Oregon Ry. & Nav. Co. v. Oregonian Ry. Co., Ltd., 130 U.S. 1 (1889)

U.S. Supreme Court

Oregon Ry. & Nav. Co. v. Oregonian Ry. Co., Ltd., 130 U.S. 1 (1889) Oregon Railway and Navigation Company v.

Oregonian Railway Company, Limited

No. 26

Argued April 27, 30, May 1, 1888

Decided March 5, 1889

130 U.S. 1

ERROR TO THE CIRCUIT COURT OF THE UNITED

STATES FOR THE DISTRICT OF OREGON

Syllabus

In the United States, a corporation can only have an existence under the express law of the state by which it is created, and can exercise no power or authority which is not granted to it by the charter under which it exists, or by some other legislative act.

When a statute makes a grant of property, powers, or franchises to a private corporation or to a private individual, the construction of the grant in doubtful points should always be against the grantee and in favor of the government, and this general rule of construction applies with still greater force to articles of association organizing a corporation under general laws.

The power to lease a railroad, its appurtenances and franchises, is not to be presumed from the usual grant of powers in a railroad charter, and unless authorized by legislative action so to do, one company cannot transfer them to another company by lease, nor can the other company receive and operate them under such a lease.

The Constitution and general laws of Oregon do not authorize a railroad corporation organized under the laws of the state to take a lease of a railroad and franchises.

The general laws of Oregon confer upon a foreign corporation no right to make a lease of a railroad within the state, but only the right to construct or acquire and operate one there.

Page 130 U. S. 2

When a state constitution contains a general provision that corporations shall not be created by special laws, but may be formed under general laws, no private corporation can be created thereafter until such general law has been enacted.

When a corporation is organized through articles of association entered into under general laws, the memorandum of association stands in the place of a legislative charter insofar that its powers cannot exceed those enumerated therein, but powers enumerated and claimed therein which are not warranted by statute are void for want of authority. Thomas v. Railroad Co., 101 U. S. 71, explained.

The use of the words "successors or assigns" in a proviso attached to a statute making specific grants to a corporation does not necessarily imply that the corporation can transfer all its property and its franchisee to another corporation, to be exercised by the latter.

A provision in a general act for organizing corporations for the purpose of navigating streams, with power to construct railroads where portage is necessary, that a corporation organized under it shall not lease such a railroad, does not imply that without such a restraint the corporation could make such a lease.

A provision in a general act for the organization of corporations that a corporation organized under it may authorize its own dissolution and the disposition of its property thereafter does not authorize such a corporation, not dissolving but continuing in existence, to dispose of all its corporate franchises and powers by lease.

The operation of a railroad and payment of rent for three years by a lessee under a lease of it for ninety-six years, which was executed in violation of the corporate powers both of the lessor and of the lessee, does not so far execute the contract of lease by part performance as to estop the lessee from setting up its illegality in an action at law to recover after accruing rent.

The case, as stated by the Court in its opinion, was as follows:

This is a writ of error to the Circuit Court of the United States for the District of Oregon.

The Oregonian Railway Company, Limited, recovered a judgment against the Oregon Railway and Navigation Company for the sum of $68,131, on a contract for the lease of a railroad owned by the plaintiff in the suit, which had been leased to and used by the defendant. This sum was for the semiannual payment of rent, in advance, for the half year beginning May 15, 1884.

The Oregonian Railway Company, Limited, was organized in Scotland under what are called "The Companies' Acts" of

Page 130 U. S. 3

Parliament of 1862, 1867, and 1877, and in the memorandum of association it is declared that its principal office and place of business is at Dundee. The defendant in the action, the Oregon Railway and Navigation Company, was organized under articles of incorporation filed June 13, 1879, according to the statutes of Oregon on that subject, and its principal office is declared in those articles to be at Portland, Oregon. After many amendments to the original petition and still more numerous amended answers, the case came to a hearing before the court on a demurrer to the answer and a motion to strike it out. This motion was denied, but the demurrer was sustained, and, as the pleadings were supposed to present all the issues that could arise in the case, a judgment was rendered for the plaintiff, to review which this writ of error is prosecuted. 22 F. 245 and 23 F. 232.

The amended petition of the plaintiff sets out the acts of Parliament under which it was organized as a corporation, or so much thereof as is necessary to an understanding of the questions presented by this record, and gives in full its "Memorandum of Association," and also what are called its "Articles of Association." This memorandum, after stating the name of the company as above given, and that its registered office will be situated in Scotland, proceeds to give the objects for which it is established, as follows:

"First. The building, constructing, reconstructing, equipping, owning, operating, leasing, or selling, transferring, or disposing of, or purchasing, or otherwise acquiring, holding, and operating, or otherwise using, working, or dealing in all or any such railway or railways, railroad or railroads, in the State of Oregon and the Territory of Washington, in the United States of America, or in either of them, or between such points in said state or territory or elsewhere in North America as may from time to time be resolved or determined upon by said company, and the carrying of passengers, goods, and minerals, and all other traffic and freight on, and the doing and performing of all other acts, deeds, and other operations connected with, railways and railroads in the said state and territory, or either of them, or elsewhere in North America. "

Page 130 U. S. 4

"Second. The building, constructing, equipping, owning, and operating, or the leasing, selling, transferring, holding, or acquiring, by purchase or otherwise, and the working and using of one or more lines or portions of lines of railroad or railway, or parts thereof from (first) the City of Portland, or the City of Astoria, in the State of Oregon, United States of America, or from either or both of said cities, or from some other point or place on the Willamette or Columbia Rivers in said State of Oregon, through any part or portion of the said State of Oregon lying west or south of the Cascade range of mountains in said state to some point at or near, in or upon said Cascade range of mountains; (second) from thence, or from any part or portion of the western or south western part of said State of Oregon, to and across and to the east side of said Cascade range of mountains, through a pass in said mountains at or near that fork or branch of the Willamette River in said State of Oregon, known as the 'middle' fork or branch of said river, or through some other pass in said mountains, within one hundred miles north or south of said middle fork or branch of said river, where shall be found to be, on actual survey, the easiest and most practicable route across the Cascade range of mountains; (third), thence through that portion of said State of Oregon lying east of said Cascade range of mountains, and on through the territories of Washington or Idaho, or the states of Nevada and California, in the United States of America, or through all or any one or more of said states and territories, to a connection with, or without making any connection with, any other railway or railways in either of said States of Oregon, California, or Nevada, or Territories of Washington or Idaho, and with or without one or more branch lines (a) running north, south, east, or west from said main line on the east side of said Cascade range of mountains, or (b) running from said main line on the west side of said Cascade range, in said State of Oregon, forming a junction, or one or more junctions, with said main line at one or more points, to a terminus in said portion of the State of Oregon west of said Cascade range of mountains, or to a junction with said main line, or to a terminus or termini at one or more seaports

Page 130 U. S. 5

on the shores of the Pacific Ocean, all as may from time to time be determined by actual surveys; as also to purchase, build, construct, own, equip, and operate, or to enter into agreements to run over or to lease (1) any line or lines, branch or branches, of railway or railways, railroad or railroads, that may connect with or become attached to, or meet or become a part of, the said main line or its main branch, or any of its branches hereinbefore designated; or (2) such other main or branch line or lines, or extensions of any railway or railways, railroad or railroads, made in connection with this company's main line, or of any of its branches, or separate and distinct therefrom, all in such manner of way or form, and on such terms, as said company shall from time to time deem advisable and for its interests, and the doing and performing of all other operations connected with said designated railway or railways, railroad or railroads, or branches thereof, or in connection with other railways of a similar or different nature, the doing and performing of which this said company shall at any time deem advisable and for its interests in the carrying out of its business."

"Third. The building, constructing, purchasing, or otherwise acquiring, holding, equipping, owning, and operating, or the leasing and operating, or the leasing, equipping, and operating, or the selling, transferring, or otherwise disposing of, and the working and using of any other railway or railroad, or of any wharves, jetties, steamboat, or steamship, stage, or of any canals, locks, bridge, day road, plank road, turnpike, hack, truck, or express lines, or any other line, lines, or means for the transportation of freight or passengers, or either or both, now constructed or operated in whole or in part, or which may be hereafter constructed or operated in whole or in part, in either of the said States of Oregon, California, or Nevada, or said territories of Washington or Idaho, and that whether, in connection with or separate and distinct from, and as line or means independent of, said railway or railways, railroad or railroads so to be built, constructed, purchased, owned, equipped, or operated as aforesaid by this company."

The petition also avers that the company has complied with the statute of Oregon which authorizes corporations of foreign

Page 130 U. S. 6

countries to do business in that state upon complying with certain requirements. On this averment no issue is raised.

It also alleges that on August 1, 1881, the plaintiff, by an indenture of lease, demised to the defendant a certain railway or railroad owned by the plaintiff, in the State of Oregon, with its stations, depots, and other property connected therewith, for a term of ninety-six years from the date of the lease, and that the defendant, by the terms of said indenture, covenanted and agreed to pay the plaintiff therefor the yearly rental of twenty-eight thousand pounds sterling, in equal half-yearly payments, on the 15th of May and the 11th of November in each year, in advance. It then proceeds to allege

"that upon the execution of said indenture of lease the said defendant entered into possession of said demised property, and has continued in the enjoyment of the same to the present time, but that on the 15th of May, 1884, the defendant, pretending that neither it nor the plaintiff was authorized or empowered by law to enter into said indenture of lease, tendered and offered to restore possession of said demised property to plaintiff in its then condition,"

and, disavowing the obligation of the lease, refused to pay any further rent, wherefore the plaintiff prays judgment for the sum of $68,131.

The substance of the numerous answers and amended answers is that the defendant denies that the plaintiff has any corporate existence; avers that it had no power or authority to make the contract or lease as stated in the petition, and that the contract, although signed by the president of the defendant company, with the seal of that company attached, and the signature of the secretary, by order of its board of directors, is also without legal authority, and is not binding upon the defendant. In fact, the essence of the defense and of the whole controversy is whether these companies had power under their organization as corporations to make the contract of lease which is the foundation of this action.

Page 130 U. S. 7

The defendant avers that it has fully paid the rent due under the lease for the term ending May 15, 1881, from which

Page 130 U. S. 8

time it disavowed the obligatory force of the contract, and offered to return and deliver up to the plaintiff all the property it held under the lease.

Page 130 U. S. 9

It appears also by the pleadings, both on the part of the plaintiff and defendant, that they entered into an agreement

Page 130 U. S. 10

by which the defendant company was to continue to use the road for the time being, in order to prevent serious loss arising

Page 130 U. S. 11

from the disruption of the relations of the two railroads, but that such use was not to be construed as being under the

Page 130 U. S. 12

lease, nor as binding either party beyond what the law would imply if this arrangement had not been made. There is also

Page 130 U. S. 13

an averment in the petition that the property was not in the same condition when the offer to return it was made as it was

Page 130 U. S. 14

when it was received, but this is denied in the answer, and, as no proof was taken in regard to that fact, it can make no figure in the case as presented to this Court.

Page 130 U. S. 19

MR. JUSTICE MILLER delivered the opinion of the Court.

The two questions presented on this demurrer, and the only ones necessary to be considered, are first whether the plaintiff, the Oregonian Railway Company, Limited, organized under the laws of Great Britain,

Page 130 U. S. 20

with such aid as the statute of Oregon gives to it in reference to business done in that state, had the power to lease its railroad to the defendant company, and

Second whether the Oregon Railway and Navigation Company, the defendant in the action, organized under the laws of the State of Oregon, had the legal capacity and lawful power to make said lease on its part.

Although the lease itself, which is the foundation of this action, is not found in the pleadings nor in the record, the statements in regard to it, made by the petition, amended petition, and answers, leave no question as to its nature or character so far as it affects the two questions here suggested.

It may be considered as the established doctrine of this Court in regard to the powers of corporations that they are such and such only as are conferred upon them by the acts of the legislature of the several states under which they are organized. A corporation in this country, whatever it may have been in England at a time when the Crown exercised the right of creating such bodies, can only have an existence under the express law of the state or sovereignty by which it is created. And these powers, where they do not relate to municipal corporations exercising authority conferred solely for the benefit of the public, and in some sense parts of the body politic of the state, have in this country, until within recent years, always been conferred by special acts of the legislative body under which they claim to exist. But the rapid growth of corporations, which have come to take a part in all or nearly all of the business operations of the country, and especially in enterprises requiring large aggregations of capital and individual energy, as well as their success in meeting the needs of a vast number of most important commercial relations, have demanded the serious attention and consideration of lawmakers. And while valuable services have been rendered to the public by this class of organizations, which have stimulated their formation by numerous special acts, it came at last to be perceived that they were attended by many evils in their operation, as well as much good, and that the hasty manner in which they were created by the legislatures, sometimes with

Page 130 U. S. 21

exclusive privileges, often without due consideration and under the influence of improper motives, frequently led to bad results.

Whether it was this consideration or mainly the desire to fix some more uniform rule by which the rights and powers of private corporations or those for pecuniary profit should come into existence, it is certain that not many years ago, state constitutions which were formed or remodeled came to have in them a provision like that which is now to be found in the Constitution of the State of Oregon, article 11, § 2:

"Corporations may be formed under general laws, but shall not be created by special laws except for municipal purposes. All laws passed pursuant to this section may be altered, amended, or repealed, but not so as to impair or destroy any vested corporate rights."

Outside of the powers conferred and the privileges granted to these organizations by the statutes under which they exist, they are in all the states of the Union which, like Oregon, have the common law as the foundation of their jurisprudence, governed by that common law, and it is the established doctrine of this Court, and, with some exceptions, of the states in which that common law prevails, as well as of Great Britain, from which it is derived, that such a corporation can exercise no power or authority which is not granted to it by the charter under which it exists, or by some other act of the legislature which granted that charter.

This proposition has been before this Court more than once in recent years. It was very fully considered in Thomas v. Railroad Co., 101 U. S. 71, which resembled the case before us in several important features.

The Millville and Glassboro Railroad Company, incorporated under the laws of New Jersey, entered into an agreement with Thomas and others for the lease of its railroad to them for twenty years. It was agreed that the company might at any time terminate the lease and retake possession of the railroad, in which case any loss or damage incurred by the lessees should be equitably adjusted by arbitration and the amount be paid by the company. This contract was made in 1859, and the lessees

Page 130 U. S. 22

took control of the property and used it until 1867, when they were served with a notice by the lessor terminating the lease. A suit was brought to recover the damages mentioned in the contract, which came from the Circuit Court of the United States for the Eastern District of Pennsylvania to this Court, where it was very elaborately argued and received the earnest consideration of the Court, as may be perceived from the report of the case. The opinion, which was concurred in by all the judges who sat in the case, contains a full review of the decisions of the English courts on the subject discussed, and also of previous decisions of this Court.

The question turned altogether upon the power of the railroad company, under its charter and the laws of New Jersey, to make the lease by which its road was turned over for twenty years to the absolute control of other parties. The right to do this was asserted under the following language in the charter of the company:

"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 fulfillment of such contracts."

But the Court said that it was impossible under any sound rule of construction to find in this language a permission to sell, lease, or transfer to others the entire railroad and the rights and franchises of the corporation.

The cases of The Asbury Railway Carriage & Iron Co. v. Riche, L.R. 7 H.L. 653, decided in the House of Lords in 1875, and The East Anglian Railways Co. v. The Eastern Counties Railway Co., 11 C.B. 775, were also reviewed, with several others of a similar character from the reports of the highest courts of England, in which, as this Court said,

"The broad doctrine was established that a contract not within the scope of the powers conferred on the corporation cannot be made valid by the assent of every one of the shareholders, nor can it by any partial performance become the foundation of a right of action. "

Page 130 U. S. 23

Reference was also made in the same opinion to the case of The York & Maryland Line Railroad Co. v. Winans, 17 How. 30, which held that a corporation which has undertaken to construct and operate a railroad cannot, by alienating its right to use, and its powers of control and supervision, avoid the responsibility that it assumed in accepting the charter. The Court said: "The corporation cannot absolve itself from the performance of its obligations without the consent of the legislature." To this effect were cited Beman v. Rufford, 1 Sim. (N.S.) 550, and Winch v. Birkenhead & Lancaster Railway Co., 6 Jurist 1035, 13 Eng. L. & Eq. 506.

Afterwards, in Green Bay & Minnesota Railroad v. Union Steamboat Co., 107 U. S. 98, the case of Thomas v. Railroad Co., supra, was referred to with approbation.

Still later, in the case of Pennsylvania Railroad Co. v. St. Louis &c. Railroad Co., 118 U. S. 290, 118 U. S. 309, where the whole question was reconsidered after a full argument, the conclusion was stated in the following language:

"We think it may be stated as the just result of these cases, and on sound principle, that unless specially authorized by its charter or aided by some other legislative action, a railroad company cannot, by lease or any other contract, turn over to another 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 authority, make a contract to receive and operate such road, franchises, and property of the first corporation, and that such a contract 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."

It may be considered that this is the law of the State of Oregon except as it has been altered or modified by its constitution and statutes.

We are here met with an embarrassment arising out of the circumstance that neither the plaintiff nor the defendant in the present case professes to exercise its powers under any special charter conferred on it by the Legislature of Oregon. That state, in accordance with the principle laid down in its constitution,

Page 130 U. S. 24

to which we have already referred, passed general laws for the formation of private corporations. See Laws of Oregon (Deady's Comp.) c. 8. Under title 1, § 1 reads as follows:

"Whenever three or more persons shall desire to incorporate themselves for the purpose of engaging in any lawful enterprise, business, pursuit, or occupation, they may do so in the manner provided in this act."

Provision is then made for the manner in which these persons shall constitute themselves a corporation by filing articles of association, acknowledged before a proper officer, in the office of the Secretary of State and in that of the clerk of the county where the business is to be carried on. What these articles shall contain is specified with some particularity. But title 2 of the same chapter is more important in regard to the matter at issue, because it relates, among other things, to corporations which are organized for the construction of railroads. The mode of their formation is the same as that of those coming under title 1, but the declaration of the powers which may be exercised by railroad corporations may become important in the consideration of the present case.

By the act of the legislature of October 21, 1878 (Sess.Laws, 95), it is provided

"that any foreign corporation incorporated for the purpose of constructing, or constructing and operating, or for the purpose of, or with the power of, acquiring and operating, any railway, . . . shall, on compliance with the laws of this state for the regulation of foreign corporations transacting business therein, have the same rights, powers, and privileges"

as a domestic corporation formed for such purpose, and no more.

When we have found, therefore, what powers were conferred by the laws of Oregon on the defendant corporation in this case, we shall also have determined that the powers of the plaintiff corporation were no greater, with regard to the same subject matter, so far as the statutes are concerned, except as it may be shown that other powers are given by some express statute.

It may also be conceded at the outset of the argument that the memorandum made under the Companies' Act of 1862 by

Page 130 U. S. 25

the plaintiff, and the articles of association made under the laws of Oregon by the defendant, both contain declarations of the powers of these companies, and of each of them, to buy or sell or lease railroads. The only question, therefore, to be considered is whether this declaration of power is authorized by the laws of Oregon.

It is argued that the articles of association under the Oregon law, and the memorandum of association under the Companies' Acts of Great Britain, are themselves the equivalent of an act of incorporation by the legislature, and that whatever is found as a grant of power or description of the purpose of the company set forth in such articles or memorandum is tantamount to a legislative act. A phrase in the opinion of the Court in Thomas v. Railroad Co., supra, is cited as supporting this proposition, namely: "The memorandum of association, as Lord Cairns said, stands in place of a legislative charter." But what was meant, both by Lord Cairns and by this Court, was that anything not claimed, granted, or described in such instrument in relation to the powers and business of the corporation could not be held to be a part of them by construction -- in other words, that its powers could not exceed those enumerated therein. It was necessarily implied in such a remark that anything in such articles or memorandum not warranted by the statutes in question, authorizing the formation of corporate bodies, was void for want of authority.

Of course, any authority for the exercise of corporate powers derived from the laws of Oregon must be in accord with the constitution of that state and its statutes upon that subject. The constitutional provision above quoted, that corporations shall not be created by special laws, but may be formed under general laws, implies that no private corporation could be created thereafter until such general law had been enacted, and that it thereupon became the fundamental law of the state in regard to all corporations formed under it. It is idle to say, therefore, that any corporation could assume to itself powers of action by the mere declaration in its articles or memorandum that it possessed them.

We have examined with much care the two statutes already

Page 130 U. S. 26

referred to concerning incorporation, enacted in accordance with that constitutional provision, and do not find any express authority for a railroad company to lease its road for an indefinite period or for it to take such a lease; nor are we able to find any general language in those statutes, or either of them, in relation to the powers that may be conferred upon corporations which justifies a departure from the principles laid down in Thomas v. Railroad Co.

It is to be remembered that where a statute making a grant of property, or of powers, or of franchises to a private individual or a private corporation becomes the subject of construction as regards the extent of the grant, the universal rule is that in doubtful points the construction shall be against the grantee and in favor of the government or the general public. As was said in the case of Charles River Bridge v. Warren Bridge, 11 Pet. 420, "in this Court, the principle is recognized that in grants by the public nothing passes by implication." See also Dubuque & Pacific Railroad Co. v. Litchfield, 23 How. 66; Turnpike Co. v. Illinois, 96 U. S. 63.

Therefore, if the articles of association of these two corporations, instead of being the mere adoption by the corporators themselves of the declaration of their own purposes and powers, had been an act of the Legislature of Oregon conferring such powers on the corporations, they would be subject to the rule above stated, and to rigid construction in regard to the powers granted. How much more, then, should this rule be applied, and with how much more reason should a court called upon to determine the powers granted by these articles of association construe them rigidly, with the stronger leaning in doubtful cases in favor of the public and against the private corporation.

We have to consider, when such articles become the subject of construction, that they are in a sense ex parte; their formation and execution -- what shall be put into them as well as what shall be left out -- do not take place under the supervision of any official authority whatever. They are the production of private citizens, gotten up in the interest of the parties who propose to become corporators, and stimulated by their zeal

Page 130 U. S. 27

for the personal advantage of the parties concerned, rather than the general good.

These articles, when signed by the corporators, acknowledged before any justice of the peace or notary public, and filed in the office of the Secretary of State and the clerk of the proper county, become complete and operative. They are, so far as framed in accordance with law, a substitute for legislation, put in the place of the will of the people of the state, formerly expressed by acts of the legislature. Neither the officer who takes such acknowledgment nor those who file the articles have any power of criticism or rejection. The duty of the first is to certify to the fact, and of the second to simply mark them filed as public documents, in their respective offices.

These articles, which necessarily assume by the sole action of the corporators enormous powers, many of which have been heretofore considered of a public character, sometimes affecting the interests of the public very largely and very seriously, do not commend themselves to the judicial mind as a class of instruments requiring or justifying any very liberal construction. Where the question is whether they conform to the authority given by statute in regard to corporate organizations, it is always to be determined upon just construction of the powers granted therein, with a due regard for all the other laws of the state upon that subject, and the rule stated above.

It is not urged with much apparent confidence that there is anything in the general provisions of the laws of Oregon in relation to the formation of private corporations, which are to be found in c. 8, titles 1 and 2, Deady's Comp., which by express terms authorizes a corporation to include within the powers enumerated in its articles of association that of making such a lease as the one which is the subject of this action. Arguments based upon these laws are founded upon the implication that building railroads is, within the meaning of § 1 of title 1, a "lawful enterprise, business, pursuit, or occupation," and the further inference that the power of leasing a railroad, either as a lessor or a lessee, is one which is incident and proper to the pursuit of the lawful business of

Page 130 U. S. 28

constructing and operating a railroad. The same argument is drawn from the general fact that title 2 recognizes the authority of corporations organized for the construction of railroads, macadamized roads, plank roads, day roads, canals, or bridges to appropriate lands for their necessary uses by the exercise of the right of eminent domain in the manner pointed out.

The language of the statute of New Jersey (quoted in Thomas v. Railroad Co., supra) under which it was urged that the railroad company had authority to make the lease in controversy was quite as general and as liberal in its description of the powers which that corporation was authorized to exercise as anything to be found in the Oregon statutes. In fact, in the authority which was given to that company in regard to making contracts for the transportation of passengers and freight, and the doing of a general railroad business with other corporations and private persons, it approaches nearer the power to make leases than anything which is to be found in the laws of Oregon; yet this Court held that although it was a direct authority from the legislature itself, and not subject to the restrictive criticisms above suggested, the lease made in that case was ultra vires and without authority on the part of the company.

Another important consideration to be observed, peculiarly applicable to the acts of corporations formed by the corporators themselves, declaring what business they are about to pursue and the powers which they purpose to exercise in carrying it on is that while the thing to be done may be lawful in a general way, there are and must be limitations upon the means by which it is to be done or the purpose carried out, which the articles of incorporation cannot remove or violate. A company might be authorized by its articles to establish a large manufactory in a particular locality, and might be held to be a valid incorporation with sufficient powers to prosecute the business described; but such articles, although mentioning the particular place, would not empower the company, in the exercise of the power thus conferred, to carry on a business injurious to the health or comfort of those living in that vicinity.

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Instances might be multiplied in which powers described in general terms as belonging to the objects of the parties who thus become incorporated would be valid; but the corporation, in carrying out this general purpose, would not be authorized to exercise the powers necessary for so doing in any mode which the law of the state would not justify in any private person or any unincorporated body. The manner in which these powers shall be exercised and their subjection to the restraint of the general laws of the state and its general principles of public policy are not in any sense enlarged by inserting in the articles of association the authority to depart therefrom.

In the absence of anything in the general incorporation act, we are referred to several statutes of the State of Oregon which, while not specifically granting to railroad companies the right to lease their property or to take other railroads under lease from their owners, are supposed by implication to recognize such right in all railroad companies. We are furnished with a list a statutes of that state in which the word "assigns" is used in regard to corporations, generally in the phrase "successors or assigns," from which it is sought to imply the general proposition that a corporation may assign all its property. A special reference is made to the Act of October 22, 1880, by which the legislature granted to the

"Oregonian Railway Company, Limited, the right of way and station grounds over the state lands, and terminal facilities upon the public grounds at the City of Portland."

The preamble to this statute is quite lengthy, and, taken in connection with the enacting clause, shows very plainly that the principal object aimed at was to give to that company, so far as the legislature could do so, certain rights, privileges, and easements upon the public grounds, streets, and levee in that city on and near the banks of the Willamette River for its depots and wharves and the operations of its railroad. After these are fully specified, a proviso is added:

"That the said Oregonian Railway Company, Limited, or its assigns, shall have no power to sell, convey, or assign the premises or rights hereby granted, or any part or parcel thereof, to any person

Page 130 U. S. 30

persons, firm, or corporation, save only with, and as part and parcel of, and as appurtenant to, the railway now built and owned by said company, and now in process of construction by it."

It is strenuously argued, and with some degree of plausibility, that the language of this proviso, and the use of the words "successors" and "assigns" in other statutes, which are referred to, imply that by the law of Oregon railroad companies may make, and must be supposed to be capable of making, assignments. But whatever may have been the intent in the minds of the legislators in using these words, it is not precisely the form in which we would expect to find a grant of the power to sell, to lease, or to transfer the title, ownership, or use of railroad lines, the property belonging thereto, and the franchises necessary to carry them on, by one corporation to another.

One of the most important powers with which a corporation can be invested is the right to sell out its whole property, together with the franchises under which it is operated, or the authority to lease its property for a long-term of years. In the case of a railroad company, these privileges, next to the right to build and operate its railroad, would be the most important which could be given it, and this idea would impress itself upon the legislature. Naturally we would look for the authority to do these things in some express provision of law. We would suppose that if the legislature saw fit to confer such rights it would do so in terms which could not be misunderstood. To infer, on the contrary, that it either intended to confer them or to recognize that they already existed by the simple use of the word "assigns" -- a very loose and indefinite term -- is a stretch of the power of the Court in making implications which we do not feel to be justified.

The legislators who enacted these statutes may have had an idea that there were certain things which corporations could assign; they may have used the expressions to which we have referred in a very loose, instead of a technical, sense; or they may have supposed that cases might arise where railroad property going by some operation of law, as bankruptcy or foreclosure,

Page 130 U. S. 31

from the hands of its original owners into the possession of other persons, would justify the description of the latter by the words "successors or assigns." In using these terms, they may have thought that authority might be given by future statutes, either generally to all corporations or to some special organization, to sell or transfer the corporate property, or some part of it. But whatever may have been their purpose, we think the argument is a forced one which would vest in railroad companies the general power to sell or lease their property or franchises or to make contracts to buy or take leases of the same from other railroad corporations from the use which is made of these indefinite terms "successors or assigns."

This question came up in Thomas v. Railroad Co., supra, in which, as already stated, a lease by the railroad company of its road and corporate franchises was held to be void. While the lease was in full operation, an act was passed by the Legislature of New Jersey declaring it unlawful for the directors, lessees, or agents of the railroad company to charge more than three and a half cents per mile for the carrying of passengers. It was insisted that this use of the word "lessees" applied to the then existing lessees of that road, and operated as a ratification by the state legislature of the lease under which they held it. In discussing this subject, the Court said:

"It may be fairly inferred that the legislature knew at the time the statute was passed that the plaintiffs were running the road and claiming to do so as lessees of the corporation. It was not important for the purpose of the act to decide whether this was done under a lawful contract or not. No inquiry was probably made as to the terms of that lease, as no information on that subject was needed."

"The legislature was determined that whoever did run the road and exercise the franchises conferred on the company, and under whatever claim of right this was done, should be bound by the rates of fare established by the act. Hence, without undertaking to decide in whom was the right to the control of the road, language was used which included the directors, lessees, and agents of the railroad. "

Page 130 U. S. 32

"The mention of the lessees no more implies a ratification of the contract of lease than the word 'directors' would imply a disapproval of the contract. 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."

P. 85.

This language applies with great force to the attempt which is made in this case to deduce from the use of the word "assign" in the Act of October 22, 1880, a recognition of the power of the railroad company to sell or assign its entire property and rights. The object of the legislature in making the proviso to that statute was to make sure that the grant given to the Oregonian company of "terminal facilities," as they are called, with the right to wharves, depots, and access to the river for the use of the road, should never be separated by sale, assignment, or otherwise from the road itself, and that into whosesoever hands the road went should also go the rights, powers, and privileges conveyed by the grant. Without these prohibitory words, it is possible the company might have had power to sell or assign the depot or wharves granted, while without the authority to do either in regard to the rights or franchises of which they were already possessed. Hence, they used a term which they supposed in a general way might cover any transfer of the ownership by the railroad company of the grants made to it by the statute, whether by operation of law or otherwise. If the property should be sold out under a mortgage or deed of trust, or any other instrument which the company might possibly have had the power to make to purchasers who might be called "assigns" under such proceedings, there should also go with it the grant made by the statute.

The language used in the statute in question in this case is stronger than that in other cases cited to us by counsel, and we are of opinion that they do not, any of them, nor do they collectively, establish the proposition that by the laws of Oregon, a railroad company could sell or lease its entire property, franchises, and powers to another company, or take a

Page 130 U. S. 33

grant or lease of similar property or franchises from any other person or company.

The attempt is made to sustain the proposition here contended for in regard to the power to lease by another inferential process of reasoning which we think equally untenable.

The following provision is found in c. 8, Tit. 1:

"SEC. 20. Any corporation formed for the purpose of navigating any stream or other water may, by virtue of such incorporation, construct any railroad, macadamized road, plank road, or day road, or canal or bridge necessary and convenient for the purpose of transporting freight or passengers across any portages on the line of such navigation occasioned by any rapids or other obstructions to the navigation of such stream or other water in like manner and with like effect as if such corporation had been specially formed for such purposes, but no corporation formed under this act or heretofore or hereafter incorporated by any special act of incorporation, passed by the legislative assembly of this state or otherwise, for the purpose of navigating any stream or other water of this state or forming the boundary thereof in whole or in part, nor any stockholder in such corporation, shall ever take or hold stock or any interest, directly or indirectly, in the stock of any corporation which may be formed under this act for the purpose of building or constructing any road in this act mentioned, nor shall any such corporation ever purchase, lease, or in any way control such road or the corporate rights of such last-named corporation."

It is argued that this prohibition against leasing the railroad is a recognition of the fact that such a power would have existed if it had not been forbidden by this statute; but as the language of the whole section relates to the competition which may exist or arise between corporations organized for the purpose of navigating streams or other waters when they may find it convenient to construct a road across such portages on the line of their navigation as may be required to carry over goods and property from one navigable water to another, we do not see that it has any effect in establishing such a general principle.

Page 130 U. S. 34

From the simple fact that in the revision of this law all reference to leases was omitted it is argued that the general power of leasing one road by another wherever situated, without reference to its competition with roads owned by navigation companies, amounts to a restoration of the power to lease or accept leases on the part of any railroad company in the state of all its road, of all its franchises, of all its property, for an indefinite length of time.

As to this, we can only say that the original section, relating solely to a peculiar class of objects -- namely the construction of roads across portages by corporations navigating the waters of the state, and forbidding by its last clause the purchase, lease, or control of such portage road, or the corporate rights acquired by them -- was necessarily limited to that class of roads, and the repeal or modification of so much of the section as related to the power to lease could have no effect to declare that all railroads in the State of Oregon had the power to make contracts of lease, either as lessors or lessees.

One other provision of the laws of Oregon, immediately preceding the section just discussed, is also relied upon as establishing the right of a corporation to sell all of its property, and therefore its right to the smaller or subsidiary power of leasing it. It is found under c. 8, title 1, as follows:

"SEC. 19. Any corporation organized under the provisions of this act may at any meeting of the stockholders which is called for such purpose, by a vote of the majority of the stock of such corporation, increase or diminish its capital stock, or the amount of the shares thereof, or authorize the dissolution of such corporation and the settling of its business and disposing of its property and dividing its capital stock, provided, however, that the capital stock of any corporation formed under this act, except corporations formed for the purpose of making and constructing a railroad, shall never exceed the sum of two million of dollars, and any corporation that shall violate this provision of this act shall forfeit its corporate rights."

It is argued that because a corporation has authority to put an end to its existence by a vote of the majority of its stockholders,

Page 130 U. S. 35

in which event it may proceed to settle up its affairs, dispose of its property, and divide its capital stock, therefore a corporation in full operation, with no such purpose of terminating its existence, may, in the ordinary course of its business, sell all of its property, real and personal, and if it be a railroad company, dispose of its road, its franchises, and the powers necessary to properly carry on the business of a carrier. It is insisted that if it can do this, it may therefore make a lease of such property and franchises, transferring all those powers, rights, and privileges.

But it does not need argument to show that such provision, made for the dissolution of a corporation by the voluntary act of its incorporators, providing for the disposition of its property when the resolution to that effect has been adopted, whether by distribution of dividends on its profits, or the sale of shares of stock, or for any other disposition of its effects compatible with law, is not applicable to, and cannot be intended to confer upon, corporations continuing in existence or which, like these companies, contemplate in the very contract entered into a continuance of more than 96 years, the power to dispose of their corporate powers and franchises, much less the authority to lease them for an indefinite period to others.

In the case before us both corporations continued to exist; they both entered into contracts covering a period of ninety-six years, and if the contract of lease be valid, one of them obtained thereby the right to the control and use of the property and franchises of the other, which on its part became bound for the payment of rent therefor, a supposed profit on the capital for the entire period of the term. We can see no reason why the powers conferred upon a corporation going out of existence, and dissolved by its own act, including the right to wind up its affairs and dispose of its property, can be held to confer any such power on a company which contemplates an existence of a hundred years to come.

Nor does there appear to be any force in the objection that if an Oregon corporation cannot acquire the right to take a lease of a railroad under the existing general laws, it cannot acquire

Page 130 U. S. 36

it at all, the legislature being prohibited by the constitution from granting special charters of incorporation, and therefore, it is said, it has no authority to grant special privileges to a particular corporation -- a proposition we are not prepared to concede to its fullest extent. But assuming, without deciding, that it is true that the legislature cannot grant the right to a particular railroad company to make or to take a lease of the railroad of another company, it would be clearly within its power to confer by general laws on all railroad corporations within the state the powers to make and to take leases, which powers are claimed by the plaintiff to exist under the general law of Oregon as it now stands.

The reasons for holding that the Oregonian Company had no power to make the lease of its railroad are even stronger than those for holding that the Oregon Railway and Navigation Company had no power to take the lease.

In the first place, even if a domestic railroad corporation established under the general laws of Oregon could be construed as entitled to assume by its articles the power of taking leases of other railroads as incident to and in connection with operating its own road, it would by no means follow that such a corporation could assume the power of leasing its whole railroad for a term of years to another corporation, and thereby substantially abandon and transfer its whole corporate rights and franchises.

The Oregonian Company is a foreign corporation, and the general laws of Oregon do not give a foreign corporation the right to lease, but only to construct or acquire and operate a railroad within the state. The only statute relied on as giving the power to lease (except those already considered) is the general law of Oregon of 1878, Laws of Oregon, p. 95, which clearly does not include or touch that power. The first section, while it includes, among the classes of foreign corporations therein particularly enumerated,

"any foreign corporation incorporated for the purpose of constructing, or constructing and operating, or for the purpose of, or with the power of, acquiring and operating, any railway,"

significantly omits corporations established for the purpose of selling or leasing their

Page 130 U. S. 37

roads instead of operating them themselves, and this section gives to those classes of foreign corporations therein enumerated only

"the same rights, powers, and privileges in the exercise of the rights of eminent domain, collection of tolls, and other prerogative franchises as are given by the laws of this state to corporations organized within this state for the purpose of constructing any railway,"

or for one of the other purposes already specified, of which the making of leases is not one. And the second section, merely providing that nothing in the act contained shall be so construed as to give to foreign corporations any other or further rights than may be acquired or exercised by domestic corporations, but only to give them the same as domestic corporations may acquire or exercise, is evidently limited to the classes, both of foreign and domestic corporations, specified in the first section.

Under this statute, in short, foreign corporations created for the purpose of leasing get no power at all, and no foreign corporation gets any power to sell or lease its road.

Another argument relied upon by counsel for the defendant in error is that, within the principles laid down in certain cases on the subject, the contract here is so far an executed one that the plaintiff in error is estopped to deny its validity and to refuse to continue its performance. As already stated, the contract was one by which the plaintiff demised its road, privileges, and franchises, for a period of ninety-six years, from the 1st of August, 1881, to the defendant, who took possession of it, and used and occupied it under the lease until the 15th day of May, 1884, a period of less than three years. It then did what was equivalent to returning the property to the plaintiff, and refused to be further bound by the contract.

To say that a contract which runs for ninety-six years and which requires of both parties to it continual and actual operations and performance under it becomes an executed contract by such performance for less than three years of the terms is carrying the doctrine much further than it has ever been carried, and is decidedly a misnomer. This class of cases is not governed by the doctrine of part performance in a suit in equity for specific performance, nor is this a suit for specific performance.

Page 130 U. S. 38

This is an action at law to recover money under a contract which is void, where for nearly three years the parties acted under it, but in which one of them refuses longer to be bound by its provisions, and the argument now set up is that because the defendant has paid for all the actual use it made to the road while engaged in the actual performance of the contract between the dates just given, it is thereby bound for more than ninety-three years longer by the contract which was made without lawful authority by its president and board of directors. We consider this proposition as needing no further consideration, except a reference to the discussion of the same subject in Thomas v. Railroad Co. and Pennsylvania Railroad Co. v. St. Louis &c. Railroad Co., already cited.

The judgment of the Circuit Court of Oregon is reversed, and the case is remanded to that court, with a direction to overrule the demurrer, and to take such further proceedings as shall be according to law, and not inconsistent with this opinion.

MR. JUSTICE FIELD, dissenting.

I am not able to agree with the majority of the Court in the decision of this case. It seems to me clear that a railway corporation of Oregon has the right, under her laws, to lease its road to another corporation of like character. A foreign corporation, as is the plaintiff below, is by the Act of October 21, 1878, placed on the same footing with a domestic corporation, upon complying with the laws passed for the regulation of such corporations transacting business in the state. That act declares that upon such compliance, the foreign corporation shall have "the same rights, powers, and privileges" as a domestic corporation.

Besides, the Act of October 22, 1880, entitled

"An act to grant the Oregonian Railway Company, Limited, the right of way and station grounds over the state lands, and terminal facilities upon the public grounds at the City of Portland,"

recognizes the plaintiff as an existing corporation, lawfully engaged in the construction and operation of a railway in

Page 130 U. S. 39

Oregon, "from Portland to the head of the Willamette Valley," and grants to it "and to its assigns" valuable "rights, privileges, easements, and property," accompanied with a proviso that it shall have no power to sell, convey, or assign the premises or rights granted, or any part or parcel thereof, to any person or corporation,

"save only with, and as a part and parcel of and as appurtenant to, the railway now built and owned by said company, and now in process of construction by it."

As the court below observed, and, it seems to me, very justly, this implies that the plaintiff had the power to assign its road, and also the premises and rights thus granted to it in connection therewith, but not otherwise. I cannot perceive what public policy of the state is sustained by denying to a foreign corporation, which has by her permission constructed a railway therein, the right to lease its road to a domestic corporation. It would rather seem, if any considerations of public policy are to control, that such policy would favor a transfer of the road from foreigners to her own citizens. When the transfer is made, the state can exercise over the road, its management, and the charges for its use the same authority which she could have previously exercised. And there is nothing in the articles of association which forbids the directors of the plaintiff from making such a transfer if the laws of Oregon permit it.

MR. CHIEF JUSTICE FULLER was not a member of the Court when this case was argued, and took no part in this decision.