Case Name: Compton v. Railway Company
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1888-03-13
Citations: 45 Ohio St. 592
Docket Number: 
Parties: Compton v. Railway Company.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 45
Pages: 592–625

Head Matter:
Compton v. Railway Company.
Railroad companies — Consolidation of roads — Rights of bondholders.
In 1862 the Toledo & Wabash Railway Company, formed by the consolidation of a road in this state with one in the slate of Indiana, issued $600,000 of what were termed convertible equipment bonds, payable in 1883 and bearing interest at the rate of seven per cent, payable semiannually. It operated its road until 1865, when it was consolidated . with certain roads in the state of Illinois, the new company being called the Toledo, Wabash & Western Railway Company. It was stipulated in the agreement, forming the basis of the consolidation, that these equipment bonds should be “ protected ” by the new company at their maturity. In 1873 the last-named company, continuing to own and operate its road, issued certain bonds amounting to $5,000,000, and secured the same by a mortgage upon all its property. Under proceedings begun in 1875 for the foreclosure of this mortgage in the courts of Ohio, Indiana and Illinois, the road was sold in 1877 to one Ellis and two others associated with him, it being specially provided in the decree rendered in the court of this state, the common pleas of Lucas county, that the Sale should be made “ without prejudice to any claim which may he made by the holders ” of the above named equipment bonds. Tbe owner of the road at the commencement of this suit, The Wabash, St. Louis & Pacific Railway Company, derives its title from Ellis and liis associates. Held :
That under the statute of this state in force at the time the Toledo, Wabash & Western Railway Company was formed by consolidation (1 S. & C. 327), and tlie stipulation in the agreement that these equipment bonds should bo protected by the new company, the holders of these bonds acquired the right to require the property of the company that issued them to be applied to their payment; and, the consolidation and the agreement being matter of public record, the right is available against ' all persons deriving title from the consolidated company.
(Decided March 13, 1888.)
Reserved in the District Court of Lucas County.
This was an action commenced in the court of common pleas of Lucas county by James Compton, asking that certain bonds of which ho claimed to be the owner, with the unpaid interest coupons thereon, should be declared a lien upon so much of the road of the Wabash, St. Louis & Pacific Railway Company, as formerly belonged to the Toledo & Wabash Railway Company, by whom the bonds had been issued, and for the finding of the amount due him thereon, and an order of sale of so much of its road as is within the jurisdiction of the court, subject to certain admitted prior liens, unless the amount found due him should be paid by the Wabash, St. Louis & Pacific Company in a short time to be named; and for other relief.
The case, after trial and judgment in favor of the plaintiff, was appealed by the defendants, to the district court, where it was reserved for decision in this court upon an agreed statement of the facts, which is as follows :
“ On the first day of November, 1862, the Toledo & Wabash Railway Company executed and issued a series of bonds, amounting altogether to the sum of six hundred thous- and dollars, which were styled equipment bonds. The principal of these bonds is due the last day of May, 1883, and they bear interest at the rate of seven per cent, per annum, payable semi-annually in New York city, from and after the first day of May, 1863. A series of interest coupons are attached to each bond. They were put upon the market at the time of their issue and sold; and the plaintiff was, at the commencement of this suit, and is now, the bona fide holder for value of bonds of this series having a par value of one hundred and fifty thousand dollars, upon which no interest has been paid since November 1st, 1874, and also of the coupons payable on the said bonds since said last-mentioned date. The numbers of the bonds owned by plaintiff are correctly stated in the petition.
“The Toledo & Wabash Railway Company, which issued these bonds, was a corporation organized under the laws of the states of Ohio and Indiana, especially the consolidation statutes of those states, and owned a line of railway extending from the city of Toledo, to State Line city, of Indiana, which railway is now a part of the main line of the Wabash, St. Louis & Pacific system.
“The railroad companies which were united to form this Toledo & Wabash Railway Company, were the Toledo & Wabash Railroad Company, an Ohio corporation, and the Wabash & Western Railroad Company, an Indiana corporation. The line of the former company extended from Toledo to Harrison township, Paulding county, Ohio; and that of the latter company from the state line in Allen county to State Line city in Warren county, in Indiana.
“The Toledo & Wabash Railway Company continued a separate corporation until the year 1865, when it was consolidated with various other companies to form the Toledo, Wabash & Western Railway Company. The consolidation agreement is dated the twenty-ninth day of May, 1865. Under this agreement the following companies were consolidated: The Toledo & Wabash Railway Company, the Great Western Railway Company of 1859, the Quincy & Toledo Railroad Company, and the Illinois & Southern Iowa,Railroad Company. The agreement of consolidation was duly executed and ratified by the stockholders of the various companies, and was filed in the office of the secretary of state of Ohio on the 6th day of July, 1865. It contains the following provisions :
“ ‘ Now, therefore, the said companies, by their respective directors, agree to consolidate their roads, property and capital stock into one company, upon the basis and conditions hereinafter specified, to bo submitted by the directors of each of said roads to the stockholders thereof for ratification, toAvit: The Toledo & Wabash Raihvay Company enters into said consolidation on the following basis, viz.:
“ ‘The capital is.................................$10,000,000 Composed as follows:
First mortgage bonds....................... 3,400,000
Second mortgage bonds.................... 2,500,000
Convertible equipment bonds............ 600,000
Convertible preferred stock............... 1,000,000
Common stock................................ 2,500,000.’
“ The contract required the Great Western Railway Company to make a cash payment to the consolidated company, so as to place that road ‘ in equal condition, with the Toledo & Wabash Raihvay Company, as estimated on the 13th of March last by Messrs. Tillon & Colburn, appraisers appointed for that purpose.’
“ The agreement especially provided that all the rights, franchises, property, debts and choses in action of the respective companies should vest in the consolidated company; and it also contains the following clause :
“ ‘ It is further agreed that the bonds and other debts hereinabove specified, in the manner and to the extent specified, and not otherwise provided for in this agreement, shall, as to the principal and interest thereon, as the same shall respectively fall due, be protected by the said consolidated company according to the true meaning and effect of the instruments or bonds by which such indebtedness of the several consolidating companies may be evidenced.’
“ The convertible equipment bonds referred to in this agreement are the bonds referred to as having been issued by the Toledo & Wabash Raihvay Company, and as to a part of which this suit is brought. There is no other provision in the consolidation agreement relating to these bonds than those just quoted.
“ The line of railway of the company thus created, extended from Toledo in the state of Ohio, to and through the state of Indiana, and thence in the state of Illinois to Meredosia, together with, certain branch lines.
“ The new company, the Toledo, Wabash & Western Railway Company, from this time on had possession of the railroad properties of the various pre-existing companies, and operated them as a single system of railroads.
“ On the first day of February, 1867, the Toledo, Wabash & Western Railway Company resolved to make and issue its bonds to the extent of fifteen million dollars, and to secure the same by a mortgage on its entire property, and this mortgage was then made, the trustees for the bondholders named therein being the defendants Knox and Jesup. This mortgage and accompanying bonds are known as the consolidated mortgage and the consolidated bonds. It is dated the first day of February, 1867, and was delivered to the trustees therein named, and was forthwith duly recorded.
“ The bonds are also duly made and executed, and a copy of one is found in the mortgage.
“ The scheme contemplated by the execution of this mortgage was the funding into a single mortgage indebtedness all of the bonds of the pre-existing companies mentioned, whether such bonds were secured by mortgage or not.
“ It is recited in the mortgage that the property of each of the various companies out of which the Toledo, Wabash & Western Railway Company was formed, Avas subject to certain bonded debts and mortgages created by them, amounting in the aggregate to thirteen million three hundred thousand dollars, and that it Avas ‘ deemed for the interest of the company, as well as for the holders of all said various classes of bonds, that the whole of the same should be consolidated into one and the same mortgage debt upon equitable principles.’
“ And further:
aiFor the purposes aforesaid, and for the objects herein stated, the said company, party of the first part, has resolved to make and issue its bonds to the extent of fifteen million dollars, and to secure the payment of the same by a mortgage upon its entire property; and that of the amount of said bonds so to be made and issued, there should be retained thirteen million three hundred thousand dollars to retire, in such manner and upon such terms, as the directors of said company may from time to time prescribe, a like amount of the bonds of the various companies hereinabove enumerated and described, and representing the aforesaid funded debt; and that the balance of said bonds, to-wit: one million seven hundred thousand dollars thereof, should be used to provide the said additional equipment and other improvements hereinabove mentioned, and for such additional purposes as the said directors may deem advisable; and that all of said bonds should be for the sum of cue thousand dollars, except two hundred, which should be for the sum of five thousand dollasr each; and that all should bear date on the first of February, A. D. 1867, and become due and payable in forty years from their date, with interest at the rate of seven per cent, per annum, payable quarterly, on the first days of May, August, November and February in each year, in the city of New York, and to be all convertible into the common stock of said company at par, at" the option of the holders, at any time within ten years from their dated
“ The various classes of bonds referred to are specified in the recitals of the mortgage, and among them are the equipment bonds in question.
“ Consolidated bonds to the amount of two million six hundred and ten thousand dollars, or thereabouts, were thereafter issued by the company, and no more.
“On the 6th day of October, 1868, the Toledo, Wabash & Western Railway Company entered into an agreement of consolidation with the Decatur & East St. Louis Railroad Company, an Illinois corporation. This agreement was duly executed and ratified by the stockholders of the companies, and was filed in the office of the secretary of state of the state of Ohio, on the tenth of August, 1870. By this means the Toledo, Wabash & Western Railway Company acquired the railroad property and franchises of the Decatur & East St. .Louis Company. After this last consolidation, the company continued its corporate name of the Toledo, Wabash & Western Railway Company.
“It was provided in this agreement that all the property, rights, franchises, privileges, property, etc., of the said companies should vest in the consolidated company, and that the terms cf the articles of consolidation which created the Toledo, Wabash, & Western Railway Company, and which have been already set out, should be and remain in full force and binding upon the new consolidated company so far as the same could be made applicable, and so far as they are not in conflict with the specific provisions of the agreement of 1868. There is nothing in the last agreement of consolidation conflicting with the provisions in the previous agreement relating to the protection of the bonds therein referred to, including the equipment bonds.
“On the first day of April, 1873, the Toledo, Wabash & Western Railway Company, and Knox and Jesup, the trustees under the consolidated mortgage, entered into a further indenture and deed of further assurance, as it is called in these proceedings.
“ In this deed of further assurance, the consolidated mortgage, and the purposes for which it was executed, are recited, and it is expressly agreed by the Toledo, Wabash & Western Railway Company with said trustees, ‘ and with all persons whom it may in anywise concern/ that the company would not make or issue, or attempt to make or issue, any of the then remaining twelve million three hundred thousand dollars of consolidated bonds, which it is stated remained unissued and reserved, except for the purpose of simultaneously retiring an equal amount of the balance then remaining of the funded debt enumerated in the consolidated mortgage, so that when all of the said reserved bonds should have been used, the whole of the balance of the funded debt would be extinguished; and further, that the covenants therein contained should be supplementary to the consolidated mortgage, and constitute a part thereof, and be of the same effect as if they had been inserted therein, and the trustees bound themselves not to sign the trustees’ certificate of any of said reserved bonds except as therein provided.
“ The object of this deed of further assurance is stated in it to be the desire of the parties, ‘ by more express and specific stipulations than are contained in the said indenture of mortgage, to give assurance to all persons whom it may in anywise concern, that the said reserved bonds shall not, nor shall any or either of them be used for any other purpose than the retiring of the said funded debt or some part thereof.’ This indenture was duly executed by the company and the trustees.
“ In February, 1875, proceedings were commenced in the court of common pleas of Lucas county, Ohio, and in the proper Indiana and Illinois courts, to foreclose a mortgage, commonly known as the Gold mortgage, executed by the Toledo, Wabash & Western Eailway Company, in February, 1873, to secure the payment of five million dollars of bonds, and a receiver was appointed of the road. This Gold mortgage was executed and recorded prior to the deed of further assurance already mentioned.
“ In December, 1875, a decree was rendered in the suit in the Ohio court for the foreclosure of the last named mortgage, whereby all the property and franchises of the Toledo, Wabash & Western Eailway Company were ordered to be sold at a judicial sale. Confirmatory decrees were made by the Indiana and Illinois courts.
“ The property was ordered to be sold subject to the lien of all mortgages and trust deeds prior to the Gold mortgage, including the consolidated mortgage. In.the principal decree of foreclosure, it was found and stated that the consolidated mortgage was duly and legally made and recorded ; that it was a valid conveyance for the purposes therein stated, and as such was a lien upon the property therein described; that it was the first and best lien upon the consolidated lines of railway belonging to the Toledo, Wabash & Western Eailway Company, excepting the branch extending from Decatur to East St. Louis, but inferior to several liens upon separate parts of the road, being the mortgage and lions created by the preexisting companies, and the same enumerated in the consolidated mortgage, but did not determine the amount or extent of such lien.
“ The property was sold under the decree by a spiecial master commissioner, on the tenth day of June, 1876, to John W. Ellis and others, a purchasing committee of the Gold bondholders, and the property sold for an amount less than the amount found due by the decree. This sale was confirmed by this court, and a deed made to the purchasers on the first day of January, 1877, to cany it into effect.
“ The foreclosure decree made by this court, under which the property, was sold, contained the following condition :
And that the sale of said road, property, equipment and franchises be made, subject to the priority and continuance of said several mortgage liens, and without prejudice to any claim which may be made by the holders of the bonds, called equipment bonds, referred to in the petition, as to which all questions arising are left open.’
“ After the sale of the property and franchises of the Toledo, Wabash & Western Railway Company, it was reorganized and became the Wabash Railway Company. Ellis and others, committee, who purchased at the sale, organized a company in each of the states of Ohio, Indiana and Illinois, and then these companies were consolidated into one called the Wabash Railway Company, the articles of consolidation being filed on the tenth day of January, 1877.
“ On the twelfth day of January, 1877, the said Ellis and his associates transferred the property purchased by them at such foreclosure sale to the Wabash Railway Company. Both the special master commissioner’s deed to the purchasers, and that of the purchasers to the Wabash Railway Company, refer to the decree of foreclosure, and are made subject to the payment of the liabilities charged upon the property by the decree of foreclosure and to the lien of the consolidated mortgage.
“ The Wabash Railway Company then took possession of this railroad property, and operated it until its consolidation with the St. Louis, Kansas City & Northern Railway Company, a corporation organized under, the laws of the state of Missouri, to Kansas city, in the same state, with certain extension and branch lines.
“ The articles of this consolidation are dated the fourteenth day of August, 1879, and they provide, amongst other things, that upon the ratification of the agreement by the shareholders of both corporations, all the property, rights and franchises belonging to each of the companies should pass to and be vested in the new corporation, whose name should be the Wabash, St. Louis & Pacific Railway Company. Supplementary articles were entered into by the companies on the tenth day of October, 1879. The consolidation was duly approved by the stockholders of each of the companies, and the articles were filed in the office of the secretary of state of the state of Ohio, on the twenty-fifth day of October, 1879.
“ This last company has since that time owned and operated all of the said railroad property and the franchises of the preexisting companies.
“The Toledo, Wabash & Western Railway Company paid the interest on the equipment bonds as the same matured, up to and including the first day of November, 1874, having thus paid the interest thereon from the year 1865.
“The directors of the Toledo, Wabash & Western Railway Company have never prescribed the manner and terms for the exchange of the equipment bonds for the consolidated bonds, and have never issued consolidated bonds for that purpose, refusing to do this after demand was made' upon them; but no demand was ever made by the holder or holders of said equipment bonds, or any of them, until the twenty-ninth day of June, 1875, upon said directors, to prescribe such terms, or to exchange the equipment bonds for those secured by such mortgage; that such demand was not made until after the commencement of said foreclosure suit and the appointment of a receiver therein.
“Neither the Toledo & Wabash Railway Company, nor the Toledo, Wabash & Western Railway Company, own any property, or have.any assets; and all of the property, franchises and assets which they did own, have, through the various proceedings herein set out, passed to and become vested in the Wabash, St. Louis & Pacific Railway Company.
“ At the time of the execution of the consolidation agreement of 1865, and of the consolidated mortgage, there were two mortgages upon the property of the Toledo & Wabash Railway Company situated in the state of Ohio, one for nine hundred thousand dollars, and one for one million dollars.
“ In January, 1877, the Wabash Railway Company executed a mortgage on all its property to one George I. Seney, to secure certain promissory notes, amounting in all to one million two hundred and sixty thousand five hundred and fifty-five dollars and forty-two cents. Some of the promissory notes have been paid, and the plaintiff charges and alleges that the holders of said notes, secured by the Seney mortgage, are chargeable in equity with notice of the lien and equity of the equipment bonds.
“In May, 1879, the Wabash Railway Company executed another mortgage on all its property to Solon’ Humphreys and Daniel A. Lindley, trustees, for the sum of two million dollars. This mortgage was recorded in August, 1879. The plaintiff charges that it is inferior and subject to the lien of the equipment bonds, and that the holders of the bonds which it secures, and the mortgage trustees, are chargeable with notice of the lien or equity of the equipment bonds.
“There is unpaid on the equipment bonds owned by the plaintiff the coupons that have fallen due since and including the first day of May,' 1875.
“ A suit was commenced in this court by the plaintiff herein against the Toledo, Wabash & Western Railway Company, to recover a judgment at law on so many of these coupons as matured on and prior to the first .day of November, 1879. The defendant appeared, and on the fifteenth day of December, 1880, this court rendered judgment against the said defendant for the sum of $64,236.16. On the same day the judgment was entered and execution issued to the sheriff of Lucas county, which has been returned wholly unsatisfied.
“The Wabash Railway Company, and. the Wabash, St. Louis & Pacific Railway Company, have refused payment of these equipment bonds, though retaining the property of the company whióh issued them.
“An application was made to the supreme court of this state, at its December term, 1876, by Benj. F. Ham and others, for a mandamus to compel the Toledo, Wabash & Western Railway Company to issue in exchange for certain of these equipment bonds, the bonds mentioned in the mortgage of February 1, 1867, known as the consolidated mortgage, which application was refused by the court.”
Certain of the documents and papers referred to in the agreed statement are attached to it, but their substance, so far as they affect the case, is contained in the statement itself.
R. P. Ranney, E. C. Sprague, J. G. Milburn and George F. Comstock, for plaintiff.
I. The equipment bonds in question became a lien on all the property of the Toledo & Wabash Railway Company upon the consolidation of that company with the other companies forming the Toledo, Wabash & Western Railway Company, as the property of a corporation under such circumstances becomes a trust fund which may be followed in equity and applied to the payment of the debts of the corporation, the rights of a purchaser for value and without notice not intervening.
1. The effect of the consolidation was the extinction and practical dissolution of the Toledo & Wabash Railway Company. Shields v. Ohio, 95 U. S. 319; Railroad Company v. Georgia, 98 U. S. 359.
2. When a corporation is dissolved, or from any cause becomes practically extinct as a business concern, its property is a trust fund primarily applicable to the payment of the debts of the corporation, and the rights of the creditor to such application is an equitable lien which is superior to the claims of every one but a purchaser for value and without notice. Story Eq. Jur. secs. 1215, 1252; 2 Kent Com. 307, n. b.; Goodin v. Canal Co. 18 Ohio St. 169; Mont. & West Point R. Co. v. Branch, 59 Ala. 139; Railroad Co. v. Howard, 7 Wall. 392; Mumma v. Potomac Co. 8 Pet. 281; Bacon v. Robertson, 18 How. (U. S.) 480; Wood v. Dummer, 3 Mason, 308; Curran v. Arkansas, 15 How. (U. S.) 304; Hastings v. Drew, 76 N. Y. 9; Tinkham v. Borst, 31 Barb. 407; San Francisco & N. P. R. Co. v. Bee, 48 Cal. 398; Hightower v. Thornton, 8 Ga. 486; Hibernia Ins. Co. v. Transportation Co. 13 Fed. Rep. 516; Sanger v. Upton, 91 U. S. 56; Morawetz Priv. Corp. sec. 559 et seq.
“ An equitable lien is not an estate or property in tbe thing itself, nor a right to recover the thing — that is a right which may be the basis of a possessory action; it is neither a jus ad rem nor ayus in re; it is simply a right of a special nature over the thing, which constitutes a charge or incumbrance upon the thing, so that the very thing itself may be proceeded against in an equitable action and either sold or sequestered under a judicial decree, and its proceeds in the one case, or its rents and profits in the other, applied upon the demand of the party in whose favor the lien exists.” 1 Pom. Eq. Jur. sec. 165; Peck v. Jenness, 7 How. (U. S.) 620; Fox v. Seal, 22 Wall. 438; Snell Eq. 133.
3. These conclusions are strengthened by section 5 of the consolidation statute, which is to the effect that when the consolidation is complete all the property of the various corporations shall be deemed to be vested in and transferred to the new corporation with the proviso that all rights of creditor's and liens upon the property of either corporation shall be preserved unimpaired. 1 S. & C. 327.
II. The transfer of the Toledo & Wabash Bailway Company of all of its property to the Toledo, Wabash & Western Bailway Company, on the condition, among others, that the bonds of the former company should be protected, created an equitable lien on the property of the former company thus transferred, in favor of those bonds.
1. When property is transferred upon the condition that the grantee shall pay some third person a debt or sum of money, the latter acquires an equitable lien on the property to the extent of the debt or sum of money to be paid him. This rule applies equally, whether the transfer is made by deed or by will. Clyde v. Simpson, 4 Ohio St. 445; Vanmeter v. Vanmeter, 3 Gratt. 148; Brown v. Knapp, 79 N. Y. 136; Harris v. Fly, 7 Paige, 421; Mont. & West Point R. Co. v. Branch, 59 Ala. 139, 154; Nichols v. Glover, 41 Ind. 24; Story Eq. Jur. secs. 1244, 1246.
When real estate is conveyed, and the assumption of a debt due from the grantor to a third person is part of the consideration, such debt is thereby constituted an equitable lien on the property conveyed. Vanmeters v. Vanmeters, 3 Gratt. 148; Trent v. Kyle, 1 Heisk. (Tenn.) 663; Mont. & West Point R. Co. v. Branch, 59 Ala. 139.
When the grantee of lands gives his note for a part of the purchase money to the creditor of the grantor, in payment of a debt owing to such creditor by the grantor, an equitable lien in favor of the creditor is thereby created. Nichols v. Glover, 41 Ind. 24; Perkins v. Gibson, 51 Miss. 699; Buford v. McCormick, 57 Ala. 428; Pinchain v. Collard, 13 Tex. 333; Latham v. Staples, 46 Ala. 462; Dryden v. Frost, 3 Mylne & Craig, 670.
If the grantor gives part of the purchase-money of lands to a third person, to whom the grantee executes notes, the same result follows. Hamilton v. Gilbert, 2 Heisk. (Tenn.) 680.
A devise of real estate and a direction to the devisee to pay legacies or debts, makes the legacies and debts an equitable lien or charge upon the property so devised. Clyde v. Simpson, supra; Harris v. Fly, supra; Ciowdsley v. Pelham, 1 Vern. 411; Elliot v. Hancock, 2 Vern. 143; Alcock v. Sparhawk, 2 Vern. 228; Oldham v. Litchfield, 2 Vern. 506; Lypet v. Carter, 1 Ves. Sr. Ch. 499; Henvell v. Whitaker, 3 Russ. 343; In re Tanqueray— Willaume, L. R. 20 Ch. Div. 465; Brown v. Knapp, 79 N. Y. 136.
When lands are devised upon condition that the devisee shall pay specified debts or legacies, the same result follows. Miles v. Leigh, 1 Atk. 573; Wigg v. Wigg, 1 Atk. 382; Carter v. Carter, L. R. 21 Ch. Div. 431.
The owner of real estate may by agreement create a charge or claim upon it in the nature of an equitable lien, which a court of equity will enforce. Ketchum v. St. Louis, 101 U. S. 306.
2. Whenever it fairly appears from any instrument that it was intended to afford a security, equity will raise up an equitable lien. Jones Mort. sec. 162; Ketchum v. St. Louis, 101 U. S. 306; White Water Valley Canal Co. v. Vallette, 21 How. (U. S.) 414; Payne v. Wilson, 74 N. Y. 348; Husted v. Ingraham, 75 N. Y. 251; Miller v. Moore, 3 Jones Eq. (N. C.) 431; Courtney v. Scott, 6 Littell (Ky.) 457; Mobile & C. P. R. Co. v. Talman, 15 Ala. 472; Jackson v. Carswell, 34 Ga. 279; In re Strand Music Hall Co., 3 De G. J. & S. 147.
III. The effect of the consolidation of 1865 of the Toledo & Wabash Railway Company with various other companies, out of which the Toledo, Wabash & Western Railway Company was created, being practically a sale and transfer of the property of the Toledo & Wabash Railway Company to a new company, the agreement to protect the debts of the Toledo & Wabash Railway Company was part of the consideration for this transfer of its property, and a vendor’s lien arises out of this par-t of the consideration which enures to the benefit of the creditors of that company.
The lien which the vendor has for unpaid purchase-money on a sale of real estate enures to the benefit of a third person when the consideration, or any part of it, passes to that person by agreement of the parties, or consists of the assumption of a debt by the vendor to such third person. Clyde v. Simpson, 4 Ohio St. 445.
The lien of the vendor himself has been repeatedly affirmed in decisions of this court. Neil v. Kinney, 11 Ohio St. 58; Edwards v. Edwards, 24 Ohio St. 402; Whetsel v. Roberts, 31 Ohio St. 503.
The lien is not cut off excepting by the superior rights of a purchaser for value and without notice. Whetsel v. Roberts, supra; White v. Denman, 1 Ohio St. 110.
Judgment creditors of the vendor may reach and avail themselves of the vendor’s lien. Edwards v. Edwards, 24 Ohio St. 402.
IV. The consolidated mortgage made by the Toledo, Wabash & Western Railway Company in 1867, was in equity a valid mortgage for the purposes of its creation, and though the directors never prescribed the terms of the exchange of the consolidated for the equipment bonds, yet the effect of the instrument was to create a lien or equity under the mortgage in favor of the equipment bonds, and to entitle them to their share of the consolidated bonds.
The consolidated mortgage and the bonds it secured arc a complete and executed trust so far as the company and the bondholders to be bonefitted thereby are concerned, and the power in the directors to prescribe the manner and terms is an imperative power coupled with the trust mentioned, the non-execution of which does not destroy the trust, but which a court of equity will execute in the event of an omission or incapacity to execute on the part of the donee of the power.
The covenant of the company was that the reserved bonds are for the purpose of being used to retire a like amount of outstanding bonds, and that they shall not be used excepting for that purpose.
That a covenant not to use these bonds for any other purpose than that stated is equivalent to a covenant to use them for that purpose, see 1 Chitty Con. (11 Am. ed.), 125; 2 Par. Con. (6 ed.) 511; Duke of St. Albans v. Ellis, 16 East. 352; Booth v. Cleveland Rolling Mill Co., 74 N. Y. 15; Hale v. Finch 104 U. S. 261.
The execution and delivery of this mortgage for the purposes stated, and the creation of the issue of bonds secured by it was an appropriation of specific property, to-wit, the bonds secured by the consolidated mortgage and the mortgaged property, for the benefit of all the holders of these outstanding bonds, and, as such, a valid and executed trust. Ketchum v St. Louis, 101 U. S. 306; Martin v Funk, 75 N. Y. 134; Payne v. Wilson, 74 N. Y. 348; Pierson v Garnet, 2 Bro. Ch. 38; Husted v. Ingraham, 75 N. Y. 251; Jones Rail. Sec. secs. 73-77; Story Eq. Jur. sec. 1060.
The trust being for the benefit of' these bondholders, as expressly declared in the mortgage, their acceptance is not essential; it will be presumed. Martin v Funk, 75 N. Y. 134; Barings v. Dabney, 19 Wall. 1; Perry Trusts, secs. 593, 594, 602, e; Moses v Murgatroyd, 1 John. Ch. 119; Brooks v. Marbury, 11 Wheat. 78, 97.
The function devolved upon the directors under the mortgage to prescribe the manner and terms of retiring the out standing bonds was a power,coupled or connected with a trust, imperative in its nature, and one which a court of equity will execute under the circumstances presented by this case. Perry Trusts, secs. 20, 248, 507; Tollet v. Tollet, 2 P. Wms. 490; Brown v. Higgs, 8 Ves. Jr. 574; Stableton v. Ellison, 21 Ohio St. 527; Dominick v. Sayre, 3 Sandf. 555; Franklin v. Osgood, 14 John. 554; Peter v. Beverly, 10 Pet. 564; Shaw v. Borrer, 1 Keen, 559; Story Eq. Jur., secs. 95, 98, 1061, 1061 b., 1062; Burrough v. Philcot, 5 Mylne & C. 67; Brown v. Higgs, 5 Ves. Jr. 495; s. c., 8 Ves. Jr. 574; s. c., 18 Ves. Jr. 191; Gower v. Mainwaring, 2 Ves. Sr. 87; Withers v. Yeadon, 1 Rich. Eq. 324; Bull v. Bull, 8 Conn. 47.
V. The interests of the various defendants in the property of the Toledo & Wabash Railway Company, and the property covered by the consolidated mortgage are inferior and subject to the lien of the equipment bonds, as all of the defendants had, or are chargeable in equity, with notice of such lien.
The general rule that one who purchaseas with notice of the equitáble rights of a third person holds the property subject to those rights, is elementary. Pom. Eq. Jur., secs. 688, 730; Sug. Ven. ch. 23, sec. 2; Perry Trusts, secs. 217, 882; Lamont v. Chesire, 65 N. Y. 30; Wormley v. Wormley, 8 Wheat. 421; Boone v. Chiles, 10 Pet. 177; Ketchum v. St. Louis, 101 U. S. 306, 315; Shamokin Val. R. Co. v. Malone, 85 Pa. St. 25.
The defendants, the mortgage trustees, were chargeable with notice of the facts. Sugden Ven. ch. 24, s. e., 1, sub. 25; Pom. Eq. Jur., sec. 626; Bonner v. Ware, 10 Ohio, 466.
The defendants must be held to have had notice of whatever equities were revealed in the line of their title. Cordova v. Hood, 17 Wall. 1, 5; Brush v. Ware, 15 Pet. 114; Reeder v. Barr, 4 Ohio, 458.
The Ohio recording act does not affect the priority of the lien of the equipment bonds. Brown v. Noggle, 4 Ohio St. 45; Strang v. Beach, 11 Ohio St. 283; White v. Denman, 1 Ohio St. 110; Whetsel v. Roberts, 31 Ohio St. 503; Dayton, X. & B. R. Co. v. Lewton, 20 Ohio St. 482; Clyde v. Simpson, 4 Ohio St. 445.
VI. The plaintiff has not lost his rights by any laches on the part of himself or his predecessors.
Courts of equity, not being originally bound by the operation of statutes of limitation, applied them to certain cases by analogy, and in doing so developed the doctrine of stale claims; but the statutory limit was always the guide, and only when its term was passed did the claim in such cases as these become stale. Kane v. Bloodgood, 7 John. Ch. 90; Boone v. Chiles, 10 Pet. 177; Miller v. McIntyre, 6 Pet. 61; Hughes v. Edwards, 9 Wheat. 489; Watson v. Saul, 5 Jur. N. S. 404; McClane v. Shepherd, 6 C. E. Green, 76; Smith v. Clay, Ambler, 645.
Wager Swayne, A. W. Hendricks and H. 8. Greene, for defendants.
It is contended that the plaintiff’s right to a lien in favor of the equipment bonds arose from one or all of the following propositions of fact:
1. From the naked fact of the consolidation of the Toledo & Wabash Railway Company with the four other companies.
2. From the special provision in the agreement of consolidation by which it was stipulated that the consolidated company should protect certain debts enumerated, including the equipment bonds.
3. From the execution by the Toledo, Wabash Á Western Railway Company of the consolidated bonds and the mortgage to secure the same, the purpose thereof being to fund all the debts owed or assumed by the consolidated company, including the equipment bonds.
By the consolidation, the old companies ceased to exist separately, and all their effects and franchises were vested in the new company, which succeeded to the rights of the old corporations.
No lien arose in,favor of the equipment bondholders by force of any statute.
The theory on which the alleged rights of the plaintiff is based is that the consolidation of the constituent companies terminated their existence absolutely, and called into being a new body corporate. That the new corporation acquired the property of the old companies by a title similar to that of a vendee or devisee, who takes an estate charged with purchase money or legacy; that debts assumed by the new corporation were, in equity, charged upon the property, and all persons dealing with such property were given constructive notice of such lien by the agreement of consolidation, that agreement being a muniment of title.
The corner stone on which this theory rests is the assumption that in the act of consolidation the original corporations died. But the consolidated corporations do not die; they .continue to exist as elements of the new. The rights of the parties, however, cannot be made to depend on the metaphysical question whether consolidation extinguishes the consolidated artificial bodies, or whether they survive as merged elements of the new artificial body. It is enough for us that no such grant, devise or sale, as plaintiff’s counsel have imagined, was ever in fact made, or can be assumed by any intendment.
The consolidation statute creates no lien. The respective rights of the origiual corporations and their creditors are preserved unimpaired. The statute not only measures the rights of creditors, but it declares that their remedies shall be the same against the new corporation as against the old. It places creditors exactly in the same relation to the new company that they occupied to the old. If they were lienholders, they retained their lien; if they were unsecured creditors, so they remained.
The statute was in force at the time the equipment bonds were issued. It is therefore a part of the contract upon which the loan was made and upon its terms those who afterwards advanced money on the pledge of the property had a right to rely. Roberts v. Cocke, 28 Gratt. 207; Von Hoffman v. Quincy, 4 Wall. 550; Bishop Con. Wr. Law, sec. 249; Per kin v. Thornburgh, 10 Cal. 189; Pursell v. N. Y. Life Ins. Co., 42 N. Y. Superior Ct. 383; Watkins v. Wassell, 20 Ark. 410.
It is settled that the property of a corporation is in one sense impressed with a trust. Properly so, because it is always held and controlled by agents who merely represent the interests of others, and, therefore, bear fiduciary relations. But in order to give such trusts the force of an active lien, it is necessary to find that in a given instance there was a breach of duty by fiduciary agents in regard to the property, and that those who obtained the property were chargeable with notice of such breach. In this case was it a breach of duty toward creditors to consolidate or mortgage the property for value ?
A vendor’s lien did not arise. Ordinarily a vendor’s lien is a privilege given by the law to the vendor personally, and for his own benefit. As a general rule it is not assignable. Iglehart v. Armiger, 1 Bland Ch. (Md.) 519; Briggs v. Hill 6 Howard, (Miss.) 362; Bush v. Kinsley, 14 Ohio, 20; Richards v. Leaming, 27 Ill. 431; Doolittle v. Jenkins, 55 Ill. 401; Shall v. Biscoe, 18 Ark. 142; Moshier v. Meek, 80 Ill. 80.
Here no sale or anything equivalent to a sale was made.
The stockholders of the original companies were to be stockholders of the new, so that the proprietary interests would be the same as before. All the powers of the old company were to be exercised by the new. The old stockholders were about to become partners in the new enterprise, and to bring into it the property and rights of the old. Railroad Company v. Georgia, 98 U. S. 364.
'In order to create a vendor’s lien it is not enough that the vendee should promise to pay a debt of the vendor. It must appear that there was an agreement, or a law equivalent thereto, that the proceeds arising from its sale, or the revenues arising from its uses, should be applied to the discharge of the debt contemplated by the parties. Ketchum v. St. Louis, 101 U. S. 306; Gilman v. Brown, 1 Mason, 191.
No lien arose in favor of the equipment bondholders by force of the particular terms of the agreement to consolidate.
The promise to “ protect ” the equipment bonds was but a personal covenant and created no lien or charge on the property.
If the plaintiff ever acquired any interest under the consolidated mortgage, that interest was lost through his own laches. He waited for a number of years while the property was being transferred and incumbered. Even meritorious equities may, and ought to be lost by laches such as endanger the rights of others. Equity always requires diligence at the; hands of those who seek her aid. Smith v. Clay, 3 Bro. Ch. 640; 2 Story Eq. Jur. sec. 1530; Piatt v. Vatteer, 9 Pet. 416; Prevost v. Gratz, 6 Wheat. 481; Bowman v. Wathen, 1 How. (U. S.) 193; Lloyd v. Karnes, 45 Ill. 62; Walker v. Kretsinger, 48 Ill. 502.
The plaintiff can claim no relief under the consolidated mortgage unless he can show that the directors of the railway company became trustees for his benefit. It is settled doctrine that equity never enforces the execution of a power where.it is not coupled with a trust in favor of those who insist upon its exercise. 1 Story Eq. Jur. sec. 169; Lead Cas. Eq. (4 Am. ed.) *283; Howard v. Carpenter, 11 Md. 282; Powell on Powers, 131; 2 Sugden on Powers, *157.

Opinion:
Minshall, J.
The principal grounds upon which the plaintiff asserts his right to relief are — (l)the provisions of the statute under which the proceedings in consolidation were had; (2) the stipulation in the agreement forming the basis of the consolidation; and (3) the mortgage executed by the new company in 1867, known as the consolidated mortgage.
I. The bonds owned by the plaintiff, amounting at their face value to $150,000, were issued by the Toledo & Wabash Railway Company in 1862, were unsecured by mortgage on the property of the company, and the entire series, of which they were part, were denominated convertible equipment bonds, and amounted to $600,000, payable in 1883, bearing interest at the rate of seven per cent., payable semi-annually, with the usual coupons attached. The company had been formed by the consolidation of the road of a 'company in Ohio with one of a company in Indiana, under the laws of these states, and its road extended from Toledo in the former, to State-Line city in the latter, state. It operated its road until in 1865, when' it was consolidated with certain other roads in the state of Illinois, the new company thus formed taking the name of the Toledo, Wabash & Western Railway Company.
The consolidation was had under the laws of the several states -in which the constituent roads were located, the statute in this state applicable to the transaction being the act of April 10, 1856. (1 S. & C. 327.) The act required that an agreement forming the basis of the consolidation should be presented to the stockholders of the respective companies at separate meetings called for that purpose upon due notice; and then provided that upon its adoption by a vote of two-thirds of the stockholders, the filing of the agreement with the requisite certificate of its adoption, by the secretary of each company, in the office of the secretary of state, and the election of directors by the stockholders of the new company, the consolidation should be deemed complete, and that all the rights, privileges and franchises and all the property of every description "of each of the corporations, parties to the same shall be deemed to be transferred and vested in such new corporation without further act or deed," with this express proviso, " that all rights of creditors, and all liens upon the property of either of said corporations, shall be preserved unimpaired, and the respective corporations may be deemed to be in existence to preserve the same; and all debts, liabilities and duties of either of said companies, shall thenceforth attach to said new corporation and be enforced against it to the same extent, as if said debts, liabilities and duties, had been contracted by it." Whilst the Indiana statute is not so definite in its provisions as to the rights of creditors of the constituent companies as our own, yet an effect has been given it by the construction of its courts, that is substantially the same. McMahan v. Morrison, 16 Ind. 172; Indianapolis, C. & L. R. Co. v. Jones, 29 Ind. 465.
What, then, is the sum of the rights of creditors that, as against proceedings had under it, are to be preserved unim paired? It is true that, ordinarily, a creditor has no right that will interfere with that of bis debtor to sell and dispose of his property for a valuable consideration, unless be has taken the precaution to acquire some lien upon it, by mortgage or otherwise, as a security in his own behalf. As a rule the right of an unsecured creditor is confined to the personal obligation and the undisposed of property of his debtor; still it is not strictly accurate to say that such creditor has no claim upon the property of his debtor, for in one sense, all the property owned by a debtor, unless exempt by statute from sale on execution, is subject to the claims of his creditors, and he cannot dispose of it, unless for a valuable consideration, so as to defeat this right. It is upon this principle that relief is constantly afforded creditors in equity against conveyances in fraud of their rights. Hence the right of a creditor, though unsecured, to maintain an action for a personal judgment, is not the sum of his rights. These may arise from a variety of circumstances, conferring not merely a right to a personal judgment for money, but to have it satisfied from certain specific property formerly owned by the debtor, irrespective of its acquisition by others. The decease of the debtor, assignments made by him, his bankruptcy, loss of the power to own and acquire property, as, for example, the dissolution of a corporation, or the civil death' of the debtor, are some of the most frequent instances in which this right of the creditor has been recognized.
But the question presented here is not general, but special: It is, what are the rights of unsecured creditors of an incorporated railway company whose entire road and property have been transferred to a new company, formed by its consolidation with other roads under the laws of this state ? The general doctrine that all the property of a corporation is a trust fund for its creditors, and that upon its dissolution they, have the right to require that it be applied in payment of their claims, is not controverted by the defendants. There seems to be no conflict in the authorities as to this, and that the right gives rise to an equitable lien upon the property in favor of the creditor, that is superior to the claims of every one but purchasers for value without notice. Story Eq. Juris, sec. 1252; 2 Kent Com. 307 and note " b;" Mor. Priv. Cor. § 780 and 1035; Mont. & West Point R. Co. v. Branch, 59 Ala. 153.
Nor can there be much question but that by consolidation the prior companies are extinguished for all purposes except to preserve the rights of their creditors, for which purpose they " may," in the language of the law, "be deemed to to be in existence." The observation of Mr. Justice Swayne, in construing this statute in Shields v. Ohio, 95 U. S. 319, that, "it was a condition precedent to the existence of the new corporation that the old ones should first surrender their vitality and submit to dissolution " is quite accurate.
It is, however, claimed by the defendants that no new rights are conferred by the statute upon creditors; that if they were unsecured before, they remain such after, the consolidation; and that the new company may deal with the property — may sell or mortgage it — as could have been done, and with like effect, by the former company had it continued the owner thereof. This argument is placed upon two grounds, (1) the assumption that the transaction is analogous to a sale, and, (2) that such is the effect of the statute upon all contract made subsequent to its passage. We will consider them seriatim.
1. The first is, as we think, certainly erroneotts. Whilst the transaction has some of the features, it is wanting in the essential elements of a sale. A sale implies a vendor and a vendee, and by it the former sells and transfers a thing that he owns to the latter for a price paid or to be paid to himself. The vendor parts with nothing but his property, and for it receives a quidpro quo. Such is not the case where companies are consolidated under this statute. It is true that the owner of each constituent road parts with its property. But it does much more; it not only parts with its property, but ceases to be a juristical entity, capable of owning or acquiring property. It does not, and could not receive any consideration for the transfer, because it is extinguished and dissolved by the act of its stockholders in assenting to the proposed agreement. It is futile to urge that the consideration is received by the stockholders. They are not the corporation, nor do they represent it in its relation to its creditors. " An essential incident of corporations is that their rights are not vested in the aggregate of individuals, but in the ideal whole, regarded as distinct from the members of which it is composed." Per Mr. Poste in his edition of Gaius, 154. And see, Bank of Augusta v. Earle, 13 Pet. 519, 587. There has. been no relaxation of this principle in its application to the relation of an incorporated company to its creditors. It is the owner in law and equity of all its corporate property, and it, and not the stockholders, is the debtor in all corporate obligations. Mor. Priv. Corp. 2 ed. § 227. Moreover, in a consolidation of companies, the stockholders receive no part of the property or assets of their respective companies; these pass to the ownership of the new company. All that the stockholders of either of the old companies receive, is stock in the new company in exchange for what they held in the former company. "We must look elsewhere for analogies to the transaction whereby, through consolidation, a new company acquires the property of certain old ones. "We are not without such analogies. They" are to be found in the numerous instances in ancient and modern law, where, to use the terminology of the Eoman civil law, a universitas juris is transferred. The term expresses the legal conception of a university or bundle of rights and liabilities, belonging to one person and constituting, as it were, his legal personality; and where these are transferred by one- and the same act to another, the latter is said to acquire per universitatem, that is, he becomes clothed with the rights and legal duties of the individual to whose personality he succeeds. Among some of the leading instances of such acquisition arc — (1) a succession to an inheritance by an heir — -somewhat obscured in the common law by its division between the heir and the personal representative of the deceased (Maine Anc. Law, 180); (2) where, by adrogation, one not under power became the son of another, and the adrogator by the diminution of the status of the adrogatus, or adopted son, acquired his property and, by praetorian law, became liable for his debts to the extent of the property so acquired; (3) coemption, where the husband acquired, by the marriage, the property of the wife, and by a remedy furnished by the praetor, was made liable for her debts in the same manner as in the case of adrogation. And in the common law may be suggested, not merely the case of an inheritance transmitted by the death of the ancestor, but also the estate of one regarded as eiviliter mortus, which was transmitted and administered upon as that of a person in fact deceased. And the succession of an assignee in bankruptcy to the entire property of a bankrupt is, as observed by Sir Henry Sumner Maine, a modified form of a universal succession. And, he says: " Were it common among us for persons to take assignments of all a map's property on condition of paying all his debts, such examples would exactly resemble the universal successions known to the oldest Roman law." Maine Anc. Law, 180.
In all these cases the point most to be observed, is the extreme care of the law to secure the rights of creditors. The case of an inheritance is familiar and needs little or no comment — the creditors of the deceased are regarded as having a lien upon the property of the deceased, and this is secured to them through the methods of administration; and so in the case df those regarded as being civilly dead, for example in the case of a monk, the • individual, in anticipation of becoming a " monk professed," could make a will and appoint his own executor, but if he did not, administration was awarded by the ordinary as upon the estate of one in fact deceased. 1 Bl. Com. 132. For some reason, not well understood, neither the adrogator nor the husband in a marriage by coemption was, by the ancient civil law, liable to creditors for the debts of the person thus reduced to his power. But a remedy was provided at an early period through an action given by the praetor, in which, by a fiction, the former status of the debtor was deemed to continue, and this, like all fictions introduced to favor the remedy, could not be disputed, and preserved the rights of the creditor as against the property of his debtor. Poste's Gaius Inst. bk. 3, § 84; Id. bk. 4, § 38, and comments by Poste, p. 521; Just. Inst. bk. 3, tit. 10, § 1—3 ; and Hunter Rom. Law ( 2 ed.), 741. And it is worthy of note in this connection that our statute regulating proceed ings in consolidation, provides that, to preserve the rights of creditors, " the respective corporations may be deemed to be in existence." It thus appears to be a principle of universal law that the death, real or supposed, of an individual, possessed of property and owing debts, gives to his creditors a right to have his property aj:>plied to the satisfaction of their claims. It is a misapprehension of the doctrine to say that its application to the consolidation of railway companies, would make every consolidation an assignment for the benefit of creditors. The new company does not take the property as assignee, but in its own right, subject only to the payment of the debts of the constituent companies. This liability is created by statute and the lien results as a consequence. It is not a jus in re, nor a jus ad rem, but a charge in the nature of an equitable lien upon the property available against all purchasers with notice. 3 Pom. Eq. Jur. § 1233 and note 3. The reason underlying the principle upon which the law proceeds in all this class of cases, is, that the debtor does not merely part with his property and rights, but also loses his capacity to own and acquire property ; and all that is left the creditor upon which he trusted his debtor — property constituting the principal ground of credit in all cases — is the property that his debtor owned, and to that he has the right to look for the satisfaction of his claim, the person whom he trusted having ceased to be. It is no answer to this to say that the new company is required to assume the payment of the debts of the old companies. I am aware that the convenience of trade and commerce has so changed the ancient doctrines of the common law, that a debtor may be required in a variety of instances to accept as a creditor one with whom he did not in fact contract; but I know of no instance in which it can be said that a creditor can be compelled to accept a new debtor in the place of the one to whom he extended credit. It is impossible to perceive how this could be done without imparing the obligation of the contract. The company with which he dealt- may have possessed ample means to discharge all its debts; the new one may, by reason of the debts of the other companies, bo hopelessly insolvent, and to compel him to accept it as a general creditor., might be but another mode of robbing him of his credits.
2. The claim is, however, that such is the effect of the statute under which the consolidation was had, and having been in force at the time the equipment bonds were issued, entered into the contract and became a part of it. It is difficult to perceive how this claim can be maintained in the face of the language of the statute heretofore quoted, " that all rights of creditors of either of said corporations shall be preserved unimpaired." There is no question but that every statute enters into and forms part of any contract to which it is applicable as a part of the law of the land; but it is not perceived how, in the application of this rule, a contract may be impaired, or in any way affected, by proceedings had under a statute, which by its terms excludes any such effect. The proposition involves a contradiction in terms. The only question that can be raised in such case is, whether a particular effect claimed for a proceeding had under the statute will or will not, impair the contract of a creditor, and an answer to the question in the affirmative, must be fatal to the claim. No reason is perceived why a different intention should be imputed to the legislature in the enactment of this law. The object of the legislature in authorizing the consolidation of railway companies was, as we apprehend, not to enable the new company to obtain credit by impairing the security of existing creditors of either of the former roads, but to enable existing companies to unite and form a continuous line of railway under one corporate management, between widely separated points of trade and commerce; and as this may be attained without impairing the rights of creditors of the constituent roads, a court might well hesitate to so construe the statute, if its provisions were silent on the subject. It would seem to be quite as consistent with a wise public policy to preserve the foundations of commercial credit, as to promote the formation of great lines of inter-state, commerce • both may be necessary to the interests of commerce, but the one not more than the other.
This view is much strengthened by the further provision as to the rights of creditors, that " the respective corporations shall be deemed to be in existexxce to preserve the same." Plow, for this purpose, shall they be deemed to be in existence —as legal entities with, or without, property ? Manifestly in the former sense, for the existence of a corporate entity without property wherewith to answer claims against it, would be of no avail to a creditor; a judgment against it would be without fruit. The clause was inserted in the interest of credit- or's ; and the only interpretation that can be of any avail to them, cannot be rejected without doing violence to well settled x'ules of consti'uction. The statute introduces a fiction, much as the praetor did in- favor of the creditor's of an adrogatus, and we see no reason why it was not intended to. answer substantially the same purpose. In a suit by a creditor, the company, though in fact dissolved, is to be deemed in existence, and a judgment in his favor*, whether against it or the new company, is to be satisfied from the property owned by the old company at the time of consolidation as if such proceedings had never been had; the fact of consolidation is pushed aside, and no one will be permitted to question the fiction until his rights have been satisfied. Of this no one, as a creditor of the new company, can in justice complain. The lien is a result of the proceedings under which the new coixxpany acquired its title to the property; and, of it, creditor's of the new company have, in law, the same notice they have of prior mortgages upon the same property.
The former decisions of this court do not affect the question as to the rights of creditors. They are simply to the effect that the statute becomes a part of all subscriptions to the capital stock of a company made subsequent to its passage, so that the same may be recovered iir a suit by the consolidated company brought for that purpose. Mansfield, Caldw. & L. M. R. Co. v. Brown, 26 Ohio St. 223. The rights of a stockholder are preserved by giving him an election to become one in the new company, or of declining, and being paid the highest market value of his stock at any time within the six months next preceding the making of the agreement, but unless he does so previous to the consolidation, he is treated as a stockholder in the new company; and this fact accentuates the construction claimed for creditors; as no voice is given them in the transaction, it is but reasonable that their rights should be in no way effected by it.
II. The plaintiff does not, however, base his claim to relief solely upon the provisions of the statute, but likewise, upon the effect of the stipulation in the agreement forming the basis upon which the consolidation was had, that the class of bonds owned by him should be protected, both as to interest and principal, as the same should mature, by the new company. The principle upon which this claim is based is, that where property is transferred upon the condition that the grantee shall pay some third person a debt or sum of money, the latter acquires an equitable lien on the property to the extent of the debt or sum of money to be paid him. This principle is well recognized and has been applied in a great variety of cases. A masterly treatment of the doctrine by Ranney, J., will be found in Clyde v. Simpson, 4 Ohio St. 445. See also, Story Eq. Juris., § 1244-6; Pom. Eq. Juris., § 166 and § 1234; Montgomery & West Point R. Co. v. Branch, 59 Ala. 139; Hamilton v. Gilbert, 2 Hiesk. 680; Vanmeter v. Vanmeter, 3 Grat. 148.
It is true that most of the instances in which this lien has been recognized is where property had been devised charged with the payment of debts or legacies to others, and for the plain reason that the most frequent occasions for its application will arise in such instances, and not because the principle is in its nature inapplicable to other transfers of property; for, as is said by Ranney, J., in Clyde v. Simpson, supra, a "doctrine resting upon the broad foundations of justice and conscience " cannot be made " to depend upon the manner in which the title is derived." No such limitation has been placed upon the doctrine by the courts or text writers. Story Eq. Juris., § 1246. In Vanmeter v. Vanmeter, supra, it appears that a grantor had made a conveyance of all his real estate in consideration of one dollar and the agreement of the grantees to pay his debts and a certain legacy; this was held by the court to constitute a lien upon the property in favor of the creditors. Many similar instances will be found among the cases cited; and, independent of the provisions of the statute, we are unable to see why the principle, when applied to the facts of this case, does not create a similar lien in favor of the holders of these equipment bonds. It would seem to follow as a corollary from what has been said as to the lien based upon the provisions of the statute. Whatever may be urged against the claim that the agreement to protect these bonds imposed the- duty of securing them by mortgage or otherwise, the least that can be claimed for such agreement is, that it imposed the duty of paying them, interest and principal, at maturity. And, as all the property of the company issuing them was tranferred upon the basis of this agreement, the transfer was, at least, upon the stipulation to pay his claim, as a part of the consideration thereof. If, for the purpose of withdrawing from the cares of business, or any other reason, a private person were to make a conveyance of all" his property to another upon the agreement of the latter to pay his debts, it will not be questioned but that such transfer would create an equitable lien upon the property in favor of creditors, that would avail against all persons with notice. This case is every way analagous to such a transfer', and no reason exists why it should not be governed by the same principle so far as the rights of creditors are concerned. The only difference between the real and the supposed case strengthens the reason of its application to the real one. In the supposed case the person making the transfer may still own and acquire property, but' in the real one, as heretofore shown, the debtor terminates its personality, and can no longer own or acquire anything; all that is left the creditor is the property that it owned; and, unless we disregard all the analogies of the law, this property must be charged with its debts in the hands of one that succeeded to its place in consideration of the agreoement to pay them, and the lien so created must be superior to the title of all purchasers with notice.
In tlie decree for the foreclosure of the mortgage executed by the consolidated company in 1873, know as the Gold Bond Mortgage, it was ordered that the sale of the road, etc., should be made "without prejudice to any claim which may be made by the holders of bonds called equipment bonds, referred to in the petition," (being the class of bonds owned by the plaintiff,) and that as to these, all questions arising were to be "left open." So that, as the Wabash, St. Louis & Pacific Eailway Company, derives its title to the property and road against which the plaintiff asserts his rights, under the purchase made by Ellis and his associates at the judicial sale in which this reservation was made, it follows that whatever rights the plaintiff had as against the Toledo, Wabash & Western Company and its creditors, may be asserted against the Wabash, St. Louis & Pacific Company, and those claiming under it. No question of laches can arise, as the princpal of the bonds did not mature until 1883, or after the bringing of this suit.
It seems, therefore, unnecessary to consider whether the plaintiff is entitled to the benefit of the security known as the consolidated mortgage, executed by the Toledo, Wabash & Western Eailway Company, in 1867, for the purpose of retiring its bonded indebtedness. This has been constantly refused the holders of these equipment bonds; and as they are now due, the plaintiff is entitled to a finding of the amount duo upon the bonds held by him, and an order for the sale of so much of the road as is within the jurisdiction of the court, unless paid in a short time to be named.
The conclusion here reached finds direct support in the cases of the Montgomery & West Point R. Co. v. Branch, 59 Ala. 139, and Tysen v. Wabash Ry. Co. 15 Fed. Repr. 763 and in the text of section 809 of Morawetz on Corporations. In a note by the reporter to Tysen v. Wabash Ry. Co., it is said that a motion for a rehearing was overruled by Justices Wood and Harlan. An effort has been made to distinguish the Alabama case on the suggestion that in it the indebtedness may have been contracted before the passage of the statute under which the consolidation had taken place. But this is not correct, as tbe statute was passed in 1860, and the indebtedness was contracted in 1866 and 1870. Our conclusion is, however, oj>posod by the decision of the .supreme court of the United States in the Wabash, St. Louis & Pacific Ry. Co. v. Ham, 114 U. S. 587. Bespect for the authority of that court has delayed the decision in this case from the time it was reached upon the docket — over a year since; but, after the most careful consideration, we are unable to adopt its conclusions ; and, in construing a statute of our own state, deem it our duty to adopt that construction which, in our judgment, most accurately expresses the intention of the legislature.
Judgment for the plaintiff, finding the amount due him and order of sale.