1. On the 3d of March, 1857, 11 Stat. 195, Congress passed an
act granting certain lands to the Territory of Minnesota for the
purpose of aiding in the construction of several lines of railroad
between different points in the territory. The act declared that
the lands should be exclusively applied to the construction of that
road on account of which they were granted and to no other purpose
whatever, and that they should be disposed of by the territory or
future state only as the work progressed, and only in the manner
following -- that is to say, a quantity of land, not exceeding one
hundred and twenty sections for each of the roads and included
within a continuous length of twenty miles of the road, might be
sold, and when the governor of the territory or the future state
should certify to the Secretary of the Interior that any continuous
twenty miles of any of the roads were completed, then another like
quantity of the land granted might be sold, and so, from time to
time, until the roads were completed.
Held that the
Page 92 U. S. 50
construction of portions of the road on account of which lands
were granted, as thus designated, was a condition precedent to a
conveyance by the territory or future state of any of the lands
beyond the first one hundred and twenty sections. Accordingly, an
act of the territory, transferring to a railroad company these
lands in advance of any work on its road, only conveyed title to
the first one hundred and twenty sections.
2. Where a grant of land and connected franchises is made to a
corporation for the construction of a railroad by a statute, which
provides for their forfeiture upon failure to perform the work
within a prescribed time, the forfeiture may be declared by
legislative act without judicial proceedings to ascertain and
determine the failure of the grantee. Any public assertion by
legislative act of the ownership of the state after the default of
the grantee -- such as an act resuming control of the road and
franchises, and appropriating them to particular uses, or granting
them to another corporation to perform the work -- is equally
effective and operative.
On the 3d of March, 1857, 11 Stat. 195, Congress passed an act
granting certain lands to the Territory of Minnesota, for the
purpose of aiding in the construction of several lines of railroad
between different points in the territory. These lands were to
consist of the alternate sections, designated by odd numbers, for
six sections in width, on each side of the several lines of road,
and were to be selected within fifteen miles therefrom. The act
declared that the lands should be exclusively applied to the
construction of that road on account of which they were granted,
and to no other purpose whatever; and that they should be disposed
of by the territory or future state only as the work progressed,
and only in the manner following -- that is to say, a quantity of
land, not exceeding one hundred and twenty sections for each of the
roads, and included within a continuous length of twenty miles of
the road, might be sold; and when the governor of the territory or
the future state should certify to the Secretary of the Interior
that any continuous twenty miles of any of the roads were
completed, then another like quantity of the land granted might be
sold; and so, from time to time, until the roads were completed,
and that if any of the roads were not completed within ten years,
no further sales should be made, and the lands unsold should revert
to the United States.
On the 19th of May of the same year, the territory accepted the
grant thus made upon the terms, conditions, and restrictions
Page 92 U. S. 51
contained in the act of Congress, and, on the 22d of the month,
passed an act for the execution of the trust. By that act, it
authorized four different companies to construct the roads in aid
of which the congressional grant was made, each company a distinct
road. Three of these companies were at the time in existence -- one
of them, the Minnesota & Pacific Railroad Company, was created
by the act. This latter company was authorized to construct the
road from Stillwater, by way of St. Paul and St. Anthony, to the
town of Breckenridge, on the Sioux Wood River, with a branch from
St. Anthony to St. Vincent, near the mouth of the Pembina River,
and, for the purpose of aiding in its construction, the act granted
to the company the interest and estate present and prospective of
the territory and of the future state in the lands granted by
Congress along the line of the road, subject, however, to the
proviso that the title of the lands should vest in the company as
follows: of the first one hundred and twenty sections, whenever
twenty or more continuous miles of the road should be located and
the governor should certify the same to the Secretary of the
Interior, and afterwards of a like number of sections, whenever and
as often as twenty continuous miles of the road should be completed
so as to admit of running regular trains and the governor should
certify the fact to the Secretary.
By the same act, the company was authorized to borrow money and
to execute its bonds and mortgages and other obligations for the
same, or for any liabilities incurred in the construction, repair,
equipment, or operating of the line upon any part of its railroad
or branches and upon the estate granted by the act and upon any or
all of its other property.
The company organized under the act and accepted the grant made
by its provisions upon the terms and conditions mentioned and,
during the year, had the greater part of the line of its road
surveyed and located and maps of the same filed with the governor
of the territory and the commissioner of the General Land Office at
Washington. The location was approved by the Secretary of the
Interior and, by his directions, the lands granted along the line
were withdrawn from sale and settlement. A contract, as alleged,
was also made with a responsible party for the construction of the
main line
Page 92 U. S. 52
of the road; but work under it was only prosecuted for a month,
when it was abandoned. No portion of the road was completed, and
the failure of the company in this respect was ascribed to the
general embarrassed financial condition of the country, in
consequence of which it was unable to raise the necessary funds to
proceed with the work
The Territory of Minnesota became a state in October, 1857,
though not admitted into the Union until May, 1858. Its
constitution prohibited the loan of the state credit in aid of any
corporation, but the first legislature assembled under it, being
desirous of expediting the construction of the lines of the road in
aid of which the congressional grant was made, proposed, in March,
1858, an amendment to the constitution removing this prohibition so
far as the four companies named in the Act of May 22, 1857, were
concerned. The amendment was submitted to the people and, on the
15th of April of the same year, was adopted. This amendment
provided that the governor should cause to be issued and delivered
to each of the four companies special bonds of the state to the
amount of $1,250,000, in installments of $100,000 as often as any
ten miles of its road was ready for placing the superstructure
thereon, and an additional installment of the same amount as often
as that number of miles of the road was fully completed and the
cars were running thereon, until the whole amount authorized was
issued. The bonds were to be denominated Minnesota State Railroad
Bonds; were to draw interest at the rate of seven percent per
annum, payable semiannually in the City of New York; were to be
transferable by endorsement of the president of the company and
redeemable at any time after ten and before the expiration of
twenty-five years from their date, and for the payment of the
interest and the redemption of the principal the faith and credit
of the state were pledged. The amendment at the same time with this
pledge declared that each company should make provision for the
redemption of the bonds received by it and payment of the interest
accruing thereon, so as to exonerate the treasury of the state from
any advances of money for that purpose, and, as security therefor,
required the governor, before any bonds were issued, to take from
each company an instrument pledging the net profits of
Page 92 U. S. 53
its road for the payment of the interest and a conveyance to the
state of the first two hundred and forty sections of land, free
from prior encumbrances, which the company was or might be
authorized to sell to protect the treasurer against loss on the
bonds, and also required as further security that an amount of
first mortgage bonds on the roads, lands, and franchises of the
company corresponding in amount to the state bonds issued to it,
should be transferred to the treasurer of the state with the issue
of the state bonds. The amendment declared that in case either
company made default in the payment of the interest or principal of
the bonds issued to it, no more state bonds should be thereafter
issued to that company, and that the governor should proceed to
sell, in such manner as might be prescribed by law, its bonds or
the lands held in trust, or require a foreclosure of the mortgage
executed to secure the bonds. The amendment further provided that
in consideration of the loan, each company which accepted the bonds
should, as a condition thereof, complete not less than fifty miles
of its road on or before the expiration of the year 1861, and not
less than one hundred miles before the year 1864, and four-fifths
of the entire length of its road before the year 1866, and that any
failure on the part of the company to complete the number of miles
of its road in the manner and within the several times thus
prescribed should forfeit to the state all the rights, title, and
interest of any kind whatsoever in and to any lands granted by the
act of May 22, 1857, together with the franchises connected with
the same, not pertaining or applicable to the portion of the road
by it constructed, and a fee simple to which had not accrued to the
company by reason of such construction.
The Minnesota & Pacific Railroad Company, after the
proclamation of the governor of its adoption, accepted the
amendment, and gave notice to the governor of its acceptance, and
that it proposed to avail itself of the loan which the amendment
provided.
On the 31st of July, 1858, the company executed to certain
trustees named therein a deed of all that portion of its lines of
road in aid of which the lands had been granted, and of the lands
and alienable franchises connected therewith, in
Page 92 U. S. 54
trust for the holders present and prospective of twenty-three
millions of bonds to be issued under certain restrictions. Nine
hundred of these bonds were subsequently issued as therein
provided, and some of them were put in circulation. The present
suit is brought by the surviving trustees to obtain a decree that
this deed is a valid and subsisting lien prior to all other liens
and encumbrances upon all the lands, property, and franchises
described therein, and to enforce the same.
Subsequently during that year, the company graded thirty miles
of its road, and made it ready for the superstructure, and
thereupon executed the pledge of net profits, and the conveyance of
two hundred and forty sections as provided by the constitutional
amendment. But in place of first mortgage bonds secured by a
separate deed of trust, the company offered $300,000 of its bonds
secured by the trust deed mentioned of July 31, 1858, and applied
for state bonds of an equal amount. The governor refused to issue
the state bonds until a deed of trust was executed specifying a
priority of lien of the bonds which the company might deliver to
the state. This refusal led to a great deal of controversy and some
litigation with the governor, but ultimately, on the 27th of
November, 1858, a supplemental deed of trust was executed by the
company, authorizing and directing, in case of default in the
payment of the interest or principal of its bonds delivered to the
state, a foreclosure and sale by the trustees upon the demand of
the governor, and, in case of their failure or refusal upon his
demand, authorizing the governor to make such foreclosure and sale.
The governor then issued to the company bonds of the state to the
amount of $300,000. Subsequently, during that and the following
year (1859), thirty-two and one-half miles more of the road were
graded and ready for its superstructure, and $300,000 more of bonds
of the state were issued to the company and a corresponding amount
of the first mortgage bonds of the company were delivered to the
treasurer. The interest on the state bonds was payable on the first
days of June and December, and the interest on the company's bonds
was payable on the first days of February and August, of each
year.
The company made default in the payment of interest on
Page 92 U. S. 55
the state bonds delivered to it, falling due in December, 1859,
and the governor demanded of the trustees, in the deed of July 31,
1858, that they should proceed to foreclose the same, and sell the
trust property. With this demand the trustees never complied.
The company also made default in the payment of interest upon
its own bonds delivered to the state, due on the 1st of February,
1860. The legislature accordingly, in March following, passed an
act making it the duty of the governor to foreclose the deed of
trust if in his opinion the public interest required it and, upon a
sale of the property, rights, and franchises covered by the deed,
to bid in the same for the state.
The legislature at about the same time proposed an amendment of
the constitution of the state prohibiting any law, which levied a
tax or made other provisions for the payment of interest or
principal of the state bonds issued to the company, from taking
effect until the same had been submitted to a vote of the people
and been adopted, and also prohibiting any further issue of bonds
to the company under the amendment of April 15, 1858, and
abrogating that amendment with a reservation to the state of all
rights, remedies, and forfeitures accruing thereunder. This
amendment was adopted in November, 1860. Whilst it was pending
before the people, the governor proceeded under the act of the
legislature, and had the property covered by the trust deed of the
company, with the connected franchises, advertised and sold, the
same being purchased on behalf of the state. The sale took place on
the 23d of June, 1860.
In March, 1861, the legislature passed an act by which the road,
lands, rights, and franchises possessed by the company previous to
the sale, and all bonds and securities of the company held by the
state, were upon certain conditions "released, discharged, and
restored" to the company, free from all liens or claims of the
state. These conditions required the construction and equipment of
certain portions of the road within designated periods. One of the
conditions provided that the company should construct and put in
operation, and fully equip for business that portion of the main
line extending from St. Paul to St. Anthony on or before the first
day of the following January, in default of which all the
rights
Page 92 U. S. 56
and benefits conferred upon the company by virtue of the act
should be "forfeited to the state absolutely, and without further
act or ceremony whatever," and, in case the company should fail to
construct the other and further portions of the road and branches
within the time or times designated, it should forfeit to the state
in like manner all the lands, property, and franchises pertaining
to the unbuilt portions of the road and branch, and in either case
or in any forfeiture under the provisions of the act, the state
should hold and be possessed of all the lands, property, and
franchises forfeited "without merger or extinguishment, to be used,
granted, or disposed of, for the purpose of aiding and facilitating
the construction of said road and branch."
This act the company accepted with all its conditions, but it
never completed the portion of the road there designated to be put
into operation before the first of the following January or any
portion of its road as there provided or as provided in the
constitutional amendment of 1858, and on the 10th of March, 1862,
the legislature, acting upon the forfeiture accruing or supposed to
be accruing from the failure of the company in this respect, passed
an act creating the St. Paul & Pacific Railroad Company and
granted to it all the rights, benefits, privileges, property,
franchises, and interests of the Minnesota & Pacific Railroad
Company acquired by the state by virtue of any act or agreement of
the company or anything done or suffered by it or by virtue of any
law of the state or territory or of the constitution of the state
or from the sale made by the governor, and also all the rights,
privileges, franchises, lands, and property granted to the company
by the Act of May 22, 1857. The new company and a division company
subsequently created out of it have since constructed the main line
of the road and a portion of the branches, and, to enable them to
do so, have made various deeds of trust and mortgages upon the
assumption that the rights of the old Minnesota & Pacific
Railroad Company had ceased. These deeds of trust and mortgages
amount to many millions of dollars, and are outstanding. These
companies and the holders of their bonds, of course, resist the
enforcement of the deed of trust in suit. The questions for
determination relate first to the validity of this
Page 92 U. S. 57
deed at the time it was executed, or rather to the right of the
company to include therein and bind all the lands granted by the
act of the territory of May 22, 1857, and, second, to the effect of
the Act of March 10, 1862, upon the title of the property and
connected franchises embraced in the deed of trust.
Page 92 U. S. 64
MR. JUSTICE FIELD, after making the foregoing statement of the
case, delivered the opinion of the Court.
Page 92 U. S. 65
The act of Congress granting lands to the Territory of Minnesota
imposed conditions upon their alienation, except as to the first
one hundred and twenty sections, which the territory could not
disregard. It declared that the lands should be exclusively applied
to the construction of the road in aid of which they were granted
and to no other purpose whatever, and should be disposed of only as
the work progressed. It provided that their sale should be made in
parcels as specified portions of the road were completed, and only
in that manner. The evident intention of Congress was to secure the
proceeds of the lands for the work designed, and to prevent any
alienation in advance of the construction of the road, with the
exception of the first one hundred and twenty sections. The act
made the construction of portions of the road a condition precedent
to a conveyance of any other parcel by the state. No conveyance in
disregard of this condition could pass any title to the company. It
was so held by this Court in
Schulenberg v.
Harriman, 21 Wall. 44, where we had occasion to
consider provisions of a statute identical in terms with the one
before us.
The Act of May 22, 1857, passed in advance of any work on the
road, conveyed, therefore, no title to the Minnesota & Pacific
Railroad Company in the lands granted by Congress beyond the first
one hundred and twenty sections. Of course, the mortgage, or deed
of trust, subsequently executed by that company, so far as it
covered such lands, was inoperative for any purpose.
Whatever interest passed to the company in the one hundred and
twenty sections was subject to forfeiture under the constitutional
amendment of April 15, 1857. That amendment, which the company
voluntarily accepted, provided, as already stated, that upon
failure to complete certain portions of the work within prescribed
periods it should forfeit these lands, and all other lands held by
it, with the connected franchises, except such lands as were
acquired by construction of portions of the road. The parcels thus
earned were excepted from forfeiture. It was certainly competent
for the company to subject its property, rights, and franchises
conferred or attempted to be conferred by the Act of May 22, 1857,
or derived from any other source, to this liability. Its assent in
this respect was one of
Page 92 U. S. 66
the conditions upon which it received the loan of the state
credit provided by the constitutional amendment. When the assent
was given, the relation of the state to the land and connected
franchises was precisely as though the condition had been
originally incorporated into the grant. The mortgage or deed of
trust not having been executed until after the amendment was
accepted, and the holding of the lands of the company, with its
rights, privileges, and franchises, having been thus made dependent
upon the completion of the road within the periods prescribed, the
beneficiaries under that instrument took whatever security it
afforded in subordination to the rights of the state to enforce the
forfeiture provided. That forfeiture was enforced by the Act of the
legislature of March 10, 1862; unless we are to presume that at the
sale made in 1860 by the governor, under the act of March of that
year and the supplemental deed of trust, the entire interest and
right of the company were acquired by the state. It is averred in
the bill of complaint that this sale was void and that it was so
adjudged by a district court of the state. If this adjudication was
valid and the sale was void, the forfeiture provided by the
constitutional amendment was enforced by the act mentioned. A
forfeiture by the state of an interest in lands and connected
franchises, granted for the construction of a public work, may be
declared for noncompliance with the conditions annexed to their
grant, or to their possession, when the forfeiture is provided by
statute, without judicial proceedings to ascertain and determine
the failure of the grantee to perform the conditions. Such mode of
ascertainment and determination -- that is, by judicial proceedings
-- is attended with many conveniences and advantages over any other
mode, as it establishes as matter of record, importing verity
against the grantee, the facts upon which the forfeiture depends,
and thus avoids uncertainty in titles, and consequent litigation.
But that mode is not essential to the divestiture of the interest
where the grant is for the accomplishment of an object in which the
public is concerned, and is made by a law which expressly provides
for the forfeiture when that object is not accomplished. Where land
and franchises are thus held, any public assertion by legislative
act of the ownership of the state, after default of the grantee
--
Page 92 U. S. 67
such as an act resuming control of them and appropriating them
to particular uses, or granting them to others to carry out the
original object -- will be equally effectual and operative. It was
do decided in
United States v.
Repentigny, 5 Wall. 211, and in
Schulenberg
v. Harriman, 21 Wall. 44, with respect to real
property held upon conditions subsequent. In the former case, the
Court said that
"A legislative act directing the possession and appropriation of
the land is equivalent to office found. The mode of asserting or of
resuming the forfeited grant is subject to the legislative
authority of the government. It may be after judicial
investigation, or by taking possession directly under the authority
of the government without these preliminary proceedings."
And there would seem to be no valid reason why the same rule
should not apply to franchises held in connection with real
property and subject to like conditions, where the franchises were
created for the purpose of carrying out the public object for which
the real property was granted.
In this case, there were special reasons for the provision for a
forfeiture and for its immediate enforcement by the state in case
of the grantee's failure to construct designated portions of the
road within the time prescribed. The act of Congress provided that
in case the road was not completed within ten years, the lands of
the grant then remaining unsold should revert to the United States.
It was therefore necessary for the state to see that the
construction of the road was commenced and pushed forward without
unnecessary delay, to prevent a possible loss of portions of the
grant. By the clause of forfeiture, the state was enabled to retain
such a control over the lands and connected franchises that, in
case the company failed to build the road in time, it could make
arrangements with other companies or parties for that purpose. This
control would have been defeated if the state had been subjected to
the delay of judicial proceedings before a forfeiture could have
been enforced. The entire grant would have been lost to the state
whilst such proceedings were pending. A more summary mode of
divestiture was therefore essential, and was contemplated by the
parties.
The only inconvenience resulting from any mode other than by
judicial proceedings is that the forfeiture is thus left open
Page 92 U. S. 68
to legal contestation when the property is claimed under it, as
in this case, against the original holders.
But it is said that provisions for forfeiture are regarded with
disfavor and construed with strictness, and that courts of equity
will lean against their enforcement. This, as a general rule, is
true when applied to cases of contract and the forfeiture relates
to a matter admitting of compensation or restoration, but there can
be no leaning of the court against a forfeiture which is intended
to secure the construction of a work in which the public is
interested where compensation cannot be made for the default of the
party, nor where the forfeiture is imposed by positive law. "Where
any penalty or forfeiture," says Mr. Justice Story,
"is imposed by statute upon the doing or omission of a certain
act, there courts of equity will not interfere to mitigate the
penalty or forfeiture, if incurred, for it would be in
contravention of the direct expression of the legislative
will."
Story's Eq.Jur., sec. 1326. The same doctrine is asserted in the
case of
Peachy v. Duke of Somerset, reported in 1st
Strange, and in that of
Keating v. Sparrow, reported in
1st Ball & Beatty. In the first case, Lord Macclesfield said
that
"Cases of agreement and conditions of the party and of the laws
are certainly to be distinguished. You can never say that the law
has determined hardly; but you may that the party has made a hard
bargain."
In the second case, Lord Manners, referring to this language and
taking the principle from it, said that
"It is manifest that in cases of mere contract between parties,
this court will relieve when compensation can be given, but against
the provisions of a statute, no relief can be given."
For these reasons, the forfeiture in this case declared by the
legislature cannot be interfered with by the court. But, as stated
by counsel, the forfeiture will also be upheld on considerations of
public policy, as well as from the impossibility of obtaining
compensation from the railroad company for its default, on the same
principle upon which courts of equity refuse to relieve against
forfeitures incurred under the bylaws of corporations for the
nonpayment of stock subscriptions. To this subject Mr. Justice
Story refers in his Commentaries, and after stating the general
doctrine, that courts of equity will not
Page 92 U. S. 69
interfere in cases of forfeiture for the breach of covenants and
conditions where there cannot be any just compensation for the
breach, says:
"It is upon grounds somewhat similar, aided also by
considerations of public policy and the necessity of a prompt
performance in order to accomplish public or corporate objects,
that courts of equity, in case of the noncompliance by stockholders
with the terms of payment of their installments of stock at the
times prescribed, by which a forfeiture of their shares is incurred
under the bylaws of the institution, have refused to interfere by
granting relief against such forfeiture. The same rule is for the
same reasons applied to cases of subscriptions to government loans,
where the shares of the stock are agreed to be forfeited by the
want of a punctual compliance with the terms of the loan as to the
time and mode and place of payment."
The case of
Sparks v. Liverpool Waterworks Company,
cited by counsel, is a strong illustration of this doctrine. 13
Ves. 428. The company there was incorporated to supply the town and
port of Liverpool with water, and the property in and the profits
of the undertaking were vested in the company in such shares and
subject to such conditions as should be agreed upon. By articles of
agreement, a committee of the company was authorized to call upon
the shareholders for the several sums payable by them on their
respective shares, and it was, among other things, provided that in
case any shareholder made default in the payment of his calls for
twenty-one days after the time appointed and for ten days after
subsequent notice addressed to his then or last usual place of
abode, his share or shares should be absolutely forfeited for the
benefit of the other members of the corporation. The plaintiff was
the owner of certain shares of stock in the company upon which
payment had been made upon thirty-four calls. The payment of the
thirty-fifth call was omitted through his failure to receive
personal notice of the call, it having been sent to his town
residence whilst he was absent in the country, and not having been
forwarded to him. For the nonpayment upon the call, his shares were
declared forfeited. Immediately upon receiving information of the
call on his return to the city, he gave directions for its payment,
and on the following day
Page 92 U. S. 70
the amount was sent to the bankers of the company. The committee
of the company, however, informed him that they could give him no
relief, as they had acted according to the laws of the company,
from which no deviation could be made. The plaintiff thereupon
filed a bill for relief against the forfeiture on the grounds of
accident and that compensation might be made, and no injury be
sustained by the company, his counsel also insisting upon the
invalidity of the bylaw, as unreasonable, exorbitant, and
uncertain, but the court dismissed the bill for the reason that the
enterprise was a public undertaking, requiring for its successful
prosecution punctuality of payment from the shareholders.
Considerations of public policy forbade the granting of relief,
for, as the court observed, "if this species of equity is open to
the parties engaged in these undertakings, they could not be
carried on."
The Act of March 10, 1862, is a clear assertion of forfeiture of
the estate, rights, privileges, and franchises of the Minnesota
& Pacific Railroad Company. It grants all of them in express
terms to the new company, and makes them in its possession subject
to be forfeited to the state if the conditions annexed are not
performed. And the failure of the original company to complete any
portion of the road, as provided in the amendment of 1858, is not
questioned by the complainants. Their position is that the state
had previously lost the right to a forfeiture by her own breaches
of the amendment; that forfeiture could not be effected without
judicial process and judgment; and that the forfeiture, if any
accrued, was waived by the Act of March 8, 1861, and its acceptance
by the company.
The alleged breaches of the amendment by the state, at least
such as are entitled to notice, consist in the refusal of the
governor to receive the bonds of the company secured by the trust
deed of July 31, 1858, as the first mortgage bonds required to be
delivered to the treasurer in exchange for the state bonds, the
exaction of the supplemental trust deed, and the adoption of the
constitutional amendment of November, 1860, abrogating the
amendment of 1858 and prohibiting any law which levied a tax or
made other provisions for the payment of the bonds of the state
from taking effect until submitted to a vote of the people and
adopted.
Page 92 U. S. 71
The amendment of 1858 evidently contemplated that the first
mortgage bonds of the company delivered to the treasurer in
exchange for state bonds should be secured by a separate deed of
trust, or at least by a deed which could be enforced by the
governor, and not by a deed executed to parties over whom he could
exercise no control. Whether the supplemental deed of trust was a
sufficient compliance with the provision of the amendment, and
whether it could create a priority of lien in favor of the bonds
transferred to the state over bonds previously issued by the
company to other creditors, it is unnecessary to determine. If
defective or inoperative in either of these particulars, the
objection cannot be raised by the company. Besides, if it could be
considered as a matter of serious doubt whether the state was
entitled to require a separate instrument of the character
executed, its voluntary execution and acceptance by the governor
and the subsequent exchange of bonds would seem to be a settlement
of the question.
The adoption of the constitutional amendment of November, 1860,
certainly had the effect to impair the value of the bonds of the
state. But it is the holders of those bonds who had a right to
complain of this proceeding, not the company or the trustees under
the deed in suit. The holders of those bonds looked, in the first
instance, to the state for their payment; the state was primarily
liable to them, and they were therefore injuriously affected by the
amendment. Whether the company was liable at all to the bondholders
on the bonds from the endorsement of its president it is
unnecessary to determine, but assuming such liability, then as
between the company and the state, the company was the principal
debtor, and the state only a surety, and with that relation
existing, the company could not complain that the state, its
surety, did not pay the bonds, interest or principal. And the
trustees could not complain, for no right or contract between them
and the company, or between them and the state, was impaired by the
proceeding.
The amendment of 1858 prohibited any further issue of state
bonds, whenever the company made default in meeting the interest on
those issued. The withholding, therefore, of any further bonds
after such default violated no contract of the state with the
company, nor did it impair the right of the
Page 92 U. S. 72
state to enforce a forfeiture of its grant if the stipulated
conditions as to the completion of the road were not complied with.
After such default (no redemption from it having been made), all
obligation of the state to the company ceased; its obligation
remained only to its bondholders. That obligation still remains,
and will remain until the pledge of its faith for the payment of
the bonds is redeemed.
As to the alleged waiver of the forfeiture by the act of March
8, 1861, and its acceptance by the company, only a word need be
said. The waiver, if the provisions of the act can be construed as
such, was only conditional, and the condition was not complied
with. There had previously been, as already stated, a foreclosure
and sale of the property, rights, and franchises of the company
under its supplemental deed of trust, pursuant to the act of the
legislature of the previous year, and, at the sale, the state had
become the purchaser. The act of March 8, 1861, released and
restored to the company the road, lands, rights, and franchises
which it had possessed previous to the sale, and all bonds and
securities of the company held by the state, free from all liens or
claims thereon. The release and restoration were upon express
conditions, one of which was that the company would construct and
put into operation before the following January a designated
portion of its road, and the act declared that upon the default of
the company in this respect, all the rights and benefits conferred
by virtue of the act should be "forfeited to the state absolutely,
and without any further act or ceremony whatever," to be held by
the state "without merger of extinguishment, to be used, granted,
or disposed of, for the purpose of aiding and facilitating the
construction of said road and branch." The designated portion of
the road was not constructed within the prescribed period, and
never has been constructed, and it was with reference to the
forfeiture provided for its default in this respect, as well as the
forfeiture provided by the amendment of 1858, that the act of March
10, 1862, was passed. That act operated to divest the company of
all interest in the one hundred and twenty sections of land and
connected franchises transferred to it by the territory in 1857, or
subsequently acquired.
It follows from these views that the court below properly
sustained the demurrer to the bill.
Decree affirmed.
