Farnsworth v. Minnesota & Pacific Railroad Company
92 U.S. 49 (1875)

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U.S. Supreme Court

Farnsworth v. Minnesota & Pacific Railroad Company, 92 U.S. 49 (1875)

Farnsworth v. Minnesota & Pacific Railroad Company

92 U.S. 49

Syllabus

1. On the 3d of March, 1857, 11 Stat. 195, Congress passed an act granting certain lands to the Territory of Minnesota for the purpose of aiding in the construction of several lines of railroad between different points in the territory. The act declared that the lands should be exclusively applied to the construction of that road on account of which they were granted and to no other purpose whatever, and that they should be disposed of by the territory or future state only as the work progressed, and only in the manner following -- that is to say, a quantity of land, not exceeding one hundred and twenty sections for each of the roads and included within a continuous length of twenty miles of the road, might be sold, and when the governor of the territory or the future state should certify to the Secretary of the Interior that any continuous twenty miles of any of the roads were completed, then another like quantity of the land granted might be sold, and so, from time to time, until the roads were completed. Held that the

Page 92 U. S. 50

construction of portions of the road on account of which lands were granted, as thus designated, was a condition precedent to a conveyance by the territory or future state of any of the lands beyond the first one hundred and twenty sections. Accordingly, an act of the territory, transferring to a railroad company these lands in advance of any work on its road, only conveyed title to the first one hundred and twenty sections.

2. Where a grant of land and connected franchises is made to a corporation for the construction of a railroad by a statute, which provides for their forfeiture upon failure to perform the work within a prescribed time, the forfeiture may be declared by legislative act without judicial proceedings to ascertain and determine the failure of the grantee. Any public assertion by legislative act of the ownership of the state after the default of the grantee -- such as an act resuming control of the road and franchises, and appropriating them to particular uses, or granting them to another corporation to perform the work -- is equally effective and operative.

On the 3d of March, 1857, 11 Stat. 195, Congress passed an act granting certain lands to the Territory of Minnesota, for the purpose of aiding in the construction of several lines of railroad between different points in the territory. These lands were to consist of the alternate sections, designated by odd numbers, for six sections in width, on each side of the several lines of road, and were to be selected within fifteen miles therefrom. The act declared that the lands should be exclusively applied to the construction of that road on account of which they were granted, and to no other purpose whatever; and that they should be disposed of by the territory or future state only as the work progressed, and only in the manner following -- that is to say, a quantity of land, not exceeding one hundred and twenty sections for each of the roads, and included within a continuous length of twenty miles of the road, might be sold; and when the governor of the territory or the future state should certify to the Secretary of the Interior that any continuous twenty miles of any of the roads were completed, then another like quantity of the land granted might be sold; and so, from time to time, until the roads were completed, and that if any of the roads were not completed within ten years, no further sales should be made, and the lands unsold should revert to the United States.

On the 19th of May of the same year, the territory accepted the grant thus made upon the terms, conditions, and restrictions

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contained in the act of Congress, and, on the 22d of the month, passed an act for the execution of the trust. By that act, it authorized four different companies to construct the roads in aid of which the congressional grant was made, each company a distinct road. Three of these companies were at the time in existence -- one of them, the Minnesota & Pacific Railroad Company, was created by the act. This latter company was authorized to construct the road from Stillwater, by way of St. Paul and St. Anthony, to the town of Breckenridge, on the Sioux Wood River, with a branch from St. Anthony to St. Vincent, near the mouth of the Pembina River, and, for the purpose of aiding in its construction, the act granted to the company the interest and estate present and prospective of the territory and of the future state in the lands granted by Congress along the line of the road, subject, however, to the proviso that the title of the lands should vest in the company as follows: of the first one hundred and twenty sections, whenever twenty or more continuous miles of the road should be located and the governor should certify the same to the Secretary of the Interior, and afterwards of a like number of sections, whenever and as often as twenty continuous miles of the road should be completed so as to admit of running regular trains and the governor should certify the fact to the Secretary.

By the same act, the company was authorized to borrow money and to execute its bonds and mortgages and other obligations for the same, or for any liabilities incurred in the construction, repair, equipment, or operating of the line upon any part of its railroad or branches and upon the estate granted by the act and upon any or all of its other property.

The company organized under the act and accepted the grant made by its provisions upon the terms and conditions mentioned and, during the year, had the greater part of the line of its road surveyed and located and maps of the same filed with the governor of the territory and the commissioner of the General Land Office at Washington. The location was approved by the Secretary of the Interior and, by his directions, the lands granted along the line were withdrawn from sale and settlement. A contract, as alleged, was also made with a responsible party for the construction of the main line

Page 92 U. S. 52

of the road; but work under it was only prosecuted for a month, when it was abandoned. No portion of the road was completed, and the failure of the company in this respect was ascribed to the general embarrassed financial condition of the country, in consequence of which it was unable to raise the necessary funds to proceed with the work

The Territory of Minnesota became a state in October, 1857, though not admitted into the Union until May, 1858. Its constitution prohibited the loan of the state credit in aid of any corporation, but the first legislature assembled under it, being desirous of expediting the construction of the lines of the road in aid of which the congressional grant was made, proposed, in March, 1858, an amendment to the constitution removing this prohibition so far as the four companies named in the Act of May 22, 1857, were concerned. The amendment was submitted to the people and, on the 15th of April of the same year, was adopted. This amendment provided that the governor should cause to be issued and delivered to each of the four companies special bonds of the state to the amount of $1,250,000, in installments of $100,000 as often as any ten miles of its road was ready for placing the superstructure thereon, and an additional installment of the same amount as often as that number of miles of the road was fully completed and the cars were running thereon, until the whole amount authorized was issued. The bonds were to be denominated Minnesota State Railroad Bonds; were to draw interest at the rate of seven percent per annum, payable semiannually in the City of New York; were to be transferable by endorsement of the president of the company and redeemable at any time after ten and before the expiration of twenty-five years from their date, and for the payment of the interest and the redemption of the principal the faith and credit of the state were pledged. The amendment at the same time with this pledge declared that each company should make provision for the redemption of the bonds received by it and payment of the interest accruing thereon, so as to exonerate the treasury of the state from any advances of money for that purpose, and, as security therefor, required the governor, before any bonds were issued, to take from each company an instrument pledging the net profits of

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its road for the payment of the interest and a conveyance to the state of the first two hundred and forty sections of land, free from prior encumbrances, which the company was or might be authorized to sell to protect the treasurer against loss on the bonds, and also required as further security that an amount of first mortgage bonds on the roads, lands, and franchises of the company corresponding in amount to the state bonds issued to it, should be transferred to the treasurer of the state with the issue of the state bonds. The amendment declared that in case either company made default in the payment of the interest or principal of the bonds issued to it, no more state bonds should be thereafter issued to that company, and that the governor should proceed to sell, in such manner as might be prescribed by law, its bonds or the lands held in trust, or require a foreclosure of the mortgage executed to secure the bonds. The amendment further provided that in consideration of the loan, each company which accepted the bonds should, as a condition thereof, complete not less than fifty miles of its road on or before the expiration of the year 1861, and not less than one hundred miles before the year 1864, and four-fifths of the entire length of its road before the year 1866, and that any failure on the part of the company to complete the number of miles of its road in the manner and within the several times thus prescribed should forfeit to the state all the rights, title, and interest of any kind whatsoever in and to any lands granted by the act of May 22, 1857, together with the franchises connected with the same, not pertaining or applicable to the portion of the road by it constructed, and a fee simple to which had not accrued to the company by reason of such construction.

The Minnesota & Pacific Railroad Company, after the proclamation of the governor of its adoption, accepted the amendment, and gave notice to the governor of its acceptance, and that it proposed to avail itself of the loan which the amendment provided.

On the 31st of July, 1858, the company executed to certain trustees named therein a deed of all that portion of its lines of road in aid of which the lands had been granted, and of the lands and alienable franchises connected therewith, in

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trust for the holders present and prospective of twenty-three millions of bonds to be issued under certain restrictions. Nine hundred of these bonds were subsequently issued as therein provided, and some of them were put in circulation. The present suit is brought by the surviving trustees to obtain a decree that this deed is a valid and subsisting lien prior to all other liens and encumbrances upon all the lands, property, and franchises described therein, and to enforce the same.

Subsequently during that year, the company graded thirty miles of its road, and made it ready for the superstructure, and thereupon executed the pledge of net profits, and the conveyance of two hundred and forty sections as provided by the constitutional amendment. But in place of first mortgage bonds secured by a separate deed of trust, the company offered $300,000 of its bonds secured by the trust deed mentioned of July 31, 1858, and applied for state bonds of an equal amount. The governor refused to issue the state bonds until a deed of trust was executed specifying a priority of lien of the bonds which the company might deliver to the state. This refusal led to a great deal of controversy and some litigation with the governor, but ultimately, on the 27th of November, 1858, a supplemental deed of trust was executed by the company, authorizing and directing, in case of default in the payment of the interest or principal of its bonds delivered to the state, a foreclosure and sale by the trustees upon the demand of the governor, and, in case of their failure or refusal upon his demand, authorizing the governor to make such foreclosure and sale. The governor then issued to the company bonds of the state to the amount of $300,000. Subsequently, during that and the following year (1859), thirty-two and one-half miles more of the road were graded and ready for its superstructure, and $300,000 more of bonds of the state were issued to the company and a corresponding amount of the first mortgage bonds of the company were delivered to the treasurer. The interest on the state bonds was payable on the first days of June and December, and the interest on the company's bonds was payable on the first days of February and August, of each year.

The company made default in the payment of interest on

Page 92 U. S. 55

the state bonds delivered to it, falling due in December, 1859, and the governor demanded of the trustees, in the deed of July 31, 1858, that they should proceed to foreclose the same, and sell the trust property. With this demand the trustees never complied.

The company also made default in the payment of interest upon its own bonds delivered to the state, due on the 1st of February, 1860. The legislature accordingly, in March following, passed an act making it the duty of the governor to foreclose the deed of trust if in his opinion the public interest required it and, upon a sale of the property, rights, and franchises covered by the deed, to bid in the same for the state.

The legislature at about the same time proposed an amendment of the constitution of the state prohibiting any law, which levied a tax or made other provisions for the payment of interest or principal of the state bonds issued to the company, from taking effect until the same had been submitted to a vote of the people and been adopted, and also prohibiting any further issue of bonds to the company under the amendment of April 15, 1858, and abrogating that amendment with a reservation to the state of all rights, remedies, and forfeitures accruing thereunder. This amendment was adopted in November, 1860. Whilst it was pending before the people, the governor proceeded under the act of the legislature, and had the property covered by the trust deed of the company, with the connected franchises, advertised and sold, the same being purchased on behalf of the state. The sale took place on the 23d of June, 1860.

In March, 1861, the legislature passed an act by which the road, lands, rights, and franchises possessed by the company previous to the sale, and all bonds and securities of the company held by the state, were upon certain conditions "released, discharged, and restored" to the company, free from all liens or claims of the state. These conditions required the construction and equipment of certain portions of the road within designated periods. One of the conditions provided that the company should construct and put in operation, and fully equip for business that portion of the main line extending from St. Paul to St. Anthony on or before the first day of the following January, in default of which all the rights

Page 92 U. S. 56

and benefits conferred upon the company by virtue of the act should be "forfeited to the state absolutely, and without further act or ceremony whatever," and, in case the company should fail to construct the other and further portions of the road and branches within the time or times designated, it should forfeit to the state in like manner all the lands, property, and franchises pertaining to the unbuilt portions of the road and branch, and in either case or in any forfeiture under the provisions of the act, the state should hold and be possessed of all the lands, property, and franchises forfeited "without merger or extinguishment, to be used, granted, or disposed of, for the purpose of aiding and facilitating the construction of said road and branch."

This act the company accepted with all its conditions, but it never completed the portion of the road there designated to be put into operation before the first of the following January or any portion of its road as there provided or as provided in the constitutional amendment of 1858, and on the 10th of March, 1862, the legislature, acting upon the forfeiture accruing or supposed to be accruing from the failure of the company in this respect, passed an act creating the St. Paul & Pacific Railroad Company and granted to it all the rights, benefits, privileges, property, franchises, and interests of the Minnesota & Pacific Railroad Company acquired by the state by virtue of any act or agreement of the company or anything done or suffered by it or by virtue of any law of the state or territory or of the constitution of the state or from the sale made by the governor, and also all the rights, privileges, franchises, lands, and property granted to the company by the Act of May 22, 1857. The new company and a division company subsequently created out of it have since constructed the main line of the road and a portion of the branches, and, to enable them to do so, have made various deeds of trust and mortgages upon the assumption that the rights of the old Minnesota & Pacific Railroad Company had ceased. These deeds of trust and mortgages amount to many millions of dollars, and are outstanding. These companies and the holders of their bonds, of course, resist the enforcement of the deed of trust in suit. The questions for determination relate first to the validity of this

Page 92 U. S. 57

deed at the time it was executed, or rather to the right of the company to include therein and bind all the lands granted by the act of the territory of May 22, 1857, and, second, to the effect of the Act of March 10, 1862, upon the title of the property and connected franchises embraced in the deed of trust.

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