Schmidt v. Louisville & N.R. Co.

• Decision Date: 15 June 1897
• Citation: 41 S.W. 1015,101 Ky. 441
• Parties: SCHMIDT et al. v. LOUISVILLE & N. R. CO. et al.
• Court: Kentucky Court of Appeals

41 S.W. 1015

101 Ky. 441

SCHMIDT et al. v. LOUISVILLE & N. R. CO. et al.

Court of Appeals of Kentucky.

June 15, 1897

Appeal from circuit court, Shelby county.

"To be officially reported."

Action by Adolph Schmidt, trustee, and the Northern Division of the Cumberland & Ohio Railroad Company, against the Louisville &amp Nashville Railroad Company and the Louisville, Cincinnati &amp Lexington Railway Company, to compel the former, by mandatory injunction, to continue to operate the Northern Division of the Cumberland & Ohio Railroad, from Shelbyville to Bloomfield, in accordance with a lease. Judgment for defendants, and plaintiff individually and as trustee appeals. Reversed.

Simrall Bodley & Doolan, Wm. S. Pryor, G. G. Gilbert, J. C. Beckam and Wm. Beckam, for appellant.

Helm & Bruce and H. W. Bruce, for appellees.

GUFFY J.

This action was brought in the Shelby circuit court by appellant, Schmidt, trustee, and the Northern Division of the Cumberland & Ohio Railroad Company, against the Louisville & Nashville Railroad Company, etc., to compel said Louisville & Nashville Railroad Company, by mandatory injunction, to continue to operate the Northern Division of the Cumberland & Ohio Railroad, from Shelbyville to Bloomfield, in accordance with a lease and contract set out in the petition. It appears from the allegations of the petition that the Northern Division of the Cumberland & Ohio Railroad Company, in 1879, leased to the Louisville, Cincinnati & Lexington Railway Company its road from Eminence to Bloomfield, as set out in the lease, which reads as follows:

"Lease of C. & O. to L., C. & L. Ry. Co.

"This indenture of a lease and entered into by and between the Northern Division of the Cumberland & Ohio Railroad Company, of the first part, and the Louisville, Cincinnati & Lexington Railway Company, of the second part, both railroad corporations duly organized under the laws of the state of Kentucky, witnesseth: That for and in consideration of one dollar cash in hand by the party of the second part, and in consideration of the mutual covenants and stipulations hereinafter contained, the said party of the first part does hereby lease to the said party of the second part all that part of the first party's unfinished roadbed, right of way, with improvements and appurtenances, depots, and depot grounds, machinery, tools, and implements, together with all its property, rights, and franchises, including unpaid subscriptions to capital stock, dues, and demands belonging to or in any wise appertaining to the said first party's line of railway at the town of Eminence, Kentucky, thence southwardly, through a portion of Henry county, and the counties of Shelby and Spencer, and to Bloomfield, in the county of Nelson and the state of Kentucky, for the period of thirty years from the date of full execution hereof, upon the terms, conditions, and stipulations hereinafter set out:

"(1) Under direction of the stockholders of said first party, its president and directors will execute a mortgage upon all the property, rights, and franchises belonging to or in any wise appertaining to said first party's line of road hereinbefore described, for the security of $350,000 of mortgage coupon bonds, having twenty years to run, and bearing interest at the rate of seven per cent. per annum, interest payable on the first days of June and December of each year, all of which is fully set out in said mortgage. Now, said bonds and coupons are to be fully prepared, signed, and countersigned, and made ready for use, as in the charter of said first party and said mortgage provided, and the same will be delivered to said second party within sixty days after the delivery of this lease.

"(2) Said second party hereby binds and obliges itself that said bonds, or proceeds of such as are sold, shall be used by it in the construction of said first party's line of railway, as provided in this lease, and for no other purpose whatever. It is agreed that enough of said bonds may be sold or used in and about contracts for work, labor, or materials to complete said line of railway, at not less than _____ cents to the dollar; and whatever of said bonds or proceeds, after deducting all sums due said second party, may not be so used, shall, after said completion, after cancellation of bonds, be turned over to said first party, and such surplus bonds destroyed.

"(3) A fundamental condition of this lease is that if said second party shall not be able to dispose of bonds amounting at their face value to $250,000, the proceeds in money, material, or labor, by or before the 1st day of September, eighteen hundred and eighty, then this lease terminates, and the parties hereto are released, and said second party is to restore to said first party all bonds: provided, however, that no absolute sale of any of said bonds shall be made by said second party unless and until it can place not less than two hundred and fifty thousand dollars in the value thereof in money or its equivalent; and, when that quantity of said bonds has been disposed of by said second party, it shall as soon as practicable, and not later than the first day of September, eighteen hundred and eighty, begin the construction of said first party's said line of railway, and a failure to begin work within said time shall operate as a termination of this lease. Whenever said $250,000 of said bonds shall have been disposed of as aforesaid, this contract becomes absolute and binding on the parties hereto, and the construction of said line of railway from Eminence to Bloomfield shall be commenced; and, when the construction of said line of railroad is begun, the same shall be pushed to completion as rapidly as possible; and a failure on the part of the party of the second part to so complete the same as to allow the safe and regular passage of trains to and from Eminence and Bloomfield within two years from the commencement of work thereon shall, at the option of said first party, after six months' notice of its election so to do, operate as a forfeiture of this lease. None of said bonds shall be sold with past-due coupons annexed thereto; but, before selling, all past-due coupons shall be cut off, canceled, and returned by said second party to said first party.

"(4) When commenced, said construction shall be pushed as rapidly as possible, with due regard to the greatest economy; and the work and superstructure is to be as for a first-class single-track railway, with the same gauge as the track of said second party's line of railway.

"(5) It is further agreed that said second party shall furnish all necessary locomotive engines and rolling stock to operate said line of railway; and for the use of same said second party is to receive, out of the gross earnings of said first party's line of road, the cost of wear and tear to such engines and rolling stock as may be so furnished. But the first party reserves the right to furnish all or so much as it can of said rolling stock, and, when so furnished, said first party shall receive the same compensation therefor as is received by said second party on its rolling stock used on said line.

"(6) It is further agreed and understood that, in the operation of said line of railway, said second party will make to said first party quarterly returns, giving full details of earnings and operating expenses, including the expense of keeping roadbed in order; and the net profits arising therefrom shall be applied to the payment of interest, and providing for sinking fund, and retiring said mortgage bonds. But out of the gross earnings shall be first deducted annually the sum of $1,000, which shall be paid to said first party, with which to pay the expense of keeping up its organization; and, if the net earnings do not prove sufficient to pay the interest and provide for the sinking fund on said mortgage bonds, then said second party, if all other sources of raising money of said first party prove insufficient, will supply the deficiency, so far as it may be done, by appropriating the net earnings, or so much as may be needed, on its own lines, which may accrue by reason of business coming to it from or over said first party's line. This pledge and assignment shall be made effectual by mortgage properly executed, acknowledged, and recorded; and should it become necessary to use any of the net earnings on the lines of the second party to pay said interest and sinking fund, or any part of either, then all amounts so used, as well as all moneys paid for said first party by said second party, shall be treated as interest-bearing debts, interest at the same rate with said mortgage bonds, payable half-yearly, and to run from date of such payments, the debt and interest to be repaid out of said net earnings thereafter accruing to said first party on its own line, which may be so appropriated consistently with the other provisions of this lease; and, for all sums or any sums of money that may become due from said first party to said second party on its or any account, a lien is hereby created upon all the property, rights, and franchises of said first party owned or to be acquired in favor of said second party, to stand next in priority to said mortgage and bonds for $350,000 as aforesaid. But said second party shall not enforce the collection of said debts, or any of them, by enforcement of said lien, until at least eight years have elapsed from and after the date of the creation of the same.

"(7) It is further agreed and understood that whenever the net earnings from the leased premises shall be sufficient to pay off the interest and sinking fund on said mortgage bonds for $350,000, or such portion thereof as is outstanding, and to repay said second party all dues

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