City of St. Louis v. Alexander

23 Mo. 483 | Mo. | 1856

Per CuRiAM.

The most important question in this cause is, whether the City of St. Louis, under her charter, had authority to subscribe for stock in the Ohio and Mississippi Railroad Company. The charter of the city, at the time the subscription was made, contained a clause wbicb prohibited the city at any time from becoming a subscriber for any stock in any corporation. The charter containing this prohibition bore date March 3d, 1851, and was entitled u An act to reduce the law incorporating the city of St. Louis, and the several acts amen-datory thereof, into one act, and to amend the same.” From the title of this act, it will be seen that it was one consolidating the several acts in relation to the charter of the city of St. Louis. The prohibition against the subscribing for stock above mentioned was not original in the charter of 1851, but was first introduced into the charter of 1843. The special act, under which the subscription was made, bore date on the 1st of March, 1851. Now, as the charter, which contained the prohibition against subscribing for stock, bore date on the 3d of March, and that authorizing the subscription, on the first of the same month, in the same year, it is maintained that the statute of the later date repealed that of a former date, and consequently there was no authority in the city to subscribe for stock in the Ohio and Mississippi Railroad Company. There is no doubt of the correctness of the general rule that leges poste-riores priores contrarias abrogant. But this rule is not of universal application, and we are of the opinion that the circumstances of the case under consideration do not furnish an instance for its enforcement. It is a rule in the construction of statutes, that all acts passed on the same subject, in pari materia, must be taken and construed together, and made to stand, if they are capable of being reconciled. There is nothing irreconcilable between a general prohibition to subscribe for stock in corporations, and a permission to subscribe for stock in a particular corporation. Nothing is more common than a general prohibition, with indulgence to particular individuals. The general restriction in the charter of St. Louis of 1843, was frequently relaxed, so as to permit subscriptions for stock in various corporations. If the general restriction against subscriptions for stock contained in the charter of March 3d, 1851, was original, and then introduced for the first time, we are not prepared to say that it would repeal the special permission to subscribe to the Ohio and Mississippi Railroad Company, granted by the act of March 1st, 1851. But that is not this case. The prohibition against subscription was in full force when the act of March 1st was passed. That act was passed to remove the restriction. Now the effect of the revision of the charter, on the 3d of March, 1851, was, not to make former provisions, which had previously existed, and which were continued, to begin from that date, but for convenience sake to embody all the acts in relation to the charter into one law, leaving the acts in force at the time of the revision to take date from the period when they were first passed. It would be of the most mischievous consequence to hold that the revision of a law had the effect of making the revised law entirely original, to be construed as though none of its provisions had effect but from the date of the revised law. When a former provision is included in a revised law, it is only thereby intended to continue its existence, not to make, it operate as an original act to take effect from the date of the revised law. The revision has not the effect of breaking the continuity of those provisions which were in force before it was made. In all the revisions of our laws, which the constitution requires to be done at stated periods, it has never been supposed that, because the revised laws were made to bear date from their approval, we were therefore prevented from looking back, and ascertaining when a law was first passed, and dating its existence from that time. It was never thought that the revision for one moment interrupted the continuity of the act. The forms for enacting laws were complied with in making a revision, in order to give effect to amendments, or any new provisions that ought to be introduced.

If, then, we regard the restriction against subscriptions for stock as originating in a provision as early as 1843, and as the act imposing that restriction was in force when the act of March 1, 1851, authorizing the subscription was passed, the embodying the restriction in an act of a subsequent date amending and reducing into one act the several acts incorporating the city of St. Louis can not have the effect of repealing the law which conferred on the city of St. Louis power to subscribe for stock to the Ohio and Mississippi Railroad Company.

It is urged by the respondents that the 25th section of the 7th article of the charter of the city, which contains the prohibition against subscriptions for stock in corporations, passed on the 3d March, 1853, enacts, that “ all acts and parts of acts contrary to, and inconsistent with the provisions of this act, or within the purview thereof, except the seventh section of the act entitled £ An act to amend ‘ An act to incorporate the city of St. Louis,’ approved February 8, 1839, are hereby repealed that this section repeals the act authorizing the subscription, passed on the 1st March, 1851, it being subsequent in date to the act of the 1st of March. These acts were passed during the same session. We may suppose that they were at the same time before the legislature. The one was purposely designed to remove a restriction which was then in force, and which was continued in force by the act of the 3d of March. If possible, these acts must both stand, if they can be reconciled, being in relation to the same subject matter. If the design of the enabling statute wa,s to remove the restriction, as that restriction was in force when it was passed, we can not suppose that the legislature, by the section referred to, intended to repeal the enabling act, as the privilege thereby conferred was granted in the very teeth of that act, and was intended to remove its prohibition. As the privilege was conferred specially against the terms of the general law, we would not be warranted in inferring its repeal without a manifest intent so to do. There is no such inconsistency between the acts that they may not both stand. A general prohibition against subscribing for stock in any corporation may well subsist with a permission to subscribe for stock in a particular corporation. When an enabling act has been passed against the provisions of a prohibitory statute, it would be against all reason to construe any general provision as repealing the enabling act, unless the intent so to do is made clearly manifest. As the enabling statute was passed against a general restraining clause, why should any general word importing no such specific intent have the effect of repealing it ?

Let us next see if the subscription made by the city to the stock of the Ohio and Mississippi Railroad Company was authorized by the statute law at the time or not. The first act necessary to be noticed in regard to this branch of the case is the act of the 17th of February, 1849. (Sess. Acts, 1849, p. 159.) This is entitled “ An act to authorize the City of St. Louis to subscribe stock in the Ohio and Mississippi Railroad Company.” Its provisions, as far as it is necessary to set them forth, are as follows : “ § 1. The City of St. Louis, subject to the proviso hereinafter contained, is hereby authorized to subscribe stock, not exceeding the sum of five hundred thousand dollars, to the Ohio and Mississippi Railroad Company, incorporated, &e., and to issue the bonds of said city, not exceeding the maximum sum of stock, to pay for the same ; and to levy a special tax on all taxable property in said city to pay the interest on such loan ; provided always, that the qualified voters of said city shall he in favor of such subscription., and that such loan and subscription shall be conducted in conformity to the several provisions of this act. § 2. It shall be the duty of the'mayor of said city, immediately after the passage of this act, to order ten days’ public notice, containing a copy of this act, to be given in all the daily newspapers published in said city, in order that the sense of the qualified voters of said city may be tested as to the propriety of such subscription and loan on behalf of said city.” The third section prescribes how this test is to be conducted, and declares that “ no ballot shall be counted unless the words i for the railroad loan’ or ‘ against the railroad loan’ be written or printed thereon ; and if it shall appear that there are more ballots ‘ for the railroad loan’ than ‘ against it,’ then the mayor and city council, &c., shall subscribe said stock, and issue said bonds,” &c. The 4th section gives the mayor the power, if it be necessary at any “ time to accomplish the in» tent of the act, to convene a special session of the city council.” Section 5 provides that no subscription of stock shall be binding on said city until at least five millions of dollars shall have been subscribed, including the subscription authorized by this act, by good and responsible individuals or corporations.” “ § 6. The mayor and city council of said city shall issue no bonds before the said whole amount of five millions shall have been bona fide subscribed in manner mentioned in the preceding section, and they shall be the judges of that fact. § 7. It shall be lawful for the mayor and city council of said city to issue the bonds of said city, to be executed from time to time, to an amount not exceeding in all one-half a million of dollars, payable not more than twenty years after the date thereof respectively, bearing interest payable semiannually, and -not exceeding the rate of six per cent, per an-num, and to 'deliver such bonds to the said railroad company in full payment of the stock to be subscribed by the city as aforesaid, at par. § 8. The railroad company aforesaid shall not be allowed' to sell, pledge, or in any manner dispose of, any one or more of said bonds, directly or indirectly, for less than ninety-five cents on the dollar, upon penalty of absolutely releasing the said city from the payment of the said bonds so disposed of, and a clause of forfeiture to that effect shall be inserted in each bond. § 13. The said city is authorized to subscribe said stock to said railroad company upon the express understanding that the construction of said road is to be begun and completed from both ends towards the centre simultaneously, as near as compatible with the nature of the work ; and it is hereby provided that a material failure in this respect shall release the city from all further liability on account of said subscription of stock. § 14. The subscription of said stock by said city to said railroad company shall be accompanied by a copy of this law.”

Such are the numerous restrictions and conditions upon which the city is to subscribe under the first act giving the power to subscribe. By this act it is necessary that the sense of the qualified voters of the city be taken as to the propriety of the city subscribing to the stock, before such subscription can lawfully be made. There must be an election to ascertain whether a majority of such voters is “ in favor of the railroad loan” or “ against it.” And when such a test has been tried, and a majority of the ballots cast is in favor of such subscription and loan, then the city has the right, and not till then, to subscribe. But still, before this right can be exercised, many other matters are'specified in the act as-clogs and restraints thereto. These must be removed also. We do not consider this requisition to test the sense of a majority of the qualified voters as to the propriety of the subscription before it can be made by the city, as merely directory. It is a declaratory, positive prerequisite. It must be complied with before the power can be rightfully exercised. The act here can not be done lawfully if this prerequisite be not complied with ; it must be observed and obeyed in order to give vitality and legal effect to the act to be afterwards performed. It is not a delegation of legislative power to the city authorities to do certain things before the act is to be a law, and, if not done, no law. The act is a complete expression of legislative will. It is a law in itself, and is as much a law, notwithstanding the mayor and city council should refuse to do any act under it, as if they were to comply fully with its mandates. No act on the part of the city is required to make it a law. The legislature must exercise the power to make laws. The power remains with that body alone. It can not be delegated; yet no one will deny to the legislature the power to pass laws with conditions on many subjects. Still there may be conditions which would make such laws unconstitutional. “ A law opening a road on condition that the owner of the land over which it passes will give it for that purpose — a law for building a bridge on condition that individuals will contribute to the cost in certain proportions — a law altering, abridging or enlarging the vested' powers of corporations aggregate, subject to the consent of such corporations — a law giving to school districts a portion of the school fund on condition that such districts will raise an equivalent or proportional sum — are all instances of proper conditional legislation, even though the assent of the corporators, in the one case, to the ehange of their charter, or of the district, in the other to accept the donation and comply with its terms, should be signified by a majority vote. These are all good conditions, capable of being performed without in any way interfering with the legislative will. But the law declaring an offence, or providing a punishment, or repealing an existing law, on condition that the governor or any other individual shall assent to it, is as plainly unconstitutional. It is the naked veto power. It substitutes for, or rather adds to, the legislative will another will, which it makes necessary to the existence of the law. This is unconstitutional. No one doubts it. No one will pretend that a law with such a condition would be good.” (Per Harrington, Judge, in Rice v. Foster, 4 Harrington, 499. See Parker v. Commonwealth, 6 Barr, Penn., 510; State v. Field, 17 Mo. 529; Aurora v. United States, 7 Cranch, 882.) But this statute does not depend upon any condition for its force, existence or sanction. It is not unconstitutional.

On the 1st of March, 1851, the legislature passed another act, entitled u An act to authorize the City of St. Louis to subscribe stock in the Pacific Railroad Company and for other purposes.” The first section of this act authorizes the City of St. Louis to subscribe stock not exceeding the sum of five hundred thousand dollars to the Pacific Railroad Company, &c., and to issue the bonds of said city to pay the same, to levy a special tax to pay the interest on the bonds, “ any thing in the charter of the city to the contrary notwithstanding.” By the 2d section the mayor and city council could cause the bonds “to be executed from time to time to an amount not exceeding in all five hundred thousand dollars, payable not more than twenty years after date thereof respectively, bearing interest at six per cent., payable semi-annually, and to deliver such bonds, with coupons attached, to said railroad company, in full payment for the stock subscribed, at par.” Section 3 prohibits the railroad company from disposing of said bonds for less than ninety-fiye cents on the dollar, upon penalty of absolutely releasing the city from payment of said bonds, and requires a clause of forfeiture to this effect to be inserted in each bond. The 4th section authorizes the city to issue the bonds from time to time as the work progresses, in proportion to calls made on individual stockholders. The 5th and 6th sections relate to special taxation to pay the interest on the bonds, its manner of assessment, and other regulations in regard thereto. The 7th and 8th sections authorize the city to sell the stock, or any part of it, and to provide for the redemption of the bonds, and to transfer the stock, or any part of it, to the payers of the special tax, &c. The 9th section has a most important bearing on this case, and is here copied entire. “ § 9. The City of St. Louis is hereby authorized to subscribe to the stock of the Ohio and Mississippi Railroad Company any amount not exceeding the sum of five hundred thousand dollars, or they may subscribe the whole or any part of that sum to the stock of any railroad company that may be organized for the construction of a railroad beginning or terminating at Illinoistown, or on the island known as ‘ Bloody Island,’ in front of said Illinoistown, and opposite the city of St. Louis, which subscription shall be on the same terms, and subject to the same conditions, as are herein provided for subscriptions to stock of the Pacific Railroad Company. But nothing herein contained shall be so construed as to authorize said city to subscribe more than five hundred thousand dollars in the aggregate for the construction of any road or roads east of the . Mississippi river.” The 6th section repeals the 5th and 6th sections of the act of February 17th, 1849, heretofore cited in this opinion. A serious question has been raised, whether this last act of March 1st, 1851, by its 10th section repealing the 5th and 6th sections of the act of 17th February, 1849, does not thereby leave the balance of said act in force. This, in all probability, would be considered a reasonable interpretation of the repealing effect of the 10th section, if both acts were consistent, and otherwise compatible with each other. But such is not the case. In the act of 1849 no subscription 'of stock shall be made until the sense of the qualified voters of the city, as to its propriety, shall be ascertained by an election. If a majority vote against it, none can be made. The act of 1849 was to be published immediately in all the daily newspapers of the city preparatory to testing the sense of the voters. This test must be had, and must be found favorable, or no stock can be taken. This must be done immediately. “ The judges of election shall, if the board of aldermen of said city be nob in timely session, be appointed by the mayor, and the presiding officers of the two branches of the common council of said city, or any two of said officers.” (Sess. Acts, 1849, p. 159, § 3.) Such is the supposed necessity for immediate and rapid action, that the mayor is authorized to convene special sessions of the city council from time to time ; thus seemingly limiting the operation of this act to a mere temporary period of short duration. Again, the subscription of the city to the stock of the Ohio and Mississippi Railroad Company, under the act of 1849, must be with the express understanding that the construction of the road is to be begun and completed from both ends towards the centre simultaneously, as near as compatible with the nature of the work ; a failure in this respect shall relieve the city from all further liability. Now none of these conditions, restraints and prerequisites are to be found in the act of 1st March, 1851, authorizing the city to subscribe to the Pacific Railroad Company — no test of its propriety by a vote previously taken — no condition to begin the work at both ends. All these restraints are left out, and we may take it for granted that they were properly omitted. The twenty years for the maturity of the bonds, the six per cent, interest, the special taxation to meet interest, the inhibition to dispose of the bonds for less than ninety-five cents on the dollar, the power to transfer stock, &c., these provisions and restraints are in the act of 1851, also in that of 1849. Now, by the 9th section of the act of March 1st, 1851, the power is expressly given to the city to subscribe to the Ohio and Mississippi Railroad Company, stock not exceeding five hundred thousand dollars ; which subscription shall be on the same terms, and subject to the same conditions, as are herein provided for subscriptions to the stock of the Pacific Railroad Company, but not to exceed the sum of five hundred thousand dollars for the construction of any road or roads east of the Mississippi river. Let us look at the conditions again. Nowhere do we find any election necessary to test the propriety of the city’s subscribing to the Pacific Railroad Company. For aught that appears to the contrary, the test prescribed by the act of 1849 may have been fatal to the effort then to procure a subscription .to the Ohio and Mississippi Railroad Company by the city. In 1851, the legislature did not think proper -to submit the subscription to such a test. No amount of subscription by bona fide stockholders or corporations is a prerequisite to the Pacific Railroad subscription by the city; and the city is authorized to subscribe to the Ohio and Mississippi Railroad Company upon the same terms, and subject to the same conditions, as are provided for subscriptions to the Pacific Railroad. Then, if the repeal of the 5th and 6th sections of the act of 1849 be considered an expression of the legislative will as to the balance of said act, and that the balance is unrepealed and in force, we must see how the provisions of the two acts coincide ; and if there is a material variance between them — repugnant and inconsistent provisions upon the same subject matter in relation to the same object — the last act, dispensing with prior regulations and tests and restraints, must supersede the former act. We hesitate not therefore to state, that, in our opinion, the subscription made by the city to the Ohio and Mississippi Railroad Company of five hundred thousand dollars, and the bonds given in payment thereof, under the 9th section of the act of 1851, are fully authorized, the subscription valid in law, and the bonds binding on the city.

As to the county subscription, so far as the facts appear before us by the pleadings, we will give our opinion, stating at first, that, from the bill filed in this case, it is most likely such a question never presented itself to tbe view of the counsel of the petitioners, nor had they any idea that they would be called upon to meet it. This is not a proceeding on the part of the County of St. Louis to get clear of her subscription, nor does she wish to be released from it. She still adheres to her subscription, claims the benefit thereof, and contends before us, by her counsel, that her subscription was lawful, and she bound as “ nominated” in her bonds. The act of the general assembly, approved January 26, 1853, is as follows : “ § 1. The County Court of St. Louis county, in this state, is authorized to subscribe to the capital stock of the Ohio and Mississippi Railroad Company the sum of two hundred thousand dollars. § 2. Before the subscription hereby authorized shall be made, the County Court of the county of St. Louis shall submit the question of making said subscription to the qualified voters of said county ; and if a majority of those voting shall be in favor of such subscription, the County Court shall at once proceed to make the same for the county. § 3. The County Court may issue the bonds of said county to pay the stock that may be subscribed ; and the said Ohio and Mississippi Railroad Company shall receive said bonds in payment of the subscription of the county, upon such terms as said company and the county may agree upon; and the said county may take such steps to protect the interests and credit of the county as it shall deem proper, and may appoint an agent to represent the county and vote for it and receive its dividends.”

This act has no time specified when it is to take effect. Then, under the 2d section of article 3d of the act concerning laws, (R. C. 1845, p. 695,) it takes effect at the end of ninety days after the passage thereof. It was in force then not sooner than April 26th, 1853. The petition avers that the County of St. Louis did, after the passage of the above act, and before the year 1855, subscribe for four thousand shares of fifty dollars each of the capital stock of the Ohio and Mississippi Railroad Company, and did issue its bonds therefor, amounting in the aggregate to the sum of $200,000, which were delivered to the Ohjo and Mississippi Railroad Company. Tbe defendants deny tj/at tbe County Court did ever submit tbe question of making said subscription to tbe qualified voters of said county under tbe act of 26th of January, 1853. “ They aver that that act did not take effect until ninety days after its passage, and that no vote ever was taken, in regard to the subscription by tbe county, after tbe law went into effect, nor -was any election ever held under tbe law in relation thereto. They say it may be true that on tbe 14th day of February, 1853, said County Court did order an election to be held by tbe qualified voters of said county as to whether such subscription should be made; and it may be true that on the 7th day of March, 1853, a small portion of the qualified voters of said county did vote in favor of said subscription — a still smaller portion voting against it; and it may be true that the said County Court did, on the 16th of March, pretend to subscribe to the capital stock of said company the sum of $200,000 ; but it is not true that any election was ever ordered at any other time in relation to said subscription, or that any election was ever held at any other time in relation thereto ; nor was any subscription made at any other time by said County of St. Louis to- the stock of said company.” The act of January 26th, 1853, requires that before the subscription by the county to the railroad company shall be made, the County Court of the County of St. Louis shall submit the question of making the subscription to the qualified voters of the county ; if a majority of those voting shall be in favor of such subscription, the County Court shall at once proceed to make the same for the county.

It has been contended by the counsel for the petitioners that the part of the act in relation to submitting the question to the voters of the county is merely directory, and that, if the subscription be made without a vote, it is sufficient, and a failure to observe a mere direction will not vitiate the act; but if this ■be not so, then that part requiring a submission to the voters of the county is unconstitutional and void, and so, in that event, the subscription is a good one, We do not agree with the counsel on this subject. The statute requiring the vote is not directory. It is a positive, explicit and plain mandate. It is not a direction. The voting on the question is an act positively and authoritatively required to be done before the subscription thereby authorized shall be made. Nor is the act referring the question to the vote of the county unconstitutional, Here is no delegation of legislative power, no conditional legislation even. The legislative will is expressed, and the act is in itself a complete embodiment of its will on the subject. Upon this subject we refer to what has already been said in regard to the act of 1849 requiring the vote of the city. It was illegal, in our opinion, for the County Court to subscribe stock under this act without taking the previous necessary step of submitting the question to the voters of the county, and the act must be in force before such a step could lawfully be taken. As the court below dismissed the petition because neither the city nor county was a legal stockholder in its opinion, and as the judgment will have to be reversed in regard to the amount of damages assessed, we have thought it most advisable not to conclude the county upon the facts set forth only in the petition and answer. We are not unwilling to meet this or any other question legally presented, but as there may be important facts and matters connected with the subscription on the part of the county, which, if properly brought before us, might have weight in settling this question, we decline now deciding further. We say there may be such facts ; we know not whether there are such; but if there be, we are willing to let the county have the benefit of more fully and particularly making out her case. We have expressed our views of the act of January 26, 1858, but as there are but two judges of this court sitting on the trial of this cause, and as one of them entertains very serious doubts as to the legal right of the defendants to raise the question in this case of the ownership of stock on the part of the county, we forbear saying any thing more on that part of the case.

In regard to the assessment of damages, we think the court erred. The record shows that no evidence was offered or pro-düced before the court in relation to the damages sustained by the defendants in virtue of this injunction. The statute declares (Sess. Acts, 1849, p. 85, § 12) that “ upon the dissolution of an injunction, in whole or in part, damages shall be assessed by a jury, or, if neither party require a jury, by the court; but if money'shall have been enjoined, the damages thereon shall not exceed ten per.centum on the amount released by the dissolution, exclusive of legal interest and costs.” This section of the act of 1849, “ concerning practice in courts of justice,” is a copy of the 13th section of the act of 1845, concerning injunctions. (R. C. 1845, p. 580.) The injunction to stop the procedings of a trustee to sell property, under a deed of trust to pay a debt, has not been considered such an injunction upon money as to authorize the assessment of damages by the rule of per cent, laid down in the act alone. In the case of Kennedy’s Exec’r v. Hammond & Hall, (16 Mo. 341,) this court held that the damages in such a case were not limited to ten per cent, on the debt, but might extend to the full amount of the debt, if the loss to the creditor by the injunction extended so far. The meaning of the words “ if money shall have been enjoined” has been generally supposed to embrace injunctions upon the executions of judgments originating by debtor therein against his creditor, and not such as restrain other acts whereby money may in consequence thereof be deferred in payment by the interposition of third parties. Upon an execution against a debtor’s estate, the payment of which can be enforced out of all his property, and the justice of which has been settled by the law through the intervention of its officers and tribunals ; if there be an interference by injunction, and it turn out to be without proper cause, and is therefore removed, then damages not exceeding ten per cent, upon the amount released from the injunction may be a just penalty-for improperly interfering, and a just 'recompense for the delay which such interference produced to the creditor. But such is_not the case when a sale of trust property has been enjoined. Here the debt has been recognized by the parties only; the law has not adjudicated upon it. Then, when such a sale is enjoined by a third party, and the court, after a hearing, dissolves the injunction, it becomes proper to ascertain the damages, not by the rule of per cent., but from the injury the creditor has sustained from the improper act of the party stepping in between the creditor and the debtor, and hindering and delaying the execution of the means provided to enforce payment. Suppose in this case that the trust property was not worth half the debt intended to be secured, would the delay in the sale of it, caused by injunction, authorize the court to give ten per cent, damages for the detention and non-payment of the whole debt ? What injury has the creditor sustained by enjoining the sale of property not worth one-tenth part of his debt ? Again, suppose the injunction had caused the loss of the'entire fund in trust, would ten per cent, on the debt be a proper amount of damages — the only amount which the law would recognize, although there be proof amply to show that the fund was in value equal to the debt ? No. In all such cases the court, or jury, should determine the amount of injury by evidence before it, or them, as to the damages sustained, the probable amount that would have been realized, the value of money at the time, and other circumstances tending to show the damages sustained by the creditor in consequence of such injunction. It was therefore, in our opinion, error in the court below to assess, without proof, the sum of money in this case as damages to the defendant, and its judgment must be reversed, and the cause remanded.

Scott, Judge.

The objections, principally urged against the sufficiency of the petition, seem to be founded on the idea that this is a proceeding to re-open a stated account, and it is maintained that there is no cause set forth in the petition which entitles the plaintiffs to this kind of relief. It is conceived that this is not the design of this action. In a late case in the Supreme Court of the United States (Dodge v. Woolsey, 18 How. 331), it is held that a stockholder in a corporation has a remedy in chancery against the directors to prevent them from doing acts wbicb would amount to a violation of tbe charter, or to prevent any misapplication of their capital or profits, which might lessen the value of the shares, if the acts, intended to be done, amount to what is called in law a breach of trust or duty. From a careful examination of the facts stated in the petition, it would seem that its aim is to prevent an act on the part of the directors of the Ohio and Mississippi Railroad Company, which would be a misapplication of its capital, amounting to a breach of duty or trust. The petition, in substance, alleges that four directors of the company, without authority, by reason that so small a number could not act on the subject, fraudulently combined to allow a demand against the company greatly exceeding its true amount, executed a bond for the sum thus ascertained, and gave a deed of trust, to secure its payment, on all the real estate of the company then possessed, or that might thereafter be acquired, in the state of Illinois, on all engines, locomotives, tenders, &c. ; on all other property of whatsoever kind, which was then or might be owned by such company ; on all tolls, income, revenues, issues and profits of the property thereby conveyed ; and all privileges, franchises, easements, rights and interests whatsoever, then possessed, used or enjoyed, or which might thereafter be acquired or possessed by the said company. The petition morever alleges that a member of the firm, to whom this debt was allowed, was one of the four directors by whom it was allowed, and that another one of the said four directors was the trustee named in the deed of trust given to secure the payment of the debt. It is admitted that four was the least number of directors that could act; so the concurrence of one of the interested parties must have been had in order to render the acts valid. Now the petition prays that the sale under the deed of trust thus obtained shall be enjoined until the further order of the court; that the deed of trust and security be declared void, and that the defendants render an account, &c. It must be clear that if the law furnishes no redress for wrongs of this kind by the directors of companies, there is an end of all moneyed corporations. No sane man would vest his money in them unless with a view to obtain their control. In a matter of so great amount the law does not allow a man to judge for himself, or to vote himself a trusteeship, the management of which may be a fortune. Nor is the matter bettered by the subsequent ratification procured by means of calling in three other directors. The idea of a ratification must have grown out of complaints or surmises as to the fairness of the transaction. The three composing the last board, who had done the first.act complained of, were committed by what they had previously done. They made one-half or the last board, and it is not to be expected that they would have convicted themselves of having done wrong. The three new members. could not control. Under such circumstances the ratification could have been only colorable. The first three directors should have retired and made room for those who were uncommitted. This, then, is no proceeding to re-open a stated account. It is founded on the idea that there has been no lawful settlement of accounts between the parties. It is conceived that the facts stated in the petition, if established, would show such a misapplication of the property of the company as would amount to a breach of duty, and bring this case within the principle laid down by the Supreme Court of the United States in the suit to which reference has been made.

Hyland, Judge.

In regard to the granting of the injunction in the first instance by the court below, my own individual opinion is, that the petition was not sufficient to warrant the injunction.

It is not denied that the corporation had power, under its charter, to borrow money, and mortgage its franchises and effects to secure the repayment. The law may be considered as settled that a corporation may convey its property in trust to pay its debts, and, like an individual, may prefer one creditor to another. (2 Kent’s Com. 314, note.)

The plaintiffs’ petition stated, in substance, that four directors of the corporation made the deed in this case, affixing thereto the corporate seal, to secure the note for $1,158,484 61; that neither said deed nor note was the act of the corporation ; that said four directors had no power to make them ; that the by-law which allowed the four directors to constitute a quorum was contrary to the charter and void ; that said note and deed were fraudulent; that Henry D. Bacon, one of the firm of Page & Bacon, was a director of the corporation, and one of the four ; and that Joshua H. Alexander, the trustee, was another; that said four directors had combined to give said note and deed to defraud the stockholders, by giving said securities for so large an amount, when the plaintiffs state that they believe not more than $500,000 was due Page & Bacon, and they did not admit any thing was due. The petition also states that, after the making of said deed and note, another meeting of directors was held, and a resolution passed ratifying the same ; that at this meeting three of the four directors were present and acted; that said three procured said ratification, and that said last mentioned proceedings were also fraudulent ; that six directors were present at this meeting.

It will be observed that the invalidity of the deed and note are asserted on two grounds : first, that they are void, as made with fraudulent intent; second, that they are void as made without lawful authority. The fraud charged in the petition against the four directors rests upon the allegation that part of the debt was unjust; for if we can consider the whole debt honestly due, though a question might be made as to the power of the four directors to make the deed and note, it is impossible to impute to them a fraudulent intent. The most that could be said would be that they had attempted to secure honest creditors their debt, and failed because they had no power to act. In regard to the defendant Bacon, if the debt claimed was perfectly just, what moral delinquency could attach upon him for attempting to secure it ? IE the law forbade him to act as a director in allowing his own claim, that is quite a different question, but does not touch the subject of fraud. The important inquiry then is, whether this petition can be regarded as asserting by any proper sufficient allegation that tbe debt of Page & Bacon was not as represented by tbe deed and note. I am well satisfied that, upon tbe long and well-settled rules of pleading, it can not be so regarded. Tbe allegation that tbe plaintiffs believe that not more than $500,000 of the debt claimed was due, and they did not admit any thing was due, is tbe whole basis of tbe fraud. When tbe corporate seal is affixed to an instrument, it is presumed to be the act of tbe corporation. (Angel & Ames on Corp. 194.) The object, then, must be to impeach and overthrow the instrument by affirmative matter. The matter relied on here is the supposed fraud as to part of the debt claimed. If there was no debt at all, that would certainly constitute fraud. But there is no such allegation in the petition. If any material part of the debt claimed was pretended only, fraud might be predicated on that; but no such allegation as that is contained in the petition.

If any thing is settled as matter of pleading, it is that when a part of a debt or consideration is denied, and fraud in consequence is charged, and relief is asked, as by cancelling or annulling instruments, the particular part thereof intended to be put in issue must be so specified by items as that the opposite party may know what is objected to. (15 Wend. 83; 4 Page, 495; 2 Johns. Ch. 210; 1 Bald, 418; Hop. 256; 2 Edw. Ch. 23; 4 Cranch, 306; 7 Cranch, 147; 20 Johns. 669; 23 Verm. 720; 4 Hals. 657, 795.) Story says, (Eq. Pl. 211,) where a bill seeks a general account upon a charge of fraud, it is not sufficient to make such a charge in general terms, but it should be pointed, and state particular acts of fraud. So in a bill to open a settled account, it is not sufficient to allege generally that it is erroneous, but the specific errors should be pointed out. Here it is said, not more than $500,000 are due ; the rest of the claim, was fraudulent. If such an allegation is to be taken for any thing, what does it apply to ? How are the defendants to meet it ? When the balance of the accounts amounts to more than a million of dollars, we may suppose that the whole account amounted to many millions. False items entering into tbe account at any period, or anywhere, may bring out the fraudulent balance. Was a defendant ever required to go to trial on such an allegation ? It can not be evaded that this allegation supports the whole charge of fraud contained in the petition. Is it susceptible of trial ? If so, how is the court to prevent the plaintiffs from litigating every item of the debt, although a part of it is not denied nor put in issue ? In my opinion, this allegation is too general and loose to raise an issue on the debt mentioned in the deed and note, and that it must be treated as entirely insufficient. It is conceded that in a bill to open an account stated, this averment would be insufficient. It would only be insufficient in such case because it is no denial of the debt in a legal point of view. Then there is no denial in legal form of this debt. That the plaintiffs were not able to state that any specified portion of the debt was unjust, is only a good reason why they should not have made the general statement contained in their petition. If they needed information, the law was open to them, and ample means were afforded to get it. There being then no legal showing in the petition that the debt claimed by Page & Bacon was unjust, the general allegation of fraud falls to the ground, and leaves nothing but the question of power in the execution of the securities.

After a careful examination of the whole subject, my opinion is, that the note and deed were made by competent authority. It appears by the petition, the board might consist of not less than seven nor more than seventeen directors. Four then might be, and I must suppose was, a majority of the board. There would be no question of their power to set the corporation seal to these securities but for the fact that Bacon, the creditor, and Alexander, the intended trustee, were among them. These facts, it is contended, rendered the instruments void. The subject is not free from difficulty. Strong considerations exist to repel any view that may be taken of it. It is an approved maxim that no one shall act in a matter where he is interested, but, like other rules, it has been found incapable of universal use. In the management of corporations by a board of directors charged with the disposition of its stock, and the duty of providing for its funds, this maxim seems to have yielded in a great degree to the necessity of the case. It is known that in all stock corporations the directors are expected to be, and often must be, stockholders. This leads inevitably to complicated dealings and conflicting interests between the corporation, as such, and all the individual members who compose it. It is impossible that.the persons who constitute the directors of a corporation will not, in the course of its management, become interested, as a class, against the corporation itself ; and if such an interest will disqualify them to sit in the board, there must be an end of the corporation. I suppose there is not a railroad company or corporation in the United States, in which it has not happened that the directors have been called to act in ordering theselves and others to pay instal-ments, or in granting extension of stock payments, or otherwise deciding dues and claims on their own votes. This results from the doctrine that the corporation may contract with one of its members or corporators ; and the right of a corporator or director to vote on a question in which he is interested, would seem to be inseparable from that doctrine. In the case at bar this corporation found no difficulty in contracting with the defendant Bacon, while sitting and voting as one of its directors, and in binding him and his firm to supply them with funds, so far as we know, for a series of years, to promote all their objects ; but, when the amount of the loan is to be adjusted, it is supposed that he is disqualified to participate in ordering a security for paying the debt. I can see no reason why a member of the board of directors might not sit in the board, and, without fraud, in conjunction with others, consent to an order for securing a debt actually due to him from the corporation. The bare fact is not evidence of any fraud in such director, particularly when no averment is made, in an issuable form, that the debt was not fair and honest. It is believed that, when an unfair and fraudulent security is taken in this way, the law a£fords to any party injured thereby ample remedy ; but it will be necessary, in such case, to present to the court something more than a general guess that the debt is unjust and fraudulent.

These views are not unsupported by the opinions of able jurists who have gone before us. In Hayward v. The Pilgrim Society, the case was this: The trustees of the Society were authorized by vote to appropriate its funds. They expended all the funds of the corporation, and yet a debt remained for the erection of a building they had contracted to put up, for which they were personally responsible. It was in this emergency that the trustees, all of whom were interested in relieving themselves from loss, voted that their treasurer should give a note to one of their number, who paid the debt, and thus protect the voters. It was held that, by virtue of their authority to manage the finances of the concern, they had power to authorize the note, and that the note was valid. (Angel & Ames on Corp. 290; 21 Pick. 270.) Chitty says (Chitty on Cont. 276, note e) “ a member of a corporation contracting with the corporation must be deemed, in respect of that contract, a stranger to the corporation.” In Gordon v. Preston, (1 Watts, 886,) a mortgage wa_s made by a quorum of the board, but at a meeting not regularly called. The mortgage was made to the president of the board, and the treasurer of the corporation, who was also a member of the board, and both the mortgagees were present as part of the quorum that ordered the execution of the security. It was held by Chief Justice Gibson that the instrument was not valid, because there was no regular meeting of the board; but it was also held that the fact that the mortgagees were members of the board, and participated in the proceedings, could not affect their title. The Chief Justice said : “ That a corporator may sustain the relation of debtor or creditor in regard to the corporation, and in the latter character receive a security, is a proposition which requires not the aid of argument.”

In the Railroad Company et al. v. Claghorn et al., (1 Speers’ Eq. R. 562,) the directors had endorsed notes of the corporation, and voted a security to indemnify themselves against loss. Chancellor Johnson said: “ There is, upon a superficial view, something very startling in this, if the facts be true, and they probably are as to some, perhaps all the endorsers; but the alarm will cease when we take into consideration the motives and influence which operate upon men to lend their credit to assist corporations to pursue their enterprizes. The directors of a corporation ought to be, and generally are, better informed as to its liabilities and resources than any one else ; and if they, having the means, refuse to aid them in their operations by loan of money, no one else will do it. ' And there is nothing in law or equity which forbids a director of a corporation from contracting with it. He stands in the same relation to the corporation as any other individual would, under the same circumstances. If, by greater diligence and without fraud, he can fairly gain an advantage over other creditors, he is entitled to retain it.” It was ruled in this case that the directors voting a security to themselves, was no evidence of fraud. In 1 Pick. 297, there is a case decided by C. J. Parker — The Proprietors of the Canal Bridge v. Gordon. There were three distinct corporations, the members of which consisted of the same individuals. It was held that the contracts they made with each other were valid. The ruling went upon the idea of ascertaining the effect of the contracts in the same way as if made by parties not involved in conflicting duties and interests. (Angel & Ames on Corporations, 205.) In Connell et al. v. Woodard et al., (5 How. Miss. 665,) a suit was brought and prosecuted to success by Hugh Connell, Arthur Daniel, William A. Chisholm, Daniel Woodard, William T. Mayes, trustees, against Daniel Woodard, William T. Mayes and J. S. Watt. Of course the parties had power to contract in that way. In R. M. Charlton, 260, it was held by Davies, Judge, that the managers or directors of a corporation can not be considered as trustees', or prohibited as such from purchasing property or stock of the corporation.

I must consider, therefore, that the fact that a director’s taking a security from the board of which he is a member is not fraudulent, not even a badge of fraud; further, that he has power to act as a member of the board in such case. Were I to concede that the four directors had no power to act, (which I do not by any means,) I entertain no doubt at all of the ratification in this case of the acts giving the note and deed. At the board which ratified the conveyance and note, Alexander was the only person present who is alleged to have been interested as a party to the deed. The ratification was in due form, and equal to a precedent authority. (See 2 Smed. & Mars, 193, 199; 12 N. H. 205; 24 Pick. 13; 5 Hill, 137, 143; 1 Pet. C. C. R. 64; 1 Johns. Cas. 110; 18 Barb. 500; 14 Georg. 124; 13 id. 46; 12 Barb. 27.) Even where there is no express ratification in terms, one will be presumed, in many cases, from mere acquiescence. (1 Watts, 385.) I am unable to perceive the force of the suggestion, that, if an act is done by an insufficient number of directors, such directors ought to be excluded from joining in the ratification of the first proceeding. The petition shows upon its face the ratification, and alleges nothing against its force, as I have already shown. The petition, in my opinion, does not show a case in which the writ of injunction ought ever to have issued. There is nothing, so far as I can perceive, either in law or morals, prohibiting a creditor from using any fair means to secure his debt. Here, there is a security and a note, which has the sanction of at least five directors, against whom nothing by way of interest can be alleged, and this number forms a quorum to do such acts. Can it be said to be a perversion of the trust to secure to the creditors the amount of advances made by them, though they be corporators or stockholders ? I think not.

Case Details

Case Name: City of St. Louis v. Alexander

Court Name: Supreme Court of Missouri

Date Published: Oct 15, 1856

Citation: 23 Mo. 483

Court Abbreviation: Mo.