Houston & T. C. R. R. Co. v. Shirley

54 Tex. 125, 1880 Tex. LEXIS 136

• Court: Texas Supreme Court
• Decided: January 16, 1880
• Docket: Case No. 4088
• Status: Published

Opinions

Gould, Associate Justice.

This suit was originally instituted against the Waco & N. W. R. R. Co., to recover certain sums alleged to be due for work done under a contract with the Waco Tap R. R. Co. to construct its road from its junction with the Houston & Texas Central Railway to the city of Waco, and to recover damages, actual and exemplary, for an alleged breach of said contract. When formerly before this court on appeal by the Waco & N. W. R. R. Co., it was decided that under his contract Shirley had no equitable mortgage on the roadbed, etc., for any damages he might be entitled to for breach of contract, but that he had such equitable mortgage for sums due him under the contract and not paid. 45 Tex., 355. It was also decided that in estimating the damages sustained'by plaintiff by the breach of the contract his future profits under the contract thereby lost were to be taken into consideration.

After the case was remanded to the district court, the Houston & Texas Central Railway Company was made a party defendant, it being claimed that the Waco & N. W. R. W. Co. had been consolidated therewith and merged therein by an act of the legislature, May 24,1873; that by reason thereof the Central enjoyed the property and franchise of the Waco road, and was bound to pay petitioner’s demands, including damages and interest. There were other grounds on which it was sought to charge the H. & T. Central R. W. Co., but it is not material to state them.

The result of the trial this' time was a verdict in the plaintiff’s favor for §8,509.41 due under the contract ■—• for §54,001.09 actual damages, and §37,500 exemplary damages—and judgment was accordingly rendered foreclosing the equitable mortgage claimed for the sum just named, and awarding execution against the Houston & Texas Central for .the amount of damages, actual and exemplary.

To the extent of the §8,509.41, proved to be due and secured by mortgage, the judgment is not complained of, but all further liability on its part is denied by the appellant.

The act of May 24, 1873, is as follows:

“ An act to provide for the merger of the Waco & Northwestern Railway Company, with its properties, rights, privileges and franchises, in the Houston & Texas Central Railway Company.”

Seo. 1. Be it enacted, etc.: That the said Waco & Northwestern Bailroad Company is hereby, merged in the Houston & Texas Central Bailway Company, and the said Waco & Northwestern Bailroad is hereby made, to all intents and for every purpose in law, a part of the Houston & Texas Central Bail way. And the Houston & Texas Central Bailway Company is hereby authorized and empowered to operate, manage and control the said Waco & Northwestern Bailroad in the same manner as every other part of the said Houston & Texas Central Bailway; and shall have the right to continue the construction of said railroad from the city of Waco in a northwesterly (Erection, in accordance with the terms of the charter of the said Waco & Northwestern Railroad Company; and the said Houston & Texas Central Railway Company shall possess and enjoy all the properties, rights, franchises and privileges belonging and heretofore granted to the said Waco & Northwestern Railroad Company.

Seo. 2. This act of consolidation is passed, and shall become operative, on condition that said consolidated road shall not, in either of its branches, be sold, leased or rented to, or consolidated with, any other parallel, competing or converging railroad; and that said company shall not purchase, own or control any such parallel, competing or converging road; and upon the still further condition that the portion of said Northwestern Railroad not yet built, if built at all by said company, shall be constructed and put in operation "within the time required by the charter of said road; and should the general line of the portion of said road not yet built, pass within five miles of any established county seat, then said road shall run to said county seat, and said company shall establish and keep a depot for freight and passengers within one-half mile of the business portion of said town, on condition that the right of way through said town, and sufficient ground, not less than fifteen acres, for switches, turn-outs, and such building as may be necessary and proper, shall be furnished to said company free of charge; provided, that said company shall not be compelled to construct said road within one-half mile of any county seat where, from natural obstacles, it is impracticable to do so; but in such case said road shall run, and a depot be established, as near said town as such natural obstacles will admit; and should the line of said road be definitely located through any county before the permanent location of the county seat thereof, then it shall not be necessary for said road to "be so varied from its line as to run within one-half mile of said town.

Seo. 3. This act shall take effect and become operative upon the acceptance by said company of the conditions herein stated.

Approved May 24, 1873.

On the subject of the rights and liabilities of the appellant, the court instructed the jury as follows:

“ 20. That the papers and documents in evidence show a valid title in the Central Railway Company to the existing property therein conveyed, so far as the plaintiff is concerned, and which the plaintiff has no right in this action to question on account of want of authority to convey and receive, and there is no evidence of allegations of fraud in the conveyances, and it is not deemed necessary or’ proper to submit the issue of estoppel raised by the pleadings, in view of the law and the evidence.

“21. But you are charged, that the act of the legislature in evidence before you, merging the Waco & Northwestern Railroad Company in the Houston & Texas Central Railway Company, and the acceptance of said act and its benefits by said last named corporation (which is not controverted), the Houston & Texas Central Railway Company became hable for all obligations of the Waco Tap, and its nominal successor, the Waco & Northwestern Railroad Company, whether in debt or damages; and in forming your verdict, if for plaintiff, you will find your verdict in terms against the defendants, the Waco & Northwestern Railroad Company and the Houston & Texas Central Railway Company.”

The papers and documents referred to show that in October, 1871, pending this suit, the Houston & Texas Central entered into an original and supplementary agreement with the Waco & Northwestern Railroad Company, to aid in the construction and completion of its road, under which the Waco road became largely indebted to the Central, said indebtedness being secured by a deed of trust, including its road-bed, right of way, depot grounds and appurtenances, etc., and ah its “chartered rights, privileges and franchises of every kind, granted to the party of the first part by acts of the legislature of the state of Texas, which are now possessed by the party of the first part, or to which they may hereafter become entitled under said acts and the laws of Texas relating to railroads.” A sale was had under the deed of trust, on February 4, 1873, at which sale the Central became the purchaser, and received from the trustees a conveyance of the property and franchises specified in the deed of trust. It was after this sale and purchase that the special act of the legislature of May 24, 1873, was passed.

Ordinarily the consolidation of two railroad corporations is accomplished by agreement under legislative authority; the terms of consolidation providing for the rights of both creditors and stockholders of the original corporations.' Says a recent text writer: “The consolidated corporation, for the purpose of answering for the liabilities of the old corporations, is deemed the same as each of its constituents, and may be sued under its new name for their debts as if no change had been made in the name or organization of the original corporation.” pTones B. B. Securities, sec. 415.) Evidently a voluntary consolidation is intended. An examination of the authorities cited by the author, as well as those cited by appellee in support of the’charge of the court, will show that they are all cases of consolidation by agreement under legislative sanction. Evidently such a consolidation cannot be accomplished in disregard of the rights of creditors or stockholders, and accordingly either in the statute authorizing or in the agreement consummating such consolidation, stipulations are inserted for the protection of those rights. And even if neither statute nor agreement make mention of creditors, the consolidated corporation is held to have assumed the liabilities of its constituents. ) Pierce on Am. R. R. Law, p. 503, citing 1 Am. Rail. Cas., 96, notes/

But clearly the purchaser of property at a sale under an execution or deed of trust assumes no personal liability for the debts of the former owner; and if by such a purchase the chartered rights and corporate existence and privileges of a corporation pass under the- control of the purchaser, it still does not follow that its liabilities also attach to him. Vilas v. Milwaukee, etc., R. W. Co., 17 Wis., 513; Smith v. Chicago & N. W. Railway Co., 18 Wis., 22; Morgan Co. et al. v. Thomas et al., 76 Ill., 147.

The laws of this state allow a railroad corporation to incumber by deed of trust for the payment of its debts and legal liabilities, its “road-bed, track, franchise and chartered rights and privileges,” to be deemed an entire thing and to be sold as such; and “the purchaser or purchasers at such sale and their associates shall be deemed and taken to be the true owners of said charter, and corporators under the same, and vested with all the powers, rights, privileges and benefits thereof, in the same measure and to the same extent as if they were the original corporation of said company; and shall have power to construct, complete, equip and work the road upon the same terms and under the same conditions and restrictions as are imposed by their charter and the general laws of the state.” Pasch. Dig., art. 4912; R. C., art. 4260.

It is provided that such sale shall not pass to the purchaser any right to recover of “ former stockholders any sums which may remain due upon their subscriptions of stock, but said stockholders shall continue hable to pay the same in discharge and liquidation of the debts due by the sold-out company.” The directors of the sold-out company at the time of sale are made “trustees of the creditors and stockholders of the sold-out company, and shall have full powers to settle the affairs of the sold-out company, collect and pay the outstanding debts, and divide among the stockholders the money and other property that shall remain after the‘payment of the debts and necessary expenses; and the persons so constituted trustees shall have authority to sue by the name of the trustees of such sold-out company, and may be sued as such, and shall be jointly and severally responsible to the creditors and stockholders of such company, to the extent of its property and effects that shall come to their hands. And no suit pending for or against any railroad company at the time that the sale may be made of its road-bed, track, franchise and chartered privileges, shall abate, but the same shall be continued in the name of the trustees of the sold-out company.” Pasch. Dig., arts. 4915, 4916; E. C., 4262-5.

The plain intent of the statute is to transfer the roadbed, track, franchise and chartered rights entire to the purchaser and associates, upon their adopting the form of organization prescribed in the charter and complying with its other requirements; and to remit creditors unsecured by lien to their remedy against such assets as pass to the trustees of the sold-out company.

Under this statute it is believed that a number of railroads in this state have been sold out and purchased by individuals, who have proceeded to organize and manage the corporation under the originakcharter. Galveston R. R. v. Cowdrey, 11 Wall., 459-474./Hot only the road-bed and other mortgaged property, but the franchise to operate a road and the very corporate existence of the sold-out railroad passes to the new organization by virtue of the statute^zÓrdinarily such purchaser and associates need no further legislation. But hi this case the secured creditor, itself a railroad corporation, became the purchaser. The statute does not in terms provide for a purchase by another railroad or corporation. The powers of corporations are strictly limited to those granted in their charters or by law. If the charter of the Houston & Texas Central was not comprehensive enough to authorize it to operate a railroad from Bremond to Waco, it might well hesitate to attempt to organize under the charter of the sold-out railroad, as an individual purchaser might have done. In cases of parallel or competing roads, any species of consolidation is forbidden by the present constitution (art. X, secs. 5, 6); and the consolidation of different railroads, though not competing, does not appear to have been contemplated by the statute. Hence, before undertaking to operate the Waco & N. W. R. R., it was but a prudent precaution in the Central to apply for and obtain legislative sanction. Holding the property purchased free from the claims of creditors and stockholders of the Waco & N. W. R. R. Co., we would reasonably expect that it would seek to obtain the passage of an act imposing no such burden. Such seems to be the purport of the act passed, for, whilst the Waco & N. W. R. R. Co. is merged in the Central and made a part of it, and the Central is empowered to construct and operate said road as its own, and to possess all the properties, rights, franchises and privileges “ belonging and heretofore granted ” to the Waco & N. W. R. R. Co., we find no stipulations whatever recognizing or protecting any rights in stockholders or creditors. Certain conditions are imposed, on the acceptance of which by the company, the act takes effect; but these conditions do not relate to either stockholders or creditors. No assent of the Waco & N. W. R. R. Co. is provided for. The act is neither valid nor intelligible unless read in the light of the occurrences which preceded and called for its passage. How could the legislature merge the Waco & N. W. R. R. Co. into the Central, regardless of the consent of the former and of the rights of stockholders? Clearly, the legislature assumed that the purchase under the deed of trust had consummated all that the act undertook to do, provided only that the purchase by a corporation received legislative sanction.

If there were effects or rights of the Waco & N. W. R. R. Co. not included in the deed of trust and not transferred to the Central before the act was passed, our opinion is that the act was inoperative to effect such transfer, without the assent of the first-named corporation. But in regard to all the property and rights so included, the Central being already the equitable owner, was by the act vested with full ownership, and was empowered to operate the road under its own name and charter. In accepting the conditions of the act, our opinion is that the Houston & Texas Central R. R. Co. did not assume the liabilities of the Waco & N. W. R. R. Co., either to its stockholders or creditors.

On the subject of exemplary damages the court charged as follows:

• “15. A mere breach of the contract on the part of the company will not authorize' a verdict for exemplary or punitory damages; but if there was a breach of the contract by the corporation, and there was an act done by it, and such breach was done and made with a fraudulent intention to deprive Shirley of his legal rights, or with a malicious intent to oppress him, you may find a verdict for plaintiff for exemplary damages in any sum in your discretion, not exceeding the amount claimed by plaintiff as exemplary damages. If there was such a breach of the contract as entitles the plaintiff to the recovery of exemplary damages, under this charge his right to a verdict for the same is not impaired, although he may have suffered no actual -damage such as mentioned in charges number ten and eleven.”

The court rightly treated the action as one for breach of contract. No damages were claimed or recovered for a tortious conversion of plaintiff’s property. The recovery sought and obtained was of sums due under the contract, of actual damages for the breach of contract, and of exemplary damages for such breach, on the ground that it was committed with a fraudulent and malicious intent to oppress.

Appellant claims that exemplary damages for a breach of contract is without precedent. Certainly the cases from this court cited by appellee constitute no such precedent. In Graham v. Roder, the gist of the action was deceit and fraud in professing to sell that which had no existence. 5 Tex., 147. Gordon v. Jones was an action for the tortious conversion of property. 27 Tex., 620. Hone of the other cases cited from this state were for breach of contract. At common law, where the action is on the contract, the motives or conduct of the party breaking the contract cannot be considered in damages, except in actions for breach of promise of marriage. Mayne on Law of Damages, p. 10; Wood’s Mayne on Damages, sec. 45; Sedgwick on Damages, 6th ed., 246 (208); Field on Damages, sec. 53. Mr. Sedgwick seems to think that this rule grows out of the forms of action at common law,- and that the rule might be otherwise when there were no such forms. The reason of the rule that . confines the recovery -in suits on contract to actual damages is believed to still prevail, although we have no forms of action. If, in ordinary litigation on contracts, issues as to motives and exemplary damages be allowed, the result would be greatly to increase the intricacy arid uncertainty of such litigation.

The exclusion of such issues in suits on, contract may be justified on the policy of hmiting the uncertainties and asperities attending litigation of such issues, to that class of cases in which the nature of the wrong com-' plained of renders those issues and evils to some extent unavoidable. It is to be remarked that our statute, where a suit is founded on a certain demand, does not permit the defendant to set off unliquidated or uncertain damages. Pasch. Dig., art.‘3447. At all events, the allowance of exemplary damages in suits on contract is not supported by authority, and the innovation is one which we are not prepared to make.

On the trial appellant objected orally to the depositions of Brown and Boyce, filed on the day the trial commenced, that they had each failed to answer certain cross interrogatories propounded to them, or had answered them evasively. The court in signing the bill of exceptions explains that the defendants were informed that the court would entertain objections to particular interrogatories, the crosses to which had not been properly answered. The authorities are that the omission to answer, or the refusal to answer, is fatal to the entire deposition. Ketland v. Bissett, 1 Wash. C. C., 144; Winthrop v. Ins. Co., 2 Wash. C. C., 7; Kimball & Rowe v. Davis et al., 19 Wend., 437; Smith v. Griffith, 3 Hill, 334.

Our opinion is that the objection, if well founded, was fatal to the entire deposition, and we are unable to see that there was such an amount of other testimony to the same effect as to show that the erroneous admission was an immaterial error.

The judgment is reversed and the cause remanded.

Beversed and remanded.

[Opinion delivered January 16, 1880.]