Case Name: Commonwealth v. Louisville Property Co., &c.
Court: Kentucky Court of Appeals
Jurisdiction: Kentucky
Decision Date: 1909-06-18
Citations: 139 Ky. 689
Docket Number: 
Parties: Commonwealth v. Louisville Property Co., &c.
Judges: 
Reporter: Kentucky Reports
Volume: 139
Pages: 689–698

Head Matter:
CASE SO. — ACTION BY TIHE COMMONWEALTH AGAINST THE LOUISVILLE PROPERTY COMPANY AND' ANOTHER. FROM A JUDGMENT SUSTAINING A DEMURRER TO THE PETITION, COMPLAINANT APPEALS.
June 18, 1909.
Commonwealth v. Louisville Property Co., &c.
Appeal from Bell Circuit Court.
From a judgment sustaining a demurrer to the petition, complainant appeals.
Affirmed.
1. Escheat — Title to Real Property. — Where a railroad company ■provided the money to .purchase land not necessary for its legitimate 'business, and caused the title to he .conveyed to a dummy corporation created at its instance, whether the stockholders thereof and those of the railroad company were the same or not, if the railroad -company in reality held the title, the land was subject to escheat, under Const, sec. 192, ■and Ky. St. 1909, sec. 507 (Russell’,s St. ;sec. 2153), providing that no corporation shall hold or own real estate not necessary to its legitimate business for more than five years under penalty of escheat.
2. Corporations — Charter—Right to Hold Land. — A corporation authorized t.o “purchase, hold, lease, sell, convey, and otherwise use, manage, and dispose” of real and personal property wherever situated in the United States was empowered to hold real estate for a reasonable time only, and not indefinitely, in violation of Const, sec. 192, .and Ky. et. 1909, .sec. 567.
3. Escheat — 'Corporate Powers — Holding Real Estate — Dummy Corporation. — Where a railroad company organized a dummy corporation to hold lands belonging to 'it, to evade Const, ■sec. 192, and Ky. St. 1909, sec. 567, prohibiting corporations, on penalty of escheat, from holding real property not necessary to their legitimate business for more than five years, the powers of such dummy corporation were immaterial', so far as the State’s right to escheat the property was ■concerned.
4. Escheat — Right of Corporation to Hold Real Estate — 'Statutes. — Ky. St. 1909, sec. 507, providing that no corporation shall hold or own real estate not necessary for its legitimate business for more thau five years under ¡penalty of escheat, deals -with a situation existing five years next preceding the time the statute is invoked, and has no reference to the future.
5. Escheat — Power of Corporations to Hold Real Estate — Petition. — Where the Commonwealth 'Claimed that a railroad company had incorporated a holding company, to which certain real estate had been conveyed which was not necessary for the railroad company’s business, in violation of Ky. St. 1909, sec. 567, prohibiting a corporation from holding such real-estate for more than five'years under penalty of escheat, a petition for escheat, alleging that the property was not necessary at ■ the time the petition was filed, hut failing to allege that it was not necessary at any other time, nor that the railroad company had for five years held the property, either in its ■ow.n name or in the name of the holding company, and that the property was not necessary for its legitimate business for ■that period, was fatally defective.
A. G. PATTERSON, E. B. BEARD, PEARCE & MARSHALL, GEO. L. PICKETT and PICKETT & BARRICKMAN for appellant.
HENRY L. STONE, CHAS. W. METCALF, G. W>. ALCORN, BENJAMIN D. WARFIELD and WILLIAM AYRES for appellees.

Opinion:
Opinion of the Court by
Judge O'Rear
Affirming-
This action was instituted against two corporations to escheat certain unimproved land in Bell county, Ky., because the corporations had owned the lands for more than five years, when during the whole of that time the ownership of that property was neither proper nor necessary for carrying on the legitimate business of the corporations, or of either of them. The corporations sued are the Louisville Property Company and the Louisville & Nashville Railroad Company. The lands were conveyed to the corporation the Louisville Property Company during the year of 1902. The allegations of the petition, to which a general demurrer was sustained, and the petition dismissed in consequence, are as follows, so far as it states the facts relied on against the Louisville Property Company: "The plaintiff, the commonwealth of Kentucky, further says that the said defendant Louisville Property Company has been the owner and in possession of the said land embraced by the said deeds to it since the respective dates of said deeds conveying said property to it, and for a period of more than five years before the. institution of this action and the filing of this petition. Plaintiff further says that none of said lots or tracts of land are used by said corporation in connection with the legitimate business authorized under its charter, nor is any of said lots or parcels of land necessary or proper for the carrying on of the legitimate business of said corporation, and same having been held by said Louisville Property Company for more than five years continuously last past, each and every one of said lots, parcels, or tracts of land has escheated and reverted to the state of Kentucky, and that the said state of Kentucky is now entitled to the possession of same." It was also alleged that the property company was organized and empowered to buy, sell, and lease land. In an amended petition, supplementing the averments of the original petition, is the attempt to state the cause of action against the railroad company. The allegation is that the railroad company furnished the money with which to buy the land, that it really owns the land, that the Louisville Property Company is "a holding corporation" for the railroad company, that "some or a majority of the stock" of the Louisville Property Company is owned by persons who are also stockholders of the Louisville & Nashville Bailroad Company, and that the property is not proper or necessary for the use of the railroad company.
The provisions of law under which the petition was framed are section 192 of the Constitution and section 567, Ky. St. The section of the Constitution is: "No corporation shall engage in business other than that expressly authorized by its charter, or the law under which it may have been or hereafter may be organized nor shall it hold any real estate, except such as may be proper and necessary for carrying on its legitimate business, for a longer period than five years, under penalty of escheat." The section of the statute is as follows: "Sec. 567. No corporation shall engage in business other than that expressly authorized by its articles of incorporation or amendments thereto; nor shall any corporation, directly or indirectly, engage in or carry on in any way the business of banking, or insurance' of any kind, unless it has become organized under the laws relating to banking and insurance; nor shall any corporation hold or own any real estate, except such as may be necessary and proper for carrying on its legitimate business, for a longer period than five years under penalty of escheat." We hold that if the fact is that the Louis ville & Nashville Railroad Company provided the money to hny the land, and caused the title to he taken to a dummy corporation created at the instance of the railroad company, whether its stockholders and those of the railroad company were the same or not, so that the railroad company might in reality hold the title to the land in spite of the Constitution and statute, the land would be subject to escheat. Corporations may endure always. The public policy of this state, declared by the section of the Constitution quoted, is to prevent the title to real estate being taken to corporations in this state, and held interminably, when not necessary and proper for the carrying on of the legitimate business which the corporation was specifically authorized by this state to do. What is prohibited cannot be done by indirection, any more than it could have been by direct violation of the Constitution.
It is argued that, as the Louisville Property Company was authorized by its charter to "purchase, hold, lease, sell, convey, and otherwise use, manage and dispose of all kinds of real or personal or mixed property wherever situated in the United States of America," its holding- the property for longer than five years cannot be held to he either improper or unnecessary to the carrying on of its legitimate business. We construe the charter of that company to mean that it was empowered to deal in real estate. That means to buy and sell real estate, and to hold it for a reasonable time until it can sell it. If it had been the purpose of the corporation only to hny and "hold" lands, and if -that purpose was not an infringement of the Constitution, then it would be possible for a corporation to own all the land in course of time, and to hold it always. That was the very thing the Constitution was aiming to prevent. We will not construe an open expression in a corporate charter so as to make it conflict with the Constitution, when another construction in harmony with the Constitution is susceptible from the language of the charter. If the Louisville & Nashville Railroad Company does actually own the land, as charged, and if it is not necessary and proper for the conduct of its legitimate business, then it is immaterial what the powers expressed in the charter of the property company may be.
Appellee railroad company argues that the expression in section 192 of the Constitution, "as may be proper and necessary," is used in reference to the future; that, if it now appears that it may be necessary in the future for the railroad company to own these coal and timber lands, the Constitution does not forbid it. But the section is dealing with a situation five years next preceding the time it may be invoked. It has no reference to the future.
The petition, however, is fatally defective. It-does not.allege that the Louisville & Nashville Railroad Company has for five years held, in its name or in that of its agent, the "holding" company, the title to -the land, when for that time it was not proper and necessary for the railroad company to carry on its legitimate business. The allegation is that it is not necessary now, not that it was not necessary and proper -two years ago, or other time than at the present. The circuit court properly sustained the demurrer.
Judgment affirmed.