A statute of a state which authorizes the judge presiding at the
trial to order a judgment of nonsuit to be entered when in his
opinion the evidence introduced by the plaintiff is insufficient in
matter of law to sustain a verdict may be followed, under Rev.Stat.
§ 914, in the circuit court of the United States held within that
state, and a judgment of nonsuit rendered accordingly, upon a
ruling in matter of law duly excepted to, may be reviewed by this
Court on writ of error.
A corporation formed by articles of association called a
certificate or charter under the general laws of Pennsylvania
concerning manufacturing companies, with a certain capital stock,
for twenty years, for "the transportation of passengers in railroad
cars constructed and owned by the said company" under certain
patents, carried on the business of manufacturing sleeping cars
under its patents, and of hiring or letting the cars to railroad
companies by written contracts, receiving a revenue from the sale
of berths and accommodations to passengers. Seven years afterwards,
by a special act of the Legislature of Pennsylvania, the charter
was extended for ninety-nine years, and the corporation was
empowered to double its capital stock, and
"to enter into contracts with corporations of this or any other
state for the leasing or hiring and transfer to them, or any of
them, of its railway cars and other personal property."
The corporation forthwith entered into an indenture with a
corporation of another state engaged in a similar business, by
which it leased and transferred to that corporation all its cars,
railroad contracts, patent rights and other personal property,
moneys, credits and rights of action, for the term of ninety-nine
years, except so far as the contracts and patents should expire
sooner, and covenanted not to "engage in the business of
manufacturing, using or hiring sleeping cars" while the indenture
should remain in force, and the lessee covenanted to pay all
existing debts of the lessor, and to pay to the lessor annually the
sum of $264,000, during the entire term of ninety-nine years,
unless the indenture should be sooner terminated as therein
provided.
Held that this contract was unlawful and void
because beyond the corporate powers of the lessor, and involving an
abandonment of its duty to the public, and therefore no action
could be maintained by the lessor upon the contract, or to recover
the sums thereby payable, even while the lessee had enjoyed the
benefits of the contract.
Page 139 U. S. 25
This was an action of covenant, brought September 21, 1886, by
the Central Transportation Company, a corporation of Pennsylvania,
against Pullman's Palace Car Company, a corporation of Illinois, to
recover the sum of $198,000, due for the last three-quarters of the
year ending July 1, 1886, according to the terms of an indenture of
lease from the plaintiff of all its personal property to the
defendant, dated February 17, 1870, and set forth in full in the
declaration.
The defendant filed several pleas, one of which was
"that said indenture of lease was void in law as between, the
parties thereto for the want of authority and corporate power on
the part of the parties thereto to make and enter into said
indenture of lease, and for that the same was in excess and in
violation of the charters conferring the corporate powers on said
plaintiff, and of the purpose of their incorporation."
The plaintiff filed a replication, traversing the averments of
this plea.
The plaintiff was originally incorporated December 26, 1862, by
a certificate or charter, made, acknowledged, recorded, and filed
in the office of the secretary of the commonwealth, as required by
the general laws of Pennsylvania, which authorized companies to
incorporate themselves, by voluntary act of the associates, "for
the purpose of carrying on the manufacture of woolen, cotton, flax,
or silk goods, or of iron, paper, lumber, or salt," or "for the
manufacture of articles from iron and other metals, or out of wood,
iron, and other metals" within the state for a term not exceeding
twenty years, and provided that every corporation so formed might
by its corporate name purchase, hold, and convey real or personal
property, "necessary or convenient to enable the said company to
carry on the business or operations named in such certificate," and
that its stock, property, and affairs should be managed by a board
of directors a majority of whom in all cases should be stockholders
therein and citizens of the state, and authorized the directors,
subject to the revision and approval of the stockholders, to make
such bylaws for the management and disposition of its stock and
affairs, "and for carrying on all kinds of business within the
objects and purposes of such company,"
Page 139 U. S. 26
and forbade the company to use any part of its capital stock or
other funds in the purchase of stock in any other corporation.
Penn.Stats. April 7, 1849, No. 368, §§ 1, 3, 4, 8; April 1, 1853,
No. 186, § 2.
In accordance with the requirements of those statutes, the
plaintiff's certificate of incorporation or charter stated the
object for which it was formed, "the transportation of passengers
in railroad cars constructed and to be owned by the said company in
accordance with the several letters patent," four in all, described
by numbers and dates; the place where its chief operations were to
be carried on, Philadelphia; the amount of its capital stock,
$200,000, and its term of continuance, twenty years, the extreme
limit allowed by the statutes.
By a special act of the Legislature of Pennsylvania of February
9, 1870, No. 94, entitled "An act to extend the charter of the
Central Transportation Company, to empower them to lease their
property and increase their capital stock," the plaintiff's charter
was extended for ninety-nine years from its expiration; and
"said company are hereby empowered to enter into contracts with
corporations of this or any other state for the leasing or hiring
and transfer to them, or any of them, of their railway cars and
other personal property,"
as well as "to increase their present capital stock two hundred
thousand dollars." On February 17, 1870, eight days after the
passage of that act, the indenture sued on was made by and between
the plaintiff and the defendant, which had been incorporated three
years before, with a capital stock of $100,000, by a Special Act of
the Legislature of Illinois of February 22, 1867 (declared to be a
public act), "to manufacture, construct, and purchase railway cars,
with all convenient appendages and supplies for persons traveling
therein, and the same" to "sell or use, or permit to be used, in
such manner and upon such terms as the said company may think fit
and proper."
The indenture, after the statement of the names of the parties,
began with the following recitals:
"Whereas the parties hereto are engaged in the business of
manufacturing railway cars, generally known as sleeping cars,
Page 139 U. S. 27
under certain patents belonging to them, respectively, and of
hiring the same to railroad companies under written contracts, to
be used and employed on and over the lines of the roads of said
railroad companies, and receiving therefor income and revenue by
the sale to passengers of the berths and accommodations therein,
and"
"Whereas the demands of the public for increased means of
personal comfort and convenience in traveling, of avoiding repeated
changes of cars over long routes of railroad, the necessity for
affording at fair and reasonable rates, these advantages, which
cannot be extended by railroad companies themselves, require that
every possible means should be adopted to meet such demands by
avoiding the inconvenience and curtailing the expenses incidental
to the maintenance of the business management and organization of
two separate corporations."
It further recited that the parties (professing to act under the
powers conferred upon them, respectively, by the special acts of
the Legislatures of Pennsylvania and of Illinois, above mentioned)
had agreed that the plaintiff should demise, transfer, and set over
to the defendant, and the defendant should take, all the
plaintiff's railway cars, contracts, patent rights, and personal
property.
By that indenture, accordingly, the plaintiff "granted, demised,
transferred, and set over" one hundred and nineteen railway
sleeping cars, with their equipment, its contracts with sixteen
railroad companies, copies of which were annexed to and made parts
of the indenture, all its patent rights (an assignment of which,
including the four specified in its charter and 13 others, was also
annexed to the indenture and made part thereof), and all its
"personal property, rights, credits, moneys, and effects, rights of
action, money due and to become due from licenses heretofore
granted," to the defendant, its successors and assigns, "to have
and to hold the above demised property, and all income, revenue,
and profit to be derived therefrom," for the term of ninety-nine
years from January 1, 1870, except so far as the contracts,
patents, and licenses should expire sooner, and the plaintiff
expressly covenanted
Page 139 U. S. 28
that it would use its influence to obtain renewals or new
contracts in the defendant's name from the railroad companies, and
that it "shall and will not engage in the business of
manufacturing, using, or hiring sleeping cars" while the indenture
should remain in force.
The defendant, on its part, covenanted to pay to the plaintiff
annually the sum of $264,000, in equal quarterly installments,
"during the entire term of ninety-nine years, unless, upon a
diminution of the revenue received from the railroad companies, the
indenture should be declared void by the defendant, or the annual
sums payable by the defendant be reduced, as therein provided; also
to pay all the plaintiff's debts up to January 1, 1870, according
to a schedule annexed, by which they were not to exceed the sum of
$63,998.69, that being the amount of cash transferred by the
plaintiff to the defendant; to continue and carry on the business
as authorized by its charter during the existence of the assigned
contracts or other like contracts with the same railroad companies;
to keep in repair the cars and their equipment, and to renew and
reconstruct them when needful; not to assign the indenture without
the plaintiff's assent nor to create any lien or mortgage upon the
property that should impair the plaintiff's rights under the
indenture; that, upon the defendant's failure to make any quarterly
payment for thirty days after due, the plaintiff might avoid the
indenture, and thereupon the defendant should surrender the cars
and equipment, assign to the plaintiff the contracts with the
railroad companies and any unexpired patent rights, and cease to
run or employ cars on the same lines of railroad; and at the end of
the ninety-nine years, to deliver to the plaintiff the cars and
equipment in good order, and assign to the plaintiff any unexpired
contracts with those railroad companies."
At the trial in May, 1888, the plaintiff offered in evidence its
original charter, the statute of Pennsylvania of February 9, 1870,
and the indenture of February 17, 1870, as well as evidence tending
to show that the defendant, under that indenture, entered into
possession of the plaintiff's property and continued in possession
during the period covered by the declaration.
Page 139 U. S. 29
To the admission of all this evidence the defendant objected
"on the ground that it was beyond the power of either
corporation to make the contract, and also because it was null and
void by reason of its being in restraint of trade, and against
public policy as preventing competition."
The court sustained the objection and excluded the evidence, and
the plaintiff excepted. The plaintiff then offered to prove, in
addition to the above evidence, that in pursuance of the indenture
of February 17, 1870, the plaintiff's cars, contracts, and patent
rights were delivered to the defendant and continued in its
possession under the indenture, and the defendant insisted on
retaining them until July 1, 1886, and the defendant then for the
first time tendered them to the plaintiff, and declared the
indenture void, in accordance with its provisions. The defendant
objected to this evidence; the court sustained the objection, and
excluded the evidence, and the plaintiff excepted.
The defendant thereupon moved for a nonsuit, and the court
granted the motion, and ordered a nonsuit, and refused a motion of
the plaintiff to take it off, and the plaintiff again excepted. A
judgment of nonsuit was entered accordingly, and the plaintiff
tendered a bill of exceptions, which was allowed by the court, and
sued out this writ of error.
Page 139 U. S. 38
MR. JUSTICE GRAY, after stating the case as above, delivered the
opinion of the Court.
The principal defense in this case, duly made by the defendant
by formal plea, as well as by objection to the plaintiff's
evidence, and sustained by the circuit court, was that the
indenture of lease sued on was void in law because beyond the
powers of each of the corporations by and between whom it was
made.
There is a preliminary question of practice arising out of the
manner in which the case was disposed of below, which is deserving
of notice, although not mentioned by counsel in argument.
The circuit court, in ordering a nonsuit because in its opinion
the evidence offered by the plaintiff was insufficient in law to
maintain the action, acted in accordance with the statute of
Pennsylvania which provides that
"It shall be lawful for the judge presiding at the trial to
order a judgment of nonsuit to be entered if in his opinion the
plaintiff shall have given no such evidence as in law is sufficient
to maintain the action, with leave, nevertheless, to move the court
in banc to set aside such judgment of nonsuit; and in case the said
court in banc shall refuse to set aside the nonsuit, the plaintiff
may remove the record by writ of error into the Supreme Court for
revision and review in like manner and with like effect as he might
remove a judgment rendered against him upon a demurrer to
evidence."
Penn.Stats. March 11, 1836, § 7; March 11, 1875, § 1; 2 Purdon's
Digest (11th ed.) 1362, 1363.
Under that statute, as expounded by Chief Justice Gibson, the
judge can order a nonsuit only when all the evidence introduced,
with every inference of fact that a jury might draw from it in
favor of the plaintiff, appears to be insufficient
Page 139 U. S. 39
in matter of law to sustain a verdict, and the defendant's
motion for a nonsuit is equivalent to a demurrer to evidence,
differing only in the judgment thereon not being a final
determination of the rights of the parties, for if it is in favor
of the plaintiff the case must be submitted to the jury, and if in
favor of the defendant it is no bar to a new action.
Smyth v.
Craig, 3 Watts & Sergeant 14;
Fleming v. Insurance
Co., Brightly 102;
Bournonville v. Goodall, 10
Penn.St. 133.
It is true that a plaintiff, who appears by the record to have
voluntarily become nonsuit, cannot sue out a writ of error.
United States v.
Evans, 5 Cranch 280;
Evans v.
Phillips, 4 Wheat. 73;
Cossar v. Reed, 17
Q.B. 540. But in the case of a compulsory nonsuit, it is otherwise,
and a plaintiff against whom a judgment of nonsuit has been
rendered without his consent and against his objection is entitled
to relief by writ of error.
Elmore v.
Grymes, 1 Pet. 469;
Strother v.
Hutchinson, 4 Bing. N.C. 83, 5 Scott 346, 6 Dowling 238;
Voorhees v. Coombs, 33 N.J.Law 482.
There are many cases in the books in which this Court has held
that a court of the United States had no power to order a nonsuit
without the plaintiff's acquiescence.
Elmore v. Grymes,
above cited;
Crane v.
Morris, 6 Pet. 598,
31 U. S. 609;
Silsby v.
Foote, 14 How. 218;
Castle v.
Bullard, 23 How. 172,
64 U. S. 183.
Yet instead of overruling, upon that ground alone, exceptions to a
refusal to order a nonsuit, this Court, more than once, has
considered and determined questions of law upon the decision of
which the nonsuit was refused in the court below.
Crane v.
Morris and
Castle v. Bullard, above cited.
The difference between a motion to order a nonsuit of the
plaintiff and a motion to direct a verdict for the defendant is, as
observed by MR. JUSTICE FIELD, delivering a recent opinion of this
Court,
"rather a matter of form than of substance, except [that] in the
case of a nonsuit, a new action may be brought, whereas in the case
of a verdict, the action is ended unless a new trial be granted
either upon motion or upon appeal."
Oscanyan v. Arms Co., 103 U. S. 261,
103 U. S.
264.
Whether a defendant in an action at law may present in the one
form or in the other, or by demurrer to the evidence,
Page 139 U. S. 40
the defense that the plaintiff, upon his own case, shows no
cause of action is a question of "practice, pleadings, and forms
and modes of proceeding," as to which the courts of the United
States are now required by the Act of Congress of June 1, 1872, c.
255, § 5, 17 Stat. 197, reenacted in § 914 of the Revised Statutes,
to conform as near as may be to those existing in the courts of the
state within which the trial is had.
Sawin v. Kenny,
93 U. S. 289;
Ex Parte Boyd, 105 U. S. 647;
Chateaugay Co., Petitioner, 128 U.
S. 544;
Glenn v. Sumner, 132 U.
S. 152,
132 U. S.
156.
It is doubtless within the authority of the presiding judge, and
is often more convenient in order to prevent the case from being
brought up in such a form that the judgment of the court of last
resort will not finally determine the rights of the parties, to
adopt the course of directing a verdict for the defendant and
entering judgment thereon.
But the judgment of nonsuit, being a final judgment disposing of
the particular case and rendered upon a ruling in matter of law
duly excepted to by the plaintiff, is subject to be reviewed in
this Court by writ of error.
It was therefore rightly assumed by the counsel of both parties
at the argument that the only question to be determined is of the
correctness of the ruling sustaining the defense of
ultra
vires, independently of the form in which that question was
presented and disposed of.
Upon the authority and the duty of a corporation to exercise the
powers granted to it by the legislature, and those only, and upon
the invalidity of any contract made beyond those powers, or
providing for their disuse or alienation, there is no occasion to
refer to decisions of other courts, because the judgments of this
Court, especially those delivered within the last twelve years by
the late Mr. Justice Miller, afford satisfactory guides and ample
illustrations.
The earliest case in this Court which touches the subject is
York & Maryland Railroad v. Winans, decided at
December term, 1854, in which a railroad corporation unsuccessfully
tried to escape liability for an unlicensed use of the plaintiff's
patent in cars run over its road upon the ground that the cars
were
Page 139 U. S. 41
constructed, owned, and used by another corporation under a
contract with the defendant. Mr. Justice Campbell, delivering
judgment, said:
"Important franchises were conferred upon the corporation to
enable it to provide the facilities to communication and
intercourse required for the public convenience. Corporate
management and control over these were prescribed, and corporate
responsibility for their insufficiency provided as a remuneration
to the community for their grant. The corporation cannot absolve
itself from the performance of its obligations, without the consent
of the legislature."
58 U. S. 17 How. 30,
58 U. S. 39.
In
Pearce v. Madison & Indianapolis Railroad, at
December term, 1858, it was adjudged that two corporations,
chartered by the State of Indiana to construct and manage distinct,
though connecting, railroads had no power to consolidate themselves
into one corporation or to establish a connecting steamboat line on
the Ohio River, and therefore were not liable to be sued upon a
promissory note which they had given in payment for a steamboat.
The same Justice, in delivering the opinion of the Court, stated
the reasons for the decision as follows:
"The rights, duties, and obligations of the defendants are
defined in the acts of the Legislature of Indiana under which they
were organized, and reference must be had to these to ascertain the
validity of their contracts. They empower the defendants,
respectively, to do all that was necessary to construct and put in
operation a railroad between the cities which are named in the acts
of incorporation. There was no authority of law to consolidate
these corporations and to place both under the same management, or
to subject the capital of the one to answer for the liabilities of
the other, and so the courts of Indiana have determined. But in
addition to that act of illegality, the managers of these
corporations established a steamboat line to run in connection with
the railroads, and thereby diverted their capital from the objects
contemplated by their charters, and exposed it to perils for which
they afforded no sanction. Now persons dealing with the managers of
a corporation must take notice of the limitations imposed upon
their authority by the act of incorporation. Their
Page 139 U. S. 42
powers are conceded in consideration of the advantage the public
is to receive from their discreet and intelligent employment, and
the public have an interest that neither the managers nor
stockholders of the corporations shall transcend their
authority."
21 How.
62 U. S.
441-443.
In
Zabriskie v. Cleveland &c. Railroad, at December
term, 1859, this Court, again speaking by the same Justice, while
affirming and acting on the principle that a corporation may be
bound by the conduct and representations of its directors in
"those cases in which a corporation acts within the range of its
general authority, but fails to comply with some formality or
regulation which it should not have neglected, but which it has
chosen to disregard,"
took the precaution to observe:
"This principle does not impugn the doctrine that a corporation
cannot vary from the object of its creation, and that persons
dealing with a company must take notice of whatever is contained in
the law of their organization. This doctrine has been constantly
affirmed in this Court."
64 U. S. 23 How.
381,
64 U. S.
398.
In
Thomas v. Railroad Co., 101 U. S.
71, decided at October term, 1879, it was adjudged that
a lease for 20 years by a railroad corporation of its railroad,
rolling stock and franchises, in consideration of being paid
one-half of the gross sums collected from the operation of the road
by the lessees during the term, and reserving to the lessor a right
to terminate the lease and retake possession of the road at any
time, paying to the lessees the value of the unexpired term, was
void, and the corporation, upon terminating the lease and resuming
possession when the lessees had been in possession five years, and
the accounts of the parties for those years had been adjusted and
paid, was not liable to an action by the lessees to recover the
value of the unexpired term, and Mr. Justice Miller, in the course
of delivering judgment, said:
"The authority to make this lease is placed by counsel primarily
in the following language of the thirteenth section of the
company's charter:"
"That it shall be lawful for the said company at any time during
the continuance of its charter, to make contracts and engagements
with any other corporation,
Page 139 U. S. 43
or with individuals, for the transporting or conveying any kinds
of goods, produce, merchandise, freight, or passengers, and to
enforce the fulfillment of such contracts."
"This is no more than saying:"
"You may do the business of carrying goods and passengers, and
may make contracts for doing that business. Such contracts you may
make with any other corporation or with individuals."
"No doubt a contract by which the goods, received from railroad
or other carrying companies, should be carried over the road of
this company, or by which goods or passengers from this road should
be carried by other railroads, whether connecting immediately with
them or not, are within this power, and are probably the main
object of the clause. But it is impossible, under any sound rule of
construction, to find in the language used a permission to sell,
lease, or transfer to others the entire road and the rights and
franchises of the corporation. To do so is to deprive the company
of the power of making those contracts which this clause confers,
and of performing the duties which it implies."
101 U.S.
101 U. S.
80.
"The authority to build a railroad, and to contract for carrying
passengers and goods over it and other roads, is no authority to
lease it, and with the lease to part with all its powers to another
company or to individuals."
101 U.S.
101 U. S.
81.
"The powers of corporations organized under legislative statutes
are such, and such only, as those statutes confer. Conceding the
rule applicable to all statutes that what is fairly implied is as
much granted as what is expressed, it remains that the charter of a
corporation is the measure of its powers, and that the enumeration
of these powers implies the exclusion of all others."
101 U.S.
101 U. S.
82.
"There is another principle of equal importance, and equally
conclusive against the validity of this contract, which, if not
coming exactly within the doctrine of
ultra vires as we
have just discussed it, shows very clearly that the railroad
company was without the power to make such a contract. That
principle is that where a corporation like a railroad company has
granted to it by charter a franchise intended in large measure to
be exercised for the public good, the due performance of those
functions being the consideration of the public grant,
Page 139 U. S. 44
any contract which disables the corporation from performing
those functions, which undertakes, without the consent of the
state, to transfer to others the rights and powers conferred by the
charter, and to relieve the grantees of the burden which it
imposes, is a violation of the contract with the state, and is
void, as against public policy."
101 U.S.
101 U. S.
83.
It was also held in that case that the lease was not made valid
by a subsequent act of the legislature regulating the rates of
fares and freights to be charged by "the directors, lessees, or
agents of said railroad," the Court saying:
"It is not by such an incidental use of the word 'lessees,' in
an effort to make sure that all who collected fares should be bound
by the law, that a contract unauthorized by the charter, and
forbidden by public policy, is to he made valid and ratified by the
state."
101 U.S.
101 U. S.
85.
In
Branch v. Jesup, MR. JUSTICE BRADLEY, delivering
judgment, said:
"Generally the power to sell and dispose has reference only to
transactions in the ordinary course of business incident to a
railroad company, and does not extend to the sale of the railroad
itself, or of the franchises connected therewith. Outlying lands,
not needed for railroad uses, may be sold. Machinery and other
personal property may be sold. But the road and franchises are
generally inalienable, and they are so not only because they are
acquired by legislative grant or in the exercise of special
authority given for the specific purposes of the incorporating act,
but because they are essential to the fulfillment of those
purposes, and it would be a dereliction of the duty owed by the
corporation to the state and to the public to part with them."
And a lease from one railroad corporation to another was upheld
in that case only because the lessor had by its charter express
authority not only to purchase, hold, and convey property, real and
personal and to connect its road with any other road, but also to
incorporate its stock with that of any other company, which, it was
observed,
"contemplates not only the possible transfer of the railroad and
its franchises to another company, but even the extinguishment of
the corporation itself and its absorption into a different
organization. The greater power
Page 139 U. S. 45
of alienating or extinguishing all its franchises, including its
own being and existence, contains the lesser power of alienating
its road and the franchises incident thereto and necessary to its
operation. Its power of alienation and sale extends to a class of
subjects to which it does not ordinarily apply."
106 U. S. 106 U.S.
468,
106 U. S.
478-479.
In
Pennsylvania Railroad v. St. Louis &c. Railroad,
the same principles were reaffirmed, and the Court, again speaking
through Mr. Justice Miller after referring to some of the previous
decisions on the subject in this and other courts, 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, franchises, 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."
In that case, it was held that a lease for ninety-nine years of
a railroad in Illinois and Indiana from a railroad corporation of
Illinois to a railroad corporation of Indiana whose road connected
with the road leased was within the authority conferred on the
lessor by the statute of Illinois, which empowered all railroad
corporations of that state to make "contracts and arrangements with
each other, and with railroad corporations of other states, for
leasing or running their roads, or any part thereof," yet was
unlawful and void because beyond the authority conferred upon the
lessee by the statute of Indiana empowering any railroad
corporation of that state whose road connected with a railroad in
an adjoining state
"to make such contracts and agreements with any such road
constructed in an adjoining state, for the transportation of
freight and passengers or for the use of its said road, as to the
board of directors may seem proper,"
the Court saying that it could not
"see in this provision any authority to make
Page 139 U. S. 46
contracts beyond those which relate to forwarding by one company
the passengers and freight of another, on terms to be agreed on,
and possibly for the use of the road of one company in running the
cars of the other over it to its destination without breaking
bulk."
118 U. S. 118 U.S.
290,
118 U. S. 309,
118 U. S. 312,
118 U. S. 630.
In another case, decided about the same time, the same Justice,
in delivering an opinion by which a corporation was held to be
liable for a tort done by its agents in the course of its business
and of their employment, although in excess of its powers,
observed:
"The question of the liability of corporations on contracts
which the law does not authorize them to make, and which are wholly
beyond the scope of their powers, is governed by a different
principle. Here, the party dealing with the corporation is under no
obligation to enter into the contract. No force or restraint or
fraud is practiced on him. The powers of these corporations are
matters of public law, open to his examination, and he may and must
judge for himself as to the power of the corporation to bind itself
by the proposed agreement."
Salt Lake City v. Hollister, 118 U.
S. 256,
118 U. S.
263.
In
Willamette Co. v. Bank of British Columbia,
119 U. S. 191,
cited for the plaintiff, a corporation chartered "for the purpose
of creating and improving water power and privileges" and
authorized to bring water from a river was also expressly
authorized by its charter to "use, rent, or sell . . . the
exclusive right to the hydraulic power and privileges created by
the water" so taken, and for that reason only was held by this
Court, speaking by the same Justice, to have the power to mortgage
such right, power, and privileges.
In
Green Bay & Minnesota Railroad v. Union Steamboat
Co., 107 U. S. 98, and
in
Pittsburgh &c. Railway v. Keokuk & Hamilton
Bridge, 131 U. S. 371,
131 U. S. 384,
the general doctrine of
ultra vires, as established by
earlier decisions, was affirmed, and a railroad corporation was
held to have the power, for the purpose of securing a continuous
line of transportation of which its road formed part, to make a
contract with a steamboat company, or with a company chartered to
construct a railway bridge or viaduct, because the charter of the
particular
Page 139 U. S. 47
railroad corporation, read in connection with the general laws
applicable to it, clearly manifested the intention of the
legislature to confer upon it that power.
In
Oregon Railway v. Oregonian Railway, 130 U. S.
1, it was held that a general law of Oregon authorizing
companies to organize themselves by written articles of association
filed with the secretary of state for "any lawful enterprise,
business, pursuit, or occupation" specified in the articles,
including "making or constructing any railroad," and "to purchase,
possess, and dispose of such real and personal property as may be
necessary and convenient to carry into effect the object of the
incorporation," did not authorize a railroad corporation to be
incorporated either for leasing its railroad to another corporation
or for taking leases from other corporations of their roads,
although these objects were included in its articles of
association, and therefore that, without further and express
authority from the legislature, a lease for ninety-six years from
one railroad corporation of its whole road and franchises to
another such corporation was utterly void, and would not sustain an
action by the lessor against the lessee to recover the rent
stipulated in the lease.
It was also held in that case, in accordance with the decision
in
Thomas v. Railroad Co., that no authority to make such
a lease could be implied from a special act passed by the Oregon
Legislature before the lease, granting to the plaintiff corporation
rights, privileges, and easements, for wharves, stations, and
tracks, in certain public grounds and streets, with a proviso that
said corporation "or its assigns" should have no power to sell,
convey, or assign the rights so granted to any person or
corporation, save only with and as part of its railway, and the
reasons for so holding appear in the following extracts from the
opinion of the Court, delivered by Mr. Justice Miller:
"One of the most important powers with which a corporation can
be invested is the right to sell out its whole property, together
with the franchises under which it is operated, or the authority to
lease its property for a long term of years. In the case of a
railroad company, these privileges, next to the right to build and
operate its railroad, would be the most
Page 139 U. S. 48
important which could be given it, and this idea would impress
itself upon the legislature. Naturally we would look for the
authority to do these things in some express provision of law. We
would suppose that if the legislature saw fit to confer such
rights, it would do so in terms which could not be misunderstood.
To infer, on the contrary, that it either intended to confer them
or to recognize that they already existed by the simple use of the
word 'assigns,' a very loose and indefinite term, is a stretch of
the power of the court in making implications which we do not feel
to be justified."
130 U.S.
130 U. S. 30
"The object of the legislature in making the proviso to that
statute was to make sure that the grant given to the Oregonian
Company of 'Terminal Facilities,' as they are called, with the
right to wharves, depots, and access to the river for the use of
the road, should never be separated by sale, assignment, or
otherwise from the road itself, and that into whosesoever hands the
road went should also go the rights, powers, and privileges
conveyed by the grant."
130 U.S.
130 U. S. 32
It was further held that a provision of the general laws of
Oregon authorizing any corporation, by a vote of a majority of its
stockholders, to dissolve itself, and thereupon to settle its
business, dispose of its property, and divide its capital stock did
not confer upon it any authority, while continuing in existence, to
dispose of by conveyance or lease its road and its corporate powers
and franchises. 130 U.S.
130 U. S.
34-35.
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 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 interest 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. A corporation
Page 139 U. S. 49
cannot, without the assent of the legislature, transfer its
franchise to another corporation and abnegate the performance of
the duties to the public imposed upon it by its charter as the
consideration for the grant of its franchise. Neither the grant of
a franchise to transport passengers nor a general authority to sell
and dispose of property empowers the grantee, while it continues to
exist as a corporation, to sell or to lease its entire property and
franchise to another corporation. These principles apply equally to
companies incorporated by special charter from the legislature and
to those formed by articles of association under general laws.
By a familiar rule, every public grant of property or of
privileges or franchises, if ambiguous, is to be construed against
the grantee and in favor of the public, because an intention on the
part of the government to grant to private persons, or to a
particular corporation, property or rights in which the whole
public is interested cannot be presumed unless unequivocally
expressed or necessarily to be implied in the terms of the grant,
and because the grant is supposed to be made at the solicitation of
the grantee, and to be drawn up by him or by his agents, and
therefore the words used are to be treated as those of the grantee,
and this rule of construction is a wholesome safeguard of the
interests of the public against any attempt of the grantee, by the
insertion of ambiguous language, to take what could not be obtained
in clear and express terms.
Charles River Bridge v. Warren
Bridge, 11 Pet. 420,
36 U. S.
544-548;
Dubuque & Pacific Railroad
v. Litchfield, 23 How. 66,
64 U. S. 88-89;
Slidell v. Grandjean, 111 U. S. 412,
111 U. S.
437-438. This rule applies with peculiar force to
articles of association, which are framed under general laws and
which are a substitute for a legislative charter and assume and
define the powers of the corporation by the mere act of the
associates, without any supervision of the legislature or of any
public authority.
Oregon Railway v. Oregonian Railway,
130 U. S. 26,
130 U. S. 27.
In the case at bar, the plaintiff was originally incorporated
for twenty years from December 26, 1862, with a capital stock of
$200,000, by articles of association, called a certificate or
Page 139 U. S. 50
charter, under general laws of Pennsylvania. It is not without
significance that those laws required its stock, property, and
affairs to be managed by a board of directors a majority of whom
should be stockholders therein and citizens of the state, and
forbade it to use any part of its capital stock in the purchase of
stock in any other corporation. Those laws related to manufacturing
companies only. But the purpose of its incorporation, as stated in
that charter, was "the transportation of passengers in railroad
cars constructed and to be owned by the said company" under certain
patents. And, as appears by the recitals in the indenture sued on,
the plaintiff carried on the business of manufacturing sleeping
cars under it patents and of hiring or letting those cars to
railroad companies by written contracts, receiving a revenue from
the sale of berths and accommodations to passengers.
The validity of the plaintiff's incorporation, as well as its
power to make that indenture, however, depend not solely upon the
original charter and the general laws under which it came into
existence, but mainly upon a special act of the Legislature of
Pennsylvania of February 9, 1870. By this act, the validity of the
charter for the object therein named was clearly recognized; the
charter was extended for ninety-nine years, nearly five-fold the
period for which the corporation was or could have been formed
under the general laws, and the corporation was expressly empowered
to double its capital stock and "to enter into contracts with
corporations of this or any other state for the leasing or hiring
and transfer to them, or any of them," of its "railway cars and
other personal property."
The plaintiff therefore was not an ordinary manufacturing
corporation such as might, like a partnership, or an individual
engaged in manufactures, sell or lease all its property to another
corporation.
Ardesco Oil Co. v. North American Oil Co., 66
Penn.St. 375;
Treadwell v. Salisbury Mfg. Co., 7 Gray 393.
But the purpose of its incorporation, as defined in its charter and
recognized and confirmed by the legislature, being the
transportation of passengers, the plaintiff exercised a public
employment and was charged with the
Page 139 U. S. 51
duty of accommodating the public in the line of that employment,
exactly corresponding to the duty which a railroad corporation or a
steamboat company, as a carrier of passengers, owes to the public,
independently of possessing any right of eminent domain. The public
nature of that duty was not affected by the fact that it was to be
performed by means of cars constructed and of patent rights owned
by the corporation, and over roads owned by others. The plaintiff
was not a strictly private, but a
quasi-public
corporation, and it must be so treated as regards the validity of
any attempt on its part to absolve itself from the performance of
those duties to the public, the performance of which by the
corporation itself was the remuneration that it was required by law
to make to the public in return for the grant of its franchise.
Pickard v. Pullman Southern Car Co., 117 U. S.
34;
York & Maryland Railroad
Co. v. Winans, 17 How. 30,
58 U. S. 39;
Railroad Co. v.
Lockwood, 17 Wall. 357;
Liverpool & Great
Western Steam Co. v. Phenix Ins. Co., 129 U.
S. 397.
The evident purpose of the legislature in passing the statute of
1870 was to enable the plaintiff the better to perform its duties
to the public by prolonging its existence, doubling its capital,
and confirming, if not enlarging, its powers. An intention that it
should immediately abdicate those powers and cease to perform those
duties is so inconsistent with that purpose that it cannot be
implied without much clearer expressions of the legislative will
looking toward that end than are to be found in this statute.
The provision of this statute by which the plaintiff is
empowered to contract with other corporations "for the leasing or
hiring and transfer to them, or any of them," of its "railway cars
and other personal property" is fully satisfied by construing it as
confirming the plaintiff's right to do as it had been doing, to
"lease" or "hire" (which are equivalent words) to other
corporations in the regular course of its business, and to
"transfer" under such leasing or hiring its "railway cars," and
"other personal property," either connected with the cars or at
least of the same general nature of tangible property. It can
hardly be stretched to warrant the
Page 139 U. S. 52
plaintiff in making to a single corporation an absolute
transfer, or a long lease, of all that might be comprehended in the
words "personal property" in their widest sense, including not only
goods and chattels, but moneys, credits, and rights of action. In
any view, it would be inconsistent alike with the main purpose of
the statute and with the uniform course of decision in this Court
to construe these words as authorizing the plaintiff to deprive
itself, either absolutely, or for a long period of time, of the
right to exercise the franchise granted to it by the legislature
for the accommodation of the public.
By the contract between these parties, as expressed in the
indenture sued on, are transferred all cars already constructed,
all existing contracts with railroad companies for running cars,
all existing patent rights under which other cars might be
constructed, and all other personal property, moneys, credits, and
rights of action of the plaintiff. But after the cars and the
railroad contracts may have ceased to exist, and after all those
patent rights must have expired, the indenture is still to continue
in force for the full term of ninety-nine years unless sooner
terminated as therein provided. In addition to all this, the
plaintiff covenants, in the most express and positive terms, never
to "engage in the business of manufacturing, using, or hiring
sleeping cars" while the indenture remains in force. In short, the
plaintiff not only parts with all its means of carrying on the
business and of performing the duty for which it had been chartered
of transporting passengers and making and letting cars to transport
them in, but it undertakes to transfer, for ninety-nine years,
nearly coextensive with the duration of its own corporate
existence, the whole conduct of its business, and the performance
of all its public duties, to another corporation, and to continue
in existence, during that period, for no other purpose than that of
receiving from time to time from the other corporation the
stipulated rent or compensation, and of making dividends out of the
moneys so received.
Considering the long term of the indenture, the perishable
nature of the property transferred, the large sums to be paid
quarterly by the defendant by way of compensation, its
assumption
Page 139 U. S. 53
of the plaintiff's debts, and the frank avowal, in the indenture
itself, of the intention of the two corporations to prevent
competition and to create a monopoly, there can be no doubt that
the chief consideration for the sums to be paid by the defendant
was the plaintiff's covenant not to engage in the business of
manufacturing, using, or hiring sleeping cars, and that the real
purpose of the transaction was, under the guise of a lease of
personal property, to transfer to the defendant nearly the whole
corporate franchise of the plaintiff, and to continue the
plaintiff's existence for the single purpose of receiving
compensation for not performing its duties.
The necessary conclusion from these premises is that the
contract sued on was unlawful and void because it was beyond the
powers conferred upon the plaintiff by the legislature and because
it involved an abandonment by the plaintiff of its duty to the
public.
There is strong ground also for holding that the contract
between the parties is void because in unreasonable restraint of
trade, and therefore contrary to public policy. Of the cases cited
by the plaintiff upon this point, those which have most resemblance
to the present case are quite distinguishable.
A covenant by the assignor of letters patent for an invention
that he will not himself make, use, or sell the patented article is
undoubtedly valid because the act of Congress which creates the
monopoly expressly authorizes it to be assigned as a whole.
Rev.Stat. §§ 4884, 4898;
Gayler v.
Wilder, 10 How. 477,
51 U. S. 494;
Morse Co. v. Morse, 103 Mass. 73. But this plaintiff's
transfer and covenant, as we have seen, cover much more than patent
rights, and are to continue in force long after the patent rights
assigned must have expired.
Upon the sale of a secret process, a covenant, express or
implied, that the seller will not use the process himself or
communicate it to any other person is lawful because the process
must be kept secret in order to be of any value, and the public has
no interest in the question by whom it is used.
Fowle v.
Park, 131 U. S. 88,
131 U. S. 97;
Vickery v. Welch, 19 Pick. 523, 527;
Peabody v.
Norfolk, 98 Mass. 452, 460.
A contract of a carrier, whether an individual or a
corporation,
Page 139 U. S. 54
not to carry passengers or goods over a particular route may be
reasonable and valid.
Pierce v. Fuller, 8 Mass. 223;
Palmer v. Stebbins, 3 Pick. 188;
Leslie v.
Lorillard, 110 N.Y. 519. But a contract by which a
corporation, chartered to perform the duties of a common carrier or
any other duties to the public, agrees that it will not perform
those duties at all anywhere for ninety-nine years is clearly
unreasonable and void.
Oregon Steam Navigation Co. v.
Winsor, 20 Wall. 64;
Gibbs v. Baltimore Gas
Co., 130 U. S. 396,
130 U. S.
408-410.
This case strikingly illustrates several of the obvious
considerations for holding contracts in restraint of trade to be
unreasonable and void, as compactly and forcibly stated by Mr.
Justice Morton in the leading case of
Alger v.
Thacher:
"They tend to deprive the public of the services of men in the
employments and capacities in which they may be most useful to the
community as well as themselves. . . . They prevent competition and
enhance prices. . . . They expose the public to all the evils of
monopoly. And this especially is applicable to wealthy companies
and large corporations, who have the means, unless restrained by
law, to exclude rivalry, monopolize business, and engross the
market."
19 Pick. 51, 54.
But this objection, as applied to the facts of this case, so
closely connects itself with the objection more distinctly pleaded,
and already discussed at length, that it requires no further
separate consideration.
The contract sued on being clearly beyond the powers of the
plaintiff corporation, it is unnecessary to determine whether it is
also
ultra vires of the defendant because, in order to
bind either party, it must be within the corporate powers of both.
Thomas v. Railroad Co., Pennsylvania Railroad v. St. Louis
&c. Railroad, and
Oregon Railway v. Oregonian
Railway, above cited.
It was argued in behalf of the plaintiff that even if the
contract sued on was void because
ultra vires and against
public policy, yet that, having been fully performed on the part of
the plaintiff and the benefits of it received by the defendant for
the period covered by the declaration, the defendant was estopped
to set up the invalidity of the contract as a defense
Page 139 U. S. 55
to this action to recover the compensation agreed on for that
period. But this argument, though sustained by decisions in some of
the states, finds no support in the judgments of this Court. The
passages cited by the plaintiff from
Railway Co. v.
McCarthy, 96 U. S. 258,
96 U. S. 267,
and
San Antonio v. Mehaffy, 96 U. S.
312,
96 U. S. 315,
are no more than a passing remark that
"the doctrine of
ultra vires, when invoked for or
against a corporation, should not be allowed to prevail when it
would defeat the ends of justice or work a legal wrong,"
and a repetition, in substance, of the same remark, adding "if
such a result can be avoided."
In
Thomas v. Railroad Co., already cited, Mr. Justice
Miller, while admitting in general terms that
"in many instances, where an invalid contract which the party to
it might have avoided or refused to perform has been fully
performed on both sides, whereby money has been paid or property
changed hands, the courts have refused to sustain an action for the
property or the money so transferred,"
and that "the executed dealings of corporations must be allowed
to stand for and against both parties when the plainest rules of
good faith require it," yet in the same connection, and in the most
emphatic words, said that in the case before the Court, of a
contract forbidden by public policy and beyond the powers of the
defendant corporation, it was its legal duty, a duty both to its
stockholders and to 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."
101 U.S.
101 U. S.
86.
In an earlier part of the same opinion, and again in
Oregon
Railway v. Oregonian Railway, he referred with approval to the
decision of the House of Lords in
Ashbury Railway Carriage
& Iron Co. v. Riche, L.R. 7 H.L. 653, by which, as he
Page 139 U. S. 56
observed,
"the broad doctrine was established that a contract not within
the scope of the powers conferred on the corporation cannot be made
valid by the assent of every one of the shareholders, nor can it by
any partial performance become the foundation of a right of
action."
101 U.S.
101 U. S. 83;
130 U.S.
130 U. S. 22.
In
Union Trust Co. v. Illinois Midland Co.,
117 U. S. 434,
after one railroad corporation had purchased of two others their
connecting railroads and their franchises, a receiver had been
appointed of all its property, including the three railroads, and,
under the direction of the court, and without objection by any of
the parties interested, had for years administered the whole as a
unit, and incurred expenses and issued certificates accordingly. It
was held that the holders of bonds secured by mortgage of one of
the purchased railroads could not, for want of affirmative
legislative authority for the sale and purchase of that road, claim
a priority of lien upon it as against the holders of certificates
issued by the receiver for necessary and proper expenses of the
whole line, and this Court, as declared in its opinion delivered by
MR. JUSTICE BLATCHFORD, rested this conclusion
"on the principle that nonaction on the part of the bondholders
and their trustee, which allowed the court and the receivers to go
on during the entire litigation contracting debts in respect to the
whole line operated as a unit and administering the property as one
under circumstances where, as shown, it was and is impossible to
separate the interests, as to expenditures and benefits, in respect
to the matters now questioned, and where important rights have
accrued on the faith of the unity of the interests, amounts to such
acquiescence as should operate as an estoppel."
117 U.S.
117 U. S.
468-469. The Court in that case in no way maintained any
suit on the contract supposed to be unlawful, but simply refused to
set it aside at the demand of parties by reason of whose silence,
and omission to seasonably interpose any objection, it had been
acted upon as valid throughout a long course of judicial
proceedings.
The distinction is clearly brought out in
Pennsylvania
Railroad v. St. Louis &c. Railroad, above cited, in which
it was
Page 139 U. S. 57
argued, substantially as in the present case, that although the
contract of lease might be void, so that no action could originally
have been maintained upon it, yet there had been for years such
performance of it in the use, possession, and control by the
defendants of the plaintiff's road and franchise that they could
not now be permitted to repudiate or abandon it, and that the case
came within that class in which it had been held that where a
contract has been so far executed that property has passed and
rights have been acquired under it, the courts will not disturb the
possession of such property or compel restitution of money received
under such a contract. In answering that objection, Mr. Justice
Miller, speaking for the Court, said:
"Undoubtedly there are such decisions in courts of high
authority, and there is such a principle, very sound in its
application to appropriate cases. But we understand the rule in
such cases to stand upon the broad ground that the contract itself
is void, and that neither what has been done under it nor the
action of the court can infuse any vitality into it. Looking at the
case as one where the parties have so far acted under such a
contract that they cannot be restored to their original condition,
the court inquires if relief can be given independently of the
contract, or whether it will refuse to interfere as the matter
stands."
And whether, in the case then before the court, the lessee might
be liable to the lessor, as on a
quantum meruit, for the
use of its road, was not decided, because not presented. 118 U.S.
118 U. S.
316-318.
In
Salt Lake City v. Hollister, above cited, it was
said that in cases of contracts upon which corporations could not
be sued because they were
ultra vires,
"the courts have gone a long way to enable parties who had
parted with property or money on the faith of such contracts to
obtain justice by recovery of the property or the money
specifically, or as money had and received to the plaintiff's
use."
118 U.S.
118 U. S.
263.
The true ground of relief in such cases is clearly shown in a
line of opinions, two of which were cited by Mr. Justice Miller in
support of the proposition just quoted, in which municipal
corporations, having received money or property under contracts so
far beyond their powers as not to be capable
Page 139 U. S. 58
of being enforced or sued on according to their terms, have been
held, while not liable to pay according to the contracts, to be
bound to account for the money or property which they had
received.
Thus, in
Hitchcock v. Galveston, 96 U. S.
341,
96 U. S. 350,
where a city was sued for damages for putting an end to a contract
with the plaintiffs for the improvement of its sidewalks, the only
in valid part of which was its promise to pay in bonds, which it
was beyond its powers to issue, it was decided that the invalidity
of that promise was no reason why the city should not pay for the
benefits which it had received from the plaintiffs' performance of
the contract, Mr. Justice Strong, in behalf of the Court,
saying:
"It matters not that the promise was to pay in a manner not
authorized by law. If payments cannot be made in bonds because
their issue is
ultra vires, it would be sanctioning rank
injustice to hold that payment need not be made at all."
So, in
Louisiana v. Wood, 102 U.
S. 294,
102 U. S. 299,
a city which had received money for bonds issued by it without
authority and at an illegal rate of interest and purchased by the
plaintiff was held liable not on any contract of purchase, nor on
any express contract whatever, but on a contract implied from its
receipt of the money, Chief Justice Waite saying:
"There was no actual sale of bonds, because there were no valid
bonds to sell. There was no express contract of borrowing and
lending, and consequently no express contract to pay any rate of
interest at all. The only contract actually entered into is the one
the law implies from what was done, to-wit that the city would, on
demand, return the money paid to it by mistake, and, as the money
was got under a form of obligation which was apparently good, that
interest should be paid at the legal rate from the time the
obligation was denied. That contract the plaintiffs seek to enforce
in this action, and no other."
Again, in
Parkersburg v. Brown, 106 U.
S. 487,
106 U. S. 503,
where individuals, in consideration of bonds issued to them by a
city for a purpose beyond its powers, executed to the city a trust
deed in the nature of a mortgage to secure the payment of the bonds
and interest, it was held that the bonds could not
Page 139 U. S. 59
be enforced against the city, but that the mortgagors had a
right to reclaim the property and to demand an account of the city,
and MR. JUSTICE BLATCHFORD, in delivering judgment, said:
"The enforcement of such right is not in affirmance of the
illegal contract, but is in disaffirmance of it, and seeks to
prevent the city from retaining the benefit which it has derived
from the unlawful act. There was no illegality in the mere putting
of the property by the O'Briens [the mortgagors] in the hands of
the city. To deny a remedy to reclaim it is to give effect to the
illegal contract. The illegality of that contract does not arise
from any moral turpitude. The property was transferred under a
contract which was merely
malum prohibitum, and where the
city was the principal offender. In such a case, the party
receiving may be made to refund to the person from whom it has
received property for the unauthorized purpose, the value of that
which it has actually received."
The case of
Chapman v. Douglas County, in which the
opinion was delivered by Mr. Justice Matthews, is to the same
effect.
107 U. S. 107 U.S.
348,
107 U. S.
355.
In
Pittsburgh &c. Railway v. Keokuk & Hamilton
Bridge, it was stated, as the result of the previous cases in
this Court, that
"a contract made by a corporation which is unlawful and void
because beyond the scope of its corporate powers does not, by being
carried into execution, become lawful and valid, but the proper
remedy of the party aggrieved is by disaffirming the contract and
suing to recover, as on a
quantum meruit, the value of
what the defendant has actually received the benefit of."
131 U. S. 131 U.S.
371,
131 U. S.
389.
The view which this Court has taken of the question presented by
this branch of the case, and the only view which appears to us
consistent with legal principles, is as follows:
A contract of a corporation which is
ultra vires in the
proper sense -- that is to say outside the object of its creation
as defined in the law of its organization, and therefore beyond the
powers conferred upon it by the legislature -- is not voidable
only, but wholly void and of no legal effect. The objection to the
contract is not merely that the corporation ought not to have made
it, but that it could not make it. The contract cannot
Page 139 U. S. 60
be ratified by either party, because it could not have been
authorized by either. No performance on either side can give the
unlawful contract any validity, or be the foundation of any right
of action upon it.
When a corporation is acting within the general scope of the
powers conferred upon it by the legislature, the corporation, as
well as persons contracting with it, may be estopped to deny that
it has complied with the legal formalities which are prerequisites
to its existence or to its action, because such requisites might in
fact have been complied with. But when the contract is beyond the
powers conferred upon it by existing laws, neither the corporation,
nor the other party to the contract, can be estopped, by assenting
to it, or by acting upon it, to show that it was prohibited by
those laws.
The doctrine of the common law by which a tenant of real estate
is estopped to deny his landlord's title has never been considered
by this Court as applicable to leases by railroad corporations of
their roads and franchises. It certainly has no bearing upon the
question whether this defendant may set up that the lease sued on,
which is not of real estate but of personal property and which
includes, as inseparable from the other property transferred, the
inalienable franchise of the plaintiff, is unlawful and void for
want of legal capacity in the plaintiff to make it.
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, so far as
could be done consistently with adherence to law, by 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, property or money which it has no right to
retain. To maintain such an action is not to affirm, but to
disaffirm, the unlawful contract.
Page 139 U. S. 61
The ground and the limits of the rule concerning the remedy in
the case of a contract
ultra vires which has been partly
performed and under which property has passed can hardly be summed
up better than they were by Mr. Justice Miller in a passage already
quoted, where he said that the rule
"stands upon the broad ground that the contract itself is void,
and that nothing which has been done under it, nor the action of
the court, can infuse any vitality into it,"
and that
"where the parties have so far acted under such a contract that
they cannot be restored to their original condition, the court
inquires if relief can be given independently of the contract, or
whether it will refuse to interfere as the matter stands."
Pennsylvania Railroad v. St. Louis &c. Railroad,
118 U. S.
317.
Whether this plaintiff could maintain any action against this
defendant, in the nature of a
quantum meruit or otherwise,
independently of the contract need not be considered, because it is
not presented by this record, and has not been argued. This action,
according to the declaration and the evidence, was brought and
prosecuted for the single purpose of recovering sums which the
defendant had agreed to pay by the unlawful contract, and which,
for the reasons and upon the authorities above stated, the
defendant is not liable for.
Judgment affirmed.
MR. JUSTICE BROWN, not having been a member of the Court when
this case was argued, took no part in its decision.