Vandalia R. Co. v. United States

• Decision Date: 20 May 1915
• Docket Number: 2164.
• Citation: 226 F. 713
• Parties: VANDALIA R. CO. v. UNITED STATES.
• Court: U.S. Court of Appeals — Seventh Circuit

226 F. 713

VANDALIA R. CO. v. UNITED STATES.

No. 2164.

United States Court of Appeals, Seventh Circuit.

May 20, 1915

Rehearing Denied July 28, 1915.

In 1905, the Lumaghi Coal Company, whose property was located on the lines of the Vandalia Railroad Company, was desirous of purchasing additional property on some of which, at least, it held options. It had not the necessary money, and, as its president testified, it was not in a position to borrow it at 2 per cent. interest as a regular banking proposition or from any ordinary sources, and would not have undertaken the purchase of the 9,000-acre tract, at a cost of $260,000, if compelled to pay the ordinary rates for money at that time. And so it applied to the Vandalia Railroad Company for a loan. This company, being unable under its charter either to loan money or to buy and sell coal lands and because of other practical difficulties, caused the Vandalia Mineral Company to be organized, which had the necessary powers. Being however, without charter power to own stock of this latter company, it caused the stock to be held for it by the Granite Improvement Company. The controlling interest in both the Granite Improvement Company and the Vandalia Railroad Company was owned by the Pennsylvania Company. It is conceded by appellant that, for the purposes of this case, all of the acts and doings of the Mineral Company and of the Granite Improvement Company are to be considered the acts of the Vandalia Railroad Company.

Thereupon in 1905, supplemented in 1906, a contract was made between the Vandalia Railroad Company, Vandalia Mineral Company Lumaghi Coal Company, and Louis F. and Joseph D. Lumaghi. Treating the Mineral Company as if it were the Vandalia Railroad Company, the contract, in substance, provided for a loan by the Vandalia Company to the Coal Company of $260,000, evidenced by notes of $20,000 each, bearing interest at 2 per cent. and falling due at the rate of one a year. The coal lands in question were to be conveyed to the Vandalia practically as security for the loan and were to be proportionately conveyed to the Coal Company on payment of each note. The Railroad was to construct, without cost to the Coal Company, tracks to such coal openings as might be developed; but it retained the right to use such tracks for the general business of the road and to remove them on failure of the Coal Company to operate the mines for three years. The Coal Company agreed to furnish the necessary right of way without cost to the railroad. The Railroad Company agreed to haul the tonnage mined from this property and other property of the Coal Company to East St. Louis at as low a rate as the general rate for like tonnage of any railroad entering East St. Louis. The Coal Company agreed that the Railroad Company should be the exclusive carrier of all its coal and minerals from all of its property, and that a violation thereof should cause a forfeiture of its right to the property. A minimum tonnage was fixed for each year. The Coal Company agreed to sell to the Railroad Company such coal as it might desire to buy for company use at $1.20 per ton, based upon the then wage scale and mining scale, and subject to increase or decrease as such scales should increase or decrease, and to release the Railroad Company from liability for damage to any building located near the tracks, whether occasioned by fire from locomotive sparks or otherwise. It was further agreed that, if the Coal Company should default on any interest note for six months, the Railroad had the option of surrendering the notes and being released from any further obligation to convey the land. Every conveyance by the Railroad Company to the Coal Company was to contain a condition of forfeiture if the coal were not delivered exclusively to the Railroad Company for carriage.

At the time the contract was made, the Railroad was paying, not $1.20, but $1.10, per ton for its coal. It had never had any trouble in getting coal at market rates. Since the contract it had bought its coal from all the mines on its lines in proportion to the production by each during the prior year. While the price paid to the Coal Company was sometimes above and sometimes below the market, it was the same that was paid to the other companies. While, at one time, certain operators along its line had fixed a minimum price to be charged the Railroad, it had had no difficulty in buying in other markets. The chief clerk in the general manager's office of the Railroad, who testified to these facts, said on cross-examination that, if the contract in question had not been made, it would have been possible for all the coal owners in the vicinity to have combined into one association for the purpose of raising the price of coal to much in excess of $1.20 per ton.

The contract did not specify how the lender was to raise the money. In fact, it procured $240,000 from a bank, giving its notes, payable just as the Coal Company notes were payable, except that the interest was 4 per cent. instead of 2 per cent. In each of the years, 1910, 1911, and 1912, shipments were made by the Coal Company pursuant to the contract. The notes falling due in each of these years were paid by the Coal Company to the Railroad Company and by the Railroad Company to the bank, with the result that the Railroad Company paid in each of these years, on account of the money borrowed by it, a considerable sum in excess of the interest that it received on the money loaned by it. The Coal Company paid the tariff rate at the time of and for each transportation transaction referred to in the indictment.

The Vandalia Railroad Company, which offered no evidence, was found guilty under an indictment charging it with having given the Coal Company a rebate by means of the device as hereinabove set forth in respect to the transportation of certain specified car loads of coal whereby they were transported at a less rate than that named in the published tariffs, in violation of section 1 of the Elkins Law (Act Feb. 19, 1903, c. 708, as preserved by the amendment in Act June 29, 1906, c. 3591, Sec. 2, 34 Stat. 587). The several counts were based on shipments made in the years 1910, 1911, and 1912, respectively.

Thomas W. White, of St. Louis, Mo., and L. O. Whitnel, of East St. Louis, Ill., for plaintiff in error.

Chas. A. Karch, of East St. Louis, Ill., and Henry S. Mitchell and August G. Gutherin, for the United States.

Before BAKER, KOHLSAAT, and MACK, Circuit Judges.

MACK Circuit Judge (after stating the facts as above).

While a number of errors are assigned, but tow have been argued: (1) The refusal of the court to direct a verdict for defendant; (2) the refusal to charge as requested.

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