Board of Administrators of the Charity Hospital v. New Orleans Gas Light Co.

40 La. Ann. 382

• Court: Supreme Court of Louisiana
• Decided: March 15, 1888
• Docket: No. 10,045
• Status: Published

Opinions

The opinion of the Court was delivered by

Poché, J.

The issue involved in this case is the alleged obligation of the defendant company to furnish gas, free of expense, to the Charity Hospital.

Plaintiffs rest their demand on the provisions of Act 100 of 1845, which amended the charter of the New Orleans Gas Light Company, as then composed, and by which the company was required to furnish the Hospital all the “ gas and fixtures necessary for lighting the same free of charge.” Hence, they aver that the legislative requirement followed the company in the act of consolidation and amalgamation between it and the Crescent City Gas Light Company on the 29th of March, 1875, effected under the authority of Act 157 of 1874, authorizing the consolidation of corporations in this State, by means of which the defendant company, as at present organized], came into legal existence.

Its resistance is predicated on the fact that, under the effect of the legislation of 1845, the charter of the previous New Orleans Gas Light Company expired on the 1st of April, 1875, and that with it rvas extinguished the obligation of the present company to furnish gas, free of charge, to the Charity Hospital.

Plaintiffs prosecute this appeal from an adverse judgment.

It appears that, after the act of consolidation, until January, 1886, the consolidated company continued the free supply of gas to the hospital, but on the 19th of January, of that year, it was resolved by the Board of Directors that in the future, the Charity Hospital would be charged regular price for the gas consumed by it; hence, this suit, which was begun by an injunction for the purpose of restraining the defendant from cutting off the free gas supply.

The controversy hinges upon a proper construction of the legal effect of the act of consolidation between the two previously existing companies.

As bearing on the issues to be discussed must be noted the incorporation of the Crescent City Gas Light Company, by an act of the Legislature. No. 97 of 1870, as amended by Act 106 of 1873, by means of which legislation the company thereby created was granted the sole and exclusive privilege of making and vending gas lights in the city of New Orleans for a term of fifty years, after the date of the expiration of the charter of the New Orleans Gas Light Company, as then existing, and which, under its charter, was in the exercise of the exclusive privilege to supply gas to the people and city of New Orleans.

But, in the meantime, the Legislature, by Act No. 66 of 1860, had extended the charter of the New Orleans Gas Light Company to the 1st of April, 1805; and its provisions clashed with the legislation of 1870 and 1873 in favor of the Crescent City Gas Light Company. Hence, arose litigation between the two companies, in which a decision was rendered by this Court declaring that the Act No. 66 of I860was unconstitutional.

While a writ of error, taken from that decision, was pending in the-Supreme Court of the United States, the two companies entered into a compromise, resulting in the dismissal of the writ, and culminating in the consolidation of the 29th of March, 1875, hereinabove referred to.

The Act No. 157 of 1874, under which the consolidation was effected, reads as follows:

"Any two business and manufacturing corporations or companies,, now existing under general or special law, whose business and objects-are in general of the same nature, may amalgamate, unite and consolidate said corporations or companies, and form one consolidated company, holding and enjoying all the rights, privileges, powers, franchises and property belonging to each, and under such corporate name as they may adopt or agree upon ; such consolidation shall be made by agreement, in writing, by or under the authority of the board of directors, and witli the assent of the owners of at least three-fifths-of the capital stock of each of said corporations or companies, and a. certificate of the fact of such consolidation with the name of the consolidated company shall be filed and recorded in the office of the-Secretary of State; provided, that no such consolidation shall in any manner affect or impair the right of aDy creditors of either of said companies. In the agreement of consolidation, the number of directors of the consolidated company shall be specified and the capital stock may be in the amount agreed upon by the companies or corporations, and set forth in the articles of consolidation.”

It is not disputed by the defendant company that, as a legal result of the amalgamation, the obligation theretofore resting on the New Orleans Gas Light Company to supply gas, free of charge, to the Charity Hospital adhered to the consolidated company, but the contention is that the obligation was only co-equal with the duration of the charter of the company which was burdened with that duty, and that, therefore, the obligation became extinct on the 1st of April, 1875, at which time the charter of that company is alleged to have expired.

That conclusion is predicated on the proposition that the eonsolidation of tlie two previous companies operated merely a merger of one of tlie corporations into the other, and that the measure of the rights, privileges and franchises or vitality infused in the consolidated company by each of the consolidating corporations was the respective terms of duration of tlie charter of each.

But that argument finds no support either in the facts of the case or in well settled jurisprudence on the question of the effects of an amalgamation of two distinct and co-existing corporations.

In dealing with the question of the legal effects of the consolidation of the identical companies now under discussion the Court said :

“ The articles of consolidation and the legislative act, by authority of which they were executed, evidently present a case of complete and perfect amalgamation, the effect of which was, under American authorities, to terminate the existence of the original corporations,.to create a new corporation, to transmute the members of the former into members of the latter, and to operate a transfer of the property, rights and liabilities of each old company to the new one.” Fee vs. Gas Company, 35 Ann. 416.

That opinion was sanctioned both by reason and by the nature of the act by which the consolidation had been authorized, as well as by the highest judicial authority in the land.

The princixde had been announced by the Supreme Court of the United States on several occasions, and was in one of its adjudications couched in the following language :

“The effect of the consolidation was a dissolution of the three corporations, and at the same instant the creation of a new corporation, with property, liabilities and stockholders derived from those passing out of existence.” Clearwater vs. Meredith, 1st Wallace, p. 40. These views were repeatedly re-affirmed by that exalted tribunal. Shields vs. Ohio, 95 U. S., p.323; Railway Company vs. Maine, 96 U. S. 510; Railroad Company vs. Georgia, 98 U. S. 362.

It may not be amiss to add that our views on this question in the Fee case, 35 Aun. 416, were quoted with approval, and made the basis of its-reasoning by the Supreme Court of the United States in the case of the Now Orleans Gas Company vs. the Louisiana Light and Heat Producing and Manufacturing Company, 115 U. S. p. 697.

On the same subject, Taylor on the Law of Corporations, Sec. 425, uses the following language: “ On the other hand, the consolidated corporation not only assumes duties and obligations similar to those of the former corporations, but as a general rule, will be held on the very identical liabilities and obligations incurred by either of the former companies.”

The same principle is dealt with by Field on Corporations, Sec. 435, as follows: “ And the general rule is that the rights of creditors vs. the old companies revive against the new one created by the consolidation, as we have just noticed, and that it becomes substitute for the former j provision is made, perhaps generally made, by statute or by articles of ag:reement, as provided by law, for the payment of the creditors and the satisfaction of the old obligations of the consolidating companies, but even where no such provision is made> but the same consolidation is consummated lawfully, the new company has been held liable to all obligations of the former ones, to the vtry necessity of the case and to prevent the failure of justice.'1'1

Our reading of the act of 1874 authorizing the consolidation of corporations and of the articles of agreement adopted under its authority by the two original companies which were consolidated on the 29th of March, 1875, has satisfied us that both were conceived, drafted and adopted uuder the guidance of the very expositions of the principle to which we have herein referred to, and that, therefore, the same legal effects must flow from the amalgamation out of which the' present defendant sprang into legal existence.

Hence, we cannot adopt the reasoning which would measure the consolidated powers, privileges or obligations of the present new company by reference to the term of duration of the charters of the former companies. And we hold now, as we did in the Fee case (35 Ann. 416), that the charters of the two former companies terminated their existence on the 29th of March, 1875, and that all the powers, rights, liabilities and vitality which both possessed at that very moment were infused and incorporated into the new company which was then born of the amalgamation.

The very legal existence of the defendant company hangs upon the vivifying breath of that legal creation.

It seems quite natural for the defendant, in its present attitude, to continue to draw the breath of life from the new being created out of the union of its parents who ceased to exist at its birth, while it unnaturally,repudiates the essential conditions legally imposed on its creation.

Under the articles of agreement, and as a result or the amalgamation, the consolidate^ company became the owner, and went into possession of all the gasworks, machinery, main-pipes, service-pipes, .meters, lamps and all-other property then in use fur the business of gas manufacture and distribution, including all real estate (with one exception) then belonging to the former New Orleans Gas Light Com-j^any, and it is yet the undisputed owner of all that property. Should any one, for instance some dissatisfied stockholder of that former-company, seek to disturb its possession and enjoyment of that property, he would be triumphantly met by a reference to the act of amalgamation. But, in defendant’s opinion, the same rule does not apply when-it is called on to comply with an obligation which then attached as an essential legal condition of the very existence of one of the authors of its being under the law. To such a demand the answer is that,the obligation was cancelled by the expiration of the charter of the former company.

The law cannot and will not tolerate such a course. Through the same channel which led the defendant company to the right of ownership of all the property and rights of the former New Orleans GasLight Company, it must be led and coerced to the discharge of the obligations which had been imposed on its author by the law which-had created it and which authorized the organization of the new company.

Thdt position cannot be successfully' assailed by a consideration of' the opinion of this Court in the 27th of Annuals which declared the nnconstitutionality of the act of 1860, which purported to extend the charter of the former New Orleans Gas Light Company to 1895. That decision was rendered in February, 1875, and the amalgamation was effected in March following, and the measure was adopted as a compromise of the possible effects of the decision. By that compromise all advantages resulting from that decision in favor of the Crescent City Company, were in fact, if not formally, waived. Under the effect of the writ ot' error taken from this to the Supreme Court of the United States, the decree in the case was not yet final between the parties when they agreed to abate the litigation.

On this poiut the record contains the following statement: “It is further agreed that from the judgment rendered by the Supreme Court of the State in the case of The Crescent City Gas Light Company vs. The New Orleans Gas Light Company, a writ of error was prosecuted by the New Orleans Gas Light Company to the Supreme Court of the United States, and that said writ of error, in consequence of the agreement of consolidation between the two companies, was-dismissed by consent of pai ties.”

It is thus made clear that the judgment was not final when the consolidation was effected, and the conclusion is warranted that quoact the amalgamation, the judgment thus rendered and suspended, must •have been entirely ignored, and cannot now be considered.

That conclusion is removed beyond the possibility of a doubt by many features which were embodied in the articles of agreement or ■amalgamation.

Among others we note the following :

The capita] stock of the consolidated company was fixed at '$10,000,000, of which $3,750,000, or 37,500 shares of $100 each were •considered as paid up. Now, out of those, 25,000 shares were distributed pro rata to the holders of 19,800 shares of $100 each, which represented all the stock previously issued by the N. O. Gas Co. : and the remainder, only. 12,500 shares, was allotted to the holders pro rata of 30,000 shares of $100 each, issued to that date by the Crescent City 'Gas Co.

It was also stipulated that the holders of the 19,800 shares of N. O. Gas Light Co. were to receive a dividend of 6 per cent on July 1, 1875, while no dividend was to be paid to the stockholders of the Crescent City Co. before the 1st of January, 1876.

Again, the whole force -of employees, including the President and Board of Directors of the New Orleans Gas Light Company, were retained to manage and control the new company until the second ’Tuesday of July, 1875.

Would the Crescent City Gas Light Company, holding a charter .good for fifty years, have made such concessions, and granted such and other similar .advantages in a contract of amalgamation, to a •company whose legal existence was, to the knowledge and belief of both of the contracting parties, to have terminated within three days?

The judicial mind cannot be strained to the extent of believing a condition of things so much at variance with all springs of human action.

We therefore conclude and we hold that, the obligation to furnish gas, free of charge, to the Charity Hospital adheres to the consolidated company.

The views thus reached leave but one question open to discussion, and that is to determine the length of time during which the obligation will continue.

The considerations which led us to the conclusion that the duty in question adhered to the now company after the 1st of April, 1875, even under defendant’s contention to the contrary, logically lead to the conclusion that it will existas long as the consolidated corporation will continue to operate under the authority of the amalgamation and of the law which sanctioned it.

Its effect, as we said in Fee’s case, was to terminate the separate existence of the former corporations, and “ to transmute the members of the former into members of the latter, and to operate a transfer of the property, rights and liabilities of each old company to the new one.’'

Nothing suggests a difference between the results of a perfect amalgamation in law, and those produced by an amalgamation .in physical science.

As is the case with the latter, in an amalgamation in law, all the parts of the component matters or things to be subjected to amalgamation, must enter in the formation of the new being or matter to be thus produced. ■ And the amalgamation, in order to be and remain complete as intended, must continue to combine all the parts or elements from which the new being had been formed.

The subsequent withdrawal from the amalgamation of any of its com- ■ ponent parts would destroy, or at least alter its autonomy.

Thus, in the instant case, the property, rights and liabilities of the former Now Orleans Gas Light Company, must continue as component-parts of the amalgamated company, or otherwise the latter’s autonomy would be changed into a new or different corporation. After the 1st of April, 1895, the property and franchises of the old N. O. Gas Light Company will remain in the consolidated company just as they existed and were transferred on the day of the amalgamation. As a component part of the new corporation the old company is estopped from averring a limit to a transfer, which was not stipulated in the contract and its original stockholders are forever debarred from setting up any claim in their original capacity to any of the property, or rights which were thus vested in.the new company.

Treating of the legal effect of a similar amalgamation, the Supreme Court of the United States used the following language, which is quite in point on the present discussion :

“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 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.” 98 U. S., p. 363, Railroad Co. vs. Georgia.

In our opinion there is no possible escape for defendant from tlie relief claimed by plaintiffs.

The judgment appealed from is therefore reversed, and it is ordered and decreed, that the preliminary writ of injunction issued herein be perpetuated, that the New Orleans Gas Light Company, defendant herein, is obliged to furnish gas, free .of charge, to the Charity Hospital of New Orleans, as long as said company shall continue to operate under its present organization, and that said defendant pay all costs in both courts.

Rehearing refused.