Low v. Cal. Pac. R.R.

52 Cal. 53

• Court: California Supreme Court
• Decided: July 1, 1877
• Docket: No. 5257
• Status: Published

Opinions

The power to make and take a lease of a railroad is expressly given by the statute under which the respondents were incorporated. The language of the statute is as follows: “ Any railroad corporation organized under the act to which this is amendatory, shall have the right to lease the whole or any portion of their road to any other corporation organized under this act, or to grant to any such corporation the right to use in common any portion of their road.” (1 Hittell, art. 838.)

In exercising the power to lease, respondents are vested with all the powers and privileges which private individuals and natural persons enjoy. The third section of the statute under which the respondents were organized, among other things, declares that a corporation organized under it “ * * * shall be a body politic and corporate, * * * and shall be capable in law to make all contracts * * * necessary for the construction, completion, and maintenance of such railroad, * * and generally to possess all the powers and privileges, for the purpose of carrying on the business of the corporation, that private individuals and natural persons now enjoy.” (1 Hittell, art. 828.) Hence, if a natural person can take a lease, and, in part consideration thereof, guarantee a debt of the lessor, a corporation having the power to take a lease may also doit. {The Chicago Sc. R. R. Co. v. Howard et al. 7 Wall. 1; Smead v. Indianapolis Sc. R. R. Co. 11 Ind. 104, 111; Taiman v. Rochester City Ranh, 18 Barb. 123; Angelí & Ames on Corporations, sec. 271.)

“ A corporation, in order to attain its legitimate objects, may deal precisely as an individual who seeks to accomplish the same ends.” (Green’s Brice’s Ultra Vires, 121, note; Stewart v. Erie Sc. Transportation Co. 17 Minn. 372.)

The power to make or take a lease being expressly given, the power to agree upon the terms of the lease, whatever they may be, is included or implied. There is a perfect analogy between the powers of a corporation, under its charter, and the powers of Congress under the Federal Constitution. All incidental powers, necessary to carry out or exercise the powers expressly i given, áre implied. And the word “ necessary ” " “ means no more than needful, requisite, incidental, useful, or conducive to.” (Story on Const, sec. 1248.) It does not mean absolutely necessary, nor does it imply the use of only the most direct and simple means calculated to produce the end (Commonwealth v. Lewis, 6 Binn. 270-1; McCulloch v. Maryland, 4 Wheat. 413; Metropolitan Bank v. Van Dyck, 27 N. Y. 438) ; but the use of any means which are appropriate and proper. The question of ultra vires can arise only as to the principal act, which, in this case, is taking a lease. It cannot arise in relation to the covenants contained in the lease.

By the Court :

The covenants on the part of the lessee, the Central Pacific Eailroad Company, contained in the lease made by the California Pacific Eailroad Company, the lessor, as set forth in the fifth paragraph of the agreed case, are that the lessee will pay to the lessor a specified sum of money semi-annually, keep the road in repair, pay taxes, legal expenses, etc., and guarantee the payment, both principal and interest, of the bonds of the lessor, mentioned in the lease. The lease of the road, the covenants on the part of the lessor mentioned in the lease, and the implied covenant to pay to the lessee the moneys which the lessee may pay upon the bonds, over and above the portion of the semiannual payments which may be applied thereto, constitute the consideration for the covenants on the part of the lessee; and, in our opinion, they constitute a sufficient, valid, and legal consideration therefor.

There can be no question that the lessee had competent power to bind itself, in consideration of the lease, to pay an amount equal to the amount of the bonds directly to the lessor, or to third persons, at the request of the lessor. It will be noticed that the aggregate of the semi-annual payments mentioned in the lease greatly exceeds the amount, both principal and interest, of the bonds.

Such an agreement would not be any the less obligatory, or in any respect beyond the power of the lessee, by reason of the fact that the third persons to whom the payment is to be made are the holders of the bonds of the lessor.

The question, therefore, is whether the lessee, being a railroad corporation organized under the laws of this State, has power, upon a sufficient consideration, to guarantee the payment of the bonds of the lessor mentioned in the agreed case. The power on the part of the lessor to make, and on the part of the lessee to accept, the lease of the railroad is not denied; and we have seen that, in consideration of the lease, the lessee might have covenanted to pay the rent to third persons, upon the bonds of the lessor. But it is urged that a railroad corporation does not possess the power to enter into a contract of guaranty, because such power is not granted by the statute providing for the formation of those corporations. The third section of the act under which the lessee was incorporated provides that the corporation “ shall be capable in law to make all contracts * * * necessary for the construction, completion, and maintenance of such railroad, * * * and generally to possess all the powers and privileges, for the purpose of carrying on the business of the corporation, that private individuals and natural persons now enjoy.” (Stats. 1861, p. 608.) A provision substantially to the same effect is contained in the Civil Code, sec. 354, but it is unnecessary to determine whether it is applicable to the corporations in this case, they having been organized before the adoption of the Code. Had a natural person taken this lease and made the contract of guaranty now before us, there is no room to doubt that it would be held valid ; and this being so, the exercise of the power by the corporation must be upheld, unless, by its very nature, it is a power which a corporation cannot exercise. There is no sufficient reason deducible from the character of such a corporation, and the business in which it engages, why the corporation may not, for a valid consideration, guarantee the payment of a debt, which it may directly contract to pay—why the corporation may not, upon a sufficient consideration, make a conditional as well as an absolute promise of payment. These views are sustained by Railroad Company v. Howard, 7 Wall. 411. In that case, the contracts of guaranty made by the corporation for the payment of bonds issued to it by certain municipal corporations, in payment of their subscriptions to the stock of the company, were upheld as a valid exercise of power by the corporation. In that case, as in this, the statute conferred upon such corporations power to make .contracts to the same extent as that enjoyed by individuals. (See, also, Smead v. Indianapolis &c. Railroad Company, 11 Ind. 104; Stewart v. Erie &c. Transportation Company, 17 Min. 372.) The statute having conferred upon such corporations all the powers and privileges for the purpose of carrying on their business that natural per- ‘ sons enjoy, and the Civil Code (sec. 286) having provided that “ private corporations may be formed for any purpose for which individuals may lawfully associate themselves,” the question of the policy of the exercise of such enlarged powers by corporations is beyond the reach of the Courts.

J udgment affirmed.