When the State of North Carolina is the majority stockholder of a railroad company chartered as a private corporation, can the railroad sell or buy land on its own, or does it need the Governor and Council of State to sign off first?
Plain-English summary
Joseph W. Grimsley, Secretary of the North Carolina Department of Administration, asked whether the North Carolina Railroad Company and the Atlantic and North Carolina Railroad Company needed Governor and Council of State approval before acquiring or disposing of real property. Both companies were chartered as private corporations in the mid-1800s (1849 and 1852 respectively), but the State of North Carolina holds majority stock in each. In the Atlantic and North Carolina Railroad, the State owns 73.5 percent.
The 1979 AG drew a clean line at the statutory verb. G.S. 124-5 says that "no corporation or company in which the State has or owns any stock or any interest shall sell, lease mortgage, or otherwise encumber its franchise, right-of-way, or other property, except by and with the approval and consent of the Governor and Council of State." The verbs are all dispositional. Acquisitions are not in the list.
So a sale, lease, mortgage, or encumbrance by either railroad needs Governor and Council approval. A straight purchase does not, unless the purchase mechanism itself encumbers existing railroad property (for example, the railroad pledges its land as security in the transaction).
The opinion flagged a constitutional question lurking under the statute's broad text. Read literally, G.S. 124-5 would apply to any corporation in which the State owns even a single share. The AG noted that such a sweeping reach might be constitutionally problematic, but did not have to resolve that question because the State's holdings in the two railroads were majority stakes, well past any de minimis threshold. As applied to majority-stockholder situations, G.S. 124-5 is constitutional.
Chapter 146, which governs acquisitions and dispositions of real property by State agencies, does not reach the two railroads. They are private corporations, not State agencies, regardless of who holds the stock.
Currency note
This opinion was issued in 1979. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Historical context: what the AG concluded
The opinion's analytical core is short. G.S. 124-5 is a dispositional-side statute. Its list of regulated acts is sell, lease, mortgage, and "otherwise encumber." That list does not include acquisition. The AG read the omission as deliberate.
The opinion went out of its way to note that Chapter 146 (the general statutory framework for state-agency real property transactions) does not bridge the gap. Chapter 146 applies to State agencies. The two railroads, despite the State's majority stake, remain private corporations. So if G.S. 124-5 does not require Governor and Council approval for an acquisition, no other statute steps in to fill the gap.
The constitutional aside in the opinion is also worth flagging. The AG accepted that a literal reading of G.S. 124-5, applied to any corporation in which the State owns "any stock or any interest," could reach trivial holdings and raise constitutional concerns about regulating private business through an incidental share. The opinion declined to resolve that question because, as applied to majority-stockholder situations, the statute is on firm ground. The implication for future questions: if the State holds a small minority stake in a corporation, a careful litigant could argue that G.S. 124-5 should not reach that corporation's dispositions.
The "or otherwise encumber" language is what lets acquisitions cross over into the approval requirement in some cases. If a railroad acquires Tract B by pledging Tract A as collateral, the acquisition transaction encumbers Tract A. That encumbrance requires Governor and Council approval even though the underlying transaction is an acquisition. The opinion does not work out the application, but the framework follows from the statute's words.
Background and statutory framework
The North Carolina Railroad Company and the Atlantic and North Carolina Railroad Company are two of the oldest corporations in the State. The General Assembly chartered the North Carolina Railroad in 1849 and the Atlantic and North Carolina Railroad in 1852. Both were created to build and operate rail lines, and both received substantial State investment from the start. By 1979 the State held majority stock in each.
G.S. 124-5 sits in Chapter 124, which deals with State stockholdings and the related governance overlay. It is the operative restriction on what a State-stockholder corporation can do with its property without separate State approval. The Governor and Council of State (the constitutional executive committee composed of the Governor and the principal elected and appointed officials of the executive branch) acts as the approval body.
The statute is silent on acquisitions because the historical concern was the dissipation of corporate assets in which the State had a financial stake. The legislature wanted a check on the corporation transferring its franchise or land out from under State ownership of stock. An acquisition does not raise that concern. New property coming in does not threaten what the State has already invested.
Chapter 146 ("State Lands") governs real property transactions by State agencies. It establishes procedures for the State to buy, sell, lease, or otherwise transact in land. A State-chartered corporation in which the State holds majority stock is not a State agency for Chapter 146 purposes. It is a separate legal person whose property is not State property.
Common questions
Why does the State own stock in private railroad corporations?
Both railroads were chartered in the mid-1800s when North Carolina was actively building its rail infrastructure. The State took stock positions to seed the construction, and the holdings remained on the books for over a century afterward. The dual nature, private corporation with the State as majority stockholder, is a historical artifact of that era's state-supported industrial development.
What kind of transaction would be an "encumbrance" under G.S. 124-5?
The statute's list includes sale, lease, and mortgage. "Otherwise encumber" reaches any transaction that creates a third-party interest in the corporation's property: a security interest, an easement, a leasehold, or a contractual restriction on use. Granting an option to purchase, for example, would likely qualify.
Could the legislature have made G.S. 124-5 reach acquisitions if it wanted to?
Presumably yes. The legislature could have written the statute to require approval for both directions of property transfer. The opinion's analysis turns on what the legislature actually did, not what it could have done. Adding "acquire" to the list would be a substantive legislative change, not a matter for AG interpretation.
What happened to these railroads after 1979?
The North Carolina Railroad Company continues to exist; the State remains its sole stockholder under more recent reorganization. The Atlantic and North Carolina Railroad Company has had a more complicated corporate history. Anyone needing a current answer about either railroad's ownership or governance structure should consult counsel, because the corporate form and the State's role have both been adjusted by later legislation.
Source
Citations
- G.S. 124-5
- Chapter 146 of the General Statutes
- Session Laws of North Carolina, 1849, Chapter 83
- Session Laws of North Carolina, 1852, Chapter 136
Original opinion text
Requested By: Mr. Joseph W. Grimsley, Secretary Department of Administration
Question: Do future land acquisitions or dispositions planned by the North Carolina Railroad Company and the Atlantic and North Carolina Railroad Company require the prior approval of the Governor and Council of State?
Conclusion: Future dispositions of real property by these companies must be approved by the Governor and Council of State. Acquisitions of real property by these companies are not subject to the approval of the Governor and Council of State unless the acquisition constitutes an encumbrance on the property of the Railroad.
The North Carolina Railroad Company was incorporated by the General Assembly of North Carolina as a private corporation in 1849. Session Laws of North Carolina, 1849, Chapter 83. The Atlantic and North Carolina Railroad Company was incorporated by the General Assembly of North Carolina as a private corporation in 1852. Session Laws of North Carolina, 1852, Chapter 136. The State of North Carolina is the majority stockholder in each of the corporations. The State owns 73.5 percent of the stock in the Atlantic and North Carolina Railroad Company.
G.S. 124-5 reads as follows:
"no corporation or company in which the State has or owns any stock or any interest shall sell, lease mortgage, or otherwise encumber its franchise, right-of-way, or other property, except by and with the approval and consent of the Governor and Council of State."
This statute, if given its full literal affect, would apply to a disposition of real property by any corporation in which the State owns a single share of stock. Such a construction might give rise to a question of constitutionality. However, it is unnecessary to address that question at this time.
The State of North Carolina is the majority stockholder in each of the Railroad companies. There is a presumption in favor of the constitutionality of a statute. Strong's N.C. Index 3d, Statutes, § 4.1. We are of the opinion that this statute would be constitutional as applied to the North Carolina Railroad Company and the Atlantic and North Carolina Railroad Company. Therefore, we conclude that future dispositions of real property by these companies require the approval of the Governor and Council of State.
G.S. 124-5 applies only to dispositions of property. It does not apply to acquisitions of property except when the acquisition would constitute an encumbrance on the property of the Railroad. We are unable to find any other statutory provision which requires approval by the Governor and Council of State for acquisition of property by these companies. Since these companies are private corporations, the provisions of Chapter 146 of the General Statutes relating to acquisitions of real property by State agencies would not apply.
Rufus L. Edmisten
Attorney General
Roy A. Giles, Jr.
Assistant Attorney General