Hunt v. Memphis Gaslight Co.

• Decision Date: 11 June 1895
• Citation: Hunt v. Memphis Gaslight Co., 31 S.W. 1006, 95 Tenn. 136 (Tenn. 1895)
• Parties: HUNT et al. v. MEMPHIS GASLIGHT CO. et al.
• Court: Tennessee Supreme Court

31 S.W. 1006

95 Tenn. 136

HUNT et al. v. MEMPHIS GASLIGHT CO. et al.

Supreme Court of Tennessee.

June 11, 1895

Appeal from chancery court, Shelby county; L. T. Sneed, Chancellor.

Bill by Hunt & Bro. against the Memphis Gaslight Company and others to have mortgages executed by defendant company declared void, and to subject the mortgaged property to the satisfaction of complainants' debt. From a decree of the chancellor dismissing the bill, complainants appeal. Affirmed.

B. W Hirsh and Gantt & Patterson, for appellants.

L. & E Lehman, H. C. Warrinner and T. K. Riddick, for appellees.

MALONE Special Judge.

The bill in this case was filed by Hunt & Bro. against the Memphis Gaslight Company and a large number of other persons in order to realize upon a judgment obtained by the complainants against the gas company for $1,754. After judgment had been obtained, execution issued, and, having been returned nulla bona, this bill was filed in order to have two mortgages executed by the gaslight company, securing bonds aggregating $400,000, declared null and void, and to subject the mortgaged property to the satisfaction of complainants' debt. Relief was also sought upon other grounds hereinafter considered. It appears that the Memphis Gaslight Company was incorporated November 20, 1851, by a special act of the legislature, which act gave the company certain powers and privileges contained in the act of November 21, 1849, incorporating the Nashville Gaslight Company. Neither of these acts contained express power enabling the company to execute a mortgage or trust deed. On April 1, 1875, the Memphis Gaslight Company executed a mortgage by which it conveyed all of its franchises, rights, lots, grounds, factory, machinery, etc., to a trustee, for the purpose of securing its bonds to the amount of $240,000, due at 30 years, and bearing 7 per cent. interest. On July 8, 1892, it again executed a mortgage, or trust deed, by which all of its property was conveyed to certain designated trustees, for the purpose of securing its bonds to the amount of $240,000, which was to be a first mortgage or prior lien on the property of the company. These bonds were to be used for the purpose of taking up the $240,000, of bonds secured under the first conveyance mentioned. At the same time the property of the company was conveyed by way of second mortgage to secure bonds of the company to the amount of $160,000, which bonds were to be sold, and the proceeds used or applied in taking up the floating indebtedness of the company. These are the mortgages which the complainants claim are void for want of authority and power in the company to execute. No question is made as to the due execution of the mortgages; nor is it controverted that the debts secured or intended to be provided for by the issuance of the bonds were valid and subsisting obligations against the gas company.

It is insisted by the complainants that corporations to which are given large powers and valuable privileges, from the exercise of which it is expected the public will derive advantages, are impliedly restrained in their power of alienation, railroad companies falling in this class; and it is insisted that gas companies are quasi public corporations, and are governed by the same rules, and, in the absence of legislative authority, cannot execute a valid mortgage. Many authorities are cited by counsel for complainants, and much reliance is placed upon the case of Portland Natural Gas & Oil Co. v. State, an opinion by the supreme court of Indiana, reported in 8 Am. R. & Corp. Rep. 640 (34 N.E. 818), and the note thereto. All of these authorities have been carefully considered; and none of them support the contention of counsel for complainants to the extent claimed. They mainly discuss the question whether or not gas companies, water companies, and the like are quasi public corporations, and some of the cases so hold. Some of them place the holding upon the ground that the right of eminent domain had been conferred upon the corporation, which is not the case with regard to the Memphis Gaslight Company; and others, again, place the decision upon the ground of an exclusive privilege given the company to occupy the streets, alleys, lanes, etc., of a city; thus practically giving it, in such case, a monopoly of supplying the city with gas. In the case of Gas Co. v. Williamson, 9 Heisk. 314, it was held by this court, in 1872, that it was not the intention of the legislature, in the act incorporating the Memphis Gaslight Company, to confer the exclusive right to manufacture gas in that city. It thus appears that there are material differences between the case at bar and those relied upon by the complainants. None of the authorities, however, hold that a gas company is without power to execute a mortgage.

It is said by the supreme court of the United States, at an early day, that "it is well settled that a corporation, without special authority, may dispose of the lands, goods, and chattels, or any interest in the same, as it deems expedient, and, in the course of their legitimate business, may make a bond, mortgage bond, note, or draft; and also may make composition with creditors or an assignment for their benefit with preferences, except when restrained by law." Canal Co. v. Vallette, 21 How. 424. This language is quoted with approval by this court in Adams v. Railroad Co., 2 Cold. 645-660. As was said in a subsequent case in respect to Adams v. Railroad Co.: "The simple question presented was, had the mayor and aldermen of the city of Memphis the power, under their charter, to mortgage their real property or estate for corporation purposes?" And the court decided it had. McKinney v. Hotel Co., 12 Heisk. 104-120. A municipal corporation is confessedly a public corporation; and, if the power to mortgage is enjoyed by a municipality, it is difficult to perceive upon what principle of public policy this power should be denied a gas company, even though it is a quasi public corporation. In 2 Cook, Stock, Stockh. & Corp. Law, § 779, at page 1261, it is said: "A corporation, other than railroad corporations, may mortgage its real estate and personal property for the purpose of securing its bonds or other evidence of debt, unless there is some provision in its charter expressly prohibiting or regulating this right. The right to mortgage is the natural result of the right to incur a debt." Numerous cases are cited in the note; and, further on, discussing the same subject, under the title, "Gas Companies," the same author says: "A gas company may give a mortgage on its plant." Section 927, p. 1262. Mr. Beach lays down the doctrine broadly that all corporations, unless restrained by their charter, have implied power to mortgage, "the only exception being that of railroads." 2 Beach, Priv. Corp. §§ 388, 389, 738, et seq. To the same effect, see Jones, Mortg. § 124; Mor. Priv. Corp. § 346; Detroit v. Mutual Gaslight Co., 43 Mich. 594, 5 N.W. 1039; Hays v. Gas Co., 29 Ohio St. 330. Though the authorities in other states agree in holding that a railroad corporation, owing to the peculiar relation which it bears to the public, should be denied the right to execute a mortgage, unless it has express legislative authority therefor, yet, as a matter of fact, this power is always conferred; and, indeed, it is doubtful whether a railroad could be successfully operated without the power to mortgage. Thus, the practical results of business have demonstrated the unsoundness of the reasoning upon which the principle was established that it was against public policy to confer upon railroad corporations the power to execute a mortgage.

Our conclusion is that the Memphis Gaslight Company was authorized to execute the mortgage in question. This conclusion renders it unnecessary to consider the effect of the act of 1885, conferring upon certain corporations the power to execute mortgages or trust deeds.

It is next insisted that, as the debt due complainants was for the purchase money of coal and coke used by the gas company in the manufacture of gas, this constitutes a preferred claim superior even to the rights of the holders of the mortgage bonds. In order to sustain this position much reliance is placed upon the cases of Fasdick v. Schall, 99 U.S. 235, and Burnham v. Bowen, 111 U.S. 776, 4 S.Ct. 675, and similar cases. All of the cases cited by counsel for the complainants are actions against railroads, and in these cases the principle is laid down that, when a court of chancery appoints a receiver of railroad property, it may impose such terms in reference to the payment from the income during the receivership for outstanding debts for...