Hill v. Atlantic & N.C.R. Co.

• Decision Date: 22 December 1906
• Citation: 55 S.E. 854,143 N.C. 539
• Parties: HILL et al. v. ATLANTIC & N.C. R. CO.
• Court: North Carolina Supreme Court

55 S.E. 854

143 N.C. 539

HILL et al. v. ATLANTIC & N.C. R. CO.

Supreme Court of North Carolina

December 22, 1906

Appeal from Superior Court, Craven County; Long, Judge.

Bill by W. F. Hill and others against the Atlantic & North Carolina Railroad Company. From a judgment for defendant, plaintiffs appeal. Affirmed.

Clark C.J., dissenting.

Where a railroad lease provided that the lessee covenanted during the continuance of the term not to fix or establish rates of local freight at a higher average rate than the average local freight tariff of the lessor at the time the lease was executed, but no clause of forfeiture was annexed, the provision was in the form of a covenant, the breach of which did not entail a forfeiture of the lease, but rather afforded an action against the lessee for damages.

This suit was brought by the plaintiffs to annul the lease of the Atlantic & North Carolina Railroad Company to the Howland Improvement Company, now the Atlantic & North Carolina Company, one of the defendants. The action was commenced in the name of W. F. Hill, in behalf of himself and all other stockholders of the Atlantic & North Carolina Railroad Company. C. E. Foy and the board of commissioners of Craven county afterwards came in, and by leave of the court were associated with W. F. Hill as plaintiffs.

The lease was attacked upon the following grounds:

First. The meeting of the stockholders called by the then president of the company, and at which the resolution was passed which authorized the execution of the lease, was irregularily called; due notice of the meeting not having been given as required by the charter, and the meeting not having been held at the place designated in the call. The facts relating to this objection are as follows: The by-laws of the company provide that the president shall have the power to call occasional meetings of the stockholders at such time and place as he may think proper first giving 20 days' notice thereof in two or more newspapers published in Newbern. The president issued a call for an occasional or special meeting of stockholders to be held in Newbern on the 1st day of September, 1904, for the purpose of considering a proposition to lease the property, and so forth, of the company. The notice of or call for said meeting was published in but one newspaper, the Newbern Journal; it being at that time the only one published in said city. No personal notice of the meeting was ever given to any of the plaintiffs. Some of the stockholders assembled in Newbern at the time appointed in the notice and organized by electing a chairman and secretary. A report was made by the proxy committee through its chairman, Henry R. Bryan, and the meeting was then adjourned, to reassemble at Morehead City the same day at 3 o'clock p. m. The stockholders accordingly reassembled at Morehead City, and passed the resolution directing the lease to be executed. The plaintiff W. F. Hill was not represented at said meeting, either in person or by proxy. He was at the time the owner of one share of the stock of the company. The board of commissioners of Craven was represented and voted the stock owned by the county in favor of the resolution authorizing the lease to be made. C. E. Foy was present and formally protested against making the lease, and his protest was entered on the minutes. The lease was not read to the stockholders. The by-laws further provide that "no contract for the assignment, sale, or transfer of any corporate right, franchise, or privilege of the company shall be made till the question of sale or transfer shall have been submitted to a vote of the stockholders and such sale or transfer approved by a majority of private stockholders in the state." At the regular annual meeting of the stockholders of the Atlantic & North Carolina Railroad Company held on September 20, 1905, a resolution was introduced at the instance of W. F. Hill, one of the plaintiffs, instructing the president and directors of the lessor company to institute an action against the Atlantic & North Carolina Company, the lessee company, to cancel the lease made originally to the Howland Improvement Company, and to recover possession of all the property rights and franchises therein described. This resolution, on motion, was laid upon the table. The same resolution was introduced at a regular meeting of the directors on September 28, 1905, at the request of W. F. Hill, and was also laid upon the table. There was a regular annual meeting of the stockholders of the lessor company on September 22, 1904, which was held as provided by the company's charter, and of which all the plaintiffs had due notice. The plaintiffs, other than W. F. Hill, were represented at the meeting and participated in the proceedings. No steps were taken by any one to set aside the lease, which had then been made; nor was its validity questioned in any way. The president of the company, James A. Bryan, submitted his annual report, and in it referred to the fact that the stockholders of the company, by a very large majority vote, had authorized a lease of its property and franchise to the Howland Improvement Company, "of which R. S. Howland is the progressive and enterprising president," and that an inventory of the property so leased was then being taken, and that Charles Dewey had been appointed to act with the expert of the lessee company to examine and report upon the condition and value of the roadbed, warehouses, and other property of the lessor company, their report to form the basis of the agreement for the actual transfer of the property from the lessor to the lessee. The president then proceeds to say: "In leasing your property to the Howland Improvement Company, while there was, and was to be expected, some opposition to it, the impression is becoming general that your act was a wise one, and will result in the near future in the developing and upbuilding of the entire section along its line, a condition much needed and long hoped for, but until now having little prospect of realization." The provisions of the lease relating to the rental are then set forth, giving the increasing amounts for the successive periods during the entire term. No objection was made to the report; but, on the contrary, it was received and approved by the stockholders and ordered to be recorded in the minutes. The lease provided as follows: "The said lessor for itself, its successors and assigns, does covenant and agree to and with the lessee, its successors and assigns, that the said lessor and its stockholders and directors will not do anything or take any action as such stockholders and directors that may or can interfere, in any way whatsoever with the free use and operation and convenience of said railroad and other property so hired, let, farmed out and delivered to the said lessee according to the terms and intent of these presents."

Second. The lessee has not made the deposit of bonds required to be made before the lease should become effective, and therefore nothing has passed to the lessee. The resolution adopted at the meeting of September 1, 1904, empowered the officers and directors to cause the lease to be executed, and to look after the details of the transaction. The directors afterwards formally ratified and approved the lease as submitted at the said meeting of the stockholders, and by resolution directed the property, rights, and franchises of the lessor company to be turned over to the Howland Improvement Company, upon the latter making the deposit required by the lease and complying with the conditions precedent mentioned in the lease. The provision of the lease in regard to the deposit is as follows: "To secure the prompt and faithful payment of said rents and sums as above stipulated to be paid, and of all taxes payable on the demised railroad and property as herein provided, and the faithful performance of the covenants entered into herein by the lessee as herein set forth, the lessee does covenant to and with the lessor, its successors and assigns, that it will deposit and keep on deposit with the Treasurer of the state of North Carolina, or any such bank or banks or other depository as may be approved by the directors of the lessor from year to year, and all the time during the continuance of said lease, the sum of one hundred thousand dollars in U.S. bonds, or bonds of the state of North Carolina, or other marketable securities acceptable to the directors of the lessor, and having a market value of not less than said sum." At the meeting of September 1, 1904, "the matter of permitting the Governor of the state to look after the making of the deposit required of the lessee was informally discussed," and on September 3, 1904, the Governor deposited a certified check for $100,000 (which was furnished by R. S. Howland for the lessee) in the Bank of Wayne, and received a certificate of deposit therefor from said bank in his own name as Governor of the state. On September 6, 1904, the president of the Atlantic & North Carolina Railroad Company, and the presidents, respectively, of the Howland Improvement Company and the Wachovia Loan & Trust Company, agreed that 80 of the North Carolina construction 6 per cent. coupon bonds, each of the denomination of $1,000, be deposited with the said loan and trust company for the purposes set forth in the lease. The 80 bonds were purchased with money furnished by R. S. Howland, a part of which was the deposit in the Bank of Wayne; the certificate of deposit which was transferred to the seller being considered as so much cash paid on the purchase money. The bonds were deposited with the loan and trust company on September 13, 1904, and were accepted by the latter upon the trust just stated, and are still held by said...