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Full text of "The American and English railroad cases; a collection of all the railroad cases in the courts of last resort in America and England [1879?-1895] .."

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Blake,  Chicago  ft  JB.  B.  Co.  o 288 

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of  IQddletown  « 158 

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RCo 192 

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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 

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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 

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 



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 
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bach ...  840 

Louisrllle  &  N.  R  Co.  «.  Moore. .  443 
Louisville,  N.  A.  &  C.  R.  Co.  e. 

Sumner 641 

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R  Co 628 

Maryland,  State  of,  «.  Brown,  and 

Annapolis  <&  E.  R  Co 192 

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Miles,  Midland  R  Co.  v. 187 

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qq 298 

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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 


People  «.  Illinois  C.  R.  Go 494 

People «.  North  Pacific  C.  R  Co..  610 

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Pickerd  •.  Pullman  S.  C.  Co 61 1 

Pittsburgh  C.&  Y.R  Co.  «.  Motes  295 

Pullman  S.  C.  Co.,  Pickerd  « 511 

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Reed  «.  Bloxham 206 

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wealthe 482 

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olis, etc.,  R  Co 58 

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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 



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 

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.'! 


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. 


^^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 

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. 


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 


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 

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 

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. 


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- 


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 


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 

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. 



(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- 



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 


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 


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- 


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." 


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- 

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 





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. 


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. 


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 


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. 


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 


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- 

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. 

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 


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 


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. 



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 


''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 


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- 

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 

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- 


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 

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 




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 


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. 


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 

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- 


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 


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- 

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. 


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 

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, 


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- 


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 


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. 



{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  & 


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 

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 


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 


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 

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- 


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 


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 


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 



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 

The  only  difficulty  in  the  construction  of  this  section  arises  from 
the  words  '^or  of  any  adjoining  State;"  but  it  may  be  that  these 



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 


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 


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. 



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 

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.) 


Mills  ^oZ. 


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 

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 

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- 

Bill  to  set  aside  a  lease.    On  final  hearing  on  pleadings  and 
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- 


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- 

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- 


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 


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 

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- 



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 

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 


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 

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. 


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- 

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- 


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 

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- 


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 



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 

'*'  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 


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 

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 


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 

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- 

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 


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- 

There  is  found  in  the  record  a  copy  of  an  act  of  the  Illinois  leg- 


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 


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 


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 

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 


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 

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 

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. 


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 

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- 


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 

*' 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 


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 


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. 


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- 


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 


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. 



(AthanM  Otm^  Maine.   Deomnber  14,  1886.) 


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 


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 

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 


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., 



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 


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- 


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 


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 

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- 


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 


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 


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 

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 


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- 


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. 

(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- 



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- 

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- 

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. 





(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 

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. 


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. 


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 

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  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 


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 

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 



(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- 

A  complaint  in  ^ectment  is  good  if  it  aver  the  seiaEore  of  the  plaintiff;  the 


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 


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 

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- 

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- 


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 

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 

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. 

Utah  and  Kobthesn  R.  C!o» 


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 

Appeal  from  the  Supreme  Court  of  the  Territory  of  Idaho. 
John  F.  DiUon  and  A.  J,  Poppletan  for  appellants. 
Jo8.  K.  McCammon  for  appellee. 


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- 

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. 


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 


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 


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 


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 


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 


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 



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- 

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 

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 


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 


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 


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. 



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 


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 

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 


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 


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 

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 


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, 


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- 

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 


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 

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- 


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 


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. 


Midland  R.  Oo. 


(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 

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 



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 


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. 


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. 



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- 

There  is  no  reason  why,  sabject  to  legislative  and  judicial  control,  the 


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." 


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 

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 


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 

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 


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- 


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 


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* 


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- 


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- 


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 


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 


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 

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 


^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- 


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. 



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: 


^^  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, 

''  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. 


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 

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- 


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 


^^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 


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. 



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 — 


**  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, 


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- 

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  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 


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 

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^ 


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 


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- 

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 


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 

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 


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 

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 

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- 


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- 

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- 

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. 



Van  Wbbl 


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 


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 


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 

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 


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 


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 


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 

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, 


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, 

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 


▲imni       Movr- 




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- 



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- 

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- 

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 


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 


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 


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, 


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 

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- 


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 

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 

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. 


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 

(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 

(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 

(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 


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. 




(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 


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 


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 


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 


$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- 



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 

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 


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 



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- 


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. 





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 


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  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- 


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 


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 

^^  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 


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 

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 


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 


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- 

^'  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.      . 


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 



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 


.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- 

^'  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. 


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 : 


^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  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 


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- 


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 


^^  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 



debt  for  the  borrowed  bonds  ?    Was  it  the  State  or  the  bond- 

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, 


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 


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 

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 


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^ 


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 


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 


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 

or  AUi  UABIU- 


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 


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 


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 


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 


CASK    OF    FKAU-  _ 

"  t^rairr"  or  s^ile  of  the  road,  and  the  property  and  assets  of  the  com« 

PAlfT  COM- 


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 


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 


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. 


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 


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. 

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 

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 


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 

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. 


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 

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 


paaaes  and  the  c