To constitute a "subscription " by a county to stock in a
railroad company, it is not necessary that there be an act of
chirographical subscribing. A resolution of the county declaring a
subscription made, an acceptance of such subscription by the
railroad company, and notice to the county of such acceptance; the
delivery to the railroad company by the proper county officers of
the county bonds, and acceptance by the county of the corresponding
stock, voting as a stockholder and levying a tax to pay the
interest on the bonds, estop the county (assuming that it had a
legal right to subscribe) from denying its subscription.
Page 86 U. S. 242
2. Although a subscriber for stock in a company is released from
his subscription by a subsequent alteration of the organization or
purposes of the company, this is only when such alteration is a
fundamental one, and when, in addition, it is not provided for or
contemplated by either the charter itself or the general laws of
the state.
Error to the Circuit Court for the Northern District of
Illinois, in which court, in December, 1872, Nugent sued the
Supervisors of Putnam County, Illinois, on coupons for the interest
of certain bonds issued by the said county.
The case, as appearing on demurrer to a replication by the
plaintiff to several pleas of the defendant, and by admitted
statutes, was thus:
A general statute of the State of Illinois entitled "An act to
enable railroad companies . . . to consolidate their stock," passed
February 28, 1854, thus enacts:
"SECTION 1. All railroad companies now organized, or hereafter
to be organized, which now have, or hereafter may have their
termini fixed by law, whenever their said road or roads intersect
by continuous lines, may, and the same are hereby authorized and
empowered to consolidate their property and stock with each other,
and
to consolidate with companies out of this state, whenever
their lines connect with the lines of such companies out of this
state."
"SECTION 2. The said companies, when so consolidated, shall be
authorized to agree upon the name or names of such consolidated
company, and by such name or names the said consolidated company
shall be a body corporate and politic, . . . and shall have all the
powers, franchises, and immunities which the said respective
companies shall have by virtue of their respective charters, before
such consolidation passed, within the State of Illinois."
A similar general statute exists in Indiana. [
Footnote 1]
This public statute being in force, the State of Illinois, on
the 15th of April, 1869, by special act, incorporated the Kankakee
& Illinois River Railroad Company. The company was authorized
to make and maintain a railroad from the
Page 86 U. S. 243
eastern line of the state to a place called Bureau Junction, and
had liberty to increase its stock to such an amount as might be
necessary to complete its road. The eleventh section of its charter
ran thus:
"SECTION 11. It shall be lawful for said company, and they shall
have power to unite or consolidate its railroad with any other
railroad or railroads now constructed, or being constructed, or
which may hereafter be constructed within this state
or any
other state which may cross or intersect the same
or be
built along the line thereof upon such terms as may be
mutually agreed upon between said company, or any other company.
And for said purpose, full power is hereby given said company to
make and execute such contracts with any other company or companies
as will secure the object of such connections or
consolidations."
At the same time, the County of Putnam was empowered by a
general law of the state to subscribe for the stock of the company
and to issue its bonds in payment of its subscription. In attempted
exercise of the power thus conferred, the board of supervisors of
the county, on the 4th day of June, 1869, ordered an election to be
held to determine whether the county should subscribe for stock of
the railroad company to the amount of $75,000, to be paid for with
the bonds of the county, provided the railroad should be so located
and constructed through or within one-half mile of the town of
Hennepin. The election was held, and it resulted in favor of the
subscription. On the 4th day of January, 1870, another election was
ordered, to determine whether the county would subscribe for
$25,000 more of the stock, to be paid in the same manner and with a
similar provision respecting the location of the road. This
subscription was also sanctioned by the popular vote. On the 24th
day of September, 1869, the railroad company accepted the $75,000
subscription, and on the 27th of October next following, gave
notice of the acceptance to the board of supervisors of the county.
This was put upon record, and on the same day the board of
supervisors adopted a resolution that the subscription was thereby
made for the
Page 86 U. S. 244
building of the railroad, and directed the clerk of the county
court to execute and deliver the bonds on behalf of the county. The
resolution also declared that the bonds should be issued on the
written order of a committee appointed to protect the interests of
the county; that they should not be issued until the railroad
company should have made a
bona fide contract with
responsible parties for all necessary iron for their road, nor
until the company should have made a
bona fide contract
with responsible parties for laying the iron and operating the road
through the county, as specified in a previous order of the board.
On the 15th day of March, 1870, the second subscription for $25,000
was made in a similar manner, and with like directions.
The bonds, with the proper number of coupons attached, were
executed in proper form by the proper county officers. The bounds
were made payable to the Kankakee & Illinois River Railroad
Company
"or bearer," the coupons to the bearer simply.
On the 12th of January, 1870, and before the instruments were
delivered to the said railroad company, a company had been
organized under the laws of Indiana for the purpose of building a
railroad from Plymouth, Indiana, to the east line of the State of
Illinois at some point to be selected in the direction of Momence
and Kankakee with a view to connection with some railroad leading
westward. Its corporate name was the Plymouth, Kankakee &
Pacific Railroad Company. With this corporation, on the 21st day of
October, 1870, the Kankakee & Illinois River Railroad Company
became consolidated, taking the name of the former. This
consolidation was made at the instance of the board of supervisors
of Putnam County. It was not asserted that it had not been legally
effected. The consolidation being completed, and the conditions
precedent to the delivery of the bonds having been complied with to
the satisfaction of the officers of the county, the bonds and
coupons were delivered to the railroad company, and certificates
for a corresponding amount of stock in the consolidated company
delivered to and received by the county. The county voted as a
stockholder
Page 86 U. S. 245
of the railroad company, and proceeded to levy a tax to pay the
interest on the bonds.
Certain of the coupons passed into the hands of the plaintiff,
Nugent,
bona fide; he having paid value for them in the
market without notice of any defense.
On these coupons it was that the present suit was brought.
The court below, disregarding an argument made in the case, that
the county had made no actual subscription, and that what it had
otherwise done wanted such completeness of action as would amount
to a "subscription" in law to anything -- sustained nevertheless
the demurrer on other grounds. It said:
"I feel compelled to say that I cannot find any line of
distinction between this case and
Marsh v. Fulton County,
[
Footnote 2] but it seems to me
that that case must control the decision of the court in this."
"The vote of the 10th of July, 1869, and the 8th of February,
1870, were both upon the proposition to subscribe to the capital
stock of the Kankakee & Illinois River Railroad Company, a
corporation possessing the power to construct and maintain a line
of road between certain termini in this state, with a capital stock
limited, in any event, to the cost of constructing of this road.
The bonds in question were issued after this Kankakee &
Illinois River Railroad Company had merged itself, by articles of
consolidation, into another corporation, now known as the Plymouth,
Kankakee & Pacific Railroad Company, a road having control of a
different enterprise from that of the original corporation,
possessing a different capital stock, and governed by a different
board of directors, elected upon a different basis, with different
termini to the road."
"In the case of
Clearwater v. Meredith, in the 1st of
Wallace, [
Footnote 3] the
Supreme Court of the United States has passed upon the effect of
consolidating railroad corporations. The principle which I have
alluded to is there clearly announced, namely, that a different
corporation results from the consolidation. The consolidated
company is not either of the original corporations, although it may
take the name of one of them. Here, the original corporation for
the stock of which the County of Putnam
Page 86 U. S. 246
subscribed, was solely under control of the State of Illinois;
its franchises had been created by that state, and were under its
control. The consolidated company is in two states; its affairs are
subject to the control of the legislatures of two states."
"Now the principle of these authorities, it seems to me, is that
the corporate existence of the Kankakee & Illinois River
Railroad Company ceased on the 21st of October, 1871, and from that
time forward whatever franchises it had were merged in the
Plymouth, Kankakee & Pacific Railroad Company, the consolidated
corporation, and after this event had taken place, after what we
may call the legal demise of the Kankakee & Illinois River
Railroad Company, the Board of Supervisors of Putnam County
authorized the issue to the consolidated corporation of the bonds
in question."
"I cannot see any feature in this case which differs from
Marsh v. Fulton County, unless that this is a stronger
case than that. There, the corporation existed in and was
controlled by this state alone, and its termini remained the same,
while this consolidated corporation is a very different enterprise
from the original to which the subscription was authorized."
"It was insisted in the argument, and also in the pleadings,
that these bonds being made payable in terms to the Kankakee &
Illinois River Railroad Company, is a fact which the court should
notice, and which should control the decision of the court. It
certainly is an important fact, and has received consideration, but
I cannot see that it changes the legal bearings of the question.
This was a defunct corporation, and the bonds might just as well
have been made payable to bearer, and the person to whom they are
made payable cuts no figure in the case."
"In the case of
Clearwater v. Meredith, the general law
of the State of Indiana existed at the time the stock in question
was issued. The law of that state and of Illinois are substantially
the same, the two state keeping pace with each other in their
legislation on this question; but the Supreme Court did not hold
that the organic right of either or both corporations to
consolidate changed the rights of the stockholders."
To a judgment against him the plaintiff took this writ of
error.
Page 86 U. S. 247
MR. JUSTICE STRONG delivered the opinion of the Court.
We think the circuit court erred in sustaining the demurrer to
the plaintiff's replication. The bonds to which the coupons in suit
were attached, purport to have been made and issued by the order of
the board of supervisors of Putnam County, in payment of the
county's subscription to the capital stock of the Kankakee &
Illinois River Railroad Company. They are made payable to that
company or bearer, and the plaintiff is a
bona fide holder
of the coupons, having paid value for them without notice of any
defense. If, then, the bonds are valid obligations, if they were
rightfully issued, the right of the plaintiff to a judgment against
the county is plain.
That by what it did in the matter the county became in effect a
subscriber to the capital stock of the railroad company, and liable
for the sums designated, admits of no serious question. The fact
that no subscription was formally made upon the books of the
company is quite immaterial. In
Justices of Clarke County v.
Paris, Winchester & Kentucky River Turnpike Company,
[
Footnote 4] it was ruled that
an order of the county court, by which it was said that it
subscribed for a specified number of shares of road stock, was
binding, the court having authority to make a subscription. In this
case, there was more. There was not only the resolution, declaring
the subscription made, but there was an acceptance by the railroad
company, and notice of the acceptance. The minds of the parties
came together. Both understood that a contract was made, and had
nothing subsequently occurred to change their relations the county
could have enforced the delivery of the stock, and the company
could have compelled the delivery to itself of the bonds, on
performance of the conditions stipulated. So the parties regarded
their relations to each other. The bonds were delivered. The
committee appointed by the board of supervisors to protect the
interests of the county, under whose direction the bonds were
ordered to be issued, were satisfied
Page 86 U. S. 248
that all the prescribed conditions precedent to their delivery
had been complied with, and they so decided. The county accepted
the position of a stockholder, received certificates for the stock
subscribed, voted as a stockholder, and proceeded to levy a tax to
pay the interest falling due on the bonds. Were this all of the
case, the validity of the bonds, and of their accompanying coupons
in the hands of a
bona fide
holder for value, would be beyond doubt.
The circuit court, however, was of opinion, and so decided, that
the bonds are invalid, because before their delivery the Kankakee
& Illinois River Railroad Company had become consolidated with
the Plymouth, Kankakee, and Pacific Railroad Company, another
corporation. This consolidation was authorized by the general laws
of the two states, and by a section in the special charter of the
latter company. No claim is made that it was not legally effected.
The result necessarily was that the consolidated company succeeded
to all the rights, property, and privileges which belonged to each
of the two companies out of which it was formed, before their
consolidation. It was not until after this had taken place that the
county bonds were handed over and sold, and it was certificates of
the stock of the consolidated company which the county
received.
What, then, was the legal effect of the consolidation? Did it
release the county from its prior assumption to take stock in the
Kankakee & Illinois River Railroad Company and give its bonds
in payment? Or, did it render unauthorized the subsequent delivery
of the bonds, and make them invalid even in the hands of a
bona
fide purchaser? These are the only questions presented by the
record that need discussion.
It must be conceded, as a general rule, that a subscriber to the
stock of a railroad company is released from obligation to pay his
subscription by a fundamental alteration of the charter. The reason
of the rule is evident. A subscription is always presumed to have
been made in view of the main design of the corporation, and of the
arrangements made for its accomplishment. A radical change in the
organization or purposes of the company may, therefore, take
Page 86 U. S. 249
away the motive which induced the subscription, as well as
affect injuriously the consideration of the contract. For this
reason, it is held that such a change exonerates a subscriber from
liability for his subscription; or, if the contract has been
executed, justifies a stockholder in resorting to a court of equity
to restrain the company from applying the funds of the original
organization to any project not contemplated by it. But while this
is true as a general rule, it has no applicability to a case like
the present. The consolidation of the Kankakee & Illinois River
Railroad Company with another company was no departure from its
original design. The general statute of the state, approved
February 28th, 1854, authorized all railroad companies then
organized, or thereafter to be organized, to consolidate their
property and stock with each other, and with companies out of the
state, whenever their lines connect with the lines of such
companies out of the state. The act further declared that the
consolidated company should have all the powers, franchises, and
immunities which the consolidating companies respectively had
before their consolidation. Nor is this all. The special charter of
the Kankakee & Illinois River Railroad Company contained, in
its eleventh section, an express grant to the company of authority
to unite or consolidate its railroad with any other railroad or
railroads then constructed or that might thereafter be constructed
within the state, or any other state, which might cross or
intersect the same, or be built along the line thereof, upon such
terms as might be mutually agreed upon between said company and any
other company. It was therefore contemplated by the legislature, as
it must have been by all the subscribers to the stock of the
company, that precisely what has occurred might occur. Subscribers
must be presumed to have known the law of the state and to have
contracted in view of it. When the voters of the county of Putnam
sanctioned a county subscription by their vote, and when the board
of supervisors, in pursuance of that sanction, resolved to make the
subscription, they were informed by the law of the state that a
consolidation with another company might be made, that the
stock
Page 86 U. S. 250
they proposed to subscribe might be converted into stock of the
consolidated company, and that the liability they assumed might
become owing to that company. With this knowledge and in view of
such contingencies they made the contract. The consolidation,
therefore, wrought no change in the organization or design of the
company to which they subscribed other than they contemplated at
the time as possible and legitimate. It cannot be said that any
motive for their subscription has been taken away, or that the
consideration for it has failed. Hence the reason of the general
rule we have conceded does not exist in this case, and consequently
the rule is inapplicable.
In a multitude of cases decided in England and in this country,
it has been determined that a subscriber for the stock of a company
is not released from his engagement to take it and pay for it by
any alteration of the organization or purposes of the company
which, at the time the subscription was made, were authorized
either by the general law or by the special charter, and a clear
distinction is recognized between the effect of such alterations
and the effect of those made under legislation subsequent to the
contract of subscription. In
Cork & Youghal Railway Company
v. Paterson, [
Footnote 5]
which was an action to recover a call of one pound per share on one
hundred shares subscribed, it appeared that the defendant was one
of the subscribers to the agreement for the Cork, Middleton &
Youghal Railroad Company. That agreement authorized the provisional
directors to extend the purposes of the organization, to change the
termini of the road, and to amalgamate with other companies. The
subscriber's agreement for the Cork & Waterford Railroad
Company contained similar provisions. After the defendant's
subscription was made the two companies executed a deed of
amalgamation, without any other assent of the defendant than his
signature to the subscriber's agreement for the first-named
company. Upon this state of facts all the judges held that he
remained liable on his subscription.
Page 86 U. S. 251
Its effect was said, by Chief Justice Jervis, to be an authority
to the company to tack his subscription to anything else they might
see fit, and thus make him a subscriber to that, and therefore,
added the judge, by signing the Cork & Youghal, he afforded an
authority to the directors to apply his signature to the Cork &
Waterford, and so make him a subscriber to that. To the same effect
are the cases of
Nixon v. Brownlow and
Nixon v.
Green. [
Footnote 6] The
American authorities are equally explicit. They uniformly assert
that the subscriber for stock is released from his subscription by
a subsequent alteration of the organization or purposes of the
company, only when such alteration is both fundamental
and not
provided for or contemplated by either the charter itself or the
general laws of the state. In
Sparrow v. Evansville &
Crawfordsville Railroad Company, [
Footnote 7] where it appeared that after a public act had
taken effect authorizing the consolidation of the charters of two
railroad companies, the defendant had subscribed for shares in one
of them, and a consolidation was afterwards made, he was held
liable to the consolidated company for his subscription, and this
though the consolidation took place without his knowledge or
consent. The same doctrine was asserted in
Bish v.
Johnson. [
Footnote 8] The
Supreme Court of Connecticut recognized the rule in
Bishop v.
Brainerd, [
Footnote 9] and
a subscriber to one company was held to be a debtor to the
consolidated company in a case where there was no general authority
to consolidate, but the charter of the company was subject to
amendment by the legislature, and where the legislature, after the
subscription confirmed the consolidation.
Many other citations are at hand, but these are sufficient.
Page 86 U. S. 252
No well considered cases are in conflict with them.
Marsh v.
Fulton County is altogether a different case. In that, it
appeared that the people of the county voted in November, 1853, in
favor of a subscription for stock in the Mississippi & Wabash
Railroad Company, and in April, 1854, the board of supervisors of
the county ordered their clerk to make the subscription. It was
not, however, then made. Subsequently, in 1857, the legislature
made fundamental changes in the organization of the company,
dividing it substantially into three companies, with a distinct
governing body for each, and with three classes of stockholders. It
was after this that the county subscription was made, and made not
for the stock of the Mississippi & Wabash Railroad Company, but
for the stock of one of the divisions. Necessarily, therefore, we
held that there was no authority to make the subscription which was
made, that it had not been approved by a popular vote, and hence
that the bonds issued in payment for it were invalid. The county
had entered into no contract until after the radical changes had
been made in the organization of the company. It never assented to
such a change, and when the proposed subscription was approved by
the popular vote, there was no reason to expect the change
afterwards made. There was at that time nothing in the general law
of the state, and nothing in the charter, which authorized the
company to change its organization, or which looked to its division
into several distinct corporations. It needs nothing more to show
how unlike that case was to the present.
In the case in hand, the county had, under lawful authority,
undertaken to subscribe for stock before the consolidation was
made, and the undertaking had been accepted. A liability had been
incurred, and the business agents of the county, to whom
exclusively the law entrusted the management of its affairs,
consented to and promoted the consolidation. And the subscription
was made in full view of the law that allowed an amalgamation with
another company. The contract was made with reference to that law.
Nothing has taken place which the county was not bound to
anticipate
Page 86 U. S. 253
as likely to happen, and to which the people in voting for the
subscription, and the board of a supervisors in directing it, must
not be considered as having consented. What was ruled in
Marsh
v. Fulton County, therefore, does not touch this case. Nor was
there anything decided in
Clearwater v. Meredith which
sustains in any degree the defense set up on behalf of the
defendants.
We have, then, in brief, this case: the people of Putnam County,
in pursuance of law, voted a county subscription for stock in a
railroad company, to be paid for with county bonds. The financial
agents of the county agreed to make the subscription, and the
company accepted it. The bonds were made payable to the company, or
bearer, but before they were delivered, the company became
consolidated with another, in pursuance of authority conferred by
the law in force when the subscription was voted, and at the
instance of the board of supervisors of the county. All the
conditions precedent to the delivery of the bonds were complied
with to the satisfaction of the county agents, certificates for the
stock were received, and the bonds were delivered and sold. The
plaintiff is a
bona fide holder of some of the coupons for
value paid. It would, we think, be a reproach to the administration
of justice if he cannot enforce the payment of those coupons, and
we see no principle of law or equity that stands in the way of his
action. He found the bonds and the coupons upon the market, payable
to the Kankakee & Illinois River Railroad Company, or bearer.
Proposing to buy, he had only to inquire whether the county was, by
law, authorized to issue them, and whether their issue had been
approved by a popular vote. He was not bound to inquire farther,
and had he inquired he would have found full authority for the
issue, and if he had also known of the consolidation it would not
have affected him.
Judgment reversed and the cause remitted with instructions
to overrule the defendant's demurrer.
Dissenting, MR. JUSTICE DAVIS and MR. JUSTICE MILLER.
[
Footnote 1]
Act of February 23, 1853;
See Clearwater v.
Meredith, 1 Wall. 26.
[
Footnote 2]
77 U. S. 10 Wall.
676.
[
Footnote 3]
Page
68 U. S. 25.
[
Footnote 4]
11 B.Monroe 143.
[
Footnote 5]
37 English Law & Equity 398.
[
Footnote 6]
3 Hurlstone & Norman 686.
[
Footnote 7]
7 Porter (Indiana) 369.
[
Footnote 8]
21 Ind. 299;
see also Hanna v. Cincinnati, 20
id. 30.
[
Footnote 9]
28 Conn. 289;
see also Schenectady & Saratoga Plankroad
Co. v. Thatcher, 1 Kernan 102;
Buffalo & New York City
Railroad Co. v. Dudley, 4
id. 336;
Meadow Dam v.
Gray, 30 Me. 547;
Agricultural Branch Railroad Co. v.
Winchester, 13 Allen 32;
Noyes v. Spaulding, 27 Vt.
420;
Pacific Railroad Co. v. Renshaw, 18 Mo. 210;
Fry
v. Lexington, 2 Met. 314;
Illinois River Railroad Co. v.
Beers, 27 Ill. 189;
Terre Haute & Alton Railroad Co.
v. Earp, 21
id. 292.
