California State Telegraph Co. v. Alta Telegraph Co.

22 Cal. 398, 1863 Cal. LEXIS 64

• Court: California Supreme Court
• Decided: July 1, 1863
• Status: Published

Opinion

Crocker, J. delivered the opinion of the Court—Cope, C. J. concurring specially.

This is an appeal from an order dissolving a temporary injunction, which was granted and dissolved upon the complaint alone. The complaint alleges that on the first day of June, 1853, the plaintiff was duly incorporated under the general Corporation Law of this State, passed April 22d, 1850, for the purpose of constructing and operating an electro-magnetic telegraph fine from the City of San Francisco to the City of Marysville, by the way of San José, Stockton, and Sacramento; that immediately thereafter Allen & Burnham assigned to them all the rights and privileges granted to them by the Act of May 3d, 1852 (Statutes of 1852, 169) ; that they afterwards constructed and put in operation the said line of telegraph at an expense of $250,000, and have in all respects complied with the conditions of said act; that the said Alta California Telegraph Company is a corporation formed under the Act of 1850, and has, in concert with the other defendants, constructed a telegraph line between San Francisco, San José, and Sacramento, have established offices in said cities, and are transacting a telegraph business thereon: that defendant’s line runs in a large part of its course within less than half a mile of plaintiff’s line; that they have suffered great injury thereby—in the sum of two hundred and fifty dollars; that the defendants intend to continue the business; that it is utterly impossible for the plaintiff to ascertain and prove the amount of business done by the defendants, and the injury would therefore be irreparable, and prays for a perpetual injunction against the defendants, restraining them from doing any telegraph business between said cities.

The case presents the following questions for our adjudication: 1st, is the Act of May 3d, 1852, granting certain exclusive privileges to Allen & Burnham, constitutional; 2d, have the plaintiffs the power or right to purchase, hold, and enjoy these exclusive privileges ? The determination of these matters involves some important constitutional questions which have received very little judicial consideration, and we must therefore mainly rely upon those general rules of constitutional construction which are applicar ble to questions of this character. One rule is that it is competent for the Legislature to exercise all legislative powers not forbidden by the Constitution, or delegated to the National Government, or prohibited by the Constitution of the United States; and that an Act of the Legislature is to be held as void only when its repugnance to the State or National Constitution is clear beyond a reasonable doubt. (Cohen v. Wright, 22 Cal. 295, and cases there cited.)

1. The first point is, whether the Act of May 3d, 1852, is repugnant to the Constitution. The first section of that act grants to Allen & Burnham, or their assigns, the right and privilege to construct and operate a telegraph line from San Francisco to Marysville by the way of San José, Stockton, and Sacramento, with the right of way over any lands belonging to the State, and on any streets, roads, or highways, and across any stream, for the term of fifteen years, prohibiting all persons from locating or constructing any telegraph line within half a mile of the line constructed by them, except in or near a city. It provides that local side lines may be constructed, “ hut lines shall not he constructed, nor offices established, so as to do business directly or indirectly between the cities aforesaid.” It also contains certain conditions imposed upon the grantees. Sec. 2 provides that “ no existing law shall be so construed as to conflict or interfere with the provisions of this act, provided that the owners of this line shall at all times conform to the present law of the State concerning telegraph companies, so far as it relates to the transmission of messages.” The other sections it is unnecessary to refer to.

This act confers certain special privileges, in the nature of a franchise, upon Allen & Burnham. Franchises are privileges derived from the Government, vested either in individuals or private or public corporations, and are of various kinds, such as the privilege of exercising the powers of a corporation, of having waifs, wrecks, estrays; the right to collect tolls on a road, bridge, ferry, or wharf;. the privilege of fishing, or taking game, and numerous others which might be referred to. In England a large class of franchises exist which are unknown to our law, but some are of more extensive use here than there, especially corporate franchises.

The grant of a franchise is in the nature of a vested right of property; subject, however, in most cases, to the performance of conditions and duties on the part of the grantees. They generally involve important duties of a public character, often onerous unon the grantees. They are necessarily exclusive in their character, otherwise their value would be liable to be destroyed, or seriously impaired. So long as the grantee fulfills the conditions and performs the duties imposed upon him by the terms of the grant, he has a vested right which cannot be taken away, or otherwise impaired by the Government, any more than other property. And even though the grant does not declare the privilege to be.exclusive, yet that is necessarily implied from its nature. In the grant of a bridge, ferry, turnpike, or railroad, it is implied that the Government will not, either directly or indirectly, interfere with it so as to destroy or injure it. Franchises are derived entirely under grants-from the Legislature, either by general or special laws. There is a large class of special privileges conferred upon public bodies, or private individuals, for numerous purposes relating to the public interest, which are franchises. The most common known to American law are those of corporate and banking privileges; and they have multiplied beyond all precedent under the system of general incorporation laws, by which these privileges, instead of being conferred upon a few, are open to all. The nature and character of franchises have been most clearly defined in 3 Kent’s Com. 599, etc.

The law of this State regulating ferries and toll-bridges gives the owners an exclusive privilege by prohibiting the establishment of any other ferry or bridge within one mile. (Wood’s Dig. 460.) And this Court has always protected the parties in the enjoyment of these exclusive privileges. (Hanson v. Webb, 3 Cal. 237; Norris v. Farmers and Teamsters' Co., 6 Id. 594; Chard v. Stone, 7 Id. 117.) In many cases, however, the law conferring franchises, such as turnpike roads, does not confer any exclusive privileges, and they are then open to competition. (Indian Cañon Road Co. v. Robinson, 13 Id. 519.) This question, whether the privilege shall be exclusive or not, depends entirely upon the wise discretion of the Legislature. The granting of franchises, whether exclusive in their character or not, is one of the ordinary powers of legislation, and as such can be exercised by the Legislature of this State; controlled, however, by the restrictions imposed on it by the Constitution.

The next subject of inquiry is, what constitutional limitations have been imposed upon this general power. One is that “ corporations may be formed under general laws, but shall not be created by special act except for municipal purposes. All general laws and special acts passed pursuant to this section may be altered from time to time or repealed.” (Const. of Cal. Art. 4 Sec. 31.) There are other provisions defining the meaning of the term “ corporations,” regulating the labilities of their members, prohibiting and requiring the Legislature to prohibit by law, all persons or corporations from exercising the privileges of banking, or creating paper to circulate as money. Here are plain and explicit limitations upon the powers of the Legislature, by which they are positively prohibited from conferring the special privilege of banking or issuing paper money upon any person or corporation, and from creating a body with corporate privileges by special law except for municipal purposes. The object and design of these limitations are evident to all. The evils flowing from the issue of paper money by banks are too well known to need comment. The limitation upon the creation of private corporations by special laws closed a prolific source of legislative corruption. In other States, where no such restraint exists, corporate privileges can only be secured by special grant from the Legislature at great expense and delay. Ho good reason existed why the right should not be enjoyed by all' who desired, and the framers of our Constitution wisely removed the difficulty by requiring that these privileges should only be obtained under general laws, open to all citizens upon equal terms.

These are all the constitutional limitations upon the power to grant franchises, and it is clear they do not prohibit the granting of the privileges vested by this act. From the fact that no other limitations are imposed, it is evident that it was the intention to leave the Legislature free to exercise its discretion in all other cases. It is contended, however, by the respondents, that the clause prohibiting the creation of private corporations by special law does in some way render this law unconstitutional, but we cannot see any force in their argument on this point. It is certain that the act does not in any sense make Allen & Burnham a corporation. The special privileges which it confers upon them are entirely distinct from those powers which are the distinguishing features of a corporation. That privileges of a like character are sometimes conferred upon corporations does not make these individuals a corporation.

Much is said about the odious character of monopolies, in which we entirely agree, but such arguments should properly be addressed to the Legislature, with whom the power is vested. We cannot deny the existence of the power to grant special privileges without overturning the legislation of centuries and the whole system of jurisprudence upon the subject of franchises and vested rights of property. We therefore hold the act in question to be constitutional.

2. The next, and most important question is whether the plaintiff, a corporation, had the power to purchase and hold the special privileges granted by the act to Allen & Burnham. It is not disputed that those grantees had power to sell and convey, for the act specially makes the grant to them, or “ their assigns,” thus clearly making the privileges assignable. But it is urged that the clause in the Constitution which prohibits the Legislature from creating a private corporation by special act, equally prohibits them from conferring any powers or privileges of a corporate character by special law; and that all the powers and privileges which a corporation can exercise or hold must be derived from a general' law, applicar ble alike to all corporations.

It is clear that the Constitution prohibits the Legislature from “ creating ” corporations by special act, except for municipal purposes ; and it is equally clear, that this prohibition extends only to their “ creation.” There is nothing in the language used which either directly or impliedly prohibits the Legislature from directly • granting to a corporation, already in existence and created under the general laws, special privileges in the nature of a franchise, by a special act, or prohibiting a corporation from purchasing or holding such franchises, which may have been granted to others. To give the Constitution any such effect, we would be compelled to interpolate terms not used, and which cannot be implied without a perversion of the language employed. To give it such a construction, we would have to make it read thus: “ Corporations may be formed, and other franchises and special privileges granted, under general laws, but shall not be created or granted by special act, except for municipal purposes.” If such had been the meaning intended by the framers of the Constitution, they could have easily expressed it in apt words. The Iangiage used by them is clear, and they well knew that it included but one of a numerous class of franchises, the subjects of legislative grant, and that a regulation of one could not by any reasonable implication be extended to others not mentioned.

As we have already shown, a franchise is in the nature of property; it is a vested right, a subject of purchase and enjoyment by all who are capable of purchasing, holding, or enjoying property, by individuals, partnerships, joint stock associations, and also by corporations, when it is of such a character as to be reasonably included in or useful in carrying out the objects and purposes for which the corporation was created. By acquiring such additional franchises, or special privileges, the corporation is not in any sense “ formed,” or “ created,” for they are not of the essence of the corporation; nor can it be properly said that it is thereby adding to its “ corporate powersbut even if such was the effect, as it is only adding to the powers of a corporation already created, and not “ creating ” one, it cannot be said to be prohibited by the Constitution. Any other construction would be most pernicious in its results. It might be of great importance to the public interest to have a road constructed over some difficult mountain pass, and a corporation organized for that purpose under the general law might be unable to procure the means to construct it in view of the great expense, uncertainty, and hazard attending it, without protection for a limited period against competition, and we see no constitutional prohibition against a grant of such exclusive privilege to such a corporation. So a railroad company might be desirous of purchasing and using a valuable invention, relating to the construction or running.of their road, but the holder of the patent might be unwilling to sell the right for any part less than a whole State. Clearly the corporation would have the right to make such purchase and hold it for their own exclusive use, or sell to other roads if they saw proper. We use these merely for illustration, but hundreds of others might be suggested where the propriety and necessity would be apparent to all. This power to grant exclusive privileges ought to be exercised with great prudence and sound discretion, and any Legislature abusing it should be held to a strict accountability by the people. The public, however, suffer no greater injury when such grants are made to corporations than when made to individuals. It is no more a monopoly in one case than in the other.

The plaintiffs were incorporated under the “ Act concerning Corporations,” passed April 22d, 1850 (Statutes of 1850, 347), the first chapter of which contains general provisions applicable to all corporations; and the sixth chapter relates to the formation of telegraph companies. Sec. 1 of Chap. 1 provides, that “ every corporation, as such, has power: * * * 4. To hold, purchase, and convey such real and personal estate as the purposes of the corporation shall require, not exceeding the amount limited by law.” Secs. 20-28, inclusive, authorize and regulate the sale on execution of the franchises of certain classes of corporations, with all their rights and privileges. Chap. 6 confers certain special powers and privileges upon telegraph companies formed under it, such as the right to construct lines of telegraph along the public roads, and across waters, and the right to use private property upon payment of a compensation therefor. As a general rule, a corporation has power to make all such contracts as are necessary and usual in the course of its business, as means to enable it to attain the object for which it was created. The creation of a corporation for a specified purpose implies a power to use the necessary and usual means to effect that purpose. (Angell & Ames on Corporations, Sec. 271; Union Water Co. v. Murphy’s Flat Fluming Co., decided at the present term.) I hold, then, that the plaintiffs, as a corporation, were capable of receiving a grant of these special privileges directly from the Legislature, and of purchasing them from the grantees.

It is urged, however, that the provision in the Act of May 3d, 1852, that “ no existing law shall be so construed as to conflict or interfere with the provisions of this act,” operates as a repeal of the general Corporation Law, so far as that law permits the formation of telegraph companies to construct lines between the cities named in the Act of 1852, and, therefore, the plaintiffs, being organized to construct such a line, are not a corporation, and have no power to purchase or hold the privileges granted to Allen & Burnham. This clause has more the effect of a rule of construction than of a repeal of any existing law. The evident meaning is, that the privileges of the right of way, etc., granted to telegraph companies formed under the general law, shall not conflict or interfere with the special privileges granted by the act. There is nothing in it prohibiting or taking away the right of forming corporations to build lines between those cities; but if formed, they must take subject to the prior exclusive privileges of the grantees, who might waive their rights, or abandon or forfeit them, or transfer the whole or a part to such corporations. To gjve it the effect claimed, would require a more clear and explicit expression of legislative intention than is contained in this clause.

The Constitution of Indiana ordains that “ Corporations, other than banking, shall not be created by special-act, but may be formed under general laws;” and it was held that “ the Constitution of the State authorizes the Legislature to create corporations, and imposes no limit as to the powers to be conferred on them; no clause confining their action to objects entirely disconnected with anything outside the corporate limits.” (Aurora v. West, 9 Ind. 85.) The Legislature may give additional powers, from time to time, to corporations; and acts of the corporation, in pursuance of such authority, are binding. (Gifford v. New Jersey Railroad Company, 2 Stockton’s Ch. 171.) And special powers and privileges may be conferred upon existing corporations. The words “ create a charter,” used in the Constitution, mean to make a charter which never existed before. (C. P. and A. Railroad Co. v. Erie, 37 Penn. State, 380.) Under a similar clause in the Constitution of New York, relating to banks, it was held that an act declaring that a certain bank should be deemed to be a valid corporation and to have been duly organized, notwithstanding any error, irregularity, or insufficiency in the proceedings organizing it under the general law, did not create a corporation, but only remedied defects in the organization of one already created, and it was therefore constitutional. (Syracuse City Bank v. Davis, 16 Barb. S. C. 188.)

The Constitutions of Michigan, Iowa, Indiana, and Ohio contain similar limitations upon the mode of creating corporations, and the statutes of those States, as well as our own, afford numerous instances of the grant by special acts of particular rights, powers, and privileges to corporations formed under general laws, and the able counsel for the respondent has not cited a single case where the power has been denied by the Courts, except a loose remark made by Chief Justice Murray in the case of Low v. Marysville (5 Cal. 214), upon a point not then before the Court. That remark, as applicable to municipal corporations, which was the case before the Court, might perhaps have been appropriate, but as applied to other corporations is not entitled to any weight. A uniform series of statutes of this character, extending through many years, is a practical exposition of the Constitution, which is entitled to great weight, especially as it has been so long concurred in, and vested rights of great value and importance depend upon them. We do not refer to these facts as affording a rule of construction applicable to this case, for it is only in cases of doubt and ambiguity that such considerations can be resorted to, to determine the proper construction of the Constitution. In this case we deem it clear that the constitutional prohibition can only be applied to special acts creating a corporation, and not to those which merely confer special rights, powers, and privileges upon a corporation already created and in existence under a general law.

The exclusive privilege granted by this Act of 1852 have evidently been a burden upon the people of this State, and it is not strange, therefore, that this claim of the plaintiffs has been most zealously contested. It shows the importance of imposing, if practicable, some judicious restraint upon legislative discretion in such matters. It will be found, however, very difficult, if not impossible, to frame a provision which, while securing the people against an abuse of the power, will at the same time leave the Legislature free to exercise it in that large class of cases where the public interests absolutely require laws of that character. An enlightened public opionion, guided by a free and fearless press, is the only and perhaps the best safeguard against abuses of this kind. The order dissolving the injunction is reversed.

Cope, C. J.

I agree with Mr. Justice Crocker in the conclusion at which he has arrived in this case, and generally with the views expressed by him in his opinion. As to the power of the Legislature to grant the franchise in question I have no doubt; and as to the capacity of the corporation to purchase, the defendant is not the party to object. If the corporation, in making the purchase, has acquired property which, under the law of its incorporar tion, it had no right to acquire, all that can be said is that it has exceeded its powers, and may be deprived of the property by a judgment of forfeiture. The question is one which the State alone can raise. A purchase by a corporation in the face of a positive prohibition would be void; but that is not this case. There was no provision of law forbidding the purchase; and admitting that the corporation had no power to make it, the want of power, in the absence of an express prohibition, is not sufficient to avoid it as to third persons. The rule in such cases was laid down by this Court in Natoma Water and Mining Co. v. Clarkin (14 Cal. 544). In that case the corporation was empowered to purchase such property as the purposes of the corporation should require, and it was objected that the property in controversy was not of that description, and that the corporation had no power to purchase it. The Court overruled the objection, saying: “ Whether or not the premises in controversy are necessary for those purposes it is not material to inquire ; that is a matter between the Government and the corporation, and is no concern of the defendant.” The reason of the rule is obvious. As between the parties the purchase is valid, and it must be so as to third persons, until, by a proper proceeding, a forfeiture has been declared. It is well settled that a cause of forfeiture cannot be inquired into collaterally. As mere matter of opinion, it is proper for me to state that I regard the purchase in this case as valid; but in my view of the case, the question is an immaterial one.