State ex rel. Hahn v. Minnesota Central Railway Co.

Vanderburgh, J.

Upon the facts admitted on the face of the record, the attorney general applies for judgment dissolving these corporations, on the ground of non-user of their franchises, and a suspension of their business as railroad companies. The information shows, and the answers admit, that the respondents have heretofore sold and conveyed the lines of road authorized by their charter, and by them constructed thereunder, and for more than four years they have neither owned nor operated any railroad in this state. It further appears that they claim still to be corporations exercising certain other franchises, to wit, the right to hold and dispose of lands granted upon the construction of the roads, or designated portions thereof, exempt from all taxation. The attorney general insists that the corporations have abandoned the chief purpose and business for which they were organized, and endowed with grants and chartered privileges, and that the suspension of the exercise of their principal franchises amounts to a non-user, for which a forfeiture should be-declared.

*258 It is the common-law rule that a private corporation created by the legislature may lose its franchises by a misuser or non-user of them, and they may be resumed by the government under a judgment upon a quo warranto to ascertain and enforce the forfeiture. This is a tacit condition annexed to the creation of every such corporation, (Terrett v. Taylor, 9 Cranch, 43, 51, 52 ; People v. Bank of Hudson, 6 Cow. 217 ;) and by Gen. St. 1878, c. 76, § 11, it is provided that, whenever any railroad corporation shall “for one year suspend the lawful business of such corporation, such company or corporation shall be deemed to have forfeited the rights, privileges, and franchises granted by any act of incorporation or acquired under the laws of this state, and shall be adjudged to be dissolved.” Gen. St. 1866, c. 76, § 11; Id. c. 79, § 2; Pub. St. 1858, c. 67, § 8.

To this end an information may be filed and prosecuted to judgment; and it was held in State v. St. Paul & Sioux City R. Co., 35 Minn. 222 , ( 28 N. W. Rep. 245 ,) that a forfeiture under section 11, chapter 76, just quoted, might be enforced by quo warranto in this court. But the general rule is that a corporation is not to be deemed dissolved until a forfeiture is judicially ascertained and adjudged, (People v. Hillsdale, etc., Turnpike, 23 Wend. 254 ; Bradt v. Benedict, 17 N. Y. 93 ; Minnesota Cent. Ry. Co. v. Melvin, 21 Minn. 339 ;) and a cauBe of forfeiture can only be taken advantage of by the state in a direct proceeding for the purpose. Heard v. Talbot, 7 Gray, 113 , 120. In a forfeiture for neglect or non-user of corporate privileges at the common law, the court was left to determine whether, under the circumstances of every particular case, the acts and omissions had been such, or had been continued for such length of time, as to warrant a judgment. Harris v. Mississippi Valley, etc., R. Co., 51 Miss. 602 ; Hart v. Boston, etc., R. Co., 40 Conn. 524 . But the statute re-, ferred to expressly provides for a judgment of dissolution of a railroad corporation “which for one year suspends the lawful business of such corporation.” This leaves no room for any discretion on the part of the court, where this fact clearly appears, to refuse judgment of forfeiture. The terms of the statute admit of no excuse or explanation. People v. Northern R. Co., 53 Barb. 98, 123 ; State v. Building Ass'n, 35 Ohio St. 258 , 264; Bradt v. Benedict, 17 N. Y. *259 93 . Tbe non-user complained of must undoubtedly relate to matters which are of the essence of the contract between the corporation and the state. Com. v. Commercial Bank, 28 Pa. St. 383, 389; Attorney General v. Petersburg, etc., R. Co., 6 Ired. 456 , 469; 2 Morawetz, Corp. § 1025.

These railroad corporations were created by the state to maintain, have, use, and operate railroads. This was their lawful business, and the end and object for which they were created, and the consideration and condition upon which they were given their franchises and special privileges, and endowed with land grants. 2 Morawetz, Corp. (2d. Ed.) §§ 1114, 1115. It would seem, therefore, that a suspension of such business by the corporations would necessarily bring the case within the statutes, notwithstanding their reservation of the land grants and franchises upon the sale or transfer by them of the railroads. The right to acquire and dispose of these lands, and the right to hold the same in the mean time exempt from taxation, are corporate franchises, but ancillary and subordinate to the main purpose and object for which the companies were chartered. The failure to discharge their duties to the public, and the non-user or suspension of their principal business as railroad companies, are a sufficient ground for an absolute forfeiture of their corporate rights. Ward v. Sea Ins. Co., 7 Paige, 294; Matter of Jackson Marine Ins. Co., 4 Sandf. Ch. 559; Mickles v. Rochester City Bank, 11 Paige, 118, 126 , ( 42 Am. Dec. 103 ;) Attorney General v. Petersburg, etc., R. Co., 6 Ired. 456 , 469; Heard v. Talbot, 7 Gray, 113 , 120.

By the consent of the state such subordinate franchises may exist and continue to be exercised, independently of the franchises to construct and operate railroads. State v. St. Paul & Sioux City R. Co., 35 Minn. 222 , ( 28 N. W. Rep. 245 .) But the right to exercise such franchises cannot lawfully survive after a sale of the railroads, and a suspension by the corporations of their principal business, unless by the authority and consent of the state, expressed or clearly implied ; and the consent, ratification, or waiver must be through legislative enactments. The state is not, in such case, bound by the acts of its executive officers. People v. Phoenix Bank, 24 Wend. 431 , ( 35 Am. Dec. 634 ;) People v. Plank-road Co., 27 Barb. 458 ; Ang. *260 & A. Corp. § 777; People v. Kingston Turnpike Road Co., 23 Wend. 193, 212 , ( 35 Am. Dec. 551 .) It is admitted that, in the transfer of the railroads in question, the lands were separated and reserved to the respondents, and the grant and conveyance limited to the railroads and the property appurtenant thereto, and that a portion of the granted lands still remain undisposed of by them.

The discussion in these cases is therefore narrowed down to the question whether the legislature has authorized or consented to such a separation of corporate franchises and the continued existence of the corporations for the purpose of holding and disposing of the granted lands, notwithstanding they had ceased to hold or operate any railroads, or has waived the forfeiture resulting from the suspension by them of their lawful business as railroad companies. The contention of the respondents is that such waiver appears from special acts, and the course of legislation on the subject.

1. In respect to the case of the Minnesota Central Railway Company. The proportion of the land grant falling to the Minneapolis & Cedar Valley Railroad Company, in aid of the construction of the line finally built by the respondent, the former company was authorized to take, under the act of May 22, 1857, (Laws 1857, Ex. Sess., c. 1,) which provided that the company should be capable in law of taking and holding such lands in fee-simple, and that said lands so granted should be exempt from taxation until the same should be sold and conveyed. After the foreclosure by the state, all the franchises, rights, and property theretofore belonging to the Minneapolis & Cedar Valley Railroad Company were transferred by the legislature to the respondent, and the lands set apart for that line of road were authorized to be conveyed to the respondent, upon the construction thereof, as provided in the Special Laws of 1864, c. 2; and it was also therein provided that the lands so granted should be exempt from taxation until conveyed or contracted to be sold by the company. Minnesota Cent. Ry. Co. v. Melvin, 21 Minn. 339 . The respondent thereafter, in pursuance of its charter as amended, completed the construction of the road to Austin, in the county of Mower, about the year 1866, and was thereupon entitled to a conveyance of the land grant appurtenant to so much of that line of road. The McGregor Western Railway Com *261 pany was in the mean time engaged in constructing a railroad from McGregor, in the state of Iowa, to Austin, in this state, at which point it was authorized to make a connection with the Minnesota •Central railway, by-the act of February 24, 1866, (Sp. Laws 1866, ■c. 8.) And by the act of March 7, 1867, (Sp. Laws 1867, c. 8,) the ■same company was authorized to extend its line of road by way of Austin to Owatonna, and by section 3 of the act of 1866, just referred to, it was provided that, upon filing a copy of its articles of incorpo.ration in the office of the secretary of state, that company should be vested with the powers of a domestic corporation, and thereafter ■become authorized, under the general provisions of Gen. St. 1866, •c. 34, § 39, to purchase the road of the respondent, or any portion rthereof, being a “line continuous with its own.”

It is admitted that its articles of incorporation were duly filed in pursuance of the act of 1866, and the purchase of a part of respond•ent’s road was thereafter-consummated in 1867, under which the latter sold and conveyed its line of railroad from Minneapolis to Austin, isaving and reserving, however, in the conveyance, its right to the .lands and its right to be a corporation. Soon after, the McGregor Western Company transferred its purchase to the Milwaukee & St. Paul Eailway Company. It may be conceded, therefore, that the McGregor Western Company, by virtue of the general provisions of ■the statute referred to, was authorized to acquire that portion of respondent’s road; and the validity of the subsequent transfer thereof to the Milwaukee & St. Paul Company, which is not disputed, is not ■a proper subject of inquiry in this proceeding. The respondent after-wards completed the remaining portion of its road from Austin to the state line, which was thereafter, in 1870, also transferred, in like manner, to the Milwaukee & St. Paul Eailway Company, since which time the respondent has not operated any portion of its railroad, but has •continued to hold and enjoy the franchise pertaining to the lands acquired by it in aid of the construction of the road, a limited amount •of' which still remains undisposed of.

By the act of February 29, 1868, (Sp. Laws 1868, e. 5,) the legislature expressly authorized the governor “to certify to the secretary •of the interior the construction and completion of that part of the *262 road of the Minnesota Central Railway Company from Minneapolis to Austin, and to execute, in the name of the state of Minnesota, under the great seal thereof, a deed in fee-simple to said company of so-many and such portions of the lands appertaining to the completed portion of said road as the state is entitled to; * * * and, whenever the congress of the United States shall authorize the conveyance- or appropriation of the residue of the lands granted to said state to aid in the construction of said road, the governor shall execute to said company a deed in fee-simple of the remainder of such lands.” And-by the same act the legislature extended the time for the completion of that portion of the original line from Austin to the state line for the term of two years. This action of the legislature was with knowledge of the previous sale to the McGregor Western Railway Company of the line previously built. This act was, of course, a waiver of any forfeiture for any past misuser or non-user of corporate franchises up, to that time, and an express recognition of the corporate existence and authority to complete the road, and continue in the exercise of its franchises as a railroad company. What effect its transfer of the balance of the road by it constructed to the state line, and the-subsequent total suspension of its business as a railway company, may have upon its right to continue its corporate existence for the purpose of holding and disposing of the granted lands, we will discuss later in this opinion.

2. In respect to the Hastings & Dakota Railway Company. We-find no legislative authority or sanction for the suspension, by the respondent, of its franchises, business, and duties as a railroad company, and the continued, separate, and independent exercise of the-business of a land company for the disposition of the land grant acquired by the corporation. When the respondent had constructed that portion of its road east of Glencoe, it sold and conveyed the same-to the Milwaukee & St. Paul Railway Company, with its rolling stock, equipment, etc., appertaining to that portion of its road, and thereafter wholly ceased to operate the same, but reserved all the lands-earned by and granted to the respondent, under its charter, for the-construction thereof, and also its corporate franchise; and afterwards, upon the completion of its line to Big Stone lake, it in like manner- *263 sold and transferred the remaining portion thereof, with like reservations, to the same grantee, which has ever since continued to maintain and operate the entire line. The respondent also constructed an independent branch road from Minneapolis to Benton, in the county of Carver, which it also transferred to the Milwaukee road in the year 1882, since which time the respondent has operated no railway whatever, and has wholly suspended the exercise of its franchises as a railway company; but claims still to be a corporation,, entitled to exercise its franchises to hold and dispose.of its granted lands exempt from taxation.

The charter, and amendments thereto, secured to respondent the benefit of the lands granted by congress to aid in the construction of the main line, referred to, from Hastings to the west line of the state; and these lands were to be transferred to the company “as soon and as often as ten miles of said road shall be constructed and completed; * * * and the grant shall not become void, nor the company be dissolved, by the non-completion of the entire extent of said road, but shall be good and valid, to all intents and purposes, for the parts or portions of said road completed, and the said company shall continue and survive to that extent.” Sp. Laws 1866, c. 12, § 15; Sp. Laws 1867, c. 9, § 4. Undoubtedly the company acquired an absolute right to the lands actually earned as the construction of the road progressed; but these provisions involve no recognition or sanction by the state of its right to suspend its active exercise of the franchises of a railway company as to the completed roads, or otherwise. The provisions relating to taxation, and under which the exemption is claimed, (Sp. Laws 1867, c. 11, § 19,) are, substantially, that the percentage upon the gross earnings therein required to be paid to the state should “be in full of all taxation and assessment whatever;” “and, for securing to the state the payment of the aforesaid pereentum, it is hereby declared that the state shall have a lien upon the railroad, and upon all the property, estate, and effects of said company, whether real, personal, or mixed.” These provisions relate wholly to the obligations and duties of the respondent; and the granted lands are a part of the company’s property for which a peculiar mode of taxation is thus provided, and are a part of the corporate property *264 upon which a lien is thus secured to the state. The charter, clearly, does not contemplate that the title or ownership of these lands should be severed from the proprietorship of the road, or any division of the franchises of the company, and we find nothing in any subsequent legislation sanctioning the sale to and operation of the railroad by another company, and the survival of the respondent as a separate organization, entitled to exercise the separate franchise of holding and disposing of its lands; and we are unable to see how any such arrangement could be valid without the sanction of the legislature. State v. St. Paul & Sioux City R. Co., 35 Minn. 222 , ( 28 N. W. Rep. 245 .) The right to assign corporate franchises is itself a franchise, and must be the subject of legislative grant.

The counsel for respondent, however, rely upon subsequent acts of the legislature, extending the time for the completion of the unsold portion of the line, as evidence of the legislative sanction and approval of the past acts of the company. But, until a forfeiture was adjudged, the company might exercise its franchises, and proceed with the construction of the road within the time fixed by the legislature; and it will be borne in mind that the gravamen of the charge Ihere is not misuser, but non-user, — a suspension of its business as a railroad company by the respondent. The time limited for such purpose having expired, an act was passed February 28, 1876, (Sp. Laws 1876, c. 115,) extending the time for the completion of the road by the respondent. Undoubtedly this was so far a recognition of the continued existence of the company as a railway corporation. But the object of the statute clearly appears from the preamble, which recites the default of the company in failing to construct the railroad “according to the terms and conditions of the several acts of the legislature of the state of Minnesota granting the right to said railroad company to construct said line of railroad, and granting to said company lands to aid in such construction;” reciting also the importance of an early completion of the road, and the expressed willingness of the company to complete and put it in operation within a reasonable time.

Stress is also laid upon the fact that in the acts of 1876,1877, and 1878, referred to in the answer, which also still further extended the *265 time for the construction of the road, clauses are inserted requiring the company, “its successors or assigns,” to carry freight and passengers at reasonable rates. Sp. Laws 1876, c. 115, § 4; Sp. Laws 1877, c. 218, § 4; Sp. Laws 1878, c. 234, § 4. This was intended ■as a regulation, significant of the policy of the state, to be permanently ingrafted on the charter, into whosesoever hands it might fall; but it conferred no new franchises or rights upon the corporation, and it cannot be invoked as legislative authority or sanction for the subsequent transfers, suspension of business, and continued existence as a corporation by the respondent. And this is the more evident from the fact that, in each of these acts, provisions for an absolute forfeiture without judicial decree in ease of default, and for a redisposition of the franchises and road, were inserted.

The Milwaukee & St. Paul Eailway Company was then a foreign corporation, which had no right, under the laws of this state, to purchase or take an assignment of respondent’s railroad and franchises. It was not so authorized by Gen. St. 1866, c. 34, § 39, (Gen. St. 1878, c. 34, § 69,) because that applies to domestic corporations only, or corporations clothed with like .powers by the state. And the rights ■and privileges conferred on that corporation by Sp. Laws 1872, c. 93, were expressly, by that act, limited to the line of the St. Paul & Chicago Eailway Company, the sale of which was confirmed. Such authority was for the first time conferred, in so far as we are able to find, by Sp. Laws 1881, c.. 221, referred to in the answer. Nevertheless, it appears that the respondent, having then completed the main line of its road to the west boundary of the state, thereupon, in January, 1880, as before stated, sold the division west of Glencoe to the Milwaukee & St. Paul Eailway, reserving its land grant and right to be a -corporation. No subsequent action of the legislature is relied on, showing any ratification of such transfer or waiver by the state. Subsequently, in 1882, the branch from Minneapolis to Benton was sold to the same company without reservation, as we presume there was no land grant connected with it, and since that time the respondent has suspended its lawful business as a railway corporation. It was not material that the last sale was authorized by the act of 1881. It saved to the respondent no right to continue *266 its corporate existence. State v. St. Paul & Sioux City R. Co., supra. And, surely, the previous voluntary arrangement entered into' between these corporations in respect to the construction and conveyance of the railroad and its appurtenances, and the reservation to respondent of the corporate franchises and lands as alleged, can. be no sufficient answer to the charge in this information. The charter never contemplated such a division of the corporate franchises,, and it has never been authorized or sanctioned by the legislature.. No purpose connected with the object of the respondent’s organization, or its proper business as a railway corporation, is any longer served by its continued existence. The case is entirely different from that of the sale of the St. Paul & Sioux City Railroad Company, where the legislature, in a special act, authorized the transfer, and, ex industria, provided that the right to continue to exercise its corporate franchises should be saved to the corporation. State v. St. Paul & Sioux City R. Co., supra.

8. From the foregoing it is apparent that the transfer of the section of its road from Austin to the state line, and the entire suspension of its lawful business and functions as a railway corporation by the respondent, the Minnesota Central Railway Company, were equally without such legislative sanction as to bar these proceedings.. It was the closing out and cessation of its railroad business, and was so intended to be. It is no answer or excuse that the Milwaukee Company has continued to operate the roads, and has paid the taxes required by the charters of these respondents. It cannot and. does not, we presume, claim to be operating them under such charters. These facts do not affect the question of the suspension of corporate duties by respondents. Lake Ontario Shore R. Co. v. Curtiss, 80 N. Y. 219 ; People v. Northern R. Co., 53 Barb. 98, 123 ; Com. v. Tenth Mass. Turnpike Co., 5 Cush. 509 .

In Conro v. Port Henry Iron Co., 12 Barb. 27, 63 , the defendant corporation leased its works for the term of two and one-half years for the purpose of closing out its business, but the business was carried on as before the lease, and the court held, per Willard, J., that, conceding the lease to be binding on the company, it suspended for two years and six months its ordinary and lawful business, and was *267 an act of self-destruction. See People v. Bank of Hudson, 6 Cow. 217, 219, 220 ; State v. Commercial Bank, 13 Smedes & M. 569 , ( 53 Am. Dec. 106 ;) State v. Rives, 5 Ired. 297 , 309; 2 Morawetz, Corp. § 1115; State v. Hartford & N. H. R. Co., 29 Conn. 538, 547 .

Nor is it material that the records of the executive department of the state disclose the fact that the Milwaukee Company claim to own, and have in fact operated, these roads as a part of its system, or that the legislature, having notice of these records, have omitted to take action in the premises. The Milwaukee Company has paid its own taxes on its gross earnings, and has discharged its own public duties; and in the mean time the respondents have paid no taxes, nor discharged any duties to the public. The remedies of the state, under the statute, have continued to exist, and have not been suspended by the legislature. No further legislation was needed to secure its rights, and the absence of it is no waiver, and the respondents have' suffered no prejudice from the leniency of the state.

The fact that authority is given by section 2 of chapter 93, Sp. Laws 1872, before referred to, authorizing the Milwaukee & St. Paul Company to make “a continuous connection, through the city of St. Paul, ” to and with “its present line of railway in Dakota and Hennepin counties heretofore belonging to tlie'Minnesota Central Bail-way Company,” even if construed to be a recognition of the title of that company to the whole line of the last-named company, is immaterial upon the question here under consideration. It is evident that the legislative mind was not directed to the status of the Central Bail-way Company, or the terms and conditions of its last transfer to the Milwaukee Company, and it involves no waiver of its right to proceed against the former company on account of a suspension of its functions as a railway corporation. It is admitted that, as between the parties at least, these roads have both been transferred to the Chicago, Milwaukee & St. Paul Bailway Company, which has for years controlled and operated the same, and is at present, since the act of 1881, recognized as a domestic corporation, and these respondents have in fact, as corporations, retired from the management or operation of any railroads, and disclaim any ownership or interest therein. The rights of the grantees are not in issue here, and may never be ques *268 tioned. The reference to the acts of the legislature on the subject is made for the purpose of showing that there has been no legislation limiting or waiving the effect or operation of Glen. St. 1878, c. 76, § 11, under which the proceeding is brought, so as to warrant the court in disregarding or holding the provisions of that section inapplicable to these respondents. Whether, if the information proceeded upon common-law grounds, the court would be warranted in applying the rule less strictly, in view of the facts and circumstances of this case, we need not determine. In Bradt v. Benedict, supra, Selden, J., referring to a similar statute in New York, treating it as supplementary to the common law, says: “The statute goes much farther, and provides that a mere suspension of the ordinary business of the corporation shall operate as a surrender.”

Without attempting a discussion in general as to what acts or conduct may or may not amount to a suspension of the lawful business cf a railroad company further than is applicable to the cases before us, we see no escape from the conclusion that, upon the record presented, the state is entitled to judgment of forfeiture, as asked in the information in each of these cases, and it is accordingly so ordered.