Peabody v. Chicago Gas Trust Co.

• Decision Date: 26 November 1889
• Citation: 22 N.E. 798,130 Ill. 268
• Parties: PEOPLE ex rel. PEABODY v. CHICAGO GAS TRUST CO.
• Court: Illinois Supreme Court

130 Ill. 268

22 N.E. 798

PEOPLE ex rel. PEABODY

v.CHICAGO GAS TRUST CO.¹

Supreme Court of Illinois.

Nov. 26, 1889.

Appeal from circuit court, Cook county.

Quo warranto on the relation of F. B. Peabody against the Chicago Gas Trust Company. The circuit court overruled demurrers to defendant's pleas, and plaintiff appeals.

George Hunt, Atty. Gen., and James K. Edsall, for appellant.

Goudy, Green & Goudy, for appellee.

MAGRUDER, J.

The Chicago Gas Trust Company, appellee herein, was organized under the general incorporation law of this state. The statement filed by the original incorporation with the secretary of state sets forth that the trust company was formed for two objects, or for one object of a two-fold character. The object named in the first clause of the second specification of the ‘statement’ is, in brief, the erection and operation of works in Chicago, and other places in Illinois, for the manufacture, sale, and distribution of gas and electricity. The object named in the second clause of the second specification of the statement is, in brief, ‘to purchase and hold or sell the capital stock’ of any gas or electric company or companies in Chicago, or elsewhere in Illinois.

In this proceeding no attack is made upon the validity of the organization of the gas trust company as a corporation. That it was formed in strict conformity with the requirements of the general incorporation law is not denied by the people. Nor does the state here question the right of the appellee company to acquire and operate works for the manufacture and sale of gas and electricity, in pursuance of the object designated in the first clause above mentioned. Hence the controversy arising upon the demurrer to the pleas in this case is not as to the right of appellee to exist as a corporation, nor as to its right to exercise the first one of the powers sought to be conferred upon it by its charter. The controversy presented by the record relates solely to the authority of the appellee to carry out the object designated in the second clause above mentioned. It is claimed on the part of the people that the charter or articles of association of the gas trust company did not and could not confer upon it the power ‘to purchase and hold * * * the capital stock’ of other gas companies. It is averred in the information, and admitted in eight of the eleven pleas, that appellee has purchased, and now holds, a majority of the shares of the capital stock of four gas companies, to-wit, the Chicago Gas-Light & Coke Company, the People's Gas-Light & Coke Company, the Equitable Gas-Light & Fuel Company, and the Consumer's Gas Company; and it is admitted in three of the pleas that the appellee has purchased, and now holds, some portion of the capital stock of said four companies. The information charges that, by so purchasing and holding a majority of the shares of the capital stock of each of the four companies, the appellee usurps and exercises ‘powers, liberties, privileges, and franchises not conferred by law.’ The appellee pleads, in justification, that the power so to purchase and hold the stock is granted by the terms of its charter.

Can the Chicago Gas Trust Company lawfully purchase and hold the stock of other gas companies? A distinction is sought to be drawn between ‘capital stock’ and ‘shares of stock.’ It is said that capital stock means the entire property owned by the corporation, while a share in the stock is the right to partake, according to the amount put into the fund, of the surplus profit obtained from the use and disposal of the capital stock of the company to those purposes for which the company is constituted. It is therefore insisted by the appellant that, even if the charter of the appellee can be held to confer the power to purchase and hold the general property or funds of other gas companies, it does not for that reason confer the power to purchase and hold shares of stock in such other companies.

The distinction contended for undoubtedly exists under certain circumstances, and for certain purposes; but we think that, in the present case, the words, ‘the capital stock of any gas company or companies,’ are broad enough to include shares of stock. In the general incorporation act, under which the appellee and Consumers' Gas Company and the Equitable Gas-Light & Fuel Company are all organized, the statement is required to set forth ‘the name of the proposed corporation, the object for which it is to be formed, its capital stock, the number of shares of which such stock shall consist,’ etc. The original charter of the Chicago Gas-Light & Coke Company provides that ‘the capital stock of said company shall not exceed $300,000, to be divided into shares of $25,’ etc. The charter of the Peoples' Gas-Light & Coke Company, as amended in 1865, also provides that its capital stock may be divided into shares. The terms thus used designate the capital stock of a corporation as that which consists of, or may be divided into, shares. Hence, for the purposes of the present discussion, ‘the capital stock of any gas company’ may be regarded as the aggregate of all the shares of such stock.

The first, third, and seventh pleas aver that the defendant uses and exercises ‘the power, liberty, privilege, and franchise of purchasing and holding the capital stock of gas companies in the state of Illinois,’ and that in such use and exercise thereof ‘it has purchased, and still holds, capital stock of four companies,’ etc., without stating how much capital stock it holds. The demurrer to these pleas might well have been sustained, on the ground that they do not answer the information. The information charges that the defendant has purchased and holds a majority of the shares of stock in each of the four companies, while the pleas answer by saying that defendant holds ‘capital stock,’ and do not set forth whether the stock so held is a majority, or less than a majority, of the shares. If it be conceded, however, that the three pleas are not defective for the reason thus specified, they present the question whether appellee can lawfully purchase and hold shares of stock in other gas companies; the number of such shares being less than a majority, and therefore too small to give a controlling interest in such other companies.

There are two views which may be taken of the power to purchase and hold the capital stock of other gas companies, as designated in said second clause. Must it be regarded as an original, independent power, intended to exist exclusively and in addition to the power named in the first clause, or may it be considered as merely ancillary to the other power of maintaining and operating works for the manufacture and sale of gas? If the latter view be correct, the main object for which the gas trust company was formed would be that it might itself maintain and operate works for the manufacture and sale of gas, while the purchase of shares of stock in other companies would be merely a subordinate object, incidental only to the main purpose of the corporate formation. An illustration of this idea may be found in the general law of this state in regard to life insurance companies, which makes it lawful for a life insurance company, organized in the state, to ‘invest its funds or accumulations in the stocks of the United States, * * * or in such other stocks or securities as may be approved by the auditor.’ The main object of forming such a company is to engage in the business of life insurance, but the power to invest surplus funds in certain stocks is given as an incident to such business.

Can the power to purchase and hold the stock of other gas companies be lawfully exercised by the appellee, as incidental to the main purpose of maintaining and operating works for the manufacture and sale of gas? Corporations can only exercise such powers as may be conferred by the legislative body creating them, either in express terms or by necessary implication; and the implied powers are presumed to exist to enable such bodies to carry out the express powers granted, and to accomplish the purposes of their creation. Railroad Co. v. Marseilles, 84 Ill. 643;Coke Co. v. Coke Co., 121 Ill. 530, 13 N. E. Rep. 169. An incidental power is one that is directly and immediately appropriate to the execution of the specific power granted, and not one that has a slight or remote relation to it. Hood v. Railroad Co., 22 Conn. 1;Franklin Co. v. Institution, 68 Me. 48. Where a charter, in express terms, confers upon a corporation the power to maintain and operate works for the manufacture and sale of gas, it is not a necessary implication therefrom that the power to purchase stock in other gas companies should also exist. There is no necessary connection between manufacturing gas and buying stocks. If the purpose for which a gas company has been created is to make and sell gas and operate gas-works, the purchase of stock in other gas companies is not necessary to accomplish such purpose. ‘The right of a corporation to invest in shares of another company cannot be implied, because both companies are engaged in a similar kind of business.’ 1 Mor. Priv. Corp. § 431.

It is true that a gas company might take the stock of another corporation in payment of a debt, or perhaps as security for a debt; but the actual purchase of such stock is not directly and immediately appropriate to the execution of a specifically granted power to operate gas-works and manufacture gas. Some corporations, like insurance companies, may find it necessary to keep funds on hand for the payment of losses by death or fire, or to meet other necessary demands; but it is questionable whether even these can invest their surplus funds in the stocks of other corporations, without special legislative authority. But there is nothing in the nature of a gas company which renders it proper for such a company to accumulate funds for outside investment. Its surplus profits belong to...