district of Arkansas, to recover for its neg-eminent domain; and the Missouri corpora-
ligence on that part of its road within the tion acquired that right, and owned and oper
state of Missouri, the company pleaded to ated a railroad in Arkansas, in virtue of
the jurisdiction that it was a citizen of Mis- statutes authorizing it to purchase the prop-
souri; and the question was certified to this erty, rights, and franchises of Arkansas cor-
court whether the company, by filing a copy porations, and requiring it to file a copy of
of its articles of incorporation under the its articles of incorporation or charter with
laws of Missouri with the secretary of state the secretary of state of Arkansas, and en-
of Arkansas, and continuing to operate its acting that it should "thereupon become a
railroad through that state, became a cor- corporation of this state, anything in its ar-
poration and citizen of the state of Ar- ticles of incorporation or charter to the con-
trary notwithstanding." Yet it was held
that it was not thereby made a corporation
of Arkansas, in the sense of the provisions of
the Constitution, and of the acts of Congress,
conferring jurisdiction on the courts of the
United States by reason of diverse citizen-

[565] *This court, speaking by Mr. Justice
Shiras, upon a careful review of the earlier
cases, answered that question in the negative.
The fundamental proposition deduced
from the previous decisions was thus stated:
"There is an indisputable legal presumption
that a state corporation, when sued or suing
in a circuit court of the United States, is
composed of citizens of the state which cre-
ated it, and hence such a corporation is it-
self deemed to come within that provision
of the Constitution of the United States
which confers jurisdiction upon the Federal
courts in 'controversies between citizens of
different states.'"

The statutes of Arkansas in that case went quite as far, to say the least, towards constituting a corporation of another state a corporation of the state enacting those statutes, as the statutes of Kentucky did in the case at bar.

The consolidation of the Louisville, New Albany, & Chicago Railway Company, under the same name, with a railroad company of Illinois in 1881, clearly does not affect the question of jurisdiction. That consolidation appears, by cases cited at the bar, to have been in accordance with the law of Indiana, but not to have been authorized by the law of Illinois. Louisville, New Albany, & Chica 90 Railway Co. v. Boney, 117 Ind. 501 [3 L. Minnesota & Northwestern Railroad Co. 157 R. A. 435]; American Loan & Trust Co. v.

The court frankly recognized that "it is competent for a railroad corporation organized under the laws of one state, when authorized so to do by the consent of the state which created it, to accept authority from another state to extend its railroad into such state, and to receive a grant of powers to own and control, by lease or purchase, railroads therein, and to subject itself to such rules and regulations as may be. 641. It may have been ratified by very prescribed by the second state;" and that recent legislation in Illinois. Illinois Stat. "such corporations may be treated by each June 9, 1897; Laws of 1897, p. 281; McAuley of the states whose legislative grants they 83 Ill. 348, 352. But jurisdiction of a suit, v. Columbus, Chicago, & Indiana Railway Co. accept as domestic corporations." 161 U. S. once acquired by a court of the United States 562 [40:808]. lost by a change in the citizenship of either by reason of the requisite citizenship, is not party pending the suit. Morgan v. Morgan, 2 Wheat. 290 [4: 242]; Clarke v. Mathewson, 12 Pet. 164 [9: 1041]; Koenigsberger v. Richmond Silver Min, Co. 158 U. S. 41, 49 [39: 889, 892].

But the court went on to say: "The presumption that a corporation is composed of citizens of the state which created it accompanies such corporation when it does business in another state, and it may sue or be sued in the Federal courts in such other state as a citizen of the state of its original

creation." And after referring to the provisions of the statutes of Arkansas of 1881 and 1889, the court added: "But whatever may be the effect of such legislation, in the way of subjecting foreign railroad companies to control and regulation by the local laws of Arkansas, we cannot concede that it availed to create an Arkansas corporation out of a foreign corporation, in such a sense as to make it a citizen of Arkansas, within the meaning of the Federal Constitution, so as to subject it as such to a suit by a citizen of the state of its origin. In order to bring such an artificial body as a corporation within the spirit and letter of that Constitution, as construed by the decisions of this court, it would be necessary to cre[566]ate *it out of natural persons, whose citizenship of the state creating it could be imputed to the corporation itself." 161 U. S. 562, 565 [40: 808,809].

In that case, the Constitution of Arkansas denied to foreign corporations the right of

*The demurrers to the bill for want of equi-[567 ty were rightly overruled, and were not insisted on in this court. The object of the bill was that the guaranty upon a great number of negotiable bonds, which might otherwise pass into the hands of bona fide purchasers, might be canceled, and suits upon the guaranty restrained, because of facts not appear. ing upon its face. The relief sought could only be had in a court of equity. Peirsoll v. Elliott, 6 Pet. 95, 98 [8: 332, 333]; Grand Chute v. Winegar, 15 Wall. 373, 376 [21: 174, 175]; Robb v. Vos, 155 U. S. 13 [39: 52]; Springport v. Teutonia Savings Bank, 75 N. Y. 397; Fuller v. Percival, 126 Mass. 381.

We are then brought to the question of the validity of the guaranty by the Louisville, New Albany, & Chicago Railway Company of the bonds of the Beattyville Company, as be tween the parties before us, and under the circumstances shown by this record.

A railroad corporation, unless authorized by its act of incorporation or by other stat.

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utes to do so, has no power to guarantee the | whose line of railway extends across the state
bonds of another corporation; and such a in either direction, may, upon the petition of
guaranty, or any contract to give one, if not the holders of a majority of the stock of such
authorized by statute, is beyond the scope of railway company, direct the execution by
the powers of the corporation, and strictly such railway company of an indorsement
ultra vires, unlawful, and void, and incapa- guaranteeing the payment of the principal
ble of being made good by ratification or es- and interest of the bonds of any railway com-
toppel. Central Transportation Co. v. Pull-pany organized under or pursuant to the
man's Palace Car Co. 139 U. S. 24 [35: 55], laws of any adjoining state, the construction
and 171 U. S. 138 [ante, 108]; Jackson- of whose line or lines of railway would be
ville, M. P. Railway & Nav. Co. v. Hooper, beneficial to the business or traffic of the rail-[569]
160 U. S. 514, 524 [40: 515, 523]; Union Pa- way so indorsing or guaranteeing such
cific Railway Co. v. Chicago, Rock Island, & bonds." Section 2 provides that such peti-
Pacific Railway Co. 163 U. S. 564, 581 [41: tion of the stockholders shall state the facts
265, 2711; California Nat. Bank v. Kennedy, relied on to show the benefits accruing to "the
167 U. S. 362, 367, 368 [42: 198, 200]: Davis company indorsing or guaranteeing the
v. Old Colony Railroad Co. 131 Mass. 258 [41 bonds." And section 3 provides that "no
Am. Rep. 221]; Humboldt Min. Co. v. Varie- railway company shall, under the provisions
ty Iron Works Co. 22 U. S. App. 334.
of this act," indorse or guarantee such bonds
to an amount exceeding half the par value of
the stock of "the railway company so indors-
ing or guaranteeing."


The real question in the case is whether this guaranty was valid under the laws of Indiana, the state by which the guarantor was originally created a corporation, and as a corporation of which it brought this suit. Some reliance was placed upon the statute of Indiana of 1865, authorizing any railroad company incorporated under its provisions (as the New Albany Company was) to consolidate with any railroad corporation having a connecting line, either within or without the state, or to acquire, by purchase or [568]* contract, its property, rights, and franchises, or the use and enjoyment thereof, in whole or in part, and to "assume such of the debts and liabilities of such corporations as may be deemed proper." It was argued that the powers thus given embraced the contract by which the New Albany Company agreed with the construction company, in consideration of receiving from it a controlling interest in the stock of the Beattyville Company, to guarantee the bonds of that company.

The Louisville, New Albany, & Chicago Railway Company was a railway company organized under and pursuant to the laws of Indiana, and its line of railway extended across the state from south to north. On October 8, 1889, the board of directors, at a regular meeting, passed a resolution, entered upon its records, authorizing the president and secretary to execute under seal of the company a contract by which the company agreed with a corporation which was constructing the railroad of the Beattyville Company, a railroad corporation of Kentucky, to guarantee the payment by the Beattyville Company of the principal and interest of bonds of that company, by indorsing on each bond a guaranty, executed in like manner, by which "for value received, the Louisville, New Albany, & Chicago Railway Company hereby guarantees to the holder of the within bond the payment, by the obligor thereon, of the principal and interest thereof in accordance with the tenor thereof." The contract, as well as the guaranty on many of the bonds, was accordingly executed by the president and secretary and under the seal of the company, and the contract was spread upon the records of the board of directors. No petition of a majority of the stockholders for the execution of the guaranty was ever presented, as required by the statute: there was no evidence that the stockholders ever authorized or ratified the contract or the guaranty; and, at the next annual meeting of the stockholders, in March, 1890, it was voted to reject and disapprove both the contract and the guaranty, as having been made without legal authority or the approval of the stockholders.

But the New Albany Company never con-
solidated itself with the Beattyville Com-
pany, or acquired by purchase or contract its
property, rights, and franchises, or the use
or enjoyment thereof, in whole or in part. It
is doubtful, to say the least, whether a mere
purchase of three fourths of its stock could
authorize an assumption of its debts, under
the statute of 1865, if that statute had re-
mained in full force. In Hill v. Nisbet, 100
Ind. 341, cited at the bar, a purchase of the
stock of one railroad company by another
was upheld, not as equivalent to a purchase
of the property and franchises, but as a rea-
sonable means to the accomplishment of the
consolidation of the two companies.

But we cannot doubt that, as was held by
both courts below, the statute of Indiana of
1883 superseded and repealed, as to matters
within its scope and terms, the provisions
of all former statutes of the state on the sub-
The statute of Indiana of 1883 is entitled
"An Act to Authorize Railroad Corporations
Organized under the Laws of the State of
Indiana to Indorse and Guarantee the Bonds
of Any Railroad Company Organized under
the Laws of Any Adjoining State"; and en-
acts, in § 1, that "the board of directors of
any railway company organized under and
pursuant to the laws of the state of Indiana,
174 U. S.
U. S., Book 43.

Before that meeting was held, one hundred
and twenty-five of the bonds thus guaranteed[570]
had been sold by the construction company
to the Louisville Trust Company, and ten
bonds to the Louisville Banking Company,
each of which companies took those bonds in
good faith and without notice that no peti-
tion had been presented by a majority of the
stockholders for the execution of the guar-

Forty-five more of the bonds were purchased by the Louisville Banking Company 1089


from the construction company after that meeting, and with notice that a majority of the stockholders had never petitioned for, but had disapproved, the execution of the guaranty. The Louisville Banking Compary, thus having notice, when it took these forty-five bonds, that the prerequisite to the execution of the guaranty, under the statute of Indiana of 1883, had not been complied with, was not a bona fide holder of these bonds, and should not be allowed to enforce the guaranty thereon against the plaintiff.

The controverted question is whether the bonds which the Louisville Trust Company and the Louisville Banking Company, respectively, purchased in good faith, and without notice of the want of the assent of the majority of the stockholders, are valid in the hands of these companies.

The guaranty by the Louisville, New Albany, & Chicago Railway Company of the bonds of the Beattyville Company was not ultra vires, in the sense of being outside the corporate powers of the former company; for the statute of 1883 expressly authorized such a company to execute such a guaranty, and its board of directors to direct its execution by the company. The statute, indeed, made it a prerequisite to the action of the board of directors that it should be upon the petition of a majority of the stockholders; but this was only a regulation of the mode and the agencies by which the corporation should exercise the power granted to it.

The distinction between the doing by a corporation of an act beyond the scope of the powers granted to it by law, on the one side, and an irregularity in the exercise of the granted powers, on the other, is well established, and has been constantly recognized by this court.

vided that no such aid should be furnished
until two thirds of the stockholders repre-
sented and voting at a meeting called by the
directors should have assented thereto. The
directors of three railroad corporations made
a contract with another railroad corporation
to guarantee its bonds, as part of an arrange-
ment for connecting the four roads; and the
bonds were accordingly guaranteed, and were
issued to bona fide holders, without any meet-
ing of the stockholders having been called.
But, upon evidence that the stockholders had
subsequently assented to the transaction, the
bonds were held to be valid; and the court
expressly declared that the doctrine that a
corporation cannot vary from the object of
its creation, and that persons dealing with
a company must take notice of whatever is
contained in the law of its organization, does
not apply to "those cases in which a corpo-
ration acts within the range of its general
authority, but fails to comply with some
formality or regulation which it should not[578]
have neglected, but which it has chosen to
disregard." 23 How. 398 [16: 497].

Again, in Central Transportation Co. v. Pullman's Palace Car Co. 139 U. S. 24 [35: 55], this court, in summing up the result of previous decisions, stated the same distinction as follows: "A contract of a corpora. tion, which is ultra vires in the proper sense, that is to say, outside the object of its creation as defined in the law of its organization, and therefore beyond the powers conferred upon it by the legislature, is not voidable only, but wholly void and of no legal effect; the objection to the contract is not merely that the corporation ought not to have made it, but that it could not make it; the contract cannot be ratified by either party, because it could not have been authorearli-ized by either; no performance on either side can give the unlawful contract any validity, or be the foundation of any right of action upon it. When a corporation is acting within the general scope of the powers conferred upon it by the legislature, the corporation, as well as persons contracting with it, may be estopped to deny that it has complied with the legal formalities which are prerequisites to its existence or to its action, because such requisites might in fact have been complied with. But when the contract is beyond the powers conferred upon it by existing laws, neither the corporation, nor the other party to the contract, can be estopped, by assenting to it or by acting upon it, to show that it was prohibited by those laws." 139 U. S. 59 [35: 68].

It was clearly indicated in two of its [571]est judgments on the subject of ultra vires, both of which were delivered by Mr. Justice Campbell.

In Pearce v. Madison & Indianapolis Railroad Co. 21 How. 441 [16: 184], two railroad corporations of Indiana were held not to have the power to purchase a steamboat to be employed on the Ohio river, to run in connection with their railroads, because this "diverted their capital from the objects contemplated by their charters, and exposed it to perils for which they afforded no sanction;" "persons dealing with the managers of a corporation must take notice of the limitations imposed upon their authority by the act of incorporation;" "the public have an interest that neither the managers nor stockholders of the corporation shall transcend In St. Louis, Vandalia, & Terre Haute Railtheir authority;" and the contract in ques-road Co. v. Terre Haute & Indianapolis Railtion "was a departure from the business" of road Co. 145 U. S. 393 [36: 738], one of the the railroad corporations, and "their officers parties relied on a provision of a statute of exceeded their authority." 21 How. 443, Illinois that it should not be lawful for any 445 [16 L. ed. 185]. railroad company of Illinois, or its directors, to consolidate its road with any railroad out of the state, to lease its road to any railroad company out of the state, or to lease any railroad out of the state, "without having first obtained the written consent of all of the stockholders of said roads residing in the state of Illinois, and any contract for such consolidation or lease which may be made

In Zabriskie v. Cleveland, Columbus, & Cincinnati Railroad Co. 23 How. 381 [16: 488], the statutes of Ohio empowered railroad corporations, "by means of their subscription to the capital stock of any other company, or otherwise," to aid it in the construction of its road, for the purpose of forming a connection between the two lines, pro

without having first obtained said written cided upon its facts. Knox County Comrs. consent, signed by the resident stockholders v. Aspinwall, 21 How. 539, 545 [16: 208, [573]in Illinois, shall be null and void." *Of that 210]: Moran v. Miami County Comrs. 2 statute, this court said: "It did not limit Black, 722, 724 [17: 342, 344]; Gelpcke v. the scope of the powers conferred upon the Dubuque, 1 Wall. 175, 203 [17: 520, 525]; corporation by law, an excess of which could St. Joseph Twp. v. Rogers, 16 Wall. 644, 666 not be ratified or be made good by estoppel; [21: 328, 339]; Humboldt Twp. v. Long, 92 but only prescribed regulations as to the U. S. 642, 650 [23: 752, 756]. And see Zamanner of exercising corporate powers, com- briskie v. Cleveland, Columbus, & Cincin pliance with which the stockholders might nati Railroad Co. 23 How. 381 [16: 488], waive, or the corporation might be estopped, above cited. by lapse of time, or otherwise, to deny." 145 U. S. 403 [36: 752].

A corporation, though legally considered a person, must perform its corporate duties through natural persons, and is impersonated in and represented by its principal officers, the president and directors, who are not merely its agents, but are, generally speaking, the representatives of the corporation in its dealings with others. Shaw, Ch. J., in Burrill v. Nahant Bank, 2 Met. 163, 166, 167 [35 Am. Dec. 395]; Comstock, J., in Hoyt v. Thompson, 19 N. Y. 207, 216. And the appropriate form of verifying any written obligation to be the act of the corporation is by affixing the signatures of the president and secretary and the corporate seal.

The bonds of the Beattyville Company were instruments negotiable by delivery; and the guaranty indorsed upon each of them by the Louisville, New Albany, & Chicago Railway Company was signed by the president and secretary and under its corporate seal, and was in terms payable to the holder thereof and itself negotiable.

One who takes from a railroad or business corporation, in good faith, and without actual notice of any inherent defect, a negotiable obligation issued by order of the board of directors, signed by the president and secretary in the name and under the seal of the corporation, and disclosing upon its face no want of authority, has the right to assume its validity, if the corporation could, by any action of its officers or stockholders, or of both, have authorized the execution and issue of the obligation.

In Merchonts' Nat. Bank v. State Nat. Bank, 10 Wall. 604 [19: 1008], this court stated, as an axiomatic principle in the law of corporations, this proposition: "Where a party deals with a corporation in good faith -the transaction is not ultra vires-and he is unaware of any defect of authority or oth[674]er irregularity on the part of those acting for the corporation, and there is nothing to excite suspicion of such defect or irregularity, the corporation is bound by the contract, although such defect or irregularity in fact exists. If the contract can be valid under any circumstances, an innocent party in such a case has a right to presume their existence, and the corporation is estopped to deny them." 10 Wall. 644, 645 [19: 1018]. The proposition was supported by citations of many English and American cases, and among them Royal British Bank v. Turquand (1856) 6 El. & Bl. 327. And the justices of this court, while differing among themselves in the application of the principle to municipal bonds, have always treated Royal British Bank v. Turquand as well de

Royal British Bank v. Turquand was an action upon a bond signed by two directors, and under the seal of the company, and given for money borrowed by a joint-stock company formed under an act of Parliament limiting its powers to the acts authorized by its deed of settlement, and whose deed of settlement provided that the directors might so borrow such sums as should, by a resolution passed at a general meeting of the company, be authorized to be borrowed. The defense was that no such resolution had been passed, and that the bond had been given without the authority of the shareholders. The court of exchequer chamber, affirming the judgment of the Queen's bench, without passing upon the sufficiency of the resolution in that case, held the company liable on the bond; and, speaking by Chief Justice Jervis, said: "We may now take for granted that the dealings with these companies are not like dealings with other partnerships, and that the parties dealing with them are bound to read the statute and the deed of settlement. But they are not bound to do more. And the party here, in reading the deed of settlement, would find, not a prohibition from borrowing, but a *permission to do so on certain conditions.[575] Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the document appeared to be legitimately done." 6 El. & Pl. 332.

The decision in Royal British Bank v. Turquand has been followed, and Lord Wensleydale's dicta to the contrary, a year later, in Ernest v. Nicholls (1857) 6 H. L. Cas. 401, 418, 419, have been disapproved or qualified, in a long line of decisions in England. Agar v. Athenæum Life Assurance Society (1858) 3 C. B. N. S. 725, 753, 755; Prince of Wales Life & Educational Assurance Co. v. Harding (1858) El. Bl. & El. 183, 221, 222; Re Athenæum Life Assur. Society (1858) 4 Kay & J. 549, 560, 561; Fountaine v. Carmarthen R. Co. (1868) L. R. 5 Eq. 316, 321; Colonial Bank of Australasia v. Willan (1874) L. R. 5 F. C. 417, 448: Mahony v. East Holyford Min. Co. (1875) L. R. 7 H. L. 869, 883, 893, 894, 902; County of Gloucester Bank v. Rudry Merthyr Steam & H. C. Colliery Co. [1895] 1 Ch. 629, 633. The only English decision cited at the bar, which appears to support the opposite conclusion, is Commercial Bank v. Great Western Railway Co. (1865) 3 Moore, P. C. C. N. S. 295, which, unless it can be distinguished on its peculiar circumstances, is against the general current of authority. See also a very able judgment of the court of errors and appeals of New Jersey, delivered by Mr. Justice Depue, in Hacken

sack Water Co. v. De Kay, 36 N. J. Eq. 548,

It necessarily follows that the rights and liabilities, if any, that it may have as a In the present case, all natural persons or corporation of Kentucky, or as a corporation corporations by whom bonds of the Beatty of Illinois, cannot be adjudicated in this ville Company bearing the guaranty of the case; and that the decrees both of the circuit Louisville, New Albany, and Chicago Rail-court and of the circuit court of appeals, so way Coinpany, signed by the proper officers far as regards the Louisville Banking Comof the company and under its seal, were pur-pany, must be reversed, and the case remandchased in good faith, and without notice that there had been no petition of a majority of the stockholders for their execution, had the right to assume that such a petition had been presented, as required by the statute of 1883. The records of the railroad corporation and of its board of directors, which would naturally show whether such a petition had or had not been filed, were private records, [570] which a purchaser of the bonds was not obliged to inspect, as he would have been if the fact had been required by law to be entered upon a public record. Brewer, J., in Blair v. St. Louis, Hannibal, & Keokuk Railroad Co. 25 Fed. Rep. 684; Hackensack Water Co. v. De Kay, 36 N. J. Eq. 548, 568; McCormick v. Market Nat. Bank, 165 U. S. 538, 551 [41: 817, 822]; Irvine v. Union Bank of Australia, L. R. 2 App. Cas. 366,


ed to the circuit court with directions to dismiss the bill as to the guaranty on the ten bonds of which the Louisville Banking Company was a bona fide purchaser, and to enter a decree, as to the guaranty on the forty-five bonds of which it was not a bona fide purchaser, that an injunction be issued against bringing suit upon the guaranty on these bonds against the Louisville, New Albany, & Chicago Railway Company, a corporation of Indiana, and that there be stamped on these bonds the following words: "This guaranty is not binding on the Louisville, New Albany, & Chicago Railway Company, a corporation of Indiana, and is to that extent canceled, without prejudice to the rights or liabilities, if any, that it may have as a corporation of Kentucky, or as a corporation of Illinois.”

Accordingly, in the first case, the decree of the Circuit Court of Appeals is affirmed, and It follows that the decree of the circuit the case remanded to the Circuit Court of court of appeals, so far as it ordered the bill the United States with directions to dismiss to be dismissed with regard to the guaranty the bill as against the Louisville Trust Comon the bonds which the Louisville Trust Company; and, in the second case, the decrees of pany and the Louisville Banking Company took in good faith, and without notice of any want of authority to execute the guaranty, was correct.

But, in regard to the guaranty on the bonds which the Louisville Banking Company took with notice that the guaranty had not been authorized by a majority of the stockholders, the decree of the circuit court of appeals needs to be modified.

That court, in its opinion and decree, undertook to determine whether the Louisville, New Albany, & Chicago Railway Company was liable upon the guaranty as a corporation of Kentucky, and as a corporation of 11linois.

Apart from the question whether it was a corporation of Kentucky, and from the difficulty of treating the negotiable guaranty upon each bond as itself divisible, binding the guarantor as a corporation of one state, and not binding it as a corporation of another state, there is an insurmountable objection to the decree in its present form.

The Louisville, New Albany, & Chicago Railway Company is a party to this suit as a corporation of Indiana only, and not as a corporation of Kentucky. It could not, either as a corporation of both states, or as a corporation of Kentucky only, have brought this suit against corporations and citizens of Ken

tucky, in the circuit court of the United

States for the district of Kentucky, without ousting the jurisdiction of the court. Baltimore & Ohio Railroad Co. v. Wheeler, 1 Black, 286 [17: 130]; St. Louis & San Francisco Railway Co. v. James, 161 U. S. 545 [40: 802]. And citizens of Illinois also be[577]ing defendants in the bill, it is equally impossible to take jurisdiction of the plaintiff as a corporation of Illinois.

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both those courts are reversed, and the case remanded to the Circuit Court of the United States with directions to enter a decree in conformity with the opinion of this court.

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The facts are stated in the opinion.
Messrs. Amos Steck and Carpenter &
McBird for petitioner.

Messrs. A. M. Stevenson and John F.
Shafroth for appellee.


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