which the title to the lands under the sales was vl,sted in the state, and without which the auditor's conveyance, even if the sales were valid, must fail to show title under them in Mrs. Turner. While the complainants under their cross-bills are not entitled. to have their titles declared valid, and that of Brad10rd declared void and a cloud upon their titles, and to have them canceled Ilsprayed for, yet, under the general prayer in the cross-bills, they are entitled to have the money expended by them in the payment of taxes, and Mrs. Turner is entitled to have the money paid by her to the auditor for the purchase of the title of the state refunded to her, with interest from the time the same was so paid. It makes no difference that Bradford applied to the tax assessor to have the lands assessed in his name, and that he applied to the tax collector to pay the taxes, and was refused the right to do so. The taxes were a charge upon the lands, and Hall and wife and Mrs. Turner paid them, believing in good faith that the lauds belonged to them. They are justly and equitably entitled to have the money, with interest, refunded to them, qnd this charge will be a lien on the lands, and, if not paid within 60 days, the clerk of this court, as commissioner, will be directed to sell so much of the land for which the taxes were paid by the respect.ive parties as will pay the same with the costs of sale. The result is that the prayer Qf the complainant in the original bill must be granted, and the prayer of; the complainants in the cross-bills, with the exception stated, must be The complainant in the original bill will pay one-half the costs .i,Aeach case, and. the defendants in each case will pay the other half of the costs respectively.
& R. I. Ry. Co. et al., Intervenor. )
(Circuit Court, No D. illinois. August 29, 1888.)
1.RAII,ROAD COMPANIES-BoNDS AND MORTGAGES- FORECLOSURE-ACCOUNTING -CAR REN'l's-LEASES-PUBLIC POLICY. . ,
On foreclosure of the railroad mortgage in this case and the adjustment of claims of intervening creditors, the contract of lease of cars to the mortgagor company, by the car company dominated by the same persons; cannot be made the basis of an accounting for the use of the leased cars.
But the lessor is entitled to such reasonable rent as could be obtained in the open market for similar cars, to be used in the same manner.
SAME-RECEIVERSHIP-CHARGES ON INCOME-CAR RENTS.
Where both before and during a receivership of the property of a railroad corporation pending mortgage foreclosure, moneys from current receipts are expended for improvements and equipment. a claim for rent of cars maybe charged on the income during the receivership, and, if that is inadequate, upon the proceeds of the mortgaged property. In the absence of special circumstances, the income durinA' the receivership, or the proceeds of the sale, will not be charged for rent of cars,clailllS for loss of carll, etc., accruing more than six months before the receivership.
SAME-CLAIMS ACCRUING SIX MONTHS BEFORE RECEIVERSWP.
THOMAS V. PEORIA & R. I. RY. CO.
SAME-REPAIRS OF LEASED CARS-WAIVER OF CLAIM.
6. SAME-RECEIVER'S CONTRACT. 7. SAME-INTEREST ON RENT.
While a lease of the cars by the receiver is valid until disaffirmed by the court, it is not such "an instrument in writing" as entitles the lessor to interest under Rev. St. Ill. 1885, p. 1356. . Where the lessor steadily claimed a larger sum than was equitably dne, and was refused payment Of any amount approaching that to which it was entitled, there is such an "unreasonable and vexatious delay" as will justify the allowance of interest on the aggregate amount due, from the date of the filing of the master's report.
8. SAME-UNREASONABLE DELAY.
In Equity. On the claim of the Western Car Company, an intervening creditor in the foreclosure of a railroad mortgage. The original cause, in which the Westt:rn Car Company became an intervenor, was a proceeding to foreclose a mortgllge executed by the Pe9ria & Rock Island Railway Company to secure its first mortgage bonds to the amount of $1,500,000. The original bill was filed in October, 1874, and on February 1, 1875, J. R. Hilliard was appointed receiver of the railway company. He remained in control, and operated the railroad until after its sale under a final decree of forecJosure, passed January 11, 1877. At that sale R. R. Cabell became the purchaser. On the 17th of September, 1877, the sale was confirmerlj the purchaser being allowed to pay into court, upon his bid, all the first mortgage bonds of the railway company held by him. On December 11, 1877, a further order was entered in the original cause, reciting, among other things, the assignment by Cabell to the Rock Island & Peoria Railway Company of his interest as purchaser, and ordering the master to execute and deliver to that company a deed of conveyance of the property so purchased, and the receiver to deliver to it possession. By said order it was further provided that Cabell should execute to certain sureties therein named a penal bond in the sum of $100,000, payable to . the clerk of the court, for the use d whoever should be thereto entitled, and conditioned to pay into court such sum or sums of money as the court should thereafter direct. One of the purposes of that bond was to secure the payment of any sums that should be awmded ill the c..9.use to the . Western Car Company. A bond in the amount named was executed as required. It should be stated in this connection that the decree of sala provided that the residue of the proceeds of the sale of the property, after paying certain specified costs and debts, should be applied under the direction of the court-Pirst, to the payment of all remaining claims ofintervening creditors, as they shall be allowed by the court; second,to the payment oithe bonds and coupons secured by the mortgage, pay-
ing the same in full if the residue was sufficient for that purpose; otherwise, pro rata upon sl1chbonds and coupons. The report made by the master, Henry W. Bish9P,UP9n the claim of the Western Car Company is as.£oJlows:
"To the Honorable, the Judges of said Gourt: These intervening petitions allege that on Marc,h 1, IS72, the defendant company and the petitioner made a contract in writing, bywllich the car company leased to the defendant company ninety cars, seventy of them box cars, n'umbered from 151 to 220, inclusive, and twenty lltuck cars, numbered from 51 to 71, inclusive, for a term of five years, at a rental for each car of $20 per month, from the date of the delivery of said car; the contract also providing that, if any of them were disabled or destroyed, the company would immediately replace them with other cars of like quality and value, which should become the property of ,the car company, and also to maintain and keep said ninety cars, during the term of said contract and its renewals, in good repair and safe, and in proper running order, and at its own expense to furnish all the materials, and to make all the renewals of said cars from time to time, as they sh04ld be needed, and to put and keep them in proper condition for regular lise, and, at the termination of said contract or renewals, to return said cars to the Western Car CompanY in proper condition and repair for their immediate and active use. That said company furnished said cars to said rail'way company , about the date of said contract, and that the railway company received and used them, by reason of whIch they are entitled to the rent provided in said contract. ' That on Oc'tober 1,' IS73, contract' of a similar character was :made between the parties, by Which the petitioner rented to the defendant company 150 other cars, being fifty bo'(-cars, numbered from 220 to 270, inclusive, and 100 White Line cars, numl;Jered from 9401 to 9500, inclusivet That said second lease was also for the term of five years, and also provided for the payment of rent at $20 I-dr month for each car, and with the , same provisions in regard to the destroyed or disabled cars; the cars 'in repair, and returning them in good repair, at the end of the lease. That the cars referred to were used by the defendant company until its road went into the hands of the receiver, appointed by the court, February I, 1875. - That the rental was, by s.tipulationof July 1,1874. reduced to $15 per mOnth. , and continued-until the receiver's appointment, leaving at that time a balance of $35,106.48. That two of said cars were destroyed, which were of the value of $1,500, and not replaced;, and by an amended supplemental petition, filed October 16, 1877, it was claimed that there was due petitioner also the sum of $4;000 for repairs put upon 100 White I,ine cars. Interest is claimed upon said sums since the dates they were respectively payable by the terms of the contract., This is, in substance, the claim of petitioner prior to theappoiptment of the receiver. "The petitions further allege that a contract in writing was made on the 11th day of June, 1875, between the petitioner and the receiver, by which the petitioner rerited to said receiver 138 cars for the term of one year, with the privilege of renewal, at a rental of $10 per month for each car, keeping them ,in good repair for use on said road. That. under such contract, the receiver . took possession of and used said cars until they were returned in bad order, with the exception of four, which were not returned at all; for the payment of which claim is made., That subsequently, in March, 1875, the receiver, with the consent of the petitioner, recei ved 56 cars from the Chicago &, Northwestern Railway Company; using the llame at a rental per mile until December I, 1875, when it is claimed, it was agreed between the parties that the use of the same should be retained by said receiver upon the same terms as provided in the contract last referred to, until the decision of the court in the
THOMAB V. PEORIA & R. I. RY. CO.
cause in whIch they had been replevied by the petitioner. That said receiver used the same, paying no rental 'therefor until rent: liad accrued to petitioner \ amounting to $15,281.34, together with the sum of $3,500, which, it wasal· leged, was the expense of putting them in good condition, besides the loss of rental or use during their repair; Interest is also claimed by said petitioner on each of said sums from the dates when payable by the terms of said tracts. These claims are therefore those which are alleged to have accrued prior to the six months immediately preceding the receivership, and those arrising during the six months before the appointment of the receiver and during the receivership; and statements of aecount, made out in detail, are exhibited in connection with the petitions, showing the way in which they have arisen, and the basis upon which the account is stated. It is insisted upon the part of the respondent that in stating this account the rental contracts upon which the petitioner bases that portion of its claim which accrued to it from the railway company pl"ior to the receivership, should be disregarded, because fraudull'nt and void; the officers and pl'rsons controlling the railway company haVing been at the same time interested in, and' having the management and control of, the car company; and that the compensatIOn for the use of said cars during the entire period for which the flllld'or the receiver is liable should be determined by its fair value, as shown by the testimony. This question seems to me to be unimportant in view of what I understand to be the- settled practice of the court in cases of this kind, which pradice I have endeavored to follow in stating this account by allOWing to the petitioners such payments as they are shown to be reasonably entitled to by the testimony. " The defense Interposed to all of the claims set out in the petition is of the the sallle general character, and I do not consider it nesessary to refE'r to it here more l:Ipecilical1y. It has been the practice of the court in cases of this character to allow against the fund or the receiver claims of this kind, established by the testimony as reasonable and just, which have accrued during the period of six months prior to the appointment of the receiver, and during the receivership, indepl'lldent of any contracts which may have prevIOusly existed. unless such contracts have in some way been recognized and adopted by the court; and in stating this account, I have endeavored to follow this practice. It is insiElte<1 upon the part of the petitioner that, as toa portion of the rental term, there was such a recognitiOli by the court of the contract relation between the parties as w0lolld charge the respondent with the payment of rentals and repairs. as provided therein. 1 think the testimony does not justify this belief, and I am unable to find any order of the court authorizing the receiver to enter into any contract Whatever for the rental of cars upon stipulated terms. In stating this account, I have ignored that portion of it which accrued before August 1, 1874, six months prior to the appointment of a receiver, at which time it was claimed that there was due and unpaid for reutals the sum of $32.400, npon the basis of the alleged contract price, or $26,162.99 after a ('redit of $0,237.01 for money received by petitioner for rent of the White Line cars.. It is c1aimE'd by the petitioner that this sum should be applied on account of rentals due and accrued more than six months prior to the receivership. It appears, however, from the testimony, that this money was realized from the rental of the cars during the period of the three months immediately prior to the receivership, and I have therefore applh'd it asa credit in favor of the respondent on the account which accrued' within the six months prior to the receivership. It is insisted. also. that upon the balance for rentals, as well as for repairs and renewals, interest should be credited at the rate of six per cent. per ann um. and this has been done in every instance in the acco II lltS presented by the petitioner. I have. however, disregarded this Item, because I (to not think it should be allowed against rflCelver possesl:llngno authority, except'under the direction of the court, either to agree"
upon the amount due from time to time, or to pay the same, except under its direction, or in a case where the amount in controversy i5 still undetermined, as in this instance. ' "Upon the basis of what has already been stated, I find that for the period of six months prior to the receivership the respondents are liable for the rental of 240 cars at a stipulated price of $15 per month, being the months of August, September, October, November, and December, IH74, and January. 1875; amounting to $21,600. The payments which are shown to have been made upon this account amount to the sum of $13,300. leaving a balance of $8,300 due for the six months prior to the receivership. From the balance should be deducted the item of $6,237.01, earned oy the White Line cars during the three months immediately preceding the receivership, and paid to the petitioner by the receiver, leaVing due as the balance of claim for rental that accrued within six months preceding the appointment of a receiver, the sum of $2,062.99. The items which have been employed in making up this account are .furnished in the statemeut of account between the petitioner and the railshown, by Exhibit F to Whittl'edp;e's deposition, and also stated for petitioner in their argument; and from deposition in the dQrpand which was made by the car company for payment of the sum claimed to be d\le, it appears there was included no charge for interest: The rental per month is also established by the testimony to have been a fair rental at time. It. is claimed. by petitioner that there should be added to thjs sum due for. the. rental of these cal's during· the six months prior to the receivership the,following items: Value of two lost cars, $850.00; s nm expended. in repairs of White Line cars, $4,003,86; and loss of during of such r,epairs. $1,000.00. The testimony shows that prior to the receivership five cars wl3re destrpyed and lost; and four of these, I think, are shown to have been lost more than six months prior to the receivership. I therefore have rejected the claims of petitioner for lost cars. It appears from the evidence' that the upon his appointment, returned the 100 While Line cars, after which there.'Was expended by the petitioners upon them for repairs the Qf $4,003.86; and it is claimed that this expense is chargeablb against th,eflind in court, as well as the sum of $1,000 for loss of rental during. the lllaking of these repairs. I have disallowed both of these claims, 'Which makes the total amount due to petitioner, exclusive of interest, and after allowing all c,redits prior to February]. 1875, when the receiver appointed. the sum The claim of $4,003.86 for money expended in repairs on 100. White Line, cars is involved in so much uncertainty by the testimony that I: pave fouIlel difficult todeal with it. T,he receiver swears that up claim was ever made upon him for repairs upon these cars, and there is no t!,istimonyoffllre4 upon the part of the petitioner controverting it, and there is very little if any. tending to show that their condition reqUired r,epairs wh¢n the receiver delivered them over to thepetitjoner. in 1875,In original petition. filed November 11, 1876, nearly two years after their to the testimony of McKee, nearly a year after tIle r.epairs were: ma4e., no claim was made for the payment of this charge; neither, 'Ylis ,any made until the amended and supplemental petition 'Was filed" QCtober 16,1877, which was nearly three years after the surrender of the cars. Ip view of these fa!lts, and the effect of the testimony in respect to the of tpecars at the time of their surrender, I am unable to 'fhat, if any,:proportion of repairs should be borne by the. resp@nlient, a,ndamthereforeobliged to disregard this .item of charge as not been eatablishe(ib)' the testimony., . . .. . rentals "The. other claJm of petitioner is against the receivership, an(1 'Whi<;h accrued after February 1, 1875, and for cash paid for repairs of cars damaged, and for lost clIrB,anq for interest UpOn all the
overdue claims. !tappears from the testimony that, upon the appointment of the receiver, he returned the 100 Wh:te Line cars, and retained in his possession the remainder, claimed by the petitioner to have been 138 in number, but, as I find from the testimuny, 135 only, although the auditor of the respondent treated the number as 138. The testimony shows, I think, however, that the remaining five cars were in some way destroyed or lost; that through some arrangement the receiver used these cars during February and March, Hl75, at a rental of $12 each per month, for which time payments were made at that rate, and at the rate of $10 per month each for April, 1875, which was also paid. with the understanding that he should pay a rental of $10 per car per month thereafter. The statement of account which is produced by the petitioner adopts these rates of rental, giving the payments that were made upon account, and oharging rental durinK the time of their re.pair. A claim is also made for keeping these 135 cars in repair, and a statement of this is also exhibited in 'detail in connection with the petitioner's demand. "The respondent denies that it is liable for the payment.of these Claims. because no engagement of that character was entered into between it and the petitioner, and, if liable at all, not to the extent demanded, for the reasons that the charges are in many instances excessive, havin,:r been unnecessarily incul'red, and that a large number of the cars. required were not received by it in good order. It is by the respondent that it was neverrequirell by the terms of itg,engagement to return these cars in. any better condition than they were when he received ,them, and that any expenses :that were curred'bythe petitioner inputting them into condition for releaSing are not properly chargeable against respondent; that the repairs put nponsaidcars were excessive, unnecessary, and not suited to the character of the C3irs,. amounting practically to renewals, and adapted to a better use than wasin. tended for them in their original construction. I have found it difficult 'to deal with this branch of the case, for the reason that, while it appears that the bills which have been presented for these repairs were actuaIJypaid by,the petitioner,itis also evident that in many instances these repairs were extrav_ agantly conducted, and that in many respects they were rendered necessary by their condition before they came into the hands of the receiver: and there is much testimony, in the case showing this to have been the fact.. It is also apparent from the testimony that in many cases cars were practically rebuilt and renewed. Upon a very careful examinatiun of all of the testimony hearing upon this branch Of petitioner's claim, I Hnd it impossible to separate the items of this aceount in such a way as to equitably charge this. respondent with such portion of therepairs as he should be called upon to pay UI)(mthe basis of the claim of the petitioner,although in my estimation the effect. of the testimony is to show that a credit, at least to some extent, of the amount charged by the petitioner upon this item, should be applied to theireduction of this claim. A claim is alsu made for the value of four of ihe 13l:l cars which were never returned, amOunting to $1,800, and credit afterwards given by the return of one of them. I have already found the 138car8 but 135 went into the· hands of the receiver, and 1 have·therefore disregarded this claim. In addition to this, it is claimed that the receiver came into the possessIon of fifty-six box cars, which had been repleVied from the Chicago & NorthwejlternRailway Company, and which, by.arranRement, were used 'by the receiver until they were finally surrendered. For this use a mileage rent has been chargedfrorn March, 1875, to December. 1,1875, as appears by statement made bythe auditor of the road, which rental, less .certain conceded debits in the receiver's favor, amounts to the sum of $391.34; and tbatthereafter, from December 1, 1875, to the time they were finally surrendered, for their use and for the time they were detained for repairs a charge of $10 per mQDth,per car was made, amounting to the sum ,of $13,122.23.' For.tlhis last
termit is denied by the respondent that there was any written contract finally entered into. I' think it is shown by the testimony that an arrangement of this character was agreed upon .between the parties, and reduced to writing, though perhaps it was not finally consummated or delivered, and that, in any event; the cars were used d urhig this time, and $10 per month ppr Cll r was a J'easonabll\compensation for their use. A claim is also made by the petitioner for $5,650 expended in repairing these fifty-six cars after their surrender to it by the receiver. It appl\ars from the testimony that these cars were received in bad condition, after having been used for two or three years by the railroad, from which they appf'ar to have been taken by the receiver, partly, at least, upon the sug.gestion and for the accomodation of the petitioner. It appears, the cars; however. that this sum was actually expended bythe petitioner and, as I find it impossiblp from the testimony to determine to what extent the respondent is liable for the payment of these charges, I am unable to make what may be finally regarded as an equitable distrilmtion of this liability, and am obliged to charge the responJent with the full amount of the payment s·bown to have been made on this account. Interest at the rate of six per cent. is charged upon all of the balances in t1.ese accounts, and credits have been given for moneys paid fmm time to time upon them. "In estimating the amount due petitioner upon these claims, I have, as in case of the claim for the term prior to the recei vership, not taken into aCl'ount the interest 'demand, but have wholly disregarded it to both branche!! of the account; ,and upon this basis J find and report that there is oue and owing to the petitioner for the rent of 135 cars from February I, 1875, to April 1, 1875, at a rental of $12 per month .per.cal·, whil'h rental I find from the testimony to have been a reasonable rental at that time, the sum of $3,240.00. 1<'or the rent of 135 cars from April 1, 1875, to the date of their return at the rate of $10 pel' month, which I find from the testimony to have been a rea!!onable rental during this term, the sum of $35,375.97. I find that during this period therE:> wall pailt out flir repairing cars by petitioner the sum of $14,046.55; and during both of these terms the payments made on account by the recei ver ,was the sum of $29,808.00; leaving due petitiuner the sum of $22,854.52. lfilld also there is due a mileage rental for the fifty-six replevh-d cars of from March, 1875. to December 1, 1875, $391.34; and for rent of these cars from December 1st to the date of their surrender at the rate of $10 to be a re-llsonable comper month per cal', which I find from the pensation for their use. the sum of $12,857.32. That there is due for money expended for the repairs of fifty-five cars the sum 'of $5,650.52; leaving due and owing petitionel' upon this second branch of aceount against the reeeiver, Uler sum of $Hl.899.I8; making a total due the petitionel" for the terlll commencing with the appointment of the receive-r, and f'xtending over the entire term of the account with the receiver. the total sum of $41,753.70. I find the balance, therefore, due upon the claim of the pe-tilionel' for rental!! and repairs and mileage, after deducting all credits, and the disallowancE'l of interest, for the tt'rm be-ginning six months prior to the appointment of the re. caiver until the date of the surrender of the cars, the total sum (11)$43,816.69, for the payment of which I recommend that a decree be entered. ":Upon this referenre I have been attended by the solicitors of the respective, parties,.and in the exanlination:of the matters referred to me I have had the ,benefit of their full and careful presentation of the case. If, however; the' court should· be of the opinion··thatthe respondent is liable for the rental ofcars,:on:the terms of:the rental contrllcts, that accrued and remained unpaid when the six months prior to the receivership began. 11 nd: for the interest npon the bli.Ilmoesstate-d:dul'lllg that time, and for the repairs claimed to have been made :during that' tillie, and for interest upon balances for repairs claimed
PEORIA & R. I. RY. CO.
,d.uring that. time, t4en. there · prior to the receivership."
be due and owing .petitioner . ..
Hoplains&: Hayward and John M. Butler, for Westem Car Company. Ohas. M. Osborne and Saml. A.Lynde, for the milroad company.
HARLAN, Justice. The court cannot, consistently with any principle of equity or of public policy, recognize the contracts between the Western Car Company and the Peoria & Rock Island Railway C@mpany, one dated March 1, 1872, and the other dated October 1, 1873, as the basis of accounting between the parties to this cause. Theofficers and individuals dominating the car company were, substantially, the same officers and individuals that dominated the railroad company. For every purpose of business the masters of the company were also masters of the lessee company. Those who contrived and directed the making of the leases in question in behalf of the car company must, under the circumstances disclosed by the record, be deemed to have con-tracted simply with themselves in reference to the monthly rental of its cars, and the terms upon which they were. to be used by the railroad company·. When it is sought to use these leases asa means which to reach the proceeds arising from the use and· sale of the propetty of the lesseeeompaJ;ly, those who have an interest in such proceeds,as well as , th.e corp()ration itself, are at liberty, for theirowuprotection. to question made the basis of , their validity, or to insist that they shall not upon these proceeds. It would be extraordinary if the holders or the mortgage bOllds of the railroad company should bedenied the right to show that the obligation iInposed by these leases to replace such of the leased. cars.lls or destroyed with others of likequality and valuej .to maintain and keep: ij1 of theIll in good repair and in safe and proper tofumish all the matedals, and make allthe.re· newalsneeded from time to time; .to put and keep the cars inpr:oper condition for regu1l:tr' use; and,at. tbe termination of the lease, to return. the to the lessor company ,"in proper condition and repair immediate and active use,"""'""":was. in effect, ifnot in fact,illlpqsed uponthe railroad company by those who,although lWlding stock i11 corporatioJ;l, were .nevertheless interested, iii behalf of the lessor company, in exacting the higbestrentals for its cars, and in attaching to their use such conditions as most favqrable to ,it. The court cannot close its eyes.ta the fact that. those 'who assumed to biJ;ldthe railroad company by these leases were directly interested in the profits to accrue "therefrom to the lessor Company. The rule governing such not to be disregarded Or enforced accprdingasthe· court may happen to be able to ascertain the · amount, in dollars and cents. which may ,be realized by an agent · -Who underta.kes.to serve, in thesanie business, two principals, whose re$pective interests are Such an agent cannot make a confor both principa.ls Ii. cotirt' is bound to enforce itgainstthe · oftheobjecting princip,al, or other parties in interesL . Tjle.present I' bro\lght, by the evidence, within the principleatinouncedin War,.deU.v. Railroa,d Co., 103 U. S. 658. It was there said: . . .L .
, ...' .. ' :.. .', · ". ' ".' ). ,
"The directors of corporations cannot enter into or authorize contracts in bellalf of those for whom they are appointed to act, and then personally participatein its benefits. Hence all arrangements by directors of a railroad companyto secure an undue to themselves at its expense, by the formation of a new company as auxiliary to the original one, with an understanding that they, or some of them, shall take stock in it, and then that valuable shall be given to it, in the profits of which they, as stockllOlders in the new company, are to share, are so many unlawful devices to enrich themselves to the detriment of the stockholders and creditors of the original company, and will be condemned, whenever properly brought before the courts for consideration. " · See, also, Thomas v. Railroad 00., 109 U. S. 522,3 Sup. Ct. Rep. 315j Wright v. Railway Co., 117 U. ,S. 72, 94, 6 Sup. Ct. Rep. 697.
Practically, this is a suit by the Western Car Company upon a contra,ct that it made, by its managers and controllers, not only for itself, but for the other contracting party, the railroad corporation. It is none the less so because those managers and controllers also had an interest in the lessee corporation. The leases referred to must therefore be put aside as a basis for ascertaining either the amount due the Western Car Com· pany, or the nature of the obligations assumed by the railroad company or by thereceiver on account"oftheir having used the cars in question. But it does not follow that the railroad company and the receiver were entitled to use the property of the car company without making some compensation. While the leases of 1872 and 1873 cannot be made the basis of the accounting between the parties, the car company is nevertheless entitled to be reasonably compensated for the use of its carSj such compensation however, to be fixed without reference to, and wholJyapart from, the'leases. What is to be deemed such reasonable compensation? 'Or, rather, what are the elements in the iriquiry as to reasonableness? On behalf of the railroad company and the bondholders it is contended, mainlyuponthe authority of Thnmas v. Railroad Co., that the true test is the value directly accruing to the railroad company from the use of the cars. If by this it is meant that the court must ascertain how much the railroad company in fact realized from the use of the cars, taking its 'whole business, so far as these cars were used, into account, that propo· sition cannot be sustained. The case cited hardly supports such a rule. · All that was there said was that, in fixing the value of the labor and ma, for which compensation was asked, the prices named in thecontract there in question should not, in view of its illegality, govern the courtj that compensation should not be given for labor and materials that were of 110 value whatever to the railroad company. If the labor and materials 'were of real value, that is, if they were needed or required by the busi,ness ornecessities of the company, then they were to be paid for; the 'amount to be ascertained in some mode consistent with law. Such 'r understand to be the extent to which the Thomas Case goes. The court ·,d,ld not mean, by anything there said, to exclude evidence as to what , was usually allowed for such labor and materials at that place, or in the locality where the labor ,vas performed and the materials furnished. In the present case it is manifest that the railroad cOlllpany actually needed
THOlIAS V. PEORIA & R.I. RY. CO.
the cars furnished by the car company, and that they were of real value to it. Upon the question of reasonableness there is-and, in the nature of things, there must be-serious difficulty. The respondents call attention to the testimony relating to the stock dividends made by the car COI11pany, and insist upon such dividends as furnishing the proper test of rental value. But this test,while not to be disregarded altogether, if> too uncertain, and would mislead; for the profits of the car company varied in different years. They also refer to the actual cost of each car, and upon that basis contend that the rent claimed by the car company is an exorbitant return for the capital at risk. This is a fair argument; but there are other considerations to be taken into account. The system of "mileage rates," as adopted between other railroad and car companies; the class of railroad companies among which that system should obtain; the rental paid, in open market, fot similar cars furnished to other railroad companies by the Western Car Company, or by other car companies; the quality of the particular cars in question, as compared with cars made by other car companies,-these are all proper elements in the inquiry as to reasonableness of compensation. Recognizing it as impossible to lay down a rule that would be applicable in every case,it may be said, generally, that a fair compensation for the use of · these cars during the several periods in question would be such amount as similar cars-to be used in the same manner, and upon similar roads -would commonly rent for in the open market. If the railroad com· pany required the cars for ordinary or proper business purposes, as I · think it did, it should be charged with Buch rental as, in the state of the market at the time, was fair and just under all the circumstances. There are other matters of a general nature to which reference must be · made before we come to consider the details of the accounting between the parties as set forth in the master's report. Under what circumstances, and to what extent, may the court charge the income of the railroad property in the hands of its receiver with the liabilities incurred by the railroad company, in respect to petitioner's cars, prior to the appointment of such receiver? Without stopping to this question as if it were for the first time presented, it is sufficient to say that the following propositions are sustained by the decisions of the supreme court of · the United States, viz.: (1) When "a court of chancery is asked by railroad mortgagees to appoint a receiver of railroad property pending proceedings for foreclosure, the court, in the exercise of a sound judicial discretion, may, as a condition of issuing the necessary order, impose · such terms in reference to the payment, from the income during the receivership, of outstanding debts for labor, supplies, equipment, or permanent improvement of the mortgaged property, as may, under the circumstances of the particular case, appear to be reasonable." (2) As it · frequently happens, when a railroad company becomes pecuniarily embarrassed, that "debts forlabor, supplies, equipmeni, and improvements are permitted to accumulate, in order that bonded interest may be paid and iJ, disastrous foreclosure postponed, if not altogether avoided," and asin this daily and monthly earnings, which ordinarily should v.36F.no.13-52
go to pay the daily and monthly expenses, are kept from those to whom in equity they belong, and used to pay the mortgage debt," the presumption is that every railroad mortgagee, "in accepting his security, impliedly agrees that the current debts made in the ordinary course of business shall be paid from the current receipts before he has any claim upon the income." Consequently "the income out of which the mortgagee is to be paid is the net income obtained by deducting from the gross earn· ings what is required for necessary operating and managing expenses, proper equipment, and useful improvements." (3) If anything is taken from the current debt fund, and put into that which belongs to the mortgage creditors, the court·may require, as a condition of an order to take possession of the mortgage property, and hold the future income for the mortgagees, that "what is due from the earning8 to the current debt shall be paid by the court frOln.the future current receipts before anything derived from that source goes to the mortgagees;" tbis, notwithstanding the mortgage, may, in terms, give a lien upon the profits and income; for, "until possession of the mortgaged premises is actually taken, or. something equivalent done, the whole earnings belong to the company, and are subject to its control." (4) So, also, if no order is made, when a receiver is appointed, that will, in terms, save the rights of creditors furnishing supplies, equipment, labor, etc., if it appear; in the progress of the cause; "that bonded interest has been paid, additional equipment provided, or lasting and valuable improvements made, out of earnings which ought in equity to have been employed to keep down debts for labor, supplies, and the like, it is within the power of the court to use the income of the receivership to discharge obligations which, but for the diversion of funds, would have been paid in the ordinary course . of business;" this "because, in a sense, the officers of the company are trustees of the earnings for the benefit of the different classes of -creditors and the stockholders; and, if they give to one class of creditors that which properly belongs to another, the court may, upon an adjustment of the accounts, so use the income which comes into its hands as, if practicable, to restore the parties to their original equitable rights." (5) That "while ordinarily this power is confined to the appropriation of the in·come of the lleceivership, and the proceeds of mortgaged assets that have been taken from the company, cases may arise that will require the use of the proceeds of the sale of the mortgaged property in the same way;" as when, before the appointment of the receiver, or in the administration of the cause, income applicable to the payment of old debts for current expenses is taken and used "to make permanent improvements in the fixed property or to buy additional equipment." Fosdickv. Schall, 99U. S. 235, 252-254; Miltenberger v. Railway Co., 106U.S.286,311, 312,1 Sup. Ct. Rep. 140; Prust Co. v. SoUther, 107 U. S. 591, 2 Sup. Ct. Rep. 295; Trust Co. v. Railway Co., 117 U. S. 434.457, 6 8up. Ct·. Rep. 809; Burnham v. JJowen, 111 U. S..776,4 Sup. Ct. Rep. 675; TrtlJ8t Co.v. Morrison, 125U. S. 591, 8 Sup. Ct. Rep. 1004; Railroad Co. v.Cowdrey,l1 Wall. 459; Gilmanv.Tdegraph Co., 91 U. S. 603; Bridge CQ. v. Heidelbach, 94 U. 8.798; Sage v. Railroad Co., 125 U. S. 361, 8 Sup. Ct. Rep. 887; Trust Co. v.
PEORIA &: R. I. RY. CO.
Shepherd, 127 U. S. 494, 8 Sup. Ct. Rep. 1250. In Miltenberger v. Railway Co., and, again in Trust Co. v. Railroad Co., the court said that it could not be affirmed "that no items which accrued before the appointment of a receiver can be allowed in any case. Many circumstances may exist which may make it necessary and indispensable to the business of the road and the preservation of the property, for the receiver to pay preexisting debts of certain classes, out of the earnings of the receivership, or even the corpus of the property, under the order of the court, with a priority of lien;" that while the discretion to do so should be exercised with great care, and while the payment of such debts stands prirnafacie, on a different basis from the payment of claims arising under the receivership, the former may be brought, by special circumstances, within theprinciple governing the allowance of the latter. I come now to the examinatIOn of the accounts rendered by the car company for the use of its cars. The money out of which it seeks payment of its several demands being either the proceeds of the sale of the the remortgaged property, or income derived from the property ceivership, the petitioner's claims for use of cars, etc., accruing prior to the period of six months immediately preceding the appointment oithe receiver, are passed by without any expreE'sion of opinion as to their correctness. The general rule that has obtained in this circuit for many years, though not fully or expreSSly formulated in any published decision, has been not to charge the inCome of mortgaged property accruing during a receivership, or the proceeds of the sale of such property with general debts for labor, supplies, and equipment, back of the six months immediately preceding the appointment of a receiver. While the court has not, perhaps,committed itself against applying a different and more liberal rule, when the special circumstances or equities of the case demand such a course, the general rule is as just stated; and I am unwilling in this case, and at this late day, to depart from it. Besides, I am of opinion that, under the circumstances that usually attend the administration of railroad property by the courts, through receivers, the rule stated is a wise and galutary one. It would not do to charge the income of mortgaged railroad property, managed by a receiver, or the property itself, with every debt incurred in all its previous history for lahor, supplies, or equipment. As was said in Fosdick v. Schall, the business of all railroad companies is, to a greater or less extent, done on credit. Those who perform labor, or furnish supplies and equipment, usually expect and contract to be paid within a reasonable time; and they do not ordinarily perform labor, or furnish supplies or equipment, after the railroad company has failed to pay within such time for what has been previously done or furnished. Expenses incurred within such reaS011able time constitute what are called "current expenses," which ought, if possible, to be paid out ofthe receipts during the same period. When, therefore, debts of that character remain unsettled, or are not put in suit, for such a time as would be deemed unreasonable, it may be fairly presumed that the creditors have ceased to look to current receipts for pa-yment, and have accepted the position of general creditors who, as such,
would have no claim forindemnity upon any special part of the.income. Upon these grounds, substantially, rests the rule that recognizes the right of the court to charge the income earned during the receivership with obligations for labor, supplies, and equipment, contracted by the railroad company during the six months immediately preceding the re:eeivership. Such debts constitute operating expenses incurred to the end that mortgage bondholders might be protected, and that the company might be kept upon its feet, and subserve the public purpose for which it was established, namely, the maintenance of a highway for the convenience of the people. I will also say that the six-months rule which this court has heretofore recognized, when applied in cases arising since July 1, 1872, finds support, by analogy, in the statute of Illinois of that date, providing that fuel, ties, materials, supplies, or any other a:rticles or things furnished to and necessary for the construction, maintenance, operation, or repair of a railroad, by contract with a railroad corporation; or work or labor performed for such construction; main.. tenance, or repair by like contract, shall be paid for as part of the cur. rent expenses of the road, and a lien to secure the same is given upon "all the property, real, personal, and mixed, of said railroad ,corpora.. tion, as against such railroad, and as against all.mortgages or other liens which shall accrue after the commencement 'of :the delive;ry of such articles, or the commencement of said work or M.bor: provided, suit shall be commenced within six months after such contractor or laborer shall have completed his contract.withsaid railroad corporation, or after such labor shall have been performed or materials furnished." It may be added that the grounds upon which the court rnaycharge the income of mortgaged railroad property, earned during the receivership, .with debts for labor, supplies, and equipment received prior to the appointment of the receiver, are so fully stated in some of the cases cited-particularly in Fosdick v. Schall-that further discussion of them is unnecessary.. But I will say that the six-months rule was observed by me at the circuit, when disposing of the case of Trust Co. v. Rauway Co., and the final decree, so far as it rested upon that rule, was not disturbed by the supreme <lourt. What, then, is the amount due the petitioner for the use of its cars during the six months immediately preceding the appointment of the receiver; that is, from August 1, 1874, to February I, 1875? The mas" ter finds the respondents liable for the use, during that period, of 240 .cars at $15 per month, in the sum of $21,600; that on this account there was paid $13,300, leaving a balance of $8,300. From the latter sum he deducts $6,237.01, earned by tbe White Line cars, and paid over to the car company, leaving a balance of $2,062.99. The.deductionof the $6,237 .01 was right, because that sum was earned by the White Line cars duriug the six months iIi question. But I am of opinion that the 4eductionof$13,300 is'too large by $6,100. In estimating the payments oQn rental subsequent to August 1,1874, and prior to Feblluary, 1,1875, the master included the following items in petiticmer?s account: August 11,1874,$2,500; August 22, $3,600; September 22,$3,600jand Octo-
bel' 2, $3,600. I am satisfied that the items of $2,500, August 11th, and $3,600, August 22d, aggregating $6,100, are for rent that accrued prior to August 1, 1874; consequently, instead of $13,300 being deducted from $21,600, only $7,200 should have been deducted; making a balof $2,062.99, under this head. There is a ance of $8,162.99, further ,dispute between the parties upon this branch of the case; th,:} petitioner contending that allowance should be made in its favor for these additional amounts: Value of two lost cars, $850; repairs of White Line cars, $4,003.86; loss of rental during the period of such repairs, $1,000. , , The item as to the two lost cars must be rejected because, according to the weight of the evidence, they were lost prior to the six months in question. The remaining items of$4,003.86 and $1,000 must also be rejected for the reasons, if there were no other, that have been assigned by the master. It results that the amount due the car company, independent ,of any question of interest, for the period of six months just preceding the-receiverahip, is ,This brings us to the examination of the claims for the use of cars during the receivership. Upon the appointment ofthe receiver he retained the 100 White Liilecars;but a dispute exists as to whether the number ofother cars, retained by him was 138 01'135. The.master proceeds upon the theory that ' he received, and had in use, only 135 cars; five out of the original 240 cars, other than the White Line cars, having been" in some way destroyed or lost." The proof does show the loss of the two heretofore referred to, but it does not sufficiently appear that the others were destroyed. The l'emainingthree may have been lost during the receivership. If so, the receiver was bound to account for them. Giving due weight to all the evidence, it must be held that the receiver retained and used 138 of the, -al'igilla1240 cars. The rent of 138 cars from February 1, 1875, to April 1,1875, at $12 per month, areasonable rental for that period, makes $3;312. I adopt that rental for the period stated, because it is reason,able, and because it is justified by the agreement between the cal'company and the receiver, under date of June 11,1875, an agreement which was valid until disapproved by the court, and which, although not finally approved by the court, was so acted upon, with the knowledge ·of the parties, that neither side should now be permitted to question its validity. The ,rental from April 1,1875, until the cars were returned, .at $10 per month, the rate specified in the receiver's agreement, aggre,gates $36,163. These two SUlUS, $3,312, and $36,163, make $39,475. From this last sum deduct the difference between the rent paidhy the receiver, $29,808, and the amount paid out during the same period by ,the petitioner for repairs, $14,046.55, that is, $15,761.45, and there will remain on account of the rental of the cars from April 1, 1875, until they were returned, (excluding the replevied cars,) the sum of $23,713.55. ",The next item to be considered relates to the rental of the 56 replevied -ears. The master reports, upon the basis of mileage rental from March 1;,1875, to December 1, 1875, the sum of $391.34. That findinb ,iFl .approve<l. ,The main dispute here, is as to the rental of the 5:6 cars. ftom
and after December 1, 1875, until they were formally surrendered. He· allows $10 per month, which makes an aggregate rental, after December 1, 1875, for these cars, of $12,857.32. Upon this branch of the case I have had great difficulty. The evidence is seriously, and, in some respects, painfully conflicting. But I perceive no re/1son to question the entire fidelity to truth upon the part of the witnesses. Looking at all the circumstances, I am of opinion that the indorsement by the receiver on the agreement of June 11, 1875, signed by him, that the 56 cars delivered to him, "being the cars repleVied from the Chicago and Northwestern Rail way Co.," shall be retained by him" upon the same terms set forth" in the above agreement, "commencing on the 1st dai of December, 1875," should turn the scale. And as the; terms of the agreement of June 11, 1875, were not unreasonable, and as the indorsement was one that the receiver might reasonably have made in the interest of a fair administration of the property in his hands, I approve the finding of $12,857.32 as the rental of the replevied cars while they were under the control of the receiver. The finding of $5,650.52 for repairs of the replevied cars, is also approved. The agreement of the receiver to keep those cars "in good repair for use on said road" justifies this allowance, if there were no other ground to sustain it. lt remains to consider the question of interest. The car company claims interest upon each item of its account for repairs, and each amount claimed as monthly rental for its cars. The demand for such interest is placed mainly upon the statute of Illinois, which provides that creditors shall be allowed to receive interest at 6 per centum per annum for all moneys after they become due on "any bond, bill, promissory note, or other instrument of writing," and "on money withheld by an unreasonable and vexatious delay of payment." Rev. St. Ill. 1845, p. 294; Id. 1874, p. 614; ld. 1881, p. 614; ld. 1885, p. 1356. In respect to interest on amounts due to the petitioner prior to the receiver's written agreement of June 11, 1875, the statute has no application; for, as already stated, the leases of 1872 and 1873 cannot be regarded valid instruments of writing, so as to be the basis of the accounting between the parties, or the foundation of a claim of interest under the local statute. Nor, assuming that statute to constitute a rule of decision in some cases for this court, do I think that the receiver's agreement of June 11, 1875, is such an instrument of writing ab entitles the car company to claim interest as matter of absolute right under the statute. While that agreement or lease was valid as between the receiver and the car company until dhlaffirmed by the court that appointed the receiver, the car company would have had no legal ground of complaint, if the court had disapproved that agreement, and made such allowance for the use of the cars as was found to be just and reasonable, apart from the stipulations of the agreement. And while I have heretofore said that under all the circumstances of this case neither party ought to be heard to dispute the validity or terms of that agreement, it does not follow that it is a writing of the class described in the statute that has been cited. But I am of opinion that there has been, as to a portion at least of the period cov-
ared by this long litigation, a vexatious and delay in the payment of what was justly due to the petitioner, and that some interest should be allowed. It is difficult to fix the precise date from which interest should equitably be On one side, it is apparent that the car company has steadily claimed a much larger amount than was, in good conscience, due to it, thereby justifying the respondents in making defense, from which occurred, necessarily, some delay. On the other ' side, it is equally apparent that the respondents have steadily refused payment of anything like the amount that the petitioner was, in good <lollscience, entitled to demand. Under all the circumstances of the case, I have concluded that it is right to allow the petitioner interest upon the aggregate amount due to it from June 22; 1885, the date of the filing of the master's report, until its claims are paid. I am of opinion that the following amounts should be allowed the petitioner, viz.:
(I) Balance for use of cars during the six months preceding receivership. - $ 8,162 99 (2) Balance of rent of 138 cars from February 1, '75, to April 1. '75, at $12 per month, and from and after the last date at $10 per month, 23,713 55 (8) Rent of replevied cars·from March 1, '75 to December 1, '75. mileage basis, 891 34 (4) Rent of same from and after December 1, '75, 12.857 32 (5) Repairs of replevied cars, · 5,65032 Interest at6 per cent. on this sum from June 22. 1885, the date of filing,.af master's report, to September 1, 1888, $50,775 52 9,985 80 $60,761 32
This amount, increased by such interest as shall accrue on the above sum of $50,775.52 after September 1,1888, the petitioner is entitled to have paid out of the income of the mortgaged property earned during the receivership, and, ifthat be inSUfficient, out of the proceeds of the property itself. . The stipulations between the parties, the letter of Hilliard, of date January 13, 1877, (which is admitted to be correct in its statements,) and the evidence in the cause showing the sums taken from current receipts that were applied, both before and during the receivership, for improvements, betterments, buildings,depots, machinery, and equipment, present a case that justifies the court, under the authorities cited; in charging the petitioner's claim upon the income of the property during the receivership, and, that being inadequate, upon the proceeds of the property itself. Counsel for the petitioner will prepare the proper de.cree, and; after submitting it to counsel for the respondents, will present it to the court for examination.