Manning v. Atl. & Y. Ry. Co

• Decision Date: 03 December 1924
• Docket Number: (No. 249.)
• Citation: 125 S.E. 555
• Court: North Carolina Supreme Court
• Parties: MANNING, Atty. Gen. v. ATLANTIC & Y. RY. CO. et al.

125 S.E. 555

MANNING, Atty. Gen.

v.ATLANTIC & Y. RY. CO. et al.

(No. 249.)

Supreme Court of North Carolina.

Dec. 3, 1924.

(188 N. c.)

Appeal from Superior Court, Wake County; Grady, Judge.

Action by James S. Manning, Attorney General of North Carolina, against the Atlantic & Yadkin Railway Company and others. Judgment of dismissal, and plaintiff appeals. Affirmed.

The plaintiff appealed from a judgment sustaining the defendants' respective demurrers to the complaint and dismissing the action. The plaintiff's material allegations as they appear in the complaint, the exhibits, and the references are substantially as herein stated.

In 1852 the General Assembly incorporated the Western Railroad Company which was authorizzed to build a railroad between the town of Fayetteville and the coal region in the counties of Moore and Chatham (Laws 1852, c. 147), and at a subsequent session it passed an act under which the county of Cumberland and the town of Fayetteville each subscribed $100,000. Private Laws 1856-57, c. 71. There were also individual subscriptions to the amount of $134,400. Under a later act the state donated to the enterprise more than $600,000, and in 1868 subscribed in bonds the additional sum of $500,000.

In 1879 the name of the Western Railroad Company was changed to the Cape Fear & Yadkin Valley Railway Company, and the latter succeeded to all the rights, powers, privileges, immunities, and franchises of the former and was authorized to consolidate with the Mount Airy Railroad Company and to complete the roads. Public Laws 1879, c. 67

By virtue of an act passed by the General Assembly in 1883 there was a reorganization of the system and the Cape Fear & Yadkin Valley Railway Company was authorized to extend its main line from Wil-mington through the central part of the state to the Virginia line and to build certain branch lines as provided in the act. Public Laws 1883, c. 190. Under such authority this company operated as its system at the time it was sold, its main line extending from Wilmington to Mount Airy, a distance of 284.28 miles; a branch line extending from Fayetteville to Bennettsville, S. C., a distance of 57.75 miles, four branch lines in North Carolina having a trackage of 34.15 miles; and certain side tracks aggregating 27.17 miles. In the construction and equipment of the road over $7,000, 000 were spent; the state, towns, townships and counties having donated and subscribed more than $1,000, 000 of this amount.

The South Carolina Pacific Railway, extending from Bennettsville; S. C, to the North Carolina line, was leased by the Cape Fear & Yadkin Valley Railway for 30 years, and was merged in it and operated as a part of its system, which constituted a continuous line from Mount Airy to Wilmington. All the franchises, privileges, and rights of the latter company were held under its charter as an entirety, and as constructed it was an important artery of commerce extending through the central part of the state from Mount Airy to Wilmington, and from Fayetteville to Bennettsville. Its western extension crossed the Norfolk & Western Railroad, running to Roanoke, Va., opening up the coal region of West Virginia, and doing a large interstate and intrastate business, thus competing with the Seaboard, the Southern, and the Atlantic Coast Line Railroads.

On June 1, 1886, the Cape Fear & Yadkin Valley Railway Company executed to the Farmers' Loan & Trust Company of New York, as trustee, a deed of trust upon its property and franchise to secure bonds known as series A, series B, and series C, the aggregate amount of which was $3,054, 000; and on October 1, 1889, it executed to the Mercantile Trust & Deposit Company of Baltimore, as trustee, a consolidated mortgage on its property and franchise to secure an additional bond issue of $1,848, 000. In March, 1894, default was made in the payment of interest, and the Farmers' Loan & Trust Company brought suit in the Circuit Court of the United States for the Eastern District of North Carolina to foreclose the first mortgage, and the Mercantile Trust & Deposit Company was made a defendant, and when it resigned its trust Wm. A. Lash was substituted as trustee and made a defendant to the suit. On the day the bill was filed in the circuit court John Gill was appointed receiver of the Cape Fear & Yadkin Valley Railway Company, and took possession of its property. In the suit an attempt was made to force a sale of the property in division, and thereby to dismember the system, but the court refused to permit such sale, and ordered that the property be sold as an entirety. (The case was decided in the Circuit Court March 31, 1897, 82 F. 344.) In the complaint is an extended quotation from Judge Simonton's decision, which it is not necessary to repeat here. There was a rehearing; and on June 15, 1897, Judge Simonton, adhering to the position that the mode of sale was within the discretion of the court, affirmed his former ruling. Among the reasons given for this mode of sale was the passage of an act amending section 698 of the Code. (Section 698 provided that a corporation created by or in consequence of a sale or conveyance of corporate property under a deed of trust should succeed to the franchises, rights, and privileges of the first corporation; and the act of 1897 provided that the purchasing corporation should succeed to such rights, privileges, and franchises only in case the first corporation [railroad] was sold as an entirety. Public Laws 1897, c. 305.) From the decree of the Circuit Court there was an appeal to the United States Circuit Court of Appeals, and the decree appealed from was affirmed on May 3, 1898. Low v. Blackford 87 F. 392, 31 C. C. A. 15. (Quotation omitted.) The effect was to direct the sale of the property of the Cape Fear & Yadkin Valley Railroad Company as an entirety, thus giving effect to the act of 1897.

The commissioners appointed under a decree of the United States court sold the property at Fayetteville on December 29, 1898, and, as reported by the commissioners, H. Walters, V. F. Newcomer, Mitchell Jenkins, and Warren G. Elliott became the purchasers at the price of $3,110, 000, with $15,000 additional for the equipment. The purchasers were officers of the Wilmington & Weldon Railroad Company (now Atlantic Coast Line), and at their request the commissioners on January 31, 1899, executed a deed for the property as an entirety to the. Atlantic & Yadkin Railway Company. This company was incorporated by an act of the General Assembly ratified on February 23, 1899, the preamble reciting that in the deed conveying the property to them and otherwise under the statutes of the state the purchasers had declared themselves a corporation by the name of the Atlantic & Yadkin Railway Company, having elected officers and performed other acts as a corporation. (Excerpts from act omitted.)

It is alleged that on May 13, 1899, the directors of the Atlantic & Yadkin Railway Company, contrary to the provisions of its charter and in violation of the decree of the federal court, undertook by resolution to dismember the property of this company, formerly owned by the Cape Fear & Yadkin Valley Railway Company, by selling and conveying to the Wilmington & Weldon Rail-road Company, whose name had then been changed to the Atlantic Coast Line Railroad Company, that portion of the Atlantic & Yadkin Railway Company lying east of San-ford and extending through Fayetteville to Wilmington and from Fayetteville to Bennettsville, S. C, including the leasehold estate of the Bennettsville division. The resolution is made a part of the complaint. The Southern Railway Company acquired all the stock of the Atlantic & Yadkin Railway Company, and by virtue thereof became the owner of all that part of this railroad lying between Mount Airy and a designated point in Sanford, including all branches and side tracks between these termini. It is alleged that in this way the dismemberment of the property was brought about.

In 1913 the General Assembly passed a resolution reciting the alleged dismemberment of the Atlantic & Yadkin Railway Company, directing the Corporation Commission to investigate any matters pertaining to a sale of any part of said road to the Wilmington & Weldon Railroad Company and to the Southern Railway Company, and empowering the Commission to subpoena and examine witnesses, and to cause the production of books and documents. Pursuant to this resolution the Commission began an investigation on September 8, 1913, and examined H. Walters, one of the purchasers named above, who testified as set forth in Exhibit D, which is attached to the complaint. This was the first communication concerning the sale made to any board or body representing the state. (Excerpts from testimony of Walters omitted.) It is alleged that the said purchase and dismemberment of the property of the Cape Fear & Yadkin Valley Railway Company was contrary to law, was conceived in fraud and for the purpose of evading the decree of the court which authorized the sale of said property as an entirety, deceiving and misleading the Legislature of the state of North Carolina and evading the act of 1897, chapter 305, and for the purpose of committing and working a great injury to the people of the state of North Carolina, and especially those people living in the sections of the said state traversed by said road. It is alleged that the acts of the Southern Railway Company and the Wilmington & Weldon Railroad Company through its officers and agents constituted a conspiracy to violate the anti-trust laws of the United States, and to violate the laws of the state of North Carolina; that the said deed of the Atlantic & Yadkin Railway Company to the Wilmington & Weldon Railroad Company was fraudulent and contrary to law, and was executed in violation of the laws of this state; that the same is void, and should be surrendered and canceled, and the said property formerly composing the Cape...