The United States granted lands to the Wisconsin, to aid in the
construction of railroads. The state granted a portion of these
lands to a company, called in the opinion of the Court The Omaha
Company, for the purpose of constructing a defined railroad. It
also granted another portion of them to another company, called in
the opinion of the court the Portage Company, for the purpose of
constructing another and different, and to some extent competing,
railroad. The latter grant was conditioned upon the completion of
the road by the grantee within a specified period. Work was begun
upon the Portage road, but in 1873 the company became embarrassed,
and then broke down. In 1878, the Legislature of Wisconsin extended
the time for the construction of the Portage Company's road three
years. In 1881, a contract was made with A. for its completion,
under which work was resumed with vigor and was diligently
prosecuted, with every prospect that the road would be completed
within the extended time. In 1882, before the expiration of that
extension, the legislature of that state passed an act revoking the
grant to the Portage Company and bestowing it upon the Omaha
Company. As a result of this, the work which A. was diligently
performing under his contract was arrested; he was prevented
through the direct and active efforts of the Omaha Company from
completing his performance of it;
Page 151 U. S. 2
the profits which he would have received from it were lost to
him, and the land grant was wrested from the Portage Company. A.
then commenced an action at law against the Portage Company, in
which a judgment was recovered by his administratrix. Execution
thereon being returned
nulla bona, a bill in equity was
filed in the Circuit Court of the United States by the
administratrix against the Omaha Company to reach the land grant in
its hands. The bill charged that the Omaha Company had conspired
with and bribed certain officials of the Portage Company, who,
through circumstances named in the bill, had become sole
stockholders in that company, to wrest the land grant from the
Portage Company, and to prevent A. from completing his contract. It
set forth sundry steps in the alleged conspiracy, and charged that
the Legislature of Wisconsin had been induced by the conspirators
to pass, the act forfeiting the land grant and bestowing it upon
the Omaha Company. The defendant demurred and the demurrer was
sustained by the circuit court.
Held:
(1) That the demurrer admitted that A. had suffered the wrongs
complained of in consequence of the interference of the Omaha
Company.
(2) That it must be assumed, as conceded by the demurrer, that
the officials of the Portage Company had been bribed by the Omaha
Company to betray their trust, and that the legislature had been
induced by false allegations to revoke the grant to the Portage
Company and to bestow it upon the Omaha Company.
(3) That as the breaking down of the Portage Company and the
ruin of its contractor was the natural and direct result of all
this, the contractor could resort to equity to enforce against the
land grant in the hands of the Omaha Company the judgment which he
had obtained at law against the Portage Company.
(4) That it must be presumed that the legislature, in
transferring the grant to the Omaha Company, did not intend to
affect thereby the rights of the Portage Company against the Omaha
Company in the courts.
(5) That as there was nothing in the words of the grant to the
Omaha Company which expressly tied up the granted land, it passed
to that company subject to seizure and sale in satisfaction of any
of its obligations.
(6) That the Omaha Company, by reason of its conduct in this
matter, became, as to the creditors of the Portage Company, a
trustee
ex maleficio in respect of this property.
If one maliciously interferes in a contract between two parties,
and induces one of them to break that contract to the injury of the
other, the party injured can maintain an action against the
wrongdoer.
When a man does an act which in law and fact is a wrongful act,
and injury to another results from it as a natural and probable
consequence, an action on the case will lie.
A sole stockholder in a corporation cannot secure the transfer
to himself of
Page 151 U. S. 3
all the property of the corporation so as to deprive a creditor
of the corporation of the payment of his debt.
When an act of the legislature is challenged in a court, the
inquiry by the court is limited to the question of power, and does
not extend to the matter of expediency, to the motives of the
legislators or to the reasons which were spread before them to
induce the passage of the act, and, on the other hand, as the
courts will not interfere with the action of the legislature, so it
may be presumed that the legislature never intends to interfere
with the action of the courts, or to assume judicial functions to
itself.
This is an appeal from a decree of the Circuit Court of the
United States for the Western District of Wisconsin dismissing
plaintiff's bill.
The bill was filed on the 23d of May, 1888, against the Chicago,
Portage and Superior Railway Company, the Chicago, St. Paul,
Minneapolis and Omaha Railway Company, and the Farmers' Loan and
Trust Company. The Chicago, St. Paul, Minneapolis and Omaha Railway
Company was the only defendant served with process. It appeared,
and on the 28th of July filed a demurrer to the bill, which, after
argument, was sustained, and on September 2, 1889, the decree of
dismissal was entered. 39 F. 143; 39 F. 912.
The facts as stated in the bill are as follows: by two acts, of
date June 3, 1856, and May 5, 1864, respectively, 11 Stat. 20, c.
43, and 13 Stat. 66, c. 80, Congress granted lands to the State of
Wisconsin to aid in the construction of certain railroads, among
others, one
"from a point on the St. Croix River or Lake, between Townships
25 and 31, to the west end of Lake Superior, and from some point on
the line of said railroad, to be selected by said state, to
Bayfield."
These land grants were accepted by an act of the legislature
approved October 8, 1856, Laws of Wisconsin 1856, p. 137, and by a
joint resolution of the legislature of the state of date March 20,
1865, Gen.Laws Wisconsin 1865, p. 689, and a map of definite
location was duly filed, and accepted by the Secretary of the
Interior.
By an Act of March 4, 1874, Laws Wisconsin 1874, p. 186, c. 126,
the state granted to the North Wisconsin Railway Company, whose
name was subsequently changed to Chicago,
Page 151 U. S. 4
St. Paul, Minneapolis and Omaha Railway Company, and who is the
defendant herein, to be hereafter called the Omaha Company, that
portion of the land grant applicable to the construction of the
road from a point on St. Croix River to Bayfield, and to the
Chicago and Northern Pacific Air-Line Railway Company, whose name
was subsequently, and before 1878, changed to that of the Chicago,
Portage and Superior Railway Company, hereafter called the Portage
Company, so much of said grant as was applicable to the
construction of the road from the west end of Lake Superior to a
junction with the line running from St. Croix River to
Bayfield.
The eighth section of this act, which is the granting section to
the latter company, is as follows:
"There is hereby granted to the Chicago and Northern Pacific
Air-Line Railway Company all the right, title, and interest which
the State of Wisconsin now has, or may hereafter acquire, in or to
that portion of the lands granted to said state by said two acts of
Congress as is or can be made applicable to the construction of
that part of the railway of said company lying between the point of
intersection of the branches of said grants, as fixed by the
surveys and maps on file in the Land Office at Washington, and the
west end of Lake Superior. This grant is made upon the express
condition that said company shall construct, complete, and put in
operation that part of its said railway above mentioned as soon as
a railway shall be constructed and put in operation from the City
of Hudson to said point of intersection, and within five years from
its acceptance of said lands as herein provided, and shall also
construct and put in operation the railway of said company from
Genoa northerly at the rate of twenty miles per year."
The value of the lands thus granted was at the time of the
wrongs hereinafter described, $4,000,000.
By section 12, the company was required within sixty days to
file with the Secretary of State an acceptance of the grant upon
the terms and conditions named therein, and also such security for
the construction of the road as should be required by the governor.
Both of these conditions were complied with.
Page 151 U. S. 5
Genoa, named in section 8, was the town on the southern boundary
of the State of Wisconsin at which the line of the Chicago and
Northern Pacific Air-Line Railway entered the state, and Hudson was
the place on the St. Croix River, described in the acts of Congress
as the initial point of the road to be aided.
On March 16, 1878, an act was passed by the Legislature of
Wisconsin, Laws Wisconsin 1878, p. 442, c. 229, extending the time
for the construction of the Portage Company's road three years.
In the panic of 1873-74, the Portage Company had broken down
under a load of debts and embarrassments, and remained inactive
until 1880. At that time, it secured the services of Willis Gaylord
to assist in extricating it from its embarrassments and in
continuing the construction of its road. William H. Schofield, an
experienced railway projector and financier, was induced to accept
the office of President, and the cooperation and assistance of the
New York, New England and Western Investment Company (hereafter
called the Investment Company) was secured.
A new mortgage for $25,000 a mile and a new issue of stock were
provided for. Seven hundred thousand dollars of the new bonds and
one million of the new stock were to be issued in full satisfaction
of all outstanding stock, bonds, and other demands. In pursuance of
these arrangements, it issued certificates of stock for one million
dollars in the name of A. A. Jackson, general solicitor of the
Portage Company, which, endorsed by him in blank, were deposited
with the Trust Company, and it also executed its orders to the
number of ninety, calling for the delivery to John C. Barnes or
bearer or a designated amount of said one million dollars of stock
in ten percent installments. These orders were in the following
form:
"To the Farmers' Loan and Trust Company:"
"This is to certify that, for value received, Mr. John C. Barnes
or bearer is entitled to have and receive _____ shares of the
capital stock of the Chicago, Portage and Superior Railway
Page 151 U. S. 6
Company, which stock has been fully paid for and placed in your
keeping as a special trust for delivery upon this order, and you
are hereby authorized and directed to accept or certify in the
usual manner this order for the delivery of said stock, and to
deliver to the bearer hereof _____ shares of the said stock
whenever and as often as any two hundred and fifty thousand dollars
of the first mortgage bonds of the said railway company are sold or
disposed of by said railway company or by its fiscal agent, or
whenever and as often as any ten miles of the railroad of said
railway company shall be built, as will be certified to by the
president of said railway company, and in any event you are hereby
directed to deliver to the bearer, on the first day of January,
A.D. 1883, any of the said _____ shares of capital stock then
remaining undelivered upon a surrender of this order therefor."
"Chicago, Portage and Superior"
"Railway Company"
"By ________,
President"
"[On the margin:] This order for the delivery of the bonds and
stock of this company held in special trust is hereby approved and
accepted. The Farmers' Loan and Trust Company. [Seal]"
These orders were all delivered to John C. Barnes in exchange
for and redemption of all the theretofore outstanding stock of the
Portage Company, which stock was at once cancelled, with the
exception of two certificates for $25,000, which, by oversight or
design on the part of Charles J. Barnes, vice-president of the
Portage Company, remained in his custody uncancelled.
The situation after these arrangements were made was such that
the entire outstanding stock was in the possession and control of
C. J. Barnes, J. C. Barnes, and A. A. Jackson, yet held by them in
trust for the company. The further stock provided for was to be
issued from time to time to assist in the sale of the bonds until
enough of the latter had been disposed of to construct the road.
These arrangements having
Page 151 U. S. 7
been perfected, the Portage Company, through its president,
sought the alliance and support of the Grand Trunk Railway Company
of Canada, which had recently completed an extension of its road to
Chicago.
Three contracts were entered into of dates June 16, 1881, July
10, 1881, and September 30, 1881, by which the bonds of the company
were to be disposed of, and money enough advanced for the
construction of the road. The bill sets out fully the nature and
scope of these contracts, and copies of them are attached as
exhibits. It is unnecessary here to say more than that by them,
taken in connection with the prior arrangements of the Portage
Company, the latter obtained satisfactory assurances of abundant
funds, and was placed in a position to fully perform its agreement
with the state and construct the railroad by at least May 5, 1882
-- all this, of course, upon the condition of no outside and
wrongful interference.
Relying upon the sufficiency of its arrangements for money, it
on August 18, 1881, entered into a contract with Horatio G. Angle
for the construction of about sixty-five miles of its railway,
being that portion covered by the land grant heretofore referred
to. By the terms of that contract, Angle was to receive $8,500 per
mile in cash and $5,000 per mile in the full-paid stock of the
company on condition that he completed the road on or before May 5,
1882. It also contracted for steel rails and fastenings to be
delivered as the work of construction proceeded.
Angle commenced work, and had made such progress that on the
20th of January, 1882, he had sixteen hundred men employed along
the line, and it was an assured fact that, unless interfered with,
he would complete the railway according to the terms of the
contract on or before May 5, 1882.
The bill further charges that about this time the Omaha Company
conspired with other parties to wrest from the Portage Company its
land grant, and to that end to prevent the completion of the
contract by Angle and the construction of the road.
In the carrying out of this conspiracy the conspirators
Page 151 U. S. 8
bribed Charles J. Barnes and A. A. Jackson, officers of the
Portage Company, and who, either personally or as attorneys in fact
for John C. Barnes, had the control of all the outstanding stock of
the Portage Company, though holding it in trust for the benefit of
the company, to betray their trust and transfer the stock to one L.
J. Gage for the benefit of the Omaha Company.
Having thus secured the control of the stock, they caused notice
thereof to be given to the officers of the Grand Trunk Railway
Company. These gentlemen, finding that the control of the Portage
Company was passing into the hands of hostile interests,
surrendered the collateral which had been already transferred to
them and declined to proceed further in the contracts which had
been entered into.
Continuing the execution of this conspiracy, the Omaha Company
notified the general manager of the Portage Company of the purchase
of the outstanding stock and advised and induced him to telegraph
officially to the engineer in chief in charge of the work of
construction, who had engaged in that work seven engineering corps,
to forthwith call in these engineers, suspend their work, and pay
them off. They also caused the general manager to notify the
contractor, Angle, that the control of the company had been
changed, and the English capitalists forced out, and also to
telegraph to the merchants at Duluth and Superior City (who were
furnishing supplies to the sixteen hundred men at work) that the
company had been sold out, advising them to protect themselves,
because the company could not pay or protect them.
In consequence of these notices, the several engineering corps
were broken up, the engineers left the work, all the tools,
materials, and other personal property belonging to the contractor
and the company were attached at the suit of these merchant
creditors, and the sixteen hundred laborers dispersed, and went
elsewhere for work.
In further execution of this conspiracy, it endeavored to bribe
the president and directors of the Portage Company and the
Investment Company to turn over the organization of the Portage
Company at once to them. Failing in this, it caused
Page 151 U. S. 9
a bill to be filed in the Circuit Court for Cook county,
Illinois, falsely charging the president and board of directors
with incurring imprudent obligations, and otherwise thus impairing
the value of the million and twenty-five thousand of stock,
purchased as heretofore set forth, and praying for a temporary
injunction, which, on February 11, 1882, was granted without
hearing or notice, and restrained the president and other officers
of the Portage Company from doing any act or thing whatsoever in
the name or behalf of the company during the continuance of the
injunction.
In still further execution of the conspiracy, the Omaha Company
caused the fact of the abandonment of the work and the dispersion
of the laborers engaged thereon to be promptly and widely published
throughout Wisconsin, and especially among the members of the
legislature, then in session at Madison, concealing at the same
time the means by which this had been accomplished.
Further, through its own agents, and especially through Jackson
and Barnes, the corrupted officers of the Portage Company, it
falsely represented to the legislature that no special progress had
been made in the matter of constructing this road; that no
considerable number of men had ever been at work, and that the
Portage Company had finally abandoned it, and was wholly without
means or credit to prosecute it.
On the strength of these representations, the legislature,
without inquiry or hearing, on February 16, 1882, Laws Wisconsin
1882, p. 11, c. 9, hurriedly passed an act forfeiting and revoking
the grant to the Portage Company and bestowing it upon the Omaha
Company, which forfeiture and regranting were confirmed by an act
passed March 5, 1883.
The contract with Angle having been thus broken by the Portage
Company, he commenced an action at law against that company. While
this action was pending, Angle died, but a revivor was had in the
name of the present plaintiff, and on January 31, 1887, she
recovered a judgment in the Circuit Court of the United States for
the Western District of Wisconsin for $205,803.19.
Page 151 U. S. 10
Upon that judgment execution was issued and returned
nulla
bona, and thereupon this bill was filed to reach the land
grant in the hands of the Omaha Company.
MR. JUSTICE BREWER, after stating the facts in the foregoing
language, delivered the opinion of the Court.
That which attracts notice on even a casual reading of the bill
-- the truth of all the allegations in which must be taken, upon
this record, to be admitted by the demurrer -- is the fact that
while Angle was actively engaged in executing a contract which he
had with the Portage Company -- a contract whose execution had
proceeded so far that its successful completion within the time
necessary to secure to the Portage Company its land grant was
assured, and when neither he nor the Portage Company was moving or
had any disposition to break that contract or stop the work --
through the direct and active efforts of the Omaha Company the
performance of that contract was prevented, the profits which Angle
would have received from a completion of the contract were lost to
him, and the land grant to the Portage Company was wrested from
it.
Surely it would seem that the recital of these facts would carry
with it an assurance that there was some remedy which the law would
give to Angle and the Portage Company for the losses they had
sustained, and that such remedy would reach to the party, the Omaha
Company, by whose acts these losses were caused.
That there were both wrong and loss is beyond doubt. And, as
said by Croke, J., in
Baily v. Merrell, 3 Bulst. 94, 95,
"damage without fraud gives no cause of action, but where these two
do concur and meet together, there an action lieth."
Page 151 U. S. 11
The Portage Company held a land grant worth four millions of
dollars. It had contracted for the construction of its road, such
construction to be completed in time to perfect its title to the
land. The contract had been so far executed that its full
completion within the time prescribed was assured. The contractor
had sixteen hundred men employed. The rails had been purchased. The
company had lifted itself out of the embarrassments which years
before had surrounded it. It had taken up all its old stock but
$25,000, which was ignorantly or wrongfully withheld by one of its
officers. It had issued one million of new stock, had authorized a
new issue of bonds, and had arranged for the cancelling of all its
obligations with seven hundred thousand of these bonds and one
million of stock. It had consummated arrangements with a wealthy
company for the advancement of moneys sufficient for its work, and
had gone so far as to place in the hands of that company one
hundred thousand of its bonds, upon which $50,000 in cash was to be
advanced. Except through some wrongful interference, it was
reasonably certain that everything would be carried out as thus
planned and arranged.
At this time, the Omaha Company, which was a rival in some
respects, and which had located a line parallel and contiguous to
the line of the Portage Company, interferes, and interferes in a
wrongful way. It bribes the trusted officers of the Portage Company
to transfer the entire outstanding stock into its hands, or at
least place it under its control. Being thus the only stockholder,
it induces the general manager to withdraw the several engineering
corps, whose presence was necessary for the successful carrying on
of the work of constructing the road; to give such notice as to
result in the seizure of all the tools and supplies of the
contractor and the company, and the dispersion of all laborers
employed. To prevent any action by the faithful officers of the
Portage Company, it wrongfully obtains an injunction tying their
hands. In the face of this changed condition of affairs, the
company, which had negotiated with the Portage Company, and was
ready to advance it money, surrendered the one hundred thousand of
the bonds and abandoned the arrangement.
Page 151 U. S. 12
By false representations to the legislature as to the facts of
the case, it persuaded that body to revoke the grant to the Portage
Company and bestow the lands upon itself.
That this was a wrongful interference on the part of the Omaha
Company and that it resulted directly in loss to the contractor and
to the Portage Company is apparent. It is not an answer to say that
there was no certainty that the contractor would have completed his
contract, and so earned these lands for the Portage Company. If
such a defense were tolerated, it would always be an answer in case
of any wrongful interference with the performance of a contract,
for there is always that lack of certainty. It is enough that there
should be, as there was here, a reasonable assurance, considering
all the surroundings, that the contract would be performed in the
manner and within the time stipulated, and so performed as to
secure the land to the company.
It certainly does not lie in the mouth of a wrongdoer, in the
face of such probabilities as attend this case, to say that perhaps
the contract would not have been completed even if no interference
had been had, and that therefore, there being no certainty of the
loss, there is no liability.
Neither can it be said that the Omaha Company had a right to
contend for these lands; that it simply made an effort, which any
one might make, to obtain the benefit of this land grant. No rights
of this kind, whatever may be their extent, justify such wrongs as
were perpetrated by the Omaha Company. Here, bribery was resorted
to to induce the trusted officers of the Portage Company to betray
their trust and to place at least the apparent ownership of the
stock in the hands of the rival company.
Without notice, without hearing, and by false allegations, it
secured an injunction to stay the hands of the honest officers of
the Portage Company. Such wrongful use of the powers and processes
of the court cannot be recognized as among the legitimate means of
contest and competition. It burdens the whole conduct of the Omaha
Company with the curse of wrongdoing, and makes its interference
with the affairs of the Portage Company a wrongful
interference.
Page 151 U. S. 13
Further, by false representations as to what the Portage Company
has done and intends to do, it induced the legislature of the state
to revoke the grant to the Portage Company and bestow it upon
itself. The result, and the natural result, of these wrongful
actions on the part of the Omaha Company was the breaking down of
the Portage Company, the disabling it from securing the means of
carrying on this work, the dispersion of the laborers, and the
prevention of the contractor from completing his contract. It will
not do to say that the contractor was not bound to quit the work,
but might have gone on and completed his contract, and thus earned
the lands for the Portage Company; nor that the wrongful act of the
trusted officers of the Portage Company in betraying their trust
could have been corrected by the Portage Company by appropriate
suit in the courts; that the law in one shape or another would have
offered redress to the Portage Company for all the wrongs that were
attempted and done by the Omaha Company. Granting all of this, yet
the fact remains that the natural, the intended, result of these
wrongful acts was the breaking down of the Portage Company, the
unwillingness of the foreign company to furnish it with money, and
the prevention of the contractor from completing his contract.
It is not enough to say that other remedies might have existed
and been resorted to by the Portage Company, and that
notwithstanding, the hands of its officers were tied by this
wrongful injunction. It is enough that the Portage Company did
break down, that it broke down in consequence of these wrongful
acts of the Omaha Company, and that they were resorted to by the
latter with the intention of breaking it down.
It has been repeatedly held that if one maliciously interferes
in a contract between two parties and induces one of them to break
that contract to the injury of the other, the party injured can
maintain an action against the wrongdoer.
Green v. Button,
2 Cr.Mees. & R. 707, in which the defendant, by falsely
pretending to one party to a contract that he had a lien upon
certain property, prevented such party from delivering it to the
plaintiff, the other party to the contract, and was
Page 151 U. S. 14
held responsible for the loss occasioned thereby.
Lumley v.
Gye, 2 El. and Bl. 216, in which a singer had entered into a
contract to sing only at the theater of the plaintiff, and the
defendant maliciously induced her to break that contract, and was
held liable to the damages sustained by the plaintiff in
consequence thereof. ~Bowen v. Hall,~ 6 Q.B.D. 333, in which it was
held that an action lies against a third person who maliciously
induces another to break his contract of exclusive personal service
with an employer, which thereby would naturally cause, and did in
fact cause, an injury to such employer. In the opinion of Brett,
L.J. it was said
"that wherever a man does an act which in law and in fact is a
wrongful act, and such an act as may, as a natural and probable
consequence of it, produce injury to another, and which in the
particular case does produce such an injury, an action on the case
will lie. This is the proposition to be deduced from the case of
Ashby v. White. If these conditions are satisfied, the
action does not the less lie because the natural and probable
consequence of the act complained of is an act done by a third
person, or because such act so done by the third person is a breach
of duty or contract by him, or an act illegal on his part, or an
act otherwise imposing an actionable liability on him."
Walker v. Cronin, 107 Mass. 555, in which a
manufacturer was held entitled to maintain an action against a
third party who, with the unlawful purpose of preventing him from
carrying on his business, willfully induced many of his employees
to leave his employment, whereby the manufacturer lost their
services and the profits and advantages which he would have derived
therefrom.
Benton v. Pratt, 2 Wend. 385.
Rice v.
Manley, 66 N.Y. 82, in which a party had contracted to sell
and deliver to plaintiffs a quantity of cheese, but, having been
made to believe through the fraud of the defendant that the
plaintiffs did not want the cheese, sold and delivered it to him,
and it was held that an action could be maintained against the
defendant for the damages which the plaintiffs sustained from
failing to get the cheese.
Jones v. Stanly, 76 N.C. 355,
in which the court said:
"It was decided in
Haskins v. Royster, 70 N.C. 601,
that if a person
Page 151 U. S. 15
maliciously entices laborers or croppers to break their
contracts with their employer, and desert his service, the employer
may recover damages against such person. The same reasons cover
every case where one person maliciously persuades another to break
any contract with a third person. It is not confined to
contracts for service."
Under these authorities, if the Omaha Company had, by its
wrongful conduct, simply induced the Portage Company to break its
contract with Angle, it would have been liable to him for the
damages sustained thereby.
A fortiori, when it not only
induces a breach of the contract by the Portage Company, but also
disables it from performance.
But there is still another aspect in which these transactions
may be regarded. The Omaha Company became by its wrongful acts the
sole stockholder in the Portage Company. It matters not that it
might have been dispossessed of this position by appropriate action
in the courts. It was, for the time at least, the sole stockholder.
As such sole stockholder, it took advantage of its position and its
powers to strip the Portage Company of its property and secure its
transfer to itself.
Now what rights, if any, a corporation may have against a sole
stockholder who wrongfully causes the transfer of all the property
of the corporation to be made to himself need not be inquired into.
It is clear that this stockholder cannot secure this transfer from
the corporation to itself of the property of the latter so as to
deprive a creditor of the corporation of the payment of his
debt.
To put it in another way: the Portage Company, a corporation,
owed Angle $200,000. It had property with which that debt could be
paid. The Omaha Company became the sole stockholder in the Portage
Company. As such sole stockholder, it used its powers to transfer
the property of the Portage Company to itself, and its conduct all
the way through was marked by wrongdoing.
Whatever the Portage Company might do, Angle may rightfully hold
the sole stockholder responsible for that payment, which the
corporation would have made but for the wrongful acts of such
stockholder.
Page 151 U. S. 16
But the stress of the defendant's contention is not that the
bill fails to state a case of wrong for which, generally speaking,
the law would give a remedy, but that the action of the legislature
of the state in revoking the land grant to the Portage Company and
donating it to the Omaha Company is conclusive upon the courts, and
prevents any recovery, and secondly that although actionable wrong
on the part of the defendant may be disclosed by the bill, the only
remedy which the plaintiff has therefor is an action at law for
damages, and no grounds are shown for the interposition of a court
of equity.
With respect to the first of these matters, it is insisted that
the Portage Company was in default at the very time that these
wrongs on the part of the Omaha Company were charged to have been
committed and the act of forfeiture was passed. By section 8 (the
granting section) of the Act of March 4, 1874, it was provided:
"This grant is made upon the express condition that said company
shall construct, complete, and put in operation that part of its
said railway above mentioned, as soon as a railway shall be
constructed and put in operation from the City of Hudson to said
point of intersection, and within five years from its acceptance of
said lands as herein provided, and shall also construct and put in
operation the railway of said company from Genoa northerly at the
rate of twenty miles per year."
The Act of March 16, 1878, reads that "the time limited for the
construction of the railway . . . is hereby extended three years."
It is said that this act in effect merely struck out the word
"five" in the clause quoted, and substituted therefor the word
"eight," leaving the other conditions of the grant unchanged. It is
not claimed in the bill that the Portage Company had ever
constructed any part of its road from Genoa northward, or that a
railway had not been constructed and put in operation from the City
of Hudson to the point of intersection, and therefore it is urged
that it is not shown that the Portage Company was not in default,
or that the legislature had not the absolute right to forfeit, as
it did, by the act of February 16, 1882. It is contended, on the
other hand, by the plaintiff, that the extension
Page 151 U. S. 17
was an absolute extension of three years from May 5, 1879,
irrespective of the other two conditions in the original grant, and
gave to the Portage Company an interest in the land grant which the
legislature had no power to take away before May 5, 1882. It is
further insisted by the defendant that even if this claim of the
plaintiff be sustained, the Act of March 5, 1883, confirming the
revocation and resumption of the land grant to the Portage Company
and the regranting of the same to the Omaha Company, was after the
expiration of the full limit of extended time as thus claimed by
the plaintiff, and that then the Portage Company had unquestionably
failed to earn the grant, and had lost all right to the land. Hence
it is said that there was, in whatever aspect the matter may be
looked at, a valid resumption by the state of the grant which it
had made conditionally to the Portage Company and a regrant of the
lands to the Omaha Company, that the act of the legislature cannot
be questioned, that full knowledge of all the situation must be
presumed, and that no inquiry is permissible as to the motives
which actuated the legislature, it being presumed that everything
which it did it did rightly.
In this respect, the case of
Fletcher v.
Peck, 6 Cranch 87, is relied upon. In that case, a
purchase of a large body of lands was made by James Gunn and others
in the year 1795 from the State of Georgia, the contract for which
was made in the form of a bill passed by the legislature. The title
to some of these lands thus acquired passed by conveyances to Peck,
who conveyed them to Fletcher. An action was brought on certain
covenants in that deed. The third covenant was that all the title
which the State of Georgia ever had in the premises had been
legally conveyed to Peck, the guarantor. The second count
assigned
"as a breach of this covenant that the original grantees from
the State of Georgia promised and assured divers members of the
legislature, then sitting in General Assembly, that if the said
members would assent to and vote for the passing of the act, and if
the said bill should pass, such members should have a share of, and
be interested in, all the lands purchased from the said
Page 151 U. S. 18
state by virtue of such law, and that divers of the said
members, to whom the said promises were made, were unduly
influenced thereby, and, under such influence, did vote for the
passing of the said bill; by reason whereof the said law was a
nullity,"
etc., "and so the title of the State of Georgia did not pass to
the said Peck." In respect to this matter, the Court, by Chief
Justice Marshall, observed, among other things, as follows:
"This is not a bill brought by the State of Georgia to annul the
contract, nor does it appear to the court by this count that the
State of Georgia is dissatisfied with the sale that has been made.
The case, as made out in the pleadings, is simply this: one
individual, who holds lands in the State of Georgia, under a deed
covenanting that the title of Georgia was in the grantor, brings an
action of covenant upon this deed and assigns as a breach that some
of the members of the legislature were induced to vote in favor of
the law, which constituted the contract, by being promised an
interest in it, and that therefore the act is a mere nullity."
"This solemn question cannot be brought thus collaterally and
incidentally before the Court. It would be indecent in the extreme,
upon a private contract between two individuals, to enter into an
inquiry respecting the corruption of the sovereign power of a
state. If the title be plainly deduced from a legislative act,
which the legislature might constitutionally pass if the act be
clothed with all the requisite forms of a law, a court, sitting as
a court of law, cannot sustain a suit brought by one individual
against another founded on the allegation that the act is a nullity
in consequence of the impure motives which influenced certain
members of the legislature which passed the law."
The rule upon which this decision rests has been followed in
many cases, and has become a settled rule of our jurisprudence. The
rule, briefly stated, is that whenever an act of the legislature is
challenged in court, the inquiry is limited to the question of
power, and does not extend to the matter of expediency, the motives
of the legislators, or the reasons which were spread before them to
induce the passage of the act.
Page 151 U. S. 19
This principle rests upon the independence of the legislature as
one of the coordinate departments of the government. It would not
be seemly for either of the three departments to be instituting an
inquiry as to whether another acted wisely, intelligently, or
corruptly. Upon that rule, it is insisted that these two acts of
the State of Wisconsin cannot be impeached; that whatever wrongs
may in fact have been done by the Omaha to the Portage Company, the
Legislature of Wisconsin, in the exercise of its undoubted power,
has taken away the lands from the Portage and given them to the
Omaha Company, and, as its power is undoubted, no court can
interfere or inquire as to why, or under the influence of what
motives or information, those acts were passed, nor can any court
decree, either directly or indirectly, that those lands, which were
taken away from one company and given to the other, either legally
or equitably, still remain the property of the first company, and
subject to the payment of its debts.
But it must be remembered that the wrongs of the Omaha Company
were done before the legislature passed either the act of 1882 or
that of 1883, and it is to redress those wrongs that this suit was
brought. Can it be that the legislature, by passing those acts,
condoned the wrongs, and relieved the Omaha from any liability to
the Portage Company? Did the resumption of the land grant and the
regrant to the Omaha Company make lawful its acts in bribing the
officers of the Portage Company? Did it relieve the Omaha Company
from any liability for the wrongful use of the process of the
courts in the injunction? Could it act judicially, and in effect
decree that the wrongs done by the one company to the other created
no cause of action? A right of action to recover damages for an
injury is property, and has a legislature the power to destroy such
property? An executive may pardon and thus relieve a wrongdoer from
the punishment the public exacts for the wrong, but neither
executive nor legislature can pardon a private wrong,or relieve the
wrongdoer from civil liability to the individual he has wronged.
The wrong was not one done by the state or in the act of the
legislature in taking away the land grant, but in such
proceedings
Page 151 U. S. 20
on the part of the Omaha Company as put the Portage Company in a
position which apparently called for the action of the legislature.
There is no more challenge of the validity of this legislation by
suing the Omaha Company for the wrongs it did leading up to this
legislation than there is in challenging the validity of a criminal
proceeding by an action against the prosecutor for malicious
prosecution. It may be, as counsel claim, that the legislature is
presumed to act with full knowledge of the situation; that it knew
of the wrongs done by the Omaha to the Portage Company; knew that
those wrongs had disabled the Portage Company from proceeding with
the work; knew that thereby a cause of action had arisen to the
contractor, Angle, against the Portage Company, and also against
the Omaha Company, and with all that knowledge in possession
deliberately passed the statutes referred to, and yet it does not
follow that its legislation was intended or was potent to relieve
the Omaha Company from liability. There is in this suggestion no
impugning the motives, the wisdom, or the power of the legislature.
It acts as the guardian of the public interests, to which all
private interests must yield, and it may well have thought that,
notwithstanding the wrong that had been done by the Omaha Company,
the fact was obvious that the Portage Company had become disabled,
and could not go on with the work, and that in subserviency to such
public interest it was necessary that the grant be taken away from
the former and given to the latter company in order thus to
expedite the construction. As the courts will not interfere with
the action of the legislature, so it may rightfully be presumed
that the legislature never intends to interfere with the action of
the courts, or to assume judicial functions to itself. It may be
presumed to have left to the courts the redress of the private
wrongs done by the Omaha Company. In other words, it may have acted
upon considerations like these: public interest requires the speedy
building of this road. The Portage Company cannot build it. The
Omaha Company can, if aided by this grant. Therefore the public
interests demand a taking away of the grant from the one company
and giving it to the
Page 151 U. S. 21
other. If the disabled condition of the Portage Company has been
brought about by the wrongs of the Omaha Company, the courts are
open, and the accepted maxim in those tribunals is that where there
is a wrong, there is a remedy. It thus subserves the interests of
the public, and leaves the redress of the wrong to that department
which has not only the requisite jurisdiction, but also the
appropriate machinery, for ascertaining the amount of the injury
and enforcing the due compensation.
Look at this from the opposite standpoint. When this matter was
brought to the attention of the legislature, and its action
invoked, was it confronted with only these alternatives? Must it,
even if it could, as a condition of subserving the public
interests, condone the private wrong done by the one company to the
other, or must it let the public interests be neglected until such
time as the question of private wrong has been determined, or must
it, without the possession of the suitable machinery for
investigation, arbitrarily determine -- as a condition of this
transfer in subservience to public interests -- the measure of
injury done by the one company to the other and the amount and
character of the compensation to be rendered? Large and unnecessary
stress would be laid upon the legislature if the question of public
interest was always to be thus hampered by suggestions of injury
and compensation between private individuals. While if there be no
such stress, abundant freedom of action is open to the legislature,
the distinction between the separate functions of the coordinate
departments of the government is preserved, and at the same time
public interest and private justice may be secured. The legislature
may proceed with sole regard in all its actions to the public
interests, with the assurance that all questions of wrong and loss
between individuals will be settled in the judicial department and
that its own action in subserviency to the public interest will bar
no redress of a private wrong unless such bar be absolutely
necessary to the accomplishment of the public interest.
But it is said that to permit this suit to be maintained and to
subject these lands in the possession of the Omaha Company
Page 151 U. S. 22
to the satisfaction of the judgment against the Portage Company
is
pro tanto to nullify the action of the legislature;
that in taking the lands away from the one company and giving them
to the other, it intended that the transfer should be absolute,
without limitation, and subject to no contingencies or burdens. But
it affirmatively expressed no such intention; it simply made the
transfer, leaving the property subject to all the burdens and
contingencies which might arise in the ordinary course of law.
Suppose at the time of this transfer from the one company to the
state, and from the state to the other company, there was an
existing judgment in favor of the Portage against the Omaha Company
-- would it be for a moment contended that there was anything in
the transfer which prevented the Portage Company from satisfying
its judgment by a seizure and sale of the lands thus transferred to
the Omaha Company? Unless there were in the words of the grant to
the Omaha Company something which expressly tied up that land, it
passed to the company subject to seizure and sale in satisfaction
of any of its past or future obligations.
Even if it be conceded that under a true construction of the
grant, taken in connection with the act extending the time for
three years, the Portage Company was in default on February 16,
1882, and the legislature had then the absolute right to forfeit
the grant, such concession would be no answer to the cause of
action set out in the bill. For who can say that the legislature
would have exercised that right of forfeiture? The mere fact that
the Portage Company could not enforce at the time a legal right to
the lands as against the state does not absolve the Omaha Company
from liability for those wrongs which resulted in putting the
Portage Company in a condition naturally calling for legislative
action in furtherance of the public interest. If nothing of the
kind had been done by the Omaha Company, and the Portage Company
was, as it is stated, proceeding diligently in the work, with
reasonable assurance that it would be completed within three or
four months, it is fair to presume that the legislature would not
have disturbed the grant, but would have permitted the Portage
Company to fully earn that which it had already partially
Page 151 U. S. 23
earned. The selection of the Portage Company in the first
instance was, of course, made by the legislature in good faith, and
the time was extended with the intent that the Portage Company
should do the work and have the grant; and if the legislature saw
that the company was doing the work, and would have it promptly
completed, respect for the good faith of the legislature compels
the conclusion that, but for the untoward circumstances
precipitated upon the Portage Company by the wrongful acts of the
Omaha Company, the act of February 16, 1882, would never have been
passed. Assuredly it does not lie in the power of the wrongdoer --
the party whose wrongs created that condition which induced the
legislative forfeiture -- to excuse its wrongs on the grounds that
the legislature had the power to forfeit, and might have done it
anyway. The cases of
Benton v. Pratt, 2 Wend. 385, and
Rice v. Manley, 66 N.Y. 82, are suggestive upon this
question. In the former of these cases, it appeared that certain
parties had contracted with the plaintiff to purchase of him twenty
hogs, to be delivered at a future day, nothing having been done to
make the contract binding under the statute of frauds. While the
plaintiff was driving his hogs and preparing to fulfill his
contract, the defendants, knowing the facts, fraudulently
represented that he did not intend to deliver them, and thus
induced those third parties to buy their hogs, and when the
plaintiff arrived with his, they refused to take them simply
because they had already a full supply. The point was made that the
plaintiff could not recover, because there was no binding contract
between him and the third parties; but the point was overruled, the
court saying:
"It was not material whether the contract of the plaintiff with
Seagraves and Wilson was binding upon them or not -- the evidence
established beyond all question that they would have fulfilled it
but for the false and fraudulent representations of the
defendants."
And in the latter case, the plaintiffs had made an agreement
with one Stebbins to purchase from him a quantity of cheese, to be
delivered at a future day, and that contract, too, was not binding
by reason of the statute of frauds. The defendant, knowing of this,
fraudulently, by means of a fictitious telegram,
Page 151 U. S. 24
persuaded Stebbins that the plaintiffs did not want the cheese,
and would not take it, and thus himself secured a purchase of it.
Here too, it was objected, in defense to an action against him for
the damages caused by a failure on the part of the plaintiffs to
obtain the cheese from Stebbins, that there was no contract which
could be enforced against Stebbins for the sale and delivery of the
cheese; but the court overruled the objection, saying:
"Plaintiffs' actual damage is certainly as great as it would
have been if Stebbins had been obliged to perform his contract of
sale, and greater, for the reason that they cannot indemnify
themselves for their loss by a suit against Stebbins to recover
damages for a breach of the contract. Suppose a testator designed
to give A. a legacy, and was prevented from doing it solely by the
fraud of B.; in such case, while A. has no right to the legacy
which he can enforce against the estate of the testator, yet both
law and equity will furnish him appropriate relief against B.,
depending upon the facts of the case. Kerr on Frauds 274, and cases
cited; Bac.Ab. Fraud, B. Suppose A. made a parol contract with B.
for the purchase of land, and B. is ready and willing to convey,
but is prevented from so doing by the fraudulent representations of
C. as to A. by which B. is deceived, and induced to convey to C.;
in such case, although A. could not have compelled B. to give him
the conveyance, it would be a reproach to the law to hold that C.
would not be liable to A. for the damage caused by the fraud."
The same line of thought applies to the case before us. While it
cannot be affirmed with certainty that the legislature would not
have passed the act of forfeiture, yet it is reasonable to presume
that it would not, and that its act was induced by the situation of
the Portage Company, which situation was brought about by the
wrongful acts of the Omaha Company.
Our conclusions in respect to this matter may be summed up thus:
the Portage Company would have completed the work but for the
wrongful acts of the Omaha Company. In consequence of the
disability thus caused, and also moved by the false representations
of the Omaha Company, the legislature resumed its grant, and made a
regrant to the Omaha
Page 151 U. S. 25
Company. The validity of that act is conceded. It is to be
presumed the legislature acted with proper regard to the public
interests, and without any improper motives or inducements.
Conceding all this, it is equally to be presumed that it left the
redress of private wrongs to the judicial department. It attached
no conditions to the grant to the Omaha Company which would prevent
the appropriation of those lands to the satisfaction of any claims
against that company. And hence to hold the Omaha Company as
trustee for the creditors of the Portage Company in respect to
these lands neither impeaches the validity of the action of the
legislature nor casts any imputation upon its knowledge or motives.
It may also be noticed that the purpose of this grant from Congress
in the first place, and from the state to the companies in the
second place, was to aid in the construction of the railroad. That
purpose having already been accomplished, there is no thwarting
public policy or the purposes of the grant if the lands granted
shall now be appropriated, through the processes of the courts, to
the satisfaction of any claims against the Omaha Company.
Passing now to the other of the two objections, it may be
conceded that an action at law would lie for the damages sustained
by the Portage Company through the wrongful acts of the Omaha
Company. Indeed, that is a fact which underlies this whole case.
Yet, while an action at law would lie, it does not follow that such
remedy was either full or adequate. Waiving the question as to the
solvency of the Omaha Company, and assuming that any judgment
against it for damages could be fully satisfied by legal process,
there remains the proposition that it is contrary to equity that
the defendant should be permitted to enjoy unmolested that
particular property the possession of which it sought to secure,
and did in fact secure, by its wrongful acts. Ought the Portage
Company to be compelled to experiment with the solvency of the
Omaha Company before coming into a court of equity? While no
express trust attached to the title to these lands, either in the
Portage or in the Omaha Company, while it may be conceded that when
the legislature resumed
Page 151 U. S. 26
the grant, it took the title discharged of any express trust or
liability in favor of the creditors of the Portage Company, and
might have transferred an absolute title to any third party beyond
the reach or pursuit of the Portage Company or its creditors, yet
it is still true that the lands were given to the Portage Company,
as they had been given by Congress to the state in the first
instance, for the purpose of aiding in the construction of this
road; that a part of the work necessary for such construction had
been done, and there is therefore an equity in securing, to the
extent to which the work had been done, the application of these
lands in payment thereof. And when the Omaha Company, by its
wrongdoings, secured the full legal title to those lands, equity
will hold that the party who has been deprived of payment for his
work from the Portage Company by reason of their having been taken
away from it shall be able to pursue those lands into the hands of
the wrongdoer, and hold them for the payment of that claim which,
but for the wrongdoings of the Omaha Company, would have been paid
by the Portage Company, partially at least, out of their proceeds.
While no express trust is affirmed as to the lands, yet it is
familiar doctrine that a party who acquires title to property
wrongfully may be adjudged a trustee
ex maleficio in
respect to that property.
In Pomeroy's Eq.Jur. § 155, the author says, citing many
cases:
"If one party obtains the legal title to property not only by
fraud or by violation of confidence or of fiduciary relations, but
in any other unconscientious manner, so that he cannot equitably
retain the property which really belongs to another, equity carries
out its theory of a double ownership, equitable and legal, by
impressing a constructive trust upon the property in favor of the
one who is in good conscience entitled to it, and who is considered
in equity as the beneficial owner."
And again, in section 1053:
"In general, whenever the legal title to property, real or
personal, has been obtained through actual fraud,
misrepresentations, concealments, or through undue influence,
duress, taking advantage of one's weakness or necessities, or
through any other similar means or
Page 151 U. S. 27
under any other similar circumstances which render it
unconscientious for the holder of the legal title to retain and
enjoy the beneficial interest, equity impresses a constructive
trust on the property thus acquired in favor of the one who is
truly and equitably entitled to the same, although he may never
perhaps have had any legal estate therein, and a court of equity
has jurisdiction to reach the property, either in the hands of the
original wrongdoer or in the hands of any subsequent holder, until
a purchaser of it in good faith and without notice acquires a
higher right, and takes the property relieved from the trust. The
forms and varieties of these trusts, which are termed 'ex
maleficio� or 'ex delicto,' are practically without limit.
The principle is applied wherever it is necessary for the obtaining
of complete justice, although the law may also give the remedy of
damages against the wrongdoer."
These authorities are ample to sustain this suit. The property
was in the Portage Company for the purpose of aiding in the
construction of this road. Work was done by the plaintiff in that
direction. Equity recognizes a right that that property should be
applied in the payment for that work. The wrongdoing of the
defendant, the Omaha Company, has wrested the title to this
property from the Portage Company, and transferred it to itself. It
has become, therefore, a trustee
ex maleficio in respect
to the property. It follows from these considerations that the
court erred in sustaining the demurrer to this bill, and the decree
of dismissal must be
Reversed, and the case remanded with instructions to
overrule the demurrer, and for further proceedings in conformity to
law.
MR. JUSTICE HARLAN dissents from the opinion and judgment for
the reasons stated by him at the circuit in
Angle v. Chicago,
St. Paul, Minneapolis & Omaha Railway Co., 39 F. 912, and
Farmers' Loan & Trust Co. v. Chicago, St. Paul, Minneapolis
& Omaha Railway, 39 F. 143.
