Weatherly v. Capital City Water Co.

MoCLELLAN, J. Sections 1690 to 1693 of the Code of 1886 have been in existezice and of force certainly since the Code of 1852, in which they were sections 1489 to 1492, inclusive. In that Code as also in the Codes of 1867 (§§ 1775 to 1778) and 1876 (§§ 2027 to 2030) they were in a chapter devoted to “Gezieral provisions in relation to private corporations.” Their provisions in terms azid originally in fact applied to all dissolved corporations, whether the dissolutions were voluntary or involuntary. The General Assembly of 1874-75, how.ever, enacted a statute with respeet to the “voluntary — 171 — dissolution and settlement of private corporations, ’ ’ ihe effect of which was to take out of the operation of the existing law all corporations dissolved at the instance of stockholders. The provisions of that law were codified as a separate chapter in the Code of 1876 'as sections 2054 et seq.; but in the Code of 1886, they were embodied along with the original statute in a chajffer devoted to the “Dissolution of business corporations”; and constitute sections 1683 to 1689, inclusive, of the present Code. This reference to the history of our statutory provisions in respect of dissolved corporations has been made for the purpose of emphasizing the idea, not only that such of those provisions as relate to voluntary dissolution have no operation upon a corporation dissolved by adversary proceedings, but, that the two sets of provisions are so entirely distinct and independent in origin, as that even though now codified in j uxtaposition to each other, they cannot be regarded as one general scheme for the pui’pose of construing or interpreting the one by reference to the other; as, for instance, deducing a legislative intent in respect of some provision in or omission from the original sections from some provision or omission in the act of 1875, now codified, as we have seen, in sections 1683 to 1689, inclusive. To the contrary, since we have in this case to deal with the property, rights, duties and obligations which belonged to or rested upon a corporation which has been dissolved at the suit of the State for misfeasance or nonfeasance, we shall leave entirely out of view the sections last referred to and proceed as if they had never been enacted. It is very clear to us upon the terms of the statute applicable to a corporation whose charter has been adjudged forfeited, as was adjudged the charter of the respondent, the Capital City Water Co., that a receiver is not to be appointed on or after dissolution as matter of course. The manifest general purpose of the legislature was to commit the affairs and properties of a corporation so dissolved to the persons who were its managers at the time of the dissolution; but the lawmakers recognized that there might be special circumstances or peculiar exigencies in a given case which would breed a necessity to take the corporate affairs and property out of the hands of such managers, and to exclude any idea that the statutory designation of trustees should have the — 172 — effect of ousting the ordinary jurisdiction of courts of chancery to appoint receivers upon such circumstances or exigencies being made to appear, they expressly saved this jurisdiction, though doubtless such reservation was in fact unnecessary. But, whether necessary to that end or not, the provision in the statute having relation to the appointment of receivers by courts of competent jurisdiction was in pure, conservation of an existing ■jurisdiction, and in no sense creative of a new power and jurisdiction: it does not undertake to confer authority upon any court which it had not before, but it refers to courts already invested with “competent authority.” The rule declared by the statute is, that the managers of -the corporation at the time of its dissolution shall administer its affairs after its death, and the exception to -this rule is the intervention of a' receiver appointed by a court of competent authority. The rule is created by the act. The exception exists apart from the act and is merely recognized by it. This mere recognition in and •of itself neither adds to nor-takes from the powers of the •courts ; it neither confers upon them authority which they had not before, nor takes from them authority ■which they had before, to appoint receivers, except only that the affirmative, provision of the act committing the estate of the corporation to those who were its managers at the time of dissolution as trustees for its creditors and bondholders, emasculates the-mere fact of-dissolution so far as it might have otherwise been considered .as a ground for such intervention of the courts, since the statutory creation of these trustees -of the assets and concerns of the defunct corporation .supplies the means of settling its affairs, which in .the absence of. a .statute could probably be furnished only through the appointment of -a receiver. So .that under the statute a bill .praying the appointment of ■ a receiver must aver facts which upon general -principles of equity jurisprudence and procedure would call into exercise the power of -the court to the end sought: a state of things must be alleged which impoi'ts a necessity for the appointment of •a receiver. The mere fact of dissolution not importing such necessity, since, as we have seen, the trustees appointed by the statute' may settle the affairs of the corporation without resort to the courts for a receivership, the facts alleged must be of a .character to show that -the — 173 — trustees are incompetent or unfaithful, or are mismanaging the property to1 the injury of the complainant or are without power and authority to subserve some peculiar interest or right of the party complaining and that he is being injured thereby, or other like situation. Havemeyer v. Superior Court, 84 Cal. 327, s. c. 32 Am. & Eng. Corp. Cas, 480 and notes ; Newfoundland Railway Construction Co. v. Schack, 40 N. J. Eq. 222; 5 Thomp. Corp., §§ 6828-6830. The Capital City Water Co., a corporation authorized by its charter to construct and operate a system of water works for the purpose of supplying the city of Montgomery and the inhabitants thereof with water for the extinguishment of fires, the sprinkling of streets, manufacturing and domestic uses, &c., being adjudged by a court of competent authority to have forfeited its charter, and to be dissolved', its property and affairs passed into the hands of certain persons, who were its directors at the . time of dissolution, and was held by them as trustees for its creditors and stockholders. Thereupon, Weatherly filed this bill against said Water Co', alone and its corporate name only, praying the appointment of a receiver to take charge of its properties, effects, ways, works, machinery, books, papers, &c., &c., that such receiver carry on ■ the business of the corporation until there could be a settlement of its affairs, and, finally, that he pay off its creditors, sell its effects and distribute the proceeds among its stockholders. The complainant sues in two capacities. He alleges that he is a creditor, in the sum of one hundred dollars, of the corporation, and also that he is an inhabitant of the city of Montgomery, and as such claims that under the contract existing between the corporation and the city at the time of the dissolution he was and is now entitled to have a receiver appointed to carry out the provision of that contract in respect of supplying water to the inhabitants of said city. The bill so far as the relief prayed is sought to be rested on the fact that complainant is a creditor of the defunct corporation, is without the semblance of equity. No necessity whatever is shown for marshalling the assets of the company. It is not alleged that the corporation is insolvent. It is not averred that the statutory trustees are unfaithful or incompetent or without power — 174 — or capacity to pay its debts, or that they are mismanaging or wasting the assets to such an extent as to endanger complainant’s claim, or to an extent, nor even that they have failed upon demand made, or refused to pay his debt. For aught that is alleged complainant has only to present his claim to have it fully satisfied, or, in any event as to that, to bring his action at law to recover whatever sum is due him. It were a travesty of justice and a stigma upon judicial procedure and administration to take property worth hundreds of thousands of dollars out of the hands of trustees appointed by the law and subject it to the burdens and delays of a receivership at the instance of a person holding a doubtful and much disputed claim for one hundred dollars, when he at most has only to bring his suit at law and there establish whatever light he really has, and recover whatever sum of money he is entitled to recover at a minimum of cost and delay. Complainant as a creditor of respondent has no right under this bill. In the other capacity in which complainant invokes the jurisdiction of chancery to the appointment of a receiver, i. e. as an inhabitant of the city of Montgomery, he is equally without right to maintain this bill against the dissolved corporation, which, as we have seen, is the sole respondent thereto. We deem it unnecessary to decide in this case whether such an inhabitant, by reason of his relation to the property of the Water Works Company after dissolution, is under any circumstances entitled to have a receiver appointed to carry on the business of the corporation. There are cases which hold that an inhabitant of a city who is specially damaged by the failure of a water supply company to comply with a contract similar to that existing between the Capital City Water Co. and the city of Montgomery before the dissolution of the former, may maintain an action in his own name against such corporation for the damages he has sustained.—Paducah Lumber Co. v. Paducah Water Supply Co. (Ky.), 7 L. R. A. 77. The conclusion, however, that a citizen of Montgomery would have a right of action under the contract existing between the city and the Water Works Company, while the latter lived, for the destruction of his property in consequence of the failure of the company to supply water as it had agreed with the city to do for the extinguishment of fires, does — 175 — not in itself involve and establish the right of such inhabitant to have a receiver appointed to carry on the business of supplying water to the city and its inhabitants. It might be that an action in his own name would lie for an injury peculiar to him, and in respect of which neither the city nor the inhabitants generally of the town have any interest, while no such right would exist in him in respect of a breach of the contract working injury to the city itself and all its people, and to him only in common with the rest. Of course every inhabitant was entitled to have water supplied to him upon the terms provided in the ordinance — contract between the city and the company ; but it by no means follows that each inhabitant, or any number of individuals, had a right to have a receiver appointed to carry out the contract, the company failing therein, not only for his or their own benefit but, for the benefit of the city itself and all other inhabitants. It would seem that in such case mandamus would be the proper and an adequate remedy.—Hangen v. Albina Light & Water Co., 14 L. R. A. (Ore.) 424. But if such right and remedy be conceded to the individual citizen as against an existing corporation charged by contract with the municipality with the duty of supplying water to him as one of the inhabitants of the city, does it exist in favor of such citizen, or, indeed, in favor of the municipality itself as against the corporation as a sole respondent after decree forfeiting its charter, and corporate powers, franchises and privileges, and, in short, dissolving it and putting an end to its existence except for' the limited purposes and time specified in the statute? Or, in other words, can a receiver be appointed to carry on the business of the dissolved corporation, or rather the business in which such corporation was engaged before dissolution, on a bill by whomsoever exhibited against the corporation alone? We are clear to the conclusion that such relief can not be granted upon such a bill. Upon dissolution, the corporation is essentially dead except for the general purpose of collecting its assets, paying its debts and dividing its property and money remaining after the satisfaction of its liabilities among its stockholders. For the purposes of the enterprises or business which it was chartered to carry on, it is as essentially dead as if we had no statute continuing — 176 — its life for the other specified purposes, as if, indeed, it had never existed at all ;■ and this by the words of the statute which declare it to be non-existent for the purpose of carrying on its business. — Code of 1886, § 1690. Suits may be brought by its trustees and against it in its corporate name, bub such suits only as pertain or are necessary or incident to the settlement of its affairs as of a business which absolutely ceased on the instant of its dissolution. The corporation as such has no more concern with or interest in the property once owned by it after dissolution than a dead man has in the estate he owned at the moment of death. The property after dissolution is in equity the property of the shareholders charged with the payment of debts, and by the statute committed to certain trustees to satisfy this charge and divide the residue among such shareholders. The trus- ” tees are invested with the legal title for the purposes of the trust and to an extent sufficient thereto, but no further. Contracts within corporate competency and of a nature to continue after dissolution and bind the property, are not abrogated by dissolution, but are of continuing efficacy against the successors to the defunct corporation in ownership of its property, assets and franchises. But the corporation after dissolution is, not only without authority, but, expressly forbidden to perform executory contracts involving the carrying on of its business, and the trustees considered merely as agents for settling the affairs of the concern are equally without power to perform such contracts, except to such extent as may be necessary or incident to. the collection of its assets. If the property, franchises and effects of a corporation, considered apart from the corporate entity itself is at the time of dissolution charged by contract made by the corporation before dissolution with a public duty involving the carrying on of the business in which the corporation was engaged, it is not absolved therefrom by the forfeiture of the corporate charter, but continues to rest upon those who succeed to the title of the corporation. The duty follows the property and is imposed upon whomsoever succeeds to the property. Whether it rests upon the trustees as holders of the legal title, or upon the shareholders as beneficial owners, or upon both the trustees and shareholders combined, is a question not necessary to begone into in this case. One — 177 — thing is assured: It no longer rests upon. the corporation ; and another with equal certainty follows, viz., that it devolves upon the trustees or upon the shareholders, one or both. If the duty is performed, it is the act of the owners of the property and not of the corporation. If it is not performed, it is not the default of the corporation but of the owners of the property. If anybody is to be coerced to its performance and to the carrying on of the business, it must be the owners and not the corporation. If there is to be an investigation as to whether the persons upon whom the duty rests have failed to perform and are in continuing default in respect thereto with a view to taking the property out of their hands and having the business carried on by the court through a receiver, the owners, upon whom the duty rests, who alone can be in default in regard to its performance, and not the corporation which is forbidden to perform it and hence can not be in default in respect of it, and which as to it is dead and wholly without interest in the property or the uses to which it is to be devoted, are obviously the proper and only necessary parties respondent to a bill to that end. The City Council of Montgomery, having full capacity and authority thereto by an ordinance adopted in 1885, granted to one Howland, his associates and assigns, ■upon certain conditions and terms therein stipulated, ‘ ‘the right to lay down, use or maintain water mains, pipes and aqueducts, or other fixtures pertaining to. furnishing a water supply to and in the city of Montgomery, and consenting that the same may be extended by them within the police jurisdiction of said city,” and authorized said grantees to erect and maintain a pumping station, and to lay down, maintain and use water mains, pipes, aqueducts and other fixtures in and through any of the streets, alleys and public ■ grounds of the city, under the direction' of the city council. Said Howland and associates accepted this ordinance and thereby bound themselves in consideration of the rights and franchises granted by it, to construct and maintain a system of water works in said city to supply the city and its inhabitants with deep well water in accordance with and for the remuneration specified in the ordinance. The grant thus made by the city to Howland and associates and the contract thus made between the city and — 178 — Howland and associates, were by the latter assigned to the Capital City Water Co., a corporation. Water works were constructed, deep wells were bored, and mains, pipes, aqueducts, fixtures, &c., &c., were laid in the streets, alleys and public grounds of the city, and the business of supplying water to the city and its inhabitants was entered upon by the company, and carried on until its charter was adjudged forfeited and its dissolution as a corporation decreed. Upon this dissolution the property of the corporation by force of. the. statute was left in the possession of the persons who were its directors at the time and the legal title thereto was vested in them as trustees for creditors and stockholders for the purpose of, and to the extent necessary to, the collection of its assets, the payment of its debts and the division of its remaining effects among the shareholders. The beneficial interest in the property and the equitable title thereto subject to the satisfaction of liabilities was in the shareholders. With the rest, the water mains, pipes, aqueducts and fixtures laid and maintained in the streets, alleys and public grounds of the city and the franchise to use these appliances and the streets, etc., in which they were laid for the purpose of conducting water, became vested-legally in the trustees and equitably in the shareholders as successors to the assignee of Howland and associates. This use of the streets, alleys and public grounds, and right of continued user thereof, was and is a property right, protected from destruction by organic guaranties, and the enjoyment thereof, the carrying on of the business of supplying water to the public through the user of public thoroughfares and grounds was and is a public enterprise or business, and the right so to do depends upon the grant by the city of the use of public property.—Hangen v. Albina Light & Water Co., 14 L. R. A. 424, supra. As the appliances for conducting and supplying water laid in the streets and an easement in the streéts for their use to that end pass as property to the trustees and shareholders, there must be a correlative duty upon the owners of this property and franchises to perform therewith the obligations and duties which Howland and his associates, for themselves and their assigns, took upon them as the continuing consideration moving from them to the city and the public as represented by the city for the public franchise — 179 — thus continuing in them, and this, of course, as well whether at a given time Howland and associates, or the corporation or the trustee or the shareholders or both the latter combined be the owners. Nay more, the contract between the city and Howland, itself, runs with the property, and is as obligatory upon the present owners as it was upon Howland ' before assignment by him and upon his assignee, the Capital City Water Co., before its death.—People v. O’Brien et al., 111 N. Y. 1-66. So it is that we do not doubt the correctness of the declaration made arguendo in the case of The Capital City Water Co. v. The State ex rel, &c., 105 Ala. 433, referring to the property, franchises, &c., &c., of the appellee company, that ‘ ‘the law is not wanting in means and instrumentalities for the administration of the affairs and the carrying on the business of this company ad interim and ultimately winding it up and passing its system of works into other hands,” &c., &c. But, whether such means and instrumentalities may be invoked by a citizen or must be by the city alone, to secure a continued performance of the duty to supply water pending the winding up of the corporation’s affairs, this much is certain, that the appeal to the courts must be made against the present owners upon whom the duty rests, and not against the dead corporation, upon which the duty not only does not rest, but which is expressly forbidden by statute to perform it; and such owners having the constitutional right to their day in court upon the inquiry whether they have failed in their duty in this regard, the property can not be taken from them and put in the hands of a receiver on a bill to which they are not parties. Hence our conclusion that the present bill is wholly without equity against the sole party respondent to it, The Capital City Water Company. But apart from this fatal infirmity in respect of necessary parties respondent, the bill is bad upon another ground. It is not alleged in the bill that there has been or will be any failure on the part of the owners of the property or the persons acting for them, or persons in charge of the property, to carry on the business of supplying water to the -city and its inhabitants ; but the whole theory of the bill upon its face and as set forth by appellant’s counsel is, that although water is being sup — 180 — plied and will continue to be supplied to the city and to its inhabitants generally and to the complainant as one of them, yet that it is being so supplied‘‘by persons who, •though in possession of the works, are without legal capacity or authority to carry on the business and continue such supply. There is no averment or pretense that complainant either as a creditor or as a citizen of Montgomery .has sustained or will sustain any loss or injury in consequence of such unauthorized persons, being 'the statutory trustees, carrying on the business pending a settlement of the affairs of the defunct corporation . It is not conceivable on this state of facts that the complainant can have any interest at all in having a receiver appointed to do with this property precisely what is being done with it now and will continue to be done with it so far as he is concerned ; and most assuredly upon these facts no appeal can be made by him which would challenge the exercise in his favor of the court’s discretion in respect of the appointment of receivers. We are dealing with the property and rights involved in ' this suit as they existed after and immediately upon the the dissolution of the corporation. The contract between the city and the owners of the water works was not abrogated by the decree of dissolution. The city’s right to abrogate this contract on account of the default of the owners of the property for which the charter was adjudged forfeited, or upon other sufficient ground is not involved in this case, and nothing is decided with reference to it. Whether the contract be abrogated or not, however, the city has a right to insist upon a continuance of the -water supply by means of the existing system of stations, mains, pipes, hydrants, &c., ’&c., pending the winding up of the affairs of the defunct corporation or for any necessary period short-thereof ; and if its discontinuance should occur or be threatened for lack either of inclination or legal capacity in the owners of the plant, the municipal authorities, and, it may possibly be, a resident of the city, wuúld be entitled, upon proper bill filed against the owners, to a receivership to the end that the duty resting upon the property might be discharged. The decrees of the city court • refusing to appoint a — 181 — receiver and sustaining the demurrer to the bill must-be affirmed. Affirmed.