Louisville School Board v. King

• Decision Date: 22 January 1908
• Citation: 107 S.W. 247,127 Ky. 824
• Parties: LOUISVILLE SCHOOL BOARD ET AL. v. KING.
• Court: Kentucky Court of Appeals

107 S.W. 247

127 Ky. 824

LOUISVILLE SCHOOL BOARD ET AL. v. KING.

Court of Appeals of Kentucky.

January 22, 1908

Appeal from Circuit Court, Jefferson County, Chancery Branch, Second Division.

"To be officially reported."

Action by Walter S. King against Gusta McMichael and others. From a judgment for plaintiff, defendants appeal. Affirmed.

O'Neal & O'Neal and Wallace McKay, for appellants.

Bullitt & Bullitt and Helm Bruce, for appellee. Edmund F. Trabue amicus curiæ.

SETTLE J.

By a writing of date April 11, 1907, Walter S. King for a valuable consideration sold and agreed to convey to the appellant Gusta McMichael a parcel of ground in the city of Louisville. The lot had previously been conveyed to the Louisville Banking Company by a deed from the Parkland Improvement Company, dated July 10, 1897. On August 31, 1905, the Louisville Banking Company by deed conveyed the same lot to Grant and Wilson. Later Wilson by deed conveyed his undivided one-half interest therein to Grant, who by deed of April 20 1906, conveyed the entire lot to the appellee, King. Pursuant to the written contract of April 11, 1907, appellee offered to convey appellant Gusta McMichael the lot in question, and tendered her a deed therefor; but she refused to accept the deed or otherwise comply with the contract of sale. Thereupon appellee brought suit against her in the court below for a specific performance of the contract. She resisted its performance on the ground that appellee did not have title to the property and that the deed tendered would not have conveyed her the title, because it had, prior to the conveyance of the property to appellee, been vested by escheat in the Louisville School Board. The answer, after setting forth the several deeds under which appellee claimed title, averred that the property, while owned by the Louisville Banking Company, a corporation engaged in the business of banking, "was not proper or necessary for carrying on the legitimate business of the said Louisville Banking Company, and, they having held same for more than five years, it became thereby ipso facto escheated under the law, and the title vested in the Louisville School Board. After the filing of this answer the appellee, by an amended petition, made the Louisville School Board a party defendant to the action. The Louisville School Board and the commonwealth of Kentucky, for the use of the school board, then filed an answer, cross-petition, and counterclaim, relying upon the same facts set up in the answer of Mrs. McMichael, and alleging that by reason thereof the title to the property in controversy had by escheat become vested in the Louisville School Board. Appellee by reply denied that the school board had acquired title to the property by escheat or otherwise, and averred that each of the conveyances referred to in the answers was made in good faith and for a valuable consideration. Appellants McMichael, Louisville School Board, and commonwealth, for the use of the school board, filed demurrers to the reply, which were overruled. Appellants refused to plead further. Thereupon the circuit court entered judgment in accordance with the prayer of the petition, and of this judgment appellants complain.

It is apparent from the record that the property in controversy was held by the Louisville Banking Company more than five years, and admitted by appellants that at the expiration of the five years no claim was asserted to it, on the ground of escheat, by the Louisville School Board or the commonwealth of Kentucky. Indeed, it is conceded that no such claim was made until the beginning of this action, instituted nearly two years after the Louisville Banking Company had bona fide and for a valuable consideration sold and conveyed the property to an admittedly innocent purchaser. It cannot be doubted that the holding by a corporation of property not necessary to its business for more than five years is by the Constitution made a ground of escheat. But the question as to when and under what circumstances the escheat shall take place, instead of being declared by the Constitution, was left by that instrument to legislative discretion. Const. § 192, provides: "No corporation shall engage in business other than that expressly authorized by its charter, or the law under which it may have been or hereafter may be organized. Nor shall it hold any real estate, except such as may be proper and necessary for carrying on its legitimate business, for a longer period than five years, under penalty of escheat." The power impliedly conferred by this section of the Constitution upon the Legislature of determining when and in what manner the real estate of a corporation not proper or necessary for carrying on its legitimate business shall escheat to the commonwealth seems to have been exercised by that body in the enactment of section 2971, Ky. St. 1903, which declares: "So much real, personal or mixed property in the city which, from alienage, defect of heirs, failure of kindred, or other causes, shall escheat to the commonwealth of Kentucky, shall vest in the board for the use and benefit of the schools. Said board may, in the name of the commonwealth, for the use and benefit of the public schools of the city, by its president or other officer to be designated by it, enter upon and take possession of said property, or sue for and recover the same by an action at law or in equity, and without office found. The board may sell and convey any such property by warranty deed or otherwise."

To properly construe and arrive at the meaning of the provisions of the Constitution and statute above quoted, it will be necessary to ascertain what evil they were intended to remedy; for all organic and statutory laws should be so interpreted as to subserve the purpose for which they were enacted. We will not impute to the makers of the Constitution or to the Legislature the degrading motive of intending by the provisions in question to enrich the state at the expense of its citizens; nor will we assume that it was merely their purpose to punish offending corporations. The true purpose of these constitutional and statutory provisions was correctly announced by this court in the case of Louisville School Board v. C., St. L. & N. O. Ry. Co., 99 S.W. 596, 30 Ky. Law Rep. 673, in the opinion of which it is said: "In the exercise of the police power of the state, it is declared by the section (2971) to be inimical to the public good that corporations, which may live always and grow ever so powerful, should be at liberty to hold any quantity of land, or engage promiscuously in business in this state. It was deemed safe and wise that they should be restricted in the first place to that business for which they were created, and in the next place that they should not be allowed to hold more land than was proper and needful in their legitimate business. Perpetual estates in land are deemed in this state to be impolitic and are strictly prohibited. If however, corporations might hold any quantity of land for any length of time, this important principle which regulates the holding of title to real estate in this state would be set at naught. Inattention to this restriction as to corporations would open the widest door to a danger which has already begun to create real apprehension in some minds, and which is undoubtedly an actual danger, whether or not there may now exist grounds for its apprehension."

Accepting the above conclusion as declaratory of the meaning of the constitutional and statutory provisions under consideration, the further conclusion is inevitable that it is the duty of the state to compel the corporation, after five years' holding thereof, to relinquish title to lands not necessary to its legitimate business, and thereby prevent the retention by it of a "perpetual estate" in such lands. Such being the object of the law, can it fairly be contended that a bona fide sale by a corporation of useless property, even after the five-year period--the state having in the meantime withheld escheat proceedings--does not accord with and carry out the policy of the law? In the event of such conveyance of the property, what ground of complaint can the state have, and what further interest has it to subserve? Obviously these questions must be answered in the negative, unless the state has the right to enforce the escheat for the sole purpose of enriching itself or inflicting punishment upon the corporation--an assumption which we have said should not be indulged. As well argued by counsel, forfeiture to the state of a fee in real estate is not permitted by the Constitution by way of punishment, even for treason, the greatest of crimes. Const. § 20. Neither by the Constitution nor the statute is it declared that the corporation shall be devested of, or the state vested with, the title to such useless lands immediately upon the expiration of the five-year period; nor does either contain any prohibition against a sale or conveyance by the corporation after that date. The absence, however, of such a restriction is not inconsistent with the right of the state to claim an escheat of the property at the end of the five years. It may, upon the expiration of that period, immediately take steps to enforce its right to the property and thereby defeat any subsequent attempt at a sale and conveyance of it by the corporation. But, if it fail to enter escheat proceedings before there had been a bona fide sale and conveyance of the property by the corporation for a valuable consideration, the purchaser by such sale and conveyance will take an indefeasible title, free from any subsequent proceedings on the part of the state to establish an escheat.

The constitutional and statutory declaration that corporate...