125 Mo. 596 | Mo. | 1894
The state of Missouri brought this action at law against the St. Louis & San Francisco Railway Company to recover $300,000 and the interest thereon. The state’s cause of action is founded on a bond, dated June 10, 1868, whereby the South Pacific Railroad Company agreed to pay to the state the above named amount in three equal annual installments falling due on the first days of June, 1874, 1875 and 1876. The claim of the state is that this bond became the debt of the Atlantic & Pacific Railroad Company
The principal defenses are: First. That the state never had any cause of action against the Atlantic & Pacific Railroad. Company. Second. That it has no cause of action against the defendant company. Third. That the South Pacific Railroad Company held, and through it the Atlantic & Pacific Railroad Company holds, a counterclaim against the state in excess of the state’s demand. Fourth. That the state’s demand is barred by lapse of time,, this suit having been commenced on January 30, 1890.
In view of the amount of money involved, we state the facts disclosed by the record with some detail. By the act of twenty-fifth of December, 1852, the Pacific Railroad was required to apply lands granted to the state by the act of congress of June 10, 1852, to the construction of a part of its main line and the remainder to the construction of the southwest branch which began at Franklin,, near St. Louis, on the main line and extended west to Springfield, and thence west to the west line of the state. The state from time to time guaranteed bonds and issued its own bonds to aid in the construction of. this branch road, amounting to over $4,000,000. For its own protection the state reserved a first lien on the branch road, its franchise and all of its lands. The Pacific Railroad made default in the payment of the interest on these state aid bonds,, and thereupon the legislature passed an act entitled “An act to provide for the sale of certain railroads and property by the governor, to foreclose the state’s lien thereon, and to secure an early completion of the Southwest Branch Pacific, the Platte Country, the St.
Pursuant to this act Governor Fletcher took possession of the southwest branch of the Pacific railroad and all the property thereto belonging, including the before mentioned lands set apart to be sold and the proceeds used in the construction of the branch road; He at the same time appointed three commissioners to operate the road and-to sell it as provided in said act. The commissioners advertised the road for sale, but the bids made thereunder were rejected on the ninth of May, 1866. On the next day the governor directed the commissioners to sell the road at private sale pursuant to the seventh section of the act. On the same day John C. Fremont made-a written bid, which was accepted and the bid approved by the governor. A formal contract was executed, setting forth the terms of the bid orwritten proposition. The principal features of the contract are that Fremont was to pay the state for the road, its franchises and the aid lands the sum of $1,300,000, one fourth cash, on delivery of a deed, and the balance in four equal annual installments, and he was to complete the road within a stated time. The written bid or proposal contains the following stipulations, which are also set forth in the formal contract; “That this purchase shall be made subject to the conditions of forfeiture enumerated in the fourteenth section” of the act of February 19, 1866; and that Fremont and his associates shall have the right to borrow money for the completion of the road and to secure the same “by mortgage or deeds of trust or pledge of the finished and unfinished portions of the road and appurtenances and lands acquired by said purchase, without being subject in relation to such loans, bonds, mortgages, and pledges to any conditions or restrictions
At the date of the transactions last recited, the road had been completed from Franklin to Rolla, in Phelps county. Fremont and his associates organized a corporation under the name of the Southwest Pacific Railroad, and he conveyed all the property which he had acquired from the state to that company, subject to the mortgage given by him to the state. On the fifteenth of September, 1866, the Southwest Pacific Railroad Company executed a mortgage to Yelverton & Ward to secure a proposed issue of $7,500,000 of bonds. About $2,300,000 of these bonds were issued, and either sold or pledged. Fremont and his corporation extended the road to the Gasconade river, a distance of about twelve miles, and built a bridge over that river. He and his company failed to pay the first deferred installment of the purchase money due the state, and otherwise failed to comply with the terms of his contract. Because of such default, Governor Fletcher took possession of the road on the twenty-first of June, 1867, and appointed Clinton B. Fisk agent of the state to operate the same. The legislature then passed an act entitled, “An act to dispose of the Southwest Pacific Railroad and other property belonging thereto, and
This act provides that Kingsland and others shall organize a new company, to be known as the “South Pacific Railroad Company;” that the new company shall complete the road within a given time, and to that end was required to deposit $1,500,000, to be paid out as the work progressed. Authority was given it to borrow $7,250,000, and to secure the same on the road and other property so acquired from the state. The seventeenth section provides: “The said South Pacific Railroad Company shall pay to the state of Missouri the sum of three hundred thousand dollars — one hundred thousand dollars to be paid on or before the first day of Juñe, 1874; and the sum of one hundred thousand dollars on or before the first day of June, 1875; and one hundred thousand dollars on or before the first day of June, 1876 — which shall be in addition to the other conditions imposed by this act, and which sum shall be secured, to be paid to the state of Missouri by the bond of said company, with approved security, and which bond shall be given before said company takes possession of said road.”
After the South Pacific Railroad Company had been organized, and after it had accepted the act last mentioned, it took up and retired the larger portion of the $2,300,000 of issued Yelverton & Ward bonds, at a cost to it of about $436,000. This was done by the aid and assistance of the .Atlantic & Pacific Railroad Company, a corporation created by an act of congress in 1866, with power to construct a railroad and telegraph line from Springfield, in this state, to the west line of the state, and then west to Albuquerque, New Mexico, and thence west to the Pacific ocean. In 1871 the South Pacific Railroad Company presented to the legislature of this state a claim for the amount paid out, as before stated, in taking up the issued Yelverton & Ward bonds, and at the same time offered to surrender the claim as satisfied, if the state would release it from the payment of the $300,000 bond. A bill was introduced to that effect, but the legislature adjourned before any action was taken on it. A like bill had failed to pass at a previous session. This is the claim set up in the answer as a counterclaim.
On the twenty-fifth of October, 1870, the South Pacific Railroad Company executed a deed to the Atlantic & Pacific Railroad Company. This deed, it will be seen, bears date prior to the maturity of any of the installments payable to the state by the terms of the $300,000 bond. It professes to be made pursuant to a prior ¿greement between the South Pacific Company, and the Atlantic & Pacific Company, and by authority" of the act of twenty-fourth of March, 1870, amendatory
First. That the Atlantic & Pacific Railroad Company shall, and it hereby does, assume the payment of the principal and interest of the bonds, amounting to $7,250,000, secured by the aforesaid mortgage for that amount upon the property of the South Pacific Railroad Company, and also the payment of all other debts, and the fulfilment of all other obligations of the said South Pacific Railroad Company, and shall save harmless, indemnify and protect the said South Pacific Railroad Company and the present stockholders of, or parties beneficially interested as such in, that company, from all claim or demand for, or by reason of, such bonds and mortgage or other debts or obligations.
“ Second. That said Atlantic & Pacific Company shall also observe, perform and fulfill all of the conditions of the charter of the South Pacific Railroad Company and all laws and regulations of the state of Missouri, to which the last mentioned company is, or shall be, subject, and shall do all acts and things whatsoever incumbent upon the last mentioned company, to do under such charter, and such laws and regulations.”
This deed was signed by the Atlantic & Pacific Company as well as by the South Pacific Company. The stockholders of the South Pacific Company gave their consent to this transaction. The state insists,it may
The Atlantic & Pacific Company completed Ihe road to the west line of the state, and from there west to Yinita, in the Indian Territory, a point about fifty miles west of the western boundary of this state. The money used to complete the road to the state line was the deposit of $1,500,000 made by the South Pacific Company and bonds issued by that company to the amount of $7,250,000, authorized by the act of March 17, 1868, and by the sale of other bonds issued by the Atlantic & Pacific Eailroad Company and secured by second and subsequent mortgages.
The Atlantic & Pacific Company made default in the payment of interest, and thereupon one of the holders of bonds brought suit to foreclose some of the second mortgages, in the circuit court of the United States. Such proceedings were had that all of that part of the road in this state was sold to William F. Buckley, who purchased the same, subject to the first or $7,250-GOO mortgage, for and in the interest of bondholders. He at once, in 1876, conveyed the property so purchased to the defendant, the St. Louis & San Francisco Eailway Company, a corporation then organized under the laws of this state.
The agreement upon which the state seeks to hold the defendant for the payment of the $300,000 bond, is the tripartite agreement, dated the thirty-first day of January, 1880, entered into between the defendant, the St. Louis & San Francisco Eailway Company, party of the first part, the Atlantic & Pacific Eailroad Company, party of the second part, and the Atchison, Topeka & Santa Fe Eailroad Company, party of the third part. This agreement sets forth, by way of recitals, these facts: That the San Francisco company owns and
“And, whereas there are now issued and outstanding stock, bonds, obligations, and debts, which are apparent obligations and liabilities of said party of the second part, against some of which valid defenses may exist, and which, without recognizing their validity, are classified, enumerated as follows, namely:
“1. First mortgage land grant and railroad bonds of the South Pacific Railroad Company outstanding to the amount of $7,188,500.
“2. First mortgage railroad and land grant bonds of the Atlantic & Pacific Railroad Company (Central Division), amounting to $1,189,905, with interest*612 at the rate of six per cent., unpaid since November 1, 1875.
“3. First mortgage land grant bonds of the Atlantic & Pacific Railroad Company (Central Division), amounting to $795,000, with interest at six per cent., payable at maturity of the bonds in 1901.
Atlantic & Pacific Railroad Company six per cent., gold scrip, and blue bonds amounting to $3,794.
“5. Atlantic & Pacific Railroad Company’s income bonds, due in 1883, amounting to $2,800.
“6. Atlantic & Pacific Railroad Company’s equipment bonds, amounting to, $753,000, with interest at ten per cent., unpaid since.
“7. Atlantic & Pacific Railroad Company’s land debentures, amounting to $300,000, with interest at ten per cent., secured by contracts for land sold, which are assigned to trustees to secure said debentures.
“8. Capital stock (common), amounting to $8,360,300, at par.
“9. Preferred stock (Missouri Division), amounting to $10,000,000, at par.
“10. Preferred stock (Central Division), amounting to $1,400,000, at par.
“11. First mortgage land bonds (Missouri Division), $27,500.
“12. Second mortgage bonds (Missouri Division), $6,000.
“13. Floating debts amounting to about $25,000.
“Which constitute the entire stock and bonds of the party of the second part, and all their debts and liabilities, so far as known to either of said first or second parties.”
It is then agreed, among other things :
“Second. The party of the first part hereby agrees to and with the party of the second part and*613 the party of the third part, severally, to take up, pay and cancel and surrender canceled, to the party of the second part, all the overdue coupons on the bonds of said party of the second part now outstanding; and also agrees to save the parties hereto of the second part and of the third part, severally, harmless from all bonds, scrip, debentures, floating debt, and other obligations and liabilities of the party of the second part, as well against such as are hereinbefore enumerated, classified, and described as any and all others now existing, and to pay and surrender the same canceled and discharged to the party of the second part as fast as the same are obtained by the party of the first part, by payment or otherwise. Always excepting the first mortgage, railroad and land grant bonds of the Central Division, amounting to $1,189,905, and numbered 2 in the enumeration above given and referred to; but the overdue coupons of said last named bonds the party of the first part is to pay, cancel, and surrender canceled, forthwith, to the party of the second part. And also excepting the land grant bonds of the Central Division of said second party, the principal, amounting to $795,000, and interest of which will fall due in the year 1901.
“And, in consideration therefor, the party of the second part agrees to deliver to the party of the first part notes running six years, with the option of paying the same or any of them at any time before maturity, and bearing interest at the rate of six per cent, per annum to the amount of $711,968.87.”
The stipulation concerning the notes last mentioned is further explained by a supplemental agreement made on the same day by the San Francisco Company and the Atchison Company, whereby it is provided the San Francisco Company shall not demand or receive said notes, except as that company shall pay
Before taking up the important question in this case it is deemed proper to say a few words concerning the counterclaim set up in the answer. The state’s cause of action is based on the $300,000 bond executed by the South Pacific Bailroad Company, pursuant to the seventeenth section of the act of the seventeenth of March, 1868. That is the same act by which the state granted the railroad and aid lands to Kingsland and others, in trust for the South Pacific Bailroad Company. For the defendant it is insisted that the state by the terms of this legislative grant, became •bound to turn over the property to that company, free and clear of all incumbrances. This, it is argued, the state did not do, because the legislative declarations of forfeiture did not cut out or foreclose the Yelverton & Ward mortgage placed upon the property by Fremont’s company, and hence the South Pacific Bail-road Company had a legal demand against the state for at least $436,000, laid out in taking up and retiring the $2,300,000 of issued Yelverton & Ward bonds. This alleged counterclaim passed, for whatever it was worth to the Atlantic & Pacific Bailroad Company by the deed to it dated the twenty-sixth day of October, 1870. In the view we take of the case, it is unnecessary to pass upon the validity of this counterclaim. It is enough to bear in mind the fact that both
The first important question is whether the state can maintain an action against the Atlantic & Pacific Railroad Company, to recover the amount of this $300,000 bond, on the covenants of that company in the deed to it from the South Pacific Railroad Company, dated the twenty-sixth of October, 1870.
Persons who are not parties to a contract may acquire rights under it by assignment and by novation. In such cases they become parties thereto. But the general rule is that strangers to a contract can not sue upon it. There are, however, some exceptions to this rule. One is that where property is placed in the hands of another person who agrees to deliver the property or the proceeds arising from the sale thereof to a third person, such third person has a cause of action against the person in whose hands, the property was placed. There is another exception more in point in this case, asserted by most of the courts in this country. This exception may be stated as follows: Where one person, for a valuable consideration, makes a promise to another for the benefit of a third person, such third person may maintain an action upon the promise. This principle has found a strong foothold in the former adjudications of this court. It was first limited to promises contained in simple contracts. Bank v. Benoist, 10 Mo. 519; Robbins v. Ayres, 10 Mo. 538; Meyer v. Lowell, 44 Mo. 328; Flannagan v. Hutchinson, 47 Mo. 237. But it was subsequently extended so as to apply to covenants — contracts under seal. Rogers v. Gosnell, 51 Mo. 466; s. c., 58 Mo. 589; Fitzgerald v. Barker, 70 Mo. 687; s. c., 85 Mo. 14. It is not necessary to specify the debts which the prom
Applying these principles of law to the deed from the South Pacific Bailroad Company to the Atlantic and Pacific Bailroad Company, dated the twenty-sixth of October, 1870, there can be no doubt but the last named company assumed and agreed to pay all of the debts of the former, and that the state had a cause of action against the latter to recover the amount of the $300,000 bond. It is to be observed in the first place, that by this deed the South Pacific Company conveyed and transferred all of its property and asset of every kind and description. It had nothing left. The stock held by the stockholders was even surrendered and stock in the grantee company taken therefor. In consideration of all which the deed goes on to say, the grantee company “shall, and it hereby does, assume the payment” of the $7,250,000 of bonds, “and also the payment of all other debts, and the fulfillment of all other obligations of the South Pacific Bailroad Company,” etc. This deed, it is to be remembered, was signed by the grantee company, a fact wanting in some of the cases before cited. The scheme, taken as a whole, was simply this: that the Atlantic and Pacific Company took all the property of the South Pacific Company, and assumed and agreed to pay all of its debts of every kind and description. A clearer case for the application of the principle of law before stated can scarcely be imagined. The Atlantic & Pacific Company, for all practical purposes, took the place of the South Pacific Company, and, that the state had a cause of action against the Atlantic & Pacific, there can be
A question is made in the briefs whether this deed is to be deemed a purchase and sale, or whether it is, in substance and effect, a consolidation of the two companies. We do not regard the question one of importance in this case. No matter what name is given to the transaction, there was a clear covenant on the part of the Atlantic & Pacific Company to pay all the •debts of the other company, and we have already said sufficient as to the right of the state to sue on that covenant.
This brings us to the far more difficult question, whether the state can maintain this suit against the St. Louis & San Francisco Eailway Company, on the tripartite agreement of the thirty-first of January, 1880. It may be observed here that the principle of law before stated, namely, that, where one person makes a promise to another for the benefit of a third person, such third person may sue on the promise, must be kept within reasonable bounds. To entitle a third person to sue it must clearly appear that the contract was made for the benefit of such third person or persons, as one of its principal objects. Howsmon v. Trenton Water Co., 119 Mo. 306. A mere indirect or incidental benefit is not sufficient. Burton v. Larkin, 36 Kan. 246; Bank v. Grand Lodge, 98 U. S. 123. If the agreement or covenant is simply one to indemnify and save harmless one of the parties to the contract, against the claims of third persons, then such third persons can not sue upon the agreement or covenant. Such a contract, whether under seal or not, is not a contract for the benefit of third persons within the meaning of the exception to the general rule. Kansas City ex rel. v. O’Connell, 99 Mo. 357; Weller v. Goble, 66 Iowa, 113; Howsmon v. Trenton Water Co., supra.
There is a marked difference between the two clauses of the contract. In the first there is an undertaking on the part of the San Francisco Company to pay the overdue coupons. The state’s demand does not come within that clause. By the second clause the San Francisco Company agrees to save the other contracting companies harmless from the other obligations and liabilities of the Atlantic & Pacific Company, whether scheduled or not. This is the clause upon which the state does, and must, rely. Thus far this clause is nothing more than an agreement to save the other parties harmless, that is to say, an agreement of indemnity. It is true this clause goes on to say the San Francisco Company shall “pay and surrender the same, canceled and discharged, to the second party as fast as the same are obtained by the party of the first part, by payment or otherwise;” but these words are subordinate to the agreement to save harmless, and were designed to give a further expression to the same thought. They can not have the effect to change the agreement from one. of indemnity to a contract made for the benefit of third persons. It was certainly never intended that the San Francisco Company should pay any obligation to which the Atlantic & Pacific Company had a defense of any kind. Taking the contract as a whole and keeping in view its general object and purpose, it is simply an adjustment of affairs as between the parties thereto, and was never designed or intended to be a contract for the benefit of third persons.
As the claim of the state is a large one, and as it was not set down in the schedule of debts and obligations to the-Atlantic & Pacific Company, and, as it
The further argument is pressed upon us that the defendant should not be held liable in this action because the Atlantic & Pacific Company is now insolvent and has never paid the notes agreed to be paid, and which were executed by it to defendant, amounting to $711,958.87. We shall not pursue this line of argument. We think this case turns on the broader ground that this contract between these three companies was designed and intended as an adjustment of matters as between themselves, and that it is not, in any of its provisions, a contract made for the benefit of third persons. Besides this, the particular clause upon which the state places its right to recover as against this defendant, is nothing more than an agreement of indemnity running to, and for, the benefit of the two other parties to the contract, and not to third persons. This tripartite contract does not fall within the rule which we have before applied to the deed from the South Pacific Company to the Atlantic & Pacific Company. The state, therefore, has not now, and never did have, any cause of action against the San Francisco Company.