plaintiff contends that the defendant the West End Street Railway Company, hereinafter called the 'West End Company,' has become liable to pay the judgments held by the plaintiff against the Maiden & Melrose Street Railroad Company, hereinafter called the 'Malden & Melrose Company,' because of an alleged union and merger of these two corporations. The findings of the master on this point are as follows:

'22. One other claim was made by the plaintiff, namely, that the Malden & Melrose Railroad Company had been consolidated with the West End Street Railway Company, and that therefore the latter is liable for the debts of the former. The West End Street Railway Company conceded that, if there had been such consolidation, it would be liable for such debts; but it denied that there was such a consolidation.

'23. I find that the stock in the Malden & Melrose Railroad Company was gradually acquired by the Middlesex Railroad Company and its successors; that, after the agreement of 1862, the former company took no corporate action except for the choice of officers; that the officers of both companies, in their reports to the Railroad Commissioners for many years after 1862, stated that the former company was being operated by the latter company, under the terms of said agreement; that for many years prior to the consolidation of the Middlesex Railroad Company and the Highland Street Railway Company, in 1886, the president of the Middlesex Railroad Company had owned more than a majority of the stock of the Malden & Melrose Railroad Company, which he had acquired since the lease of 1862; that after the formation of the West End Street Railway Company, he transferred all of this stock to Henry M. Whitney, the president of the West End Street Railway Company, and the stock was then transferred to the said West End Street Railway Company, which reimbursed Mr. Whitney for the amount paid by him; that after this transfer to the West End Street Railway Company the treasurer of that company reported to the Railroad Commissioners that they 'owned the stock and property of the Malden & Melrose Company--all of it--and would like to have the Malden & Melrose Company report omitted'; that the Railroad Commissioners struck the Malden & Melrose Railroad Company from their lists and reported as follows: 'The Malden & Melrose, having been merged in the West End by the purchase of all its capital stock and assets,' etc.

'24. I find that there was no such consolidation as the plaintiff alleges. It was admitted by the plaintiff that the statutory requirements for the consolidation had not been complied with. The taking possession of the property of one corporation by another, the buying of the stock of the former by the latter, or the entire disregard of the former by the latter, as alleged, would not constitute a consolidation making the latter directly liable for the debts of the former.' He also finds that all the property of the Malden & Melrose Company, and all rights and benefits from the use of it that have come to the West End Company, so far as it is practicable to discover and separate them, except those from the use of the property since 1887, have been paid for at more than their full value.

It is very plain that, in the absence of a statutory provision on the subject, the acquisition of all the stock, property and assets of a corporation, by an individual or by another corporation, does not of itself make the new holder liable to pay the debts of the corporation. A mere purchase of such capital stock and assets is a taking of a title, which leaves unsecured creditors with no claim against the purchaser, and with no means of collecting their debts except from the corporation itself. Shaw v. Norfolk County Railroad Company, 16 Gray, 407; Ewing v. Composite Brake Shoe Company, 169 Mass. 72, 47 N.E. 241. In the present case there is no ground for a claim of direct liability of the West End Company to the plaintiff upon these judgments, outside of St. 1887, p. 1072, c. 413, which provides for a consolidation and union of the West End Company with any or all of the other street railway companies authorized to run cars in or into the city of Boston, and for such a consolidation and union of each of these other street railway companies with the West End Company, or any other of said companies, and for the purchase and holding of the whole or any part of the property, rights and franchises of any or all of these companies by any of the others. It becomes necessary to consider this statute, to see whether a liability for these judgments has been created under it.

It provides, in section 1, that 'in every case of consolidation as aforesaid, the corporations uniting shall constitute a new corporation under such name as shall be agreed upon, in the manner and at the meeting aforesaid; but the calling of the first meeting of said corporation * * * shall be provided for in its articles of consolidation,' etc. This shows that, in case of a union by consolidation, a new corporation is formed.

There may be a purchase and holding of 'the whole or any part of the property, rights, and franchises of any or all of' these corporations. 'In every case of purchase by one corporation of the entire property, rights and franchises of another or others, as aforesaid, the corporation purchasing shall have, hold, possess, exercise and enjoy all the locations, powers, privileges, rights, franchises, property and assets which, at the time of such purchase, shall be had, held, possessed or enjoyed by the corporation or corporations selling, or either or any of them, and shall be subject to all the duties, restrictions and liabilities to which they, or either, or any of them shall be subject.' This is another and different provision, whereby one of these corporations may acquire all the rights and become subject to all the liabilities of another corporation without any formal and technical consolidation of the two. By mere purchase, all the rights and franchises pass with its property from one corporation to the other, and, if the selling corporation survives in name, it has no powers, or franchises, or anything else of value. It is, therefore, a union and virtual consolidation, although it is not the statutory consolidation mentioned in the section. In section two there is a provision for reaching the same result by issuing preferred shares of stock of the West End Company and delivering them in exchange for shares of one of these other corporations on terms agreed upon, and depositing the shares received from the other corporation with a trust company in Boston, until all the shares of the other company have been received, and then canceling them. In this case, as in the last, the West End Company acquires all locations, rights, powers, privileges and franchises of the other company, and becomes subject to all its duties, restrictions and liabilities. By either of these three methods the new consolidated company, or the purchasing company, or the West End Street Railway Company after delivering its stock, stands in the place of the company whose property and franchises have been acquired.

In section 1 is this provision: 'But such leases, purchases, sales and consolidations shall be only upon such terms and conditions as shall be agreed upon in the first instance by the directors, and then by a majority in interest of the stockholders of each corporation, called for that purpose, and approved by the Board of Railroad Commissioners.'

The second section is inapplicable to this case, for the stock of the Malden & Melrose Company was not acquired by giving shares of the preferred stock of the West End Company in exchange for it. The master has found that there was no consolidation, that is, that there was no formation of a new corporation under the statute. But he has also found that the West End Company reported to the Railroad Commissioners that it, 'owned the stock and property of the Malden & Melrose Company--all of it--and would like to have the Malden & Melrose report omitted.' Here is an admission of the company, made many years ago, which shows that the condition is such as that referred to in section 1 of this statute when the entire property, rights and franchises of one of these corporations has been acquired by another of them. The admission does not state in terms that the mode of acquisition was exactly that prescribed...