Kelly v. Trustees of Alabama & Cincinnati R. R.

58 Ala. 489

• Court: Supreme Court of Alabama
• Decided: December 15, 1877
• Status: Published

Opinion

BRICKELL, C. J.

1. The bill does not aver the manner or the time of the creation of the East Alabama and Cincinnati Railroad Company, as a body corporate; nor is it shown whether it derived existence and authority' from a special act of incorporation, prior to the constitution of 1868, or whether it was formed under the general laws of the State. Nor is there any averment of its specific corporate powers. The averment is general, that on the first day of July, 1870, when the bonds were issued, and the deed of trust for their security executed, it was a body corporate, existing under the laws of the State, and created for the purposes of constructing and operating a railroad from Eufaula to Gunters-ville. Judicial notice cannot be taken of the charter of a private corporation, nor of its corporate power or capacity, if it derives existence from such charter, by which we intend a special act of incorporation.— City Council of Montgomery v. M. & W. Plank Road Co. 31 Ala. 76, If it is shown to have been formed under the general laws, which authorize the formation, and define the powers1 of corporations, these are public laws, of which notice must be taken, and of course to these the power of the corporation must be referred.

2. There are, however, powers at common law incident to corporations, and these they must be presumed to possess, in the absence of special restraint by their charters, or by statute. Of these, is the capacity to purchase alien lands and chattels. “Independent of positive law, all corporations have the absolute jus disponendi of lands and chattels, neither limited as to objects nor circumscribed as to quantity. They may execute a mortgage to secure a debt.”- — 2 Kent, 28Í, (marg.j; Green’s Brice’s Ultra Yires, 123-130, Corporations created for the construction of railroads, in the absence of limitation or restraint by statute, have power to borrow money, and to make bonds, bills, or promissory notes, for its repayment; and also power to mortgage its property, real or personal, as a security for sucb evidence of debt. These are powers necessary and proper to enable it to accomplish the purposes of its creation, and are regarded as incidental or implied, though not expressly conferred by the eharter, or act of incorporation. — Richards v. Railroad, 44 N. H. 127; Commonwealth v. Smith, 10 Allen, 448. In the consideration of the demurrer, and the motion to dimiss the bill for want of equity, notwithstanding the powers conferred on the corporation are not stated specifically, the objects of its incorporation being shown, it must be presumed it had the incidental powers, conferred by the common law, unless these are restrained, or taken away by statute. If it has these powers, the bonds and deed of trust, which is in its legal effect a mortgage, are not ultra vires, but subsisting debts, and a valid security.

8. It is expressly recited in the deed of trust, that the bonds were prepared with the view of obtaining the indorsement of the State, under the act of February 21st, 1870; and that the lien it creates, shall be subordinate to the lien the State would under that act acquire by the endorsement. The proposition, which seems to be the foundation of the metion to dismiss, and several of the causes of demurrer, specially assigned, is, that the act forbids the creation of a lien by mortgage or otherwise, in favor of the bondholders, to co-exist with the lien of the State, and thus restrains or abrogates the power the corporation would otherwise have to execute a mortgage, or assignment as a security for the payment of the bonds. The statute, (Pamph. Acts 1889-70, p. 149), certainly intends, that when the State, by an indorsement of the bonds of a railroad company, incurred liability for the principal and interest of such bonds, the act of indorsement should operate a lien in favor of the State, having priority of all other liens, though it was not declared by deed or other writing. Tt also provides remedies which may be pursued for the protection of the State, in the event the company should make default in the payment of principal or interest. But we cannot discover anything in its terms or spirit, leading to the conclusion that a prohibition of corporate power to mortgage, in subordination to the lien of the State, was intended. On the contrary, it seems clear no such prohibition rvas contemplated. The bonds the governor is empowered to endorse, are the first mortgage bonds of the company, implying they are, or may be, secured by mortgage. Again, it is said the indorsement of the State shall constitute a first lien, icithout a deed from the company ; and the only prohibition imposed, is not against the creation of any other lien or mortgage, than that the statute creates in favor of the State ; but the creation of any other, which would have priority over, or come in conflict with that of the State. The contract and liability of the State, created by the indorsement, is that of suretyship for the railroad company, indemnity and protection against the liability the statute intends to afford. This is its whole scope and operation. A principal debtor may well, and it is not of infrequent occurrence that he does, create a security and indemnity for his surety, and at the same time create a security by another instrument, or in another mode, for the protection of the common creditor. Each is at last, unless narrowed 'and limited by its express terms, a security for the debt, and may enure to the benefit of the surety, or of the creditor.- A court of equity, will so enforce and appropriate them that the debt shall be paid. The payment of the debt is the purpose for which they are created, and that being accomplished, ease is given to the surety, while the legal and equitable claims of the creditor are satisfied. It is not a lien or a security for the default of the State the deed of trust affords; but a lien or security for the default of the corporation, the principal debtor, which alone can involve the State in loss.

4. The remedies the statute affords, are intended for the protection of the State; and it may be, if it was pursuing these remedies, that it could not be embarrassed by the interference of the trustees to foreclose the deed of trust; or such interference might be an election, by the bondholders authorizing it in that case, to rely on the deed of trust, in preference to a reliance on the liability of the State as endorser. But ■the State is hot pursuing the statutory remedies it could have pursued, nor does it intervene to stay, or claim protection against the foreclosure of the deed of trust; and it is not for the corporation, or those who have succeeded to its place merely, to assert the rights of the State, to the delay of a common creditor, pursuing a clear, equitable remedy to which he is entitled. Statutes are construed in reference to the common law, and the presumption is, that no other innovations on common law principles, than such as are clearly expressed, are intended. — 1 Kent, 464; 9 Bao. Ab. 244. No principle of construction will lead to the conclusion that the statute we are considering derogates from the common law power of the corporation to mortgage, or to assign, for the security of the bondholders. Restraint of such power is not essential to .the protection of the State, except so far as the statute in express terms restrains it — -the prohibition of the creation of any lien having priority over or coming in conflict with that of the State. The creation of another lien, subordinate to it, for the security of the common debt, which, if enforced, is in relief of the State, is not inconsistent with, or in conflict with the lien of the State. Attempts to employ it so as to embarrass the State would, if necessary, be restrained; or it may be, would operate to discharge the State from liability. These are considerations which are not involved in the inquiry, as to the power of the corporation to create -the lien, but which arise after its creation, and its enforcement is sought. The remedies the statute affords are given to the State, and the State alone can pursue them. They cannot be resorted to by the bondholder, or by trustees, or assignees for his security, and cannot exclude the right he or they have at common iaw, or in equity, not derived from statute, to foreclose the deed of trust. If the statute had extended to the bondholders, or to trustees, or assignees, for their security the remedies it provides, without a negative, express or implied, of the right to the equitable remedy, the statutory remedies would have been regarded as cumulative, and it would have béen matter of election with them to pursue the one or the other. — Sedg-wick on Stat. & Con. Law, 342.

5. The State cannot be made a party defendant to an action at law, or a suit in equity, and this is a sufficient answer to the objection because of the omission to make it a party. — Constitution of 1875, art. 1, sec. 15. The presence of a prior mortgagee, or of a party having a prior lien, who is not subject to the jurisdiction of the court, when the validity of his incumbrance is not disputed, may be dispensed with; and in the present case must be dispensed with of necessity. — Hogan v. Walker, 14 How. 37. The demurrer and the motion to dismiss, were properly overruled.

6. The resolution of the board of directors, under which the deed was executed, does not, in express words, authorize the creation of a lien upon the incomes, profits, or earnings of the road. It does, however, authorize its creation-on “all the real and personal property now, or hereafter, belonging to the company.” The earnings, incomes and profits of a railroad, derived from its management and operation, are personal property. Words broader or more comprehensive, embracing all existing, or future acquired personal property, could not have well been used. It is but giving these words their natural effect, to construe them as embracing the earnings and profits of the railroad. So construing, them, the deed of trust in the creation of a specific lien on the earnings and profits, was not in excess of the authority conferred by the resolution. The trustees do not stand as mortgagees who have neglected to take a pledge of, or a speeific'lien on rents and profits. They have a lien on tbe incomes, profits, and earnings of tbe road co-extensive witli tbat on tbe road, and tbe other property of tbe company embraced in tbe deed; tbe right to take and appropriate them to tbe payment of tbe mortgage debt, so far as it is past due and unpaid.

7-8. Tbe bankruptcy, and a practical dissolution of tbe corporation, tbe execution of tbe deed of trust, tbe negotiation of tbe bonds, the accumulation of unpaid interest to an amount exceeding tbe value of tbe property conveyed by tbe deed, tbe sale by tbe assignees in bankruptcy, of tbe equity of redemption of tbe corporation, tbe possession and protection of the incomes, profits, and earnings of tbe road so far as completed, and tbe use of its rolling stock, and other personal property, by tbe purchasers for their exclusive benefit, are facts not controverted. Tbe validity of tbe bonds is disputed by tbe answer, and it is averred tbat they were obtained by tbe present holders in contravention, and in fraud of tbe act of February 21st, 1870. If this be true it may avoid tbe indorsement of the State, but it does not relieve tbe corporation from its primary liability as principal debtor. Tbe case thus presented is a plain one for a claim to a receiver. Tbe general rule in equity is, that if airailway corporation becomes insolvent, makes default in tbe payment of tbe principal or interest of its bonds secured by mortgage, and tbe mortgage property is an inadequate security, a receiver will be appointed, on a bill for foreclosure. Especially will tbe court commit tbe encumbered property to the custody of a receiver, if, in addition to tbe insolvency of the corporation, and tbe inadequacy of tbe security, tbe only fund for tbe payment of tbe debt is tbe earnings of the road, and these are being misapplied. — High on Receivers, §§ 376-390. Courts of equity are very reluctant to appoint receivers over any and all corporations. In Adley v. Whitstable Company, 17 Vesey, 324, (inarg.) Lord EldoN, speaking on this subject, said: “1 do not conceive it to be impossible to lay bold of their property, and with regard to tbe power of tbe court there is no distinction, whether tbe subject is a fishery or an inheritance of another nature. Tbe court must deal with it as well as they can, to prevent a failure of justice altogether; and if, by resisting tbe demands of justice they expose their property to ruin, tbe mischievous consequences must be attributed to themselves.” And further speaking of tbe necessity which might rest upon tbe court of carrying on tbe business of tbe corporation, be said: “Yet tbat difficulty would not prevent tbe decree, though it might induce tbe court to modify it, so as to do as little injury as possible.” The subjection of corporate property and franchises to the custody of a receiver, is a suspension in a greater or less degree of the powers of tbe corporation, in addition to devolving on the court often the continuance of the business of the corporation, and this is the explanation of the greater reluctance to appoint receivers over them and their property, than in the case of individuals. Railway companies are more than mere private corporations — they are in many respects, and for many purposes quasi public bodies, invested with large and peculiar franchises and privileges, and owing important duties, and under varied respon-sibilties to the public. Hence, courts of equity in the appointment of receivers over them act with extreme caution, and require a clear case of right and of pressing necessity to induce their interference. — Meyer v. Johnston, 53 Ala. 237. The present is not properly the case of a claim of a receiver, who is to interfere with the exercise of corporate power, and whose custody will suspend in any degree corporate functions. The corporation is practically dissolved, a bankrupt, and for more than three years has had no organization, and there has been an entire non-user of its powers and franchises. Its property has passed into the possession of the defendants, who are using it for their exclusive benefit. Their possession and use of the property will alone be disturbed by the appointment of a receiver. The propriety of the appointment must depend upon the principles governing applications for receivers in the aid of foreclosure of mortgages. The insolvency of the mortgagor, the inadequacy of the mortgage security, and the inability of the mortgagee to enter and take possession, the mortgage debt being unpaid in whole, or in part, and there being a specific lien on the incomes, rents and profits, it cannot be doubted, as a general rule, require the court to appoint a receiver,

Affirmed.