Pittsburg & Connellsville Railroad v. County of Allegheny

The opinion of the court was delivered, January 3d 1870, by Thompson, C. J. —

The great question in this case is, whether the plaintiff in error, the Pittsburg and Connellsville Railroad Company, is bound by its contract with the county of Allegheny, to pay interest on the bonds of the latter, received by it in payment of stock subscribed by thenounty. The contract of the company was to pay interest equal to that falling due on the bonds, for thirty years, the period of the maturity of the bonds, and this suit was brought to recover unpaid interest falling due on the 1st January 1858, and intermediately up to and including the 1st January 1867. Of course, a decision of this question will not only settle the liability of the company for interest past due, but that which is by the terms of the contract to fall due. Around this main question cluster others of minor importance, which may or may not receive notice in the discussion of the main question, but as the requirements of the investigation may demand.

Assuming, in the outset, that the form of action adopted by the plaintiff below was proper and suited to the circumstances of the case, and that the cause of action is well set out, viz.,that the plaintiff below has paid interest during the period above mentioned, on the amount of the bonds issued to, and received by, the company for its stock, viz., $750,000, and interest on overdue coupons, and that this was proved, our attention is necessarily called, in the first place, to the various grounds of defence alleged below and here. I shall not attempt a discussion seriatim, of the twenty assignments of error on the record, but follow, rather, the grounds taken in argument as affording a more compact and satisfactory presentation of the defence.

1. The first position assumed in defence by the plaintiff in error, was, that the contract to pay interest on bonds taken in payment of stock delivered, was invalid, and contrary to the provisions of the railroad company’s character; and, if not, that it was ultra vires the power of the company. In this connection it was argued with great force, that there was no consideration for the promise to pay interest, the stock of the company having been delivered in exchange for the bonds bearing interest, as authorized by Act of Assembly; that the stock was the consideration for the bonds bearing interest and the bonds for the stock; that the payment of interest on money received for *135 stock, or bonds equivalent to cash, was an anomaly in business, an absurdity; interest being a compensation allowed to the creditor for delay of payment by the debtor. It is difficult to escape the conclusion, that where neither the one nor the other of these considerations exists as a foundation on which to base a promise to pay interest, that there would be no ground to demand it. But as between parties unlimited in power to contract, and who do contract for the payment of interest on a security received in payment or satisfaction of a contract, although it might seem an unusual and extraordinary transaction, yet, if the stipulation were part and parcel of the consideration moving towards completing the contract, I see not why it would not be binding. It would not be illegal, if the contract of which it is parcel were the consideration, and itself were legal.

The county of Allegheny had authority, as the Acts of Assembly referred to show, to subscribe to the stock of this railroad company; to issue bonds with interest coupons attached, and to deliver them to the company in payment of stock, and the company were authorized to receive them on the terms of paying interest to the county, or its creditors, holding the bonds, equal to the interest falling due from time to time, on the bonds. This was, by whatever name called, a bonus or premium to induce the county to subscribe. The right so to contract is one of power; and as both these corporations were but creatures of the legislature, it was competent and within the scope of legislative power to invest them with the necessary power to contract, if they had it not as an incident of their charter. Beyond or without this authority, I think it will hardly be insisted that the railroad company could have so contracted. It was no necessary part of the undertaking for which it was incorporated. That was to build a road, and to build it with means furnished by parties taking shares in the company. We all know that in order to borrow money and mortgage the franchises and property of the company to secure its repayment, special authority is necessary, because it is not one of the incidents of the charter. Artificial bodies are not, like natural, free to do as they please. If they were, they would soon pass beyond the control of the creating power. Contracts, engagements, and acts of a corporation, not necessarily embraced within the scope of the undertaking authorized by the act of incorporation, cannot be legally done or performed by the corporation. It has no power or authority but that which is expressly given it, or which necessarily flows from those given : Commonwealth v. The Erie & N. E. Railroad Co., 3 Casey 339, — to which might be added many other authorities. And it was within this principle that the case of McMasters v. Reed, 1 Grant’s Cases 36, was decided, holding that the Erie Canal Com *136 pany might pay its contractors in its own obligations. An obvious reason why, without express authority, a contract like that we are considering could not be legally entered into by the railroad company, is, that to pay interest anterior to earnings by the company, would require a diversion of its capital from its legitimate, to a different purpose, from that for which it was ostensibly obtained, and which was the inducement for the subscriber to stock, to pay it in. In sixteen years and eight months the capital would all be sunk on this principle. In half that length of time — not an unusual period for the completion of a road the length of the Pittsburgh and Connellsville road, especially at the time when the contract under consideration was entered into, the half of the capital would be diverted to pay interest, if the plan were universal and applicable to all the stockholders. If it were not, it would be a fraud on shareholders who paid in their money, and did not receive interest. Nothing could be more completely/cio de se of a project undertaken on this policy than such a rule. In almost all improvement companies, and especially in this by the 13th section of its act of incorporation, there is an express provision against an impairment of the capital by paying dividends not earned. It is true, interest and dividends possess ordinarily dissimilar characteristics; but in a case like this it is only in name, with the distinction, perhaps, that the principles of apportionment applies to the one and not to the other: 6 Wright 479 . It is not necessary, however, to multiply words to prove what is most apparent — that a semi-annual payment of interest out of capital of a company before any earnings are made is the same injury as if paid as dividends; one is as much within the prohibition as the other, both being within the same mischief. Without express authority, or beyond the limits of authority conferred, we think the company had no power to bind its stockholders, who constitute the company, to pay interest to the county of Allegheny for a period of thirty years, or any other period.

Miller v. The Pittsburg and Connellsville Railroad Company, 4 Wright 237 , is no authority for a contrary doctrine, or that an ordinary charter ex visceribus suis confers the power to contract for interest, as claimed here. Woodward, C. J., in that case denounced the practice of paying interest on stock in strong terms; not denying, however, that if a company, having received stock subscriptions on such terms, were compelled to resort to law to enforce the payment, and such a condition stood in the way, it could not be disregarded. That is quite a different thing from asserting that the company without authority could bind itself for interest on stock.

The cases of Leazure v. Hillegas, 7 S. & R. 313, and Goundie v. The Northampton Water Co., 7 Barr 233, cited by defendant *137 in error, belong to and enforce a principle alien to that in hand; they are, simply, that the acquisition of property in excess of the authority of a corporation cannot be redressed by a private party. For instance, in case of a sale and conveyance to a company— •which had no right to invest in real estate at all, or had exceeded its limits, the vendor could not recover his property against his own deed. Nobody doubts this principle. Excess in the exercise of power by a corporation is to be redressed by the Commonwealth, and not by any and every volunteer, who may choose to interfere. But this is a very different thing from the attempt to coerce a corporation to perform that which by its charter it has no authority to undertake to do, or that which is in excess of its authority; which, to that extent, is the same thing.

The answer to the argument on this portion of the case is, that the legislature did authorize this railroad company so to contract. So far as this is true, and it must be granted that it is, to a certain extent, the answer is complete. In the presence of express authority, the transaction is not to be regarded as obnoxious to public or good policy, or to be set aside because foolish and unwise. Nor is such a provision in conflict with any constitutional prohibition against the grant of such authority. Let us see to what extent the power exists in this case.

By the Act of the 18th of April 1843, the counties of Allegheny, Westmoreland, Fayette and Somerset, and any city, borough or incorporated company were authorized to subscribe to the stock of the Pittsburg and Connellsville Railroad Company as fully as individuals could do; and by an act passed just ten years thereafter, on the 18th April 1853, the several counties authorized to subscribe, were further empowered to borrow money on an issue of bonds bearing interest at the rate of six per cent, per annum; and also, with authority to the company to receive such bonds in payment of stock. On the 29th of June of the same year, pursuant to a proposition submitted by the county on the 8th of the month, the county perfected its subscription for fifteen thousand shares of the stock of the company, the latter accepting the county bonds issued pursuant to the Act of Assembly, and agreeing with the county to pay interest on the stock half yearly for thirty years, in New York, at the same time and place the coupons attached to the county bonds were payable to the holders of the bonds. The bonds and stock were accordingly issued and delivered to the respective contracting parties, and the contract completed.

Previously to this, on the 12th of April 1853, the legislature authorized the railroad company “ to pay to the shareholders entitled to receive the same, interest at the rate of six per cent, per annum, on all instalments paid by them, which interest shall be charged to the cost of construction; and continue to pay the same until the road shall he completedand that until the period for *138 ■which a dividend shall be declared, all the profits and earnings of the road shall be credited to the cost of construction. “ Provided, that no stockholder who shall neglect to pay up instalments as called for, shall be entitled to receive interest on the same: And provided further, that the stock of said company shall not be subject to any tax in consequence of the payment of interest hereby authorized.”

The quotation of these provisions thus largely not only exhibits the authority to the company to contract for the payment of interest on stock, but shows that these are general provisions not limited to the cities and boroughs authorized to subscribe by the first and preceding section of the act, from which the quotation is made, as was insisted on by the able and learned counsel for the plaintiff in error. If the provision for paying interest applied only to subscriptions “ entitled to it” inprcesenti, as it was argued, it is, I think, certain that it did not cover the case of any municipal subscriptions; for no contract existed for any on the terms of paying interest at that time; — at least this seems to have been the case. Indeed, strictly speaking, none could have been entitled, unless it may have been certain townships in Somerset county, authorized by the Act of 31st March 1853, “ to subscribe to the stock of the road and pay in bonds, which the company was authorized to receive on the condition that the interest due thereon shall be paid by said company until the road shall be completed.” But the act was not needed for them; nor is it likely that those townships had made their subscriptions and issued their bonds in the interval of twelve days between the date of these two acts. In addition to the consideration that the provisions of the section quoted are general and apply to matters concerning the company and its stockholders, not contained in the first section, the words used are entirely susceptible of general application without regard to when the subscription should be made. The company “ are hereby authorized to pay to the shareholders entitled, interest,” &c. It is not that it shall pay interest to shareholders who are now entitled, or who shall become entitled, but to shareholders entitled, past, present or future. This must be the construction of these words, or they will be without any effect; certainly as to the county of Allegheny, for she did not subscribe until afterwards; yet we find that the company and county both acquiesced in its applicability; — the former by paying the interest, and the latter by giving credit for it up until the 1st of January 1858. It will hardly do to assume that they may have supposed that there was power enough in the company to make such a contract without legislative authority; for both were aware that the legislature thought differently, by the passage of the two acts referred to, authorizing the payment of interest, one of which they were specially acting under. We think the words employed act upon retrospective as well as on *139 prospective subscriptions. So holding, we give effect to a'uniform rule on tbe subject, and escape tbe injustice of a partial one, wbicb would exclude stock not subscribed and paid for at tbe date of tbe act.

This view of tbe Act of 13th April 1853 simplifies tbe controversy. Tbe authority to pay interest is coupled with and inseparable from a period fixed in tbe act during wbicb it should continue. That time is clearly defined by tbe words “ until tbe completion of tbe road.” These words qualify and limit tbe power to contract for interest; and are of tbe same binding force as those wbicb authorize tbe company to pay interest. Tbe company could contract so far by virtue of the authority given; beyond that tbe contract is ultrd vires.

Tbe next inquiry is, what constituted tbe Pittsburg and Connellsville Railroad Company at tbe date of this enactment, and when tbe contract of subscription was entered into ? The charter must answer that question. Tbe act of incorporation is plain. Tbe company was incorporated by an act passed tbe 3d of April 1837, and authorized to build a railroad between tbe city of Pitts-burg, in Allegheny county, and Connellsville, in Fayette county. These were tbe termini of tbe road fixed by tbe act. Several supplements have since been passed, authorizing the company to extend their road east of Connellsville, and one of them authorizing its extension west of Pittsburg, but was subsequently repealed.

By the Act of tbe 18th April 1843, it was authorized to extend eastwardly to Smithfield, or to any other point on tbe waters of tbe Youghiogheny, within tbe limits of this Commonwealth; and by an Act of April 18th 1853, this privilege was enlarged by an authority to extend tbe road indefinitely to tbe counties of Somerset and Bedford, and afterwards by an Act of tbe 14th April 1863, tbe privilege was enlarged and extended to Franklin and Fulton counties. There were other projected connections, and authority granted to tbe company in respect to them, but it is not necessary more specially to notice them. In 1857 a final location of tbe road eastwardly from Connellsville to its present contemplated terminus on tbe south-eastern boundary of Bedford county, was made, and tbe survey adopted, and filed in tbe office of the Secretary of the Commonwealth.

These several grants of tbe right of extension to tbe company, were but privileges, and so denominated in The Commonwealth v. The Pittsburg and Connellsville Railroad Company, 8 P. F. Smith 26; wbicb might be accepted and acted on at the option of tbe company, and were not enforceable against the company by tbe Commonwealth, as tbe original undertaking might have been. They are noticed here, however, only as being supposed to have a bearing on tbe limitation in the Act of 12th April 1853, fixing a time during wbicb tbe company bad authority to contract for *140 the payment of interest on stock. The limitation is very explicit, viz., “until the same shall be completed;” that is, the road mentioned in the preceding section of the act, — “ The Pittsburg and Connellsville Road.” Between #these points but little had been accomplished at the date of the act, towards completing the road. Hopes were low of getting there at all, much less of going further. There is therefore no implication in the circumstances of the road that anything was intended in the act but the completion of the original project, and certainly the words used do not point to anything else. To this, we think, the limitation was intended to apply, and not to projects which the company might or might not attempt. If we are accurate in this, the right to contract- for interest would be limited to October 1861, or at whatever time the road was finished to Connellsville. We do not speak with certainty as to the time; for it is a view that neither side discussed much; lest, perhaps, on the one hand, it might look like a concession of liability to that extent, and on the other, that it might seem an admission that a recovery to that extent might be satisfactory. This construction gives to the limitation certainty, and that we must suppose was intended by the legislature; otherwise, it would in effect be no limitation at all; the words meaning almost nothing. We are, therefore, of opinion that the contract of the company extended only to paying interest on account of the Allegheny county subscription until the road was finally completed from Pittsburg to Connellsville, and to that extent, including interest on overdue coupons, the plaintiff may recover and ought to have recovered.

The defence resists a recovery even to this extent on two grounds, viz., the Statute of Limitations and the marshal’s sale of the plaintiff’s stock.

We think neither tenable. The agreement of the company is under seal. True, it is incorporated into the special certificates of stock issued to the county. But what matters that ? Any difficulty of proving it is no objection. The fact exists, and that is enough. It is upon this contract, so evidenced, that the county has proceeded. There is no .other contract between the county and the company. It was supposed the county would retain the stock, and thus held, the evidence of the contract would always be in her possession; but because she did not choose to do so, she cannot be denied the right to show the contract by any legal evidence. We think the Statute of Limitations has not the effect contended for of defeating the plaintiff’s right of recovery to the extent indicated, as the contract is under the seal of the company.

The marshal’s sale passed the stock as stock to the purchaser, but not the right to interest. The tenor of the contract gives no countenance to more. It was special, and directly with the *141 county, in relief of her obligation to pay interest. Tbe words of tbe stipulation are to pay interest “ semi-annually on tbe first days of July and January, in tbe city of New York, by applying tbe same to tbe semi-annual interest coming due on tbe bonds so issued by tbe county aforesaid, and payable tbe same days to tbe holders of tbe said bonds.” Argument could not aid in elucidating that wbicb is so plain as this stipulation. Tbe purchaser got by bis bid tbe stock proper; but tbe collateral contract did not pass to him. Nor bad be any power to enforce or release it: 8 Watts 361 ; 21 Pick. 140 ; 16 Johns. 99 ; 4 Id. 476; 8 Penna. Rep. 18.

I have thrown out of tbe case tbe guaranty by tbe company of these county bonds. It was made after tbe bonds bad been delivered, and there was neither consideration for, nor authority to make it. Nor is it declared on.

We think the narr. so far sufiicient that tbe objectionable portions of it in tbe second count, would be considered as amended, being amendable. But before another trial, tbe objectionable portions should be exscinded. There are sound counts in tbe narr. on wbicb tbe judgment might have been entered.

These views, it will be seen, establish error on part of tbe court in regard to tbe extent of tbe plaintiff’s right to recover, and in not charging in answer to points on tbe subject that tbe contract for interest was good only to tbe extent we have indicated, and invalid, as to tbe excess not covered by tbe Act of 12th of April 1853, authorizing tbe payment of interest; in other words, that tbe contract was invalid for tbe payment of interest after tbe completion of tbe road from Pittsburg to Connellsville. If there be error in any of tbe assignments not specially noticed, it is immaterial because of the view we have taken of the case, and we need not trouble ourselves with them. As to tbe Statute of Limitations, and the effect of tbe marsbal’s sale of tbe stock of tbe county, in tbe road of tbe plaintiff in error, no error was committed; nor any in bolding that tbe form of action was proper, or in refusing to arrest tbe judgment; but for tbe reasons given, tbe judgment must be reversed.

Judgment reversed, and venire de novo awarded.