Case: SINKING-FUND CASES. Union Pacific Railroad Company v. United States. Central Pacific Railroad Company v. Gallatin
Abbreviation: Union Pacific Railroad v. United States
Decision Date: 1878-10
Docket Number: 
Citation: 99 U.S. 700
Volume: 99
Reporter: United States Reports
Court: Supreme Court of the United States
Jurisdiction: United States
Parties: SINKING-FUND CASES. Union Pacific Railroad Company v. United States. Central Pacific Railroad Company v. Gallatin.
Judges: Mr. Justice Field, Me. Justice Strong, and Me. Justice Bradley, dissented.
Pages: 700–769

Head Matter:
SINKING-FUND CASES. Union Pacific Railroad Company v. United States. Central Pacific Railroad Company v. Gallatin.
1. So far as it establishes in the treasury of the United States a sinking-fund, the act of Congress approved May 7,1878 (20 Stat. 50), entitled “An Act to alter and amend (he act entitled ‘An Act to aid in the construction of a railroad and telegraph line from the Missouri River to the Pacific Ocean, and to secure to the government the use of the same for postal, military, and other purposes,’ approved July 1, 1862, and also to alter and amend the act of Congress approved July 2, 1864, in amendment of said first-named act,” is not unconstitutional.
2. The debt of the respective companies therein named to the United States is not paid by depositing and investing the fund in the manner prescribed by that act.
3. Retaining in the fund the one-half of the earnings for services rendered to the government by the respective companies, which, by the act of July 2, 1864 (13 Stat. 366), was to be paid, does not release the government from such payment. Although kept in the treasury, the fund is owned by them, and they will be entitled to the securities whereof it consists which remain undisposed of when the debts chargeable upon it shall be paid. Under the circumstances, such retaining is, in law, a payment to them.
4. The establishment of the fund is a reasonable regulation of the administration of the affairs of the companies, promotive alike of the interests of the public and of the corporators, and is warranted under the authority which Congress has, by way of amendment, to change or modify the rights, privileges, and immunities granted by it.
6. The right of amendment, alteration, or repeal reserved by Congress in said acts of 1862 and 1864 considered.
6. The legislation of Congress in relation to the Central Pacific Railroad Company and the Western Pacific Railroad Company — the latter now by consolidation a part of the former — considered, and held, 1. That, to the extent of the powers, rights, privileges, and immunities thereby grante'd, Congress retains the right of amendment, and by exercising it may, in a manner not inconsistent with the original charter granted by California, as modified by the act of that State passed in 1864, accepting what had been done by Congress, regulate the administration of the affairs of the company in reference to the debts created by it under authority of such legislation. 2. That the establishment of the sinking-fund by the act of May 7, 1878 (supra), does not conflict with any thing in said charter.
Appeal from the Court of Claims.
Appeal from-the Circuit Court of the United States for the District of California.
The Union Pacific Railroad Company filed its petition in the Court of Claims against the United States. The court found the following facts: —
1. That during the month of July, 1878, the claimant, at the request of the defendant, transported troops of the United States over the claimant’s road, as averred in the petition.
2. That the amount and value of said service so rendered by the claimant for the defendant, as stated in proposition first, was and is the sum of $10,451.73, the same being fair and reasonable compensation for said service, and not exceeding the amounts paid by private parties for the same kind of service.
3. That said amount was duly allowed and audited by the accounting officers of the treasury for the said service, on the eighth day of October, 1878.
4. That on the twenty-eighth day of October, 1878, the claimant demanded of the defendant the one-half of the said sum, to wit, $5,225.68^-, and protested against the payment of said one-half into any sinking-fund, or ,its application to the payment of bonds issued by the United States to said company, or to the interest thereon, and against the retention of said one-half by the United States on any account whatever.
5. That on the fourth day of November, 1878, the proper officers of the Treasury Department of the United States issued a warrant, No. 5950, for the said amount of $10,451.73, on account of the transportation aforesaid.
6. That on the fifth day of November, 1878, the Secretary of the Treasury refused to pay the said one-half to the claimant, giving as his reason therefor that the same was required by an act of Congress, approved May 7, 1878, hereinafter referred to, to be turned into a sinking-fund, as provided in said act.
7. That on Nov. 6,1878, a draft to the order of the Secretary of the Treasury, assignee of the Union Pacific Railroad Company, for $10,451.13, was issued. That the Secretary of the Treasury made the following indorsement on the draft: —
“Pay to the Treasurer of the United States, to be by him deposited in the United States Treasury, in general account, on account of moneys received from the Union Pacific Railroad Company, being the compensation found due it for transportation per formed for the War Department in July, 1878, and withheld in accordance with the provisions of sect. 2, act May 7, 1878, as follows : —
“ Onc-halfj $5,225.86, on account of reimbursement of interest paid on bonds issued to the Union Pacific Railroad Company.
“Credit to be given under date of August —, and one-half, $5,225.87, on account sinking-fund, Union Pacific Railroad Company, to be carried to credit under sect. 4 of the above act.
“JonN Sherman,
“ Secretary of the Treasury, Assee. Union Pacific Railroad.”
And the Assistant Treasurer of the United States indorsed the same.
8. That the Assistant Treasurer of the United States issued a certificate of deposit, showing that $10,451.73 on account of moneys received from the Union Pacific Railroad Company, being compensation found due it for transportation performed in July, 1878, and withheld, &e., have been deposited in the treasury.
9. That revenue covering warrants were issued, showing the moneys before mentioned have been covered into the treasury, one-half, viz. $5,225.86, on account of reimbursement of interest, and one-half, viz. $5,225.87, on account of sinking-fund.
10. That the Secretary of the Treasury directed the Treasurer of the United States to purchase at the end of each month five per cent bonds of the United States, to the amount of the moneys withheld from the Union and Central Pacific Railroad Companies since July 1, 1878, and apply the same to the credit of the company from which the money may have been withheld, the bonds to be registered in the name of the Treasurer of the United States. In a schedule annexed, the sum of $5,225.87 appears as having been withheld on this account.
11. That the Treasurer of the United States, in accordance with the directions above recited, purchased bonds of the funded loan of 1881, for account of the sinking-fund, Union Pacific Railroad Company, to a large amount.
,12. That an appropriation warrant was issued on account of sinking-fund, Union Pacific Railroad Company, for the amount expended by the Treasurer of the United States in the pur chase of five per cent bonds as before recited, and there was included ■ in the amount appropriated the sum of $5,225.87, ■which lmd been deposited and covered into the treasury, as shown in the other findings.
13. That the claimant never assigned or in any way parted with- the claim sued for; but the issuing of said warrant mentioned in finding No. 5, in favor of the Secretary of the Treasury as assignee of the Union Pacific Railroad Company, and the issuing of the draft on said warrant, as found in finding No. 7, payable to the order of the Secretary of the Treasury as assignee of the Union Pacific Railroad Company, was each the act of the defendant, done without the consent of the claimant; and the said warrant and draft were issued in that form for the purpose of enabling the proper officers of the Treasury Department to place the said money in the treasury, as found in the preceding findings.
14. That the said amount placed to the credit of the sinking-fund, to wit, the sum of $5,225.87, as hereinbefore found, is the one-half of the money earned by the claimant, as found in the above findings, Nos. 1 and 2, and for which half this action is prosecuted.
The court adjudged that the petition be dismissed, and the company thereupon appealed.
Gallatin, a stockholder of the Central Pacific Railroad Company, filed his bill against it and the persons constituting its board of directors, to compel them to comply with the requirements of the said act of May 7, 1878. He alleges that the board has threatened to disregard them, and that, Aug. 27, 1878, it declared a dividend of one per cent upon the capital stock of the company payable out of the earnings accumulated since June 30, 1878, although the company was then in default in respect of the payment of five per cent of the net earnings as required by the said act; that one of the consequences of its conduct, if persisted in, will be a forfeiture of the company’s property and franchises, to his irreparable injury. He prays for an injunction to restrain the directors from paying a dividend while the company is in default in respect to any of the terms, requirements, or provisions of said act, and from doing any other or further thing whatever in the premises in contravention or disregard thereof, or that will jeopardize or imperil, or cause or tend to cause, thereunder a forfeiture of any of the rights, privileges, grants, or franchises derived or obtained by said company from the United States.
The defendants filed a demurrer, which was overruled, and on their declining to answer, the court passed a decree in conformity with the prayer of the bill. They thereupon appealed.
The following is the legislation bearing upon the questions involved.
The act of Congress approved July 1,1862 (12 ijstat. 489), by its first section enacts: —
“That Walter S. Burgess ” and other persons therein named, “together with five commissioners to be appointed by the Secretary of the Interior, and all persons who shall or may be associated with them and their successors, are hereby created and erected into a body corporate and politic, in deed and in law, by the name, style, and title of ‘ The Union Pacific Railroad Company; ’ and by that . name shall have perpetual succession, and shall be able to sue and to be sued, plead and be impleaded, defend and be defended, in all courts of law and equity w'ithin the United States, and may make and have a common seal; and the said corporation is hereby authorized and empowered to lay out, locate, construct, furnish, maintain, and enjoy a continuous railroad and telegraph, with the appurtenances, from a point on the one hundredth meridian of longitude west from Greenwich, between the south margin of the valley of the Republican River and the north margin of the valley of the Platte River, in the Territory of Nebraska, to the western boundary of Nevada Territory, upon the route and terms hereinafter provided, and is hereby vested with all the powers, privileges, and immunities necessary to carry into effect the purposes of this act, as herein set forth. . . .
“ Sect. 2. That the right of way through the public lands be, and the same is hereby, granted to said company for the construction of said railroad and telegraph line; and the right, power, and authority is hereby given to said company to take from the public lands adjacent to the lino of said road, earth, stone, timber, and other materials for the construction thereof; said right of way is granted to said railroad to the extent of two hundred feet in width on each side of said railroad where it may pass over the public lands, including all necessary grounds for stations, buildings, workshops and depots, machine-shops, switches, side tracks, turntables, and water stations. The United States shall extinguish as rapidly as may be the Indian titles to all lands falling under the operation of this act, and required for the said right of way and grants hereinafter made.
“ Sect. 3 [as amended by sect. 4 of act of July 2,1864. 13 Stat. 356]. That there be, and is hereby, granted to the said company, for the purpose of aiding" in the construction of said railroad and telegraph line, and to secure the safe and speedy transportation of the mails, troops, munitions of war, and public stores thereon, every alternate section of public land, designated by odd numbers to the amount of ten alternate sections per mile on each side of said railroad, on the line thereof, and within the limits of twenty miles on each side of said road, not sold, reserved, or otherwise disposed of by the United States, and to which a pre-emption or homestead claim may not have attached at the time the line of said road is definitely fixed: Provided, that all mineral lands shall be excepted from the operation of this act; but where the same shall contain timber, the timber thereon is hereby granted to said company. And all such lands, so granted by this section, which shall not be sold or disposed of by said company within three years after the entire road shall have been completed, shall be subject to settlement and pre-emption, like other lands, at a price not exceeding one dollar and twenty-five cents per acre, to be paid to said company.
“Sect. 4 [as amended by sect. 6, act of 1864]. That whenever said company shall have completed twenty consecutive miles of any portion of said railroad and telegraph line,, ready for the service contemplated by this act, and supplied with all the necessary .drains, culverts, viaducts, crossings, sidings, bridges, turnouts, watering-places, depots, equipments, furniture, and all other appurtenances of a first-class railroad, the rails and all other iron used in the construction and equipment of said road to be American manufacture_of the best quality, the President of the United States shall appoint three commissioners to examine the same and report in relation thereto; and if it shall appear to him that twenty consecutive miles of said railroad and telegraph line have been completed and equipped in all respects as required by this act, then, upon certificate of said commissioners to that effect, patents shall issue conveying the right and title to said lands to said company, on each side of the road as far as the same is completed, to the amount aforesaid; and patents shall in like manner issue as each twenty miles of said railroad and telegraph line are completed, upon certificate of said commissioners. Any vacancies occurring in said board of commissioners by death, resignation, or otherwise shall be filled by the President of the United States: Provided, however, that no such commissioners shall be appointed by the President of the United States.unless there shall be presented to him a statement, verified on oath by the president of said company, that such twenty miles have been completed, in the manner required by this act, and setting forth with certainty the points where such twenty miles begin and where the same end; which oath shall be taken before a judge of a court of record.
“ Sect. 5. That, for the purposes herein mentioned, the Secretary of the Treasury shall, upon the certificate in writing of said commissioners of the completion and equipment of forty [after-wards, by act of 1864, reduced to twenty] oonsecutive miles of said railroad and telegraph, in accordance with the provisions of this act, issue to said company bonds of the United States of $1,000 each, payable in thirty years after date, bearing six per centum per annum interest (said interest payable semi-annually), which interest may be paid in United States treasury notes, or any other money or currency which the United States have or shall declare lawful money and a legal tender, to the amount of sixteen of said bonds per mile for each section of forty [twenty] miles; and to secure the repayment to the United States, as hereinafter provided, of the amount of said bonds so issued and delivered to said company, together with all interest thereon which shall have been paid by the United States, the issue of said bonds and delivery to the company shall ipso facto constitute a first mortgage on the whole line of the railroad and telegraph, together with the rolling-stock, fixtures; and property of every kind and description, and in consideration of which said bonds may be issued; and on the refusal or failure of the said company to redeem said bonds, or any-part of them, when required so to do by the Secretary of the Treasury, in accordance with the provisions of this act, the said road, with all the rights, functions, immunities, and appurtenances thereunto belonging, and also all lands granted to the said company by the United States, which at the time of said default shall remain in the ownership of the said company, may be taken possession of by the Secretary of the Treasury for the use and benefit of the United States: Provided, this section shall not apply to that part of any road now constructed.
“ Sect. 6. That the grants aforesaid are made upon condition that said company shall pay said bonds at maturity, and shall keep said railroad and telegraph line in repair and use, and shall at all times transmit despatches over said telegraph line, and transport mails, troops, and munitions of war, supplies and public stores upon said railroad for the government, whenever required to do so by any department thereof, and that the government shall at all times have the preference in the use of the same for all the purposes aforesaid (at fair and reasonable rates of compensation, not to exceed the amounts paid by private parties for the same kind of service); and all [by act of 1864 reduced to half] compensation for services rendered for the government shall be applied to the payment of said bonds and interest until the whole amount is fully paid. Said company may also pay the United States, wholly or in part, in the same or other bonds, treasury notes, or other evidences of debt against the Unitéd States, to be allowed at par; and after said road is completed, until said bonds and interest are paid, at least five per centum of the net earnings of said road shall also be annually applied to- the payment thereof.’-’
“ Sect. 9. That . . . the Central Pacific Railroad Company of California, a corporation existing under the laws of the State of California, are hereby authorized to construct a railroad and telegraph line from the Pacific coast, at or near San Francisco, or the navigable waters of the Sacramento River, to the eastern boundary of California, upon the same terms and conditions, in all respects, as are contained in this act for the construction of said railroad and telegraph'line first mentioned, and to meet and connect with the‘first-mentioned railroad and telegraph line on the eastern boundary of California. Each of said companies shall file their acceptance of. the conditions of this act in the Department of the Interior within six months after the passage of this act.
“ Sect. 10. That . . . the Central Pacific'Railroad Company of California, after completing its road across said State, is authorized to continue the construction of said railroad and telegraph through the Territories of the United States to the Missouri River, including the branch roads specified in this act, upon the routes hereinbefore and hereinafter indicated, on the terms and conditions provided in this act in relation to the said Union Pacific Railroad Company, until said roads shall meet and connect, and the whole line of said railroad and branches and telegraph is completed.
“ Sect. 11. That for three hundred miles of said road most mountainous and difficult of construction, to wit, one hundred and fifty miles westwnrdly from the eastern base of the Rocky Mountains, and one. hundred and fifty miles eastwardly from the western base of the Sierra Nevada Mountains, said points to be fixed by the President of the United States, the bonds to be1 issued in the construction thereof shall be treble the number per mile hereinbefore provided; and the same shall be issued, and the lands herein granted be set apart, upon the construction of every twenty miles thereof, upon the certificate of the commissioners as aforesaid that twenty consecutive miles of the same are completed ; and between the sections last named of one hundred and fifty miles each the bonds to be issued to aid in the construction thereof shall be double the number per mile first mentioned, and the same shall be issued and the lands herein granted be set apart, upon the construction of every twenty miles thereof, upon the certificate of the commissioners as aforesaid that twenty consecutive miles of the same are completed: Provided, that no more than fifty thousand of said bonds shall be issued under this act to aid in constructing the main line of said railroad and telegraph.”
“ Sect. 17. That in case said company or companies shall fail to comply with the terms and conditions of this act by not completing said road and telegraph and branches within a reasonable time, or by not keeping the same in repair and use, but shall permit the same for an unreasonable time to remain unfinished or out of repair and unfit for use, Congress may pass any act to insure the speedy completion of said road and branches or put the same in repair and use, and may direct the income of said railroad and telegraph line to be thereafter devoted to the use of the United States, to repay all such expenditures caused by the default and neglect of such company or companies: Provided, that if said roads are not completed so as to form a continuous line of railroad, ready for use, from the Missouri River to the navigable waters of the Sacramento River, in California, by the first day of July, eighteen hundred and seventy-six, the whole of all of said railroads before mentioned, and to be constructed under the provisions of this act, together with all their furniture, fixtures, rolling-stock, machine-shops, lands, tenements, and hereditaments, and property of every kind and character, shall be forfeited to and be taken possession of by the United States. . . .
“ Sect. 18. That whenever it appears that the not earnings of the entire road and telegraph, including the amount allowed for services rendered for the United States, after deducting all expenditures,— including repairs, and the furnishing, running, and managing of said road, — shall exceed ten per centum upon its cost (exclusive of the five per centum to be paid to the United States), Congress may reduce the rates of fare thereon, if unreasonable in amount, and may fix and establish the same by law. And the better to accomplish the object of this act, namely, to promote the public interest and welfare by the construction of said railroad and telegraph line, and keeping the same in working order, and to secure to the government at all times (but particularly in time of war) the use and benefits of the same for postal, military, and other purposes, Congress may at any time — having due regard for the rights of said companies named herein — - add to, alter, amend, or repeal this act.”
Sections of the Act of J-uly 2, 1864. 13 Stat. 356.
“ Sect. 5. That . . . , and that only one-half of the compensation for services rendered for the government by said companies shall be required to be applied to the payment of the bonds issued by the government in aid of the construction of said roads.”
“ Sect. 10. That sect. 5 of said act [act of July 1, 1862] be so modified and amended that the Union Pacific Railroad Company, the Central Pacific Railroad Company, and any other company authorized to participate in the construction of said road, may, on the completion of each section of said road, as provided in this act and the act to which this act is an amendment, issue their first-mortgage bonds on their respective railroad and telegraph lines to an amount not exceeding the amount of the bonds of the United States, and of even tenor and date, time of maturity, rate and character of interest, with the bonds authorized to be issued to said railroad companies respectively. And the lien of the United States bonds shall be subordinate to that of the bonds of any or either of said companies hereby authorized to be issued on their respective roads, property, and equipments, except as to the provisions of the sixth section of the act to which this act is an amendment, relating to the transmission of despatches and the' transportation of mails, troops, munitions of war, supplies, and public stores for the government of the United States.” . . .
“ Sect. 22. And be it further enacted, that Congress may at-any time alter, amend, or repeal this act.”
Act of May 7,1868. 20 Stat. 56.
An Act to alter and amend the act entitled “ An Act to aid in the construction of a railroad and telegraph line from the Missouri River to the Pacific Ocean, and to secure to the government the use of the same for postal, military, and other purposes,” approved July first, eighteen hundred and sixty-two, and also to alter and amend the act of Congress approved July second, eighteen hundred and sixty-four, in amendment of said first-named act.
“Whereas, on the first day of July, anno Domini eighteen hundred and sixty-two, Congress passed an act entitled ‘ An Act to aid in the construction of a railroad and telegraph line from the Missouri River to the Pacific Ocean, and to secure to the government the use of the same for postal, military, and other purposes;’ and
“Whereas afterwards, on the second day of July, anno Domini eighteen hundred and sixty-four, Congress passed an act in amendment of said first-méntioned act; and
“ Whereas the Union Pacific Railroad Company, named in said acts, and under the authority thereof, undertook to construct a railway, after the passage thereof, over some part of the line mentioned in said acts ; and
“ Whereas, under the authority of the said two acts, the Central Pacific Railroad Company of California, a corporation existing under the laws of the State of California, undertook to construct a railway, after the passage of said acts, over some part of the line mentioned in said acts; and
“Whereas the United States, upon demand of said Central Pacific Railroad Company, have heretofore issued, by way of loan and as provided in said acts, to and for the benefit of said company, in aid of the purposes named in said acts, the bonds of the United States, payable in thirty years from the date thereof, with interest at six per centum per annum, payable half-yearly, to the amount of $25,885,120, which said bonds have been sold in the market or otherwise disposed of by said company; and
“ Whereas the said Central Pacific Company has issued and disposed of an amount of its own bonds equal to the amount so issued by the United States, and secured the same by mortgage, and which are, if lawfully issued and disposed of, a prior and paramount lien, in the respect mentioned in said acts, to that of the United States, as stated and secured thereby; and
“Whereas, after the passage of said acts, the Western Pacific Railroad Company, a corporation then existing under the laws of California, did, under the authority of Congress, become the assignee of the rights, duties, and obligations of the said Central Pacific Railroad Company, as provided in the act of Congress passed on the third of March, anno Domini eighteen hundred and sixty-five, and did, under the authority of the said act and of the acts aforesaid, construct a railroad from the city of San Jos6 to the city of Sacramento, in California, and did demand and receive from the United States the sum of $1,970,560 of the bonds of the United States, of the description before mentioned, as issued to the Central Pacific Company, and in the same manner and under the provisions of said acts; and upon and in respect of the bonds so issued to both said companies the United States have paid interest to the sum of more than $13,500,000, which has not been reimbursed; and
“ Whereas said Western Pacific Railroad Company has issued and disposed of an amount of its own bonds equal to the amount so issued by the United States to it, and secured the same by mortgage, which are, if lawfully issued and disposed of, a prior and paramount lien to that of the United States, as stated, and secured thereby; and
“Whereas said Western Pacific Railroad Company has since become merged in, and consolidated with, said. Central Pacific Railroad Company, under the name of the Central Pacific Railroad Company, whereby the said Central Pacific Railroad Company has become liable to all the burdens, duties, and obligations before resting upon said Western Pacific Railroad Company; and divers other railroad companies have been merged in and consolidated with said Central Pacific Railroad Company; and
“ Whereas the United States, upon the demand of the said Union Pacific Railroad Company, have heretofore issued, by way of loan to it, and as provided in said acts, the bonds of the United States, payable in thirty years from the date thereof, with interest at six per centum per annum, payable half-yearly, the principal sums of which amount to $27,236,512; on which the United States have paid over $10,000,000 interest over' and above all reimbursements; which said bonds have been sold in the market or otherwise disposed of by said corporation; and
“ Whereas said corporation has issued and disposed of an amount of its own bonds equal to the amount so issued to it by the United States as aforesaid, and secured the same by mortgage, and which are, if lawfully issued and disposed of, a prior and paramount lien in the respect mentioned in said acts, to that of the United States, as stated, and secured thereby; and
“ Whereas the total liabilities (exclusive of interest to accrue) to all creditors, including the United States, of the said Central Pacific Company, amount in the aggregate to more than $9(3,000,-000, and those of the said Union Pacific Railroad Company to more than $88,000,(500 ; and
“Whereas'the United States, in view of the indebtedness and operations of said several railroad companies respectively, and of the disposition of their respective incomes, are not and cannot, without further legislation, be secure in their interests in and concerning said respective railroads and corporations, either as mentioned in said acts or otherwise ; and
“ Whereas a due regard to the rights of said several companies respectively, as mentioned in said act of eighteen hundred and sixty-two, as well as just security to the United States in the premises, and in respect of all the matters set forth in said act, require that the said act of eighteen hundred and sixty-two be altered and amended as hereinafter enacted; and
“ Whereas, by reason of the premises also, as well as for other causes of public good and justice, the powers provided and reserved in said act of eighteen hundred and sixty-four for the amendment and alteration thereof ought also to be exercised as hereinafter enacted: Therefore,
“ Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, that the net earnings mentioned in said act of eighteen hundred and sixty-two, of said railroad companies respectively, shall be ascertained by deducting from the gross amount'of their earnings respectively the necessary expenses actually paid within the year in operating the same and keeping the same in a state of repair, and also the sum paid by them respectively within the year in discharge of interest on their first-mortgage bonds, whose lien has priority over the lien of the United States, and excluding from consideration all sums owing or paid by said companies respectively for interest upon any other portion of their indebtedness; and the foregoing provision shall be deemed and taken as an amendment of said act of eighteen hundred and sixty-four, as well as of said act of eighteen hundred and sixty-two. This section shall take effect on the thirtieth day of June next, and be applicable to all computations of net earnings thereafter; but it shall not affect any right of the United States or of either of said railroad companies existing-prior thereto.
“ Sect. 2. That the whole amount of compensation which may, from time to time, be due to said several railroad companies respectively, for services rendered for the government, shall be retained by the United States, one-half thereof to be presently applied to the liquidation of the interest paid and to be paid by the United States upon the bonds so issued by it as aforesaid, to each of said corporations severally, and the other half thereof to be turned into the sinking-fund hereinafter provided, for the .uses therein mentioned.
“ Sect. 8. That there shall be established in the Treasury of the United States a sinking-fund, which shall be invested by the Secretary of the Treasury in bonds of the United States; and the semi-annual income thereof shall be in like manner from time to time invested, and the same shall accumulate and be disposed of as hereinafter mentioned. And in making such investments the Secretary shall prefer the five per centum bonds of the United States, unless, for good reasons appearing to him, and which he shall report to Congress, he shall at any time deem it advisable to invest in other bonds of the United States. All the bonds belonging to said fund shall, as fast as they shall be obtained, be so stamped as to show that they belong to said fund, and that they are not good in the hands of other holders than the Secretary of the Treasury until they shall have been indorsed by him, and publicly disposed of pursuant to this act.
“ Sect. 4. That there shall be carried to the credit of the said fund, on the first day of February in each year, the one-half of the compensation for services hereinbefore named, rendered for the government by said Central Pacific Railroad Company, not applied in liquidation of interest; and, in addition thereto, the said company shall, on said day in each year, pay into the treasury, to the credit of said sinking-fund, the sum of $1,200,000, or so much thereof ns shall be necessary to make the five per centum of the net earnings of its said road payable to the United States, under said act of eighteen hundred and sixty-two, and the whole sum earned by it as compensation for services rendered for the United States, together with the sum by this section required to be paid,' amount in the aggregate to twenty-five per centum of the whole net earnings of said railroad company, ascertained and defined as hereinbefore provided, for the year ending on the thirty-first day of December next preceding. That there shall be carried to the credit of the said fund, on the first day of February'in each year, the one-half of the compensation for services hereinbefore named, rendered for the government by said Union Pacific Railroad Company, not applied in liquidation of interest; and, in addition thereto, the said company shall, on said day in" each year, pay into the treasury, to the credit of said sinking-fund, the sum of $850,000, or so much thereof as shall be necessary to make the five per centum of the net earnings of its said road payable to the United States under said act of eighteen hundred and sixty-ttvo, and the whole sum earned by it as compensation for services rendered for the United States, together with the sum by this section required to be paid, amount in the aggregate to twenty-five per centum of the whole net earnings of said railroad company, ascertained and defined as hereinbefore provided, for the year ending on the thirty-first day of December next preceding.
“ Sect. 5. That whenever it shall be made satisfactorily to appear to the Secretary of the Treasury, by either of said companies, that seventy-five per centum of its net earnings, as hereinbefore defined, for any cnrrent year are or were insufficient to pay the interest for such year upon the obligations of such company, in respect of which obligations there may exist a lien paramount to that of the United States, and that such interest has been paid out of such net earnings, said Secretary is hereby authorized, and it is made his duty, to remit for such current year so much of the twenty-five per centum of net earnings required to be paid into the sinking-fund, as aforesaid, as may have been thus applied and used in the payment of interest as aforesaid.
“ Sect. 6. That no dividend shall be voted, made, or paid for or to any stockholder or stockholders, in either of said companies respectively at any time when the said company shall be in default in respect of the payment either of the sums required as aforesaid to be paid into said sinking-fund, or in respect of the payment of the said five per centum of the net earnings, or in respect of interest upon any debt the lien of which, or of the debt on which it may accrue, is paramount to that of the United States; and any officer or person who shall vote, declare, make, or pay, and any stockholder of any of said companies who shall receive any such dividend contrary to the provisions of this act, shall be liable to the United States for the amount thereof, which, when recovered, shall be paid into said sinking-fund. And every such officer, person, or Stockholder who shall knowingly vote, declare, make, or pay any such dividend, contrary to the provisions of this act, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by a fine not exceeding $10,000, and by imprisonment not exceeding one year.
“ Sect. 7. That the said sinking-fund so established and accumulated shall, at the maturity of said bonds so respectively issued by the Uuited States, be applied to the payment and satisfaction thereof, according to the interest and proportion of each of said companies in said fund, and of all interest paid by the United States thereon, and not reimbursed, subject to the provisions of the next section.
“ Sect. 8. That said sinking-fund so established and accumulated shall, according to the interest and proportion of said companies respectively therein, be held for the protection, security, and benefit of the lawful and just holders of any mortgage or lien debts of such companies respectively, lawfully paramount to the rights of the United States, and for the claims of other creditors, if any, lawfully chargeable upon the funds so-required to be paid into said sinking-fund, according to their respective lawful priorities, as well as for the United States, according to the principles of equity, to the end that all persons having any claim upon said sinking-fund may be entitled thereto in due order; but the provisions of this section shall not operate or be held to impair any existing legal right, except in the manner in this act provided, of any mortgage, lien, or other creditor of any of said companies respectively, nor to excuse any of said companies respectively from the duty of discharging, out of other funds, its debts to any creditor except the United States.
“Sect. 9. That all sums due to the United States from any of said companies respectively, whether payable presently or not, and all sums required to be paid to the United States or into the treasury, or into said sinking-fund under this act, or under the acts hereinbefore referred to, or otherwise, are hereby declared to be a lien upon all the property, estate, rights, and franchises of every description granted or conveyed by the United States to any of said companies respectively or jointly, and also upon all the estate and property, real, personal, and mixed, assets, and income of the said several railroad companies respectively, from whatever source derived, subject to any lawfully prior and paramount mortgage, lien, or claim thereon. But this section shall not be construed to prevent said companies respectively from using and disposing of any of their property or assets in the ordinary, proper, and lawful course of their current business, in good faith and for valuable consideration.
“ Sect. 10. That it is hereby made the duty of the Attorney-General of the United States to enforce, by proper proceeding against the said several railroad companies respectively or jointly, or against either of them, and others, all the rights of the United' States under this act and under the acts hereinbefore mentioned, and under any other act of Congress or right of the United States; and in any suit or proceeding already commenced, or that may be hereafter commenced, against any of said companies, either alone- or with other parties, in respect of matters arising under this act, or under the" acts or rights hereinbefore mentioned or referred to, it shall be the duty of the court to determine the very right of the' matter without regard to matters of form, joinder of parties, multifariousness, or other matters not affecting the substantial rights and duties arising out of the matters and acts hereinbefore stated and referred to.
“Sect. 11. That if either of said railroad companies shall fail to perform all and singular the requirements of this act and of the acts hereinbefore mentioned, and of any other act relating to said company, to-be by it performed, for the period of six months next after such performance may be due, such failure shall operate as a forfeiture of all the rights, privileges, grants, and franchises derived or obtained by it from the United States; and- it shall be the duty of the Attorney-General to cause such forfeiture to be judicially enforced.
“ Sect. 12. That nothing in this act shall be construed or taken in any wise to affect or impair the right of Congress at any time hereafter further to alter, amend, or repeal the said acts hereinbefore mentioned; and this act shall be subject to alteration, amendment, or repeal, as, in the opinion of Congress, justice or the public welfare may require. And nothing herein contained shall be held to deny, exclude, or impair any right or remedy in the premises now existing in favor of the United States.
“ Sect. 13. That each and every of the provisions in this act contained shall severally and respectively be deemed, taken, and held as in alteration and amendment of said act of eighteen hundred and sixty-two and of said act of eighteen hundred and sixty-four respectively, and of both said acts.”
The legislature of California, April 4, 1864, passed tbe following act (Stat. for 1863-64, p. 471).: —
“ An Act to aid in carrying out the Pacific Railroad and Telegraph Act of Congress and other matters relating thereto.
“The people of the State of California, represented in Senate and Assembly, do enact as follows: —
“ Sect. 1. Whereas, by the provisions of an act of Congress, entitled ‘An Act to aid in the construction of a railroad and telegraph line from the Missouri River to the Pacific Ocean, and to secure to the government the use of the same for postal, military, and other purposes, approved July 1,1862,’ the Central Pacific Railroad Comr pany of California is authorized to construct a railroad and telegraph line in the State of California, and in the Territories lying east of said State towards the Missouri River; therefore, to enable the said company more fully and completely to comply with and perform the provisions and conditions of said act of Congress, the said company, their successors and assigns, are hereby authorized and empowered, and the right, power, and privilege is hereby granted to, conferred upon, and vested in them to construct, maintain, and operate the said railroad and telegraph line not only in the State of California, but also in the said Territories lying cast of and between said State and the Missouri River, with such branches and extensions of said railroad and telegraph line, or either of them, as said company may deem necessary or proper; and also the right of way for said railroad and telegraph line over any lands belonging to this State, and on, over, and along any streets, roads, highways, rivers, streams, waters, and watercourses, but the same to be so constructed as not to obstruct or destroy the passage or navigation of the same; and also the right to condemn and appropriate to the use of said company such private property, rights, privileges, and franchises as may be proper, necessary, or convenient for the purposes of said'railroad and telegraph, the compensation therefor to be ascertained and paid under and by special proceedings, as prescribed in the act providing for the incorporation of railroad companies, approved March 20, 1861, and the acts supplementary and amendatory thereof; said company to be subject to all the laws of this State concerning railroad and telegraph lines, except that messages and property of the United States, of this State, and of the said company, shall have priority of transportation and transmission over said line of railroad and telegraph ; hereby confirming to and •vesting in said company all the rights, privileges, franchises, power, and authority conferred upon, granted to, or vested in said company by said act of Congress; hereby repealing all laws and parts of laws inconsistent or in conflict with the provisions of this act, or the rights and privileges herein granted.
“ Sect. 2. This act shall take effect and be in force from and after its passage.”
The State of Nevada, March 9,1866 (the Territory of that name having in the mean time become a State), passed, mutatis mutandis, a similar act. It will be found in the laws of that State for 1866, c. 112.
The cases were heard at the same time.
Mr. Samuel Shellabarger and Mr. Jeremiah M. Wilson for the Union Pacific Railroad Company.
The Attorney-General and Mr. Edwin B. Smith, Assistant Attorney-General, for the United States.
Mr. Benjamin U. Hill and Mr. S. W. Sanderson for the Central Pacific Railroad Company, and Mr. George H. Williams for Gallatin.

Opinion:
Mr. Chief Justice Waite
delivered the opinion of the court.
The single question presented by the case of the Union Pacific Railroad Company is as to the constitutionality of that part of the act of May 7, 1878, which establishes in the treasury of the United States a sinking-fund. The validity of the rest of the act is not necessarily involved.
It is our duty, when required in the regular course of judicial proceedings, to declare an act of Congress void if not within the legislative power of the United States; but this declaration should never be made except in' a clear case. Every possible presumption is in favor of the validity of a statute, and this continues until the contrary is shown beyond a rational doubt. One branch of the government cannot encroach on the domain of another without danger. The safety of our institutions depends in no small degree on a strict observance of this salutary rule.
The United States cannot any more than a State interfere- • with private rights, except for legitimate governmental purposes. They are not included within the constitutional prohibition which prevents States from passing laws impairing the obligation of contracts, but equally with the States they are prohib ited 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 corporation to discharge its obligations in respect to the subsidy bonds otherwise than according to the terms 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. All this is indisputable.
The contract of the company in respect to the subsidy bonds is to pay both principal and interest when the principal matures, unless the debt is sooner discharged by the application of one-half the compensation for transportation and other services rendered for the government, and the five per cent of net earnings as specified in the charter. This was decided in Union Pacific Railroad Co. v. United States, 91 U. S. 72. The precise point to be determined now is, whether a statute which requires the company in the management of its affairs to set aside a- portion of its current income as a sinking-fund to meet this and other mortgage debts when they mature, deprives the company of its property without due process of law, or in any other way improperly interferes with vested rights.
This corporation is a creature of the United States. It is a private corporation created for public purposes, and its property is to a large extent devoted to public uses. .It is, therefore, subject to legislative control so far as its business affects the public interests. Chicago, Burlington, & Quincy Railroad Co. v. Iowa, 94 U. S. 155.
It is unnecessary to decide what power Congi'ess would have had over the charter if the right of amendment had not been reserved; for, as we think, that reservation has been made. In the act of 1862, sect. 18, it was accompanied by an explan atory statement showing that this had been done "the better to accomplish the object of this act, namely, to promote the public interest and welfare by the construction of said railroad and telegraph line, and keeping the same in working order, and to secure to the government at all times (but especially in time of Avar) the use and benefits of the same for postal, military, and other purposes " and by an injunction that it should be used Avith "due regard for the rights of said companies." In the act of 1864, however, there is nothing except the simple AArords (sect. 22) " that Congress may at any time alter, amend, and repeal this act." Taking both acts together, and giving the explanatory statement in that of 1862 all the effect it can be entitled to, Ave are of the opinion that Congress not only retains, but has given special notice of its intention to retain, full and complete power to make such alterations and amendments of the charter as come within the just scope of legislative power. That this poAver has a limit, no one can doubt. All agree that it cannot be used to take aAvay property already acquired under the Qperation of the charter, or to deprive the corporation of the fruits actually reduced to possession of contracts laAvfully made: but, as Avas said by this court, through Mr. Justice Clifford, in Miller v. The State (15 Wall. 498), "it may safely be affirmed that the reserved poAver may be exercised, and to almost any extent, to can'y into effect the original purposes of the grant, or to secure the due administration of its affairs, so as to protect the rights of stockholders and of creditors, and for the proper disposition of its assets; " and again, in Holyoke Company v. Lyman (id. 519), "-to protect the rights of the public and of the corporators, or to promote the due administration of the affairs of the corporation." Mr. Justice Field, also speaking for the court, Avas even more explicit Avhen, in Tomlinson v. Jessup (id. 459), he said, "the reservation affects the entire relation between the State and the corporation, and places under legislative control all rights, privileges, and immunities derived by its charter directly from the State; " and again, as late as Railroad Company v. Maine (96 U. S. 510), "by the reservation . . , the State retained the poAver to alter it [the charter] in all particulars constituting the grant to the neAV company, formed under it, of corporate rights, privileges, and immunities." Mr. Justice Swayne, in Shields v. Ohio (95 U. S. 324), says, by way of limitation, " The alterations must be reasonable; they must be made in good faith, and be consistent with the object and scope of the act of incorporation. Sheer oppression and wrong cannot be inflicted under the guise of amendment or alteration." The rules as here laid down are fully sustained by authority. Further citations are unnecessary.
Giving full effect' to the principles which have thus been authoritatively stated, we think it safe to say,'that whatever rules Congress might have prescribed in the original charter for the government of the corporation in the administration of its affairs, it retained the power to establish by amendment. In so doing it cannot undo what has already been done, and it cannot' unmake contracts that have already been made, but it may provide for what shall be done in the future, and may direct what preparation shall be máde for the due performance of contracts already entered into. It might originally have prohibited the borrowing of money on mortgage, or it might have said that no bonded debt should be created without ample provision by sinking-fund to meet it at maturity. Not having done so at first, it cannot now by direct legislation vacate mortgages already made under the powers originally granted, nor release debts already contracted. A prohibition now. against contracting debts will not avoid debts'already .incurred.' An amendment making it unlawful to issue bonds payable at a distant day, without at the same time establishing a fund for' their ultimate redemption, will not invalidate a bond already out. All such legislation will be confined in its operation to the future.
Legislative control of the administration of the affairs'of a corporation may, however, very properly include regulations by which, suitable provision will be secured in advance for the payment of existing debts when they fall due. If a State under its reserved power of charter amendment were to provide that no dividends should be paid to stockholders from current earnings until some reasonable amount had been set apart to meet maturing obligations, we think it would not be seriously contended that such legislation was unconstitutional, either because it impaired the obligations of the charter contract or deprived the corporation of its property without due process of law. Take the case of an insurance company dividing its unearned premiums among its stockholders without laying by any thing to meet losses, would any one doubt the power of the State under its reserved right of amendment to prohibit such dividends until a suitable fund had been established to meet losses from outstanding risks? Clearly not, we think, and for the obvious reason that while stockholders are entitled to receive all dividends that may legitimately be declared and paid out of the current net income, their claims on the property of the corporation are always subordinate to those of creditors. The property of a corporation constitutes the fund from which its debts are to be paid, aird if the officers improperly attempt to divert this fund from its legitimate uses, justice requires that they should in some way be restrained. A court of equity would do this, if called upon in an appropriate manner; and it needs no argument to show that a legislative regulation which requires no more of the corporation than a court would compel it to do without legislation is not unreasonable.
Such a regulation, instead of being destructive in its character, would be eminently conservative. Railroads are a peculiar species of property, and railroad corporations are in some respects peculiar corporations. A large amount of money is required for construction and equipment, and this to a great extent is represented by a funded debt, which, as well as the capital stock, is sought after for investment, and is distributed widely among large numbers of persons.. Almost as a matter of necessity it is difficult to secure any concert of action among the different classes of creditors and stockholders, and consequently all are compelled to trust in a great degree to the management of the corporation by those who are elected as officers, without much, if any, opportunity for personal supervision. The interest of the stockholders, who, as a rule, alone have the power to select the managers, is not unfrequently antagonistic to those of the debt-holders, and it therefore- is • especially proper that the government, whose creature the corporation is, should exercise its genéral powers of supervision and do all it reasonably may to protect investments in the bonds and stock' from loss through improvident management.
No better ease can be found for illustration than is presented by the history of this corporation. Without undertaking in any manner to. cast censure upon those by whose matchless energy this great road' was -built and, as if by magic, put into operation, it is a fact which cannot be denied, that, when the road was in a condition to be run, its bonds and stocks represented vastly more than the actual cost of the labor and material which went into its construction. Great undertakings like this, wliQse future is at the time uncertain, requiring as they do large amounts of money to carry them on, seem to make it necessary that extraordinary inducements should be held out to capitalists to enter upon them, since a failure is almost sure to involve those who make the venture -in financial ruin. It is riot, however, .the past with which we are now to deal, but rather the present and the future. We are not sitting in judgment upon the history of this corporation, but upon-its present condition.- We now know that when the road was completed its funded debt alone was as follows: First mortgage, $27,232,000, subsidy bonds, $27,236,512, all maturing thirty years after date, and that the average time of its maturity is during the year 1897. In addition to this are now the sinking-fund bonds, the land-grant bonds, and the Omaha-bridge bonds, amounting to at least $20,000,000 more. The interest on the first mortgage and all other classes of bonds, except the subsidy bonds, will undoubtedly be met as it falls due ; but on the subsidy bonds, as has already been seen, no interest is payable, except out of the half of the earnings for government service and the five per cent of net earnings, until the maturity of the principal. Thus far, as we have had occasion to observe in the various suits which have come before us during the past few years, involving an inquiry into these matters, the payments from these sources have fallen very far short of keeping down the accruing interest, and according to present appearances it is not probably too much to say that when the debt is due there will be as much owing the United States for interest paid as for principal. There will then become due from this company, in less than twenty years from this date, in the neigh borhood of $80,000,000, secured by the first and subsidy mortgages. In addition to this are the capital stock, representing $36,000,000 more, and the funded debt inferior in its lien to that of the subsidy bunds. All these different classes of securities have become favorites in the market for investments, and they are widely scattered at home and abroad. They have taken- to a certain extent the place of the public funds as investments. With the exception of the land-grant, which is first devoted to the payment of the land-grant bonds, but little if any thing except the earnings of the company can be depended on to meet these obligations-when they mature. The company has been in the receipt of large earnings since the completion of its road, and, after paying the interest on its own bonds at maturity, has been dividing the remainder, or a very considerable portion of it, from time to time among its stockholders, without laying by anything to meet the enormous debt which, considering the amount, is so soon to become due. It is easy to see that in this way the stockholders of the present time are receiving in the shape of dividends that which those of the future may be compelled to lose. It is hardly to be presumed that this great weight of pecuniary obligation can be removed without interfering with dividends hereafter, unless at once some preparation'is made by sinking-fund or otherwise to prevent it. Under these circumstances, the stockholders of to-day have no property right to dividends which shall absorb all the net earnings after paying debts already due. The current earnings belong to -the corporation, and the stockholders, as such, have no right to them as against the just demands of creditors.
The United States occupy towards this corporation a twofold relation, — that of sovereign and that of creditor. United States v. Union Pacific Railroad Co., 98 U. S. 569. Their rights as sovereign are. not crippled because they are creditors, and their privileges as creditors are not enlarged by the charter because of their sovereignty. They cannot, as creditors, demand payment of what is due them before the time limited by the contract. Neither can they, as sovereign or creditors, require the company to pay the other debts it owes before they mature. But out of regard to the rights of the subsequent lienholders and stockholders, it is not only their right, but their duty, as sovereign to see to it that the current stockholders do not, in the administration of the affairs of the corporation, appropriate to their own use that which in equity belongs to others. A legislative regulation which does no more than require them to submit to their just contribution towards the payment of a bonded debt cannot in any sense be said to deprive them of their property without due process of law.
The question still remains, whether the particular provision of this statute now under consideration comes within this rule. It establishes a sinking-fund for the payment of debts when they mature, but does not pay the debts. The original contracts of loan are not changed. They remain as they wnre before, and are only to be met at maturity. All that has been done is to make it the duty of the company to lay by a portion of its current net income to meet its debts when they do fall due. In this way the current stockholders are prevented to some extent from depleting the treasury for their own benefit, at the expense of those who are to come after them. This is no more for the benefit of the creditors than it is for the corporation itself. It tends to give permanency to the value of the stock and bonds, and is in the direct interest of a faithful administration of affairs. It simply compels the managers for the time being to do what they ought to do voluntarily. The fund to be created is not so much for the security of the creditors as the ultimate protection of the public and the corporators.
To our minds it is a matter of ho consequence that the Secretary of the Treasury is made the sinking-fund agent and the treasury of the United States the depository, or that the investment is to be made in the public funds of the United States. This does not make the deposit a payment of the debt due the United States. The duty of the manager of every sinking-fund is to seek some safe investment for the moneys as they accumulate in his hands, so that when required they may be promptly available. Certainly no objection can be made to the security of this investment. In fact, we do not understand that complaint is made in this particular. The objection is to the creation of the fund and not to the investment, if that investment is not in law a payment.
Neither is. it a fatal objection that the half of the earnings for services rendered the government, which by the act of 1864 was to be paid to the companies, is put into this fund. The government is not released from the payment. While the money is retained, it is only that it may be put into the fund, which, although kept in the treasury, is owned by the company. When the debts are paid, the securities into which the moneys have been converted that remain undisposed of must be handed over to the corporation. Under the circumstances, the retaining of the money in the treasury as part of the sinking-fund is in law a payment to the company.
Not to pursue this branch of the inquiry any further, it is sufficient now to say that we think the legislation complained of may be sustained on the ground that it is a reasonable regulation of the administration of the affairs of the corporation, and promotivé of the interests of the public and the corpora-tors. It takes nothing from the corporation or the stockholders which actually belongs to them. It oppresses no one, and inflicts no wrong. It simply gives further assurance of the continued solvency and prosperity of a corporation in which the public are so largely interested, and adds another guaranty to the permanent and lasting value of its vast amount of securities.
The legislation is also warranted under the authority by way of amendment to change or modify the rights, privileges, and immunities granted by the charter. The right of the stockholders to a division of the earnings of the corporation is a privilege derived from the charter. When the charter and its amendments first became laws, and the work on the road was undertaken, it was by no means sure that the enterprise would prove a financial success. No statutory restraint was then put 'upon the power of declaring dividends. It was not certain that the stock would ever find a place on the list of marketable securities, or that there would be any bonds subsequent in lien to that of the United States which could need legislative or other protection. Hence, all this was left unprovided for in the charter and its amendments as originally granted, and the reservation of the-power of amendment inserted so as to enable the government to accommodate its legislation to the require ments of the public and the corporation as they should be developed in the future. Now it is known that the stock of the company has found its way to the markets of the world; that large issues of bonds have been made beyond what was originally contemplated, and that the company has gone on for years dividing its epnings without any regard to its increasing debt, or to the protection of those whose rights may be endangered if this practice is permitted to continue. • For this reason Congress has interfered, and, under its reserved power, limited the privilege of declaring dividends on current earnings, so as to confine the stockholders to what is left after suitable provision has been made for the protection of creditors and stockholders against the disastrous consequences of a constantly increasing debt. As this increase cannot be kept down by payment unless voluntarily made by the corporation, the next best thing has been done, that is to say, a fund safety invested, which increases as the debt increases, has been established and set apart to meet the debt when the time comes that payment can be required.
The only material difference between the Central Pacific Company and the Union Pacific lies in the fact that in the case of the Central Pacific the special franchises, as well as the land and subsidy bonds, were granted by the United States to a corporation formed and organized under the laws of California, while in that of the Union Pacific Congress created the corporation to which the grants were made. The California corporation was orgahized under a State law with an authorized capital of $8,500,000, to build a road from the city of Sacramento to the eastern boundary of the State, a distance of about one hundred and fifteen miles. Under the operation of its California charter, it could only borrow money to air amount not exceeding the capital stock, and must provide a sinking-fund for the ultimate redemption of the bonds. Hittell's Cal. Laws, 1850-64, sect. 840. No power was granted to build any road outside the State, or in the State except between the termini named. By the act of 1862, Congress granted this corporation the right to build a road from San Francisco, or the navigable waters of the Sacramento River, to the eastern boundary of the State, and from there through the Territories of the United States until it met the road of the Union Pacific Company. For this purpose all the rights, privileges, and franchises were given this company that were' granted the Union Pacific Company, except the franchise of being a corporation, and such others as were merely incident to the organization of the company. The land-grants and subsidy bonds to this company were the same in character and quantity as those to the Union Pacific, and the same right of amendment was reserved. Each of the companies was required to file in the Department of the Interior its acceptance of the conditions imposed, before it could become entitled to the benefits conferred by the act. This was promptly done by the Central Pacific Company, and in this way that corporation voluntarily submitted itself to such legislative control by Congress as was reserved under the power of amendment.
No objection has ever been made by the State to this action by Congress. On the contrary, the State, by. implication at least, has given its assent to what was done, for in 1864 it passed " An Act to aid in carrying out the provisions of the Pacific railroad and telegraph act of Congress," and thereby-confirmed and vested in the company " all the rights, privileges, franchises, power, and authority conferred upon, granted to, or vested in said company by said act of Congress," and repealed "all laws or parts of laws inconsistent or in conflict with . . . the rights and privileges herein (therein) granted." Hittell's Laws, sect. 4798; Acts of 1863-64, 471. Inasmuch as by the Constitution of California then in force (art. 4, sect. 31) corporations, except for municipal purposes, could not be created by special act, but must be formed under general laws, the legal .effect of this act is probably little more than a legislative recognition by the State of what had been done by the United States with one of the State corporations.
In so doing, the State but carried out its original policy in reference to the same subject-matter, for as early as May 1, 1852, an act was passed reciting " that the interests of this State, as well as those of the whole Union,-require the immediate action of the government of the United States, for the construction of a national thoroughfare connecting the naviga^ ble waters of tbe Atlantic and Pacific Oceans, for tbe purposes of national safety, in the event of war, and to promote the highest commercial- interests of the Republic," and granting the right of way through the State to the United States for the purpose of constructing such a road. Hittell's Laws, sect. 4791; Acts of 1852, 150. In 1859 (Acts of 1859, 391), a resr olution was passed calling a convention " to consider the refusal of Congress to take efficient measures for the construction of a railroad from the Atlantic States to the Pacific, and to adopt measures whereby the building of said railroad can be accomplished ; " and at the same session of the legislature a memorial was prepared asking Congress to pass a law authorizing the construction of such a road, and asking also a grant of lands to aid in the construction of railroads in the State. Acts of 1859, 395. Nothing was done, however, by Congress until the Rebellion, which at once called the attention of all who were interested in the preservation of the Union to the immense practical importance of such a road for military purposes, and then, as soon as a plan could be matured and the necessary forms of legislation gone through with, the act of July 1, 1862, was passed. But this was not enough to interest capitalists in the undertaking, and although the legislature of California during the year 1863 passed several acts intended to hold out further inducements, but little was accomplished until the amendatory act of Congress in 1864, which, besides authorizing the first mortgage, and changing in some important particulars the conditions on which the subsidy bonds were to be issued, conferred additional powers on the corporation, some of which, such as the right of eminent domain in the Territories, the State could not grant, and others, such as the right of issuing first-mortgage bonds without a sinking-fmid, and in excess of the capital stock, it had seen fit to withhold. This act also reserved to Congress full power of amendment, and was promptly accepted by the corporation. With this addition of corporate powers and pecuniary resources the work was pushed forward to completion with unexampled energy. But for the corporate powers and financial aid granted by Congress it is not probable that the road would have been built. The first-mortgage bonded debt was created without a sinking-fund, and the road in the Territories built under the authority of Congress, assented to and ratified by the State.
The Western Pacific Company, now, by consolidation, a part of the Central Pacific Company, was also organized, Dec. 13, 1862 (Acts of 1863, 81), under the general railroad law of California, with power to construct a road from a point on the San Francisco and San José Railroad, at or near San José, to Sacramento, and there connect with the road of the Central Pacific Company. Afterwards the Central Pacific Company assigned to this corporation its rights, under the act of Congress, to construct the road between San José and Sacramento; and this assignment was ratified by Congress, " with all the privileges and benefits of the several acts of Congress relating thereto, and subject to all the conditions thereof." 13 Stat. 504. By the same act further privileges were granted by the United States both to the Central Pacific and Western Pacific Companies, in respect to their issue of first-mortgage bonds.
Under this legislation, we are of the opinion that, to the extent of the powers, rights, privileges, and immunities granted these corporations by the United States, Congress retains the right of amendment, and that in this way it may regulate the administration of the affairs of the company in reference to the debts created under its own authority, in a manner not inconsistent with the requirements of the original State charter, as modified by the State Aid Act of 1864, accepting what had been done by Congress. This is as far as it is necessary to go now. It will be time enough to consider what more may be done when the necessity arises. As yet, the State has not attempted to interfere with the action of Congress. All coinplaint thus far has come from the corporation itself, which, to secure the government aid, accepted all the conditions that were attached to the grants, including the reservation of power to amend.
It is clear that the establishment of a sinking-fund by the act of 1878 is not at all in conflict with any thing contained in the original State charter, for by that charter no such debt could be created without provision for such a fund. This part of the act of 1878 is, therefore, in the exact line of the policy of the State, and does no more than place the company again, to some extent, under obligations from which it had been released by congressional legislation. So, too, the reservation of the power of amendment by Congress is equally consistent with the settled policy of the State; for not only the State charter, in terms, makes such a reservation in favor of the State, but the Constitution expressly provides that all laws for the creation of corporations " may be altered from time to time, or repealed." Art. 4, sect. 31.
It is not necessary now to inquire whether, in ascertaining the net earnings of the company for the purpose of fixing the amount of the annual contributions to the sinking-fund, the earnings of all the roads owned by the present corporation are to be taken into the account, or only of those in aid of which the land-grants were made and the subsidy bonds issued. The question here is only as to the power of Congress to establish the fund at all. If disputes should ever arise as to the manner of stating the accounts, they can be settled at some future time.
Judgment affirmed.
Decree affirmed.
Mr. Justice Field, Me. Justice Strong, and Me. Justice Bradley, dissented.