Taylor v. Philadelphia & Reading Railroad

7 F. 386, 1881 U.S. App. LEXIS 2235

• Court: United States Circuit Court
• Decided: April 21, 1881
• Status: Published

Opinions

McKennan, C. J.

The present proceeding is two-fold: First, to obtain a rescission of an order made November 18, 1880, by one of the judges of this court at chambers, touching the issue by the Philadelphia & Heading Hailroad Company of $34,000,000 of “deferred bonds;” and, second, to enjoin the issue of such bonds.

Whatever may be the literal import of the order of November 18, 1880, only the significance and effect of an order by consent can be given to it. The petition for it was referred to one of the masters in the cause. ITis report was favorable. All classes of interest supposed to be affected by it were apparently represented and concurring, and it was, therefore, made without argument and as of course. When it was afterwards challenged by tho complainants hero, the circumstances under which it was made were fully explained, and its phraseology was so changed as to exclude any inference of authoritative sanction of the plan referred to. The petition for the revocation of the order must then stand upon the same footing as to merit with the motion for the injunction.

The deferred-bond plan is challenged for the vital reason that the corporation is legally incompetent to institute it. It is notably peculiar in its features. It is a proposition by the corporation that the stock and bondholders shall subscribe and pay ratably over #10,000,000, to be used in extinguishing the floating debt of the corporation; that to each subscriber shall be issued a writing, the form of which is yet undetermined, entitling him to receive 6 per cent, on the sum of $50 for each $15 paid by him out of the net earnings of the corporation, after paying all fixed charges and a dividend of 6 per cent, upon the common shares, and that for further interest these subscriptions will -rank pari passu with the common shares. Is this proposition, then, authorized by the charter of the corporation ?

The principle by which we must be guided in answering this question has been so often the subject of judicial recognition that it has grown into an axiom of construction. It is this: That the exercise of powers which are not conferred upon a corporation by express concession or clear implication must be taken as denied to it. It is thus comprehensively stated by Mr. Justice Miller, in Thomas v. The West Jersey R. Co. 101 U. S. 82:

“ We take the general doctrine to be in tills country, though there may be exceptional cases and some authorities to the contrary, that the powers of corporations organized under legislative statutes are such, and such only, as those statutes confer. Conceding the rule applicable to all statutes, that what is fairly implied is as much granted as what is expressed, it remains that the charter of a corporation is the measure of its powers, ■and that the enumeration of these powers implies the exclusion of all others.” •

Whatever power the defendant has in the premises can •only be found in its general authority to borrow money. Neither in the charter of the defendant, nor in the special act which authorizes it to sell bonds, which it may issue below, par, is anything contained to legalize the contested proposition, unless it can be put on the footing of a loan. Has it then this character ? I think plainly not. It does not propose to create the relation of debtor and creditor between . the defendant and the subscribers. The money obtained by the defendant could not be regarded as borrowed, because that implies -re-imbursement, and it is not demandable by the subscribers or payable by the defendant. It has not the essential and distinguishing qualities of a loan. It contemplates a stipulation that the subscribers, in consideration of the sums paid-—not lent—by them, shall be entitled to receive, in a remote and uncertain contingency, a portion of the defendant’s earnings, to be measured by a certain rate per cent, upon three times the sums paid by them, and after that shall participate with the common shareholders in the division of the residuary earnings. By what allowable doonition of a loan or borrowing such a transaction can be embraced I am at a loss to conceive. Nor will the fact that it is to be evidenced by the sealed writing of the defendant change its inherent character and bring .it within the range of a power to which it is not otherwise referable.

In one respect, and in one only, does the plan proposed resemble a loan, and that is In the result to be attained. They are both expedients for raising money, hut the method of accomplishing this result is of the essence of the power of the corporation. If its employment has not explicit legal sanction it cannot he made available. If the defendant were offered a rental for its property amply sufficient to relieve it from the burden of embarassment with which it is now struggling, unless it could show that Its legislative creator had endowed it with a right to make a lease, it could not accept such relief. Thomas v. West Jersey R. Co., ante. And, although it has power to acquire real estate for all necessary corporate purposes, no one would maintain that it could lawfully eider into a contract for the purchase of real estate merely to resell and thereby realize large gains. Authority to raise money by borrowing does not imply the use of another and different method of raising it, however well adapted to the end it may be. Even in the prospectus issued by the president of the defendant (Exhibit 1) the proposed issue of “deferred bonds” is not in any aspect treated as a loan, and the system is correctly stated to be new in the United States, and to have been frequently adopted in Great Britain with great benefit to the companies and to subscribers. But we know that in Great Britain this “system” is expressly authorized by statute, and hence it may be assumed that such legislation was deemed necessary to legalize a resort to it. Is not this suggestive of the inference that, although it has been proved to be of great benefit in Great Britain, it is “new” in this country, because it has been regarded as without necessary legislative authorization ?

I am, therefore, of opinion that the issue of “deferred bonds, ” as proposed, is without warrant of law, and that the order of November 18, 1880, ought to be revoked and a preliminary injunction granted, and it is so ordered.