Union Pacific Railroad Co. v. United States
99 U.S. 402

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U.S. Supreme Court

Union Pacific Railroad Co. v. United States, 99 U.S. 402 (1878)

Union Pacific Railroad Co. v. United States

99 U.S. 402

Syllabus

1. The act entitled

"An Act to aid in the construction of a railroad and telegraph line from the Missouri River to the Pacific Ocean and to secure to the government the use of the same for postal, military, and other purposes,"

approved July 1, 1862, 12 Stat. 489, after providing for the issue of patents for land and of bonds to the Union Pacific Railroad Company and other companies from time to time, as successive sections of their respective roads should be completed, requires the companies to perform all government transportation of mails, troops &c., and to credit the compensation therefor on the government loan, and then adds that

"after said road is completed, until said bonds and interest are paid, at least five percentum of the net earnings of said road shall also be annually applied to the payment thereof."

Held, 1. that the liability of the Union Pacific Railroad Company to make this payment accrued when it reported, and the President of the United States accepted, its road as completed for the purpose of issuing the bonds, though the acceptance was provisional and security was required that all deficiencies in construction should be supplied; 2. that the company, having obtained the bonds and agreed in regard to the security, is estopped from denying that the road was then completed.

2. The "earnings" of the road include all the receipts arising from the company's operations as a railroad company, but not those from the public lands granted, nor fictitious receipts for the transportation of its own property. "Net earnings," within the meaning of the law, are ascertained by deducting from the gross earnings all the ordinary expenses of organization and of operating the road, and expenditures made bona fide in improvements and paid out of earnings, and not by the issue of bonds or stock, but not deducting interest paid on any of the bonded debt of the company.

3. The government bonds issued to the company were declared to be a first lien on the road and property; the Act of July 2, 1864, 13 id. 356, authorized the company to issue an equal amount of first mortgage bonds, to have priority over the government bonds. Held that this priority authorized the payment of the interest accruing on these first mortgage bonds out of the net earnings of the road in preference to the five percentum payable to the government, which is only demandable out of the excess in each year.

This is a suit by the Union Pacific Railroad Company to recover compensation for services rendered to the United States prior to 1874, and during a portion of that year 1874, and the whole of the year 1875. A counterclaim is set up for five percent of the net earnings of the company, under the provision of the sixth section of the Act of July, 1, 1862, 12 Stat. 489, that

"After the said road is completed, until said bonds and interest are paid, at least five percentum of the net earnings

Page 99 U. S. 403

of said road shall also be annually applied to the payment thereof."

The United States alleges that the road was completed on the 6th of November, 1869, and that since that time, a large amount of net earnings has been realized by the company, which it has failed to pay or apply to the said bonds. The company denies this and alleges that its road was not finished until Oct. 1, 1874, and that it has not realized any net earnings in any year since either the 6th of November, 1869, or the 1st of October, 1874, and denies that it was its duty to pay to the United States annually any money whatever as and for five percent upon its net earnings to be applied in the aforesaid.

The Court of Claims decided that the road was completed on the 6th of November, 1869, and that the company did, after that period, annually realize net earnings to a large amount for the six years from Nov. 6, 1869, to Nov. 6, 1875, amounting in the aggregate to the sum of $28,052,045.67, and that five percent thereof, to-wit, the sum of $1,402,602.28, was payable to the government, whilst one-half of the compensation due for the services rendered by the company to the government for the period covered by the petition amounted to only $593,627.10, and therefore that the government was entitled to recover from the company the difference between these two sums, amounting to the sum of $808,975.18. From this judgment, the company appealed.

So much of the eighteenth finding by the Court of Claims as is referred to and commented on in the opinion of the court is as follows:

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Page 99 U. S. 404

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Page 99 U. S. 405

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Items 5, 6, 7, 8, 9, 10, 11, 12, 14, and 15 are not in dispute.

Item 1, "conducting transportation expenses," is liable to be reduced by the amounts shown in line 1 of the table below as expended for "tenement houses and hotels," and by the amounts shown in line 2 as expended for new station buildings; item 2, "motive power expenses," is liable to be reduced by the amounts shown in line 3 as expended for "engine equipment," and by the amounts shown in line 4 as expended for "tanks and water works;" item 3, "maintenance of cars expenses," is liable to be reduced by the amounts shown in line 5 as expended for "car equipment;" and item 4, "maintenance of way expenses," is liable to be reduced by the amounts shown in line 6 as expended for the "Laramie rolling mills," in case such several and respective outlays are regarded as not

Page 99 U. S. 406

proper to be deducted from "gross earnings" in order to arrive at "net earnings."

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Item 13, "expense account," is subject to be reduced by the following amounts in case such outlays are regarded as not proper to be deducted from "gross earnings" in order to arrive at "net earnings," viz., in the year, Nov. 6, 1869, to Nov. 5, 1870, expenses relating to an issue of bonds, $10,339.76; March 13, 1871, cost of a plate for the bridge bonds, $1,500; June 5, 1874, and expense relating to the issue of sinking fund bonds, $6,579.10.

The disputed expenditures in items 1, 2, 3, and 4 were for new construction. Item 27 was also for new construction.

Item 16 was for the use of the cars of other companies.

Items 17, 20, 21, 22, 23, 24, and 25 show payments of interest on debts.

Items 18 and 19 show payments made on account of the land department of the company's business.

Item 26 shows payments in the construction of the Omaha bridge above the amounts received from the sale of the mortgage bonds secured by it.

Items 28 and 29 show expenditures made for a sinking fund for the redemption of the company's debt.

Item 30 shows an assumed payment of a portion of the interest on the government subsidy bonds by the application to it of half the government transportation account.

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