South Western R. Co. v. Benton

• Decision Date: 10 April 1950
• Docket Number: No. 16980,16980
• Citation: 206 Ga. 770,58 S.E.2d 905
• Parties: SOUTH WESTERN R. CO. et al. v. BENTON et al.
• Court: Georgia Supreme Court

Page 905

58 S.E.2d 905

206 Ga. 770

SOUTH WESTERN R. CO. et al. v. BENTON et al.

No. 16980.

Supreme Court of Georgia.

April 10, 1950.

Syllabus by the Court.

1. A corporation has only the power conferred upon its by its charter. Its grants of power and exemptions are to be strictly construed, and its obligations are to be strictly performed, whether they may be due to the State or to individuals. A railroad corporation cannot, without special authority of statute, sell its franchise and property essential to the performance of its duty to the public. A charter granted by the State to a railroad corporation constitutes a contract between the State and the corporation, between the corporation and its stockholders, between the stockholders and the State, and between the stockholders inter sese. And where such a charter does not itself contain authority to the corporation to sell its franchise and property, and the State does not therein or by general law of force at the time the charter is granted, reserve the right to change, alter, or modify the charter, it cannot thereafter, by specific amendment or by general law, authorize such a sale without unanimous consent of the stockholders, for to do so would constitute a vital and fundamental amendment of the charter, and violate the provisions of the Federal and State constitutions, Const. art. 1, § 10, cl. 1, Code, § 1-134, and Const. art. 1, § 3, par. 2, Code Ann. § 2-302, prohibiting the passage of any law impairing the obligation of contract.

(a) Under the foregoing principles, the General Railroad Law of 1892, Code, §§ 94-311 and 94-318, and the act of the General Assembly approved March 10, 1933, Code, §§ 94-328 and 94-329, have no application to the South Western Railroad Company, incorporated under the Act approved December 27, 1845, and prior to the reservation by the State in the Code of 1863, now Code, §§ 22-1202 and 22-1203, of the power to change, alter, or modify charters granted by it.

2. The United States Supreme Court having held that the question of whether the sale by the South Western Railroad of its franchises and properties must be authorized by the unanimous consent or by majority vote only of its stockholders is one to be determined by the State courts, and that question having been determined by the State courts, holding that unanimous consent is necessary under the charter granted to such corporation and under the State law, it will not be assumed that either the Interstate Commerce Commission or the Federal courts would override and nullify such judgment on application made by the defendants under the provisions of the Bankruptcy Act, § 77, sub. f, 11 U.S.C.A. § 205, sub. f, or § 5 of the Interstate Commerce Act, 49 U.S.C.A. § 5. The amendments filed by the defendants and the intervenors, seeking a modification of the restraining order granted by the trial court so as to permit an application by the defendants under the provisions of those acts, were therefore without merit, and the demurrers thereto were properly sustained.

3. The trial court did not err in its rulings on the general demurrers, and in granting the injunctive relief prayed for by the plaintiffs.

On March 25, 1947, L. O. Benton Jr. and Charles J. Haden, as stockholders in the South Western Railroad Company (hereinafter referred to as South Western), brought their action in behalf of themselves and others similarly situated, against the company and its named officers and directors, alleging that the South Western was incorporated by an act of the General Assembly of Georgia approved December 27, 1845, which act and the amendments thereto, accepted by it, constitute its charter; that the original charter of the defendant company was several times amended by the General Assembly of Georgia prior to the General Railroad Incorporation Act of 1892, Code, § 94-101 et seq.; and that each of these amendments was accepted by the defendant company.

It is alleged: that no amendment to its charter made any provision as to the sale of its railroad properties, and its charter is silent with respect thereto; that, therefore, the right to sell the entire properties of the company is governed by the general law as it existed at the time of the granting of the charter and the amendments; and that under the general law a majority of the stockholders are not empowered to sell the properties of the company.

It is further alleged: that the company is a prosperous, going corporation, able to achieve the objects of its incorporation, and neither its officers nor a majority of its stockholders have a right to sell its corporate property or so much thereof as may prevent the continuance of its business as a corporation and the carrying out of the purposes of its formation; that the present capital stock of the defendant company is $5,191,100, all of which is represented by common stock; that its properties are free from mortgages or other liens; that it owes no bonded indebtedness; that its current indebtedness on December 31, 1946, was $212,610.33, most of which has now been paid, and its current liabilities are less than $100,000; that the capital stock is represented by 51,191 shares, and that 50,471 of these shares are outstanding in the hands of the public; that, according to the report of the board of directors submitted to the 100th annual convention of stockholders held in Macon, Georgia, on March 13, 1947, its road and equipment property are worth $9,523,736.81, and its common stock has a book value in excess of $180 per share based on fixed assets alone; that in 1942 the Interstate Commerce Commission valued the road and equipment property as $12,830,257, and, according to this valuation, its common stock would have a value, based on fixed assets alone, of approximately $240 per share.

It is further alleged that the South Western Company commprises some 340 miles of railroad, bridges, depots, and appurtenances thereto, in the heart of the system of the Central of Georgia Railway; and the petition describes the various railroad lines and branches of the company.

It is further alleged: that, on December 19, 1932, the South Western was being operated by the Central of Georgia Railway Company under a long-term lease, which produced to the South Western a rental sufficient to pay stockholders an annual dividend of five per cent, the annual rental being $259,550 and taxes and organization expenses; that on that date, in a stated case in the United States District Court for the Southern District of Georgia, a receiver of the property and assets of the Central of Georgia Railway Company was appointed, who continued to operate the properties of the Central and of the South Western, under lease, until June 19, 1940, at which time the Central filed its petition in the District Court of the United States for the Southern District of Georgia, stating that it was unable to meet its debts as they matured, and that it desired to file a plan of reorganization under the provisions of § 77 of the Federal Bankruptcy Act, 11 U.S.C.A. § 205, and thereafter, in conformity with the act, certain persons were appointed trustees; that the trustees thereafter continued to operate the business of that company, subject to the control of the District Court and the jurisdiction of the Interstate Commerce Commission until Merrel P. Callaway was appointed and confirmed as sole trustee on April 20, 1942; that he has since acted as sole trustee of the Central and as such has continued to operate the lines of the South Western under lease; that on October 21, 1943, he adopted for the duration of the bankruptcy the South Western lease; that on January 28, 1944, the trustee filed his plan of reorganization with the United States District Court and with the Interstate Commerce Commission, pursuant to the bankruptcy act; that, with respect to the South Western, the plan provided: 'Prior to or upon consummation of the plan, the debtor [Central of Georgia Railway Company] shall also acquire, if they can be acquired on the terms hereinafter set forth, properties at present leased to the debtor by the South Western Railroad. * * * If any of these properties shall not be acquired as a result of the acceptance of the plan by the lease-line security holders, then and in that event the lease or leases of any line or lines not so acquired shall be disaffirmed as of such time at or prior to the consummation of the plan as the court may direct. The method of acquisition, whether through purchase, merger, or consolidation, shall, subject to the approval of the commission and the court be determined by the trustee or by the reorganization managers when they begin to function. If the leased lines are acquired the railroads of each of the three and the personal property appurtenant thereto and all the real estate owned by each lessor shall be conveyed to the reorganized company; each of said lessors shall waive any damages to which it has become or shall become entitled on account of any breach of lease; and the South Western Railroad Company shall waive all claims in respect to equipment. Such conveyances and waivers shall in each instance be the sole consideration of the delivery to each of the respective lessors of the securities proposed to be allocated to it as hereinafter specified.'

It is further alleged: that the securities proposed to be allocated to the holders of the capital stock of the South Western were provided for in the plan as follows: 'Holders of South Western Railroad capital stock would receive, for each $1000 of stock, $423.80 in new first-mortgage Series A bonds, and $340.97 in new income mortgage Series A [B] bonds,' of the proposed reorganized company; that the proposed new first-mortgage bonds would be secured by the first lien, subject as to equipment to the liens of equipment obligations, on all railroads owned by the reorganized company on consummation of the plan, including leaseholds and...