1. Where the charter of a railroad company authorizes the
counties "through which it may pass" to subscribe to its stock, a
county lying between the two termini of the road may subscribe
without waiting until the route is actually located.
2. If the statute requires the grand jury to fix the amount of
the subscription and to approve of it, and upon their report's
being filed empowers the commissioners to carry the same into
effect by making the subscription in the name of the county, and if
these things be done agreeably to the law, the county cannot
afterwards deny its obligation to pay the amount subscribed.
3. Where the charter provided that payment of the stock should
be made upon such terms and in such manner as might be agreed on
between the company and the county, an agreement to pay in bonds,
with coupons attached for the semiannual interest, is binding, and
the bonds being issued accordingly, are lawful and valid
securities.
4. In a suit brought to recover the arrears of interest on such
bonds, it is not necessary for the holder to show that the grand
jury fixed the manner and terms of paying for the stock; nor is it
a defense for the county to show that the grand jury omitted to do
so. It is enough that the manner and terms of payment were agreed
upon between the company and the commissioners.
5. In a suit brought upon the coupons by a
bona fide
holder, his right to recover is not affected by the fact that the
railroad company sold the bonds at a discount of twenty-five
percent, contrary to the charter, which forbids the sale of them at
less than their par value.
This was an action of debt brought in the Circuit Court of the
United States for the Western District of Pennsylvania by Alexander
G. Woods, a citizen of New York, against the County of Lawrence in
the State of Pennsylvania to recover the amount of certain coupons
for interest on bonds given by
Page 66 U. S. 387
the defendant to the Northwestern Railroad Company. The
defendant denied its obligation to pay the coupons or the
bonds.
The plaintiff, to maintain the issue on his part, gave in
evidence the act of the Pennsylvania Legislature by which the
Northwestern Railroad Company was incorporated. Section 1 appointed
certain persons therein named to open books, receive subscriptions,
and organize a company with all the powers and subject to all the
duties, restrictions, and regulations prescribed by the general
railroad law of the state. Section 2 fixes the capital stock at
20,000 shares of $50 each, to be increased to $2,000,000 hereafter
if found expedient. Section 3 fixes the termini and prescribes the
gauge &c., of the road to be built. Section 4 authorizes the
company to use any section of five miles when finished, as fully as
the whole might be used if it were all finished. The remaining
three sections of the act are as follows:
"SECTION 5. That said company be, and they are hereby,
authorized to borrow money to an amount not exceeding the capital
stock of said company upon bonds to be issued by said company
whenever the said president and directors shall deem the issue of
such bonds expedient,
provided that the rate of interest
on said bonds shall not exceed seven percentum per annum, and that
said bonds shall be convertible into the stock of said company, at
the option of said company and the holder or holders of said bonds,
and that no bond shall be issued for a sum less than one hundred
dollars."
"SECTION 6. That the president and directors of said company are
hereby authorized to pay to the stockholders, in the months of
January and July in each year, interest at the rate of six
percentum per annum on all installments paid by them, and to
continue to pay the same until the road shall be completed, and all
the profits or earnings of the said railroad within the said time
shall be credited to the cost of construction; and all interest
paid shall be charged to the cost of construction, but no interest
shall be paid on any share of stock upon which any installment that
has been called for remains
Page 66 U. S. 388
unpaid, and the stock of said company shall not be subject to
any tax in consequence of the payment of the interest hereby
authorized, nor until the net earnings of the company shall amount
to at least six percentum per annum upon the capital invested."
"SECTION 7. That the counties through parts of which said
railroads may pass shall be and they are hereby severally
authorized to subscribe to the capital stock of said railroad
company and to make payments on such terms and in such manner as
may be agreed upon by said company and the proper county,
provided that the amount of subscription by any county
shall not exceed ten percentum of the assessed valuation thereof,
and that before any such subscription is made, the amount thereof
shall be fixed and determined by one grand jury of the proper
county and approved by the same. Upon the report of such grand jury
being filed, the county commissioners may carry the same into
effect by making, in the name of the county, the subscription so
directed by the said grand jury,
provided that whenever
bonds of the respective counties are given in payment of
subscriptions, the same shall not be sold by said railroad company
at less than par value, and no bonds shall be in less amount than
one hundred dollars; and such bonds shall not be subject to
taxation until the clear profits of said railroad shall amount to
six percent upon the cost thereof; and that all subscriptions made
or to be made in the name of any county shall be held and deemed
valid if made by a majority of the commissioners of the respective
counties."
It was proved that the grand jury of Lawrence County, on the
21st of May, 1853, passed a resolution recommending that the county
commissioners
"subscribe stock to the Northwestern Railroad to the amount of
$200,000, agreeably to the act of assembly incorporating said
company, and to issue bonds for the payment of said stock, making
the conditions such as will best promote the interest of said
railroad company and the County of Lawrence."
On the 20th of August, 1853, the county commissioners
Page 66 U. S. 389
subscribed $200,000 for the county to the capital stock of the
railroad company, by affixing their names and their official seal
to the following instrument:
"By authority of an Act of the General Assembly of the
Commonwealth of Pennsylvania passed the 9th day of February, A.D.
1853, entitled 'An act to incorporate the Northwestern Railroad
Company,' and by virtue of the action of the grand jury of the
County of Lawrence had at May session, A.D. 1853, at the court of
said county, fixing and determining the amount of subscription to
be made to the said Northwestern Railroad Company by said County of
Lawrence, we, the undersigned, commissioners of said county, do
hereby subscribe for and in the name of the County of Lawrence to
the capital stock of the Northwestern Railroad Company the sum of
two hundred thousand dollars, being four thousand shares in said
capital stock. It is understood that whenever the amount of this
subscription is required from the County of Lawrence by the said
company, it is to be paid in the bonds of this county, to be given
in sums of not less than one thousand dollars each, payable in
twenty years after date or such other time after date as may be
agreed upon between the Commissioners of Lawrence County and said
railroad company. The interest on said bonds to be paid
semiannually, and said interest to be paid by said railroad company
until such time as the Northwestern Railroad is completed."
"In testimony whereof we have hereunto set our hands and affixed
the seal of the said County of Lawrence this 20th day of August,
A.D. one thousand eight hundred and fifty-three."
To pay this subscription, bonds were signed, sealed, and
delivered to the railroad company in the following from:
"Know all men by these presents that the County of Lawrence, in
the Commonwealth of Pennsylvania, is indebted to the Northwestern
Railroad Company, in the full and just sum of one thousand dollars,
which sum of money said county agrees and promises to pay, twenty
years after date hereof, to the said Northwestern Railroad Company
or bearer, with interest at the rate of six percent per annum,
payable semiannually, on the first day of January and July, at the
office
Page 66 U. S. 390
of the Pennsylvania Railroad Company in the City of Philadelphia
upon the delivery of the coupons severally hereto annexed, for
which payments of principal and interest, well and truly to be
made, the faith, credit, and property of said County of Lawrence
are hereby solemnly pledged, under the authority of an Act of
Assembly of this Commonwealth entitled 'An act to incorporate the
Northwestern Railroad Company,' which said act was approved the
ninth day of February, A.D. eighteen hundred and fifty-three."
"In testimony whereof, and pursuant to said act of the
Legislature of Pennsylvania, and resolution of the county
commissioners, in their official capacity, passed the _____ _____
_____ _____, the commissioners of said county have signed, and the
clerk of said commissioners has countersigned these presents, and
have hereto caused the seal of said county to be affixed this ___
day of _____ A.D. one thousand eight hundred and fifty-___."
To each of these bonds forty coupons were attached, of which the
following is a specimen:
"COUNTY OF LAWRENCE"
"Warrant, No. 37 For thirty dollars"
"Being for six months' interest on bond No. ___, payable on the
first day of January, A.D. 1873, at the office of the Pennsylvania
Railroad Company in the City of Philadelphia."
"$30 ________ ________, Clerk"
On the part of the defendant, it was not only proved but it was
conceded by the plaintiff to be true that the presentment or
recommendation of the grand jury was made before the railroad
company was organized; that the subscription by the commissioners
was made before the railroad was located, and that in fact the
railroad or any part of it never was located within the limits of
Lawrence County. It was also proved that the bonds of the county,
after they came into the hands of the railroad company, were
disposed of not at their par value, as the act of incorporation
requires, but for seventy-five percent of that value.
The defendants on these facts asked the circuit court to charge
that:
1. The county was not authorized by the act of
Page 66 U. S. 391
assembly to make this subscription.
2. The subscription is void because the grand jury did not
prescribe the manner and terms of payment.
3. The county was not authorized to issue the bonds.
4. The sale of the bonds, contrary to law, at a less price than
par, avoided them in the hands of the purchaser.
Upon the points of law the judges of the circuit court differed
in opinion, and made a certificate of their division, which brought
the cause into this Court.
Page 66 U. S. 404
MR. JUSTICE WAYNE.
This is an action of debt brought upon coupons for interest
attached to bonds, which had been passed by the County of Lawrence
to the Northwestern Railroad Company in payment of its subscription
for two hundred thousand dollars to the capital stock of that
company.
It is here upon a certificate of a division of opinion between
the judge of the circuit court.
The company was incorporated as the Northwestern Railroad
Company on the 9th February, 1853, with the power to build a
railroad from some point upon the Pennsylvania or the Alleghany
Portage Railroad at or west of Johnstown, by the way of Butler, to
the Pennsylvania and Ohio state line, at some point on the western
boundary line of Lawrence County. It was to be done on the most
eligible route, &c., and to be connected with any railroad then
constructed or which might thereafter be built at either end or at
any intermediate point on the line thereof. The capital stock was
to be twenty thousand shares of fifty dollars each, with power to
increase it to two millions of dollars if the directors of the
company should think its exigencies required that to be done. The
company was authorized in either event in respect to the amount
of
Page 66 U. S. 405
capital, to build the road
by borrowing money on its bonds,
bearing interest at seven percentum, not exceeding the amount
of its capital, and with the further limitation that no bond should
be issued for less than one hundred dollars. The seventh and last
section of the act is that the counties, through parts of which the
railroad may pass, are severally authorized to subscribe to the
capital stock of the company and to pay its subscription in such
manner as might be agreed upon between the county and the company.
But no county could subscribe more than ten percent upon its
assessed valuation, and before any subscription could be made, its
amount was to be determined by a grand jury of the county and
approved by it. And when that had been done and filed, the county
commissioners were authorized to make the subscription as the grand
jury had directed. Then follows a proviso that when the bonds of
the county were passed to the railroad company, they should not be
sold by it at less than their par value. The meaning of that
proviso will be given hereafter, when we shall consider the fourth
question upon which the judges were divided in opinion.
Upon the trial of the case, the plaintiff gave in evidence the
recommendation and direction of the grand jury for the
subscription. It was executed by the commissioners to the amount of
two hundred thousand dollars, for the payment of which the county
was to issue bonds, with such conditions as might best promote the
interests of the railroad company and of the County of Lawrence.
The plaintiff also gave in evidence one of the coupons upon which
he had sued, attached to the county bonds. We give a copy of it,
that the obligation of the county to pay those coupons and their
bonds, when the latter shall become payable, may be better
understood:
"COUNTY OF LAWRENCE"
"Warrant No. 37 for 30 dollars. Being for six months' interest
on bond No.___, payable on the first day of January, A.D. 1873, at
the office of the Pennsylvania Railroad Company, in
Philadelphia."
"$30 ________ ________,
Clerk"
Here the plaintiff rested his case.
The defendant gave in evidence the agreement for the
subscription,
Page 66 U. S. 406
as made by the commissioners. We have examined it in connection
with the presentment of the grand jury and found both properly in
conformity with the section of the act giving to the counties,
severally, the right to subscribe. It is recommended and determined
that the subscription of the County of Lawrence shall be two
hundred thousand dollars, or four thousand shares of the capital
stock of the railroad company, it being understood, that whenever
the amount of it should be required by the company from the county,
it should be paid in bonds of sums not less than a thousand
dollars, payable in twenty years after date, or at such other times
after the date of the bonds as might be agreed upon between the
commissioners of the county and the railroad company, the interest
upon the bonds to be paid semiannually by the
railroad
company until the time when the road shall have been
completed.
The defendant then gave other evidence to prove that when the
grand jury made its presentment, the railroad company had not been
organized; also that when the subscription was made, the company
had not fixed upon its line or that any part of it should be run
within the limits of Lawrence County, and then that no part of it
had ever been built within that county.
It was also proved by the defendant that the company, in using
the bonds of the county to get money upon them for the construction
of the road, had sold them at a discount of twenty-five percent,
but not with having credited the county with less than their par
amount.
Thus the case stood when it was submitted to the jury, and the
defendant asked the court to give the following instructions:
"1. That there was no authority vested in the County of Lawrence
to make the subscription to the Northwestern Railroad Company, and
that the subscription and the bonds which had been issued for its
payment were void."
"2. That the recommendation and report of the grand jury were
materially deficient, in not setting forth or prescribing the terms
and manner of payment, and that the subscription was void on that
account. "
Page 66 U. S. 407
"3. That the County of Lawrence was not authorized to issue the
instruments or bonds question."
"4. That the county bonds, which had been given in payment of
the subscription, having been sold below their par value, was
contrary to the provision of the act incorporating the railroad
company, and were therefore avoided in the hands of
purchasers."
We observe in respect to the first, second, and third questions
that they are not now open questions in this Court. They were in
effect comprehended in the case of
Curtis v. County of
Butler, which this Court passed upon at the last term, as well
in respect to the constitutionality of the Act of the 9th of
February, 1853, as to what was the proper construction of it. This
Court then decided, after mature deliberation upon all the sections
of the act, assisted by the arguments of Mr. Stanton and Mr. Black
which were in every particular fully up to the occasion, that by
the 7th section of the Act of the 9th February, 1853, the counties
through parts of which the Northwestern Railroad may pass were
authorized to subscribe to the capital stock of the company and to
make payments on such terms as might be agreed upon between the
company and the county, and that the subscription was valid and
binding upon it when made by a majority of its commissioners. It
was also then decided that the power given to the county to
subscribe included its right to issue bonds, with coupons for
interest attached, for the payment of its subscription. The
constitutionality of the act was admitted in the argument then, as
it has been in this case. But it is now urged, in addition to what
was then said, that as the County of Lawrence had not been
empowered
by name to subscribe, such omissions must
suggest a purpose of the legislature, when passing the act, to
accommodate itself to what is asserted to have been, at that time,
the constitutional law of Pennsylvania, as it had been expounded by
the supreme court of that state in respect to the right of the
legislature to empower a county to subscribe and tax the people of
it to pay for railroads and other improvements of a like kind,
which were not positively to be constructed within its
territory.
Page 66 U. S. 408
One of the cases cited is that of the
Commonwealth ex
Relatione Dysart v. McWilliams and Isett. It was a
quo
warranto in which it was alleged that they had usurped the
office of supervisors and assessors of Franklin Township, under and
by virtue of the Act of the 13th April, 1846, and of assessing,
levying, and collecting taxes, for the use and benefit of the
Spruce Creek & Water Street Turnpike company. And it was
decided that the defendants, as supervisors, had the power to levy
and collect a tax to enable them to subscribe for shares of the
stock of the turnpike company at the cost of the inhabitants of the
township in virtue of the authority vested in the supervisors of
townships by the Act of the 15th of April, 1834, and because the
16th section of the act of $1,846, incorporating the turnpike
company, had provided that the supervisors of the public highways,
in the townships through which the road may pass,
"were authorized to subscribe in the name and behalf and for the
use of its inhabitants any number of shares, not exceeding three
thousand six hundred, in the capital stock of the turnpike
road."
The decision in not put upon the locality of the route of the
road, though in fact it was located and passed through the Township
of Franklin, but upon the constitutional power of the legislature
to pass both acts just mentioned, and that in doing so it did not
differ in principle from the power given to tax for the purpose of
repairing roads and bridges, and for such other purposes as may be
authorized by law.
Before leaving this case, we recommend it as a whole, and
particularly the decision of Mr. Justice Bell, to the perusal of
such of the profession who may be engaged in a case of
quo
warranto in the State of Pennsylvania.
The other case cited of
McDermond v. Kennedy,
Brightley's Reports 332, which was taken to the supreme court and
affirmed, is that a municipal corporation, under a power to make
such bylaws as shall be necessary to "promote the peace, good
order, benefit, and advantage of the borough," and to assess such
taxes as may be necessary for carrying the same into effect,
is
not authorized to levy a tax for the payment of a part of the
expense to be incurred by a railroad company in
Page 66 U. S. 409
bringing the line of their road nearer to the town than it had
been originally located. Judge Reed places his conclusion
exclusively upon the disability of a borough corporation to
exercise rights on private property except for corporate purposes,
and he says it can no more raise a tax and grant the avails of it
to a railroad because it is believed to be advantageous to the
borough than they could do anything else, for there is no relation
or connection between the railroad and the borough. Neither of the
cases cited has any application to sustain the position taken --
that the legislature meant, by omitting the names of the counties
in the act of the 9th February, 1853, that it had not the power to
authorize them to subscribe to the capital stock of a railroad
which was not to be run within its territory.
Nor do these cases countenance the idea that the power given to
the county to subscribe was not exercisable
in praesenti,
but was in abeyance until the passing of the railroad through it.
It is true, when a charter is given for franchises or property to a
corporation which is to be brought into existence by some future
acts of the corporators, that such franchises or property are in
abeyance until such acts shall have been done, and then they
instantaneously attach. But not to distinguish the acts enjoined or
permitted, to give to the corporation its intended purpose and
object, is to confound the franchises with such acts, and would
nullify the means by which the franchises are to be produced.
A franchise is a privilege conferred in the United States by the
immediate or antecedent legislation of an act of incorporation,
with conditions expressed or necessarily inferential from its
language as to the manner of its exercise and for its enjoyment. To
ascertain how it is to be brought into existence, the whole charter
must be consulted and compared. If that depends upon cooperating
subscriptions of money, to be borrowed upon securities of
indebtedness bearing interest, payable yearly or at times within
the year until the security is finally payable, it must be intended
that all the parties to whom has been given a right to subscribe
may use it to aid the beginning and the completion of the object;
in other
Page 66 U. S. 410
words, when there is no express limitation as to the time of
making the subscription, that it was optional with those who could
do so to make it, when most convenient or advantageous to
themselves. In this instance, we find that certain persons were
named in the first section of the act as commissioners to receive
subscriptions and to organize the company, and that the counties,
through parts of which the railroad may pass, were permitted to
make their subscriptions with those commissioners, and that they
could receive them. Then, it was intended that the subscription
should precede the organization, and no one who reads the whole act
will doubt that the latter depended upon the subscription of the
larger, if not the whole number of the twenty thousand shares of
which the capital stock was to consist.
The road was to be built with money to be borrowed on the bonds
of the company, and upon the bonds of such of the counties meant in
the act which might choose to subscribe. Until the subscription
received had indicated the responsibility of the parties to be
equivalent to the contemplated cost of the road, or that it would
become so, there was neither an inducement to organize the company
nor security for capitalists to lend upon.
We conclude that there is no weight in the suggestion of its
having been meant by the legislature that the road was to be
carried within a county before it could subscribe. The subscription
depended upon the presentment of the grand jury, and the agreement
of the commissioners to take for the county four thousand shares of
the company's capital stock. And it was agreed that the
subscription was to be paid for in bonds of the county of not less
than a thousand dollars, payable in twenty years after date or at
such other time as the company and the county might agree upon. The
company having agreed to pay the interest until such time as the
Northwestern Railroad should be completed, the county bonds were
made and paid to the company accordingly, and we have no doubt of
the obligation of the county to pay them.
But it is now said that such of the county bonds as were sold by
the president and directors of the railroad at a discount
Page 66 U. S. 411
are "avoidable" in the hands of the purchasers of them because
the act for making and paying them to the company declares that the
company shall not sell them "at less than their par value." Such
are the words of the statute, and it was proved and conceded by the
plaintiff that they were sold at a discount of twenty-five
percent
The words of the seventh section are that whenever bonds of the
respective counties are given in payment of subscriptions, the same
shall not be sold by said railroad company at less than par
value.
Those words have a meaning, but not such as it was assumed to be
when the court was asked to instruct the jury upon the fourth
prayer. A comparison of the seventh section, in which they are,
with the fifth and sixth sections of the act will show that they
were meant to secure to the counties the par value of their
installments, as those were to be paid in bonds, from any reduction
by the sale of them at a discount, to the loss of the county, after
the railroad company had received them in payment. The words are
whenever bonds of the respective counties are given in payment, the
same shall not be sold by the railroad company at less than par
value &c., and such bonds shall not be subject to taxation
until the clear profits of the railroad shall amount to six percent
upon the cost of it. Such was the understanding of the
commissioners and the railroad company when they entered into their
agreement for the subscription. The agreement itself, the
stipulation that the subscription was to be paid by bonds, the
undertaking of the company that it would relieve the county from
the payment of interest of its bonds, and that the interest should
be on their par value until the entire railroad was completed --
and every section of the act shows it to have been the intention of
the legislature to have the railroad constructed by money to be
borrowed upon bonds, payable at a distant date -- indicate the
correctness of our interpretation of the limitation upon the sale
of the county bonds at less than par. And the conclusion is
strengthened by consulting the sixth section of the act, giving to
the company the right to pay an interest of six
Page 66 U. S. 412
percent per annum to the stockholders, on installments for
subscription paid by them, until the railroad should be finished,
and requiring, when that happened, that all interest which had been
paid in the meantime should be credited to the cost of the
construction of the road -- in that, placing all of the
stockholders upon an equality as to the cost of the road, and
securing to them the number of shares for which they had
subscribed, and for which they had paid by installments. Without
such an arrangement, that equality could not have been produced,
and this result in respect to the subscription of the counties paid
by bonds would have followed. If the railroad could have sold the
bonds at less than par after they had been received in payment, and
charged the discount to the counties, in that case the latter could
not have received the number of shares for which they had
subscribed, by permitting a part of the sum, for which they were
authorized to tax the counties, for the ultimate payment of the
bonds, to be diverted to a purpose neither contemplated nor allowed
by the act, and, in respect to the County of Lawrence, its
subscription would have been reduced to fifty thousand dollars less
than the amount of the bonds which it had issued and paid to the
railroad, supposing the whole to have been sold at 25 percent less
than their par value, in that way reducing its dividend -- three
thousand dollars per annum -- when the clear income of the company,
after it had been finished, should become 6 percent per annum upon
the cost of the road.
We are confirmed in the opinion that the limitation upon the
company that it should not sell the bonds of the counties at less
than par after it had taken them in payment of the subscription had
no other meaning than this, that they should not so sell them at
the expense of the counties -- causing any loss to them less than
their par value, as they were payable to the company at par in
twenty years, with an annual interest of six percent
It has also been insisted that the County of Lawrence could not
subscribe before the Northwestern Railroad Company had been
organized or before its line had been indicated by a survey
Page 66 U. S. 413
on the ground and a part of it had been fixed for construction
within the county; and it is said that no part of it had been built
in it.
Having already shown that the right to subscribe was given to
enable the company to organize, and that organization was essential
before the route of the road could be determined, and that there
was no direction in the act when that was to be done, and that a
wide discretion had been given as to the point of its beginning,
and how it should be continued in the counties, and where it should
terminate on the Pennsylvania and Ohio state line, we must declare
that the objection has neither pertinency nor force against the
subscription made by the County of Lawrence. Another objection is
that the right to subscribe depended upon a part of the road having
been built within the county.
We deem it only necessary to repeat what has just been said,
that the act indicates no point at which the line of the road
should be begun. That, taken in connection with the fourth section
of the act, it could not have been the intention to require a part
of the railroad to be built in each county before it should
subscribe, its language being that its franchises should be used
and enjoyed when five miles of the railroad had been finished, as
fully as if the whole road had been completed.
We therefore answer that there was authority in the County of
Lawrence constitutionally, and by the proper construction of the
Act of the 9th February, 1853, to subscribe to the stock of the
Northwestern Railroad Company as the subscription was made, and
that the bonds issued by the county and given in payment of its
subscription to the railroad company are valid and binding upon the
county to pay and redeem them according to their tenor.
We answer to the second prayer, that there was no deficiency in
the action of the grand jury in making its presentment, or in
setting forth the terms in which the subscription should be
made.
We answer to the third prayer that the County of Lawrence was
authorized to issue such bonds as they did issue, and pass
Page 66 U. S. 414
to the railroad company in payment of its subscription to the
Northwestern Railroad Company.
To the fourth prayer we answer, that the sale of the county
bonds by the railroad company at less than par does not avoid them
in the hands of the purchaser.
