Waldo v. Chicago, St. Paul & Fond du Lac Railroad

A/ die Court, Cole, J. In the case of Clark vs. Farrington, 11 Wis. R., 306-424, this court, among other things, held that a railroad corporation could not engage in any distinct — 581 — or separate branch, of business not authorized bj its charter, for the purpose of raising funds to accomplish the for which it was created ; that while the corporation, in the exercise of the powers conferred upon it by its charter, might adopt any convenient means proper in themselves, to accomplish the objects of its creation, it could not embark in the business of banking, or manufacturing, or speculating in real estate, to raise money to build its road, for this would be acting outside of its charter. The distinction indicated by these illustrations, is plain, important and fundamental. A railroad corporation created for the purpose of building and operating ‘ a railroad, might buy its depot grounds, its road bed, its rolling stock, and pay for these things in the stock of the company, without exceeding its powers or violating any principle of public policy. It might exchange its stock for road ties, or pay in stock for the grading of its road, as well as sell its stock for the money with which to pay for these necessary and indispensable things, and still it would be doing nothing more than the company was authorized to do. And in that case, we held, if the corporation should resort to a transaction of a twofold character, and receive a bond and mortgage in payment of a stock subscription, and then sell the securities to raise money with which to build and equip its road, it would still be acting within the powers conferred upon it by its charter. But when a corporation created for the purpose of building and operating a railroad, goes into the business of banking, or manufacturing and selling goods, or dealing and speculating in real estate, because its corporators or board of directors think such adventures may be profitable, or if a bank should'go to building and operating a railroad for like reason, it is easy to see that in each instance the corporation is attempting to transact business which, under its organic act, it has no right or power to do. And if the corporation might embark in a separate and distinct business, not contemplated by its charter, merely because it was supposed it would be profitable and increase its means and resources, there would be no safety to the public in granting any special charters, and none to individuals who.might invest in the stock of the company. — 582 — These considerations are so obvious and familiar, and rest such common and elementary principles of law, that it is unnecessary to dwell upon them. We have, therefore, no difficulty whatever in arriving at the conclusion that the appellant could not go to speculating in real estate, and had no power under its charter to buy and hold lands situated at a distance from its road, which the company did not want and could not possibly use in constructing or operating its road, but our real difficulty in the case has been to determine what became of the title to the lands conveyed under the circumstances disclosed in the complaint. This question we have examined with all the care and diligence we were able to bestow upon the case, consistently with our other duties, and we have not arrived at any satisfactory result upon it. We think the demurrer to the complaint was properly overruled upon another ground, which we will presently notice, but our desire was to pass upon the main question in the cause. In the present case the respondent states that for the purpose of paying his subscription to the stock of the company, he conveyed to William B. Ogden the lands mentioned in the complaint, to hold the same in trust for the corporation. He avers that the lands are not all timber or wood lands, that there was no stone quarry or gravel bed thereon, that they are not on or contiguous to the line of the railroad, and, as located, could be of no use or advantage to, and were not necesssary for the purposes of, the road. The complaint further alleges that William B. Ogden has conveyed the lands to Mahlon B. Ogden, who took the conveyance with full notice of the circumstances under which they were obtained from the respondent, and holds the same for the use and benefit of the company. From these allegations it would seem that the corporation proposed embarking in the business of buying and selling real estate as a matter of speculation aird profit, a thing which it clearly had no right to do. It was authorized to take and hold such lands and real estate as were necessary and proper for the use and enjoyment of its road, but no more. But what becomes of the title of lands which are conveyed to a railroad company, or to some — 583 — one for its benefit, by a party who must bave known that the company does not want the lands for the purposes of -road, but takes them intending to speculate in the transaction? We suppose the general rule is that persons dealing with a-corporation are bound to take notice, of the extent of its chartered powers; and when a grantor conveys lands to a corporation,under a contract which it is beyond its power to make, can he reclaim them on the ground that his grantee has no power, under its charter, to take the title for such a purpose ? Or does a corporation take and hold the title like an alien at common law, defeasible only by the state ? See Leazure vs. Hillegas, 7 S. and R., 313; Baird vs. the Bank of Washington, 11 id., 411; Goundie vs. Northampton Water Co., 7 Barr, 233. It is urged that when a grantor conveys lands to a railroad company, or to a trustee for its benefit, which he knows the company does not want and cannot use for the purpose of building and operating its road, he is a party to the illegal contract, and cannot claim relief in a court of equity. He becomes, it is said, a willing participator in the unlawful contract, and therefore should meet the consequences of his own act. On the contrary, it is said that the restriction is directed against the corporation alone, to prevent it from engaging in illegal transactions, and that where it obtains real estate for a purpose not authorized by' its charter, it can be compelled, in a suit in dissaffirmance of the contract, to restore the land which it has obtained. In the present case it will be observed that the lands were conveyed to a trustee, impressed with a trust which the law does not sanction; and does this change the law of the case, or affect the rights of the respondent ? If he could reclaim the lands had they been conveyed directly to the company, ought he not to do so when they are conveyed to a trustee for its use and benefit? These questions have presented themselves to our consideration in the examination of this case, and we should have been glad to have decided them, had we come to a satisfactory conclusion upon them. They are interesting and important and controlling in this case; but we are compelled to leave them for further argument and consideration. — 584 — But upon the other ground, that the deeds were obtained from him by false and fraudulent representations as to the pecuniary condition of the company, we think the respondent shows himself entitled to relief. He alleges that Wil- . . . °. Ham B. Ogden, and the persons acting with him in soliciting stock subscriptions, represented that the company was in good pecuniary condition and repute; that the part of the road completed from Eond du Lae to the La Crosse Junction, and from Janesville to Chicago, was earning money very rapidly, and in fact that the net earnings of the road for sis months then last past, had been equal to four and one half per cent, on the entire cost of the road, which amounted to three millions of stock, while at the time they well knew that the company was on the verge of bankruptcy, and about to fail, and was without credit, its bonds and stock of little value; and that the road in operation was not earning any such sums as were represented. It is very clear that those representations as to the pecuniary condition of the company and the earnings of the road, were material, and were such as the respondent had a right to rely upon when he sold his land for the stock of the corporation. He could not know what the road was earning, or that the company, instead of being in a sound financial condition, was just upon the eve of bankruptcy. It is evident that these matters, which fixed the value of the stock, could only be known to the agents and officers of the road. They had access to the books and records of the company, knew what the road was earning and whether the corporation was solvent, and nothing was more reasonable or natural than that a party about to subscribe for stock should rely on the statements of its officers and agents who were around soliciting subscriptions. It is said that the company ought not to be held responsible for the misrepresentations of its agents, but we think otherwise. They were going about the country obtaining subscriptions, and whatever fraudulent representations they made as to the condition of the road and the value of the stock while doing this, must be deemed to be made by them in the execution of their agency and for which the company is liable. This we think — 585 — is very clear from tlie authorities. Sanford vs. Handy, 23 Wend., 260; Gibson vs. D'Este, 21 Eng. Ch. R., 542; Younge and Collyer, 542, 570; Phil., Wilmington & Baltimore R. R. Co. vs. Quigley, 21 How. (U. S.), 202. We therefore think that if the allegations of the complaint in respect to these false and fraudulent statements of the agents shall he sustained by the proof, the respondent will be entitled to have the contract rescinded on the ground of fraud. The order of the circuit court overruling the demurrer is affirmed.