33 F. 440 (S.D.Ill. 1888), St. Louis, V. & T.H.R. Co. v. Terre Haute & I.R. Co.

Citation:33 F. 440
Party Name:ST. LOUIS, V. & T.H.R. CO. v. TERRE HAUTE & I.R. CO.
Case Date:January 11, 1888
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 440

33 F. 440 (S.D.Ill. 1888)

ST. LOUIS, V. & T.H.R. CO.

v.

TERRE HAUTE & I.R. CO.

United States Circuit Court, S.D. Illinois.

January 11, 1888

Trumbull, Robbins & Trumbull, John M. Butler, and J. T. Brooks for complainant.

George Hoadly, William M. Ramsey, Greene & Humphrey, and John G. Williams, for defendant.

Before GRESHAM, C. J. and ALLEN, D. J.

GRESHAM, J.

The complainant, the St. Louis, Vandalia & Terre Haute Railroad Company was chartered by an act of the general assemby of the state of Illinois, approved February 10, 1865, to construct and operate a railroad from the bank of the Mississippi river, opposite East St. Louis, to the eastern boundary of the state of Illinois, at a point most convenient for extending the same to the city of Terre Haute, in the state of Indiana; and this charter was amended by an act approved February 8, 1867. The defendant was chartered by an act of the general assemby of the state of Indiana, passed January 26, 1847, under the name of the Terre Haute & Richmond Railroad Company, with power to construct and operate a railroad from a point on the western line of the state of Indiana, easterly through Terre Haute to Richmond, in the same state; and by an act passed March 6, 1865, the name of the defendant was changed to the name it now bears.

The bill avers that the complainant was not authorized by its charter to part with the possession of its property and franchises indefinitely, or for a fixed period of time, by a lease or other contract; and that the defendant was not authorized by its charter to acquire, by like means, the possession, management, or control of any railroad located beyond the limits of the state of Indiana, for an indefinite or fixed period; that in

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order to secure money to construct and equip its road, the complainant on April 6, 1867, executed a mortgage or deed of trust, dated January 1, 1867, conveying to trustees all its railway and equipment to secure the payment of bonds aggregating $1,900,000, drawing interest at the rate of 7 per cent. per annum, in which instrument it was provided that, beginning on July 1, 1872, there should be set apart and paid to a commissioner out of the earnings of the railroad, $20,000 annually, as a sinking fund for the redemption of these bonds; that on March 13, 1868, the complainant executed its second mortgage, or deed of trust, to secure the payment of an additional issue of bonds aggregating $2,600,000, drawing 7 per cent. interest; that these two issues of bonds were all sold, and the proceeds thereof applied to the construction and equipment of the railroad; that they are all outstanding and unpaid, and that no sinking fund has been created, as provided in the first mortgage; that on the tenth of February, 1868, the complainant executed a pretended lease of its railroad, property, and franchises to the defendant for the period of 999 years, which is set out in the bill as follows:

'Whereas, a contract for the construction and equipment of the St. Louis, Vandalia & Terre Haute Railroad, belonging to a corporation of the state of Illinois, has been entered into this day, by which arrangements have been made to complete and equip said road between East St. Louis and the state line of Indiana, in the manner set forth in said contract; and whereas, the Terre Haute & Indianapolis Railroad Company, a corporation of the state of Indiana, has proposed to construct, without delay, a first-class railroad, being an extension of their present road from Terre Haute to the state line of Indiana, upon such location as will connect properly and directly with the St. Louis, Vandalia & Terre Haute Railroad at the state line of Illinois; and whereas, it is desirable that the said lines, when connected, should be operated by the Terre Haute & Indianapolis Railroad Company as one road between Indianapolis and St. Louis, and the said Terre Haute & Indianapolis Railroad Company having proposed to lease and operate the said St. Louis, Vandalia & Terre Haute Railroad for a period of nine hundred and ninety-nine (999) years:

'It is therefore agreed-- First. That upon completion of the road between East St. Louis and the state line of Indiana, the Terre Haute & Indianapolis Railroad Company shall take charge of and operate the same with its equipment, for a period of nine hundred and ninety-nine (999) years, for which they shall be allowed sixty-five (65) per cent. of the gross receipts from all traffic moved over the line or business done thereon, and from the property of the company, as a consideration for working and maintenance expenses, the remaining thirty-five (35) per cent. to be appropriated as follows: (1) To the payment of interest on the first and second mortgage bonds of the St. Louis, Vandalia & Terre Haute Railroad Company, according to their legal priority. (2) All the surplus of said thirty-five (35) per cent. to be paid over to the St. Louis, Vandalia & Terre Haute Railroad Company (semi-annually) to be disposed of by it for the benefit of its stockholders. If the thirty-five (35) per cent. should, from any cause, not be sufficient in amount to protect the interest on mortgage bonds and sinking funds therefor, as they mature from time to time, together with the payment of taxes and proper cost of maintaining organization, so that the rights of stockholders may be preserved, then, and in that event, the lessee shall advance for the company whatever amounts may be needed to be accounted for under the yearly averages of this lease during the contract.

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'It is further agreed, that the Terre Haute & Indianapolis Railroad Company, as lessee, shall enjoy all the rights, powers, and privileges of the St. Louis, Vandalia & Terre Haute Railroad Company, so far as the same may be needful to maintain and operate said railroad; and to impose and collect tolls and rates for transportation, and do all other acts and things as fully and effectually as the said St. Louis, Vandalia & Terre Haute Railroad Company could do if operating said line; it being always understood and agreed that the gross proceeds from through or joint traffic or business shall be divided on the pro rata basis per mile for distances moved on the road of each party.'

The bill further avers that on January 12, 1869, and after the bonds had been sold as previously stated, the board of directors of the complainant adopted a resolution declaring that the defendant should be allowed 70 per cent. out of the gross receipts, instead of 65 per cent., for operating the road, and that by agreement between the parties the lease should be modified only to that extent; that by a statute of the state of Illinois, in force at the time the pretended lease was executed, no railroad company in the state of Illinois was allowed to lease its railroad and other property and franchises to any foreign railroad company, without having first obtained the written consent of all stockholders residing in that state; and that the pretended lease was executed without the written consent of 59 stockholders who then resided in Illinois; that on the completion of the construction and equipment of the road, on July 1, 1870, the defendant took possession and control of the same, and from that time to the present has operated the entire property under the franchises granted to the complainant, and has received, in tolls and other earnings, more than $21,600,000; that the pretended lease is void, because neither the plaintiff nor the defendant was authorized by the states which created them to enter into such a contract; that the defendant is liable as trustee to account to the complainant for all the property embraced in the pretended lease, together with all receipts and profits derived from the management and operation thereof, and to restore immediately to the complainant the full control and possession of all its property, and its earnings, after deducting reasonable disbursements made by the defendant in the care, management, and maintenance of the same; that the defendant has refused to deliver to the complainant, on demand, its property, and the earnings derived therefrom; that during the entire period the defendant has been in possession of the railroad, it has failed to pay over to the complainant, according to the terms of the lease, the latter's full share of the gross receipts; that there is now due the complainant from this source, after payment of interest which has accrued upon the mortgage bonds, more than $500,000; that by reason of the defendant's failure to make such payments as they became due the complainant has been unable to create any sinking fund, as required by the terms of the first mortgage; that the complainant entered into the contract supposing it had lawful authority to do so, but it has been recently advised by its counsel that it had so such power, and that the lease is null and void, and that it is its duty to repudiate the same, and resume possession of its property and franchises; that the complainant is liable to have its

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charter and corporate rights forfeited by the state of Illinois; that by proper management the income of its property can be largely increased; that the present income is more...

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