BODDlilB V. KENTUOKY II GRHA.T BASTlIlRN BY. 00.
(CHreuit (Jtnm, D. K,ntucky. June,IIlSI.)
CORPORATIONS-POWER BOARD OJ' DlRBOTORS TO I88UE MORTOAOB BONDS-CONOURRENOE OJ' STOOKHOLDERS.
Where the general management and control of the property, business, and affairs of 8 corporation were vested in the board of directors and president; and the corporation, W8$ given power by the charter to issue and sell bonds and a mortgage tosecure the same; and the charter required the concurrence of the stockholders to authorize a different measure, (consolidation with another com· , pa.ny,)-M,ld, that the board of directorS,and president had the power, without'the concurrence of the stockholders,to authorize the issue of bonds and the execution of 8 mortgage upon the property of the company to secure them.
SAM»-AOKNOWLEDGMENT OF MORTGAGB BY PRESIDENT OUT 0]1' TUB STATE.
The corporation was organized under' the laws of Kentucky, and its property located there. H6Zd, that a mortgage of its property could be legally acknowledged by the president of the company' in Ohio.
8AME-MoRTGAGE-NoTIOE 0]1' FOREOLOSURB-BRINGING SUIT.
The charter provided that" foreclosure;' should not take place until 90 days' notice had been given by publication. Held, that 'suoh notice applied to the foreclosure itself, not to the bringing of a suit for foreclosure.
::MORTGAGE OF RAILROAD-CONSTRUCTION 0]1' TBRMS-WHAT PROPERTY COVERED-BRANcrr RoAD-POWER TO PURCHASE ANOTHER ROAD-ULTRA VmEs-AFTER-AcQUIRED PROPERTY.
On demurrer to the cross-bill of the Farmers' Loan & Trust Com. pany'it appeared that the Kentucky & Great Eastern Railway Company, in 1872, executed a mortgage to the Farmers' Loan & Trust Company upon its entire line of railroad extending from Newport, Kentucky, along the southern bank of the Ohio river, to Catlettsburg, Kentucky, "as the same is now or may hereafter be located or constructed." The railroad company, at that time, had no power to build such a line of road, unless it came within the power to build branches to its main line. It was alleged that in July, 1871, the owners of the Maysville & Big Bandy Railroad sold that road, with al1its rights and franchises, to the Kentucky & Great Eastern Company, and that on the fifteenth of June, 1873, said sale was coI1:fl.rmed and ratified by said owners. The Kentucky & Great Eastern Company had the power, under its charter, upon the assent of the holders of a lty in value of its stock, to purchase and hold any other road in , .Reported by J. C. Harper, Esq., of the Cincinnati bal'.
out of the state of Kentucky. Hdd, (a) that, under the facts alleged 'and the, terms of th!, mortglilge, line from" ,to Catlettsburg was not a branCh of a road Which said Kentucky & Gre'at Eastern Company was authoriited' to build; i(b) that the Kentucky & Great EasternCompany hadno right, so far as the cross-bill shows, to acquire said Maysville & Big Sandy Railroad without the concurrenee of the stockholders of the former, ,and such concurrence is not aileged, ' : '" ,", .' Hel,d,fartheJl'1 that, under the allegations of the cross"bill and the terIns of the mortgage; said Maysville & Big Sandy Railroad was not intended to be conveyed as after-acquired' propertv. ,,' Quare, the Kentucky & Great Eastern Oompany having, at the time of the mortgage, no authority to acquire said :Maysville & Big Sandy Railroad, whether, although It might have been intended! sS , ,said latter-named railroad as afteracquirEd property, have passed under said mortgage, the same being mres.' ,
.;".' ' ',- . j,
PRACTICE-REPLEADER AFTER RElIIOVAL FROlll STATE COURT.
On demurrers to cross-bill of Farmers'
& Trust Oompany, praying a foreelosureof its mortgage. Wm.H;Wa'dsworth, of'Maysville, Ky:, and Perry & Jenney,
of Cincinnati, for M. & B. S. By. Co. and Wadsworth and associa.tes.
I. The Kentucky & Great Eastern Railway Company had no right or title to the franchise or property of the Maysville & Big Sandy Railway Oompany to pledge to Farmers' Loan &. Trust Company. II. ,The Kentucky, &. Great Eastern Railway Company did not gage theJranchise or property Maysville & Big Sandy Company and the terms of the mortgage do not embrace the same. (a) Only the Kentucky &. Great Eastern Railway Oompany's own line, acquiJ:ed or to be acquired, is embraced in the mortgage. (b) A railroad not then acquired by that coIllpany, and which it had not then power to construct, will not pass ,by the mortgage, as after-acquired property. Jones on Rail. Secur. §! 104-107; MeyeJl' v. Johnston,53 Ala. 237, 331; 8hamokin Vat. Ry. Co. v. Livermo1'e,47 Pa. St. 465; FarmeJl'8' L. T. Co. v. Com. Bank, 11 Wis. 207; 15 Wis. Dinsmore v. Racine, etc., Ry. 00. 12 Ill. 649; Walsh v. Barton, 24 Ohio St. 28; 1 Jones on Mortgages, H 156, 157. When right of action on contracts will pass. Jones, Rail. Secur. § 108; Mil., etc., Ry. Co. v. Mil., etc., R.1J. Co. 20)Vis. 174. Ill. As after-acquired property, the mortgagee would take it subject to equities. 1 Jones,on Mortgages, § 158, and notes; F08dick v. Schall. 99 U. S. 250; U. S. v. N. O. By. Co. 12 Wall. 362; Beall v. WMte, 104 U. S.382.
O. L. Raison, Jr., of Cincinnati, for plaintiff and Ken. & Gt. East. By. Co.
HODDER V. KE.l,iTPCI'Y& GREAT EASTERN BY. 00
Sage et l:;fcip,kk"of Cincinnati, for the. Trust Co, and
things with the concurrence of a. majority of the stockhold. ers, (sections 41 and 43,) does not tend to prove that the directors could not exercise the other powers granted the corporation. The forty-third section provides thatSaid railway company (the holders.of a majority of the stock therein concurring) may agree on teims for consolidating said company with any other railroad company, etc.; and the next section (44) p.ovides that said company may issue and sell the coupon bonds of said company; and the forty-fifth section provides that, to secure the prompt' payment of the interest and principal of said bonds, said company',may execute a mortgage or deed of trust; but in ,neither section is it provided tha,t the stockholders must concur.
It is quite clear, from these and other sections of the char· ter, that the directors and president of the company were authorized to issue mortgage bonds and secure them upon the property of the company. Jones on Railroad Securities, § 84. The mortgage could be legally acknowledged by the president of the company in Ohio, and it seems to be in proper form. Jones on,Railroad Securities, §§ 84, 86; Kelly v. Oalhoun, 95 U. S. 710; Marlin v. Mobile x R. 00. 7 Bush, 177; 11 Wall. 476. The allegation of the cross-bill as to the issuing of the bonds, and that they are outstanding in the hands of bona fide holders, is sufficient. If these bonds were delivered in payment for work done and materials furnished, it was equally as good as if they had been sold for cash-money in hand. The 90 days' notice required by the forty-seventh sec, tion of the does not apply to the bringing of the suit for foreclosure, but to the foreclosure it,self. The charter, section 45, gives the authority to secure the bonds by conveying "the said railroad and i,ts property franchises." It is unnecessary to decide on these demurrers the exact meaning of these words. It certainly gave the company the right to mortgage its property then owned, and that which it might thereafter acquire by its existing charter.
Section 47. Foreclosure shall not take place until 90 days after publication of notice of the commencement of proceedings to taat end slmB have been made," etc.-[REP.
HODDER V. KENTUCKY & GRl!JAT EASTERN RY. 00.
The language of the mortgage embraces not only the .property then owned by the Kentucky & Great Eastern Railroad Company, but also that which the company might thereafter acquire. This company did not, at the date of this mortgage or at the time of its acceptance, March 5, 1872, have authority to build and run a railroad from the city of Newport, in the State of Kentucky, "upon, along,and near the southern bank .of the Ohio river to a point in said state line between the states of Kentucky and West Virginia at or near Catlettsburg, Boyd county, Kentucky," unless that authority can be derived from the authority given the company to build branches to its main stem of road. There is nothing in the mortgaRe, nor is there any allegation in the cross-bill, which indicates that any part of this line-that described in the mortgage-is a branch to the company's "main trunk road;" on the contrary, the mortgage describes the line as "our main line." The fair inferenceindeed, the irresistible conclusion from the mortgage and the allegations of the cross-bill-is that the company never even located another line east of Maysville, hence th,e line east of Maysville, upon, along, and near the southern bank of the Ohio to apqint at or near Catlettsburg, cannot, by any reasonable construction, be a branch of a road which was authorizedto be constructed in counties. other than Mason, Lewis, Greenup, and Boyd, and which, as far as ,this record shows, had not been located. The line as described would run through the counties of Mason, Lewis, Greenup, and Boyd,-and it seems from the cross-bill included the line of the Maysville & Big Sandy Railroad. It alleges that W. H. Wadsworth and others were, on the fifteenth of July, 1871, the absolute and sole owners of all the property, rights, and franchises of the Maysville & Big Sandy Railroad Company, and that they, on the fifo teenth of July, 1871, entered into a contract with the Kentucky & Great Eastern Railroad Company, whereby they sold to said company all the said property, rights, and franchises and interests of the said Maysville & Big Sandy Railroad
Company, and that subsequently, and on oJJabout the fifteenth day of June, 1873, the said claimants to said property, rights, and franchises, by an instrument of writing dated that day, signed by all the parties in interest, confirmed and ratified the said agreement of July 15, 1871. Copies of both writings are annexed to the cross-bill. 'An examination of the copy of the agreement, dated January 15, 1873, shows that John B. Poyntz, who was a party to the writing dated July 15, 1871, did not sign or become a party to that agreement. The allegation of the cross-bill must, however, control in considering a demurrer to that bill. The forty-first section of the charter of ,the Kentucky & Great Eastern Railroad Company authorized the president and directors, with the assent of the holders of. a majority in value of the stock in said company, to purchase and hold any other railroad in or out of the state. The cross.hill, however, does not allege tha.t the purchase of the Maysville & Big Sandy Railroad and its property from Wadsworth and associates was made with the assent of a majoIity in value of the stock in the Kentucky & Great Eastern Railroad Company, nOf was there any suggestion made in the argument of counsel that such was the fact. The amendment to its charter, approved March 29,1872, authorized it to construct its road through the counties of Mason, Lewis, Greenup, and Boyd. It provided, however, that, previous to constructing their railroad east of Maysville, through Mason county and on through the counties of Lewis, Greenup, and Boyd, the Kentucky & Great Eastern Railroad Company should purchase and pay for the Maysville & Big Sandy Railroad, or make such arrangements with its owners as should be satisfactory to each of said owners. If it be assumed that the allegations of the cross-bill are sufficient on demurrer to show that the company made a satisfactory arrangement with the owners of the Maysville & Big Sandy Railroad, the question remains whether or not the mortgage intended to convey the line east of Maysville as future-acquired property. The mortgage recites that the Kentucky & Great Eastern
HODDER V. KENTUCKY '" GREAT; EASTERN RY.
RailwayCompat;lJ had the '''power to locate, construct, equip. and operate a line of railway within the said commonwealth of Kentncky from the city of Newport,! in Ca.mpbeU county, state of Kentticky, upon, along, and:near the southern bank of the Ohio river, in said state' of Kentucky, to a point on the state line between the state of KentUCky and West Virginia, at· or near Catlettsburg, Boyd coonty, state of Kentucky;" and in the granting clause Jconveys "the entire line of, the Kentucky & Great Eastern Company's railroad extend· ingfrom the said city of Newport,in the state of Kentucky, to said point' in said· state on the stateline between the states of . Kentucky and. West Virginia, as hereinbefore described, as the same is now or may hereafter be located and constructed," etc. Thus, it will be seen, this mortgage conveyed a definitely.' described line, which the company claimed to have then the right to build;' hence, as a question of intention and construction, it cannot be that this line-that east of Maysville, along and near the southern bank of the Ohio river-was intended to be, or was, conveyed as future to be acquired property. If, however, it had been intended to be conveyed as future-acquired property, it may be seriously doubted if it would have passed. The mortgaging of future-acquired property by railroad companies is sustained, either upon the , ground that it is in the nature of accretions, or that the road company has made an executory contract, which, though .. void in law, will in equity be allowed to become effoctive when and as the property comes into existence. Pennock v. Coe, 23 How. 124; Holroyd v. Marshall, 9 Jurist, 215; Phillips v. Winslow, 18 Ben. Monroe, 43l. In the case at bar there could be no accretions, because the liDE; itself could not, at the date of the mortgage, be legally conveyed, or be owned, by the Kentucky & Great East. emRailroad Company; nor could this company make a valid eXedutory contract about this part of the ,line. It was beyond <lorporate autP-ority, and ultra vires.· It. may be seriously doubted whether a mortgage by a railroad company of future to be acquired: property ever goes beyond the authority which
the ,company then has the legal right to acquire. If· it embraces property which the company had no oorporate authority to acquire ,at the time of the mortgage, it cannot be .sustltined, either upon the accretion idea, or that it is an executory contract which equity enforce in the nature of a specific performance. ltis, however, not necessary to decide this question in this case; but because the company had no right, as far as the cross-bill shows, to acquire the Maysville & Big Sandy Line without the concurrence of ,the. stockholders, and the concur· J,'ence is not alleged, and because the Maysville & Big Sandy Line is not inte.nded to be conveyed as future to be acquired property, the demurrers should be sustained. Order entered sustaining demurrers to cross-bill of Farmers' Loan' & Trust Company, and giving leave to amend, and directing ·'the complainant to redraft his pleadings so as to conform .to the equity practice of this court."· '
CROOKS, Assignee, v. STUART and others.
(Circuit Court, D. iowa., May 18, 1881.)
CHATTEL MORTGAGE-SUBSEQ.UENT CREDITORS-IoWA STATUTE.
Under the statute of Iowa, as construed by the highest court of that state, an unrecorded mortgage of chattels, of which the mortgagor as against creditors who receive retains possession and control, is notice at any time before obtaining a lien by levy or otherwise.
2. SAME-SAME-COMMON LAW.
At common law a mortgage of chattels which permits the mortgagor to retain possession of the property and deal with it as his own, is void as against a creditor who becomes such without notice of the mortgage.
CONSTRUCTION OF STATUTE.......CONFLICT OF
LAws. In the construction of a statute of a state this court is bound by the construction it by the courts of that state, but the
.The suit was originally brought in the Mason circuit court of Ken. tucky, and upon application of the Farmers' Loan & Trust Companywaa removed to the United States circuit court. The complainant had 1iled a "petition" under the Kentucky Code Practice.-[REp.