Chesapeake, Ohio & Southwestern Railroad v. Griest

| Ky. Ct. App. | May 19, 1887

CHIEF JUSTICE PRYOR

delivered the opinion oe the court.

The appellant, William P. Griest, while in the employ of the Paducah and Elizabethtown Railroad Company, and running one of its excursion trains from Cecilia, in Hardin county, to the city of Paducah, was severely injured by the collision of the engine with horses upon the track, by which the engine ran off the road-bed, capsized, crushing and wounding him in a frightful manner. He instituted this action against the Chesapeake, Ohio and Southwestern Railroad Company and the Paducah and Elizabethtown Railroad Company, alleging in substance that the injury resulted from insufficient air-brakes, that were defective and so known to the defendant and unknown to the plaintiff, and which, if in proper condition, would have enabled him. to check the train and prevent the injury. His claim for damages was allowed to the extent of ten thousand dollars against the Chesapeake, Ohio and Southwestern Railroad Company alone, the Paducah and Elizabethtown Railroad Company not being served with process or appearing in the action.'

The Chesapeake, Ohio and Southwestern Railroadi Company was incorporated in the month of January in the year 1882, and the accident resulting in injuring the plaintiff occurred in July, 1881.

The claim against this corporation is attempted to-be maintained on the idea that by its charter, and the contract by which it became the owner of the' Paducah and Elizabethtown Railroad Company, the-two were consolidated and constituted the one corporation, and further, that, by the terms of the purchase, the present appellant undertook to discharge* all the liabilities of the Paducah and Elizabethtown Railroad Company. A demurrer was filed to the petition on the ground that it presented no cause of action against the appellant, and the demurrer overruled. An answer was then filed to the petition, the first paragraph of which denied any responsibility for the tort complained of, or for any personal injury to the employes while engaged in the service of the Paducah and Elizabethtown Railroad Company, maintaining that the agreement by which it became the owner of the last named corporation was a deed of bargain and sale entered into by both corporations under their respective charters. The identical question in fact is made by this paragraph of the answer that was raised by the demurrer to the petition. We must look to the writing, therefore, by which the appellant acquired the Paducah and Elizabethtown Railroad, to determine the liability of the one for all the debts and liabilities of the other. The facts alleged in the petition constitute a cause of action against the Paducah and Elizabethtown Railroad Company, and if the appellant is liable in this case, it must be by reason of the contract between the two corporations.

The deed of bargain and sale recited that “the one has bargained and sold, and by these presents doth grant, bargain and sell, alien, convey and confirm unto the Chesapeake, Ohio and Southwestern Railroad, all the railroad and its properties, naming them specifically, to have and to hold in fee, including “all debts, dues and demands of whatever nature due or to become due to it, and all the rights privileges and franchises belonging to or appertaining to the Paducah and Elizabethtown Railroad Company.” The consideration for this sale was over seventy thousand dollars in money and two million eight hundred .and fifty-three thousand dollars in negotiable bonds, ■and the assumption of certain mortgage liens that were upon the road; and further, the appellant “bound itself to pay all sums lawfully due for taxes, and all current indebtedness incurred by the party of the second part in the operation of the said railroad and property.”

The Paducah and Elizabethtown Railroad Company was authorized by its charter, with the assent of a •majority in value of the stock of the company, to sell or lease its road, and the powur to purchase was conferred on the appellant; so no obstacle .existed to the consummation of such a transaction but the consent of the stockholders, as .provided by the several, charters; that consent was obtained, and the legal effect of the agreement was to transfer to the appellant all the rights, property, etc., of the Paducah and Elizabethtown Railroad Company, free from the claims •of creditors. It was a bona fide ■ purchaser, paying full value for the road — at least the validity of the •transaction is nowhere assailed — and in such a state •of case we are aware of no rule of law or equity that would follow, the property in the hands of a ■bona fide purchaser for the benefit of a creditor who .has no lien by law or contract as against it on the ■property sold. If the corporation had but changed its name, with the same stockholders or with additional stockholders, it would be regarded as the same •corporation. Here, however, is a great line of railroad incorporated, under the name of the Chesapeake, Ohio and Southwestern Railroad Company, with responsibilities greater than those belonging to the corporation whose property has been purchased by it,, ■with different stockholders, and property rights that were before and after the purchase disconnected from-the interest of stockholders in the corporation purchased ; and it can not be well argued that the two-have consolidated or have each a'common interest in the appellant. No stockholder in the Paducah and Elizabethtown Railroad Company held stock as such in the Cheasapeake and Ohio Railroad Company, but, on the contrary, the stockholders in the Paducah and Elizabethtown Railroad Company were paid off in bonds by the appellant, extinguishing the existence of all the-property rights of the latter company, and in fact it may be said to have no longer an existence except for the purpose of winding up the’ affairs of the company.

A creditor of the corporation, whether from an express or implied contract, subjects himself, when dealing with it, to the powers conferred by the charter.. If the power to sell is given by the terms of the grant, the purchaser for value holds the property as-if it had been an individual transaction. There is' no-reason for making the distinction,, and the rule in individual transactions should apply as between corporations when the power to sell and purchase is conferred by the charter. While a dissolution of a corporation would entitle the creditors to enforce their demands in a court of equity, or where there is a consolidation to follow the assets of their debtor in the consolidated company, still, where there is a sale of the corporate property, it passes the title as-to all, in the absence of some reservation in the charter protecting the rights of creditors. (Morawetz on Private Corporations, 567, 568, 569.) Where the corporation is dissolved or is consolidated, the assets of the company is a trust fund for the payment of its debts, and may be reached by a court of equity.

What, then, is the remedy of the appellee in this case, in the event he is entitled to a judgment against the Paducah and Elizabethtown Railroad Company?

If a sale in good faith has been made to the appellant —and that is not questioned — the stockholders of the Paducah and Elizabethtown Railroad Company having received a consideration for their stock, would scarcely be permitted to hold the proceeds in their pockets and the debts of the corporation left unpaid. An equivalent has been paid by the appellant in money and bonds that have passed to the stockholders of the old corporation. This must be regarded as assets for the payment of debts, if not already appropriated in that way.

This court held, in the case of Smith & Davis v. Gower, 2 Duvall, 17, that where the property and franchise of a railroad company had been sold under a mortgage, the liabilities of the corporation still existed, and the corporation still lived, at least for the payment of its debts.-

It is urged, however, that the appellant undertook to pay the current indebtedness incurred by the Paducah and Elizabethtown Railroad in running its road, and that this embraced the tort complained of, or the liability of the company to the appellee under its implied contract to furnish safe machinery in operating the road. In the case of Coggin v. The Central Railroad Company, 62 Georgia, 685, where the one company absorbed the former, one of the provisions of the act was, that the living corporation should discharge all the contracts of the extinct corporation. There the court permitted the injured party to sue for a tort, and to recover on the agreement to pay all the debts, the reasoning being based on some provision of the Code in which the word debts was used, the court saying that there was a strong probability that the word was intended to embrace liabilities of all classes, torts included.

Whether the words “ to pay all current indebtedness in operating ’ ’ the road embraces such a tort as is complained of in this case is not necessary to be determined, as we think it evident that before such a recovery could be had some claim should be established against the party or corporation committing the injury. If we could construe the words current indebtedness as meaning what the appellee insists they do mean, we are not disposed to adjudge that an action for negligence, in which punitive as well as compensatory damages can be recovered, may be maintained against one not in existence when the tort was committed. This action should have been prosecuted against the Paducah and Elizabethtown Railroad Company, for the purpose of establishing the claim, and then the equity of the appellant as against the stockholders of that corporation, or the claim, if any, against the present appellant, could be asserted.

The case of Powell v. The North Missouri Railroad Company, 42 Mo., 68, was a case where several railroad companies were, by an act of the Legislature, merged into one, and constituted one body, under the name of one of them. It was there held that when, by the terms of the deed, the first corporation was extinguished, and the second only continued to exist, the case was not one of consolidation or amalgamation. There the one orporation was authorized by a majority in interest of its stockholders to transfer its effects, assets, rights and privileges to the North Missouri Railroad Company, and upon such transfer the company was to cease to exist, and the road thenceforth to be styled the West Branch of the North Missouri Railroad, their franchises to be completely vested in the North Missouri Railroad Company. It was there said that the one corporation was absolutely extinguished. It was a matter of contract, and made upon a valuable Consideration to a bona fide purchaser, and that while a court of equity will not allow a corporation to give away its property to the prejudice of creditors, it will not follow the property into the hands of bona fide purchasers. (See also the Eaton & Hamilton R. R. Co. v. Hunt, 20 Ind., 463.)

In this case the appellee is proceeding on the theory that the Paducah and Elizabethtown Railroad no longer exists; that its property and franchises have passed to the appellant by the deed filed with the petition. It has no interest in common with the appellant, nor has any of its stockholders any stock in the new company, and the fact that the president of the appellant was the owner of most of the stock in the Paducah and Elizabethtown Railroad cannot have the effect of making a new and distinct corporation that is a purchaser for value liable for its debts, except as made so by the terms of the sale.

We do not mean to adjudge that one corporation can be relieved of its liabilities by passing its property over to some other company, or that a creditor is deprived of his rights as such in a case where the company liable to him consolidates with another. The right to consolidate cannot be prevented by the creditor, but he may, in such a case, have the assets applied by a court of equity to the payment of his debt, because in effect the corporation is dissolved.

The creditor, in the event the agreement of consolidation bound the consolidated company to pay the debt, could not be compelled to accept the agreement and thereby destroy his right to look to his own debtor; and as said in Morawetz, it has sometimes been held that when a new company is formed by consolidation of several companies, it thereby impliedly assumes the debts and obligations of the old. But this doctrine is not universally accepted; and there seems to be no sufficient reason for implying such an assumption of liabilities, particularly as creditors are not compelled to accept the same. (Morawetz on Corporations, page 558.)

In the present case it is apparent- that there was an absolute sale of the Paducah and Elizabethtown Railroad, and the action should have been prosecuted to judgment against the latter company. The demurrer by the appellant should have been sustained.

The judgment is therefore reversed, and cause remanded with directions to sustain the demurrer.