New Orleans, Jackson, & Great Northern Railroad v. Harris

| Miss. | Oct 15, 1854

Mr. Chief Justice Smith

delivered the opinion of the court.

This suit was instituted in the circuit court of Monroe by the New Orleans, Jackson, and Great Northern Railroad Company, to recover one thousand dollars alleged to be due by the defendant in error, Overton Harris, for certain calls made upon the stock owned by him in said company.

In the first count of the complaint filed by the plaintiffs in error, it was alleged, that under and by virtue of an act of the legislature of Louisiana, approved March the 11th, 1852, they became a corporation, with the name above set forth, for the purpose of constructing and maintaining a railroad from New Orleans, in the State of Louisiana, to Jackson, in this State, thence northward through the same to a point which should be deemed most favorable for continuing a railroad communication to Nashville, in the State of Tennessee, with authority to make contracts and to sue. That by an act of the legislature of Mississippi, of the 11th of March, 1852, the said company were authorized to enter on the territory of said State, and were vested with authority and all the rights necessary for the construction and maintenance of said road through the same, and were made capable of suing and being sued. That by an act of said legislature of the 3d of March, 1852, a company styled the Canton, Kosciusko, Aberdeen, and Tuscumbia Railroad Company, was chartered, with authority to construct and maintain a railroad, from the said town of- Aberdeen westwardly, and southerly to Canton, and in a northern and eastern direction to the State line near Tuscumbia, in the State of Alabama, to make contracts, to sue and be sued; and also with the privilege and power to connect the said railroad with any other railroad or railroads, which had been or which might thereafter be established by law, on such terms and conditions as should be agreed upon by the parties interested therein.

The complaint further alleged, that books were opened for subscriptions to the stock of this company, that stock therein was subscribed for, and that the said corporation was fully put into operation. That the defendant subscribed for twenty shares of the capital stock of said company, at one hundred dollars each, on the 31st day of May, 1852, and that he was duly required to pay upon his stock the amount sued for.

It was also alleged, that by an act of the legislature of this State, approved October 19,1852, passed in order the better to secure the construction of the road, the said company were authorized and empowered to assign, transfer, and set over to the New Orleans, Jackson, and Great Northern Railroad Company, all the rights, powers, privileges, franchises, immunities, and exemptions, held by them under their charter,* or by virtue of any other law of this State or of the State of Alabama, as well as the stock subscribed to them, upon such terms and conditions as should be agreed upon by the board of directors of said company, provided that. the said act of the legislature should be accepted and approved by the stockholders representing a majority of stock subscribed to said company, at a meeting of the stockholders called for that purpose. That upon the said assignment and transfer being made, it was also provided by said act that the New Orleans, Jackson, and Great Northern Railroad Company, the said company should be entitled to the same rights, franchises, immunities, and exemptions which were held and possessed by the company making the transfer.

The complaint further alleged, that the act approved on the 19th of October, 1852, by which the transfer was authorized, was duly accepted and' approved by the stockholders of the Canton, Kosciusko, Aberdeen, and Tuscumbia Railroad Company, representing a majority of the stock subscribed to said company at a meeting, of the stockholders specially called for that purpose. That on the 17th of April, 1852, the board of directors of the New Orleans, Jackson, and Great Northern Railroad Company; and that on thej 26th of the same month the board of directors of the Canton, Kosciusko, Aberdeen, and Tuscumbia Company, duly made a contract for the said transfer and assignment, which was thereafter duly delivered to each other; and that the New Orleans, Jackson, and Great Northern Railroad Company, thereupon duly accepted the said transfer and assignment.

The terms of the agreement entered into by the directors of the respective companies pursuant to which the transfer was made, are stated in the complaint; but as that contract can have no influence upon our decision, it is unnecessary to recite them.

By virtue of the several premises as above stated, it was averred that the defendant became a stockholder in the New Orleans, Jackson, and Great Northern Railroad Company, to the amount of his subscription, and as such was liable to. pay to the plaintiffs the amount of the calls made upon his stock, for the recovery of which this action was brought.

The second count contains an averment that the said transfer and assignment was made with the knowledge, approbation, and consent of the defendant. In all other respects, it is substantially the same as the first.

To this complaint the defendant interposed his demurrer, and assigned several causes of demurrer to each of the counts. The demurrer was sustained, and the plaintiffs declining to plead further, judgment final was entered in favor of the defendant; whereupon the plaintiffs sued out their writ of error.

The object of the transfer and assignment, and the agreement entered into by the respective companies, and the necessary effect of these transactions, on the supposition of their validity, was to make the defendant, to all intents and purposes, a stockholder in the New Orleans, Jackson, and Great Northern Railroad Company; to vest him with all the rights and immunities, and to subject him to all the duties and responsibilities which attached to that relation. If the transfer and assignment were valid, the defendant thereby became bound for the payment of his stock to the plaintiffs, and his liability is sufficiently alleged in the first count of the complaint. •

Our inquiry, therefore, must necessarily, in the first place, be directed to the authority and power of the respective companies, as defined in the acts of incorporation; to the capacity of the one to make the transfer and assignment; and to that of the other, to accept of it.

It is very manifest that if neither corporation possessed the requisite authority and power to make the transfer and assignment valid and effective, the whole transaction was simply void. No rights were either transmitted or acquired under it. Upon the supposition that the transfer and assignment were void for the want of power in the parties to it, it is clear that the assent of the defendant to the transfer could not have the effect to render him liable to the plaintiffs upon the facts alleged in the second count of the complaint. As the very foundation of the asserted claim was, that by virtue of the transfer and assignment, the corporate existence of the Canton, Kosciusko, Aberbeen, and Tuscumbia Railroad Company, was put an end to, and that the New Orleans, Jackson, and Great Northern Railroad Company were invested, fully and to the same extent, with all its rights, immunities, and franchises, as tb.-A same were held and possessed by it before the transfer ■ and that being so invested with said rights, immjisú'ties, and franchises, they were • authorized to demaftdrhhd recover the claim in controversy. But if the objection, based upon the want of power in these corporations, shall be found not to apply to the former, it will be necessary to determine whether the assent given to the transfer by the defendant, made him liable upon the said second count in the complaint. .

'It is not controverted that the Canton, Kosciusko, Aberdeen, and Tuscumbia- Company, under its charter granted on the 3d of April, 1852, were incapable of making the alleged transfer and assignment. But it is insistedfÉiÉtoample power and authority for that purpose was conf«lBpFy the act of the legislature of this State, approved on thFgm of October, 1852.

By reference to this act it will be seen that by the first section the said company were authorized and empowered to assign, transfer, and set over to the New Orleans, Jackson, and Great Northern Railroad Company, all of the rights, powers, privileges, franchises, immunities, and exemptions (then) owned and possessed by said company by virtue of their charter and of any other acts passed by the legislatures of the States of Mississippi and Alabama, as well as the stock subscribed to said company, upon such terms and conditions as should be agreed upon by the board of directors of the said companies. By a proviso the said act “was not to take effect unless accepted and approved by the stockholders representing a majority of the stock subscribed to said company at a meeting of stockholders called specially for that purpose.” It was alleged in the complaint that this act was duly accepted and approved in the mode prescribed.

It will not be questioned, if it was within the competency of the legislature to direct in what manner the proposed amendment of their charter was to be approved and accepted by the stockholders, that the power conferred under the act was altogether sufficient to authorize the contemplated transfer and assignment.

If the legislative possessed the authority to confer up on-any number of the stockholders in said company, who might be the owners of a majority of the'shflQk, the power to accept any proposed amendments to the charter^a-iad by such acceptance to bind the remainder of the stockholders, it might with equal propriety, so far as the isolated question of power was concerned, delegate the same right to a minority, owning but a small proportion of the stock, or to any specified number less, than a majority, or even to a single corporator. A charter is a contract, within the meaning of the constitution of the United States, between the State granting the charter and the corpora-tion itself, the obligation of which it is not within the power of the legislature to impair. The contract subsisting between the members of a corporate body and the corporation is equally within the protection of the constitution. According to the doctrine that the legislature had the right to confer upon any number of the stockholders, who might own more than one half of the stock subscribed, the authority to accept of amendments to the charter, it is evident that the charter might be altered in its most essential stipulations, not only without the approbation but against the consent of the gréat body of the corporators, thereby subjecting them to duties and responsibilities not imposed by their contract, with the company. This, we think, cannot be done without a clear violation of the constitution. Hence, we conclude that the act in question did not invest the stockholders representing a majority of the stock subscribed with authority to accept the amendment proposed to the charter.

The charter is silent as to the method in which amendments thereto may be accepted by the stockholders. But it will not be questioned, that the power to accept of any alterations and amendments to the charter, proposed by the legislature, and which may be deemed by the members necessary or beneficial, exists, whether such power be regarded as incident to their corporate character, or as belonging to them as members of the community. Disregarding, therefore, the provision directing the mode in which the amendatory act was .to be approved and accepted, we come to the question, "Whether the acceptance of the amendment, as alleged, was a valid act, binding the company?

Incorporated companies are subject to the same principle which prevails in the community at large, that the acts of the majority, in cases within their charter powers, are obligatory on the minority. The general rule on the subject is well expressed by Ch. J. Tilghman. He says: the fundamental principle of \ every association for self-government is, that no one shall be j bound, except with his own consent, expressed by himself or by j his representatives; but actual assent is immaterial; the assent j of the majority being the assent of all; and this is not only con-\ structively but actually true; for that the will of the majority | shall in all cases be taken as the will of the whole is an implied, { but an essential stipulation, in all associations of this sort. St. Mary's Church, 7 Serg. & R. 517. When the charter has made no provision on the subject, this is unquestionably the rule, in regard to all acts authorized by the fundamental law, performed in execution of the objects of the incorporation. But it cannot be said that the acceptance of the amendatory act was a matter connected with the business, or designed to promote or carry into effect the objects for which the company was chartered. On the contrary, it looked to the destruction of its franchises and the utter extinction of its corporate existence. And this object was to be effected not by a surrender, in which case the primary objects of the incorporation would be abandoned, and the stockholders discharged of their corporate duties and liabilities;' but by an assignment and transfer, to another company, of its immunities, franchises, and of the stock subscribed; under the operation of which the stockholders would, also, be transferred and subjected to the performance of contracts to which they had never assented. Here it is manifest the general rule in regard to acts performed within the scope of the charter powers, does not apply. A different principle must be resorted to in order to uphold, if it can be sustained, the position that the alleged approval and acceptance bound the company,

j The rule is unquestioned that, in partnerships and joint-stock associations, the fundamental articles of copartnership or association cannot be altered by a vote of. the majority against the consent of the minority, unless there is an express or implied provision in the articles themselves, that they may do it. Natuzeh v. Irving et al., Gow on Part. 576; Stone v. Lynch, 4 J. Ch. R. 573. This principle is equally applicable to incorporated companies. The charter in these cases constitutes the fundamental articles of the association. It defines the rights and powers of the corporation, determines its objects, and fixes the individual contract of the member with the corporation itself. His contract is as clearly defined as the charter can make it. It must be conceded, that the legislature have no constitutional power, unless reserved in the grant, to change or altér, without consent, an act of incorporation, and thereby to cast upon them additional obligations, or take from them rights guaranteed by their charter. Its power over the corporation can be no greater; it can impose, no additional obligation without his assent; or release him from any duty, against the will of the party thereby to be affected. In what respect can the power of a majority of a corporation transcend the authority of the legislature ? He must have as perfect a right to stand upon his contract with the corporation in opposition to the. action of a majority, as he would to insist upon his rights under it against the action of the legislature. This is a proposition too clear tp be doubted, in all cases in which there is no stipulation, express or implied: that he shall be bound by the voice of the majority.

The incapacity of the majority to alter, fundamentally, the charter against the consent of even a single corporator, was recognized by the vice-chancellor in the case of Curtiff v. The Manchester and Bolton Canal Company, 13 Eng. Ch. R. 131, note. In that case an injunction was granted upon the application of a single shareholder in an incorporated company, restraining the company from affixing their corporate seal to a petition to parliament for an act to convert a part of the canal into a railway, and from using the corporate funds for that purpose. So in Manly against the same company, an injunction was granted for a similar purpose. Ib. 132. So also in Ware v. The Grand Junction Water Company, 2 Russ. & Mylne, 461, ^he same principle was applied to a corporation upon the application of a single shareholder. It is true, on appeal, the injunction granted by the vice-chancellor was dissolved by Lord Brougham, so far as the company were restrained by it from petitioning parliament for an act to authorize the contemplated change in the charter. But the decision of the lord chancellor cannot be considered here as an authority, against the principle contended for, as his decree seems to have been based upon the ground that the alteration, if made, would not affect, radically, the organization of the company, or upon the ground that the power of parliament over the subject was unrestricted. To the same effect is the very learned and able opinion of the chancellor, delivered in the recent case of Stevens v. The Rutland and Burlington Railroad Company, 1 Am. Law Reg. 154.

There can be no doubt, under the uniform decisions of the courts in this confederacy, that the acceptance of the amendatory act, in the manner it was averred to have been made, could not bind the stockholders who did not assent to it. But the question is not one of assent, as applied to the individual corpora-tors, but one of power in the stockholders possessing a majority of the stock to accept a legislative amendment which would produce a fundamental change in the stipulations of the charter. The amendatory act imposed no obligation upon the company. It. vested in the corporation no right which it did not possess under its charter. It amounted simply to a legislative permission to accept the amendment, if it should choose to do so, and could consistently with its charter rights and obligations. No case has been brought to our attention, in which it was directly decided that the acceptance of an amendment of this character, by a majority of the corporators, was absolutely void as to the corporation itself. In all the cases we have examined, the decision turned upon the question of the individual consent of the party charged or affected by the alteration. Generally, an act performed without any authority whatever is absolutely void. The principle applied to corporations is, that they possess only the powers which are specifically granted by the act of incorporation, and such as are necessary to carry into effect the powers expressly granted. 2 Kent, Com. 298. In this case it is not pretended that the stockholders representing a majority of thh stock were expressly, under the charter, vested with the power to accept of amendments thereto of the character of that tinder consideration; and it is impossible to conceive that it existed on the part of even a majority of the whole of the stockholders, as an implied right. Such a doctrine is repugnant to the principles of sound sense and common justice. When a person becomes a member of an incorporated company by his subscription to the stock, he agrees to be bound by the terms of his contract, as defined in the charter of incorporation; he agrees to be bound by the acts of the corporation and its officers, performed within the scope of the charter powers; but upon no principle can it be held that he impliedly consents to any alteration which would work a radical change in the structure of the association, which might be voted or accepted by even a majority of the whole of the corporators, and thereby be subjected to burdens and obligations wholly foreign to the purposes and objects of the original charter. It is our opinion, therefore, that the act of acceptance was absolutely void for want of power on the part of the stockholders representing a majority of the stock to vote an acceptance of the amendatory act. It follows hence that the transfer and assignment were also void and ineffectual.

But it is insisted that the defendant is bound by his assent to the transfer and assignment, and that the plaintiffs were entitled to a recovery upon the same count.

The ground upon which he must be held liable, if bound at all, is that by virtue of his subscription to the stock of the Canton, Kosciusko, Aberdeen, and Tuscumbia Railroad Company, he became bound to pay the calls upon his stock, as alleged, to said company; that his stock and his incidental obligation, together with the rights, immunities, and franchises of the company were transferred to the New Orleans, Jackson, and Great Northern Railroad Company; and. that, under the operation of the assignment, the defendant became a stockholder in said company to the amount of his subscription to the stock of the former company, and as such is liable.

Upon the principle laid down in regard to the assignment, it is clear that the rights of neither party to it were in anywise affected. The act of transfer was void; the assignors parted with no right or immunity; the assignees acquired nothing. The defendant remained a stockholder in the company for whose stock he had subscribed, and as such was liable to the same extent after the attempted transfer as before the attempt was made. It is impossible to conceive that the assent of the defendant could bind him, unless his assent to the transfer rendered it effectual for the purposes intended, or unless upon some consideration passing from the assignees to him, outside of the transfer, he should be estopped from denying its validity. The only consideration, or in other words, the only ground for his liability alleged was, that the transfer in law and in fact made him a stockholder in the company to the extent of his subscription to the stock in the Canton, Kosciusko, Aberdeen, and Tuscumbia Company. It was not averred that he became a stockholder in any other way than through the said assignment and transfer, made with his knowledge, approbation, and consent. His assent did not and could not impart validity to a transaction in itself void. This, we presume, will not be controverted. He did not therefore become, in virtue of the transfer and assignment, a stockholder in the company suing in this action; consequently, no sufficient ground was shown in either count, whereon the defendant was chargeable.

Judgment affirmed.

Statement of Mr. Justice Handy.

Being interested as a stockholder in the company of the plaintiff in error, I consented to sit in this cause at the earnest solicitation of both the parties. I determined, however, not to deliver any opinion in the case, unless it should become necessary, by a disagreement between my brethren of the bench, to a decision of the case. Such not being the result of the deliberations of the other two members of the court, I consequently take no part in the decision as made, or the opinion as delivered by a majority of the court.