Union Pacific Railway Company v. Chicago, Milwaukee & St. Paul Railway Company/Opinion of the Court

by Melville Fuller

United States Supreme Court

163 U.S. 564

Union Pacific Railway Company  v.  Chicago, Milwaukee & St. Paul Railway Company

The questions to be considered are whether these contracts were within the corporate powers of the parties, were duly authorized as respects the Union Pacific Railway Company, were such contracts as a court of equity can specifically enforce, and were properly enforced on the merits.

It will be most convenient to consider the appeal in the case of the Rock Island Company. If the decree in favor of that company is affirmed, a like result must follow on the appeal in the case of the St. Paul Company. And we may remark, in the outset, that the main contention of the Pacific Company concerns the tracks between Council Bluffs and South Omaha, including the bridge.

1. Railroad corporations possess the powers which are expressly conferred by their charters, together with such powers as are fairly incidental thereto; and they cannot, except with the consent of the state, disable themselves from the discharge of the functions, duties, and obligations which they have assumed. Can it be held that the contract with the Rock Island Company, judged by its terms, construed in the light of matters of common knowledge, of the evidence, and of applicable legislation, was made in the assumption of powers not granted, or amounted to the surrender of powers that were?

The general rule is that a contract by which a railroad company renders itself incapable of performing its duties to the public, or attempts to absolve itself from those obligations without the consent of the state, or a contract made by a corporation beyond the scope of its powers, express or implied, on a proper construction of its charter, cannot be enforced, or rendered enforceable by the application of the doctrine of estoppel. Thomas v. Railroad Co., 101 U.S. 71; Central Transp. Co. v. Pullman's Palace Car Co., 139 U.S. 24, 11 Sup. Ct. 478.

But where the subject-matter of the contract is not foreign to the purposes for which the corporation is created, a contract embracing 'whatever may fairly be regarded as incidental to, or consequential upon, those things which the legislature has authorized, ought not, unless expressly prohibited, to be held by judicial construction to be ultra vires.' Navigation Co. v. Hooper, 160 U.S. 514, 525, 16 Sup. Ct. 379; Attorney General v. Railway Co., 5 App. Cas. 473, 478; Brown v. Winnisimmet Co., 11 Allen, 326, 334.

Taking up the contract with the Rock Island Company, what is the nature of the undertaking of the Pacific Company? In several places in this instrument, it is called a 'lease,' and the parties are called 'lessor' and 'lessee'; while, on the other hand, in the record of the proceedings of the executive committee of the Pacific Company and of its stockholders, it is called an agreement 'granting trackage rights' between Council Bluffs and South Omaha. But what it was styled by the parties does not determine its character or their legal relations, and in its interpretation the rule applies that 'the court is not only at liberty, but required, to examine the entire contract, and may also consider the relations of the parties, their connection with the subject-matter of the contract, and the circumstances under which it was signed.' Chicago, R. I. & P. Ry. Co. v. Denver & R. G. R. Co., 143 U.S. 596, 609, 12 Sup. Ct. 479.

In Thomas V. Railroad Co., 101 U.S. 71, 79, Mr. Justice Miller stated the real question to be 'whether the railroad company exceeded its powers in making the contract, by whatever name it may be called, so that it is void.'

And Mr. Justice Brewer, in his opinion on circuit, observed: 'Neither the form of expression on the one hand, nor the name on the other, is conclusive. We must see what rights and privileges were in fact granted, what burdens and obligations assumed.'

The contract provided that the Pacific Company hereby 'lets the Rock Island Company into the full, equal, and joint possession and use of its main and passing tracks.' The possession here spoken of was such possession as the Rock Island Company would have when its engines, cars, and trains were running over the tracks. The company had no possession before its trains came on the tracks, or after they had run off of them; and while its trains were on the tracks, its possession was only of the particular part occupied temporarily while running over them. Moreover, all trains were to be moved under the direction of an officer of the Pacific Company. The Rock Island trains, coming upon a Pacific track, immediately passed from the control of the Rock Island Company into that of the Pacific, and its officials were subjected to the orders of the Pacific's officers. And throughout the whole contract there does not appear to be a single provision which looks to any actual possession by the Rock Island of any of the Pacific property beyond that which was involved in its trains being run over the tracks under the direction of the other company. The contract in this regard was really an agreement for trackage rights, for running arrangements,-a 'terminal contract' with compensation on a 'mileage' or 'wheelage basis,' rather than a lease.

The Pacific Company, in its answer, said that it had offered and now offered 'to accept and transport all the cars and trains of the complainant, freight and passenger, to and from all points on the line of the said defendant described in said supposed contract, and thereby enable the complainant to maintain its business at Omaha and South Omaha, and to carry on exactly the same business that it could have carried on by the operation of its own trains by its own engines and by its own employees, as provided for in said supposed contract; and it says that it had offered, in the utmost good faith, to perform this service, immediately and at all times, for the said complainant, at a reasonable compensation, to be fixed in any fair, usual, and ordinary manner.' It thus appears that the Pacific Company could do what it had co tracted to do, and that the contention resolves itself into the proposition that there is a fundamental legal difference between authorizing the Rock Island to haul its trains with its own engines, and agreeing to haul them with the Pacific Company's engines, though in either event they were to be moved under the train dispatchers of the Pacific Company,-a difference we find ourselves unable to admit.

In Chicago, R. I. & P. Ry. Co. v. Denver & R. G. R. Co., 143 U.S. 596, 618, 12 Sup. Ct. 479, the Rio Grande Company had granted to the Rock Island Company the use of its terminal facilities at Denver, and it insisted that it could more conveniently handle the Rock Island trains with its own engines and crews than with those of the Rock Island. But this court, speaking through Mr. Justice Brown, said: 'It is obviously necessary to the harmonious working of the two systems that the general control and management of the yard should remain with the defendant; but it is not easy to see why that control may not be as well exercised over two switching crews belonging to two different companies as over two crews belonging to the same company. * * * It occurs to us that it would cause fully as much inconvenience to transfer the control of trains from the employees of one company to those of another, as such trains enter or leave the terminal yard, as it would be to permit the switching of such trains within the yard by the hands that brought them in or were to take them out. It appears that yards have been jointly operated in this manner in such large railway centers as Kansas City, Toledo, and Chicago without serious difficulty. We think that the same rule should also be applied to those employed in handling the freight. With reference to this, the decree of the court below provided that the plaintiff had a right to employ its separate switching crews and operate its own switching engines in the yards of the defendant company, under the sole and absolute supervision, direction, and control, however, of the yardmaster or other properly constituted officer or agent of the defendant, and subject to the orders and instructions of such yardmaster, etc., and in this there was no error.'

Such being the nature of the contract, a contract frequently made between railroad companies, upon what reasonable ground should it be held invalid as an unlawful assumption of power?

The evidence shows that, between the bridge and South Omaha, some of the most thickly populated and densely settled portions of the city of Omaha are situated; that five railroads, engaged in transcontinental traffic, do their terminal business there, taking up and setting down passengers, collecting, unloading, and delivering freight; that a large part of the territory is filled with the tracks of the Union Pacific and Burlington Companies, and that there is scant room, if any, for another company, with the many tracks required for terminal business; that the whole territory is very valuable, densely populated, and filled with tracks; and that at South Omaha are stockyards and packing industries of great extent, furnishing the companies a vast volume of freight, and compelling the building of many tracks. If it were true that railroad companies could not, ordinarily, without the aid of a statute, grant running facilities over their tracks, even when such an arrangement would not interfere with their business, the application of so rigorous a rule to defeat a contract, as between the parties, in respect of tracks in the congested parts of large cities, where the entire use of them is not required by their owners, does not seem reasonable. It is well said by Sanborn, J., speaking for the circuit court of appeals: 'Courts cannot be blind to the fact that every railroad company cannot have entrance to our great cities over tracks of its own, or to the fact that railroad companies do, and every public interest requires that they should, make proper contracts for terminal facilities over the roads of each other.'

We think that it would be ca rying the doctrine of ultra vires much too far to deny absolutely the competency of a railroad company, being a public highway, whose use is common to all citizens, to contract to give another running rights over its tracks without express statutory authority, and that, under proper circumstances, such a contract may well be held within its implied powers.

In Lake Superior Ry. Co. v. U.S., 93 U.S. 492, Mr. Justice Bradley adverts to and comments on the fact that, in England and in this country, railroads, when first constructed, were by the legislatures and the people regarded and treated as public highways for the use of all who had occasion to run their vehicles thereon; and this is certainly so far true, in modern acceptation, that, being for are ordinarily competent to make contracts are ordinarily competent to make contract which will subserve such use.

But the determination of the existence of the power to grant running rights in this instance does not rest on these considerations alone. For the provisions of the Pacific Railroad acts relating to the bridge over the Missouri river, its construction and operation, imposed on the Pacific Company the duty of permitting the Rock Island Company to run its engines, cars, and trains over the bridge and the tracks between Council Bluffs and Omaha, and we think that South Omaha was included.

The original charter of 1862 required the construction of the Pacific road from the east bank of the river, and so impliedly authorized the company to bridge it, and the amendatory act of 1864 expressly gave the corporation authority 'to construct bridges over said Missouri river.' The bridge contemplated was for the company's use, as a part of its road, and no provision was made for other roads or other business, nor were any special means provided for the construction of the bridge.

In 1871 several roads had been built from the East to Council Bluffs, and others were building, and roads were in process of construction in Nebraska, with Omaha as their termini.

The Omaha Bridge act (16 Stat. 430) was then passed, by which, 'for the more perfect connection of any railroads that are or shall be constructed to the Missouri river, at or near Council Bluffs, Iowa, and Omaha, Nebraska.' the company was authorized to issue bonds not exceeding $2,500,000, and to 'secure the same by mortgage on the bridge and approaches and appurtenances, as it may deem needful to construct and maintain its bridge over said river, and the tracks and depots required to perfect the same, as now authorized by law of congress.' The bridge was 'to be so constructed as to provide for ordinary vehicles and travel,' and the company was authorized 'to levy and collect tolls for the use of the same.' The act further provided: 'For the use and protection of said bridge and property, the Union Pacific Railway Company shall be empowered, governed and limited by the provisions of the act entitled 'An act to authorize the construction of certain bridges and to establish them as post roads,' approved July twenty-five eighteen hundred and sixty-six, so far as the same is applicable thereto.' The act of 1866, thus referred to (14 Stat. 244), is entitled 'An act to authorize the construction of certain bridges and to establish them as post roads.' It authorized the construction of nine different bridges, eight across the Mississippi river and one across the Missouri river. The first bridge provided for was to be constructed at Quincy, Ill., and by the first section it was made lawful for any person or persons, company or corporation, having authority from the states of Illinois and Missouri for that purpose, 'to build a bridge across the Mississippi river at Quincy, Illinois, and to lay on and over said bridge railway tracks, for the more perfect connection with any railroads that are or shall be constructed to the said river at or opposite said point, and that when constructed the trains of all roads terminating at said river, at or opposite said point, shall be allowed to ross said bridge for reasonable compensation, to be made to the owners of said bridge under the limitations and conditions hereinafter provided.'

The common object of both these acts plainly was the more perfect connection of roads running to the bridges on either side of the river. And this is in harmony with numerous acts of congress referred to in the opinion of the circuit court of appeals (15 Stat. 37; 16 Stat. 121, 173, 185, 473, 599; and many others); all of them indicating a settled policy that all structures of this character should allow connecting roads to cross them with their cars, trains, and engines. It is said that the reference to the act of 1866 should be confined to its second and third sections; but, as the matters provided for in those sections were fully otherwise covered in the Pacific Railroad acts, that does not commend itself to us as a reasonable construction. But it is argued that, even if the Pacific Company were authorized to grant to the Rock Island Company the right to run its trains, with its engines, over the bridge, it was not empowered to grant the same rights over the tracks. The evidence shows that the tracks east of the bridge were upon the approach to the structure proper, and it appears from the maps that the depot at the west end of the bridge was more than half a mile distant. The act of 1871 provided that, for the more perfect connection of the roads east of the river with those west of it, the company might issue bonds, and secure the same by mortgage 'on the bridge and approaches and appurtenances'; and it would seem to be clear that the approaches on the west side, as well as on the east, must be regarded as part of the structure. Moreover, the act refers to 'the tracks and depots required to perfect the same.' A railroad bridge can be of no use to the public unless united with necessary appurtenances, such as approaches, tracks, depots, and other facilities for the public accommodation. And we consider Council Bluffs, Omaha, and South Omaha, under the facts, as necessarily embraced in the intention of congress. It is true that it appears that, from the depot to the point in South Omaha where the tracks of the companies connected, is about four miles; but the scheme of congress was to accomplish the more perfect connection 'at or near Council Bluffs, Iowa, and Omaha, Nebraska,' and we think this distance reasonably within the terms of the act of 1871, liberally construed, as the act should be.

The legislation of 1862 and 1864 in respect of the Union Pacific Railway Company was under consideration in Union Pac. Ry. Co. v. Hall, 91 U.S. 343, 345, and it was said by Mr. Justice Strong: 'The scheme of the act of congress, then, is very apparent. It was to secure the connection of the main line by at least three branches, with the Missouri and Iowa railroads, and with a railroad running eastwardly from Sioux City in Iowa, either through that state or through Minnesota. An observance of this scheme, we think, will aid in considering the inquiry at what place the act of congress, and the orders of the president made in pursuance thereof, established the eastern terminus of the Iowa branch. From it may reasonably be inferred that the purpose of congress was to provide for connections of the branches of the main line of the Union Pacific road with railroads running through the states on the east of the territory, and to provide for those connections within those states at points at or near their western boundaries.'

On June 15, 1866, an act was approved (14 Stat. 66), 'to facilitate commercial, postal, and military communication among the several states,' carried forward as section 5258 of the Revised Statutes, which provided that 'every railroad company in the United States, whose road is operated by steam, its successors and assigns, be, and is hereby, authorized to carry upon and over its road, boats, bridges, and ferries, all passengers, troops, government supplies, mails, freights, and property on their way from any state to anot er state, and to receive compensation therefor, and to connect with roads of other states so as to form continuous lines for the transportation of the same to the place of destination.'

It is impossible for us to ignore the great public policy in favor of continuous lines thus declared by congress, and that it is in effectuation of that policy that such business arrangements as will make such connections effective are made.

We are of opinion that it was within the powers of the Pacific Company to enter into contracts for running arrangements, including the use of its tracks, and the connections and accommodations provided for; and we cannot perceive that this particular contract was open to the objection that it disabled the Pacific Company from discharging its duties to the public. By the contract the Pacific Company parted with no franchise, and was not excluded from any part of its property or the full enjoyment of it. What it agreed to do was to let the Rock Island into such use of the bridge and tracks as it did not need for its own purposes. This did not alien any property or right necessary to the discharge of its public obligations and duties, but simply widened the extent of the use of its property for the same purposes for which that property was acquired, to its own profit so far as that use was concerned, and in the furtherance of the demands of a wise public policy. If, by so doing, it may have assisted a competitor, it does not lie in its mouth to urge that as rendering its contract illegal as opposed to public policy. Ability to perform its own immediate duties to the public is the limitation on its jus disponendi, we are considering, and that limitation had no application to such a use as that in question.

The leading cases of Thomas v. Railroad Co., 101 U.S. 71; Pennsylvania R. Co. v. St. Louis, A. & T. H. R. Co., 118 U.S. 290, 6 Sup. Ct. 1094; Oregon Ry. & Nav. Co. v. Oregonian Ry. Co., 130 U.S. 1, 9 Sup. Ct. 409; Central Transp. Co. v. Pullman's Palace Car Co., 139 U.S. 24, 11 Sup. Ct. 478; St. Louis, V. & T. H. R. Co. v. Terre Haute & I. R. Co., 145 U.S. 393, 12 Sup. Ct. 953; U.S. v. Union Pac. Ry. Co., 160 U.S. 1, 16 Sup. 190,-arose upon instruments which dispossessed the corporations of all their property and of all capacity to perform their public duties. But we have no such case here.

The argument is pressed that the Pacific Company might become disabled by reason of the increase of business in the future, but the defendant asserts, in its answer that it is able to carry on the business of hauling complainant's cars 'immediately and at all times,' if it may do so with its own engines and on its onw terms, and be permitted in the meantime to repudiate this contract. The proof wholly fails to establish that the contract involves any present inability, or any existing ground for apprehension in that regard, and shows that the bridge and tracks of the Pacific Company and fully adequate to meet much larger demands than are now, or within any reasonable time can be expected to be, made upon them under the contract. The country, as was said below, will grow in population and business, and the business of this particular corporation will increase, but with the increased volume of business come increased facilities for its transaction. Moreover, increase in the same ratio for the future as in the past is not to be expected, for new roads are constantly being built and other channels of transportation opened; and it cannot be conclusively assumed that the common means of transportation 20 years hence may not be quite different from what they are at present. It will not do to hold this contract void, and allow defendant to escape from the obligations it assumed, on the mere suggestion that at some time in the remote future there is a possibility that the suggested contingency might arise. Should it happen, however, the courts are competent to relieve from the consequences of so radical a change of condition.

Objection is made that, by reason of the provision for referees in case of difference between the two companies as to the operation of trains, the full control of the Pacific Company of its road and franchises is taken away. If that stipulation were stricken out, the right of the Rock Island Company to use the tracks, subject to the reasonable management of the Pacific Company's officers, would still remain, and the contract itself contained a provision contemplating the possible invalidity of some one of the stipulations not of the essence of the contract. There does not appear to have been any specific contention in the circuit court or in the court of appeals that that particular clause was invalid; and, if it were, the power reserved in the decree was sufficient to permit an application to the court for its modification, and the substitution of the judgment of the court. We cannot hold that, if the particular clause were objectionable, the contract would be invalidated as a whole; and it is too late to ask a reversal on the ground that the clause itself is not enforceable.

We do not feel called upon to enter at length upon other objections urged by appellants' counsel. One of them was that the Rock Island and St. Paul Companies derived no power from the laws of Nebraska to enter into the alleged contract, because they had not complied with the statutes of the state in that behalf. After the testimony was closed, and as the final hearing commenced, defendants moved the court to permit the introduction of the evidence upon which this contention is based. This was objected to by complainants, the objection sustained, and defendants excepted. We concur in the view of the circuit court of appeals, which held that there was no abuse of discretion in the court below in denying the motion, and did not consider the rejected evidence or the argument based upon it. The Rock Island Company built its road from South Omaha to Lincoln as vested with the corporate power to do so, and it contracted as in the possession of the power as a corporation existing in and under the laws of Nebraska. The state appears to have been content, and the contract, not being necessarily beyond the scope of the powers of the corporation, must, in the absence of proof to the contrary, be deemed valid.

Nor can the contract be held invalid because, within its prescribed duration, the charter of the Rock Island Company expired by its terms. The contract was carefully drawn in view of such expiration of the several corporate existences of the parties to it, who bound themselves to take such steps as might be necessary to continue the contract in force. And, as observed by the court of appeals, the contingency that the Rock Island Company 'will cease to exist and leave neither assigns nor successors is far too remote to have any influence upon the validity of this contract.' 10 U.S. App. 192, 2 C. C. A. 174, 51 Fed.

It is also said that the contract was void so far as the Republican Valley Railroad Company was concerned, because without consideration, inasmuch as the Rock Island Company was to pay the Pacific Company for the possession and use of the railway and appurtenant property between Lincoln and Beatrice to the Pacific Company, and so the Valley Company, as an independent corporation, received no compensation. But the stockholders of the Valley Company entered into the covenants in question, and as each of its incorporators was an officer or employ e of the Union Pacific Company; its road was built with the funds of that company; every share of its stock ever issued was taken, held, or voted by some officer or employ e of that company in trust for it; the officers of the two companies had always been the same, and in their operation no distinction had ever been made between the two roads; and their earnings had gone into, and their expenditures been paid from, a common treasury,-we think there is no merit in the objection that, for the reason given, the Valley Company was not bound by its covenants.

But it is earnestly contended that the Pacific Company had n power, under its charter as a federal corporation, to operate any other line of road than those lines which it was specifically authorized by congress to construct, and that it was prohibited, under the constitution and laws of Nebraska, from doing so, and therefore that it could not obligate itself to use, and to pay to the Rock Island Company compensation for the use of, the road between South Omaha and Lincoln.

It does not appear that this point was called to the attention of the circuit court, or decided by it; nor, in the errors assigned to the decree of the circuit court in the circuit court of appeals, was there any error attributed to the decree in this particular; nor did that court pass upon any such question. It is, indeed, admitted that the point is raised for the first time in this court. We have to determine, on this appeal, whether, in our judgment, the circuit court of appeals did or did not err, and affirm or reverse accordingly. It is true that our decision necessarily reviews the decree of the circuit court in reviewing the action of the court of appeals upon it, and, under the statute, our mandate goes to the circuit court directly; but it is, notwithstanding, the judgment of the circuit court of appeals that we are called on primarily to revise. It will be seen, then, that the judgments of the courts of appeals should not ordinarily be re-examined on the suggestion of error in that court, in that it did not hold action of the circuit court erroneous, which was not complained of. We will, however, make a few observations on the point thus tardily presented.

The eighth section of the eleventh article of the constitution of that state provided that no railroad corporation of any other state or of the United States, doing business in Nebraska, should be entitled to exercise the right of eminent domain, or have power to acquire right of way or real estate for depot or other uses, until it should have become a corporation of the state, pursuant to the constitution; but we do not see what that prevision has to do with this question. The stipulations of the contract relating to the use of the Rock Island tracks between South Omaha and Lincoln by the Pacific Company did not embrace the acquisition of right of way or real estate, or the exercise of the power of eminent domain by the latter.

By the contract the Rock Island Company gave the Pacific Company 'the right and privilege to move and operate its trains over the tracks,' and nothing more, and it was provided that the Pacific Company should do no business at intermediate points. The Pacific Company was to run its trains over the Rock Island tracks 45 miles, and it agreed to pay a fair compensation for doing so. It was perfectly competent for the Pacific Company to contract to deliver at Lincoln freight and passengers taken up at Omaha; and, in carrying out such contract, it could make deliveries in car loads, just as well as in small parcels. It follows that its cars might be run through, and the fact that, under this contract, the Pacific Company would haul its cars with its own engines amounts to no more than a mere method of doing the business. And as, when it contracts for deliveries beyond its own line, it must pay the connecting company for its services, that compensation might be fixed by the parties upon any basis they agreed to. Here it agreed to pay a certain sum per mile for the mileage over which its trains run, and the difference between that and any other mode of payment did not go to the powers of the company. Where a corporate contract is forbidden by a statute, or is obviously hostile to the public advantage or convenience, the courts disapprove of it; but when there is no express prohibition, and it is obvious that the contract is one of advantage to the public, the rule is otherwise. As remarked in Navigation Co. v. Hooper, 160 U.S. 514, 16 Sup. Ct. 379: 'Although the contract powers of railroad companies are to be restricted to the general purposes for which they are designed, yet ther are many transactions which are incidental or auxiliary to its main business, or which may be useful in the care and management of the property which it is authorized to hold, and in the safety and comfort of the passengers which it is its duty to transport. Courts may be permitted, where there is no legislative prohibition shown, to put as favorable construction upon such exercise of power by railroad companies as is necessary to promote the success of the company within the powers of its charter, and to contribute to the comfort of those who travel thereon.' And that principle is applicable to the transportation of through freight and passengers over connecting lines.

Under the laws of Nebraska, railroad companies are clothed with ample power to make leases, or any arrangements for their common benefit, consistent with and calculated to promote the objects for which they are created. Comp. St. Neb. 1887, p. 248, c. 16, § 94. There is nothing in the charter of the Pacific Company that prohibits such an arrangement as this in controversy, unless by implication; and as by it the public interest was subserved, that company reached its own lines by a shorter route, and accommodated its own through freight and travel, we are not prepared to hold that it was invalid.

These observations also apply to the clause of the contract in respect of the road between McPherson and Hutchinson, but it should be added that that reach of road was held and operated by the Kansas Company, which was a Kansas corporation. The Union Pacific Railway Company was formed by the consolidation of the Union Pacific Railway Company, a federal corporation, the Denver Company, a Colorado corporation, and a corporation originally named the Leavenworth, Pawnee & Western Railway, afterwards called the Union Pacific Railway, Eastern Division, and lastly the Kansas Pacific Railway. The latter company, by its first name, was incorporated under the laws of the territory of Kansas, and upon the admission of Kansas into the Union became a corporation of that state. The acts of congress of 1862 and 1864 clothed it with new franchises, but did not deprive it of its powers as a state corporation, which could be exercised by the consolidated company in Kansas so far as not in derogation of its federal powers. And Kansas corporations were duly empowered to enter into leases and the like by the state laws. 1 Gen. St. Kan. p. 443, c. 23, § 112.

2. Was the contract, if within its powers, duly authorized by the Pacific Company? No question arises but that the contract was executed in due form, and, as to the manner in which its execution was authorized, the facts appear to be: On April 22, 1890, the executive committee passed the resolution approving the contract, and authorizing the president of the company to execute it, and on the 30th of the same month the stockholders, at their regular annual meeting, voted to approve the contract and the action of the executive committee relative thereto. The board of directors never formally acted. As soon as the contract was executed, the Pacific Company required the Rock Island Company to make proper connections between McPherson and Hutchinson, which was done, and the Pacific Company commenced to run over those tracks, and continued to do so until after the disputes between the two companies became flagrant. On the other hand, the Rock Island Company commenced the construction of its road between South Omaha and Lincoln, and of the stations and yards at Lincoln, on the lands of the Republican Valley Company. Appellants contend that the action of the stockholders and the executive committee was ineffectual, because the board of directors was the only body that could authorize the president and secretary to make the contract. The contract appearing on its face to have been duly executed, and the parties having entered upon its execution, necessarily with full knowledge on the part of the board of directors of the Pacific Company, the board would be presumed to have ratified it, alth ugh it in fact took no affirmative action in the matter. Pennsylvania R. Co. v. Keokuk & Hamilton Bridge Co., 131 U.S. 371, 381, 9 Sup. Ct. 770.

When, by the charter of a corporation, its powers are vested in its stockholders, and this was the common-law rule when the charter was silent, the ultimate determination of the management of the corporate affairs rests with its stockholders, and the charter of the Pacific Company did not commit the exclusive control to the board of directors.

By the first section of the act certain persons named, together with five commissioners, to be appointed by the secretary of the interior, were, with their successors, created a body corporated and politic, with certain powers, which were to determine after the company was fully organized, 'and thereafter the stockholders shall constitute said body politic and corporate.' It was further provided: 'Said company, at any regular meeting of the stockholders called for that purpose, shall have power to make by-laws, rules and regulations as they shall deem needful and proper, touching the disposition of the stock, property, estate and effects of the company not inconsistent herewith, the transfer of shares, the terms of office, duties, and conduct of their officers and servants, and all matters whatsoever which may appertain to the affairs of said company.' The same section provided that the directors 'shall have power to appoint such engineers, agents, and subordinates as may from time to time be necessary to carry into effect the object of this act, and to do all acts and things touching the location and construction of said road and telegraph. Said directors may require payment of subscriptions to the capital stock after due notice, at such times and in such proportions as they may deem necessary to complete the road and telegraph within the time in this act prescribed.'

Acting under the authority conferred upon them by the charter, the stockholders of the Pacific Company adopted by-laws for the government of the corporation and for the regulation of its business affairs. By section 2 of article 4 of the by-laws it was provided: 'The board of directors shall have the whole charge and management of the property and effects of the company, and they may delegate power to the executive committee to do any and all of the acts which the board is authorized to do, except such acts as by law and these by-laws must be done by the board itself.' Thus, the stockholders authorized the board of directors to delegate the power to the executive committee to do any and all acts which the board itself was authorized to do. The executive committee derived its authority from the stockholders through the board of directors. By section 2 of article 5 of the by-laws it was provided: 'The executive committee shall have, and may exercise by a majority of its members, all the powers and authority which from time to time may be delegated to said committee by the board of directors.' As early as March 15, 1877, the board of directors adopted a resolution, 'that while the board of directors is not in session, the full power thereof, under the charter and by-laws, is hereby conferred upon the executive committee, and the proceedings of said committee at its last meeting are hereby ratified and* confirmed.' In 1879 the form of resolution adopted by the board was as follows: 'Resolved, that while the board of directors is not in session, the full power under the charter and by-laws be, and it is hereby, conferred upon the executive committee.' Similar resolutions were passed every year up to April 30, 1890, when the board of directors passed substantially the same resolution which they had been in the habit of adopting from year to year. It was shown that the meetings of the executive committee were frequent, but that the board usually met only twice a year, the business of the company being more conveniently transacted by the committee.

The contracts in question were in the proper form, signed and executed by the proper executive of icers, and attested by the corporate seal. They were approved and authorized by the executive committee, which committee had all the powers of the board, and were ratified, approved, and confirmed by the stockholders at their regular annual meeting. This was sufficient to bind the Pacific Company, although no formal action by the board was had. But it is argued that this cannot be so because of the peculiar relation which the government directors of the Pacific Company bore to the corporation, differing from that of other directors; and the absence of the government director, who was a member of the executive committee, from the meeting which approved and authorized the contracts, is also commented on, as if, thereby, the action of the executive committee in that behalf was rendered ineffective.

By the first section of the act of 1862 not less than thirteen directors were to be elected and two to be appointed by the president of the United States, 'who shall act with the body of directors, and be denominated directors on the part of the government.'

The thirteenth section of the act of 1864 is as follows:

'That at and after the next election of directors, the number of directors to be elected by the stockholders shall be fifteen; and the number of directors to be appointed by the president shall be five; and the president shall appoint three additional directors to serve until the next regular election, and thereafter five directors. At least one of said government directors shall be placed on each of the standing committees of said company, and at least one on every special committee that may be appointed. The government directors shall, from time to time, report to the secretary of the interior, in answer to any inquiries he may make of them, touching the condition, management and progress of the work, and shall communicate to the secretary of the interior at any time such information as should be in the possession of the department. They shall, as often as may be necessary to a full knowledge of the condition and management of the line, visit all portions of the line of road, whether built or surveyed; and while absent from home, attending to their duties as directors, shall be paid their actual traveling expenses, and be allowed and paid such reasonable compensation for their time actually employed as the board of directors may decide.'

We see nothing in the provisions relating to government directors which makes it indispensable that the board should formally authorize such contracts as the one under consideration. Congress did not vest in the government directors any peculiar powers. They had the same powers as other directors, and no more; but, as government directors, they were to make reports to the secretary of the interior in respect of the affairs and matters mentioned in the act of 1864. They could not, either by a negative vote, or by absenting themselves from the meetings, prevent the transaction of the necessary business of the company, in which they were entitled to participate on the same terms as their associates. Congress did not look to any action of theirs for the protection of the public interests, but sought to secure those interests by specific legislation. Thus, it was provided, by the act of 1862, that patents for lands and government bonds should not be issued to the company until the road had been constructed, examined, and approved by the commissioners, and the facts certified to the president and secretary of the treasury; and a forfeiture of the rights belonging to the company and the lands granted to it, in case of default on its part to redeem the bonds, or any of them, when required to do so by the secretary of the treasury, in accordance with the provisions of the act, was also provided for.

The joint resolution for the protection of the interests of the United States (16 Stat. 56); the appropriation act of March 3, 1873 (17 Stat. 485, 508); the Thurman act (20 Stat. 56); the act amendatory of the fifteenth section of the act of 18 2 (18 Stat. 111); the act providing for a commission to investigate the transactions of the company (24 Stat. 488),-are examples of such legislation. And it was through them, and not through the agency of the government directors, that congress sought to protect the interests of the government and the public. We regard the position as wholly untenable that this provision for government directors took the corporation out of the general rule that, except in cases where the charter imposes a limitation, the stockholders are the proper parties to take final action in the management of the corporate affairs.

3. The jurisdiction of courts of equity to decree the specific performance of agreements is of a very ancient date, and rests on the ground of the inadequacy and incompleteness of the remedy at law. Its exercise prevents the intolerable travesty of justice involved in permitting parties to refuse performance of their contracts at pleasure by electing to pay damages for the breach.

It is not contended that multiplicity of suits to recover damages for the refusal of defendants to perform would afford adequate relief, nor could it be; for such a remedy, under the circumstances, would neither be plain nor complete, nor a sufficient substitute for the remedy in equity, nor would the interests of the public be subserved thereby. But it is objected that equity will not decree specific performance of a contract requiring continuous acts involving skill, judgment, and technical knowledge, nor enforce agreements to arbitrate, and that this case occupies that attitude. We do not think so. The decree is complete in itself, is self-operating and self-executing, and the provision for referees in certain contingencies is a mere matter of detail, and not of the essence of the contract.

It must not be forgotten that, in the increasing complexities of modern business relations, equitable remedies have necessarily and steadily been expanded, and no inflexible rule has been permitted to circumscribe them. As has been well said, equity has contrived its remedies 'so that they shall correspond both to the primary right of the injured party, and to the wrong by which that right has been violated,' and 'has always preserved the elements of flexibility and expansiveness, so that new ones may be invented, or old ones modified, in order to meet the requirements of every case, and to satisfy the needs of a progressive social condition, in which new primary rights and duties are constantly arising, and new kinds of wrongs are constantly committed.' Pom. Eq. Jur. § 111.

We regard the case of Joy v. St. Louis, 138 U.S. 1, 11 Sup. Ct. 243, as determining that this contract was one within the control of a court of equity to specifically enforce. In that case the St. Louis, Kansas City & Colorado Railroad Company acquired by succession, under a contract, the right of running its trains over the line of the Wabash Company from a point on the northern line of Forest Park, through the park, and into the Union Depot at St. Louis, together with the right to use side tracks, switches, turnouts, and other terminal facilities. It was a continuing right, and unlimited in time; and the contract contained provisions regulating the running of trains, and prescribing the duties of superintendents, trainmasters, and other offiers. The objections that are urged against the specific performance of the contract under consideration were urged against the specific performance of that contract, and were severally overruled; and it was held that nothing short of the interposition of a court of equity would provide for the exigencies of the situation.

This case was cited with approval in Franklin Tel. Co. v. Harrison, 145 U.S. 459, 12 Sup. Ct. 900. The contract there was one for the use by Harrison Bros. & Co. of a wire of the Franklin Telegraph Company between Philadelphia and New York. It appeared that Harrison Bros. & Co. had been in the possession of a certain valuable contract with the Insulated Lines Telegraph Company, to the ights of which company the Franklin Telegraph Company had succeeded. Desiring to have that contract terminated, the Franklin Company entered into a new contract with Harrison Bros., by which the Franklin Company agreed to allow Harrison Bros. the right to put up, maintain, and use a telegraph wire on the poles of the Franklin Company. At the expiration of ten years thereafter the wires were to become the property of the telegraph company, after which time the telegraph company was to lease the same to Harrison Bros. for $600 per annum, payable quarterly, and with all the other terms and conditions as they existed before. The ten years having expired, Harrison Bros. continued to use the wire, paying the stipulated sum of $600 per annum therefor; but, after this had gone on for about three years the telegraph company served notice on Harrison Bros. putting an end to the agreement, whereupon Harrison Bros. filed a bill to restrain the telegraph company from terminating the contract, and to have the same specifically enforced, and this court held that the contract was one proper for specific performance.

The same rule was laid down in Prospect Park & C. I. R. Co. v. Coney Island & B. R. Co., 144 N. Y. 152, 39 N. E. 17, where many authorities are cited.

In Railroad Co. v. Alling, 99 U.S. 463, this court directed an injunction against the Ca non City Railway Company from preventing the Denver road from using the right of way through the Grand Ca non, and said: 'If, in any portion of the Grand Ca non, it is impracticable or impossible to lay down more than one roadbed and track, the court, while recognizing the prior right of the Denver Company to construct and operate that track for its own business, should, by proper orders, and upon such terms as may be just and equitable, establish and secure the right of the Ca non City Company, conferred by the act of March 3, 1875, to use the same roadbed and track, after completion, in common with the Denver Company.'

In the Express Cases, 117 U.S. 1, 6 Sup. Ct. 542, 628, the express companies sought to restrain the railway companies from refusing to carry express matter on the terms of contracts which had expired, which the court held could not be done, and it was said: 'The legislature may impose a duty, and, when imposed, it will, if necessary, be enforced by the courts; but, unless a duty has been created, either by usage, or by contract, or by statute, courts cannot be called on to give it effect.'

It was objected, in Joy's Case, that the court was proposing to assume the management of the railroad 'to the end of time'; but Mr. Justice Blatchford, speaking for the court, responded that the decree was complete in itself, and that it was 'not unusual for a court of equity to take supplemental proceedings to carry out its decree, and make it effective under altered circumstances.' And the court applied the principle that considerations of the interests of the public must be given due weight by a court of equity, when a public means of transportation, such as a railroad, comes under its jurisdiction. 'Railroads are common carriers, and owe duties to the public,' said Mr. Justice Blatchford. 'The rights of the public in respect to these great highways of communication should be fostered by the courts; and it is one of the most useful functions of a court of equity that its methods of procedure are capable of being made such as to accommodate themselves to the development of the interests of the public, in the progress of trade and traffic, by new methods of intercourse and transportation. The present case is a striking illustration. Here is a great public park, one of the lungs of an important city, which, in order to maintain its usefulness as a park, must be as free as possible from being serrated by railroads; and yet the interests of the public demand that it shall be crossed by a railroad. But the evil consequences of such crossing are to be reduced to a minimum by having a single right of way, and a single set of tracks, to be used by all the railroads which desire to cross the park. These two antagonisms must be reconciled, and that can be done only by the interposition of a court of equity, which thus will be exercising one of its most beneficent functions.'

Clearly, the public interests involved in the contracts before us demand that they should be upheld and enforced.

4. Doubtless a court of equity may refuse to decree the specific performance of a contract, if it be unconscionable, or bad faith in the parties seeking its enforcement be shown, or duress or fraud appear, or if it be unjust or inequitable, or if the decree would produce results so inequitable as to be incompatible with the proper exercise of the jurisdiction. But here it appears that the contracts were solicited by the Pacific Company, were fairly made on terms substantially proposed by itself, and that their violation by that company was unjustifiable. The contracts were approved promptly and with unanimity. The consideration appears to have been fair and reasonable. The St. Paul and Rock Island Companies abandoned their previous enterprise in reliance on them. They entered upon the performance of the contracts, and large sums of money were expended in carrying them out. The conduct of the Pacific Company was not such as to commend itself to a court of equity, and we can do no better than to quote from the opinion of Mr. Justice Brewer, in deciding the case on circuit: 'It is to the higher interest of all, corporations and public alike, that it be understood that there is a binding force in all contract obligations; that no change of interest or change of management can disturb their sanctity or break their force; but that the law which gives to corporations their rights, their capacities for large accumulations, and all their faculties, is potent to hold them to all their obligations, and so make right and justice the measure of all corporate as well as individual action.'

Decrees affirmed.

Notes