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Upton v. Tribilcock/Opinion of the Court

Two points are presented in this case. Upon the first point, the facts are as follows:--

The plaintiff, as assignee of the Great Western Insurance Company, a corporation organized under the statute of the State of Illinois, brought his action against the defendant, alleging that he was a stockholder of said corporation to the amount of ten thousand dollars; that twenty per cent only had been paid upon his stock; alleging also the bankruptcy of the company, the appointment of the plaintiff as assignee, and the demand of the amount claimed, and seeking to recover the eight thousand dollars remaining unpaid. The complaint averred that the defendant did verbally agree to become such stockholder, and, with intent to become such, did accept a certificate for the same, whereby he became bound to pay the full amount thereof, as follows: Five per cent upon delivery of the certificates; five per cent in three months; five per cent in six months; five per cent in nine months; and the residue whenever called for by the company, according to the charter of the company and the laws of the State of Illinois.

The defence is, that the subscription was obtained by the fraudulent representations of the agent of the company to the effect that the defendant would only be responsible for twenty per cent of the subscription made by him; that afterwards he executed his promissory note for the twenty per cent, and secured the same by a mortgage of real estate; 'and that thereupon (in the language of the answer), and pursuant to agreement, said subscription contract was surrendered and delivered up to defendant;' and also in the language of the answer, 'that said note was a full payment and discharge of all obligations and personal liabilities of all kinds whatsoever by reason of his contract so made and the relations created by the delivery to him of said certificate, and said note was received in full payment.'

In his third amended answer, the defendant avers that he did subscribe for stock on the conditions mentioned; that after that contract was made, and before a certificate was delivered to him, and before executing his note, an agreement was made with Overton on behalf of the company to the effect before stated; and thereupon he made and delivered the note and mortgage which was received by Overton in full discharge and payment of the amount due on his said subscription.

The evidence contained in the bill of exceptions leaves the case substantially as is averred in the pleadings. The defendant offered evidence tending to prove representations that twenty per cent only was required to be paid; that eighty per cent was non-assessable, and created no personal liability; that the agent, Overton, exhibited a blank form of certificate with the word 'non-assessable' printed across the face, 'being a copy similar to that subsequently filled up and delivered to defendant by Overton.' It appears, that, before the defendant made his subscription, a copy of the charter and by-laws had been furnished to him by Overton; and that, in returns made by the company to the Auditor of the State of Illinois of the amount of 'unpaid subscribed capital for which the subscribers were liable,' the amount of the defendant's note was included.

The case standing in this position upon the pleadings and the evidence, the plaintiff requested the court to charge the jury as follows:--

2d. That any contract between the company or its agents and the stockholders, limiting their liability as to unpaid instalments of stock, is void as to creditors of the company, and as to the rights of the assignee who represents the creditors in this action.

3d. That if the jury find from the evidence that the defendant, J. D. Tribilcock, became a stockholder of the Great Western Insurance Company in the month of August, 1870, and that he continued to own and hold said stock until after the insolvency of the company in February, 1873, that any representations by any agent of the company at the time defendant became such stockholder as to the matter of his liability for eighty per cent of the stock, or any indorsement on the stock of the word 'non-assessable,' are wholly immaterial, and constitute no defence to this action.

This request was refused.

It is hardly necessary to argue the proposition, that if the defendant became a holder of shares of the capital of this insurance company to the amount of $10,000, and had paid but twenty per cent thereof, its creditors were entitled to require of him the payment of the eighty per cent remaining unpaid. The acceptance and holding of a certificate of shares in an incorporation makes the holder liable to the responsibilities of a shareholder. Brigham v. Mead, 10 Allen, 245; ''Buff. City R. R. Co. v. Douglass, 14 N. Y. 336; Seymour v. Sturges'', 26 id. 134. The capital stock of a moneyed corporation is a fund for the payment of its debts. It is a trust fund, of which the directors are the trustees. It is a trust to be managed for the benefit of its shareholders during its life, and for the benefit of its creditors in the event of its dissolution. This duty is a sacred one, and cannot be disregarded. Its violation will not be undertaken by any just-minded man, and will not be permitted by the courts. The idea that the capital of a corporation is a foot-ball to be thrown into the market for the purposes of speculation, that its value may be elevated or depressed to advance the interests of its managers, is a modern and wicked invention. Equally unsound is the opinion, that the obligation of a subscriber to pay his subscription may be released or surrendered to him by the trustees of the company. This has been often attempted, but never successfully. The capital paid in, and promised to be paid in, is a fund which the trustees cannot squander or give away. They are bound to call in what is unpaid, and carefully to husband it when received. Sawyer v. Hoag, 17 Wall. 610; Tuckerman v. Brown, 33 N. Y. 297; Ogilvie v. ''Knox Ins. Co.'', 22 How. 380; Osgood v. Laytin, 3 Keys, 521; 37 How. Pr. 63, affg. 48 Barb. 463; Gross, Ill. Stat., p. 356, § 16.

We are of the opinion that the alleged representation of the non-assessability of the stock held by him was quite immaterial. It was so held in Ogilvie v. ''Knox Ins. Co.'', 22 How. 380.

Again: if full effect is given to the evidence of the defendant and to his claim in this respect, it shows this, and nothing more: He became a stockholder under a certificate signed by the president and secretary that he was entitled to one hundred shares of the stock of $100 each, payable five per cent on receipt of the certificate; five per cent in three months; five per cent in six months; five per cent in nine months from date; the time or manner of the payment of the residue not being specified. Upon the face of this certificate were stamped in red ink the figures '$100,' and in another place was stamped the word 'non-assessable.' This certificate he held until the insolvency of the company in 1873 was known to him.

The legal effect of this instrument was to make the remaining eighty per cent payable upon the demand of the company. We see no qualification of this result in the word 'non-assessable,' assuming it to be incorporated into and to form a part of the contract. It is quite extravagant to allege that this word operates as a waiver of the obligation created by the acceptance and holding of a certificate to pay the amount due upon his shares. A promise to take shares of stock or a promise to pay for them. The same effect results from an acceptance and holding of a certificate. Palmer v. Lawrence, 3 Sand. S.C.. 761; Brigham v. Mead, 10 Allen, 245. At the most, the legal effect of the word in question is a stipulation against liability to further taxation or assessment after the holder shall have fulfilled his contract to pay the one hundred per cent in the manner and at the times indicated. We cannot give to it the consequence of destroying the legal effect of the certificate.

Still, again, the representations relied upon as a defence, it will be noticed, were as to the legal effect of the defendant's subscription and certificate. It is alleged that the agent represented, that by the laws of the State of Illinois, and by the charter of this company, the defendant might become a subscriber to the amount of $10,000; and, by means of a certificate to be given to him like that exhibited, he would really be liable only to the extent of one-fifth of his said subscription, and that good lawyers had given their advice to this effect.

There was here no error, mistake, or misrepresentation of any fact. The defendant made the subscription he intended to make, and received the certificate he had stipulated for; and, as there is no evidence to the contrary, it is to be presumed the good lawyers advised as was stated: but, in law, the defendant incurred a larger liability than he anticipated. Leavitt v. Palmer, 3 N. Y. 19.

He had received, several days before this time, a copy of the charter and by-laws of the company, and then had them in his possession. The twenty-fifth section of the by-laws was as follows: 'Every person who shall subscribe for $10,000 of stock, and pay twenty per cent thereof, shall be constituted a director of this company, and shall continue such director so long as he shall retain of such stock an amount equal to $10,000; but such $10,000 shall not be reckoned in the election of other directors.'

It was under this section and the succeeding one, authorizing the establishment of a branch in any place where such subscription was made, and by which the defendant became a director and might be president thereof, that the transaction took place.

That the defendant did not read the charter and by-laws, if such were the fact, was his own fault. It will not do for a man to enter into a contract, and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained. If this were permitted, contracts would not be worth the paper on which they are written. But such is not the law. A contractor must stand by the words of his contract; and, if he will not read what he signs, he alone is responsible for his omission. Jackson v. Croy, 12 Johns. 427; Leis v. Stubbs, 6 Watts, 48; Farly v. Bryant, 32 Me. 474; Coffing v. Taylor, 16 Ill. 457; Slafyton v. Scott, 13 Ves. 427; Alvanly v. Kinnaid, 2 Mac. & G. 7; 29 Beav. 490.

That a misrepresentation or misunderstanding of the law will not vitiate a contract, where there is no misunderstanding of the facts, is well settled.

In Fish v. Clelland, 33 Ill. 243, the principle is expressed in these words: 'A representation of what the law will or will not permit to be done is one on which the party to whom it is made has no right to rely; and if he does so it is his folly, and he cannot ask the law to relieve him from the consequences. The truth or falsehood of such a representation can be tested by ordinary vigilance and attention. It is an opinion in regard to the law, and is always understood as such.' See Star v. Bennett, 5 Hill, 303; Lewis v. Jones, 4 B. & C. 506; Rashall v. Ford, Law Rep. 2 Eq. 750.

The law is presumed to be equally within the knowledge of all parties.

That a stockholder may relieve himself from his liability by proof that he was misinformed as to the effect of his contract when he made it would be a disastrous doctrine.

That a defendant, who could not by contract lawfully relieve himself from liability as a stockholder, can accomplish that result by proof that it was fraudulently represented to him that he could so relieve himself, would be strange indeed. Ogilvie v. ''Knox Ins. Co.'', 22 How. 380.

The rule, that a mistake of law does not avail, prevails in equity as well as at common law. Bank of U.S. v. Daniel, 12 Pet. 32; Hunt v. Rousman, 1 id. 1; 8 Wheat. 174; Mellech v. Robertson, 25 Vt. 603; Leant v. Palmer, 3 Comst. 19.

'If ignorance of law was admitted as a ground of exemption, the court would be involved in questions which it were scarcely possible to solve, and which would render the administration of justice next to impossible; for in almost every case ignorance of law would be alleged, and the court would, for the purpose of determining this point, be often compelled to enter upon questions of fact insoluble and interminable.' Austin's Jour., vol. ii. p. 172; Kerr, 397.

A statement that the insurance company had consulted with good lawyers, and that their opinion was as stated, should have been clear proof to the defendant that a representation of the law was a matter of opinion only.

We think the judge erred in not charging as was requested.

The facts upon which the second point arises are these: Assuming that fraudulent representations had been made to the defendant respecting his non-liability for the eighty per cent, and that they were of a character that might relieve him from his contract, it was objected that he had not used proper diligence in discovering the fraud and in repudiating his contract. The transaction took place in August, 1870; and the defendant himself gave evidence 'that he never suspected any liability as to said eighty per cent, or that the said representation as to the laws of Illinois were false, until the agent of the assignee made a demand upon him for the eighty per cent in the year 1873; and that, as no claim had been made upon him, he never made any investigation as to the truth of such representations until after said demand in 1873.' In February, 1871, the defendant did ask for a rescission of his contract, on the untenable ground that it had been fraudulently represented to him that his note should be retained and held in Bloomfield, Iowa; which representation had been violated by a sale of the same, and a removal thereof to the city of Chicago. The defendant is explicit and emphatic in his evidence that this attempted repudiation 'was based wholly on what was represented' as to the intended disposition of the notes and mortgage.

The plaintiff thereupon requested the court to charge the jury as follows:--

'7. That if he, defendant, offered to surrender his stock to the officers of the company, but not upon the ground that he had been induced to subscribe for the stock upon a fraudulent representation as to his liability for the eighty per cent, but upon another ground,-to wit, that the company had sold and assigned his note and mortgages,-then such offer is immaterial, and the evidence of fraud in such misrepresentations as to his liability for the eighty per cent cannot be made available in this suit, and constitutes no defence in this action.

'12. That if defendant was induced, in August, 1870, to become a stockholder of the Great Western Insurance Company by a representation of the agent of the company that eighty per cent of the stock was non-assessable, and that the laws of the State of Illinois allowed the company to make such contract with those who took stock, then it was the duty of the defendant to use reasonable diligence to ascertain the truth of such representations, and to ascertain what the law of Illinois was on that subject; that if he did not do so within a reasonable time, and did not ascertain the truth of said matter until after the insolvency of the company in 1873, then he cannot, as to the creditors of the company, maintain any defence by means of such representations. The court instructs you, as matter of law, that the defendant could have ascertained the truth of such representations within a few months from the time they were made, and that not doing so is negligence on the part of the defendant that bars such defence as to the assignee.'

The defence arising from the alleged promissory representations that the note and mortgage of the defendant should not be removed from Bloomfield, but should be retained in charge of the branch of the company at that place, was frivolous, and was practically abandoned on the trial. The case was submitted to the jury solely on the question arising upon the representations of the non-assessability of the eighty per cent. The attempted rescission on account of the representation as to non-removal and its violation was, however, unfortunately introduced into the charge in a manner that prejudiced the right of the plaintiff.

The requests as above stated were declined; but the judge charged the jury as follows: That, 'as respects creditors, the law requires of one, who has been drawn by fraud into the purchase of stock, that he shall be guilty of no negligence or want of reasonable care in discovering the fraud, and, on discovering it, promptly repudiating the purchase. If you find from the evidence, that, within a few months after receiving the stock certificate, the defendant, discovering that he had been deceived in some respects, procured the agent who had obtained his certificate to go to Chicago, delivering to such agent his stock certificate, and instructed the agent to surrender up the stock and demand back the note for twenty per cent; and if the agent accordingly went to Chicago, and offered to the company to surrender the stock and rescind the contract, which the company refused; and if you find that the defendant never afterwards acquiesced in being a member of the company; that in September, 1871, he brought an action of replevin for the note, based on the ground of fraud; and if afterwards he refused to receive any dividend; and if all this took place before bankruptcy or insolvency of the company,-I instruct, that, in point of law, this is a sufficient repudiation of the contract to become a stockholder to enable defendant, living in another State, to resist an action for the payment of the eighty per cent, provided you find that defendant was induced to become a stockholder by fraud, as before explained; and also further find, in view of all the circumstances, that defendant was not unreasonably negligent in discovering the fraud, and was guilty of no want of reasonable diligence in taking steps to repudiate the transaction.'

To this charge the plaintiff excepted.

The general principles set forth in this charge are no doubt sound. If the alleged promissory representation as to the non-removal of the note had been available, and had the question been submitted to the jury, the charge would have been well enough. But that question was not before them. The questions submitted to them related exclusively to the representations that the eighty per cent should not be required to be paid. That was the fraud before the jury; and the question involved in the seventh and twelfth requests was this: Assuming that representation to be a fraud which would avoid the contract, had the defendant discharged his duty in discovering that fraud, and repudiating the contract on account of that fraud, and not on account of another fraud not now in question? We think the plaintiff was entitled to the opinion of the jury on that precise question. The charge refused him this right. The jury were charged, that if, within a few months after receiving the certificate, the defendant, discovering that he had been deceived in some respects, sent an agent to Chicago to surrender his certificate and demand his note, if he never afterwards acquiesced in being a member of the company, if he brought an action of replevin for the note, and if he refused to receive a dividend, this was sufficient evidence of repudiation. This was well enough as to the abandoned fraud which was not before the jury, but was entirely inapplicable to the fraud that was before them. As to that fraud, the defendant testified that he had no knowledge or suspicion of its existence until after the demand made upon him in 1873 by the assignee, and that he never made any investigation as to the truth of the representation as to the eighty per cent liability until after said demand in 1873. On this point there was no contradictory evidence. It should have been ruled as a question of law. Pettibone v. Stevens, 15 Conn. 19; Beers v. Bottsford, 13 id. 146. The submission should have been made, if not ruled as a question of law, on these facts only, as requested; and the failure to do so, and the introduction of the facts tending to show a repudiation on the ground of another fraud, could not fail to confuse the jury, and was error on the part of the judge.

Wright's Case (Law Rep. 12 Eq. 1871, pp. 331-351) is an authority on this point. It was there held, first, that, under the English act, a surrender and cancellation of shares did not relieve the holder from his liability to creditors of the bank; and, second, that a surrender by Wright of his shares in November, on the ground of an apprehended difficulty in the affairs of the bank, did not enable him to claim a rescission of his subscription on account of a fraudulent representation in the prospectus of the company, which fraud was then unknown to him. Henderson v. Royal British Bank, 7 E. & B. 356; Parris v. Harding, 1 C. B. N. S. 533; Oates v. Turquand, L. R. 2 Ap. Cas. 325.

The principle laid down in the charge of the judge, that one who claims to have been drawn into a fraudulent purchase must exercise care and vigilance to discover the fraud, and must be prompt in repudiating his contract on the ground of such fraud, is a sound one. Thomas v. Barton, 48 N. Y. 193.

The defendant sought to become a member of a corporation of the State of Illinois, and to obtain the benefits and advantages of its special privileges. If he is not held to be bound to know and accept all the consequences of this connection, he certainly is bound to use care and attention to ascertain his position, and promptly to make his choice of retaining it with its advantages and responsibilities, or of abandoning it. To subscribe for stock in a corporation in August, 1870, to rest quietly until the year 1873, never making any investigation as to the position in which he stood until that time, and until after the assignee in bankruptcy had made a demand upon him, falls very far short of what the law requires. Especially is this the case when it is shown that he lived in an adjoining State; that he sent an agent to Chicago, and himself went to that city in 1871 to obtain his note and mortgage from that very company for an alleged misconduct in another respect. It was his plain duty to have inquired and to have ascertained his position long before he did. 'A party must use reasonable diligence to ascertain the facts.' Buford v. Brown, 6 B. Mon. 553.

Mere lapse of time, where a party has not asserted his claim with reasonable diligence, is a bar to relief. Relief is not given to those who sleep on their rights. Beckford v. Wade, 17 Ves. 87-97; Jones v. Tuberville, 2 Ves. Jr. 11.

Equity will not assist a man whose condition is attributable only to that want of diligence which may be fairly expected from a reasonable person. Duke of Beaufort v. Neald, 2 Cl. & F. 248-286.

Parties who are shareholders, and claim to be relieved on the ground of fraud, must act with the utmost diligence and promptitude. Smith's Case, L. R. 2 Ch. Ap. 613; Denton v. MacNeil, L. R. 2 Eq. 532; Peel's Case, L. R. 2 Ch. Ap. 684.

The judgment must be reversed, and a new trial had.


text: Talk:Upton v. Tribilcock/Opinion of the Court

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Sanger v. Upton

ERROR to the Circuit Court of the United States for the Northern District of Illinois.

This was an action of assumpsit, brought by Clark W. Upton, as assignee in bankruptcy of the Great Western Insurance Company, against Mary C. Sanger, for the balance unpaid on her stock. The Bankruptcy Court made an order that the amount unpaid on the capital stock of the corporation should be paid to the assignee on or before Aug. 15, 1872, and, in default thereof, that the assignee proceed to collect the same; and that notice of this order be given to the stockholders by publication or otherwise. Notice was given by publication, and by mailing to each subscriber a copy of the order, with a demand for payment. Defendant below failing to pay, this suit was brought. The evidence offered on the part of the plaintiff below, and excepted to by the defendant below, is stated in the opinion of the court.

Mr. H. S. Monroe and Mr. L. H. Bisbee for plaintiff in error.

1. Plaintiff in error not bound by the order of July 5, 1872, as she was not before the court.

2. Under the evidence in the case, the plaintiff in error was not liable.

Mr. L. H. Boutell for defendant in error.

1. The District Court had authority to pass the order of July 5, 1872. Upon the bankruptcy of the company, its corporate powers, so far at least as they were necessary for the winding up of its affairs, were transferred to that court.

2. No notice to the stockholders of the application to the District Court for the assessment was necessary. Ward v. ''Griswold Manuf. Co., 16 Conn. 593; Ex parte Herodry'', 15 Ves. 498; Ogilvie et al. v. ''Knox Co. Ins. Co.'', 22 How. 380; Angell & A. on Corp. (9th ed.) 599-604; Sawyer v. Hoag, 17 Wall. 610, 619.

3. An action at law is the proper remedy.

MR. JUSTICE SWAYNE delivered the opinion of the court.

title: Sanger v. Upton


text: Talk:Sanger v. Upton

title: Talk:Sanger v. Upton


text:
Sanger v. Upton/Opinion of the Court

Several errors are assigned and relied upon touching the admission of evidence and the instructions given to the jury.

We shall give our views of the case as it is presented in the record, so as to meet these objections without adverting specifically to any of them.

The original charter of the Great Western Insurance Company fixed its capital at $100,000. By an amendment of the charter, the capital was increased to $5,000,000. It became insolvent. A petition was filed against it in the District Court of the United States for the Northern District of Illinois; and on the 6th of February, 1872, it was adjudged a bankrupt. On the 11th of April, 1872, the defendant in error was appointed its assignee in bankruptcy. Upon the application of the assignee, the District Court made an order that the balance unpaid upon the stock held by the several stockholders should be paid to the assignee on or before the fifteenth day of August, 1872; that notice of the order should be given by publication in a newspaper or otherwise; and that, in default of payment, the assignee should proceed to collect the amount due from each delinquent. The assignee gave notice by publishing the order accordingly, and by mailing a copy, with a demand of payment, to each stockholder. The plaintiff in error was so notified. It was claimed that she was the owner of $10,000 of the stock, upon which it was alleged there was due sixty per cent. The original charter required the payment of five per cent of the capital stock, and that the balance should be secured in the manner prescribed. The amended charter is silent upon the subject. The stock certificates issued by the company set forth that twenty per cent was to be paid in four quarterly instalments of five per cent each, 'the balance being subject to the call of the directors as they may be instructed by the majority of the stockholders represented at any regular meeting.'

This was a regulation of the company, and not a requirement of either the original or amended charter. It did not appear that any call was ever made by the directors, or authorized by the stockholders.

The plaintiff in error having failed to pay pursuant to the order of the court, this suit was instituted by the assignee.

The order was conclusive as to the right of the assignee to bring the suit. Jurisdiction was given to the District Court by the Bankrupt Act (Rev. Stat., sect. 4972) to make it. It was not necessary that the stockholders should be before the court when it was made, any more than that they should have been there when the decree of bankruptcy was pronounced. That decree gave the jurisdiction and authority to make the order. The plaintiff in error could not, in this action, question the validity of the decree; and, for the same reasons, she could not draw into question the validity of the order. She could not be heard to question either, except by a separate and direct proceeding had for that purpose. She might have applied to the District Court to revoke or modify the order. Had she done so, she would have been entitled to be heard; but it does not appear that any such application was made. As a stockholder, she was an integral part of the corporation. In the view of the law, she was before the court in all the proceedings touching the body of which she was a member. In point of fact, stockholders in such cases can hardly be ignorant of the measures taken to reach the effects of the corporation. If they choose to rest supine until cases against them like this are on trial, they must take the consequences. Not having spoken before, they cannot be permitted to speak then, especially to make an objection which looks rather to the embarrassment and delay than to the right and justice of the case. A different rule would be pregnant with mischief and confusion. Hall v. ''U.S. Ins. Co., 5 Gill, 484; Sagory v. Dubois'', 3 Sandf. Ch. 510.

This court has applied the same rule to an order made by the comptroller of the currency, under the fiftieth section of the National Bank Act, appointing a receiver, and directing him to proceed to make collections from the stockholders of an insolvent bank. Kennedy v. Gibson and Others, 8 Wall. 505.

In that case it was said, 'It is for the comptroller to decide when it is necessary to institute proceedings against the stockholders to enforce their personal liability, and whether the whole or any part, and, if a part, how much, should be collected. These questions are referred to his judgment and discretion, and his determination is conclusive. The stockholders cannot controvert it. Its validity is not to be questioned in the litigation that may ensue. He may make it at such time as he may deem proper, and upon such data as shall be satisfactory to him.'

This principle was applied also in Cadle, Receiver, v. Baker & Co., 20 Wall. 650.

It was competent for the court to order payment of the stock, as the directors under the instruction of a majority of the stockholders might, before the decree in bankruptcy, have done. The former is as effectual as the latter would have been. It may, perhaps, be well doubted whether the stockholders would have voluntarily imposed such a burden upon themselves. The law does not permit the rights of creditors to be subjected to such a test. It would be contrary to the plainest principles of reason and justice to make payment by the debtor for such a purpose in any wise dependent upon his own choice. A court of equity has often made and enforced the requisite order in such cases. The Bankrupt Court possessed the same power in the case in hand. The order rests upon a solid foundation of reason and authority. Ward v. ''The Griswold Manuf. Co., 16 Conn. 599; Adler v. The Mil. Pat. Brick Manuf. Co. et al.,13 Wis. 61; Sagory v. Dubois'', 3 Sandf. Ch. 510; Man v. Pentz, 2 id. 285.

A resolution or agreement that no further call shall be made is void as to creditors. 3 Sandf. Ch., supra. An agreement that a stockholder may pay in any other medium than money is also void as a fraud upon the other stockholders, and upon creditors as well. Henry et al. v. Vermilion & A. R.R. Co., 17 Ohio St. 187. The owner of stock cannot escape liability by taking it in the name of his infant children. Roman v. Fry, 6 J. J. Mar. 634. Nor is it any defence to show that the holder took and held the stock as the agent of the corporation, to sell for its benefit. Allibone v. Hager, 46 Penn. St. 48.

The capital stock of an incorporated company is a fund set apart for the payment of its debts. It is a substitute for the personal liability which subsists in private copartnerships. When debts are incurred, a contract arises with the creditors that it shall not be withdrawn or applied, otherwise than upon their demands, until such demands are satisfied. The creditors have a lien upon it in equity. If diverted, they may follow it as far as it can be traced, and subject it to the payment of their claims, except as against holders who have taken it bona fide for a valuable consideration and without notice. It is publicly pledged to those who deal with the corporation, for their security. Unpaid stock is as much a part of this pledge, and as much a part of the assets of the company, as the cash which has been paid in upon it. Creditors have the same right to look to it as to any thing else, and the same right to insist upon its payment as upon the payment of any other debt due to the company. As regards creditors, there is no distinction between such a demand and any other asset which may form a part of the property and effects of the corporation. Curran v. Arkansas, 15 How. 308; Wood v. Dummer, 3 Mas. 308; Slee v. Bloom, 19 Johns. 474; Briggs v. Penniman, 8 Cow. 387; Society, &c. v. Abbot, 2 Beav. 559; Walworth v. Holt, 4 Myl. & C. 789; Ward v. ''Griswoldville Man. Co., 16 Conn. 598; Fowler v. Robinson'', 31 Me. 789; Angell & A. on Corp., sect. 600 and post; Wright v. Petrie, 1 Sm. & M. 319; Nathan v. Whitelock, 3 Edw. C. 215; 4 Am. Law Mag. 93.

The earliest authority upon the point under consideration is Dr. Salmon v. The Hamborough Company, decided in 1670. 1 Cas. in Ch. 204; 6 Viner's Abridg. 310, 311. The bill in that case alleged that Salmon held a bond of the company of eighteen hundred pounds, given to him for lent money. The company was incorporated, and had power to assess rates upon cloths, in which it dealt, 'and, by poll on every member, to defray the charges of the company.' The company had imposed rates accordingly,-to wit, '4s. 6d. upon every white cloth exported, and divers others,-and thereby raised eight thousand pounds per annum,' &c.

'And the bill did charge, that, the company having no common stock, the plaintiff had no remedy at law for his debt, but did charge that their usage had been to make taxes, and levy actions upon the members and their goods, to bear the charge of their company to pay their debts; and did complain that they now did refuse to execute that power; and did particularly complain against divers of the members by name, that they did refuse to meet and lay taxes, and that they did pretend want of power by their charter to lay such taxes; whereas they had formerly exercised power, and thereby gained credit: Whereupon the plaintiff lent them two thousand pounds, which was for the use and support of the company's charge and so ought to be made good by them, and so prayed to be relieved.'

The company, though served with a process, failed to appear. 'But divers particular members, being served in their natural capacities, did appear, and demur for that they were not in that capacity liable to the plaintiff's demand.' The Lord Chancellor sustained the demurrer, and, as to them, dismissed the bill. The case was taken by appeal to the House of Lords. There the decree of the Chancellor was reversed; and the case was remanded to his court, with directions to cause the officers of the company 'to make such leviation upon every member of said company who is to be contributory to the public charge as shall be sufficient to satisfy the the said sum to be decreed to the plaintiff in this cause, and to collect and levy the same, and to pay it over to the plaintiff as the court shall direct.' Ample provision was made in the decree for the enforcement of this order. See also Curson v. The African Co., decided in 1682, 1 Vern. 124.

By the deed of assignment, all the property and effects of every kind, which belonged to the company when the petition to have it declared a bankrupt was filed, passed to the assignee. Bump on Bankruptcy, 473, 478; Rev. Stat. sect. 5044. He was clothed with the power and duty to sue whenever suit was necessary. The statute in terms gave him the same right in any litigation he might institute which the bankrupt would have had 'if the decree in bankruptcy had not been rendered, and no assignment had been made.' Id. sect. 5047; Bump on Bank. 528. The liability of the plaintiff in error, and the right and title of the company, were legal in their character. If the company had sued, it might have sued at law. The rights of the company passed to the assignee, and he also could enforce them by a legal remedy. The assignee was subrogated to all the rights, legal and equitable, of the bankrupt corporation. This suit was, therefore, well brought in the form adopted. Hall v. ''U.S. Ins. Co.'', 5 Gill, 484.

The assignee might have filed a bill in equity against all the delinquent shareholders jointly. Ogilvie et al. v. ''Knox Ins. Co. et al.'', 22 How. 380. But if the company is utterly insolvent, in any event, a separate action at law in each case is much to be preferred. It is cheaper, more speedy, and more effectual. If the contingency should occur that the assets realized exceed the liabilities to be met, the District and Circuit Courts will see that no wrong is done to those adversely concerned. It is not to be doubted that this power will be exercised upon all proper occasions.

Upon the trial a large mass of testimony was given by the plaintiff, consisting of a prospectus and the original charter of the company, certified copies of the papers in the office of the secretary of the State touching the amendment to the charter, the deed of the register to the assignee, the petition of the assignee and order of the District Court relative to further stock payments, and proof of the publication of the order, and of the sending of a copy of the order, with a demand of payment, to the defendant by mail. The admission of all this evidence was excepted to. Further testimony was given tending to prove that the defendant bought and received from the company two stock certificates of $5,000 each, dated March 10, 1870, in the usual form, and in all respects complete, except that there was a blank for the name of the owner, which was not filled up. And further,--

'That said defendant paid for said stock twenty per cent of the par value of the same, paying part of said twenty per cent in northwestern land scrip, and giving her notes for the balance of said twenty per cent, which notes were duly paid to said company; and that said stock stood in her name upon the books of said company, and that there was evidence introduced tending to show that she received a dividend from said company thereon.

'And that shortly after the fire of Oct. 9,1871, General Stewart, the president of the company, and brother of defendant, paid for her a call of twenty per cent made upon said certificates of stock by the company; but that said defendant never authorized such payment, but repudiated the same, and that no more than forty per cent had ever been paid on said stock.

'No evidence was introduced tending to show that said defendant ever subscribed for said certificates of stock or for any stock of said company, or that her name appeared on any list of stockholders of said stock circulated by said company.

'No other express contract was shown to have been made between said company and defendant.'

The court charged the jury, in effect, that, if they believed the testimony, the defendant was liable. The charge was excepted to by the defendant. It was clearly correct. The only question was, whether she owned the stock. No one else claimed it. The certificates were issued and delivered to her. They belonged to her. They were the muniment of her title. She could have filled the blanks with her name whenever she thought proper. She had paid to the company all that was then payable, and subsequently received a dividend. Her name was placed upon the stock list. These facts were conclusive against her. She was estopped from denying her ownership. She could not assert her title if there were a profit, and deny it if there were a loss. The certificates showed the par of the stock and the amount to be paid. Upon receiving them, the law implied an agreement on her part to respond to the balance whenever called upon in any lawful way to do so. No special express agreement, written or oral, was necessary. The former was as obligatory as the latter could have been. It would be a mockery of justice to permit such an objection to prevail. Ellis v. Schmoeck and Thomas, 5 Bing. 521; Doubleday v. Musket et al., 7 id. 110; Harvey et al. v. Kay, 9 Barn. & Cress. 356; Upton, Assignee, v. Tribilcock, supra, p. 45.

Where there are defects in the organization of a corporation which might be fatal upon a writ of quo warranto, a stockholder who has participated in its acts as a corporation de facto is estopped to deny its rightful existence. Eaton et al. v. Aspinwall, 19 N. Y. 119; Abbot v. Aspinwall, 26 Barb. 202.

Where a party executes a deed-poll, reserving rent, and the grantee enters into possession, he is under the same liability to pay such rent as if the deed were an indenture inter partes, and he had executed it. The law implies a promise to pay which may be enforced by an action of ''indebitatus assumpsit. Goodwin et al. v. Gilbert et al.'', 9 Mass. 484. It has been held frequently in cases of this class, where the instrument was under seal and executed by only one of the parties, that covenant would lie against the other. Finley v. Simpson, 2 Zabr. 310.

We find no error in the record, and the judgment is affirmed.

title: Sanger v. Upton/Opinion of the Court


text: Talk:Sanger v. Upton/Opinion of the Court


text: Carver v. Upton

title: Carver v. Upton


text: Talk:Carver v. Upton

title: Talk:Carver v. Upton


text:
Carver v. Upton/Opinion of the Court

ERROR to the Circuit Court of the United States for the Northern District of Illinois.

The decision of this case is controlled by the opinion in Sanger v. Upton, Assignee, supra, p. 56.

The judgment of the Circuit Court is affirmed.

title: Carver v. Upton/Opinion of the Court


text: Talk:Carver v. Upton/Opinion of the Court


text:
Webster v. Upton

ERROR to the Circuit Court of the United States for the Northern District of Illinois.

The facts are stated in the opinion of the court.

Submitted on printed arguments by Mr. E. Van Buren for the plaintiff in error, and Mr. L. H. Boutell for the defendant in error.

MR. JUSTICE STRONG delivered the opinion of the court.

title: Webster v. Upton


text: Talk:Webster v. Upton

title: Talk:Webster v. Upton


text:
Webster v. Upton/Opinion of the Court

The Great Western Insurance Company, of which the plaintiff below is the assignee in bankruptcy, was incorporated under the laws of Illinois in 1857, with general power to insure all kinds of property against both fire and marine losses. Subsequently to its organization, its capital was increased to more than $1,000,000, and it was authorized by law further to increase its capital to $5,000,000. It does not appear, however, from the record, that, of the stock subscribed, more than about $222,000 was ever paid in,-a sum equal to nearly twenty per cent of the par value,-leaving over $965,000 of subscribed capital unpaid. In this condition the company went into bankruptcy in 1872, owing a very large sum, equal to if not greater than its entire subscribed capital; and Clark W. Upton, the plaintiff, became the assignee. The District Court then directed a call to be made for the eighty per cent remaining unpaid of the capital stock. A call was accordingly made; and, payments having been neglected, the assignee brought this suit against the defendant, averring that he was the holder of one hundred shares, of the par value of one hundred dollars each, and, as such, responsible for the eighty per cent unpaid. On the trial, evidence was given tending to show that one Hale was the owner of a large amount of the stock of the company, for which he held the company's certificates; and that he had, through his brother, sold one hundred shares to the defendant, on which twenty per cent had been paid. The books of the company had been destroyed in the great fire in Chicago in 1871; but there was evidence tending to show that the defendant's name was on the stock ledger, and that the defendant transferred, or caused the stock bought from Hale to be transferred to himself on the books of the company. The district judge submitted to the jury to find whether the defendant actually thus became a stockholder, recognized as such on the books of the company; instructing them, that, if he did, he was liable for the eighty per cent unpaid as if he had been an original subscriber. A verdict and judgment having been recovered by the plaintiff, the case was removed by writ of error to the Circuit Court, where the judgment was affirmed; and the judgment of affirmance we are now called upon to review.

The leading assignment of error here is that the court below erroneously ruled that an assignee of stock, or of a certificate of stock, in an insurance company, is liable for future calls or assessments without an agreement or promise to pay. This, however, is not a fair statement of what the court did rule. The court instructed the jury, in effect, that the transferee of stock on the books of an insurance company, on which only twenty per cent of its nominal value has been paid, is liable for calls for the unpaid portion made during his ownership, without proof of any express promise by him to pay such calls. This instruction, we think, was entirely correct. The capital stock of an insurance company, like that of any other business corporation, is a trust fund for the protection of its creditors or those who deal with it. Neither the stockholders, nor their agents the directors, can rightfully withhold any portion of the stock from the reach of those who have lawful claims against the company. And the stock thus held in trust is the whole stock, not merely that percentage of it which has been called in and paid. This has been decided so often, that it has become a familiar doctrine. But what is it worth if there is no legal liability resting on the stockholders to pay the unpaid portion of their shares, unless they have expressly promised to pay it? Stockholders become such in several ways,-either by original subscription, or by assignment of prior holders, or by direct purchase from the company. An express promise is almost unknown, except in the case of an original subscription; and oftener than otherwise it is not made in that. The subscriber merely agrees to take stock. He does not expressly promise to pay for it. Practically, then, unless the ownership of such stock carries with it the legal duty of paying all legitimate calls made during the continuance of the ownership, the fund held in trust for creditors is only that portion of each share which was paid prior to the organization of the company,-in many cases, not more than five per cent; in the present, only twenty. Then the company commences business and incurs obligations, representing all the while to those who deal with it that its capital is the amount of stock taken, when in truth the fund which is held in trust for creditors is only that part of the stock which has been actually paid in. This cannot be. If it is, very many corporations make fraudulent representations daily to those who give them credit. The Great Western Insurance Company reported to the auditor of public accounts, as required by law, that the amount of its capital stock outstanding (par value of shares $100 each) was $1,188,000, that the amount of paid-up capital stock was $222,831.42, and that the amount of subscribed capital for which the subscribers or holders were liable was $965,168.58. This report was made on the 10th of January, 1871. Thus those who effected insurances with the company were assured that over one million of dollars were held as a trust fund to secure the company's payment of their policies. But, if the subscribers and holders of the shares are not liable for the more than eighty per cent unpaid, the representation was untrue. Persons assured have less than one-fifth the security that was promised them. This is not what the statutes authorizing the incorporation of the company contemplated. The stock was required to be not less than a given amount, though the company was authorized to commence business when five per cent of that amount was paid in. Why fix a minimum amount of stock if all of it was not intended to be a security for those who obtained insurance? There is no conceivable reason for such a requirement, unless it be either to provide for the creditors a capital sufficient for their security, or to secure the stockholders themselves against the consequences of an inadequate capital. The plain object of the statute, therefore, would be defeated if there is no liability of the stockholder to pay the full prescribed amount of each share of his stock. With this plain object of the legislature in view, it must be assumed, after the verdict of the jury, the defendant voluntarily became a stockholder. Either he must have designed to defeat the legislative intent, or he must have consented to carry it out. The former is not to be presumed; and if the latter was the fact, coming as he did into privity with the company, there is a necessary implication that he undertook to complete the payment of all that was unpaid of the shares he held whenever it should be demanded. To constitute a promise binding in law, no form of words is necessary. An implied promise is proved by circumstantial evidence; by proof of circumstances that show the party intended to assume an obligation. A party may assume an obligation by putting himself into a position which requires the performance of duties.

What we have said thus far is applicable to the case of an original subscriber to the stock, and equally to a transferee of the stock who has become such by transfer on the books of the company. There are, it is true, decisions of highly respectable courts to be found, in which it was held that even a subscriber to the capital stock of an incorporated company is not personally liable for calls, unless he has expressly promised to pay them, or unless the act of incorporation or some statute declares that he shall pay them. Such was the decision of a Supreme Court of New York, in The Fort Edward and Fort Miller Plank Road Company v. Payne, 17 Barb. 567. A similar ruling was made in The Kennebec and Portland Railroad Company v. Kendall, 31 Me. 470. A like ruling has also been made in Massachusetts. In most if not all of these cases, it appeared that the law authorizing the incorporation of the companies had provided a remedy for non-payment of calls or assessments of the unpaid portions of the stock taken. The company was authorized to declare forfeited or to sell the stock for default of the stockholder; and, the law having given such a remedy, it was held to be exclusive of any other. Yet in them all it was conceded, that, if the statute had declared he calls or assessments should be paid, an action of assumpsit might be maintained against the original stockholder on a promise to pay, implied only from the legislative intent. Surely the legislative intent that the full value of the stock authorized and required to be subscribed, in other words, the entire capital, shall be, in fact, paid in when required,-that it shall be real, and not merely nominal,-is plain enough when the authority to exist as a corporation and to do business is given on condition that the capital subscribed shall not be less than a specified sum. A requisition that the subscribed stock shall not be less than one million of dollars would be idle if the subscribers need pay only a first instalment on their subscriptions; for example, five per cent. Manifestly that would not be what the law intended; and, if its intent was that the whole capital might be called in, it is difficult to see why a subscriber, knowing that intent, and voluntarily becoming a subscriber, does not impliedly engage to pay in full for his shares when payment is required. It is, however, unnecessary to discuss this question further; for it is settled by the judgment of this court. In Upton, Assignee, v. Tribilcock, supra, 45, we ruled that the original holders of the stock are liable for the unpaid balances at the suit of the assignee in bankruptcy, and that without any express promise to pay. The bankrupt corporation in that case was the same as in this.

But, if the law implies a promise by the original holders or subscribers to pay the full par value when it may be called, it follows that an assignee of the stock, when he has come into privity with the company by having stock transferred to him on the company's books, is equally liable. The same reasons exist for implying a promise by him as exist for raising up a promise by his assignor. And such is the law as laid down by the text-writers generally, and by many decisions of the courts. Bond v. The Susquehanna Bridge, 6 Har. & J. 128; Hall v. United States Insurance Company, 5 Gill, 484; Railroad Company v. Boorman, 12 Conn. 530; Haddersfield Canal Company v. Buckley, 7 T. M. 36. There are a very few cases, it must be admitted, in which it has been held that the purchaser of stock, partially paid, is not liable for calls made after his purchase. Those to which we have been referred are Canal Company v. Sansom, 1 Binn. 70, where the question seems hardly to have been considered, the claim upon the transferee having been abandoned; and Palmer v. The Ridge Mining Company, 34 Penn. St. 288, which is rested upon Sansom's Case, and upon the fact, that, by the charter, the company was authorized to forfeit the stock for non-payment of calls. We are also referred to Seymour v. Sturgess, 26 N. Y. 134, the circumstances of which were very peculiar. In neither of these cases was it brought to the attention of the court that the stock was a trust fund held for the protection of creditors in the first instance, a fund no part of which either the company or its stockholders was at liberty to withhold. They do not, we think, assert the doctrine which is generally accepted. In Angell and Ames on Corporations, sect. 534, it is said,--

'When an original subscriber to the stock of an incorporated company, who is so bound to pay the instalments on his subscription from time to time as they are called in by the company, transfers his stock to another person, such other person is substituted not only to the rights, but to the obligations, of the original subscriber, and he is bound to pay up the instalments called for after the transfer to him. The liability to pay the instalments is shifted from the outgoing to the incoming shareholder. A privity is created between the two by the assignment of the one and the acceptance of the other, and also between them and the corporation; for it would be absurd to say, upon general reasoning, that, if the original subscribers have the power of assigning their shares, they should, after disposing of them, be liable to the burdens which are thrown upon the owners of the stock.'

So in Redfield on Railways, 53, it is said the cases agree that whenever the name of the vendee of shares is transferred to the register of shareholders, the vendor is exonerated, and the vendee becomes liable for calls. We think, therefore, the transferee of stock in an incorporated company is liable for calls made after he has been accepted by the company as a stockholder, and his name has been registered on the stock books as a corporator; and, being thus liable, there is an implid promise that he will pay calls made while he continues the owner.

All the cases agree that creditors of a corporation may compel payment of the stock subscribed, so far as it is necessary for the satisfaction of the debts due by the company. This results from the fact that the whole subscribed capital is a trust fund for the payment of creditors when the company becomes insolvent. From this it is a legitimate deduction that the stock cannot be released; that is, that the liabilities of the stockholders cannot be discharged by the company to the injury of creditors without payment. The fact, therefore, that in this case the certificate of stock taken by the defendant below was marked 'non-assessable,' is of no importance. The suit is brought by the assignee in bankruptcy, who represents creditors; and, as against him, the company had no right to release the holders of the stock from the payment of the eighty per cent unpaid.

The second assignment of error and the third are, in substance, that the court should not have admitted in evidence the order of the District Court, directing a call by the assignee of the unpaid balance of the stock, and should not have ruled that the call made under the order was effective to make the liability of the defendant complete. That these assignments cannot be sustained was decided in Sanger v. Upton, supra, p. 56,-a case before us at this term. Nothing more need be said in reference to them.

The last assignment of any thing that can be assigned for error is, that the court charged the jury as follows: 'The only question is, was the defendant a stockholder of the company? If the testimony satisfies you that the defendant purchased of Hale one hundred shares of this stock, and that it was transferred in the books of the company, either by Webster, the defendant, or by Hale, who sold the stock, or by the direction of either of them, then the defendant is liable the same as if he had subscribed for the stock.' The objection urged against this is that a transfer on the books directed by Hale, after the purchase by Webster, could not affect the latter's liability. But, if Webster became the purchaser, it was his vendor's duty to make the transfer to him, where only a legal transfer could be made,-namely, on the books of the company; and the purchase was in itself authority to the vendor to make the transfer. Still further, it was Webster's duty to have the legal transfer made to relieve the vendor from liability to future calls. A court of equity will compel a transferee of stock to record the transfer, and to pay all calls after the transfer. 3 De G. & Sm. Ch. 310. If so, it is clear that the vendor may himself request the transfer to be made; and that, when it is made at his request, the buyer becomes responsible for subsequent calls. This, however, does not interfere with the right of one who appears to be a stockholder on the books of a company to show that his name appears on the books without right and without his authority.

The judgment of the Circuit Court is affirmed.

title: Webster v. Upton/Opinion of the Court


text: Talk:Webster v. Upton/Opinion of the Court


text:
United States v. Union Pacific Railroad Company (91 U.S. 72)

APPEAL from the Court of Claims.

Under the authority of the second section of the act of Congress of March 3, 1873, the Union Pacific Railroad Company filed its petition in the Court of Claims, alleging that it had rendered services to the government in the transportation of the mails, troops, supplies, and public stores of the United States, between the dates of February, 1871, and February, 1874, both inclusive, and praying for judgment that the United States pay the company one half part of the amount due for such services, and give credit to the company on account of the bonds issued by the United States in aid of the construction of the road to the amount of the remaining half part of said amount.

The United States filed an answer and counterclaim denying their indebtedness, and alleging that they had issued to the company their coupon bonds to the amount of $100,000,000, bearing interest at the rate of six per cent per annum, payable semi-annually, pursuant to the acts of Congress of July 1, 1862, and July 2, 1864, and paid to the holders of said bonds, at the stated semi-annual periods, the interest due thereon; and that the company, although bound by law to reimburse them for payments so made for such interest, had never paid any part thereof; and they prayed judgment against the company for $12,000,000.

The provisions of the acts of July 1, 1862, and the amendatory act of July 2, 1864, which bear upon the questions at issue, are as follows:--

Act of July 1, 1862, 12 Stat., p. 489. 'SECT. 5. The Secretary of the Treasury shall, upon the certificate in writing of said commissioners,. . . issue to said company bonds of the United States of one thousand dollars each, payable in thirty years after date, bearing six per centum per annum interest, said interest payable semiannually,. . . to the amount of sixteen of said bonds per mile;. . . and to secure the repayment to the United States, as hereinafter provided, of the amount of said bonds so issued and delivered to said company, together with all interest thereon which shall have been paid by the United States, the issue of said bonds and delivery to the company shall ipso facto constitute a first mortgage on the whole line of the railroad and telegraph, together with the rolling stock, fixtures, and property of every kind and description; and, in consideration of which, said bonds may be issued; and on the refusal or failure of said company to redeem said bonds, or any part of them, when required to do so by the Secretary of the Treasury, in accordance with the provisions of this act, the said road, with all the rights, functions, immunities, and appurtenances thereto belonging, and also all lands granted to the said company by the United States which at the time of said default shall remain in the ownership of said company, may be taken possession of by the Secretary of the Treasury for the use and benefit of the United States.

'SECT. 6. The grants aforesaid are made upon condition that said company shall pay said bonds at maturity;. . . and all compensation for services rendered for the government shall be applied to the payment of said bonds and interest until the whole amount is fully paid. Said company may also pay the United States, wholly or in part, in the same or other bonds, treasury notes or other evidences of debt against the United States, to be allowed at par; and after said road is completed, until said bonds and interest are paid, at least five per cent of the net earnings of said road shall also be annually applied to the payment thereof.'

Act of July 2, 1864, 13 Stat., p. 356. 'SECT. 5. Only one-half of the compensation for services rendered for the government shall be required to be applied to the payment of the bonds issued by the government in aid of the construction of said road.'

The Court of Claims found in favor of the company, and adjudged that it recover from the United States $512,632.50, and that the counterclaim of the United States be dismissed.

The United States appealed to this court.

Mr. Attorney-General Pierrepont for the appellant.

The primal question is, whether the railroad company is bound to reimburse the interest as the same falls due, or whether it may postpone the payment thereof (which the government advances half-yearly) until the maturity of the bonds.

Should the decision on this question be adverse to the appellant, then the only other question is, whether the government can retain all the earnings of the company made in the service of the government, or only half thereof.

In 1862, Walter S. Burgess and his associates obtained a charter from the United States to build the Union Pacific Railroad, subject to the conditions, inter alia, that the company shall do the government's transportation at rates not to exceed the amounts paid by private parties; that all compensation for services rendered for the government shall be applied to the payment of the bonds and interest; and that after the road is completed, until the bonds and interest are paid, at least five per centum of the net earnings shall be annually applied to the payment thereof.

Two years went by. This corporation then procured the passage of the act of 1864, which confers large additional donations and privileges. Sects. 5 and 10 grant an extension of one year for completing the road, and require that only one-half of the compensation for services rendered the government shall be applied to the payment of the bonds. They authorize the company, on the completion of each section of the road and telegraph line, to issue its bonds to an amount not exceeding the amount of those issued to it by the United States; and they give to the mortgage for securing its bonds priority over that of the United States.

In 1871, Congress required the Secretary of the Treasury to pay over to the company, in money, one-half of the compensation for services to the United States theretofore or thereafter rendered; but declared that this provision should not affect the legal rights of the government or the obligations of the company, except as therein specially provided.

In 1873, Congress passed the act of March 3.

It is submitted, First, The question before the court is, whether the United States are entitled to retain the whole value of the service which they have received from the company, and apply the same towards payment of the interest advanced from time to time by the government upon the bonds loaned to the company,-a question not embarrassed by the acts of 1864 and 1871, as they were repealed by the act of 1873.

The whole question of the liability of the company to pay the interest on the government bonds before their maturity is raised by the counterclaim set up by the United States, and is before the court.

Second, That the Union Pacific Railroad Company is a private corporation has been settled. The Company v. Peniston, 18 Wall. 31.

A grant of privileges and exemptions to a corporation is strictly construed. Ohio Life & Trust Co. v. Debolt, 16 How. 435; Dubuque & Pacific R.R. v. Litchfield, 23 id. 88, 89; Opinion of Attorney-General Black, 9 Opinions of Attorneys-General, 59, 60.

Third, Applying these and other well-settled principles of construction to the statutes relating to the company, there is no difficulty in arriving at their true meaning.

There is nothing ambiguous about the fifth section of the act of 1862. The government proposed to advance to the company bonds bearing interest at six per cent, 'said interest payable semi-annually;' and, to secure them according to their terms, the company agreed to give a first mortgage, and also to give additional security for the interest as well as the principal. The mortgage was executed when the company received the bonds.

Fourth, By the act of 1864, the company is required to assume nothing; but the absolute right to amend or repeal is reserved.

Fifth, The fact that the company, under the act of 1864, issued its mortgage to secure the same amount of bonds as it was entitled to receive from the government, and made the interest thereon payable half-yearly, is conclusive as to the understanding of the company when it filed its assent to the provisions of the act.

The Attorney-General referred at some length to the consequences to the government should the decision be against it, and cited the debates in Congress on the passage of the act of 1862 as furnishing the clearest proof of the purpose of that body to require the immediate repayment by the company of the interest advanced by the government.

Mr. Sidney Bartlett and Mr. E. W. Stoughton for appellee.

The rule, that, where the entire purpose of a charter is to confer bounties on corporations, the construction of any provision therein about which there is doubt must be in favor of the government, does not extend to charters where there are stipulations for services, or pecuniary returns by the party endowed. Charles River Bridge v. Warren Bridge, 11 Pet. 420; Ohio L. & T. Co. v. Debolt, 16 How. 435; Dubuque & P. R. Co. v. Litchfield, 23 id. 88. That the charter of the Union Pacific Railroad Company contains such stipulations, either by condition or contract, cannot be controverted.

The only sections having a direct bearing upon the question at issue-the right of the government to have the immediate reimbursement of the interest paid by it-are five, six, and seventeen of the act of July 1, 1862, and five of the act of July 2, 1864. Under them, we submit, that while conditions are imposed on the company, a breach of which would work a forfeiture, there is no assumpsit or covenant, express or implied, on which, by action at law or set-off, the company can be compelled to reimburse the principal or interest of the bonds issued to it; but should we concede that such a covenant or assumpsit could be found in the charter, then the covenant or assumpsit to pay the interest is to pay the same as each bond or class of bonds matures, and not from time to time, each six months, as it shall have been paid by the government.

Upon an analysis of the charter as to the time at which the interest was to be reimbursed, it will be seen that the earliest clause is the mortgage clause set out in the fifth section of the act of 1862. It contains two provisions, neither of which fixes, in terms, the period at which either the bonds or the interest thereon is to be reimbursed. The words are, the 'grants aforesaid are made on condition that the company shall pay said bonds at maturity.' Will the court, then, import into the statute the words 'and each semi-annual payment of interest as it accrues'? Unquestionably not. If such had been the purpose of Congress, why was it not so stated? One thing would seem clear from the terms used,-namely, that, whatsoever payment was to be made, the period of such payment is definitely fixed at the maturity of the bonds; and, if words are to be interjected so as to include interest, why should further alterations be made by the insertion of a new and different period for its payment? These are the only provisions which apply to the time of payment.

The clauses as to the mode of payment are found in the sixth section.

Sect. 5 of the act of 1864 provides 'that only one-half of the compensation for services rendered for the government by said companies shall be required to be applied to the payment of the bonds issued by the government.' The act of March 3, 1871, sect. 9, and the proviso thereto reserving the rights of the government, were designed to leave open for legal construction the question of when and how interest was payable; and the purpose of the act of 1873 was not to repeal the charter, or any part of it, since it authorized the suit to be brought by the company against the United States to recover the price of freight and transportation due under existing laws. If Congress meant to repeal the provision for the payment of one-half of the transportation, it would have been an empty mockery to authorize a suit to recover for that very transportation. The right of the company to be paid in some form is indisputable; but its right to recover without its being subject to set-off was the one matter in controversy. The purpose of the act was to remit to judicial determination the question, whether, upon the true construction of the charter, the government was legally bound to pay the company for one-half the transportation; or whether it might retain that half, and apply it towards interest on the bonds.

MR. JUSTICE DAVIS delivered the opinion of the court.


text: Talk:United States v. Union Pacific Railroad Company (91 U.S. 72)