Bardstown & Lou. R. R. Co. v. Metcalfe

• Decision Date: 18 April 1862
• Parties: Bardstown & Louisville Railroad Company vs. Metcalfe.
• Court: Kentucky Court of Appeals

61 Ky. 199

Bardstown & Louisville Railroad Company vs. Metcalfe.

Court of Appeals of Kentucky.

April 18, 1862.

APPEAL FROM THE NELSON CIRCUIT COURT.

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JNO. E. NEWMAN, for appellant.

C. A. WICKLIFFE, on same side.

ELLIOTT & McKAY, for appellee.

JAMES HARLAN and JAMES HARLAN, Jr., on same side.

JUDGE BULLITT DELIVERED THE OPINION OF THE COURT:

The appellant's board of directors was authorized by its charter to borrow, on its credit, a sum not exceeding $50,000. The board authorized its president to borrow $30,000, and, as security therefor, to execute a mortgage "upon the road and its property, &c." The president executed a mortgage to the appellee, Metcalfe, as trustee, upon "the said railroad with all its rights and privileges" to secure its bonds for said $30,000. The bonds were dated January 1, 1860, and payable ten years after date, with interest payable semi-annually.

In September, 1860, Metcalfe, as trustee, filed a petition alleging that said bonds had been "sold to divers persons," and that the appellant had failed to pay the interest due July 1, 1860, and by amended petitions, the last of which was filed at the March term, 1862, he alleged that three other instalments of interest were due and unpaid. At the same term the court rendered a judgment that Metcalfe recover of the appellant the interest then due, ($3,600,) that the mortgage be foreclosed, and that the mortgaged property be leased to the highest bidder for a term of eight years from January 1, 1862, to pay to Metcalfe said sum, and also the interest thereafter to accrue and the principal when the same should become due; and if no one would lease the property on those terms, then that it be sold to the highest bidder to pay said principal and interest, and that for any surplus it might bring the commissioner should take bonds to himself for the benefit of those concerned. From that judgment this appeal was taken.

1. A demurrer to the petition, because the bond holders were not parties to the suit, was overruled, and presents the first question to be considered.

It is contended that Metcalfe had a right to sue, without making the bond holders parties, under sec. 33 of the Code, which declares that "an executor, administrator, guardian trustee of an express trust," and other fiduciaries therein mentioned, "may bring an action in his own name without joining with him the person for whose benefit it is prosecuted."

In the case of Anderson vs. Watson, (3 Met. Ky. Rep., 509,) it was held that a guardian cannot sue in his own name for personal property of his ward unlawfully detained by another, and the court said: "The guardian can, and could before the Code, sue in his own name upon a note taken by him for money of his ward. Under the 30th section of the Code, declaring that every action must be prosecuted in the name of the real party in interest, except as provided in section 33, it might have been necessary to sue in the infant's name upon such a note, but for the provision in section 33 relating to guardians. In our opinion, the effect of section 33, so far as it relates to guardians, is to enable them to sue as they could have done before the Code, without joining the wards in the action." This reasoning applies to the provisions of section 33 concerning trustees. Under the old practice a trustee could sue at law for property to which he held the legal title. Section 30 might have made it necessary to bring such a suit in the name of the beneficiary, but for the provision in section 33. So, under the old practice, the trustee might sue in equity without making the cestui que trust a party, in cases where the trustee was entitled to receive and hold the money or property for the benefit of the cestui que trust. (Calvert on Parties, 212-15.) This rule might have been changed by section 30, but for the provision in section 33. But under the old practice a trustee, under a mortgage made to secure the payment of money to others, could not sue for a foreclosure and sale without making the cestuis que trust parties. (Story's Eq. Pl., sec. 201.) And, in our opinion, the framers of the Code did not intend to give such right to such a trustee. The cases of McClanahan vs. Beasly, (17 B. Mon., 111,) and Newport vs. Taylor's heirs, (16 B. Mon., 781,) are cases in which the trustee could have sued under the old practice without making the beneficiaries parties. But Metcalfe has no right to receive either the principal or interest of the mortgage bonds, payment of which he seeks to enforce. The bond holders were therefore necessary parties to the suit, unless, as is also contended, Metcalfe had a right to maintain the action under section 37 of the Code, which declares that, "where the question is one of a common or general interest of many persons, or where the parties are numerous and it is impracticable to bring them all before the court within a reasonable time, one or more may sue or defend for the benefit of all."

Here are two distinct grounds upon either of which one person may sue for the benefit of others, viz: 1, where the plaintiff has a common or general interest with many others; 2, where the persons interested, but not having a common or general interest, are numerous and it is impracticable to bring them all before the court within a reasonable time.

Metcalfe's right to bring this action cannot be maintained upon the first ground, 1, because he sued as trustee and not as bond holder, and there is no common or general interest between the trustee and bond holders; 2, because he failed to state the number of bond holders, or even to allege that there are many of them. Nor can it be maintained upon the second ground, because he has failed to allege or otherwise to show that the bond holders are numerous and that it is impracticable to bring them all before the court within a reasonable time. We do not suppose that the framers of the Code meant to authorize a person having no interest in a suit, nor any duty to perform concerning it, to sue for the benefit of the persons interested, however numerous they may be. And if Metcalfe had been a naked trustee, with no duty to perform except to hold the legal title for the benefit of the bond holders, we doubt whether he could have maintained the action, however numerous he might have shown them to be. But the mortgage declares that, "upon failure of said company to pay the interest or principal of said bonds when due and demanded, the said trustee shall proceed by due course of law to subject the said railroad and all its effects to sale to satisfy the amount claimed and due." In our opinion, as the deed made it the duty of Metcalfe to sue for a sale of the road, he might have maintained the action if he had shown that the bond holders were numerous, and that it was impracticable to bring them before the court withing a reasonable time. But as he failed to do so, the demurrer for a defect of parties should have been sustained.

2. Even if he had shown himself entitled to maintain the action, without making the bond holders parties, it would have been erroneous to give him a judgment for the money. The court should have retained control over it for the benefit of those entitled to it.

As the errors above mentioned may be corrected upon the return of the cause, it is proper that we should consider several other alleged errors in the judgment and other proceedings of the court below.

3. It is contended that the court erred in refusing to permit the appellant to file an amended answer, offered at the March term, 1862.

The only ground of defense presented by that answer is, that under the charter of the appellant the town of Bardstown and three districts of Nelson county were authorized to take, and did take and yet hold, a part of its stock. It is argued that those corporations, by becoming stockholders of the appellant, converted it into a public corporation; and, therefore, that, in deciding what are its powers, we must adopt those strict rules of construction which apply to charters delegating sovereign powers to public corporations. That position is not considered tenable. The character of a corporation depends upon the purposes for which it is formed and the powers conferred upon it, and not upon the character of its stockholders. "It does not alter the character of a corporation, that the State or the United States own a portion of its stock." (Redfield on Railways, page 6, and cases cited.)

Nor does the principle of construction contended for as applicable to this case depend upon the question whether the corporation is a private or public one. It depends on the character of the powers conferred and the purposes of the organization. The power of a railroad or other private corporation to take private property for its use, being a delegation of sovereign power, must be construed as it would be if delegated to a municipal corporation; whilst the powers of private and public corporations, with respect to their property, are governerned by the same principles and, in the absence of express provisions of law, depend upon the purposes for which the corporation was formed. As the answer presented no fact material to the defense, the motion to file it was properly overruled.

4. It is contended, that the appellant had no power to mortgage its road or franchises. This question, and the next one that we shall consider, were raised by a general demurrer to the petition.

Generally, a private corporation has an implied power to do whatever may be necessary to execute its express powers and to accomplish the purposes for which it was formed. The appellant was expressly authorized to borrow this money, but was not expressly authorized to make a mortgage. Had it not an implied power to do so? It cannot be doubted that a manufacturing corporation having power, express or implied, to borrow money might, unless expressly prohibited, mortgage its property to secure the...