O'Connor v. City of Memphis

Cooler, J.,

delivered the opinion of the court.

By the act of 1879, ch. 10, the Legislature repealed certain charters of municipal corporations, and among others, the charter of the city of Memphis. By an act passed on the same day, the several communities embraced in the territorial limits of the municipal corporations whose charters were thus abolished, were created taxing districts, “in order to provide, the means of local government for the peace, safety and. general welfare of such districts.” The - community embraced in the territorial limits of the city of Memphis became, by the act, the taxing district of Shelby county, and organized under it. This court has held, as the result, that the charter of the city of Memphis had been validly repealed, and that the same péople and the same territory had been constitutionally reincorporated as a municipality: Luehrman v. Taxing District of Shelby County, 2 Lea, 425.

At the time of the passage of these acts, the suit of John O’Connor v. City of Memphis was pending on the docket of this court by appeal from the chancery court. At the succeeding term, on motion of the complainant, a scire facias was issued in the case requiring the Taxing District of Shelby county to show j cause why the suit should not be revived against it. / The Taxing District has demurred to the scire facias.'

The scire facias in this State is a statutory mode of reviving suits in this court, as well as the inferior courts, against- the heir, representative, assign, or “other successor” of a deceased party: Code, sec. 2853 et seq. It lias not been denied that the scire facias would lie in this case if the Taxing District could be brought in for the purpose of being proceeded against as a proper defendant. . The argument in support of the demurrer is vested upon the ground that the new corporation sustains no such relation to the old corporation as to authorize any proceeding against it in any mode for a debt of the latter. It is also said, that if the corporations are the same no revivor is necessary. ¡ But if this be conceded, the complainant would still have the right, by suggestion of record or otherwise, to bring the facts before the court, so that the further proceedings might be in the' right name. In this view, the seire facias may be treated as a notice, and, in the absence of any special objection to the form of the proceeding, as sufficient to raise the issue to be determined: East Tenn. & Ga. R. Co. v. Evans, 6 Heis., 607. The real question is, whether the new corporation is the same as the old corporation, or so far its successor as to be liable for its debts.

It was the received doctrine at one time that, by the principles of the common law, upon the civil death of a corporation, its real estate reverted to the original grantor or his heirs, the debts due to and from it were extinguished, and its personal property vested in the State. The law was so stated, arguendo, in some of our cases: White v. Campbell, 5 Hum., 38; Ingraham v. Terry, 11 Hum., 572; Hopkins v. Whitesides, 1 Head, 31. There is reason to doubt whether the decisions of the courts ever justified such a statement of the law: Bacon v. Robertson, 18 How., 480. And it is now well settled, both in England and in this country, that equity will, upon, the dissolution of a corporation by the expiration of its charter or otherwise, impound its property real and personal and appropriate it, first to the payment of its debts, and then for the benefit of the stockholders. The law now is, independent of statute, that upon the civil death of a corporation, its real estate does not revert to the original owners, the debts due to and from it are not extinguished, and its personal property does not vest in the State. This court, in accord with all the modern rulings, has expressly so held: State v. Bank of Tennessee, 5 Baxt., 101.

Looking only to the fact that a corporation is created by its charter, it is logically correct to say that each corporation called into being by an independent charter is a distinct entity. From this premise, it has been ingeniously and ably argued that two successive corporations cannot be connected together any more than two human beings, born successively, can be treated as one. But if the doctrine of metempsychosis be admitted, the identity of individuals would be possible, by the transmigration of the essential part, and their succession in rights and liabilities is recognized by law. And the Legislature and the courts have settled the continuity of corporations by the transfer of their material parts, whether by identity or succession is practically immaterial, although the old charter may be expressly repealed and an entirely new charter granted. It has been loosely said, that whether a legislative charter will operate to revive or continue an old, or to create a new and distinct corporation, depends upon the intention of the Legislature. More accurately, it has been said we must look to the terms of the charter, and give them a construction consistent with the legislative intent and the intent of the corporators. Both forms of expression are an adaptation of the language of Judge Story in the case of a private corporation, where the corporate name of the new creation and’ some of the corporators were the same as those of a then existing corporation, but the residue of the corporators and the corporate property were not the same: Bellows v. Hallowell Bank, 2 Mason, 43. But in no case have the courts ever failed to declare the identity, or succession, or continuity of the two corporations where the same corpo-rators and the same corporate property have passed to the new corporation. The “terms of the charter” have, in such eases, never been construed otherwise.

In reference to municipal corporations, the rule from the earliest times has been that a change of name or function would not affect obligations: Luttrel’s (Jase, 4 Rep., 87, b; Haddock’s Case, Raym., 439. Entirely new charters, upon a total cessation of user for years under an old charter, have been held to have no greater effect: Colchester v. Seaber, 3 Burr., 1866. “Many corporations,” says Lord Mans-fied in this last case, “ for want of legal magistrates, have lost their activity, and obtained new charters, and yet it has never been disputed but that the new charters revive and give activity to the old corporation. Where the question has arisen upon any remarkable metamorphosis, it has always been determined that they remain the same as to debts and rights.” The statute books of this State are full of instances where new charters have been granted to municipal •corporations, upon an express or implied repeal of the old charter, with a change of name and organization, and the continuity of the corporations, “as to debts ■and rights,” never doubted. A striking instance is found in the history of the municipal corporation now before us. In 1849, the people and territory of the <cCity of Memphis” and of the “Town of South Memphis,” were reincorporated under the name and style of the “Mayor and Aldermen of the City of Memphis,” by an act which expressly repealed all laws to the contrary, the previous charters of the separate corporations being thereby repealed as was held by this court: Daniel v. M. and A. of Memphis, 11 Hum., 482. The conclusion of Mr. Justice Field^' on this subject is warranted by all the authorities: “When a new form has been given to an old municipal corporation, or such a corporation is reorganized under a new charter, taking in its new organization the place of the old one, embracing substantially the same cor-porators and the samé territory, it will be presumed; that the Legislature intended a continued existence of the same corporation, although different powers are possessed under the new charter, and different officers' administer its affairs; and, in the absence of express provision for their payment otherwise, it will also be presumed in such case that the Legislature intended that the liabilities as well as the rights of property of the corporation in its old form should accompany the corporation in its reorganization ”: Broughton v. Pensacola, 93 U. S., 266. To the same effect in substance are Milner v. Pensacola, 2 Wood, 638; Trustees v. City of Erie, 31 Penn. St., 515; Shankland v. Phillips, 3 Tenn. Ch., 556; Olney v. Harvey, 50 Ill., 453; Girard v. Philadelphia, 7 Wall., 1.

Neither the repeal of the charter of a municipal corporation, nor a change of its name, nor an increase •or diminution of its territory or population, nor a | change in its mode of government, nor ail of these [things combined,, will destroy the identity, continuity |or succession of the corporation, if the people and ^territory reincorporated constituted an integral part of the corporation abolished. The reason is to be found in the peculiar nature of such corporations. A charter for municipal purposes is an investing of the people of a place with the local government thereof, constituting an imperium in imperio, and the corpora-tors and the territory are the essential elements, all else being mere ■ incidents or forms: Cuddon v. Eastwick, 1 Salk., 192; Luehrman v. Taxing District, 2 Lea, 425; People v. Morris, 13 Wend., 325; People v. Hurlburt, 24 Mich., 44, 88; New Orleans R. Co. v. City of New Orleans, 26 La. Ann., 476. And precisely as a change in the form of government, or even the conquest of a State will not affect its rights or liabilities, whatever may be the incidental modifications, so neither will a change of the lesser empire. The property held by such a corporation for public use cannot be subjected to the claims of creditors, and is only held by it as trustee. The only means at its disposal for the payment of debt consist, ordinarily, of the taxes which it is authorized to raise from the persons, property and business within its territorial limits. The persons and property, or, as said above, the corporators and the territory are the essential constituents of the corporation, and rights and liabilities naturally adhere to them.

The courts have accordingly held that creditors may follow these constituents even when divided out among other distinct municipalities, the original debtor corporation being abolished. As long as the old corporation continues to exist, although' shorn of its pro-pot tions, the creditor may, and according to some authorities, must look exclusively to it: Howard v. Horner, 11 Hum., 532; Laramie County v. Albany County, 92 U. S., 307. A qualification of the latter part of the rule may be assumed, although the point seems never to have arisen iii judgment, where the muni Ipality has been so reduced in population and territory as to be unable to meet the liabilities.- If, however, two new townships are created out of an old one, it has been held that a judgment creditor of the latter may revive his judgment by wire facias against each of the new townships, subject to only one satisfaction: . Plunket Creek Township v. Crawford, 27 Penn. St., 107. So, where one town was abolished by statute, and its population and territory unequally divided between two others, a creditor of the old town was held entitled, by bill, to charge each of the new towns with its proportion of the debt: Mount Pleasant v. Beckwith, 100 U. S., 514. “The diced of the annulment,” says Mr. Justice Clifford in this case, “and annexation, will be that the two enlarged corporations will be entitled to all the public property and immunities of the one that ceases to exist, and that they will become liable for all the legal debts contracted by her prior to the time when the annexation is carried into operation.” This court has reached the same conclusion in the case of a school district divided between other districts: Bank v. Baber, December term, 1880. See, also, District of Columbia v. Cluss, U. S. S. C., October term, 1880; 12 Cent. L. J., 381. In view of the plenary power -of the Legislature over municipal or quasi-municipal corporations, and the necessity of its frequent exercise according to public exigency, the wisdom of these rulings is obvious.

It has been argued that the liabilities of a dissolved corporation only follow its territory and population into a new corporation in the absence of any legislation on the subject, and that the Legislature may expressly provide otherwise. But there is no warrant for the argument, either in reason or authority. Some of the learned judges, in delivering the opinion of the court in particular cases, have taken -care, as was right and proper in a question of so much importance, to limit the decision -to the very case before them, and have said that the result reached would follow, “at any rate in the absence of any declaration of legislative intent to the contrary.” No intimation has been given that if there was such declaration the decision would be different. Mr. Justice Field expresses the opinion in the Pensacola case that the liabilities will accompany the corporation in its new form “in the absence of express ¡movi-ion for their payment otherwise.” So, Mr. Justice Clifford’s expression is that .“the Legislature may regulate the subject,” that is, as the context shows, may proportion the liabilities between the new corporations as its wisdom may suggest. Neither of these eminent judges, nor has any judge, intimated, much less decided, that the Legislature could interfere with the rights of creditors, or the legal result of the legislation. On the contrary, every judge has, in view of the provision of the Constitution of the United States, unhesitatingly said that the Legislature could not impair the obligation of the creditor’s contract. If it were otherwise, the Legislature might simply repeal the charter of a municipal corporation, and at once reincorporate the same people and territory under a similar corporation, and cut off creditors by adding that the new corporation should not be liable for the debts of the old corporation. Such legislation would be obnoxious t* the Constitution of the United States, art. 1, sec. 10, and the Constitution of the State, art. 1, sec. 20, and art. 11, sec. 8. Even the right acquired by a pending suit cannot be affected by such legislation: Code, sec. 49; Fisher v. Dabbs, 6 Yer., 119. And the Legislature cannot . do indirectly what it is not at liberty to do directly.

In the act repealing the charter of the city of Memphis, there is a provision transferring the public property of the city to the “ custody and control of the State,” to remain public property for the uses to which it had been previously applied. By the act reincorporating the same community and same territory in the name of the Taxing District, this property is again transferred to the custody and control of the governing board of the new corporation, to remahn. public property for the like uses. The city of Memphis seems to have owned no other property. Confining ourselves for the present to these provisions of the act, the substance of what was done was that the people and territory of the repealed corporation were at once reincorporatcd into a municipal corporation, and given possession of all ■ the property of the old corporation for the same public use. The new corporation is identical with the old corporation in all of its essential elements. A change in the form of the government would be unimportant. Unless, therefore, there is something else in the charter to take the case out of the rule, rights and liabilities would remain as before.

It is argued that pending suits for or against the old city are, under the provisions of the new charter, not to abate, but to be prosecuted to final determination without change of parties, citing act of 1879, ch. 11, sec. 14. This is, however, a mistake. That section, as the act was originally passed, did contain the words: “And all suits now pending shall be prosecuted to final determination under the provisions of this act without change of parties.” But the context shows that the suits thus provided for were suits in favor of the old corporation for indebtedness due to it for taxes or othei’wise, and this provision was repealed by the fifth section of the amendatory act passed at the same session of the Legislation. There is no provision for pending suits against the old corporation.

There was a large amount of uncollected taxes which had been assessed from time to time by the city of Memphis, either in the course of its regular business or ' acting under the orders of the courts. The Legislature vested this indebtedness in .the State, “to be disposed of for the settlement of the debts of said extinct municipality as shall be hereafter provided by law.” By a subsequent ac;t passed at the same session, the Legislature directed the Governor to appoint a receiver and back tax collector to collect these taxes -in the mode prescribed, and to appropriate them among tlmse entitled, under the orders of the chancery court, by means of a general creditor’s bill, filed by him in the name of the* State, and on behalf of all the creditors, against all delinquent taxpayers, pending suits against such taxpayers being revived in the name of the State and', consolidated therewith. The creditors are permitted to make themselves parties to the receiver’s bill by filing their claims, and having the sanie ascertained in a summary way upon a contest by any of the other creditors or by the receiver.

So far as the legislation in question undertakes to appropriate the uncollected taxes to the payment of the debts and liabilities of the old corporation, it is a regulation of the matter “as between the parties.” To the extent of the payment which the creditors may receive under its provisions, the new corporation would have the benefit. But neither the old nor the new corporation is required to be a party to that suit, and therefore the claimant could recover no' judgment against either. The Legislature, as we‘ have seen, could not violate the obligation of the claimant’s contract, either by reducing the claim to the pro rata which might be received under the receiver’s bill, or by compelling the creditor to go against any person except bis debtor: Howard v. Horner, 11 Hum., 532. Nor could the Legislature interfere with 'the ci’editor’s pending suit. The Legislature has not made provision for the payment of the entire debts, nor regulated the subject as between the parties.

The act incorporating the Taxing District expressly prohibits the governing agencies from levying taxes for any purpose, reserving that power in the Legislature. It further provides that the local government shall not “pay or be liable to pay any debt created by said «xtinct corporation, nor shall any of the taxes collected under the act ever be used for the payment of any of said debts.” The latter provision is itself a legislative recognition of the identity, continuity or succession of the two corporations, for otherwise it would have been useless. And the Question comes to this, can the Legislature, where the corporations are substantially the same according to the terms of the eharter as construed by the courts, change the legal effect of what has been done by a positive mandate that the new corporation shall not be liable for the debts of the old? If' it can, it would logically follow that the Legislature could prohibit a corporation from paying its own debts. It has no such power. Such a prohibition is- simply void. And in this case, under the circumstances, the provision in question is amenable to the 'constitutional objection that it undertakes to impair the obligation of contracts. ’Whether the Legislature can withhold the taxing power as against debts previously contracted, is a grave question not now before us. Tt may be that the creditor cannot collect his debt, but, to use the language of Judge-Clifford in' the Beckwith case, “ he ought. always to be able by some proper action to reduce his contract to judgment.” The creditor should have this right in the present -case, both for the purpose of reaching his share of the assets which may be realized by the receiver, and to have the benefit of future legislation. The courts can never presume the permanent repudiation by the State of an honest demand. This court has decided that the holder of a valid claim on the treasury of the State is entitled to compel the comptroller to issue him a warrant therefor, although it cannot be paid without an appropriation for the purpose by the Legislature, and no such appropriation has been made.

We express no opinion on any point not now before us. All we undertake at present to decide is that the Taxing District of Shelby county is so far the successor of the late corporation of the city of Memphis, or the same corporation under a new name, that a suit pending against the old corporation may be revived against the new, and prosecuted to judgment.

Eutck..man,• J.,

said:

I think it proper to state briefly the grounds of my concurrence in the result of the opinion of my brother Cooper in this case.

When this question of repeal of the 4 former charter of the, city of Memphis, and establishment of what is known as the “Taxing District/’ was before this court at the April term, 1.H79, in the case of Luehrman v. Taxing District, 2 Lea, 425, I dissented from the opinion of the majority of the court, holding the law establishing the Taxing District unconstitutional, vio-lative of the spirit as well as the letter of our State Constitution. After careful review of the question, I am more deeply impressed with the correctness of the opinion then expressed, and of the impossibility of working into our system so incongruous a' conception as the one known as a taxing district. The question of the effect of the legislation then under consideration on the contracts and liabilities of the city of Memphis was not before the .court, and no opinion was called for on that question.

I confess , that, if we concede that the charter of the city had been 'repealed and there had been no other corporate body established to take its place, on the theory of the decisions of the Supreme Court of the United States, as well as general current of authority, I should have found the gravest difficulties in holding any corporate body liable fur debts of the city — or rather, conceding the liability, in enforcing, such liability without a' corporate organism upon which the courts might operate in enforcing such liabilities.

But the opinion of the majority is the law in this case, the matter, so far *as the city of Memphis and the Taxing District are concerned, is res adjudieata, and however I might and would contest the proposition in any (¿her case where such judgment had not been had, I am compelled to follow it in this.

This being the state of the case,' and a new corporation created on the same day of the repeal of the old, taking its place over precisely the same territory and inhabitants, the very same sources of revenue being transferred to them, I feel compelled to agree with the conclusions of my brother Cooper in this case, and hold this last to be the successor in interest of the old corporation, and, as such, taking its place and responsibilities; therefore, it is proper to revive suits pending against the old corporation, against, the Taxing District as a new municipal corporation, standing in the shoes of the former, which has been repealed.

1 do not deem it necessary to go into a discussion of the several questions presented, but content myself with concurring with the conclusion reached, for the reasons given.