The White Water Valley Canal Company, Appellants v. Henry Vallette and Others

• Citation: 21 How. 414,62 U.S. 414,16 L.Ed. 154
• Parties: THE WHITE WATER VALLEY CANAL COMPANY, APPELLANTS, v. HENRY VALLETTE AND OTHERS
• Decision Date: 01 December 1858
• Court: United States Supreme Court

62 U.S. 414

21 How. 414

16 L.Ed. 154

THE WHITE WATER VALLEY CANAL COMPANY, APPELLANTS, v. HENRY VALLETTE AND OTHERS.

December Term, 1858

THIS case originated in the Circuit Court of the United States for the district of Indiana.

It was a bill filed on the equity side of the court, by Vallette, a citizen of Ohio, against the White Water Valley Canal Company, a corporation created by a law of the State of Indiana. The whole suit was conducted according to the rules of a court of chancery. After the decree, the company prayed an appeal in open court, filed a bill of exceptions, which was allowed and signed by the district judge, and upon this a writ of error was sued out.

The nature of the contract and form of the bonds are set forth in the opinion of the court.

The heading of the bonds was as follows, viz:

UNITED STATES OF AMERICA,

State of Indiana.

$1,000.

No. 18.

The White Water Valley Canal Company.

Canal Loan. Seven per cent. bond under the act of the General Assembly of the State of Indiana, entitled 'An act to incorporate the White Water Valley Canal Company,' January 20, 1842.

Know all men by these presents, that there is due from 'the White Water Valley Canal Company' to Henry Vallette, or bearer, the sum of, &c., &c.

The case was was argued by Mr. McLean and Mr. Stanbery for the appellants, and Mr. Swayne and Mr. Ewing for the appellees. Upon this side there was also a brief filed by Mr. Fox.

The counsel for the appellant contended:

1. That there was no power to issue bonds which should claim priority, by way of mortgage, over all other creditors. They admitted the right of these bondholders to come in amongst the other creditors, but denied their claim to exclusiveness.

2. That the bargain was too hard, because the bonds were issued for twice the amount which had been expended in finishing the canal.

Upon the first point, they referred to the difference between the original and amended bill filed by Vallette; the original having placed the transaction upon the footing of a loan under the 18th section of the charter, whilst the amended bill placed it upon the footing of a contract made for finishing the work. The power to mortgage was denied, because it included a power to sell, and in this case the company was a mere trustee created by the State to finish a work in which the State had already invested a million of dollars. The State reserved the right to redeem the canal upon certain conditions, which right was incompatible with a power in the company to mortgage and sell, and thus forever alienate the whole work. When sold, how could an individual purchaser carry it on? Could he exercise the power of eminent domain, of crossing public highways, and of making penal statutes necessary to continue the operation of the canal? Other parts of the charter were inconsistent with the alleged power of the company to sell out, or do anything which might lead to selling out, the whole concern. The grant of power in the 18th section carries with it an inference that the same power is not granted in any other section of the charter. The law of 1845, legalizing the bonds, was only intended to sanction the payment of seven per cent. interest, which is proved by that part of the preamble which says, 'whereas doubts are entertained as to the legality of the issue of such bonds under the present interest laws of the State.'

The contract was a very onerous one. In it there is nothing said about giving this debt a priority over all other debts; but Vallette appeared to look for his profit in the fact of receiving bonds for double the amount which it would cost to finish the canal. The company had already paid upwards of $75,000 upon account of these bonds, whereas the money expended by Vallette was only $56,000. At the most, there was only an agreement to give him a mortgage, which, not being executed, ought not to exclude other creditors whose claims are perfectly fair and bona fide. When the company made this bargain, it was in great straits for money, and Vallette took an unconscientious advantage of a necessitous debtor.

Authorities were adduced to sustain the following propositions, viz:- 1. Corporations are strictly limited to the exercise of those powers which are expressly granted to them, or are necessarily incident either to the purposes of their existence, or to the proper enjoyment of their express powers.

2. An express grant of a specific power, in one section of a charter, is a prohibition against the exercise of the same power by implication from the provisions of another section.

3. The express grant of a specific power is restrictive in its operation, and not only must the occasion of its exercise arise, but the method and manner of its execution must be strictly adhered to, according to the terms of the grant, or its exercise is a nullity.

4th. A corporation may deny the validity of any contract which it may have entered into without authority for so doing under its charter. (4 Peters, 164; 2 Cranch, 127; 9 Howard, 172; 13 Peters, 518; 7 Ohio, part 1, 232; 8 Ohio, 252, 286, et seq.; 15 Johnson, 358; 2 Cowen, 678; 5 Connecticut, 560; 7 Wendell, 31; 8 Gill and Johnson, 248; 5 Barbour, 613.)

The points made by Mr. Ewing and Mr. Swayne were the following:

We will not discuss the question whether this is or is not a loan of money. It is a matter of no importance. Parties and counsel may give it what name they please.

I. Whatever be its name, the transaction is one which does not bring the case within the usury laws.

It is a contract to construct the canal at specified prices, and receive therefor payment in bonds of the company.

The work at the contract prices amounted to $112,000. It was paid for in the bonds of the company, according to the contract.

Much better terms could have been got, if the company had had cash to pay. But, in the exchange of work for bonds, it was the best that could be done.

There was no money passed between the parties in the transaction. Vallette did the work under a contract, and took a lien on the work to secure the payment of his bonds.

It is in equity just what the contract of a builder would be who should contract for a lien on the rents of the house which he should build, until paid.

And it would not interfere at all with the builder's equity, if he demanded a higher price, payable in bonds at a distant day, than if he were to be paid in cash; and especially if the payment for his work depended on the productiveness of the property covered by equitable mortgage, subject to loss by flood and fire. If we did but know how much it would have cost him to insure the claim, we might determine whether the contract was reasonable.

Until this matter is settled, as the agreement was made between parties entirely competent to contract, we must presume it to be so.

II. It is no matter whether this be a loan or not.

1. The corporation had a right by its general powers, independently of the 18th section, to make this contract, and to pledge the tolls, &c., of the canal for the payment.

It creates a lien that equity will enforce.

2. The contract comes within the reason and spirit of the 18th section. If the company is thereby authorized to pledge the tolls, &c., of the canal for the repayment of money borrowed to construct, it is also authorized to make the pledge for construction directly.

They may pledge for the loan, because it constructs the canal. It is a workman's lien. But instead of pledging to the contractor, the pledge is to the lender, whose money pays him. If the contractor furnish the money to pay himself, may they not pledge to him? To deny it would be a mere verbal criticism—a sticking in the bark.

III. But the act of January 4th, 1845, removes all possible difficulty, if there were any, after the contract was made and executed by Vallette; it santions the contract, and makes valid all bonds which shall be issued in pursuance of it.

If the company had not the power already to issue these bonds, their issue after the act is an acceptance of it.

Other points are made by the answers, but they are wholly unsustained by the testimony, and are not referred to in the brief for the appellant. We understand they will not be relied upon in the argument at the bar. We deem it unnecessary, therefore, to advert to them.

In addition to the authorities cited in the brief of our colleague, Mr. Fox, we shall refer to the following:

1. James v. C. and H. R. R. Co., (6 Amer. Law Register, 718.) Where a charter directs the mode of exercising given powers, that part of the statute is directory, and a departure from the mode prescribed does not in any wise invalidate the acts of the corporation. See also the authorities cited upon this point in the opinion of the court.

2. Thompson v. N. Y. and H. R. R. Co., (3 Sandford Ch. Rep., 626.) 'A corporation authorized by law to build a bridge at a given point may buy one already built at the same point, if suitable for their purpose.' Syllabus.

3. Palmer v. Lawrence, (3 Sandf. Law Rep., 162.) 'A party will not be permitted to rescind a contract, the fruits of which he retains, and can never be compelled to restore.' Syllabus.

4. Steam Nav. Co. v. Weed, (17 Barbour, 378.) 'Where it is a simple question of capacity to contract, arising either on a question of regularity of organization or of powers conferred by the charter, a party who has had the benefit of the contract, in an action founded upon it, is not allowed to question its validity.' Syllabus. See also Sedgwick on Construction, p. 90.

5. This doctrine applies alike, whether the corporation or the individual contracted with be the party sought to be charged. (Moss v. Rossie Lead M. Co., 5 Hill, 137; Steam N. Co. v. Weed, 17 Barb., 378.)

The case last cited will be found to contain a very full collection and able analysis of all the leading authorities upon this subject.

Mr. Justice CAMPBELL delivered the opinion of the court.

This controversy...