City of Detroit v. Mutual Gaslight Co.
| Decision Date | 11 June 1880 |
| Citation | 5 N.W. 1039,43 Mich. 594 |
| Court | Michigan Supreme Court |
| Parties | CITY OF DETROIT v. MUTUAL GAS COMPANY and MUTUAL GAS-LIGHT COMPANY. |
Corporations regularly organized under the laws of the state, and acquiring rights, property and franchises, may mortgage or convey the same, subject only to such restrictions as the legislature may impose. A city ordinance granting permission to a gas company to lay its pipes, etc., through the public street, forbid such company from entering into any combination with any other gas-light company concerning rates to be charged for gas. Held, that an agreement entered into between such company and another company in the same city for a division of the territory to be lighted, was, in spirit, a violation of such ordinance. What would be the proper remedy for such violation not determined, but that the consent of the city to the laying of such pipes, and the property rights acquired thereunder, were not forfeited by such violation, although the original ordinance provided they should be. Mortgage of property and franchise of gas company held not a violation of the provisions of an ordinance forbidding it to sell its property franchises or privileges to any other gas company.
Appeal from Detroit.
Meddaugh & Driggs and Ashley Pond, for defendants.
The defendants are corporations organized under the laws of this state. In November, 1871, the complainant city, by ordinance authorized the Mutual Gas-Light Company to lay pipes and mains in the streets and alleys of the city, upon the terms and conditions therein set forth, which ordinance was accepted, and gas-works constructed near the city, pipes laid in the city, and the work of manufacturing and supplying gas regularly entered upon. While so engaged the company mortgaged its property and franchises. On the twenty-eighth day of June, 1877, it is alleged the company, contrary to the provisions of said ordinance, entered into a combination with the Detroit Gas-Light Company, concerning rates to be charged for gas and did sell its property, franchises and privileges to said company, by entering into a contract with said last-named company to divide the city between them. December 14, 1877, the common council of said city repealed the first-named ordinance, and declared that said Mutual Gas-Light Company had forfeited to the city all its gas pipes and property in the city, and authorized the comptroller to assume and take possession thereof, all of which appears more fully from a copy of such ordinances and agreements appended in a note hereto. [*]
On the fifteenth of April, 1878, under mortgage foreclosure proceedings, the property of said Mutual Gas-Light Company was sold by a master in chancery to Thompson Dean, and he, about the same date, conveyed the same to the Mutual Gas Company, and under this conveyance the last-named corporation claims to be entitled to enjoy the rights and privileges granted to the Mutual Gas-Light Company. The city, at no time, consented in any way to these mortgages, sales, agreements or conveyances; nor has it recognized said Mutual Gas Company. Some of the questions raised relate to the rights of the city under the facts, and the rights of the last-named company under the conveyance from Dean. When a corporation is regularly organized under the laws of this state, and acquires rights, property and franchises thereunder, such rights, property and franchises may be mortgaged or conveyed in the same manner as the property of an individual, subject only to such restrictions as the legislature may have imposed; and it makes no difference to whom the rights conferred may have been granted, whether the persons named in the charter or subsequent stockholders, the rights are granted to the corporation and not the individuals interested therein. They, the stockholders, may separately assign and transfer their stock; others may take their places; so that while the corporation remains the same, yet the stockholders therein and the officers thereof may be wholly changed.
What limitation, if any, can be placed upon this right of the stockholders we need not at present determine. Apart from the right of the stockholders, as already said, the corporation could mortgage its property, rights and franchises, and it follows therefrom, in order to render valuable such security, that such mortgage could be foreclosed, and the rights and property mortgaged thereby acquired by others. And if by an individual, he could convey what he had acquired to some other corporation, capable of taking and exercising such rights, franchises and privileges. It would now seem that these positions are no longer open to question. Their recognition is necessary to the protection of the rights of stockholders, and of parties dealing with the corporation. The right of a corporation to manage its property and franchises,--a right, we might say, now almost if not universally conceded,--carries with it the usual and customary legal and equitable rights pertaining to mortgages.
If because of such mortgage foreclosure, sale and transfers thereunder, the common council could forfeit the rights of the corporation, or the purchaser, and assume possession of the property, the security given by such a mortgage would be a somewhat uncertain and scanty one, and the effect of such a doctrine would be to destroy or at least impair, the value of the property of the corporation and of the mortgagees, a position which the law will not yet justify. The purchaser, under such a sale, and his grantee, would acquire the same rights and privileges which the original corporation had, and subject to the same terms and conditions. Such a conveyance was not prohibited by the ordinance of the city, even if it could have been--a point we do not now pass upon.
The effect of the contract entered into with the Detroit Gas-Light Company remains to be considered. Under section 2 of the ordinance the company was forbidden to enter into any combination with any gas-light company concerning rates to be charged for gas, and it is claimed that the agreement of June 28, dividing the city, was in violation of this provision. In my opinion this position is well taken. To my mind it seems very clear that such agreement was a carefully studied attempt to evade in spirit, but not in letter, the provision referred to. The effect of such an agreement is precisely the same as a combination concerning rates. The object sought under the ordinance was active competition, which would keep rates within reasonable limits; the result of this agreement is to remove all competition, and to permit the rival companies to enjoy each its territory unmolested and freed from all danger of competition. The Mutual Gas Company could have confined itself as well to one street, or one block, as to one-half the city.
Corporations, like individuals, should observe in good faith the letter and spirit of their agreement, and of the accepted terms and conditions imposed upon them, and they should not be permitted, while exercising the right conferred, to make careful study and effort to evade the responsibilities and restrictions imposed upon them; and if any doubt exists as to the right claimed by the corporation, that doubt should be solved in favor of the public. It does not, however, follow that the city can have the relief prayed for in this case. The violation of such an agreement would not be a forfeiture of the consent given by the city, nor of the property of the corporation acquired thereunder. This would be a measure of damages for the violation of an agreement recognized neither in courts of law nor of chancery. Section 6 of the ordinance required bonds to be given to secure performance of the obligations imposed by section 2. Whether the remedy of the city may not be found here, or in some other manner, or what appropriate remedy the city may have for the violation of the agreement, we do not say, while we concur in saying that the bill was rightly dismissed, and that the decree must be affirmed, with costs.
I agree in the conclusion reached by the chief justice, while not agreeing in what he says about the division of territory between the two companies being in effect a combination as to prices.
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Notes:
[*] EXHIBIT A.
AN ORDINANCE
To permit certain persons to lay gas pipes, mains conductors and service pipes in the streets, alleys, lanes avenues, squares, parks and public grounds of the city of Detroit, to establish a manufactory of and to vend gas-light in the said city.
Whereas, David Preston, H. Moffat, T.K. Adams, Robert Hosie, J.F. Antisdel, Ransom Curtis, H.C. Hodges, Philip Thurber, E. Kanter, J. Heffron, H. Weber, A. Wilkins, Thompson Dean, John P. Kennedy and Wm. H. Fitch, Jr., their associates and successors, propose to organize as a body politic and corporate, under "An act to authorize the formation of Gas-Light Companies," approved February 12, 1855, (Laws of 1855, p. 243,) and an act and acts amendatory thereto, for the purpose of building and operating gas-works in the city of Detroit, the said corporation to be known as "The Mutual Gas-Light Company" of the city of Detroit, therefore,
It is hereby ordained by the common council of the city of Detroit:
Section 1. That consent, permission and authority are hereby given, granted and duly vested in David Preston, H Moffat, T.K. Adams, Robert Hosie, J.F. Antisdel, Ransom Curtis, H.C. Hodges, Philip Thurber, E. Kanter, J. Heffron, H. Weber, A. Wilkins, Thompson Dean, John P. Kennedy, Wm. H. Fitch, Jr., and their associates, their successors and assigns, organized into a corporation under the laws of the state of Michigan, as aforesaid, to lay gas...
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