Court Opinion

ID: 6598105
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:05:09.812606+00
Date Added: 2024-06-11T15:57:55.215136
License: Public Domain

By the Court,

Paine, J.
The cash capital in this state was inadequate to the building of its railroads, or even to the payment of such proportion as is usually paid in cash for stock' in the older and more wealthy communities. But the farmers along the routes, having confidence in the success of the enterprises, and the ultimate benefit to themselves, were willing to mortgage their farms for stock, placing the securities in the hands of the companies, to negotiate and raise the funds necessary for building the roads. This practice was extensively adopted along most of the roads in the state. The securities were taken and negotiated by the companies, and default having been made in payment, a number of actions have been brought to collect the notes, or foreclose the mort*320gages. The defense is now set up, that the companies had no power under their charters to take these securities for stock, and that they were therefore void.
As is usual in such cases, many considerations were alluded to in the arguments of counsel, which have no bearing upon the legal question presented. If the farm mortgagors influenced, perhaps, by public spirit, combined with the hopes of private gain, have mortgaged their farms for stock, the fact that those hopes have failed, and that financial ruin has fallen upon the enterprises, and that the execution of their contracts may prove hard and calamitous to many of them, furnish no reason in law why they should not be executed, provided they were such contracts as might in law be made. On the other hand, if the companies had no power to take these notes and mortgages for any purpose, so that they were utterly void in their hands, the fact that large amounts have been invested in them, which will be lost to the purchasers, is no reason why the court should hesitate to declare them void.
It has been contended on the part of the plaintiff that even if the companies had not the power to take these notes and mortgages for the particular purpose for which they were in fact taken, yet they had power to take notes and mortgages for some purposes, and that being so, that these would be enforced in the hands of bona fide purchasers for value, which they claim to be. Perhaps some of the cases might be decided upon that ground. But as several have been argued, in some of which it will be necessary to decide upon the question of power, and as the conclusion at which we have arrived upon t.hat, will render a decision of the others unnecessary, we will proceed to address ourselves to that, without further notice of other considerations.
The question is, had the companies the power to take these notes and mortgages for stocks ? In this case it arises under the charter authorizing the construction of a railroad from *321Milwaukee to La Crosse. The counsel for the defendants contend that the company had not the power, and that the transaction was a violation of its charter. To lay a foundation on which to sustain this position, they cited a large number of authorities establishing the proposition that a corporation has no powers except such as are conferred by its charter; and that its acts outside of those are void. This is tod well settled to admit of dispute, and a moment’s consideration of the great increase of corporations in modern times, and of the vast powers entrusted to them, as well as of the natural tendency of their accumulated capital to accumulate also influence and power, is sufficient to satisfy every intelligent mind of the absolute necessity of adhering to the rule of confining these bodies strictly to the accomplishment of those ends and objects which their charters authorize, and prohibiting them from all others. But while this is conceded, it is also true that to these organizations is entrusted the accomplishment of “ enterprises of great pith and moment,” which, when properly executed, contribute greatly to the convenience and prosperity of mankind, and even to the advancement of civilization — enterprizes impossible to private unassociated capital, and which sometimes task even the enormous energies of corporations beyond their strength, so that after expending the best efforts of human ingenuity to accomplish the end, they either fail entirely, or succeed perhaps in completing an improvement of which, others may reap the benefit, only by the pecuniary ruin of its originators.
These considerations are sufficient to show that the rule that corporations can exercise no powers not delegated,should not, from an undiscriminating timidity or apprehension, be extended so as to unwisely and unnecessarily cripple and restrict them, as to the means of executing the powers that are delegated. Powerful as they are, it must be assumed that the law is powerful enough not only to control and confine them *322within their proper limits, but also within those limits, to allow them the exercise of a reasonable discretion in selecting among the various means that may be adapted to the execution of their powers. It is accordingly held in a large class of cases, many of which are cited by the counsel for the plaintiff, and which we do not deem it necessary to refer to in detail, that a corporation may adopt any of the usual means employed to accomplish the purposes authorized by its charter. It is true, that this fight of selecting among the means adapted to the end, is generally stated as limited to those usual and necessary. But precisely what limits those terms imply does not seem to be well defined.
The constitution of the United States gave Congress the power to pass all laws “ necessary and proper” for carrying into execution the powers conferred upon the federal government. That government chartered a bank, and its constitutionality being called into question, the supreme court of the United States placed a construction upon these words. They held that the word “ necessary” did not imply that the means used must be absolutely indispensable, but tha( the government might select any which were “ needful,” “ requisite,” “ essential,” or “ conducive to” the end, and tended directly to its accomplishment, and therefore might charter a bank. Whether or not it justifies that conclusion, there is undoubtedly great force in the reasoning of Chief Justice Marshall, as to the necessity of the power on the part of the government to select convenient means for the execution of its powers. And bearing in mind the disproportion between the powers of a government and those of an ordinary corporation, we think that reasoning goes to sustain the right of the latter to an equal freedom in selecting among various means proper for the execution of its powers. There is a close relation between the principles applicable to the government of the United States and those applicable to a corporation. The *323former like the latter can exercise no powers except such as are delegated to it either expressly or implied as necessarily incident to those expressly delegated. The reasons for confining both within the limits of the delegated powers, are equally obvious and familiar, yet this being constantly conceded, it by no means follows, that either, within those limits, should be restricted with narrow and illiberal rigor, in the choice of means, adapted to the execution of their respective powers. And the same reasoning which excludes such rigor in the case of the government, in our opinion, justifies its exclusion in the case of a corporation. But in applying it to the latter, due allowance should be made for the difference in the magnitude of their powers, for it would not at all follow that a corporation might adopt any means which the government might.
But it is unnecessary to pursue this point further, as it has been expressly passed upon by this court. In the case of Madison, &c., Plankroad Co. vs. Watertown, &c., Plankroad Co., 5 Wis., 173, it was held that a corporation is not restricted to the means either “usual” or “necessary,” but might select those “ convenient and adapted to the end,” though “ unusual” and not absolutely “ necessary.” It was a plank-road company, and its charter gave it no power to loan money ; but the court say that if it had seen fit to make a loan to one of its contractors, to enable him to complete his contract, though unusual, it would have been a legitimate means of executing their power to build the road. When the case was here subsequently, and it appeared that the company had undertaken to assist in the building of another road, then its. acts were held void, but this detracts nothing from the first decision.
This doctrine must, of course, be properly understood. It. does not mean that a corporation may engage in a.separate,, distinct business, not authorized by its charter, as a. means of *324raising funds to accomplish the things authorized. This it could not do. A railroad company could, not engage in banking, nor in manufacturing, nor speculating in real estate, as a means of raising money to build a railroad. It is only that it may adopt any convenient means proper in themselves, tending directly to the execution of the powers conferred, and not amounting to the transaction of any distinct^ unauthorized business; though such means may not have been usually adopted in the execution of like powers.
We have, then, two established propositions of law:
1. A corporation can exercise no powers except those conferred by its charter.
2. In executing those powers it may adopt any proper and convenient means tending directly to their accomplishment, and not amounting to the transaction of a separate unauthorized business.
In order to decide this case, two questions remain to be determined. Was the taking of the note and mortgage for stock, an attempt by the company to execute powers not delegated ? Or was it a mere means of executing those that were conferred ? If it was the latter, then was it a means which the company was prohibited from using.
Upon the first question there seems to be no room for doubt. The company did not attempt to do any thing, except to execute its power of building a railroad. The defendant was willing to take stock, but had not the money to pay for it. He was willing to give his note for it, and secure it by a mortgage. The company took it in payment with the sole intention of transferring it to raise the money. The result is the same as it would have been if the defendant had mortgaged his farm to a third party, and obtained the money himself, and paid it for his stock. In the end, by either method, the company has the money, the defendant the stock, and the third party the note and mortgage. The com*325pany has simply resorted to a doable transaction to get the money for its stock, instead of a single one. But it was a means tending directly to the execution of its power of build-a railroad, by disposing of its stock for the money necessary therefor.
The other question is, whether this means was prohibited to the company ? And towards this point the strongest arguments for the mortgagors is directed. It is said that the charter provides a specific method of raising funds for building the road; that is, by opening books for subscription for stock, and then requiring payment from the subscribers; and that this method having been provided for, every other is necessarily excluded. As a part of the argument, it is assumed that the charter contemplates and requires a payment in cash, and therefore, that the company is in effect forbidden to receive any thing else as such. This assumption is, of course, necessary, for the validity of the whole argument depends upon it. Let us examine whether it is correct. There is no express provision in- the charter that the stock must be paid for in cash. Is such a provision implied ? It was suggested that the language fixing the amount of each share at one hundred dollars, necessary implies that the payment must be in cash. It was said that “ dollars” meant money, and was not descriptive of any thing else. But these suggestions seem entitled to but little weight when it is remembered that money is the standard of value, and is used as the representative and measure of the value of all other articles. Thus a note to be paid in specific articles, is drawn for the payment of so many dollars in the articles agreed on. The use of the denomination of money to fix the amount in value, is necessary in all such instruments. And the mere circumstance that the legislature used that language in fixing the amount of each share of the capital stock, cannot be considered as indicating any intention that the shares must necessarily be paid for in *326cash. Because such a literal construction would require the company to keep its capital stock, consisting of money. For that capital stock is to continue after the road is built, and would still consist of shares of one hundred dollars each. And if the use of the word “ dollars” necessarily requires each share to be paid for in cash in the first instance, it would equally require it to continue in money.
But the charter, instead of attempting to prescribe the manner of payment, expressly leaves it under the control of the directors. It provides that they may re-open the books for subscriptions, or open new ones ; may decide the amount to be paid on subscription, and “the time, manner, and proportions” in which the subsequent installments shall be paid. This power of the directors to prescribe the “manner” of payment, is directly repugnant to the theory under consideration. For if the charter had positively provided that payment should be made in cash, and not otherwise, than it was idle to say that the directors might prescribe the manner, for it was already fixed beyond their control. The power to prescribe the manner of payment, includes that of directing in what it should consist, which would, of course, be limited by the general purposes of the charter.
It also give them the power to make “such covenants, contracts, and agreements with any person or persons, co-partnership, or corporation whatsoever, as the execution and management of the works, and the convenience and interests of the company may require.” This is certainly comprehensive language, and includes the power to make the contract in question, unless it is limited by other specific provisions relating directly to that subject matter. And we find none having that effect.
But it is said that the charter provides for stock subscription books, and that the defendant never subscribed in a book, and therefore he is not a stockholder. But is that ab*327solutely essential? True the charter provides for opening books and for subscriptions therein, and the same clause implies that a part should be paid, at the time of subscribing, and the remainder in installments as the directors should require. But suppose a party should be ready to pay for his stock at once ? If he pays the money, and the company issues to him the stock, is he not a stockholder ? Is it not a valid transaction ? Or must he necessarily enter into a contract to pay, although ready to pay at once ? Would not the company be authorized to receive payment and deliver the stock, under its general power to make whatever contracts the convenience or interests of the company might require, even though the formality of a stock subscription was not complied with ? We cannot doubt it, and if such a transaction would be valid with one paying cash, it would be equally valid with one paying by note or mortgage, provided the company had power to take them in payment. So that it is left as before, depending simply on the question of power.
It is not true, as seems to be assumed, that the great primary object of the charter is to raise an amount of money equal to the capital stock. The primary object is to build and equip a railroad. Money is necessary as a means, but it is not the end. And we can see no objection whatever to a railroad company issuing stock and taking in payment materials or labor, or land necessary for its road. So far as it can build and quip its road for stock, it is the most simple and direct method of accomplishing it. It gets at the object, then, by a single transaction, when it would require two, if the subscriber must first pay the money, and then receive it back again for whatever he furnished. And we think it might be safely asserted, that no railroad was ever built in the country without disposing of more or less stock in payment for labor, materials, or land. And there are but very few cases where the propriety of this course, or the power of *328the companies so to dispose of it, was ever called in question, and in those the power was sustained; while there are many cases where such contracts have been enforced, without question, disputes having arisen upon other points. The following may be referred to as illustrations: Vermont Central R. R. Co. vs. George Clayes, 21 Vermont, 30; Boody vs. R. R. Co., 24 ib., 660. These are cases where a large proportion of the payments to contractors were to be made in stock. Moore vs: Hudson R. R. Co., 12 Barb., 156; Porter vs. Buckfield Branch R. R., 32 Maine, 539; Barker et al. vs. T. & R.R. R. Co., 27 Verm,, 767, and many others that might be referred to, are of the same character. The multitude of cases of this character, in which no question has been made as to the power of the corporations to make such disposition of their stock, considered in connection with the well known strictness of the law of corporations, and the ability and acuteness of the profession, usually not unwilling to raise any question upon which there is any hope of success, is entitled to more weight, against the position here contended for, than a limited number of positive adjudications.
But reliance is placed upon several cases which have held, that where, by statute, commissioners were appointed to take subscriptions, preliminary to the organization of a corporation, and were required to receive a specified sum at the time of subscription, that a subscription taken by them without a compliance with that condition, would be invalid. These cases are the. following: Hibernia Turnpike Co. vs. Henderson, 8 Serg. and Rawl, 219, and several subsequent cases in Pennsylvania, following that one. Jenkins vs. U. Turnpk. Co., 1 Cai., Cases in Error, 86; and Crocker vs. Crane, 21 Wend,, 211. It would be a sufficient answer to the argument attempted to be derived from them, to say that they are entirely inapplicable to a contract made by a corporation, after it has once acquired a legal existence and capacity to act. And *329the very reasoning upon which they proceed, clearly implies that those same courts would not have applied the same rule to such a case. For the basis upon which they rest, is, that at the time of these subscriptions, the corporation which they are to organize has no existence, and that the commissioners are simply ministerial agents, clothed with no discretion or power to contract, and can only pursue the strict letter of the statute. It may well be urged, that where the law requires the payment of a specified sum as a condition precedent to the organization of the company, that its intention was that such payment should be in cash. Until that was paid there would be no corporation in existence, no authorized purpose for the accomplishment of which any other article could be received — nobody clothed with any discretion in the matter, or capacity to regulate it by contract. These cases may, therefore, be conceded to be law, and they by no means establish the proposition, that after a corporation has acquired existence and power- to contract, that it may not by contract, receive in payment for stock, anything necessary for the execution of its purposes. On the contrary, the opposite inference is to be derived from them.
In Crocker vs. Crane it was intimated that the commissioners had no authority to receive worthless checks or uncurrent money in lieu of cash, and, it was said they could not have received “stocks or mortgages.” But this was evidently placed upon the considerations we have suggested. For the learned judge who gave the opinion quoted, among other cases, that of Goshen Turnpike Co. vs. Hurtin, 9 John 217 ; which was an action on a promissory note, evidently given after the organization of the company, for five shares of stock.. The action was sustained, and the court said “ it was to be intended that the defendant had duly become a stockholder to that amount.” It is not to be supposed that Judge Co wen, with his proneness to comment upon authorities, would have *330quoted this case approvingly upon another point, without noticing its conflict with the decision on the main point, if he had supposed the acts of a corporation in existence, stood upon the same footing with the acts of the commissioners, in taking the steps preliminary to its creation.
But it is very doubtful whether even the doctrines of these cases is sustained by the weight of authority. In the case of Jenkins vs. Union Turnpike Co., the decision of the supreme court of New York, was in favor of the validity of the subscription. This decision was reversed by the court of errors, but it is pretty evident from subsequent decisions in that state, some of which are quoted in Crocker vs. Crane, that the decision of the court of errors was not satisfactory. In the case in 8 Serg. & R., Justice Duncan dissented, and noticed the reluctance of the New York courts to follow that decision of the court of errors.
In Central R. R. Co. vs. Clayes, 21 Verm., 30, the commissioners took a note for the payment required by statute on subscription. It was delivered by them to the corporation on its organization, and the court held that it was valid, and its payment might be enforced. In Greenville & C. R. R. Co. vs. Woodsides, 5 Rich., 148, while deciding the case upon another ground, the court say expressly that they are not inclined to admit that a note taken by the commissioners was not such a payment as the statute required. The case of McRae vs. Russel, 12 Ire., 224, is a very strong case against the doctrine contended for by the counsel for the mortgagor here. There the statute expressly provided that five dollars should be paid on subscription, and that if not paid, the subscriptions should be void. The commissioners took a bond in payment. The court held, that by reason of the express provision of the statute the subscription was void, but that the bond was valid. They say, “ So in this case the defendant could not have been compelled to pay the $5 a share by force of the subscription, *331yet if he and the other subscribers chose to waive the provisions thus made for their benefit respectively, and agreed, that upon his giving bond for the same, it should be taken as cash, and be admitted into the company, and he deliberately does so, it is not seen that any principle of law or justice is violated, or that there is any reason why he should not pay this as much as any voluntary bond.”
It is very doubtful therefore, whether the weight of authority is not against the doctrine of these cases, but even if conceded correct, they do not support the position contended for. See also Redfield on Railway, 87, 88.
The cases already referred to, and a number of others cited on the plaintiff’s brief, sustain fully the proposition, that a corporation may receive a note in payment for stock, and that having done so, they cannot refuse the party giving it the privileges of a corporator. In R. R. Co. vs. Hickman, 38 Penn. St., 318, it is expressly decided that the provisions of the statute concerning the powers of the commissioners are not applicable to the acts of the company after it is organized. And that under the general power to prescribe the manner of paying for stock, and to make contracts, &c., it may take payment in labor, materials, or anything necessary for the building of the road. In Carr vs. LeFevre, 27 Penn. St., 413, it was held that a transfer of land to be used for the purposes of the corporation, was a good payment for stock. In Brown and Brothers vs. Illius, 29 Conn., 84, the entire stock of a corporation had been paid for in real and personal estate necessary for the use of the company. The court below charged that it was a valid payment, and though the supreme court did not find it necessary to decide the point, they say they are “ strongly inclined to think there was no error on that point.” In the case of Treadwell and another vs. Salisbury Man. Co. and others, 7 Gray, 405, it was held that where the circumstances of an existing corporation justified the sale of its en *332tire property, its taking payment in the stock of a new corporation did not render the transaction illegal. The court said, “ the new stock is taken in lieu of money, to be distributed among those stockholders who are willing to receive it, or to be converted into money by those who do not desire to retain it.” In the Cincinnati R. R. Co. vs. Clarkson, 7 Ind., 575, it was held that the company had power to take subscriptions for stocks payable in real estate, though the case does not show what were the provisions of the charter.
We are satisfied therefore, that the authorities utterly fail to sustain the position here contended for, that this company had no power to dispose of its stock for anything except money. But that, on the contrary, they show with entire unanimity, as well by silent acquiescence as by positive ad judication, that it had the power to dispose of it in such a manner as would accomplish the objects authorized by the charter.
It was said that taking the mortgage was an unwarrantable dealing in real estate, but this is not so. There is nothing in the transaction approaching a speculation in lands. The mortgage is taken as a mere security, and as such is only an incident to the debt. It is simply obtaining, by contract what the company could obtain by operation of law on any ordinary stock subscription. Where there was default in payment, judgment could be recovered, which would be a lien on real estate. It would be a mere means of collecting the debt, and the mortgage was nothing more. Suppose such a suit brought, could not the company settle it on the party’s securing the debt by mortgage ? Could they not take from a willing party, by contract, what the law would give them against him if unwilling, that is, a security for the debt on his real estate ? We can see no reason to doubt it And if they could do it on the settlement of a suit, there is no more objection to it in the first instance, without suit. Ang. & Ames on Corp., § 156.
*333But it is further said that such a contract is a fraud on the cash-paying subscribers. It is a sufficient answer to say that those subscribers do not complain. If the transaction is liable to no other objection, a party to it cannot set up his own fraud to defeat his contract, when the party defrauded choses to acquiesce. Redfield on Railways, 87, 88, and note. But we are unable to perceive that the objection is valid. The directors are the agents of the stockholders, and their acts, within the powers conferred, are binding on the latter. This mode of receiving payment for stock was directed by them, and it being within the scope of their authority, it was to be deemed assented to by all. It is to be assumed that the company could negotiate the securities for their present worth, which would be equivalent to the full amount paid in successive instalments.
We are therefore clearly of the opinion, that the company had power to make this contract, and that the securities are valid. It was not an attempt to go outside of its charter and accomplish things unauthorized, but was a means of executing the powers granted, as to which, except so far as positively restricted, the company possessed the powers of an individual. Says Justice Nelson, in Wilmarth vs. Crawford, 10 Wend., 342: “ Unless there is (so me express restriction, either in the charter or some other act of the legislature, as to the nature of the evidence of the debts due to or from them, or securities to be taken or given by them, they have in this respect the same powers that belong to individuals. Corporations, while acting within the scope of their authority under the act creating them, that is, in the execution of the powers granted to or duties imposed upon them by the charters, are to this extent and end like natural persons.” And our whole conclusion is only an application to corporations of the rule familiar as between individuals, that securities may, by contract, be received in payment.
*334The court below erred in holding these securities invalid, and the judgment must be reversed with costs, and the cause remanded for further proceedings.