Donner v. Dayton & Cincinnati Railroad

The contract, sale, and conveyance of July 28,1865, as between the Short Line Company and Eastern Company must be held binding and valid. It does not appear well that the Eastern-Company, after insisting in two-answers that the contract is valid and binding, and having in the meantime given the Sandusky Company the benefit of the same, by which it has obtained a vei’y valuable advantage, larger than. its cost, should come, in the same action in 1870, and set up the mortgage bonds, and ask that they be paid again by a sale of all the corporate property and franchises of the Short Line Company, and hy consequence be entitled to recover back the $55,000 ■cash which it had paid for the property it has enjoyed and is now enjoying, and which has long since been distributed to the creditors of the Short Line Company. If there were nothing more in this case than this, we should hold it to be equitable to deny a sale on the prayer of the Eastern Company to satisfy these bonds.

*138Again, the contract provides that only in the contingency of failure of title to the part of the property conveyed, the Eastern Company may set up this claim. In any other case the bonds were to be used to make the conveyance operative and available. It would'be unjust to allow it to so use and reap the advantage of the property embraced in the contract, as to make it the interest of this company to demand and insist upon a sale of the entire corporate property of the other party to the contract, as though the title to the property conveyed had failed, which has not occurred. "We prefer to make these bonds operative and available, according to the contract, as to the property conveyed, and leave the parties where, by the contract, they have placed themselves, and to hold the conveyance and subsequent use of the property as substantially a satisfaction thereof. The propriety of so holding is sustained by the acquiescence of both companies for a period of some four years.

The cause of Coleman et al., however, fairly presents the question of the validity of the contract of July 28, 1865.

It will be observed that this contract embraces only the corporate property of the Short Line Company, and expressly excludes the capital stock, the franchises of the company, the residue of the right of way and other property of the company. It is admitted that the Short Line Company had expended mainly all its means on the- three miles of its line, including the great tunnel near and in this city, and was unable to proceed with the work, was largely in debt, was harassed with suits of judgments and taxes to a large amount, which it was unable to pay, and that its creditors, knowing the practical • insolvency of the corporation, were pressing for payment and threatening to sell the whole property, which must have resulted in a fatal sacrifice and loss to the proposed road. The embarrassments surrounding the enterprise at the time were insurmountable. The directors of the company, to rid them*139selves of the most pressing of these demands, to save that portion of the property which was the most valuable to all parties, because the most of its means had been expended there, by this sale made with the assent of all its stockholders except these parties, in fact, preserved the enterprise from ruin, and paid off one hundred and twenty-one thousand dollars of debts, leaving still in the hands of the company the only available and valuable property it ever had. The proceeds of the sale went' to the creditors of the road. The sale was unquestionably highly advantageous to the stockholders and other creditors of the company. The transaction presents, therefore, a strong claim that it should be upheld.

It is objected that this sale was destructive of the company. We do not think there,is much force in this objection. The corporation is certainly not extinct. It may be that the Short Line Company may yet have the power to build its road to Dayton by another route, as the charters may give it such an option. It may even repurchase very cheap from the Eastern or the Sandusky Company the property sold, or its use, which, as it now asks a sale, appears to have no value to it. The conveyance of the right of way was not the grant of a franchise, but of one of the means by which a franchise may be enjoyed and passed by the conveyance. The Eastern Company, it is admitted, had the unquestionable right to obtain what it did; for it has a franchise to construct and work a road from Dayton to Cincinnati, and there is no reason why it may not purchase a right of way of the Short Line Company as of individuals. The right of way was simply a perpetual easement, and all the conditions upon which it was originally obtained were neither defeated nor violated., (Junction R. R. Co. v. Ruggles, 7 Ohio St. 1; Coc v. Col. & Ind. R. R. Co., 10 Ohio St. 384; 1 Redfield on Railways, 247-251.) Besides, by the charter, the company had the right “ to commence, complete, and put in opera*140tion any part of said railroad.” The disposition of this property does not therefore destroy the enterprise.

An examination of the charter of the Short Line Company shows that it had the necessary power to obtain the right of way and to make the conveyance in the form and manner it did. (2 Redfield, 692.) But it is again objected that the whole matter was done by the board of directors. Besides the general power of the directors over the corporate property conferred expressly by its charter, we think the Supreme Court of Ohio has settled this question in the cases of Hatch v. The Cin. & Ind. R. R. Co., 18 Ohio St. 92, and Goodin v. Evans, 18 Ohio St. 167 where this point was made by counsel in the ai’gument. In the first of these cases, the grantee was not complaining of the transaction on that ground; so here the Eastern Company can not complain, as we have seen. In the second of these cases, the power of the board of directors of the Short Line Company, under that clause of its charter which empowers the directors “to transact all business of the corporation,” passed under review. And it was held that the board of directors might, without referring the question to the stockholders, accept the provisions of section 14 of the act of 1848, by which they had taken subscriptions of real estate to.its capital stock, though they had no right to take such subscriptions under the original charter. Adapting the language of the Supreme Court in that case to this, we may well say: “ Erom the nature and character of this sale, there would seem to be no necessity for referring the question of sale to the stockholders. The disposition of the corporate property was not intended by the legislature to be confided to the individual corporators, but to the corporate body. The charter states that the directors shall be “competent to transact all business of the coi’poration.” This sale, then, was business of the corporation, which the directors were made “ competent to transact.” It would seem that the stockholders could not have sold and transferred this *141property. No one was competent to do it but the board; at least, if the stockholders could do it so might the board; and this would seem to be conclusive that this contract was not ultra vires. The subsequent assent and acquiescence of all the stockholders, except those joining Coleman in this suit, representing but a very small minority, furnish strong reason for declaring this sale to be valid, as undoubtedly the transaction was to the great advantage of all the creditors of the corporation. And certainly, if the board had the power to" contract, it was their duty to sell, under the circumstances shown in the testimony, if thereby they could at once satisfy the most clamorous of the creditors, and pay their claims, and still have all that was really valuablé in the enterprise as far as they had carried it.

But it is said the property of the Short Line Company was in the hands of the receiver of this court. Having found that this contract was not illegal, we do not see how the mere fact that the property of the corporation was in the hands of a receiver can a^ect it. While he represents the rights of both creditors and stockholders, he can only assert them when they are affected by the fraudulent or illegal acts of the board oí directors, and may repudiate illegal transfers of property by the directors acting in the name of the corporation. (Edwards on Receivers, 141.) The other judgment creditors are entitled to a decree in their favor against, the unsold property of the company; and the cause will be remanded for further proceedings to ' subject the unpaid stock subscriptions.

A number of cases were cited to us in argument,. but we find nothing fairly opposed to the views we have expressed, and a decree may be taken accordingly.