Court Opinion

ID: 9417368
Source: CourtListenerOpinion
Date Created: 2023-08-02 20:11:13.997004+00
Date Added: 2024-06-11T17:21:40.488738
License: Public Domain

Me. Justice Hablan,
dissenting. — The Canada Southern Railway Company is a corporation created and organized under the laws of the Dominion of Canada. It was given, by its charter, power to borrow in Canada “ or elsewhere,” at a rate of interest not exceeding eight per cent, per annum, such sums of money as might be necessary to complete, maintain, or work its railway; to issue bonds therefor, payable either in currency or in sterling, at such place, within Canada “ or without,” as might be deemed'advisable; to sell the same at such prices or discount as might be deemed expedient or necessary; and to hypothecate, mortgage, or pledge the lands, tolls, revenues, and other property of the company for the payment of the said sums and the interest thereon.
In pursuance of the authority thus conferred, the company, in 1871, issued its bonds in the customary form of negotiable securities, and made- them payable in the year 1906, at the office of the Union Trust Company in the city of New York, with interest at the rate of seven per cent. per. annum, coupons being given for such interest. These bonds, -with their interest, were secured by a deed of trust to ¥m. L. Scott and Kenyon Cox, citizens of the United States, conveying to them and their successors in the trust, the railway of the company, its lands, tolls, revenues present and future, property, effects, franchises, and • appurtenances. That deed declared that the bonds, and also the rights and benefits arising therefrom, should pass by delivery.
In 1873 the company issued certain bonds, of the denomination of $105 each, for the purpose of funding unpaid coupons. They were made payable, principal and interest, in gold, at the office of the Union Trust Company in the city of New York. In order to effect this arrangement for funding, the latter company ivas made a trustee to deliver the bonds of $105 each to *541the parties surrendering the unpaid coupons. Of some of these bonds defendants in error, who are citizens of New York, became the holders. They were delivered to them at the city of New York. Upon their non-payment at maturity, the present suits at law were brought in one of the courts of that State, and’ judgment asked for the amount of the bonds. The railway company appeared, and upon its petition the suits were removed'into the Circuit Court of the United States for the. Southern District of New York. In the latter court an answer was filed, to which the plaintiff demurred. The demurrer being sustained and the company declining to answer further, judgment was rendered for the amount due on the bonds in suit.
What is the defence which my brethren have declared to be sufficient to. deprive the plaintiffs of their right to judgment ? That the company had paid the bonds in suit, in whole or in part? No. That, by the terms of the contract, it was discharged from liability to pay them? By no means. Its defence is placed wholly upon an act of the Parliament of Canada ratifying a certain scheme or arrangement,, which is inconsistent with the contract between the parties, and to which a large minority of the bondholders and stockholders have never given their assent. That scheme provided for the surrender of the old bonds, bearing seven per cent, interest and the substitution of other bonds, maturing at a later date, and bearing a less rate of interest — three per cent, for the first three years, and five per cent, thereafter, the interest on the new bonds being guaranteed by the New York and Hudson River Railroad Company.
To this scheme the circuit court finds as a fact that the plaintiffs never assented. They stood, as they had the right to do, upon their contract with the company. But the Parliament of Canada declares that this scheme “ shall be deemed to have been assented to by all the holders of the original first mortgage bonds of the company,” and that this arrangement “ shall be binding upon all the holders of the first and sécond mortgage bonds and coupons and bonds for interest thereon respectively, and upon all the shareholders of the company.”
*542This defence, asserting the power of a foreign government, by its legislation, to destroy the contract rights of citizens of the United States, was well characterized, as it seems to me, by the learned circuit judge who tried this case, as a most extraordinary one to be made in a country where the obligation of contracts against impairment by legislative enactment, as well as the-rights of persons and property, are carefully guarded by constitutional provisions. In this country, no State can pass any law impairing .the obligation of contracts; the Constitution of the United States forbids such legislation. And the principle is founded in justice, independently of this constitutional provision. The statute of Canada here relied on disregards this principle, and openly and in terms impairs the obligation of the contract which each holder of these bonds has with this' foreign railway company. It assumes, without a hearing and without the consent of those who hold its bonds, to discharge the railway company from all liability thereon. If any State in this Union should assume to pass a law with reference to a railway corporation she had created, requiring the holders of its bonds, for which they had paid value, to surrender them and take in their place others of less value, and payable at a different time, our courts, federal and State, would be constrained, by their obligation to support the Constitution of the United States, to declare such legislation to be in conflict with that instrument. More than that, a citizen of Canada,, or even a railway corporation of that Dominion, could have the benefit,' in our courts, of the constitutional inhibition upon State laws impairing the obligation of contracts.
In the Sinking Fund Cases, 99 U. S. 718, 719, we said that while the United States are not included within the constitutional prohibition which prevents States from passing laws impairing the obligation of contracts, yet “ equally with the States they are prohibited from depriving persons or corporations of property without due process of law. They cannot legislate back to themselves, without making compensation, the lands they have given this corporation to. aid in the construction of its railroad. Neither can they by legislation compel the corpora^ tion to discharge its obligations in respect to the subsidy bonds *543otherwise than according to the laws of the contract already made in that connection. The' United States are as much bound by their contracts as are individuals. If they repudiate their obligations, it is as much repudiation, with all the wrong and reproach that term implies, as it would be if the repudiator had been a State, or a municipality, or a citizen. No change can be made in the title created by the grant of the- lands, or in the contract for the subsidy bonds, without the consent of the corporation.”
But the laws of Canada, by the judgment now rendered, are given effect here, to the injury of our own citizens, notwithstanding those laws arbitrarily deprive them of their contract rights. This railroad company, under express authority conferred by its charter, executed bonds payable, as we have seen, in New York, and secured them by mortgage executed to citizens of the United States.' It sent them to this country for sale and our people invested their money in them. Intrenched behind the arbitrary edict of a foreign government, it now says to American holders of its bonds, that it will not comply with its contract — that if they do not surrender those securities and take others of less value, they shall not receive anything.
It is claimed by my brethren that the Canada statute provides a scheme which, in its practical effect, resembles a composition in bankruptcy. It seems to me that there are several answers to this suggestion: 1. It does not purport to be a scheme of bankruptcy in the sense of the word bankruptcy as used either in England or America. 2. It- is unlike a composition in bankruptcy in this : that whereas a composition is never had except upon notice, so that creditors may have their day in court, with opportunity to show that the proposed composition should not be made, here no such opportunity was given to the holders of this company’s bonds, in any court or other tribunal, to show that the arrangement which the Canadian parliament sanctioned ought not, in justice, to be made; but the arrangement was, by legislative enactment, made absolutely binding upon every bondholder and stockholder, even those who are citizens of other countries.
It is said that the Canadian scheme is practically nothing *544more than might be accomplished in foreclosure proceedings instituted in one of our own courts by or at the instance of the assenting bondholders. My answer is, that all bondholders and stockholders have their day in court, in such proceedings ; and, when upon the judicial sale of a railway and its appurtenances, they fail to realize the full amount of their claims, they are not' deprived of their property without due process of law.
Reference is made by the court to the act of the English parliament which authorizes such arrangements to be effected through courts of chancery. But, in such proceedings, all interested have their day in court, with opportunity to show that the proposed scheme should not receive judicial sanction.
In my judgment, the discharge in Canada, by statute, of this foreign railway company from all obligation to pay these bonds according to their terms — whatever may be the binding force of such legislation upon persons resident in that country, or upon those who may assert their rights under the original contract in the courts of Canada — can have no extra-territorial effect; certainly none as to persons who reside in a different State or country, where the contract is to be performed, and in the courts of which it becomes the subject of litigation.
In Balduin v. Hale, 1 Wall. 223, it was held that a discharge obtained under the insolvent law of one State of the Union is not a bar to an action on .a note even when given in and payable in' the same State, the party to whom the note was given having been and being of a different State. Story, in his Conflict of Laws, says that should a State provide that the discharge of an insolvent debtor under her own laws was a" discharge of all his contracts, even of those made in a foreign country, such a discharge, although binding upon the courts of that State, would or might be mere nullities in other countries. § 348. Chancellor Kent, referring»to State insolvent laws, in operation when there is no national bankrupt statute, says:
“ The discharge under a State law is no bar to a suit on a contract existing when the law was passed, nor to an action by a citizen of another State in the courts of the United States, o'r of any other State than that where the discharge was obtained. The *545discharge under a State law will not discharge a debt due to a citizen of another State who does not make himself a party to a proceeding under the law. It will only operate upon contracts made within the State between its own citizens or suitors, subject to State power. The doctrine of the Supreme Court of the United States in Ogden v. Saunders is, that a discharge under the bankrupt law of one country does not affect contracts made or to be executed in another.” 2 Kent, p. 392-3.
Such is the unvarying current of ’ authority in this country. If a discharge by an insolvent law of one of the United States does not affect the contract rights of citizens of another State, how much stronger is the case where, by the terms of the contract, it is to be performed in a State or country other than that in which the discharge is granted. . My brethren suggest, if I do not misapprehend their opinion, that the parties here suing must be understood to have purchased these bonds with reference to the power which the Canadian government has over corporations of its own creation. But this view, it seems to me, overlooks the principle, founded, says Story, in natural justice--and applicable here even if the bonds in suit had been purchased and delivered in Canada — that “ where the contract is, either expressly or tacitly, to be performed in another place than where made, the rule is, in conformity with the presumed intention of the parties, that the contract, as to its validity, nature, obligation, and -interpretation, is to be governed by the law of the place of performance.” Story, Conflict of Laws, § 280; Andrews v. Pond, 13 Pet. 65; Cook v. Moffatt, 5 How. 301. Why should it not be presumed that the parties to these contracts made them with reference as well to that principle as to another principle which is thus forcibly stated by Kent %
“ The laws of other governments have no force beyond their territorial limits ; and if permitted to operate in other States, it is upon a principle of comity, and only when neither the State nor its citizens would suffer any inconvenience from the application of the foreign law.” 2 Kent, 406.
Story announces the same doctrine in the following language :
*546“.And even in relation to a discharge according to the laws of the place where the contract is made, there are (as we have seen) some necessary limitations and exceptions ingrafted Upon the general doctrine which every country will enforce, whenever those laws are manifestly unjust, or are injurious to the fair rights of its own citizens. It has been said by a learned judge with great force : ‘ As the laws of foreign countries- are not admitted eco proprio vigore, but merely ex comitate, the judicial power will exercise a discretion with respect to the laws which they may be called upon to sanction ; for should they be manifestly unjust, or calculated to injure their own citizens, they ought to be rejected. Thus, if any State should enact that its citizens should be discharged from all debts due to creditors living without the State, such a provision would be so contrary to tb „ ■ commop principles of justice that the most liberal spirit of comity Avould not require its adoption in any other State.’ ”
In Burgess’ Commentaries on Colonial and Foreign LaAArs, vol. 1, p. 5, the author says:
“It is established as a principle of international jurisprudence that effect should be gi\~en to the laAvs of another State Avhenever the rights of a litigant before its tribunals are derived from, or are dependent on; those laAvs, and Avhen such’ recognition is not prejudicial to its OAvn interests or the rights of its OAvn subjects.”
The same vieAV is thus expressed by another American author:
“It [the State] must consult sound morals and the interests and public policy of its.own people, and if to enforce the laws of another State or country Avould lead to their infringement, it Avould be treacherous to its OAvn duties to lend aid to their execution.” 1 Daniel on Negotiable Instruments, § 866.
In Smith v. Buchanan, 1 East, 6, 11, the question Avas whether a discharge of an English contract under an insolvent act of the State of Maryland, where the debtor resided, Avas a bar to a suit upon that contract in the courts of England. The point was there made that the discharge under the laws of Maryland was analogous and equivalent to a certificate of bank*547ruptcyin England; -and;- having been isshed by a competent jurisdiction in the cáse of.' subjects of Maryland residing there at the time, though it hád not the binding force of law in England, yet the courts there should give effect to it “by .adoption and' courtesy of nations.” But to that argument the court, speaking by Lord, Kenyon, said:
“ This is the case of a contract lawfully ¡made.Jíy a subject in, this country, which he resorts to a court cif justice to enforce; and the only answer is that a law has been made in a foreign country to discharge these: defendants from, their debts on condition of their having relinquished all their property to their creditors.” “But hów,” said he, “is that an' answer to a subject of this country, suing: on a lawful contract made here ? How can it. be pretended he inbound/'by a condition to which he has given-. no assent' either express orfimplied ? ” “ In America,” -adds Story, referring to thait case, “ the same doctrine has obtained the fullest sanction.” Story on Conflict of Laws, § 342.
So also in Bartley v. Hodges, 1 Best & Smith, 375, where the defendant pleaded, in a court pf England, an insolvent discharge under the laws of Victoria, a British colony. The court said:
“ No case has b.ehn cited to show that a discharge under the insolvent laws of Victoria is an answer to an action here, brought by an English subject on a bill Of exchange .drawn and payable in England. . . ¡ It is true that the colony of Victoria is not a foreign country in one sense of the word, yet its laws are the laws of %at colony only. ... '. It might as well be said that the laws of the State of Maryland would apply1 here.”
So also in Phillips v. Allan, 8 B. & C. 477, it was, held that an insc|vent discharge under the laws of-Scotland was no bar to am aption brought'by an English subject in a court in England on a debt contracted in England, although it appeared! that the English creditor had appeared in the Scottish .proceedings fpr the purpose.'only of opposing the discharge.
The ease,- then,- before ,-us is one in which a foreign railway corporation pleads In- discharge of its liability to pay its.nego*548tiable securities, helcl' by citizens of tbe United States, and which, were delivered and are payable in this country, not that it had paid such securities; not that there had been a composition in bankruptcy embracing these claims; not that any court had given its sanction to the scheme in questionbut that a statute of a foreign country, without the consent of those who did not.approve such scheme, and.without giving an opportunity before any authorized tribunal to show that such scheme ought not to be ratified, had absolved it from liability to meet its contract engagements. This defence my brethren feel obliged, upon grounds of international comity, to sustain. Thus an American court denies to American holders of foreign railway securities what an English' court would not dény to English holders of American railway securities. An English court would not. permit the- rights of Englishmen, growing out of a contract between them and a foreign corporation, which is to be performed in England, to be injuriously affected by foreign laws in' violation of the terms of that contract. I fully concur in what the circuit judge said:
“ If any of our own States had passed such an act as the one under consideration, it would have been the duty of the courts of that State to treat it as an unlawful exercise of power; and certainly it .cannot be expected that this court will tolerate legislation by a foreign State which it would not sanction if passed here, and which, if allowed to operate, would seriously prejudice the rights of a citizen of this State. Comity can ask no recognition of such unjust foreign legislation, and. the case falls under the qualifications of a general rule, which prescribes that when the foreign law is repugnant to the fundamental principle of the lex fori, it will be ignored.”
The principles for which I contend are not affected, in their application to this case, by the circumstance tl^at the legislalation of Canada relates to the contracts of a quasi public corporation and not to contracts wholly between individuals,' For, in determining whether a statute impairs the ■'obligation of a contract, within the meaning of .our Constitution, it must be conceded that that instrument protects such obligation against *549legislative impairment as well in cases of contracts with railway corporations as of contracts between individuals. It is 'equally clear that debts held against such corporations are property of which the citizen may not be deprived without due process of law. We said in Pritchard v. Norton, 106 U. S. 132, that “ a vested right of action is property in the same sense in which tangible things are property, and is equally protected against arbitrary interference. Whether it springs from contract or from the principles of the common law, it is not competent for the legislature to take it away.” Railway corporations are, undoubtedly, public instrumentalities employed by government to. accomplish public purposes. But in this country the legislative department may not, under the guise of regulating such corporations, arbitrarily deprive creditors of the benefit of. their claims against them, or impair the obligation, of contracts which individuals have with them. This, perhaps, would not be disputed were this a contest between American citizens, or even citizens of Canada, and an American railway corporation.
As I do not think that a foreign railway corporation is entitled, upon principles of international comity, to have the benefit, in our courts — to the prejudice of our own people and in violation of their contract and property rights — of a foreign statute which could not be sustained had it been enacted by Congress or by'any one of the United. States, with reference to the negotiable securities of an American railway corporation; and, as I do not agree that an American court should accord to a foreign railway corporation the privilege of repudiating its contract obligations to American citizens, when it must deny any such privilege, under like circumstances, to our own railway corporations, I dissent from the opinion and judgment of the court.
Me. Justice Field, not being present at the argument of this case, took no part in the decision.