authorizing the consolidation.12 So the rule that the consolidated corporation acquires all the contract rights of the consolidating corporations only applies to rights acquired by the latter before the consolidation. Where articles of consolidation stipulate that the constituent corporations shall continue in existence for the purpose of settling their liabilities, the new corporation cannot maintain an action on notes indorsed to one of the constituent corporations, without showing ownership of the notes.13 Where a statute authorizes corporations to consolidate, or consolidates them, and vests all their property in the consolidated corporation, including choses in action, the consolidated corporation may sue in its own name on choses in action of the consolidating corporations, although such right may not be given in express terms.14 Thus, a note belonging to one of the constituent corporations becomes the property of and the basis of suit by the consolidated corporation.15 A guaranty bond given a constituent company inures to the benefit of the consolidated company.16 So a fidelity bond inures to the bene fit of the corporation in which a merger has been effected.17 Where railroad corporations were consolidated under a statute providing that the consolidated corporation should possess all the rights theretofore vested in the old corporations, and that all their property and rights of action should be deemed to be transferred to it, it was held that the consolidated corporation could recover on an indemnity bond given by a passenger agent to one of the old companies, its attorney, successors, or assigns, prior to the consolidation, where the 12 Brown V. Dibble's Estate, 65 Mich. 520, 32 N. W. 656; Tuttle v. Michigan Air Line R. Co., 35 Mich. 247; Mansfield, C. & L. M. R. Co. v. Drinker, 30 Mich. 124. 13 Union Pac. Ry. Co. v. Gochenour, 56 Kan. 543, 43 Pac. 1135. 14 University of Vermont v. Baxter's Estate, 42 Vt. 99. 15 Central University of Kentucky v. Walter's Ex'rs, 28 Ky. L. Rep. 1041, 90 S. W. 1066. Where a college and a university are consolidated, the property rights of the constituent corporations are continued in the new corporation subject to the conditions under which the property was acquired. In the case at bar, therefore, a note to one of the corporations to endow a chair therein became the property of the new corporation. Central University of Kentucky v. Walter's Ex'rs, 28 Ky. L. Rep. 1041, 90 S. W. 1066. 16 Springfield Lighting Co. v. Hobart, 98 Mo. App. 227, 68 S. W. 942. On consolidation or merger, a guaranty given to a constituent company inures to the benefit of the consolidated or surviving company and continues in operation. W. H. McElwain Co. v. Primavera, 180 N. Y. App. Div. 288, 167 N. Y. Supp. 815. 17 Lee v. Atlantic Coast Line R. Co., 150 Fed. 775, 787; Pennsylvania & N. W. R. Co. v. Harkins, 149 Pa. St. 121, 24 Atl. 175; Miller v. Lancaster, 45 Tenn. 514. agent retained his position, and performed substantially the same. duties as formerly.18 The contention that where a purchaser of property sells it, the vendee does not stand in the shoes of his vendor and cannot rescind the original sale to his vendor for fraud or other reason, does not apply so as to preclude a suit for rescission by a consolidated corporation of sales made to the constituent companies for fraud therein.19 § 4717. Subscriptions to stock. Unless subscribers to the capital stock of a corporation are released from liability on the subscription by the consolidation of the corporation with another, as elsewhere explained,20 the consolidated corporation succeeds to the rights of the consolidating corporation under the subscriptions, and may enforce the same, provided it shows compliance with all the requirements of the law authorizing the consolidation, but not otherwise.21 § 4718. Municipal aid bonds and subscriptions. When a municipal corporation has not only voted to issue bonds, under legislative authority, in aid of a railroad company, or has voted a subscription to its stock payable in bonds, but has also issued the bonds, the right to the bonds will clearly pass, upon the consolidation of the corporation with another, to the consolidated company. Even when the consolidation is effected before the bonds are issued, but after the municipality has voted the appropriation or subscription, the right to the bonds will vest in the consolidated corporation, if the consolidation was authorized by the charter of the corporation, or by a general law in force at the time of the vote.22 Whether the same rule applies when the consolidation was not authorized at the time 18 Pennsylvania & N. W. R. Co. v. Harkins, 149 Pa. St. 121, 24 Atl. 175. 19 American Ship Building Co. v. Commonwealth S. S. Co., 215 Fed. 304, modifying 197 Fed. 780, 797. 20 See $649, supra. 21 Sprague v. Illinois River R. Co., 19 Ill. 174, 177; Bish v. Johnson, 21 Ind. 299; Hanna v. Cincinnati & Ft. W. R. Co., 20 Ind. 30; Sparrow v. Evansville & C. R. Co., 7 Ind. 369; Tuttle v. Michigan Air Line R. Co., 35 Mich. 247; Mansfield, C. & L. M. R. Co. v. Drinker, 30 Mich. 124; Mansfield, C. & L. M. R. Co. v. Stout, 26 Ohio St. 241; Mansfield, C. & L. M. 22 Bates County v. Winters, 112 U. S. 325, 28 L. Ed. 744; Chickaming v. Carpenter, 106 U. S. 663, 27 L. Ed. 307; New Buffalo v. Iron Co., 105 U. S. 73, 26 L. Ed. 1024; Harter v. Kernochan, 103 U. S. 562, 26 L. Ed. 411; Wilson v. Salamanca, 99 U. S. 199, 25 L. Ed. 330; Nugent v. Board Sup'rs Putnam Co., 19 Wall. (U. S.) 241, 22 L. Ed. 83; Edwards v. People, 88 Ill. 340; Scott v. Hansheer, 94 Ind. 1. of the vote is doubtful, and the authorities on the question are not in accord.23 § 4719. Power of new corporation to execute trusts conferred on constituent companies. Even where there is a consolidation instead of a merger, the new corporation has power to execute a trust conferred upon one of the constituent companies by a testator under his will, the consolidation having been made before the death of the testator.24 And where a corporation which was appointed trustee under a will, was, prior to the death of the testator, merged into another corporation, the latter became entitled, on the testator's death, to act as trustee.25 § 4720. Power of new or absorbing company to issue stock. A New Jersey statute provides that any corporation formed thereunder may purchase property and issue stock to the amount of the value of the property, and "in the absence of actual fraud in the transaction, the judgment of the directors as to the value of the property purchased shall be conclusive." Thereunder a New Jersey company proposed to issue forty-five million dollars of stock to pay for property of a competing company, the owners of which were to put in twelve million dollars in cash. There was evidence that the property to be purchased was not worth more than ten million dollars. A stockholder sought to enjoin the purchase, but relief was denied on the ground that it could not be said that the directors could not honestly entertain the opinion that the property plus the cash did not equal the face value of the stock to be issued, taking into consideration the good-will of the selling company, the contracts and leases connected with it, the saving in freights, and the getting rid of a competitor.26 § 4721. Mortgages and bonds of constituent or consolidated com panies. Mortgages of constituent companies remain a lien on the 23 See the cases above cited. 24 Chicago Title & Trust Co. v. Zinser, 264 Ill. 31, Ann. Cas. 1915 D 931, 105 N. E. 718. 25 In re Bergdorf's Will, 149 N. Y. App. Div. 529, 133 N. Y. Supp. 1012, aff'd 206 N. Y. 309, 99 N. E. 714. Contra, In re Stikeman's Will, 48 N. Y. Misc. 156, 96 N. Y. Supp. 460. Where a testator appointed as executors and trustees two persons and a trust company "and the survivors and successors of them," a company formed before the death of the testator into which the trust company is merged is entitled to letters testamentary, the statute providing for a merger and not a consolidation. In re Bergdorf's Will, supra. 26 Donald v. American Smelting & Refining Co., 61 N. J. Eq. 458, 48 Atl. 786. See also, supra, chapter on Stockholders. mortgaged property, of course, notwithstanding a consolidation.27 In so far as the issuance of bonds by a consolidated corporation is concerned, it is sometimes provided that no bonds shall be issued as a consideration for, or in connection with, the consolidation. However, such a provision has been held not to preclude an increase of the rate of interest as an incident to a readjustment of existing mortgages where another section of the statute authorizes the consolidated company to issue its bonds for the purpose of paying or retiring. any bonds theretofore issued.28 Whether a consolidated corporation may issue bonds to retire prior bonds of one of the constituent companies, as dependent upon the wording of the consolidation agreement, is sometimes involved.29 If a corporation executes a mortgage to secure bonds to be issued for the future acquisition of property by it for its own purposes, the consolidated company cannot issue bonds under such mortgage.30 However, if a corporate mortgage provides that on consolidation, the consolidated company may issue bonds with the same legal rank as though issued by the corporation, the consolidated company may issue bonds of the description of the debt intended to be secured by the mortgage.31 If the consolidated company issues bonds under a mortgage of a constituent company, 27 See § 4730 et seq., infra. 28 Continental Securities Co. V. New York Cent. & H. River R. Co., 217 N. Y. 119, 111 N. E. 484, aff'g 168 N. Y. App. Div. 345, 153 N. Y. Supp. $79. An increase of the rate of interest as an incident to the readjustment of existing mortgages does not con#titute the issue of bonds or other evidences of debt, within a statute forbidding consolidated railroad corporations from issuing "any bonds or other evidences of debt * as a consideration for, or in connection with, such consolidation." Continenfal Securities Co. v. New York Cent. & H. River R. Co., supra. 29 Orrick v. Fidelity & Deposit Co. of Maryland, 113 Md. 239, 77 Atl. 599. The right to discharge underlying mortgages by the issuance of bonds, as provided for in the mortgage of a constituent company, may be exercised by the consolidated company as an incident to the title to the property acquired. Diggs v. Fidelity & Deposit Co., 112 Md. 50, 20 Ann. Cas. 1274, 75 Atl. 517. 30 The reason is that the acquisition of property is rendered impossible by the consolidation. Orrick v. Fidelity & Deposit Co. of Maryland, 113 Md. 239, 77 Atl. 599. Where a mortgage executed by a constituent company provides for the issuance of bonds thereunder to purchase property in the future, and thereafter there is a consolidation, the consolidated company cannot issue bonds for property acquired by it which shall be covered by the lien of such mortgage. Diggs v. Fidelity & Deposit Co., 112 Md. 50, 20 Ann. Cas. 1274, 75 Atl. 517. 31 Orrick v. Fidelity & Deposit Co. of Maryland, 113 Md. 239, 77 Atl. 599. for property purchased, and it retains and uses the property, it is estopped to deny the validity of the bonds in the hands of bona fide holders for value.32 Mortgage bonds fully executed, delivered to the trustee, and certified by it, set apart for the express purpose of paying off certain certificates of indebtedness of a constituent company before consolidation, and where a major portion had been actually used for such purpose, are valid, and the balance may be delivered by the consolidated company.33 But a corporation which buys the assets of another company and assumes a mortgage thereon cannot sell or pledge bonds not issued by the selling company so as to make them an equal lien with the bonds previously issued by the selling company.3 34 The effect of an exchange of bonds of a constituent company, for those of the consolidated company, as provided for in the agreement of merger, where the deposited bonds are held by the trustee uncanceled and the agreement is not consummated because some of the old bondholders refuse to make the exchange, depends largely upon the circumstances and the intention of the parties,35 as does the question whether bonds of a constituent company exchanged for bonds of the consolidated company are deemed in equity to be satisfied.3 § 4722. Exemptions and immunities as passing to new companyIn general. As was explained in a former chapter, when a corporation claims under its charter any exclusive right or privilege, or any right or privilege as against the state, or otherwise as against the general public, the charter is to be construed strictly against the corporation, and in favor of the public, and such a right or privilege will not be held to exist unless it has been granted by the legislature in clear and unmistakable terms.37 This principle applies with full force when a corporation which has succeeded to the rights, franchises and privileges of another corporation claims such a right or privilege enjoyed by the old company, as the right of exemption from taxation, the right of exemption from legislative control in matters affecting the public, etc.38 In determining whether an immunity from the 32 Orrick v. Fidelity & Deposit Co. of Maryland, 113 Md. 239, 77 Atl. 599. 33 Estabrook v. Consolidated Gas, Elec. Light & Power Co. of Baltimore, 122 Md. 643, 90 Atl. 523. 34 Security Sav. Bank & Trust Co. v. St. Louis Chemical Co., 172 Mich. 74, 137 N. W. 807. 35 Burlington City Loan & Trust Co. v. Princeton Lighting Co., 72 N. J. Eq. 891, 67 Atl. 1019. 36 Burlington City Loan & Trust Co. v. Princeton Lighting Co., 72 N. J. Eq. 891, 67 Atl. 1019. 37 See §§ 773, 774, supra. 38 Covington & L. Turnpike Road Co. v. Sandford, 164 U. S. 578, 41 L. Ed. 560. |