Hervey v. Illinois Midland Ry. Co.

• Decision Date: 29 February 1884
• Citation: 28 F. 169
• Court: U.S. District Court — Southern District of Illinois
• Parties: HERVEY v. ILLINOIS MIDLAND RY. CO. and others. SECOR v. SAME. UNION TRUST CO. OF N.Y. v. PARIS & DECATUR R. CO. and others. SAME v. PARIS & TERRE HAUTE R. CO. and others. FREIDENBERG v. PARIS & DECATUR R. CO. and others. KANSAS ROLLING-MILL CO. v. ILLINOIS MIDLAND RY. CO. and others.

28 F. 169

HERVEY v. ILLINOIS MIDLAND RY. CO. and others.

SECOR v. SAME.

UNION TRUST CO. OF N.Y. v. PARIS & DECATUR R. CO. and others.

SAME v. PARIS & TERRE HAUTE R. CO. and others.

FREIDENBERG v. PARIS & DECATUR R. CO. and others.

KANSAS ROLLING-MILL CO. v. ILLINOIS MIDLAND RY. CO. and others.

United States Circuit Court, S.D. Illinois.

February 29, 1884

The Peoria, Atlanta & Decatur Railroad Company was incorporated under a special act, in 1869. In 1872 it issued bonds to the amount of $1,300,000, and secured the same by a trust deed on its franchises and property, including its railroad from Peoria, Illinois to Decatur, Illinois, to James H. Secur trustee. The Paris & Decatur Railroad Company was incorporated, under a special act, in 1861. In 1872 it issued bonds to the amount of $1,200,000, and secured the same by a trust deed on its franchises and property, including its railroad from Paris, Illinois, to Decatur, Illinois, to the Union Trust Company of New York, trustee. The Peoria & Terre Haute Railroad Company was incorporated, under the general law of Illinois, in 1873. In 1874 it issued bonds to the amount of $280,000, and secured the same by a trust deed on its franchises and property, including its railroad from Terre Haute, Indiana, to Paris, Illinois, to the Union Trust Company of New York, trustee.

The act incorporating the Peoria, Atlanta & Decatur Railroad Company empowered that company to unite its railroad with any other continuous lines of railroad, and to purchase any other roads, or parts of roads, which may be adopted as a part of its main line, and by such purchase to acquire all the rights and franchises pertaining to the purchased road. In September, 1874, the Peoria, Atlanta & Decatur Railroad Company purchased of the Paris & Decatur Railroad Company and of the Paris & Terre Haute Railroad Company, the franchises, and all the railroads and other property, of the latter companies, and received deeds of conveyance therefor from said two companies, and therein assumed payment of all the indebtedness of said two companies; and the three railroads have ever since been continuously operated as one line. In November, 1874, the Peoria, Atlanta & Decatur Railroad Company changed its name to that of the Illinois Midland Railway Company, under the laws of Illinois, and in January, 1875, that company issued bonds to the amount of $4,175,000, and secured the same by a mortgage on the entire line to Union Trust Company of New York, trustee.

On September 11, 1875, a bill was presented to the judge of the circuit court of Edgar county, Illinois, at chambers, on behalf of R.

G. Hervey, the holder of a majority of the stock of the Illinois Midland Railway Company, and of each of its said constituent railroad companies, and on behalf of certain judgment creditors of the Paris & Decatur Railroad Company, alleging that there are judgments against said railway company to the amount of $200,000, and executions in the hands of officers of Edgar county to the amount of $100,000, against said several corporations; that the officers cannot distinguish the property of the said several corporations on which to levy for their respective debts, and that their property is therefore being sacrificed, rolling stock having been sold for one-fifth of its value, and $20,000 worth now being advertised for sale; that negotiations for loans to pay off all debts are pending; that to effect such loans it is necessary that the respective debts and assets of the several corporations be ascertained; and that the assets of the corporations, if not sacrificed by execution sales, will be sufficient to pay all debts. The bill makes the Illinois Midland Railway Company party defendant, and prays, inter alia, for the appointment of a receiver. The appearance of the railway company was entered by its solicitor, and a receiver was thereupon appointed by the judge at chambers; but, within a day or two thereafter, the appointment of the receiver and the action of the judge were confirmed by the Edgar circuit court, by an order of record made in open court. The cause was subsequently transferred to the circuit court of the United States for the Southern district of Illinois, and was afterwards consolidated with the several causes which had in the mean time been instituted in that court for the foreclosure of the said several trust deeds. The causes were referred to a special commissioner to take the testimony, and report his conclusions of law and fact.

Crea & Ewing, for Waring Bros.

Isham, Lincoln, Burry & Ryerson, for Paris & Decatur bondholders.

W. H. Peckham, for Union Trust Co. of N.Y.

J. M. Clokey, for judgment creditors.

H. S. Greene, for Kansas Rolling-mill Co.

John T. Dye, for S. A. Fletcher & Co.

HARLAN Justice.

The above causes have been submitted upon exceptions to the report of Special Commissioner Branson, and generally for such orders as, in the present state of the litigation, may be necessary or proper. A full discussion of all the questions covered by the arguments of counsel would require a more extended opinion than, consistently with other public duties, can be now prepared. I shall attempt nothing more than to indicate the general conclusions which have been reached.

1. The order made by the judge of the Edgar circuit court, on the eleventh day of September, 1875, at chambers, (and, as I infer, in the vacation of his court,) appointing a receiver of the Illinois Midland Railway Company, was unauthorized by law. Hammock v. Loan & Trust Co., 105 U.S. 77.

2. But the appointment of such receiver must be deemed to have been made by the court itself from and after the entry of the order, at its September term, 1875, confirming what the circuit judge had previously done at chambers.

3. Even if the averments of the original bill filed by Hervey and others were not such as to have made it proper to appoint a receiver, I cannot say that the order appointing one was a nullity. Whether the protection and preservation of the property required such appointment, was, it must be conceded, a question addressed to the sound legal discretion of the court. As between the parties before the court, it certainly had jurisdiction to take possession of the property by a receiver. How far its action, during the existence of the receivership, would conclude or affect the rights of others interested in the management or disposition of the property, but who were not before the court in person or by representation, is a question quite apart from the general proposition, advanced by counsel, that the Edgar circuit court was wholly without jurisdiction, at the suit of stockholders and judgment creditors,-- the railroad company appearing, and making no opposition,-- to appoint a receiver, and through him control and manage the property.

4. Whether the purchase by the Peoria, Atlanta & Decatur Railroad Company of the Paris & Decatur Railroad, and of the Paris & Terre Haute Railroad, was authorized by the laws of Illinois, is by no means free from difficulty. I incline to think that warrant for such purchase is found in the charter of the Peoria, Atlanta & Decatur Railroad Company. It was given power to unite its railroad with any other continuous lines of railroad then constructed, or which might thereafter be constructed, in Illinois upon such terms as might be mutually agreed upon between the companies so uniting; also power to purchase, upon such terms as might be agreed upon, and other roads, or parts of roads, either wholly or partly constructed, which might constitute or be adopted as part of its main line, and by such purchase acquire and become vested with all the rights and franchises pertaining to the road, or part of road, so purchased. It is quite true that the Peoria, Atlanta & Decatur Railroad Company was not authorized to purchase any railroad in the state; but I incline to think that its charter authorized the purchase of any road which, from its location, would be fairly deemed a continuation of the main line of the purchasing company. The effect of the arrangement between the three companies was to establish a continuous line from Peoria, via Decatur, to Terre Haute. That small parts of that line were and are owned by other companies, does not affect the substance of the transaction whereby, with the knowledge and approval of the great body of the bondholders and stockholders of the three roads, they were operated as one line, under a common management.

There is nothing in the charter either of the Paris & Decatur Railroad Company, or of the Paris & Terre Haute Railroad Company, which expressly forbids the arrangement made by them, respectively, with the Peoria, Atlanta & Decatur Railroad Company. And as it has been fully executed, and since its validity has never been questioned in a direct proceeding upon the part of the state, nor by those who are interested in these corporations, I am not disposed to make the rights of parties in this litigation depend upon the inquiry whether the contract by which these properties have been consolidated and operated in the name of the Illinois Midland Railroad Company was technically valid or not. In Thomas v. Railroad Co., 101 U.S. 71, the court said that 'there can be no question that in many instances where an invalid contract which the parties to it might have performed on both sides, whereby money has been paid or property changed hands, the courts have refused to sustain an action for the recovery of the property or the money so transferred;' further, 'that the executed dealings of a corporation must be allowed to stand for or against both parties, when the plainest rules of good faith require it;' still further, that 'contracts which, though invalid for want of...