State ex rel. Godard v. Topeka Water Co.

60 P. 337 | Kan. | 1900

Lead Opinion

The opinion of the court was delivered by

Smith, J.:

There are two questions to be settled essential to a disposition of this case : (1) Did The Topeka Water Company (the Kansas corporation), by its trust deed to the Atlantic Trust Company, convey to it, by way of mortgage, the franchises granted to the former by the city of Topeka ? ( 2) Has the Topeka Water Company (the New Jersey corporation), under its charter, a right to own and operate a system of water-works in Shawnee county, Kansas, and to transact business in this state, to the extent claimed by it, under the rules of comity, or otherwise ?

In considering the first proposition, it must be noted that The Topeka Water Company, the mortgagor to the Atlantic Trust Company, by virtue of ordinance No. 1094, succeeded to all the rights, privileges and franchises conferred by the city of Topeka on the Topeka Water-supply Company. The Topeka Water Company, at the time it executed the mortgage, was a private corporation, endowed by law with certain prescribed powers, among others the following :

“To hold, purchase, mortgage or otherwise convey-such real and personal estate as the purposes of the corporation shall require.” (Gen. Stat. 1897, ch. 66, § 13 ; Gen. Stat. 1899, § 1227.)

“Corporations shall have power to borrow money on the credit of the corporation not exceeding its authorized capital stock, and may execute bonds or promissory notes therefor, and may pledge the property and income of the corporation.” (Gen. Stat. 1897, ch. 66, §18; Gen. Stat. 1899, §1232.)

It is earnestly claimed by counsel for plaintiff that The Topeka Water Company had no power to mortgage or convey its franchises granted by the state or the city of Topeka. As to the franchises received from the state we agree, but as to those privileges and rights conferred by the city, the law is well settled against the contention of counsel for plaintiff. There is a marked distinction between a franchise which is essential to the creation and continued existence of a corporation — a right to exist as an artificial being— a right conferred by the sovereignty of the state — and those rights subsidiary in their nature by which the corporation obtains privileges of more or less value, to the enjoyment of which corporate existence is not a prerequisite. A corporation exists by the will of'a sovereign power. To this superior authority it owes an allegiance which it cannot abjure. It cannot, by a bargain, sale, or mortgage, alienate or encumber its birthright, nor in any manner part with those accompanying powers granted by its creator which are essential to its existence and vitality. A corporation may exist without property. Therefore’when it sells or mortgages property owned by it, it does not impair its right to live — a privilege conferred by the state and called a franchise. The statutes above quoted expressly authorize a corporation to mortgage its property.

Counsel for the city treat the franchise to be a corporation and the franchise granted to the water company by the city, giving it a right to occupy the streets, erect hydrants, supply water, etc., as the same. The rights granted to the corporation by the municipality above mentioned have been defined by law-writers as secondary franchises, and the question involved here is treated by Thompson in his Commentaries on the Law of Corporations, section 6140, as follows:

“The courts are united upon the proposition that a corporation has no power, independently of the express grant of the legislature, to mortgage or otherwise alien its franchise of being a corporation. It follows that those who purchase, at a judicial or other sale, the property and franchises of a corporation, do not thereby become a corporation. The purchase may vest in them alLthat is bought, as property, but they cannot prosecute' the enterprise, as being a corporation, until they have been duly incorporated. Nor are they entitled to the restriction upon individual liability of members or stockholders accorded to the stockholders of the old corporation. If they issue bonds before before becoming incorporated, they are liable thereon as ordinary obligors are ; and the fact that they use the name of the old corporation in issuing such bonds makes no difference. But, as already seen, the secondary franchises of a corporation are assignable, except such franchises as are necessary to the performance of public obligations, and those are assignable only with the express consent of the legislature. The franchise of receiving tolls is a secondary franchise, which is in its nature assignable, at least with the consent of the legislature; and it has been held that authority in the governing statute of a planh-road company ‘ to mortgage the road or other property,’ carries with it the right to mortgage the franchise of receiving tolls, though not to mortgage any franchise essentially corporate in its nature, and such as cannot be enjoyed by a natural person.”

Again, in section 6747, the author says :

“The secondary franchises of a corporation — that is to say, the peculiar privileges or rights which it may have received from the legislature under its charter or incorporating act, or from a municipal corporation under an ordinance by way of a license — are in the nature of property, and do not revert to the state upon the death of the corporation, but, being vendible, pass to a receiver or other representative of the corporation, among its other assets, to be administered for the benefit of its creditors ; and the corporation may make a valid sale thereof, in like manner with its other property, before it is dissolved.”

The rule is that the primary franchise of being a corporation vests in the individuals who compose it and not in the corporation itself, while the secondary franchises, such as the right of a railway to construct and operate its road, or the right to operate a water plant and collect water-rents, are vested in the corporation. The principle stated has been generally approved by the courts in this country. (Union Pacific Railroad Co. v. Lincoln County, 1 Dill. 325, Fed. Cas. No. 14,378 ; Memphis Railroad Co. v. Commissioners, 112 U. S. 619, 5 Sup. Ct. 299, 28 L. Ed. 837 ; Morgan v. Louisiana, 93 U. S. 217, 23 L. Ed. 860; The State, ex rel., v. Irrigating Co., 40 Kan. 96, 19 Pac. 349 ; Joy v. The Jackson and Michigan Plank Road Co., 11 Mich. 164; Detroit v. Mutual Gas Light Co., 43 Mich. 594, 5 N. W. 1039 ; Fietsam v. Hay et al., 122 Ill. 293, 13 N. E. 501.)

The mortgage to the Atlantic Trust Company pledged all the property of the water company, including all rights, franchises, tolls, income, right-of-way grants, etc., then owned or to be thereafter acquired by the corporation. No express reference was made in the mortgage to the contract between the city and the water company, but we -think the rights obtained under the city ordinances passed to the mortgagee. The ordinances accepted by the water company were in the nature of contracts and were property within the meaning of the law. (Railway Co. v. Campbell, ante, p. 439, 59 Pac. 1051; The West River Bridge Company v. Dix et al., 6 How. 534, 12 L. Ed. 535; Long Island Water Supply Co. v. Brooklyn, 166 U.S. 685, 7 Sup. Ct. 718, 41 L. Ed. 1165 ; New Orleans Gas Co. v. Louisiana Light Co., 115 U. S. 650, 6 Sup. Ct. 252, 29 L. Ed. 516 ; Thomp. Corp. § 6747.) Under our statute, the words “personal property” include money, goods, chattels, evidences of debt, and things in action; and the word “property” includes both personal and real . property. (Gen. Stat. 1897, ch. 1, § 8 ; Gen. Stat. 1899, § 7009.)

In the making of said contracts evidenced by ordinances the city was not exercising legislative or governmental powers, but quasi private power conferred by law, and in such matters it could exercise its business affairs governed by the same rules as apply to an individual or a private corporation. (1 Dill. Mun. Corp. § 27, and cases cited ; Illinois Trust & Sav. Bank v. City of Arkansas City, 22 C. C. A. 171, 76 Fed. 271, 34 L. R. A. 518.)

We think, therefore, that it was not beyond the power of The Topeka Water Company to mortgage its plant and appurtenances and its property rights under the ordinances mentioned. The mortgage haying created a valid lien on the property, a sale of the same under a decree of foreclosure was authorized and lawful.

The second-proposition, involving the right of the Topeka Water Company (the New Jersey corporation ) to transact its business in this state must be decided against the contention of the plaintiff. It will be observed that the articles of incorporation of the Topeka Water Company, obtained under the laws of New Jersey (set out in the statement of the case), contain, among other things, these provisions :

“The company shall have power and its object is to conduct its business and have one or more offices without the state of New Jersey, in such places in the several states and territories of the United States of _ America as shall from time to time be found necessary or convenient for the purposes of the company's business.''

“That the objects for which this company is formed are to do any or all of the things herein set forth to the same extent as natural persons might or could do, and in any part of the United States of America, as principals, agents or otherwise, and in furtherance, and not in limitation, of the general powers conferred by the laws of the state of New Jersey.”

The peculiar wording of subdivision a, third section of the charter, would seem, on a cursory reading, to indicate that power was granted to the company to operate a water-works plant in the county of Shawnee, Kansas, and elsewhere in the United States, for the sole purpose of supplying the city of Topeka and its inhabitants with water. But a careful reading of the language used conveys a broader signification, and indicates authority conferred to erect and maintain water-works in other municipalities in the Uuited States and territories. While it is a canon of construction that such charters must be interpreted strictly against the donees in the grant, yet we cannot, even in the light of this rule, conclude that under the various sections of this charter the operations of the company and its power to act were confined to Shawnee county, Kansas. In the consideration of this question, it is immaterial that the incorporators of the New Jersey company perfected its organization under the laws of that state solely for the purpose of owning and taking care of water-works property in Shawnee county, unless such intention was expressed in the charter. We regard the oral testimony to that effect as irrelevant. In Pape v. Capitol Bank, 20 Kan. 440, 450, Mr. Justice Brewer, speaking for the court, said:

“ In interpreting the powers possessed by a corporation, we must not make the interpretation depend on the manner in which the corporation actually exercises its powers, but upon the intention of the legislature in the enactment of the statute.”

If it be determined under the written articles of association (the charter) that the company was granted power therein to operate one or more water-works plants in the state of New Jersey, it then follows that its right to own and operate the property in question is secured. We think, as'before stated, the power was conferred by this charter to own and operate waterworks anywhere in the United States, including New Jersey. Counsel for the plaintiff suggests that the case of Land Grant Railway v. Comm’rs of Coffey County, 6 Kan. 245, is applicable to this inquiry. In the case cited a corporation was organized under the laws of the state of Pennsylvania for the purpose of transacting a certain specified business in any other state, territory or country except the state of Pennsylvania. It will be seen that the corporation thus created was expatriated by law at its birth. It was held that, having no domicile in the state of its creation, and having no corporate existence there, it could have none elsewhere, and hence could not be recognized here. The case is not applicable to the facts before us. It is a general rule, from which we have been unable to find any departure, that corporations organized to transact business in the state which created them will be permitted to carry on business in other states so long as they do not depart from the charters under which their original authority was obtained. In the case of the Bank of Augusta v. Earle, 13 Pet. 592, 10 L. Ed. 309, Chief Justice Taney said:

“We think it is well settled, that by the law of comity among nations, a corporation created by one sovereignty is permitted to make contracts in another, and sue in its courts ; and that the same law of comity prevails among the several sovereignties of this union. The public and well known, and long continued usages of trade; the general acquiescence of the states; the particular legislation of some of them, as well as the legislation of congress ; all concur in proving the truth of this proposition.”

Again, in Christian Union v. Yount, 101 U. S. 356, 25 L. Ed. 890, Mr. Justice Harlan, speaking for the court, said:

1 ‘ In harmony with the general law of comity obtaining among the states composing the union, tp.6 presumption should be indulged that a corporation of one state, not forbidden by the law of its being, may exercise within any other state the general powers conferred by its own charter, unless it is prohibited from so doing, either in direct enactments of the latter state, or by its public policy to be deduced from the general course of legislation, or from the settled adjudications of its highest court.”

And this court has repeatedly reiterated -the rule stated by the supreme court of the United States. (O’Brien v. Wetherell, 14 Kan. 616; A. T. & S. F. Rld. Co. v. Fletcher, 35 id. 236, 10 Pac. 596; Kansas City Bridge & Iron Co. v. Comm’rs of Wyandotte Co., 35 id. 557, 11 Pac. 360.)

It has been the policy to permit foreign corporations chartered under the laws of other states to transact business here. In 1898 an act was passed by the legislature providing for the regulation of foreign corporations and prescribing the method by which they might be permitted to do business in this state. (Laws 1898, ch. 10 ; Gen. Stat. 1899, § 1211, et seq.) The defendant corporation has complied with all the conditions of the act mentioned. We do not hold, however; that such recognition gives it power beyond that conferred by the laws of the state of its creation.

Other questions discussed in the briefs do not affect the conclusion reached. Judgment will be entered for the defendant.

Johnston, J., concurring.

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Dissenting Opinion

Doster, O. J.

(dissenting from the third and fourth paragraphs of the syllabus and corresponding portions of the opinion) : I concur in the above opinion of Mr. Justice Smith that the franchises acquired from the city of Topeka by The Topeka Water Company (the Kansas corporation) were of the kind denominated as “secondary,” and that they constituted a species of property vendible in character, and that they passed by mortgage foreclosure aud sale to Charles P. Street, and that they were acquired from him by the Topeka Water Company (the New Jersey corporation), provided it be a corporation capable of acquiring and holding property in Kansas. I dissent, however, from the view taken of it as a legally constituted corporation with power to do business in this state. The paper quoted in Mr. Justice Smith’s opinion is not the charter of the company, and, although that fact has no material bearing upon the question, I mention it for the purpose of accuracy in the use of terms. Such papers are often, perhaps usually, called charters. They are, however, only the articles of association entered into by the corporators. The charter of a corporation is the legislative enactment which grants its franchises and confers upon it its powers. The charter of the New Jersey corporation, so called, is the statute of that state.

It is a fundamental rule in the construction of public grants made without consideration, that they are construed most strongly against the donee. This applies to grants of corporate franchises as well as to grants of all other character. The same rule of construction should apply to the certificate of incorporation or articles of association between the corporators. In stating the objects of their association these corporators choose their own language, and in the exercise of the special privileges they ask and obtain they should be strictly limited by the terms they themselves use.

In the expression of my views it will be unnecessary to enter upon a critical analysis of this anomalously worded writing called the “charter” of the New Jersey corporation. Within its incongruous and ungrammatical mass of verbiage a few important facts have not been successfully hidden, but stand forth with sufficient prominence to indicate the character of the paper and the purpose of the company. To begin, the instrument localizes the company as a Kansas institution by designating it the “ Topeka Water Company.” It next states that the object for which the company is formed is “to do any and all the things herein set forth, . . . and in any part of the United States.” It next states that the object thus ‘herein set forth” is to “build, construct, repair, purchase, own and operate a water-works plant in the county of Shawnee, state of Kansas, and elsewhere in the United States of America, for the purpose of supplying the city of Topeka, and the county of Shawnee in the state of Kansas, . . . with water for public, private and domestic use,” etc. The statement of all the other objects for which the company was formed shows such objects to be subsidiary and incidental to the principal one above stated.

It is true that the instrument states that the company was formed to do the things herein set forth “ in any part of the United States,” but the object herein set forth is “to build, purchase, repair, own and operate a water-works plant, in the county of Shawnee, for the purpose of supplying the city of Topeka with water.” By no rules of construction, grammatical or legal, can any other statement of object be evolved out of the nearly incoherent jargon of words which made up this so-called charter. It is a charter for the purpose of doing business in Kansas and nowhere else. Being such, the case is brought within the principle of Land Grant Railway v. Comm’rs of Coffey County, 6 Kan. 245, referred to in the majority opinion. While the company whose charter claims were considered in that case was excluded by the terms of its incorporating act from- doing business in the state of its nativity, yet a company organized in one state to do business solely in another stands upon the same footing. A company organized in New Jersey to do business in Kansas is by necessary implication ex-cliided from doing business in the state where organized.

But, while believing that the New Jersey company should be ousted of the franchises and privileges which as a corporation it has been holding and exercising, I do not wish to be understood as denying the right of the incorporators to own the water-works property in question or to carry on the business of furnishing water to the city of Topeka. I think the water-works property and the right to furnish water to the city of Topeka passed from The Topeka Water Company, the Kansas corporation, through the Atlantic Trust Company and Charles F. Street, to the so-called incorporators of the New Jersey company as members of a partnership.

It is a rule, to which I know there are many exceptions, that defective corporate organization will expose the corporators to liability as partners, but I think there could be no exception to the rule that defective corporate organization,. preventing the corporators from prosecuting their enterprise in a corporate capacity, would not deprive them of property acquired as a corporation, nor prevent them from transacting the business in which they had been engaged, provided it be such as could be carried on by individuals. (1 Bates, Part. § 6 ; Holbrook v. St. Paul Fire & Marine Insurance Company, 25 Minn. 229.) The business of owning a water-Works plant and furnishing water to a city is not one which, either by law or by necessity, is to be exclusively conducted by corporations.

What rights the state or the city of Topeka might have as against the New Jersey partnership, in the event the corporators were to be treated as such, are not involved in the case before us, and therefore have not been considered by me.