1. A provision of the statutory code of Georgia which took
effect Jan. 1, 1863, enacts that private corporations are subject
to be changed, modified, or destroyed at the will of the creator,
except so far as the law forbids it, and that in all cases of
private charters thereafter granted, the state reserves the right
to withdraw the franchise, unless such right is expressly negatived
in the charter. Two railroad companies created prior to that date,
each of which enjoyed by its charter a limited exemption from
taxation, were consolidated by virtue of an act of the legislature
passed April 18, 1863, which authorized a consolidation of their
stocks, conferred upon the consolidated company full corporate
powers, and continued to it the franchises, privileges, and
immunities which the companies had held by their original charters.
Held: 1. that by the consolidation, the original companies
were dissolved and a new corporation was created, which became
subject to that provision of the code; 2. that a subsequent
legislative act taxing the property of such new corporation as
other property in the state is taxed was not prohibited by that
provision of the Constitution of the United states which declares
that no state shall pass a law impairing the obligation of
contracts.
2. The judgment of the highest court of a state that a statute
has been enacted in accordance with the requirements of the state
constitution is conclusive upon this court, and it will not be
reviewed.
This case came before the Superior Court for Fulton County,
Georgia, on an "affidavit of illegality" filed by the Atlantic and
Gulf Railroad Company in regard to an execution for taxes which had
been issued by the comptroller general of the state in pursuance of
an Act of the General Assembly approved Feb. 28, 1874, entitled
"An Act to amend the tax laws of this state so far as the same
relate to railroad companies and to define the liabilities of such
companies to taxation, and to repeal so much of the charters of
such companies, respectively, as may conflict with the provisions
of this act."
The affidavit averred that the company, by the original charters
granted to the Savannah, Albany, and Gulf Railroad Company, and to
the Atlantic and Gulf Railroad Company, or by the act consolidating
them under the name of the last company, was not liable to be taxed
more than one-half of one percent on its annual net income, and
that said Act of Feb. 28, insofar as it authorized the levy and
collection of a higher tax on its property, was in violation of
the
Page 98 U. S. 360
tenth section of the First Article of the Constitution of the
United states, and therefore void.
The court overruled the affidavit, and gave judgment "that the
execution proceed." That judgment having been affirmed by the
supreme court of the state, the company sued out this writ of
error.
The remaining facts are stated in the opinion of the Court.
MR. JUSTICE STRONG delivered the opinion of the Court.
The single question presented in this case is whether the Act of
the Legislature of Georgia approved Feb. 28, 1874, whereby it was
enacted that the property of all railroad companies in the state
should be taxed as other property of the people of the state,
impairs the obligations of the contract contained in the charter of
the plaintiff in error. The question compels consideration of the
inquiry, what was the contract into which the state entered with
the company, and what are the rights which the company holds under
it.
Prior to the eighteenth day of April, 1863, there were two
railroad companies in the state, one incorporated on the
twenty-fifth day of December, 1847, as the "Savannah, Albany, and
Gulf Railroad," and the other incorporated on the twenty-seventh
day of February, 1856, with the name "The Atlantic and Gulf
Railroad Company," the same name now borne by the plaintiffs. The
charter of each of these companies contained a grant of all the
rights, privileges, and immunities which had been granted to or
were held and enjoyed by any other incorporated railroad company or
companies or which had been granted to the Central Railroad and
Banking Company, or to the Georgia Railroad Company or to either of
them. Both these latter companies had been incorporated prior to
1840, and each held by its charter the privilege or immunity of not
being subject to be taxed higher than one-half of one percent upon
its annual net income in the one case, and in the other, on the net
proceeds of its investments. Consequently
Page 98 U. S. 361
the Savannah, Albany, and Gulf Railroad Company and the Atlantic
and Gulf Railroad Company severally acquired by their charters an
exemption from taxation at any higher rate, or in any different
manner. And such an immunity they severally continued to hold down
to 1863. This, we think, admits of no reasonable doubt. If their
rights are now the same as they were when the original charters of
the two companies were first granted, it is quite clear the
provisions of the taxing act of 1874 could not be applied to them
without impairment of the contracts they had with the state.
Neither of the companies, however, is now existing under or by
virtue of its original charter. On the eighteenth day of April,
1863, the legislature of the state passed an act whereby they were
empowered to consolidate their stocks upon such terms as might be
agreed upon by the directors and ratified by a majority of the
stockholders, and the act enacted that when so consolidated, they
should be known as "The Atlantic and Gulf Railroad Company," with a
proviso that nothing therein contained should relieve or discharge
either of them from any contract theretofore entered into by
either, but that this company should be liable on the same. By the
second section it was enacted that the stockholders of said
consolidated railroad companies, by such corporate name, and in
such corporate capacity, should be capable in law to have,
purchase, and enjoy such real and personal estate, goods, and
effects as might be necessary and proper to carry out the objects
therein specified, and to secure the full enjoyment of all the
rights therein and thereby granted, and by said name to sue and be
sued, plead and be impleaded, in any court of competent
jurisdiction; to have and use a common seal, and the same to alter
at pleasure; to make and establish bylaws, and generally to
exercise corporate powers.
The third section of the act declared that the several
immunities, franchises, and privileges granted to the said
Savannah, Albany, and Gulf Railroad Company, and the Atlantic and
Gulf Railroad Company, by their original charters and the
amendments thereof, and the liabilities therein imposed, should
continue in force except so far as they might be inconsistent with
the act of consolidation.
Page 98 U. S. 362
The fifth section repealed all laws and parts of laws militating
against the act.
It is conceded that under this act a consolidation took place.
It is therefore a vital question what was its effect? Did the
consolidated companies become a new corporation, holding its powers
and privileges as such under the act of 1863? Or was the
consolidation a mere alliance between two preexisting corporations
in which each preserved its identity and distinctive existence? Or
still further, was it an absorption of one by another, whereby the
former was dissolved, while the latter continued to exist? The
answer to these inquiries must be found in the intention of the
legislature as expressed in the consolidating act. We think that
intention was the creation of a new corporation out of the
stockholders of the two previously existing companies. The
consolidation provided for was clearly not a merger of one into the
other, as was the case of
Central Railroad & Banking Co. v.
Georgia, 92 U. S. 665. Nor
was it a mere alliance or confederation of the two. If it had been,
each would have preserved its separate existence, as well as its
corporate name. But the act authorized the consolidation of the
stocks of the two companies, thus making one capital in place of
two. It contemplated, therefore, that the separate capital of each
company should go out of existence as the capital of that company,
and if so how could either have a continued separate being? True,
the proviso to the first section declared that nothing therein
contained should relieve or discharge either of the companies from
any contract theretofore entered into by either, adding: "But this
company [that is, the company created by the act] shall be liable
on the same." It is thus distinguished between the two original
companies and the one contemplated to be formed by their
consolidation. And the proviso would have been quite unnecessary
had it not been thought by the legislature that the consolidation
would work a dissolution of the amalgamated companies. Hence it was
considered necessary to preserve the rights of parties who might
have contracted with them. Only their contracts were mentioned in
the proviso, and that in order to authorize a novation. The third
section continued in force the several immunities, franchises, and
privileges granted by the original
Page 98 U. S. 363
charters and the amendments thereof, and the liabilities therein
imposed, but plainly for the benefit of the consolidated companies.
Why speak of original charters if a later charter was not intended
by the act? That such was the intention appears still more clearly
in the third section. That conferred upon the consolidated
stockholders complete corporate powers. It granted to them, when
consolidated, not only a corporate name, but the right under that
name to acquire and hold property, to sue and be sued, to have a
common seal, to make bylaws, and generally to do everything that
appertains to corporations of like character. This full grant of
corporate power must have been intended for some purpose. What was
it if not to create a corporation? For that purpose it was amply
sufficient. For any other it was unmeaning. If the two original
companies were to continue in being, if it was not contemplated
that they should be dissolved by consolidation, a new grant of
corporate power and existence was unnecessary. They had it
already.
Looking thus at the legislative intent appearing in the
consolidation act, we are constrained to the conclusion that a new
corporation was created by the consolidation effected thereunder in
the place and in lieu of the two companies previously existing, and
that whatever franchises, immunities, or privileges it possesses,
it holds them solely by virtue of the grant that act made. That
generally the effect of consolidation, as distinguished from a
union by merger of one company into another, is to work a
dissolution of the companies consolidating and to create a new
corporation out of the elements of the former is asserted in many
cases, and it seems to be a necessary result. In
McMahan v.
Morrison, 16 Ind. 172, the effect of a consolidation was said
to be
"a dissolution of the corporations previously existing, and, at
the same instant, the creation of a new corporation, with property,
liabilities, and stockholders derived from those then passing out
of existence."
So in
Lauman v. The Lebanon Valley Railroad Co., 30
Pa.St. 42, the court said:
"Consolidation is a surrender of the old charter by the
companies, the acceptance thereof by the legislature, and the
formation of a new company out of such portions of the old as enter
into the new."
This Court, in
Clearwater v.
Meredith,
Page 98 U. S. 364
1 Wall. 40, expressed its approval of what was said in the
former of these cases. It is true these expressions have not all
the weight of authority, for they were not necessary to the
decisions made, but they are worthy of consideration, and they are
in accordance with what seems to be sound reason. When, as in this
case, the stock of two companies is consolidated, the stockholders
become partners, or
quasi-partners, in a new concern. Each
set of stockholders is shorn of the power which, as a body, it had
before. Its action is controlled by a power outside of itself. To
illustrate: the stockholders of the Savannah and Albany Railroad
Company could not, after consolidation, have exercised any of the
powers or franchises they had prior to their consolidation with the
stockholders of the Atlantic and Gulf Railroad Company. They could
not have built their road or controlled its management. They could
not, therefore, have performed the duties which by their original
charter were imposed upon them. Those duties could only have been
performed by another organization, composed partly of themselves
and partly of others. Their powers, their franchises, and their
privileges were therefore gone, no longer capable of exercise of
enjoyment. Gone where? Into the new organization, the consolidated
company, which exists alone by virtue of the legislative grant, and
which has all its powers, facilities, and privileges by virtue of
the consolidation act. What then was left of the old companies?
Apparently nothing. They must have passed out of existence, and the
new company must have succeeded to their rights and duties. But the
new company comes into existence under a fresh grant. Not only its
being, but its powers, its franchises, and immunities, are grants
of the legislature which gave it its existence.
If, then, the old Atlantic and Gulf Railroad Company and the
Savannah, Albany, and Gulf Railroad Company went out of existence
when their stocks were consolidated under the act of the
legislature of 1863, their powers, their rights, their franchises,
privileges, and immunities ceased with them, and they have no
existence except by virtue of the grant of corporate powers and
privileges made by the consolidation act of 1863. That act created
a new corporation and endowed it with the several immunities,
franchises, and privileges which had previously
Page 98 U. S. 365
been granted to the two companies but which they could no longer
enjoy.
It necessarily follows that the new company held the rights
granted to it under and subject to the law as it was when the new
charter was granted. And the code of the state, which came in force
on the 1st of January, 1863, before the charter was granted,
contained the following provision:
"SEC. 1051. Persons are either natural or artificial. The latter
are creatures of the law, and, except so far as the law forbids it,
subject to be changed, modified, or destroyed at the will of the
creator; they are called corporations."
"SEC. 1082. In all cases of private charters hereafter granted,
the state reserves the right to withdraw the franchise, unless such
right is expressly negatived in the charter."
No such right was negatived in the charter granted to the
plaintiffs in error. Consequently the franchise was held subject to
a power in the state to withdraw it, and subject to be changed,
modified, or destroyed at the will of its grantor or creator. These
provisions of the code became, in substance, a part of the charter.
Railroad Company v. Maine, 96 U. S.
499. It is quite too narrow a definition of the word
"franchise," used in this statute, to hold it as meaning only the
right to be a corporation. The word is generic, covering all the
rights granted by the legislature. As the greater power includes
every less power which is a part of it, the right to withdraw a
franchise must authorize a withdrawal of every or any right or
privilege which is a part of the franchise. So it was held in
Central Railroad & Banking Co. v. Georgia, 54 Ga. 401,
and so it must be held now, especially in view of the statutory
provision of the code, that private corporations are subject to be
changed, modified, or destroyed at the will of their creator. Hence
the exemption from taxation, except to the extent and in the mode
designated in the charter, could be withdrawn without any violation
of the state's contract with the company, and the act of 1874 was
such a withdrawal.
In regard to the position taken by the plaintiff in error that
the sections of the code we have quoted were not laws of the
Page 98 U. S. 366
state in 1863, because the code was not read three times in each
house of the general assembly, as required by the state
constitution, it is sufficient to say the supreme court of the
state has decided they were, and its decision of such a question is
not open for revision by us in a case brought here from a state
court.
Pennsylvania College
Cases, 13 Wall. 190.
Judgment affirmed.
NOTE --
Railroad Company v. Georgia, error to the
Supreme Court of the State of Georgia, was argued at the same time
and by the same counsel as was the preceding case. The question
involved was the validity of the tax for the year 1875, which had
been sustained by the court below.
MR. JUSTICE STRONG delivered the opinion of the Court affirming
the judgment.