Thomas v. Railroad Company

ERROR to the Circuit Court of the United States for the Eastern District of Pennsylvania.

This was an action of covenant, by George W. Thomas, Alfred S. Porter, and Nathaniel F. Chew, against the West Jersey Railroad Company, and they, to maintain the issue on their part, offered to prove the following facts:--

On the eighth day of October, 1863, the Millville and Glassboro Railroad Company, a corporation incorporated by the legislature of New Jersey, March 9, 1859, entered into an agreement with them, whereby it was stipulated that the company should, and did thereby, lease its road, buildings, and rolling-stock to them for twenty years from the 1st of August, 1863, for the consideration of one-half of the gross sum collected from the operation of the road by the plaintiffs during that period; that the company might at any time terminate the contract and retake possession of the railroad, and that in such case, if the plaintiffs so desired, the company would appoint an arbitrator, who, with one appointed by them, should decide upon the value of the contract to them, and the loss and damage incurred by, and justly and equitably due to them, by reason of such termination thereof; that in the event of a difference of opinion between the arbitrators, they were to choose a third, and the decision of a majority was to be final, conclusive, and binding upon the parties.

On the 10th of April, 1867, the legislature of New Jersey passed an act entitled 'A supplement to the act entitled 'An Act to incorporate the Millville and Glassboro Railroad Company." It was therein enacted that it should be unlawful for the directors, lessees, or agents of said railroad to charge more than the sums therein named for passengers and freight respectively. The plaintiffs claim that at the date of the passage of this act it was well known that they were acting under the said agreement of 8th October, 1863.

On the 12th of October, 1867, articles of agreement were entered into between the Millville and Glassboro Railroad Company and the West Jersey Railroad Company, the defendant, whereby it was agreed that the former should be merged into and consolidated with the latter.

In November, 1867, a written notice was served by the Mill and Glassboro Railroad Company upon the plaintiffs, putting an end to the contract and to all the rights thereby granted, and notifying them that the company would retake possession of the railroad on the first day of April, 1868.

On the 18th of March, 1868, the legislature of New Jersey passed an act whereby it was enacted that, upon the fulfilment of certain preliminaries, the Millville and Glassboro Railroad Company should be consolidated with the West Jersey Railroad Company, 'subject to all the debts, liabilities, and obligations of both of said companies.' The conditions required by that act were fulfilled, and the railroad was duly delivered by the plaintiffs to the West Jersey Railroad Company on the 1st of April, 1868.

On April 13, 1868, and again on May 22 of the same year, notices to arbitrate according to the terms of the agreement were served by the plaintiffs upon the Millville and Glassboro Railroad Company, and immediately thereafter upon the West Jersey Railroad Company. The latter company refused to comply with the terms of either notice; but subsequently, on the 21st of December, 1868, an agreement of submission was entered into between the plaintiffs and the latter company, whereby H. F. Kenney and Matthew Baird were appointed arbitrators, with power to choose a third, to settle the controversy between the parties. These arbitrators disagreeing, called in a third, who joined with said Baird in an award, by which the value of the unexpired term of the lease, and the loss sustained by reason of the termination thereof to and by the plaintiffs, was adjudged to be the sum of $159,437.07; and the West Jersey Railroad Company was ordered to pay that sum to the plaintiffs. This award was subsequently set aside in a suit in equity brought in New Jersey.

The plaintiffs further offered to prove their compliance in all respects with the terms of the lease, its value, and the loss and damage they had sustained by reason of its termination as aforesaid. The court excluded the offered testimony on the ground that the lease by the Millville and Glassboro Railroad Company to the plaintiffs was ultra vires, and directed the jury to return a verdict for the defendant. The plaintiffs duly excepted and sued out this writ.

They assign for error that the court below erred,--

1. In excluding from the consideration of the jury the offered evidence of the said agreement between the Millville and Glassboro Railroad Company and the plaintiffs; of the acts of assembly of New Jersey, one an act to incorporate the Millville and Glassboro Railroad Company, approved the 9th of March, 1859, and another an act entitled 'A supplement to the act entitled 'An Act to incorporate the Millville and Glassboro Railroad Company,' passed the tenth day of April, 1867,' and the acts referred to therein; of the fact that it was well known at the date of the last-named act that the plaintiffs were lessees acting under the said contract and agreement; and of all the other acts of the legislature of the State of New Jersey relating to the West Jersey Railroad Company, and to the Millville and Glassboro Railroad Company.

2. In directing the jury that their verdict must be for the defendant.

3. In entering judgment upon the verdict for the defendant.

Mr. George W. Biddle and Mr. A. Sydney Biddle for the plaintiffs in error.

I. The contract of 8th October, 1863, was intra vires of the Millville and Glassboro Railroad Company, because authorized by the act of incorporation.

First, It was expressly authorized by the act of incorporation, the thirteenth section of which declares 'that it shall be lawful for the said company, at any time during the continuance of its charter, to make contracts and engagements with any other corporation, or with individuals, for the transporting or conveying any kinds of goods, produce, merchandise, freight, or passengers, and to enforce the fulfilment of such contracts.'

A supplement to that act, approved April 10, 1867, sustains this position, for it enacts 'that it shall be unlawful for the directors, lessees, or agents of said railroad to charge more than three and a half cents per mile for the carrying of passengers, and six cents per ton per mile for the carrying of freight or merchandise of any description, unless a single package, weighing less than one hundred pounds; nor shall more than one half of the above rate be charged for carrying any fertilizing materials, either in their own cars or cars of other companies running over said railroad: Provided, that nothing contained in this act shall deprive the said railroad company, or its lessees, of the benefits of the provisions of an act entitled 'An Act relative to freights and fares on railways in the State,' approved March 4, 1858, and applicable to all other railroads in this State.'

Second, the contract in question was impliedly authorized by the act of incorporation. It was, in fact, a mere appointment of agents or employes to run the road, making it for their advantage to economize and advance the interests of the road by paying them upon a sliding scale. Although the words 'lease' and 'lessees' are employed, its terms show that the plaintiffs were in no respect lessees in a legal sense. It was confined to twenty years. The company could put an end to it and retake possession upon three months' notice. The contract would terminate by the death of either of the so-called lessees, or by their omission to make the regular payments. They were required forthwith to discharge from their employment any person employed by them whom the company, through its directors, should wish removed. The plaintiffs were to pay to the company one-half the gross amount received, and to secure their covenant to keep the rolling-stock, &c., in good repair, by depositing yearly a sum of $10,000 with a trustee, who acted as agent for the company. This case essentially differs from those in which it has been held that a contract whereby a railroad company engages to employ the corporate funds in a manner not authorized by the charter is void, and that its execution will, upon the application of a shareholder, be restrained by a court of chancery, and from those in which such a contract has by a common-law court been declared to be impliedly forbidden by the legislature, and therefore void as against public policy.

This fund was to be appropriated under the directions of the company for repairing and replacing the track, roadbed, and rolling-stock. Any dispute as to what were current repairs (to which no portion of this fund was to be applied), and what were repairs to perpetuate the road and rolling-stock, was to be settled by an agent of the company. This fund was to be applied by the trustee upon the order of, and only to the purposes designated by, the Millville company.

No definition of a lease can be framed which will comprehend such an agreement. It was, in truth, an appointment of three agents to take charge of a small road a few miles long.

Third, The objection of ultra vires cannot be maintained in this case. The funds of the corporation were not engaged outside of the scope of the object of its charter; and although it devolved some of its administrative duties to others, the supervision of the directors was not withdrawn, and the rights of the shareholders were carefully secured. Robbins v. Embry, 1 Smed. & M. (Miss.) Ch. 268, 269; Llanelly Railway & Dock Co. v. London & Northwestern Railway Co., Law Rep. 8 Ch. 942.

An instrument providing that a railroad shall be run, not directly by the corporation, but by agents appointed by it, has never been declared invalid. Galveston Railroad v. Cowdrey, 11 Wall. 459. It is not a valid objection that the plaintiffs should be primarily liable to the public. Langley v. Boston & Maine Railroad, 10 Gray (Mass.), 103. The corporation remained bound. It has never attempted to evade the duties nor escape from the responsibilities imposed by its charter; and it could not successfully do so. York & Maryland Line Railroad Co. v. Winans, 17 How. 30; Bissell v. The Michigan & Northern Indiana Railroad Co., 22 N.Y. 258.

II. The contract wasauthorized, inasmuch as it was neither directly nor impliedly forbidden; was germane to the object for which the company was formed, and would have been valid at common law, if made by a corporation created bycharter.

A corporate body may (as at common law) do any act whichis not either expressly or impliedly prohibited by its charter; although where the act is unauthorized a shareholder may enjoin its execution;and the State may, by proper process, forfeit the charter.

The realposition being in such cases, Has the charter prohibited the contract sought to be enforced; if it has, has the prohibited portion been completely executed; if it has not, have the partners, the shareholders in the corporation, ratified the act which their agents, the directors, were, as against them, unauthorized to perform? Taylor v. Chichester & Midhurst Railway Co., Law Rep. 2 Ex. 356; The Mayor of Norwich v. Norfolk Railway Co., 4 El. & Bl. 397; East Anglian Railways Co. v. The Eastern Counties Railway Co., 11 C. B. 775; Chambers v. Manchester & Milford Railway Co., 5 B. & S. 588; South Wales Railway Co. v. Redmond, 10 C. B. N. S. 675; Bateman v. ''Mayor, &c. of Ashton-under-Lyne, 3 H. & N. 323; Shrewsbury & Birmingham Railway Co. v. The Northwestern Railway Co.'', 6 H. of L. 113, 136.

The authorities establish the proposition that a contract not forbidden may be enforced, where the shareholders have assented. In this case there was a prior unanimous assent and a subsequent unanimous ratification, and the illegal part, if any, of the contract has been completely executed.

III. The defence of ultra vires is inadmissible to an action against a corporation upon its contract duly made, where (if not wholly executed) all the shareholders have acquiesced in its performance, or where the contract has been wholly performed by the other party without objection on the part of the corporation, or any of the shareholders. Graham v. Birkenhead Railroad Co., 2 Mac. & G. 146; Phosphate of Lime Company v. Green, Law Rep. 7 C. P. 43, 62, 63; The Erie Railway Co. v. The Delaware, Lackawanna, & Western and The Morris & Essex Railroad Companies, 21 N. J. Eq. 283, 289; Riche v. The Ashbury Railway Carriage & Iron Co., Law Rep. 9 Exch. 244.

Where the transaction is complete, and nothing remains to be done by the party seeking relief, the plea of ultra vires is not available by the corporation in an action brought against it for not performing its side of the contract. The Silver Lake Bank v. North, 4 Johns. (N. Y.) Ch. 370, 373; Gold Mining Company v. National Bank, 96 U.S. 640; National Bank v. Matthews, 98 id. 621; Steamboat Company v. McCutcheon & Collins, 13 Pa. St. 13; Oneida Bank v. Ontario Bank, 21 N. Y. 490, 495; Bissell v. Michigan Southern & Northern Indiana Railroad Companies, 22 id. 258, 272, 273; Whitney Arms Company v. Barlow, 63 id. 62, 68, 69; Steam Company v. Weed, § 7 Barb. (N. Y.) 378; Moss v. Mining Company, 5 Hill (N. Y.), 137; Grant v. Henry Clay Coal Co., 80 Pa. St. 208, 218; Oil Creek & Allegheny River Railroad Co. v. Pennsylvania Transportation Co., 83 id. 160; McCluer v. Manchester & Lawrence Railroad, 13 Gray (Mass.), 124; Gifford v. New Jersey Railroad Co., 2 Stock. (N. J.) 177; Galveston Railroad v. Cowdrey, 11 Wall. 459, 476; Smith v. Sheeley, 12 id. 358, 361; Kelly v. Transportation Company, 3 Oreg. 189; Weber v. Agricultural Society, 44 Iowa, 239; Showalter v. Pirner, 55 Mo. 233; Chambers v. City of St. Louis, 29 id. 543; Land v. Coffman, 50 id. 243; Wade v. Colonization Society, 7 Smed. & M. (Miss.) 663, 697; Robbins v. Embry, supra.

IV. If the contract were originally ultra vires, it was ratified, and, for the future, authorized by the act of 10th April, 1867. P. L. of New Jersey of 1867, p. 915; Record, 40.

It is a well-settled principle of law that statutes, by implication, ratify and legalize former unauthorized proceeding of a corporation, where the unlawful act is mentioned or referred to in them as a proper one; and if the act be a continuing one, it is authorized for the future. The Ecclesiastical Commissioners for England v. Northeastern Railway Co., 4 Ch. Div. 845.

Mr. Samuel Dickson, contra.

MR. JUSTICE MILLER, after stating the case, delivered the opinion of the court.