Chicago, R. I. & P. Ry. Co. v. Hannibal & St. J. R.

110 F. 599, 1901 U.S. App. LEXIS 4882

Opinion

SEAMAN, District Judge

(after stating the facts). The controversy in this case is important, both for the amount involved and for the novelty of the single question presented, namely, whether the irate of tolls which the. Rock Island Company contracted to pay for the use of the bridge is governed by the subsequent grant to the Wabash Company of like use for a fixed annual rental. Solution of this inquiry depends upon an interpretation of the terms of the contract with the Rock Island Company for its use of the bridge, and to -that end it is “the fundamental rule in the construction of all agreements” to ascertain what was “the substantial intent of the parties” in making the provision in question. Canal Co. v. Hill, 15 Wall. 94, 100, 21 L. Ed. 64, 67. The agreement is to pay “tolls for all passengers and freight” which the Rock Island Company “shall transport over the railroad bridge,” in accordance with classification and rates therein specified, with this proviso however: “That if any other railroad company or common carrier, after the commencement of the term of this lease, be permitted to transport freight or passengers over said bridge upon the payment of tolls lower than those above specified, the tolls above named shall be reduced 'to correspond with such reduced rates; but this proviso shall not apply to the existing contract between the” Hannibal Company and the Kansas City Company. On the part of the complainant it is contended that the term “tolls” is here used in the sense of “compensation” for passage over the bridge; that, so considered, the proviso is applicable to any form of compensation for like privilege which may be adopted by the licensor, and thus embraces the arrangement with the Wabash Company for a fixed annual sum or rental, and that the specific exception from the proviso of the existing annual rental contract with the Kansas City Company “shows conclusively that the parties used the words in that broad sense.” If the sense in which the term was employed by these parties were ascertainable only from the language of the contract, unaided by the surrounding circumstances and conduct of the parties, these propositions would seem to be both tenable and decisive. But the word “tolls” is of flexible meaning, as indicated in the diversity of interpretation by the authorities cited in the briefs of counsel on one side and the other, according to the various circumstances under which it is used; and its interpretation as found in this contract cannot rest alone upon general definitions, — for instance, as “a tribute or custom paid for passage, not for carriage,” — • but calls for an understanding of the circumstances attending its adoption to ascertain its meaning as adopted. In this view the exception from the proviso of the contract with the Kansas City Company fixing the compensation in gross at a yearly sum is an important factor for construing the general term under the well-settled rule that an exception so made strongly implies the understanding that such contract would otherwise be included, and raises a presumption that the term “tolls” was thus used-in the broad sense; but this is a rebuttable presumption, and must not override the true intention, if that appears from other legitimate evidence, as such clauses are often introduced from excessive caution, and for the purpose of preventing a possible misinterpretation by including that which was not intended. Baggaley v. Iron Co., 33. C. C. A. 202, 90 Fed. 636; Tinkham v. Tapscott, 17 N. Y. 141. I am of opinion. therefore, that the language of the proviso requires other light foi its interpretation, and that this is furnished through the well-recognized sources of explanation: (1) The circumstances under which the contract was entered into, and (2) the' subsequent conduct of the parties by way of practical construction.

1. The bridge of the Hannibal Company was constructed under both state and congressional authority, and subject to the conditions imposed by the acts, respectively, that a right of passage be granted to the trains of other railroad companies when the roads or branches thereof terminated at or near the bridge, upon terms prescribed as follows: (1) By the state act, to be agreed upon between the parties, and, if they failed to agree, to be fixed by the governor of the state; (2) by the federal act, to be “for reasonable compensation.” At the time the contract in suit was made, the Kansas City Company and the Wabash Company were running over the bridge under pre-existing contracts; but the contract of the last-mentioned company had expired by limitation four days previously, and proceedings were pending before the governor for renewal by, reason of failure of the parties to fix the terms. The Rock Island Company had no terminus at the bridge, but was contemplating an extension to it, and by the arrangement in suit obtained such access over the Hannibal road for the intervening 52 miles, at an annual rental, together with the use of the bridge, under a separate provision, for tolls to be paid in accordance with schedule of rates.. This method of providing compensation for the traffic over the bridge was obviously a radical departure from that of the prior contracts, as it involved no promise of an aggregate amount to be paid, or assumption of risk in the amount of business for any period during the long term of the contract. It was distinctively an arrangement on one side and the other that compensation should abide the actual volume of the business, thus sharing pro rata in the profitableness of the new traffic; and the testimony shows no such prior arrangement for the use of this bridge, but indicates that the plan and schedule were those of the toll system which prevailed at the neighboring railroad bridges of Atchison and Leavenworth. On the other hand, there was no such mutuality in the undertaking of the fixed rental contract. The amount was named in advance, was payable absolutely in monthly installments, without reference to the amount of traffic, and required no accounting for the business done. The two systems were distinct and well known, and the contract made choice of the one which was based on the extent of business. Construction of the proviso, therefore, rests on the choice of system, and not on the mere use of. a word; the inquiry on the defendant’s contention is not the narrow one stated in one of the briefs, whether the “proviso secures to the Rock Island nothing more substantial than an interest in the use of a word.” If the Rock Island contract had stated the toll basis alone in its terms, with the Kansas City and Wabash contracts then in the hands of the parties as arrangements to be continued on the fixed rental basis, but without mention of either in the new contract, it is probable that this distinction would have been- deemed sufficient to sho,w the true intention, and that the proviso for the reduction of the toll rate was not to be affected by the annual rental contracts or any bona fide renewals thereof made on a like basis. The difficulty, however, in the contract as made, arises from the fact that the Kansas City contract was expressly excepted from the proviso, while that of the Wabash Company was not mentioned. The testimony leaves no room for dortbt that the parties to this agreement understood the character and status of the arrangement with the Wabash Company; that proceedings to enforce a renewal were pending, and that the right thereto upon reasonable terms was secured by the charter; and that they must have contemplated the continued use of the bridge by that company, subject only to readjustment of the terms. The contracting parties were railroad companies, entering into an important arrangement to continue for 25 years, and doubtless advised by able counsel. Why the contract thus prepared excepted the Kansas City contract from the proviso for reduction of rates, when it was not within the literal terms, and omitted mention of the Wabash situation of kindred nature, is unexplained; and so occurring in the face of the presumption which was liable to arise in such case, the circumstances attending the execution, taken alone in connection with the instrument, do not furnish satisfactory evidence of the intention of the proviso.

2. The potent element of practical construction by the parties remains for consideration, and I am of opinion that the testimony establishes a mutual understanding of the proviso which must be accepted as decisive of its meaning. This was my impression at the close of the oral arguments, but the importance of the issue and force of the contentions on behalf of the complainant have called for careful examination both of the testimony and the elaborate briefs submitted by counsel, and my deductions thereupon are summarized as follows: Operation under this contract has continued without interruption since the yeax 1879, with the tolls paid monthly in accordance with the schedule, and with no claim or suggestion at any time prior to 1898 that ground existed for reduction of the schedule rates on the basis of the proviso, or that the Wabash traffic was to be taken into consideration for that purpose. A single instance of dispute arose over the tolls fixed by the contract, and that related to rates which were “equitably chargeable” for shipment of lumber, and this remained an open question for years,— the' Rock Island Company claiming that lumber was not specifically within the classification of the schedule for the five dollar rate asserted on the part of the Hannibal Company, and that a four dollar rate, which they were conceding, should be accepted as reasonable; and there is strong significance in the undisputed proof, by correspondence between both officers and attorneys, throughout the negotiations, extending from 1886 to the adjustment in 1893, that the claim of the Rock Island Company to the lower rate was predicated alone upon general equities, with no allusie 1 to the provision upon which the present claim hinges, and no suggestion that the company was entitled to any reduction of tolls within the specific terms of the contract. For 17 years the business was thus carried on under the toll basis of the schedule, with monthly accountings between the parties, and no testimony in the case tends to impeach the good faith of the defendant in acting upon such basis in the accountings; no conduct or efforts appear on the part of the defendant for concealing the arrangement with the Wabash Company, or the earnings of the bridge thereunder; and, so far as the evidence discloses, that transaction was ignored by both parties as foreign to their ac-countings. This course of conduct is utterly inconsistent with an understanding that the rates of toll were contingent upon the pro rata benefits derived by the Wabash Company under its contract as made, and, unless the complainant was excusably ignorant of the substantial facts of that transaction, it is obvious that its conduct- and interests are not reconcilable with the view now asserted. For the inquiry thus remaining the test is not one of strict performance of a duty under the assumed construction, but whether sufficient information appears of a state of facts of such direct bearing and interest to the complainant, on the assumed construction, that its possession and the attending conduct are not consistent with an understanding -of right to the reduction of tolls on the basis of the Wabash arrangement. In that view I am satisfied, from the undisputed testimony and circumstances, that the complainant is chargeable (1) with ample information of the nature and substantial terms of the Wabash contract, and (2) with information, which was both patent and in its hands, of the general excess of the Wabash traffic over its own across the bridge, while detailed information was readily obtainable, if not in its possession.

First. The Wabash contract was adjusted June 1, 1880, and readjusted- September 1, 1888. The proceedings, final arbitration, and terms of adjustment were matters of notoriety in railroad circles. The substantial facts, including the terms as settled, were widely published in newspapers and railroad journals, of which extracts are in evidence, — several of the last-mentioned publications being-received at the general offices of the Rock Island Company; and the exact terms were repeatedly stated in “Poor’s Manual,” a well-known publication of railroad statistics. Mr. Riddle was president of the Rock Island Company when its contract was made, and so continued until 1884. He signed the contract as such officer, and personally conducted much of the correspondence leading up to it, which is in evidence. He was requested to act as one of the arbitrators for the Wabash adjustment, and testimony of his conversation in the matter clearly indicated that he then had full information, and further conversations after the adjustment disclose that he was fully acquainted with the terms as settled. It is true that Mr. Cable (who subsequently became president) states that he was the assistant to Mr. Riddle, and was charged with the active work in arranging and carrying out the bridge contract; that he was not acquainted with the terms of the Wabash contract, and believes they were unknown to Mr. Riddle from the fact of their relations in the office, and of no mention being made of its terms by him. But this mere inference can have no weight against the positive testimony of Mr. Easley and Col. Blodgett, and various corroborating circumstances, showing that Mr. Riddle had the knowledge; and this knowledge must be deemed that of the corporation, for the purposes of the present inquiry at least. So considered, it is of special importance for its bearing on the practical construction during the initial years of the contract, when the participants in the making were active'in the performance. Furthermore, Mr. With-row -was general counsel of the Rock Island Company when the contract was made, had part in the making, and continued as counsel for several years thereafter. He was present when Mr. Riddle was discussing the Wabash arrangement, r and was evidently acquainted with its features, both then and subsequently when he participated in the suggestive negotiations for settlement of the lumber-rate controversy between these parties. Other officers and agents of the Rock Island Company are shown to have had like knowledge at various times after the contracts were made; and during the same period annual reports were filed by each of the railroad companies with the railroad commissioners of Missouri and Iowa, as required by law, wherein the substantial terms of their respective contracts for use of the bridge at Kansas City were stated, including that of the Wabash Company; each being well known as a public record, and appearing annually in a publication which came to the general office of the complainant. . On the evidence as a whole, information of the annual sum paid by the Wabash Company as an entirety for the use of the bridge was clearly within the possession of the complainant at the outset, and was constantly at hand thereafter.

Second. The volume of the Wabash traffic, generally speaking, was open to the constant observation of the' officers and agents of the Rock Island, as a competitor for business, and a joint user of the bridge as well. Its - excess over that of the Rock Island was well known to the officers of the latter, as disclosed by the testimony of Mr. Seger, Mr. Pickering, and Mr. Boynton, witnesses produced on its behalf; and their testimony shows that '-‘statistical reports” were prepared from time to time, for the information of the Rock Island, in reference to competitive business, giving the aggregate of passengers and freight carried by each of the companies to and from Kansas City over this bridge, so that a comparative measure was constantly in the hands of the complainant. Moreover, from 1880 to 1895 the Rock Island and the Wabash were members of the “pool” called the “Southwestern Railway Rate Association,” and Mr. Cable was the representative of the Rock Island therein throughout that period. Reports were made and furnished to the companies, showing the volume of the business of each company .in “competitive territory,” and included an exhibit of the business to- and from Kansas City of each of the companies; such reports being made for the purpose of regulating their percentages in the .“pool,” and thus furnished a constant standard for comparing their respective, volumes of business over the bridge. The tolls paid by. the Rock Island in each year are stated in the bill at varjdng annual amounts, the minimum being $63,156 and the maximum $130,-603; and the potent fact appears that these payments were made in monthly installments, greatly exceeding in every instance the rate paid by the Wabash, — and this during the initial years when Mr. Riddle was in office, — showing that the tolls paid in September and October, 1880, were each nearly double the Wabash rate, and during 1882 and 1883 the excess was invariably more, than twofold. Competition for traffic exacts the utmost vigilance on the part of railroad managers, and a saving in fixed charges of this nature must have been regarded as an element of primary importance. With a standard in mind for reduction of the rates paid for bridge toll, and information so clearly open to that end, the reasonable inference is that the licensee would move for the reduction thus assumed to be his right, rather than keep up his excessive payments for years, to abide a tender of reduction and repayment on the part of the licensor; and surely this is the only reasonable course to be inferred from such view by the one party where the obligation of the other to make a reduction on the assumed basis is neither settled nor distinctly specified in the contract. The constant accountings between the parties under the circumstances shown, supplemented by their treatment of the single dispute over the lumber rate, lead to the conclusion that contracts for a fixed annual sum for the use of the bridge were not within the intention of the proviso; and, so interpreting the contract, the bill must be dismissed for want of equity, without passing upon other objections raised on behalf of the defendant. The decree will be entered accordingly.