The herald., 1896-03-03
STANFORD Case DECIDED
The Government Cannot Collect
from Stockholders
JUSTICE HARLAN'S OPINION
Congress Invited the Investment of
Private Capital
The Law Contains No Clause Imposing Per-
sonaI Liability Beyond that Incurred
by Stock Subscriptions
Associated Press Special Wire

|
WASHINGTON, March 2.-The supreme
court today decided the Stanford case in
favor of Mrs. Stanford.
| The title of this case is the United States
vs. Jane L. Stanford, executrix of Leland
Stanford, deceased. 1t involved the indi-
vidual liability of stockholders in the Cen
trail Pacific Railway company for the debt
due the United States on bonds issued in
aid of the Central Pacific under the Cali
fornia constitution. Mr.. Stanford held
l44,3S7 shares of the Central Pacifi C
stock, and it was claimed by the govern
ment in instituting it's suit. that the gov
ernment was entitled to collect 81 ,SO7,-
600 from the Stanford estate. This con.
tention was resisted by Mrs. Stanford on
the ground that the California constitu-
ton was not then ruling, and also on the
plea that it was the intention of the
Congress in granting aid to the Central
Pacific company to put il on q footing
different from the footing on which other
government aided railroads were placed.
The case was brought originally in the cir
cult court for the California district, where
the decision was favorable to Mrs. STAN
ford and was ther appealed to the circuit
court of appeals for the ninth cir ,uit, where
the decision was again given the govern
ment. The government appealed to the
supreme court, and as soon as the case was
docketed, moved to have it advanced for
hearing. This motion being granted the
argument was made during January, emf
nent counsel appearing on both sides. The
suit attracted great attention from its init-
alton because of the effect the decision
would have upon the other Central Pacific
etOr hOI6c and a1so hacauRa a forttuoa
OF the Stanford university would be deter
mined largely by the decision.
Justice Harlan delivered the opinion. He
held that individual stockholders were not
liable for the government deb. If the Gen.
trail Pacific Railway company. He said
the congressional acts of 1S62-64 regard
ing the Pacific railroads must all be re-
garded as one law, az tho object was the
construction of one continuous line, con-
gress employing different railroad COM
panies only as Instruments. Security was
given in a government mortgage on the
property to the railroad companies. 1t
was, he said. not too much to say if in
building the Northern Pacific, for instance,
the stockholders had been made liable, the
purpose OF congress to secure a national
highway, would be materially retarded,
and it was plain no obligation was meant
to be put on one company.
The opinion proceeded entirely upon the
theory that the Pacific railroads were in
| tended to constitute a continuous line and
that the government was protected by it's
mortgage upon the roads. 1t is admitted
in the opinion that the security was i'm
paired by The act of 1864 subordinating
the government lien to the first mortgage.
''but," Justice Harlan says, ''if the act of
1862, fairly interpreted, excludes the idea
that stockholders of the companies receiv-
ing subsidy bonds, were to be personally
liable to the United States for the principal
nd f,yl tha
legislation of 1864. however unwise, did
not have the effect of imposing such lia-
bility.''
"The fact that none of the Pacific railroad
accounts contain clause imposing per-
sonal liability is commented upon as inn
portant. 1t was competent for congress to
provide for such liability, but as it did not
do go it cannot be claimed, nor is i.
claimed, that the stockholders of that cor
poration incurred by their subscriptions of
stock any liability to the United States or
to any other creditor of the Union Pacific
corporation. They we're bound, of course,
to make good the amount of their sub
scriptions. But, that being done, their per-
sonal responsibility to creditors of the cor
porate body ceased. Congress by it's legis-
lation encouraged and invited the invest
of highway which, at that time, was
deemed of vital importance to the whole
country"
Using the Union Pacific as an illustra-
tion. the opinion continues:
"As the etockholder of corporationis
not liable beyond the amount Of his un-
paid subscription for it's debts, unless such
liability is imposed by statute and as the
acts CT congress in question are silent upon
that subject, every subscriber to the stock
of The Union Pacific Railroad company
must be deemed to have become such upon
i l.. 4.
not be personally liable for the debts of
the corporation. II is not too much to say
that If the acts of 1862 and 1864 had
made the stockholders of the corporations
therein named personally liable, in pro-
portion to their stock, for the repayment
of the principal and interest of the bonds
issued and delivered to such corporation,
the accomplishing of the objects which
congress bad in view would have been
seriously retarded, if not wholly defeated
1t is said, however, that these principles
have no application to stockholders of CAL
ifcrnia corporations that came into exiet-
ence under constitutional and statutory
provisions making a stakeholder of q rail.
road corporation liable in proportion to his
stock for its debts and obligations. This
position cannot be suatained except upon
the theory that congress intends to take
larger security in respect of that part of
the Pacific road which the California com.
than it took in respect OF the Union Pacific
railroad. But it cannot be inferred from
the legislation of congress that it intended,
for the protection of the interests of the
United States, to impose heavier liability
uron the stockholders of the California
company than was imposed upon the stock .
holders of the Union Pacific Railroad
company. Why should it have so in
tended? Why should it be supposed
thar congress would purposely make
it more difficult to construct one
part of the proposed national
highway than another? The supreme end
sought to be attained was, by means of pri-
vate capital aud government aid, to secure
the construction of the whole line for the
benefit, primarily. of the United States and
for the use of all the people. 1f.instead of
making use of the Central Pacific Railroad
company of California, congress had itself
created corporation with authority to con.
etruct a road from San Francisco through
the territory of the United States TO meet
the Union Pacific Railroad company no
one would suggest that the stockholders of
such corporation would have been liable
for it's debts, unless congress expressly i'm
posed that liability upon them."
The opinion goes on to say that to Inn