Chicago, R.I. & P. Ry. Co. v. Union Pac. Ry. Co.

• Citation: 47 F. 15
• Parties: CHICAGO, R.I. & P. RY. CO. v. UNION PAC. RY. CO. et al. CHICAGO, M. & ST. P. RY. CO. v. SAME.
• Decision Date: 27 July 1891
• Court: U.S. District Court — District of Nebraska

47 F. 15

CHICAGO, R.I. & P. RY. CO. v. UNION PAC. RY. CO. et al.

CHICAGO, M. & ST. P. RY. CO. v. SAME.

United States Circuit Court, D. Nebraska.

July 27, 1891

T. H Withrow, J. M. Woolworth, A. J. Poppleton, and J. W. Cary for plaintiffs.

John F Dillon, A. L. Williams, and John M. Thurston, for defendants.

BREWER Justice.

On the 1st day of May, 1890, that which on its face purports to be a contract between five railroad companies,-- to-wit, the Union Pacific Railway Company, Omaha & Republican Valley Railway Company, Salina & Southwestern Railway Company, Chicago, Rock Island & Pacific Railway Company, and Chicago, Kansas &amp Nebraska Railway Company,-- was signed and acknowledged by the respective presidents of those companies, attested by their secretaries, and received the impress of their corporate seals. While five companies joined thus in the execution of this instrument, there were really but two parties to the contract,-- the Chicago, Rock Island & Pacific Railway Company and the Chicago, Kansas & Nebraska Railway Company, representing one interest and forming one party; the three other companies representing the other interest, and constituting the other party. For convenience, the first named will be hereafter called the Rock Island party, and the latter, the Pacific. The exact nature of the relations between the members of these two parties, as respects themselves need not be stated. It is enough to say that there was on each side a unity of interest and a unity of control. Each party controlled an extensive railway system. The Rock Island embraced three main lines, each running from Chicago,-- one to Council Bluffs, one to Kansas City, and the third to Denver; the Pacific,-- one from Council Bluffs to Ogden, one from Council Bluffs to Denver, and another from Kansas City to Denver. The Denver line of the Rock Island passed through St. Joseph and Beatrice. By filling a gap between Council Bluffs and Beatrice, the Rock Island would secure a shorter and better Denver line. The purpose and scope of the contract was the filling of this gap; and it provided therefor by the Pacific giving to the Rock Island the use of its track from Council Bluffs to South Omaha, this track crossing the Missouri river on the Pacific's bridge; the building by the Rock Island of a road from South Omaha to Lincoln; and the giving by the Pacific of the use of its track from Lincoln to Beatrice. The Rock Island proceeded to construct a road from South Omaha to Lincoln, and about the 1st of January of this year sought to use the Pacific's tracks between Council Bluffs and South Omaha, and Lincoln and Beatrice, which use was denied by the Pacific. Thereupon this bill was filed in the district court of Douglas county, Neb., to compel specific performance on the contract. A preliminary injunction was granted by the district court, though no possession was ever in fact taken or use made of these lines by the Rock Island. Immediately thereafter the Pacific removed the case to this court. In due course of time, the pleadings were completed, the proofs taken, and the case is now before us for final determination.

Four questions have been presented, and argued with distinguished ability. They are-- First, was the instrument, as thus signed and attested, so authorized and executed as to become and be a contract of the corporations? Second, if it was so authorized and executed, was it ultra vires? Third, if not ultra vires, is it a contract of which a court of equity may compel specific performance? And, fourth, if it may, ought specific performance to be decreed?

With regard to the first question,that the contract was signed by the proper executive officers, and that the formalities of execution were sufficient, is not disputed; and, if it was one of those minor contracts which fall within the scope of the ordinary powers of chief executive officers, no question could arise as to its being a contract of the corporations. But it is not such a contract. It is one of vast moment, running for 999 years, and affecting largely the financial interests, business, and policy of the corporations. It so changes the sweep of the future that no mere executive officer, of his own volition and by virtue of the ordinary powers of his office, could commit the corporation thereto. But authority beyond that of the executive officers is not wanting. After the contract had been drafted, and on the 22d day of April, 1890, it was submitted to the executive committee of the Union Pacific Railway Company,-- and of that company's relation to the contract I first speak,-- and unanimously approved by all the members of that committee them present. The committee consists of seven, and six of the seven were present. Thereafter, and on the 30th day of the same month, the regular annual meeting of the stockholders was held, at which over two-thirds of the capital stock of the company was represented, to-wit, 437,376 shares; and at such meeting this resolution was unanimously adopted:

'Resolved, that the agreement between the Union Pacific Railway Company, the Omaha & Republican Valley Railway Company, the Salina & Southwestern Railway Company, the Chicago, Rock Island & Pacific Railway Company, and the Chicago, Kansas & Nebraska Railway Company, dated May 1, 1890, (a copy of which is herewith submitted,) granting to the two last-named companies trackage rights over this company's lines from Council Bluffs to Omaha, including the Omaha bridge, and the lines of this company's Omaha & Republican Valley branch, from Lincoln to Beatrice, Neb., and providing, further, for the use by this company of the Chicago, Kansas & Nebraska Railway Company's lines between McPherson and South Hutchinson, Kan., and the line from South Omaha to Lincoln, Neb., on the terms therein provided for, be, and is hereby, approved, and the action of the executive committee in authorizing the execution thereof is hereby ratified, approved, and confirmed.'

-- And at the same meeting this resolution was adopted:

'Voted unanimously that the stockholders hereby approve and confirm and ratify all the actions of their board of directors and the executive committee during the past year.'

While the contract was never formally presented to the board of directors, and by such board authorized or approved, yet, immediately after the annual election of directors, in 1889, the board met, and, after appointing the executive committee, it 'voted that, while the board of directors is not in session, the full power thereof, under the charter and by-laws of the company, be, and hereby is, conferred upon the executive committee;' and this resolution was but a repetition of those passed by the boards of directors in the 10 preceding years. This delegation of power was by virtue of article 4 of the by-laws of the company, which reads:

'The board of directors shall have the whole charge and management of the property and effects of the company, and they may delegate power to the executive committee to do any and all acts which the board is authorized to do, except such acts as by law, or these by-laws, must be done by the board itself.'

In the original charter of the Union Pacific Railway Company, (12 St. 489, Sec. 1), the power to make by-laws was granted by this sentence:

'Said company, at any regular meeting of the stockholders called for that purpose, shall have power to make by-laws, rules, and regulations as they shall deem needful and proper, touching the disposition of the stock, property, estate, and effects of the company, not inconsistent herewith, the transfer of shares, the term of office, duties, and conduct of their officers and servants, and all matters whatsoever which may appertain to the concern of said company.'

It is clear from these quotations from the records of the company that, so far as the executive committee and the stockholders could by their approval bind the corporation to this contract, they did so. As against this, it is contended that as the board of directors did not formally act upon, either to authorize or approve the contract, the corporation never became bound, because power in respect to such matters is lodged solely in the board of directors; and, secondly, that if this be not true, and the stockholders are vested with power in respect thereto, the vote of the stockholders at the annual meeting was not sufficient, because in the call for such meeting no mention was made this proposed contract; and the minority of the stockholders, who were not present, were thus given no opportunity to consider it, and never joined in the approval. Neither of these propositions can be sustained. By the original Union Pacific act, there was created 'a body corporate and politic, in deed and in law;' which corporation was 'authorized and empowered to law out, locate, construct, furnish, maintain, and enjoy a continuous railroad and telegraph,' etc.; and was also 'vested with all the powers, privileges, and immunities necessary to carry into effect the purposes of this act, as herein set forth. ' By this act, therefore, was created a corporation, with all the powers incident to corporate existence. One of those incidents is that the ownership of the corporate property is vested in the stockholders, and with them rests also the absolute and ultimate power. In the Dartmouth College Case, 4 Wheat. 518, Judge STORY, speaking of an aggregate corporation, says, (page 667:) 'Among other things, it possesses the capacity of perpetual succession, and of acting by the collected vote or will of its component members. ' It is true that the act provides that there shall be certain directors appointed by the government, as second mortgagee and a bountiful donor to the company, was largely...