Elizabethtown Gas - Light Co. v. Green

• Decision Date: 10 December 1889
• Citation: 46 N.J.E. 118,18 A. 844
• Parties: ELIZABETHTOWN GAS - LIGHT CO. v. GREEN et al.
• Court: New Jersey Court of Chancery

18 A. 844

46 N.J.E. 118

ELIZABETHTOWN GAS - LIGHT CO.

v. GREEN et al.

Court of Chancery of New Jersey.

Dec. 10, 1889.

(Syllabus by the Court.)

On final hearing on bill, answer, and proofs taken in open court.

R. V. Lindabury, Frederic W. Stevens, and Theodore Runyon, for complainant. James R. English and Joseph Cross, for defendants.

VAN FLEET, V. C. The complainant, by a special statute passed in 1855, (P. L. 1855, p. 105,) was created a body corporate for the purpose of making and selling gas in the city of Elizabeth. Its charter gave it authority to use the public grounds of the city of Elizabeth for the purpose of laying its pipes therein, and doing such other things therein as might be necessary to enable it to accomplish the purposes of its creation. It has established works, including the laying of about 47 miles of pipe, at a cost of about a half million of dollars, and has been in active operation, as a gas company, for over 20 years. The defendants are 10 natural persons. They have commenced exercising the same franchises in the public grounds of Elizabeth that the complainant has exercised. They admit that they intend to compete with the complainant in the business of making and selling gas, and that, in carrying on such business, they intend to make the same use of the public grounds of Elizabeth that the complainant does. They do not, however, claim that they have a right as natural persons or as individuals to the franchises they are exercising, but they say the franchises belong to the Metropolitan Gas-Light Company of Elizabeth,—which for brevity will hereafter be called the "Metropolitan Company, "—and that they are the officers of that corporation, and that as such, and in that capacity, they have a right to exercise the franchises in question. The defendants assert no right whatever as individuals, but base their right to do what they admit they are doing solely on power conferred upon the corporation which they claim to represent as its officers. The complainant, while admitting that the legislature, by a special statute passed in 1870, authorized the formation of a corporation to be known by the name of the "Metropolitan Company," and granted to it, alter an organization of it should be effected in accordance with the terms of its charter, a right to make such use of the public grounds of Elizabeth as the defendants are now making; and while also admitting that a certificate had been filed in the office of the secretary of state, about a month before its bill in this case was filed, certifying that the defendants had been elected directors and other officers of that corporation,—still insists that the defendants have no right, in any capacity, to the franchises they are exercising, and that their claim to them is false, fraudulent, and without warrant of law. The matter of fact stated in the bill, as the foundation of the complainant's insistment, is this: that the persons to whom authority to form a corporation was given, by the charter of the Metropolitan Company, never organized a corporation in accordance with its provisions, and it is claimed, as a consequence of such failure, that no franchise or other attribute of sovereignty ever passed by the charter to anybody. It is said that no stock was ever subscribed or paid for, and that, that being so, it necessarily follows that there never were any stockholders, and consequently there never were any persons in existence qualified either to be directors or to elect directors. The complainant asks that the defendants may be enjoined from using the public grounds of Elizabeth for the purpose of laying down gas-pipes and distributing gas. The ground on which it asks this relief is that it has a right to use the public grounds of Elizabeth in conducting its business, which right is exclusive against everybody but the state; that the defendants have no such right; and that their attempt to exercise a like right is a plain usurpation of power. An attempt to usurp power constitutes the foundation of the complainant's claim to relief. It has no other. The complainant is neither a creditor nor stockholder of the Metropolitan Company. No contract or covenant relations, of any kind, exist between the two corporations. Unless, therefore, the complainant has made it entirely clear that its right to use the public grounds of Elizabeth is exclusive, as against the Metropolitan Company, so that it is true, as a matter of law, that the acts of the defendants are mere usurpations of power, no relief can be given to the complainant.

Three principles of law, bearing directly on the question presented for decision, are, in my judgment, so firmly settled as not to be open to debate:

First. It is authoritatively settled that nobody can take advantage of the breach of the condition on which a corporation is created for the purpose of depriving the corporation of its franchises, except the sovereignty which created the corporation. Com. v. Insurance Co., 5 Mass. 230, furnishes an instructive example of the manner in which the courts apply and enforce this principle. In that case a number of persons who were members of the defendant corporation obtained a rule requiring the corporation to show cause why an information in the nature of a quo warranto should not be filed against it, for the purpose of dissolving it, and procuring an adjudication that its corporate powers were void. The statute under which the, corporation had been formed "required the holders of its stock to pay fifty per centum of their subscriptions within sixty days after the first meeting of the company, and that no insurance on any one risk should be made for a larger sum than ten per centum of the capital stock actually paid in." The prosecutors of the rule alleged that the defendant corporation had violated both provisions of the statute. Chief Justice PARSONS, in pronouncing the judgment of the court, said: "We have not inquired into the truth of these allegations, as we are satisfied that, in this case, such inquiry would be immaterial, because this rule is not moved for in behalf of the commonwealth or by its authority. * * * An information for the purpose of dissolving the corporation, or of seizing its franchises, cannot be prosecuted but by the authority of the commonwealth, * * * for the commonwealth may waive any breaches of any condition, expressed or implied, on which the corporation was created; and we cannot give judgment for the seizure by the commonwealth of the franchises of any corporation, unless the commonwealth be a party in interest to the suit, and thus assenting to the judgment." The same principle was stated in a form somewhat more sententious by Mr. Justice NELSON in delivering the opinion of the supreme court of the United States in Frost v. Coal Co., 24 How. 278-283. He said: "A private party cannot take advantage of a forfeiture. That is a question for the sovereign power, which may waive it or enforce it, at its pleasure." The supreme court of this state, in deciding the case of State v. Turnpike Co., 21 X. J. Law, 9, placed its judgment squarely on the principle laid down by the supreme court of Massachusetts in Com. v. Insurance Co., and Mr. Justice DIXON, in delivering the judgment of the court of errors and appeals in the case of Railroad Co. v. Railroad Co., 32 N. J. Eq. 755-760, cited the case of State v. Turnpike Co. as containing an accurate exposition of the law on this subject.

Second. It is also well settled that a court of equity has no authority, in virtue of its general jurisdiction, to dissolve a corporation, and deprive it of its franchises, for non-user or misuser of its corporate powers, nor because it was not organized in strict accordance with the requirements of the statute by which it was created, but in violation of them. The power to so adjudge belongs exclusively to another tribunal, and a court of chancery can in no case, unless specially authorized by statute, try the validity of a corporate organization existing under the forms of law. Attorney General v. Stevens, 1 N. J. Eq. 369; Railroad Co. v. Railroad Co., 32 N. J. Eq. 755. In the case last cited, Mr. Justice Dixon said (page 760) that an inquiry whether a corporation exists de jure or not is beyond the powers of a court of chancery, and that whenever it is sought to impugn the legality of a corporation which exists under the forms of law the remedy is by quo warranto, or information in the nature thereof, instituted by the attorney general. And Mr. Justice DEPUE, in delivering the opinion of the court of errors and appeals in Water Co. v. De Kay, 36 N. J. Eq. 548-559, said: "The general rule of law is that the regularity and validity of the organization of a corporation, effected under color of its charter, cannot be peached in any collateral proceeding, and that the acts of its officers, who are officers de facto, under color of an election, are valid and binding upon the corporation. This doctrine has been applied to proceedings to enjoin a corporation from exercising its corporate franchises."

Third. It is also established that a court of equity has power to protect a corporation, holding an exclusive franchise, from irreparable injury arising from the usurpation of a like franchise, whether the usurpation be committed by natural or artificial persons. The leading cases on this subject in this state are Delaware & R., etc., Co. v. Camden & A., etc., Co., 16 N. J. Eq. 321, on appeal, 18 N. J. Eq. 546; and Railroad Co. v. Railway Co., 23 N. J. Eq. 441. In the first case, it will be remembered, two railroad corporations, having authority by special charters to construct two different termini within the state, attempted, by a deviation from the route prescribed by the charter of one of them, to construct connecting roads, and thus establish a continuous through line from New York to Philadelphia. At the time this attempt was made a contract existed between the state a...