Pittsburgh, C. & St. Louis Railway Company v. Keokuk H. Bridge Company

[Syllabus from pages 371-372 intentionally omitted]

This was a bill in equity, filed July 25, 1881, by the Keokk & Hamilton Bridge Company against the Pittsburgh, Cincinnati & St. Louis Railway Company and the Pennsylvania Railroad Company, to recover deficiencies in tolls for the use of the plaintiff's bridge, under a contract executed at the request of the presidents of those two railroad companies by the Columbus, Chicago & Indiana Central Railroad Company, which was made by amendment a party to the bill. The Keokuk & Hamilton Bridge Company was a corporation organized under the laws of Iowa and of Illinois. The Pennsylvania Railroad Company was a corporation organized under the laws of Pennsylvania. The Pittsburgh, Cincinnati & St. Louis Railway Company was formed in 1868 by the consolidation of the Pan-Handle Company, a corporation organized under the laws of Pennsylvania, the Holiday's Cove Railroad Company, a corporation organized under the laws of West Virginia, and the Steubenville & Indiana Railroad Company, a corporation organized under the laws of Ohio. The Columbus, Chicago & Indiana Central Railroad Company was a corporation formed in 1867 by the consolidation of the Columbus & Indiana Central Railroad Company, a corporation existing under the laws of Ohio and Indiana, and the Chicago & Great Eastern Railway Company, a corporation existing under the laws of Indiana and Illinois. The railroads of the Pennsylvania Railroad Company from Philadelphia to Pittsburgh in Pennsylvania, of the Pittsburgh, Cincinnati & St. Louis Railway Company from Pittsburgh to Columbus in Ohio, of the Columbus, Chicago & Indiana Central Railroad Company from Columbus to the state line between Indiana and Illinois, and of the Toledo, Peoria & Warsaw Railway Company from that state line to Hamilton in Illinois, with the bridge of the Keokuk & Hamilton Bridge Company across the Mississippi river between Hamilton and Keokuk, and the road of the Des Moines Valley Railroad Company from Keokuk to Des Moines in the state of Iowa, from a continuous line of railroad transportation from Philadelphia, on the east, to Des Moines, on the west. For the sake of brevity, we shall speak of those companies respectively as the Pennsylvania Company, the Pittsburgh Company, the Indiana Central Company, the Peoria Company, the Bridge Company, and the Des Moines Company.

The bridge was built under a contract, dated January 19, 1869, made by the Bridge Company with the Indiana Central Company, the Peoria Company, the Des Moines Company, and a fourth railroad company, (the Toledo, Wabash & Western Railway Company,) whose railroad connected with the bridge at Hamilton. By that contract the Bridge Company agreed to begin to construct forthwith across the Mississippi river, at Keokuk, and to complete by January 1, 1870, 'a substantial wrought-iron bridge, suitable for the running of railway trains;' 'to lay a track upon said bridge, and connect the same with railways belonging to the parties hereto, in such manner, and at such points, as may hereafter be agreed upon;' and 'to maintain and keep in repair in perpetuity the said bridge and tracks, so that trains may safely cross at all times, except when repairs make it necessary that crossing should be temporarily suspended, or when it shall be necessary to have the draw open for the passage of boats;' and granted to those four railroad companies, in perpetuity, the right to use the bridge for the purpose of passing their trains across the Mississippi river; and they agreed to pay monthly stipulated rates for the transportation of passengers and freight, and, if the gross amount of the rates for freight for any year should fall below the sum of $80,000, making up the deficiency, each of the four railroad companies contributing in proportion to the tonnage passed by it over the bridge; for which, by a subsequent modification of the contract in June, 1871, was substituted one-fourth of such deficiency. This suit was brought to recover from the Pittsburgh Company and the Pennsylvania Company such deficiencies in the sums payable by the Indiana Central Company under the modified bridge contract sic e September 1, 1874, amounting to $118,076.89, and interest. The circuit court entered a decree for the plaintiff, in accordance with the prayer of the bill, and the Pittsburgh and Pennsylvania Companies each appealed to this court.

The facts on which the Bridge Company sought to charge the Pittsburgh and Pennsylvania Companies for these sums were as follows: After the original bridge contract had been drawn up, and before it had been executed, the Indiana Central Company entered into an indenture with the Pittsburgh and Pennsylvania Companies, by which it leased its franchises and road, and all lands and properly connected with the use thereof, to the Pittsburgh Company, for 99 years, and the Pennsylvania Company guarantied the performance of all the covenants of the Pittsburgh Company as lessee. The thirteenth and the sixteenth articles of that lease clearly manifest that one of its chief objects was to establish a continuous line for quick transportation from Pennsylvania to the West, and to procure freight and passengers at each end of the line; and they contain special provisions calling for action of the Pennsylvania Company, as well as of the Pittsburgh Company, so as to promote that object. The sixteenth article of the lease declares that it is in consideration of the benefits so accruing to the Pennsylvania Company, by reason of the covenants of the lessor and of the lessee, 'in the forming, maintaining, and operating of a continuous line of railway in connection with the road or roads of' the Pennsylvania Company, that this company guaranties to the Indiana Central Company that the Pittsburgh Company will keep and perform all its covenants, and that, upon its failure or default to do so, the Pennsylvania Company will, upon written notice of the kind and nature of such failure or default, keep and perform those covenants; in which event it is agreed that it shall be entitled to all the benefits that might accrue therefrom to the Pittsburgh Company. Among those covenants of the Pittsburgh Company, as lessee, which the Pennsylvania Company thus guarantied the performance of, were the covenant in the sixth article to pay to or for the benefit of the Indiana Central Company three-tenths of the gross earnings of the property leased; and the covenants in the ninth article, by which the Indiana Central Company assigns to the Pittsburgh Company certain existing contracts for transportation over other railroads not mentioned above, and the Pittsburgh Company 'assumes, and agrees at its own risk and expense to carry out, each and all of said contracts, according to their respective tenors and legal liabilities, receiving and enjoying all benefits to be derived therefrom.' The lease was executed in behalf of each of the three companies, parties thereto, by its president and secretary, under its seal, and was approved by votes of the directors and of the stockholders of the Indiana Central Company and of the Pittsburgh Company, on or before February 1, 1869, so as to make it valid under the laws of Ohio, and the Pittsburgh Company forthwith took possession of and had since operated the railroad so leased. The lease does not appear to have been approved by formal vote of the directors or stockholders of the Pennsylvania Company. But immediately after its execution the president and directors of this company, in their printed annual report to their stockholders of February 10, 1869, stated that the Pennsylvania Company controlled the railway of the Pittsburgh Company, 'as an indispensable connection for the Pennsylvania Railway with the West and Southwest,' by means of the ownership by the Pennsylvania Company of more than five millions of the stock and bonds of the Pittsburgh Company, and of the lease from the Indiana Central Company to the Pittsburgh Company, 'guarantied by this company;' and expressed the settled policy of the Pennsylvania Company thereby to secure a continuous line of traffic to Keokuk and westward.

The bridge contract was not on of the transportation contracts specified in the ninth article of the lease. But on February 16, 1869, the presidents of the Pittsburgh and Pennsylvania Companies, in their behalf, jointly addressed a formal letter to the president of the Indiana Central Company referring to the bridge contract as having been under negotiation, but unexecuted by the Indiana Central Company, at the date of the final execution of the lease, and requesting him, in his official capacity, to execute the bridge contract, 'it being understood that the said lessee and Pennsylvania Railroad Company shall assume all the liabilities and obligations, and be entitled to all the benefits, of said bridge contract, the same as if it had been specifically named and made a part of the ninth article of the said lease.' The president of the Indiana Central Company thereupon, in its name and under its seal, executed the bridge contract, and reported to its board of directors at the next meeting, in March, 1869, that he had done so; and the board never in any way repudiated or disapproved his act, or took any action upon the subject. On February 1, 1870, an amendment of the lease, defining the gross earnings to be accounted for as the annual gross earnings of the road, after deducting, among other things, 'the pro rata bridge-tolls' and 'terminal expenses allowed to other railroad corporations on through business between the East and the West,' was executed by the presidents of the three companies, and approved by votes of the directors and stockholders of the Indiana Central Company and of the Pittsburgh Company. This amendment, like the original lease, does not appear to have been approved by formal vote of the directors or stockholders of the Pennsylvania Company. But the annual report made in print by its president and directors to the stockholders a year after, on February 18, 1871, spoke of this company's control of the western traffic through the Pittsburgh Company, and by means of the lease of the Indiana Central Railroad, as an established fact. On June 6, 1871, and bridge contract was modified so as to have the deficiency in tolls paid to the Bridge Company by the Indiana Central Company and the three other railroad corporations, parties to that contract, one-fourth each, instead of in proportion to tonnage; and the modification was executed by the president of the Indiana Central Company, pursuant to a request of the presidents of the Pittsburgh and Pennsylvania Companies, similar in terms to their request upon which the original bridge contract had been executed.

It was on June 13, 1871, after all these transactions had taken place, that the bridge was accepted by the Bridge Company, and was opened for use; and thenceforward it was used by the Pittsburgh and Pennsylvania Companies in the exercise of the control asserted by them under the various contracts agove mentioned. From that time the Bridge Company, acting in accordance with the understanding expressed in the letters from the presidents of the Pittsburgh and Pennsylvania Companies to the president of the Indiana Central Company, upon which the latter, in behalf of his company, had executed the bridge contract and the modification thereof, as well as the original lease and the amendment thereof, demanded payment directly from the Pittsburgh Company, semi-annually, of the sums payable by the Indiana Central Company for tolls and deficiencies under the modified bridge contract; and for more than three years-from June, 1871, to September, 1874-the comptroller of the Pittsburgh Company, after examining the books of account of the Bridge Company, paid to the Bridge Company the amount both of such tolls and of such deficiencies. Since that time like payments were demanded by the Bridge Company of the Pittsburgh Company, and the tolls only were paid.

The principal positions taken in the argument for the appellants were, that the Indiana Central Company, the Pittsburgh Company, and the Pennsylvania Company never authorie d their officers to execute the bridge contract, or to bind them by it; and that the contract was beyond the scope of their corporate powers. But the court is of opinion that upon the facts of this case neither of these positions can be maintained. When the president of a corporation executes in its behalf, and within the scope of its charter, a contract which requires the concurrence of the board of directors, and the board knowing that he has done so, does not dissent within a reasonable time, it will be presumed to have ratified his act. Rolling Mill v. Railroad Co., 120 U.S. 256, 7 Sup. Ct. Rep. 542. And when a contract is made by any agent of a corporation in its behalf, and for a purpose authorized by its charter, and the corporation receives the benefit of the contract, without objection, it may be presumed to have authorized or ratified the contract of its agent. Bank v. Patterson, 7 Cranch, 299; Bank v. Dandridge, 12 Wheat. 64; Zabriskie v. Railroad Co., 23 How. 381; Mining Co. v. Bank, 96 U.S. 640; Gas. Co. v. Berry, 113 U.S. 322, 327, 5 Sup. Ct. Rep. 525. This doctrine was clearly and strongly stated by Mr. Justice STORY, delivering the judgment of this court, in each of the first two of the cases just cited.

George Hoadly, for appellants.

[Argument of Counsel from pages 378-380 intentionally omitted]

Lyman Trumbull and Melville W. Fuller, for appellee.

GRAY, J.