Court Opinion

ID: 9812551
Source: CourtListenerOpinion
Date Created: 2023-08-31 22:41:16.885339+00
Date Added: 2024-06-11T15:25:11.512075
License: Public Domain

ClaeK, 0. J.,
dissenting: Passing by the patent objections (1) that the so-called lease was made at a meeting irregularly called, due notice thereof not having been given as required by the charter, and held at a place not designated in the call; (2) that the deposit of bonds required by the lease to be made before the lease should become effective has not been made as stipulated, and (3) that freight rates have .already been increased in violation of the express provision that this should not be done, which was an indispensable agreement without which the lease would not have been made, we will come at once to the fatal defect, that the company was without any power whatever in its charter to lease out its property and franchises and thus wholly abdicate the discharge of those duties in consideration of' the undertaking to render which its charter and franchises were granted. All authorities concur, and even the defendant admits that the lease could not be legally made unless in the charter, or by special act of the Legislature, the power to lease was expressly conferred. “The lease by a railroad company of all its road, rolling-stock and franchises for which no authority is given in its charter, is ultra vires and void,” says the highest court' of the Union. Thomas v. Railroad, 101 U. S., 71; Railroad v. Railroad, 118 U. S., 290; Transportation Co. v. Pullman, 139 U. S., 49.
The attempted lease is all the more objectionable in this case, because not only is there no such power in the charter, or in any statute, but the State being the owner of a great majority of the stock, the control of this great work, held in trust for all the people, and for future generations, should not pass to the hands of a non-resident syndicate to be operated for-their profit and emolument and in furtherance of *593their own policies of aggrandisement, and to the destruction of the last hope of the accomplishment of the great public policy of a system of State Internal Improvements so wisely laid out and planned by our fathers and paid for out of a constricted public treasury, without consulting the people of the State represented in their Legislature, when the General Assembly was to assemble within less than four months. There should have been a halt made before the control of a great piece of public property, built out of the taxes of the people, was handed over to strangers, and put beyond further operation in the public interest, until at least the people whose property it was could have been consulted. The haste of the lessee to accomplish this transfer without consulting the real owners of the property and their Legislature — the only body which had power to confer a right to lease it— must be noted. Why was not the opportunity given the General Assembly to express the public wish as to this disposition of so large a part of the State’s property ? Why was not time allowed at least to give due notice of the meeting as required by the charter, and why was not the meeting held at the place named in the call ? A¥hy were not the bonds stipulated to be deposited so deposited before the lessee took possession of the State’s property, and why has the stipulation against an increase of rates, without which the contract would not have been made, been so soon ignored and disregarded ? All these indicia of haste would be potent in considering the validity of a transaction in which private parties engaged; why should they not be considered and weighed when they concern the transfer forever from the people of the State, without consulting their representatives in the General Assembly, of the control of so great and valuable a property, and which is on the point in the near future of becoming immensely more valuable with our increasing wealth and population, and the retention of the control of which would, *594by the State’s regulation of its rates and charges, be so important' a factor and check upon the rates'charged by the other railroads of the State which have passed into the control of other non-resident syndicates ?
Section 18 of the charter provides as follows: “The said company may, when they see proper, farm out the right of transportation over said railroad, subject to the rules above mentioned, and the said company and every person who may have received from them the right of transportation of goods, wares and produce on said railroad shall be deemed a common carrier as respects all goods, wares and merchandise entrusted to them for transportation.”
It must be apparent to any one who reads that paragraph of the charter that it did not authorize the company to make any lease of all its rights, properties and franchises; yet that is the sole reliance of the defendant in its search for legislative, power conferred to make the lease. The meaning of these words cannot be more clearly stated than by Bynum, J., 72 N. C., at p. 648, who, after stating that not a single decision in this State or elsewhere had ever maintained such a construction — and it may be added that not one here or elsewhere has done so since — adds: “A right of transportation over a road is one thing, and the road itself with its engines, shops and property is certainly another, and these can no more be confounded than rent can be with the land out of which it issues. One is a right of passage over the corpus, the other is the corpus itself. A lease of the road would carry the right of transportation as an incident, but the right of transportation would not carry the road, for if so, every wagoner at a toll-gate who buys a ticket over a turnpike for a year or a term of years thereby acquires a lease, of the road and its management. Nothing is more common than for all roads, with connecting lines, to farm out the' right of transportation over their lines, and in *595this day of close connections and rapid transit tbe practise is indispensable to successful business. We every day see this right farmed out to express companies and by one company for the cars and freight of another and for special purposes. At many of our depots we see 'freight cars painted and marked the ‘Yellow Line/ the ‘Green Line/ the ‘Blue Line.’ What does it all mean? These cars belong to vast incorporated companies of these names which are doing nearly all the fast transportation of the United States; yet they do not, as I am informed, own a mile of road. Their business is to furnish cars and freight which they agree to deliver. In order to do so, they hire or farm from the railroad companies the right of transportation over their lines at stipulated rates and speed. One company furnishes the road and motive power and farms out the right of transportation to the other company, which supplies the rolling-stock and delivers the freight.” Judge Bynum then proceeds and conclusively shows the origin and use for 200 years of the term “farm out the right of transportation” and how it came to be inserted in railroad charters, and that its signification has always been as above stated, and has never at any time been understood as conferring the right to sell or lease the railroad property and franchises. ILe then truthfully added: “No authority or decision is cited to sustain this lease, and we may fairly conclude that the judgment here is- without a precedent.”
The foregoing is quoted from the dissenting opinion of Mr. Justice Bynum in State v. Railroad, 72 N. C., 640. That dissent was well received by the profession at the time and, the writer believes, has since been generally deemed by it as the true statement of the law, like Judge Iredell’s famous dissent in Chisholm v. Georgia, 2 U. S., 419, and Justice Brown’s dissent in Income Tax Oase, Reagan v. Trust Co., 154 U. S., 362. The opinion of the Court was supported, *596as Judge Bynum said, by not a a single citation then, and no opinion has been since relidered that sustains it. On the contrary, on every occasion in which it has since been referred to, this Court has either markedly refrained from endorsing it or has intimated against its correctness.
The able and learned counsel in this case did not argue that this isolated decision was correct, nor is the opinion of the Oourt herein based on its correctness. The defense rest their case upon the doctrine slave decisis — and though “de-cisis’’ is in the plural, the defendant’s counsel presented but that single case. When a decision is wrong this Oourt has overruled it, though it has been again and again repeated, notably Hoke v. Henderson, 15 N. C., 1; Watson v. Watson, 56 N. C., 400, and there are many others. Certainly when there is only one decision, and that is clearly wrong upon its face, is supported by no precedent, before or since, and is opposed to the public policy of the State, it would be singular if the courts were compelled to repeat the error instead of correcting it. Nor can the doctrine that the decision has “become a rule of property” be invoked. Railroad leases are not a matter of everyday dealing. This is the first time since the case in the 72 N. C. that the construction of such a clause has been presented to the Oourt. The clause construed is not even a provision of a general law, but is merely a clause in a private act, and now a similar clause in another private act is before us. If the former construction was wrong, now at the first opportunity it should be corrected. The former decision after it was made was conclusive between the parties thereto and as to that charter. It would not have been conclusive even between the same parties in a second lease, especially after the doubt cast upon it, and for this reason when a second lease was proposed it was signed at midnight to avoid an injunction from a State court and the lessee obtained in the Federal District Court a validating decision, *597which is not put upon the correctness of the decision in the 72 N. C., 634. The Judge (Simonton), a good lawyer, was careful to put his ruling upon the sole ground that the Supreme Court of the State had so held. Southern Railway Co. v. N. C. Railroad Co., 81 Fed., 595.
A construction by the Court of one private statute does not establish a rule of property as to rights claimed under another private statute, although the language of the two may be similar, or even identical. Williamson v. Berry, 8 How. (U. S.), 495; Hatch v. Burroughs, 1 Woods, 439; Barber v. Railroad, 166 U. S., 43; Wood v. Brady, 150 U. S., 18. The charters of both the North Carolina Eailroad and of the Atlantic and North Carolina Eailroad have been held to be private statutes. Hughes v. Commissioners, 107 N. C., 598; Durham v. Railroad, 108 N. C., 399 ; Logan v. Railroad, 116 N. C., 940.
Besides what is above said, this lease should not be held valid because of an erroneous decision, between other parties, construing a clause in another and different private act, and which decision has never since been held correct, for many reasons, among them:
(1) When State v. Railroad, 72 N. C., 634, was decided it received the vote of but three Judges out of five, and the lower Court (Albertson) had held against its validity. It has been argued that the lease having been made by the executive department, charged with operating the property, the courts should not intervene. It is clear that this is a mistaken view, for to the legislative, not to the executive department, belonged the function of permitting the property to be leased, and the trust confided to the State directors by the statute was to operate the State’s property, not to lease it and pass, its control away from the State into alien hands, as was well said by Bynum, J., in 72 N. C.
(2) The decision in the 72 N. C., 634, was not only called in question by the division of the Judges, and the inherent *598error apparent on inspection, but it bas never been beld to be correct since, not even (as we bave seen) in tbe opinion in tbe Federal Court, 81 Fed., 595, wbicb sustained tbe second lease of tbe North Carolina Railroad, not because tbe decision in 72 N. C., 634, was correct, but simply because it had been made in a case to wbicb that railroad bad been a party. In tbe following cases only bas it been referred to in this Court since, and in not one of them with approval: In State v. Railroad, 73 N. C., 529, Rodman J., who bad not sat in State v. Railroad, 72 N. C., 634, because interested as a stockholder in tbe North Carolina Railroad, referred to tbe said decision in tbe 72 as res judicata (wbicb it was as between tbe parties), and beld that tbe State could not forbid the lessee to change the gauge. He placed bis opinion in tbe 73 N. C. on tbe ground that the Legislature could not forbid tbe change of gauge upon tbe since wholly discredited and overthrown doctrine that tbe State could not in any respect regulate tbe management of the railroad, neither its rates of fare and freight nor the location of its station-houses nor any other detail of its economic management. Bynum, J., again dissented, and júme bas vindicated bis judgment. , Indeed, Pearson, 0. J., bad. long previously, in State v. Matthews, 48 N. C., 459, beld tbe true doctrine that the Legislature, notwithstanding tbe charter, could “afterwards regulate tbe speed at wbicb tbe cars shall run” and control railroads in other respects, adding “tbe sovereign being presumed to reserve to itself the right of regulation of all such matters in tbe absence of an express contract to tbe contrary.”
State v. Railroad, 72 N. C., 634, was first mentioned again in 116 N. C., 945, where this Court merely said that tbe validity of tbe lease was “res judicata” between tbe parties, but no intimation was given that it bad been correctly so held. In 120 N. C., 624, tbe General Assembly addressed an inquiry to the Supreme Court, in whose reply, through *599Chief Justice Faircloth, it is said: ‘‘Without expressing any intimation either way upon the question whether the power to lease its road is vested in the North Carolina Eailroad Company by its charter/’ etc. The inquiry was upon a clause in a pending bill by which it was sought to validate the new lease of the North Carolina Eailroad. The Court refused to say that the decision in 72 N. 0. was correct, and the bill did not pass.
State v. Railroad, 72 N. C., 634, was next mentioned in Harden v. Railway, 129 N. C., 358, where the Court, referring to the second lease of the North Carolina Eailroad, said: “If the lease is valid because made .subsequent to the decision of a divided Oourt’in State v. Railroad, 72 N. C., 634,” etc., and also said, p. 356: “If it were a new question the Court might possibly hold with Judge Bynum." The Court thus recognized that as to the North Carolina Eailroad the matter was res judicata, but refused to approve the decision. The next and last reference was made by Mr. Justice Connor in Land Co. v. Hotel, 132 N. C., 533, where he says: “Bynum, J., in his very able dissenting opinion in State v. Railroad, 72 N. C., 645, says: ‘No railroad scheme was ever devised by more of the wisdom and patriotism of the State. It was intended to be in fact what it was in name, the North Carolina Railroad, which, when completed from the Atlantic to the Tennessee line, would radiate a uniform system of lateral roads connecting all parts of the State in a common brotherhood by an easy and convenient intercommunication of trade and travel.’ ” Judge Connor further says (p. 534) : “It is difficult to believe that the policy of the Stale for nearly a century was to be reversed and the prospective seaport was to be hampered by the grant of the absolute ownership of the entire water-front thereof, separate and distinct from the ownership of the abutting lands; that the State was to part with this property which it held in trust for all of its *600citizens. Nothing save a clear declaration of such purpose would justify such conclusion.” This was found so “difficult to believe” that Judge Connor, speaking for us, held that we did not believe it. Certainly, then, we cannot believe, without “a clear declaration of such purpose,” that the State intended to grant away the control, not merely of a waterfront, but of the line of railroad which she had built to that port and “held in trust for all its citizens.”
Thus we see that the solitary case invoked to wrest this property from the State was not only, as Judge Bynum said^ “without authority or decision cited to sustain it and without a precedent,” but it has received no support since from any decision in any other court, and always, when referred to since in this Court, it has either been cited only as being res judicata of that particular lease or a strong intimation of its doubtful character was recorded. This, as well as the other circumstances calculated to discredit its authority, were well known to the defendant, and it took this lease little more than ninety days before the Legislature would meet, which could alone confer the power to lease, according to the decisions of the United States Supreme Court and all other precedents, and now asks us to bold such lease valid because of that one entirely unsupported decision. The lessee knew it had been questioned and doubted. It took with notice that it was not an “approved precedent.”
(3) The citation of the lease of the North Carolina Railroad Company is peculiarly unfortunate. The history of the means by which that first lease was procured is not in this record, but there was nothing in its negotiation which could recommend it as a precedent. The company now operating it as lessee reports to the Corporation Commission that it made, for the year ending 30 June^ 1906, over $1,000,000 net profits after paying the rental, all operating expenses of all kinds, including maintenance of equipment and of *601roadway, damages, salaries, taxes and charges of all kinds. Thus the people of the State have paid the rent and taxes for the lessee and all expenses of every kind, and we are presenting the lessees in addition yearly a net profit of over $1,000,000. The Corporation Commission Reports are as official as those of this Court or of the State Treasury, and may properly be referred to. With this annual loss of over $1,000,000 to the people of the State from the decision of a divided Court', which decision has not since been approved, we might well refuse to approve it now, when another piece of the State’s property is about to pass from its control and the sole authority invoked is that decision. This leasehold of the North Carolina Railroad, which cost the lessee nothing, and on which the people are paying the rent and all expenses, besides making the lessee an annual present of over $1,000,000, is said to be counted in its mortgage as worth $12,000,000 — a princely gift. In truth, on a 4 per cent, basis, the lease is worth $25,000,000, and this value will increase unless rates of transportation are largely reduced.
If the lease is ultra vires there could be no ratification of it. If the words conferring the right “to farm' out transportation over the road” could not confer on the company the right to lease the road itself and all its property and franchises, certainly the receipt of rent from an illegal lease could not confer the power to lease which the Legislature has not given.
In Railroad v. Railroad, 130 U. S., 22, Miller, J., said, quoting Railroad v. Riche, L. R., 7 House of Lords, 653: “A contract not within the scope of the powers conferred on a corporation cannot be made valid by the assent of every one of the shareholders, nor can it by any partial performance become the foundation of a right of action.” This is cited and approved in Transportation Co. v. Pullman, 139 *602U. S.; 55. In the same ease and in Thomas v. Railroad, 101 U. S., 83, is a full collection of authorities from the highest courts in this country and in England, all holding that “a railroad company has granted to it by charter a franchise intended in large measure to be exercised for the public good, the due performance of those functions being the consideration of the public grant, any contract which disables the corporation from performing those functions, which undertakes without the consent of the State to transfer to others the rights and powers conferred by the charter, and relieve the grantees of the burden which it imposes, is a violation of the contract with the State and is void as against public policy.”
Eepeated reference has been made in opinions of this Court to the wise and patriotic system of railroads which our fathers planned and built. Seventy years ago they began with an efficient system of State regulation of railroads by the only practical plan of State ownership. Now when all the world has turned to that system, by either taking over the sole ownership or a controlling interest — save only this country and England, in both of which the tide is setting in the same direction — we have-before us the question of the validity of transferring to alien hands the last piece of the State’s once magnificent patrimony.
It may be well to recall the method by which that patrimony has piece by piece disappeared, as shown in our statutes and judicial reports and by common knowledge:
As long as the Wilmington and Weldon Kailroad Company received a bare support from a sparse population and an impoverished country it was undisturbed, but as soon as it gave unmistakable signs of becoming profitable a syndicate, by insisting that the State could not properly manage the road because it had not till then been profitable, procured the passage of an act by which the State exchanged its shares *603in that road for the same face value of its bonds. As those bonds were then quoted around 35, and there is good reason to believe that the stock has since been watered more than 25-fold- — Douglas, J., in Corporation Commission v. Atlantic Coast Line Railroad, 137 N. C., 25 — the syndicate is now receiving dividends on more than $70 from the public for every $1 invested in acquiring from the State this valuable property. Nest the North Carolina Eailroad gave signs of becoming valuable, and then the present Northern syndicate made it a leasehold property, now worth over $25,000,000, from which they receive an annual profit of over $1,000,000, as we have seen; next came the Ealeigh and Gaston and Ealeigh and Augusta Eailroads, whose State stock was acquired by the process of being exchanged for depreciated State bonds, and their stock has been watered 6-fold; then the Western North Carolina Eailroad was sold for a beggarly sum and bonded and stocked (as the Eailroad Commission Eeports of that day showed) for $74,550 per mile, on which the public are to pay dividends and interest. And now the last' fragment of the State’s great .system, the Benjamin of our hopes, is to pass into alien hands. It lingered last only because it was the last to show signs of coming profitableness.
In Railroad v. Wellman, 143 U. S., 339, the Supreme Court of the United States held that if a Legislature fixed rates that would permit a railroad company to earn 4 per cent, net on the true value of its property, after purging its expense account by legal investigation from exorbitant salaries and illegal disbursements, the courts could not interfere. As the State now parts with the control of its last railroad on the ground that it has not hitherto been profitable, it is well to recall that the same pleas were made by syndicates who were anxious to relieve the State of the burden of the other State railroads now so profitable, and that *604if they had not been hearkened to, the people of this State would now be paying no taxes of any kind whatever, or would be receiving reduction in freights and fares of the amount of all their taxes. Illinois and New Jersey are both free from payment of any or a large part of their State taxes by reason of those States acting wisely as to its ownership of railroads.
By the report of the Corporation Commission for the present year, it appears that (using round numbers) the State taxes are $2,500,000, county taxes aggregate $2,500,-000, town taxes $1,500,000, school taxes $1,500,000 — a total of $8,000,000 of taxes. During the same time the receipts of railroads within this State from intrastate freight and passengers and its pro rata, according to mileage, from through traffic, was (counting on the same rate of increase since 30 June) over $23,000,000. Their expenses, by their own showing, unpurged as suggested in the above decisioii in the 143 U. S., was $17,000,000, leaving $10,000,000 net profits, most of which has been carried out of the State to our impoverishment. Not all of this has been earned, it is true, on the railroads whose controlling interest was once owned by the State which could have thus retained an efficient control. These figures are pertinent, and should well make us pause before we hold valid this passing over to alien hands of the State’s last property upon the authority of a single decision, erroneous on its face, without precedent when delivered by a divided Court, and which has not been since apiproved, not even in this case, nor has it been followed till now.
We were told on the argument that the lease should be favored, if the law was doubtful, because State management was bad and free passes had been illegally issued. These arguments would have been more in place in an argument before the General Assembly upon an application for author*605ity to lease, but if it was admissible for counsel to present it, it is not improper to say that the publicity possible under State ownership enabled the discovery to be made of this handful of illegal passes issued by the Atlantic and North Carolina Kailroad Company. What would have been the discovery if the same calcium-light of publicity had been turned upon the syndicate-owned railroads ? Would it have been better? In State v. Railroad, 122 N. C., 1069, Douglas, states that the number of free passes in this State were then over 100,000.
As to the management of the railroads under private ownership, it has been more profitable certainly, but profitable to whom ? Not to the public, who pay into the treasuries of the syndicates over ten million dollars in excess of all expenses and some seven million five hundred thousand dollars after paying their taxes and rentals, and after allowing 4 per cent, net profit on the $70,000,000, at which they list the true value of their properties. Is there any cause in this to increase the number of privately owned railroads at a loss to the State of her last remaining railroad ?
But finally, we were told by their counsel that these corporations are at least better managed than when in the State’s hands. Are the daily reports of wrecks, deaths of passengers and employees, missed connections and delayed freights fewer than when the State owned the railroads and public opinion exerted a direct pressure upon officials ? Are the salaries of the higher officials less, or the pay of the working force greater, or their hours shorter than when the officials in charge of tire railroads knew that the p-ublic eye was upon them and the public could command their faithful discharge of duty.
When the divided Court in 73 N. C. denied the right of the Legislature to’ regulate the gauge, Judge Bynum asserted that the State did have that power, and with prophetic vision foretold that the gauge would be changed back and that there *606would be the same gauge throughout the Union. It has come to pass. He also said this, 72 N. C. at p: 654, which comes more and more clear to the sight of all men as the years unfold before us: “The rapid multiplication of these bodies, their resources and far-reaching ambition, their ubiquity and vast combinations, all moved and directed by concentrated power and talent, constitute them a distinct and almost independent and over-shadowing power in our governments, and in fact the great social' and political problem of the age. Whether they shall control the government or government shall control them, are questions that are forcing themselves upon public attention and fast assuming practical importance. They should and will be maintained in the exercise of all their essential and legitimate powers as necessary and useful institutions of modern civilization. But if in addition to the dangerous power of transferring all their property and franchises to anybody and anywhere, it should also be held that their corporate powers are such contracts as put them beyond the reach of all legislative check or control in the interest of society, then the problem will have been solved. The government, in my opinion, will have abdicated its sovereignty, heretofore supposed to be inalienable, and society will be left without protection to chartered irresponsibility