If the statute authorizing a consolidation requires the consent of a certain per cent of the stockholders or members, then of course, if binding, approval by the required per cent of the stockholders or members is a condition precedent.83 Where the vote of a certain per cent "of all the stockholders' is required to effect a consolidation, it has been held that "the more logical and better interpretation to put upon the statute is that what constitutes a majority of stockholders and the manner of voting should be determined in each case by the provisions of the charters of the merging corporations"; and where each share of stock is entitled to one vote the per cent is to be figured on the number of shares and not the number of holders.84 Where a certain per cent of the stock is required to be voted in favor of the consolidation, this means stock actually subscribed and outstanding.85 Acquiescence of a stockholder in the consolidation may preclude any right he has to attack it on the ground that he did not assent thereto.86 § 4686. Consent of creditors. The consent of the creditors of a corporation is not necessary to its consolidation. They cannot prevent a consolidation if it is authorized by the legislature.87 But neither the consolidating corporations nor the legislature can deprive them of their remedy in equity to subject the property of the consolidating corporations, respectively, to the satisfaction of their may be agreed upon. This can be done only with the consent of the legislature. The legislature having decided that such consolidation was promotive of the public welfare, recognized that it had no power to compel a dissenting stockholder to accept stock in the new corporation. Therefore, in the exercise of the right of eminent domain it empowers the corporation to condemn the stock of such dissenting stockholder when it cannot otherwise be acquired. This power is entirely distinct from the power to amend the charter." Spencer v. Seaboard Air Line R. Co., 137 N. C. 107, 120, 1 L. R. A. (N. S.) 604, 49 S. E. 96. 83 Rochambeau No. 128, de L'Union Saint Jean Baptiste d'Amerique v. 85 Market St. Ry. Co. v. Hellman, 109 Cal. 571, 42 Pac. 225. 86 Phinizy v. Augusta & K. R. Co., 62 Fed. 678; Glymont Improvement & Excursion Co. v. Toler, 80 Md. 278, 30 Atl. 651. See also Market St. Ry. Co. v. Hellman, 109 Cal. 571, 42 Pac. 225, and § 4794, infra. 87 People v. Empire Mut. Life Ins. Co., 92 N. Y. 105; Indianola R. Co. v. Fryer, 56 Tex. 609; Houston & T. Cent. R. Co. v. Shirley, 54 Tex. 125; In re Manchester & L. Life Assurance & Loan Ass'n, L. R. 9 Eq. 643. claims.88 As hereafter noticed, creditors of a consolidating corporation may, in the absence of provision to the contrary, maintain actions on their claims against the consolidated corporation, if they see fit to do so.89 But they are entitled, if they choose, to follow the assets of the consolidating corporation, and they cannot be compelled to surrender this right, and accept instead the liability of the consolidated corporation,90 unless there was legislative authority for the consolidation at the time they became creditors.91 § 4687. Power of de facto corporations to consolidate. It is no objection that one of the constituent companies is merely a de facto corporation.92 And the fact that one of three or more constituent companies is not even a de facto corporation does not invalidate the consolidation, so far as third persons are concerned.93 88 Chicago, R. I. & P. R. Co. v. Moffitt, 75 Ill. 524; New Bedford R. Co. v. Old Colony R. Co., 120 Mass. 397. 89 See § 4729 et seq., infra. 90 United States. Wabash, St. L. & P. R. Co. v. Ham, 114 U. S. 587, 29 L. Ed. 235; Smith v. Chesapeake & O. Canal Co., 14 Pet. 45, 10 L. Ed. 347. Alabama. Warren v. Mobile & M. R. Co., 49 Ala. 582. California. Market St. Ry. Co. v. Hellman, 109 Cal. 571, 42 Pac. 225. Illinois. Chicago, R. I. & P. R. Co. v. Moffitt, 75 Ill. 524; Bruffett v. Great Western R. Co. of 1859, 25 Ill. 353. Massachusetts. New Bedford R. Co. v. Old Colony R. Co., 120 Mass. 397. Missouri. Powell v. North Missouri R. Co., 42 Mo. 68. Pennsylvania. Hamilton v. Clarion, M. & P. R. Co., 144 Pa. St. 34, 13 L. R. A. 779, 23 Atl. 53. England. See In re India & L. Life Assur. Co., 7 Ch. App. 651; Griffith's Case, 6 Ch. App. 374; In re Family Endowment Society, 5 Ch. App. 118; In re Manchester & L. Life Assurance & Loan Ass'n, L. R. 9 Eq. 643. 91 Indianola R. Co. v. Fryer, 56 Tex. 609. In this case, authority to con solidate was conferred by the charter of a corporation, and when it afterwards consolidated, it was held that the only remedy of its creditors was against the new corporation. 92 In re Trenton St. Ry. Co. (N. J. Eq.), 47 Atl. 819. See generally as to rights of de facto corporations, §§ 304-321, supra. 93 A new corporation was formed by the consolidation of four street railway corporations. This new consoli dated company thereafter consolidated with other street railway companies forming a second consolidated company. The court held that, assuming that one of the four corporations forming the first consolidated company was lacking in power to enter into the consolidation agreement by reason of want of corporate existence, that inasmuch as the three other constituent corporations were able to form the first consolidated corpora tion, and the fourth corporation, if such de facto only, was able to enter into a consolidation agreement, the second company took the rights of the various constituent companies. In re Trenton St. Ry. Co. (N. J. Eq.), 47 Atl. 819. III. PROCEDURE TO EFFECT CONSOLIDATION § 4688. General rules. Having ascertained that there is statutory authority for a consolidation or merger of corporations, where such a combination is desired, the next step is to consider the procedure to effectuate such a combination, i. e., what must be done and how. And once again, the statutes must be referred to and it will usually be found that the steps to be taken are stated therein with much precision. A statute authorizing two corporations to consolidate does not of itself effect a consolidation, without any action or agreement to that end by the corporations, but merely authorizes them to take proper action to bring about a consolidation.94 Corporations can be consolidated or merged only by the method fixed by statute, if any method is so fixed.95 If the statute requires that the consolidation shall be effected in a certain mode or upon certain terms, its provisions must be substantially complied with, except in so far as they may be merely directory, or no consolidation de jure will take place; and, unless they are at least colorably complied with, there will not be even a de facto consolidation.96 A consolidation effected by a transfer of stock as distinguished from money is not a "sale" so as to be within a by-law of a company providing that no "sale" of any of its stock shall be valid unless first offered for sale to the corporation.97 94 Mason v. Finch, 28 Mich. 282. 95 La Rue v. Bank of Columbus, 165 Ky. 669, 178 S. W. 1033; Cumberland Telephone & Telegraph Co. v. Morgan's Louisiana & T. R. & S. S. Co., 112 La. 287, 36 So. 352; Overstreet v. Citizens' Bank, 12 Okla. 383, 72 Pac. 379; Montgomery v. Seaboard Air Line Ry., 73 S. C. 503, 53 S. E. 987. Where neither of the steps required by statute to be taken to effect a legal consolidation was taken or attempted, there is no consolidation. Beardstown Pearl Button Co. v. Oswald, 130 Ill. App. 290. or Ordinarily the consolidation merger of corporations is accomplished by agreement under legislative authority. Houston & T. C. R. R. Co. v. Shirley, 54 Tex. 125, 137. 96 Brown V. Dibble's Estate, 65 Mich. 520, 32 N. W. 656; Rodgers v. Wells, 44 Mich. 411, 6 N. W. 860; Tuttle v. Michigan Air Line R. Co., 35 Mich. 247; Mansfield, C. & L. M. R. Co. v. Drinker, 30 Mich. 124; Peninsular Ry. Co. v. Tharp, 28 Mich. 506; Mansfield, C. & L. M. R. Co. v. Stout, 26 Ohio St. 241; Mansfield, C. & L. M. R. Co. v. Brown, 26 Ohio St. 223. Where an act authorized corporations to consolidate their capital stock, and a supplemental act authorized one of them to purchase the stock of the other in lieu of consolidation of their capital stock, it was held that an actual sale and delivery of its capital stock by the latter to the former was a consolidation in accordance with the acts. Williamson v. New Jersey Southern R. Co., 26 N. J. Eq. 398. 97 Silversmiths Co. v. Reed & Barton Corporation, 199 Mass. 371, 85 N. E. 433. Where notice of the application to the court for consolidation of membership corporations is required by statute, want of such notice. to many members of one of the companies requires the vacation of the order of consolidation.98 § 4689. Substantial compliance with statute. The mode of consolidation or merger, as fixed by statute must be at least substantially complied with, or else there will not be even a de facto consolidation or merger.99 § 4690. Preparation and adoption of articles of consolidation or merger. Among the steps or formalities often required by statutes authorizing consolidation or merger, and which may be conditions precedent, are an agreement between the stockholders of the consolidating corporations, or an agreement between the consolidating corporations, entered into by their boards of directors, and ratified by their stockholders, or a certain proportion of them, at meetings duly called for that purpose.1 Ordinarily the first thing to do is to prepare an agreement or articles of consolidation or merger. This is usually done by the directors of the corporations interested or by a committee appointed by the stockholders. After being drawn up, 98 In re Lodge Principle & Civility, No. 39, Order Sons of Italy, Inc., 166 N. Y. Supp. 452. 99 See preceding section and also S$ 4785-4789, infra. 1 Bradford v. Frankfort, St. L. & T. R. Co., 142 Ind. 383, 41 N. E. 819, 40 N. E. 741; Wells v. Rodgers, 60 Mich. 525, 27 N. E. 671. 2 Sometimes the consolidation agreement is drawn up by a committee representing the stockholders of the constituent corporations. Dreyfus v. Old Colony Trust, 218 Mass. 546, 106 N. E. 154. Where a consolidation plan was issued by a committee to the stockholders, the committee are not personally liable to a stockholder for acts done in good faith and within the scope of the plan where it was agreed that the committee should not be personally liable in any case except for their own individual malfeasance or neglect. Dreyfus v. Old Colony Trust, 218 Mass. 546, 106 N. E. 154. Directors are not disqualified to act in making arrangements for consolidation because they are common officers in both or all of the constituent companies. Colgate v. United States Leather Co., 73 N. J. Eq. 72, 67 Atl. 657. It has been held that the general rule barring promoters of a corporation from making secret profit at the expense of the corporation and its members does not bar the organizers of a consolidation from purchasing the stock of the proposed constituent corporations and selling same at an advanced price to the consolidated company. Blum v. Whitney, 185 N. Y. 232, 77 N. E. 1159. Where certain parties are by contract to have a certain per cent of the stock of a consolidated corporation contingently upon their obtaining certain funds through an underwrit the agreement or articles are then generally submitted to the stockholders of the interested corporations, and the stockholders of each corporation separately vote on the adoption of the agreement or articles. The agreement must be accepted by at least a majority of the stock or stockholders, who are qualified to vote, at a meeting properly called, and in some states the statutes require more ing syndicate, recovery cannot be had for service rendered on a quantum meruit where they fail to secure the funds and such failure on their part is one of the grounds for the failure of the consolidation. Fry v. Miles, 71 N. J. L. 293, 59 Atl. 246. 3 See § 4685, supra. See generally, §§ 1678-1682, supra. 4 Stockholders who hold bonds and stock in the other company may vote, as may stockholders who are common officers in both companies. Norton v. Union Traction Co. of Indiana, 183 Ind. 666, 687, Ann. Cas. 1918 A 156, 110 N. E. 113. The right of trustees to vote stock, held by them under a voting trust agreement, in favor of consolidation, can be attacked by members of the trust but not by stockholders not in the voting trust. Market St. Ry. Co. v. Hellman, 109 Cal. 571, 42 Pac. 225; Raff v. Darrow, 184 Ind. 353, 111 N. E. 189. A mere pledgee of stock, who is not a registered stockholder, is not entitled to participate in, or to be notified of, the proceedings to effect a consolidation. Cleveland City Ry. Co. v. First Nat. Bank, 68 Ohio St. 582, 67 N. E. 1075. Who may vote at stockholders' meetings in general, see §§ 1657-1676, supra. 5 Notice to stockholders of the constituent companies need not be signed jointly by the secretaries of the several companies. Wells v. Rodgers, 60 Mich. 525, 27 N. W. 671. Notice will be presumed when the record shows that a majority of the directors were present at the meeting and voted to consolidate, and nothing appears to the contrary, and the burden of showing want of notice is on one who denies the validity of the consolidation. Wells v. Rodgers, 60 Mich. 525, 27 N. W. 671. It is within the scope of the authority of, and it is incumbent upon directors to notify, stockholders of a plan for consolidation or for the exchange of their stock for that of another corporation, and the mode of rotice and the expense to be incurred therein is within their discretion, and the corporation is liable for expenditures in the giving of such notice. Rascovor v. American Linseed Co., 135 Fed. 341. A statute providing that any railroad corporation in the state may consolidate with a railroad corporation in an adjoining state, "upon such terms as may be by them mutually agreed upon, in accordance with the laws of the adjoining state," does not require that a meeting of the stockholders of a corporation in the state, called to act upon a proposition to consolidate with a corporation in an adjoining state, shall be called and conducted in accordance with the laws of such adjoining state, but only that the terms of consolidation shall not be in conflict with such laws. Bradford v. Frankfort, St. L. & T. R. Co., 142 Ind. 383, 41 N. E. 819, 40 N. E. 741. Publication of notice of meeting, see Wells v. Rodgers, 60 Mich. 525, 27 N. W. 671; Tuttle v. Michigan Air Line R. Co., 35 Mich. 247. Notice of stockholders' meetings in general, see §§ 1637-1641, supra. |