Blue Ridge Power Co. v. Southern Ry. Co. , 122 S.C. 222 ( 1922 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] December 5, 1922. The opinion of the Court was delivered by Action for $253,924.60 damages on account of the alleged breach of a contract entered into between Blue Ridge Power Company and Southern Railway Company in October, 1916, relating to the construction of a railway bridge over Green river in the State of North Carolina. The contract is alleged to have been executed in the city of Washington.

The action was commenced in February, 1921, against both of the defendants above named. The complaint alleges that the plaintiff was a corporation, duly chartered and organized under the laws of North Carolina, and that thereafter "the plaintiff duly domesticated pursuant to the laws of the State of South Carolina." It is assumed that the plaintiff complied with Chapter 44, § 2664 et seq., Code of Laws A.D. 1912. It further alleges that the defendant Southern Railway, Carolina Division, was a railroad corporation duly chartered and organized under the laws of the State of South Carolina, and owned a line of railway between Spartanburg, S.C. and Asheville, N.C., which was under lease to the defendant Southern Railway Company, by virtue of the Act of February 19, 1902, Statutes of South Carolina, Vol. 23, page 1152. It further alleges that the defendant Southern Railway Company was a railroad corporation duly chartered and organized under the laws of Virginia and "domesticated under the laws of South Carolina."

It will be noted in passing that there is no allegation in the complaint that the defendant Southern Railway Company was a corporation under the laws of South Carolina, or that it was sued as such, or that it entered into the contract alleged to have been breached in its capacity as a South Carolina corporation. The inference is that it occupied exactly the same legal position in South Carolina ascribed to the plaintiff; that is, of a domesticated foreign corporation. The domestication of a foreign corporation is nothing more than the extension to it of the privilege or license as a foreign corporation to do business in this State, and its susceptibility to service and suit in the State.

The defendant Southern Railway Company interposed a demurrer to the complaint upon the ground that it appeared upon the face of the complaint that both the plaintiff and the demurring defendant were foreign corporations; that the cause of action did not arise in this State; that the subject of the action was not situated in this State; and that for these reasons the Court of Common Pleas for Spartanburg county in this State was without Jurisdiction in the action. The Circuit Judge sustained the demurrer and dismissed the complaint, holding that both corporations had been domesticated in this State; that nevertheless, the cause of action having arisen in North Carolina, the Court was without jurisdiction. The plaintiff has appealed upon exceptions which will be reported.

It is clear that, if the demurrant's position can be sustained, both corporations are foreign corporations, and the cause of action arose in North Carolina, the demurrer was properly sustained under Section 461 of the Code of Civil Procedure which provides:

"An action against a corporation created by or under the laws of any other State, government, or country, may be brought in the Circuit Court * * * by a plaintiff not a resident of this State when the cause of action shall have arisen, or the subject of the action shall be situated, within this State."

The inevitable inference is that a foreign corporation may sue a resident of this State, individual or corporate, as an individual resident or nonresident may sue; that a resident of this State may sue a foreign corporation for any cause of action; but that a nonresident, individual or corporate, may not sue a foreign corporation except in the specified cases: Where the cause of action arose in this State, or the subject of the action was here situated. It follows that if the plaintiff is a foreign corporation and the demurrant also is a foreign corporation and the cause of action arose outside of this State, the Court had no jurisdiction. It is vital, therefore, to ascertain and declare the legal status of both the Blue Ridge Power Company and the Southern Railway Company.

It is conceded that the Blue Ridge Power Company is a corporation chartered and organized under the laws of North Carolina, and that it has complied with the provisions of the South Carolina Statute to enable it to do business as a foreign corporation in this State. Not being a railroad corporation, it is not required by the Constitution or Statutes of South Carolina to be incorporated as a South Carolina corporation; that requirement applying only to railroad corporations. It is simply authorized by the statute, upon complying with its provisions, to conduct its business in this State.

"Acts of the Legislature creating corporations must be distinguished from acts which merely recognize a corporation chartered by another State, and allow it to exercise some or all of its functions or powers within the State. If the statute has this effect only, it does not make the corporation a domestic corporation at all; it remains a foreign corporation only, with a domicile or residence and citizenship in the State of its creation only." 14 A.C.J., 1231.

"In order to make a corporation already in existence under the laws of one State a corporation of another State, the language used must imply creation or adoption in such form as to confer the power usually exercised over corporations by the State or by the Legislature, and such allegiance as a State corporation owes to its creator. The mere grant of privileges or powers to it as an existing corporation without more does not do this." L.N.A. C.R. Co. v. TrustCo., 174 U.S. 552; 19 Sup. Ct., 817; 43 L.Ed., 1081;Penn. Ry. Co. v. Ry. Co., 118 U.S. 290; 6 Sup. Ct., 1094;30 L.Ed., 83; Goodlett v. Ry. Co., 122 U.S. 391; 7 Sup. Ct., 1254; 30 L.Ed., 1230; Railroad Co. v. James, 161 U.S. 545;16 Sup. Ct., 621; 40 L.Ed., 802.

The status of the defendant Southern Railway Company, however, is entirely different. It is a railroad corporation, organized and chartered under the laws of Virginia, and is prohibited by Const. Art. 9, § 8, from operating a railroad in South Carolina at all. The railroad in South Carolina belonging to the foreign corporation can be operated only after "the owners or projectors thereof shall [have] first become incorporated under the laws of this State," and the owners "shall thereafter operate and manage the same and the business thereof under said domestic charter"; that is, under the charter issued by the State of South Carolina.

Although the complaint only alleges that the Southern Railway Company "domesticated under the laws of South Carolina," which is not at all equivalent to the allegation that it has complied with the constitutional requirement of securing a charter from the State, in view of the illegality of its operation of the railroad in South Carolina under any other circumstances, for the purposes of this case, it will be assumed that the owners of the railroad have secured such charter, and that the railroad in South Carolina is being managed and operated under a South Carolina charter. So then we have this anomalous condition: The Southern Railway Company, the Virginia corporation, owns the entire railroad property, including that portion of it in South Carolina, but the latter, so far as the business in South Carolina is concerned, is managed and operated under the South Carolina charter.

There are then two separate and distinct corporations, the Virginia corporation and the South Carolina corporation; the former covering the entire property, and the latter being managed and operated, so far as business in South Carolina is concerned, under the South Carolina charter. The granting of a domestic charter to the owners of a foreign corporation certainly could not have the effect of transferring the property of the foreign corporation to the domestic corporation. The domestic corporation is therefore a corporation without assets, a species of legislative fiction, intended to make the corporation operating the railroad subject to the laws of South Carolina, particularly in the matter of removal to the United States Courts, which evidently was the purpose of the law. This purpose has been defeated by the Supreme Court of the United States by the decisions cited and followed by this Court in Wilson v. Railroad Co., 64 S.C. 162;36 S.E., 701; 41 S.E., 971. However incongruous this may and does appear, it is thoroughly established and recognized by the decisions of the Supreme Court of the United States:

"Nor do we see any reason why one State may not make a corporation of another State, as there organized and conducted, a corporation of its own, quo ad hoc any property within its territorial jurisdiction." Railroad Co. v. Harris, 12 Wall., 65; 20 L.Ed., 354.

"This Court has often recognized that a corporation of one State may be made a corporation of another State by the Legislature of that State, in regard to property and acts within its territorial jurisdiction." L.N.A. C.R.Co. v. Trust Co., 174 U.S. 552, 562; 19 Sup. Ct., 817; 821 (43 L.Ed., 1081).

"Although from one point of view, it may be regarded as a single corporation or unit, yet from another it is not the same, but a district corporation in each State, so far as its property and business within that State are concerned, and is controlled therein as to such matters by the laws of the State, substantially as any other domestic corporation is controlled." 1 Elliott (3d Ed.) § 35; Piek v. Railroad Co.,94 U.S. 164; 24 L.Ed., 97.

So that, even if the contract had been entered into by the South Carolina corporation, it would have been ultra vires, as having no connection with the business of that corporation in South Carolina.

As stated above, however, the action is not brought against the Southern Railway Company as a South Carolina corporation; the defendant is not by that name alleged to be a South Carolina corporation; and the contract for the breach of which damages are claimed is not alleged to have been made with the Southern Railway Company as a South Carolina corporation; and it would seem to be absurd to attempt to hold the South Carolina corporation responsible for the breach of a contract which it did not enter into. It cannot be contended that the South Carolina corporation is responsible for the engagements of the parent organization whenever and under whatsoever circumstances assumed. This is in effect what the plaintiff is endeavoring to do. But suppose these allegations had been made in the complaint, it is perfectly clear that the allegations of the complaint negative them and show the utter impossibility of their truth.

The South Carolina corporation, under whose charter the railroad and its business in South Carolina was being managed and operated is necessarily limited in its contracts to business done in South Carolina, or to business outside the State necessarily connected with its operation in South Carolina.

"A corporation can exercise no powers in a State other than that of its creation except such as are conferred upon it by its charter and the laws creating it and covering it." 14 A.C.J., 1234, citing many cases.

This does not mean that the corporation chartered by one State cannot do business in another State unless the charter authorizes it to do so; but it means that the act in question must be one which the charter authorizes it to do in the State of its creation. See 14 C.J., § 421. p. 342.

The Supreme Court of the United States said in an early case:

"A corporation can have no legal existence out of the boundaries of the sovereignty by which it is created. It exists only in contemplation of law, and by force of the law; and where the law ceases to operate, and is no longer obligatory, the corporation can have no existence. It must dwell in the place of its creation and cannot migrate to another sovereignty." Bank v. Earle, 13 Pet., 519; 10 L.Ed., 274.

It follows that in this dual relation the Southern Railway Company under its South Carolina charter is a domestic corporation of the State so far as the power derived from the State to manage and operate the railroad and transact business in the State is concerned, and in every other respect it retains its charter as a foreign corporation.

"It is a domestic corporation as to the power derived from the State in which it acts, and a foreign corporation in respect to other sources of its existence." 2 L.R.A., 566, note. Case, 2 Bland. Ch., 99; State v. Ry. Co., 18 Md., 193;Railroad Co. v. Glenn, 28 Md., 287; 92 Am. Dec., 688;Railroad Co. v. Auditor, 53 Mich., 79; 18 N.W., 586;McGregor v. Railroad Co., 35 N.J. Law, 89; Sage v. RailroadCo., 70 N.Y., 220; Sprague v. Railroad Co., 5 R.I. 233;Ohio M.R. Co. v. Wheeler, 66 U.S. (1 Black), 286; 17 L.Ed. 130.

"Where a corporation is manifestly intended for local objects only and its capacities are limited to a particular place, it will be presumed that the powers conferred on it are intended to be exercised only within the limits of such place, and it cannot exercise them in other jurisdictions." 14 C.J., 343.

It may be assumed that there are various issues of bonds executed by the parent corporation secured by mortgages upon its entire property. Could it be contended that they were the corporate action of the South Carolina corporation? Would an intelligent attorney bring an action against the South Carolina corporation to foreclose those mortgages? There can be no difference between a contract of the parent organization under which damages for its breach are claimed and the bonds of the corporation secured by mortgage. The one is none the less the act of the parent organization and not of the local corporation as the other.

The plaintiff is in this predicament: If the contract was made with the parent organization and it was sued, the action would be by a foreign corporation against a foreign corporation upon a cause of action that did not arise in South Carolina; if he means to allege that the contract was made with the South Carolina corporation (which is very far from being done), his facts contradict that allegation, and show that it not only was not so consummated, but that it could not have been done.

The argument that under the Act of 1902, by which the Southern Railway Company was authorized to lease the Southern Railway, Carolina Division, the Southern Railway assumed certain obligations in connection with the enjoyment of that lease, has absolutely no force, for the reason that those obligations were the obligations of the parent organization, and not of the South Carolina corporation, and is based upon the manifestly untenable position that the South Carolina corporation may be held answerable for the contract obligations of the parent organization, a separate and distinct corporation.

The Circuit Judge was therefore clearly right in sustaining the demurrer.

Judgment affirmed.

MR. JUSTICES WATTS and MARION concur.