Central Law Journal.

ST. LOUIS, MO., MARCH 15, 1907.

IS A PUBLIC CARRIER, GIVEN POWER BY STATUTE TO LEASE ITS FRANCHISE, EXEMPTED FROM LIABILITY FOR INJURIES RESULTING FROM THE NEGLIGENCE OF THE LESSEE COMPANY?

In the face of considerable public disapproval the court of appeals and Supreme Court of Missouri have just decided in the recent decision of the supreme court in the case of Moorshead v. United Railways Company, decided Feb. 21, 1907, that a street railway company which leases its lines to another company is not liable for injuries resulting from the negligence of the lessee company. This decision has resulted in rendering nugatory judgments for personal injuries to an amount equaling almost a million dollars, which fact is mainly the source of inspiration for whatever of bitter public disapproval has been expressed.

The Missouri Court of Appeals decided this question June 5, 1906, by a divided court, in the case of Moorshead v. United Railways Co., 96 S. W. Rep. 261, in which Judge Goode rendered such an able opinion that we were tempted to publish it in full, although contrary to our usual practice where cases are certified to a higher court, as occurred in this case. The supreme court however in the opinion just handed down adopts without reserve the opinion of Justice Goode and make it the law of that state.

The facts which went to make up this extraordinary case disclosed that on October 1, 1899, the United Railways Company, owning in fee simple practically all of the street car lines of the city of St. Louis, leased with the consent of the city all of its property and franchises to a company incorporated as the St. Louis Transit Company, on an agreement by the latter to pay all the fixed charges and expenses, and a rental equal to $5.00 per share on all the preferred capital stock of the United Railways Company. The lessee company took possession under its lease, but in a few years became so involved financially as to be unable to carry out the terms of the lease which it thereupon voluntarily surrendered to the les

sor, the United Railways Company, defendant in the principal case, leaving hundreds of judgment creditors unsatisfied.

After a most searching analysis of the authorities, and a most masterful classification, Justice Goode was in a position to give expression to what we regard as the most satisfactory statement of a question of law so often confused by counsel, text-writer and judge. Justice Goode says: "All courts agree that in the absence of a statute, a lease of its property and franchises by a railway company, does not relieve it of its public duties and responsibilities, and that the lessor remains liable for the torts of the lessee. In other words, there is no common law authority for such leasing by railroad companies; that at least in so far as the contract impairs the right of the public to hold the lessor answerable for the proper discharge of the duties it assumed in consideration of the powers granted to it by the sovereignty. Railway Co. v. Brown 17 Wall. (U. S.) 445, 21 L. Ed. 675; Thomas v. Railroad, 101 U. S. 71, 25 L. Ed. 950; Chollette v. Same, 26 Neb. 159, 41 N. W. Rep. 1106, 4 L. R. A. 135; Muntz v. Same (La.), 35 So. Rep. 624, 64 L. R. A. 222, 100 Am. St. Rep. 495. Before going into a discussion of the question on principle, it is well to classify the adjudications, so that those directly in point may be studied more readily, and those wherein the proposition affirmed is not identical with the one involved here may have attached to them the value they merit as containing the lucubrations of judges on the general question and not treated as precedents on the exact question before us. When the lease is authorized by statute, the leasing company, of course, remains liable for the acts of the lessee if the statute says it shall. Smith v. Railroad, 61 Mo. 17; Markey v. Railroad, 185 Mo. 348, 84 S. W. Rep. 61; Main v. Same, 18 Mo. App. 388; Brown v. Same, 27 Mo. App. 396; McCoy v. Same, 36 Mo. App. 445; Quested v. Railroad, 127 Mass. 204; Dan. iels v. Hart, Treas., 118 Mass. 543; Bower v. Railroad, 42 Iowa, 546; Whitney v. Railroad, 44 Me. 362, 69 Am. Dec. 103; Stearns v. Railroad, 46 Me. 95. When the statute aut orizes the leasing, but says nothing as to whether the lessor shall remain liable, a few courts hold that nevertheless the lessor is liable as fully as the lessee itself would

be for the latter's tortious acts; and, in pursuance of this extreme view, these courts have held the leasing company liable for negligent injuries inflicted by the lessee on its own servants. Chicago, etc., R. R. v. Hart, 209 Ill. 414, 70 N. E. Rep. 654, 66 L. R. A. 75; Logan v. Railroad Co., 115 N. Car. 940, 21 S. E. Rep. 959; Harden v. Same, 129 N. Car. 354, 40 S. E. Rep. 184, 55 L. R. A. 784, 85 Am. St. Rep. 747; Singleton v. Same, 70 Ga. 464, 48 Am. Rep. 574; Bank v. Same, 25 S. Car. 216; Hart v. Same, 33 S. Car. 427, 12 S. E. Rep. 9, 10 L. R. A. 794. In the case last cited the court went so far as to hold the lessor liable in punitive damages for the wrongful conduct of the lessee. The doctrine of other tribunals is that the leasing company remains liable to third persons for an injury received because of the improper construction or bad repair of the roadbed, station houses, or other real property, on the ground that it was the peremptory duty of the lessor to maintain its properties in good condition for the use of the general public, including as part of the public the servants of the leasing company. Lee v. Railroad, 116 Cal. 97, 47 Pac. Rep. 932, 38 L. R. A. 71, 58 Am. St. Rep. 140. In certain cases which maintained the doctrine that the lessor is not exonerated by a statutory lease from responsibility for the wrong performance by the lessee of any charter power or duty, it is held that the safe operation of cars and trains on which passengers are carried is a charter duty. Railway Co. v. Culberson, 72 Tex. 375, 10 S. W. Rep. 706, 3 L. R. A. 567, 13 Am. St. Rep. 805. There are cases wherein the general principle that the leasing company remains responsible for the proper performance of its charter duties is adhered to, but the operation of trains and cars is declared not to be one of those duties. Mahoney v. Railroad, 63 Me. 68; and note to Ohio, etc., R. R. v. Dunbar (Ill.), 71 Am. Dec. 291, wherein, on page 297, it is said that a case holding the contrary does not accord with sound principle or authority. Other decisions repudiate these various distinctions as of no importance, and ground the nonliability of the lessor on the grant of statutory power to make a lease, holding that this imports a lease with all the usual incidents and consequences of that sort of a contract, one of which is that if the property is in safe and good condition when

turned over to the lessee, the lessor is not responsible for subsequent injuries arising from its bad repair. Fisher v. Railroad, 34 Hun (N. Y.), 433; Miller v. Railroad, 125 N. Y. 118, 26 N. E. Rep. 35."

After animadverting sententiously upon the divergence of opinion existing even among courts holding to the same general rule, Justice Goode points out that the reasons often given by courts holding the lessor liable for the negligence of the lessee, are very remote and altogether beside the mark. Justice Goode says: "Opinions holding the lessor liable for the torts of the lessee, when the leasing is authorized by statute, leave the impression that the courts lay hold of various general rules of corporation law having very remote bearing on the immediate question, in order to enforce what the deciding tribunal happens to think would be a salutary rule. Much stress is laid on the fact that the corporation is an artificial, instead of a natural, person and derives its powers from the state. How this dogma can restrict the right of a railway company to lease its property when the statute gives the right in unqualified terms, is not easy to perceive. The proposition that a railway company is bound to perform all its charter duties, and all its primary duties to the public, whether imposed by the charter or the common law, is sound. the proposition that the legislature may authorize it to transfer to any other company by lease the performance of those duties is equally sound. The mischief which it is supposed would result if leasing railway companies are not held responsible for torts, in that leases to irresponsible companies would be made for the purpose of evading liabilities, is met by the answer, that, if that was the intention, on proof of the fact, the lease would be disregarded like any other fraudulent conveyance, and the lessor held responsible."

But

"Public policy" is often given as a reason by courts opposing the rule announced by the court in the principal case, but Judge Goode is there with an answer to this "final resort" of an enemy crowded to the wall by the sheer force of his powerful argument. Judge Goode says: Goode says: "But it is said that the true public purpose is to permit the lease but hold the leasing company answerable for the torts of the lessee. Inasmuch as there is legislation on the subject, the policy of the state

must, as said, be derived from the enacted laws. If it appears on a fair interpretation of the statutes authorizing the leasing that the legislature contemplated a continuance of the liability of the lessor, the law should be so declared; but if it appears that the legislature did not construe this liability against the leasing company, but authorizes leases of street railway properties with all the legal effects pertaining to lease contracts at common law, then the courts have no right to partially annul the legislative intention, or engraft on the law an exception in the interest of what they believe would be good policy. This whole question is not one of public policy at all but of legislative intention-of statutory construction. The public policy notion misconceives and misses the essential inquiry.”

Finally, after clearing away the rubbish of confused case-law and its more confusing theories advanced to maintain an untenable position, Judge Goode shows clearly that the whole question is purely one of legislative construction, divorced from any question of public policy or peculiar corporate responsibility, closing his very erudite and valuable opinion with the following observations on the facts in the principal case: "We have a statute broadly authorizing contracts like the one before us and the primary inquiry is whether or not the statute discloses an intention on the part of the legislature to hold the leasing company responsible for torts after the lease is executed and the property transferred. The first rule for the interpretation of statutes is that their meaning must be collected if possible from the language used. Of course, if a certain interpretation would lead to absurd or iniquitous results, it will not be adopted unless compelled by the language. We may allow, therefore, that the court may take into consideration what it believes would be for the common weal to this extent, namely, that if one construction would be mischievous and another beneficial, and the language of the enactment permits either to be adopted, the salutary one will be preserved. The statute with which we are dealing authorizes any railway company to purchase, lease, or acquire by other lawful contract, all the franchises and property of every description belonging to any other street railway corporation, including the stock and bonds of the latter, and further authorizes the

We

purchasing or leasing company to hold, use, and operate the railway leased. The statute further authorizes any street railway company to sell, lease or dispose of by any other lawful contract, to another company, its railroad rights and franchises, including the right to be a corporation, and all and singular its other properties of every description. remark emphatically that as the legislature granted street railway companies the power to dispose of their franchise to be a corporation, it could never have been the intention to hold such companies responsible for the acts of a company acquiring the franchises. When a company disposes of its right to be a corporation, it practically passes out of existence, and cannot be held responsible in any legal method which occurs to us. Moreover a company is authorized by said lease or other lawful contract, to dispose of all its property, which shows that the law-making body did not expect it to still stand responsible for the acts of the vendee, for how could it be held responsible after all its property was gone? But it is argued that those provisions take effect only in the case of sales. The words of the statute are to sell, lease or dispose of by any other lawful contract.' Take the instance of a lease for a long term of years, covering all the leasing company's property of every kind and character; in what way would it be practicable to collect judgments from such a company? It is true the reversion of the property might be sold under execution, but that would be of very little value to the purchaser if it was under an unexpired term longer than an ordinary lifetime. To our minds, it is palpable from the statute itself, that the legislature never thought of holding the leasing company answerable for the torts of the lessee. It fully intended to make the latter responsible; at least for all torts occurring in the operation of the road. Moreover, it is repugnant to every principle of law or justice to hold one person or company responsible for the negligence of another which it had no power to prevent. The statute empowers the lessee company to operate the road, and unless the power of control is reserved by the lessor in the lease, the operation will be without any interference by the lessor. Could the legislature expect that, in that contingency, the lessor should stand answerable for negligent torts? To so hold would largely annihilate the privileges granted by the statute-would frustrate the purpose of the lawmaking body."

NOTES OF IMPORTANT DECISIONS.

FOREIGN CORPORATIONS - THOUGH CONTRACTS MADE WITH FOREIGN CORPORATIONS ARE HELD TO BE VOID, WHERE THEY HAVE NOT COMPLIED WITH STATUTORY REQUIREMENTS YET THEY MAY RECOVER PROPERTY PARTED WITH. In a recent editorial entitled, "Something of Interest Regarding Statutes Requiring Foreign Corporations to Comply Therewith," we pointed out what seemed to us a very bad decision by the Supreme Court of Missouri. It is found in Tri-State, etc. v. Forest Park Highlands, etc., Co., 192 Mo. 404. In a decision of very recent date the supreme court makes a laudable effort to overturn much of the evil growing out of the Tri-State case, and practically accomplishes its purpose. While we think the wise thing would have been to have absolutely overturned the Tri-State case and gotten back to the basis of Carson, Rand Co. v. Stern, yet this opinion relieves the situation and is a widespread and very important opinion. The opinion is by Judge Woodson and was submitted on an agreed state of facts. The title is Roeder v. Robertson, not yet reported. As this case came to us after this number of the Journal was made up, we could not find room for but a part of the case which we have been compelled to hurriedly pick from the opinion, but at some future date will more fully present. The agreed statement of facts is as follows:

"It is admitted for the purposes of the trial of this cause that the defendants purchased, in or about the month of August, 1896, a threshing outfit, consisting of one sixteen horse-power Stevens & Son traction engine, number 2157; one new Stevens thresher, number 9087; one Uncle Tom's wind stacker, number 208; one self-feeder, number 273, and one Washington weigher, for which defendants promised and agreed to pay said A. W. Stevens & Son twenty-five hundred and eighty dollars ($2,580); that said property was shipped by said A. W. Stevens & Son and delivered, through plaintiff, to defendants; that defendants took said property into their possession and to their farm; that the purchase price thereof was settled as follows:

* * *

It is further admitted that at the time of the 'sale of said machinery by said A. W. Stevens & Son to the defendants, said A. W. Stevens & Son was a corporation for pecuniary profit formed in the State of New York, and was doing business in the State of Missouri, and it had not at that time, and never has since, complied with the terms of the Act of the General Assembly of the State of Missouri, entitled, 'An act to require foreign corporations doing business in this state to have a public office or place of business in this state at which to transact its business, and subjecting it to certain conditions and requiring it to file its articles of incorporation with the secretary of state and to pay certain taxes and fees thereon; approved April 21, 1891;'

that the said A. W. Stevens & Son, at the time of making said contract with the defendants, had wholly failed to, and has ever since wholly failed to, maintain a public office, or place of business, in this state, for the transaction of business where legal service may be obtained upon it, and where proper books are kept, to enable such corporation to comply with the constitutional and statutory provisions governing foreign corporations.

That while said machinery sold by said A. W. Stevens & Son was on the farm of defendants in Cooper county, Missouri, a bill of sale transferring the same to the plaintiff was executed, on or about July 20, 1899, in the State of New York, by said A. W. Stevens & Son, and the same was forwarded by mail to the plaintiff at Boonville, Missouri; that the old threshing machine was never delivered to A. W. Stevens & Son, but was resold by said A. W. Stevens & Son to the defendants, and the other machinery has also remained upon the place of the defendants, and part of it, the engine, has been used by them."

* * *

Appellant asks for a reversal of the judgment because the act which prohibits foreign corporations from doing business in this state, until they comply with the provisions thereof, is in so far as it seeks to make contracts so made with corporations of other states void, before they have complied with the requirements of said act, unconstitutional, because such act seeks to take from such foreign corporations, or non-resident citizens, its, or his property without due process of law, and denies to such foreign citizen the same rights, immunities and privileges that are accorded to the citizens of this state, and because it denies to such foreign corporation or citizen the equal protection of the law.'

It will be seen that counsel for appellant assails the validity of the act upon three separate and distinct grounds: first, because it seeks to deprive the foreign corporation of its property without due process of law; second, that it denies such corporations the same rights, immunities and privileges that are accorded to the citizens of this state; and, third, it denies to such corporation equal protection of the law.

The learned counsel, it seems to us, wholly misapprehends the meaning and scope of the act. The act is prohibitive in its operation. It seeks to prevent foreign corporations from doing business in this state until they have complied with the provisions of the act by filing a copy of their charter or articles of incorporation with the secretary of state and by appointing an agent in this state to represent them. If such corporation, in violation of the act, does business in this state, all such transactions are, by the courts, declared null and void, and all contractsmade by them with citizens of this state for the sale of goods, wares and merchandise are nullities, and the title to the property sought to be transferred thereby does not pass to and vest in the vendee, but remains in the vendor, the same as if the pretended contract had not been executed. It is, therefore, clearly

seen that the act does not violate the constitutional provision which prevents the taking of property without due process of law, because the act does not take the property of a foreign corporation from it, nor does it give to another, but lets the title thereof remain in and bide with the corporution; and if the corporation had parted with the possession of its property, under the void contract, and is unable to recover the possession without litigation, then the doors of the courts of this state are open to it, and it stands before the law upon precisely the same footing that residents of this state do-no better, nor no worse. We are unable to see in what way the act in question denies to such corporations the same rights, immunities and privileges that are accorded by law to the citizens of this state, or how it deprives them of the equal protection of the law. For under the facts of this case a citizen of this state would not be permitted to recover the possession of the property sold to the respondents, nor its value, in case of its conversion, without first refunding or paying back to the respondents the consideration paid by them under the void contract, and received by Stevens & Son. He would be estopped from claiming the property until the purchase price had been returned, and for the same reason A. W. Stevens & Son, and its assignee, the appellant, is estopped in this case. See cases before cited. What has been stated in paragraph two of this opinion also answers, in the negative, the contention of appellant, that the judgment in this case 'takes private property for private use.' Neither the act in question nor the judgment of the court takes or disturbs the title of the property. The title remains just where A. W. Stevens & Son placed it, subject to the equities created against it by the conduct and action of the parties at the time of the pretended sale of the property to respondents.

Respondents contend that where a contract is illegal and void because contrary to the policy and laws of the state, the courts will not only refuse to aid those seeking to enforce such an illegal contract, but will not lend their assistance to those attempting to escape from it, and cites in support of that contention the cases of Downing v. Ringer, 7 Mo. 585, and Mason v. Pitt, 21 Mo. 392. The first case mentioned was a suit on a promissory note, given as part payment of the purchase price of a lot of ground in the town of Philadelphia, Marion county, Missouri. The defense interposed was a statute of 1835, which imposed a penalty upon the propriety of a town, village, or of an addition thereto, for selling a lot therein before recording the plat or map thereof. The court held that the sale was in violation of the statute, and that the vendor could not recover the purchase money because the court would not aid him in doing that which was prohibited by law."

In disposing of this question the court said in part: "This court in the case of Kelerher v. Hen

derson, not yet reported, in discussing this same question, used the following language: 'The law does not impress upon the subject matter of the contract its stamp of condemnation, but upon the contract itself. Unless the plaintiffs' contract, by which they seek to enforce their rights, is infected with champerty, we see no reason why this suit may not be maintained, though such a contract exists between the defendant and the bondholders. It is time enough to turn a party out of court when he asks the aid of a court to enforce such a contract.' And the court further said in that case: "The fact that certain collateral portions of the contract or transaction which is before the court are tainted with illegality, that fact will not defeat a recovery upon the other provisions of the contract, which in themselves give a complete cause of action without the assistance of the infected portions. Vette v. Geist, 155 Mo. 27.'"

6. Liberty of Employment.

1. The Controlling Principle - Limitations.-Salus populi est suprema lex. Therefore, to promote the public welfare the state may restrain and regulate the use of liberty and property. This has been attempted in various ways by state and municipal regulations. Just how far the law may go can be ascertained only by a careful and detailed examination of the several legislative acts and judicial decisions relating to the subject. Such examination will show what has been accomplished and approved by experience, what attempted and what failed. The expression of social, economic and political conditions, as exhibited by the law, like other departments of human activity, is not always. the same. Men, as legislators and judges, differ, and this contrariety of opinion dis