Lauman v. The Lebanon Valley Railroad Company

• Decision Date: 01 January 1858
• Citation: 30 Pa. 42
• Parties: Lauman versus The Lebanon Valley Railroad Company.
• Court: Pennsylvania Supreme Court

30 Pa. 42

Lauman versus The Lebanon Valley Railroad Company.

Supreme Court of Pennsylvania.

IN EQUITY. Motion for special injunction.

COPYRIGHT MATERIAL OMITTED

Read, for the complainant, in support of the motion.—The court will enjoin the company and its officers from applying the corporate property to a purpose not contemplated by its charter, in violation of the rights of the complainant: Redfield on Railways, 621; Pierce's Am. Railroad Law, 85; 29 Law Times Rep. 187-9. The complainant cannot be compelled to assume the liabilities of a stockholder in the other company. Act 2d February 1850, Pamph. L. 37.

St. G. T. Campbell and Meredith, for the respondents.—Every corporation has a right, by a vote of the majority, to surrender its charter, if accepted by the granting power: Erie and North-East Railroad v. Casey, 2 Casey 287; McKenzie v. Sligo and Shannon Railway Company, 14 Eng. L. and Eq. 37; Grant on Corporations 306.

The opinion of the court was delivered by LOWRIE, C. J.

The Lebanon Valley Railroad Company proposes to enter into a contract of consolidation with the Philadelphia and Reading Railroad Company, and an Act of Assembly, passed last year, authorizes them to do so; but George M. Lauman, one of their stockholders, objects to the proceeding. He has brought his suit against the proper party, alleging the appropriate facts, and prays for an injunction to arrest the execution of the intention, and for such other and further relief as is proper for his case.

No one will deny that, without the authority of the legislature, neither of these companies has power to enter into such a contract; for, as corporations, their powers are strictly limited to the province marked out for them in their charters.

No one will deny that, as private corporations, either of these companies may abandon its charter, and dissolve itself; except so far as its creditors may have a right to object, and so far as its public duties, as conservators of a highway, may tend to limit its powers in this respect; and that the legislature may, at pleasure release it from the limitation, and allow a transfer of its duties to other hands.

No one will deny that an association of individuals becomes a corporation, when, by authority of law, it acquires a name by which its legal identity can be preserved through all the changes of membership, business, constitution, and sphere of action which it may undergo, and which may entirely destroy its actual identity. Such a name is essential to corporate existence, and when it is given up, the corporation ceases to exist.

Bearing in mind these propositions, let us inquire what will be the effects of this consolidation of these two companies, as authorized and proposed.

1. The Reading company will extend its chartered rights, privileges, and duties from Reading to Harrisburg, while still preserving its name, and therefore its legal though not its actual identity.

2. The Lebanon company, that is, all its members, will pass into the Reading company, and become members thereof, and all their corporate privileges and property will become vested therein, and, by authority of law, all the liabilities of the former company will become chargeable against the latter.

3. By such an act the Lebanon company loses its actual identity, abandons its name, and therefore its legal identity and its corporate existence, and can no longer claim any legal recognition. This is called a merger of the Lebanon corporation into the other; but such a merger is a dissolution, destroying the actual identity of both, while the legal identity of one of them is preserved. As where a life estate is merged in a fee simple, one being destroyed and the other enlarged by the operation.

Now, if a legal majority of the Lebanon company agree to all this, what can a single stockholder have to say against it?

He cannot object that the supposed contract between the government and his corporation, involved in the grant of its charter, is violated; for both the government and the corporators are assenting to this change of its terms.

He cannot object that his company is committing a breach of its public duties, by going beyond its chartered privileges, and by abandoning its functions as sole conservators of its highway; for the legislature have allowed this. And the public claims on its permanence and identity being remitted, he cannot object to his company dissolving itself. A denial of this power would be fruitless, for the company could forfeit its charter any day, or evade the prohibition in numerous ways, one of the most efficient of which would be by a sale of the materials of its business and suspension of operations, for government would be incompetent to keep it in operation.

If the principle of the association is violated by a majority of its members, by a departure from its original purposes, or by a refusal, or voluntarily produced inability to proceed, any stockholder may treat such a matter as equivalent to a dissolution, at least as regards him, and for such a case the law provides a means of securing to him his share of the property, or its value.

It is of the nature of his contract with his associates, by which, under legislative authority, they constituted themselves into a corporation that it is dissoluble, and that, on a dissolution, the rights and property, or their legal equivalents, shall be distributed among the members, and therefore the act of dissolution does not violate the contract of association.

Then, what valid objection can a dissenting stockholder of a private corporation have to such an arrangement as the one now proposed?

He may object that it is a violation of the contract of association by which he and his associates agreed to become one corporate company for a given purpose: that he united in the association for one purpose, then agreed on, and now the majority are diverting their capital to a different purpose. This is a violation of chartered contracts: not...