New Orleans Company v. Delamore/Opinion of the Court

The defendant denies the jurisdiction of the court upon this appeal. We think the jurisdiction is clear. It is based on section 709 of the Revised Statutes, which provides that 'a final judgment or decree in any suit in the highest court of a state in which a decision in the suit could be had * *  * where any title, right, privilege or immunity is claimed under the constituti n or any *  *  * statute of *  *  * the United States, and the decision is against the title, right, privilege, or immunity specially set up or claimed under such constitution *  *  * or statute, *  *  * may be re-examined and reversed or affirmed in the supreme court of the United States upon a writ of error.' The plaintiff, by its petition in this case, filed in the Fifth district court of the parish of Orleans, based its demand to the relief prayed for, upon its title to the right of way, privileges, and franchises derived under the provisions of the bankrupt law of the United States, by which such right of way, privileges, and franchises were surrendered in bankruptcy, and sold and purchased under the orders and decrees of the bankrupt court. The decision of the supreme court of Louisiana was against the title thus specially claimed. The case, therefore, falls precisely into the class of suits described by the statute in which a writ of error lies to the highest court of a state.

The very question here presented was decided by this court in the recent case of ''Factors' Ins. Co. v. Murphy'', in 111 U.S. 738, S.C.. 4 SUP. CT. REP. 679, where it was held that this court had jurisdiction in error over the judgment of the supreme court of Louisiana in a suit between citizens of that state for the foreclosure of a mortgage, in which the only controversy related to the effect to be given a sale of property under an order of the bankruptcy court directing the mortgaged property of the bankrupt to be sold free of incumbrances. The case is in point and decisive of the jurisdiction of this court on the present appeal. We therefore proceed to consider the merits of the case. They are involved in the one question, whether the right of way and franchises granted by the city of New Orleans to the first Canal Street, City Park & Lake Railroad Company passed by the sale thereof made in pursuance of the decree of the bankruptcy court? The jurisdiction of the bankruptcy court to adjudicate a railroad company bankrupt and to administer its property, under the bankrupt act, has been sustained by several circuit courts of the United States. Adams v. Boston, H. & E. R. Co. 1 Holmes, 30; Sweatt v. Boston, H. & E. R. Co. 5 N. B. R. 234; Alabama & C. R. Co. v. Jones, 5 N. B. R. 97; Winter v. ''Iowa, etc., Ry. Co.'' 2 Dill. 487. No circuit court before which the question has been brought has denied the jurisdiction. As they were the courts of last resort upon this question, and valuable rights may depend upon their judgments upon this point, we think the question should be considered as settled by the authorities cited, and are unwilling at this late day to re-examine it, especially as we have no jurisdiction to do so, except in a collateral proceeding like the present.

The plaintiff contends that the right of way, with the franchise to build and use a railroad thereon for profit, was surrendered by the bankrupt corporation as a part of its property, and was sold to Handy at the bankruptcy sale, and was subsequently acquired by it by means of the claim of title above set forth. It is not contended in this case that Handy acquired the franchise to be a corporation or any other franchise except those just mentioned by virtue of his purchase at the bankruptcy sale. On the other hand, it is contended by the defendant that the right of way and the franchise to build and use a railroad thereon reverted to the city of New Orleans when the railroad company was adjudicated bankrupt, and that all that was surrendered in bankruptcy by the railroad company, and sold at the bankruptcy sale or the mortgage sale, was the railroad without right of way or other franchise.

The contention of the defendant, if sustained, would entirely destroy the value of the property as a railroad; for it is plain that a large part, if not all the line, of the railroad is laid upon the streets and public grounds of the city. If, therefore, the franchise of the right to occu y the streets and public grounds with the railroad track did not pass to the purchaser at the bankruptcy sale, then all that he took by his purchase was a lot of ties and iron rails, which he could be compelled at any time, by the order of the city authorities, to remove. If the law be as contended by the defendant in error, a judicial sale of the railroad and its franchises would be the destruction of both.

The ground upon which this view of the defendant is based is that the franchises of a railroad corporation are inalienable in Louisiana. In passing upon this question it is necessary to bear in mind the distinction between the different classes of railroad franchises. This was stated by Mr. Justice CURTIS in the case of Hall v. Sullivan R. Co. 21 Law Rep. 138, where he said: 'The franchise to be a corporation is therefore not a subject of sale and transfer unless the law by some positive provision made it so and pointed out the modes in which such sale and transfer may be effected. But the franchise to build, own, and manage a railroad and to take tolls thereon are not necessarily corporate rights. They are capable of existing in and being enjoyed by natural persons, and there is nothing in their nature inconsistent with their being assignable.' The same subject was considered by this court in the case of Morgan v. Louisiana, 93 U.S. 217, where it was held that exemption from taxation was a right personal to the railroad corporation to which it was granted, and did not pass upon a sale of its property and franchises. Mr. Justice FIELD, who delivered the opinion of the court, distinguished such an immunity from taxation from those rights, privileges, and immunities which, accurately speaking, are the franchises of a railroad company. He said: 'The franchises of a railroad corporation are rights or privileges which are essential to the operations of the corporation, and without which its works and road would be of little value. * *  * They are positive rights and privileges, without the possession of which the road of the company could not be successfully worked. Immunity from taxation is not one of these. The former may be conveyed to the purchaser of the road as part of the property of the company; the latter is personal and incapable of transfer without express statutory direction.

We are of opinion that those franchises which in the case just cited are described as necessary to the use and enjoyment of the property of a railroad company are assignable in Louisiana, and that there is no warrant in the jurisprudence of that state for holding the contrary. That the quality of being transferable attaches to such franchises of a railroad as are essential to its use and enjoyment by the company is conclusively shown by section 2396 of the Revised Statutes of Louisiana, (act 1856, p. 205,) which was in force when the first Canal Street, City Park & Lake Railroad Company was organized, and has been in force ever since. That section provides as follows: 'In addition to the powers conferred by law upon railroad companies, any railroad company established under the laws of this state may borrow, from time to time, such sum of money as may be required for the construction or repairs of any railroad, and for this purpose may issue bonds, or their obligations secured by mortgage, upon the franchises and all the property of said companies.' The authority to mortgage the franchises of a railroad company necessarily implies the power to bring the franchises so mortgaged to sale, and to transfer them with the corporeal property of the company to the purchaser. It could not be held that when a mortgage on a railroad and its franchises was authorized by law, that the attempt of the mortgagor to enforce the mortgage would destroy the main value of the property by the destruction of its franchises. Since the passage of the act of 1856, the supreme court of Louisiana has recognized the validity of the transfer to individuals of those rights and f anchises of a railroad company without which the road could not be successfully used.

In the case of Chaffee v. Ludeling, 27 La. Ann. 607, it was declared that the defendants, by their purchase at sheriff's sale of the property of the Vicksburg, Shreveport & Texas Railroad Company, a Louisiana corporation, acquired 'the privileges and franchise of the corporation and its powers to operate the railroad. The sheriff's sale made them the owners of the road, its right of way, its property, its franchise, but did not and could not make them a corporation. * *  * This sale conveyed to them the rights and property of that company; it made them joint owners thereof.' There is, therefore, nothing in the nature of a corporate franchise under the law of Louisiana which forbids its transfer with the other property of the corporation. And such must be the conclusion whenever a railroad company is authorized by law to mortgage its tangible property and franchises. When there has been a judicial sale of railroad property under a mortgage authorized by law, covering its franchises, it is now well settled that the franchises necessary to the use and enjoyment of the railroad passed to the purchasers. This was assumed to be the law by the opinion of this court pronounced by Mr. Justice MATTHEWS in the case of Memphis R. Co. v. Commissioners, 112 U.S. 609, S.C.. ante, 299, when it was said: 'The franchise of being a corporation need not be implied as necessary to secure to the mortgage bondholders or the purchasers at a foreclosure sale the substantial rights intended to be secured. They acquire the ownership of the railroad and the property incident to it and the franchise of maintaining and operating it as such.' See, also, Hall v. Sullivan R. Co. 21 Law Rep. 138; Galveston R. R. v. Cowdrey, 11 Wall. 459. It follows that if the franchises of a railroad corporation essential to the use of its road, and other tangible property, can by law be mortgaged to secure its debts, the surrender of its property, upon the bankruptcy of the company, carries the franchises, and they may be sold and passed to the purchaser at the bankruptcy sale.

The plaintiff, therefore, by virtue of the bankruptcy sale, and the subsequent mortgage sale and the several mesne conveyances mentioned, acquired with the tangible property of the original Canal Street, City Park & Lake Railroad Company the franchise granted by the city of New Orleans to lay its track over the streets and public grounds designated in the ordinance of August 6, 1873, and the amendatory ordinance of March 24, 1874. This right of way so vested could not be affected by the ordinance of the city of New Orleans to grant a similar right of way over the same streets and route to the second Canal Street, City Park & Lake Railroad Company, and the acceptance of the grant by the latter railroad company; for, as it was not in the power of the city to repeal the grant to the first company by an ordinance passed expressly for that purpose, it could not do so by any indirect or roundabout method.

The defendants are seeking to sell, upon execution, the right of way which the city of New Orleans, by its ordinance No. 4,523, dated May 21, 1878, attempted to grant to the second Canal Street, City Park & Lake Railroad Company, and which had already been granted to the first company of that name. In substance and in effect the right of way seized by the sheriff at the instance of Delamore is the right of way owned by and in possession of the plaintiff, and forms a part of its property, giving value, and necessary, to the use and enjoyment of the residue. The property thus seized in execution is claimed by the plaintiff, who is a third person, not a party to the judgment on which the execution is issued. This is the case provided for by articles 395, 396, 397, and 399 of the Code of Practice, and it is under these articles that the present suit is brought and justified. We think the injunction gra ted by the Fifth district court restraining the sale of the right of way and franchises of the plaintiff should not have been dissolved.

So much of the decree of the supreme court of Louisiana as was appealed from in this case is therefore reversed, and the cause is remanded to that court, with instructions to render a decree enjoining and restraining the defendants from advertising or selling or offering for sale, upon the execution described in the bill, the right of way and franchises granted by the city of New Orleans to the Canal Street, City Park & Lake Railroad Company by ordinance No. 4,523, administration series, dated May 21, 1878.