St. Louis, V. & T. H. Railroad Company v. Terre Haute & I. Railroad Company
STATEMENT BY MR. JUSTICE GRAY.

This was a bill in equity, filed July 6, 1887, by the St. Louis, Vandalia & Terre Haute Railroad Company, a corporation of Illinois, against the Terre Haute & Indianapolis Railroad Company, a corporation of Indiana, to set aside and cancel a conveyance of the plaintiff's railroad and franchises to the defendant for a term of 999 years. The bill contained the following allegations:

That the plaintiff was incorporated by a statute of Illinois of February 10, 1865, amended by a statute of February 8, 1867, to construct and maintain a railroad from the left bank of the Mississippi river, opposite St. Louis, eastward, through the state of Illinois, to a point on the Wabash river, convenient for extending its road to Terre Haute, in the state of Indiana; and was not authorized by its charter, or by any law of Illinois, to lease its railroad, or by any other contract or conveyance to part with the entire possession, control, and use of its property and franchises, or to deprive itself of and vest in others the power of control in the management of its said road and other property, and in the exercise of its franchises, including the right to impose and collect tolls for the transportation of passengers and freight, indefinitely, or for any fixed period of time.

That the defendant was incorporated by a statute of Indiana of January 26, 1847, amended by a statute of March 6, 1865, to construct and maintain a railroad from some point on the western line of the state of Indiana, eastward, through Terre Haute, to Indianapolis; and was not authorized by its charter, or by any law of Indiana, to make or accept any lease, contract, or other conveyance by which it should acquire or obtain, either indefinitely or for a fixed time, the ownership, management, or control of any railroad located beyond the limits of Indiana.

That the plaintiff proceeded to construct, and on or about July 1, 1870, completed the construction and equipment of, its road; that in order to obtain money for this purpose, on April 6, 1867, it executed a mortgage or deed of trust of all its railroad, property, and franchises, to secure the payment of bonds amounting to $1,900,000, and agreeing to set apart annually from its earnings the sum of $20,000, as a sinking fund for payment of the bonds; that on March 13, 1868, it executed a second mortgage to secure the payment of additional bonds to the amount of $2,600,000; that all the bonds aforesaid were sold, and outstanding and unpaid; and that no sinking fund had been created, as provided for in the first mortgage.

That on February 10, 1868, the plaintiff and the defendant executed a pretended lease (set forth in the bill, and copied in the margin ) of the plaintiff's railroad, property, and franchises to the defendant for 999 years, the defendant retaining 65 per cent, of the gross receipts, and the rest to be applied to the payment of interest on the mortgage bonds, and any surplus paid to the plaintiff.

That on January 12, 1869, the plaintiff's board of directors passed a resolution, undertaking to authorize its president to change the terms of said lease, so that the defendants should be allowed 70, instead of 65, per cent. of the gross receipts, 'but if the working and maintenance expenses of said road shall be less than seventy per cent. of the gross receipts aforesaid, then all of such excess shall be paid over to' the plaintiff.

That by a statute of Illinois of February 16, 1865, in force at the time of the execution and delivery of the pretended lease, it was not lawful for any railroad company of Illinois, or its directors, to consolidate its railroad with any railroad out of the state, or to lease its railroad to any railroad company out of the state, or to lease any railroad out of the state, without the written consent of all its stockholders residing within the state; and that 59 of the plaintiff's stockholders, residing in Illinois, never consented to or ratified the lease.

That, on the completion of the plaintiff's road, the defendant took possession of and had ever since operated it, and had received, in tolls and otherwise, more than $21,600,000; that the pretended lease was void, for want of lawful power in either party to enter into it; that the defendant, by taking possession of the plaintiff's railroad and property without right, became in equity a trustee of the plaintiff, and liable to account to it for the property and for all tolls and emoluments which the defendant had, or ought to have, collected and received therefrom, and to restore the property to the plaintiff; that the defendant had refused, though requested, to turn over to the plaintiff the road and property, or the income thereof, and had thus rendered the plaintiff unable to establish a sinking fund, as required by the first mortgage; and that great and irreparable injury would be done to the plaintiff and its stockholders unless it was restored to the possession and control of the railroad, property, and franchises.

That, at the time when the lease was executed by the plaintiff, its officers supposed that it had lawful power to do so; but that it had recently been advised by counsel that it had no such power, that it was its duty at once to repudiate this pretended lease, and to resume the possession, control, and use of its property and franchises, and that it had rendered itself liable to have its charter forfeited by the state; that the present income was more than sufficient to pay the interest on the bonds and to establish a sinking fund; and that, by reason of the failure to establish a sinking fund, proceedings might at any time be instituted to foreclose the first mortgage.

That the taking of long and complicated accounts, covering a period of nearly 17 years, and involving a great many items, was necessary for the protection and enforcement of the plaintiff's rights: that the pretended lease was a cloud on the plaintiff's title; that a court of law had no jurisdiction adequate to take the account, or to cancel the lease; and that the defendant was daily withdrawing large sums of money from the jurisdiction of the court, to the irreparable injury of the plaintiff. The bill, as originally framed, prayed for a cancellation and surrender of the lease, for a return of the railroad and other property held under it, for an injunction against disturbing the plaintiff in the possession and control thereof, and for an account of the sums which the defendant had received, from the use and operation of the railroad and property; or if the lease should be held valid, for an account of the sums due under the lease; and for further relief.

The defendant demurred to the bill, for want of equity, for laches, for multifariousness, and because the plaintiff had an adequate remedy at law. The circuit court sustained the demurrer, on all these grounds, as stated in its opinion, reported in 33 Fed. Rep. 440. The plaintiff thereupon, by leave of court, amended the bill, by striking out the prayer for alternative relief in case the lease should be held valid. The defendant demurred to the amended bill, on the same grounds as before, except multifariousness. The court, delivering no further opinion, sustained the demurrer, and dismissed the bill; and the plaintiff appealed to this court.

John M. Butler and Lyman Trumbull, for appellant.

[Argument of Counsel from pages 398-400 intentionally omitted]

George Hoadly, for appellee.

Mr. Justice GRAY, after stating the case as above, delivered the opinion of the court. 

Notes

And whereas, the Terre Haute & Indianapolis Railroad Company, a corporation of the state of Indiana, has proposed to construct, without delay, a first-class railroad, being an extension of their present road from Terre Haute to the state line of Indiana, upon such location as will connect properly and directly with the St. Louis, Vandalia & Terre Haute Railroad at the state line of Illinois:

And whereas, it is desirable that the said lines when connected should be operated by the Terre Haute & Indianapolis Railroad Company as one road between Indianapolis and St. Louis, and the said Terre Haute & Indianapolis Railroad Company having proposed to lease and operate the said St. Louis, Vandalia & Terre Haute Railroad for a period of 999 years: It is, therefore, agreed, first—

That upon the completion of the road between East St. Louis and the state line of Indiana, the Terre Haute & Indianapolis Railroad Company shall take charge of and operate the same, with its equipment, for a period of 999 years, for which they shall be allowed 65 per cent. of the gross receipts from all traffic moved over the line, or business done thereon, and from the property of the company, as a consideration for working and maintenance expenses, the remaining 35 per cent. to be appropriated as follows: (1) To the payment of interest on the first and second mortgage bonds of the St. Louis, Vandalia & Terre Haute Railroad Company according to their legal priority. (2) All the surplus of said 35 per cent. to be paid over to the

St. Louis, Vandalia & Terre Haute Railroad Company, semiannually, to be disposed of by it for the benefit of its stockholders.

If the 35 per cent. should from any cause not be sufficient in amount to protect the interest on mortgage bonds, and sinking funds therefor, as they mature, from time to time, together with the payment of taxes and proper cost of maintaining organization, so that the rights of stockholders may be preserved, then and in that event the lessee shall advance for the company whatever amounts may be needed, to be accounted for under the yearly averages of this lease during this contract.

It is further agreed that the Terre Haute & Indianapolis Railroad Company, as lessee, shall enjoy all the rights, powers, and privileges of the St. Louis, Vandalia & Terre Haute Railroad Company, so far as the same may be needful to maintain and operate said railroad; also, to impose and collect tolls and rates for transportation, and do all other acts and things, as fully and as effectually as the said St. Louis, Vandalia & Terre Haute Railroad Company could do if operating said line, it always being understood and agreed that the gross proceeds from through or joint traffic or business shall be divided on the pro rata basis per mile for distance moved on the road of each party.

In witness whereof the parties have respectively hereunto affixed, this, the tenth day of February, 1868, their official signatures and seals under authority of their boards of directors.

THE ST. LOUIS, VANDALIA AND TERRE HAUTE

RAILROAD COMPANY,

[Seal.]

By J. F. ALEXANDER, President.

THE TERRE HAUTE AND INDIANAPOLIS RAILROAD COMPANY,

[Seal.]

By W. R. McKEEN, President.
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