Jesup v. Illinois Cent. R. Co.

• Decision Date: 06 October 1890
• Citation: 43 F. 483
• Court: U.S. District Court — Northern District of Illinois
• Parties: JESUP v. ILLINOIS CENT. R. CO. et al. DUBUQUE & S.C.R. CO. v. JESUP et al.

43 F. 483

JESUP v. ILLINOIS CENT. R. CO. et al.

DUBUQUE & S.C.R. CO. v. JESUP et al.

United States Circuit Court, N.D. Illinois.

October 6, 1890

Thomas De Witt Cuyler, Francis B. Daniels, and John E. Parsons, for Morris K. Jesup, trustee.

Stephen H. Olin and Lyman & Jackson, for Cedar Falls & Minnesota R. Co.

Benjamin F. Ayer, for Illinois Central R. Co.

John N Jewell, for Dubuque & Sioux City R. Co.

Morris K. Jesup, plaintiff in the original suit, and a citizen of New York, is the surviving trustee in a mortgage made September 22, 1866, by the Cedar Falls & Minnesota Railroad Company, covering its road and the net earnings thereof, its franchises, privileges, right of way, depot grounds, and all material designed to be used in construction; also 'the rents and moneys payable by any person or company' to that corporation 'for the use of said road and appurtenances.'

The main question in the original suit is whether the Illinois Central Railroad Company is liable to account to said trustee for certain rents reserved to the Cedar Falls & Minnesota Railroad Company in a lease by the latter company of its road, franchises, privileges, etc., to the Dubuque & Sioux City Railroad Company, a corporation of Iowa, which lease was assumed by the Illinois Central Railroad Company in a written contract, whereby the Dubuque & Sioux City Railroad Company to be hereafter called the 'Dubuque Company,' leased its own road to the Illinois Central Railroad Company, for a specified term, with an option to retain it in perpetuity.

The question in the cross-suit is whether the Dubuque Company is entitled to a decree for the surrender and cancellation of the lease to it of the Cedar Falls & Minnesota Railroad.

The original and cross suits, as to some matters, are so closely connected that it will be proper to state the principal facts in chronological order, without stopping to distinguish those specially applicable to the original suit from those that are material in the cross-suit.

The case made by the pleadings, exhibits, and proofs is, in substance, as follows:

The Cedar Falls & Minnesota Railroad Company, to be hereafter called the 'Cedar Falls Company,' was incorporated in the year 1858, under the laws of Iowa, for the purpose of constructing a railway from a point in that state on the Dubuque & Sioux City Railroad to the Minnesota state line. Its proposed route was through Waverly and Charles City to Mona, on the line between Iowa and Minnesota.

The completion of the road to Mona became an object of great interest to the Dubuque Company. As early as December 28 1860, the board of directors of that company, obviously for the purpose of assisting the Cedar Falls Company, passed a resolution reciting that it was 'important to the interests of the Dubuque and Sioux City Railroad that the construction of the Cedar Falls and Minnesota Railroad, lying between the Dubuque and Sioux City Railroad and the state line of Minnesota, should be prosecuted with all possible dispatch,' and directing 'that for the term of five years from the 1st of January, 1862, there shall be paid by the Dubuque and Sioux City Railroad Company, in monthly payments, to the order of the trustees of the first mortgage bonds of the Cedar Falls and Minneapolis Railroad Company, fifteen per cent. of the gross earnings from all business passing to and from all points upon the Cedar Falls and Minnesota Railroad, provided the same is upon the through tickets or bills of lading, and upon condition that such fifteen per cent. so paid shall be applied to the purchase and cancellation of the bonds issued by said company. ' In 1863 it made, with the Cedar Falls Company, what is called a 'drawback contract,' to continue in force for 10 years from March 15, 1863, whereby, 'for the purpose of inducing the investment of capital in the construction of the Cedar Falls and Minnesota Railroad,' it agreed with 'John Jackson, M. K. Jesup, and James Huff, trustees of said Cedar Falls and Minnesota Railroad,' to pay over to them 'fifteen per cent. of the gross earnings earned upon their road, or (upon) any part thereof, in the transportation of passengers or freight coming from or going to any place or station on said Cedar Falls and Minnesota road. ' That contract provided that this 15 per cent. should be applied to the payment of interest on any construction bonds issued for the purpose of constructing or equipping the Cedar Falls road.;4 In the annual report of the president of the Dubuque Company, January 1, 1864, it was said that 'when another division shall be completed, and the road built from Cedar Falls to the Minnesota state line, a portion of which is now under contract, there would seem to be no reason why the common stock even should not become valuable. In the report of the operations of the Dubuque Company for the five months ending March 16, 1864, it was said:

'The Cedar Falls and Minnesota Railroad is under contract from Cedar Falls to Waverly, a distance of 14 miles. It is expected that it will be completed and in operation early next fall. On the 9th of March, 1863, the Dubuque and Sioux City Railroad Company entered into a contract allowing a drawback to that road of 15 per cent. of all business coming from or going to that road. The Galena and Chicago Union and Illinois Central Companies will both enter into like contracts. This road when completed to the state line will, in connection with the Minnesota Central Railroad, form a continuous line to Minneapolis and St. Paul. The Minnesota Central Railroad Company except to build their road to within thirty miles of the state line this year. These two roads when completed will form a very important railroad connection, and a valuable contributor to the Dubuque and Sioux City. The country on the line is tolerably well settled now, and is one of the finest wheat-growing regions west of the Mississippi. The Cedar valley for beauty, fertility of soil, and water-power cannot be surpassed by any other valley in the north-west.'

These views were shared by many, if not by all, who were largely interested in the prosperity of the Dubuque Company. The result was that in October, 1864, the directors of that company passed a resolution authorizing its president to lease the Cedar Falls Railroad from station to station, as the track was completed and in running order, and Allen Campbell, one of the board, was appointed to examine the road, and report upon the amount of rent to be paid. In his report he stated that, while he thought well 'of the business of this northern line,' it was impossible, upon a cursory examination, and before the road was completed, to establish a rent that would be fair and equitable between the parties. He added:

'From my own observation, and from information derived from various sources, I feel a strong assurance that this northern road, when completed to the Minnesota state line, a distance of . . . miles, will tend materially to increase the receipts of the Dubuque and Sioux City road. The route passes through a rich grain country, and along water-courses which furnish a cheap and never-failing power for manufacturing purposes.'

The terms of the proposed lease were for some time the subject of considerable discussion, particularly as to the amount of rent to be paid to the Cedar Falls Company. The matter was referred by that company to Col. R. B. Mason, a stockholder and former director of the Dubuque Company, and T. B. Blackstone, president of the Chicago & Alton Railroad Company, both gentlemen of high standing and of large experience in railroad matters. Neither of them had the slightest interest in the Cedar Falls Company. To them was submitted the form of a lease prepared by the vice-president of the Cedar Falls Company. They reported:

'The Dubuque and Sioux City Railroad Company under such a lease would receive, when the earnings amounted to $3,500 per mile, about 54 per cent., and, when the earnings amounted to $10,000 per mile, about 58 per cent., of the gross earnings. We do not think this would leave a very large margin for the Dubuque and Sioux City Railroad Company. But if a good road is constructed, complete in all respects, we believe, from the best information we have, that if $1,500 per mile and forty per cent. of the excess over $3,500 per mile was paid to the Cedar Falls and Minnesota Railroad, it would be a fair and equitable arrangement between the parties.'

The letter or report having been submitted to the directors of the Dubuque Company, the latter authorized a lease upon the terms suggested by Mason and Blackstone, 'except that the division of earnings after $3,500 per mile shall be seventy per cent. for the Dubuque and Sioux City Railroad Company and thirty per cent. for the Cedar Falls and Minnesota Railroad Company, and that said lease commence January 1, 1866;' further, that the lease should be in lieu of the drawback contract then existing between the companies.

By this lease, which was dated September 27, 1866, the Dubuque Company agreed to pay to the Cedar Falls Company, during the term of 40 years from January 1, 1867, a fixed rental of $1,500 per mile per annum, in equal monthly installments, and a further rent, every six months, of 35 per cent. of the gross earnings of the leased property when they exceeded $3,500 per mile per annum, and did not exceed $7,000 per mile per annum, and 30 per cent. of the gross earnings when they exceeded the latter sum per mile per annum. The lessee company covenanted to take possession of the road as it was opened from station to station, and to fully and efficiently equip, operate, and maintain it, assuming all liabilities and paying all expenses incident thereto, and giving to the leased property the...