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Painesville & H.R. Co. v. King, 17 Ohio St. 534, 1867 WL 38

Facts

Leverett G. King filed a petition against the Painesville and Hudson Railroad Company, claiming unpaid interest on shares of stock he purchased in exchange for land. The company had issued a certificate for twenty-two shares, agreeing to pay interest until the completion of the railroad. However, since 1857, the company had failed to pay the interest, citing its inability to do so due to significant debts incurred during construction and the suspension of work on the railroad.

Leverett G. King filed a petition against the Painesville and Hudson Railroad Company, claiming unpaid interest on shares of stock he purchased in exchange for land.

Issue

Can a railroad company, incorporated under the act of May 1, 1852, enforce a contract to pay annual interest to a stockholder while it is largely indebted for work done and materials furnished for the construction of its road?

Can a railroad company, incorporated under the act of May 1, 1852, enforce a contract to pay annual interest to a stockholder while it is largely indebted for work done and materials furnished for the construction of its road?

Rule

According to section 22 of the act of February 11, 1848, railroad companies are prohibited from paying interest on capital stock while any debt for labor or materials remains unpaid, and such payments cannot reduce the capital stock.

According to section 22 of the act of February 11, 1848, railroad companies are prohibited from paying interest on capital stock while any debt for labor or materials remains unpaid, and such payments cannot reduce the capital stock.

Analysis

The court analyzed the statutory framework governing railroad companies and concluded that the prohibition against paying interest while in debt applied to the Painesville and Hudson Railroad Company. The court found that the company had no available means to pay the interest due to its substantial debts and the suspension of construction, which rendered the enforcement of the interest payment contract impossible.

The court analyzed the statutory framework governing railroad companies and concluded that the prohibition against paying interest while in debt applied to the Painesville and Hudson Railroad Company.

Conclusion

The court reversed the judgment of the lower court, ruling that the plaintiff could not enforce the contract for interest payments due to the company's financial situation and the applicable statutory restrictions.

The court reversed the judgment of the lower court, ruling that the plaintiff could not enforce the contract for interest payments due to the company's financial situation and the applicable statutory restrictions.

Who won?

Painesville and Hudson Railroad Company prevailed because the court determined that the company could not be compelled to pay interest on stock while it was in debt and had no means to do so.

Painesville and Hudson Railroad Company prevailed because the court determined that the company could not be compelled to pay interest on stock while it was in debt and had no means to do so.

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