Canada Southern Railway Co. v. Gebhard

109 U.S. 527, 3 S. Ct. 363, 27 L. Ed. 1020, 1883 U.S. LEXIS 995

• Court: Supreme Court of the United States
• Decided: December 17, 1883
• Docket: 72
• Status: Published

Opinions

Me. Chief Justice Waite

delivered the opinion of the court. After reciting the foregoing facts, he said:

Two questions are presented for our consideration:

1. Whether the “ Arrangement Act ” is'valid in Canada, and had the effect of binding non-assenting bondholders within the Dominion by the terms of the scheme; and,

2. Whether, if it did have that effect in Canada, the courts of the United States should give it the same effect as against citizens of the United States whose rights accrued before its passage.

1. There is no constitutional prohibition in Canada against the passage of laws impairing the obligation of contracts, and the Parliament of the Dominion had, in 1878, exclusive legislative authority over the corporation and the general subjects of bankruptcy and insolvency in that jurisdiction. As to all matters within its authority, the Dominion Parliament has “ plenary legislative powers as large and of the same nature as those of fhe imperial parliament.” The City of Fredericton v. The Queen, 3 Canada Supreme Court, 505.

On the 20th of August, 1867, the Parliament of Great. Britain passed the “ Railway Companies Act, 1867.” 2 Stat. 1332; 30, 31 Yict., c. 127. This act provides, among other things, for the preparation of “schemes of arrangement” between railway companies unable to meet their engagements and their creditors, which can be filed in the court of chancery, accompanied by a declaration in writing, under the seal of the company, and verified by the oaths of the directors, to the effect that the company is unable to meet its engagements with its creditors. Notice of the filing of such a scheme must be pub-listed in the Gazette, and the scheme is to be deemed assented to by the holders of mortgages, bonds, debenture stock, rent charges, and preference shares, when assented' to in writing by the holders of three-fourths in value of each class of security, and by the ordinary shareholders when assented to at an extraordinary general meeting, specially called for that purpose. Provision is then made for an application to the court by the company for a confirmation of the scheme. Notice of this application must be published in the Gazette, and, after hearing, the court, if satisfied that no sufficient objection to the scheme has been established, may confirm it. Sec. 18 is as follows:

“ The scheme when confirmed shall be enrolled in the court, and thenceforth the same shall be binding and effectual to all intents, and the provisions thereof shall, against and in favor of the company and all parties assenting thereto or bound thereby, have the like.effect as if they had been enacted by parliament.”

This act, it is apparent, was not passed to provide, for the first túne, a way in which insolvent and embarrassed railway companies might settle and adjust their affairs, but to authorize the court of chancery to do what had before been done by parliament. Lord' Cairns, L. J., said of it in Cambrian Railways Company’s Scheme, L. R. 3 Ch. at page 294:

“ Hitherto such companies, if they desired to raise further capital to meet their engagements, have been forced to go to parliament for a special act, enabling them to offer such advantages by way of preference or priority to persons furnishing new capital as would lead to. its being obtained. And parliament, in dealing with such applications, has been in the habit of considering how far the arrangements proposed as to such new capital were assented to or dissented from by those who might be considered as the proprietors of the existing capital of the company, either as shareholders or bondholders. The object of the present act . . . appears to be to dispense with a special application to parliament of the kind I have described, and to give a parliamentary sanction to a scheme filed in the court of chancery, and confirmed by the court, and assented to by certain majorities of shareholders and of holders of debentures and securities ejusdem generis.’’'’

And even now in England special acts are passed whenever the provisions of. the general act are not such as are needed to meet the wants-of a particular company. A special act of this kind was considered in London Financial Association v. Wrexham, Mold and Connah's Quay Railway Company, L. R. 18 Eq. 566.

In Canada no general statute like that in England has .been enacted, but the old English practice of passing a special act in each particular, case prevails, and Osier, J., said in Jones v. Canada Central Railway Company, 46 Up. Can. Q. B. 250, “ our statute books are full ” of legislation of the kind. The particular question in that case was whether, after the establishment of the Dominion government the provincial parliaments had authority to pass laws with reference to provincial corporations which would operate upon debentures payable in England, and held by persons residing there, but it was not suggested, either by the court or counsel, that a statute of the kind, passed by the Dominion Parliament in reference to a Dominion corporation, would not be valid as a law. . So far as we are advised, the parliamentary authority for such legislation has never been doubted either in England or Canada. Many cases are reported in which such statutes were under consideration, but in no one of them has it been intimated .that the power was even questionable.

In Gilfillan v. Union Canal Company, ante, it was said that holders of bonds and other obligations issued by large corporations for sale in market and secured by mortgages to trustees, or otherwise, have, 'by fair implication, certain contract relations with each other. In England, we infer from what was said by Lord Cairns in Cambrian Railways Company's Scheme, supra, they are considered as in a sense part proprietors of the existing capital of the company, and dealt with by parliament and the courts accordingly. They are not there, any more than here, corporators, and thus necessarily, in the absence of fraud or undue influence, bound by the will of .the majority as to matters within the scope-of the corporate powers, but they' are interested in the administration of a trust which has been created for their common benefit.' Ordinarily the ' ultimate security depends in a'large degree on the success of the work in which the corporation is engaged, and it is not uncommon for differences of opinion to exist as to what ought to be done for the promotion of their mutual interests. In the absence of statutory authority or some provision in the instrument which establishes the trust, nothing can be done by a majority, however large, which' will bind a minority without their consent.' Hence it seems to be eminently proper that where the, legislative power exists some statutory provision should be made for binding the minority in a reasonable way by the will of the majority; and unless, as is the case in the States of the United States, the passage of .laws impairing the obligation of contracts is forbidden, we see no good reason why such provision may not be made in respect to existing as well as prospective obligations. The nature of securities of this class is such that the right of legislative supervision for.the good of all, unless restrained by some constitutional prohibition, seems almost neqessarily to form one of their ingredients, and when insolvency is threatened, and the interests of the public, as well as creditors, are imperilled by the financial embarrassments of the corporation, a reasonable “ scheme of arrangement ” may, in our opinion, as well be legalized as an ordinary “ composition in bankruptcy.” In fact, such “ arrangement acts ” are a species of bankrupt acts. Their object is to enable corporations created for the good of the public to reheve themselves from financial embarrassments by appropriating their property to the settlement and adjustment of their affairs, so that they may accomplish the purposes for which they were incorporated. The necessity for such legislation is plearly shown in the preamble to the Grand Trunk Arrangement Act, 1862, passed by the Parliament of the Province of Canada on the 9.th of June, 1862, before the establishment of the Dominion government, and which is in these words:

“ Whereas, the interest' on all the bonds of the Grand Trunk Railway Company of Canada is in arrear, as- well as the rent of the railways leased to it, and the company has also become in-. debted, both in Canada and in England, on simple contract, to various persons and corporations, and several of the creditors have' obtained judgment agajiist it, and much litigation is now pending; and whereas the keeping open of the railway traffic, which is of the utmost importance to the interests of the province, is thereby imperilled, and the terms of a compromise have been provisionally settled between the different classes of creditors and ■ the company, but in order to facilitate and give effect to such compromise the interference of the legislature of the province is necessary.”

The confirmation and legalization of “ a scheme of arrangement ” under such circumstances is no more than is done in bankruptcy when a “composition” agreement with the bankrupt debtor, if assented to by the required majority of creditors, is made binding on the non-assenting minority. In no' just sense do such governmental regulations deprive a person of his property without due process of law. They simply require each individual to so conduct himself for the general good as not unnecessarily to injure another.' Bankrupt laws have been in force in England for more than three centuries, and they had their origin in the Roman law. The Constitution expressly empowers the Congress of the United States to establish such laws. Every member of a political community must necessarily part with some of the rights which, as an individual, not affected by’ his relation to others, he might have retained. Such concessions make up the consideration he gives for the obligation of the body politic to protect him in life, liberty, and property. Bankrupt laws, whatever may be the form they assume, are of that character.

2. That the laws of a country have no extra-territorial forcéis an axiom of intérñational jurisprudence, but things done in one country under the authority of law may be of binding effect in another country. The obligor of the bonds and coupons here sued on was a corporation created for a public purpose, that is- to say, to build, maintain, and work a railway in Canada. It had its corporate home in Canada, and.was subject to the exclusive legislative authority of the. Dominion parliament. It had no power to.borrow money or incur debts except for completing, maintaining, and working its railway. The bonds taken by the defendants in error showed on their face that, they were part' of a series amounting in the aggregate to a very large sum of money, and that they were secured by a trust mortgage on the railway of the company, its lands,' tolls, revenues, &c. Pn this way th¿ defendants in error, when they bought their bonds, were, in legal effect, informed that they were entering into contract relations not only with a foreign corporation created for a public purpose, and carrying on it's business within a foreign jurisdiction, but with the holders of other bonds of the same series, who were relying equally with themselves for their ultimate security on a mortgage of property devoted to a public use, situated entirely within the territory of a foreign government.

A corporation “must dwell in the place of its. creation, and cannot migrate to another sovereignty” (Bank of Augusta v. Earle, 13 Pet. 588), though. it may do business in all places where its charter allows and the local laws do not forbid. Railroad v. Koontz, 104 U. S. 12. Put wherever it goes for business it carries its charter, as that is the law of its existence (Relf v. Rundel, 103 U. S. 226), and the charter is the same abroad that it is at home. Whatever disabilities are placed upon the corporation at home. it retains abroad, and whatever legislative control it is subjected to at home must be recognized and submitted to by those who deal with it elsewhere. A corporation of one country may be excluded from business' in another country (Paul v. Virginia, 8 Wall. 168), but, if admitted, it must, in the absence of legislation equivalent to making it a corporation of the latter country, be taken,'both by the government and those who deal with it, as a creature of the law of its own country, and subject to all the legislative control and direction that may be properly exercised over it at the place of its creation. Such* being the law, it follows that every person who deals with a foreign corporation impliedly subjects himself to such laws of the foreign government, affecting the powers and obligations of the corporation with which he voluntarily contracts, as the known and established policy of that government authorizes. To all intents and purposes, he submits 'his contract with the corporation to such a policy of the foreign government, and whatever is done by that government in furtherance of- that policy which binds those in like situation with himself, who are subjects of the government, in respect to the operation and effect of their contracts with the corporation, will necessarily bind him. He is-conclusively presumed to have contracted with' a view to such laws of that government, because the corporation must, of necessity be controlled by them, and it has no power to ’contract with a view to any other laws'with which they are .not in' entire harmony. It follows, therefore, that anything done ’ at the legal home of the corporation, under the authority of such laws, which discharges it from liability there, discharges it everywhere.

No better illustration of the propriety of this rule can be found than in the facts of the present case. This corporation was created in Canada to build and work a railway in that Dominion. Its principal business was to be done in Canada, and the bulk of its corporate property was permanently fixed there. All its powers to contract were derived from the Canadian government, and all the contracts it could make were such as related directly or indirectly to its business in Canada. That business affected the 'public interests, and the keeping of the railway open for traffic was of the utmost importance to the people of the Dominion. The corporation had become financially embarrassed, and was, and had been for a long time, unable to meet its engagements in the ordinary way as they matured. . There wan an urgent necessity that something be done for the settlement of its affairs. In this the public, the creditors and shareholders' were all interested. A large majority of the creditors and shareholders had agreed on a plan of adjustment which would enable the company to ■ go on with its business, and thus accommodate the public, and to ' protect the creditors to the full extent of the available value of its corporate property. The Dominion parliament had the legislative power to legalize the plan of adjustment as it had been agreed on by the majority of those interested, and to bind the resident minority creditors by its- terms. This power was known and recognized throughout the Dominion when the corporation was created, and when all its bonds were executed and put on the market and sold. It is in accordance with and part of the policy of the English and Canadian governments in dealing with embarrassed and insolvent railway companies and in. providing for their reorganization in the. interest of all concerned. It takes the place in England and Canada of foreclosure sales in the United States, which in general accomplish substantially the same result with more expense and greater delay; for it rarely happens in the United States that foreclosures of railway mortgages are anything else than the machinery by which arrangements between the creditors and other parties in interest are carried into effect, and a reorganization of the affairs of the corporation under a new name brought about. It is in entire harmony with the spirit of bankrupt laws, the. binding force of which, upon those who are subject to the jurisdiction, is recognized by all civilized nations. It is not in conflict with the Constitution of the .United States, which, although prohibiting States from passing laws impairing the obligation of contracts, allows Congress “ to ■ establish . . uniforin laws on the subject of bankruptcy throughput the' United States.” Unless all parties in interest, wherever they reside, can be bound by the arrangement which it is sought to have legalized the scheme may fail. All home creditors can be bound. "What is needed is to bind those who are abroad. Under these circumstances the true spirit of international comity requires that schemes of this character, legalized at home, should be recognized in other countries. The fact that the bonds made in Canada were payable in New York is unimportant, except in determining by what law the parties intended their contract should be governed ; and every citizen of a country, other than that in which the corporation is located, may protect himself against all unjust legislation of the foreign government by refusing to deal with its corporations

On the whole, we are satisfied that the scheme of arrangement bound the defendants in error, and that these actions cannot be maintained. The same result was reached by the Court of Queen’s Bench in the Province of Ontario, when passing on a similar statute in Jones v. The Cemada Central Railway Company, supra.

The judgments are reversed and the causes remanded, with instructions to enter judgment on the facts found in fa/oor of the rcdl/wa/y compcmy in each of the cases.