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THE
AMEEIOAN
AND
ENGU8H
Eaileoad Cases
Edited by ADELBEBT HAMILTON.
A COLLBCnOK OV ALL THB
Raileoaj} Oasbb in the Goubts of Last Bbsobt ik Amebioa
AND EnGLAKD
VOL. XXIV.
NORTHPORT, LONG ISLAND, N. T.
EDWARD THOMPSON, Pctblishek.
»• *
STANFORD
LIBRARY^^
^/l/ER
fRIOHT, 1886, BT
EDWARD THOMPSON.
DannoHD ft NlRr,
^FtnUt% Meetrotypen andBindin
1 to 7 Btkfgae Street,
New York.
TABLE
OP THE CASES KEPORTED.
PAOS
Alford, iOng «. 881
AichiBon, T. & 8. F. R Co. v,
Fletcher 84
Aicbi«>ii,T.&SJ*.RCo.«.Wilaoii. 628
AYcr, New York, C. & St. L. R
Co.« 888.
Baltimore & O. R Co. «. McEenzie 895
Baltimore ft O. R. Co., Peake v., . 467
Blair «. Gnuid Bapide & L R Co.. 480
Blake, Chicago ft JB. B. Co. o 288
Blatzer 9. Bfleigh ft A. A. L. R
Co 854
Bloxham, Littlefield 9 208
Blozham, Reed« 208
Boeton ft L. R Co., Peirce v., ... 684
Boston ft M. R Co., McEimble^. 468
Boston ft N. Y. A. L. R Co.,
Gates » 148
Boetonft N. Y. A. L. R Co., Town
of IQddletown « 158
Brown •. State of Maryland, etc.,
RCo 192
Brown Countj, Fremont, B. ft M.
V.RCo.e 616
Barlington ft M. R Co. «. Crockett 890
Burnett e. Great North of 8. R Co. 647
Bybeee. Oregon ft C. R Co 127
California «. Central P. R Co 528
California e. Southern P. R Co. .. 528
Cameron v. Tome ^ 208
Campbell, Nixon 9 605
Campbell •. Penneylvania R Co. . 427
Cassidy •. Old Colony R Co 271
Central Pac. R Co., California v.. 528
Central PacRCo.,United States 9. 120
Central Pac. RCo., United States «. 257
Central R Co., MOla • 47
Chicago ft A. R Co. v. Derkes. ... 251
Chicuro ft A. R Co., Farmen' L.
ft T. Co. e 166
Chicago, B. ftQ. R Co. v. Jackson 105
Chicago ft £. R Co. 9. Blake 288
Chicago ft R I. R Co. e. Gnertin. 885
Chicago ft E. L R Co. e. Wiltse.. 261
Chicago, M. ft 8t P. R Co., Glan-
don « 866
Chicago, IL ft St. P. R Co., Siooz
City, etc., R Co. « 100
Chicago, M. ft St. P. R Co.,
Wood« 91
PAoa
Chicago ft W. I. R Co., People «. 612
City of Minneapolis, St. Paiu, M.
ft M. RCo. 9 809
Clark, Williams v 460
Commonwealth v, Richmond ft P.
B.Co 482
Crockett. Burlington ft M. R Co. e. 890
DeCamp, Hibemia Underground
RCo. 9 273
Dennis,Vicksburg,8.ftP. RCo.9. 500
Denver ft R G. K. Co., Howard e. 448
Derkes, Chicago ft A. R Co. «. . . 251
Farmere' L. ft T. Co. v, Chicago
A.R Co 166
Juts' L. ft T. Co. v. Wright.. . 812
sh^Utah ft Northern R Co. e. 116
Fletcher, Atchison, T. ft S. F. R
Co. « 84
Freeportft M. R Co., Johnson v, 266
Fremont, B. ft M. V. R Co. e.
Brown County 616
Gudner v, Michigan C. R Co. . . . 485
Gates f). Boston ft N.Y.A.L.RCO. 148
Gibson, State ex rd, Holman e. . . . 6
Glandon v, Chicago, M. ft St P.
RCo 866
Gottlieb V. New York, L. B. ft W.
R Co 421
Grand Rapids ft I. R Co., Blair v. 480
Greany, Long Island R. Co. v 478
Great North of 8. R Co. ,Burnett e. 647
Gregory e. New York, L. £. ft W.
RCo 88
Guertin, Chicago ft £. I. R. Co. v. 886
Gulf. C. ft S. F. R Co., Miller v,. 158
Hastings ft D. R Co. e. Whitney. 106
Herbert, Northern Pac. R Ca i^.. 407
Hibemia Underground R Co. «.
DeCamp 278
Hollerbach, Louisville ft N. R
Co. e 840
Holman «. State ex rel, Gibson. ... 6
Howard v. Denver ft R G. R Co. 448
Illinois C. R Co., People « 494
Indianapolis, etc., R Co., St
Louis, etc., R Co. e 56
Indianapolis, B. ft W. R Co. «.
Eoons 876
Indianapolis ft Y. R Co., Welty v. 871
Jackson, Chicago. B. ft Q.R. Co. v. 105
IV
TABLE OF THS OASBS SEPOBTXD.
Johnson «. Freeport A M. R Co. . 965
Eelley «. Newburyport, etc. , R Co. 87
Kentucky & G. £. R Co. , Wright o. 812
Kingv.Alford 881
Eooos, Indianapolis, B. & W. R
Co. « 876
Lilly, Northern Pac. R Co. «. 111
Littlefleld 9. Blozham 908
Lon^ Island R Co. «. Greany. .... 478
LouisYille & N. R Co. v. fioUer-
bach ... 840
Louisrllle & N. R Co. «. Moore. . 443
Louisville, N. A. & C. R. Co. e.
Sumner 641
Mansfield «. New York C. <& H. R
R Co 628
Maryland, State of, «. Brown, and
Annapolis <& E. R Co 192
Matthews, Montgomery 8. R Co. e. 9
McEenzie, Baltimore & O. R Co. e. 896
McEimble e. Boston & M. R Co. . 468
Michigan Central R Co., Gardner v. 486
Middletown, Town of, e. Boston &
JN . x . A. L. ri. Co. ...••....••. lo8
Midland R. Co. v. Miles 187
Miles, Midland R Co. v. 187
Miller v. Gulf, C. & S. F. R Co. . . 158
Mills e. CenlralR Co 47
Minneapolis, L. & M. R Co., New-
qI] 1^ 2QQ
Missouri P.' R'Oo.,'PhmipeV.!.*!! 868
Montgomery R Co. v, Matthews. . 9
Moore, Louisyille & N. R Co. 9. . . 448
Moses, Pittsburgh, C. <& Y. R Co. «. 296
Newburyport, etc. , R. Co. , Kelly v, ^
Newell V, Minneapolis, L. & M. R.
qq 298
New York 0. &' h! R R." " Co.,
Mansfield «. 628
New York, C. & St. L. R Co. «.
Ayer 888
New York, L. E. & W. R Co.,
Gotlieb e 421
New York, L. K & W. R Co.,
Gregoiy«. 88
Nixon «. Campbell 605
Northern Pac. R Co. v, Herbert. . 407
Northern Pac. R. Co. v. Lilly Ill
Northern Pac. R. Co. «. Shimmell. 1
North Pacific C. R Co., People «. 610
Old Colony R Co., Cassidy e. ... 271
Oregon & C. R Co., Bybee e 127
Penke v. Baltimore & O. R. Co. . . . 467
Peirce v, Boston & L. R. Co 684
Pennsylvania R Co., Campbell v., 427
Pennsylvania R Co. «. St. Louis,
etc.,RCo 58
Pennsylvania S. V. R. Co., Setzler
« 280
People V, Chicago & W. L R Co.. 612
VAGS
People «. Illinois C. R. Go 494
People «. North Pacific C. R Co.. 610
Phimpa e. Missouri P. R Co S6S
Pickerd •. Pullman S. C. Co 61 1
Pittsburgh C.& Y.R Co. «. Motes 295
Pullman S. C. Co., Pickerd « 511
Railroad Companies, Slevens e. . . . 217
Raleigh & A. A.L.R Co., Blatzer «. 854
Reed «. Bloxham 206
Richmond & P. R Co., Common-
wealthe 482
St. Louis, etc., R Co. v, Indianap-
olis, etc., R Co 58
St. Louis, etc., R. Co., Pennsyl-
vania R Co. « 58
St. Paul, M. & M. R Co. «. City of
Minneapolis 809
San Bernardino Co. e. Southern P.
RCo 540
Sandy River R Co. v. Stubbs 87
Santa Clara County v. Southern P.
RCo 628
Setxler v. Pennsylvania S. Y. R Co. 280
Shimmell, Northern P. R. Co. e. . . 1
Sioux Ci^, etc., R Co. v. Qiicago,
M. & St. P. R Co 100
Southern Pac. R Co., California •. 588
Southern Pftc. R. Co., San Bernar-
dino County e. 540
Southern Pac. R Co., Santa Clara
County e 523
State Board of Assessors v. State. . 546
State ex rel. Gibson, Holman e. . . . 6
State of Maryland v. Brown, and
Annapolis h E. R. Co 192
State of Maryland, and A. & E. R
Co., Brown e 192
State, State Board of Assessors e. . 546
Stevens e. Railroad Companies. . . • 217
Stubbs, Sandy River R Co. e 87
Sumner, Louisville, Nk A. & C. R.
Co.« 641
Tome, Cameron e 203
Town of Middletown e. Boston &
N. Y. A.L.R. Co 158
United States e. Central Pac. R Co. 120
United States v. Central Pftc. R Co. 257
Utah & Northern R. Co. v. Fisher. 116
Van Weel f>. Winston 179
Vicksburg, S. & P. R. Co. t>. Dennis 600
Welty «. Indianapolis & V. R Co. 871
Whitney, Hastings & D. R Co. v, 106
Williams e. Clark 460
Wilson, Atchison,T.&S.F.RCo.e. 623
Wiltse, Chicago & E. L R Co. e. . 261
Winston, Van Weel v : . 179
Wood V, Chicago, M. & St. P. R
Co 91
Wright, Farmers' L. & T. Co. e. . . 812
Wrighte.Eentucky<&G.E. R Co. 812
NOBTHEBN PaOIFIO B. Oo.
V.
Shdocell. ^
(Advance Case, Montana. January, 1886.)
The franchise of the Northern Pacific K. was given by act of Con-
gress, and the road made a military and post road for the benefit of the
goyernment of the United States. Whatever is necessary and useful in
operating the road belongs to and goes with the franchise, and no law of
Montana Territory, or any other jarisdiction less than that which created it,
can in any manner rightfully invade or impair the privileges and immunities
thus conferred.
If an office safe at a depot on the road, in which the agent of the company
deposits and keeps his daily receipts of money and valuable papers, is use-
ful and facilitates the operation of the road, it cannot be seizea on execution
against the company. The finding of the jury, that the safe in question was
not necessary or useful for such purpose, reviewed, and held contrary to the
evidence.
Appeal from the first district court of Custer County.
Sander^y CktUen <& Sanders for the appellant.
Wade, C. J. — The only questions presented by this appeal are
the following, viz.:
1. Does the evidence support the verdict and justify it f
2. Can the property of the Northern Pacific K. Co. S5S2f"
in the Territory of Montana, necessary, convenient, and usual for
running and operating said road, be lawfully seized and sold on
execution to satisfy a judgment against said company t
The property in question is a certain office safe, known as a
Diebold combination safe, which was seized on an execution issued
out of the probate court of Yellowstone county, and taken from
the plaintifrs depot and station, at the town of Billings, in said
county, and sold at auction, whereby the defendant claims title and
right of possession. There was a verdict and judgment for defend-
ant, and the plaintiff appeals.
As to the question whether the safe in controversy was a part of
the usual, neoessary, and convenient equipment of the facu,
Norihern Pacific K. Co., to enable it to operate its road, at the
time it was seized on execution, the testimony showed that the safe
was in use by the plaintiff in and about its business as a railroad
24 A. ft £. R Gas.'!
2 NOBTHEBN PAOIPIC B. 00. V. SHIHHELL.
company, in the depot at Billings, and was the only safe there ;
that it was in daily use by the company in its railroad business
thereat, in keeping therein the moneys received by the company
which amounted to from two hundred to five thousand dollars per
day, and in the preservation of its books of account of said railroad
business at said station ; that since the safe had been taken away
the agent at Billings, in consequence of its seizure, had been com-
pelled to use safes of other parties, by their consent, or else carry
said moneys on his person, and in the opinion of said agent said
safe was, under the circumstances, a necessaiy part of the equip-
ment and furniture of the plaintiff at said depot. It also appeared
in evidence that there was a bank in said town, with a vault, where-
in plaintiff was permitted to deposit its moneys, books, .and papers,
and that the plamtiff had procured no other safe since the one in
question was seized.
The foregoing was all the testimony at the trial concerning the
questions proposed.
Upon this state of facts the court instructed the jury as follows :
^^ If it has been proved to your satisfaction, by a preponderance of
iKSTBuonomTo evidence, that this safe was an office safe — was in use at
'^^' the depot at this station — that it was a usual and neces-
sary part of the furniture in such office, in the preservation and
safe-keeping of the moneys, books of account, ana valuable papers
used in the transaction of the business of the plaintiff at such depot,
and essential to the proper and safe conduct of such business there,
then you should find for the plaintiff.
^^ In this case the question arises, whether the property can be
seized under execution for the payment of the debts of the com-
pany, inasmuch as it is held to be essential to the ordinary and
economical use of the railroad company. There are certain clafises
of property belonging to railroad companies not subject to seijsare
ana sale upon execution, such as their tracks, rolling stock, depots,
shops, and machinery, the use of which is essential to the opera-
tion of the road ; the reason for this being that such seizure ana sale
would result in the destruction of the property.
^^ There are certain other classes of property which maybe seized
and sold upon execution against a railroad company, sucn as lands
and personal property not used in the running and operation of
the road. Such property is always subject to execution, and it is
the duty of the snenff to search for tnis kind of property upon
which to levy. An office safe is a necessary part of the furniture
in a town where the business is important and extensive, and
where the receipts of the railroad company are of so large an
amount, and the books required to keep the accounts of the office
containing valuable memoranda, as that it would be proper and
prudent U> preserve them from depredation or destruction by the
use of a safe.
FEANCHISB— EXKOUTION — OFFICE SAFE. 3
^^And in this case, if yon find from the evidence the business
here so extensive, the receipts so valuable, as that a pradent man
would require the use of a safe, then you should find for the
plaintiff."
These instructions correctly stated the law, and were applicable
to the facts in the case. Borer, in his work on railroads, ^S£SI^S?to op*
vol. 2, p. 901, says: " The corporate franchise, rights, JStTSloioTM
and property of a railroad corporation incidental J^SSi.*^" "*"
thereto cannot at common law be seized or sold upon execution at
law against the company ; nor can the appurtenances, easements,
appliances, or works used for the practical operation of the road
be levied upon or sold at law upon execution separate from the
franchise any more, or more legally than the whole can be sold
together. Such sale would impair its value and impede its use by
the public," citing the following authorities: Gue t;. Tide-water
Canal Co., 24 How. 263 ; Borer on Judicial Sales, sec. 1068 ; Coe
V. Columbus, P. & I. B. Co., 10 Ohio St. 372; Western Pa. E.
Co. V. Johnston, 59 Pa. St. 290 ; Youngman v. Elmira & W. B.
Co., 65 Id. 278 ; Bayard's Appeal, 72 Id. 453 ; Thomas v. Arm-
strong, 7 Cal. 286 ; Stewart v. Jones, 40 Mo. 140 ; Hatcher v.
Toledo, W. & W. B. Co., 62 111. 477 ; James v. P. & G. E. Co., 8
Mich. 91 ; Ammant v. New Alexandria & P. T. Co., 13 Serg. &
E. 212; Plymouth B. Co. v. Colwell, 39 Pa. St. 337; Borer on
Judicial Safes, sec 1069.
In One v. Tide Water Land Co., Chief Justice Taney says : ^^ It
would be against the principles of equity to allow a single creditor
to destroy a fund to which other creditors had a right to look for
Eyment, and equally against the principles of equity to permit
m to destroy tlie value of the property of tlie stockliolders, by
dissevering from the franchise property which was essential to its
useful existence.'' .
In Herman on Executions, 551, it is said the rule and common
law is, that the franchises and corporate rights of a corporation,
and the means invested in theni, which are necessary to tne exist-
ence and maintenance of the object for which they are created,
are incapable of being transferred and granted away by any ad-
vene process against them.
The plaintiff has the right to operate its road through the Terri-
tory of Montana, and to have all the works and appliances essen-
tial to its useful existence as a railroad. This franchise was given
by act of Congress, and the road made a military and PujtmrrB
post road for the benefit of the government of the K?°^ °tE
Uoited States, and whatever is necessary and useful in '^'»«>*
operating the road belongs to and goes with the franchise, and no
law of the Territory, or any other jurisdiction less than that which
created it, can in any manner rightfully invade or impair the privi-
leges and immunities thus conferred.
4 IfOBTHEBN PAOIFIO B. CO. V. 8HIMKELL.
If an office safe at a depot, in which the agent deposite and
keeps his daily receipts and valoable papers, is useful and facili-
tates the successful operation of the road, it could no more be
. seized on execution than could a section of the rails, or road bed,
or a water-tank. These things are incidental to the franchise and
cannot be disturbed. They are the means by which the franchise
is exercised. They are the necessary instruments of its use.
The charter of the plaintiff authorizes and empowers it to lay
out, locate, construct, furnish, maintain, and enjoy a continuous
8HIZUBX OF oF^ ^*^1^^^^ ^^°®j ^^^^ ^® appurtenances, from Lake Supe-
r^'^Sm wr rior to Puget's sound, and if an office safe at any depot
on said road is useful and convenient to the plaintiff
in the enjoyment of said franchise, then the same is protected
from seizure on execution. This franchise or right to maintain
and enjoy the road is not limited and restricted to what is barely
necessary for that purpose, but extends to what is appropriate and
useful, and actually in use.
Bailroad companies can be made to pay their debts, bat the
remedy is not by seizing and selling property that would destroy
the road, and thereby prevent it earning money for its creditors.
The testimony shows, without question or contradiction, that
this safe was an office safe, used by plaintiff in its depot at Billings
station, in the regular daily business of the road, ana tliat the same
was a necessary part of the equipment and furniture of said depot
for the purposes of such business. The court instructed the jury
that if it had been proved by a preponderance of the evidence
that the safe in question was an omce safe, used in the depot at
Billings, and that it was a usual and necessary part of the furniture
in such office for the safe-keeping of moneys, books of account,
and valuable papers, used in the transaction of plaintiff's business*
and essential to the proper and safe conduct of such business, then
they should find for the plaintiff.
The jury, by their verdict for the defendant, must have found
from the evidence that the safe was subject to sale on execution,
▼noicT OP- ^^^' *^* reason that the same was not a usual and neces-
FOBSD TO m- sary part of the equipment and furniture of said
depot, and essential and proper to the safe conduct of
the business oi the road. There is no evidence to support such a
finding or verdict. The verdict is a direct contradiction of all
the testimony in the case.
The agent of the plaintiff testified that the safe, considering the
business at the Billings depot, was a necessary part of the equip-
SAra SABT ^^^^ *^^ furniture of the depot for the purposes of
TO BQuipraT such business, and there was no evidence to contradict
OF DKPOT. ^j^^ agent, or to call in question his statement as to the
necessities of plaintiff's business at that point. But the jury, in
answer to a special issue submitted, say that the safe in controversy
yRANCHISB — ^EXECUTION— OFFICE SAFE. 6
was not necessary in carrying on the business of the company. In
this they contradicted the only witness on the subject, and make a
special hnding in the yery face of all the testimony on the question
submitted.
Appellate courts are slow to disturb the yerdict of a jurp', and
will not do so if there is eyidence to support the yerdict. Ming v.
Tniett, 1 Mont. 328. But if the yerdict is a flat contradiction of
all the eyidence in the case, and there is nothing to support it, it
woald be a reproach to the law, and to those who administer it, to
permit such a yerdict to stand.
Judgment is reyersed, and cause remanded for a new trial.
What Property of a Raifroad can be taken in Execution. — ^The franchise
of a railroad or other corporation cannot be subjected to sale on judgment
and execution for its debts without legislative authority. Hatcher e. Toledo,
etc., R. Co., 62 111. 477; Bruffett e. G. W. R. Co., 25 111. 853; Atkinson v.
Railroad Co., 15 Ohio St. 21 ; Toung e. Railroad Co., 65 Pa. St. 278; W. R.
Co. 9. Johnson, 59 Pa. St. 295; Oue v. Canal Co., 24 How. 268; Wood v.
Turnpike Co., 24 Cal. 474. The franchise of a corporation is held to be a
privilege, granted and held in personal trust, and cannot b^transferred by
forced sale, or by voluntary assignment, except by permission of the govern-
ment, and when that permission is granted the mode of transfer pointed
out must be followed. Wood v. TVuckee Turnpike Co., 24 Cal. 474.
The land of a railroad company beyond what is actually dedicated to cor-
porate purposes is bound by the lien of judgments against the corporation,
and is liable to be levied upon under execution and sold by the sheriff as is
the land of any other debtor; but the purchaser at such sale takes only that
which is not necessary for the full enjoyment and exercise of the corporate
franchise, no matter how the land may have been acquired by the corpora-
tion. Plymouth R. Co. v. Colwell, 89 Pa. St. 847; see also Ammant e.
New Alexandria, etc.. Turnpike Co., 18 S. & R. 212; Toungman e. Elmira,
etc., R. Co., 65 Pa. St. 278.
In those States in which the rolling stock used in operating the road is
considered to be affixed to the realty, and as such to pass under a mortgage
of the railroad, it is not subject to levy or sale upon execution. Macon, etc.,
R. Co. e. Parker, 9 Ga. 877; Coney e. Pittsburg, etc., R. Co., 8 Phila. (Pa.)
178; Shamokin Valley R. Co. e. Livermore, 47 Pa. St. 465. But in other
States such property is treated as nersonalty, and as such is subject to levy
and sale upon execution. Randall e. Elwell, 52 New York, 521 ; Hayle v.
Plattsburg, etc., R. Co., 54 N. T. 814; Stevens «. Buffalo, etc.,R. Co., 81
Barb. 590; Williamson i). New Jersey, etc., R. Co., 29 N. J. Eq. 811; Bos-
ton, etc., R Co. V. Guimore, 87 N. H. 410; Coe v, Columbus, etc., R. Co., 10
Ohio St. 372.
In the case of Coe e. Columbus, etc., R. Co., mpra^ the court, after decid-
ing that locomotives, cars, etc., should be considered as personalty, says:
*' We have no hesitation in coming to the^ conclusion, that what we have de-
scribed as the personal property of the corporation, employed in the use of
its road and franchise, is liable for the payment of its debts. We think the
line can be clearly drawn between the interest in real estate and the franchise
connected therewith, and the movable things employed in the use of the
franchlBe.^'
In 'ntus e. Mabee, 25 III. 257, it was held that an iron safe was liable to be
taken in execution against a railroad company owning it; also a planing-
mill not attached to the freehold.
6 HOLMAir 0t (U. V* STATU €X rd. GIBSON.
HoLMAK et al.
V.
State ex rd. Gibson.
(Advance Cau^ Indiana, March 12, 1886.)
Where the State, by an information in the nature of a quo tearranto, di-
rectly challenges the right of certain parties to act as a railway corporation,
and it appears that many of the subscribers for the stock were notoriously
insolvent, and had no expectation, at the time they subscribed, of ever
paying their subscription, thus leaving the amount subscribed in good faith
less than that required by the statute, a judgment of forfeiture is proper.
Appeal from Huntington circuit court.
Z. M. Nimde and T, E, EIMson for appellant.
C. W. Wathina and MiUigan dk Whddock f oi appellee.
MrroHELL* J. — The State, by an information in the nature of a
quo warrcmto^ charged that William J. Holman and 10 others
were assuming to act as a corporation under the name of the Fort
Wayne, Warren & Brazil R. Co.; that, as such corporation, they
Facts. Were making contracts, incurring debts, soliciting aid
from townships, towns, and cities, making surveys, appropriating
lands, etc., without any warrant or authority of law. They were
challenged to show by what authority tliey assumed so to act. By
a special answer the defendants admitted they were acting ^ a
railway corporation, and alleged that they were dnly organized and
incorporated under the law. With their answer they exhibited a
copy of their articles of association, which they averred had been
duly filed in the office of the Secretary of State. Upon the articles
thus exhibited it appeared that 15 persons had each subscribed for
$3400 of the capital stock, the whole amount of which was fixed
at $60,000. A reply was filed admitting the signing and filing of
the articles of association, and the subscription to the stock. It
was, however, averred that many of the subscribera to the stock
were, at the time of making such subscriptions, wholly and noto-
riously insolvent, and made no pretence of being able to pay their
subscriptions, and that others oi such subscribers were not worth
half the amount subscribed by them ; that the solicitor of the sub-
scriptions, and promoter of the corporation, was a subscriber to
the stock, was wholly and notoriously insolvent himself, and knew
of the insolvency of many of the other subscribers ; that one of the
subscribers, in addition to being insolvent at the time of making
his subscription, was also a minor, which was known to the pro-
moters of the scheme. It was further charged that the capital
stock had not been subscribed in good faith, but that the subscrip-
SUBSCRIPTION— INSOLVENT SUBS0RIBEB8 — ^FOBFSITUBB. 7
tions were received for the parpose of securing a colorable organi-
zation to be made on paper. Evidence was offered tending to
prove the averments contained in the reply. A judgment of for-
feiture was rendered.
The statute providing for the organization of railroad corpora-
tions enacts, in substance, that, whenever stock to the amount of
at least $50,000, or $1000 for each and every mile of proposed
road, sfiall have been subscribed, any number of the statdtoetpbo.
subscribers, not less than 15, may, under certain regu- ^^°"-
lations prescribed, form a railroad corporation. The question pre-
sented for consideration is, must the $50,000 of stock, which is
required to be subscribed as a condition precedent to the organiza-
tion, be subscribed in good faith by persons who had a reasonable
expectation that they will be able to pay, or will subscriptions,
some of which are merely simulated, lulfil the purposes of the
statute? Where the information is against the corpomtion eo
nomine^ an inquiry such as that proposed cannot be made. In
such a case the bringing of the suit against the corporation in its
corporate name is an admission of its corporate existence, and it is
not necessary for the corporation to show that it had performed
the conditions precedent to its corporate existence. High, Extr.
Rem. § 661. So, also, where the question of the regularity of the
organization is made in a collateral proceeding, it is not admissible
to show the insolvency of subscribers to the stock. It was accord-
ingly held in Miller v. Wildcat Gravel Boad Co., 52 Ind. 51, that
in a suit upon an unconditional subscription of stock evidence of
the insolvency of some of the subscribera was immaterial. There
are cases which hold that an assessment against a subscriber to
stock cannot be collected until at least the minimum amount re-
quired by the statute has been subscribed by persons apparently
able to pay for the shares subscribed. In such cases the subscrip-
tions 01 insolvent persons, infants, and married women are not
counted. Railroad Co. v. JBolton, 48 Me. 451 ; Philh'ps v. Bridge
Co., 2 Mete. (Ky.) 219; Mor. Priv. Corp. § 279; Pierce R. 55
and notes. The fact that some of the subscribers to the stock
of a corporation become insolvent after such subscriptions are
made will not of itself support an information in the nature of a
quo wa/rramjto. State v. Bailey, 16 lud. 46.
The case before us is an information by the State challenging
the right of certain individuals to act as a corporation, and assert-
ing that, by reason of the colorable character of the subscriptions,
they never became an incorporation. It is therefore a natum of thb
direct inquiry on behalf of tlie State, calling upon the ^^'•
individuals named to show by what authority they assume to act
as a corporation. In such case, while it may be sufficient prima
fade to show the filing of articles of association, and a subscription
of the minimum amount of stock required by law, we do not think
8 HOLMAN et al. V. STATE ex rd. gibson.
such showing is conclasive npon the State. It is true, the statate
does not in terms prescribe tnat the subscriptions mnst have been
ma^e in good faith, or that the subscribei'S must have been at the
time of making their sabscriptions solvent, and apparently able to
pay. But it mnst be impliea that, at least between the State and
the persons to whom the privilege of erecting themselves into a
8UBS0RIBBB8 corpoKition is granted, good faith and fair dealing
ivomiBij!! "' should be observed. Merely simulated subscriptions,
made by persons who are neither actually nor apparently able to
pay the amount subscribed, cannot answer the purpose of the
statute. Such subscriptions are shams, and are to be denounced
as a fraud upon the law. They are an attempt to acquire corporate
functions, not by a compliance with the law, but by a disingenuous
evasion of it. Jersey City Gas Co. v. Dwight, 29 N. J. Eq. 242.
Such subscriptions must stand upon the same basis, and be deter-
mined upon the same considerations, that govern any other busi-
ness transaction. It cannot be doubted that a person may in good
faith become a subscriber to the stock of a corporation, as he may
become the purchaser of goods, for a sum larger than he is then
able to pay, and more than he is at the time actually worth in
property. But such a subscriber must have subscribed in good
faith, with a reasonable expectation and an apparent
itoSt'"^ or prospect of being able to pay assessments on his stock
GOOD FAITH. ^ ^^^^ might thcrcaf tcr be called for. Where, how-
ever, a subscriber is both insolvent, and has no prospect or expec-
tation of being able to pay, and such subscription is taken with
knowledge, it cannot be counted in making up the minimum re-
quired by statute. Where articles of association were tendered
with a subscription of $50,000 to the capital stock by 15 persons,
it was a representation that that amount was pledged and available
as necessity might require. Upon the faith of that representation,
the State authorized the persons making it to assume the functions
and franchises of a corporation. On the same principle that one
individual may reclaim his property which has been sold to an-
other who is insolvent, and who had at the time no intention to
pay or prospect of being able to pay for it, may the State reclaim
the privilege granted by it under like circumstances. Standing by
until important interests were acquired by the corporation might
estop the State, or lapse of time might cure the defect in the or-
ganization. Sleeth V, Gordon, 87 Ind. 171.
Nothing of that kind is either pleaded or proved in this case.
It is abundantly established by the evidence that most of the sub-
scribers to the stock had not only neither the ability, actual or
nfsoLVBHCY OF apparcut, at the time they subscribed to pay any calls,
BUBscRiBKRs. |j^j. j|. appcars further that they had no purpose or ex-
pectation that they would be called upon to pay, or tnat they could
pay anything, if called upon. As a condition to its assent to the
SCrBSORIPnON — ^FBAUDULENT BEPBB8BKTATI0K. 9
grant of corporate powers to a railway company, the State requires
XhBt an available capital of at least $50,000 shall be provided as a
seenritj for persons with whom the corporation proposes to tran-
sact business, and as a guaranty that it will prosecute the proposed
work. If obtaining merely feigned subscriptions [>uts it beyond
the power of the State to withdraw its assent, then it is within the
power of designing persons to obtain the franchise of a corporation
by a merely pretentious compliance with the law, and by that
means exclude others who might execute a beneficial public im-
provement, while the existing coiporation is wholly unable to do
anything except to harass those who may be induced to deal with
it.
We think the evidence sufBciently shows that the defendants
held themselves out as a corporation.
The judgment is affirmed, with costs.
ZoLLASS, J., did not participate in the decision of this case.
MONTGOMEBY SoUTHEBN B. Cfo.
V.
Matthews.
(77 Alabama, 867.)
Tbs mere ezprefleion of an opinion cannot be a fraudulent representation,
nnleaa fidaely made, with intent to deceive, and actually deceiying; nor
can it constitute a fraud, vitiatine a contract thereby procured, when it re-
lates to a matter equally open to both parties.
A subecription to the stock of an incorporated railroad company, procured
by the fraua of the company's agent soliciting subscriptions, may be defeated
on the plea of fraud, when the company attempts to enforce it by suit.
There are cases of fraud, and other unlawful acts, particularly acts of the
same general character continuous in their nature, where it is permissible to
proTe other similar transactions occurring at or about the same time, as shed-
dinff some light on the particular transaction in controversy ; but, in an action
against a subecriber for stock in a railroad company, who defends on the
ground of fraudulent representations by the company's agent in procuring
bis subscription, he cannot be allowed to prove similar representations made
by said agent to other subscribers in the same neighborhood.
A statement as of fact by the vendor of an article, on which the purchaser
has a right to rely, and on which he does rely, purchasing on the faith of it,
constitutes, if false, a good defence to an action for the purchase-money,
thouffh not known by the seller to be false ; and this, not on the ground of
fraud, but of failure of consideration; but this principle does not apply to a
statement which is merely the expression of an opinion.
Representations by the agent of a railroad corporation, soliciting sub-
scriptions for stock from persons living along the contemplated route of the
roao, as to its intended location, and the time within which it will be com-
i
10 MONTOOMEBY 80UTHSBN B. CO. t. MATTHEWS.
pleted to a particular place, are but the mere ezpreflsion of an opinjon, and
neither constitute a fraud, nor are arailable as a defence to an action on a
subscription for stock made on the faith of them, unless known by the agent
to be false, and made by him with intent to deceive.
Although an action on the defendant's subscription for stock cannot be de-
feated on the ground of fraud, when the represen^tions of the corporation's
soliciting agent were merely the expression of an opinion as to the probable
location and completion of the road ; yet, if the agent further represented
that the money subscribed would be refunded unless the road was so located
and completed, and he was authorized to make these representations, the
action will, it seems, be enjoined in equity, on proof of the insolvency of the
corporation and its abandonment of the work before completion.
Appeal from the Circuit Court of Crenshaw.
Tried before the Hon. H. D. Clayton.
This action was brought bj the appellant, a domestic corpora-
tion, against Eli Matthews and M. T. Mathews ; was commenced
on the 14th February, 1883, and was founded on a writing signed
by the defendants, which was in these words :
" Crenshaw County, Ala., July 26th, 1881. On the first day of
December, 1882, we promise to deliver to the Montgomery South-
ern R. Co. two bales of middling cotton, of 500 lbs. each, at the
Alabama Warehouse in the city of Montgomery, the proceeds of
which is to be credited to our account, as payment upon two shares
of the capital stock in said railway company subscribed by us; and
in case we make default in the delivery of said cotton, or any part
thereof, as above provided, then we hereby agree to pay to said
Montgomery K. Co., in money, the market price of such cotton in
said city of Montgomery on said day; and to secure the faithful
performance of this contract, we hereby waive all exemptions to
which we are or may then be entitled under the laws or constitution
of this State." »
The complaint set out this instrument, averred the failure of the
defendants to deliver the cotton as stipulated, whereby they became
liable to pay the money as specified, and claimed the money, with
interest. The defendants pleaded the general issue, and several
special pleas, some of whicli alleged that the writing sued on was
void for fraud, having been procured by the false representations
of the plaintiflE's a^nt. These representations were stated in the
several pleas in these words: (3) "Before the making and the
execution of said note by these defendants, thesaid plaintiff's agent,
who was M. L. Kirkpatrick, represented to these defendants that
the said railroad, for stock in which thesaid note was given, would
run near his land, within from one to two miles thereof, substanti-
ally along the 18th range line, and would be built within two years
from the date of said note, to a point near Kutledge, and below the
.lands of these defendants ; and defendants aver that more than two
vears have elapsed since the making of said note, and that plaintifi
has not built or run said railroad near the land or place of ousiness
SUBSCRIPTION— FRAUDITLBNT BEPRE8ENTATI0K. 11
of these defendants ; nor has said road been built to a point near
Bntledge, and below the lands of these defendants ; and said repre-
sentations were false and fraudulent, and without these representa-
tions they would not have given said note." (4) *^ Said note is "^
void of fraud, in this : That at and before the execution of said
note by these defendants, M. L. Kirkpatrick, who was the plain-
tiffs asent, represented to these defendants that said railroad would
be buiR to Butledge, or within three miles of RutledTO, within
two years at furthest from the date of said note ; and defendants
aver that, believing said representations to be true, and relying on
the same, they made and executed said note," etc. ; with the addi-
tional averment that said road was not so built, and said representa-
tions were fraudulent. (5) "That said note was procurea by the
false and fraudulent representations of M. L. Kirkpatrick, who was
at the time the plaintin's agent in procuring subscriptions to the
capital stock of said corporation, in this : Said Kirkpatrick repre-
sented to these defendants, before they signed said note, that said
railroad would be built to Butledge, or within three miles of Kut-
ledge, in said county of Crenshaw, within two years at furthest
from the date of said note, and would be built on, or substantially
on the 18th range line, and that said road would run near the lands
of these defendants ;" which representations, it was further averred,
were false and fraudulent, but were believed by defendants to be
true. The 6th, 7th, 8th, and 9th pleas setup a failure of considera-
tion ; alleging, in varying phraseology, that the consideration was
the location and completion of the road according to the represen-
tations of plaintiff's said agent, and that the road had not been so
located ana completed.
The plaintiff demurred to these special pleas, assigning numer-
ous grounds of demurrer to each : to the 3a, nine ; to the 4th and
5th, twenty-nine ; and to the 6th, 7th, 8th, and 9th, the same as to
all the former. One of the causes of demurrer specially assigned
to each plea was, ^' that the representations set up as a bar to plain-
tiff's riglit to rAsover were mere matters of opinion of said agent."
The court overruled the demurrers, on all of the grounds specially
assigned, and issue was joined on all of the pleas.
On the trial, as appears from the bill of exceptions, the defend-
ants thus testified in their own behalf: ^^ At the time said obliga-
tion now sued on was executed by them, they met said Kirkpatrick
(who, it was proved, was plaintiff's agent to solicit subscriptions to
the capital stock of said corporation) in the public road, and hebe-
§ an to solicit subscriptions from them for said road. Defendants
eclined to take any stock, and said that they did not care for a
road over in the mud in Montgomery county ; that they did not
want to go through the mud a part of the way, and did not feel
able to pay for otners to enjoy the road ; but that they were will-
ing to subscribe for stock, upon the condition that they were not
12 HONTOOMERT SOUTHERN R. 00. V. MATTHEWS.
to pay aDything until the road was built to Bockj Mount, or the
county line between Montgomery and Crenshaw counties. Kirk-
patrick then stated that he was satisfied the road would be built
to Bocky Mount within a short time, and would be built to But-
ledge, or within three miles of Butledge, within eighteen months,
or two years ; that the way to get the road was to put all the little
sums together, and let the president and ofiScers of the road see
that we wanted it, and it would be built ; that he knew Dr. Le-
Grand and Uncle Joe, and the road would be built. Defendants
then stated, that they wanted the condition inserted in the contract,
that they were not to pay anything until the road reached Bocky
Mount ; and Kirkpatrick replied, that the road would be built to,
or within a mile of Bocky Mount, by the time the note fell due,
and would be built to Bntledge, or near there, within eighteen
months, or two years ; that if it was not built to Butledge, or near
three, the people in Crenshaw county who subscribed should have
their money back ; and that the road would be built along the 18th
range line, which was within a mile or two of their lands. Kirk-
patrick also pnlled out a large bundle of contracts for stocky named
seyeral parties who had taken stock, and said that he wanted to
carry up all the contracts alike, and it would make no difference
if the condition was not inserted, as the note or contract would be
void if the road was not built to Bocky Mount by its maturity.
Upon this condition, and these representations, defendants
said that they would take the stock and give their notes;
and Kirkpatrick thereupon filled out the notes, and defend-
ants signed them without reading or hearing them oyer.
Without the statement and representations thiit the road would he
built to Rocky Mount hy the moiturity of the note^ or it would he
void, and that t/ie road would he huilt to JSutledgej or within three
miles of RuUedge, within eighteen months, or two yea/rs at furth-
est, defendants would not have signed or given said note. The
plaintifiE objected to the admission of the statement shown by the
words italicized, and excepted to the overruling of their objection.
" The defendants were allowed to prove, also, by several wit-
nesses, against the objection and exception of the plaintiff, that
they were, each of them, subscribers to the capital stock of said
plaintiff corporation, and made their subscriptions to said M. L.
Kirkpatrick, as plaintiff's agent, a short time before the date of
said note sued on; and that said Kirkpatrick represented and
stated to each of them that said road wonld be built to Butlege, or
within three miles of Butledge, within eighteen months, or two
years at furthest, from the giving of their several notes, and that
the money paid by them would be refunded, if it was not so built."
To the admission of this evidence an exception was duly reserved
by the plaintiff.
" Said Kirkpatrick testified for plaintiff, in rebuttal, substantial-
SUBSCRIPTION — ^FRAUDULENT REPRESENTATIOK. 13
Ijj that he was plaintifiPs agent in soliciting snbscriptionB to its
capital stock; tnat he at no time represented, as a fact, that the
road would be built to any particular point, or upon any particular
line ; that he did not represent to the defendants that it wonld be
built to Bocky Mount, but did express to them his opinion that it
-would be built to Rutledge at some time, but did not say any par-
ticular time, and did not tell them that he would defend them
against said note if not so built ; also, that at the time he took de-
fendants' said note, or obli^tion, he had authority from the com-
pany to state that, if said road was not built to Bntledge, the
money would be refunded to the people of Crenshaw county. He
further testified, also, that the road was built only to ^ BelPs Store '
in Montgomery, about eleven miles from Kocky Mount ; that it
had not been located at all beyond said store, and the money had
all given out ; that plaintiff had ceased to work on the road in
June, or July, 1882, and there was no prospect of the road going
beyond said store; tliat the subscriptions in Crenshaw county
amounted to about $18,000, and, if all collected, would not extend
the road three miles."
The court charged the jury, at the request of defendants —
1. " If the jury believe, from the evidence, that Kirkpatidck, as
plaintiff's agent, stated and represented to the defendants as a fact,
before the making of the note sued on, that the road would be
built to Rutledge, or within three miles of Kutledge, within eigh-
teen months, or two years at furthest from the making of said
note ; and that the road has not been built to Rutledge, nor within
three miles of Rutledge, within the time stated, but has only been
built to * Bell's Store' in Montgomery county, about twenty-five
miles f i*om Rutledge ; and that plaintiff has done nothing what-
ever since June, or July, 1882, to extend or build said road further ;
and that without this representation so made, defendants would
not have given or executed the note sued on, — then the jury may
find for the defendants."
2. " If the jury believe, from the evidence, that Kirkpatrick, as
plaintiff's agent, represented to defendants as a fact, at the time
the note sued on was given, that the railroad would be built to
Hocky Mount by or before the maturity of the note ; and that
aaid note was given upon the condition that it was not to be paid,
and would be void, unless the road was built to Bocky Mount by
the maturity of said note on December 1st, 1882 ; and that said
road has never been built to Bocky Mount, and plaintiff has done
nothing since June, or July, 1882, and is doing nothing to build
said road beyond ' Bell's Store,' eleven or twelve miles from Bocky
Mount towards Mont^mery ; and further, that these representa-
tions were false, and mat the defendants, without these representa-
tions and conditions, would not have given the note sued on, —
then they should find for the defendants."
14 KONTOOMERY SOUTHERN E. CO. T. MATTHEWS.
3. " No one can hold an interest procared for him bj the f rand
of another, any more than if the frand was committed by himself.
And if the jury believe, from the evidence, that Kirkpatrick, at
the time he solicited and took the note sned on, was plaintifPs
agent for that purpose, and was sent out by plaintiff to solicit snb-
scriptions for stock and take notes therefor, without any limitations
as to his authority or power to make representations such as are set
out in the pleading in this case ; and that he did make the repre-
sentations charged as true and facts, and they were false and
fi-audulent, and induced defendants to make and give the contract
now sued on ; and plaintiff is here seeking to enforce the contract;
thus procured by the false and fraudulent representations of plain-
tiff^s said agent, if they so believe, the consequences of such false
and fraudulent representations cannot be avoided by plaintiff, when
they are set up to [defeat] the contract sued on^"
The plaintiff excepted to these and other charges given bv the
court, and requested the following charges in writing : (1) '^ If
the jury believe, from the evidence, that said Kirkpatrick made
representations of facts to the defendants, which induced them to
subscribe to the capital stock of said railroad company, and the
facts as represented were of matters which were as open to the in-
quiry of the defendants as of said Kirkpatrick ; then the defend-
ants cannot avail themselves of the representations so made, as a
defence to this suit." (2) ^^ If the jury find, from the evidence,
that Kirkpatrick made representations of facts as are set out in the
defendants' pleas in this case, which were an inducement to them
to sign the note sued on ; then it was the duty of the defendants
to exercise reasonable diligence to ascertain their truth or falsity, and
if they failed to do so, they cannot set up the falsity of such repre-
sentations in bar of the plaintiff's action.^' The court refused each
of these charges, and the plaintiff excepted to their refusal.
The several rulings of tiie couit on tne pleadings and evidence,
the charges given, and the refusal of the charges asked, are now
assigned as error.
tMo. D. Gardner (and with him Sayre dk Ora/oei) for the ap-
pellant.
John OamhU, contra.
Stone, C.J. — In Hives v. Mont.gomery South Plank-Road Co.,
30 Ala. 92, the suit was on a subscription to the capital stock of
the plank-road company. The defence was fratid in procuring the
subscription. On the trial, ^^ the defendant offered to prove that.
Fraud ih pbo- before he subscribed for any stock in saia company,
^. and before its organization under its charter, two of its
subscribers for stock, one of whom was afterwards
elected president, and the other secretary of the corporation, repre-
sented to him that the road would be so located as to pass through
CUBIWO SUB-
SCBIPTIOIC.
THORXTUS.
8UBSOBIPTION — FBAUDGTLENT BEPBESBNTATION. 16
his plantation^ thereby greatly enhancing the value of his lands ;
that these representations were repeated l>j them after their elec-
tion to their respective oflices ; and thereupon defendant subscribed
for five shares of the capita] stock of said company ; and that said
road, as afterwards located, did not pass within five miles of de-
fendant's plantation." This testimony was rejected by the court,
on plaintifPs motion; and the propriety of that ruling was the
BoIe question presented in this court. In passing on that question,
the majority of this court said: '^We cannot doubt that the de-
clarations of those officers, as offered by the defendant, were rele-
vant and admissible. Those declarations certainly throw some light
upon one of the material questions in the case ^ and to exclude them
is to deny, practically, to the dq;fendant the right to prove the very
basis on which he rests his defence. Until these declarations are
proved, it is impossible to show that they were false, or that they
formed an inducement to the defendant to subscribe." It will be
observed that, in the case above, we did not decide that the repre-
sentation, even if not kept and conformed to as a promise, was in
itself sufficient to avoid the subscription. That question was not
before us. We simply held that it was legsl evidence — a predicate
for further testimony.
An opinion expressed, even if not realized, cannot, without
more, become a fraudulent representation. 2 Brick. Dig. 14, §§
16, SI ; Lake v. Security Loan Assoc, 72 Ala. 207. If, however,
such opinion is falsely expressed, with intent to deceive, and does
deceive, this constitutes such opinion or representation a false state-
ment of fact, and vitiates a contract thereby procured, unless the
representation relates to a matter equally open to both parties.
This could not deceive.
In Pierce on Bailroads, 61, it is said : ^^ This defence [fraud in
procuring a subscription] is usually founded in statements known
to be fake by its official managers, and made by them, or by agents
in their behalf, concerning the financial condition and earnings of
the company, the amount subscribed, or other material facts calcu-
lated to tempt subscribers. They may be made by officers and
aeents directly to subscribers, or through a prospectus issued by
the company to the public, for the purpose of obtaining subscrip-
tions. • . . "Equity will set aside a subscription when procured by
fraud." And on page 62 it is said : ^^ The subscriber cannot de-
fend on the ground of fraud, . . where it declared only opinions
instead of facts, or where it declared facts of which the subscriber
had means of knowledge." The same doctrine is expressed in
Morawetz on Corp. § 809, and in 1 Bedf . on Railways, 5th ed.
172-^. See, also, 14 Amer. Law Beview, 192-3 ; Franklin Glass
Co. V. Alexander, 9 Amer. Dec. 92, note, 102 ; Miss., Ouachita &
Bed River R. Oo. v. Cross,' 20 Ark. 443 ; Evansville, Ind. & CI.
S. L R. Co. V. Posey, 12 Ind. 363 ; Smith v. R. River Co., 2 L.
16 MONTGOMERY SOUTHERN R. CO. V. MATTHEWS.
E. Eq. Cas. 262 ; Water Valley Man. Co. v. Seaman, 53 Miss. 665 ;
Hanover Junction S. Co. v. Haldman, 82 Penn. St. 36 ; Cmmp
V. D. S. Min. Co., 7 Grat. 352.
In Pennsylvania, the rule tliat parol testimony cannot be received
to vary the terms of a written contract does ' not prevail ; and,
hence, in that State the rulings ai'e somewhat difier«nt. Caley v.
Phil. & Chester Co. R. Co., 80 Penn. St. 363 ; Kostenbader v,
Peters, lb. 438 ; Lippincott v. Whitman, 83 Penn. St. 244. That
rule does not prevail with us. Henderson v. Bailroad Co., 17
Tex. 560, is, perhaps, the strongest authority that can be found in
favor of appellee's views. We are not inclined to go so far.
There can be no question, that if the stock subscription in this
case was procured by the fraud ^ of Kirkpatrick, ttie soliciting
agent, the railroad corporation, claiming the benefit of the sub-
scription, must take it tainted with Kirkpatrick's fraud. Story
on Agency, § 253; Corning i). Southland, 3 Hill (N. Y.), 552 ;
Mead v. Bunn, 32 N. T. 275 ; Harris v. Delamar, 3 Ii-ed. Eq. 219 ;
Meadows v. Smith, 7 Ired. Eq. 7.
There are cases of fraud, and other unlawful acts, particularly
Fraud bt con- whou acts of the samo general character are continuous
TiHuoua ACTS. Jq their nature, where it is permissible to prove other
similar transactions occurring about the same time, as shedding
some light on the transaction in controversy. Bigelow on Fraud,
478 ; Benham v. Cary, 11 Wend. 83 ; Aldrich v. W arren, 16 Me.
465 ; Lovell v. Briggs, 2 K H. 218 ^ Whittier v. Varney, 10 N. H.
291 ; Blodgett v. Morrill, 20 Yerm. 509. The present case does
not fall within this rule.
There is another class of cases, where a statement is made as of
fact, and, relying on its truth, a purchase is made on the strength
Fraud BTFAL8B of it, but it turus out to be untrue. Now, if the eiTo-
■TATBMSKT. Dcous statcmcut was as to a matter of substance, and
operated as an inducement to the purchase, then it furnishes ground
for defending against the purchase, even though the seller honestly
believed tlie facts existed as he represented them to be. Tliis prin-
ciple rests, not on the doctrine of fmud, but on the ground that
the purchaser failed to get what he bargained for, and failed be-
cause of the erroneous statement of fact made by the vendor, which
he trusted, and had a right to trust. Munroe v, Pritchett, 16 Ala.
785, and, to some extent, Atwood v. Wright, 29 Ala. 346, illustrate
this principle. It cannot apply, however, where the representation
consists in opinion. That, to be the basis of a legal right, in any
case, must be knowingly false, and uttered with intent to deceive.
A positive statement, made in the sale of a tract of land, that the
line runs at a designated place, if acted on, and turns out to be un-
true, misleads the purchaser. If the lands obtained are less valu-
able than the lands pointed out, he is deceived, and consequently
is armed with an appropriate remedy to secure his indemnification.
SUBSCRIPTION— FBAUDULENT BEPBBBEKTATION. 17
If, however, the representation be made as matter of opinion only,
then, to obtain any relief, the purchaser must show that the repre-
sentation was made knowing its falsehood. Less than an intentional
deception, in such conditions, gives no right of action.
One of the gfonnds of demnrrer to all the special pleas is, ^^ that
the representations set up as a bar to plaintifiPs right to Rsm
recover were mere matters of opinion of said agent." of opmoir.
There are many other grounds, questioning the sufficiency of the
pleas in almost every particular. The representations set forth in
each of the special pleas relate to matters afterwards to be per-
formed, and could be nothing but opinion. These pleas are fatally '
bad, because they do not aver that Kirkpatrick did not honestly
entertain the opinions he expressed, and tne proof on this (question
is no better than the pleading. The demurrers to the special pleas
onsht to have been sustained.
Under the principles declared above, many rulings of the court
in admitting testimony, and in charges given, were erroneous. We
will not particularize, believing, as we do, that what is stated above
will furnish a sufficient guide on another trial.
There is a possible phase of this case not covered by what is said
above, nor sufficiently averred in the pleadings. Kirkpatrick
testified that he was authorized by the directors to agree with the
subscribers to stock living in Crenshaw county, that their money
should be refunded to thera if the railroad was not built to a point
at or near Butledge. He did not in terms say he gave coromowAL
such promise. He also testified that the money was «»»cw™o»-
exhausted, and work on the road had progressed only to '^ BelPs
Store,^' and had long been discontinued. The record lails to show
what is the present status of the corporation, whether or not it is
insolvent or in active existence, and whether or not it has. the
means of carrying the toad to Kutledge. If the corporation is
bankrupt, or hss no means of ever constructing the road to But-
ledge, it would seem to be a bootless performance, to force the
Crenshaw stockholders to pay their subscriptions, to be immedi-
ately refunded to them ; and if the corporation be insolvent, with-
out power or purpose to complete the road to Butledge, perhaps it
may be defeated and restrained in its attempt to coerce collections,
at an expense that might be appalling. We merely throw out
these suggestions in the interest of justice and economy. The la^
takes no pleasure in useless litigation.
Beversed and remanded.
Subteription to Stock secured by False Repretentationti — See Braddock
e. PhiliL, etc., R. Ck>., 16 Am. & Bng. R. R. Cas. 486; Pine Smith e. P. F.
R. Co., 1 lb. 874.
Expretiicnt at to Matters of Opinion do not constitute Fraudulent
RtpresentatlonSt — ^It is hM that representations made by an agent of a rail-
rotd company, in reference to the value of a donation of land made by Con-
24 A. & E. R. Cas.— 3
18 ALLEN V. TEXAS AND PACIFIC B. CO.
gress to the company, and in relation to the amount of assets of the companv,
and its liability to complete the road within a specifled time, and the prob-
able cost and profits of the road, though false and exawerated and intended
by him to inauce persons to subscribe for stock of the company, are but
mere expressions of opinion in reference to matters o^n to the investigation
of both parties; and a person subscribing for stock in th^ company has no
right to rely upon them; and if he does so, and thereby is induced to invert
his means in an unj>rofitable enterprise, it will be no ground of avoiding the
contract of subscription. Walker e. Mobile & Ohio R. Co., 84 Miss. 245.
A representation by a bank officer that stock of his bank is worth $100
per share is a mere expression of opinion or commendation of the stock, and
if it turns out to be false a note taken bv him for the price of the stock will
not thereby be avoided though it was relied on by the purchaser; but it if
otherwise with a representation that the bank is in a solvent condition and
doing a good business. Union National Bank e. Hunt, 70 Mo. 489.
The agents of a railroad company represented that the company had already
sufficient stock subscribed to complete their road within coghteen months,
and only desired subscriptions from the defendant, and others along the line
of the road, as an evidence of their friendly disposition to the road. De^
fendant, relying on the truth of such representations, and believing the same
to be true, and that the road would be completed, and the value of his land
be thereby largely increased, made his subscription. In fact, the company
had not sufficient means to procure and dear the track for said road, ana the
road had been abandoned. Msidj that the facts were not sufficient to relesse
the defendant from liability on his subscription, the alleged misrepresenta-
tions being of matters of opinion and expectation, and not of any existing
fact. Bush e. Bradford, 17 Ind. 490.
The fact that the stock solicitor of a railroad company fraudulently rep-
resents that a sufficient amount of solvent stock was subscribed to complete
the road within two years^ and that the company is able and will press said
road to completion within that time,constitut^ no bar to a recovery on a
subscription on the failure of the roAd to do so. Such statements being
mere expressions of opinion. Brownlee e. Ohio, etc., R. Co., 18 Ind. 66;
Hardy e. Meriweather, 14 Ind. 208.
V.
Texas and Paoifio R. Go.
(Adoanei Ocue^ U. 8. O. (7. R D. Lauitiana. November 18, 1885.)
# Corporations deriving their corporate powers from acts of Congress are
entitled to have all suits brought against them in State courts removed to
the circuit courts of the United States, on the ground that they are suits
arising under the laws of the United States. Pacific R. Removal Cases, 115
U. S. 11.
By the consolidation of a federal with a State corporation, the former
does not lose any of its rights or franchises as such, and is not estopped
from removing suits brought against it in the State courts to those of the
United States, notwithstanding that the laws of the State in question pro-
vided: "If any railroad company, organized under the laws of this State,
shall consolidate by sale or otherwise with any railroad company organized
FEDERAL CORPORATIONS — OOKSOLIDATION. 19
under the laws of any other State or of the United States, the same shall not
thereby become a foreign corporation, but the courts of this State shall re-
tain jurifldictioii in all matters which may arise as if said consolidation had
not taken place."
On motion to remand.
Edward D, White and Eugene D. Sawnders forplaintiflE.
John H. Kennard^ W. W. Howe^ and 8. 8. Jrrentiss for de-
fendant.
Pabdeb^ J. — ^In the Pacific B. Bemoval Cases, 115 U. S. 2, it
is expressly decided that the Texas & Pacific B. Ck>. is a corpora-
tion deriving its corporate powers from acts of Con- r^^SJS:
^ress, and is entitled to have all suits brought against ^^, cobtora.
It in State courts removed to circuit courts of uie United States,
on the ground that they are suits arising under the laws of the
United States. It is conceded that this decision controls the pres-
ent case, and defeats the motion to remand, unless by the acquisi-
tion of and consolidation with the New Orleans Pacific B. Co. in
June, 1881, by necessary operation of the constitution and laws of
Louisiana then in force, tne Texas & Pacific B. Co. became a
Louisiana corporation, and as such corporation is estopped from
removing suits against it from the courts of Louisiana to the
United States circuit courts.
The several acts of Congress incorporating the Texas & Pacific
R Co., and conferring various powers upon it, authorized it to
extend nts line of railroad eastward through Louisiana, comouDAnow.
and to unite with, acquire, and consolidate with other railroad
companies. With these powers it came into Louisiana and ac-
quiied and consolidated with the New Orleans Pacific B. Co., a
comnan^r organized and incorporated under the laws of Louisiana.
At tne time of the consolidation the constitution of Louisiana pro-
vided as follows :
^^ Art 246. If any railroad oompakiy organized under the laws
of this State shall consolidate by sale or otherwise with any rail-
road company organized under the laws of any other State, or of the
United States, the same shall not diereby become a foreign corpo-
ntion, but the courts of this State shall retain jurisdiction in all
natters which may arise, as if said consolidation had not takeA.
place."
The laws of the State authorizinjg the consolidation of connect-
ing or intersecting railroad companies have this proviso :
^^That an office or officer be maintained ana preserved in this
State, where and upon whom citations may be served ; and pro-
vided, further, that when a corporation created by or under any
law of this State is consolidated with any corporation created by
or under any law of any other State, the consolidated corporation
shall, for the purposes of litigation with citizens of this State, have
20 ALLEN V. TEXAS AND PACIFIC B. CO.
its domicile within the State of Louisiana, and be subject to the
jurisdiction of the courts of this State.'' See act No. 39, Laws
1877, p. 50.
The effects of these provisions on the consolidated railroad com-
Sab J are (1) that the consolidated corporation shall not by consoli-
ation become a f orei^ corporation ; (2) that the courts of the
State shall retain jurisdiction in all matters the same as if there
had been no consolidation ; (3) that the consolidated company shall
maintain an office in the State where citations may be served ; (4)
that, for purposes of litigation with citizens of the State, the con-
solidated company sliall have its domicile within the State, and be
subject to the jurisdiction of the courts of the State.
iTow, conceae these limitations and provisions to be binding on
the Texas & Pacific B. Co., b^ reason of its consolidation with the
TEXAS jjmPAc. N^^ Orleans Pacific R. Co., and it still remains that
nsu!^*mSSS the corporate powers and franchises of the Texas &
iBOM ooxoBut. Pacific jR. Co. in Louisiana a»e, in part at least, derived
from the several acts of Congress originally incorporating the com-
pany. The consolidation law of Louisiana, act No. 39, sttpra^
expressly provides, in its second section, " that the said corporation
which shall be so formed by the consolidation of two or more
railroad corporations, as aforesaid, shall have, possess and exercise
all the rights, powers, privileges, immunities, and franchises, and
be subject to all the duties and obligations (not inconsistent with
the provisions of this act) conferred and imposed bylaw upon such
companies so consolidating, or either of them," so that evei^bj the
Louisiana law the Texas & Pacific B. Co., by its consolidation
with the New Orleans Pacific R. Co., neither lost nor abdicated
any of the rights, powers, privileges, immunities, and franchises
(not inconsistent with the Louisiana consolidation act nor the
Louisiana constitution) that it derived from the several acts of
Congress. If the company still possesses the rights, powers, privi-
leges, immunities, and franchises conferred by Congress, — and I
do not see how it can be denied, — then it is still a federal corpora-
tion, and suits brought against it, according to the Pacific K.
Bemoval Cases, supra^ arise under the laws of the United States.
No matter if is not a foreign corporation in Louisiana, norif it
is subject to the jurisdiction of the Louisiana courts, nor if its
domicile is in Louisiana, nor if the spirit and purpose of the Louisi-
ana constitution and laws were to make the consolidated corpora-
tion wholly a Louisiana corporation, and thus prevent the removal
of suits against it to the circuit courts of the United States, still
its rights, powers, privileges, immunities, and franchises must be
sought in and be determined by the laws of the United States.
It may be noticed that so rar as this record goes the Texas &
Pacific, in coming into Louisiana and acquiring the New Orleans
Pacifici has acted wholly within its charter and powers as derived
FEDERAL CORPORATIONS— CONSOLIDATION. 21
from Congress, and it is not improbable that its acquisition of and
consolidation with the New Orleans Pacific may be chabw*
legal and valid without looking to Louisiana legislation SSSSob^'"
oil the subject. And it is proper to say in this opin- ^^^ ■^•
ion that a fair consideration of tne constitution and laws of Louisi-
ana bearing on the subject of the consolidation of railroad com-
panies leads to the conclusion that all that the legislator intended
bv the limitations hei-etofore quoted was to secure jurisdiction for
the State tribunals so far as citizenship and domicile are concerned,
and not to deprive either of the consolidating corporations of any
of their chartered rights and franchises, which rights and fran-
chises might be the sole consideration, on one side or both, of the
consolidation. It certainly cannot be considered that the law of
1877, in providing for the consolidation of a Louisiana railroad
company with a connecting company outside of the State, contem-
plated, much less required, that the franchises of the foreign com-
pany should be surrendered or abdicated, for anch surrender would
defeat the very purpose of the consolidation. That the State of
Louisiana intencfed to make the consolidated company waive any
rights it might have to remove cases from the State to the United
States courts as a condition of the consolidation, does not appear
in the constitution or any law, and is not to be presumed, for such
condition would be null and void as violating the constitution of
the United States. See Kailway Co. v. Wlutton, 13 Wall. 270 ;
Insurance Co. v. Morse, 20 Wall. 445.
The motion to remand is denied.
NATIONAL CORPORATIONS.
BT BUSSELL H. GUBTIS, OF TmS CHIOAGO BAB.
L Deflniti^ of national oorporatlon»— Their Impoitance— Ignorance of them aa aclaas.
n. Formation of such corporations.
HL Powers of such corporations,
rv. Dissolution of such corporations.
National corporationB form the subject of this note. The term, national
corporation, as used here, means a corporation existing under a franchise
confentMl by the national government. A corporation existing under a fran-
chise conferred by a State is not within the definition. National corpora-
tions may be divided into three classes: 1. Those authorized to act within
the States; 2. Those authorized to act within the Territories ; 8. Those
aathorized to act within the District of Columbia. Some corporations fall
within all three classes.
CorporationB of the first class, of which national banks and the Pacific
railway companies are examples, are of general interest both from the legal
questions to which they give rise, their wide territorial distribution, their
wealth, and the possible consequences of their increase in the future. The
capital stock of the more noticeable of them is now worth on the market, in
round numbers, $600,000,000. Yet they have hitherto received from writers
on le^ topics almost no attention. The standard general text-books on cor-
porations rarely allude to them and never consider them as a class by them-
selves. So eminent a jurist as Judge Cooley in an article on corporations in
22 ALLEN V. TEXAS AND PACIFIC R. CO.
''The Cyclopsdia of Political Science" states (vol. i. p. 666) that the
power of the general goTernment to create corporations is confined to the
Territories and to the District of Columbia.
It is not djpcult to enumerate the principal national corporations which
have been authorized to act within the States, for such corporations have been
important at almost all periods of our history since the formation of the fed-
eral government. In 1791 the first Congress which sat under the constitu-
tion incorporated the earliest bank of the United States. 1 St. at L. 191. It
has sometimes been asserted that Alexander Hamilton, while Secretary of the
Treasury, procured the passage of the bank charter by the aid of Southern
votes, given in consideration of the acquiescence of the North in the present
location of the capital at Washington. In Hodge^s *'Life of Hamilton,''
however, the bargain is said to have related to another of Hamilton's pet
measures, the assumption by the nation of the debts incurred by the States
during the Revolution. The corporate existence of this bank expired, ac-
cording to the limitation contained in its charter, in 1811. In 1815 a bill to
incorporate a national bank was passed by Congress, but was vetoed by
President Madison. Annals of Congress, 18th Congress, vol. iii. p. 208. In
1816 Congress incorporated the second bank of the United States. 8 St. at
L. 266. Its charter expired by its own limitation on March 8, 1886. The
famous controversy between President Jackson and the bank over the quea-
tion of the renewal of its charter culminated three years earlier, when the
President secured a Secretary of the Treasury who would obey his order to
withdraw from the bank the public funds. Tyler's Life of Taney, pp. 205,
206. The opinion held by that Secretary concerning the rights of this
national corporation was not, it has been supposed, the least of the causes
which led to his appointment to the office of Chief Justice of the United
States Supreme Court. In 1841 Congress passed a bill to incorporate a na-
tional bank, but it w&s vetoed by President Tyler. 10 Congressional Globe,
887. In 1868 Congress for the first time authorized the formation of na>
tional banks by a general statute. 12 St. at L. 665.
In 1862 Congress chartered the Union Pacific R. Co., with power to con-
struct a railway and telegraph line through the national Territories, and by
the act of incorporation granted franchises to two railway corporations,
chartered by the State of California and the State of Kansas respectively, and
provided for operating the lines of the three corporations as one line and for
their future consolidation. 12 St. at L. 489. The consolidation provided for
by the charter was effected in 1 880. Poor's Manual of Railroads for 1885. The
name of the consolidated corporation is The Union Pacific Railway Company.
Whatever may be thought of the status of the constituent corporations from
which this consolidated corporation was formed, it appears to be a national
corporation authorized to act within the States of the Union. Pacific Rail-
road Removal Cases, 115 U. S. 1. In 1864 Congress chartered the Northern
Pacific R. Co., and authorized it to construct a railway and telegraph line
from a point in the State of Minnesota or the State of Wisconsin west to
Puget*s Sound. 18 St. at L. 865. The charter provided that no road
should be constructed within a State without the previous consent of the
legislature of the State. In 1866 Congress chartered the Atlantic & Pacific
R. Co., with authority to construct a railway and telegraph from a point in
the State of Missouri to the Pacific Ocean. 14 St. at L. 292. In 1871
Congress chartered the Texas Pacific R. Co. to construct a railway in part
in the States of California and Texas. 16 St. at L. 678 ; supplemental act
May 2, 1872, 17 St. at L. 59.
It is a mistake to suppose that Congress has chartered any corporation with
power simply to operate telegraph lines within the States. It has by gen-
eral statute conferred upon such State telegraph companies as choose to ac-
cept the terms offered, the franchise to construct and operate their lines on
FEDERAL CORPORATIONS — CONSOLIDATION. 23
all post routes, which include all railways, public roads and streets in the
(Muntry. Consult Act of July 24, 1866, substantially re-enacted as Rev.
St. §§ 52, 6a-5268; as to penalties, Act of June 10, 1872, 17 St. at L. 866;
smme. Rev. St. § 5269 ; as to what are post routes, Act of June 8, 1872, 17
St. at L. 283 at p. 808, § 201 ; Rev. St. § 3964; Act of March 1, 1884, 23 St at
Tu 8; Pensacola TeL Co. «. W. U. Tel. Co., 96 U. S. 1; Tel. Co. v. Texas,
105 U. 8. 460. These State corporations, although they are made federal
agents and have important powers confided to them to be exercised in all
parts of the Union, are not within the scope of this note.
OrgoMgation. — ^It will be interesting to examine the question how national
corporations may be formed. The power to create a corporation is not given
by the people in express terms to Congress or to any officer of the general
government. The constitution, the people^s sole grant of power to their
officers, does not contain any express grant of power to create a corporation.
We must look for such power, therefore, as an incident to the powers expressly
granted. Whatever we may think as an open question of the power of the
general government to create corporations, such power is now established by
the decisions of the United States Supreme Court, by the practice of the
government and by the cheerful acquiescence of the people. In McCulloch v.
Maryland, 4 Wheat. 416, afEurmed in Osbom v. U. S. Bk., 9 Wheat 738;
Farmers', etc., Nat. Bank «. Bearing, 91 U. S. 29; Legal Tender Case, 110
U. S. 421, Chief Justice Marshall laid down the rule which has been fol-
lowed ever since— that Congress has power to create a corporation when-
ever to do so is an apprcpriaU, and not an expressly prohibited, measure to
carry into execution the enumerated powers of the national government. It
was also decided in that case that the question whether the creation of a
corporation in a particular instance is an appropriate means to accomplish
the end sought, is one for the courts to decide; that the question whether
such measure is expedient is one solely for Confess.
Congress has not indicated under which of its express powers it acted
when it passed the several national banking acts and Pacific railway acts.
The banking statutes may perhaps fall under the power of Congress to bor-
row money, to regulate interstate commerce, to coin money ana to regulate
the value thereof. And the railway statutes may be referred to the power
of Congress to establish post roads, to support armies, and to regulate inter-
state commerce. U. S. Const, art. 1, § 8.
The national corporations, authorized to act within State limits, which
have been created to the present time, are banks, railway and telegraph com-
panies.
The general government has created no municipal corporations within the
States unless it be by treaty with Indian tribes. Consult the history of the
Creek and Cherokee controversy; 1 Yon Hoist's Const. Hist, of U. S.
(Amer. ed.) 433. Under the rule laid down by Marshall and previously
stated, the purposes for which national corporations may be created in the
future are only limited by the principle that such corporations must be ap-
propriate means to carry into execution the express powers of the national
government.
By the Constitution Congress is given power ''to dispose of and make all
needful rules and regulations respecting the territory or other property be-
longing to the United States.'' U. S. Const, art. 4, § 8, cl. 2. Under this
clause Congress has exercised undisputed control over the Territories for all
pfurposes. It has empowered the territorial legislatures to authorize by gen-
eral statute the formation of corporations within their jurisdictions. U. S.
Bev. St. (2 ed., 1878) § 1889. Such legislatures are prohibited by Congress
to grant private charters or special privileges (U. S. Const, art. 4, § 3, cl. 2),
but no such restriction rests upon Congress itself. It has authorized a rail-
way corporation created by one Territory to extend its line through other Ter-
24 ALLEN tJ.* TEXAS AND PACIFIC R. CO.
ritories.' U. 8. Laws 1877-1878, p. 241, ch. 862. Territorial corporations
become State corporations upon aamission of the Territory creating them
into the Union, Elfmsas Pacific v, Atkinson R., 112 U. S. 414. Accord,
Yance V. Farmers*, etc., Bank, 1 Blackf. (Indiana) 80; Bank of Yinceniies
«. State of Indiana, 1 Blackf. 267.
By the Constitution Congress is expressly given power to exercise exclusive
jurisdiction over the District of Columbia. U. S. Const, art. 1, § 8, cl. 17.
Under the authority conferred by this provision Congress may create cor-
porations within the District. Such power reco^ized. Hadley «. Freed-
men^s Savings, etc., Co., 2 Tenn. Chy. 122; Williams v. Creswell, 51 Miss.
817. It has frequently done so. In one volume of the statutes at laige
(10 St. at L.) are to be found an act to incorporate a building company, an
act to incorporate a railway company, an act to amend the charter of another
railway company, acts to incorporate an inebriate asylum and a cemeterj,
and an act to incorporate an insufance company.
PatD&rs. — We come now to consider the franchises which Congress may
confer on national corporations.
Over the Territories and District of Columbia we have already seen that
Congress has general legislative power limited only by the federal constitu-
tion. In the exercise of this jurisdiction the franchises which Congress
may confer on a corporation, beyond the franchise to exist, are probably co-
extensive with those it may confer on a natural person.
The franchises which Congress may confer on national corporations to be
exercised within the States of the Union are probably limited by Maishairs
rule that such corporations must be appropriate means to carry into execu-
tion the express powers of the general government. Subject to such restric-
tion no reason is perceived why Congress may not confer franchises upon
such corporations to the same extent as upon natural persons.
Such corporations are exempt from State taxation and control so far as
State legislation may impair their efficiency as agencies of the national gov-
ernment. This statement of the law is based on the ruling of the United
States Supreme Court in 'National Bank «. Commonwealth, decided in 1869,
and the cases following it. 9 Wall. 853. affirmed in Railroad Co. «.
Peniston, 18 Wall. 6; s. c, 1 Dillon C. C. Rep. 314; Thompson v. Pacfic
R., 9 Wall. 579. The exemption of national corporations from State
taxation is not as broad under this rule as it was under the ruling in McCul-
loch V, Maryland, 4 Wheat. 316, and in Osborn «. United States Bank, 9
Wheat. 738, decided when Chief Justice Marshall was on the bench. In
those cases such corporations were held to be wholly exempt from State
taxation with the exception of taxation of their real estate, and of taxation
of stockholders, residmg within the taxing State, upon the stock held by
them.
In Railroad Co. «. Peniston, 18 Wall. 5 ; s. c, 1 Dillon C. C. Rep.
314 (Accord, Tel. Co. «. Texas, 105 U. S. 460), the right of a State to tax
property within its territory belonging to a railway corporation chartered
Dy Conmss was directly in issue, and the court applying the rule just an-
nounced— that such corporations are taxable in the States in those cases in
which their efficiency as federal agencies is not impaired — arrived at the
further rule that the States may tax the property but not the operations of
federal agents, and decided that the property in question was subject to
State taxation. Van Allen «. Assessors, 3 Wall. 573.
Congress may give the States the right to tax national corporationa, and
may impose conditions upon such grants. U. S. Rev. St. (ed. of 1878) §
5819. It has done so in the case of the national banks.
Aside from the exemption from State taxation which a national corpora-
tion ma^ enjoy as an agency of the national government, it, if a party carry-
ing on interstate commerce, may be exempt from State taxation on that
I
f
FBDEBAL CORPORATIONS — CONSOLIDATION. 26
grocmd also. Interstate commerce conducted by a corporation is entitled to
the same protection i^ainst State exactions which is given to such commerce
conducted by individuals. Gloucester Ferry Co. v, Penn., 114 U. S. 196;
Pensacola Telegraph Oo. v. Western Union Telegraph Co., 90 U. S. 1.
The national government may exercise the power of eminent domain
within the States as well as within the Territories, whenever necessary to
carry into execution the powers conferred upon it by the Constitution. The
case of Kohl v. United States, 91 U. S. 867, has settled the point. Congress
has delegated to national corporations the power of eminent domain to be
exercised within the Territories. See several Pacific railway acts, cited supra.
And although the point has not been decided by the courts, it is prob-
able— ^judging from the settled practice of the States towards corporations
created by themselves — that Congress has authority to delegate the power of
eminent domain to national corporations to be exercised within the States.
In the case of some of the national railway corporations all controversy was
avoided by provisions in the statutes creating them forbidding or rendering
imp(»sible the construction of roads within the boundaries of a State with-
out its assent. However, in one case at least the assent of the State was
obtained after the construction of the road. Recital in Pacific Railroad
Removal Cases, 115 U. S. 1. The charter of another national railway cor-
poration provides for the condemnation of private property within States
according to the law of the State in which the property is situated. 16 St.
at L. p. 576. 1 10.
Congress has power under the Constitution to give the federal courts juris-
diction of all suits by or against national corporations. Osbom v. Bank
of United States, 9 Wheat. 788; accord, Kennedy v. Gibson, 8 Wall. 498;
Pacific Railroad Removal Cases, 115 U. S. 1. And to make such jurisdic-
tion exclusive. The Moses Taylor, 4 Wall. 411; Gaines o. Fuentes, 92
U. S. 10; Claflin «. Houseman, Assignee, 93 U. S. 130. The creation of a
corporation by the general government is held by the United States Supreme
Court to make any controversy to which it may be a party a controversy
arising under the laws of the United States, and hence under the Constitu-
tion, art. 3, § 2, a controversy to which the judicial power of the United
States extends, irrespective of the citizenship of the parties. Osborn v.
Bank of U. S., 9upra; Pacific Railroad Removal Cases, supra. It was de-
cided as early as 1824 that Congress has power to authorize national cor-
porations to sue and be sued in the federal courts. Osbom «. Bank of
U. 8., supra. And in 1885 it was further decided that Congress has power
to authorize national corporations to remove to federal courts suits brought
against them in State courts. Pacific Railroad Removal Cases, supra.
An injunction lies to protect a national corporation in the enjoyment of
its franchises; e.g.j an injunction lies against an agent of a State threaten-
ing to destroy the exercise of such franchises by the execution of void State
laws. Osbom v. Bank of U. S., supra. The validity of the organization of
Kds-faeto national corporation will be inquired into only in a direct proceed-
ingfor that purpose. Pacific Railroad'Removal Cases, supra.
We come no w to the consideration of the question how national corpora-
tions may be dissolved. To the present time, the only mode in which such
corporations have ceased to exist is by the expiration of the terms of their
charters, as was the case with the first and second United States Bank. The
reorganization of such a corporation by consolidation of it with others
to form a new national corporation, e.g., the merging of the Union Pacific
Railroad Co. in the Union Pacific Railway Co., is not a dissolution of it, but
a change in its organization. A national corporation may probably be dis-
solved, like other corporations, by an accepted surrender of its franchise
to exist, by a judicial forfeiture of such franchise for non-user or misuser of
26 ALLEN V. TEXAS AND PACIFIO B. CO.
it, or by the sppropziation of such franchise by the government under its
power of eminent domain.
There remains the question, Is a franchise to be a corporation conferred
by one Congress irreyocable by future Congresses? The question has never
bden directly raised before the United States Supreme Court. Morawetz
in his work on corporations (1st ed., § 629) mentions as one mode
in which a corporation may be dissolved — *^By legislative enactment
if no constitutional provision be violated." And this is undoubtedly
good law, as by our case law the legislature is omnipotent in the absence of
constitutional limitations upon its power. The grant of a franchise to be a
corporation is a contract between the grantor and the grantee. Dartmouth
College 9. Woodward, 4 Wheat. 518. There is no constitutional provision
limitiDS^ the power of one Congress to annul the acts of its predecessors, un-
less it be an implied prohibition against the violation of contracts. The
express prohibition against the violation of the obligation of contracts con-
tained m the constitution (U. S. Const, art. Ij f 10, cl. 1) does not
affect the question under discussion, as such provision is a limitation only
upon the powers of the several States. See authorities collected in Desty's
Fed. Const, at p. 126. Without attempting to answer the question whether
the Constitution contains any such implied prohibition, it is proposed to
mention some evidence bearing upon its solution.
The Legal Tender Cases tend to prove that Congress may impair the obli-
gation of contracts between citizens.
Contra, — ^The opinion of several Congresses upon their own powers maybe
gathered from charters which they have conferred on national corporations.
Section 12 of the charter of the first United States Bank was as follows:
*' That no other bank shall be established by any future law of the United
States during the continuance of the corporation hereby created; for which
the faith of the United States is hereby pledged." 1 St. at L. 191.
In the charter of the second United States Bank (8 St. at L. 266) this
section is repeated, with the limitation that Congress may establish banks in
the District of Columbia. The charter of the second bank also contained
the following clause: That **in consideration of the exclusive privileges and
benefits conferred by this act upon the said bank," the directors shall pay to
the United States $1,500,000. Section 23 of the charter conferred power on
the United States Circuit Court for Pennsylvania to declare a forfeiture of
the corporate franchise upon proof of misuser, in a suit which should be
ordered by the President or Congress.
These clauses indicate quite clearly that the Congress of 1791 and that of
1816 believed that they could legally bind their successors by the grant of
special privileges. The same opinion is indicated in the charters of the
Pacific railway companies, and in the later banking acts, all of which con-
tain a reservation by Congress of the right to amend them.
The United States Supreme Court has held that the federal government
occupies towards the Union Pacific R. Co. the twofold relation of sovereign
and creditor; that a suit ordered by Congress to be brought by the Attorney-
General against the corporation ; to recover misapplied corporate funds is a
suit founded on a contract; and that in its canacity of creaitor the govern-
ment can recover only upon such facts as would entitle any other creditor to
recover. United States e. Union Pacific R. Co., 98 U. S. 569.
FALSE CBBTIFIOATB—BATIFICATION— CONTRACT. 27
Eelley
Newbttbtpobt and Amesbuby Horse B. Co.
{Advance 0€ue, Massaehuseiti. May 6, 1886.)
The filing of a certificate of incorporation by a horse railroad company,
reciting that fifty per cent of the capital stock had been paid in, as required
by the statute, when in fact it had not and was not until some time there-
after, does not render a contract for building the road and the obligations
incurred for that purpose absolutely void. Such contracts and obligations
may be ratified by the subsequent action of the stockholders.
Defendants' counsel requested the court to rule that there -could be no
ratification by the stockholders except by some independent, substantiTe
act, with full knowledge of all the facts and their legal effect. The xeouest
was denied. J^tld^ no error; that it is sufficient in such a case if the ratifica-
tion ifi made with a full knowledge of all the material facts.
As a general rule a contract between a corporation and its directors is not
absolutely void, but voidable at the election of the corporation. Such a
contract does not necessarily require any independent and substantive act of
ratification, but it may become finally established as a valid contract by
acquiescence.
CozHRAOT to recover upon certain promissory notes alleged to
have been made by the defendant corporation payable to the order
of E. G. Kelley and William C. Binney. The several notes were
in the same form, and were as follows :
" $1000 Newburyport, May 20, 1876.
"For value received the Newburyport and Amesbury Horse
Railroad Company promise to pay to the order of E. G. Kelley
and William C. Binney one thousand dollars in four years, or nine
years from this date, at the option of said company, with interest
at the rate of seven per cent per annum, payable semi-annually.
" This note is authorized by a vote of the directors of said com-
pany at a meeting held May 8, 1875.
" Wm. C. Binney, Treasurer,
" Witnessed and approved by
" Jos. B. MoBss, Chaimum of Committee.^'*
There were indorsements of interest paid semi-annually from
November 20, 1875, to May 20, 1883, inclusive ; also the following
indorsements :
" Pay to E. G. Kelley, or order, without recourse to me.
«Wm.C. Binney."
" Pay to Emily EL Rand or order.
"E. G. Kelley.
" By Edwasd M. Band, his Attorney!^
" Pay to Mary H. Kelley or order.
" Emily K. Rand."
28 KELLEY V. NBWBURYPORT, ETC., R. 00.
The case was referred to an auditor. From the auditor's report,
which was made a part of the bill of exceptions, it appears that
the defendant corporation was organized under a special charter
and its first board of nine directors was chosen August 29, 1871,
and on the 4th tJay of September, 1871, Elbridge G. Kelley was
chosen its president and Amos Cofiin its treasurer. Coffin subse-
quently resigned the office, and on May 7, 1872, William C. Binney
was elected treasurer. The capital stock of the company was fixed
at $60,000. On the 7th of August, 1872, a certificate was pre-
pared, signed and sworn to by the president, treasurer, clerk and a
majority of the directors, in which it was stated that the amount
of the capital stock of the company had been unconditionally sub-
scribed for by responsible parties, and that fifty per cent of the par
value of each share thereof had been actually paid in cash, and this
certificate was filed in the office of the secretary of the common-
wealth on the 8th of August, 1872. Immediately succeeding the
filing of this certificate, the directors concluded a contradt for the
construction of the road with Col. John E. Gowen, who gave bond
to the company for the faithful performance of the contract with
Elbridffe G. Kelley and William C. Binney, as sureties.
On the 24th of. March, 1873, the directors caused notice to be
£:iven to the said contractor that, unless he commenced in five dars
from the date of the notice to finish the construction of the road
in Salisbury, Amesbury, and Newburyport, which he had con-
tracted to build, and prosecuted the work with diligence and vigor,
the company would notify his sureties to proceed to finish the con-
struction of the road, and in case of default the company would
1)roceed to finish it and hold him and his sureties answerable and
iable for all further damages which might accrue to the company
by his default. The contractor having Siiled to proceed with the
work, on the 31st of March, 1873, the directors caused notice to
be given to the sureties that, unless they proceeded in twenty-four
hours from the receipt of the notice to them to finish the road, the
company would finish it and hold them and the contractor liable
for all damages which might accrue to the company by their de-
fault. Soon after the receipt of this notice the sureties proceeded
to finish the road, and prosecuted the work until it was completed
as required by the contract.
On the 8tn day of May, 1875, at a meeting of the directors, at
which all were present except Kelley, it was voted that the indebted-
ness of the company be settled by giving the notes of the company,
payable in four or nine years, at the option of the company, with
interest at the rate of seven per cent per annum, payable semi-
annually, provided all the outstanding liabilities of the company
and all claims against the company could be adjusted and settled
for $24,000, and a surrender and return to the company of two
hundred shares of the stock issued to John E. Gowen, the con-
FAL8B CSSTIFICATE — RATIFICATION — COKTRAOT. 29
tractor, and the directors appointed certain of their number a com-
mittee to carry out the provisions of this vote. The settlements
were made with the yarious persons holding claims, the capital
stock that had been issued to Gowen was surrendered and returned
to the company, and notes of the company to the amount of
$2^000 were issued in accordance with tne yote of the directors.
The notes sued upon were given in payment for advancements
made by<^elley and Binney for the completion of the road, and
were a part of the notes issued by the defendant corporation in
payment of its indebtedness for the construction of the road.
Other material facts found by the auditor appear in the opinion.
At the trial in the superior court the plaintiff did not contend
that she gave any valuable consideration to £. G. Kelley, from
whom she and the other children of Kelley had received the notes,
as gifts, nor did she claim any better right to recover thereon than
£. G. Kelley would haye had, had the notes been ratified while in
his hands. The plaintiff contended they had been ratified since he
parted with them ; nor did defendant contend that, if E. G. Kelley
could recoyer upon the notes^ the plaintiff could not do so, but
contended and asked the court to rule upon all the evidence that
the noteB were fraudulently and illegally issued and were void and
incapable of ratification. The court ruled in substance that the
notes were originally void in the hands of Binney and Kelley, who
ooald not maintain an action upon them against the defendant, but
that the notes might be ratified by the stockholders of the defend-
ant corporation, and that it was for the jury to determine whether
they had been so ratified.
The case was submitted to the jury upon this question. Upon
this point the following testimony was given :
B. F. Atkinson testified that he was mayor of Newburyport, in
1875 ; that the city of Newburyport owneu stock of the deiendant
corporation to the amount of $25,000 in valae at par ; that he was
a director in the company by virtue of his office as mayor ; that he
was present at the meeting of the directors of May 8, 1875, but he
knew nothing about the circumstances under which tiie debt for
which the notes were siven was incurred, but a few days before
the notes were issued ne heard rumors that Kelley and Binney
were endeayoring to make the company assume a debt which they
ought not to pay ; that he consultea counsel in reference to en join-
ing the directors from issuing the notes; that he understood that
a Dill for an injunction was drawn, and that it was reported to him
tliat the court, without going into the merits of the case, expressed
an opinion that a stockholder could not prevent the directors from
disdiarging any obligation, either in casn or the notes of the com-
pany, and that notwithstanding they had previously contracted to
pay the debt in shares of its capital stock ; that he neyer had any
80 KELLET V. NEWBUBTPOBT, ETC., B. CO.
further knowledge of the matter, and that it was not brought to
the attention of the city government.
Other witnesses, including all persons who had held the office
of mayor of Newbury^rt from 1875 to 1884, testified that they
had no knowledge of circumstances under which the notes were
given, and that no communication relating to them was made to the
city government and no action taken by the city government in
reference thereto.
Certain other evidence from the books of the corporation was
offered. Among other evidence was the acceptance oy the stock-
holders of the fourth annual report of the treasurer, October 6,
1875, acknowledging the receipt of certain amounts by Kelley and
Binney on the notes of the company dated May 20, 1875, being in
part the notes in suit, and recognizing the liability of the company
thereon ; also the acceptance of the treasurer's report, dated Oc-
tober 2, 1878, in which it was stated that after the completion of
the road there were due certain amounts to £elley and Binney for
money advanced from time to time, and that the company settled
these demands by giving its notes at seven per cent interest, paya-
ble in nine years from date. There was also the record of the
acceptance by the corporation of the statute of 1884, chapter 149,
of tne acts of the legislature of Massachusetts, authorizing the
company to issue mortgage bonds for the payment of its indeoted-
ness.
It was also in evidence that the whole amount of the stock of
tl)e companv, outstanding, besides that owned by the city of New-
buryport, after the stock found by the auditor to have issued to
Gowen had been surrendered, was of the value at par of $12,500.
The board of directors consisted of nine persons, and of these,
five individuals, who were directors in 1875, continued to be di-
rectors until October, 1882, and four continued directors until
October, 1883, and so long as the interest on said notes were paid.
Upon this evidence the defendant requested the court to rule :
1. There could be no ratification of the acts of the directors in
making and issuing the notes declared upon while Kelley and
Binnev remained influential members of tne board of directors,
nor while a majority of the directors were persons who were on
said board in 1875 when the vote authorizing the issue of the notes
was passed and the notes given.
2. There can be no ratification of these contracts, either bv a
succeeding board of directors or by the stockholders, unless they
were fully aware of every material circumstance attending the
making of the contract, and unless thev Iniew also the legal effect
of the facts attending the issuing of these notes, and then with a
knowledge both of the law and the facts ratified the contracts by
some independent and substantive act ; and the burden is on the
plaintiff to prove such knowledge.
TALSS CERTIFIOATB — BATIFICATION — CONTRACT. 81
8. Nothing done by the directors can give legality as against the
stockholders to their illegal acts in issuing the notes, upon which
this suit is brought.
L There is no evidence upon which a jury can find that the
defendant has ratified the contracts declared on.
5. Upon all the evidence the plaintiff is not entitled to recover.
The court refused to give the rulings requested, and instructed
the jury that, if the acts proved and relied upon by the plaintiff
to prove ratification were done with a knowledge on the part of
the stockholders of the facts relating to the issuing of the notes,
the jury may find a ratification of the notes on the part of the
stockholders," and save other instructions, to which no exception
was taken, except that he did not instruct the jury that in order to
constitute a ratification the stockholders must know the leeal
effect of the facts and circumstances attending the issuing of tne
notes.
The jury found for the plaintiff for the amount of the notes
and interest, and the defenaant allied exceptions.
jS. D. Smith and M. M. Weston for plaintiff.
H. HT. Shepao'd and H. P. MouUofh tor defendant
C. Allen, J. — ^The first ground of defence is, that by virtue of
Stat 1871, chap. 381, § 6, me defendant was forbidden to build its
road until a certificate had been filed in the office of the secretary
of the commonwealth, signed and sworn to by the president,
treasurer, clerk and a majority of the directors, stating ^iumo
that the whole amount of tne capital stock had been
unconditionally subscribed for by responsible parties, and that
fifty per cent of the par value of each snare of tne same had been
actually paid into its treasury in cash. It appeared by the audi-
tor's report that such a certificate was filed in season, but he re-
ceived evidence to show, and found as a fact, that fifty per cent
of the par value of each share had not been paid in, though the
whole of the capital stock had been duly subscribed for, and
more than fifty per cent of the whole amount of it had been paid
in at the time oi the making of the contract for' the construction
of the road. Under these circumstances, the defendant contends
that it had no power to enter into a contract for the constructjon
of its road; that the act was tiUra vires: that the unanimous
action of the stockholders would not cure the taint, and that all
promises for work and materials in building the road and all notes
given therefor are void and incapable of ratification, and that it
cannot now be held responsible tneref or, although for nearly ten
years it has held, enjoyed, operated and taken the earnings of the
road so built for it, and paid the interest on the notes.
In reference to thisL ground of defence it is sufficient to say that,
cmrmcATB.
32 KELLEY V. NEWBUBTPORTy ETC., B. 00.
acoordinff to eases heretofore decided, it has been declared to be
unavailable. It was not intended by the legislature to allow cor-
gyrations to escape from their just debts in this manner. First
ational Bank of Salem v. Almy, 117 Mass. 476; Augur Steel
Axle Co. V. Whittier, Id. 461 ; Whitney v. Wyman, 101 U. S.
392. See, also, Davis v. Old Colony B., 131 Mass. 260 ; 6. c, 3
Am. & Eng. R. B. Cas. 443 ; Monument National Bank v. Globe
Works, 101 Mass. 57 ; Gold Mining Company v. National Bank,
96 U. S. 640 ; Harris v. Runnels, 12 How. 79 ; O'Hare v. Second
Nat. Bank, 77 Penn. St. 96.
The defendant then contends that the notes in suit cannqt be
enforced, because they were given to its own directors, in payment
Nom aiTBH TO ^^^ ^® constructiou of the road by them, and are now
dSStoSS^- held by the plaintiff, subject to all defences whicli
ncATioH. might have been made to a suit upon them by tbe
payees. Upon this point the only question properly before us is,
whether there was sufficient evidence to warrant the jury in find-
ing a ratification of the notes by the corporation. Tne presiding
judge assumed that tiie notes were originally void, and submitted
to the jury the single question of ratification. Being of the
apinion that there was sufficient evidence to warrant the verdict
on the question of ratification, we have no occasion to consider
whether it might not also have been proper to submit to the jury
the question oi the original validity of tne notes under proper in-
structions. The first request for instructions was properly refused.
It seems to refer to a supposed theory of the plaintiffs that the
notes might be ratified by the directors, whereas the sole question
submitted to the jury was, whether they had been ratified by the
stockholders, ^. ^., by the corporation itself.
The third request is open to the same objection. The second
request sought to incorporate into the doctrine of ratification a
RATincATioR ^^^ element, namelv, that in order to make a valid rati-
■uFwciKOT. fication the principal must have not only known all the
facts, but also the legal effect of the facts, and then with a knowl-
edge both of the law and the facts have ratified the contract by
some independent and substantive act. This request also was
properly refused. It is sufficient if a ratification is made with a
full knowledge of all the material facts. Indeed, a rule somewhat
less stringent than this may properly be laid down, where one pur-
posely shuts his eyes to means of information within his own pos-
session and control, and ratifies an act deliberately, having all the
knowledge in respect to it which he cares to have. Combs v.
Scott, 12 Allen, 493, 497; Phosphate of Lime Co. v. Green, L.
R., 7 C. P. 43, 57 (1 Eng. Rep. 98).
The fourth and nf th requests were both to the effect that on all
the evidence the jury woutd not be warranted in finding a ratifies-
FALSE CEBTIFIGATE — RATIFICATION — CONTRACT. 33
tioD. The circnmstanoes of the case were such as to render the
inference of ratification natural and easy, especially in etidbncb wabp
view of the lapse of time since the notes were given. Scoovrate^
There was nncontradicted evidence tending to show "°"'
that the directors made a contract with one Gowen for bnilding
the road for a certain price in money and stock, and that he gave
to the company a bond, with Kelley and Binney as sureties, for the
faithful performance of his contract ; Gowen failing to perform
his contract, the board of directors called on the sureties, who
themselves were directors, to perform it, with notice that they
would be held liable to the company for all damages that might
accrue to the company by their default. Thereupon the sureties
proceeded to finish the road according to the contract, in which
originally they had no interest. The price was fair and reasona-
ble ; the road as completed by them was a well-built road ; the
advancements made by them were in consequence of the notice
given to them by the directors, and not with any fraudulent design
to obtain any pecuniary benefit for themselves from said contract.
The settlement was made with them by the directors, under au-
thority of a general vote of the stockholders, authorizing them to
make any settlement, and the notes in suit were given. As a
general rule, a contract between a corporation and its directors is
not absolutely void, but voidable at the election of the corporation.
Such a contract does not necessarily require any independent and
substantive act of ratification, but it may become finally established
as a valid contract b^ acquiescence. The right to avoid it may be
waived. Union Pacific B. Co. v. Credit Mobilier, 135 Mass. 376,
377 ; s. c, 16 Am. & Eng. R R. Cas. 670 ; Twin Lick Oil Co. v.
Marburjr, 91 U. S. 587; Hotel Co. v. Wade, 97 Id. 13 ; Ashhuret's
Appeal, 60 Penn. St. 290. In the present case such ratification or
waiver might well be inferred, and indeed we do not see how any
other inference could fairly be drawn from the act of the com-
pany in holding and operating the road for so many years without
taking any steps to repudiate the notes, from the payment of in-
terestf from the acceptance of the report of the treasurer on Octo-
ber 6, 1875, and October 2, 1878, and from the acceptance of the
statute of 1884 — chap. 149 — authorizing the company to issue
bonds to an amount not exceeding $30,000, for the purpose of
extinguishing its floating debt.
Exceptions overruled.
Corporations — Promissory Notes — Issued by Directors of Corporation —
Ratification of Use of 8eal by Treasurer--8light Evidence of, sufficient.—
Certain pronuBSory notes were issued by the treasurer of a corporationv with
the aeal of the corporation added, in settlement of a contract for building a
railroad. It appeared that two of the directors of the company examined
the notes after they were issued, and one of them pronounced them genuine,
and a part of certain notes issued by vote of the stockholders, and that he,
u tnasarerof the company, paid interest upon them; that tiiis appeared in
24 A. ^k £. R Gas.— 8
84 ATOHISON, TOPEKA AND SANTA FE R. GO. V. FLETCHER.
his annual report to the company. The other director also pronounced the
notes genuine. In the reports of the treasurer to the stocknolders for fiie
years, all of which were accepted by the stockholders, obligations of the
company were sometimes spoken of as notes, and sometimes as bonds.
Heldf that it being a matter of excess or misuse of authority in adding seals
to notes when the authority was express to the extent of giving notes, slight
eyidence of the ratification of such excess in respect to the seals was sim-
cient, and that there was sufficient evidence of a ratification by the directors
of the use of seals. Parish of St. James «. Newburyport & A. R. Co. (Mass.
1886), 5 East. Repr. 802.
Liability of Director at Fiduciary! — One acreeing with the directors of a
corporation that he would buy, at a heavy discount, its bonds about to be
issued on being himself elected a director, is liable to creditors of the cor-
poration for the profits of the transaction. A director is a trustee and can-
not speculate in the trust funds. A director against whom judgment has
been obtained in such case by one of the creditors may have contribution
from his co-directors.
A corporation is still liable for its debts though its property and fran-
chises have been sold. Widrig & Co. e. Newport Street R. Co., etc. (Ken-
tucky, Jan. 8, 1885).
Fiduciary Relation of Directors to Corporation — Purchase of Land.— See
Barnes v. Brown, 2 Am. & Eng. R. R Cas. 688 ; Sims e. Brooklyn St. R Co.,
4 lb. 182; Mich. Air Line R. Co. e. Mellon, 5 lb. 245; Little Rock, etc., R
Co. e. Page, 7 lb. 86; Addison et aH, «. Lewis, 9 lb. 702; Case v, Kelly, 18
lb. 70; Cook v. Sherman, 16 lb. 661.
Atohibon, Tofeea and Santa Fe B. Oo. et al.
V.
Fletoheb.
{Adoarue Case, Kanmi, April 9, 1886.)
A corporation is clothed everywhere with the powers given by its charter,
and has the capacity to carry on its business and extend its operations in
other States and countries, so long as it does not depart from the terms of
the charter under which it was created.
Additional powers, auxiliary to the original design or purpose of a corpo-
ration, may be conferred thereon by the legislature of the State where the
corporation is created.
Under the provisions of the charter of the Atchison, Topeka & Santa Fe
R. Co., of February 11, 1859, and the terms of the statutes of Kansas, if
such company guaranties a bond or other negotiable instrument, and takes
the same as its own and sells it, its ffuaranty will be binding upon the com-
pany in the hands of an innocent holder for value, and without notice of the
origin of its title, even if the guaranty of that particular bond, or other
negotiable instrument, when made, was vUra inrea in that special instance.
Any railway company organized under the laws of this State may lease the
road and appurtenances of any other railway company, when the road to
leased shall thereby become, in the operation thereof, a continuation and
extension of the road of the company accepting the lease.
Under its charter, and the statutes of the State, the Atchison, Topeka &
CHARTER— LEASE— INJUNCTION. 36
Santa Fe R. Co. cannot only lease a Colorado railroad, but can also lease
roads in New Mexico, Arizona, and old Mexico, if each road so leased there-
by becomes, in the operation thereof, a continuation and extension of the
road of the Atchison Co.
Upon the facts disclosed in this case, the Atchison, Topeka & Santa Fe
R Co., under its charter and the statutes of the State, had authority to ac-
cept the stock of the Sonora R. Co., of Mexico, and guaranty its mortgage
bonds.
The statute expressly provides, if a court or judge deem it proper that the
defendant, or any party to the suit, shall be heard oefore ^ranting a tempo-
rary injunction prayed for, that reasonable notice may be ffiven to such
party, and in the mean time a restraining order may be issued. Therefore a
court or judge should never grant a temporary injunction in an action in-
ToMng large pecuniary interests, or other important matters, without notice,
where the party to be affected thereby can be readily notified, except in case
of extreme emergency. The hasty and improvident granting of temporary
injunctions, without notice, is not in accordance with a fair and orderly ad-
ministration of justice.
Erbos from Wyandotte county.
Geo. TT. McCrary^ James Hagermany and Peck <k Johnson for
plaintiff in error.
Waters cfe Chase and Henry M. Cheever for defendant in error.
HoBTON, C. J. — ^The facts in this case, as they appear from the
record, are sabstantiall j these : The legislative assembly of the
TerritoiT of Kansas incorporated, in 1859, " The Atchi- fac™.
son & Topeka R. Co.'' The company was authorized to survey,
coDstmct, and operate a railroad, with one or more tracks, from
Atchison, on the Missoari river, to Topeka, and to snch point on
the soathern or western boundary of the Territory, in the direction
of Santa Fe, New Mexico, as might be most convenient and suit-
able for the construction of the road ; and it was also authorized
to build a branch of the road to any point on the southern bound-
ary of the Territory of Kansas in tne direction of the Gulf of
Mexico. On November 26, 1863, the name of the company was
changed to " The Atchison, Topeka & Santa Fe.R. Co.^' Aft«r
its organization the company proceeded to build its line ot rail-
road, so that it was put in operation from Topeka to Newton,
April 15, 1872 ; from Newton to Dodge City, September 15, 1872 ;
and from Dodge City to the western boundary of the State, in the
direction of Santa Fe, New Mexico, January 1, 1873 ; making a
distance altogether of over 470 miles. From the terminus of the
railroad on the western boundary of Kansas to the boundary line
between Colorado and New Mexico, the Pueblo & Arkansas Val-
ley R Co. built a line of railway, and completed the same on July
10, 1879, a distance of about 170 miles. Trom the terminus of
the Pueblo & Arkansas Yalley B. to San Marcial, New Mexico,
the New Mexico & Southern Pacific R. Co. built a line of rail-
way, a distance of over 353 miles, which was put in operation
86 ATCHISON, TOPBKA AND SANTA FE R. GO. V. FLETCHER.
October 1, 1880. From San Marcial to Deming, a point on the
Southern JPacific railroad, distant from San Marcial a little over
129 miles, the Bio Grande, Mexico & Pacific K. Co. built a road,
which was finished March 20, 1881. The Sonora R. Ck)., Limited,
is a corporation organized to build and operate a railway from the
boundary line between the United States and Mexico to Ouaymas,
on the Gulf of California, 262 miles in length. In 1881 this com-
pany had completed only 90 miles of its railway from Guaymas,
extending in a northerly direction towards the said boundary line.
It was the intention of the directors of the Atchison Co. to
have built an independent road from Deming to the Mexican
boundary to connect with the Sonora road, but in 1881, a satisfac-
tory proposal having been made by the Southern Pacific R. Co.
for the joint use of so much of its track as might be required, an
agreement was made between the two companies, subject to termi-
nation by either party giving two years' notice to the other, by
which the Atchison Co. was pei-mitted to i*un its trains, with the
same rights as the Southern Pacific trains, over the Southern
Pacific road from Deming to Benson, a distance of 174 miles.
From Benson the Atchison Co. built a road called the New
Mexico & Arizona R., to connect with the Sonora road at or near
Los Nogales, on the Mexican border, about 97 miles long. The
Sonora R., extending from Guaymas to Nogales, was completed
on November 25, 1882. In 1881 the directors of the Atchison
Co. entered into a contract with the Sonora Co., by which the
capital stock of the Sonora Co., amounting to $5,248,000, was
transferred to the Atchison Co. in consideration of the issuance
and delivery of $2,700,000 of the capital stock of the Atchison Co.
to the Sonora Co., and the guaranty by the Atchison Co. of the
interest, at 7 per cent per annum, of $5,240,000 of the fi^8t-mbr^
^ige bonds ox the Sonora Co. Four million and fifty thousand of
the bonds so guarantied have been marketed, and $1,190,000 of
the bonds are in the treasury of the Atchison Co. Ever since the
purchase of the Sonora stock, and the guaranty of the interest on
its bonds by the Atchison Co., the Sonora road has been operated
by the Atchison Company, and its expenses have been boi*ne by
that company. The annual interest on tlra bonds of the Sonora
Co. so guarantied by the Atchison Co. amounts to the sum of
$283,500 a year, and is payable in July and January of each year.
On December 16, 1885, John W. Fletcher, of the city of
Detroit, Michigan, claiming to be the owner of 200 shares of the
capital stock of the Atchison Co., of the value of $17,000,
commenced this action in the district court of Wyandotte county,
in this State, for the purpose, among other things, of cancelling
the contract between the Atchison Co. and the Sonora Co.,
by which the Atchison Co. agreed to guaranty the interest
on its bonds; to pischarge the Atchison Co. from all liability
CHARTER— LEASE— INJUNCTION. 87
in respect to the guaranty ; and to enjoin the directors and agents
of the Atchison Co. from any further payment of interest on
the bonds. The petition was presented to the district judge in
vacation, who, witnoat* notice to defendants, or either of them,
granted a preliminary injunction, as prayed for, against the
Atchison Co., its directora, officers, and agents, from paying
any interest on the bonds of the Sonora Co. The amount
of the undertaking fixed by the district judge upon allowing the
injunction was ClOOO only. The Atchison Co. subsequently
appeared before the judge and excepted to his ruling, and at once
brought the case to this court upon petition in error for the pur-
pose of raising the question whether the injunction was properly
granted.
The most important inquiry is whether the petition, taking all of
its allegations to be true, shows that the contract of
guaranty complained of was vltra vires. Upon the ou1S»tt-u^
part of plaintiff below it is contended that this contract '"^ ^"^
was entirely unauthorized by the charter of the Atchison Co.,
and beyond the power of the directors of that company to
consent to or to execute, and therefore wholly void and of no bind-
ing force upon the corporation or its stockholders. On the part of
defendants, the claim is that under the powers conferred upon the
Atchison Co. by its charter, the subsequent legislation of
this State, and the general principles of law applicable to corpora-
tions, the contract was and is valid in every respect.
The petition alleges that during the years 1882, 1883, 1884, and
1885 the operating expenses have been greater than the earaings,
and but for the guaranty of the Atchison Co., that the Sonora
bonds would be worthless. The petition further alleges that if the
Atchison Co. continues to operate the Sonora road, and keeps
the guaranty of its bonds good, it will be at the cost of the dep^
tion of its treasijry, and will render the dividends upon its stock
less in amount than they otherwise would be. The pown io
question before us, however, is one of power. If the Sotobo^soho-
Atchison Co. had the authority to accept the stock *^^^
of the Sonora Co., and guaranty its mortgage bonds, it is
liable on the guaranty, whether the Sonora road be a sucker, sapping
the very life of the Atchison Co. as a consumer of its earn-
ings, or a feeder, filling to overflowing a plethoric treasury. Com-
mon honesty will forbid a corporation, as it will a private individ-
ual, from evading the terms of a contract upon the ground merely
that it has been unexpectedly expensive, and therefore not re-
munerative. In this connection, perhaps, it should be said that
the directors of the Atchison Co. still insist that the contract
with the Sonora Co. will prove very desirable and profitable
in the end. They go further, and say that the Atchison Co.
and its stockholders have already received benefits from the con-
36 AT0HI60K, TOPEKA AND SANTA FE R. CO. V. FLETCHER.
tract by the acquisition of connecting roads, and the extension of
their line, so as to make a through roate, which was absolutely
necessary to the financial success of tlieir company ; and that thereby
the earning and profits of the line, as a whole, have been largely
augmented. As to the wisdom or expediency of the execution of
the contract between the Atchison and Sonora companies, as an
original proposition, we have nothing to do. Whether the con-
tract between these companies be a productive or an unfortunate
one for the Atchison Co. is immaterial to our determination
of this case. The question with us is whether the contract was
within the scope of the powers of the Atchison Co. to exe-
cute or perform, under any circumstances or for any purpose, not
whether the Atchison Co. made a good or bad bargain.
Notwithstanding the teems of the charter of the Atcliison Co.,
the various provisions of the statute, and the unwritten law
of comity that a corporation will be recognized and permitted to
prosecute its lawful enterprises in every State which has not ex-
LnnTBD po pressly refused its consent, the senior counsel repre-
orATCHiBORCo. senting the plaintiff insists that the Atchison Co.
has no legal right, by purchase, lease, or other arrange-
ment, to operate its road, or run its cai*s as a part of its own system,
beyond the territorial limits of Kansas. The proposition of an-
other counsel representing the plaintiff is that while the Atchison
Co. is not confined exclusively to the limits of the State, yet
that the road beyond the New Mexico line is operated without
legal authority. Very able arguments were pi'esented by the sev-
eral counsel upon the hearing of the case, and very elaborate briefs
have been filed with us. We have given all of these careful atten-
tion and examination, and have reached the conclusion, after much
deliberation of the serious matters involved, that the proposition
asserted by counsel of plaintiff limiting the power of the Atchison
Co. in its operations wholly to the State of Kansas, or to ad-
joining States, is unsound, and receives no support in the sections
of the statute cited, or in the authorities controlling. The petition
assumes that the acquirement by the Atchison Co. of tlie
intermediate links between the Kansas line and the Sonora line
was unauthorized ; but the allegations are indefinite as to the actual
relations existing between these intermediate links and the Atchison
Co. "We think, however, it is sufficiently shown that the
Atchison Co. is operating its line of road from Atchison and
Kansas City to connect with the Sonora road at Nogales, on the
Mexican border. It is a general rule that the allegations of a
pleader shall be taken most strongly against himself, and therefore
we are not to assume that the directore of the Atchison Co., in
their arrangements for operating their line from Kansas to Mexico,
are acting contrary to the purposes for which the corporation was
created. The presumptions are, in the absence of allegations of
CH ABTSB— LSASE — IN J U NOTION. 39
facts to the contrary, that the Atchison Co. is acting under, and in
accordance with, the provisions of its charter, and the statutes con-
ferring authority upon it. Railroad Go. v. Davis, 3 Ean. ;
It is a general rule that the corporations of one State will be
permitted to carir on their business, and extend their ^^^
operations, in etner States and countries, so long as atio?->twb]u^
they do not depart from the terms of the charters
unoer which they were originally created. Under the comity of
States, or, rather, we should say, under the comity of nations,
the Atchison Co. can exercise all the powers granted by its
charter in Sonora, or in the other States of Mexico, as well as it
can in Missouri, Colorado, or New Mexico, if its powers thus ex-
ercised are not repugnant to or prejudicial to the interests or laws
of Mexico ; therefore, that the Sonora road is in a foreign country
does not, we think, affect the case. In fact, a corporation is clothed
everywhere with the character given bv its charter, and the capa-
city of corporations to make contracts beyond the States of their
creation, and the exercise of that capacity, are supported by uni-
form, universal, and long-continued practice. Land Grant R. Co.
V. Board of Co. Cora'rs of Coffey Co., 6 Kan. 245; O'Brien v.
Wetherell, 14 Kan. 616; Bank of Augusta v. Earle, 13 Pet. 519 ;
Cowell V. Spring Co., 100 U. S. 55.
Hundreds of corporations are created not strictly local in their
character, as in the instance of banks and insurance coRPORAnoifs
• iii*1*1< i^i» • 11 WOT BTRICTLT
companies, all of which transact busmess m all sec- local.
tions of the country. To illustrate the frequencv with which
corporations exercise great powers in foreign countries, counsel for
defendants, upon the argument, cited the East India Co.,
chartered in England, but doing business throughout the East
Indies; the Pacific Mail Steamship Co., a New York cor-
?)ration, operating a line of steamers from New York City via
anama to San Francisco; the Western Union Telegraph Co.,
a New York corporation, having its offices in almost every
city of the Union; the Maxwell Land Co., a Netherlands cor-
poration, owning vast estates in New Mexico; and it was as-
serted by the same counsel that the Sonora Co., alleged in
tlie petition to be a Mexican corporation, is in fact a corporation
created under the laws of Massachusetts. We may also refer,
among many others that might be named, to the following corpo-
rations: the Colt's Patent Fire-arms Manufacturing Co., although
an American corporation, trades extensively in England;
the Liverpool, London & Globe Insurance Co., the Royal Insurance
Co., the Sun Fire Insurance Co., Limited, the Phoenix Assurance
Co., of London, are all English corporations, but they transact
business in many States of the Union ; the North British & Ameri-
can Insurance Co., the Norwich Union Fire Insurance Society, and
the Queen Insurance Co., and other English corporations, write
40 ATCHISON, TOPEKA AND SANTA FB B. 00. V. FLBTCHEB.
risks in Eansas ; the Western Assurance Co. is a Canadian corpo-
ration, accepting fire risks in this -State ; the Panama B. Co. was
incorporated in iTew York, and built a road across the Isthmus of
Panama; the Wells-Fargo Express Co., one of the greatest
of the common carriers, is a Colorado corporation. It is a matter
of general knowledge that many cattle companies recently char-
tered in England now transact business, involving millions of
dollars, in the Western Territories.
It is well settled that a railway corporation may contract to carry
beyond the terminus of its own line, and such a contract will be
valid, although requiring transportation in another State or country.
oauuao Railroad Co. v. Beeson, 30 Kan. 298 ; s. c, 12 Am. &
ToS^BHMiSi Eng. IJ. R. Cas. 62; Hutch. Carr. §§ 144, 152.
o» urn. rjijj^ Narragansett Steamship Co. was, and perhaps is
now, a common carrier between New York and Fall River. It
receipted for a trunk to be delivered at Boston. The tnink failed
to reach its destination, and, in an action against the company by
the owner for its value, it was decided that the company was bound
to carry the trunk to Boston the same as if its vessels went to that
city, and was therefore liable for the loss. Berg v. Company, 5
Daly, 394. And the weight of authority is that a railway com-
pany deriving its powers to engage in business from its charter,
which, by the very terms thereof, is limited to the road between
certain designated points, can bind itself as a common carrier
beyond its designated line. Perkins v. Railroad Co., 47 Me. 673 ;
Bissell V. Railroad, 22 N. Y. 258 ; Hutch. Carr. § 163, and cases
cited. If railway corporations may contract for the transportation
of freight and passengers in other States, and beyond their char-
tered terminij why may not such a company convey, in its own
cars and trains, freight and passengers over connecting and con-
tinuous lines in other States, if it can make arrangements with
such connecting and continuous lines so to do ?
It is the necessary deduction from the principles announced in
the foregoing decisions that if the Atchison Co. is empowered
by its charter and the statutes of Kansas to lease, or by any other
arrancrement to run, its cars outside of the State, it can
OF CHARTS OF excrcisc that power everywhere, and as well in Mexico
^™* as in Colorado or Arizona. This brings us to the con-
struction of the charter of the Atchison Co., and the legis-
lature of the State conferring rights and powera upon railroad
corporations. In interpreting the powers possessed by a corpora-
tion, we must look to the intention of the legislature in the enact-
ment of the statute. It is manifest the legislative assembly of the
Territory of Kansas, in granting the charter to the Atchison Co.,
anticipated that some day the road would become a part of
a transcontinental line, and thereby that Kansas, by reason of its
geographical location, would have passing over it the great traffic
i
OHABTER— LEASE — INJUNCTION- 41
of the country, — east and west, north and south, — because it pro-
vided for boilding its road in the direction of Santa Fe, and also
of the Gulf of ^xico.
Section 1 of said charter reads :
"That C. K. Holliday, Luther C. Challiss, Peter T. Abell, . . .
with such other persons as may associate with them for that pur-
pose, are hereby incorporated a body politic and corporate, by the
name of t^e Atchison & Topeka R. Co.; and under that name and
style shall be capable of suing and being sued, impleading and
being impleaded, defending and being defended against, in law
and equity, in all courts and places ; may make and use a common
seal, and alter or renew the same ; be capable of contracting and
being contracted with ; and are hereby invested with all powers
and privileges, immunities and franchises, and of acquiring, by
purchase or otherwise, and of holding and conveying, real and
personal estate which may be needful to carry into effect fully the
purposes and objects of this act."
Section 20 of said charter gives express authority ^^ to make
such contracts and arrangements with other railroads which con-
nect with or intersect the same as might be mutually agreed upon
by the parties, for leasing or running their roads, or any part
thereof, in connection with roads in other States, and to consoli-
date their property and stock with each other ; . . . and to have
all the powers, privileges, and liabilities that they may hold by
their several charters." Then the additional authority was granted
by the first and second sections of chapter 92, Sess. Laws 1870,
whereby the Atchison Co. could consolidate with a connect-
ing road, and a company of this or an adjoining State could lease
the road of the Atchison Co. The limitations in these sec-
tions providing for consolidation and extension were that the
lines of the road consolidated should, when completed, form a
continuouif line of railroad, and when a company leased its road to
another railroad company, the line of the road should so connect
with the leased road as to form a continuous line. We think a fair
construction of section 3 of that act to be that any railroad com-
pany may lease its road and appurtenances to any Kansas company
when the road so leased shall thereby become, in the operation
thereof, a continuation and extension of the road of the company
accepting such lease. The section is as follows :
"That any railroad company shall have power to lease its
road and appurtenances to any railway corporation organized under
the laws oi this States or of any adjoining State, when the road so
leased shall thereby become, in the operation thereof, a continua-
tion and extension of the road of the company accepting such
lease."
The only difficulty in the construction of this section arises from
the words '^or of any adjoining State;" but it may be that these
i
42 ATCHISON, TOPEKA AKD SAKTA FS B. 00. V. FLETCHEB.
words refer to a corporation of an adjoining State that has come
into the State and leased a Kansas road under the terms and con-
ditions of the statute. If, however, the legislature was inadver-
tently legislating in said section 3 for a railroad company of another
State to Tease a road not touching Kansas, we do not think this
would vary the construction we have given to the other portions of
the section. In the second section the law allows the road of an
adjoining State to come in and lease a Kansas road, and a Kansas
company to lease the road of another Kansas company, and then
the broad authority is given in section 3 for any railway company,
organized under the laws of this State, to lease the road and appur-
tenances of any other railway corporation, when the road so
leased shall thereby become, in the operation thereof, a continnap
tion and extension of the road of tne company accepting such
lease. If section 3 was intended merely to give a Kansas railroad
company the power to lease another Kansas railroad, it is but a
repetition of said section 2, and the whole of said section is mean-
ingless and useless ; but if the section be given the interpretation
as stated, it has full force and operation, and permits any Kansas
railroad company to lease any other railway, whether in or out of
the State, wnen the road so leased shall thereby become, in the
operation thereof, a continuation of the Kansas company.
In 1873 the legislature passed a further act, which reads :
" That it shall be lawful for any railroad company created by or
existing under the laws of this State, from time to time, to pur-
chase and hold stock and bonds, or either, or to guaranty the pay-
ment of the principal and interest, or either, of the bonds of any
other railroad company or companies, the line of whose railroad,
constructed or being constructed, connects with its own."
Under the construction we have given to its charte^f and the
statute, the Atchison Co. had the right to lease the road and ap-
purtenances of any railway company in Colorado, New' Mexico, or
Arizona, or elsewhere, when the road so leased, in the operation
thereof, formed a continuation or extension of the Atchison road.
Under this power, we think the Atchison Co. not only could lease
a Colorado road, which is conceded by one of the counsel of plain-
tiff, but could go on and lease all the intermediate links between
Kansas and Mexico, and when it came to the border of Mexico it
could also lease the Sonora road. Each road so leased would form,
within the terms of the statute, in the operation thereof, a con-
tinuation and extension of the Atchison road. Having all this
power, then clearly, under its charter and the Laws of 1870 and
1873, the Atchison Co. had full authority to purchase and hold
the stock and bonds of the Sonora Co., and to guaranty the pay-
ment of the interest of the bonds of that company, because the
line of that road, as constructed, connects with its own.
There is no force in the proposi tion that there is a missing link
OHARTEB— LSA8E — ^nrJUNOTION. 43
between Deming and Benson, a distance of about 174 miles, and
therefore tliat the Atchison road does not continue and extend via
the New Mexico & Arizona R. to the Sonora B. at Nogales. It
is tme the Southern Pacific built this link, and may be said to be
its owner, but the Atchison Co. has a general use thereof with
the Southern Pacific, and has the same rights therein as that com-
pany. It virtually has a lease thereon, because it is in the posses-
sion of and operating it with such rights of ownership, or as les-
see, as is necessary for all running or operating purposes. Yan
Hostrnp v. Madison, 1 Wall. 291 ; Schuyler Co. v. Thomas, 98 U.
S. 169 ; Mayor v. Railroad Co., 21 Md. 50,
Something has been said about the contract between the Atchison
and Sonora companies bein^ void, because the Atchison Co. was not
actually connected at Nogales at the time of theexecu- comtraot bk-
tion of the guaranty. Even if there was anything in S?5d somoiu
the proposition, in view of the terms of the statute of oompaiom.
1873, providing for the guaranty by one railroad company of the
bonds of another company, whose road was being constructed so as
to connect with its own, we are clearly of the opinion that as to
the bonds marketed, and in the hands of hona-fde holders, the con-
tract between the companies is binding. ^' miere the statute con-
fers express authority upon the company to guaranty the bonds of
another company, a mere failure on the part of the guarantying
company to pursue the mode specified in the statute will not
invalidate sucii guaranty in the nands of the honorfide holder."
Wood, Ry. § 188 ; Arnot v. Railway Co., 67 N. Y. 315 ; Parish v.
Wheeler, 22 N. Y. 494 ; Thomas v. Railroad Co., 101 U. S. 86 ;
Field, Corp. §§ 263-267 ; Bradley v. Ballard, 55 111. 413 ; Field,
Ultra Vires, 185 ; Town of Coloma v. Eaves, 92 U. S. 484 ;
Peoria, etc., R. Co. v, Thompson, 7 Am. & Eng. R. R. Cas. 101,
118; Gelpcke u City of Dubuque, 1 Wall. 175 ; City of Lexing-
ton V. Butler, 14 Wall. 282 ; Supervisors v. Schenck, 5 Wall. 772 ;
Bank v. Globe Works, 101 Mass. 57.
The Sonora road was completed to Nogales in 1882, and the
Atchison Co., havins^ been m connection with and guaraktt or
operating that road ever since, and having repeatedly valid.
paid interest on the Sonora bonds, has clearly ratified the contract
of 1881, and therefore the guaranty of the Sonora bonds is not only
valid in the hands of hma-fide holders, but such contract ,or
guaranty is valid for all the purposes for which it was executed.
Counsel for plaintiff object to any and to all powers granted the
Atchison Co. subsequent to the creation of its cnarter in 1859, and
in support thereof say that the relation between the cor- rblatioii bb.
poration and stockholders is one of contract ; that the 2^55 ^^
stockholder subjects his interest to the control of the "ocbholdbbs.
proper authorities to accomplish the object of the organization, but
does not agree that the purpose shall be changed in its character at
44 ATCHISON, TOPEKA AND SANTA FE B. CO. V. FLETCHER.
the will of the directors or a majority of the stockholderB ; and
that the contract between the corporation and the. stockholders
cannot Be changed without the consent of the contracting parties,
by the legislature, or any other authority. We con<^e that
where the power is not reserved in the legislature to repeal or
amend a charter, that, so far as the charter states a compact be-
tween the corporation, it cannot be chan^d or repealeo bjtbe
legislature, but it is settled that the legislature may authorize a
body of corporators to exercise new powers or franchises without
impairing those previously granted, and if the new powers can be
exercised without a departure from the ori^nal compact between
the corporators, there is no reason why tLey should not be ac-
cepted and exercised on behalf of the company by a majority of
the stockholders.
The special point was made in the case of Union Pac. K. Co. t.
Atchison Co., 26 Kan. 669, that as the charter of the latter com-
pany made certain provisions for exercising the right of eminent
domain, the company could not proceed to exercise that right un-
der the general railroad law. It was held that it could, and that
the general law applied to all cor}x>rations. We said in that case,
" If a company had no right of eminent domain given by its special
charter, the State legislature could, by general law, endow it with
such right ; and if it nad the right, the le^slatui*e could, by a simi-
lar law, enlarge its modes of proceedings. ' All the legislation of
the State that we have referred to is in harmony with the terms and
provisions of the charter of the Atchison Co.; therefore no fran-
chises are diminished, no contract impaired. At most, its powers
are enlarged to carry out successfully the object of its incorpora-
tion. So to speak, auxiliary powers are added, but its charter not
violated, or the benefits thereby granted infringed. Clearwater v.
Meredith, 1 Wall. 25 ; Sprigg v. Company, 46 Md. 67 ; Green's
Brice's Ultra Vires, 80, 84 ; Frjr v. Company, 2 Mete. (Ky.) 3U.
For manv purposes, the Atchison Co. can receive, in the trans-
action of its legitimate business in this State, bonds and other
negotiable paper ; and having received such negotiable instruments,
it may sell and dispose of the same ; and in selling and disposing
of the same, it may guaranty that they are genuine, and it may
also guaranty the payment thereof. Therefore, if the Atchison Co.
had no authority under its charter and the statutes to run its cars
through Colorado, New Mexico, Arizona, and Sonora to the Golf
of California, and was wholly confined to the transaction of its
business within the territorial limits of the State, we think, within
the power conferred by its charter, its guaranty of the Sonora
bonds would be binding upon the company in the hands of parties
purchasing them with such guaranty, in good faith, and withont
notice, rendleton v. Amy, 13 Wall. 297; Bailroad Co. t.
k
CHARTER — LEASE — INJUNCTION. 46
Howard, 7 Wall. 392 ; Arnot v. Erie K. Co., supra ; Bigelow,
Estop. 467 ; 16 Am. & Eng. R. R Cas. 488.
Ab to the equities in this case, nothing is disclosed beneficial to
the plaintifiE. if he was a stockholder of the Atcliison Co. in 1881,
at the time of the execution of the contract of guaranty poanoN or
with the Sonora Co., he appears before the court as a p"-^"™^-
participant, watching the venture, and, if successful, willing to en-
joy the fruits thereof ; but as the experiment, in his opinion, has
failed, he turns to the court for assistance to repudiate its terms.
If he is a recent purchaser of the stock, he ought to have known
from the records of the company the terms and conditions of its
coQtracts, and hence was a purchaser with full knowledge of the
gnaranty of the Sonora bonds. Under such circumstances, he may
be said to have purchased for the purpose of becoming a litigant,
not merely to prevent a contemplated transaction, as in the case of
Du Pont V. Northern Pac. R, Co., 18«Fed. Rep. 467, but to annul
a contract gnarantving bonds, already executed, — at least so far as
the innocent purchasei'S thereof are concerned. Millions of the
bonds have gone upon the market, and have passed in the hands
of bonorfidenolders for value. Very cogent reasons should appear
before a court of equity should interfere. They do not so appear.
High, Inj. § 1206 ; Thompson v. Lambert, 44 Iowa, 239 ; Gregory
V. Patchett, 33 Beav. 596 ; Watts' Appeal, 78 Pa. St. 370 ; Chap-
man V. Railroad Co., 6 Ohio St. 120 ; Terry v. Lock Co., 47 Conn.
UI ; Samuel v. Holladay, 1 Woolw. 400 ; Goodin v. Canal Co., 18
Ohio St. 169.
It was said upon the argument by counsel for plaintiff that it is
gross injustice to its stockholders for the Atchison Co. to plant its
money or propertv in a foreign country.. To this it may be an-
swered : The stocKholders control the company. The ^™^og g'
directors are elected or chosen by the stockliolders, and Sct^J^" ^^'
it goes without saying that the stockholders, as well as the direc-
tors, should have at heart the highest interests of the company. Of
course, the directors must have some power to determine what is
for the best interest of the company, and some discretion must al-
ways be left for them to exercise. Matters of policy and expe-
diency, within the terms imposed by the charter and the statutes
of the State, are for their consideration and determination, subject
to the will of the stockholdera, to whom they are responsible, and
by whom they are elected. ^^ Railroads, as all know, are things of
growth. They enlarge with the development of the country"
(Railroad Co. v, Atchison Co., stwra) ; and railroading is a busi-
ness wherein progress is absolutely necessary. A railroad cannot
stand still. It must either get or give np business. It must make
new combinations, open new territory, and secure new traffic, or
lose its business and reduce its revenues. The directors must con-
sider all of these things in their management of the afEaira of such
46 ATCHISON, TOPEKA AND SANTA FB B. 00. «. FLETOHEK.
a corporation. In concluding this part of the subject, we maysav,
further, that the petition nowhere charges the directors of the
Atchison Co. with incapacity, collusion, corruption, or fraud. It
attacks the integrity of the system of the Atchison Co. beyond the
limits of the State, but not the integrity of its officials.
This disposes of the case. A few words, however, concerning
the action of the district judge in granting the temporary injuno-
iKJiTwenow ^ioJ^* It is unnecessary to decide whether he was
wiTHODTNOTicB guiUy of au abuse of judicial discretion sufficient of
itself to cause a revei'sal of this case, but the practice of granting
injunctions without notice to defendants, except in case of extreme
emergency, deserves condemnation; and the granting of an injunc-
tion in such an important case as this, without notice, when it is
within the general knowledge of every attorney and judge that the
Atchison Co. has an officer or agent in every county of the State
through which its road runs upon whom legal process may be
servea, is very censurable. The semi-annual interest upon over
four millions of bonds was intended to be tied up by the order of
the district judge, which bonds, according to the petition itself,
have been marketed, and the holders are very numerous. In addi-
tion to this, the order would naturally depreciate the value of the
bonds in the markets of the world, and thus innocent purchasers
thereof become the immediate and the greatest suflEerers. The
statute provides if a court or judge deem it proper that the defen-
dant, or any party to the suit, should be heard before granting the
injunction, it may direct a reasonable notice to be given to the
party to attend for such purpose at a specific time and place, and
may, in the mean time, restrain the party. If there was ever a
case where defendants should have been notified and heard before
the granting of a temporary injunction, this is one. Under the
statute, instead of issuing a temporary injunction in the first in-
stance, the judge, if proper facts had been presented to him, might
have issued a restraining order, and directed notice to be given.
The granting of a temporary injunction, under the circumstances,
was not in accordance with a fair and orderly administration of
justice.
The order granting the temporary injunction will be reversed,
the injunction will be wholly dissolved, and the case remanded for
further proceedings in accordance with the views herein expressed.
(All tne justices concurring.)
POWBB TO LBA8E — 00 NSOLID ATIOK — RATIFIOATION. 47
Mills ^oZ.
V.
Central R. Co. of New Jersey et aH.
{Advance Casey New Jersey. February 6, 1886.)
The provisions in the Act of 1880, P. L. 1880, 281, authorizing railroad
corporations to lease their roads, etc., simply confer the right to do the acts
or exercise the power given, after first obtaining the consent of those
affected thereby, or by payment of satisfactory compensation to them for
their interests in the property.
The Act of 1881, P. L. 1881, 223, proyiding for consolidation and merger
of certain railroad corporations, gives those corporations no express power
to lease their roads.
Power to consolidate does not involve power to lease, and it does not en-
large the power to convey lands, etc., conferred by the charter of a railroad
corporation.
The Act of 1854, P. L. 1854, 524, authorizing the Central R. Co. of New
Jersey to lease and operate any railroad intersecting with its road, did not
authorize that company to lease its road to other companies.
Subsequent legislation which is prejudicial to the vested rights of the
stockholders of a corporation, as between themselves, is invalid, so far as
such rights are concerned.
By none of the above acts did the majority of the stockholders of the Cen-
tral R. of New Jersey have power to lease the road against the will of the
minority.
The action of the minority in voting against the ratification of the lease is
sufficient proof that it was against their will.
A delay of fifty-four days in bringing suit to set aside the lease is not suf-
ficient to bar the action on the ground of laches.
A petition to set aside the lease will not be refused on the ground that
the granting of the petition will be injurious to the petitioners.
Celerity in effecting the lease and activity in accumulatiDg obstacles to
granting relief will not secure to the lessees immunity from interference by
the court nor prevent it from upholding the rights of the injured stock-
holders.
Bill to set aside a lease. On final hearing on pleadings and
proofs.
The facts of the case appear in the opinion.
Barker Owmrniere and H, G. Pii/ney for complainants.
B. WHUamsoUy G. M. Rdbesony 2ina £aercher for defendants.
RuNYON, CJhancellor. — ^This suit is brought by Alfred Mills and
John H. Lidgerwood, executors of the will of Stephen Vail, de-
ceased, against the Central R. Co. of New Jersey, the Philadel-
phia & Keading R. Co., and the persons who at the factb.
time of filing the bill, August 29, 1883, were the directors of the
48 MILLS et cH. V. CENTRAL R. GO. OV NEW JERSEY et d.
latter company. The object of it is to annul a lease made Maj
29, 1883, by the Central to the Reading, by which the former de-
mised to the latter, for the term of 999 years, its railroads and
works and all their appendages and appurtenances, and conveyed
to it all its property and assets, real ana personal, together with all
its rights, powers, franchises, and privileges for the management,
maintenance, renewal, extension, alteration, or improvement of the
demised railroads and works and their appurtenances. The rent
resei'ved was payments of interest, dividends, rents, etc., for which
the Central was liable, and the annual payment of a sum equal to
6 per cent upon the par value of the then outstanding capital
stock of that company. The Beading took possession of the prop-
erty at the date oi the lease. The complainants now hold, and did
at the date of the lease, 2048 shares of the stock of the Central.
They never consented to the lease, and they insist that they are
entitled in equity to have it set aside and to have the Central re-
instated ill the rights and repossessed of the property which were
demised or conveyed by that instrument.
The questions to be considered are whether the Central had a
right to make the lease without the consent of the complainants;
and if not, whether the latter are estopped by their conduct in
reference to it from seeking relief in equity against it?
The Central has undertaken to transfer to the Reading all of its
railroads and other works, with all of its franchises requisite
to maintaining and operating them, for a period so long as to
be equivalent in duration to a conveyance in fee, and it has con-
veyed to the Reading all the rest of its property, real and per-
sonal. It has thus, if the lease be valid, divested itself of all of its
property, and, abdicating all control of its railroads and otlier
works, turned over, practically forever, the management and opera-
tion thereot to the Heading, only reserving to itself the payment
of the rent with the right of. enforcing it by re-entry, etc., and the
benefit of certain covenants.
The lease was made with the consent of a majority only of the
stockholders of the Central. It is urged by the defendants that
when it was made, the Central had legislative. authority so to make
it, derived not only under the supplement of 1880, P. L., 1880,
231, to the general railroad law, but also under the 3d section
of a supplement to its charter, which supplement was approved
March 17, 1854, P. L. 1854, 524, and under the Act of 1881, "to
authorize railroad companies incorporated under the laws of this
and adjoining States to merge and consolidate their corporate
franchises and other property,'^ P. L. 1881, 222. The Act of 1880
declares, among other things, that it shall be lawful for any corpo-
ration incorporated under the General Railroad Act, or under any
of the laws of this State, at any time during the continuance of its
charter, to lease its road or any part thereof to any other corpo-
POWER TO LSA8E— 00N8OLIDATI0K — RATIFICATION. 49
radon or corporations of this or any other State, or to nnite and
consolidate, as well as merge its stock, property and franchises, and
road with ^oee of any other company or companies of this or any
other State, or to do both ; and snch other company or companies
are thereby authorized to take such lease or to miite and consoli-
date, as well as merge its or their stock, property, franchises and
road, with such company of this State, or to do both, etc.
The supplement imposes no condition that the stockholders or
any of them shall consent, bat is silent on that head. The pro-
vision in that act that it shall be lawful to lease or consolidate is
merely a legislative anthorization ; a concession on the part of the
legislature, of the power to do that which could not lawfully be
done without such authority. It is not an enactment that the
directors may, without the consent of the stockholders of the com-
pany, lease, consolidate, or mei^. Nor is it in effect an enactment
that they may with the consent of the majority of the stockholders
do BO. "But the statute is merely to enabling act ; a law intended
to give, once for all, a general legislative authority to lease, consoli-
date, or merge. The legislature did not intend to affect the rights
of stockholcfers inter aese^ and the act does not do so, either ex-
pressly or by implication.
It was settled law when the act was passed that, after sharehold-
ers had entered into a contract among tnemselves under legislative
sanction, and expended their money in the execution of the plan
matuallv agreed upon, the plan could not, even by vir- cbahobof
tne of legislative enactment, be radically changed by ^^^^
the majority alone, and dissentient stockholcfers be '^^^'^'^
compelled to engage in a new and totally different undertaking ;
because such action would impair the obligation of the dissenting
stockholders' contract with their associates and the State.
This was declared by the highest tribunal of the State to be the
law, and to be as well supported by every consideration of justice
and right as it was firmly imbeddea in judicial decision. Black v.
Del. & Ear. Can. Co., 9 C. E. G. 455.
The rights of unwilling stockholders are not protected by the
Act of 1880, and, inasmuch as their interests cannot
be taken or controlled m inmtwTij except under the woSot of ^'
exercise of the riffht of eminent domain, it is a legal '""'"^"*"*'
conclufflon from the absence of any provision in that respect, that
the l^islature did not intend to exercise the right of eminent do-
main at all, but simply to confer the right to do the act or exercise
the power given on nrst obtaining the consent of those affected, or
on payment of satisfactory compensation to such, outside of legis-
lative provisions. Carson v. Coleman, 3 Stock. 106 ; Boston & L.
R. Co. V. Salem & L. B. Co., 2 Gray, 1 ; Mills, Em. Dom. § 126.
Where a railroad company, by a vote of a majority of the stock-
S4A.<&E.RCa8.-4
VLMM
AFTKB BUBflCBXP-
nOK TO BTOOK
60 KILLS et (U. V. OSNTRAL R. CO. OF K£W JERSEY et (d,
holders bnt withont le^slative authority, leased its road to another,
it was held that the transaction was not valid as again&t
8ai»-lkaib. ^^^ minority, although the legislature subsequently
ratified and confirmed it. Boston & P. K. Co. -w. N. T. & ^.
E. K. Co., 2 Am. & Eng. R. K. Cas. 300.
The Act of 1881, to which reference has been made, is one ''au-
thorizing railroad companies incorporated under the laws of this
and adjoining States to merge and consolidate their corporate
franchises and other property.^ It provides for consolidation and
merger of companies whose railroads form a continuous line. But
the Law of 1880 had already declared that railroad companies
might consolidate and merge their stock, property, and franchises.
The Law of 1881 provides the method of consolidatii^ or merg-
ing in the cases which are within its provisions, it makes it
necessary that two thirds of the stockholoers of each company shall
agree to the change. It is not in terms amendatory of the general
railroad law, and it makes no reference to the Act of 1880. It is,
in itself, some evidence that the legislature intended by the Act of
1880 to do no more than give its consent to leasing, consolidation,
or merger. The Act of 1881 provides that stockholders refusing
to agree to the consolidation may have their damages assessed and
their stock appraised, and that the companv shall pay the damage
or take the stock at the appraised value, and that if the value of the
stock be not paid within the time limited in the act, the amount
of the damages shall be a judgment against the company. The
act gives no express power to lease.
But it is argued that the power to consolidate either involves in
itself the power to lease, or so enlarges the power
TO STtT £on given by the charter to purchase, hold, and convey any
KtotoSSS lands, tenements, goods, and chattels whatsoever neces-
sary or expedient for the objects of the corporation, P.
L. 1847, 128, as to create the authority to lease. In Branch u
Jesup, 106 U. S. 468, where a railroad company had power
by its charter to incorporate its stock with that of any other rail-
road company, and had also by the charter the ordinary power to
purchase, hold, and convey property, real and personal, it was held
that the power to incorporate the stock had such an enlarging
effect upon the power to sell as to authorize a sale of the railroad
and franchises of the company to another railroad company, which
issued its stock in the place of that of the selling company to the
holders of the latter stock The stock so issued was accepted by
those stockholders, and they all fully acquiesced in the arrange-
ment. The selling company constructed its road under an agree-
ment with the purchasing company, by which the i*oad was to be
constructed in sections and the sections, as they were constructed
were to be turned over to the latter company, and after the com-
pletion of the road the stock of the former company was to be in-
POWEB TO LEASE — CONSOLIDATION — RATIFICATION. 61
corporated with that of the latter. The case snpports the proposi*
tiou that a railroad compaDy having the ordinary power to buy
aud sell property, with power to incorporate its stocK with that of
any other raiboad company, may, under those powers, lawfully
sell all its property and franchises to a raih*oaa company with
whose stock it incorporates its own. But I am of opinion that
power to consolidate does not involve authority to lease, and that
ic does not enlarge the power to convey lands, etc., conferred by
the charter. Power to consolidate is power to take in a partner or
to go in as a partner ; while power to lease is power to dispose of
the whole concern to a stranger. In a consolidation the stock-
holders of the respective companies still retain, to a certain extent,
control of their corporate property ; but by a lease the stockhold-
ers of the leasing company part with the control of their corporate
property and hand it over to others, and abandon their enterprise.
In Archer v. Ten*e Haute & I. B. Co., 7 Am. & Eng. B. B. Cas.
249, it was held that the grant of power to consolidate does not
involve within it power to lease. Thfe Act of 1881 did not
authorize the making of the lease.
Nor was it authorized by the 3d section of the supplement of
1S54 to the charter of the Central. That section declares that it
shall be lawful for the company to purchase or lease or operate any
railroad which may connect with or intersect its road, or to guar-
anty the bonds of such company, or to consolidate the stock of such
company with its own, on terms to be mutually agreed upon ; but
it provides that such purchase or consolidation shall not be made
without the assent of three quarters in interest of the stockholders,
and that if any stockholder or stockholders shall refuse his or their
assent, or if by reason of absence or legal inability such aoodisscbicb
assent cannot be obtained, application may be made by «>"««>■»«>•
such stockholder or stockholders within three months from the
time that the purchase or consolidation shall take effect, to one of
the justices of the Supreme Court of this State for the appoint-
ment of commissioners to appraise the value of the shares of^such
stockholder or stockliolders, the appraisement not to be less than
par ; and that thereupon such proceedings shall be had as provided
m the charter for condemning lands, so far as they may be appli-
cable. Obviously, that section did not authorize the lease.
The defendants insist that the charter of the Central having
been granted after the passage of the jgeneral corporation law,
Rev. p. 178, by the 6th section of which it is provided that the
charter of every corporation which shall thereafter be granted by
or created under any of the acts of the legislature sluill be sub-
ject to alteration, 8usj>ension, and repeal in the discretion of the
legislature, the provision of the Act of 1880 in regard to leasing,
etc., is to be regarded as incorporated in the charter itself ; and
that if so, that act authorized the company to make the lease, and
62 KILLS et cU. V. GSNTBAL B. GO. OF NEW JERSEY et <U,
the directors acting for the company and being its dnly constituted
agents conld, lawfully and effectually, especia&y with the assent of
a majority of the stockholders, execute tne power.
But notwithstanding that provision of the general corporation
law, subsequent legislation, prejudicial to the vested rights of
stockholders as between themselves, is not, so far as such rights are
concerned, to be regarded as having constructivelv existed from
the passs^ of tiie cnarter, and is invalid. Zabriskie v. Hacken-
sack & N. T. R Co., 3 C. E. Gr. 178.
In that case, referring to the above-mentioned provision for aU
teration, amendment, or repeal, and to a like one in the charter of
the company itself, the Chancellor said that the object and purpose
of that provision were so plain and so plainly expressed in the
words, that it seemed strange that any doubt should be raised
concerning them; that the provision was a reservation to tlie
State for the benefit of the public, to be exercised by the State
only ; that the State was making what had been decided to be a
contract, and it reserved the power of change by altering, modify-
ing, or repealing the contract ; and that neiUier the words nor tfie
circumstances nor the apparent objects for which the provision
was made could by anv lair construction extend it to giving a
power to one part of the corporators as against the other which
they did not have before.
Mr. Wood in his treatise on railway law says that, under a rese^
RBSKRVATioHAfl vatiou of authority to alter, amend, or repeal a char-
cHAmnwB MOT ^61*9 ^6 legislature does not acquire unlimited power
^'"^'^■"™*- over a corporation to make alterations in the cnarter
which impair its vested rights ; and that such reservation does not
sanction a reckless invasion of rights of property or an interference
with contract obligations. 1 Wood, E. Law, § 39.
The complainants are entitled to relief in equity, unless by ac-
quiescence they are estopped from claiming it, or by their laches
have lost their right to it. There is no evidence of acquiescence.
On the contitiry, there is clear proof of a refusal to consent to the
making of the lease. It appears that of the two executors, Mr.
Mills alone attended to this business. He alone voted upon the
stock for directors, examined the proposed lease, and attended the
meeting called to ratify it. Mr. Lidgerwood, the other executor,
seems to have taken no part in the matter. The evidence upon
the subject of acquiescence is, according to the testimony of the
E resident of the Central, that prior to the meeting of the stock-
olders of the Central, which took place May 11, 1888, at which
directors were chosen and a resolution was adopted in favor of a
lease to the Beading, Mr. Mills on two or three occasions in con-
versation with him led him to suppose that he was in favor of a
lease to the Beading at a rental of 6 per cent upon the stock of the
Central, Mr. Mills saying that he thought it was the best thing the
POWER TO LEASE — CONSOLIDATION — RATIFICATION. 53
president could do ; that on the 11th of May, on his way to the
stockholders' meeting, he again said, in conversation with the
president npon the subject, uiat he thought it would be wise to
execute the lease ; the best they could do for the interest of the
Etockholders ; but on that occasion he added that he was in such a
position, as executor, that he would not vote for it himself, because
the directions of his testator's will were that the property should
not be sold, and he thought that a lease for 999 years was so nearly
a sale that he, as trustee, did not think it would be well for him
to be a par^ to it. The president says that Mr. Mills gave that 'as
his reason ^r not voting for the lease. Mr. Mills at that meeting
Toted for persons for directors who were understood to be in favor
of making the lease, but he did not vote for the resolution, which
was then adopted by a majority vote, in favor of a lease. That
resolution was that the stockholders approved of the proposed lease
and contract to and with the Philadelphia & Beading B. Co. and
requested the directors to execute and carry the same into effect
immediately upon the company acquiring the legal power to act *
in the premises by the termmation of the receivership. The presi-
dent of the Central had reported to the meeting that a proposi-
tion had been made by the Heading to lease and acquire tne pro-
perty of the Central under a lease and contract for 999 years,
which would guaranty 6-per-cent dividends to the stockholders of
tlie Central, commencing to run from September 1, 1883 ; the first
quarterly dividend to be psnrable on December 1, 1883 ; and that the
l)oard of directors were oi opinion, subject to the proper ratifica-
tion by the stockholders, that after the termination of tne receiver-
ship, upon the company's obtaining legal power to act in the
matter, such lease and contract should be made. That was the
proposal referred to in the resolution. Mr. Mills neither voted for
nor against the resolution. Between the meeting of the 11th of
May and a stockholders' meeting held upon the 6th of July fol-
lowing, to ratify the lease, Mr. Mills called at the office of the
Central and read a draft or copy of the lease. On the latter day
he met the president of the Central on thejr way to the meeting,
and he then said to the president that he, Mr. Mills, owed it to the
president to say that he should that day vote against the lease and
against its ratification ; to which the president replied laches
that he was sorry for that, and Mr. Mills then said that
in his position as trustee he thought it was the best thing for him
to do. The president says he thinks Mr. Mills added that he had
taken counsel about it. The president further testifies that Mr.
Mills expressed no objection to the lease or its terms upon that
occasion.
Mr. Mills says that he did not on the day of the stockholders'
meeting in May express an opinion that leasing the road to the
Reading would be the best thing that could be done for the inter-
co»-
SIDBRED.
64 KILLS et al. v. central r. co. of new jersey et d,
est of the stockholdere. He says that he was anxioas that the road
should be put in a good position, and was favorable to anything
that wonld effect that end, but was not sufficiently familiar with
the terms which were to be inserted in the proposed lease to ex*
press such an opinion.
According to the testimony of the president, while on the 11th
of May and prior thereto Mr. Mills expressed opinions in favor of
a lease, he on that occasion expressly refused to vote for a lease,
and on the 6th of July declared that he felt bound to vote agaiust
the lease which was then to be submitted for ratification.
He did not vote for the resolution at the meeting of May, and he
voted against the lease at the meeting of July. According to the
evidence he at most expressed an opinion in favor of leasing, but
never voted in favor of any lease. On the contrary, he refused to
vote in favor even of the policy of leasing and, when the lease in
question was submitted for ratification, he voted against it. He
had no interest except as trustee, and it was understood that he was
acting in the matter merely in a trust capacity. At the meeting
of the 11th of May he said, according to the president's testimony,
that in view of the obligations of his trust upon him he did not
think it would be well for him to be a party to the making of the
lease, and therefore he would not vote for it. He manifestly in-
tended to be understood as not acquiescing and, in fact, he was so
understood.
According to the testimony on the part of the defendants, what
he said was, that he thought it would probably be the best Dolicj
to lease, yet he would not consent that that policy should be
adopted. Nor was there anything in this conduct to mislead the
defendants, and they were not misled by it. They acted on the
assumption that the lease was valid if ratified by only a majority
of the stockholders. The lease had not been drawn when the
meeting of May was held. The only terms then suggested for it
were the lease and transfer of the property on the one hand, and
the payment of the rent on the other. Afterward, and it appears
to have been about the 26th of May, the terms of the lease wei*e
settled upon by the directors of the companies, and it was executed
on the 29th of that month, and at that date the Reading took
Eossession of the property. The call for the meeting of stock-
olders to ratify the lease was dated June 14th. So that the lease
had been executed and the lessee was in possession under it two
weeks before that call was issued, and over a month before the
stockholders' meeting for ratification was held.
Nor are the complainants bari-ed by laches. This suit was begun
on the 29th of August, less than two months from the date of the
meeting of July. As before stated, the lessee took possession on
the 29th of May. The Lehigh & Susquehanna R. whicn the Central
held underlease when the lease to the lleading was made, passed into
POWBB TO L£A8£ — CONSOLIDATION — BATIFIOATION. 66
the hands of the Reading with the consent of the Central on the 29th
of May, the date of the lease in question in this suit. Whatever
was done by the Reading on the strength of the lease was done in
confidence of the validity thereof, notwithstanding the refusal of
some of the stockholders of the Central to ratif v or acquiesce. If
a stockholder, in order to save his rights in such a case as this, is
bound to bring suit, a delay of fifty-four days in bringing it is not,
under such circumstances as this case presents, laches. Sixty days
is the time given by the statute for fihng an answer to a bill ; and
surely he mav, without forfeiting his ri^ts, take as much time to
prepare his bill as the defendants would have by law to put in
their answer. If a stockholder w];iose rights are disregarded and
trampled under foot makes reasonable haste to bring suit, it is
enough. It is to be remembered that he is the injured party ; and
there is some hardship, to say the very least of it, In requiring him
to incur the expense and trouble of a suit to protect his rights
against unwarrantable and reckless invasion. It certainly cannot
be regarded as being the law that he is to lose his rights unless he
brines suit immediately to recover or protect them. If such were
the Taw, minorities of stockholders would often fare very badly
indeed. The Reading, in assuming that the assent of the majority
of the stockholders of the Central was enough to validate the lease,
accepted the hazard of its own subsequent actions, based upon that
assumption.
It is urged that to set aside the lease will be injurious, not only
to the majoritv of the stockholders of the Central and to the
Reading, but also to the complainants themselves; and to establish
this the defendants have undertaken to show that the lease was a
profitable and most desirable arrangement for the Central. This
might be conceded, and yet the complainants would be entitled to
the relief which they seek. When the lease was made, the Central
had been declared and decreed by this court to be solvent, and its
affairs have been remitted to its hands accordingly. It must,
therefore, be held to have been a solvent corporation. It is a
matter of public notoriety that the Reading has, since the making
of the Jease, become insolvent. • These considerations, however,
cannot control or afiEect the complainants' right to have the trust
property restored to the uses to which by the contract between
them and their fellow-stockholders it was devoted. Again, this
appeal to the court not to disturb the existing arrangement is an
appeal in behalf of the wrongdoers themselves, those by whose
action the injury has been done to the complainants.
It is urged that if this court finds that the lease is invalid be-
cause it is an infraction of the complainants' rights, it will merely
decree payment to the complainants of the value of their stock, to
be ascertained here. There are many cases in which where a cor-
66 MILLS et al. v. central b. co. of new jersey et- d,
poration authorized to take property by the exercise of the right
dbcbu of pat- of eminent domain takes it withont making compensa*
w^y^^^ tion, but under circumstances entitling it to the consid-
8IDEBSD. eration and protection of equity, this court will refuse
to disturb its possession or to permit it to be disturbed, provided
due compensation, to be fixed by this court, be made. But to
take that course in this case would in fact be to condemn the com*
plainants' stock, for which this court has no warrant, and that, too,
m the trust and for the protection of those who are without any
claim to equitable interference. It is for the legislature to eaj
whether the stock of dissenting stockholders shall oe taken, as for
a public use, under the exercise of the right of eminent domain.
It has not said that it may be so taken in this case. Those who, in
such a matter as this, act without the acquiescence of all the stock-
holders, do so at their peril and must take the consequencee if
their act be undone at the instance of dissentient stockholders. It
may be added, that celerity in effecting their design, and activity
in accumulating obstacles to granting relief, will not secure to
them immunity, and prevent this court from upholding the rights
of the injured.
There will be a decree declaring the lease null and void and the
transfer of property thereby made illegal.
Power to lease Road — Ratification of Lease. — See Eckerv. C, B. & Q. R.
Co., 1 Am. & Eng. R. R. Cas. 357; Abbott v, J. G. & K. H. R,Co., 2 lb.
641 ; Boston, etc., R. Co. «. N. Y., etc., R. Co., 2 lb. 800; Peters v, Lincoln,
etc., R. Co., 6 lb. 597; Troy & Boston R. Co. «. Boston, etc., R. Co., 7 lb.
49; Todbunter v. D. M., etc., R. Co., 7 lb. 67; Archer v. Terre Haute, etc.,
R. Co., 7 lb. 249; Elkins n. Camden, etc., R. Co., 9 lb. 590 and note; Wood-
ruff t?. Erie R. Co. and note, 16 lb. 501.
Right of Dissenting Minority of Stockholders to enjoin or set aside a
LeasOf — A stockholder's relation to his corporation is one of contract. The
stock held by him represents his vested interest in the property of the cor-
poration and his vested right to such dividends as the profits of its business
enable it to declare. This right to share in corporate property and to re-
ceive dividends^ on the corporate stock held by him being a contract right,
cannot be impaired by any majority of stockholders however laree. 1% is
therefore the right of any minority of shareholders, and even of Uie holder
of one share of stock, to enjoin a proceeding, or have it set aside, if it hss
been consummated, whenever it is uUra Hres of the corporation or in fraud
or derogation of his contract rights as a shareholder. Nor can the majority
of stockholders meet the application of a minority to restrain illegal corpo-
rate action by offer to buy the stock held by the minority. Stock is property
whose owners cannot be compelled to sell it, except upon condemnation under
the right of eminent domain. In the principal case there was a leasing act
involved ; but it did not provide that dissenting stockholders should sell
their stock to a majority upon proper compensation being made; nor did the
act point out any method by which a dissenting shareholder could obtain
compensation for any injury resulting to him from a proposed lease. And in
such cases it is settled that the legal conclusion is that the legislature did
not intend to grant to the majority the power to take the dissenters' stock by
exercising the right of eminent domain. Piscat. Bridge Co. v. K. Hamp.
POWER TO LEASE— CONSOLIDATION — RATIFICATION. 67
Bridge Co., N. H. 85, 70, 71 ; Boston & L. R. Co. v, Salem & L. R. Co., 2
Gray, 1, 36, 39; Atlantic & P. Tel. Co. v, Chicago, R. L &P. R. Co., 6 Bias.
158; Carson v. Coleman, 3 Stock. 106, 108, 109. And it is equally well
settled that if the legislature did intend by the leasing act that the dissen-
ters^ stock should be taken by eminent domain and yet neither made provi-
sioD for their compensation, nor provided the method therefor, then the act
was yiolatiye of constitutional provisions in that it proposed to take private
property for public use without making compensation therefor. Thacher v.
Dartmouth Bridge Co., 18 Pick. 502, 503; Mt. Washington Road Co., 35 N.
H. 141, 142; Eastman v, Amoskeag Manfg. Co., 44 N. H. 150; Watkina v.
Walker Co., 18 Tex. 590, 591; Watson v. Trustees, 21 Ohio St. 667; State v.
West Hoboken, 8 Vr. 77, 81 ; Sage v. Brooklyn, 89 N. T. 189, 195. See 1
Perry, Tr. sec. 167, 160; 2 Id. Sec. 920.
Action on L«ase — ^Allegation in Complaint as to Citizenship in Qraat
Britaini — ^A British corporation sued on a railway lease to recover instalments
of rent, alleging that it ** is a citizen of Great Britain.*' Defendant, answer*
ing, denied the allegation that plaintiff was a '' citizen of Great Britain."
^if that both the allegation and the denial as to citizenship were meaning-
less and immaterial, there bein^ no *' citizens " of Great Britain, and the al-
legation that the plaintiff is a foreign corporation formed in and under the
laws of -Great Britain being sufficient to show that in the contemplation of
law plaintiff is an alien entitled to sue in the circuit court of the United
States. Oregonian R. Co. v. Oregon R. & N. Co., 10 West C. Repr. 279.
Estoppel by Judgment in an Action on Lease for Rants — A covenant in a
lease of a railway for a number of years to pay the rent reserved therein in
semi-annual instalments is in the nature of a series of undertakings or obli-
gations assumed or incurred at the same time and under the same circum-
stances; and a judgment in an action to recover any one of these instal-
ments of rent is conclxisive of the validity of the lease and the liability of
the lessee thereunder in any subsequent action thereon as to any matter or
defence that might have been made to the first action. Oregonian R. Co. v,
Oregon R & N. Co., 10 West C. Repr. 279.
Pleadings in Action on Leasa of Railway — Issues — Estoppel. — ^It is not neces-
sary that a corporation formed under the law of Great Britain to construct,
own, operate, and lease railways in Oregon should specify in its memorandum
of association the termini thereof, and, therefore, an allegation in an answer
to a complaint in an action by such a corporation on a lease of its road, that
it had not made such a specification, is immaterial. An allegation of fact
in an answer which is not, per se, a defence to the action, and is not at-
tempted to be made so, by any proper averment, is immaterial. A mere de-
nial of the lessee corporation's power to execute a lease of a railway in an
action thereon, by the lessor corporation to recover rent, is a conclusion of
law and immaterial. An allegation by the lessee corporation in such action
that the lessor's road had no near connection with its road, that the capital
stock of the latter was not contributed to operate leased roads, that the
lease was not ratified by its stockholders, or that it was signed by its presi-
dent and secretary without the State of its origin, is immaterial. In an action
by the lessor to recover the rent reserved in a lease, an allegation in the an-
swer to the complaint, that the lessee did not occupy the premises during
the period for which the rent is demanded, is immaterial, imless it is
further alleged that such non-occupation was the direct resist of the fault
or misconduct of the lessor.
In an action by an apparent corporation on a lease of its railway, to recover
an instalment of the rent reserved therein, the lessee is estopped to deny
the lessor's corporate existence or power to make such contract. Oregonian
R Co. V. Oregon R. & Nav. Co., 10 West C. Repr. 279.
68 PSNNSYLVANIA R. 00. V. ST. LOUIS, BTC, B. 00.
PENNdTLYANiA R Oo. et (U. V. 8t. Loxjib, Alton and Tekse Haiite
R Ca
St. Louib, Alton and Terbe Haute R. Co. v. Indianapolis Aim
St. Louib R. Co. et al.
(Adwmce Case, United State: April 26, 1886.)
In the case of an existing railroad corporation organized under the laws of
one State which is authorized by the laws of anothei* State to extend its road
into the latter, it does not become a citizen of the latter State by exercising
this authority, unless the statute giving this permission must necessarily m
construed as creating a new corporation of the State which grants this per-
mission.
Where a lease of a railroad for ninety-nine years contained covenants for
the payment of monthly instalments of rent to keep the road in repair, sad
to keep accounts of all matters connected with its business, as affecting the
amount of rent to be paid, which covenants were guarantied by other par-
ties than the lessee, a Dill which shows failure to pay rent, depreciation of
the road, and combination of the guarantors and lessee to divert the earn-
ings of the road to the benefit of the guarantors, presents a case of equitable
jurisdiction, "when it prays for specific performance of the obligations of the
lease. In such a case, a suit at law on each installment of rent as it falls
due is not an adequate remedy.
Unless specially authorized by its charter, or aided by some other leg^ls-
tive action, a railroad company cannot, by lease or other contract, turn over
to another company, for a long period of time, its road and all its appurte-
nances, the use of its franchises, and the exercise of its powers, nor can any
other railroad company, without similar authority, make a contract to run and
operate such road, property, and franchises of the first corporation. . Such a
contract is not among the ordinarv powers of a railroad company, and is
not to be inferred from the usual grant of powers in a railroad charter.
Thomas «. Railroad Co., 101 U. S. 71, reaffirmed.
The act of the IllinoiB Legislature of February 12, 1855, is a sufficient
authority on the part of the St. Louis, Alton & Terre Haute Co. to make
the lease sued on in this case.
But if the other party to the contract, the Indianapolis & St. Louis Co.,
had no such authority, the contract is void as to it; and if the other com-
panies had no power to guaranty its performance, it is void as to them, and
cannot give a right of action against them.
An examination of the statutes of Indiana, and of the decision of its
courts, fails to show, in the one or the other, any authority for an Indiana
railroad company to make such a contract as that between tiie principal con-
tracting^ companies in this case.
Nor IS any authority found in the charters of any of these guarantying
companies, or of the laws of the States under which they are organizea, to
guaranty the performance of such a contract as this, with the parties to it,
and the road which it relates to, being outside the limits of these States,
and having no direct connection with their roads.
The doctrine that acts may be done and property change hands under
void contracts which have been fully executed, with which courts will not
interfere, is sound, but any relief in such cases must be based on the in-
validity of the contract, and not in aid of its enforcement. While the plain-
POWER TO LEASE — CONSOLIDATION — RATIFICATION. 69
tifE in this cue might recover, in aa appropriate action, the rental value of
the uae of its road against the lenee company, the other defendants who had
reoeived nothing, but had been paying out money under a void contract,
cannot be compelled to pay more money under the same contract.
Appeals from tbe Circuit Court of the United States for the
District of Indiana.
John T. Dye, Stevenson Burke, and Ashley Pond for Penn-
sflvaiua S. Co. and others, and Indianapolis & St. L. R. Co. and
others.
John M. Butler and J. E. McDonald for St. Louis, A. & T. H.
R. Co.
Miller, J. — These are cross-appeals from a decree of the circuit
court for the district of Indiana. The suit was brought in that
court by a bill in chancery, filed by the St. Louis, Alton & Terre
Haute R. Co., alleging that it was a corporation orga- FAcm
nized under the laws of the State of Illinois, and a citizen of that
State, against the Indianapolis & St. Louis Co., a corporation simi-
larly organized under the laws of tlie State of Indiana, and a citizen
of that State, and against the other corporations mentioned in the
bill, as citizens of Indiana, or of other States than the State of
Illinois. A final decree was rendered in favor of plaintiff for the
sum of $664,874.70, with costs, and an injunction against several
of the defendants, from which both complainants and defendants
in the court below have appealed.
1. The first question arising on the record is that of the juris-
diction of the circuit court of the Indiana district, as founded on
the citizenship of the parties. This question was raised at an early
stage of the controversy by a distinct plea to the juris- juusdictzov.
diction, and was overruled by the court. Afterwards, and before
the decree, the defendant corporations who had filed this plea with-
drew it, and desired to have the case decided on the merits. As
it is not competent to any parties to confer jurisdiction on the cir-
cuit court bv a waiver of objections to it, the question is one which
lies at the threshold of any further proceeding, and must be de-
cided. The objection arises out of tne admitted fact that the In-
dianapolis & St. Louis R. Co. is a corporation organized under a
statute of Indiana, and is a necessary party to the suit, and the as-
sumption that the St. Louis, Alton & Terre Haute R. Cfo. is orga-
nized under laws of both Illinois and Indiana, and is therefore a
citizen of the latter State, as is its principal opponent in the con-
troversy. The complainant company owns a road extending from
the Mississipppi River, opposite St. Louis, to Terre Haute, Indiana,
of which only a very few miles — 10 or 12 — are within the State
of Indiana. The controversy grows out of a lease of this road by
the complainant company to the Indianapolis & St. Lonis Co. As
the complainant company was chartered originally by the State of
60 PENNSYLVANIA B. 00. V. ST. LOUIS, ETC., R. CG
Illinois, and is undoubtedly a citizen of that State, and in that
character would have the right to sue the other companies in the
circuit court for Indiana, do the other facts in the case defeat this
ri^t by making it also a citizen of Indiana i
It does not seem to admit of question that a corporation of one
State, ownine property and doing business in another State by per-
mission of the latter, does not thereby become a citizen of this
State also. And so a corporation of Illinois, authorized by its
laws to build a i*ailroad across the State from the Mississippi rirer
to its eastern boundary, may, by the permission of the State of
ciTBKNaHip or Indiana, extend its road a few miles within the limits
A coRPORAno5. ^f |.Jjq jattcr, or, indeed, through the entire State, and
may use and operate the line as one road by the permission of the
State, without thereby becoming a corporation or a citizen of the
State of Indiana ; nor does it seem to us that an act of the legisla-
ture conferi'ing upon this corporation of Illinois, by its Illinois
corporate name, such powers to enable it to use and control that
part of the road within the State of Indiana as have been confen'ed
on it by the State which created it, constitutes it a corporation of
Indiana. It may not be easy, in all such cases, to distmguish be-
tween the purpose to create a new corporation which shall owe its
existence to the law or statute under consideration, and the intent
to enable the corporation already in existence under laws of an-
other State to exercise its functions in the State where it is so re-
ceived. The latter class of laws are common in authorizing insur-
ance companies, banking companies, and others to do busmess in
other States than those which nave chartered them. To make such
a company a corporation of another State, the language used must
imply creation or adoption in such form as to confer the power
usually exercised over corporations by the State, or by the legisla-
ture, and such allegiance as a State corporation owes to its creator.
The mere grant of privileges or powers tcr it as an existing corpora-
tion, without more, does not do tnis, and does not make it a citizen
of the State conferring such powers. In a case where the corpora-
tion already exists, even if adopted by the law of another State,
and invested with full corporate powers, it does not thereby be-
come such new corporation of another State until it does some act
which signifies its acceptance of this legislation, and its purpose to
be governed by it.
We think what has occurred between the State of Indiana and
this Illinois corporation falls short of this. The origin of this
corporation was a special act of the Illinois legislature of January
orioih of th« 28, 1851, chartering the Terre Haute & Alton K. Co.
Ind** alto" to construct a road from the State line, near Terre
ROAD. Haute, to Alton ; and bv an act of the Indiana legisla-
ture, passed a few days later, this Illinois corporation was permit-
POWEB TO LEASE— CONSOLIDATION — RATIFICATION. 61
ted to extend its road through Indiana to Terre Haute. Some
changes took place in the name and power of this company by
statutes of Ilhnois, but none which affected its powers derived from
the Indiana statute of February 11, 1851. But the property of
the corporation was sold out unaer foreclosure of a mortgage to
Bobert Bayard, Samuel J. Tilden, Russell Sage, and others, who,
under an act of the Illinois legislature, reorganized the purchasers
into the corporation called the St. Louis, Alton & Terre Haute R.
Co., which is the present company, and which, by the Illinois
statute, succeeded to all the franchises of the original Terre Haute,
Alton & St. Louis Co. As these included all the powers necessary
to operate the few miles of the road in Indiana under the act of
Febraary 11, 1851, it was unnecessary to seek an act of incorpora-
tion from that State. It appears, however, that Bayard, Tilden,
and their associates did file in the ofSce of the Secretary of State
of Indiana a certificate of the organization of the new company,
with the names of the first directors of it, who were to serve until
1S63 ; and it is argued that this made the St. Louis, Alton & Terre
Haute Co. a corporation of the State of Indiana. A critical ex-
amination of this certificate renders it very doubtful whether that
was its purpose, but rather indicates that it was intended to secure
aud perpetuate the rights granted to the Terre Haute & Alton Co.
by the act of February 11, 1851. At all events, no evidence exists
of the agreement of the new Illinois company to accept of or act
under mis attempt at organization under Indiana laws. They
never held an election for directors of the Indiana corporation, if
one exifited, and they never in any other manner recognized the
existence of an Indiana corporation of the same name.
Without goin^ into the question whether the plaintiff in this
case, if it were (uearly a corporation of both States, could maintain
this suit in the Circuit Court under the decisions in this court, we
are satisfied that, with reference to its right to sue as a citizen of
Illinois, it is not, also, a corporation and citizen of Indiana, under
the facts found in this record.
As regards the asserted existence of the Indianapolis & St. Louis
Co., under the law of Illinois, by which it is asserted to be a citizen
of the same State with plaintin, the objection is the same as that
which was overruled in Kailway Co. v. Whitton, 13 Wall. 270, and
iu MuUer v. Dows, 94 U. S. 444.
2. The next objection to the decree is that the bill does not pre-
sent a case for equitable relief, and should have been dismissed for
want of jurisdiction in chancery. To understand the force of this
proposition dearlv, it is necessary to make a statement of the case
as made by the bill.
It seems that in May, 1867, the St. Louis, Alton & Terre Haute
B. Co., plaintiff in the bill, had nearly completed, and was operat-
62 PENNSYLVANIA R. CO. IJ.^ST. LOUIS, ETC., B. CO.
ing, from Terre Haute to St. Louis, by way of Alton, a road about
STATKMBHT OF ^^^ niiles loDg. Froiii Terre Haute to Indianapolis
iHK CASK. (about 70 milesj a corporation had been organized under
the laws of Indiana to build a road, and probably had built the
whole or a part of it. Indianapolis was then a railroad centre of
importance, from which roads ran to Chicago and other lake towns,
ana to Louisville, Cincinnati, and other towns on the Ohio riyer,
and to all the principal cities of the Atlantic coast. At St. Lonis,
the Terre Haute & Alton road connected with the railroad system
of tlie Mississippi river. Several of these railroad companies whose
traffic was east of Indianapolis, and all of whom had connection,
direct or indirect, with that city, were desirous of reaching St
Louis with their business, and made proposal to the complainant
company for the purpose of accomplishing this result. The com-
panies who executed the agreements to secure this purpose, all of
whom were made defendants to the bill, were the Indianapolis,
Cincinnati & Lafayette R. Co., the Pittsburgh, Fort Wayne &
Chicago E. Co., the Pennsylvania Co., the Bellefontaine Co., the
Cleveland, Columbus & Cincinnati Co., and the Cleveland, Paines-
ville & Ashtabula Co. Their proposition was that the Indianapolis
& Terre Haute Co. should lease, for a period of 99 years, the part
of complainant's road between St. Louis and Terre Haute, and
thus, with its own road, make a continuous line between Indiana-
polis and St. Louis, and the other companies agreed to guaranty
the payment of the rent and performance of the other omigations
of the Terre Haute & Indianapolis Co., and it was also agreed that
if this company refused to execute this operating contract the de-
fendants might procure some other company to build the 70 miles
of road from Indianapolis to Terre Haute, and execute the agree-
ment in place of the Terre Haute & Indianapolis Co., and in like
manner tney would guaranty the performance of its obligations in
the lease.
What occurred was that the Terre Haute & Indianapolis Co. re-
fused to execute the contract of lease, and another corporation was
organized, under the influence and control of these guarantying
companies, to build the 70 miles of road between Indianapolis ana
Terre Haute, and the line of road between Indianapolis and St.
Louis was thus made complete. This company was called the
Indianapolis & St. Louis R. Uo., and it executea the contract of lease
with the complainant company, September 11, 1867. At the same
time the guarantying companies, except the Pennsylvania Co.,
executed a new guaranty as a substitute lor the former. The aver-
ments of the bill, however, bring in the Pennsylvania Co. as de-
fendant, by alle^ng that, in its lease of the Pittsburgh, Fort Wayne
& Chicago roao, it bound itself to perform the obligation of this
latter company as one of the guarantors ; and that, by siting the
original contract of guaranty for the Terre Haute & Indianapolis
POWER TO LEASE — CONSOLIDATION— RATIFICATION. 63
^
Co., it bound itself to the same guaranty for any road substituted
in its place ; and by the further averment that the Indianapolis &
St. Louis Co., which did enter into the contract of lease, was in
reality but the creature of the companies who signed the original
contract of guaranty, the Pennsylvania Co. included. This con-
tract of lease between the complainant company and the Indiana-
polis & St. .Louis Co. lies at the foundation of all claim for relief
in this suit It is a caref uUv drawn instrument of 19 articles. It
leases out complainant's road from St. Louis to Terre Haute, and a
short connecting line of four miles to Alton, for the period of 99
years ; and it provides for the absolute control of this road by the
Indianapolis & St. Louis Co., called partv of the first part, during
this period; for its being kept in repair by that company; for the
payment of a rent by that company to the party of tlie second part,
the St. Louis, Alton & Terre Haute Co., which should be regulated
by the gross income derived from the use of the road, but in no
event to be less than $450,000 per annum.
Some of these articles of agreement, and parts of others impor-
tant to the issues before us, are as follows :
''Art. 1. The said party of the first part shall, will, and may
manage, operate, and carry on the business of a certain railroad
belonging to the party of the second part, and known asticlu or
as the pnncipal or main line of the St. Louis, Alton & lSS?*" "
Terre Haute B., extending from Terre Haute, in the State of
Indiana, to East St. Louis or Hlinoistown, in the said State of
Illinois, and also a certain branch thereof belonging to the party of
the second part, and extending from a point on the said main line
to Alton, in the said State of Illinois, for and during the period of
99 years from the first day of June, in the present year of our Lord
one thousand eight hundred and sixty-seven, upon and subject to
the terms and condititions of this indenture, and all and singular
the provisions herein contained.
"Art 2. The said party of the first part shall and will, within a
reasonable time hereafter, finish and put in good order and condi-
tion any and all unfinished portions oi said main line of railroad, or
of said Alton branch thereof, and any and all parts or portions of
either said main line or said branch which may be in inferior
condition or out of repair ; and thereafter, at all times during the
said period of 99 years, the said party of the first part, its successors
and assigns, shall and will keep the said main line of railroad, and
the 8aid Alton branch thereof, in the order and condition of first-
class western railroads, making from time to time all needful re-
pairs, replacements, improvements of and additions to the same at
the proper cost and expense of the said party of the first part, with-
out deduction or abatement, from the moneys hereinafter provided
to be paid to the partv of the second part ; and the said party of
the first part shall and will expend, for improvements ana equip-
64 PENNSTLVAKIA B. CO. V. ST. LOUIS, ETC., B. CO.
ments upon the said line of railroad, in addition to the ordinary
expenses of operation, repair, and replacement, a sum not less in
the aggregate than five hundred thousand dollars, before the thirty-
first day of December, in the year one thousand eight hundred and
sixty-eight.
'*' Art. 3. The said party of the first part shall and may, for and
during the term aforesaid, use and apply to and for the business of
said main line and branch railroads any and all depots, stations,
station-houses, car-houses, fi-eight-houses, wood-houses, and other
buildings, and all machine-shops and other shops, and all depot
grounds and other lands adjacent to the said main line and branch
railroad, or either of them, or used or acquired for use in connec-
tion therewith, including certain depot grounds at East St. Lonis
aforesaid. ..."
Article 5 authorizes the lessee company to fix all rates of fare for
freight and passengers, with a provision for the pix)tection of other
companies, not material here.
" Art. 6. The said party of the first part, keeping and perform-
ing all and singular tne terms, provisions, and conditions of these
presents, and making the payments hereinafter required, shall and
may, at all times during tne period of ninty-nine years aforesaid,
demand, collect, and receive any and all fares, cnarges, freights,
tolls, rents, i*evenues, issues, and profits of the said main line of
railroad extending from Terre Haute to East St. Louis aforesaid,
and of the said branch thereof to Alton aforesaid.
" Art. 7. The party of the first part shall, in each and every year
of the term of ninety-nine years, pay, or cause to be paid, to the
party of the second part, in the manner and at the times herein-
after provided, thirtyper cent of the gross earnings of the said
railroad from Terre Haute to East St. I^uis,and the branch there-
of to Alton, until such gross earnings for such year shall amount
to the aggregate sum of two millions of dollars ; and twenty-five
per cent of any excess over two millions of dollars, until the whole
earnings for such year shall amount to three millions of dollars ;
and twenty per cent of any excess over three millions of dollars of
gross earnings for' such year ; and such percentage of the gross
earnings for each such year shall be paid over without any deduc-
tion, abatement, or diminution for any cause whatever ; every de-
mand or claim accruing, or to acrue, to the party of the fii*8t part
bein^ hereby declared to be chargeable on that portion of t^e gross
earnings which the said party is, by the next succeeding article
hereof, empowered to retain as therein provided ; but it is hereby
expressly agreed that the aforesaid payments shall amount, in each
and every year, to at least four hundred and fifty thousand dollars,
which is hereby agreed upon as a minimum for each and every year,
and it is to be paid absolutely, without reference to the percentage
which it forms of the gross earnings of such year, and without
POWER TO LBA8K — 00K80LIDATI0N — RATIFICATION, 65
leaving or creating any claim or charge upon the earnings of any
fntare year."
'' Art. 15. The said party of the first part shall and will, during
the whole period of ninety-years aforesaid, keep just, full, and true
accounts oi any and all business which shall or may be done upon
the said main line of railroad, and the said Alton branch thereof,
or upon either or any part of either thereof, and of all moneys
earned or received from or on account of such business ; and shall
render to the party of the second part, monthly during such period,
a detailed approximate statement of such business, showing the re-
ceipts and disbursements on account thereof ; and shall also, annu-
allj, to wit, on or before the first day of March in each year, ac-
count to and with the party of the second part for any and all
moneys earned or received as aforesaid for and during the year
terminating with the thirty-first day of December preceding the
time of such accounting; and the president of the party of the
second part, or an a^nt duly authorized by the board of dii'ectors,
shall, at all reasonable hours and times during the term aforesaid,
have the right to examine and inspect, and there shall be produced
and exhibited to them, any and all books of account wherein shall
be entered, or which shall purport to contain, any entry or state-
ment relating to the business done on said main line and branch
railroads, or on any part of either thereof, during the term afore-
said, and any and all vouchers relating to such business ; and shall
also have the right to take transcripts from and copies of such en-
tries or statements, and of such vouchers."
The following is the conti-act of guaranty, signed by the other
nilroad companies on the same day that the foregoing lease was
signed by the two principal companies ; the reference to the operat-
ing contract of the seventeenth May, 1867, being to the one pre-
pared for the Indianapolis & Terre Haute Go. which it refused to
execute. The recitals are omitted, and only the language descrip-
tive of the contract of guaranty is given :
^ ^ Now, therefore, this indenture witnesseth that for and in con-
sideration of the premises, and of the sum of one dollar to each of
them duly paid, the receipt whereof is hereby acknowl- cjomtbact of
edged, the said parties of the first, second, and third ^'^^^^^^^'^r.
parts to these present, for themselves, their successors and assigns,
nave covenanted, promised, and agreed, and by these presents do
covenant, promise, agree, and guaranty, to and with the said party
of the fourth part, its successors and assigns, that the said Indian-
apolis & St Louis B. Co. shall and will, at all times hereafter,
keep, observe, and perform all and singular the covenants, condi-
tions, and provisions of the said operating contract, bearing date on
the seventeenth day of May, in the year of our Lord 1867, and of
the said instrument bearing even date herewith, by which the said
MA^bKROas.-
66 PENNSYLVANIA B. CO. V. ST. LOUIS, ETC., R. CO.
Indianapolis & St. Louie JS. Co. has assumed, adopted, or become
liable to carry out the said operating contract according to the true
intent and meaning thereof : provided, nevertheless, that all the
obligations of the parties of the first, second, and third parts there-
to, created or intended to be created hereby, shall be several and
not joint, and as to each of them, for the equal third part of any
and all damages which may arise from any default of the said
Indianapolis & St. Louis R.' Co., its successora or assigns, in the
premises, or for any breach of this agreement by the said parties
of the first, second, or third parts thereto."
The bill charges, as violations of the contract of lease, that the
Indianapolis & St. Louis Co. has for some time past failed to pay
charobb of the rent as fixed at the minimum of $450,000 per
™^ annum; that it is insolvent, and is in many other
respects in default in regard to its obligations under the operating
contract ; that it has not kept the roacT adequatelv fumished with
equipments, but has allowed it to run down and depreciate, and
has resorted to the use of leased cars and equipments, instead of
purchasing and owning the same, and the road is not in the order
and condition of a first-class western road, as required by said con-
tract, and that the money which should go to pay complainant is
used to pay for the leased cars ; that the rails have become worn,
and the track out of repair. It is also alleged that the lessee's road
is covered by a large mortgage, to secure bonds held chiefly, if not
altogether, by the guarantying companies, and, in fact, by means
of their ownership of the stock and bonds of that company, they
are drawing from it the money wnich should go to pay complain-
ant's rent, and to purchase rolling stock and repair the road. It is
then alleged that suits for the instalments of rent as they fall due,
and judgments at law against all the defendants, would be no ade-
quate remedv ; that to do this, or resume possession and control of
complainant s road for non-performance, would not be sufficient for
that purpose ; that complainant has a contract with the defendants
more valuable than would be the resumption of the possession of
the road in its depreciated condition both in respect to the road and
equipments and the traffic over it, so largely diminished by con-
struction of the road of the Indianapolis & St. Louis Co. to the
Mississippi river at St. Louis by that company, and by the otlier
defendants, on a line nearly parallel to complainant's road, and not
far from it. The prayer for relief is that the Indianapolis & St
Louis Co. be required specifically to perform its obligations in all
the respects mentioned, and that, in default thereof, the guaranty-
ing deiendants be required to do so ; and that the latter companies
be required to perform by paying such of the instalments of mini-
mum rent as the lessee company fails to do as they fall due ; that
the companies be enjoined from receiving from the Indianapolis A
POWER TO LEASE— CONSOLIDATION — RATIFICATION. 67
St. Louis Co. interest on its bonds held by them while it is in
aiTears for rent ; and also enjoined from selling these bonds ; and
that a receiver be appointed to take snch a per cent of the gross
earnings of the company as may be necessary to pay the rent due
complainant.
We have been thus minute in showing the breaches of the con-
tract alleged in the bill, the condition of the parties as to ability
to perform, and the relief sought, because it is said that an action
at law for the unpaid rent, as often as the instalments become due,
is an adequate remedy, and is all that the defendants i^o adbquatb
are liable for. But we cannot concur in this view of ««»^^»^^-
the matter. If the contracts are valid contracts, and the complain,
ant has the rights which are guarantied to it under them, such re-
lief is very inadequate. To sue for every monthly instalment of
rent, even if the principal and the guarantors can be sued jointly,
is almost equivalent to a denial of justice. If the conti*act is to
continue, and the road to be run by the lessee company, which is
insolvent, a monthly resort to a suit at law against the guarantors is
destructive of the substantial right of the plaintiff under the con-
tract. Having a valuable contract in regard to the operation of the
road for a gi*eat many years to come, plaintiff cannot be compelled
to forfeit it, and resume possession, and sue for all its damages in
one action, because this would best serve the purposes of the solv-
ent guarantors.
The Indianapolis & St. Louis Go. agreed to keep the road, its
rolling stock, and its equipment in good condition, equal to a first-
class western railroad. The plaintiff has a right to have this done
specifically, and is not bound to bring action after action for dam-
ages at every stage of this depreciation. These suits would be
vexatious, unsatisfactory, expensive, and the relief would be inad-
equate. A clause in the contract i*equires the lessee to keep regu-
lar accounts of all the matters essential to complainant's rights.
The examination of these accounts by a master is eminently appro-
priate, rather than by a jury. The relief granted by the decree,
of enjoining the guarantying companies from collecting the inter-
est on the bonds of the Indianapolis & St. Louis Co. while it is
insolvent and in arrears, can only be given in a court of equity.
In short, the numerous questions-7-the complex issues — raised in
the case can only be satisfactorily tried in a court of equity, and
that court alone can give full, adequate, and complete remedy for
the grievances of plaintiffs growing out of the violation of this
contract, and adjust the extent and nature of that relief amon^ the
parties to it. We are of opinion, therefore, that if the complain-
ant is entitled to any relief on the facts of the case, it is in a court
of equity as distinguished from a court of law.
3. It is objected that the contract of lease between the two
primary parties to that contract, the lessor and the lessee company,
63 PENNSYLVANIA R. 00. V. ST. LOUIS, ETC., B. 00.
was one which they had no power to make, and that, still less, had
AUTHORITY TO ^^^ othcF defendant companies authority to guaranty
SfcS*AuTHo»- its performance by the latter. In the consideration of
iTiBSBBviBWBD. |j^jg qQestiou uo reference will be had to any want of
regularity in the proceedings attending the execution of these
agreements, nor to the absence of any such authority as the boards
of directors could have given to the officers of the companies who
signed the contracts. It is here a question, pure and simple, as to
how far the authority to execute these contracts is sustained by
the corporate powers which the law has vested in these com-
panies.
A case very much like the present one, as it relates to this point,
was before us some six years ago, and the opinion in it establishes
for this court the main principles on which the inquiry must pro-
ceed. In that case a railroad company in New Jersey had leased
its road, franchises, and property for a period of twenty years,,
yielding, as in this case, complete control of it all to the lessees,
and receiving as rent one half the gi*os8 sum collected by the lessees
from the operation of the road. The agreement contained a con*
dition that the railroad company might at any time terminate the
contract and take possession of its property. But in that event
they should pay to the lessees the value of the lease for the re-
maining period of the twenty years to which the lease extended.
The company exercised this option, took possession of its road,
and the suit was brought to recover on this covenant. Thomas v.
Bailroad Co., 101 U. 8. 71. The decision turned upon the power
of the company, under its corporate authority, to make the lease.
The plaintiffs in error, who were the lessees, insisted that a corpo-
ration may, as at common law, do any act which is not eitner
expressly or impliedly prohibited by its charter, although, where
the act is unautnorized, a shareholder may enjoin its execution,
and the State may, by proper process, forfeit the charter. To this
the court responded : " We do not concur in this proposition. We
take the general doctrine to be in this country, though there may
be exceptional cases and some authorities to the contrary, that the
power of corporations organized under legislative statutes is such
and such only as those statutes confer. Conceding the rule appli*
cable to all statutes, that*what is fairly implied is as much granted
as what is expressed, it remains that the charter of a corporation
is the measure of its powers, and that the enumeration of those
powers implies the exclusion of all others." The reports of deci-
sions in the English courts were very fully examined, as will be
seen by the reported statement of counsel's briefs, and many of
them specially referred to in the opinion ; also several cases in this
court and in the State courts of this country.
It is not expedient here to go again over the ^onnd there con-
sidered, as we are of opinion now, as we were then, that the great
POWER TO LEASE— CONSOLIDATION— EATIWOATION. 69
preponderance of judicial decisions supports the proposition above
stated. It has been distinctly recognized and repeated in this
court in the case of Green Bay & M. B. Co. v. Union Steamboat
Co., 107 U. S. 98 ; s. c, 13 Am. & Eng. R R. Cas. 658.
It is cited with approval in the supreme court of Massachusetts
in the case of Davis v. Old Colony R Co., 131 Mass. 258. This
latter opinion is a very full and able review of all the important
decisions on that subject, and sustains very clearly the main propo-
sitions. In this court the principle is completely covered by the
decision of the case of Pearce v. Bailroad Co., 21 How. 441, de-
cided io 1858. In that case the defendant companies, whose road
at one end of it terminated on the Ohio river, had purchased a
steamboat to be used on that river in connection with their freight
and passenger traffic, and had given notes for the purchase money.
In V suit on these notes this court ruled that they were void for
want of any authority in the companies to buy the boat, or to en-
gage in the carrying trade on the river. The opinion delivered
by Mr. Justice Campbell cites several of the English cases relied
on in Thomas v. Bailroad Co. and in Davis v. Old Colonv B. Co.,
above referred to, and concludes with the observation that " the
opinion of the court is that it was a departure from the business
of the corporation, and that their officers exceeded their authority."
This doctrine had been previously asserted with great force in the
case of York & Maryland Line E. Co. v. Winans, 17 How. 30.
These are all cases in which railroad companies were parties, and
their powera, as regulated by their charters, were the matters
mainly considered. There are many other cases of the highest
authority where railroad corporations are held to the doctrine laid
down in Thomas v, Bailroad Co.: Eastern Cos. B. v. Hawkes, 5
H. L. Cas. 371, 381-381 ; Ashbury B. Carriage Co. v. Biche, L.
R. 7 H. L. 653 ; MacGregor v. Dover & D. B., 18 Q. B. 618 ;
East Anglian Bys. v. Eastern Cos. B., 11 C. B. 775.
We think it may be stated, as the just result of these cases, and
on sound principle, that, unless specially authorized by its chai-ter,
or aided by some other legislative action, a railroad company can-
not, by lease or any other contract, turn over to another powkb
company, for a long period of time, its road and all its "*^" '
appurtenances, the use of its franchises, and the exercise of its
powers ; nor can any other railroad company without similar au-
thority make a contract to receive and operate such road, fran-
chises, and property of the first corporation ; and that such a con-
tract is not among the ordinary powers of a railroad company, and
is not to be presumed from the usual grant of powers in a railroad
charter. We must therefore proceed to inquire if any such powers
have been given to the railroad companies engaged in this trans-
action.
There is found in the record a copy of an act of the Illinois leg-
TO
LBA8B ROAD.
70 PENKSYLVANIA R. CO. V. ST. LOUIS, ETC., R. 00.
islature approved February 12, 1855,- of which the following is the
lirst section :
" Section 1. Be it enacted by the people of the State of Illinois,
ACT OF iLLwois represented in the general assembly, that all railroad
LEGISLATURE, companics incorporated or or^nized under, or which
may be incorporated or organized under, tne authority of the law,s
of this State, shall have power to make such conti*acts and ari*ange-
ments with each other, and with railroad corporations of other
States, for leasing or running their roads, or any pai't thereof ; and
also to contract lor and hold in fee-simple, or otherwise, lands or
buildings in this or other States for depot purposes ; and also to
purchase and hold such personal property as shall be necessary and
convenient for carrying into eflEect the object of this act."
Though it might be said that this act only authorizes Illinois
railroad companies to become lessees, we think it must be conceded
that this enactment authorized the St. Louis, Alton & Terre Haute
JR. Co., which we have already said was exclusively an Illinois
corporation, to enter into the lease or operating contract found in
the record. But if the other party to the contract, the Indianapolis
& St. Louis Co., had no such authority, the contract of lease is void
as to it ; and if the other companies had no power to guaranty its
performance, it is void as to tliem, and the capacity of the com-
plainant to make this contract does not make it valid as against
those which had not such capacity, and cannot give a right of action
on it against them. In tlie case of Thomas v. ^ilroad Co.,
the lessees were natural persons, with no disability to contract, but
they were held to have no remedy on their contract, because it was
not binding on the other party for want of a similar power to make
the contract.
An act of the legislature of Indiana of December 18, 1865, is
relied on as by implication conferring this power. Section 8 is as
follows :
" Sec. 8. In case any railroad, or part thereof, shall have been,
or shall hereafter be, leased, conveyed, or mortgaged to any other
ACT or Indiana railroad compauy, and shall be in the possession of such
LEoisLATUBit Qthcr compauy, under such lease, conveyance, or
mortgage, the road, or part thereof, so leased, conveyed, or mort-
gaged shall, during the continuance of such possession, be assessed
for taxation as the property of the company having such possession,
in the same manner as if it were a part of the road of such lessee,
grantee, or mortgagee, under its own charter; and such lessee,
grantee, or mortgagee shall, during the continuance of such posses-
sion, have all the rights, and be subject to all the duties and liabili-
ties, in relation to the road or parts thereof, so held, which are
created by this act, and both its property and the road, or parts
thereof, so held, with its fixtures and the property used in operat-
ing the same, shall be liable for the payment of such taxes, in the
POWER TO LEASE — CONSOLIDATION— RATIFICATION. 71
same manner as railroad property id, in other cases/ made liable for
taxes properly assessed against the same." 3 St. Ind. 420, 421.
It will be seen at once that this is a statute for the collection of
revenue, and that to make sure of the payment of taxes due on
railroad property the legislature has undertaken to provide that in
cases where the possession has passed out of the corporation which
owns it, or has the title, it shall be paid by the persons having that
possession. Hence, in enumerating this latter class, it speaks of
property leased then or thereafter, or conveyed or mortgaged, and
makes the holder liable during the continuance of such possession
for the taxes. This precise question, only more strongly presented,
in favor of the affirmance of the lease by the act of the New Jersey
Legislature, was decided in Thomas v, Kailroad Co., 101 U. S.
85. The statute in that case having direct relation to the com-
pany which had made the invalid lease, passed after the lease was
maae and in operation, declared it should ^^ be unlawful for the
directoi'S, lessees, or agents of said railroad to charge more than
three cents per mile for carrying passengers," and the proviso said
^^ that nothing contained in this act shall deprive the railroad com-
pany or its lessees of the benefit of the provisions of another act "
relative to fares on other railroads in the State. This court said
that though ^^it might be fairly inferred that the legislature knew
that the road was operated under the lease in tliat case, it was not
important for the purpose of that act to decide whether this was
done under a lawful contract or not." "The legislature was deter-
mined that whoever did run the road, and exercise the franchises
conferred on the company, and under whatever claims of right
this was done, should be bonnd by the rates of fare established by
that act. ... It is not by such an incidental use of the word
^ lessees,' in an effort to make sure that all who collected fares
should be bound by the law, that a contract unauthorized by the
charter, and forbidden by public policy, is to be made valid and
ratified by the State."
So, here, the mention of lessees as possible holders of the posses-
sion of railroad property neither implies that they are lawfully so,
or that such an absolute transfer of road, appurtenances, franchises,
powers, and their control as the one found in this case is authorized
by law,'nor, though it may be in operation, does it give sanction to
or create such a law.
The following section of the act of February 23, 1853, of the
Indiana legislature is relied on as authorizing this contract :
" Sec. 3. Any i*ailroad company heretofore organized, or which
may hereafter be organized, under the general or special laws of
this State, and which may have constructed or commenced the con-
struction of its road, so as to meet and connect with any ^^ct of febru-
other railroad in an adjoining State at the boundary iSouSk^^o^
line of this State, shall have the power to make such ^'^^'
contracts and agreements with any such road constructed in an ad-
72 PENNSYLVANIA R. CO. V. ST. LOUIS, ETC., R. CO.
joining State, for the transportation of freight and passengers, or
for the nse of its said road, as to the board of directors maj seem
proper." Eev. St. Ind. 1881, § 8973.
We cannot see in this provision any authority to make contractg
beyond those which relate to forwarding by one company the pas-
sengers and freight of another, on terms to be agreed on, and pos-
sibly for the use of the road of one company in mnning
M^GoinsAon. the cars of the otlier over it to its destination without
breaking bulk. In the case of Board of Com'rB of
Tippecanoe Co. v. Kailroad Co., 50 Ind. 110, this same statute was
relied on as supporting the authority to make the lease then noder
consideration ; but the Supreme Court of Indiana said : ^' That act
is to authorize railroad companies to consolidate their stock with
the stock of other railroad companies in this and in an adjoining State,
and to connect their roads with the roads of said companies ; . • •
the title nowhere mentions a lease or a sale. Indeed, the words 4o
connect their roads with the roads of other companies ' would seem
to exclude such a conclusion. To connect one road with another
does not fairlv mean to lease or to sell it." This was said in a case
where the whole question turned on the power of one i-ailroad
company to make, and the other to receive, a lease of the road. It
is cited in the brief of counsel for complainant as sustaining the
doctrine that in Indiana the right of railroad companies to lease
their roads to other companies is recognized by the judiciary of
that State. We think it proves the opposite. The lease in that
case was held void as being tdtra vires. All the arguments of the
court are based on the proposition that the corporation can do no
valid act unauthorized by statute, and can make no contract in con-
travention of public policy ; and while it says : "We do not decide
that railroad companies cannot become lessoro or lessees of other
railroad companies, for the purpose of running their lines in con-
junction, facilitating commerce, travel, and transportation, or for
any legitimate purpose for which railroad companies are organized,
and there is much in the legislation of the State favoring this view,
and many decisions sustaining the advancing enterprise of the
country," — it adds: "But all such contracts must come within the
powers of the corporation, must not exceed the powers of the
agency that makes them, must not violate the rights of stock-
holders, or contravene public policy." We look in vain in this
latest decision of the State for any assertion of the proposition that,
by the laws of that State or by the decisions of its courts, there
exists any law by which one railroad company can, by lease or by
any other contract, make an absolute surrender of its road and its
franchises 'to another. And yet that was the question under dis-
cussion ; and because the lease in that case contained a clause of
perpetual renewal, and in effect amounted to a sale, the court held
it ultra vires. What practical differetu e is there between this and
POWBB TO LEASE — CONSOLIDATION — RATIFICATION. 73
a lease with the same powers for 99 years ! If that decision does
no more, it at least leaves this court free to follow its own views of
the powers conferred by the Indiana law in regard to this snbject
on its railroad corporations.
Lastly, it is said that in Bailroad v. Yance, 96 XT. S. 450, this
court decided that this same contract was binding on the Indian-
apolis & St. Louis Co. That was done on the ground that the
latter company was made a corporation of the State of Illinois by
the act of that State of March 11, 1869, and was using that part
of the present plain tifiTs road lying within the State of Illinois
under that contract. In reference to its liability to pay the taxes
on that part of the plaintiff's road, it was held to be an Illinois
corporation, and bound under the Illinois statnte by the contract
of lease now under consideration. But we have just shown that
the Indianapolis & St. Louis Co. was an Indiana corporation when
this contract of lease was made, which was two yeai*s before it be-
came an Illinois corporation by the Act of 1869. The present
suit is against it as an Indiana corporation ; othei*wi8e it could not
be maintained. The validity of the contract depends on its power
as an Indiana corporation to make it at the time it was made. It
had none tlien, and no act of the Indiana legislature has ratified it
since. That suit was founded on an Illinois contract between
'Illinois corporations to collect Illinois revenue, and was in no
sense governed by Indiana law, but by the law of Illinois.
As regards this lease, in a suit against the Indiana corporation,
organized under its laws by the name of the Indianap- l^^b bxld
olis & St. Louis B. Co., in the circuit court of the ^^'^•
United States for that district, we must hold it to be void for want
of power in the defendant company to make it.
We have been thus careful in our examination into the power
of the lessor and lessee companies in the contract of lease, because
if the lease itself is void the contract of the other companies must
be e<]Qally so. A contract to perform for the Indianapolis & St.
Louis B. Co. obligations which it was forbidden to assume, and
which it had no authority to assume, must itself be void. There
is no power shown in any of these companies to accept a lease of
the complainant such as the one in the present case, and perform
its conditions, and they cannot, therefore, become parties to such
a contract with a road outside the State which chartered them any
more than the principal company. If these guarantying com-
Cnies had executed the original contract of lease, it would have
en void for want of authority from the legislature of Indiana, or
of any other State by whose laws they are incorporated or endowed
with corporate power. No snch power is shown in them to lease
roads beyond their own States. Indeed, while there may be a just
claim of authority for some kind of running arran^ment between
two connecting roads under the Indiana statutes, there is no con-
74 PENNSYLVANIA R. CO. V. ST. LOUIS, ETC., E. CO.
nection between the plaintiff's road and any road of a gnarantying
company. The connection even by traffic is remote. These com-
panies might as well have assumed the power to loan them money,
or to indorse their notes, or any other commercial transaction, as
to guaranty the performance of a void contract by one company to
another.
It may not be amiss to cite one or two cases in which this power
powKB TO to eniaranty the contract of one corporation by an-
TRACT OF AX- othQT IS moro directly m point. Among these are
oOTtRooBPORA- QqJjjjj^jj ^^ Eastcm Cos. R. Co., 10 Beav. 1 ; Madison,
W. & M. Plank-road Co. v. Watertown & P. Plankroad Co., 7
Wis. 59.
In the first of these cases, under the powers contained in the
acts of Parliament, the Eastern Counties R. Co. and the Eastern
Union B. Co. had formed a railroad from London to Manningtree,
a place about 10 miles from the port of Harwich. The directors
of these companies conceived that it would add to the traffic and
profits of the railway if a steam-packet company could be formed
communicating between Harwich and the northern ports of Europe,
and they accordingly took pix)ceeding8 for the establishment of
such a company. It was intended that the railway companies
should guaranty to the shareholders in the steam-packet company
a dividend of five per cent per annum upon their paid-up capital*
until the dissolution of that company, ana that then the whole paid-
up capital should be paid by the railway companies to the sharehold-
ers 01 the packet company in exchange for a transfer of its assets.
On a bill by a shareholder of the railway company to enjoin, it
was held by the master of the rolls, Lord Langaale, that no such
contract was within the power of the railway companies, and fur-
ther proceedings in the matter were enjoined. Among other
things, that learned judge said that ^^ if there is one thing more
desirable than another, after providing for the safety of all persons
travelling on railroads, it is tnis : that the property of the railway
companies shall be itself safe ; that a railway investment shall not
be considered a wild speculation, exposing those engaged in it to
all sorts of risks, whether they intended it or not. Considering the
vast property which is now invested in railways, and how easily
it is transferable, perhaps one of the best things that could hap-
pen would be that the investment should be of such a safe nature
that prudent persons might without improper hazard invest their
moneys in it. Quite sure I am that nothing of that kind can be
approached if railway companies should be at liberty to pledge
their funds in support of speculations not authorized by their le^
powers, and whicli might very possibly, to say the least, lead to
extraordinary losses on the part of the railway company." This
became a leading case in England, where its doctrines have been
POWER TO LEASE — CONSOLIDATION— RATIFICATION. 75
steadily followed. It is cited with approval in Pearce v. Madison
& Indianapolis B. Co., 21 How. 441.
In the ease of Madison Plank-road Go. v. Watertown Co., 7
Wis. 59, the former company, in order to aid the latter company
to bnild a plank-road, which was a continuation of the road of the
former, agreed to guaranty ^ loan made to the Watertown Co.
After the road was built the Madison Co. refused to pay on the
default of the Watertown Co. The supreme court held that the
Madison Co. had no corpAi^te power to guaranty the payment
of the debt of the other company ; and when pressed with the
argument that, by the building of the road, tne Madison Co.
had receiyed the benefit which had induced it to guaranty the
debt, the court said it was a contract uUra vires, and could not be
enforced.
We are of opinion that the guaranty of the ol^li^tions of the
lease on the part of the Indianapolis & St. Louis Co. ouASAmss
by the other defendants is yoid. ""^ ^®°*-
4. It is argued, in support of the decree, that, though the con-
tract of lease may be yoid, so that no action could originally haye
been sustained upon it, there has been for 10 years such perform-
ance of it, in the use, possession, and control of plain- pgn^j^^^j,
tiff's road and its franchises, by the defendants, that ywpg ▲ Tom
they cannot now be permitted to repudiate or abandon "^**"
it ; that it now presents one of a class of cases which hold that,
where a yoid contract has been so far executed that property has
passed under it, and rights haye been acquired under it, the courts
will not disturb the possession of such property, or compel res-
titution of money receiyed under such a contract.
Undoubtedly there are such decisions of courts of high author-
ity, and there is such a principle, yery sound in its application to
appropriate cases. But we understand the rule in such cases to
stand upon the broad ground that the contract itself is yoid, and
that neither what has been done under it, nor the action of the
court, can infuse any yitality into it. Looking at the case as one
where the parties haye so far acted under such a contract that they
cannot be restored to their original condition, the court inquires if
relief can be giyen independently of the contract, or whether it
will refuse to interfere as the matter stands. We know of no
well-considered case where a corporation which is party to a con-
tinuing contract which it had no power to make, seeks to retract,
and refuses to proceed further, it can be compelled to do so. As
was said in Thomas v. Railroad Co. (a case so often in point here),
'^ haying entered into the agreement, it was the duty of the com-
pany to rescind or abandon it at the earliest moment. This duty
was independent of the clause in the contract which gaye them
the ri^ht to do it. Though they delayed its performance for
seyeral years, it was neyertheless a rightful act when it was done.
76 PENNSYLVANIA E. CO. V. ST. LOUIS, ETC., B. CO.
Can this performance of a lawful duty, — ^a duty which it owed to
the stocknolders of the company and to the public, — ^give to plain-
tiffs a right of action ? Can they found such a right on an agree-
ment void for want of corporate authority, and forbidden by the
policy of the law ? To hold that they can, is, in our opinion, to
nold that any act performed in execution of a void conti-act mdcea
all its parts valid, and that the more that is done under a contract
forbidaen by law the stronger is the claim to its enforcement
by the courts."
Whatever may be said in re^rd to the Indianapolis & St. Louis
Co., there is wanting in the case of the guarantying com-
panies one of the strongest reasons usually urged in support of the
estoppel, as it is sometimes called, namely, that the recalcitrant
party has received the money or the property of the other; for, so
far from these guaranty companies having received of the plaintiffs
any money or property, they are the parties who have been paying
money, and the plaintiffs receiving it, for rent of its road. They
are not, therefore, estopped on any principles of that doctrine from
ceasing to pay money on an illegal contract because they have
have heretofore done so. On the contrary, as we have already
said, the duties of these dii'ectors to their stockholdera is to cease
to perform a contract to which they were never bound.
We do not decide the question whether the Indianapolis & St.
Louis B. Co. cannot be compelled to pay the plaintiff for the use
of its road, though the contract be void. Whether it would be
so liable on a quantum meruit admits of doubt. It is unneces-
sary to decide this, because that company has submitted to the
decree of the circuit court in favor of plaintiff for that rent by
failing to give bond and perfect its appeal from that decree.
That part of the decree must stand, as no appeal from it has been
prosecuted.
The decree against the other defendants, appellants here, is for
the reasons given reversed, and the case remanded to the circuit
court, with directions to dismiss the bill as to them.
Bbadley, J., (dissenting). — ^I dissent from the judgment of the
court in this case, and will very briefly state my reasons for dissent-
ing. The St. Louis, Alton & Terre Haute E. Co., the lessor, had
full authority to make the lease of its road and works which is
AVTHORXTT TO brought lu ouestiou in the cause. The Indianapolis
MAKs LKAsi. ^ g|.^ Louis K. Co., the lessee, assumed to have power
to take the lease, and had such power in Illinois by the effect
of the laws of that State, and was supported in its assumption
of power by the implications of several statutes of Indiana. If these
implications were not sufficiently strong to amount to a grant of
fower, still they were sufficient to show that the legislature of
ndiana understood the power as existing, and acquiesced in it.
POWER TO LEASE— CONSOLIDATION — RATIFICATION. 77
The other raih*oad companies, parties to the suit, who guarantied
the performance of the lease and its covenants on the part of the
lessor, had the power to do so by the laws of Illinois, and the en-
gagement of gnamnty on their part was a contract entered into by
them in furtherance of their through business to and from St. Louis
and the States west of the Mississippi. The whole arrangement, in
fact, was devised by them for the purpose of facilitating and in-
creasing their business as integral parts of great trunk lines, which,
in the absence of interstate regulations of commerce made by Con-
gress, are of the greatest utility to the business of the country.
To hold that the railroad companies of the country thus situated
cannot, without acting ultra mres, make business arrangements
beyond the limits of their own tracks, in a conntry situated and
divided up into States as ours is, it seems to me is to acts hot ultea
take a very contracted view of the powers and duties ^^""^
of these public institutions. According to the doctrine of the
court, a New York or Pennsylvania company could not even have
a ticket or freight agent in St. Louis for the purpose of soliciting
freight and passengers to be carried on the trunk line of which it
forms a part. They could not hire an office for such an agent, or,
if they did, they could not be* held responsible for the rent. This
is carrying the doctrine of tdtra vires to what seems to me an
absurd extent. It is following out the English notions on that
subject, which always seemed to me inapplicable to our situation
and circumstances, however well suited to that compact and homo-
geneous country, — homogeneous in government and jurisdiction.
All the principal railroads in England extend across the entire
country from London, in different directions, to the sea. In this
country, as Congress declines to charter through lines across the
States, the State governments themselves charter local roads, limited
by the boundary lines of the State. In order to give the country
through facilities at all, these State roads are obliged to unite their
lines, and make what is called a trunk line. The necessities of
the country require it. Yet, according to the logic of tlie decision
in this case, this is all idtra vires* Look at it. One of our great
trunk lines, extending from west to east, is composed (say) of five
connected railroads, n>rming together a continuous line, — working
together under a contract which regulates their mutual rights and
oUigations in the management of the business and the distribution
of its joint receipts. AH this is uUra vires and void. One of
the links of the chain is a ferry, which, in consideration of extra
accommodations afforded for the business of the line, is guarantied
a certain sum per annum. The ^aranty is idtra vires and void.
Is this law? It maybe English law; but is it American law? I
cannot believe it. We must not shut our eyes to the fact that
now circumstances and conditions, of themselves, raquire and pro-
duce a modification of old rules, or the application of new ones.
78 PENNSYLVANIA R. CO. V. ST. LOUIS, ETC., B. CO.
This narrow doctrine has already been discarded by the courts,
and by this court. It has become settled law that araUroad company
at one end of a trunk line may enter into contracts for the trans-
portation of passengers and goods to any pait of the line, hundreds
of miles beyond its own track, and will be held liable for the fulfil-
ment of such contracts; and yet, according to the doctrine of the
opinion in this case, this is mi/ra vires. But this is not all. The
contract has been performed on the part of the lessor company, and
the lessee and its guarantors have enjoyed the benefits of it. With
what face can they now refuse to pay what they agreed to pay ?
With what face can they plead incapacity to contract? This is not
a suit to compel the specinc performance of the contract in future ;
but to compel the payment of the money earned by past perform-
ance of the contract. It seems to me that the companies con-
cerned are estopped to deny their liability to make this payment '
It is the companies themselves who make the plea, not their
stockholders.
In several national bank cases, where the banks have loaned
money on mortgages of land, contrary to the express prohibition
of the act of Congress, and vUra vires^ we have enforced the con-
tract, leaving it to the government to call the banks to account for
acting outside of their chartered powei-s. Why should not the
same rule be applied to railroads, if it is thought they have exceeded
their powers? especially when no stockholder complains of the
company's action, and the object of the suit is to compel them to
pay for a benefit actually received.
In every aspect in which the case can be viewed, it seems to me
that the decree of the circuit court was not only just and right,
but in accordance with sound principles of American law, and
ought to be afiSrmed.
I am authorized to say that Mr. Justice Harlan agrees with me
in opinion.
Traffic Agreement construed with Reference to Repayment of Money
ad van cede — The Northern Transportation Co. ran a Une of steamboats
from the upper lakes to Ogdensburgh, N. Y., connecting at that point with
the Ogdensburgh & Lake Champlain Railroad running to Plattsburgh on
Lake Champlain, from which point traffic was sent to Boston, Portland,
and other seaports via the Vermont & Canada Railroad, the Vermont Cen-
tral Railroad, the Northern Raiboad, the Concord Railroad, the Nashua
& Lowell Railroad, and the Boston & Lowell Railroad. The Northern
Transportation Co. was financially embarrassed. At the same time, it
was aesirable that the company should be continued in existence, and
if possible under the control of the railroad companies named above, so
that the larse traffic brought by the steamboat company to Ogdensburgh
would be shipped over the roads named to its destination. In order to se-
cure control 01 the transportation company and its traffic, it was determined
to advance for the use of that company about 9600,000. And the method of
such advancement was as follows: Two trustees were -created. To these
trustees the Ogdensburgh company advanced the sum named, $600,000; and
the trustees applied it to the use of the transportation company. A con-
TRAFFIC AOREEMENT — ADVANCES — REPAYMENT. 79
tract was made providing for the repayment to the Ogdensburgh company
of this $600,000 by the companies owning the roads east of Plattsburgh,
these companies being most benefited by the traffic secured from the trans-
portation. One of these companies, the Nashua & Lowell, failed to repay
to the Ogdensburgh company its share of the $600,000 advanced, and the
Ogdensburgh company thereupon brought suit against the Nashua & Lowell
Co. to recover this sum. Tne question presented in the litigation was
whether the Ogdensburgh company could recover of the Nashua & Lowell
Co. its share of the $600,000 advanced by the Ogdensburgh company for the
benefit of the other companies ; and this question was determined by the
court's construction of the contract made by the parties, which, so far as
material to this question, was as follows :
*' Articles of agreement between the Northern Transportation Co. of Ohio,
a corporation established under the laws of Ohio, party of the first part ; J.
Gregory Smith, of St. Albans, Vermont, and George Stark, of Nashua, New
Hampshire, parties of the second part; and the trustees and managers of the
Vermont Central and Vermont & Canada railroad companies, the Northern
R. of New Hampshire (the Concord R. Corporation of New Hampshire, pro-
vided they execute this agreement), the Nashua & Lowell R. Corporation of
New Hampshire and Massachusetts, and the Boston & Lowell R Corporation
of Massachusetts, parties of the third part; and the Ogdensburgh & Lake
Cbamplain R Co., the party of the fourth part.
'^ Whereas, the above-named railroad companies, and trustees and mana-
l^era, which have become parties to agreements hereto annexed, bear-
ing date the twenty-fourth day of February, a.d. 1870, and whose
tracks form a large part of the connecting line between Boston,
Massachusetts, and Ogdensburgh, in New York, depend largely for
their business upon the rejpilar transportation, by steamers, of freight
and passengers between said Ogdensburgh and the western cities and
towns upon the great lakes; and whereas, the party of the first part was
charterea to carry on the business of such transportation, but by reason of
financial embarrassments is unable to carry it on efficiently, and it is feared
that its steamers may be taken from this line ; and whereas, the parties of
the third part and the party of the fourth part believe it to be for their and
the public interest to advance or lend to the parties of the second part some
portion of the gross receipts for the transportation of freight and passengers
to be brought to and from their line by the steamers of the party of the first
part, in order to secure the most regular, efficient, and permanent service by
steamers between Ogdensburgh and said western cities and towns for the
term of nineteen years from tne first day of March, a.d. 1871 ; and whereas,
the parties of the second part have aereed to use all sums advanced or lent
to them to secure the ownership or the control of the stock of said party of
the first part, and otherwise to secure the most efficient management of its
business to carry out the purposes of this agreement, and for no other pur-
poses, and to hold all said stock which they may hold or control, and all
other property or rights which they may purchase or otherwise acquire with
said funds, except debts due from said party of the first part, in trust to
secure the repayment of all sums which may be so advanced or lent, as afore-
said, with interest, as hereinafter provided : . . .
*' Article First. This article in substance provided that the transportation
company should maintain its line of steamers and send its traffic going east
of Ogdensburgh over the lines of railway owned by the companies who were
parties to the agreement.
** Article Second. That the parties of the third part will, durine said term,
aemi-annoally reserve out of the gross receipts, either upon said line or upon
any road now leased or operated, or which may hereafter be leased or operated
by the parties of the third part, or either of them, for the transportation of
80 PENNSYLVANIA B. CO V. ST. LOUIS, ETC., E. 00.
freight and passengers brought to said line at Ogdensburgh by the steamers
of the party of the first part, the sum of $150,000, or so much thereof as
shall be adequate for the purposes herein set forth, and pay over the same to
the parties of the second part to be used for the purpose of securing regular,
efficient, and adequate transportation to and from said Ogdensburgh as afore-
said ; and the party of the fourth part will, in case it shall be necessary to se-
cure the regular and efficient running of said steamers to and from said Ogdens-
burgh, when called upon by parties of the second part, advance from time
to time sums not in all exceeding $600,000, to be used by said parties of the
second part for the same purposes as said semi-annual payments, and to be pro
tanto in lieu thereof, and to be repaid out of said semi-annual reservation as
hereinafter provided, it being understood and agreed that each of said parties
of the third part shall only he liable to reserve or advance or pay to the par-
ties of the second part, or to the party of the fourth part, as the case may be,
its share of such reservation, advance, or payment, to be ascertained by the
proportion which said gross receipts of each of said parties bear to the
entire amount of said gross receipts between Ogdensburgh and points east-
ward, upon the roads owned, leased, or operated by any of said third parties.
'* Article Third provided for the trustees holding any stock or bonds of
the transportation company which they might acquire with the $600,000 and
for the sale of such securities to reimburse the company advancing the
$600,000.
*' Article Fourth provided who should be successor in trust of the trustees
in case of a vacancy occurring; and further, as to the application by such
trustees of the securities held oy them.
** Article Fifth. That in case the party of the fourth part shall advance any
sum or sums amounting to $600,000, or any part thereof, under this agree-
ment, then the parties of the third part are to pay to the party of the fourth
part so much « f said semi-annual payments reserved from gross receipts, as
aforesaid, as will pay the semi-annual interest on said sum or sums so ad-
vanced by the party of the fourth part at the rate of 8 per cent per annum,
and shall pay to the persons who may for the time being hold the offices of
president and treasurer of the Boston & Lowell R. Corporation, and of the
Ogdensburgh & Lake Champlaiu R Co., as trustees, such sums semi-annu-
ally as will, in the judgment from time to time of said two presidents and
treasurers for the time being, when invested as a sinking fund, pay all excess
of the advances of the party of the fourth part over $500,000 within two
years from the date hereof, and the remainder of the principal of said ad-
vances on or before the expiration of said term of nineteen years, and also
such further sum semi-annually as will, when invested as a sinking fund, in
the judgment of said two presidents and treasurers as i^oresaid, purchase
the existing mortgage-bonas of the party of the first part, amounting to
$400,000, within ten years from the date hereof, which bonds so purchased
shall be held by said trustees of the sinking fund for the security of the
parties hereto, as if held under article seventh of this agreement, and that
said semi-annual payments are to be made to the party of the fourth part
and to said trustees of said sinking fund in place of advances to the same
amounts to the parties of the second part, as hereinbefore provided, and are
to be ultimately repaid to the parties of the third part out of the dividends,
income, and aiiBCurities purchased or otherwise acquired by the parties of the
second part, as herein provided, whether the same shall be held by them or
transferred to the trustees of said sinking fund. In no case shall payments
to a sinking fund be less than amounts which invested at six per cent per
annum will produce the sum to be paid out of such sinking fund."
Articles sixth, seventh, eight, hand ninth contained other provisions not
material to the ouestion before the court.
It was held that under this contract the advance of $600,000 made by
TBAFFIG A6SEEKENT — ADVANCES — REPAYMENT. 81
the Ogdensburgh companv was intended to be paid back by the several other
companies only through their receipts from the traffic coming to them from
the transportation company over the Ogdensburgh & Lake Champlain B.
Miller, J., said:
'* The Ogdensbnrj^h road advanced the 1600,000, and it was used for the
purpose mentioned m the agreement. The transportation company became
bankrupt in the year 1874, the business was broken up, and has never been
resumea under the contract. A part of the money advanced by the Ogdens-
burgh company has been paid to it. It made settlements with some of the com-
panies, or their trustees, m regard to its claim, and it brought this suit against
the Nashua & Lowell Co. for what it alleges to be its proportion of the sum
unpaid. It is not asserted by the plaintiff that the parties who are de-
scribed in the agreement as the parties of the third part are jointly liable for
this deficiency. If so, no suit could be maintained against the defendant
here without joining the others. It is not asserted that there are any words
of express promise to pay by either of those companies the whole or any
definite part of this |600,000. The argument of counsel is that there arises
an implied promise out of the nature of the transaction. We have looked
in vain for anything in the language of the agreement which requires or
justifies such an implication. If there were in the agreement any words
which showed that the party of the third part had borrowed this money from
the party of the fourth part, or that the latter had loaned it to the former,
the argument would be of weight. But the language of article 2, which re-
lates to this part of the transaction, is that ' the pearty of the fourth part will,
in case it shall be necessair to secure the regular and efficient running of
said steamers to and from Ogdensburgh, when ensiled on by the parties of the
second part, advance, from time to time, sums not exceeding in all six hun-
dred thousand dollars, to be used by said parties of the second part for the
same purposes as said semi-annual payments, and to heprotanto in lieu there-
of, and to be repaid out of said semi-annual reservations as hereinafter pre-
scribed, it being understood and agreed that each of said parties of the third
part shall only be liable to reserve and advance or pay to the parties of the
second part or to the party of the fourth part, as the case may be, its share
of such reservation, sdvance, or payment, to be ascertained by the propor-
tion which said gross receipts of each of said parties bear to the entire
amount of said gross receipts between Ogdensburgh and points eastward, upon
roads owned, leased, or operated by any of said third parties.'
'* It is to be observed, m the first place, that the transaction is here called
an advance, and not a loan; and, secondly, that the advance is made to the
party of the second part, and not to the party of the third part. This party
of the second part was J. Gregory Smith and George Stark, who were made
trustees to receive this money, and see to its investment in securing the ser-
vice of the transportation company, and who were to receive and refund to
the Ogdensburgh company, for this advance, a certain proportion of the gross
receipts of the railroad companies constituting the ^ty of the third part,
which was relied on to repay that company in mil. This same article, in the
very sentence in which the Ogdensburgh company agrees to advance the
money to Smith and Stark, declares that each of the parties of the third part
shall only be liable to reserve and advance orpay to the parties of the second
part, or to the parties of the fourth part, its share of such reservation, to be
ascertained hj its proportion of said poss receipts. It is here also said that
this advance is to be repaid out of said semi-annual reservation as hereinaf-
ter provided. We thus see, in this single article, that the money is to be ad*
ranced to the trustees, what use is to l^ made of it, that it is to be repaid out
of a fund called the semi-annual reservation to be afterwards provided, and
that neither to the trustees nor to the Ogdensburgh company are the
XMU-ties comprising the third party to become liable beyond its ^are of
24 A. <&; £. R Cas.— 6
82 PENNSYLVANIA E- CO. t, ST. LOUIS, ETC., R. CO.
tbifl reservation. This reservation is described in the same article of
the agreement as a semi-annual sum not exceeding $150,000, or bo
much as may be adequate for the purposes herein set forth, 'out of
the gross receipts either upon said line or upon any roads now leased or
operated by the parties of the third part, or either of them, tor tnuupor-
tation of freight and passengers brought to said line at Ogdensburgfa bj
the steamers of the party of the first part.' By article 4 these trustees
are required to hold all the stock of the transportation company which
they now have or may acquire, aud all other property or rights which thej
may acquire under uiis agreement, to secure the repayment of the sums
advanced by the Ogdensburgh company and by the parties of the third put,
with interest thereon at 10 per cent per annum. Article 5 makes a farther
provision for payment, out of this reservation from the gross receipts of the
semi-annual interests of this advance by the Ogdensburgh company, and for
a sinking fund to pay all in excess of the loan over $500,000, within two
years, and the remainder within the nineteen years the contract had to roiL
It will be observed that this agreement was intended to expire at the same
time that the lease of the Ogdensburgh road expired. In all this it will be
perceived that, while the mode of the repayment of the advance of $600,000
IS carefully and repeatedly stated, and the security provided, it is nowhere
hinted diat the railroad companies of the third part are to be liable for it if
these sources of payment fail. Indeed, the third article provides forsecuritj
for advances which they may make in the same terms, that it provides for
the party of the fourth part, which is the Osdensburgh company; and the lan-
guage we have cited from article second, that each of the puties of the third
part is liable only on this account for its proportionate reservation from the
proceeds of traffic derived from the Ogdensburgh road, leaves little room for
further doubt that these resources were alone hound for the repayment of
this advance.
''The learned counsel for appellant makes a forcible argument against this
view, based on the assumption that the O^ensburgh company had no interest
in the traffic of the roads embraced in this agreement, because, its road beioe
leased for a period coincident with that of its contract, the lessees recdved
all its benefits and the company none. It must be confessed that if the Og-
densburgh company had no other interest in the transaction than to secure the
repayment of a loan of money and the interest on it, as if made by any other
capitalist, the suggestion would be entitled to much weight; but in this as-
sumption counsel is in error. The preamble recites, as one of the main in-
ducements to making the agreement, that ' by reason of financial embanass-
ments the transportation company will be unable to continue its buainesi,
and its steamers will be withdrawn ; and whereas, parties of the third part
and the |>arty of the fourth part (the Ogdensburgh company) believe it to be
for their interest and the puolic interest to advance,* etc. The interest of the
Ogdensburgh company is here clearly stated as the cause of its advance of the
money, though at the time the agreement was executed its road had already
been leased a year, and the fact of the lease is recited in the agreement.
Though this lease was for a fixed annual rent, the lessees were the trustees of
two other railroad companies which were insolvent, and these trustees could
only rely on the profits or receipts arising from this road to enable them to
pay the rent. Indeed, so well founded was the apprehension of failure of
rent arising from this fact, that in a few weeks after the withdrawal of the
boats of the Northern Transportation Co. the lease was rescinded, the road
restored to the company, and the trustees of the two Vermont railroad com-
panies released from any further liability on the contract we are now trying
to construe. It is reasonably certain that the Ogdensburgh Railroad Corpo-
ration had a deep interest in the success of the enterprise inaugurated by
this contract, and probably a larger interest than any other puty to the
FOREiacr CORPORATION— JURISDICTION. 83
agreement, and clearly saw that it must make this advance, the only thing it
did in the matter, at the risk of the success of the adventure, with such se-
surity for obtaining a return out of the proceeds of it as the contract gave.
A stipulation of the parties was made on submitting the case to the court
below, that, if that court held that no liability under the contract attached
beyond that for a proportion of the eross receipts, there were no such re-
ceipts in defendant's hands, and the bill should be dismissed without requir-
ing an accounting.
*< The circuit court construed the contract as we do, and its decree dis-
misilng the bill is therefore affirmed."
Gbegort et cH.
V,
New Yobe^ Lake Erie and Western B. Co. et al.
(40 JVmo J&rd^if Equity^ 88.)
In a suit brought by stockholders of a foreign corporation against that
corporation and another corporation to which it had leased its roads, lands,
etc., all of which are out of this jurisdiction, seeking relief in regard to the
transactiona of those corporations with each other, the court, on demurrer,
declined to take jurisdiction, on the ground that the courts of New York
were the proper forum for the litigation.
Bill for relief. On general demnrrer to bilL
Mr. C. Parker for demurrant
Mr. J. B. Vredenburgh for complainants.
The Chancellor. — The bill is filed by the execators of
Dudley 8. Gregoiy, deceased, late of Hudson county, in this
State, stockholders of the Buffalo, Bradford & Pittsburgh R.
Co., a corporation of the States of New York and facts.
Pennsylvania, in behalf of themselves and all other stockholders
who shall come in and seek relief by and contribute to the expense
of the suit against the New York, Lake Erie & Western R. Co.,
Hugh J. Jewett, president, and Stephen Little, auditor of that
company, and against the Buffalo, Bradford & Pittsburgh B. Co.
It states that the complainants' testator was, at his death, me owner
of five hundred and sixty-four shares of the stock of the last-men-
tioned company, of the par value of $100 per share ; that the
amount of the capital stock of the company is now $2,286,000,
divided into two tnousand two hundred and eighty-six shares of
$100 each ; that on the 5th of January, 1866, the company leased to
the Erie R. Co., and its successors and assigns, for four hundred and
ninety-nine years, its railroad, etc., etc., and all its lands, including
its mineral or coal lands ; excepting and reserving, however, to the
lessor, any and all oil underlying the demised premises, or any
84 OBEGOBT et al. v. new yobk, etc.) b. CO. et al.
part thereof, with the right to the lessor and its snccessors or
assigns to enter upon the premises, or any part thereof, to exca-
vate and bore for oil, etc., etc. ; that, in consideration of the
demise, the Erie Co. assumed and agi*eed to pay certain taxes and
the principal and Interest of two Biousand Donds of $1000 each,
made by the lessor, and secured by its mortgage of its property;
that, under the lease, the Erie Co. at once entered into possession,
and it, and its successors and assigns, have remained in possession
from the date of the lease, January 5th, 1866, to this time ; that
the defendant, the New York, Lake Erie & Western R. Co., is
its successor and assignee, and, as such, is in possession of the
demised premises under and by virtue of the lease, and has been so
since June 1st, 1878 ; that the last-mentioned company is the
owner 'of a majority of the capital stock of the Buffalo, feradford
& Pittsburgh It. Co., and, by reason of such ownership, has
elected aJl tne officers of that company, and has obtained, and has
had, for many years, complete control of it ; that a part of the
demised premises consists of large tracts of unimproved lands in
McKean county, Pennsylvania ; that in 1875 it was discovered that
those lands were underlaid with oil in immense cuantities ; that in
1878 the officers of the New York, Lake Erie & Western R Co.
reported to its stockholders that the company had received for
royalties for oil taken from those lands during the year ending
September 30th, 1878, $999.81 ; and the bill further states that
that company has, ever since that year, made large sums of monev
for such royalties, and for transporting the oil, but that since that
time no separate report has been made by it to its stockholders, or
to the Buffalo, Bradford & Pittsburgh R. Co., of the moneys
received from the oil royalties, oil contracts, and oil sold and trans-
ported from the demised premises, and that neither company has
made any report thereoi to any of the stockholders of the
latter company ; that the complainants have frequently demanded
an account from the latter company of the moneys received by the
former company for those oil royalties, oil contracts, and oil sold
and transported from the demised premises, but it has refused to
give the account, referring them to the other company, alleging
that the latter would neither pay nor account for the money ; that
then the complainants applied to Stephen Little, the auditor of the
Erie Co., for an account, who stated that his company had received
money for oil taken from the demised premises, and that he could
give an account of it, but had been instructed by Hugh J. Jewett,
president of his company, not to do so without his permission, and
added that if the complainants would ^t Mr. Jewett's permission
for him to do so, he would make up the account ; that the com-
plainants then called upon Mr. Jewett, with a view to obtaining
such permission, but he, after he ascertained their business, de-
clined to see them, saying that he was too busy ; that they after-
FOBXIGN OOBFOBATION— JUBISDIOTIOK. 86
waroB called on him, but with like result, aud that they tried to
0et the permission from him through the treasurer of bis company,
but were undnccessful, and the auditor refused to give the account
to them or their company without the permission ; that after wait-
ing a reasonable time for some action to be taken by the Erie Co.
in accordance with their i*equest, and after calling on their own
company and demanding that it should take some proceedings to
compel the former company to account, but all in vain, they, on
the 3d of March, 1884, served a written demand on their com-
pany, requiring it to demand such account, and, in case it was de-
nied, to sue for it and the money due, but their company disre-
garded the demand, and the other company continues to take the
oil from the demised premises, and convert it to its own use. The
bill further states that the Erie Co., by means of its ownerahip of a
large majority of the capital stock of the complainants' company,
has installed its agents as officers of the latter company, ana that
those officers are acting in the interest of the Erie Co., and a^inst
the interests of the complainants, who are not interested in the
latter company, in their refusal to institute proceedings to obtain
the desirea account, and that they are so managing the complain-
ants' company as to make it subservient to the interests of the Erie
Co., and to make the oil in question the property of the latter, and
60 to defraud the complainants out of their share of the monevs
realized from it, and tnus render their stock worthless, so that the
Erie Co. may avail itself of its value without compensation, and
that the refusal of the Erie Co. to account, and the refusal of the
other company to compel it to do so, are in furtherance of that
unlawful scheme and purpose ; that in pursuance of that scheme
the capital stock of the complainants' company was, after the lease,
increased from eleven thousand shares, at $100 each ($1,100,000,
of which the complainants owned five hundred and sixty-four
shares), to twenty-two thousand eight hundred and sixty shares, at
$100 each ($2,286,000), and that Uie increased or additional stock
was issued to the Erie Co. for the bonds of the other company, the
principal and interest of which the former was, by the terms
of the lease, bound to pay in consideration of the lease; and
that when, in 1878, a small dividend was paid to the complain-
ants for oil royalties, they received, instead of five hundrea and
sixty.four eleven thousandths of the sum divided, only five hun-
dred and sixty-four ninety-two thousand eight hundrea and six-
tieths of the sum, and the complainants insist that the issuing of the
additional stock in consideration of the bonds, as before mentioned,
^ives the holder, the Erie Co., no right to share in the oil underly-
ing the demised premises, and that the complainants are therefore
entitled to have the Erie Co. return to the other compan v the divi-
dend received by it from the oil royalties just mentioned, and that
the complainants are entitled to have their own company pay to
86 OBSGOBY et al. v. new york, btc, b. co. et al.
them their share of that money ; and they also insist that they are
entitled to receive the proportion of five hundred and sixty-four
eleven thousandths of any money due from the Erie Co. to the
other company for oil reserved taken by it. The bill prays discov-
ery, and that the Erie Co. may account with the complainants
and the other stockholders of the Buffalo, Bradford & Pittsburgh
B. Co. who may come in as parties, and ihaX it may pay to them
their proportion of the amount due by it to the complainants for
oil royalties, oil contracts, and oil transported from June 1st, 1878,
to this time, or that it may account with the other company for
that oil, and may pay to it the amount due, and that that company
may pay to the complainants and the other stockholders who may
come in what they may be entitled to as such stockholders ; and ,
that it may be decreed that the Erie Co., as owners of the stock
issued for bonds, shall not be entitled to share in that money, and
may be compelled to pay back to the other company any of the
money which it has received or retained by reason of its ownership
of that stock, and that on its failure to pay it the lease may be de-
clared forfeited. The demurrer is filed by the Erie Co.
It appears by the bill that the Bunalo, Bi*adfoi*d & Pitts-
burgh K. Co. is a foreign corporation. An important part
juEMDicTxoii ^^ *^® relief sought is a decree that the holder or
OYBA fOBxioii holders of cei'tain stock issued by it to the Erie
coRFOBAHOH. ^^^ ^^ ^^^ eutitlcd to dividcuds paid out of the
property of the former, because that stock was illegally and fraud-
ulently issued. It is quite manifest that this is not the proper
forum for the trial of the question whether that stock was properly
issued or not. If the decree should be against the validity of the
stock, how is this court to enforce it as against the Buffalo, Brad-
ford & Pittsburgh B. Co. ? It is almost too obvious for remark
that this court cannot regulate the internal affairs of foreign cor-
porations, nor can it enforce its decrees out of this State.
But again, if relief be granted in this case, the decree must
order that the money recovered be paid over to the Buffalo,
Bradford & Pittsburgh B. Co., to be administered by its
board of directors. Chester v. Halliard, Y Stew. Eq. 341 ; s. c.
on appeal, 9 Stew. Eq. 313. But that company is a foreign cor-
? oration, and it may not appear in this suit; and if the Erie
!o. should be ordered to pay the money over to it, how can this
court secure the distribution of it among the stockholders of the
latter company, that company being out of the jurisdiction ?
The ground of complaint is that the Erie Co. has com-
mitted tres^ss on the property of the complainants' company, in
CAUBs OF Ao- Pennsylvania, and has itself taken oil from it for its
™*"* own benefit, or has, for its own benefit, given leave to
others to do so, and that it has fraudulently obtained control of the
complainants' company by a fraudulent issue of stock to itself, and
DIRECTOR— PUROHASB OP LAKB. 87
has thns protected itself afj^nst being called to account for the oil
which it nas unlawfully tucen and converted to its own use. The
cause of action did not arise in this State, but in Pennsylvania.
The suit is, in fact, a suit for damages for trespasses done there.
The complainants . seek to distribute those damages, when recov-
ered, among the stockholders of theBuffitlo, Bradford & Pitts-
burgh B. Co«, excluding the holder or holders of the stock
issued to the Erie Co. But this court cannot compel the
former company even to receive the money, and, of course, cannot
compel it to administer it. The whole matter is appropriate to the
tribunals of the State of New York, and not to those of this state.
The sole ground of the claim of jurisdiction must be Q^^j^gg^^^jf^
that the complainants are citizens of this State, and tou m
that it does not appear that the Erie Co. is a foreign '^"" '^"^
cori>oration. But the considerations before presented are con-
clusive against retaining the bill. In Howell v. Chicago &
Northwestern R Co., 61 Barb. 878, 385, the supreme court
of New York said that while it did not mean to be under-
stood as saying that in no cases should the courts of that State
exercise jurisdiction in reference to the affairs of forei^ corpora-
tions, yet that even if the power existed to compel a forei^ cor-
poration to come into the court and become a party to a litigation
there, still, where the cause of action arose abroad, where it affected
only the internal government of the corporation, where the judg-
ment, if rendered, could not be in any way enforced against the
corpori^tion, except by injunction against individual members of it,
and the party had an ample remedy in the State where the corpo-
ration had a legal existence, the courts of New York might
well decline to exercise an equitable jurisdiction. And in Cumber-
land Coal Co. V. Hoffman Coal Co., 30 Barb. 159, 171, it was
said that to warrant proceedings a^nst foreign corporations, there
must be either a necessity or a iitness suggested by thepeculiar
circumstances. In the case in hand, the courts of New York are
the proper forum for this litigation, and this court ought to decline
to exercise jurisdiction. The demurrer will be allowed.
8A2n>T RrvEB R Oo.
V.
Stubbs.
(AthanM Otm^ Maine. Deomnber 14, 1886.)
dedrous
▼ided
88 8ANDT RIVER R. 00. t. 6TUBBS.
rectors thereupon abandoned this route, and decided upon another. The
defendant, who was also a director, without any suggestion from his asso-
ciates, immediately purchased of A. the land in question, embracing a mnch
larger track than the corporation required for its purposes, paying I500
therefor, and at once reported the result of his negotiation to the board of
directors, and stated that he could now accommodate them with a right of
way, and as much land as they mi^ht need for railroad purposes. But th«j
expressly repudiated all participation in defendant's purchase, holding that
it was made upon his indiTiduai responsibility, and not in behalf of the cor-
poration, to wnich he assented. The defendant paid the consideration, took
- the deed in his own name, and placed it on record. Subsequently the road
was located across this land, ana a station and water-tanks erected thereoB.
Difficulties arose between the plaintiff and defendant as to the land damages,
which two committees of conference were unable to settle, because the
defendant would not convey a fee instead of the use of the land, and finallj,
three and a half years after the purchase by the defendant, the plaintiff,
for the first time, claimed that defendant held the whole land in trust
for the corporation, and brought this bill in equity to enforce a conTeyance
to itself. BM, that though a director is in equity a Quari trustee, and
therefore his dealings with respect to matters involved in the trust are
jealously scanned by the court, yet the acts of the defendant in this case
were of such a frank, open, and hana-Jide character, and so consistent with
the interests of the eedui que tnut^ that the bill cannot be sustained.
On appeal by plaintiff. This was a bill in equity to compel the
conveyance to itself of certain land purchased by the defendant,
while a director of the plaintiff corporation, and claimed to be held
by defendant in trust It was heard by the presiding judire at
nidprvua on bill, answer, and proof, and was dismissed.
S. CUfford Bdcher for plainti fi.
J, P. Swasey for defendant.
YmoiN, J. — ^The complainant brin^ np this case by appeal from
the decree of the presiding justice, who neard it on bill, answer,
and proof. Its claim, briefly stated, is that the defendant, as one
FAon. of its directors, and for its benefit, purchased certain
land in the village of Strong, bnt took the conveyance to himself;
that the company soon afterwards located its track, erected its
station-honse, water-tank, and wood-shed upon a portion of it ; that
the defendant holds the title to the whole land thus purchased in
trust for the complainant; wherefore it prays that, on payment to
him of the consideration, interest, and expenses, he be decreed to
convey to the companv. The defendant denies that he acted as
director in hoc re^ and claims tibat the company being unable to
obtain from the owner a right of way across the land upon the
terms it proposed, he thereupon, without its direction, suggestion,
or knowledge,, purchased, on his own personal responsibility, from
the owner mucn more land than was necessary for the company's
use, to the end that it might have so much of it as was necessary
for railroad purposes, for a reasonable consideration, or for such a
proportion of the whole consideration as the portion of the land
DIBEOTOB— PUB0HA8B OF LAND. 89
needed and taken by the company shonld bear to the whole land.
Several of the allegations in the bill are not proved in the sense
in which they are set out, and some of them, especially in para-
graphs 4 and 9, are disproved; and without nnprontably extending
this opinion by analysis of the testimony, it is sufficient to say that
the material facts, established by a fair preponderance of it, are
these:
The company was organized in April, 1879. Prior to the fol-
lowing August it obtained by parol right of way 20 feet in width,
not including^any land for its buildings, and located its track across
land of one r orter, in the village of Strong. Some of its citizens,
and two directors, including the defendant, resident therein, ex-
pressed some dissatisfaction thereto, preferring a route further
east, and nearer to the business centre of the villege. Wherefore,
at the latter date mentioned, five of the seven director, together
with Porter, assembled at the defendant's office to consider the
I)ropo6ed change of location, which, if made; would also cross the
ana of Porter. A majority of the directors not residing in Strong,
being at least indifferent to the change, strenuously contended that
it ought not to be made unless Porter would give this right of way,
land damages for railroad buildings being inevitable on either
route. But after a whole afternoon's importunate urging, he ab-
solutely refused to accede and the projected change was tnerefore
substantially abandoned. Thereupon the defendant took Porter
out upon the land, pointed out the probable proposed route, and
there made reneweo but fruitless efforts to persuade him to* give
the rieht of way. Then the defendant proposed to personally pur-
chase his entire field, which proposition Porter peremptorily de-
clined to entertain. As the last resort, the defendant staked (>ut
some two and one half acres of it, comprising much more land than
they anticipated the company might need for all its purposes, but
across which the new track might probably go, and, after consider-
able bantering, Porter agreed to ta!Ke $500 therefor, provided the
defendant would erect and maintain a fence against the remainder
of the lot and the defendant closed the trade. Whereupon they
returned to the office, where the defendant made a detailed report
of his negotations with Porter, adding, in substance, that, having
purchased ^e land, he could accommodate the company with a
riglit of way,' and with as much land as was necessary, if thev
wished to locate there. But the directors expressly repudiated all
participation in the defendant's purchase, alleging, among other
reasons, that land there was not worth any such price, and declar-
ing that he must understand that it was his own personal trade, to
which he readily and expressly assented, whereupon they separated.
A few days thereafter the defendant paid Porter the $500, re-
ceived his deed containing the fencing clause, and caused it to be
leoorded, and subsequently built the fence. There was no other
90 SANDT BIYEB B. CO. V. BTUBB8.
confiideration for the land thus conveyed. In September the loca-
tion was chan^^. In Kovember ana December the station-honse
and water-tank were erected, followed by the running of trains,
and the erection of the wood-shed. Subsequently the parties had
several conferences in relation to settling the damages for the land
taken for the track and buildings. Still later, two committees
were ehosen for 'the same purpose. They staked out so much of the
land <is was deemed necessary for railroad purposes, agreed upon
the price, but failed to conclude a final adjustment, because the de-
fenoant declined to convey the fee instead of the use of the land
so long as it should be used for railroad purposes. Thus the mat-
ter stood until February, 1883, when the defendant, for the first
time during the three and one half years of his ownership of the
land, received notice that the company claimed he held the whole
land in trust simply. He had held the office of director and clerk
of the company from the time of its organization to November,
1883, attended its meetings, and never before received any intima-
tion of such a claim.
Without questioning the rule so clearly recognized in this court,
DiRBCTOB AM Os^ropcan & N. A. R. Co. v. Poor, 59 Me. 277), as
IxD^niTnTnl^Di wcU as in many others, that his directorship constituted
BQuiTT. ^jjg defendant in law an agent, and in equity a qnasi
trustee at least, and thereby established his fiduciary character; fully
appreciating the foundation of the important doctrine by whida
equity requires that the confidence imposed in a trustee shall not
be abused for his persotal interests ; keeping constantly in mind
the jealousy with which courts scan the dealings of a trustee with
respect to matters involved in the trust; holding with other courts
the cestui que trusts right of avoidance does not necessarily de-
S^nd upon the fraud or hona fides of the trustee (Duncomb t>.
ew York, H. & N. R Co., 84 N. Y. 199; s. c, 4 Am. & Eng. R.
R. Cas. 293), still we are of opinion that none of the cases, or
the principles announced therein, invoked b^ the complainant,
nor anv oi the numerous others upon the subject which we have
carefully examined, would warrant us in granting the prayer of
the complainant.
The defendant zealously worked for the interests of his princi-
pal by seeking to change the location, so as thereby to accommo-
date the business interests of the community in whicli one of its
DBFBHDAxra intermediate stations was to be located. This result
^L ^^^^^' ijad failed to be brought about by the other directors.
As a last resort, he personally purchased what was then considered
two or three times more land than he deemed the needs of the
road required for public use, not as a speculation from which he
might dierive secret profits (Thomp. Liao. OflE. 360, § 8, and cases
in notes), but to facilitate the desired object. He did not deal
with the company's funds, but paid his own without any aesarance
AOENT — POWER TO BIND COMPANY. 91
or intimation that the company would ever take any of the land.
He did not deal with the company's property. He did nothing
which he concealed from its knowledge, but frankly and promptly
disclosed the whole transaction, and put his deed upon the public
registry, and his acts were repudiated. He did not act in the
premises in anywise inconsistent with the interesta of his cestui
que trusty nor acquire for himself any interest adverse to his com-
paoj in any sense contemplated by the rules of equity governing
trustees and cestuisque trustent McClanahan v. Henderson, 12
Amer. Dec 412 ; Van Epps v. Van Epps, 9 Paige, 238, 241.
There was no opportunity for a breach of trust ; the defendant,
standing alone against the other six directors, who had a full knowl*
edge of all the facts, with full control of the question of KooppoBTunrr
change of location. K they concluded to make the Suw!"^*'" ^'
change, the company could only '' take and hold the land for pub-
lic use." Bev. St. c 54, § 14. It had no right to insist upon nav.
ing the fee. If the parties could not agree upon tne land
damages, the statute furnished a tribunal to adjust that question.
RcF. St. 1871, c. 51, § 6. If they could not agree as to tne" nec-
essity or extent of the land taken," their remedy was plain and
adequate. Eev. St. 1871, c. 51, § 13.
But the alleged necessity for the whole land was evidently an
afterthought on the part of the complainant. Its whole conduct,
down to February, 1883, points in that direction. The staking
out of the land appropriateia, leaving a portion as not needed^ the
agreed price, based upon a fair proportion of the whole considera-
tion paid by the defendant ; the three reports of outstanding lia-
bilities for land damages, including the defendant's claim ; and the
long (more than three • and one naif years) acquiescence of the
company, — all afiord ample proof that the company then took
a new departure. Decree affirmed. Bill dismissed with costs.
Peters, C. J., Walton, Libbet, Fosteb^ and .Haskell, JJ.,
concurred.
Wood
V.
Chicago, Milwaukee and St. Paul R. Ca
{Advance Casey Iowa. April 7, 1886.)
Where a station agent has power from his principal to contract for the
shipment of freight or produce, he has also power to contract for the per-
fonnanoe of whateTer is reasonably necessary to be done to protect the mer-
chandiie or produce from injury, unless restricted by special instructions.
92 WOOD t). OHICAGO, MILWAUKEE AND ST. PAUL B. 00.
Where a railroad places an agent in charge of its business at a station, and
empowers him to contract for the shipment of produce and freight, it holds
him out as possessing the authority to contract with reference to all the
necessary ana ordinary details of the business; and within the range of such
business he is a general agent. Wood v. Chicago, M. & St. P. R. Co., 69
Iowa, 196; s. c, 21 Am. & Eng. R. R. Cas. 86, overruled.
Where a railroad company, by its local agent, contracts to .ship potatoes
from a given point, at a given date, and fails to do so for a reasonable time
thereafter, and by reason of such delay the potatoes are frozen, the company
will be liable in damages.
•
Appeal from Delaware district court.
Plaintiff claimB dama^ on accoant of an alleged failure by de-
fendant to receive certain property for transportation. He alleges
in his petition that on the thirteenth of October, 1879, he entered
into a verbal contract with defendant, whereby it agreed to receive
and ship for him two car-loads of potatoes from Enfield, a station
on its road, in Clayton county, to Denison, Texas, at 83 cents per
100 pounds ; that, bv the terms of the agreement, the property was
to be received by defendant, and 8h]{)ped on the seventeenth of
October, and that on that day plaintiff had the property at said
station ready for delivery, and there offered to dehver it to defend-
ant, and demanded that defendant then receive and ship the same,
but that defendant neglected and refused to furnish storage or cars
for the transportation thereof, or to ship the same, by i*eason of
which plaintin was compelled, for his own protection against dam*
age, to find storaee for the property in as convenient a place as
possible, in the vicinity of defendant's depot at said station, and
that he used due diligence in protectinj^ tne same, and that from
day to day thereafter he requested deiendant to receive and ship
the property, but that it neglected and refused to do so until the
second day of November following, when it furnished cars, and
demanded of plaintiff that he at once load the property upon them,
which he did, and that, owing to the coldness of the weather at the
time, 10 bushels of the potatoes were frozen before the cars were
loaded, and were thrown away ; that said cars were not moved un-
til the next day, and when the property arrived at its destination it
was injured and dama^d by freezing, to such extent as that it was
nearly valueless. And it is charged that the loss was occasioned
by defendant's failure and refusal to receive and transport the
propertv until the season was so advanced that it was necessarily
exposed to frost. There was a verdict and judgment for plaintiff.
Defendant appeals.
W. A. Hoyt and Noble & UpdegTO/ph for appellant.
Blair cfe £f orris for appellee.
Beed, J. — ^Plaintiff claims to have made the alleged verbal con-
tract with defendant's station agent at Enfield. The agent was
AGENT — POWER TO BIND COMPANY. 93
examined as a witness, and testified tbat he did not agree to have
cars at the station to ship the potatoes to Denison at FicnL
any definite time. There was evidence, however, which would
warrant the finding that he did agree that the necessary cars for
the transportation of the potatoes would be at Enfield on the
seventeenth of October, and that he would receive and ship them
on that day. It is undisputed that on the thirteenth of October he
informed plaintiff that he could give him a rate of 83 cents per
hundred pounds on potatoes, by the car-load, to Denison, Texas,
and that plaintiff accepted that rate. After this arrangement was
entered into plaintiff made aiTangements with the fanners from
whom he purchased the potatoes, to deliver them at Enfield on the
17th, and on that day he received at the place a sufBcient quantity
to load two cars, but defendant did not on that day have cars at that
station on which to load them. Plaintiff thereupon stored a portion
of the potatoes in a cellar, and the balance in an elevator and ware-
house convenient to the depot. Between that day and the second
of November he, on a number of occasions, requested the station
agent to receive and ship them, but cars were not furnished for
their transportation until the latter date. On that day he was in-
formed by the agent that two cars were at the station, on which
he could load the potatoes ; but if they were not loaded in time to
be sent out on the next train, which would pass that station on the
morning of the 3d, the cars would be sent back empty. He ac-
cordingly loaded them on that day, and they were sent forward
the next morning. Before they were sent forward, however, he
was required to and did pay the freight to their destination, and the
agent issued to him a bill of lading oy which defendant undertook
to transport the property to Davenport, in this State, which is the
end of its line, and tnere deliver it to a connecting carrier. This
bill of lading also recited that the property was received at the
owner's risk. The weather was warm and pleasant on the seven-
teenth of October, and so continued until alK>ut the 30th, when it
turned cold, and when the potatoes were loaded upon the cars it
was freezing, and it remained quite cold until after the cars were
sent forward. The potatoes were covered in the cars with straw
and blankets ; but when they arrived at Denison it was found that
they had been badly frozen, and much the greater part of them
were rendered entirely worthless. Plaintiff first applied to the
agent for information as to the freight charges to Denison before
he purchased the potatoes, and the latter communicated with de-
fendant's general freight agent on the subject, and the rate of 83
cents per hundred was offered to plaintiff, in compliance with in-
structions given hj him to the station agent.
The cars on which the potatoes were shipped belonged to the
carrier whose line connected with defendant s line at Davenport,
and the custom of the companies was, when freight was to be re-
94 WOOD 7). CHICAGO, MILWAUKEE AND ST. PAUL R. CO.
ceiyed on defendant's line for transportation over the line of the
connecting company, for the latter to furnish the cars on which to
load the same at the place of shipment, and the failure of defend-
ant to deliver cars at an earlier date for the shipment in question
was occasioned by the failure of the connecting company to fur-
nisli them. The district court instructed the jury that, before plain-
tiff would be entitled to recover, he must prove either (1) that the
station agent had express authority from defendant to make the
alleged parol contract ; or (2) that he was held out by defendant
as possessing such authority; or (8) that defendant, with full
knowledge of the facts, had ratified the contract. Defendant ex-
cepted to this instruction. It also objected to the evidence offered
to establish the making of the contract by the agent, on the gi*ound
that his authority was not shown. The overruling of this objec-
tion, and the giving of this instruction, are now assigned as error.
It is contended that there was no evidence which had any ten-
dency to prove either that the agent had authority to
Aom^MAu make the alleged contract, or that he was held out as
ooHxaACT. having such authority, or that defendant had ratified
the contract. In a former opinion filed in the case we sustain this
view. A rehearing was granted, however, and upon a re-exami-
nation of the record we have reached the opposite conclusion. The
agbnt, it is true, testified, in general terms, that he had no author-
ity to make contracts with shippers' for cars at a definite day. He
did not testify, however, that ne was restricted in that regard by
special instructions from his employer, or by any general rule of
tne company. His statement may have been the mere expression
of his opinion or conclusion as to the extent of his authority. At
least, it is fairly susceptible of that construction, and it is by no
means conclusive on the question. As stated above, he was em-
powered by the general freight agent of defendant to contract for
the transportation of such property as plaintiff desired to ship to
Denison, Texas, at 83 cents per hundi*ed pounds. This instruction
was given in contemplation of the fact that, as the property was to
be delivered to the connecting carrier for transportation over its
line, it should be loaded upon cars belonging to tnat company. It
therefore necessarilv empowered him to contract for the shipment
at a future date. It was also given in contemplation of the nature
of the property to be shipped ; and, in the absence of special in-
structions or restrictions, empowered him to make such contracts,
as to the time of shipment, as the nature of the property required.
Suppose the company should authorize an agent to contract with
a snipper for the transportation of fresh meat to a distant market
in hot weather. It would hardly be contended, in such case, that
the agent was not empowered to contract that the property should
be carried in a car specially adapted to the transportation of that
kind of property, or that he was not authorized to bind his prin
AGENT— POWEB TO BIND OOMPANT. 95
cipal by an agreemeDt to receive and transport it at a particular
time. Tbe autliority to make the engagement, if unrestricted,
would carry ^rith it the power to contract with reference to all the
details of the transaction. The property in question was not as
perishable, perhaps, as a car-load of fresh meat would be in mid-
summer. It was liable, however, to be greatly injured or entirely
destroyed by freezing. Wlien the agent was empowered to con-
tract lor its transportation, weather sufiScientlv cold to injure or
destroy it, if not properly protected, was liable to occur at any
tim^. It was therefore of tne highest importance to the shipper
that a definite time should be fixed for the shipment ; and unless
the power of the agent was limited by some rule or instruction of
the company, the authority conferred upon him to contract for the
transportation of the property carried with it the power to make
such agreement, with reference to the time when it should be re-
ceived and shipped, as the necessities of the case demanded. The
district court was therefore warranted in submitting to the jury
ti^e question whether he had express authority to maS^e the alleged
contract.
It was also warranted in submitting the question whether he was
held out by defendant as authorized to make such contract. He
was the only representative of the company at that
station. He was placed there for the purpose of trans- As'^'^ma
acting its business at that place. He was authorized to ^*™^"^'
contract, in its name, for the transportation of property of the kind
in question, and had authority to receive it for shipment. Shippers
hadl^the rignt to assume, in the absence of information to the con-
trary, that he had authority from his principal to contract for the
doing of whatever was reasonably necessary to be done in the ship-
ment of such property. By placing him in charge of its business
at that station, and empowering him to contract for the shipment
of such property, it held him out as possessing the authority to
contract with reference to all the necessary and ordinary details of
the business. Within the range of that business, he was a general
agent. 2 Eedf. Rys. 141.
We are aware that what is here said is not in harmony with our
holding in Wood v. Chicago, M. <fe St. P. R. Co., 69 Iowa, 196 ;
8. c, 21 Am. & Eng. R. R. Cas. 36. We entertained such grave
doubts, however, as to the correctness of our holding in that case,
that we announced to counsel, when this rehearing was granted,
that we would review the question upon the final nearin^. Our
conclusion is that that case, in so far as it holds that the defendant,
for the purpose of defeating its liability upon a contract made by
a station agent within the apparent scope of his authority, may
show that in making it the agent acted in violation of instructions
of which the shipper had no notice, ought not to be followed.
Shippers, as a rule, are required to deal with these agents in mak-
98 WOOD V, CHICAGO, MILWAUKEE AND ST. PAUL B. CO.
ing contracts for the shipment of property. They are agents of
the company's own selection, and are employed to represent and
act for it ; and to hold that contracts entered into by them, within
the apparent scope of their authority, may be defeated by secret
limitations upon their ailthority, would impose, in many cases, yery
frieyous. hardships upon those who ai*e compelled to deal with them,
he soundest considerations of public policy demand that the rule
should be otherwise ; and this yiew is well sustained by the authori-
ties. See 2 Redf . Rys. 139-141 ; Hutch. Carr. § 269 ; Deming v.
Grand Trunk R Co., 48 N. H. 456 ; Pruitt v. Hannibal & Bt. J.
R Co., 62 Mo. 627 ; Harrison v. Missouri Pac. E. Co., 74 Mo. 364.
In the yiew we haye taken of the question already discussed, the
question whether there was any eyidence of a subsequent ratifica-
tion by defendant of the acts of the agent is not yery material.
But, without discussing that question, we may say that, in our
opinion, there was eyidence whicii fairly entitled plaintiff to haye it
submitted to the jury.
2. The district court instructed the jury that, if plaintiff was
guilty of any negligence, or want of ordinary care in
fSSSS?* ST- loading the potatoes, which contributed to the injury
■TRDcnoira. ^^^ damage of which he complains, he could not re-
coyer. Counsel for defendant concede tliat the instructions on
this question are abstractly correct. ' They contend, howeyer, that
upon the undisputed eyidence the court should haye ruled that, as
matter of law, plaintiff was guilty of such negligence in loading the
potatoes on the cars at the time he did load them as defeated bis
right to recoyer for any injury which occurred to them after that
time. As stated aboye, the weather was cold and freezing at the
time the cars were loaded. Some of the potatoes which were
stored in the warehouse were already frozen. Plaintiff, at the
time, expressed to the station a^ent some apprehension that they
would freeze if loaded at that time. But the agent gaye it as his
opinion that they could be protected from freezing if properly
coyered in the cars with straw. Plaintiff did accordingly coyer
them with straw and blankets, and he testified that he made the
best proyision for their protection which he was able to make un-
der tne circumstances. Under this eyidence, the <]^uestion whether
he acted negligently or with due care was for the jury. Different
minds might fairly arriye at different conclusions irom it as to
\ whether due care was exercised in loading the property. Whitsett
V. Chicago, R I. & P. R Co., 22 Am. & Eng. R R. Cas. 336.
3. The district court refused. to give an instruction asked by the
defendant, to the effect that the duties and obligations of a com-
mon carrier, with respect to the goods, commence with
oSSukwoaSikb the deliyery to him, and that the deliyery to him must
be complete before he is charged with the duty of see-
ing to their safety. As an abstract proposition, the instruction is
AQBNT — POWER TO BIND COMPANY. 97
probably correct. But we think it is not applicable to the case
made by the pleading and evidence. Plaintiff does not complain
that defendant was guilty of any breach of its duties as a common
carrier after it received the property into its possession. His com-
plaint is that it violated its contract to receive and transport it at a
particular time, and that it refused to receive it within a reason-
able time thereafter, and that the injury resulted from this viola-
tion of contract and refusal to receive the property. The cars
-were sent forward with the firet train after they were loaded^
and it is not claimed that thereafter defendant was guilty of any
wrong or negligence with reference to the property, and no ques-
tion arose in the case to which the instruction was pertinent.
4. The court instructed the jury, in effect, that if the station
agent made the alleged verbal contract and he nad express author-
ity to make it, or was held out by defendant as having dwurt aor
such authority, and plaintiff had the potatoes at the gauss.
station at the time specified in the contract, and offered to de-
liver them, but defenaant did not receive them, or within a rea-
sonable time thereafter furnish the cars for their shipment, and the
injury to them occurred in consequence of its failure or refusal to
receive and ship them within a reasonable time after that date, it
was liable for the damages occasioned by such injury. The ob-
jection urged against these instructions is that the injury which
the property sustained after it was loaded upon the cars was not
the proximate consequence of defendant's neglect or failure to re-
ceive and ship it an earlier date, but was occasioned by the ele-
ments and plaintiff's act in loading it upon the cars at the time he
did. This doctrine was also expressea in instructions asked by
defendant at the trial, but which were refused by the court. The
maxim invoked by defendant, while it is well settled and familiar,
is not always of easy application to the facts of the case at hand.
The general doctrine is that a party is responsible only for such
consequences as are the natural and immediate result of his own
fault. But it is often difficult to determine whether a pailicular
result is the natural and proximate consequence of a particular
act, or whether it should be attributed to some intermediate cause.
It is well settled, however, in cases of contract, that the party in fault
is responsible for such consequences of his failure as must have
been contemplated by the parties when they entered into the
agreement, even though they are the immediate result of inter-
mediate causes. Thus, if a carrier should contract for the trans-
portation of a car-load of fresh meat to a distant market in hot
weather, and should agree to furnish a refrigerator car at the
place of shipment, at a particular time, for its reception, and the
shipper should produce the meat at that place at the time
agr^d upon, ready for shipment, but the carrier should f ajj to pro-
duce the car, and there was at hand no suitable place for the
24 A. & £. R. Gas.— 7
98 WOOD V. OHICAGOy MILWAUKEE AKD ST. PAUL R. CO.
storage of the property, and it should become tainted and dam-
aged by its exposure to the weather, in that case the immediate
cause of the injury would be the exposure of the meat to the
weather, which would be the act of the shipper. The carrier
would be responsible for the injury, however, for the reason that
the parties had that matter in consideration when they entered into
the agreement. The undertaking of the carrier, in effect, would
be that the property should not be exposed to that danger, and the
injury would be a proximate consequence of his breach of that
undertaking.
In the present case it was well known to the parties, wlien thej
made the contract, that unless the potatoes should be shipped at an
early date they would be liable to be injured or destroyed by freet
ing. The danger was one which would arise in the ordinary course of
nature in this climate, and it must be presumed that the parties
had it in consideration, and intended to guard against it, when thej
entered into the argument. If defendant had received and shipped
the potatoes at the time agreed upon, or within a short time there-
after, the injury would not have occurred. Plaintiff bought the
potatoes for the market to which they were afterwards consigned.
He made efforts, between the seventeenth of October and the sec-
ond of November, to dispose of them, but was unable to find a
market for them. He made the best provision practicable for tlieir
protection during that time. If those stored in the elevator and
warehouse had been permitted to remain tliere during the winter
they would certainly have been frozen, and there was no other plaee
at tne station where they could have been safely stored. Under the
evidence, we think it was properly left to the jury to determine
whether their exposure to the danger, and the injurv they sus-
tained, were the proximate consequences of defendant's breach of
the contract ; ana we also think that the finding of the jury on that
question is fully sustained by the evidence. Other questions are
argued by counsel, but, in the view we have taken of those consid-
ered in this opinion, they are not tpaterial.
We deem it proper to say that this is not a second appeal in the
case between tne same parties in 59 Iowa, 196, and 13 N. W.
Bepr. 99.
The judgment will be affirmed.
Power of Station Agent to bind Company. — Bee Wood «. Chicago, etCt
R Co., 21 Am. & £Dg. R. R. Cas. 86 and note.
Agents of Raiiway Corporations— Liability of Surety on Bond of TlcM-
agent for Money stolen from Ticket-office. — C., a ticket-a^nt, upon beioe
employed by a railroad company, gave a bond with two sureties that he would
collect in cash all passage-money, etc., and inter alia ''account for and pay
over the whole thereof into the hands of . . . ., and .... in all respects
attend diligently and faithfully to all his duties without fraud, neglect, or
delay. . .>. .*^ On a morning during his employment by the company, be
removed the cash on hand from the office safe and placed it in a wooden till
AGENT— EMPLOTMENT— COMPENSATION. 99
oeftT the ticket- window, closed the office and went to a neighboring depart-
ment of the company, to copy a report; he was absent about twenty minutes;
upon his return he discoTered that the office had been entered and the money
he had placed in the till — $947 — ^had been stolen. In course of time the
company brought an action of debt upon the bond of C. and his sureties,
signing breaches of the condition. Edd^ that there could be no recovery,
unless the n^ligence of C. had occasioned the loss. Baltimore & O. R. Co.
V. Jackson (Penn., 1886), 4 East. Repr. 121. See also Ridley «. Brady, 38
Alb. L. J. 181, where it was held that '* sureties on a bond, conditioned that
an employee shall account to his employer for goods and moneys intrust&d
to bis care, are not liable for goods stolen from him without his fault."
Compensation of Secretary of Railway Corporation! — ^A person who is
appointed and discharges the duties of the office of secretary of a corpora-
tion, and who is neither a director nor stockholder, is entitled to a reason-
able compensation for his services although no rate of compensation was
agreed upon, and there was no express agreement that compensation
should be made. Such an officer, in this respect, stands in no difierent
position from an employee of any other grade who has rendered service at
the request of the corporation. Smith v. Long Island R. Co. (New York,
1886). 4 East. Repr. 718.
Implied Contract to employ and compensate Depot-agent. — Hill, the
plaintiff, was depot-agent of defendant railroad company at Attala. Ball
was superintendent of the railroad, having, his office at Chattanooga, its
north-eastern terminus. Wadsworth was assistant superintendent, having ,
his office at Birmingham, which is near the centre of the line. Attala is
between Chattanooga and Birmingham. Hill received notice from Ball,
superintendent, notifying him to report to Wadsworth. He did so, when
Wadsworth informed him he wished to transfer him to the office at Eutaw,
a station lower down the road, and to place him in charge of the depot
there. Accompanying him to the latter station, he placed him in charge,
where he remained, performing the duties of station agent,' for more than
four years. While proceeding to Butaw, and after reaching that place,
Wadsworth, in answer to a question by Hill as to what his salary or wages
would be, informed him it would be seventy-five dollars per month. It was
not shown that Ball, the superintendent, ever fixed the salary, or said any-
thing on the subject. The corporation paid Hill monthly at the rate of fifty
dollars per month, which he received, and gave therefor customary receipts
in full, on the pay-rolls. He sometimes protested, and he frequently claimed
that an additional sum of twenty-five dollars was due him for each month ;
but the corporation never conceded it to him. No legal question was raised,
however, on the effect of these receipts and acquittances, nor on the effect
of Hiirs continiuince in the office, after he knew the corporation denied his
right to the extra twenty-five dollars, monthly compensation. It was a
mooted question of fact whether Wadsworth promised Hill seventy-five
dollars per month for the service he was to render at Eutaw. Rulings of the
court bearing on this question, and on the connected question whether, if
he made such promise, the corporation was bound thereby, were the only
legal ouestions presented.
Edij (1) that the appointment of an agent by or for a corporation, as by
a natural person, may be implied from a confirmation of his acts, or an ac-
ceptance of his services without objection ; and after such, confirmation or
acceptance the corporation cannot evade payment for his services by deny-
ing the validity of his appointment.
(2) That authority to do an act includes authority to do everything neces-
saiy and usual to its accomplishment; and authority to employ an agent or
servant includes, in the absence of restrictive words, authority to make a
complete contract, definite as to the amount of wages, as to all other terms.
100 SIOUX CITY, ETC., B. 00. V. CHICAGO, ETC., R. CO.
(3) That a contract of employment may be express and definite as to all ita
terms, or it may be partly express and partly left to implication ; and when
services are performed under an express contract of employment, the wages
or compensation not being specifiea, a recovery may be had under a quantum
meruU. And
(4) That the statements and declarations of the assistant superintendent,
while negotiating for the transfer, and up to the completion of the contract,
were competent evidence against the railroad company. Alabama Great
Southern R. Co. v. Hill, 76 Ala. 308.
Delegation of Authority of Agent— Ratification. — Except where a known
usage of trade justifies, or necessity requires, the employment of subagents,
an agent whose powers and duties involve personal trust and confidence and
the exercise of judgment and discretion cannot, without authority from hia
principal, delegate to another the confidence and discretion reposed in him.
Having, by his own judgment and discretion, determined what should be
done, he may authorize another to perform the ministerial acts necessary to
carry into effect the purposes of his employment, but he cannot turn hia
principalis business over to the judgment and discretion of another, and bind
the principal by the acts and conduct of the latter. Titus & Scudder e.
Cairo & P. R. Co., 46 N. J. L. 893. 1 Sugd. on Powers, 214; Story on
Agency, 1 14; 2 Kent, 688; 1 Chitty on Contracts, 296 and note; Commercial
Bank «. Norton, 1 Hill, 501 ; Lewis f . IngersoU, 1 Keyes, 847 ; Brewster v^
Hobart, 15 Pick. 802, 808.
Knowledge by the principal of the unauthorized act of the agent in as*
suming to make a contract for him, which the agent had no power to make,
is essential to a ratification of the agent's act. If the agent fraudulently
misrepresented his authority, and the principal has received the avails of the
fraud without knowledge of the agent^s fraudulent conduct, the remedy of
the party injured a^itinst the princinal is not upon the contract in damages,
but by rescission of the contract ana suit for the consideration paid. Titos-
& Scudder «. Cairo & F. R. Co., 46 N. J. L. 898.
Siouz OiTY Azn) St. Paul B. Co. et al.j Trastees, v. Ohioaoo^
Milwaukee and St. Paul B. Co.
CmoAOo, Milwaukee and St. Paul B. Co. v. Sioux Cnr ani>
St. Paul B. Co. et al.
(Advance (7aw, United 8taU$, March 29, 1886.)
The fact being that, upon certain lands eranted to the State of Iowa bj
Congress to aid in the building of two railroads, the Siouz City R and the
Chicago, Milwaukee & St. Paul R cross each other, the prior construc-^
tion of the former road does not entitle it to the land, nor does the prior lo*
cation of the latter road entitle it to such land, each to the exclusion of the
other. The title acquired from the United States relates back to the date of
the grant, and neither company can obtain any superiority of title by any act
done by it, or by any omission to act by the other, provided there is no forfeit-
ure of the grant. In such case the companies take the lands coming within
the confiicting lines in eoual undivided moieties. But as regards the in-
denudty lands provided for in the grant, which were to be taken outside-
XAND GRANT — ^INTEBSEOTING ROADS — OROSSIKG. 101
of the 10-xntle limit, this tenancy in common principle does not prevail, but
the priority of selection determines the question of proprietorship.
Appeals from the Circuit Court of the IJDited States for the
District of Iowa.
John C. Spooner for Sioux City & St. P. R. Co.
John W. Cc/ry for Chicago, M. & St. P. R. Co.
Miller, J. — These are cross- appeals from a decree of the circuit
court for the district of Iowa. In that court the Chicago, Milwau-
kee & St. Paul R. Co. brought its bill in chancery, on the
fourth day of March, 1879, against the Sioux City faow.
& St. Paul R. Co., which in due time was answered. The
subject of contest in this snit was the right to certain lands
granted by Congress to the State of Iowa to aid in building two
railroads, which, however named originally, their right to the
lands became vested in one or both of these companies. The grant
of the lands was by a single statute, and was to the State as a trust
for the construction of two roads which necessarily crossed each
other, and by the act of Congress the place of crossing was to be in
O'Brien county. The act granted for the aid of each road every
alternate section of land designated by odd nnmbers for 10 sec-
tions in width on each side of said roads ; and in the event that
any of these odd sections had, when the lines of the roads were
definitely located, been sold or otherwise disposed of, the usual
grant of lands in lieu of them should, by the Secretary of the Inte-
rior, be caused to be selected, provided they werd in no case to be
located more than 20 miles from the lines of the roads. 13 St. at
Large, 72, c. 84.
The roads to be benefited by this ^ant have both been com-
pleted, and both companies are entitled to the odd sections within
10 miles of their lines of road, and to the indemnity lands so far as
they can be found of odd numbers within 20 miles. But as the
roads cross each dther these limits also cross and overlap, and the
claims to the odd sections within those limits necessarily confiict.
Tliis presents questions which, at the time the suit was brought,
were important, because the value of the land in controversy is
large, and because many other land grants to railroad companies pre-
sented the same difficulty ; but during the pendency, of this suit
in the circuit court, and on appeal here, all these questions have, it
is believed, been decided by tnis court, so that nothing remains
but to apply the principles of these decisions to the admitted facts
of this case. Cedar Kapids Co. "o. Herring, 110 U. S. 27 ; s. c,
14 Am. & Eng. R. R. Cas. 537 ; Kansas Pacific Co. t?. Atchison, T.
& S. F. Co., 112 U. S. 414 ; St. Paul Co. v. Winona Co., 112 U. S.
720.
(1) It was claimed by the Chicago, Milwaukee & St. Paul
102 SIOUX CITY, ETC., B. CO. V. CHICAGO, ETC., R. CO.
Co., which, for brevity, will be called the Milwaukee Co.,
tliat, by reason of the prior location of the line of its road throngli
the lauds where the crossing finally took place, they acquired a
priority for their entire claim,' to the exclusion of the other com-
pany, within the limits of the lap. That is, that when their line
was definitely located thev became immediately entitled to every
odd section within 10 miles of the road, and to the paramount
right of selection of indemnity lands within 20 miles. (2) Tlie
Sioux City road asserted, by virtue of the fact of the prior con-
struction of their road through the overlapping lines of the grant,
that they had secured the paramount right wnich the other com-
pany claimed by reason of prior location.
Both these contentions are wrong. The title acquired from tbe
United States relates back to the date of the grant, and neitlier
TTTLB AOQuiuD compauy can obtain any superiority of title by any act
to^^daib'^S do^® ^y it, or by any omission to act by the other, pro-
ORAKT. vided there is' no forfeiture of the grant. This prin-
ciple is fully decided in the case of St. Paul R. v. Winona K., 112
U. S. 720. In such case the companies take the lands coming
within the conflicting lines in equal undivided moieties. In the
opinion above referred to it was neld that, while this rule applied
to what are called lands in place, — that is, those odd sections found
within the 10-mile limit oi the road, — as those 10 miles conflicted
with each other, it did not apply to lieu lands or indemnity lands
which were to be selected outside of the 10-mile limit. The reason of
this was said to be that, with regard to the odd sections found within
the original limits of the grant undisposed of when the line of the
road was deflnitely located, that location ascertained the sections
which passed by the ^rant, and fixed the right to /sucli sections,
whether it was the whole or the moietv of them. But no title to
indemnity lands was vested until a selection was made by which
they were pointed out and ascertained, and the selection made ap-
proved by the Secretary of the Interior. In a case, therefore,
where two companies had this right of selection within the same
limits, priority of title might be created by priority of selection, or
some other mode than location of the road or priority of construc-
tion. The circuit court, in its decree, disre^rded this distinction
between lands found in place within 10 miles of each road and
those within the indemnity limits, and applied the tenancy in com-
mon principle to the lands claimed as indemnity for others not found
within the 10 miles as well as to those founa within those limits
and not sold or disposed of.
It appears from the record in this case that there are within the
lap of the 20-mile limits of both roads, subject to the grants to
these roads, both for lands in place and for lieu or indemnity lands,
189,595.98 acres, which constituted the subject-matter of tLis con-
troverey.
i
LAND GRANT — ^INTEBSKCTING ROADS — CROSSING. 103
1. Of these, 63,796.24 acres are within the 10-mile limit of the
Sioux City road, and not within tlie 10- mile limit of the Milwau-
kee road, though they are within its 20-mile limit. The ^
result of the rule on which the circuit court acted was i^wauksb co'
to divide these lands equally between the two com- So? J^kSx
panics. But the principles we have stated, and which "^ ^'
were fully considered in St Paul Co. v. Winona Co., exclude the
Ifilwaukee Co. in this case from invading the 10-mile limit
of the Sioux City road to seek indemnity for losses by reason of
lands within its own 10- mile limit previously disposed of. These
63,796.24 acres beiu^ odd sections within the 10-mile limit of the
Sioux City road, and not within the 10-mile limit of the Milwau-
kee road, belonged exclusively to the former, and the latter com-
pany had no interest in them. The decree is in that respect erro-
neous, and must be reversed, and all these lands given to the Sioux
City Co.
2. Of the lands in controversy there were 33,071.8 acres within
the 10-mile limit of the Milwaukee road, and not within the 10-mile
limit of the Sioux City road, but within its 20-mile limit, which,
according to the ruling of the circuit court, were equally divided
between the two companies. For the same reasons which govern
with regard to the 63,796.24 acres just disposed of, this part of the
decree must be reversed, and these 33,071.8 acres given to the Mil-
waukee Co.
3. Of the lands in controversy there were 50,539.73 acres within
the 10-mile limits of both, roads. This the decree of the circuit
court held to belong to the companies in equal undivided moieties,
and appointed commissioners to make partition of them. This
part ot the decree was, npon the principles we have stated, correct
and must be affirmed.
4. Thei-e remains to be considered 42,188.93 acres found to be
within the 20-mile or indemnity limit of both roads, and not within
the 10-mile or absolute grant limit of either road. As these lands
are within the category of those to which no title accrued until a
selection of them was made for one road or the other, there might
arise some difficulty about priority of right between the two com-
panies. But we are of opinion that the circumstances in which the
title to these lands has been placed by the action of the State of Iowa,
which was a trustee in the matter for both parties, and of the com-
missioner of the general land-office, the decree of the court dividing
these lands equally between the parties was just. So far as any
selection was made of these lands, it was by the State of Iowa,
and the legal title was conveyed to her. Though they were certi-
fied to her by the Secretary of the Interior for the benefit of the
Sioux City Co., and though the State conveyed them to that
company, it is obvious that lx>th the Secretary of the Interior and
the governor of Iowa acted under the mistaken idea that the earlier
104 8I0UX CITY, ETC., R. 00. V. CHIOAGO, ETO., B. 00.
constraction of its road, or its earlier location, bj the Sionx Citj
company gave it a priority of right in these indemnity lands, and
as there was not enough to satisfy the demands of both
TwSr coSvJt- companies, nor, indeed, of either of them, they, for that
SrrSinSjr? rcason, conveycd them all to the Sioux City Co.
We think the action of the Secretary or the Interior,
and of the governor of Iowa, nnder this mistake.of law and of their
powers, and especially the governor of Iowa, the common trustee
of both these companies, cannot have the effect of destraying the
rights of the parties. There was in fact no selection ; all were
wrongfully conveyed to the Sioux City Co. That part of
the decree, therefore, which divides these lands equally, ana directs
the commissioners to make partition of them, is also affirmed.
As both parties appealed from the decree of the circuit court,
and as each of them has succeeded in obtaining a reversal of an
important part'of the decree, the costs of the appeal will be equally
divided between them, and the case remanded to the circuit court,
with instruction to render a decree in conformity with this opin-
ion.
Conflicting Qrantt — When Title attaches — Priorities. — In grants of Isndi
to aid in building railroads, the title to the lands within the primary limiti
within which all the odd or even sections are granted relates, after the road
is located according to law, to the date of the grant, and in cases where these
limits, as between different roads, conflict or encroach on each other, priority
of date of the act of Congress,* and not priority of location of the line of
road, gives priority of title.
When the acts of Congress in such cases are of the same date, or grants are
made for different roads by the same statute, priority of location gives no
priority of right ; but where the limits of the primary grants, which are set-
tled by the location, conflict, as by crossing or lapping, the parties building
the roads under those grants take the sections, within the oonflictiDg limits
of primary location, in equal undivided moieties, without regard to priority
of location of the line of the road or priority of construction.
A different rule preyails in case of lands to be selected in lieu of those
within the limits of primary location, which have been sold or pre-empted
before the location is made, where the limits of selection interfere or over-
lap.
In such cases neither priority of grant, nor priority of location, nor prior-
ity of construction, gives priority of right; but this is determined by prior-
ity of selection, where the selection is made according to law.' St. Paul,
etc., R. Co. «. Winona, etc., R. Co., 112 U. S. 720.
SWAMP LANDS — ^POSSBSSION. 105
OmOAOO, BUBUNGTON AHD QuiNOT R. Oo.
V.
Jaokbon.
(Adivance Oa$ej Iowa. March 17^ 1886.)
A party who takes poflsesiioii of swamp lands after the board of supervisors
of the county wherein the lands are situated has refused to accept tne price
offered, as it had a ri^t to do in pursuance of an order of the county court
withdrawing such lands from sale, acquires no legal or equitable title to the
land.
Appeal from Mills district court.
Action for possession of 80 acres of land in Mills county. The
defendant set np an equitable defence, and the ease was tried as an
Xitable action. There was a decree for the defendant. The
^ fitiff appeals.
WatkinSy Williams dk Wright for appellant.
D. H, Sclanum for appellee.
Adams, C. J. — ^In 1866 Mills county had acquired title to the
land in question, and held the same as swamp land. In that year
the defendant applied to the board of supervisors, and facts.
to the clerk of the board, to purchase the same, tendering the sum
of $1.25 per acre ; hvL% both the board and the clerk refused to sell
the land to him, and refused to accept the money tendered, and
nerer did accept it, and the same has been retained by the defend-
ant Notwithstanding these facts, however, the defendant took
possession and made improvements, and has held possession since
that time. In 1870 the county conveyed the land by and to the
Burlington & Missouri River R. Co., and in 1875 that company
conveyed it to the plaintiff. That the legal title is now in the
plaintiff is indisputable.
The defendant, however, claims that he became the equitable
owner by reason of his offer to purchase and tender of $1.25 per
acre, and that the conveyance to the Burlington & Missouri River
R. Co. was made by mistake, under a contract which did not in
fact entitle the company to the land, as was then supposed. The
defendant claims that in 1855 the land was duly offered for sale at
$1.25 per acre, and remained in market, and was subject to sale, at
that price, when he made application to purchase the same, and
made the tender above set ont. For the purpose of the opinion it
may be conceded that in 1855 the land was offered for sale as the
defendant claims. It appears, however, that in 1860 the county
court ordered that no more swamp land should be sold until a
106 HASTINGS AND DAKOTA R. CO. V. WHITNEY et ot.
farther order should be made in relation thereto. The order of
the coantj court withdrawing the land was, if valid, in force at the
time of the defendant's application and tender.
The defendant, however, contends that the court had nd power
to make the order withdrawing the land, and that the clerk of the
board should have disregarded it and accepted his money and made
him a deed. But under section 928 swamp lands were placed
under the care and superintendence of the county courts, and by
section 930 it was provided that the courts may order ,a part only
of the lands to be sold, as they may deem expedient, and by sec-
tion 941 it was provided that the courts shall not sell or dispose of
any more of said lands than shall be absolutely necessary to com-
plete the reclaiming. We think that the court had the power to
make the order in question.
The plaintiff having the legal title, and the defendant no title of
any kind, it is perhaps not important to consider how the county
came to convey to the p1ainti£rs grantor, or whether it did so by
DxraHDAm ▲ mistake or not. But the plaintiJFs right seems to be
TBUPAssn. reasonably clear. The conveyance was made in pur-
suance of a contract which called for " odd sections vacant." The
defendant's position is that the land in question, though in an odd
section, was not vacant because he was in possession. Under the
view, however, which we have taken of the case, he was a mere
trespasser. The county had expressly refused to sell to him, as he
well knew. That the county regarded the land as vacant at the
time it entered into the contract with the plaintiff's grantor must
be presumed.
We think that the plaintiff was entitled to jtidgment for posses-
sion. Reversed.
HASTmos AND Dakota B. Co.
V.
Whitney et dL.
(Aioanctf (7M0, Kiwiuwta, March 1, 1886.)
An act of CongresB of July 4, 1866, in aid of the construction of a rail-
road, grants to the State of Minnesota lands within certain limits, with the
exception, among others, of those to which it '* shall, *^ when the line of road
is definitely located, *' appear . . . that the right of pre-emption or home-
stead settlement has attached." Hdd^ that lands of which there is a home-
stead entry of record, valid upon its face^ are within the exception.
Appeal from a Indgment of the district conrt, Bamsey county*
Cole (6 Brcmvhail for respondent.
M. 0. LUHe for appellants.
LAND GRANT — EXCEPTIONS — HOMESTEAD. 107
Berby, J. — The act of Congress of July 4, 1866, under which
plaintiff claims title to the land in controversy, grants to tiie State
of Minnesota (to whose rights plaintiff has succeeded)
five alternate sections of land on each side of what is j|S ^' '^^ ^
now plaintiff's road ; and provides that ^^ in case it shall
appear that the United States have, when the line or route of said
road is definitely located, sold any section or part thereof, granted
as aforesaid, or that the right of pre-emption or homestead settle-
ment has attached to the same, or that tne same has been reserved
to the United States for any purpose whatever," the Secretary of
the Interior shall select, for tne purposes of the grant, so much
public land " as shall be equal to such lands as the United States
nave sold or otherwise appropriated, or to which the right of
homestead or pre-emption settlement has attached, as aforesaid :
. . . provided, that any and all lands heretofore reserved to the
United States by any act of Congress, or in any other manner by
competent authority, *f or the purpose of aiding in any object of
internal improvement, or other purpose whatever, be, and the
same are hereby, reserved and excepted from the operation of this
act.'' The land in dispute is within what is known as the ^^ granted "
or '^ lands in place" limits of the srant. The important question
in the case is whether an alleged homestead entry of one Turner
of the land in' controversy took it out of the operation of the
grant.
The homestead law provides that a citizen of the United States
who is head of a family may enter 160 acres of unappropriated
public land subject ^^ at the time the application is made" to pre-
emption at $1.25 per acre ; and that the person ^^ ap- HovtarBAD
plying" shall, upon application to the register of the ^^•
land-office in which he is about to make such entry, make affidavit
before the register or receiver that he is the head of a family, . . .
and that such application is made for his exclusive use and benefit ;
that his entry is made for the purpose of actual settlement and cul-
tivation ; • . . and upon filing such affidavit with the register or
receiver," and payment of a prescribed fee, " he shall thereupon
be permitted to enter the amount of land specified." Bev. St.
U. S. §§ 2289, 2290. A person desiring to make a homestead
entry who by reason of actual service in the army or navy of the
United States is unable to do the personal preliminary acts at the
local land-office required by the provisions preceding, " and whose
family, or some member thereof, is residing on the land which he
desires to enter, and upon which a hona-fide improvement and
settlement have been made," may make the affidavit required by
law before his commanding officer, and '^ upon such affidavit being
filed with the register by tne wife, or other representative of the
mrty, the same snail become effectual from the date of such filing."
Kev. St. U. S. § 2293.
108 HASTINGS AKD DAKOTA B. 00. V. WHITNEY et ol.
Turner's alleged homestead entry was made nnder this provision
of law, — section 2293. So far as the forms of the papers evidenc-
ing his entry are concerned, they appear to have followed exactly
PBOPn BiRBT those pi*escribed in the circular instructions issued to
PARRS. |.jjg local land-offices by the general land-office. See
Zab. Pub. Land Laws {lS7T)j 151, 155, 172, 173 ; 2 Lester, Land
La^ts, 253. We perceive no reason why these forms were not
f)roperly prescribed, nor why they were not sufficient to satisfy the
aw ; and hence we are not able to agree to the first position taken
by plaintiff's counsel, which we understand to be that the alleged
homestead entry is void upon the face of the papers by which it is
sought to be evidenced.
And this brin^ us to consider the counsel's second position, viz.,
that the entry, if not void upon these papers, is void upon the facts
in the case. It is admitted in pleading, and found by the trial
court, that at the time when Turner's application Was made and
his affidavit filed no improvement had been made on the land, and
that no member of Turner's family has ever at anv time resided
thereon. The terms of the act of Congress except from the gmnt,
coKHTEucnoH lands within its limits to wnich " it shall appear^ that
ACT."**""*"^ "the right of pre-emption or homestead settlement has
aUachedP We italicize what seem to us to be emphatic words. If
wo felt at liberty to put an original construction upon them, we
should say that the exception is not of lands to which some person
claims that a right of pre-emption or homestead settlement nas at-
tached, or to obtain title to wnich under the pre-emption or home-
stead laws some merely formal steps have been taken by him, and
that a right of pre-emption or homestead settlement cannot be said
to have attached except through compliance with the substantial
provisions of law whicn prescribe the manner and means in and by
which such right is to be acquired.
Such would seem to us to oe the plain and natural signification
of the words used. As an original proposition, it would therefore
have seemed to us that, upon the facts of this case found and ad-
mitted as before stated. Turner's entrv was invalid, illegal, null,
and void, and that it did not attach to the land, or exclude or ex-
cept it from the operation of the grant under which plaintiff
claims ; and this upon the ground that under the act of Congress
(section 2293) the oonorfide improvement and settlement, and the
residence of some member of his family upon the land, were in-
dispensable conditions precedent to his right of entry, and were
entirelv wanting; so that when plaintifrs road was definitely
locAtea, in March, 1867, this alleged entry made .in May, 1865, did
not appear to have attached to the land so as to except it from the
grant. And this would seem to be in accordance with the charge
to the jury in Union Pac. R. Co. v. Watts, 2 Dill. 310. But a
long and almost unbroken series of rulings and holdings by the
LAND GRANT — EXCEPTIONS — ^HOMESTEAD. 109
land department of the United States is to the contrary. They are
to the effect that a homestead entry of record, valid npon its face,
per se constitutes the land thas purporting to be entered land to
Mrhich it appears that the right of homestead settlement has
attached, within the meaning of the various land grants which have
been made in aid of the construction of railroads. This result is
effected simply by an entry of record, valid upon its face, witiiout
reference to the validity of the entry in fact. Thomas v. St.
Joseph & D. C. R. Co., 2 Cobb, Pub. Land Laws, 869 ; White v.
Hastings & D. E. Co., Id. 876 ; Dalton v. Southern Minn. E. Co.,
Id. 861 ; Barbeau v. Southern Pac. R. Co., 9 Copp, Landowner,
81 ; Graham v, Hastings & D. Co. (this case). Id. 236 ; Whitney
t?. Maxwell, 10 Copp, Land-owner, 104 ; St. Paul, M. & M. Ry.
Co. V. Rouse, Id. 215; Hastings & D. E. Co. v. U. S., 11 Copp,
Land-owner, 172 ; Southern Minn. R. Ext. Co. v. Gallipean, Id.
264 ; St. Paul, M. & M. R. Co. v, Forseth, 12 Copp, Land-owner,
39 ; U. S. V, Union Puc. R. Co., Id. 161 ; Murphy v. Howe, Id.
168 ; Chicago, R. I. & P. R. Co. u Easton, Id. 259 ; Hamilton v.
Northern Pac. R. Co., Id. 277.
We have spoken of this series of rulings by the general land
department of the United States as almost unbroken. If some
mJings made in such cases as Kniskern v. Hastings & D, R. Co.,
2 Copp, Pub. Land Laws, 858, and Larson v, St. Paul & P. R. Co.,
Id. 862, and possibly some earlier cases, are to be regarded as in-
consistent with these (as is not altogether clear), tney must be
treated as overruled by the later holdings above cited. The act of
Congress of June 2, 1872 (section 2308, Rev. St. U. S.), evidently
rests upon the propriety of a construction of the law like that given
by the land department.
As to the weight to which the practical construction thus given
to the land laws is entitled, we quote, as fuUv applicable to this
case, what is said by the supreme court of tne tfnited States in
U. S. V. Burlington & M. R. Co., 98 U. S. 341, cited in Ifansas
Pac. R. Co. V. Atchison R! Co., 112 U. S. 414 : " Such has been
the uniform construction given to the acts by all the departments
of the government. Patents have been issued, bonds given, mort-
ga^s executed, and legislation had upon this construction. This
uniform action is as potential and as conclusive of the soundness of
the construction as ii it had been declared by judicial decision. It
cannot, at this day, be called in question." We may add that the
cases of Burlington & M. R. Co. v. Abink, 14 Neb. 96 ; Atchison^
T. & S. F. R. Co. V. Pracht, 30 Kan, 66; s. c, 12 Am. & Eng.
R. R Cas. 267 ; Kansas & P. R. Co, v. Dunmeyer, 113 U. S. 629,
appear to take or to tend towards the same view of the effect of
tne land-grant acts upon homestead and pre-emption entries taken
by the land department ; and the cases of U. S. v. Union Pac. R.
Cfo., 12 Copp, Land-owner, 161, and Hamillton v. Northern Pac.
110 HASTINGS AND DAKOTA B. 00. V. WHITNEY et ol.
R. Co., Id. 277, show that as to the Dunmeyer Case this is the un-
derstanding of the department itself.
Following the constrnction of the general land-office in cases of
this kind, we are compelled to hold that Tamer's entry, being of
record and valid upon its face, took the land out of the operation
of the grant ; an'd lience the judgment appealed from, which was
for plaintiff, is reversed.
Rights of Settler against Railway Company. — A settler who has entered
public land of the United States under the provisions of the homestesd law,
•although no patent has been issued, has an inchoate title to the land, which
is property. This is a vested right which can only be defeated by his own
failure to comply with the conditions of the law. If he complies with these
conditions he oecomes invested with full ownership and the absolute right
to a patent. Under the act of May 14, 1880 (21 U. S. St. 140), his right re-
lates back to the date of his settlement. As against such homst^er, a
railroad company has not, under the act of March 8, 1875, a right of way
over the land, unless such riffht was acquired by compliance with the pro-
*vi8ions of the act before the date of his settlement. Red River, etc., R Co.
V. Sture (Minn., 1884), 20 N. W. Repr. 229.
Railroad Land Crant — Homestead — Pre-emptions. — Under the acts grsst-
ing lands to aid in the construction of a line of railroad from the Missouri
river to the Pacific ocean, the claim of a homestead or pre-emption entrj,
msde at any time before the filing of that map in the eeneral land office,
had attached, within the meaning of those statutes, and no land to which
such right had attached came within the grant. Kansas P. R. Co. e. Dud-
meyer, 113 U. 8. 629.
Adverse Claim of Actual Settler — Held valid against Land Crant—
Affainst an actual settler under a homestead or pre-emption claim valid and
suDsisting at the time of the railroad company^s definite location of its rail-
road, the railway company obtains no rights by virtue of its land irrant or
the definite location of its road. Feams et oZ. v. Atchison, T. &; S. F. R
Co., 6 Pac. Repr. 237 (Kansas, 1885), citing Atchison, T. & 6. 1^. R Co.
V, Pracbt, 30 Kan., 66, 12 Am. & Eng. R. R. Cas. 267.
Hohiesteader's Claim adversely to Land Crant held .valid. — ^In 186S, and
prior and subsequent thereto, the land in controversy was a portion of the
public domain of the United States, subject to homestead entry, pre-emp-
tion, etc. In the early part of January, 1868, Patrick Ryan settled upon
and occupied the land in controversy, intending to procure the same under
the homestead laws of the United States. ^ Afterwards, and on January 13,
1868, he attempted to make a homestead entry of such land at the United
States land office at Salina, but in fact, and through a mistake, made an entry
of another piece of land. On June 9, 1869, Lucius Manly filed a declara-
tory statement for a pre-emption entry of the same land which Ryan had
intended to enter, alleging a settlement thereon on January 8, 1869. On
June 80, 1869, the plaintiff railroad company definitely located its railroad
opposite the land in controversy, and within less than ten miles thereof, snd
became entitled to the same under the Congressional land grant to the State
of Kansas, for railroad purposes, of March 8, 1868 (12 U. S. St. at Lai^, 277),
provided the homesteaa and pre-emption entries of Ryan and Manly were
both illegal and void; but the railroad company did not become entitled to
such land if either of such entries was valid. On July 9, 1869, Ryan filed
an affidavit in the local land office, setting forth that when he filed his home-
stead application he intended to include therein the tract of land in contro-
versy, but that the same was accidentally omitted from his papers; that he
had cultivated and improved the tract named, and that Manly's filing was
LAND GRANT— ACT OF CONGRESS. Ill
not in good faith, and asked to be allowed to amend hiB application. He
Iwd, in fact, made lasting and valaable improvements on the land. Upon a
bearing between these parties, in September, 1869, Manly's filin? was can-
celled, and Ryan was allowed to amend his entry so as to include me land in
controversy.
E^d, per Valentine, J. : ^' That Ryan, by settling upon said land and
making lasting and valuable improvements thereon, and by attempting in
gcM)d »ith to make a homestead entry thereon, and believing that he had
done 80, obtained such an interest in equity in and to the land that the sub-
ttqoent definite location by the railroad company of their road could not
divest him of his interest in the land. It was such an equitable interest
in the land that he had a right to have his entry thereof amended so bb
to make it appear to be just what it was intended and believed to be when
be made his ori^nal entry. The decisions of courts of equity permit-
ting instruments m writing to be reformed so as to make them just wnat the
parties intended that they should be, but which, through some mistake of
tbe parties, they were not, furnishes great support to this proposition. There
oDght to be power somewhere to correct mistakes of this kind ; and the pro-
per place for such power to be vested is undoubtedly, in the first instance, in
the land offices, but finally in the courts. In the present case the correc-
tion was permitted to be made by the local land offices, and their action
was sustained by the Secretary of the Interior, and we think their action
should be sustained by the courts."
Eddy also, that Feams, who entered the land as a homestead after Ryan
abandoned it, took it free from any claim by the railroad company under
its giant. Feama «. Atchison, T. & 8. F. R Co., (Kansas) 6 Pac. Repr. 287.
NoBTHKRN Pacifio R. Oa
V.
Lilly.
(Advance Gate, Montana. January 7, 1880.)
The act of Congress granting lands in aid of the Northern Pacific R. is
not onl^a law but a conveyance, and imports a present and immediate trans-
fer of title to the company of the lands described in the grant, which takes
efiect by relation, as of the date of the act, whenever tbe lands so conveyed
sre designated by the definite location of the line of the road.
Under such act, whenever the general route of the road had been fixed,
tbe lands thereby granted were reserved from sale and held for the company,
wbether before or after the same had been surveyed; and thereafter no per-
son could acquire any title thereto or interest therein, save by the act of the
company. Such reservation was equivalent to a sale of the lands to the com-
pany, to the extent of giving it the right to protect the same as against all
other persons. Having the exclusive right to sell the lands and to deliver
poasesaon, the company, to all intents and purposes, had the possession ; and
tbia, aoocnnpaaied with the right to sell and to convey title, gave the com-
pany the right to protect their possession by action of ejectment or other-
wise.
A complaint in ^ectment is good if it aver the seiaEore of the plaintiff; the
113 NOUTH£BN PACIFIO B. CO. V. LILLY.
poeaesnon of the defendant at the time of the oommencement of the action,
and the withholding of the possession.
Appeal from the first district court of Custer county. The
opinion states the facts.
Sanders, OuUen <& Sanders for appellant.
Conger cfe Cox for respondent
Wade, C. J. — This is an action in the nature of ejectment
brought by the plaintiff and appellant to recover the possession of
FAcn. certain lands from the defendant and respondent A
general demurrer to the complaint, for that it did not state a cause
of action, was sustained, ana the plaintiff abiding its complaiDt^
judgment was rendered accordingly for the defenAint
From the complaint it appears that in the year 1864 the goTero-
ment, by act of Congress, granted certain of the public lands to
the plaintiff in aid of the construction of a railroad from Lake
Superior to Fuget's Sound ; that the general route and line of the
road, opposite to and along the premises in controversy, which are
within tne boundaries of the grant, was fixed on the twenty-first
day of February, 1872, and a map and plat thereof filed with the
Secretary of the Interior, in the office ox the commissioner of the
general land-office, and that all lands included within the grant
m said territory were thereupon withdrawn from sale and pr^
emption except by the plaintiff, as provided in said act ; that on
the nineteenth of day May, 1881, the line of said road was by plain-
tiff definitely fixed near to said general route opposite to and along
said premises, and within the distance of two miles therefrom, and
a plat showing the definite location of the line of said railroad was
thereafter, on the twenty-fifth day of June, 1881, filed in the
office of the commissioner of the general land-office ; tliat said road
was constructed on said line alon^and opposite' to said premises
on or about the fifteenth day of December, 1881, and approved
and accepted by the government on the thirtieth day of Septem-
ber, 1882 ; that on the twenty-first day of February, 1872, said
premises were public lands, not reserved, sold, granted, or apprec-
iated otherwise than by said act of Congress in granting certain
of the public lands in aid of the construction of said railroad, and
that thenceforth the said premises were reserved to and were the
property of the plaintiff ; and that the plaintiff, since the time of
said road wag so definitely fixed, has been the owner of, seized in
fee, and entitled to the possession of said premises. It further
appears that the defendant, on or about the first day of July, 187S,
entered upon said premises and ousted and ejected the plaintiff
therefrom, and ever since has withheld the possession thereof.
The only difference between the complaint and the one in the
case of the Northern Pacific R. Co. v. Majors, 5 Mont. Ill, is that
LAND GRANT— ACT OP CONGBESS. 118
in the Majors case the entry and onster b^ the defendant is alleged
to have taken place subsci^uent to the time when the jj^,„g,^ p
line of the road was definitely fixed, and a plat thereof v. majobs com.
tiled with the commissioner of the general land-office,
while in the present complaint the entry and onster is alleged to
Iiave taken place sabseanent to the time when the general route of
the road was fixed, ana the lands withdrawn from sale and pre-
emption, and prior to the time when the line of the road was oefi-
uitely fixed, and a plat thereof filed with the commissioner of the
general land-office.
Major's case and the authorities upon which it rests conclnsively
determine that the act granting lands in aid of the Northern Pa-
cific B. is not only a law, bat a conveyance of the highest charac*
ter, and imports a present and immediate transfer of title to the
company of the lands described in the grant, which takes efiFect by
relation as of the date of the act, whenever the lands so conveyed
are d^'gnated by the definite location of the line of the road.
Before Uiat time the grant is said to be afloat, but the location of
the road anchors it, and causes the grant to take hold of and at-
tach itself to the alternate sections of land along the designated
line of location, the same as if these sections were named in the
act.
The lands embraced within this ^nt to the Northern Pacific
Co. consistiMl of alternate sections designated by odd numbers on
each side of the line of the proposed road,* and it was LmiTAnoiiB up.
Erovided that whenever, prior to the time when the ^" "■ ®*^"*-
ne of the road was definitely fixed, any of said sections, or parts
of sections, should have been granted, sold, reserved, occupied by
homestead settlers or pre-empted, or otherwise disposed ox, other
lands should be selected by said company in lieu thereof, under
the direction of the Secretary of the Interior, in alternate sections,
and designated by odd numbers, not more than ten miles beyond
the limits of said alternate sections. These limitations upon the
grant are similar to those found in numerous other grants of land
by Congress in aid of railroads. Their object is oovious. The
sections granted could be ascertained only when the routes were
definitely located.
This might take years, the time depending somewhat upon the
length of Uie proposed road and the aifficulties of ascertaining the
most favorable route. It was not for the interest of the country
that in the mean time any portion of the public lands should be
withheld from settlement or use, because they might, perhaps,
when the route was surveyed, fall within the limits of the grant.
Congress, therefore, adopted the policy of keeping the publiclands
open to occupation and pre-emption and appropriation to public
nees, notwithstanding any grant it might make, until the lands
granted were ascertained ; and provided that if any sections set-
24A.&E. R. Ca8.--8
114 NORTHERN PAOIPIO R. 00,. V. LILLY.
tied upon or reserved were then fonnd to fall within the limits of
the grant, other land in their place should be selected. Thus set-
tlements on the public lands were encomtiged without the aid in-
tended for the construction of the roads being thereby impaired.
Railroad Co. v. Baldwin, 103 U. S. 426.
The ^rant to this company, however, contains a limitation npon
the right to settle upon or pre-empt any of the lands included
within the grant, after the general route of the road has been
fixed. After that event transpires said lands are reserved from
sale and held for the company, whether before or after the same
have been surveyed ; and if it should be held that the absolute title
of the company did not attach until the definite line of location
had been fixed, still, the land having been reserved from sale, excent
by the company, no person could thereafter acquire any title
thereto or interest therein save by the act of the company.
Section 6 provides that the President of the United States shall
cause the lands to be surveyed for fortv miles in width
SECTioM 6 coi- Qjj ij^tjj gj^jgg ^f tij^ entire line of said road, after the
general route shall be fixed, and as fast as may be re-
quired by the construction of said railroad ; and the odd sections
of land hereby granted shall not be liable to sale^ or entry, or pre-
emption before or after they are surveyed except by said company
as provided in this act, bnt that the general pre-emption laws shall
be, and the same are extended to all other lands on the line of the
road when surveyed, except the lands granted to the company. This
section is itself a grant, and a legislative reservation and withdrawal
of the lands granted from sale or pre-emption except by the com-
pany.
After the general route of the road has been fixed, it provides
that the odd sections ^^ hereby granted" shall be reserved from
sale or pre-emption, except by the company ; that is to say,
whenever the odd sections are designated by fixing
SS^SroMsf tlie general route of the road the grant attaches and
becomes certain and absolute. ^^ And the odd sections
of land hereby granted shall not be liable to sale before or after
they are snrvey^," except by the company. This prohibition is
absolute. This land is reserved from sale by Congress. It is a
le^slative reservation, and takes effect whenever the general route
oi the road is fixed ; and thereafter no person could acquire any
right or interest in the land reserved from sale except by act of
the company, the grantee of the government.
The averments of the complaint are that after the passage of
said act, the general route of tne line of said road througn the Ter-
ritory of Montana was fixed and adopted by the com-
5JS™? *^' pany on the 21st day of February, 1872, and a plat
and map thereof filed with the Secretary of the In-
terior in the office of the commissioner of the general land-
LAND GRANT— ACT OP CON0BESS. 116
office, and that the said Secretary did, therefore, on said day,
make an order withdrawing all the sections of land designated by
odd numbers, in the. said act referred to, to the amount of twenty
alternate sections per mile on each side of said railroad line thron^n
said Territory from sale, entry, and pre-emption, except by the
plaintiff, as in the act provided.
This act of the Secretary in withdrawing said sections from sale
was not necessary, for Congress had declared that they should not
be liable to sale after the general route of the road haa been fixed.
This declaration by Congress was a reservation of the lands, when-
ever the event transpired that caused it to take effect.
It must be presumed that the President, after the general route
of the road had been so fixed, caused said lands to be surveyed, as
provided for in section 6 of said act, but whether he did or not,
the lands were reserved from sale, except by the company, both
before and after they had been surveyed, and this reservation took
place by operation of law and as in said act provided.
This reservation of said lands from sale and pre-emption, except
b^ the company, protected the lands for the company, and would
so continue to protect them until the order making said btfkct of bb.
reservation haa been revoked and said act repealed. «»^^"<m»-
Such a reservation made by operation of law was equivalent to a
sale of the lands to the company to the extent of giving to the
company the ri^ht to protect the same as against all other persons.
Having the exclusive right to sell the lands and to deliver posses-
sion thereof to the purchaser, the company, to all intents and pur-
poses, had the possession, and this, accompanied with the right to
sell and to convey title, gave the company the right to protect
their possession by action in ejectment or otherwise, against every
and all other persons. The reservation of said lands from sale and
pre-emption, except by the company by operation and in pursuance
of law, was the consummation of the grant to the company, and
the title so conveyed related back to the date of the grant, and was
equivalent to a title in fee. After such reservation in behalf of
and for the benefit of the company, consequent upon the general
route of the road having been nxed, the grant was no longer afloat,
but it attached itself to and took hold of the designated sections as
if they had been named in the act.
All that the act and all that the decisions require, in order to
consummate the grant, is that the alternate sections be designated.
Fixing the line of the general route of the road does cause the al-
ternate sections along said line to be designated, and to be reserved
from sale and pre-emption, except by the company ; and fixing the
line of definite location, if the same is along the line of the general
route, as in this case, does not add anything to the efficacy of the
grant. That only does what has already been done before, by
116 UTAH AND NORTHERN R. GO. t). FISHER.
operation of law, whenever the general ronte of the road has been
fixed.
The defendant entered upon the premises in question, which are
sitnate within the boundaries of the grant to plaintifi, and within
two miles from the line of the general route and definite location
of the road in 1878. At that time the line of the general route
of the road had been established, and the alternate sections, in con-
sequence thereof, and by operation of law, had been withdrawn
from sale and pre-emption except by the plaintiff. It was not
possible, therefore, at that time, for the defendant to have acquired
any interest in or title to said premises, which were a part of one
of the alternate sections 'aforesaid, save from the plaintiff who
owned and held the title thereto. The government could convey
no title or right, for the reason that the premises had been pre-
viously reserved and withdrawn from sale and pre-emption for the
benefit of the plaintiff who held the exclusive ri^ht to sell and
dispose of the same. The defendant, the)*efore, when she entered
upon said premises and ousted the plaintiff, was a mei*e trespasser,
without color of right or authority ; and she claims no rights by
adverse possession. Under our decisions a complaint in ejectment
is good, if it aver the seizure of the plaintiff, the possession of the
defendant at the time of the commencement of the action, and the
withholding of the possession. McComley v. Gilmer, 2 Mont.
202 ; Herl^rt v. King, 1 Id. 475. This complaint contains these
necessary averments, and the demurrer thereto ought to have been
overruled.
Judgment reversed, and remanded.
Operation of a Land Qrant at a Conveyanoe. — See Vaacev. Burlington &
Mo. R. €k).y 10 Am. & Eng. R. R. Caa. 628; Van Wyck v. Enevals, 10 Id.
664.
Utah and Kobthesn R. C!o»
V.
Fisher, Assessor.
(Adoanee Ca§e, U, 8, Supreme Court. Deeember 14, 1885.)
Congress having ceded to a railroad company a strip of land running
througn a portion of the public land set apart for an Indian reservation^
the land bo ceded was thereby withdrawn from the reservation, and be-
came subject to the laws of the Territory within the limits of which it waa
situate.
Appeal from the Supreme Court of the Territory of Idaho.
John F. DiUon and A. J, Poppletan for appellants.
Jo8. K. McCammon for appellee.
LAND GRANT— INDIAN RESERVATION. 117
Field, J. — The plaintiff became a corporation of Utah under an
act of the Territory of February 12, 1869, for the incorporation of
railroad companies ; and by the act of Congress of June 20,
1878, it was made a railway corporation, not only of faot*
that Territory, but of Idaho and Montana also, with the same rights
and privileges it had under its original articles of incorporation,
with a proviso, however, that it should thereafter be subject to all
laws and regulations in relation to railroads of the United States,
or of any Territory or State through which it mi^ht pass. 20 St. c.
362, § 2. It now owns and operates in Idaho a railroad which, for
the distance of 69 miles and a fraction of a mile, passes througli a
tract of land in the county of Oneida, known as the " Fort Bill
Indian Reservation," which was on the thirtieth of July, 1869, set
apart by order of the president for the Bannock tribe of Indians,
pursuant to the provisions of a treaty between the United States
and the eastern band of Shoshonees and the Bannock tribe con-
cluded July 3, 1868. 15 St. 673.
In 1882 there was levied under the laws of the Territory upon
the raih'oad, its depots, and other property within the reservation,
for territorial and county purposes, a tax amounting in the aggre-
gate to $4478. The de^ndant is the assessor and tax collector of
the county, and the tax having become delinquent, he was proceed-
ing to enforce it by a sale of the property, wnen the plaintiff com-
menced this suit in the district court of the county to restrain him,
contending that the property being within the boundaries of the
Indian reservation is withdrawn from the jurisdiction of the Terri«
tory. A preliminary injunction was granted, but at the hearing
the court held that the propei-ty was subject to taxation, and that
the tax was duly levied. The injunction was accordingly dissolved
and judgment rendered for the defendant. On appeal to the
supreme court of the Territory this judgment was affirmed.
The contention of the plaintiff is that the Indian reservation is
excluded from the limits of Idaho by the act of March 3, 1863,
creating the Territory ; or that it is necessarily excepted
from the jurisdiction of the Territory by the treaty of ^iSr^vsS,
July 3, 1868. Neither position can be sustained. The
first section of that act embraces within the boundaries of the Ter-
ritory the reservation ; and the proviso upon which the plaintiff
relies only declares that nothing shall be construed to impair the
existing rights of the Indians in Idaho, so long as they snail re-
main unextinguished by treaty, or to include within its boundaries
or jurisdiction any lands which, by treaty with the Indian tribes,
were not, without their consent, to be included within the limits
or jurisdiction of any State or Territory ; or to affect the authority
of the government of the United States to make any regulations
respecting the Indians, their lands, property, or other rights, by
treaty, law, or otherwise, which it woula have been competent for
118 UTAH AND NORTHERN R. CO. V. iflSHER.
the government to make if the act ]iad not passed. 12 St. 80S.
The proviso excludes from tlie limits and jurisdiction of Idaho
only such lands as by treaty were not to be included witbont the
consent of the Indians, and it recognizes the authority of the Tiii-
ted States to make the same regulations respecting the lands, pro-
perty, and other rights of the Indians which it would have been
competent to make before the passage of the act. There was at
that time no treaty with the Indians that the lands which might
be reserved to them should be thus excluded from the limits and
jurisdiction of any State or Territory. The clause of the proviso on
that head has thei*efore no application. Harkness v. Hyde, 9S U.
S. 476, in which it was held that the jurisdiction of the Territoiy
did not extend over the reservation, wa§ decided upon the mis-
taken belief that such a treaty existed, and that to it the proviso
referred. This error was corrected in Langford v. Monteith, 102
U. S. 147. As no such treaty existed, the proviso did not exclude
the reservation from the limits or the jurisdiction of the Terri-
tory.
JBy the treat}' it was agreed that whenever the Bannocks desired
a reservation to be set apart for their use, or the President deemed
it advisable to put them upon a reservation, he should cause a suit-
able one to be selected in their country. It was under this agree-
ment that the Fort Hill reservation was subsequently established
and the Bannocks placed upon it. The treaty provided a i^eserva-
tion for the Shoshonees, and declai-ed that they should enjoy vari-
ous rights and privileges, and that the Bannocks, when theii* reser-
vation was made, should have the same rights and privileges there-
in. Among other things, it was stipulated that the reservation
should be set apart for their absolute and undisturbed use and oc-
cupation, and for such other friendly tribes or individual Indians
to whose admission from time to time they and the United States
might consent ; and that no person should ever be permitted by
the United States to pass through, settle upon, or reside on the
reservation, except those designated in the treaty, and such officers,
agents, and employees of the government as might be authorized to
enter therein m the discharge of duties enjoined by law. The
treaty also provided for the punishment, according to the laws of
the United States, of any person among the Indians who should
commit a wrong or depredation upon the person or property of
any one, white, black, or Indian, subject to the authority of the
United States, and at peace therewith ; and that no treaty for the
cession of any portion of the reservation held in common should
be of any force or validity as against the Indians, unless executed
and signed by a majority of the adult male Indians occnpving or
interested therein ; and that no cession should be construed to de-
Erive, without his consent, any member of thS tribe of his right to
md selected by him under the treaty.
LAIiTD 6BANT — INDIAN SESEBYATION. 119
It is contended by the plaintiff that these stipulations cannot be
carried out, if the laws of the Territory are enforced on ^
the reservation ; and in support of tlie position special jukibdiction nr
emphasis is placed upon the clause in regard to per-
sons passing over, settling upon, or residing in the Territory, and
the dause touching wrong-doers among the Indians. As these
treaty provisions have the force and effect of a law, it is in-
sisted that the reservation is excluded from the general jurisdic-
tion of the Territory, as effectually as if the exclusion was made in
specific terms. '
To uphold that jurisdiction in all cases and to the fullest extent
would undoubtedly interfere with the enforcement of the treaty
stipulations, and might thus defeat provisions designed for the
security of the Indians. ' But it is not necessary to insist upon such
general jurisdiction for the Indians to enjoy the full benefit of the
stipulations for their protection. The authority of the Territory
may rightfully extend to all matters not interfering with that pro-
tection. It has, therefore, been held that process of its courts may
ran into an Indian reservation of this kind, where the subject-
matter or controversy is otherwise within their cognizance. It the
plaintiff lawfully constructed and now operates a railroad through
the reservation, it is not perceived that any just rights of the In-
dians under the treaty can be impaired by taxing the road and
property used in operating it. The authority to construct and
operate the road appears from the agreement of July 18, 1881, be-
tween the United States and the Indians, which was ratified by
act of Congress of July 3, 1882. That agreement recites that the
Utah & ISorthera E. Co. had applied for permission to con-
struct a line of railway through tiie reservation, and that the
Indians had a^eed, for the consideration thereafter mentioned, to
surrender to the United States their title to so much of the reser-
vation as might be necessary for the legitimate and practical uses
of the road. A strip of land and several parcels adjoining it, form-
ing part of the reservation, were ceded to the United States for the
consideration of $6000, to be used by the company and its succes-
sors or assigns as a right of way and road-bed, and for depots, sta-
tions, and other structures. By an act of Congress confirmatory of
the agreement the same right of way was relinquished by the Uni-
ted States to the company for the construction of its road ; and the
use of the several parcels of land intended for depots, stations, and
other structures was granted to the company and its successors or
assigns, upon the payment to the United States of the $6000 ; and
on the condition of paying any damages which the United States
or Indians, individuals or in tiieir tribal capacity, might sustain by
reason of the acts of the company, or its agents or employees, or on
account of fires originating in the construction or operation of the
road. By force of the cession thus made, the land upon which the
120 XJNITED STATES V. OENTBAL PACIFIC R. CO.
railroad and other property of the plaintifi are situated was, so far
as necessary for the constraction and working of the road, and the
construction and nse of buildings connected therewith, withdrawn
from the reservation. The road and property thereupon became
subject to the laws of the Territory relating to railroads, as if the
reservation had never existed. The very terms on which the plain-
tiff became a corporation in the Territory rendered it subject to all
such laws, and, of course, to those by which the tax in controversy
was imposed.
The only answer of the plaintiff to this view is that, by the stip-
ulation of the parties and the finding of the court thereon, it ap-
pears that the railway and property which are taxed are situated
within the boundaries of and upon the reservation. If this be so,
it does not follow that the result would be changed. The moment
that the road was lawfully constructed it came under the operation
of the laws of the Territory. The stipulation and finding must,
however, be read with reference to the legislation of Congress, and
therefore as only establishing that the road and property are with-
in the exterior boundaries of the reservation. They will not be so
construed as to allow the company to escape taxation by the
force of a stipulation as to an alleged fact wliich that legislation
shows does not exist. Judgment affirmed.
United States
V.
Centbal Pacific R. Co.
(Advance Case, U, 8. O, C. Jamuvry 29, 1886.)
Under the act of 1866, 14 Stats. 239, granting land to aid in the constrac-
tion of the California & Oregon R., lands outside the forty-mile limit of
the specific srant, and within the exterior limits of an alleged Mexican
grant, are subject to selection in lieu of the alternate odd sections
otherwise disposed of, at the time of the definite location of the road,
situated within the forty-mile limit* at any time after the final rejection of
such Mexican grant.
The grant does not attach to the odd sections of lands outside the forty-
mile limit of the specific mmt, until the selection is, actually, made by the
railroad company under the direction of the Secretary of the Literior, in lieu
of lands otherwise disposed of within said limit.
If, at the time such selection of outside lieu lands is made, a claim under a
Mexican grant embracing the lands selected within its exterior limits has
been finaUy rejected, the lands have ceased to be subjudieej and are subject
to selection.
Although such lieu lands have been selected and patented, prematurely,
before the final rejection of the gprant, yet, in a suit by the United States to
▼acate the selection and patent, commenced long after the final rejection of
LAND GBANT— LIEIJ LANDS — PARTIES. 121
the grant, on the gronnd that it was issued by mistake, will not be sustained
where it does not appear that any private party has acquired any interest
in the land so selectea, or that the goyernment has become subject to any
obligation in relation to said land, and has sustained no injury by reason of
such premature selection and patent.
In such case, if the patent were vacated, the railroad comjMiny would now
be entitled to select an equal amount of other lands within the limits, and
even to select the saiQe lands, they being now subject to selection, and to
receive a new patent therefor. A court of equity will not correct a mutual,
innocent mistake from which no injury can result, when it would be
inequitable to do so. It will not do a vain thing.
The owners of the land at the time of filing a bill in equity to vacate a
United States patent are indispensable parties to the bill ; and where it ap-
pears at the hearing that the bill is filed, only, against parties who have no
interest in the lan£, it will be dismissed for want of necessary parties.
Where three exterior boundaries of a Mexican grant and the quantity of
land are designated, the fourth exterior boundary is found by running; a line
parallel to the opposite boundary, a sufficient distance therefrom to include
the quantity of land called for.
S. Q. HUbom for compIaiDant
Bermett & Wigginton for respondent.
Sawteb, C. J. — This is a snit, on the part of the United States,
to vacate three patents, alleged to have been improperly issned, by
mistake, to respondent, for lands under the oongres- facts.
sional grant to the California & Oregon R. Co., to aid in the con-
struction of a railroad under the act of July 26, 1866. 14 Stats.
239. The patents cover, in the aggregate, something over twenty
thousand acres. It is alleged that, at the time the grant attached
by the definite location of the road, the lands were within the ex-
terior limits of a Mexican grant, a claim for confirmation of which
was then pending, and undetermined in the courts ; and being svh
jtuiieej they were not public lands, and therefore not within the
terms of the grant. The dates of the patents, respectively, are
March 6, 1872, March 17, 1875, and December 20, 1875. The
Slat of definite location provided for under the act was filed on
uly 1, 1867.
The alleged Mexican grant to Diaz was presented for confirma-
tion, August 31, 1852, and rejected by the board of land commis-
sioners, as invalid, October 30, 1854. The district court afiirmed
the decision rejecting the ^ant, March 15, 1858. On July 1,
1857, the claim was again rejected by the circuit court, and the de-
cree of the circuit court was affirmed, on appeal, and the grant
finally rejected by the United States supreme court, March 8, 1873.
The grant, therefore, never had the approval of any one of the
four tribunals through which it passed; and the original decree of
1854, rejecting it, was affirmed by each — showing that there never
was anv merit in the claim under the alleged ^rant.
It, tnus, appears that the first patent sought to be vacated was
122 UNITED STATES V. CENTRAL PACIFIC R. CO.
issued before the fiDal rejection of the grant; and the other two,
more than two jears and two years and nine months
oESttolSidI respectively, after its final rejection. It is insisted, on
the part of complainant, that the grant attached to tlic
specific lands, on the filing of the map of definite location in 1867.
IjHsfore the final rejection of the Mexican grant, and that the lands
being, then, euh jvdice^ they were not public lands, and not within
the terms of the grant, as held in regard to the Moquelemos grant,
in Newhall v. Sanger, 92 U. S. 761. But these lands occupy a po-
sition entirely different from those involved in that case, and are
not within that decision. None of these lands are within tlie
forty-mile limit of the grant, to the specific odd sections of which,
the grant, by virtue of the act, imojacto attaches by the filing of
the plat of definite location. The act grants '^ every alternate sec-
tion of public land, not mineral, designated by odd numbers," to
the number of ten, on each side of tlie road, or within a limit of
forty miles, or twenty miles on each side ; and then provides that
^^ when any of said alternate sections, or parts of sections, shall be
found to have been granted, sold, reserved, occupied by homestead
settlers, pre-empted, or otherwise disposed of, other lands, desig-
nated as aforesaid, shall be selected by said companies in Ueu
thereof, under the direction of the Secretary of tne Interior, in
alternate sections, designated by odd numbers as aforesaid, nearest
to and not more than ten miles beyond the limits of said first-
named alternate sections " — that is to say, within ten miles outside
of the forty-mile limit. The grant, in such cases, does not attach
to the specific sections of outside lands, on the filing of the plat,
but it remains a mere ^' float" until it is ascertained that there is
a deficiency within the limits of the specific grant, and until the
selections outside are, in fact, made, under the direction of the
Secretary of the Interior.
The ^rant does not attach to the specific alternate sections of
lieu lands until the selection is so made by the company which has
the right of selection, and recognized and adoptea by the Secre-
tary. If at the time the selection is so maae, recognized, and
adopted, the lands have ceased to be svh jxidice^ and are subject to
grant, the rights of the company vest, and are valid.
This point is settled in the case of Ryan v. The Central Pacific
B. Co., arising under the sauie ^rant to the Oregon & Califoniia
K. Co., and af^cted in precisely the same way by the claim under the
same alleged Mexican grant to Diaz, 5 Saw. 260, affirmed on appeal
by the United States supreme court, 99 U. S. 383. The land in-
volved in that case was embraced in one of these very patents, that
of March 17, 1875, and the case is, therefore, decisive on the
identical question now presented. Both the circuit and supreme
courts distinguished that case from Newhall v. Sanger, on the
principle hereinbefore. stated. The lands covered by the last two
LAND GRANT — LIEU LANDS — PARtlES. 128
patents set out in the bill are sitnated precisely as the lands in
Ryan's case were, under the same grants, and judicial proceeding.
Thej are all lien lands, situate outside the forty-mile limit, and
required to be selected before the congressional gi*ant attached.
The lands were selected, and patented, after the rejection of the
Diaz grant, and after they had ceased to be mb judice. The title
is, therefore, pei*fect as to the lands covered by the two patents
issaed in 1875, as is settled by the case cited. The patents were,^
therefore, properly issued, and as to those two patents the bill
mast be dismissed.
The only difficulty I have in the case relates to the first patent,
issued in 1872, before the final rejection of the claim nuaer the
Diaz grant; and while the lands so selected and p„^p^
patented were still si^ judioe, and for that reason
only, at the time, not subject to selection under the decision of
Newhall v. Sanger. The lands embraced in this patent were also
all lieu lands, situated outside the forty-mile limit of the specific
grant. They are, therefore, in an entirely different position from
those inside the forty-mile limit. Those inside the forty-mile limit,
ander the decision of Newhall v. Sanger, bein^ sni judice at the
time the grant attached to the specific odd sections, were not within
the terms of the grant at all, but were i-egarded, in a certain sense,
as otherwise disposed of, and the subsequent removal of the cloud
over them did not brins^ them within the grant. But being re-
served, or so otherwise disposed of as to prevent the attaching of
tlie congressional, grant. Congress provided for supplying the
deficiency, not out of these same lands after the claim should be
rejected, but out of other outside lands that should be open to
grant when the selection should be made. Congress intended that
the company should have its ten sections of land to a mile of the
road, and provided that the lands outside might be selected in
lien of those already appropriated inside. In Byan's case, the
supreme court held that the deficiency may be made up by selec-
tions made outside, at any time after any lands covered by a pend-
ing claim are released from that claim ; after they cease to be sub
judice and become, in every sense, public lands, open to other dis-
position. Now, the only difficulty in regard to this patent is that
the selection and patent were premature. Had tne company
waited till after the rejection of the Diaz claim before selectiok
selecting, the selection and patent of identically the
same lands would have been good. If this selection and patent
fail, the defendant has not yet received all the lands to which it is
entitled ; and it is still entitled to select an equal amount of out-
side lands within the prescribed limits, provided a sufficient
quantity of unappropriated lands is left for the purpose. It does
not appear that anybody else has acquired any interest in these
hmds patented, and since they are patented it is not probable that
PRE-
KATURS.
124 UNITED STATES t. CENTRAL PACIFIC R. CO.
any adverse interest in them has been acquired. If this patent
should be vacated, therefore, being no longer sub judicey the de-
fendant wonld now be entitled to select these identical lands, to
compensate for the loss, and receive another patent for them. The
Diaz grant having long since been finally rejected, the lands would
be now open for selection, in pursuance of the decision in Byan's
case. The result might be only the substitution of another patent
to the same lands for the one vacated, at a great deal of further
trouble and expense both to the United States and to the re-
spondent.
The very defence to this suit, brought long after the final rejec-
tion of the grant, and the claim now set up to the lands under
these patents, is a manifestation, now, of an intent to select those
lands. Morally and legally the defendant is, at this time, clearly
^ entitled to nave these identical lands, there being no
▼orofdSto-' adverse claims to them. There is really no equity
^^' shown, now, in favor of the government. On the con-
trary, the equities are all in favor of the defendant. The govern-
ment has realized all the benefits to be derived from the construc-
tion of the road. It made the same innocent mistake, if mistake
there was, made by the defendant, whereby the defendant may
lose a part of its lands, and treated these lands as subject to grant ;
and having done so, it has, presumablv, received double the ordi-
nary price for the alternate even sections. So that it has, in fact,
given away nothing and lost nothing. It has received all it ever
would have received, had the grant not been made, and the road
either not been built or been bmlt. The government is not, and it
never would have been, entitled to anythmg more. Whereas, on
the other hand, the defendant, in case of the vacation of the patent,
has not got its full consideration — ^has not sot all the land to which
it is entitled, andfwhich the government is bound to give, and it is,
now, entitled to select the very same lands, should the patent be
vacated. In fact, the probability is that all the other lands have
already been sold by the government, and the purchase-money re-
ceived by it, so that there will, at this time, be no lands except
these out of which the grant can be satisfied. It does not appear
that the United States has assumed any obligation to any other
persons with respect to these lands, or that they can in any way
sustain any injury by the action already had, merely prematurely
taken, or that anybody else has acquired any adverse interest or
claim in the lands, or will in any way suffer by reason of these
patents.
The vacation of this patent would involve the necessity of issuing
another for the same or an equal amount of other lands, if any
VAC4TI0H "bF there be— of substituting a new patent for the one
PATKNT. vacated. Courts of equity will not do a vain thing —
will not sustain a bill where no injury results from amei*e innocent
LAND GRANT— LIEU LANDS — PARTIES. 125
error in fact or law upon which it is based — ^and especially where
that error consists merely in doing a little earlier than it should be
done a thing entirely proper to be done at the right time, and
which if now undone must be done over again. "Courts of
equity do not any more than courts of law sit for the purpose
of enforcing moral obligations or correcting unconscientious acts
which are followed by no loss or damage." 1 Story's Eq. Jiir. 203.
Much less will it interfere where no iniury results and there
is only a mutual innocent mistake, there being no moral wrong,
and where to correct the mistake in favor of the party complain-
ing would be inequitable and work an injury to tne other party.
Besides, if these lands are now lost, all others open to selection
liaving at this day- been disposed of, by reason of a change of cir-
cumstances the parties could not be placed in statu qv^. 1 Story's
Eq. Jur. 138 a, 138 c.
1 think this patent is now within the principles established in
Byan's case ; on these grounds the bill as to this patent, also, should
be dismissed.
A large portion of the lands — some six thousand acres, I believe
— covered by these patents, and indicated in the answer and evi-
dence, were conveyed in fee-simple, absolute, to various paities be-
fore the filing of this bill, and the defendant had at the commence-
ment of this suit, and it now has, no interest whatever in them.
There is no party to the bill having any interest in these lands. No
decree can be made afiEecting those lands without having the holders
or somebody before the court having an interest in them. United
States V. C. P. B. Co., 8 Saw. 81. The grantees of the patentee of
these lands are indispensable parties to the suit. The bill must be
dismissed as to those lands on this ground also.
So, also, the defendant has conveyed all of these lands, in trust,
to secure the payment of ten millions of bonds issued
and put upon the market. Although the respondent is S^if^^S^jSJ^
interested in the residuum after paying the bonds, and
is, tlierefore, a proper and, doubtless, a necessary party as to all
the lands not absolutely conveyed, as before stated, there is no
bondholder, trustee, or representative of the bondholder, made a
party to the suit, and no decree can be made affecting their rights,
without their presence.^
It is but just to observe, on behalf of the government, that this
suit was commenced after the decision of !Newhall v. Sanger, 92
TJ. S. 761, and before the decision in Ryan v. C. P. R. Co., 99
Id. 382, and, in all probability, without noticing the distinction
established by the latter case, which takes this suit out of the rule
laid down in the former. Had the lattei* esse been decided before
the commencement of this suit, it is but reasonable to presume
that it never would have been instituted.
The answer denies that certain portions of the lands embraced
126 UNITED 8TATES V. CKNTBAL PACIFIC R. CO.
in the first patent of 1871, and some embraced in the other patents,
were within the exterior boundaries of the Diaz grant, and all^
that thejare whoUj outside those boundaries. If this be so, those
lands so situated are, in any event, properly patented to die de-
fendant, and the title to them is perfect. Whether they are within
the exterior boundaries of the I>iaz grant or not depends upon
how those boundaries are located, and probably no two surreyors.
if left to themselves, would have located them alike. Survejor-
^neral Hai*denburg located them in 1873, and Colonel Yon
Schmidt a£:ain located them in 1880, under the direction and super-
vision of Surveyor-general Wagner, and, I presume, expressly for
the purposes of this suit, as I know of no other occasion for their
determination, but these locations differ very widely. In ray judg-
ment, Wagner's location is much more accurate than Hardenburgf^
Wagner's seems to have been located upon the principles stated and
approved by Mr. Justice Field in Henshaw t;. bissell, 18 Wall. 262,
decided after Hardenburg^s location was. made. Says Mr. Justice
Field : ^' With the breadth of the tract stated, the quantity limited,
the southern and eastern lines designated, all the elements are given
essential to the complete identification of the land. A grant of
land thus identified, or having such descriptive features as to render
its identification a matter of absolnte certainty, entitled the grantee
to the specific tract named." Id. 253.
I think upon the principle thus stated we have the elements
from which the exterior boundaries of the Diaz grant can be ascer-
tained with reasonable certainty. It is described in
^SToSn, ^ ^^ petition, and the annexed degiflOj which was an un-
usually ^ood one. We find from these documents that
his grant was ^' joinmg to the north with Mr. Larkin's farm, to the
sontn with the plains, also vacant; to the east with lands already
solicited, and to the west by the mountains ; and the quantity was
eleven square leagues. Turning to the de&iflo we find it platted
in a parallelogram, as bounded on the north by Larkin's land, be-
yond which we cannot go, on the east by Jimeno's grant, on the
south by a line drawn at right angles to the westward from Jimeno^s
west line, on the south of whicn line the lands, for a distance of
many miles, appear to be vadant. The mountains are sketdied to
the west. ^
Thus we have all the elements for locating the grant with proxi-
mate and reasonable precision. Larkin's line on the north, Jimeno's
on the east, the mountains on the west, and the quantity. Taking
these ^ven boundaries, and the fourth can only be drawn just far
enough south to take in, with the other three boundaries, eleven
square leagues of land. On any other principle there would be
no certainty whatever, for the south line might just as wdl be
drawn fifty miles further south as five.
This appears to me to be the only reasonable way of detenniniDg
LAND GBANT— FOBFEITUBE. 127
the exterior boundaries of the Diaz grant, and I adopt it. It seems
to have the approval of the United States supreme court, and this
seems to be the theory of Surveyor-general W agner's survey, in
1880, and the boundaries so located to have his approval. Upon
this location of the exterior boundaries of the grant a considerable
portion of tlie land in the oldest patent issued, as well as in the
others, lies entirely outside of the exterior boundaries of the grant,
and they were public lands, not mbjvdicej at the time of the selec-
tion and patent ; and were then subject to be taken by the railroad
grant, and were rightfully patented. On this ground, also, the bill
mast he dismissed as to all the lands embraced in the several
patents which lie north of the south line of Larkin's rancho, and
aU lying south of a line drawn from the Jimeno ranch westward
to the mountains, far enough south of Larkin's line to embrace
eleven square leagues of land.
. The bul must be dismissed on the several groimds indicated, and
it is so ordered.
See arinneU «. Railroad Co., 6 Am. &Eng. RR Cas. 518; Cedar Rapids,
etc, BaOzoad Co. v. Herring, 14 lb. 587.
Btbeb
t.
ObEGON and CALIFOSlinA B. Co.
{Ainanee Ca$4, U. 8. C. (7., IHitriet of Oregon, Feb. 19, 1886.)
The grant of lands and the right of way to the O. & C. R Co. by the
•ct of Jnly 25, 1806 (14 Stat. 289), and the act of June 25, 1868 (15 Stat.
80), coiutraed to be: 1. A grant of the odd sections of land witiiin ten
milet on each side of the line of the road, not otherwise appropriated or
disposed of under the laws of the United States prior to the dennite location
of laid line, on condition that the road is completed by July 1, 1880, for a
breach of which condition the grantor alone can claim a forfeiture ; 2. The
grant of the right of way absolute, to take effect on the definite location of
the line of the road from the passage of the act of 1866 as against any per-
son claiming under a settlement or appropriation subsequent to the passage
thereof, without condition, save that which the law tacitly annexes to the
grant of any such franchise, the liability to be lost or forfeited for non-user
ascertained and determined in a judicial proceeding instituted by the gov-
ernment for that purpose.
The declaration in section 8 of the act of 1866, that in case the road is
not completed by the time prescribed ^' this act shall be null and void,"
taken in connection with the context, that the lands not patented to the
company at the date of any such failure '^ shall revert to the United States,"
and the general purpose of the act, and the policy of Congress in passine it,
amonnts to nothing more than a declaration that the lands are granted on
the condition that if the road is not completed in due time the portion then
remaining unpatented or unearned may be reclaimed by the United States.
128 BTBEE V. OREGON AND CALIFORNIA R. 00.
AcmoN to recover damages. The opinion states the facts.
Edward B. Watson and James F. Watson for plaintiff.
E. C, Bronaugh for defendant.
Deadt, J. — This action was brought in the circuit court of the
FuoTB. State, for Jackson county, to recover damages for an
alleged injury to a water-ditch.
inie defendant answered, denying sundry alle^tions in the com-
plaint, and then set up a title or right of way in itself, over the
hxnis in quOy under an act of Congress, to which defence the plain-
tiff demurred.
Thereupon the cause was removed by the defendant to this
court, as one arising under a law of the Ignited States, where the
questions arising on the demurrer were argued by counsel.
It is alleged in the complaint that the defendant is a corporation
duly or^nized under the laws of Oregon ; that on September 3,
1883, the plaintiff was the owner in fee of an undivided half-
interest in a certain water-ditch and right, situated on the south side
of Bogue river, in &iid county, and m the possession thereof, as
tenant in common with Daniel Fisher, when he and said Fisher,
in consideration of two hundred and fifty dollars paid the/n by
the defendant, conveyed to it the right to enter on said ditch and
construct and operate its railway over the same; on condition,
however, that it would not impair or obstruct the use or enjoy-
ment of said ditch by said grantors, to which condition the de-
fendant assented, and entered into possession of the premises in
pursuance of said deed and subject to said condition ; that, not-
withstanding, the defendant constructed its road across said ditoh
in such a manner as to permanently obstruct and destroy the same ;
and that the defendant has appropriated said ditch to its exclusive
use, so as to prevent the flow oi water therein where said road
crosses the same, to the damage of plaintiff seven thousand dollars.
It is stated in the defence in question, that the defendant was
incorporated to construct and operate a railway and telegraph line
from Portland to the southern boundary of the State ; tiiat by
section 3 of the act of July 25, 1866 (14 Stat. 240), entitled ''An
act granting lands to aid in the construction of a railway and
telegraph line from the Central Pacific R. in California to Port-
land, Oregon," there was granted to the defendant the right of
way through the public domain, to the extent of two hundred feet
in width wherever its road might be located on said lands; that
the ditch, at the point alleged to be injured, was located and dug,
and is situated on the public domain, where, on July 25, 1866, the
defendant, by virtue of the grant aforesaid, had the right to locate
its road, in doing which and in constructing and operating the same
it became necessary for the defendant to appropnate two hundred
feet in width of the land over which said oitcn was located, and
LAND GRAND — FORFEITURE. 129
construct and operate its road thereon, and that any injury wliich
was done to said ditch was the result of such construction and
operation, and not otherwise; that on May 17, 1879, said Fisher
attempted to appropriate the land in question to his use under the
mining laws of the United States, and therefore constructed said
ditch over said " right-of-way land," which is the only claim said
Fisher ever had or made thereto, and the plaintiff claims under
said Fisher, and never had or made any other claim to the prem-
ises than the one so derived ; and that the defendant took nothing
by said deed from tlie plaintiff, for that it then owned by virtue of
said grant all the right and property pretended to be conveyed
thereby.
The causes of demurrer assigned to this defence are : 1. It does
not state facts sufficient to constitute a defence; 2. The plaintiff
is estopped on the facts stated from claiming the right of way
under said act of July 25, 1866 ; and 3. The defendant forfeited
its right of way under said grant by its failure to complete itis
road over the same on or before July 1, 1876.
By section 2 of the act of 1866 there was granted to the de-
fendant, to aid in the construction of its road, every alternate sec-
tion of the public lands, designated by odd numbers,
to the amount of ten such sections per mile, not other- ^ ^'
wise disposed of by the United States, with the right to select
from the odd sections within ten miles of each side of said grant
lands in lieu of any that may be so disposed of prior to the loca-
tion of the line of said road.
And by section 3 there was granted to it the right of wa^ over
the public lands to the extent of one hundred feet on each side of
the road, where the same may pass over said lands.
Bv sections 6 and 8 of said act it is provided that unless ^^ the
whole" of the road is completed before July 1, 1875, the "act
shall be null and void, and all the lauds not conveyed by patent to
said company" at the date of said failure " shall revert to the
United States." But by the act of June 25, 1868 (15 Stat. 80),
the time for completing the road was extended to July 1, 1880.
It is nowhere directly stated that the road was not completed
within the time prescribed by Congress, but it is fairly inferar
ble that such is the case from the fact stated in the ^^ ^^ ^
complaint, and not denied in the defence, that on Sep- plbted in timb
tember 3, 1883, the defendant took a deed from the '■™*^*"'™-
plaintiff giving the former the right to construct and operate its
road, at a point between the termini thereof, across the ditch of
the latter. And it is a matter of such common notoiitey that the
road was not constructed south of Boseburg until after 1880, and
it is not yet quite completed to the southern boundary of the State,
that the court may well take judicial notice of the fact ; and on
the argument it was practically admitted.
24 A. & E. R. Cas.— 9
130 BYBEE V. OREGON AND CALIFORNIA R. CO.
This act is a present grant, but the particular sections that pass
to the company under it cannot be ascertained until the route is
WHO TO TAXB definitely located. But when ascertained, the title at-
kon^f^j^bSt taches from the date of the act. It is also a ^rant
oFooKDinoNs. made on a condition subsequent — that the road shSl be
completed by a prescribed time. But no one can take advan-
tage of a breach of this condition but the government — the
grantor — and, in the nature of things, it can only do so by
judicial proceedings authorized by law, or a legislative resumption
of the grant.
This well-settled rule of law, concerning the operation of a con-
dition subsequent annexed to an estate in lands in fee, and the
effect of a breach thereof, has been uniformly applied by the Su-
preme Court to the grants of the public lands, made by Congress in
aid of the construction of railways, with the condition annexed
that they should be completed within a specified time. Raili-oad
V. Smith, 9 Wall. 97; Schulenberg v. Harriman, 21 Id. 60; Lea-
venworth K. Co. V. United States, 92 U. S. 740 ; Mo. R Co. v. K
P. R. Co., 97 Id. 496.
But counsel for the demurrer contend that the language of the
act of 1866 is peculiar, and that by operation of section 8 the act
coMTRucnow becomes " null and void," at once and m totOj when-
OF ACT. QyQY and as soon as there is a breach of the condition
concerning the completion of the road.
But the general expression, '^ this act shall be null and void,"
is qualified by the words immediately following, '' and all the
lands not conveyed by patent to said company ..... at the
date of any such failure shall revert to the tfnited States." This
shows how far and for what purpose the act would in such contin-
gency become " null." Certainly, it would not become " null "
as to the lands already patented under it, or earned in purenanoe
of it. In other woras, it is to become "null" only so far as to
allow the grantor to resume the grant, on a failure to comply
with the condition, and then only as to the lands remaining un-
patented or unearned. And but for this qualification the grant
might have been wholly resumed or forfeited for any failure
to comply with the condition, even in the construction of the
last mile. And this construction of the section is in harmony with
the general purpose of the act and the policy of Congress in mak-
ing the grant.
In the leading case of Schulenberg v. Harriman, supray the act
making the grant did not, it is true, declare that the same should
become " nufi and void " on a failure to complv with the condition
and complete the road. But it did provide what in ray judgment
is but the le^l equivalent in this respect of section 8 of the act of
1866; namely, "If said road is not completed within ten yeare, no
further sales shall be made, and the landis unsold shall revert to the
LAND GRANT— FORFEITUBE. 131
United States." And so thereafter the act would cease to have any
force or effect, and practically would be " null."
Nor did the failure to complete the road by July 1, 1880, in any
view of the matter, causo the act of 1866 to become *' null " as to
the right of way. The grant of the right of way is a act hot hull
separate and distinct matter from that of the lands to w4t? *"*" ^'
aia in the construction of the road. The reversion or forfeiture
provided for in section 8 of the act of 1866 does not include the
right of way, but is limited to the '' lands" remaining unpatented
or unearned at the time of the failure. The grant of the riffht of
way is without condition, except that which the law tacitly an-
nexes to all such easements, the liability to be lost or forfeited
for non-user, ascertained and determined in a judicial proceed-
ing instituted by the government for that purpose. But it is
also a pi*e8ent absolute grant, and takes effect when the line of the
road is located from the date of the act, as against any intervening
claim or settlement whatever. Whoever settled on or appropri-
ated for any purpose, under any law of the United States, any por-
tion of the public lands on the possible line of this road after jTuly
25, 1866, did so subject to this grant of the right of way to this
defendant.
It appears from the defence that the plaintiff never was the
owner oi the land in question, but that it has been occupied or
appropriated by him and those under whom he claims since May,
1879, under the act of July 26, 1866 (14 Stat. 253), entitled "An
act granting the right of way to ditch and canal owners over the
public lands and for other purposes."
But this occupation commenced long after the passage of the
act granting the right of way over this land to the defendant, and
is subordinate thereto. And this is so without reference to the
fact that the act under which the ditch was dug is one day later
in time than the other. For no one can claim any right, under
that act, to any particular place or piece of ground prior to his
occupation or appropriation of the same thereunder.
The conclusion here reached in regard to the nature and effect
of the grant of the right of wa^ to the defendant is fully sustained
by the supreme court in Railway Co. v. Ailing, 99 aothoritibs
U. 8. 474, and Railway Co. v. Baldwin, 103 Id. 428. "^«^">-
In the latter of these cases, Mr. Justice Field suggests the reasons
why grants of land in aid of the construction of railways have
generally been made subject to the right of appropriation by indi-
viduals under the pre-emption and other like laws of the t/nited
States, between the date of the act making the gi*ant and the fix-
ing of the limits and operation of the grant by the definite loca-
tion of the line of the road ; while those of the mere right of way
have been made absolute and to take effect from the passage of
y
132 BTBEE 7). OREGON AND CALIFORNIA R. 00.
the act, as against any location, claim, or settlement made after tbe
date of the grant and before the definite location of sneh right
He says : " The grant of the right of way .... contains no
reservations or exceptions. It is a present absolnte grant, subject
to no conditions except those necessarily implied, such as that the
road shall be constructed and used for the purposes designed. !Nor
is there anything in the policy of the government with respect to
the public lands which wonld call for any qualification of the
terms. Those lands would not be the less valuable for settlement br
a road running through tliem. On the contrary, their value would
be greatly enhanced fliereby. The right of way for the whole di^
tance of the proposed route was a very important part of the aid
given. If the company could be compelled to purchase its way
over any section that might be occupied in advance of its location.
very serious obstacles would be often imposed to the progi-e&s of
the road. For any loss of lands by settlement or reservation,
other lands are given, but for the loss of the right of way bj these
means no compensation is provided, nor could any be given bj the
substitution of another route."
In the construction of this ditch on the possible line of the de-
fendant's right of way from Portland to the southern boundary of
the State, the parties engaged therein took the risk that such line
might be located on, along, or across the same, in which case their
right under the ditch ana canal act of 1866 must so far yield to
the prior and better right of the defendant under the railway act
of the same year. Doran v. Central Pacific R. Co., 24 Cal. 259.
In this case the court say : ** The grant by Congress of the right
of way over any portion of the public land to which the UniTed
States have title, and to which private rights have not been
attached under the laws of Congress, vests in the ^ntee the fnll
and complete right of entry for the purpose of enjoying the right
granted, and no peraon claiming in his own right any interest in
the lands can prevent the grantee from entering, in pnreoance of
his grant, or can recover damages that may necessarily be occa-
sioned by such entry.''
But the plaintiff contends that the defendant is estopped by the
EsTopno. TO acceptance of the deed of September 3, 1883, from a.^
TiTLB. serting its prior title to the premises under the act of
1866, granting it the right of way over tne same.
It is a well-established rule of law that ordinarily a vendee is under
no obligation to support his vendor's title, and tlierefore he is not
estopped to deny the same, except in a few cases where hie conduct,
in so doing, would be repugnant to his acceptance of the grantors
deed, or a claim made under it. Society, etc, v. Pawlet, 4 Pet.
606 ; Blight v. Rochester, 7 Wheat. 647 ; Croxall v. Sherred, ^
Wall. 287 ; Merryman v. Bourne, 9 Id. 600 ; Sparrow v. Kingman,
LAND GRANT — ^FORFEITURE. 133
1 N. Y. 242; Coakley v. Penny. 3 Ohio St. 344; Stark v. Starr,
1 Saw. 24; Bigelow on Estoppel, 294.
This is a peculiar case, and my attention has not been called to
one that is its exact parallel.
At the date of his deed, the plaintifPs ditch was constructed
along and aci'oss the premises, but the legal right to the use and
possession thereof for the purpose of its incorporation was in the
defendant. From the date of the definite location of
the line of the defendant's road, the plaintiff had no trbspassbb ov
right or easement to or in the land within the defend- "^" ^' ^^^'
ant's right of way, and was, to all intents and purposes, a naked
trespasser thereon. He therefore had nothing to sell or convey to
the defendant. His possession, if any, was merely constructive.
Under these circumstances, the parties appai'ently supposing that
the plaintiff had acquired some right to now the water over the
premises, the defenoant purchased the privilege of constructing
and operating its road across and along tne ditch for two hundred
and fifty dollars, and on the further condition that it would not
thereby obstruct or impair the same.
Bat this condition or covenant being incident to and dependent
CD the conveyance of some ri^ht in the premises to the defendant,
if tlie latter is at liberty to show that nothing passed by such con-
veyance, the condition or covenant is left without consideration or
support, and falls to the ground. But if there is any good reason
in law or justice, notwithstanding the want of title in the plaintiff,
tiiat the defendant should keep this condition or covenant, it will
be estopped to show a want of consideration from the plaintiff.
Bnt the plaintiff has i*cally parted with nothing, nor has the de-
fendant obtained anything from him, although it has paid the
plaintiff two hundred and fifty dollars. The ditch was dug on
wliat turned out to be the defendant's right-of-way land, and the
plaintiff in consenting to allow it to construct and operate its road
thereon surrendered nothing to which it had any legal right. The
conveyance was altogether an idle and superfluous act, and what-
ever misapprehension of the pai*ties, as to tlieir rights in the prem-
ises, may nave induced it, in legal effect it is a mere nullity.
The case of Holden v. Andi'ews, 38 Cal. 119, is somewhat analo-
gous.
Holden being in possession of a tract of the public land, sold or
abandoned the same to Andrews for a specified sum, to be paid in
the future. Andrews failed to pay, and Holden brought an action
to recover the possession of the land, in which he had judgment.
On the trial, the defendant offered to prove that since the sale he
had acquired the title from the United States under the homestead
law, which was not allowed, on the ground that he was estopped
from setting up the after-acquired title from the United States
without first surrendering the possession obtained by his purchase
134 BTBEE V. OREGON AND CALIFORNIA R. CO.
from the plaintiff. On appeal, the judguieut was reversed and a
new trial ordered. The opinion of the court was delivered by Mr.
Justice Sawyer, who said : ^* We think this is not a case that falls
within the rule. The plaintiff did not pretend to have any other
title than by naked possession."
In Coakfey v. Penny, supra^ 847, the court says : " The deci-
sions in this country, in which the grantee and those daiming un-
der him were held to be estopped to deny the title of the grantor,
were cases in which the gi*antee received and held possession under
the conveyance and relied upon it as his source of title, and not
where the grantee held the title under a prior and independent
conveyance."
Here the defendant derived nothing from the plaintiff, and does
not rely on his conveyance as a source of title, but does rely on a
title derived from the United States prior to such conveyance.
On the whole, my judgment is that this case is not an exception
to the rule which allows a vendee to denv his grantor's title. And
from the facts stated in this defence it clearly appears that the de-
fendant took nothing by the conveyance from the plaintiff, and is
therefore not bound to Keep the condition or covenant therein con-
cerning the plaintiff's ditch.
The demurrer must be overruled, and it is so ordered.
Railroad Land Qranti — Act of Congress conferring Right of Way—
Aeeoptanco of Conditions. — ^Tbe act of Congress approved March 3^ 1675.
entitled ** An act granting to railroads the right of way through public lands
of the United States," is in the nature of a general offer, which takes effect
and becomes operative as a ^ant to a railroad company only when it bis
accepted its terms by a compliance with the conditions precedent prescribed
in the act, and then only as of that date. Red River, etc., R Co. o. Sture
(Minn. 1884), 20 N. W. Repr. 229.
Title to Land Fixed by Location of Railroad, — As soon as the location of
the railroad is fixed, the title of the lands granted it by Congress becomes so
fixed that it is not liable to be defeated by any entry or action of SDOther
person. Schulenberg «^ al. v. Harriman, 21 Wall. 44; Chicago, R. I. & P.
R. Co. V. Grinnell, 51 Iowa, 476; s. c, 6 Am. & Eng. R. R. Cas. 447 ;&. c^ 103
U. 8. 730 ; Simonson «. Thompson, 25 Minn. 450 ; Missouri, E. & T. R. Co.
V, Noyes, 25 Eans. 840 ; s. c, 5 Am. & Eng. R. R Cas. 440 ; Baltimore, etc..
R. Co. V. LawBon, 10 Am. & Eng. R. R. Cas. 655. But in a contest between
two railroad companies it seems that this principle does not apply.
Railroad LinOf when fixed.— The line of definite location of a rulroad.
which determines the rights of railroad companies to land under land- grant
acts of Congress, is definitely fixed within the meaning of those acts by fil-
ing the map of its location with the commissioner of the general land-office
at Washington. Elansas P. R. Co. t>. Dunmeyer, 113 U. S. 629.
Railway Route " definitely fixed," when. — The route was ^* definitely fixed"
within the intention of the act of Congress of July 28, 1866, makine a land
grant to the St. Joseph & Denver R. Co., so that the grant attached to ad-
joining sections when the route was adopted by the company and a map
designating it filed with the Secretary of the Interior. Walden v. Enerals,
114 U. S. 878.
Title to Land Grants dates back to Original Act.— In the case of congrefl-
LAND GRANT — ^FORFEITURE. 136
sional land grants upon the location of the road, the title to the lands granted
relates back to the date of the origrlnal act of Congress. Flint & P. M. R
Co. 9. Gordon, 41 Mich. 420; Missouri, E. & T. R. Co. e. Kansas Pacific R.
Co., 97 U. 8. 491 ; Grinnell t>. Railroad Co., 103 U. S. 739 ; s. c, 5 Am. & £ng.
R. R. Gas. 447; St. Joe & C. R Co. «. Baldwin, 108 U. S. 426 ; s. c, 5 Am. &
Eng. R. R. Cas. 408; Van Wyck v. Knox & Co., 106 U. B. 360 ; Ccd;ir Rapids &
Mo. River R. Co. v. Herring et al,, 110 U. 8. 27 ; s. c, 14 Am. & Eng. R. R. Cas.
537; Northern P. R Co. v. Majors, 14 Am. & Eng. R. R. Cas. 487; Swann et
al. 9, Lindsey, 14 Am. & Eng. R. R. Cas. 504 ; Swann et al, v, Larmore, 14
Am. & Eng. R. R. Cas. 519; 8outbern P. R. Co. v. Bull et oZ., supra.
Title to Lieu Lands fixed by Selection only^ — The mere location of a
nilroad does not vest in it any title to indemnity or lieu lands. No title to
these accrues until they are actually selected according to law. Missouri, K.
& T. R. Co. V. Noyes, 24 Kans. 340; s. c, 5 Am. & Eng. R. R. Cas. 440;
Atchison, T. & 8. F. R. Co. v. Rock wood, 25 £:an8. 292; s. c, 5 Am. & Eng.
R.R. Ca8.482; Chicago, R. L & P. R. Co. v, Grinnell, 103 U. S. 739; s. c, 5
Am. & Eng. R. R. Cas. 447; Kansas P. R. Co. v. Atchison, T. & 8. F. R. Co.,
113 IT. S. 414; s. c, supra.
Land Qrant — Exemption from Entry by Homesteader. — ^The act of July
3, 1866, 14 8t. 79, which authorized the 8ecretary of the Interior to with-
draw certain lands from sale on filing a map of the general route of the
road with him, did not reserve such lands from entry under the pre-emption
sod^ homestead laws. Kansas P. R. Co. v, Dunmeyer, 113 U. 8. 629.
Homesteader charged with Notice of Prior Railway Land Grant. — A party
entering lands included in the grant of July 23, 1866, subsequently to the
performance bj the company of the conditions required in that act, is affected
with notice, and can take no title. Walden v. Knevals, 114 U. 8. 373.
Homestead — Failure to Comply with Statute. — The subsequent failure of
the person making such claim to comply with the acts of Congress concem-
iag residence, cultivation, and building on the land, or his actual abandon-
ment of the claim, does not cause it to revert to the railroad company and
become a part of the grant. The claim having attached at the time of filing
the definite line of the road, it did not pass by the grant, but was, by its
express terms, excluded, and the company had no interest, reversionary or
otherwise, in it. Kansas P. R. Co. «. Dunmeyer, 113 U. 8. 629.
Sale of Railroad Lands — Preference as between Actual Settlers and Appli-
cants—Conclusions dodueible from Circular of Railway. — A railway land
circular provided that ** all persons who desire to purchase lands from the
railroad company should make application to the land agent at the land-
office of the company in San Francisco, California, either personally or by
letter, describing the land by section, etc. . . . This application will be
filed, and the land will not be sold without giving the applicant thirty days'
previous notice. An application for land confers no right or privilege on
the applicant. It is merely a notice that he wishes to buy. The first appli-
cation is not given precedence. . . . Settlers and actual occupants, who in
good faith cultivate and improve lands belonging to the company, will gen-
erallv be given preference of purchase at the regular price, and they are in-
▼ited to settle upon and improve the vacant lands, whether they are applied
for or not by other persons. . . . Applications to purchase lands can be filed
in the land-ofifice of the company at any time after survey by the govern-
ment, but no application will be acted upon until three months after . . .
plats shall have been filed. . . . Blank applications will be furnished. . . .
In filling in blanks it is requested that," etc.
Hdd, that from this circular it would appear that the railroad company
was desirous of selling its lands; that it invited actual settlers and informed
them that, generally, such settlers would be given a preference. It also in-
vited applications for purchase; announced that it would file them; that
136 BYBES L. ORBQON AND GALIFOBIQA R. 00.
blanks would be farnished ; gare instnictioiis u to the mode of filling tliem.
It specified that an application would confer no riffht or piiTil^fe on the ap-
plicant; and that, from the foregoing and other cUuses m the dreular, the
following conclusions might be drawn: (1) The company did not desire to
fix an iron-clad set of rules apolicable to all cases without exception. (3)
That its mode of selling was tnrough applications to purchase nled in its
land-ofllce. (3) That to actual settlers on its lands who were such applicaoti
for purchase a preference would usually be giTen, whether they were thefiret
applicants or not. (4) The proTisos that an application to purchase con-
ferred no right, and that the first application is not given precedence oTcr
those which may be filed later, were inserted the better to enable the com-
pany to carry out its object of ffiying a preference to actual settlers.
Bdd, also, that an actual settler must file an application for th'e lands in
order to secure priority of right to them. Taylor e. Central Pacific R. Co.
(Cal. 1885), 8 Pac. Repr. 436.
Action to compel Assignment of Contract for Sale of Railway Lands-
Evidence — Declarations— Notice— Right of Cestui Que Trust to compel Con-
veyance from Railway Company. — In an action to compel D. to assign to
plaintiffs a contract for the purchase of certain railroad lands entered into
by the Central Pacific R Co. with said D. and to require said C. P. R Co. to
convey said lands to plaintifEs upon their making full payment therefor,
hdd —
(1) That the declarations of the railway company's officers not made in
the presence of D. nor with his knowledge were not admissible in evidence
against D.
(2) That defendant D. might testify that, at the time he purchased the
land in question, he had no knowledge that any portion of it was within the
enclosure of the plaintiff such testimony being material on the question of
notice to defendant of plaintiffs' rights.
(3) That defendant n^ight tentify that when he contracted to purchase the
land, he did not know, and had never heard, of any application by plaintif
to purchase the same.
(4) That plaintiffs* possession in order to impart notice of his rights and
equities must have been actual, open, exclusive, notorious and visible.
Citing Smith v. Yule, 31 Cal. 180; Pell e. McElroy, 36 Cal. 268; G'Rourke
e. O'Connor, 39 Cal. 442; Polack e. McOrath, 25 Cal. 54.
(5) That the railroad company, having contracted to sell the land to de-
fendant, D., was in the attitude of a trustee holding the legal title for him;
and if the plaintiff was not entitled to relief as against him (D.), he was not
in a position to force a deed from the railway company, D.'s trustee. Taylor
e. Central Pacific R. Co. (Cal. 1885), 8 Pac. Repr. 436.
Possession is Notice. — A homesteader^s open, notorious, and exclusive pos-
session of property is notice of his rights to all persons, including a railroad
company claiming a right to the land under its land grant. Fearns v. Atchi-
son, T. & S. P. R. Co. (Kansas^, 6 Pac. Repr. 237.
Conclusions of Law by land officers are not final or conclusive. Fearns
e. Atchison, T. & S. F. R Co. (Kansaji), 6 Pac. Repr. 237.
Findings of Fact made by land officers in a contested case before them
must afterwards, when relief is sought in the courts, be considered as final
and conclusive. Fearns e. Atchison, T. & S. F. R. Co. (Kansas), 6 Pac.
Repr. 237, citing Tatro v, French, 33 Ean. 49.
Ex- parte Proceedings before Land Officer. — Decision of land officers in
an ex-parte proceeding will not in any case be considered as final and con-
clusive against parties who are not before them. Fearns v. Atchison, T. &
8. F. R. Co. (Kansas), 6 Pac. Repr. 287.
KINEBAL LANDS — RIGHT OF OWNER. 187
Midland R. Oo.
V.
Miles.
(Law BeporUy 30 Chom. Die., 684.)
Sect 80 of the Railways Claufles Consolidation Act, 1845, applies to min-
erals lying more than forty yards from a line of railway, ana enables the
owner of minerals whose access to them is cut off by reason of a railway
company harin^ purchased from him the minerals lying under their line of
rsilway, or within forty yards from it, to tunnel under the railway for the
purpose of working bis minerals which are on the other side of it. And this
power extends not only to minerals in the ordinary sense of the word, but
also to such a substance as clay, which is usually worked from the suiiace.
And by sect. 81 the mineral owner is entitled to be compensated by the
company for any additional expense caused by his having to work the min-
erals in this way.
The defendant was the owner of the minerals lying in and under a tri-
angular piece of land which was completely surrounded by three lines
of railway belonging to the plaintiffs, and also of the minerals lying under
certain portions of those three lines. The company had purchased the
nirface of the triangular piece of land, and also the surface of the land on
which those parts of the three lines were constructed. The minerals in and
under the lands so purchased were not in the first instance purchased by the
company. The defendant, in April, 1885, gave the company notice, under
sect. 78 of the Railways Clauses Consolidation Act, 1845, of his intention to
work the minerals belonging to him in and under the triangular piece
of land, and also under the lines of railway. The company ^ve the de-
fendant notice that they were willing to make compensation for the
minerals under the lines of railway, and arbitrators were appointed to assess
the compensation. The defendant then gave the company notice that he
intended to work the minerals in and under the triangular piece of land,
and for that purpose to enter upon and across th^line of railway.
Beld^ that such a mode of working would be a trespass, and that the de-
fendant must be restrained from working in that way, but that he would be
entitled to tunnel under the railway in order to work the minerals in and
under the triangular piece of land, and the company must compensate him
for the extra expense of so working.
Motion for an injunction to restrain the defendant from tres-
passing on the plaintiffs' line of railway.
The defendant was the owner of the mines and minerals under
a piece of land sitoate close to Knighton Junction on the plaintiffs'
main line of railway from London to Leicester. The piece of land
was completely surrounded by three lines of railway oelonging to
the plaintiffs, which formed a triangle.
The land forming tlie sites of the shaded parts respectively of
the three lines of railway, and the land A inclosed between those
sliaded parts and the dotted lines in the plan, had been pnrchased
hv the company from, and conveyed to them by, the defendant's
138 MIDLAND R. 00. V. 1CILB8.
predeceesor in title. The conveyances contained no express con-
veyance or reservation of the mines and minerals nnder the lands
conveyed, The defendant was the owner of other land lying on
the north-east side of the plaintiffs' main line from London to
Leicester.
On the 4rth of April, 1886, the defendant gave to the plainti&,
pursuant to sect. 78 of the Kail ways Clauses Consolidation Act, 1845,
a notice in writing that he should, after the expiration of thirty
days, commence to work, dig, get, and carry away the clay or rather
minerals lying under the shaded portions of the lines of railway
and under the piece of land A. On the 13th of June, 1885, the
company gave the defendant notice that, inasmuch as the work-
ing and carrying away of the minerals under the shaded parts of
the lines of railway would damage the works of the railway, the
company were willing to make compensation for any estate and
interest to which the defendant migiit be entitled in the mines
and minerals under those shaded parts. On the 19th of June the
defendant gave notice to the company that he required £12,000
as compensation for the minerals under the shaded parts and the
minerals nnder the land A, and he afterwards gave notice to the
company of the appointment of an arbitrator on nis behalf to assess
the compensation which he claimed.
The company refused to accept this notice, on the ground that
it went beyond the notice which they had given. On the 27th of
June the defendant's solicitors threatened that their client would
work the clay under the piece of land A, and cart it across the
plaintiffs' line of railway. The plaintiffs then commenced this
action on the 7th of July, claiming an injunction to restrain the
defendant, his servants and agents, from passing, with or without
horses, carts, vehicles, and appliances, over, or otherwise trespass-
ing on, the plaintiffs' lines of railway and works. On the 16th of
July the plaintiffs appointed an arbitrator on their behalf, and
gave notice thereof to the defendant. He on the 24rth of July
withdrew his claim to compensation for the minerals under the
land A, and appointed an arbitrator on his behalf. At the same
time he served on the company a notice in writing that he
should within six days proceed to enter upon and across the
company's railway, for the purpose of working and carrying away
the minerals in and upon the piece of land A. The company
then gave notice of motion for injunction in the terms of their
claim in the action.
Cosens-Sardyy Q. C, and Phipson Beale for the company.
Everitty Q. C, and Chadwyck Medley for the defendants.
Peasson, J. — I do not intend to express a finally concluded
opinion as to the proper construction of the sections of the I^il-
ways Clauses Consolidation Act, because I am now dealing with an
r
• MINERAL LANDS — RIGHT OF OWNER. 139
interlocutory application only. I think I am right in saying that
in a recent case the court of Appeal laid down again that which I
conceive to have been formerly for many years the rule of this
court with regard to the granting of interlocutory injunctions,
viz., that, if the court can see that there is a ^reat probability of
the plaintifiPs succeeding at the trial of the action, or if, upon the
balance of convenience and inconvenience, the balance is strongly
in favor of granting an injunction, then the court will be right in
granting a temporary injunction until the case can be fully heard
and decided at the trial.
I agree with Mr. Everitt that a railway company and the rights
of a railway company are the creatures of statute, and that a rail-
way company do^ not stand with regard to itB land in po^,. »,
the same position as an ordinary purchaser in fee sim- SSS^ '^ So
pie absolute. I must, therefore, look solely to the act '•^*^'
m order to see what are the rights as between the company andthe
defendant in this matter. [ELis lordship stated the fact« and con-
tinued :] Sec. 77 of the Bailways Clauses Act states most posi-
tively that an ordinary conveyance of land to a railway company
shall not include the minerals under the property. That provision
is undoubtedly intended more or less for the protection of the
railway company. It saves the company from navin^ to expend
their money in purchasing the minerals, if, at the time railway
when they make the purdiase, there is little probabil- <^™» ^<^-
ity of the minei*als ever being worked. It puts off the evil day of
reckoning for the company, until such time as the owner of the
minerals under the railway desires to work them. The moment
the owner in whom the minerals remain vested desires to work
them, either under the railway or within the pi'escribed distance,
i,e.j forty yards, if no other distance is prescribed, sect. 78 pro-
vides that he is to give thirty davs' notice to the company, and the
company are then either to purchase the minerals lying under the
railway, or, if that is not sufficient for their protection, the min-
erals lying within forty yards of the railway, or, if the company
are so minded, thev may neglect the notice, and not purchase ; but
in the latter case the owner is remitted to all his rights with regard
to the minerals. He is at liberty then to work the minerals as he
pleases, provided that he does so in the proper and usual manner.
And in tne recent case of Midland R Co. v. Haunchwood Brick
& Tile Co., 20 Ch. D. 552; s. c, 6 Am. & Eng. R. E. Cas. 555,
an owner had given notice to a railway company to purchase the
clay which formed the substratum of the railway, and the company
had declined to do so, whereupon the owner proceeded to dig the
clay in such a manner as to let down the railway, and the court
held that he had a right to do so. For these two cases, therefore,
the act has provided ; it has enabled the company to purchase tho
minerals, and it has provided what the owner's rights are to be, if
140 MIDLAND R. CO. V. MILES.
the company declines to purchase them. But there is a third case,
and that is the present case, for which, as I read the act, it has also
APPLxcAiioH OF provided. The railway might be made across mineral
THK ACT. property — mineral property lying on both sides of the
line when constructed, and it occniTed to the draughtsman that, the
company having purchased, at the time when themilway was made,
so much of the surface as they required, if the owner of the minerals
at any future time desired to work them, and the company gave him
notice to purchase so much of them as might be necessary for the sup-
port of their railway, the result mi^ht be that the company would
then in effect erect a barrier across the property, separating one por-
tion of the mineral property of the owner from the other portion, so
that his only way oi access from the one side to the other of the
minerals which he desired to work would be either over or under
the railway. To allow him to go over the railway would be in
effect to put an end to that which the legislature had thought
would be beneficial to the public, viz., the existence of the rail-
way, because it is plain that the traffic of the railway could not be
carried on with saiety to the public, if the mineral owner was al-
lowed to be perpetually carting minerals across the railway ^rom
the one side to the other. The interference with the railway
would be so constant and so great as to stop the whole trafiScof the
line. Therefore the legislature, desirous of protecting the rights
of the owner of the mines, and desirous also oi protecting the rail-
way company, have provided, by sect. 80, that, in that event, the
mineral owner shall be at liberty to make all necessary passa^s
under the railway without doing injury to the railway, so as to enable
him to work the minerals on the one side from the other side. That,
to my mind, is the meaning of the 80th section of the act. The
heading of the fasciculus of sections from 77 to 86 inclusive is
this : " And with respect to mines lying under or near the rail-
way, be it enacted." That seems to me to include mines which lie
at a greater distance than forty yards. Then sect. 78 gives the com-
pany power to purcnase mines under the railway and
fS?*to' pSb" within forty yards of it, and sect. 80 says, " If the work-
mg of any such mines under the railway or works, or
within the above-mentioned distance therefrom, be prevented as
aforesaid by reason of apprehended injury to the railway" (I read
that as meaning that if the working of any mines under the rail-
way works, or within forty yards therefrom, be prevented by rea-
son of the company purchasing those mines), ^^ it shall be lawful
for the respective owners, etc., of such mines, and whose mines
shall extend so as to lie on both sides of the railway, to cut and
make such and so many airways, headways, ffateways, or water-
levels through the mines, measures, or strata, the working whereof
shall be so prevented " (that is, if necessary, through the whole
forty yards on either side of the line) " as may be requisite to ea-
OF ownoL
MIKSBAL LANDS — BIGHT OF OWNEB. 141
able them to ventilate, drain, and work their said mines." Then
it prescribes the dimensions of the airways, headways, gateways,
and water-levels, and adds, " Nor shall the same be cnt or made
tipon any part of the failway or works, or so as to injure the
same, or to impede the passage thereon." It seems to me, there-
fore, that the act itself has provided what is to be done when
the company have in this way severed the mines of a mineral
owner, and that, instead of his having the right, which is claimed
by tliis defendant, of going across the railway, the' act says,
" You shall be at liberty to go under the railway, but in going
under it you must work m such a manner as not to injure it or
impede the traffic thereon." Then sect. 81 provides for the
extra expense to which the owner may be put by rea-
son of nis being required to work his mines in this
way. It says that, "The company shall from time to time
pay to the owner of any such mines, extending so as to lie on
both sides of the railway, all such additional expenses and losses as
shall be incurred by such owner by reason of the severance of the
lands lying over such mines by the railway, or of the continuous
working of such mines being interrupted as aforesaid " (that is by
the barrier interposed by the company), "or by rea«on of the same
being worked in such a manner and under such restrictions as not
to preiudice or injure the railway, and for any minerals not pur-
chased by the company which cannot be obtained by reason of
making and maintaining the railway." Now in the present case,
the defendant is the owner of mineral property lying on both sides
of the railway. On the one side he can work without injury to
the railway at all. The railway company, by giving him notice to
purchase the minerals under the railway, have erected a barrier be-
tween one part of his property and the other part. It seems to me
that the 80th section gives him power to make passages under the
railway to enable him to work the severed minerals, and the 8l8t
section gives him a right to compensation for any additional ex-
Eense which he may incur, and any loss which he may suffer,
y reason of his having to work the minerals in that way.
Mr. Everitt urged very strongly that, inasmuch as the minerals
which the defendant desires to work (gypsum, or clay, or some-
thing of that sort) lie on the surface, it will not be practically pos-
sible for him to work them in that way, and that the injunction
would practically prevent him from working them at owmkr mrn.
all. But the 81st section meets that difficulty also, for pembatioii.
it provides that for any minerals which cannot be obtained, and
from which the owner is cut off, the company are to compensate
him. Under these circumstances, I think the company are right
in saying that the defendant is not entitled to trespass upon the
railway in order to carry the minerals across it. Ample means are
given liim by the act, either, if he works the minerals at a greater
142 MIDLAND R. OO. V. MILES.
expense, of obtaining compensation from the company, or, if lie
cannot get the minerals at all, of claiming from the company their
value. I must, therefore, grant the injunction.
Minerals under or near Railway — Right of Owner to work Mines.— See
Poutney v. Clayton, 14 Am. A Eng. R. R. Caa. 476; Midland R.Co. t
HauBchwood, etc., Co., 6 Id. 555 ; Errington «. Metropolitan District R Co^
6 Id. 562.
Minerals under Right of Way — Compensation of Land-owner— Right of
Land-owner to work Mines — Surface Supports — The measure of damage
which a land owner sustains by the passage of a railroad over his mioeral
lands is ascertained the same as in other cases. It is the injury done to the
tract as a whole, or the difference between its value at the time of the eotrj
and its value after the completion of the road. Brown «. Carey, 43 Pa. St.
495. And in estimating the damages that will be sustained by the con-
struction of the road the jury are not at liberty to estimate the value of
uoopened mines beneath the surface. Nor is it the subject of damaee that
the owner will be thereby put to expense and inconvenience when he be-
gins to work his mines. Searle o. Lackawanna, etc., R. Co., 88 Pa. 6t.57.
Under the General Railroad Act of New York, a corporation, by proceed-
ings thereunder, does not acquire the fee of the land condemned, bat only
the right of *^use ... for the purposes of its incorporation during the
continuance of its corporate existence.'' Its acquisitions must therefore be
limited to its corporate needs; and an objection to a petition asking for a
commission to apjpraise property needed for the location of a railway, that it
specifies only the surface use thereof as that to be acquired, — the description
being drawn in that form to avoid the payment for iron ore supposed to hi
below the surface, — ^is not well taken. In re Hartford, etc., R. Co., 65
How. Pr. (N. Y.) 183.
Where land is condemned in behalf of a railway company, the decree of
condemnation, it seems, vests in the company the title to the earth and
minerals found above the grade of the road, and whose excavation is neces-
sary for the construction of the road. Minerals lying below the leTelof
the road, and whose excavation is not necessary in the construction of the
road, belong to the owner of the land condemned. Evans v, Haefner, 39
Mo. 141.
The reservation of mines and minerals within and under the land includei
everything below the surface available for agricultural purposes which csn
be made useful for any purpose, and includes the right of quarrying, as well
as underground mining. Midland R. Co. v. Checkley, L. R. 4 Eq. Cas. 19.
A grant of land to a railroad for railroad purposes carries with it the right
of support; and although in the conveyance the minerals are reserved, the
grantor is not entitled to work them, even under his own land, in any man-
ner calculated to endanger the railway. Caledonian R. Co. v. Sprot, S
Macq. H. L. Cas. 449.
The right of lateral support is held to belong to a bridge of extraordinary
weight, against a party who has sold land to a railroad company, although
such sale was made as the result of the compulsory power given to the com-
pany ; and the owner of the adjoining land may be restrained from working
mines to the threatened injury of such lateral support. Northeastern R.
Co. V, Elliot, 80 L. J. Ch. 160; 82 Id. 402.
An act providing for the purchase of lands for railroad purposes, with
reservation of the minerals to the owner of the lands so purchased, must be
construed to g^ve both lateral and vertical support. Northeastern B. Co- v-
Crossland, 82 L. J. Ch. 858. The right of such support over mines when
the surface is sold for railroad purposes attaches even beyond the limits of
the land sold. Elliot v. Northeastern R. Co., 10 H. L. Cas. 898.
PUBLIC TBrST — ^UOBTOAGE — FORECLOSURB. 148
A railroad company was empowered by special act to take lands, the act
providing for compensation to parties owning lands interfered with. The
owner of the surface subsequently, by priyate sale, without regard to the
act, sold the land adjoining his mine to the railroad, reserving the minerals.
Afterwards, upon attempting to extend his mine underneath the surface sold,
it was fonnd that the railroad interfered with its extension in that direction.
Bat there being no reseryation or provision for such inconveniences at the
time of the sale of the surface, it was hM that the owner of the mine was
not entitled to damages, and was bound so to work as not to interfere with
the road. Rex «. Leeds, etc., R Co., 8 A. & E. 686.
Gates
V.
BosTOH AND New York Am Like K. Co. et al.
(58 CofineeUeut, 888.)
Where a railroad company is chartered with power to take private prop-
erty and to construct ana operate its road, the authority given is in the first
instance penniasive merely, and no obligation rests upon the company to
exercise the powers granted.
Bat where the company has taken private property and constructed its
road, it has come under an obligation to carry into effect the objects of its
charter, and its capital stock, franchises, and property stand charged pri-
marily wit^i this puolic trust.
Where such a company is empowered to issue bonds and secure them by a
mortgage of its franchiae and all its property, the mortgagees take the
mortgage sabject to this trust.
Where such a company fails and the mortgage has to be foreclosed, the
legislature has full power to authorize the bondholders, by a vote of a ma-
jority, and with an equal opportunity to all, to reorganize as a new corpora-
tion, with the rights of the old corporation, such authorized action being
merelv a mode of securing^ the performance of the paramount public trust.
And a dissenting minority have no private rights that can be successfully
asserted against such action.
Where a mortgage was given to secure a large amount of coupon bonds
which were to run twenty years, and containeda provision that they might
be considered due by any bondholder on default of interest for six months
and that the mortgage mi^ht then be foreclosed, it was held that each bond-
holder took his bond subject to this right of his co-bondholders, and could
not, by electing not to have Ms own l^nd become due, obstruct the action
of the majority.
Where the mortgage is made, under a provision of the charter, to the
treasurer of the State, in trust for the bondnolders, the treasurer in execut-
ing his trust may exercise a wide discretion within the scope of his powers.
And any bondholder, having no notice of the proceedings taken by the
treaanrer and by the majority of the bondholdera with regard to the fore-
closure of the mortgage and reorganization of the company, would yet be
regarded as a party to them, represented by the trustee and the other bond-
holders.
There is no reason why, sabject to legislative and judicial control, the
144 GATES V. BOSTON AHD NEW YORK AIR LINE B. CO.
majority in interest in common property, indiyiBible in its nature, consecrtted
to public use, should not so use the property as to advance theprivate inter-
ests in it and promote the public use.
Surr for an injunction restraining the defendant corporation
from ratifying a lease of its road, for the appointment of a receiver
and for an account ; brouglit to the Siiperior Court in Middlesex
County, and heard before I^helpe, J. Facts found and judgment
rendered for the defendants. Appeal bj the plaintiff. The case
is sufficiently stated in the opinion.
S. Z. Warner and S. A. liohinwn, for appellant.
S, E. Baldwin for appellees.
Stoddard, J. — The New Haven, Middletown & Willimantic R
Co. was chartered by the General Assembly of the State of Con-
pacib. necticut in the year 1867, for the purpose of con-
structing and operating a railroad from the city of Inew Haven to
the village of Willimantic, and wholly within the territorial limit£ of
this State. By its chai*ter that corporation was invested wiih all
the usual franchises and powers conferred upon railroad companies,
including, of course, the right to take private property by the
exercise of the right of eminent domain.
The capital stock was $3,000,000, with the privilege of increas-
ing the same to an amount not more than $6,000,000.
The companj' was authorized to borrow money to an amount not
exceeding at any one time one half of the amount actually expended
for the construction and equipment of its road, and to secure re-
payment of the same by its bonds with or without coupons. Pro-
vision is made in the charter for securing these bonds by the exe-
cution of a mortgage of the " railroad and all its property, rights,
and franchises" to the treasurer of the State and his successoi-s in
office, in trust for the holders of the bonds.
In pursuance of its chartered powers the company proceeded to
build its railroad, and in 1869, having obtained stock subscriptions
and partially completed the road, issued coupon bonds, either ne-
fotiable or not at the option of the holder, to the amount, of
3,000,000, and secured tne payment thereof by a mortgage, as
provided by the charter. In that mortgage it is recited mat the
company desired to bon-ow money " for the purpose of construct-
ing and equipping said railroad," and proposed to make and issue
such bonds '^ pursuant to the power and authority to that effect in
said charter contained." The bond itself states that it is secured
by a " first mortgage to the treasurer of the State of Connecticut
upon the railroaa of said company and all its property, riehtf, and
franchises under its charter," and stipulates that, '^ should any of
said interest coupons remain unpaid for six months after presenta-
tion and default, the principal sum secured hereby shall, at the
option of the holder thereof; become due immediately."
PUBLIC TRUST — HOBTGAOE — ^FOBEOLOSUBE. 146
The granting clause of the mortgage also conveyed the railroad,
its appurtenances, rolling stock, and all other real and personal
property, particularized at length, " which may now belong, or may
at any time hereafter belong to said company, and be used as a
part of said railroad, or be appurtenant tnereto, or necessary for
the coustmctiou, operation, or security thereof ; and also all the
property, rights, and franchises of the said company under its
charter, and every part thereof, together with the tolls, income,
issued, and profits thereof, and all rights to receive the same, and
everything necessary for the completion and operation of the
road/' In the habendum clause of the mortgage deed it is pro*
Tided that the State ti*easurer in his official capacity is ^^ to have
and to hold the said property," etc., ^' subject to the terms and
stipulations of said bonds and the provisions of the said charter
under which the said company derives its powers."
Default was made in the payment of the interest, and under the
terms of the bond and mortga^ more than a majority in value of
the bondholders elected that the principal sum should be then due,
and at their instance the then treasurer of the State brought his
petition in eouitj to the May term, 1875, of the Superior Court,
to obtain a decree of strict foreclosure of the mortgage. Such
decree was had, a majority in value of the bondholders and the
creditors being parties thereto. A plan of reorganization of the
raiboad had been proposed by a majority in v^ue of the bond«
holders, which resultra in the foreclosure, and the passage by the
General Assembly of the act incorporating the ^^ Boston & New
York Air Line R. Go."
A scheme for the reorganization of the mana^ment and own-
ership of the railroad having been assented to l)y the parties ia
interest, was referred to iu the foreclosure decree. The time for re-
demption expired in June, 1875, and the foreclosure thereby be*
came absolute.
On the 8th day of June, 1875, the General Assembly incorpo-
rated the new company. The act of incorporation recites tnat
the interest of the bonds remains unpaid since November 1, 1872 ;
that foreclosure proceedings in behalf of the holders of the bonds
tte pending, etc., and that public convenience and necessity require
a considerable further expenditure to complete and equip the road.
The capital stock consisted of forty thousand shares of %100 each,
irty thousand of which is preferred stock, and ten thousand com-
n stock. The preferred stock is to be issued ^^ only in exchange
r the first mortgage bonds of said company, at the rate of five
ares for every bond of $500, and ten shares for each bond of
000."
The common stock is to be issued, first, for overdue and unpaid
^Qpons detached from the bonds, and, second, in satisfaction of
^ A. ft E. R. Cas.-10
I
146 GATES V. BOSTON AND NEW YORK AIR LINE R. CO.
certain legal and eqaitable claims existing against the road prior to
the time the decree of foreclosure became absolute. The charter
then provided that when a majority of the bonds had been ex-
changed for the preferred stock, and upon some other conditions,
the trustee should convey to the new corporation all his title and
interest in the trust property in fee simple, and then provided that
such conveyance '' shall be efiEectual to discharge him forever from
said trust, and to vest said premises with all the rights . and privi-
leges of the old corporation."
The charter then provided that no dividends shall be declared
upon the common stock until dividends have been declared out of
the net earnings of the railroad upon all of the thirty thousand
shares of preferred stock, equal to seven per cent a year thereon
from the date of the last coupons on the first-mortgage bonds, de-
fault on which was made prior to the time when tne title of the
trustee under the mortgage to the mortgaged premises became ab-
solute by foreclosure. Then it is provided that the new corpora-
tion may issue mortgage bonds upon its property, under certain
conditions and stipulations, by a vote of tnree fourths of all the
stockholders.
The plaintiff owned, prior to the reorganization scheme, bonds
to the value of $2500, and ^' has never personally been a party to,
or participated in, any of said proceedings, nor authorized any one
to act for him or represent him, or been personally served with
notice, nor has assented to them, and has not elected to have his
bonds due, and still claims them as valid subsisting securities under
said original first mortgs^e. He was not aware that said charter
had been granted to the Boston & New York Air Line R. Co., or
that said foreclosure decree had been made."
The broad claim is now made by the plaintiff, that, as he was not
personally a party to the reorganization scheme, had no actual no-
PujsTirw^ tice of it, and has not assented that his bonds should
*"•*"• mature and the trustee be discharged, therefore his
bonds with their coupons are outstanding subsisting obligations of
the old corporation, charged upon 'this railroad property, and that
either by an absolute sale, or by operation of the railroad by the
trustee, said property and franchises must be appropriated to the
discharge of the obligations held by him, notwitnstauding that a
different mode of appropriating the property in liquidation of the
bonds has been agreed upon by a majority of his co-bondholders,
and has been sanctioned by the State and by a court of equity
having jurisdiction of the subject-matter.
The plaintiff's contention in this behalf rests upon his assump-
tion that he has a constitutional property right to have the prop-
er^ appropriated in the manner claimed by him.
In making this claim the plaintiff ignores, or subordinates to
PUBLIC TRUST — ^MOBTQAOE — FOBEOLOSUBE. 147
his own claim, both the private rights of his co-bondholders and
public rights vested in trust in the State, while upon
every true theory and exposition of his contract the uc^m 'boIS
rights of the public are superior to his private rights, "°"**^
and the rights and interests of his co-bondholders are equally with
his own to be protected by the law. The plaintifPs argument treats
this matter as one of strict legal private right of an individual
creditor, against or to private property of an individual debtor,
instead of a claim of exceptional character upon property of pe-
culiar nature, in which private rights of others and uie right of
the public exist, which must be regarded and protected.
One public ri^ht consists in the continuous uses of the railroad,
its franchises and corporate property, in the manner and for the
purposes contemplated by the terms of the charter. All these
corporate franchises and this property are held subject' to, and
charged with, this obligation.
It is true that the charter is permissive in its terms, and proba-
bly no obligation rests upon the corporation to construct the rail-
road ; the option to exercise the right of eminent do-
main and otner public rights is granted. And when to ^coSSmVi
that option has been made, and tne corporation has lo- nolT' ^mi
cated and constructed its line of track, exercising the "^^°^'
power of the State in taking property of others, and, in so locating
and constructing its road, has invited and obtained subscriptions
upon the implied promise to construct and operate its road, has
commenced to operate the road under the granted powers, thereby
inducing the public to rely, in their personal and business rela-
tions, upon that state of afiaii'S ; hj so accepting and acting upon
the chartered powers a contract exists to carry into full eSect the
objects of the charter, and the capital stock, franchises, and property
of the corporation stand charged primarily with this trust. The
large sovereign powers given by the State to railroad corporations
are granted and exercised only npon the theory that these public
rights are to be used to promote the general welfare. Having ex-
ercised those powers, the corporation has no right against the will
of the State to abandon the enterprise, tear up its track, and sell
its rolling stock and other property, and divide the proceeds
among the stockholders.
The possible effects of the exercise of such a claimed power are
utter disaster to the great interests of the State, certain destruc-
tion of private propeity in which whole communities created and
existing upon the faith of the continuous use of the chartered
Eowers are interested, and, indeed, the life of the citizen as well as
is property rights are thus jeopardized. Upon principle it would
seem plain that i*ailroad property once devoted and essential to
public use must remain pledged to that use, so as to carry to full
completion the purpose of its creation ; and that this public right,
existing by reason of the public exigency, demanded by the occa-
148 GATES V. BOSTON AND NEW YOBK AIR LINE B. GO.
siou, and created by the exercise by a private person of the powers
of a State, is superior to the property rights of corporations, stock-
holders, and bondholders.
To this efEect also is the weight of authority. In the following
cases are illustrations of the general principle : High on Mandor
mu8, §§ 315, 316, 317; State v. Hartford & New Haven R. Co.,
29 Conn. 538 ; R. Commissioners v. Portland & Oxford R. Co., 63
Maine, 278 ; Attorney-Gen. -w. West Wisconsin R. Co., 36 Wis.
466; The People v. Albany & Vermont R. Co., 24 N. Y. 261 ;
The People v. Long Island R. Co., 31 Hun, 127; Attorney-Gren.
V. Southern Minnesota R. Co., 18 Minn. 40; In re N. Brnnswick
& Canada R. Co., 1 Pugsley & Burb. (N. B.) 667 ; York & North
Midland R. Co, v. The Queen, 1 EI. & Bl. 858.
The American and English cases wliich seemingly doubt these
propositions place their conclusion upon the construction of the
particular chartered powers and obligations.
In the case at bar there are special provisions of the charter and
of the bond and mortgage whicn indicate an intent to impose this
Special pbo. tioist characteristic upon the franchise and property
^ImIb. ^ of this corporation. By the charter the corporation
was given power to construct and operate the whole intended line
of i-ailway, to obtain subscriptions to the capital stock, and to bor-
row money and issue its bonds, and mortgage its property therefor^
for that special object and purpose. The bond on its face purports
to be part of an issue secured by mortgage on this railway prop-
erty and franchises. The mortgage secunng the bond recites that
the corporation has obtained capital stock subscriptions ^' for the
purpose of constructing and equipping said railroad," states that
the corporation desires to borrow money and issue bonds therefor
^^ pursuant to the power and authority to that effect in said chai*-
ter," covers not only the visible property but the franchise ta
operate the road, and conveys the property and franchises *' sub-
ject to the terms and stipulations of said bonds and the provisions
of the said charter under which the company derives its power."
It is apparent that the bondholders loaned the money and took
their bonds with the security with full notice that the security for
the loan was first pledged to the performance of a public trust.
The necessary conclusion is that the State has a right to enforce
the <3ontinuous exercise of the corporate powers and franchises for
public use, to the exhaustion of the value of such property and
franchises ; and this is true, no matter what private right may em-
brace the title of the property.
In this State, irrespective of legislative or judicial authority in
the special instance, the effect of a foreclosure is to vest absolutely
„ the property of the mortgagor in the mortgagee. It
CL08VRB. TiTLB Simply cuts OK thc right of redemption existing m tne
mortgagor, and thereafter the mortgagee stands with
reference to the mortgaged property in the same relation as did the
PUBLIC TRUST— MORTGAGE — FORECLOSURE. 149
mortgagor. He has the title of the former owner of the equity,
and notninff more. He holds the property subject to all charges,
duties, pieces, and equities existing prior to the execution of the
mortgage deed. We have not adopted the practice of selling the
property upon foreclosure. Necessarily, therefore, if the trust
mortgage was rightfully foreclosed, and the title vested in the
trustee in trust for the first-mortgage bondholders, the trustee
and the beneficiaries of the trust continue to hold the property,
subject to the same limitations, duties, and obligations restmg upon
the original corporation, including of course the obligation to exe-
cute the public trust cast upon the mortgaged property by devot-
ing it to the public use for which it was created. This property
could not be relieved from this trust without the acquiescence of
the State. But the State has explicitly declared the public intent
that the franchises and property vested in these bondholders
should continue to be devotea to the public use declared in the
original charter, and has created a new corporation for that pur-
pose. In the or^nization, control, and management of this new
corporation, and m its property and franchises, the plaintifE is, by
the incorporating act, entitled to share proportionally with all the
other bondholder. The new corporation is an instrumentality
adopted by the State, with the acquiescence of a majority of the
bondholders, for carrying into effect the original design, and de-
voting the property to the only use which the law of its creation
permits ; and m thus applying the. trust property to the object and
purposes of the trust, no right of the plaintiff is impaired, so long
as he retains his original i>re> rata share in the trust property, su1>
ject to the execution of tnat trust and the expenses necessarily in-
cident thereto.
So too in relation to the other bondholders, it is manifest that
each bondholder enters into contract relation with each coxteacts of
and all of his co-bondholders. His right to appropri- ■otoholdbw.
ate the security in satisfaction of his bond in such lawful manner
as he may choose is modified by the same existent right in every
other holder. His absolute right of control is limited not only by
the express provisions of the ^nd and mortgage, but also in great
measure by the peculiar nature and character of the security.
Canada Southern R. Co. v. Gebhard, 109 U. S. Reps. 534, 637.
" To allow a small minority of bondholders, representing a com-
paratively insignificant amount of the mortigage debt, in the ab-
sence of any pretence, even, of fraud or un&irness, to defeat the
wishes of such an overwhelming majority of those associated with
them in the benefits of their common security, would be to ignore
entirely the relation which bondholders secured by a railroad mort-
gage bear to each other. Railroad mortgages are a peculiar class
of securities. The trustee represents the mortgage, and in execut*
150 GATES V. BOSTON AND NEW YORK AIR LINE E. CO.
ing his trust may exercise Lis discretion within the scope of his
powers. If there are differences of opinion among the bondhold-
ers as to what their interests require, it is not improper that he
should be governed by the voice of the majority, acting in gcod
faith and without collusion, if what they ask is not inconsistent
with the provisions of his trust." Shaw v. Railroad Co., 100 U. S.
Reps. 611, 612.
This mortgage security is an entirety ; it is indivisible, and there
can be but one foreclosure of that mortgage. The bond on iu
MoKTaAOB Ajr face provides that '' should any of the said interest con-
BflTiikAtx. pons remain unpaid for six months after presentation
and default, the principal sum secured hereby shall, at the option
of the holder hereof, become due immediately ;" and the mortgage
has substantially the same provision. A majority of the bond-
holders exercised such option, and their bonds matured.
A statute authorized the trustee to foreclose the mortgage.
That power probably resided in the trustee irrespective of that
FoBKCLo«u«B statute. The law of the place where a contract is made
BTTWJBTBs. jg ^^^t of tlic coutract, as if incorporated in terms
therein. The nolders of these bonds hold them subject to tiiat
law. When it was provided in the bond and mortgage that the
bonds were payable in twenty years from date, it was also provided
by the bond, the niortgage, and the law, that under certain circum-
stances, at the option of the bondholder and the trustee, the bonds
should mature and the mortgage be foreclosed before that time,
thus preventing the contemplated ninning for twenty years. The
provision that the bond should continue for twenty yeare an oni-
standing subsisting security, if any existed, was with reference to
the corporation. The provision that the bonds by the action of
the bondholders might mature before that time was in reference
to the co-bondholders. And while it would impair the obligation
of a contract, if such contract existed, so fai* as the corporation i*
concerned, to change the time of maturity, it does not have that
effect when the co-bondholdei*s proceed upon their common acd
undisputed right to cause the bonds to mature, and by foreclosure
to discharge tlie bonds by taking the property in a legal way.
Primajaeie the foreclosure of the mortgage security operated
to dischai'ge the mortgage indebtedness. The equitable title of
the property was in the beneficiaries of the trust. The trustee was
not selected because of his personal fitness or qualities ; he was a
State official, as are also his successoi*s in office, designated bv law
as matter of convenience and public policy, and not selected bj
contract of the parties to the mortgage. He had no active dutit^s
in relation to the trust except those imposed by statute and tlie
charter. And this charter was open to repeal. In these particu-
lars, the rights of the beneficiaries under the trust to the continu-
PUBLIO TRUST— MORTGAGE — ^FORECLOSURE. 161
aDce thereof are very different from the rights existing under an
ordinary active trust created by act and contract of the parties.
When the legislative power, which upon grounds of public policy
created the trust, upon like grounds willed that such
trust should cease, and vested the property, absolutely SkSwSSS?
denaded of the trust, in the beneficiaries, at the instance
of a majority in value of them, no right of a dissentient bene-
iiciaiy is affected. The trust does not rest upon contract, and was
created with the express reservation that the State might at will
terminate it.
The purposes of the trust had been accomplished. The property
had been appropriated by the foreclosure, so far as it could be by
the parties, to the discharge of the bonds, and the scheme of re-
organization provided for the distribution of the trust property
among those entitled to it, subject to the duties and obligations to
the public originally fixed upon it. This distribution was sanc-
tioned by the ludgment of a court of equity having jurisdiction.
The effect of tnese proceeding was to vest m the bondholders all
the nroperty and the franchises of the original corporation that
coala be transferred by judicial proceedings. But the then owners
of the corporate property were not a corporation ; they were simply
an aggregation of common owners ; but it is obviously impossiole
for a numerous body of part owners widely scattered in many juris-
dictions, and varying from time to time in the personal composi-
tion of that body, to operate a railroad ; so it is equally inadfmis-
sible as a question of public policy that the attempt should be
made. The General Assembly, therefore, provided for the new
corporation, the stock of which represented the interest of the
owners of the property. This or some similar course must be pur-
sued, and it seems to be suggested in the case of Sturges v. Knapp,
31 Yerm. 1, cited by the defendants. This was a case where the
conrt regarded the trustees as '^ selected, doubtless, with reference
to their capacity and responsibility for this very contingency both
by the corporation and the ceatuis que trusty and neither oi these
partie3 had stipulated to deal directly with the other, but only with
the trustees as the responsible party." Page 65. " The trustees
seem to have been selected for this very ofSce, among othere, of
controlling and managing the property in case of forfeiture and
surrender, as trustees for the bienefit of the cestuis que trusty in
order to make it avaihible for the payment of the bonds, both in-
terest and principal. This must be so until some organization of
the bondholders, and the acquiring of some capacity to act by a
majority, or in some such way as to enable them to discharge this
new class of duties thrown upon them by the forfeiture of the con-
dition of the mortgage and tlie surrender of the road with its inci-
dents and fixtures." Paces 56, 67.
To these legislative and judicial proceedings, enactments, and de-
162 GATES V. BOSTON AND NEW YORK AIR LINE R. CO.
crees the plaintiff was a party represented by the trustee and i
j^j^j^jg^j„ ^ majority of his co-bondholders. The interests of all
PAmrr to no- persons are bound by a public act of the legislature
acting within the scope of its jurisdiction. And it is
manifestly impracticable that provision should be made for actual
personal notice to all the bondnolders under i*ailroad mortgages of
judicial action in reference thereto. The bonds are negotiable.
passing by delivery from hand to hand, and scattered, in manj in-
stances, to all parts of the civilized world. Power is therefore
lodged with the trustee to exercise a wide discretion in reference
to tlie administration of his trust, to apply to the courts for judicial
action when deemed for the best interest of the cestuis que tnsL
and to bind them in relation tliereto. And the familiar practice in
chancerv proceedings where it is practically impossible to bring bj
personal notice all individuals of a numerous class into court, is to
proceed with a sufficient number in that interest to properly repre-
sent it.
The designation of a State official as the trustee provides a person
8TATB OFFICIAL uninflueuced by pei*sonal considerations, indepcDdent
AS TRurnu. Qf ^jjg action or control of any portion of the bond-
holdere, and who may be relied upon to carry into full effect the
original design of his trust.
A trust of the character in question can be determined bj the
decree of a court of equity upon proper occasion, certainly at the
request of a majority in interest of the cestuis que trust, and, at all
events, when fortified by the concurring sovereign will of the State,
and when the proportionate interests oi all the owners of the pro-
perty are preserved, and the estate is applied to the use for which
it was created, and subject to which it is held at all times and by
all persons.
A mortgage is provided for in the scheme of reorganizatioo, to
be issued by the new corporation, in the first place to pay or secure
the payment of certain sums contracted in operating the road while
held in trust, and, in the second, to provide for tlie future open-
tion of the road by the new corporation.
It results, from the view that we have taken of the contract with
the bondholders, that these are objects within tlie scope of their
contract, and that the property is lawfully subjected to tliis prior
mortgage to accomplish these ends.
So far as the common stock is concerned, it is provided by the
COMMON AND chartcr that no right to a dwidend upon this stock is
STOCK. acquired " until dividends have been declared out of the
net earnings of said railroad upon all of said thirty thousand shares
of preferrra stock, equal to seven per cent a year thereon from the
date of the last coupons on said nrst-mort^ge bonds, defanit on
which was made prior to the time when uie title of the trustee
under said mortgage to the mortgaged premises became absolute bj
BONDS — ^BXOHAKGB FOB 8T0CK — POWEB TO LEASE. 168
forecloenre." Thus is secured to the holders of the bouds the rate
of interest originally contracted for, if the property should earn
enough to pay that amount.
A question is made as to the power to lease. It is not necessary
to dwell on this subject here ; the substance of the Pown to
matter is disposed of in the case of the town of Middle- "*^"-
town against the same corporation, a companion case to this, and
ai^ed in connection with it. {Infra,)
This additional suggestion may be made in this case, that the
charter of the iirat corpoi-ation gave the same power to lease this
property that is given to the new corpoi*ation ; and, as has been al-
reaay stated, upon the foreclosure the franchises and property of
the old corporation were taken and held by the plaintiff and his
associates, subject to the limitations, restrictions, and chartered
powers and regulations as to the pei-foimance of public duties that
were imposed upon the first corporation ; and there are no facts in
this case to indicate that the lease in question was not for the best
interests of all concerned, both private persons and the public gen-
erally. There is no reason why, subject to legislative and judicial
control and direction, the majority in interest in common property,
of indivisible nature, consecrated to public use, should not so use
that property as to advance the private interests in that property
and secure the public welfare.
Town of Middletowv
V.
BoflTON Am) New Yobk Aib Linb B. Co*
(58 OanneeUcut, 851.)
The bondholder of a railroad company were, after forecloeore of a trust
mortgage of the road, incorporated as a new company to succeed to all the
rights of the old, with a provision that the capital stock should be forty
thousand shares, of which thirty thousand should be preferred and ten
thouaand common stock, and that no dividend should be made on the com-
mon stock until after one of seven per cent had been made on the preferred.
The charter of the old company gave it power to lease the road to any other
cooDeeiing company; that of the new company requiring a vote of three
fourths for the purpose. BMy that the company had power, by a three,
fourths vote, to lease the road for ninety-nine years to a connecting road at a
fixed annual rental.
And the court refused to set aside such a lease although the entire rental
WM but four per cent on the preferred stock, and was to go, not to the com-
pany, but directly to the preferred stockholders as a percentage on their
stock.
By the defendant company's charter the old bondholders were authorized
to convert their bonds into its stock. The plaintiff town was a holder of
164 TOWN OF HIDDLETOWN V. BOSTON, ETC., B. CO.
some of the common stock. Eleld, that it could not, in its suit to set aside
the lease, avail itself of the fact that some of the bondholders of tbe old
company had not exchanged their bonds for stock and denied the validity
of the organization of the new company; nor of the fact that no prorision
was made in the lease for the payment of certain creditors of the compmy.
Injuries to bondholders or creditors can be shown and redressed only
when they complain of them.
Surr for an injunction against the leasing of a railroad ; brought
to the Superior Court in Middlesex County.
The complaint alleged that the New Haven, Middletownd:
Willimantic K. Co. was incorporated by the legislature of tiii&
State in 1867, .with power to oonstruct and operate a railroad be-
tween the city of New Haven and the borough of Willimantic
and that it did construct and begin to opei*ate such road ; that by
its charter the several towns on the line of the proposed i*oad wexe
empowered to aid the company by subscribing for its stock, bv
advancing money and their bonds to the company, and by guaran-
teeing its bonds ; that the several towns on the route had thus ad-
vance or become obligated for over $3,000,000 for the company ;
that the company was authorized to issue three millions of eoapon
bonds, payable m twenty years, secured by a mortgage to the
state treasurer as a trustee for the bondholders of its franchise and
all its property, such bonds to become due at the option of any
holder on six months' default of payment of any interest coupons;
that such bonds were issued and disposed of in the market ; that
the company made default in its interest and the mortgage was
foreclosed by the trustee; that the bondholders, under a resolution
of the General Assembly, were immediately after, in 1875, incor-
porated as a new company by the name of the Boston & Kew
York Air Line K. Co., the present defendants ; that by the act of
incorporation the stock of the new company was to consist of forty
thousand shares of the par value of one hundred dollars each, of
which thirty thousand were to be preferred stock and ten thousand
to be common stock ; that every holder of stock, whether preferred
or common, was to be entitled to one vote in the meetings of the
company for every share of the stock ; that no dividend was to be
made on the common stock until one of seven per cent had been
made on the preferred from the earnings of the company ; that
the plaintiff town was the owner of eleven hundred and twenty
shares of the common stock and had been so before the transac-
tions to be stated ; that the common stock before these transac-
tions had been worth in the market twenty-five dollare a share,
making the whole stock held by the plaintiff worth at that time
twenty-eight thousand dollai's; that the defendant company had
in September, 1882, made a preliminary contract for a lease of the
road to the New York, New Haven & Hartford R. Co. for ninety-
nine years from September 30th, 1882, at an annual rental of
$120,000, and was about at a meeting of the company to ratify and
BONDS — EXCHANGE FOB STOCK — POWER TO LEASE. 156
^tablisb the lease ; that this rental was to be paid, not to the de*
fendant company, but to the preferred stockholders directlj by a
certain percentage on their stock ; that there was a large amount
of unpaid taxes and other claims on the property not provided for
in the contract ; that the entire income and resources of the prop-
erty were thus placed out of the control of the corporation and
were appropriated for tiie benefit of the holdere of tne preferred
stock in fraud of the holders of the common stock, and^^that the
common stock would become worthless if the transaction was car-
ried out ; praying for an injunction against the approval and adop-
tion of the lease oy the defendant company.
The charter of the New Haven, Middletown & Willimantic R.
Co., to all the rights of which the defendant company had suc-
ceeded/was annexed to the complaint and made a part of it. Bv
it that company had the right to please its road to any other rail-
road company whose road connected with their. By a provision of
the charter of the defendant company such lease could be made
only upon a vote of three fourths of all the stockholders voting
bj shares of stock.
A temoorary injunction was granted by a judge of the Superior
Court ana afterwards dissolved, and the lease was executed. The
case was thenceforth treated as a suit to set it aside. The de-
fendants demurred to the complaint, assigning the following
grounds of demurrer :
1. It is wholly grounded on the alleged invalidity of such a
lease as the defendant is about to make, whereas said lease, if made,
wonld be valid.
2. Said complaint alleges that said lease is invalid as against
certain third parties, such as creditors of the defendant or owners
of bonds of the New Haven, Middletown & Willimantic E. Co.,
who are not p>arties to this action ; whereas the only question pro-
perly arising in this action is whether such lease would be invalid
as against the plaintiff.
3. Said chaiter of the defendant and all its proceedings there-
* under, in said complaint alleged, are legal and valid.
4. The plaintiff, bein^ a stockholder of this defendant, cannot
in this action question the validity' of its organization, or its right
to take, hold, and dispose of said railroad.
5. Said complaint states no case calling for an injunctiofi or
other eqnitable relief, as demanded therein.
Tlie court (Phelps, J.) sustained the demurrer and rendered
judgment for the defendants. The plaintiff appealed.
JS. Z. Warner and A. W. JSacon^ with whom was S. A. Hob-
inson, for appellant.
S, E, Bciawm for appellees.
Beakdslst, J. — This case comes before this court by appeal
166 TOWN OF HIDDLETOWN V. BOSTON, ETC., R. CO.
from the judgment of the Superior Court that the complaint
FAcn. is iQBufScient The plaintiff alleges, in substance,
that it is the owner of eleven hundred and twenty shares of
the common stock of the defendant company ; that said company
is about to lease its railroad to the Kew York, New Haven k
Hartford B. Co. for the term of ninety-nine years, at the annual
rental of $120,000, to be paid by the lessee* to the preferred stock-
holders of the defendant company, in proportion to the amount of
stock held by them respectively ; praying for an injunction against
the proposed lease. A preliminary injunction was issued upon this
complaint by the Superior Coiirt, which was afterwards dissolved,
and the lease was executed. The plaintiff now seeks to have the
same set a side, claiming that it violates its rights as such holder of
common stock by depriving it of any participation in the earnings
of the defendant company for the period of the lease and ren-
dering its stock of little or no market yalue. !
Whether the defendant has the right to make this lease must of
pown TO MAKs course depend upon the provisions of its charter. If the
LEA8B-PROV1. (jhartcr authorizes the lease, the fact, if it be so, that it
nORS OF CHAB-
will reduce or destroy the market value of the plaintiffs
stock, cannot defeat the right of the company to make it. The
plaintiff, as a stockholder in the defendant company, is subject to
all the conditions contained in its charter affecting its relation to
the other stockholders as well as to the public. By the defendant's
charter the bondholders of the New Haven, Middletown & Willi-
mantic B. Co. were incorporated into a new company, which 6n^
ceeded to all the property and rights of the old one. The charters
of both these companies, and the lease in question, are made part
of the plaintiff's complaint. The diarter of the Kew Havoi, Mid-
dletown & Willimantic B. Co. provided that the company might
lease its road to any railroad company with whose road it might
intersect. (Sec. 7 of charter.)
The defendant's charter provided that it should not so lease
without the approval of three fourths of the stockholders of the
company. (Sec. 9 of charter.)
The defendant's charter also provides that the capital stock shall
consist of not over forty thousand shares, of which not exceeding
thirty thousand shares shall be pi*eferred stock, and not exceeding
ten thousand shares shall be common stock (sees. 2 and 3 of char-
ter), and that no dividends shall be declared upon the common
stock until dividends have been declared upon all the pre-
ferred stock, equal to seven per cent a year thereon. (Sec 5 of
charter.) The shares of stock being of the par value of $100 each,
the rent received will amount to only four per cent upon the pre-
ferred stock.
But it is claimed that although there is no restriction in the Ian-
BONDS — ^EXCHANOS FOR STOCK— POWER TO LEASE^ 157
gaage of tlie charter as to the term for which the compauy may
leafie its road, or as to tiie rent to be received, yet it is rkasorablb-
nnreasonable so to construe it as to enable three fouiilis """ °' ''*^"'
of the stockholderB to make a lease which deprives the other fourth
of any chance for dividends for so long a period, and hence that
the lease in question is not a rightful and lawful exercise of the
power given by the charter. We see no ground for this claim,
especially in view of the fact that leases of milroads are, and from
the nature of the case must generally be, made for long terms.
Railroads are leased, as they are built, with a view to the advan-
tages to arise in the distant future from the development of popu-
lation and business in the neighborhood by the facilities for trans-
portation which they afford.
The complaint also charges that by the provisions of the lease
the entire resources of the defendant company from fbaudulbrt
winch income can be derived are fraudulently appro- ofmmoutow-
priated for the benefit of the holders of the preferred stock.
stock. This is not a charge of fraudulent conduct or intent in the
making of the lease, but only that by its operation the income will
be fraudulently appropriated for the benefit of the preferred
scockholders. Tlxis is simply an allegation that this appropriation
of the income will be disastrous to the common stocknoldera and
wrongful ; not that the preferred stockholders have acted fraudu-
lently. If the company had the right, as it clearly had by its
charter, to m^e the lease upon a three-fourths vote, the court can-
not resard the efEect of the lease as wrongful, or in any proper
sense fraudulent. Van Weel v. Winston, 115 TJ. S. Reps. 237.
The complaint also charges that certain of the bondholders in the
old company have not converted their bonds into stock, ihjubw to
and deny the validity of the organization or the new tors.
company, and that by the contract of lease no provision is made for
the payment of certain creditors of the company If this be so,
we ao not see upon what principle the plaintin can avail himself oi
it as a ^onnd of relief in this case. Injuries done to bondholders
or creditors can only be made apparent and redressed when they
complain of them.
The questions arising between the defendant company and a
bondholder who claimed that he liad not converted his bonds into
«5tock were determined adveraely to the bondholder at the pi-esent
term of tUs court. Gates v. Boston & N. York Air Line K. Co.,
35 Conn. 333.
There is no error in the judgment of the Superior Court.
In this opinion the other judges concurred.
Right of State to Enforoe Exercise of Corporate Powert.~See People «.
New York Central R. Co., 9^ Am. & Eng. R. R Cas. 1.
Effect of Foreclosure of Mortg^age upon Railroad— Reorganization of
Road.— See Farmers' Loan and Trust Co. v, Ceutrai R. Co., 12 Am. & Eng.
168 MILLER V. GULF, COLORADO AND SANTA FE R. 00.
R. R. Cas. 461; State v. Montclair, etc., R. Co. 13 lb. 890; Cooper 9.
Corbio, 18 lb. 894; Lake Erie, etc., R. Co. t. Griffin, 17 lb. 236; Lafayette
Co. V. Neeley, 17 lb. 242; Wabash, etc., R. Co. v. Central Trust Co., 17 lb.
254; K. T., etc., R. Co. e. YaUble, 17 lb. 268; Bumham v. Bowen, 17 lb.
808; Farmers* Loan and Trust Co. «. Missouri, etc., R Co., 17 lb. 814;
Leayenworth Co. «. Chicago, etc., R. Co., 22 lb. 61.
Miller
V.
OiTLFy Colorado and Santa Fe R. Co.
(Advance Cow, Texa$. Marek 18, 1886).
In interpreting obligations or subsidy notes given by citizens to a railroad
as an inducement to the latter to build to a certain place, the railroad's
charter, with all of its obligations thereunder, are to be considered as enter-
ing into and forming a part of the agreement.
A proposition mi^e oy a representative of the railroad, that he desired
that they should procure for the company the right of way through^ the
town and county and the necessary ground in the dty for depot purposes,
and also the sum of $75,000, which he said was but a portion of the extra cost
to run the road into town and out again ; and also the right-of-way bond
which the citizens executed, were to be all considered as entering into and
forming an inducement for the contract.
It b^ame the duty of the railroad, under the contract, to survey and es-
tablish a route to a point within the city limits within half a mile of the
court house, and to select and mark out the necessary grounds for depot
purposes, which, when done, devolved the duty upon the citizens to secure,
oy purchase or condemnation, the titles to the property, and that the com-
pany in failing to do this and by running the road around to the norUi line
of the city limits, then deflecting so as to just enter the city limits, and run-
ning on that line a few hundred 3rsrds, and thence deflecting again out of
the limits of the city and running several hundred yards to a point where
the company established a depot on a tract of land owned by itself, acting
in bad faith with the citizens, and therefore the court declines to enforce
the obligations executed as a part of the subsidy.
Appeal from Galveston County.
F. C. Hums and Seth Sh^ppard for appellants.
Bollinger^ Mott <& Terry for appellee.
This Buit was brought by appellee December 8, 1884, upon two
obligations or subsidy notes executed to it by appellants, who are
citizens of Belton, Belle county, one of which for $1000 was exe-
cuted June 18, 1880, and the other for $200, June 26, 1880. Sim-
ilar obligations to the aggreffate sum of $75,000 were executed by
the citizens of Belton, payable to appellee at the same time.
The consideration expressed upon the face was ^^ the early
constmction of the Gulf. Colorado & Santa Fe B. to the town
of Belton." The following conditions formed a part of each:
SUBSIDY NOTES — BAD FAITH. 159
^^ The condition of this obligation is sach that if the Gnlf, Colo-
rado & Santa Fe B. is not completed to the town of Belton
by March 1, 1881, then this obligation is to become null and void ;
otherwise to remain in fall force and effect."
About the same time a large number of the citizens of Belton^
including those who executed the obligations above mentioned,
delivered to appellee a bond in the sum of $7000, conditioned as
follows : ^' The consideration of this obli^tion is that if we shall
cause to be secured to the Gulf, Colorado & Santa Fe B. Co. all
necessary conveyances for the right of way for said company
through the county of Bell and town of Belton, in the State of
Texas, when demanded by it on any line it may locate that touches
the corporate limits of the town of Belton, tiien this obligation
will be null and void ; otherwise to remain in full force and effect,
to the extent of all moneys that may be paid out by said oompany
in acquiring said right of way.'^
In answer to the suit defendants plead as follows :
" 1. That the notes were given upon a promise and a considera-
tion contrary to sound public policy.
^' 2. That the railroad was not completed to Belton by March 1,
1881.
'' 3. That the execution of the notes was procured through the
promise of the company to build its railroad upon a designated
route into the town of [Belton, and to locate its depot at a point
within one half-mile of the court-house therein ; tnat the town
and citizens were ready and willing to donate right of way and
necessary depot grounds whenever needed ; that tne company, in
disregard of its promise and the requirements of the law under
whicn it was built, changed its line and constructed its railroad
around the town and established its depot outside its corporate
limits, and more than a mile from the court- house.
" 4. That the notes were also signed upon full faith in the repre-
sentation of the company that Belton should remain the terminus
of the railroad for two years, and that no rival town should be
built near it; when in fact the company continued its construction
rapidly beyond Belton, and also bought land and laid off the town
of Temple, near Belton, for the purpose of speculation."
The plaintiff by supplemental petition excepted specially to all
that part of the answer after the general denial. Tnere was also
a denial that the city of Belton, or its citizens, tendered to the
company right of way through the town, and depot grounds;
also, denial mat the city or its citizens were ready or able to grant
such right of way or depot grounds. Plaintiff also alleged that it
would nave run its road in the city and would have built its de-
Sot within a half-mile of the court-house had the right of way and
epot grounds been furnished by the citizens, and tnat it was still
ready to do so upon the same conditions.
160 MILLER V. GULF, COLORADO AND SANTA F£ R. CO.
The Gulf, Colorado & Santa Fe B. Co. was chartered by spedai
act of the le^slature of May 28, 1873, amended Febroai-y 5, 1875.
In the eighth section of the act is the following provision :
" Commencing at city of Galveston, thence northwest on the
most direct and practicable route so as to intersect the Galveston,
Harrisburg & San Antonio R. on tlie dividing ridge between
the Brazos and San Beiiiard riveiB, thence on an air line, as near
as practicable to the town of Brenham, in Washington county;
Caldwell, in Burleson county ; thence to town of Cameron, in
Milam county; thence to the town of Belton, in Bell countj;
and in the event that the citizens of each town shall donate to said
company the necessary right of way for road, switches, and turn-
outs through said towns, and sufficient ground for depot purposes,
the depot shall be located within half a mile of the court-house in
each 01 said towns."
By June 11, 1880, the company had made such progress in
building its road that it had its line under contract to within twelve
or fifteen miles southeast of Belton up to a place called the Knobs.
The cause was submitted to the court without a jury, and judg-
ment was rendered for plaintiff.
Habwood, S. J.— It is evident the learned trial judge, in inter-
preting the contract the basis of this suit, considered the ap-
pellee's charter, with all of its obligations thereunder, as entering
into and forming a part of the agreement made with appellants,
and in this we fully concur.
In construing the obligations sued upon, all the facts and cir-
cumstances BUiTOunding the parties goins to throw any light as to
what were the objects and purposes of the contracting parties,
should be considered.
The second error assigned is to the effect that the court erred in
holding that plaintiffs' railroad was completed to the town of
Belton bv March 1, 1881, in the sense of the contract, and under
the requirements of the law.
The several instruments sued upon, together with indemnity, or
AppmLEE** right-of-way bond, taken as one transaction and con-
co™ ^ nil strued in the light of the circumstances surrounding
BTBUMEKT8. ^\^q partics at tne time, and construed with reference
to the obligations imposed upon appellee bv the law under its
charter, must determine the right of the appellee to i-ecover in this
suit.
Evidently it was the purpose of the parties at the time the
obligations sued upon were given that for tlie consid-
cojsiDTOATioH eration of the sum of $75,000, of which the notes
sued upon were a part, and the further consideration
of the right of way through the county of Bell and through the
town of Belton, the appellee would survey and construct its rail-
SUBSIDY NOTES — BAD FAITH. 161
TF3J to and into the corporate limits of the town; and the neces-
sary ^nnds for depot purposes being secured and donated bj
the citizens^ the appellee wdald locate and establish its depot
within half a mile of the courthouse. This, as was universallj
nndentood at the time of the contract, was fixed and required by
the charter. This, too, was the fair and unmistakable construction
to be put upon the propodtions made by Mr. Sealy at the very
time this amount was subscribed and promised by appellants.
Copying from the findings of fact made by the trial jndge :
'^ Mr. Sealy, in a public speech to the citizens of Bel- spboh or
ton, on the day tms subscription was made, he being a ^■^'•
director of the company, and speaking for himself and several
other directors who were present, said : ' First, we desire you
shall procnre for us the right of way along two lines through your
town and counlhr, thereby enabling us to choose the most practi-
cable route. Then we shall expect you to procure the necessary
ground in your city for depot purposes, and last, though not least,
we ask you to donate $75,000, which is but a portion of the extra
cost to ran our road into town and out again."
The learned trial Indge further finds from the evidence : ^^ That
Boon after the speech of Mr. Sealy subscriptions were commenced ;
that the appellants, M. E. and S. M. Miller, subscribed fdidihos of
$1000, and appellant M. E. Miller the further sum of ™^ ^^"^
$200, and that afterwards, in lieu of said subscriptions of $1000
and $200, M. E. and S. W. Miller executed and delivered to
Walter Gresham, agent of appellee, the two notes sued on in this
cauae."
^^The corporate limits of the town consists of 1280 acres in a
perfect square, the court-house being in the middle of the square.
Before June 12, 1880, the date of the speech of Mr. Sealy and
the date of the subscriptions, two lines had been surveyed by ap-
pellee from the then terminus of the road, to and into the corpo*
rate limits of the town. One passed within a half-mile of the
oonrt-boQse and the other a little further off, but neither had been
definitely selected and adopted by the railroad company as the line
selected and adopted as the most practicable route.''
The judge from the evidence further finds as follows : ^^ The
plaintiff ^appellee) thereafter, some time in July, 1880, ran a line
on the Birdsdale route into the northeast side of the town to a
point not far from the court-house square, and Walter Gresham, as
pLuntifPs agent, conferred with one or two members of the citi-
zens' committee to know if they would give the right of way
through the town on that line, and was informed by said one or
two members of the committee that the right of way through that
part of the town wonld cost a greater sum of monev than the
citizens could afford to raise. The cost of that right ot way, with
iieceasary depot grounds, would have been about $10,000. The
24A.&E.RCa8.-ll
162 MILLER D. GULF, COLORADO AND SANTA FE R. CO.
plaintiff thereafter, abont the middle of August, permanently lo-
cated its route through the north part of the town by condenina-
tion, the plaintiff paying about $500 for the part so condemned,
and established depot grounds just outside of the corporate limits,
Saying for the depot grounds several hundred dollars. . . . The
epot and depot grounds are about 300 feet outside of the corpo-
rate limits of Belton, and are about 200 or 300 feet over a mile
from the court-house, and have so remained from about the middle
of August, 1880, to the present time. . . . The road as penna-
nently located and constructed enters the corporate limits about
200 feet west of the northeast comer of the corporate limits of
the town, and runs thence westwardly just inside the corporate
limits about forty, feet inside the corporate limits about 2000 feet,
just keeping insiae of the corporate limits, and then leaves the corpo-
rate limits at a point about 2400 feet west of the northeast comer
of the corporate limits, and although there is about 2000 feet of
plaintiff's road within the corporate limits, no part of said 2000 is
more than fifty feet inside of the northern boundary of the cor-
porate limits. The depot is about 800 yards from the point where
the plaintiff's road leaves the corpoi*ate limits, and the depot is
about 350 yards from the northern Doundary line of the corporate
limits, and the road makes a very gentle curve all the way from
the point where it enters the corporate limits to the depot. The
distance from the court-house to the depot is a little over a mile."
In the view we take of the case it can make no difference upon
No DiTFiiRBNcs wluch survcycd route the road was constructed to the
corporate limits of the town, because as appears from
the testimony the road might have been extended into
the corporate limits upon either route, and a depot located within
a half-mile of the court-house.
The question to be considered is, did appellee, by running the
BiEDSDALE ^^^ on the Birdsdale route into the northeast side of
■otTTB. the town to a point not far from the court-house square,
and by conferring with one or two members of the citizens' com-
mittee, to know if they would give the riffht of way through the
town on that line, comply fully with its obligation growing out of
the contract with appellants.
In order to put tlie citizens at default the appellee should have
▲PPKLLEB'8 selected the most practicable route,' and surveved and
FBOFBRcouBss. estabUshcd it into the town to within half a mile of the
court-house, and have selected, surveyed, and marked off the
gi'ounds necessaiy for depot purposes, and then have notified the
citizens composing the citizens' committee appointed to secure the
right of way and depot grounds, and made, in the language of the
right of way bond, ^^ demand" of the same for the purposes
stated ; not until this was done could the citizens have proceeded
to secure by purchase or condemnation the titles to the land.
WHICH ROUTB
WAS TAXXH TO
TOWN.
SUBSIDY NOTES — ^BAD FAITH. 163
Until tliis was done they could not have known what ground to
secure by purchase or legal process ; nor had the citizens the power
to have instituted proceraiuo^s in their own names to condemn the
land. It was alone by the railroad company that these proceedings
could be instituted.
It is not the only legitimate inference that at the time the obli-
gations sned upon were executed, all parties understood that the
company would select its route, cause it to be surveyed, as also the
depot grounds, and if the citizens should fail to contract with the
owners for its purchase, then the railroad company would institute
proceedings for its condemnation, and call upon the citizens to
pay whatever damages and costs were thereby incurred. If such
was not the understanding why did they require of the citizens
the indemnity or right-of-way bond ?
Although many other questions have been discussed by counsel
we regard this as the turnmg point in the case.
The plaintiff sues upon certain obligations the meaning of which
is perfectly clear, and in reply to the defences set up PLAornrfs
by tha defendants the plaintiff specially denies that the ^"^
town of Belton or the citizens thereof ever tendered to plaintiff
depot grounds and right of way through said town, and specially
denies that said citizens were ever willing or able to donate to
plaintiff the necessary depot grounds and right of way through
said town. If this denial is sustained by the evidence then we see
no obstacle in the way of the plaintiff's recovery. For if the citi-
zens of Belton, with a fair opportunity of donating the right of
way and depot grounds, failed to do so, then they cannot complain
of the action of the company in the premises.
But is this true ? There is certainly very little proof of it in
the record. The only proof adduced is that some time after the
obligations had been signed the agent of the plaintiff conferred
with one or two of the citizens' committee, who expressed the
opinion that the people were not able to bear the expense of lo-
cating the track and depot so near the centre of the town, inas-
much as it would cost about $10,000.
This evidence of the inability of the people of Belton to furnish
the depot grounds, etc., seems to us extremely feeble. WBinruB of
Such evidence of inability certainly did not satisfy the ■^^»<»-
sagacious and skilful agents of the company when they were get-
ting up the $75,000 subsidy and right-of-way bond " to the corpo-
rate limits." In that case the compan v's interests were concerned ;
hence these, its agents, wei^ not satisfied with the opinions of one
or two men or of twenty men, that the people would pay the sum
demanded. So far from it, they required notes and bonds drawn
with all the strictness that in^nuitv could devise, with the ^' utmost
strictness of the letter that killeth.'' But when the papers were
signed and the people were bound, the time came when the duties
164 MILLER V. GULF, GOLOBADO AND SANTA FS B. 00.
of the company and the interests of the people who had nnder^
taken so much were to be considered ; it was then that the com-
pany's agents, upon the slightest supposition of one or two persons,
disregarded the rights and interests of the citizens and located its
track and depot to suit its own pleasure.
• We are led to these conclusions by the testimony of the plain*
tlaotsff^ tifPs own witnesses. They do not disguise the fact—
wmnsan. indeed they distinctly express it — that their chief ob-
ject, next to getting the subscription to the subsidy, was to keep
the people in the dark as to the locating of the road and the
depot. One of their witnesses, Mr. Wallis, states that they went
there cantioned to avoid giving information on that subject It h
clear, too, he obeved fully his instructions, although it taxed his
ingenuity to ward off the inquiries of the people on that sabjeet.
This witness also states : " We understood from the people of
Belton that they were unanimous in giving the necessary depot
grounds and right of way. That was part of the contract, and
tney were anxious for it There was notiiing to cause us to fear
they would not do it. There was quite a warm feeling for die
road, and a disposition to do anything required of them."
He also says : " Mr. Sealy, Mr. Gresham, au J myself were the
committee authorized to go and make representations to the town
of Belton and make a contract with them," and that the road had
to abide by whatever thev did. This witness also says that he told
Mr. Burr, one of the Belton citizens, that " we woula comply with
our part of the contract and run through the corporate hmits of
Belton," and being asked by counsel, " Do you call it running
through the corporate limits bv dipping in on one side and making
a curve and running out on the same side," said : " Yes, sir ; ttc
agree to put it through the city limits, and we did so." He also
says : " We knew that when our road went to a town, in order to
force us to go through the town the people had to give us depot
grounds ana right of way," and that they were not deterred in lo-
cating the right of way through the town and placing the depot
grounds in the town by their refusal to give it.
Being asked, "You were all satisfied that they had the money in
Belton to furnish the right of way and depot grounds wherever
you desired it," said : " x es, we tnought they would comply with
their part of it."
Another witness, Mr. Oresham, says that his chief business wa|
to keep silent ; or, as he expressed it, " to play mum," and warf on
inquiry. All this time botn witnesses saw that the people of Bel-
ton were deceived ; or, as they expressed it, were " deceivinsr
themselves." But they seem to have thought that their duty to the
company required them not to undeceive the people, but rather to
encourage the deception —
SUBSIDY NOTES— BAB FAITH. 166
** To keep the 'word of promlBe to the .ear,
Bat break it to the hope.*'
The testimony of the witness Wallis, to the effect that the
directors who went to Belton had been cautioned to communicate
nothing about the location of the route and depot, is very suggest-
ive when considered in connection with the condition found in tlie
right-of-way bond, and when considered with reference to the map
showing the actual location of the track and depot on the ground.
The Dond reads thus : '^ The condition of this bond is such that
if we shall cause to be secured to the Gulf, Colorado cohditiov or
4 Santa Fe R. Co. all necessary conveyances for right ■°"'*-
of way for said company, through the county of Bell apd town
of BeltoD, etc., when demanded by it, on any line it may locate
that touches the corporate limits of the town of Belton," etc. The
form of the bond and also the notes, as appears from the testimony,
liad been agreed upon before they came to Belton.
Now, the ronte actually located and built upon did not enter
cLe towu upon either of the lines alone which the peo- .
1 1 J * 1 \ .1 <• T-fc^ * JuOTUAt BOUTS.
pie bad secured the right of way. But runnmg some
distance above the Birdsdale route, it passed north of the north-
east comer of the town tract ; then, in order to touch the corpomte
limits, it deflected a little south, or, as the trial jud^ states it in his
findings of facts, ^' very ^ntly curves to the south," until it crosses,
tonches the corpoi'ate limits, and then running along just inside
the corporate limits for a few hundred yards it ^^very gently
carves to the north," and passes without the city limits to a tract of
land 350 yards north of the corporate limits, owned by the company.
The plaintifb having obtained the obligations sued npon by the
means herein stated, this court is asked to enforce their ^^Sroio. '^^^
collection. This we cannot do, because in our opinion there was
in the whole transaction a want of that ^ood faith and fair dealing
which the mdcers of these obligations nad good right to expect
and demand of the company.
This cause having been tried before the court without a jury, it
ia ordered that the ludgment be reversed, and that such judgment
be rendered in this court as should have been rendered &low;
that iS| that judjgment be rendered for the appellants.
Beversed ancfremanded.
166 FABMEBS' LOAN AND TRUST 00. V. OHIOAGO, BTO., B. 00.
Fabmebs' Loan and Tbijst Co., Trnstee,
V.
Chigaqo and Atlantic R. Co. et dL.
(AdiMiMe Oase, U, 8. O. 0., D. Indiana. April S, 1886.)
Atrast, valid at its inception^ is neyer permitted to fail for lack of a
trustee; e.g., a conyeyance in trust to two, one capable of taking and one
not, will not become inyalid by reason of the death of the competent trustee.
A citizen of the United States has the right to hold real and personal
Sroperty, absolutely, or in trust for his own benefit, or in trust for the bene-
t of himself and others, in any State of the Union. So held arguendo.
A State statute which declares a conyeyance in trust of real or personal
property to a non-resident, exoeptby will, inyalid, is void as to citizens of
the United States, as inconsistent with the Constitution, art. 4, § 2, el. 1,
which provides that *Hhe citizens of each State shall be entitled to all the
privileges and immunities of citizens in the several States.'* So held arguendo.
A State statute which declares a conveyance in trust of real or personal
property to other than *' a bona-Jide resident '' of the State invalid, and which
provides that a trustee's right shall cease upon his removal from the State,
nddj in view of surrounding facts, not to govern a conveyance in trust to a
foreign corporation of property within the State.
Provisions in a trust aeed made by a railway corporation to secure its bond-
holders, which prohibit the trustee, without the consent of the holders of a
majority of the bonds, to declare the principal due before maturity, to take
possession of the mortgaged property, operate or sell it, or to midntain a
foreclosure suit for the principal before the maturity of the bonds, do not
abrogate the riffht of the trustee, at the request of a single bondholder, or
the right of a sinsle bondholder himself, if the trustee refuses to act, to fore-
close, upon breacn of the condition of the deed by the corporation's failure
to pay interest.
in a suit by a trustee suing for the benefit of bondholders to foreclose a
trust deed against a railway corporation to enforce the payment of overdue
interest, complainant, unless restrained by the trust deed, is entitled to
a decree niei for the amount due and for a sale of the mortgaged property
upon default in payment. Upon payment of the amount due, the foreolostire
decree will be suspended until default again occurs in the payment of inter-
est.
The appointment of a receiver rests in the sound discretion of the court.
Defendant's insolvency may or may not be cause for appointing receiver.
In equity.
B. H. BristoWy J. E. McDonald^ H. B. Turnery and C. N. Steele
for complainant.
J. H, ChocUe^ J. J. McCookj Cha/rlee L. Atterbury^ Ednoao'd Dan-
iels^ C. W. Fairbanks^ and Jacob S. Slick for defendants.
Obbbham, J. — The Chicago & Atlantic K. Co., on the thirteenth
of June, 1881, by its deed of trust, conveyed to the Farmers' Loan
TRUST DEED — FO REC LOS U BE— RECEIVER. 167
& Trust Co., a New York corporation, and Conrad Baker, a
i^esidentand citizen of Indiana, its line of railway ex- factc.
tending from Marion, Ohio, to Ciiicago, together with all other
property of every character which it then owned or might there-
after acquire, to eecare an issue of 6500 bonds of $1000 each, pay-
able on November 1, 1920, with interest at six per cent ner annum,
payable semi-annually on the first days of May and November.
On the fifteenth day of September, 1883, the railway company, by
a second trust deed, conveyed the same property to the Farmers'
Loan & Trust Co. and George J. Bippus, a citizen of Indiana,
to secure an additional issue of 5000 bonds of $1000 each, payable
on the first day of August, 1923, with interest at the rate of six
per cent per annum, payable semi-annually on the first days of
February and August. This suit is brought by the Farmers' Loan
& Trust Co. against the Chicago & Atlantic R. Co. and George J.
Cippus, the co-trustee in the second mortgage ; Conrad Baker, the
co-trustee in the first mortgage, being dead.
Section 2988 of the Revised Statutes of Indiana, which was in
force when the trast deeds were executed, provides that '^ it shall
be unlawful for any pereon, association, or corporation TRuawM-iif-
to nominate or appoint any person a trustee in any deed, ^^^^ «tatote.
mortgage, or otiier instrument in writing (except wills), for any
purpose whatever, who shall not be at the time a iona-Jide resi-
dent of the State of Indiana; and it shall be unlawful for any per-
son who is not a honorfide resident of the State to act as such trus-
tee. And if any person, after his appointment as such trustee,
Bhall remove from the State, then his rights, powers, and duties as
such trustee shall cease, and the proper court shall appoint his suc-
cessor, pursuant to the act to which this is supplemental."
It is urged that inasmuch as the Faimers' Loan & Trust Co. is
a New York corporation it was not capable, under this statute, of
acting as trustee in the trust deed or mortgage, aiid that it cannot,
therefore, maintain this suit. The Chicago & Atlantic „
Co. conveyed its property in trust to secui*e its bonds, and trust co.
and it would not, perhaps, as between itself and the ^ '^^^^^
bondholders, be permitted to urge this objection against the valid-
ity of its own solemn act. Gov. Baker, the co-trustee, who died
before the suit was brought, and whose successor in the trust has
not been appointed, was a resident of Indiana when the trust deed
was executed. This satisfied the requirements of the Indiana
statute. No court would be expected to hold that the trust deed
was void because one of the trustees was not a resident of Indiana.
If it be true that the Farmers' Loan & Trust Co. was not capable
of acting as trustee to the extent of taking title to so much of the
mortgaged property as was situated within the State, or that its
designation as trustee was to that extent inoperative and void,
nevertheless the trust deed was valid when executed, and a trust is
168 FABMBBS' LOAN AND TRUST 00. V. OHIOAGO, ETO., B. CO.
never permited to fail for want of a trustee. The trust property
was couvejed as an entirety to secure the payment of the bonds
and coupons, and it is not claimed that the Fai'mers' Loan & Trust
Co. was incapable of acting as trustee so far as the trust embraced
property witnin the States of Ohio and Illinois. Suits between the
same parties, asking the same i-elief, commonly called '^ ancillary "
suits, may be, and presumably have been, instituted in the Circnit
Couut of the United States for the Nortliem District of Ohio and
the Northern District of Illinois, and the court in either of those
jurisdictions would have authority to decree a sale of the mortgaged
property as an entirety. Muller v. Dows, 94 TJ. S. 444.
If, under such circumstances, a court of equity has authority to
allow the requesting coupon-holders to be made co complainants
with the Farmers' Loan & Trust Co., it would be expected to exer-
cise it instead of dismissing the bill. The facts of this case would
perhaps justify the exercise of that authority. But if the Chicago
& Atlantic Co. be not estopped from denying that the Farmers'
Loan & Trust Co. was capable of acting as trustee, and if the court
is not authorized to allow the coupon-holders, at whose request the
suit was brought, to be substituted as complainants or made co-
complainants with the Farmers' Loan & Trust Co., the bill must
be dismissed, unless the statute relied on is invalid.
It will be observed that this statute does not prohibit foreign
corporations from doing business in this State. Obviously that
was not the design of the legislature. It is a statute
ow^"^ iMDusA which denies to residents of other States the ri^ht to
"^"'^ take and hold in trust, otherwise than by last will and
testament, real and personal property in Indiana. The right is as-
serted to deny to persons, associations, or corporations, within or
without the State, power to convey to any person in trust, not a
resident of Indiana, real or personal property within the State.
This is a plain discrimination a^inst the residents of other States.
If Indiana may disqualify a resident of another State from acilng
as trustee in a trust deed or mortgage which conveys real or per-
sonal property as security for a debt due to himself alone, or for
debts due himself and other creditors, it would seem that the State
might prohibit citizens of other States from holding property within
the State, and to that extent from doing business withm the State.
Ko State can do the latter. A person may, and frequently does,
acquire a property interest by a conveyance to him in trust. A
citizen of the United States cannot be denied the right to take and
hold absolutely real or personal property in any State of the Union,
nor can he be denied the right to accept the conveyance of such
property in trust for his sole benefit, or for the benefit of himself
and others. This right is incident to national citizenship.
Section 2 of article 4 of the Constitution of the Unitea States de-
clares that ^^ the citizens of each State shall be entitled to all the
TBXJST DEED— FORECLOSURE — RECEIVER. 169
privileges and immnnities of citizens in the several States." " At-
tempt will not be made/' saj the Supreme Court of the United
States in Ward v. Maryland, 12 Wall. 418, '^ to define the words
^privileges and immunities,' or to specify the rights which they are
intended to secure and protect, beyond what may be necessary to
the decision of the case before the court. Beyond doubt, those
words are words of very comprehensive meaning; but it will be
sufficient to say that the clause plainly and unmistakably secures
and protects the right of a citizen of one State to pass into any
other State of the Union for the purpose of engaging in lawful com-
merce, trade, or business, without molestation ; to acquire personal
property ; to take and hold real estate. ..."
But it may be said that the word '^ person," as used in the statute,
includes artificial as well as natural persons, and that the statute is
capable of enforcement as against corporations only. A careful
.reading of the act will show that it is not capable of such construc«>
tion. The latter clause of the section says: "If any person, after
his appointment as such trustee, shall remove from tlie State, his
right as trustee shall cease." A domestic corporation cannot re-
move from the State ; and if the words " a foreign corporation " be
read into the statute, they are qualified by the words " hona-fde
resident," and it is plain that a foreign corporation cannot become
a " honorfide resident" of a State which does not create it, A cor-
poration is a mere creation of local law, having no legal existence
beyond the sovereignty where created. It dwells in the place of
its creation and cannot migrate. Paul v. Virginia, 8 Wall. 168.
How, then, can a corporation of another State become a honOrfide
resident of Indiana? It is ti*ue that the existence of a corporation
may be and frequently is recognized abroad by the enforcement of
its contracts maae abroad as well as at the place of its domicile, and
in other ways; but that is done purely upon considemtions of
comity.
In March, 1879, a statute was enacted by the legislature of
Indiana which declared that if any foreign corporation brought a
suit in the federal courts for the district of Indiana, or removed a
suit pending in a court of the State to such federal ^^ ^ ^MLhaxm
courts, it should thereby forfeit its right to transact mw.^faju«m»
business in the State, and be prohibited from thereafter capable ofactI
transacting any business therein. The passa^ of this
act sufficiently accounts for the pliraseology oi the statute relied on
in this suit. Having gone as far as the legislature deemed it nec-
essary to go in the enactment of the statute of March, 1879, it was
doubtless thought unnecessary to make this act, which was passed
two months later, apply to foreign corporations as well as natural
peraons. In enacting the latter statute, the legislature no doubt
deemed the former one sufficient to deter any person, association,
or corporation from appointing a foreign corporation to act as trustee
170 farmers' loan and trust 00. V. OHIOAOO, ETC., R. GO.
in any deed or mortgage, and that additional legislation was neoo-
sary only to prevent the appointment or designation of natural per-
sons to act as sach trustees. The Farmers' Loan & Trnst Co. was
therefore capable of accepting the conveyance as trustee, and of
acting as snch, notwithstanding the State statute.
In the resolution of the board of directors which authorized the
PBovuiom or issuancc of the bonds, and the execution of the trust
RUST DUD. deed or mortgage to secure them, it was declared that
the security should be for the payment of both principal and inter-
est, and it was directed that proper provisions should be inserted
in the trust deed, or mortgage to secure to the holders of the bond^
payment of principal and interest according to their tenor. It was
declared in tne trust deed or mortgage that it should be a securitj
for the payment of the bonds, with the interest maturing thereon
ratably, and without discrimination, according to their tenor and
effect ; that the trustees should hold the property so conveyed to
them for the benefit, security, and protection of pei-sons and cor-
porations, firms and partnerships, wno should hold the bonds and
interest warrants, or any of them, and for the purpose of enforcing
the payment thereof ; that until default should be made in any
portion of the interest or principal of the bonds, or any of them,
or in any other requirement, the railroad company should continue
in possession, control, and management of the mortgaged property,
witn the right to receive and use the tolls, income, and profits there-
from ; that upon default in the payment of the interest or princi-
pal of any of the bonds, and such default continuing for six montlis
after maturity and demand of payment, at the request in writing of
the holders of at least a majority of the bonds then owing and out-
standing, the trustees might and should take possession of the
mortgaged property, and operate the same until the net receipts or
earnings should enable them to pay the overdue interest, after which
possession of the mortgaged property should be restored to the
railroad company: provided, however, that if the holders of at
least a majority of the outstanding bonds should elect and notify
the trustees in writing, before the interest in default shonid he
paid, that they (the bondholders^ desired the principal of the out-
standing bonds to become due, tnen, in tliat event, tlie trustees, in-
stead 01 surrendering the mortgaged property to the railroad com-
pany, shonid retain possession of the same, and apply the earnings,
and any surplus which might remain in their hands^ to tlie satisfac-
tion of the interest and principal of the outstanding bonds ratably,
and without discrimination or preference, and the trustees shonid
operate and manage the railroad until the outstanding bonds and
interest should be paid in full. It was further declared in the trast
deed that in caseoi default in the payment of the interest and prin-
cipal of any of the bonds, either by their terms or under the condi-
tions above stated, it should be lawful for the trustees, after entij^
TRUST DESD — ^FORBOLOSUBE— REOEIVEB. 171
or without entry, upon the written request of at least a majority of
the holders of the bonds then outstanding, to sell and dispose of
the mortgaged premises.
Article 4 of tne trust deed reads as follows:
'' The party of the first part covenants and agrees to and with
the party of the second part, and their successors in said trust, and
to and with each person or persons who shall or may become holder
or holders of any of the said bonds, their heirs, executors, admin-
istrators, and assigns, jointly and severally, that in case of default
in the payment of the interest or principal of any of said bonds,
and such default continuing for the space of six months after mar
turity and demand of pavment, and the principal of said bonds
shall have become due, either by the terms thereof or at the elec-
tion of the bondholders as aforesaid ; or in case of default in the
performance in any of the other covenants or conditions herein
contained on the part of the party of the first part, and such do-
fanlt oontinning for the space of six months after notice is given in
writing by the parties of the second part, or their successors in
said tmst, or by a holder of any of said bonds to perform the
same, — then, at the request in writing of the holders of at least a
majority of the bonds then owing and outstanding, the parties of
the second part, or their successors in said trust, after entry as
aforesaid, or without entry, may or shall foreclose the equity of
redemption of the party of the first part, and of all other persons
having any legal or equitable rights or claims against or in or to
tlie mortgaged premises or any part or portion thereof, by pro-
ceedings at law, or in equity, in any court of competent jurisdic-
tion, whether of the States through which the said road may run or
of the United States ; and it is nereby expressly understood and
agreed that upon proper indemnity to the trustees a majoritv in
interest of the holders of the bonds secured hereby shall, from
time to time, have a right to direct and control the proceedings
for the foreclosure of this mortgage."
The Chicago & Atlantic Co. has paid no interest on either
class of bonds. The Erie Co. paid out $584,850 in taking up first-
mortgage coupons which became due prior to November 1, 1884.
All the interest that bcKsame due under the first mortgage on and
snbsequent to the last-named date remains unpaid. Including the
coupons taken up by the Erie Co., the interest due on the first
mortgaM bonds is $1,669,850. The coupons which became due on
Novemoer 1, 1884, and Mav 1, 1886, had remained unpaid for
six months after maturity and demand before this suit was brought.
It was brought at the request of the owners of pastdue coupons,
after payment had been demanded and refused, and against the
wish and protest of the holders of a majority of the bonds, who in
open court moved that the suit be dismissed.
It is contended that no action can be taken by the trustees look-
172 FAKMEBS' LOAN AND TRUST 00. V. OHICAOO, ETC., B. Oa
iDff to the fordoBure of the mortgmge or the appointment of a re-
ceiver without the written request or direction of the holders of
at least a majority of the bonds, snch consent or I'eqaest being the
basis of all action for the enforcement of the trost ; and that do
right of action exists or can exist in favor of any one to eDfonce
the lien of the mortgage for interest only. Under the proTisions
of the trust deed, without the direction or consent of the holders
of a majority of the bonds the trustee cannot take possession of
the mortgaged property, or declare the principal due before ma-
turity, according to the terms of the bonds, nor without such con-
sent can the trustee operate or sell the property, or commence pro-
ceedings to foreclose the principal befoi'c maturity, in 1930. It
does not follow, however, that because this power is given to the
holder of a majority of the bonds the trustee at the request of
a minority, or even of a single bondholder, may not com-
™'** "to mence proceedings to forcTose for the non-payment of
PBOCSBD
VOBBCL08B.
interest ; or if on proper demand the trustee refuses to
bring suit, that a minority or even a single bondholder maynotsne.
.Failure to pay a single instalment of mterest is a breach of the
conditions of the trust deed.
The Chicago & Atlantic Co. agreed to pay Interest on each
bond, and it conveyed its property to tnistees ^^ for the benefit
security, and protection of the persons and corporations, firms and
partnerahips who shoujd hold the bonds and interest warrants afore-
said, or any of them, for the purpose of enforcing payment tbereof
according to their tenor ana effect." The power of a majority
powMi OF MA *^ control proceedings to foreclose for the payment of
joRiTT HOT eeI priucipal when it shall become due, at the election of
cLvavM, ^ majority, before maturity in 1920, is not exclusive of
the right which a single bondholder has to enfoix^ the secnritj for
the non-payment of any instalment of interest on any bond. This
right of a minority, or even a sin^e bondholder, does not depend
upon the consent of a majority. If it did, the company might re*
fuse to pay interest on the bonds held by a minority unm maturity
acoordinff to their terms, and even after that time, if some of the
counsel for the defendant are correct in their position that neither
before nor after maturity can the trust be enforced without the
consent of at least a majority. The right which is asserted by the
majority must be found in plain and explicit terms in the mort-
gage or it will not be recognized. It cannot exist by mere im-
plication.
It is true that in article 4 of the mortga^ it is declared *' that,
upon indemnity to the trustees, a majority in interest of the
holders of the bonds secured hereby shall, from time to time,
have a right to control the proceedings for a foredosore of this
mortgage," The proceedings here referred to are the proceedings
to enforce the trust for the payment of principal which shall
TRUST DEED — ^FOBEOLOSITBE— BECBIVBB. ITS
booome due, .under the provisions of the mortgage, at the election of
the holders of a majority of the bonds before maturity according
to their terms. The rignt is given to control tiie pi*oceedings for
a foreclosure, not aU proceedings for a f oreclo6T{re.
Chicago, D. & V. K Co. v. Fosdick, 106 U. S. 47 ; s. c, 7 Am.
& Eng. K. B. Cas. 427, was a suit to foreclose a mortgage or trust
deed executed by the railroad company to secure both principal and
interest of an issue of bonds. The mortgage provided that if any
interest should be permitted to continue in default after present-
ment and demand of payment, the trustees might declare the prin-
cipal of all the bonds immediately due and payable, and notify the
company thereof ; and that, upon the written request of the hold-
ere of a majority of the bonds, the trustees should proceed to col-
lect the pnncipal and interest of all the bonds by foreclosure and
sale, or otherwise, as provided in the mortgage. There was de-
fault in the payment of coupons that fell due on October 1, 1873,
bat a majority of the bondholders thereafter funded these coupons ;
the conpons not funded, however, continuing unpaid for more than
6ix months. The circuit court decreed that the entire debt, both
principal and interest, was due, and ordered the mortgaged prop-
erty sold unless payment should be made within twenty days. It
was held. Justice Matthews delivering the opinion of the court,
that although the principal of the bonds was not shown to be due,
it plainly appeared that interest upon a minority of them was in
deiault ; that the record failed to show that any of the coupons not
afterwards funded had been presented and payment thereof re-
fused ; and that a written request from a majority of the holders
of the bonds to the trustees was necessary to authorize them to de-
clare the principal due, and institute proceedings for its collection^
and no such request appeared. In speaking of the right to main-
tain the suit for non-payment of interest, the court said :
^ Bat inasmuch as oy the terms of the first article the convey-
ance was declared to l)e for the purpose of securing the payment
of the interest as well as the principal of the bonds, and by the
foarth article the mortgagor's right of possession terminated upon
a default in the payment of interest as well as the principal of any
of the bonds, we are of opinion that, independently of the provi-
sions of the other articles, the trustees, or, on tliei.r fai]ui*e to do
so, any bondholder, on non-payment of any instalment of interest
on any bond, might file a bill for the enforcement of the security by
the foreclosure of the mortgage and sale of the mortgaged prop-
erty. This right belongs to each bondholder separately, and its
exercise is not dependent upon the co-operation or consent of any of
the others or any of the trustees. It is properly and strictly en-
forceable by and in the name of the latter, but, if necessary, may
be prosecated without, and even against, them. It follows from
174 farmers' loan and trust 00. V. GHIOAOO, STC, R. CO.
the nature of the secarity, and arises upon its face, unless re-
strained by its teims."
The complainant is entitled to a decree nisi, ascertaining the
amount due upon the coupons which are not held by the resisting
bondholders, and if the amount, when ascertained, is not mid
within a reasonable time, to be fixed by the court, the complain-
ant, for the benefit of those whom it represents in this suit, will
be entitled to a decree for the sale of the mor^ged propertv. bar-
ring all rights subordinate to the mortgage. The demurrer to tlie
bill is overruled.
The motion for the appointment of a receiver remains to be
determined.
The Erie road extended from New York to Salamanca, and the
New York, Pennsylvania & Ohio road, which had been leased bj
HnTORToron *^® ^^^ ^^'^ extended from the latter place to Marion,
cAoo "^Tai^ Ohio. Hugh J. Jewett was then president of the
*'^^*' Erie Co., and he, and others associatea with hiui. real-
izing the importance to that company of owning or controlling a
through line from the city of New York to Chicago, vhicb
woula enable the Erie Co. to compete with other through lines
for western business, caused the Chicago & Atlantic Co. to be or-
fanized, and its road built. The road of the latter company was
uilt to be operated as a part of the Erie line, and in the interest
of that company. About the time the first mortgage was ezecQted
the Erie Co., the Chicago & Atlantic Co., and other companies, as
well as certain individuals, entered into contracts providing for the
construction and operation of the new road as the western eiten*
sion of the Erie hue ; for the negotiation of the first-mortage
bonds ; and for advancements to be made by the Erie Go. to pay
the interest on those bonds ; and for other purposes. The Erie Co-
agreed that it would advance money to complete the road ahonld
the proceeds of the bonds and the subsidies collected prove inade-
quatie for that purpose ; that it would advance money to pay in*
terest accruing on the bonds previous to the completion ot the
road; and that ''from its own gross earnings derived from all
business passing from and to the Chicago & Atlantic Co., to the
extent of such ^ross earnings received during the fiscal year in
which any instalment of interest on the bonds shall fall due, make
good any deficiency in tlie net earnings of the Chica^ & Atlantic
necessary for the uayiuent of such instalment of interest on said
firet-mortgage bonas." The Chicago & Atlantic Co. agreed tli»t
it would, after paying interest on its first-mortgage bonds oat of
its gross earnings, reimbui^se the Erie Co. out of such gross earn-
ings for advancements made by that company to complete the new
road, and to pay interest on the first- mortga^ bonds, and thattlie
Erie Co. should have a lien on the net earning for such advano^
ments in the order named. Besides what was realised from the
TRUST DEED — ^FOBEOLOSURE— RECEIVER. 176
fiale of the first-mortgage bonds and subsidies, — the latter amonnt
being inconsiderable, — the Erie Co. advanced all the money that
was used in the constrnction of the Chicago & Atlantic's road, and
all interest which is not in default has been paid bj that company.
It was also agreed that the Chicago & Atlantic Co. should deliver
to the Erie Co. at Marion, all freight and passengers which it
could control, destined to points reached by the Erie Co., and in
return that the latter company sliould deliver to the Chicago &
Atlantic Co., so far as it could control the same, an amount of
west-bound traffic which should bear to the whole amount of the
Erie Co.'8 west-bound .traffic for Chicago and points beyond the
same proportion that the amount of east-bound traffic i*eceived by
it from the Chicago & Atlantic Co. would bear to the whole
amonnt of the Erie Co.'s east-bontid traffic. It was also agreed
that Hngh J. Jewett siiould hold ninety per centum of the capital
stock of the Chicago & Atlantic Co., as trustee, with irrevocable
power to vote the same until all moneys advanced by the Erie Co.
to the Chicago & Atlantic Co. should be repaid, and until the
principal and interest of the first-mortgage bonds should be fully
paid.
The Chicago & Atlantic Co. was never able to pay operating
expenses and interest on its bonds. Being in want of money and
embarrassed, that company, in July, 1883, entered into a further
at;reement with the Erie Co. By this agreement it was provided
That the latter company should make additional advances to the
Chicago & Atlantic Co., which should make a second mortgage
upon its property and franchises to secure an additional issne of
b<)Qds amounting to $5,000,000, to be placed in the hands of Mr.
Jewett, as trustee, to be held as collateral security for advances of
iiiuney made, and to be made, with authority, as such trustee, to
pledge or sell the bonds. The bonds and mortgage were executed.
Prior to this time the Erie Co. had advanced to the Chicago & At-
Untie Co. more than $1,500,000, and the Erie Co. claims to have
made further advances after the second-mortgage bonds were
placed in Mr. Jcwett's hands as trustee. Mr. Jewett borrowed
$1500,000 from Grant & Ward, which the Erie Co. received and
credited upon the account of the Chicago & Atlantic Co. This loan
was secared by a deposit by Mr. Jewett of $2,500,000 of the second-
mortgage bonds. Notes made payable to Grant & Ward by the
Chicago & Atlantic Co., and indorsed by the Eric Co., amounting
to $1,500,000, were delivered to Grant & Ward at the same time.
It was the understanding, however, between Grant & Ward and
tiie two companies that these notes were to be held and used as
nieniorandum notes, and not otherwise. Before failing in May,
1SS4, Grant & Ward pledeed both the notes and the bonds torari-
^m banks and individuals as collateral security for loans, the
pledgees being ignorant of the arrangement under which Grant &
176 FARM BBS' LOAN AKD TRUST CO. V. CHICAGO, ETC., B. 00.
Ward received the notes and bonds. The Chica^ & Atlantic Co.
failed to take np any of these notes or bonds, ana in order to pro-
tect its credit as indoreer the Erie Go. was oblieed to pay oyer a
million dollars on the notes, and in doing so it obtained poasesBion
of 761 of the second-mortgage bonds. It follows that to the ex-
tent that the Erie Co. took up the notes which it had indorsed, the
indebtedness of the Chicago & Atlantic Co. was not rednoed.
Since Mr. Jewett ceased to be president of the Erie Co. he has
claimed that the stock of the Chicago & Atlantic Co. was depos-
ited with him, not as president of the Erie Co., bat as a penonal
trnst, and he now insists that he has the irrevocable right, as soch
trustee, to vote the stock, and thereby maintain control of the Chi-
cago & Atlantic Co., without regard to the wishes of tlie Erie Co.
The holders of the first-mortgage bonds, who claim the right to
control these proceedings, are acting in concert with Mr. Jewett.
The facts abundantly show that he was made trustee to hold the
stock of the Chicago & Atlantic Co., with authority to vote it,
jKWRT MA2>B bocause lic was president of the Erie Co., and ooald be
TBURB& relied upon to control and manage the Chicago & At-
lantic road as the western extension of the Erie line. If ^e Erie
Co. was expected to advance money to complete the couBtructios
of the new road, and to pay interest on the bonds, and thus
take care of the credit of the Chicago & Atlantic Co., it va^
not unreasonable it should, in some way, be protected agaill^t
unfriendly management of the new road. The Erie Co.'s
stockholders and creditors no doubt thought the placing of tl:e
stock in Mr. Jewett's hands would afford them ample proteetion.
It was provided in the contract which designated Mr. Jewett as
trustee, that in the event of his death or resignation, the trast
should devolve upon such person as he might have previoUBlj de^
i^nated to succeed him, and in default of such designation that
the trust should devolve upon such person as the Erie Co. might
designate.
TTiis language plainly indicates that Mr. Jewett was authorized
to act as trustee, with power to vote the stock, because he was
president of the Erie Co., and as such would see to it that the Chi-
jBWRT^ Bs. <^o ^ Atlantic road was operated as a part of the
'^*** Erie line. His present position as to his powers and
duties as trustee are inconsistent wiUi the views which he enter-
tained while president of the Erie Co. In his annual report to
the stockholders of that company in 1882 he said :
^^ To secure the construction of the road, and its future manage-
ment to the satisfaction of the parties proposing to purchase tue
bonds, it was agreed that the entire proceeds thereof, together
with certain subsidies which had been voted bv the townships
along the line, should be deposited with the presiclent of the New
York, Lake Erie & Western R. Co., in trust, and the duty wa« de-
TBU8T DEED — ^FOBEOLOSUBB— REOEITBB. 177
Toked upon him of seeing to the proper application thereof to the
oonstrnction of the road. It was further stipulated that ninety
per cent of the stock shonld also be deposited with him, with irre-
vocable proxy to vote thereon during the life of the bonds (thirty
years from the date thereof), thereby securing to your company
the absolute control of the road for such period. ... By this
means your company secures access to the business and markets of
Chicago by a line of road as much under its control as though it
h,i advanced all the money needed for its construction, and as-
snmed all the obligations incident to its maintenance and opera-
tion."
Afr. Jewett now says that the stock was not deposited with him,
as president of the Erie Co., with irrevocable power to vote the
same as such president during the life of the bonds, and that it
was not the intention that the Erie Co. should thereby secure the
absolute control of the new road for that period.
The court cannot be expected, at this stage of the litigation, to
pass upon the validity of. the contracts already referreato, or to
determine the rights, duties, and liabilities of the parties thereto.
Although the two companies are natural allies, and ^^ ^
their roads should be operated as a single line, there is omaAao" a»
little hope of harmonious action until a change occurs "•^'™°*
in the management of one or both. Each accuses the other of
violating contract obli^tions. Mr. Jewett controls the action of
the Chicago & Atlantic Co., and that he is unfriendly and even
hostile to the Erie Co., under its present management, admits of
no doubt It is claimed by him, and the holders of a large major-
ity of the bonds who are acting in concert with him, that, without
uy change in the Chicago & Atlantic Co.'s mana^ment, the
Erie Co. diould be required to pay the interest accrued and to ao-
eme on the first-mortgage bonds. The Erie Co. appears to have
advanced to the Chicago & Atlantic Co., from time to time, over
|2,iK)0,000, the main consideration for which was the agreement
that the hitter's road should be operated as the western extension
of the Erie line, and the only security that was given for these
lifge advances was the pledge of the second-mortgage bonds. The
Facts thus far brought to the attention of the court do not justify
the assertion that since Mr. Jewett ceased to be president of the
Erie Co. its violations of the traffic contract have reduced the
earnings of the Chicago & Atlantic Co.' eaual in amount to the
Otters indebtedness to the former. The Chicago & Atlantic road
ras first operated for through business three years ago. It is not
ienied that it failed to pay operating expenses the first and second
rears. The statements submitted show, however, that during the
iurd year its earnings exceeded its operating expenses by $58,127,
rhich sum was not sufficient to pay the amount remaining due on
operating expenses for the first and second years. Exclusive of
24 A. & E. R Ca«.— 12
178 FABMBBS' LOAN AND TBUST 00. V. OHIOAGO, BTO., B. 00.
the 761 second-mortgage bonds which the Erie Co. acquired,
as above stated, the principal of the outstanding bonds amounts
to over $8,000,000. The intei'est which is due on the firat mort-
gage bonds, including the coupons taken up by the Erie Co.,
amounts to $1,169,850, and all the intei'est which has accrued upon
the second-mortgage bonds is unpaid, the interest now due on both
classes of bonds being more than $1,500,000. It is not denied
that while Mr. Jewett was president of both companies, the monej
advanced by the Erie Co. to the Chicago & Atlantic Co. amounted
to more than $1,500,000, and the former claims, with apparent
foundation, that after the execution of the second mortgage it ad-
vanced $700,000 more.
But without reference to the fact that the Erie Co. is vitally in-
terested in the solvency of the Chicago & Atlantic Co., and
whether the latter is indebted to the former or not, the owners of
bouds amounting to $105,000, secured by the first mortgage, are
entitled to their interest ; and it is no answer to the motion which
the trustee has made in their behalf for the appointment of a re-
ceiver that the Erie^Co. has not kept (aith with the Chicago &
Atlantic Co. Mr. Jewett has either been unwilling or unalne to
establish business i*elations with any other trunk line, and tlie
facts do not justify the hope that he can operate his road without
some chan^ in its relations, and pay operating expenses and inter-
est on its oonds. In fact, the Chicago & Atlantic Co. is badly
embarrassed, and probably insolvent. It may be that a change in
management would improve its condition and enable it to produce
an income, after paying operating expenses, sufficient to pay its
debts, and interest on such of its bonds as are not held by tne ma-
jority of the holders who are united with Mr- Jewett in resisting
this suit and motion. But, in any event, the owners of the past
due coupons are entitled to payment, and it may become necessary
for the court to take possession of the mortgaged property, and
operate it through a receiver, for their benefit. The physical con-
dition of the mortgaged property is good, and taxes and labor and
supply claims are not in arrears.
The appointment of a receiver rests in the sound discretion of
the court ; mere insolvency may or may not call for such action.
A ruling on the motion for the appointment of a receiver is de-
ferred.
Right of Trustee to foreclose Trust Deedi — See Fire Ins. Oo. e. Salisbury,
4 Am. & Bng. K. R. Gas. 480; Chicago, etc., R. Oo. e. Fosdick, 7 Id. 427;
Williams e. Morgan, 17 Id. 217; Dow e. Memphis, etc.» R Co., 17 Id. 884.
I
BONDS— MISREPRESENTATION— TBU8T FUND. 179
Van Wbbl
V.
Winston et al.
(115 United StaUi BtporU, 228.)
Unless transactions set forth in a bill in equity constitute a fraud or breach
of trust, for which the court can give relief, charges that the acts set forth
are fntudulent are not sufSicient erounds of equity jurisdiction.
A bill in equity by a holder of railway mortffsge bonds a^nst the presi-
dent of the company, which alleges that the defendant receiyed money from
the sale of the mortgage bonds, but does not ayer that the creditor has ob-
tained judgment against the company upon his bonds, and that execution
issued on the judgment has been returned nuUa bona, shows nothing enti-
tlioe^ the plaintiff to relief in equity as a creditor of the company.
The president of a railway company holds no fiduciary relation to mort-
gage bondholders of the company which requires him as their trustee or
agent to see to the proper application of the funds receiyed by the company
from the sale of the mortga^ bonds, or to account to the bondholders for
any surplus from the proceeds of their bonds after constructing the works
for which they were issued; his relations and duties in these respects are to
the company and its stockholders, not to creditors of the company.
A, as president of a railway company, and acting in its behalf, signed and
caused to be issued a circular inyitmg subscriptions to mortsacre bonds of the
company issued for the purpose of constructing *^a branch from the main
line to Atchison, Kansas, a distance of about fifty miles.'* The morteage
made to secure these bonds described the road as '* the branch railroad of
said party of the first part as the same now is or may be hereafter suryeyed
and being constructed, and leading from the Missouri Riyer . . . at a point
opposite • . . Atchison ... by the most practicable route, not exceeding
fif^ miles in length, to a junction with the main line." The bonds were
further secured by a second mortgage on the main line. The branch road,
as located and constructed, was only twenty-nine miles in length. The first
mortgage on the main line was subsequently foreclosed, whereupon B, a
holder of a branch mortga^ bond, commenced proceedings to foreclose that
mortgage, which resulted in a foreclosure and sale of the branch to C, also
one of the bondholders. B then filed his bill in equity against A personally,
on behalf of himself and other holders of the branch mortgage bonds, among
whom was 0. The bill set forth the aboye facts; and the relief sought for
was redress against an alleged fraud in the representation that the proposed
branch would be ** about fifty miles in length." On demurrer, Meld —
That the representations in the circular were representations of the com-
pany, and were in no respect the personal representations of A.
That the complainant had no right to rely on the statement concerning
the length of line as materially affecting his security.
That it was the duty of persons purchasing the bonds to look to the mort-
re for the description of the property mortgaged te secure them.
ihat the description in the mortgage contemplated that if the best inter-
ests of the company should require a line shorter than fifty miles, the com-
pany should haye the right to adopt it.
Thtit the bill showed no right in the complainant to use the names of the
gage^
Thai
180 VAN WSBL V. WINSTON et oH.
company or stockholden to obtain redress for a tort committed on thei%
and no equities in these respects against A.
That the bill showed no priyity between A and the bondfaolden as to hit
use of money which they had loaned to the company.
The original bill in this case was filed December 12, 1876. The
amended and supplemental bill, on which judgment was rendered
below, was filed May 22, 1880. Van Weel, an alien holder of
bonds of the Chicago & Southwestern R. Co. of Iowa aud
Missouri, secured by mortgage on the Atchison Branch of that
road, was complainant. The railway company, and Frederick E
Winston and Campbell, both citizens of Illinois, were defendaDt&
Winston was former president of the company. The trnstees of
the mortgage of the Atchison Branch, viz., Bumes of MiBSonri
and Dows and Frederick S. Winston of New York, were also
made parties defendant, but were not served with process. Dows
appeared voluntarily. The other trustees did not appear. The
bill alleged that thei*e were several intervening petitioners, joining
as complainants, among whom was one Jonannes Berg, also a
bondholder. The bill, after setting forth the formation of the
company, and a business connection with the Bock Island B. Co.,
made sundrv allegations respecting fraudulent obtaining of the
money of the complainants for the construction of the Atchison
Branch, by the issue of a drcnlar inviting subscriptions- to the
mortgage branch bonds. These averments are transcribed verbally
in the opinion of the court, post^ pp. 185, 187, to which reference
is made.
There was attached to the bill, as an exhibit, a copy of the
mortgage of the branch road. It was recited in this mortgage
that Uie railway '^ company has acquired and now possesses the
right, under ana by virtue of the faws of the State of Missouri,
to construct, maintain, and operate a branch railway from tlie Hi»-
souri River, opposite the city of Atchison, Kansas, by the most
practicable route, not exceeding fifty miles in length, to a jnnc
tion with the main line of the said first party ; and whereas, the
B&id first party has already commenced tue constmction of said
branch line and stands in need of money to complete the same.'^
The property mortgaged was described in the following bm-
gnage : '^ All and singular, the branch railroad of the said party
of tne first part, as tho same now is or may be hereafter surveyed,
and being constructed and leading froid the Missouri Biver, in the
State of Missouri, at a point opposite the city of Atchison, in tlie
State of Elansas, by the most practicable route, not exceeding
fifty (SO) miles in length to a junction with tlie main line of the
railway of said first party, together with all and singular the
right of way for said branch road belonging to the. party of the
first part," etc. There were several other provisions in tue mort-
gage, of which only the following are material in connection with
BONDS — ^MISBEPBE8ENTATI0N — TRUST FUND. 181
the opinion of the court. " The said party of tlie first part hereby
agrees to and with the said parties of the second part that the
ainoQQt of bonds issued hereunder shall not exceed m the aggre-
gate the snm of one million of dollars upon the whole of said
branch h'ne of railway from said Missouri River to said main line
of the said Chicago & Southwestern B. Co., a distance not exceed-
ing fifty miles. . . . Said Chicago & Southwestern B. Co. further
covenant and a^ree that the money borrowed or procured for the
purpose aforesaid, upon the security of said bonas, shall be faith-
lolly applied to the ouilding and completing of said line of rail-
>m, and to no other purpose, and that said application shall be
made with due diligence."
The principal fraud (so far as considered in the opinion of the
court) was charged in the following language : " Your orator
further states that it was also untrue, and known to be untrue by
said Frederick H. Winston, that said branch line was designed to
be fifty miles in length, and therefore, with the intention to mis-
lead and deceive the purchasers of said proposed bonds, said branch
was stated in said circular to be ^ about^ fiity miles in length, and
Tour orator says with before said circular was issued a contract had
been entered into with one H. M. AUer for building said branch, and
aid Winston then knew it would not be over twenty-nine miles
in length. Your orator further states that it was untrue that it
was intended by said Winston that said line should pass through
the counties of Buchanan, Clinton, and Platte, as stated in said
circular; that said line did not, in fact, enter the county of Clin-
ton ; but your orator states that said Winston, with intention to
deceire and mislead the purchasers of said proposed bonds, caused
a map to be attached to said circular, whereon the junction of the
branch and main line appeared to be near Cameron, and showing
that said branch would, of necessity, pass through said Clinton
county."
After making some other allegations referred to in the opinion
of the court, the bill further charged that the complainants and
other purchasers of the bonds were induced by these fraudulent
representations to purchase them; that the whole sum realized
from their sale was first deposited with the Bock Island Co.,
and then came into the hands of ^^ Winston and his confederates "
''in trust to be faithfully expended in the building and comple-
tion of said branch road ;" tnat the parties who loaned the monej
for the construction of the branch road were defrauded of their
promised security to the extent of twenty-one miles ; that Wins-
ton, while acting as president, made a large profit in the construc-
tion of the branch, the larger part of which he converted to his
own use, and the remainder divided among confederates ; that the
road was not properlv constructed ; that the branch road from the
ontset was snostantially valueless ; that Winston, as president, did
f,
183 VAN WEEL V. WINSTON et al.
Dot faithfully apply the sums received from the Rock Island Com-
pany, in the building and completion of the branch road, but con-
verted them to the use of himself and associates; that the mort-
age on the main line was foreclosed at the instance of the Rock
sland Company, and the mortgaged property sold and conveyed
to the purchaser at the foreclosure sale ; that the complainant then
instituted his suit to foreclose the .mortgage on the branch road,
and obtain judgment of foreclosure, and the mortgj^ed property
was sold under the foreclosure to Johannes Berg for §10,000 ; that
after these foreclosures the Southwestern R. Co. was divested of
all its property, franchises, power, and capacity to carry on business
as a railroad company, and to carry out the purposes for which
it was incorporated ; that the Southwestern Co. has failed to
call to an accounting Winston and his associates, although re-
quested by complainants so to do, with like allegations as to the
trustees of the mortgage, who were made defendants, but not
served with process ; that these facts became known to complain-
ant only shortly before the bringing of this bill ; that Winston
had fraudulently concealed from the complainant the fact of his
interest in the construction of said road, so that the same was not
discovered till shortly before the bringing of this suit; and that
sufficient bonds of indemnity had been tendered to F. S. Winston,
Burnes, and Dows, trustees under the mortgage, with a request that
they should appear as defendants, and that Dows had appeared,
but the other trustees had refused and neglected to appear. The
I'elief asked for was the following : " That the defendants, Fred-
erick H. Winston and George C. Campbell, may be required to
render a full, strict, and exact account of their and each of their
transactions in relation to the business of the Chicago & South-
western Co., and particularly tlie Atchison Branch thei'eof,
from the 1st day of June, a.d. 1871, to the present date ; that the
amount of moneys, bonds, stocks, subscriptions, lands, or parcels
of land received or taken by said Chicago & Southwestern R.
Co., or by said Frederick H. Winston and Campbell, or either of
them, in connection therewith or in any way relating to said branch
railway, be ascertained ; that all proper disbursements or expend!-
tures of moneys, bonds, stocks, or other property, made in the
necessary construction of said branch railway, be also ascertained,
and that the defendants, Frederick H. Wmston and Campbell,
may be charged by the decree of this court to pay the ascertained
balance of receipts above proper expenditures; and if it shall
appear that said Winston or Campbell, or either of them, liave
now in their possession or under their control any of the bonds or
stocks subscribed or donated in aid of said branch railway, and
which by virtue of said contract or otherwise became the prop-
ertv of said Southwestern Co.; or if said Winston and Campbell, or
eitner of them, or if any other person or persons in trust for
BONDS — ^HISBEPBESENTATION— TRUST FUND. 183
them, or either of them, hold any lands, or parcels of land, or
interests in either, derived directly or indirectly through or by
means of their or either of their connection with said railway or
branch, or in aid of the construction of said branch, that they be
required by the decree of this court to account for and surrender
the same as this honorable court shall hereafter direct. And that
if it shall appear that the said Frederick H. Winston and the said
Campbell, or either of them, misapplied and converted to their
own use any portion of the said f una so advanced by your orator
and the other purchasers of said bonds, as aforesaid, in trust to be
expended in the construction of said branch road, they may
be respectively charged with the amount so converted and misap-
plied by them, as well as all other amounts which they aided and
caused to be applied for other purposes than the building and
completion of said road ; and that they be decreed to refund and
restore the same to your orator and the other purchasers of said
bonds, by whom or in whose behalf the said fund was so advanced
as aforesaid ; or, if some other method of relief shall appear more
consistent with the character of this case, as it may be disclosed,
your orators pray that said defendants, Winston and Campbell,
may be required to pay into court the just and full sum due your
orator upon said bonds, assuming and declaring the same to be due,
together with the interest thereon, as in said bonds is provided,
and that upon such payment being made, together with such
further costs as may properly be imposed, your orator may surren-
der his said bonds for cancellation, or otherwise, as may be ordered ;
and that your orator may have such other and further or difEerent
relief as to equity shall seem meet."
Winston demurred to this bill on the ^ound of nonjoinder of
ondispensable parties, because other indispensable parties (F. S.
Winston and Burnes) had not been served with process; that the
bill was multifarious ; that there was no privity between complain-
ant and defendant; that the complainant had a complete and
adequate remedy at law which he had not exhausted ; that the
complainant had no right to commence a suit in his own name ;
that the supposed cause of action did not accrue within five yeare
next before filing the amended bill ; that the amended bill set up
new causes of action ; that when the Southwestern B. Co. was
first made party in an amended bill, the alleged causes of action
were barred ; and that the bill did not state a case for relief in
cjquity. The demurrer of the defendant Campbell was to the
like effect. The railway company also demurred.
The cause was heard below, on the amended bill and demurrer,
before Mr. Justice Harlan, August 1, 1881. He held, as to the al-
leged fraudulent representations in the circular, that if a fraud was
committed the remedy was adequate at law ; that as to the alleged
violations of duty by Winston as president, and conversion to nis
184 VAN WBEL V. WINSTON ei (d.
own nfie of moneys realized from sale of the bonds, the right of
action was barred by the statute of limitations ; and that no trust
was disclosed by the bill to exempt the complainant from the
operation of the statute. The demurrers were accordingly sus-
tained, and the bill was dismissed. Whereupon the complainant
appealed to this court.
William H. Moore {James K. EdsaJl was with him on the
brief) for appellant.
Tr. G. Ooudy for appellees Frederick H. Winston and execu-
tors of Campbell.
Melville W. FuUer also filed a brief for the appellee Frederick
H. Winston.
MiLLEB, J. — This is an appeal from a decree of the Circuit Court
of the Northern District of Illinois, dismissing the bill of Yan
Weel, who was plaintiff below and'is appellant here.
The original bill was filed December 12, 1876, and several
Facts. amended bills were filed, until, on May 22, 1880, com-
plainant filed what he calls his amended and supplemental bill,
substituting it in lieu of his previous bill and amenoed bills.
The defendants named in this bill are the Chicago & South-
western E. Co. of Iowa and Missouri, Frederick H. Winston, and
George C. Campbell, citizens of Illinois, Calvin F. Bumes, a citi-
zen of Missouri, and David Dows and Frederick S. Winston,
citizens of New York.
Mr. Yan Weel describes himself as an alien, and a subject of the
King of the Netherlands, and a holder and owner of bonds of the
Chicago & Southwestern R. Co. for $67,000 principal, and over-
due interest on them to the amount of $35,1^5. He brings this
suit, as his bill alleges, not only for himself, but on behalf of nu-
merous other holders of the same issue of bonds, whose names he
gives to the amount, including interest, of $671,000.
The bill was demurred to, the demurrer was sustained, and a
decree rendered dismissing it, from which this appeal is taken.
The contest seems to be mainly between complainant Yan Weel
on one side, and Frederick H. Winston on the other. Calvin
Surnes, a citizen of Missouri, has not been served with process within
the Northern District of Illinois, and has not appeared by himself
or attorney. The same may be said of Frederick S. Winston, who
is a citizen of New York.
F. H. Winston has demurred separately, and if the bill cannot
be sustained against him it is obvious, from its character, that it is
not good against the other defendants. The Chicago & South-
western R. Co. also demurred.
The bill is a long one, the allegations are not classified, nor the
true foundations of relief very clearly stated. It is full of the
words fraudulent and corrupt, and general charges of conspiracy
B01!a>8 — ^MISBEPBBSBKTATION— TRUST FITND. 185
and violation of trust obligations. Mere words, in and of them-
selves, and even as qualifying adjectives of more specific charges,
are not sufficient grounds of equity jurisdiction, unless the trans-
actions to which ttiey refer are such as in their essential nature
constitute a fraud or a breach of trust, for which a court of chancery
can give relief. Ambler v. Choteau, 107 U. S. 686, 690.
The charges m this bill on which relief is sought maybe ar-
ranged under two heads :
1. Fraudulent misrepresentations of the defendant affecting the
character and value of the security on which the bonds in question
were negotiated.
2. The violation of certain obligations, in the nature of a trust,
which he assumed in regard to the security i^d ultimate payment
of the bonds.
A few of the most important matters applicable to both these
charges as found in the bill may be thus stated :
A company had been incorporated under the laws of Iowa to
build a railroad from the town of Washington in that State, on the
line of the Chicago, Rock Island & Pacific R. Co., in a south-
westerly course to the Missouri River, or to the line of the State of
Missouri in that direction. Another corporation had been orga-
nized under the laws of Missouri to build a railroad in that State,
from a point opposite the city of Leavenworth, in Kansas, to the
Iowa State line, in the direction of the city of Des Moines in that
State.
These companies were consolidated into one, under the name of
the Chicago & Southwestern R. Co., with the declared purpose
of building a single road from Washington to the Missouri River,
at a point opposite Leavenworth. Of this company Mr. Frederick
H. Winston oeoame the president and a member of the executive
committee of its board of directors. The company issued bonds for
$5,000,000, which were guaranteed by the Kock Island Co., and
made a mortgage on the entire line of its road to secure their pay-
ment. The length of this line was 266 miles, and the money raised
on these bonds secured its rapid completion. In the mean time
another corporation had been organized in Missouri to build a road
from the Missouri River, opposite the city of Atchison in the State
of Kansas, to some point on the line of the Chicago & South-
western road. This road was called the Atchison Branch, and
when the main branch of the Southwestern road was nearlv finished,
lacking, as the bill avers, only fiftv miles of its completion, a con-
solidation was effected between the company organized to build
this branch road to Atchison and the original Chicago & South-
western Co., in which consolidation the corporation retained the
name of this latter company.
This company, as consolidated, at once determined to raise a new
loan of $1,000,000, to be used m&inly for the purpose of building
186 VAN WEEL V. WIN8T0K St ol.
the Atchison Branch road, on which but little, if any, work had
been done. As a secoritj for the bonds of this loan, they made
another mortgage, which was a first mortgage on the Atdiison
Branch, and a second mortgage on the main line. These bonds
were all sold, and the two lines of road completed within a reason-
able time ; and it may as well be added, that both mortgages were
forfeited in a few years for non-payment of intei^est, and the
mortgages foreclosea by a sale of the roads nnder two different
forecTdbure snits.
The charge of actual fraud against Mr. Winston grows out of
certain acts and representations made by him in connection with
the sale of these bonds by the Chicago ik Southwestern Co.
In order that no injustice may be done the complainant in
regard to his allegations on this point, the language of the bill will
be here given :
'*• Tour orator further complains and states that the said Fred-
erick H. Winston and his confederates afterwards, to wit, on or
about the first day of June, a.d. 1871, contrived and entered upon
a scheme to secure a loan of the further sum of $1,000,000, for the
ostensible purpose of building a branch line of road as hereinafter
stated, but in reality to enable him and his confederates to get con.
trol of, and convert to their own use, a large part of the funds
secured and advanced to build said bi*anch road. And to that end,
said Winston, as President of said Southwestern Co., caused a dr-
cular to be issued, a true copy of which is hereto annexed, marked
Exhibit ^ A,' to which reference is made as if it was incorporated
herein, in which, among other things, speaking as preeident of
said Southwestern Co., he said :
" * On the first day of May, 1871, the Chicago & Southwestern R
from Washington, Iowa, to Leavenworth, Kansas, a distance
of 266 miles — now finished and in operation, 216 milee — ^will be
fully completed and opened for business under the auspices and
management of the Chicago, Rock Island & Pacific R. Co. The
two roads, thus under one management, will constitute a through
line and the shortest through line from Chicago and the Gr^
Lakes of the North to the extreme Southwest. Congratulating onr
friends and ourselves upon the prompt sale of our first issue of
bonds, as well as their present established market value, both in
this country and in Europe, we would present for sale, through the
financial agents of the company, a second issue, for the purpose of
constructing a branch railroad from the main line to Atchison.
Kansas, a distance of about fifty miles.'
" Said Winston, after setting forth the advantages of Atchison
as a commercial and railway centre, continued as follows :
" * To carry on the arrangements before stated, the Chicago &
Southwestern R. Co. have issued one thousand bonds, dated June
1, 1871, each for one thousand dollare, due thirty years after date,
BONDS— MISREPRESENTATION — ^TRUST FUND. 187
with semi-annual coupons annexed, at the rate of seven per cent
annum, princiral and interest payable in American gold coin, at
the American Exchange National Bank, in the city of i^ew York;
ail of which are equally secured by a first mortgage on the road to
be built, its assets, rights of way, earnings, and other property, as
well as by a second mortgage upon the Chicago & Southwestern
R.. its property and franchises.'
^ It was farther stated in said circular that said mortgage would
be *a safe and reliable security,' the value of which woula be bet-
ter appreciated by the fact that the ' Chica^, Bock Island &
Pacific B. Co. had already ageed to lease, and would, when com-
pleted, operate the whole line ' on terms that would pay a hand-
some dividend to the stockholders, and ' which in no event ' would
be ^lesB than the interest on all the bonds outstanding,' and that
the value and security of the contract aforesaid wiae ^ equal to a
direct indorsement of the bonds ' by the Bock Island Co.
"It was further stated in said circular :
"'The Chicago & Southwestern B., for over two hundred miles
west from Washington, is pointing almost directly to Atchison, so
that its extension to that place involves less curvature than that of
the established line to Leavenworth.' ^The Atchison Branch,
through the nopulons counties of Buchanan, Clinton, and Platte,
offers railroad facilities to wealthy agricultural communities, which
in return must afford a heavy and lucrative local traffic. Every
tract over which it will pass is a farm teeming with the abundant
products of the famous l^latte purchase.' ' With the offering of
the first loan of the Chicago & Southwestern B. Co., we were ad-
monished, as the originators of a new enterprise, to avoid the lan-
guage of eulogy and enthusiasm. Difficult as was the task to those
who knew its real merits, we have compensation now in a final and
complete success, far beyond any expectation we dared to hope to
excite by any statement in our, former publication. Beviewing
with a just pride all that was then written, we feel authorized to
claim the confidence of the numerous friends, both in Europe and
ia this country, of the Chicago & Southwestern B. Co., to whom
we have more than verified all our statements.' * To complete the
connections of the Chicago & Southwestern B., to extend its power
and usefulness, and to increase as business and earnings, by the
oonstruction of the Atchison Branch, we now offer this loan, and
(commend it to our friends as a safe and desirable investment.'
Dated ' New York, June, 1871,' and signed ' F. H. Winston,
President.'"
The falsehood and fraud in these representations is in the al-
leged fact that the branch road, when built, was only twenty-nine
miles and not fifty, whereby the bondholders were deprived of the
security of twenty-one miles of road which they had a right to ex-
pect to make good their bonds, and that it was known to Winston
188 VAN WEEL V. WINSTON et oL
at the time that the road would not be as long as thus represented,
and would not go through all the counties named. There was one
of these counties in point of fact not ioached bj the road.
The first observation to be made on this subject is, that circnlai^
on which this allegation is founded, are exhibits to the bill^and,in
every instance, they are clearly the circulars of the Chicago &
Southwestern R. Co. They are signed by Mr. Wins-
a^SSS!!^ raon ton as president of that company, and purport to be
OF wSsTOM."^ issued from its offioe, and in tne charging part of the
bill, copied above, and all through it, he is said *^tobe
speaking as president of that company." There is no all^tion
anywhere that Winston ever gave nis personal pledge or statement
to any one about to invest in the bonds of the company that the
road would be fifty miles long, or any other length. It is obvious,
from the nature of these circulars, that the branch road had not
then been located, and Mr. Winston, as an individual, could give
no pledge on that subject which would bind the company, nor
could he do so as president of the company. The road had yet to
be located, and this could only be done by the board of directors,
of whom Mr. Winston was but one of eight or ten.
A source of much safer reliance as to the security which these
purchasers of the bonds were ^tting, was the mort^ige given by
nuTT or nr- the Company. This of course was made and recorded
before the negotiation for the loan was commenoed,
and copies of it accompanied the bonds when offered
for sale. Every prudent man, knowing that this mortgage vas
his main secunty, would examine it, or his agent would, oefoie
investing his money.
In this mortgage or deed of trust, the trustees hwig Dmi
Dows, Frederick B. Winston, and Calvin P. Bnmes, the property
conveyed is described as ^^ the branch railroad of said party of the
first part, as the same now is or m$iy be hereafter surveyed and be-
ing constructed, and leading from the Missouri Elver, m the 8tate
of Missouri, at a point opposite the city of Atchison in the State
of Kansas, by the most practicable route, not exceeding fifty miles
in length, to a junction with the main line of the rauroad of said
party of the first part.^'
Whatever representation may have been made in the circulars
of the company was, according to all rules of evidence, superseded
by this solemn instrument between the parties. If they differed
in any respect, the latter must be looked to as the security on
which the bondholders alone had a right to rely. This instrument
„ so far from ffivinfi" any pTedire or assurance Uiat d)e
m MOHTOAOB branch road should be fifty miles long, or near that is
noTraouu)^ carcful to Say it shall not exceed thatlenirth. The limi-
tation IS m its length, not its shortness. The latter is
provided for by saying that it should be by the most practicable
route.
TS8TOB TO
▲imni Movr-
QAOB.
BONDS— MI8BEPBESENTATI0N — TRUST FUND. 189
•
It is impossible to read this* description of the line of road, con-
veyed as security for the bonds, without seeing clearly that the
line was not yet located — that its future location was to be gov-
erned by two considerations : (1) that it should be the most practi-
cable roate between Atchison and the main line of the road, and
(i) that its length should not exceed fifty miles. If the most prac-
ticable line, by which it evidently meant the best working line for
ilie company who was building it, should require a shorter line
than fifty miles^ there is not the shadow of a promise or suggestion
tliat it should not be so long, and no longer, as that required. But
in the provision that its length should not exceed fifty miles, there
was a protection against wasting tlie money received from the bond-
holders on a long and unprofitable line of road made only for the
benefit of people living along that line.
Bat this line of road was not the only securitv for the payment
of these bonds. The mortgage included also the entire main line
from Washin£ix)n to Leavenworth, -266 miles, which ^ _
cj ^^ / f PLACB op Con*
waa now nearly completed. This made a direct con- wbctiom m-
oecti<^ between the rich agrictiltural country of west* ard maix um
em Missonri and the city of Ohicago by means of the ™^™"^
Chicago, Bock Island & Pacific Co., then a rich and pros-
perous corporation, so deeply interested in this Southwestern B.
that it had guaranteed '$5,000,000 of the bonds of the com-
pany. It was farther stipulated in this mortgage or deed of trust
that the proceeds of the sale of these bonds should be placed in
the hands of the Bock Island Co., which should only pay them
oat in the regoLir prosecution of the work. It was further pro-
vided in that mortgage that if any of these proceeds remained
with that company after the completion of the road, it should be
paid over to tne president or other authorized agent of the Chi-
cago & Soathwestem Co.
It cannot be doubted that this mortgage on the main line, though
a second lien, was re^rded as an important part of the security of
the bondholders un&r it, and when taken in connection with the
aid and interest of the Bock Island Co., the pi*ecise length
of the branch line could not have been held to be very important.
In fact, as the two lines belonged to one company, and that com-
pany was liable for all the bonds, it was obviously the interest of
the bondholders and of the stockholders that the branch line should
be located so as to make it add to the profits of the entire enter-
prise on which the bondholders held a lien.
In r^ard to the allegation of fraud in tliis matter it is apparent —
1. That all that is charged against Mr. Winston is that he
signed or permitted his name to be affixed te a circular which
stated the probable length of the branch road, then unsurveyed
^d nnlocated, as about fifty miles.
2. That the place of junction with the Southwestern road,
190 VAN WEEL V. WINSTON et ol.
which necefisarilj determiDed the length of the branch road, was
not described or mention^.
3. That in the mortgage which was made on said braDch roti
all that was said was that it should not exceed fifty miles.
4. That it is nowhere averred that the line waa not properk
located, or that it should have been located otherwise.
5. That the security which the bondholders had upon that Ibe
and the other seemed to render the place of connection between
the branch and the main line unimportant, as r^ards the seearitr
for their loan.
We are of opinion, therefore, that the complainants had no light
to rely on the statement concerning the length of the line as mate-
rially affecting their security, and that Mr. Winston committed no
fraud in the part he took in that matter. This view is reinforced
by the admission of the bill, that the branch road was completed
mainly out of the money arising from the bonds sold to plaintif
and others, and that several years after both it and the main line
had been finished and in operation both roada were sold under
the two mortffagcs ; that the branch line was sold under foredo-
sure proceedmgs inaugurated by Yan Weel, and was booflit in
'for $10,000 by Mr. Berg, one of Van WeePs associates as oond-
holder, and that they now, as far as appears, own the road their
monev was used to build.
Otner transactions are mentioned as fraudulent, such aa that Ur.
Winston converted some of the money arising from
SS^o" m!!SS; these bonds to his private use, and not to the piupoees
JSmSSSLwr' of the company. The answer to this is, that Mr. Win-
ston came under no obligation to see to the application
of this money as the bondholders might think it ought to be ap-
plied. They had bought their bonds, paid their money, and re-
ceived their security. The money so diverted was the money of
the Southwestern Co., and not their money.
The wrong done by Winston in that matter, if wrong there ^is,
was done to that company, and not to the bondholders. They bad
provided their own means of insuring the building of this bTaoch
road, by disbursing the money through the Sock Island Co., and
it was successful. The road was built. There was no privity
between Mr. Winston and these bondholders as to his use of
money which they had loaned to the company, which was no
longer their money. The error which pervades the bill throogb*
out is to treat this corporation, to which the bondholders loaned
their money, as if it had no existence, as if they had loaned it to
Mr. Winston and held his personal obligation that it should all be
honestly applied, and be i*espon8ible for the repayment of the loan.
If Mr. Winston cheated this company out of its money, the rigbt
to redress for that wrong is in the company or in its stoickbold^
As a creditor of the company, Mr. Van Weel has no right to in-
BONDS — MI6BSPBE8XNTATIOK — TRUST FUND. 191
I
terfere in the matter until he has a judgment against the company,
with an execution returned rkAJtUaoona. He lias not in this suit
shown any right to use the name of the company or of its stock-
holders to obtain redress for a tort committed on them. United
States '0. Union Pacific R. Co., 98 U. S. 569, 614.
There are probably other allegations of fraud, but they are no
better founded than these, and we can give them no further atten-
tion.
As r^ards the matter of trust, which is one of the grounds of
relief set up in the bill, we need not occupy much time in its con-
sideration.
The trustees in the mortgage, which is the only express trust
that we can find set out in the bill, were Frederick S. Winston,
Darid Dows, and Calvin Bnmes, neither of whom resides within
the jmisdiction of the court, or has been served with process.
If, however, they were before the court, they are not charged
with any breach of the duty with which they were entrusted.
The application of the money arising from the mortgage bonds
was not by the mortgagees entrusted to them, nor had they any
control over it after tne bonds were sold.
It is not alleeed that they refused to foreclose the mortgage
when it became forfeited by non-payment of interest, or that they
failed to perform any duty imposed upon them by the mortgage.
It is asserted, however, that Frederick H. Winston, as president
of the company, was bound to see that the money raised on these
bonds was used exdusivelv in the construction of the branch road,
and that, in this regard, ne was a trustee for the lenders of the
money. We are unable to see any such trust in the matter.
The contracting parties in regard to this loan were the bond-
holders and the Sonthwestem Co. The one became debtor for
the money loaned, the other became creditor. Mr. Winston, as
the president of the company, represented the company, the bor-
rower. The lenders desired a security for the repayment of their
money, which they obtained in the mortgage, and their
trnstees in that trust were Dows, Burnes, and F. S. «ot^ld p^
Winston. They, in that instrument, undertook to se- S^cmnFoS
cure the building of this road out of the money loaned, ■***'*^°"*""-
by requiring its deposit with the Bock Island Co., and its dis-
bursement, for that purpose, under its supervision. But if the
loan should produce more than was necessary for that purpose,
what was to become of it ? Was it to go back to the lenders f
There is no hint of the kind. It was impracticable to do so,
because the bonds would, many of them, have changed hands. As
to the new owner, it would have been a mere gratuity to return it,
and the original lender had no interest in the matter. Instead of
this it is expressly declared that the Sock Island Co. could relieve
192 BROWN V. STATE OF MABTLAKD, ETC., B. CO.
itself of farther obligation in the matter by payment to the preo-
dent of the company.
When thus paid did he hold it as trustee for the bondholderB!
If so, nnder what trnst or what obli^tion ? Conld he return it to
the bondholders with the bonds still ontstanding'against the com-
pany f Or did he hold it merely as the repi*e8entative of the com-
pany of which he was president. We think it was clearly the
money of the company, and could have been used by it for the
purchase of rolling-stock, general equipment, or any other legiti-
mate use of its own money.
This money belonged to the company. The road was bnilt— die
only interest in the nature of a trust which the lenders had at-
tempted to protect by the control of the funds. The obligation
of Mr. Winston in the disposition of the money, if any of it came
into his hands, was to the company. If it was lost it was the com-
pany's loss, not appellant's. If he improperly or fraudulently
converted it to his own use, he was liable to the company and not
to the plaintiff in this suit. There was no privity or trust relation
between him and them in this r^ard.
We think appellant has shown no right to relief in thissoit;
that the demurrer was properly sustained ; and the decree of the
circuit court dismissing the bill is therefore aflSnned.
Bbown, TbusteBi etc., v. Statb of Mabtland, abd AmrArouB
AND Elkbidoe S. Co.
State of Mabylakd v, Bbown, Tbustxe, etc, abd Ankafous
AND Elkbidob E. Co.
{Advance Oate^ Maryland. July 22, 1885.)
The principle of tm adjudioata extends, not only to the queationB of fact
and of law which were decided in the former suit, but also to the groundB
of recoyery or defence which miffht have been, and were not, presented.
Where by the articIeB of a deed of trust of the property and nunchifiesof &
railway company it is provided that in case default is made in the pajmeot
of the principal or interest of the bonds it shall be lawful for the trustees to
sell and dispose of the property and franchises of the company, and it is
made their duty to exercise such power of s^e upon the requirement of a
majority in interest of the bondholders, it is not a yalid ground for delayiDg
the sale that it had not been ascertained how many of the bonds were justly
due. Each bondholder holds his bonds 'separately and independeotlj of
all others ; and when his interest remains in arrears, under the circumstsDces
mentioned in the deed of trust, he ought not to be delayed by a controTersj
arising in regard to the yalidity of bonds held by other persona. UpoD the
sale of a railroad under such circumstances, when the proceeds are brought
into court for distribution, it is then competent for any party in interest to
except to the claim of any bondholder; and if the proceeds are not sufficient
TBU8T DEED — SALE — RES ADJUDIOATA. 193
to pay all the bondholders, they may except to the claims of each other.
Sach bonds are negotiable instrumeo'ts, and are good in the hands of hona-
^i holders for yalue, without notice of any equities or defence against the
fint holders.
This was a bill filed, alleging that a certain deed of trust between
the Annapolis & Elkridge K. Co. and Brown and others, trustees^
was noli and void, and asking that the trustees be restrained from
making; sale of any of the property of the railroad company. Sub-
staDtiallythe same qaestions wei*e raised and decided between the
parties in a ease reported in 62 Md. 439.
SiewaH Brown and 4S'. TeacJde WaUis for trnstees.
Charles B. Roberta^ attorney-general, for State.
John Irelxmi and Charles Ma/rehaU for railroad.
Brtait, J. — We have heretofore decided a cause between the
parties to this record. The State of Maryland filed a bill in equity,
in which it was maintained that it had a lien on all the property '
and franchises of the Annapolis & Elkridge B. Co., and that saia
lien was prior to that created by the deed 01 trust in question, even
if the deed were valid ; and it was further maintained by the State
that the deed of trust was wholly invalid, or else was facts.
valid only to the extent of creating a lien for such of the bonds
fiecared by it as were used for the particular purposes expressed
in the first section of the act of 1872, chap. 425. The prayer of
the bill was for an injunction to restrain the trustees from making
sale of all or any part of the property of the railroad, and alter-
luOely to restrain them from making sale until they had ascer-
tain^ by proper proceedings the parts or proportions of these
bonds whicn had in fact been used lor the purposes expressed in
the first section of the act of 1872. There were other prayers for
relief adapted to the different aspects of the case. The defendants
in the cause were the Annapolis & Elkiidge R. Co., and the trus-
tees, Steward Brown and Arthur George Brown. The answer of
the trustees controverted the case made by the bill, and main-
tained the validity of the deed of trust and its priority to the
rights and claims of the State. It also alleged tnat more than
$150,000 of these bonds, which had been duly issued under and
in accordance with the terms of the deed of trust, had been nego-
tiated throaeh Alexander Brown & Sons, and were outstanding in
the hands of 'bonorjide purchasers for value; and that others of
these bonds were outstanding in the hands of persons and corpora-
tions who claimed to be hona-fde holders for value. The cause
was heard on bill and answer, and this court decided, upon the
facts which were shown by the proceedings in the cause, that the
<ieed of trost was valid ; and that bonds to an amount exceeding
$150,000 had been duly n^otiated, and were outstanding in the
hands of hana-Jide purchasers for value ; and that other bonds
24 A. & E. R. Gas.— 18
194 BROWN V. 8TATB pF MABTIiAKD, ETC., B. CO.
were in the hands of different persons, who alleged that they also
were Ixyiia^jide holders for valne; and that the State was not en-
titled to any of the relief prayed. The bill was therefore dis-
missed. This case is reported in 62 Md. 439.
In the present case, the bill is filed by the same complainant,
and the same parties ai'e defendants. It alleges that the deed of
trust is null and void ; as a consequence, it is maintained that all
the bonds issued under its provisions were invalid, and that the
trustees have no power of sale. Certain of the bonds amonntine
to $252,000 are specifically charged to have been issued and nsed
in pursuance of a fraudulent agreement, and it is alleged that thev
are held by persons who had notice of the fraudulent character of
the bonds at the time they received them. The relief prayed is,
that the deed of trust may be declared null and void, ana that the
trustees may be restrained by injunction from making sale of any
of the property of the railroad.
It is roauifest that the relief sought in each of these cases is the
same. The present bill repeats the allegations of the former one,
and supports and fortifies them by other charges. The scope and
object of both bills is the same ; all of their averments tend to the
same conclusion. The purpose in each case was to strike down
and defeat the power of sale contained in the deed of tmst. It
was entirely competent for the complainant to make in the first
RM^ij^cA- bill of complaint every allegation which was made in
KEcovsRT the second. It is not alleged that any of them were
HAYR BEBw uukuowu at the time the first bill was filed ; and, in
BTATKD IN
FOBMKE SUIT, polut of fact, all of these additional allegations were
contained in the petition for an injunction filed by tlie Annapolis
& Elkridge R. in June, 1878, which petition was signed bj the
attorney-general of the State, who appeared in the cause by order
of the general assembly of the State and the board of pnblic
works. According to well-settled principles, our decision in the
first case finally determined, as between tne parties to the suit, all
mattei^ then adjudicated. As between these parties, no matter
then decided can ever again become the subject of controveisy.
" Where every object urged in the second suit was open to the
party within the legitimate scope of the pleadings in the first Biiit,
and might have been presented in that trial, the matter must be
considered as having passed in remjudicaiieniy and the former
judgment in such a case was conclusive against the parties." Au-
rora City V. West, 7 Wall. 102. In a subsequent case in the same
volume, the Supreme Court of the United States, speaking of the
principle of res judicata^ %2ij : "It extends not only to the
questions of fact and of law, which were decided in the former
suit, but also to the grounds of recovery or defence which might
have been, but were not, presented." Beloit v. Morgan, 7 Wall
622. And in the same case the court quotes with approbation
TBU8T DEED — SALE— BES ADJUDIOATA. 195
the striking lan^age of the vice-cliancellor, iu Henderson v.
Henderson, 3 Hare, 116, as follows: ",In trying this ques-
tion, I believe I state the rale of the court correctly, that
where a given matter becomes the subject of litigation in,*and of ad-
judication by, a court of competent jurisdiction, the court requires
the p«irtie8 to bring forward their whole case, and will not, except
nnder special circumstances, permit the same parties to open the
same subject of litigation in respect of a matter which miglit have
been brought forward as a part of the subject in contest, but was
not brought forward, only because they have, from negligence, in-
advertence, or even accident, omitted a part of their case. The
plea of res jtidicata applies, except in special cases, not only to the
points upon which the court was required by the parties to form an
opinion and pronounce a judgment, but to every point which
properly belonged to the subject of litigation, and which the par-
ties, exercising reasonable diligence, might have brought forward
at the time."
It appears to us, therefore, inevitable that our decision in the
former case must be conclusive between these parties, of every
matter which then passed into judgment. We then determined
that the deed of trust was vdlid ; that bonds exceeding the amount
of $150,000 were in the hands of iona-Jide holders for value ; that
default had been made in the payment of the interest, and that the
trostees had the power of sale, in accordance with the terms of the
deed of trust, and we accordingly denied the injunction. We trast
that hereafter our opinion mav not be misunderstood.
Our decision binos the parties to this suit and those represented
bv them, and no other pei^sons. We will, in the course of this
opinion, make further explanation on this point. But we may
now say that as this suit sought the general benefit of all the
stockholders, they are effectually bound by the result of it and
they cannot hereafter be heard to deny the right of the trustees to
sell, in accordance with the terms of the deed of trast.
Our duty would not be fully discharged without considering
fome other questions discussed in this case. By the fourth article oi
the deed of trust, it is provided that in case default is made in the
payment of the principal of any of these bonds, or in
the payment of the interest under the circumstances S? tSst'dmS!
therein referred to, it shall be lawful for the trastees to tr^mSSl
sell and dispose of all the property and fi*anchises of
the railroad company. Ana in the eighth article it is made their
duty to exercise* the power of sale, upon the requirement in writing
of a majority in interest of the bondholders. As the parties have,
by their own agreement, provided for the contingency under
which a sale may be made, the courts must give effect to the power
'^f sale tlins given. In this respect the proceedings differ from
those in the case of a sale under a mortgage. Where a bill is
196 BROWN V. 8TATS OF MARYLAND, ETC., R. CO.
filed to foreclose a mortgage, the State autliorizes the court to
decree a sale unless the debt and costs are paid at or before the
time fixed by the decree ; and it is necessary for the court to as-
certain the»amonnt of the debt, so that the defendant may k»ow
how much it is necessary for him to pay in order to prevent the
sale. It would be contrary to the agreement of tlie parties, as
embodied in the deed of trust, to hold that the sale should be de-
layed until it was ascertained how many of the bonds were ju8tlv
due. Each bondholder holds his own separately and independ-
ently of all others ; and when his interest remains in arrear under
the circumstances mentioned in the deed of trust, he ought not t(>
be delayed by. a controversy which should arise about the validity
of the bonds held by other persons.
We are of opinion that the Drum Point R. Co. had power to
purchase stock in the Annapolis & Elkridge R. Co. ^ooth v.
Robinson, 55 Md. 434. It is now too late to question the r^-
larity of the election of the directors who ordered that die deed
of trust should be executed. The deed was executed in June^
1872, and all parties interested had abundant means of knowing
every detail connected with the transaction. No reason has been
shown why so sreat a delay should have occurred in asserting anv
objections which they desired to urge against the deed. And in
the mean time very valuable interests have vested on the faith of
the deed. We must say, moreover, that the evidence in the cause
shows that the election of the directors was not contrary to the
charter of the company. The entries in the book of the proceed-
ings of the company are not evidence against third persons. The
efficient proof in the case is derived from the testimony of a wit-
ness who had personal knowledge of the transaction.
The sale of the shares of stock by Brown and Wells to the
Drum Point R. Co. was evidently for the purpose of ^ving
to it the control of the Annapolis & Elkridse Co. It is on-
necessary to comment upon this proceeding. The Drum Point
Co. had the right to acquire this stock, but it had no right to
puBOBASB BT A ^^ ^ts controliiug influence in the board of directors 50
nSSc'^iR S- AS ^o sacrifice the interest of the Annapolis & Elk-
bSSKSS^' ridge R. Co. We think that the title which Wells and
TALUBOV0TOOK. Bj-qwu acquircd to the bonds issued to them could not
have been maintained against the stockholders of the Annanoli^
& Elkridge R. Co.; nor could the title of the Drum Point Co. bare
been maintained to the bonds which it acquired under the agree-
ment in the record. We do not impeach the motives of the direc-
tors who authorized this disposition of the bonds. They were
gentlemen of high character and responsibility ; but we think that
they fell into a very great error in this matter. Although the
original title to these bonds was defective, yet such of them must
be protected as are now in the hands of honorfde holders for value,
TBUST DKKD — SALE— BBS ADJITDICATA. 197
without notice of the objections to their validity. The evidence
which we have been considering was given on the motion to dis-
solve the injunction, and any conclusion formed upon it bj the
conn eonld be need only at the hearing of that motion ; neverthe-
less, for the purpose of diminishing as much as possible unneces-
sarj litigation, we have thought it best to state our views on
important questions which must arise hereafter in this controversy,
if the property of this railroad should be sold, when the pro-
ceeds are brought into court for distribution, it will be competent
for any party in interest to except to the claim of any bondholder.
If the proceeds are not sufficient to pay all the bondholders, they
may except to the claims of each other. The matters DimuBunoiror
adjudicated in this case and the former one, between 2£?"Ss S
the same parties, will not be available for or against the ^^'o^*^
bondholders, except as establishing the right of the trustees to
make the sale. The trustees represent the bondholders for this
purpose; but not in the matter of distribution. After the sale
the bondholders must stand on their own footing, and must main-
tain their own claims by evidence. Our finding that more than
$150,000 of the bonds were in the hands of bona-Jide holders for
value established that fact conclusively in favor of the trustees, so
as to enable them to make the sale, but will not be evidence for the
bondholder when he claims distribution. On that issue it will be
res inter alias acta. It is fully settled that bonds of this descrip-
tion are negotiable instruments, and are mod in the hands of honor
/£aS^ holders for value, without notice oi any equities or defences
against the first holdere. The supreme court oi the United States
speaking of such bonds has said: "Thev are placed by numerous
decisions of this court on the footing of negotiable paper. They
are transferable by delivery, and, when issued by competent au-
thority, pafls into the hands of a honorfide purchaser for value be-
fore maturity, freed from any infirmity in their origin. Whatever
fraud the officers authorized to issue them may have committed in
diaposing of them, or however entire may have been the failure of
the consideration promised by parties receiving them, these cir-
cumstances will not afiPect the title of subsequent bonorfide pur-
chasers for value before maturity, or the liability of the municipali-
ties (the makers of the bonds). As with other negotiable paper,
mere suspicion that there may be a defect of title in its holder, or
knowledge of circumstances which would excite suspicion as to his
title in the mind of a prudent man, is not sufficient to impair the
title of the purchaser. That result will only follow where there
has been bad faith on his part." Cromwell v. County of Sac, 96
U. S. 51. In the same case, they say : ^' The simple fact that an
instalment of interest is overdue and unpaid, disconnected from
other facte, is not Bnfficient to affect the position of one taking the
^x>nds and sabseqneut coupons before tneir maturity for value as
198 BROWN t. STATE OF MARYLAND, ETC., R. CO.
a honorfide purchaser." Yide^ also, Railway Co. i>. Spragoe,
103 U. S. 756 ; s. c, 2 Am. & Eng. R. R. Cas. 532. We accept
these decisions as conclusive of the questions involved in them.
It seems necessary to consider only one other question. We
think that the amendment of the pleadings is within the discretion
of the court, and that no appeal hes from their decision. The ip-
peal of the State must be dismissed. As the defence of resadhi-
dicata must settle this controversy at the final hearing, further
litigation is needless. We will, therefore, reverse the order of the
circuit court, and dismiss the bill.
Order revei'sed and bill dismissed.
Chief Judge Alvey filed a separate opinion, in whicli Jndges
Robinson and Rttohie concurred ; Judge Stone also filed an
opinion.
Issue of Bonds in Violation of Rettrictions of Charter — Rigfits of the
Bona- fide Purohases. — A railway compaDy had a charter providiog tli&(
bonds bearing interest at the rate of 7 per cent per annum could be hypothe-
cated or sold by the company within or without the State where issiKKi "to
raise or borrow money at a price not less than 80 cents on a dollar, aod
all other bonds to be issued shall be sold or exchanged at par, and in no case
shall bonds, whether hypothecated or sold, become a debt or liability of the
corporation at less than 80 cents on the dollar.** Ellsworth became the h^a-
fide holder of 30 bonds of the company and died. His executor brought salt
against the company on those bonas. HM^ that plaintiff's testator being a
honor-flde holder of the bonds, it could not be shown against an action upon
them by his executor that restrictions imposed by the railroad companjs
charter upon its power to negotiate its bonds were violated, the violation of
restriction relied upon beinff the sale of the bonds at 90 cents per dollar,
instead of at par as required by the charter.
Heildy also, that the charter having been g^nted by the States of IlUDoia
and Indiana, its provisions would render illegal only contracts made in tio*
lation of it in those States, and that the sale of the bonds in question bariog
been made in New York, the contract of sale was governed by the laws of
New York, under which it was legal. Ellsworth «. St. Louis, A. & T. H.
R. Co., 98 N. Y. 663.
"Two County" Mortgages prohibited — Raiiway mortgage held voidr-
Sec. 20, art. 4, Constitution of Oregon, declares that ** every act shall em-
brace but one subject, and matters properly connected therewith, which sub-
ject shall be expressed in the title." An act of the Oregon legislature called
the *^ mortgage tax law" provided, amongst other thm^ that **all mort-
gages, deeds of trust, contracts, or other obligations hereafter executed,
whereby land situated in more than one county in this State is made securitj
for the payment of a debt, shall be void."
ndd^ (1) That this provision, declaring two-county mortgages void, is
sufficiently relative and germane to an act providing for the taxation ^j
money secured by a mortgage on land, and that the title of the act suffi-
ciently expressed its nature. (2) That railway mortgages were within tbe
purview of the act, and that if they included land situate in more than me
county they were void. (3) That when a debt payable at a future date,
with interest payable in the mean time at stated intervals, is secured by mort-
gage and default is made in payment of an instalment of such interests &
suit in equity may be maintained to enforce the lien of such mortgage so Ux
as such instalment is concerned by a sale of so much of the mortgaged pro-
TBU8T DEED— SALE — RES AD JUDICATA. 199
perty ts may be necessary to pay the same; bat if such property cannot be
sold in parcels without injury to the parties or one of them, then the court
may order the whole of it sold free from the lien of the mortgage, and apply
the proceeds on the whole debt according to its then yalue. Farmers* L. &
T. Co. 9. Oregon & C. R. Co., 24 Fed. Repr. 407.
Reorganization — Transfer of Railroad to New Company — Priorities as be-
tween Creditors of Old and Bondholders of New Company. — ^Respondent had
a claim against the St. Loins & Keokuk R. Co. This company being insol-
vent, its stockholders and officers organized the St. Louis, Hannibal &
Keokuk R. Co., to which they transferred the assets of the St. Louis & Keokuk
R Co., in consideration of stock in the new company. The new company
proceeded with the contemplated and unfinished work, taking possession of
all the road-bed, etc., of the prior corporation, with notice of respondent's
demand not then reduced to judgment. It subsequently issued a mortgage
to secure its bonds, and the plaintiff tiled his bill to foreclose the same with
aa interrening receiver duly appointed. This bill made respondent a de-
fendant, and he answered, setting up his demand which had been reduced to
judgment, and by a cross-bill he prayed for a decree establishing his demand
as a lien prior in right to the lien of the mortgage as against so much of the
property of the old corporation as is included in the mortgage by the new
corporation.
Held^ That a transfer of the assets of one corporation to another whereby
through a mere change of name an attempt is made to defraud creditors, or
which would obtain as a fraud, cannot be upheld against such creditors, and
that a transfer disabling it from performing its corporate duties is practically
such a fraud, making transferee with notice a trustee taking eum onere.
Bddj also, that if in such a caiSe the transferee mortgages its property to
secure the payment of bonds, the lien of creditors of the old corporation upon
the property transferred will be prior in right to that of bondholders with
notice. Blair v. St. Louis, H. & K. R. Co., 22 Fed. Repr. 86.
Reorganization — New Company cannot sell out without Consent of Dis-
senting Shareholders — Rights of Bondholders with Notice. — The Knoxville
& Kentucky R Co. was organized in 1855 to build a road from Knoxville
to the Kentucky line in the direction of Louisville and Cincinnati. The city
of Knoxville subscribed $100,000 to its capital stock. Thirty-eight miles of
the road was built when the company became insolvent, and the State fore-
closed a statutory lien on the road, which was sold to W. B. Johnson and
associates for $350,000. Johnson and his associates reorganized themselves
into the Knoxville & Ohio R. Co., which became vested with all the powers,
rights, privileges, and immunities of the old Knoxville & K. Co. The new
company iasued a mortgage of $500,000 upon the road, fixed its capital
stock at $1,100,000, of which Johnson and his associates retained two thirds,
and gratuitously distributed the balance among the stockholders of the old
company, giving $100,000 thereof to the city of Knoxville. The organiza-
tion of the Knoxville & O. R. Co. was completed in 1871. It operated the
road until July 1, 1881, becoming indebted, during the ten years to the East
Tennessee, Ya. & Ga. R. Co. for between $1,200,000 and $1,500,000, advanced
by the latter company to enable the former to extend its road to the Kentucky
line. This advance the K. & O. R. Co. was unable to repay, and on July 8,
1881, pursuant to a resolution adopted by a large majority of its stockholders
in a meeting duly called for that purpose, the K. & O. R. Co. made and de-
livered its deed conveying its road, franchises, and all other property to the
E. Tenn., Va. & Qa. R. Co., which, in consideration thereof, agreed to pay
all the liabilities of the K. & O. Co., including the advances aforesaid, and
to issue to its stockholders of the common stock of the £. Tenn.. Ya. & Ga.
R. Co. an amount at its face value equal to the stock respectively owned by
them in the K. & O. Co. Li these proceed ingrg the city of Knoxville was not
200 BKOWN t. STATE OF MARYLAND, XTO., B. CO.
represented. Nor did the city either ratify or diment from the sale until it
commenced suit subsequently to set it aside.
After the S. Tenn., Ya. & €hi. R Co. obtained possession of the K. & 0.
property under the aforesaid conyeyance, it executed to the Central Trait
Co. of New York two mortgages covering the K. & O. property and intended
to secure the payment of a laree number of first-mortgafie and income bonds
which it had issued and sold for Talue to hana^Jide purchasers.
On June 28, 1888, the mayor and aldermen of Knoxrille filed a Inll in be-
half of the city and all other stockholders of the K. & O. R. Co. against the
K. & O. R. Co., the E. T., Ya. & Ga. R. Co., and the Central Trust Co. of
New York, praying for a decree annulling the conveyance made
by the K. & O. Co. to the S. T., Ya. & Qa. R. Co., and declaring the
mortgages made by the last-named company to the Central Trust Co. of New
York, hereinbefore mentioned, a cloud upon the title of the K. & O. R Co.^i
property embraced therein and removing the same. It was alleged in the
bill that the city of Enozville owned $100,000 of stock in the K. & 0. K
Co., and that the conveyance sought to be annulled was made without its
consent and in fraud of its rights.
The city of Knoxvillb did not aver in its bill that it had requested the E.
& O. R. Co.^s officers to brinff suit to set aside these conveyances, and tbai
the. company had refused to do so.
Hddy that under the 94th rule of the U. 8. Supreme Court such request
and refusal must be averred in order to enable the city to maintain its
bill.
The questions raised by the city's bill were, however, presented upon other
pleadings filed in the case. Hence, it was also kM, (1) that the charter of
the Bk & O. R. Co. did not authorize it to make the conveyance of its pro-
perty to the E. T., Ya. & Ga. R. Co., but that legislative permission to such
purchase and sale had been given by the acts of tne legislature of Tennessee
of November 9 and December 11, 1871 ; but (2) that this legislative penni£-
sion amounted to nothing more than a waiver of any right the public or the
8tate might have to object to the sale and conveyance made, and did not
divest or impair the rights of shareholders as between themselves and u
guaranteed by the company's charter ; and that under the charter the mft-
3ority of the stockholders could not, as against the wishes of a'minoritj.
make a sale and conveyance of the company's property and franchises.
(8) That no laches were imputable to the city as a holder of stock thst
would preclude it from asserting its rights as a stockholder dissenting to the
sale ana conveyance ; and (4) that the Central Trust Co. took its mortgtges
with notice of the want of power of the company to make them, and that the
Trust Co. and bondholders, therefore, did not occupy the position of inno-
cent holders, and that a decr^ should be entered rescinding the sale and re-
moving 'the mortgages as clouds upon complainant's title. Mayor, etc., of
the city of Knoxville v. Knoxville & Ohio R. Co., 22 Fed. Repr. 758.
Priorities as between Contractors holding Lien on Road and Purehasen
of Certificates of Bonds. — The Selma, Marion & Memphis R. Co. was orga-
nized and chartered. It constructed and equipped portions of its railwaj.
then failed, and was sold under mortgage foreclosure for $10,000 to Bnsby
and others, who reorganized themselves into a corporation known as the
Memphis, Holly Springs & Selma R. Co., which relinquished all rights to
the portion of the road in Alabama and took for itself that part lying in
Tennessee from Memphis to the Alabama line. The new corporation fixed its
capital stock at $1,000,600, estimated the value of the property, etc., pur-
chased at the sum of $263,000, to be divided into shares of $100 each, to
be distributed among the purchasers according to the interest of each, and to
be held and treated as so much paid-up capital stock not subject to call, cer-
tificates of which were executed and delivered to the respective shareholders.
TRUST DEED — 8ALB — RES ADJXTDIOATA. 201
June 1, 1881, a resoliitiofi was paned by the stockholders of the compaoy
aathoriring the president and directors, for the purpose of raising money for
the coostmction and equipment of the railway and for no other purpose, to
inoe bonds with interest coupons attached, and a mortgage upon the prop-
erty and franchises of the company to secure their payment. Nothing was
done under this authority other than a resolution of the directors authorizing
the president and finance committee to execute the bonds and mortgage,
notil August 2, 1881, when, by another resolution of the stockholders in con-
▼eotion assembled, the former resolution was amended so as to authorize
the amount of bonds and coupons to be issued for the purpose stated in the
former resolution and no other, to be $8,500,000 and to be payable January
1, 1921. At the last stockholders' meeting the name of the corporation was
changed to that of the Memphis, Selma & Brunswick R. Go.
Pnor to January 6, 1881, the stockholders placed their certificates of stock
in the hands of Busby, to be sold by him to W. M. Forrest, one of their num-
ber« at twenty-five cents on the dollar, which was paid by Forrest to Busby
and by bim paid to the stockholders, and the certificates of stock were then
delivered to Forrest as the holder.
On January 6, 1881, a contract was entered into between Forrest, as a
stockholder, and Fred. Wolffe, president of the company, in writing and
signed by both parties, by which Forrest agreed to sell, and Wolfte to pur«
chase for himself and those associated with him, the entire capital stock
in said corporation, and for which Wolffe agreed, as soon as the bonds
could be lawfully issued, to procure first-mortgage bonds to the amount of
1363,000, to be secured by a mortgage coyering all the property and fran-
chises of the company. Under this agreement, Forrest deliyered the certifi-
cates of stock to Wolffe and received from Wolffe a certificate for each bond
to be delivered in the following form :
'' Mbicfhib, Sblxa & Bbunswick R. Co. — ^Febst Mobtoaob Bonds.
*' Total issue, $3,500,000. $1000 each.
"This is to certify that William M. Forrest is entitled to one bond of one
thousand dollars, with coupons thereto attached. No. of first-mort*
gage bonds of the Memphis, Selma & Brunswick R. Co., dated July 1, 1882,
sad bearing interest at the rate of six per cent per annum, payable semi-
annnally, which will be delivered to him, or order, upon the surrender of this
certificate, as soon as said mortgage is executed and said bonds engraved.
'' Witness the seal of the company, and the signhture of the president and
secretary, at Memphis, Tennessee, this first day of July, 1882.
*'FBra). WoLFPE, President.
**M. Calm, Secretary."
These certificates were sold by Forrest at 20 cents per dollar and upwards,
to Thompson and others, complainants.
January 8, 1883, a mortoage of the property and franchises of the com-
[Any to secure payment of l^nds thereafter to be executed was made by the
com|nny and recorded.
Prior to this time, on July 28, 1882, the company contracted with Green,
Hamilton & Co. for the construction of the road from Memphis to Holly
Springs at stipulated prices, to be paid in first-mortgaee bonds of the com-
paoy at ninety cents per dollar; and Wolffe, the president of the company,
lodiridually agreed with Green, Hamilton & Co. to cash the bonds or cer-
tificates for their delivery at ninety cents per dollar, and did so, for all
work done and materials furnished up to November 1, 1882, amounting in
bonds to $75,000. At that time Wolffe became unable further to cash the
bonds which mightr be issued to Green, Hamilton & Co. for construction.
Thereupon Green, Hamilton & Co. refused to receive bonds or certificates
203 BROWN V. STATE OF MABYLAND, ETC., E. 00.
for bonds, but they continued work during November and December, 1888^
Wolffe paying them therefor in cash $20,089.89, and giving them the sooept-
aiice of the company endorsed by him individually for the balance of their
estimates for these months. These acceptances were not paid.
January 1, 1888, a new construction contract was made wherry Gneo,
Hamilton & Co. agreed to do the work and the company agreed to pay therefor
in cash. Work under this last contract progressed until in March or April
following; but was not paid for and the contractors finally stopped work os
account of the failure of the company to meet its obligations. The IndiiB-
apolis Rolling Mill Co. had also, prior to the stoppage of the work, fnmisbcd
iron rails for which the company had not paid, and there were engineers aod
other employees in the construction of the road for whose services no pay-
ments had been made. Green, Hamilton & Co., the Indianapolis Rolliog
Mill Co., and Wolffe, on behalf of the unpaid employees, therenpoD pro-
ceeded to enforce their statutory liens for work and labor done and matt-
rials furnished, securing judgments as follows: Gkeen, Hamilton & Co.,
$191,125.61 and costs; Indianapolis RoUinje Mill Co., $69,158.65 and eoics;
and Wolffe, as trustee of unpaid employees, $18,508.52 and costs, — each judg-
ment beine declared a co-ordinate lien with the others upon the property
and franchises of the company. Under these circumstances the oomplsiiH
ants Thompson and others, holders of the cerdficates issued as above to For-
rest, and by him sold to them, filed a bill to determine the rights and prior-
ities of themselves and the contractors, material, men, and employees whose
judgments were noted above.
Bsld, (1) That the judgment in favor of the Indianapolis Boiling Mill Co.
and that in favor of Wolffe in behalf of the unpaid employees were in equity
prior liens to complainant's claim.
(2) That the certificates above mentioned were issued by Wolffe as his io-
dividual obligations, neither the charter of the company nor the resolutioBt
of the stockholders or directors authorizing their issuance on behalf of the
company.
(8) That, inasmuch as Wolffe had in his possession seventy -five bonds for
$1000 each that were issued in payment for work done and materials fur-
nished by Green, Hamilton & Co., and by them sold to Wolffe, Wolffe must
be decreed to comply with his contract with Forrest above expressed, sod u
the bonds are in court, their beneficial interest should be decreed to be is
complainants.
(4) That Wolffe's contract with Green, Hamilton & Co. to cash the bonds
which might be issued to them was a personal obligation on his part, sod
that for its breach he alone was reBpocsible.
(5) That Green, Hamilton & Co.'s judgment gave them a lien upon the
fund in court for all the materials furnished and work done on the railway
after the change of the contract made January 1, 1888, which lien was not dis-
placed by the execution of the mortgage, as neither Forrest, nor the boldert
of the certificates issued to him were purchasers or encumbrancers without
notice.
(6) That no new bonds would be declared by the court to be issnoed to the
holders of the certificates, it not bein^ in the power of the court to crette
an equitable mortgage to secure their payment. Thompson «. Memphit^
8. & B. R Co., 24 Fed. Repr. 888.
Suit for benefit of Unsecured Creditors of Bankrupt Railway Company
— Lien of Attorneys for Fees^ — A railway company became insolvent and
transferred its property and franchises to a new company, leaving unpaid a
large amount of unsecured indebtedness. Branch and certain other uoae*
curod creditors retained attorneys to file a bill to reach the assets of the old
company, and to apply them to the payment of the clainis of Branch and bii
associates, and also for the benefit of any other unsecured creditors who
B0KD8— COUPONS— LIEN. 203
might come in to share in the reaults of the litigation. The litigation
proTed soeoeasfol, and the attorneys made a claim for compensation oased
Qpon the total amount of nnsecured indebtedness, which was resisted by
their immediate clients, Branch and others, on the ground that the attor-
neys oonld chum only a fee for the recoyerr of the moneys due their imme-
diate cfients. Thereupon the attorneys filed their petition in the cause to be
allowed reasonable compensation not only in respect to the demands of their
clients, but also in respect of the demands of- other unsecured creditors who
filed their claims under the decree, and to have a lien declared therefor on
the property reclaimed for the benefit of such creditors.
Eid^ that the attorneys were entitled to a reasonable compensation for
their professional sendees in establishing a lien, and that such compen-
sstioQ should be mtude with reference to the amount of all claims filed
in the cause, although the eridence thereof may haye been retained
in the custody of the req>ectiye creditors; excepting, howeyer, from such
estimate or odculation the claims of the complamants made in the bill and
of other unsecured creditors who had special contracts with the attorneys or
settled with them, and also such claims purchased from creditors by Branch
and others as were not filed for allowance under the decree; and that fiye
per cent upon the sum realized by the suit was a sufik^ient allowance for at-
torney's fees. Central R. R. e. Pettus, 118 U. 8. 116.
Camebon
V.
Tomb.
(Advance CkuA, Maryland. Febrwvry 5, 1886.)
A railroad company not haying sufficient money to pay all the coupons
falling due upon its first mojtffage bonds, the president of the company
borrowed money of the plaintiff to make up the deficiency, and to secure
him for the loan gaye him the coupons in question, which were a part of
the same coupons that had been preyiously paid by the company and de-
livered up to ita secretary for retirement and cancellation. Betd^ that plain-
tifl was not to be treated as a purchaser of tjie coupons, and that the cou-
pons in question were not entitled to the benefit of the lien of the first-
mortgage bonds.
As against bondholders who haye presented their coupons for payment
and not for sale, and who had the right to assume that they were paid and
extinguished, a person who adyances the money to take them up under an
undisclosed agreement with the company, that the coupons should be de-
livered to him uncancelled as security for his adyances, is not entitled to
an equal priority in the lien, or the proceeds of the mortgage by which the
Goapons are secured.
Appeal from the circuit oonrt of Baltimore city.
The opinion states the case.
ArehAald Sierlmff, Jr.^ for appellant.
ITumuu W. Hall and Charles Marshall^ for appellees.
304 OAHEBON t). TOHB.
BoBiNSOK, J. — ^The franchises and property of the Peoplrfs
Passenger B. Oo. were sold nnder foreclosnre proceedings insti-
TAcn. tnted by the second-mortgage bondholders. The sale
was made subject to a first mortgage by the company to Jacob
Tome, trustee, to secure the payment of the principal and interest
of $100,000 coupon bonds; and John W. Hall became the pur-
chaser. Hall suDsecjuently conveyed the property to the People's
R. Co., a new and distinct corporation.
The appellant is the holder of certain interest coupons of the
first-mortgage bonds of the face value of $2745 ; ana these cou-
pons he claims arc entitled to the lien of the first mortgage upon
the property of the People's Passenger R. Co. The auditor and
master to whom the papers were referred to state an account was
upon the proof submitted to him of the opinion that the coupons
held by the appellant were not entitled to the lien of the first
moi*tgage ; and that they were acquired by the appellant under
such circumstances as to entitle him only to a claim against the
company for money loaned.
This appeal is taken from ^iprofoTKna decree ratifying the re-
port of the auditor and master. In support of the lien now claimed
oy him the appellant contends that tne coupons were purchased
by him from tiie first-mortgage bondholdei*8, and constitnte, there-
fore, a part of the mortgage debt. The appellees, on the other
hand contend that the coupons were presented by the holders thereof
at the company's office for payment in pursuance of a notice pub-
lished by tne company in the newspapers that they would, upon
such presentation, oe paid : that they were so paid by the proper
officer of the company, and were accordingljT delivired to h^
for retirement and cancellation, and not for assignment.
Is the appellant to be treated as a purchaser of the coupons in
controversy? We think not. His o^n admissions, the admia-
^^^^^^ sions of the company, and the proof before the auditor
A puBCHASEBOT aud mastcr are all against any such contention. Tome,
^ "^ the trustee in the first mortgage, in the cross-bill filed
by him, expressly charges that the company, being without means
to pay the interest coupons falling due January 1, 1883, its presi-
dent made an arrangement with tne appellant wherebv the latter
was to advance the money to William H. Patterson, the secretary
of the company, to take up said coupons, and which were to be
delivered to the appellant, to be held by him as his property until
the company should be able to raise the money to pay the same.
He further charges that, in pursuance of Ihis arrangement, an ad-
vertisement was published, signed by W. H. Patterson, as secre-
tary of the company, notifying the holders of the first-mortgage
bonds to present their coupons at the company's office for pay-
ment, and that certain bondholders, in ignorance of the arrange-
ment made with the appellant, presented and delivered their conpons
BONDS — COUPONS — LIEN. 205
to PatterBon, the secretary, as tbej supposed, for retirement and
cancellation, receiving from him the money therefor. The bill
then charged that the whole arrangement was bat a cloak to con-
ceal the lact of a default having been made and to avoid the
consequences thereof, and that it was in fi*aad of the rights of the
first-mortgage bondholders.
Tlie answer of the company to the cross-bill of Tome admits
the facts set forth in the bill, bnt denied that the arrangement
was frandnlent The answer of the appellant admits also the
facts stated, except that it denies all frand, combination, or im-
proper motive in respect to the coupons, and alleges ^^ that the
money which was paid by the officers of the defendant company
to the bondholders who delivered to them coupons due January
1, 1883, was the money of the said J. D. Cameron, advanced by
him to the company, and the said coupons are now held by him under
the arran^ment stated in the bill." In addition to tnese admis-
sions on the part of the company and the appellant himself, the
proof taken before the auditor and master shows beyond ques-
tion that the coupons were presented by the fii'st-mortgage bond-
holders at the company's o&ce for payment, and that they were
in fact paid by its secretary and were delivered to him for retire-
ment and cancellation. The Messrs. Hambleton, in presenting
$660 of these coupons, notified the secretary of the company that
they were presented for payment and cancellation by the company,
and not for sale, and that unless so paid by the company they
would not be surrendered. To this Patterson replied, ^^ I am the
secretary of the company, and advertised that I was paying the
coupons, which I am doing."
There is not a particle of proof to show that the holders of these
coupons ever sold or agreed to sell them to the appellant, or th^t
they were delivered to liim with their knowledge or assent. They
were due, and it was the duty of the company to pay them. They
constituted, so lopg as they remained unpaid, a part of the mort-
gage debt, and an accumulation of unpaid interest would neces-
sarily affect the value of the security neld by the first-mortgage
bondholders. They had, therefore, a direct interast in having
them paid and extinguished. The appellant advanced it is true
the money to pay them, but he was a large holder of the second-
mortgage bonds, and was anxious to avoid a default on the part of
the company, which might lead to a foreclosure and sale of the prop-
erty of tae company by the first-mortgage bondholders. Besides, the
agreement was one made between him and the company, and was
unknown to the holders of the coupons when they presented them
for payment. This being so, we take the law to be well settled,
that as against bondholders who presented their coupons for pay-
ment and not for sale, and who had the riglit to assume that they ^
were paid and extinguished, a person who advances the money to
206 OAMERON V. TOME.
take them ap nnder an undisclosed agreement with the company
that thecoapons should be delivered to him uncancelled as security
for his advances, is not entitled to an equal priority in the lien, or
the proceeds of the mortgage by whicn the coupons are secured.
Union Trust Co. v. Monticello'^A Port Jervis R. Co., 63 N. Y.
811 ; Haven v. Grand Junction K. Co., 109 Mass. 96 ; Ketchem v.
Duncan, 97 U. S. 662.
But admitting this be so, it is further contended that the pro-
R1.TIF1CATIONOF cccdings in this case show that the firat-mortgage bond-
BOMDHOLDww. Jioldcrs whosc conpons were taken up by the company
and the money advanced by the appellant have, for a good and
sufiicient consideration, ratified the transaction as a purchase, and
have agreed that he should hold them as unpaid conpons, with the
same priority as all other coupons under the first mortgage. This
contention is, we think, equally unfounded. From the filing of
the bill for foreclosure and sale by the second-moit^age bond-
holder, to the sale made by the trustees under the final decree of
the court, at each and every step of this protracted litigation, the
lien now claimed by the appellant has been resisted and denied by
the fii*st-mortgage bondhoiae]*s. Prior to the passing of the final
decree, the papers were referred to Daniel M. Thomas, Esq., audi-
tor and master, to state an account of all the liens and incum-
brances i*esting upon the property. In stating this account the
auditor and master says, ^'the coupons for $2745 falling due Jan-
uary 1, 1883, and held by J. D. Cameron have not been treated as
entitled to the lien of the fii*8t mortgage of the company, because
the evidence shows they were paid and held by the said Cameron
under circumstances wnich only entitled him to a claim against
the company for money loaned."
This report was ratified by the court except that portion of it
relating to the lien of the coupons held by the appellant, which
coupow AS A question was reserved for further consideration, arfd
""'• tne trustees were then directed to s§ll the franchises
and property of the company, subject to the first mortgage made
to Tome, trustee, to secure the payment of the principal and inter-
est of the $100,000 coupon bondjs. And when the property was
offered for sale under this decree, the trustees stated that in accord-
ance with the liens of the decree, reserving the question of Cam-
eron's coupons for future determination, the purchaser would have
the right to contest the lien of said coupons. There is nothing
certainly to be found in these proceedings from whidi it can be
inferred that the bondholders acknowledged these coupons to be
a lien on the property. Nor is there anything to be found in the
agreement between the appellant and the trustees under the first
and second mortgage, it is mei-ely an agreement between all
parties, that the lien claimed by Cameron shall be considered
and determined by the court, unaffected in any manner by the
BONDS— COUPONS — LIEN. 307
charge of combination and fraud alleged in the cross-bill filed by
Tome. In other words, it was a withdrawal of the charge of fraud
thus made. The deed from the trustees to Hall, the purchaser,
conveys the property and franchises of the company, subject to
the first mortgage, to Tome, " to the amount of $100,000, for the
principal of said mortgage, and of $3000, of interest thereon due on
the first day of January, 1883, and of a like amount of intei'est due
on the first day of July, 1883." And so does the deed from Hall
to the People's R. Co. But these deeds convey in precise terms
the property as decreed by the court, totidem verbis^ and by the
decree tne question as to the appellant's lieu was expressly reserved
for the further consideration of the court. So taking the deeds
and decree together there is nothing to justify the inference that
the parties thereto admitted the $2745 interest coupons of January
1, 1888, now held by the appellant, were entitled to the lien of the
first mortgage. In any aspect in which the case may be consid-
ered we are of opinion that these coupons are not a lien protected
by the first mortgage.
Decree afiirmed.
Coupons presented for Payment and taken up by One who advanced
Money. — Coupons which the bondholders had presented for payment, and
which they had reason to suppose were paid by the company, are not enti-
tled to share in the proceeds of a sale as against such bondholders, although
they were in fact taken up by one who advanced the money under an agree-
ment that they were to be delivered to him uncancelled as security for the
advances. Jones on Railroad Securities, §§ 829, 880, 881 ; Union Tru9t Co.
of New York «. Monticello, etc., R. Co., 68 N. T. 311 ; Virginia v, Chesa-
peake & Ohio Canal Co., 82 Md. 501.
In Haven «. Grand Junction R. Co.,. 109 Mass. 88, such a course was adopt-
ed ; and the belief thereby created, that the company was able to pay, and
did pay, the coupons at maturity was held and acted on by another corpo-
ration in subsequent purchases of the bonds from individual holders of them;
but these purchases were made at or below the par value of the bonds and
accrued interest, and were not made till between eiffht and nine years after-
wards, and then with a view to acquire title to lands which constituted the
mortgaged security, and which this corporation had voted to buy. Heldy
that after a judicial sale of the lands, upon foreclosure of the mortgage
the person who advanced the money was not estopped to maintain a claim
for the amount of the coupons paid by him, with interest from the date of
payment^ against a surplus of the proceeds of the sale remaining after full
satisfaction of the claims of all the other creditors.
There is, however, no presumption that the coupons have been paid and
cancelled, when the transaction on its face is a transfer r&ther than a payment.
In Ketchem ^f. Duncan, 96 U. S. 659, it was held that a corporation which
had previously paid its coupons at its own office directed the holders to
take the coupons to a iMink where they would receive payment, and the holders
there received the amounts due on the coupons and left them in posses-
sion of the bank, they might properly presume that the company was not
paying the coupons. That inasmuch as the holders of the coupons received
from the corporation no checks upon the bank, they must have known that
the bank had no vouchers for its payments unless the coupons continued in
force after the bank received them; and hence it is regarded as a fair pre-
208 LITTLEFIELD V. BLOXHAM et ol.
sumption, that when they delivered the possession they assented to a trans-
fer of ownership. Mr. Justice Strong, in delivering the opinion of the court,
said: ^* It is within common knowledge that interest coupons, alike those
that are not dne and those that are due, are passed from hand to hand,
the receiver paying the amount they call for without any intention on
on his part to extmguish them, and without any belief in the other party,
that they are extinguished by the transaction. In such a case the holder
intends to transfer his title, not to extinguish the debt. In multitudes
of cases, coupons are transferred by persons who are not the owners of
the bonds from which they have been detached. To hold that in all these
cases the coupons are paid and extinguished, and not transferred or
assigned, unless there was something more to show an assent of the person
partms with the possession that they should remain alive and be available
in the nands of the person to whom they were delivered, would, we think,
be inconsistent with the common understanding of business men.'*
LiiTLEFiBLD V, Bloxham et ol.j TmBtees.
Heed v. Same.
f (Advance Case, U, 8. Supreme Oaurt, March 29, 1886.)
The trustees of the internal-improvement fund of the State of Florida hav-
ing sold certain railroads for the purpose of taking up a State indebted-
ness with the purchase money, and such purchase money not being there-
after paid, any of the bonds of the State sought to be canceled as remain in
the hands of the purchasers are under the control of the trustees rather than
the holders.
Appeals from the Circuit Court of the United States for the
Northern District of Florida.
II, Bisbee for Littlefield.
J. Aug, Johnson for Heed.
Wayne Mac Veagh for Bloxham and others.
WaftEj C. J. — These appeals relate to the ownership of $103,000
in amount of certain bonds of the Pensacola & Georgia R. Co.
and the Tallahassee R. Co. For convenience they will oe herein-
after referred to as " one hundred and three bonds." Many of the
matters involved were under consideration by this court in Florida
V, Anderson, 91 U. S. 667, and Railroad Companies i;. 8chutte,103
XT. S. 118, to which reference is made for a general history of the
transactions out of which the present controversy arose.
The facts on which the rights of these parties depend we find tb
be as follows : The railroads of the two companies above named
were sold by the trustees of the'intemal-improvement fund of the
Facts. State of Florida, on the twentieth of if arch, 1869, under the
provisions of the internal-improvement act of Florida, passed Jan-
uary 6, 1855, to pay certain bonds, of which those now in dispute
SALE OF BOAD— 8TATB BONDS. 209
are a part. A statement of the provisions of this act will be found
in the report of the case of Florida v. Anderson, beginning at page
670. A conveyance of the railroads to the purchasers at the sales
was obtained, to use the language of the counsel for the appellant
in lattlefield's Case, "through a well-planned and cleverly-exe-
cuted fraud," without the payment of aoout $472,000 of the pur-
chase money. This sum represented an equal amount of bonds
outstanding, which included the 103 now in question. A history
of the facts connected with this transaction will be found in the
report of Railroad Companies v, Schutte, beginning at page 121.
George W. Swepson was under obligations to pay what remained
due on the purcliase money, or, which is the same thing, to get up
and surrenoer to the trustees of the internal- improvement fund
the outstanding bonds for cancellation.
On the twenty-fourth day of June, 1869, an act was passed by
the general assembly of Florida, by which George W. Swepson,
Milton & Littlefield, and their associates, were incerporated under
the name of the Jacksonville, Pensacola & Mobile B. Co. The
important provisions of the chaiter of this company will be found
in the report of the Schutte Case at page 123, and following. Af-
terwards the title to the two railroads which had been purchased
was transferred to the corporation thu& created. On or before the
tenth of November, 1869, Milton S. Littlefield succeeded to all
the rights of Geoi^e W. Swepson in the premises, and became
bound to take up and surrender the outstanding bonds, or pay the
balance due on tne purchase money in cash.
On the second day of August, 1869, drafts were drawn by
George W. Swepson on and accepted by Milton S. Littlefield, in
favor of Edward Houston, for $109,140. These drafts grew out
of transactions between the parties relative to the Jacksonville,
Peusacola & Mobile K. Co. and the Florida Central B. Co., and
in some way Houston held 110 of the bonds of the Peusacola &
Georgia R. Co. and Tallahassee B. Co. as collateral security.
These bonds were part of those outstanding which Swepson was
bound to take up and surrender, and they included the 103 now
involved. The drafts were likewise among the obligations which
Littlefield assumed to pay when, in November following, he took
Swepson's place in these transactions.
On the thirteenth of May, 1870, Littlefield entered into aeon-
tract with Houston, by which he bought the drafts above men-
tioned, and certain shares of the stock of the Florida Central B.
Co., and gave his draft for $163,020.70 on S. W. Hopkins & Co.,
the financial agents of the Jacksonville, Peusacola & Mobile Co.,
therefor. Under this contract Houston was to hold the 110 bonds
as collateral for the draft then given, and to deliver them to Lit-
tlefield when this draft was paid. Various other contracts were
afterwards made between Littlefield and Houston which looked to
24 A. & £. R. Cas.— 14
210 LITTLEFIELD V. BLOZHAK et ol.
a payment of a draft through the securities of the Florida Central
R. Co., but no payment was in fact made before June 8, 1870,
when Littlefield, as president of the Jacksonville, Pensacola &
Mobile Co., was in negotiation with Harrison Keed, governor of
Florida, for an exchange of the bonds of the company for those of
the State, under the provisions of the charter. In the progress of
these negotiations it was found that the unpaid purchase money
stood in the way of the exchange, and thereupon Littlefield, still
acting as president of the company, addressed a letter to the gov-
ernor, w]io was also ex officio one of the trustees of the internal
improvement fund, a copy of which is as follows :
^^ Tallahassee, Fla., June 8, 1870.
" Hon. Harrison Reedy Gov. State of Florida — Sib : I have the
honpr to state that in addition to the bonds of the Pensacola &
Gleorgia and Tallahassee railroad companies already deposited with
the board of trustees of the internal-improvement fund, I. have at
the railroad office $41,350.
Bro'tover, - ....... $41,350
And have secured, . • • . • $110,000
**".-•.- 70,000
«« " 15,000
195,000
$286, aso
Total outstanding, ••«... |227,d50
^^ Bespectf uUy, M. S. LrrrLEFiBLD,
« Pres't J., P. & M. R. Co."
The $110,000 bonds here referred fo were those held under the
contracts between Littlefield and Houston. After this letter Lit-
tlefield delivered to the governor a draft, of which the following
is a copy :
" $227,250. Tallahassee, June 8, 1870.
" On demand, when in funds, pay to the order of his excellency,
HaiTison Heed, Gov., two hundred and twenty-seven thousand
two hundred and fifty dollars, value received, and charge the same
to account of
"M. S. LrrxLEFiELD,
" Pres't J., P. & M. R Co.
« To Messrs. 8. W. Hophim <b Co., 71 Broadnjoay, JT.Y.''
This draft was never paid, but on its delivery the exchange of
bonds of the State for those of the company was made by the gov*
emorj acting for the State, and by Littleneld, acting for the rail-
J
SALE OF BOAD— STATE BONDS. 211
road company. Ont of this exchange the Baits of Florida v. An-
derson and Kailroad Companies v. Schutte arose, as well as mnch
other litigation in the conrts of the State and of the United States.
After tlie delivery of the State bonds to Littlefield the draft of
$168,020.70 held by Houston was paid by Hopkins & Co. out of
the proceeds of the sale of these bonds, or upon their security, and
on tne twelfth of April, 1871, an agreement was made between
Houston and S. W. Hopkins & Co., the drawees, by which the 103
bonds in question were deposited with Mariano D. Papy, to be
held by him, and not delivered to any person unless directed to do
so by M. S. Littlefield and S. W. Hopkins & Co., jointly, or unless
directed to be delivered to Littlefield by Hopkins & Co., or to
Hopkins & Co. by Littlefield. It was also further agreed that
there should be no delivery to Littlefield until certain suits which
had been begun against Houston, and which were particularly de-
scribed, had been dismissed. On the fourteenth of June, 1872,
Papy was directed by Hopkins to deliver the bonds to Littlefield
on the dismissal of the suits. It was stipulated at the hearing of
the {^resent case below that these suits had then been dismissed,
but at what precise time does not appear.
On the seventeenth of July, 1872, Edward C. Anderson, Jr.,
and others, holders of some of the $472,000 of unpaid bonds, be-
gan a suit in the circuit court of the United States for the north-
em district of Florida, for themselves and all other holders of like
bonds who might choose to become parties plaintiff, on the usual
terms, against the Jacksonville, Pcnsacola & Mobile B. Co. and
others, including Milton S. Littlefield and the trustees of the in-
ternal-improvement fund, to subject the railroad of the railroad
company, defendant, to the payment of their bonds. On the same
day the 103 bonds in the hands of Papy were by him delivered,
under an order of the superior court of Chatham coun^, Geor^a,
to ^^ T. Mayhew Cunningnam, cashier of the Central Kailroaa &
Banking Co. of Gleor^a, to be by him deposited in the vault
of the said bank, and there to be safely kept subject to the further
order of the court." Afterwards, in April, 1873, they were de-
Soeited by Cunningham with the circuit court of the United
tates for the northern district of Florida, subject to the orders
of that court in the Anderson suit, where they have ever since
remained.
On the eighteenth of June, 1875, the following order in refer-
ence to these bonds was entered in the Anderson suit: ^'It is
further ordered that the said master shall give immediate notice
through the public gazettes heretofore used by him for such pur-
pose to all parties who may claim an interest, direct or iMdirect, in
the bonds which have been deposited with him by T. Mayhew
Ciinningham, trustee ; that he hold said bonds in his custody sub-
ject to the final order of this court; that the said bonds are
213 LITTLEFIELD V. BLOZHAM et oL
claimed by the trastees of the internal-improvement fund as hav-
ing been parohased from Edward Houston by the Jacksonville,
Pensacola & Mobile K. Co., under agreement with said trustees^
for the purpose of cancellation ; that upon petition filed with him
the said master, and ten days' notice to the said trustees, and at
any time before the first day of the next term of the court, he will
take testimony touching the claim or interest or title of any such
petitioner upon or to the said bonds, or any part thereof ; and that
unless petition be filed in accordance with this order, all right, title,
and interest of any such person to or in the said bonds would be
forever adjudged to be bai'red." The notice required by this order
was duly given, and on the thirteenth of July, 1876, the trustees
of the internal improvement fund filed their petition in the mas-
ter's oflSce, asking that the bonds be delivered to them, claiming
title under the transaction between Littlefield and the governor on
the eighth of June, 1870, at the time of the exchange of bonds, and
also under a decree of the circuit court of Duval county, Florida, on
the twentieth of August, 1875, in a suit brought by them on the
twentieth of Marcli, 1872, ag^ainst the' Jacksonville, Pensacola &
Mobile E. Co., Milton S. Littlefield, and others, in which their
right to the bonds under their claim was fully established as
against all the parties to that suit. Calvin Littlefield was, however^
not a party.
On the eighteenth of March, 1872, John H. Miller be^n a suit
against Milton S. Littlefield in the circuit court of Duval county,
Florida, to recover a debt of $50,000. In this suit a judgment
was rendered April 18, 1872, for $50,708, and on the fifteenth of
November, 1872, Miller filed a creditors' bill in the circuit court
of the United States for the northern district of Florida to sub-
ject the 103 bonds to the payment of the judgment as the prop-
erty of Milton S. Littlefield. Under this bill a decree was ren-
dered December 2, 1878, directing a sale of the bonds for that
purpose. Afterwards, on the fifth of August, 1875, the bonda
were sold to Robert J. Washington, whereupon he appeared in
the Anderson suit, and asked leave to defend nis interest and title.
Washington afterwards, on the twenty-second of December, 1881,
assignee his interest in the bonds to Edward J. Reed.
On the twenty-third of May, 1877, J. Fred. Schutte and others,
holders of State bonds given in exchange for the bonds of the
Jacksonville, Pensacola & Mobile R. Co., brought a suit in the
circuit court of the United States for the northern district of
Florida for the foreclosure of the statutory lien of the State as
security for the bonds of the railroad company given in exchange
for those of the State. In the bill it was claimed, among other
things, that this lien of the State was superior to that of the
trustees of the internal-improvement fund for the balance of the
original purchase money, and as to the 103 bonds the following
«
8ALK OF BOAD — STATE BONDS. 213
averment was made: ^^Complainants are informed and believe
that said defendant, Milton S. Littleiield, made some agreement with
said George W. Swepson to perform the obligations wiich the latter
undertook with said trustees to do, vk., to purchase said nnpaid
Pensacola & Georgia and Tallahassee railroad companies' bonds ;
that said Littlefiela did in fact purchase of said Edward Houston one
hundred and three of said bonds in performance of such contract,
which bonds are now deposited in the registry of this court to the
credit of a cause therein pending, in which Edward C. Anderson
et oL, are plaintiffs, and the Jacksonville, Pensacola & Mobile Co.
et aZ. are defendants; that said bonds are claimed bj divers
Eei*8ons under some contract with said Littlefield, which persons
ad full knowledge that said bonds wei-e paid for out of the
mone}- for which the bonds issued by Governor Heed to the said
Jacksonville, Pensacola & Mobile Co. were sold as before set
forth. Said one hundred and three bonds have never been in the
actnal possession of said Littlefield. Complainants are advised
that they should be delivered to said trustees of the internal-im-
provement fund, and they should take such proceedings as may be
necessary to procure the same to be done."
On the thirty-first of May, 1879, a decree was entered in the
cause declaring that the trustees of the internal-improvement fund
had a first lien on the property of the Jacksonville, Pensacola &
Mobile Co., ^^to secure the payment to said trustees of the
sum of $463,175.27, and interest thereon since March 20, 1869, at
the rate of eight per cent per annum," and directing a sale for the
benefit of the Schutte bondholders, subject to this prior lien.
This prior Hen was on account of the unpaid purchase money at
the original sale, and the amount found due included the 103
bonds ; but there was no express adjudication as to the ownership
of these bonds, or as to the right of the railroad company or of
the Schutte bondholdera to have them applied towaras tlie satis-
faction of the debt to the trustees. From this decree the Schutte
bondholders did not appeal, bift on appeals by some of the other
parties to the suit the decree was affirmed by this court January
17, 1881, (Railroad Companies v. Schutte), and under its authority
the road was afterwards sold.
On the fourteenth of February, 1882, Calvin Littlefield filed in
the Andei*son suit a petition to have the 103 bonds delivered to
him, and in his petition he stated that the trustees of the internal-
improvement fund and Edward J. Reed also claimed an inter-
est. As to his own title, he stated that on the thirteenth of July,
1871, Milton S. Littlefield assigned the bonds ^' in possession and
control of M. D« Papy" to him as security for the payment of a
debt of $50,000, and that on the eleventh of January, 1872, this
assignment was made absolute, }' that the expenses of a fordosnre
may be avoided."
. 214 LITTLEFIELD V. BLOXHAM et ol.
The evidence shows that while the snit of Miller v, Littlefield^
above referred to, was pending, and nnder which the bonds were
sold to Washington, these title papers of Calvin Littlefield were
sent by him to J. J. Finlay, an attorney at law at Jacksonville,
Florida, for some purpose, and that nnder date of December 24,
1873, Finlay wrote a letter to Littlefield which contained the fol-
lowing : '^ As General Littlefield had not yet been examined be-
fore the master in chancery in the matter of the creditors' bill,
about which I wrote you in my last, the agreement above men>
tioned reached me in time to enable him to answer more fully and
satisfactorily as to the ownership of the stocks and bonds mentioned
in said agreement. He will answer that these securities belong
to you and not to him. I am of the opinion that you are the hofUh
fide owner of these securities under and by virtue of said agree-
ment, and that any decree made in the case of Miller v. M. S. Lit-
tlefield is not binding on you, for the reason that vou were not^
and are not, a party to said suit. For the present, therefore, I do
not see that it is necessary to take any step, or incur the expense
of any independent proceeding in the matter. As things pro-
gress, however, if it should become important for the protection
of your interests to institute proceedings, it can be done."
it does not appear that Ualvin Littlefield gave any notice of
this assignme'ht to Papy while the bonds were in his hands, or to
any one else claiming an adverse interest prior to the filing of
his petition. Edward J. Reed answered the petition, setting up
his title as the assignee of Washington, and asking that the bonds
be delivered to him. The trustees of the internal-improvement
fund also answered, setting up their title, and asking that the
bonds be surrendered to them, and credited on the decree in the
Schutte Case, ^^ as of and for the amount due on said bonds, prin-
cipal and interest, on the twelfth of April, 1871."
The circuit court, on the twenty-third of June, 1882, decreed
that the bonds be surrendered to the trustees of the internal-im-
provement fund, and applied in accordance with the prayer of
their answer. From this decree Calvin Littlefield and Edward J.
Heed took appeals, which have been docketed here as separate
> causes.
Upon the facts found, and about which there is substantially no
dispute, we have no hesitation in affirming the action of the cir-
cuit court. Although the contracts under which the bonds passed
from the hands of Houston to Papy, and from Papy to the cir-
cuit court, in the Anderson suit, were in the name of Milton S.
BONDS HELD FOB Littleficld, all pavmcnts for the bonds after June 8,
IRU8TBM. 1870, were made from the funds of the Jacksonville,
Pensacola & Mobile Co. What was done by Littlefield at the
time of the exchange of bonds with the governor had the effect
of transferring the 103 bonds to the trustees of the internal im-
SALS OF BOAD— STATE BOITDS* 216
Jrovement fund, subject to the lien of Honston as sectirity for his
raft of $163,020.70. When that draft was paid and the lien
satisfied, the equitable title of the trustees was perfected, and
thereafter the bonds were held by Papy, and his successors in
possession, for them. It follows that at tne time Littlefield under-
took to transfer the bonds to Calvin Littlefield he had nothing to
transfer. All his interest had long before been passed to the trus-
tees. Neither does Calvin Littlefield occupy the position of a
purchaser without notice of the prior claim of the trustees, be-
cause when he took his title the bonds were in the possession of
Papy, who was in legal eflEect trustee for whom it might concern.
The same is true of tne claim under which Edward J. Keed holds.
When the bill was filed by Miller to subject the bonds to the pay-
ment of his judgment against Littlefield, they belonged to the
trustees, and not to Littlefield, and consequently nothing passed by
the sale in that suit.
It is contended, however, that as the trustees ^^ insisted in the
Schutte Case on a lien for the full amount of the unpaid purchase
money which was decreed to them, and that the 103 bonds were
outstanding," they ^^ are estopped now from claiming that these
103 bonds should be delivered to them and cancelled,
and a credit given therefor on such decree." This, it mi m^n^
is claimed, amounted to an abandonment by the trustees ™^
of their title to the bonds under the arrangement between Little-
field and the governor, which inured to the benefit of Milton S.
Littlefield or his assigns. To this we cannot agree. No issue
was made in that suit as to the actual ownership of the bonds.
The trustees of the improvement fund did not claim that they
were not entitled to the bonds, nor that the amount due on them
should not be credited on the account for unpaid purchase money
if their title should be established, but that until it was established
no such credit should be given. Neither did the Schutte bond-
holders claim that the credit should be given at once, but that
the necessary proceedings be had to establish the title and thus
secure the application. When the decree was rendered the title had
not been settled, and so no credit was then allowed ; but nothing
was done to prevent the trustees from making good their clain^
then pending in the Anderson suit, and, if successful, from giving
the proper credit on the decree. That is what they are seeking to
do here. Having presented their petition for a delivery of the
bonds, they were met by the counter-petitions of Calvin Littlefield
and Seed, and thus the rights of all the parties have been pre-
sented for final adjudication. The question involved is not one
of security, but of title. The bonds are held by the court
for whom it may concern, and the point to be settled is, to
whom shall they be delivered 2 Aside from the claim of aban-
donment put forth by Calvin Littlefield, they belong, as we have
316 LITTLEFIELD V. BLOXHAM el ol.
seen, to the trnstees of the improvement fund, as Milton S. Little-
field, the common soarce of title, fii'st conveyed to them. It is con-
ceded that the trnstees have never actually reconveyed to Milton S.
Littlefield ; neither have they executed any formal conveyance or
release to Calvin Littlefield. All they have done is to take a de-
cree in their favor for what would be due them if their title should
fail; and this, while a suit was pending to establish that title.
Other parties were foreclosing a mortgage junior to theirs, and it
became necessary to- fix the amount ox their prior lien. This the
other parties were willing should be done before their disputed
title was settled, and so, to save themselves from loss in case of de-
feat, they took a decree for what would be their due in that event.
To that the junior mortgagees did not object. Their effort had
been to defeat the prior lien altogether. Having failed in that,
they were willing to submit to a decree for the lai^r amount
leaving the disputed question as to the 103 bonds to be settled
af terwai'ds in the proceeding that had been begun for that purpose,
or any other that might be instituted. This was not an abandon-
ment by either party. The decree was silent as to these bonds,
and the petition for their deliveiy to the trustees on file in the
Anderson suit, where the bonds were, was allowed to remain. It
is now being prosecuted by the trustees as a mode of obtaining sat-
isfaction of tne decree in their favor. If they succeed, it may
inure to the benefit of the purchasers at the sale under the Schntte
decree, but of this Calvin Littlefield has no right to complain. If
he did not own the bonds, it is a matter of no importance to hiuDi
what disposition the trustees may make of them. All his rights
depend alone on his ownership. If he is not the owner, he is
entirely out of all the litigation between the rest of the parties.
ITeither the railroad company nor the Schntte bondholders, who are
alone interested in the amount for which the sale was made,
are here to complain. The trustees alone can control the bonds.
Having protected all who had the right to look to the oriraial un-
paid purchase money for the satisfaction of their bonds, they have
performed their whole duty as trnstees, so far as the bondholders
are concerned.
The decree of the drcnit court is aflirmed.
«•
STATB AID— BONDS— LIEN. 217
Stevens
V.
Bailboad Companies.
(114 United Statet Beportt, 664.)
The statutory lien with which the State of Tennessee was inyested upon
the issue of its bonds to railroad companies under the internal-improvement
act of February 11, 1852, and the several acts amendatory thereof, bound the
property of the company, to which the issue was made, for the payment of
the bonds so issued, and the interest thereon, not to the several holders
thereof, but only to the State.
Appeals from the circuit courts of the United States for the
£a6tem, Middle, and Western Districts of Tennessee.
George Hoadlvy Wager Stoayne^ E, Z. Andrews^ J. C, F.
Oayner^ E, M. uohnsouy and Edward Colston for appellants.
V. F, Southmayd^ Ed. Baxter^ Wm. M, Ra/msey^ E. H, East^
P. Hamilton^ John A. Campbell^ Wm, 3f. Baxter^ Z. TFl HumeSy
D. H. Boston^ W. K. Poston^ «/• B. HeiskeU^ Oeo. BrowiVy and
James Fen^ess for appellees.
Watte, C. J. — These are suits brought by the holders of unpaid
bonds of the State of Tennessee, issued to various railroad com-
panies under the act of February 11, 1852, ^^ to establish a system
of internal improvements," to enforce the lien which faotb.
was vested . in the State by that act on the property of the com-
panies respectively as security for the payment of the bonds, and
the accruing interest thereon. The sections of the act on which
the rights of the parties depend are 1, 2, 3, 4, 5, 6, 7, 10, 12, 13,
and 14. These are as follows :
^ Section 1. Be it enacted by the general assemUy of the State
of Tennessee that whenever the East Tennessee & Virginia B. Co.
shall have procured hona-Jide subscriptions for the capital stock in
said company to an amount sufficient to grade, bridge, and prepare
for the iron rails the whole extent of the main trunk line proposed
to be constrncted by said company, and it shall be shown by said
company to the governor of tne State that said subscriptions are
gooa and solvent, and whenever said company shall have graded,
rid^d, and shall have ready to put down the necessary timbers
for tne reception of rails, and fully prepared a section of thirty
miles of said road at either terminus, in a good and substantial
manner, with good materials, for putting on the iron rails and
equipments, and the governor shall be notified of these facts, and
that section, or any part thereof, is not subject to any lien what-
ever, other than those created in favor of the State by the acts of
318 STBVEKS V. RAILROAD COMPANIES.
1851-52, by the written affidavit of the chief en^neers and
president oi said company, together with the written smdavit of a
competent engineer by him appointed, at the cost of the company,
to examine said section, then said governor shall issue to said com-
pany coupon bonds of the State of Tennessee, to an amount not
exceeding eight thousand dollars per mile on said section, and on
no other condition, which bonds snail be payable at such place in
the United States as the president of the company may designate,
bearing an interest of six per centum per annum, payable eemi-
annually, and not hating more than forty nor less than thirty years
to mature.
'' Sec. 2. Be it enacted, that the bonds before specified shall not
be used by said company for any other purpose than for procuring
the iron rails, chairs, spiKCS, and equipments for said section of said
road, and for putting down said iron rails, and the governor shall
not issue the same unless upon the affidavit of said president, and
a resolution of a majority of the board of directors, for the time
being, that said bonds shall not be used for any other purpose than
for procuring the said iron rails, chairs, spikes, and equipments for
said section, and for putting down said iron rails ; and the governor
shall have power to appoint a commissioner to act, under oath, in
conjunction with said president, in negotiating said bonds for the
purposes aforesaid, ana to act in any other matters pertaining to
said company where the interest of the State, in the opinion of the
governor, may require it.
^^ Sec. 8. Be it enacted, that so soon as the bonds of the State
shall have been issued for the first section of the road as aforesaid,
thev shall constitute a lien upon said section so prepared as afore-
said, including the road-bed, right of way, grading, bridges, and
masonry, upon all the stock subscribed for in said company, and
upon said iron rails, chairs, spikes, and equipments when purchased
and delivered ; and the State of Tennessee, upon the issuance of
said bonds, and by virtue of the same, shall be invested with said
lien or mortgage without a deed from the company for the payment
by said company of said bonds, with the interest thereon as tlie
same becomes due.
" Sec. 4. Be it enacted, that when said company shall have pre-
pared, as aforesaid, a second section, or any aaditional number of
sections, of twenty miles each of said road, connecting with a sec-
tion already completed for the iron raits, chairs, spikes, and equip-
ments, as provided in the first section of this act, and the governor
shall be notified of the facts, as before provided, he shall, in like
manner, issue to said company like bonds of the State of Tennessee,
to an equal amount with that before issued under the first section
of the act, for each and every section of twenty miles of said road
so prepared, as aforesaid, but upon the terms and conditions here-
inbefore provided : and upon the issuance of the said bonds the
STATE AID— BONDS — LIEN. 219
State of Tennessee shall be invested with a like mortgage or lien,
without a deed from said company, upon said stock, and upon said
first and additional section or sections of said road so prepared, upon
the rails and equipments pat, or to be |>ut, upon the same, for the
payment of said bonds ana the accruing interest thereon : provided,
that if the last section of said road shall be less than twenty miles,
or if the railroad proposed to be constructed by any company here-
inafter specified shall be less than thirty miles in extent, bonds of
the State shall be issued for such section, or such railroad, as may
be less than thirty miles in extent for an amount in proportion to
the distance, as provided in this act, but upon the same terms and
conditions, in all respects, as required in regard to the bonds to be
issued for the other sections of said road. And when the whole of
said road shall be completed, the State of Tennessee shall be in-
vested with a lien, without a deed from the company, upon the
eutii-e road, including the stock, right of way, grading, bridging,
masonry, iron rails, spikes, chairs, and the whole superstrncture and
equipments, and all the property owned by the company as inci-
dent to or necessary for its business, and all depots and depot star
tions, for the payment of all of said bonds issued to the company
as provided in this act, and for the interest accruing on said bonds.
And after the governor shall have issued bonds for the first section
of the road, it shall not be lawful for the said company to give,
create, or convey to any person or persons, or body corporate what-
ever, anv lien, incumbrance, or mortgage of any kind, which shall
have priority over, or come in conflict with, the lien of the State
herein secured ; and any such lien, incumbrance, or mortgage shall
be null and void as against said lien or mortgage of the State, which
shall have priority over all other claims existing or to exist against
said company.
^^ Sec. 5. ne it enacted, that it shall be the dutv of said company
to deposit in the bank of Tennessee, at Nashville, at least fifteen
days before the interest becomes due, from time to time, upon said
bonds issued as aforesaid, an amount sufficient to pay such interest,
including exchange or necessary commissions, or satisfactory evi-
dence that said interest has been paid or provided for ; and if said
company fail to deposit said interest as aforesaid, or furnish the
evidence aforesaid, it shall be the duty of the comptroller to report
that fact to the governor, and the governor shall immediately ap-
point some suitable person or pei'sons, at the expense of the com-
pany, to take po^ession and control of said railroad, and all the
assets thereof, and manage the same and receive the rents, issues,
profits, and dividends thereof, whose duty it shall be to give bond
and security to the State of Tennessee, in such penalty as the gov-
ernor may require, for the faithful discharge of his or their duty
as receiver or receivers, to receive said rents, issues, profits, and
dividends, and pay over the same, under the direction of the gov-
220 STEVENS V. RAILROAD COMPANIES.
ernor, towards the liquidation of ench unpaid interest And if said
company fail or refuse to deliver np said road to the person or per-
sons so appointed by the governor, the person so appointed snail
report that fact to the governor, who shall forthwith issue his war-
rant, directed to the sheriffs of the counties through which the road
shall run, commanding them to take possession of said road, fix-
tures, and equipments, and everything pertaining thereto, and place
the said receiver in full and complete possession of the same, and
said receiver so appointed shall continue in the possession of said
road, fixtures, ana equipments, and run the same, and manage the
entire road, until a sufficient sum shall be realized, exclusive of the
costs and expenses incident to said proceedings, to pay off and dis-
charge the interest as foresaid due on said bonds, which being
done, the receiver shall surrender said road and fixtures and equip-
ments to said company. The comptroller shall from time to time
settle the accounts with the receiver, and the balance shall be de«
posited in the treasury of the State. The comptroller is authorized,
and it is made his duty, upon his warrant to draw from the treasury
any sum of money necessary to meet the interest on such bonds as
may not be provided for bv the company, as provided for in this
act, and the comptroller shall report thereof to the general assembly
from time to time.
^^ Sec. 6. Be it enacted, that if said company shall fail or refuse
to pay any of said bonds when they fall due, it shall be the doty
of the governor to notify the attorney-general of the district in
which is situated the place of business of said company of the fact ;
and thereupon said attorney-general shall forihwitn file a bill
against said company, in the name of the State of Tennessee, in
tlie chancery or circuit court of the county in which is situated said
place of business, setting forth the facts, and thereupon said court
shall make all such orders and decrees in said oause as may be
deemed necessary by the court to secure the payment of said bonds,
with the interest thereon, and to indemnify the State of Tennessee
against any loss on account of the issuance of said bonds, by order-
ing the said railroad to be placed in the hands of a receiver, order-
ing the sale of said road and all the property and assets attached
thereto or belonging to said .company, or in such other manner as
the court may deem best for the interest of the State.
^^ Sec. 7. fie it enacted, that at the end of five years after the
completion of said road, said company shall set apart one per
centum per annum upon the amount of bonds issued to the com-
patiy, and shall use the same in the purchase of bonds of the State
of Tennessee, which bonds the company shall pay into the treasury
of the State, after assigning them to the governoi^, and for which
the governor shall give said company a receipt ; and, as between
the State and said company, the oonds so paid in shall be a credit
on the bonds issued to the company ; and bonds so paid in, and
STATE AID — BONDS — LIEN. 221
the interest accruing thereon from time to time, shall be held and
need by the State as a sinking fund for the payment of the bonds
jssned to the company; and snould said company repnrchase any
of the bonds issued to it under the provisions of this act, they
shall be a credit as aforesaid, and cancelled. And ehonld said
company fail to comply with the provisions of this section, it
shall be proceeded against, as provided in the fifth section of this
act."
^^ Sec. 10. Be it enacted, that the provisions of this act shall ex-
tend to and embrace the Chattanooga, Harrison, Georgetown &
Gharlestown R. Co., the Nashville & ITorthwestern R. Co., the
Louisville & Nashville R. Co., the Southwestern R, Co., the Mc-
Minnville & Manchester R. Co., the Memphis & Charleston R.
Co., the Nashville & Southern R. Co., the Mobile & Ohio R. Co.,
the Nashville & Memphis R. Co., the Nashville & Cincinnati R.
Co., the East Tennessee & Georgia R. Co., the Memphis, Clarks-
ville & Louisville R. Co., and the Winchester & Alabama R.
Co., so far as the main trunk roads to be constructed by said
companies lie within the limits of this State, and not otherwise, and
said companies shall have all the powers and privileges *and be
subject to all the restrictions and liabilities contained in this act.''
^^Sec. 12. Be. it enacted, that the State of Tennessee expressly
reserves the right to enact by the legislatui'e thereof, hereaiter, all
fiuch laws as may be deemed necessary to protect the interest of
the State, and to secure the State against any loss in consequence
of the issuance of bonds under the provisions of this act ; but in
fiUCh manner as not to impair the vested rights of the stockliolders
of the companies.
^^ Sec. 13. Be it enacted, that it shall be the duty of the gov-
ernor, from time to time, when there shall be reliable information
given to him that any railroad company shall have fraudulently
obtained the issuance of bonds of this State, or shall have obtained
any of said bonds contrary to the provisions of this act, he shall
notify the attorney-general of this State, whose duty it shall be
forthwith to institute, in the name of the State, a suit m the circuit
or chancery court of the county of the place of business of the
company, setting foith the facts; and when the fact shall satisfac-
torily appear to the court that any of said bonds shall have been
fraudulently obtained, or obtained contrary to the true intent,
meaning, and provisions of this act, then, and in such case, the
court snail order, adjudge, and decree that said road, lying in the
State, with all the property and assets of said company, or a suffi-
ciency thereof, shall be sold, and the proceeds shall be paid into
the treasury, and it shall be the duty of the comptroller imme-
diately to vest the same in stocks, creating a sinking fund, as pro-
vided for in the seventh section of this act ; and said company
shall forfeit all rights and privileges undei; the provisions of this
322 STEVENS V. RAILROAD 00KPANIE8.
act, and the stockholders thereof shall be individnallj liable for
the payment of the bonds so fraudulently obtained by such com-
pany, and for all other losses that may fail upon the State in con-
sequence of the commission of any other fraud by such company,
excepting such stockholders as may show to the said conrt that
they were ignorant of or opposed to the perpetration of such frands
by the company.
" Sec. 14. Be it enacted, that in the event any of the roads,
fixtures, or property belonging to any of said roads shall be eold
under the provisions of this act, it shall be the duty of the gov-
ernor to appoint an agent for the State, who shall attend said sale
and protect the interest of the State, and shall, if necessary to pro-
tect said interest, buy in said road or property in the name of the
State ; and in case said agent shall purchase said road for the State,
the governor shall appoint a receiver, who shall take possession of
said road and property, and use the same as provided for in the
fifth section oi this act ; and said receiver shall settle with the
comptroller semi-annually until the next meeting of the general
assembly."
On the twenty-first of February, 1852, an act was passed pro-
viding for the identification of the bonds to be issued to the several
companies under the act of February 11, the material parta of
which are sections 7, 8, and 9, as follows :
^' Sec. 7. Be it further enacted, that the different intenial-im-
f)rovement companies to whom the bonds of the State maybe
oaned under the different acts of the present l^islature shall paj
the expenses of engraving and preparing the same.
^^ Sec. 8. Be it enacted, that the governor of the State shall cause
to be engraved and printed the bonds which may be issued under
the acts of the present general assembly, as a loan made to internal
improvement companies; and the said bonds shall bear date on
the fii*st day of January prior to their issuance, and the coupons
thereto shall be payable on the first days of January and Jnlj of
each year.
*' Sec. 9. Be it enacted, that the coupons shall be signed and
numbered by the comptroller, and the bonds shall be oonnt^^gned,
sealed, and numberea by the secretarv of State ; and upon de-
livering said bonds to the company authorized to receive the same,
the secretary of state shall take a receipt, reciting the number,
date, and amount of said bonds in a well-bound book to be de-
posited in his office, and the comptroller and secretaiT of state shall
each be entitled to receive twenty-five cents for each bond so pre-
pared, to be paid by the party receiving the said bond."
By sections 5 and 6 of an act of February 21, 1856, the sinking
fund proqisions of the act of 1852 were changed as follows :
^^ Sec. 5. Be it further enacted, that it shall be the duty of the
several railroad companies in this State who have received, or maj
STATE AID — ^BONDS— LIEN. 223
hereafter receive, bonds of the State or the indorsement of their
bonds by the State, to aid in the construction of their several roads,
under toe provisions of the act of 1851-52, and the acts amenda-
tory thereto, at the expiration of five yeara from the issuance or
indorsement of their several bonds, annually to set apart and pay
over to the treasurer of the State two per cent per annum upon all
bonds which have been or may hereaiter be issued or indorsed as
aforesaid, as a sinking fund K)r the ultimate redemption of the
bonds issued or indorsed as aforesaid ; which sinking fund, when
paid over, the governor, comptroller of the treasury, and president
of the Bank of Tennessee shall invest in the bonds of the State,
and reinvest all accruing interest in like securities ; and they are
hereby constituted a board of commissioners for the management,
gOTerament, and control of said sinking fund.
''Sec 6. Be it further enacted, that should any of said railroad
companies fail or refuse to comply with the provisions of the fifth
section of this act, it shall be the duty of the governor forthwith to
notify the attorney-general of the district in which is situated the
place of business of said company failing or refusing as aforesaid,
of the fact ; and thereupon the attorney-general sliau immediately
proceed against said company to collect said sinking fund, in the
manner prescribed in the sixth section of the act entitled ' An act
to establish a system of internal improvements in this State,' passed
February 11, 1852.''
By another act, passed March 20, 1860, the same provisions were
fnrtner amended as follows :
*^ Section 1. Be it enacted by the general assembly of Tennessee,
that the money or bonds that have heretofore or may be paid by
the cities or railroad companies in this State to the sinking-fund
commi^ioiiers by the first of January, 1860, together with the ao-
cming interest thereon to that date, shall be passed directly to the
credit of the party having so paid the same, and be a release to
said party for that amount on toe debt due by them to the State
of Tennessee.
"Sec. 2. Said bonds shall be all cancelled by said commissioners,
and if indorsed bonds of any railroad company shall be cancelled
as hereinafter provided for the cancellation of State bonds, and
shall be delivered over to said company or corporation, taking the
president's of said company or the oflScer's of said company receipt
for the same, which receipt shall be filed and the copy of the same
placed upon a book which the said commissioners shall keep for
that purpose. If State bonds, they shall be cancelled and filed in
the office of the secretary of state as hereinafter provided.
"Sec. 3. That after the first day of January, 1860, all railroad
companies or city corporations who have or may hereafter receive
the Donds of the State, or its indorsement of their own bonds un-
der the general internal-improvement law of this State, or any
224 8TSVEN8 V. RAILROAD COMPANISS.
other law, shall be required to pay two and one half per cent per
annum as a sinking fund on the ainoaut of the bonds 8o iBsned or
indorsed by the State for said company or corporation, to be paid
in equal instalments on the first days of April and October, fire
years after the date of said bonds, and annually thereafter.
" Sec. 4. All bonds issued during any one year shall be dated on
the first day of January of that year.
^^ Sec. 5. Said companies or corporations may pay said sinking
fund in cash or in the like character of bonds that may hare been
issued or indorsed by the State for said company at their face or
par value.
'^ Sec. 6. If paid in money, the commissioners shall inrest it
immediately in the bonds of the State, and shall have the same
cancelled and filed as heretofore provided. Such bonds are to be
of the same character as those issued to such company or corpon-
tion.
^' Sec. 7. The sinking fund, when paid, in all cases shall be
passed directly to the credit of said company or corporation, and
be a release to said company or corporation from that amount dne
by them to the State. The commissioners shall issue a receipt to
each company or coi*poration for such payment, retaining a dopli-
cate in a well-bound Dook kept for that purpose.
^^ Sec. 8. Each and every railroad company or city corporation
shall provide the interest semi-annually, as now provided by law^
on the amount of bonds unpaid at the time said interest falls dne,
and not on the original amount issued to or indorsed by the State
for said company as heretofore pi'ovided.
" Sec. 9. The comptroller of the State shall keep a r^ular ac-
count against each company or corporation, charging them with
the amount of bonds originally issued to or indor^d for said com-
pany or corporation by the State, and crediting them by the
amount of the sinking fund paid, and shall furnish the treasurer
of state a statement oi the amount due by each company or cor-
E oration on the first day of June and December of each year, that
e may know how much interest each company or corporation has
to pay.
"Sec. 10. The commissioners of the sinking fund shall cancel
all bonds of the State, as soon as paid in or purchased, by cnttiDg
out the governor's and secretary of state's names, and so defacing
each coupon that it cannot by possibility be used or circulated, and
shall file the same in the secretary of state's office.
" Sec. 11. This law shall be in full force from and after its ^
sage, and shall repeal all laws in conflict with it, but shall not be
SQ construed as otiierwise to afEect any law on the subject of the
sinking fund or the payment of interest due on State or indcH^
bonds. .
STATE AID — ^BONDS — LIEN. 226
Under these statutes State bonds were from time to time issued
to the several enumerated railroad companies in the following form :
« $1000. $1000.
" No. . TTnited States of America. No. .
^^ Know all men by these presents : That the State of Ten-
nessee acknowledges to owe to , or order, one thousand dol-
lars of the lawful money of the United States of America, which
the said State promises to pay in the city of New York, on the
' day of y 18 — , with interest thereon at the rate of
six per cent per annum, according to the tenor, and upon the pres-
entation, of tlie coupons hereunto attached. For the payments of
said sums of money, and the interest thereon, at the times and
; laces and in the manner aforesaid, the faith of the said State of
eunessee is irrevocably pledged, this bond being issued in pursu-
ance and by authority of an act of the general assembly of said
8tate, passed February 11, 1852, to establish a system of internal
improvements in said State.
^*In testimony whereof, and in pursuance of the acts aforesaid,
I» ■; , governor of the State of Tennessee, have hereunto sub-
scribed my name officially, and caused the same to be countersigned
bj the secretary of state, with the great seal of the State afloxed.
" [ .] Done at the executive department in the city of
Nashville, this day of , 18—."
To which was attached the following form of coupon :
»(^ TheTbsasubeb State of n^v
OF THE Tennessee
" Will pay the bearer Thirtt Dollass, in the city of New York,
on the first day of January, 1877, being the semi-annual interest
then falling due on bond No. .
" J. 0. SUTIEELL, 80.
" Comptroller."
Upon the issue of the oonds, receipts were executed by the com-
panies, respectively^ , in the form required by the statute, in a well-
boand booK deposited in the office of the secretary of state. The
bonds, after their delivery, were sold in the market bv the I'espec-
live companies, in conjunction with the State commissioner, and
(he proceeds used in the way contemplate by the statute. No
^mpkint is now made of any default on the part of the several
panies, whose roads are involved in these suits, prior to the
dvil war. After the beginning of the war, however, but few*
ijments were made, and various expedients were resorted to,
m time to time, for relieving the companies from their embar-
ents. In 1866 another act was passed authorizing a further
24 A. ft E. R Gas.— 15
I
2S6 STEYENS V. RAILROAD COMPANIES.
ifisne of State bonds, under which some of the bonds embraced in
these snits were put out. In this act the provisions as to the
lien for the security of the payment of the bonds was substantially
the same as in the act of 1852. None of these devices, however,
accomplished the purpose the State had in view, and on the
twenty-fifth of February, 1869, '*An act to liquidate the State
debt, contracted in aid of railroad companies in the State of Ten-
nessee," was passed. That act is as follows :
" Whereas, under the general internal-improvement laws of the
State, passed fi*om time to time, aid has been granted to various
railroad companies by the loaning of six-per-cent bonds of the
State, to enable said companies to iron, equip, build, and bridsre,
and for other purposes, which is now secured to the State by a
first mortgage or lien on the franchise, property, and fixtui-es of
respective railroad companies ; and
^' Whereas, it is desirable for the general welfare of the State
that the State shall be reimbursed such amounts as have been ad-
yanced to the different railroad companies, as fast as may be prac-
ticable; therefore,-
^' Section 1. Be it enacted by the general assembly of t&e State of
Tennessee, that the respective i^auroad conipanies, or either of
them, that have created mdebtedness to the State, are hereby au-
thorized to repay any amount of the principal of such indebted-
ness as they have respectively created in the Donds of the State, in
such amount and at such times as may be practicable : provided,
however, that nothing in this act shall be so construed as to release
said railroad companies from any lien which the State may have
on the same for any unpaid interest now due on said bonds of the
State, authorized to be surrendered by this act.
'^ Sec. 2. Be it further enacted, that any railroad company or
companies repaying any indebtedness due the State under the pro-
vision of this act, are authorized to issue bonds of equal amount
and denomination with the bonds of the State paid and delivered
up for cancellation, as hereinafter provided, whicli said railroad
bonds, so issued in lieu of any amount of State bonds, shall be
certified to by the comptroller, entered in a book to be kept for
that purpose, with date, number, and amount, and shall be a lien,
pro rata in amount and of equal validity and effect vrith the unre-
tired part of the State indebtedness, upon such i*ailroad, and all its
property,' franchises, fixtures, and material.
^' Sec. 3. Be it further enacted, that in order to facilitate the
railroad companies that may wish to avail themselves of the pro-
visions of this act, in paying the indebtedness due to the State re-
spectively, they, or any of them, are hereby authorized to consoli-
date their property, in whole or in part, with other railroad com-
panies, ana issue bonds and stock as provided for in the second
section of this act, and may adopt the corporate franchise of eiUier
STATi: AID— BONDS— LIEN. 227
.of the roads as the Btockholders may elect, and each railroad com«
paD J paying its indebtedness, and snch railroad companies as may
consoudate under the provisions of this act, are hereby authorized
to determine, by a vote of the stockholders of said company or con-
solidated companies, the number of directors of sucn company,
and elect the same under the new organization, and that the said
directors, so elected, shall, according to the by-laws and rules of
said corporation, elect one of their number president of said com-
pany.
^' Sec. 4. Be it further enacted, . that the comptroller of the
State shall receive from the railroad companies, or any of them,
bonds of the State in such amounts as may be presented, and can-
cel the same in the presence of the officer or agent of the railroad
company paying them in, and execute to the said railroad com-
pany or companies duplicate receipts for the amount and number
of said bonds so paid in ; and it snail further be the duty of the
comptroller to certify on the bonds of any railroad company or com-
panies, repaying indebtedness due to the State, that the same has
been paid, and tliat the so certified (bonds) are secured by first mort-
^ag^ : provided, that said railroad companies shall liquidate their
indebtedness prior to the maturity of the bonds that have caused
indebtedness : and be it further provided, that said bonds, when said
executed by the respective railroad companies, or either of them,
shall be deposited with the comptroller of the State, whose duty it
shall be to deliver said bonds, or any number of them, to the presi-
dent and directors of the company, on the deposit by said president
and directors, or authorized agent, of an equal amount of the six-
per-cent bonds of the State of Tennessee, with unpaid coupons
attached, and the company's first-mortgage bonds, autnorized to be
issued by this act, shall have no validity or value except the comp-
troller's certificate is affixed on the face of each bond that said
bond is executed, and issued, and by virtue of law takes the place
of a bond of the State, and is the first-mortgage bond.
" Sec. 5. Be it further enacted, that the comptroller shall be en-
titled to a fee of one dollar on each thousand dollars of the bonds
certified as aforesaid, to be paid by the railroad company for which
the same is done ; and it shall be lawful for the comptroller to dis-
charge the duties imposed by this act, by and through an agent in
the city of New York ; and all the provisions of this act shall
attach to and become a part of the charter of any railroad com-
pany or companies acting under it.
" Sec. 6. Be it further enacted, that by and with the consent c^
the board of directors of anv railroad company in this State under
the general improvement law passed the eleventh of February,
1852, and all the amendments tnereto, that any person or corpora-
tion may, by paying the indebtedness of such railroad company to
the State in the hoiuls of the State, as provided for by the law, be.
228 STEVBNS V. BAILROAD COMPANIES.
and tliey are hereby, substituted and entitled to all the liens against
said company for the payment of said debt that the State had or
has by law, and the governor and secretary of state shall give
such party or parties paying such indebtedness a certificate shoe-
ing the facts, which shall be evidence against said company of sdcIi
indebtedness to said individuals or corporations.
" Sec. 7. Be it further enacted, that any person or persons may,
with the consent and approbation of any railroad company vbich
is indebted to, and for which the State of Tennessee holds a lien.
pay the said debt, so far as the State is concerned, in the bonds of
the State, or any coupons of bonds at par, and the person or per-
sons so pacing the debt of any railroad company witli the ooDsent
of such railroad company shall, upon filing witn the treasurer of
this State the written assent of said railroad company, under the
corporate seal of said railroad company, be entitled to have and
hold all the lien or liens which the State of Tennessee had or has
upon said railroad or its property, and sbajl have the same right to
enforce the same which the State of Tennessee had ; the object
and intent being to place the person or persons so paying ^nth the
consent of said railroad company in the same position and with the
same rights which the State of Tennessee had pi*evious to and
before the said payment, and with full power to enforce the same.
" Sec. 8. Be it further enacted, that any pei*son or persons who
may, with the consent and approbation of any railroad company.
pay any part or portion of the indebtedness of such company a^
provided in sec. , shall have, hold, and be subrogated hi all
the rights, privileges, and lien or liens of the State, to the extent
of, and in proportion to, the amount of such indebtedness, with
the same rights and privileges the State now has, to the extent of
such payment or payments : provided, the passage of this act shall
not decrease the Ben of the State upon any railroad of the State
until the entire claim of the State is fully liquidated ; or affect the
interest of the present bondholders of the State : provided, that
railroad companies which have issued second-mortgage bondf,
availing themselves of the provisions of this act, shall file with the
comptroller bonds of the same series as those loaned to such com-
pany, for which the State holds a first-mortgage lien : provided,
the bonds to be issued by the company, under the provisions of
this act, shall not have a longer time to run than tihe bonds of the
State thus released and cancelled.
" Sec. 9. Be it further enacted, that this act shall take effect from
and after its passage."
At the next session of the general assembly, January 8, 1870.
this act was amended as follows :
STATE AID — ^BONDS — LIEN. 329
^As Act fob the Payment of the State Debt.
'^ Section 1. Be it enacted by the general assembly of the State
of Tennessee, that an act entitled ^ An act to liquidate the State
debt contracted in aid of railroad companies in the State of Ten-
neseee,' passed February 25, 1869, be, and the same is hereby,
amended so as to allow any railroad company which may be in-
debted to the State by reason of the bonds of the State loaned to
said railroad company, to pay into the State, in liquidation of the
principal of said indebtedness, any of the legally issued six-per-
cent bonds of the State of Tennessee outstanding, without regard
to series or number; and such payment shall, to the extent made,
be a fnll and perfect discharge of the lien which the State holds
upon the property of such railroad company, held by virtue of the
bonds of tne State issued to such railroad company, whether they
be the same bonds or the same series of bonds issued to said com-
pany nnder the act passed February 11, 1852, and acts amend-
atory thereof, or not.
^'Sec. 2. Be it further enacted, that railroad companies issuing
their own mortgage bonds, under the provisions of the act which
this is intended to amend, be allowed to fix the rate of interest
which the said bonds of the railroad company are to bear, and all
laws in conflict are hereby repealed : provided, that when said
railroad companies owe interest already due, coupons past due
shall be taken by the comptroller or treasurer in discharge of such
indebtedness for interest.
"Sec. 3. Be it further enacted, that when any company, under
the provisions of this act, shall pay into the treasury of the State
bonds which have been issued by the State to said company, the
said bonds shall be cancelled; but should any company, in dis-
chai^ of its own debts, pay into the treasury any bonds that were
issued to other companies that may still.be indebted to the State,
^nch bonds so paid in shall not be cancelled, but shall be held by
the State as purchased bonds, retaining a lien for the State upon
the road to which said bonds were origmally issued until the oebt
of gaid road to the State shall be fully discharged when the bonds
?o held shall be cancelled : provided that the provisions of this act
shall not be so construed as to allow the payment and satisfaction
of debts created by bonds issued bv the State, and upon which the
State is secondarily liable, nor to the payment of the sinking fund,
now required by law, of the railroad companies of this State.
"Sec. 4. Be it further enacted, that this act shall take effect
from and after its passage."
Fnder these statutes the companies whose roads are involved in
&e present suits against the Memphis & Charleston B. Co., the
230 STEVENS V. RAILHOAD COMPANIES.
Louisville, Nashville & Great Southern R. Co., the Nashville &
Dscatur R, Co., the Nashville, Chattanooga & St. Louis R. Co.,
the East Tennessee, Virginia & Georgia K. Co., the Chicaffo, St.
Louis & New Orleans R. Co., the Memphis & Tennessee K. Co.,
and the Mobile & Ohio R. Co., by the use of substitution bonds
or otherwise, obtained from the State a discharge of the liens upon
their property under the act of February 11, 1852, and the acts
amendatory tnereof, so far as the State had the right to execute
such a discharge. In doing so, however, they used, to some extent,
other State bonds than those which were issued to them originally
under the provisions of the act. The bonds so issued and not re-
turned to ttie State constitute the causes of action on which these
suits are brought against the companies above named.
To provide for cases where the companies failed to meet their ob-
ligations to the State under the act of 1852, and did not comply
with the provisions of the acts of 1869 and 1870, an act of Decem-
ber 21, 1870, was passed, in which, after reciting as follows :
"Whereas, in the recent attempt to sell the State's interest in said
roads, various legal questions arose, presenting serious obstacles to
a sale under the act of 1870, which it is deemed expedient and
necessary to obviate before the interest of the State in said roads
shall be again offered for sale ; and whereas, by the act of 1872, c.
151, § 12, the right is expressly reserved to the State to enact all
such laws in the future as shall be deemed necessaiy to protect
the interest of the State, and to secure the State against any loss in
consequence of the issuance of bonds under the provisions of said
act, in such manner as not to impair the vested rights of stock-
holders of the companies," — provision was made for a summary
proceeding to foreclose the lien vested in the State, under the act
of 1852, and the several amendatory acts, by filing a bill in equity,
in the court of chancery at Nashville, a^inst the delinquent com-
panies, to obtain a decree for the sale of the interest of the State
in their property. In this act it was provided that the purchase
money might ** be discharged in any of the outstanding legal bonds
of the State;" and that upon the sale of any of the franchises of
either of the companies, " all the rights, privileges, and immunities
appertaining to the franchises so sold under its act of incorporation
and the amendments thereto, and the general improvement law of
the State and acts amendatory thereof, shall be transferred to and
vest in such purchaser ; ana the purchaser shall hold said fran-
chise subject to all liens and liabilities in favor of the State, as
now provided by law, against the railroad companies."
Under the provisions of this act the liens on the roads involved
in the suits against the Memphis, Clarksville & Louisville R. Co.,
the Nashville & Northwestern R. Co., the McMinnville & Man-
chester R. Co., the Winchester & Alabama R. Co., the Cincinnati^
Cumberland Gap & Charleston R. Co., and the Kuoxville & Ken-
STATE AID — BONDS— LIEN. 231
tacky R. Co. were all foreclosed, and the property sold under de-
crees which reserved the lien of tlie State referred to in the stat-
ute "as far as may be necessary to secure the purchase money
as aforesaid, and the other rights of the State under the
decree in this cause and the said acts of the legislature."
Payments of the jmrchase money were made in bonds of
the State of Tennessee without distinction. Bonds of the State,
issued to the companies that constructed the foreclosed roads, not
taken up at these sales or otherwise by the State, are the causes of
action embraced in the suits against the last-named companies, and
the defendants in those suits now claim the property under the
purchases at the foreclosure sales, free of all liens in favor of
the State or its bondholders.
The circuit courts dismissed the bills in all the suits, and these
appeals were taken from the several decrees to that effect.
The question which lies at the foundation of all these suits is
whether the statutory lien with which the State of Tennessee was
invested upon the issue of its bonds to railroad companies under
the internal-improvement act of February 11,. 1852, and the sev-
eral acts amendatory thereof, bound the property of the company
to which the issue was made for the payment of the bonds so issued,
and the interest thereon, to the several holders thereof, or only to
the State ; for, if to the State alone, it is conceded the lien has been
discharged, and is no longer operative. The precise point of the in-
quiry is for whose benefit the lien was created. Was it the State or
tne bondholders, or both the State and the bondholders ? The lien
which was vested in the State was as security for the pay-
ment by the company of "all of said bonds issued to the
company, as provided m this act, and for the interest accruing
on said bonds. This is the language of the provision for the
final lien which was to attach, on the completion of the whole
road, to " all the property owned by the company, as incident to,
or necessary for, its business." Section 4. To whom this pavment
was to be made is nowhere stated in express terms. In the absence
of anything to the contrary, the implication would undoubtedly be
that it must be to the holder of the bond, as he was the person to
whom the bond, as a bond, was payable ; but if, on an examina-
tion of the whole statute, in the light of surrounding circumstances,
and interpreting it with reference to the subject-matter of the leg-
islation, it appears that the intention was to secure only a payment
to the State of the debt incurred by the company on the loan of
the bond, there is nothing in the langnage employed to express
the legislative will, which necessarily extends the operation of the
statute beyond what is required to give effect to sucn an intention.
It may be that the legislature used the phrase '^ payment of the
bonds and the accrumg interest thereon " to express the idea of
232 STEVENS f). BAILBOAD COMPANIES.
^^ payment to the State for the bonds,'' and if it did, the statutory
lien will stand only as security for such a payment.
The liability of the companies to the bondholders, if any there
be, rests alone on the statute, which contemplated loans by the
State of its own bonds to the several companies in aid of the pub-
lic works they were respectively engaged in constructing. The
KTBsnL ^°^^ were to be "coupon bonds of the State of
FACE*TH08E OF Teunessee." This implies State bonds with coupons
'^"" for interest attached in the ordinary form tlien in use,
whereby the faith of a State of the United States was pledged for
their payment. Such must have been the understanding of all
parties at the time, for the bonds actually issued were of that kind,
and on their face bound only the State. The law made no provi-
sion for naming, either in or upon a bond, the particular company
in whose favor it was issued. iTeither did the bonds themselves,
as issued, contain, by indorsement or otherwise, any obligation
whatever on the part of the companies. They were State bonds,
pure and simple, "issued in pursuance and by authority of an act
of the general assembly of said State, passed February 11, 1852."
They were not even made payable to the companies to which they
were respectively issued, but went on the market as coupon bonds
of the State of Tennessee, payable to the bearer thereof, and ap-
parently nothing else. In this form they were bought and sold by
dealers and investors in public securities. So that the point to be
determined, from an examination of the statute, is whether a State,
when lending its own bonds and taking back security for their
payment, intended to protect those who might afterwards become
the holders of the bonds against the consequences of its own repu-
diation or inabilitv to pay, or only to indemnify itself against loss
by reason of the loan of its credit to those who were engaged in
constructing its great works of internal improvement. To say
the least, the strong presumption is that, in sach a transaction, the
purpose of a State would be to protect itself, and not to secure its
own pledffe of faith to the bondnolders by a mortgage from those
to whom its credit was loaned.
Such being the subject-matter of the legislation, we proceed to
inquire what the payment was which the State intended to secure
bv the statutory lien with which it was to be invested. It was to
be a payment. This implies a debt from him who pays to him
who is to receive, and that when the payment is complete the
debt will be discharged. It is not claimed that a borrowing com-
pany was to incur two debts by accepting a loan under the statute,
— one to the State, and the other to those who might become the
purchasers or holders of the borrowed bonds. The obligation waa
to pay the bonds once, not twice, and the payment was to be made
at the time and in the way provided by tne law. Who, then, be-
came the creditor of the borrowing company when it incurred its
STATS AID — ^BONDS— LIEN. 233
■
debt for the borrowed bonds ? Was it the State or the bond-
holders?
Much stress was laid in the argutnent on the provision in section
3, '^ that so soon as the bonds of the State shall be issued . • . they
ehall constitute a lien," etc.; and it was insisted that, as the bond
constitutes the lien, and the lien is but an incident of the debt, the
lien must continue and follow the bond in the hands of the holder
thereof until it is finally paid and taken up by the company.
From this it was argued that the bondholder must be the creditor,
within the meaning of the statute, and that a payment would not
be complete so as to discharge the debt of the company until it
was made to him. Similar language was used in a statute of South
Carolina, passed December 20, 1856, to aid in the constrnction of the
Charleston & Savannah R., under which the State guar- ^^^ ^ ^^^
an tied, by indorsement, the bonds of the railroad com- »^^^ ">»"»'
pany, and it was provided " that so soon as any such state pwmcipai.
bonds shall have been indorsed as aforesaid . . . they
shall constitute a lien," etc. This it was held by the supreme court
of that State in Hand t;. Savannah & C. R. Co., 12 S. C. 314, vested
in the State a lien, not merely for its own protection against the
guaranty, but also for the better security of the bonds themselves,
into whosesoever hands they might fall. But, as this court had
occasion to say in Railroad Cos. v. Schutte, 103 U. S. 140; s. c, 3
Am. & Eng. R. R. Cas, 1, " contracts created by, or entered into
nnder, the authority of statutes, are to be interpreted according to
the language used in each particular case to express the obligation
assumed. . . . Every statute, like every contract, must be read by
itself, and it no more follows that one statutory contract is lik^
another, than that one ordinary contract means what another does.
« • . It must be determined from the language, used in each par-
ticular case, what has been done, or agreed to be done, in that
case." Under the South Carolina statute the primary liability for
the payment of the bonds to the respective holders thereof rested
on tne company, and the State was bound only as surety. This
was shown on the face of the bonds themselves, and the language
of the statute was, therefore, to be construed with that as the
subject-matter of the legislation ; that is to say, a guaranty by the
State of the obligations of the railroad company. Here the State
is the primary obligor, and the legislation is with reference to a
loan of State bonds, on which the railroad companies are in no
way to appear as bound. The liability of the companies grows
out of the borrowing of State bonds, to be sold in the market as
State bonds, and apparently nothing but State bonds. The loans
were to be by the State to the cotnpanies, and the object was to
secure the payment of the loans. It may well be that the same
language when applied to one class of securities means one thing,
234 STEVENS V. BAILBOAD COKPANIES.
and when applied to another class something else. The qaestiou
now is, what does it mean in this case ?
The fact which establishes the lien is the issue of bonds by the
State to a company ; that is to say, the delivery of bonds by the
State to a company under the contract of loan. The lien attaches
Lxnr cRBATED ^ soon as the delivery is complete, and when there is
5o»S^^«Sr no obligation on the part of the company to the hold-
'^^* ers for the payment of the bonds, because the company
is itself the holder, ana there can be no obligation of payment by
itself to itself. But the delivery of the bonds by the State to,
and their acceptance by, a company, created at once an obligation
on the part of the company to pay the loan, or, what is the same
thing, pay the bonds to the State. That it was the purpose of the
statute to secure the performance of this obligation on the part of
the companr is shown by the fact that from the moment of the deliv-
ery of the first bond to the company, and before tlie bond could be
negotiated by a sale or transfer to a third person, a lien was vested in
the State by the very act of delivery upon all the property of the
company then acquired, or thereafter to be acquired, superior to
any other lien or incumbrance which could be created by the com-
pany afterwards. This is the express provision of the last para-
graph in section 4 ; and while it is said once in the entire act that
tne bonds shall constitute the lien, it is repeated again and again
that, upon the issue of the bonds, the State shall be invested with
a lien, etc. The only place where it is stated tliat the bonds shall
constitute a lien is that in which provision is made for the issue
on the completion of the first section of thiiiiy miles, and, before
the sentence in which this expression appears is completed, it is
declared that the lien is to vest "upon the issuance of the bonds
and by virtue of the same." But when the whole road is com-
pleted, and the lien is established on all the property owned by
the company as incident to and necessary for its business, the Ian-
^age is : "And when the whole of said road shall be completed
tne State of Tennessee shall be invested with a lien . . . for the
payment of all of said bonds issued to the company as provided
m this act, and for the interest accruing on said bonds." This
shows unmistakablv that the State attached no special impoilance
to the particular phraseology of section 3, with reference to the
issue for the first thirty mUes of the road. The evident purpose
of the whole provision was to vest in the State a lien to secure the
obligation which the company assumed in consideration of the
State bonds issued to it in aid of works of internal improvement
to be constructed for the benefit of the public. If that obligation
was to pay the bonds to the several persons who might become the
holders thereof, then the security would run with the bond ; but
if the obligation was to pay the State for the bonds^ the security
8TATB AID — BONDS— LIEN. 286
would inure only to the benefit of the State, and be enbject to the
control of the State, without regard to the bondholders.
The lien was to be ^^ for the payment of all of said bonds issued
to the company, as provided for in this act, and for the interest
accruing on said bonds." It was, as has been seen, to befi^in as soon
as the bonds were put into the hands' of the company, for it was
then and by that act that the liability of the company under the
statute was created. At that time no one but the State ^
could be interested in the security, and at that time *o nmShSS
clearly the lien operated only as security for the pay- **' "°"^
ment of the loan of the bonds. This could be made by a return
of the bonds themselves or in any other way provided in the stat-
nte. A return of the bonds to the State would not technically
1>ay the bonds, but it would pay the loan, and thus cancel the ob>
igation of the company to the State and discharge the lien. This
brings us to the inquiry whether provision was made in the statute
for payment by the company in some other way than by taking up
the Donds from the several holders thereof, and if so, to whom and
how.
The obligation under the statute is to pay the bonds and the in-
terest accruing thereon. This clearly means payment of the bonds ,
and the interest in the way provided by the statute, if there be
any. As the liability of the company to pav at all grows out of
the statute, it follows that if a particular moae of payment is pro-
vided for in the statute, payment in that mode is all the company
can be required to make. Looking then to the statute, we find
that provision is made in one part for the payment of interest and
the enforcement of that obligation of the company, and in other
parts for the payment of principal.
1. As to interest. Section 5 makes it the duty of a company to
deposit in the Bank of Tennessee, at least fifteen days before cou-
pons for interest on any of the bonds issued to that company fall
due, an amount of money sufficient to pay such interest, including
excliange and necessary commissions, or satisfactoj^ evidence that
it has been paid or provided for. The Bank of Ten- pj^^^^gj^,^ ^^
nessee was established by the act of January 19, 1838, tayksst op a-
** in the name and for the benefit of the State," and
" the faith and credit of the State " were " pledged " for its sup-
port. The State was its only stockholder, and was entitled to all
the profits of its business. It was the fiscal a^nt of the State,
and was practically the treasury in which all public moneys were
kept. The State treasurer held none of the State funds in his own
hands, but deposited them all in the bank, where they were placed
to the credit of the " Treasurer of Tennessee," and subject to his •
checks, drawn according to law, and countersij^ned bv the comp-
troller. Other accounts connected with the nnancial business of
the State were kept in the books of the bank, headed ^' Interest on
336 STEVENS f). HAILBOAD COMPANIES.
State boDda," ^^ Intereet paid on State bondS)'' " Bailroad companies
for interest,'^ and otherwise. The entries made in the Dooks
showed the amount which each railroad company paid in for inter-
est, but the payments were all passed to the creait of the State,
either in the treasurer's general account, or in the account headed
" Interest on State bonds." The bank paid the interest on all State
bonds without reference to the purpose for which they were issued.
It had correspondents in Kew York and Philadelphia through
whom such payments were made, and these agents took up the
coupons when presented and forwarded them to the bank, by
which they were handed over to the proper State ojfficers. The
moneys paid in by railroad companies for interest were sent with
other moneys of the State to the Kew York and Philadelphia
agents, by whom they were paid out upon coupons, no distinction
being made as to the different kinds of bonds. The agents kept
no accounts with the companies, and neither they nor the bank
knew what bonds had been issued to any particular company. No
attempts were made, either by the bank or its agents, to classify or
identify coupons, when paid, as being coupons from bonds issued
to one company or another.
In the books of the treasurer of the State there was an account
headed ^' Bank of Tennessee," the reverse of that kept by the bank
in the naraQ of the treasurer. There was also an account headed
^^ Interest oh capitol bonds," in which was shown the interest paid
on bonds issued for the State-house. Besides this there was an
account headed " Interest on internal-improvement bonds," show*
ing the gross amount paid out on such bonds, but not by whom
the money was furnished, nor the numbers or character of the
bonds on which the interest was paid. Ko separate accounts were
kept in the treasurer's books with the different railroad companies,
and, with the exception of the distinction between capitol and in-
ternal-improvement bonds on his books, the treasurer paid no at>
tention to the different kinds of bonds, but treated all as equallj^
the obligations of the State. This was the way in which the busi-
ness was done by all the companies, the bank, and the treasurer of
the State, as lon^ as the bank was in operation.
Under these circumstances, it is difficult to see how a deposit in
the bank by a company of the money to pay interest can be treated
otherwise than as, within the meaning of the statute,
bSt? BT^oo£ the payment by the company of the accruing interest
oBimif^^in on the bonds, which the company had bound itself to
make. The deposit was made to enable the State to
meet its own obligations. It was not placed, neither by the statute
was it required to be placed, to the credit of the company, but of
the State. The bank did not take the money for the company,
but for the State, and consequently the deposit was accepted and
kept as and for State funds. Neither the bank nor the ptate was
. STATE AID— BONDS— LIEN. 237
bound, either to the companies or to the bondholders, to use the
deposits made by a particular company to pay the interest on bonds
issued to that company. The bans is nowhere made by law the
agent of the company. It was to take, keep, and pay dut accord-
ing to law, for the State, all moneys deposited or set apart for the
liquidation of accruing interest. If tlie deposits made by the
various companies were not enough for that purpose, it was the
duty of the comptroller to draw from the treasury, on his own
official warrant, a sufficient amount to make up the deficiency. No
special provision was made in the statute as to the way in which
coupon-nolders were to be paid. That was all left to be deter-
mined by such regulations as might from time to time be adopted
for the government of State officers and State agencies in the pay-
ment of State debts. The money, when deposited, became at once
the money of the State, and was in no way thereafter subject to
the control of the depositor. When used to pay maturing interest,
it was paid by, and on behalf of, the State, through its own agen-
cies, to redeem its own pledges of faith to the holders of its own
obligations. The company performed its whole duty to the State
when it deposited in bank, subject to the control of the State, a
sufficient amount of money to meet the interest which was to ac-
crue on the State obligations fifteen days thereafter, and the ex-
penses incident to such payment. It is true, an option was given
the company to pay the interest instead of makmg the deposit ;
but this was clearly intended for the convenience of the company,
and not because oi any obligation the company was supposed to be
under to the bondholders. Payment, therefore, by a company,
into the bank, of a sufficient amount of money to enable the State
to meet its accruing interest, was, and was intended by the legis-
lature to be, not only a payment of the interest on the bonds bj' the
company, but the payment, and the only payment, of interest the
lien created by the statute was to secure. To hold otherwise would
be to decide that the legislature, while providing for a loan of the
bonds of the State to corporations engaged in works of internal
improvement, required the corporations to secure by liens on their
own property, not only the payment to the State of the interest on
the loan, but also the redemption by the State of its own pledges
of faith to the future holders of the State bonds that were lent.
Certainly no such construction will be given to the statute unless
it is imperatively demanded ; and when provision is made in ex-
press terms for a payment to the State, no second payment of the
same debt will be presumed to have been in the contemplation of
the parties, in the absence of some positive requirement to the con-
trary. The lien must be held to be for the security of the pay-
ment which is expressly provided for, and no other.
But the correctness of this view of the statute is made still more
apparent by another important provision of the same section 5^
238 STBYBNS V. RAILROAD COMPANIES
to the effect that if a company failed to deposit the interest at
the time required, or furnish the necessary evidence that pay-
ment of the interest had been made or otherwise provided for,
the governor should appoint a receiver to take possession, and run
and manage the railroad of the company until a sufficient sum
was realized from the earnings to discharge such ^^ nn-
S^^^'^^JS^ paid interest." The failure of a company to make its
— AFPoiirmiiT
OF BBOSTTEB.
deposit did not reh'eve the State from the obligation to
keep its faith and pay the interest to its bondholders
at maturity. Consequently, the " unpaid interest " here referred
to must have been the interest for which a deposit had not been
made, and this clearly implies that the deposit was the payment
which the lien was intended to secure. Interest on the lent
bonds deposited for was paid, within the meaning of the statute,
and that not deposited for was unpaid. A i*eceiver was to be
appointed, and possession taken, onl}' when there was default on
the part of the company in making its deposit. Non-payment of
interest by the State, after the deposit, created no such default.
As the statutory remedy for the enfoi'cement of the statutory lien
must be presumed to have been intended to be commensurate
with the lien itself, and this remedy was confined to cases of de-
fault in making deposits, there cannot be a doubt that it was the
understanding of the legislatui-e that a deposit for interest was a
payment of interest on the bonds so far as the company was con-
cerned, and released the company as well as its property from all
further liability to the State, or to any one else, which had been
assumed for interest. The pledge of State faith for the perfor-
mance of all State obli^tions under the act constituted the only
security of the bondholdei's for the prompt payment of the interest
due to them. The liens on the property of the companies stood
only as security for the payment of the interest on the bonds to
the State.
2. As to the principal. This is provided for in three ways :
(1) by the establishment of a sinking fund ; (2) by foreclosure if
the company failed to pay the bonds at maturity; and (3) by
foreclosure and proceedings against guilty stockliolders, before
maturity, if an issue of bonds was obtained by fraud, or contrary
to the provision of the act. The sinking fund was first established
by section 7 of the original act, which required eacli companj^, at
the end of five years after the completion of its road, to set apart
annually 1 per centum of the amount of bonds issued to such
company, and use it in the purchase of bonds of the State of
Tennessse, which bonds the company was to pay into the treasury
of the State, taking a receipt therefor, and, as between the State
and the company, the bonds so paid in were to be a credit on the
bonds issueo. The bonds paid in, and the accruing intei^est
thereon, were to be held and used by the State as a sinling fond
STATE AID — BONDS— LISir. 289
for the payment of the bonds issued to the company. If in this
way a company repurchased and paid in any of the PATmn or
bonds issued to it,* they were to be cancelled. Should sinKnio fuwd.
a company fail to comply with these provisions, it was to be pro-
ceeded against as in section 5, for a failure to pay, or deposit for
interest. This provision was changed by the act of 1856 so as to
increase the annual payments to 2 per cent on the amount
of the issue of bonds, and to require them to be made in
money, and to begin at the end of live yeara after the dates of the
several issues. The money, when paid into the treasury, was to be
invested by a board of sinking-fund commissioners in bonds of
the State, and all accruing interest was to be reinvested in like
securities. If a company failed to comply with these provisions
of the amending act, it was to be proceeded against as for a de-
fault in the payment of the bonds at maturity under section 6 of
the act of 1852. Under the statutes of 1852 and 1856 the com-
panies were not released from their obligations to provide semi-
annually for the payment of the accruing interest on the entire
issue of bonds. That was still to be kept up, notwithstanding the
debt of the company to the State had been reduced by the annual
payments required by section 7.
By the act of 1860 other changes were made, which increased
the amount of annual payments to 2^ per cent on the original issues,
and allowed them to be mad(e in money, or in bonds of a like
character with those issued to the company, at their face value.
If paid in money, the sinking-fund commissioners were to invest
it immediately in bonds of a like character with those issued to
the company, and have them cancelled. By this act also the com-
pany was released from the obligation under the act of 1852 to
provide for the interest on the whole issue of bonds and required
to deposit only for that which would accrue on the amount of
bonds " unpaid " at the time the interest fell due. What was
here meant by the word "unpaid " is shown by sections 1, 2, and
9 of the act, which provide that all sinking-fund payments, in
money or bonds, made before January 1, 1860, with the accruing
interest thereon to that date, "shall be passed directly to the
credit of the party having so paid the same, and be a release to
said party for that amount of the debt due by them to the State
of Tennessee." The comptroller of the State was also required
to open and keep a regular account with each company, charging
it with the total amount of bonds originally issned to such com-
{any, and crediting it with the amount of the sinking fund paid,
t was also made his duty to furnish to the treasurer of state a
statement of the amount due by each company on tlie first days
of June and December in every year, " that he may know how
much interest each company has to pay," that is, deposit, "as
now provided by law, on the amount of bonds unpaid at the
240 STEVENS V. BAILROAD COMPANIES.
time said interest falls dne, and not on the original amount issued
to . . . said company." Act 1860, §§ 8, 9.
While it is true that neither the act of 1846 nor that of 1860
can change any contracts the companies may have made with
bondholders under the act of 1852 before their passage, they may
be resorted to in aid of construction to show what had
AiS"i8w AiiMw heen the legislative understanding, for a long series of
JS?S^SS*^ years, of the meaning of the words " payment of siiid
bonds and the accruing interest thereon,'' as used iu
the original act. The provision oi section 7 is that the company
shall pay the bonds purchased into the State treasury, and that for
the purchased bonds so paid in a receipt shall be given and a
credit allowed, as between the State and the company on the
bonds issued. Thus the company was required to maKe a pay-
ment to 'the State, and for this payment the State was to give a
credit on the bonds. This clearly implies that the loan of the
bonds was to create a debt on the bonds by the company to the
State, and that this debt was to be discharged pro tarUo on the
payment annually into the State treasury of the amount required
oy the sinking-fund section. If there were nothing else in the
statute, no one would doubt that the payment of the bonds which
the company was required to make was a payment to the State
for the bonds at the times and in the manner provided.
It is contended, however, that, as the credit to be secured by
these payments was only " as between the State and said company,"
the liability of the company to the bondholders is not affected by
what may bedone by and with the State. This would be true if
pathbit nrro there were any such liability to the bondholders, but
the very point to which our inquiries are now directed
is as to whether or not that liability exists. The
phrase relied on and quoted above is undoubtedly sug-
gestive of some other liability of the company on the bonds than
one to the State, but it does not of itself create such a liability.
If it exists at all, it must be by virtue of some other provision of
the statute. As has already been seen, there is but one debt, and
whatever pays that debt cancels all the obligations of the company
upon the bonds. Whenever, therefore, it appears that payment of
the bonds must be made to one, the idea of a debt on tne bonds to
another is excluded. Here a payment to the State is absolutely
required. This obligation to pay is express, and has not been
left to implication. The provision is that the sinking-fund bonds
must be bought and paid in at the appointed times, and to the pre-
scribed amount. If this is not done, the payment is to be enforced
by putting the railroad of the company into the hands of a re-
ceiver, and running and managing it until the requisite amount of
money is realized by the State from the earnings. Under the act
of 1856 the payments were required to be made in money, and.
taaasQ wvkd
BBLBABBD OOM-
PAinr PBO TAHTO
or AUi UABIU-
TT.
STATS AID— BONDS — LIBN. 241
in case of default, proceedings for foreclosure and sale were to be
instituted to collect the amount to be paid, as in cases of non-pay-
ment of bonds at maturity. If the statutes of 1852 and 1856 stood
alone, it would be clear to our minds that payments into the sinking
fund were to be treated as a releBsepro tcmto of all the liability of
the company on, or on account of, the bonds. But the act of 1860
shows, beyond all question, that such was the legislative under-
standing at that time of the operation of this provision of the
original act. It is there declarea in positive language that by the
loan of the bonds a debt was incurred by the company to the otat«,
and that payments to the sinking fund should release and discharge
the companies j7r(7 ta^Uo from their liability on that debt.
It is argued, however, that as these payments under all the stat-
utes were to be held and used b^ the state as a sinking fund for
the ultimate redemption of the issued bonds themselves, from the
several holders thereof, the obligation of the company to pay the
bonds would not be discharged in that way ; and some remarKs of
this court in Sinking Fund Cases, 99 U. S. 725, are cited as au-
thority to that effect. The decision in that case was that the con-
tributions to the sinking fund, then under consideration, did not
pay the debts of the several companies by which the contributions
were made, because that fund was established, not to .^^
secm'e the payment of the bonds of the United States ssTABusmw lo
which had been lent to the companies, but the repay- to^nl? m ob-
ment to the United States, in the manner and at the "®^"®"'
time required by law, of ^^ the amount of said bonds so issued and
delivered to said company, together with the interest thereon
which shall have been paid by the United States." But here the
sinking fund is to be held and used by the State, not to discharge
.the debt of the company t6 the State, but that of the State to its
bondholders. It was established, not to secure the State, but to
enable the State to pay its own debts at maturity. In this way all
payments made by the companies to the State on account oi the
principal of the Donds were set apart and laid by under invest-
ment, so that at the appointed time they mi^ht be used by the
State to redeem its own obligations. The fund in the treasury be-
longed to the State, and was not in any manner subject to the con-
trol of the company, or to be used to pay its debt. That debt was
discharged by the payments which, under the law, were put into
the fund. AH payments out of the sinking fund were to De made
by the State on its own debts, and not on the debt of the company.
A sinking fund may be, and generally is, intended as a cumulative
security ior the payment of the debt with which it is connected. In
this case the debt to which it belongs is that of the State, and not
that of the company, which was paid so as to furnish the State
with the means to create such a fund.
Beference was made in the argument to the way in which, under
24 A. <& E. R. Cas.~16
342 STEVENS V. RAILROAD COMPANIES.
the act of 1852, and perhaps that of 1856, the sinking fund was
to be kept aad invested, and it was nrged that the f una must have
been intended as security for the payment of the bonds to the
bondholders by the company, because if a bond issued to a particu-
lar company was bought by that company and paid into the fund,
it was cancelled, while all other bonds were kept alive to be held
and used by the State to take up at maturity tne bonds issued to
the company, which had not been so paid in. The argument
seems to be, that, as the purchase of a bond issued to a particular
company, and its payment into the fund by that company, would
of itself be a payment of that bond by the company, both to the
pbovisiox fob State and the holder, the special provision for the can-
tub^o^mmm! cellation of such a bond, while others are to be kept alive,
Jto'only'^c^ 16 indicative of a purpose not to cancel the obligation
ooR OH BONDS, ^f ^jjg comDauy under the statute until the company
had not only providea the State with the means to take up ail
the other outstanding bonds, but until the State had itself per-
formed its own obligations and actually taken them up. This is
undoubtedly a circumstance to be considered in determining what
the payment was which the State intended the companv should
make, and for the security of which the lien was created ; but it
is not to our minds enough to overcome the manv provisions found
in the other parts of the statute, which so clearly show that there
was to be but one creditor of the company on account of the con-
templated loans of the bonds, and that creditor the State. What-
ever, therefore, satisfies that creditor, under the law, satisfies the
debt. We cannot accede to the proposition, so much relied on by
the counsel for the bondholders, that on putting out the bonds the
company occupied towards the bondholder the relation of princi*
pal debtor, and the State that of surety only, until the company
made the prescribed payments to the State, and that after these
payments were made the relations of the parties changed, sotliat
thereafter the State was principal and the company a surety only.
The debt of the company, whatever it was, continued the same in
its relation to all the parties from the time it was created until
it was paid. There is nothing in the statute which contemplates
any change in the obligations of the parties towards each other.
There may have been no good reason for keeping some of the
State securities paid into the fund alive, and directing that others
should be cancelled, inasmuch as all were to represent State debts^
for which the State was equally bound ; but that was the will of
the legislature, and it was consequently so enacted. Afterwards
this policy was changed, and all State bonds, of whatever charac-
ter, were canceled by mutilation as soon as they were paid in, or
bought for the sinking fund. Act 1860. In this way all danger
of a misappropriation of securities in the sinking fund was avoided.
As bonds issued to railroad companies under the act could alone
8TATB AID— BONDS— LIEN. 243
be used for tlie investment of the fund under this act, their can-
cellation did not affect the liability of the several companies thereon
to the State, because that was to continue until payment was made,
to the State by the company to which it was issued. Payment by
the State to the bondholder did not discharge the liability of the
company on the bond so paid.
Tne provision for a foreclosure in case of the failure of the com-
pany to pay at maturity the bonds issued to it is found in section 6,
which makes it* the duty of the governor, when such a default oc-
curs, to notify the attorney-general, who must thereupon file a
bill against the company in the name of the State of Tennessee
in the chancery or circuit court of the proper county. Upon the
filing of this bill, the court is authorized to make such judicial or-
ders, including the appointment of a receiver, and a sale of the
road and all the property of the company, as may be necessary and
proper to secure the payment of the bonds, with the interest
thereon, and to indemnify the State against loss by their issue.
We see no special significance, so far as the present Question is
concerned, in the dii'ection to the attorney-general to nie the bill
in the name of the State. Without such a direction fobbclosuuto
there might be doubt whether the suit to h^ instituted out. 'n^no
should be in the name of the attorney-general or of the ^HSm? ^ S
State. It was probably unimportant whether the one ■°"^*
form or the other was adopteo, for, in any event, the object would
be to enforce the obligation of the company and collect the monev
which was due. The legislature, however, saw fit to avoid all
doubt on this subject, and to direct that the proceeding should
be in the name of the State. Taken by itself, therefore, this sec-
tion adds little, if anything, to the other evidence in the statute,
as to who the creditor was lor whose benefit the money was to be
collected. The proceeds of the foreclosure were to be used to pay
the bonds, within the meaning of the statute, and also to indem-
nify the State against loss. To whom the payment was to be
made must be determined by looking elsewhere. There is nothing
to show that the author of the statute had the security of the
bondholder in his mind when drafting this section, any more
than when drafting the othei*s. Payment of the bonds meant
in this section what it did in the others ; no more, no less. It is
tme that here payment of the bonds and indemnity to the
State are both spoken of, but payment of the bonds through a
proceeding for foreclosure might not be enough to indemnify
the State against all loss incident to the loan of the bonds.
There misht be expenses incurred in the foreclosure which
would not be reimbursed by a simple payment of the amount of
the bonds. Indemnity of this and a like character was evidently
the purpose of this particular provision in the section. It was in
the language of counsel for the bondholders, to secure the State
244 STEVENS V. BAILBOAD COMPANIES.
against " a money loss ... in the way of counsel charges, or ro*
ceiver's charges, or betterment expenses, or debts not incladed in
the words ' to secnre the payment of said bonds.' "
Proceedings for foreclosure before the maturit;^ of the bonds,
and the liability of guilty stockholders in case of issues of bonds
obtained by fraud, or contrary to the provisions of the act, are pro-
vided for in section 13. This section makes it the duty of the
governor, as soon as he receives reliable information of such fraud
or irregularity, to notify tlie attorney-general, who must at once
institute a suit in the circuit or chancery court of the proper county.
In such a suit the court is given authority to order a
FOBBCLOSURBDr
CASK OF FKAU- _
" t^rairr" or s^ile of the road, and the property and assets of the com«
BOHDS'* FT OOM-
PAlfT COM-
8THUBD AND BX*
pany, or so much thereof as may be necessary. When
such a sale is made, the proceeds are to be paid into the
treasury and invested by the comptroller in " the same stocks,
creating a sinking fund, as provided for in the seventh section.'^
The guilty company is also made to forfeit all its rights and privi-
leges under the act, and its guilt v stockholdera are made individu-
ally liable ^^ for the payment of the bonds so fraudulently obtained
by such company, and for all other losses that may fall upon the
State in consequence of the commission of anv other fraud by such
company." Tiiis is manifestly for the benent of the State alone.
The bondholder can have no special interest in such a proceeding.
His rights are in no way affected by the fraud of the company m
obtainmg the bond he owns. The State is bis debtor, and he has
no right to call for the money owing to him until the maturity of
bis bond, which will not be until 30 or maybe 40. years after the
commission of the fraud which gave the State the right to call at
once on the company and its implicated stockholders for the pay*
ment of the bond he holds. It will hardlv be contended that it
was intended to make the stockholder individually liable to the
bondholder, yet his liability is for " the payment of the bonds "
just as is that of the company. If in his case payment of the bonds
does not mean payment to the bondholder, it does not in that of
the company. The language of the act is the same in both cases,
and there is nothing whatever to show that as to one it meant one
thing, and as to the other something else. The evident purpose of
this section was to give the State the power, immediately on the
discovery of a fraud, to demand of the company " payment of the
bonds," — that is, payment of an amount oi money equal to that
called for by thebonas, — and a remedy at once against the company
and its implicated stockholders for the enforcement of such a pay-
ment in case it was not voluntarily made. The money when col-
lected was to be set apart and invested '^as a sinking fund for the
payment of the bonds" by the State.
JBy section 14 it was made the duty of the governor to appoint
an agent for the State, to attend all sales, made either under section
STATE AID— BONDS— LIEN, 246
6 or section 13, to protect the interest of the State, and, if neces-
sary for that purpose, to buy the road or property in the name of
the State. It bought, it was to be put in tne hands of a receiver to
manage and run in the way provided in section 5, until the next
meeting of the general assembly. The receiver was to settle his
accounts with the comptroller semi-annually, but no directions were
given in relation to the manner in which the net earning were to
be used in case of a sale under section 6. He was to take posses-
sion of '^ the said road and property and use the same as provided
for in the fifth section," and, on the settlement of his accounts with
the comptroller, the balances remaining in his hands would neces-
sarily ^o into the treasury, there to be dealt with as the general
assembly should dii*ect. If a purchase was made by the State under
section 13, the presumption would be that the earnings must go
into the sinking fund, as such was the provision made for the pro-
ceeds of a sale to another purchaser; but all that would necessarily
be under the control of the general assembly when it met.
Having thus gone over the other sections, we are prepared to
consider section 12, in its bearing on the question which is now
under discussion. This section reserves to the State in express
terms the right to enact " all such laws as may be deemed necessary
to protect the interest of the State, and to secure the State against
all loss in consequence of the issuance of bonds under
the provisions of this act, but in such manner as not to cSme ■▲tiro
impair the vested rights of the stockholders of the com- S^'SocSo™
panics." This reservation includes, and was undoubt- ■■■^^•^''■^
edly intended to include, full power in the State, as against every
one except stockholders, to do whatever might be deemed necessary
bv the legislature, with the lien reserved for the security of the
obli^tions assumed by the companies. Kothins is said about bond-
holders. It will, of course, be conceded that if bondholdei-s actu-
ally had any vested right or interest as against the State in the security
created by the statute, nothing could be done under this section by
the State to impair that right. But the same was probably true of
stockholders, and the special care taken to preserve the rights of
stockholders, without referring to bondholders at all, raises a strong
presumption that it was never intended to vest in them any right
which would interfere in the remotest degree with the free exer-
cise of all the power of the State to deal with the borrowing com-
panies in reference to the bonds and the security created therefor,
just as might, under any circumstances that should arise, be deemed
most for the interest of the State and the companies, they being
the only parties to the contract of the companies that were to be
at all interested in what was to be done. As has been seen, the
bonds to be issued were on their face to bind only the State. At
that time repudiation of State faith was not thought of. No
purchaser of State bonds ever asked whether anything else than
246 STEVENS t). RAILBOAD COMPANIES.
the faith of a State was pledged for their payment promptly at
maturity. Kepudiation was looked npon as dishonorable, and
something that would never occur. Security to the State against
loss by the loans of its bonds which were provided for must, there-
fore, be presumed to have been the sole purpose of the liens which
were to De created on the issue of the bonds. Bondholders were
never thought of in this connection, for they had the securitv of
the faith of the State, and could not have been supposed to look
for anything else. Hence, this I'eservation of power by the State
was made broad enough to allow the State to deal with the securi-
ties which were taken from the companies at its own discretion,
and in any way that might be deemed just. ISo such power could
be exercised if the bondholders held an interest in the securities
adverse to the State. Under these circumstances this section is to
be looked upon as excluding any such possible intent, and operat-
ing as a standing notice to all who might, from time to time, be-
come the holders of any of the lent bonds that the payment of the
bonds, and the interest thereon, wliich the several companies
bound themselves for, was to be made to the State, and not to them^
and that the security which was taken by the State was for the
performance of this obligation, and might be dealt with by the
State in any manner its own legislature should direct or provide.
This reservation of power is entirely inconsistent with the idea of
a debt from the company to the bondholders on account of the
bonds ; and, if there could have been any doubt on this subject
without section 12, there certainly is none with it.
This disposes of all the cases; for the State, in the exercise of
its legislative discretion, has released each of the companies whose
property is involved in these suits from all its obligations growing
out of the original loans, and has cancelled the liens created for
their security. The companies have either voluntarily paid their
debts to the satisfaction of the State, or the State has foreclosed
the lien which was reserved, and sold the property free of that in-
cumbrance, either to the present defendants or to those under
whom they claim.
Some reliance was placed in the argument for the bondholders,
upon the legislative history of the passage of the act of 1852, which
snowed an offer and rejection of certain proposed amendments, and
also upon the construction which had been put on the act by cer-
tain State officers of high authority in the administration of the
1)ublic afiEairs ; but we have deemed it unnecessary to add to the
ength of this opinion by particular reference to that branch of the
argument, because, as we think, the statute contains within itself
unmistakable evidence of its meaning. The same is true of the
reference which has been made to other statutes of Tennessee, and
to statutes of the States and of the United States upon the same
general subject. This statute differs in its phraseology from some.
STATE AID — BONDS — LIBN. 247
and perha^ all, of the others, but its own language furnishes all the
aid which is required for its true interpretation. The decree in
each of the cases is affirmed.
Matthews and Blatchfobd, JJ., took no part in these decisions.
State Aid to Railroad Com pan let— Power of State to g[rant Aidt — ^In
some States the constitution prohibits the State from becoming a. party to
any public improyement. In these States it cannot grant aid to railroads.
Sloan et al, v. State, 51 Wis. 623.
In some States a like prohibition is implied from a clause in the constitu-
tion to the effect that the State shall not be interested in any private enter-
prise. Galloway «. Chatham R Co., 68 N. C. 147; University R Co. v.
Holden, 68 N. C. 410.
In some States the State cannot loan its credit without the consent of the
people at an election held for the purpose. State of Arkansas «. Little R.,
H. R & Tex. R Co., 31 Ark. 701.
In some cases the issue of Slate bonds in aid of railroads has not been al-
lowed upon the ground that it would increase the debt of the State beyond
what the constitution allowed. Williams v. Louisiana, 108 U. S. 687; s. c,
8 Am. & £ng. R R Cas. 128; and see Durkee o. Board of Liquidation, 108
U. S. 636; s. c, 8 Am. A Eng. R R Cas. 186.
Where the power of the legislature to aid in the construction of public
works is limited by the constitution, an act of the legislature granting State
aid to a line of railway differing materially from that to which the constitu-
tion authorizes the giving of such aid is unconstitutional. Holland v. Flor-
ida, 14 Fla. 455.
In some cases where a loan is made by a State to a railroad company the
legislature is vested with the right to demand additional security beyond
that originally demanded, at whatever time it may see fit to do so. Hem-
ingway V, Vicksburg & N. R Co., 62 Miss. 16.
Constitutional Questions.— When State bonds have once been issued in
aid of a railroad company in pursuance of law, a subsequent act prohibiting
the levy of taxes to meet principal or interest without a vote of the people
is unconstitutional as impairing the obligation of a contract. State of Minne-
sota ex rd, V. Young et al., 2 Am. & Eng. R R Cas. 848.
Where a company has a vested right to State aid, this cannpt be taken from
it by subsequent legislation. Northeastern R. Co. v. Morris, 69 Ga. 864.
When a btate having guaranteed the bonds of a railroad company becomes
liable thereon, it cannot issue certificates of indebtedness payable to bearer
in satisfaction thereof. This is an issue of ** bills of credit " within the pro-
hibition of the constitution of the United States. State ex rd» v. Comptroller
Genu, 4 S. C. 185.
incidents of Issue of State Aid Bonds. — When the governor of the State
is authorized by law to endorse railroad bonds only as and when certain por-
tions of the road are completed, such endorsements are binding on the State
when the bonds have passed into the hands of "bona-fide purchasers for value,
even though the endorsements were procured by false representations as to
the state of the road's completion, and were in excess of the amount which
the company was entitled by law to receive. State ex rd. v, Cobb, 64 Ala.,
127; s. c, 7 Am. & Eng. R R Cas. 147.
When State bonds issued in aid of a railroad company are sold abroad
through the active efforts of the governor of the State, the court will treat the
owners as purchasers for value and in good faith and will enforce the bonds
in their hands, although said bonds were actually fraudulent in their incep-
tion. Railroad Cos. v. Schutte, 8 Am. & Eng. R R. Cas. 1.
When by law a railroad corporation is entitled to State bonds only upon
248 STEVENS V. RAILROAD COMPANIES.
depositing with the State a like amount of its own bonds, payable foitj jean
after execution, it cannot demand the State bonds upon tender of iti own
bonds, payment of all of which is exigible upon six months default in pay-
ment of interest. State ex rd. v, Nicholls etcU,^ SO La. Ann. 1217.
When a railroad company has complied with all the terms entitUsg it to
bonds voted to it by the State, it may have a peremptory mandamui to com-
pel the State Treasurer to issue the bonds. Northw. N. 0. R Co. r. Jenkins,
66N. C.-178.
Where the legislature of a State has rightfully voted a loan to a nilroad
company, mandamiti will lie to compel the governor to draw a w&mnt for
the sum thus appropriated. Tenn. <& Coosa R. Co. v. Moore, 36 Als. ^. S.
871.
Payment of Loan and Surrender of Indemnity.— When a State loin is
made reimbursable at the pleasure of the State after twenty years, no time for
payment is fixed until the legislature takes action in the premises. People
ex rd, 9. Denniston, 28 N. Y. 247.
When a State has authorized a railroad company to issue a certain munber
of bonds and has agreepl to endorse part of said issue in consideration of the
receipt of another portion as indemnity against such endorsement, a holder of
endorsed bonds cannot object to the passage of a subsequent act anthorisiDg
the surrender of the indemnity bonds to the company. He is in no way in-
jured thereby. First National Bank of Charlotte «. Jenkins, 64 N. C. 719;
and see McAden v. Jenkins, 64 N. C. 796; Raleigh & A. A. L. R. Co. e. Jen-
kins, 68 N. C. 499.
Sale of Stock or Indemnity Bonds* — When a corporation has subscribed to
and taken stock in a railroad corporation, it may lawfully sell the same vith*
out thereby dissolving the corporation. Grange & M. R. Co. «. Rsmej, 7
Coldw. (Tenn.) 420.
Where a State exchanges its own bonds for the first-mortgage bonds o{ a
railroad company it may lawfully dispose of the latter in payment of its sub-
scription to another railroad company. Wilmington, C. & R. Co. «. Weeten
R. Co., 66 N. C. 90.
Mortgages held by State as Indemnity! — When railroad bonds sre en-
dorsed or guaranteed by the State and in return a like number of the com-
pany's bonds are deposited with the State, which are secured by a mortgage
on the company's property, the State may enforce the bonds thus held by
her as pari pasm in lien with the rest of the issue. Gibbes «. Greenville & C.
R. Co., 13 S. C. 228; s. c. 4 Am. & £ng. R. R. Cas. 459. But they have no
superior lien. Minnesota Pacific R. Co. v. Sibley, 2 Minn. 18.
When a loan is made by the State and a mortgase taken to secure it in
pursuance of a public statute, all persons are charged with notice of it, and
the State will not be prejudiced by the neglect of her amenta to have the
mortgage recorded. Memphis & L. R Co. «. State, 87 Ark. 682: a c IS
Am. & Eng. R. R Cas. 822.
Extent of Statutory State Lien. — It is conunon for a State loaning mooey
to a railroad, issuing State bonds in aid of it or endorsing the railrosd com-
pany's bonds, to reserve a statutory lien or mortgage upon the road by way
of indemnity to itself. Much question has arisen as to the extent of thii
lien.
Where a statute authorized the endorsement by the governor of a Stste of
railroad bonds as different portions of the road were finbhed, the lien re*
served to the State to indemnify it on account of such endorsementa was
held not to be limited to the portion of the road built when the endonemeot
was made, but to extend and apply to the entire rmud as finisbed, to the ex-
clusion of and in priority to any other lien. Colt «. Barnes, 64 Ala. 108 :
s. c, 7 Am. & Eng. R R. Cas. 129.
Lands bought by the railroad after the inception of the lien held for and
STATS AID — ^BONDS— LIEN. 249
ued by the road are subject thereto, whether the title to them stands in the
mme of the company or the name of individoals. But lands outside the lay-
oat of the road are not subject to the lien. Boston & !N. Y. Air Line R. Co.
f. Coffin ei ol., 12 Am. & Ens. R. R. Cas. 375. In some cases, however, the
lien has been held to extend to lands purchased by the railroad company
after the creation of the lien, although not necessary for the operation of
the road. Whitehead v. Vineyard, 50 Mo. 80.
The lien of the State in such case will extend not only to property belong-
ing to the road at the time of its completion, but also to all after-acquired
property. Such lien does not, however, extend to money earned in working
the road. McGraw «. Memphis & Ohio R. Co., 5 Coldw. (Tenn.) 484; nor
does it extend to money paid in for stock while the road is in course of con-
itraction. Hoard v. Casey, 4 Sneed (Tenn.), 178.
Relative Priority of Statutory State Liens.~The State lien for State sub-
ficriptioDS is prior to the lien of any township for its subscription. State ex
rd. c. Nashville & C. R Co., 7 Lea. (Tenn.), 15.
But the State may waive its lien in favor of a township. Eetchum v. Pa-
cific R Co., 4 DilL 78, and the State may waive its lien in favor of a subse-
quent mortgage. Brown v. State of Maryland et al.y 62 Md. 489 ; s. c; tupra.
When the State agrees to take as her security a portion of the lirst-mort-
gige honds, such bonds when handed over to the State have no exclusive or
prior lien over the bonds comprising the rest of the issue. Minnesota & Pa-
cific R. Co. e. Sibley, 2 Minn. 18.
They come in pari pa$9u with the rest of the issue. Gibbes v. Greenville
& a R Co , 18 8. C. 228; s. c, 4 Am. & Eng. R. R. Cas. 459.
When a railroad company having purchased its road from another com-
puy by deed containing several conations subsequent, mortgages said road
to the State as indemnity for the State's endorsements upon its bonds, the
lien of the State under the mortgage is not paramount, but sulnect to the
cooditbn in the deed of the seller company. If there is breach of said con-
dition the lien is inefficacious against the seller company. Tenn. & C. R.
Co. r. Eist Alabama R. Co., 78 Ala. 426; s. c, aupra.
Inurement of Statutory Lien to Beneit of Bondhoiderti — The <juestion has
muiy times arisen which is discussed in the case of Stevens v. Railroad Cos.,
9vpra, as to whether the statutory lien is for the benefit of the State
alooe or whether it can be deemed to inure in any case to the benefit of the
hondholdera.
The principle seems to be well settled that where bonds are issued bv the
8Ute in aid of a railroad, no railroad bonds being taken in exchange there-
for, hot a statutory lien reserved upon the property of the company, this
lien is for the protection of the State alone and cannot be taken advantage
of by the bondnolders. Stevens «. Louisville A K. R. Co., 8 Fed. Rep. 678;
Suvens e. Railroad Cos., 114 U. S. 664; s. c, supra.
When State bonds are issued to a railroad company without due authority
and are by the company sold to various purchasers, said bonds constitute
DO lien in the hands of such purchasers against the property of the company.
The holders are restricted to their statutory right of action against the com-
psoy. Tompkins e. Little Rock & Ft. S. R. Co., 18 Fed. Rep. 844.
When the State endorses or guarantees the railroad company's bonds and
reierres a statutory lien or mortgage for its own indemnity, a different rule
applies. The bondholders are in such case entitled to be subrogated to the
State*8 lien and to enforce the same for their own advantase. Gibbes e.
Greenville & C. R. Co., 18 S. C. 228; s. c, 4 Am. & Eng. R. R. Cas. 469;
Hand v. Savannah A C. R. Co. et al., 12 S. C. 814; Same v. Same, 17 S. C.
219; Toung e. Montgomery & E. R. Co., 2 Woods, 606; Forrest's Executors
t. Laddington, 68 Ala. 1 ; s. c, 12 Am. & Eng. R. R. Cas. 80. The ques-
tion is one for a court of chancery. Ex parte Brown, 68 Ala. 536.
260 STEVENS V. BAILBOAD COMPANIES.
In such case one bondholder cannot obtain any priority over another. Hand
o. Savannah & 0. R Co. et dl.^t% S. C. 814; Same «. Same, 17 S. C. 219.
The State need not be made a party to the enforcement of the lien. Toung
«. Montgomery & E. R. Co., 2 Woods, 606. At least when the State has re-
fused to do so, and disclaimed liability upon her endorsement. Forrest^s
Ex*rs. «. Luddio^ton, 68 Ala. 1 ; s. c, 12 Am. & Eng. R. R. Cas. 880.
Some authorities are to the effect that the holder of railroad bonds en-
dorsed by a State cannot avail himself of the statutory lien reserred by the
State. This, it is said, was intended for the protection and indemnification
of the State onlj, and did not in any way make the State a trustee for bond-
holders. Cunningham v. Macon ft B. R. Co., 8 Woods, 418. But the weight
of authority is, as has been shown, to the contrary.
When the State exchanges its bonds for those of the railroad company,
reserving a statutory lien, it seems that the holders of the State bonds may
enforce the lien for their own benefit. State of Florida v. Jacksonyille, P.
& M. R. Co., 16 Fla. 708.
When a State issues bonds in aid of a railroad company, receiving in re-
turn an equal amount of the company^s bonds, and reserving a statutory lien
duly registered, it does not follow that because the act authorizing the issue
and exchange of the State bonds was unconstitutional the lien is of no effect.
Such bonds reciting on their face that the State held ^'the first-mort-
gaffe bonds of the railroad company for a like amount as security to the
holder thereof, the company is to be regarded as the guarantor of such
bonds, and the statutory lien may accordingly be enforced for the benefit of
such holders, in spite of the unconstitutional!^ of the original transaction.**
Railroad Co. v. Schutte, 8 Am. &Eng. R. R. Cas. 1.
Waiver, Release, and Redemption of Lien. — When a State holding a Uen
upon a railroad authorizes the issue of subsequent mortgages without re-
serving the lien, it will be deemed to have waived the same. Newport &
Cinn. B. Co. v. Douglass, 12 Bush (Ey.), 78.
When by the constitution the release of the State's lien is forbidden, an
act to foreclose the lien may nevertheless stipulate that in certain contingen-
cies no sale shall take place. Woodson v. Murdock, 22 Wall. 851.
In some cases it has been held that under the laws in force the State was
authorized to relinquish its lien for bonds issued to a railroad company in
favor of the bondholders, upon payment by them to the State of the indebt-
edness of the road to the State, consisting of the face value of the bonds and
interest thereon. Upon no other terms could the bondholders avail them-
selves of the lien. Ralston et al. v, Crittenden, 8 McCrary, 882.
Where a railroad company has mortgaged its road to the State, and sub-
sequently surrendered the same to the State under an act providing that the
rignt of redemption shall not be barred until a certain time, the courts have
no jurisdiction in a proceeding to redeem. Troy & Greenfield R. Co. «.
Comm., 127 Mass. 48.
Where the State has reserved a lien upon the . property of a railroad, exe-
cution cannot issue against such property until the lien is extinguished. State
V, La Grange & M. R. Co., 4 Humph. (Tenn.) 488.
Enforcement of Lieni — Where the State has instituted proceedings to fore-
close a lien held by it on account of the endorsement of certain railroad
bonds, the courts will not enjoin such proceedings at the suit of a holder of
bonds of a later issue also indorsed by the State, but which indorsement the
legislature has pronounced invalid. Branch 9. Macon & B. R. Co., 2 Woods
885.
The lien can only be enforced after the making of the usual appraisement
required by law in cases of executions. State ex rd, 0. Nicholls^f oJ.. 80 La.
Ann. 1217.
When a sale is made of a railway under a State lien, the right of property
CONTRACT — ^MITTUALITT — 0ON8IDBRATION. 261
paaaes and the c 
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