UNIVERSITY OF 
 ILLINOIS LIBRARY 
 URBANA-CHAMPAIGr 
 BOOKSTACKS 
 
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THE 
 
 PENNSYLVANIA 
 
 B 
 
 ADDRESS 
 
 OP THE 
 
 COMMITTEE OF SEVEN 
 
 THE CITIZENS OF PHILADELPHIA, 
 
 AND OF PENNSYI. VANIA, 
 
 APPOINTED AT A TOWN MEETING, HELD AT PHILA- 
 DELPHL\, ON THE 2Sth OF APRIL, 1846. 
 
 JESPER HARDING, PRINTER. 
 
 
 1846 
 
Digitized by the Internet Archive 
 in 2016 
 
 https://archive.org/details/liabilityofmembeOOjoyj 
 

 3 
 
 made with the Chicago & Iowa and the Michigan 
 Central Companies ; that the rate of interest on the 
 2 bonds was eight per cent. These are the statements o^ 
 ^ the circular. 
 
 ^ The most important object to be accomplished by 
 jjthe C. B. & Q. Company, and which induced it to con- 
 jnect itself, by traffic arrangements and other contracts, 
 (3 with Chicago and Iowa, and with the C. D. & M. are set 
 out in the various contracts, but are not fully set forth 
 in the circular. There had been friendly relations be- 
 tween the C. B. & Q. R. B. Company, and the Illinois 
 Central Company, and the business of the main line of 
 that Company largely passed over the C. B. & Q. from 
 Mendota into Chicago and vice versa. All its travel 
 from Dubuque, and from its line west of Freeport, and 
 from all the Northern Iowa, was passing between Free- 
 port and Chicago over the Chicago & Northwestern 
 Road. This travel was very large, and the business 
 was very valuable. 
 
 Could the Chicago & Iowa Road, which had been 
 planned to strike the river and cross it at Bellevue, 
 twenty miles below Dubuque, be diverted from that 
 plan and strike the Iliinois Central at Forreston, this 
 latter Company would send all that travel, as well as 
 all its freight, over the Chicago & Iowa Road, and 
 over the C. B. & Q. Road, between Aurora and Chi- 
 cago. The great motive of the C. B. & Q., and its 
 Board was to secure this result. By the arrangements 
 and ^agreements made, this result has been secured. 
 One-half of the capital stock of the Chicago & Iowa 
 Road, also amounting to $630, oOO, was secured to the' 
 C. B. & Q. Company. Another important purpose 
 was to secure the travel and business of the C., D. & 
 M. Road itself over the C., B, & Q., though this was 
 
 p 
 
 46R2S 
 
 o 
 
 > 
 
4 
 
 of miicli less value than that of the Illinois Central 
 Road. 
 
 The whole plan has not been carried out, and, 
 therefore, all the fruits of it have not as yet been se- 
 cured to the C. B. & Q., and yet, perhaps, it is well to 
 ascertain what has been saved and secured, that the 
 moving cause of the action all through may be under- 
 stood. The whole passenger business of Northwestern 
 Illinois and of Northern Iowa, commanded by the Illi- 
 nois Central Company, has been taken from the North- 
 western, and that and its freight business has been 
 turned over Chicago and Iowa and C. B. & Q. into 
 Chicago. The bonds resting upon the Chicago & Iowa 
 are about $1,700,000, and the stock is about $1,300,000, 
 both amounting to $3,000,000. The earnings of the 
 road for its eighty miles about were last year $544,- 
 703.55 ; the operating expenses were $300,307.53, leav- 
 ing net $244,396.02 ; interest on bonds during the year, 
 $140,000, leaving net above interest $104,396.02, which 
 is eight per cent, upon the whole capital stock. The 
 stock of that Road is, therefore, worth par, and the 
 C., B. & Q. has of that stock, obtained by these 
 arrangements, $630,000. 
 
 The business, therefore, obtained by these agree- 
 ments, creates a value of $3,000,000 for a road of eighty 
 miles long. All that business passes over the C., B. 
 & Q. between Chicago and Aurora, not quite forty 
 miles, and capitalized on that road, as it is, in the Chi- 
 cago & Iowa, the value of that business would be 
 $1,500,000 to the C. B. & Q. Road, to which add the 
 value of the stock obtained in the Chicago & Iowa, 
 $630,000, and the net profit is $2,630,000. 
 
 It is not perhaps necessary to show the other an- 
 ticipated advantages to the C.,B. & Q. from the arrange- 
 
merits, had the ])hin be completed, but it is safe to say 
 that they would surpass all which it has I'ealized from 
 the success of the ])art of the programme in which 
 Illinois Central and Chicago & Iowa are interested. 
 Had there not been a mistake in tlie estimated cost of 
 the River Roads, these plans would liave now been in 
 process of realization. These results in part realized, 
 and in part defeated for the present, were the motives 
 which moved the Board to these arrangements, and 
 with the full belief that the bonds of the River Road 
 would be good, led to their being offered to the stock- 
 holders of the C., B. & Q., and to the taking of them 
 so largely by the members of the Board themselves, 
 who indeed were individually takers of much larger 
 amounts than any other stockholders. 
 
 Thus far, the statement of facts, and motives of the 
 Board show the most perfect good faith of the gentle- 
 men composing it — show what the books call uberrima 
 fides. No possible case could be stated showing such 
 faith sustained by actual investments in the bonds 
 offered to stockholders. 
 
 There is another element in the case, however, and 
 it remains to ascertain the effect of that element upon 
 the question. There had been formed at Dubuque 
 after as large subscription to stock had been made as 
 it was possible to obtain, a Construction Company 
 under the Laws of Iowa, with a capital of $300,000 
 actually subscribed, for the purpose of taking the 
 contract to build the road and receive the bonds and 
 the unsubscribed stock of the Railroad Company, and 
 enter into a contract for its construction, and such 
 a contract had been made. The hope doubtless, 
 and the expectation of making a profit induced men 
 to take stock in a Construction Company, who 
 
6 
 
 would not subscribe stock in the Railroad Com- 
 pany where they would pay par for stock, and 
 the chance for piotit was less. The $300,000 capital 
 in the Construction Company was raised and the 
 work of construction was in progress when the plans 
 and their effects upon the C., B. & Q. and its stock- 
 holders were brought to the notice of the Board, and 
 after discussions and negotiations for some months 
 between all the Railway Companies interested, it re- 
 sulted in the agreements above alluded to which came 
 before the C., B. & Q. Board for action in June, 1871, 
 one of the results of which was the circular above 
 alluded to. In the meantime, after all the agreements 
 had been completed and while the boards of the 
 various Companies were considering them, that of the 
 C., B. & Q. being the last to do so, the insecurity of a 
 traffic contract to control traffic without the control of 
 the stock of the road was discussed among the mem- 
 bers of the C., B. & Q. Board. In Michigan the Michi- 
 gan Central had then recently lost all the benefits of 
 the Kalamazoo & Grand Rapids Road, which it had 
 aided by traffic contract simply because neither it nor 
 its friends controlled the stock. It passed into the con- 
 trol of the Lake Shore & Michigan Southern, and all its 
 business was commanded against the Central. The traf- 
 fic contract was violated and became useless. It had be- 
 come therefore a resolution with us to make no contract 
 agreement, where in some way we did not control the 
 stock of the Company with which such a contract was 
 made. Indeed it seemed much like a farce to give a 
 credit to bonds by a traffic contract which provided a 
 fund to buy them, when the road might pass into the 
 hands of a rival Company at an}^ time and the fund be 
 destroyed because all the business might be sent over 
 another road than ours, even after we had given its 
 
7 
 
 bonds credit and sold them. This would be using a 
 traffic contract to obtain money ot stockholders, 
 when the whole value ot such a contract to 
 them might be destroyed any hour, by the purchase 
 of stock by, or by a lease of the road to any rival 
 Company. They intended to invest largely in the 
 bonds of the C., D. & M. Road, and for their own pro- 
 tection as well as that of others who might take them, 
 they deemed it necessary to control that road beyond 
 contingency. In these circumstances a party was made 
 up to buy a ma jority of the stock of the Construction 
 Company. The party was composed wholly of stock- 
 holders of C., B. & Q., some of whom were in the 
 Board, and some of them were outside. They bought 
 just a majority and no more, at exactly the cost of it. 
 Though the great motive was control of stock, yet 
 they belit^ved that no money would be lost. They 
 believed it a safe investment with a possibility of 
 profit. Bad they been very sanguine of this, and 
 that the profits would be large, they would have 
 bought more than just the control, as they might have 
 done at the same rate. 
 
 The question which arises upon this additional 
 fact is this : Does it change the position of the members 
 of the Board who voted for the circular, and who, 
 at the same time, had joined in the purchase of the 
 stock of the Construction Company, so as to make 
 them liable for every bond taken by a stockholder, and 
 every stockholder, in case they choose to demand of 
 them the price paid and offer to give them the bonds ? 
 R ow, certainly, this would be an extraordinary 
 liability in these circumstances, and one which it will 
 be difficult to find any principle, and certainly no case 
 can be found to support. 
 
8 
 
 First — The proceeds of the sale of the bonds, both 
 those which they themselves took and those which 
 might be sold to other parties, were to go into a 
 railroad, to aid in its construction, in which those 
 parties were interested as stockholders, as above 
 stated, to the extent with other C., B. & Q. 
 stockholders, of just a little more than half 
 its stock. Every taker of bonds fully under- 
 stood that their money was to be expended upon 
 the road and subject to the contingencies as to 
 cost — ^miscalculation of engineers, and other chances 
 which always attend such enterprises. The learned 
 counsel who gives an opinion to the committee, is com- 
 pelled to admit that there was no misstatement in the 
 circular, and that the enterprise was fairly stated 
 therein to the stockholders of the C., B. & Q. Company. 
 Upon general principles, therefore, there can be no 
 reason why ihose who voted for that circular in the C., 
 B. & Q. Board should be subject to any more than 
 their fare share of the risks as assumed by them in 
 taking the bonds. 
 
 There can be no reason why they should become 
 liable to other parties for monies paid by them for 
 bonds, which has been expended in the exact manner 
 in which all understood it was to be expended. They 
 were not guarantors — they did not even recommend or 
 advise stockholders to buy. They simply stated facts, 
 and said that they were authorized to offer those bonds 
 to stockholders. The money went into an enterprise in 
 which they had an interest as stockholders, but only a 
 part interest. If the facts of the case were similar to 
 those of the case cited by the counsel who gave the 
 opinion to the Committee, so that the principle of that 
 case could apply to this, then possibly a bill might be 
 
9 
 
 maintained against the Construction Company to can- 
 cel tlie contracts for the sale of the bonds. Tliere is, 
 however, no resemblance in the facts, nor consequently 
 in the principles involved. The case cited as being 
 much in point, was between two Corporations. One 
 was a Telegraph Company desiring to lay a cable along 
 the coast of South America ; the other was a munufac- 
 turer, and as such accustomed to contract for building 
 lines of telegraph. The Telegraph Company had an 
 engineer in its employment upon whose estimates and 
 Judgment it relied in making its contracts. The 
 Manufacturing Company, negotiating to build the 
 telegraph line, while negotiating the contract with 
 the Telegraph Company, employed the engineer of 
 the latter Company, making a sub-contract with him 
 to do the work, and then having interested the 
 party upon whose judgment the other party relied 
 in entering into the contract for them, closed the 
 contract with the Telegraph Company. To speak 
 plainly about the matter, though the Vice Chancellor 
 uses mild words in his opinion, the Manufacturing 
 Company bought the Engineer of the other party and 
 then made a contract with it, knowing that it was 
 guided by the statements of the Engineer whom they 
 had interested for themselves. There could not be 
 much difficulty in setting aside a contract obtained un- 
 der such circumstances. But a simple statement of 
 the case is enough to show that there is no analogy be- 
 tween that and this case. 
 
 But let us test the case a little further. The opinion 
 of the learned counsel is that the members of the Board 
 of C., B. & Q. who voted for the circular, and who, at 
 the same time, had an interest in the Construction 
 Company, are liable to be called upon to refund the 
 
10 
 
 money to every bondholder who took the bonds in 
 consequence thereof, though it has not gone into their 
 pockets but into a railroad exactly as intended. If so, 
 then each of them who so voted is liable for all the 
 bonds so sold, and he is liable simply because he had 
 bought a share of the stock in the Construction Com- 
 pany, and did not cause the act of such purchase to 
 be stated in the circular. If this be so, then if 
 only one of the members of the C., B. & Q. Board, 
 while these negotiations were going on, had bought 
 a share in the Construction Company, and then voted 
 with the other members of the Board for the circular, 
 though the vote was unanimous, he would become 
 liable for all the bonds sold under it, if the enterprise 
 was unsuccessful. If it was the unanimous opinion of 
 the whole Board that the circular was expedient, and 
 the one who had bought a single share of construction 
 stock agreed with them, why should he vote against it, 
 and if he agreed with them, why should he be liable 
 for the whole results of the enterprise? And if the 
 principle is true upon which Mr. Hoar rests, and 
 there was but a single member of the C., B. & Q. 
 Board who voted, and who had a single share of 
 construction stjck costing a $100, he would be- 
 come liable for every bond sold in consequence 
 of the circular, though the money went in good 
 faith, every dollar of it, to build the road exactly 
 as all understood it should go, and though he might 
 be but one stockholder of one share of the Con- 
 struction Company, with a thousand others, and 
 though, like all the other members of the C., B. & 
 Q. Board, a company whose interests were largely 
 involved, he believed the bonds were perfectly good, 
 and evinced his faith by taking very largely of them, 
 and though there were abundant good reasons con- 
 
11 
 
 nected with the C., B. & Q. Company’s Road, to whose 
 stockholders the circular was addressed, which would 
 induce him to vote for it, and which should induce 
 them to subscribe. It is safe to say that no principle 
 which leads to such results can be found either in law 
 or equity, and that no possible case can be found which 
 by remote analogy even sustains any such principle. 
 The case cited is the fartherest possible from doing it. 
 There is no resemblance or analogy between them. 
 The great benefits of the arrangements made, of which 
 the traffic contract and circular are a part, have re- 
 sulted to C., B. & Q. alone, in which all its stock- 
 holders are interested. If any party should suffer 
 for an unfortunate investment, it should be the party 
 for whom the members of its boaid acted, and which 
 has been very largely benefitted, and not the members 
 of the board who are sufferers beyond any stockhold- 
 ers out of it. 
 
 Even had these members of the Board who voted 
 holding a majority of this construction stock held the 
 whole of it in these circumstances, and had been the 
 owners of the bonds, and they had been offered under 
 this circular stating the interest of the C., B. & Q. with 
 careful truth, and that the money arising from sale of 
 the bonds was to be expended in the construction of 
 the road under a mortgage upon which the bonds were 
 issued, they themselves taking a large amount of them, 
 there could be no such liability. In such a case it is 
 understood by all parties taking bonds that a road is 
 to be built, that there are chances and possibilities of 
 mistakes in estimates of cost, and in results as to the 
 profitableness of the adventure. All alike take the 
 chances of this. In such a case, good faith would re- 
 quire that all should pay alike for their bonds the 
 
12 
 
 same amount of money, and tliat the money should 
 be expended as it was understood it should be, in the 
 construction of the road. It is difficult to perceive 
 how the nicest sense of good faith required more. The 
 case upon principle may be illustrated by stating a 
 case : suppose there are ten men who unite together to 
 build a railroad, believing it will be profitable, and 
 believing it will benefit other property largely which 
 they own in its neighborhood, as well as other similar 
 property owned by many other people and corpora- 
 tions, such for instance as iron and copper mines which 
 are located along a proposed road. The ten subscribe 
 to the stock $200,000 each. Seven of them are elected 
 directors, and they are charged with the construction 
 of the road. They believe that the stock will be very 
 valuable. They put a mortgage upon the property of 
 $6,000,000. The other three are charged by resolution 
 of the Board with the sale of, and offer, the bonds to 
 all parties who are interested in the property to be 
 benefited by the construction of the road ; they state 
 the common interest in its construction, that a large 
 amount of stock, $2,000,000, is subscribed, and offer 
 the bonds, stating at the same time the parties in inter- 
 est reserve and shall take three millions themselves of 
 the bonds, but they do not state that they own 
 $600,000 of the stock which they shall pay in in cash, 
 nor are they asked if they have taken stock. They 
 offer the bonds to the members of corporations whose 
 property will be largely benefitted, and in whicn they 
 themselves are directors. The bonds are taken by 
 such parties, except the $3,000,000 reserved for the 
 stockholders of the railroad company. The work goes 
 on, they pay for all the stock subscribed by them, and 
 for all the bonds, as do all others. It is found, how- 
 ever, that all the means will not finish the road, and 
 
13 
 
 the road so far as finished will not pay the interest on 
 the bonds issued. 
 
 Now, what is the position of the parties. Have all 
 those, other than the seven men Directors, when the 
 enterprise has become disastrous, a right to turn round 
 upon the three, and say, “You had a very large inter- 
 est in the stock of this company, which we did not 
 have ; indeed, you put $600,000 of money into the 
 stock, and did not tell us you had, done so^ and though 
 you took $900,000 of the bonds also, and paid just the 
 same for them as we did, yet the thing has resulted 
 badly, and you must take the bonds which we took, 
 and pay us back our money, principal and interest.” 
 Can this be law or equity, or would it be common fair- 
 ness between men and men, and yet that is the princi- 
 ple set up by the opinion published by the late Attor- 
 ney General. Says that learned gentleman: “He 
 
 who recommends and professes to join with another in 
 a purchase cannot, 1 think, have an undisclosed inter- 
 est as the seller, without becoming liable to the conse- 
 quences, if his associates, after the purchase has proved 
 unfortunate, discover that the adverse interest existed, 
 and elects to rescind the bargain.” This is the pith of 
 his opinion. Is such an undisclosed interest an ad- 
 verse interest? Does it tend to prejudice the pur- 
 chasers of the bonds ? Does it not, in fact, show the 
 utmost confidence in the investment, and the most per- 
 fect good faith in selling the bonds % If the interest 
 had been disclosed, would it not have strengthened the 
 bonds immensely in the estimation of the taker ? 
 
 But there can be no principle upon which any party 
 can be called to suffer in behalf of a joint investor with 
 themselves, where it is understood that the proceeds of 
 the investment are to go into a public work, upon the 
 success of which depends the value of the common 
 
14 
 
 investment, according to the understanding of all 
 parties. In all such cases the question is always 
 one of bona tides, for there certainly is no principle 
 which prohibits a board from placing before stock- 
 holders any plan which may be for the supposed 
 benefit of their property, and leaving it for them to 
 consider it. This has been many times done by the C., 
 B. & Q. Board, and very greatly to the benefit of its 
 stockholders. It is a common transaction. The ques- 
 tion always is, and must be, has there been bad faith, 
 which would be equivalent to wrong doing, in other 
 words, a fraud ? Now, in this instance, the marks of 
 good faith — of confidence in the value of the securities 
 offered under the circular, so abound in the acts of the 
 members of that Board, that none can be so blind as 
 not to see it. They took much larger amounts of them 
 than anybody else upon the same basis and paid for 
 them at exactly the same rate. They were so confident 
 that they even invested in stock which must become 
 utterly worthless before the bonds should suffer, and 
 which might become worthless when the bonds were 
 good even. This presents proof even of exuberant 
 confidence in the value of what they offered to stock- 
 holders, but which, even with this confidence, they did 
 not venture to recommend, but simply to offer. 
 
 Had all this been stated with the explanations 
 which should have accompanied the statements, the 
 result could only have been to increase the confidence 
 in every stockholders mind in the value of the bonds 
 offered them, and many more would have been asked 
 for. It was not possible in the short limits of a circu- 
 lar to have stated all these arrangements between the 
 several railroad companies, the objects to be gained, 
 the importance to C., B. &Q. and all the motives which 
 guided each member of the Board in obtaining control 
 
ir> 
 
 of the construction stock. The simple facts, therefore, 
 connected with the River Roads, and the object to be 
 accomplished, were put into the smallest possible 
 space, enough to show what it was understood the 
 property was, and to enable stockholders to judge for 
 themselves as fully as possible, which was all which 
 it was deemed necessary. 
 
 On the whole review of the case, and with all the 
 light of Judge Hoar’s opinion, which has been fully 
 considered, I conclude that there is no possible aspect 
 of the case in which you and others can be made 
 liable for your act as one of the C., B. & Q. Board for 
 voting for the circular of June, 1871. 
 
 Yours Truly, 
 
 J. F. JOY.