70 F. 346 (9th Cir. 1895), 246, United States v. Stanford

Docket Nº:246.
Citation:70 F. 346
Case Date:October 12, 1895
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 346

70 F. 346 (9th Cir. 1895)




No. 246.

United States Court of Appeals, Ninth Circuit.

October 12, 1895

Page 347

[Copyrighted Material Omitted]

Page 348

L. D. McKisick, for the United States.

John Garber, for appellee.

Before GILBERT, Circuit Judge, and HAWLEY and MORROW, District Judges.

GILBERT, Circuit Judge.

On the 15th day of March, 1895, the United States filed a bill in equity in the circuit court of the United States for the Northern district of California to establish a claim for $15,237,000 against the estate of Leland Stanford, deceased. The bill alleges, in substance, that the Central Pacific Railroad Company of California was organized on the 28th day of June, 1861, under and by virtue of an act of the legislature of the state of California approved May 20, 1861; that the Western Pacific Railroad Company was a corporation existing under the laws of California, organized under the same act; that under the Pacific railroad acts of congress of July 1, 1862, July 2, 1864, and other subsequent acts, the said two California corporations made and entered into a contract with the United States, whereby they became indebted to the United States, on account of the bonds of the United States loaned to the said corporations under and by virtue of the terms of said acts, the sum whereof at the maturity of the bonds will amount to about $78,000,000, including principal and interest; that after said contracts were entered into, and said bonds were loaned to the two corporations named, they were consolidated and amalgamated into what is known as the Central Pacific Railroad Company; that the said company is now insolvent, and, after deducting all credits to which it and the estate of Leland Stanford are or hereafter may become entitled, the Central Pacific Railroad Company will still be indebted to the United States in the sum of more than $60,000,000, for which the United States have no security, and that the whole of said debt will be lost, unless the same can be collected from the stockholders of said corporation, under the provisions of the constitution and the laws of the state of California; that Leland Stanford was a stockholder in the Central Pacific Railroad Company of California from the date of its organization and during all the times at which the United States loaned and delivered the said bonds to that corporation, and that on and after the 8th day of June, 1867, he was a stockholder in the Western Pacific Railroad Company, and was and remained a stockholder in the said amalgamated corporation from the date of such consolidation until his death, and that as such stockholder he was, at the time of his death, liable for his proportion of the debt so due and owing to the United States, and that his estate is now liable therefor; that the United States have paid all the interest which has accrued on said bonds, and will continue to do so until the maturity of the last thereof; that on the 16th day of January, 1895, $2,362,000 principal of said bonds matured and became payable, and on that day the same were paid by the United States. The defendant demurred to the bill for want of equity. The circuit court sustained the demurrer, and thereafter entered a decree dismissing the bill. 69 F. 25. From the decree so entered this appeal is taken.

Page 349

The constitution of the state of California, adopted in the year 1849, and which was in force at the time of the organization of the Central Pacific Railroad Company of California and the Western Pacific Railroad Company, and at the time when the United States entered into contract relations with said corporations, and during the period within which the bonds were earned under the terms of the act and were received by the railroad companies, contained in article 4 the following provisions concerning the individual liability of stockholders of corporations for the payment of the debts thereof:

'Sec. 31. Corporations may be formed under general laws, but shall not be created by special act, except for municipal purposes. All general laws and special acts passed pursuant to this section may be altered, from time to time, or repealed.

'Sec. 32. Dues from corporations shall be secured by such individual liability of the corporators, and other means, as may be prescribed by law.'

'Sec. 36. Each stockholder of a corporation or joint stock association shall be individually and personally liable for his proportion of all its debts and liabilities.'

The first act of congress creating the contract relations under which the present suit is brought is 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,' enacted July 1, 1862 (12 Stat. 489). It begins by creating a body corporate under the name of the Union Pacific Railroad Company, consisting of 158 citizens, named, taken from nearly all the states then loyal to the Union, together with five commissioners to be named by the secretary of the interior, and empowers the company to lay out and maintain a continuous railroad and telegraph line from a point on the 100th 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. The point of departure fixed at the 100th meridian of longitude was about 200 miles west of the Missouri river. But the same act made provision for the construction of branch roads and telegraph lines from several points on the Missouri river, to connect with the main line of the Union Pacific Railroad Company at the 100th meridian of longitude. These points on the Missouri river were either mentioned in the act or subsequently designated as Sioux City and Council Bluffs in Iowa, Atchison and Leavenworth in Kansas, and Kansas City in Missouri. The Union Pacific Company was also authorized, by section 14 of the act, to build a line of road and telegraph from the western boundary of the state of Iowa (a point subsequently designated as Council Bluffs), upon the most direct and practicable route, to the 100th meridian of longitude, so as to connect with the main line at that point. This section of road and telegraph was intended as a direct connection with any railroad that might thereafter be constructed through the state of Iowa, with a terminus at Council Bluffs. None was then completed, but a railroad was in progress of construction through the state from the eastern border to the Missouri river. It was also provided in section 14 of the act that whenever there should be a

Page 350

line of railroad completed through Minnesota or Iowa to Sioux City, then the said Pacific Railroad Company was authorized and required to construct a railroad and telegraph line from said Sioux City, upon the most direct and practicable route, so as to connect with the Iowa branch of or with the main line of the Union Pacific Railroad nor further west than the 100th meridian of longitude. The act vested the Union Pacific Railroad Company with all the powers, privileges, and immunities necessary to carry into effect the purposes of the act. It conferred upon the corporation the right of way through the public lands, and granted to it, for the purpose of aiding in the construction of the 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, to the amount of five sections per mile on each side of the said road; and provided that whenever the company shall have completed 40 consecutive miles of any portion of said railroad and telegraph line, to the approval of the commissioners appointed by the president to examine the same, patents shall issue therefor to the lands so granted, and bonds of the United States shall issue to said railroad company, of $1,000 each, payable in 30 years after date, bearing 6 per centum interest, to the amount of 16 of said bonds per mile for such section of 40 miles; and that to secure the repayment to the United States of the amount of said bonds, together with interest thereon, the issue and delivery of said bonds shall ipso facto constitute a first mortgage on the whole line of the road and telegraph line and rolling stock and fixtures of the road; and that upon the failure of the company to redeem said bonds, or any part thereof, when required so to do in accordance with the provisions of the act, the said road, with all rights, functions, immunities, and appurtenances, and all lands granted to the same, then belonging to the company, might be taken possession of for the use and benefit of the United States. It further provided that the grants so enumerated were made upon condition that said company should pay such bonds at maturity, and should keep said railroad and telegraph line in repair and use, and should at all times transmit dispatches over said telegraph line, and transport mails, troops, and munitions of war, etc., upon said railroad for the government whenever required to do so; and that said company might pay the United States, wholly or in part, in said bonds so granted, or treasury notes, or other evidences of debt against the United States, to be allowed at par; and that, after said road should be completed, and until said bonds were paid, at least 5 per centum of the net earnings of said road should be annually applied to the payment thereof. The act also gave authority to the Leavenworth, Pawnee & Western Railroad Company of Kansas (afterwards known as the Kansas Pacific) to construct a railroad and telegraph line from the Missouri...

To continue reading