J. D. Buie v. Chicago, Rock Island & Pacific Railway Company et al., 95 Tex. 51

BROWN, Associate Justice. The Court of Civil Appeals for the Second Supreme Judicial District has submitted to this court the following statement and questions: “We deem it advisable to present to your honors for adjudication,, as provided in

article 1043 of the Bevised Statutes, the issue of law raised by appellant’s first assignment of error, whether or not, upon the-statement following, the District Court of Montague County had jurisdiction to render a personal judgment against the Chicago, Bock Island & Pacific Bailway Company. “This suit was brought in the District Court of Montague County by appellant, a nonresident, against the Chicago, Bock Island & PacificBailway Company, also a non-resident, being a corporation chartered, under the laws of Iowa and Illinois, and against the Chicago, Bock Island & Texas Bailway Company, a corporation chartered under the laws of' Texas, to recover damages resulting to appellant from personal injuries-received by him in the State of Iowa on the railway and through the-negligence of the Chicago, Bock Island & Pacific Bailway Company, while traveling on a drover’s pass accompanying a shipment of live stock from Byan, Indian Territory, to Chicago, Illinois.

"The Chicago, Bock Island & Pacific Railway Company, hereinafter-styled the Pacific company, made no appearance in the case, and judgment by default was taken against it upon citations served upon S. B. Hovey as vice-president and acting president, general superintendent, and general manager of both of said companies, and upon J. D.

Gilfillin,. as local agent thereof at Bowie, in Montague County, Texas; but affidavits were filed by Hovey and Gilfillin (who were agents and officers-of the Texas company), denying that they were officers or agents of the-Pacific company, who also testified to the same facts, and upon final hearing the court dismissed the suit as to the Pacific company for want of jurisdiction and instructed a verdict in favor of the other company, from which judgment this appeal is prosecuted. “A notice, as provided in the statute for serving notice on a nonresident defendant, was also served on one B. L.

Heck, as local agent at Terral, Indian Territory, who was local agent there of the Pacific company, but who testified that the Texas company had no agent there,, although he transacted some of its business. “The evidence showed that the railway of the Pacific company was. built through Indian Territory to the middle of Bed Biver in the summer or fall of 1892, and that this line of railway was thence extended and completed to Fort Worth in the early part of the succeeding year-by and in the name of the Texas company, which had been chartered for that purpose, and thus became a part of what has since been known as the “Rock Island Route,” the two companies entering into an agreement (in January, 1893) for the operation of said line or lines of railway, which is quoted in full in the printed brief of the Texas company, pages 4 to 14.

The substance of the scope and purpose of this agreement is sufficiently given, we think, for the purposes of this certificate in the printed brief of appellant, from which we quote as follows: “ 'The purpose of said agreement is set out in

section 2,

article 1, thereof as follows: It is declared to be the purpose of the parties hereto, by the execution of these articles and the performance of the several ■covenants, agreements, and premises herein set out to establish and operate through lines of railway to connect, when same can be done with rea■sonable directness, all points on the lines of both of the parties hereto, treating all railroads with which either party may have traffic or running arrangements or of wl}ich it shall have any leasehold interest as a part of the line of the party hereto with which it is so related, and to secure the ■operation of ail said lines as to through traffic as they should be operated if all were owned by one corporation. “ 'By

section 1,

article 2 of said agreement the Pacific company bound itself to purchase at par value the bonds of the Texas company, not exceeding $20,000 per mile; and by

section 2 of said

article it bound itself "to deliver to the Texas company all west-bound through traffic which it -should receive for transportation to any point which could be reached with reasonable directness by through lines composed in whole or in ■part of some portions of the railways of the parties to said agreement; .and it also bound itself to make all reasonable efforts to secure the transportation of all through traffic which might be received by it, over such through lines. By

section 4 of said article, said Pacific company bound itself to receive and transport over its said lines all through traffic delivered to it by the Texas company. '' Tly

section 1,

article 2 of said agreement, the Texas company bound itself, in so far as it lawfully could, to deliver to the Pacific company all ■east-bound through traffic received by it for transportation to any point which could be reached with reasonable directness by a through line composed in whole or in part of the railways of said companies, and that it would make all lawful and reasonable efforts to secure the transportation ■of all such through traffic which might be received by it, over such ■through lines. “ 'By

section 2 of said article, said Texas company bound itself to re■ceive from said Pacific company and transport over' its line all westbound traffic. " 'By

section 6 of

article 4, said agreement provided that the rate on all west-bound through traffic .which should pass over any through line ■established by said agreement should be fixed from time time by the Texas company, and rates on west-bound through traffic should be fixed ¡by the Pacific company. “ 'And by

section 7 of

article 4 of said agreement, it is provided that all such through rates shall be prorated between the companies upon the basis of the mileage over which such traffic shall be transported, counting' every mile of the road of the Texas company as one and one-half miles, and every mile of the road of the Pacific company as one mile. “ 'Section 8 of this

article provides that each company shall keep full and accurate account of all through traffic passing over said line, and a statement of such account shall be delivered monthly earn to the other; and it is further provided in said

section that each company shall have-the right by its attorney or agent to examine, at any time during business hours on business days, each other’s books, accounts, and papers relating to through business, and shall have the right to make transcripts of such books, accounts, and papers. It was also provided in the latter part of this

section that the Texas company should keep a full, true and correct account of its receipts from all sources and its disbursements for all purposes, and exhibit same on demand to the Pacific company or its duly authorized agent. “ 'By

section 9 of said article, said Pacific company bound itself to furnish to the Texas company on request all such equipments as should be-necessary for the operation of the railway of the said Texas company, for the use of which it should receive the same compensation as usually allowed for such equipment. '' 'By

section 12 it is provided that the parties to said agreement shall join in operating through trains for the transportation of through' traffic, and that each of said parties would furnish power to move same-over their respective tracks. '"Section 16 of said

article was as follows, to wit: ''This contract' shall be obligatory on the parties for a term of nine hundred and ninety-nine years from the first day of January, 1893, and the Rock Island company (Pacific company) is expressly authorized to assign and transfer its interest in same by mortgage or other conveyance of its railway and other railway property.” ’ “The further undisputed facts relied upon by appellant, and set out. in his printed brief from pages 12 to 22, to show the relation between those two companies, indicate that they were carying out the agreement thus entered into in the practical operation of the ‘Rock Island Route’ or' system in the through transportation of passengers and freight.

It was further made to appear that the president of the Texas company, M. A. Lowe, who resides at Topeka, Kan., was one of the general attorneys of the Pacific company, and that he owned nearly all the stock of the Texas, company, and dictated its policy, and that no dividends had ever been paid on the Texas company’s stock, and that the Texas company had reported to the Interstate Commerce Commission that it was controlled by the Pacific company, which owned the majority of its capital stock and bonds.

It further reported for the year ending June 30, 1899, that its bonds were owned by the Pacific company, which controlled it by a traffic agreement.

"For a statement more in detail of the undisputed facts bearing upon the matter in question, we respectfully refer, as a sort of exhibit to this statement, to the printed briefs which the rules require to accompany this certificate; and if in any respect we have misconstrued what is thus referred to, we do not want to be understood as intending to change or modify, but only to condense what is there set out in full. “In conclusion, if the question above referred to your honors should seem too general, then, and in that event only, we subdivide it and certify as follows: “1.

As the facts undoubtedly tended to prove that the Texas company was the agent of the Pacific company for all through business between points in Texas and Chicago, 111., whether or not the trial court by virtue of this fact alone, and the service of citation upon the proper officers and agents of the Texas company, or notice on the agent of the Pacific company as above shown, acquired jurisdiction to render a personal judgment against the Pacific company in favor of a nonresident plaintiff upon a cause of action arising in the State of Iowa, independent of and not at all connected with any through business or transportation between the two companies, and due alone to the negligence of the foreign corporation?

"2.

Whether or not from the manner and circumstances under which the Texas corporation was chartered, and from the manner in which the two companies transacted business, it should be held that the Texas company was a mere creature or subporp oration of the Chicago, Rock Island ■& Pacific Railway Company, and that by service on the officers and agents ■of the Texas company as a part of the ‘Rock Island system/ the court .acquired jurisdiction of the Pacific company also?” From the briefs referred to by the court, we state the following material facts not embraced in the statement of the court, as a part of the .statement upon which our opinion is based: The railroad of the Pacific -company was constructed through the Indian territory to a point near to and north oí Red River in the summer and fall of 1892, at which point a short halt was made, when, for the purpose of continuing the road into Texas to Fort Worth, the Texas company was organized and rthe construction was resumed from the point north of the river and -continued without interruption until the road reached the city of Fort Worth.

In organizing the Texas company, its capital stock was divided into 1505 shares, of which 1499 were placed in the name of M. A. Lowe, then and for some time previously one of the general attorneys of the Pacific company, and one share each in the names of C. H. Thompson, of Oklahoma; J. T. Harris, of Ringgold, Texas; Z. T. Lowry and J. H. Matthews, of Bowie, Texas, and F. E. Dietrich and S. B. Hovey, of Fort Worth, Texas, the last two being then and for many years prior -thereto in the employ, of the Pacific Railroad Company. . M. A. Lowe was made president of the company; S. B.

Hovey, vice-president and superintendent ; F. E. Dietrich was made the secretary and treasurer of the 'Texas company, and M. V. Harris, its auditor,—the latter then and for many years an employe of the Pacific company.

In addition to the facts concerning the contract entered into between •the two companies, the undisputed evidence shows that the contract provided that its terms should extend to all railroads which might thereafter .be owned, leased, or otherwise under the control of either one of the contracting companies, and that the Pacific company should have the right “to assign and transfer its interest in the contract by mortgage or -other conveyance of its railway and other railway property.” It is the • declared purpose of the contract to secure the operation of “all said lines • as to through traffic as they should be operated if all were owned by one -corporation.” The Texas company has never owned and does not now own any rolling ;stock of its own, and has not, with perhaps a few exceptions, operated any train over that part of the road lying between Port Worth and Red River which did not pass beyond the river and extend beyond the limits ■of the State.

Through passenger trains have been operated from Fort Worth to Chicago ever since the road was constructed to Fort Worth. 'The freight trains have been operated from Fort Worth to Chickasha in ■the Indian Territory, and at no time has there been any change of crews at the line of the State or any other intermediate point. The freight division which embraces the Texas road extends from Fort Worth to Chickasha in the Indian Territory, and is under the control of a superintend•ent who has his office at Fort Worth and controls the line between the two points..

The first passenger division, including Fort Worth, extends to Caldwell, Kan., and no freight or passenger division has ever existed at -any point between Fort Worth and Chickasha. • All of the rolling stock used upon the Texas road has been furnished ‘by the Pacific company, and all employes engaged in operating the trains have been employed by and working for both companies, but such employes wear the badge of the Pacific company. The expenses of operation have been borne by the respective companies upon a mileage basis and the earnings divided upon the same basis.

The train crews are employed and discharged indiscriminately by the officers of the respective companies; that is, when in Texas they are controlled by the officers known as representing the Texas company, and when out of Texas they are controlled by the same officers for the Pacific company.

The folders which •are circulated advertise the Texas road with the other as the “Great Rock Island Route.” The question submitted involves the determination of the fact, was the Texas corporation organized in good faith by its stockholders as an independent corporate body, or was it organized by the Pacific company to be used as an instrument by which the foreign corporation might carry on its business in this State?

If the trial court had found that the Texas corporation was the creature of the foreign corporation and had sustained the service of citation and entered judgment against the Pacific company, that judgment could not have been set aside by this court for want of evidence to support its jurisdiction of the person of the foreign corporation.

But the trial court having found to the contrary and having-refused to enter judgment against the foreign corporation, this court, can not hold that the District Court had jurisdiction upon the facts-stated unless the conclusion to be drawn from the evidence is so definite- and certain that the trial court should have treated it as conclusively established.

Counsel for the appellee suggest that a transaction by which a. foreign corporation would secure control of a domestic corporation in Texas, as here claimed, would be contrary to the Constitution and laws-of this State, and that this court should presume that the agreement and contract between the parties was not intended to be a violation of the Constitution and laws of Texas.

In answer to a similar proposition, the Court of Appeals of the State of New York said: “We have of late refused to be always and utterly trammeled by the logic derived from corporate existence where it only serves to distort or hide the truth.” This, court has always refused to be controlled by technicalities when interposed to prevent an investigation into the real facts of a ease. Courts, will look beneath the mask of legal forms for the real facts of any transaction presented to them for investigation.

The lawfulness of this transaction is not now before the court, for if the Pacific company was in fact doing business in Texas by its agents, it was amenable to our laws and subject to the jurisdiction of the courts, whether its presence was lawful or not. When the track of the Pacific company was completed to a point near Red River, a necessity arose for the organization of a corporation in Texas by which that track could be extended to Port Worth, and it is said in the statement that the Texas corporation was organized for the-purpose of building that railroad track into Texas.

It is improbable that three citizens of Texas and one of Oklahoma, in whose names one share-each of the stock was placed, originated the scheme of constructing the road and organizing this corporation, for they neither had the interest to be served nor the ability to accomplish the purpose, but the Pacific company had large interests involved and possessed the means.

It would be willful blindness if we failed to see, through the masks of legal forms, that the stock placed in the names of the employes of the Pacific company was really owned by that company and that in fact it was the promoter of the Texas corporation. The organization of the subcorporation supports this view.

The limited number of the stockholders and placing the stock in the names of persons under the control of the Pacific company, followed by the selection of the attorney and employes of the foreign company to the four principal offices of the new corporation, strongly indicate that in controlling the business, the Pacific company provided the mastery for itself. The road could not have been built upon the stock, and the Pacific company took all of the bonds of the new company at the rate of $20,000 per mile, sufficient to pay for the construction of the road in Texas.

Holding the stock and the bonds, the foreign company was in fact possessed of all the power that resided-in the corporation, and exercised it through officers selected from among those known to be in its interest: The so-called agreement between the two' corporations showed the power of the one over the other, for no independent corporation would have bound itself to work for another for so great a period of time,_ giving up all chance of benefits to arise from the construction of new roads affording new connections and increased business.

That provision of the agreement which secures to the Pacific company the power to assign the contract by mortgage or sale of its property is an unmistakable stamp of subjection. The subsequent operation and management of the railroad is consistent only with the idea that the corporations are one and indivisible inf their every interest.

The men who constitute the crews on the freight and passenger trains leaving Port Worth go northward nominally in the employ of the Texas corporation until the imaginary State line has been passed, when, by some kind of mysterious change, they become employes of the foreign company. Returning, they undergo a similar change in reverse order. South of Red River they may be employed or discharged by an officer in the name of the Texas corporation; when north of Red River, the same men are subject to the same officer in the name of the Pacific company.

The intent “to secure the operation of all said lines as to through traffic as they should be operated if all were owned by one corporation” was signally accomplished. If we view these corporations from any standpoint, it will be difficult to distinguish their corporate powers, management or officers so as to ascribe any function of corporate control to the Texas company, and we conclude that the Texas company is but the instrument used by the Rock Island and Pacific company to carry on its business in Texas.

By organizing the Chicago, Rock Island & Texas Railway Company and through it operating the railroad in Texas, the Chicago, Rock Island & Pacific Railway Company was doing its business in Texas by and through those persons who purported to represent the subcorporation, and the principal corporation was legally in Texas through its said agents and was liable to suits in the courts of this State by service of process upon the agents which represented it in that business. St. Claire v. Cox, 106 U. S., 355; Hatcher v. United Leasing Co., 75 Fed. Rep., 368; Lehigh Mining and Mfg. Co. v. Kelly, 160 U.

S., 327; Railway v. Bank, 108 Fed. Rep., 482; Norton v. Railway, 61 Fed. Rep., 618; Interstate Tel. Co. v. Baltimore & Ohio Tel. Co., 51 Fed. Rep., 49; Montgomery v Forbes, 148 Mass., 252; Day v. Postal Telegraph Co., 66 Md., 365. In the case of St. Claire v. Cox, above cited, Mr. Justice Field, of the Supreme Court of the United States, made an elaborate and able review of the liability of corporations to suit and service in other States than those in which they are created.

The gist of the decision is expressed in the following language: “Whilst the theoretical and legal view that the domicile of a corporation is only in the State where it is created was admitted, it was perceived that when a foreign corporation sent its officers and agents into other States and opened offices and carried on its business there, it was, in effect, as much represented by them there as in the State of its creation.

As it was protected by the laws of those States, allowed to carry on its business within their borders and to sue in their courts, it seemed only right that it should be held responsible in those courts for obligations and liabilities there incurred.” This is a clear statement of the principle that by sending its agents into another State, a foreign corporation becomes amenable to its laws and subject to the jurisdiction of its courts. In Hatcher v. The United Leasing Company, the question was as to the liability of one corporation which had leased its property to another.

The attempt had been made, by organizing another corporation, to carry on the business under the form of a lease; but the circumstances showed that the lessor in fact dominated and controlled the property in the hands of the lessee, and Judge Hallett, of the United States Circuit Court, said: “In ought not to be said that by a change of organization and name the people animating both companies can relieve themselves from any just liability to their creditors. The matter of putting off corporate life under the forms of law has grown into grotesque proportions.

A change of name in a natural person is regarded with suspicion, but a corporation _ may do it without reproach.” It was held that notwithstanding the form in which the contract had been drawn up was regular and sufficient upon its face, the substantial truth was that there had been no change in the control of the property and therefore no change in liability. The matter in contest in Montgomery v.

Forbes, before cited, was the liability of one who organized a corporation under the forms of law, taking the stock himself, and conducted business in the name of the corporation, claiming that he was not personally liable; but the court held there was in fact no corporation organized. The court said: “He can not escape responsibility for his purchases by the device of putting such a mere name between himself and the plaintiffs. The purchase was in substance by and for himself alone.” A question quite similar to this was presented in Lehigh Mining and Manufacturing Company v. Kelly, above cited.

A Virginia corporation desired to file a suit in the United States Circuit Court in that State, and the stockholders formed a corporation in Pennsylvania, in the form and manner required by law, for the purpose of prosecuting the suit, but the Supreme Court held that it was'in reality the same corporation and jurisdiction was denied.

The authorities cited fully sustain the proposition that when one corporation makes use of another as its instrument through which to perform its business, the principal corporation is really represented by the agents of the subcorporation, and its liability is just the same as if the principal corporation had done the business in its own name.

Ho one of the facts or circumstances in evidence would, alone, be sufficient to show the Chicago, Rock Island & Pacific Railway Company subject to the jurisdiction of the courts of this State, but the combined force of all of these facts and circumstances compel the mind to the ■conclusion that the chartering of the Chicago, Bock Island & Texas Bail-way Company was a mere mask under which the Pacific company carried on its business in Texas.

We answer that upon the service stated and under the facts related in the statement, the District court of Montague county had jurisdiction to enter a personal judgment in this case against the Chicago, Rock Island & Pacific Railway Company.