North Side Ry. Co. v. Worthington

• Decision Date: 06 May 1895
• Citation: 30 S.W. 1055
• Parties: NORTH SIDE RY. CO. et al. v. WORTHINGTON et al.
• Court: Texas Supreme Court

30 S.W. 1055

NORTH SIDE RY. CO. et al. v. WORTHINGTON et al.

Supreme Court of Texas.

May 6, 1895.

Error to court of civil appeals, Second supreme judicial district.

Suit by Thomas Worthington and others against the North Side Railway Company and others on bonds, and to foreclose mortgage securing the same. From a judgment for plaintiffs, defendants appealed to the court of civil appeals, where the judgment was affirmed (27 S. W. 746), and defendants bring error. Reversed.

Walton, Hill & Walton, C. M. Templeton, and J. C. Randolph, for plaintiffs in error. Ross, Chapman & Ross, for defendants in error.

GAINES, C. J.

The following statement of the nature and result in the trial court of this suit is taken from the brief of appellants, filed in the court of civil appeals: "This suit was instituted in December, 1891, by Thomas Worthington, one of the appellees, and plaintiff below, in the district court of Tarrant county, against the North Side Railway Company, the Fort Worth City Company, the Fort Worth Street-Railway Company, Mrs. Sallie Huffman, the Thomson-Houston Electric Company, the Brownell Car Company, the Smith Bridge Company, and Aldace W. Caswell. The American Loan and Trust Company subsequently became a party plaintiff. The main suit was for judgment against the two first defendants on certain joint bonds executed by them, and to foreclose a mortgage also jointly executed by them, on all their property, property rights, and franchises, to secure the payment of said bonds. The action against the other defendants was collateral in a great measure, if not wholly. The Thomson-Houston Electric Company and Brownell Car Company each, by cross bill, set up alleged causes of action against the North Side Railway Company and Fort Worth City Company upon promissory notes which they allege the latter jointly executed, and each sought to foreclose a mortgage alleged to have been executed by the North Side Railway Company. There were interventions by other creditors, and relief prayed by them, but the issues joined on pleadings of interveners are not vital, except P. E. Lane, Wallace Hendricks, and George Hendricks, who occupy the same status as plaintiffs. The defendants Sallie Huffman and A. W. Caswell, who were joined by the North Side Railway Company and the Fort Worth City Company, made by their pleadings the main issues in the case, and upon which this appeal has been taken and will be prosecuted. Contemporaneously with the institution of the suit, a receiver was prayed for by the plaintiffs, and appointed by the court for the benefit of all and whomsoever was concerned. The court appointed a master in chancery, to whom was referred all the issues made by the pleadings, including the validity of the bonds, notes, and acceptances sued on, and the deeds of trust or mortgages given to secure the payment thereof. This master made report, but by agreement it was waived by all parties in so far as report was made passing on validity of the said bonds, notes, etc., and mortgage, which issue was tried as an original question by the court. A trial was had, the plaintiffs prevailing, securing judgment on the bonds, with foreclosure of the mortgage, order of sale, etc.; the holders of notes securing judgments and foreclosures as well." The defendants North Side Railway Company, Ft. Worth City Company, and Mrs. Huffman perfected an appeal to the court of civil appeals, where the judgment of the trial court was affirmed. 27 S. W. 746. The Ft. Worth City Company and the North Side Street Railway were both organized under the general laws of this state, which provide for the creation of private corporations; the purpose of the first, as expressed in its charter, being "the purchase, subdivision, and sale of lands in cities, towns, and villages," and that of the second, "the construction and maintenance of street railways." They were organized about the same time, the stock taken by the same persons, with some unimportant exceptions, and in the same proportions. The same persons held the offices of directors, president, and secretary, respectively, in each company. The City Company acquired title to a tract of land consisting of about 1,400 acres, lying north and northwest of the city of Ft. Worth, and laid it out in streets, alleys, blocks, and lots, for the purpose of selling to settlers and of building up the suburb. The street railway was projected to extend from a point in the city to and through the City Company's property. There was testimony to show that the street railway was calculated to enhance the value of the lots, if not necessary to enable the City Company to sell them at a profitable price; and also that it was essential to build up the suburb, in order to make the street railway a paying investment. Such was the condition of affairs when the bonds in controversy were executed. The City Company needed a large sum of money to pay off an indebtedness and for other purposes, and the street-railway company needed funds for the construction and equipment of its line of street railway. The officers of the two corporations thereupon agreed to issue a series of bonds, 150 in number, and for $1,000 each, to be executed by the two corporations jointly, and to be secured by a mortgage on their property. The formalities of the law having been complied with, the bonds were issued and sold at 95 cents on the dollar, and the plaintiff, Thomas Worthington, became the holder of those here sued upon, 142 in number.

It is contended on behalf of the plaintiffs in error that the execution of the bonds was ultra vires, and that, therefore, they are void. In determining this question, we may recur to a few leading principles. Corporations are the creatures of the law, and they can only exercise such powers as are granted by the law of their creation. An express grant, however, is not necessary. In every express grant there is implied a power to do whatever is necessary or reasonably appropriate to the exercise of the authority expressly conferred. The difficulty arises in any particular case whenever we attempt to determine whether the power of a corporation to do an act can be implied or not. The question has given rise to much litigious controversy and to much conflict of decision. It is not easy to lay down a rule by which the question may be determined; but the following, as announced by a well-known text writer, commends itself, not only as being reasonable in itself, but also as being in accord with the great weight of authority. "Whatever be a company's legitimate business, the company may foster it by all the usual means. But it may not go beyond this; it may not, under the pretext of fostering, entangle itself in proceedings with which it has no legitimate concern. In the next place, the courts have, however, determined that such means shall be direct, not indirect, — i. e. that a company shall not enter into engagements, as the rendering of assistance to other undertakings, from which it anticipates a benefit to itself, not immediately, but mediately by reaction, as it were, from the success of the operations thus encouraged; all such proceedings inevitably tending to breaches of duty on part of the directors, to abandonment of its peculiar objects on part of the corporation." Green's Brice, Ultra Vires, 88. In short, if the means be such as are usually resorted to, and a direct method of accomplishing the purpose of the incorporation, they are within its powers. If they be unusual, and tend in an indirect manner only to promote its interests, they are held to be ultra vires. For example, a railroad company may establish and maintain refreshment houses along its line for the accommodation of its passengers. Flanagan v. Railway Co., L. R. 7 Eq. 116. Such establishments are not unusual, are strictly subordinate to the main purpose for which such companies are created, and tend immediately to increase their traffic. So it has been held that a railroad corporation has the power to contract with the owner of a steam vessel to maintain a through traffic, and carry beyond its line, and that it can recover of the owner of such vessel damages to goods resulting from its unseaworthiness, for which the company had had to pay. Railway Co. v. Redmond, 10 C. B. (N. S.) 675. It is now generally recognized that a railway company may contract to carry beyond its line, and it would seem to follow that a reasonable traffic arrangement with another carrier for through transportation is legitimate. On the other hand, in Colman v. Railway Co., 10 Beav. 1, the performance of a contract by which the company sought to establish a line of steamships between a terminus of one of its branches and a foreign port, and by which it attempted to guaranty a dividend on the venture, was enjoined. Upon a hasty consideration, the two cases may appear not clearly distinguishable; but we think them entirely consistent, and that they well illustrate the rule which we have stated. In the former the contract was subsidiary to the legitimate business of the company, and was such as was reasonably appropriate to a railroad one of the termini of which was upon the seashore. It tended directly to increase the traffic of the company. In the latter the establishment of the line of steamships was not subordinate to the business of the railroad company, but was in its nature a distinct enterprise. It tended to increase the business of the port to which the company's branch line...