McTighe v. Macon Const. Co.

• Decision Date: 20 August 1894
• Citation: 21 S.E. 701,94 Ga. 306
• Parties: McTIGHE et al. v. MACON CONST. CO.
• Court: Georgia Supreme Court

21 S.E. 701

94 Ga. 306

McTIGHE et al. v. MACON CONST. CO.

Supreme Court of Georgia

August 20, 1894

Syllabus by the Court.

1. There being in force a general law for the incorporation of railroad companies, if the subsequent special charters of the two railroad companies involved in this litigation were unconstitutional, and therefore wholly void, each of said companies was, nevertheless, a corporation de facto, and, as such, could acquire and own property, and would be bound to its creditors by all acts which would have bound it had it been duly incorporated under the general law. Bonds issued by it, and deeds or mortgages made to secure the same, are enforceable to the same extent as they would be if no special charter had been granted, and the company had been organized as a corporation in the method prescribed by the general law and such bonds, deeds, and mortgages had been thereafter executed; and any person making claim upon the assets of one of these corporations de facto, whether as its own creditor directly, or as a creditor of such creditor or of a stockholder, sustains the same relation to it in respect to such claim as would be sustained under like circumstances were it a corporation de jure.

2. A corporation created under the general law of this state for incorporating railroad companies can bind by mortgage or trust deed, executed to secure bonds issued by it to provide funds for constructing its railroad, future acquired property, as well as property owned by it at the time of the execution of the instrument. This being so, a corporation de facto can do the like.

3. A loan of $850 for the term of 40 years is not rendered usurious by the lender taking from the borrower his bond for $1,000, bearing interest on that principal at the rate of 6 per cent. per annum, payable semiannually, although the bond contained a stipulation that, after 90 days' default upon any one of the installments of interest, the whole of the principal should then become due and payable; it not being stipulated that in this event the lender was not to account for any interest received, whether by discount or payment over and above 8 per cent. per annum on the principal actually loaned, and it not appearing that there was any device or contrivance to cover up usury, or any intent or expectation that default would be made in the payment of interest before the expiration of the full term of 40 years. Nor would it matter that the bonds were not, in fact delivered, and the money received thereon till after a lapse of 39 days or less from the date when the bonds began to bear interest at the 6 per cent. rate.

4. Where a railroad forming a continuous line, and located partly in this state and partly in an adjoining state, is mortgaged by a corporation (whether de facto or de jure) of which the courts of this state have jurisdiction, the mortgage consisting of a trust deed made to secure bonds issued by the corporation, the superior court of the county in this state having jurisdiction over the corporation may in the exercise of its equitable powers, make a decree foreclosing the mortgage as to the corporate property embraced in it situate in both states, and may effectuate the decree by directing a sale of the whole property and the execution of a proper conveyance to the purchaser by the receiver, the trustee, and the mortgagor. And if the fact be that the adjoining state has incorporated a company which has been consolidated under the forms of law with a corporation (de facto or de jure) of this state, and that this consolidated company executed the mortgage, and is really the party before the court as the mortgagor, the truth of the case in this respect is admissible in evidence, and the jurisdiction is the same in all respects over the consolidated company as it would be over a corporation created exclusively under the laws of this state.

Error from superior court, Bibb county; R. L. Gamble, Judge.

Creditors' bill by J. S. McTighe & Co. against the Georgia Southern & Florida Railroad Company and others. From a judgment rendered, the railroad company and others bring error. Affirmed.

Anderson & Anderson, for plaintiffs in error.

Hoke Smith, Steed & Wimberly, Hardeman, Davis & Turner, Bacon & Miller, S. A. Reid, Gustin, Guerry & Hall, Hill, Harris & Birch, Washington Dessau, and C. L. Bartlett, for defendants in error.

LUMPKIN J.

The controlling questions presented in these cases are indicated in the headnotes. How these questions arose will appear from an examination of the reporter's statement. We have not decided, and will not discuss, whether or not a special charter granted by the general assembly to a railroad company after the passage of the general law for the incorporation of railroad companies is unconstitutional, and therefore void. Among many good reasons which might be stated for pursuing this course, and which would, doubtless, be accepted as satisfactory, we deem it sufficient to say it is not now necessary to pass upon this question, it not being essential to a proper disposition of the present cases. We wish it distinctly understood, however, that we do not intend in anything which follows to intimate any opinion whatever upon this question; and, if any expression we may use should seem to do so, it must not be so construed.

1. If such a charter is unconstitutional, is not a company organized under it, at least, a de facto corporation, and, as such, capable of making contracts, acquiring and owning property, and of becoming bound to its creditors by all acts which would have been binding upon it had it been duly incorporated under the general law? We entertain no doubt at all, and will presently endeavor to show, that this question should be answered in the affirmative; and, if so, it will follow that bonds, deeds, and mortgages executed by the de facto corporation are valid, not only as against the corporation itself, but also as against any one making a claim upon its assets, whether as a creditor directly of the corporation, or as a creditor of its creditors or stockholders. It is too well settled, both upon principle and authority, to require argument, that neither a de facto corporation nor those who recognize and deal directly with it as a corporation will be heard to deny its rightful corporate existence; and there is no good reason for applying a different rule to one claiming assets of a de facto corporation acquired solely in the exercise of corporate functions, but for the assumption of which there would have been no company of any kind, and, of course, no assets. Nor is it at all material whether the claim be made directly or indirectly. Whatever may be the manner in which it is presented, if the assets sought to be reached were in fact assets of a de facto corporation, the very act of making the claim puts the claimant in the same legal attitude as a direct creditor of the corporation; for such claimant has no better rights in the premises than his debtor of whose rights he seeks to get the benefit, and consequently can no more dispute the existence of the corporation than could the latter. So far, therefore, as the parties to this record are concerned, we have only to show that railroad companies operating in Georgia under special legislative charters granted after the passage of the general law referred to are at least corporations de facto.

The fact that this very law was in force at the time the railroad companies involved in the present litigation obtained their special charters makes it absolutely certain that, even if these charters are mere nullities, lawful and valid charters might have been obtained for just such companies. In other words, there was, beyond doubt, legal authority in this state for incorporating railroad companies with substantially the same rights, powers, duties, and liabilities as those specified in the special charters. This is a most important fact; for, where there cannot lawfully be a corporation de jure, there cannot be one de facto. This was distinctly ruled in Evenson v. Elingson, 67 Wis. 634, 31 N.W. 342. "If an organization is completed when there is no law or an unconstitutional law, authorizing such organization as a corporation," one who contracted with the organization is not estopped from denying its corporate existence. Heaston v. Railroad Co., 16 Ind. 276. See, also, Snyder v. Studebaker, 19 Ind. 462, and cases there cited. In Association v. Hennessy, 11 Mo.App. 555, it was held that one who had subscribed for stock in a supposed corporation prohibited by the state constitution was not estopped from denying its lawful existence. "Corporations cannot exist except by force of express law. A society that cannot be incorporated because organized to resist the enforcement of laws cannot sue in its society name for the collection of a debt." Schuetzen Bund v. Agitations Verein, 44 Mich. 313, 6 N.W. 675. "A corporation organized under a void law cannot enforce a mortgage made to it; but, if not organized for an unlawful purpose, a receiver for it can demand in equity an accounting for the debt purporting to be secured thereby." Burton v. Schildbach, 45 Mich. 504, 8 N.W. 497. "A corporation de facto cannot exist in the absence of a law authorizing its organization; and in such a case the carrying on of the business in the corporate name is no evidence of user which can be considered in aid of corporate existence." Eaton v. Walker, 76 Mich. 579, 43 N.W. 638. In this connection, see, also, Scovill v. Thayer, 105 U.S. 143, and Norton v. Shelby County, 118 U.S. 425, 6 S.Ct. 1121. One of the headnotes in the latter case is as follows: "An unconstitutional act is not a law. It confers no rights. It imposes no duties. It affords no protection. It creates no office. It is, in...