Railroad corporations possess the powers which are expressly
conferred by their charters, together with such powers as are
fairly incidental thereto, and they cannot, except with the consent
of the state, disable themselves from the discharge of the
functions, duties, and obligations which they have assumed.
The general rule is that a contract by which a railroad company
renders itself incapable of performing its duties to the public or
attempts to absolve itself from those obligations without the
consent of the state,
Page 163 U. S. 565
or a contract made by a corporation beyond the scope of its
powers, express or implied, on a proper construction of its charter
cannot be enforced, or rendered enforceable by the application of
the doctrine of estoppel, but where the subject matter of the
contract is not foreign to the purposes for which the corporation
is created, a contract embracing whatever may fairly be regarded as
incidental to, or consequential upon, those things which the
legislature has authorized ought not, unless expressly prohibited,
to be held by judicial construction to be
ultra vires.
The contract with the Rock Island Company on the part of the
Union Pacific Company which forms one subject of this controversy
was one entirely within the corporate powers of the latter company,
and throughout the whole of it there is nothing which looks to any
actual possession by the Rock Island Company of any of the Union
Pacific property beyond that which was involved in its trains'
being run over the tracks under the direction of the other company,
and this was an arrangement entirely within the corporate powers of
the Union Pacific Company to make, and which was in no respect
ultra vires.
The common object of the Act of February 24, 1871, c. 67,
regarding the construction of a bridge across the Missouri at
Omaha, and the Act of July 25, 1866, c. 246, touching the
construction of several bridges across the Mississippi, was the
more perfect connection of the roads running to the respective
bridges on either side, and being construed liberally, as they
should be, the scheme of Congress in the act of 1871 was to
accomplish a more perfect connection at or near Council Bluffs,
Iowa, and Omaha, Nebraska.
It being within the power of the Union Pacific Company to enter
into contracts for running arrangements, including the use of its
track and the connections and accommodations provided for by the
contract in controversy, and that contract not being open to the
objection that it disables the Union Pacific Company from
discharging its duties to the public, it will not do to hold it
void and to allow the Union Pacific Company to escape from the
obligations which it has assumed on the mere suggestion that, at
some time in the remote future, a contingency may arise which will
prevent it from performing its undertakings in the contract.
Other objections made on behalf of the Union Pacific Company
disposed of as follows: (1) the provision in the contract
respecting reference does not take from the company the full
control of its road; (2) its acts in constructing its road in
Nebraska, not having been objected to by the state, must, in the
absence of proof to the contrary, be deemed valid; (3) the contract
is not to be deemed invalid because, during its term, the charter
of the Rock Island Company will expire; (4) the Republican Valley
Company, being a creation of the Pacific Company, is bound by the
contract; (5) the Pacific Company has power, under its charter, to
operate the lines contemplated by these contracts, it being a
general principle that where a corporate contract is forbidden by a
statute or is obviously hostile to the public advantage or
convenience, the courts disapprove
Page 163 U. S. 566
of it, but when there is no express prohibition and it is
obvious that the contract is one of advantage to the public, the
rule is otherwise.
The contracts in question were in proper form, signed and
executed by the proper executive officers, attested by the
corporate seal of the Union Pacific Company, approved and
authorized by the executive committee, which had all the powers of
the board, and ratified, approved and confirmed by the stockholders
at their next annual meeting, and this was sufficient to bind the
Union Pacific Company although no action by the board was had.
These contracts were such contracts as a court of equity can
specifically enforce, and thereby prevent the intolerable travesty
of justice involved in permitting parties to refuse performance of
their contracts at pleasure by electing to pay damages for the
breach.
The public interests involved in these contracts demand that
they should be upheld and enforced. It is to the higher interest of
all, corporations and public alike, that it be understood that
there is a binding force in all contract obligations, that no
change of interest or change of management can disturb their
sanctity or break their force, but that the law which gives to
corporations their rights, their capacities for large
accumulations, and all their faculties is potent to hold them to
all their obligations and so make right and justice the measure of
all corporate as well as individual action.
These were petitions in equity filed by the Chicago, Rock Island
& Pacific Railway Company against the Union Pacific Railway
Company and the Omaha & Republican Valley Railway Company, and
by the Chicago, Milwaukee and St. Paul Railway Company against the
Union Pacific Railway Company in the District Court of Douglas
County, Nebraska, January 2, 1891, to compel the specific
performance of two contracts, dated May 1, 1890, and April 30,
1890, respectively, and removed on petition of the Union Pacific
Railway Company to the United States Circuit Court for the District
of Nebraska, where they were heard by MR. JUSTICE BREWER, and
decrees rendered in favor of complainants. 47 F. 15. From these
decrees, defendants appealed to the United States Circuit Court of
Appeals for the Eighth Circuit, by which they were affirmed. 51 F.
309. Thereupon these appeals were prosecuted.
To the contract of May 1, 1890, the Union Pacific Railway
Company, the Omaha and Republican Valley Railway Company, and the
Salina and Southwestern Railway Company
Page 163 U. S. 567
were parties on one side, and the Chicago, Rock Island and
Pacific Railway Company and the Chicago, Kansas and Nebraska
Railway Company on the other, and the contract of April 30th was
between the Union Pacific Railway Company and the Chicago,
Milwaukee and St. Paul Railway Company.
The Union Pacific Railway Company controlled and operated more
than five thousand miles of railroad, and, among others, a main
line extending from Council Bluffs, Iowa, by way of Omaha and
Valley Station, Nebraska, to Ogden in Utah territory, a distance of
about eleven hundred miles; a main line from Kansas City, Missouri,
by way of Topeka and Salina, Kansas, to Denver, Colorado, the
Republican Valley Railroad, extending from Valley Station,
Nebraska, by way of Lincoln and Beatrice in that state, to
Manhattan, Kansas, the Salina Railroad, extending from Salina to
McPherson, in Kansas, a railroad extending from Hutchinson, in
Kansas, to the southern border of that state, and other auxiliary
roads.
The Rock Island Company owned and operated a line of railway
extending from Chicago, by way of Davenport, to Council Bluffs,
Iowa, and from Davenport to St. Joseph, Missouri. As the owner of
the latter line and lessee of the Chicago, Kansas and Nebraska
Railway Company and other corporations, it controlled and operated
a through line of railway from Chicago, by way of Davenport, St.
Joseph, and Beatrice, Nebraska, to Colorado Springs and Denver,
Colorado, a line from St. Joseph, Missouri, by way of Horton,
Topeka, and Hutchinson, to Liberal, Kansas, and other lines,
amounting in the aggregate to more than three thousand miles of
railway.
The Union Pacific Railway owned nearly all of the stock and
bonds, elected the directors, and built, controlled, and operated
the railroads of the Republican Valley and Salina Companies, and
the Rock Island Company owned and operated the roads of the Kansas
Company under a lease for 999 years, so that the Pacific Company
and the Rock Island Company were practically the real parties in
interest to the contract of May 1.
Page 163 U. S. 568
The St. Paul Company was operating more than six thousand miles
of railroad, and one of its lines extended from Chicago to Council
Bluffs, Iowa.
The following sketch roughly indicates the domain of the
contracts:
image:a
Page 163 U. S. 569
Early in 1890, the Rock Island Company determined to connect its
lines from Chicago to Council Bluffs with its southerly line to
Colorado Springs by constructing a bridge across the Missouri River
at Council Bluffs, and a railroad from that terminus, by way of
Omaha land South Omaha and Lincoln, to Beatrice, Nebraska, thereby
shortening its line from Chicago to Denver and Colorado Springs,
and the St. Paul Company joined in the undertaking in order to
extend its line from Council Bluffs on to Omaha and South Omaha.
Acting in concert, the two companies caused a corporation to be
created under the laws of the State of Iowa by the name and style
of the Nebraska Central Railway Company, with power to build a
bridge across the river at Omaha, and one or more lines from that
city west. Congress granted to this corporation the necessary
franchise for the bridge. 23 Stat. 43. Preliminary surveys and
estimates were made which showed that the entire cost of the bridge
and tracks to South Omaha would be about $2,500,000. In February,
1890, the presidents of the St. Paul and Rock Island Companies
visited New York for the purpose of arranging for the construction
of the proposed work, when the Pacific Company requested them to
suspend operations, and proposed to make a trackage arrangement
with them by which they could use the bridge and tracks of the
Pacific Company between Council Bluffs and South Omaha for their
terminal facilities in Omaha and South Omaha, and the continuous
line desired by the Rock Island Company could be completed. By
direction of the President and at least two directors of the
Pacific Company, its chief of construction and two of its directors
obtained a meeting with the presidents of the St. Paul and Rock
Island Companies and agreed with them upon the terms of the
contracts in question. From the memoranda then made by the chief of
construction of the Pacific Company, the contracts were
subsequently drawn. They were examined and approved by the general
solicitor of the company at Omaha. The executive committee of the
board of directors of the Pacific Company, at a meeting on April
22, 1890 at which six of the seven members of that committee
Page 163 U. S. 570
were present, five in person and one by proxy, considered and
unanimously voted to approve of the contracts and authorized the
president to execute them. The custom of the secretary had been not
to specify in the notice of the meetings of the executive committee
the subjects to be considered, and the notice of this meeting did
not state that the subject matter of these contracts would be
considered. The member of the executive committee who was absent
and not represented was a government director.
At the annual meeting of the stockholders of the company held
April 30, 1890, at which more than two-thirds of the stock was
represented, these contracts and the action of the executive
committee thereon were considered, and resolutions passed, by a
unanimous vote of that stock, approving and ratifying the contracts
and the action of the committee authorizing their execution. The
call of the annual meeting did not state that the subject matter of
these contracts would be considered, but that certain other
subjects would be, and that the meeting was for the selection of
directors for the coming year and the transaction of any other
business which might legally come before the meeting. The record of
the meeting of the executive committee, April 22, 1890, reads
thus:
"The president submitted Vice President Holcomb's letter No.
1,139, dated April 18, 1890, enclosing an agreement between this
company and the Chicago, Milwaukee and St. Paul Railway Company,
and an agreement between this company, the Omaha and Republican
Valley Railway Company, the Salina and Southwestern Railway
Company, the Chicago, Rock Island and Pacific Railway Company, and
the Chicago, Kansas and Nebraska Railway Company, dated May 1,
1890."
"Whereupon, after consideration, it was,"
"On motion of Mr. Spaulding,"
"Voted unanimously that the agreement submitted to the committee
between this company and the Chicago, Milwaukee, and St. Paul
Railway Company, granting trackage rights to the latter company
over this company's lines between Council Bluffs, Omaha, and South
Omaha, for a period of
Page 163 U. S. 571
999 years from May 1, 1890, at a monthly rental of $3,750 is
approved, subject to the ratification of the stockholders, and the
president is hereby authorized to execute the same on behalf of
this company;"
"Voted unanimously, that the agreement submitted to the
committee dated May 1, 1890, between this company, the Omaha and
Republican Valley Railway Company, the Salina and Southwestern
Railway Company, the Chicago, Rock Island and Pacific Railway
Company, and the Chicago, Kansas and Nebraska Railway Company,
providing for the use of this company's lines from Council Bluffs
to Omaha, including the bridge over the Missouri River and the
lines of this company's Omaha and Republican Valley Branch from
Lincoln to Beatrice, Nebraska, and for the use by this company of
the Chicago, Kansas, and Nebraska Railway Company's lines between
McPherson, Kansas, and South Hutchinson, Kansas, for a period of
999 years from May 1, 1890, and for the use of the line between the
Cities of South Omaha and Lincoln, Nebraska, for a period of 999
years from October 1, 1890 at the rentals severally provided for
therein, is approved, subject to the ratification of the
stockholders, and the president is hereby authorized to execute the
same on behalf of the company."
The following are the resolutions severally adopted by a
separate vote of the entire stock represented in favor of each:
"
Resolved that the agreement between the company and
the Chicago, Milwaukee, and St. Paul Railway Company, dated May 1,
1890, granting trackage rights to the latter company over this
company's lines, between Council Bluffs, Iowa, and Omaha and South
Omaha, Nebraska, a copy of which is herewith submitted, be, and is
hereby, approved, and the action of the executive committee in
authorizing its execution is hereby ratified, approved, and
confirmed."
"
Resolved that the agreement between the Union Pacific
Railway Company, the Omaha and Republican Valley Railway Company,
the Salina and Southwestern Railway Company, the Chicago, Rock
Island and Pacific Railway
Page 163 U. S. 572
Company, and the Chicago, Kansas and Nebraska Railway Company,
dated May 1, 1890, a copy of which is herewith submitted, granting
to the latter companies trackage rights over this company's lines
from Council Bluffs to Omaha, including the Omaha bridge, and the
lines of this company's Omaha and Republican Valley Branch from
Lincoln to Beatrice, Nebraska, and providing, further, for the use
by this company of the Chicago, Kansas, and Nebraska Railway
Company's line between McPherson and South Hutchinson, Kansas, and
the line from South Omaha to Lincoln, Nebraska, on the terms
therein provided for, be, and is hereby approved, and the action of
the executive committee in authorizing the execution thereof is
hereby ratified, approved, and confirmed."
At this time, the whole number of shares was 608,685, and
437,376 shares were voted.
It is not disputed that the board of directors and the body of
the stockholders of the other corporations, parties to the
contracts, took proper action to authorize and ratify the execution
thereof by their respective corporations, and that the formal
execution of the contracts by the parties to them was
sufficient.
The preamble to the Rock Island contract described the several
railways owned by the parties, and recited that the Rock Island
Company had become a domestic corporation of the State of Nebraska,
and proposed to extend its railway from its terminus at Council
Bluffs to a connection with its leased line, the Chicago, Kansas,
and Nebraska Railway at the City of Beatrice. That the parties to
the contract believed that the interests of all would be promoted
by using, for a part of said extension, the main tracks of the
Union Pacific Railway Company in the Cities of Council Bluffs and
Omaha, the bridge over the Missouri River, and that portion of the
Omaha and Republican Valley Company, owned by the Union Pacific
Company, between Lincoln and the point of junction at the City of
Beatrice; by a lease from the Rock Island Company to the Union
Pacific Company of a portion of the railroad controlled by it,
between McPherson and
Page 163 U. S. 573
Hutchinson, Kansas, a distance of about thirty miles, and a
lease of the right of the Union Pacific Company to operate its
trains over the road which the Rock Island Company was about to
build between the cities of South Omaha and Lincoln.
The contract provided:
"The Pacific Company hereby lets the Rock Island Company into
the full, equal, and joint possession and use of its main and
passing tracks, now located and established, or which may be
hereafter located and established, between the terminus of such
tracks in the City of Council Bluffs, in the State of Iowa, and a
line drawn at a right angle across said tracks within one and
one-half (1 1/2) miles southerly from the present passenger station
of South Omaha, in the State of Nebraska, including the bridge on
which said tracks extend across the Missouri River, between said
Cities of Council Bluffs and Omaha; connections with Union Depot
tracks in Omaha, the side or spur track leading from its main
tracks to the lower grade of the Pacific Company's sidings and spur
tracks in Omaha, and such extensions thereof as may be hereafter
made; side tracks in Omaha, on which to receive from and deliver to
the Rock Island Company freight that may be handled through the
warehouses, or switched by the Pacific Company; the connections
with the Union Stock Yards tracks in South Omaha, and conveniently
located grounds in South Omaha, on which the Rock Island Company
may construct, maintain and exclusively use a track or tracks,
aggregating three thousand (3,000) feet in length, for the storage
of cars and other purposes, for the term of nine hundred and
ninety-nine (999) years, commencing on the first day of May, in the
current year,-for which possession and use the Rock Island Company
covenants, promises, and agrees to pay to the order of the said
Pacific Company, monthly, during the continuance of said term, the
sum of three thousand seven hundred and fifty (3,750) dollars,"
and a certain portion of the expense incurred in maintaining and
operating the property between Council Bluffs and South Omaha, and
of the assessments and taxes levied thereon, in proportion as its
wheelage should be to the entire wheelage
Page 163 U. S. 574
over the same, and also a reasonable compensation for handling
its traffic in Omaha. That the Pacific Company lets the Rock Island
Company into the full, joint, and equal possession and use of its
tracks, stations, and appurtenances along the line of the railway
of the Republican Valley Company, from a point near the northern
boundary of the City of Lincoln to the point where its tracks
connect with those of the Kansas Company at Beatrice, Nebraska, for
the same length of time, for which the Rock Island Company agrees
to pay the Pacific Company a certain rental, computed on a
percentage of the value of the main track, and a proportion of the
cost of maintenance. That the Rock Island Company lets the Pacific
Company into the full, joint, and equal possession and use of its
tracks and stations along the lines of the Kansas Company from
McPherson to Hutchinson for the same length of time, for a rental
to be computed in the same way. That the Rock Island Company lets,
leases, and demises to the Pacific Company, for a like term,
commencing October 1, 1890, the right to move and operate over the
tracks of the railway it proposes to construct between the Cities
of South Omaha and Lincoln, in the State of Nebraska, its freight
and passenger trains, engines, and cars of all classes for a rental
based upon a mileage of the trains. That each of the parties to the
contract shall take such steps as will be necessary to continue all
the stipulations of the contract in force. That each contract of
lease shall attach to that portion of the railway leased during the
corporate existence of the owner thereof, and all extensions of
such existences, by renewal or otherwise, and that the contract
shall bind the parties thereto, their successors, grantees, and
assigns. That
"schedules of rules and regulations for the movement of engines
and trains over the several railways hereby let and demised shall
be made for each railway by the duly authorized officers of the
lessor and lessee companies by which such railways shall at the
time be operated. Such schedules shall, as nearly as may be
practicable, accord equality of right, privilege, and advantage to
trains of the same class operated by the lessor and lessee, and to
trains of a superior class operated by either a preference over
trains of an
Page 163 U. S. 575
inferior class operated by the other. All rules and regulations
shall be reasonable and just to both lessor and lessee, and shall
secure to neither any preference or discrimination against the
other. They shall be executed and all trains moved under the
immediate direction of the superintendent or other officer of the
lessor company. If the parties cannot agree upon the adoption of
any schedule, rule, or regulation, or as to the modification of any
one existing, either party may demand a decision of such
controversy by referees as hereinafter provided. The referees are
hereby invested with power to prescribe schedules, rules, and
regulations, and to modify existing ones, and, in case of willful
disregard by either party of the rights of the other, to award
damages to the party injured for injuries sustained because of such
willful act."
That the referees shall be appointed, when needed, by the
selection of one by each party, and the appointment of a third by
the two so chosen, with further provision for their action in cases
of disagreement in other particulars.
It was also agreed that the Pacific Company might admit any
other company to the joint use and possession of the same tracks
and property upon substantially the same terms, provided such
additional burden did not interfere with the Rock Island Company.
Another provision was as follows:
"If for any reason any of the covenants, promises, and
agreements in any of these articles expressed, and not material to
the right of the lessee to use the property leased and demised,
shall be adjudged void, such adjudication shall not affect the
validity or obligation of any other covenant, promise, or agreement
which is in itself valid. In the event of a failure in law of any
of the covenants, promises, and agreements herein contained, such
steps shall be taken and contracts made as shall be advised by
counsel to carry into effect the purpose and intent herein
expressed."
The Rock Island Company was chartered to exist until 1930, but
the charter provided that its existence might "be renewed from time
to time as may be provided by the laws of the states of Illinois
and Iowa."
The Rock Island Company, upon the construction of its
proposed
Page 163 U. S. 576
line from South Omaha to Lincoln, obtained by the agreement
access to Omaha and South Omaha, and a shorter continuous line from
Chicago to Denver by way of Council Bluffs, Lincoln, and Beatrice,
than by its southerly route, while, by the use of the proposed road
from South Omaha to Lincoln, the Pacific Company obtained a line
from Omaha to Lincoln and Beatrice about forty miles shorter than
its former route by way of Valley Station, and, by its use of the
road from McPherson to Hutchinson, it filled the gap between its
line there, and obtained a continuous line, by way of Salina, to
the southern boundary of Kansas, and a rental of $45,000 a year,
and other compensation as provided.
The contract with the St. Paul Company let it into the joint and
equal use of the tracks and bridge between Council Bluffs and South
Omaha for the same time and on the same terms named in the contract
with the Rock Island Company. The main tracks of the Pacific
Company, to be used under this contract, were two, extending a
distance of about seven miles, from Council Bluffs, across the
bridge, and through the City of Omaha, to South Omaha.
On the 17th of May, the superintendent of the Pacific Company
addressed a letter to the superintendent of the Rock Island
Company, requesting the construction of the connecting track which
would enable it to use the Kansas Railway between McPherson and
Hutchinson. The Rock Island immediately constructed the track, and
the Pacific Company at once began to use it, and continued to use
it until January 12, 1891.
The Rock Island proceeded with the construction of its road from
South Omaha to a connection with the tracks of the Republican
Valley in Lincoln, and secured depots and yards in Omaha and South
Omaha, and made an arrangement with the Pacific Company for the
construction of freight and passenger stations and a yard on the
ground of the Republican Valley road in Lincoln, to be used by the
Rock Island and Pacific Companies jointly. Prior to December 1,
1890, it had expended in such construction between South Omaha and
Lincoln over $1,400,000. All this was done in reliance upon the
contract, and the railway and buildings erected could be used
Page 163 U. S. 577
for the principal purpose for which they had been constructed
only in connection with the tracks of the Union Pacific at and
between Council Bluffs and South Omaha and at and between Lincoln
and Beatrice. The work at Lincoln had commenced on December 1st,
when the Pacific Company notified the Burlington and Missouri
Company, whose depot it had theretofore been using, that after
December 31st it would abandon such use. This notice was given with
the intention of entering into the joint use of the Rock Island
depots and tracks.
About June 1, 1890, the St. Paul Company entered upon the use
and possession of the bridge and the tracks between the points
named in its contract.
November 26, 1890, a change of management in the Union Pacific
took place, and opposition to the contracts developed. Early in
January, 1891, the Pacific Company forcibly prevented the use by
the Rock Island and St. Paul Companies of its tracks at Omaha,
which they were entitled to use under the contracts, and absolutely
refused to perform the contracts. Thereupon these suits were
commenced, one by the Rock Island Company against the Pacific
Company and the Republican Valley Company and the other by the St.
Paul Company against the Pacific Company. The Pacific Company set
up, by way of defense, that the use of this road as claimed would
deprive it of the means granted to it under the act of Congress to
earn moneys with which to maintain its corporate existence, perform
the duties of a common carrier, and meet the demands of the
government; that the officers of the Pacific Company were not so
authorized to execute the contracts as to make it competent for
them to do so, and that they were not so entered into as to bind
the company to the performance thereof; that the contracts were
unjust and inequitable, and were improvidently made, and ought not
to be sanctioned and enforced by a court of equity; that the
government directors of the Pacific Company did not authorize or
sanction the contracts; that the contracts were
ultra
vires, and that that company did not have any right, power, or
authority to enter into them, and that the contracts were not such
as a court of equity could or should specifically enforce.
Page 163 U. S. 578
In the
Rock Island case, the circuit court decreed that
the contract was "the valid obligation of the parties thereto, and
should be performed in good faith by each of them," and that it
secured the several rights embraced thereby, all of which were
specifically set forth, subject to the following limitations:
"1. That the engines, cars and trains of complainant shall be
moved on said tracks under rules and regulations to be agreed upon
by and between the parties, or ordained by referees selected and
appointed in the manner provided by said contract, and securing
equality of right, privilege, and advantage to trains of the same
class operated by both parties, and to trains of a superior class
operated by either a preference over trains of an inferior class
operated by the other, which rules and regulations shall be
executed, and all engines, cars, and trains moved, under the
immediate direction of the superintendent or other officers of the
defendant the Union Pacific Railway Company."
"2. That the Union Pacific Railway Company may admit any other
company or companies operating a connecting railway or railways to
the joint possession and use of the railway, or any part thereof at
and between Council Bluffs and South Omaha, upon substantially the
same terms as those granted to the complainant, and apply the
compensation which it may receive from such additional company or
companies to its own use, without accounting for the same or any
part thereof to the complainant."
"3. The complainant shall not do any business as a common
carrier of persons or property to or from any stations on said line
between said Cities of Lincoln and Beatrice."
"4. That complainant shall make compensation for such possession
and use as provided by said contract."
The decree then continued:
"III. That the defendants, the Union Pacific Railway Company and
the Omaha and Republican Valley Railway Company, are commanded
severally to specifically perform, keep, and observe the several
covenants, promises, and agreements in said contract set out, to be
by them either jointly or severally observed, kept, or performed,
and that said railway
Page 163 U. S. 579
companies, and the officers, agents, attorneys, and employees of
each, are hereby commanded and enjoined to wholly refrain from
directly or indirectly interposing any obstacle, interference,
hindrance, or delay to the performance of the several promises,
covenants, and agreements in said contract set out, or to the
enjoyment of any of the rights or privileges by said contract
granted, concerning the railway and railway property above
described, by any and all of the parties to said contract, or by
any of the officers, agents, attorneys, or employees of said
parties, or any of them, and especially from in any manner
obstructing or interfering with said complainant in restoring and
maintaining the connections which have heretofore been constructed,
or in constructing and maintaining at such point or points as may
be determined under the contract, additional necessary connections
between the railways of the Chicago, Kansas, and Nebraska Railway
Company and the Omaha and Republican Valley Railway Company at
Beatrice, and between the railway of complainant and that of the
Omaha and Republican Valley Railway Company at Lincoln, in the
State of Nebraska, and between the railway of complainant and the
railway of said Union Pacific Railway Company at South Omaha and
Omaha, in the State of Nebraska, and the City of Council Bluffs, in
the State of Iowa, and from doing any act or thing, or permitting
the doing of any act or thing, if it shall have power to prevent
the same, whereby said complainant may be prevented from enjoying
any and all of the benefits and advantages secured to it by said
contract or doing any act or thing which the complainant by the
terms of said contract is authorized to do, from interfering with
the use of, and from removing, injuring, or destroying buildings or
other structures erected by the complainant upon the grounds of the
defendant the Omaha and Republican Valley Railway Company, in the
City of Lincoln, in the State of Nebraska, without the consent of
said complainant."
"IV. That each and every party hereto is commanded to refrain
from interposing any obstacle or hindrance to the establishment, or
alteration, or amendment in the manner provided
Page 163 U. S. 580
by said contract, of time cards, rules, and regulations
governing the operations of engines, cars, and trains over said
railways and every part thereof, or to the execution and
enforcement of such time cards, rules, and regulations, when so
established, altered, or amended, otherwise than by apt proceedings
in a court having competent jurisdiction."
"V. That nothing in this decree contained shall operate to estop
any party hereto from recovering against another party or parties,
by appropriate proceedings in law or equity, the compensation to
which it is now or may be hereafter entitled, for the use of any of
the railway and appurtenant property between and at Council Bluffs
and South Omaha, between and at South Omaha and Lincoln, between
and at Lincoln and Beatrice, and between McPherson and South
Hutchinson, or from recovering in such proceedings damages which it
has sustained, or may sustain, because of any breach or violation
of said contract."
"VI. That while this decree is final in determining the rights
of the parties under said contract, the court reserves the power to
make additional orders from time to time, as may be necessary to
enforce such rights."
The decree in favor of the St. Paul Company was to the same
effect,
mutatis mutandis.
MR. CHIEF JUSTICE FULLER, after stating the facts in the
foregoing language, delivered the opinion of the Court.
The questions to be considered are whether these contracts were
within the corporate powers of the parties, were duly
Page 163 U. S. 581
authorized as respects the Union Pacific Railway Company, were
such contracts as a court of equity can specifically enforce, and
were properly enforced on the merits.
It will be most convenient to consider the appeal in the case of
the Rock Island Company. If the decree in favor of that company is
affirmed, a like result must follow on the appeal in the case of
the St. Paul Company. And we may remark in the outset that the main
contention of the Pacific Company concerns the tracks between
Council Bluffs and South Omaha, including the bridge.
1. Railroad corporations possess the powers which are expressly
conferred by their charters, together with such powers as are
fairly incidental thereto, and they cannot, except with the consent
of the state, disable themselves from the discharge of the
functions, duties, and obligations which they have assumed. Can it
be held that the contract with the Rock Island Company, judged by
its terms, construed in the light of matters of common knowledge,
of the evidence, and of applicable legislation was made in the
assumption of powers not granted, or amounted to the surrender of
powers that were?
The general rule is that a contract by which a railroad company
renders itself incapable of performing its duties to the public, or
attempts to absolve itself from those obligations without the
consent of the state, or a contract made by a corporation beyond
the scope of its powers, express or implied, on a proper
construction of its charter cannot be enforced, or rendered
enforceable by the application of the doctrine of estoppel.
Thomas v. Railroad Co., 101 U. S. 71;
Central Transportation Co. v. Pullman Car Co.,
139 U. S. 24.
But where the subject matter of the contract is not foreign to
the purposes for which the corporation is created, a contract
embracing
"whatever may fairly be regarded as incidental to, or
consequential upon, those things which the legislature has
authorized ought not, unless expressly prohibited, to be held by
judicial construction to be
ultra vires."
Jacksonville Railway Co. v. Hooper, 160 U.
S. 514,
160 U. S. 525;
Attorney
Page 163 U. S. 582
General v. Great Eastern Railway, 5 App.Cas. 473, 478;
Brown v. Winnisimmet Company, 11 Allen 326, 334.
Taking up the contract with the Rock Island Company, what is the
nature of the undertaking of the Pacific Company? In several places
in this instrument, it is called a "lease," and the parties are
called "lessor" and "lessee," while, on the other hand, in the
record of the proceedings of the executive committee of the Pacific
Company and of its stockholders, it is called an agreement
"granting trackage rights" between Council Bluffs and South Omaha.
But what it was styled by the parties does not determine its
character or their legal relations, and in its interpretation the
rule applies that
"the court is not only at liberty, but required, to examine the
entire contract, and may also consider the relations of the
parties, their connection with the subject matter of the contract,
and the circumstances under which it was signed."
Rock Island Railway Co. v. Rio Grande Railway Co.,
143 U. S. 596,
143 U. S.
609.
In
Thomas v. Railroad Company, 101 U. S.
71,
101 U. S. 79,
Mr. Justice Miller stated the real question to be "whether the
railroad company exceeded its powers in making the contract, by
whatever name it may be called, so that it is void."
And MR. JUSTICE BREWER, in his opinion on circuit, observed:
"Neither the form of expression on the one hand, nor the name on
the other, is conclusive. We must see what rights and privileges
were in fact granted, what burdens and obligations assumed."
The contract provided that the Pacific Company hereby "lets the
Rock Island Company into the full, equal, and joint possession and
use of its main and passing tracks." The possession here spoken of
was such possession as the Rock Island Company would have when its
engines, cars, and trains were running over the tracks. The company
had no possession before its trains came on the tracks or after
they had run off of them, and while its trains were on the tracks,
its possession was only of the particular part occupied temporarily
while running over them. Moreover, all trains were to be moved
under the direction of an officer of the Pacific Company.
Page 163 U. S. 583
The Rock Island trains, coming upon a Pacific track, immediately
passed from the control of the Rock Island Company into that of the
Pacific, and its officials were subjected to the orders of the
Pacific's officers. And throughout the whole contract there does
not appear to be a single provision which looks to any actual
possession by the Rock Island of any of the Pacific property beyond
that which was involved in its trains being run over the tracks
under the direction of the other company. The contract in this
regard was really an agreement for trackage rights, for running
arrangements -- a "terminal contract" with compensation on a
"mileage" or "wheelage basis," rather than a lease.
The Pacific Company, in its answer, said that it had offered and
now offered
"to accept and transport all the cars and trains of the
complainant, freight and passenger, to and from all points on the
line of the said defendant described in said supposed contract, and
thereby enable the complainant to maintain its business at Omaha
and South Omaha, and to carry on exactly the same business that it
could have carried on by the operation of its own trains by its own
engines and by its own employees, as provided for in said supposed
contract, and it says that it had offered, in the utmost good
faith, to perform this service, immediately and at all times, for
the said complainant at a reasonable compensation, to be fixed in
any fair, usual, and ordinary manner."
It thus appears that the Pacific Company could do what it had
contracted to do, and that the contention resolves itself into the
proposition that there is a fundamental legal difference between
authorizing the Rock Island to haul its trains with its own engines
and agreeing to haul them with the Pacific Company's engines,
though in either event they were to be moved under the train
dispatchers of the Pacific Company -- a difference we find
ourselves unable to admit.
In
Chicago, Rock Island & Pacific Co. v. Denver &
Rio Grande Co., 143 U. S. 596,
143 U. S. 618,
the Rio Grande Company had granted to the Rock Island Company the
use of its terminal facilities at Denver, and it insisted that it
could more conveniently handle the Rock Island trains with its
own
Page 163 U. S. 584
engines and crews than with those of the Rock Island. But this
Court, speaking through MR. JUSTICE BROWN, said:
"It is obviously necessary to the harmonious working of the two
systems that the general control and management of the yard should
remain with the defendant, but it is not easy to see why that
control may not be as well exercised over two switching crews
belonging to two different companies as over two crews belonging to
the same company. . . . It occurs to us that it would cause fully
as much inconvenience to transfer the control of trains from the
employees of one company to those of another, as such trains enter
or leave the terminal yard, as it would be to permit the switching
of such trains within the yard by the hands that brought them in or
were to take them out. It appears that yards have been jointly
operated in this manner in such large railway centers as Kansas
City, Toledo, and Chicago without serious difficulty. We think that
the same rule should also be applied to those employed in handling
the freight. With reference to this, the decree of the court below
provided that the plaintiff had a right to employ its separate
switching crews and operate its own switching engines in the yards
of the defendant company, under the sole and absolute supervision,
direction, and control, however, of the yardmaster or other
properly constituted officer or agent of the defendant, and subject
to the orders and instructions of such yardmaster, etc., and in
this there was no error."
Such being the nature of the contract, a contract frequently
made between railroad companies, upon what reasonable ground should
it be held invalid as an unlawful assumption of power?
The evidence shows that between the bridge and South Omaha, some
of the most thickly populated and densely settled portions of the
City of Omaha are situated; that five railroads, engaged in
transcontinental traffic, do their terminal business there, taking
up and setting down passengers, collecting, unloading, and
delivering freight; that a large part of the territory is filled
with the tracks of the Union Pacific and Burlington Companies, and
that there is scant room, if
Page 163 U. S. 585
any, for another company, with the many tracks required for
terminal business; that the whole territory is very valuable,
densely populated, and filled with tracks, and that at South Omaha
are stockyards and packing industries of great extent, furnishing
the companies a vast volume of freight, and compelling the building
of many tracks. If it were true that railroad companies could not,
ordinarily, without the aid of a statute, grant running facilities
over their tracks, even when such an arrangement would not
interfere with their business, the application of so rigorous a
rule to defeat a contract, as between the parties, in respect of
tracks in the congested parts of large cities, where the entire use
of them is not required by their owners, does not seem reasonable.
It is well said by Sanborn, J., speaking for the circuit court of
appeals:
"Courts cannot be blind to the fact that every railroad company
cannot have entrance to our great cities over tracks of its own, or
to the fact that railroad companies do, and every public interest
requires that they should, make proper contracts for terminal
facilities over the roads of each other."
We think that it would be carrying the doctrine of
ultra
vires much too far to deny absolutely the competency of a
railroad company, being a public highway, whose use is common to
all citizens, to contract to give another running rights over its
tracks without express statutory authority, and that, under proper
circumstances, such a contract may well be held within its implied
powers.
In
Lake Superior Railway Co. v. United States,
93 U. S. 492,
Mr. Justice Bradley adverts to and comments on the fact that, in
England and in this country, railroads, when first constructed,
were by the legislatures and the people regarded and treated as
public highways for the use of all who had occasion to run their
vehicles thereon, and this is certainly so far true in modern
acceptation that, being for the common use of the public, their
owners are ordinarily competent to make contracts are ordinarily
competent to make contract which will subserve such use.
But the determination of the existence of the power to grant
running rights in this instance does not rest on these
Page 163 U. S. 586
considerations alone. For the provisions of the Pacific Railroad
acts relating to the bridge over the Missouri River, its
construction and operation, imposed on the Pacific Company the duty
of permitting the Rock Island Company to run its engines, cars, and
trains over the bridge and the tracks between Council Bluffs and
Omaha, and we think that South Omaha was included.
The original charter of 1862 required the construction of the
Pacific road from the east bank of the river, and so impliedly
authorized the company to bridge it, and the amendatory act of 1864
expressly gave the corporation authority "to construct bridges over
said Missouri River." The bridge contemplated was for the company's
use, as a part of its road, and no provision was made for other
roads or other business, nor were any special means provided for
the construction of the bridge.
In 1871, several roads had been built from the East to Council
Bluffs, and others were building, and roads were in process of
construction in Nebraska, with Omaha as their termini.
The Omaha Bridge Act of February 24, 1871, c. 76,16 Stat. 430,
was then passed, by which,
"for the more perfect connection of any railroads that are or
shall be constructed to the Missouri River at or near Council
Bluffs, Iowa, and Omaha, Nebraska,"
the company was authorized to issue bonds not exceeding
$2,500,000, and to
"secure the same by mortgage on the bridge and approaches and
appurtenances, as it may deem needful to construct and maintain its
bridge over said river, and the tracks and depots required to
perfect the same, as now authorized by law of Congress."
The bridge was "to be so constructed as to provide for ordinary
vehicles and travel," and the company was authorized "to levy and
collect tolls for the use of the same." The act further
provided:
"For the use and protection of said bridge and property, the
Union Pacific Railway Company shall be empowered, governed, and
limited by the provisions of the act entitled 'An act to authorize
the construction of certain bridges and to establish them as post
roads,' approved July twenty-five eighteen hundred and sixty-six,
so far as the same
Page 163 U. S. 587
is applicable thereto."
The act of 1866, thus referred to, 14 Stat. 244, c. 246, is
entitled "An act to authorize the construction of certain bridges
and to establish them as post roads." It authorized the
construction of nine different bridges, eight across the
Mississippi River and one across the Missouri River. The first
bridge provided for was to be constructed at Quincy, Illinois, and
by the first section it was made lawful for any person or persons,
company or corporation, having authority from the states of
Illinois and Missouri for that purpose,
"to build a bridge across the Mississippi River at Quincy,
Illinois, and to lay on and over said bridge railway tracks, for
the more perfect connection with any railroads that are or shall be
constructed to the said river at or opposite said point, and that,
when constructed, the trains of all roads terminating at said river
at or opposite said point shall be allowed to cross said bridge for
reasonable compensation, to be made to the owners of said bridge
under the limitations and conditions hereinafter provided."
The common object of both these acts plainly was the more
perfect connection of roads running to the bridges on either side
of the river. And this is in harmony with numerous acts of Congress
referred to in the opinion of the circuit court of appeals, Act of
February 21, 1868, 15 Stat. 37; Act of May 6, 1870, c. 93, 16 Stat.
121; Act of June 30, 1876, c. 176, 16 Stat. 173, Act of July 1,
1870, c. 195, 16 Stat. 185; Act of March 3, 1871, c. 110, 16 Stat.
473; Joint Resolution of March 3, 1871, No. 48, 16 Stat. 599, and
many others, all of them indicating a settled policy that all
structures of this character should allow connecting roads to cross
them with their cars, trains, and engines. It is said that the
reference to the act of 1866 should be confined to its second and
third sections, but, as the matters provided for in those sections
were fully otherwise covered in the Pacific Railroad Acts, that
does not commend itself to us as a reasonable construction. But it
is argued that even if the Pacific Company were authorized to grant
to the Rock Island Company the right to run its trains, with its
engines, over the bridge, it was not empowered to grant the same
rights over the tracks. The evidence shows
Page 163 U. S. 588
that the tracks east of the bridge were upon the approach to the
structure proper, and it appears from the maps that the depot at
the west end of the bridge was more than half a mile distant. The
act of 1871 provided that, for the more perfect connection of the
roads east of the river with those west of it, the company might
issue bonds, and secure the same by mortgage "on the bridge and
approaches and appurtenances," and it would seem to be clear that
the approaches on the west side, as well as on the east, must be
regarded as part of the structure. Moreover, the act refers to "the
tracks and depots required to perfect the same." A railroad bridge
can be of no use to the public unless united with necessary
appurtenances, such as approaches, tracks, depots, and other
facilities for the public accommodation. And we consider Council
Bluffs, Omaha, and South Omaha, under the facts, as necessarily
embraced in the intention of Congress. It is true that it appears
that from the depot to the point in South Omaha where the tracks of
the companies connected is about four miles, but the scheme of
Congress was to accomplish the more perfect connection "at or near
Council Bluffs, Iowa, and Omaha, Nebraska," and we think this
distance reasonably within the terms of the act of 1871, liberally
construed, as the act should be.
The legislation of 1862 and 1864 in respect of the Union Pacific
Railway Company was under consideration in
Union Pacific
Railway Co. v. Hall, 91 U. S. 343,
91 U. S. 345,
and it was said by Mr. Justice Strong:
"The scheme of the act of Congress, then, is very apparent. It
was to secure the connection of the main line by at least three
branches with the Missouri and Iowa railroads and with a railroad
running eastwardly from Sioux City in Iowa either through that
state or through Minnesota. An observance of this scheme, we think,
will aid in considering the inquiry at what place the act of
Congress, and the orders of the President made in pursuance
thereof, established the eastern terminus of the Iowa branch. From
it may reasonably be inferred that the purpose of Congress was to
provide for connections of the branches of the main line of the
Union Pacific road with railroads running through the states on the
east of the territory, and to provide for those connections
Page 163 U. S. 589
within those states at points at or near their western
boundaries."
On June 15, 1866, an act was approved, c. 124, 14 Stat. 66, "to
facilitate commercial, postal, and military communication among the
several states," carried forward as section 5258 of the Revised
Statutes, which provided that
"every railroad company in the United States whose road is
operated by steam, its successors and assigns, be, and is hereby,
authorized to carry upon and over its road, boats, bridges, and
ferries, all passengers, troops, government supplies, mails,
freights, and property on their way from any state to another
state, and to receive compensation therefor, and to connect with
roads of other states so as to form continuous lines for the
transportation of the same to the place of destination."
It is impossible for us to ignore the great public policy in
favor of continuous lines thus declared by Congress, and that it is
in effectuation of that policy that such business arrangements as
will make such connections effective are made.
We are of opinion that it was within the powers of the Pacific
Company to enter into contracts for running arrangements, including
the use of its tracks and the connections and accommodations
provided for, and we cannot perceive that this particular contract
was open to the objection that it disabled the Pacific Company from
discharging its duties to the public. By the contract, the Pacific
Company parted with no franchise, and was not excluded from any
part of its property or the full enjoyment of it. What it agreed to
do was to let the Rock Island into such use of the bridge and
tracks as it did not need for its own purposes. This did not alien
any property or right necessary to the discharge of its public
obligations and duties, but simply widened the extent of the use of
its property for the same purposes for which that property was
acquired, to its own profit so far as that use was concerned, and
in the furtherance of the demands of a wise public policy. If, by
so doing it may have assisted a competitor, it does not lie in its
mouth to urge that as rendering its contract illegal as opposed to
public policy. Ability to perform its own immediate duties to the
public is the limitation on its
jus
Page 163 U. S. 590
disponendi we are considering, and that limitation had
no application to such a use as that in question.
The leading cases of
Thomas v. Railroad Co.,
101 U. S. 71;
Pennsylvania Railroad Co. v. St. Louis, Alton &c.
Railroad, 118 U. S. 290;
Oregon Railway Co. v. Oregonian Railway Co., 130 U. S.
1;
Central Transportation Co. v. Pullman Car
Co., 139 U. S. 24;
St. Louis &c. Railroad Co. v. Terre Haute &c. Railroad
Co., 145 U. S. 393;
United States v. Union Pacific Railroad Co., 160 U. S.
1 -- arose upon instruments which dispossessed the
corporations of all their property and of all capacity to perform
their public duties. But we have no such case here.
The argument is pressed that the Pacific Company might become
disabled by reason of the increase of business in the future, but
the defendant asserts in its answer that it is able to carry on the
business of hauling complainant's cars "immediately and at all
times" if it may do so with its own engines and on its own terms
and be permitted in the meantime to repudiate this contract. The
proof wholly fails to establish that the contract involves any
present inability or any existing ground for apprehension in that
regard, and shows that the bridge and tracks of the Pacific Company
are fully adequate to meet much larger demands than are now, or
within any reasonable time can be expected to be, made upon them
under the contract. The country, as was said below, will grow in
population and business, and the business of this particular
corporation will increase, but with the increased volume of
business come increased facilities for its transaction. Moreover,
increase in the same ratio for the future as in the past is not to
be expected, for new roads are constantly being built and other
channels of transportation opened, and it cannot be conclusively
assumed that the common means of transportation twenty years hence
may not be quite different from what they are at present. It will
not do to hold this contract void, and allow defendant to escape
from the obligations it assumed, on the mere suggestion that at
some time in the remote future there is a possibility that the
suggested contingency might arise. Should it happen, however, the
courts are competent
Page 163 U. S. 591
to relieve from the consequences of so radical a change of
condition.
Objection is made that, by reason of the provision for referees
in case of difference between the two companies as to the operation
of trains, the full control of the Pacific Company of its road and
franchises is taken away. If that stipulation were stricken out,
the right of the Rock Island Company to use the tracks, subject to
the reasonable management of the Pacific Company's officers, would
still remain, and the contract itself contained a provision
contemplating the possible invalidity of some one of the
stipulations not of the essence of the contract. There does not
appear to have been any specific contention in the circuit court or
in the court of appeals that that particular clause was invalid,
and if it were, the power reserved in the decree was sufficient to
permit an application to the court for its modification, and the
substitution of the judgment of the court. We cannot hold that if
the particular clause were objectionable, the contract would be
invalidated as a whole, and it is too late to ask a reversal on the
ground that the clause itself is not enforceable.
We do not feel called upon to enter at length upon other
objections urged by appellants' counsel. One of them was that the
Rock Island and St. Paul Companies derived no power from the laws
of Nebraska to enter into the alleged contract, because they had
not complied with the statutes of the state in that behalf. After
the testimony was closed and as the final hearing commenced,
defendants moved the court to permit the introduction of the
evidence upon which this contention is based. This was objected to
by complainants, the objection sustained, and defendants excepted.
We concur in the view of the circuit court of appeals, which held
that there was no abuse of discretion in the court below in denying
the motion, and did not consider the rejected evidence or the
argument based upon it. The Rock Island Company built its road from
South Omaha to Lincoln as vested with the corporate power to do so,
and it contracted as in the possession of the power as a
corporation existing in
Page 163 U. S. 592
and under the laws of Nebraska. The state appears to have been
content, and the contract, not being necessarily beyond the scope
of the powers of the corporation, must, in the absence of proof to
the contrary, be deemed valid.
Nor can the contract be held invalid because, within its
prescribed duration, the charter of the Rock Island Company expired
by its terms. The contract was carefully drawn in view of such
expiration of the several corporate existences of the parties to
it, who bound themselves to take such steps as might be necessary
to continue the contract in force. And, as observed by the court of
appeals, the contingency that the Rock Island Company "will cease
to exist and leave neither assigns nor successors is far too remote
to have any influence upon the validity of this contract." 51 F.
309
It is also said that the contract was void so far as the
Republican Valley Railroad Company was concerned, because without
consideration, inasmuch as the Rock Island Company was to pay the
Pacific Company for the possession and use of the railway and
appurtenant property between Lincoln and Beatrice to the Pacific
Company, and so the Valley Company, as an independent corporation,
received no compensation. But the stockholders of the Valley
Company entered into the covenants in question, and as each of its
incorporators was an officer or employee of the Union Pacific
Company, its road was built with the funds of that company, every
share of its stock ever issued was taken, held, or voted by some
officer or employee of that company in trust for it, the officers
of the two companies had always been the same, and in their
operation no distinction had ever been made between the two roads,
and their earnings had gone into, and their expenditures been paid
from, a common treasury, we think there is no merit in the
objection that, for the reason given, the Valley Company was not
bound by its covenants.
But it is earnestly contended that the Pacific Company had no
power under its charter as a federal corporation to operate any
other line of road than those lines which it was specifically
authorized by Congress to construct, and that it was prohibited
under the Constitution and laws of Nebraska from
Page 163 U. S. 593
doing so, and therefore that it could not obligate itself to
use, and to pay to the Rock Island Company compensation for the use
of, the road between South Omaha and Lincoln.
It does not appear that this point was called to the attention
of the circuit court or decided by it, nor in the errors assigned
to the decree of the circuit court in the circuit court of appeals
was there any error attributed to the decree in this particular,
nor did that court pass upon any such question. It is indeed
admitted that the point is raised for the first time in this Court.
We have to determine on this appeal whether in our judgment the
circuit court of appeals did or did not err, and affirm or reverse
accordingly. It is true that our decision necessarily reviews the
decree of the circuit court in reviewing the action of the court of
appeals upon it, and under the statute our mandate goes to the
circuit court directly; but it is notwithstanding the judgment of
the circuit court of appeals that we are called on primarily to
revise. It will be seen, then, that the judgments of the courts of
appeals should not ordinarily be reexamined on the suggestion of
error in that court, in that it did not hold action of the circuit
court erroneous, which was not complained of. We will, however,
make a few observations on the point thus tardily presented.
The eighth section of the eleventh article of the constitution
of that state provided that no railroad corporation of any other
state or of the United States doing business in Nebraska should be
entitled to exercise the right of eminent domain or have power to
acquire right of way or real estate for depot or other uses until
it should have become a corporation of the state pursuant to the
constitution, but we do not see what that provision has to do with
this question. The stipulations of the contract relating to the use
of the Rock Island tracks between South Omaha and Lincoln by the
Pacific Company did not embrace the acquisition of right of way or
real estate, or the exercise of the power of eminent domain by the
latter.
By the contract, the Rock Island Company gave the Pacific
Company "the right and privilege to move and operate its
Page 163 U. S. 594
trains over the tracks," and nothing more, and it was provided
that the Pacific Company should do no business at intermediate
points. The Pacific Company was to run its trains over the Rock
Island tracks forty-five miles, and it agreed to pay a fair
compensation for doing so. It was perfectly competent for the
Pacific Company to contract to deliver at Lincoln freight and
passengers taken up at Omaha; and, in carrying out such contract,
it could make deliveries in carloads, just as well as in small
parcels. It follows that its cars might be run through, and the
fact that, under this contract, the Pacific Company would haul its
cars with its own engines amounts to no more than a mere method of
doing the business. And as, when it contracts for deliveries beyond
its own line, it must pay the connecting company for its services,
that compensation might be fixed by the parties upon any basis they
agreed to. Here it agreed to pay a certain sum per mile for the
mileage over which its trains run, and the difference between that
and any other mode of payment did not go to the powers of the
company. Where a corporate contract is forbidden by a statute or is
obviously hostile to the public advantage or convenience, the
courts disapprove of it, but when there is no express prohibition
and it is obvious that the contract is one of advantage to the
public, the rule is otherwise. As remarked in
Jacksonville
Railway Co. v. Hooper, 160 U. S. 514:
"Although the contract powers of railroad companies are to be
restricted to the general purposes for which they are designed, yet
there are many transactions which are incidental or auxiliary to
its main business, or which may be useful in the care and
management of the property which it is authorized to hold, and in
the safety and comfort of the passengers which it is its duty to
transport. Courts may be permitted, where there is no legislative
prohibition shown, to put as favorable construction upon such
exercise of power by railroad companies as is necessary to promote
the success of the company within the powers of its charter and to
contribute to the comfort of those who travel thereon."
And that principle is applicable to the transportation of
through freight and passengers over connecting lines.
Page 163 U. S. 595
Under the laws of Nebraska, railroad companies are clothed with
ample power to make leases, or any arrangements for their common
benefit, consistent with and calculated to promote the objects for
which they are created. Comp.Stat.Neb. 1887, p. 248, c. 16, §
94. There is nothing in the charter of the Pacific Company that
prohibits such an arrangement as this in controversy, unless by
implication, and as by it the public interest was subserved, that
company reached its own lines by a shorter route, and accommodated
its own through freight and travel, we are not prepared to hold
that it was invalid.
These observations also apply to the clause of the contract in
respect of the road between McPherson and Hutchinson, but it should
be added that that reach of road was held and operated by the
Kansas Company, which was a Kansas corporation. The Union Pacific
Railway Company was formed by the consolidation of the Union
Pacific Railway Company, a federal corporation, the Denver Company,
a Colorado corporation, and a corporation originally named the
Leavenworth, Pawnee and Western Railway, afterwards called the
Union Pacific Railway, Eastern Division, and lastly the Kansas
Pacific Railway. The latter company, by its first name, was
incorporated under the laws of the Territory of Kansas, and upon
the admission of Kansas into the Union became a corporation of that
state. The acts of Congress of 1862 and 1864 clothed it with new
franchises, but did not deprive it of its powers as a state
corporation, which could be exercised by the consolidated company
in Kansas so far as not in derogation of its federal powers. And
Kansas corporations were duly empowered to enter into leases and
the like by the state laws. Gen.Stat.Kansas, c. 23, § 112,
443.
2. Was the contract, if within its powers, duly authorized by
the Pacific Company? No question arises but that the contract was
executed in due form, and, as to the manner in which its execution
was authorized, the facts appear to be: on April 22, 1890, the
executive committee passed the resolution approving the contract
and authorizing the president of the company to execute it, and on
the 30th of the same
Page 163 U. S. 596
month the stockholders at their regular annual meeting, voted to
approve the contract and the action of the executive committee
relative thereto. The board of directors never formally acted. As
soon as the contract was executed, the Pacific Company required the
Rock Island Company to make proper connections between McPherson
and Hutchinson, which was done, and the Pacific Company commenced
to run over those tracks, and continued to do so until after the
disputes between the two companies became flagrant. On the other
hand, the Rock Island Company commenced the construction of its
road between South Omaha and Lincoln, and of the stations and yards
at Lincoln, on the lands of the Republican Valley Company.
Appellants contend that the action of the stockholders and the
executive committee was ineffectual, because the board of directors
was the only body that could authorize the president and secretary
to make the contract. The contract appearing on its face to have
been duly executed, and the parties having entered upon its
execution, necessarily with full knowledge on the part of the board
of directors of the Pacific Company, the board would be presumed to
have ratified it, although it in fact took no affirmative action in
the matter.
Pittsburgh &c. Railway Co. v. Keokuk Bridge
Co., 131 U. S. 371,
131 U. S.
381.
When, by the charter of a corporation, its powers are vested in
its stockholders, and this was the common law rule when the charter
was silent, the ultimate determination of the management of the
corporate affairs rests with its stockholders, and the charter of
the Pacific Company did not commit the exclusive control to the
board of directors.
By the first section of the act, certain persons named, together
with five commissioners, to be appointed by the Secretary of the
Interior, were, with their successors, created a body corporated
and politic, with certain powers, which were to determine after the
company was fully organized, "and thereafter the stockholders shall
constitute said body politic and corporate." It was further
provided:
"Said company, at any regular meeting of the stockholders called
for that purpose, shall have power to make bylaws, rules, and
regulations
Page 163 U. S. 597
as they shall deem needful and proper touching the disposition
of the stock, property, estate, and effects of the company not
inconsistent herewith, the transfer of shares, the terms of office,
duties, and conduct of their officers and servants, and all matters
whatsoever which may appertain to the affairs of said company."
The same section provided that the directors
"shall have power to appoint such engineers, agents, and
subordinates as may from time to time be necessary to carry into
effect the object of this act, and to do all acts and things
touching the location and construction of said road and telegraph.
Said directors may require payment of subscriptions to the capital
stock after due notice at such times and in such proportions as
they may deem necessary to complete the road and telegraph within
the time in this act prescribed."
Acting under the authority conferred upon them by the charter,
the stockholders of the Pacific Company adopted bylaws for the
government of the corporation and for the regulation of its
business affairs. By section 2 of article 4 of the bylaws, it was
provided:
"The board of directors shall have the whole charge and
management of the property and effects of the company, and they may
delegate power to the executive committee to do any and all of the
acts which the board is authorized to do except such acts as by law
and these bylaws must be done by the board itself."
Thus, the stockholders authorized the board of directors to
delegate the power to the executive committee to do any and all
acts which the board itself was authorized to do. The executive
committee derived its authority from the stockholders through the
board of directors. By section 2 of article 5 of the bylaws, it was
provided:
"The executive committee shall have, and may exercise by a
majority of its members, all the powers and authority which from
time to time may be delegated to said committee by the board of
directors."
As early as March 15, 1877, the board of directors adopted a
resolution
"that while the board of directors is not in session, the full
power thereof, under the charter and bylaws, is hereby conferred
upon the executive committee, and the proceedings of said committee
at its last meeting are hereby ratified and confirmed. "
Page 163 U. S. 598
In 1879, the form of resolution adopted by the board was as
follows:
"Resolved, that while the board of directors is not in session,
the full power under the charter and bylaws be, and it is hereby,
conferred upon the executive committee."
Similar resolutions were passed every year up to April 30, 1890,
when the board of directors passed substantially the same
resolution which they had been in the habit of adopting from year
to year. It was shown that the meetings of the executive committee
were frequent, but that the board usually met only twice a year,
the business of the company being more conveniently transacted by
the committee.
The contracts in question were in the proper form, signed and
executed by the proper executive officers and attested by the
corporate seal. They were approved and authorized by the executive
committee, which committee had all the powers of the board, and
were ratified, approved, and confirmed by the stockholders at their
regular annual meeting. This was sufficient to bind the Pacific
Company, although no formal action by the board was had. But it is
argued that this cannot be so, because of the peculiar relation
which the government directors of the Pacific Company bore to the
corporation, differing from that of other directors and the absence
of the government director, who was a member of the executive
committee, from the meeting which approved and authorized the
contracts, is also commented on, as if thereby the action of the
executive committee in that behalf was rendered ineffective.
By the first section of the act of 1862, not less than thirteen
directors were to be elected and two to be appointed by the
president of the United States, "who shall act with the body of
directors, and be denominated directors on the part of the
government."
The thirteenth section of the act of 1864 is as follows:
"That at and after the next election of directors, the number of
directors to be elected by the stockholders shall be fifteen, and
the number of directors to be appointed by the president shall be
five, and the president shall appoint three additional directors to
serve until the next regular election, and thereafter
Page 163 U. S. 599
five directors. At least one of said government directors shall
be placed on each of the standing committees of said company, and
at least one on every special committee that may be appointed. The
government directors shall from time to time report to the
Secretary of the Interior in answer to any inquiries he may make of
them touching the condition, management, and progress of the work,
and shall communicate to the Secretary of the Interior at any time
such information as should be in the possession of the department.
They shall, as often as may be necessary to a full knowledge of the
condition and management of the line, visit all portions of the
line of road, whether built or surveyed, and while absent from
home, attending to their duties as directors, shall be paid their
actual traveling expenses, and be allowed and paid such reasonable
compensation for their time actually employed as the board of
directors may decide."
We see nothing in the provisions relating to government
directors which makes it indispensable that the board should
formally authorize such contracts as the one under consideration.
Congress did not vest in the government directors any peculiar
powers. They had the same powers as other directors, and no more;
but, as government directors, they were to make reports to the
Secretary of the Interior in respect of the affairs and matters
mentioned in the act of 1864. They could not, either by a negative
vote or by absenting themselves from the meetings, prevent the
transaction of the necessary business of the company, in which they
were entitled to participate on the same terms as their associates.
Congress did not look to any action of theirs for the protection of
the public interests, but sought to secure those interests by
specific legislation. Thus it was provided by the act of 1862 that
patents for lands and government bonds should not be issued to the
company until the road had been constructed, examined, and approved
by the commissioners, and the facts certified to the President and
Secretary of the Treasury, and a forfeiture of the rights belonging
to the company and the lands granted to it in case of default on
its part to redeem the bonds, or any of them when required to do so
by the Secretary of the Treasury in
Page 163 U. S. 600
accordance with the provisions of the act, was also provided
for.
The joint resolution for the protection of the interests of the
United States, 16 Stat. 56; the Appropriation Act of March 3, 1873,
17 Stat. 485, 508; the Thurman Act, 20 Stat. 56; the act amendatory
of the fifteenth section of the act of 1862, 18 Stat. 111; the act
providing for a commission to investigate the transactions of the
company, 24 Stat. 488, are examples of such legislation. And it was
through them, and not through the agency of the government
directors, that Congress sought to protect the interests of the
government and the public. We regard the position as wholly
untenable that this provision for government directors took the
corporation out of the general rule that, except in cases where the
charter imposes a limitation, the stockholders are the proper
parties to take final action in the management of the corporate
affairs.
3. The jurisdiction of courts of equity to decree the specific
performance of agreements is of a very ancient date, and rests on
the ground of the inadequacy and incompleteness of the remedy at
law. Its exercise prevents the intolerable travesty of justice
involved in permitting parties to refuse performance of their
contracts at pleasure by electing to pay damages for the
breach.
It is not contended that multiplicity of suits to recover
damages for the refusal of defendants to perform would afford
adequate relief, nor could it be, for such a remedy, under the
circumstances, would neither be plain nor complete, nor a
sufficient substitute for the remedy in equity, nor would the
interests of the public be subserved thereby. But it is objected
that equity will not decree specific performance of a contract
requiring continuous acts involving skill, judgment, and technical
knowledge, nor enforce agreements to arbitrate, and that this case
occupies that attitude. We do not think so. The decree is complete
in itself, is self-operating and self-executing, and the provision
for referees in certain contingencies is a mere matter of detail,
and not of the essence of the contract.
It must not be forgotten that in the increasing complexities
Page 163 U. S. 601
of modern business relations, equitable remedies have
necessarily and steadily been expanded, and no inflexible rule has
been permitted to circumscribe them. As has been well said, equity
has contrived its remedies "so that they shall correspond both to
the primary right of the injured party, and to the wrong by which
that right has been violated," and
"has always preserved the elements of flexibility and
expansiveness, so that new ones may be invented, or old ones
modified, in order to meet the requirements of every case and to
satisfy the needs of a progressive social condition in which new
primary rights and duties are constantly arising, and new kinds of
wrongs are constantly committed."
Pom.Eq.Jur. § 111.
We regard the case of
Joy v. St. Louis, 138 U. S.
1, as determining that this contract was one within the
control of a court of equity to specifically enforce. In that case,
the St. Louis, Kansas City, and Colorado Railroad Company acquired
by succession under a contract the right of running its trains over
the line of the Wabash Company from a point on the northern line of
Forest Park, through the park, and into the Union Depot at St.
Louis, together with the right to use side tracks, switches,
turnouts, and other terminal facilities. It was a continuing right,
and unlimited in time, and the contract contained provisions
regulating the running of trains and prescribing the duties of
superintendents, trainmasters, and other officers. The objections
that are urged against the specific performance of the contract
under consideration were urged against the specific performance of
that contract, and were severally overruled, and it was held that
nothing short of the interposition of a court of equity would
provide for the exigencies of the situation.
This case was cited with approval in
Franklin Telegraph Co.
v. Harrison, 145 U. S. 459. The
contract there was one for the use by Harrison Brothers & Co.
of a wire of the Franklin Telegraph Company between Philadelphia
and New York. It appeared that Harrison Brothers & Co. had been
in the possession of a certain valuable contract with the Insulated
Lines Telegraph Company, to the rights of which company the
Franklin Telegraph Company had succeeded. Desiring to
Page 163 U. S. 602
have that contract terminated, the Franklin Company entered into
a new contract with Harrison Brothers by which the Franklin Company
agreed to allow Harrison Brothers the right to put up, maintain,
and use a telegraph wire on the poles of the Franklin Company. At
the expiration of ten years thereafter the wires were to become the
property of the telegraph company, after which time the telegraph
company was to lease the same to Harrison Brothers for $600 per
annum, payable quarterly, and with all the other terms and
conditions as they existed before. The ten years having expired,
Harrison Brothers continued to use the wire, paying the stipulated
sum of $600 per annum therefor; but, after this had gone on for
about three years, the telegraph company served notice on Harrison
Brothers putting an end to the agreement, whereupon Harrison
Brothers filed a bill to restrain the telegraph company from
terminating the contract, and to have the same specifically
enforced, and this Court held that the contract was one proper for
specific performance.
The same rule was laid down in
Prospect Park & Coney
Island Railroad v. Coney Island & Brooklyn Co., 144 N.Y.
152, where many authorities are cited.
In
Railroad Co. v. Alling, 99 U. S.
463, this Court directed an injunction against the
Canyon City Railway Company from preventing the Denver road from
using the right of way through the Grand Canyon, and said:
"If, in any portion of the Grand Canyon it is impracticable or
impossible to lay down more than one roadbed and track, the court,
while recognizing the prior right of the Denver Company to
construct and operate that track for its own business, should, by
proper orders and upon such terms as may be just and equitable,
establish and secure the right of the Canyon City Company,
conferred by the Act of March 3, 1875, to use the same roadbed and
track, after completion, in common with the Denver Company."
In the
Express Cases, 117 U. S. 1, the
express companies sought to restrain the railway companies from
refusing to carry express matter on the terms of contracts which
had expired, which the Court held could not be done, and it was
Page 163 U. S. 603
said:
"The legislature may impose a duty, and, when imposed, it will,
if necessary, be enforced by the courts; but unless a duty has been
created either by usage or by contract or by statute, courts cannot
be called on to give it effect."
It was objected, in
Joy's case that the court was
proposing to assume the management of the railroad "to the end of
time," but Mr. Justice Blatchford, speaking for the Court,
responded that the decree was complete in itself, and that it was
"not unusual for a court of equity to take supplemental proceedings
to carry out its decree, and make it effective under altered
circumstances." And the Court applied the principle that
considerations of the interests of the public must be given due
weight by a court of equity when a public means of transportation,
such as a railroad, comes under its jurisdiction. "Railroads are
common carriers, and owe duties to the public," said Mr. Justice
Blatchford.
"The rights of the public in respect to these great highways of
communication should be fostered by the courts, and it is one of
the most useful functions of a court of equity that its methods of
procedure are capable of being made such as to accommodate
themselves to the development of the interests of the public, in
the progress of trade and traffic, by new methods of intercourse
and transportation. The present case is a striking illustration.
Here is a great public park, one of the lungs of an important city,
which, in order to maintain its usefulness as a park, must be as
free as possible from being serrated by railroads, and yet the
interests of the public demand that it shall be crossed by a
railroad. But the evil consequences of such crossing are to be
reduced to a minimum by having a single right of way, and a single
set of tracks, to be used by all the railroads which desire to
cross the park. These two antagonisms must be reconciled, and that
can be done only by the interposition of a court of equity, which
thus will be exercising one of its most beneficent functions."
Clearly the public interests involved in the contracts before us
demand that they should be upheld and enforced.
4. Doubtless a court of equity may refuse to decree the specific
performance of a contract if it be unconscionable,
Page 163 U. S. 604
or bad faith in the parties seeking its enforcement be shown, or
duress or fraud appear, or if it be unjust or inequitable, or if
the decree would produce results so inequitable as to be
incompatible with the proper exercise of the jurisdiction. But here
it appears that the contracts were solicited by the Pacific
Company, were fairly made on terms substantially proposed by
itself, and that their violation by that company was unjustifiable.
The contracts were approved promptly and with unanimity. The
consideration appears to have been fair and reasonable. The St.
Paul and Rock Island Companies abandoned their previous enterprise
in reliance on them. They entered upon the performance of the
contracts, and large sums of money were expended in carrying them
out. The conduct of the Pacific Company was not such as to commend
itself to a court of equity, and we can do no better than to quote
from the opinion of MR. JUSTICE BREWER, in deciding the case on
circuit:
"It is to the higher interest of all, corporations and public
alike, that it be understood that there is a binding force in all
contract obligations; that no change of interest or change of
management can disturb their sanctity or break their force; but
that the law which gives to corporations their rights, their
capacities for large accumulations, and all their faculties, is
potent to hold them to all their obligations, and so make right and
justice the measure of all corporate as well as individual
action."
Decrees affirmed.
MR. JUSTICE SHIRAS, dissenting.
To make arrangements with other railroad companies whereby they
are permitted to make use of the Missouri River bridge and of the
tracks and stationhouses within the cities of Omaha and South Omaha
may be fairly held to be within the range of the general authority
of the Union Pacific Railway Company. Such contracts are not
unusual, and are calculated to promote the convenience of the
public and the welfare of the railroad companies which enter into
them, and if the contracts in question presented such a case, I
should have no difficulty in affirming their validity. But as I
read
Page 163 U. S. 605
them, they go far beyond such supposed arrangements, and contain
covenants and stipulations which bring them within the condemnation
of our previous decisions.
What is granted to the Rock Island Railway Company and to the
St. Paul Railway Company is not a mere right or privilege, for a
reasonable compensation and subject to the rules and regulations of
the Union Pacific, to run their trains over the bridge and into and
out of the city stations, but "the full, equal, and joint
possession and use of the main and passing tracks" belonging to the
lessor company, and extending from Council Bluffs on the east side
of the Missouri River to the Town of South Omaha, a distance of ___
miles. Nor is the power of control and management reserved to the
Union Pacific Railway Company. The words of the contract in that
particular are as follows:
"Schedules of rules and regulations for the movement of engines
and trains over the several railways hereby let and demised shall
be made for each railway by the duly authorized officers of the
lessor and lessee companies by which such railways shall at the
time be operated. Such schedules shall, as nearly as may be
practicable, accord equality of right, privilege, and advantage to
trains of the same class operated by the lessor and lessee, and
shall secure to neither any preference or discrimination against
the other. They shall be executed, and all trains moved, under the
immediate direction of the superintendent or the officer of the
lessor company. If the parties cannot agree upon the adoption of
any schedule, rules, or regulation, or as to the modification of
any one existing, either party may demand a decision of such
controversy by referees as hereinafter directed. The referees are
hereby invested with power to prescribe schedules, rules, and
regulations, and to modify existing ones, and, in case of willful
disregard by either party of the rights of the other, to award
damages to the party injured for injuries sustained because of such
willful act."
The legal effect of these contracts is to create a joint
ownership, for 999 years, of an important portion of the Union
Pacific's railroad and appurtenances, "a full, equal, and joint
Page 163 U. S. 606
possession of its tracks," and a subjection to rules and
regulations prescribed by the duly authorized officers of the
lessor and lessee companies, and, in case of disagreement,
subjection to the decision of referees, mutually appointed,
invested with power to prescribe schedules, rules, and regulations,
and to modify existing ones.
These contracts, in my opinion, are plainly void within the
principles of the following cases:
Thomas v. Railroad
Company, 101 U. S. 71;
Branch v. Jessup, 106 U. S. 468;
Pennsylvania Railroad v. St. Louis &c. Railroad,
118 U. S. 290;
Oregon Railway v. Oregonian Railway, 130 U. S.
1;
Central Transportation Co. v. Pullman Car
Co., 139 U. S. 24. The
doctrine of those cases may be sufficiently expressed by the
following paragraph, taken from the opinion of Mr. Justice Miller
in the case of
Pennsylvania Railroad v. St. Louis &c.
Railroad, 118 U. S.
309.
"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,
franchise, 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."
To which may be added the following observations of MR. JUSTICE
GRAY in the very recent case of
Central Transportation Co. v.
Pullman Car Co., 139 U. S.
48:
"The clear result of these decisions may be summed up thus: the
charter of a corporation, read in the light of any general laws
which are applicable, is the measure of its powers, and the
enumeration of those powers implies the exclusion of all others not
fairly incidental. All contracts made by a corporation beyond the
scope of those powers are unlawful and void, and no action can be
maintained upon them in the
Page 163 U. S. 607
courts, and this upon three distinct grounds: the obligation of
everyone contracting with a corporation to take notice of the legal
limits of its powers, the interests of the stockholders not to be
subjected to risks which they have never undertaken, and, above
all, the interest of the public that the corporation shall not
transcend the powers conferred upon it by law."
In commenting upon that clause of the contracts in which the
Union Pacific Company "lets the Rock Island Company into the full,
equal, and joint possession and use of its main and passing
tracks," the opinion of the Court states that
"the possession here spoken of was such possession as the Rock
Island Company would have when its engines, cars, and trains were
running over the tracks. The company had no possession before its
trains came on the tracks, or after they had run off of them, and,
while its trains were on the tracks, its possession was only of the
particular part occupied temporarily while running over them."
But this view, I submit, overlooks the necessary meaning of the
language of the contracts. The possession whose right is given is
described as full -- that is, entire, not imperfect, or
insufficient -- as equal, that is, as great as that of the lessor
company; as joint -- that is, united in interest and obligation
with the other party. If doubt could be entertained of the meaning
of language so explicit, such doubt would be removed by the other
express provisions that the
"schedule of rules and regulations shall, as nearly as may be
practicable, accord equality of right, privilege, and advantage to
trains of the same class operated by the lessor and lessee, and to
trains of a superior class operated by either a preference over
trains of an inferior class operated by the other. . . . All rules
and regulations shall be reasonable and just to both lessor and
lessee, and shall secure to neither any preference or
discrimination against the other."
Again, the opinion states that
"moreover, all trains were to be moved under the direction of an
officer of the Pacific Company. The Rock Island trains, coming upon
a Pacific track, immediately passed from the control of the Rock
Island Company
Page 163 U. S. 608
into that of the Pacific, and its officials were subject to the
orders of the Pacific's officers."
I am unable to so read any provision of the contract. On the
contrary, as already stated, it is expressly stipulated that
"the schedules of rules and regulations for the movement of
engines and trains over the several railways hereby let and demised
shall be made for each railway by the duly authorized officers of
the lessor and lessee companies by which such railways shall at the
time be operated,"
and if the parties cannot agree upon such rules and regulations,
then mutually appointed referees shall exercise authority to
"prescribe schedules, rules, and regulations and to modify existing
ones." The plain meaning, as I think, of these contracts, is that
the Union Pacific Railway Company has thereby parted with its sole
and absolute control of those portions of its road and tracks that
are embraced within the scope of the contracts, and with the sole
and absolute power to exercise its franchises to occupy, possess,
and operate such portions of its road, and has agreed to
participate, for a period of 999 years, with other railway
companies, in the full, joint, and equal possession of those
portions of its road, in their physical aspect, and to confer upon
such other companies the right to join, on equal terms, in the
making of all rules and regulations pertaining to the use and
management thereof. When a contract provides for the possession of
a railroad and for its operation by rules and regulations, it has
covered everything that exists -- the road as a physical structure
and the franchises to operate it by rules and regulations.
It is true that the contract provides that the rules and
regulations "shall be executed, and all trains moved under the
immediate direction of the superintendent or other officer of the
lessor company." But the duties of such an officer are subordinate.
He is to carry out the rules and regulations prescribed jointly and
equally by the lessor and the lessee companies, and the meaning and
effect of the provision in question is to prevent the confusion
that would result if there were two superintendents to enforce the
same rules over the same portions of railroad.
Page 163 U. S. 609
The opinion of the Court disposes of the cases hereinbefore
cited by the observation that they arose upon instruments which
dispossessed the corporations of all their property, and of all
capacity to perform their public duties, and that such is not the
case here.
But the reason why the contracts in those cases were held void
was not because they embraced all the property of corporations, but
because the companies sought to part with the possession and
control of their property without legislative authority for doing
so. Can that be a sound view which, while admitting that the Union
Pacific Railway Company is forbidden to lease the possession and
control of its road to another company without authority expressly
given, yet would hold that that company may, without such
authority, part with the possession and control of one-half or of
any appreciable part of its road? Can it be maintained that while
the Union Pacific Railway Company cannot lease its railroad from
Council Bluffs to Ogden, it may contract with the Rock Island
Railway Company to give it joint and equal possession and
management of its road between those points? And in point of
principle, if such a contract would be void if embracing the road
between Council Bluffs and Ogden, how could it be declared valid if
embracing the road between Council Bluffs and South Omaha?
The views of the majority seem to me to overlook the essential
question, and that is the power of the Union Pacific Railway
Company to part with its road and franchises, temporarily or
forever, in whole or in part. A contract by that company to share
its road and those powers, called "franchises," which are necessary
to operate it is just as much forbidden by the principle of the
cases as a contract to lease its road as an entirety. The objection
to an irrevocable contract for 999 years that the Union Pacific
Railway Company may hereafter need to use its tracks and franchises
in their entirety is not satisfactorily met by the suggestion that,
in such event, the courts can in some way relieve the company from
the contract. It is not easy to see how an engagement now held
valid can be hereafter dispensed with.
The Union Pacific Railway does not hold and exercise the
Page 163 U. S. 610
powers conferred on it by Congress, subject to the control and
approval of the courts. Nor is it competent for the courts to
enforce or relax, at their will and according to their views of
expediency, the obligations of contracts into which the railway
company may have entered.
Other provisions of these contracts which seek to subject the
Omaha and Republican Valley Railway Company and the Salina and
Southwestern Railway Company to the use of the Rock Island and St.
Paul Companies, and which render the Union Pacific Railway Company
liable as lessee of railroads owned by the Rock Island Company,
are, in my judgment, equally without authority of law. But it is
scarcely worthwhile to consider them minutely. As this is a
proceeding to enforce specific performance of the entire contract,
invalidity of any important part of the contract, but for which it
would not have been entered into at all, is enough to defeat the
bill.
It is scarcely necessary to say that if these contracts were
void for the reasons given, no action taken under them would
justify a court of equity in enforcing them. As was said in
Thomas v. Railroad Company, above cited:
"In the case of a contract forbidden by public policy and beyond
the powers of the defendant corporation, it was its legal duty -- a
duty both to the stockholders and the public -- to rescind and
abandon the contract at the earliest moment, and the performance of
that duty, though delayed for several years, was a rightful act
when done, and could give the other party no right of action, and
that to hold otherwise would be to hold that any act performed in
executing a void contract makes all its parts valid, and that the
more that is done under a contract forbidden by law, the stronger
is the claim to its enforcement by the courts."
"A contract
ultra vires being unlawful and void not
because it is, in itself, immoral, but because the corporation, by
the law of its creation, is incapable of making it, the courts,
while refusing to maintain any action upon the unlawful contract,
have always striven to do justice between the parties, as far as
could be done consistently with adherence to law, by
Page 163 U. S. 611
permitting property or money parted with on the faith of the
unlawful contract to be recovered back or compensation to be made
for it. In such case, however, the action is not maintained upon
the unlawful contract nor according to its terms, but on an implied
contract of the defendant to return, or, failing to do that, to
make compensation for, money or property which it has no right to
retain. To maintain such an action is not to affirm, but to
disaffirm, the unlawful contract."
I think that the judgment of the circuit court of appeals should
be reversed, and the cause remanded to the circuit court with
directions to set aside its decree and dismiss the bill.
MR. JUSTICE GRAY likewise dissented.
