Cox v. Terre Haute & I. R.

123 F. 439, 1903 U.S. App. LEXIS 4916

• Court: District Court, D. Indiana
• Decided: May 23, 1903
• Docket: No. 9,395
• Status: Published

Opinion

BAKER, Circuit Judge

(orally). At the threshold the question suggests itself, as has been heretofore indicated to counsel, with reference to- the right of the Central Trust Company to institute and press this proceeding to recover on account of the relations which existed between the Terre Haute Company and the Lake Michigan Company.

The claim for the period from the 1st of March, 1896, to November 13, 1896, covers a time when there was no receivership and each railroad company was managing its own affairs. If there is now in existence a debt from the Terre Haute Company to the Michigan Company, I do not know whether it was included in the personal property of the Lake Michigan Company which passed at the sale to the purchaser. But if it did not pass to the purchaser, and there is a right in the creditors of the Lake Michigan Company to pursue the alleged debt owing by the Terre Haute Company to the Lake Michigan Company, that right, I think, would be in the owners of the debt, and not in the trustee, whose powers and duties were to follow up specific mortgaged property and apply it upon the debt. But as counsel have indicated that they desire the opinion of the court upon the merits of the claim, I pass the question above suggested.

The claim for the period from March 1, 1896, to November 13, 1896, is for rental for a part of the time while the Terre Haute Company was in possession of the Lake Michigan Company’s road, during which time the Lake Michigan Company never declined to take rentals, and never insisted upon its right to take possession of the railroad, which had never lawfully passed from its hands. The lease entered into between these two railroad companies was void under the decisions of the Supreme Court as -I understand them, not merely because a power was exercised that was not expressly or by implication within the charter, but essentially because the exercise of the ungranted power was in conflict with a well-defined public policy which forbade a railroad company to abandon or delegate to another the performance of its public duties under its charter. That public policy forbade the two railroads to enter into the relation of lessor and lessee, and any written contract whereby they undertook to establish that relation between them was necessarily void by reason of that public policy. It therefore appears that the voidness of the lease did not flow from the terms or conditions of the lease as such, but from the incapacity of the parties to enter into that relationship. In those jurisdictions where a common-law marriage was provable although there were statutory regulations on the subject, I can understand how a common-law marriage could be proven to exist between parties who had capacity to enter into that relation under the formalities expressly prescribed by statute. But I cannot conceive that a common-law marriage would be implied from circumstances or evidence of the parties’ conduct toward each other if they were within classes that were prohibited to enter into the marriage relation. I can understand how, if two individuals who have the legal capacity to enter into the relation of landlord and tenant have executed a lease which is void by reason of the manner or time of execution, the law from the facts showing the possession and use of the property would imply a lease; that is, would make a lease for the parties, and by means of evidence of value would fix the rental. But in this case, as already stated, the two railroads were forbidden by public policy to enter into the relation of landlord and tenant. It seems to me -that if the courts, from the fact that the two railroads had nevertheless undertaken to enter into that relation, should imply that that relation was in fact created, it would not only subvert that public policy, but point out to the parties, or others in like situation and with like intention, how to evade the law.

In the Pullman Case, 171 U. S., on page 151, 18 Sup. Ct. 808, 43 L. Ed. 108, the court has stated the effect of the established rule to be that in no way, and through no channels, directly or indirectly, will the courts allow an action to be maintained where, in order to obtain a recovery, it is necessary to have recourse to such a contract. Any right of recovery must rest upon a disaffirmance, and the recovery is permitted only because of the desire of the courts to do justice as far as possible to the party who has delivered property under the void agreement, and which, in justice, he ought to be permitted to retake. “But courts will not in such endeavor permit any recovery which will weaken the rule founded upon the principles of public policy already noticed.” It appears that the Lake Michigan Company has never at any time disaffirmed, but, on the contrary, knowingly entered into the forbidden relation, and appeared to be more than willing that that relation should continue, and that it should receive the moneys voluntarily paid by the Terre Haute Company. I think that to allow that relationship to be the basis on which the court would declare that a lease was implied, that an obligation existed to pay reasonable rental, would not merely, in the language of the Supreme Court, “weaken the rule founded upon the principles of public policy,” but would completely subvert it. A disaffirmance by the Lake Michigan Company, a thing which it never did, would have given it the right to follow up and retake the property. In the present case, however, there is no question but that the property has been surrendered in as good condition as that in which it was received.

There is a second period for which rent is claimed, namely, from November 13, 1896, when the receiver of the Terre Haute road was appointed, down to the time when possession was delivered to the purchaser of the Lake Michigan road in the foreclosure proceedings prosecuted against it by the Central Trust Company. The consideration above stated would lead as well to a denial of rentals for this second period.

But there is an additional reason why no recovery should be had during that time, or, at least, all of that time after the Central Trust Company and the bondholders knew by reason of getting statements from the receiver of the Terre Haute Company that the Lake Michigan road was not producing a gross income sufficient to pay the operating expenses. They had that knowledge within a very short time after the appointment of the receiver of the Terre Haute Company. They knew that the franchise covered by their mortgage, to be of value at the sale on the foreclosure of their mortgage, would require the road to be kept in operation. They knew that, if this court did not keep the franchise alive for their benefit by the operation of the road through the Terre Haute receiver, it would be necessary for them to press for the appointment of the receiver asked for in their bill against the Lake Michigan road. With this knowledge they never pressed the application for a separate receiver, and they never applied to this court to have th'e possession of the Lake Michigan road turned over to them in any way. So that, on this record, the bondholders have had the benefit, in the price that the Lake Michigan road brought at the sale, of the amount of money that was taken from the general funds of the Terre Haute receivership to make up the difference between the gross income of the Lake Michigan road and the operating expenses. This deficiency would have had to be met by receivers’ certificates or otherwise, which would have been a charge upon the body of the Lake Michigan road ahead of the bonds represented by the Central Trust Company.

These, briefly, are the reasons that lead me to direct an order dismissing the petition for want of equity.