Morrison v. St. Paul & Northern Pacific Railway Co. ( 1895 )

START, C. J.

The plaintiffs on October 6,1884, were the owners of certain lots described in the complaint, fronting on a street in Minneapolis, and on that day they executed and delivered to the defendant two deeds, and thereby conveyed to it, its successors and assigns, the right to construct and perpetually maintain and operate its line of railway in the street in front of the lots. Each of the deeds contained the following agreement: “It is mutually understood by the above parties that, in case the second party shall sell the above-mentioned right of way to any other company, the party of the first part shall be entitled to receive one-half of the purchase money.” The defendant leased its entire line and system of railway, including the right of way along the street in front of plaintiffs’ lots, to the Northern Pacific Railroad Company for the term of 999 years.

The plaintiffs, claiming that the lease was a sale of the right of way in front of their lots, within the meaning of the agreement in their deeds to the defendant, brought this action for an accounting, -and to recover from the defendant one-half of the amount received by it from the lessee on account of the lease to the latter of the right of way in front of the lots.

The defendant' answered, admitting the execution to it of the two-deeds, and the making of the lease by it, and alleged that the deeds were executed to the defendant by the plaintiffs as an inducement to secure the construction and maintenance of its line of railway to points north and in the vicinity of the plaintiffs’ lots, whereby a benefit and advantage would accrue to them in the enhanced value of their lots by the location of industries in their vicinity, as a result of the construction of a line of railway along the street, and its operation in connection with the defendant’s system of railroads, and that such was a part of the consideration for the execution of the deeds. The answer also alleges that the line of railway was constructed and has ever since been operated as intended by the parties, and that the lease was entered into for the purpose of securing to the defendant, for its system of railway, including the line along the street in front of the plaintiffs’ lots, transcontinental connections east and west, and thereby secure the safe, economical, and profitable operation of its lines of railroad.

The answer also alleged the terms and conditions of the lease. It is unnecessary to here set them forth in detail, for they are the usual ones found in leases of railroads, and they negative any suggestion that the lease was made, instead of an absolute sale, for the purpose of defeating the agreement in plaintiffs’ deeds. The lease, as set out in the answer, does.not include the defendant’s right to be a corpora-' tion, and by its terms was terminable at any time after the expiration of 90 days, upon default in the payment of rent, or in any of the covenants and conditions contained in the lease; and upon its termination for any cause the defendant is given the right of entry, possession, and the continuous use and enjoyment of the property, including all improvements, the same as if the lease had never been made. The plaintiffs demurred to the answer, and from an order overruling it they appealed.

The record presents only one question for our decision: Was this lease a sale of the right of way, within the meaning of the agreement in the deeds?

The term “sale,” as ordinarily used, does not mean a lease, but an entire and absolute transfer of the thing sold, without reservation. The term, however, is not always used in this sense, and, in determining whether this lease was in fact a sale, the name which the parties have given to the instrument, or its form, or any particular provision it contains, disconnected from all others, is not controlling; but the intention of the parties and the legal effect of the instrument are to determine its classification. The lease in question, unless terminated by the default of the lessee in the performance of its conditions and covenants, is in legal effect a perpetual one; and if it can be collected from the instrument as a whole that the real intention of the parties was a sale of the railway property, and the form and name of the instrument were adopted for the purpose of defeating the plaintiffs’ rights under the agreement in the deeds, it would be the duty of the court to construe the transfer by virtue of the lease as a sale. National Car & L. Builder v. Cyclone S. S. Plow Co., 49 Minn. 125, 51 N. W. 657.

In the case cited the defendant had agreed to pay for certain advertising when it sold its first machine, and in form and name it made a lease of the machine for 99 years, but in fact it was a sale, and so intended, and the name and form were but a device to enable the defendant to postpone the payment of its debt. The court gave effect to the transaction according to the intention of the parties, and held it to be a sale. So in the case of St. Paul & C. R. Co. v. McDonald, 34 Minn. 195, 25 N. W. 453, a transaction in name and form a mortgage was held to be a sale for the reason that the real character of the transaction was a sale of the lands described in the instrument, which the parties called a mortgage for the purpose of keeping the lands exempt from taxation.

But these cases have no analogy to the one at bar, for the allegations of the answer as to the consideration for the deeds, the intention of the parties, and the terms and conditions of the lease, are all admitted by the demurrers; and there is no ground for claiming, and it is not claimed, that the transaction between the defendant and its lessee was or was intended to be anything except an actual and bona fide lease of its railroad property, or that the transaction was given the form of a lease, instead of an absolute sale, to defraud the plaintiffs. The plaintiffs are by the terms of their agreement entitled to one-half of the purchase price when the defendant sells the right of way, not one-half of the amount the defendant may receive for the use of the right of way, whether operated by itself or its lessee. To so construe the contract as to give the plaintiffs one-half of the amount received by the defendant for the use of the right of way would be to make a new contract for the parties, by adding to the agreement in the deeds the words, “or, in case of a lease of the right of way, one-half of the rent received.”

That the transfer of the defendant’s system of railway to the Northern Pacifio Railroad Company was a lease, and not a sale,, would seem to be quite clear. Suppose that the subject-matter of the deeds in question was two city lots, instead of the right of way in the street in front of them, and that the defendant had leased the-lots for 99 or any other number of years, reserving an annual rent equal to 6 per cent.’ of their value; would this be a sale of the lots, within the meaning of the agreement in the deeds? If so, suppose further, that the defendant and lessor, after a time, actually sold and conveyed the lots to a third party, subject to the lease, for the full value of the lots; would not this be a sale, and the amount received the purchase price, and one-half thereof belong to the plaintiffs, under their contract in their deeds? If this last proposition is true (and it must be), what becomes of the first one, — that the-lease was a sale, and the rent the purchase price? Where does the supposed case differ in principle from the one we are considering?" The defendant, notwithstanding its lease, may sell its railway at any time it sees fit, subject to the lease, and thereby invest the purchaser with the right to receive the rent reserved in the lease. In case of such a transfer the subject-matter of the sale would be the railway property itself, and the purchase price a sum approximating the-real value of the property as an income-bearing estate, as shown by the stipulated rent reserved in the lease.

We are of the opinion that the word “sale,” as used in the deeds, cannot be construed as including the lease of the right of way in question in connection with the defendant’s entire railway property; especially so in view of the allegations of the answer as to the inducement and consideration for making the deeds, and the terms and conditions of the lease.

Order affirmed.