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Branch v. Jesup/Opinion of the Court

This case arises upon a bill filed by Morris K. Jesup, as surviving trustee, for the foreclosure of a deed of trust in the nature of a mortgage, bearing date of December 20, 1867, given by the Atlantic & Gulf Railroad Company of Georgia to said Jesup and one Gardner (since deceased) to secure the payment of certain bonds of the company to the amount of $2,000,000, payable in 1897, with interest. The bill was filed February 15, 1877, and on the nineteenth of the same month receivers were appointed to take charge of the mortgaged property, being the railroad of the company, with its rolling stock and machinery. A supplemental bill was filed on the twentieth of April, 1877. The only defendant named in either bill was the Atlantic & Gulf Railroad Company. The premises sought to be foreclosed and sold were-First, the main line of the company's road, extending from Savannah southwesterly and westerly to Bainbridge, in Georgia, a distance of about 237 miles; secondly, a branch road, extending from Dupont to the Florida line, about 32 miles, connecting, thirdly, with a short road in Florida, extending to Live Oak, in that state, which the company held and operated under a lease; fourthly, a branch road about 58 miles in length, extending from Thomasville, on the main line, northerly to Albany, Georgia; fifthly, two other small branches at Savannah, one connecting the main line with wharves on the Savannah river, and the other connecting it with the Savannah & Charleston Railroad. The Thomasville branch was purchased from the South Georgia & Florida Railroad Company in 1868 (shortly after the giving of the mortgage in suit) for the purpose of extending the line to Albany; which branch was subject to certain bonds and mortgages issued by the latter company, having a lien paramount to the mortgage in suit. The other branches were, in like manner, severally subject to certain prior mortgages, given for purchase money or construction, and having a paramount lien. The bill conceded the priority of the several liens. The defendant answered, specifying the liens on its property prior to that of the mortgage, and insisting that it would be inequitable to foreclose and sell at that time, although consenting to the appointment of receivers.

On the twenty-second of April, 1878, Branch, Sons & Co. and others, (who are appellants here,) petitioned for and obtained leave to intervene pro interesse suo, claiming to be preferred creditors of tha Atlantic & Gulf Railroad Company, as to the proceeds and earnings of the South Georgia & Florida Railroad; that is, the branch from Thomasville to Albany. By amendment to the petition the South Georgia & Florida Railroad Company was also made a party, and a prayer was added to have declared void the sale of the said branch road and for its restoration to the South Georgia & Florida Railroad Company. By their petition of intervention the appellants insisted that the lien of the mortgage sought to be foreclosed does not cover the branch aforesaid; that the petitioners and others are holders of certificates of special guarantied 7 per cent. stock of the Atlantic & Gulf Railroad Company to the amount of some $300,000, of which the petitioners own $56,100; that these certificates were issued by the Atlantic & Gulf Railroad Company under a contract with the South Georgia & Florida Railroad Company, dated January, 1869, for the construction of its road from Thomasville to Albany; a copy of which contract and certain modifications of it, and a copy of one of the certificates, were annexed to the petition. The petitioners further contended that the earnings of that branch road, if kept by themselves, would be sufficient not only to pay the interest on the preferred bonds of the South Georgia & Florida Railroad Company, but to pay the interest on said certificates; that the guarantied scrip was given for the purchase of the South Georgia & Florida Railroad, and was distributed among the contractors who built it in payment for their labor; that it is in effect the promissory notes of the Atlantic & Gulf Railroad Company, and that the holders could proceed by attachment if the property of that company were not in the hands of receivers; and after making further averments as to the solvency of the South Georgia & Florida Railroad Company, if it stood alone, unconnected with the Atlantic & Gulf Railroad Company, the petitioners prayed for themselves, and the other holders of certificates, to be examined pro interesse suo touching their alleged paramount claim upon the proceeds of the South Georgia & Florida Railroad after payment of interest on its bonds, and for an order directing such examination before the master, and for other directions.

In the amended petition the petitoners averred that the original holders of the certificates of preferred stock before mentioned were subscribers to the capital stock of the South Georgia & Florida Railroad Company, and paid their subscriptions by work done on the road, for which they received the said certificates of preferred stock in the Atlantic & Gulf Railroad Company, and that the present holders are bona fide purchasers of said scrip, except in some instances where the original holders have not parted with their scrip; and they alleged that when the contracts between the two companies were executed it was supposed that they had power to enter into the same; but that they are now advised that the contracts were ultra uires and void, and they prayed a rescission and the cancellation thereof; but if the court should decree that the contract only amounted to a lease of the road, (which they conceded would not be ultra vires,) then they prayed that it may be rescinded for non-compliance with its terms, and the inability of the Atlantic & Gulf Railroad Company to comply therewith. But if the court should think there was a valid contract of sale, then they repeated their prayer to be decreed to have a first lien on the proceeds of the road after the mortgages executed thereon by the South Georgia & Florida Railroad Company, and for a separate sale of that road subject to said mortgages.

The first contract referred to in the petition bore date June 19, 1868, and provided that the South Georgia & Florida Railroad Company should complete its road from Thomasville to Albany, and turn it over in sections, as completed, to the Atlantic & Gulf Railroad Company, and that, when completed to Albany, the stock of the South Georgia & Florida Railroad Company should be incorporated with the stock of the Atlantic & Gulf Railroad Company, and that interest at the rate of 7 per cent. per annum on the actual cost of the road should be paid as well before such incorporation of stock as on said stock after its incorporation; and that, when the stock should be thus incorporated, all the rights, privileges, and franchises of the South Georgia & Florida Railroad Company, so far as related to the road from Thomasville to Albany, should vest in the Atlantic & Gulf Railroad Company, and said road should be a branch of the Atlantic & Gulf Road. This contract was modified by another contract made January 15, 1869, which recited that the legislature of the state had passed an act authorizing the state to indorse the bonds of the South Georgia & Florida Railroad Company, to the amount of $8,000 per mile; and that the Atlantic & Gulf Railroad Company consented to the issue of said bonds, and a first mortgage to secure them, and guarantied their payment; and it was stipulated that the amount of said bonds should be deducted from the amount of preferred stock to be issued to the South Georgia & Florida Railroad Company for the construction of the road. Another agreement, made September 1, 1869, authorized the further issue of bonds by the South Georgia & Florida Railroad Company to the amount of $200,000, to be secured by a second mortgage on the road, and guarantied by the Atlantic & Gulf Railroad Company.

The road appears to have been completed to Albany prior to October, 1870. On the tenth of that month the following resolution was passed by the board of directors of the South Georgia & Florida Railroad Company: 'Whereas, the South Georgia & Florida Railroad Company  entered into an agreement with the Atlantic & Gulf   Railroad Company, on the nineteenth day of June, 1868,   by which a transfer of the said South Georgia & Florida   Railroad was to be made (that is, all of said road   between Thomasville and Albany) upon certain conditions   therein stipulated, all of which will more fully appear   by reference to said agreements; and whereas, the South   Georgia & Florida Railroad has been completed to East   Albany and the same has been turned over to the Atlantic   & Gulf Railroad Company, and which is now being operated   by said Atlantic & Gulf Railroad Company; and whereas,   the president of the Atlantic & Gulf Railroad Company   has signified his willingness to receive said road   finished to East Albany; and whereas, the South Georgia   & Florida Railroad Company have made up the entire cost   of said road and made affidavit certificate under oath   as prescribed by said agreement,-it is therefore   resolved that the president of this road proceed to   Savannah, submit his estimates and certificates, and   demand and receive the guarantied stock agreed to be   given to the South Georgia & Florida Railroad   stockholders under said agreements in terms of the   several agreements made by the South Georgia & Florida   Railroad Company with said Atlantic & Gulf Railroad   Company. Resolved, further, that the president be, and  he is hereby, authorized to make, execute, and deliver   all papers necessary to carry out and fulfill said   agreements for a transfer of so much of said South   Georgia & Florida Railroad as lies or is located between   Thomasville and Albany, specially reserving the other   franchise or rights of building and equipping a railroad   from Thomasville to the Florida line under the charter   of the South Georgia & Florida Railroad Company.'

This resolution was duly carried into effect shortly after its adoption, as appears by a final contract executed in due form between the companies, bearing date January 8, 1876, which recited the several prior contracts, and the said resolutions, and the fact of their acceptance and of the performance and fulfillment of the same, and by which the South Georgia & Florida Railroad Company made a formal conveyance to the Atlantic & Gulf Railroad Company, its successors and assigns, forever, of so much of the South Georgia & Florida Railroad as lies or is located between Thomasville and Albany, with all the appurtenances thereof, including the franchises of the South Georgia & Florida Railroad Company to construct and use the same. The certificates of stock issued by the Atlantic & Gulf Railroad Company in pursuance of said contract were regular scrip certificates for preferred stock in that company, in the following form:

'Atlantic & Gulf Railroad, Georgia. Special guarantied 7 per     cent. stock issued under a contract with the South Georgia &     Florida Railroad Company, bearing date January 2, 1869, for      the construction of the South Georgia & Florida Railroad. This is to certify that Branch & Sons, or bearer, is entitled     to 66 shares, on which the par value of $100 has been paid,      of the special stock of the Atlantic & Gulf Railroad Company,      on which interest from date is perpetually guarantied at the      rate of 7 per cent. per annum, payable semiannually, etc. Witness, etc. Sealed, etc., first day of November, 1872. [Signed] JOHN SCRIVEN, President. Attest: D. MCDONALD,     Secretary.'

No evidence was taken in the case, and the hearing was had on bill and answer. It was conceded, or, at least, not controverted, that the intervenors were holders of the stock certificates as claimed in their petiton, and that said certificates originated in the manner and in fulfillment of the contracts therein set forth. The court below denied the prayer of the intervenors and dismissed the petition; and went on to make a final decree in the cause, ordering a foreclosure and sale of the railroad of the Albany & Gulf Railroad Company, with all its branches, including the branch from Thomasville to Albany, subject, however, to all prior mortgage liens, including the first and second mortgages on the Thomasville branch. From this decree the intervenors have appealed.

The questions raised by the appellants, as stated in their brief, are as follows:

(1) Was the sale of a part of the South Georgia & Florida     Railroad and its franchises to the Atlanta & Gulf Railroad      void as against public policy and ultra vires?

(2) If not, did the contract amount to anything more than a     lease?

(3) If it was a sale, are not the South Georgia & Florida Railroad Company and other intervenors vendors with the     purchase money unpaid, and hence entitled to assert their      right of attachment upon the property sold, in preference to      the claims of the mortgage creditors of the vendee, the      Albany & Georgia Railroad Company?

(4) If the intervenors are not entitled to attach as vendors,     are they not creditors of the Albany & Gulf Railroad Company,      and entitled to be paid out of property of the debtor which      is not covered by the mortgage; and in this case does the      mortgage cover the South Georgia & Florida Railroad?

If only stockholders, can they not object to the sale of the South Georgia & Florida Railroad under the present proceedings?

The court below was of opinion that the sale and purchase of the road was not void, nor ultra vires of the two contracting companies, without examining the question of the right of the appellants to contest the validity of the transaction. We will proceed to give some examination into that question.

The appellants are stockholders of the Atlantic & Gulf Railroad Company. Their stock is preferred stock, it is true, entitling them to interest on its face before any dividends can be made to the common stockholders. But this is not inconsistent with its being stock. It is a very common thing in this country to issue stock of this kind. The interest accruing thereon is in the nature of preferred dividend, and is sometimes so called. Though after it has accrued it may become a debt, so also does a dividend become a debt after it has been declared and has become payable. It has no priority over other debts, if, indeed, it has an equality with them. And this position, as stockholders of the Atlantic & Gulf Railroad Company, was voluntarily assumed by the appellants. This is true, both of those who purchased their stock at second hand, and of those who originally received the stock. They probably deemed it to their interest to accept payment for their work in this form. But again, not only are they stockholders in the Atlantic & Gulf Railroad Company, but the acceptance of the stock was an acknowledgment of the validity of the contract between the two companies. The issue of the stock was in part performance of that contract, and this appears upon the face of the certificates. After thus acquiescing in the purchase by the Atlantic & Gulf Railroad Company of the branch railroad in question, and of the amalgamation of stock incident to said purchase, and after the possession and use of said road and its franchises by the said company as a part of its road system for a period of several years, the appellants are estopped from questioning the validity of said transaction, and cannot now repudiate their character of stockholders of the Atlantic & Gulf Railroad Company, and assume that of stockholders of the South Georgia & Florida Railroad Company. To sustain such a course on their part would have the effect of ripping up and unraveling a thousand transactions which have taken place on the basis of the purchase and amalgamation referred to. Whatever right the state may have to inquire into the validity of such purchase and amalgamation, certainly the appellants have no right in law or in equity to question it. In law, they are stockholders of the purchasing company, in which character they neither can nor do ask any relief; in equity, they are participators in the face of all the world in a transaction which is conceded to have been fair and supposed to be lawful at the time, and upon the faith of which numberless transactions in business, and in the stock and bonds of the purchasing company, have undoubtedly been entered into. To give to the appellants relief in any form in which it is asked, would be attended with injury and injustice to others who have innocently confided in the acts of the appellants and their associates. We might safely stop here and affirm the decree below on this consideration alone. But as our view of the other questions which have been raised leads to the same result, it may be proper to state the reasons therefor.

The first relates to the power of the two companies to enter into the arrangement for the sale and purchase of the Thomasville branch. The power of the South Georgia & Florida Railroad Company to sell the road depends upon its charter, which took its origin in an act of the legislature approved January 22, 1852, creating the Georgia & Florida Railroad Company, with power to construct a railroad from Oglethorpe, or some other point on the Southwestern Railroad, to Albany; also with power to construct a railroad from Albany to Thomasville, and from thence to the Florida line in the direction of Tallahassee; also a plank or macadamized road in connection with the railroad; and for the purpose of constructing said road or roads, procuring right of way, and managing all its affairs, the said compary was invested with the same powers and privileges granted to the Savannah & Albany Railroad Company, not inconsistent therewith; and it was enacted that the said Georgia & Florida Railroad Company might at any time incorporate their stock with the stock of any other company on such terms as might be mutually agreed upon. The company was further authorized, from time to time, to determine the amount of stock necessary to carry out its purposes and the construction of said road or roads. The powers given in this charter by adoption and reference to the charter of the Savannah & Albany Railroad Company consisted, as expressed in the charter of the latter company, of all the rights, privileges, and immunities which by the laws of Georgia were held or enjoyed by any incorporated railroad company or companies in the state; and by a reference to prior existing charters we find that, so far as relates to the question in hand, these powers were, 'To have, purchase, possess, enjoy, and retain lands, rents, hereditaments, tenements, goods, chattels, and effects, of whatsoever kind, nature, or quality the same may be, and the same to sell, grant, demise, alien, or dispose of.'

All the powers thus given to the Georgia & Florida Railroad Company in 1852 were conferred upon the South Georgia & Florida Railroad Company by an act passed December 22, 1857. By this act the South Georgia & Florida Railroad Company was created, and the line of road which the Georgia & Florida Company was authorized to construct from Albany to Thomasville, and thence to the Florida line, was separated from the rest and granted to the South Georgia & Florida Railroad Company, which company was invested with the usual powers to purchase, hold, and convey property, real and personal, and with specific power to construct a railroad from Albany 'to Thomasville,' and from Thomasville to any point on the Florida line,' and to connect with any other road at such points as they should deem best; and it was enacted 'that the provisions of the act incorporating the Georgia & Florida Railroad Company, so far as applicable, shall be applied to said South Georgia & Florida Railroad Company.' By reference and adoption, therefore, the latter company became invested with all the authority and power, in regard to the line between Albany and Thomasville, and between Thomasville and the Florida line, which had been conferred upon the George & Florida Railroad Company. It seems to us clear that these powers were sufficient to enable the company to sell its road and franchises to any company competent to purchase them. As a general rule, it is true, a railroad company, with only the ordinary power to construct and operate its road, cannot dispose of it to another company. Legislative aid is necessary to that end. But this company had, by its charter, express power to incorporate its stock with the stock of any other company. This power has an enlarging effect upon the ordinary power to sell and dispose of property belonging to the company. Generally, the power to sell and dispose has reference only to transactions in the ordinary course of business incident to a railroad company, and does not extend to the sale of the railroad itself, or of the franchises connected therewith. Outlying lands, not needed for railroad uses, may be sold. Machinery and other personal property may be sold. But the road and franchises are generally inalienable; and they are so not only because they are acquired by legislative grant, or in the exercise of special authority given, for the specific purposes of the incorporating act, but because they are essential to the fulfillment of those purposes; and it would be a dereliction of the duty owed by the corporation to the state and to the public to part with them. But where, as in this case, power is given to incorporate the capital stock with the stock of any other company, a very large addition is made to the ordinary powers granted to a company.

In this country, the creation and exercise of such a power is well understood. It contemplates not only the possible transfer of the railroad and its franchises to another company, but even the extinguishment of the corporation itself, and its absorption into a different organization. The greater power of alienating or extinguishing all its franchises, including its own being and existence, contains the lesser power of alienating its road and the franchises incident thereto and necessary to its operation. Its power of alienation and sale extends to a class of subjects to which it does not ordinarily apply. In view of the large power thus conferred upon the South Georgia & Florida Railroad Company, we cannot doubt that it had full power to enter into the arrangement made with the Atlantic & Gulf Railroad Company for the transfer of that portion of its line extending from Albany to Thomasville, including the franchise of constructing and using the same, and an incorporation of all its stock issued for the construction of said road with the stock of the latter company.

It is true that the South Georgia & Florida Railroad Company did not part with its entire franchise. Power was given to it by its charter to construct a road from Thomasville to the Florida line, (being a distance of about 15 miles due south,) and to connect with any other road at such points as it might deem best. But this extension is mentioned as a distinct enterprise, has never been entered upon, and would have no value without a connection with some railroad in Florida, for which, so far as appears, no authority has thus far been accorded by that state. The authority to make it is nominal only, if it has not entirely expired by lapse of time; and could be of little use to the Atlantic & Gulf Railroad Company, which had a connection of its own with the Florida system of railroads at Live Oak. The retention of this nominal franchise by the South Georgia & Florida Railroad Company, which has never issued any capital stock under it, or with a view to its use, seems to be in reality a mere shadow without any substance. All the capital stock which the company ever provided for was that which went to the building of the road from Thomasville to Albany, and that, at its very inception, was incorporated with the stock of the Albany & Gulf Railroad Company; the stock of the latter company being issued and accepted in the place of it. So that, in truth, the terms of the charter have been literally carried out. At all events, we think that the arrangement made with the latter company was within the powers given to the South Georgia & Florida Railroad Company; and this arrangement was fully assented to and acquiesced in by every subscriber to its stock, as before mentioned.

In this connection, it is proper to notice a fact which has been referred to by the counsel of the appellants in support of his views, but which seems to us corroborative of the view which we have taken of the powers of the South Georgia & Florida Railroad Company. The original route authorized to be taken by its parent company, the Georgia & Florida Railroad Company, extended, as we have seen, from Oglethorpe, or some other point on the Southwestern Railroad, to Albany, with authority also to construct a railroad from Albany to Thomasville, and from thence to the Florida line. Afterwards, as we have also seen, in December, 1857, the South Georgia & Florida Railroad Company was created, and that portion of the route extending from Albany southward to Thomasville and the Florida line was transferred to the latter company, with all the general powers of the parent company, amount which was the power to incorporate its stock with that of any other company. The northern part of the original route, extending from Albany northward to Americus, a point of connection with the Southwestern Railroad, still remained under the original charter; and this part (between 30 and 40 miles in length) was afterwards transferred to the Southwestern Railroad Company with an incorporation of stock, similar to what was done by the South Georgia & Florida Railroad Company with the southern part of the line. But it seems that the Southwestern Railroad Company had not sufficient unissued stock to pay for the road thus acquired. Whereupon an act was passed by the legislature 'to amend the charter of the Southwestern Railroad Company, and to authorize an increase of the capital stock of said company,' etc., by which, after reciting the power given to the Georgia & Florida Railroad Company to incorporate its stock with the stock of any other company, further recited that the latter company had agreed with the Southwestern Railroad Company to incorporate its stock with the stock of that company, and had delivered its railroad running from Americus to Albany to the Southwestern Railroad Company, and had received stock of the said company to the amount of near $500,000, and that it thereby became necessary to increase the capital stock of said Southwestern Railroad Company. It was therefore enacted that the latter company to authorized to issue stock in addition to the amount mentioned in its charter for any sum not exceeding $500,000, and that the road from Americus to Albany should be considered part and parcel of the road of the Southwestern Railroad Company, and be liable to pay to the state the same tax that the rest of the Southwestern Railroad Company was liable to pay. This arrangement, which the legislature thus enabled the Southwestern Railroad Company to carry out, (and in doing so recognized its validity,) was precisely similar to that which had been made between the South Georgia & Florida Railroad Company and the Atlantic & Gulf Railroad Company in regard to the road from Albany to Thomasville. The only difference between the two cases was that the Southwestern Railroad Company had to get power to issue additional stock-a power which the Atlantic & Gulf Railroad Company did not need, as it already had authority to issue the amount of stock required for carrying out its arrangement with the South Georgia & Florida Railroad Company; at least, it is so stated, and is not denied, nor is the contrary alleged in any of the pleadings.

The point taken in relation to the issue of stock by the Atlantic & Gulf Railroad Company, in payment of the road purchased by it, is not that the company had no power to issue that amount of stock, but that it had no power to issue preferred stock. But it hardly lies in the mouth of those who received this stock, and who for several years accepted the interest guarantied to be paid thereon, to make this objection, especially as no other parties, neither the state nor the holders of the common stock, have ever objected to the issue of this preferred stock. Without entering, therefore, into a discussion of the abstract question whether a railroad company may not issue a preferred stock, when done in good faith, instead of issuing bonds to the same amount, it is sufficient to say that the appellants are not in a position to raise the question. But, supposing it to be shown that the South Georgia & Florida Railroad Company had the power to sell, had the Atlantic & Gulf Railroad Company the power to buy the road in question? The latter company was formed by the amalgamation of two distinct companies, and became invested with all the powers contained in the charters of both. These companies were-First, the Savannah, Albany & Gulf Railroad Company, chartered in 1847, under the name of the Savannah & Albany Railroad Company; and, secondly, the Atlantic & Gulf Railroad Company, chartered in 1856. The first of these companies was authorized to construct a railroad communication between Savannah and Albany, by such route as the company might select, with such branch road towards the north and towards the south from said road to such point or points as they might deem requisite; with power also, at any time, to extent said road to any point or points on or across the Chattahoochee river. Besides the ordinary corporate powers given to this company, it was invested, as already mentioned, 'with all the rights, privileges, and immunities which, by the laws of Georgia, are held and enjoyed by any incorporated railroad company or companies.' The Georgia Railroad & Banking Company had been chartered in 1835. Other railroad companies in Georgia, then in existence, had power 'to have, purchase, receive, possess, enjoy, and retain lands, rents, tenements, hereditaments, goods, chattels, and effects of whatsoever kind, nature, or quality, and the same to sell, grant, demise, alien, or dispose of.' See charters of Georgia Railroad and Central Railroad Company, Gaines, being in a general westerly consolidated as aforesaid, to-wit, the Atlantic & Gulf Railroad Company, had power to construct a railroad from a point in Wayne county, southwest of Savannah, to the western boundary of the state south of Fort Gaines, being in a general western direction across the southern part of the state; but it was provided that the Savannah, Albany & Gulf Railroad Company, as well as the Brunswick & Florida Railroad Company, might join their tracks with that of the Atlantic & Gulf Railroad Company. The latter company was invested with all the privileges, immunities, and exemptions granted to the Central, and to the Georgia Railroad Companies, or either of them.

The two companies, Savannah, Albany & Gulf, and Atlantic & Gulf, were consolidated under the name of the latter company by virtue of an act passed in April, 1863, by which it was provided that 'the several immunities, franchises, and privileges granted to said companies by their original charters, and the amendments thereof, and the liabilities therein imposed, shall continue in force.' From these charters and laws it appears that the consolidated company had power to construct a railroad from Savannah to the south-western border of the state; and, among other things, to construct a railroad communication between Savannah and Albany, and to make branch roads towards the north and towards the south; and, even before the consolidation, the Savannah & Albany Company was authorized to join its tract to that of the Albany & Gulf Company; so that the line of roads, as finally located, constructed, and acquired, including the branch from Thomasville to Albany, cannot be said to have departed in any respect from the strict course pointed out and designated by the charters of the consolidated companies. The main line commences at Savannah, under the charter of the Savannah & Albany Company, and runs south-westerly to Wayne county, and thence, under both charters (for both companies were authorized to use the same track) westwardly to Thomasville and Bainbridge, in the southwestern part of the state, with a branch running from Dupont towards the south into Florida, and a branch from Thomasville towards the north to Albany, forming a railroad connection between Savannah and Albany. In making the railroad connection between Savannah and Albany, the original charter of the Savannah & Albany Railroad Company could not be construed to require that this connection should be made by a rigidly straight line. The directors were invested with reasonable discretion as to the route to be taken; and since the subsequent legislation expressly authorized the Savannah & Albany Company to join its track with that of the Albany & Gulf Railroad Company, it is clear that the line of the latter company was not regarded as an improper departure for that of the former. Indeed, by an act passed in 1857, the Albany & Gulf Railroad Company were required to get the release of the Savannah & Albany Company of its right of way over the line of its contemplated road, before it could have the state subsidy proposed to be given to it; which plainly shows that the line of the Albany & Gulf road (which properly lay through Thomasville) was regarded as within the fair limits of the route granted to the Savannah & Albany Company. This being so, the branch road from Thomasville to Albany was fairly within the power and authority given to the Savannah & Albany Company by its original charter, to establish a railroad connection between Savannah and Albany.

Then, since the consolidated company had authority to construct a railroad from Thomasville to Albany, and to establish the railroad connection between Savannah and Albany in that way, and had the general power to purchase and receive property of every conceivable kind, nature, or quality, (limited, of course, by the general objects of its charter), what was to hinder its purchasing from the South Georgia & Florida Railroad Company its line of road between Thomasville and Albany, and paying for it by the issue of its own stock-an arrangement which, as we have seen, the South Georgia & Florida Railroad Company, on its part, had a perfect right to make? It seems to us that this question is not hard to answer; but that it is clear that the one company had the right to purchase this road as fully as the other company had the right to sell it; and that the right of both was fully given by the charters and laws which gave them their respective powers. We do not mean in the slightest degree to disaffirm the general rule that a corporation cannot dispose of its franchises to another corporation without legislative authority; but we think that the authority clearly existed in this case, being fairly derived from the legislation which affected the two companies, without any forced or strained construction of its terms.

The second question raised by the appellants, namely, whether the contract amounted to anything more than a lease, has been sufficiently answered by what has already been said. The transaction between the companies had in view a transfer of the entire interest of the South Georgia & Florida Railroad Company.

The third question raised is whether the South Georgia & Florida Railroad Company and the other intervenors are not vendors whose purchase money is unpaid, and who are thence entitled to assert a right of attachment upon the property in preference to the claims of the mortgage creditors of the Atlantic & Gulf Railroad Company, the vendee? The original intervenors are certainly not entitled to assume any such position. As already shown, their status is fixed by their own choice as stockholders of the Atlantic & Gulf Railroad Company. They are such, and nothing more, except as to the interest due on their stock, as to which they are nothing more than general creditors. As to the South Georgia & Florida Railroad Company, it has no claim at all. It received all that it stipulated for. The priority of its bonds and mortgages is fully conceded; and its stock, so far as the railroad in question is concerned, was incorporated with that of the Atlantic & Gulf Railroad Company, with which it became amalgamated and identified. Its separate existence protanto became merged in the latter company. How far it can ever be galvanized into now life for the purpose of the extension of the road from Thomasville to the Florida line, it is not necessary to inquire. That question has nothing to do with the one now in hand.

The only remaining question is whether the deed of trust or mortgage given by the Atlantic & Gulf Railroad Company to the complainant and his co-trustee covers the railroad in question. In terms it covers and pledges the entire railroad of the Atlantic & Gulf Railroad Company in Georgia, constructed, or to be constructed, from Savannah to Bainbridge, or to and from any other points in the state of Georgia, with its appurtenances, with all rights of way acquired, or thereafter to be acquired or obtained, and all rolling stock and machinery acquired or to be thereafter acquired, and all franchises, rights, and privileges connected with or relating to said railroad, or the construction, maintenance, or use thereof. Under the settled rule in regard to the operation of railroad mortgages on after-acquired property, where the terms of the instrument extent to such property, there can be no question that the mortgage in this case did extend to and cover any portion of road belonging to the company and authorized by its charter, which was constructed after the mortgage was given. The only question here is whether the railroad from Thomasville to Albany is fairly within this category. We have already seen that the company had the power to construct this line; that it was within its chartered limits. There can be no doubt, therefore, that if the road had been constructed by the company without any reference to the South Georgia & Florida Railroad Company, it would have fallen directly within the operation of the rule in question. Instead of constructing it directly, the Atlantic & Gulf Railroad Company procured its construction through, and by arrangement with and purchase from, the South Georgia & Florida Company. Can this make any difference? When constructed, the road became part of the system of roads of the Atlantic & Gulf Railroad company, as much so as if it had constructed it independently. A road purchased as and for a part of its chartered line is no less a part of its proper road than one built for that purpose. Provision was made, it is true, in the contract between the companies, for a prior lien in favor of the mortgages separately placed upon the road thus acquired. That lien is conceded to be valid and binding. But, subject thereto, the mortgage given to the complainant properly extends to and covers this road as part of the entire line of the company. It is embraced in the terms of the mortgage, and is in law subject to its operation. It is part of the lawfully-acquired property of the Atlantic & Gulf Railroad Company-acquired under its chartered rights and powers. It is the property of no other company. It is subject to the debts of no other company, except those which attached to it by virtue of the superior mortgage liens before mentioned. The appellants, as stockholders of the company, equally with the company itself, are bound by the mortgage. Their claims are inferior and subject to it. Their position as general creditors, in regard to any interest due them, is equally inferior. They have no equity that can prevail against it.

The appellants have suggested several subsidiary points which, regard being had to the views we have already expressed, cannot affect the result. One point is that the charter of the South Georgia & Florida Railroad Company expired in 1872, before the execution of the final deed to the Alantic & Gulf Railroad Company. We do not understand that the charter expired at that time, but only that the time limited for the construction of the road expired. If the charter expired, how did the company become a party to this suit? But even if the charter did expire, the road was finished and in the possession of the Atlantic & Gulf Railroad Company in 1870, and the entire transaction was then completed. The conveyance executed in 1876 was merely carrying out in form what was already completed and carried out in substance. But how can this objection avail the appellants in any view of the case? What right have they to object to the conveyance? Its only purpose was to carry out what they and all the parties concerned consented to and acquiesced in long before. And in their position, as stockholders of the Atlantic & Gulf Railroad Company, it does not lie in their mouths to object that the South Georgia & Florida Railroad Company unlawfully exercised corporate powers when it completed the performance of its obligation to the Atlantic & Gulf Railroad Company.

But it is unnecessary to pursue the subject further. We see nothing in the points raised on the appeal to invalidate the decree of the circuit court. The decree is, therefore, affirmed.

title: Branch v. Jesup/Opinion of the Court


text: Talk:Branch v. Jesup/Opinion of the Court

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


text:
City of Parkersburg v. Brown

C. C. Cole and ''Wm. A. Cook'', for appellant.

''Chas. Marshall and B. M. Ambler'', for appellees.

BLATCHFORD, J.

title: City of Parkersburg v. Brown


text: Talk:City of Parkersburg v. Brown

title: Talk:City of Parkersburg v. Brown


text:
City of Parkersburg v. Brown/Opinion of the Court

On the fifteenth of December, 1868, the legislature of West Virginia passed an act which provided as follows, (chapter 118:)

'Section 1. That the mayor and council of the city of     Parkersburg are hereby authorized and empowered to issue the      bonds of said city, to an amount not exceeding $200,000, for      the purpose of lending the same to manufacturers carrying on      business in or near the said city, in the said county of      Wood. The said bonds shall run 20 years, and bear interest at     the rate of 6 per centum per annum; and they shall be issued upon the      recommendation of the followingnamed persons, who shall be      considered the trustees of said loan; that is to say, *  *  *      who shall have power to fill all vacancies that may occur in      their number. They shall have power to make loans of said     bonds to good, solvent companies or individuals on the      following terms; that is to say: When persons engaged in      manufacturing business shall have invested in their business      thirty-five (35) per cent. of the amount proposed to be     employed in the business of manufacturing, clear of all      liabilities, to be shown to said trustees by affidavits of      the applicants, or by other satisfactory evidence, and when      such proof is furnished, then said trustees, five members      concurring, may lend to such applicants such amounts of said      bonds as they may deem proper and judicious, not, however, to      exceed 65 per cent. of the capital proposed to be used in     manufacturing by the applicant: provided, however, when such      loans shall be made, the interest thereon shall be paid by      the borrower semi-annually to the treasurer of said city; and      5 per cent. of the principal shall be paid annually to the     said city by the borrower, to be placed to the account of the      sinking fund of said city, until the several loans are paid      in full. The said loans shall be secured by deed of trust or     mortgage on real estate, or by other satisfactory security,      sanctioned by said trustees. And provided, also, that no     bonds shall be issued under this section until a majority of      the qualified voters of said city concur in the same, by      voting for or against the same, at an election to be held for      that purpose.'

On the seventeenth of April, 1869, an election was held in the city of Parkersburg, under authority of an ordinance passed by the mayor and city council of said city, 'upon the proposition to suthorize the said city council to issue bonds of the said city to the amount of $200,000, to be loaned to manufacturers under the provisions of said law and said ordinance.' At said election 441 votes were cast in favor of said proposition, and 19 against it. On the sixth of September, 1870, a communication having been received by the city council from M. J. O'Brien & Bro. in regard to the erection of a manufacturing establishment and marine railway within the city limits, it was 'resolved that the council agree, when the trustees of the improvement loan certify that the Messrs. O'Brien & Bro. have satisfactorily secured the bonds loaned to them, and complied with the act of the legislature authorizing the loan of said bonds, that they will release said parties from city taxation on their property, to the amount of bonds invested in the same, not exceeding $20,000: provided, however, the release shall extend so long as the said property shall be used or operated as a manufacturing establishment and marine railway, but not, in any event, to exceed 20 years.'

Nothing further was done on the subject until after section 8 of article 10 of the new constitution of West Virginia went into operation on the twenty-second of August, 1872, which was as follows:

'(8) No county, city, school district, or municipal     corporation, except in cases where such corporations have      already authorized their bonds to be issued, shall hereafter      be allowed to become indebted, in any manner, or for any      purpose, to an amount, including existing indebtedness, in      the aggregate exceeding 5 per centum on the value of the      taxable property therein, to be ascertained by the last      assessment for state and county taxes previous to the      incurring of such indebtedness; nor without, at the same      time, providing for the collection of a direct annual tax      sufficient to pay, annually, the interest on such debt, and      the principle thereof, within, and not exceeding, 34 years      provided, that no debt shall be contracted under this      section, unless all questions connected with the same shall      have been first submitted to a vote of the people, and have      received three-fifths of all the votes cast for and against      the same.'

On the twenty-second of April, 1873, the city council adopted the following resolution:

'Be it resolved by the mayor and council of the city of     Parkersuburg, that, in the event of the firm of M. J. O'Brien      & Bro. taking from the city a loan of twenty thousand     (20,000) dollars of its bonds, authorized under former      resolution, dated September 6, 1870, for manufacturing      purposes, and paying punctually the interest thereon and five      per cent. (5) of the principal for sixteen years, the said     firm be released from any further payments, and the balance      of said bonds be paid by the city, and the said M. J. O'Brien      & Bro. are released from making a marine railway.' At a meeting of the city council on the thirteenth of May, 1873, the trustees of said loan made a report, showing that they had adopted the following resolution:

'Whereas, M. J. O'Brien and W. S. O'Brien, composing the firm     of M. J. O'Brien & Bro., are desirous of obtaining a loan of      the bonds of the city, under and by authority of an act of      the legislature of West Virginia, passed December 15, 1868,      for manufacturing purposes, to the amount of $20,000, for the      purpose of aiding them in the erection of a foundry and      machine works in the city of Parkersburg; and whereas, for      the purpose of erecting these works, they have bought of Mrs. Joanna Wait, widow of Walton Wait, deceases, and also from     her as the guardian of Bettie C. Wait, infant heir of Walton      Wait, deceased, lot No. 80 in said city of Parkersburg, on      Kanawha street, being 85 by 170 feet, and have received a      conveyance from her of said lot, both as the widow of said      Walton Wait and as the guardian of said Bettie C. Wait; and      whereas, it appears, by a schedule of personal property of      said M. J. O'Brien & Bro., verified by affidavit, and now in      the hands of the city attorney, that said M. J. O'Brien &      Bro. are the owners of $15,000 worth of personal property in     their works at Volcano, free of incumbrance, we, therefore,      recommend to the city council of the city of Parkersburg,      upon the said M. J. and W. S. O'Brien and their wives      executing a deed of trust to the said city on the said      $15,000 worth of personal property, as well as upon the said      lot No. 80, the city council to take from Mrs. Joanna Wait,      or some one for her, bank stock, with power of attorney to      dispose of the same, or solvent bonds, to the amount of      $15,000, as security that said Joanna Wait, guardian, will      obtain from the circuit court of Wood county, within two      years, authority to convey to M. J. and W. S. O'Brien the      said lot No. 80, for and on behalf of said ward, and when      said authority is obtained, and said deed made, said stock or      bonds to be given up, then the city council may deliver to      said M. J. and W. S. O'Brien, upon the deposit of the      aforesaid collaterals, $10,000 of said city bonds; and when      said M. J. and W. S. O'Brien have put a building or buildings      on said lot ready for the roof, costing not less than $8,000      when completed, shown by bills rendered and authenticated for      same to the council, and when said Joanna Wait, guardian of      said Bettie C. Wait, by the authority of the said circuit      court of Wood county, has conveyed for and on behalf of her      said ward the said lot No. 80, free of incumbrance, to said      O'Brien & Bro., or made a further deposit of bank stock or bonds to the amount of $8,000, under the conditions      aforesaid, as security that she will obtain such authority      within two years from the date hereof, and make said      conveyance, which shall be held by said city as security for      the payment of said bonds and interest until said deed is      made by authority of said court, then said city council may      deliver to said M. J. O'Brien & Bro. the remaining $10,000 of     said bonds; and said city council shall take as a further      security for the payment of said bonds and interest, from      said M. J. O'Brien & Bro., to be deposited with the city      treasurer, their insurance policies, amounting to $14,500,      transferred to the said city, on their machinery, stock,      etc., at Volcano; and when their buildings on said lot are      completed, and the machinery thereon erected, then the said      M. J. O'Brien & Bro. shall have the whole insured to the     amount of $15,000, and keep the same so insured for the      benefit and security of said city on account of said loan.'

At the same time the city attorney presented to the council a trust deed executed by 'said O'Brien & Bro.,' which was accepted, and it was resolved 'that, upon the execution of the trust by M. J. O'Brien & Bro., the clerk is authorized to issue immediately $10,000, part of city bonds, as agreed upon by the resolution of the twenty-second of April, 1873.'

The trust deed, which was executed by the two O'Briens and their wives, and acknowledged by them on the thirteenth of May, 1873, and recorded on the eighteenth of June, 1873, was in these words:

'This deed, made the thirteenth day of May, A. D. 1873, by M.     J. O'Brien and P. F. O'Brien, his wife, and W. S. O'Brien and      Jane C. C. O'Brien, his wife, parties of the first part, and      Okey Johnson, trustee, party of the second part, witnesseth,      that for and in consideration of one dollar in hand paid by      the said trustee to the parties of the first part, the      receipt whereof is hereby acknowledged, the said parties of      the first part hereby grant unto the party of the second part      all, etc., of the following property, to-wit: All that      certain lot of ground situate on Kanawha street, in the city      of Parkersburg, known as lot No. 80 on the plat of said town,      and being the same lot conveyed by Joanna M. Wait, guardian      of Betty C. Wait, and Joanna M. Wait in her own right, to the      said parties of the first part, by deed dated the twelfth day      of May, 1873, and all the personal property mentioned in      Schedule A, and hereunto annexed and made part and parcel of this deed, said property now      situated at Volcano, in the county of Wood, and valued at      $15,040.38, which said lastnamed property is permitted to      remain in the possession of the parties of the first part,      and to be removed from Volcano aforesaid and placed in the      building or buildings to be erected by said parties on the      lot aforesaid, until the same shall be required by the      parties of the second part, upon being made as hereinafter      specified; that is to say: Whereas, an act passed December      15, 1868, by the legislature of West Virginia, authorizing      the mayor and city council of the city of Parkersburg to lend      its bonds for manufacturing purposes, to which act reference      may be had for a more explicit understanding of the      provisions; and whereas, the parties of the first part have      negotiated with the said city for a loan of its bonds to the      amount of $20,000, according to the provisions set forth in      an ordinance passed by the said city council the      twenty-second day of April, 1873, whereby it is, among other      things, provided that if the parties of the first part shall      punctually pay the interest on the aforesaid sum of $20,000,      and 5 per centum of the principal for 16 years, the said      parties of the first part shall be released from any further      payment, which said ordinance was authorized under a former      ordinance, dated September 6, 1870, to both of which      ordinances reference may be had for a fuller understanding      thereof, and are made part hereof, which negotiation for the      aforesaid loan of $20,000 of the bonds of the said city is      made on the part of said city pursuant to a recommendation in      writing made by the trustees of said loan, as provided in      said of the legislature, to which recommendation in writing      reference may be had for a fuller understanding thereof, and      is made part hereof, in trust to secure the faithful      performance by the parties of the first part in their payment      of the aforesaid interest on said $20,000, and the payment of      the 5 per centum of the principal, as specified in the      aforesaid ordinance passed the twenty-second day of April,      1873. And if any default shall be made herein, then the party     of the second part, as trustee aforesaid, shall proceed to      sell the property hereby conveyed pursuant to the provisions      of chapter 72 of the Code of West Virginia, and the acts      amendatory thereto.'

Exhibit A, annexed to the trust deed, contained a list by items of the personal property, with a valuation opposite each item, the same being principally machinery and tools. Attached to it was an affidavit made by M. J. O'Brien, setting forth that M. J. O'Brien & Bro. owned all the property free of incumbrance, and that each item was worth the sum set down opposite to it, and that the whole was then worth $15,000.

On the tenth of June, 1873, an order was adopted by the council, reciting the statute, and the election, and the prior proceedings of the trustees of the loan and of the council, and the presentation of the deed of trust and the deposit of the $5,000 security, and of the insurance policies before provided for, and then ordered that the said security was satisfactory, and that $10,000 of the bonds of the city be delivered to M. J. O'Brien & Bro. 'forthwith, under the conditions of and in accordance with' the said act 'and the orders made September 6, 1870, and April 22, 1873, made and intended to be made by authority of said act of legislature, and to be controlled by and construed according to its provisions,' and further ordered that when Mrs. Wait should make the deed to lot No. 80, the $5,000 security should be given up. Thereupon $10,000 of the bonds were delivered to the O'Briens. Each bond was a certificate of indebtedness for $500, payable to M. J. O'Brien & Bro., or order, dated June 1, 1873, sealed with the seal of the city and signed by the mayor and the clerk, payable June 1, 1893, at Parkersburg, with interest at the rate of 6 per cent. per annum, payable semi-annually, June 1st and December 1st, in the city of New York. Coupons payable to bearer for each payment of interest were attached. Each bond contained this statement: 'This certificate is issued by authority of the act of the general assembly of the state of West Virginia, passed December 15, 1868.'

On the ninth of September, 1873, the city council passed the following order:

'It appearing to the satisfaction of the council that M. J.     O'Brien & Bro. have their buildings, which, when completed,     will cost more than $8,000, now up and ready to be roofed,      and have therefore complied with the recommendation of the      manufacturers' loan, and the former orders of the council in      that respect, it is ordered that as soon as Mrs. Joanna Wait,      or some one for her, shall deposit with the city treasurer      bonds to the amount of $8,000, or bank stock, with power of attorney to dispose of      the same, as collateral security that she will obtain within      two years from the thirteenth of May, 1873, the authority      from the circuit court of Wood county to make for and on      behalf of her ward, Bettie C. Wait, a deed to said M. J.      O'Brien & Bro., for lot No. 80 in the city of Parkersburg,      that the mayor of the city of Parkersburg is directed to      deliver, properly signed by himself and attested by the clerk      of the council, the remaining ($10,000) ten thousand dollars      of the bonds of the city of Parkersburg, as provided for by      former orders of this council.'

The second lot of $10,000 of the bonds were thereupon issued to M. J. O'Brien & Bro., the bonds being in the same form as the others. No other proceedings of the city council appear as to the issuing of the bonds. The bonds were all of them indorsed in blank by M. J. O'Brien & Bro., and were sold by them at 80 cents on the dollar,-$10,000 in June, 1873, and $10,000 in September, 1873. The appellees are the owners of the entire $20,000 of bonds, and are bona fide holders of them. The O'Briens paid to the city the $600 of interest falling due December 1, 1873, and the city paid the coupons due that day. The O'Briens paid no more. The city paid the coupons which fell due in June and in December, 1874, and in June and December, 1875. It paid no more. The coupons which fell due June 1 and December 1, 1876, not having been paid, the plaintiff, Isabella Brown, owning $5,000 of the bonds, filed this bill on behalf of herself and all other holders of the bonds who should unite in the suit, setting forth the said act of December, 1868, the election, the action of the trustees of the loan and of the city council, the giving of the security, the execution and recording of the deed of trust, and the issuing of the first $10,000 of bonds. Her $5,000 of bonds are part of those bonds. The bill sets forth the proceeding for the issuing of the rest of the bonds and their actual issue. It avers that the holders of all of the bonds are bona fide holders for value. The defendants in the suit are the city of Parkersburg, the two O'Briens and their wives, and the assignee in bankruptcy of the O'Briens.

In November, 1873, the O'Briens and their wives executed to said Johnson a deed for said lot No. 80 and for another lot, in trust to secure one Leach for his indorsement of a promissory note of the O'Briens for $3,000, with power to sell the land in case the note should not be paid. On the ninth of November, 1874, Johnson sold lot No. 80 and its appurtenances at auction, under said last-named trust deed, to the city of Parkersburg, and on the eighth of December, 1874, executed to the city a deed of it, which recited that the sale of the lot was 'subject to a trust thereon in favor of the city of Parkersburg for $20,000,' and that the sale was for $300, and conveyed the lot and its buildings and appurtenances to the city, 'subject to the lien of the said city aforesaid.'

The bill sets forth said sale and conveyance, and avers that the city has, since said purchase, claimed said real estate as being its property, and has rented it, and is now claiming it and exercising to some extent rights of ownership over it; that after the deed from the O'Briens to Johnson was executed they were adjudged bankrupt, and their assignee in bankruptcy was permitted, without objection on the part of the city, to take possession of the movable tools and machinery covered by said deed; that said chattels were sold by said assignee to various purchasers, and became scattered and deteriorated in value; that some were sold subject to the claim of the city, and others without such reservation; that the city continued to pay the interest on the bonds until the maturity of the coupons, which became due June 1, 1876, when it refused to pay them, and has paid no more, and refuses to recognize the obligations of the bonds and coupons, on the ground that they were issued by the city without lawful authority; and that the city has neglected the real estate and the improvements and fixed machinery on it, and the buildings are unoccupied and unprotected, lying open to the weather and to depredations, and no care is used in protecting the buildings and the machinery, and many valuable parts of the machinery have thus been lost. The bill alleges that the deed of trust to the city was executed for the purpose of securing the holders of the bonds and coupons, and they are the parties beneficially interested in the same, and the city is a trustee of all the property mentioned in the deed, for the holders of the bonds; that the city was * bound to care for the property and protect the title to it for the benefit of the cestuis que trust, and especially as it had induced them to purchase the bonds, as well in reliance on the deed as on the credit of the city; that the city was, as trustee, bound to interpose to prevent the sale of the chattels by the assignee in bankruptcy, and to place the property in the charge of a responsible custodian, and protect it from depredation, and that, in failing to exercise such care and in permitting such sale, the city has violated the duties assumed by it from its acceptance of the deed, and has become liable to account to the holders of the bonds for all the loss and injury which has occurred to said real estate and chattels by reason of such neglect; and that the owners of the bonds are entitled to the interposition of a court of equity for the care and protection of the property, and to a decree for the sale of such of it as remains upon the premises mentioned in the deed to the city, and for the sale of the real estate, and a decree against the city requiring it to account for and pay over to the holders of the bonds all such moneys as have been lost to them from such neglect, and to pay to them any balance which may remain due to them after applying all sums which may result from such sales and accounting. The prayer of the bill, as originally filed, is for the appointment of a receiver to take charge of the property, and the appointment of a trustee to make sale of it, and the distribution of the proceeds of sale among the owners of the bonds and coupons, and that the city account for and pay over to them the value of the chattels so lost or sold, and for such loss as has resulted by reason of such neglect of duty on the part of the city in the care of the property, and the rents and profits received by the city from the property, and that the city and the O'Briens pay to the owners of the bonds any deficiency in the principal and interest thereof which may remain after the payment of the sums resulting from the sales and

The city answered the bill, setting up various defenses. One is that a majority of the qualified voters of the city did not vote at said election in favor of authorizing the issuing of bonds under the act of 1868. Another is that the voters voted on the question of authorizing the issue of bonds generally under the act, and not on the question of issuing the particular bonds. Another is that the issuing of said bonds had not been authorized prior to the twenty-second of August, 1872, when said section 8 of article 10 of the new constitution of West Virginia became operative; that said section governed in the issuing of said bonds; and that they were issued in violation thereof, in that the payment thereof was not provided for at the time of the issuing thereof, as required by said section, and all questions connected with the same were not first submitted to a vote of the people, as therein required, and said bonds are void. Another is that the act of 1868 was in violation of the constitution of the state. Another is that at the time of the passage of said act the city had, and now has, no property out of which it could pay any such bonds, except such funds as it is or may be authorized by law to raise by taxation. Another is that the bonds were issued in aid of a private enterprise, for individual profit, and not for a public purpose; that it is in excess of the constitutional power of the legislature of the state to authorize taxation for the purpose of paying said bonds, unless that power was clearly conferred on it by the constitution of the state; that no such power was conferred on it by the constitution of the state in force at the time of the passage of said act or the one now in force; that the said act is void for want of power in the legislature to pass it; and that the bonds issued under it are void. Another is that the bonds are void because they were issued in violation of section 9 of article 10 of the constitution of the state in force at the time they were issued, which provides that the legislature may, by law, authorize the corporate authorities of cities to assess and collect taxes for corporate purposes; that said provision amounts to a prohibition against assessing and collecting taxes for any other than a corporate purpose; and that said bonds, being issued for a private and not for a corporate purpose, are void.

The answer alleges that if any property covered by the deed of trust was sold by the assignee in bankruptcy, it was sold by him subject to said deed of trust. It denies the allegations of the bill as to the neglect of the city to protect and care for the buildings and machinery. It avers that it is not chargeable with the care of the property, but that it has taken as good care of the same as was possible under the circumstances, and has used all due diligence to rent it. It denies that the deed of trust was executed to secure the holders of the bonds and coupons, and denies that the city was or is a trustee for them of the property covered by the deed, and denies that it induced any person to take the bonds. It avers that it is not competent for the city to act as trustee in such a matter, wholly foreign to the purpose of its creation; that it has paid out, as interest on the bonds and expenses attending the issuing of them, and taxes on the property, more than it has received from all sources on account of the property; and that the plaintiff has a plain and adequate remedy in a court of law. It denies the right of the complainant to any decree against it for any sum in any event, whether the court shall deem the complainant entitled to a sale of the property mentioned in the deed of trust or otherwise. Finally, the answer says that if the court shall be of opinion that it has any jurisdiction in the premises, or that the complainant is entitled to resort to the property for the payment of the bonds or the interest thereon, the city is willing to submit to any order to be made by the court in relation to the disposition of the property, upon the court pronouncing the bonds void and the city not liable on account thereof, but it prays that in any order to be made the city may be decreed to receive out of the proceeds of any sale of the property the sum it has so expended above its receipts.

The bill was taken as confessed as to all the defendants except the city. The holders of all the bonds were made parties complainant. Proofs were taken on both sides. The bill was then amended so as to aver also that the city is estopped, by her conduct, to deny the validity of her indebtedness according to the tenor and effect of the bonds and coupons, and so as to add to the prayer for relief the following: 'or that the said city of Parkersburg may be decreed to pay the said bonds and coupons according to the tenor thereof, and especially that a decree may be passed for the payment of the overdue coupons upon the said bonds.' The bill was further amended so as to allege that even if the city was not chargeable as trustee from the time of the execution of the deed of trust, it is chargeable with all the duties and liabilities of a trustee, in regard to all of the property, from therespective times at which it actually took possession of the same; and the grantee in the deed of trust was made a defendant and appeared. The case was brought to a hearing, and a decree was made, which states that the court is of the opinion that the city is indebted for the bonds and coupons and is responsible for their payment according to their tenor and effect; that the $20,000 of bonds are held by the several complainants in amounts severally specified, and that there are due to them severally certain specified sums for interest coupons due and unpaid upon the bonds, (being interest from and including June 1, 1876, to and including June 1, 1879,) with interest from the date of the decree; and then decrees that the complainants are entitled to have the bonds held by them respectively paid by the city at the maturity of the same, with interest payable at the times and in the manner stated in the interest coupons attached to the bonds, and that the complainants respectively recover against the city for the several sums so set out as due for interest on the bonds, and interest on the same from the date of the decree, and costs, and have execution therefor. From this decree the city has appealed to this court.

The bill, as filed, asked for equitable relief, and sought to charge the city as a trustee and to reach the property covered by the deed of trust. The relief granted by the decree was a simple money judgment against the city for the interest due on the bonds at the date of the decree, based on the legal liability of the city to pay the bonds and coupons. For this there was a plain, adequate, and complete remedy at law, in each bondholder, if the city was thus liable. So that the decree made could not be sustained, in any event.

But we are of opinion that, within the principles decided by this court in the case of Loan Association v. Topeka, 20 Wall. 655, the bonds in question here are void. The act of 1868 authorizes the bonds to be issued as the bonds of the city. The principal and interest are to be paid by the city. The bonds are to be lent to persons engaged in manufacturing. Those persons are to pay the interest on the 'loans' semi-annually to the treasurer of the city, and are also to pay annually to the city 5 per cent. of the principal, to go into the sinking fund of the city, till the 'loans' are paid in full. No fund is provided or designated out of which the city is to pay the principal or interest of the bonds. What the 'borrower,' as the acts calls him, is to so pay to the city, is not such a fund. The city is to pay the principal and interest of the bonds, according to their tenor, whether the 'borrower' pays the city or not. No other source of payment being provided for the city, the implication is that the city is to raise the necessary amount by taxation. It has, by section 15 of the act of March 17, 1860, authority to levy and collect an annual tax on the real estate and personal property and tithables in the city, and upon all other subjects of taxation under the revenue laws of the state, which taxes are to be for the use of the city. A legitimate use of the moneys so raised by taxation is to pay the debts of the city. Taxation to pay the bonds in question is not taxation for a public object. It is taxation which takes the private property of one person for the private use of another person. There is, in the act of 1860, a provision that the tax shall not exceed a given percentage of the assessed value of the property, or so much on every tithable, but it does not appear that a tax for these bonds would exceed the limit. Therefore, the inference that it was intended, by the act of 1868, that such taxation as should be necessary to pay the bonds should be resorted to, must remain in full effect. There was no provision in the constitution of West Virginia of 1862 authorizing the levying of taxes to be used to aid private persons in conducting a private manufacturing business. This being so, the legislature had no power to enact the act of 1868.

There having been a total want of power to issue the bonds originally, under any circumstances, and not a mere failure to comply with prescribed requirements or conditions, the case is not one for applying to the city, under any state of facts, any doctrine of estoppel or ratification, by reason of its having paid some installments of interest on the bonds, (Loan Association v. Topeka, ubi supra,) or by reason of any of the acts of its officers or agents in dealing with the property covered by the deed of trust. No such acts can give validity to the statute or to the bonds, however they may affect the status of the property dealt with or the relation of the city to such property.

But it is contended by the appellees that, independently of the original validity of the bonds, the city is liable to pay them, because it misled and prejudiced their holders and prevented them from resorting to the security, or because it received the full value of the bonds in consideration of paying them. It is urged that if the bonds were void the city had no right to meddle with the security. There has, however, never been any impediment to a resort by the holders of the bonds to proceedings to have the property covered by the deed of trust administered for and appropriated to their benefit, as representing the O'Briens, in respect to such property, and as subrogated to the rights of the O'Briens to have the property devoted to the payment of the principal and interest of the bonds, in view of their being void. The only misleading or prejudice was that the holders of the bonds, mistaking the law, supposed them to be valid obligations of the city. As to the receipt of property by the city, it received certain property, but it did not thereby enter into any obligation, even if it could have done so, to pay these bonds. The evidence shows that the city has endeavored, in proper way and with a due regard to the interests of the O'Briens and of those interested under the O'Briens, to preserve and protect the property and realize from it as much as could be realized. The bill in this case was filed in December, 1876. The case was heard in September, 1879. The bill prayed for a receiver of the property, yet none was appointed or applied for, so far as appears. The sales by the city of movable property, which are complained of, took place after this suit was brought. The plaintiffs have chosen to leave all the property in the hands of the city up to this time. The city has acted in good faith, and with reasonable discretion, in regard to the property, throughout. No valuation placed upon the property, real or personal, or any part of it, by way of estimate or opinion, at the time the city took possession of it, or at any time since, can be taken, on the evidence in this case, as the measure of any liability of the city on the bonds or in respect of the property. Neither the O'Briens nor the plaintiffs interposed to control the property, but left the city to control and manage it. There are not about the acts of the city, in regard to the property, any elements which can constitute the city a trustee of the property, with the duties imposed on a trustee. No trust arose in favor of the plaintiffs out of the deed of trust to Johnson. The trust thereby created was one to secure the payment by the O'Briens to the city of the interest on $20,000 and of the principal of that sum. The plaintiffs could not enforce that trust in the place of the city. It was a void trust, because the consideration of it was the issuing of the void bonds. Nor did the purchase by the city of the property which it bought subject to the trust validate the original trust or create a new one.

But, notwithstanding the invalidity of the bonds and of the trust, the O'Briens had a right to reclaim the property and to call on the city to account for it. The enforcement of such right is not in affirmance of the illegal contract, but is in disaffirmance of it, and seeks to prevent the city from retaining the benefit which it has derived from the unlawful act. 2 Comyn, Cont. 109. There was no illegality in the mere putting of the property by the O'Briens in the hands of the city. To deny a remedy to reclaim it is to give effect to the illegal contract. The illegality of that contract does not arise from any moral turpitude. The property was transferred under a contract which was merely malum prohibitum, and where the city was the principal offender. In such a case the party receiving may be made to refund to the person from whom it has received property for the unauthorized purpose, the value of that which it has actually received. White v. Franklin Bank, 22 Pick. 181; Morville v. American Tract Society, 123 Mass. 129; Davis v. Old Colony Railroad, 131 Mass. 258, 275, and cases there cited. The O'Briens having indorsed and sold the bonds, the holders of the bonds succeeded to such right of the O'Briens as an incident to the ownership of the bonds. The O'Briens suffered the city to take possession of and administer the property. They were made parties to this suit originally and have made no defense to it. The right which the plaintiffs so have to call on the city to render an account of the property is one which can be properly adjudicated in this suit in equity. It involves the taking of an account, the sale under the direction of the court of what remains of the property, and the ascertainment of the proper charges to be allowed to the city against the moneys it has received and against the proceeds of sale. There can be no doubt that the city is entitled to be credited the sums it has paid in good faith to acquire, protect, preserve, and dispose of the property, and for insurance and taxes, and the amount it has paid in paying the coupons it has paid, and that it is to be charged with what it has received. But it is not to be charged with any sum for loss of or damage to or depreciation of the property. The remaining property must be sold under the direction of the court below, and an account be stated on the foregoing principles, and the net proceeds of the sale and the net amount of money, if any, in the hands of the city, must be distributed among the plaintiffs. The decree of the circuit court must be reversed, with costs, and the case be remanded to that court, with instructions to enter a decree declaring that the city, in issuing the bonds, exceeded its lawful powers, and that they cannot be enforced as obligations of the city, and providing for a sale of the remaining property, real and personal, under the direction of the court, and the taking of an account between the city and the property on the basis stated in this opinion, and the application in conformity with this opinion of the net proceeds of the sale and of the net amount of money, if any, remaining in the hands of the city received from the O'Briens, or from the sales by it of any of the property received by it, and for such further proceedings in the case as may be in conformity with this opinion.

We have not deemed it necessary to consider the question whether the bonds were void as having been issued in violation of section 8 of article 10 of the constitution of West Virginia of 1872, or the question whether the act of 1868 required a vote by the voters of the city on each loan of bonds to be made, or the question whether the act of 1868 was observed in other respects in issuing the bonds.


text: Talk:City of Parkersburg v. Brown/Opinion of the Court


text:
Clarkson v. Stevens

Walter N. Clarkson and F. W. Stevens, for plaintiffs in error.

John P. Stockton and Leon Abbett, for defendants in error.

MATTHEWS, J.

title: Clarkson v. Stevens


text: Talk:Clarkson v. Stevens

title: Talk:Clarkson v. Stevens