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State which declares, "that the property of no person shall be taken for public use without just compensation:" and also with the several provisions of the Constitution of the United States, declaring that no State shall pass any law impairing the obligation of contracts, and that no person shall be deprived of property without due process of law.
A clear presentation of these constitutional questions, and of others incidental to, and connected with them, which will be hereafter stated, requires that the organization of the Chicago & Northwestern Railway Company and the corporate franchises conferred upon it by the joint acts of the legislatures of the States of Illinois and Wisconsin should be carefully stated; and this court will then perceive that the enforcement of the act complained of would not only violate the rights of the bondholders and also of the stockholders generally, for the reasons suggested, but especially those of the Illinois stockholders who have surrendered their stock in two railway corporations of that State, and on the faith of the Statutes. of Wisconsin and of the compact of that State with Illinois, accepted in return therefor stock in the consolidated company, of no value whatever if the act of March 11, 1874 shall be enforced.
Organization of the Chicago & Northwestern Railway Company, its franchises, and the rights of its stockholders.
On the 3d of June, 1856, by act of Congress, entitled "An act granting public lands to the State of Wisconsin to aid in the construction of railroads in said State," printed in Statutes at Large, vol. 11, page 20, there was granted to that State certain sections of land for the purpose of aiding in the construction of railroads therein. mentioned; and by the third section of the act it was expressly declared that such land should be subject to the disposal of the legislature of said State for that purpose, and no other; and that such ruilroads should be and remain public highwags for the use of the Gorernment of the United States, free from toll or other charge upon the transportation of property or troops of the United States.
The trust and duty thus devolved upon the State of Wisconsin it accepted, and undertook faithfully to execute by an act approved October 11, 1856, entitled "An act to execute the trust created by the act of Congress, entitled 'An act granting public lands to the State of Wisconsin to aid in the construction of railroads in said State,' approved June 3, 1856, by incorporating the Wisconsin and Superior Railroad Company, and granting a portion of said lands thereto." (See record, p. 28.)
The attention of the court is especially called to the provisions of this act, not only because the corporation created under it is the foundation of-consolidated into and forms part of the Chicago and Northwestern Railway Company-but because the legislatures of Wisconsin and Illinois have repeatedly declared, by enactments, that all the franchises, powers and privileges by said act of incorporation conferred upon and vested in said Wisconsin and Superior Railroad Company shall be held and enjoyed by the Chicago and Northwestern Railway Company, which is declared to be its successor. (Record, page 46.)
Assuming this so, let us consider briefly the provisions of the
The purpose of Congress in granting lands to Wisconsin to aid in the construction of railroads therein, was to develop its resources, promote its wealth, and increase the comfort and happiness of its people; and in return for these benefits, the only consideration exacted was that the railroads so constructed should be and remain (of course forever) public highways for the use of the Government of the United States, free from toll or other charge upon the transportation of its property or troops. To excute this trust and duty required that the corporation receiving these lands from the State should be endowed with the capacity of perpetual succession, with power so to conduct its affairs that its railroads should forever remain public highways, in such condition and so equipped as to be fit for the use required by the Government; and as this was to be free of charge, it was indispensable that the company owning the roads should, from other sources, obtain the means of so operating them as to be able at all times to render the stipulated service.
The State of Wisconsin did, by its act in execution of this trust, endow the corporation thereby created with all needful powers and facilities. It was declared to have perpetual succession and perpetual right, power and authority to carry persons and property upon such roads as it might construct, by the force of steam and otherwise. It was authorized to receive conveyances in fee simple of the lands granted by the United States at the times, and upon the conditions of the said act of Congress mentioned, and was expressly subjected to all the restrictions, impositions, duties and obligations by said act imposed. The lands which the corporation might acquire it could hold or sell in fee simple. Its affairs were to be conducted and carried on by a board of directors, who should be stockholders and by stockholders be chosen; and the charter of the corporation expressly declared that it might demand and receive such sum or sums of money for the transportation of persons and property, and for the storage of property as it should from time to time deem reasonable. It was also empowered to borrow money-to issue and sell bonds, &c., payable at such times and places as it saw fit, and execute conveyances to trustees to secure the same of all its property, corporate franchises and privileges; and to authorize such trustees to enter into possession thereof, and to enjoy and use or sell the same. These are some of the principal powers and franchises thus conferred, and it is perceived they were needful, and yet ample to enable the corporation thus created, in pursuance and execution of this trust, to perform the obligations cast upon it.
By act approved February 12, 1857 (Record, p. 72.) this corporation was authorized to consolidate with the Chicago, St. Paul and Fond du Lac Railroad Company, if a majority of the stockholders of both corporations should so agree. They did thus agree, and thereupon the two corporations were consolidated into one, under the name of the latter; and were by said act declared thereupon to have conferred upon and merged in said consolidated company all
rights, franchises, privileges, grants, conveyances, powers, immunities, property and causes of action theretofore possessed by either, and to be subject to all debts and claims existing against either; and such act also expressly declared that the corporation, as thus consolidated, should be entitled to all the lands of the United States granted as aforesaid, and be subject to all the conditions and obligations connected with and forming the consideration of the grants thereof.
The Chicago, St. Paul and Fond du Lac Railroad Company thus consolidated had been previously formed by the consolidation of two corporations-the Rock River Valley Union Railroad Company, originally chartered by Wisconsin, under the name of the Madison and Beloit Railroad Company (Record, p. 33), which name was, in 1850, changed (Record, p. 37), and of the Illinois and Wisconsin Railroad Company, chartered by Illinois in 1851 (Record, p. 42). The power thus to consolidate, if the companies should so agree, was given by Illinois by the act last aforesaid, and by Wisconsin in two several acts-one passed in 1851 (Record, p. 39), the other in 1855 (p. 40).
The Chicago, St. Paul and Fond du Lac Railroad Company having borrowed money, and mortgaged its property and franchises as security therefor, an act was passed by Wisconsin, in 1859 (Record, p. 43) authorizing purchasers, in case of a sale under such mortgages, to form a corporation under the laws of that State, and of Illinois, and Michigan, or either, and by a vote of its stockholders to assume and secure all debts of the Chicago, St. Paul and Fond du Lac Railroad Company; and the corporation so to be formed was to possess all the privileges, powers, authorities and capacities possessed by that corporation, by virtue of any law of Wisconsin or of Illinois; and by the statute of Illinois (Record, p. 44) a like authority was given to such purchasers, and like powers and franchises conferred upon the corporation which they might form. The railroad property and franchises of the Chicago, St. Paul and Fond du Lac Railroad Company were sold at one sale and as an entire road, under the trust deeds by it executed as aforesaid, on the second of June, 1859, at Janesville, in Wisconsin; and on the sixth of that month, the purchasers became incorporated as one company under the aforesaid two acts of Wisconsin and Illinois, under the name of the Chicago and Northwestern Railway Company (Record, p. 6); and thereafter, in 1862 (Record, p. 46), the legislature of Wisconsin expressly conferred upon said company all rights, privileges, powers and authority contained in its charter, or in the charters of the Chicago, St. Paul and Fond du Lac, and Wisconsin and Superior Railroad Companies, to which the said defendant, the Chicago and Northwestern Railway Company was declared to be the successor.
On the second of June, 1864, the Galena & Chicago Railroad, chartered by Illinois in 1836, (Record, page 46,) was, in pursuance of the laws of that State and of Wisconsin, expressly authorizing it, if the stockholders should so agree, consolidated with the Chicago & Northwestern Railway Company, the stockholders of each sur
rendering their stock therein, and in return receiving stock in the company so consolidated; (Record, p. 7.) and thereafter the legislature of Wisconsin, in February, 1865, conferred upon said consolidated company all the privileges and franchises theretofore conferred by the laws of that or any other State upon the Chicago & Northwestern Railway Company and the Galena & Chicago Union Railroad Company, or any other Company consolidated with it. (Record, p. 51.) In 1871 the Chicago & Northwestern Railway Company was by Statute of Wisconsin, (Record, p. 60) authorized to consolidate with the Baraboo Air Line Railroad Company and several other railroad companies of Wisconsin, and such consolidation was effected, and the organization of the Chicago & Northwestern Railway Company, substantially as the same now exists, was completed.
It thus appears that this company is composed of two corporations created by the laws of Illinois, and of three and more organized by virtue of the laws of Wisconsin; and it also appears from the statutes authorizing the consolidation of the Illinois companies with those of Wisconsin, that the stockholders in each agreed so to consolidate upon the faith of these laws which pledged to them the legislative promises of these States that if they would thus agree, and surrender the stock by them owned in the several companies, and take in return that of the consolidated company, and agree that the corporation as consolidated should assume and secure to pay by mortgage upon its entire road, property and franchises, all the debts of the several companies so consolidating, that in consideration thereof the consolidated corporation should possess and exercise all the rights, privileges and franchises which by either State had been conferred upon the companies composing it.
The Chicago and Northwestern Railway Company, as consolidated, executed various mortgages to secure bonds by them sold, some of which are owned severally by the appellants Piek, Pierson and Taylor. These mortgages executed severally to the Farmers' Loan and Trust Company, and to the Union Trust Company, severally conveyed to such trustees, and mortgagees the property and franchises, as the company was by its charter expressly authorized to do; and on the faith of such security the bonds aforesaid were sold without the States of Wisconsin and Illinois, and largely to foreigners abroad. There was no notice to such purchasers, either in the charter of said company, nor in the bonds or mortgages, of any reservation of the right to alter or repeal such charter; but so far as purchasers out of the State of Wisconsin were concerned (they not having even constructive notice of the constitution or laws of that State) they could but assume that the charter of the consolidated company was in perpetuity, and that there could be no repeal or alteration of the same, which could in any manner affect the rights of those who should purchase the bonds issued and secured in precise conformity with its provisions.
Before proceeding to consider the very remarkable statute,-the execution of which is the purpose of this action to restrain,-the attention of the court will be called to a few facts averred in the
bill, and admitted by the demurrer, to show how unjust and oppressive are the provisions of the act of which we complain. It appears (Record, p. 15) that the railroads owned by the Northwestern Railway Company in Wisconsin cost $28,074,317.35, and that their earnings for the year ending December 31, 1873, was $3,190,523.64, and that the operating expenses were $2,099,850.66; leaving as net earnings the sum of $1,091,672. This would pay less than four per cent. per annum on the actual cost of the roads, which have done so much to develope and increase the wealth, and add to the prosperity of the State of Wisconsin. It appears also that the debt of the said company, applicable to the cost of the roads in that State is $17,247,770, and, therefore, that the entire net earnings of the roads thereon would pay less than seven per cent. upon this debt, whilst the legal rate of interest in Wisconsin is ten per cent. It also appears that the company, between May, 1867 and May, 1873, had reduced rates of passenger fare twenty per cent., and of freight thirty per cent., and that in consequence of the very inadequate rates received, it had been unable to pay any dividend to its common stockholders since December, 1872; and since that date but three and a half per cent. on its preferred stock. (Record, p. 15.)
The bill also avers that rates for fare and freight were fixed after as careful an examination of the facts and circumstances bearing upon the question as it was in the power of the officers of said corporation to bestow, and that such rates are reasonable and just; and it furthermore alleges that the sole security for the payments of said bonds holden by the appellants, is the said road, its equipments, appurtenances and revenue. (Record, p. 21.)
On the 11th of March, 1874, the legislature of Wisconsin passed the act complained of, (Record, p. 16,) which by its terms reduced the rates for the carriage of freight and passengers more than twenty-five per cent. below those then fixed and charged as aforesaid, by the Chicago and Northwestern Railway Company; and the bill avers, and the demurrer admits, that the effect of such reduction if submitted to will be, that instead of returning any compensation whatever to the owners of said roads, the same will be run at a loss, and consequently the value of said roads will be entirely destroyed, and the security which is held for the payment of the bonds owned by said appellants, rendered worthless. (Record, p. 21.)
A brief synopsis of this unprecedented and unjust statute is here deemed appropriate. Its framers, while destroying the value of the stock and bonds issued by this company, also designed to give to the citizens of Wisconsin a certain advantage over all others in the transportation of the products of that State. By section 3 of the act, freights are divided into four general classes, Nos. 1, 2, 3, 4, and into seven special classes, to be designated as D, E, F, G, H, I, J. D comprises grain in car-loads.
E-Flour, 50 barrels or more; lime, 24 or more.
G-Lumber, lath, and shingles, in car-loads.
These are productions of Wisconsin, sold in great quantities out of that State, and hence its citizens desire to transport them