Louisville Trust Co. v. Louisville, N.A. & C.R. Co.

• Decision Date: 22 June 1896
• Docket Number: 277-295.
• Citation: 75 F. 433
• Parties: LOUISVILLE TRUST CO. et al. v. LOUISVILLE, N.A. & C.R. CO. (nineteen cases).
• Court: U.S. Court of Appeals — Sixth Circuit

75 F. 433

LOUISVILLE TRUST CO. et al. v. LOUISVILLE, N.A. & C.R. CO. (nineteen cases).

Nos. 277-295.

United States Court of Appeals, Sixth Circuit.

June 22, 1896

[Copyrighted Material Omitted]

These are 19 appeals from the same decree. The bill was filed by the Louisville, New Albany & Chicago Railway Company (hereafter called the 'New Albany Company'), as a corporation of Indiana, against the Ohio Valley Improvement &amp Construction Company (hereafter called the 'Improvement Company '), a Kentucky corporation, and numerous other defendants, citizens of Kentucky, to obtain the cancellation of that which purported to be a guaranty of the New Albany Company, indorsed upon bonds held by the defendants, and issued by the Richmond, Nicholasville, Irvine & Beattyville Railroad Company (hereafter called the 'Beattyville Company'), and to enjoin suits thereon. The bill averred that the pretended guaranty had been fraudulently placed upon the Beattyville Company's bonds by a minority of the complainant's directors, who, as individuals, had secured the option to buy the bonds at a low price; that the guaranty was void, because authorized by a pretended meeting of the directors, at which there was no quorum; that, by the law of Indiana, no valid guaranty could be made by the complainant unless a majority of its stockholders filed a written petition for the same with the board of directors; that no such petition had been filed; and that for this reason, also the pretended guaranty was null and void. The answer of the Improvement Company and the other defendants raised the question of jurisdiction by denying that the complainant was a corporation and citizen of Indiana, and averring that it was a corporation of Kentucky, and thus a citizen of the same state as many of the defendants. It averred that the guaranty was within the power of the board of directors of the New Albany Company, and that it was for a good and valuable consideration, and denied all the charges of fraud against the directors contained in the bill. The question of jurisdiction was heard before Mr. Justice Brewer and Mr. Justice (then Judge) Jackson, and the jurisdiction of the court was sustained. A demurrer to the bill, on the ground that it did not state any ground for equitable relief, was overruled by Judge Lurton. Subsequently, some of the defendants, among whom was the Improvement Company, came in and consented that the guaranty on their bonds might be canceled. By supplemental bills, other holders of bonds were made defendants. In addition to other defenses set up in their answers, many of the defendants averred that they were bona fide purchasers for value of the bonds, without notice of any defects in the guaranty. The issues thus raised were heard before Judge Barr, and he decided them all in favor of the complainant, and entered a decree directing a cancellation of all the guaranties, and enjoining defendants from prosecuting suits thereon. 69 F. 431. Nineteen of the defendants who claimed as bona fide purchasers took the present appeals. The following list shows the appellants, and the number of bonds held by each:

Bonds for $1,000 Each.

The Louisville Trust Company ..... 125

The Kentucky National Bank ........ 18

The Louisville Banking Company .... 55

Theodore Harris ................... 20

John H. Leathers .................. 15

B. Hollman ........................ 10

A. J. Ross ........................ 10

W. C. Nones ........................ 5

James A. Shuttleworth ............. 10

W. H. Dillingham ................... 6

A. Schwabacher ..................... 5

R. L. Whitney ...................... 5

Ronald Whitney ..................... 5

Wm. M. Charlton .................... 5

S. A. Cannon ....................... 4

M. A. Huston ....................... 3

John T. Bate, Jr.................... 2

Burton A. Duerson .................. 2

Ben C. Weaver ...................... 2

----

307

In order to make clear the questions of jurisdiction and corporate authority here to be considered, it is necessary to set out in some detail the history of the New Albany corporation, and the legislation in Indiana and Kentucky affecting it, together with circumstances under which the guaranty was indorsed on the bonds.

The Louisville, New Albany & Chicago Railway Company was organized in 1873, as a railroad corporation of the state of Indiana, under the act of the legislature of that state passed March 3, 1865. That act provided, among other things, that 'any railroad company incorporated under the provisions of this act shall have the power and authority to acquire by purchase or contract the road, road-bed, real and personal property, rights and franchises of any other railroad corporation or corporations which may cross or intersect the line of such railroad company, or any part of the same, or the use or enjoyment thereof, in whole or in part; may also purchase or contract for the use and enjoyment, in whole or in part, any railroad or railroads lying within adjoining states, and may assume such of the debts and liabilities of such corporations as may be deemed proper. ' Rev. St. Ind. 1888, Sec. 3951. The statutes of Indiana applicable to the company also provided that every such railroad corporation should 'have capacity to hold, enjoy and exercise, within other states, the aforesaid faculties, powers, rights, franchises and immunities, and such others as may be conferred upon it by any law of this state or of any other state in which any portion of its railroad may be situate or in which it may transact any part of its business. ' Id. Sec. 3949.

On April 8, 1880, the legislature of Kentucky passed an act entitled 'An act to incorporate the Louisville, New Albany & Chicago Railway Company. ' It was as follows:

'Be it enacted by the general assembly of the commonwealth of Kentucky:

'1. That the Louisville, New Albany & Chicago Railway Company, a corporation organized under the laws of the state of Indiana, is hereby constituted a corporation, with power to sue and be sued, contract and be contracted with, to have and use a common seal, with the power incident to corporations, and authority to operate a railroad.

'2. That the Louisville, New Albany & Chicago Railway Company is hereby authorized to purchase or lease for depot purposes, in the city of Louisville or county of Jefferson, such real estate as may be deemed by it to be necessary for passenger and freight depots and transfer, machine shops, and for all switches or turnouts necessary to reach the same; and is also authorized

to connect with any railroad or bridge now operated or used, or which may be hereafter operated or used, in said county of Jefferson, and may build any such connecting lines, or lease or operate the same, and for all such purposes shall have the right to condemn all property required for the carrying out of the objects herein named, and may bond the same, and secure the payment of any such bonds by a mortgage or its property, rights and franchises.

'3. That said corporation shall have the power and right to condemn all property in the city of Louisville or county of Jefferson, in this state, which may be deemed by it to be necessary for the purposes set out in this act; and that the proceedings for that purpose shall be instituted either in the Jefferson court of common pleas or the Louisville chancery court, and shall be carried on, as nearly as may be, as actions at law by ordinary proceedings. Warning orders against non-residents, absent defendants, or unknown owners of property must be published three times in one of the daily newspapers published in said city of Louisville, state of Kentucky, the last publication at least ten days before the trial. The owners of distinct parcels of one contiguous tract may all be included in one proceeding, or any one or more of them holding contiguous tracts may be proceeded against in a separate action. The courts shall make all such rules, orders, and judgments as will secure a fair trial by an impartial jury of said city or county, and shall give proceedings upon its docket as soon as the parties are before the court and the issue made up. The jurors shall be sworn truly to ascertain and determine by their verdict the amount of compensation each owner will be entitled to if his land or property described in the petition be condemned. The court in which these proceedings are brought shall have power to assign a day for the trial of the case as soon as the petition is filed. Upon the return of the verdict, the court shall render judgment vesting title to the property described in the proceedings in said corporation, said judgment to take effect upon the payment into court by said corporation of the amount of money named in the verdict, within thirty days after the rendition of said judgment; and should said corporation fail to pay said money within said time, the said proceedings shall be dismissed without prejudice to other and subsequent proceedings.

'4. This act shall take effect from and after its passage.

'Approved April 8, 1880.'

On May 5, 1881, the Louisville, New Albany & Chicago Railway Company of Indiana, and the Chicago, Indianapolis & Air Line Railway Company, a corporation of the state of Illinois, under and by virtue of the laws of the states of Illinois and Indiana consolidated their stock and their property. In the third article of the consolidation, it was provided, among other things, as follows: 'Art. 3. The said consolidated corporation hereby created shall be vested with all the rights, privileges, immunities, and franchises which usually pertain to railroad corporations under the laws of the respective states of Illinois and Indiana, wherein the lines of its railroad are...