St. Louis, v. & T.H. R. Co. v. T.H. & I. R. Co.
145 U.S. 393 (1892)

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U.S. Supreme Court

St. Louis, V. & T.H. R. Co. v. T.H. & I. R. Co., 145 U.S. 393 (1892)

t. Louis, Vandalia and Terre Haute Railroad Company v.

Terre Haute and Indianapolis Railroad Company

No. 42

Argued April 24, 27-28, 1891

Decided May 16, 1892

145 U.S. 393

Syllabus

The statute of Illinois of February 12, 1855, empowering all railroad corporations incorporated under the laws of the state to make "contracts and arrangements with each other and with railroad corporations of other states for leasing or running their roads" authorizes a railroad corporation of Illinois to make a lease of its road to a railroad corporation of another state, but confers no power on a railroad corporation of the other state to take such a lease if not authorized to do so by the laws of its own state.

A railroad corporation of Indiana is not empowered to take a lease of a railroad in another state by the statute of Indiana of February 23, 1853, c. 85, authorizing any railroad corporation of that state to unite its railroad with a railroad constructed in an adjoining state and to consolidate the stock of the two companies, or to extend its road into another state, or

"to make such contracts and agreements with any such road constructed in an adjoining state for the transportation of freight and passengers or for the use of its said road, as to the board of directors may seem proper."

A lease for nine hundred and ninety-nine years by one railroad

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of its railroad and franchise to another railroad corporation which is ultra vires of one or of both will not be set aside by a court of equity at the suit of the lessor when the lessee has been in possession, paying the stipulated rent, for seventeen years, and has taken no steps to repudiate or rescind the contract.

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 nine hundred and ninety-nine 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

Page 145 U. S. 395

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

Page 145 U. S. 396

to the defendant for nine hundred and ninety-nine years, the defendant retaining sixty-five percent, 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 seventy, instead of sixty-five, percent of the gross receipts,

"but if the working and maintenance expenses of said road shall be less than seventy percent 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

Page 145 U. S. 397

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 fifty-nine 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 seventeen years and involving a great many items, was necessary for the protection and enforcement of

Page 145 U. S. 398

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 F. 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.

Page 145 U. S. 400

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