1. So far as it establishes in the Treasury of the United States
a sinking fund, the Act of Congress approved May 7, 1878, 20 Stat.
56, entitled
"An Act to alter and amend the act entitled 'An Act to aid in
the construction of a railroad and telegraph line from the Missouri
River to the Pacific Ocean, and to secure to the government the use
of the same for postal, military, and other purposes,' approved
July 1, 1862, and also to alter and amend the act of Congress
approved July 2, 1864, in amendment of said first-named act,"
is not unconstitutional.
2. The debt of the respective companies therein named to the
United States is not paid by depositing and investing the fund in
the manner prescribed by that act,
3. Retaining in the fund the one-half of the earnings for
services rendered to the government by the respective companies,
which, by the Act of July 2, 1864, 13 Stat. 356, was to be paid,
does not release the government from such payment. Although kept in
the Treasury, the fund is owned by them, and they will be entitled
to the securities whereof it consists which remain undisposed of
when the debts chargeable upon it shall be paid. Under the
circumstances, such retaining is, in law, a payment to them.
4. The establishment of the fund is a reasonable regulation of
the administration of the affairs of the companies, promotive alike
of the interests of the public and of the corporators, and is
warranted under the authority which Congress has, by way of
amendment, to change or modify the rights, privileges, and
immunities granted by it.
5. The right of amendment, alteration, or repeal reserved by
Congress in said acts of 1862 and 1864 considered.
6. The legislation of Congress in relation to the Central
Pacific Railroad Company and the Western Pacific Railroad Company
-- the latter now by consolidation a part of the former --
considered, and held,
1. That, to the extent of the powers, rights, privileges, and
immunities thereby granted, Congress retains the right of
amendment, and by exercising it may, in a manner not inconsistent
with the original charter granted by California, as modified by the
act of that state passed in 1864, accepting what had been done by
Congress, regulate the administration of the affairs of the company
in reference to the debts created by it under authority of such
legislation.
2. That the establishment of the sinking fund by the Act of May
7, 1878,
supra, does not conflict with anything in said
charter.
The Union Pacific Railroad Company filed its petition in the
Page 99 U. S. 701
Court of Claims against the United States. The court found the
following facts:
1. That during the month of July, 1878, the claimant, at the
request of the defendant, transported troops of the United States
over the claimant's road, as averred in the petition.
2. That the amount and value of said service so rendered by the
claimant for the defendant, as stated in proposition first, was and
is the sum of $10,451.73, the same being fair and reasonable
compensation for said service, and not exceeding the amounts paid
by private parties for the same kind of service.
3. That said amount was duly allowed and audited by the
accounting officers of the Treasury for the said service on the
eighth day of October, 1878.
4. That on the twenty-eighth day of October, 1878, the claimant
demanded of the defendant the one-half of the said sum, to-wit,
$5,225.68 1/2, and protested against the payment of said one-half
into any sinking fund, or its application to the payment of bonds
issued by the United States to said company, or to the interest
thereon, and against the retention of said one-half by the United
States on any account whatever.
5. That on the fourth day of November, 1878, the proper officers
of the Treasury Department of the United States issued a warrant,
No. 5950, for the said amount of $10,451.73 on account of the
transportation aforesaid.
6. That on the fifth day of November, 1878, the Secretary of the
Treasury refused to pay the said one-half to the claimant, giving
as his reason therefor that the same was required by an Act of
Congress approved May 7, 1878, hereinafter referred to, to be
turned into a sinking fund, as provided in said act.
7. That on Nov. 6, 1878, a draft to the order of the Secretary
of the Treasury, assignee of the Union Pacific Railroad Company for
$10,451.13, was issued. That the Secretary of the Treasury made the
following endorsement on the draft:
"Pay to the Treasurer of the United States, to be by him
deposited in the United States Treasury, in general account, on
account of moneys received from the Union Pacific Railroad Company,
being the compensation found due it for transportation
performed
Page 99 U. S. 702
for the War Department in July, 1878, and withheld in accordance
with the provisions of sec. 2, Act May 7, 1878, as follows:"
"One-half, $5,225.86, on account of reimbursement of interest
paid on bonds issued to the Union Pacific Railroad Company."
"Credit to be given under date of August ___, and one-half,
$5,225.87, on account sinking fund, Union Pacific Railroad Company,
to be carried to credit under sec. 4 of the above act."
"JOHN SHERMAN"
"
Secretary of the Treasury, Assee. Union Pacific
Railroad"
And the Assistant Treasurer of the United States endorsed the
same.
8. That the Assistant Treasurer of the United States issued a
certificate of deposit, showing that $10,451.73 on account of
moneys received from the Union Pacific Railroad Company, being
compensation found due it for transportation performed in July,
1878, and withheld, &c., have been deposited in the
Treasury.
9. That revenue covering warrants were issued showing the moneys
before mentioned have been covered into the Treasury, one-half,
viz. $5,225.86, on account of reimbursement of interest, and
one-half, viz. $5,225.87, on account of sinking fund.
10. That the Secretary of the Treasury directed the Treasurer of
the United States to purchase at the end of each month five percent
bonds of the United States, to the amount of the moneys withheld
from the Union and Central Pacific Railroad Companies since July 1,
1878, and apply the same to the credit of the company from which
the money may have been withheld, the bonds to be registered in the
name of the Treasurer of the United States. In a schedule annexed,
the sum of $5,225.87 appears as having been withheld on this
account.
11. That the Treasurer of the United States, in accordance with
the directions above recited, purchased bonds of the funded loan of
1881, for account of the sinking fund, Union Pacific Railroad
Company, to a large amount.
12. That an appropriation warrant was issued on account of
sinking fund, Union Pacific Railroad Company, for the amount
expended by the Treasurer of the United States in the purchase
Page 99 U. S. 703
of five percent bonds as before recited, and there was included
in the amount appropriated the sum of $5,225.87, which had been
deposited and covered into the Treasury, as shown in the other
findings.
13. That the claimant never assigned or in any way parted with
the claim sued for, but the issuing of said warrant mentioned in
finding No. 5, in favor of the Secretary of the Treasury as
assignee of the Union Pacific Railroad Company, and the issuing of
the draft on said warrant, as found in finding No. 7, payable to
the order of the Secretary of the Treasury as assignee of the Union
Pacific Railroad Company, was each of the act of the defendant,
done without the consent of the claimant, and the said warrant and
draft were issued in that form for the purpose of enabling the
proper officers of the Treasury Department to place the said money
in the Treasury, as found in the preceding findings.
14. That the said amount placed to the credit of the sinking
fund, to-wit, the sum of $5,225.87, as hereinbefore found, is the
one-half of the money earned by the claimant, as found in the above
findings, Nos. 1 and 2, and for which half this action is
prosecuted.
The court adjudged that the petition be dismissed, and the
company thereupon appealed.
Gallatin, a stockholder of the Central Pacific Railroad Company,
filed his bill against it and the persons constituting its board of
directors to compel them to comply with the requirements of the
said Act of May 7, 1878. He alleges that the board has threatened
to disregard them, and that, Aug. 27, 1878, it declared a dividend
of one percent upon the capital stock of the company payable out of
the earnings accumulated since June 30, 1878, although the company
was then in default in respect of the payment of five percent of
the net earnings as required by the said act; that one of the
consequences of its conduct, if persisted in, will be a forfeiture
of the company's property and franchises, to his irreparable
injury. He prays for an injunction to restrain the directors from
paying a dividend while the company is in default in respect to any
of the terms, requirements, or provisions of said act, and from
doing any other or further thing whatever in the premises in
Page 99 U. S. 704
contravention or disregard thereof, or that will jeopardize or
imperil or cause or tend to cause thereunder a forfeiture of any of
the rights, privileges, grants, or franchises derived or obtained
by said company from the United States.
The defendants filed a demurrer, which was overruled, and on
their declining to answer, the court passed a decree in conformity
with the prayer of the bill. They thereupon appealed.
The following is the legislation bearing upon the questions
involved.
The Act of Congress approved July 1, 1862, 12 Stat. 489, by its
first section enacts:
"That Walter S. Burgess [and other persons therein named],
together with five commissioners to be appointed by the Secretary
of the Interior, and all persons who shall or may be associated
with them and their successors, are hereby created and erected into
a body corporate and politic, in deed and in law, by the name,
style, and title of 'The Union Pacific Railroad Company,' and by
that name shall have perpetual succession, and shall be able to sue
and to be sued, plead and be impleaded, defend and be defended, in
all courts of law and equity within the United States, and may make
and have a common seal, and the said corporation is hereby
authorized and empowered to lay out, locate, construct, furnish,
maintain, and enjoy a continuous railroad and telegraph, with the
appurtenances, from a point on the one hundredth meridian of
longitude west from Greenwich, between the south margin of the
valley of the Republican River and the north margin of the valley
of the Platte River, in the Territory of Nebraska, to the western
boundary of Nevada Territory, upon the route and terms hereinafter
provided, and is hereby vested with all the powers, privileges, and
immunities necessary to carry into effect the purposes of this act,
as herein set forth. . . ."
"SEC. 2. That the right of way through the public lands be, and
the same is hereby, granted to said company for the construction of
said railroad and telegraph line, and the right, power, and
authority is hereby given to said company to take from the public
lands adjacent to the line of said road, earth, stone, timber, and
other materials for the construction thereof; said right of way is
granted to said railroad to the extent of two hundred feet in width
on each side of said railroad where it may pass over the
Page 99 U. S. 705
public lands, including all necessary grounds for stations,
buildings, workshops and depots, machine shops, switches, side
tracks, turntables, and water stations. The United States shall
extinguish as rapidly as may be the Indian titles to all lands
falling under the operation of this act, and required for the said
right of way and grants hereinafter made."
"SEC. 3 [as amended by sec. 4 of act of July 2, 1864, 13 Stat.
356]. That there be and is hereby granted to the said company for
the purpose of aiding in the construction of said railroad and
telegraph line and to secure the safe and speedy transportation of
the mails, troops, munitions of war, and public stores thereon,
every alternate section of public land, designated by odd numbers
to the amount of ten alternate sections per mile on each side of
said railroad, on the line thereof, and within the limits of twenty
miles on each side of said road, not sold, reserved, or otherwise
disposed of by the United States, and to which a preemption or
homestead claim may not have attached at the time the line of said
road is definitely fixed,
provided that all mineral lands
shall be excepted from the operation of this act; but where the
same shall contain timber, the timber thereon is hereby granted to
said company. And all such lands, so granted by this section, which
shall not be sold or disposed of by said company within three years
after the entire road shall have been completed shall be subject to
settlement and preemption, like other lands, at a price not
exceeding one dollar and twenty-five cents per acre, to be paid to
said company."
"SEC. 4 [as amended by sec. 6, act of 1864]. That whenever said
company shall have completed twenty consecutive miles of any
portion of said railroad and telegraph line, ready for the service
contemplated by this act and supplied with all the necessary
drains, culverts, viaducts, crossings, sidings, bridges, turnouts,
watering places, depots, equipments, furniture, and all other
appurtenances of a first class railroad, the rails and all other
iron used in the construction and equipment of said road to be
American manufacture of the best quality, the President of the
United States shall appoint three commissioners to examine the same
and report in relation thereto, and if it shall appear to him that
twenty consecutive miles of said railroad and telegraph line have
been completed and equipped in all respects as required by this
act, then, upon certificate of said commissioners to that effect,
patents shall issue conveying the right and title to said lands to
said company, on each side of the road as far as the same is
completed, to the amount
Page 99 U. S. 706
aforesaid, and patents shall in like manner issue as each twenty
miles of said railroad and telegraph line are completed, upon
certificate of said commissioners. Any vacancies occurring in said
board of commissioners by death, resignation, or otherwise shall be
filled by the President of the United States,
provided,
however, that no such commissioners shall be appointed by the
President of the United States unless there shall be presented to
him a statement, verified on oath by the president of said company,
that such twenty miles have been completed in the manner required
by this act and setting forth with certainty the points where such
twenty miles begin and where the same end, which oath shall be
taken before a judge of a court of record."
"SEC. 5. That for the purposes herein mentioned, the Secretary
of the Treasury shall, upon the certificate in writing of said
commissioners of the completion and equipment of forty [afterwards,
by act of 1864, reduced to twenty] consecutive miles of said
railroad and telegraph, in accordance with the provisions of this
act, issue to said company bonds of the United States of $1,000
each, payable in thirty years after date, bearing six percentum per
annum interest (said interest payable semiannually), which interest
may be paid in United States Treasury notes or any other money or
currency which the United States have or shall declare lawful money
and a legal tender, to the amount of sixteen of said bonds per mile
for each section of forty [twenty] miles, and to secure the
repayment to the United States, as hereinafter provided, of the
amount of said bonds so issued and delivered to said company,
together with all interest thereon which shall have been paid by
the United States, the issue of said bonds and delivery to the
company shall
ipso facto constitute a first mortgage on
the whole line of the railroad and telegraph, together with the
rolling stock, fixtures, and property of every kind and
description, and in consideration of which said bonds may be
issued, and on the refusal or failure of the said company to redeem
said bonds or any part of them when required so to do by the
Secretary of the Treasury in accordance with the provisions of this
act, the said road, with all the rights, functions, immunities, and
appurtenances thereunto belonging, and also all lands granted to
the said company by the United States which at the time of said
default shall remain in the ownership of the said company, may be
taken possession of by the Secretary of the Treasury for the use
and benefit of the United States,
provided this section
shall not apply to that part of any road now constructed. "
Page 99 U. S. 707
"SEC. 6. That the grants aforesaid are made upon condition that
said company shall pay said bonds at maturity, and shall keep said
railroad and telegraph line in repair and use, and shall at all
times transmit dispatches over said telegraph line, and transport
mails, troops, and munitions of war, supplies and public stores
upon said railroad for the government whenever required to do so by
any department thereof, and that the government shall at all times
have the preference in the use of the same for all the purposes
aforesaid (at fair and reasonable rates of compensation, not to
exceed the amounts paid by private parties for the same kind of
service), and all [by act of 1864 reduced to half] compensation for
services rendered for the government shall be applied to the
payment of said bonds and interest until the whole amount is fully
paid. Said company may also pay the United States, wholly or in
part, in the same or other bonds, Treasury notes, or other
evidences of debt against the United States, to be allowed at par,
and after said road is completed, until said bonds and interest are
paid, at least five percentum of the net earnings of said road
shall also be annually applied to the payment thereof."
"SEC. 9. That . . . the Central Pacific Railroad Company of
California, a corporation existing under the laws of the State of
California, are hereby authorized to construct a railroad and
telegraph line from the Pacific Coast, at or near San Francisco, or
the navigable waters of the Sacramento River, to the eastern
boundary of California, upon the same terms and conditions, in all
respects, as are contained in this act for the construction of said
railroad and telegraph line first mentioned, and to meet and
connect with the first-mentioned railroad and telegraph line on the
eastern boundary of California. Each of said companies shall file
their acceptance of the conditions of this act in the Department of
the Interior within six months after the passage of this act."
"SEC. 10. That . . . the Central Pacific Railroad Company of
California, after completing its road across said state, is
authorized to continue the construction of said railroad and
telegraph through the territories of the United States to the
Missouri River, including the branch roads specified in this act,
upon the routes hereinbefore and hereinafter indicated, on the
terms and conditions provided in this act in relation to the said
Union Pacific Railroad Company, until said roads shall meet and
connect, and the whole line of said railroad and branches and
telegraph is completed. "
Page 99 U. S. 708
"SEC. 11. That for three hundred miles of said road most
mountainous and difficult of construction, to-wit, one hundred and
fifty miles westwardly from the eastern base of the Rocky Mountains
and one hundred and fifty miles eastwardly from the western base of
the Sierra Nevada Mountains, said points to be fixed by the
President of the United States, the bonds to be issued in the
construction thereof shall be treble the number per mile
hereinbefore provided, and the same shall be issued, and the lands
herein granted be set apart, upon the construction of every twenty
miles thereof, upon the certificate of the commissioners as
aforesaid that twenty consecutive miles of the same are completed;
and between the sections last named of one hundred and fifty miles
each the bonds to be issued to aid in the construction thereof
shall be double the number per mile first mentioned, and the same
shall be issued and the lands herein granted be set apart, upon the
construction of every twenty miles thereof, upon the certificate of
the commissioners as aforesaid that twenty consecutive miles of the
same are completed,
provided that no more than fifty
thousand of said bonds shall be issued under this act to aid in
constructing the main line of said railroad and telegraph."
"SEC. 17. That in case said company or companies shall fail to
comply with the terms and conditions of this act by not completing
said road and telegraph and branches within a reasonable time or by
not keeping the same in repair and use, but shall permit the same
for an unreasonable time to remain unfinished or out of repair and
unfit for use, Congress may pass any act to insure the speedy
completion of said road and branches or put the same in repair and
use, and may direct the income of said railroad and telegraph line
to be thereafter devoted to the use of the United States, to repay
all such expenditures caused by the default and neglect of such
company or companies,
provided that if said roads are not
completed so as to form a continuous line of railroad, ready for
use, from the Missouri River to the navigable waters of the
Sacramento River in California, by the first day of July, eighteen
hundred and seventy-six, the whole of all of said railroads before
mentioned, and to be constructed under the provisions of this act,
together with all their furniture, fixtures, rolling stock, machine
shops, lands, tenements, and hereditaments, and property of every
kind and character, shall be forfeited to and be taken possession
of by the United States. . . ."
"SEC. 18. That whenever it appears that the net earnings of the
entire road and telegraph, including the amount allowed for
Page 99 U. S. 709
services rendered for the United States, after deducting all
expenditures -- including repairs, and the furnishing, running, and
managing of said road -- shall exceed ten percentum upon its cost
(exclusive of the five percentum to be paid to the United States),
Congress may reduce the rates of fare thereon, if unreasonable in
amount, and may fix and establish the same by law. And the better
to accomplish the object of this act -- namely, to promote the
public interest and welfare by the construction of said railroad
and telegraph line, and keeping the same in working order, and to
secure to the government at all times (but particularly in time of
war) the use and benefits of the same for postal, military, and
other purposes, Congress may at any time -- having due regard for
the rights of said companies named herein -- add to, alter, amend,
or repeal this act."
Sections of the Act of July 2, 1864, 13 Stat.
356
"SEC. 5. That . . ., and that only one-half of the compensation
for services rendered for the government by said companies shall be
required to be applied to the payment of the bonds issued by the
government in aid of the construction of said roads."
"SEC. 10. That sec. 5 of said act [Act of July 1, 1862] be so
modified and amended that the Union Pacific Railroad Company, the
Central Pacific Railroad Company, and any other company authorized
to participate in the construction of said road, may, on the
completion of each section of said road, as provided in this act
and the act to which this act is an amendment, issue their first
mortgage bonds on their respective railroad and telegraph lines to
an amount not exceeding the amount of the bonds of the United
States, and of even tenor and date, time of maturity, rate and
character of interest, with the bonds authorized to be issued to
said railroad companies respectively. And the lien of the United
States bonds shall be subordinate to that of the bonds of any or
either of said companies hereby authorized to be issued on their
respective roads, property, and equipments, except as to the
provisions of the sixth section of the act to which this act is an
amendment, relating to the transmission of dispatches and the
transportation of mails, troops, munitions of war, supplies, and
public stores for the government of the United States. . . ."
"SEC. 22. And be it further enacted, that Congress may at any
time alter, amend, or repeal this act. "
Page 99 U. S. 710
"
Act of May 7, 1868, 20 Stat. 56"
"An Act to alter and amend the act entitled 'An Act to aid in
the construction of a railroad and telegraph line from the Missouri
River to the Pacific Ocean, and to secure to the government the use
of the same for postal, military, and other purposes,' approved
July first, eighteen hundred and sixty-two, and also to alter and
amend the Act of Congress approved July second, eighteen hundred
and sixty-four, in amendment of the said first-named act."
"Whereas, on the first day of July, anno Domini eighteen hundred
and sixty-two, Congress passed an act entitled 'An Act to aid in
the construction of a railroad and telegraph line from the Missouri
River to the Pacific Ocean, and to secure to the government the use
of the same for postal, military, and other purposes,' and"
"Whereas afterwards, on the second day of July, anno Domini
eighteen hundred and sixty-four, Congress passed an act in
amendment of said first-mentioned act; and"
"Whereas the Union Pacific Railroad Company, named in said acts,
and under the authority thereof, undertook to construct a railway,
after the passage thereof, over some part of the line mentioned in
said acts; and"
"Whereas, under the authority of the said two acts, the Central
Pacific Railroad Company of California, a corporation existing
under the laws of the state of California, undertook to construct a
railway, after the passage of said acts, over some part of the line
mentioned in said acts; and"
"Whereas the United States, upon demand of said Central Pacific
Railroad Company, have heretofore issued, by way of loan and as
provided in said acts, to and for the benefit of said company, in
aid of the purposes named in said acts, the bonds of the United
States, payable in thirty years from the date thereof, with
interest at six percentum per annum, payable half-yearly, to the
amount of $25,885,120, which said bonds have been sold in the
market or otherwise disposed of by said company; and"
"Whereas the said Central Pacific Company has issued and
disposed of an amount of its own bonds equal to the amount so
issued by the United States, and secured the same by mortgage, and
which are, if lawfully issued and disposed of, a prior and
paramount lien, in the respect mentioned in said acts, to that of
the United States, as stated and secured thereby; and"
"Whereas, after the passage of said acts, the Western
Pacific
Page 99 U. S. 711
Railroad Company, a corporation then existing under the laws of
California, did, under the authority of Congress, become the
assignee of the rights, duties, and obligations of the said Central
Pacific Railroad Company, as provided in the act of Congress passed
on the third of March, anno Domini eighteen hundred and sixty-five,
and did, under the authority of the said act and of the acts
aforesaid, construct a railroad from the City of San Jose to the
City of Sacramento, in California, and did demand and receive from
the United States the sum of $1,970,560 of the bonds of the United
States, of the description before mentioned, as issued to the
Central Pacific Company, and in the same manner and under the
provisions of said acts; and upon and in respect of the bonds so
issued to both said companies the United States have paid interest
to the sum of more than $13,500,000, which has not been reimbursed;
and"
"Whereas said Western Pacific Railroad Company has issued and
disposed of an amount of its own bonds equal to the amount so
issued by the United States to it, and secured the same by
mortgage, which are, if lawfully issued and disposed of, a prior
and paramount lien to that of the United States, as stated, and
secured thereby; and"
"Whereas said Western Pacific Railroad Company has since become
merged in, and consolidated with, said Central Pacific Railroad
Company, under the name of the Central Pacific Railroad Company,
whereby the said Central Pacific Railroad Company has become liable
to all the burdens, duties, and obligations before resting upon
said Western Pacific Railroad Company; and divers other railroad
companies have been merged in and consolidated with said Central
Pacific Railroad Company; and"
"Whereas the United States, upon the demand of the said Union
Pacific Railroad Company, have heretofore issued, by way of loan to
it, and as provided in said acts, the bonds of the United States,
payable in thirty years from the date thereof, with interest at six
percentum per annum, payable half-yearly, the principal sums of
which amount to $27,236,512; on which the United States have paid
over $10,000,000 interest over and above all reimbursements; which
said bonds have been sold in the market or otherwise disposed of by
said corporation; and"
"Whereas said corporation has issued and disposed of an amount
of its own bonds equal to the amount so issued to it by the United
States as aforesaid, and secured the same by mortgage, and
which
Page 99 U. S. 712
are, if lawfully issued and disposed of, a prior and paramount
lien in the respect mentioned in said acts, to that of the United
States, as stated, and secured thereby; and"
"Whereas the total liabilities (exclusive of interest to accrue)
to all creditors, including the United States, of the said Central
Pacific Company, amount in the aggregate to more than $96,000,000,
and those of the said Union Pacific Railroad Company to more than
$88,000,000; and"
"Whereas the United States, in view of the indebtedness and
operations of said several railroad companies respectively, and of
the disposition of their respective incomes, are not and cannot,
without further legislation, be secure in their interests in and
concerning said respective railroads and corporations, either as
mentioned in said acts or otherwise; and"
"Whereas a due regard to the rights of said several companies
respectively, as mentioned in said act of eighteen hundred and
sixty-two, as well as just security to the United States in the
premises, and in respect of all the matters set forth in said act,
require that the said act of eighteen hundred and sixty-two be
altered and amended as hereinafter enacted; and"
"Whereas, by reason of the premises also, as well as for other
causes of public good and justice, the powers provided and reserved
in said act of eighteen hundred and sixty-four for the amendment
and alteration thereof ought also to be exercised as hereinafter
enacted. Therefore,"
"Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, that the net
earnings mentioned in said act of eighteen hundred and sixty-two,
of said railroad companies respectively, shall be ascertained by
deducting from the gross amount of their earnings respectively the
necessary expenses actually paid within the year in operating the
same and keeping the same in a state of repair, and also the sum
paid by them respectively within the year in discharge of interest
on their first mortgage bonds, whose lien has priority over the
lien of the United States, and excluding from consideration all
sums owing or paid by said companies respectively for interest upon
any other portion of their indebtedness; and the foregoing
provision shall be deemed and taken as an amendment of said act of
eighteen hundred and sixty-four, as well as of said act of eighteen
hundred and sixty-two. This section shall take effect on the
thirtieth day of June next, and be applicable to all computations
of net earnings thereafter; but it shall not affect any right
of
Page 99 U. S. 713
the United States or of either of said railroad companies
existing prior thereto."
"SEC. 2. That the whole amount of compensation which may, from
time to time, be due to said several railroad companies
respectively, for services rendered for the government, shall be
retained by the United States, one-half thereof to be presently
applied to the liquidation of the interest paid and to be paid by
the United States upon the bonds so issued by it as aforesaid, to
each of said corporations severally, and the other half thereof to
be turned into the sinking fund hereinafter provided, for the uses
therein mentioned."
"SEC. 3. That there shall be established in the Treasury of the
United States a sinking fund, which shall be invested by the
Secretary of the Treasury in bonds of the United States; and the
semiannual income thereof shall be in like manner from time to time
invested, and the same shall accumulate and be disposed of as
hereinafter mentioned. And in making such investments the Secretary
shall prefer the five percentum bonds of the United States, unless,
for good reasons appearing to him, and which he shall report to
Congress, he shall at any time deem it advisable to invest in other
bonds of the United States. All the bonds belonging to said fund
shall, as fast as they shall be obtained, be so stamped as to show
that they belong to said fund, and that they are not good in the
hands of other holders than the Secretary of the Treasury until
they shall have been endorsed by him, and publicly disposed of
pursuant to this act."
"SEC. 4. That there shall be carried to the credit of the said
fund, on the first day of February in each year, the one-half of
the compensation for services hereinbefore named, rendered for the
government by said Central Pacific Railroad Company, not applied in
liquidation of interest; and, in addition thereto, the said company
shall, on said day in each year, pay into the Treasury, to the
credit of said sinking fund, the sum of $1,200,000, or so much
thereof as shall be necessary to make the five percentum of the net
earnings of its said road payable to the United States, under said
act of eighteen hundred and sixty-two, and the whole sum earned by
it as compensation for services rendered for the United States,
together with the sum by this section required to be paid, amount
in the aggregate to twenty-five percentum of the whole net earnings
of said railroad company, ascertained and defined as hereinbefore
provided, for the year ending on the thirty-first day of December
next preceding. That there shall be carried to the
Page 99 U. S. 714
credit of the said fund, on the first day of February in each
year, the one-half of the compensation for services hereinbefore
named, rendered for the government by said Union Pacific Railroad
Company, not applied in liquidation of interest; and, in addition
thereto, the said company shall, on said day in each year, pay into
the Treasury, to the credit of said sinking fund, the sum of
$850,000, or so much thereof as shall be necessary to make the five
percentum of the net earnings of its said road payable to the
United States under said act of eighteen hundred and sixty-two, and
the whole sum earned by it as compensation for services rendered
for the United States, together with the sum by this section
required to be paid, amount in the aggregate to twenty-five
percentum of the whole net earnings of said railroad company,
ascertained and defined as hereinbefore provided, for the year
ending on the thirty-first day of December next preceding."
"SEC. 5. That whenever it shall be made satisfactorily to appear
to the Secretary of the Treasury, by either of said companies, that
seventy-five percentum of its net earnings, as hereinbefore
defined, for any current year are or were insufficient to pay the
interest for such year upon the obligations of such company, in
respect of which obligations there may exist a lien paramount to
that of the United States, and that such interest has been paid out
of such net earnings, said Secretary is hereby authorized, and it
is made his duty, to remit for such current year so much of the
twenty-five percentum of net earnings required to be paid into the
sinking fund, as aforesaid, as may have been thus applied and used
in the payment of interest as aforesaid."
"SEC. 6. That no dividend shall be voted, made, or paid for or
to any stockholder or stockholders, in either of said companies
respectively at any time when the said company shall be in default
in respect of the payment either of the sums required as aforesaid
to be paid into said sinking fund, or in respect of the payment of
the said five percentum of the net earnings, or in respect of
interest upon any debt the lien of which, or of the debt on which
it may accrue, is paramount to that of the United States; and any
officer or person who shall vote, declare, make, or pay, and any
stockholder of any of said companies who shall receive any such
dividend contrary to the provision of this act, shall be liable to
the United States for the amount thereof, which, when recovered,
shall be paid into said sinking fund. And every such officer,
person, or stockholder who shall knowingly vote, declare, make, or
pay any
Page 99 U. S. 715
such dividend, contrary to the provisions of this act, shall be
deemed guilty of a misdemeanor, and, on conviction thereof, shall
be punished by a fine not exceeding $10,000, and by imprisonment
not exceeding one year."
"SEC. 7. That the said sinking fund so established and
accumulated shall, at the maturity of said bonds so respectively
issued by the United States, be applied to the payment and
satisfaction thereof, according to the interest and proportion of
each of said companies in said fund, and of all interest paid by
the United States thereon, and not reimbursed, subject to the
provisions of the next section."
"SEC. 8. That said sinking fund so established and accumulated
shall, according to the interest and proportion of said companies
respectively therein, be held for the protection, security, and
benefit of the lawful and just holders of any mortgage or lien
debts of such companies respectively, lawfully paramount to the
rights of the United States, and for the claims of other creditors,
if any, lawfully chargeable upon the funds so required to be paid
into said sinking fund, according to their respective lawful
priorities, as well as for the United States, according to the
principles of equity, to the end that all persons having any claim
upon said sinking fund may be entitled thereto in due order; but
the provisions of this section shall not operate or be held to
impair any existing legal right, except in the manner in this act
provided, of any mortgage, lien, or other creditor of any of said
companies respectively, nor to excuse any of said companies
respectively from the duty of discharging, out of other funds, its
debts to any creditor except the United States."
"SEC. 9. That all sums due to the United States from any of said
companies respectively, whether payable presently or not, and all
sums required to be paid to the United States or into the Treasury,
or into said sinking fund under this act, or under the acts
hereinbefore referred to, or otherwise, are hereby declared to be a
lien upon all the property, estate, rights, and franchises of every
description granted or conveyed by the United States to any of said
companies respectively or jointly, and also upon all the estate and
property, real, personal, and mixed, assets, and income of the said
several railroad companies respectively, from whatever source
derived, subject to any lawfully prior and paramount mortgage,
lien, or claim thereon. But this section shall not be construed to
prevent said companies respectively from using and disposing of any
of their property or assets in the ordinary, proper, and lawful
course
Page 99 U. S. 716
of their current business, in good faith and for valuable
consideration."
"SEC. 10. That it is hereby made the duty of the Attorney
General of the United States to enforce, by proper proceeding
against the said several railroad companies respectively or
jointly, or against either of them, and others, all the rights of
the United, states under this act and under the acts hereinbefore
mentioned, and under any other act of Congress or right of the
United States; and in any suit or proceeding already commenced, or
that may be hereafter commenced, against any of said companies,
either alone or with other parties, in respect of matters arising
under this act, or under the acts or rights hereinbefore mentioned
or referred to, it shall be the duty of the court to determine the
very right of the matter without regard to matters of form, joinder
of parties, multifariousness, or other matters not affecting the
substantial rights and duties arising out of the matters and acts
hereinbefore stated and referred to."
"SEC. 11. That if either of said railroad companies shall fail
to perform all and singular the requirements of this act and of the
acts hereinbefore mentioned, and of any other act relating to said
company, to be by it performed, for the period of six months next
after such performance may be due, such failure shall operate as a
forfeiture of all the rights, privileges, grants, and franchises
derived or obtained by it from the United States; and it shall be
the duty of the Attorney General to cause such forfeiture to be
judicially enforced."
"SEC. 12. That nothing in this act shall be construed or taken
in any wise to affect or impair the right of Congress at any time
hereafter further to alter, amend, or repeal the said acts
hereinbefore mentioned; and this act shall be subject to
alteration, amendment, or repeal, as, in the opinion of Congress,
justice or the public welfare may require. And nothing herein
contained shall be held to deny, exclude, or impair any right or
remedy in the premises now existing in favor of the United
States."
"SEC. 13. That each and every of the provisions in this act
contained shall severally and respectively be deemed, taken, and
held as in alteration and amendment of said act of eighteen hundred
and sixty-two and of said act of eighteen hundred and sixty-four
respectively, and of both said acts."
The Legislature of California, April 4, 1864, passed the
following act (Stat. for 1863-64, p. 471):
Page 99 U. S. 717
"
An Act to aid in carrying out the Pacific Railroad and
Telegraph"
"
Act of Congress and other matters relating
thereto"
"The people of the state of California, represented in Senate
and Assembly, do enact as follows:"
"SEC. 1. Whereas, by the provisions of an act of Congress,
entitled 'An Act to aid in the construction of a railroad and
telegraph line from the Missouri River to the Pacific Ocean, and to
secure to the government the use of the same for postal, military,
and other purposes, approved July 1, 1862,' the Central Pacific
Railroad Company of California is authorized to construct a
railroad and telegraph line in the state of California, and in the
territories lying east of said state towards the Missouri River;
therefore, to enable the said company more fully and completely to
comply with and perform the provisions and conditions of said act
of Congress, the said company, their successors and assigns, are
hereby authorized and empowered, and the right, power, and
privilege is hereby granted to, conferred upon, and vested in them
to construct, maintain, and operate the said railroad and telegraph
line not only in the State of California, but also in the said
territories lying east of and between said state and the Missouri
River, with such branches and extensions of said railroad and
telegraph line, or either of them, as said company may deem
necessary or proper; and also the right of way for said railroad
and telegraph line over any lands belonging to this state, and on,
over, and along any streets, roads, highways, rivers, streams,
waters, and watercourses, but the same to be so constructed as not
to obstruct or destroy the passage or navigation of the same; and
also the right to condemn and appropriate to the use of said
company such private property, rights, privileges, and franchises
as may be proper, necessary, or convenient for the purposes of said
railroad and telegraph, the compensation therefore to be
ascertained and paid under and by special proceedings, as
prescribed in the act providing for the incorporation of railroad
companies, approved March 20, 1861, and the acts supplementary and
amendatory thereof, said company to be subject to all the laws of
this state concerning railroad and telegraph lines, except that
messages and property of the United States, of this state, and of
the said company, shall have priority of transportation and
transmission over said line of railroad and telegraph; hereby
confirming to and vesting in said company all the rights,
privileges, franchises, power, and authority conferred upon,
granted to, or vested in said company by said act of Congress;
hereby repealing all laws and parts of
Page 99 U. S. 718
laws inconsistent or in conflict with the provisions of this
act, or the rights and privileges herein granted."
"SEC. 2. This act shall take effect and be in force from and
after its passage."
The State of Nevada, March 9, 1866 (the territory of that name
having in the mean time become a state), passed,
mutatis
mutandis, a similar act. It will be found in the laws of that
state for 1866, c. 112.
The cases were heard at the same time.
MR. CHIEF JUSTICE WAITE delivered the opinion of the Court.
The single question presented by the case of the Union Pacific
Railroad Company is as to the constitutionality of that part of the
Act of May 7, 1878, which establishes in the Treasury of the United
States a sinking fund. The validity of the rest of the act is not
necessarily involved.
It is our duty, when required in the regular course of judicial
proceedings, to declare an act of Congress void if not within the
legislative power of the United States; but this declaration should
never be made except in a clear case. Every possible presumption is
in favor of the validity of a statute, and this continues until the
contrary is shown beyond a rational doubt. One branch of the
government cannot encroach on the domain of another without danger.
The safety of our institutions depends in no small degree on a
strict observance of this salutary rule.
The United States cannot any more than a state interfere with
private rights, except for legitimate governmental purposes. They
are not included within the constitutional prohibition which
prevents states from passing laws impairing the obligation of
contracts, but equally with the states they are prohibited
Page 99 U. S. 719
from depriving persons or corporations of property without due
process of law. They cannot legislate back to themselves, without
making compensation, the lands they have given this corporation to
aid in the construction of its railroad. Neither can they by
legislation compel the corporation to discharge its obligations in
respect to the subsidy bonds otherwise than according to the terms
of the contract already made in that connection. The United States
are as much bound by their contracts as are individuals. If they
repudiate their obligations, it is as much repudiation, with all
the wrong and reproach that term implies, as it would be if the
repudiator had been a state or a municipality or a citizen. No
change can be made in the title created by the grant of the lands,
or in the contract for the subsidy bonds, without the consent of
the corporation. All this is indisputable.
The contract of the company in respect to the subsidy bonds is
to pay both principal and interest when the principal matures,
unless the debt is sooner discharged by the application of one-half
the compensation for transportation and other services rendered for
the government, and the five percent of net earnings as specified
in the charter. This was decided in
Union Pacific Railroad Co.
v. United States, 91 U. S. 72. The
precise point to be determined now is, whether a statute which
requires the company in the management of its affairs to set aside
a portion of its current income as a sinking fund to meet this and
other mortgage debts when they mature, deprives the company of its
property without due process of law, or in any other way improperly
interferes with vested rights.
This corporation is a creature of the United States. It is a
private corporation created for public purposes, and its property
is to a large extent devoted to public uses. It is therefore
subject to legislative control so far as its business affects the
public interests.
Chicago, Burlington, & Quincy Railroad
Co. v. Iowa, 94 U. S. 155.
It is unnecessary to decide what power Congress would have had
over the charter if the right of amendment had not been reserved;
for, as we think, that reservation has been made. In the act of
1862, sec. 18, it was accompanied by an explanatory
Page 99 U. S. 720
statement showing that this had been done
"the better to accomplish the object of this act, namely, to
promote the public interest and welfare by the construction of said
railroad and telegraph line, and keeping the same in working order,
and to secure to the government at all times (but especially in
time of war) the use and benefits of the same for postal, military,
and other purposes"
and by an injunction that it should be used with "due regard for
the rights of said companies." In the act of 1864, however, there
is nothing except the simple words (sec. 22) "that Congress may at
any time alter, amend, and repeal this act." Taking both acts
together, and giving the explanatory statement in that of 1862 all
the effect it can be entitled to, we are of the opinion that
Congress not only retains, but has given special notice of its
intention to retain, full and complete power to make such
alterations and amendments of the charter as come within the just
scope of legislative power. That this power has a limit no one can
doubt. All agree that it cannot be used to take away property
already acquired under the operation of the charter, or to deprive
the corporation of the fruits actually reduced to possession of
contracts lawfully made; but, as was said by this Court, through
Mr. Justice Clifford, in
Miller v.
State, 15 Wall. 498,
"it may safely be affirmed that the reserved power may be
exercised, and to almost any extent, to carry into effect the
original purposes of the grant, or to secure the due administration
of its affairs, so as to protect the rights of stockholders and of
creditors, and for the proper disposition of its assets,"
and again, in
Holyoke Company v. Lyman, 15 Wall. 519,
"to protect the rights of the public and of the corporators, or to
promote the due administration of the affairs of the corporation."
MR. JUSTICE FIELD, also speaking for the Court, was even more
explicit when, in
Tomlinson v.
Jessup, 15 Wall. 459, he said,
"the reservation affects the entire relation between the state
and the corporation, and places under legislative control all
right, privileges, and immunities derived by its charter directly
from the state,"
and again, as late as
Railroad Company v. Maine,
96 U. S.
510,
"by the reservation . . . the state retained the power to alter
it [the charter] in all particulars constituting the grant to the
new company,
Page 99 U. S. 721
formed under it, of corporate rights, privileges, and
immunities."
MR. JUSTICE SWAYNE, in
Shields v. Ohio, 95 U.
S. 324, says, by way of limitation,
"The alterations must be reasonable; they must be made in good
faith, and be consistent with the object and scope of the act of
incorporation. Sheer oppression and wrong cannot be inflicted under
the guise of amendment or alteration."
The rules as here laid down are fully sustained by authority.
Further citations are unnecessary.
Giving full effect to the principles which have thus been
authoritatively stated, we think it safe to say that whatever rules
Congress might have prescribed in the original charter for the
government of the corporation in the administration of its affairs,
it retained the power to establish by amendment. In so doing it
cannot undo what has already been done, and it cannot unmake
contracts that have already been made, but it may provide for what
shall be done in the future, and may direct what preparation shall
be made for the due performance of contracts already entered into.
It might originally have prohibited the borrowing of money on
mortgage, or it might have said that no bonded debt should be
created without ample provision by sinking fund to meet it at
maturity. Not having done so at first, it cannot now by direct
legislation vacate mortgages already made under the powers
originally granted, nor release debts already contracted. A
prohibition now against contracting debts will not avoid debts
already incurred. An amendment making it unlawful to issue bonds
payable at a distant day, without at the same time establishing a
fund for their ultimate redemption, will not invalidate a bond
already out. All such legislation will be confined in its operation
to the future.
Legislative control of the administration of the affairs of a
corporation may, however, very properly include regulations by
which suitable provision will be secured in advance for the payment
of existing debts when they fall due. If a state under its reserved
power of charter amendment were to provide that no dividends should
be paid to stockholders from current earnings until some reasonable
amount had been set apart to meet maturing obligations, we think it
would not be seriously contended that such legislation was
unconstitutional, either because
Page 99 U. S. 722
it impaired the obligations of the charter contract or deprived
the corporation of its property without due process of law. Take
the case of an insurance company dividing its unearned premiums
among its stockholders without laying by any thing to meet losses,
would any one doubt the power of the state under its reserved right
of amendment to prohibit such dividends until a suitable fund had
been established to meet losses from outstanding risks? Clearly
not, we think, and for the obvious reason that while stockholders
are entitled to receive all dividends that may legitimately be
declared and paid out of the current net income, their claims on
the property of the corporation are always subordinate to those of
creditors. The property of a corporation constitutes the fund from
which its debts are to be paid, and if the officers improperly
attempt to divert this fund from its legitimate uses, justice
requires that they should in some way be restrained. A court of
equity would do this, if called upon in an appropriate manner; and
it needs no argument to show that a legislative regulation which
requires no more of the corporation than a court would compel it to
do without legislation is not unreasonable.
Such a regulation, instead of being destructive in its
character, would be eminently conservative. Railroads are a
peculiar species of property, and railroad corporations are in some
respects peculiar corporations. A large amount of money is required
for construction and equipment, and this to a great extent is
represented by a funded debt, which, as well as the capital stock,
is sought after for investment, and is distributed widely among
large numbers of persons. Almost as a matter of necessity it is
difficult to secure any concert of action among the different
classes of creditors and stockholders, and consequently all are
compelled to trust in a great degree to the management of the
corporation by those who are elected as officers, without much, if
any, opportunity for personal supervision. The interest of the
stockholders, who, as a rule, alone have the power to select the
managers, is not unfrequently antagonistic to those of the debt
holders, and it therefore is especially proper that the government,
whose creature the corporation is, should exercise its general
powers of supervision and do all it reasonably may to protect
investments in the
Page 99 U. S. 723
bonds and stock from loss through improvident management.
No better case can be found for illustration than is presented
by the history of this corporation. Without undertaking in any
manner to cast censure upon those by whose matchless energy this
great road was built and, as if by magic, put into operation, it is
a fact which cannot be denied, that, when the road was in a
condition to be run, its bonds and stocks represented vastly more
than the actual cost of the labor and material which went into its
construction. Great undertakings like this, whose future is at the
time uncertain, requiring as they do large amounts of money to
carry them on, seem to make it necessary that extraordinary
inducements should be held out to capitalists to enter upon them,
since a failure is almost sure to involve those who make the
venture in financial ruin. It is not, however, the past with which
we are now to deal, but rather the present and the future. We are
not sitting in judgment upon the history of this corporation, but
upon its present condition. We now know that when the road was
completed its funded debt alone was as follows: first mortgage,
$27,232,000, subsidy bonds, $27,236,512, all maturing thirty years
after date, and that the average time of its maturity is during the
year 1897. In addition to this are now the sinking fund bonds, the
land grant bonds, and the Omaha bridge bonds, amounting to at least
$20,000,000 more. The interest on the first mortgage and all other
classes of bonds, except the subsidy bonds, will undoubtedly be met
as it falls due; but on the subsidy bonds, as has already been
seen, no interest is payable, except out of the half of the
earnings for government service and the five percent of net
earnings, until the maturity of the principal. Thus far, as we have
had occasion to observe in the various suits which have come before
us during the past few years, involving an inquiry into these
matters, the payments from these sources have fallen very far short
of keeping down the accruing interest, and according to present
appearances it is not probably too much to say that when the debt
is due there will be as much owing the United States for interest
paid as for principal. There will then become due from this
company, in less than twenty years from this date, in the
neighborhood
Page 99 U. S. 724
of $80,000,000, secured by the first and subsidy mortgages. In
addition to this are the capital stock, representing $36,000,000
more, and the funded debt inferior in its lien to that of the
subsidy bonds. All these different classes of securities have
become favorites in the market for investments, and they are widely
scattered at home and abroad. They have taken to a certain extent
the place of the public funds as investments. With the exception of
the land grant, which is first devoted to the payment of the land
grant bonds, but little if any thing except the earnings of the
company can be depended on to meet these obligations when they
mature. The company has been in the receipt of large earnings since
the completion of its road, and, after paying the interest on its
own bonds at maturity, has been dividing the remainder, or a very
considerable portion of it, from time to time among its
stockholders, without laying by any thing to meet the enormous debt
which, considering the amount, is so soon to become due. It is easy
to see that in this way the stockholders of the present time are
receiving in the shape of dividends that which those of the future
may be compelled to lose. It is hardly to be presumed that this
great weight of pecuniary obligation can be removed without
interfering with dividends hereafter, unless at once some
preparation is made by sinking fund or otherwise to prevent it.
Under these circumstances, the stockholders of today have no
property right to dividends which shall absorb all the net earnings
after paying debts already due. The current earnings belong to the
corporation, and the stockholders, as such, have no right to them
as against the just demands of creditors.
The United States occupy towards this corporation a two-fold
relation -- that of sovereign and that of creditor.
United
States v. Union Pacific Railroad Co., 98 U. S.
569. Their rights as sovereign are not crippled because
they are creditors, and their privileges as creditors are not
enlarged by the charter because of their sovereignty. They cannot,
as creditors, demand payment of what is due them before the time
limited by the contract. Neither can they, as sovereign or
creditors, require the company to pay the other debts it owes
before they mature. But out of regard to the rights of the
subsequent lienholders
Page 99 U. S. 725
and stockholders, it is not only their right but their duty as
sovereign to see to it that the current stockholders do not, in the
administration of the affairs of the corporation, appropriate to
their own use that which in equity belongs to others. A legislative
regulation which does no more than require them to submit to their
just contribution towards the payment of a bonded debt cannot in
any sense be said to deprive them of their property without due
process of law.
The question still remains whether the particular provision of
this statute now under consideration comes within this rule. It
establishes a sinking fund for the payment of debts when they
mature, but does not pay the debts. The original contracts of loan
are not changed. They remain as they were before, and are only to
be met at maturity. All that has been done is to make it the duty
of the company to lay by a portion of its current net income to
meet its debts when they do fall due. In this way, the current
stockholders are prevented to some extent from depleting the
Treasury for their own benefit at the expense of those who are to
come after them. This is no more for the benefit of the creditors
than it is for the corporation itself. It tends to give permanency
to the value of the stock and bonds, and is in the direct interest
of a faithful administration of affairs. It simply compels the
managers for the time being to do what they ought to do
voluntarily. The fund to be created is not so much for the security
of the creditors as the ultimate protection of the public and the
corporators.
To our minds, it is a matter of no consequence that the
Secretary of the Treasury is made the sinking fund agent and the
Treasury of the United States the depository, or that the
investment is to be made in the public funds of the United States.
This does not make the deposit a payment of the debt due the United
States. The duty of the manager of every sinking fund is to seek
some safe investment for the moneys as they accumulate in his
hands, so that when required they may be promptly available.
Certainly no objection can be made to the security of this
investment. In fact, we do not understand that complaint is made in
this particular. The objection is to the creation of the fund and
not to the investment if that investment is not in law a
payment.
Page 99 U. S. 726
Neither is it a fatal objection that the half of the earnings
for services rendered the government, which by the act of 1864 was
to be paid to the companies, is put into this fund. The government
is not released from the payment. While the money is retained, it
is only that it may be put into the fund, which, although kept in
the Treasury, is owned by the company. When the debts are paid, the
securities into which the moneys have been converted that remain
undisposed of must be handed over to the corporation. Under the
circumstances, the retaining of the money in the Treasury as part
of the sinking fund is in law a payment to the company.
Not to pursue this branch of the inquiry any further, it is
sufficient now to say that we think the legislation complained of
may be sustained on the ground that it is a reasonable regulation
of the administration of the affairs of the corporation, and
promotive of the interests of the public and the corporators. It
takes nothing from the corporation or the stockholders which
actually belongs to them. It oppresses no one, and inflicts no
wrong. It simply gives further assurance of the continued solvency
and prosperity of a corporation in which the public are so largely
interested, and adds another guaranty to the permanent and lasting
value of its vast amount of securities.
The legislation is also warranted under the authority by way of
amendment to change or modify the rights, privileges, and
immunities granted by the charter. The right of the stockholders to
a division of the earnings of the corporation is a privilege
derived from the charter. When the charter and its amendments first
became laws, and the work on the road was undertaken, it was by no
means sure that the enterprise would prove a financial success. No
statutory restraint was then put upon the power of declaring
dividends. It was not certain that the stock would ever find a
place on the list of marketable securities, or that there would be
any bonds subsequent in lien to that of the United States which
could need legislative or other protection. Hence all this was left
unprovided for in the charter and its amendments as originally
granted, and the reservation of the power of amendment inserted so
as to enable the government to accommodate its legislation to the
requirements
Page 99 U. S. 727
of the public and the corporation as they should be developed in
the future. Now it is known that the stock of the company has found
its way to the markets of the world; that large issues of bonds
have been made beyond what was originally contemplated, and that
the company has gone on for years dividing its earnings without any
regard to its increasing debt, or to the protection of those whose
rights may be endangered if this practice is permitted to continue.
For this reason, Congress has interfered and, under its reserved
power, limited the privilege of declaring dividends on current
earnings, so as to confine the stockholders to what is left after
suitable provision has been made for the protection of creditors
and stockholders against the disastrous consequences of a
constantly increasing debt. As this increase cannot be kept down by
payment unless voluntarily made by the corporation, the next best
thing has been done, that is to say, a fund safely invested, which
increases as the debt increases, has been established and set apart
to meet the debt when the time comes that payment can be
required.
The only material difference between the Central Pacific Company
and the Union Pacific lies in the fact that in the case of the
Central Pacific the special franchises, as well as the land and
subsidy bonds, were granted by the United States to a corporation
formed and organized under the laws of California, while in that of
the Union Pacific Congress created the corporation to which the
grants were made. The California corporation was organized under a
state law with an authorized capital of $8,500,000, to build a road
from the City of Sacramento to the eastern boundary of the state, a
distance of about one hundred and fifteen miles. Under the
operation of its California charter, it could only borrow money to
an amount not exceeding the capital stock, and must provide a
sinking fund for the ultimate redemption of the bonds. Hittell's
Cal. Laws, 1850-64, sec. 840. No power was granted to build any
road outside the state, or in the state except between the termini
named. By the act of 1862, Congress granted this corporation the
right to build a road from San Francisco, or the navigable waters
of the Sacramento River to the eastern boundary of the state, and
from there through
Page 99 U. S. 728
the territories of the United States until it met the road of
the Union Pacific Company. For this purpose all the rights,
privileges, and franchises were given this company that were
granted the Union Pacific Company, except the franchise of being a
corporation, and such others as were merely incident to the
organization of the company. The land grants and subsidy bonds to
this company were the same in character and quantity as those to
the Union Pacific, and the same right of amendment was reserved.
Each of the companies was required to file in the Department of the
Interior its acceptance of the conditions imposed, before it could
become entitled to the benefits conferred by the act. This was
promptly done by the Central Pacific Company, and in this way that
corporation voluntarily submitted itself to such legislative
control by Congress as was reserved under the power of
amendment.
No objection has ever been made by the state to this action by
Congress. On the contrary, the state, by implication at least, has
given its assent to what was done, for in 1864 it passed "An Act to
aid in carrying out the provisions of the Pacific railroad and
telegraph act of Congress," and thereby confirmed and vested in the
company "all the rights, privileges, franchises, power, and
authority conferred upon, granted to, or vested in said company by
said act of Congress," and repealed "all laws or parts of laws
inconsistent or in conflict with . . . the rights and privileges
herein (therein) granted." Hittell's Laws, sec. 4798; Acts of
1863-64, 471. Inasmuch as by the Constitution of California then in
force (art. 4, sec. 31) corporations, except for municipal
purposes, could not be created by special act, but must be formed
under general laws, the legal effect of this act is probably little
more than a legislative recognition by the state of what had been
done by the United States with one of the state corporations.
In so doing, the state but carried out its original policy in
reference to the same subject matter, for as early as May 1, 1852,
an act was passed reciting
"that the interests of this state, as well as those of the whole
Union, require the immediate action of the government of the United
States, for the construction of national thoroughfare connecting
the navigable
Page 99 U. S. 729
waters of the Atlantic and Pacific Oceans, for the purposes of
national safety, in the event of war, and to promote the highest
commercial interests of the Republic,"
and granting the right of way through the state to the United
States for the purpose of constructing such a road. Hittell's Laws,
sec. 4791; Acts of 1852, 150. In 1859, Acts of 1859, 391, a
resolution was passed calling a convention
"to consider the refusal of Congress to take efficient measures
for the construction of a railroad from the Atlantic states to the
Pacific, and to adopt measures whereby the building of said
railroad can be accomplished,"
and at the same session of the legislature, a memorial was
prepared asking Congress to pass a law authorizing the construction
of such a road, and asking also a grant of lands to aid in the
construction of railroads in the state. Acts of 1859, 395. Nothing
was done, however, by Congress until the Rebellion, which at once
called the attention of all who were interested in the preservation
of the Union to the immense practical importance of such a road for
military purposes, and then, as soon as a plan could be matured and
the necessary forms of legislation gone through with, the Act of
July 1, 1862, was passed. But this was not enough to interest
capitalists in the undertaking, and although the Legislature of
California during the year 1863 passed several acts intended to
hold out further inducements, but little was accomplished until the
amendatory act of Congress in 1864, which, besides authorizing the
first mortgage and changing in some important particulars the
conditions on which the subsidy bonds were to be issued, conferred
additional powers on the corporation, some of which, such as the
right of eminent domain in the territories, the state could not
grant, and others, such as the right of issuing first mortgage
bonds without a sinking fund, and in excess of the capital stock,
it had seen fit to withhold. This act also reserved to Congress
full power of amendment, and was promptly accepted by the
corporation. With this addition of corporate powers and pecuniary
resources the work was pushed forward to completion with unexampled
energy. But for the corporate powers and financial aid granted by
Congress it is not probable that the road would have been built.
The first mortgage bonded debt was created without a sinking fund,
and the road
Page 99 U. S. 730
in the territories built under the authority of Congress,
assented to and ratified by the state.
The Western Pacific Company, now by consolidation a part of the
Central Pacific Company, was also organized, Dec. 13, 1862, Acts of
1863, 81, under the general railroad law of California, with power
to construct a road from a point on the San Francisco and San Jose
Railroad, at or near San Jose, to Sacramento, and there connect
with the road of the Central Pacific Company. Afterwards the
Central Pacific Company assigned to this corporation its rights,
under the act of Congress, to construct the road between San Jose
and Sacramento; and this assignment was ratified by Congress, "with
all the privileges and benefits of the several acts of Congress
relating thereto, and subject to all the conditions thereof." 13
Stat. 504. By the same act further privileges were granted by the
United States both to the Central Pacific and Western Pacific
Companies, in respect to their issue of first mortgage bonds.
Under this legislation, we are of the opinion that, to the
extent of the powers, rights, privileges, and immunities granted
these corporations by the United States, Congress retains the right
of amendment, and that in this way it may regulate the
administration of the affairs of the company in reference to the
debts created under its own authority, in a manner not inconsistent
with the requirements of the original state charter, as modified by
the state Aid Act of 1864, accepting what had been done by
Congress. This is as far as it is necessary to go now. It will be
time enough to consider what more may be done when the necessity
arises. As yet, the state has not attempted to interfere with the
action of Congress. All complaint thus far has come from the
corporation itself, which, to secure the government aid, accepted
all the conditions that were attached to the grants, including the
reservation of power to amend.
It is clear that the establishment of a sinking fund by the act
of 1878 is not at all in conflict with any thing contained in the
original state charter, for by that charter no such debt could be
created without provision for such a fund. This part of the act of
1878 is therefore in the exact line of the policy
Page 99 U. S. 731
of the state, and does no more than place the company again, to
some extent, under obligations from which it had been released by
congressional legislation. So too the reservation of the power of
amendment by Congress is equally consistent with the settled policy
of the state; for not only the state charter, in terms, makes such
a reservation in favor of the state, but the Constitution expressly
provides that all laws for the creation of corporations "may be
altered from time to time, or repealed." Art. 4, sec. 31.
It is not necessary now to inquire whether, in ascertaining the
net earnings of the company for the purpose of fixing the amount of
the annual contributions to the sinking fund, the earnings of all
the roads owned by the present corporation are to be taken into the
account, or only of those in aid of which the land grants were made
and the subsidy bonds issued. The question here is only as to the
power of Congress to establish the fund at all. If disputes should
ever arise as to the manner of stating the accounts, they can be
settled at some future time.
Judgment affirmed.
Decree affirmed.
MR. JUSTICE FIELD, MR. JUSTICE STRONG, and MR. JUSTICE BRADLEY,
dissented.
MR. JUSTICE STRONG.
In my opinion, the Act of Congress of May 7, 1878, is plainly
transgressive of legislative power. As was said by Mr. Hamilton in
his celebrated communication to the Senate of Jan. 20, 1795,
"when a government enters into a contract with an individual, it
deposes, as to the matter of the contract, its constitutional
authority and exchanges the character of legislator for that of a
moral agent, with the same rights and obligations as an individual.
Its promises may be justly considered as excepted out of its power
to legislate, unless in aid of them. It is in theory impossible to
reconcile the idea of a promise which obliges with a power to make
a law which can vary the effect of it."
3 Hamilton's Works 518, 519. Opinions similar to this have often
found expression in judicial decisions, even in those of this
Court. If this
Page 99 U. S. 732
be sound doctrine, it is as much beyond the power of a
legislature, under any pretense, to alter a contract into which the
government has entered with a private individual, as it is for any
other party to a contract to change its terms without the consent
of the person contracting with him. As to its contract the
government in all its departments has laid aside its sovereignty,
and it stands on the same footing with private contractors.
The contracts of the government with the Union Pacific Railroad
Company and with the Central Pacific, which the act of Congress of
1878 has in view, were not made by the act of 1862, the act
chartering the former company, nor by the amending act of 1864.
They were made after those acts had been accepted by the companies,
and after their chartered rights had been completely acquired.
There was no agreement of the companies to repay the loan of
government bonds made to them, until the bonds were issued and
delivered. The companies were under no obligation to accept the
loan and assume the liability resulting from its acceptance. The
contracts, therefore, are no part of the charter of the Union
Pacific Company, and no part of the acts of 1862 or 1864. They are
subsequent to those acts and independent of them. It is true
Congress authorized the loan. It made the companies offers to lend
upon certain conditions, and when those offers and conditions were
subsequently accepted, the contracts of loan were made. Not until
then. Before that time there was nothing but an unaccepted
offer.
What, then, was the contract when it was made? The government
lent its bonds, and, in consideration of the loan, each company
assumed five obligations: 1st, to pay the bonds at their maturity,
that is, at the expiration of thirty years; 2d, to keep the
railroad and telegraph line in repair and use; 3d, to furnish
transmission of dispatches and transportation for the government at
reasonable rates, allowing it a preference for such purposes; 4th,
to apply to the payment of the bonds and interest half the
compensation due to it from the government for services rendered,
until the whole amount of the loan is fully paid; and, 5th, after
the completion of the railroad, to apply to the payment of the
bonds at least five percent annually
Page 99 U. S. 733
of its net earnings. The lender required and the borrower
undertook nothing more.
It is manifest that by this contract the government acquired a
vested right to payment at the time and in the mode specified, as
well as to preference of transportation and transmission of
dispatches, and the company acquired a vested right to retain the
consideration given for its assumption -- that is, a vested right
to withhold payment until by the terms of the contract payment
became due. The contract implied an agreement not to call for
payment or additional security before that time. I cannot conceive
of any rational doubt of this. There is no technicality about
vested rights. Most of them grow out of contracts, and, no matter
how they arise, they are all equally sacred, equally beyond the
reach of legislative interference. A vested right of action is
property in the same sense in which rights to tangible things are,
and is equally protected. Whether it springs from contract or from
other rules of the common law, it is not competent for the
legislature to take it away. If we look at what must have been the
understanding of all parties to these contracts of loan, the rights
created and vested under them cannot be in doubt. The government
sought to induce private adventurers to construct a railroad and
telegraph line to the Pacific Ocean -- a work which necessarily
required years and immense expenditures for its accomplishment. A
loan, repayable on call or within a short time, would have been no
inducement. Had it been dreamed that a call could have been made at
any time thereafter designated by Congress, it is inconceivable
that the loan proffered would have been accepted. It would have
furnished no reliable basis for an attempt to build the road. The
parties could not so have understood the bargain. The bonds were
required to be paid by the companies only at their maturity, except
so far as half-payment for governmental service, and five percent
of the net earnings, after the completion of the road, might pay.
The contract therefore means exactly what it would have meant had
it contained the express stipulation
"The United States shall not require payment of the amount of
the bonds or any part thereof (except half-compensation for
services, and five percent of net earnings) until the expiration of
thirty years from
Page 99 U. S. 734
their issue to the company, or date, nor shall additional
security be required, beyond the lien reserved."
Such was the contract. It was not one of the franchises granted
in the charter of the Union Pacific or the Central Pacific, but it
was a business transaction, differing in nothing, except parties,
from what it would have been if it had been made between two
private individuals. It is true Congress authorized the loan on the
terms upon which it was made; but, as I have said, the contract was
not made by the act of Congress, or with Congress. It was a
subsequent transaction, and the United States became a party to it,
not in its sovereign character, but as a civil corporation, as said
by Mr. Hamilton, with the same rights and obligations as a private
person, and no more.
Now what has been attempted by the act of May 7, 1878? That act
was passed with sole reference to this contract, and all its
provisions have in view the imposition of additional obligations
upon the railroad company. It does not purport to be a repeal of
the charter. Its leading purpose is to take control of the property
of the debtor, and sequester it for the security of a debt, which,
by the terms of the contract, is not due and payable for years to
come. I shall not go over all its provisions. It will be sufficient
to notice some of the more prominent ones, which, if they are ruled
to be operative, greatly change the contract which the parties made
when the bonds were delivered and accepted, when the contract was
closed, and which impose new and oppressive obligations upon the
debtor.
By the contract only one-half the compensation for services
rendered to the government was required to be applied to the
payment of the bonds, but by this act the whole amount of the
compensation which may from time to time be due for services
rendered to the government is directed to be retained by the United
States, and at the same time the obligation to render those
services is continued. By the third section of the act, a sinking
fund is established in the Treasury of the United States -- that
is, in the Treasury of the creditor; and the fourth section enacts
that there shall be carried into that fund, on the first day of
February in each year, the one-half of the compensation above
Page 99 U. S. 735
named, not applied in liquidation of interest. By the contract,
the debtor was bound to pay only five percent of its net earnings,
after the completion of the road, annually to the creditor, but
this act requires the debtor to pay into the creditor's treasury,
to the credit of the sinking fund, twenty-five percent of its whole
net earnings, on the 1st of February in each year. The act further
directs that the sinking fund thus created shall, with its
accumulations, be invested in bonds of the United States, and at
the maturity of the bonds loaned to the debtor be applied to the
payment and satisfaction thereof, and of all interest paid by the
United States. There are other provisions of this act intended to
enforce compliance with these newly added obligations imposed upon
the debtor, as also provisions that the sinking fund shall be held
for the benefit, protection, and security of other lien creditors
of the debtor. But I deem it unnecessary to mention them in detail.
Those which I have mentioned are enough for the present case. No
one can deny that they materially change the contract of loan and
borrowing previously existing between the government and the
railroad companies, and change it at the will of the creditor
alone. Nor can it be denied that they impose upon the debtors new
and onerous burdens that they never agreed to assume. Practically,
they enforce payment of the debt before, by the terms of the
contract, it is due. The act seizes the half-compensation, which
the government agreed should not be retained, and covers it into
the Treasury, appropriating it to the payment of the debt. For
nothing else can it be used. The act also requires payment into the
Treasury of twenty-five percent of the net earnings of the company,
instead of five percent only, as stipulated when the contract was
made. It is true it does not make immediate application of the sums
thus withheld and demanded to the extinguishment of the debt. It
declares that they shall be applied to the payment of the debt and
interest "at the maturity of the bonds." But this is a distinction
without a difference, obviously made to evade what it was known
could not lawfully be done. An immediate application might as well
have been directed. It would probably be better for the debtor if
the application were immediately made. The money is taken from the
debtor, withdrawn entirely from the
Page 99 U. S. 736
debtor's control and use, and put into the Treasury of the
creditor, and there left to the mere agreement of the creditor to
apply it to payment. I apprehend no plain man of common sense will
hesitate to conclude that this is exacting payment before the debt
is due. If A. borrows from B. $1,000, and gives his note therefor,
payable at the expiration of five years, and at the end of one year
the lender demands that there be placed in his hands by the debtor
a sum of money to meet the note when it shall fall due, it will
hardly be contended that would not be requiring payment before the
debtor was bound to pay. And if such a demand could be enforced, it
would be at the expense of the contract. What more is the present
case? And were it conceded the act of 1878 does not attempt to
enforce the payment before the maturity of the debt, the concession
would be of little worth, for it will not be questioned that it
attempts to enforce giving additional security for payment beyond
that stipulated for in the contract. That is no less a material
alteration of the contract, a serious addition to it. The plain
truth is the assertion of such a power is claiming the right to
disregard the contract entirely, and substitute for it a different
one, without the consent of the debtor. If the United States can
exact now one-quarter of the net earnings of each of these
companies, and place it in their Treasury, they can, by the same
power, and with the same reason, exact the whole of the earnings,
or any other property equal to the amount of the debt. Was any such
thing contemplated by the parties when the contract was made?
Now where is the power of Congress to add new terms to any
contract made with the United States, or made between any two
private individuals? Where is the power to annul vested rights? It
is certainly not to be found in the Constitution. True, the
provision that no state shall pass any law impairing the obligation
of contracts applies only to state legislation. For such
legislation, the prohibition was necessary, for state legislatures
have all legislative power which is not expressly denied to them.
But no necessity existed for imposing such a limitation on the
power of Congress. As Mr. Hamilton said in the eighty-fourth number
of the Federalist, "Why declare that things shall not be done which
there is no power to
Page 99 U. S. 737
do?" Congress has no power except such as has been expressly
granted to it, or such as is necessary or proper for carrying into
execution the powers specified, and those vested by the
Constitution in the government, or some department or officer
thereof. I search in vain for any express or implied grant of power
to add new terms to any existing contracts made by or with the
government, or any grant of power to destroy vested rights. No
power has been given to Congress to lessen the obligations of a
contract between private parties by direct legislation, except by
the enactment of uniform laws on the subject of bankruptcy. Even a
bankrupt law cannot be enacted applicable only to single
corporations or single debtors. To be constitutional, it must be
uniform throughout the United States. I admit that in the exercise
of some of the powers granted, Congress may enact laws that
indirectly affect existing contracts and lessen their obligation,
but I deny that it can by any direct action, otherwise than by a
bankrupt law, even relieve a debtor to a private party from any
duty he has assumed by his contract. Much less can it change the
stipulations of the contract and impose additional liabilities upon
a contractor with the government. Such an exercise of power would
be making a contract for parties to which they never assented. In
all the history of congressional legislation before the act of
1878, such a power was never attempted to be exercised.
And not only is such legislative authority not conferred upon
Congress by the Constitution, but it is in effect expressly denied.
The Fifth Amendment contains restrictions taken, in substance, from
Magna Charta. Among them are the provisions that no person shall be
deprived of life, liberty, or property without due process of law,
nor shall private property be taken for public use without just
compensation. These are restrictions upon legislative as well as
executive power. What is due process of law is well understood. It
is law in regular course of administration through courts of
justice. Coke, 2 Inst. 272;
Murray's Lessee v. The Hoboken
Land & Improvement Co., 18 How. 272.
"The terms 'the law of the land,' said Chief Justice Ruffin,
Hoke v. Harderson, 4 Dev. (N.C.) 1, do not mean merely an
act of the General Assembly. If they
Page 99 U. S. 738
did, every restriction upon legislative authority would be at
once abrogated, and private property would be at the mercy of the
legislature."
P. 15. Yet the act of 1878 does attempt by its own force, and
without any judicial action, not only to change a contract and
increase its obligations, but also to deprive the railroad
companies of their property. What is property? What is the common
understanding of the term? It is, in reference to its subject,
whatever a person can possess and enjoy by right, and the person
who has that right has the property. The subject may be corporeal
or incorporeal. A right in action is as completely property as is a
title to land. A very large portion of the property of the country
consists in rights attendant upon contract. The right of a promisee
to demand payment when the note falls due is a right of property,
and equally so is the right of the promisor to hold, as against his
promisee, the consideration for the promise until the time
stipulated in the note for payment. The promises has no right to
enforce payment, or to enforce giving security for it, if none was
promised in the contract. Such a right is no portion of his
property, and it can be enforced only at the expense of a clear
right of the promisor. On the other hand, the promisor has a right
to exemption from liability to give such security. It is incident
to his contract. Indeed, it may be said that whatever rights are
created by contract, or held under it, if they relate to property,
are themselves, in a very just sense, property, and as such are
protected by the Fifth Amendment to the Constitution.
I notice another consideration which, to my mind, is not without
weight. It may, I think, well be doubted whether the act of 1878 is
even an attempted exercise of legislative power. A statute
undertaking to take the property of A. and transfer it to B. is not
legislation. It would not be a law. It would be a decree or
sentence, the right to declare which, if it exists at all, is in
the Judicial Department of the government. The act of Congress is
little, if any, more. It does not purport to be a general law. It
does not apply to all corporations or to all debtors of the
government. It singles out two corporations, debtors of the
government, by name, and prescribes for them as debtors new duties
to their creditor. It thus attempts
Page 99 U. S. 739
to perform the functions of a court. This, I cannot but think,
is outside of legislative action and power.
I turn now to the arguments by which the constitutionality of
the act of Congress has been attempted to be supported. It is said
that, though Congress cannot directly abrogate contracts or impair
their obligation, it may indirectly, by the exercise of other
powers granted to it. This I have conceded, but I deny that an
acknowledged power can be exerted solely for the purpose of
effecting indirectly an unconstitutional end which the legislature
cannot directly attempt to reach. If the purpose were declared in
the act, I think no court would hesitate to pronounce the act void.
In
Hoke v. Harderson, to which I have referred, Chief
Justice Ruffin, when considering at length an argument that a
legislature could purposely do indirectly what it could not do
directly, used this strong language:
"The argument is unsound in this, that it supposes (what cannot
be admitted as a supposition) the legislature will, designedly and
willfully, violate the Constitution in utter disregard of their
oaths and duty. To do indirectly in the abused exercise of an
acknowledged power, not given for, but perverted for that purpose,
that which is expressly forbidden to be done directly, is a gross
and wicked infraction of the Constitution."
It is unnecessary, however, to enlarge upon this, for the effect
wrought upon the contracts of these two companies is a direct
effect -- a direct alteration of the obligation assumed by the
debtors, and not an incidental result of legislation upon some
other subject over which Congress has a right to legislate. It is
too plain to admit of any doubt that the sole object of the act of
1878 was to enforce giving new and additional security for the
payment of the subsidy bonds at their maturity. All its provisions
aim directly at that, and the new terms thereby added to the
contract have that end solely in view.
In further attempted support of the validity of the act, it has
been denied that it does change the contract, because it does not
require the application of the additional payments to the
satisfaction of the debt before its maturity. I have, perhaps, said
enough upon this subject. The argument can hardly be seriously
made. The act does compel the debtors to surrender
Page 99 U. S. 740
possession of their property to the creditor before the time
when, by the terms of the contract, they were under obligation to
part with it. The debtors are no longer permitted to hold and use
one-half the compensation due presently from the government for
services rendered, and are no longer at liberty to use all their
net income or earnings, except five percent, at their discretion.
One quarter of their net earnings they are compelled to surrender
to the creditor. Thus the creditor becomes the custodian of the
debtors' property, and acquires a right to hold and manage it as if
it were his own. It is absurd to say this is not practically a
radical change in the relations between the parties established by
the contract. And it is equally impossible to maintain that it is
not depriving the debtors of their property without due process of
law.
I turn now to what has been most relied upon in support of the
validity of the act. I refer to the clauses in the acts of 1862 and
1864, reserving the right to repeal, amend, or alter. There are two
such -- one in the act of 1862, and one in that of 1864. That in
the latter act is the broadest, and it is as follows: "Congress may
at any time alter, amend, or repeal this act." The power thus
reserved is one over the act itself, not over any thing that may
have lawfully been done under the act, before its repeal or
alteration. It is only by great confusion of things essentially
distinct that this power can be construed as applicable to a
contract made after the corporation came into existence. Besides,
the act of 1878 does not attempt to repeal, or alter or amend, the
acts of 1862 and 1864. It changes no franchise granted by those
acts, nor does it interfere with its exercise. It interferes only
with the fruits of the franchise. The right to possess and enjoy
the income of the company is not a franchise. It is an incident of
the ownership of the company's property, though the property may be
accumulated by the use of the franchise. Concede that Congress has
power to regulate the tolls on the railroad, or in some other mode
to restrict the use of the franchise, and thus lessen the income,
yet the income, whether large or small when made, is the company's
property, and, like other property, protected against being taken
without due process of law. Or suppose the acts of 1862 and 1864
were repealed, and thus all the franchises
Page 99 U. S. 741
granted by them were taken away, the property of the company
would remain, and the income thereof, though greatly decreased,
would be the property of the stockholders. Nobody denies that. Is
the lesser greater than the whole? I repeat, therefore, the act of
1878 is no exercise of the reserved power to alter, amend, or
repeal the acts of 1862 and 1864. It is no attempt to make any such
repeal or amendment. It is at most an attempt to seize the fruits
of the franchise after they shall have become the vested property
of the corporations. It is an attempt to sequester the income of
the property owned by them. As well might the government attempt to
seize and put into its treasury the rents, issues, and profits of
the lands granted to them by the third and fourth sections of the
act of 1862, and call that an amendment of the act. There is no
distinction to be made between the profits of the road and
telegraph line and the rents of the lands. None has been
attempted.
But if the act of 1878 could be considered an alteration or
amendment of the acts of 1862 and 1864, the question would still
remain, what was the extent of the power reserved by those acts. I
mean the power to alter, amend, or repeal them. All the cases agree
that such a reserved power is not without limits. I think its
limits may be stated generally thus: it must be exercised, when
exerted at all, so as to do no injustice to those to whom the
franchise has been granted. Certainly the reservation cannot mean a
right to take away the franchise, in whole or in part, and yet hold
the grantee to the performance of the duties assumed, -- the
consideration given for the grant. Nor can it mean to continue in
the legislative power which the legislature never possessed, and
which it is constitutionally incapable of exercising. A partial
definition of the limits of the reserved power may be found in
Commonwealth v. Essex Company, 13 Gray (Mass.) 239, where
Chief Justice Shaw (speaking of the reserved power to alter, amend,
or repeal a charter), said:
"It seems to us this power must have some limit, though it is
difficult to define it. Suppose authority has been given by law to
a railroad corporation to purchase a lot of land and hold it for
purposes connected with its business, and they purchase such lot
from a third person, could the legislature
Page 99 U. S. 742
prohibit the company from holding it? If so, in whom would it
vest? Or could the legislature direct it to revert to the grantor
or escheat to the public? Or how otherwise? Suppose a manufacturing
company, incorporated, is authorized to construct a dam and flow a
tract of meadow, and the owners claim gross damages, which are
assessed and paid, can the legislature afterwards alter the act of
incorporation so as to give to such meadow owners future annual
damages? Perhaps from these extreme cases, for extreme cases are
allowable to test a legal principle, the rule to be extracted is
this: that where, under a power in a charter, rights have been
acquired and become vested, no amendment or alteration of the
charter can take away the property or rights which have become
vested under a legitimate exercise of the powers granted."
P. 253. This rule has been recognized ever since.
Vide Sage
v. Dillard, 15 B.Mon. (Ky.) 349. It has been adopted by this
Court. In
Miller v.
State, 15 Wall. 478, it was said by Mr. Justice
Clifford:
"Power to legislate founded upon such a reservation in a charter
of a private corporation is certainly not without limits, and it
may well be admitted that it cannot be exercised to take away or
destroy rights acquired by such a charter, and which, by a
legitimate use of the powers granted, have become vested in the
corporation."
To the same effect is
Holyoke Company v.
Lyman, 15 Wall. 500. If this limitation be
admitted, it is impossible to see how a reserved power to alter,
amend, or repeal an act granting a private charter can include a
right to change the stipulations of a contract made under that
charter, or to sequester for purpose the property of the company
acquired while the charter remains unrepealed and unaltered. If the
acts of 1862 and 1864 were repealed, would not the contract of loan
remain unaffected thereby? Can a legislature that offers a contract
on certain terms change those terms after they have been accepted
and after the contract has been perfected? Yet that is what the act
of 1878 attempts to do. A principal who has authorized his agent to
make a contract for him may revoke or restrict the agency before
any contract is made, but he is bound by a contract made during the
continuance of the agent's powers, if those powers were not
transgressed in making it. He cannot afterwards repudiate its
Page 99 U. S. 743
terms or add to them. I see no essential difference between such
a case and the present. I cannot confound an alteration of the acts
of 1862 and 1864 with an alteration of a subsequent commercial
contract authorized by those acts, and made between the United
States and companies chartered by them. My conviction, therefore,
is that the act of 1878 cannot be defended as a legitimate exercise
of the powers reserved to Congress.
I need not say it cannot rest upon what is generally denominated
the visitatorial power of the government over its own corporations,
though it is upon this power the opinion of the majority of the
Court largely relies. That power is applicable only to eleemosynary
corporations, such as colleges, schools, and hospitals, and the
visitation is always through the medium of courts of justice. It is
judicial and not legislative. 2 Kent Com., Lect. 23, sec. 4. To
claim, therefore, that, by virtue of that power, a private business
corporation can be compelled by legislative action to establish a
sinking fund for the payment of its debts, and deposit it in the
Treasury of its creditor, is totally inadmissible.
There are undoubtedly many cases to be found in which it has
been decided that, by virtue of such a reservation as that
contained in the acts of 1862 and 1864, a legislature may make new
regulations, to some extent, of the action of corporations created
by it -- such as prescribing a new measure of tolls, increasing the
capital of insurance companies, repealing an exemption from
taxation, and the like. So, without the reservations, some new
regulations may be prescribed in the exercise of the police power.
They are all regulations of the franchise or of its use -- not
invasions of rights or property acquired under the franchise
subsequently to its grant; and not one of them under the practice
of amendment or rightful regulation has undertaken to change or
vary any contract the corporation had made, or to control
possession of property acquired. The act of 1878 is, I believe, the
first assertion of any such force in the reservation. It is a very
grave and dangerous assertion. It is especially dangerous in these
days of attempted repudiation, when the good faith of the
government is above all price. If it can be maintained, the
government is no longer bound by
Page 99 U. S. 744
any commercial contract into which it may enter with these
corporations, though it holds them bound. I cannot assent to any
such doctrine, and upon he whole, in my opinion, the act of 1878 is
not only unauthorized by any power existing in Congress, but it is
an infraction of the prohibition I have pointed out, contained in
the Fifth Amendment of the Constitution.
Most of what I have said is applicable to each of the cases --
that of the Union Pacific and that of the Central. There are some
other considerations peculiar in the case of the Central Pacific,
which is a corporation of the state of California, and was such in
1862. These I leave for consideration by my brethren who unite with
me in dissent.
MR. JUSTICE BRADLEY.
I am unable to concur in the judgment of the court in these
cases, and will very briefly state the grounds of my dissent.
I think that Congress had no power to pass the Act of May 7,
1878, either as it regards the Union Pacific or the Central Pacific
Railroad Company. The power of Congress, even over those subjects
upon which it has the right to legislate, is not despotic, but is
subject to certain constitutional limitations. One of these is that
no person shall be deprived of life, liberty, or property without
due process of law; another is that private property shall not be
taken for public use without just compensation, and a third is that
the judicial power of the United States is vested in the supreme
and inferior courts, and not in Congress. It seems to me that the
law in question is violative of all these restrictions -- of their
spirit at least, if not of their letter; and a law which violates
the spirit of the Constitution is as much unconstitutional as one
that violates its letter. For example, although the Constitution
declares only that private property shall not be taken for public
use without just compensation, and does not expressly declare that
it shall not be taken for private use without compensation, or in
other words does not declare that the property of one person shall
not be taken from him and given to another without compensation,
yet no one can reasonably doubt that a law which should do this
would be unconstitutional, because the prohibition to do
Page 99 U. S. 745
it is within the spirit of the prohibition that is given, it
being the greater enormity of the two.
The contract between the Union and Central Pacific Railroad
Companies and the government was an executed contract, and a
definite one. It was in effect this: that the government should
loan the companies certain moneys, and that the companies should
have a certain period of time to repay the amount, the loan resting
on the security of the companies' works. Congress, by the law in
question, without any change of circumstances, and against the
protest of the companies, declares that the money shall be paid at
an earlier day, and that the contract shall be changed
pro
tanto. This is the substance and effect of the law. Calling
the money paid a sinking fund makes no substantial difference. The
pretense or excuse for the law is that the stipulated security is
not good. Congress takes up the question,
ex parte,
discusses and decides it, passes judgment, and proposes to issue
execution, and to subject the companies to heavy penalties if they
do not comply. That is the plain English of the law. In view of the
limitations referred to, has Congress the power to do this? In my
judgment, it has not. The law virtually deprives the companies of
their property without due process of law; takes it for public use
without compensation, and operates as an exercise by Congress of
the judicial power of the government.
That it is a plain and flat violation of the contract there can
be no reasonable doubt. But it is said that Congress is not subject
to any inhibition against passing laws impairing the validity of
contracts. This is true, and the reason why the inhibition to that
effect was imposed upon the states and not upon Congress evidently
was, that the power to pass bankrupt laws should be exclusively
vested in Congress, in order that the bankruptcy system might be
uniform throughout the United States. When the states exercised the
power, they often did it in such a manner as to favor their own
citizens at the expense of the citizens of other states and of
foreign countries. It was deemed expedient, therefore, to take the
power from the states so far as it might involve the impairing the
validity of contracts. State bankrupt laws, since the Constitution
went into effect, have only been sustained when operating
prospectively
Page 99 U. S. 746
upon contracts, and then only in the absence of a national law.
The inhibition referred to undoubtedly had its origin in these
considerations. It fully explains the fact that no such inhibition
was laid upon the national legislature; and the absence of such an
inhibition, therefore, furnishes no ground of argument in favor of
the proposition that Congress may pass arbitrary and despotic laws
with regard to contracts any more than with regard to any other
subject matter of legislation. The limitations already quoted exist
in their full force, and apply to that subject as well as to all
others. They embody the essential principles of Magna Charta, and
are especially binding upon the legislative department of the
government. Under the English Constitution, notwithstanding the
theoretical omnipotence of Parliament, such a law as the one in
question would not be tolerated for a moment. The famous
denunciation that "it would cut every Englishman to the bone,"
would be promptly reiterated.
It will not do to say that the violation of the contract by the
law in question is not a taking of property. In the first place, it
is literally a taking of property. It compels the companies to pay
over to the government, or its agents, money to which the
government is not entitled. That it will be entitled by the
contract to a like amount at some future time does not matter. Time
is a part of the contract. To coerce a delivery of the money is to
coerce without right a delivery of that which is not the property
of the government, but the property of the companies. It is
needless to refer to the importance to the companies of the time
which the contract gives. If it be alleged that the security of the
government requires this to be done in consequence of waste of
dissipation by the companies of the mortgage security, that is a
question to be decided by judicial investigation with opportunity
of defense. A prejudgment of the question by the Legislative
Department is a usurpation of the judicial power.
But if it were not, as it is, an actual or physical taking of
property -- if it were merely the subversion of the contract and
the substitution of another contract in its place, it would be a
taking of property within the spirit of the constitutional
provisions. A contract is property. To destroy it wholly or
Page 99 U. S. 747
to destroy it partially is to take it, and to do this by
arbitrary legislative action is to do it without due process of
law.
The case bears no analogy to the laws which were passed in time
of war and public necessity, making Treasury notes of the
government a legal tender. The power to pass those laws was found
in other parts of the Constitution: in the power to borrow money on
the credit of the United States, to regulate the value of money, to
raise and support armies, to suppress insurrections, and to pass
all laws necessary and proper for carrying into execution the
general powers of the government. My views on that subject were
fully expressed in the
Legal Tender Cases, reported in 11
Wallace, and I have yet seen no reason to modify them. The legal
tender laws may have indirectly affected contracts, but did not
abrogate them. The case before us is totally different. It is a
direct abrogation of a contract, and that too of a contract of the
government itself -- a repudiation of its own contract.
Nor does the case in hand bear any analogy to what are
familiarly known as the
Granger Cases, reported in 94 U.S.
under the names of
Munn v. Illinois, &c. The inquiry
there was as to the extent of the police power in cases where the
public interest is affected; and we held that when an employment or
business becomes a matter of such public interest and importance as
to create a common charge or burden upon the citizen; in other
words, when it becomes a practical monopoly, to which the citizen
is compelled to resort, and by means of which a tribute can be
exacted from the community, it is subject to regulation by the
legislative power. It is obvious that the present case does not
belong to that category. It is an individual case of private
contract between the companies and the government. It is a question
of dollars and cents, and terms and conditions, in a particular
case. To call the law an exercise of the police power would be a
misuse of terms.
Great stress, however, is laid upon the reservation in the
charter of the right to amend, alter, or repeal the act.
As a matter of fact, the reservation referred to really has no
office in an act of Congress; for Congress is not subject, as the
states are, to the inhibition against passing any law impairing the
obligation of contracts. It has become so much the custom
Page 99 U. S. 748
to insert it in all charters at the present day, that its
original intent and purpose are sometimes forgotten. Since,
however, it is contained in the charter of the Union Pacific
Railroad Company, it is proper that its meaning and effect should
be adverted to.
It seems to me that this clause has been greatly misunderstood.
It is a sort of proviso peculiar to American legislation, growing
out of the decision in the
Dartmouth College Case. Mr.
Justice Story, in his opinion in that case,
17 U. S. 4
Wheat. 675, says:
"When a private eleemosynary corporation is thus created by the
charter of the crown, it is subject to no other control on the part
of the crown than what is expressly or impliedly reserved by the
charter itself. Unless a power be reserved for this purpose, the
crown cannot in virtue of its prerogative, without the consent of
the corporation, alter or amend the charter, or divest the
corporation of any of its franchises."
This hint, that such a reservation would authorize an alteration
or amendment to be made in a charter, has been freely availed of by
legislatures and constitutional conventions in order to be freed
from the constitutional restriction against impairing the validity
of contracts, so far as it applied to charters of incorporation.
The application of that restriction to such charters, by construing
them to be contracts within the meaning of the Constitution, was a
surprise to many statesmen and jurists of the country. Chief
Justice Marshall, indeed, in his opinion in that case, says:
"It is more than possible that the preservation of rights of
this description was not particularly in the view of the framers of
the Constitution, when the clause under consideration was
introduced into the instrument."
P.
17 U. S. 644.
Probably in view of this somewhat unexpected application of the
clause, operating as it did to deprive the states of nearly all
legislative control over corporations of their own creation, the
courts have given liberal construction to the reservation of power
to alter, amend, and repeal a charter; and have sustained some acts
of legislation made under such a reservation which are at least
questionable.
In my judgment, the reservation is to be interpreted as placing
the state legislature back on the same platform of power and
control over the charter containing it as it would have
Page 99 U. S. 749
occupied had the constitutional restriction about contracts
never existed, and I think the reservation effects nothing more. It
certainly cannot be interpreted as reserving a right to violate a
contract at will. No legislature ever reserved such a right in any
contract. Legislatures often reserve the right to terminate a
continuous contract at will; but never to violate a contract, or
change its terms without the consent of the other party. The
reserved power in question is simply that of legislation -- to
alter, amend, or repeal a charter. This is very different from the
power to violate, or to alter the terms of a contract at will. A
reservation of power to violate a contract, or alter it, or impair
its obligation, would be repugnant to the contract itself, and
void. A proviso repugnant to the granting part of a deed, or to the
enacting part of a statute, is void. Interpreted as a reservation
of the right to legislate, the reserved power is sustainable on
sound principles, but interpreted as the reservation of a right to
violate an executed contract, it is not sustainable.
The question then comes back to the extent of the power to
legislate. But that is a restricted power -- restricted by other
constitutional provisions, to which reference has already been
made. Certainly the legislature cannot in a charter of
incorporation, or in any other law, reserve to itself any greater
power of legislation then the Constitution itself concedes to it.
It seems to me clear, therefore, that the power reserved cannot
authorize a flat abrogation of the contract by Congress, because,
as before shown, such an abrogation would be a violation of those
clauses which inhibit the taking of property without process of law
and without compensation.
It may be said that by reason of the reserved power to alter and
repeal a charter, this Court has sustained legislative acts
imposing taxes from which the corporation by the charter was
exempted. This is true. But the imposition of taxes is preeminently
an act of legislation. Its temporary suspension, conceded in a
charter, is a suspension of the legislative power
pro
tanto. Being such, a reservation of the right to legislate,
or, which is the same thing, to alter, amend, or repeal the
charter, necessarily includes the right to resume the power of
taxation. The same observations apply to the regulation of fares
and freights, for this is a branch of the police power,
applicable
Page 99 U. S. 750
to all cases which involve a common charge upon the people.
I conclude, therefore, that the power reserved to alter, amend,
and repeal the charter of the Union Pacific Railroad Company is not
sufficient to authorize the passage of the law in question.
I will only add, further, that the initiation of this species of
legislation by Congress is well calculated to excite alarm. It has
the effect of announcing to the world, and giving it to be
understood, that this government does not consider itself bound by
its engagements. It sets the example of repudiation of government
obligations. It strikes a blow at the public credit. It asserts the
principle that might makes right. It saps the foundations of public
morality. Perhaps, however, these are considerations more properly
to be addressed to the legislative discretion. But when forced upon
the attention by what, in my judgment, is an unconstitutional
exercise of legislative power, they have a more than ordinary
weight and significance.
MR. JUSTICE FIELD.
I also dissent from the judgment of the court in these
cases.
The decision will, in my opinion, tend to create insecurity in
the title to corporate property in the country. It, in effect,
determines that the general government, in its dealings with the
Pacific Railroad Companies, is under no legal obligation to fulfill
its contracts, and that whether it shall do so is a question of
policy and not of duty. It also seems to me to recognize the right
of the government to appropriate by legislative decree the earnings
of those companies, without judicial inquiry and determination as
to its claim to such earnings, thus sanctioning the exercise of
judicial functions in its own cases. And in respect to the Central
Pacific Company it asserts a supremacy of the federal over the
state government in the control of the corporation which, in my
judgment, is subversive of the rights of the state. I therefore am
constrained to add some suggestions to those presented by my
associates, Justices Strong and Bradley. In what I have to say I
shall confine myself chiefly to the case of the Central Pacific
Company. That company is a state corporation, and is the successor
of a corporation of the same name, created before the railroad acts
of Congress were passed,
Page 99 U. S. 751
and of four other corporations organized under the laws of the
state. No sovereign attributes possessed by the general government
were exercised in calling into existence the original company, or
any of the companies with which it is now consolidated. They all
derived their powers and capacities from the state, and held them
at its will.
The relation of the general government to the Pacific companies
is twofold: that of sovereign in its own territory and that of
contractor. As sovereign, its power extends to the enforcement of
such acts and regulations by the companies as will insure, in the
management of their roads, and conduct of their officers in its
territory, the safety, convenience, and comfort of the public. It
can exercise such control in its territory over all common carriers
of passengers and property. As a contractor it is bound by its
engagements equally with a private individual; it cannot be
relieved from them by any assertion of its sovereign authority.
Its relation to the original Central Pacific Company, and to the
present company as its successor, in the construction and equipment
of its road, and its use for public purposes, was and is that of a
contractor, and the rights and obligations of both are to be
measured, as in the case of similar relations between other
parties, by the terms and conditions of the contract.
By the first section of the original railroad act of Congress,
passed in July, 1862, certain persons therein designated were
created a corporation by the name of the Union Pacific Railroad
Company, and authorized to construct and operate a continuous
railroad and telegraph line from a designated point on the one
hundredth meridian of longitude west from Greenwich to the western
boundary of Nevada territory, and were invested with the powers,
privileges, and immunities necessary for that purpose, and with
such as are usually conferred upon corporations.
By subsequent provisions of the act and the amendatory act of
1864, three grants were made to the company thus created: a grant
of a right of way over the public lands of the United States for
the road and telegraph line; a grant of ten alternate sections of
land on each side of the road, to aid in its construction and that
of the telegraph line; and a grant of a certain
Page 99 U. S. 752
number of subsidy bonds of the United States, each in the sum of
$1,000 payable in thirty years, with semiannual interest -- patents
for the lands and the bonds to be issued as each twenty consecutive
miles of the road and telegraph should be completed. These grants
were made upon certain conditions as to the completion of the road
and telegraph line, their construction and use by the government,
and their pledge as security for the ultimate payment of the bonds.
They were the considerations offered by the government to the
company for the work which it undertook.
By the act which thus incorporated the Union Pacific Company and
made the grants mentioned, the United States proposed to the
Central Pacific that it should construct in like manner a railroad
and a telegraph line through the state of California from a point
near the Pacific coast to its eastern boundary, upon the same terms
and conditions, and after completing them across the state, to
continue their construction through the territories of the United
States until they should meet and connect with the road and
telegraph line of the Union Pacific.
They, in effect, said to the company, that if it would construct
a railroad and a telegraph line from the Pacific Ocean eastward to
a connection with the Union Pacific -- the road to be in all
respects one of first class -- and keep them in repair, so that
they could be used at all times by any department of the government
for the transmission of dispatches and the transportation of mails,
troops, munitions of war, supplies, and public stores, at
reasonable rates of compensation, not exceeding such as were
charged private persons for similar services, and allow the
government at all times the preference in the use of the road and
telegraph -- they would grant the company a right of way over the
public lands for the construction of the road and telegraph line,
and grant to it ten alternate sections of land on each side of the
road, and give it their bonds, each for the sum of $1,000, payable
thirty years after date, with semiannual interest, such bonds to be
issued at the rate of sixteen, thirty-two, or forty-eight the mile,
according to the character of the country over which the road
should be constructed; and would issue patents for the lands, and
the subsidy bonds, as
Page 99 U. S. 753
each twenty consecutive miles of the road and telegraph should
be completed in the manner prescribed, it being agreed that the
company should pay the bonds as they should mature, and that for
the security of their payment they should constitute a second
mortgage upon the whole line of the road and telegraph, and that
one-half of the compensation earned for services to the government,
and, after the completion of the road, five percent of its net
earnings should be retained and applied to the payment of the
bonds, and also, that the company should complete the road by the
1st of July, 1876, and keep it in repair and use thereafter, or
upon failure to do so, that the government might take possession of
the road and complete it, or keep it in repair and use as the case
might be. And they further in effect said that if these terms and
conditions were satisfactory, the company should file its written
acceptance thereof with the Secretary of the Interior, within six
months thereafter, and that thereupon there should be a contract
between them.
This proposition of the government the Central Pacific accepted,
and filed its acceptance as required, and thereupon the provisions
of the act became a contract between it and the United States, as
complete and perfect as could be made by the most formal
instrument. The United States thus came under obligation to the
company to make the grants and issue the bonds stipulated, upon the
construction of the road and telegraph line in the manner
prescribed. The corporate capacity of the company in no respect
affected the nature of the contract, or made it in any particular
different from what it would have been had a natural person been
one of the parties. The company was not a creature of the United
States, and Congress could neither add to nor subtract from its
corporate powers. The exercise of the right of eminent domain
allowed in the territories was not the exercise of a corporate
power. That right belongs to the sovereign authority, and whoever
exercises it does so as the agent of that sovereignty. Nor was its
character as a state institution changed by the fact that it was
permitted by Congress to extend its road through the territory of
the United States. This permission was no more than the license
which is usually extended by positive agreement, or by comity in
the absence of such agreement, by one state to the corporations
of
Page 99 U. S. 754
another state, to do business and own property in its
jurisdiction. Such license is not the source of the corporate
powers exercised. Insurance companies, express companies, and
indeed companies organized for almost every kind of business are,
by comity, permitted throughout the United States, and generally
throughout the civilized world, to do business, make contracts, and
exercise their corporate powers in a jurisdiction where, in a
strict legal sense, they have no corporate existence. The Pacific
Mail Steamship Company, for example, to take an illustration
mentioned by counsel, is a corporation created under the laws of
the State of New York, and, like the Central Pacific, has been
subsidized by the United States. Its ships visit Central America,
California, Japan, and China, and in all these places it leases or
owns wharves, and makes and enforces contracts necessary to the
transaction of its business, yet no one has ever pretended or
suggested that it derived any of its corporate powers from the
United States, or from the authorities of any of the places named.
By consent of those authorities, expressed in terms, or implied in
what is understood as their comity, it exercises powers derived
solely from the state of New York.
When, therefore, Congress assented to the extension into the
territory of the United States of the road which the Central
Pacific was authorized by its charter to construct in California,
it was deemed important for the company to obtain also the consent
and authority of the state to act without its limits and assume
responsibilities not originally contemplated. Accordingly, in 1864,
the legislature of the state, at its second session after the
adoption of the original railroad act of Congress, in order to
enable the company to comply with its provisions and conditions,
authorized the company to construct, maintain, and operate the road
in the territory lying east of the state, and invested it with the
rights, privileges, and powers granted by the act of Congress, with
the reservation, however, that the company should
be subject to
all the laws of the state concerning railroad and telegraph
lines, except that messages and property of the United States,
of the state, and of the company should have priority of
transmission and transportation. The extent of the power which was
thus reserved we
Page 99 U. S. 755
shall hereafter consider. It is sufficient at present to observe
that it was an ample and complete as it is possible for one
sovereignty to exert over institutions of its own creation, and
that its exercise is incompatible with the control asserted by the
law of Congress of 1878, which has given rise to the present
suit.
The Central Pacific Company having accepted, as already stated,
the conditions proffered by Congress, proceeded at once to the
execution of its contract. In the face of great obstacles, doubts,
and uncertainties, its directors commenced and prosecuted the work,
and within a period several years less than that prescribed, its
telegraph line and road were completed, the latter with all the
appurtenances of a first class road, and were accepted by the
government. Patents for the land granted and the subsidy bonds
mentioned were accordingly issued to the company. Since then the
road and telegraph line have been kept in repair and use, and the
government has enjoyed all the privileges in the transmission of
dispatches over the telegraph, and in the transportation of mails,
troops, munitions of war, supplies, and public stores over the
road, which were stipulated. There has been no failure on the part
of the company to comply with its engagements, nor is any complaint
of delinquency or neglect in its action made by the government. The
road is more valuable now than on the day of its completion; it has
been improved in its rails, bridges, cars, depots, turnouts,
machine shops, and all other appurtenances. Its earnings have been
constantly increasing, and it constitutes today a far better
security to the United States for the ultimate payment of the
subsidy bonds than at any period since its completion, and to the
government it has caused, with the connecting road of the Union
Pacific, an immense saving of expense. The records of the different
departments show an annual saving, as compared with previous
expenditures, in the item of transportation alone of the mails,
troops, and public stores, of $5,000,000, aggregating at this day
over $50,000,000.
Whilst the company was thus complying in all respects with its
engagements, the Act of May 7, 1878, was passed, altering in
essential particulars the contract of the company and greatly
increasing its obligations. By the contract, only one-half of the
compensation for transportation for the government is to
Page 99 U. S. 756
be retained and applied towards the payment of the bonds. By the
act of 1878, the whole of such compensation is to be retained and
thus applied. By the contract, five percent only of the net
earnings of the road are to be paid to the United States to be
applied upon the subsidy bonds. By the act of 1878, twenty-five
percent of the net earnings are to be thus paid and applied. By the
contract, the only security which the government had for its
subsidy bonds was a second mortgage on the road and its
appurtenances and telegraph line; and the company was allowed to
give a first mortgage as security for its own bonds, issued for an
equal amount. By the act of 1878, additional security is required
for the ultimate payment of its own bonds, and the subsidy bonds of
the United States, by the creation of what is termed a sinking fund
-- that is, by compelling the company to deposit $1,200,000 a year
in the Treasury of the United States, to be held for such payment,
or so much thereof as may be necessary to make the five percent net
earnings, the whole sum earned as compensation for services, and
sufficient in addition to make the whole reach twenty-five percent
of the net earnings.
It is not material in the view I take of the subject whether the
deposit of this large sum in the Treasury of the creditor be termed
a payment, or something else. It is the exaction from the company
of money for which the original contract did not stipulate, which
constitutes the objectionable feature of the act of 1878. The act
thus makes a great change in the liabilities of the company. Its
purpose, however, disguised, is to coerce the payment of money
years in advance of the time prescribed by the contract. That such
legislation is beyond the power of Congress I cannot entertain a
doubt. The clauses of the original acts reserving a right to
Congress to alter or amend them do not in my judgment justify the
legislation. The power reserved under these clauses is declared to
be for a specific purpose. The language in the act of 1862 is as
follows:
"And the better to accomplish the object of this act, to promote
the public interest and welfare by the construction of said
railroad and telegraph line, and keeping the same in working order,
and to secure to the government at all times (but particularly in
time of war) the use and benefits of the same
Page 99 U. S. 757
for postal, military, and other purposes, Congress may at any
time -- having due regard for the rights of said companies named
herein -- add to, alter, amend, or repeal this act."
Sec. 18. The language of the amendatory act of 1864 is more
general: "That Congress may at any time alter, amend, or repeal
this act." The two acts are to be read together; they deal with the
same subject; and are to be treated as if passed at the same time.
Prescott v. Railroad
Company, 16 Wall. 603. The limitations, therefore,
imposed upon the exercise of the power of alteration and amendment
in the act of 1862 must be held to apply to the power reserved in
the act of 1864. They are not repealed, either expressly or
impliedly, by any thing in the latter act. If this be so, the
legislation of 1878 can find no support in the clauses. The
conditions upon which the reserved power could be exercised under
them did not then exist. The road and telegraph had years before
been constructed, and always kept in working order, and the
government has at all times been secured in their use and benefits
for postal, military, and other purposes.
But if the reserved power of alteration and amendment be
considered as freed from the limitations designated, it cannot be
exerted to affect the contract so far as it has been executed, or
the rights vested under it. When the road was completed in the
manner prescribed and accepted, the company became entitled as of
right to the land and subsidy bonds stipulated. The title to the
land was perfect on the issue of the patents; the title to the
bonds vested on their delivery. Any alteration of the acts under
the reservation clauses, or their repeal, could not revoke the
title to the land or recall the bonds or change the right of the
company to either. So far as these are concerned the contract was,
long before the act of 1878, an executed and closed transaction,
and they were as much beyond the reach of the government as any
other property vested in private proprietorship. The right to hold
the subsidy bonds for the period at which they are to run without
paying or advancing money on them before their maturity, except as
originally provided, or furnishing other security than that
originally stipulated, was, on their delivery, as perfect as the
right to hold the title to the land patented unencumbered by
Page 99 U. S. 758
future liens of the government. Any alteration or amendment
could only operate for the future and affect subsequent acts of the
company: it could have no operation upon that which had already
been done and vested.
There have been much discussion and great difference of opinion
on many points as to the meaning and effect of a similar
reservation in statutes of the states, but on the point that it
does not authorize any interference with vested rights all the
authorities concur. Such was the language of Chief Justice Shaw in
the case cited from the Supreme Court of Massachusetts, and such is
the language of Mr. Justice Clifford in the cases cited from this
Court. And such must be the case, or there would be no safety in
dealing with the government where such a clause is inserted in its
legislation. It could undo at pleasure everything done under its
authority, and despoil of their property those who had trusted to
its faith.
Commonwealth v. Essex Company, 13 Gray (Mass.)
239;
Miller v.
State, 15 Wall. 478;
Holyoke
Company v. Lyman, 15 Wall. 500.
See also
Shields v. Ohio, 95 U. S. 319, and
Sage v. Dillard, 15 B.Mon. (Ky.) 349.
The object of a reservation of this kind in acts of
incorporation is to ensure to the government control over corporate
franchises, rights, and privileges which, in its sovereign or
legislative capacity, it may call into existence, not to interfere
with contracts which the corporation created by it may make. Such
is the purport of our language in
Tomlinson v. Jessup,
where we state the object of the reservation to be
"to prevent a grant of
corporate rights and privileges
in a form which will preclude legislative interference with their
exercise, if the public interest should at any time require such
interference,"
and that
"the reservation affects the entire relation between the state
and corporation, and place under legislative control all rights,
privileges, and immunities
derived by its charter directly from
the state."
15 Wall.
82 U. S. 454. The
same thing we repeated, with greater distinctness, in
Railroad
Company v. Maine, where we said that by the reservation, the
state retained the power to alter the act incorporating the
company, in all particulars constituting the grant to it of
corporate rights, privileges, and immunities, and that
"the existence of the corporation
Page 99 U. S. 759
and its franchises and immunities derived directly from the
state, were thus kept under its control."
But we added that "rights and interests acquired by the company,
not constituting a part of the contract of incorporation,
stand upon a different footing." 96 U.S.
96 U. S. 499.
Now there was no grant by the United States to the Central
Pacific Company of corporate rights, privileges, and immunities. No
attribute of sovereignty was exercised by them in its creation. It
took its life and all its attributes and capacities from the state.
Whatever powers, rights, and privileges it acquired from the United
States it took under its contract with them, and not otherwise. The
relation between the parties being that of contractors, the rights
and obligations of both, as already stated, are to be measured by
the terms and conditions of the contract. And when the government
of the United States entered into that contract, it laid aside its
sovereignty and put itself on terms of equality with its
contractor. It was then but a civil corporation, as incapable as
the Central Pacific of releasing itself from its obligations, or of
finally determining their extent and character. It could not, as
justly observed by one of the counsel who argued this case,
"
release itself and hold the other party to the contract.
It could not change its
obligations and hold its rights
unchanged. It cannot bind itself as a
civil corporation,
and loose itself by its sovereign legislative power." This
principle is aptly expressed by the great conservative statesman
Alexander Hamilton in his report to Congress on the public credit,
in 1795: "When a government," he observes,
"enters into a contract with an individual, it deposes, as to
the matter of the contract, its constitutional authority and
exchanges the character of legislator for that of a moral agent,
with the same rights and obligations as an individual. Its promises
may be justly considered out of its
power to legislate
unless in aid of them. It is in theory impossible to reconcile the
two ideas of a
promise which obliges with a power
to
make a law which can vary the effect of it."
Hamilton's Works, vol. iii. pp. 518, 519.
When, therefore, the government of the United States entered
into the contract with the Central Pacific, it could no more than a
private corporation or a private individual finally
Page 99 U. S. 760
construe and determine the extent of the company's rights and
liabilities. If it had cause of complaint against the company, it
could not undertake itself, by legislative decree, to redress the
grievance, but was compelled to seek redress as all other civil
corporations are compelled, through the judicial tribunals. If the
company was wasting its property, of which no allegation is made,
or impairing the security of the government, the remedy by suit was
ample. To declare that one of two contracting parties is entitled,
under the contract between them, to the payment of a greater sum
than is admitted to be payable, or to other or greater security
than that given, is not a legislative function. It is judicial
action; it is the exercise of judicial power -- and all such power,
with respect to any transaction arising under the laws of the
United States, is vested by the Constitution in the courts of the
country.
In the case of
Commonwealth v. Proprietors of New Bedford
Bridge, a corporation of Massachusetts, the supreme court of
that state, speaking with reference to a contract between the
parties, uses this language:
"Each has equal rights and privileges under it, and neither can
interpret its terms authoritatively so as to control and bind the
rights of the other. The Commonwealth has no more authority to
construe the charter than the corporation. By becoming a party to a
contract with its citizens, the government divests itself of its
sovereignty in respect to the terms and conditions of the contract
and its construction and interpretation, and stands in the same
position as a private individual. If it were otherwise, the rights
of parties contracting with the government would be held at the
caprice of the sovereign, and exposed to all the risks arising from
the corrupt or ill-judged use of misguided power. The
interpretation and construction of contracts when drawn in question
belong exclusively to the judicial department of the government.
The legislature has no more power to construe their own contracts
with their citizens than those which individuals make with each
other. They can do neither without exercising judicial powers which
would be contrary to the elementary principles of our government,
as set forth in the Declaration of Rights."
2 Gray 350.
In that case, the charter of the corporation authorized the
Page 99 U. S. 761
building of a toll bridge across a navigable river, with two
suitable draws at least thirty feet wide. A subsequent act required
draws to be made of a greater width, but the court held that the
question whether the draws already made were suitable and
constructed so as not unreasonably or unnecessarily to obstruct or
impede public navigation was not a question to be determined by the
legislature or by the corporation, but by the courts. It was a
question which could not be authoritatively determined by either
party so as to control and bind the other. "Like all other matters
involving a controversy concerning public duty and private rights,"
said the court,
"it is to be adjusted and settled in the regular tribunals,
where questions of law and fact are adjudicated on fixed and
established principles, and according to the forms and usages best
adapted to secure the impartial administration of justice."
In the case at bar, the government, by the act of 1878,
undertakes to decide authoritatively what the obligations of the
Central Pacific are, and in effect declares that if the directors
of the company do not respect its construction and obey its
mandates, founded upon such construction, they shall be subject to
fine and imprisonment.
The distinction between a judicial and a legislative act is well
defined. The one determines what the law is and what the rights of
parties are, with reference to transactions already had; the other
prescribes what the law shall be in future cases arising under it.
Wherever an act undertakes to determine a question of right or
obligation or of property as the foundation upon which it proceeds,
such act is to that extent a judicial one, and not the proper
exercise of legislative functions. Thus an act of the Legislature
of Illinois authorizing the sale of the lands of an intestate to
raise a specific sum to pay certain parties their claims against
the estate of the deceased for moneys advanced and liabilities
incurred was held unconstitutional on the ground that it involved a
judicial determination that the estate was indebted to those
parties for the moneys advanced and liabilities incurred. The
ascertainment of indebtedness from one party to another, and a
direction for its payment, the court considered to be judicial acts
which could not be performed by the legislature. 3 Scam. 238. So
also
Page 99 U. S. 762
an act of the Legislature of Tennessee authorizing a guardian of
infant heirs to sell certain lands of which their ancestor died
seised, and directing the proceeds to be applied to the payment of
the ancestor's debts was on similar grounds held to be
unconstitutional.
Jones v. Perry, 10 Yerg. (Tenn.) 59.
Tested by the principle thus illustrated, the act of 1878 must be
held in many ways to transcend the legislative power of
Congress.
I cannot assent to the doctrine which would ascribe to the
federal government a sovereign right to treat as it may choose
corporations with which it deals, and would exempt it from that
great law of morality which should bind all governments, as it
binds all individuals, to do justice and keep faith. Because it was
deemed important, on the adoption of the Constitution, in the light
of what was known as tender laws, appraisement laws, stay laws, and
installment laws of the states, which Story says had prostrated all
private credit and all private morals, to insert a clause
prohibiting the states from passing any law impairing the
obligation of contracts, and no clause prohibiting the federal
government from like legislation is found, it is argued that no
such prohibition exists.
"It is true," as I had occasion to observe in another case,
"there is no provision in the Constitution forbidding in express
terms such legislation. And it is also true that there are express
powers delegated to Congress the execution of which necessarily
operates to impair the obligation of contracts. It was the object
of the framers of that instrument to create a national government,
competent to represent the entire country in its relations with
foreign nations and to accomplish by its legislation measures of
common interest to all the people, which the several states in
their independent capacities were incapable of effecting, or if
capable, the execution of which would be attended with great
difficulty and embarrassment. They therefore clothed Congress with
all the powers essential to the successful accomplishment of these
ends, and carefully withheld the grant of all other powers. Some of
the powers granted, from their very nature, interfere in their
execution with contracts of parties. Thus war suspends intercourse
and commerce between citizens or subjects of belligerent nations;
it renders
Page 99 U. S. 763
during its continuance the performance of contracts previously
made unlawful. These incidental consequences were contemplated in
the grant of the war power. So the regulation of commerce and the
imposition of duties may so affect the prices of articles imported
or manufactured as to essentially alter the value of previous
contracts respecting them; but this incidental consequence was seen
in the grant of the power over commerce and duties. There can be no
valid objection to laws passed in execution of express powers that
consequences like these follow incidentally from their execution.
But it is otherwise when such consequences do not follow
incidentally, but are directly enacted."
"The only express authority or any legislation affecting the
obligation of contracts is found in the power to establish a
uniform system of bankruptcy, the direct object of which is to
release insolvent debtors from their contracts upon the surrender
of their property."
12 Wall.
79 U. S. 663.
From this express grant in the case of bankrupts the inference is
deducible that there was no general power to interfere with
contracts. If such general power existed, there could have been no
occasion for the delegation of an express power in the case of
bankrupts. The argument for the general power from the absence of a
special prohibition proceeds upon a misconception of the nature of
the federal government as one of limited powers. It can exercise
only such powers as are specifically granted or are necessarily
implied. All other powers not prohibited to the states are reserved
to them or to the people. As I said in the case referred to, the
doctrine that where a power is not expressly forbidden, it may be
exercised would change the whole character of our government.
According to the great commentators on the Constitution and the
opinions of the great jurists who have studied and interpreted its
meaning, the true doctrine is that where a power is not in terms
granted, and is not necessary or proper for the exercise of a power
thus granted, it does not exist. It would not be pretended, for
example, had there been no amendments to the Constitution as
originally adopted, that Congress could have passed a law
respecting an establishment of religion or prohibiting the free
exercise thereof, or abridging the freedom of speech, or the right
of the people
Page 99 U. S. 764
to assemble and petition for a redress of grievances. The
amendments prohibiting the exercise of any such power were adopted
in the language of the preamble accompanying them, when presented
to the states, "in order to prevent misconception or abuse" of the
powers of the Constitution.
Independent of these views, there are many considerations which
lead to the conclusion that the power to impair contracts, by
direct action to that end, does not exist with the general
government. In the first place, one of the objects of the
Constitution, expressed in its preamble, was the establishment of
justice, and what that meant in its relations to contracts is not
left, as was justly said by the late Chief Justice, in
Hepburn
v. Griswold, to inference or conjecture. As he observes at the
time the Constitution was undergoing discussion in the convention,
the Congress of the Confederation was engaged in framing the
ordinance for the government of the Northwestern Territory, in
which certain articles of compact were established between the
people of the original states and the people of the territory, for
the purpose, as expressed in the instrument, of extending the
fundamental principles of civil and religious liberty, upon which
the states, their laws and constitutions, were erected. By that
ordinance it was declared that, in the just preservation of rights
and property,
"no law ought ever to be made or have force in the said
territory that shall in any manner interfere with or affect private
contracts or engagements bona fide and without fraud previously
formed."
The same provision, adds the Chief Justice, found more condensed
expression in the prohibition upon the states against impairing the
obligation of contracts, which has ever been recognized as an
efficient safeguard against injustice, and though the prohibition
is not applied in terms to the government of the United States, he
expressed the opinion, speaking for himself and the majority of the
Court at the time, that it was clear
"that those who framed and those who adopted the Constitution
intended that the spirit of this prohibition should pervade the
entire body of legislation, and that the justice which the
Constitution was ordained to establish was not thought by them to
be compatible with legislation of an opposite tendency."
8 Wall.
75 U. S.
623.
Page 99 U. S. 765
Similar views are found expressed in the opinions of other
judges of this Court. In
Calder v. Bull, which was here in
1798, Mr. Justice Chase said that there were acts which the federal
and state legislatures could not do without exceeding their
authority, and among them he mentioned a law which punished a
citizen for an innocent act, a law that destroyed or impaired the
lawful private contracts of citizens, a law that made a man judge
in his own case, and a law that took the property from A. and gave
it to B. "It is against all reason and justice," he added,
"for a people to entrust a legislature with such powers, and
therefore it cannot be presumed that they have done it. They may
command what is right and prohibit what is wrong, but they cannot
change innocence into guilt or punish innocence as a crime or
violate the right of an antecedent lawful private contract or the
right of private property. To maintain that a federal or state
legislature possesses such powers if they had not been expressly
restrained would, in my opinion, be a political heresy altogether
inadmissible in all free republican governments."
3 Dall.
3 U. S. 388.
In
Ogden v. Saunders, which was before this Court in
1827, Mr. Justice Thompson, referring to the clauses of the
Constitution prohibiting the state from passing a bill of
attainder, an
ex post facto law, or a law impairing the
obligation of contracts, said:
"Neither provision can strictly be considered as introducing any
new principle, but only for greater security and safety to
incorporate into this charter provisions admitted by all to be
among the first principles of our government. No state court would,
I presume, sanction and enforce an
ex post facto law if no
such prohibition was contained in the Constitution of the United
States; so neither would retrospective laws, taking away vested
rights, be enforced. Such laws are repugnant to those fundamental
principles upon which every just system of laws is founded."
In the Federalist, Mr. Madison declared that laws impairing the
obligation of contracts were contrary to the first principles of
the social compact and to every principle of sound legislation, and
in the
Dartmouth College Case, Mr. Webster contended that
acts, which were there held to impair the obligation of contracts,
were not the exercise of a power properly legislative,
Page 99 U. S. 766
as their object and effect was to take away vested rights. "To
justify the taking away of vested rights," he said, "there must be
a forfeiture, to adjudge upon and declare which is the proper
province of the judiciary." Surely the Constitution would have
failed to establish justice had it allowed the exercise of such a
dangerous power to the Congress of the United States.
In the second place, legislation impairing the obligation of
contracts impinges upon the provision of the Constitution which
declares that no one shall be deprived of his property without due
process of law, and that means by law in its regular course of
administration through the courts of justice. Contracts are
property, and a large portion of the wealth of the country exists
in that form. Whatever impairs their value diminishes, therefore,
the property of the owner, and if that be effected by direct
legislative action operating upon the contract, forbidding its
enforcement or transfer, or otherwise restricting its use, the
owner is as much deprived of his property without due process of
law as if the contract were impounded, or the value it represents
were in terms wholly or partially confiscated.
In the case at bar, the contract with the Central Pacific is, as
I have said, changed in essential particulars. The company is
compelled to accept it in its changed form, and by legislative
decree, without the intervention of the courts -- that is, without
due process of law, to pay out of its earnings each year to its
contractors, the United States, or deposit with them, a sum that
may amount to $1,200,000, and this twenty years before the debt to
which it is to be applied becomes due and payable by the company.
If this taking of the earnings of the company and keeping them from
its use during these twenty years to come is not depriving the
company of its property, it would be difficult to give any meaning
to the provision of the Constitution. It will only be necessary
hereafter to give to the seizure of another's property or earnings
a new name -- to call it the creation of a sinking fund, or the
providing against the possible wastefulness or improvidence of the
owner -- to get rid of the constitutional restraint. To my mind,
the evasion of that clause, the frittering away of all sense and
meaning to it, are insuperable objections to the legislation of
Congress. Where contracts are impaired, or when operating against
the government
Page 99 U. S. 767
are sought to be evaded and avoided by legislation, a blow is
given to the security of all property. If the government will not
keep its faith, little better can be expected from the citizen. If
contracts are not observed, no property will in the end be
respected, and all history shows that rights of persons are unsafe
where property is insecure. Protection to one goes with protection
to the other, and there can be neither prosperity nor progress
where this foundation of all just government is unsettled. "The
moment," said the elder Adams,
"the idea is admitted into society that property is not as
sacred as the laws of God and that there is not a force of law and
public justice to protect it, anarchy and tyranny commence."
I am aware of the opinion which prevails generally that the
Pacific railroad corporations have, by their accumulation of wealth
and the numbers in their employ, become so powerful as to be
disturbing and dangerous influences in the legislation of the
country, and that they should therefore be brought by stringent
measures into subjection to the state. This may be true; I do not
say that it is not; but if it is, it furnishes no justification for
the repudiation or evasion of the contracts made with them by the
government. The law that protects the wealth of the most powerful
protects also the earnings of the most humble, and the law which
would confiscate the property of the one would in the end take the
earnings of the other.
There are many other objections to the act of Congress besides
those I have mentioned, each to my mind convincing; but why add to
what has already been said? If the reasons given will not convince,
neither would any others which could be presented. I will therefore
refer only to the interference of the law with the rights of the
State of California.
The Central Pacific being a state corporation, the law creating
it is, by the Constitution of California, subject to alteration,
amendment, and repeal by its legislature at any time -- a power
which the legislature can neither abdicate nor transfer. In its
assent given to the company to extend its road into the territory
of the United States -- the general government having authorized
the extension -- the legislature reserved the same control which it
possesses over other railroad and telegraph companies
Page 99 U. S. 768
created by it. That control under the new constitution goes, as
is claimed, to the extent of regulating the fares and freights of
the company, thus limiting its income or earnings; and of
supervising all its business, even to the keeping of its accounts,
making disobedience of its directors to the regulations established
for its management punishable by fine and imprisonment; and the
legislature may impose the additional penalty of a forfeiture of
the franchises and privileges of the company. The law in existence
when the corporation was created, and still in force, requires the
creation of a sinking fund by the company to meet its bonds, and
under it large sums have been accumulated for that purpose, and
still further sums must be raised. In a word, the law of the state
undertakes to control and manage the corporation, in all
particulars required for the service, convenience, and protection
of the public, and can there be a doubt in the mind of anyone that
over its own creations the state has, within its own territory, as
against the United states, the superior authority? Yet the power
asserted by the general government in the passage of the act of
1878 would justify legislation affecting all the affairs of the
company, both in the state and in the territories of the United
States. It could treble the amount of the sum to be annually
deposited in the sinking fund; it could command the immediate
deposit of the entire amount of the ultimate indebtedness; it could
change the order of the liens held by the government and the first
mortgage bondholders; it could extend the lien of the government
beyond the property to the entire income of the company, and, in
fact, does so by the act in question (sec. 9); it could require the
transportation for the government to be made without compensation;
and it could subject the company to burdens which, if anticipated
at the time, would have prevented the construction of the road. A
power thus vast, once admitted to exist, might be exerted to
control the entire affairs of the company, in direct conflict with
the legislation of the state; its exercise would be a mere matter
of legislative discretion in Congress. Yet it is clear that both
governments cannot control and manage the company in the same
territory, subjecting its directors to fine and imprisonment for
disobeying their regulations. Under the Constitution, the
management of local
Page 99 U. S. 769
affairs is left chiefly to the states, and it never entered into
the conception of its framers that under it, the creations of the
states could be taken from their control. Certain it is that over
no subject is it more important for their interests that they
should retain the management and direction than over corporations
brought into existence by them. The decision of the majority goes a
great way -- further, it appears to me, than any heretofore made by
the court -- to weaken the authority of the states in this respect
as against the will of Congress. According to my understanding of
its scope and reach, the United States have only to make a contract
with a state corporation, and a loan to it, to oust the
jurisdiction of the state, and place the corporation under their
direction. It would seem plain that if legislation, taking
institutions of the state from its control, can be sustained by
this Court, the government will drift from the limited and well
guarded system established by our fathers into a centralized and
consolidated government.
