Western Maryland R. Co. v. Blue Ridge Hotel Co.
| Decision Date | 08 December 1905 |
| Citation | 62 A. 351,102 Md. 307 |
| Parties | WESTERN MARYLAND R. CO. v. BLUE RIDGE HOTEL CO. OF WASHINGTON COUNTY. |
| Court | Maryland Court of Appeals |
Appeal from Baltimore City Court; Henry Stockbridge, Judge.
Action by the Blue Ridge Hotel Company of Washington County against the Western Maryland Railroad Company. From a judgment for plaintiff, defendant appeals. Reversed.
Argued before McSHERRY, C.J., and BRISCOE, BOYD, PEARCE, SCHMUCKER JONES, and BURKE, JJ.
Leon E Greenbaum and Benjamin A. Richmond, for appellant.
William S. Thomas, for appellee.
This is an action of covenant, brought by the Blue Ridge Hotel Company of Washington County, a corporation organized under the general incorporation laws of Maryland, against the Western Maryland Railroad Company, a corporation created by an act of the General Assembly of Maryland (chapter 304, Acts 1852) under the name of the "Baltimore, Carroll, and Frederick Railroad Company"; the name being changed by chapter 37 of the Acts of 1853 to the "Western Maryland Railroad Company." The covenant sued upon is contained in a sealed agreement between the parties, made October 23 1883. This agreement recites the making of a previous agreement between the parties on April 2, 1883, whereby the said railroad company, in consideration of anticipated advantages to it from the construction by said hotel company of a summer hotel near Pen Mar Station on the line of said railroad, had agreed to secure the payment of a dividend not exceeding 5 per cent. per annum on the capital stock of said hotel company of $100,000. The agreement sued on then further set forth that, since the erection of said hotel, the railroad company had in fact derived large receipts from travel and traffic to and from the station used for said hotel, known as the "Blue Mountain Station," and that its receipts from travel and traffic to and from an adjoining station, known as "Pen Mar Station," had, by reason of the attractions of said hotel and its neighboring property, increased to an amount exceeding the utmost liability to be assumed by it under the contract then made, and that it was believed these receipts would be largely augmented by increasing the capacity of the hotel, and by the improvement of the grounds of the hotel company, and of its other property near Pen Mar Station; that the hotel company had already expended in the undertaking more than its whole capital, and an additional amount, not less than $125,000, was necessary to complete improvements begun, and others contemplated, which could not be procured without the assistance to the credit of the hotel company as thereafter stipulated in said agreement; that the hotel company was about to issue its bonds to an amount not exceeding $125,000, bearing interest at the rate of 6 per cent. per annum and to be secured by a first mortgage upon the said hotel and its revenues, and such other of its property as should be described in said mortgage. The agreement then further set forth that in consideration of the advantages expected to accrue to the railroad company from the said improvements to the hotel and its other property, and of certain privileges secured to the railroad company by the terms of said agreement for the benefit of its excursionists, the said railroad company covenanted with the said hotel company, as follows: "That if in any one year the actual net earnings of said hotel company from said hotel and other sources shall not suffice to pay 5 per cent. dividend upon its capital stock of $100,000, and the interest at the rate of 6 per cent. semiannually upon such amount of said first mortgage bonds as may be issued for the purposes herein stated, not exceeding $125,000, the said railroad company will in that event allow and pay to said hotel company, for its stockholders and the holders of said bonds, such commissions upon its receipts for traffic to and from Blue Mountain and Pen Mar Stations, or any other station or stations which may be hereafter substituted for either or both of the above, at which the business hereby contemplated may be done, as will be sufficient to make up said deficit to 5 per cent. upon its capital stock, and 6 per cent. per annum upon its bonded debt"; and the hotel company upon its part entered into a covenant designed to protect the railroad company in the proper application of the revenues of the hotel company to its economical and successful management, and of the net earnings to the dividends and interest due to its stockholders and bondholders. The declaration averred that, in reliance upon this covenant of the railroad company, it issued its bonds to the amount of $125,000, of which $122,000 were still outstanding, which sum was expended in the improvements contemplated by the agreement, and that at the close of the fiscal year of the hotel company ending October 1, 1903, the net earnings of the hotel company were not sufficient to pay the interest then due on said bonds, by the sum of $3,660, and there was nothing available for payment of the $5,000 dividend then due to its stockholders; that demand had been duly made on defendant for said sums; and that payment had been refused.
It will only be necessary to consider the defendant's fourth plea, which averred that the agreement sued on was ultra vires on the part of the railroad company, and void, and could not be enforced by suit such as was brought against it. To this plea the plaintiff demurred, and, the demurrer being sustained, the case went to trial on issues joined on the other pleadings, resulting in a verdict for the plaintiff for $9,433.68, and judgment thereon. The defendant offered six prayers, of which the first and second raised the same question raised by the demurrer, and were refused by the court; no prayers being offered by the plaintiff. The question raised by the demurrer, and by the defendant's first and second prayers, is the vital question in the case, and will now be considered.
The agreement was drawn with much care and skill, and evidently with a view to the avoidance of the question raised, as is suggested by the phraseology of the covenant "to allow and pay such commissions upon its receipts to and from" the stations named as would make good the deficit which was the subject of the covenant; but we do not think the use of this language can disguise the real character of the transaction, or control the validity of the obligation assumed by the railroad company. If the contract would be declared ultra vires if the deficit were to be made good from the general receipts of the company, it could not be rescued from invalidity by calling the payments to be made commissions from traffic receipts from the particular stations named. There is no limit to the rate of commission to be paid. The full amount of the gross receipts from these two stations was pledged by that covenant, if required to make good this deficit. This appears not only from the language of the covenant, but even more explicitly from the recital of the mortgage from the hotel company to the trustees of its bondholders, which assigns to said trustees "the benefit of the contract between the hotel company and the railroad company, dated October 23, 1883, by which the payment of the interest on the said bonds is guarantied by the said railroad company to be paid of the receipts from the traffic at Blue Mountain and Pen Mar Stations." A contract, which in effect pledges the total gross receipts from any source, cannot be regarded as a contract for commissions on, or a rebate from, those gross receipts, and this contract must be regarded as an absolute guaranty to the stockholders and bondholders of the hotel company of their dividends and interest, to the extent to which the receipts from the stations named should be adequate for that purpose, since in the language of the contract the payment was to be made "to the hotel company for its stockholders and bondholders." The promise thus made was a promise "to answer for the payment of some debt, or the performance of some duty, in case of the failure of another, who is himself, in the first instance, liable to such payment or performance." 14 Amer. & Eng.Enc. of Law (2d Ed.) 1128. Its object, as declared in the recitals of the agreement, was to furnish to the hotel company "assistance to its credit," and it was at least twice designated in said agreement as a "traffic guaranty," and we think it could not be accurately otherwise designated. It is therefore necessarily a collateral contract, but there is no question here of the statute of frauds, and it would make no difference so far as its validity is here concerned, if it had been an original contract to pay the hotel company a lump sum upon the consideration stated. The question of ultra vires would still remain for consideration.
Corporations being mere creatures of law, possess only such powers as are expressly granted, together with such incidental and implied powers as are necessary to carry into effect those expressly granted. 10 Cyc. 1097, 198. And it is equally well settled that "a corporation has no power to enter into a contract of suretyship or guaranty, or otherwise lend its credit to another, unless the power is expressly conferred by its charter, or unless such a...
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