Moran v. Pittsburgh, C. & St. L. Ry. Co.

• Decision Date: 24 November 1887
• Citation: 32 F. 878
• Parties: MORAN v. PITTSBURGH, C. & ST. L. RY. CO. and others.
• Court: U.S. District Court — Southern District of Ohio

32 F. 878

MORAN v. PITTSBURGH, C. & ST. L. RY. CO. and others.

United States Circuit Court, S.D. Ohio, Eastern Division.

November 24, 1887

Geo Hoadly, for complainant.

Harrison Olds & Marsh and T. M. Estep, for defendants.

JACKSON J.

Under proper authority of law and resolutions of the corporation the Cincinnati & Muskingum Valley Railway Company (hereinafter, for brevity, called the 'Valley Railway Company') on September 1, 1870, executed to Charles Moran and I. Edgar Thomson, as joint trustees, a conveyance of its property, to secure certain bonds of the company to the amount of $1,500,000, dated September 1, 1870, and payable January 1, 1901, with interest coupons attached, and payable semi-annually in the city of New York. The company's line of road at the date of this mortgage was constructed from Morrow to Zanesville, Ohio, but was to be extended to Dresden, Ohio. In pursuance of the resolution of the board of directors, this mortgage conveys to said trustees, or to the survivor, in fee-simple, all the right, title, and interest of said Valley Railway Company in and to its line of railroad from Morrow to Dresden, 'with the appurtenances now completed, or to be hereafter constructed, together with all the lands, tenements, hereditaments, fixtures, buildings, cars, engines, tools and machinery, franchises, privileges, interest, and estate of the first party appertaining thereto, which the party of the first part now possesses or owns, or may hereafter acquire,' in 'trust for the equal benefit and security of the bond and coupon holders; with the provision that, until default shall be made in respect to something herein to be done or kept by the part of the first part, it shall be suffered and permitted to possess and operate, manage and enjoy, its said railway, with its appurtenances and appendages, and to take and use the rents, income, profits, and issues thereof, in the same manner and with the same effect as if this deed had not been made.'

It further provides that, after 90 days' default by the company in the payment of interest or principal of said bonds, the trustees, or the survivor of them, on request of the holders of the one-third of the outstanding bonds, may and shall enter into and take possession of the mortgaged premises, hold, use, manage, and employ the same, making all needful repairs, alterations, and additions, and, after the payment of all expenses incident thereto, apply the proceeds thence arising to the 'pro rata' payment of all principal and interest remaining due and unpaid on said bonds. It likewise contains a power of sale to be exercised by the trustees, or the survivor, at the request of one-half in amount of the bondholders, and in the event of a sale the trustees are empowered to execute a good and sufficient deed of conveyance in fee-simple to the purchaser of the property, and distribute the proceeds, after paying the expenses of the sale, among those entitled to the same. Then follows this provision: 'And the said party of the first part hereby covenants to execute and deliver any further suitable conveyances that may be requisite for carrying into effect the object of those presents; particularly for the more perfect assurance of any property hereafter acquired by the party of the first part, and included in the description in this deed.'

After the execution and due registration of this mortgage, the mortgagor, said Valley Railway Company, leased and demised to the Pittsburg, Cincinnati & St. Louis Railway Company, (hereafter called, as it is most familiary known, the 'Pan-Handle Company,') for the term of 99 years from January 1, 1873, its entire line of road constructed, and to be constructed, together with all the depots, station buildings, appurtenances, and property, real and personal, thereunto belonging and appertaining. This lease appears to have been ratified or approved by the majority stockholders of the two companies at meetings held by them, respectively, for that purpose. The lessor covenants and agrees 'that the party of the second part (the lessee) shall, at all times during the term aforesaid, have full and exclusive power, right, and authority to use, manage, and work the said railway of the said party of the first part, and shall have the right to fix the tolls thereon, (but not at a higher rate than is authorized by the charter of the party of the first part.) And, further, said party of the second part shall have full, free, and exclusive right to charge and collect all of said tolls on, and freight charges and dues to accrue from, said road during said term, and to appropriate the same in the manner hereinafter mentioned, and shall have, use, exercise, and enjoy all the rights, powers, and authority aforesaid, and all other lawful powers and privileges which can or may be lawfully exercised and enjoyed, in or about the said demised railway and property, as exclusively, amply, fully, and entirely as the same might or could have been used, exercised, and enjoyed by said party of the first part had this lease and contract not been made, and as exclusively, fully, amply, and entirely as said party of the first part have authority by law to grant the same.'

The lessee company covenants that it will, 'at all times during the hereby demised term, work, use, manage, maintain, operate, and keep in public use the railway of the party of the first part, with its appurtenances, etc., and will so work and operate said railway and appurtenances, with its equipment, as shall, in the judgment of the lessee, reasonably be required for and properly adapted to promptly and fully accommodate the business thereof, and shall and will collect and receive all of the said tolls, freight charges, and dues which shall accrue as aforesaid, and apply and appropriate the same in the way and manner following, to-wit: First, to maintain and repair the railway and property, and pay operating expenses, including 8 per cent. on the engines of the lessee company used on the road, and the usual charge for its cars employed thereon, premiums and insurance, and all taxes assessed against the road and property by the state or United States. ' Then follow these clauses:

'It being distinctly understood that certain work yet to be done, and required to perfect and completely finish the said road hereby demised, as well as such additions and improvements thereto as the parties of the second part shall determine to be necessary, from time to time, for the prompt and economical movement of the traffic on and over said road, shall be done by and at the expense of the said first party. Second. To pay the surplus, if any thereafter remain, to the treasurer of the party of the first part; provided, however, that, in the event of the net earnings of the line of road hereby demised not being sufficient to protect the interest on the existing first mortgage bonds of the party of first part as it matures, the party of the second part shall advance the needful means to pay the coupons at maturity; charging any such advance over net earnings in open account, to be returned out of the subsequent earnings, and not otherwise.'

The other general provisions of the lease, such as the requirements to keep the demised railway and property in repair, the keeping of accurate accounts by the lessee, etc., need not be especially noticed, as they have no bearing upon the questions presented for determination. The considerations which led to this lease, the motives prompting its promoters, and the purposes sought to be accomplished by it, as disclosed in the record, need not be set out in detail. They form a curious and interesting chapter in the history of the railroad management. The means by which its ratification and confirmation was procured may be briefly referred to, as bearing upon one of the questions revived in the case.

It appears that the Pennsylvania Railway Company, a corporation of the state of Pennsylvania, in its own name, and in the name of the Pennsylvania Company, another corporation of said state, wholly in the interest of and controlled by the Pennsylvania Railway Company, held and owned a large majority of the stock of both said lessor and lessee companies; that said Pennsylvania Railway Company also held and owned $752,000, or a majority in value, of said $1,500,000 first mortgage bonds of said Cincinnati & Muskingum Valley Railroad Company; that the president of said Valley Railway Company was both a director and the general counsel of the Pittsburgh, Cincinnati & St. Louis Railway Company, (the lessee;) that in June, 1872, the directors of the last-named company adopted a resolution authorizing its president to execute a lease of the Valley Railway Company, in such terms and conditions as might be prepared by its general counsel, who was also the president of said Valley Railway Company. The lease was accordingly prepared and executed, as already set forth, and its ratification and confirmation on the part of the lessor and lessee companies was procured by the controlling interest and influence of the Pennsylvania Railway Company, in connection and with the aid and assistance of Moran and others, who were large holders of the first mortgage bonds of said Valley Railway Company, as well as stockholders therein. The primary object and purpose of this lease, as disclosed by the whole transaction, was to obtain from the lessee, as an advance to the lessor over and above the net earnings of the demised railroad, the means with which to pay the semi-annual interest on said first mortgage bonds of the lessor, held and owned by the promoters of the scheme.

The Pan-Handle Company, (the lessee,) after taking possession of the demised road and property under the lease thus made and confirmed,...