THIS case originated in the Circuit Court of the United States for the district of Indiana.
It was a bill filed on the equity side of the court, by Vallette, a citizen of Ohio, against the White Water Valley Canal Company, a corporation created by a law of the State of Indiana. The whole suit was conducted according to the rules of a court of chancery. After the decree, the company prayed an appeal in open court, filed a bill of exceptions, which was allowed and signed by the district judge, and upon this a writ of error was sued out.
The nature of the contract and form of the bonds are set forth in the opinion of the court.
The heading of the bonds was as follows, viz:
UNITED STATES OF AMERICA,
State of Indiana.
$1,000.
No. 18.
Canal Loan. Seven per cent. bond under the act of the General Assembly of the State of Indiana, entitled 'An act to incorporate the White Water Valley Canal Company,' January 20, 1842.
Know all men by these presents, that there is due from 'the White Water Valley Canal Company' to Henry Vallette, or bearer, the sum of, &c., &c.
The case was was argued by Mr. McLean and Mr. Stanbery for the appellants, and Mr. Swayne and Mr. Ewing for the appellees. Upon this side there was also a brief filed by Mr. Fox.
1. That there was no power to issue bonds which should claim priority, by way of mortgage, over all other creditors. They admitted the right of these bondholders to come in amongst the other creditors, but denied their claim to exclusiveness.
2. That the bargain was too hard, because the bonds were issued for twice the amount which had been expended in finishing the canal.
Upon the first point, they referred to the difference between the original and amended bill filed by Vallette; the original having placed the transaction upon the footing of a loan under the 18th section of the charter, whilst the amended bill placed it upon the footing of a contract made for finishing the work. The power to mortgage was denied, because it included a power to sell, and in this case the company was a mere trustee created by the State to finish a work in which the State had already invested a million of dollars. The State reserved the right to redeem the canal upon certain conditions, which right was incompatible with a power in the company to mortgage and sell, and thus forever alienate the whole work. When sold, how could an individual purchaser carry it on? Could he exercise the power of eminent domain, of crossing public highways, and of making penal statutes necessary to continue the operation of the canal? Other parts of the charter were inconsistent with the alleged power of the company to sell out, or do anything which might lead to selling out, the whole concern. The grant of power in the 18th section carries with it an inference that the same power is not granted in any other section of the charter. The law of 1845, legalizing the bonds, was only intended to sanction the payment of seven per cent. interest, which is proved by that part of the preamble which says, 'whereas doubts are entertained as to the legality of the issue of such bonds under the present interest laws of the State.'
The contract was a very onerous one. In it there is nothing said about giving this debt a priority over all other debts; but Vallette appeared to look for his profit in the fact of receiving bonds for double the amount which it would cost to finish the canal. The company had already paid upwards of $75,000 upon account of these bonds, whereas the money expended by Vallette was only $56,000. At the most, there was only an agreement to give him a mortgage, which, not being executed, ought not to exclude other creditors whose claims are perfectly fair and bona fide. When the company made this bargain, it was in great straits for money, and Vallette took an unconscientious advantage of a necessitous debtor.
Authorities were adduced to sustain the following propositions, viz:1. Corporations are strictly limited to the exercise of those powers which are expressly granted to them, or are necessarily incident either to the purposes of their existence, or to the proper enjoyment of their express powers.
2. An express grant of a specific power, in one section of a charter, is a prohibition against the exercise of the same power by implication from the provisions of another section.
3. The express grant of a specific power is restrictive in its operation, and not only must the occasion of its exercise arise, but the method and manner of its execution must be strictly adhered to, according to the terms of the grant, or its exercise is a nullity.