Higgins v. James C. Downward & Sons

Saulsbury, Chancellor. “ A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created. Among the most important are imiportality, and, if the expression may be allowed, individuality; properties by which a perpetual succession of many persons are considered as the same, and may act as the single, individual. They enable a corporation to manage its own affairs, and to hold property without the perplexing intricacies, the hazardous and endless necessity, of perpetual conveyance for the purpose of transmitting it from hand to hand. It is chiefly for the purpose of clothing bodies of men in succession with these qualities and capacities that corporations were invented and are in use.” Chief Justice Marshall’s opinion in the case of College v. Woodward, 4 Wheat., 626. A franchise is a certain privilege conferred by grant from the government, and vested in individuals. Corporations or bodies politic are the most usual franchises known to our law. Bouv. Law Diet., 545. By Section 17, Art. 2, of the Constitution of this State, it is declared that "no act of incorporation except for the renewal of existing corporations shall be hereafter enacted without the concurrence of two-thirds of each branch of the Legislature, and without a reserved power of revocation by the Legislature; and no act of incorporation which may be here — 241 — after enacted shall continue in force for a longer period than twenty years without the re-enactment of the Legislature, unless it be an incorporation for public improvement.” The Wilmington & Reading Railroad Company was a private corporation for public improvement, and therefore its existence was not limited to the period of 20 years under this provision of the Constitution. There was no time fixed by positive provision in the charter of the Wilmington & Reading Railroad Company when the corporation should cease to exist. Had there been, the corporation, in the absence of a renewal of its charter before that period, would have become dissolved without either a representative or the possibility of one, as no provision is made by our laws for a representative in such a case; and at the instant of its dissolution the debts due to it would have become extinguished, not the right to or the remedy for the debts suspended, merely, but the debt itself annihilated. Bank v. Lockwood’s Adm’r, 2 Har. (Del.), 14. A judgment, being No. 181 to the November term, 1869, was recovered by the Wilmington & Reading Railroad Company, a corporation then existing under the laws of Delaware and Pennsylvania, against the defendants. A fi. fa. was issued, being No. 224 to the November term, 1870, on this judgment, and levy made on goods and chattels. Subsequent executions were issued on this judgment, the last being an alias vend, exp., No. 92, to September term, 1887. On May 29, 1886, the judgment was marked for the use of the Wilmington & Northern Railroad Company, by the direction of the attorney of the plaintiff, and the judgment was afterwards, on June 12, 1886, marked for the use of John C. Higgins by direction of the president of the Wilmington & Northern Railroad Company. The defendants allege that at or about the year 1877 the Wilmington & Reading Railroad Company had ceased to have any legal existence as a corporation, or any right to perform or do any act whatever, and that the said judgment which had been recovered by it became void and of no effect. The sixth reason assigned for setting aside the sheriff’s sale is — 242 — that the transfers or assignments alleged to have been made by indorsements on the record, and by and through which the said John C. Higgins claims title thereto, were illegal, unauthorized, and void, and ineffectual to vest in said John C. Higgins any right or title whatever. This reason, so far as it relates to the authority of the attorney directing the judgment to be marked to the use of the Wilmington & Northern Railroad Company, is not before us; exceptions thereto having, for the sake of expediting the hearing of the questions reserved, been abandoned ; so that the real and only question before us is, was the Wilmington & Reading Railroad Company dissolved by the act in relation thereto passed February 22, 1877; or, in other words, did the Legislature, by passing that act, revoke the charter of the Wilmington & Reading Railroad Company. On the 3d of March, 1868, the Wilmington & Reading Railroad Company executed a mortgage upon its road, etc., for the payment of money. A suit was afterwards instituted in the United States Circuit Court for the foreclosure of this mortgage. The final decree in the case was made April 25,1876, directing the sale by the trustees of the railroad and property. The sale was made under the decree November 4, 1876. The deed made by the trustees to the purchasers conveyed “ the railroad of the Wilmington & Reading Railroad Co., extending from a point on the Philadelphia & Reading Railroad at or near Birdsboro, in the county of Berks, State of Pennsylvania, to the city of Wilmington, in the State of Delaware, with all the rights, privileges, immunities, and franchises of the said Wilmington & Reading Railroad Company, under any and all grants of the State of Pennsylvania, but exclusive of the franchises granted by the State of Delaware.” These franchises granted by the State of Delaware were not included in ■ the mortgage, for which foreclosure was decreed ; and of course were not included, but excluded, by the decree of foreclosure." They were not sold by the trustees to the purchasers of said road. Of course, therefore, the purchasers of said Wilmington & Reading Railroad did not by such sale become entitled to said franchises — 243 — granted by the State of Delaware. On the 22dof February, 1877, the Legislature of Delaware passed an act to incorporate the purchasers of the Wilmington & Reading Railroad. This act, after reciting in its preamble that the railroad of the Wilmington & Reading Railroad Company, with its appurtenances, was sold in pursuance of a mortgage executed by said company under authority of laws of this State, and that it was necessary to the proper enjoyment of the rights acquired by said sale -that the purchaser should be incorporated with authority to consolidate with any company organized or to be organized under the laws of the State of Pennsylvania, operating such portion of the road so sold as is situated within the State of Pennsylvania, incorporated the persons purchasing the said Wilmington & Reading Railroad, under a decree of the Circuit Court of the United States for the Eastern District of Pennsylvania, a body politic and corporate, by the name of the “ Wilmington & Northern Railroad Company.” By this act the company were vested with all the right, title, interest, property, possession, claim, and demand at law or in equity of, in, and to such railroad, to-wit, the railroad of the Wilmington & Reading Railroad Company, with its appurtenances, and with all the rights, powers, immunities, privileges, and franchises of the corporation as whose property the same was sold, and which may have been granted thereto or conferred thereupon by any act or acts of Assembly whatsoever in force at time of such sale. These franchises, granted by the State of Delaware, not being included in the mortgage executed by the Wilmington & Reading Railroad Company, and consequently not sold under the decree of foreclosure thereof made by the circuit court of the United States for the Eastern district of Pennsylvania, the purchasers at such sale acquired no title thereto, and no property therein. If they acquired any such title or property it could only have been under and by virtue of the act to incorporate the purchasers of the Wilmington & Reading Railroad, before referred to. This act purported to vest such purchasers, among other things, — 244 — with the privileges and franchises of the corporation as whose prop- * erty the same was sold, and which may have been granted thereto or conferred thereupon by any act or acts of assembly whatever in force at time of such sale. The condition of a corporation whose charter has expired is not the same as that of a corporation which has failed to elect its officers, and, as the consequence of that failure, is rendered inactive. The life of the one is out of it by its own constitution, and not from a failure to do what its charter enabled them to do, to give them active being; the other was entitled by its charter to a continued active life, but it has failed to continue that activity by the election of its necessary officers. Its active powers, but not its being, are gone. The one is dead; the other is dormant. The principles of law which apply to the rights of a corporation thus dormant or disabled are not the same as those which are applicable to the'rights of a corporation which is dissolved, or civilly dead. In the former case debts due are extinguished; not so in the latter case. No judgment of ouster or other similar judgment, or judgment of like effect, has ever been judicially declared against the Wilmington & Reading Railroad. The act to incorporate the purchasers of the Wilmington & Reading Railroad did not in express terms revoke the charter of the Wilmington & Reading Railroad, nor necessarily deprive the latter of. its franchises granted by the acts of assembly of the State of Delaware. The Wilmington & Reading Railroad had never forfeited its charter as judicially ascertained by any judgment of a court of law; and even the.former act did not so declare. A franchise is property, and it cannot wantonly or of whim be taken away by a legislative act, and transferred to another. The act of February 22, 1877, must receive a reasonable interpretation. It must be interpreted to mean that which the legislature of the state of Delaware had a right to do, and not that which the legislature had not a right to do. The rights, powers, immunities, privileges, and franchises conferred by the legislature on the purchasers of the Wilmington & Reading — 245 — Railroad must be intepreted to be such rights, powers, immunities, privileges, and franchises as those conferred by the legislature on the Wilmington & Reading fRailroad by any act or acts of the general assembly which the Delaware legislature had the right to confer, and to vest the same in said purchasers, because the legislature had the right to make such.a grant; but the legislature had no authority to take from the Wilmington & Reading Railroad rights, powers, immunities, privileges, and franchises, the same never having been judicially declared forfeited, nor revoked constitutionally by legislative authority. If the legislature had revoked the charter of the Wilmington & Reading Railroad, it could have granted rights, powers, immunities, privileges, and franchises of the same nature and kind as those which the Wilmington & Reading Railroad had theretofore possessed, but not the same identical rights, powers, immunities, privileges, and franchises, because the charter being revoked, it would follow that the rights, powers, immunities, privileges, and franchises ceased and determined, and were not the subjects of transference to another company by legislative grant. The words, “ of the corpóration as whose property the same was sold, and which may have been granted thereto or conferred thereupon by any act or acts of assembly • whatsoever in force at the time of such sale,” must be interpreted as having relation to what was sold, and not to that which was not sold, and could not have been legally sold under the said decree of foreclosure. According to this interpretation, the words used would have force and effect. A contrary interpretation would render the words of the act of assembly inoperative and void. It appears from the case stated that the judgment in respect to which controversy exists in this case was on May 29,1886, marked for the use of the Wilmington <& Northern Railroad Company by Victor Du Pont, attorney for plaintiff, and on June 12, 1886, for the use of John C. Higgins, by direction of H. A. DuPont, president of the Wilmington & Northern Railroad Company. It also appears in like manner that there had been no meeting of the — 246 — stockholders of the Wilmington & Reading Railroad Company after the sale thereof under the decree of foreclosure aforesaid. If these facts be so, the Wilmington & Reading Railroad as a corporation was not dead, nor the debts due it extinguished, so far, at least, as it existed under the laws of the state of Delaware. In this respect it was only dormant; capable of being revived, but incapable of action without such revival. Its lite or death rested with the legislature. The views above expressed in reference to extinct and dormant corporations are in accordance to the opinion of the court in the case of Bank v. Loockwood’s Adm’r. “ There, is,” says Morawetz, (Priv. Cbrp., §§ 1002, 1003,) “ a broad and fundamental distinction between the dissolution of the corporation and the loss of its franchise or legal right to exist. Much confusion may be avoided,” he says, “ by bearing in mind this distinction.” Again, he says: “ If the charter of a corporation limits its existence to a definite period of time, the franchise or right to exist would expire at the time limited.” Again : “ The franchise to exist and carry on business as a corporation continues indefinitely unless the time of its duration is expressly limited in the grant..” If the corporation should be guilty of any wrongful act, or neglect of duty, which would give the state a right to declare the franchise forfeited, the franchise would nevertheless continue until the forfeiture has been claimed and enforced by the state through the proper legal proceedings. The commission of a wrongful act or neglect of duty by a corporation would evidently not per se put an end to the actual existence of the corporate association. After a long-continued non-user it may be presumed that a corporation has surrendered its franchises to the state; but the mere fact that a corporation has been without officers or organization, and_ has performed no corporate acts during a number of years, does not put an end to its franchises, although this may be a good ground for declaring them forfeited by judicial proceedings. The charter of a corporation does not expire by reason of the omission or commission of acts on the part of the company for declaring a forfeiture; — 247 — but the franchises continue in full force until the penalty of forfeiture is claimed by the state granting the franchise, and this can be done only through a legal proceeding by which the cause of forfeiture is judicially ascertained, and not in a purely collateral proceeding. Says Pierce, (R. R. 11:) “ The non-use or misuse of its franchises by a corporation, or its breach of the conditions on which its duration is by the law of its creation made to depend, is a cause of forfeiture. Such defaults, however, do not of themselves work a forfeiture, but they take effect only when judicially determined in a direct proceeding instituted for the purpose. A non-user or misuser is a ground of forfeiture although not expressly declared to be such by statute.” The same writer says: “ A cause of forfeiture which has not been judicially declared in a direct proceeding cannot be taken advantage of collaterally.” The legal modes of proceeding against a coporation for usurpation,—non-user or misuser of a franchise,—is scire facias, or an information in the nature of a quo warranta; each prosecuted' at the instance and on behalf of the state. What becomes of the corporate property of a corporation in the event of its dissolution ? The court in the case of Bank v. Lockwood’s Admr’s, before referred to, say that on the dissolution of a corporation as by the expiration of the period of its charter, its real estate reverts to the grantor, its personal estate to the people, and the debts due to it are extinguished. This is doubtless so at the common law, and in a proceeding at law as a scire facias on a judgment; but the more modern doctrine upon this subject seems to be that the capital of a corporation becomes upon its dissolution a fund to be administered in equity for the payment of its creditors, and afterwards for distribution among its stockholders. The creditors have a lien on the assests, and may follow them into the hands of stockholders and persons who are indebted to the corporation. The rights of stockholders in the assests are subordinate to those of creditors. See Pierce R. R. 13, and authorities cited. In my opinion, when the constitution of this state speaks of the re — 248 — served power of revocation of a corporation by the legislature, it means an express revocation by the legislature, and not otherwise. It will be seen from what I have already said that the judgment set forth in the case stated, being No. 181 to the November term, 1869, of the superior court, whether it be a valid and subsisting judgment or not, did not pass to the Wilmington & Northern Railroad Company by virtue of the acts of assembly, mortgage foreclosure proceeding, sale and conveyance recited in the ease stated, so as to give the said Wilmington & Northern Railroad Company the right to enforce said judgment by execution issued against the defendants, and that John C. Higgins, who claims to be the assignee of said company to said judgment, has not the right to enforce said judgment against the defendants.