Stockton v. Central Railroad

The Chancellor.

“ It is a cardinal rule of the law of corporations,” said Vice-Chancellor Van Fleet, in National Trust Co. v. Miller, 6 Stew. Eq. 162, “ that a corporation created by statute can exercise no power and has no rights except such as are expressly given or necessarily implied.”

“It may also be considered settled,” said Mr. Justice Van Syckel, in pronouncing the opinion of the court of errors and appeals in Black v. Delaware and Raritan Canal Co., 9 C. E. Gr. 465, in which a lease of railroad franchises and property for nine hundred aud ninety-nine years was in question, “ that a corporation cannot lease or dispose of any franchise needful in the performance of its obligations to the state, without legislative consent,” and the law thus declared to be settled was reiterated by Mr. Justice Dixon, in the same court, in Stewart v. The Lehigh Valley R. R. Co., 9 Vr. 513, in this language: “ It is not open to dispute that such a lease as this can be valid only if santioned by the legislature. Nor is such sanction to be implied; it must rest upon a clear expression of the legislative intention. It must be gathered, in the first place, from the words which the legislature has used upon the subject; and if those words, construed according to their usual signification, declare the purpose to authorize a lease to a foreign corporation, or to a class of corporations which include the plaintiff, we must give effect to such purpose. The court has no right to add to the words of the legislature, or to substitute other words for them, in order to widen the power conferred; nor has it any more right to strike out words or detract from their fair and ordinary meaning, for the purpose of restricting the grant. The duty of the court is one of interpretation merely.” To the same effect is the holding in the United States supreme court. Thomas v. West Jersey R. R. Co., 101 U. S. 71; Pennsylvania R. R. Co. v. St. Louis &c. R. R. Co., 118 U. S. 290; Green Bay &c. R. R. Co. v. Union Steamboat Co., 107 U. S. 290, 298; Central Transportation Co. v. Pullman Co., 139 U. S. 24

The validity of a lease of this kind is questioned in this case, and it has not been seriously contended that the lease can be sustained if clear legislative sanction for it is not found.

It is claimed that such sanction is had in the amendment of March 11th, 1880, to the seventeenth section of the General Railroad act, entitled “An act to authorize the formation of railroad corporations and to regulate the same.” Rev. p. 930; Pev. Sup. p. 828.

That section originally, so far as it bears upon the present question, was in this language: “And it shall be lawful for any corporation incorporated under this act, at any time during the continuance of its charter, to lease ” &c.

In 1880 it was amended by having interpolated in it, after the words “ under this act,” the words “ or under any of the laws of this state,” so that the amended section is now, including the words which follow the word “ lease,” which remain as in the act, as follows :

‘‘And it shall be lawful for any corporation incorporated under this act 01 under any of the laws of this State, at any time during the continuance of its charter to lease its roads or any part thereof to any other corporation or corporations of this or any other State, or to unite and consolidate, as well as merge, its stock, property and franchises and road with those of any other company or companies of this or any other State, or to do both, and such company or companies are hereby authorized to take such lease or to unite, consolidate as well as merge its stock, property, franchises and road, with said company or to do both, and, after such lease or consolidation, the company or companies so acquiring said stock, property, franchises and road, may use and operate such road and their own roads ” &c.

It is insisted, on behalf of the attorney-general, as a matter of construction, that under the seventeenth section as it originally stood, power was conferred upon á company organized under the General Railroad law to make a lease of its road either to another company formed under that act, or to a company created by a special act of the legislature of this state, or to a foreign corporation ; that is, it might be lessor to a company of either of those characters, but that the law did not make it competent to take a lease from specially incorporated or foreign companies; that is, to become the lessee of a company of any character other than one formed under the General Railroad law. .He insists that the effect and purpose of the amended act was to render such •company competent to become lessee of “ any corporation incorporated under this act or any of the laws of this state;” that is, that any corporation incorporated under the general law might become lessee of the road of any company specially incorporated. In other words, his insistment, shortly stated, is, that the design of the amendment of 1880 was to complete the powers of the company formed under the General Railroad law, so that it could become either lessor or lessee of any other railroad company, but that it was not the legislative purpose thereby to extend the powers of specially chartered railroad companies.

He claims that such interpretation of the meaning of the law of 1880 is made necessary by the restrictive language of the title of the act, and that if the interpretation be that the amendment extends the powers of a corporation created by special act, then the law contravenes the provision of the constitution which declares that “every law shall embrace but one object and that shall be expressed in the title.”

If the intention of the legislature was to give the interpolated words the meaning which the informant contends for, the method of expressing that intention was most unfortunate. It is observed that the power conferred consists of two parts, separated by a semi-colon; the first treats of the power to give a lease, and the second treats of the power to take a lease. How the interpolated words are put in the first part so that the grammatical and natural meaning, and I think the only meaning of which the act is susceptible is, that power to lease is conferred upon the company incorporated by special act. If it had been intended to express the meaning that the informant contends for, the intention would accurately and easily have been effected by an interpolation in that part of the power which authorizes the taking of a lease. The meaning insisted upon is too forced to merit further discussion.

Passing to the consideration of the title of the act, I acquiesce in the informant’s insistment that the rule is established, that where the meaning of a statute is doubtful the title may be referred to for assistance in its elucidation, because, under the constitution, the object of the act must be expressed in its title, and before a law shall be declared to be unconstitutional it will be read in the light of its title to see if, within the fair bounds of that title, a reasonable interpretation may be given to it. That rule is invoked here to excuse and support the meaning contended for, but it is of no assistance. The meaning of the body of the act is not in doubt. The meaning of the title is that which counsel really questions. It is “An act to amend-an act entitled ‘An act to authorize the formation of railroad corporations and regulate the same.’ ” The inquiry is, To what antecedent the words “ the same,” in this title, relate ? To railroad corporations generally, or to those only which are formed under the act ?' Does the object it expresses contemplate the formation and regulation of all railroads or the formation and regulation of those only which may be organized under that law? These questions suggest ambiguity in the title of the law. If we refer to the body of the original act for an index to the legislative mind, we will find that which I described in Montclair v. New York and Greenwood Lake Ry. Co., 18 Stew. Eq. 442, in this language: “ Throughout the act the greatest care is taken, by express language prefacing certain of the sections, to confine the provisions of those sections, to corporations formed under the act, but there are other-sections, which concern proper regulations applicable to any railroad, that are not so prefaced, and in terms refer to any railroad, indicating that the legislative intent was to enact a general law which should regulate all railroad corporations, and at the same time authorize the formation of new ones. Perhaps the most striking indication of this intention is found in the* last section of the act (Rev. p. 936 § 127), where it is provided that the act may be altered, amended or repealed, but such repeal or alteration shall not affect any corporation heretofore organized, unless the act making such repeal or alteration shall so expressly declare. It was evidently the legislative intent that the act should extend to all railroad corporations of the state. Its several sections, however, are so drawn as to distinguish in their application between corporations organized under 'that act and all corporations, whether formed under that act or otherwise incorporated. This distinction was evidently the result of an extended consideration of corporate interests, for in the last section of the act, looking to the maintenance of the distinction, it is provided that when an amendment is intended to extend to corporations organized before the act was passed it shall so expressly declare.”

In the case from which I have just quoted I found it to be impossible to reconcile the body of the act with a narrow construction of the title which would restrict the act’s regulation of railroads to those companies which were formed under it; The object of the act appeared to be general provision for the organization and control of railroad corporations—the gathering of all, so far as could be constitutionally done, within one comprehensive, general law. That such has been the universally accepted signification of the law is evinced by its being known as the “ General Eailroad Law.” That such has been the subsequent legislative construction of its object is shown by the frequent enactment of laws for the' regulation of all railroads, however formed, entitled as supplements to the law discussed. And such construction has more than once, without being questioned, had judicial acceptance in this court. Elkins v. Camden and Atlantia R. R. Co., 9 Stew. Eq. 11; Mills v. Central R. R. Co., 14 Stew. Eq. 4. The title of the act in question may naturally be read to express the object of the law. It does express the object evinced in the body of the law, and does not necessarily restrict that body within narrower bounds than it assumes.

But does a law which purports to both.form and regulate railroads embrace a single object ?

The constitution requires that each law shall have a single object, and that that object shall be expressed in the title of the act. .The language of the sentence in which this constitutional requirement is embodied is this :

“To avoid improper influence which may result from intermixing in one and the same act such things as have no proper relations to each other, every law shall embrace but one object, and that shall be expressed in the title.” Pl. 4 § 7 art. 4.

The requirement is to be construed in the light of the expressed reason for it. The evil condemned, for which the remedy is prescribed, is not the uniting of properly related subjects in one act, but the uniting of subjects that are foreign to each other, and which do not all tend to the promotion of a single object. Various subsidary subjects, properly connected and relating to one comprehensive subject, may be united in the same law. The end aimed at is that each law shall have a single general object, which shall be stated in its title, and that all parts of the law shall be germane to that one subject. The purpose is that each distinct subject matter of legislation shall have independent consideration upon its merits, unaffected by the presence of foreign matter which may tend to distract, confuse, or improperly influence, and that the title shall conspicuously indicate the general object of the-act, so that the intrusion of the irrelevant matter may be readily detected, and, if it shall remain in the law, be without effect, because inimical to the title. This is the accepted interpretation of this provision of our constitution in numerous decisions of our courts. State v. Town of Union, 4 Vr. 350 ; Gifford v. New Jersey R. R. Co., 2 Stock. 172 ; State v. Newark, 5 Vr. 236 ; Rader v. Township of Union, 10 Vr. 509 ; S. C., 12 Vr. 621; Payne v. Mahon, 12 Vr. 292 ; State v. Hammer, 13 Vr. 438 ; Onderdunk v. Plainfield, 13 Vr. 480 ; Van Riper v. Plainfield, 14 Vr. 349 ; Snipe v. Shriner, 15 Vr. 206 ; New Brunswick v. Williamson, 15 Vr. 169 ; Bergen County Savings Bank v. Township of Union, 15 Vr. 599 ; Vail v. Easton and Amboy R. R. Co., 15 Vr. 237 ; Daubman v. Smith, 18 Vr. 200; Grover v. Trustees of Ocean Grove Association, 16 Vr. 399; Bumsted v. Govern, 18 Vr. 368 ; Dobbins v. Northampton, 21 Vr. 496 ; Easton and Amboy R. R. Co. v. Central R. R. Co., 22 Vr. 267; Kirkpatrick v. New Brunswick, 13 Stew. Eq. 46.

The formation and regulation of railroads are subjects naturally ' and properly related to and connected with each other, and are both germane to the object, which is expressed by their being coupled in defining the title of the act; that is, as I have already said, the creation of a general scheme which is capable of dealing with all railroad affairs which may be within the legislative power. We are not to say that the object of a law is not expressed in its title when tlie language of the title is an enumeration of the subjects it embraces. That very enumeration may serve to more clearly express the general object. For instance, in Easton and Amboy R. R. Co. v. Central R. R. Co., supra, the title “An act to cede to the mayor and common council of Jersey City certain lands of the-state, now and heretofore under the tide waters of the Communipaw bay, and to establish a tidewater basin adjacent thereto,” was held by the supreme court to express, with even unnecessary precision, the single object of appropriating land owned by the state to public uses.

I do not find any constitutional infirmity in the title to the act in question, and the language of the act appears to me to be sufficiently broad and comprehensive to confer the power contended for by the defendants.

My conclusion upon questions arising in this case and hereafter stated obviates the necessity of my passing upon this proposition, which was most strenuously insisted upon by the attorney-general, that even though the act of 188G may confer the power to lease, that power, impliedly, from the character of railroad corporations as quasi public bodies, is limited to leases designed for the public welfare, and does not warrant a lease in furtherance of a scheme to prevent competition and create a monopoly. While I do not declare this insistment to be law, and accept it as a 'factor in the process by which I reach the result of my deliberation, I deem it to be of such importance as to merit full statement.

Corporate bodies that engage in a public or quasi public occupation are created by the state upon the hypothesis that they will be a public benefit. They enjoy privileges that individuals cannot have. Perpetual or certain life is accorded to them. Usually the authority of the right of eminent domain is delegated to them, often to be exercised in whatever locality they may be pleased to designate. National Docks &c. Ry. Co. v. Pennsylvania R. R. Co., 24 Vr. 217. The use of the common highways is frequently subordinated to their operations, and, indeed, the individual is compelled, even in his own home, to submit without redress to discomforts incident to their lawful operation which he would not be required to tolerate from other sources. Beseman v. Pennsylvania R. R. Co., 21 Vr. 235; S. C. on appeal, 23 Vr. 221. Thus they are given special privileges because of the benefits they are presumed to confer upon communities. Railways afford speedy and comfortable passage to and from divers parts of the country, carry produce of mines, farms and factories to markets, distribute industries throughout the land, feed the multitudes in populous cities, and accomplish many other beneficent ends. Water, gas, telegraph and similar corporations also render to the public benefits which readily suggest themselves to the mind as it contemplates their work. While the state confers special privileges upon these favorites, it at the same time exacts from them duties which also tend to the public welfare. The whole scheme of the laws of their organization is to equip and control them as instruments for the public good. Such corporations hold their powers not merely in trust for the pecuniary profit of their stockholders, but also in trust for the public weal. The impress for public good is stamped upon their very being, and it becomes a duty which, though not prescribed in express language of the law, is to be implied from the nature of every power conferred. When, therefore, it appears that such a corporation, unmindful of this plain duty, acts prejudicially to the public in order to make undue gains and profits for its stockholders, it uses its powers in a manner not contemplated by the law which confers them. The use becomes abuse, and is tantamount to excess of power.

I appreciate the strength of this argument, but, as I have said, I do not need to affirm it to justify my conclusions, and, therefore, content myself with the mere statement of it.

Anticipating that I might hold that the act of 1880 is constitutional, and that it gives power to the Central Railroad Company to lease its road and franchises, the attorney-general further urges —-first, that -the lease in question is in reality made to a foreign corporation; and, second, that such a lease is forbidden by the •statute approved May 2d, 1885, entitled “An act respecting the leasing of railroads,” except under conditions which do not exist.

• I agree with him in both these propositions.

Equity looks at the substance, not merely the outward form. The transaction of the 12th of January, 1892, between the three defendants consists, in form, of a lease between two of them, and a guarantee of that lease, coupled ‘with a traffic agreement to which all three of them are parties. Such is the form. But when the fact that a law which, in its terms, prohibits a lease to a foreign corporation without legislative sanction is contemplated, and regard is had to the characters, and relations of the contracting parties, and to the terms of the instruments they have entei’ed into, and the simultaneous execution of those instruments, a substantial status differing from the form is disclosed. The statute forbade a lease to the Philadelphia and Reading Railroad Company, a foreign corporation, until a law should be enacted which would approve such a lease, but it did not prohibit a lease to a domestic corporation. The Philadelphia and Reading Railroad Company, through its officers and servants, had promoted the organization of the Port Reading Railroad Company under the General Railroad law of this state for the purpose of building and operating a short railway in connection with its system. The capital of that company is $2,000,000. The road is only twenty miles long. When the lease was made it was but partially constructed. Upon such assets as it then had there existed a mortgage for $1,500,000, an amount probably in excess of the value of those assets. No one can for a moment believe that the Central Railroad Company of New Jersey would commit its extensive railroad, with its depots, stations, terminals, rolling stock, ferries, and forty auxiliary roads, in all representing assets valued at nearly $70,000,000, to the keeping of so irresponsible a lessee, and depend upon it alone for the security of that property aud the payment of a rental which, for a single year, will exceed the value of the lessee’s entire property. The mere statement of such a proposition exhibits a business absurdity. The lessee was not only irresponsible under such a trust, but was not in position to afford the Central Railroad Company even a temporary benefit from alliance with it. Without the sustaining arm of the Philadelphia and Reading company a lease to. it would not have been, thought of.

The recitals of the guarantee admit this-absurdity by representing that the Central Railroad Company would not lease until the Philadelphia and Reading company, entering into the same transaction, and as a party thereto, executed the paper called the “guarantee.” That paper expressly embodied the Ease and bound the Philadelphia and Reading Railroad Company to the virtual execution of it. The Ease, so- called, with the Port Reading company was a mere form. The guarantee was the really operative and important paper. Without it the Central railroad would not be assured of its rental and the traffic that was necessary to make the proposed alliance profitable, for the Port Reading Railroad Company, as a distinct entity, was irresponsible and without power to assure trafile.

But more than this, the Port Reading Railroad Cbmpany is*, for all substantial purposes, the Philadelphia and Reading Railroad Company. It is confessedly owned by individuals- who-represent and serve the Philadelphia and Reading. Its capital stock, save a few shares, has gone, or is to go, to a construction-company which unquestionably belongs to the same interest. The-construction company is officered by the servants of the Philadelphia and Reading Railroad Company. It has commenced work; with an insignificant paid capital—$2,000—and it has confessedly-drawn moneys from the Philadelphia and Reading railroad to-enable it to build the Port Reading road. The business offices of both the Port Reading railroad and the Port Reading Construction Company are identical with the principal office of the Philadelphia and Reading Railroad Company. A glance at the execution of the guarantee exhibits that the same individuals are president and secretary of both the Port Reading Railroad Company and the Philadelphia and Reading Railroad Company. By official reports stockholders of the Philadelphia and Reading Railroad Company are informed that the Port Reading r'ailroad is “their” road, and, in substance, that it is expected to earn an adequate return for “ their ” investment in it. In the face of such a situation it is idle to say that the Port Reading Railroad Company is not in all things, save in its intangible and unsubstantial corporate entity, the Philadelphia and Reading Railroad Company. It is only necessary to state these particulars to satisfy the mind of the justice of this conclusion. Says Mr. Morawetz in his work on Corporations, § 227:

“ The statement that a corporation is an artificial entity apart from its members is merely a description in figurative language of a corporation viewed as a collective body. A corporation is really an association of persons, and no judicial dictum or legislative enactment can alter this fact.”

“ It is a certain rule,” said Lord Mansfield in Johnson v. Smith, 2 Burr. 962, “ that a fiction of law shall never be contradicted so as to defeat the end for'which it was invented, but for every other purpose it may be contradicted.”

It follows from the conclusion reached, that the intervention of the Port Reading company as nominal lessee is but a device to. disguise the real nature of the transaction. It is demonstrated as-clearly as words could state it, that the object of the transaction was to place the Central railroad within the Philadelphia and Reading railroad system. The Central’s reliance was not upon the small unfinished road, with a comparatively petty capital and little or no valuable assets, but upon the Philadelphia and Reading Railroad Company that estimated its assets at $200,000,000. It is sticking in the bark to say that in this transaction the Philadelphia' and Reading Railroad Company is not the real lessee*, and that the guarantee executed by it is not the real lease. The misnomer of papers and the use of a nominal entity as nominal lessee does not change the substance of the transaction with which this court deals. The situation here may be summed up in the words of Vice-Chancellor Kindersley in Attorney- General v. The Great Northern Railway Co., 1 Drew. & S. 157,6 Jur. (N. S.) 1006, 29 L. J. 794, “ a more flimsy device, when the particulars are once known, it is impossible to imagine. It may succeed for a time in baffling persons who may have an interest in preventing its being done and has succeeded, but it was a mere crafty contrivance to evade the requisition of the law on the subject of joint stock companies.”

It must not be thought that courts are powerless to strip off disguises that are designed to thwart the purposes of the law, The mere suggestion of such a condition is an insult to the intelligence of the judiciary. Whenever such disguises are made apparent they can readily be disrobed. The difficulty is in showing the disguises, not in penetrating them when they appear. Attorney-General v. The Great Northern Railway Co., supra; Pennsylvania R. R. Co. v. Commonwealth, 7 Atl. Rep. 268; People v. Chicago Gas Trust Co., 130 Ill. 268; People v. North River Sugar Refining Co., 121 N. Y. 582 ; State of Ohio, ex rel. Attorney-General v. Standard Oil Co., 30 N. E. Rep. 279.

Now, what is the effect of the act’ of 1885 ?

It consists of three sections; the first forbids any railroad cor-' poration to lease its road or franchises to any foreign corporation, or to unite, consolidate or merge its stock, property, franchises or road with those of a foreign corporation until the consent of the legislature of this state thereto shall have been obtained. The second prescribes how that consent of the legislature shall be obtained. The language is :

“It shall submit a draft of the proposed lease * * * to the legislature of this state, for its consideration, and no such lease * * * shall be of any effect whatever until the same shall have been approved by an act of the legislature passed for that purpose, nor until the corporation or corporations, person or persons, parties to such lease, * * * shall first and, as a condition precedent to the same, file in the office of the secretary of state an agreement to be approved by the governor and attorney-general, surrendering to the state all rights or exemption from taxation ” &e.

The third section repeals inconsistent legislation. In short, the effect of the act is to withdraw the power to lease, given by the statute of 1880, so far as a lease to a foreign corporation is concerned.

The defendants attack this act by claiming that it contravenes two requirements of the constitution, contained in paragraph 11, section 7, article IV., one of which is that the legislature shall not pass any private or special law “ granting to any corporation, association or individual any exclusive privilege, immunity or franchise whatever,” and the other of which is, that “ the legislature shall pass no special act conferring corporate powers.” Their argument is, that the proposed lease is to be without validity until it shall be approved by an act of the legislature passed for that purpose, and that as any lease, to be approved, will be replete with conditions, covenants and terms which, in their wry nature, are special and inapplicable to any person, natural or artificial, other than the contracting parties therein, any, even general, act ratifying it, must confer a particularly limited power and to some extent exclusive privilege, upon the corporate parties, to the lease.

If this argument should be applied to a law specially passed to sanction a particular lease it might be regarded as sound, but as no such law has been passed, it is obvious that its validity cannot be discussed or determined.' The law now considered, is the act of 1885. That act does not confer either a power or a privilege. Its object is to restrict or condition the exercise of an existing power. The objection urged, then, properly should be, that the law of 1885 cannot constitutionally be put in force according to the legislative intent, and to sustain that objection it must appear that an attempt to act under the law will, of necessity, induce legislation that will be unconstitutional and therefore void, and the argument will be that, as for that reason no action under the law can be successful, the law is incapable of being performed and therefore binds not.

. It is to be observed, however, that the reference to a subsequent legislature is couched in terms which manifestly contemplate a lawful exercise of the lawmaking power. The action is to be by “ an act passed for that purpose.” The statute attacked, then, contemplates a law to be subsequently made by a power equal to that from which it sprang. It cannot dictate the terms of such subsequent law. When it prescribed that action should be by law, it surrendered power over that action. I must assume that the statute questioned was enacted in the light of this fundamental principle, for the lawmakers are entitled to every presumption in favor of their knowledge and wisdom. Cooley Const. Lim. 219.

Viewed in this light, the legislative purpose appears to have been, not to inaugurate a permanently prohibitory policy concerning leases to foreign corporations, but to forbid them until they should have legislative sanction. Having no power over subsequent legislation, the laws could not prescribe that that sanction shall be given in special terms, nor does it intend to so prescribe. Its purpose is to lead the proceeding for sanction to a point where its power must cease and there surrender it. It in effect prescribes that railroad corporations of this state shall not lease to foreign corporations without the sanction of law to be hereafter enacted; that it is not the policy of the law to permanently prohibit such a lease, but it does now prohibit it, and will prohibit it, until hereafter a law to be enacted shall permit it until a future law shall, in the light of the terms desired, prescribe terms under which it may be made.

That such uncontrolled future law need not be special, is too plainly apparent to require discussion.

The law of 1885, then, is constitutional and is applicable to the lease now questioned. And it follows that the lease was made not only without legal sanction but in defiance of an expressly prohibitory statute.

The next inquiry is, whether the attorney-general may invoke the power of this court to restrain further operations under, and in pursuance of, the lease.

It is well settled that where a corporate excess of power tends to the public injury or to defeat public policy it may be restrained in equity at his suit. In Attorney-General v. Delaware and Bound Brook R. R. Co., 12 C. E. Gr. 631, 633, in pronouncing the opinion of the court of errors and appeals, Mr. Justice Dixon said: “ In equity as in the law court, the attorney-general has the right, in cases where the property of the sovereign or the interests of the public are directly concerned, to institute suit by what may be called civil information for their protection. The state is not left without redress in its own courts, because no private citizen chooses to encounter the difficulty of defending it, but has appointed this high public officer, on whom it has cast the responsibility, and to whom, therefore, it has given the right of appearing in its behalf and invoking the judgment of the court on such questions of public moment.”

Professor Pomeroy, in his work on Equity Jurisprudence, § 1093, states the -rule in this language:

“ When the managing body are doing, or are about to do, an ultra vires act of such a nature as to produce public mischief, the attorney-general, as the representative Of the pu'blie and of the government, may maintain an equitable suit for preventive relief.”

It appears that the attorney-general has the election in his discretion whether, in cases of excess in corporate powers, he will proceed at law to forfeit the charter and franchises or apply in equity for a restraint of the excess. Both tribunals are open to him. The right of appeal to equity does not depend upon the inadequacy of the legal remedy. This subject is stated by Chief-Justice Ryan, in Attorney-General v. Railroad Companies, 35 Wis. 524, in this way: “ The equitable jurisdiction precludes the objection that there is an adequate remedy at law. It admits the remedy at law, but administers its own remedy in preference, when the state seeks it in preference. It seems to proceed on the .presumption that it may better serve the public interest to restrain a corporation than to permit it by penal remedies or to forfeit its •charter; and that, on that view, the proper officers of the state should have an election of remedies. And we may as well say, in this connection, that the jurisdiction to entertain these informations is wholly independent of an adequate remedy at law; and •that were that otherwise, we could not consider the informations in the nature of a quo warranto, pending in this court against these defendants, as an adequate remedy at law, which could be a substitute for or bar to the injunction asked. Judgments of ouster on those informations might not only be of far more grave consequence to the defendants, but might be far less beneficial to the state, and less accordant with its policy, and altogether less equitable and proper, than the injunction sought to restrain the defendants from doing what is alleged to work a forfeiture of their charters.”

There has been some disagreement among the cases as to whether an injunction will issue at the instance of the attorney-general to restrain every excess of corporate power, or whether, Before it issues, actual threatened injury must be manifest. The argument which sustains the first class of such cases is that every excess of corporate power violates the contract with government, and thereby invades public and governmental rights. The law deems such invasion to be a public injury. An apt illustration is to be found in the case of Thomas v. West Jersey R. R. Co., 101 U. S. 71, where there was an unauthorized lease of a railroad. The supreme court of the United States there held, that the franchises and powers granted to a railway company are designed to be exercised by it for the public good, and this purpose enters into the consideration for the grant. Any contract, therefore, by which the corporation disables itself to perform those duties to the public, or attempts to absolve itself from their obligation, without the consent of the state, is a violation- of its contract with the state and tends to the public injury.

The argument to sustain the other class of cases is that a court of equity should not move upon- mere legal intendment, but should be satisfied of a real, substantial public injury which demands the writ of injunction in the due protection of the public. In the use, at least, of a preliminary injunction, the latter class of cases appears to be the better founded in fitness and reason, for-if there be no present emergency to be met, why may not the injunction be reserved until final hearing?

The authorities upon this subject are numerous. The following, among them, appear to me to best exhibit the the contrariety of opinion that I have stated: Green’s Brice’s Ultra Vires (2d ed.) 708; Attorney-General v. Shrewsbury Bridge Co., 21 Ch. Div. 752 ; Attorney-General v. Cockermough Local Board, 18 Eq. Cas. 172; Attorney-General v. Great Eastern Ry. Co., 11 Ch. Div. 449; Attorney-General v. Great Northern Ry. Co., 1 Drew. & S. 184,6 Jur. (N. S.) 1006; Attorney-General v. Railroads, 35 Wis. 525. The last-cited case collects almost all the authority upon this subject.

But the exhibition of the tendency of the lease in question to-public injury does not rest alone upon mere legal intendment, and I may here apply the rule, with the limitation incorporated in it, that the tendency to public injury must in fact appear.

There are peculiar features in the transaction now considered that evince a public danger much more serious than appears in the mere transfer of corporate duties to performance by a foreign corporation. The real lessor and lessee here are extensive producers and carriers of anthracite coal. They constitute two of the six great anthracite coal carriers from the coal regions of Pennsylvania to this and adjoining states. It is disclosed that the real lessee has secured a lease of the Lehigh Valley Eailroad Company, and that thereby, and by the lease in question, it controls three of the six great coal carriers referred to and also that the alliance thus formed now controls, through the instrumentality of coal companies, the capital stock of which these combined carriers own, more than one-half of all the anthracite coal fields in Pennsylvania. Moreover, as an indication of the tendency of the combination, the attorney-general presents a report by the lessor defendant to its stockholders, in which it congratulates them upon an alliance which, with the co-operation of other large coal-producing companies, will insure them “ greater uniformity in prices of coal ” and the “ avoidance of needless and expensive competition between producers.” He urges that, in substance, this report declares the reaching out to a monopoly which will work inestimable disaster to the people of the state. And as a further evidence that monopoly is in view, he points also to an admission by the president of the Philadelphia and Heading Eailroad Company that the lease complained of will possibly facilitate the co-operation of other coal producers and, in itself, undoubtedly affect prices of coal in some localities.

The proofs show that there are localities in this state which formerly had the advantage of competition between these allied roads but now are subject to the monopoly which this lease affords.

It is true co-operation of the remaining coal roads, which is necessary to a complete monopoly, has not yet been secured. By this lease only one competitor is silenced and only a little more than one-half of the entire coal region is controlled. It is only the second step in the direction of monopoly, the first being the lease of the Lehigh Valley railroad. It is to be remembered, however, that the attorney-general may have his injunction when the ultra vires act tends or is of a nature to produce public injury. He is not required to wait until all the monopoly possible is created or until all the injury possible is in process of infliction. The present situation may be justly regarded as Vice-Chancellor -Kindersley considered that which was presented to him in Attorney-General v. Great Northern Ry. Co., 1 Drew. & S. 184, 6 Jur. (N. S.) 1006, where the ultra vires act was the mere dealing in coal by a railway company. He comments upon it as follows: “ Mr. Rolt argued, well, but there is no danger of monopoly, because, even if you were to suppose that this company got the entire command of\all the oéal which comes down that .line from the inland districts^had the northern part of England, that is not monopoly; there is all the coal that comes from the .northwestern district, the Lancashire District, and all the coal from the Welsh District, Bristol Coal, and so on, and there is no monopoly. But follow that out, and suppose this company has got the command of all the coal on its line, and from that part of the country from which it starts, and suppose that the London and Northwestern has got the control of all the Lancashire and Northwestern coal, country, and suppose the Great Western has got the command of all the Welsh and Bristol coal fields, you have got, then, the whole traffic in coal which is to supply the metropolis and the country in the hands of three companies. Are not the interests of the public most deeply concerned in preventing that ? Is it not obvious that the interests of the public must suffer if that state of things is allowed to arise ? And yet what this company is doing may just as well be done by each of the other companies I have mentioned, and the result would be, in effect, not a monopoly of one company, but a monopoly of three, or four, or five companies, and a monopoly most prejudicial.”

But the answers deny that either the Philadelphia and Reading company or the Central company own- any coal lands, or produce or deal in coal. That is true, but at the same time it is admitted that the Philadelphia and Reading company owns a majority of the capital stock of the Reading Coal and Iron Company, and that the Central company owns the majority of the capital stock in the Lehigh and Wilkesbarre Coal Company, and that these two coal companies own or possess the coal land referred to as belonging to their owners. What is this but disguise and evasion ? Whatever may be the nominal ownership or the legal title, for the substantial purposes of the injury apprehended and the attorney-general’s complaint the railroad companies stand as the owners of the coal lands in this court. That the fiction which excuses the denials of the answers is mere form is emphasized by the language of the president of the Philadelphia and Reading company when, in one of his reports to its stockholders, he speaks of competitors, and adds:

who, with yourselves, are engaged in producing a commodity far m excess of the demand of the markets, but the proportion of business allotted to this company in years past, when its financial straits and lack of facilities did not permit it to mine and distribute its proportion of the ‘ increased tonnage ’" &c.

and when he refers to the Port Reading railway as supplying the means of putting the product of “your mines” upon the market, and when he reports to the same stockholders in this language:

“ It will not do to expect immediate returns for your large holdings of unproductive coal lands. These in good time will reach a value equal to the entire capital debt of your company. But what is needed now is the practical development of so much of these lands as are needed to supply the demand for anthracite coal.”

And also by the report of the president of the Central Railroad Company to its stockholders, to which I have already referred, in which he says: “ It is fair to expect as the further result of this alliance, with the co-operation of other large coal-produoing companies, greater uniformity in the price of coal ” &c.

So also the testimony of the president of the Philadelphia and Reading company abounds in admissions of railroad ownership of the coal lands.

The answers are literally true, but their denials in this respeetj without explanation, and in the face of the facts adverted to, savor of an evasion which disentitles them to that force which is usually accorded to the denials of responsive answers upon such a preliminary hearing as this.

Here, then, we have great coal dealers, complaining that they are not sufficiently paid for the produce of their mines, combining, so that already they control more than one-half of the coal fields upon which this state depends for fuel, and looking to the co-operation of the remaining anthracite coal producers to’ effect a change in the price of their out-put, so that they may have more satisfactory returns from their investment. To say that these conditions do not tend to a disastrous monopoly in coal, would be an insult to intelligence. It is possible that such a monopoly may be used, as the defendants suggest, to introduce economies and cheapen coal, but it does violence to our knowledge of human nature to expect such a result. Upon such a possibility, I quote again the language of Vice-Chancellor Kindersley in the case of the Great Northern railway. He says: “ It is said, well, but according to the statement of the bill and affidavits, só Hr from that being prejudicial to the public, it is most beneficial; for see what is the result; coal is made cheaper; yes, coal is made cheaper temporarily; but are we to suppose that this company, or any company—for I confess I have no faith in the morality of any joint stock company—that this company, or any other company—especially this company, which has contrived such. a cunning device to conceal its proceedings—will merely consider the interests of the public and supply the public with cheap coal ? What is the object of a joint stock company ? To make as much money as possible to divide among shareholders. The result, if this proceeding goes on, with this company and other companies, must be most grievously to the detriment of the public.”

Treating this same suggestion, in State v. Standard Oil Co., 30 N. E. Rep. 279, Judge Marshall says: “ It may be true that it has improved the quality and cheapened the cost of petroleum and its products to the consumer. But such is not one of the usual or general results of a monopoly; and it is the policy of the law to regard not what may, but what usually happens. Experience shows that it is not wise to trust human cupidity where it has.the opportunity to aggrandize itself at the expense of others. The claim of having cheapened the price to the consumer is the usual pretext on which monopolies of this kind are defended, and is well answered in Richards v. Buhl, 77 Mich. 632. After commenting on the tendency of the combination known as the ‘Diamond Match Company,’ to prevent fair competition and to control prices, Champion, J., said: ‘ It is no answer to say that this monopoly has in fact reduced the price of friction matches. That policy may have been necessary to crush competition. The fact exists that it rests in the discretion of this company, at any time, to raise the price to an exhorbitant degree.’ ”

The commodity in which these companies deal is a necessary of life in this state. "It is the principal fuel of its homes and factories. The slightest increase in its price is felt by a population of hundreds of thousands of persons, for their necessity compels them to pay that increase. If once a complete monopoly be established by the destruction of competition, whether that be through lease or by co-operation, the promoters of it and sharers in it may have whatever price their cupidity suggests. The disaster which will follow cannot be measured; it will permeate the entire community, furnaces, forges, factories and homes, leaving in its trail murmurs of discontent with a government which will tolerate it and all the other evil effects of oppression.

Enough has been said to exhibit that the ultra vires act complained of portends the greatest danger to the public welfare, and that the case is clearly one in which the attorney-general may, and should, ask the the assistance of this court.

My conclusions upon the points stated preclude the necessity of my passing upon many other matters that were discussed at the argument. Among them is the question whether tlie Central company has power to lease its forty and more auxiliary roads, many of which it holds by lease or the ownership of the majority of stock, and also the very important question as to the power of the Central company, under its charter and subsequent legislation, to invest its capital in coal lands or in the stock of a coal company; also questions presented in a wider discussion of the subjects of monopolies, competition and restraint of traeré than it has been necessary for me to venture upon. Perhaps the prayer of the information, and the motion for injunction thereon, should now justify an entrance upon the discussion of these latter topics; but, as I conceive that the relief I have concluded to afford at this time is all that the public necessity will demand until all the proofs may be regularly taken, and the case may be finally and more deliberately heard, I refrain from it.

It remains only to define the bounds of the injunction to which the attorney-general is now entitled.

This is a preliminary application heard upon information, answers and ex parte proofs. Its object is to do no more than to prevent a threatened, irreparable injury until the cause can be finally heard, and it should go no further in disturbance of the existing situation than the effectual prevention of the injury apprehended will admit.

But the danger is serious. I 'do not perceive how I can effectually prevent it in any other way than by forbidding all operations under the lease and tripartite agreement, and performance of the covenants that those instruments contain. To merely continue the stay that has been granted and leave the Philadelphia and Beading Bailroad Company in possession and operation of the property and franchises of the Central company, would be to facilitate and invite infraction of the order already made. The devices for disguise which have appeared in this case, as attributable to the defendants, admonish me to sever, as far as possible, the connection between them until the final hearing. I will, therefore, continue the present injunction to final hearing, adding to it, however, the further direction that the defendants, and each of them, their officers and agents, do desist and refrain from further performing and carrying into effect the lease and tripartite agreement, and that the Port Beading Bailroad Company and the Philadelphia and Beading Bailroad Company do desist and refrain from continuing to control the road, property and franchises of the Central Bailroad Company of New Jersey, and from further in anywise intermeddling therewith, and that the Central Bailroad Company of New Jersey do desist and refrain from permitting the Port Reading Railroad Company or the Philadelphia and Reading Railroad Company to use, control or operate its road, property and franchises, and that the Central Railroad Company do again resume control of all its property and franchises and the performance of all its corporate duties.

Case Details

Case Name: Stockton v. Central Railroad

Court Name: New York Court of Chancery

Date Published: May 15, 1892

Citation: 50 N.J. Eq. 52