Case Name: THE SOUTHERN PACIFIC COMPANY v. THE UNITED STATES
Court: United States Court of Claims
Jurisdiction: United States
Decision Date: 1893-01-31
Citations: 28 Ct. Cl. 77
Docket Number: No. 16697
Parties: THE SOUTHERN PACIFIC COMPANY v. THE UNITED STATES.
Judges: Nott, J., did not sit in tbe trial of this case and took no part in tbe decision.
Reporter: United States Court of Claims Reports
Volume: 28
Pages: 77–110

Head Matter:
THE SOUTHERN PACIFIC COMPANY v. THE UNITED STATES.
[No. 16697.
Decided January 31, 1893.]
On the Proofs.
The complainant is a railroad corporation created by the laws of Kentucky, and the lessee of several roads. It carries the mail over its leased lines. The accounting officers state accounts in which they credit the lessors of these lines with the services. But no claim is made therefor. The defendants now contend that the leases were ultra vires and void, because they effected a combination of railroads against public policy.
I. Where an action is on a lease to recover some consideration thereunder, the defendant may attack it on the ground of ultra vires, hut where the action is by the lessee against a third party for services rendered, the authority of the lease cannot be called in question.
H. Where a railroad has. rendered services which are not against public policy, it is no defense to say that the road was operated by a combination intended to neutralize competition.
III. When the Government enters into a contract, it lays down its constitutional authority, and has only the same rights and is subject to the same obligations as am individual.
IV. The doctrine of ultra vires is not favored in law, and should not be applied when it will defeat the ends of justice.
V.The defense of ultra vires is not admitted in the case of executed contracts, not involving moral turpitude. The doctrine of estop-pel is then applied to the defense.
VI.In .regard to corporations the rule is that their executed dealings must stand for and against both parties when good faith requires it.
VII.The defendants by pleading a general traverse admit the competency of a claimant corporation to sue in its corporate capacity.
VIII. So long as a government does not cause the charter of a corporation . to he revoked, courts must treat it as competent to contract with third parties.
IX. The manner in which the accounting officers of the Treasury adjust accounts for services rendered does not affect the rights of him who rendered them.
The Reporters’ statement of tbe case:
The following are the facts of this case as found by the Court:
I. The claimant, the Southern Pacific Company, is a corporation organized under an act of the legislature of Kentucky, of which the following is a copy:
“Chapter 403.
“AN ACT to incorporate the Southern Pacific Company.
uJBe it enacted by the General Assembly of the Gommomoealth of Kentuchy: Section 1. That Henry D. McHenry, Wm. G-. Duncan, Samuel E. Hill, Samuel M. Cox, Henry McHenry, jr., and their associates, successors, and assigns, be, and they are hereby, created and constituted a body corporate and politic, under the name of the Southern Pacific Company, and as such shall have perpetual succession, and be capable in law to purchase, grant, sell, or receive, in trust or otherwise, all kinds of personal and real property to such amount as the directors of said company may, from time to time, determine; and to contract and be contracted with, sue and be sued, plead and be impleaded, appear and prosecute to final judgments all suits or actions at law or in equity in all courts and places; and to have and use a common seal, and to alter the same at pleasure; and to make and establish such by-laws, rules, and regulations for the government of said company and the conduct of its business as said corporation or the stockholders therein shall deem expedient or necessary for the management of its affairs, not inconsistent with the constitution and laws of this State or of the United States; and generally to do and execute all acts, matters, and things which may be deemed necessary or convenient to carry into effect the powers and privileges herein granted: Provided, hoioever, That said corporation shall not have power to make joint stock with, lease, own, or operate any railroad within the State of Kentucky.
“Seo. 2. The said corporation is hereby authorized and empowered to contract for and acquire, by purchase or otherwise, bonds, stocks, obligations, and securities of any corporation, company, or association now existing, or hereafter formed or constituted, and bonds, obligations, and securities of any in dividuals, State, Territory, Government, or local authorities whatsoever, and to enter into contracts with any corporation, company, or association, individuals, State, Territory, Government, or local authorities, in respect of their bonds, stock, obligations, and securities, or in respect of the construction, establishment; acquistion, owning, equipment, leasing, maintenance, or operation of any railroads, telegraphs, or steamship lines, or any public or private improvements, or any appurtenances thereof, in any State or Territory of the United States, or in any foreign country; and to buy, hold, sell, and deal in all kinds of public and private stocks, bonds, and securities, and said corporation may borrow and loan money, issue its own bonds or other evidences of indebtedness, and sell, negotiate, and pledge the same to such amounts upon such terms, and in such manner as may, from time to time, be determined by the directors of said corporation; and it may mortgage all or any part of its property, assets, and franchises to secure such bonds and the interest thereon, on such terms and conditions as shall on that behalf be prescribed by its board of directors.
“Sec. 3. The capital stock of said corporation shall be one million dollars, divided into shares of one hundred dollars each; which shares shall be deemed personal property, and may be issued, transferred and forfeited for nonpayment in such manner as the board of directors of such corporation may determine; and no person shall be in anywise liable as a stockholder of said corporation after said capital stock to such amount of one million dollars shall have been paid in in cash, and a certificate to that effect signed and sworn to by the treasurer and a majority of the board of directors of said corporation shall have been filed in the office of the secretary of state of this State; nor shall the said corporation, nor any of the officers or agents thereof, be thereafter bound to make any further returns or certificates: Provided, however, That if, after the payment of such capital stock, any part thereof shall be withdrawn for or refunded to any of the stockholders when the property of the corporation is insufficient or will be thereby rendered insufficient for the payment of all its debts, the stockholder receiving the same shall be bound and obliged to repay to said corporation or its creditors the amount so withdrawn or refunded.
“ Sec. 4. Any two of the persons above named as corporators of said corporation may call the first meeting for the organization of such corporation at such time and place as they may appoint, by mailing a proper notice of such meeting to each of such corporators at least ten days before the time appointed; and in case a majority of such corporators shall attend such meetings, either in person or by prosy, they may open books for subscriptions to its capital stock; and whenever five hundred thousand dollars shall be subscribed and ten per cent of said subscriptions shall be paid in cash, the stockholders of said corporation may organize the same, and said corporation may proceed to business.
“ Sec. 5. Each share of stock entitles the holder thereof to one vote, in person or by proxy, at all meetings of the stockholders ; the holders of a majority in interest of the capital stock, present in person or by proxy, shall constitute a quorum (the corporation shall have a lien on all the stock and property of its members invested therein for all debts due by them to said corporation, which lien may be enforced in such manner as the by-laws shall prescribe).
“Sec. 6. The stock, property, and affairs of said corporation shall be managed by a board of directors of such number, not less than three, as may be from time to time determined by the corporators or stockholders. The directors shall be elected by the stockholders at such time and place, and in such manner, and for such terms, as the stockholders shall from time to time determine. Meetings of directors or stockholders may be held within or without the State. No person shallbe elected a director who is not a stockholder of the corporation. A majority of the directors shall constitute a quorum of said board for the transaction of business. The directors shall appoint from their own number a president, and they shall also appoint a clerk and treasurer, and such other officers.and agents as they may deem proper, to hold their offices during the pleasure of the board. In case of a vacancy or vacancies in the board, the remaining directors may fill such vacancy or vacancies. The capital stock of said corporation may be increased from time to time to such sum as may be determined by the board of directors of said corporation, provided such increase or diminution shall be approved by at least two-thirds in interest of the stockholders of said corporation.
“Sec. 7. The annual tax upon said corporation shall be the same as is now fixed by law for broker’s license: Provided, That all property owned by said corporation and situated in the State shall pay the same State and local tax as is assessed upon similar property, and capital stock in said corporation, owned by citizens of the State, shall be assessed against the holders thereof as choses in action under the equalization law.
“ Sec. 8. The company shall keep an office for the transaction of business and the clerk or assistant clerk of said corporation shall reside within the State of Kentucky, but the said corporation may keep offices at such places outside of this State as in the judgment of its board of directors its business may from time to time require: Provided, That nothing herein contained shall be construed as grantin g any lottery or banking privileges.
“ Sec. 9. This act shall take effect immediately upon its passage.
“Approved March 17,1884.”
Said act was amended on tbe 21st day of March, 1888, as follows :
“Chapter 601.
“AN ACT to amend An act to incorporate the Southern Pacific Company,” approved March seventeenth, eighteen hundred and eighty-four.
uBe it enacted by the General Assembly of the Commonwealth of Kentucky:
“Section 1. That tbe act entitled ‘An act to incorporate tbe Southern Pacific Oampany,’ which was approved March seventeenth, eighteen hundred and eighty-four, be, and the same is, amended by adding to section one thereof the following words, to wit: Except subject to and in conformity with the provisions of the laws of the State of Kentucky applicable to railroads and acquiring no special rights that may be possessed by any railroads in the State, except the general and ordinary rights of common carriers as possessed by railroads generally.
“ Section 2. This act shall take effect from its passage.
“ Approved March 21st, 1888.”
II. Subsequent to the date of the original act of incorporation, to wit, on the 10th of February, 1885, the Southern Pacific Railroad Company executed to the claimant the following lease:
“ This agreement, made this 10th day of February, 1885, between the Southern Pacific Company, a corporation duly organized and existing under the laws of the State of Kentucky, and the Southern Pacific Railroad Company, a corporation duly organized and existing under the laws of the United States and the State of California; the Southern Pacific Railroad Company, a corporation duly organized' and existing under the laws of the Territory1 of Arizona; the Southern Pacific Railroad Company, a corporation duly organized and existing under the laws of the Territory of New Mexico; the Galveston, Harrisburg and San Antonio Railway Company, a corporation duly organized and existing under the laws of the State of Texas; the Texas and New Orleans Railroad Company of 1874, a corporation duly organized and existing under the laws of the State of Texas; the Louisiana Western Railroad Company, a corporation duly organized and existing under the laws of the State of Louisiana; Morgan’s Louisiana and Texas Railroad and Steamship Company, a corporation duly organized and existing under the laws of the State of Louisiana, and the Mexican International Railroad Company, * * * Witnesseth:
“I. That the said Southern Pacific Railroad Company, organized and existing under the laws of the United States and the State of California, hereby leases to the said Southern Pacific Company., for the term of ninety-nine years from the date hereof, all of its railroad, situated in the State of California, known and designated as the Southern Pacific Eailroad of California, with all its branches and all railroads now leased by it, together with the rolling stock, telegraph lines, tools, and property of every kind and nature whatsoever now in use upon, or in connection with, said railroads, and together with all the appurtenances thereunto belonging, with the right to possess, maintain, use, and operate the said property, and to receive the rents, issues, and profits thereof.
“II. That the said Southern Pacific Eailroad Company, organized and existing under the laws of the Territory of Arizona, hereby leases to the said Southern Pacific Company, for the term of ninety-nine years from the date hereof, all of its railroad situated in the Territory of Arizona, and known and designated as the Southern Pacific Eailroad of Arizona, together with all its branches and all the rolling stock, telegraph lines, tools, and property of every kind and nature whatsoever now in use upon, or in connection with, said railroad or branches, and together with all the appurtenances thereunto belonging, with the right to possess, maintain, use, and operate the said property, and to receive the rents, issues, and profits thereof.
“ III. That the said Southern Pacific Eailroad Company, organized and existing under the laws of the Territory of New Mexico, hereby leases to the said Southern Pacific Eailroad Company, for the term of ninety-nine years from date hereof, all of its railroad, situated in the Territory of New Mexico,' and known and designated as the Southern Pacific Eailroad of New Mexico, together with all its branches, and all the rolling stock, telegraph lines, tools, and property of every kind and nature whatsoever now in use upon, or in connection with said railroad or its branches, and together with all the appurtenances thereunto belonging, with the right to possess, maintain, use, and operate the said property, and to receive the rents, issues, and profits thereof.
“IV. That the said Galveston, Harrisburg and San Antonio Eailway Company hereby leases to the said Southern Pacific » Company, for the term of ninetjr-nine years from the date hereof, all of its railroad situated in the State of Texas, and known and designated as the Galveston, Harrisburg aiid San Antonio Eailway, with all its branches, and all the rolling stock, telegraph lines, tools, and property of every kind and nature whatsoever now in use upon, or in connection with, said railroad or its branches, and together with all the appurtenances thereto belonging, and all other property now owned, held, and possessed by it, with the right to possess, maintain, use, and operate the said property, and to receive the rents, issues, and profits thereof.
“V. That the said Texas and New Orleans Railroad Company of 1874, hereby leases to the said Southern Pacific Company, for the term of ninety-nine years from the date thereof, all of its railroad situated in the State of Texas, and known and designated as the Texas and New Orleans Railroad of 1874, together with all its branches, and all the rolling stock, telegraph lines, tools, and property of every kind and nature whatsoever now in use upon, or in connection with said railroad or branches, and together with all the appurtenances thereunto belonging, with the right to possess, maintain, use, and operate the said property, and to receive the rents, issues, and profits thereof.
“VI. That the said Louisiana Western Railroad Company hereby leases to the said Southern Pacific Company, for the term of ninety-nine .years from the date hereof, all of its railroad situated in the States of Texas and Louisiana, and known and designated as the Louisiana Western Railroad, together with all its branches, and all the rolling stock, telegraph lines, tools, and property of every kind and nature whatsoever now in use upon, or in connection with, said railroad or branches, and together with all the appurtenances thereunto belonging, with the right to possess, maintain, use and operate the said property, and to receive the rents, issues, and profits thereof.
“VII. That the said Morgan’s Louisiana and Texas Railroad and Steamship Company hereby leases to the said Southern Pacific Company, for the term of ninety-nine years from the date hereof, its railroad, situated in the State of Louisiana, and known and designated as the Morgan’s Louisiana and Texas Railroad, all the branches thereof, and the rolling stock, telegraph lines, tools, and property of every kind and nature whatsoever now in use upon, or in connection with, said railroad and branches, and together with all the appurtenances thereunto belonging, also all the steamships, steamboats, tugs, wharves, piers, landings, depots, buildings, and all other property, real and personal, now owned, held, or possessed by the said Morgan’s Louisiana and Texas Railroad and Steamship Company, with the right to possess, maintain, use, and operate the said property, and to receive the rents, issues, and profits thereof.
u yijj_ # # #*#*#
[Here follows paragraph, in identical language, relative to the International Mexican Railroad, tohich is omitted, the agreement with that company not having been executed and delivered.]
“ In consideration of the leases aforesaid, the said Southern Pacific Company agrees to and with the other corporations, parties hereto, that it will keep the said leased property in good order, condition, and repair; operate, maintain, add to, and better the same at its own expense; pay all taxes legally assessed against or levied thereon, and will, upon the termi nation of this lease, return tlie same to tbe respective parties from wliicb it was leased, or to their successors, with additions and betterments, in as good condition and repair as the same was at the date hereof.
“ That it hereby assumes and will discharge all the liabilities and obligations of every kind of the said railroad companies, and each of them, except the obligations to pay the principal of their indebtedness known as the bonded indebtedness, now outstanding and secured by mortgage or deed of trust, or which may hereafter be incurred by either of said companies under the provisions of any existing mortgage or deed of trust, or any mortgage or deed of trust hereafter with the consent of this company made. That as to such bonded indebtedness, it will pay off and discharge at maturity the interest upon the same, and will, upon demand of either of said railroad companies, guarantee, in such form as said company may require, the payment of the principal and the interest thereof.
“That said Southern Pacific Company will annually, on the first day of May, pay the following-named railroad companies, as rental, a sum equal to ninety-three and one-twelfth (93-,-V) per cent of its net profits, if any net profits there be, for the year ending on the,thirty-first day of December next preceding that date, as follows:
“ To the said Southern Pacific Eailroad Company, existing under the laws of the United States and of the State of Cali-forni, twenty-six and one half (26£) per cent of said net profits.
“To the said Southern Pacific Railroad Company, existing under the laws of the Territory of Arizona, twelve (12) per cent of said net profits. ■
“ To the said Southern Pacific Railroad Company, existing under the laws of the Territory of New Mexico, four (4) per cent of said net profits.
“To the said Galveston, Harrisburg and San Antonio Railway Company, sixteen and one-quarter (16J) per cent of said net profits.
“To the said Texas and New Orleans Railroad Company of 1874. seven and one-half (7J) per cent of said net profits.
“ To the said Louisiana Western Railroad Company, three and one third (3£) per cent of said profits.
“ To the said Morgan’s Louisiana and Texas Railroad and Steamship Company, twenty-two and one-half (22J) per cent of said net profits.
“To the said Mexican International Railroad Company, one (1) per cent of said net profits.
“ The term net profits, as used herein, shall be construed to mean the moneys on hand available for dividends after all expenses, payments, and disbursements of every nature and kind of the said Southern Pacific Company, except for the rental of railroads now or hereafter leased by said company, have been deducted.”
III. Thereafter, to wit, on the 17th of February, 1885, the Central Pacific Bailroad Company. executed to the claimant the following lease:
“This agreement, made and entered into this seventeenth (17) day of February, 1885, between the Southern Pacific Company, a corporation duly organized and existing under the laws of the State of Kentucky and now doing business in the State of California, and the Central Pacific Bailroad Company, a corporation duly formed and existing under the laws of the State of California and the United States:
“Witnesseth that, whereas part of the through business heretofore done by the Southern Pacific Bailroad Company’s line from Ogden to the waters of the Pacific has been diverted by the Northern Pacific, Atlantic and Pacific, and Atchison, Topeka and Santa Fe Bailroads;
“And whereas the Union Pacific Bailroad Company has secured the control of the road known as the ‘ Oregon Short Line,’ and thereby secured an outlet to the Pacific other than over the Central Pacific Bailroad, and thus in that resjiect placed itself in opposition to the interests of the Central Pacific;
“And whereas it now appears that the through business hitherto done by the Central Pacific Bailroad will thereby be further diverted, and that it is not only to the best interests of, but absolutely necessary, that the Central Pacific Bailroad Company, in order to maintain itself against these diversions, should be operated in connection with a friendly through line to the waters of the Atlantic;
“And whereas the said Southern Pacific Company has a line of railroad under its control for a period of ninety-nine years, extending continuously from the Pacific Ocean to the Atlantic Ocean;
“And whereas the lines of each company are doing a large local traffic and it is important to both that the same should be conducted in harmony;
“And whereas the said Southern Pacific Company is willing to enter into an agreement with the Central Pacific Bailroad Company whereby its line and the line of the said Southern Pacific Company shall .be operated so as to secure their just rights to each without the one gaining any. benefit or advantage at the expense of the other, and whereby the Central Pacific Bailroad Company may for a long term of years be assured of protection against the diversion of its traffic and be relieved of the disadvantages flowing from lack of harmonious connections;
“And whereas, by reason of the facts before recited, it is mutually advantageous to the Southern Pacific Company and the Central Pacific Bailroad Company to make such agreement;
“And whereas both companies contract in the knowledge that the future development of the country may change materially the relations of the companies to each other in respect to railroad traffic, and may in the future render any agreement now made, however fair in its terms in view of existing conditions, advantageous to one at the expense of the other and thereby defeat the purposes which said companies desire and intend to accomplish by making this agreement;
“And whereas it is intended that such shall never be the effect of this agreement, therefore all the promises and covenants shall be construed in the light of the conditions now existing, and the arbitrators hereinafter named, in adjusting the terms and provisions of this agreement to a changed state of affairs, if such change should ever take place, must keep in view the main purpose of the parties to this agreement, to wit, that it is for the mutual advantage of both parties, and that neither is to be benefited at the expense of the other.
“ Now, therefore, to accomplish the purposes aforesaid, in consideration of the premises and of the mutual promises herein, the said Central Pacific Railroad Company hereby leases to the said Southern Pacific Company, for the term of ninety-nine years from the first day of April, A. D. 1885, the whole of its railroad situated in the Territory of Utah and States of Nevada and California, and known and designated as the Central Pacific Railroad, together with all the branches thereof, together with all the rolling stock, telegraph lines, steamboats, wharves, piers, depots, workshops, and all other property, real and personal, now owned, held, and possessed by the said Central Pacific Railroad Company and used upon, or in connection with, said railroad and telegraph, together with all the appurtenances thereunto belonging, with the righ to possess, maintain, use, and operate, and enjoy.the said property, and to receive the rents, issues, and profits thereof.
“And .the said Central Pacific Railroad Company hereby assigns to the said Southern Pacific Company all the leases which it now holds of railroads and other property situated in said State of California and lying and being north of the town of Goshen, in the county of Tulare, with the right to take, hold, operate, maintain, and enjoy said railroads and other-property in the same manner as the said Central Pacific Railroad Company holds, operates, enjoys, and maintains the same under the said leases, and with the right to receive the rents, issues, and profits thereof.
“And the said Central Pacific Railroad Company hereby releases the Southern Pacific Railroad Company, a corporation formed and existing under the laws of the United States and of the State of California, and the Southern Pacific Railroad Company, a corporation formed and existing under the laws of the Territory of Arizona, and the Southern Pacific Railroad Company, a corporation formed and existing under the laws of tbe Territory of New Mexico, and each of them, from all and every obligation under or by virtue of any and every lease made by said three last-mentioned railroad companies, or either of them, to the said Central Pacific Eailroad Company, and transfers and surrenders unto the said Southern Pacific Company the possession of all the property in said leases or any of them mentioned or described, with the right to receive the rents, issues, and profits thereof, free from all claim of the said Central Pacific Eailroad Company to the same or any part thereof.
“The said Southern Pacific Company agrees to and with the said Central Pacific Eailroad Company that it will keep and maintain the property hereby leased in good order, condition, and repair; operate, maintain, add to, and better the same, at its own expense; pay all taxes legally assessed against or levied thereon, and will at the termination of this lease return the same to the said Central Pacific Eailroad Company or to its successors or assigns (with additions and betterments) in as good condition and repair as the same was at the date hereof.
“And the said Southern Pacific Company hereby agrees to and with the said Central Pacific Eailroad Company that it hereby assumes and will discharge all the liabilities and obligations of every kind (including its obligations on leases now held by it) of the said railroad company, except the obligations to pay the principal of said railroad company’s indebtedness, known as its ‘floating debt,’ and except the obligations to pay the principal of the indebtedness of said railroad company,known as its ‘bonded indebtedness,’ now outstanding and secured by mortgage or deed of trust, or which may be hereafter incurred under the provisions of any existing mortgage or deed of trust, or of any mortgage or deed of trust hereafter made with the consent of the Southern Pacific Company; and except the principal of all indebtedness the payment of which has heretofore been guaranteed by the Central Pacific Eail-road Company; and except the principal of the indebtedness of the said Central Pacific Eailroad Company evidenced by bonds of the United States, heretofore by the Government thereof loaned to the said Central Pacific Eailroad Company. That as to such excepted indebtedness the said Southern Pacific Company will pay off and discharge at maturity the interest upon the same, except the interest upon the bonds of the United States loaned as aforesaid; and that as to such bonds and the interest thereon the said Southern Pacific Company will discharge the annual obligations imposed upon said Central Pacific Eailroad Company by exisiting acts of Congress, and will, during the continuance of this agreement, fully comply with the terms of, perform all the duties prescribed in, and dis charge all the obligations imposed upon said Central Pacific Bailroad Company by the act of Congress commonly known as the ‘Thurman act.’
“And the said Southern Pacific Company hereby agrees to and with the said Central Pacific Railroad Company that it will well and truly perform all the duties and obligations of said railroad company to the United States and the Government thereof under existing acts of Congress relating to the maintenance and operation of its railroad, and to transportation for said Government over the same, as fully and faithfully as said railroad company is bound to do, except as otherwise hereinbefore provided.
“And the said Southern Pacific Company agrees to and with the said Central Pacific Railroad Company that it will keep true and faithful accounts of all the earnings of the said Central Pacific Railroad, including the earnings of the railroads now held by said Central Pacific Railroad Company, under leases and situated north of Goshen, together with true and faithful accounts of all expenditures, payments, and disbursements of every kind made by the said Southern Pacific Company in operating, maintaining, adding to, and bettering the same, and of all expenditures, payments, and disbursements made by the said Southern Pacific Company for taxes, rentals, interests, or in discharge of obligations incurred in by said Southern Pacific Company under the provisions of this agreement hereinbefore contained: Provided, however, That any payments inade by the said Southern Pacific Company to either of the said Southern Pacific Railroads hereinbefore mentioned for rentals under the terms of existing leases in favor of the said Central Pacific Railroad Company, and now assigned to the Southern Pacific Company, shall never be included in, or madepart of, any charge against the said Central Pacific Railroad Company or the earnings of its said railroads.
“And the said Southern Pacific Company hereby agrees with the said Central Pacific Railroad Company that during the continuance of this lease it will annually, on the first Monday in May, pay to the said Central Pacific Railroad Company, as guaranteed rental for said Central Pacific Railroad and other leased property, for the year ending on the thirty-first day of December next preceding that date, the sum of one million two hundred thousand dollars ($1,200,000).
“And the said Southern Pacific Company hereby further in this behalf agrees with the said Central Pacific Railroad Company that, if the earnings of the said Central Pacific Railroad and of the railroads situated north of Goshen now held by the said Central Pacific Railroad Company under leases shall in any year during the continuance of this agreement exceed all expenditures, payments, and disbursements of every kind made by the said Southern Pacific Company for such year in operating, maintaining, adding to, and bettering the same, and of all expenditures, payments, and disbursements made by the said Southern Pacific Company for taxes, rentals, interest, and in discharge of any of the obligations by said Southern Pacific Company incurred under this agreement, as heretofore provided, including the said sum of one million two hundred thousand dollars, then such excess for any such year not exceeding the sum of two million four hundred thousand dollars shall, on the first Monday in May, as aforesaid, be paid to the said Central Pacific Eailroad Company as additional rental for such year.
“And it is further agreed between said Southern Pacific Company and the said Central Pacific Eailroad Company that if at any time it appears that by the operation of this agreement either party is being benefited at the expense of the other, then this agreement shall be revised and changed so that such will not be the operation thereof, and, if the parties hereto can not agree upon the changes necessary to that end, then each party shall appoint one arbitrator, disinterested, but skilled in relation to the subject-matter, and the award and decision of such arbitrators in writing shall be binding upon the parties hereto, and this agreement shall be revised and changed in accordance with such award and decision, and, as revised and changed, shall be duly executed in writing by the parties hereto.
“And it is further agreed that if the arbitrators so chosen can not agree upon an award and decision, then that the two shall choose a third impartial and skilled arbitrator, and that the award or decision of two of the said three arbitrators shall have the same force and effect between the parties hereto, and shall be executed in like manner as hereinbefore provided for the award and decision of the two arbitrators first chosen.
“And it is further agreed between the said Southern Pacific Company and the said Central Pacific Eailroad Company that if any legislation or governmental action hereafter be had which, in the opinion of the said Southern Pacific Company is in hostility to the said Central Pacific Eailroad Company, its rights, or the property hereby leased, the said Southern Pacific Company may, on notice to the said Central Pacific Eailroad Company, terminate this agreement, or may submit to the arbitrators, in the manner and with the effect hereinbefore provided, for changes and revisions.
“And it is further agreed between the Southern Pacific Company and the Central Pacific Eailroad Company that upon the execution of this agreement the said Southern Pacific Company may enter upon, take possession of, and hold during the continuance of this agreement, all the property, real and personal, hereby leased by the said Central Pacific Eailroad Company to the said Southern Pacific Company, and that duplicate lists of all the rolling stock and other personal and movable property so leased, showing its condition at the time of the execution of this agreement, shall be made and certified by the secretary of each of said companies, and that one of said lists shall be kept by each of said companies.
“And it is further agreed between the Southern Pacific Company and the Central Pacific Bailroad Company that if at any time any of the rolling stock or other personal property hereby leased to the said Southern Pacific Company by said Central Pacific Bailroad Company be used upon any roads other than the Central Pacific Bailroad, or the leased roads north of Goshen, then the said Southern Pacific Company shall credit to the said Central Pacific Bailroad Company the usual and customary sums paid by one railroad company to another for the use of the like property; and that the amount so credited shall be deemed and taken to be a part of the earnings of said Central Pacific Bailroad Company.
“And it is further agreed that if, in the operation of the said Central Pacific Bailroad and leased roads north of Goshen, it becomes necessary to use any of the rolling stock or other personal property o'f the Southern Pacific Company, not leased from the Central Pacific Bailroad Company, upon the said Central Pacific Bailroad or leased roads north of Goshen, that the usual and customary sums paid by one railroad company to another for the use of like property shall be allowed as, and constitute a charge against, the receipts of the said Central Pacific Bailroad and said leased lines, and be so considered in the accounting hereinbefore provided for.
“In testimony whereof the said Southern Pacific Company and the said Central Pacific Bailroad Company have caused these presents to be signed by their respective presidents, countersigned by the secretaries, and their corporate seals to be hereunto affixed, pursuant to orders of their respective boards of directors the day and year first herein written.
“In duplicate.”
IY. At all times since April 1,1885, the Southern Pacific Company has been in possession of and operating the following, among other lines of railroad, viz: Southern Pacific Bail-road of California; Southern Pacific Bailroad of Arizona; Southern Pacific Bailroad of New Mexico; Central Pacific Bailroad, and Northern Bail way.
Y. At various times since April 1,1885, the Southern Pacific Company has rendered services to the United States, at the request of the War, Post-Office, and other Departments of the Government thereof, over the railroad lines enumerated in finding it, for which services the claimant has received no compensation.
YI. The accounting officers of the Treasury have settled and adjusted accounts for such services so rendered by the claimant in the aggregate as follows:
For the War Department, aggregating. $501,087.56
For the Post-Office Deparment. 1,317,161.52
For other Departments. 6,087.36
Total. 1,824,336.44
Of which total amount there was settled and adjusted by such accounting officers to the credit of the Central Pacific Railroad Company, with the earnings from transportation of mails from April 1, 1885, to' September 30, 1889, for services over the nonaided portions of its lines, in the aggregate sum of $1,314,492.53. It was also allowed as due and unpaid for want of appropriation $110.60 by the Commissioner of Customs, over nonaided lines, and also by the Commissioner of Customs for divers and sundry services rendered over non-aided lines between April 1 and December 31,1888, $2,857.65. It was also allowed by an adjustment made by the Fourth Auditor for services over nonaided lines from April, 1885, to 1888, the sum of $2,492.14. There was adjusted by the Second Auditor, Mr. Patterson, in favor of the Central Pacific Railroad Company for services over its nonaided lines from April 1, 1885, to November 23, 1889, $23.11. The Southern Pacific Railroad Company of California had adjusted, by the proper accounting officers of the Treasury Department, for services over its nonaided lines from April 1, 1885, to October 28,1889, as follows:
Due for Indian settlement, as per Second Auditor’s report.$603.86
While the residue of said total sum of $1,824,336.44 was settled and- adjusted by such accounting officers to the credit of the plaintiff for services rendered in the transportation of troops and supplies for the War and other Departments from April 1,1885, to November 23,1889, over its nonbond aided, leased, and operated lines of railroad, and that all of the services so rendered over said nonbond aided, leased, and operated lines of railroad hereinbefore found were rendered by the plaintiff] and that no part of said sum of $1,824,336.44 new due has been paid.
Mr. Joseph K. McOammon and Mr. J. Hubley Ashton for tbe claimant.
It is settled that the powers and franchises which a State has conferred upon its corporation can not be taken away by the act of another State or the judgment of its courts. (Society, etc., v. Hew Haven, 8 Wheat., 483 ; Barclay y. Taiman, 4 Edw. Oh., 123, 130 j Merrich v. Scmtvoord, 34 N. Y., 208.)
It is also well settled that until a forfeiture has been judicially ascertained and declared by process on behalf of the State, instituted directly against a corporation for the purpose of avoiding its charter, the corporate body is not deprived of any of the powers, franchises, or rights of contract, conferred by the law of its creation. (Buffalo, etc., B. B. Oo. v. Gary, 26 N. Y., 75; Frost v. Frostburg Goal Oo., 24 How., 278, 284; Hop-tional Banh v. Matthews, 98 TJ. S. B., 621, 629; Beynolds v,. The Banh, 112 U. S. B., 413; Smith v. Sheeley, 12 Wall., 358.)
It is corollary of these propositions that before a judgment of ouster at the instance of the State an act constituting ground of forfeiture of the charter of a corporation can not be pleaded collaterally in a suit between the corporation and .an individual or any third party. As the Supreme Court has said, it does not lie in such a party directly or indirectly to usurp the functions of the State. (Smith v. Sheeley, 12 Wall., 358; Wational Banh v. Matthews, 98 - TJ. S. B., 629; Oou/nty of Maeon v. Shores, 97 IJ. S. B., 277.)
The Supreme Court has often declared that by the general law of comity, which in the absence of positive direction to the contrary obtains throughout the States and Territories of the Union and is a part of their common law, corporations created in one State or Territory have the right to carry on their business and operations in other States and Territories, and acquire, hold, and transfer property, and enter into contracts there equally and with the same effect as individuals. (Oowell v. Springs Oo., 100 U. S. B., 59; Christian Union v. Yount, 101 U. S. B., 351; Banh of Augusta v. Farle, 12 Pet., 519, 592; B. B. Go. v. Kneeland, 4 How., 16; Merrich v. Van Santvoord, 34 N. Y., 208; Stevens v. Pratt, 101 Ill., 206.)
The law of comity on this subject is the common law of each State and Territory of the United States, and as such is obli gatory upon the courts, State and National. (Bank y. (Earle, 13 Pet., 589 ; Story, Conflict of Laws, 36,37.)
2. It appears that the United States, the defendant here, has recognized these leases in the most direct and explicit manner, and the rights asserted by the Southern Pacific Railroad Company under them as the lessee in possession of the lines embraced by the contracts, by adjusting the accounts for its services over the leased lines, except the bond-aided portion of the Central Pacific Railroad from Ogden to San José, in the name of the Southern Pacific Company, and paying to that company the amounts of those accounts.
The Supreme Court has conclusively adjudged that so far as services over the Central Pacific non-bond-aided lines are concerned, the Central Pacific Company occupies precisely the position of any other carrier in respect to its transportation services for the United States. (United States v. Central Paeifie B. B. Go., 118 U. S. R., 239.)
3. It is clear upon the most elementary principles of the law that the United States is indebted to the claimant, and the claimant has a legal right of action against the United States for the amounts due and payable by it in respect to the services so performed by the claimant upon its leased lines, as ascertained and liquidated at the Treasury.
It is not alleged that the claimant is or was feloniously in the possession of the roads upon which it performed the services to the United States. On the contrary, it is conceded that the claimants operated the roads with the consent and under contracts with the owners of the property.
It is not pretended that the lessors have any claim or cause of action against the United States for the price or value of the services by the Southern Pacific Company, nor is it supposed, we fancy^that the work was done by that company gratuitously.
Will it be said that the United States is to go free from this debt? If not, how can it be maintained that it should not be recovered by the claimant?
The lessee of railway property is pro hae vice the owner of the railroad, and as such is entitled to exercise the powers and privileges granted to the lessor while subject to its general duties and obligations. This is familiar law. (1 Beach, Law of Railways, sec. 569; 1 Woods, Railways, sec. 203; Chicago, etc., By. Co. y. Crane, 113 IT. S. R., 424.)
The lessee corporation is alone authorized to use the railway comprised in the lease, and to charge and receive compensation for the transportation of freight and passengers, and it is responsible upon contracts for carriage made by its agents, and liable for injuries sustained through the negligence of its employés.
The legal, as well as the equitable, title and interest in every contract for services upon the leased road, express or implied, is vested exclusively in the lessee, who alone is entitled to sue upon the contract.
Where services have been performed upon the leased lines without an express contract for the payment of compensation, the implied contract for such payment created by the performance of the consideration, is made, in contemplation of law, to the lessee corporation, and to it alone, as the party from whom the consideration has passed.
As the consideration is executed by the lessee, it is the owner of the debt created by the consideration against the party for whom it was performed, and is alone entitled to sue for the recovery of that debt. The debt due is the property of the lessee, who can not be deprived of it, any more than it can be deprived of any other property, by the Government, without “due process of law.”
It is plain from these simple principles that one who has received services by the lessee of railroad property, when asked to pay for them, can not be allowed to inquire into the validity of the contract between the lessor and lessee, and the character of the title of the lessee to the property. What has he to do with the contract between the lessor and lessee, wh,en asked to perform his contract, express or gimplied, with the lessee?
All the services in this case were performed by the claimant a.s the actual lessee in good faith in the possession of the properties at the request or under the authority of the competent officers of the United States, which thereby became bound by law to pay the claimant the price or value of its services.
4. Agreeably to the settled doctrines of the Supreme Court of the United States the Government can not be allowed to allege in defense of this action upon the executed transactions between it and tbe Southern Pacific Company, that the leases of the lines upon which the company performed these services are invalid as ultra vires, or on any other ground.
The doctrines of the Supreme Court upon this general subject are founded upon the rules of good faith, which that court, more decisively, perhaps, than any court of last resort, has never permitted parties to disregard, and to which it always endeavors to make the law conform.
It was characteristically suggested by Mr. Justice Hoar, delivering the opinion of the Supreme Judicial Court of Massachusetts, in a case where a railroad company attempted to dispute its liability for freight delivered to it to be carried over a railroad leased to the company, on the ground that the lease was ultra vires, that “an inn-keeper might as well resist the claim of a guest for compensation for the loss of his luggage by suggesting doubts as to the validity of his landlord’s title to the inn which he hired.” (McGhire v. Manchester, etc., R. It,., 13 Cray, 129.)
It follows from the same principle that no party dealing with the claimant in respect to transportation services upon its leased lines can set up that the leases cle facto were not contracts de jure, as a defense to an action for the price of such services'.
The legal right and title of the claimant to the use and possession of its leased lines could be questioned only in direct proceedings by the sovereignties who created the corporations to forfeit for alleged misuser or misfeasance the franchises of the companies interested in the leases, or other direct action upon the contracts. No question of ultra vires as respects the action of the lessors or lessee in making or accepting the leases, can properly be discussed in this collateral suit. (Frost v. Brostburg Goal Go., 24 How., 278; Smith v. Sheeley, 12 Wall., 358, 361; National Bank v. Matthews, 98 U. 8. E., 621, 627, and Silver Lake Bank v. North, 4 Johns’ Oh., 370.)
It is valid until assailed in a direct proceeding instituted for that purpose. (National Bank v. Whitney, 103 H. S. E., 99, 103; Reynolds v. Grawfordsville Bank, 112 IT. S. B. 413; Britts v. Palmer, 132 IT. S. B., 282. See, also, Railroad Go. v. Bllerman, 105 U. S. B., 174; Gozuell v. Springs Go., 100 IT. S. B., 55; Macon v. Shores, 97 IT. S. B., 277; Grant v. Henry Glay Goal Go., 80 Pa. St., 208.) This is the settled law in Pennsylvania, and, so far as we know, in all tbe States. (Union Water Go. v. Murphy's Co., 22 Oal., 621; Bakersfield Town Rail Ass. v. Chester, 55 Cal., 98; Kay ser y. Bremen, 16 Mo., 90; Rough y. Cooh Co. Land Co., 73 ILL, 23; Atherton v. Sugar Creek, etc., Co., 67 Ind., 334; In re Elevated E. B., 70 N. Y., 327.)
Tbe Supreme Court bas set at rest all question in regard to tbe defense of ultra vires in suits by or against a corporation upon executed transactions between tbe parties. (Railway Co. v. McCarthy, 96 TJ. S. B., 267; San Antonio v. Mehaffey, Id., 315; Siteheock v. Galveston, Id., 351; Gold Mining Co. v. Rational Bcmk, Id., 640; Rational Bank y. Graham, 100 TJ. S. B., 702; Daniels v. Tearney, 102 IT. S. B., 420; Jones v. Guaranty Co., 101 U. S. B., 628; Cowell v. Springs Co., 100 IT. S. B., 55; Commissioners v. Bolles, 94 TJ. S. B., 106; Branch Y.Jesup, 106 TJ. S. B., 468; Thomas v. R. R. Co., 101 U. S. B., 71; Close Y. Glenwood Cemetery, 107 U. S. B., 466.)
Tbe court specifically recognizes and affirms, in these cases, tbe law as settled in New York, that while a corporation which departs from its chartered powers may be punished by forfeiture of its franchises at the suit of the State, the fact that a contract involves an unauthorized exercise of corporate powers on the part of the company constitutes no defense to an action brought by the party having performed the contract, to recover compensation for a failure by the other party to comply with the agreement. (Bissell v. Michigan S., etc., R.R. Co., 22 N. Y., 262; Parrish v. Wheeler, 22 N. Y., 494; Buffet v. Troy, etc., R. R. Co., 40 N. Y., 168; Woodruff y. Brie R. R. Go., 93 N. Y., 609; Whitney, Arms Go. v. Barlow et al., 63 N. Y., 62; Bissell v. Michigan Southern, etc., R. R. Co., 22 N. Y., 262, and Parrish v. Wheeler, 22 N. Y., 494.)
A person who ■ has contracted with a corporation de facto merely can not, after the contract has been performed by the corporation, impeach its validity upon the ground that the corporation had no authority to make it in a corporate capacity, or that it involved an unauthorized exercise of corporate powers. (Chubb v. Upton, 95 U. S. B., 667; Macon v. Shores, 97 U. S. B., 277; Commissioners v. Bolles, 94 U. S. B., 106; Branch v. Jesup, 106 TJ. S. B., 468; Raeine, etc., R. R. Co. v. Farmers’ L. & T. Co., 49 Ill., 347; Petroleum Go. v. Weare, 27 Ohio St., 354.) The principle is that such objections, if valid, are only available in a direct proceeding on bebalf of tbe sovereign power of tbe State against tbe corporation.
4. Tbe doctrines of tbe Supreme Court on tbis subject of ultra vires are based on tbe principles of equitable estoppel, and tbe further principle that tbe State under whose sovereignty tbe corporation dwells, and by whose act it exists, has no interest whatever in arresting its action for tbe recovery of moneys equitably due upon a contract fully executed, whatever may be its right to annul its charter as for tbe exercise of unauthorized corporate powers. (Daniels v. Tearney, 102 TJ. S. R., 420; Bank v. Graham, 100 IT. S. R., 699; Bank v. Mattheios, 98 IT. S. R., 627; Macon v. Shores, 97 IT. S. R., 277.)
In view of tbe strenuous doctrine of tbe Supreme Court discrediting and preventing attempts to set up tbe obnoxious defense of ultra vires by corporations, or those who are indebted to them, where tbe fruits of contracts fairly made have been enjoyed by tbe defendant, and which adopt in tbe main tbe law as settled in tbe New York eases above cited, it would seem unnecessary to cite authorities from tbe other States; but still tbe following cases may be referred to:
(Chester Glass Go. v. Dewey, 16 Mass., 93; Dyer <& Go. v. Howard, 40 Pa. St., 157; Rutland, etc., R. R. Go. v. Proctor, 29 Vt., 93; Oil Greek, etc., R. R. Go. v. Penn. Go., 80 Pa., 160; Wilcox v. R. R. Go., 43 Mich., 584; Hall Go. v. Am. Ry. Go., 48 Id., 331; Thompson v. Lambert, 44 Iowa, 239; State Board, etc., v. Iffy Go., 47 Ind., 407; Bradley v. Ballard, 55 Ill., 417; Ward v. Johnson, 95 Ill., 215; Union Water Go. v. Murphy’s Co., 22 Cal., 620; Morris R. R. Go. v. R. R. Go., 29 N. J. Eq., 542; Newbury R. R. Go. v. Weare, 27 Ohio, 345; Long v. Georgia P. R. R. Go., 91 Ala., 519.)
Tbe principles stated are recognized as tbe result of tbe authorities by tbe eminent writers on tbe law of corporations, Mr. Pierce, Mr. Morawetz, Mr. Beach, Mr. Wood, Mr. Field, and Mr. Taylor. Pierce on Railroads, ed. 1881, p. 516; Mora-wetz on Corporations, sec. 689; Field on Corporations, sec, 264; Wood on Railways, sec. 191; Beach on Railways, sec. 520; Taylor on Corporations, sec. 310.
Tbe Supreme Court has said that a contract of lease, though it may be ultra vires, is not' an immoral contract; and tbe courts, while refusing to maintain an action upon tbe contract, have always striven to do justice between tbe two parties by permitting property or money, parted with, on the faith of the contract, to be recovered back, or compensation to be made for it. (Central Transp. Co. v. Pullman’s Car Co., 139 TT. S. R., 60; Thomas v. R. R. Co., 101 TT. S. R., 86.)
The United States could not escape its obligation to pay the claimant for its services by showing, if it could be shown, that the agreements were an unauthorized exercise of corporate powers, upon the ground suggested by the counsel for the defendant.
Whether the United States has any legal interest which might enable it to draw in question the capacity of the corporations or any of them, under the laws of their creation, to make the particular agreements, is a matter which could be determined only in’a direct suit instituted for that purpose in a court of competent jurisdiction.
A corporation in California in exercising its statutory power to lease is vested with all the powers and privileges individuals and natural persons enjoy; and, therefore, it has been adjudged that a railroad corporation having the power to lease has the right to guaranty the payment of the bonds of another corporation. (Low v. Central Pacific P. II. Co., 52 Cal., 53; Green’s Brice’s Ultra Vires, 121, note; Stewart v. Brie Co., 17 Minn., 372.)
The second statement is that the leases of the lines of the Central Pacific Railroad Company and the Southern Pacific Railroad Company were made without any authority of law of Congress, u whence they derived all their principal corporate rights and franchises, and hence are ultra vires acts, and so far as they attempt to transfer the operation of the railroads of the lessor companies and their right to their earnings to the claimant, are a nullity.”
In that connection the case of The Central Transportation Co. v. Pullman Car Co. (137 U. S. R., 21) is cited to the court.
It is a mistake to say that the Central Pacific Railroad Company and the Southern Pacific Railroad Company derived from Congress “all their principal corporate rights and franchises,” if we at all understand the statement.
It is true that the company received important rights and franchises from the United States, but the corporation is an artificial person created by and existing under the laws of the State of California.
The powers of a corporation organized under legislative statutes are such as those statutes confer, and acts done beyond those powers are said to be ultra vires. (2 Morawetz on Corporations, section 649.)
Whether or not the lease made by the Central Pacific Railroad to the claimant was infra vires or ultra vires of the corporation would depend, therefore, upon the laws and public policy of the State of California, from whom the corporate being and powers of the company were derived. The State of California could alone punish the corporation for ultra vires acts, through a proceeding of quo warranto, or otherwise.
The United States could not be heard, in any direct proceeding in a judicial tribunal, to complain of any act of the Central Pacific Railroad Company on the allegation merely that such act was beyond the corporate powers of the company. A violation of the charter of the company would not of itself constitute an injury of which the Government could complain in any suit, legal or equitable, in a court of justice. (.Railroad Co. v. PMerman, 105 U. S. R., 174; United States v. Union Pacific Railroad Company et al., 98 U. S. R., 569,617,618.)
It is well known that the laws of California authorize and empower railroad corporations to lease the whole or any portions of their roads, conformably to the general public policy in many other States, as declared by their supreme legislative authority, which affords the fullest scope for the transfer of the use of railroads and their franchises by one corporation to another. (1 Hittell, secs. 836,996; Stats. 1861, p. 608; Statutes of California, 1880, p. 114; Low v. Central Pacific P. R. Co., 52 California, 53.)
The policy of the State of California is the same as that of New York, in which it has been conclusively held that the laws afford the fullest scope for the consolidation and reorganization of railroads and railroad corporations, and the transfer of the use of such roads and their franchises from one corporation to another. (See Woodruff v. Erie R. R. Co., 93 N. Y., 609; Pisher v. W. ¥. C., etc., R. R. Co., 46 N. Y., 644).
The United States could not complain of the lease, in a direct proceeding, on the ground that it was ultra vires of the corporation under the law of California.
It would be for the State, or a stockholder of the corporation, to complain of any exercise by the company of corporate pow ers unauthorized by its charter. (E. B. Co. v. Ellerman, 105 U. S. R., 174.)
Mr. William J. Eannells (with whom was Mr. Assistant Attorney-General Cotton) for the defendants.
1. The claimant company consists of a partnership of railroad corporations, of which the lessor companies constitute a part, and that such a partnership can not have a lawful existence. People v. W. B. 8. B. Co., 121 N. Y., 023-626- Whitten-ton Mills v. Upton, 10 G-rey, p. 595; Marine Banh v. Ogden, 29 Ill., 248; Gunny. Central E. E., 74 Ga., 509; Green’s Brice’s Ultra Yires, 2 Am. Ed., 423 and note; Bates on Partnership, sec. 33; First Lindley on Partnership, star p. 78; Cook on Stockholders and Corporation Law, sec. 677.
2. The leases by which the claimant company claims the immediate control of the affairs and lines of the Central Pacific Railroad Company and the Southern Pacific Railroad Company, and consequently the earnings of said railroad companies were made without any authority of law of the Congress of the United States, whence they derived all their principal corporate rights and franchises, and hence are ultra vires acts, and so far as they attempt to transfer the operation and management of the railroads of the said lessor companies and their right to their earnings to the claimant company, are a nullity.
Eailwa/y Co. v. Iron Co., 46 O. S., 44, 50; Straus et al. v. Eagle Ins. Co., 5 O. S., 60-62; Thomas v. Eailroad Company, 101 U. S. R., 71; Zabrislcie v. Cleveland E. E. Co., 23 How., 381-398; Branch y. Jessup, 106 U. S. R., 468, 478, 479; Penna. E. E. y. 8t. Louis and C. E. B., 118 U. S. R., 290, 309, 312, 630; Salt Lalce City v. Hollister, 118 U. S. R., 256-263; Green Bay and Minn. E. E. Co.y. Union Steamboat Co., 107 U. S. R., 98-,-Pitts-burg and C. E. E. v. Keolculc & Hamilton Bridge, 131 U. S. R., 371-384; Oregon E. E. y. Oregonian E. E., 130 U. S. R., 1; Central Transp. Co. y. Pullman Gar Co., 139 U. S. R., 24-61.
3. Said leases are void because the combination of the several railroad companies into one, to be operated under one management, was intended to and has the necessary effect to neutralize the legitimate competition to which the iiublic is entitled, and which, without such a combination, would otherwise exist. And even if, in point of fact, this result has not ensued from said combination, yet the possibilities to injure possessed by an aggregation of corporations of this magnitude are sucb as to be a constant menace to tbe public good, and bence tbe necessity of tbe rule established by our courts declaring all sucb contracts null and Amid, because against public policy. The People y. N. B. S. B. Go., 121N. Y., 625; Salt Go. v. Guthrie, 35 O. S., 666-672; Biehardson v. Buhl, 77 Mich., 632-660; Silton y. Bebersley, 6 Ellis & B. L., 65; Atcheson v. Mallon, 43 N. Y., 149; People ex reí. y. Chicago Gas Trust Go., 130 III., 268.

Opinion:
Peelle;1 J.,
delivered tbe opinion of tbe court:
This is an action to recover tbe amount due for services rendered by tbe plaintiff in tbe transportation of mails, troops, and supplies for and on bebalf of tbe United States from April 1, 1885, to tbe date of filing tbe petition herein, as settled and adjusted by tbe accounting officers of tbe Treasury Department over those portions of plaintiff's leased and operated lines of road not aided in their construction by bonds of tbe United States, about which services and tbe amount due there is no controversy.
It is averred in tbe petition in substance that tbe plaintiff company is and at all times has been since April 1,1885, a corporation duly organized and existing under special acts of tbe legislature of tbe State of Kentucky, and as sucb since said date has been operating certain railroads in tbe States of California, Nevada, Texas, and tbe Territories of Arizona, Utah, and New Mexico; that on and over tbe railroad lines leased and operated it has rendered services to tbe United States by transporting mails, troops, and other property belonging to and persons in tbe service of tbe United States for which no compensation has been received; that tbe proper accounting officers of tbe Treasury, following tbe decision of tbe Supreme Court} and this court, have settled and adjusted for services rendered in tbe transportation of mails $1,316,972.09; also in transportation for tbe Army $501,087.56, and for miscellaneous accounts to several of tbe Executive Departments $7,439.91, making in all $1,825,499.56; that tbe accounts so settled and adjusted have not been paid because at tbe time of their allowance and since there have been no appropriations out of which under tbe law they could be paid; that tbe plain tiff company is the only party owning or interested in the said claim.
The defendants answered the petition by a general traverse. Upon the issues thus formed the defendants contend:
First. That the plaintiff company consists of a partnership of railroad corporations and that the lessor companies constitute a part.
Second. That the leases under which the plaintiff operates its several lines of railroad are ultra vires because made without authority of law.
Third. That the leases are void because the combination of railroads thereunder has the effect to neutralize legitimate competition, and is therefore against public policy.
While, on the other hand, the plaintiff contends that the leases under which it operates its several lines can not be collaterally attacked; further, that as this action is to recover for services rendered, the consideration has passed to the United States, and that therefore the ' doctrine of ultra vires will not apply. It will be noticed, therefore, that while the defendants do not controvert the fact that such services were rendered on the amount due as settled and adjusted by the accounting officers, still they contend that the plaintiff is not entitled to recover because the leases under which it operates its lines of railroad are ultra vires and against public policy.
Compensation for services rendered over the bond-aided portion of the plaintiff's leased and operated lines of railroad are not in controversy in this action, for as to the earnings of such bond-aided portions of said roads the plaintiff concedes that the same must be paid into the Treasury as provided by the act of May 7,1878 (20 Stat L., 56), known as the Thurman Act; and in this connection the Supreme Court in the case of the United States v. Central Pacific Railroad Company (118 U. S. R., 241) affirming the decision of this court, said:
" The construction of the second section of the act of May 7,1878 (the Thurman Act),, is plain and not fairly open to controversy. By the act of July 1, 1862, 'all compensation for services rendered for the Government' was to be applied to the payment of the bonds issued by the United States to aid in building the road. By the act of July 2,1864, only 'one-half of the compensation for services rendered for the Government' by said company was required to be applied to the payment of the bonds. The act of May 7, 1878,'merely restored the pro visions of tbe act of July 1,1862, and again required all compensation for services rendered tbe Government to be applied to tbe payment of tbe bonds. This compensation, as we bave seen, bas been limited by tbe decisions of this court to compensation for services rendered by tbe aided roads. Tbe construction of tbe second section of tbe act of May 7, 1878, contended for by tbe appellee, is, therefore, right."
If this were an action on tbe leases to recover some consideration thereunder, tbe contention of tbe defendants, in tbe absence of any power on tbe part of said railroad companies to make such leases, would be correct, as was held in tbe case of Central Transportation Company v. Pullman Car Company (139 U. S. R., 24), where tbe doctrine of ultra vires was maintained as between tbe parties to tbe lease contract.
Tbe question as to whether or not an action could bave been maintained, however, even in that case "in tbe nature of quantum meruit, or otherwise,-independently of tbe contract," was not passed upon because not presented for tbe consideration of the court, nor was tbe question presented in tbe case of Pennsylvania Railroad v. St. Louis, etc., Railroad (118 U. S. B., 316-318, cited by defendants). But in tbe view of tbe case which we take it will be unnecessary to inquire as to tbe extent of tbe powers conferred by tbe respective State and Territorial legislatures in tbe charters granted to the plaintiff and tbe lessor companies or wbat powers were granted to tbe lessor companies by Congress at tbe time bonds and lands were given to aid in tbe construction of certain portions of said roads, or whether or not such powers bave been exceeded by tbe plaintiff and tbe lessor companies in tbe lease contracts between them; for while we concede tbe law with reference to tbe doctrine so ably contended for by tbe counsel for tbe defendants, we deny its application in this case. This is not an action between tbe parties to tbe lease contracts, which tbe defendants contend are unlawful; nor is it to enforce a contract, but is an action by tbe lessee company against tbe defendants — a third party — to recover for services actually performed, where tbe consideration bas passed to and tbe defendants bave received tbe benefit of such services as is conceded. There is no contention that tbe contract between tbe plaintiff and tbe defendants is unlawful, except as such contract grows out of tbe relations existing between tbe plaintiff and its lessors.
Tbe principal decision relied upon by counsel for defendants, in support of tbe doctrine for wbicb be contends, is that of Central Transportation Company v. The Pullman Car Company (supra) and tbe authorities there cited. That was an action by tbe lessor against tbe lessee company to recover tbe agreed compensation specified in tbe lease. It will be seen by reference to that case that tbe lessor company was first organized for tbe period of twenty years under tbe general laws of tbe State of Pennsylvania concerning manufacturing companies, etc., "for tbe transportation of passengers in railroad cars constructed aud to be owned by tbe said company in accordance with tbe several letters patent;" by hiring or letting its cars to railroad companies, and requiring its stock, property, and effects to be managed by a board of directors, a majority of whom should be stockholders therein and citizens of Pennsylvania. Some years afterwards, by a special act of tbe legislature of said State, tbe charter of said company was extended to ninety-nine years, with power to double its capital stock and to "enter into contracts with corporations of this or any other State for tbe leasing or hiring and transferring to them, or any of them, of its railway cars and other personal property."
Forthwith after tbe passage of said special act, tbe corporation thus clothed entered into an indenture with tbe Pullman Oar Company of Illinois, a corporation of that State, engaged in similar business, by wbicb it leased and transferred to that corporation all its cars, railroad patents, and other personal property, moneys, credits, and rights of action, for tbe term of ninety-nine years, except as to patents and contracts expiring before that'time, and tbe lessor company covenanted in such lease not to " engage in tbe business of manufacturing, using, or hiring, sleeping cars while tbe indenture remained in force." For all of this tbe lessee company agreed to pay tbe existing indebtedness of tbe lessor company and to pay to it the sum of $264,000 annually. While tbe validity of tbe lessor's incorporation, as well as its power to make tbe lease, was held to rest mainly upon tbe special act of tbe legislature, still tbe court in construing tbe words of tbe grant in tbe special act, limited them to tbe words of grant in tbe original articles of incorporation "to do as it bad been doing to 'lease or hire' (wbicb are equivalent words) to other corporations in theregu-lar course of its business " (last paragraph, p. 51), The lessor in that case also covenanted in tbe most positive terms never to " engage in tbe business of manufacturing, using, or biring sleeping cars" while tbe indenture remained in force, thereby covenanting not to do what tbe legislature by such special act empowered it to do, and so tbe court held that tbe lease in that case, as between tbe parties thereto, was ultra vires and against public policy as being in restraint of trade.
Such is not tbe case at bar; for, conceding that in a proper proceeding between tbe parties thereto such leases might be held ultra vires and against public policy, such would not affect tbe right of tbe plaintiff to recover from tbe defendants, a third party, for services actually performed.
Can it be contended that a shipper whose goods were transported by tbe plaintiff over its leased and operated lines of railroad could interpose such a defense in an action to recover tbe freight charges therefor? Certainly tbe plaintiff would not be permitted to set up that tbe lease contracts under which it operates its roads were ultra vires in an action by a third party to recover for services rendered or for money or property passed by virtue of a contract with such third party [McClure v. Manchester, etc., 13 Gray, 129), or to escape liability for negligent or malicious torts (Daniels v. Tearney, 102 U. S. R., 420; National Bank v. Graham, 100 U. S. R., 699).
We understand tbe law to be that "when a government enters into a contract with an individual it deposes, as to tbe matter of tbe contract, its constitutional authority and exchanges tbe character of a legislator for that of a moral agent, with tbe same rights and obligations as an individual." (3 Hamilton's Works, 518; United States v. Bank of Metropolis, 15 Pet., 392; Deming v. United States, 1 C. Cls. R., 191.) If there are exceptions to tbe rule just stated they do not apply to this action.
"The doctrine of ultra vires, whether invoked for or against a corporation, is not favored in tbe law, and should never be applied when it will defeat tbe ends of justice if such a result can be avoided." (San Antonio v. Mehaffey, 96 U. S. R., 315; Railway Co. v. McCarthy, 96 U. S. R., 267; Whitney Arms Co. v. Barlow, 63 N. Y., 62.) In which latter case it was said:
"One who has received from a corporation the full consideration of his engagement to pay money, either in services or property, can not avail himself of the objection the contract thus fully performed by the corporation was ultra vires as not within its chartered privileges and powers. It would be contrary to the first principles of equity to allow such a defense- to prevail in an action by the corporation. If the other party has had the full benefit of a contract fully performed by the corporation, he will not be heard to object that the contract and performance were not within the legitimate powers of the corporation."
Showing that where one has received the benefits accrued from the full performance of a contract by a corporation it would be "contrary to the first principles of equity to allow such a defense to prevail in an action by the corporation." The defendants are not shown to have been injuriously affected in anyway by reason of such lease contracts, and if the powers conferred on the lessor companies by Congress have been exceeded, the remedy is with the defendants to cause such franchises to be judicially forfeited before contracts with them have been executed.
The late Comstock, Chief Justice, in the cases of Bissell v. Michigan Southern Railroad Company (22 N. Y., 262) and Parish v. Wheeler (22 id., 494), also maintains the same doctrine. In Pierce on Bailroads (Ed. 1881, 516) it is said:
" The defence of ultra vires is not admitted in the case of executed contracts not involving moral turpitude.
"If the contract is simply not authorized by statute, or is even prohibited by statute, even though no action could be maintained for the breach while the contract remained executory,'an action can be maintained to recover money paid or the price or consideration of property received under it. The doctrine ,of. estoxipel is applied to the defense of want of legal capacity when set up by a party who has received the benefit of the contract, both where the plaintiff alleges such, incapacity in himself or in the defendant." (Morawetz on Corporations, sec. 689; Field'on Corporations, sec. 264; Wood - on Bailways, sec. 191; Beach on Bailways, sec. 520; Taylor on Corporations, sec. 310; Daniels v. Tearney, 102 U. S. R., 420; Railway Co. v. McCarthy, 96 U. S. R., 267; San Antonio v. Mehaffey, supra; Branch v. Jessup, 106 U. S. R., 468.)
A contract may be ultra vires and still not involve moral turpitude, as was said by the Supreme Court in the case of the Central Transportation Co. v. Pullman Car Co., supra, and Thomas v. Railroad Co. (101 U. S. R., 71). But there is no contention that the contract under which the plaintiff per formed tbe services involves moral turpitude or that the character of the services rendered differs in any way from those rendered by other railroad companies, but the contention is that, because the plaintiff entered into lease contracts with its lessor companies, as set forth in the findings, which it is contended are void although no judicial forfeitures are shown, therefore such unlawful contracts can be invoked to defeat a recovery against a third party for services rendered, thus collaterally attacking the lease contracts for the purpose of avoiding payment to the plaintiff for its performance of a contract with the defendants. To permit the defense to defeat a recovery would be to violate the plain rules of good faith, and we are therefore of opinion that the executed transactions between the parties should be allowed to stand, both on authority and principle. We are sustained in this view by numerous authorities.
"In regard to corporations the rule has well been laid down in Parish v. Wheeler (22 N. Y., 494) that the executed dealings of corporations must be allowed to stand for and against both parties when the plainest rules of good faith require it," Thomas v. United States (101 U. S. R., 86), and such is the law in many of the States, as will be seen by an examination of the following authorities: Dyer & Co. v. Howard (40 Pa. S., 157), Rutland, etc., R. R. Co. v. Proctor (29 Vert., 93), Oil Creek R. R. v. Pa. R. R. (80 Pa., 160), Wilcox v. R. R. Co. (43 Mich., 584), Thompson v. Lambert (44 Iowa, 239), Bradley v. Ballard (55 Ill., 417), Union Water Co. v. Murphy's Co. (22 Cal., 620), Long v. Georgia P. R. R. Co. (91 Ala., 519).
If such be the rule with reference to executed dealings between parties to a contract ultra vires, or if in such cases relief will be granted, when asked for, independently of such unlawful contract "in the nature of quantum meruit or otherwise," how much stronger should be the rule as to the contract between the plaintiff and the defendants, a third party. The plaintiff is a corporation by virtue of certain special acts of the legislature of Kentucky, and as such corporation empowered to enter into contracts "with any corporation, company, association, individual, State, Territory, government, or local authority in respect of their bonds, stock, obligations, and securities, or in respect of the construction, establishment, acquisition, owning, equipment, leasing, maintenance, or operation of any railroads, telegraphs, or steamship lilies, or any public or private improvements, or any appurtenances thereof, in any State or Territory of the United States," and by virtue of the powers thus conferred entered into indentures with the lessor companies whereby it leased the several lines of railroad, as set forth in the findings, and operated them in the peri orinan ce of its contract with the defendants. If, therefore, the lease contracts are ultra vires, for want of power to make them, still the contract between the plaintiff and the defendants having been executed, and the defendants, by the general traverse, having admitted the competency of the plaintiff to sue in its corporate capacity (Society for Propagation, etc., v. Town of Pawlet, etc., 4 Pet., 501), and such corporations being pro hae vice the owner of the railroads operated by it would be entitled to recover as against one not a party to such unlawful contract if no moral turpitude were involved. There is no contention that the charters granted to the plaintiff or its lessor companies have been forfeited, as may be done, if violated, by the sovereignties granting them or either of them in a properjudicial proceeding as often held by the Supreme Court. (National Bank v. Matthews, 98 U. S. R., 621-628; Fritz v. Palmer, 132 U. S. R., 282, 291; Reynolds v. Crawfordsville Bank, 112 U. S. R., 413; Railroad, v. Ellerman, 105 U. S. R., 174; Frost v. Frostburg Coal Co., 24 How., 278.)
And this seems to be the law in many if not all the States. (Union Water Co. v. Murphy's Co., 22 Cal., 621; Bakersfield Town Hall Ass. v. Chester, 55 Cal., 98; Hough v. Cook Co. Land Co., 73 Ill., 23; In re Elevated R. R., 70 N. Y., 327; Grant v. Henry Clay Coal Co., 80 Pa., St., 208.)
So that so long as the governments, National, State, or Territorial, do not cause the charters of such corporations to be revoked courts will treat such corporations, at least as to their executed dealings with third parties, as competent to make such contracts. (Frost v. Frostburg Coal Co., 24 How., 284; Angel & Ames, sec. 774 and cases there referred to.)
Counsel for the defendants in his brief in reply contends that the lessor companies are entitled to the compensation for the services rendered by the plaintiff for the reason that the leases being null and void, said lessor companies stand in the same relation to the defendants that they would have had such leases never been made, and that the accounting officers of the Treasury having' settled and adjusted a portion of tbe accounts for such .services to the credit of the lessor companies, as shown in the findings, therefore such lessor companies are entitled to the compensation therefor, although said companies are not claiming the same, nor are they claiming to have any contract with the defendants.
It is also true, as stated by defendants' counsel, that since July, 1890, the accounting officers of the Treasury have settled and adjusted accounts for like services rendered by the piantiff over its nonbond-aided portions of road, to the credit of and paid to the plaintiff, while the services rendered by it over the bond-aided portions of the Central Pacific Eailroadhavebeen adjusted to. the credit of said company under the provisions of the Thurman act supra. But we attach no importance to the action of the accounting officers in this respect, for the reason that the manner in which they adjust accounts to the credit of one company would not bind or affect the rights of another which had performed the services. If, however, the contention of the defendants be true, that such leases are null and void, and that the relations of the lessor companies to the defendants are the same as if no lease had been made, then the question arises whether or not such services were not performed under a contract arising in law, and that being so, and such lessor companies not claiming pay for such services, and such services having been actually performed by the plaintiff, and its competency to sue in its corporate capacity being admitted by the general traverse, can it not recover in this action under the allegations of the petition on quantum meruit; but in the view of the case we have taken it is unnecessary to pass upon this question.
We see nothing in the leases to justify the defendants' contention that the plaintiff and its lessor companies consist of a partnership of railroad corporations, and, so far as the findings show, the relations existing between them rest on the leases alone, and in the absence of fraud, which could not be set up by a third party, no evidence is admissible to vary the terms thereof.
This course seems to us not only in line with the authorities, but as founded on the rules of good faith between the parties, for otherwise the defendants, not shown to have been injuriously affected by such lease contracts, even if ultra vires, would be getting tbe services of tbe plaintiff without compensation, and that is against the policy of tbe law, if not in violation of tbe Constitution itself.
For the reasons given we are of tbe opinion that tbe plaintiff is entitled to recover tbe amount found due as stated in tbe findings, and judgment will, therefore, be awarded for tbe sum of $1,824,336.44.
Nott, J., did not sit in tbe trial of this case and took no part in tbe decision.