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IN THE
Šupreme Court of the #imited $tates,
OCTOBER TERM, 1895.
No. 783.
THE UNITED STATES,
Appellani,
Z).
JANE L. STANFORD, ExECUTRIx of LELAND STANFORD, DECEASED,
Appellee.
Mr. CHOATE'S ARGUMENT FOR Mrs. STANFORD.



Žoº. 6… . *~4.
IN THE
šupreme Court of the Alnited States.
October Term, 1895.
THE UNITED STATES,
Appellant,
(U).
No. 783.
JANE L. STANFORD, Executrix of Leland
Stanford, deceased,
Appellee.
TUESDAY, January 28, 1896.
Oral Argument of Joseph H. Choate,
- for Appellee,
If the Court please, this, argument of my learned
friend, containing upwards of two hundred pages,
was placed in my hands for the first time at the ad-
journment of the Court last evening, and it has not
been possible for me to read it. I shall, therefore,
perhaps make some omissions in regard to the very
voluminous discussion contained in it.
I do see that some pages at the close are de-
voted to deprecating any appeal on Our part to “the
2.
finer emotions and broader sympathies that are Sup-
posed to exist in the breasts of the judges.”
The attorney for the appellant must have thought
that the heroic woman whom I represent, who
has borne the brunt of this terrible litigation
alone and unaided, was coming here in person to
present her case. If she had had that purpose, per-
haps it would have been wise for him to deprecate
beforehand any influence that might have been
unconsciously exerted; but Mrs. Stanford asks no
quarter here. She asks for no indulgence on ac-
Count of her sex, her sorrows, or her noble purposes.
She is very grateful to the Government and to the
Court for facilitating the hearing of this case, which
has been such a burden upon her, but she says:
“Let justice be done, though the skies fall.” A
Speedy hearing and a speedy decision of this case
will enable her to do her duty and fulfill her trust
while it is yet day for her. For, if it is true that her
husband died indebted to the Government in this
enormous sum, she will have the opportunity of
doing full justice to him while she yet lives, and
will Jet it be known that in death as in life he is
faithful to the Government under which he lived;
that every obligation will be discharged and every
dollar of debt paid, no matter what becomes of the
Inoble purposes that she has in view.
And if, on the other hand, it shall be decided that
there is no such debt existing, she will discharge her
trust in the other form and accomplish the great
objects which he and she have long ago Conceived
and promoted. -
She wants no favor. She does, however, insist
upon fair play, and I am not quite sure that the
learned counsel for the Government has done full
justice to her in that regard. -
Your Honors observe the enormous bulk of this
record, which, upon a general demurrer to a bill
filed, would hardly seem to have been requisite. The
bulk of it is made up in this way: It was necessary
for the Government, or it was supposed to be neces-
3
Sary for the Government to allege in the complaint
that before commencing suit it had made claim
upon the executrix of Mr. Stanford, and so the
allegation is made by the bill—I will not read
it now; your Honors will refer to it—that the
Government made its claim, which is printed
as Document 6, I believe, annexed to the bill.
When the claim was presented, it seems that there
were appended to it upwards of a thousand pages of
a Congressional report, in which were contained the
depositions of a large number of witnesses, includ-
ing Mr. Stanford, and a very large number of docu-
ments. -
If that mode of alleging that the Government
made a claim brings as allegations of fact into the
bill everything that is set forth in that voluminous
Congressional report, it is a mode of pleading that I
have never before been familiar with. Certainly
neither all nor any of the statements made in that
report are alleged in the bill. I will do the Govern-
ment the justice to say that until they got into this
last arena of litigation they never made any such use
of it. Now, they bring it forward as if its state-
ments were alleged in the bill, and for what purpose?
To show two very important things, as they say,
namely, that the Pacific Railroad Act of 1862,
instead of being, as everybody supposed before,
the work of Congress after very great delibera.
tion, after discussion lasting for months and months,
and adjustment of details and terms which can only
be done in committees of Congress, was the work of
Mr. Stanford’s hands.
That is a very unjust suggestion and a very unjust
mode of bringing it before this Court; but as it has
been done, I must attend to it for a moment. This
is what Mr. Stanford himself testified:
“We drafted the bill in our office, which,
I think, became the foundation of the act
of Congress. Mr. Judah and Mr. Bailey
went to Washington to look after it. Mr.
Judah went before the railroad commissions
4
and the committees of Congress, and had his
maps with him to explain everything. He
did a great deal toward the passage of that bill,
because he understood the subject better than
any other man at that time.” (Rec., p. 42.)
Out of that is created the suggestion, for the pur-
pose of prescribing a rule of interpretation as be-
tween the Government and the citizen, that Leland
Stanford was the author of the bill.
Again, by what I must call a misuse of the docu-
ments appended in that Way to the bill, this is
brought into the argument of my learned friend. He
says that when Mr. Stanford was examined before
Some Congressional committee, which, I think, was
as late as 1880——
Mr. DICKINSON: 1878.
Mr. CHOATE: 1878, he testified that—
- “One of the principal things which oper-
ated against Our procuring Stock Subscriptions
was the fact of the existence of a personal
liability which attached to stock under the
laws of this State (p. 494). I think it is a
very unfortunate provision of our laws. It
has often hindered investments of capital, and
we found that to be the greatest difficulty in
obtaining capital in aid of our road” (p. 602).
The pages of the record are given where your
Honors will find that statement, and if you will look
at it you will find that Mr. Stanford there was speak-
ing not of the relations or indebtedness or whatever
you please to call it, of the Pacific Railroad Com-
panies to the Government in respect to these subsidy
bonds, nor of any time in which any question arises
in respect to those bonds or that indebtedness, but
of a time much later, in the years 1867 and 1868,
when these gentlemen who had received these
Subsidy bonds were trying also by procuring sub-
Scriptions to the stock to do—what? To pay the ex-
penses or a part of the expenses of building the road,
whereby general indebtedness, current liabilities
5
would be incurred at a period four or five years after
the passage of the California act of 1863, which my
learned friend seems almost to concede, and which
we claim, to be the specific time when a personal
liability of stockholders was first created by the laws
of California. º •
I am sorry to have had to take up even five
minutes of my precious time (because this will be a
dreary road and long on which I shall have to ask
your Honors to follow), in answering such sug-
gestions as these, which ought not to have been
made, and which I protest against and resent, as
not properly brought into this case, and not founded
on any of the allegations of the bill. They might as
well have brought in the Congressional Record for
the years 1862–63 and stated that that was all alleged
in the bill.
If the Court please, this is a very serious case, not
only for the Government, but especially for this de-
fendant. I did not suppose, however, that its pre-
sentation would require of the appellant such an up-
heaval of the settled law, as has been attempted here.
Not only does my friend spurn with light and fan-
tastic foot the opinions of the Circuit Judges in the
original Court and in the Circuit Court of Appeals,
which he pronounces in his brief, more emphatically
than he has in his argument, to be pure nonsense, but
he has also to dispute your own authority and claim
that repeated decisions of this Court must be over-
1uled, on the very subject of the relation of these com-
panies to the United States and of the Government to
them; and also that two leading decisions of the Su-
preme Court of California should be treated as
naught, one made in 1864 on that peculiar subject com-
mitted to its charge, the construction of the Constitu-
tion of that State; the other made at a much later
period, it is true, but three times repeated by that
Court, in respect to the nature of the obligation in
curred by a stockholder when he makes a contract, or
when the company contracts and there is a liability
imputed to him by the statute,
Ö
It must be hard to present such a case, when I tell
your Honors that the vital question here that goes
to the root of the matter is this: The Govern-
ment, as the counsel for the appellant concedes,
agreed with a series of companies to treat them all
alike—there were more than two; there were half a
dozen—to treat them all alike in and about this
business of the building of the Pacific road, which
was to be done at the request and solicitation of the
Government, for its benefit primarily and only inci-
dentally for theirs. It agreed that they should enjoy
the same terms and conditions; and not only that
they should enjoy the same terms and conditions,
but that they should also enjoy the same rights,
privileges and benefits in everything growing out
of the business. In such a case he has got to
establish that, whereas, as to all the companies but
One, the Government reserved to itself certain in-
demnity without any stockholders' liability; as to
that other, which was to be treated in all respects
like the rest, on the same terms and conditions,
and to enjoy the same rights, benefits and privileges,
that in respect to that one Company the Govern-
ment reserved also a stockholders' liability——a per-
fectly good liability, too—of $60,000,0000, to which
the others were in no respect subject.
So that it is a very difficult road for my friend to
travel, to establish that point against the decisions of
this Court and of every Court. I do not complain of
the zeal of the representatives of the Government.
They ought to be as zealous as they can be, and pre-
sent the case as strongly as it can possibly be pre-
sented. I sympathize with the hardships and diffi-
culties that lie in their path.
One word, if the Court please, as to the rule of
interpretation of these contracts, the statutes be-
tween the Government and this Central Pacific Rail-
road Company.
I see that my learned friend makes in several of
the first pages of his brief an appeal to the rule that
has been applied by this Court, by all Courts, to the
7
proper interpretation of grants conferred by the
SOvereign upon the subject. Your Honors know the
Vast variety of expressions that are used to express
the strictness of construction which is applied to
grants by the sovereign to the subject, whether it be
of property, of franchise, or of rights. He invokes
the aid of all those decisions and of that practice.
It is the first time that I ever heard that that
rule of interpretation which my friend invokes
applied, in the first place, to a government
bound by contract containing mutual agree-
ments and mutual considerations, SO as to put
it upon a better plane in respect to the construc-
tion and to fair dealing under that contract than
the other party thereto; but I shall also be able to
show your Honors in this case that the question at
least has been passed upon, and, I think, Over and
over again, by this Court, and that this was not the
case of a government conferring benefits or con-
ferring franchises for the benefit of the grantees,
but of a Government which was rallying to its
assistance and soliciting, in the deadly peril into
which it had come, the aid of these very defendants
whom I represent here. That rule of interpretation,
as applied to this contract, has been rejected by this
Court heretofore, and I think it will be now.
As it seems to me that very many of the questions
which are involved and necessarily lie at the founda-
tion of the decision of this case have already been
passed upon by the Court, I shall ask your attention
very methodically to the line laid out in my brief:
First. To what—not going through it all in detail
—Congress has intended in respect to these com-
panies and this company—the Central Pacific.
Second. How the declared intent of Congress has
been construed by this Court; and we ask Your
Honors to give us the benefit of your own decisions
and of nothing more, and then to see what results
from that in respect to the alleged liability of this
defendant's testator. -
I beg leave to read my first point. My learned
8
friend, I think, has not touched the subject. I sup-
pose it has been reserved for his associate, from
whom I have received another voluminous brief too
late to read it before the argument.
My proposition is that:
“The successive acts of Congress relating to the
Union and Central Pacific railroads, being in pari
materia, are to be read together, and, so read, they
demonstrate that CONGRESS INTENDED THEM TO COVER,
CONTROL AND REGULATE THE ENTIRE RELATIONS OF
THE GOVERNMENT TO ALL OF THE COMPANIES WITH
RESPECT TO THE SUBSIDY BONDS WITHOUT REFERENCE
To THE LAWS OF ANY STATE; that the companies were
respectively created and adopted as governmental
Žnstruments for a great mational purpose, in the
accomplishment of which they were to be subject to
the eacclusive control ’’—
That is very important—
‘‘ of the Federal Government; that IN RESPECT TO
THAT PURPOSE THE FUNCTIONS, OBLIGATIONS, AND
LIABILITIES OF ALL THE COMPANIES WERE TO BE EQUAL
AND IDENTICAL, and that as to both companies the
Government looked to the companies alone for the
performance of all that the acts imposed and DID NOT
CONTEMPLATE, RELY UPON, OR INTEND THE PERSONAL
LIABILITY OF THE STOCKHOLDERS OF EITHER, BUT, ON
THE CONTRARY, DID INTEND THAT IN RESPECT TO THE
SUBSIUY BONDS THERE SHOULD BE NO LIABILITY OF THE
STOCKHOLDERS OF EITHER COMPANY TO THE GOVERN-
MENT.”
It is not out of place, especially in view of what
has been said here about the origin of this act, to
look a little into the history of the matter as it has
been unfolded in the decisions of this Court.
Instead of there being a number of greedy adven-
turers, as my learned friend suggests in his brief
and in argument, proposing to the Government the
idea of building a road from the Missouri river to
9
the Pacific Ocean, out of which they might reap
profits, it appears that from the time of the admis-
sion of California it had been the constant demand
of the people of that State that the Government
should come to their rescue; that it should unite
them in fact, as they were united in law, to the rest
of the people of the United States. Appeals were
made not only by the people, but by the legislature
of California, in repeated resolutions, which are
referred to in the decisions of this Court and again
in my brief; complaints were made by the State of
California that Congress failed to listen to their ap-
peals; and by and by the civil war came.
Then the Government saw what California.
had foreshadowed in its entreaties and its
resolutions, namely, that the building as
quickly as it could possibly be done of a road that
should bind the Pacific to the Atlantic coast was an
absolute national necessity. The reasons are given
for it by this Court in repeated decisions. I need
not dwell upon them here. It was an absolute ne-
cessity of the Government, to save that portion of the
country, to save the Union of the East and the West,
and in fact to enable it to overcome the Confederacy,
which had its grip upon the throat of the nation.
It was not private enterprise. It was only for na-
tional purposes, for the public welfare, primarily
and substantially, as this Court has over and over
again held.
Suggested by Mr. Stanford and his associates! On
the contrary, I have been told since I came into the
court-room this morning that in the National Con-
ventions of both the great parties of the country in
1860, the immediate building of the Pacific railroad
was demanded as a national necessity.
Those necessities culminated in the act of 1862;
and here, in respect to the act of July 1, 1862, let me
remind your Honors that we both agree on this-—it
is a critical point in respect to several of the ques-
tions that arise here—that the act of 1862 is the con-
tract which finally determines the rights of these
10
parties, that it is the act of 1862 which covers the
matter of the issue of these subsidy bonds. It has
been pretended in courts below that it might be
treated like the case of a loan of bonds in 1864, 1865,
and so on to 1869, uncontrolled by a previous con-
tract, in which case it might have been claimed that
the Ordinary obligation of mere borrower and lender
would have been implied; but we agree here upon
this argument that the whole matter is concluded by
the contract or the statute of July 1, 1862.
It is conceded by the bill that at that time the Cen-
tral Pacific Railroad Company was only existing on
paper. It had filed its articles of incorporation and
had got, as this Court has said (99 U. S., 728), ‘‘the
franchise of being a corporation, and such others
as were merely incident to the organization of the
company,” and it had nothing else, for the direct
allegation of the bill is that the company had done
nothing towards the construction of this railroad
prior to the passage of the act of 1862.
The details of the act of 1862 will come up for dis-
cussion as I proceed with the argument, but I have
followed the plan of inserting in my brief all those
portions that seem to me to be material, so that your
Honors in examining the case may have one docu-
ment before you, which contains all the extracts
from the statutes and all the extracts from the de-
cisions of this Court which bear upon the subject,
introductory to the discussion of this single question
which now remains for solution, whether the stock-
holders of the Central Pacific are under a personal
liability for the subsidy bonds.
The act shows upon its face that it was for national
purposes and the public benefit, and not for private
ends. The road was to be built to Secure the safe
and speedy transportation of the mails, troops, mu-
nitions of war and public stores thereon. The first
section of the act provides that the road should be
built upon the route and terms hereinafter provided,
and provision is made for the terms on which the
bonds were to be issued in the fifth and sixth sec-
ji
tions of the act, which appear on pages 12 and 13 of
'my brief. The only thing that is said about the re-
payment of the bonds to the United States is in the
fifth section, that “to secure the repayment to the
United States, as hereinafter provided, of the amount
of bonds so issued and delivered to the company,”
which were to be issued to cover each forty miles
When actually completed, it gives to the Government
an actual lien upon all that should so be built by
means of these bonds, with the right of the company
to redeem. There is an express provision that only
that part of the road which was built by the bonds
should be subject to the demands of the Government.
That is what was obviously intended, for it is “pro-
vided that this section shall not apply to that part of
any road now constructed.”
It was held in subsequent cases that all this matter
of contract lien applied only to the subsidized portion
of the road—that is, the road built by means of the
subsidy. s
It reads in the fifth section, as your Honors will
See, to Secure the repayment to the United States,
‘‘ as hereinafter provided,” and “hereinafter pro-
vided " refers to the sixth section, as well as to the
remainder of the fifth section to which I have re-
ferred.
Then came the sixth section, namely, that the
grants aforesaid, including the bonds, are made
upon conditions which are there fully set forth, and
there are certain modes of repayment specified and
limited, as I should say upon reading this section,
but specified and unlimited, as it turned out; for
this must be read in the light of the decision upon
the Thurman act. Among the conditions, besides
keeping the road in repair, transmitting dispatches,
keeping the road always at the service of the Gov-
ernment, and the rest, there was the provision that
‘‘ all compensation for services rendered for the
Government shall be applied to the payment of said
bonds and interest until the whole amount is fully
paid.” It was further provided that after the road
12
is completed—all this is under the head of these
same conditions—“ until said bonds and interest are
paid at least five per centum of the net earnings of
said road shall also be annually applied to the pay-
ment thereof.” (Sec. 6.) -
As this was afterwards construed—and I suppose
a decision of this Court that has stood for the last 18
years without exception or question is to be accepted
as the true construction of the law—this is to be
read, “at least five per centum of the net earnings
of said road shall also be annually applied to the
- payment of the debt, or as much more as the Gov-
ernment shall at any time desire to take.”
So that it is not, as your Honors will see by
and by, when I reach that point, such an out-
rageous violation of common sense to claim that it
was the real purpose of this act that there should be
no repayment of these bonds by the company as a
personal obligation, except in the manner “herein-
after provided ?–that is, by the Government taking
at any time all the earnings of the road until all
was paid, and by the reservation of what should be
due to the Company for services to the Government.
There was another corporation, called the Leaven-
worth, Pawnee & Western Railroad Company, of
Ransas. The scheme being to build a road from the
100th meridian of longitude to the Pacific Ocean,
this Leavenworth, Pawnee & Western Railroad
Company of Kansas was to construct a railroad
through a portion of the territory east of that line—
“ Upon the same terms and conditions ºn all
Tespects as are provided in this act for the
construction of the railroad and telegraph
line first mentioned, and to meet and connect
with the same at the meridian of longitude
aforesaid.” (Sec. 9.)
Then in reference to the Central Pacific. Here
was the first reference to the Central Pacific in the
act of 1862:
'13
“The Central Pacific Railroad Company of
California, a corporation existing under the
laws of the State of California, ’’—
That is the only way it has ever been referred to
in these acts—
“are hereby authorized to construct a rail-
road and telegraph line from the Pacific coast
Clt or near San Francisco '-
The Government did not stop at the boundary of
the State, but, it being a national affair and it being
a mail and military route to be constructed by and
for the Government, it authorized the Central Pa-
cific to construct a railroad and telegraph line from
the Pacific coast at or near San Francisco—
“or the navigable waters of the Sacramento
river to the eastern boundary of California
Qupon the same terms and conditions in all re-
spects as are contained in this act for the
construction of said railroad and telegraph
line first mentioned,”—
which was the Union Pacific. (Sec. 9.)
The companies were to file their acceptance of this
act, or, as it was afterwards stated by the allega-
tions of the bill, their acceptance of the conditions of
the act, within six months, which this company did.
There are further provisions in section 10 which
bear very potently upon the questions before the
Court. It was provided that whatever any one of
these companies did not do, the other might:
“And after completing their roads respect-
ºvely Said companies, or either of them, may
wnite upon equal terms with the first named
Company in constructing So much of said rail-
Toad and telegraph line and branch railroads
and telegraph limes, in this act hereinafter
mentioned, through the Territories from the
State of California to the Missouri river, as
Shall then remain to be construcled, on the
Same terms and conditions as provided in this
act in relation to the Said Union Pacific Rail-
Toad Company.”
14
Then follows the provision about the Hannibal
and St. Joseph railroad:
“And the Hannibal and St. Joseph rail-
road, the Pacific Railroad Company of Mis-
Souri, and the first named company, or either
of them, on filing their assent to this act as
aforesaid "-
are also authorized to construct certain branch rail-
roads upon the same terms and conditions (Sec. 10)
and to show that it was all one enterprise, so that
nobody might ever question that these companies
were identical so far as this road and the business
done under these acts went, it was expressly en-
acted:
“The whole line of said railroad and
branches and telegraph shall be operated and
used for all purposes of communication,
travel, and transportation, so far as the public
and Government are concerned, as One con-
nected, continuous line.” (Sec. 12).
Then, if either road failed to finish within the
the time allowed, the Government could step in,
take possession of the whole, finish it to suit itself,
and charge it to the company. (Sec. 17.)
Then there was a provision that shows how this
Government proposed to treat these companies alike;
that if any one of these companies failed to fulfil
their part within a certain time fixed, what then
should happen? That it should forfeit all it had?
INo; but that they should all forfeit everything for
the fault or defect of any one. This is a condition
which was never imposed by any money-lender upon
a borrower before.
‘‘ Provided, that if said roads are not com-
pleted, so as to form a continuous line of rail-
road, ready for use, from the Missouri river
to the navigable waters of the Sacramento
river, in California, by the first day of July,
1876, the whole of all of said railroads before
"mentioned and to be constructed under the
provisions of this act, together with all their
15
furniture, fiactures, rolling Stock, machine
shops, lands, tenements, and hereditaments,
and properly of every kind and character,
shall be forfeited to and taken possession of
by the United States.” (Sec. 17.)
That shows how the Government considered them.
The act concludes with a declaration of the Gov-
ernment's purpose.
... And the better to accomplish the object
of this act, namely, to promote the public in-
terest and welfare by the construction of said
Tailroad and telegraph line and keeping the
same in working order, and to Secure to the
Government at all times (but parlicularly in
time of war) the use and benefits of the same
for postal, military and other purposes, Con-
gress may at any time, having due regard for
the rights of said companies named herein,
add to, alter, amend, or repeal this act.”
(Sec. 18.)
The act of 1862, although it does form the sole
contract of these parties, proved a dead failure. It
was prophesied in the discussions in Congress, before
it was enacted, that it was an in possibility to con-
struct this road, and two years seemed to demon-
strate the truth of those forebodings. About two
years afterwards, in 1864, Congress made great con-
cessions to the company. It allowed a first lien of
an equal amount to be put before the lien of the
Government. It doubled the land grant. It limited
the amount of the compensation for Government
Service that should be reserved against the inteerst
to one-half. It remitted that awful penalty that
for the failure of one all should forfeit.
Mr. Justice HARLAN: Has that section been con-
Strued—the Words you have just used, “for failure
thereof,” &c.—has it been construed before in any
Case? - r
Mr. CHOATE: No, I think not by any Court; but
Congress construed it very clearly by the clause of
the subsequent act which abolished it: .
16
“And the failure of any one company to
comply fully with the conditions and require-
ments of this act and the act of which this is
amendatory shall not work, a forfeiture of the
rights, privileges, or franchises of any other
company or companies that shall comply
with the same.” (Act of 1864, sec. 7.)
That is the seventh section of the act of 1864.
Therl the act of 1864 provided further about the
Central Pacific Company that they might consoli-
date with any of the other companies, because they
are One of the companies authorized to participate
in the benefits of this act and are authorized at any
time to unite and consolidate with the Union
Pacific.
“And thereupon such organization. So
formed and consolidated shall succeed to, pos-
Sess, and be entitled to receive from the Gov-
ernment of the United States all and sungular
the grants, benefits, immunities, guarantees,
acts and things to be dome and performed and
be subject to the same terms, conditions, re-
strictions, and requirements which said com-
panies respectively at the time of such conso-
lidation are or may be entitled or subject to
wnder this act.” (Sec. 16.)
Then specifically as to the Central Pacific—
“It is further provided that should the Cen-
tral Pacific Railroad Company of California
complete their line to the eastern line of the
State of California before the line of the Union
Pacific Railroad Company shall have been ex-
tended Westward so as to meet the line of said
first-named company, said first-named com-
pany may extend their line of road eastward
one hundred and fifty miles,”
To Ogden, which they did; and upon doing SO–
“Shall enjoy all the rights, privileges, and
benefits conferred by this act on said Union
Pacific Railroad Company.” (Sec. 16.)
17
There were certain subsequent acts passed bearing
very closely upon the question before us, as I think.
For instance, the act of 1866 authorized the Central
Pacific Railroad Company of California to continue
their road eastward in a continuous, completed line
wntil they should meet and connect with the Union
Pacific. It would have been perfectly within the
franchise granted by these acts, for the Central
Pacific to have built the entire road, just as it would
have been perfectly competent for the Union Pacific
to have built it, in case of the failure of the Central
Pacific,
Various subsequent acts are set forth in my brief
bearing upon the question involved; among othels
in the act of 1869 the Attorney-General of the United
States was authorized and directed by joint resolu-
tion—
“to investigate whether or not the charter and
all the franchises of the Union Pacific railroad
and of the Central Pacific Railroad Company
have not been forfeited and to institute all nec-
essary and proper legal proceedings.”
Then came the Thurman act, with the provisions
of which, no doubt, the Court is familiar; at any
rate, they are all set forth in my brief.
After providing by section 4 that the Central
Pacific Railroad Company and the Union Pacific
|Railroad Company should increase the sinking-fund
by certain payments and credits, section 11 provides
that if either of the companies shall fail to perform
all the requirements of the acts— A.
“ and of any other act relating to said com-
pany to be by it performed for a period of six
months next after such performance may be
due, such failure shall operate as a forfeiture
of all the rights, privileges, grants, and fran-
chises derived or obtained by it from the
United States.” .
I find that time will not permit me to dwell any
longer upon the statutes They were all with one
j8
purpose—to treat all these companies alike, to en-
able them to do the work and receive the bonds on
the same terms and conditions and with the same
rights, benefits and privileges.
I shall also have to pass over hastily, in conse-
quence of the flight of time, the decisions of this
Court upon the subject bearing upon this contro-
versy now before us. They began with the decision
in the case of United States v. Union Pacific Rail-
road Company, in 91 U. S., where Mr. Justice
DAVIS laid down, as I understand it, in the name
and on behalf of the unanimous Court, the propo-
sition that this act was not subject to the Ordinary
rules of construction, but was to be construed as a
great act of sovereignty for the business and ob-
jects of the Government directly in the accomplish-
ment of a great national purpose, which the nation
itself was wholly unable to accomplish without
Soliciting, urging, entreating every citizen who had
money to come to its aid.
“Many of the provisions in the original act
of 1862 are outside of the usual course of
legislative action concerning grants to rail-
roads, and cannot be properly construed with-
out reference to the circumstances which
existed when it was passed. The war of the
rebellion was in progress, and, owing to com-
plications with England, the country had be-
come alarmed for the safety of our Pacific
possessions. The loss of them was feared in
case those complications should result in an
open rupture; but even if this fear were
groundless, it was quite apparent that we
were unable to furnish that degree of protec-
tion to the people occupying them which
every government owes to its citizens. It
is true the threatened danger was happily
averted; but wisdom pointed out the neces-
sity of making suitable provision for the
future. This could be dome in no better way
than by the construction of a railroad
across the continent. Such a road would
bind together the widely separated parts of
our common country, and furnish a cheap and
19
eapeditious mode for the transportation of
troops and supplies. If it did nothing more
than afford the required protection to the Pa-
cific States, it was felt that the Government,
Žn the performance of an imperative duty,
could not justly withhold the did necessary to
build it; and so strong and pervading was
this Opinion that it is by no means certain
that the people would not have justified Con-
gress ºf it had departed from the then settled
policy of the country regarding works of in-
termal improvement, and charged the Govern-
nvent itself with the direct eacecution of the
enterprise. This enterprise was viewed as a
national undertaking for national purposes,
and the public mind was directed to the end
Žn view rather than to the particular means
of Securing it. Although this road was a
Tmºlitary necessity, there were other reasons
active at the time in producing an opinion
for its completion besides the protection of an
eacposed frontier. There was a vast un-
peopled territory lying between the Missouri
and Sacram into rivers which was practically
worthless without the facilities afforded by a
railroad for the transportation of persons
&nd property. With its construction the
agricultural and mineral resources of this
territory could be developed, settlements made
where settlements were possible, and thereby
the wealth and power of the United States
largely increased; and there was also the
preSSºng want in time of peace even of an
Żmproved and cheaper method for the trans-
portation of the mails and of supplies for the
Cirmy Cund the Indians.
“It was in the presence of these facts that
Congress undertook to deal with the subject
of this railroad. The difficulties in the way
of building it were great, and by many intel-
ligent persons considered insurmountable.”
-X- -Y- *
He thus sets forth the historical situation and
then says: *
“Congress began with reference to the
State of things believed at that time to exist,
and in interpreting its legislation no aid can
20
be derived from subsequent events. * * *
It was a national work, originating in na-
tional necessities and requiring national as-
sistance.”
The Suggestion has been made that these conces-
sions were for private benefit. He says they were
not so:
“The primary object of the Government
was to advance its own interests, and it en-
deavored to engage individual co-operation as
a means to an end, the securing a road which
could be used for its own purposes. The ob-
ligations, therefore, which were imposed on
the company incorporated to build it must
depend on the true meaning of the enactment
itself, viewed in the light of contemporaneous
history.” -
Further, the opinion continues:
“In addition to all that has been said, there
is enough in the scheme of the act and in the
purposes contemplated by it to show that
Congress never intended to impose on the cor-
poration the obligation to pay current inter-
est. The act, as has been stated, was passed
Žn the midst of war, when the means for ma-
tional defense were deemed inadequate, and
the public mind was alive to the necessity of
uniting by iron bands the destiny of the
Pacific and Atlantic States. Confessedly the
undertaking was beyond the ability of un-
aided private capital. Only by the helping
hand of Congress could the problem, difficult
of solution under the most favorable circum-
stances, be worked out * * * (p. 88).
“But, vast as was the work, limited as
were the private resources to build it, the
growing wants, as well as the existing and
future military necessities of the country, de-
manded that it be completed. Under the
stimulus of these considerations, Congress
acted, not for the benefit of private persons,
mor in their interest, but for an object deemed
essential to the security as well as to the pros-
perity of the mation. * * *
21
“Of necessity there were risks to be taken
in aiding with money or bonds an enterprise
unparalleled in the history of any free people,
the completion of which, if practicable at all,
would require, as was supposed, twelve years;
but these risks were common to both par-
ties. Congress was obliged to assume its
share and advance the bonds or abandon the
enterprise; for, clearly, the grant of lands,
however valuable after the road was finished,
could not be available as a resource for build-
ing it.
“If the road were a success, in addition to
the benefits it would confer on the United
States, the corporation would be in a situa-
tion to repay the advances for interest and the
principal when date. If, on the contrary, it
proved to be a failure, subjecting the private
persons who invested their capital in it to a
total loss, there would be left the entire prop-
erty of the corporation, of which immediate
possession could be taken by the Government
on a declaration of forfeiture.
“The circumstances under which the act
of 1862 was passed, the purposes to be accom-
plished by it, and its scope and effect are in-
consistent with the position assumed by the
appellant.
“Notwithstanding the favorable terms pro-
posed by Congress, the enterprise languished.
The effect of this was the amendatory act of
1864 ° (p. 89).
In the case of United States v. Union Pacific Rail-
Toad Co., 98 U. S., 569, the Court says, by Mr. Jus-
tice MILLER:
“The Government sustains two distinct
relations to the railroad company, and, in
considering her rights under this statute, it is
important to keep them separate. The com-
pany is organized under, and Owes its cor-
porate existence to, an act of Congress. The
Government has all the rights which belong to
any other Government as a Sovereign and leg-
Žslative power over this creation of that
power. That this power should not be too
much crippled by the doctrine that a charter
22
is a contract, the 18th section declares that
Congress may at any time, having due regard
for the rights of the companies named
therein, add to, alter, amend or repeal the act.
The power of Congress, therefore, in its sov-
ereign and legislative capacity over this cor-
poration is very great (p. 613).
“The liberal manner in which the Govern-
ment has aided this company in money and
lands is much urged upon us as a reason why
the rights of the United States should be
liberally construed. This matter is fully con-
sidered in the opinion of the Court already
stated in United States v. Union Pacific Rail-
Toad Company (91 U. S., 72), in which it is
shown that it was a wise liberality, for the
Government has received all the advantages
for which it is bargained, and more than it
expected. In the feeble infancy of this child
of its creation, when its life and usefulness
were very uncertain, the Government, fully
alive to its importance, did all that it could to
strengthen, support, and sustain it. * * *
“It must, however, be admitted that it has
fulfilled the purpose of its creation, has real-
Žzed the hopes which were then cherished, and
that the Government has found it a useful
agent, enabling it to save vast sums of money
Žn the transportation of troops, mails and
Supplies, and in the use of the telegraph *
(p. 620).
In United States v. Central Pacific Railroad Com-
pany (99 U. S., 449) there had now come before this
Court for the first time, individually and distinctly,
as distinguished from the Union Pacific, the case of
the Central Pacific. Mr. Justice BRADLEY, in de-
livering the opinion of the Court, spoke of the par-
ticular relation of the Central Pacific to the Govern.
ment. He narrated how it came into existence,
substantially as set forth in the bill in this case, by
the consolidation of the two California companies,
and how it succeeded to all the rights and duties
under the acts of Congress which apply or pertain
to the two original companies. He then said:
23
“The case in all material respects involves
the same questions which have just been dis-
posed of in the case of the Union Pacific Rail-
Toad Company v. United States. The same
subsidies were granted to the connpanies in
this case, and on the same terms and condi-
tions as in that of the Union Pacific Railroad
Company, the same acts of Congress in the
Tndºn applying to both.” -
After reviewing the history of the progress of the
work on the two roads, as set forth in the findings,
he continued:
“It thus appears that the work of the
Central Pacific roads went on pari passu
with the Union Pacific, and on the same terms
and conditions; and that the roads were com-
pleted, the subsidy bonds received, and the
collateral securities for the ultimate supply of
deficiencies given up at the same time in each
case” (p. 454). -
I cannot dwell on the cases, but I wish to call the
particular attention of the Court to the Sinking-
Fund Cases, 99 U. S., 700, which immediately fol-
lowed, arising out of the Thurman act, and to the
grounds upon which the exercise of the authority of
the Government in that case was justified.
By this decision the Government, conceding that
it could not chainge the contract under the provision
for altering and amending, nevertheless did exercise
the power, in which this Court upheld it, of seques-
trating the revenues of the road, instead of 5, 25 per
cent. ; and it might just as well have done it to 50
or 75 or 99 per cent., to provide for the ultimate
payment of the bonds “as hereinafter provided '' in
the Original act.
| Such a conclusion, it is believed, could never have
been reached on any ordinary principles of construc-
tion applied to the reservation clause. Moreover---
what is especially to the point of the proposition we
are now Seeking to maintain——the Court construed
the act as if there were no substantial difference in
24
these matters between the relations of the Central
Pacific with the Government and those which existed
between it and the Union Pacific, and maintained
that the accident of the Central Pacific having
been, at the time of the passage of the act of 1862, a
mere skeleton of a corporation, organized by the filing
of articles under a general act of California, did not
differentiate it from the Union Pacific, the immediate
creature of the Federal Government,
In its opinion, the Court said:
“The precise point to be determined now is
whether a statute which requires a company
in the management of its affairs to set aside
a portion of its current income as a sinking-
fund to meet these and other mortgage debts
when they mature deprives the company of
its property without due process of law, or
in any other way improperly interferes with
vested rights.
“This corporation is a creature of the
United States. It is a private corporation,
created for public purposes, and its property
is to a large eastent devoted to public uses. It
7s, therefore, subject to legislative control, so
far as its business affects the public interests”
(p. 719).
The Court laid great emphasis upon the State-
ment, in the body of the act, of its public purposes,
and proceeded:
“Giving full effect to the principles which
have thus been authoritatively stated, we
think it safe to say that whatever rules Con-
gress might have prescribed in the original
charter for the government of the corporation
in the administration of its affairs, it retained
the power to establish by amendment. In so
doing it cannot undo what has already been
done, and it cannot unmake contracts that
have already been made, but it may provide
for what shall be done in the future, and may
direct what preparation shall be made for the
due performance of contracts already entered
into * * * (p. 721).
25
“Great undertakings like this, whose future
is at the time uncertain, requiring as they do
large amounts of money to carry them on,
seem to make it necessary that extraordinary
inducements should be held out to capitalists
to enter upon them, since a failure is almost
Sure to involve those who make the venture
in financial ruin " " * (p. 723).
“The United States occupy towards this
Corporation a twofold relation, that of a sov-
ereign and that of creditor. Their rights as
Sovereign are not crippled because they are
creditors, and their privileges as creditors are
not enlarged by the charter because of their
Sovereignty. They cannot, as creditors, de-
mand payment of what is due them before
the time limited by the contract. Neither
can they, as sovereign or creditors, require
the company to pay the other debts it owes
before they mature. But, out of regard to the
rights of the subsequent lienholders and stock-
holders, it is not only their right but their
duty as sovereign to see to it that the current
stockholders do not, in the administration of
the affairs of the corporation, appropriate to
their own use that which in equity belongs to
Others. A legislative regulation which does
no more than require them to submit to their
just contribution towards the payment of a
bonded debt cannot in any sense be said to
deprive them of their property without due
process of law (p. 724).
“The only material difference between the
Central Pacific Company and the Union Pa-
cific lies in the fact that, in the case of the
Central Pacific, the special franchises, as well
as the land and subsidy bonds, were granted
by the United States to a corporation formed
and organized under the laws of California,
while, in that of the Union Pacific, Congress
created the corporation to which the grants
were made. The California corporation was
Organized under a State law, with an author-
ized capital of $8,500,000, to build a road from
the city of Sacremento to the eastern boun-
dary of the State, a distance of about a hun-
dred and fifteen miles. Under the operation
of its California charter it could only borrow
money to an amount not exceeding the capi-
26
tal stock, and must provide a sinking-fund
for the ultimate redemption of the bonds. No
power was granted to build any road outside
the State or in the State except between the
termini named. By the act of 1862 Congress
granted this corporation a right to build a
road from San Francisco, or the navigable
waters of the Sacramento river, to the eastern
boundary of the State and from there through
the Territories of the United States until it
met the road of the Union Pacific Company.
For this purpose all the rights, privileges and
franchises were given this company that were
granted the Union Pacific Company earcept
the franchise of being a corporation and such
others as were merely incident to the Organ?.
zation of the company. The land grants and
subsidy bonds to this company were the same
in character and quantity as those to the
Union Pacific, and the same 7 ight of amend-
ment was reserved. Each of the companies
was required to file in the Department of the
Interior its acceptance of the conditions im-
posed before it could become entitled to the
benefits conferred by the act (p. 727).
“In this way the corporation voluntarily
Submitted itself to such legislative control by
Congress as was reserved under the power of
amendment.
“No objection has ever been made by the
State to this action by Congress. On the Con-
trary, the State, by implication at least, has
given its assent to what was done, for in 1864
it passed ‘An act to aid in carrying out the
provisions of the Pacific railroad and tele-
graph act of Congress,’ and thereby confirmed
and vested in the company ‘all the rights,
privileges, franchises, power, and authority
conferred upon, granted to or vested in
Said company by said act of Congress,’ and
repealed ‘all laws or parts of laws inconsist-
ent or in conflict with the rights and privi-
leges therein granted.’ -
“Inasmuch as by the constitution of Cali-
fornia then in force, corporations, except for
municipal purposes, could not be created by
Special act, but must be formed under general
laws, the legal effect of this act is probably
little more than a legislative recognition by the
27
State of what had been done by the United
States with one of the State corporations °
(p. 728).
The opinion of the Court continued:
“But for the corporate powers and financial
aid granted by Congress, it is not probable
that the road would have been built. The
first mortgage bonded debt was created with-
out a sinking-fund, and the road in the Terri-
tories built under the authority of Congress,
assented to and ratified by the State.
“The Western Pacific Company, now by
consolidation a part of the Central Pacific
Company, was also organized December 13,
1862, under the general railroad law of Cali-
fornia, with power to construct a road from a
point on the San Francisco and San José rail-
road at or near San José to Sacramento, and
there connect with the road of the Central
Pacific Company. Afterwards, the Central
Pacific Company assigned to this corporation
it rights under the act of Congress to con-
struct the road between San José and Sacra-
mento, and this assignment was ratified by
Congress, “with all the privileges and benefits
of the several acts of Congress relating thereto
and subject to all the conditions thereof.”
* * *
In that case, if the Court please, the meaning of
the decision is emphasized by the vigorous and in-
tense dissent which was expressed by the three
members of the Court who committed the matter of
the Central Pacific Railroad Company, and the bear.
ing of the act upon it, to the decision of Mr. Justice
FIELD. Mr. Justice FIELD made the argument to
his brethren which has been presented here substan-
tially, by the appellants, as to the Central Pacific
Company being a California company, subject only
to California laws, subject altogether to the liabili-
ties, duties and burdens which California should
impose upon it; and it is the inevitable conclusion
of the decision that his convictions, with those of
his two dissenting associates, who, I believe, agreed
28
with him in that, were overruled by this Court, and
that the contrary is the law of this Court to this
day. -
The CHIEF JUSTICE: You say it is not a California
corporation at all?
Mr. CHOATE: I do not claim that it is not a Cali-
fornia corporation at all. I claim that for the pur-
poses of these acts and with respect to these subsidy
bonds, it was adopted by the United States, subject
to its exclusive, sovereign and complete control. It
could not very well cease to be a California Corpora-
tion. It was treated always in these acts as having
got its original existence from the State of Cali-
fornia.
The CHIEF JUSTICE: It was taken over and became
a Federal corporation exclusively?
Mr. CHOATE: It was for all the purposes of these
acts; for all the scope of this business provided for
by these acts. -
I shall have merely to glance at the Subsequent
cases in which this matter has been treated. For
instance, in the Removal Cases, 115 U. S., 1, it was
declared:
“And the whole being, capacities, obliga-
tions and authority of the company thus con-
solidated are so based upon, permeated by,
and enveloped in the acts of Congress referred
to that it is impracticable, so far as the
operations and transactions of the company
are concerned, to disentangle those qualities
and capacities which have their source and
foundation in these acts from those which are
º from State on Territorial authority”
p. 16).
The subsequent case (California v. Pacific Rail-
road Co., 127 U. S., 1) went a great deal farther.
It was the case where an attempt was made by
California to tax the franchises conferred by the
Federal Government, under the head of franchises
generally, without distinction. When the case
came before this Court, your Honors reviewed all
29
the acts. The opinion showed what the relation
of the Central Pacific Company to the United
States was, and, referring to the act of Congress
of 1862, Mr. Justice BRADLEY proceeded:
“Thus, without referring to the other
franchises and privileges conferred upon this
company, the fundamental franchise was
given by the acts of 1862 and the subsequent
acts to construct a railroad from the Pacific
Ocean across the State of California and the
Federal Territories until it should meet the
Union Pacific, which it did meet at Ogden,
in the Territory of Utah. This important
grant, though in part collateral to, was inde-
pendent of that made to the company by the
State of California, and has ever since been
possessed and enjoyed. The present company
has it by transfer from a consolidation of the
Original companies, by which its existence
and capacities were constituted. Such con-
Solidation was authorized by the 16th section
of the act of Congress of July 1, 1862, and
the 16th section of the act of July 2, 1864,
taken in connection with the second section
of the act of March 3, 1865, referred to in the
findings of the Court. The last-named act
ratified the transfer by the Central Pacific to
the Western Pacific of a portion of its road,
extending from San José to Sacramento and
Conferred upon the latter company all the
privileges and benefits of the several acts of
Congress relating thereto and subject to all
the conditions thereof. If, therefore, the Cen-
tral Pacific Railroad Company is not a
Federal corporation, its most important fram-
chºses, including that of constructing a rail-
road from the Pacific Ocean to Ogden city,
were conferred upon it by Congress. * * *
“Assuming, then, that the Central Pacific
Railroad Company has received the important
franchises referred to by grant of the United
States, the question arises whether they are
legitimate subjects of taxation by the State.
They were granted to the company for national
purposes and to subserve national ends. It
Seems very clear that the State of California
can neither take them away nor destroy mor
30
abridge them nor cripple them by onerous
burdens. Can it tax them? It may undoubt-
edly tax outside, visible property of the com-
pany situated within the State. That is a
different thing; but franchises which are the
grant of the United States? In our judgment
it cannot ” (p. 40).
In view of this long series of decisions we come
to the determination of this question, whether
it was the intent of Congress upon a fair con-
struction of these acts that, while the Union
Pacific was to be actually free as to its stock-
holders from all personal liability, there should be
this liability for sixty millions imposed upon the
stockholders of the Central Pacific—a question that
almost answers itself, in the light of these decisions.
What we claim is, that the purpose of Congress
was to cover the whole ground of this great na-
tional enterprise that it had in hand, by its own acts.
It could have the aid of no State. It could have
the interference of no State. It could be aided by
no State laws, interfered with by no State laws;
but within the four corners, within the provisions, of
its own acts, it intended to cover the entire ground.
The obligation, upon the one hand, of duty upon the
part of the Government, and upon the other, of
duty upon the part of the companies, leaves nothing
to be supplemented, supplied or interfered with by
any action, any law, anything Originating from the
States, which were to have absolutely nothing to do
with the matter.
For this purpose the Government, out of its own
sovereignty created and conferred upon the Central
Pacific, finding it a mere naked skeleton of a cor-
porate-being created by California, all the fran-
chises and powers that were necessary for the ac-
complishment of all these duties and the earning of
these subsidy bonds.
But it selected it and adopted it for that work, not
to act as a California corporation, nor to use in that
work any franchise, power or function conferred
31
upon it by California. It took it merely as a legally
organized being, which it found in existence, capable
of legal action, just as for the same purpose it might
have selected an individual citizen, if one could have
been found powerful enough for the purpose—or for
that matter, as it might have chosen for the same
purpose any other corporation created by California,
and so an existing legal person, capable of legal
action, as for instance, a manufacturing or a mining
or a banking corporation, and the franchises,
powers and liabilities that were or might be im-
posed upon it by the laws of California were and
would be immaterial, as they were not to be used
by the nation in any way or to any extent.
The business in hand was the construction of a
great national highway for Government purposes,
from the Pacific Ocean to the Missouri—and for this,
out of its own sovereignty it created and conferred
upon the instruments selected by it all the fran-
chises, subsidies, grants, powers and duties which
it thought needful. These franchises this Court has
already found to be the “fundamental * franchises
of the company, and “independent of those con-
ferred upon it by the State of California,” and of
such a Federal nature that “California could neither
take them away, nor destroy, nor abridge them nor
cripple them by onerous burdens.” And in the
same way, necessarily, Congress prescribed the
“terms and conditions”, on which its creatures all
alike should receive, hold and use their franchises,
subsidies and grants, and measured and prescribed
the burdens and liabilities, and the only burdens and
liabilities under which they should enjoy them, and
in express terms prescribed the conditions which, as
between the United States and its chosen instru-
ments would apply to and govern the whole subject
of the repayment of the amounts of the subsidy
bonds. The legislation and the will of Congress as
to these subjects were in the very nature of the
case Sovereign, Supreme and exclusive. And any
liability or burden which we do not find imposed by
32
Congress is not imposed at all, and does not exist at
all.
Not one foot of the road was built nor a dollar of
subsidy received, nor any other single act or thing
done in and about the business by the Central
Pacific Company under any franchise conferred by
California, or under or in pursuance of any law of
California, but solely and exclusively by virtue of
the corporate franchises and powers created and
conferred upon the company by the United States,
and subject only to the obligations prescribed by
the Acts of Congress as applicable to the subjects
referred to therein. It did not receive the bonds as
a California corporation, but as the creature and in-
strument of the Federal Government, and whatever
obligations and liabilities it thereby incurred, could
be, must be and were only those which Congress
saw fit to impose, without regard to the will or law
of California, and as to that, if need be, in spite of
any action or law of that State. Certainly Cali-
fornia could not impinge upon, impair, Cripple
or burden any right, privilege or power which the
United States might or did see fit to reserve for
itself in its arrangements with the Central Pacific
in this Federal transaction; and for the same
reasons it could not by any act or law of its own im-
pose upon the company any burdens Or liability as
against or in respect to the United States, as terms
and conditions of their mutual dealings, or as terms
and conditions of the exercise of the power of the
Federal Government. -
There is a test which I have suggested may be ap-
plied here to see whether this was the real purpose
of Congress and this was the real effect of these
acts. Suppose, if the Court please, after Congress
had conferred these franchises, had adopted this as,
in its relation to the Government, a purely Federal
corporation, which no State could interfere with.
Suppose the State of California had taken umbrage,
as it might well have done, at the employment of
one of its own servants and creatures for this na-
33
tional work outside of its own boundaries, authoriz-
ing it to incur obligations which the law of California
forbade it to incur, authorizing it to issue bonds on
terms which the law of California forbade it to make
without a sinking fund, and that the State of Cali-
fornia had caused it to forfeit its charter by quo war.
ranto for those acts, as it might well have done,
would anything provided for by those acts of Con-
gress have been stayed, interfered with, prevented,
or in the least degree altered or varied? -
The CHIEF JUSTICE: That is the very reason of my
question. If that were done, what would be left,
So far as the fact that it be a corporation within the
State was concerned?
Mr. CHOATE: There would be the franchises that
had been conferred by Congress, as this Court has
repeatedly held, all that was sufficient for the pur-
poses of this national duty. -
The CHIEF JUSTICE: And they would be sufficient
to make the concern a Federal corporation? That is
what I wanted to get at.
Mr. CHOATE: In my judgment they would be.
What there would be left of it would certainly be a
Federal corporation. It is not at all impossible for a .
corporation to bear two aspects. *
We submit, therefore, as an unanswerable prop-
osition, that the laws of California have nothing to
do with the business; that we must look into the
acts of Congress and nowhere else for the terms and
conditions that govern it, and that no rights are
Created or exist in favor of the United States and no
burdens or liabilities rest upon the company or its
stockholders, in respect of or having relation to any
of the matters covered by or growing out of the
provisions of the acts of Congress, or any acts there-
under, except such as are there prescribed; and that,
as Congress did not there see fit to take to itself or
impose upon the Central Pacific, any more than upon
the Union Pacific, a personal liability of stockholdels
for the repayment of the subsidy bonds, no such
liability was created, and none such exists. As I
34
have said, the whole subject of the terms, conditions
and provisions applicable to the repayment of the
amount of the subsidy bonds is expressly covered by
the acts of Congress referred to, and these prov-
isions are final and exclusive so far as this subject is
concerned. -
The Court will observe there is no question involved
here but the question of the liability for these subsidy
bonds to the Governtnent. Any other question
about the liability of the stockholders of the Cali-
fornia corporation, with respect to other parties or
to matters outside the purview of these acts, has no
existence or bearing upon this case whatever, and
the question is upon the true and fair construction
of those acts. .
We start with a conceded factor which, as it seems
to me, determines all the rest, namely, that the
Union Pacific stockholders were not to be under any
liability whatever. Stockholders' liability is a pure
creature of statute. Congress constituted them a
Federal corporation, manifestly, unquestionably
without any personal liability. It was not necessary
to say a word on the subject.
What is the effect of the terms and the agreement
running all through the act in respect to everything
that was to be done and performed under it? That
the companies were to stand on an equal footing:
that they were to do all the work and receive all the
bonds upon the same terms and conditions and sub-
ject to the same rights, benefits and privileges.
Was the Government not in earnest, and did it not
carry a substantial meaning in the words to these
parties—these parties whom it was Soliciting by
every means in its power to come to its aid? Can
there be any question that the Government really
meant it to be a substantial equality, and that
there was to be no burden cast upon any one com-
pany which was not also cast by the same act upon
the Other?
So of these other companies, the Leavenworth,
Pawnee & Western Railroad and the other com-
35
panies mentioned in the act. Here were these
roads to run through a vast wilderness from the
Missouri river to the boundary of Nevada and
California, through a region thereafter to be
covered by new States—States whose laws as they
affected the corporations would necessarily or nat-
urally be very different—and all these other corpora-
tions with which they were treating were created
by territorial laws or State laws. In the State of
Kansas and whatever other State came in the way
those corporations were free from all liability. There
is no question about that.
What is the effect of this covenant to treat them
all alike? Is it not that the Government did not in-
tend to take from one security that it did not intend
to take from the other, or did not take from the other?
Certainly it had power to prescribe the very terms
and conditions, and the only question is as to the
fair meaning of the words and language that were
used.
Then again, as to what was permitted to these
companies by virtue of this act. Suppose the Union
Pacific, under the permission given to it, had built
all the way to the Pacific Ocean, as it might have
done. There would have been none of this indem-
nity to the Government in the way of personal lia-
bility of stockholders. Suppose the Central Pacific
had built all the way to the Missouri river. Can
you say that it would have done so on the same
terms and conditions if it had incurred in doing the
work an additional liability of $60,000,000 more
than the other would have done? In such a case it
would have been vastly in excess of that sum. It
seems a question almost too plain to ask so repeat-
edly in regard to the various things that were per-
mitted by the act.
But, again, your Honors will notice this tremend-
ous increase in the scope of the plan by the act of
1864. The road had been by the act of 1862 meant
to be built merely from the 100th meridian of longi-
tude to the Pacific Ocean; but by the extensions into
36
kansas and Dakota and by the other schemes pro-
vided for in the act of 1864, other companies Were
brought in, other branches were to be built upon
the same terms and conditions, so that a connection
should be made by the railroad substantially with
all the interstate commerce of the East and North
and East and South. Suppose that one of those
States under these circumstances had created a cor-
poration which should have complied with the terms
and conditions of these acts, could it possibly be
said that its stockholders, no matter what the laws
of its State might be, were to be exposed to a liabil-
ity for these subsidy bonds, although it should come
in under the very terms here provided?
So we say, then, that there is no individual liabil-
ity of these stockholders, because none was intended
by Congress.
My learned friend says it would have been easy to
say so. What we claim is that the act does sub-
stantially say so, because it is impossible to give
honest, legitimate, fair effect to the stipulations
which it enters into with these various companies,
without so construing the substantial effect of their
meaning. It is the intent of Congress, and not the
intent of California, that is to govern the matter.
If the Court please, there are a great many con-
siderations bearing upon that very interesting ques-
tion, which I shall not pursue except to call your
attention to other provisions of the act which bear
very closely upon the subject involved. -
I have shown you already that it was absolutely a
matter of indifference to the Government of the
United States which company built these roads, and
that the personal liability of stockholders was not
contracted for or intended, because in the one case,
if it had been built by the Union Pacific Company,
there certainly could have been none, and because
the Union Pacific Company might have built the
entire road. The Central Pacific also could not
build it on any other or different terms, or with any
less rights, benefits, and privileges than the Union
37
Pacific, nor was it the intent of the Government to
receive or reserve to itself any other or different
security or indemnity in the one case than in the .
Other.
I wish to call attention to the particular clause of
the sixteenth section of the act of 1864.
“It is further provided that should the
Central Pacific Railroad Company of Cali-
fornia complete their line to the eastern line
of the State of California, before the line of the
Union Pacific Railroad Company shall have
been extended westward so as to meet the line
of said first-named company, said first-named
company [the Central Pacific] may extend
their line of road eastward one hundred and
fifty miles.”
And in that case the act declared that—
“Upon doing so the Central Pacific shall
enjoy all the rights, privileges and benefits
conferred by this act on said Union Pacific
Railroad Company.”
Can that be made good except upon the terms, as
I have claimed, of absolute equality?
Could it be for a moment claimed that, with
the Union Pacific building that 150 miles, there
should be no personal liability of stockholders, and
yet that in the case of the Central Pacific, doing the
same 150 miles, and entitled by the statute to enjoy
all the rights, privileges and benefits conferred by
the act on the Union Pacific, its stockholders should
be subjected to a personal liability from which those
of the Union Pacific were exempt? It being thus
clear, as to those 150 miles, that the stockholders
of the Central Pacific, for the subsidy bonds received
for that work, must be exempt from personal lia-
bility, what possible distinction can be drawn be-
tween the intent of Congress as to the bonds to be
received for the work so done, and its intent as to
the rest of the work done by the company under
3S
the act and the rest of the bonds received by it
thereunder?
Again, the 'sixteenth section of the act of 1864
makes this demonstration more perfect still. All
we are looking at is the liability of the stockholders
upon these subsidy bonds. What was provided by
that sixteenth section in regard to uniting and con-
Solidating? That when they did consolidate they
should succeed to all the rights and privileges of
the Constituent companies.
My learned friend says there was no consolidation
effected. I agree to that; but in looking for the
intent of Congress, you are looking to see what Con-
gress supposed were the attributes of these corpora-
tions with which it was dealing, when it says that
these two, the Union Pacific and the Central Pacific
Consolidated, shall enjoy ‘‘ all and singular the
grants, benefits, immunities, guarantees, acts, and
things to be done and performed,” respectively. Can
there be any answer to the proposition that they
did understand—that the intent of Congress was—
that the privileges, immunities, benefits and guar-
antees of the two companies, respectively, under the
act in respect to the United States were the same and
identical? Otherwise, how could they consolidate
and the consolidated company enjoy all of the same
rights that each had previously enjoyed?
Your Honors cannot read that sixteenth section
in connection with the other portions of the act
without seeing that it demonstrates, as the learned
Court below held that it did demonstrate, that Con-
gress thought that there it was providing for a con-
solidation of corporations which before that consoli-
dation were subject to the same attributes, the same
liabilities, the same duties, one with the other, and
without the least difference. The phrase is, as to
the Government of the United States, “are entitled
or subject to under this act.” Is there any doubt
about what that means? That referred to the work
to be done and the compensation to be received, and
the privileges and franchises to be enjoyed. It
39
would not be possible for the consolidated company
to receive from the Government of the United
States the same grants, benefits, immunities, &c., as
they both enjoyed, unless, respectively, they enjoyed
the same before the consolidation.
Look at the Central Pacific coming out of Cali-
fornia and building through the Territories to .
Ogden, one hundred and fifty miles, or whatever it
was, or, possibly, all the way to the Missouri River,
and then being allowed to consolidate with the
Union Pacific. Was it within the dream of the
Government that there should be issued by the con-
solidated company to the stockholders, in place of
the Union Pacific shares, stock free from personal
liability, and stock of the same coni pany at the
same time, under the same consolidation and organ-
ization, to the stockholders of the Central Pacific
Company charged with the personal liability? Is
that possible?
Did not my learned friend fail to consider these
provisions when he said that there is nothing in the
act that manifests the intent of Congress? What we
claim, if the Court please, is that everything in the
act manifests the intent of Congress, and that no
other intent is possibly imputable to the act of Con-
gress or the acts of Congress taken together in this
matter. -
Consider the provision in regard to portions of
the road intended to be built by a defaulting com-
pany: On failure of any one to construct, other con-
panies were permitted to step into its place. It was
a matter of absolute indifference to the Govern-
ment in all these provisions which company did the
work, What Congress insisted upon was that it
must be done and should be done, for the very sal-
vation of the Government itself. The provision was
that for a portion of the road intended to be built,
but not built, by a defaulting company, any other
company might come in, in any part of the work,
and do it on the same terms and conditions on which
the defaulting company would have done it. Your
40
Honors cannot find any clause, any provision, that
does not speak with the same force and effect.
It does seem to me, notwithstanding the amount
of pains and brains which have been expended
by Counsel in the various cases that have come
before this Court —and possibly I might say by
the Court itself—in determining the technical ques-
tion of definition, that the question as to whether,
after the passing of these acts, the Central Pacific
Company was a California corporation or a Federal
corporation, is really very much apart from the
question here involved, and wholly unnecessary.
Undoubtedly to this day it is a California corpora-
tion. As to all other parties but the United
States—and as to that on these subsidy bonds alone—
as to all other security or obligations or indebtedness,
I am not here to contend that it is not a California
corporation and subject to the laws of California.
What I do contend for is what this Court has sub-
stantially said over and over again in the Pacific
Railroad cases—that as to the United States, in re-
spect to these subsidy bonds, in respect to doing the
work for which they were earned, in respect to
everything that came within the scope of these acts,
it was subject to the exclusive, sovereign, complete,
absolute, dominion of the United States, just as if
it had been created by the United States, as the
Union Pacific Railroad Company was.
Mr. Justice HARLAN: What do you say on the
power of the State to sell out the road-bed for
taxes?
Mr. CHOATE: Do you mean by a power of taxa-
tion? ---
Mr. Justice HARLAN: Yes.
Mr. CHOATE: I believe it has already been decided
that the State can tax the visible property of the
company within its limits, but I am speaking of the
scope of this act in respect of the doing of this work
and the earning of these bonds under the contract,
and the State could not have interfered with or pre-
vented that. Nor could the State, by any act on its
part, take away from the United States its national
41
highway. Your Honor will concede that the State
of California could not by any means have interfered
with the building of this road for the national pur-
poses, and the question is as to the relations existing
between the United States and the company, when
this road was being built and these bonds were be-
ing earned under the contract between the parties.
What is the effect of the contract between them as
to the terms and conditions upon which that should
be done? - -
That it does depend upon the will of Congress and
the true construction of the act, and that the actual
intent of Congress was to take sovereign, complete,
and exclusive control and management of the whole
thing, I think has already been virtually held in
your Honor's various decisions. There is a case
which has been referred to by my learned friend upon
the other side, in respect to the effect which has
been given by this Court to acts of one State
giving harbor or license to corporations created
by another State, extending their roads into its
dominion. It is cited as an authority against
what we are now claiming as to the necessary
effect of the provisions of these acts upon the rela-
tions of this Central Pacific Railroad Company
to the Government of the United States; but it
seems to me that what was said by one of your
Honors in the case of Goodlett v. Louisville & Nash.
wille Railroad, 122 U. S., 391—and that sums up all
the previous cases—instead of being in the least de-
gree contrary to our contention here, is absolutely
and decidedly in our favor, because it shows what
you are to look at, in the construction and interpre-
tation of the act that does adopt—if I may use the
word that Mr. Justice HARLAN used in that case—
the corporation of another State.
In that case the Louisville & Nashville railroad,
incorporated by the State of Kentucky, was again
incorporated, if you please, or purported to be in-
corporated, by the State of Tennessee to extend
its road to Nashville. To show that it is not a
42
matter of name or form, but of substance, I cite
the reasoning of the Court in that case.
The Court came to the conclusion, although
Kentucky having created the Louisville & Nashville
railroad, there was afterwards incorporated in form
of words a Louisville & Nashville railroad in the
State of Tennessee; that after all, that was only an
act of license to the Louisville & Nashville Company
of Kentucky to come and carry on its business
within the territory of the State of Tennessee; but
the way it reached that conclusion, and the rule
that it laid down for the interpretation of the act of
the adopting State or nation, is very pertinent.
Beferring to all the previous cases, and particularly
to the case of The Pennsylvania Company v. St.
Louis, etc., Company, 118 U. S., 290, and citing
at large from that, this is what the Court said as to
the particular question involved:
“So that the essential inquiry here must be
whether, within the doctrine established in
the cases we have cited, the State of Tennes-
see by her legislature granted a mere license
to the Louisville and Nashville Railroad
Company to exercise within her limits all
or some of the powers conferred upon it by
the State of Kentucky, or established a new
corporation, over which she could eacert such
direct control and authority as is usually ea-
erted by a State over corporations of her own
creation.”
That is exactly what the Court held that the
State of Tennessee did not do in that case. But
it is what this Court has already held, as I sub-
mit, in the cases you, have already decided, that
Congress intended to do and actually did in this
case, and must now again hold in regard to the
effect of the act of Congress upon the Central
Pacific Railroad Company, by whatever name you
please to designate it.
The Court then continued;
43
“If the legislature of Tennessee intended
to do anything more than grant a license to
a corporation of another State to construct
a railroad and exert its corporate powers
within her limits, if it was intended to bring
Žnto earlistence a corporation subject to the
paramount authority of Tennessee, as were
Other corporations created by her laws, she
would have said something else in the act.”
That is exactly what I claim is the necessary
Construction of these acts of Congress, namely,
that Congress intended to bring this Central
Pacific Company, for all the purposes of this work,
within the direct control and authority of the
United States as sovereign, and to exercise for all
the purposes of these acts an absolute, paramount
Sovereignty over it. •
Who can for a moment claim, in view of what
has already been decided, that the Central Pacific
was a mere licensee, or that ifs relation to the
United States for all the purposes of the question
before us differed from that of the Union Pacific?
If I am right in this, is there anything more
to be said upon the discussion of this point? Can
there be any doubt that the phrase or words used,
“with the same terms and conditions, the same
rights, privileges, immunities and benefits,”
Or with or without the word “immunities,” the
same “rights, privileges and benefits,” secured to
each of these companies by the act, and secured to
the Central Pacific Company in particular, did for
the purposes of our present consideration, extend to
and embrace stockholders? I submit that there is no
room to question the authority of the Tennessee
case, which the court below cited upon this
question. From the very fact that the Govern-
ment is dealing with the persons who compose
the company, and must be credited with good faith
and an intent to carry out in good faith its Sub-
stantial undertaking, the language used is sufficient
to include stockholders.
44
The case of The Ohio Life Insurance Company
v. Merchants’ Co., 11 Humph., 1, referred to in the
court below and which is cited on page 66 of my
brief, is very pertinent and very strongly in point.
The legislature of Tennessee, by an act creating the
Merchants’ Insurance and Trust Company of Nash-
ville, enacted that the provisions of a prior act
creating the charter of the Knoxville Insurance and
Trust Company, equalizing the rights and privileges
of the insurance companies of the State, be extended
to the Nashville Company; and because the prior act
by its provisions imposed upon the companies
formed under it a liability of stockholders for the
debts, the Court held that even those terms were
sufficient to make the company which was assimi-
lated to it, charged with the same liability.
Your Honors will read that for yourselves. It is
a very strong case. It is one that I have not found
questioned anywhere.
“In construing this statute,” says the Court,
‘‘ it is material to observe its obvious and evi-
dent intention to place all insurance compa-
nies on a footing of equality, and though
‘rights and privileges’ are the words em-
ployed in the former part of the Section, yet,
in order to give effect to the intention, it must
be understood as implying responsibilities
obligations and duties also.” -
So when they gave this new company the same
rights and privileges that the old companies Organ-
ized under the prior act enjoyed, they said it could
not have the same rights and privileges without in-
curring the same responsibilities and duties, and
charged it with this very feature of a personal
liability. -- -
I cite other cases, one the case of Wakefield v.
Fargo, 90 N. Y., 213, where, by an act containing no
reference to stockholders it was provided that the
companies formed under it should be subject to all
the duties, provisions and obligations contained in a
prior act, it was held that the stockholders of such a
45
company were subject to the liability for the debts
of the company imposed by the prior act. It was
held that those words were sufficient to impose it
upon the company formed under the subsequent act.
But my proposition is that immunity from Stock-
holders' liability was necessarily involved in the use
of the language applied to these companies by these
acts of Congress; that it is impossible to extricate it,
and necessarily it is embraced in the “terms, condi-
tions, rights, benefits, privileges and immunities ''.
conferred upon the Central Pacific Company.
The case of Tennessee v. Whitworth, 22 Fed. Rep.,
81, is another case in point, decided by Mr. Justice
MATTHEWS, where the language which entitled the
company to all the rights and privileges, and sub-
jected it to all the restrictions and liabilities conferred
On a certain other company, carried the exemption of
stockholders from liability for tax on stock held by
them, as it was conferred on the other company.
The language he uses is expressly applicable here,
and I do not find that it has as yet been at all dis-
approved by the Court.
Mr. Justice HARLAN: Is that his language on the
circuit or here?
Mr. CHOATE: I think it is on the circuit. It is in
22 Federal Reporter, and is set forth on page 70 of
this brief which I hold. This was in reference to the
taxation of shares of capital stock, which, as I read
here, were shares of stock in the hands of the stock-
holders. He said: -
“It may be said that the exemption from
taxation of the shares of capital stock held as
property by individual stockholders is not a
corporate interest or privilege; but the charter,
as was said in the previous case, is a contract
with the individual corporators, and the ex-
emption from taxation of its capital stock
must be presumed to have been one of the im-
portant, if not essential, conditions and in-
ducements to the formation of the corporation.
The general interest of all the stockholders in
the corporate property and business must be
46
Tegarded as a corporate interest, and the priv-
Žlege Secured to the stockholder to be eacempt
from taaration on his shares in the capital
Stock is also a privilege of the company, inas-
Tmuch as it is thus enabled to obtain more
Teadily subscribers to its stock and thus more
certainly to insure the success of the corpora-
tion.
I do not find that that proposition has been brought
into question by this Court, and it seems to me that
it is Sound law, and does cover the requirements of
our present contention. -
Then I have referred to other cases bearing in the
same direction, where a grant of privilege to a com-
pany has been held to carry the privilege to stock-
holders—and so of liabilities—under the name or
phrase of rights, privileges, and benefits, or terms
and Conditions, or rights, privileges, and immuni-
ties, or similar phrases.
Can there be any question of the competency of
Congress as of anybody else to deal with a corpora-
tion in that way? Assuming now that there was
under the law of California Some personal liability
of stockholders, which we believe there was not, was
it not competent for Congress to make a contract
with that company without the feature of individual
liability?
There are hosts of cases. I will not dwell upon
that, because the leading authorities I have cited in
my brief (p. 72).
Is there any doubt of the power of the United
States so to deal with a corporation? They have so
dealt in this case, and there is no need of argument,
as it seems to me, to show that whatever anybody
else could do, whatever any other contracting party
could do, it was entirely competent for the United
States to do in this case, to make an agreement with
the Central Pacific Company without the feature of
individual liability of its stockholders, even if there
was such a liability imposed upon it by California
law. This is apparently not questioned.
47
Other Reasons ºn Support of thºs Construction.
Now, for the grounds and reasons in support of
this construction, which I have insisted is the inev-
itable construction to be drawn from, to be imposed
upon, the language used by the Government itself.
It was the Government that passed the act. It was
the Government that dictated the terms of the con-
tract. It is not to be taken more strongly against one
side than against the other, I will say, but it is to be
construed fairly. That being its natural and fair
construction, what are the considerations that go to
corroborate that construction?
If the Court please, I say that everything that has
been said in any of the cases that have been before
this Court in relation to these companies and the
necessity of the work, the nature of the work, its
being for the public interest and not for private ends,
its being a matter of absolute necessity for the Gov-
ernment to accomplish it by all the means in its
power and with all the speed that was possible, is
perfectly pertinent, and shows that it was not to be
expected by the Government that parties entering
into the work supposed, or would suppose or believe,
that there could by any possibility be any such
claim of liability imposed upon them. As stated in
your previous decisions, which I have already
quoted at some length, it was a work of extreme
hazard and doubt. The success of the enterprise
was in doubt for many years, long after the passage
of this act of 1862. The risks assumed by the com-
panies were terrible. The risk of losing all they put
in is expressly stated as staring them in the face, in
the decisions that your Honors have rendered. Was
it the expectation of the Government that, besides
losing all they put in, these individuals who came
to the aid of the Government under these trying
circumstances in this great work of public neces-
sity, not projected for their benefit but for the pub-
lic, should put all their private fortunes also at the
hazard of the enterprise?
48
It has never been suggested in any of the pre-
vious decisions here that the certainty, if the enter-
|prise failed, of the Government getting the whole
benefit of all that remained and they losing abso-
lutely all, was not in the consideration of these
parties who came to the relief of the Gov-
ernment in this way. Was it understood, was
it the fair understanding of this contract, that, no
matter what private fortune they might amass, it
should all be at the risk of the enterprise, in addition
to what they had already put in? -
The same reason existed in its full force in this
respect in regard to the Central Pacific as to the
Union Pacific, in the case of which no such thing as
individual liability was intended. What struggles
the Government made to enlist subscribers to the
Union Pacific is perfectly well known, and how it
tried to enlist aid from every quarter of the country.
Suppose it had been suggested at that time: If you
buy stock in the Union Pacific, you are getting all
the benefit of this enterprise, so far as your half of
it goes, without any liability, but if you buy stock
of the Central Pacific you will be under this
enormous additional liability to the Government.
Would anybody have taken a share of stock in the
Central Pacific on those terms? I have answered
what it has been attempted, improperly, as I think,
to draw from the evidence of Leland Stanford before
the commission. That did not relate to this time
and this subject, and the only subject now before
the Court is liability of these stockholders for these
subsidy bonds under the contract contained in the
act of 1862.
Length of Time Involved.
Take into consideration also the length of time in-
volved. It was twelve years before the road was to
be finished. It was from thirty to thirty-five years
before the bonds were to fall due. Was it the fair
understanding or construction of these acts, that
49
purchasers of stock of the Union Pacific or of the
Central Pacific were to incur an unknown liability,
of enormous magnitude, thirty to thirty-five years
after the bonds were received? If there is one special
horror that rests upon investors and men of capital
and property, it is that sort of obligation. They are
willing to incur personal liability for current obliga-
tions, but not for obligations falling due in thirty,
or forty years. Why, in some of these present rail-
road mortgages now being issued, the time fixed is
fifty and a hundred years. The theory would be,
under such a state of affairs as that suggested in
this case, that purchasers would be subjecting their
individual assets in the hands of their children and
their children's children to this liability, to rise up
out of the grave against them.
Eactraordinary Precautions for Indemnity.
Consider, too, the extraordinary precautions taken
by the Government for its indemnity. This is not
the case of an ordinary money-lender dealing with
an ordinary borrower, exacting his cent per cent.
Consider that clause which struck your Honors' at-
tention in the first of the acts, which was abolished
in the second act, for the purpose of bringing the
enterprise to a successful conclusion, if possible,
namely, that for the failure of one of these com-
panies to fulfill its agreement before 1876 the prop-
erty of all should be swallowed up and forfeited to
the Government, and the Government should move
in , and take possession. Is it possible that with
such a provision as that, the Government should
think that it was exacting, or the parties think they
were subjecting themselves to a personal liability of
the stockholders besides?
Take into consideration also the operation of the
Thurman act upon the matter. It is the established
.law. The construction sustained in the Sinking-
Fund Cases was not announced until 1878, but what
was the true construction of the contract in 1878
50
was its construction in 1862, when the original act
was passed. Was it to be supposed by these parties
dealing in this way and by the men who constituted
these companies, yielding to the Government as
Sovereign the right to absorb at any time by its
decree all the net earnings of the company for the
ultimate redemption of the bonds, that besides that
there was also to be added personal liability of the
stockholders of one of the companies; and that, too,
when all the other companies were free from it?
Your Honors will remember always, in dealing
with this subject and this construction, that Con-
gress has taken very good care that the parties to
this agreement should not stand in the ordinary re-
lation of lender and borrower. It is not like the case
of a company raising money by the issue of its bonds
to build a road. The Government required that each
forty miles of road, every forty miles of road, should
be built, completed, and certified to, before a dollar
of the bonds applicable to it were given.
The Fundamental Federal Franchise was Inde-
*. pendent.
I ought to dwell further on this point, and again call
the attention of the Court to its own decisions in
reference to the character—the specific, peculiar
character—of the relations of these companies to
the Government. What is it this Court has said
over and over again? That the fundamental fran-
chise for all this work was given by the act of 1862,
and the subsequent acts, for the whole work, and
that this important grant, though in part collateral
to, was independent of that made to the company
by the State of California; that it was impossible
for the State of California to interfere with it, or
Cripple it, in any way.
Some day or other, perhaps, that will be a very
interesting question that Mr. Justice HARLAN Sug-
gests, whether this great national and military high-
way and mail-road can be destroyed within the
51
limits of the State of California by any act of that
State in its legitimate exercise of the power of
taxation. I do not think it arises here, or that
any decision that your Honors will make in
this case will really have any bearing upon that
question. The case ought not to be decided by
names or definitions, but by the substantial matter
agreed upon between the parties, as expressed in
this act. *
Your Honors will find on page 82 of my brief
what I have to say upon the subject of the effect of
the consolidation of the original Central Pacific of
California, with the Western Pacific Company,
which is regarded by the Court, as I understand the
expressions that fell from it, as a Federal corpora-
tion; but, as I Said, I do not wish to insist upon any
mere nomenclature. We stand for the substance
of our right.
So, without occupying time in the discussion of
that subject, I will leave it to be presented as it is
upon our brief in respect to the effect of the actual
consolidation that was made.
The Court will also find that it has over and over
again decided that State corporations of Texas that
consolidated with original parts or forms of the
Union Pacific, under the name of the present Union
Pacific, constitute Federal corporations; but I do
not wish to present this case on mere phraseology,
Or on any mere empty forms, or what you call this
thing or that thing or the other, for the purpose of
jurisdiction, for the purpose of citizenship, for the
purpose of removal. We go far deeper than that.
We stand upon the positive rights which any reason-
able man, taking up these statutes, would say were
necessarily accorded to the Central Pacific in exact
identity with the Union Pacific, and its stockholders
included, as to both.
I have also answered in my brief (p. 88)—I really
have no more time to devote to that point—the
various objections that have been made. There is
One other that, perhaps, I Ought to observe, which
52
has been presented here to-day for the first time.
If has been said that obviously the Government felt
that it was dealing a little differently with the Cen-
tral Pacific from the Union Pacific, because in re-
gard to the Union Pacific it used the words “au-
thorized and empowered,” but to the Central Pacific
only “empowered.” * .*
Mr. Justice SHIRAS: Only “authorized.”
Mr. CHOATE: Only “authorized.” It seems to me
that in view of the substantial interests involved in
this case, in view of what this Court has over and
Over again said as to the franchises vested in the
Central Pacific being Federal franchises, being com-
plete for the purposes of the work, being under the
exclusive control and dominion of the Government
of the United States as sovereign, that this argu-
ment is rather playing upon words. Why did not
this Court discover that difference for itself, in any
of its decisions about these corporations and these
acts, since the year 1865? a
Do not let us be sacrificed by mere terminology,
by mere play upon words. Let us have the sub-
stance of our right.
If the Court please, the distinctions between the
Union. Pacific and the Central Pacific are also dwelt
upon in the last two pages of the argument for the
appellant, which was all the space my friend could
give to it in his voluminous argument. He says the
Government gave a charter to the Union Pacific and
created it, and that it did not create either of the
other companies.
We will agree to that. That is what I have in-
sisted upon throughout this argument—that it
created the Union Pacific, and that it adopted the
Central Pacific for all its purposes, and put them on
an equal footing throughout.
“It provided,” say the attorneys for the
appellant, “that the Government should have
two directors in the Union Pacific, afterwards
increased to five, and did not demand any
such thing in the Central Pacific.”
53
Is that to be taken as positive distinction of Sub-
stantial right? Again, I say, why did not your
Honors discover that in all these cases that have
passed under your observation? There is no doubt
that Congress might have made it a condition of its
dealing with the Central Pacific that it should have
directors to represent it on its board.
“If the Union Pacific failed to build these
roads within a certain time, as required by
section 14, it forfeited to the United States
‘ all the rights, privileges, and franchises
granted to and conferred upon Said company
by this act.’”
I do not think there is any substantial difference
in that regard. What I ask your Honors to do is
to take up these acts, consider carefully the
guarantees contained in then), read them in the
light of your previous decisions, and you can come
to no possible conclusion, except that to which the
original Court of first instance came, and the Judges
of the Circuit Court of Appeals came, in disposing
of the case, when they said that there was no
room to doubt or question the intent of Congress to
put these companies and the parties that constituted
them on an absolutely equal footing in respect to
indebtedness.
I am sorry I have not been able to treat that ques-
tion more fully and more particularly; but time for-
bids. It is a question which, when you have the acts
before you and your own decisions before you, an-
Swers itself.
No Personal Liability by Force of California Law.
If the Court please, in the next place we say that
in respect to these subsidy bonds, by the law of
California as it stood at the time of this contract,
on the first day of July, 1862, there was no possible
liability for any such indebtedness. That brings
into view a suggestion that was made by Mr. Jus-
54
tice BROWN, in one of his questions to my friend
upon the other side, as to whether mortgage bonds
were within the contemplation of the act of Califor-
nia imposing a liability upon stockholders.
His Honor will see that the result of our position
is that, as the law then stood, if there was any stock-
holder's liability, it was limited to a liability for such
corporate debts only as should mature within three
years from the creation of the liability. What is
Our proposition as to this point? We say on page
93 of my brief:
“In addition to the fact that no individual liability
was intended by the acts of Congress, the appellee's
testator was also certainly free from any individual
liability for the subsidy bonds by the law of Califor-
nia in force at the time of the passage of the act of
1862, which prescribed the terms on which the bonds
were to be issued, and also at the time of the issue
Of the bonds from 1865 to 1869.”
I am not considering now the question whether
the thirty-sixth section of the Constitution of Cali-
fornia of 1849, which has been so much discussed,
was self-executing or not. That is not, I think, ma-
terial upon this point. . But there is no doubt that
there were in the Constitution of 1849 the two clauses,
section 32 and Section 36, in respect to the liability
of stockholders for debts of the company, which I
have set forth on page 94 and which have been
largely dwelt upon by the Assistant Attorney-Gen-
eral; and there was the twelfth section of the act .
of 1861, which, as we shall show presently, did not
work the effect of creating a stockholder’s liability.
But assuming now, for the purposes of this point,
that it did, or assuming that the act of 1863, which
did create, as we claim, for the first time, a liability
of stockholders in California, is applicable to the
case--we claim it is riot—we say this, that the pro-
vision of California law imposing personal lia-
bility of stockholders, such as it was, perfect or im-
perfect, was coupled with the provision that it could
only exist for a period of three years from the crea-
55
tion of the liability; that this was a special limitation
applicable to stockholders' liability alone; that there-
fore the special limitation was necessarily a con-
dition of the liability at all, the obligation must be
one which would mature and could be enforced
within three years from the creation of the liability,
and that there could be no liability of stockholders
for bonds which were made to mature not in three
years but in thirty. I will read the whole of sec-
tion 30 of the act of 1850.
Your Honors will observe that they had a general
limitation act in California; and hereby this case is
distinguished from the case of Terry v. Anderson,
in 95 U. S., which is relied upon by the other
side, and also from the many cases which have
been referred to upon the part of the appellant.
They had a general limitation act, headed “Time
for the Commencement of Actions.” When they
afterwards put it into the Code they made it a
Title by itself, “The ilimitation of Actions.”
My learned friend says that the Code is only a
reproduction of this provision in the act of 1850.
The Code says, “This Title shall not apply to actions
against stockholders of a corporation.” That is
exactly the same in effect as the 30th section of
the limitation act of 1850, because, if I recollect
right, this section 30 is the last Section of the act,
and it declares that
“the preceding sections of this act shall not
affect actions against directors or stockholders
of a corporation to recover a penalty or for-
feiture imposed or to enforce a liability
created by law, but such actions must be
brought within three years after the discovery
by the aggrieved party of the facts upon which
the penalty or forfeiture attached, or the
liability was created.”
It really makes no difference whether those words,
“after the discovery of the facts by the aggrieved
party,” relate also to the following clause, “ or the
liability was created,” or not.
56
If I am right in that, we have this situation of the
law: In 1850 this special enactment of limitation
as to actions against stockholders to enforce a
liability Created by law; then, coming afterwards, a
Special enactment, if you please, by the act of 1861
or the act of 1863 that stockholders should be liable
for the debts incurred by the company. What be-
comes of the rule that these two sections, each re-
ferring to the same thing and nothing else, must be
construed together as being in pari materia? Does
not that necessarily follow? The researches of the
learned Attorney-General have not found, he says,
any case in which, where the liability was created by
one act and the limitation or condition by another act,
they were held to be so coupled together as to make
the limitation of time a condition of the contract—
that is to say, a part of the right.
He may not have found it. I have not found it,
but the case here is of the creation by statute of the
liability that could not - exist without statutory
enactment, and at the same time applying by special
clause this limitation to the liability so created,
and the question arises whether or not it is a con-
dition, a part, of the right. -
Your Honors observe that the effect, whether
you look at the Code or at the 30th section of the
act of 1850, is that this title, that is, the general
statute of limitations, shall not apply. The preced-
'ing sections of this act shall not apply to a suit
against a stockholder for a liability created by law.
This being so, the limitation which it proceeds to
apply to such suits in place of what went before, is
in all respects a special, distinct, independent statute
applying a limitation to that particular liability.
It is insisted that this was not a liability create
by law. - -
The trouble with that proposition of the Attorney-
General’s is that from the beginning the Supreme
Court of California has held that this was in all
cases, whether regarded as created by contract or
§7
not, a liability created by law. How could they
possibly hold anything else? -
I think I Ought to give your Honors a reference
On that subject to the case of Moore v. Boyd, in 74
California, decided in the year 1887, which I think
disposes of that question. It is at page 167:
“A stockholder’s liability is a liability cre-
ated by law, within the meaning of the Code
of Civil Procedure, and must be sued upon
within three years after the discovery of the
facts upon which the liability was created.”
This was SO declared in 24 California, French
v. Teschemaker, in the year 1864, and has been so
held ever since.
Even treating it as a contract liability—by means
of this fiction which declares in many cases that the
stockholders enter into the contract with the other
contracting party when the company does—suppose
it is a contract liability, is it not just the same a
liability created by law? It is a mere fiction that the
stockholders are there consenting. They are not
there. A thousand to One they know nothing about
it; but the law says they enter into it with the
company, each for his individual part. It is the law
that creates the liability in that way.
Your Honors will Observe further the effect
of this statute on the special limitation, taking it
out of the statute of limitations and giving it a berth
for itself in the law. Your Honors will note this
distinct difference. The limitation of all other ac-
tions is from the time that the cause of action ac-
crued. As to this, which is affixed or coupled to the
liability of a stockholder, whenever it does come
into existence, it is to run from the time the liability
was created. In many cases, and those are the
cases that my learned friend discussed as antagonis-
tic to our present view, the cause of action accrues
at the same time that the liability is created, as if I
lend money repayable upon demand, or if I employ
service, payable when the service is done, the time
5S
of the accruing of the cause of action and the time
of the creation of the liability are identical; but
here we have a special enactment applicable in One
section to the time, and another special enactment
creating the liability, which otherwise than by stat-
ute, would not exist, and the one is especially de-
signed for the other, excluding all reference to the
time from which the cause of action accrues and
limiting it from the point of time at which the lia-
bility is created. -
Moreover, it is not a part of the general statute of
limitations, and, being excepted from it, it is ex-
cepted from the whole range and effect and scope of
the statute It is excepted from the saving clauses
of the statute. No woman, no infant, no lunatic
can by reason of disability plead extension of this
time. This special limitation is fixed by this special
and independent enactment, which fits on exactly
to this liability of stockholders created by law, and
to nothing else.
Now, consider the reason of the thing. My
learned friends attempt to maintain that if this is
so, it is unreasonable. On the contrary, it is in
the highest degree reasonable. Parties taking stock
in a railroad company or any other company may
be perfectly willing to incur a personal liability for
the current expenses of the company, for the in-
debtedness incurred, if you please, in building the
road as it progresses, for what might be called the
floating debt of the company; but stockholders would
well hesitate to incur, and a wise legislature would
well hesitate to impose upon them, a liability that
should not rise up against them until thirty or forty
or fifty years after the liability was created.
The Court, at this point, adjourned until Wednes-
day, January 29, 1896.
59
WEDNESDAY, January 29, 1896.
Mr. CHOATE: If the Court please, have Ione hour?
The CHIEF JUSTICE: You need not be very precise
about it.
Mr. CHOATE: To conclude what I had to say on my
Second point, to the effect that if there was a stock-
holders' liability existing by the laws of California at
the time of this contract it was a qualified liability,
limited and conditioned solely to those obligations
which should mature and be enforceable within three
years from the date when the liability was created,
and that when the United States chose to make
its bonds in this case mature at the period of thirty
years, it necessarily took no liability of stockholders
there with.
The power of the legislature of California to enact
Section 30 of the act of 1850 is not disputed, and
cannot be, I think, except upon the single sugges-
tion that has been made in argument here, that the
limitation of three years is unreasonable, which I
shall spend no time in discussing. I adverted to
that, at the close of my argument yesterday. It was
then perfectly within the power of the legislature of
California to enact section 30 of the act of 1850,
prescribing three years from the date of the creation
of the liability as the time within and not beyond
which a stockholder could by any possibility be
liable. In that view it makes no difference whether
the provisions of section 32 and section 36 of the
Constitution of California were self-executing or
not, because no one will claim that the Supreme
Court of California was wrong in holding that
the legislature was not precluded from imposing a
reasonable limit of time, even if the Constitution
was self-executing. -
Therefore the only question that remains between
us and the Government's counsel on this particular
point is whether the legislature of California has so
linked section 30 of the limitation act of California,
or the section of the Code which deals with the sub-
60
ject, as a condition to the liability, as to make it a
part of the right, as distinguished from a mere
remedy.
Are the two provisions inseparably linked together
or not? They relate certainly to the same subject-
matter. That is to say, the two provisions, the act
Creating a stockholders' liability, whichever act it
Was, and the special statute of limitations cutting
this particular subject out from the general statute
of limitations, certainly relate to the same subject-
matter. They cover the whole of that same sub-
ject-matter, and they are strictly in pari materia.
Section 30 is a distinct and specific provision or
condition of limitation applicable strictly and solely
to the personal liability of stockholders. The power
that created the liability, according to all the authori-
ties, may in its own way prescribe the condition;
and the only question, then, is whether this section
does prescribe the condition for that and that alone.
The law, I think, is well settled on that subject.
As stated by Sutherland, after a review of all the
Ca,SéS :
“All consistent statutes which can stand
together, though enacted at different dates,
relating to the same subject, and hence briefly
called statutes in pari materia, are treated
prospectively and construed together as
though they constituted one act. This is true
whether the acts relating to the same subject
were passed at different dates, separated by
long or short intervals, at the same ses-
sion or on the same day ” (Stat. Constr., §
283).
That strictly and completely covers this proposi-
tion which I am now endeavoring to present.
Mr. Justice BROWN’s decision in the case of
Boyd v. Clark (8 Fed. Rep., 849) also, is in direct line
with my argument on this point. I think I have
brought the wrong one of these numerous briefs of
the Government which contain it, but it is there
said, in effect, by the learned Justice that, if the
61
provision creating the liability is in one section and
the provision providing the limit or condition of
time is in the same or another section, there is no
doubt, in view of the long series of concurrent au-
thority, that it is fastened and coupled with the con-
dition so that it cannot be shaken off, and is a part
of the right and cannot be altered.
Unless you are going to stand on forms, unless
you are to hold that the Legislature, passing
at one minute one act, and, as nearly as can be, at
the next minute passing the other act, makes a
wholly different declaration and prescription of its
intention than if and when it speaks by two sec-
tions of the same act, this point is certainly fully
covered. -
I refer also with great confidence to the decision
that was made by two of your Honors in the case of
Hudson v. Bishop, which is cited on my brief at
page 108, and I submit that with these two sections,
namely, section 30 of the limitation act, which cuts
this subject adrift from all general limitations and
makes it peculiarly and specifically adapted to this
one case, and the section which creates the liabi-
lity, this authority completely covers the point. It
was decided by Mr. Justice SHIRAS.
Mr. Justice GRAY: It was Judge SHIRAs, the dis-
trict judge. -
Mr. CHOATE: A different person?
Mr. Justice GRAY: A different person.
Mr. CHOATE: That was concurred in by Mr. Jus-
tice BREWER, and, I submit to your Honor the
statements there made, and especially these por-
tions, which I have put in italics on the brief, con-
stitute a complete authority in support of this
point.
“When the statute in eacpress terms de-
clares that, as against the Suretºes, no action
can be maintained unless brought within four
years after the discharge of the guardian, this
defines the eactent of the liability of the surety.
It cannot be treated as a mere matter affecting
62
the remedy upon the contract of Suretyshºp,
but it is part of the contract itself. * * *
“It is a substantial right protecting the
Surety by limiting the extent of the liability
assumed, and enters into the obligation of the
bond given under the statute. As such, it is
One of the conditions of the contract, and
therefore an action cannot be maintained
against the Surety unless brought within the
period thus fixed '' (p. 523). -
* * * ** The statute of Wisconsin does
not give to wards an unlimited right of action
against the Sureties on the bond. It creaſes
a limited right of action, and, when suit is
brought in Iowa upon a bond given in pursu-
ance of such a statute, regard must be had to
the provisions of the statute in determining
whether a right of action eacists” (Hudson v.
Bishop, 32 Fed. Rep., 519). >
This was concurred in by Mr. Justice BREWER in
35 Fed. Rep., 820.
But why should we discuss this question as a new
question? It has been decided plumply, positively,
fully by the Supreme Court of California in the case
of Hunt v. Ward, 99 Cal., 612, which held expressly
that the liability of a stockholder of a corporation
upon a note given by the corporation is “created ''
within the meaning of section 359 of the Code of
Civil Procedure, at least as early as the date of the
note, and that the statutory limitation commences
to run in favor of the stockholder from the date of
its execution, and not from its maturity, regardless
of how long the liability of the corporation to
actions may be postponed by agreement of the
creditors. There the company had given its note
payable one year after date. Judgment was re-
covered upon the note, and the defendant, as a
stockholder, was sued for his proportionate share of
the judgment. The action was brought within
three years after the recovery of the judgment, but
more than three years after the date of the note; and
it was held that the liability was created at least as
63
early as the date of the note, and that the plaintiff
could not recover against the stockholders.
There the Court, in its opinion, treated of the very
case which we have now in hand, of a liability of a
corporation, created by a contract, maturing more
than three years after the creation of the liability.
Answering the argument that in such a case
the statute would have run against the stock-
holders before the accruing of any right of
action against them, the Court presented the true
and only possible theory on which the liability of
stockholders can be adjudicated, namely, that the
remedy is a part of the right in such a case, and
that where the right, by the terms of its creation, eac-
cludes the possibility of applying the remedy given,
the right itself does not eacist. In respect to this the
Court used the following language (p. 615): *
“But if we assume that in such a case, ac-
cording to respondent’s view, the stockhold-
ers could be sued only upon the note, still the
situation, called by counsel an anomalous
condition of affairs,” would be the result of
the voluntary act of the creditor done in the
face of the law. Such a condition of affairs
would not be the necessary outcome of the
law; for the code gives the creditor ample
room and time to Subject stockholders to
their independent liability for the indebtedness
of the corporation. But if he chooses to make
a contract with the corporation, by which its
payment of the indebtedness is postponed be-
gyond the three years’ limitation in favor of
the stockholders, he simply does an act which
practically waives his right against the latter,
assuming, of course, that his only cause of
action against the Stockholder is upon the note
of the corporation. It must be remembered
that the right to pursue the stockholder at all
does not exist at common law, and that it
Tnust be easercised upon the conditions and
within the limits which the written law pre-
scribes. The invocation by respondent of the
clause of the State Constitution declaring the
liability of stockholders of corporations does
not strengthen his position; for the statement
64
of a right in a constitution is always subject
to reasonable statutory limitations of the time
within which it may be enforced, unless
Otherwise declared in the constitution itself,
and three years is certainly not an unreason-
able period of limitation. We see, therefore,
no reason for disregarding the plain language
of section 359. We need not inquire into the
policy of the section; but, as certificates of
stock of many corporations pass frequently
from hand to hand, it may well be assumed
that the legislature intended to protect tem-
porary stockholders from the power of offi-
cers of corporations and their creditors, to in-
definitely extend the enforcement of liabilities
created while they happen to be holders of
stock. If the policy be unwise or bad, it is
for the legislature to change it.”
Ahd this doctrine was reaffirmed by the same
court in the case of The Bank v. Pacific C. S. Co.,
103 Cal., 594, and in Winona Wagon Co. v. Bull,
40 Pac. Rep., 1077 (Supreme Court of California,
July, 1895). That court has thus had twice before it
the opportunity of modifying the doctrine of Hunt v.
Ward, but instead it has adhered consistently to
the principles of that case.
If your Honors will read those cases, you will see
that this action could not be sustained in the courts
of California. It is impossible that the Supreme
Court of the State of California making those three
decisions could by any possibility allow the United
States to recover in this action, or any other suitor
similarly situated, and the question is one which
your Honors have often answered in respect to such
a question. If such a liability cannot be enforced by
the laws and in the courts of the State that creates
it, can it be enforced any where else? Shall its own
judges do better for the United States than the
judges of the State of California, which made the
law, would do for it? I think I need not answer that
question; I need not discuss it any further.
I claim that your Honors are bound, according to
the principles that you have laid down in the case
65
of Burgess v. Seligman, to follow that California
decision. I do not care whether you are bound or
not, because, in my judgment, the reasons which
the learned Court give in the case of Hunt v. Ward,
are absolutely commended by force of reason, as well
as authority.
There are two cases here in this Court on which
I wish to make a brief comment in Connection with
this point. One is the case of Terry v. Anderson, 95
U. S., 628, where this Court held that a general stat-
ute of limitations, applied in common to a stock-
holder’s liability and to all other causes of action,
might be tampered with by subsequent legislatures,
might be shortened or lengthened at the legislative
will, from which it is argued that it is not a part of
the right, because if it were a part of the right it
would not be so capable of Subsequent alteration.
I do not concede that proposition, but I refer to
that case for the purpose of drawing the attention
of the Court to the very fact that this question was
there reserved. The case was ordered for re-
argument. It was disposed of, in the first place, as
a general question of the general statute of limita-
tions and of the power of the State that passed the
statute to alter it; but the learned Chief Justice, in
the last sentence of his opinion. On the rehearing,
said: s
“A liability by statute is as much the sub-
ject of remedial legislation as a liability by
contract, winless the remedy enters into and
forms a part of the obligation which the
statute creates. Such, we think, is not the case
here.”
It was the case of a general statute of limitation,
applicable alike to stockholders’ obligations and to
all other kinds of liability, not a special limitation
applied exclusively to the stockholder's liability.
I say there is no escape from the conclusion, on an
analysis of the statutes and the decisions of the Su-
preme Court of California, that in this case the limita-
66
tion of three years from the creation of the liability
was a part of the right. The clear-cut and comprehen-
sive opinion delivered in this Court in the case of
Balkam v. Woodstock Co., 154 U. S., 177, is almost
conclusive of this question.
I come to the third point, and I have two points
to present, each in fifteen minutes, which might well
occupy an entire day. Ought these limitations of
time to apply to such cases as this? May not justice
herself some time stumble or fall, if forced to go at
such a killing pace? But let me put it in fifteen
minutes as well as I can.
Stockholder's Liability Non-Eacistent in California
at the Date of the Passage of the Act
of Congress.
My next proposition is that when the act of 1862
was passed—and whatever liability existed was
created at that time—there was no such thing exist-
ing by the law of California as a stockholders' lia-
bility for the debts of a corporation, and, of course,
if stockholders were not parties to the contract—it
is said that in legal theory they become parties
to every contract that the corporation makes—
of course, if they were not parties to the contract at
that time, they could not be made so afterwards by
any subsequent act of California or of anybody else.
It is not competent for California, by any subsequent
act, to create a liability as of that date which did
not exist then. Nothing is clearer in this case than
that it was not the receipt of the subsidy bonds that
created the liability. There was not a new contract,
bond for bond, as these bonds were delivered through
four or five years. The limits of liability, as the
learned Assistant Attorney-General admitted upon
the opening argument, were fixed by the act of 1862.
Constitutional Provisions were not Self-Executing.
The question is whether sections 36 and 32 of the
Constitution of California were self-executing. We
67
claim, and we have the authority of the Supreme
Court of the State of California, in a decision that
has stood unquestioned and recognized by all other
Courts as conclusive and commanding authority for
more than thirty years, for claiming that they were
not self-executing.
Our further proposition is, in this connection,
that Section 12 of the act of 1861 was no more definite
than Section 36 of the constitution, because neither
of them fixed the proportion to what, or the propor-
tion of what, the stockholders' liability should
apply to. Section 32 is of no account what-
ever, and has no meaning and no use whatever, if
Section 36 be self-executing and cover the whole
Case. That was the foundation of the opinion that
was pronounced in California in 1864 (French v.
Teschemaker, 24 Cal., 518). The Court must find
Some means of reconciling those two sections, so
that 32 should speak as loud as section 36; and they
found it in this way: that section 32 is applicable to
all corporations and to the individual liability of the
corporators—that is, the stockholders in the corpor-
ation—for I brush aside the flimsy pretext made on
the other side that there is some difference between
stockholders and corporators:
“SEC. 32. Dues from corporations shall be
secured by such individual liability of the
Corporators and other means as may be pre-
scribed by law.”
Section 36, which provided that each stockholder
should be liable for his proportion of the debts, was
held to mean that in prescribing or devising the law
which should cover the subject, the legislature should
See to it that each stockholder of a corporation
should be individually liable for his proportion of all
its debts and liabilities.
That did not furnish a complete rule for the de-
termination of all questions that might arise on the
Subject-matter, and if not, it was not and could not
be self-executing. It reads: “His proportion of all
debts and liabilities of the company.” It did not
68
provide whether it should be the proportion that his
stock bore to the authorized capital stock, or to the
Outstanding issued capital stock held by Stock-
holders, or to the subscribed capital stock whether
issued or not. It did not provide the proportion of
what he was to be liable for. Was it to be of all
debts from the beginning—for 20, 30, 40 years, if
you please—before he became a stockholder, or was
it to be limited to the debts incurred while he was a
stockholder? There is nothing discernible in it by
which either of those questions can be determined.
What the Constitution undoubtedly meant was
that there should be some liability of stockholders
prescribed by the legislature in respect to every debt,
but whether it should be an accumulated liability
On all stock from the beginning, or limited to the
liability of one complete set of stockholders for
each debt for the time being, as it arose, was not
determined by the Constitution.
We say that unless they determined all those ques-
tions the constitutional provisions were not self-ex-
ecuting. If the Court please, similar questions have
been passed on in the same way and to the same
effect in very many States of the Union. I cite one
most interesting case because it has been first
published while we have been in attendance on
this case on the Day Calendar. Mr. Justice PECK-
HAM will recall it as one of his last judicial acts, his
concurrence in the decision of this case of Marshall
v. Sherman, in the State of New York, which was
decided in the Court of Appeals of New York on
the 19th day of December, 1895 (42 N. E. Rep., 420).
That Court was there construing a provision of
the Constitution of the State of Kansas in respect of
Stockholders' liability, and the constitutional pro-
vision was that “dues from corporations shall be
Secured by individual liability of the stockholders to
an additional amount equal to the stock owned by
Such stockholders, and such other means as shall be
provided by law.” That was held not to be self-
executing, and So held upon the authority of the
69
very case in the State of California rendered thirty
years ago upon which we rely.
I say that neither the act of 1861 nor section 36
of the Constitution did contain within its own terms
a complete and perfect rule, broad enough to em-
brace and settle definitely every question that might
arise touching individual liability of stockholders.
Neither the proportion of what, nor the proportion
to what, the liability should extend was determined.
But, if the Court please, why argue that question
again, when we have a decision which has stood, as I
say, for more than thirty years; which is one of the
most comprehensive, well reasoned, thoroughly ar-
gued decisions contained in all the volumes of the
decisions of the Supreme Court of California? I
mean the case of French v. Teschemaker, to the dis-
cussion of which the learned Attorney-General has
devoted some forty or fifty pages of his brief. I
stand upon the authority of that case, and I submit
that, unless your Honors are going back upon your
decision as to following the decisions of a State, this
is binding. If it is not binding as a matter of au-
thority, the reasoning of Mr. Chief Justice SANDER-
SON.—I think he was Chief Justice af that time—
contained in that case is absolutely unanswerable,
and I challenge the learned Attorney-General to
make any answer to it.
Why should not the Court follow it? It is ad-
mitted here that in the case of Mills v. Scott, 98 U. S.,
25, where a similar statute came up from the Court
of Alabama, I believe it was, a constitutional or a
statutory provision, you followed the decision of the
Supreme Court of that State, and the same is ad-
mitted to be true of the case of Pollard v. Bailey,
20 Wall., where you followed the decisions of the
Supreme Court of Georgia. Why should the Gov-
ernment ask you now to go back upon it for the
purpose of beating Mrs. Stanford, I should like
to know? The question before us was the princi-
pal point discussed in French v. Teschemaker. Page
after page of elaborate and demonstrative reasoning
70
is applied to it by the Court. All the Justices
concurred in the opinion, and Mr. Justice SAWYER
Concurred only in the result; but afterwards, when
a similar question came before him, he referred
to it again, as we show upon our brief (p. 119),
and gave in his adhesion to it (Larrabee v. Bald-
wºm, 35 Cal., 155). It has since been followed in
the Supreme Court of California and recognized
as the law; but more than that, if the Court please,
it has been followed by the people of California
from that day to this by their legislation—legisla-
tion, much of which is absolutely unconstitu-
tional and void, if you say that those constitutional
provisions were self, executing. If they were Self-
executing they completed and covered the whole
Subject matter; but the legislature of California,
from 1850 down, has been tinkering with that lia-
bility and measuring that liability by different
methods—different methods as to the proportion of
what and the proportion to what. First, they passed
laws that it should be “his proportion,” without
saying of what. That is the act of 1861. Then they
Said the proportion of the whole capital stock, what-
ever that means. That is the act of 1863. Then
came the enactment of 1872, which said the pro-
portion of-what? Of the whole capital stock?
No; of the subscribed capital stock, whether it had
been issued or not; whether it was outstanding
stock or not.
It is impossible for both of these two series of
enactments to stand if this was a self-execut
ing mandate of the Constitution. There would
have been no room, there would have been no
power, there would have been no right of the leg-
islature to enact either the first set of laws or the
last Set, and the learned Attorney-General may take
his choice between them. If this thirty sixth sec-
tion meant all the outstanding capital stock, then all
this later legislation on which he now stands and on
which he now claims in his bill that Mr. Stanford
Was liable for his proportion of subscribed stock is
71
wholly void, and could not for a moment be sus-
tained.
But, if the Court please, the case of French v.
Teschemaker has been recognized as a leading case
On this subject of the non-Self-excuting character of
Constitutional provisions as to stockholders' liability
from that day to this. We have referred to the au-
thorities which cite it over and over again in many
States, culminating finally in the Court of Appeals
in New York last month, and yet the Attorney-Gen-
eral comes here and says that it is not law; that it
is not the law of the State of California; that there
were some little decisions before where the questicn
incidentally arose on the qualification of a witness.
This was decided after all those, and is absolutely in-
consistent with and overrules all those, if he pleases
to say so; but it has been the law of California from
that time to this, and is embodied by the subsequent
legislation in the law of California, in its statute
books; it could not possibly have been a self-execu-
ting mandate of the Constitution, or else those later
laws never could have been passed.
I say, then, that no liability existed as the law
stood on the first day of July, 1862, when all rights
were fixed. This question cannot be confounded
with any other cases, as is attempted to be done in
the argument and briefs of the Attorney General.
It is a unique question, that stands by itself, but I
must leave it as it is in my brief (pp. 128 and 129).
And, finally, I submit as to that, that where no
right exists at the time of the contract, subsequent
legislation cannot create one. Where the right does
exist, Subsequent legislation may change the remedy,
and cases so deciding should not be confounded with
this, entirely different in principle.
No Absolute Liability of the Companies Themselves
to Repay.
Now, for my last proposition, which is that there
was no absolute liability of the companies them-
'72
Selves for repayment of the principal and interest of
these bonds; that the land grants and the bonds
Were donated on the same and similar conditions,
and I ask your Honors now to look at sections 5 and
6, as they appear on pages 12 and 13 of my brief, in
the act of 1862.
Section 5 provides that to secure the repayment to
the United States, as hereinafter provided, of the
amount of bonds so issued, the bonds shall consti-
tute, as fast as they issue, a lien, and in case of
failure to pay, “ as hereinafter provided,” the United
States may re-enter upon a forfeiture and take pos-
Session for its own use and benefit.
That is not all that is hereinafter provided. Then
Comes the sixth section, containing the condition, a
part of which was read yesterday by my learned
friend. I propose to read the rest. After the con-
dition that said company shall pay said bonds at
maturity, the further conditions are:
“And shall keep said railroad and telegraph
line in repair and use, and shall at all times
transmit dispatches over said telegraph line
and transport mails, troops, annnnunitions of
war, supplies and public stores upon Said
railroad for the Government whenever re-
quired to do so by any department thereof,
and that the Government shall at all times
have the preference in the use of the same for
all the purposes aforesaid (at fair and reason-
able rates of compensation, not to exceed the
amounts paid by private parties for the same
kind of service); and all compensation for
services rendered for the Government shall
be applied to the payment of said bonds and
interest until the whole amount is fully paid.
Said company may also pay the United
States, wholly or in part, in the same or other
bonds, Treasury notes, or other evidences of
debt against the Unites States, to be allowed
at par; and after said road is completed, until
said bonds and interest are paid, at least five
per centum of the net earnings of said road
shall also be annually applied to the payment
thereof.”
73
That is all of the terms and conditions. We do
not differ about the law of conditions. The learned
Attorney-General assents to the authorities that we
cite, and we to those that he cites. We agree that
this is in form a condition, a gift upon condition
Subsequent; and that you can convert terms of Con-
dition into a covenant when the whole act taken
together compels you to do so. The question is, as
We agree—nobody could state it more clearly than
Mr. Dickinson stated it yesterday—whether, taking
the whole act together, this was a condition. On
which they received the land grant and received the
bonds, or was it an absolute promise, an obligation,
at all events, to repay all bonds as they matured?
The forms of words are not controlling. The Sense of
the thing, the justice of the thing, the substance of
the thing, in this, as in all other matters presented
to you, is what we insist upon. I insist that upon
the whole instrument, taking it as construed by the
Thurman act and by the decisions of this Court, it
is absolutely clear that it was intended as a condi-
tion, and that the company was under no obligation
for the repayment of the bonds except as provided
in the act, in the manner “hereinafter provided,”
and on the terms and conditions herein provided, in
failure of which the entire road and land grant was
forfeit. Congress knew that the whole thing might
be a desperate failure. It was willing to invest its
lands and its money, not absolutely but condition-
ally, on the terms and conditions stated in the act
and no other. Certainly it did not mean anything
that it did or put in, to be done upon any other
terms and conditions than those stated in the act,
and in like manner it invited the companies to in-
vest in the building of the road all they could raise
on the same terms and conditions. They were to be
under no obligation to repay, except “in the manner
hereinafter provided ?”—that is, provided in section 5,
provided in section 6, provided in the conditions
stated.
Your Honors said, or your Honors’ predecessors
74
said, that the construction of this act was not to be
judged by anything that subsequently happened.
When this act was passed and these bonds were
agreed to be issued and agreed to be taken for the
building of the road, the Government provided for
itself a security, which, even to this day, in the
present condition of these Pacific railroads, would
be annple security to itself for all of this debt, both
principal and interest. The fact that it subse-
quently chose, because it saw it to be necessary for
the accomplishment of the great national work
which it had in hand, to remit that liability, to take
a Second place as mortgagee, and to allow an equal
amount of bonds issued by the company to predom-
imate over its lien upon this property, has nothing to
do with it. What did this act mean? That is the
question. The Government took this lien meaning
and intending it to be, as it should be and would
have been and ought to be to this day, we will say,
an entirely sufficient and effective security for the
repayment of the whole. What else did it take?
Look at section 6 again and see what else it
took. I speak of Section 6 as construed by
the Thurman act. It not only took this lien,
which was to be absolute and complete and suffi-
cient for the reimbursement of the Government. It
also took a provision that “all compensation for
services rendered for the Government shall be ap-
plied to the payment of Said bonds and interest
until the whole amount is fully paid.”
What the amount of that compensation was,
is unknown. It is believed to have been always
many millions of dollars a year.
But what else did it take? Under the guise of
this five per cent. of the net income of the road to
be turned into the treasury of the United States as
it accrued, under the guise of that condition coupled
with the provision for the reservation of the power
of amendment and alteration, it took the right to
cover into the treasury of the United States every
year from the time of the passage of that act, as
75
construed by this Court in the Sinking-Fund Cases,
not only five per cent., but twenty-five per cent.,
or fifty per cent., or seventy-five per cent., or a hun-
dred per cent. of the entire net earnings of this
road at its own pleasure.
Is not this fact material on the construction
of this law? We agree that it is a question of intent
whether they intended to add to that an individual
liability of these companies which is not expressed
in the act, and cannot be put in by insertion, or by
perversion of the words of condition into an agree-
ment, but only by just construction. Are not these
facts material on the question whether the Govern-
ment intended that there should be added to all this,
which was ample and more than ample in any pos-
sible view to secure the complete indemnification of
the Government, the personal liability of the com-
panies themselves to refund in any event?
I Submit that that would be a monstrously unjust
conclusion. This is in form a condition, and it is to
be determined whether this condition is justly and
fairly to be construed as an absolute promise
Without giving any preponderance to the GOV-
ernment, for it is a contracting party. Here is
a contract which it urged these people to go into for
its own benefit. Did it intend that besides inflicting
upon them the loss of all they put in, they should
also lose all the property the company had, every-
thing it might possibly acquire outside of this sub-
sidized portion of the road, that there should be
a complete sacrifice not only of what was put into
this Subsidized road, as your Honors said in the
Sinking-Fund Cases, but also a sacrifice of every-
thing this company should acquire in all the future;
and especially in view of the fact that the last clause
of the fifth section does concede a complete exemp-
tion from liability to the Government, of the prop-
erty of the company not subsidized—that is to say,
I claim that to be its fair interpretation and mean-
ing--of the road already constructed, the road not
to be constructed by these subsidies.
76
This was not a money-lending job on the part of
the United States, if your Honors please. This is
not to be construed as an ordinary arrangement be-
tween leader and borrower on the doctrine of cent
per cent.
One thing more which I must not forget. An-
other liability is imposed in section 17 of the act of
1862—that monstrous provision, so startling in the
mere statement of it, so grossly unjust, even as
between sovereign and subject, that the sovereign
itself, when it got the first opportunity, struck it out
of the law—namely, that not only for a failure of
this company to perform its contract before a day
in July, 1876, should it forfeit all it had put in, but
also that in case of any similar failure of any other
company this company should suffer the same for-
feiture. How, then, can the counsel for the appel-
lant say what the act does not say, and insist on
importing into the act that they promised when
they did not promise? -
My learned friend, in his brief, has cited a great
mass of authorities to the effect that where money.
is loaned and a mortgage given to secure it, of course
there is an obligation to repay. That is not this case.
This was not money, but bonds. It was bonds trans-
ferred, given to this company strictly on the terms
and conditions prescribed by this act, and the case
is not to be considered or decided at all as if you
could brush the act out of the way. If you could
brush the act out of the Way and make the case a
mere lending of bonds, almost all the points that my
learned brother contends for on this question would
have a vastly greater weight than they now have.
These provisions, I submit, must be fairly con-
strued between these parties as conditions, as
they purport to be. I have cited (p. 91) a case
from the decisions of the Supreme Court of New
York, People v. Warren, 34 N. Y. Supp., 942,
where it is expressly held that when a government
comes down from its pedestal, and enters into a con-
tract of mutual agreements, stipulations and consid-
77
erations with a citizen, it loses the right to claim that
every presumption and every doubt shall be resolved
in its favor. It loses the right to claim that nega-
tion is silence and all those other forms of proposi.
tion in which that doctrine of a presumption in favor
of the Government is set forth; but, if your Honors
please, as this Court declared when the question
first came up, when this Government goes to citizens,
for its own benefit and for its own aid, and implores
them to come to its relief, certainly all Such presump-
tion or balance in favor of the Government is cast
aside. I say that if this were between private parties
there would be no question that this condition
must be held to be a strict condition, and not an
absolute promise. &
So far the learned Circuit Judge who originally
tried this case went with us. His authority, I be-
lieve, is conceded to be great, but he said—and your
Honors will judge how tenable his position was—
that the first clause of the last paragraph but one in
section 6 (on page 13 of my brief) showed that Con-
gress intended it to be an absolute promise of repay-
ment. That clause was as follows:
“Said company may also pay the United
States, wholly or in part, in the same or other
bonds, Treasury notes, or other evidences of
debt against the United States, to be allowed at
par.”
If the Court please, they may pay it anyway.
That is exactly what I claim. That clause relates to
and is satisfied by applying it to the option given to
the company. They may pay it in this, that, or
the other form of money. It does not intend, it
does not imply, it neither expresses nor implies, any-
thing bearing on the question whether this was an
agreement that they should absolutely repay, or
merely that they had the option to repay or forfeit
all that they put in. If, as he held, there is nothing
else in the Act to convert this condition into an
absolute promise, certainly this clause cannot have
that effect. -
78
There is another point that I have time only
to state. It has been parily stated for me by
Mr. Dickinson in the very fair manner in which
he presented this point. He said that this ques-
tion had not been decided in either the Sinking-
Fund Case or in the case of the Pacific railroads, 91
U. S., 72; but that there were expressions of the
judges who pronounced the assenting and dissenting
Opinions in the latter case, and in the opinion of
Judge DAVIS in the first case, which implied the
existence of a debt of the company for the absolute
repayment of subsidy bonds.
Undoubtedly there are repeated statements recog-
nizing it as a “ debt " of the company; but the
Question was not raised there, if the Court please.
It is now raised here for the first time, and to be con-
sidered for the first time. As you have so often said
by your decisions and as the learned Attorney-Gen-
eral admits, mere obiter dicta—observations by the
Way—they may be questioned, they were not neces-
Sary to the decision, they are not supposed to have
been considered with the same care and deliberation
by the Court, and are not to be accepted as the conclu-
Sions of the Court on the subject. Those were mere
obiter dicta. Either of those cases might have been
decided the other way, whether the obligation of the
Company, in respect to the subsidy bonds, was a con-
dition merely, or an absolute promise to repay. I
have not time to explain it orally. It is fully set
forth in my brief (p. 150).
Summary of Propositions.
If the Court please—to sum up in five minutes
the whole thing--these are my propositions in behalf
of Mrs. Stanford:
I claim, first, that Congress, for its own ends, in-
tended, in the whole business covered by the Pacific
Railroad act, including the subsidy bonds, to make
itself, and did make itself, absolute master of the
situation, intended not to rely upon the aid of any
79
State, or the laws of any State, not to permit the
interference of any State or of the laws of any State,
to be itself sovereign, supreme, absolute, sufficient,
for the whole business, and so, by its own laws, to
cover the whole scope of the business, and to
regulate the entire relations of the parties in re-
spect to all that each party was to do or to receive;
that all the companies were to be on a footing of
absolute equality, and the Central Pacific was not
to be singled out alone among them all to furnish to
the Government a substantial indemnity in the
shape of stockholders' liability, to the amount of
$60,000,000, while no other company was to furnish
a dollar of such indemnity; and therefore the de-
fendant is not liable.
Second. That by the laws of California, as con-
strued by its own courts, which this Court is bound
to follow, or, if not bound, ought in reason to follow,
there was no such thing as individual liability of
Stockholders existing in a California corporation, at
the time the contract was made between the Cen-
tral Pacific Company and the Government which
must govern all the rights of the parties, and there-
fore the defendant is not liable.
Third. That again, by the law of California, as
construed by the decisions of its own courts, which
again this Court is bound to follow, or ought in justice
and reason to follow, if there was such a liability it
was only a qualified liability, limited by the condi-
tion that it should mature and be enforceable within
three years from the date when the liability was
created; and when the United States made their
bonds for thirty years they necessarily excluded
them from all possibility of stockholders' liability
being predicated of them or attached to their repay-
ment; and therefore the defendant is not liable.
Fourth. That by the true construction of the acts
of Congress, illustrated and guided by the Thurman
act and by the decisions of this Court, the companies
tnemselves are not absolutely and unconditionally
liable for the repayment of the bonds, but only upon
80
the conditions and in the manner provided in the
act; and therefore the defendant is not liable.
Now, if the Court please, to make the most of my
remaining four minutes, I wish to call the attention
of the Court to a brief that has been inserted here,
the brief of the special counsel in California, which I
think has been inadvertently adopted by the learned
Attorney-General, bound up with his own —I hardly
think he could have read it to the end—wherein cer-
tain gross personalities against the memory of Gov-
ernor Stanford are indulged in as argument to
the Court. It is claimed and suggested there that
somehow or other, by some means or other, these
projectors, as he calls them, these parties who came
to the aid of the Government, have made large
fortunes out of this business, which they ought not
to have made.
I say that such a suggestion Ought not to be in-
dorsed by the Government, and I hope it will be dis-
avowed by the Attorney-General before this argu-
ment is concluded. If not—-if the estate of Governor
Stanford is claimed to be liable to the Government
on any such ground, let them come boldly forth
and say so. Let them come out into the open, where
we can fight them on that ground. Don’t let them
skulk behind this artificial, fictitious, pretended,
unfounded claim of a stockholders' liability.
If the Court please, I press for a very speedy de-
cision of this case, as speedy a decision as is consis-
tent with the other duties of this Court; and I
think I have a right to claim it and to state in that
connection the terrible exigencies that are pressing
upon this woman whom I represent. Her time
is very short; necessarily so. The great University
which she and her husband desire to endow and
perpetuate is in daily danger of closing its doors or
being compelled to close its doors.
Will not the Court act in time? Will not the
Court give her an opportunity in her own lifetime
either to reinstate it, so that it may recover from
the shock that this terrible litigation has cast upon
81
it, or to bury it with honor and decency? I submit
that there is every reason, as in fact the Government
conceded, for a speedy hearing of this case. It
Ought also for the same reasons to be speedily
decided. -
Perhaps I have gone too far in making this Sug-
gestion or speaking of this university at all; but if
I have, there is a great precedent for it in the his-
tory of this Court. I have read that when the
greatest of American lawyers was pleading here
for Dartmouth College, in the most important
case, at the close of the greatest argument ever
heard in this Court, he appealed to his personal
love and the personal love of many others for that
little college in the hills, where his youth was nur-
tured; and you could hear his great heart beat, they
said, in the silence that filled the Court.
May not this woman appeal, not only to her own
love, but to the love of all the people of this coun-
try, for the great University which her husband
founded? The steps of its youth are tending thither
from every State in the Union. Shall they be
turned away? May she not appeal to that, at least,
as a reason for a speedy decision of this case?
| 7301L
THE UNIVERSITY OF MICHIGAN
DATE DUE

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