Long v. Mayo
| Decision Date | 17 December 1937 |
| Citation | 111 S.W.2d 633,271 Ky. 192 |
| Parties | LONG v. MAYO et al. |
| Court | Kentucky Court of Appeals |
Appeal from Circuit Court, Franklin County.
Action by Dennis H. Long against John C. C. Mayo, Jr., and others. Judgment for defendants, and plaintiff appeals.
Affirmed.
Stites & Stites, of Louisville, for appellant.
Woodward Dawson & Hobson, of Louisville, Lee Wright Browning, of Ashland, Hubert Meredith, Atty. Gen., and A. E. Funk, Asst Atty. Gen., for appellees.
Dennis H. Long, citizen, resident and taxpayer of the city of Louisville, Jefferson county, Ky. owning personal and real property subject to taxation in the commonwealth of Kentucky of an assessed value of $2,500, instituted this action against John C. C. Mayo, Jr., the Midland & Atlantic Bridge Corporation and Robert Humphreys, commissioner of highways wherein he sought to enjoin them from issuing and selling $885,000 par value of bridge revenue bonds and from purchasing the capital stock of the bridge company with the proceeds. The case was submitted on a written stipulation of facts to the court. It was the judgment of the court that the commonwealth, acting by and through its highway department was legally authorized to issue and sell $885,000 par value of bridge revenue bonds and to purchase with the proceeds the capital stock of the bridge company for the purpose set forth in the petition and written stipulation and denying the injunction sought. He prosecutes this appeal.
The stipulated facts are in substance as follows: Prior to the 8th day of August, 1935, the commonwealth of Kentucky, acting by and through the state highway commission of Kentucky, the predecessor of the department of highways, entered into negotiations with the Midland & Atlantic Bridge Corporation (hereinafter called the bridge company), to purchase from it the bridge across the Big Sandy river connecting the cities of Catlettsburg, Ky. and Kenova, W. Va., and proposed to finance the purchase of same by the issue and sale of bridge bonds, agreeable to the Acts 1928, c. 172, and the Acts 1930, c. 157, but were not able to reach an agreement, as desired, but did agree on a conveyance thereof to the commonwealth in consideration of a contract, whereby the bridge company was to receive the revenue therefrom to the 31st day of July, 1945.
In 1937, negotiations between the parties were renewed and it was found that the commonwealth could presently acquire the income from the bridge, as was originally desired and could free the public from the payment of tolls several years before 1945. At that time the department of highways had been assured by reputable brokers that if bridge revenue bonds bearing interest at 3 per cent. and payable out of the revenue from the bridge were sold, as contemplated, they would bid for the bonds not less than par; that is, make the bonds bring $885,000.
A written contract was entered into between the commonwealth and Mayo, acting for himself, and as trustee for the other stockholders of the bridge company; and the department of highways, acting by and through the commonwealth of Kentucky, by the terms of the contract, was given an option to purchase the remaining interest of the bridge company in the revenue for the bridge company for the sum of $1,000,000, or to purchase all of the stock of the bridge company for the sum of $885,000. The department of highways elected to acquire stock of the bridge company with the object, purpose, and intent of immediately dissolving the corporation, and thereby acquiring all interest of the bridge company in revenue from the said property; and the department of highways, acting for and on behalf of the commonwealth of Kentucky, does not propose to acquire, hold, or own said capital stock for any other purpose than to free the public using the bridge from paying toll. It was a part of the stipulated facts that on May 1, 1935, the bridge company entered into a contract with the Ohio Valley Bus Company, a corporation, engaged in the operation of passenger busses over the bridge, in consideration of a binding obligation from the Ohio Valley Electric Railway Company to refrain from converting its railway bridge across the Big Sandy river into a competitive vehicular and pedestrian bridge (which it was legally authorized to do), and which would have been in direct competition with the bridge company's bridge, the bridge company would pay to the railway company an amount equal to all of the annual tolls, which it might collect from the bus company, for the use of the bridge for passenger busses, retaining the sum of $300. At the same time that the contract was made with the bridge company and Mayo, trustee, as heretofore set out, a written contract was entered into between the Ohio Valley Bus Company, the Ohio Valley Electric Railway Company, and the commonwealth of Kentucky, acting by and through the department of highways, wherein it was agreed that the commonwealth of Kentucky would carry out and be bound by the agreements and covenants set forth in the contract between the Ohio Valley Bus Company and the bridge corporation, with certain modifications shown therein.
The invalidity of the proposed transactions are attacked on three grounds: (1) The purchase of the bridge company's stock is expressly prohibited by section 177 of the Constitution of Kentucky; (2) the issue of bridge revenue bonds is by statute limited to the raising of money for the purchase, building, and operation of bridges, and since the commonwealth obtained a title to this particular bridge in 1935, the issue and sale of bonds is unauthorized; and (3) that the assumption of the contract for bus service by the commonwealth at a less price than the toll charge to others renders the entire proceeding void and illegal.
Section 177 of the Constitution reads as follows:
"The credit of the Commonwealth shall not be given, pledged or loaned to any individual, company, corporation or association, municipality, or political subdivision of the state; nor shall the Commonwealth become an owner or stockholder in, nor make donation to, any company, association or corporation; nor shall the Commonwealth construct a railroad or other highway."
"One person cannot organize a corporation *** yet when a corporation has been created, *** the purchase ** of all the stock [by one person] does not destroy the existence, *** but merely suspends its franchise until the stock may be transferred to others."
Or until the corporation is dissolved thus, the acquisition of all of this stock by the commonwealth would not cause the commonwealth to become a stockholder in the bridge company in the usual and ordinary sense. It could not do business through the agency of the corporation, because the existence of the corporation was suspended. The purpose of section 177 of the Constitution in prohibiting the commonwealth from owning stock in, or from making donations to, a corporation was to prohibit the commonwealth from entering into private business by becoming associated as a stockholder, or by being a partner, or a part owner in a private business venture. It was never intended by that section of the Constitution that the commonwealth could not acquire property for a public use. There can be no doubt that the acquisition of the bridge company's right to the revenue from bridge tolls is as much for a public purpose as was the purchase of the bridge itself, because it is stipulated that the object of the purchase of the stock is to free the bridge from toll charges sooner than could otherwise be done. This court has construed section 177, wherein it prohibits the commonwealth from giving, pledging, or loaning its credit to any individual, company, corporation, or association, municipality, or political subdivision of the state.
In the well-considered case of Hager v. Kentucky Children's Home Society, 119 Ky. 235, 83 S.W. 605, 608, 26 Ky.Law Rep. 1133, 67 L.R.A. 815, we held that section 177 did not prohibit the Legislature from appropriating money annually to the Kentucky Children's Home Society, a private corporation. In that case it was particularly pointed out that the section was not intended to prevent the state from making appropriations for public purposes, but was intended to prevent the state from becoming interested in private business purposes, even though private agencies were the direct recipients of such appropriation.
The main point in the instant case is, Was the purchase of the capital stock for the use and benefit of the public, and to relieve the public of toll charges? In the case of Hager v. Kentucky Children's Home Society, supra, on this point, the court said:
"These authorities clearly settle that the vital point in all such appropriations is whether the purpose is...
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