FARNSWORTH V. MINNESOTA & PACIFIC RAILROAD COMPANY, 92 U. S. 49 (1875)Subscribe to Cases that cite 92 U. S. 49
U.S. Supreme Court
Farnsworth v. Minnesota & Pacific Railroad Company, 92 U.S. 49 (1875)
Farnsworth v. Minnesota & Pacific Railroad Company
92 U.S. 49
APPEAL FROM THE CIRCUIT COURT OF THE UNITED
STATES FOR THE DISTRICT OF MINNESOTA
1. On the 3d of March, 1857, 11 Stat. 195, Congress passed an act granting certain lands to the Territory of Minnesota for the purpose of aiding in the construction of several lines of railroad between different points in the territory. The act declared that the lands should be exclusively applied to the construction of that road on account of which they were granted and to no other purpose whatever, and that they should be disposed of by the territory or future state only as the work progressed, and only in the manner following -- that is to say, a quantity of land, not exceeding one hundred and twenty sections for each of the roads and included within a continuous length of twenty miles of the road, might be sold, and when the governor of the territory or the future state should certify to the Secretary of the Interior that any continuous twenty miles of any of the roads were completed, then another like quantity of the land granted might be sold, and so, from time to time, until the roads were completed. Held that the chanroblesvirtualawlibrary
construction of portions of the road on account of which lands were granted, as thus designated, was a condition precedent to a conveyance by the territory or future state of any of the lands beyond the first one hundred and twenty sections. Accordingly, an act of the territory, transferring to a railroad company these lands in advance of any work on its road, only conveyed title to the first one hundred and twenty sections.
2. Where a grant of land and connected franchises is made to a corporation for the construction of a railroad by a statute, which provides for their forfeiture upon failure to perform the work within a prescribed time, the forfeiture may be declared by legislative act without judicial proceedings to ascertain and determine the failure of the grantee. Any public assertion by legislative act of the ownership of the state after the default of the grantee -- such as an act resuming control of the road and franchises, and appropriating them to particular uses, or granting them to another corporation to perform the work -- is equally effective and operative.
On the 3d of March, 1857, 11 Stat. 195, Congress passed an act granting certain lands to the Territory of Minnesota, for the purpose of aiding in the construction of several lines of railroad between different points in the territory. These lands were to consist of the alternate sections, designated by odd numbers, for six sections in width, on each side of the several lines of road, and were to be selected within fifteen miles therefrom. The act declared that the lands should be exclusively applied to the construction of that road on account of which they were granted, and to no other purpose whatever; and that they should be disposed of by the territory or future state only as the work progressed, and only in the manner following -- that is to say, a quantity of land, not exceeding one hundred and twenty sections for each of the roads, and included within a continuous length of twenty miles of the road, might be sold; and when the governor of the territory or the future state should certify to the Secretary of the Interior that any continuous twenty miles of any of the roads were completed, then another like quantity of the land granted might be sold; and so, from time to time, until the roads were completed, and that if any of the roads were not completed within ten years, no further sales should be made, and the lands unsold should revert to the United States.
On the 19th of May of the same year, the territory accepted the grant thus made upon the terms, conditions, and restrictions chanroblesvirtualawlibrary
contained in the act of Congress, and, on the 22d of the month, passed an act for the execution of the trust. By that act, it authorized four different companies to construct the roads in aid of which the congressional grant was made, each company a distinct road. Three of these companies were at the time in existence -- one of them, the Minnesota & Pacific Railroad Company, was created by the act. This latter company was authorized to construct the road from Stillwater, by way of St. Paul and St. Anthony, to the town of Breckenridge, on the Sioux Wood River, with a branch from St. Anthony to St. Vincent, near the mouth of the Pembina River, and, for the purpose of aiding in its construction, the act granted to the company the interest and estate present and prospective of the territory and of the future state in the lands granted by Congress along the line of the road, subject, however, to the proviso that the title of the lands should vest in the company as follows: of the first one hundred and twenty sections, whenever twenty or more continuous miles of the road should be located and the governor should certify the same to the Secretary of the Interior, and afterwards of a like number of sections, whenever and as often as twenty continuous miles of the road should be completed so as to admit of running regular trains and the governor should certify the fact to the Secretary.
By the same act, the company was authorized to borrow money and to execute its bonds and mortgages and other obligations for the same, or for any liabilities incurred in the construction, repair, equipment, or operating of the line upon any part of its railroad or branches and upon the estate granted by the act and upon any or all of its other property.
The company organized under the act and accepted the grant made by its provisions upon the terms and conditions mentioned and, during the year, had the greater part of the line of its road surveyed and located and maps of the same filed with the governor of the territory and the commissioner of the General Land Office at Washington. The location was approved by the Secretary of the Interior and, by his directions, the lands granted along the line were withdrawn from sale and settlement. A contract, as alleged, was also made with a responsible party for the construction of the main line chanroblesvirtualawlibrary
of the road; but work under it was only prosecuted for a month, when it was abandoned. No portion of the road was completed, and the failure of the company in this respect was ascribed to the general embarrassed financial condition of the country, in consequence of which it was unable to raise the necessary funds to proceed with the work
The Territory of Minnesota became a state in October, 1857, though not admitted into the Union until May, 1858. Its constitution prohibited the loan of the state credit in aid of any corporation, but the first legislature assembled under it, being desirous of expediting the construction of the lines of the road in aid of which the congressional grant was made, proposed, in March, 1858, an amendment to the constitution removing this prohibition so far as the four companies named in the Act of May 22, 1857, were concerned. The amendment was submitted to the people and, on the 15th of April of the same year, was adopted. This amendment provided that the governor should cause to be issued and delivered to each of the four companies special bonds of the state to the amount of $1,250,000, in installments of $100,000 as often as any ten miles of its road was ready for placing the superstructure thereon, and an additional installment of the same amount as often as that number of miles of the road was fully completed and the cars were running thereon, until the whole amount authorized was issued. The bonds were to be denominated Minnesota State Railroad Bonds; were to draw interest at the rate of seven percent per annum, payable semiannually in the City of New York; were to be transferable by endorsement of the president of the company and redeemable at any time after ten and before the expiration of twenty-five years from their date, and for the payment of the interest and the redemption of the principal the faith and credit of the state were pledged. The amendment at the same time with this pledge declared that each company should make provision for the redemption of the bonds received by it and payment of the interest accruing thereon, so as to exonerate the treasury of the state from any advances of money for that purpose, and, as security therefor, required the governor, before any bonds were issued, to take from each company an instrument pledging the net profits of chanroblesvirtualawlibrary
its road for the payment of the interest and a conveyance to the state of the first two hundred and forty sections of land, free from prior encumbrances, which the company was or might be authorized to sell to protect the treasurer against loss on the bonds, and also required as further security that an amount of first mortgage bonds on the roads, lands, and franchises of the company corresponding in amount to the state bonds issued to it, should be transferred to the treasurer of the state with the issue of the state bonds. The amendment declared that in case either company made default in the payment of the interest or principal of the bonds issued to it, no more state bonds should be thereafter issued to that company, and that the governor should proceed to sell, in such manner as might be prescribed by law, its bonds or the lands held in trust, or require a foreclosure of the mortgage executed to secure the bonds. The amendment further provided that in consideration of the loan, each company which accepted the bonds should, as a condition thereof, complete not less than fifty miles of its road on or before the expiration of the year 1861, and not less than one hundred miles before the year 1864, and four-fifths of the entire length of its road before the year 1866, and that any failure on the part of the company to complete the number of miles of its road in the manner and within the several times thus prescribed should forfeit to the state all the rights, title, and interest of any kind whatsoever in and to any lands granted by the act of May 22, 1857, together with the franchises connected with the same, not pertaining or applicable to the portion of the road by it constructed, and a fee simple to which had not accrued to the company by reason of such construction.
The Minnesota & Pacific Railroad Company, after the proclamation of the governor of its adoption, accepted the amendment, and gave notice to the governor of its acceptance, and that it proposed to avail itself of the loan which the amendment provided.
On the 31st of July, 1858, the company executed to certain trustees named therein a deed of all that portion of its lines of road in aid of which the lands had been granted, and of the lands and alienable franchises connected therewith, in chanroblesvirtualawlibrary
trust for the holders present and prospective of twenty-three millions of bonds to be issued under certain restrictions. Nine hundred of these bonds were subsequently issued as therein provided, and some of them were put in circulation. The present suit is brought by the surviving trustees to obtain a decree that this deed is a valid and subsisting lien prior to all other liens and encumbrances upon all the lands, property, and franchises described therein, and to enforce the same.
Subsequently during that year, the company graded thirty miles of its road, and made it ready for the superstructure, and thereupon executed the pledge of net profits, and the conveyance of two hundred and forty sections as provided by the constitutional amendment. But in place of first mortgage bonds secured by a separate deed of trust, the company offered $300,000 of its bonds secured by the trust deed mentioned of July 31, 1858, and applied for state bonds of an equal amount. The governor refused to issue the state bonds until a deed of trust was executed specifying a priority of lien of the bonds which the company might deliver to the state. This refusal led to a great deal of controversy and some litigation with the governor, but ultimately, on the 27th of November, 1858, a supplemental deed of trust was executed by the company, authorizing and directing, in case of default in the payment of the interest or principal of its bonds delivered to the state, a foreclosure and sale by the trustees upon the demand of the governor, and, in case of their failure or refusal upon his demand, authorizing the governor to make such foreclosure and sale. The governor then issued to the company bonds of the state to the amount of $300,000. Subsequently, during that and the following year (1859), thirty-two and one-half miles more of the road were graded and ready for its superstructure, and $300,000 more of bonds of the state were issued to the company and a corresponding amount of the first mortgage bonds of the company were delivered to the treasurer. The interest on the state bonds was payable on the first days of June and December, and the interest on the company's bonds was payable on the first days of February and August, of each year.
The company made default in the payment of interest on chanroblesvirtualawlibrary
the state bonds delivered to it, falling due in December, 1859, and the governor demanded of the trustees, in the deed of July 31, 1858, that they should proceed to foreclose the same, and sell the trust property. With this demand the trustees never complied.
The company also made default in the payment of interest upon its own bonds delivered to the state, due on the 1st of February, 1860. The legislature accordingly, in March following, passed an act making it the duty of the governor to foreclose the deed of trust if in his opinion the public interest required it and, upon a sale of the property, rights, and franchises covered by the deed, to bid in the same for the state.
The legislature at about the same time proposed an amendment of the constitution of the state prohibiting any law, which levied a tax or made other provisions for the payment of interest or principal of the state bonds issued to the company, from taking effect until the same had been submitted to a vote of the people and been adopted, and also prohibiting any further issue of bonds to the company under the amendment of April 15, 1858, and abrogating that amendment with a reservation to the state of all rights, remedies, and forfeitures accruing thereunder. This amendment was adopted in November, 1860. Whilst it was pending before the people, the governor proceeded under the act of the legislature, and had the property covered by the trust deed of the company, with the connected franchises, advertised and sold, the same being purchased on behalf of the state. The sale took place on the 23d of June, 1860.
In March, 1861, the legislature passed an act by which the road, lands, rights, and franchises possessed by the company previous to the sale, and all bonds and securities of the company held by the state, were upon certain conditions "released, discharged, and restored" to the company, free from all liens or claims of the state. These conditions required the construction and equipment of certain portions of the road within designated periods. One of the conditions provided that the company should construct and put in operation, and fully equip for business that portion of the main line extending from St. Paul to St. Anthony on or before the first day of the following January, in default of which all the rights chanroblesvirtualawlibrary
and benefits conferred upon the company by virtue of the act should be "forfeited to the state absolutely, and without further act or ceremony whatever," and, in case the company should fail to construct the other and further portions of the road and branches within the time or times designated, it should forfeit to the state in like manner all the lands, property, and franchises pertaining to the unbuilt portions of the road and branch, and in either case or in any forfeiture under the provisions of the act, the state should hold and be possessed of all the lands, property, and franchises forfeited "without merger or extinguishment, to be used, granted, or disposed of, for the purpose of aiding and facilitating the construction of said road and branch."
This act the company accepted with all its conditions, but it never completed the portion of the road there designated to be put into operation before the first of the following January or any portion of its road as there provided or as provided in the constitutional amendment of 1858, and on the 10th of March, 1862, the legislature, acting upon the forfeiture accruing or supposed to be accruing from the failure of the company in this respect, passed an act creating the St. Paul & Pacific Railroad Company and granted to it all the rights, benefits, privileges, property, franchises, and interests of the Minnesota & Pacific Railroad Company acquired by the state by virtue of any act or agreement of the company or anything done or suffered by it or by virtue of any law of the state or territory or of the constitution of the state or from the sale made by the governor, and also all the rights, privileges, franchises, lands, and property granted to the company by the Act of May 22, 1857. The new company and a division company subsequently created out of it have since constructed the main line of the road and a portion of the branches, and, to enable them to do so, have made various deeds of trust and mortgages upon the assumption that the rights of the old Minnesota & Pacific Railroad Company had ceased. These deeds of trust and mortgages amount to many millions of dollars, and are outstanding. These companies and the holders of their bonds, of course, resist the enforcement of the deed of trust in suit. The questions for determination relate first to the validity of this chanroblesvirtualawlibrary
deed at the time it was executed, or rather to the right of the company to include therein and bind all the lands granted by the act of the territory of May 22, 1857, and, second, to the effect of the Act of March 10, 1862, upon the title of the property and connected franchises embraced in the deed of trust. chanroblesvirtualawlibrary
MR. JUSTICE FIELD, after making the foregoing statement of the case, delivered the opinion of the Court. chanroblesvirtualawlibrary
The act of Congress granting lands to the Territory of Minnesota imposed conditions upon their alienation, except as to the first one hundred and twenty sections, which the territory could not disregard. It declared that the lands should be exclusively applied to the construction of the road in aid of which they were granted and to no other purpose whatever, and should be disposed of only as the work progressed. It provided that their sale should be made in parcels as specified portions of the road were completed, and only in that manner. The evident intention of Congress was to secure the proceeds of the lands for the work designed, and to prevent any alienation in advance of the construction of the road, with the exception of the first one hundred and twenty sections. The act made the construction of portions of the road a condition precedent to a conveyance of any other parcel by the state. No conveyance in disregard of this condition could pass any title to the company. It was so held by this Court in Schulenberg v. Harriman, 21 Wall. 44, where we had occasion to consider provisions of a statute identical in terms with the one before us.
The Act of May 22, 1857, passed in advance of any work on the road, conveyed, therefore, no title to the Minnesota & Pacific Railroad Company in the lands granted by Congress beyond the first one hundred and twenty sections. Of course, the mortgage, or deed of trust, subsequently executed by that company, so far as it covered such lands, was inoperative for any purpose.
Whatever interest passed to the company in the one hundred and twenty sections was subject to forfeiture under the constitutional amendment of April 15, 1857. That amendment, which the company voluntarily accepted, provided, as already stated, that upon failure to complete certain portions of the work within prescribed periods it should forfeit these lands, and all other lands held by it, with the connected franchises, except such lands as were acquired by construction of portions of the road. The parcels thus earned were excepted from forfeiture. It was certainly competent for the company to subject its property, rights, and franchises conferred or attempted to be conferred by the Act of May 22, 1857, or derived from any other source, to this liability. Its assent in this respect was one of chanroblesvirtualawlibrary
the conditions upon which it received the loan of the state credit provided by the constitutional amendment. When the assent was given, the relation of the state to the land and connected franchises was precisely as though the condition had been originally incorporated into the grant. The mortgage or deed of trust not having been executed until after the amendment was accepted, and the holding of the lands of the company, with its rights, privileges, and franchises, having been thus made dependent upon the completion of the road within the periods prescribed, the beneficiaries under that instrument took whatever security it afforded in subordination to the rights of the state to enforce the forfeiture provided. That forfeiture was enforced by the Act of the legislature of March 10, 1862; unless we are to presume that at the sale made in 1860 by the governor, under the act of March of that year and the supplemental deed of trust, the entire interest and right of the company were acquired by the state. It is averred in the bill of complaint that this sale was void and that it was so adjudged by a district court of the state. If this adjudication was valid and the sale was void, the forfeiture provided by the constitutional amendment was enforced by the act mentioned. A forfeiture by the state of an interest in lands and connected franchises, granted for the construction of a public work, may be declared for noncompliance with the conditions annexed to their grant, or to their possession, when the forfeiture is provided by statute, without judicial proceedings to ascertain and determine the failure of the grantee to perform the conditions. Such mode of ascertainment and determination -- that is, by judicial proceedings -- is attended with many conveniences and advantages over any other mode, as it establishes as matter of record, importing verity against the grantee, the facts upon which the forfeiture depends, and thus avoids uncertainty in titles, and consequent litigation. But that mode is not essential to the divestiture of the interest where the grant is for the accomplishment of an object in which the public is concerned, and is made by a law which expressly provides for the forfeiture when that object is not accomplished. Where land and franchises are thus held, any public assertion by legislative act of the ownership of the state, after default of the grantee -- chanroblesvirtualawlibrary
such as an act resuming control of them and appropriating them to particular uses, or granting them to others to carry out the original object -- will be equally effectual and operative. It was do decided in United States v. Repentigny, 5 Wall. 211, and in Schulenberg v. Harriman, 21 Wall. 44, with respect to real property held upon conditions subsequent. In the former case, the Court said that
"A legislative act directing the possession and appropriation of the land is equivalent to office found. The mode of asserting or of resuming the forfeited grant is subject to the legislative authority of the government. It may be after judicial investigation, or by taking possession directly under the authority of the government without these preliminary proceedings."
And there would seem to be no valid reason why the same rule should not apply to franchises held in connection with real property and subject to like conditions, where the franchises were created for the purpose of carrying out the public object for which the real property was granted.
In this case, there were special reasons for the provision for a forfeiture and for its immediate enforcement by the state in case of the grantee's failure to construct designated portions of the road within the time prescribed. The act of Congress provided that in case the road was not completed within ten years, the lands of the grant then remaining unsold should revert to the United States. It was therefore necessary for the state to see that the construction of the road was commenced and pushed forward without unnecessary delay, to prevent a possible loss of portions of the grant. By the clause of forfeiture, the state was enabled to retain such a control over the lands and connected franchises that, in case the company failed to build the road in time, it could make arrangements with other companies or parties for that purpose. This control would have been defeated if the state had been subjected to the delay of judicial proceedings before a forfeiture could have been enforced. The entire grant would have been lost to the state whilst such proceedings were pending. A more summary mode of divestiture was therefore essential, and was contemplated by the parties.
The only inconvenience resulting from any mode other than by judicial proceedings is that the forfeiture is thus left open chanroblesvirtualawlibrary
to legal contestation when the property is claimed under it, as in this case, against the original holders.
But it is said that provisions for forfeiture are regarded with disfavor and construed with strictness, and that courts of equity will lean against their enforcement. This, as a general rule, is true when applied to cases of contract and the forfeiture relates to a matter admitting of compensation or restoration, but there can be no leaning of the court against a forfeiture which is intended to secure the construction of a work in which the public is interested where compensation cannot be made for the default of the party, nor where the forfeiture is imposed by positive law. "Where any penalty or forfeiture," says Mr. Justice Story,
"is imposed by statute upon the doing or omission of a certain act, there courts of equity will not interfere to mitigate the penalty or forfeiture, if incurred, for it would be in contravention of the direct expression of the legislative will."
Story's Eq.Jur., sec. 1326. The same doctrine is asserted in the case of Peachy v. Duke of Somerset, reported in 1st Strange, and in that of Keating v. Sparrow, reported in 1st Ball & Beatty. In the first case, Lord Macclesfield said that
"Cases of agreement and conditions of the party and of the laws are certainly to be distinguished. You can never say that the law has determined hardly; but you may that the party has made a hard bargain."
In the second case, Lord Manners, referring to this language and taking the principle from it, said that
"It is manifest that in cases of mere contract between parties, this court will relieve when compensation can be given, but against the provisions of a statute, no relief can be given."
For these reasons, the forfeiture in this case declared by the legislature cannot be interfered with by the court. But, as stated by counsel, the forfeiture will also be upheld on considerations of public policy, as well as from the impossibility of obtaining compensation from the railroad company for its default, on the same principle upon which courts of equity refuse to relieve against forfeitures incurred under the bylaws of corporations for the nonpayment of stock subscriptions. To this subject Mr. Justice Story refers in his Commentaries, and after stating the general doctrine, that courts of equity will not chanroblesvirtualawlibrary
interfere in cases of forfeiture for the breach of covenants and conditions where there cannot be any just compensation for the breach, says:
"It is upon grounds somewhat similar, aided also by considerations of public policy and the necessity of a prompt performance in order to accomplish public or corporate objects, that courts of equity, in case of the noncompliance by stockholders with the terms of payment of their installments of stock at the times prescribed, by which a forfeiture of their shares is incurred under the bylaws of the institution, have refused to interfere by granting relief against such forfeiture. The same rule is for the same reasons applied to cases of subscriptions to government loans, where the shares of the stock are agreed to be forfeited by the want of a punctual compliance with the terms of the loan as to the time and mode and place of payment."
The case of Sparks v. Liverpool Waterworks Company, cited by counsel, is a strong illustration of this doctrine. 13 Ves. 428. The company there was incorporated to supply the town and port of Liverpool with water, and the property in and the profits of the undertaking were vested in the company in such shares and subject to such conditions as should be agreed upon. By articles of agreement, a committee of the company was authorized to call upon the shareholders for the several sums payable by them on their respective shares, and it was, among other things, provided that in case any shareholder made default in the payment of his calls for twenty-one days after the time appointed and for ten days after subsequent notice addressed to his then or last usual place of abode, his share or shares should be absolutely forfeited for the benefit of the other members of the corporation. The plaintiff was the owner of certain shares of stock in the company upon which payment had been made upon thirty-four calls. The payment of the thirty-fifth call was omitted through his failure to receive personal notice of the call, it having been sent to his town residence whilst he was absent in the country, and not having been forwarded to him. For the nonpayment upon the call, his shares were declared forfeited. Immediately upon receiving information of the call on his return to the city, he gave directions for its payment, and on the following day chanroblesvirtualawlibrary
the amount was sent to the bankers of the company. The committee of the company, however, informed him that they could give him no relief, as they had acted according to the laws of the company, from which no deviation could be made. The plaintiff thereupon filed a bill for relief against the forfeiture on the grounds of accident and that compensation might be made, and no injury be sustained by the company, his counsel also insisting upon the invalidity of the bylaw, as unreasonable, exorbitant, and uncertain, but the court dismissed the bill for the reason that the enterprise was a public undertaking, requiring for its successful prosecution punctuality of payment from the shareholders. Considerations of public policy forbade the granting of relief, for, as the court observed, "if this species of equity is open to the parties engaged in these undertakings, they could not be carried on."
The Act of March 10, 1862, is a clear assertion of forfeiture of the estate, rights, privileges, and franchises of the Minnesota & Pacific Railroad Company. It grants all of them in express terms to the new company, and makes them in its possession subject to be forfeited to the state if the conditions annexed are not performed. And the failure of the original company to complete any portion of the road, as provided in the amendment of 1858, is not questioned by the complainants. Their position is that the state had previously lost the right to a forfeiture by her own breaches of the amendment; that forfeiture could not be effected without judicial process and judgment; and that the forfeiture, if any accrued, was waived by the Act of March 8, 1861, and its acceptance by the company.
The alleged breaches of the amendment by the state, at least such as are entitled to notice, consist in the refusal of the governor to receive the bonds of the company secured by the trust deed of July 31, 1858, as the first mortgage bonds required to be delivered to the treasurer in exchange for the state bonds, the exaction of the supplemental trust deed, and the adoption of the constitutional amendment of November, 1860, abrogating the amendment of 1858 and prohibiting any law which levied a tax or made other provisions for the payment of the bonds of the state from taking effect until submitted to a vote of the people and adopted. chanroblesvirtualawlibrary
The amendment of 1858 evidently contemplated that the first mortgage bonds of the company delivered to the treasurer in exchange for state bonds should be secured by a separate deed of trust, or at least by a deed which could be enforced by the governor, and not by a deed executed to parties over whom he could exercise no control. Whether the supplemental deed of trust was a sufficient compliance with the provision of the amendment, and whether it could create a priority of lien in favor of the bonds transferred to the state over bonds previously issued by the company to other creditors, it is unnecessary to determine. If defective or inoperative in either of these particulars, the objection cannot be raised by the company. Besides, if it could be considered as a matter of serious doubt whether the state was entitled to require a separate instrument of the character executed, its voluntary execution and acceptance by the governor and the subsequent exchange of bonds would seem to be a settlement of the question.
The adoption of the constitutional amendment of November, 1860, certainly had the effect to impair the value of the bonds of the state. But it is the holders of those bonds who had a right to complain of this proceeding, not the company or the trustees under the deed in suit. The holders of those bonds looked, in the first instance, to the state for their payment; the state was primarily liable to them, and they were therefore injuriously affected by the amendment. Whether the company was liable at all to the bondholders on the bonds from the endorsement of its president it is unnecessary to determine, but assuming such liability, then as between the company and the state, the company was the principal debtor, and the state only a surety, and with that relation existing, the company could not complain that the state, its surety, did not pay the bonds, interest or principal. And the trustees could not complain, for no right or contract between them and the company, or between them and the state, was impaired by the proceeding.
The amendment of 1858 prohibited any further issue of state bonds, whenever the company made default in meeting the interest on those issued. The withholding, therefore, of any further bonds after such default violated no contract of the state with the company, nor did it impair the right of the chanroblesvirtualawlibrary
state to enforce a forfeiture of its grant if the stipulated conditions as to the completion of the road were not complied with. After such default (no redemption from it having been made), all obligation of the state to the company ceased; its obligation remained only to its bondholders. That obligation still remains, and will remain until the pledge of its faith for the payment of the bonds is redeemed.
As to the alleged waiver of the forfeiture by the act of March 8, 1861, and its acceptance by the company, only a word need be said. The waiver, if the provisions of the act can be construed as such, was only conditional, and the condition was not complied with. There had previously been, as already stated, a foreclosure and sale of the property, rights, and franchises of the company under its supplemental deed of trust, pursuant to the act of the legislature of the previous year, and, at the sale, the state had become the purchaser. The act of March 8, 1861, released and restored to the company the road, lands, rights, and franchises which it had possessed previous to the sale, and all bonds and securities of the company held by the state, free from all liens or claims thereon. The release and restoration were upon express conditions, one of which was that the company would construct and put into operation before the following January a designated portion of its road, and the act declared that upon the default of the company in this respect, all the rights and benefits conferred by virtue of the act should be "forfeited to the state absolutely, and without any further act or ceremony whatever," to be held by the state "without merger of extinguishment, to be used, granted, or disposed of, for the purpose of aiding and facilitating the construction of said road and branch." The designated portion of the road was not constructed within the prescribed period, and never has been constructed, and it was with reference to the forfeiture provided for its default in this respect, as well as the forfeiture provided by the amendment of 1858, that the act of March 10, 1862, was passed. That act operated to divest the company of all interest in the one hundred and twenty sections of land and connected franchises transferred to it by the territory in 1857, or subsequently acquired.
It follows from these views that the court below properly sustained the demurrer to the bill.