28 F. 581 (D.Kan. 1886), Venner v. Atchison, T. & S. F. R. Co.

Citation:28 F. 581
Party Name:VENNER v. ATCHISON, T. & S.F.R. CO. and others.
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 581

28 F. 581 (D.Kan. 1886)

VENNER

v.

ATCHISON, T. & S.F.R. CO. and others.

United States Circuit Court, D. Kansas.

1886

J. H. Benton, Jr., W. A. Underwood, and Joseph G. Waters, for complainant.

George R. Peck and George W. McCrary, for defendants.

BREWER, J.

The bill is filed by Clarence H. Venner, a citizen of Massachusetts, against the Atchison, Topeka & Santa Fe Railroad Company, its secretary, and three of its directors, all citizens of the state of Kansas. Complainant alleges that on the fifteenth day of

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February last he became the owner of 500 shares of the defendant company's stock, and, as such stockholder, challenges the recent action of said company in the acquisition of the stock of the Gulf, Colorado & Santa Fe Railway Company. To this bill a demurrer has been filed on the two grounds of a lack of indispensable parties, and a want of equity.

Passing the first ground, I proceed to inquire into the second, for it involves the merits of this controversy. The bill states, upon information and belief, the financial condition-- the earnings and expenses-- of the Gulf, Colorado & Santa Fe Company, for the purpose of showing the financial injury to the defendant company resulting from any investment of its means in the stock of such company. It further alleges that said Gulf Company is a corporation organized under the laws of Texas, and that on the fifteenth day of February, 1886, it was authorized to and had built and owned and operated about 551 miles of railroad in the state of Texas; that its said lines at no place intersected or connected with any of the lines of railroad which the said defendant company was or is authorized to build, own, operate, or maintain; but that, on the contrary, the nearest point on any of the lines of the said Gulf road was distant from the said defendant company's lines at least 350 miles, and separated by the whole width, from north to south, of the Indian Territory, and a long distance in northern Texas; that since said fifteenth day of February the defendant company has made some arrangement or agreement, of the exact nature and terms of which complainant is ignorant, and has been unable after diligent inquiry to ascertain, but that a part of it involves the issue of additional stock of defendant company and the exchange thereof for the stock of the Gulf Company; that in pursuance of such arrangement about $4,000,000 of defendant company's stock has been already issued and exchanged for stock of the Gulf Company; that $3,500,000 more of stock of said defendant company has been issued and placed in the hands of the Farmers' Loan & Trust Company of New York city for the use and benefit of the holders of the stock of said Gulf Company, and to be delivered on or about the first day of January, 1887, and that the directors of said company are about to issue and deliver other and further certificates of stock for the same purpose, and also that the defendant company is now engaged in operating the railroad of said Gulf Company, using its own means therefor, and putting at risk its property and credit thereby. Complainant denies the power of the defendant company to acquire any interest in, or assume any control or responsibility for, the Gulf Company, and also denies the power of the defendant company to issue any more stock.

He thus challenges both defendant's power of acquisition and its method of acquisition. Naturally, the first inquiry runs to the question of power. The primal source of power is, of course, the defendant's charter. That is its grant, defines the extent and prescribes

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the limitations thereof. This charter was granted by the territorial legislature of 1859. Laws 1859, c. 47. The first section provides for the organization. The second and twentieth read as follows:

'Sec. 2. The said company is hereby authorized and empowered to survey, locate, construct, complete, alter, maintain, and operate a railroad, with one or more tracks, from or near Atchison, on the Missouri river, in Kansas territory, to the town of Topeka, in Kansas territory, and to such point on the southern or western boundary of said territory, in the direction of Santa Fe, in the territory of New Mexico, as may be most convenient and suitable for the construction of such railroad, and also to construct a branch of said railroad to any points on the southern boundary of said territory of Kansas in the direction of the Gulf of Mexico.'

'Sec. 20. This company shall have power to make such contracts and arrangements with other railroads which connect with or intersect the same as may be mutually agreed upon by the parties, for leasing or running their roads, or any part thereof, in connection with other roads in other states, and shall be empowered to consolidate their property and stock with each other; such consolidation to take place whenever such companies shall respectively agree upon the terms and conditions, and shall have all the powers, privileges, and liabilities that they may hold by their separate charters, by filing a copy of such articles of consolidation in the office of the secretary of this territory.'

Now, were all the powers possessed by the defendant company those given by its charter, it might well be doubted whether, tested by the rule that nothing passes by a charter except that which is clearly and expressly granted, the power to acquire possession of this Texas road existed. It is true that an argument of some plausibility might be based upon the charter provisions alone in support thereof. The second section in plain terms grants the power to construct roads to the western and southern boundaries of the state, in the direction of Santa Fe and the Gulf of Mexico. The state boundaries are doubtless, under this, the limits of construction, yet the further points named are suggestive of an expectation that these state roads would one day become parts of transcontinental lines, and to that extent indicative of a thought that the company is given, or, if not already given, is in the future to receive, whatever powers may be necessary to bring about a realization of such expectation. It is well said by the supreme court of this state in the opinion written by its learned chief justice in the recent case of Santa Fe R. Co. v. Fletcher, 10 P. 596, referring to this matter:

'In interpreting the powers possessed by a corporation, we must look to the intention of the legislature in the enactment of the statute. It is manifest that the legislative assembly of the territory of Kansas, in granting the charter to the Atchison Company, anticipated that some day the road would become a part of a transcontinental line, and thereby that Kansas, by reason of its geographical location, would have passing over it the great traffic of the country, east and west, north and south, because it provided for building its road in the direction of Santa Fe and also of the Gulf of Mexico.'

A similar recognition of a suggested, though unexpressed, purpose is found in the case of Green Bay, etc., R. Co. v. Union, etc., Co., 107 U.S. 101, S. C. 2 S.Ct. 221, in which the court says:

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'These statutes show that the legislature of Wisconsin, recognizing the fact that from the geographical situation of the state the railroads which traverse it from east to west form part of the line of transportation extending across the continent, intended to confer upon the corporation owning such railroads very large powers of contracting with other corporations owning railroads or steam-boats whose course includes connecting parts of the same great line of transportation.'

In the first section of this charter the power is granted 'of acquiring, by purchase or otherwise, and of holding or conveying, real and personal estate which may be needful to carry into effect fully the purposes and objects of this act. ' In the case of Ryan v. Leavenworth, A. & N.W. Ry. Co., 21 Kan. 365, similar language was held broad enough to grant the power of purchasing the stock of a connecting railroad company.

Further, with prophetic vision of its large, though as yet unknown, future, unwilling that any prescribing limitation of its capital stock should bar or hamper its hoped-for expansion, the legislature, in section 5, made a singular and elastic provision as to such stock. The section reads:

'The capital stock of said corporation shall be one million and five hundred thousand dollars, which may be increased from time to time to any sum not exceeding the amount expended on account of said road, divided into shares of one hundred dollars each, which shall be deemed personal property, issued and transferred as may be ordered by the directors or by-laws of said company.'

Under this the capital stock might be increased indefinitely, yet only pari passu with the extension of the railroad lines and property. Now, with these indications of its purpose and expectation, the legislature adds to the charter, as its last granting section, section No. 20, above quoted. This gives general powers of contract and arrangement, with other railroad companies owning connecting or intersecting lines, for leasing or running their roads, and also gives the right of consolidation. No limitation to home corporations is expressed. The only expressed limitation is to companies having connecting or intersecting lines. That such contracts and arrangements may extend to establishing connections with roads in other states is declared. It is doubtless true that, from the silence as to extraterritorial corporations, there may be some implication that only home companies were within the contemplation of the legislature, and it is also true that the provisions as to consolidation seem more peculiarly applicable to home corporations. But with the purpose so obviously disclosed in the prior sections it would be no severe strain on language to hold that this was intended...

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