Kreiger v. Shelby R. R.

JUDGE PRYOR delivered the opinion or the court. The original charter incorporating the Shelby Railroad Company, approved on the 15th of March, 1851, was amended by an act, approved February 3d, 1869, and from that amendment, or its construction, has arisen the present litigation. By this amendment the company was authorized to extend its road through other counties, as well as the county of Shelby, and by the second section of the amendatory act a portion of the county of Shelby was laid off by a well defined boundary, and the legal voters within that boundary empowered to vote a subscription of stock, not exceeding three hundred thousand dollars, to aid in the construction of the road. The vote was taken favoring the enterprise, and — 69 — the subscription made by the county judge in accordance with the provisions of the act. Bonds were required to be issued, payable in twenty years, bearing interest at a rate not exceeding eight per cent., with the right reserved of paying them within three years from date. The bonds were required to be executed in the name of.and under the seal or scroll of, this portion of Shelby county, and to be signed by the county judge, and countersigned by the county clerk, and when executed the bonds were to be “de'livered to the president and directors of the railroad ' company in payment of said subscription, and they may be by them negotiated, hypothecated or sold, upon such terms as may by said president and directors be deemed expedient, and may be transferred by indorsement.” These bonds were executed and delivered, and then sold by the company, and the proceeds applied to the building of the road. The road was completed from Anchorage, on the Louisville & Lexington road (now the Louisville & Nashville road), to the town of Shelbyville, a distance of eighteen miles. Under the seventh section of the act of 1869 an annual tax was levied on all the property in the district subject to taxation for State revenue to pay the interest when due, and the principal at maturity, and this tax has been collected from year to year in payment of the interest, and in part discharge of the principal. The collecting officer is required by the express provisions of the act “to execute to each person a receipt for the amount of taxes paid by him, which — 70 — shall be assignable, and when they amount to fifty dollars or more shall entitle the holder, upon presentation to the proper officers of the company, to certificates of stock, at the rate of one share for fifty dollars and every multiple of fifty.” The ninth section of the act provides that “the several counties and portions of counties shall not vote the stock for which certificates may be issued to the tax-payers, but the same shall be voted by the individual stockholders.” The officers of this corporation being elected by the stockholders, it is claimed by the appellants, Kreiger and others, who are individual stockholders, that this district voting the tax is not a stockholder in the company, and, therefore, has no voice in the selection of its officers, nor any right to receive dividends declared; that, so far as the district is concerned, the individual tax-payer residing therein, when he has paid his taxes and obtained a certificate of stock, to that extent is entitled to vote, but no further; and this, it is insisted, is the only manner in which the district can be heard in the selection of the officers of the company, and in the distribution of the dividends. These three consolidated cases each involve this question. It is claimed that the appellants have purchased the receipts of the tax-payer or his certificates for a trifling sum, and are, therefore, endeavoring to obtain the power to control the corporation. Whatever may have been the motives influencing the appellants, the tax receipts are made assignable, and this case must be treated as a controversy — 71 — between the tax-payer and stockholder on the one side and the taxing district on the other. It is apparent that at the completion of the road the stock was of bnt little value, and so continued for a number of years, yielding no dividend and giving no indications of a profitable investment. Shortly before the institution of the present action a small dividend (perhaps two) was declared by the company, and this seems to have called the attention of the officers of the company and the stockholders to the necessity of having the charter construed with a view of ascertaining who had the right to vote the stock and receive dividends. Prior to the payment of these dividends the district had been voting its stock to the amount of three hundred thousand dollars, and while this may indicate the construction placed upon the act by many of the parties in interest, we can not well see why it should work an estoppel on the stockholders, or compel such a construction of the charter if inconsistent with its provisions. The facts conduce to show that as much as three hundred thousand dollars has been paid by the taxpayers in the way of interest, and for this reason it is maintained that no right exists in the district to vote the original stock subscription. If thi;ee hundred thousand dollars have been paid by way of interest that by the terms of the charter can be converted into stock, it then follows that when this is added to the original subscription of three hundred thousand dollars, that the district and the tax-payers had stock, or were' entitled to stock at the time — 72 — of these actions, amounting in all to the sum of six hundred thousand dollars, and may have greatly more, as the bonds have not yet fully matured, and all the interest hereafter paid can be, under the charter, converted into stock. It is maintained that such was not the intention of the amendment of 1867, and the only stock that exists or can be valid is such stock as is or may be acquired by the taxpayer in the payment of the interest on these bonds and the principal as the bonds mature. It is argued by appellant that no corporate rights belonged to or were given to this district by the act in question, and no express or implied power to vote the stock or receive the dividends — further, that the stock had not been paid for, and, therefore, by an express provision of the statute, the district, if owning the stock, could not vote it until fully paid. As to these propositions attempted to be maintained by counsel, it is proper to refer to the original act of incorporation to which the act of 1869 was an amendment, under which the county of Shelby and the town of Shelbyville were empowered to subscribe to this enterprise, and by the sixth section of the original act of incorporation, under which the stockholders were authorized to elect directors, “each, stockholder was allowed one vote for every share owned by him, her or itf and the amended act in no manner changed or restricted this right as to any subsequent stockholder, whether a natural or artificial person. The amended act creating this taxing district, making its subscription to depend upon the popular vote. — 73 — and requiring its bonds to be executed and delivered to the company by the county judge, under the name and seal or scroll of the district, or the portion of Shelby county authorized to vote, made it a corporation, entitling it to all the rights and privileges of a stockholder. If this district had the power to vote the tax, to execute its bonds with its seal and scroll in payment of the tax, and did, in fact, sign and deliver its bonds to the company, through the county judge, in payment of its subscription, it required no other provision to enable it to vote its stock or to become a stockholder; but, on the contrary, it would require an express provision of the statute preventing the exercise of such a power before the right could be withheld. The stock was not only subscribed but paid for by the delivery of its bonds, payable in twenty years, with eight per cent, interest until maturity. These bonds were placed on the market, and the money realized, and, so far as the railroad company is concerned, the stock subscription by the district has been fully paid, and the payment of 'the bonds is between the holder and the tax-payer. After the payment of this subscription on the bonds of the district, to say that the district is not entitled to the stock or the dividends is not warranted by either the letter or the spirit of the act under which the subscription was made. A subscription of three hundred thousand dollars, paid in bonds, bearing eight per cent, interest, and still not a stockholder in the corporation, or entitled to its portion of any dividend declared, is repugnant to every provision of the charter and to that idea of justice hnd equality that — 74 — should prevail as between those investing in a common enterprise. There were no tax receipts at the date of the delivery of the bonds to be converted into stock, and the interest, payable in each year by the individual tax-payer, would not for several years, in many instances, entitle him to a certificate of stock, thus leaving a paid up subscription sufficient to construct one half the road without representation for years in the selection of its officers, and without any right to recover a dividend. Such could not have been the legislative intent, nor is such a view the proper construction to be placed on the charter. It is true that this district is but the trustee for the tax-payer, and the dividends will lessen the tax imposed or discharge the liability of the tax-payer to that extent; but the right to vote the stock and receive the dividend is unquestioned. It is, however, argued that the provisions of section nine of the amended act excludes the idea that any other stock can be voted except that for which certificates have been issued to tax-payers. We think a construction of that section in connection with the entire charter leaves but little room to doubt the right of the district to vote the stock originally subscribed. It may be that affirmative rights or powers are not to be deduced from a restraining statute, and, therefore, because portions of counties are prohibited from voting the stock for which certificates have been issued to the tax-payers, it does not follow that the district had the right to vote the original subscription of stock. It must be conceded that the original act of incorporation gave expressly to each — 75 — stockholder a voice in the selection of its officers, and section nine of the act of 1869 negatives the idea that the voting of stock with reference to this district was to be confined to tax-payers alone; but, on the contrary, following both the letter and spirit of the charter, it clearly indicates that other stock is to be voted by the counties or portions of counties than that to be voted upon tax certificates. “The several counties or portions of counties shall not vote the stock for which certificates may be issued to taxpayers,” etc. This is to be voted by the individual tax-payer or stockholder when obtaining his certificate; but as to the original stock subscription paid by the county or a portion of the county, that is to be voted by the county or portion of the county. Such is the plain letter of the original act, and without conferring the power in express terms upon the particular district, the provision of the act authorizing a stockholder to vote entitles both natural and artificial persons, holders of stock, to vote it. This portion of Shelby county will be deprived of its right' to vote the stock or receive the . dividends when the tax-payers discharge the principal and interest of its bonds, or to the extent the principal may be reduced by the tax-payer. When paid it becomes the stock of the tax-payer; and for this reason the Chancellor below, finding the principal of the subscription reduced by the tax-payer, he only permitted the district to vote so much of the principal stock as remained unpaid, the taxing district being divested of its stock to the extent the principal had been paid by the tax-payer. The stock — 76 — of a county in a corporation like this may be increased by permitting the interest paid to be converted into stock, and the original stock in this way doubled or trebled. Suck provisions are inserted in many charters, those provisions constituting the contract between the stockholders. The interest for twenty years on these bonds may be converted into stock because the charter authorizes it. Preference is often given in this way to counties, towns, and districts to induce subscriptions, and to place the corporation in such a financial condition as will enable it to dispose of bonds based on the credit of the county or district subscribing, and in this manner construct its road. Individual subscriptions, except for small sums, are rarely ever made to such undertakings, and to hold that counties or portions of counties can subscribe and pay its stock that in effect makes the enterprise a success, and still not be a stockholder, is unreasonable, and certainly not warranted in the case being considered. In this case, if the principal should not be paid for twenty years from the date of the bonds, the interest stock would greatly exceed the principal; still, such, being the charter, we see no reason why its terms should not be enforced. The city of Louisville had no right to vote the stock subscribed, because no part of it had been paid,, no bonds had been issued, and the tax collected from the tax-payer, evidenced by his receipt, constituted the principal stock. Neither the city nor the tax-payer paid any interest, but the principal — 77 — stock paid by an annual levy. It is not insisted by the appellees that the district owns this stock in its own right, but that it holds it for the tax-payer, and is entitled to the dividends on the unpaid subscription to be applied to the reduction of the debt or to lessen the amount of the tax. The fact that some of the bonds have been called in and others executed at' a less rate of interest is for the benefit of the tax-payer, and can not be said to have satisfied the district indebtedness. The act of March 11, 1870, giving the county judge and justices the right to vote the stock, is but speaking the language of the charter. These financial agents of the county were made the agents of the particular district, and when subscribing the stock and issuing the bonds, were entitled to vote in behalf of the stockholders. The act may be silent as to the mode of disposing of the dividends, but, as before stated, when applied as they should be, to a reduction of the debt or the interest, it enures to the benefit of those entitled. If the title of the act of March 11, 1870, is misleading and unconstitutional, so is the title to the act of February 3, J869, under which all these rights have been acquired. We see no reason for holding either unconstitutional by reason of the title. It results, therefore, that the portion of Shelby county voting this subscription has the right, through the county judge, etc., to vote the original stock subscription to the extent that it has not been reduced by the payment of a part of the principal by the tax-payer; that it has the right to receive the divi — 78 — dends on this stock and apply it to the reduction of the debt or the interest. The judgment of the court below conforming to the views herein expressed is now affirmed.