Clark v. Barnard/Opinion of the Court

The appellees, who were complainants below, filed their bill in equity, as assignees in bankruptcy of the Boston, Hartford & Erie Railroad Company, against Samuel Clark, general treasurer of the state of Rhode Island, and the city of Boston and Frederick U. Tracey, its treasurer. The bill alleged-

That the Boston, Hartford & Erie Railroad Company was a     corporation created by the states of Connecticut and      Massachusetts for the purpose of building, acquiring, and      operating a railroad from Boston, in Massachusetts, to      Willimantic, in Connecticut, and from Providence, in Rhode      Island, to Willimantic, and from Willimantic through      Waterbury to the state line of Connecticut, and thence to      Fishkill, in New York; that the directors of the company,      without authority from the corporation or by law, applied to      the legislature of Rhode Island in 1869, and obtained the      passage of an act entitled 'An act in addition to an act to      ratify and confirm the sale of the Hartford, Providence &      Fishkill Railroad to the Boston, Hartford & Erie Railroad      Company,' by which the company was authorized to locate and      construct a railroad in extension of their line of railroad      purchased of the Hartford, Providence & Fishkill Railroad      Company, commencing at their depot in Providence, thence      running to the easterly line of the state in or near the      village of Valley Falls, to meet and connect with a Massachusetts      railroad extending through North Attleborough from Boston, so      as to make a continuous line of railroad in a northerly and      southerly direction between Providence and Boston; that this      act contained a provision in the following terms: 'This act      shall not go into effect unless the said Boston, Hartford &      Erie Railroad Company shall, within 90 days from the rising      of this general assembly, deposit in the office of the      general treasurer their bond, with sureties satisfactory to      the governor of this state, in the sum of $100,000, that they      will complete their said road before the first day of      January, A. D. 1872;' that this condition was not complied      with, and that the said act, therefore, never took effect and      is wholly null and void; that, after the passage of the act,      the directors and officers of the corporation, without      authority and in abuse of their trust and duty, filed with      one Samuel Parker, then the general treasurer of Rhode      Island, a paper, purporting to be the bond of the      corporation, but without sureties, and fraudulently took of      the funds of the corporation the sum of $100,000, and      deposited the same with the city treasurer of Boston in      exchange for the obligation of that city, a copy of which is      as follows:

'TEMPORARY LOANS, CITY OF BOSTON.

'$100,000.

No. 6.

'This certifies that, for value received, there will be due     from the city of Boston, payable at the office of the city      treasurer, on demand, after the first day of December next,      to the general treasurer of the state of Rhode Island, or      order, the sum of $100,000, with interest at the rate of 7      per cent. per annum, in current funds.

'This loan being authorized by an order of the city council     passed the ninth day of June, 1869, to anticipate the income      of the present financial year.

'Interest will not be allowed after this note is due.

'June 28, 1869.

ALFRED T. TURNER, Auditor.

'FRED. U. TRACEY, Treasurer.

NATH'L B. SHURTLEFF, Mayor.'

- That the directors and officers of the company, without     consideration and without authority, deposited this      certificate and obligation with the said Parker, who received      the same without warrant of law, and thereupon held the same      to the use of the railroad company; that the corporation      never accepted the act of the legislature recited; that the      railroad authorized thereby has never been built, nor any      work done thereon, nor has the state of Rhode Island, nor any      citizen thereof, suffered any damage or loss by reason      thereof; that the general assembly of Rhode Island considered      that the filing of the certificate and obligation of the city      of Boston was not a compliance with the act, and did not      ratify the taking of the same till after the bankruptcy of      the railroad company; that said bankruptcy was adjudicated on      October 21, 1870, and the complainants became assignees in      bankruptcy of said company from that date, and entitled to      the money represented by the said certificate; that Samuel      Parker having died, the respondent Clark succeeded him as      general treasurer of Rhode Island, and came into possession      of the said certificate, which, it is alleged, however, he      holds wrongfully, and in his individual and not his official      capacity, and to the use of the complainants, but which,      nevertheless, he thereatens to collect and withhold from them      the proceeds thereof.

The prayer of the bill is—

'That the said respondent Clark may be decreed to have no     right, title, or interest in or to the said paper writing A,      or in or to the said money so deposited with the said      respondent Tracey, or to any part thereof, and that he may be      decreed to assign and deliver over the said paper A to your      orators, and may be enjoined and restrained from presenting      the same to the said respondent Tracey, or to the said city      of Boston, or from receiving any money or payment whatsoever      thereon or therefor, or any part thereof, or from receiving      or holding the said sum of $100,000, or any part thereof,      from the said respondent Tracey, or the said city of Boston,      and that the said respondent Tracey and the said city of      Boston may be decreed to pay over to your orators, as      assignees as aforesaid, the said sum of $100,000, with      interest thereon, and may be enjoined and restrained from      paying the same, or any part thereof, or any money on account thereof, to the said respondent      Samuel Clark, the general treasurer of the state of Rhode      Island, and that your orators may have such other and further      relief as to your honors shall seem meet, and as the nature      and circumstances of the case shall require.'

To this bill a demurrer was filed by Clark for want of jurisdiction, on the ground that it was, in substance, a suit by citizens of one state against the state of Rhode Island. This demurrer was overruled. Clark then filed his answer, denying the material allegations of the bill, asserting that the transaction was with the state of Rhode Island, through the treasurer in his official capacity, and insisting upon the immunity of the state from suit by citizens of other states as a defense. The cause came on for hearing upon the pleadings and proofs, when an interlocutory decree was passed, April 15, 1878, ordering the payment of the money due from the city of Boston upon the loan certificate into the registry of the court, with liberty to the defendant Clark to take and file evidence in support of any claim for damages by reason of the breach of the bond of the Boston, Hartford & Erie Railroad Company to the state of Rhode Island; and further ordering that on final hearing, and upon filing in court the certificate of indebtedness, the general treasurer of the state of Rhode Island should have and recover of the said sum in the registry such portion, or the whole thereof, as should amount to the sum, if any, for which any surety might or for which the principal obligor in said bond would be liable, upon the evidence, either for any penalty or damages by reason of the non-performance and breach of the conditions of said bond.

On May 3, 1878, the city of Boston paid into court the sum of $100,000, and, in addition, the interest accrued to December 1, 1869, and subsequently, on February 25, 1880, an additional amount for interest in full. On March 17, 1880, the following claim of the state of Rhode Island was filed by the allowance of the court as of April 15, 1878, after the entry of the interlocutory decree of that date: 'And now comes the state of Rhode Island, by the undersigned, the same counsel who have appeared for the defendant Clark, general treasurer of said state, and, without prejudice to the demurrer of said general treasurer, claims the fund in the registry of the court.' This was signed by counsel. On final hearing the fund was awarded to the appellees; and from that decree Clark, general treasurer of the state of Rhode Island, and the state of Rhode Island appealed. The state itself is a party to the appeal bond, which recites that the state of Rhode Island was an intervenor and claimant of the fund in court, and that a decree was rendered against it as such.

The bond executed and delivered by the Boston, Hartford & Erie Railroad Company to the state of Rhode Island is as follows:

'Know all men by these presents that the Boston, Hartford &     Erie Railroad Company, a corporation created by the general      assembly of the state or Connecticut, is held and firmly      bound to the state of Rhode Island and Providence Plantations      in the sum of one hundred thousand dollars, to be paid to      said state of Rhode Island and Providence Plantations; to      which payment, well and truly to be made, the said      corporation doth bind itself and its successors firmly by      these presents.

'The condition of the aforewritten obligation is such that     whereas, by an act of the general assembly of said state of      Rhode Island, entitled 'An act in addition to an act entitled      an act to ratify and confirm the sale of the Hartford,      Providence & Fishkill Railroad to the Boston, Hartford & Erie      Railroad Company,' passed at the January session, 1869, said      Boston, Hart-ford & Erie Railroad Company are authorized and      empowered to locate, lay out, and construct a railroad in      extension of their line of railroad purchased of the      Hartford, Providence & Fishkill Railroad Company, commencing      at a point in their said purchased railroad at or near their      freight depot in the city of Providence; thence running      westerly and northerly by a line westerly of the state's      prison, a little easterly of the Rhode Island Locomotive      Works; and thence by nearly a straight line and crossing or      running near to Leonard's Pond; and thence passing between      the villages of Pawtucket and Lonsdale, and over and above the      Providence & Worcester Railroad; thence continuing to the      easterly line of the state, in or near the village of Valley      Falls:

'Now, therefore, if said Boston, Hartford & Erie Railroad     Company shall complete their said railroad before the first      day of January, A. D. 1872, then the aforewritten obligation      shall be void; otherwise be and remain in full force and      effect.

'In testimony whereof, said Boston, Hartford & Erie Railroad     Company have caused this instrument to be signed by John S.      Eldredge, its president, and its corporate seal to be thereto      affixed, this twenty-third day of June, 1869.

[L. S.]

'BOSTON, HARTFORD & ERIE R. R. Co.,

'By JOHN S. ELDREDGE, President.

'Executed in presence of-

'SAMUEL CURREY.

'H. S. BARRY.'

The testimony taken in the cause pursuant to the interlocutory decree, it is admitted, failed to prove any damage or loss occasioned to the state of Rhode Island, or to any of its citizens or inhabitants, by reason of the failure of the railroad company to comply with the conditions of this bond.

The first question for determination on this appeal is that of jurisdiction, raised first by the demurrer and afterwards by the answer of Clark, general treasurer of the state of Rhode Island, on the ground that the suit was in effect brought against a state by citizens of another state, contrary to the eleventh amendment to the constitution of the United States. We are relieved, however, from its consideration by the voluntary appearance of the state in intervening as a claimant of the fund in court. The immunity from suit belonging to a state, which is respected and protected by the constitution within the limits of the judicial power of the United States, is a personal privilege which it may waive at pleasure; so that in a suit, otherwise well brought, in which a state had sufficient interest to entitle it to become a party defendant, its appearance in a court of the United States would be a voluntary submission to its jurisdiction. while, of course, those courts are always open to it as a suitor in controversies between it and citizens of other states. In the present case the state of Rhode Island appeared in the cause and presented and prosecuted a claim to the fund in controversy, and thereby made itself a party to the litigation to the full extent required for its complete determination. It became an actor as well as defendant, as by its intervention the proceeding became one in the nature of an interpleader, in which it became necessary to adjudicate the adverse rights of the state and the appellees to the fund, to which both claimed title. The case differs from that of Georgia v. Jesup, 106 U.S. 462, [1 SUP. CT. REP. 363,] where the state expressly declined to become a party to the suit, and appeared only to protest against the exercise of jurisdiction by the court. The circumstance that the appearance of the state was entered without prejudice to the demurrer of Clark, the general treasurer, does not affect the result. For that demurrer could not reach beyond the question of the right to sue Clark by reason of his official character, which became insignificant when the state made itself a party; and in point of fact the bill was framed to avoid the objection, by charging Clark as a wrong-doer in his individual capacity. For the groundwork of the bill, whether it be regarded as directed against the officer or the state, is that the transaction throughout was void, as ultra vires the corporation. And this presents the next question to be considered. That question arises and is to be determined upon the following statement of facts.

The Boston, Hartford & Erie Railroad Company was originally created a corporation by the laws of Connecticut. Its charter conferred authority upon it in these terms:

'Said Boston, Hartford & Erie Railroad Company may purchase *     *  * the franchise, the whole or any part of the railway or      railway property of any railroad company located in whole or      in this state, whose line or a portion of whose line of      railway, constructed or chartered, now forms part of a      railway line from the harbor of Boston, passing through      Thompson to Willimantic, and from Providence through      Willimantic to Hartford, Waterbury, and thence towards the      North river, the purpose of reaching a point at or near Fishkill, in the      state of New York; *  *  * and said Boston, Hartford & Erie      Railroad Company may make any lawful contract with any other      railway company with which the track of said railroad may      connect, in relation to the business or property of the same;      and may take lease of any railroad, or may lease their      railway to, or may make joint stock with, any connecting      railway company in the line of, and forming a necessary part      of, and running in the same general direction as, their said      route, and between its terminal points.'

In pursuance of this authority the Boston, Hartford & Erie Railroad Company purchased the franchises and railroad of the Hartford, Providence & Fishkill Railroad Company. This latter company was a consolidated corporation, deriving its existence and powers from the laws, both of Connecticut and Rhode Island, whose road, as defined in the acts of incorporation, constituted a line within the general description contained in the section from the charter of the Boston, Hartford & Erie Railroad Company, already quoted. By a subsequent act of the legislature of Rhode Island the sale and transfer of the Hartford, Providence & Fishkill Railroad, its property and franchises, to the Boston, Hartford & Erie Railroad Company was ratified and confirmed, so far as said railroad was situated in that state; and it was thereupon further enacted that the 'said Boston, Hartford & Erie Railroad Company, by that name, shall and may have, use, exercise, and enjoy all the rights, privileges, and powers heretofore granted and belonging to said Hartford, Providence & Fishkill Railroad Company and be subject to all the duties and liabilities imposed upon the same by its charter and the general laws of this state.'

The Hartford, Providence & Fishkill Railroad Company was, without question, so far as it owned and operated a railroad within the state of Rhode Island, a corporation in and of that state; and the Boston, Hartford & Erie Railroad Company became its legal successor in that state, as owner of its property, and exercising its franchises therein, and became, therefore, in respect to its railroad in Rhode Island, a corporation in and of that state.

Thereafter, in January, 1869, the legislature of Rhode Island passed the act out of which the present litigation has grown, entitled 'An act in addition to an act entitled 'An act to ratify and confirm the sale of the Hartford, Providence & Fishkill Railroad to the Boston, Hartford & Erie Railroad Company." In its first section it is enacted as follows:

'The Boston, Hartford & Erie Railroad Company, a corporation     created by the general assembly of the state of Connecticut,      are hereby authorized and empowered to locate, lay out, and      construct a railroad in extension of their line of railroad      by them purchased of the Hartford, Providence & Fishkill      Railroad Company, commencing at a point in their said      purchased railroad at or near their freight depot in the city      of Providence; thence running westerly and northerly by a      line westerly of the state prison, a little easterly of the      Rhode Island Locomotive Works; and thence by nearly a      straight line, and crossing or running near to Leonard's      Pond, (so called;) and thence passing between the villages of      Pawtucket and Lonsdale, and over and above the Providence &      Worcester Railroad; thence continuing to the easterly line of      the state in or near the village of Valley Falls, there to      meet and connect with a railroad extending westerly through      North Attleborough, from the direction of Boston, authorized      by the common wealth of Massachusetts.'

The eighth section of the act is as follows:

'Said railroad, when the same shall have been constructed,     shall be managed and protected in all respects according to      the provisions of, and be subject to, an act entitled 'An act      to incorporate the Providence & Plainfield Railroad Company,'      and the several acts in addition to and amendment thereof,      and the general laws of the state.'

The act thus referred to as the 'Act to incorporate the Providence & Plainfield Railroad Company,' was the charter of the corporation by that name, in the state of Rhode Island, that, by consolidation with a Connecticut company, formed the Hartford, Providence & Fishkill Railroad Company.

The twelfth section of the act, recited in the complainant's bill, is as follows:

'This act shall not go into effect unless the said Boston,     Hartford & Erie Railroad Company shall, within 90 days from      the rising of this general assembly, deposit in the office of      the general treasurer their bond, with sureties satisfactory      to the governor of this state, in the sum of $100,000, that      they will complete their said road before the first day of      January, A. D. 1872.'

This act of the legislature of Rhode Island was duly accepted by the stockholders of the Boston, Hartford & Erie Railroad Company; the bond required by the twelfth section, as already set out, was executed and delivered; and the certificate of indebtedness, in lieu of sureties, was given by the company and accepted by the state.

It is now argued by counsel for the appellees that the party which, in all these transactions, was dealing with the state of Rhode Island, was the Boston, Hartford & Erie Railroad Company, in its character as a corporation of the state of Connecticut; that, as such, it had no power, under the charter granted by that state, to build or own a railroad directly connecting Boston and Providence, nor had it, as such, any capacity to receive a grant of such a franchise; that, consequently, everything done or attempted in that behalf was ultra vires and void.

But the Boston, Hartford & Erie Railroad Company was also a corporation of Rhode Island. As such, it owned and operated a railroad within that state, and had received and exercised franchises under its laws, to which it was in all respects subject. It was the assignee of the road and rights connected therewith, formerly belonging to the Hartford, Providence & Fishkill Railroad Company; and it was this corporation, dwelling and acting in Rhode Island, that the legislature, by the act in question, authorized to exercise the additional powers it conferred.

If it had had no previous existence as a corporation under the laws of Rhode Island, it would have become such by virtue of the act in question. For although, as a Connecticut corporation, it may have had no capacity to act or exist in Rhode Island for these purposes, and no capacity by virtue of its Connecticut charter to accept and exercise any franchises not contemplated by it, yet the natural persons, who were corporators, might as well be a corporation in Rhode Island as in Connecticut; and, by accepting charters from both states, could well become a corporate body, by the same name and acting through the same organization, officers, and agencies, in each, with such faculties in the two jurisdictions as they might severally confer. The same association of natural persons would thus be constituted into two distinct corporate entities in the two states, acting in each according to the powers locally bestowed, as distinctly as though they had nothing in common either as to name, capital, or membership. Such was in fact the case in regard to this company, so that in Rhode Island it was exclusively a corporation of that state, subject to its laws and competent to do within its territory whatever its legislation might authorize. 'Nor do we see any reason,' as was said by this court, Mr. Justice SWAYNE delivering its opinion, in Railroad Co. v. Harris, 12 Wall. 65-82, 'why one state may not make a corporation of another state, as there organized and conducted, a corporation of its own, quo ad hoc any property within its territorial jurisdiction. That this may be done was distinctly held in Ohio & M. R. Co. v. Wheeler, 1 Black, 297.' The same view was taken in Railway Co. v. Whitton, 13 Wall. 270; in Railroad Co. v. Vance, 96 U.S. 459; and in Memphis & C. R. Co. v. Alabama, ante, 432, decided at the present term. The question of the powers of the Boston, Hartford & Erie Railroad Company, as a corporation in Rhode Island, and of the legal effect of its acts and transactions performed in that state, is to be determined exclusively by the laws of that state, and not by those of Connecticut, which have no force beyond its own territory. It results, therefore, that the doctrine of ultra vires, as here urged by the appellees, has no place in this controversy.

It is, however, urged on behalf of the appellees-and this was the ground on which the decree below proceeded-that the obligation required by the statute and given by the company was a bond, in the penal sum of $100,000, conditioned that the company would completely build its road within the period limited, upon which no recovery can be had, except for such damages as may be shown to have resulted to the state of Rhode Island from the breach of its condition; that no damage on that account is proven, it being in fact admitted that none actually resulted; that the certificate of indebtedness and the fund which has arisen from its payment were pledged merely, in lieu of sureties, as collateral security for the satisfaction of the bond; and that, consequently, the claim of the stae of Rhode Island against it having thus failed, that fund reverts to the appellees.

The proposition of counsel for the appellees, as stated by them, is that 'from a period at least as early the year 1650 down to the present time, bonds have constituted a distinct class of instruments, the effect of which is always the same, in the same sense that the effect of a conveyance to A. and his heirs is always the same. Such is the rule of equity. Such was the effect of the statutes. Consequently, if in a particular case parties have expressed their obligation in the form of a bond, their liability is thereby determined to be an obligation to perform the condition or pay the damages actually sustained from non-performance thereof;' and, as a statement of the rule, they cite the following passage, 2 Sedgw. Meas. Dam. (7th Ed.) 259, note:

'Of course, in this class of agreements, as in all others,     when the contract takes the ordinary form of a penal bond,      the sum fixed will invariably be regarded as a penalty; and      this might well be put, at the present day, on the ground of      intention, as derived from the writing itself, for this form      of instrument is in such common use that persons who resort      to it must be held to have in view its legal consequences.'

While this may be accepted as a sufficiently accurate statement of the general rule, as to bonds with conditions, designed as an indemnity between private persons for non-performance of a collateral agreement, yet, in respect to such cases, it cannot be considered as universally true. 'It is often a doubtful question,' said the supreme judicial court of Massachusetts in Hodges v. King, 7 Metc. 583-587, 'whether the sum stipulated to be paid on the non-performance of a condition is in the nature of a penalty, or is the amount settled by the parties for the purpose of making that certain which would be otherwise uncertain. * *  * The bond has indeed a condition; but that is a matter of form and cannot turn that into a penalty which, but for the form, is an agreement to pay a precise sum under certain circumstances.' So that it cannot correctly be said to be true, in all such cases, that the intention to treat the sum named in the bond as a penalty to secure the performance of the condition, and to be discharged on payment of damages arising from non-performance, can be inferred as a rule of law, or a conclusive presumption, from the mere form of the obligation.

Originally, at law, in case of breach of the condition of a bond, the amount recoverable was that named in the obligation. So that, if the condition is impossible either in itself or in law, the obligation remains absolute. As, 'if a man be bound in an obligation, etc., with condition that if the obligor do go from the church of St. Peter in Westminster to the church of St. Peter in Rome within three hours, that then the obligation shall be void. The condition is void and impossible, and the obligation standeth good.' So, again, if the condition is against a maxim or rule in law, as, 'if a man be bound with a condition to enfeoff his wife, the condition is void and against law, because it is against the maxim in law; and yet the bond is good.' Co. Lit. 206b. So, where the condition is possible at the date of the instrument and becomes impossible subsequently, the obligation does not become thereby discharged, unless the impossibility of performance was the act of God, or of the law, or of the obligee. Accordingly, it was held by this court in Taylor v. Taintor, 16 Wall. 366, that when a person arrested in one state on a criminal charge, and released under his own and his bail's recognizance that he will appear on a day fixed and abide the order and judgment of the court on process from which he has been arrested, goes into another state, and, while there, is, on the requisition of the governor of a third state, for a crime committed in it, delivered up, and is convicted and imprisoned in such third state, the condition of the recognizance has not become impossible by act of law so as to discharge the bail; 'the law which renders the performance impossible, and therefore excuses failure, must be a law operative in the state when the obligation was assumed, and obligatory in its effects upon her authorities.'

The ground, nature, and limits of the jurisdiction of courts of equity to relieve against penalties in such instruments is well stated by Mr. Justice STORY, in this language:

'In short, the general principle now adopted is that,     wherever a penalty is inserted merely to secure the      performance or enjoyment of a collateral object, the latter      is considered as the principal intent of the instrument, and      the penalty is deemed only as accessory, and therefore as      intended only to secure the due performance thereof or the      damage really incurred by the non-performance. In every such     case the true test generally, if not universally, by which to      ascertain whether relief can or cannot be had in equity, is      to consider whether compensation can be made or not. If it     cannot be made, then courts of equity will not interfere. If     it can be made, then, if the penalty is to secure the mere      payment of money, courts of equity will relieve the party      upon paying the principal and interest. If it is to secure     the performance of some collateral act or undertaking, then      courts of equity will retain the bill, and will direct an      issue of quantum damnificatus; and when the amount of the      damages is ascertained by a jury, upon the trial of such an      issue, they will grant relief upon payment of such damages.'      Eq. Jur. § 1314.

And Mr. Adams, in his Treatise on Equity, (6th Am. Ed.) 107, says, on the same subject:

'The equity for relief against enforcement of penalties     originates in the rule which formerly prevailed at law, that,      on breach of a contract secured by penalty, the full penalty      might be enforced, without regard to the damage sustained. The court of chancery, in treating contracts as matters for specific     performance, was naturally led to the conclusion that the      annexation of a penalty did not alter their character; and,      in accordance with this view, would not, on the one hand,      permit the contracting party to evade performace by paying      the penalty; and, on the other hand, would restrain      proceedings to enforce the penalty on a subsequent      performance of the contract itself, viz., in the case of a      debt, on payment of principal, interest, and costs; or in      that of any other contract, on reimbursement of the actual      damage sustained.'

It has accordingly been uniformly held, in cases too numerous for citation, that courts of equity will not interfere in cases of forfeiture for the breach of covenants and conditions where there cannot be any just compensation decreed for the breach; for, as was said by Lord Chancellor MACCLESFIELD, in Peachy v. Duke of Somerset, 1 Strange, 447; S.C.. Prec. Ch. 568; 2 Eq. Cas. Abr. 227, 'it is the recompense that gives this court a handle to grant relief.'

The application of this principle becomes more manifest in cases where a public interest or policy supervenes, as where, for non-compliance by stockholders in corporations engaged in undertakings of a public nature, with the terms of payment of installments due on account of their shares, by which a forfeiture of the stock and of all previous payments thereon has been incurred and declared, the courts refuse to grant relief. Sparks v. Proprietors of Liverpool Water-works, 13 Ves. 428; Prendergast v. Turton, 1 Younge & C. Ch. 98; Naylor v. ''South Devon Ry. Co. 1 De G. & S. 32; Sudlow v. Dutch Rhenish Ry. Co.'' 21 Beav. 43.

In the case of Sparks v. Proprietors of Liverpool Water-works, 13 Ves. 433, Sir WM. GRANT, M. R., said:

'The parties might contract upon any terms thought fit, and     might impose terms as arbitrary as they pleased. It is     essential to such transactions. This struck me as not like     the case of individuals. If this species of equity is open to     parties engaged in these undertakings, they could not be car      reid on. * *  * Why is not this equity open to contractors for      government loans? Why may not they come here to be relieved when     they have failed in making their deposit? And if they could     have relief, how could gov ernment go on? It would be just as     difficult for these undertakings to go on. If compensation     cannot be effectually made, it ought not to be attempted.'

Accordingly, where any penalty or forfeiture is imposed by statute upon the doing or omission of a certain act, there courts of equity will not interfere to mitigate the penalty or forfeiture, if incurred, for it would be in contravention of the direct expression of the legislative will. Story, Eq. Jur. § 1326. Lord Chancellor MACCLESFIELD said, in Peachy v. Duke of Somerset, 1 Strange, 477: 'Cases of agreements and conditions of the party and of the law are certainly to be distinguished. You can never say the law has determined hardly, but you may that the party has made a hard bargain.'

In Powell v. Redfield, 4 Blatchf. C.C. 45, an application was made in equity to restrain suits upon a bond given in pursuance of the revenue laws of the United States, which was denied on the ground that a court of equity had no right to interfere, and, by injunction or decree, to virtually repeal the express provisions of a positive statute. or defeat their operation in the particular case.

In Benson v. Gibson, 3 Atk. 395, Lord HARDWICK said: 'Nor is it like the case of bonds given as a security not to defraud the revenue, because there, where a person is guilty of a breach, it is considered in law as a crime, and this court will not relieve for that reason.'

The case of Treasurer v. Patten, 1 Root, 260, was an action for the penalty of a bond given to oblige the defendant to observe the laws respecting excise, in which there was a verdict for the plaintiff and the £200 penalty. Defendant moved the court, says the report, to chancer said bond. 'By the Court. There is no power short of the legislature can do it; for it is the sum prescribed by an act of the legislature.' So in Keating v. Sparrow, 1 Ball & B. 367, the Lord Chancellor MANNERS said: 'It has been argued on the part of the plaintiff that this court leans against forfeiture, if the party can be compensated; and that he can in this case, where interest and septennial fines may be given to the landlord. That principle is applicable to cases of contract between the parties, but not to the provisions of an act of parliament or conditions in law.'

The fact that the obligation is in the form of a bond to the state does not make its penalty less a statutory forfeiture, and so outside the jurisdiction of a court of equity. In the case of U.S. v. Montell, Taney, C. C. 47, it was held that the sum secured by a bond with sureties, under the act of congress of December 31, 1792, c. 45, § 7, conditioned that the registry of a vessel should be used solely for the vessel for which it is granted, and should not be disposed of to any person whatsoever; and if the vessel be lost, or prevented by disaster from returning to the port, and the registry shall be preserved, or if the vessel be sold, that the registry shall be delivered up to the collector, is a penalty or forfeiture inflicted by the sovereign power for a breach of its laws, not a liquidated amount of damages due under a contract, but a fixed and certain punishment for an offense, and not the less so because security is taken before the offense is committed in order to secure the payment of the fine if the law should be vio lated. Chief Justice TANEY, in his opinion, said:

'Penalties and forfeitures imposed by statute are not usually     provided for by bond and security given in advance. The sum     recovered from Montell is recovered upon a contract; the      action was brought upon a contract; and was not and could not      have been brought in any of those forms which are usually      necessary for the recovery of fines or forfeitures imposed by      law. Yet this sum was, in truth, forfeited by Montell, by     reason of his violation of a duty imposed by the act of      congress; it was a specific penalty upon the owner and      master, for the commission of a particular offense against      the policy of that law. And although the amount was secured     by bond given for the performance of the duty, yet this duty was a part of the same policy with other      duties mentioned in the act and for which other penalties are      inflicted. * *  *

'It certainly is not to be regarded as a bond with a     collateral condition, in which the jury are to assess the      damages which the United States shall prove that they have      sustained; for, according to that construction, the amount of      damages would not depend upon the amount of the penalty      described in the section, which is graduated according to the      size of the vessel, but would depend upon the discretion of      different juries, and larger damages might be given where the      penalty was only $400, than in a case where the penalty was      $2,000.

'This, obviously, is not the intention of the law; and the     United States are entitled to recover the whole sum, for      which the party is bound, if any one of the conditions are      broken. Besides, how could the United States prove any     particular amount of damages to have been sustained by them      in a suit on this bond? What do they lose? It would be     difficult, we think, by any course of proof or any process of      reasoning, to show that the United States had sustained any      particular amount of damages in a case of this description,      or to adopt any rule by which the damages could be measured      by a jury, or be liquidated by agreement between the parties.

'The sum, for which the parties are to become bound, is,     manifestly, a penalty or forfeiture, inflicted by the      sovereign power for a breach of its laws.

'It is not a liquidated amount of damages due upon a     contract, but a fixed and certain punishment for an offense. And it is not the less a penalty and a punishment because     security is taken before the offense is committed, in order      to secure the payment of the fine if the law should be      violated.'

Recurring now to the particular circumstances of the present case, with a view to the application of these principles and decisions, we are satisfied that the proper solution of the question now under examination is to be found in two principal considerations.

The first of these is that it was not intended by the parties, the state of Rhode Island on the one hand, and the Boston, Hartford & Erie Railroad Company on the other, that the obligation given and accepted should be for an indemnity against any loss or damage expected to be suffered by the state, in the event that the railroad company should fail to build the railroad as required. It is found as a fact that no such loss or damage has in fact ensued. It is equally plain that none could possibly have arisen. The security is not to be extended to any supposed damage to private interests legally affected by the process of constructing the work. All damage of this kind to private persons was carefully provided for in other parts of the act. As to the state itself, the real party to the arrangement and contract, it could gain nothing in its political and sovereign character by the construction of the road; it could lose nothing by the default. If it could be supposed as possible that the state had in view the public interests of commerce and trade in the construction of the proposed railroad, and meant to provide for loss and damage to them by reason of its failure, the obvious answer is that no computation and assessment of actual damages on that account would be practicable, leaving as the alternative that the state, in fixing the penalty of the bond in the statute, had established its own measure of the public loss. The question of damages and compensation was not, because it could not have been, in contemplation of the parties. There was no room for supposing that there could be any. To assume that the statute required this bond and security in this sense, in full view of the legal conclusion which it is said necessarily flows from its form, and that in the event contemplated, of the failure to build the road, all that remained to be done was that the state should hand back canceled the obligation and security it had been at such pains to exact, is to put upon the transaction an interpretation altogether inadmissible. It would have been, upon such an assumption, a vain and senseless thing, and however private persons may be sometimes supposed to act improvidently, we are not to put such constructions, when it is legally possible to avoid them, upon the deliberate and solemn acts and transactions of a sovereign power, acting through the forms of legislation.

The conclusion, in our opinion, cannot be resisted that the intention of the parties in the transaction in question was that if the railroad should not be built within the time limited, the corporation should pay to the state, absolutely and for its own use, the sum named in the bond and secured by the deposited certificate of indebtedness. The supposition is not open that the penalty was prescribed merely in terrorem, to secure punctuality in performance, with the reserved intention of permitting subsequent performance to condone the default, for a distinct section of the statute (section 9) declares that in case of failure to complete the road within the time limited, the act itself should be void and of no effect.

In the second place, we think that the sum named in the statute is imposed by it as a statutory penalty for the non-performance of a statutory duty. The obligation required is that the railroad company shall give a bond, with satisfactory security, that they will obey the law; that they will complete their road as required by it. The language evidently means that, in case they fail to do so, they shall forfeit and pay the sum named; and, in order to insure its payment, additional parties to the bond, as sureties, are required. It is admitted that if it does not mean this it does not mean anything, and we have already said that we are not at liberty to adopt that alternative. We must construe it ut res magis valeat quam pereat; and the rule of strictness, in the construction of penal statutes, does not require an interpretation which defeats the very object of the law. The state of Rhode Island was dealing with one of its own corporations, and it had perfect right to act upon its own policy and prescribe its own terms, as conditions of powers and privileges sought from its authority.

For these reasons the decree of the circuit court is reversed, and the cause is remanded, with instructions to enter a decree in favor of the state of Rhode Island for the sum of $100,000, payable out of the fund in court, with so much interest thereon, if any, as has accrued on that sum since the first day of January, 1872, which is the date when the amount became due. And it is accordingly so ordered.