Schmidt v. L. & N. R. R.

129 S.W. 332, 139 Ky. 81, 1910 Ky. LEXIS 11

• Court: Court of Appeals of Kentucky
• Decided: June 17, 1910
• Status: Published

Opinion

Opinion op the Court by

Judge Carroll

Reversing.

The facts out of which this litigation grows may be stated as follows: In 1879 the Cumberland & Ohio Railroad Company leased to the Louisville, Cincinnati & Lexington Railway Company for a period of 30 years its roadbed and other appurtenances, and at the same time executed to the lessee a mortgage on all its property and franchises to secure the payment of 250 bonds of $1,000 each. The lessee as a part of the arrangement agreed to apply the net earnings derived from the leased road to the payment of the interest on these bonds and for the creation of a sinking fund for their redemption; and, if the net earnings did not prove sufficient for this purpose, the lessee was to supply the deficiency by appropriating the net earnings, or so much as might be needed on its own lines which accrued by reason of business coming to it from the lessor’s lines. In addition to the lease and mortgage executed by the Cumberland & Ohio Railroad Company, the Louisville, Cincinnati & Lexington Railway Company executed to the bondholders a mortgage on the earnings derived from the Cumberland & Ohio Railroad for the purpose of. securing the payment of the bonds and interest. Afterwards, in 1881, the Louisville, Cincinnati & Lexington Railway Company, in consideration of $7,000,000, sold its line of road and equipment to the Louisville & Nashville Railroad Company, and as a part of the conveyance transferred the lease made to it by the Cumberland & Ohio Railroad Company. In the conveyance made by the Louisville, Cincinnati & Lexington Railway Company to the Louisville & Nashville Railroad Company, the Mercantile Trust Company of New York was denominated as a party of the third part, and the Louisville & Nashville Railroad Company agreed to execute and deliver to it as trustee bonds to the amount of the purchase price, which were secured by a lien upon the property conveyed by the Louisville, Cincinnati & Lexington Railway Company. This conveyance was signed and acknowledged by the Louisville, Cincinnati & Lexington Railway Company, the Louisville & Nashville Railroad Company, and the Mercantile Trust Company.

In this action, which was filed in September, 1908, the holders of the bonds issued by the Cumberland & Ohio Railroad Company seek to recover from the Louisville & Nashville Railroad Company $25,000; the petition alleging: That the Louisville, Cincinnati & Lexington Railway Company, after the sale of its line of road to the Louisville & Nashville, Railroad Company, owned no property of any kind or charactér, and did not attempt to carry on any business under its charter. That the Louisville & Nashville Railroad Company as a part of its purchase of the Louisville, Cincinnati,& Lexington Railroad assumed all the obligations entered into by it with the Cumberland & Ohio Railroad Company, and consequently agreed to operate the Cumberland & Ohio Railroad and apply the net earnings arising from it, as well as the net earnings accruing to the Louisville, Cincinnati & Lexington Railway Company from business that came to it from the Cumberland & Ohio Railroad to the payment of the bonds issued by the Cumberland & Ohio Railroad Company, as well as the interest thereon. It further alleged that in violation of its obligation the Louisville & Nashville Railroad Company refused to operate the Cumberland & Ohio Railroad for the years 1898 and 1899, and that by reason of such refusal no earnings were derived from this road. It also averred that, if the Louisville & Nashville Railroad Company had complied with its contract by operating the Cumberland & Ohio Railroad according to the terms of the lease made between it and the Louisville, Cincinnati & Lexington Railway- Company, net earnings of at least $12,000 a year would have been received and by the terms of the leases and contracts between the Cumberland & Ohio Railroad Company and the Louisville, Cincinnati & Lexington Railway Company appropriated to the payment of the bonds and interest. Judgment was sought against the Louisville & Nashville Railroad Company for $25,000, with interest from March, 1900.

In its answer, among other defenses, the Louisville & Nashville Railroad Company relied upon the 5-year statute of limitations as a bar to any recovery against it by the bondholders. This defense is rested upon the ground that its assumption of the obligations entered into between the Louisville, Cincinnati & Lexington Railway Company and tbe Cumberland & Ohio Railroad Company was an implied and not an express contract upon its part to perform tbe undertakings assumed by tbe Louisville, Cincinnati & Lexington Railway Company in its contract with tbe Cumberiaüd & Ohio Railroad Company; and as it was an implied contract, and tbe action was not brought for more than five years after it accrued as alleged in the petition, it was barred by section 2515 of the Kentucky Statutes, reading in part: “An action upon a contract not in writing signed by the party * * * shall be commenced within five years next after the cause of action accrued.”

In answer to this the appellant bondholders insist that the contract, by which the Louisville & Nashville Railroad' Company assumed the obligations entered into by the Louisville, Cincinnati & Lexington Railway Company with the Cumberland & Ohio Railroad Company is either an express contract in writing or in effect a written contract, and consequently the 15-year and not the 5-year statute applies to it.

The lower court held that the 5-year' statute of limitations barred a recovery, and dismissed'the petition. The ruling on this point is the .only question that was argued and the only one we will consider.

In one form or another, litigation growing out of these various leases, contracts, and conveyances has been before this court in several cases. The first case (Schmidt v. L. &.N. R. R. Co., 95 Ky. 289, 25 S. W. 494, 26 S. W. 547, 15 Ky. Law Rep., 785) was an action by the bondholders to compel the Louisville & Nashville Railroad Company to account for the net earnings alleged to have accrued after the conveyance to. it by the Louisville, Cincinnati & Lexington Railway Company by reason of business coming to it from the Cumberland & Ohio Railroad, for the purpose of. paying the bonds issued by the Cumberland & Ohio Railroad Company and the interest thereon. Another case was that of Schmidtz v. L. & N. R. R. Co., 101 Ky. 441, 41 S. W. 1015, 19 Ky. Law Rep. 666, 38 L. R. A. 809, in which the bondholders sought to compel the Louisville & Nashville Railroad Company to continue to operate the Cumberland & Ohio Railroad in accordance with the provisions of the lease made by it to the Louisville, Cincinnati & Lexington Railway Company. In this case the court said: “It seems to us that the Louisville & Nashville Railroad Company having purchased all the property and rights of the Louisville, Cincinnati & Lexington Railway Company, including the lease in question (that is, the lease of the Cumberland & Ohio Railroad Company to it), and having taken charge of the road in question, and operated the same for a long time, and having elected to sue and recover the sums due to the Louisville, Cincinnati & Lexington Railway Company from the Cumberland & Ohio Railroad Company, conclusively establishes the fact that; it assumed whatever obligations the Louisville, Cincinnati & Lexington Railway Company were under, by virtue of the lease aforesaid, and it further seems clear that the Louisville & Nashville Railroad Company operated the road under and by virtue of said lease, and not as tenant by sufferance, and thus assumed all the obligations resting upon the lessee.” And after discussing elaborately the various questions raised in the case, the court concluded its opinion by holding that the Louisville & Nashville Railroad Company was obliged 'by its assumption of the obligations resting upon the Louisville, Cincinnati & Lexington Eailway Company to operate the Cumberland &' Ohio Eailroad for 30 years as specified in the lease to the Louisville, Cincinnati & Lexington Eailway Company. In L. & N. R. Co. v. Schmidt, 112 Ky. 717, 66 S. W. 629, 23 Ky. Law Rep. 2097, it is said: “The lease from the Cumberland & Ohio, the mortgage made by it, and the mortgage made by the Louisville, Cincinnati & Lexington Company to the trustee for the bondholders were all executed for the same purpose, and were delivered simultaneously. It has been held by this court several times that these three papers, executed contemporaneously, not only for the benefit of the lessor and the lessee, but also for the benefit of the bondholders, must be read together, as one contract.” It is further said: “After the contract was made, the Louisville & Nashville Eailroad Company bought out the Louisville, Cincinnati & Lexington Eailway Company and so succeeded to all its rights under it.”

It will thus be seen that it has been definitely settled that the Louisville & Nashville Eailroad Company, as the assignee of the Louisville, Cincinnati & Lexington Eailway Company, assumed the obligations undertaken by the Louisville, Cincinnati & Lexington Eailway Company in its contract with the Cumberland & Ohio Eailroad Company, and so became liable to the bondholders for the net earnings they would have received if the Louisville, Cincinnati. & Lexington Hailway Company had continued to operate the Cumberland & Ohio Eailroad under its contract with it. The question therefore narrows down to a single proposition whether or not the Louisville & Nashville Eailroad assumed these obligations in such a manner as to make its undertaking either actually or in effect a written one. If it did, the 15-year statute, and not the 5-year statute, applies.

Much stress is laid in argument for appellants upon the fact that the conveyance by the Louisville, Cincinnati & Lexington Railway Company to the Louisville & Nashville Railroad Company is signed by the last-named company; but counsel for appellee insist that this fact is not entitled to controlling importance, because in this conveyance the Mercantile Trust Company of New York is named as a party of the third part, and, as the Louisville & Nashville Railroad Company bound itself to deliver to the trustee for the benefit of the Louisville, Cincinnati & Lexington Railway Company bonds amounting to $7,000,000, and in addition thereto the conveyance contained a number of stipulations in reference to the payment of these bonds, it was necessary that the Louisville & Nashville Railroad Company should have signed this conveyance for the purpose of acknowledging its liability to the trust company to carry out the conditions named in the contract. It is true that there is not anything in this writing on its face that discloses that it agreed or undertook to discharge any of the obligations assumed by the Louisville, Cincinnati & Lexington Railway Company in its contracts with the Cumberland & Ohio Railroad Company. It reads in part as follows: “This indenture made this first day of November, 1881, between the Louisville, Cincinnati & Lexington Ra.ilway Company, a corporation organized and existing under the laws of the state of Kentucky, party of the first part, hereinafter denominated the railway company, and the Louisville & Nashville Railroad Company, a corporation created, organized and existing under the laws of the state of Kentucky, party of the second part, hereinafter denominated the railroad company, and the Mercantile Trust Company, a cforporation created and existing under the laws of the' state of New York, party of the third part, hereinafter denominated as trustee, witnesseth: That for and in consideration of the sum of seven million dollars ($7,000,000.00) to be paid in the manner hereinafter provided for, and for the payment of which a vendor’s lien is hereby retained on the property hereby conveyed by the party of the first part to the party of the second part for the benefit of the holders of the bonds herein provided for, * * * the railway company has bargained, granted, sold and assigned, and does hereby bargain, grant, sell, assign and convey unto the railroad company the railroad of the party of the first part, * * * and generally the property, rights and franchises of the party of the first part, including * * * the leases of the Shelby Railroad and of the Northern Division of the Cumberland & Ohio Railroad. To have and to hold the same to the party of the second part, its successors and assigns forever, with covenant of general warranty.”

But there can be no doubt that the Louisville & Nashville Railroad Company, as a part of its purchase of the Louisville, Cincinnati & Lexington Railway Company, took over the Cumberland & Ohio Railroad Company as the assignee and successor of the Louisville, Cincinnati & Lexington Railway Company. And when it did this, as we have heretofore held, it assumed all of the obligations imposed upon the Louisville, Cincinnati & Lexington Railway Company by the lease. We have then this state of case: The Louisville, Cincinnati & Lexington Railway Company as the lessee, expressly bound itself in a writing signed by it, to perform the conditions of the lease, and of course as between it and the lessor no ques-lion could be made that its liability to respond for a breach of its undertaking would continue for 15 years from the date of the breach. ' Now, the lessee assigned this written lease, and the assignee accepted it in all its terms. In other words, it substituted itself in the place of the lessee. So that,, it does not seem necessary in the disposition of this case to look beyond the contract made between the Louisville, Cincinnati & Lexington Railway Company, the Mercantile Trust Company, and the Louisville & Nashville Railroad Company, and the writings including the lease of the Cumberland & Ohio Railway Company to the Louisville, Cincinnati & Lexington Railway Company, which are necessarily a part of that contract, to hold that if the Louisville & Nashville Railroad Company obliged itself in writing to perform all conditions of the contract between the Cumberland & Ohio Railway Company and the Louisville, Cincirinati & Lexington .Railway Company, the 15 and not the 5 year statute of limitation applies. This writing was signed in due form by the Louisville & Nashville Railroad Company, and while the argument is made that it only signed it because of the obligation assumed by it to1 the Mercantile Trust Company, there is no good reason for thus limiting the effect of its signature. It is an entirety, and, when the Louisville & Nashville Railroad Company signed it,' it bound itself to fulfill all the conditions that were a part of it. But it is said that nowhere in this paper is there any mention of the fact that it assumed any obligation entered into by the Louisville, Cincinnati & Lexington Railway Company. This is true, but mention is made of the fact that the Louisville, Cincinnati & Lexington Railway Company did convey to it the lease of the Shelby Railroad and the Northern Division of the Cumberland & Ohio Railroad, and so this lease became a part of the conveyance the same as if set out therein in fall, and the Louisville & Nashville Railroad Company by its acceptance .of. this lease bound itself in writing to perform all the conditions contained in it. It would be idle, in view of what has been written in the other opinions, supra, concerning the effect of the various writings between these corporations, to say that the Louisville & Nashville Railroad Company did not assume all the obligations imposed by the lease that it purchased, or that it only took over so much of it as was beneficial to it and rejected the balance. It took it with all its burdens and has acted under aud by virtue of it. When it signed the paper of which the lease was a part, it was the same in effect as if it had signed the lease itself. If the lessee in a written contract concerning land assigns his lease to another, and that other accepts in writing the assignment, we cannot doubt that this is a contract in writing signed by him to perform the conditions of the lease accepted, although in the specific writing that he sign there may be no mention of what obligation he has assumed. It is not necessary that there shou/ d be. Why should he accept in writing a lease, and substitute himself for the lessee, unless it be to do all the lessor had agreed to do? If the party accepting the lease does not desire or intend to do this, or if it is not the purpose of the acceptance of the lease to take it with .all its burdens as well as benefits, the assignee can easily insert conditions in the acceptance that will exempt him from such liability as he does not care to assume. Under the view we have taken, it is, of course, manifest that the cases of Botkin v. Middlesborough T. & L. Co., 66 S. W. 747, 23 Ky. Law Rep. , and Low v. Ramsey, 122 S.W. 167, 135 Ky. 333, have no application. In these cases the vendees did not sign any writing assuming any debts or liabilities. They merely accepted' deeds in which it was stated that they would do certain things, and we held that this was only an implied obligation upon their part.

Wherefore the judgment is reversed, with directions to proceed in conformity with this opinion.

Barker, C. J., did not sit.