Tod v. Kentucky Union Land Co., 6,116.

• Decision Date: 11 July 1893
• Docket Number: 6,116.
• Citation: 57 F. 47
• Parties: TOD et al. v. KENTUCKY UNION LAND CO. et al.
• Court: United States Circuit Court, District of Kentucky

57 F. 47

TOD et al. v. KENTUCKY UNION LAND CO. et al.

No. 6,116.

United States Circuit Court, D. Kentucky.

July 11, 1893

Olin Rives & Montgomery, Butler, Stillman & Hubbard, and Humphrey & Davie, for complainants.

St John Boyle, for J. W. Gaulbert and others, holders second mortgage bonds.

William Lindsay, Dodd & Dodd, and Grubbs & Moraney, for general creditors.

Before LURTON, Circuit Judge, and BARR, District Judge.

LURTON Circuit Judge.

The Kentucky Union Land Company made a conveyance operating as a preference to certain of its creditors. This conveyance was assailed as a fraudulent preference in contemplation of insolvency, and prohibited by article 2, c. 44, of the General Statutes of Kentucky.

Under the proceedings instituted in this court a decree was entered December 1, 1891, adjudging the said conveyance to be a preference, within the meaning of the said act, and that the same operated as an assignment, as of the 6th of February 1891, of all of the property and effects of the Kentucky Union Land Company for the equal benefit of all its creditors, according to the provisions of said act; and a receiver was appointed, as required by the Kentucky act, and the cause referred to the master of this court to advertise and receive proof of debt against said company, and to report who were creditors of the said company on the 6th of February, 1891, and the amount of the debts due to them, respectively, whether such debts were matured, and whether absolute or contingent. He was also directed to report what, if any, securities are held by any of the creditors of the land company.

Among other creditors filing claims with the commissioner, or intervening by petition, were:

(1) The holders of the first mortgage bonds of the Kentucky Union Railway Company, the principal and interest of which had been guarantied by the Kentucky Union Land Company. These bonds amount to $2,625,000, and the owners and holders are represented by J. Kennedy Tod, who stands for and represents the class with respect to the questions arising as to the validity of the guaranty of the land company.

(2) The holders of $800,000 of second mortgage bonds of the Kentucky Union Railway Company, the principal and interest having been guarantied by the Kentucky Union Land Company. These bonds are represented by J. W. Gaulbert, in respect to the question made as to the liability of the Kentucky Union Land Company as guarantor.

(3) The claim of the Central Trust Company. The Kentucky Union Land Company guarantied a 5 per cent. dividend upon stock of the Kentucky Union Railway Company, to the extent of $500,000. The land company agreed that, if the railway company and the land company should both fail to pay said dividend, then the Central Trust Company should be authorized to sue for same, and distribute the recovery among the holders of the guarantied stock.

The commissioner, finding the validity of the guaranty as to both bonds and stocks challenged by the other creditors and by the land company, has submitted to the court the questions arising upon the defense interposed, and has also asked directions as to how a debt should be reported when the creditor has more than one security, or when the debt is due from more than one creditor.

The matters upon which the commissioner asks instruction are those stated by him in his report to the court, as follows:

'The questions which your commissioner has, after advising with and obtaining the consent of counsel in this case, determined to submit to the court in advance of making a complete report, are these:

'(1) Was the guaranty of the Kentucky Union Land Company of the principal and interest of the first mortgage bonds of the Kentucky Union Railway Company within the power of the Kentucky Union Land Company. And, if within its power, was such power executed in a legal and binding way, so as to make such guaranty an obligation of the Kentucky Union Land Company?

'(2) Exactly the same question as arising upon the guaranty of the second mortgage bonds of the Kentucky Union Railway Company by the Kentucky Union Land Company.

'(3) Was the transaction set out in the claim of the Central Trust Company herein, and which pertains to the guaranty by the Kentucky Union Land Company of dividends upon certain stock of the Kentucky Union Railway

Company, and an agreement executed by said Kentucky Union Land Company with others to the Central Trust Company, a contract which it was within the power of the Kentucky Union Land Company to make; and, if so, was such contract validly and legally executed by said Kentucky Union Land Company? And, if it could be lawfully executed, what is the proper basis for proof of such claim as to amount, or what means should be taken to ascertain the said amount?

'(4) Where a creditor of the Kentucky Union Land Company holds as security for his claim any part of the assets of the Kentucky Union Land Company, is such creditor to be required to surrender or exhaust such security before proving generally against the assets of the Kentucky Union Land Company? And, in the event he shall realize upon such security, upon what basis does his claim then stand? In other words, can he prove for the whole of said claim against the general assets, or for balance left unpaid, or is he forbidden to receive any further payment until all other creditors have been made equal with him?

'(5) In the event that any creditor of the Kentucky Union Land Company has personal or other security from a corporation or individual other than the Kentucky Union Land Company, upon what basis is the claim to be computed against the Kentucky Union Land Company? Is it to be credited by such amount as may be received from such other security, and only the balance proved against the Kentucky Union Land Company, or may the whole debt be proved against the Kentucky Union Land Company, or is such creditor to be forbidden to receive any part of the assets of the Kentucky Union Land Company until all other creditors of the Kentucky Union Land Company shall have received an equal pro rata amount?

'(6) Are corporations which were organized by the Kentucky Union Land Company, all of whose stock is owned by the Kentucky Union Land Company, and all of whose assets were supplied to them by the Kentucky Union Land Company, to be considered as corporations independent of the Kentucky Union Land Company, as respects the application of securities granted by them to a creditor who is also a creditor of the Kentucky Union Land Company, or as personally bound to creditors who are also creditors of the Kentucky Union Land Company, or is such liability or such security granted by such corporations to be treated as if granted by the Kentucky Union Land Company, and subject to the same rule?

'(7) What collateral security is to be allowed J. Kennedy Tod & Co. upon their claim?

'Respectfully submitted.

Thos. Speed, Special Comr.'

1. Did the Kentucky Union Land Company have the power to bind itself by its contract guarantying the principal and interest of the first mortgage bonds issued by the Kentucky Union Railway Company?

The question, as presented on this record, is a question, pure and simple, as to how far the authority to execute these contracts is sustained by the corporate powers which the law has vested in this company. No question arises as to the right of bona fide holders of these bonds, for value, and without notice of the facts that the bonds had not been indorsed upon their sale and transfer by the guarantying corporation. The general doctrine may be taken to be well settled in the courts of the United States that the powers of a corporation are such, and such only, as are conferred by the law under which it is incorporated. The charter is the measure of the power of every corporation, and by this test must every corporate act be tried. This rule, however, concedes the usual propositions applicable to every legislative act,--that what is fairly implied is as much granted as if expressly enumerated. The cases supporting this general doctrine are very numerous, and only a few need be cited: Pearce v. Railroad Co., 21 How. 441; Thomas v. Railroad Co., 101 U.S. 82; Pennsylvania R. Co. v. St. Louis, A. & T. H. R. Co., 118 U.S. 290, 6 S.Ct. 1094; Central Transp. Co. v. Pullman's Palace-Car Co., 139 U.S. 59, 11 S.Ct. 478, Maddox v. Graham, 2 Metc. (Ky.) 56; Davis v. Railroad Co., 131 Mass. 258; Marble Co. v. Harvey, 92 Tenn. 115, 20 S.W. 427; Miller v. Insurance Co., 92 Tenn. 167, 21 S.W. 39.

Mr. Justice Gray, in Central Transp. Co. v. Pullman's Palace-Car Co., after reviewing the decisions of the supreme court of the United States, concludes that they may be summed up thus:

'The charter of a corporation, read in the light of any general laws which are applicable, is the measure of its power, and the enumeration of those powers implies the exclusion of all others not fairly incidental. All contracts made by a corporation beyond the scope of those powers are unlawful and void, and no action can be maintained upon them in the courts, and this upon three distinct grounds: The obligation of every one contracting with a corporation to take notice of the legal limits of its powers; the interest of the stockholders not to be subjected to risks which they have never undertaken; and, above all, the interest of the public that the corporation shall not transcend the powers conferred upon it by law.'

The power to execute accommodation paper, or to guaranty for accommodation the obligations of another corporation, is not expressly conferred by the charter of the land company. Ordinarily, such power is not implied from the powers conferred upon corporations, and such contracts are generally in excess of the...