Gloninger v. Railroad Co.
| Decision Date | 05 January 1891 |
| Citation | 139 Pa. 13 |
| Court | Pennsylvania Supreme Court |
| Parties | J. R. GLONINGER v. PITTSB. & C. R. CO. |
Before PAXSON, C. J., STERRETT, GREEN, WILLIAMS, McCOLLUM and MITCHELL, JJ.
APPEAL BY PLAINTIFFS FROM THE COURT OF COMMON PLEAS NO. 1 OF ALLEGHENY COUNTY.
No. 214 October Term 1889, Sup. Ct.; court below, No. 477 March Term 1886, C. P. No. 1, in Equity.
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Mr. William S. Pier and Mr. D. T. Watson, for the appellants:
1. A corporation has such powers only as have been expressly granted to it by the state, and such incidental ones as are necessary to make its express grants effectual: Commonwealth v. Bringhurst, 103 Pa. 137; Diligent Fire Co. v. Commonwealth, 75 Pa. 291; Wolf v. Goddard, 9 W. 550. Unless so authorized, a lease or mortgage of a railroad company's property and franchises is void: Thomas v. Railroad Co., 101 U. S. 71; Sandford v. Railroad Co., 24 Pa. 380; Pittsb. etc. R. Co. v. Allegheny Co., 63 Pa. 126. The incorporating act of April 3, 1837, P. L. 185, did not intend to authorize the Pittsburgh & Connellsville Railroad Company to make such a mortgage as the one here in question. The subject matter of the grant of power to acquire property, "and the same from time to time to sell, mortgage," etc., did not include both the franchises and railroad of the company. This construction is supported by the fact that the legislature by the act of April 18, 1853, P. L. 566, specially authorized the mortgaging of the railroad and other estate, for the purpose of carrying out the privileges granted by the incorporating act and its supplements.
2. The object of the act of 1853 was to provide means to build the railroad. That object having been attained in 1871, the power granted by the act of 1853 could no longer be exercised. Moreover, the act of April 6, 1854, P. L. 281, allows the sale by the company of its bonds, theretofore authorized, at less than par. We can find no previous act authorizing the issue of bonds, and the act of 1854 does not pretend to grant the right to make and issue bonds. Neither of the acts cited, nor all of them together, authorize the bonds and mortgage in controversy. If the company had any power to make and issue them, it must be at common law. A corporation, which is indebted, undoubtedly has a right to issue bonds evidencing the debt: Williamsport v. Commonwealth, 84 Pa. 487; but, when bonds are issued to increase an indebtedness, statutory power must be shown: Packer v. Railroad Co., 19 Pa. 218; Penna. R. Co. v. Canal Commissioners, 21 Pa. 22. There is no common-law right in a railroad company to mortgage its franchises, and its property necessary to their exercise, and such a mortgage, if not expressly or impliedly authorized by the legislature, is void: Commonwealth v. Smith, 92 Mass. 448; Pierce v. Emery, 32 N. H. 508; Coe v. Railroad Co., 10 Ohio St. 372 (75 Am. Dec. 518).
3. These bonds are void, because issued in disregard of the provisions of § 7, article XVI. of the constitution and of the act of April 18, 1874, P. L. 61: Fowler v. Scully, 72 Pa. 456. The constitutional provision cited applies to this corporation. General laws enacted subsequent to its incorporation, are binding upon and enforceable against it, so long as they do not impair the obligation between the state and the corporation: Providence Sav. Inst., 9 Cush. 604; Newton v. Commissioners, 100 U. S. 557; Nelson v. Railroad Co., 26 Vt. 718 (62 Am. Dec. 614); Morawetz on Priv. Corp., § 1062, 1065, 1067; Hare's Am. Const. Law, 609. The master ruled that the constitution of 1874 is inapplicable to the Pittsburgh & Connellsville Railroad Company, citing Commonwealth v. Hays, 82 Pa. 518; Ahl v. Rhoads, 84 Pa. 319; Lewis v. Jeffries, 86 Pa. 345. But, he overlooked the firmly-established distinction between that class of cases and cases like Lewis v. Hollahan, 103 Pa. 425; Penna. R. Co. v. Duncan, 111 Pa. 353; Penna. R. Co. v. Bowers, 124 Pa. 185. The distinction is, that if the corporation had accepted legislation subsequent to the constitutional amendment of 1857, it is subject to the present constitution the same as if incorporated since 1874. The master has found that this company did accept legislation in 1868. Indeed, it has accepted legislation since 1874: McAboy's App., 107 Pa. 548.
4. While the Baltimore & Ohio Railroad Company was the owner of a controlling interest in the Pittsburgh & Connellsville Railroad Company, it was bound to manage and control the latter corporation in such way as should be for the interest and benefit of all the stockholders, and had no right to manage and control it, or to make use of its property, for selfish purposes or to procure advantages which were hostile to the interests of the remaining or minority stockholders. In a word, the Baltimore & Ohio Railroad Company was a trustee in its management and control as the majority stockholder, was visited with all the obligations imposed by law upon trustees, and was bound to exercise the greatest good faith: Rice's App., 79 Pa. 204; Meeker v. Iron Co., 17 Fed. R. 48; Menier v. Telegraph Works, L. R. 9 Ch. App. 350; Erwin v. Ry. & Nav. Co., 27 Fed. R. 625; Barr v. Railroad Co., 96 N. Y. 444; Peabody v. Flint, 6 Allen 52; Cook on Stockholders, § 662; Morawetz on Corp., § 447. In Pullman Palace Car Co. v. Railway Co., 115 U. S. 587, and Porter v. Steel Co., 120 U. S. 649, cited by the master as modifying the doctrine of Rice's Appeal and Meeker v. Iron Works, supra, there was no question as to an abuse of trust. The testimony abundantly shows such abuse in the present case.*
Mr. John S. Ferguson and Mr. Johns McCleave (with them Mr. George Shiras, Jr.), for the appellees:
1. An ultra vires act of a corporation will not be set aside unless the money or property, received by the corporation from third persons by means thereof, is returned to such persons: Cook on Stockholders, § 698; Morrow v. Rees, 69 Pa. 373; Negley v. Lindsay, 67 Pa. 228; Beetem v. Burkholder, 69 Pa. 254; Pearsol v. Chapin, 44 Pa. 10; Beaufort v. Keokuk Co., 69 Mo. 698; Harpending v. Munson, 91 N. Y. 650; Gould v. Cayuga Bank, 86 N. Y. 75. Unless restricted by statute, a corporation has a clear right to issue bonds: Commonwealth v. Pittsburgh, 41 Pa. 284; Watts's App., 78 Pa. 370; Phila. etc. R. Co. v. Stitchter, 11 W. N. 325. The question of power, in this case, relates not to the bonds, but to the mortgage of the franchises given to secure them. The power to mortgage the franchises, exists by necessary implication from the express power to mortgage the railroad: Pollard v. Maddox, 28 Ala. 321; Cooley's Const. Lim., 64; United States v. Fisher, 2 Cranch 358; McCulloch v. Maryland, 4 Wheat. 428; New Orleans R. Co. v. Delamire, 114 U. S. 501; Memphis R. Co. v. Commissioners, 112 U. S. 609; Galveston R. Co. v. Cowdrey, 78 U. S. 439; East Boston R. Co. v. Railroad Co., 13 Allen 422; Bardstown R. Co. v. Metcalfe, 4 Met. (Ky.) 199 (81 Am. Dec. 541).
2. As to the policy on which the doctrine that legislative authority is requisite to a mortgage by a railroad company of its corporate franchises rests, see Shepley v. Railroad Co., 55 Me. 395; Kennebec R. Co. v. Railroad Co., 59 Me. 9; Miller v. Railroad Co., 36 Vt. 494; Branch v. Jesup, 106 U. S. 468. In Pennsylvania, such a policy has been completely abandoned, as is indicated by the legislation relative to corporate mortgages, to judicial sales of corporate franchises, and to the merger and consolidation of railroad corporations: Act of March 13, 1873, P. L. 45; act of April 7, 1870, P. L. 58; act of April 8, 1861, P. L. 259. But, even if the mortgage of the franchises were invalid, this would not affect the instrument as a mortgage of such property as the company had power to mortgage: Carpenter v. Mining Co., 65 N. Y. 443; Pullan v. Railroad Co., 4 Biss. 41; Butler v. Rahm, 46 Md. 541; Central Mining Co. v. Platt, 3 Daly 263. The plaintiffs, however, cannot raise the question; only the state can do so: Dunham v. Isett, 15 Iowa 294; McAlister v. Ward, 54 Miss. 106; Branch v. Jesup, 106 U. S. 468; Allegheny v. McClurkan, 14 Pa. 81; Farnham v. Canal Co., 61 Pa. 265; Grant v. Coal Co., 80 Pa. 208; Oil Creek etc. R. Co. v. Transp. Co., 83 Pa. 160.
3. The clause in § 7, article XVI. of the constitution, forbidding any increase of "the stock and indebtedness" of a corporation without the consent of the majority of the stockholders, given at a meeting held after sixty days' notice, refers to an increase of indebtedness predicated of an increase of stock. To read "and" as "or," would not only do violence to the language, but would place such difficulties in the way of the transaction of business on credit, as would stop the business of every corporation in the state. The design was to prevent expansion of debts beyond the limit allowed by the charter, without the consent of the stockholders: Lewis v. Jeffries, 86 Pa. 345. But, suppose the constitution of 1874 applies to this case. The only result is, that the plaintiffs show an exercise of the power to increase indebtedness in an irregular manner, and such irregularity does not render the act void, especially as to bona fide holders of the bonds: O'Hare v. Bank, 77 Pa. 96; Ossipee Mfg. Co. v. Canney, 54 N. H. 295; Poole v. West Point Ass'n, 30 Fed. R. 513; San Antonio v. Mehaffy, 96 U. S. 312; Macon Co. v. Shores, 97 U. S. 272; Taylor on Corporations, §§ 127, 204, 205, 286, 329; Columbia N. Bank's App., 16 W. N. 357; Kerr v. Corry, 105 Pa. 282; Manhattan H. Co. v. Phalen, 128 Pa. 110; Chubb v. Upton, 95 U. S. 665; McHose v. Wheeler, 45 Pa. 32. The plaintiffs, suing as stockholders, stand on the right of the corporation, and cannot set up the plea of ultra vires: Columbia N. Bank's App., 16 W. N. 357; Oil Creek etc. R. Co. v. Transp. Co., 83 Pa. 166; Wright v. Pipe Line Co., 101 Pa. 204; Goundie v. Water Co., 7 Pa. 233; Grant...
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