Langdon v. Branch

(after stating the facts as above.) The foregoing is a statement of the issues involved in the motion under consideration. Upon the hearing first had,' a temporary injunction was granted, as prayed for in the bilj, until more complete argument could be made. Pending this argument, the hearing was adjourned from chambers at Savannah to chambers at Macon. The solicitors for the complainants and the defendants, except for James A. Simmons and Thomas P. Branch, were fully heard. No one appeared for these parties. After the argument had concluded, the papers were taken sub judice, and the decision has just been reached. Stripped of the amplification and verbiage of the bill, answers, and affidavits, the facts may be condensed as follows: The Savannah, Dublin & Western Short-Line was chartered to construct a railway from the city of Savannah to Dublin; and for the purpose of extending the road to Macon that company secured or attempted to secure the franchises of the Macon & Dublin Railroad Company, which would enable it to complete the line. It is unnecessary, for the purpose of this motion,- to determine whether or not the Short-Line actually secured the, rights of the Macon & Dublin Company. It is undeniable and indeed admitted that the Short-Line made a valid contract with John Mc-'ICetchney to build, equip, and construct its road as far as its charter rights and purchased rights permitted. The language of this contract is highly essential to the comprehension of the trust, which the plaintiffs insist has been betrayed to their injury, and in violation of the organic law of the state. • It is as follows:

*459“This agreement, made and entered into this 18th day of March, A. I). 1887, by and between the Savannah, Dublin & Western Short-Line Railway Company, party of the first part, and John McKetchney, party of the second part, witnessetii: Whereas, the said party of the first part is duly incorporated under the laws of the state of Georgia to build, construct, equip, and operate a railway from Savannah, Georgia, to Dublin and Americas, in the same state; and whereas, the Macon & Dublin Railroad Company, a corporation also incorporated under the laws of the state of Georgia to build, construct, equip, and operate a railroad from Macon to Dublin, in the state of Georgia; and whereas, the first-named company have purchased from the Macon & Dublin Railroad Company all of their rights, franchises, and privileges, together with all work done and materials furnished on said railway, as by reference to a resolution of the board of directors of the Macon & Dublin Railroad Company, hereto attached, will more fully appear; and whereas, the said party of the first part is now desirous of building and completing the said railway from the city of Savannah to Macon by way of Dublin, and from Dublin to Americas; and whereas, the said party of the first part has already executed a mortgage on its said road, and has issued its mortgage bonds to the amount of throe million (3,000,000) of dollars, and has issued its capital stock to the amount of 3,000,000 of dollars, and has secured local aid along tiie line of the said roads by subscription to the capital stock at par to the amt. of about $278,000, and does agree that so soon as it shall be legal to do so it will properly execute and record a mortgage on that portion of its line between Dublin and Macon, and will simultaneously issue its mortgage bonds and capital stock on the same at the rate of fifteen thousand (15,000) dollars per mile respectively: Now, therefore, for and in consideration of the sum of one dollar, each to the other in hand paid, the receipt whereof is hereby acknowledged, and other good and valuable considerations, it is agreed and understood as follows: First. The party of tiie first part shall forthwith deposit with the party of the second part all of the before-mentioned capital stock except sixty thousand (60,000) dollars, taken by the corporators’ mortgage bonds and local aid, which have already been issued and secured; and will further deposit with the party of the second part, immediately on the issuing of the same, all of the before-mentioned stock and bonds applicable to that portion of the road between Dublin and Macon; also any and all local aid it may hereafter secure; all of which said stock, bonds, and local aid shall be held by the party of the second as security for any and all advances made, expenses incurred, money invested, work done, and materials furnished on said road, with full power to the party of the second part to use by sale or otherwise the said stock, bonds, and local aid for the purpose of securing tiie funds to cany on the construction of said road substantially as hereinafter set forth. Second. In consideration of the before-mentioned covenants and agreements, to be kept and performed by the party of tiie first part, and the before-mentioned stocks, bonds, and local aid to the extent of $3,700,000 of said bonds and $3,940,000 of said stock, and all local aid procured or hereafter to be procured by said company, the said party of the second part agree to build, construct, and equip the said railroad from and to the terminal points above mentioned, subject to any changes that may hereafter he agreed upon by the parties hereto; such road to be of single track standard gauge, with steel rails of fifty-six pounds to the yard, to be well laid with the usual ballast in that locality, to have the necessary sidings, turn-outs, depots, water-tanks, and turn-tables, with 2,640 ties to the"mile, which shall be of good, sound yellow-pine, of not loss than eight-inch face, six inches thick, and eight and one-half feeL long. The road-bed on embankments shall he fourteen feet wide on the top, with slopes of one and one-half feet horizontal to one foot perpendicular; with cuts eighteen feet wide at bottom, with one foot horizontal to one foot perpendicular, except when in rock, when it shall *460be one-quarter foot horizontal to one foot perpendicular. The cuts shall ba properly drained with ditches three feet wide, on either side, leaving a twelve-foot road-bed at sub-grade. The bridges shall be what are known as the ‘Howe Truss or Combination.’ The trestles and water-ways shall be ample, and constructed of first-class material. The grades shall not exceed seventy-five feet to the mile, and the curves shall not exceed six degrees. The work on the entire line shall be done in a first-class, workman-like manner, and, when complete, compare favorably with new roads of a like character that are now being constructed in the state of Georgia. The terminal and depot facilities shall be ample for the requirements of said road. The rolling-stock shall be first-class, and of sufficient quantity to fully meet the requirements of the operation of the said road: the details of same to be hereafter agreed upon. The said road shall be completed from Savannah to Macon in twelve months from date, and from Dublin to Americus within six months from the time of the completion from Savannah to Macon. The said party of the first part may appoint a consulting engineer of the said party of the second part as to allignments, grades, curvatures, and general character of work to be done. The said party of the first part, through its president, A. B. Ninderman, shall at all times be at the service of the said party of the second part for the purposes of securing local aid and the necessary rights of way and terminal facilities required. It is understood and agreed that all the covenants herein contained shall be binding on the heirs, executors, administrators, and assigns of the respective parties hereto. In testimony whereof the said parties hereto have set their hands and seals the day and year first above written. ”

Thus, to enable McKetchney to raise the necessary funds to construct the road, it transferred its entire assets to him. McKetchney undertook the contract, but subsequently, with the assent of the Short-Line, transferred'his contract to the United States Construction & Improvement Company, a corporation chartered under the laws of New Jersey. Whatever McKetchney was bound to do, the Construction Company was bound to do also; and most undoubtedly, therefore, the Construction Company was bound to build, construct, and equip the road of the Short-line, as marked out in the contract. It has no other power. After long and patient consideration, the court has not been enabled to discover any power in the assignees of this contract to change the nature or purpose of their undertaking. The original power and vitality of their contract sprang from the act of the general assembly of Georgia. This created a legal entity for one purpose only, and that to build, construct, and equip the railway. The contract with John McKetchney simply transferred the duty to execute this power to him. His conveyance to the Construction Company, of which Branch & Simmons obtained the control, did hot and could not alter a jot or tittle the legal duty, its nature, extent, scope, or method of performance. In creating a charter to build the railway the legislature ex vi termini excludes the power in any person or corporation to suppress or defeat its construction. This is equally true of the.contracts in evidence. Of course this result can be accomplished by the non-action of the holders of stock lawfully issued or lawfully obtained, and we presently reach this feature of the rights in issue.

James A. Simmons, the president of the Construction Company, which had now assumed by the transfer the duties devolving under the law upon the Short-Line Company, assuming for the present that his purposes were *461honest, and in good faith, found it necessary, before he could obtain control of the contracts which wore vested in JIcKetchney, to raise 819,228.92, to pay off immediate demands against the road. To do this he applied to the plaintiffs Langdon, MeNaughton, and Conweff. These parties, in consideration of the promise on his part for the Construction Company to pay to them a portion of the profits of the contract which had been made with the Short-Line, and now to he performed by him as its president, advanced the money in different amounts, and under the terms as set out in the contract annexed to this bill. It cannot be doubted that the Construction Company had the right to borrow this money, necessarily to bo used in its undertaking: and it does not seem capable of fair doubt that the Construction Company would have the same right to pledge to its creditors a share of its profits as consideration and security for the loan. It was stipulated that it should be held or deemed a part of the construction fund. The plaintiffs, then, have a distinct equitable interest in the work which the Construction Company had undertaken. They look to its performance for their compensation, and they do so with clear equitable right. That company has assumed the twofold trust. It has undertaken, by transfer, the trust which John McKotchncy assumed from the Short-Line, namely, to construct and equip its road. It has assumed, in consideration of the advances made to enable it to carry out that trust, to pay a share of its profits to those who made the advancements. Having obtained full control in this manner of the assets of the Short-Line, it is clear that, had the Construction Company gone forward and performed its trust with good faith, and in accordance with its terms, the plaintiffs would be entitled to have an accounting for any profits which were resulting from the building and equipment contracts. Tt could not be insisted with any degree of fairness that the Construction Company, after obtaining the money of outside parties, to bo used for its purpose, could refuse to account in any manner. Nor would a court of equity tolerate the suggestion that under such obligations the Construction Company, or those who control it, could refuse to do anything, and yet retain the advancements which had been made. Tf it were capable of proof that the Construction Company, or those persons who were in its control, utterly refused to carry on the enterprise in which its creditors (the plaintiffs) now have an interest, the court, in that manner being debarred of any power of saying whether or not there wore profits resulting, would, under the power for general relief, be authorized to grant a decree against the parties culpable for the full sum of which the creditors had been wronged, and such damage as could he clearly made to appear. It would have the further power to seize, if within its jurisdiction, the valuable assets of that company, and subject them to the payment of these advances. In the presence of such a trust, of such faithless trustees, and such fraud as is alleged and scarcely disputed, it would bo in the domain of an ancient and clearly-defined province of equity jurisdiction, that the relief to the plaintiffs could bo found; and this is the more clear where the trustee—the Construction Company—is insolvent.

*462' This being true, how do the facts of the case present themselves to the chancellor? That the Construction Company had assets of the Short-Line Company for a1 valuable amount (how much, does not as yet plainly appear, but certainly worth, if we may judge from the price that was paid for them, $100,000) is most apparent. And to these assets the equitable lien of the creditors will attach, if they are in the hands of the Construction Company, or elsewhere within the reach of the court. Where are they? According to the theory of the answers of Gen. Alexander and the Central Railroad & Ranking Company they now belong to new stockholders of the same company. These stockholders are admitted to be the friends of the Central Railroad & Banking Company; they are in fact its president and several of its directors. It is not denied that the transfer of the assets was obtained by money which was the money of the Central Railroad & Banking Company. It is true that Gen. Alexander states in his answer that it was an individual transaction, but it is specifically charged in the bill, and specific interrogatories are put to him. which would enable him to deny it if not true, that the money which bought the assets of the Construction Company was the money of the Central Railroad & Banking Company. Indeed, this was admitted in the argument.

Another step in the argument. It is charged in the bill, and not denied in the answers, and besides it is perfectly evident to every intelligent mind, that the Short-Line Railway Company runs parallel, in large measure, with the line of the Central Railroad & Banking Company, extending from Savannah toward Macon, which are important business and terminal points, and that this railroad, if completed, would be a competitive, and dangerously competitive, railway; and there can be no doubt, whatever may be the forms and ceremonies as to the purchase from the Construction Company of the control of the Short-Line Rail-way, that it was either to defeat its completion, or, when completed, to prevent by harmonious control its effective competition -with the Central Railroad & Banking Company of Georgia, of which the present stockholders of the Construction Company are the president and many of the directors. The fundamental law of Georgia,,upon this subject is plain and emphatic, and was intended to defeat the precise transaction which, by the averments of the bill, the indisputable facts, and the admissions of the defendants, is so clearly made to appear to the court. Paragraph 4, § 2, art. 4, Const. Ga., is as follows:’

“ The general assembly of this state shall have no power to authorize any corporation to buy shares or stock in any other corporation in this state, or elsewhere, or to make any contract or agreement whatever with any such corporation, which may'have the effect, or be intended to have the effect, to defeat or lessen competition in their respective businesses, or to encourage monopoly ; and ail sucli contracts or agreements shall he illegal and void. ” Code, § 5097.

This is the action of the sovereign people of Georgia in convention asserubled. They chartered the Gentral Railroad & Banking Company. They chartered the Savannah, Dublin & Western Short-Line Railway *463Company. They granted to these railways vast, valuable, and perpetual franchises. With these rights, thus granted, no power can interfere. They are perpetual; they are indefeasible. But with these rights are carried all the deterring and prohibitory effects of the constitutional inhibition just quoted, by which the people seek to defeat the aggregations of monopoly, and prevent the corporations which they permit to exist from aggrandizement of power to the injury, or destruction of public and private rights. The court has no official concern in the policy of this law. It is too plain and significant for intelligent controversy. Whatever may he the rules upon similar topics, prescribed in other states, the people of Georgia, with full power to act, with undeniable jurisdiction over the important parties here, have embodied in their fundamental law this comjmehensive and vital clause, clearly intended to accomplish what they deemed the salutary and healthful result of competing lines for railway transportation. Contracts in violation of this clause are not permitted. When attempted they are utterly void. They have no binding force. They are nullities, and are to bo disregarded and ignored whenever it concerns a party at interest to do so. Now, what may not be done directly may not he done by indirection. The Central Railroad & Banking Company could not purchase the control of a railroad running parallel with its line from the same terminal points. Such a contract would be absolutely void, and, being void, and an,absolute nullity, no title would pass under it. This being true, Gen. Alexander, and those who acted with him for the Central Railroad & Banking Company, cannot accomplish the same result in any other manner whatever. They cannot make a purchase to defeat the Short-Line, or to control it. It is scarcely just to the intelligence of a court of equity to expect it to fail to perceive the real facts and the true purposes of the contracting parties in the transfer from T. P. Branch to E. P. Alexander, and the subsequent transfer from E. P. Alexander to other persons, themselves directors in the Central Railroad ■& Banking Company of Georgia, and the Port Valley & Savannah Comnany, which is its creature, controlled by its board of directors, and under the same president. The sworn averments oí' the bill and the answers, and failures to answer by the defendants, under the equity rules sufficiently show to the court what is perfectly evident: that this whole transaction was for the benefit and interest of the Central Railroad & Banking Company of Georgia; that the practical and operative franchises of the Savannah, Dublin & Western Short-Line Railway Company, and the shares of stock of the Construction Company, while nominally owned by individuals, and by another corporation, are really under the control of the president and board of directors of the Central Railroad & Banking 'Company of Georgia, a control as complete and absolute and effective as any power it may exercise.

The technical defenses urged for the defendants are not considered as meritorious. It is insisted there is no privity between the plaintiffs;' that the defendants were improperly joined; that there is an adequate remedy at law; that there is no equity in the bill; that the allegations of fraud are not sufficient; that the court has no j urisdiction over Simmons, *464and that he is a necessary party; and that the effect of the answers is to disprove the bill. But the plaintiffs proceed upon identical titles to correct an identical wrong by the same wrong-doers, and with reference to the same subject-matter. The bill is therefore not multifarious. The defendants are likewise concerned in one transaction, and that is the effort to control in the interest of the Central Railroad '& Banking Company the franchises of the Short-Line Company. The remedy at law cannot be so complete and adequate as that in equity, and besides, frauds and trusts are peculiarly the subjects of equity jurisdiction. While Simmons is eminently a proper party, since he is beyond the jurisdiction of the court, he is not such an indispensable party as will defeat the power of the court to proceed against those within the jurisdiction. The answers are altogether too evasive and partial to have any effect towards disproving the material averments of the bill. It is not denied that the funds of the Central Railroad were paid to Branch; that by such payment the assets of the Construction Company, deposited with that company to secure the completion of the Savannah, Dublin & Western Short-Line, were transferred to the control of individuals who are themselves the president and a number of the directors of the Central Railroad. It is not denied that the Fort Valley road is a branch of the Central, and under its control. There is no attempt to dispute any of the main facts of the bill, and such a reply as that in the answer of Gen. Alexander, and of the Central Railroad & Banking Company, that if the plaintiffs have been wronged it is by their own laches, does not commend itself to the court. The same reply might be urged to the complaint of any one who had become loser as the victim of misplaced confidence. As to the want of notice of the plaintiffs’ claims, this defense is no reply to supplement a void contract, and the substantial merit of these claims is sufficiently proven by the undisputed affidavits of the plaintiffs, which were submitted to the court.

The contracts by which these unlawful results were attained are null and void; and, since the Central Railroad & Banking Company and the Fort Valley & Savannah Company, which are practically one and the same corporation, have control of the assets upon which the plaintiffs have an equitable lien for their advancements made towards the performance of the trust originally assumed by John McKetchney and the Construction Company, the plaintiffs are entitled to an accounting against the defendants to ascertain and subject any values which are in their possession, and which may be applied to the discharge of the complainant’s' demands. It must be understood that the great undertying trust, in this whole transaction, was to build, construct, and equip the Savannah, Dublin & Short-Line Railway. It was for this that the state granted the charter. It was for this that McKetchney was empowered and given, not the title, but the control of the stock and securities of the Short-Line Railway Company. It was for this that the Construction Company undertook the trust. And this trust 'is not to be defeated by the wrongs of individuals, or the illegal contracts of corporations; and since, for its performance, the plaintiffs have in good faith paid their money, they are *465entitled to recover from the trustees, who refuse to act, what would bo their lawful compensation if the trustees had acted. As to T. P. Branch, —who, with James A. Simmons, most wrongfully, if the allegations of the bill are true, sold out and betrayed the rights of which they came into control,—die holds $100,000 in his proper person, to which he has no title whatever; and while the Central Railroad & Banking Company, and the parties who acted for it, may not be able to recover what they have wrongfully paid to him, he holds the sum he received as a trustee for the plaintiffs and other persons in interest who may bo entitled to it, and who represent—in part, at least—the franchises and property of the Short-Line Company; anti as the case now appears he should be compelled to make restitution of the sum which he has received for the benefit of the trust which he attempted to defeat, and for the legal beneficiaries of that trust. It would seem that the court has ample power to compel this; and the decision of the court is that the injunction prayed for against all the parties against whom it is prayed shall be granted, and that a receiver be appointed to take charge of the assets of the Savannah, Dublin & Short-Line Railway Company and of the United States Construction & Improvement Company, so far as they arc within the control of either of the defendants, or otherwise in the jurisdiction of the court; and to recover, in such manner as may be detuned most effective, from T. P. Branch and the persons acting with him, the smn unlawfully paid to him by E. P. Alexander for the franchises, stocks, shares, and other property of the Savannah, Dublin Sr. Western Railway Company, and that the case proceed regularly, as is usual in equity.