South & N.A.R. Co. v. Gray

Citation160 Ala. 497,49 So. 347
PartiesSOUTH & N. A. R. CO. ET AL. v. GRAY.
Decision Date15 April 1909
CourtSupreme Court of Alabama

Appeal from City Court of Montgomery; A. D. Sayre, Judge.

Suit by Henry B. Gray against the South & North Alabama Railroad Company and others to enjoin the sale of its road, etc. From a decree for complainant, defendants appeal. Affirmed in part and reversed and rendered in part, and injunction modified.

The Louisville & Nashville Company, a foreign corporation, owned a majority of the stock of the South & North Company, and the two roads had been operated as a continuous line for a number of years; the former having floated bonds for the latter company to enable it to extend its line and continue operations.

Gregory L. Smith, H. L. Stone, Tillman, Grubb, Bradley & Morrow George W. Jones, and J. Manley Foster, for appellant Louisville & N. R. Co. Walker Percy and Fred S. Ball, for other appellants. Phares Coleman and S. H. Dent, Jr., for appellee.

ANDERSON J.

While the South & North Company was incorporated prior to the Constitution of 1875, and under the law then existing its franchise, etc., could not be sold, except by the consent of the state, it being a public service corporation, and then only with the consent of all the stockholders. Yet it has been held, and properly so, that said corporation has by its acts and conduct brought itself within the influence of the Constitution of 1875, and has rendered itself amenable to all laws enacted by the state with reference to corporations of its character, and that the stockholders have acquiesced in the conduct of the corporation in bringing itself within the influence of the Constitution of 1875 to the extent of estopping themselves from setting up that the laws of the state subsequent to its charter or amendments thereto do not apply to same. L. & N. R. R. Co. v. Gray (Ala.) 45 So. 296; State v. Montgomery Light Co., 102 Ala 594, 15 So. 347. This bill was filed subsequent to Acts 1903 p. 310, and the action on the part of the directors of the respective companies, looking to a purchase of the South &amp North and the stock of the minority, and which is now complained of, was also subsequent to said act, and, as it specially provides for the thing attempted, it applies to these corporations in this particular and a repeal of existing laws on this subject was not prevented by section 54, as all railroads were included in so far as section 12 applies. Palliser v. Home Telephone Co., 152 Ala. 440, 44 So. 575. As the act in question is contained in the Code of 1907, we will, for convenience, cite the sections of the Code in discussing the questions involved.

Section 3495 of the Code of 1907 (section 1169 of the Code of 1896) authorizes a sale by one railroad company to another of its franchise, roadbed, etc., when the purchasing company owns all of the capital stock of the selling company. This section is no more than a consent by the state, which is essential to a sale of the franchise, etc., of a public service corporation, when the authority to do so was not given in the charter. It is but the consent of the state to a sale, which would be authorized, regardless of our Constitution, and is but declaratory of the common law, which authorizes a sale of the franchise, etc., with the consent of all the stockholders, provided the state is willing, in case it is a public service corporation. If the purchasing corporation owns all the stock in the selling one, then no one but the state can complain. Section 3497 of the Code of 1907 says: "Any corporation may purchase at judicial sale, or otherwise, hold and use or lease any part or all of the railroad constructed by another corporation or company, together with its franchises, rights, and property, or may acquire, hold, and use all or any part of the capital stock of another corporation chartered under the laws of this state or any other state, if the railroad or railroads so purchased connected with, or will, when completed, connect with the railroad works, factory, or plant of the purchasing or leasing corporation, either directly or by means of an intervening line; or any two or more such companies whose lines are or will be, so connected, may enter into any arrangement for their common benefit, consistent with and calculated to promote the objects for which they were created." Section 3498 of the Code says: "But no such aid shall be furnished, nor any such purchase, lease, or arrangement perfected as in the preceding sections mentioned, until a meeting of the stockholders of each of such corporations has been called by the directors thereof, at such time and place and in such manner as they shall designate, and the holders of the larger amount in value of the stock of each of such corporations represented, and by voting at meeting, in person or by proxy, shall have assented thereto, and copies of the proceedings of such meetings certified by the president, or other managing head of such corporations, under the corporate seal, shall be filed in the office of the Secretary of State." While section 3497 authorizes among other things one corporation to acquire, hold, and use all or any part of the capital stock of another corporation, section 3498, prescribing how purchases shall be made, applies only to the purchase of corporate property, and not to the acquirement of stock issued by a corporation and held by another. It is true section 3497 authorizes one corporation to acquire and own the capital stock of another, whether owned by an individual or not, but it could not have been the legislative intent to require the owner of stock in a corporation to sell his stock to another corporation upon the assent of a majority of the stockholders at a meeting called by the directors. Consequently purchases, leases, and arrangements, as provided for in section 3498, applies only to property owned and controlled by the selling corporation, and not to its stock held by another. Therefore, construing these two sections together and in connection with the property rights guaranteed by both state and federal Constitutions, it was not thereby intended to divest a stockholder of his property without his consent upon the mere action of the directors after obtaining the assent of the majority of the stockholders. Not only are sales, leases, etc., under section 3498 confined to property at the time owned by the corporation, but said sales are authorized only when no injustice will be done the stockholders. The Legislature derived its authority to delegate this right to corporations because of the Constitution, and for the further reason that this particular corporation became subject thereto, for the reasons set forth in the Gray Case, supra. And this statute must be read in connection with section 238 of the Constitution of 1901, and so as to harmonize therewith, and should, therefore, have read into it the following proviso: "That no injustice shall be done the stockholders."

A reading of the resolution set out in the bill of complaint would indicate that the directors started out in their negotiations under one statute and wound up under another one. The first resolution would indicate an offer or proposition looking to a merger or consolidation as authorized by sections 3502, 3503, Code 1907. They then received a counter proposition from the Louisville &amp Nashville Company, looking to a purchase, not only of the corporate property, but the minority stock as well. This offer was doubtless made by the Louisville & Nashville Company upon the assumption that they not only had the right under section 3497 to purchase, but that the directors had the same right to sell stock held by individuals, under section 3498, as they had to sell the corporate property proper. The directors of the South & North accepted the proposition, with the qualification that the price offered for the minority stock be increased from 20 to 271/2 cents per share and agreed to convey the roadbed, franchise, etc., subject to the approval of the "stockholders." As to whether or not they meant all stockholders, a majority of all stockholders, or a majority of the minority stockholders we cannot tell, but, inasmuch as they were attempting to proceed under section 3498, we must assume that they meant to convey upon the assent of the holders of the larger amount of stock. It is true the resolution requires certain things of the Louisville & Nashville Company, the assumption of the debt and the purchase of the outstanding stock, but the obtaining of this stock was not a condition precedent to the conveyance, as they agreed to execute the conveyance so soon as the proposition was accepted, and the things required of the Louisville & Nashville Company was the assumption of the indebtedness and the payment to the stockholders for their shares, not before the conveyance, but upon the delivery to it, by each shareholder of his certificate of stock, properly indorsed. Of course, if they meant to convey the property only after the Louisville & Nashville had acquired all of the stock, no one can complain. It is manifest, however, that they were attempting to proceed under section 3498, and intended, not only to convey the...

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5 cases
  • Randle v. Winona Coal Co.
    • United States
    • Supreme Court of Alabama
    • 23 d4 Junho d4 1921
    ......Perkins v. Montg. L. Co., 102 Ala. 594, 601, 602,. 15 So. 347; L. & N. v. State ex rel. Gray, 154 Ala. 156, 217, 221, 223, 45 So. 296; S. & N.A.R.R. Co. v. Gray, 160 Ala. 497, 49 So. 347; ......
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    • 7 d4 Junho d4 1934
    ......v. Cromwell, 91 U.S. 643 [23 L.Ed. 367]." (Italics. supplied.). . . . In. South & North Alabama Railroad Co. v. Gray, 160 Ala. 497, 49 So. 347, Mr. Chief Justice Anderson makes ......
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    • Supreme Court of Alabama
    • 16 d4 Junho d4 1938
    ...... 1875--White v. White, 230 Ala. 641, 645, 162 So. 368;. South & N. A. R. Co. et al. v. Gray, 160 Ala. 497,. 49 So. 347. No subsequent amendment of the charter ......
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