State v. U. S. Grant University

| Tenn. | Sep 15, 1905

Me. Justice M’Alister

delivered the opinion of the Court.

The general scope of this hill is to enforce certain alleged contracts, between the Grant Memorial University, situated at Athens, McMinn county, Tenn., and the U. S. Grant University, located at Chattanooga., Tenn., or, in the alternative, to have said contracts canceled, and certain educational property restored to the possession of the Grant Memorial University, and, further, -to enjoin the former corporation against interfering with the complainant in the control and management of said property.

The complainants to the bill are the State of Tennessee, on relation of Fisher, Bayless, and the Grant Memorial University. Fisher snes in the capacity of a trustee of Grant Memorial University; Baylessi sues as a trustee of the defendant the U. S. Grant University and the Grant Memorial University sues in its own right.

The defendants are the U. S. Grant University, J. EL Race, its president and trustee, and seventeen individuals who are charged to be among the alleged trustees of the complainant Grant Memorial University.

A demurrer was interposed on behalf of all the defendants in the court below; some of its specifications being-sustained, and others overruled, by the chancellor. On appeal to this court the cause was assigned to the court of chancery appeals, which tribunal sustained all the assignments of the demurrer and dismissed the bill. Complainants appealed to this court and have assigned errors.

It appears from the allegations of the bill that in the year 1867 a college was located at Athens, McMinn county, Tenn., and placed under the control of the Hol-ston Annual Conference of the Methodist Episcopal Church. This institution was given power by its charter to purchase, acquire, and hold property for educational purposes at or near Athens. The original act of incorporation provided that the charter members should be trustees, and vacancies therein occurring from time to time should he filled by the Holston Annual Conference of the Methodist Church. The bill further charged that said trustees acquired property at a cost of $7,200, which sum was raised by donations, for the purpose of establishing a university for higher educational purposes. In 1868 the corporate name of the institution was changed to the East Tennessee Wesleyan University. In 1886 its name was again changed to the Grant Memorial University, and under this name it was conducted up to- 1892. It further appears from the bill that in 1886 another college was established at Chattanooga under the patronage of the Methodist Church, which was known and designated as Chattanooga University, and from 1886 to 1889 this university conducted departments- at Chattanooga. Another corporation figures in this litigation which was known as the Freedman’s Aid &. Southern Educational Society, which was also an auxiliary of the Methodist Church. It was incorporated about the close of the civil war, and its object was to' extend financial aid to' schools connected with the Methodist Church. It was soon discovered that the operation of the two universities under the auspices of the same church in such close proximity to' each other would, because of their rivalry, tend to impair the usefulness and prosperity of both institutions, and the idea was conceived of founding a central university, to be composed of the two colleges, and which would operate both under a division of departments at the two places. The college of liberal arts, the departments of law and medicine, under the plan of unification, was to be located at Chattanooga, while the school of theology and the school of technology were to he at Athens, with academic departments of each grade at each place. It is then charged that, to carry out this plan, in 1889 the U. S. Grant University was incorporated under the act of 1875, and was located at Chattanooga, Tenn. In 1889-90, the Chattanooga University already mentioned conveyed all its property and franchises to the new U. S. Grant University. In 1892 the complainant corporation, namely, the Grant Memorial University, conveyed its properties, etc., to the Freedman’s Aid & Southern Educational Society, upon its assumption of the payment of the debts of the former, which was after-wards done. It is stated in the bill that this conveyance was made to the Freedman’s Aid Society, with the understanding that this property was to be conveyed to the new U. S. Grant University when the latter corporation became financially able to carry on both schools. It further appears from the bill that in 1892, at the time the Athens University conveyed its property to the Freedman’s Aid Society, it also transferred its franchises, powers, and privileges to the new U. S. Grant University. It further appears that the last election of trustees from the Athens University by the Holston Annual Conference occurred in 1892, and in that year, by the unanimous consent of these trustees, the franchises and entire property of the Athens University were conveyed as already stated. It further appears that since 1892 there has been no meeting of the trustees of the Grant Memorial University, and no attempt on their part to interfere with the operations of the new U. S. Grant University. It should be further- stated that on June 7, 1892, the charter of the U. S. Grant University was amended in the following language: “For the purpose of vesting said corporation with the power as follows: The school of theology, the school of law the school of medicine and the school of technology shall he located at Chattanooga, Tenn., with academic departments of equal grade at each place, and such other departments of equal grade at each place, and such other departments as may hereafter be determined by the board of trustees.”

The bill then charges:

“This amendment was made June 7,1893, and, as a result thereof, the right to a college of the liberal arts at Chattanooga was surrendered, and it was contemplated that a school of theology, law, medicine, and technology should be established at Chattanooga, and that the university at Athens as originally organized, contemplated, and maintained should be left intact. When this action was taken, the school of theology was transferred to Chattanooga and the school of liberal arts at Chattanooga was abandoned, the right to maintain a school of technology at Athens was surrendered, and the right to establish a school of technology at Chattanooga was constituted. Complainants charge that, as a result of the long agitation and controversy, it was finally directed, agreed upon, and determined that the defendant corporation should Raye the right to operate the two schools at Athens and Chattanooga as a consolidated university, and on condition only of the division of'the departments just mentioned, to wit, the professional schools and the school of technology at Chattanooga, and the university with its adjuncts at Athens. With this full and final understanding and with this solemn contract, complainant corporation permitted the defendant corporation to take charge of, and possession of its property at Athens, and of which it had possession and control, for the purpose of maintaining a university along the lines of consolidation agreed upon as aforesaid, and with the full belief that said settlement was entered into in good faith and would likewise he carried out, and for that reason, and there being no question for further corporate action, the trustees of the complainant corporation have, since this action was taken, had no meetings, and have permitted the defendant corporation to operate the university at Athens.”

It will be observed that these allega# ¿ms of the bill are entirely destitute of any designation of the contracting parties, nor is is stated therein when and where the alleged contract was made, nor its terms set out with any degree of definiteness.

However, in 1903, the charter of the U. S. Grant University was again amended, and the power was conferred “to establish and maintain, in connection with the colleges of law, medicine and theology, a college of liberal arts, literature and general culture, with the power to confer degrees in Chattanooga.” This amendment is attacked by the bill, and for the reason that it was not applied for unanimously by the twenty-one trustees. Eight of the twenty-one trustees did not sign the application, and this attack raises the question whether such charter amendment must be made by the unanimous consent of all the trustees, and whether all must sign the application. This is a sufficient statement of the case to indicate the relevancy of the demurrer interposed to the bill.

Complainants are confronted at the threshold of this investigation with serious obstacles in the pathway of each and all of them in maintaining this bill. The Grant Memorial University cannot maintain this bill, since it was one of the constituent corporations that became merged in the consolidated corporation, the U. S. Grant University.

The record discloses that in 1892 the Grant Memorial University, by the unanimous consent of its board of trustees, conveyed all of its property to the Freedman’s Aid and Southern Educational Society, in consideration of the assumption and payment by the latter of the corporate debts offithe former. These debts were accordingly paid off and discharged by the Freedman’s Association. Contemporaneously with the last conveyance, the Grant Memorial University, by the unanimous consent of its trustees, surrendered all of its franchises, good will, etc., to the consolidated corporation. The new corporation into which the constituents corporations had become merged, accepted the transfers, and, since 1892 up to the filing of this bill in 1904, a period of twelve jeans, has conducted the educational affairs of the old corporation without complaint or legal interference from either of them.

We think, upon the facts stated, the Grant Memorial University is not entitled to maintain the bill, and the principles stated in the Pennsylvania College Cases, reported in 13 Wall., 190" court="SCOTUS" date_filed="1872-02-12" href="https://app.midpage.ai/document/pennsylvania-college-cases-88453?utm_source=webapp" opinion_id="88453">13 Wall., 190, 20 L. Ed., 550, are controlling.

We quote from a digest of that case from Hirschel on Combinations, Consolidation, and Succession of Corporations as follows:

“Jefferson College, chartered under the laws of Pennsylvania, was subject to having its charter altered by the legislature. Thereafter, in 1865, by consent of its own trustees and the trustees of Washington College, the two were consolidated, their funds united into one, and the new college made liable for all the liabilities and scholarships of each of the old; but certain parts of the course were still pursued at Jefferson and the rest at Washington. Then, in 1869, by another act of legislature, the several departments were closely united, and the trustees authorized to locate them all at one or the other colleges, and to give an academy or some other institution to the town from which the college was removed. Accordingly, the entire college was established at Washington. The removal was sought to be prevented by the trustees of Jefferson College, to which respondents pleaded that the complainants, as trustees, had accepted the acts of the legislature, and hence their corporation became dissolved by tbe creation of tbe new corporation. Tbe court finds that tbe legislature bad tbe right to change tbe charter, for tbe right to do so was reserved, and finds also that such right, even if not reserved, can. be exercised with consent of tbe corporations affected thereby, and that such consent existed; finds also that by. tbe creation of tbe new, tbe old colleges were still to exist as institutions of learning, and that by tbe act of legislature tbe two original corporations became merged in one corporation created by said acts, and that neither of tbe original corporations is competent to sue for any cause of action subsequent in date to their acceptance of the new act of incorporation.

“The case of tbe dissenting trustees of tbe new corporation is disposed of on tbe same grounds, and tbe case of tbe scholarship holders of tbe Jefferson College, who complained that by its removal they were subjected to greater inconvenience in making available their scholarships, is disposed of on the same ground, viz., that tbe right to change tbe charter was reserved to tbe legislature, and moreover was consented to by tbe corporation, in which case tbe scholarship holders cannot complain, as they have no contract with tbe State, and hence they cannot complain that tbe State bad passed any law impairing a contract. Their contract was with tbe trustees and not with tbe State, and was subject to tbe State’s reserved right to alter tbe charter of tbe college. Tbe existence of a contract between tbe college and tbe scholarship holders can certainly not have tbe effect of inhibiting tlie legislature from altering, modifying or amending the charter of the corporation by virtue of a right reserved to that effect, or with the assent of the corporation, if, in view, of all the circumstances, the legislature should see fit to exercise that power.” Hirschel, 215; Pennsylvania College Cases, 13 Wall., 190" court="SCOTUS" date_filed="1872-02-12" href="https://app.midpage.ai/document/pennsylvania-college-cases-88453?utm_source=webapp" opinion_id="88453">13 Wall., 190, 20 L. Ed., 550.

The language of the court was, viz.:

“Authorized as the act of the legislature was by the reservation contained in the original charter, and sanctioned as the act was by having been adopted by the cor-porators, it is clear to demonstrate that the act uniting the two colleges was a valid act, and the two- original corporations became merged in the one corporation created by the amendatory and enabling act passed for that purpose, and that neither of the original corporations is competent to sue for any cause of action subsequent in date to their acceptance of the new act of incorporation.”

It is insisted by learned counsel for appellant that this case is to be distinguished from the Pennsylvania College Cases in these important particulars:

(1) There has been no act on the part of the State and no merging of the corporations. It is insisted that the complainant corporation has preserved its existence and its entity, and is simply endeavoring to set aside the illegal and voluntary amendment to defendant’s corporation charter, or, in default thereof, to enforce the contract under which it obtained possession of complainant’s property. It is suggested the bill does not show that complainant corporation had parted with its franchises, and does not show that it had parted with its property, but simply shows a nonuser for a term of years because the property was being operated in compliance with the contract hereinbefore set out. It is insisted that the demurrer and the opinion of the court of chancery appeals ignored the charge in the bill that complainant corporation was the equitable owner of its real estate, and that it simply turned it over to defendant corporation to be operated under a specific contract.

Counsel cite Maryville College v. Bartlett, 8 Baxt., 231; Bache v. Nashville Horticultural Society, 10 Lea, 437; Rogersville, etc., R. R. v. W. C. Kyle, 9 Lea, 691; Parker v. Bethel Hotel Co., 96 Tenn., 273, 34 S.W., 209" court="Tenn." date_filed="1896-02-26" href="https://app.midpage.ai/document/carpenter-v-bell-8298950?utm_source=webapp" opinion_id="8298950">34 S. W., 209, 31 L.R.A. 706" court="Tenn." date_filed="1896-02-22" href="https://app.midpage.ai/document/parker-v-bethel-hotel-co-8298949?utm_source=webapp" opinion_id="8298949">31 L. R. A., 706; Shannon’s Code, section 2070.

But these cases are not applicable here, for the reason that in neither of them did it appear that the corporation had conveyed the legal title and all equitable interest in its property, together with all its corporate franchises, power, good will, etc. An examination of the cases cited will show that they are to be differentiated from the present case in these particulars. We are of opinion, however, that the ruling of the supreme court of the United States in the Pennsylvania College Cases is applicable in the present instance. In the first place, we understand the bill to charge that there had been a union or merger of the Grant Memorial University- and the Chattanooga University into a corporation created under the act of 1875 and known as the U. S. Grant University. It is conceded in the bill that this action was taken by and with the consent of the trustees of both the old corporations, and there was an acceptance of this union by the U. S. Grant University. It appears that this consolidation of the two old corporations into the U. S. Grant University occurred in 1892, and since that date neither of the old corporations has elected a board of trustees or exercised any other corporate function. We understand it to be conceded by the bill that in 1892 the Grant Memorial University transferred its real estate to the Freedman’s Aid and Southern Educational Society, and that at the same time it transferred its franchises, etc., to the U. S. Grant University with the understanding that when the latter university was financially able to operate and carry on the school at Athens and Chattanooga, then the Freedman’s Aid and Southern Educational Society was to transfer the real estate, not to the Grant Memorial University, but to the new U. S. Grant University, which should refund to the Freedman’s Aid and Southern Educational Society the money the latter society had expended in paying off the debts of the old Grant Memorial University. It thus appears from the allegations of the bill that the old Grant Memorial University conveyed the legal title of all its real estate to the Freedman’s Aid and Southern Educational Society, and all equitable interest which it had in said property, together with all its corporate franchises, power, etc., to the U. S. Grant University.

It is claimed in the bill, however, that the general assembly did not reserve the right to amend the charter of the East Tennessee Wesleyan University, which was succeeded by the Grant Memorial University, and that there was no general act in force in 1892 which authorized the Grant Memorial University to transfer its property to the Freedman’s Aid and Southern Educational Society, and its franchises, etc., to the U. S. Grant University. But the draftsman of the bill was clearly in error in both of these assumptions, which will appear upon an examination of the charters and constituent acts of assembly in force at the time of the transfer in 1892. It appears that the East Tennessee Wesleyan University, the predecessor of the Grant Memorial University, was incorporated by private charter prior to the general incorporation act of 1875, but that said corporation thereafter accepted the benefits of the act of 1875 by an amendment of the original charter. It further appears that the Chattanooga University was incorporated under the act of 1875, as was also the U. S. Grant University. This latter act also reserved the power to change and amend the charter.

This new corporation accepted the trust and has since been managing and controlling both of the old schools. All this was done by and with the consent of both of the old schools. We think the principle is well established that a corporation has a right to surrender its property and franchises and when it is done with the consent of the State the identity and corporate entity of the former is lost. The parties now complaining are the surrendering corporation and one of its trustees, together with a trustee of the consolidated corporation, and it is very ob-yious that all of these parties are bound by the terms of the amalgamation.

Complainants claim in their brief that, when the G-rant Memorial University deeded its property to the Freedman’s Aid and Southern Educational Society, the property was merely conveyed to said society to hold as trustee until the Grant Memorial University was financially able to resume the operation of the college at Athens.

It suffices to say in respect of this contention, that it has no anchorage, in the allegations of the original bill. On, 'the contrary, it is distinctly stated in the original bill that in 1892 the Grant Memorial University transferred its real estate to the Freedman’s Aid and Southern Educational Society, and that at the same time transferred its franchises, etc., to the U. S. Grant University, with the understanding that when the latter cor-, poration was financially able to.carry on both schools, then the Freedman’s Aid Society was to transfer the real estate, not to the old Grant Memorial University, but to the new U. S. Grant University, which latter corpora-' tion was to refund to the Freedman’s Aid Society the money with the latter society had expended in paying off the debts of the old Grant Memorial University.

In addition to common-law principles, there are also statutory reasons why complainant Grant Memorial University cannot maintain this bill.

It is provided by section 2525 of the Code, in dealing with corporations created for the general welfare and not for profit, as follows:

“Tie members may, at any time, voluntarily dissolve tbe corporation by a conveyance of its assets and property to any other corporation bolding a charter from the State, for the purpose not of individual profit, first providing for corporate debts.”

This is precisely what was done in 1892 by the unanimous action of the trustees of the Grant Memorial University. It conveyed the entire assets and corporate property to the Freedman’s Aid and Southern Educational Society, admittedly an educational institution, and at the same time it abdicated its functions as a separate educational institution, and conveyed to the consolidated corporation its entire franchises, etc. As evidence that both of the old corporations regarded themselves is dissolved no corporate meetings of either have, since that time, been held, nor have their boards transacted any business. Moreover, the annual conference of the Methodist Episcopal Church, under whose patronage these corporations were both organized and maintained, had elected no trustees for either of the old and extinct corporations since 1892.

Again, section 2070 of Shannon’s Code provides:

“Whenever powers, franchises and privileges have so been granted to a corporation and they are not used, or are assigned to< others in whole or in part, such corporations shall not be dissolved unless all the corporate property has been appropriated to the payment of its debts.”

As already stated, the power, franchises, and privileges of the Grant Memorial University have not been used since 1892, and have been assigned to others, after having made provision, for the payment of its corporate debts.

By section 2071 of the Code it is provided that:

“Any such corporation dissolved for any cause shall exist as a body corporate for the term of five years after such dissolution, for the purpose of prosecuting or defending suits by or against it, and settling its business.”

In the case of Railroad v. Kyle, 9 Lea, 691, this court held that “the sale of realty at the suit of the State to enforce its statutory lien dissolved the corporation, and that a suit brought by the corporation more than five years after dissolution could not be maintained.” State v. Bank, 5 Baxt., 108, 116, 117, 118.

So that, for all these reasons, we are clearly of opinion that this bill cannot be maintained by the Grant Memorial University, a defunct corporation. A mere trustee of the corporation would possess no higher right, and hence, R. J. Fisher, trustee of Grant Memorial University, has likewise no status for the prosecution of such a suit. Moreover, it does not appear that complainant Fisher has made any demand upon any one of these corporations to prosecute such a suit. It is well settled that a trustee of one corporation cannot sue another corporation, unless he shows that he has asked his own corporation to sue for the alleged injury done to it by the other, and that it has refused. Boyd v. Sims, 87 Tenn., 777, 778, 11 S.W., 948" court="Tenn." date_filed="1889-06-06" href="https://app.midpage.ai/document/boyd-v-sims-8298274?utm_source=webapp" opinion_id="8298274">11 S. W., 948; Gas Co. v. Williamson, 9 Heisk., 338, 339.

The only remaining complainant is J. W. Bayless, who sues as trustee of the U. S. Grant University, who has made no application to his corporation or its trustees or officers to bring suit. He excuses his failure to make such demand for the following reasons:

“He [Bayless] charges that an application to the defendant corporation for such redress has not been made by him since the last meeting of the board of trustees of defendant university, and it would be a vain and useless formality and waste of both paper and ink to make any application to them whatever, as a majority of the board of directors of said college are dead set on establishing a school of the liberal arts at Chattanooga, and to the extent of injuring and breaking down the university at Athens, and no appeal to them outside of a decree of the court would be effectual whatever.”

But it will be observed that no facts are stated showing that his associates in said board have done any act or used any language showing that an appeal to them would be an idle ceremony, but the dissenting director or trustee contents himself with the statement of a mere opinion on his part. The rule on this subject is thus stated by Mr. Cook, in his work on Corporations (volume 2 [4th Ed.], 741) : “When the corporation management is under control of directors who are acting in a different manner concerning corporate affairs from that in which the complainant directors think they should act, no request need he made or alleged, since the guilty parties would not comply with the request, and even if they did the court would not allow them to conduct the suit against themselves. • Nevertheless, instead of this allegation, the complainant must allege the facts which excuse such a demand or request to the directors, and these facts must be stated with particularity and definiteness.” In Steiner v. Parsons, 103 Ala., 215" court="Ala." date_filed="1893-11-15" href="https://app.midpage.ai/document/steiner-v-parsons-6515687?utm_source=webapp" opinion_id="6515687">103 Ala., 215, 13 South., 771, it was stated on this subject that: “The allegations of these facts must be statements of fact and not conclusions of law. The manner in which the directors are interested must be pointed out.” See, also, Brewer v. Boston Theater, 104 Mass., 378" court="Mass." date_filed="1870-03-15" href="https://app.midpage.ai/document/brewer-v-proprietors-of-the-boston-theatre-6416073?utm_source=webapp" opinion_id="6416073">104 Mass., 378.

Again, we think the Freedman’s Aid 'and Southern Educational Society is an indispensable party defendant to this proceeding. As already stated, it is admitted in the bill that in 1892,- the Athens corporation did surrender its property to the Freedman’s Aid and Southern Educational Society, and conveyed to it the legal title. We are unable to perceive how complainant can have this property restored and the contract for the surrender of its power, franchises, and privileges to the consolidated corporation canceled, and the original statics quo restored, without the joinder of such a party defendant. '

The ninth assignment of error is based upon the action of the court of chancery appeals in sustaining the ninth ground of demurrer, to that portion of the bill which attacks the validity of the amendment to the charter of the U. S. Grant University made on the-day of-, 1903. This amendment authorized the new university to “establish and maintain, in connection with the colleges of law, medicine, and theology, a college of liberal arts, literature and general culture, with power to confer degrees, in Chattanooga.”

The bill attacks the validity of this charter amendment upon the ground that it should have been applied for by all the twenty-one trustees, whereas eight of that number did not join in the application. The demurrer proceeds upon the idea that the amendment is given without the unanimous application of the trustees.

The argument advanced on behalf of the appellant in opposition to the action of the court of chancery appeals is that, at the date of the unification of the two corporations, an amendment to the charter had been adopted, which provided that the school of liberal arts should be located at Athens and the other school at Chattanooga. It is insisted this constituted a contract between the corporation and its incorporators, and between the corporation and its trustees. It is then said that the new corporation in 1903 attempted to violate its charter and the contracts made in consideration thereof, and by the action of thirteen out of twenty-one directors attempted to amend its charter so as to vest the defendant corporation with power to establish a school of liberal arts at Chattanooga.

We are of opinion, however, that the amendment was merely auxiliary and not fundamental since it did not seek to change the character of the corporate business, but merely to establish a department of liberal arts in Chattanooga. This court held in the case of Miller v. Ins. Co., 92 Tenn., 167" court="Tenn." date_filed="1893-01-26" href="https://app.midpage.ai/document/miller-v-insurance-company-8298626?utm_source=webapp" opinion_id="8298626">92 Tenn., 167, 21 S. W., 39, 20 L. R. A., 765, that an amendment which does not change the character of the business, and simply authorizes its reasonable extension upon the lines of the original project, is not fundamental, and does not require unanimous consent. A mere majority is sufficient. See, also, Deaderick v. Wilson, 8 Baxt., 108.

In conclusion it will be stated that, while we did not set out the specifications of the demurrer, it suffices to state that all the questions herein discussed were properly raised thereon, and for the reasons stated the decree of the court of chancery appeals will be affirmed.