Case Name: THE CAMDEN AND ATLANTIC RAILROAD COMPANY v. THE MAY'S LANDING AND EGG HARBOR CITY RAILROAD COMPANY
Court: New Jersey Court of Errors and Appeals
Jurisdiction: New Jersey
Decision Date: 1886-06
Citations: 48 N.J.L. 530
Docket Number: 
Parties: THE CAMDEN AND ATLANTIC RAILROAD COMPANY v. THE MAY’S LANDING AND EGG HARBOR CITY RAILROAD COMPANY.
Judges: 
Reporter: New Jersey Law Reports
Volume: 48
Pages: 530–588

Head Matter:
THE CAMDEN AND ATLANTIC RAILROAD COMPANY v. THE MAY’S LANDING AND EGG HARBOR CITY RAILROAD COMPANY.
1. When a transaction is complete and the party seeking relief has performed on his part, the plea of ultra vires by the corporation which has acquiesced in it is inadmissible in an action brought against it for not performing its side of the contract in all those instances where the party who has performed cannot, upon rescission, be restored 'to his former status.
2. The state may interpose its authority at any time and compel an abandonment of the act in excess of power, and if need be revoke the charter of the company for its usurpation.
3. When the state challenges the legality of the transaction, the paramount and only question is whether it has bestowed upon the company the requisite authority to engage in it. When the question arises between the company and the other party to the contract, other legal principles apply in determining whether the contract shall be observed.
4. The liability of the company does not rest upon the doctrine of ratification, which, in ordinary legal acceptation, applies to such contracts as a party has authority to make, but upon acquiescence, on which the other party has acted, so that he cannot be restored to his former status, and thereby the company is precluded from interposing its own infirmity as a defence.
5. Under the circumstances presented by this case, the agreement must be dealt with as a contract executed substantially on both sides.
On error to Supreme Court.
For the plaintiff in error, Peter L. Voorhees.
This was an action of debt brought to recover rent alleged to be due from the plaintiff in error to the defendant in error, from December 1st, 1881, to June 1st, 1882.
The declaration counted upon a pretended lease made by the defendant in error to the plaintiff in error, dated June 26th, 1873, leasing the railroad, &c., for the term of nine hundred and ninety-nine years, for the annual rent of $5000, payable half-yearly, a copy of which lease was annexed to the declaration as part thereof, and averred that six months’ rent became ■due June 1st, 1882, and was unpaid, whereby.an action had ■accrued to the plaintiff; and also counted in indebitatis for use ■and occupation, and common counts and in quantum meruit for use and occupation. To the declaration there was annexed a copy of the lease and a statement of the amount for which judgment would be demanded, as follows: “ Judgment will be demanded in the above cause for the rent of said railroad from December 1st, 1881, to June 1st, 1882, $2500. Interest thereon from June 1st, 1882.” The pleas were non ■est factum, nil debit, &c.
The case was tried at the Camden Circuit, in the January Term, for the year 1885. A verdict was rendered, under the' ■direction of the judge, for the defendant in error, for $2906.67, ■and judgment was entered on the verdict February 17th, 1885, with $243.87 costs.
At the trial of - the cause certain exceptions were taken to •the rulings of the judge upon the exclusion and admission of •evidence, and to the judge’s charge and refusal to charge the jury, which were sealed and are brought up with the record in this case. It appeared at the trial that the plaintiff below ■claimed six months’ rent for the railroad on a pretended lease •of the railroad of the plaintiff below, to the defendant below, •dated June 26th, 1873, for the term of nine hundred and ninety-nine years, at a yearly rent of $5000, payable in equal .half-yearly payments, on the 1st days of June and December in each year; that under the pretended' lease the defendant below had operated the said railroad for a number of years up to February 1st, 1882, when it ceased operating the railroad, after having given notice to the president of. the plaintiff below, in January, 1882, of its intention so to do. It further -appeared that after the cause was at issue, and on the 22d day of May, 1884, the defendant below, by permission of the ■court,, paid to the clerk of the court $1083.61, being $833.33 -for said rent from December 1st, 1881, to February 1st, 1882, $100.28 for interest thereon, and $150 out of which the taxed •costs were to be paid; and the pleadings were thereby ordered to be amended, and the claim for said amount stricken out of said declaration, and that the plaintiff should not be permitted to give evidence of said sums. So that at the time of the trial all the rent had been paid up to the 1st day of February, 1882, for the whole time the defendant below had been possessed of or operated said railroad.
It further appeared that the Camden and Atlantic Railroad Company was incorporated by an act of the legislature of this state, approved March 19th, 1852. Pamph. L.,p. 263. In and by said act, after providing for the organization of said company and election of directors, it was enacted by the fifth section that five directors should be competent to transact all business of the corporation, to call in the capital stock by instalments, and to make such by-laws, rules and regulations as to them should appear needful and proper touching the management and 'regulation of the stock, property, estate and effects of the said corporation.
By section 6 it was enacted that the president and directors be authorized to lay out and construct a railroad from the city of Camden, in the county of Camden, through the counties of Camden and Atlantic, to the sea-shore, at or near- Absecon inlet, in the county of Atlantic, with power to construct certain branches in said act named.
By the seventh and eighth sections provisions for the purchase and condemnation of lands for the use of said railroad.
It further appeared that the Mays Landing and Egg Harbor City Railroad Company was incorporated by an act of the legislature of this state, approved March 25th, 1871. Pamph. L., p. 671. In and by said act, after providing for the organization of the corporation and the election of directors, it was, by section 5, enacted that five directors should be a quorum to transact the business of the company; that the directors should have power to call in the capital stock, to make and prescribe such by-laws as to them should seem proper touching the management and regulation of the stock, property, estate and effects of the corporation.
Section 6 enacted that the president and directors be autho rized to construct a railroad from Egg Harbor City to Mays Landing, in the county of Atlantic.
Section 17 enacted that the said railroad company is hereby authorized to lease its railroads to or consolidate with any other railroad company, which is hereby authorized to take such lease and operate the same for such time or times and on ■such terms as the said parties may agree upon.
Section 18 enacted that any railroad company is hereby authorized to endorse or guarantee the bonds of the said Mays Landing and Egg Harbor City Railroad, and in any other way which the parties may agree upon to aid the said company in the construction of its said railroad.
The errors assigned are: 1. That the narr. is not sufficient inlaw. 2. That the judge at the trial admitted illegal evidence. 3. That the judge at the trial refused to admit legal evidence. 4. That the judge at the trial refused' to nonsuit the plaintiff. 5. That the judge at the trial charged that the jury should find a verdict for the plaintiff. 6. That the judge at the trial refused to charge that the defendants below had never leased and had no power to lease the railroad of the plaintiffs below, and that the defendants below had never executed any lease of said railroad by authority of said company, and had-no power so to do. 7. That the judgment was given for the plaintiff below, when, by the law of the land, it should have ■been given for the defendant below.
To the second error assigned, that the judge admitted illegal evidence. The suit, after the amendment ordered by the -court above shown, was to recover four months’ rent from February 1st, 1882, to June 1st, 1882. The plaintiff below, to maintain his cause, had to prove that the defendant had made a lease and had occupied the demised premises; the defence was that the lease was not properly executed. At. the time of the exceptions, the plaintiff below, on cross-examination, proposed to show the number of shares of stock held by the members of the board of directors at the time of the lease, and that at the time of the lease the stock of the road was held by the members of the board of directors, and fur ther, to show that when one of the directors had but five-shares and was a member of a copartnership, the number of shares held by said copartnership.
I submit that this testimony was not under any circumstance admissible. The number of shares of the capital stock at the-time was twenty-two thousand six hundred and fourteen. If it had been, shown that the directors held the whole of the-stock, or a majority of it, (when in fact they owned but about four thousand seven hundred and fourteen shares,) it could not. have validated the lease, so long as they acted only as directors. To validate the lease by the stockholders’ action, it would have-been necessary that their action should have been taken at a meeting of the stockholders. 1 Rorer on Railroads, p. 22; Green’s Brice’s Ultra Vires (2d ed.) p. 98.
I submit this evidence was inadmissible, and the ruling of the judge was erroneous.
Under the second error assigned, I call attention to the bill' of exceptions. The plaintiff below offered in evidence a certified copy of the lease, dated June 26th, 1873, between the-parties. It was objected to on the ground that the defendant below had no power to execute the lease; that the lease was. never made by the defendant below, and had never been confirmed or ratified by the stockholders of the defendant below. I submit that it was error to receive the same in evidence at the time and in the manner it was offered by the-plaintiff below.
Under the fifth and sixth errors assigned, I call the attention of the court to the exceptions to the charge and refusals to-charge of the judge at this trial. This case, as above shown, after the payment of the money into court, and the amendment ordered by the court-, was to recover four months’ rent upon the covenants of the pretended lease for property of which the-defendant below had not had any possession, use or benefit. It was to enforce a mere covenant from which the defendant below had not received any benefit whatever. "We submit that the judge erred both in his charge and his refusal to charge.
As above shown, the Camden and Atlantic Railroad Com pany was incorporated for the construction of a railroad from Camden to the sea, at or near Absecon inlet, with power to construct certain branches. This company has such powers and none others than those that are expressly given by the charter and by the first section of the general act of the legislature concerning corporations, and such as may be necessary to exercise the powers as given.
That such are the powers of corporations in this state seems to be fixed by the third section of the act concerning corporations, which enacts “ that in addition to the powers enumerated in the first section of this act, and to those expressly given in its charter, or in the act or certificate under which it is or shall be incorporated, no corporation shall possess or exercise any corporate powers except such as shall be necessary to the exercise of the powers so enumerated and given.” Rev.,p. 177, § 3; Green’s Brice’s Ultra Vires (2d ed.) 739; Taylor on Corp., § 295; Leggett v. N. J. Manufacturing and Banking Co., Saxt. 541; Mutual Insurance Co. v. McKelway, 1 Beas. 133, 135; Morris and Essex R. R. Co. v. Sussex R. R. Co., 5 C. E. Green 542, 562; Wheeler v. Essex Road Board, 10 Vroom 291.
It will be seen that there is no power given in the charter of the Camden and Atlantic Railroad Company to accept a lease from any other railroad company, or to enter into any covenant to pay the moneys of said Camden and Atlantic Railroad Company to any other company for the use of a railroad, or to become the lessee of any other railroad company and its franchises.
By the charter, the company has conferred upon it all the rights and powers necessary and expedient to survey, lay out and construct a railroad, and operate the same, and fix the rates of travel within prescribed limits. By section 5, a limited quorum of the directors are authorized to transact business, and the directors are authorized to make and prescribe such by-laws, rules and regulations as to them shall appear needful and proper touching the management and regulation of the stock, property and effects of the corporation.
I submit that this power to the directors is simply to pass by-laws, &c., for the control of the internal business of the company, and to instruct and direct its officers and agents in the management of its affairs. Green’s Brice’s Ultra Vires (2d ed.) 509; Seneca Co. Bank v. Lamb, 26 Barb. 595; Mechanics’ and Farmers’ Bank v. Smith, 19 Johns. 115.
There being no power given in this- charter to accept a lease of another railroad, and the power of the directors given by the charter being only to regulate the internal business of the railroad, I submit that neither the company nor the board of directors had any power to execute or accept the lease, or execute the covenants therein on which this action is brought.
A railroad corporation cannot, without legislative authority, ti’ansfer, by deed, mortgage, lease or other, agreement, its railroad and franchises, or assume the ownership arid management of some other like enterprise. Such transfer may have the effect to substitute a scheme differing from that for which authority was obtained. Such agreements are generally held void as against public policy, and will not be enforced by the courts. Green’s Brice’s Ultra Vires 77—85 ; Pierce on Railroads 515; 1 Redf. on Railroads 587, 588, 619; 1 Wood’s Railroad Laws 486, 488; 3 Id. 1687; Thomas v. West Jersey R. R. Co., 101 U. S. 71; Davies v. Old Colony R. R. Co., 131 Mass. 258; Kean v. Johnson, 1 Stockt. 407; Zabriskie v. Hackensack, &c., R. R. Co., 3 C. E. Green 183; Black v. Delaware and Raritan Canal Co., 9 C. E. Green 463, 464; Colman v. Eastern Counties R. R. Co., 10 Beav. 1; East Anglian R. R. Co. v. Eastern Counties R. R. Co., 11 C. B. 775; Gage v. Newmarket R. R. Co., 18 Q. B. 457; Macgregor v. Dover and Deal R. R. Co., 18 Q. B. 618; Asbury R. R., &c., Co. v. Riche, L. R., 7 H. of L. 653.
This is especially the rule in New Jersey, where, as above shown, our statute, (Rev., p. 177, § 3,) enacts that in addition to powers in said act and given by the charter, no corporation shall possess or exercise any corporate power except such as shall be necessary to the exercise of the powers enumerated and granted, which has been declared by this court to be an imperative rule of construction concerning corporate powers. Morris and Essex R. R. Co. v. Sussex R. R. Co., 5 C. E. Green 542, 562. That this pretended lease is void and of no binding effect will appear further from the manner of its execution. It was made, entered into and executed without any act of the corporation or its stockholders, as is shown by the testimony in the case and by the minute books of the corporation, and when it was brought to the notice of the corporation and its stockholders, as shown by the minutes, it was repudiated by them. The leasing of a railroad requires the action and consent of the stockholders formally expressed at a stockholders’ meeting. 1 Rover on Railroads 603; Stevens v. Davison, 18 Gratt. 819.
The stockholders own the railroad and its capital in common, to be employed for specific uses provided for in the charter. The directors are the trustees of the stockholders to employ the joint capital, for the management of the road and the road only, to the end that from the investment the stockholders have chosen they may reap contemplated profit. Stockholders each contract with the other that their money shall be so employed as provided for in the charter. What the majority determines, within the scope of this contract, each are bound to abide by, but there their mutual contract ends. No majority has the right to divert any part of the joint capital to any purpose not consistent with the originally formed intentions when they became stockholders, as provided in the charter. Kean v. Johnson, 1 Stockt. 407; Zabriskie v. Hackensack, &c., R. R. Co., 3 C. E. Green 183; Black v. Delaware and Raritan Canal Co., 9 C. E. Green 463.
The corporation, by its stockholders, having never acted on the execution of said pretended lease, except to repudiate it as above shown, and having never authorized the directors, their trustees, to execute said lease, I submit the lease is void and of none effect. Field on Corp., § 257, (1st ed., § 229); 3 Wood’s Railroad Laws 1687.
The directors by whom, it appears by the testimony, this pretended lease was executed, had no power thereby to bind the corporation. The directors of a railroad company are the agents or trustees of the stockholders, acting under and with certain statutory powers, and whenever an agreement is-entered into by them, in the name of the company, amounting-to a breach of their trust, it is void, and will not be enforced to the prejudice of the stockholders. Field on Corp. (Wood’s ed.), § 243, (1st ed., § 273); 1 Abbott’s Dig. Law Corp., §§ 652, 653; Shrewsbury, &c., R. R. Co. v. London, &c., R. R. Co., 4 De G., M. & G. 115 ; East Anglian R. R. Co. v. Eastern Cos. R. R. Co., 11 C. B. 775.
The power given to the directors in this case does not authorize them to execute a lease or change the character of the business of the corporation by assuming to operate other railroads. Green’s Brice’s Ultra Vires (2d ed.) 469.
’Where the charter of a corporation says that the capital stock shall be $100,000, and may be increased from time to time at the pleasure of the corporation, the directors alone, and without the matter being submitted to the stockholders, have no power to increase it. The fact that the charter declares that all corporate powers of the said corporation shall be vested in and executed by a board of directors, &c., does not alter the case. Such powers to directors refer only to the ordinary business of the corporation. Green’s Brice’s Ultra Vires 469; Railway Co. v. Allerton, 18 Wall. 233.
I submit that this lease, being beyond the corporate power of the defendant to execute, and having been executed by the board of directors without any authority in said board to. execute the same, and never having been authorized or approved by the company by its stockholders, is void and of. none effect; and that the fact that the defendant below operated the said railroad under said lease for a time, and paid, for the time it.so operated said road, a rent equal to the rent reserved by the said lease, cannot in any way validate said lease, nor do these facts estop the defendant below from, claiming that the lease is void. The doctrine of estoppel in'pais does not extend so far as to enable a corporation to do what in effect is forbidden by law. Field on Corp. (Wood’s ed.), § 243.
If a contract made by a company incorporated for defined and limited objects discloses on the face of it a covenant which if enforced would cause the funds to be appropriated to purposes other than those to which the act says they shall be applied, such agreement cannot be made the foundation of an action. Taylor on Corp., § 291; Taylor v. Chichester, &c., R. R. Co., L. R., 2 Exch. 356, 370; Davies v. Old Colony R. R. Co., 131 Mass. 258, 259.
The mere fact that a corporation has received the consideration of or otherwise derived advantage from a contract ultra vires does not involve in it any liability on such contract. Green’s Brice’s Ultra Vires (2d ed.) 715, 729, 739.
A lease which a corporation has no power to make does not become valid by the acceptance of the rent, payable by its terms. Pierce on Railw. 521; Field on Corp. (Wood’s ed.), p. 390, § 243; Ogdensburg and L. C. R. R. Co. v. Vermont, &c., R. R. Co., 4 Hun 268, 712; Ogdensburg and L. C. R. R. Co. v. Vermont, &c., R. R. Co., 6 Thomp. & C. 488; Ogdensburg and L. C. R. R. Co. v. Vermont, &c., R. R. Co., 63 N. Y. 176, 180.
The fact that a contract ultra vires has been executed in whole or in part will not render it valid. An unauthorized conveyance, by a religious corporation, of its real estate cannot be held valid because it has been executed and delivered, the purchaser put into possession and the corporation paid the consideration thereof. Madison Avenue Church v. Baptist Church, 73 N. Y. 82, 90.
The act of the legislature incorporating the Camden and Atlantic Eailroad Company was approved March 19th, 1852, and is subject to the provisions of the act of 1846, now section 6 of the act concerning corporations, (Rev., p. 178,) as therein amended, which enacted that “the charter of every corporation which shall hereafter be granted by or created under any of the acts of the legislature shall be subject to alteration, suspension and repeal, in the discretion of the legislature.”
No act of the legislature has been enacted in terms altering the provisions of the act incorporating said railroad.- charter. It may be claimed that such alteration was made by the provisions of the act incorporating the Mays Landing and Egg Harbor City Railroad Company, approved March 23d, 1871. Paraph. L., p. 671.
By the thirteenth section of that act it is enacted that it shall be lawful for said company, during the continuance of its charter, to make contracts and engagements with any other corporation or individuals for transporting or conveying any kind of goods, produce, freights, merchandise or passengers, and enforce the fulfillment of such contract.
This section is almost a copy of section 13 of the act incorporating the Millville and Glassboro Railroad Company, (Pamph. L., 1859, p. 210,) and has been construed as conferring no authority to make a lease of the railroad, as not affecting the charter of the company. Thomas v. Railroad Co., 101 U. S. 71.
By section 17 of said act, it is enacted “that said railroad is hereby authorized to lease its railroad to, or consolidate with, any other railroad company, which is hereby authorized to take such lease and operate the same for such time or times, and on such terms, as the said parties may agree upon.”
I submit this cannot be held to be an amendment to the charter of the Camden and Atlantic Railroad -Company until it. is in terms accepted by said company as part of its charter.
The charter of a corporation is a contract between the government and the corporation,- and as such is protected by the provisions of the constitution of the United States that no state shall pass any law impairing the obligation of contracts. See Const. of U. S., art. I., § 10; Rev., p. 6; Green’s Brice’s Ultra Vires, p. 96, and notes; Cooley Const. Lim., p. 279, and cases cited; Dartmouth College v. Woodward, 4 Wheat. 518.
It is such a contract that it can only be changed by the assent of both parties thereto. A mere legislative act changing or altering the character and powers of a corporation cannot change the charter unless it is assented to by the corporation when there is a reserved right to alter or amend the statute under which corporations are instituted and the legislature, by virtue of such authority, amends the charter or statutes, the corporation has a discretion whether or not to accept the amendment, and the granting of new franchises to an existing corporation is inoperative until accepted. Field on Corp. (Wood’s ed.), § 43, (1st ed., § 50,) and oases; Green’s Brice’s Ultra Vires (2d ed.) 98, 469, and notes.
An acceptance of amendment of charter must be by the stockholders. Field on Corp. (Wood’s ed.), §§ 43-47; Green’s Brice’s Ultra Vires 98, 158, 469, and notes; Angel & Ames on Corp., §§ 391, 499, 500; Railway v. Allerton, 18 Wall. 233; Adams v. Room, 52 Barb. 399; Black v. Camden, &c., R. R. Co., 7 C. E. Green 407.
Where alterations of the charter require the corporation to observe certain methods in doing its business or submit to certain burthens, for the benefit of the public, such alterations are mandatory and become operative without the assent or acceptance of the corporation. When the alterations allow, but do not require, the corporation to alter or ^modify its business, or give to the corporation the right to exercise new and different franchises and powers, such alterations are permissive and require acceptance by the corporation before they become effective. Green’s Brice's Ultra Vires 98 w, and cases above died; Railway Co. v. Allerton, 18 Wall. 233.
In this case, as above stated, the Camden and Atlantic Railroad Company never has accepted as an’ amendment to its charter the power given to any railroad in the seventeenth section of the charter of the Mays Landing and Egg Harbor City Railroad Company, directly or otherwise. As above shown, the Camden and Atlantic Railroad Company, as a company, or by its stockholders, or their authority, has never done any act or thing in any way accepting said powers, directly or otherwise. The action of the directors, as above shown, cannot be held to be an acceptance of such power as part of. the charter of the company. The case shows that the Camden and Atlantic Railroad Company, acting as a company, or by its stockholders, or their authority, never authorized the execution of the pretended lease on which this action is brought, or the covenants therein; that the said company never had the power to make or execute said lease and covenants therein ; and that the lease and covenants executed are beyond the power of the said company, and are void and of none effect; and that the judgment of the court below is erroneous and ought to be reversed and for nothing liolden.
For the defendant in error, Samuel H. Grey.
The plaintiff in error stands on the ground that the lease was ultra vires the corporation.
1. Because plaintiff’s charter did not authorize the lease, and because section 17 of defendant’s charter formed no part of plaintiff’s, not having been formally accepted by plaintiff’s stockholders.
2. Because if section 17 of defendant’s charter did in fact enlarge plaintiff’s power, yet that power could only be exercised by the stockholders of plaintiff, and not by plaintiff’s directors.
I. It may be premised, as a general proposition of law, that the doctrine of ultra vires, where it is invoked by contracting corporations to avoid their contracts, is not favored by the courts. It should not be allowed to prevail where it defeats the ends of justice. Pierce on Railw. 519-527; Railway Co. v. McCarthy, 96 U. S. 267; Thomas v. Railway Co., 101 U. S. 71-86. And so firmly is this principle embedded in the law that all legal presumptions are in favor of the validity of the act sought to be impeached, (unless, I suppose, it be against public policy malum in se or malum prohibitum,) and its invalidity must be established by the party attacking it. Magie v. Union Township, 11 Vroom 453-455.
Does the case of plaintiff in error show a state of facts strong enough to overcome this aversion of the law to the character of its defence ? So far from that being so, it seems to me that the case it presents is one which furnishes in itself the most cogent and convincing reasons in support of the propriety and necessity of the principle of law above referred to.
It is not pretended that the defendant in error could make, nor plaintiff in error take, a lease without legislative sanction. Both corporations are created by special acts of the legislature—the Camden and Atlantic Railroad Company by act of 1852, (Pamph. L., p. 263,) and the Mays Landing and Egg Harbor City Railroad Company by act of 1871. Pamph. L., p, 671.
By charter of plaintiff in error, as it originally stood, no power is given to accept this lease, but by the charter of defendant in error (section 17) it is authorized to “ lease its railroad to any other railroad company, which is hereby authorized to take such lease and operate the same for such term or time and on such terms as said parties may agree upon.” By this act both corporations are enabled, the one to make .and the other to take the lease, and the lessee is authorized to “operate” the railroad. The act of 1871 (section 17), upon the making of the lease, became part of the chartered rights and powers of the plaintiff in error to the same extent as if originally contained in its charter. The words of section 17 of the act of 1871 are: “ To lease * * * to any other railroad company,” and those words have, by this court, been held to operate as a grant of power to make and take a lease. Stewart v. Lehigh Valley Railroad Co., 9 Vroom 505.
The same language is used in the General Railroad act, (Rev., p. 930, § 105,) where, after authorizing any railroad company to lease or consolidate with another, the act provides, “ and such other company or companies are hereby authorized to take such lease,” &e.
In New York, under an act passed in 1839, (Laws of 1839, ch. 213,) which provided that “ it shall be lawful hereafter for any railroad corporation to contract with any other railroad corporation for the use of their respéctive roads, and thereafter to use the same in such manner as may be prescribed in such contracts,” it has been held that the power to make and take a lease has been conferred. Fisher v. N. Y. C. & H. R. R. R. Co., 46 N. Y. 644-653; People v. Albany and Vermont R. R. Co., 77 N. Y. 232-234.
This act, it will be seen, provides for the use by one corporation of the road of another, in the manner prescribed in the contract for such use. It does not indicate the character of the use, but as a “use” is authorized, the courts hold that a demise is a use and is therefore authorized. It necessarily results that .the power to contract for this purpose, and the method of its execution, must have passed from the.legislature to the corporations under this general law as part of their charter rights, and the exercise of the power was the only evidence requisite to show its acceptance by the corporations thus availing themselves of the legislative sanction.
It is the public policy of the State of New Jersey, in distributing its franchises, to place them within the reach of all. By general acts applicable to classes of corporations, the power of self-enfranchisement for designated purposes is open to all persons who wish to engage in any character of corporate enterprise. Since the amendment of the state constitution (art. IX., p. 11, § 7) the legislature can “pass no special act conferring corporate powers, but they shall pass general laws under which corporations may be organized and corporate powers of every nature obtained, subject, nevertheless, to repeal or alteration at the will of the legislature.”. Free trade in franchises has become the rule in New Jersey now, and for nearly forty years the legislature has asserted its control over its creatures.
Ever since 1846 all charters have been granted by the legislature and accepted by corporations upon condition that the legislature may alter, suspend or repeal them at its discretion. This condition was and is as much a part of the contract under .which this corporation was- created as if it had been incorporated in the charter. If, then, the Camden and Atlantic Railroad Company accepted its charter upon this condition, how can its acceptance or rejection of subsequent legislation, which “ alters ” . its original charter, affect the case? If the formal action of the company in accepting legislative changes is necessary to effectuate them, then the hostile action of the company in rejecting legislative alterations in its charter may defeat legislative action. If this be true, the stream has risen higher than its source—the creature is superior to the creator—the corporation, which the legislature has vitalized, and whose existence depends upon the sovereign power, not only lives by force of its own inherent vitality, but is a law unto itself, measuring its own capacity, and exercising such functions as its interest, its necessities or its rapacity may dictate. Where the legislative change is mandatory, the doctrine as I have stated it is admitted to be the rule of law in the authorities cited by the plaintiff in error. It is claimed, however, that where the legislative change is permissive only, action by the corporation is necessary to effectuate it. This is upon the principle that where an investment is made in a corporate enterprise, for a specified time and purpose, the capital thus employed cannot be diverted to another and a different purpose by legislative permission alone, but the assent of the investor, the stockholder, is necessary. Such is the doctrine of Zabriskie v. Hackensack, &c., R. R. Co., 3 C. E. Green 177, approved by this court in Black v. Delaware and Raritan Canal Co., 9 C. E. Green 456, 466.
In the case at bar, the original enterprise outlined in the charter of the plaintiff in error contemplated the construction of the leased road as a branch of the road of plaintiff in error. Pamph. L., 1852, p. 263, § 6. It was then intended by the Camden and Atlantic Railroad Company, and by its stockholders, that this leased road should be built by it in execution of its charter power. It became, by reason of its embarrassments, unable to exercise this power. Under these circumstances, plaintiff in error “ obtained a separate charter,” under which defendant in error was organized for the purpose of thus accomplishing one of the very objects for which plaintiff in error was chartered, and which, by reason of its “ financial difficulties,” it was obliged to “ abandon.” The doctrine of the cases cited in plaintiff's brief can scarcely be held applicable to this state of facts. Here, there was no diversion of capital to a purpose foreign to the original objects of the corporation, but after an exhaustion of its original investment, without the accomplishment of these objects, it procured another corporation, to be created for, and to invest new capital in, attaining these very purposes, and when they are thus reached it takes by this lease all the benefits and advantages which it had expected to reap from its original charter.
It is perfectly obvious that the provision of section 17 of defendant’s charter was intended to afford plaintiff the opportunity to utilize defendant’s capital to build this leased road, for the purpose of enabling plaintiff to lease it when built. Plaintiff’s charter powers to establish this leased road as a branch of its main line were not changed, but the method of exercising them was changed. When plaintiff exercised the power to lease, it accepted, if acceptance were necessary, the provisions of this section as a part of its own charter. It became possible, by this legislation, for plaintiff to enjoy the benefits which its main line would acquire from the ownership of this feeder which it had not the money to build. It became, by lease, the owner of the road j for such a term—nine hundred and ninety-nine years—has been held by this court to be equivalent to absolute ownership. Black v. Delaware and Raritan Canal Co., 9 C. E. Green 456. What difference can it make whether that ownership which the charter authorized was acquired by construction of the road or by a lease of it ? The practical result of this legislation was that a new corporation, defendant in error, created at the instance of plaintiff in error, loaned the money to plaintiff in error to build this leased road. This loan plaintiff in error took and expended it on this leased road, which by the lease it added to the assets which it owned. The investment they made is not so profitable as it was expected to have been, and plaintiff in error does not want to pay its debt simply because it has not made as much money from its investment as it had hoped for.
If any acceptance or action by plaintiff in error were necessary to make the provisions'of section 17 of defendant’s charter •a part of its own, the act of leasing the road was enough. How could it exercise a power derived only from and conferred ■upon it by this section, and at the same time deny that it possessed the power thus conferred and exercised ?
The claim that the action of the shareholders, as such, is the only evidence of the acceptance of this legislation as part of fhe charter which the law recognizes, is not, I think, well founded. I think it will be seen, and is hereafter clearly shown, that the directors of plaintiff in error were the only agencies by which it could act. They derive their power from the charter. The stockholders, as to the matters committed to the directors, are impotent. Pamph. L. 1852, p. 263, §§ 5, 6. The charter not only confers on the directors the power to “ transact all business of the corporation,” (section 5,) but invests the president and directors-with “ all rights and powers necessary and expedient to survey, lay out and construct a railroad.” Section 6. Dayton and Cincinnati R. R. Co. v. Hatch, 1 Disn. 84.
II. The power of the two corporations being then settled, the only question to be considered is as to the method of exercising that power. Plaintiff in error claims that the lease is void because not primarily authorized by the “company,” i. e., the stockholders. If this were true it would avoid nothing.
1. Because the contract has been performed. Whitney Arms Co. v. Barlow, 63 N. Y. 62; Moraw. on Corp., §§ 31, 86, 100; Pierce on Railw., pp. 516, 517, and notes ; Ward v. Johnson, 95 Ill. 215; Darst v. Gate, 83 Ill. 137; Field on Corp. (Wood’s ed.), §§ 231—236 ; 6 Am. Corp. Cas. (Binmore) 462-467, and notes.
2. Because the company (lessee) has estopped itself, before the lease and by its agreement with the lessor, recited in the lease, from denying the validity of the lease; and since the lease, it has, by taking possession of the demised premises, by using them as part of its line of railroad, by reporting to its stockholders from year to year, and every year, the receipts from and expenditures on the demised railroad, the lessee company has in every way assented to and acquiesced in this lease. Taylor on Corp., § 270; Pierce on Railw., pp. 518, 519; Moraw. on Corp., §§ 46, 47, 48, 71, 78, 79, 80, 81, 82.
A corporation that knowingly receives the fruits of an excessive exercise of authority of its agent is held to have-ratified the act. Mining Co. v. King, 45 Ga. 34; 4 Am. Corp. Cas. 344.
After seven years’ acquiescence in the lease, something more-must be shown than that it was executed in excess of the.power of the directors. Pneumatic Gas Co. v. Berry, 113 U. S., 322, 327.
The complaint on this point is not that the company was without power to enter into the contract of lease, but that the-proper agencies to bind the company were not used. Such a position as this is not favored by the law and finds no support in settled legal principles. Green’s Brice’s Ultra Vires 515, 516, note a; Conn. Mutual Life Ins. Co. v. Cleveland R. R. Co., 41 Barb. 8.
But it is not true that the lease was not primarily authorized by the “company,” i. e., the stockholders. The lease was originally the act of the lessee company, plaintiff in error.
No corporation conducting the business of carrying freight and passengers by rail can act, except through and by its agents and servants. Principal among such agencies, and controlling all others, are the directors or managers of the-corporation. Moraw. on Corp., § 36.
It is the common law of corporations that the administration of their affairs, except where expressly provided otherwise, is committed to a board of directors. Green’s Brice’s Ultra Vires (2d ed.), ch. 4, p. 467, and notes.
The acts of directors as agents, within the scope of ordinary powers, bind the corporation. Moraw. on Corp., §§ 65, 71.
“The president and directors,” says Chief Justice Marshall, in U. S. Bank v. Dandridge, 12 Wheat. 113, “ are constituted agents of the corporation and not of the stockholders, and derive all their authority from the charter.”
It is the universal rule that the directors are agents of the •corporation, although trustees for the stockholders. Thomp. on Corp. Off., pp. 351, 352.
But in this case, the charter of the plaintiff in error speaks in no uncertain terms. The directors are expressly authorized (Pamph. L., 1852, p. 263, § 5) “to transact all business of said corporation.” They alone, by the provisions of this charter, are authorized to make the by-laws, which, subject to the charter, are to control the action of the company. And it is to the president and directors that the legislature has committed the power “to survey, lay out and construct” the railroad. Section 6.
Here, then, is a case where the corporation acts directly through an agency designated by its charter. And this agency, I submit, was exclusive of all others.
In Conro v. Port Henry Iron Co., 12 Barb. 63, the Supreme Court of New York say: “It is quite obvious from the charter that the company could do no act except through its board of directors. When the charter prescribes the mode of action, its injunctions must be rigidly pursued. * * * Every ■corporation created by statute must act as the statute prescribes, and the common law cannot control by implication that which the legislature has expressly sustained. The .stockholders in this case had no power to make a lease or do any other administrative act in the management of the affairs •of the corporation. If a lease could be made at all, it could be executed only in pursuance of the act of the directors, who are the body appointed by the charter for the management of its affairs.”
The language here used by the New York court is identical with that used by Mr. Justice Story, in Fleckner v. U. S. Bank, 8 Wheat. 357, 358. In that case, it was objected that a corporation could evidence its action only by its corporate seal. Judge Story says: “Whatever may be the original •correctness of this doctrine, as applied to corporations existing by the common law, in respect even to which it has certainly been broken in upon in modern times, it has no application to corporations created by statute whose charters contemplate the business of the corporation to be transacted exclusively by a special body or board of directors, and the acts of such body or board, evidenced by a written vote, are as completely binding upon the corporation, and as complete authority to their agents, as the most solemn acts done under the corporate seal; * * * and in the case of Bank of Columbia v. Patterson, 7 Cranch, 299, Mechanics’ Bank of Alexandria v. Bank of Columbia, 5 Wheat. 326, principles were established which settle the point that the corporation may be bound by contracts * * * made in the ordinary discharge of official duty of its agents and officers.” See, also, Green’s Brice’s Ultra Vires, p. 463, and cases cited.
The powers of directors, exercised within the powers conferred by the charter on the corporation, to act for and bind the corporation, are sustained and illustrated in the following-cases in addition to those cited by Mr. Green, in his note-above referred to: Middlebury v. Rutland R. R. Co., 30 Vt. 425; Hoyt v. Thompson, 19 N. Y. 207; Augusta Bank v. Hamblet, 35 Me. 491; Bank of Middlebury v. Edgerton, 30 Vt. 182; Whitehall v. Warner, 20 Vt. 405; Protection Life Ins. Co. v. Foote, 79 Ill. 361; Union Ins. Co. v. Keyser, 32 N. H. 313; Hodder v. Kentucky and Great Eastern Railway Co., 7 Fed. Rep. 793.
The doctrine of the law, as illustrated by these cases, is that where the legislature has, as here, designated the method for-the exercise of corporate power, that method so designated is the only one by which the power conferred can be exercised.
The board of directors of plaintiff in error being the agency prescribed by its charter for the transaction of * all business,”' it is the only channel through and by which the corporation could act. Having acted through this agency, the company has acted, and its power to make this lease has been fully and lawfully exercised.
It is by no means certain, but, on the contrary, strongly probable, that when this lease was made it was the act of holders of the majority of all the shares. The board then contained those who owned the road.
The plaintiff in error assigns error on the admission of illegal and rejection of legal evidence. Only few exceptions were taken to evidence. I do not think it necessary to discuss any of them. The case seems to me too clear to be clouded by any such questions as those exceptions suggest.
It may be proper to refer to an authority covering the exception.
Thomas v. Horse Railway Co., 104 Ill. 462, supports the court’s ruling on this point. And see, also, Kenton Furnace Co. v. McAlpin, 5 Fed. Rep. 737-748.
I submit that the judgment of the Supreme Court should be affirmed.
For the plaintiff in error, in reply, Wayne MaoVeagh, of Pennsylvania.
Upon the facts of record the claim of the defendant in error is without merit.
The effort of the defendant in error is to make the plaintiff in error pay the alleged rental value of railroad property after it has been surrendered to the owner upon due notice, and abandoned, and after the valuation for use during a previous occupancy has been fully paid up to the date of surrender.
In the court below permitting the plaintiff to recover as for a valid claim, this attempt at extortion, we may confess, was given some dignity. But it is submitted with deference that a careful consideration of the case will show palpable error in the action of that tribunal. To the two central propositions advanced by the plaintiff in error that the so-called lease was ultra vires, or if not actually ultra vires, was improperly executed so as not to bind the company, defendant in error makes several replies.
1. That the lease, although unauthorized by the charter of the plaintiff in error, is to be upheld on the authority of a clause in the charter of the defendant in error permitting any company to take the lease and operate the road.
2. That if the lease is actually ultra vires or is not properly executed, it must still be recognized as valid, “because the contract has been performed.”
3. That the plaintiff in error is estopped by its conduct from asserting the invalidity of the lease.
4. That if the taking of the lease was not ultra vires, the the action of the directors, without formal action of the stockholders, was sufficient to effect a valid assumption of it.
1. The singular proposition upon which the defendant in error relies is that the chartered rights and powers of one railroad company are to be determined by an inspection of the act of incorporation of another, and that a general permission to railroad companies to accept a lease from this particular company establishes the validity of a particular lease, regardless of the methods of assuming the obligations of the lease or of the rights of the stockholders of the company undertaking the lease.
This view eludes a consideration of the dual theory upon which charters are based. A charter establishes not only a power, but also a right—a power to act under the franchise, and a right to protection in the exercise of the franchise.
"When a legislature assumes to modify, extend or amend the charter of a company, in the exercise of its right under general laws in force at the time of the charter, it may do so by enacting a compulsory or a permissive enlargement of the corporation powers. But when by a permissive clause contained, not in an avowed amendment to the charter, nor in a general corporation law, but in the charter of another company, it declares it to be legally possible for any corporation to take a lease of the other line, such enlarged power is perfected only when it has been formally accepted by the stockholders of the company seeking to avail itself of the permissive enactment. This is so because the charter of the company, as originally constituted, establishes rights as well as declares powers— "rights of stockholders inter sese, and as related to the general enterprise in which they invested their money, no less than powers which concern the corporation as a whole.
The selection by the legislature of a permissive instead of a compulsory form of enactment, shows that it has not exercised its right to extend the corporation powers, but has left it to the corporation, by a formal acceptance of the act, to co-operate with it in enlarging those powers. The powers are not enlarged, therefore, until some action of the stockholders in cooperation with the legislature has been had. And their rights and the rights of the company under the original contract of incorporation remain and are to be respected, so long as the legislature, by withholding its compulsory arm, maintains to the corporation the protection of the rule of inviolability of contracts as asserted in the Dartmouth College case. Indeed, in this state especially, it is not disputed that some action of the stockholders is necessary to alter a charter where the legislature passes a permissive act, the general inquiry being rather, whether it is necessary for all the stockholders or only a majority to join.
“ Permissive alterations are such as allow, but do not require, the corporation to alter or modify its business. * * * ■Such alterations require acceptance, and the question arises whether they may be accepted by a majority of the stockholders against the will of a minority.” Green’s Brice’s Ultra Vires 98, and cases cited; Zabriskie v. Hackensack and New York R. R. Co., 3 C. E. Green, 178.
Counsel for the defendant in error, apparently conceding this position, endeavors to show that when the line which the directors of the plaintiff' in error have undertaken to lease, happens to coincide in its direction and termini with a branch line which it would have been possible for the latter, under their charter, to have constructed for themselves, an acceptance by stockholders of the permissive legislative act is unnecessary to render the lease intra vires. The argument relied on for this is that the building of such a branch line was in contemplation at the time of the organization of the company, and the acquisition of the branch by lease was therefore no diversion of capital to a purpose foreign to the original objects of the corporation. The answer to this is obvious. It is just as essentially a diversion of capital to direct it into a contem plated channel in a manner or in amounts different from that for which there is charter authority, as if the geographical locus of the investment were other than that allowed by charter. The original stockholders of the Camden and Atlantic Railroad Company accepted a charter from the state, which permitted them to construct a branch line from Mays Landing to Egg Harbor City, but which did not permit them to take a lease of such a line. This the defendant in error concedes.
Unless “to construct” is to be interpreted as including in its meaning “to take a lease of,” the investment of capital in this lease must.be held to have been a diversion.
The stockholders may very well have been willing to build for themselves and to have invested their money in construction, and yet not to have contemplated with favor the acceptance of a lease with its enforced burdens. Non constat that as good a road could have been leased, or could have been leased as cheaply, as one could have been built by the stockholders themselves. It would seem to be useless to show that.the leasing of the road was a diversion of capital, when counsel for the defendant in error acknowledges that by the original charter the capital was to be used only for certain purposes, among which wTas not the leasing of this road. The very fact that, for counsel to make out a plausible argument, it is necessary for him to rest upon the permissive powers granted to the plaintiff in error by a subsequent legislative enactment which means nothing to the present purpose, unless it is an amendment to the original charter, would itself show that there must have been some action of the stockholders in acceptance of the legislation before the power to take a lease under it was mira vires as to them. The law permitting the amendment was, in fact, a.law offering them a new charter. If it was necessary for the stockholders to act in obtaining the charter in the first place, surely it was likewise necessary for them to express their assent before the burdensome obligations of a radically amended charter could be foisted upon them.
The argument in the brief of the defendant in error, that the power to accept the amendatory legislation was, by the charter, given to the directors only, is of little force. Granting for the present, for the sake of the argument, that the powers given to the directors by the original charter, “to transact all business of the corporation,” extended beyond the ordinary business of organizing and administering the affairs of the railroad company, no ingenuity in the interpretation of language can extend the effect of this phraseology to the granting of an authority to them to accept a vital amendment to the charter. The power “ to transact all business ” can mean no more than the power to transact all business contemplated by the stockholders when they accepted the original charter.' If the charter itself failed to contain a provision for the leasing of other roads, and in no way provided for a change in the internal law of the company by which such a lease could be effected without initial external legislation leading up to it, until acceptance of amendatory legislation by the stockholders is made, the phrase “ all business of the company ” is to be confined to the business allowed, because contemplated, by the stockholders when they accepted the original charter. To permit a board of directors, elected for the transaction of the business of a corporation with one set of powers, to accept an amendment by which a corporation with another set of powers is created, is to permit them to accept away the very property of the stockholders, which no court of justice will permit.
2. The objection that the contract of lease has been executed, and that therefore the defences of ultra vires and of improper execution will not avail, is answered by the facts. So far as the contract is executed there is no controversy between the parties, all amounts due for rents accruing during actual use of the property up to February, 1882, having either been paid to the defendant in error or paid into court for its use. The actual controversy is over the unexecuted portion of it, namely, for the payment of money alleged to be due after surrender of the property by the plaintiff in error. The language of Mr. Justice Miller, in Thomas v. Railroad Co., 101 U. S. 86, a case very similar in its facts to our own, may be quoted with little-modification'in the present connection: “What is sought in the case before us is the enforcement of the unexecuted part of this agreement. So far as it has been executed, namely, the four'or five years of action under it, the accounts have been adjusted, and each party has received what he was entitled to by its terms. There remains unperformed the covenant to arbitrate with regard to the value of the contract. [In our case there remains unperformed the payment of rent since the surrender of the property to the- owner.] It is the damages provided for in that clause of the contract that are sued for in this action. Damages for a material part of the contract never performed, damages for the value of a contract which was void. It is not a case of a contract fully executed. The very nature of the suit is to recover damages for its nonperformance. As to this, it is not an executed contract.”
3. The objection that the plaintiff in error is estopped by its actions from refusing to be bound by this protracted lease is likewise untenable.
If the taking of the lease was ultra vires, the doctrine of estoppel has no application. It is a rule of law that no corporate power exists except such as is conferred by the charter. If a corporation, by the performance of acts ultra vires, can estop itself from asserting their invalidity, it can make itself practically omnipotent and independent of charter restrictions, by simply acting and inducing others to change their positions or waive rights in consequence thereof. Such a doctrine, as was said in Wheeler v. Essex Public Road Board, 10 Vroom 291, would obliterate almost entirely the salutary principle that an act which is beyond the corporate competency is, for all purposes, null. See Green’s Brice’s Ultra Vires 729, notes.
Even if the taking of the lease was not ultra vires, it is submitted that from the facts of the case, no estoppel can be invoked to prevent the company from refusing to be further bound by the excessive exercise of authority by the directors.
An estoppel in pais occurs when a party to an action has, by his act or declaration, induced the other party to do or omit to do some act or acts which otherwise would have been done or omitted, and by means of which he has been injured. Reynolds v. Garner, 66 Barb. 310.
Where the parties can be, and are, put back in the situation in which they were when they made the contract, and all demands and liabilities accruing during the executed period of the contract have been adjusted, it is difficult to see on what principle one of them is to be denied the right to defend his liability for the subsequent rent of a property which the other party has received back. There is no injury of which the defendant in error may complain for which it is not compensated in the return of its property. Until it shows that it has been prejudiced, as by the loss of earnings or by the failure to effect a valuable lease to another road, or the like, through the undertaking of the directors of the plaintiff in error, it should not be permitted to avail itself of a principle of law which exists only for those who have suffered substantial wrong from the acts or representations of others.
4. The words of the charter of the company, in which counsel finds authority in the directors to negotiate and execute this lease, scarcely sustain his position.
“ The power to change fundamentally the character ór extent of a corporation is not contained in the power vested in the board of directors to manage the business or affairs of the company.” Green’s Brice’s Ultra Vires 469.
The judicial utterances apparently favoring his view, which the industry of the learned counsel has enabled him to collate, are shorn of much of their force when separated from the facts of the cases to which they wrere meant to apply.
It is believed that the principle which they declare will be found to go no farther than that the directors of a corporation are entitled to exercise the powers plainly granted to them in the charter; but that no generality of language used in the charter, and referring to the detail management of the affairs of the company, can be magnified into an authority in them absolutely to control, to dispose of, and, by extending, to destroy the value of the franchise in which the stockholders who constitute the company have invested their money.
But the ultra vires character of all the transactions of the directors of this company as to this lease must not be lost sight of in pursuing inquiries as to their power within intra vires bounds.
Confessedly, there was no formal acceptance, by stockholders, of legislation permitting the taking of this lease. Confessedly, there was no such acceptance by the directors themselves. The attempt to establish an acceptance, by the act of the directors in proceeding to effect the lease, falls before the view that the directors were neither the company nor the majority of the stockholders of the company. The similar effort to have an acceptance inferred from the silence of the stockholders during several years likewise becomes abortive when it appears that the stockholders, as soon as they were informed of the so-called lease, took steps to have it' repudiated. If their alleged “ acquiescence ” during the period of actual use of the property by the plaintiff in error be of avail to either of the parties to this suit, it cannot make valid the lease if it was originally ultra vires for want of an acceptance of the' act which permitted it. It cannot relieve the plaintiff in error of its duty to withdraw from the lease when discovered to be ultra vires. It cannot give a right of action under the lease for sums accruing after repudiation of the lease and after the property was surrendered and abandoned. Such is the ruling of the court of highest resort in this country, and such we assert to be the law. In the language of Mr. Justice Miller, in Thomas v. Railroad Co., supra, “ having entered into the agreement, it was the duty of the company to rescind or abandon it at the earliest moment. * * * Though they delayed its performance for several years, it was nevertheless a rightful act when it was done. Can this performance of a legal duty, a duty both to the stockholders of the company and to the public, give to plaintiffs a right of action ? Can they found such a right on an agreement void for want of corporate authority and forbidden by the policy of the law ? To hold that they can is, in our opinion, to hold that any act performed in executing a void contract makes all its parts valid, and that the more that is done under a contract forbidden by law, the stronger is the claim to its enforcement by the ■courts.”
It must not be forgotten, too, that this defendant in error has received every dollar of rent due it in equity for use of its property up to the time of abandonment. To permit it by judicial finding to recover both the property, which has been surrendered, and the half-yearly value of the property after surrender, is to. legalize extortion, and is to make this high ■court of justice an instrument of injustice.

Opinion:
Van Syckel, J.
This was an action of debt brought in the Supreme Court, to recover the rent alleged to be due from February, 1881, to June 1st, 1882, on a lease of its road executed in 1873 by the defendant in error to the plaintiff in error, for the term of nine hundred and ninety-nine years. The Mays Landing and Egg Harbor road was built under a •charter obtained in 1871, and since its completion in 1872 it has been in the possession of the Camden and Atlantic Company as lessee, until February, 1881, at which time the latter company ceased to operate it, and refused to recognize the validity of the lease.
The defence to the action is rested upon the want of power in the lessee company to execute the lease.
The Camden and Atlantic Railroad was completed from Camden to Atlantic City in the early part of 1862, under a charter granted in 1852. This road I will hereafter, for brevity, style the main line, and the Mays Landing and Egg Harbor road, the branch road.
The branch road rests its own authority to make a lease, .and the authority of the main line to accept a lease, upon the .seventeenth section of the charter of the.branch, which provides that the said branch road is authorized to lease its railroad to, or consolidate with, any other railroad company, which is thereby authorized to take such lease and operate the same for such time or times, and on such terms, as the said parties may- agree upon. This language is unquestionably broad enough to confer upon both companies the power requisite to enter into a valid contract for a lease, and no doubt could arise in this case if the powers of one railroad company can be amplified by provisions in the charter of another.
The title of the act incorporating the branch road is: "An act to incorporate the Mays Landing and Egg Harbor City Eailroad Company." Under that clause of our state constitution which provides that "to avoid improper influences which may result in intermixing in one and the same act such things as have no proper relation to each other, every law shall embrace but one object, and that shall be expressed in the title," can the seventeenth section of the branch road charter be upheld so far as it purports to confer additional franchises upon other railroads ? It seems to me to be very clear that this question must be answered in the negative.
This charter manifestly embraces two distinct objects: it confers power upon the branch road to construct its line and to lease it, and attempts to enlarge the authority of all other railroad corporations by permitting them to accept a lease. There is no indication in the title that such legislation was contemplated. The constitutional restraint could not be invoked for a more salutary purpose than to suppress a scheme to amplify corporate powers in a way which effectually conceals the intention to do so. Jersey City v. Elmendorf, 18 Vroom 283.
So far as the grant of authority to the main line is concerned, the seventeenth section is unconstitutional. The necessary power to the main line, if it exists, must be sought for in its own charter.
The Camden and Atlantic road had authority, under its charter, to build the branch road from Mays,Landing to Egg Harbor City, but, as before stated, did not exercise that right, the branch road having been constructed under a charter subsequently granted in 1871.
In Branch v. Jessup, 106 U. S. 468, Mr. Justice Bradley held that the power granted to a railroad company to construct a particular line of railroad carried with it by implication the right to purchase such line of railroad subsequently built by another corporation. The doctrine, I think, is sound, and the right to lease for nine hundred and ninety-nine years would co-exist with the right to purchase. This would establish the power of the main line to enter into the lease if the right to construct the branch had survived until the lease was executed. But by reference to the seventeenth section of the charter of the main line, (Pamph. L. 1852, p. 271,) it will be observed that its power in this respect expired by limitation on the 1st day of August, 1862. The section reads as follows : " That if the said railroad shall not be completed and in use at the expiration of ten years from the 1st day of August next ensuing, that then and in that case this act shall be void." .
Under the rules which apply to the construction of legislative grants of power, the only interpretation which this language will reasonably bear is that the authority derived through the charter must be exercised within ten years from August 1st, 1852, and that such portion of the road as should not then be constructed could not thereafter be built under the granted authority.
In Morris and Essex R. R. Co. v. Central R. R. Co., 2 Vroom, 205, it was expressly adjudged that the power of a corporation to take the land of an individual is determined by the expiration of the term limited for its exercise, after which the right of eminent domain derived from its charter no longer exists in the company.
The branch road was not constructed until the year 1871, nine years after the expiration of the time limited to the main line for the enjoyment and exercise of its granted powers. At that time the main line, having no longer the right of eminent domain, was without the power to build the branch road, and consequently in the loss of that authority is involved the deprivation of all. power which would flow from it. It must therefore be conceded that the execution of the lease on the part of the Camden and Atlantic road was ultra vires.
The rule is well settled, both in England and in this country, that an executory contract, ultra vires, cannot be validated by the acquiescence of every stockholder of the company. It is also generally conceded that an ultra vires contract fully executed cannot be receded from. Field on Corp., § 263, 264; Green's Brice's Ultra Vires 371, 372, 373; 1 Wood on Railroads, § 171, 172, 173; Thomas v. Railroad Co., 101 U. S. 71.
The courts have differed upon the question whether the plea of ultra vires is available by a corporation in an action brought against it for not performing its side of the contract, where the transaction is complete, and nothing remains to be done by the party seeking relief.
Ashbury Railway Co. v. Riche, 7 H. of L. 653, is the leading English case.
The company, by its directors, entered into an agreement with Riche to give him the construction of a railway from Antwerp to Tournay. After Riche had entered upon the work, and executed it in part, the company repudiated the contract as one ultra vires.
Riche then brought an action to recover damages for breach of contract.
The case was referred to a barrister to state a special case, and the question of ultra vires was that on which the decision was to depend. ' The court was to be at liberty to draw inferences of fact. In the Court of Exchequer two of the three judges were of opinion that the plaintiff should have judgment, and when the case came before the Exchequer Chamber it was heard before six judges, who, being equally divided in opinion, the judgment was affirmed. On appeal to the house of lords, the judgment was reversed, pronouncing the contract ultra vires, and declaring that it was without the power of the shareholders to validate it by their acquiescence. Mr. Justice Folger, in 78 N. Y. 187, distinguishes the English case on the ground that the contract with Riche was prohibited by an act of parliament. Although the court did not rest its decision on that ground, Lord Chelmsford adverted to that fact to distinguish the cases of Spachman v. Evans and Evans v. Smallcomb, where the act of the directors was not prohibited by statute, but was merely not warranted by the deed of •settlement of the company. In affirming the judgment now under review it is not necessary to dissent from the conclusion reached in this case. The agreement with Eiche was not fully executed on either side, and it was one in which payment to him of the money he had expended in behalf of the company under the agreement, would have done complete justice. The suit being for damages for breach of the contract, would have embraced profits which might have resulted from its execution. If the suit had been maintained it would have given the plaintiff a measure of relief greater than was necessary to restore him to the status he occupied before the contract was made.
In Parish v. Wheeler, 22 N. Y 494, Chief Justice Com-stock, in delivering the opinion of the court, said that a corporation cannot defend itself against a claim for money paid at its request to one who advanced the price of a steamboat purchased for it, on the ground that the purchase was ultra vires, although the plaintiff, when he paid the money, knew .all the facts. He declared that corporations, like individuals, in dealing with other parties, must live up to the rules of common honesty.
In the previous case of Bissell v. Michigan Southern R. R. Co., 22 N. Y. 258, the same learned judge expressed the view that where a corporation has received the consideration of its unauthorized contract, and restitution will not do complete justice, the other party may sue directly on the contract.
He said that the plea of ultra vires, according to its just .meaning, imports, not that the corporation could not make the unauthorized contract, but that it ought not to have been made. Such a defence therefore rests upon the violation of trust or duty towards the shareholders, and is not entertained where its allowance will do a greater wrong to innocent third parties. The acquiescence of the shareholders in the abuse will prevent the interposition of such a plea. This case was decided without an expression of opinion by a majority of the court on this point, but in the later case of Kent v. Quick silver Mining Co., 78 N. Y. 159, Judge Folger delivered the opinion, in which the entire court concurred, giving the fullest approval to the views of Chief Justice Comstock, in the cases cited. The case was one in which the directors had done an act which the company had no power to do, and in which there was not full execution on both sides. It was not of that class of cases where an authorized act was executed in an' unauthorized manner. The transaction was clearly ultra vires, and in that aspect it was dealt with by the court. The English and American cases were cited, and the cause was ably and elaborately argued.
The propositions maintained by the court were that acts of a corporation, which are not, per se, illegal, or malum prohibitum, or contrary to public policy, but which are ultra vires, affecting only the interests of stockholders, may be made good by the assent of shareholders, so that strangers to them, dealing in good faith with the corporation, will be protected in reliance on those acts.
That it needed not that there be an express assent upon the-part of shareholders to work an equitable estoppel upon them. "When they neglect to promptly and actively condemn the unauthorized act, and to seek judicial relief after knowledge of' it, their acquiescence will be presumed.
That when the public is concerned to restrain a corporation within the- limit of the power given to it by its charter, an assent of the stockholders to the use of unauthorized power will be of no avail.
In Whitney Arms Co. v. Barlow, 63 N. Y 62, the Court of Appeals of New York enforced the ultra vires contract against the other party where it had been performed on the part of the corporation. In addition to the estoppel, which in that case applied to the person dealing with the company, it is true that none of his rights were infringed by the fact that the transaction was ultra vires the company, and he could not, for that reason also, interpose that defence. But where shareholders are chargeable with consenting to an undertaking which they have permitted to be executed, they waive their pre-existing rights, which would be affected by the unauthorized act, and became equally subject to the estoppel.
Chief Justice Ruger, in Woodruff v. Erie Railway Co., 93 N. Y. 609, in an opinion from which there was no dissent, gave his full approval to the previous cases, and held that under an ultra vires lease the lessee is estopped from questioning its validity in an action to recover the stipulated rent.
In Bradley v. Ballard, 55 Ill. 413, Chief Justice Lawrence said that when the contract is executed the doctrine of estoppel is applied for the purpose of compelling corporations to be honest, in the simplest and commonest sense of honesty, and •after whatever mischief may belong to the performance of the ultra vires act has been accomplished. The case was one in which money was borrowed and notes given by a corporation, to enable it to prosecute a business which the lender knew it had no right to undertake.
In Terry v. Eagle Look Co., 47 Conn. 141, the Eagle Lock 'Company entered into an unauthorized agreement with another company to purchase its stock and run it as a separate company. The Connecticut court held that after the contract had been executed and the defendant company had been permitted for five years to transact business under the arrangement, it would not be interfered with.
In McCutcheon v. Steamboat Co., 13 Penna. 13, a foreign corporation had taken a lease of real estate without authority in its charter, and in an action for the rent, the court enforced the contract.
In Darst v. Gale, 83 Ill. 137, the Peoria Marine and Eire Insurance Company executed a deed of trust to secure payment of certain bonds upon which the company had received the ¡money. The bill was filed to enjoin the trustee from selling the premises, and to declare the deed of trust void. The court refused to allow the plea of ultra vires to prevail, on the ground that a private corporation cannot be heard in such a defence where the contract has been performed by the other party and the corporation has had the benefit of the contract and the performance. The language of Chief Justice Law rence in Bradley v. Ballard was cited with approbation: "That-it would be pressing the doctrine of ultra vires to an extent that can never be tolerated, even though the lender knew that the corporation was transacting a business beyond its corporate powers, provided the business itself was free from any intrinsic immorality or illegality."
These views were re-affirmed in Ward v. Johnson, 95 Ill. 215, and in Peoria Road v. Thompson, 103 Ill. 187.
Id Amerman v. Niles, 9 C. E. Green 13, the Chancellor refused to entertain the defence of ultra vires to a mortgage executed by a corporation to secure a debt to the defendants.
Thomas v. Railroad Co., 101 U. S. 71, is relied upon by the plaintiff in error. In that case the lease was held to be-ultra vires, and therefore void.
Mr. Justice Miller, for the court, referred to the English cases, and said that although the American cases were conflicting, the preponderance of authority was that an extra virescontract, but partly executed, could not be enforced. He, however, held .the lease there to be contrary to public policy, for the reason that the lessor company had no power to make-the lease, and that thereby it disabled itself to perform the duties which it had undertaken in accepting its charter from the state, and he therefore treated the contract as one forbidden by the law. He did not question that the lessee would be-liable for the rental for the period during which it had enjoyed the term.
It is to be observed in this case that by the surrender of the lease the lessor was left in his former position, and the rental being paid, no apparent injustice was done.
In the case of the Mutual Life and Fire Insurance Co. v. McKelway, 1 Beas. 133, the defendant was unsuccessful in his attempt to recede from his contract, but it was not a 'suit by one ' of the parties to the unauthorized contract to enforce it against the other. The proceeding was instituted in behalf of corporators as to whom, the learned jurist who decided the case was careful to observe, that it did not appear that they insured upon the faith of the ultra vires contract, or that they became corporators after the contract was entered into, or in' consequence of it.
In the conflict of judicial decision on this subject, this court may adopt and should adopt the rule which will produce the best results in the administration of justice. In my judgment the true rule is that when the transaction is complete, and the party seeking relief has performed on his part, the plea of ultra vires by the corporation which has acquiesced in it, is inadmissible in an action brought against it for not performing its side of the contract, in all those instances where the party who has performed cannot, upon rescission, be restored to his former status.
In the cases maintaining the contrary doctrine the reasoning of the courts has been:
1. That corporators might, by ratifying corporate acts by their acquiescence, indefinitely extend and amplify their granted powers.
2. That consent on the part of those who do an act which they have no power to do cannot make it legal.
3. That to hold that an act performed in executing a void contract makes all its parts valid, is to say that the more that is done under an unauthorized contract, the stronger is the claim to its enforcement by the courts.
To the first objection a sufficient answer is that the state may interpose its authority at any time and compel an abandonment of the act in excess of power, and, if need be, revoke the charter of the company for its usurpation.
When the state challenges the legality of the transaction, the paramount and only question is whether it has bestowed upon the company the requisite authority to engage in it.' When the question arises between the company and the other party to the contract, other legal principles apply in determining whether the contract shall be observed. It will be admitted that where there is an absence of authority on the part of a corporation to do an act, the requisite power cannot be imported into the transaction, either by the consent of stockholders or by the execution of the contract by the other party to the agreement. The contract must necessarily continue to be ultra vires. No such effect has been attributed in any of the cases to acquiescence or unilateral performance. The basis upon which the enforcement of the contract in such cases rests is that the company is estopped from setting up its own unauthorized act, and its own incapacity, to evade performance on its part, after receiving the fruits of the bargain. The power of the company is not amplified, the agreement is none the more legal, in the sense that there was authority to execute it; the court simply refuses to entertain the defence, which common honesty forbids the company to make. A man may become bound by the act of an unauthorized agent, and be held liable to the contract made for him, not on the ground that the agent in fact had any authority, but for some conduct on the part of the alleged principal which precludes him from raising the question of authority.
No reason is perceived why the rules of fair dealing, which are so rigorously applied to natural persons, shall not pertain as strictly to private corporations. No instance is known where a natural person can set up in his own behalf, and for his own advantage, his want of authority to do an act for which he has received the consideration from the other party. Transactions which are immoral, illegal, forbidden by statute, or contrary to public policy, are not embraced in this discussion ; they cannot furnish the basis for a legal cause of action.
Why is it that extra vires contracts are recognized as unassailable, and are permitted to stand as the foundation of rights acquired under them, after they have been executed on both sides ?. Such execution imparts no additional power to the corporate body. It does not transmute the negative into the positive. The absence of power is as apparent after as before performance. Why is it that corporations are compelled to pay money borrowed in excess of authority, and to pay the stipulated rent for premises unlawfully leased, for the period of occupation ?
The law does not imply a contract to pay the bondholders the money thus received. It is illogical to say that the law will imply a contract by the company which it has no power to make for itself. A contract cannot be implied where an express contract cannot be made. The law recognizes the obligation ; it precludes or estops the attempt to evade it. Apply to it what legal phrase you may, the underlying principle is that the corporation cannot set up its own infirmity when it is unconscionable to do so. The law forbids the defence on account of the flagrant injustice which would otherwise be done. The question of corporate power is not entertained.
To enable recompense to be had to this extent, the contracts are respected, not that they rest in authority, but because good conscience requires it.
How then can recognition of the estoppel be denied where the contract has been executed on the one side, and the party performing cannot, upon rescission, be restored to his former 4status?
"Why should the corporate body be permitted to plead its own wrongful act, and set up its own infirmity as a bar to the recovery by the other party of what it should in right and justice be accorded ?
It is true that a person cannot, by his own act, acquire a right against another; the other must, in some way, bind himself. The acquiescence in the contract, in virtue of which the other party performs, and the acceptance of its benefits, constitute the binding acts, and raise the estoppel. I am unable to see how, upon a just conception of the legal principles involved, a different rule can be applied where the corporation has acquiesced in the contract, and the other party, by performance on his part, has been led into a position from which he cannot be extricated.
Misconception arises from failing to distinguish between those rights which parties acquire as between themselves, and the rule by which corporate authority must be measured and limited when the state interposes to assert its prerogative.
Nor does the liability of the company rest upon the doctrine of ratification.
In its ordinary legal acceptation ratification applies to such. contracts as a party lias authority to make. Bepeated affirmations of a contract by one who has no authority to enter into it, cannot supply the requisite authority.
But acquiescence in it, upon which the other party acts, may, and does, upon settled legal principles, preclude the parties from starting the question of power as between themselves. There is, in fact, a subsisting contract, actually executed in due and legal form, which, under the rule stated, is unimpeachable, except at the instance of the state. It is thus, in legal contemplation, impressed with the vigor and incidents of a valid contract as between the parties, and there is no-difficulty in enforcing it in a suit at law.
It is like the case of one who makes, in legal form, a conveyance of real estate which he has no power to convey, and not like the case where the true owner fails to do some act which- may operate as an equitable estoppel to his setting up his title against the person who has been misled by his conduct. In the former case the grantee could maintain an action at law against the grantor to recover possession of the premises granted. In the latter case the relief must be sought in a court of equity.
But whether the rule which I have formulated shall be applied to this case or not, the judgment below should, in my opinion, be affirmed, upon the ground that the lease in this case must be regarded as substantially a contract as fully executed on both sides as those unauthorized contracts in which money-has been loaned to or work done for a corporation, for which it has issued its bonds to the creditor.
The agreement was entered into November 3d, 1871, between the Camden and Atlantic Bailroad Company, and the Mays Landing and Egg Harbor City Bailroad Company, in and by which it was agreed that if the latter company would construct the branch road in a specified manner, on or before the 1st day of July, 1872, the former company would guarantee the bonds of the latter company to the amount of $37,500, to be used in the construction of the said road, and take a lease for the same, when completed, for nine hundred and ninety-nine years at a specified rental.
In pursuance of this agreement the bonds were issued by the branch road, and guaranteed by the main line. The road was built under the direction of the main line, and the lease executed.
Every term of this agreement on both sides has been fulfilled, and the agreement, in all respects, substantially executed.
The annual report of the directors of the main line to the stockholders for the year ending December 31st, 1871, recited the terms of this agreement in detail.
' Annually thereafter, until 1879, the existence of the lease, and the income and disbursements incident to the operation of the branch were duly reported to the stockholders of the main line, during all which time no attempt was made to avoid the lease.
We must impute to the stockholders of the main line utter neglect of their affairs, if we say that they did not have notice of the agreement to build the branch road, and of the lease executed in pursuance thereof.
The only reasonable inference from the circumstances proven is that they had knowledge of the transaction, and that it was engaged in and consummated with their approval and acquiescence. This case presents all the features which have led the judicial mind, in the cases cited, to establish the .distinction between executory and executed contracts, in which respect it essentially differs from the Thomas case, in 101 U. S. This was not, as in the case in the federal court, the mere leasing of a road owned by the lessor, where the repudiation of its terms would restore both parties to their former status.
Here the lessor built the road, not for itself, but at the instance of and for the lessee, with the proceeds of bonds guaranteéd by the lessee to promote and effect the scheme. The branch road was a mere instrument in the hands of the main line to consummate the undertaking.
By the clearly expressed contract of the parties the road was to be the road of the lessee, the lessor to have only the fixed rentals.
The lessor has fulfilled every term of its agreement, and put the lessee in possession of all that it stipulated for. Nothing remains on the part of the lessor to be done. We must look at the substance of things in applying legal principles. The lease for nine hundred and ninety-nine years is practically an absolute transfer of the road to the lessee, and the rental a mere mode of paying the lessor for the work done and money expended in constructing the road for the lessee, instead of paying a fixed principal sum. The case does not, in effect and substance, differ from what it would have been if the main line had employed the branch road to construct the branch at a stipulated price, and had issued its bonds in payment, after completion and acceptance of the work.
All the cases concede that under such circumstances the contract must be treated as executed.
If the contract had been to compensate the branch road for the work, by the bonds of the main line securing the payment of an annuity for nine hundred and ninety-nine years, and those bonds had been delivered, would it be asserted that it was, in substance, the less an executed agreement ?It is the merest verbiage and form, whether it is termed a lease securing a rental for nine hundred and ninety-nine years, or a bond securing an annuity for a like term.
The injustice and inadmissibility of permitting the main line to repudiate its bonds after it has been in occupancy of the road for more than seven years, because the road proved to be unprofitable, would not be more glaring than the inequity of the defence interposed here to the payment of the rental. The work undertaken to be done was fully executed by the branch road, and the manner in which it is to be paid for is immaterial, so far as the principle involved is concerned. There is no consideration of justice and fair dealing, which, in the cases referred to, led to the rejection of the offer by the corporations to set up their own incapacity in avoidance of their just obligations, which is not most forcibly presented by this case. It cannot, in the application of legal principles, be dissociated from executed contracts without disregarding the reasons which lie at the foundation of the rule. If the lease is subject to the defence of ultra vires, the guarantee of the bonds is also incapable of enforcement, and thus loss will likewise fall upon those who advanced money, upon the faith of the guaranty, to be used under the direction of the lessee, and for its purposes.
If such a doctrine is established, who can answer for the solvency of our insurance companies, savings banks and moneyed institutions ?
It is a matter of common knowledge that corporate bodies, in many instances, through misconception of their powers, or otherwise, have exceeded the legal limits of their authority.
An action to enforce against the main line its guaranty of these bonds could not be classed with those cases in which companies have been required to return the money they had received on ultra vires contracts, or to pay rentals for the period of occupancy.
If the invalidity of the contract and the right to repudiate it be conceded, the law cannot raise an implied obligation on the ruins of the contract upon which to found a recovery. The liability of the defendant upon the bonds must rest, if it exists at all, upon the contract of guaranty.
The money was not paid to the main line, but to the obligor of the bonds, and no obligation can be implied on the part of the defendant to repay it. The validity of the guaranty contract must be affirmed, or no action can lie against the defendant.
In the destruction of the contract there must be an entire absence of legal liability.
The legal doctrine, which must be invoked to maintain an action by the bondholders on the guaranty, will support the judgment ip this case.
The doctrine of estoppel by acquiescence, in cases which present the characteristics which appear here, can work no inequity, for it may safely be presumed that the parties to be affected by an engagement are competent to determine what will best promote their own interest, and for any error in judgment they, and not others, should suffer.
The contrary doctrine, affording so easy an escape from the consequences of their acts, invites them to overstep the boundaries of their authority.
There can be no dissent from the assertion that good faith and honest dealing unite in forbidding that the defence here set up shall be successfully interposed. In my opinion, the law is against it, and the judgment below should be affirmed.
Dixox, J.
I vote to affirm, upon the ground that the Camden and Atlantic Railroad Company cannot set up that its own charter has become void under section 17, so long as it continues to exercise the powers granted by the charter, and that unless the charter is considered as avoided under section 17, the power to build the branch road continued when this lease was made, and consequently, according to Branch v. Jessup, 106 U. S. 468, the power to lease then existed.
What would be the result if some one besides the corporation itself were alleging the invalidity of the charter, need not now be considered.