Sec. 308. (c) Same. Property charged with public trust can not be sold without special authority.

HOAR, J., IN COMMONWEALTH v. SMITH.

1865. IN THE SUPREME JUDICIAL COURT OF MASSACHUSETTS. Allen (Mass.) 448, on 455-6, 87 Am. Dec. 672, on 674-5.

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[Bill in equity by the state as the owner of prior mortgage on the property of the Troy and Greenfield Railroad Company, to impeach the validity of a mortgage executed by that company to Smith as trustee, covering the franchise and property of the railroad company then owned, or afterward acquired, to secure bonds to the amount of $900,000 to be issued to the contractor as part compensation for the construction of the road.]

There seems to be no reason why a railroad corporation should not be considered as having power to make a bond for any purpose for which it may lawfully contract a debt, without any special authority to that effect, unless restrained by some restriction, express or implied, in its charter, or in some other legislative act. A bond is merely an obligation under seal. A corporation having the capacity to sue and be sued, the right to make contracts, under which it may incur debts, and the right to make and use a common seal, a contract under seal is not only within the scope of its powers, but was originally the usual and peculiarly appropriate form of corporate agree. ment. The general power to dispose of and alienate its property is also incidental to every corporation not restricted in this respect by express legislation, or by "the purposes for which it is created, and the nature of the duties and liabilities imposed by its charter." Treadwell v. Salisbury Manufacturing Co., 7 Gray 404.

But in the case of a railroad company, created for the express and sole purpose of constructing, owning and managing a railroad; authorized to take land for this public purpose under the right of eminent domain; whose powers are to be exercised by officers expressly designated by statute; having public duties, the discharge of which is the leading object of its creation; required to make returns to the legislature; there are certainly great, and, in our opinion, insuperable objections to the doctrine that its franchise can be alienated, and its powers and privileges conferred by its own act upon another person or body, without authority other than that derived from the fact of its own incorporation. The franchise to be a corporation clearly can not be transferred by any corporate body, of its own will. Such a franchise is not, in its own nature, transmissible. The power to mortgage can only be coextensive with the power to alienate absolutely, because every mortgage may become an absolute conveyance by foreclosure. And although the franchise to exist as a corporation

is distinguishable from the franchises to be enjoyed and used by the corporation after its creation, yet the transfer of the latter differs essentially from the mere alienation of ordinary corporate property. The right of a railroad company to continue in being depends upon the performance of its public duties. Having once established its road, if that and its franchise of managing, using and taking tolls or fares upon the same are alienated, its whole power to perform its most important functions is at an end. A manufacturing company may sell its mill and buy another; but a railroad company can not make a new railroad at its pleasure.

See note at end of next case.

Sec. 309. Same.

BRUNSWICK GAS LIGHT COMPANY v. UNITED GAS, FUEL AND LIGHT COMPANY.1

1893. IN THE SUPREME JUDICIAL COURT OF MAINE. 85 Maine Rep. 532-541, 35 Am. St. Rep. 385.

[Action to recover damages for breach of the covenants in a lease. The defense was that the plaintiff, being a corporation that owed a duty to the public, had no legal right to lease such property as disabled it from performing this duty.]

WALTON, J. The question is whether a gas company, which pos-. sesses and exercises the right to lay its pipes in the public streets, can sell, lease or assign its corporate rights and privileges to another gas company without the consent of the legislature.

We think the question must be answered in the negative. Corporations possessing and exercising the right of eminent domain, owe duties to the public from the performance of which they are not allowed to escape by a sale or lease of their franchises, without first obtaining the consent of the legislature. The franchise of a corporation having the right to receive tolls may be levied on to satisfy an execution against the corporation, and in this way it may be deprived of its corporate powers and privileges. And they may be lost by the foreclosure of a legally executed mortgage. And they may also be lost by laches in reclaiming them when they have been illegally sold, leased or assigned. But subject to these well-defined exceptions, it is now settled by an overwhelming weight of authority that public or quasi-public corporations, which possess and exercise the right of eminent domain, or its equivalent, owe duties to the public, as well as to their stockholders; and that they can not sell or lease their corporate powers and privileges, and thereby disable themselves from performing their public duties, without legislative authority. It is the duty of gas companies, water companies, electric light companies, 1 Statement abridged. Part of opinion omitted.

telegraph and telephone companies, street railway companies, and all similar corporations, which have obtained the right to use the public streets for the erection or extension of their works, to serve the public faithfully and impartially, and at reasonable rates. And this is a duty. the performance of which may be enforced by the courts. And one reason why these corporations are not allowed to sell or lease their corporate powers and franchises, without legislative authority, is that if they were able to do so, they might thereby disable themselves from the performance of their public duties, and thus escape from the power of the courts and of the legislature to enforce their perform

ance.

But a still more serious objection to the traffic in corporate franchises is the ease with which such a power could be used to create monopolies. By its exercise, a single corporation could easily become possessed of the corporate powers and privileges of all its rivals, and thereby annihilate competition and obtain a complete control of the markets. Such combinations are usually hurtful, and sound public policy requires that they be kept under legislative supervision and restraint.

To the argument that similar combinations may be made by individuals, it has been aptly replied that men are mortal, and their combinations short-lived, but corporations are immortal, and their combinations and acquisitions may go on forever; that they may add field to field, wealth to wealth, and power to power, till they become too strong for the government itself; that all experience shows that such accumulations of wealth and power are dangerous to the public wel*fare; and that while society can endure the accumulations and combinations of mortals, which must end at the grave, it can not endure similar accumulations and combinations of power by corporations, which may continue forever.

(Citing and commenting upon as supporting this view Stockton v. Central Railroad, 50 N. J. Eq. 52; Feitsam v. Hay, 122 Ill. 293;2 People v. Chicago Gas Trust, 130 Ill. 268; People v. Sugar Refining Co., 121 N. Y. 582*.)

The law does not assume that all combinations of corporate powers and franchises are necessarily hurtful. It recognizes the fact that they are sometimes beneficial, and provides a way by which they may be lawfully made. But as such combinations are liable to be made for improper purposes and with conditions annexed to them which are inadmissible, sound public policy requires that they be made under leglslative supervision and restraint.

In the present case the Brunswick Gas Light Company undertook to lease all its property, and all its corporate rights and privileges, to the United Gas, Fuel and Light Company for twenty-five years. The latter company took possession of the works and held them for seventeen and a half months, making improvements upon them and pay* Supra, p. 141. Supra, p. 1054. Supra, p. 100.

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ing a portion of the agreed rent. It then abandoned the works, and possession was resumed by the lessors.

This is a suit by the lessors against the lessees for a breach of the covenants contained in the lease. It was contended in defense that the lease was illegal and void, and that no recovery could be had upon it. The presiding justice ruled, as a matter of law, that the plaintiff company and the defendant company had power to execute the lease, and that a recovery could be had for a breach of the covenants contained in it. We think the ruling was erroneous. No legislative authority for making the lease was shown, and, without such authority, we think the lease must be regarded as ultra vires and void. The authorities bearing upon the question are not in entire har-、 mony; but the weight of authority seems to us to be overwhelmingly in favor of this conclusion. See 2 Beach on Corporations, sections 831 to 856, inclusive, and the six pages of authorities, pro and con, cited under the section last cited. The cases are too numerous for citation here, and the few cases to which we have referred will furnish a key to all of them.

But it is claimed that, inasmuch as the defendant company took and held possession of the plaintiff company's works by virtue of the lease, ultra vires is no defense to an action to recover the agreed rent. We do not doubt that the plaintiff company is entitled to recover a reasonable rent for the time the defendant company actually occupied the works; but do not think the amount can be measured by the ultra vires agreement. We think that in such cases the recovery must be had upon an implied agreement to pay a reasonable rent; and that while the ultra vires agreement may be used as evidence, in the nature of an admission, of what is a reasonable rent, it can not be allowed to govern or control the amount. It seems to us that it would be absurd to hold that the ulta vires lease is void and at the same time hold that it governs the rights of the parties with respect to the amount of rent to be recovered. A void instrument governs nothing. We think the correct rule is the one stated by Mr. Justice Gray, in a recent case in the United States Supreme Court. He said that a contract made by a corporation which is unlawful and void, because beyond the scope of its corporate powers, does not by being carried into execution become lawful and valid; and that the proper remedy of the aggrieved party is to disaffirm the contract and sue to recover as on a quantum meruit the value of what the defendant has actually received the benefit of. Pittsburgh, etc,, v. Keokuk, etc., 131 U. S. 371. We think this is the correct rule. 2 Beach on Corp., § 423, and cases there cited.

Exceptions sustained.

Note. See, also, 1825, Ammant v. New Alex. Tp. R., 13 Serg. & R. (Pa.) 210, 15 Am. Dec. 593; 1845, Susquehanna Canal Co. v. Bonham, 9 Watts & S. 27, 42 Am. Dec. 315; 1859, Coe v. C. P. & I. R., 10 Ohio St. 372, 75 Am. Dec, 518; 1880, Gooch v. McGee, 83 N. C. 59, 35 Am. Rep. 558; 1887, Chicago Gas L. Co. v. People G. L. Co., 121 Ill. 530, 19 Am. St. R. 663; 1892, Overton Bridge Co. v. Means, 33 Neb. 857, 29 Am. St. R. 514; 1892, Union Pacific R. 68-WIL. CAS.

Co. v. C., R. I. & P. R., 51 Fed. Rep. 309; 1893, Gardner v. Mobile, etc., R. Co., 102 Ála. 635, 48 Am. St. R. 84; 1895, Reynolds v. Reynolds Lumber Co.,. 169 Pa. St. 626, 47 Am. St. R. 935; 1895, Bank v. Tanning Co., 170 Pa. St. 1; 1896, Johnson Co. v. Miller, 174 Pa. St. 605, 52 Am. St. R. 833; 1897, Smith v. R. Co., 182 .Pa. St. 139; 1898, Risdon Iron & Locomotive Works v. Citizens' Traction Co., 122 Cal. 94, 54 Pac. Rep. 529; 1899, Harding v. Am. GlucoseCo., 182 Ill. 551, 74 Am. St. R. 189.

Sec. 310. Same. (d) Contra.

BULLITT, J., IN BARDSTOWN AND LOUISVILLE RAILROAD COMPANY v. METCALFE.

1862. IN THE COURT OF APPEAals of Kentucky. 4 Metcalfe (Ky.) Rep. 199, on pp. 206-210, 81 Am. Dec. 541, on 546–550.

[The charter of the railroad company authorized its directors to borrow money not exceeding $50,000; the board of directors authorized the president to borrow $30,000 from Metcalfe, and execute a mortgage upon the road and its property. This was done, default in payment made, foreclosure suit brought, and judgment that the road be leased for eight years to the highest bidder, the rent to go to pay the debt, and if no one would lease, that the road be sold to the highest bidder. Appeal was taken from this judgment.]

4. It is contended that the appellant had no power to mortgage its road or franchises. This question, and the next one that we shall consider, were raised by a general demurrer to the petition. Generally, a private corporation has an implied power to do whatever may be necessary to execute its express powers, and to accomplish the purposes for which it was formed. The appellant was expressly authorized to borrow this money, but was not expressly authorized to make a mortgage. Had it not an implied power to do so? It can not be doubted that a manufacturing corporation having power, express or implied, to borrow money, might, unless expressly prohibited, mortgage its property to secure the debt. But it is contended that a railroad corporation stands upon a different footing, because its road is built for public use as well as for the profit of its stockholders; that it is under a duty to the public to keep its road in repair, and carry on its business for the transportation of freight and passengers; and that it can not relieve itself from those duties by conveying its road away. These views seem to be sustained by several English decisions. At any rate, it seems to be settled in England that a railway company can not, without express authority from parliament, assign or mortgage or lease its road, upon the ground that it is against public policy. An examination of several of those cases does not enable us to state the precise views of public policy out of which that doctrine sprung. It probably arose in part of a general statute which is not in force here. Judge Redfield, however, says: "The ground upon which the decisions in England and America, which hold the franchises of