Schmidt, &C. v. L. & N. R. R. Co.
| Decision Date | 17 June 1910 |
| Citation | 139 Ky. 81 |
| Court | Kentucky Court of Appeals |
| Parties | Schmidt, &c. v. L. & N. R. R. Co. |
Appeal from Jefferson Circuit Court (Chancery Branch, Second Division).
From a judgment of dismissal, plaintiffs appeal. — Reversed.
W. O. HARRIS, BENJAMIN F. WASHER and HAZELRIGG & HAZELRIGG for appellants.
HELM & HELM for appellee.
The facts out of which this litigation grows may be stated as follows: In 1879 the Cumberland & Ohio Railroad Company leased to the Louisville, Cincinnati & Lexington Railway Company for a period of 30 years its roadbed and other appurtenances, and at the same time executed to the lessee a mortgage on all its property and franchises to secure the payment of 250 bonds of $1,000 each. The lessee as a part of the arrangement agreed to apply the net earnings derived from the leased road to the payment of the interest on these bonds and for the creation of a sinking fund for their redemption; and, if the net earnings did not prove sufficient for this purpose, the lessee was to supply the deficiency by appropriating the net earnings, or so much as might be needed on its own lines which accrued by reason of business coming to it from the lessor's lines. In addition to the lease and mortgage executed by the Cumberland & Ohio Railroad Company, the Louisville, Cincinnati & Lexington Railway Company executed to the bondholders a mortgage on the earnings derived from the Cumberland & Ohio Railroad for the purpose of securing the payment of the bonds and interest. Afterwards, in 1881, the Louisville, Cincinnati & Lexington Railway Company, in consideration of $7,000,000, sold its line of road and equipment to the Louisville & Nashville Railroad Company, and as a part of the conveyance transferred the lease made to it by the Cumberland & Ohio Railroad Company. In the conveyance made by the Louisville, Cincinnati & Lexington Railway Company to the Louisville & Nashville Railroad Company, the Mercantile Trust Company of New York was denominated as a party of the third part, and the Louisville & Nashville Railroad Company agreed to execute and deliver to it as trustee bonds to the amount of the purchase price, which were secured by a lien upon the property conveyed by the Louisville, Cincinnati & Lexington Railway Company. This conveyance was signed and acknowledged by the Louisville, Cincinnati & Lexington Railway Company, the Louisville & Nashville Railroad Company, and the Mercantile Trust Company.
In this action, which was filed in September, 1908, the holders of the bonds issued by the Cumberland & Ohio Railroad Company seek to recover from the Louisville & Nashville Railroad Company $25,000; the petition alleging: That the Louisville, Cincinnati & Lexington Railway Company, after the sale of its line of road to the Louisville & Nashville Railroad Company, owned no property of any kind or character, and did not attempt to carry on any business under its charter. That the Louisville & Nashville Railroad Company as a part of its purchase of the Louisville, Cincinnati & Lexington Railroad assumed all the obligations entered into by it with the Cumberland & Ohio Railroad Company, and consequently agreed to operate the Cumberland & Ohio Railroad and apply the net earnings arising from it, as well as the net earnings accruing to the Louisville, Cincinnati & Lexington Railway Company from business that came to it from the Cumberland & Ohio Railroad to the payment of the bonds issued by the Cumberland & Ohio Railroad Company, as well as the interest thereon. It further alleged that in violation of its obligation the Louisville & Nashville Railroad Company refused to operate the Cumberland & Ohio Railroad for the years 1898 and 1899, and that by reason of such refusal no earnings were derived from this road. It also averred that, if the Louisville & Nashville Railroad Company had complied with its contract by operating the Cumberland & Ohio Railroad according to the terms of the lease made between it and the Louisville, Cincinnati & Lexington Railway Company, net earnings of at least $12,000 a year would have been received and by the terms of the leases and contracts between the Cumberland & Ohio Railroad Company and the Louisville, Cincinnati & Lexington Railway Company appropriated to the payment of the bonds and interest. Judgment was sought against the Louisville & Nashville Railroad Company for $25,000, with interest from March, 1900.
In its answer, among other defenses, the Louisville & Nashville Railroad Company relied upon the 5-year statute of limitations as a bar to any recovery against it by the bondholders. This defense is rested upon the ground that its assumption of the obligations entered into between the Louisville, Cincinnati & Lexington Railway Company and the Cumberland & Ohio Railroad Company was an implied and not an express contract upon its part to perform the undertakings assumed by the Louisville, Cincinnati & Lexington Railway Company in its contract with the Cumberland & Ohio Railroad Company; and as it was an implied contract, and the action was not brought for more than five years after it accrued as alleged in the petition, it was barred by section 2515 of the Kentucky Statutes, reading in part: "An action upon a contract not in writing signed by the party * * * shall be commenced within five years next after the cause of action accrued."
In answer to this the appellant bondholders insist that the contract, by which the Louisville & Nashville Railroad Company assumed the obligations entered into by the Louisville, Cincinnati & Lexington Railway Company with the Cumberland & Ohio Railway Company is either an express contract in writing or in effect a written contract, and consequently the 15-year and not the 5-year statute applies to it.
The lower court held that the 5-year statute of limitations barred a recovery, and dismissed the petition. The ruling on this point is the only question that was argued and the only one we will consider.
In one form or another, litigation growing out of these various leases, contracts, and conveyances has been before this court in several cases. The first case (Schmidt v. L. & N. R. R. Co., 95 Ky. 289, 25 S. W. 494, 26 S. W. 547, 15 Ky. Law Rep., 785) was an action by the bondholders to compel the Louisville & Nashville Railroad Company to account for the net earnings alleged to have accrued after the conveyance to it by the Louisville, Cincinnati & Lexington Railway Company by reason of business coming to it from the Cumberland & Ohio Railroad, for the purpose of paying the bonds issued by the Cumberland & Ohio Railroad Company and the interest thereon. Another case was that of Schmidtz v. L. & N. R. R. Co., 101 Ky. 441, 41 S. W. 1015, 19 Ky. Law Rep. 666, 38 L. R. A. 809, in which the bondholders sought to compel the Louisville & Nashville...
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