American Loan & Trust Co. v. General Electric Co. , 71 N.H. 192 ( 1901 )

The power of private corporations generally to secure the payment of their debts by a mortgage of their property is not denied; but it is alleged that the Concord Electric Company is a quasi-public corporation and, being such, cannot mortgage or otherwise alienate its franchises and the property required for the performance of its public duties without the assent of the legislature. According to the weight of authority, measured by the number of the cases, quasi-public corporations have this disability. 4 Thomp. Corp., ss. 5352, 5355, and authorities cited. Whether the reasons upon which the doctrine rests are sufficient to support it has been seriously questioned. 3 Cook Corp. 1782, a; Miller v. Railroad, 36 Vt. 452; Shepley v. Railway, 55 Me. 395, 407; Kennebec Portland R. R. v. Railroad,59 Me. 9; Hunt v. Gaslight Co., 95 Tenn. 136. The doctrine has been approved in this state in respect to railroad corporations. Pierce v. Emery, 32 N.H. 484, 504; Richards v. Railroad, 44 N.H. 127; State v. Hayes,61 N.H. 264, 324.

Whether the secondary franchises of a quasi-public corporation — the franchises other than that of being a corporation — and the property required for the fulfilment of the public purposes of the corporation may be mortgaged, depends upon the terms upon which the franchises are granted, "or, in the absence of anything special in the grant itself, upon the intention of the legislature, to be deduced from the general purposes it had in view, the means it intended to have employed to execute those purposes, and the course of legislation on the same or similar subjects; or, as it is sometimes compendiously expressed, upon the public policy of the state. Hall v. Railroad, 11 Fed. Cas., No. 5948.

The Concord Electric Company was formed under the general law of the state. This provides that any five or more persons of lawful age may associate together by articles of agreement to form a corporation for certain specified purposes, and for "the carrying on of any lawful business except banking, life insurance, the making of contracts for the payment of money at a fixed date or upon the happening of some contingency, and the construction and maintenance of railroads." P. S., c. 147, s. 1. When the articles are recorded as required, and the charter fee, if any, is paid, the signers become a corporation, "and such corporation, its officers and stockholders, shall have all the rights and powers and be subject to all the duties and liabilities of other similar corporations, their officers and stockholders, except so far as the same are limited or enlarged by this chapter." Ib., s. 4. Among the powers expressly granted to such corporations is the power to make "contracts necessary and proper for the transaction of their authorized business," and to "purchase, hold, and convey real and personal estate necessary and proper" for such purpose, not exceeding the amount authorized by their charter or by statute. P. S., c. 148, ss. 7, 8.

One reason that has been assigned for the non-vendibility of a quasi-public corporation's franchises and property, without the special assent of the legislature, is that the state, in granting the corporate powers, relies more or less upon the ability and character of the persons to whom the grant was made for accomplishing the public purposes in view. If this is a sound reason in any case (Shepley v. Railroad, 55 Me. 395,407, Miller v. Railroad, 36 Vt. 452, 492; 4 Thomp. Corp., s. 5352), it certainly is not in the case of a corporation formed under the general law of this state. The state has no part in determining who the members of the corporation shall be, other than that they shall be of lawful age. Any five persons of lawful age may become a corporation by force of their own acts in making the agreement, causing it to be recorded, and paying the required charter fee. After the corporation is organized and its capital stock is paid in, the stockholders are liable to constant change by transfers of stock in various ways. The grant of corporate powers under these circumstances is not in any sense a personal trust. Threadgill v. Pumphrey,37 Tex. 573, 578.

The only special privilege which the Concord Electric Company acquired by its incorporation was the right to be a corporation. The power of eminent domain was not delegated to it, it was not exempted from taxation, nor was it granted a monopoly of furnishing electric lights to the city and its inhabitants. It was granted no other or greater power in respect to its proposed business than a natural person would have in the prosecution of the same business. It acquired the right to construct lines of wire in highways of the city, not by virtue of its incorporation, but by virtue of licenses granted by the mayor and aldermen. The statute provides that "telegraph, telephone, electric light and electric power poles and structures may be erected and maintained in any public highway, and the necessary wires may be strung on such poles or placed beneath the surface of such highway by any person or corporation as provided in this chapter, and not otherwise." P. S., c. 81, s. 1. It further provides that the selectmen (or, in case of city, the mayor and aldermen; P. S., c. 48, s. 14), upon petition of any person or corporation, may locate the routes of lines of wire and grant licenses therefor for such a period of time as they deem expedient, may change the terms and conditions of the licenses from time to time, and may revoke the same whenever the public good requires. If a person is damaged in his estate by a license or any act done under it, he may have his damages assessed by the selectmen. Appeals from the decisions of selectmen to the superior court are allowed in certain cases. P. S., c. 81, ss. 2-9. These provisions were designed to regulate and control the use made of highways for such purposes, so that such use will not unduly interfere with the other public uses to which the highways are dedicated. A license under these provisions is not a grant of a franchise, but a mere permission to use highways, subject to limitations and constant control and regulation by public officers. People v. Gas Light Co., 38 Mich. 154, 155; Commercial Electric Co. v. Tacoma, 17 Wn. 661, 672. So far as the operation of the provisions is concerned, it does not matter who the licensee may be for the time being. If a license was granted to the Concord Land and Water Power Company, and the Concord Electric Company, as the vendee of the property, rights, and franchises of that company, is now operating the electric light plant, its use of the highways may be regulated and controlled under these provisions, the same as if there had been no change in the ownership of the plant. If the transfer of the property had the effect to revoke the license, the statute provides a way for obtaining a renewal. P.S., c. 81, s. 18; Laws 1897, c. 92, s. 1.

The statute further provides that "all telegraph, telephone, and electric light companies serving parties for hire shall be deemed to be public, and shall reasonably accommodate persons wishing to enjoy their facilities without discrimination and at reasonable rates." P.S.c. 81, s. 13. In the original act, of which chapter 81 of the Public Statutes is a revision, the corresponding provision relating to electric light companies reads as follows: The "proprietors of any electric lighting apparatus or lines shall furnish the means of lighting by such electric light to all persons within reach thereof and applying therefor upon similar terms and conditions, without discrimination and at reasonable rates." Laws 1881, c. 54, s. 12. The words "electric light companies" in the revised section were evidently intended to describe the same parties as the words "proprietors of any electric lighting apparatus or lines" in the original section, and to include natural persons as well as corporations. This provision imposes certain duties in behalf of the public upon the corporation or natural person engaged in the business of furnishing electric lights for hire and making use of highways in the business. By virtue of it, and also in consideration of the license to make use of highways, the corporation or natural person assumes an obligation to the state to carry on the business faithfully and impartially so far as the public are concerned. While the obligation is personal so long as the corporation or person holds the property used in its performance, it passes with the property to a vendee and must be assumed by the latter. The Concord Electric Company is under the same obligation to furnish electric lighting facilities to the public at reasonable rates and without discrimination as was the Concord Land and Water Power Company. It succeeded that company in the business and the ownership of the plant, and the statute now applies to it the same as it formerly did to the Water Power Company. The state relies for a fulfilment of the public purposes in view, not upon its confidence in particular persons, but upon statutory provisions defining the duties of persons engaged in the business and regulating their conduct. Although a corporation or a person becomes incapacitated for performing the public duties pertaining to the business by disposing of the property and franchises used in it, the public purposes are not thereby defeated. All the public duties and obligations pertaining to the business follow the property and franchises into the possession of whomsoever they go, and attach to their owners for the time being. Under these circumstances public policy does not require that such corporations should be disabled from alienating their property and franchises.

But there is another consideration that seems conclusive. A natural person may engage in the business of furnishing electric lights for hire, and acquire all the privileges and be subject to all the duties and obligations pertaining to the business as provided in the statute. There can be no doubt that a person so engaged is at liberty to dispose of his business and property at pleasure. The fact that the legislature have placed a corporation engaged in the business of electric lighting upon the same footing in all respects as a natural person, shows that they understood and intended that a corporation of this kind should have equal freedom as to the disposition of its property and rights.

It is not difficult to see why the legislature, adopted this course. A policy that would deprive an electric light corporation of the power of selling out its business and property when it becomes financially embarrassed, or of raising money to carry on the business by a pledge of its property and franchises, would tend to defeat the fulfilment of its public purposes. A corporation so hampered might be worse than useless to its stockholders and the public. It might not be able either to use its property and franchises, or to transfer them to others for use. "It is said, if the corporation is permitted to dispose of its franchises and of its property essential to their exercise, it will disable itself from performing its obligations to the public. It might seem to be an answer in point that unless it is permitted so to do it will never have any ability to perform those obligations." Miller v. Railroad, 36 Vt. 452, 491. Nor is it apparent how unsecured creditors of a corporation could avail themselves of the property and franchises to pay their debts. The policy that would disable the corporation from pledging its property and franchises for its indebtedness would prevent them from being taken by judgment creditors upon a levy. 4 Thomp. Corp., s. 5364; 6 Ib., s. 7853. All the supposed evils attending the substitution of another person or corporation for the original corporation would arise if the property and franchises were transferred by a levy, the same as if they were transferred by the foreclosure of a mortgage or by a sale. For example, how would the public be any better off by a transfer of the Bridge-street station and its apparatus (property that is indispensable to the business) to the General Electric Company by a levy, than it would be by a transfer to other persons upon a foreclosure of the mortgage to the American Loan and Trust Company? The right to sell or pledge property is one of the principal rights pertaining to ownership, and one that is generally essential to enable the owner to use the property in business enterprises successfully. The policy adopted by the state, so far as electric light corporations are concerned, allows this right to remain unimpaired, and secures the assurance that corporations will fulfill their public duties by providing for a regulation of their use of the property. It regards mortgages of the property and franchises of such corporations, made to secure debts incurred in their authorized business, as contracts or conveyances "necessary and proper for the transaction of their authorized business," as well as necessary and proper for the fulfilment of their obligations to the public.

There are general laws which expressly authorize railroad corporations and street railway corporations to incur debts and secure their payment by mortgages of their property and franchises. Laws 1897, c. 71, s. 1; Laws 1895, e. 37, ss. 16, 17; Laws 1897, c. 74, s. 1. During the past ten years fourteen electric light companies have been incorporated in this state by special charters, and each of them was expressly authorized to mortgage its property and franchises. Laws 1893, cc. 201, 227, 303; Laws 1897, cc. 144, 173, 173, 184, 202, 203, 206; Laws 1899, cc. 208, 218; Laws 1901, c. 243. Five acts have been passed authorizing the consolidation of electric light companies, each of which expressly gave the consolidated corporation like authority. Laws 1897, c. 137; Laws 1899, c: 164; Laws 1901, cc. 189, 195, 276. The charters of three corporations previously granted have been amended by introducing into them authority of this kind. Laws 1893, cc. 177, 193, 301. It is said by the defendants upon their brief that of ninety-eight special charters granted by the legislature since 1887, to gas, electric light, electric railway, water, aqueduct, telephone, and telegraph companies, eighty have contained authority to mortgage the corporation's property, or property and franchises. This legislation all tends very strongly to prove the existence of a public policy in this state which allows quasi-public corporations — even railroad corporations — the same freedom to incur debts and pledge their property and franchises therefor that is possessed by other corporations and by natural persons. Whatever the public policy may be in respect to other corporations, no doubt is entertained that it allows electric light and power corporations, formed under the general law and making use of public highways for stringing wires under licenses granted by selectmen, to alienate or mortgage their property and secondary franchises. Accordingly it is held that the Concord Electric Company has power to mortgage its property and franchises. In other states similar views. have been taken under similar conditions. Detroit v. Gas Co., 43 Mich. 594; Hunt v. Gaslight Co., 95 Tenn. 136; Hays v. Gas Light Co., 29 Ohio St. 330; Evans v. Heating Co., 157 Mass. 37.

Case discharged.

All concurred.