Seymour v. Boise Railroad Co.

AILSHIE, C. J. (After Stating the Facts.)- — This is clearly an equitable action to have the judgment procured by respondent against the Boise Traction Co. adjudged and de [16] creed to be a charge and claim against the Boise Railroad Co., the appellant. (See Cooper v. Utah Light & Ry. Co., 35 Utah, 570, 136 Am. St. 1075, 102 Pac. 202; Hibernia Ins. Co. v. St. Louis etc. Co., 13 Fed. 516; Pomeroy, Eq. Juris., 3d ed., sec. 354.) Under the facts alleged in this case, the respondent was clearly justified under sec. 15, art. 11, of the state constitution in asking that the franchise of the Boise Traction Co. and all property held thereunder be subjected to the payment of his judgment, although such property and franchises had been alienated and transferred to the appellant. (See Cooper v. Utah L. & R. R. Co., 35 Utah, 570, 135 Am. St. 1075, 102 Pac. 202; Lee v. Southern Pacific R. R. Co., 116 Cal. 97, 58 Am. St. 140, 47 Pac. 932, 38 L. R. A. 71; City of South Pasadena v. Pasadena L. & W. Co., 152 Cal. 579, 93 Pac. 490.) See. 15 of art. 11 of the constitution provides as follows: “The legislature shall not pass any law permitting the leasing or alienation of any franchise so as to release or relieve the franchise or property held thereunder from any of the liabilities of the lessor or grantor, or lessee or grantee, contracted "or incurred in the operation, use, or enjoyment of such franchise, or any of its privileges.” It will be noticed that the constitution does not forbid a transfer of the franchise and property of a corporation but simply declares that no sale or transfer shall release the franchise and property held thereunder from any liability incurred by the grantor or lessor or grantee or lessee in the operation, use or enjoyment of such franchise. (See. 15, art. 11, Const.; City of South Pasadena v. Pasadena L. & W. Co., 152 Cal. 579, 93 Pac. 490.) It was the intention of the framers of the constitution to make these pre-existing “liabilities” preferred claims against the franchise and property transferred, and to declare them prior and superior to any subsequent'bonds, mortgages or encumbrances placed thereon by the purchaser or transferee of such franchise and property. If it were not for some special and peculiar facts admitted in this case, we are of the opinion it would be our duty to order the judgment in the ease so modified as to permit the [17] execution to run only against the franchises and property held thereunder transferred by the traction company to the appellant. There are facts, however, which are set out in the complaint which lead us to conclude that the judgment may properly run against all the property and franchises of the appellant. 1. It appears that both the incorporators and the board of directors of the Boise Railroad Co. knew of respondent’s claim at the time of the organization of tbe corporation, and also at the time of the transfer from the Traction Company to the railroad company, and the appellant, therefore, took the transfer of the franchises and property from the traction company with knowledge of the existence of this claim. 2. The organization of the Boise Railroad Co. and the transfer of all the property and franchises of the Boise Traction Co. to the railroad company was in fact and law only a reorganization of the old company, — the new corporation having a board of directors who composed a majority of the board of directors of the old corporation and more than 98% of the subscribed stock of the new corporation being held by the same stockholders who held the stock of the old corporation. 3. The payment made for this alleged sale and transfer as evidenced by the resolutions passed by both companies at the time of the transfer was the delivery “to the stockholders of the Boise Traction Co. of 1,500 shares of the common capital stock and 1,500 shares of the preferred stock, full paid and nonassessable, of the said Boise Railroad Co., Ltd., and the proceeds of 150 first mortgage bonds of the said Boise Railroad Co., Ltd., which said bonds are to be sold to Rhodes, Butcher & Sinkler of Philadelphia, Penn., at 87% per cent of their par value and accrued interest.” It will thus be seen from the evidence furnished by these corporations themselves, as entered upon their own records, that the consideration for this transfer was to pass, .not to the Boise Traction Co. but to its stockholders, and that in addition to receiving these 3,000 shares of stock in the new cor [18] poration, they were also to receive in actual cash the receipts from the sale of 150 first mortgage bonds of the par value of $1,000 each, which were to be sold at 87%% of their par value. The new corporation could not equitably take over and receive all the franchises and property of the old corporation, knowing that it was indebted to this respondent, and at the same time turn over to the- stockholders of the old corporation these shares of stock in the new corporation, and at the same time encumber the property with $150,000 bonded indebtedness and pay that money over to the stockholders of the old corporation, and then avoid liability on respondent’s claim which had been incurred prior to this transaction and prior to the issuance of these bonds and the incurring of this bonded indebtedness. For these reasons we feel that the judgment in this case should be affirmed and stand as a judgment collectible out of any and all property belonging to the appellant corporation. The supreme court of Utah in the case of Cooper v. Utah Light & Ry. Co., 35 Utah, 570, 136 Am. St. 1075, 102 Pac. 202, in considering a transaction and state of facts that fell short of the facts shown in this ease, said: “A transaction whereby one corporation sells and transfers all its property and franchises, except the franchise to be a corporation, to another corporation, upon an agreement that the proceeds or consideration of the sale should be distributed to the stockholders of the selling corporation, and where the proceeds are so distributed in accordance with such agreement entered into between the two corporations, is, as to creditors of the selling corporation, not only fraudulent, but unlawful.” The case at bar differs very materially from the case of Anderson v. War Eagle Con. Min. Co., 8 Ida. 789, 72 Pac. 671. That was an action at law, and was so treated throughout the proceedings in the trial court, and the equitable side of the case appears not to have been urged until the hearing on appeal. This case has been presented on an entirely different theory and quite different pleadings, and presents several different features from the War Eagle case. [19] We are of the opinion that the judgment in this case should be affirmed, and it is so ordered. Costs awarded in favor of respondent. Sullivan and Stewart, JJ., concur.