Appellants Brief — Chicago, M. & St. PR Co. v. United States

Supreme Court of the United States.

OCTOBER TERM, 1904.

No. 198.

THe CHICAGO, MILWAUKEE & Sts PAUL RaiLway

Company, Appellant,

08.

Tur UNITED STATEs.

Appeal from the Court of Claims.

Appellant's Brief.

I.

The original petition was filed in the Court of

Claims August 25, 1896, and the amended eee

was filed July 19, 1900. (Page 1.)

To this amended petition the appellant 3

for two reasons:

First. Because the claim has come to the claimant,

if at all, by a pretended assignment which, as to the

United States, is void.“

Second. Because the amended petition does not

state facts sufficient to constitute a cause of action.

(Page 11.)

The right of the appellant to sue is pleaded at

length in part VI of the amended petition. (Pages

9 and 10.) The essential portions are as follows:

Tour petitioner further avers that on the 30th

day of September, 1890, it became the purchaser,

and thereupon it became the lawful owner by

assignment and transfer, of all.of the capital stoc

of the said Milwaukee & Northern Railroad Com-

pany; that on the ist day of October, 1890, the

board of directors of the Milwaukee & Northern

Railroad Company Was reorganized by the election

of persons who were either directors or officers of the

petitioner, and the offices were filled by the election

of persons who were officers of its company, with the

solitary —— of the president of the Milwaukee

& Northern lroad Company; that from the 30th

day of September, 1890, until the 26th day of

June, 1893, that company operated the railroad as

a separate ge es arangy and in the name of ‘the

Milwaukee & Northern Railroad Company; that

on the 26th day of June, 1893, pursuant to a vote

of the stockholders of the Milwaukee & Northern

Railroad Company, the latter company executed a

deed to the petitioner, whereby it conveyed to

petitioner all its railroads, railways, rights of way,

depot grants, tracks, bridges, etc., and also all

other property and choses in action whatsoever,

both real and personal, of the sdid Milwaukee &

Northern Railroad Company, and all its rights,

privileges, and corporate franchises connected with

or relating to such railroad or to the construction,

maintenance, use, or operation of the same. . And

that thereafter, to wit, August 28, 1893, the Mil-

waukee & Northern Railroad Company held its last

stockholders’ meeting and its last directors’ meet-

3

ing, and since that time it has not exercised any

corporate ‘functions or powers, nor has it pretended

to do anything of the sort. Your petitioner

avers that by reason of the premises it has been

the owner of the claim in suit ever since June 26,

1893, and is now the owner of the foregoing claim,

no part thereof having been assigned or trans-

ferred by the petitioner in any way, and that it is

entitled to receive payment thereof.“

We may summarize these averments as follows:

The appellant became the owner, September 30,

1890, through purchase and assignment, of all the

capital stock of the Milwaukee & Northern, and

from that time until June 26, 1893, appellant

operated the Milwaukee & Northern in the name

of that company, at which latter date, pursuant

to a vote of its stockholders, the Milwaukee &

Northern conveyed to appellant all its railroads,

rights of way, etc., all other property and choses in

action, both real and personal, and all its rights,

privileges, and corporate franchises, to the appellant.

Since August 28, 1893, the Milwaukee & Northern

has not exercised any corporate functions or powers.

In other words, the appellant absorbed or consoli-

dated with the Milwaukee & Northern, a thing it

had a perfect right to do under the laws of Wisconsin

then and now in force.

In part I of the petition (p..1), it is averred that

the appellant’s line extended from Milwaukee, Wis-

consin, to Republic, Michigan, and thence was ex-

tended to Champion, Michigan. The line was in

two States. This absorption or consolidation was

lawful.

The company was organized under the laws of Wis-

4

consin. (Page 1.) Section 1830 of the laws of Wis-

consin provided :

‘‘Any railroad corporation heretofore or hereafter

organized pursuant to any law of this State may

exercise all its rights, franchises. and privileges in

any other State or Territory in the United States,

under and subject to the laws of the State or Territory

where it may exercise or attempt to exercise the same,

and may accept from any other State or Territory,

and use any additional or other powers or privileges

applicable to the carrying of persons and property

by railway or steamboat in said State or Territory,

or otherwise applicable to the doings of said corpo-

ration in said State or Territory.“

This statute gave the appellant the right to exercise

all its rights, franchises, and privileges in the State

of Michigan but subject to its laws.

Turning now to section 1833 of the laws of Wis-

consin, we find that any railroad corporation organized

or existing under the laws of that State may consoli-

date its stock, franchises, and property with any

other railroad corporation, whether within or without

the State of Wisconsin, etc., and may become one

corporation by any name selected. The section then

proceeds as follows:

Any such railroad corporation may lease or pur-

chase, and take a conveyance or assignment of the

railroad, franchises, immunities, and all other pro-

perty and-appurtenances, and the stock or bonds

thereof, of any other railroad corporation, or any

portion thereof, within or without this State, when

their respective railroads can be lawfully connected

and operated together to constitute one continuous

main line, or when the road so purchased will consti-

tute branches or feeders of any road maintained and

operated by such purchasing corporation.“ “

5

This statute plainly conferred on the appellant the

power to consolidate with the Milwaukee & Northern

and purchase its stock, and the power to purchase and

take a conveyance or assignment of the railroad,

franchises, immunities, and all other property and

appurtenances, and the stock or bonds thereof.“

* * * Statutes of similar purport are in force in

Michigan. Howell's Statutes, sec. 3343; Compiled

Laws Mich. (1897), sec. 6254, 6339.

It will be observed that the conveyance or assign-

ment under the Wisconsin statute not only covers the

railroad, franchises, and immunities, but it also

covers all other property and appurtenances.”’

This language covers the claim sued on in this case.

The words all other property“ clearly include

personal property, rights, claims, demands, and

choses in action, as we think. If so, has there been

such an assignment or transfer of the demand sued on

as is forbidden by law?

Section 3477, Rev. Stat., forbids transfers or assign-

ments of any claim upon the United States, or of any

part or share thereof, or interest therein, unless made

after the allowance of a claim, etc. Was the trans-

action by which the appellant took the conveyance

and assignment of all the property and -rights of the

Milwaukee & Northern, such a transfer or assignment

‘as is forbidden by section 3477 Here the corporate

entity of the Milwaukee & Northern was absorbed by

the appellant. The Milwaukee & Northern lost its

corporate existence. The two corporations became

one. All the properties, franchises, and immunities

of the Milwaukee & Northern were merged into and

became parts of the appellant corporation. The

public functions that had been exercised and the

public duties that had been performed by the Milwan-

kee & Northern have been exercised and performed

by the appellant since June 26, 1893. At that time

there was a complete legal union of the two companies

but in the name of the appellant, and since that date

the appellant has held and enjoyed all of the cor-

’ porate properties, rights, privileges, franchises, and

immunities of the Milwaukee & Northern. We

submit that these transactions did not culminate ina

result forbidden by section 3477, for everything done

was expressly permitted by statute.

Section 3477 has been considered in a number of

cases that seem to establish the principle for which

we are contending.

This court has held that assignments for the

benefit of creditors, and assignments to assignees in

bankruptcy, do not fall within the prohibition of

section 3477. This is so because all such assignments

are made pursuant to laws expressly authorizing them.

Goodman vs. Niblack, 102 U. S., 556; Hrwin vs.

U. S., 97 U. S., 392; Butler vs. Goreley, 146 U. S.,

303.

In the bankruptcy cases the assignments were made

pursuant to the laws of the United States, but in the

insolvency cases the assignments were made pursuant

to the laws of the various States.

We ask particular attention to the fact that this

court has more than once decided that an assignment

made in compliance with the laws of a State is valid,

. lawfal, and beyond the purview of section 3477.

(See cases last cited.)

If an assignment for the benefit of creditors, made

under a State law, is valid, notwithstanding the pro-

visions of section 3477, it would seem to follow

inevitably that an absorption, consolidation, merger,

7

or transfer, made as in part VI of the petition de-

scribed, and in all respects in compliance with the

laws of the States of Wisconsin and Michigan, must

be held valid, lawful, and entirely beyond the pro-

visions of ‘that section of the Revised Statutes.

What is the effect of the Wisconsin statutes already

quoted in this brief? What is the effect of that which

was done between the appellant and the Milwaukee c

Northern under that statute? The Wisconsin statute

not only consents to, but authorizes, the consolidation

of existing corporations. It is a general rule, in the

absence of statutory denials or restrictions, that a

consolidation of corporations has the effect of dis-

solving former corporations and at the same instant

creating a new corporation with the properties, liabili-

ties, and stockholders derived from the old, upon

such terms and conditions as may have been pre-

scribed by the act of consolidation. McMahon vs.

Morrison, 16 Ind., 172. That case is printed with an

elaborate note in 79 Am. Dec., 418, 422, and it was

followed and approved by this court in Clearwater

vs. Meredith, 1 Wall., 40, and Shields vs. Ohio, 95

U. S., 328.

Though the usual effect of a consolidation, as we

have seen, is to dissolve the constituent companies,

yet no such effect is produced as to the purchasing or

absorbing company where the consolidation takes

place through the absorption of one company by

another under the purchase of its stock and properties.

Central R. R. Co. vs. Ga., 92 U. S., 665; 1 Beach.

Priv. Corp., sec. 338; 1 Thomp. on Corp., sec. 324,

330. The existence of one company is thus merged

into that of the other, in which case the latter is not

dissolved. Philadelphia & Wilmington R. R. Co. vs.

Maryland, 10 How., 376, 392, 393, 394; 1 Thomp. on

8

Corp., sec. 399, 400. This is the true rule, even if the

act should refer to the merger as a consolidation.“

Central R. R. Co. vs. Ga., 92 U. S., 665.

When two or more companies unite or consolidate,

and thus form a new or consolidated company, the

latter, unless restricted by the laws under which the

consolidation took place, succeeds to possession of

the franchise, rights, privileges, and immunities of the

several companies from which it is formed. 1 Beach

on Private Corporations, sec. 340; 1 Thomp. Corp.,

sec. 365-379, 380-387, 396, 399, and cases cited, among

them, Zimmer vs. State, 30 Ark., 677; Thomlinson

vs. Branch, 15 Wall., 460; and Indianapolis, etc., R.

Co. vs. Jones, 29 Ind., 465. This rule is adopted by

statute in Wisconsin. Section 1833, above quoted.

And it is well settled that where one corporation

goes entirely out of existence by being consolidated

or merged into another, and no arrangements are

made respecting the property and liabilities of the

extinguished corporation, the one newly created will

be entitled tuall the property. Thompson vs. Abbott,

61 Mo., 176; Davis vs. Memphis R. R. Co., 87 Ala.,

633. These cases hold, also, that where two or more

companies are consolidated, the new one may enforce

the rights of the old one.

Railway consolidation often takes the form of

absorption of one railway by another, as where

branches are united with a trunk line, or short lines

are united with longer lines so as to form one contin-

uous line, as in the caseat bar. It is well settled that

in such cases, the absorbing company proceeds with-

out change of name and succeeds to the rights

possessed by the company soabsorbed. 1 Thomp. on

Corp., sec. 396.

9

It is also well established that all the choses in

action of the old companies are transferred to the

newly created company and may be enforced by it in

its own name. Cumberland College vs. Ish., 22 Cal.,

641; Miller vs. Lancaster, 5 Coldw., 514; Univer-

sity of Vermont vs. Bazter, 42 Vt., 99. And be

owned in its own name. Indianola R. R. Co. vs.

Fryer, 56 Tex., 609; University of Vermont vs.

Bazter, 42 Vt., 99; 1 Beach on Private e

sec. 342.

Of special interest is the case of Miller vs. Lancaster,

supra. The second point in the syllabus is as follows:

After consolidation of railroad companies, the new

acquire the rights of the old, and are subject to the

liabilities of the old companies. Where a consoli-

dation and merger of corporations are made, and such

transfer of rights and properties, and assumption of

liabilities between the old and the new companies are

effected, the new company stands in the stead of the

old companies, may enforce the rights of the old

company, and be subject to its liabilities.”’

The rule that the new company takes all the

liabilities of the former must be followed, ez neces-

sitate rei, by a rule that the new company takes all

the rights of the former. The burden of liabilities

must be lightened or relieved by compensatory rights

or no one would take up the burden.

Another interesting case is University of Vermont

vs. Baxter, supra..

By the union of the University of Vermont and the

Vermont Agricultural College, under the Act of the

Legislature approved February 9, 1865 (Session Laws,

1865-96), out of two independent corporations, a new

corporation was created in the name of the Univer-

10

sity of Vermont, a State Agricultural College,“ and

the property of the University passed to and vested

in the new corporation.

The act in terms gives the right to the new corpo-

ration to maintain actions in its own name in relation

to the real property vested in it by the union, but is

silent as to the right to sue on choses in action,

although it transfers them to the new corporation,

and substitates it for the original party without pre-

judice to the other party.

The court held that the act passed the right to the

new corporation to sud in its own name upon such

claims.

We submit that we have established the following

propositions :

1. The claim of the Milwaukee & Northern was

assigned to and vested in the appellant pursuant to

statute. The proceedings were lawful, the lawful

title to the claim sued on passed thereby to the

appellant, and section 3744, Rev. Stat., does not

apply.

2. The appellant has the right to sue on the claim

in its own name.

Therefore the court below erred in sustaining the

‘demurrer and in dismissing the petition.

II.

The second ground of demurrer (p. 11) is that the

amended petition does not state facts sufficient to con-

stitute a cause of action.

The first paragraph of the petition (p. 1) alleges

substantially that on the dates named it owned and

11

operated the line of railroad in the petition described

and, prior to the 4th of February, 1890, it owned and

operated a railroad from Milwaukee, Wisconsin, to

Republic, Michigan, a distance of 255.37 miles. The

road was extended February 4, 1890, and put in

operation from Republic, Michigan, to Champion, in

that State, a distance of 8.89 miles, thus making a

total mileage of 264.26 miles. Prior to that date, the

road from Milwaukee to Republic had been designated

by the postal authorities as Postal Route No. 139,016,

and the company had been authorized to carry the

mails thereon for a suitable compensation.

The second paragraph of the petition (pp. 1-6)

alleges in substance that on the day the railway com-

pany extended its line, as above stated, to Champion,

Michigan, the railway mail service was, by order of

the Postmaster General, established and extended to

Champion from and after February 24, 1890, and that

order provided, among other things, that such exten-

sion was with the understanding that the rate of

compensation on this extension will be adjusted in a

subsequent order, and in accordance with the law.’’

The order is copied on page 2 and the notice is on

pages 2 and 3 of the Record. Subsequently (see

page 2), the postal authorities caused the mails on

the said route from Milwankee to Champion to be

weighed for thirty successive working days, com-

mencing September 23, 1890. The Postmaster Gen-

eral, December 1, 1890, ordered that the compensation

for the transportation of mails on the route between

Milwaukee and Champion be fixed from September

23, 1890, to June 30, 1891, at the rate of $35,022.37

per annum, being $132.53 per mile for 264.26 miles,

that being the distance from Milwaukee to Champion ;

and that from February 24, the date of the order

12

establishing and extending the service, as above.

stated, to September 22, 1890, the day before the

weighing of the mails was begun, compensation

should be allowed ‘at the rate of 61, 178. 10 per annum,

being $132.53 per mile for the 8.89 miles of extension

from Republic to Champion. The notice of the com-,

pany will be found at the bottom of page 3 and the

top of page 4 of the Record. This adjustment and

the notice thereof include and treat the extension

from Republic to Champion as part and parcel of

postal route No. 139,016 ‘‘ between Milwaukee, Min:

consin, and Champion, Michigan,“

There was a period from February 24 to 8

20, 1890, which was not covered by the broad terms of

the first paragraph of the order, but the second para-

graph gives to the extension between Republic and

Champion, from February 24 to September 22, exactly

the same pay per mile as that allowed for the whole

route between Milwaukee and Champion, beginning

with September 23,1890. Thus, a second time, and in a

different way, the Department expressed its determina-

tion that the route from Milwaukee to Champion was

but one route—No. 139,016—and for the whole length

of the line the Government was to pay the company

at the rate and on the mileage above named for 4e

whole number of miles between Milwaukee and Cham-

pion. The order and notice of adjustment state that

this is upon returns showing thé amount and char-

acter of the service for thirty successive working

days, commencing September 23, 1890.“ (Pages 3, 4.)

All this was done and bears date of December

1, 1890, but two days thereafter the Department

issued another notice to the company (p. 4) in which

it was stated that the compensation on route

No. 139,016, between Republic and Champion, has

13

been fixed from February 24, 1890, to June 30, 1891,

at $132.53 per mile for 8.89 miles extension.“

It will be observed that this notice recognizes route

No. 139,016 as covering the line between Republic

and Champion, although originally it covered only

that part of the line from Milwaukee to Republic.

It will be observed also, that this notice ignores the

fact that prior to December 1, 1890, the mails had

been weighed on the whole line of the company, on

and along route No. 139,016, from Milwaukee to

Champion, a distance of 264.26 miles, pursuant to an

order of the Department (p. 5.) directing the weighing

of the mails on that route between Milwaukee and

Champion, Michigan, for thirty successive days,

commencing September 23, 1890, for the purpose of

obtaining data upon which to adjust the pay, in

accordance with the acts of Congress governing the

same, from February 24, 1890, on extension from

Republic to Champion.“

That order and the weighing of the mails was

pursuant to section 4002, Rev. Stat., copied on page

5 of the Record. This paragraph ends with the

averment (p. 6) that the mails so weighed on that

route were from Milwaukee to Champion, they being

then the terminals of the system operated by the

company, and such weighing showed a daily average

of 2,363 pounds of mail carried over the entire route

between Milwaukee and Champion, and that the

average weight of mails carried over that part of the

route between Republic and Champion was but 940

pounds.

The third paragraph of the petition (p. 6) alleges

that the company immediately, and in pursuance of

the order of December 1, 1890, entered upon the work

of carrying the mails over that route between Mil-

14

wankee and Champion, faithfully performing the

services required by order of the Department and the

Acts of Congress, and became entitled to the full

compensation allowed it by that order, viz, $36,200.56.

The fourth paragraph of the petition (p. 6) avers

‘that the United States, instead of paying the full

amount due, paid the company at the rate of $132.53

per mile for 8.89 miles, being the extension from

Republic to Champion, and refused to pay any sum

beyond $86.35 per mile for the mileage on the route

between Milwaukee and Republic. The small services

was giveh the big pay.

The next paragraph (pp. 6-9) avers that after the

services had been performed, the full amount fixed by

the order of December 1, 1890, had been earned, and

the payment thereof had been refused, the company

presented a claim to the Department for the balance

$9,101.08, for its services, but the Department rejected

the claim and refused to pay it, asserting that the

order of December 3, was a correction of the order of

December 1, 1890.

The petition avers that there is no warrant for that

contention, and that, under the uniform practice and

usage of the Department for many years, whenever

postal service is established on an extension of a line

or-railroad, and the weighing of the mail is had on

the entire route for the purpose of ascertaining the

rate of compensation, swch compensation is fixed for

the entire route and not on the extension alone. That

was the practice of the Department for the fiscal year

ending June 30, 1891, as shown by the report of the

Postmaster General. The particulars are set forth

with exactness on page 7 of the Record. The compen-

sation for ali those routes was readjusted over the

entire line.

15

That was the practice not only of that fiscal year,

but in previous and subsequent years (p. 8), and

under such practice, when mails were weighed other

than the quadryennial weighings for the purpose of

ascertaining the compensation on a railroad route,

the compensation of the entire route was increased or

decreased in accordance with the results of said

weighings.

In determining the compensation for carrying the

mails on an extension of a mail route, the practice of

the Department (pp. 8-9) has been to order a weigh-

ing of the mails on the whole line, adjusting the

compensation on the whole line from the date the

weighing commenced, and on the extension from the

date service was authorized, based upon the weights

of mail carried, and such has been the practice on

the road of this company, as well as on the routes

and roads named on pages 8 and 9.

The general practice of the Department with the

railroads of the country, and the practice of the

Department with the company, are in harmony with

its contention and contrary to the acts of the Depart-

ment in this particular instance.

This interpretation of the statute is the natural and

sensible one. Section 4002 at the beginning authorizes

the Postmaster General to readjust the compensation

to be paid for the transportation of mails on railroad

routes, not parts thereof. The second portion of the

section enacts that the pay per mile per annum

shall not exceed the following rates, namely, on

routes carrying their whole length an average weight

of mails per day of two hundred pounds, fifty dol-

lars, * * * the average weight to be ascertained,

in every case, by the actual weight of the mails for

16

such a number of successive working days not less

than thirty.’ * * *

The Postmaster General is authorized to readjust

the compensation on railroad routes upon the con-

ditions and at the rates hereinafter mentioned.“ It

will be noticed that he is not authorized to split up

a route into fragments and to readjust upon part of a

route. He is to deal with the whole route, not a

part.

The second part of the statute directs that the pay

shall not exceed certain rates ‘‘on routes carrying

their whole length an average weight of mails per

day of” * * * Here there is no splitting up of

routes into parts or fragments. The Postmaster Gen-

eral is not authorized to fix the pay on a part of the

route. The legislative purpose, as declared by the

language used, was to deal with a route as a complete

thing—a complete entity—one which should not be

cut up into parts or divided.

Abundant reason can be found to support that

legislative intent or purpose. Its wisdom will occur

to any one who will reflect upon the results which

would follow such division of railroad postal routes

into parts or fragments, but whether wise or unwise

the intent of the statute is perfectly plain.

We are strengthened in this view by the concluding

sentence of the section in which it is enacted that the

average weight is to be ascertained by the actual

weighing of the mails for not less than thirty working

days,—not the weighing of the mails on a part of the

route, but the weighing of the mails for the whole

route, in order that the average weight may be ascer-

tained. Why should the mails be weighed thus if

the route is to be divided into parts thereafter ?

17

Evidently the Postmaster General or, more strictly

speaking, the Second Assistant Postmaster General,

understood that the statute was to be interpreted in

the way we claim, because December 1, 1890, iu his

order of adjustment and notice, he acted on that

theory or rule of interpretation. Two days afterwards

he experienced a temporary change of mind and tried

to undo that which he had done December Ist. We

submit that the thing he did December 1, 1890, was

lawful and valid, and that which he undertook to do

December 3, was unlawful in this, that he tried to

exercise a power, and to put an interpretation upon

section 4002 which the law does not warrant. There-

fore, the alleged order of December 3, 1890, was and

is absolutely null and void because without warrant

of law.

The interpretation of the Department for many

years, as alleged and particularly set forth in the

petition, is in harmony with our contention and

directly opposed to the act of the Second Assistant

Postmaster General in the alleged order of December

3, 1890.

For these reasons we submit that the judgment of

the court below should be reversed.

Respectfully submitted.

Gro. R. Peck,

W. W. Duprxx,

L. T. MIcHENER,

Attorneys for Appellant.