Atchison v. Fletcher

• Decision Date: 09 April 1886
• Citation: 35 Kan. 236,10 P. 596
• Court: Kansas Supreme Court
• Parties: THE ATCHISON, TOPEKA & SANTA FE RAILROAD COMPANY, ISAAC T. BURR, et al., v. JOHN W. FLETCHER

10 P. 596

35 Kan. 236

THE ATCHISON, TOPEKA & SANTA FE RAILROAD COMPANY, ISAAC T. BURR, et al., v. JOHN W. FLETCHER

Supreme Court of Kansas

April 9, 1886

Error from Wyandotte District Court.

ACTION brought on December 16, 1885, by John W. Fletcher against The Atchison, Topeka & Santa Fe Railroad Company, Isaac T Burr and others, for the purpose, among other things, of canceling a certain contract between the aforesaid railroad company and the Sonora Railway Company, to discharge the Atchison company from all liability in respect to the guaranty in said contract, and to enjoin the directors and agents of the Atchison company from any further payment of interest on the bonds of the Sonora company. The district judge in vacation granted a preliminary injunction as prayed for. The Atchison company has brought the case to this court for review. The material facts are stated in the opinion.

Judgment reversed and case remanded.

Geo. W McCrary, and James Hagerman, for plaintiff in error, The A T. & S. F. Rld. Co.

Geo. R. Peck, for the holders of the bonds of the Sonora Railway Company.

Henry M. Cheever, and Waters & Chase, for defendant in error.

HORTON C. J. All the Justices concurring.

OPINION

HORTON, C. J.:

The facts in this case, as they appear from the record, are substantially these: The legislative assembly of the territory of Kansas incorporated, in 1859, "The Atchison & Topeka Railroad Company." The company was authorized to survey, construct and operate a railroad, with one or more tracks, from Atchison, on the Missouri river, to Topeka, and to such point on the southern or western boundary of the territory, in the direction of Santa Fe, New Mexico, as might be most convenient and suitable for the construction of the road; and it was also authorized to build a branch of the road to any point on the southern boundary of the territory of Kansas in the direction of the gulf of Mexico. On November 26, 1863, the name of the company was changed to "The Atchison, Topeka & Santa Fe Railroad Company." After its organization the company proceeded to build its line of railroad, so that it was put in operation from Topeka to Newton, April 15, 1872; from Newton to Dodge City, September 15, 1872; and from Dodge City to the western boundary of the state, in the direction of Santa Fe, New Mexico, January 1, 1873 -- making a distance altogether of over 470 miles. From the terminus of the railroad on the western boundary of Kansas to the boundary line between Colorado and New Mexico, the Pueblo & Arkansas Valley Railroad Company built a line of railway, and completed the same on July 10, 1879, a distance of about one hundred and seventy miles. From the terminus of the Pueblo &, Arkansas Valley Railroad to San Marcial, N. M., the New Mexico & Southern Pacific Railroad Company built a line of railway, a distance of over 353 miles, which was put in operation October 1, 1880. From San Marcial to Deming, a point on the Southern Pacific Railroad, distant from San Marcial a little over 129 miles, the Rio Grande, Mexico & Pacific Railroad Company built a road, which was finished March 20, 1881. The Sonora Railway Company Limited is a corporation organized to build and operate a railway from the boundary line between the United States and Mexico to Guaymas, on the Gulf of California, 262 miles in length. In 1881 this company had completed only ninety miles of its railway from Guaymas, extending in a northerly direction toward the said boundary line. It was the intention of the directors of the Atchison company to build an independent road from Deming to the Mexican boundary to connect with the Sonora road, but in 1881, a satisfactory proposal having been made by the Southern Pacific Railroad Company for the joint use of so much of its track as might be required, an agreement was made between the two companies, subject to termination by either party giving two years' notice to the other, by which the Atchison company was permitted to run its trains, with the same rights as the Southern Pacific trains, over the Southern Pacific road from Deming to Benson, a distance of 174 miles. From Benson the Atchison company built a road called the New Mexico & Arizona Railroad, about 97 miles long, to connect with the Sonora road at or near Los Nogales, on the Mexican border. The Sonora Railway, extending from Guaymas to Nogales, was completed on November 25, 1882. In 1881 the directors of the Atchison company entered into a contract with the Sonora company by which the capital stock of the Sonora company, amounting to $ 5,248,000, was transferred to the Atchison company in consideration of the issuance and delivery of $ 2,700,000 of the capital stock of the Atchison company to the Sonora company and the guarantee by the Atchison company of the interest, at seven per cent. per annum, of $ 5,240,000 of the first-mortgage bonds of the Sonora company. Of the bonds so guaranteed, $ 4,050,000 have been marketed, and $ 1,190,000 of the bonds are in the treasury of the Atchison company. Ever since the purchase of the Sonora stock and the guarantee of the interest on its bonds by the Atchison company, the Sonora road has been operated by the Atchison company, and its expenses have been borne by that company. The annual interest on the bonds of the Sonora company, so guaranteed by the Atchison company, amounts to the sum of $ 283,500 a year, and is payable in July and January of each year.

On December 16, 1885, John W. Fletcher, of the city of Detroit, Michigan, claiming to be the owner of 200 shares of the capital stock of the Atchison company, of the value of $ 17,000, commenced this action in the district court of Wyandotte county, in this state, for the purpose, among other things, of canceling the contract between the Atchison company and the Sonora company by which the Atchison company agreed to guarantee the interest on its bonds; to discharge the Atchison company from all liability in respect to the guarantee; and to enjoin the directors and agents of the Atchison company from any further payment of interest on the bonds. The petition was presented to the district judge in vacation, who, without notice to defendants, or either of them, granted a preliminary injunction as prayed for, against the Atchison company, its directors, officers and agents, from paying any interest on the bonds of the Sonora company. The amount of the undertaking fixed by the district judge upon allowing the injunction was $ 1,000 only. The Atchison company subsequently appeared before the judge and excepted to his ruling, and at once brought the case to this court upon petition in error, for the purpose of raising the question, whether the injunction was properly granted.

The most important inquiry is, whether the petition, taking all of its allegations to be true, shows that the contract of guarantee complained of was ultra vires. Upon the part of plaintiff below, it is contended that this contract was entirely unauthorized by the charter of the Atchison company, and beyond the power of the directors of that company to consent to or to execute, and therefore wholly void and of no binding force upon the corporation or its stockholders. On the part of defendants, the claim is that under the powers conferred upon the Atchison company by its charter, the subsequent legislation of this state, and the general principles of law applicable to corporations, the contract was and is valid in every respect.

The petition alleges that during the years 1882, 3-4 and 5, the operating expenses have been greater than the earnings, and but for the guarantee of the Atchison company, that the Sonora bonds would be worthless. The petition further alleges that if the Atchison company continues to operate the Sonora road and keeps the guarantee of its bonds good, it will be at the cost of the depletion of its treasury, and will render the dividends upon its stock less in amount than they otherwise would be. The question before us, however, is one of power. If the Atchison company had the authority to accept the stock of the Sonora company and guarantee its mortgage bonds, it is liable on the guarantee, whether the Sonora road be a sucker, sapping the very life of the Atchison company as a consumer of its earnings, or a feeder, filling to overflowing a plethoric treasury. Common honesty will forbid a corporation, as it will a private individual, from evading the terms of a contract upon the ground merely that it has been unexpectedly expensive, and therefore not remunerative. In this connection, perhaps, it should be said that the directors of the Atchison company still insist that the contract with the Sonora company will prove very desirable and profitable in the end. They go farther, and say that the Atchison company and its stockholders have already received benefits from the contract by the acquisition of connecting roads and the extension of their line, so as to make a through route, which was absolutely necessary to the financial success of their company, and that thereby the earnings and profits of the line, as a whole, have been largely augmented. As to the wisdom or expediency of the execution of the contract between the Atchison and Sonora companies as an original proposition, we have nothing to do. Whether the contract between these companies be a productive or an unfortunate one for the Atchison company, is immaterial to our determination of this case. The question with us is, whether the contract was within the scope of the powers of the Atchison company to execute or perform, under any circumstances or for any purpose -- not whether the Atchison company made a good or bad bargain.

Notwithstanding the terms of the charter of the Atchison company, the various provisions...