By taking an appeal to the circuit court of appeals, the Pullman
Company did not, under the peculiar circumstances of this case,
waive its right to appeal to this Court, and the case being now
before this Court either on appeal or by the writ of certiorari, it
has jurisdiction.
In order to authorize a denial of a plaintiffs motion to
discontinue a suit in equity, there must be some plain legal
prejudice to the defendant, other than the mere prospect of future
litigation, rendered possible by the discontinuance.
Unless there be an obvious violation of a fundamental rule of a
court of equity or an abuse of the discretion of the court, the
decision of a motion for leave to discontinue will not be reviewed
here.
The decision of the Circuit Court in denying the motion of the
Pullman Company to discontinue its suit was right, as was also its
decision permitting the Central Company to file a cross-bill.
In no way, and through no channels, directly or indirectly, will
courts allow an action to be maintained for the recovery of
property delivered under an illegal contract where, in order to
maintain such recovery, it is necessary to have recourse to that
contract, but the right of recovery must rest on a disaffirmance of
the contract, and is permitted only because of the desire of courts
to do justice as far as possible to the party who has made payment
or delivered property under a void agreement which in justice he
ought to recover, and no recovery will be permitted which will
weaken said rule founded upon the principles of public policy.
Acting upon those settled principles the Court decides:
(1) That the Central Company is entitled to recover from the
Pullman Company the value of the property transferred by it to that
company when the lease took effect, with interest, as that property
has substantially disappeared and cannot now be returned.
(2) That the value of that property is not to be ascertained
from the market value of the shares of the Central Company's stock
at that time, but by the value of the property transferred.
(3) That the value of the contracts with railroad companies
transferred by the Central Company form no part of the sum which it
is entitled to recover.
Page 171 U. S. 139
(4) That the same principle applies to the patents transferred
which had all expired.
(5) That it is not entitled to recover anything for the breaking
up of its business by reason of the contracts' being adjudged
illegal.
The record in this case shows that, in 1870, the Central
Transportation Company (hereafter called the "Central Company") was
a corporation which had been in 1862 incorporated under the general
manufacturing laws of the State of Pennsylvania. It was engaged in
the business of operating railway sleeping cars and of hiring them
to railroad companies under written contracts by which the cars
were to be used by the railroad companies for the purpose of
furnishing sleeping conveniences to travelers. The corporation at
this time had contracts with a number of different railroad
companies in the East, principally, but not exclusively, with what
is known as the "Pennsylvania Railroad System," and it had been
engaged in its business with those companies for some time prior to
1870. In the year last named, the Pullman's Palace Car Company
(hereafter called the "Pullmen Company") was a corporation which
had been incorporated under the laws of the State of Illinois. It
was doing the same general kind of business in the West that the
Central Company was doing in the East. For reasons not material to
detail, the two companies entered into an agreement of lease, which
was executed February 17, 1870.
By its terms, the Central Company leased to the Pullman Company
its entire plant and personal property, together with its contracts
which it had with railroad companies for the use of its sleeping
cars on their roads, and also the patents belonging to it. The
lease was to run for 99 years, which was the duration of the
charter of the Central Company.
It was also agreed that the Central Company would not engage in
the business of manufacturing, using, or hiring sleeping cars while
the contract remained in force.
In consideration of these various obligations, the Pullman
Company agreed to pay annually the sum of $264,000 during the
entire term of 99 years, in quarterly payments, the first quarter's
payment to be made on the 1st of April, 1870.
Page 171 U. S. 140
From the time of the execution of the contract, its terms were
carried out, and no particular trouble occurred between the
companies for about fifteen years. During this time and up to the
27th day of January, 1885, the Pullman Company paid to the Central
Company, as rent under the contract, the sum of $3,960,000, without
any computation of interest. About or just prior to January, 1885,
differences arose between the companies. The Pullman Company
claimed the right to terminate the contract under the eighth clause
thereof, or else to pay a much smaller rent. The merits of the
controversy are not material.
The two companies not agreeing, and the Pullman Company refusing
to pay the rent stipulated for in the lease, the Central Company
brought successive actions to recover the installments of rent
accruing. In one of them, the Pullman Company pleaded the
illegality of the lease as being
ultra vires the charter
of the Central Company. The plea prevailed in the trial court, and
upon writ of error, the judgment upholding this defense was, in
March, 1891, sustained in this Court.
Central Transportation
Company v. Pullman's Palace Car Company, 139 U. S.
24.
After the bringing of several actions for installments of rent
by the Central Company, and before the question of
ultra
vires had been argued in this Court, the Pullman Company, on
the 25th day of January, 1887, commenced this suit by the filing of
its bill against the Central Company in the Circuit Court of the
United States for the Eastern District of Pennsylvania. The bill
asked for an injunction to restrain the bringing of more suits for
rent. It gave a general history of the transactions between the
companies from the execution of the contract between hem in
February, 1870, down to the time of the filing of the bill, and it
alleged the election of the Pullman Company to terminate the lease
under the provisions of the eighth clause thereof, and the
willingness of the company to pay what should be found by the court
to be equitable and right to the Central Company on account of the
property which had been transferred by that company to it, and to
this end it prayed the aid of the court. The bill also contained
the following allegation:
Page 171 U. S. 141
"And your orator shows that in said lease it is recited that the
said contract of lease is made on the part of the defendant, the
said Central Transportation Company, under an act of the General
Assembly of the Commonwealth of Pennsylvania therein named,
approved the 9th day of February, A.D. 1870, a copy whereof is
hereto attached, marked 'Exhibit G,' and referred to as part of
this bill, but your orator is advised, and therefore submits it to
the court, that the said lease, being a grant, assignment, and
transfer of all the property, contracts, and rights of the said
defendant, the Central Transportation Company, and including a
covenant on the part of said defendant corporation not to transact
during the existence of said lease any of the business for the
transaction of which it was incorporated, was never legally valid
between the parties thereto, but was void for they want of
authority and corporate power on the part of the defendant to make
the said contract of lease, and because the same was in violation
of the charter conferring the corporate powers of said defendant,
and of the purpose of its incorporation, as by the said charter, to
which, for greater certainty, reference is made, your orator is
advised it will appear that the said contract of lease was never
susceptible of being enforced in law by your orator against said
defendant, and cannot therefore be construed and held to continue
in force and obligatory upon your orator, and that your orator can
be under no other legal obligation or equitable duty to the
defendant than to return such of the property assumed to be demised
as is capable of being returned, and to make just compensation for
such other of said property as under the said contract of lease it
ought to make compensation for, which it is willing and now offers
to do."
In the prayer for relief it was also asked:
"That the court may consider and decree whether said contract of
lease was not made without authority of law on the part of the
defendant, and in excess of its corporate powers, and in violation
of its corporate duties, so as not to be enforceable against your
orator beyond the obligation of your orator to make return of or
just compensation for the property
Page 171 U. S. 142
demised, and that an account may be taken between your orator
and defendant, and that the amount may be ascertained that should
be paid by your orator to the defendant on any account whatever, .
. . and that an accounting may be had between your orator and
defendant as to all the matters and things set out in this
bill."
The Central Company answered the bill, denying many of the
material allegations therein contained. It denied that the Pullman
Company had ever elected to terminate the lease under the
provisions of the eighth clause thereof, and it alleged that the
lease was still in existence, and that it had the right to recover
from the Pullman Company the amount of the rent named in the lease,
and that no valid agreement had ever been made between the
companies in any way altering the lease or reducing the amount of
the rent payable thereunder. It denied that the lease was illegal,
and it alleged that, even if it were, the illegality did not
justify the complainant in applying for any equitable relief
whatever.
Upon application on the part of the Pullman Company, the court
granted an injunction restraining the bringing of suits for the
collection of rent accruing after July, 1886, but it declined to
enjoin those already pending for rent accruing before that
date.
After considerable proof had been taken upon the issues involved
in this suit, and after the decision of the other case in this
Court, in March, 1891, holding the lease illegal and void, the
complainant herein, on the 25th of April, 1891, applied to the
court for leave to dismiss its bill at its own cost. This
application was opposed by the defendant, who, on the same day,
moved for leave to file a cross-bill in which it said it would
avail itself of the tenders of relief made by the complainant in
its bill, and that it would pray such relief in its cross-bill as
might be pertinent to the case made by the bill. In December, 1891,
complainant's motion for leave to dismiss its bill was denied, and
the defendant's motion for leave to file a cross-bill was granted.
Thereupon the cross-bill was filed, in which the Central Company,
acknowledging, under the decision of this Court, that the lease in
question was void,
Page 171 U. S. 143
claimed to avail itself of the tenders made in complainant's
bill upon the subject of the return of its property and
compensation for that which it was impossible to return, and
claimed, among other things, that the Pullman Company should
account for all the profits which it had derived since the making
of the lease by the use of the property transferred to it under the
agreement, and that the amount found due should be paid to the
Central Company, and that the Pullman Company should be adjudged to
be a trustee for the Central Company of all the contracts for
transportation, whether original, new, or renewals, held by the
Pullman Company with railroad companies with which there were
contracts of transportation with the Central Company at the time of
the making of the lease in February, 1870, and that the Pullman
Company should be adjudged to pay the Central Company all such sums
as should be due to it by the Pullman Company as such trustee, and
that defendant should in the future from time to time account for
the sums which should be due by reason of future operations under
those contracts. It also prayed for a discovery and an accounting
by the Pullman Company of its use and disposition of the property
turned over to it by the Central Company.
To this cross-bill the Pullman Company filed three demurrers,
the first being a general demurrer, on the ground that the
cross-bill was filed contrary to the practice of the court, and
also that it appeared that the court had no jurisdiction of the
case. The second demurrer related to the portions of the cross-bill
praying that the cross-defendant might be regarded as a trustee and
decreed to account accordingly. The third demurrer related to that
part of the cross-bill which asked for an account of profits since
the making of the lease and for future profits.
The demurrers were overruled, with leave to present the
questions on final hearing, and the Pullman Company then answered
the cross-bill. Among other things, it set up that the agreement in
question was void,
"and that, being null and void between the parties hereto
because of such character of the agreement, it cannot be made the
lawful foundation of any
Page 171 U. S. 144
action or application for any relief whatever between the
parties thereto. And this respondent submits that the rule which
precludes the granting of relief by any court of either equity or
law, upon a contract void for contravention of public policy,
forbade this circuit court to allow such affirmative relief upon
this cross-bill which asserts no claim of right not founded
directly upon the express undertakings of this contract of lease,
held void by this Court itself and by the supreme court for the
reasons aforesaid."
The Pullman Company therefore denied that it owed any duty to
the cross-complainant which was enforceable at law or equity to
return to the Central Company the property assigned under the
lease, or to account for any profits derived under and by reason of
any property delivered to it under the agreement.
Testimony was taken under these pleadings, and the case came
before the circuit court for final hearing, and that court held
that the cross-complainant made out a case for an accounting by the
cross-defendant for the value of the property when received,
together with its earnings since, less the amount paid as rent. The
court therefore referred it to a master for the purpose of
ascertaining the facts, with directions to report within the time
named in the order of reference. Under this order, testimony was
taken, and the master reported in favor of the Central Company,
and, the exceptions filed having been overruled, judgment was
entered in favor of the Central Company for the sum of $4,235,044,
together with costs. From this judgment the Pullman Company
appealed directly to this Court. It also appealed to the circuit
court of appeals. The case was there argued upon a motion to
dismiss the appeal, and the motion denied, and the further argument
was postponed until some disposition was made of the appeal taken
directly to this Court. 76 F. 401. A motion has also been made to
this Court to dismiss the appeal, and thereupon an application was
made to us for a writ of certiorari to the Circuit Court of Appeals
for the Third Circuit, and, on account of the peculiar
circumstances, it was granted, and the record has been returned to
this Court by virtue of that writ.
Page 171 U. S. 145
MR. JUSTICE PECKHAM, after stating the facts in the foregoing
language, delivered the opinion of the Court.
The motion to dismiss the appeal in this case is now before the
Court.
Counsel for the Pullman Company took the appeal directly from
the circuit court to this Court on the theory that the case
involved the construction or application of the Constitution of the
United States because of the holding of the court below that the
cause of action alleged by the Central Company in its cross-bill
was, under the circumstances, a proper subject of equitable
cognizance, and counsel claimed it was really nothing but a legal
cause of action, in regard to which the cross-defendant was
entitled to a trial by jury under the Constitution of the United
States. There being room for doubt in regard to the soundness of
such contention, the counsel also took an appeal to the circuit
court of appeals, and we think that by this action he did not waive
any right of appeal which he would otherwise have had. Whichever
route may be the correct one, either directly from the circuit
court or through the circuit court of appeals, it is unnecessary to
decide, because the case is now properly before us either by appeal
or by the writ of certiorari, and we therefore proceed to determine
it upon the merits.
The Pullman Company, complainant in the original suit, insists
that it had the right to discontinue that suit at its own cost
before any decree was obtained therein, and the refusal of the
court below to grant an order of discontinuance upon its
application is the first ground of objection to the decree
herein.
The general proposition is true that a complainant in an
Page 171 U. S. 146
equity suit may dismiss his bill at any time before the hearing,
but to this general proposition there are some well recognized
exceptions. Leave to dismiss a bill is not granted where, beyond
the incidental annoyance of a second litigation upon the subject
matter, such action would be manifestly prejudicial to the
defendant. The subject is treated of in
Detroit v. Detroit City
Railway Company in an opinion by the circuit judge, and
reported in 55 F. 569, where many of the authorities are collected
and the rule is stated substantially as above. The rule is also
referred to in
Chicago & Alton Railroad v. Union Rolling
Mill Co., 109 U. S. 702.
From these cases we gather that there must be some plain, legal
prejudice to defendant to authorize a denial of the motion to
discontinue. Such prejudice must be other than the mere prospect of
future litigation rendered possible by the discontinuance. If the
defendants have acquired some rights which might be lost or
rendered less efficient by the discontinuance, then the court, in
the exercise of a sound discretion, may deny the application.
Stevens v. The Railroads, 4 F. 97, 105. Unless there is an
obvious violation of a fundamental rule of a court of equity or an
abuse of the discretion of the court, the decision of a motion for
leave to discontinue will not be reviewed here.
Upon an examination of the facts relating to the motion, we
think the circuit court was right, in the exercise of its
discretion, in denying the same. The original bill was framed
really on two theories: (1) that, by reason of an election made
under the eighth clause in the lease, the Pullman Company had
terminated the lease, and it was therefore bound under its
provisions to return the property which it had received from the
Central Company. It stated in its bill the impossibility of
returning a large portion of the property which it had received, it
announced its willingness to make substantial performance of its
contract contained in the lease, and it asked the court to aid it
therein by decreeing exactly what it should do for the purpose of
carrying out equitably and fairly its obligations incident to its
termination of the lease under the clause above mentioned. The
other theory rested upon what
Page 171 U. S. 147
was a substantial allegation of the invalidity of the lease as
having been made without authority of law, and therefore in
violation of the corporate duties of the Central Company, and on
that account not enforceable against the Pullman Company beyond the
obligation of the latter company to make return of just
compensation for the property demised. Upon that theory, the bill
asked not that the court should set aside or cancel the lease, but
that it should aid the parties by decreeing just what relief should
be given by the complainant to the lessor in the execution of its
duty to make some compensation for the property it received, and
which it stated its willingness to make, and, to that end, that an
accounting might be had, and the amount ascertained that should be
paid to the Central Company in discharge of the obligations of the
complainant in that behalf. Thus, the Pullman Company came into a
court of equity and in substance alleged that the lease had been
terminated by it under the eighth clause, and it also alleged that
the lease was void as
ultra vires, and in either event it
tendered such relief as the court might think was proper and fair
under the circumstances.
A large amount of proof had been taken under the issues made in
this original bill and the answer thereto, and, before the case was
concluded, the decision of this Court was made in which the lease
was declared to be void. The only obligation left under the
original bill of complainant after the decision of this Court was
the obligation to return such portion of the property received by
it as the court should determine to be right, or to make some
compensation to the Central Company for the same, and this
obligation it had offered in the original bill to carry out.
The Pullman Company had also obtained an injunction in the
original suit restraining the Central Company from commencing
further legal proceedings to recover rent under the lease, and,
after obtaining this injunction and taking testimony relating to
the subject matter of the original bill, the complainant should not
be permitted, under these circumstances, to dismiss that bill and
thus withdraw the whole case from the jurisdiction of the court,
and thereby blot out
Page 171 U. S. 148
its tenders of relief contained in its original bill, grounded,
among others, upon the allegation that the lease was void and
asking the aid of the court to decree the precise terms upon which
its obligations to the Central Company might be fulfilled.
The denial of the motion was made in connection with the
application of the Central Company to file a cross-bill in which it
would seek to avail itself of the tenders made by the Pullman
Company in the original bill. Such an application for leave to file
a cross-bill seeking affirmative relief, while at the same time
availing itself of those tenders of relief made by the original
complainants, would furnish additional ground for the exercise of
the discretion of the court in refusing to grant the application
for leave to discontinue. We think there was no error committed by
the court below in refusing the leave asked for.
The further objection is made by the counsel for the Pullman
Company that it was error to allow the cross-bill to be filed in
this case. Counsel for the Pullman Company assert that the cause of
action for a return of the property is a purely legal one, of which
a court of equity has no jurisdiction, and that it can acquire none
simply by the filing of a cross-bill. Whatever may be the original
character of the liability of the Pullman Company to return or make
compensation for the property, we are of opinion that under the
facts above set forth, it cannot object to the filing of the
cross-bill or to the determination of the amount of its liability
by a court of equity. It had itself voluntarily appealed to the
jurisdiction of such a court for the purpose of obtaining its aid
in decreeing the terms upon which its obligations to the Central
Company might be fulfilled and the lease terminated, either under
the eighth clause in the lease or because of its invalidity as
being
ultra vires. Having thus appealed to equity for its
aid, and the lease having been conclusively determined to have been
void, we think it was within the fair discretion of the court to
retain jurisdiction of the cause and of the original complainant
and to permit the filing of a cross-bill in which the
cross-complainant might seek affirmative relief, and at the same
time
Page 171 U. S. 149
avail itself of the tenders made by the complainant in its
original bill.
The facts which were set up in the cross-bill closely affected
one of the theories upon which the original bill was filed --
viz., the invalidity of the lease. They were relevant to
the matters in issue in the original suit, and, in seeking
affirmative relief, the cross-complainant is but amplifying and
making clearer the foundations for the intervention of equity which
had been appealed to by the Pullman Company, and the continued
intervention of which would greatly speed a final termination of
all matters for litigation between the parties. The court below did
not err in permitting the cross-bill to be filed.
This brings us to a discussion of the principles upon which a
recovery in this case should be founded . The so-called "lease"
mentioned in this case has been already pronounced illegal and void
by this Court.
139 U. S. 139 U.S.
24. The contract or lease was held to be unlawful and void because
it was beyond the powers conferred upon the Central Company by the
legislature and because it involved an abandonment by that company
of its duty to the public. It was added that there was strong
ground also for holding that the contract between the parties was
void because in unreasonable restraint of trade, and therefore
contrary to public policy. In making the lease, the lessor was
certainly as much in fault as the lessee. It was argued on the part
of the Central Company that even if the contract sued on were void,
yet that having been fully performed on the part of the lessor, and
the benefits of it received by the lessee for the period covered by
the declaration in that case, the defendant should be estopped from
setting up the invalidity of the contract as a defense to the
action to recover compensation for that period. But it was answered
that this argument, though sustained by the decisions in some of
the states, finds no support in the judgments of this Court, and
cases in this Court were cited in which such recoveries were
denied.
It is true that courts in different states have allowed a
recovery in such cases, among the latest of which is the case of
Bath Gas Light Co. v. Claffy, 151 N.Y. 24, where Chief
Page 171 U. S. 150
Judge Andrews, of the Court of Appeals, examines the various
cases, and that court concurred with him in permitting a recovery
of rent upon a void lease where the lessee had enjoyed the benefits
of the possession of the property of the lessor during the time for
which the recovery of rent was sought.
But in the case of this lease, now before the court, a recovery
of the rent due thereunder was denied the lessor although the
lessee had enjoyed the possession of the property in accordance
with the terms of the lease. It was said (p.
139 U. S.
60):
"The courts, while refusing to maintain any action upon the
unlawful contract, have always striven to do justice between the
parties so far as could be done consistently with adherence to law,
by permitting property or money parted with on the faith of the
unlawful contract to be recovered back or compensation to be made
for it. In such case, however, the action is not maintained upon
the unlawful contract, nor according to its terms, but on an
implied contract of the defendant to return, or, failing to do
that, to make compensation for, the property or money which it had
no right to retain. To maintain such an action was not to affirm,
but disaffirm, the unlawful contract."
And the opinion of the Court ended with the statement that
"whether this plaintiff could maintain any action against this
defendant, in the nature of a
quantum meruit or otherwise,
independently of the contract need not be considered, because it is
not presented by this record and has not been argued. This action,
according to the declaration and evidence, was brought and
prosecuted for the single purpose of recovering sums which the
defendant had agreed to pay by the unlawful contract, and which,
for the reasons and upon the authorities above stated, the
defendant was not liable for."
The principle is not new, but, on the contrary, it has been
frequently announced, commencing in cases considerably over a
hundred years old. It was said by Lord Mansfield, in
Holman v.
Johnson, 1 Cowper 341, decided in 1775, that
"the objection that a contract is immoral or illegal as between
the plaintiff and defendant sounds at all times very ill in the
mouth of the defendant. It is not for his sake, however, that
Page 171 U. S. 151
the objection is ever allowed, but it is founded in general
principles of policy which the defendant has the advantage of,
contrary to the real justice, as between him and the plaintiff, by
accident, if I may so say. The principle of public policy is this:
ex dolo malo non oritur actio. No court will lend its aid
to a man who founds his cause of action upon an immoral or an
illegal act."
The cases upholding this doctrine are numerous and emphatic.
Indeed, there is really no dispute concerning it, but the matter of
controversy in this case is as to the extent to which the doctrine
should be applied to the facts herein. Many of the cases are
referred to and commented upon in the opinion delivered in the case
in 139 U.S.
139 U. S. 24,
already cited. The right to a recovery of the property transferred
under an illegal contract is founded upon the implied promise to
return or make compensation for it. For illustrations of the
general doctrine as applied to particular facts, we refer in the
margin to a few of the multitude of cases upon the subject.
*
They are substantially unanimous in expressing the view that in
no way and through no channels, directly or indirectly, will the
courts allow an action to be maintained for the recovery of
property delivered under an illegal contract where, in order to
maintain such recovery, it is necessary to have recourse to that
contract. The right of recovery must rest upon a disaffirmance of
the contract, and it is permitted only because of the desire of
courts to do justice as far as possible to the party who has made
payment or delivered property under a void agreement, and which, in
justice, he ought to recover. But courts will not, in such
endeavor, permit any
Page 171 U. S. 152
recovery which will weaken the rule founded upon the principles
of public policy already noticed.
We may now examine the record herein, and learn the grounds for
the recovery which has been permitted, and determine therefrom
whether the judgment in favor of the Central Company should be in
all things affirmed, or, if not, then how far the liability of the
cross-defendant extends, and, if possible, what should be the
amount of the judgment against it.
In referring the case to the master for the purpose of taking
the account between the parties, the learned district judge stated
the principle upon which the liability of the cross-defendant
rested. He said:
"The property must therefore be returned or paid for. The former
is impossible. The property has substantially disappeared. It has
become incorporated with the business and property of the
plaintiff, and cannot be separated. Compensation must therefore be
made. What, then, is the measure of compensation? Clearly, we
think, the value of the property when received, together with its
earnings since, less the amount paid as rent. In ascertaining the
value, the annual rental may be considered, but it does not afford
a conclusive nor an entirely safe measure of value, because the
unlawful consideration (that the Central Company would abstain from
exercising its franchises) entered into it. For the same reason,
the earnings cannot be measured by the rent. The value of the
property and earnings must be ascertained from a careful
examination of the property, the business, and its earnings at the
time they passed into plaintiff's hands and subsequently. It is not
their value to the plaintiff we want, but to the defendant -- in
effect, what is lost by parting with them. The value of both
property and earnings may have been worth more to the plaintiff
with the business united, but this cannot be considered."
Acting under these directions of the court, the master, in his
opinion, said:
"Passing to the consideration of the main question raised in the
present reference --
viz., what the Central Transportation
Company lost by the transfer of its property to the Pullman
Page 171 U. S. 153
Company -- the measure of damages as determined by the court
requires the master to ascertain:"
"(1) What was the value to the Central Transportation Company in
1870 of the property transferred?"
"(2) What was earned by the Pullman Company between January 1,
1870, and January 1, 1885, from the use of the property
transferred?"
"(3) The difference between the amount so received by the
Pullman Company and the rental paid by it to the Central
Transportation Company for the above period."
"(4) The total amount to be paid by the Pullman Company, as of
January 1, 1885, deduced as above, together with interest thereon
from January 1, 1885, to date of final decree."
The master proceeded to determine the value in 1870 of the
property then transferred. In ascertaining it, he said:
"The value of the stock on the street is a positive indication
of the estimate placed on the property by the public. That it is
not entirely a satisfactory measure of value must be conceded, but,
in the judgment of the master, supported as it is by the best
independent estimate that the evidence affords, it should be
accepted as the fairest criterion of value."
He accordingly reported the value of the property when received
as $58 a share (the par value being $50 per share, or a total par
value of $2,200,000), making the total market value of the shares
$2,552,000, which sum he reported as the value of the property
transferred.
When the report came before the court, exceptions having been
taken, among other things, to the findings of the value of the
property when delivered, the court said:
"It is the value of the property at the time it should have been
returned that the Pullman Company should be charged with. Inasmuch
as this value would be difficult of ascertainment by the
transportation company except by reference to the value in 1870, it
was considered proper to direct the inquiry to the latter date.
Presumably the value increased. The evidence fully justifies the
presumption. If it decreased, the Pullman Company could and should
have shown it. The
Page 171 U. S. 154
master's valuation in 1870 is therefore to be taken as the value
in 1885, when the property should have been returned. The payment
of this sum, with interest from January 1, 1885, seems necessary to
a just settlement, treating the value of the use and the rents paid
prior to that date as balancing each other. A decree may be
prepared accordingly, dismissing the exceptions and confirming the
report."
Judgment based upon the value of the property at $2,552,000 on
the 1st of January, 1885, with interest from that time, was
therefore entered, and it amounted, as stated, to the sum of
$4,235,044.
We are of opinion that the court erred in the manner of
ascertaining the value of the property transferred by the Central
Company. The market value of its stock was not a proper measure of
the value of the property, and such error resulted in largely
increasing the supposed value of the property which the
cross-defendant was under liability to account for.
The capital stock of this corporation had been increased from an
original amount of $200,000 in 1862 to $2,200,000 in 1870. During
this time, it had been doing an increasing and a profitable
business, and it was supposed that such business might increase in
the future. The market price of the shares of stock in a
manufacturing corporation includes more than the mere value of the
property owned by it, and whatever is included in that price beyond
and outside of the value of its property is a factor which in a
case like this cannot be taken into consideration in determining
the liability of the cross-defendant. Whatever that something may
be, it is not that kind of property which was delivered, or that
can be returned, or compensation made in lieu of its return. It is
not property at all within the meaning of the word as understood in
such a case as this. The value of the franchise for one thing
enters into the computation of market value. This was, of course,
not assigned to the Pullman Company, nor were the shares of the
capital stock of the Central Company, all of which remained in the
hands of its original owners. The probable prospective capacity for
earnings also enters largely into
Page 171 U. S. 155
market value, and future possible earnings again depend to a
great extent upon the skill with which the affairs of the company
may be managed. These considerations, while they may enhance the
value of the shares in the market, yet do not in fact increase the
value of the actual property itself. They are matters of opinion
upon which persons selling and buying the stock may have different
views. A liability to return or make compensation for property
received cannot be properly extended so as to include other
considerations than those of the actual value of that property.
In this particular case, a consideration entering into the
market value of the shares must have been the probability or
possibility of renewals of the contracts owned by the company for
the use of its cars upon the railroads of the companies with which
it had such contracts, and the possibility of extending its
business in the future under contracts with other railroads. These
considerations, while they affect more or less the value in the
market of the shares of a corporation, do not constitute the value
of the property which a party impliedly promises to pay for upon
the agreement's being determined void under which the property was
received. The faith which a purchaser of stock in such a company
has in the ability with which the company will be managed and in
the capacity of the company to make future earnings may be well or
ill founded. It is but matter of opinion, which, in itself, is not
property. While the value of the property is one of the material
factors going to make up the market value of the stock, yet it is
plainly not the sole one. Mere speculation has not uncommonly been
known to exercise a potent influence on the market price of stock.
The capacity to make any future earnings in this case by the lessee
arose out of the transfer of the property to it, and grew out of
the lease itself, and that capacity would therefore be partly
founded upon the illegal contract, and could not otherwise
exist.
As the market value of the shares of this stock was made up, to
some extent, at least, of certain factors which the lessee cannot,
under the rules of law, be held responsible for in this case, it
follows that such value cannot furnish a safe guide in
Page 171 U. S. 156
measuring the responsibility of the lessee in an utterly void
lease. The court therefore erred in taking the market value of the
shares of this stock as a proper or just measure of the value of
the property transferred.
We must therefore take the property that actually was
transferred and determine its value in some other way than by this
resort to the market price of the stock. The property transferred
consisted (a) of cars, bedding, etc.; (b) contracts which the
Central Company owned with railroad companies for the use of its
cars on their roads; (c) patents covering the construction and use
of sleeping cars owned by the Central Company, and by it
transferred under the lease to the Pullman Company, and (d) $17,000
in cash. It seems to us these values must be taken separately,
because, for reasons hereafter suggested, the value of the
contracts and patents does not enter into the problem.
As to the value of the cars: we agree with the court below that
it is now impossible to decree their return, for the reasons
stated. They have substantially disappeared. The property has
become incorporated with the business and property of the Pullman
Company. Compensation therefore must be made. The master found that
the value of the cars as vehicles, together with their equipment at
the time of the transfer, was $710,846.50. This is probably a
pretty high figure, judging from the whole evidence in the case
upon that subject, yet still we are inclined to think that the
master was justified in arriving at that sum. We take this value
for the reason that the Pullman Company agreed in the lease to keep
the cars in good order and repair, and renewed and reconstructed as
often as might be needful during the whole term of the lease.
During the fifteen years elapsing from 1870 up to January, 1885, no
violation of the terms of the lease by either party is complained
of, and we think the whole transaction between the parties during
those fifteen years must be treated as closed, so that no
examination should be made in regard to anything that happened
within that time. We must assume the provisions of the lease were
fully carried out by both parties, particularly as no complaints
were made
Page 171 U. S. 157
of nonperformance. We therefore assume the cars were kept in
good order, and, when necessary, were reconstructed and renewed up
to January, 1885. The value at that time may be taken to be as
great as the master found it to be for 1870. It is very probable
the assumption is not in accordance with the fact, and that the
property had greatly depreciated. But, as we refuse to look into
the transactions between the parties during that period, we will
hold the value in 1885 to have been the same as in 1870 on the
presumption that the Pullman Company fulfilled its obligations
between those dates. What rule of compensation should be deduced
from such finding will be alluded to hereafter.
We next come to consider the various contracts. They were
entered into with different railroad companies for certain definite
periods, and their time of expiration was stated in the contracts
themselves. They were valuable only as they were used by the
lessee, and its right to use them sprang from and was determined by
the lease itself. They were assigned to the lessee for the purpose
of enabling it to avail itself of the rights therein created, and
to use the cars with the consent of the railroads to which the
contracts applied. Whether any use was made of these contracts or
not, they became daily less valuable as they daily neared their
termination. The use made of them did not impair their value. The
passage of time did that. The rental that was paid by the lessee
included compensation for use, and to that extent the transaction
was closed, and the compensation paid up to the time when the
contracts themselves had expired, which was prior to the time when
the lease was declared void and payment of rent ceased. There is no
principle with which we are familiar that will permit the value of
those contracts, when assigned to the Pullman Company, to enter
into and form a part of the value of the property for which the
company is to make compensation when, from the nature of the thing
itself, its value necessarily, and from the simple passage of time,
decreased daily and, upon the arrival of the date named for the
expiration of the contract, it ceased to have any value.
We think the contracts were not extended by the legislative
Page 171 U. S. 158
extension of the charter of the Central Company by the act of
1870. Some of these contracts were to last during the corporate
life of the Central Company. At the time they were made, the
charter of the company would expire in twenty years from December
30, 1862, or on December 30, 1882. We do not think the contracts
meant that they were to cover any further time to which the
legislature might thereafter extend the charter of the company.
Some language to that effect would have been contained in the
contracts if such had been the meaning of the parties. All the
contracts had therefore expired by the end of 1882.
Now upon what principle can it be urged that the lessee should
compensate the lessor for the value of these contracts when
delivered to it when it had paid for the use and the property was
of such a nature that it became valueless by mere limitation of
time? In 1885, they had gone out of existence, and, of course, had
no value. The basis for a recovery of property or compensation for
its value in cases of illegal agreements rests upon the implied
contract to return it or pay for it, because there is no right in
the party in possession to retain it. If, at the time when
otherwise it would or ought to be returned, it has ceased to exist
by virtue of the termination of its legal existence, how can it be
returned? How can a promise to return or make compensation therefor
be implied in the case of a contract having but a limited time to
run, and the value of which diminishes daily until the contract
itself and its value are wholly extinguished by expiration of time,
and where the use of this intangible right during its existence was
fully paid for by the party to whom it was assigned? There is no
implication of a promise to make any further compensation for such
a species of property than is made by praying for its use while it
remained in legal existence. When that time expired, the value was
gone, and, while it lived, it had been paid for.
We have been able to find no case where any principle was laid
down which would authorize or justify a recovery of the value of
property at the time of delivery which, before its return became
proper, had passed out of existence by limitation
Page 171 U. S. 159
of time, and the use of which was paid for during its
lifetime.
What other contracts may have been made by the Pullman Company
with railroad companies would form no factor in the value of the
contracts assigned. If others were obtained, they had never been
the property of the Central Company, and the latter could only make
a pretense of a claim in regard to them by virtue of and through
the illegal contract. A resort to the illegal instrument cannot be
permitted for the purpose of sustaining any recovery.
The same may be said of the patents which the Central Company
also undertook to transfer, as they had all expired before January,
1885. They simply protected the use of the cars which had been
constructed under them, and they diminished in value as each day
brought them nearer to their expiration, and, when that time
arrived, they were absolutely valueless. During all that time, they
were included in the consideration for the payment of rent made by
the Pullman Company under the terms of the lease. The contracts and
the patents must be eliminated from the value of the property.
Nor can we accede to the view that the Pullman Company is liable
for the earnings of the property which it realized by means of
putting such property to the very use which the lease provided. It
had the right while both parties acquiesced to so use the
property.
There is no question of trustee in the case.
Root v.
Railroad Company, 105 U. S. 189,
105 U. S.
215.
The property was placed in its hands by the lessor, and in
accordance with the terms of the agreement. It was not then
impressed with any trust according to any definition of that term
known to us. Although the title did not pass and was not intended
to pass, the lessee did nothing with the property other than was
justified by the lease. His liability is based only upon an implied
promise to return or make compensation therefor. This implication
of a promise would not arise until one or the other party chose to
terminate the lease, for the law implies such promise in order only
that justice, so far as possible, may be done. So long as neither
party takes
Page 171 U. S. 160
any objection to the agreement and both carry it out, there is
no room for any differences, and no promise to return the property
or make compensation is necessary, and none is therefore implied.
The use of the property is lawful as between the parties so long as
the lease was not repudiated by either and the rent compensates for
the use. After the repudiation, the promise is then implied, and it
is fulfilled by the payment of the value of the property at the
time the promise is implied, and interest thereon from that
time.
As to the claim of the lessor that its business has been broken
up, its contracts with railroads terminated, and the corporation
left in a condition of inability to again take up its former plans,
and that all this should be regarded in the measure of the relief
to which it should be entitled, the same considerations which we
have already adverted to must be entertained. These are results of
the illegality of the contract entered into between these parties,
and its subsequent repudiation on that ground, and in regard to
such illegality, the Central Company is certainly as much in the
wrong as the cross-defendant herein. The former knew the extent of
its obligations under its charter as well as the latter did, and
the illegal provisions of the lease were quite as much its doings
as they were those of the cross-defendant. To grant relief based
upon these facts would be so clearly to grant relief to one of the
parties to an illegal contract, based upon the contract itself or
upon alleged damages arising out of its nonfulfillment, that
nothing more need be said upon that branch of the subject. It is
emphatically an application of the rule that, in such a case, the
position of the defendant is the better.
We conclude that the cross-defendant is not liable for the
contracts and patents transferred, nor for the possible damage the
Central Company may have sustained as above stated. It is liable
for the value of the cars, furniture, etc., transferred. It is a
liberal estimate of the value of this property to say that it
amounted in 1885 to as much as it did in 1870; yet we are disposed
to deal in as liberal a manner with the cross-complainant as we
fairly may, while not violating any settled principle of law, in
order to give to it such measure of
Page 171 U. S. 161
relief as the circumstances of the case seem to justify. We
therefore take the value of the property in the cars, etc., in 1885
at the sum of $710,846.50. To that, we think, should be added the
$17,000 cash received from the Central Company, making a total of
$727,846.50 and interest from January 1, 1885, for which the
cross-defendant is liable, together with costs.
Although the Central Company may have been injured by the result
of this lease, yet that is a misfortune which has overtaken it by
reason of the rule of law which declares void a lease of such a
nature, and while the company may not have incurred any moral
guilt, it has nevertheless violated the law by making an illegal
contract, and one which was against public policy, and it must take
such consequences as result therefrom.
The judgment appealed from must be
Reversed, and the case remitted to the Circuit Court for the
Eastern District of Pennsylvania with directions to enter a
judgment for the Central Transportation Company in accordance with
this opinion.
MR. JUSTICE HARLAN dissented.
MR. JUSTICE WHITE dissented on the ground that the judgment
appealed from was for the correct amount, and should not be
reduced.
*
Coppell v.
Hall, 7 Wall. 542;
Spring Company v.
Knowlton, 103 U. S. 49;
Logan County Bank v. Townsend, 139 U. S.
67;
St. Louis &c. Railroad Company v. Terre
Haute &c. Railroad Company, 145 U.
S. 393, at
145 U. S.
408-409;
Manchester & Lawrence Railroad Company
v. Concord Railroad Company, 66 N.H. 100;
White v.
Franklin Bank, 22 Pick. 181;
Utica Insurance Company v.
Cadwell, 3 Wend. 296;
Atcheson v. Mallon, 43 N.Y.
147;
Leonard v. Poole, 114 N.Y. 371;
Snell v.
Dwight, 120 Mass. 9;
Davis v. Old Colony Railroad,
131 Mass. 258;
Holt v. Green, 73 Penn.St.198;
Johnson
v. Hughlins, 103 Penn.St. 98;
Thomson v. Thomson, 7
Ves. 470;
Sykes v. Beadon, 11 Ch.Div. 170;
Brooks v.
Martin, 2 Wall. 70.
