HILL v. RAILROAD.

assigns, that the said lessor and its stockholders and directors will not do anything or take any action as such stockholders and directors that may or can interfere, in any way whatsoever, with the free use and operation and convenience of said railroad and other property so hired, let, farmed out and delivered to the said lessee according to the terms and intent of these presents."

Second. The lessee has not made the deposit of bonds required to be made before the lease should become effective, and, therefore, nothing has passed to the lessee. The resolution adopted at the meeting of 1 September, 1904, empowered the officers and directors to cause the lease to be executed and to look after the details of the transaction. The directors afterwards formally ratified and approved the lease as submitted at the said meeting of the stockholders and by resolution directed the property, rights and franchises of the lessor company to be turned over to the Howland Improvement Coinpany upon the latter making the deposit required by the lease and complying with the conditions precedent mentioned in the lease. The provision of the lease in regard to the deposit is as follows: "To secure the prompt and faithful payment. of said rents and sums as above stipulated to be paid, and of all taxes payable on the demised railroad and property as herein provided, and the faithful performance of the covenants entered into herein by the lessee as herein set forth, the lessee does covenant to and with the lessor, its successors and assigns, that it will deposit and keep on deposit with the Treasurer of the State of North Carolina, or any such bank or banks or other depository as may be approved by the directors of the lessor from year to year, and all the time during the continuance of said lease, the sum of one hundred thousand dollars in United States bonds, or bonds of the State of North Carolina, or other marketable securities acceptable to the directors of the lessor, and having a market value of not

HILL T. RAILROAD.

less than said sum." At the meeting of 1 September, 1904, "the matter of permitting the Governor of the State to look after the making of the deposit required of the lessee was informally discussed" and on 3 September, 1904, the Governor deposited a certified check for $100,000 (which was furnished by R. S. Howland for the lessee) in the Bank of Wayne, and received a certificate of deposit therefor from said bank in his own name as Governor of the State. On 6 September, 1904, the president of the Atlantic and North Carolina Railroad Company and the presidents respectively of the Howland Improvement Company and the Wachovia Loan and Trust Company agreed that eighty of the North Carolina construction 6 per cent. coupon bonds, each of the denomination of $1,000, be deposited with the said Loan and Trust Company for the purposes set forth in the lease. The eighty bonds were purchased with money furnished by R. S. Howland, a part of which was the deposit in the Bank of Wayne, the certificate of deposit which was transferred to the seller being considered as so much cash paid on the purchase-money. The bonds were deposited with the Loan and Trust Company on 13 September, 1904, and were accepted by the latter upon the trust just stated, and are still held by said company. At the time of the deposit and at the time of the trial of this case the said bonds were worth $105,600. At a meeting of the directors of the lessor company held 11 July, 1905, an inquiry was directed to be made by the president, under the advice of the general counsel, into the matter of the deposit required by the lease, it being $100,000. At a meeting of the stockholders of the lessor company held 28 September, 1905, the president, J. W. Grainger, read his report, which was adopted. In it the following statement was made in regard to the deposit: "For the faithful payment of all rents, taxes and other obligations assumed by the Howland Improvement Company, lessees of your road,

HILL v. RAILROAD.

they are under contract in the lease to deposit a sum amounting to one hundred thousand dollars in United States bonds, or bonds of the State of North Carolina, or other securities acceptable to the directors of your company. This deposit has been made by the lessee in 6 per cent. coupon bonds of the State of North Carolina, maturing 1 April, 1919, placed in the Wachovia Loan and Trust Company of Winston-Salem, N. C."

Third. That the lessee has violated the contract on its part by increasing freight charges beyond what they were when the lease was executed. The lease contains the following clause: "The lessee doth covenant to and with the lessor, its successors and assigns, that it will not at any time during the continuance of said term fix or establish rates on freight, called local freight, at a higher average price or rate from station to station than the average rate for local freight tariff as lawfully fixed and established by the lessor at the time of the execution of this lease." The lessee did increase the local tariff rates over what they were at the time the lease was made on divers articles mentioned in the case, such as green lumber, cotton, flour and coal, but on dried lumber and certain other articles named they have been decreased.

Fourth. That the lessor company has no power to make the lease, and it is therefore void as being ultra vires. The facts which relate to this contention, and which appear in the case, may be thus stated: It is provided by the lessor's charter, sec. 17: "That the said company shall have the exclusive right of conveying or transporting persons, goods, merchandise and produce over the said railroad to be by them constructed, at such charges as may be fixed by a majority of the directors." Sec. 18: "Be it further enacted, that the said company may, when they see proper, farm out the right of transportation over said railroad, subject to the rules above mentioned, and the said company and every person who may

HILL v. RAILROAD.

have received from them the right of transportation of goods, wares and produce on said railroad, shall be deemed a common carrier as respects all goods, wares and merchandise entrusted to them for transportation." The company was incorporated on 27 December, 1852, for the term of ninetynine years. The contract of lease is dated 1 September, 1904, and it is provided therein that the lease shall commence on that day and continue thereafter for the full term of ninetyone years and four months. It demises the franchise and all the rights, privileges and property of the lessor, and the formal transfer of the same took place on 3 September, 1904. The capital stock of the lessee company is limited to one million dollars, to be divided into ten thousand shares of the par value of $100 each, and 1,765 shares of the par value of $176,500 had been issued when the lease was made. Since the execution of the lease, and prior to the commencement of this action, 1,323 shares of the capital stock of the lessor company have been transferred on its stock book to new parties, and said transfers were based upon sales for value. Mr. Roberts, Mr. Joseph G. Brown, and Mr. Duncan testified that the stock of the lessor company had sold before the lease was made at from 20 to 30 cents on the dollar, while since, it had sold as high as from 60 to 70; while Mr. C. E. Foy testified that before the date of the lease the stock had sold at 47 to 50 and after that date it had sold as low as 50; that he bought some in May, 1904, at 50, and that after that date it had sold as low as 50, and he had bought some at that price. Dr. Hughes testified that he had owned some of the stock for two years before the date of the lease, and had offered to sell it at from 25 to 30, but had not sold it until two or three months before said date, when it brought 47. Mr. C. E. Foy stated that some of the stock sold just before or just after the McBee receivership at prices ranging from 47 to 5312 cents on the dollar. The statements of all these

HILL v. RAILROAD.

witnesses were found to be correct, and are to be taken and considered as facts in the case. It also appears that dividends have been declared by the lessor company and paid out of funds received from the lessee under the lease, the payment in 1906 having been made directly by the lessee company, and that all the plaintiffs and the other stockholders, except the plaintiff W. F. Hill, received the dividends for the years 1905 and 1906 paid to them respectively without any objection on account of the fact that they had been paid out of the rent or other funds received under the lease. The plaintiff Hill kept his dividend-check for six weeks without objection. The lessee from 1 September, 1904, to the date of bringing this suit, has expended for betterments on the road and equipment between $100,000 and $200,000.

The plaintiff C. E. Foy testified that he suggested the bringing of this suit to the plaintiff Hill, and agreed to save him harmless.

We have not set forth in detail the terms of the lease, as we do not consider it necessary to do so. It may properly be stated, though, that among other things not deemed material, it provides for the expenditure of $250,000 by the lessee within three years from the date of the lease for the permanent betterment of the road-bed, the equipment of the road and the improvement of terminal facilities; for the insurance of the property and its preservation in good condition; for the indemnification of the lessor against any loss or damage by reason of a violation by the lessee of any of its duties or obligations or by reason of any tort committed by it for which the lessor in law could be held liable to the injured party; for the continued corporate existence of the lessor company; the expenses of maintaining it and of providing a proper inspection of the company's property from time to time to be paid by the lessee, the amount, though, not to exceed the sum of $1,200. It is further provided that if the corporate