Pearsall v. Great Northern Ry. Co.
161 U.S. 646 (1896)

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U.S. Supreme Court

Pearsall v. Great Northern Ry. Co., 161 U.S. 646 (1896)

Pearsall v. Great Northern Railway Company

No. 768

Submitted December 16, 1895

Decided March 30, 1896

161 U.S. 646

Syllabus

In 1856, the Minneapolis and St. Cloud Railroad Company was incorporated by the Legislature of the Territory of Minnesota, with authority to construct a railroad on an indicated route, and to connect its road by branches with any other road in the territory, or to become part owner or lessee of any railroad in said territory; and also

"to connect with any railroad running in the same direction with this road, and where there may be any portion of another road which may be used by this company."

By a subsequent act it was, in 1865, authorized

"to connect with or adopt as its own any other railroad running in the same general direction with either of its main lines or any branch roads, and which said corporation is authorized to construct; . . . to consolidate the whole or any portion of its capital stock with the capital stock or any portion thereof of any other road having the same general direction or location, or to become

Page 161 U. S. 647

merged therein by way of substitution;"

to consolidate any portion of its road and property with the franchise of any other railroad company or any portion thereof, and to consolidate the whole or any portion of its main line or branches with the rights, powers, franchises, grants and effects of any other railroad. These several rights, privileges, and franchises were duly accepted by the railway company, and its road was constructed and put in operation. In 1874, the State of Minnesota enacted that

"no railroad corporation or the lessees, purchasers or managers of any railroad corporation shall consolidate the stock, property, or franchises of such corporation with, or lease or purchase the works or franchises of, or in any way control any other railroad corporation owning or having under its control a parallel or competing line, nor shall any officer of such railroad corporation act as the officer of any other railroad corporation owning or having the control of a parallel or competing line, and the question whether railroads are parallel or competing lines shall, when demanded by the party complainant, be decided by a jury as in other civil issues,"

and in 1881 its legislature enacted that

"no railroad corporation shall consolidate with, lease or purchase, or in any way become owner of, or control any other railroad corporation, or any stock, franchise, rights of property thereof, which owns or controls a parallel or competing line."

In 1889, the company changed its name to Great Northern Railway Company and extended its road towards the Pacific. The Northern Pacific Railroad being about to be reorganized, it was proposed that the Great Northern company should guarantee, for the benefit of the holders of the bonds to be issued by the reorganized company, the payment of the principal of and interest upon such bonds, and as a consideration for such guaranty, and as a compensation for the risk to the stockholders, the reorganized company should transfer to the shareholders of the Northern company, or to a trustee for their use, one half the capital stock of the reorganized company, and that the Northern Pacific should join with the Great Northern in providing facilities for an interchange of cars and traffic between their respective lines, and should interchange traffic with the Northern company, and operate its trains to that end upon reasonable, fair, and lawful terms under joint tariffs or otherwise, the Northern company having the right to bill its traffic, passengers and freight from points on its own line to points on the Northern Pacific not reached by the Great Northern, with the further right to make use of the terminal facilities of the Northern Pacific at points where such facilities would be found to be convenient and economical, jointly with that company. A stockholder of the Great Northern company filed this bill against it to restrain it from carrying out such agreement. Held that the Great Northern company was subject to the provisions of the acts of 1874 and 1881, and that the proposed arrangement was in violation of the provisions in those acts prohibiting railroad corporations from consolidating with, leasing or purchasing, or in any other way becoming the owner of, or controlling any other railroad corporation, or the stock, franchises or rights of property thereof, having a parallel or

Page 161 U. S. 648

competing line, and was therefore beyond the corporate power of the company to make.

Where, by a railway charter, a general power is given to consolidate with, purchase, lease or acquire the stock of other roads which has remained unexecuted, it is within the competency of the legislature to declare, by subsequent acts, that this power shall not extend to the purchase, lease or consolidation with parallel or competing lines.

Where a charter authorizes a company in sweeping terms to do certain things which are unnecessary to the main object of the grant, and not directly and immediately within the contemplation of the parties thereto, the power so conferred, so long as it is unexecuted, is within the control of the legislature, and may be treated as a license, and may be revoked if a possible exercise of such power is found to conflict with the interests of the public.

The court epitomizes in its opinion several previous cases for the purpose of showing the general trend of opinion in this Court upon the subject of corporate charters and vested rights.

This was a bill in equity filed by Pearsall, a stockholder in the Great Northern Railway, against the company, which is a corporation created and existing under the laws of the Territory and State of Minnesota and a citizen of that state, to enjoin it from entering into and carrying out a certain agreement between that company and the holders of bonds secured by the second and third general mortgages and the consolidated mortgage of the Northern Pacific Railroad Company, under which, upon a sale and foreclosure of the mortgages given to secure such bonds, the holders were to purchase, or cause to be purchased, the property and franchises of the Northern Pacific Railroad Company.

Plaintiff set up that he was the holder of five hundred shares, of $100 each, of the preferred, paid-up stock of the defendant corporation; that such stock is of the value of more than $125 per share, but that the proposed arrangement, if consummated, would decrease the value of his stock, and damage him to an amount exceeding $5,000. The suit was brought for the benefit of the plaintiff and all stockholders similarly situated. The facts as they appear in the bill and answer, upon which the case was heard, are substantially as follows:

The defendant, the Great Northern Railway, is a corporation

Page 161 U. S. 649

organized and existing under an act of the Legislature of the Territory of Minnesota passed in 1856, to incorporate the Minneapolis & St. Cloud Railroad Company, and a number of amendatory acts not necessary to be noticed in detail. By the original act, the territory granted to the railroad company (§ 1) the right to be a corporation; the right to acquire, by purchase, gift, grant, devise, or otherwise, and to hold and to convey, all such property, real and personal, which should be necessary or convenient to carry into effect the objects and purposes of the corporation; the right (§ 2) to construct and operate a railroad from Minneapolis to St. Cloud (about 75 miles), and also to a point at or near the mouth of the St. Louis River (about 180 miles), with the further power (§ 6) to connect its road, by branches, with any other road in the territory, or to become part owner or lessee of any railroad in said territory, and also (§ 12)

"to connect with any railroad running in the same direction with this road, and where there may be any portion of another road which may be used by this company."

By § 17,

"this act is hereby declared to be a public act, and may be amended by any subsequent legislative assembly in any manner not destroying or impairing the vested rights of said corporation."

By an amendatory act passed by the legislature of the state February 28, 1865, such corporation (§ 3, amendatory of original § 12) was authorized

"to connect with or adopt as its own . . . any other railroad running in the same general direction with either of its main lines or any branch roads, and which said corporation is authorized to construct;"

(§ 8)

"to consolidate the whole or any

Page 161 U. S. 650

portion of its capital stock with the capital stock or any portion thereof of any other road . . . having the same general direction or location, or to become merged therein by way of substitution;"

the further right (§ 9) to consolidate any portion of its road and property with the franchise of any other railroad company or any portion thereof, and (§ 12) to consolidate the whole or any portion of its main line or branches with the rights, powers, franchises, grants, and effects of any other railroad.

It is alleged in the bill and admitted by the answer that these several acts, with their rights, privileges, and franchises, were duly accepted, and that the same have ever since remained in full force and effect; that prior to 1880, the company constructed and put into operation that portion of its line which extended from St. Cloud eastwardly to the Town of Hinckley, in the State of Minnesota, and that in 1889 it changed its name to the Great Northern Railway Company, which name it has ever since borne and now bears; that by various purchases, consolidations, and leases, it now operates and controls all the lines of the Great Northern Railway Company, extending from St. Paul and Duluth, in the State of Minnesota, and from Superior, in the State of Wisconsin, across the States of Minnesota, North Dakota, Montana, and Idaho, to the towns of Everett and Seattle, in the State of Washington, with many branch and connecting lines, none of which, however, reach Tacoma, in the State of Washington, Portland, in the State of Oregon, or Winnipeg, in the dominion of Canada. All of these different lines comprise an aggregate mileage of nearly 4,500 miles, and are operated as a combined railway system, under the name of the Great Northern Railway.

The Northern Pacific Railroad Company is a corporation organized and existing under certain acts and resolutions of Congress, and owns some, and, through its receivers, controls and operates all the lines of the Northern Pacific Railroad system, extending from St. Paul, in Minnesota, and from Ashland, in Wisconsin, to Tacoma, in the State of Washington and Portland, in the State of Oregon, with many branches and connecting lines, one of which extends to Winnipeg, in Canada. That the aggregate mileage of the Northern Pacific System is nearly 4,500 miles, and some of the lines of each of these systems are parallel to and some competing with the lines of the other system. That the Northern Pacific Railroad Company is insolvent, its road in the hands of receivers appointed by the court at the instance of the

Page 161 U. S. 651

bondholders under the second, third, and consolidated mortgages. The trustee for these bondholders has commenced suits to foreclose these mortgages, and the receivers are in possession under appointment in these foreclosure suits.

The defendant and the holders of a majority of the outstanding bonds of these mortgages of the Northern Pacific Railroad Company have entered into an arrangement or agreement by which the property shall be sold to a committee of the bondholders, who are to organize a new corporation, subject to the prior mortgages, which shall issue its bonds to the aggregate amount of $100,000,000 or more, payment of which is to be guarantied by the Great Northern, and capital stock to the further amount of $100,000,000, one-half of which is to be transferred to the shareholders of the Great Northern, and shall enter into a traffic contract with it whereby, in substance, the two companies shall thereafter exchange traffic at all intersecting and connecting points, and divide the common earnings from such exchanged traffic on the basis of miles hauled on the systems, respectively. This arrangement is fully set forth in the answer, a copy of which, in that particular, is printed in the margin. *

Page 161 U. S. 652

Plaintiff claims that this agreement is unlawful and in violation of chapter 29 of the Laws of Minnesota for 1874, which provides that

"no railroad corporation, or the lessees, purchasers or managers of any railroad corporation, shall consolidate the stock, property or franchises of such corporation with, or lease or purchase the works or franchises of, or in any way control any other railroad corporation owning or having under its control a parallel or competing line, nor shall any officer of such railroad corporation act as an officer of any other railroad corporation owning or having the control of a parallel or competing line, and the question whether railroads are parallel or competing lines shall, when demanded by the party complainant, be decided by a jury as in other civil issues,"

and also because it is a violation of § 3

Page 161 U. S. 653

of the Act of March 3, 1881, c. 94, of the laws of Minnesota for 1881, Gen.Laws 109, which enacts that

"no railroad corporation shall consolidate with, lease or purchase, or in any way become owner of, or control any other railroad corporation, or any stock, franchise, rights of property thereof, which owns or controls a parallel or competing line."

Defendant answered that it had ample power to make and perform its agreement under its charter; that the true construction of the provisions of the acts of 1874 and 1881, just cited, is that they do not amend or affect its charter, and that, if the opposite construction be adopted, they are void insofar as they prohibit or affect its rights to make and perform this agreement, because they are in violation of the contract clause of the Constitution.

Upon the other hand, plaintiff insisted that the right to so amend the charter of the defendant as to prohibit the performance of this contract was reserved to the state by section 17 of the act of 1856, providing that the act might be amended by any subsequent legislation in any manner not destroying or impairing the vested rights of said corporation.

The case was first submitted to the court upon motion for injunction, which was denied, and again upon a final hearing upon bill and answer, and the court, for the reasons stated in the opinion upon the motion for injunction, entered a decree dismissing the bill. Whereupon the plaintiff appealed to this Court.

Page 161 U. S. 659

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