A power given in a charter of a railroad to connect or unite
with other roads refers merely to a physical connection of the
tracks, and does not authorize the purchase, or even the lease of
such roads or road, or any union of franchises.
Page 161 U. S. 678
The several statutes of Kentucky and of Tennessee relating to
the Louisville and Nashville Railroad Company, which are quoted
from or referred to in the opinion of the court, confer upon that
company no general right to purchase other roads, or to consolidate
with them.
The union referred to in those statutes is limited to a union
with a road already connected with the Louisville and Nashville by
running into the same town, and has and could have no possible
relation to the acquirement of a parallel or competing line.
The third section of the Kentucky act of 1856 reenacting the
Tennessee act of 1855, and providing that the Louisville and
Nashville Company may "from time to time extend any branch road and
may purchase and hold any road constructed by another company" did
not confer a general power to purchase roads constructed by other
companies regardless of their relations or connections with the
Louisville and Nashville road.
A contemporaneous construction of its charter which ratified the
purchase of a few short local lines does not justify the company in
consolidating with a parallel and competing line between its two
termini with a view of destroying the competition which had
previously existed between the two lines.
The Chesapeake, Ohio, and Southwestern Railroad Company was
never vested with the power to consolidate its capital stock,
franchises, or property with that of any other company owning a
parallel or competing line. If, from reasons of public policy, a
legislature declares that a railway company shall not become the
purchaser of a parallel or competing line, the purchase is not the
less unlawful because the parties choose to let it take the form of
a judicial sale.
Whatever is contrary to public policy or inimical to the public
interests is subject to the police power of the state, and is
within legislative control, and, in the exertion of such power, the
legislature is vested with a large discretion which, if exercised
bona fide for the protection of the public, is beyond the
reach of judicial inquiry.
Section 201 of the Constitution of the State of Kentucky of
1891, providing that
"no railroad, telegraph, telephone, bridge or common carrier
company shall consolidate its capital stock, franchises or
property, or pool its earnings, in whole or in part, with any other
railroad, telegraph, telephone, bridge or common carrier company
owning a parallel or competing line or structure, or acquire by
purchase, lease or otherwise, any parallel or competing line or
structure, or operate the same, nor shall any railroad company or
other common carrier combine or make any contract with the owners
of any vessel that leaves or makes port in this state, or with any
common carrier, by which combination or contract the earnings of
the one doing the carrying are to be shared by the other not doing
the carrying,"
is a legitimate exercise of the police power of the state, and
forbids the consolidation between the Louisville and Nashville
Company and the Chesapeake, Ohio and Southwestern Company, which is
the subject of controversy in this suit, at least so far as the
power to make it remains unexecuted.
Page 161 U. S. 679
This was a bill in equity, styled a "petition," originally filed
by the Commonwealth of Kentucky against the Louisville &
Nashville Railroad Company (hereinafter called the L. & N.
Co.), the Chesapeake, Ohio & Southwestern Railroad Company
(hereinafter called the Chesapeake Co.), and several subordinate
corporations tributary to the latter, to enjoin the L. & N. Co.
(1) from acquiring the control of, or operating, the parallel and
competing lines of railroad known as the Chesapeake, Ohio &
Southwestern System, (2) from acquiring or operating the Short
Route Railway Transfer Company, a belt line in Louisville, and the
Union Depot in Louisville, connected therewith, and also (3) to
enjoin the Chesapeake, Ohio & Southwestern System from selling
out to, or permitting its roads to be operated by, its competitor,
the L. & N. Co.
It was stated substantially in the commonwealth's petition, as
its cause of action, that the L. & N. Co. owned and controlled
many railroads in Kentucky, as respects which, railroads owned or
controlled by the other companies named are parallel and competing;
that defendants have made a contract and arrangement whereby the L.
& N. Co. is to become the owner, and acquire a control of, the
capital stock, franchises, and property of the other defendant
companies, to the great injury of the commonwealth, and in
violation of section 201 of the state constitution of 1891, which
reads as follows:
"SEC. 201. No railroad, telegraph, telephone, bridge or common
carrier company shall consolidate its capital stock, franchises or
property, or pool its earnings, in whole or in part, with any other
railroad, telegraph, telephone, bridge or common carrier company
owning a parallel or competing line or structure; or acquire, by
purchase, lease or otherwise, any parallel or competing line or
structure, or operate the same, nor shall any railroad company or
other common carrier combine or make any contract with the owners
of any vessel that leaves or makes port in this state, or with any
common carrier, by which combination or contract the earnings of
the one doing the carrying are to be shared by the other not doing
the carrying."
In an amended petition, it was stated in substance that the
Page 161 U. S. 680
L. & N. Co. was endeavoring to acquire the capital stock,
interest in real property and mortgage securities of the other
defendant companies, in order to obtain control, and ultimately
purchase at judicial sale, and become the owner of, their
franchises and property.
The answer denied the allegation in the form as made, but
contained an affirmative statement that the purchase of the stock
and securities referred to had already been consummated, and in
effect admitted that the L. & N. Co. intended to purchase the
franchises and properties at judicial sale.
The L. & N. Co. was incorporated by an Act of the Kentucky
legislature approved March 5, 1850, the fourteenth section of which
act provided
"that the president and board of directors of said company are
hereby vested with all powers and rights necessary to the
construction of a railroad from the City of Louisville to the
Tennessee line in the direction of Nashville, the route to be by
them selected and determined, not exceeding sixty-six feet wide,
with as many sets of tracks as they may deem necessary, and that
they may cause to be made contracts with others for making said
railroad or any part of it."
This act was frequently amended in details unnecessary to be
noticed here, one of which, adopted March 7, 1854, declared
(section 4)
"that it shall be lawful for said Louisville and Nashville
Railroad Company to unite their road with any other road connecting
therewith upon such terms and conditions as may be agreed upon
between the said Louisville and Nashville Railroad Company and such
other company as they may desire to unite their said road
with."
On December 15, 1855, the Legislature of Tennessee passed an act
to amend an act entitled
"An act to charter the Louisville and Nashville Railroad
Company, and the several acts amending said act passed by the
Legislatures of Kentucky and Tennessee,"
under which it had been authorized to construct its road in
Tennessee from the Kentucky line to Nashville, the thirteenth
section of which act provided as follows:
"SEC. 13.
Be it further enacted that this act shall
take effect from and after its passage,
provided nothing
herein
Page 161 U. S. 681
contained shall be construed to prevent the Louisville and
Nashville Railroad Company from admitting branch roads to connect
with it at any point or points to be agreed upon between said
company and those who have or may subscribe stock for the
construction of any branch road. The stock subscribed and the means
created to construct such separate branch shall be faithfully
applied to that purpose, and said company is hereby vested with the
power and the right to issue its bonds under the provisions of this
act to obtain means to construct and equip any branch road, the
bonds to express on their face the purpose for which they were
executed, and to secure their payment may execute a deed of trust,
or mortgage, for payment of which the rights, credits, profits,
property and franchise, procured for said branch by the use of its
means, shall alone be made liable. The credit, rights, or profits
of the main stem shall not be used to create means to construct, or
be made liable for any debt or liability created to construct,
branch roads, nor shall the rights, credit, property, and profits
of any branch road be used to create means to construct, or made
liable for any debt or liability created to build the main stem,
and with a view to such liabilities and profits, said company shall
keep separate accounts, exhibiting the stock, property and debts of
the main road, and each separate branch."
On January 17, 1856, the Legislature of Kentucky passed an act
the first section of which reenacted the act passed by the
Legislature of Tennessee in 1855 "in the following sections and
words: [here follows a literal copy of the Tennessee act.]" The
second section of this act vested the Louisville & Nashville
Company with power to make agreements a railroad in part or in
whole of the distance a railroad in part or in whole of the
district between Louisville and Memphis, and running in the
direction of Louisville, whereby to secure mutual and reciprocal
rights to the contracting parties, etc. The third section was as
follows:
"That the said company may, under the provisions of the
thirteenth section of this act [referring evidently to the
thirteenth section of the Tennessee act], from time to time extend
any branch road,
Page 161 U. S. 682
and may purchase and hold any road constructed by another
company, or may agree on terms to receive the cars of other roads
on their said road, but shall charge for the same the usual
freight."
At the same session, and on February 14, 1856, the Legislature
of Kentucky passed what is known as the "General Reservation Act,"
the language of which, so far as it is material here, is as
follows:
"SEC 1. That all charters and grants of or to corporations, or
amendments thereof, and all other statutes shall be subject to
amendment or repeal at the will of the legislature unless a
contrary intent be therein plainly expressed,
provided
that whilst privileges and franchises so granted may be changed or
repealed, no amendment or appeal shall impair other rights
previously vested. . . ."
"SEC. 3. That the provisions of this act shall only apply to
charters and acts of incorporation to be granted hereafter, and
that this act shall take effect from its passage."
At this time and up to September, 1856, the L. & N. Co.
owned only a short piece of road, thirty-one miles in length,
extending from Louisville southwardly to Lebanon Junction. Up to
September, 1857, it owned only forty-five miles; to September,
1858, seventy-two miles; in 1859, only one hundred and ten miles,
and not till 1860 did it carry its road to Nashville, one hundred
and eighty miles. About the same time was constructed a branch road
from a point about seven miles south of Bowling Green to the state
line, which has since been extended, and is now owned and operated
by it, to Memphis, Tennessee. Subsequently it purchased, and now
owns, a road known as the Evansville, Henderson & Nashville
Railroad, which extends from Edgefield, Tennessee, on its main
line, ten miles north of Nashville, by way of Hopkinsville,
Kentucky, to Henderson, and thence across the Ohio River to
Evansville, Indiana. It also owns and operates various branches in
the State of Kentucky that diverge from the main line eastwardly,
as well as the Kentucky Central Railroad, extending from Cincinnati
southward, and certain branches thereof.
Page 161 U. S. 683
Of the roads constituting the Chesapeake, Ohio &
Southwestern System, the first one extended from Paducah to
Elizabethtown, and was subsequently extended from Cecilia Junction,
six miles from Elizabethtown, to Louisville, whereby a continuous
line was formed from Louisville to Paducah, independent of the L.
& N. road. But by a subsequent lease, amounting practically to
a purchase of a road from Paducah to Memphis, the Chesapeake
Company became, about 1881, the owner of a connected, continuous,
and independent railroad from Louisville, by way of Cecilia
Junction and Paducah, to Memphis. It also has an interest in and
control of several other railroads, bearing the name of, and
nominally held by, the companies that built them, one of which is
termed the "Short Route Railway," extending from Preston Street in
Louisville through the depot at Seventh and Water Streets to
Twelfth Street, where it connects with the main line.
Upon a hearing of the case upon pleadings and proofs, a decree
was entered by the Jefferson Circuit Court in favor of the
commonwealth, enjoining the proposed agreement for consolidation,
which decree was subsequently affirmed by the Court of Appeals of
Kentucky. 31 S.W. 476.
Whereupon the L. & N. Co. sued out a writ of error from this
Court.
MR. JUSTICE BROWN, after stating the facts in the foregoing
language, delivered the opinion of the Court.
This case turns to a certain extent upon the principles just
announced in
Pearsall v. Great Northern Railway Company,
ante, 161 U. S. 646,
although it differs from that case in the fact that the charter of
the L. & N. Co. contains no reserved power to alter or amend,
as well as in several other minor particulars.
1. The original charter of the L. & N. Co., granted in
1850,
Page 161 U. S. 684
was limited in its character, and authorized the company only to
construct a railroad from Louisville to the Tennessee line, in the
direction of Nashville, with as many tracks as might be deemed
necessary but with no power to extend its lines or to purchase,
lease, or consolidate with other roads.
By the Act of March 7, 1854, the company was given power to
unite their road with any other road connecting therewith upon such
conditions as the two companies might agree upon. As we have
frequently held that a power to connect or unite with another road
refers merely to a physical connection of the tracks, and does not
authorize the purchase or even the lease of such road, or any union
of their franchises, it is evident that this act is no authority
for the proposed consolidation.
Atchison, Topeka &c.
Railroad v. Denver & New Orleans Railroad, 110 U.
S. 667;
Pennsylvania Co. v. St. Louis, Alton &c.
Railroad, 118 U. S. 290;
Oregon Railway v. Oregonian Railway, 130 U. S.
1;
St. Louis Railroad v. Terre Haute Railroad,
145 U. S. 393;
Commissioners v. Railroad Co., 50 Ind. 85, 110. The
important power to purchase or consolidate with another line cannot
be inferred from any such indefinite language as "to unite or
connect with such road." The union referred to in this act is also
limited to a union with a road already connected with the L. &
N. Co. by running into the same town, and could have no possible
relation to the acquirement of a parallel or competing line. We
ordinarily speak of two roads as connecting when they have stations
in the same city, in which case authority is given by this act to
make a mechanical union between the tracks of the two
companies.
Appellant relies principally, however, upon the Act of January
17, 1856, the first section of which reenacted an act of the
Legislature of Tennessee, passed the year before, chartering the L.
& N. Co., which last-mentioned act contained sixteen sections,
authorizing, among other things, the issue of bonds of the state to
aid the company in building a bridge across the Cumberland River,
and in purchasing iron, etc. The Kentucky act contained but five
sections in all, the third of which provided
"that said company may, under the provisions of the thirteenth
section of this act, from time to time extend any branch road,
Page 161 U. S. 685
and
may purchase and hold any road constructed by another
company, or may agree on terms to receive the cars of other
roads on their said road, but shall charge for the same the usual
freight."
The thirteenth section of the Tennessee act, incorporated into
the first section of the Kentucky act, also authorized the company
to permit branch roads to connect with it at any points to be
agreed upon between the company and the stockholders of the branch
road. It also authorized the issue of bonds to obtain the means to
construct and equip any branch road, and provided that the credits
and profits of the main stem should not be used for such purpose,
nor the property and profits of any branch road be used to build
the main stem. As this section, however, was merely limited to
branch roads, the L. & N. Co. is forced to rely for
its authority to acquire the control of the Chesapeake Co. upon its
power "to purchase and hold any road constructed by another
company."
The Court of Appeals of Kentucky held that the whole section,
taken together, indicated that the power to purchase and hold any
road constructed by another company referred to
branch
roads, which, by a previous clause of the same section, the L.
& N. Co. was authorized to construct, and that this was also
further manifested by the power given to "agree on terms to receive
the cars of other roads on their said road."
Upon the other hand, the company insists that the power to
purchase and hold other roads is not only unlimited and extends to
all other roads built or to be built, although parallel and
competing lines, but that it constitutes an irrevocable contract
which a subsequent legislature is powerless to impair.
In construing this section, we are bound to bear in mind the
general rule, so often affirmed by this Court, that all doubts with
regard to the authority granted in a corporate charter are to be
resolved against the corporation, and that a surrender of the power
of the legislature in any matter of public concern must never be
presumed from uncertain or equivocal expressions.
Dubuque
& Pacific Railroad v. Litchfield, 23 How. 66,
64 U. S. 88;
Delaware Railroad
Tax, 18 Wall. 206,
85 U. S.
225;
Page 161 U. S. 686
Bailey v.
Magwire, 22 Wall. 215;
Slidell v.
Grandjean, 111 U. S. 412;
Belmont Bridge v. Wheeling Bridge, 138 U.
S. 287.
At this time (January, 1856), the only railroads in the State of
Kentucky in operation were from Louisville eastwardly to Lexington,
and one from Lexington northwardly by way of Paris to Covington.
There was no road running into southern or western Kentucky, or
southwardly from Louisville, except the L. & N. Co.'s road, as
far as it had gone. While the General Assembly was not only willing
but anxious that this company should have liberal and broad powers
to aid it, the question of parallel or competing lines had probably
not entered into the minds of the legislators as a contingency to
be provided against.
There are two reasons why, in our opinion, the third section of
the act of 1856 was never intended to confer a general power to
purchase roads constructed by other companies, regardless of their
relations or connections with the L. & N. road.
(1) The language of the section is that the "company may,
under the provisions of the thirteenth section of this
act" (referring to the thirteenth section of the Tennessee
act, reenacted), "from time to time extend," by its own
construction, "any branch road." Now, as before observed, the
thirteenth section of the Tennessee act refers only to
branch roads, the cost of which was to be a charge or
mortgage upon the branch line, and not upon the main stem, and it
seems reasonable to infer that the cost of whatever roads were
built or purchased under it were intended to be a charge upon the
branch only, and not upon the main line. If the limitation "under
the thirteenth section" were held to be applicable only to that
part of the third section which allows extensions of branch lines,
it would result that if the company constructed a branch road, its
cost would be a charge on the branch line, and not upon the main
line, but if it should purchase an independent line, the cost could
be made a charge upon the main line.
(2) It is hardly possible to suppose that the legislature
intended to allow the company to "extend" -- that is, to construct
any extension -- of a branch road and at the same time to confer an
unlimited power to purchase and hold any road constructed
Page 161 U. S. 687
by another company. The rule,
noscitur a sociis,
applied to this case, would undoubtedly limit the power to
purchase, under the general clause, to such roads as the
company was authorized to
build under the preceding and
more special clause. There is no reason why a power to build should
be limited to branch roads, while the power to purchase should be
so unlimited as to authorize the company to absorb parallel or
competing lines, either within or without the state. Additional
support for this construction is also found in the concluding words
of the section empowering the company "to agree on terms to receive
the cars of other roads on their said road." This would indicate an
intention to permit the company to receive upon its main line the
cars of other roads constructed or purchased as feeders to that
line, but would scarcely be applicable to the cars of competing or
parallel roads, which would seldom be required to be taken upon
their line.
That the General Assembly could have intended to grant the broad
powers claimed is also highly improbable in view of an act passed a
little more than two years thereafter (June 22, 1858), by which all
railroad companies were declared to have power and authority to
make with each other contracts of the following character:
first, for the consolidation of either the management,
profits, or stock of any two or more companies, the roads of which
are or shall be so connected as to form a continuous road;
second, for the leasing of the road of one company to
another, provided the roads so leased shall be so connected as to
form a continuous line. This act is a general one, and the
possibility of consolidating parallel or competing lines was
evidently considered and reprobated.
As bearing upon the proper construction of this charter, as well
as upon the question of actual parallelism, the case of
State
v. Vanderbilt, 37 Ohio St. 590, is an instructive one. This
was an action in
quo warranto to test the legality of a
consolidation of the Cleveland, Columbus, Cincinnati &
Indianapolis Railway Company and the Cincinnati, Hamilton &
Dayton Railroad Company, the former of which owned and controlled a
road running from Cleveland upon
Page 161 U. S. 688
Lake Erie, by way of Columbus, to Cincinnati, and the latter a
road running from Toledo at the western end of Lake Erie, by the
way of Hamilton and Dayton, to Cincinnati. The statute provided
that companies might consolidate where their lines were so
constructed as to admit of the passage of burden or passenger cars
over any two or more of such roads
continuously, without
break or interruption. The court held that in view of the existence
of a large commerce from the Southern states by way of Cincinnati
to ports upon on Lake Erie, as well as from such points southerly
by railroad lines converging at Cincinnati, these were
substantially parallel and competing roads; that it might be
inferred from the record that a leading object in making the
consolidation was to destroy that competition, and that, upon this
state of facts, these roads were not so constructed as to admit the
passage of burden or passenger cars over two or more of such roads
continuously. In delivering the opinion, it was observed
that
"where companies such as these are, being parallel and
competing, claim that authority to consolidate has been granted to
them, they must be able to point to words in the statute which
admit of no other reasonable construction, for it will not be
assumed that the lawmaking power has authorized the creation of a
monopoly so detrimental to the public interest."
So in
Elkins v. Camden & Atlantic Railroad, 36
N.J.Eq. 5, a statute authorized railroad companies to lease their
roads, or any part of them, to any other corporation or
corporations of that or any other state, or to unite and
consolidate, as well as merge their stock, property, franchises,
and roads, with those of any other company or companies, and that,
after such lease or consolidation, the company acquiring the
other's road might use and operate such road. The court held that
this did not authorize a railroad running from Philadelphia to
Atlantic City to assume the debts and buy a majority of the stock
and bonds and the equipment of a rival railroad running between the
same termini, or to become the purchaser of its property at a
foreclosure sale, or to control it after such sale in a
reorganization of the company. The court
Page 161 U. S. 689
enjoined the purchase, saying that
"the purchase of a rival railroad is (not to speak of public
policy) foreign to the objects for which the defendant was
incorporated. Nor can the purchase be regarded as within the
authority given by the defendant's charter to build lateral or
branch roads. . . . As a purchase with a view to extinguishing
competition, the transaction is clearly
ultra vires."
Defendant, however, further urges in support of its assumed
rights under the third section of the charter of 1856 a
contemporaneous construction by the parties in interest under which
several lines were purchased which ran parallel to some of its own
branches, and one of which, known as the "Cecilia Branch," about
fifty miles in length, running substantially parallel to its main
line, which it purchased and held for a short time and then sold to
the Chesapeake Co. These, however, were local lines which either
ran parallel to the branches of the L. & N., such as the
Owensburg & Nashville and the Bardstown Branch, or an extension
of its main line, such as the Louisville, Cincinnati &
Lexington, running from Louisville to Cincinnati, or a short line
like the Cecilia Branch, running parallel to the main line; yet, as
the terminus at one end or the other was in most cases different,
it can hardly be said that any of these were competing lines or
that their purchase showed such an acquiescence on the part of the
state as to estop it from opposing the purchase of a through line
from Louisville to Memphis by the way of Paducah -- a line which
connects the principal termini of the L. & N. Co. by a road
substantially parallel, and no part of which is more than fifty
miles from the corresponding part of the L. & N. Putting the
broadest construction upon what was actually done, it amounts to no
more than that the company made several purchases of local lines in
which the state acquiesced. That the state may have seen fit in
particular cases to ratify the acquisition of local lines parallel
to certain branch lines of the main road does not argue that it
intended to approve the purchase of parallel and competing through
lines, especially in view of the Act of June 22, 1858, which
limited the power to consolidate or lease to roads so connected as
to form a continuous line.
Page 161 U. S. 690
Indeed, these acquisitions appear to have been deemed so little
in contravention of the public policy of the state that the General
Assembly did not hesitate to confirm them by special acts, and to
receive taxes upon them as part of the L. & N. system.
While the doctrine of contemporaneous construction is doubtless
of great value in determining the intentions of parties to an
instrument ambiguous upon its face, yet, to justify its application
to a particular case, such contemporaneous construction must be
shown to have been as broad as the exigencies of the case require.
In this view, we cannot say that a contemporaneous construction of
this charter, which ratified the purchase of a few short local
lines, was sufficient to justify the company in consolidating with
a parallel and competing line between its two principal termini,
with a view of controlling the through traffic from the lower
Mississippi to Cincinnati and destroying the competition which had
previously existed between the two lines. It is possible that the
commonwealth might, if it had seen fit to do so, have enjoined the
acquisition of some of these parallel lines, and the fact that it
did not deem such purchases to be in contravention of public policy
ought not to estop it from setting up an opposition to another
purchase which in its view is detrimental to the public interests.
As is said by Mr. Justice Cooley in his Constitutional Limitations
(6th ed.), page 85:
"A power is frequently yielded to merely because it is claimed,
and it may be exercised for a long time in violation of the
constitutional prohibition without the mischief which the
Constitution was designed to guard against appearing, or without
anyone's being sufficiently interested in the subject to raise the
question. But these circumstances certainly cannot be allowed to
sanction a clear infraction of the Constitution."
We are therefore of opinion that the Court of Appeals was
substantially correct in saying that
"though thirty-eight years since the passage of the act of 1856
and thirty-six since the act of 1858 had elapsed when this action
was commenced, the L. & N. Co. never before claimed or
attempted to exercise the right to purchase and hold parallel and
competing lines, except about 1878, when
Page 161 U. S. 691
it purchased the road from Louisville to Cecilia Junction, which
was held only a short time, and then sold to the Chesapeake, Ohio
& Southwestern Company."
That the lines proposed to be consolidated are parallel and
competing is evident from an inspection of the map, since both
connect the two important cities, Louisville and Memphis, which
constitute their termini, and are natural competitors for the
traffic from the Southwestern to the Northeastern states by way of
Cincinnati, as well as that in the opposite direction. The object
of the consolidation is obviously to enable the L. & N. to
obtain a complete monopoly of all the traffic through the western
half of the state. Conceding that that part of the Chesapeake line
which ran from Elizabethtown to Paducah was originally a branch
line of the L. & N., and might have been acquired as such under
section 3 of the act of 1856, it ceased to be such after the
Cecilia Branch was acquired and the line was extended from Paducah
to Memphis. It then became a parallel and competing line within the
meaning of the Constitution.
In reply to the argument that millions of dollars have been
invested in the securities of the company upon the faith of what
was supposed to be its admitted powers, and that its capital stock
of $1,500,000 in 1856 has expanded to $51,000,000, it is sufficient
to say that in making such investments, capitalists were bound to
know the authority of the company under its charter, and to put the
proper interpretation upon it, and that we are not at liberty to
presume that investments were made upon the faith of powers that do
not exist, and, if they were, the commonwealth is not bound to
respect investments made under a misapprehension of the law.
Indeed, the argument proves too much, and would justify the
inference that capitalists put their money into the road upon the
assumption that it had been given irrevocable right to absorb to
itself every road which might thereafter be constructed within the
limits of the commonwealth.
2. Besides this, however, in order to support the proposed
consolidation of these two systems, the parties are bound to show
not only that the L. & N. Co. was competent to buy, but
Page 161 U. S. 692
that the Chesapeake Co. was also vested with power to sell. To
make a valid contract, it is necessary to show that both parties
are competent to enter into the proposed stipulations. It is a
fundamental principle in the law of contracts that to make a valid
agreement, there must be a meeting of minds, and obviously if there
be a disability on the part of either party to enter into the
proposed contract, there can be no valid agreement. As was said by
this Court in
St. Louis Railroad v. Terre Haute Railroad,
145 U. S. 393,
145 U. S.
404:
"It is unnecessary, however, to express a definitive opinion
upon the question whether a contract between these parties was
beyond the corporate powers of the plaintiff, because, as held by
the decisions of this Court already cited, a contract beyond the
corporate power of either party is as invalid as if beyond the
corporate powers of both, and the contract in question was clearly
beyond the corporate powers of the defendant."
See also Thomas v. Railroad Co., 101 U. S.
71;
Oregon Railway v. Oregonian Railway Co.,
130 U. S. 1;
Pennsylvania Railroad v. St. Louis, Alton &c.
Railroad, 118 U. S. 290;
Central Transportation Co. v. Pullman's Car Co.,
139 U. S. 24.
The Chesapeake Co. was incorporated under an act of the General
Assembly of Kentucky, passed in 1881 (Acts 1881, p. 258), the ninth
section of which declares that the corporation should be "governed
by any general law enacted by the Legislature of this state in
regard to consolidation with parallel or competing lines." So that
although organized prior to the adoption of the Constitution of
1891, it became subject at once, and as soon as said constitution
was adopted, to its provision declaring that no railroad should
consolidate its capital stock, franchise, or property with that of
any other owing a parallel or competing line or structure.
The only answer attempted to this proposition is that the cases
above cited in support of the doctrine that, to make a valid sale,
there must be power both in the seller to sell and in the buyer to
buy, refers only to private voluntary sales arranged between the
companies and dependent upon their respective corporate powers, and
that the doctrine has no
Page 161 U. S. 693
application to judicial or involuntary sales, where the property
is seized upon to satisfy a debt of the corporation.
We do not understand, however, that the fact that a purchase is
made at a judicial sale confers upon the purchaser any right he is
forbidden to acquire if the purchase had been made at private sale.
If, from reasons of public policy, the legislature declares that a
railway shall not become the purchaser of a parallel or competing
line, the purchase is not the less unlawful because the parties
choose to let it take the form of a judicial sale. A person who, by
reason of any statutory disability such as infancy, lunacy,
marriage, or otherwise, is incompetent to buy at private sale is
not less incompetent from becoming the purchaser at a judicial
sale. The prohibition is not upon the power of the court
foreclosing the mortgage to order a judicial sale of the property,
but upon its power to confirm a sale made to a parallel or
competing road. The allegation of the bill in this connection is
that suits have been filed upon claims against the several
companies interested, with the object of having a judicial sale of
their property, so that the L. & N. Co. may purchase the
property in its own name, or in the name of some new company or
companies organized by it, or in which it shall have a controlling
interest. It is true, as was observed in
Pearsall v. The Great
Northern, that the stockholders of the L. & N. Co. may
individually become the purchasers of the Chesapeake Co. at a
judicial sale, and may organize a new corporation; but it would
still be a corporation separate and distinct from that of the L.
& N. Co. The inhibition of the constitution is not against the
sale to individuals, though they may chance to be stockholders in a
competing line, but against the acquisition by a railway, in any
form, of a parallel or competing line. If this could be evaded by
going through the form of a judicial sale, the constitutional
provision would be of no value.
3. But conceding that the L. & N. Co. was vested by the Act
of January 17, 1856, with the right to purchase all railroads
constructed by other companies, whether parallel or competing or
not, and that by virtue of such power, it might become the
purchaser of the Chesapeake System, it is still
Page 161 U. S. 694
insisted on behalf of the commonwealth that this act was subject
to an Act approved February 14, 1856, the first section of which
enacted that
"all charters and grants of or to corporations, or amendments
thereof, and all other statutes, shall be subject to amendment or
appeal at the will of the legislature, unless a contrary intent be
therein plainly expressed."
The third section of this act provided that the act should apply
only to "charters and acts of incorporation to be granted
hereafter, and that this act shall take effect from its passage."
The argument is that, as this act was given immediate effect, while
the former act, under a general law of the state, did not take
effect until two months from the time it was approved by the
governor, the Act of February 14th was in reality the prior act,
and the charter of January 17th was in fact granted thereafter
within the meaning of the third section of the Act of February
14th.
The answer of the defendant to this was that the thirteenth
section of the Tennessee act of 1855, which was reenacted in the
first section of the Kentucky Act of January 17, provided "that
this act shall take effect from and after its passage." If the
adoption verbatim of this Tennessee act by the Kentucky Legislature
was sufficient to give the Kentucky act immediate effect, then,
undoubtedly, the Act of February 14 was a subsequent act, and did
not apply to the charter of January 17. Upon the other hand, if the
reenactment of the thirteenth section of the Tennessee act was not
intended to give the Kentucky charter immediate effect, then this
charter did not become operative until March 17, and thereby became
subject to the reservation statute of February 14, which did take
immediate effect. This question was elaborately argued at the bar,
but, for the reasons hereafter stated, we do not consider it
necessary to express a decided opinion upon the point.
4. Whatever be the disposition of this question, and however
broad the powers of the L. & N. Co. under its charter of 1856,
we are still confronted with the proposition that the proposed
consolidation of these two railway systems is a clear violation of
section 201 of the Constitution, which forbids the
Page 161 U. S. 695
consolidation of the stock, franchises, or property, as well as
the purchase and lease of parallel and competing lines. Unless this
section impairs the obligation of the contract contained in the
charter, it operates as a repeal of any power that may possibly be
deduced from such charter to purchase, lease, or consolidate with
any parallel or competing line. In this particular, the case
differs from that of
Pearsall v. Great Northern Railway,
just decided, only in the fact that the charter of the Great
Northern, while conferring a power to consolidate with other roads
in much clearer and more explicit language than was used in the L.
& N. charter, also contained in section 17 the reservation of a
power to amend in any manner not destroying or impairing the vested
rights of the corporation. The opinion in that case dealt largely
with the question whether a subsequent act of the legislature
taking away this power so long as it was unexecuted, and so far as
it applied to parallel or competing lines, impaired a vested right.
Our conclusion was that it did not.
We regard the issue presented in this case as involving
practically the same question. While there is no general
reservation clause in the charter of the L. & N. Co., we think,
for the reasons stated in the
Pearsall case, that, under
its police power, the people, in their sovereign capacity, or the
legislature, as their representatives, may deal with the charter of
a railway corporation so far as is necessary for the protection of
the lives, health, and safety of its passengers or the public, or
for the security of property, or the conservation of the public
interests, provided, of course, that no vested rights are thereby
impaired. In other words, the legislature may not destroy vested
rights, whether they are expressly prohibited from doing so or not,
but otherwise may legislate with respect to corporations, whether
expressly permitted to do so or not. While the police power has
been most frequently exercised with respect to matters which
concern the public health, safety, or morals, we have frequently
held that corporations engaged in a public service are subject to
legislative control so far as it becomes necessary for the
protection of the public interests. In the case of
Munn
v.
Page 161 U. S. 696
Illinois, 94 U. S. 113, Mr.
Chief Justice Waite said:
"Property does become clothed with a public interest when used
in a manner to make it of public consequence and affect the
community at large. When, therefore, one devotes his property to a
use in which the public has an interest, he in effect grants to the
public an interest in that use, and must submit to be controlled by
the public for the common good to the extent of the interest he has
thus created. He may withdraw his grant by discontinuing the use,
but, so long as he maintains the use, he must submit to the
control."
There was a difference of opinion in the Court as to whether
this language applied to elevators in such manner as to empower the
legislature to fix their charges, but it has been too often held
that railways were public highways, and their functions were those
of the state, though their ownership was private, and that they
were subject to control for the common good, to be now open to
question. It was so expressly stated in
Olcott v.
Supervisors, 16 Wall. 678,
83 U. S. 694.
This power was held to extend, in the
New York
v. Miln, 11 Pet. 102, to a law requiring the
masters of emigrant vessels to report an account of their
passengers; in the
Railroad Commission Cases, 116 U.
S. 307, to the right of a state to reasonably limit the
amount of charges by a railway company for the transportation of
persons and property within its jurisdiction notwithstanding a
statute which granted to it the right "from time to time to fix,
regulate, and receive the tolls and charges by them to be received
for transportation;" in
Mugler v. Kansas, 123 U.
S. 623, to legislation which prohibited the manufacture
of intoxicating liquors within the limits of the state, even as to
persons who at the time happened to own property whose chief value
consisted in its fitness for such manufacturing purposes; in
Georgia Banking Co. v. Smith, 128 U.
S. 174, to the prevention of extortion by railways by
unreasonably charges and favoritism by discriminations; in
Charlotte &c. Railroad v. Gibbes, 142 U.
S. 386, to a requirement that the salaries and expenses
of a state railroad commission be borne by the railroad
corporations within the state; in
New York & New England
Railroad v. Bristol, 151 U. S. 556, to
statute compelling
Page 161 U. S. 697
the removal of grade crossings; in
Commonwealth v.
Alger, 7 Cush. 53, to the establishment of harbor lines,
beyond which landowners shall not extend their wharves, and in
Eagle Insurance Co. v. Ohio, 153 U.
S. 446, to a requirement that insurance companies make
returns to the proper state officers of their business conditions,
etc., notwithstanding the company be organized under a special
charter which did not in terms require it to make such return.
Indeed, it was broadly held in
Chicago Life Insurance Co. v.
Needles, 113 U. S. 574,
that the grant of a corporate franchise is necessarily subject to
the condition that the privileges and franchises conferred shall
not be abused or employed to defeat the ends for which they were
conferred, and that when abused or misemployed, they may be
withdrawn by proceedings consistent with law. It was said in this
case that an insurance corporation was subject to such reasonable
regulations as the legislature might from time to time prescribe
for the general conduct of its affairs, serving only to secure the
ends for which it was created, and not materially interfering with
the privileges granted to it. "It would be extraordinary," said the
Court (page
113 U. S.
580),
"if the legislative department of a government, charged with the
duty of enacting such laws as may promote the health, the morals,
and the prosperity of the people, might not, when unrestrained by
constitutional limitations upon its authority, provide by
reasonable regulations against the misuse of special corporate
privileges which it has granted and which could not, except by its
sanction, express or implied, have been exercised at all."
It was further held that the establishment against such a
corporation before a judicial tribunal that it was insolvent, or
that its condition was such as to render its continuance in
business hazardous to the public or that it had exceeded its
corporate powers, or that it had violated the rules, restrictions,
or conditions prescribed by law, constituted a sufficient reason
for the state which created it to reclaim the franchises and
privileges granted to it.
We think that the principle of these cases applies to the power
of the legislature to forbid the consolidation of parallel
Page 161 U. S. 698
or competing lines whenever in its opinion such consolidation is
calculated to affect injuriously the public interests. Not only is
the purchase of stock in another company beyond the power of a
railroad corporation in the absence of an express stipulation in
the charter, but the purchase of such stock in a rival and
competing line is held to be contrary to public policy and void.
Cook on Stockholders ยง 315;
Central Railroad Co. v.
Collins, 40 Ga. 582;
Hazelhurst v. Savannah &c.
Railroad Co., 43 Ga. 13;
Elkins v. Camden & Atlantic
Railroad Co., 36 N.J.Eq. 5. The doctrine is peculiarly
applicable to this case, in which is shown that the Chesapeake Co.
was largely aided in its construction by contributions from
municipalities along its line for he very purpose of obtaining
competition with the L. & N. Co. -- a purpose which would, of
course, be defeated by a combination with it. This restriction upon
the unlimited power to consolidate with other roads is not, as the
plaintiff in error suggests, called for by any new view of
commercial policy, but in virtue of a settled policy which has
obtained in Kentucky since 1858, in Minnesota since 1874, in Ohio
since 1851, in New Hampshire since 1867, and by more recent
enactments in some dozen other states -- a policy which has not
only found a place in the statute law of such states as apprehended
evil effects from such consolidations, but has been declared by the
courts to be necessary to protect the public from the establishment
of monopolies. Indeed the unanimity with which the states have
legislated against the consolidation of competing lines shows that
it is not the result of a local prejudice, but of a general
sentiment that such monopolies are reprehensible. The fact that in
certain cases the legislature has seen fit to sanction the
consolidation of parallel roads does not militate against the
general principle that the consolidation of competing lines is
contrary to public policy. Parallel lines are not necessarily
competing lines, as they not infrequently connect entirely
different termini and command the traffic of distinct territories.
For instance, a line from Toledo to Cincinnati is substantially
parallel with another from Chicago to Cairo, but they could
scarcely be called competing, since one is dependent upon the
traffic of
Page 161 U. S. 699
the Northwest, while Cincinnati is the southern outlet of the
traffic of the Northeastern states and the lower Lakes. Another
familiar instance is that of the three north and south railways
through the State of Connecticut -- one from Bridgeport to
Pittsfield, in Massachusetts, another from New Haven to
Springfield, and another from Norwich to Worcester. These are
strictly parallel lines, but in only a limited sense competing,
since they are between different termini and each is required for
the trade of its own section of the state. Even in the present
case, the competition is mostly confined to the through traffic.
Considerations of this kind may induce legislatures, in particular
instances, to permit the consolidation of parallel roads without
intending thereby to relinquish their right to forbid the
consolidation of such parallel lines as are in fact competing.
Permission to consolidate such roads is no more to be taken as
an approval of a general policy of consolidation than are the laws
which have been repeatedly upheld by this Court granting
corporations exclusive privileges to supply municipalities with the
comforts of life for a certain number of years, of which class of
monopolies the one upheld in
New Orleans Gas Co. v. Louisiana
Light Co., 115 U. S. 650, is
a distinguished example. Such cases are, however, exceptional, and
rest upon the theory of an authority expressly vested in the
corporation for a limited time in consideration of benefits likely
to accrue to the public from the establishment of a particular
industry. Even in such cases, however, we have held that the
monopoly may be modified or abrogated if it proved to be
prejudicial to the public health or public morals.
Butchers'
Union Co. v. Crescent City Co., 111 U.
S. 746. In this case, Mr. Justice Miller, in delivering
the opinion of the Court, observed, p.
111 U. S.
750:
"While we are not prepared to say that the legislature can make
valid contracts on no subject embraced in the largest definition of
the police power, we think that in regard to two subjects so
embraced, it cannot by any contract limit the exercise of such
powers to the prejudice of the general welfare. These are the
public health and public morals. The preservation of these is so
necessary to the best interests of social organization
Page 161 U. S. 700
that a wise policy forbids the legislative body to divest itself
of the power to enact laws for the preservation of health and the
repression of crime."
To the same effect are
Boyd v. Alabama, 94 U. S.
645;
Beer Co. v. Massachusetts, 97 U. S.
25.
There are doubtless cases where the police power has been
invoked to justify acts of the legislature which were dictated to a
certain extent by local interests, or with the effect of unduly
burdening or interfering with foreign or interstate commerce.
Within this category are laws levying taxes upon alien passengers
arriving from foreign ports, for the use of hospitals,
The Passenger
Cases, 7 How. 283; requiring a bond to be given for
every such passenger to indemnify the state against expense for the
relief of support of the person named in the bond,
Henderson v.
New York, 92 U. S. 259, even
though such bonds be limited to lewd and debauched women,
Chy
Lung v. Freeman, 92 U. S. 275;
prohibiting the driving or conveying of foreign cattle into the
state between certain dates,
Railroad Co. v. Husen,
95 U. S. 465;
taxing persons from other states engaged in selling or soliciting
the sale of liquors, to be shipped into the state from places
without it, without imposing a tax upon similar agents for
manufacturers within the state,
Walling v. Michigan,
116 U. S. 446;
Welton v. Missouri, 91 U. S. 275;
statutes requiring inspection, before slaughtering, of cattle,
sheep, and swine designed for slaughter for human food, so far as
they apply to foreign meats,
Minnesota v. Barber,
136 U. S. 313; a
similar statute prohibiting the sale of meat from animals
slaughtered 100 miles or more from the place at which it was
offered for sale unless previously inspected by local inspectors,
Brimmer v. Rebman, 138 U. S. 78; and
finally to statutes requiring a license, under onerous conditions,
from the agents of foreign express companies,
Crutcher v.
Kentucky, 141 U. S. 47.
These cases, however, do not infringe upon the general
principle, so frequently declared, that where the police power is
invoked in good faith for the prohibition of a practice which the
legislature has declared to be detrimental to the public interests,
it will be sustained wherever it can be done without the impairment
of vested rights. Notwithstanding these
Page 161 U. S. 701
cases, the general rule holds good that whatever is contrary to
public policy or inimical to the public interests is subject to the
police power of the state, and within legislative control, and in
the exertion of such power the legislature is vested with a large
discretion, which, if exercised
bona fide for the
protection of the public, is beyond the reach of judicial
inquiry.
5. But little need be said in answer to the final contention of
the plaintiff in error, that the assumption of a right to forbid
the consolidation of parallel and competing lines is an
interference with the power of Congress over interstate commerce.
The same remark may be made with respect to all police regulations
of interstate railways. All such regulations interfere indirectly,
more or less, with commerce between the states in the fact that
they impose a burden upon the instruments of such commerce and add
something to the cost of transportation, by the expense incurred in
conforming to such regulations. These are, however, like the taxes
imposed upon railways and their rolling stock, which are more or
less, according to the policy of the state within which the roads
are operated, but are still within the competency of the
legislature to impose. It is otherwise, however, with respect to
taxes upon their franchises and receipts from interstate commerce,
which are treated as a direct burden. There are certain intimations
in some of our opinions which might perhaps lead to an inference
that the police power cannot be exercised over a subject confined
exclusively to Congress by the federal Constitution. But while this
is true with respect to the commerce itself, it is not true with
respect to the instruments of such commerce.
It was said in
Sherlock v. Alling, 93 U. S.
99,
93 U. S.
103-104, and quoted with approbation in
Plumley v.
Massachusetts, 155 U. S. 462,
that
"in conferring upon Congress the regulation of commerce, it was
never intended to cut the states off from legislating on all
subjects relating to the health, life, and safety of their citizens
though the legislation might indirectly affect the commerce of the
country. Legislation in a great variety of ways may affect commerce
and persons engaged in it without
Page 161 U. S. 702
constituting a regulation of it within the meaning of the
Constitution, . . . and it may be said generally that the
legislation of a state not directed against commerce or any of its
regulations, but relating to the rights, duties, and liabilities of
citizens and only indirectly and remotely affecting the operations
of commerce, is of obligatory force upon citizens within its
territorial jurisdiction, whether on land or water or engaged in
commerce foreign or interstate, or in any other pursuit."
It has never been supposed that the dominant power of Congress
over interstate commerce took from the states the power of
legislation with respect to the instruments of such commerce, so
far as the legislation was within its ordinary police powers.
Nearly all the railways in the country have been constructed under
state authority, and it cannot be supposed that they intended to
abandon their power over them as soon as they were finished. The
power to construct them involves necessarily the power to impose
such regulations upon their operation as a sound regard for the
interests of the public may seem to render desirable. In the
division of authority with respect to interstate railways, Congress
reserves to itself the superior right to control their commerce and
forbid interference therewith, while to the states remains the
power to create and to regulate the instruments of such commerce so
far as necessary to the conservation of the public interests.
If it be assumed that the states have no right to forbid the
consolidation of competing lines because the whole subject is
within the control of Congress, it would necessarily follow that
Congress would have the power to authorize such consolidation in
defiance of state legislation -- a proposition which only needs to
be stated to demonstrate its unsoundness. As we have already said,
the power of one railway corporation to purchase the stock and
franchises of another must be conferred by express language to that
effect in the charter, and hence, if the charter of the L. & N.
Co. had been silent upon that point, it will be conceded that it
would have no power to make the proposed purchase in this case. As
the power
Page 161 U. S. 703
to purchase, then, is derivable from the state, the state may
accompany it with such limitations as it may choose to impose. It
results, then, from the argument of the appellant that if there be
any interference with interstate commerce, it is in imposing
limitations upon the exercise of a right which did not previously
exist, and hence, if the state permits such purchase or
consolidation, it is bound to extend the authority to every
possible case, or expose itself to the charge of interfering with
commerce. This proposition is obviously untenable.
While the constitutional power of the state in this particular
has never been formally passed upon by this Court, the power of
state legislatures to impose this restriction upon the general
authority to consolidate has been recognized in a number of cases.
Railroad Co. v.
Maryland, 21 Wall. 456,
88 U. S. 470;
Shields v. Ohio, 95 U. S. 319;
Wallace v. Loomis, 97 U. S. 146,
97 U. S. 154;
New Buffalo v. Iron Co., 105 U. S. 73;
Leavenworth v. Chicago &c. Railway, 134 U.
S. 688,
134 U. S. 699;
Livingston County v. Portsmouth Bank, 128 U.
S. 102;
Keokuk & Western Railroad v.
Missouri, 152 U. S. 301;
Ashely v. Ryan, 153 U. S. 436. In
the last case it was broadly held that a state, in permitting
railway companies to consolidate, might impose such conditions as
it deemed proper, and that the acceptance of the franchise implied
a submission to the conditions without which it could not have been
obtained.
The power to forbid such purchase or consolidation with
competing lines has been directly upheld in a large number of cases
in the state courts, in some of which cases a violation of the
commerce clause was suggested, and in others it was not.
Hafer
v. Cincinnati, Hamilton & Dayton Railroad, 29 Wkly.Law
Bull. 68;
State v. Atchison & Red River Railroad, 24
Neb. 143;
Gulf, Col. & Santa Fe Railway v. State, 72
Tex. 404;
East Line &c. Railway v. Rushing, 69 Tex.
306;
Pennsylvania Railroad v. Commonwealth, 7 A. 368;
Montgomery's Appeal, 136 Penn.St. 96;
Courrier v.
Concord Railroad, 48 N.H. 321;
Texas & Pacific Railway
Co. v. Southern Pacific Railway Co., 41 La.Ann. 970.
See
also Langdon v. Branch, 37 F. 449;
Hamilton v.
Savannah
Page 161 U. S. 704
&c. Railroad, 49 F. 412;
Clarke v. Central
Railroad, 50 F. 338;
Kimball v. Atchison, Topeka &c.
Railroad Co., 46 F. 888.
In conclusion, we are of opinion:
1. That a general right to purchase or consolidate with other
roads was never conferred upon the L. & N. Co.
2. That the Chesapeake Co. was never vested with the power to
consolidate its capital stock, franchises, or property with that of
any other road owning a parallel or competing line.
3. That, conceding that the requisite power existed in both the
above companies, section 201 of the Constitution of 1891 was a
legitimate exercise of the police power of the state, and forbade
such consolidation at least so far as such power remained
unexecuted.
The decree of the Court of Appeals of Kentucky is therefore
Affirmed.
MR. JUSTICE BREWER and MR. JUSTICE WHITE concurred in the
result.