Nugent v. The Supervisors

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 28th, 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.

This public statute being in force, the State of Illinois, on the 15th of April, 1869, by special act, incorporated the Kankakee and Illinois River Railroad Company. The company was authorized to make and maintain a railroad from the 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 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 bon a fide contract with responsible parties for all necessary iron for their road, nor until the company should have made a bon a 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 and 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, and Pacific Railroad Company. With this corporation, on the 21st day of October, 1870, the Kankakee and 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 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, bon a fide; he having paid value for them, in the market, without notice of any defence.

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, 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 and 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 and Illinois River Railroad Company had merged itself, by articles of consolidation, into another corporation, now known as the Plymouth, Kankakee and 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, 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 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 and 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 and Pacific Railroad Company, the consolidated corporation, and after this event had taken place, after what we may call the legal demise of the Kankakee and 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 and 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.

Mr. T. M. Shaw, for the plaintiff in error; Mr. T. L. Dickey, contra.

Mr. Justice STRONG delivered the opinion of the court.