Court Opinion

ID: 3620693
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:02:33.032798+00
Date Added: 2024-06-11T13:52:56.042130
License: Public Domain

This action was founded upon a written instrument in the following form, viz.:
"Know all men by these presents, that the United Gas, Fuel and Light Company, a corporation organized under the laws of Maine, and having a place of business in Gardiner, in that state, asprincipal, and John Claffy, of Brooklyn, Kings county, and state of New York, and John T. Rowland, *Page 38 
of Jersey City, Hudson county, and state of New Jersey, assureties, are holden and stand firmly bound and obliged unto the Bath Gas Light Company, a corporation organized under the laws of Maine, and having a place of business in Bath, in said state, in the sum of fourteen thousand dollars ($14,000), to be paid to the said Bath Gas Light Company, or its assigns, to the which payment, well and truly to be made, we bind ourselves, our heirs, executors and administrators firmly by these presents.
"Sealed with our seals, dated the tenth day of November, one thousand eight hundred and eighty-eight.
"The condition of the above obligation is such that, on the tenth day of November, A.D. 1888, the Bath Gas Light Company aforesaid leased to the United Gas, Fuel and Light Company aforesaid its entire plant and charter rights for manufacturing and disbursing gas, subject to certain conditions fully set forth in said lease; and if the said United Gas, Fuel and Light Company shall faithfully and fully execute and perform the conditions of said lease, then this bond shall be void; otherwise remain in full force."
By the lease referred to the Bath Gas Light Company demised and let to the United Gas, Fuel and Light Company "the real estate, personal property, trade fixtures and incorporate rights belonging to and used by the said lessor in carrying on its business of manufacturing and supplying the inhabitants" of the city of Bath, Maine, "with gas." The instrument stated that the intention of the lessor was "to transfer and set over to the said lessee during the terms of" said "lease, and subject to the conditions" therein "named, all the rights to manufacture and sell gas under the provisions of the charter granted to the said Bath Gas Light Company on the 22d day of February, 1853, together with any amendments thereto; all the property held by it, the said lessor, in carrying on the said business of manufacturing or selling gas, whether the said property be real, personal or mixed; * * * to hold for the term of twenty-five years from the first day of November, 1888, yielding and paying therefor the *Page 39 
rent of $2,800 per annum." There was a covenant on the part of the lessee to pay the rent semi-annually on specified days, to surrender at the end of the term, and against waste. There was also a provision that the lessee would "give to the lessor a bond for the faithful performance of the terms of" said "lease in the sum of $14,000, and the responsibility of said bond" was to be "constantly maintained to the satisfaction of said lessor." "All taxes duly assessed on the premises during the term aforesaid" were to be paid by the lessee, and it was given the right "to alter or change the said gas works so as to manufacture the gas from petroleum or any other product." It was agreed that the lessee might "repair or rebuild any part or all of said works, if necessary, for the proper and safe management of said business, and that, upon the reinvestment of said works in the said lessor at the expiration of the term * * * the said lessee" should be "allowed for all improvements," with the right to an arbitration to settle the value thereof, if not agreed upon. The lessor covenanted to "assign and transfer to the said lessee, or its assigns, so much as it may be possible to procure of the capital stock of said Bath Gas Light Company, * * * at any time within five years," at $80 per share. The lessor promised that it would "endeavour to have its charter extended so as to cover the right of using gas for heating purposes."
The main defense set forth in the answer of Mr. Claffy, who was the only defendant sued, is that the lease was ultra vires and void, because the plaintiff had no power to let for a long term of years all its property and franchises to another corporation engaged in the same business. The trial court held that the lease was void, but that the plaintiff could recover, as upon aquantum meruit, for use and occupation, although no such cause of action was alleged in the complaint, and no proof given as to rental value, aside from the rent reserved in the lease itself.
The plaintiff is a corporation organized in 1853 under a special statute of the State of Maine, with authority to make, sell and distribute, in the usual way, illuminating gas to the *Page 40 
city of Bath and its inhabitants for the purpose of lighting buildings, streets and public places. It was given power by its charter to hold such real and personal property as should be necessary to enable it to carry on the business aforesaid, and also "to lay gas pipes in any of the public streets or highways in said city, upon first obtaining consent" of the proper authorities. It was its duty, as the charter provided, "at all times and within a reasonable time after request by the city council * * * to supply with gas to such an extent and in such a manner as" should be "required, any street or public building, at a fair and reasonable rate of payment therefor." There was an express provision that if it should "at any time refuse or unreasonably neglect to comply with this provision, the exclusive privilege" granted by the charter should "be of no effect." It was further provided that the common council might at any time take and hold capital stock of the company to an amount not exceeding one-half thereof, upon payment of a proportional part of the cost of the investment, with the addition of ten per cent thereto. The charter conferred no powers upon the plaintiff, other than those mentioned, and certain incidental authority common to all corporations of a similar nature.
This company laid pipes in the streets of Bath, carried on the business for which it was created, and performed its functions under its charter, from 1853 until the 10th of November, 1888, when another corporation, known as the United Gas, Fuel and Light Company, was organized under the general statutes of the state of Maine, with power to make and furnish gas for lighting purposes, as well as heat and motive power derived from gas, for heating and manufacturing purposes, without restriction as to locality. On the same day that the last-named company was organized, the plaintiff leased to it for the term of twenty-five years all its property, rights and franchises, and thereupon the new company took possession of all the property of the plaintiff, including the gas plant, "rights of way through the streets," and four miles of gas mains laid in the public highways. It continued in possession *Page 41 
until August 2, 1890, when, owing to the non-payment of rent and taxes the plaintiff resumed possession of the property and rights covered by the lease. This action is brought upon the bond given to secure performance of the lease, to recover as damages for the breach of the condition thereof, the amount of rent and taxes that became due while the lessee was still in possession.
No express authority was conferred upon the plaintiff by its charter to execute a lease so sweeping in character as to part not only with all its property, but also with all its power to carry on business for a quarter of a century. There was certainly no implied power conferred upon the plaintiff to execute such an instrument, for the implied powers of corporations are confined to such as are incidental to those expressly granted and necessary for the convenient and proper enjoyment thereof. (Village of Carthage v. Frederick, 122 N.Y. 268, 271; Peopleex rel. Peabody v. Chicago Gas Trust Co., 130 Ill. 268, 283; Beach on Corporations, § 637.) The plaintiff is a public orquasi public corporation, because it was created not merely for the private gain of its stockholders, but for the benefit of the public also. It owed certain express duties to the public, for it was bound to supply with gas any street or public building upon request of the city council. It had a franchise from the city to lay mains in public streets for the purpose of furnishing gas to the inhabitants. It was under obligation, at any time, to transfer one-half of its stock to the city upon payment of a sum to be agreed upon, or adjusted by arbitration upon a prescribed basis of cost and profit. It was subject to the control of the legislature, could be given the power of eminent domain, and could be compelled by mandamus to discharge its duties to the public. The purpose of its creation was two-fold; first, to accommodate the public, both in its organized and unorganized capacity, by furnishing gas to the streets and buildings owned by the city and to the dwellings and business places of the people; and, second, to make it profitable for the stockholders to serve the public in this way. Its powers, therefore, were to be exercised in part for the *Page 42 
public good. The due discharge of its duties to the public formed the consideration of the public grant, and an acceptance of the charter was an assumption of the duties imposed thereby. (NewOrleans Gas Co. v. Louisiana Light Co., 115 U.S. 650.) As was said by Chief Justice FULLER in Gibbs v. Consolidated Gas Co. (130 U.S. 396, 408): "The supplying of illuminating gas is a business of a public nature to meet a public necessity. It is not a business like that of an ordinary corporation engaged in the manufacture of articles that may be furnished by individual effort." And in an earlier case in the same court, Mr. Justice HARLAN said:
"The manufacture of gas and its distribution for public and private use by means of pipes laid under legislative authority in the streets and ways of a city, is not an ordinary business, in which any one may engage, but it is a franchise belonging to the government, to be granted for the accomplishment of public objects to whomsoever, and upon what terms, it pleases. It is a business or a public nature, and meets a public necessity for which the state may make provision." (New Orleans Gas Co. v.Louisiana Light Co., 115 U.S. 650, 669.)
The lease under consideration was a contract that wholly disabled the plaintiff from performing those duties to the public that were required by its charter. It was a complete transfer, for the period of twenty-five years, of all corporate rights, powers and property, except the right to maintain its organization, collect rents, declare dividends and the like. It could no longer carry on its legitimate business. It could neither make nor sell gas. It could not use the mains that it had laid in the public streets, by permission of the city authorities, for the purpose of distributing gas. It had parted with all control over its own property used to carry on its business. It had transferred to a rival corporation all its "rights to manufacture and sell gas" under the provisions of its charter. It had neither the means nor the right to make or sell that commodity, the making and selling of which was the object of its existence. It could discharge no duty that *Page 43 
it owed to the city or to the general public, because it had, in effect, abdicated every vital function by the transfer of its corporate rights. As was said by Judge FINCH in an important case: "Only a shell of the corporation was left standing as a seeming obedience to the law, but with all its internal structure destroyed or removed." (People v. N.R. Sugar Refining Co.,121 N.Y. 582, 623.) I regard this lease as opposed to public policy, and, therefore, void. It was beyond the corporate powers of the lessor, and involved an abandonment of its duty to the public. When the charter of a corporation confers upon it a franchise intended, in a large measure, for the public good, it cannot, without consent of the legislature, by lease or any other instrument, transfer to another company for a long period of time the exclusive right to use that franchise, and to carry on the business for which the charter was granted. It cannot, by contract, render itself powerless to perform the public duties that it assumed in accepting its charter. It cannot sell itself, or its right to be a corporation, or, what is the same in effect, its power to carry on the business for which it was organized. The legislature created the plaintiff, and in the act creating it conferred upon it certain rights which were a part of it, and the most important of those rights was the authority to make, sell and distribute gas. Without that right its charter would have been an empty name, and of no value. With that right it could do business, and while thus earning money for its stockholders, confer a benefit upon the public. It was a vital right, and when the plaintiff attempted to confer it upon another, either for a long or a short period, it practically suspended its own existence during that period. The legislature, in chartering the plaintiff, not only conferred rights, but also imposed obligations upon it, and it could not, by agreement, disable itself from performing those obligations without the consent of the power that imposed them. It was bound, as by contract, not to abandon those duties. By the express terms of its charter its right to existence depended upon its discharge of the duty to supply gas to the public streets and buildings upon the *Page 44 
request of the city council. It could not, by its own act, absolve itself from performing that duty. It could not lease the most essential part of its franchise, which was the right to make and sell gas, without unfitting itself for the performance of its duties to the public. By the lease in question, it parted for a long period of time with its manufacturing plant, all its tangible property, including everything that was essential to its business, as well as the use of its franchise and its power to serve the public. It stripped itself of substantially everything but a name. All of the authorities, as I read them, hold that such contracts are void, and in support of this position I cite the following: Central Transportation Co. v. Pullman's PalaceCar Co. (139 U.S. 24); Gibbs v. Consolidated Gas Co. (130 U.S. 396); Penn. R.R. Co. v. St. Louis, etc., R.R. Co. (118 U.S. 290); Thomas v. R.R. Co. (101 U.S. 71); People v.Ballard (134 N.Y. 269, 294); S.C. (136 N.Y. 639); People v.N.R. Sugar Refining Co. (121 N.Y. 582); Troy and Boston R.R.Co. v. Boston, etc., R. Co. (86 N.Y. 107); Abbott v.Johnstown, etc., R.R. Co. (80 N.Y. 27); Abbott v. AmericanHard Rubber Co. (33 Barb. 578); Taylor v. Earle (8 Hun, 1);Frothingham v. Barney (6 Hun, 366).
Although the lease was ultra vires it does not follow, simply on that account, that it cannot be enforced, so far as it has been executed, by compelling the lessee to pay rent for the period that it was in the actual possession and enjoyment of the property leased. While courts of all jurisdictions seek to afford a remedy for the value received by one party from the practical performance of an ultra vires contract by the other, they differ as to the ground of recovery. The position of the Supreme Court of the United States upon the subject is that a contract made by a corporation, which is unlawful and void because beyond the scope of its corporate powers, does not, by being carried into execution, become lawful and valid, and that the proper remedy of the party aggrieved is to disaffirm the contract and sue to recover, as on a quantum meruit, the value of what the defendant has actually received *Page 45 
the benefit of. (Pittsburgh, etc., R. Co. v. Keokuk, etc.,Bridge Co., 131 U.S. 371, 389; Louisiana v. Wood,102 U.S. 294; Parkersburg v. Brown, 106 U.S. 487, 503; Chapman v.Douglas County, 107 U.S. 348, 360; Salt Lake City v.Hollister, 118 U.S. 256, 263; Penn. R.R. Co. v. St. Louis,etc., R.R. Co., 118 U.S. 290, 317.)
In many of the states the same rule prevails where the contract is simply ultra vires and not malum prohibitum. While the contract is held to be void, the party who has received value under it is compelled to refund, after rescission by the other, either in an action at law for money had and received, or in a suit in equity to compel an accounting and restitution. (White
v. Franklin Bank, 22 Pick. 181; Morville v. Am. Tract Soc.,
25 Am. Rep. 40; Davis v. Old Colony R.R. Co., 41 Am. Rep. 221; Paul v. Kenosha, 94 Am. Dec. 598; Moore v. SwantonTanning Co., 60 Vt. 459; Anthony v. Household S.M. Co.,16 R.I. 571; Harriman v. First Baptist Church, 63 Ga. 186; Day
v. Spiral Springs Buggy Co., 57 Mich. 146.)
The application of these principles to this case would defeat the plaintiff, for, unless there could be a recovery from the lessee upon the lease, there could be none against its sureties upon the bond, as their sole agreement was that the former should "faithfully and fully execute and perform the conditions of said lease." (Rosa v. Butterfield, 33 N.Y. 665; Stewart v.Bramhall, 74 N.Y. 85; Union National Bank of Pittsburgh v.Wheeler, 60 N.Y. 612; 3 Am.  Eng. Ency. of Law, 889.)
"The obligation of the surety being accessory to the obligation of some person who is the principal debtor, it is of its essence that there should be a valid obligation of a principal debtor. The nullity of the principal obligation necessarily induces the nullity of the accessory." (Theobald Prin. and Sur. 2; Chitty on Contracts, 499.)
On the other hand, the courts of this state have permitted a recovery upon the contract itself, although ultra vires, when wholly or partly performed, for the reason that to hold otherwise *Page 46 
would promote injustice. Thus, in The Whitney Arms Co. v.Barlow (63 N.Y. 62, 69) this court said: "Whether the contract as originally made was ultra vires, is not a very important inquiry at this time. If it was, the state, under whose sovereignty it dwells, and by whose act and favor it exists, has no interest in arresting its action for the recovery of moneys equitably due upon a contract fully executed, and a work fully accomplished, whatever may be its right to annul its charter. * * * The plea of ultra vires should not, as a general rule, prevail, whether interposed for or against a corporation, when it would not advance justice, but, on the contrary, would accomplish a legal wrong. * * * A purchaser who acquired by contract, and under an agreement to pay for it, the property of a corporation, cannot defeat the claim for the purchase price by impeaching the right of the corporation to become the owner of the property. One who has received from a corporation the full consideration for his engagement to pay money, either in services or property, cannot avail himself of the objection that the contract, thus fully performed by the corporation, was ultra vires, or not within its chartered privileges and powers. It would be contrary to the first principles of equity to allow such a defense to prevail in an action by the corporation." It was accordingly held that in an action brought under the General Manufacturing Act of 1848 (L. 1848, ch. 40, § 12, and L. 1853, ch. 333), by one manufacturing corporation against the trustees of another, to recover the contract price for goods sold and delivered to the defendant's corporation, the objection that the plaintiff was not authorized to manufacture and sell the goods, or to enter into the contract, was not available as a defense. The contract in that case, however, was not a violation of any right owing by the corporation to the public. This is true also of other cases relied upon by the respondent. (Kent v. Quicksilver MiningCo., 78 N.Y. 159; Atlantic S. Bank v. Savery, 82 N.Y. 291;Rider Life Raft Co. v. Roach, 97 N.Y. 378; Starin v.Edson, 112 N.Y. 206; Mayor, etc., v. Huntington, 114 N.Y. 631; *Page 47 
City of Buffalo v. Balcom, 134 N.Y. 532.) These cases seem to rest upon the ground of estoppel, which prohibits a corporation from pleading the defense of ultra vires so long as it retains the benefits of the transaction, but in Kent v. QuicksilverMining Co. (78 N.Y. 186) a distinction is suggested when the franchise is of a public nature. In Woodruff v. Erie R. Co. (93 N.Y. 609) the lessor owed a duty to the public, but certain statutes were relied upon as authorizing the lease, the power to make which was the subject of controversy. (p. 616.)
Thus, the court, through its chief judge, after a review of the statutes, said: "It would seem to follow from these statutes that the supreme legislative authority of this state does not regard the transfer of the property and privileges of one railroad corporation to another with a view of their operation by the lessees thereof, as either contrary to good morals or public policy." (p. 617.) The court considered, but did not decide, the question, which arose in that case, whether a lease by a railroad corporation of its property and privileges to an individual wasultra vires or not, as it held that the grantee in such a conveyance, at least so far as the contract has been executed, is estopped from contesting the title of his lessor, or the validity of the conveyance by which he has acquired, and still holds, possession of the leased property.
Where the contract of a corporation is contrary to public policy, solely because made in excess of its rightful powers, but it is free from every other vice, it is not illegal in the sense of the maxim, ex turpi contractu non oritur actio. Such a contract, when partly performed, may well be proportionately enforced where justice requires it, in order to prevent a defendant from alleging his own wrong for the purpose of avoiding a just responsibility. When, however, the contract of a corporation is contrary to public policy for some cause that would avoid the contract of a natural person, as, for instance, an agreement tending to defeat or impair the interest of the state, a more serious question is presented. The abnegation, by contract, of a public duty, while not malum prohibitum *Page 48 
because forbidden by statute, may be so because forbidden by the principles of the common law. The enforcement of such a contract, so far as performed, in order to prevent injustice to individuals, might inflict greater injustice upon the state. Where neither party is misled by the other, but both know that the contract disables a corporation from discharging a duty that it owes to the public, according to the express requirement of its charter, should any part of it be enforced? When the interest of the state is involved, should even a particeps criminis be prevented from asserting that such a contract is void? (5 Thompson's Commentaries on Corporations, § 5998.) It is not necessary, however, that we should answer these questions in this case by announcing the law of our own state upon the subject, as the rule that prevails in the state of Maine should govern the rights of the parties now before us. The lease was made and was to be performed in the state of Maine. The parties thereto were corporations organized under the laws of that state. They both had offices and were doing business there. The property covered by the lease was situated there, was used for a purely local purpose, and it could not be used to any extent at any other place. The presumption is, therefore, that the parties intended that the contract should be governed by the law of the place of performance as to its validity, nature and effect. (Dickinson
v. Edwards, 77 N.Y. 573; Liverpool, etc., Co. v. Phenix Ins.Co., 129 U.S. 397; Story Conflict of Laws, § 240.)
In order to prove the common law as it exists in the state of Maine, upon the principal question involved, the defendant read in evidence, without objection, the following authorities;Gould v. Bangor  P.R.R. Co., (82 Me. 122); Edison U.M. Co. v. Farmington E.L.  P. Co. (82 Me. 470); Bailey v. TrusteesM.E. Church (71 Me. 472); Franklin Co. v. Lewiston Inst. forSavings (68 Me. 43); Cummings v. Webster (43 Me. 192);Andrews v. Mutual Fire Ins. Co. (37 Me. 256), and BangorBoom Corporation v. Whiting (29 Me. 123). The plaintiff read in evidence Inhabitants of Bucksport v. Woodman (68 Me. 33), which is doubtless a miscitation, as it has *Page 49 
no bearing upon the subject. Some of the authorities relied upon by the defendant do not apply to this case, but others hold that there can be no recovery on a contract made by a corporation outside of its corporate powers, even where it has had the benefit thereof and the agreement has been fully executed. That rule, if applied without qualification, would defeat a recovery by the plaintiff in this action. Since the decision of this case by the trial court, the Supreme Court of Maine has declared the law of that state in an action founded upon a lease like that now under consideration, which was brought against the same lessee as defendant. (Brunswick Gas Light Co. v. United Gas, Fuel andLight Co., 85 Me. 582.) While we may not refer to that case as evidence, because it is not a part of the record, we may refer to it as an authority, most cogent and persuasive, to aid us in interpreting the cases that were read in evidence. In deciding that case the court held that a corporation, which owes duties to the public as well as to its stockholders, cannot sell or lease its corporate powers or privileges and thereby disable itself from performing its public duties. The lease was also held to be void upon the ground that traffic in corporate franchises, if allowed, would tend to create monopolies. The court declared that there could be no recovery of rent upon the lease and expressly adopted the rule of the Supreme Court of the United States upon the subject, that the proper remedy was "to disaffirm the contract and sue to recover as on a quantum meruit the value of what the defendant has actually received the benefit of." I think that when the cases in evidence are read in the light of that authority, they show that the law of the state of Maine will not permit a recovery upon an ultra vires contract, whether it has been performed or not. The case cited is simply a logical application of the principle involved in the cases proved. While the reasons are amplified and the application is extended to a new state of facts, the conclusion is supported and warranted by the previous decisions. *Page 50 
For these reasons I am compelled to dissent from the judgment of affirmance pronounced by my associates and to vote for reversal and a new trial.
All concur with ANDREWS, Ch. J., for affirmance, except VANN, J., dissenting.
Judgment affirmed.