Morris & Essex Railroad v. Sussex Railroad

20 N.J. Eq. 542

• Court: Supreme Court of New Jersey
• Decided: March 15, 1869
• Status: Published

Opinion

The opinion of the court was delivered by

Bedle, J.

This appeal raises the question-of the right of the Sussex. Railroad- Company, under this contract, to compel the Morris and Essex Railroad Company to account for- thirty per cent.of the gross amount of receipts for the transportation of passengers, and twenty-five per.cent, of the gross amount of receipts for the transportation of freight, over the extension of the Morris and Essex Railroad from Newark to Hoboken, on the one end, and from Hackettstown to Phillipsburg on the-other,'(in addition to a like per cent, for passengers and freight on the rest of the road from Newark to Hackettstown).This contract bears date July 24th, 1852; at that time these-extensions were not built, or-authorized by the legislature to-be built. The extension from Hackettstown to Phillipsburgwas mostly completed and in use by about December 1st, 1865. The authority to build that -was granted by the supplements ; one dated March 6th., 1855,,the other March 13th,. 1861. The extension from Newark to Hoboken was first-authorized by a supplement dated March 6th, 1857, and was subsequently acquired by a purchase in the year 1863, ratified by a supplement, dated April 12th, 1864, the particulars of which purchase will be found in that supplement. It will thus be seen that the authority for each of these extensions has been acquired since the date of the contract. The difficulty in question arises under the first section of the contract. That relates to all freight and passengers which shall be transported over either of the roads of the said companies, or any future extensions or ■branches of the same.

Eirst. Do these words, “ any future extensions or branches of the same,” include the extensions in question ? ■ This is a matter of construction, and application of words to their' subject matter. In determining it, we must necessarily look to the situation of the parties and their powers. The parties are creatures of the statute, and if these words can be fully satisfied by the objects authorized in their charters and supplements, we would not be justified in giving them an application to objects outside, uncertain, and unauthorized. Corporations in dealing with each other are presumed to contract within the powers and limitations of their charter, and any intention to contract upon matters not then authorized, even with the expectation of a subsequent legislative ratification, must be clearly expressed. There is nothing in this contract, certainly by express words, to show that the parties contemplated at any future time the construction of any lines not then authorized. Such an implication is, however, sought from the general words, any future extensions or branches, but that could not be permitted unless it was necessary to look beyond the scope of existing powrers to satisfy the words. By the preamble of the contract it appears that the immediate purpose of the Morris and Essex company was to extend their road from Dover to Hackettstown, (it having previously been built between Newark and Dover,) and the immediate purpose of the Sussex company was to re-construct their road, between Waterloo and Andover to connect it with the Morris and Essex road, and also to extend it from Andover to Newton.. These objects were within* the immediate contemplation of the parties, the contract undoubtedly covers them, and each' company had full powerto accomplish them. The Sussex road was not then' extended from Andover to Newton,’ and the Morris and Essex: was in course of extension from Dover to ■ Hackettstown. Besides these powers, each company had at the date ’of the-contract, legislative authority to build other extensions and' branches. And first as to the- Morris and Essex.

That company was incorporated January 29th, 1835, with authority to build a railroad or lateral roads, from one or more suitable-place or places in Morristown, to intersect one- or more suitable place or places in the New Jersey Railroad, at Elizabethtown or Newark. By a supplement, March 2d, 1836, they were- further authorized to construct a lateral or-branch railroad from Whippany, in Morris county, to intersect the main line of their railroad at any convenient point at or near Madison or Chatham, passing through or near the village of Hanover or Columbia, or both, or by such ■other route as said company may deem expedient; and also-to construct á branch or lateral railroad or railroads from some suitable point of their main road to the iron works upon Rockaway river, at or near Boonton or Powerville; and also to construct said lateral or branch railroads from Denville, Rockaway, and Dover, or from any of those places,, so as to connect them with the Morris and Essex railroad at some convenient point or points. Laws, 1836, p. 223, § 2. By a supplement, February 25th, 1846, it was provided in effect that the time for the construction of those branch, or lateral roads should not be limited by the time limited in the original charter, and therefore, the company were at liberty to construct those branch or lateral roads at any time during the existence of their charter, unless otherwise afterwardslimited by the legislature. By this latter supplement the company were further authorized, when a branch or lateral, road to Dover should be completed, to continue the same to Stanhope. By a- further supplement, February 19th,-1851, (the year before this contract) they were empowered to-extend their road from some point at or near Dover, to any point on the Delaware river, at or near the town of Belvidere, or the Water Gap, or between those places, and in case-the same should not terminate at the town of Belvidere, to construct a branch railroad from the main line to Belvidere; and were also empowered to build a bridge across the Delaware with the consent of the state of Pennsylvania. This was the full extent of the power of the Morris and Essex Company at the date of the contract, to construct extensions and branches. Under the original act their road had then been constructed from Newark to Morristown, and under the subsequent power to build branches, had been continued to Dover, and when the contract was made the work from Dover to Hackettstown was being prosecuted under the authority of the supplement of 1846, to continue the Dover branch to Stan-hope, and also, by authority of the supplement of 1851, to-extend the road from at or near Dover, to the Delaware at or near Belvidere or the Water Gap, or between. As already stated, judging from the contract, the immediate object of the Morris and Essex at the time of its execution, was to extend their road to Hackettstown. With the road constructed to that place, the unexhausted powers of the company were yet to extend from Hackettstown to the Delaware at or near Belvidere, or the Water Gap, or between, and in' case the road did not terminate at Belvidere, to-construct a branch from the main line to that town, and also to construct the Whippany and Boonton branches. These powers certainly yet existed without reference to any others that might be claimed. Here then were sufficient subject matters within the charter and supplements of the Morris and Essex to fully meet the scope of the’ words, future extensions or branches, so far as that company is concerned.

Now next as to the Sussex, Railroad Company. That-company was incorporated March 9th, 1848, by the name of the Sussex Mine Railroad Company, (this name was after-wards changed to the .Sussex Railroad Company); they were-empowered to construct a railroad from the Andover mines, in the county of Sussex, to some convenient and accessible point on the Morris Canal, in said county, with the privilege of extending it to the village of Newton, in the county of Sussex, and of constructing such spurs or lateral roads, not exceeding each five- miles in length, as may be necessary to afford access to the adjacent mines in the said county. Their charter was to be'void if the road was not completed and in use from the Andover mines to the Morris canal within seven years from July 4th, 1848. The road was constructed between those points within ■ the time limited. It was at first constructed with flat rails, and designed chiefly for the transportation of ore, but was afterwards reconstructed for passengers and freight, as contemplated in the contract. By a supplement, Mai'ch 18th, 1851, the Sussex Mine Company were further authorized to extend their road to connect at points to be selected by them, in the counties of Sussex, Warren, and Morris, with the Morris-and Essex, and Sussex and Warren Railroads, or either of them, and to connect, the track or tracks of the said Sussex Mine Railroad with the said railroad or railroads. This supplement authorized an extension to connect with the Morris and Essex road, and also with the Sussex and Warren Railroad. The Sussex and Warren Railroad was incorporated February 21st, 1851, the same session of the passage of the supplement. The act is a public act, and we take judicial notice of it, although, not referred to in the pleadings. That company was empowered to construct a railway commencing at a point in the division line between the states of New York and New Jersey, through the county of Sussex, within three quarters of a mile of the court-house at Newton, and through the county of Warren to the Delaware river, at or near the Water Gap; also to build a bridge across the Delaware, with the consent of Pennsylvania, and to connect with any railroad chartered or to be-chartered in the state of New York or Pennsylvania. ■ At the time of the - contract, the Sussex Railroad Company had only constructed their road from. Andover mines to the Morris canal. That company then had power to extend their road from Andover to Newton, and also to extend it to connect with the Sussex and Warren Railroad (besides to extend it to connect with the Morris and Essex) and also to build as many spurs or lateral roads not exceeding each five miles in length as may be necessary to afford access to the adjacent mines in Sussex county. These were important powers, and they fully meet the requirement of the words, “ future extensions or branches,” so far as they may relate to the Sussex company, even if the extension from Andover to Newton is excluded. It is thus apparent that at the date of the contract these corporations each had powers unexhausted, sufficient to meet the requirement of the words in question, and such was the case even excluding the immediate extensions referred to in the preamble. Now, if we apply Lord Bacon’s maxim, that “ all words, whether they be in deeds or otherwise, if they be general, and not express and precise, shall be restrained unto the fitness of the matter and the person;” Bac. Max. Reg. 10; Broom’s Max. 576; W. L. R. Co. v. L. and N. W. R. Co., 11 C. B. 355; we must give an application to those words consistent with the objects authorized when the contract was made. And besides, it cannot be held with any reason, that when general words used in a contract by a corporation can be applied consistently with the scope of its act-of incorporation, that simply because they are general they may be taken to refer to objects outside of it, even where, by their general application, they might include them. The conclusion to my mind is irresistible, from the considerations-already stated, that these extensions, unauthorized at the time of the contract, were not intended to be included in it.

But let us look a little further and see the result of a-different construction. This contract was made by the directors, but it is unnecessary nowT to draw any distinction between the powers of the directors to bind the corporation to-third persons, and the powers of the corporation itself. A very serious question arises as to the power of the directors to make such a contract, even if within the scope of corporate powers; but however that may be, their acts must certainly be restrained within the limits of the charter, and they cannot do what the corporation itself may be unable to do. An act concerning corporations, section three, passed in 1846, gives us an imperative rule of construction concerning corporate- powers. It provides that, in addition to the powers enumerated' in the first section of the act, (which are the ordinary powers of all corporations,) “ and to those expressly given in its charter, or in the act under which it is or shall be incorporated, no corporation shall possess or exercise any corporate powers except such as shall be necessary to the exercise of- the powers so enumerated and given.” The Morris and Essex charter was granted subject to alteration, and its powers must, therefore, be controlled by that statute. The common law rule limits corporations to such powers as are given by the charter, or necessarily implied for carrying into effect the objects and powers expressly sanctioned. Norwich v. Norfolk Railway, 4 El. &. Bl. 444 and note; Coleman v. E. C. R. Co., 10 Beav. 1; Cam. and Amboy R. Co. v. Briggs, 2 Zab. 623.

To that extent, at least, our statute is declaratory of that rule; but beyond that, the language is clear, that the legislature intended to interdict, as a matter of public policy, the exercise of any powers except such as are referred to in that third section. Whether without that section the common law would fully reach up to that measure upon any implication that powers not so granted or implied are prohibited, need not now be determined. It is sufficient that the terms of this enactment aré plain and its meaning cannot be misunderstood, and that when a. corporation exercises powers outside of those permitted by that section, its action is obnoxious to the charge that there is not only a want of authority, but that it is against an express enactment. The construction of corporate powers should, undoubtedly, be reasonable, and so as to accomplish and not to defeat the purpose and true intent of the charter, in its full spirit and scope.

This is a liberal rule, but even that would not allow an implication of power in the Morris and Essex at the time of the contract, to stipulate that another company should have an interest in the freight and travel on roads or branches then unauthorized^ or, taking a milder view of the contract, that the rates for freight and passengers thereon should be fixed that another company should be charged or allowed a per cent, or drawbacks thereon, even if such other company could make a contract of that character. The Morris and Essex could contract for freight and passengers over the roads then authorized. It also had special powers to enter into contracts with any other corporation or individuals for conveying passengers and freight between any point or points on the line of their road and the city of New York, and such a contract was in existence with the New Jersey Railroad Company when this contract was made, and part of this contract is in reference to that. To the full extent of these powers this contract could be made, and was to that extent within their scope, (that is, apart from any question of illegality, or want of consideration, or unconscionability, ■or want of authority of the directors to make it, against the stockholders); and all contracts bearing upon the traffic of the road as authorized that the exigencies of the business contemplated and authorized would reasonably require, would be within the scope of the company’s powers; but a contract like this claimed, even in its least objectionable aspect, concerning rates of freight and fare upon extensions unauthorized, cannot be within the necessary scope of any implied power of this corporation. The corporation had no right, at- the date of the contract, to build the extensions. No franchise to that effect had been granted; whether to be granted or not, was entirely at the option of the legislature. The whole subject, the enlargement of the franchise and the rates for freight and passengers, was within the control of the legislature; and if the company should be afterwards empowered to build, it is questionable, at least, whether, without the consent or acquiescence of the stockholders, such power could be exercised. Zabriskie v. Hack. and N. Y. R. Co., 3 C. E. Green 179. The power to contract upon such an uncertain subject matter ought not to be implied from any other objects authorized or the powers given to carry them out.

This question is not analogous to that* where railroads or •other corporations agree upon a division of the tolls, or fares, or freights upon authorized lines. That can be justified from the power that each has to contract concerning its own authorized business, and such arrangements are not, to my mind, ultra vires the corporation. Neither is it analogous to cases where one corporation may offer inducements to another nr to individuals, by a reduction in rates, in order to secure freight and travel over its road authorized. I see no objection to such arrangements; provided they are not unconscionable, for they are also in relation to the business of its own road. There are many reasons not now useful to mention, -why, in justice to the state, the public, and the stockholders, and the very stability of the corporate body, the legislature should be jealous of its grants of franchise, and .seek to confine them within definite limits, and to disallow -any corporate act outside of them. The legislature has a policy in this matter. It is clearly declared; and that third ■section must be taken as a prohibition of any acts not within the scope of the powers permitted. Contracts in contravention of it are against the declared policy of the state, and must be held to be illegal and of no binding obligation. Analogies in support of this principle may be found in the following cases : Ins. Co. v. McKelway, 1 Beas. 133; Pearce v. M. and I. R. Co., 21 Howard 442; 3 McLean 103; 5 Ibid. 194; 8 Gill & Johnson 318; 23 Conn. 511; 22 New York 281, (Selden, J.); E. A. R. Co. v. E. C. R. Co., 11 C. B. 775; McGregor v. Railway Co., 18 Ad. Ellis (N. S.) 618; Gage v. N. M. R. Co. Ibid. 457; Taylor v. C. and M. R. Co., 2 Law Rep. Ex. 357; S. and B. R. Co. v. L. and N. W. R. Co., 6 Ho. Lords Cas. 113.

And there is no difference in this respect between law and equity, for the prohibition is against exercising the power. In equity, a covenant to charge an estate afterwards to be acquired, or in expectancy, may be enforced when the same has been acquired. 3 Lead. Cas. in Eq. 653; Smithurst v. Edmunds, 1 McCarter 469. But if it is against public policy to make the covenant, equity will not enforce it merely upon the ground that the party has become able to perform it. There is no difficulty in enforcing the equitable contracts of individuals concerning future estates, for there is no restriction npon their power to make them, but contracts resting on powers legal or equitable, if outside the scope of a corporation, are under the ban of the law, and cannot be enforced upon their own strength and the fact of a subsequent ability to perform them. In the case of Willink v. The Morris Canal and Banking Company, 3 Green’s C. R. 377, although lands for the canal from Newark to Jersey City not acquired at the date of the mortgage, were held to be subject to it, yet the mortgage by description was held to include the canal, and the company clearly had the power under its charter to make such a mortgage. In England, the question seems unsettled as to the extent that the promoters of a railway company may bind the corporation when created, upon contracts in contemplation of the incorporation; but equity has decreed the performance of certain classes of contracts of the promoters, particularly for the purchase of land, when such contracts were within the scope and powers of the act of Parliament when obtained, or that and the general railway acts; and that doctrine was referred to in the argument in support of the legality of this contract as to these extensions. The contracts of promoters are not analogous to this. Railway enterprises in England are instituted differently from this country. There the promoters associate under provisional deeds, and these serve as a basis of operation until a jCharter is obtained. Redfield on Railways 5. They are a preliminary association of individuals whose acts are unrestricted, save only by their provisional deeds. They organize in reference to an incorporation, and the act of Parliament is, based upon their application for a regularly defined line., They may buy land for the purpose of the road in contemplation of the act of incorporation, and even the vote of a member of parliament under color of it, if he happens to be a landowner affected, but then there is no statute limiting the legality of their action, and they are not hampered by corporate restrictions. Now, whatever may be the true basis of the acts of courts of equity in holding the corporation bound upon such contracts, there is no question of public policy to prevent them from being enforced. But if a statute should limit the powers of promoters to contracts on certain subjects only, as for instance the purchase of land, and should prohibit the exercise of any other powers, I apprehend that a contract outside of the powers allowed would suffer the fate of all contracts against public policy, and not be enforced merely upon its own strength and the acquired ability of the corporation to perform it. The tendency of the more recent English cases is to confine the enforcement of promoters’ contracts to such matters as are necessary in the carrying out the purposes of the .charter, and as are within the scope of it when granted. Taylor v. C. &. M. R. Co., 2 Law Rep. Ex. 366; Preston v. Railway, 5 Ho. Lords Cas. 605; C. & D. J. R. Co. v. H. H. Trustees, 39 Eng. L. & Eq. 28. And this is a restriction upon what was once permitted, that is, to buy off opposition to the granting of the charter. Petrie v. Eastern Counties R. Co., 1 Railway Cases 462; Edwards v. G. J. R. Co., 1 Myl. Cr. 650. That, in England, not being an illegal act, strange as it may seem to us.

For the reasons stated, the doctrine concerning promoters’ contracts cannot properly be applied to corporations in this state. In analogy to -the action of promoters, the corporation would be the promoter in this case, but it would be subject to the restrictions upon a corporation; and here it must be distinctly understood that it is not intended to intimate, in any way, that if the contract had been ratified by the legislature or by the corppration, as to the extension, after the necessary powers to carry it out were acquired, and the road built, that, by virtue of such ratification, it might not be enforced. No expression' of opinion is necessary upon that subject, as there is no legislative ratification, and no ratification by the corporation through its stockholders, or even the directors, for they have always refused to treat it as covering the extensions. The object of this bill is to enforce this contract as to the extensions, upon its own strength, and the fact that the company has acquired the ability to perform it; and the answer to that is, that as to the extensions, at least, the contract would be illegal.

The case of Eastern Counties Railway Company v. Hawkes, 5 Ho. Lords Cas. 331, was much relied on by the appellees’ counsel. That company applied to Parliament to build a branch railway; plans and sections of the route were deposited in the usual way. The line would pass through Hawkes’ land. He opposed the bill, and the company agreed to pay him a certain price for his land, and damages after the bill should pass, and he to withdraw his opposition to it. After the bill was passed, he brought suit for specific performance, and it was decreed. The Lord Chancellor treated it as a contract not binding till the bill received the royal assent, and then that the rights and powers of the company were to be regarded the same as if they had originally been powers to make the’ new line, and to apply the funds of the company to a purchase within the scope of their incorporation. Lord Brougham was of opinion that there was nothing illegal in the agreement. Lord Campbell treated it as a contract for the purchase of land, with a view to the parliamentary plan and buildings after the act was obtained, remarking that where there is no offence to be committed against the public, and there is a mere want of authority for a transaction among private individuals or commercial companies, which authority can only be obtained by act of Parliament, no objection can be successfully made to the parties entering into an agreement for completing the transaction, when the necessary authority is so obtained. That case, in fact, is not analogous to this, as it was for the purchase of land necessary for the line, and expressly to be carried out in reference to the definite plan presented to Parliament. But, .apart from that, it is quite evident that no difference was made between a want of authority on the part of an individual and a corporation, and that even the implied prohibition against a corporation exercising powers outside the scope of its incorporation, which I think is the common law, and which was so indicated by the same Lord Chancellor, afterwards, in the case of Shrewsbury and Birmingham Railway Co. v. North Western Railway Co., 6 Ho. Lords Cas. 137, was lost sight of. The facts of that case are not sufficiently akin to the one before us, as to necessarily require us to dispute its doctrine, but the binding' force of our statute, if we treat the corporation in the light of promoters,, would prevent the application of the principle of that case to this.

Viewing .the contract as illegal if extended beyond the roads or branches authorized when it was made, we are bound to so construe the words in question when they admit of a double intendment, as to give them a legal operation. 1 Parsons on Contracts 11, and note; Chitty on Contracts 733, and note. That rule will restrain them and the operation of the contract so as to exclude the extensions afterwards authorized.

The suggestion that the extension or branch from Hack-' ettstown to Phillipsburg may be treated as a substitute for the road to Belvidere or the Water Gap, and the extension from Newark to Hoboken, as a substitute for the mode of conveying freight and passengers on the New Jersey Railroad, is not warranted by the contract, even if no question of power interfered, for the contract was made in relation to exisiting lines and powers, and there is no provision in it to substitute any other lines for any part of them.- There is nothing in the instrument from which such an intention can be gathered. The case of the Midland R. Co. v. London and Northwestern R. Co., 2 L. Rep. Eq. Cas. 524, upon the construction of a railway contract, is quite analogous to this, on this point, and that case also has an important dictum of the Vice Chancellor against the validity of a contract for traffic, not very unlike this on a line subsequently authorized.

In the conclusion to which I have come, it is not necessary to give the word roads in the third section of the contract, a less restricted application than to the roads and extensions or branches mentioned in the first section.

It is very evident that the issue between these parties is in regard to the right of the Sussex Company to compel a performance by the Morris and Essex of the contract as to the extensions, and that no account is necessary to be ordered for drawbacks on the rest of the line. Any expression of opinion, therefore, upon the want or illegality of consideration in the contract, apart from the extensions, or the power of the directors to make it, or on the question of unconscionability, is reserved until these questions are directly before the court for determination. The decree should be reversed, and the bill dismissed, with costs.

The decree was reversed by the following vote:

Mr reversals — Beasley, C. J., Bedle, Clement, Depue, Kennedy, Wales, Woodhull. 7.

Mr affirmance — Ogden, Olden. 2.