Town of Searcy v. Yarnell

• Decision Date: 03 July 1886
• Citation: 1 S.W. 319,47 Ark. 269
• Parties: TOWN OF SEARCY v. YARNELL
• Court: Arkansas Supreme Court

1 S.W. 319

47 Ark. 269

TOWN OF SEARCY v. YARNELL

Supreme Court of Arkansas

July 3, 1886

APPEAL from White Circuit Court in Chancery, Hon. M. T. SANDERS Circuit Judge.

Decree affirmed.

Clark & Williams and W. R. Coody for Appellant.

The city of Searcy never bore any relation to this railroad except that of a stockholder, and though she might, as she held a majority of the stock, authorize a sale of the road yet it could only be through or by operation of a sale of its shares. The franchise continues under the control of the shareholders. If such sale should work a forfeiture of the franchise, still no such forfeiture has been claimed by the state and the franchise continues. Pierce on Railroads, pp 9, 10.

But continues in whom? Of course in the stockholders, and the city holds the stock. See Comm. v. So. Mass. Turnpike Co., 5 Cush., 509.

Even under a forced sale, under execution or foreclosure of mortgage, the franchise does not pass unless by express statute, and we have no such statute in Arkansas. Rogun v. Atkins, 9 Lea (Tenn.), 609. No sale of the corpus either judicially or otherwise, could be made; and in England such is the law now. Furness v. Cottenham Ry. Co., 25 Beav 614.

And a railroad cannot be sold out as a whole even on a mortgage or fieri facias. 2 Kent Com., pp. 352-3. And the same is the law here as to any voluntary or private sale. It is only by statute that it can be sold on mortgage or execution, although some of the states have held that it may be judicially sold independently of any such statute. See Allen v. Montgomery Ry., 11 Ala. 437, and Redfield on Railways, 507, sec. 9, 17.

There can be no pretense that Yarnell took anything under his purchase more than the possession and use of the road during such time as the stockholders should see fit to let him use it, unless the transaction can be construed as an equitable assignment of the stock; we know of no rule of law for such a construction. But, moreover, the parties never treated the sale as a transfer of the stock. Such stock was never assigned on the books; no stockholders' or directors' meetings were ever held after the sale to Yarnell. The corporation was not used, but abandoned, from that deed; undoubtedly the state could claim a forfeiture for non-user or abandonment from the date of that sale. Pierce on Railroads, 10, and cases cited in note 8, especially Comm. v. Mass. Turnpike Co., 5 Cush., 509; White v. Campbell, 5 Humph. , 38.

Passing from this view of the case, the sale to Yarnell was made, or purported to be made, by a board of directors of the Searcy Railroad Company. Now a board of directors has no power to sell the corpus of the company, even if the stockholders would have the power in a stockholders' meeting to do so, and there is no claim of any authority to do so by a regular stockholders' meeting; it requires the vote of a majority of the stock in a regular stockholders' meeting to borrow money and pledge the property in mortgage for its payment. No board of directors has any such power; that is to say, that the directors may sell and buy and mortgage articles of property, are rights not essential to the trust, transactions and continual existence of the corporation, and they cannot, without special authority, alienate property or rights which are essential to the transaction of the corporate business and existence. 16 Wall., 390; 33 Barb. 578; 18 Gratt., 819; 7 C. E. Green, 130, 407; 9 Id., 455; 48 Pa. 29; Pierce on R. R., 33.

Yarnell was a member of the board when the sale was made and the sale was void. He was a trustee, and a trustee cannot purchase the trust property, nor deal with trust funds, or make any gain whatever out of the relationship. Pierce on Railroads, p. 36 et seq.; 3 Watts Ac. and Def., pp. 466-7; Field on Corp. (Wood), secs. 154-5-7; 21 Wall., 616; 41 Ark. 269; 38 Id., 26; 26 Id., 445.

But it may be argued that Yarnell was not a director at the time of the purchase. The records of the board of directors exhibited show that he was such; he fails to deny it by his own evidence; and the only proof is that of B. M. Jones, who states that Yarnell, after he concluded to purchase the road, told the board that he would resign and become the purchaser, but no action was taken by the board as to his resignation, and from the records and in fact he was a director at the time. But suppose he was not a director at the immediate time; he was one of the committee charged with the sale of the road, and had been a director up to the time not only when it was concluded to sell the property and it had been offered for sale, but up to a time when, after a failure to sell, Yarnell signified his wish to buy the property if he could get it for $ 500 and his brother would join him in the purchase; and up to the time when the offer to take $ 500 from him had been agreed upon in the directory he was one of the directors, and then only stated that he would resign for the express purpose of accepting the offer and becoming the purchaser of the road. Now, if the duties and obligations imposed by law on trustees could be thus easily avoided, they might be ignored at pleasure, and evaded at the will of the trustee; in fact, it would be no law at all. Yet the chancellor below seemed to put no stress upon this proposition. See Field on Corp. (Wood), sec. 157; European Railway Co., v. Pour, 59 Me. 277; Dobson v. Racey, 3 Sanf. Chy., 62; Peckett v. School District, 25 Wis. 552; Cumberland Coal Co. v. Sherman, 30 Barb. 553; Boyd v. Blakeman, 29 Cal. 19; Aberdeen Railway Co. v. Blaikie, 1 McQueen, 461; Flint Ry. Co. v. Dewey, 14 Mich. 477; Fuller v. Dane, 18 Pick. 472; 33 Ark. 575.

That directors are trustees, see Butts v. Woods, 38 Bard., 188; York & Midland Railway Co. v. Hudson, 19 Eng. L. & Eq., 365; Scott v. Depeyster, 1 Edw. Chy., 513; Verplank v. Mercantile Insurance Co., Ib., 85; Great Sexembourg Railway Co. v. Wagoner, 25 Beav., 586.

But it is argued that the city of Searcy is estopped by its acts and conduct with reference to the sale, and that seemed to be the main ground upon which the chancellor based his decision of the case below. But how can this be short of the full period of the statute of limitation, which is seven years as to this character of property, when no such time has elapsed? The city has done nothing that would estop her from asserting her title to this property; she has simply omitted to bring her suit for some time, the reasons for which are fully shown in the evidence of Sowell, McGinnis and others.

Here, the town being fully authorized to take stock in the railroad, issued bonds and levied taxes to pay the same under an act of the legislature, approved July 23, 1868. See Pamphlet Acts 1868, p., 210, sec. 18; Field on Corp., Wood, secs. 523; 3 Wall., 327. And no mode being pointed out as to the exercise of the authority, the matter was submitted to a vote of the citizens of the town, under an act of the legislature with reference to the subscription of stock by counties, approved July 23, 1868. Acts 1868, pp. 312-13.

The town, being the only stockholder who paid up its stock, was the sole owner, and the council, without the consent of the people for whose benefit it was built and paid the taxes, had no power to sell or dispose of the road. They could only manage it for the purposes of its creation, to-wit: To advance the welfare, etc., of the town. Mansf. Dig., sec. 764; Field on Corp., secs. 57, 199, 207; 31 Ark. 464-5; 10 Rich. (S. C.) Law, 491.

A municipal corporation cannot dispose of its property. 2 Dillon, secs. 445-7, 450-1; 30 Iowa 94; 2 Dill. Corp., secs. 493 to 498; 45 N.Y. 234; Grant on Corp., 129, 134.

The sale was ultra vires. Green, ultra vires, p., 37; 63 N.Y. 68; 43 Iowa 48, 65; 38 Cal. 300; 35 Mich. 22. Said sale was void in toto, and the people cannot be estopped by the same. 1 Dill. Corp., secs. 383-4; 16 Cal. 282; 2 Clifford, C. C., 590-6.

F. W. Compton for Appellant, with whom are Cypert & Reeves.

1. In subscribing to the capital stock, issuing bonds, etc., the town exceeded her powers, but having done so, the transaction, although ultra vires, being executed, she became the owner of the stock. This did not vest the title of the road in her; she was simply a stockholder, the title being in the company.

2. The deed to the purchasers of the road was properly execute. The rule of law is, that where the deed of a railroad corporation purports to be the deed, of the corporation, the fact that it is not signed by the corporate name, but by an officer having the power to execute the deed in behalf of the company, in his individual name, does not invalidate it as the deed of the corporation (Jones on Railroad Securities, sec. 86); and such power (that is, to execute a deed of conveyance,) may be delegated by the board of directors to the president of the company. Pierce on Railroads, p. 34. Testing the deed in question by this rule, there can be no doubt of its validity. The deed not only purports to be the deed of the Searcy Branch Railroad Company, as expressed in the body of it, but is also signed in its name by the president of the company, who was authorized by the board of directors to do so.

3. The sale, as made and carried into effect by the railroad company, with the consent or subsequent ratification of the appellant, through her common council, is valid notwithstanding the absence of any provision in their respective charters authorizing the exercise of such a power. The appellant being the only stockholder whose stock had been paid, and as such, the only claimant of a subsisting interest in the road, the object of the ordinance above mentioned was to express her consent to sale, by the company who held the title; and that she not only consented to the sale,...