Terre Haute & I.R. Co. v. Cox

• Decision Date: 18 May 1900
• Docket Number: 509.
• Citation: 102 F. 825
• Parties: TERRE HAUTE & I.R. CO. et al. v. COX et al.
• Court: U.S. Court of Appeals — Seventh Circuit

102 F. 825

TERRE HAUTE & I.R. CO. et al. v. COX et al.

No. 509.

United States Court of Appeals, Seventh Circuit.

May 18, 1900

On and before October 30, 1896, the Terre Haute and Indianapolis Railroad Company owned and operated a line of railroad extending from Indianapolis to the state line between the state of Indiana, and as lessee operated the St. Louis Vandalia and Terre Haute Railroad, extending from a junction with the Terre Haute and Indianapolis Railroad at said state line to East St. Louis; the Terre Haute and Peoria Railroad extending from a junction with the St. Louis, Vandalia and Terre Haute Railroad near said state line to Peoria Illinois; the Terre Haute and Logansport Railroad, extending from Terre Haute to South Bend, Indiana; and the Indiana and Lake Michigan Railroad, extending from a junction with the Terre Haute and Logansport Railroad at South Bend to St. Joseph, Michigan.

Among the provisions in the lease from the Terre Haute and Peoria Railroad to the Terre Haute and Indianapolis Railroad Company, dated October 1, 1892, was the following: 'The said Terre Haute and Indianapolis Railroad Company shall in each and every year of the term demised, pay or cause to be paid to said Terre Haute and Peoria Railroad Company, in the manner and at the times hereinafter specified, thirty per centum of the gross earnings of the demised property and such percentage of the gross earnings shall be paid without any deduction, abatement or diminution for any cause whatever; and it is expressly agreed that there shall be paid out of the aforesaid thirty per centum the interest as it matures on the bonds of the Terre Haute and Peoria Railroad Company of the issue of $1,800,000 of March 1, 1887, which shall be outstanding, and of the issue of $2,500,000 of September 1, 1892, at any time outstanding; all federal, state and municipal taxes and assessments imposed upon the demised estate; all rentals for the use of the tracks of the Toledo, Peoria and Western Railroad, Illinois Central Railroad and Terre Haute and Indianapolis Railroad, which are now used by the party of the first part.

'It is agreed that the second party may and shall pay the interest on the said bonds as the same mature, the said taxes, assessments and rentals as they respectively become payable, and such payments shall be held to be a discharge and payment by the party of the second part on account of said thirty per centum of gross earnings. If the aggregate amount of said interest, taxes and rentals shall be less than the total amount of said thirty per centum of the gross earnings, the residue shall be paid in cash to the first party; should the amount of such interest, taxes and rentals be in excess of the total amount of said thirty per centum of gross earnings in any year, such excess shall be paid by and be held and retained by the said second party as a charge against the party of the first part to be repaid or retained by it out of any future excess, but without interest.

'The manner and times of payment herein provided for are as follows:

'Within sixty days after the close of each year ending on the last day of October, the aggregate gross earnings for the whole year shall be ascertained, and the residue, if any, of the thirty per centum of said gross earnings, remaining after the payment of said interest, taxes, assessments and rentals by the party of the second part, as herein provided, shall be paid to the party of the first part.'

A provision in the lease under which the Indianapolis Company was operating the St. Louis, Vandalia and Terre Haute Railroad provides that the lessees shall receive seventy per centum of the gross receipts derived from the operation of the demised property as a consideration for working and maintenance expenses, the remaining thirty per centum to be appropriated, (1) to the payment of interest on the first and second mortgage bonds of the lessor company; and (2) the surplus of said thirty per centum to be paid over to the lessor company semi-annually, to be disposed of by it for the benefit of its stockholders.

There is a further provision that if the thirty per centum shall not be sufficient in amount to protect the interest on the mortgage bonds, and the sinking fund therefor as they mature from time to time, together with the payment of taxes and proper cost of maintaining organizations, the lessee shall advance for the lessor whatever amount may be needed to be accounted for under the yearly averages of the lease during its existence.

October 30, 1896, the appellees, Cox and Blair, citizens of the State of New Jersey, and appellee, Paul, a citizen of the State of Pennsylvania, in behalf of themselves and all other holders of bonds issued under and secured by two deeds of trust executed by the Peoria Company under dates respectively of March 1, 1887, and September 1, 1892, who should come in and contribute to the expense of the suit, brought their bill in the Circuit Court of the United States for the District of Indiana against the Indianapolis Company, a corporation of Indiana, for specific performance of the foregoing provision of the lease of the Peoria Company requiring the lessee to apply thirty per centum of the gross earnings of the demised property to the payment of interest on the lessor company's bonds, and enjoining lessee from appropriating such thirty per centum of the gross earnings, except as in the lease specified; and if necessary for the appointment of a receiver of the funds received by the lessee arising from the operation of the various lines leased, or if the lessee be insolvent, for the appointment of a receiver to operate the lessee's road, and the leased lines. Before answer the bill was amended by averring the insolvency of the lessee railroad.

November 13, 1896, the Indianapolis Company answered admitting insolvency.

On the same day the cause was heard upon the bill an answer, and the lessee railroad united in the motion for the appointment of a receiver. Volney T. Malott was appointed receiver of the lessee railroad and of its leased lines situated in the states of Indiana, Illinois and Michigan.

The decree appointing the receiver contains the following provisions:

'And it is further ordered, adjudged and decreed that the said receiver shall keep true and accurate books of account showing the receipts derived from the operation of the said railroads, and the manner and purpose of the expenditures thereof, and that in said books of account he keep separate and distinct accounts showing the amount of the gross earnings derived from the operation of the Terre Haute and Peoria Railroad Company, and in like manner separate accounts showing the gross earnings derived from the operation of each of the other railroads leased by the said defendant company, and separate accounts showing the gross derived from the operation of the railroad of the defendant company itself. That thirty per cent. of the gross earnings derived from the operation of the said Terre Haute and Peoria Railroad Company, and twenty-five per cent. of the gross earnings derived from the operation of the Terre Haute and Logansport Railroad Company, and of the Indiana and Lake Michigan Railroad Company, respectively, and thirty per cent. of the gross earnings derived from the operation of the St. Louis, Vandalia and Terre Haute Railroad Company, be respectively set apart and deposited by him in separate bank accounts, specially designated so as to indicate the property from which such deposits are derived in each case, and that no part of such percentage so set apart and deposited be paid out or applied except on the special order of this court, made upon notice to the complainants herein or their solicitors, and such other parties as may hereafter appear in this cause.

'And said receiver shall make monthly reports to this court showing the receipts aforesaid, and the cost of operation of each of the said leased lines and of the main line of railroad, and also showing the method by which the income and expenses of said lines are respectively ascertained, and in case the balance of the gross earnings derived from the operation of any of the said leased lines shall be insufficient to meet the expenses of the same, then the said receiver shall advance and meet any such deficiency out of the gross earnings of the main line of railroad of the said defendant company if the same shall be sufficient therefor, and if not sufficient, he shall report the matter to this court, and apply for instructions in the premises, having first given notice to all parties to this suit of the time and place of such application.'

The receiver's report for the month of October, 1897, shows that 'he has kept separate and distinct accounts showing the amount of the gross earnings derived from the operation of the Terre Haute and Peoria Railroad property, of the St. Louis, Vandalia and Terre Haute Railroad property, of the Terre Haute and Logansport Railroad property and of the Indiana and Lake Michigan Railway property, and has set apart to the separate and distinct funds the required percentages of the gross earnings of each of said properties; that under the direction of this court * * * he has paid out of the said funds the amounts for purposes hereinafter shown, and after making the deductions of those amounts the several funds stand as follows, to wit: Vandalia funds $119,468.54; Logansport fund, $53,831.48; Lake Michigan fund, $14,692.47; Peoria fund, $68,971.45.'

In the receiver's report the Peoria fund, in detail, is arrived at as follows:

"Balance forward ...............................................

$57,752.38

30% October, 1897, earnings ....................................

13,202.40

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