Union Canal Co. v. Gilfillin ( 1880 )

Mr. .Justice Paxson

delivered the opinion of the court, March 1st 1880.

We find nothing in the Act of April 10th 1862 relating to the Union Canal Company that is objectionable upon constitutional grounds. The object of the act was to provide a scheme to relieve the company from its financial difficulties. It had issued bonds to the amount of $2,500,000, which were secured by a first mortgage. The coupons upon these bonds had been unpaid for years. The scheme contemplated the surrender of the over-due coupons by the bondholders, and the funding of them by the company in a new issue of bonds to the extent of $500,000, to be secured by the same mortgage. The last scries of bonds were to be used in settling the liabilities of the company. This would make the whole amount of bonds $3,000,000, the coupons upon all of which were to be paid out of the net income, revenues and profits of the company, after May 1st 1861, and not otherwise. In other words, if the company earned no profits, the bondholders were to receive no interest. The act further provided for the calling of a public meeting of the stockholders and bondholders, whereat said stockholders and bondholders, voting separately, might enter into an agreement providing for carrying out the provisions of the act. But here the legislature appears to have taken especial care not to abridge or impair the rights of dissenting bondholders. Those who refused to enter into the agreement were not to be bound thereby. Up to this point there certainly was nothing to impair the obligation of the contract between the company and its bond holders. But the act contained the further provision that every bondholder who “ shall fail to file with the president of said corporation, his or her refusal in writing to concur in the said agreement, within three months from the date thereof, such bondholder shall be taken to have agreed to the same.” The learned court below held this provision to bo unconstitutional in this, .that it impaired the obligation of the contract between the company and the bondholder.

It may be conceded that a debtor, whether a natural or an artificial person, cannot say to his creditor: Unless you signify your dissent from a certain proposal by a given time, I will hold you to a consent; and act accordingly. The question here is, may the legislature, as the representatives of the people, in the exercise of the sovereign will, require a creditor of an embarrassed corporation, to express his will within a reasonable time, in regard to measures believed to be essential to the interests of both creditors and stockholders. The power of the legislature is supreme, except where restrained by the fundamental law. No presumption arises that a law is unconstitutional; on the contrary, every presumption is in favor of the constitutionality of an Act of Assembly.

As bearing upon this question it is proper to say, that we have upon our statute books a large amount of legislation in which the principle embodied in the Act of 1862 is distinctly recognised. It is not new, and I am not aware that its constitutionality has ever before been doubted. The Act of February 17th 1847, Pamph. L. 142, entitled “An act for the relief.of the creditors of the Philadelphia, Germantown and Norristown Railroad Company,” contains a provision substantially similar to the one in question. So does the Act of April 7th 1852, Pamph. L. 261, passed for the protection of the creditors of the Schuylkill Navigation Company. The same principle will be found in the Acts of April 10th 1852, Pamph. L. 316 and April 17th 1861, Pamph. L. 319, relating to the Susquehanna Canal Company, and the Act of April 11th 1862, Pamph. L. 422, for the relief of the Chester Valley Railroad Company. The question now under consideration does not appear to have been raised under either of the above-mentioned acts, and their existence cannot therefore be accepted as conclusive évidence of their constitutionality. They come to us, however, with the approval of two of the co-ordinate departments of the government, and the fact that they have been acted upon in the adjustment of large and important interests for so many years is not without weight in the consideration of a question of this kind.

It is not difficult to find in' the general legislation of the state' much that bears a close analogy to this section of the Act of 1862. Thus the Act of 16th May 1861 (Purd. Dig. 1223), authorizing the merger of one railroad company by another, provides that the remedy thereby given to dissatisfied stockholders shall be pursued within thirty days after the execution of the agreement for consolidation. The Act of 24th March 1865 (Purd. Dig. 1225), authorizing the consolidation of railroad companies, contains a like provision. It is true these acts affect the stockholders who may lie presumed to have bought their stock subject to the general legislative power of control over the affairs of corporations. In like manner a creditor must be presumed to have bought his bond subject to such power so far as it exists, and to the general right of the legislature to change or modify his remedy to a reasonable extent, and so that it shall not deny his right..

All of the foregoing legislation comes within the recognised power of the General Assembly to pass statutes of limitation and stay laws. The constitutionality of such laws has been so often decided that it would be an affectation of learning to cite the authorities. The one question that arises in all such cases is the reasonableness of the limitation. The third section of the Act of 1862, is an act of limitation. It takes away no man’s right, and violates no man’s contract. The creditor may dissent, and is not thereafter affected by the proceedings. All that is required of him is to express his will in a particular way within three months. No one can or does pretend that the time given is unreasonable. May then the creditor be required to signify his dissent upon pain of being held to an assent in case of neglect to do so ? The argument that the law cannot compel a creditor to do any act in order to preserve his claim is unsound. He may be compelled to act. The Statute of Limitations is a case in point. It compels the creditor to sue within the statutory period or lose his claim. A man must so exercise his rights in a community of law as not to needlessly embarrass or injure the rights of others. All this Act of Assembly does is to require the creditor to say whether he will accept or refuse the agreement. The rights and interests of other parties require that he shall do this. There are many instances in the laws relating to insolvents, where a creditor is bound by the act of the majority, or of a given number of creditors not less than a majority. Of this nature is the seven years’ exemption from execution on consent of a majority in number and value of the insolvent’s creditors, contained in the Act of 1886. The Bankrupt Act contains provisions which recognise the same principle. All this leads to the conclusion that there is power in the law to require a creditor of an embarrassed corporation or individual to indicate his dissent from measures deemed essential to the common welfare of creditors and debtors, or else suffer the very mild penalty of being held to an assent. And this violates no right of the creditor guaranteed to him by the fundamental law.

The judgment is reversed, and judgment is now entered for the defendant below upon the case stated.

Justices Merger and Gordon dissented.