Calor Oil & Gas Co. v. Franzell

109 S.W. 328, 128 Ky. 715, 1908 Ky. LEXIS 95

• Court: Court of Appeals of Kentucky
• Decided: March 26, 1908
• Status: Published

Opinion

Opinion of the Court by

Judge Barker

Affirming.

These two appeals grow out of the same transactions. Both the plaintiff and the defendants below appealed from the judgment of the circuit court, and filed copies of the record here. These, by order of this court, were heard together, and will be treated in this opinion as one case. Nicholas Franzell and wife own a farm in Meade county, Ky., between the natural gas fields and the city of Louisville. The Kentucky Heating Company is a corporation owning and operating natural gas wells in Meade county, and is engaged in the business of piping the gas from the wells to the city of Louisville and there selling it to its customers under a franchise which it owns and holds to lay its pipes through the public streets. The Louisville Gas Company is a corporation engaged in the business of manufacturing gas in the city of Louisville and selling it both for lighting and heating purposes under a franchise which it owns of laying its pipes through the public ways of the city of Louisville. This latter corporation is not a party to this record, but it is a rival, to some extent at least, of the Kentucky Heating Company, and it is the theory of the Heating Company that the Calor Oil & Gas Company is but a branch of the Louisville Gas Company, and that the latter was incorporated, among other things, to enable the Louisville Gas Company by indirection to pipe natural gas from the gas fields of Meade county to the city of Louisville, and in this way unlawfully compete with the Kentucky Heating Company in its business. "We shall not enter very deeply into this phase of the ease, for reasons which will appear farther on in the opinion.' The Calor Oil & Gas Company is a corporation having power and authority under its charter to buy and lease oil and gas lands, dig wells, construct pipe lines, and do any and all other things connected with such business. The questions which arise for adjudication upon the transcripts before us grow out of an attempt on the part of the last named company to condemn a strip of land across the farm of appellants Franzell and wife,forthe purpose of laying therein a pipe line to convey natural gas from its wells in Meade county, Ky., to the city of Louisville. The proceeding is under section 3766a, Ky. St. 1903, and sections 835T840, Ky. St. 1903. The statement which was filed in the clerk’s office of the county court of Meade county fully described the strip to be condemned, and thereupon the judge of the Meade county court appointed three commissioners who, after having duly qualified as required by law, viewed the land, and made report, assessing ihe damages which would accrue to the owners by reason of the condemnation thereof. Upon the trial of the case before the county court on the exceptions of the owners of the land to the report of the commissioners the court held that the corporation did not have the power of eminent domain, and dismissed the proceedings. From this judgment the corporation appealed to the circuit court of Meade county, where, upon a trial de novo, as provided by statute, the circuit court held that the corporation did possess the right of eminent domain, and submitted the question of damages to the jury, with the result that they returned a verdict of $4,000 in favor of Franzell and wife; and "from this, judgment all the parties, as said before, have prosecuted appeals for its reversal.

The first question which is raised by the defendants below'on this appeal is that,-after the judgment in the circuit court that the Calor Oil & Has Company possessed the right of eminent domain under its charter, the case should have been sent back to the county court and there tried out before a jury on the question of the amount of damages. We cannot agree to this proposition. When the county court decided that the corporation did not posess the right of eminent domain, it was forced to appeal to the circuit court to get from under the ban of that adverse adjudication, and, having appealed to the circuit court, under the statute (section 839, Ky. St. 1903) the case came on for trial de novo, and the whole controversy was to be tried out there. This is what a trial de novo means; and there is nothing in the statute which indicates that the Legislature intended to impose upon the parties the burden of the case being sent back to the county court for a retrial after an appeal to the circuit court. On the contrary, all the language of the section (839) indicates an intention that, upon appeal to the circuit court, the whole case is to be there tried and settled, subject, of course, to a right of appeal to this court.

The Kentucky Heating Company was made a party defendant to the condemnation proceedings, because it claimed under a written contract with Franzell and wife, the owners of the land, the “exclusive right and privilege of laying pipe and pipe lines for any and all purposes, whatsoever on, across, in, or upon said land;” the consideration of which was an annual rental of $262 so long as the Kentucky Heating Company “shall continue to occupy and usé any part of the above-described land under this agreement.” In addition to this exclusive privilege- it had, under 'this contract, cértain mineral rights'in'the land, which ■need not bé- set -forth here, as the proposed' right of way sought by the Calor Oil & Gras Company in no wise infringed upon or involved them. So for, then, as the Kentucky Heating Company is concerned, the only question in this case in which it is interested is the validity of its claim to an exclusive right to construct or operate a pipe line across the Franzell farm. Obviously this contract is void as being in contravention of public policy. This position needs little elucidation or argument. Undoubtedly the public welfare requires the freest competition in all things pertaining to the common interest; and it has always been contrary to law to establish .a monopoly such as is involved in the contract between the Franzells and the Kentucky Heating Company. What would be thought, for instance, of the proposition that a railroad' corporation could lease from the owners a belt of land surrounding a municipality, and provide in the lease that it should have the exclusive right to operate a railroad across the land in question? And yet the supposed proposition differs in principle in no wise from- the contract between the Kentucky Heating Company and the Franzells. In 1 Lewis on Eminent Domain, section 137, it is said: “An exclusive franchise or privilege in a matter of public concern can be created only by the sovereign power. It can-' not be secured by the contract with individuals or corporations. Thus the grant by a railroad company of the exclusive right of maintaining a telegraph line along its right of way, or the grant by an individual of the exclusive right of constructing pipe lines over his lands for the transportation of oil, is void as against public policy.” And again, in volume 2, section 289a, it is said: “It is held that the grant of an exclusive right of way for a use of a public nature, such as a railroad, or pipe line, or telegraph,-is against public policy and void, so for at least as the exclusive feature is concerned.” To the same effect is West Virginia Transportation Co. v. Ohio River Pipe Line Co., 22 W. Va. 626, 46 Am. Rep. 527; Kettle River R. Co. v. Eastern R. Co., 41 Minn. 461, 43 N. W. 469, 6 L. R. A. 111; W. U. T. Co. v. A. U. T. Co., 65 Ga. 160, 38 Am. Rep. 781; Western Union Telegraph Co. v. B. & S. W. Ry. Co. (C. C.) 11 Fed. 1; W. U. T. Co. v. B. & O. Tel. Co. (C. C.) 23 Fed. 12. From the foregoing authorities, and upon principle, it is manifest that the lease from the Franzells to the heating company is void so far as it undertakes to grant an exclusive right to lay pipe lines in or across the land involved here. Being void, it can constitute the basis for no claim for compensation either upon the part of the Franzells or the heating company, as a void contract can give rise to no legal right. In 2 Lewis on Eminent Domain, section 484, it is said: “Nothing can be allowed on account of the loss or impairment of a gratutious privilege, which the owner has been enjoying by the sufferance of another, or contrary to law or public right.” See, also Kingsland v. New York, 110 N. Y. 569; 18 N. E. 435; Ranlet v. Railroad Co., 62 N. H. 561. It follows that the Kentucky Heating Company had no interest whatever in this condemnation proceeding, it being patent that the rights which the Calor Oil & Gas Company were seeking did not in any wise militate against or infringe upon the mineral rights of the Heating Company in the Franzell farm; and, as we have already said, it had no right whatever to the exclusive privilege of laying pipe lines across the farm. The commissioners and the jury correctly refused to award it any damages by reason of the condemnation of the right of way, and the court erred in permitting any evidence as to the damages that would accrue to- the Fr'anzells by reason of the loss of rental under their contract with the Kentucky Heating.Company, based upon the abandonment by the heating compány of the lease.

The appellee, both by traverse and affirmative allegation, placed in issue the existence of the Calor Oil & Gras Company. When the corporation introduced in evidence a properly certified copy of its charter, which was regular on Its face, and showed a compliance on its part with the statutory requirements, this evidence established its existence. Section 540 of the. Kentucky Statutes provides: “Said articles, or a certified copy thereof, may ’be used as evidence in any action for or against such corporation. ’ ’ ' And in section 542 it is providedWhen the articles are filed and recorded as provided, * * * the corporation shall be deemed to be organized for the purpose of transacting, promoting or carrying on the business or purpose fo-r which it was created; and shall thereupon become a body corporate.” When the corporation is organized as the statute requires, neither its -purpose nor its validity can be inquired into collaterally, and any proceeding which challenges its right to exist must be instituted and maintained by the government, under whose laws it is organized. It would produce manifest confusion and hardship if the right of a corporation to exist could .be called in question hy every litigant with-whom it came in contact during its business career, and therefore the'principle is wisely established that after a corporation is organized as by law required no adverse litigant can, in a collateral proceeding, challenge its right-to exist.' Iri the case of Cumberland Telephone & Telegraph Co. v. Louisville Home Telephone Co., 114 Ky. 892, 24 Ky. Law Rep. 1676, 72 S. W. 4, un this very question we said: "Appellee has not only been incorporated in the State of Delaware, but it has been recognized by the authorities of the city of Louisville as a corporation, and has been granted by it an important and valuable franchise. It is at least a de facto corporation, and the rule seems to be that, when an association of persons is exercising corporate franchises under color of legal organization, the existence of the corporation cannot be inquired into collaterally, but only in a direct proceeding by the government. The reason of the rule is that it would produce endless confusion and destroy the corporation if the legality of its existence could be drawn in question in every suit in which it was a party, for then no judgment could be rendered which would finally settle the question. ’ ’ The same principle is enunciated in Turnpike Co. v. Bobb, 88 Ky. 226, 10 S. W. 791, 10 Ky. Law Rep. 796; 1 Lawson on Rights, Remedies, and Practice, section 370; Wright v. Shelby R. Co., 16 B. Mon. 5, 63 Am. Dec. 522; Laflin & Rand Power Co. v. Sinsheimer, 46 Md. 415, 24 Am. Rep. 522; Central of Georgia R. Co. v. U. S. & N. R. Co., 144 Ala. 639, 39 South. 473, 2 L. R. A. (N. S.) 144; Postal Tel. Cable Co. v. O. S. L. R. Co., 23 Utah, 474, 65 Pac. 735, 9 Am. St. Rep. 705; Parker v. Bethel Hotel Co., 96 Tenn. 252, 34 S. W. 209, 31 L. R. A. 706. It follows from what we have said above, arid from the foregoing authorities, that the trial court should not have permitted any inquiry into the motives or bona fides of the gas company in this proceeding, and a fortiori should have excluded all attempt to bring into question whether the venture of the gas. company in piping natural gas from Meade county to Louisville would or not be profitable. With that the Franzells had nothing to do, nor did the Kentucky Heating Company, because, as above shown, the latter had no legal interest in the property that was involved in the condemnation proceedings. The right of the gas company to pipe'the natural gas from, its own wells in Meade county and transport it to Louisville for sale was a legitimate exercise of its property right, and this the Kentucky Heating Company could not successfully challenge, although it may be detrimental to its interest. If it be true, as said in the briefs, that the natural gas in the district of Meade county is contained in a common reservoir underlying the whole area, of necessity it follows that the gas company’s use of its wells tends to exhaust the wells of the heating company; and it is equally true that the piping of gas by the. heating company from its wells tends to exhaust the gas company’s wells; and undoubtedly the operation of .two gas companies in the same field (assuming that the quantity of gas is limited) will exhaust it sooner than one of them, would. But each has the legal right to the legitimate use of the gas underlying its own property, and neither can complain of such use by the other. We have already held, in the cases of Commonwealth v. Trent, etc., 117 Ky. 34, 25 Ky. Law Rep. 1180, 77 S. W. 390, and Calor Oil & Gas Co. v. McGehee, 117 Ky. 71, 25 Ky. Law Rep. 1221, 77 S. W. 368, that one who illegitimately wastes or destroys the gas of a district may be punished under the criminal statutes of the State, and may also be enjoined from committing such wrongful acts; but all parties owning gas wells in the districts are free to make any legitimate use 'of the gas they choose, and the fact that' this legitimate use tends to exhaust the supply gives the other owners of gas wells in the district no just ground of complaint. The court knows, as a part of the history of the country, that natural gas districts after flourishing for a while are frequently entirely exhausted, and that manufacturing and power plants established in the district, and dependent upon the use of the gas for fuel, are forced to move elsewhere. This may happen to the district under consideration; but, as said before, if this results from legitimate sales by the various owners to their customers, no- one of them has a just ground of complaint. They have all enjoyed the property while it existed, and when it is exhausted they, of course, can no longer enjoy it. The right of the Calor Oil & Gas Company to transport its gas to Louisville and sell it is as high as the right of the Kentucky Heating Company, and neither has a monopoly of the field.

The real issue in this ease was much obscured by a consideration of the effect upon the heating company of the gas company’s piping its gas to Louisville- — a question which had no valid place in the procedure. If the gas company makes an illegitimate use of its wells or pipe line, and unlawfully attempts to destroy the gas fields by unnecessarily or fraudulently wasting the gas, the Kentucky Heating Company, as a joint owner in the common field, will have a remedy both by injunction and by an action for damages, and undoubtedly the doers of the wrong will be subject to the penalty provided in the criminal statutes forbidding the wrong. But these are considerations which should not have been superimposed upon the simple issues as to (1) whether or not the Calor Oil & Gas Company had under its charter the right of eminent domain, and (2) what damage accrued ‘to Franzell and wife by reason of its exercise in the manner sought in this case. The question of the constitutionality of section 3766a of the Kentucky Statutes of 1903, which gives the right of eminent domain to the owners of gas and oil wells for the purpose of piping their products to market, is not now an-open one. The constitutionality of the act was recognized in the case of Paine’s Guardian, etc., v. Calor Oil & Gas Co., 103 S. W. 309, 31 Ky. Law Rep. 754, 11 L. R. A. (N. S.) 727, and is clearly established by the reasoning of the opinions in Chesapeake Stone Co. v. Moreland (Ky.) 126 Ky. 656, 104 S: W. 762, and Kirk-Christy Co. v. American Ass’n Inc. (decided March 4, 1908) 108 S. W. 232, 128 Ky. 668. The fact that the Louisville Gas Company owns a majority, or even all, of the stock of the Calor Oil & Gas Comp&ny does not vacate or destroy the charter or corporate rights of the latter corporation. The Calor Oil & Gas Company retains its separate corporate entity, and has all the powers and rights which it would otherwise have if its stock was in the hands of a number of individual holders. Louisville Gas Co. v. Kaufman & Straus, 105 Ky. 158, 20 Ky. Law Rep. 1069, 48 S. W. 434; City of Louisville v. Louisville Water Co., 81 S. W. 698, 1 L. R. A. (N. S.) 766, 26 Ky. Law Rep. 425; Bell, Sheriff v. City of Louisville, etc. (decided January 21, 1908) 106 S. W. 862; Parker v. Bethel Hotel Co., 96 Tenn. 252, 34 S. W. 209, 31 L. R. A. 706; McTighe v. Macon Construction Co., 94 Ga. 306, 21 S. E. 701, 32 L. R. A. 208, 47 Am. St. Rep. 153. It follows, from what we have said, that the purpose of the Louisville Gas Company in purchasing the stock of the Calor Oil & Gas Company cannot be inquired into in this collateral proceeding, and that it is immaterial here whether or not it is seeking to evade the provisions of section 190 of the Constitution, which requires pre-esisting corporations to accept the provisions of the Constitution before they shall enjoy the benefits of future legislation. If either the Louisville Gas Company or the Calor Oil & Gas Company is violating its charter, that question may not be inquired into in a collateral proceeding, but, as said before, can- only be challenged in a direct proceeding instituted by the Commonwealth through its proper officers. ' It is also immaterial in this proceeding whether or not the Calor Oil & G-as Company has obtained from the city of Louisville a franchise to distribute its gas to the public through its streets. It cannot obtain its whole right of way at once. Some part of the proceeding must have priority in point of time. It is possible, of course, that the city may not grant the franchise at all,' or the price for it may be so high that the venture will have to be abandoned. But this does not affect the Franzells, who, if this happens, will have their money for the right of way over their land without the burden of a pipe line upon it. Nor is it material that appellant purposes to sell all of its gas to the Louisville Gas Company, and in this way distribute it to the citizens of Louisville. The statute gives the appellant the right to condemn a pipe line from its wells to the market for its produce. It contains no restrictions upon the manner of sale; it evidently being the belief of the Legislature that the public interest will be best subserved by affording the owner of the gas an opportunity to sell it upon the market.

This brings us to the question of the excessiveness of the verdict. The laying of the pipe line on the strip of land in question will be an additional servitude upon the right of way of the Louisville, Henderson & St. Louis Railroad Company, which runs through the Franzell farm. The railroad owns • a perpetual and exclusive right of way through the farm, and the strip of ground in question here is within this easement, and is 1,450 feet long and 27 feet wide. In this strip a pipe line 10 inches in diameter is to be buried, and for this privilege the jury returned a verdict of $4,000 in damages. It cannot be claimed' that.the laying of the pipe line injures in any way or damages the remainder of the farm. The railroad, as said before, has a perpetual and exclusive franchise of the whole strip for railroad purposes. The pipe is to be sunk along the railroad track. The commissioners appointed to assess the damages in their report fixed the damages- at $21.75. The whole farm, it is said, is assessed for taxation at $2,000; and yet a jury assessed the damages for taking the- strip, of which tha owner of the fee, leaving out of view the bare possibility of a reverter, can never make any use, at $4,000. This verdict is flagrantly excessive and out of all proportion to the real damages sustained. The question was not what the property was worth to the Calor Oil & -Gas Company as a pipe line, and no consideration of its availability for this purpose should have been allowed to enter in the problem. In the case of West Virginia, etc. R. Co. v. Gibson, etc., 94 Ky. 234, 21 S. W. 1055, 15 Ky. Law Rep. 7, which was a condemnation proceeding on the part of the railroad, in establishing the measure of damage the court said: “The issue in such a case is not what the land is worth to the appellant, nor how profitably it may use it in its business, nor the cost and expense that it would be compelled to incur in obtaining other property or fitting it for its business if it failed to obtain that particular property. See Lewis on Eminent Domain, section 479, and authorities cited. The law should be given to the jury without including the evidential matters indicated. They are evidence only. But in such cases the jury should be admonished not to let those matters indicated as not evidence influence them.” In the case of Texas & N. O. R. Co. v. Postal Tel. Cable Co. (Tex. Civ. App.) 52 S. W. 108, the Supreme Court of Texas, in speaking of the condemnation of the right to put telegraph poles on the railroad right of way, said: “Under no conceivable state of facts could the value of the use of the right of way to appellee (the telegraph company) be made the measure by which to. determine the damages sustained by appellant.” To the same effect is V. & T. R. Co. v. Elliott, 5 Nev. 358; Sullivan v. Lafayette County, 61 Miss. 271; Union Depot, etc., Co. v. Brunswick, 31 Minn. 297, 17 N. W. 626, 47 Am. Rep. 789. The case of Madisonville, Hartford & Eastern R. R. Co. v. Ross, 126 Ely. 656, 103 S. W. 330, 31 Ky. Law Rep. 584, involved the condemnation of appellee’s home for railroad purposes, and we there held that his measure of damages was the market value of the property taken, and that the inconvenience to the owner of moving or finding another home could not be allowed as an element of damages. On the subject of the measure of damages we said: “Lewis, in his work on Eminent Domain (2d Ed.) section 463, thus states- the rule for the measure of damages when the entire, tract is taken: “This case presents but little difficulty, and, so far as we have observed, there is no difference in the authorities as to the proper measure of damages. A fair equivalent for any entire piece of property is its market value in money.’ In-section 478 it is said: ‘In estimating the value of property taken for public use it is the market value of the property which is to be considered. The market value of property is the price which it will bring when it is offered for sale by one who desires, but is not obliged to sell it, and is bought by one who is under no necessity of having it. ’ In 15 Oye. p. 685, the rule is thus stated: ‘The measure of damages when the whole of any particular piece of property is taken for a public use under tbe power of eminent domain is the market value of it. Market value means the fair value as between one who wants to piurchase and one who wants to sell, not what could be obtained for it under peculiar circumstances when a greater than its fair price could be obtained, nor its speculative value, nor a value obtained from the necessity of another, its present value at a sale which a prudent owner would make if he had the power of election as to the time and terms. * * *’ 10 Am. & Eng. Ency. of Law (2d Ed.) p. 1151, on the subject in hand, says: In determining the compensation to be paid to the landowner for land taken under the power of eminent domain, there are many elements that must be considered. The principal rule, which is to be applied as far as possible, is that, whenever property is taken, the fair market' value of the property at the time of the -taking should be paid for it. The market value of land is usually declared to be not what-the land would bring at a forced sale, but what it would bring in the hands of a prudent seller, at liberty to 'fix the time and conditions of sale. What property would bring at a fair public sale where one party wanted to sell and another wanted to buy may be taken as a criterion of its market value.’ ” In the above case it is true the whole of appellee’s property was taken, and in the case at bar only a strip of ground running across the farm is sought to be condemned. Ordinarily in the case of an easement, such as a railroad right of way, or the easement involved here, the incidental question arises as to the damages accruing to the remainder of the property. In the case at bar, however, that question is eliminated by the peculiar situation. As the railroad owns the exclusive right of way across the farm, and the appellant is seeking to lay its pipe line along this easement, there can be no resulting damage to the remainder of the property of the Franzells. This being true, what we said in the case last above cited is pertinent to- the establishment of the proper measure of damages here. We think the court should have told the jury substantially that the measure of damages for the taking of the strip of land in question was its fair market value; being that sum which the owner who desired to sell, but was not compelledsotodo,wouldtake for it in its present condition, and what a purchaser who desired to buy, but was not compelled to have it, would give for it under the circumstances. What we have said in regard to the measure of damages in this case does not conflict with the principle enunciated in Boom Company v. Patterson, 98 U. S. 403, 25 L. Ed. 206. In that case it was held that, where the property sought to be condemned had a peculiar adaptability and an increased market value because of its suitableness as sites for log booms, this adaptability was to be considered in ascertaining the market value of the property. There is nothing in the case before us which affords grounds for the application of this principle. The land sought to be condemned is on the direct route from the Meade county gas wells to Louisville; but there was no special reason for desiring it more than any other direct route between the wells and the city.

For the reasons indicated, the judgment is affirmed on the appeal of the Kentucky Heating Company, Nicholas Franzell and wife, and reversed on the appeal of the Calor Oil & Gas Company, for a new trial under principles consistent with this opinion.