Tennessee & Coosa Railroad v. East Alabama Railway Co., 73 Ala. 426

73 Ala. 426 | Ala. | 1882

STONE, J.

— The appellant railroad corporation was chartered by act of the legislature of Alabama in 1844, and was organized under its charter soon afterwards. Its object was to construct, equip and operate á railroad, connecting the waters of the Tennessee and Coosa rivers'; Guntersville on the Tennessee and Gadsden on the Coosa being its terminal points. The company expended some three hundred thousand dollars, chiefly in grading its line, and in procuring cross-ties and bridge-timbers, when, at the breaking out of the civil war, its available funds were exhausted. At that time — 1861—most ofits'roadbed had been graded, and the right of way had been secured to a considerable portion of its surveyed track. No part of the track had been‘laid, and, consequently, no part of the road had been completed. The enterprise remained in this condition until 1871, keeping up its organization, but doing no work.

The East Alabama and Cincinnati Railroad Company was incorporated afterwards, and had commenced the construction ■of its road at Opelika, extending northward — Guntersville on the Tennessee river being one of its objective points. It was being constructed with a view of obtaining the State’s indorsement of its bonds, under the u act to establish a system of internal improvement in the State of Alabama,” approved February 19th, 1867 — Pamph. Acts, 686, — and the amendment thereof, approved September 22d, 1868.- — Pamph. Acts, 198.

Such being the status of the two corporations, the latter proposed a purchase of the former, stating in writing the terms on which it proposed to make the purchase, and the obligations it proposed to enter into. This offer was submitted to the board of directors of the Tennessee and Coosa Rivers Railroad Company, and, by a resolution,' that company accepted the same, and instructed' its president to close the contract by -a conveyance. The conveyance was executed, bearing date July 12th, 1871. It recites the offer made by the East Alabama and Cincinnati Railroad Company, its acceptance by the Tennessee and Coosa Rivers Railroad Company, and. then conveyed to the purchasing company its right of way, franchise, road-bed, grading-, arid all else it had constructed and procured, in the work of building its railroad, with apt words of bargain and sale. The deed, however, contains the following clause, which is but a reiteration of the terms of the offer to purchase, which, being accepted, constituted the agreement of sale: ‘‘Provided, however, that this deed is to have effect and be operative only upon the express condition and understanding, that the said ‘ The East Alabama and Cincinnati Railroad Company ’ shall commence work on s„aid line, so above conveyed, at Gadsden within .seventy days frdm the said twenty-sixth day of 'June A. I). 1871, and that the road shall be completed from Gadsden to Attallaby the first day of October next, and thirteen miles from Gadsden on to the foot of Sand Mountain by the first day of January, 1872, and the whole road in two years from the first •day of October, 1871. The bonds of said company, to be indorsed by the State, to be taken at market value, not to be less than ninety cents on the dollar, and the money paid in seventy days from the delivery of this deed. The said The East Alabama and Cincinnati Railroad Company is to issue stock of The East. Alabama and Cincinnati Nailroad Company for the paid up stock of the said The Tennessee and Coosa Railroad Company, not to exceed fifty thousand dollars; and provided that the said The East Alabama and Cincinnati Bailroad Company shall ratify and approve the contract made by Colt, Boyle & Co. with j. L. Pennington, president, for building the remainder of the East Alabama and Cincinnati railroad from the city of Eufaula to Guntersville — said stock not to be issued until the road is completed to the foot of Sand Mountain, as above specified.” One of the stipulations of the offer of purchase, which the Tennessee and Coosa Rivers Railroad Company accepted, and which is expressed in the deed, is, that “the E. A. & C. R: R. Co. shall pay off and discharge the floating debt of the T. & C. R. R. Co., not to exceed in amount the sum of twenty-five thous- and dollars, one-fourth in money, .and the remainder in first mortgage bonds of said company, indorsed by the State of Alabama, numbering from 320 upwards.” In tire written offer of purchase, the clause last above copied immediately precedes the clause first above copied.

One outside fact should here be stated, as an argument, hereafter to be considered, is based upon it. When this trade was consummated — July 12th, 1871 — the East Alabama and Cincinnati Railroad Company had commenced building its road by laying track, beginning at Opelika, and extending northward. It had well nigh finished twenty continuous miles, and it was expected the twenty miles would be completed in,a very short time. That done, and proof of it being made, the company would receive the State’s indorsement of its first mortgagee bonds to the extent of three hundred and twenty thousand dollars — being three hundred and twenty of its first mortgage bonds of one thousand dollars each, numbered from 1 to 320 consecutively. From Gadsden to Attalla is five miles. This section, though not in continuation of the twenty miles first constructed, is, it will be remembered, that part of the line purchased from the Tennessee and Coosa Rivers Railroad Company, which, by the terms of the contract, the purchasing company bound itself to construct by the first day of October, 187Í. That section would and did connect Gadsden with the Alabama and Chattanooga railroad then being built; now known as the Alabama Great Southern.

Under this contract, the East Alabama and Cincinnati Railroad Company completed its road, beginning at Opelika, and extending northward twenty miles, and obtainéd the State’s indorsement of the first three hundred and twenty of its first mortgage bonds of one thousand dollars each. It also built and ironed the five miles of road from Attalla to Gadsden before October 1st, 1871. And, with the authority of the president of the Tennessee and Coosa Rivers Railroad Company, one Carlisle, some time in November or December, 1871, received from the East Alabama and Cincinnati Railroad Company, some cashless than six thousand two hundred and fifty dollars; the precise sum not definitely shown. . He also received nineteen of the first mortgage bonds of the E. A. & C. R. R. Co., indorsed by the State of Alabama, valued at seventeen thousand find one hundred dollars — being at the rate of ninety cents in the dollar. No other payment was ever made, and no work has been done on the Tennessee and Coosa Rivers railroad since the completion of the road from Attalla to Gadsden. The rest-of the track remains in the condition it was in when the purchase was made, July 12th, 1871.

Carlisle, who received the money and bonds, was a director of the Tennessee and Coosa Riv.ers Railroad Company, and its largest creditor; the sum due him being over twenty thousand dollars. He had the president’s authority for making the collection, and for applying it to his claim against the company. He made no report to the company of what he had done, but retained the money and bonds in his hands. The board of directors had taken no action in the matter of giving him authority to collect, and it took no action on the use he made of the collection. The bonds he received were numbered from 321 to 339 inclusive, and the the State’s indorsement of them had been obtained, on proof of the completion of the five miles of track from Attalla to Gadsden.

In 1870, before the sale of the franchise and property of the Tennessee and Coosa Rivers Railroad Company to the East Alabama and Cincinnati Railroad Company, the latter company had conveyed its property, owned and to be. acquired, to trustees, as security.to the State against liability to be incurred by the indorsement of the railroad’s bonds. This, under the statutes, which declared a first lien on such property, in indemnification of the State against loss on account of such indorsement. Pamph. Acts, 1869-70, p. 149 ; Pamph. Acts, 1868, p. 198.

As we have said, the East Alabama and Cincinnati Railroad Company never did any woi-k on the line of the Tennessee and Coosa Railroad Company, after completing the five miles from Attalla to Gadsden. The E. A. & C. R. R. Co. became bankrupt,, and, under a decree of the court in bankruptcy, all its rights and property were sold at bankrupt sale, reserving the paramount rights of the trustees, the State, and first mortgage bond-holders. The Tennessee and Coosa Rivers Railroad Company’s rights were not considered in that proceeding, nor was that company made a party. The purchasers at bankrupt sale took possession, and, under their management, the road was operated for some time. We need not state' or consider the bankrupt proceedings at greater length, for it is not contended they should exert any influence in the decision of the questions presented by this record.,

After this, the trustees named in the mortgage or assignment made by the E.. A. & C. R. R. Co. to secure the State against its indorsement, filed a bill to obtain a foreclosure of the mortgage, and a sale of the railroad, its franchise and property, for the benefit .of the bond-creditors of the road. The Tennessee and Coosa Rivers Railroad Company, which had all the while kept up its corporate organization, was not made a party to that suit, and never appeared, or took part in the litigation. A decree was rendered, condemning the mortgaged property to sale, and declaring that the bonds having the State’s indorsement had a prior lien, that the holders of them were subrogated to the lien and rights of the State, and that they should be first paid out of the proceeds. The decree further provided for proper notice by publication, and that the creditors should come in and prove their claims.— Colt v. Barnes, 64 Ala. 108. Many claims were proven and allowed, and among them the nineteen bonds which had been paid by the company to Carlisle, described above. Whether this claim was preferred by Carlisle, or by his transferee, is a question on which the witnesses are not agreed; but whether by the one or the other, it received its 2>ro rata share in the disbursement. Nothing was realized, except on the claims evidenced by the indorsed bonds; and the final dividend distributed to the holders of them was less than thirty per cent.

Under this decree of foreclosure, the entire railroad, its franchise and property of every kind, was sold, and purchased by persons -who-are not shown to have had personal knowledge of any claim asserted by the Tennessee and Coosa Rivers Railroad Company, until after they had paid the purchase-money, received a conveyance, and been put in possession. They thereupon re-incorporated themselves under the statute, taking the name of the East Alabama Railway Company, and have since owned and operated the road in that name.

In Juné, 1880, the Tennessee and Coosa Rivers Railroad Company instituted its statutory real action for the recovery of the right of way and road-bed it had conveyed to the East Alabama and Cincinnati Railroad Company, against the parties in possession. .Thereupon the East Alabama Railway Company filed this bill, and obtained an injunction against the further prosecution of that suit. On the final hearing, the chancellor granted the relief prayed, and made the injunction perpetual. From that decree the present a'ppeal is prosecuted:

The conveyance made by the T. & C. R. R. Co. to the E. A. & C. R. R. Co. is upon certain enumerated conditions. Are these conditions precedent or subsequent? The language of the conveyance is, “that this deed is to have effect, and be operative^ only upon the express condition and understanding,” that the enumerated conditions are complied with by the purchasing company. Those conditions related, in part, to a completion of the railroad within a given time, and to the issue and transfer of certain stock in the new company, co-extensive with the paid up stock in the selling company. The bankruptcy and dissolution of the purchasing company, without complying with these conditions, have rendered their performance impossible. We hold that the conditions in the contract we are considering, are what are called precedent, and that, by the terms of the conveyance, the title, as between the contracting parties, did not and could not pass, by reason of the nonperformance of the conditions. — 7 Wait’s Ac. & Def. 356; 1 Jones on Mort. § 228; Hall v. M & M. Railway Co., 58 Ala. 10; Pugh v. Holt, 27 Miss., 461; Heist v. Baker, 49 Penn. St. 9; Carr v. Holbrook, 1 Mo. 240.

It is unquestionably true, that the complainant in the present bill is subrogated to all the rights of the State, under the statute and deed of trust thereunder.. — Colt v. Barnes, 64 Ala. 108; Forrest v. Luddington, 68 Ala. 1. It is contended for appellee that under the statute “to furnish the aid and credit of the State of Alabama for the purpose of expediting the construction of railroads within the State,” approved February 21, 1870 — Pampli. Acts, 149 — , the bond-holders had a first lien on the whole road, and that that lien is paramount to the claim of the T. & O. R. R. Co. The language of the statute is, “that so soon as the Governor, on the part of the State, shall indorse the bonds of any company, embraced in the provisions of this act, said indorsement shall constitute a first lien upon the section or sections of said road as far as completed, including road-bed, superstructure and equipment, and the franchise of the company granted by this State, or under its authority.” We can not assent to the soundness of this argument. What we understand tó be the trueinter’pretation of the clause above copied is, that, as between the State, and the railroad corporation procuring the indorsement, the State shall have the first, or paramount lien. It may have had a wider intent, and purposed that the State’s indorsement should'not'be given to the bonds of a railroad, whose franchise -or property was under a prior mortgage or incumbrance. It did not and could not mean that the State, by indorsing'the bonds of a railroad corporation, acquired a first lien'on the track and right of way on which the mortgaging company may have placed its superstructure, whether it owned' such track and right of way or not. It did not and could not intend that by laying its track on lands not its own, the railroad corporation could give to the State a lien — a first lien — on property not its own. Private rights can not be devested.in that way. The proceedings and proofs by which railroad companies obtained the State’s indorsement of its bonds, was a matter entirely between such companies and the State officials. Outside parties had no right or power to intervene. To hold that by such proceedings the property lights of strangers to the record, who had no notice, and could not be heard, would be thereby forfeited, would be to take private property without compensation, and without due process of law. — Deck of Eights, §§ 7, 24. "We need scarcely cite authorities in support of this. — See Zeigler v. S. & N. Railroad Co., 58 Ala. 594; Wilburn v. McCalley, 63 Ala. 436, and citations.

There is another view of this question. The mortgage or trust deed, under the foreclosure of which the present claimants purchased and assert title, was executed before the sale was made by the T. & C. R. R. Co. to the E. A. & C. R. R. Co. Now, although that conveyance would and did carry with it, and fasten a lien on all property afterwards purchased and acquired by the latter company in the construction of its road, the lien would attach to the property thus acquired, only to the extent the mortgagor’s rights attached by the ' purchase. Meyer v. Johnston, 53 Ala. 237; s. c. 64 Ala. 603. The conveyance under which the purchasing company acquired its rights, as we have shown, expressed on its face the conditions precedent, on the performance of which the title was to pass. This being shown in the very title papers, was notice to all purchasers and incumbrancers coining afterwards. — Dudley v. Witter, 46 Ala. 664. And the State is not exempt from the operation of this principle, when itself becomes a party to a contract. — State ex rel. v. Cobb, 64 Ala. 127-156; Bank v. Gibson, 6 Ala. 814; Owen v. Br. Bank, 3 Ala. 258.

It will be remembered that in the contract of sale and pur1 chase, the E. A. & C. E. E. Co. agreed to pay to the T. & C. E. E. Co. the amount of the latter’s floating debt, not exceeding twenty-five thousand dollars, one-fourth in money,'and the remaining three-fourths in the bonds of the purchasing company having the State’s indorsement — the bonds so agreed to be given “numbering from 320 upwards;” the bonds to be received at their market value, not less than ninety cents on the dollar. The bill • avers that the section of the road from Attalla to Gadsden — five miles — was completed by the E. A. & C. Co. by the 1st day of October, 1871, “and that, by the-contract and agreement between the parties to said conveyance, it was understood that the East Alabama and Cincinnati Railroad Company should apply to the Governor for, and obtain the indorsement of its first mortgage bonds of one thousand dollars each, by the State of Alabama, in respect of the completion of said five miles of road, under the laws then in force; said bonds to be numbered from three hundred and twenty upwards,- as it was contemplated and known to the parties that, the bonds to be indorsed by the State in respect of the completion of the road in Lee and Chambers counties for twenty miles [the first twenty beginning at Opelika], would be numbered from 1 to 320; and it was stipulated by said contract and conveyance that, as part of the consideration thereof, twenty-five thousand dollars should be paid by the East Alabama and Cincinnati Railroad Company to the Tennessee and Coosa Railroad Company, of which one-fourth should be in money, and three-fourths in the first mortgage bonds of said corporation, indorsed by the State of Alabama, numbered from 320 upwards, as set forth in said conveyance. That on the completion of said five miles' of railroad from Attalla to Gadsden, the said company did apply to the Governor of the State of Alabama for, and did shortly thereafter obtain its indorsement of eighty of its one thousand dollar first mortgage bonds, numbered from 321 to i00 inclusive, and out of said indorsed bonds, did deliver to said Tennessee and Coosa Railroad Company, in pursuance of said contract and conveyance, nineteen of said bonds, numbered from 321 to 339 inclusive, and did pay to it the balance of said twenty-five thousand dollars in money; and said money and bonds were accepted in satisfaction of said twenty-five thousand dollars.” This averment of the bill is denied in the answer.

The only testimony in support of the averment copied above is that of Barnes,. the trustee, who negotiated the purchase. “He says that it would be impossible for him to state all that passed between him and the president of the Tennessee and Coosa Railroad Company in relation to the px-oposition by the East Alabama and Cincinnati Railroad Company, to purchase from the Tennessee and Coosa Railroad Company ; that he, in company with Mr. J. S. Colt, met Mr. Lewis Wyeth some time in the 1st of July, 1871, at Guntersville in Marshall county, who then claimed to be the' president of the Tennessee and Coosa Railroad Company, and many propositions and much talk was had between us, when they all, that is, the propositions, ended in coming to the agreement contained in the deed of the Tennessee and Coosa Railroad Company, of the 12th of July, 1871, as he now remembered the date. The said East Alabama and Cincinnati Railroad Company had nearly completed the first section of their railroad from the junction near Opelika, Lee county, to some point near four miles above LaFayette in Chambers county, 'of twenty miles, and it was known, that it was expected that the said company would obtain the indorsement of the State of Alabama, to sixteen thousand dollars a mile, on said twenty miles, and that they would number from 1 to 320, on the indorsement of the said bonds for said twenty miles, and that they were secured' by the deed of trust to W.’ Ii. Barnes and Henry Clews on the first of July,' 1870, and were to be issued in the sums of one thousand dollars each. These facts were fully told to the president of the Tennessee and Coosa Railroad Company at the time of said negotiation and sale by the said Tennessee and Coosa to the said East Alabama and Cincinnati Railroad Company. It was known by the said president of the Tennessee and Coosa Railroad Company, that the East Alabama and Cincinnati Railroad Company had made and executed on the 1st of July, 1870, the deed of trust to said ~W. II. Barnes and Henry Clews ; and that the said East' Alabama and Cincinnati Railroad Company had nearly completed the said twenty miles to above LaFayette, and that the said company expected to obtain the indorsement of the said bouds secured by said deed to Barnes and Clews, and that they would be of the amount of one thousand dollars each, and that they would be numbered from 1 to 320 inclusive. All this was talked over and understood at the time of said purchase from the said Tennessee and Coosa Railroad Company by the East Alabama and Cincinnati Railroad Company, and it was known that the bonds of the next five miles completed should be numbered from 320 upwards to 400; that there would be eighty bonds endorsed for the next five miles completed by said company; and would include 321 to 400 inclusive; and it was understood that the next five miles that would be built by the East Alabama and Cincinnati Railroad Company, would be from Gadsden to Attalla, on the line purchased by the said East Alabama and Cincinnati Railroad Company from the Tennessee and Coosa Railroad Company, and that the indorsement of the State would be procured on the bonds of said company, under the apt of the legislature, and that the bonds so indorsed would number from 320 to 400, including 321. These -things were all talked over, and fully understood and agreed upon; and it was agreed that the said Tennessee and Coosa Railroad Company should so receive the bonds as stipulated in said deed, indorsed by the State, knowing that they were to be indorsed for the five miles to be built from Gadsden to Attalla in Etowah county.”

Against this there is the testimony of Wyeth, the president, and three of the directors of the Tennessee and Coosa Railroad Company. “Wyeth testified : “ There was a good deal of conversation in reference to the agreement, before its completion, as well as after, and I can not state positively what was told me before or after the agreement was executed, in this regard. My impression is, that it was not until sometime after the agreement was executed, that I was informed the defendant company was exj^ected to take bonds issued, or pretended to be issued, as liens upon its own (i\ e. the defendant’s) property, to secure a debt due to the defendant itself.” The other witnesses — directors—testified to never having heard of such agreement or understanding; and the records or minutes of the board contain no evidence that that body acted upon it.

There is a rule of law, that, in the interpretation of an instrument of writing, we are permitted to place ourselves in the situation of the contracting parties at .the time of its execution, and to consider the occasion which gave rise to it, the relative position of the parties, and the obvious design they intended to accomplish. — Pollard v. Maddox, 28 Ala. 321; Chambers v. Ringstaff 69 Ala. 140. Relying on this w-ell recognized principle, it is contended for appellee that the averment of the bill, copied above, brings in the alleged understanding as part of the contract to be interpreted, and that the testimony establishes the truth of the averment. Thus interpreting the contract, it is claimed that the Tennessee and Coosa Railroad Company authorized the E. A. & C. R. R. Co. to fasten a lien in favor of the State on the road so purchased; and the present appellee being subrogated to the lien and right of -the State, it is claimed that the appellant is estopped from asserting an adverse right.

Several answers may be' made to this. Eirst. The argument seeks to extend the principle declared in Pollard v. Maddox too far. It proposes, not only to prove the attendant facts, the status of the two railroads, as a means of ascertaining "the agreed intention of the parties contracting, but to supplement them with proof of an oral agreement, not in the writing, which changes its meaning. Changes it in this : The writing-reserves the title in the grantor, as security, at least, until all the conditions are performed ; the alleged agreement seeks to estop the vendor company from asserting its title, upon the performance by the purchaser of one of many stipulated conditions precedent.

Second. It proposes, by oral proof, to vary and add a new term to a written contract, not expressed in the writing, but alleged to have been understood and assented to in the negotiation.

Third. Conceding every fact which appellee’s testimony tends to prove, it sho.ws only an agreement or understanding made between Wyeth, president of the T. & C. B. B. Co., and not with the company itself. The contract of sale was made by the corporation, speaking through its board of directors. That contract could not be varied by any agency less than the power which entered into it. ' No member, nor number of members of the board less than a quorum, had authority to add a new term or.condition to the contract; • and even then, to be binding, such act must be performed by the directors assembled as a board. — Ang. & Arnes on Oorp. (11th Ed.) §§ 231-2; Lazarus v. Shearer, 2 Ala. 718; 1 Brick. Dig. 403, § 28.

It is further contended for appellee that because Carlisle, who held the nineteen bonds paid by the East Alabama and Cincinnati Bailroad Company on the purchase, proved them in the foreclosure suit, and obtained bistro rata of the proceeds of. the sale made thereunder, this estops the appellant from assailing the title acquired under that - sale. The gist of this argument is, that the fund distributed among the creditors was derived from the sale of the whole road — that purchased from the T. & C. B. B. Co., as well-as the original property of the E. A. & C. B. B. Co.; and participating in the proceeds of the sale, was a participation in the proceeds of the Tennessee and Coosa Bailroad Company’s property. This, it is contended, estops the appellant from claiming the property itself, on the well recognized principle that you can not recover property, of the sale of which yon have claimed and recovered the proceeds. — Butler v. O'Brien, 5 Ala. 316; Elliott v. Br. Bank, 20 Ala 345.

There are several answers to this. The Tennessee and Coosa Bailroad Company was not made a party to the foreclosure suit. Consequently its rights were not affected by the decree. Only the rights which the E. A. & C. E. B. Co. had purchased, passed under the mortgage or trust deed. Those rights and' that interest were all the purchasers acquired by their deed, and these they acquired cum onere. Caveat emptor is the rule in such cases.— Wiswall v. Ross, 4 Por. 321.

Another view. By the terms of purchase, the East Alabama and Cincinnati Bailroad Company bound itself to pay the floating debt, not exceeding twenty-five thousand dollars. This was to be paid presently, or within a short time; long before it bound itself to perform other conditions, which the contract made precedent to the vesting of title. The payment being made to liquidate the floating debt, it was manifestly contemplated it would be paid out to the creditors before it could be known whether the other conditions would be performed. These bonds, together with the money paid, did go into the. hands of Carlisle, the chief creditor, before the purchasing company put itself in default, and he it was who proved the claim — -not the T. & C. R. R. Co. Now, whether Carlisle had the right to appropriate the whole fund to his use, is not the question. He made the proof and claimed the pro rata dividend. The.T. & C. R. R. Co. is not shown to have had anything to do with it, or to have had knowledge of it. There is nothing of estoppel in this.

"We have, then, the simple case of a sale and conveyance, by the very terms of which the title was not to pass until the purchaser performed several enumerated conditions, within specified dates, long passed. Some were performed, while the weightier ones remain wholly unperformed, and the purchasing company has ceased to exist. Giving effect to the contract as made, the legal title still remains in the Tennessee and Coosa Railroad Company, and the appellee has shown no equitable right' to stay its assertion. — 7 Wait’s Act. & Def. 358; 1 Jones onMort. §227.

The decree of the chancellor is reversed, and a decree here rendered, dismissing complainant’s bill, and dissolving the injunction. Let the appellee pay the costs of this suit, and of the appeal in the court below and in this court.

Reversed and rendered.

Brioket.l, C. J., not sitting.