Grand Trunk W. Ry. Co. v. Chicago & E. I. R. Co.

141 F. 785, 73 C.C.A. 43, 1905 U.S. App. LEXIS 4047

• Court: Court of Appeals for the Seventh Circuit
• Decided: April 11, 1905
• Docket: No. 1,111
• Status: Published

Opinion

JENKINS, Circuit Judge

(after stating the facts). The prayer of the bill seeks the specific performance by the Eastern Illinois Company of certain supposed covenants—express or implied—contained in the agreements or leases between that company and the Western Indiana Company, and to restrain the Eastern Illinois Company from diverting its freight and passenger business, or any part of it, from the railway and the Dearborn Station of the Western Indiana Company, and from using the terminal facilities of any other company for its traffic at Chicago.

The questions arising upon this record are these: First, whether the appellants have an adequate remedy at law; second, whether the agreements contain any covenant, express or implied, on the part of the Eastern Illinois Company to the appellants, enabling them to maintain this suit; third, whether the Eastern Illinois Company is obligated by any covenant, express or implied, in the agreements or leases with the Western Indiana Company to use the Dearborn Station and the appurtenant tracks during the entire terms specified, or whether the right of user exists without the obligation to use; fourth, whether such a covenant, if one exists, is contrary to the policy of the state, preventing its enforcement in equity; fifth, whether the Western Indiana Company is a necessary and indispensable party to this suit.

We cannot doubt that if the contract obligation is clear, and no public interests intervene to prevent, equitable jurisdiction should be exercised, since thereby a multiplicity of suits is avoided that would prove vexatious, unsatisfactory, expensive, and the relief obtainable thereby would be inadequate to the situation. Pennsylvaina Railroad Company v. Saint Louis, Alton & Terre Haute Railway Company, 118 U. S. 290, 6 Sup. Ct. 1094, 30 L. Ed. 83; Joy v. Saint Louis, 138 U. S. 1, 11 Sup. Ct. 243, 34 L. Ed. 843; Union Pacific Railway Company v. Chicago, Rock Island & Pacific Railway Company, 163 U. S. 564, 16 Sup. Ct. 1173, 41 L. Ed. 265; Western Union Telegraph Company v. Baltimore & Ohio Telegraph Company, 42 N. J. Eq. 311, 11 Atl. 13; Wolverhampton Railway Company v. London Railway Company, 16 L. R. Eq. Cas. 433.

A careful scrutiny of the intertenant agreement of November 1, 1882, the joint resolution and agreement of September 30, 1890, the joint agreement of November 1, 1891, and the joint supplemental lease, so called, of July 1, 1902, discloses no covenant of any kind between the Eastern Illinois Company and the appellants, or either of them. The first, called the inter-tenant agreement, is between the Western Indiana Company of the one part and the five tenant companies of the other part. It recites the ownership of the entire capital stock of the Western Indiana Company by the five tenant companies, in equal proportions; that it was purchased by them to secure control! and to prevent the passing of the Western Indiana Company into hostile interests. It provides with respect to the directorate of that company, restricts the disposition of the stock by any one of the five owners, provides for the general control and management of the property by the Western Indiana Company, and that no other railway-company shall be admitted to the use of the property, except by the unanimous consent of the tenant companies; that the working expenses-of the Western Indiana Company should be paid by the several lessees,, the proper proportion of each to be determined by the proportion which the engine and car mileage of each bore to the gross engine- and car mileage of all over those parts of the main line and property not set apart for the exclusive use of either; and that the cost of maintaining and operating the passenger station, including’ certain tracks specified, should be divided in proportion to the number of passenger cars and engines entering the same. It may be that, with respect to the expenses specified, the agreement to pay the mileage proportion may be deemed a covenant directly with the other tenant, so that on failure by one to pay to the Western Indiana Company its proper proportion as stipulated, and payment thereof to that company by another tenant company, the latter might have its action to recover the amount paid. This, however, is far from being a covenant to use. It is merely a covenant to pay for use.

The resolution of September 30, 1890, merely provides that in respect to questions concerning the exclusive liability of either tenant for damages by reason of casualties arising from the use of the property, occasioned by the negligence of commission or omission on the part of the Western Indiana Company, the several leases between the tenants and the Western Indiana Company should be interpreted as constituting the latter company the mere medium or agency through which the several tenants, each for itself, operates the railway and property. That interpretation is limited to the one subject of liability for damages for injuries. We do not perceive that it can be given any effect in the consideration of the questions before us.

The agreement of November 1, 1891, recites that the lessees are the beneficial owners in equal parts of the capital stock of the Western Indiana Company, and' are lessees of that company, with the right to-use, in common with the other named tenants, with the Western Indiana Company, and with such other railway companies to whom similar rights of user have been or may be granted, the “common-property” of the railway and the necessity of the enlargement of the facilities; that each of the five tenants should equitably pay in equal' proportions, share and share alike, the $2,000,000, the principal of the bonds proposed to be issued necessary for the proposed improvement ; and that the interest on the principal sum should be borne by them, respectively, in proportion to the use which they shall severally make of the several parts of the railway and property upon which the principal sum should be expended. The recital with respect to the payment of the principal of the bonds is manifestly referable to the equal ownership by the five tenants of the stock of the Western Indiana Company. The obligation to pay, if any, is the obligation of stockholders, and is not the covenant of lessees as such. The payment of the interest is referable to the use made by each tenant, and the proportion to be paid by each is dependent upon the wheelage by each. These agreements are far from amounting to a covenant to use.

The “joint supplemental” lease of July 1, 1902, contains no covenants on the part of the tenants to each other. It distinctly provides that the lessees severally covenant, each for itself, to and with the lessor, and to and with the trustee. It provides that the cost of management, operation, maintenance, repair, and renewal, and of taxes, water rents, liens, and assessments, should be equitably distributed among -the tenants in proportion to their respective wheelage use.

We are not able to discover in any of these agreements any covenant by the Eastern Illinois Company to the other tenant companies availing to enable the latter in their own right to maintain this bill.

We come then to the question whether there is an existing covenant, ■express or implied, with the Western Indiana Company, resting upon the Eastern Illinois Company to use the Dearborn Station and the appurtenant facilities during the period mentioned in the leases.

By the contract with Brown, of May 6, 1879, the Eastern Illinois •Company by express covenant agreed to enter into possession of and to use and operate the railway and facilities for the period of 999 years. It agreed to assume all the obligations which should devolve upon the Western Indiana Company proposed to be incorporated; to develop the local passenger and freight business of the road to its fullest extent; to pay during the full term $3,000 per annum on account of taxes on the main line of the road. Other tenants, who might be admitted to the use of the property, were to have the right •of passage for through trains only. This contract, however, was abrogated by and merged in the “original lease,” so called, of Octo’ber 24, 1879. Brown, the original lessor, had organized the Western Indiana Company, as was contemplated, and became its president, and in the name of the company executed this “original lease.” So far, therefore, as the covenants of the two leases are ini conflict, those of the former lease are superseded by those of the latter. In the absence of allegation of mistake or fraud, it must be presumed that the “original lease” expresses the deliberate contract of the parties; and, if the provisions of the latter are inconsistent with the provisions of the former, the latter evidences a new agreement* by which, and by which alone, the rights of the parties—as between the two agreements—are to be judged. The Brown lease reserved in the Western Indiana Company no right to operate the road. The “original lease” reserved to the lessor the entire control of the property, and the right to maintain and operate the railway on its own account in common with the right of operation then granted to the Eastern Illinois Company, and with such rights of operation as might be granted to subsequent lessees; the local business being confined to the Eastern Illinois Company. By the former lease all obligations of the Western Indiana Company were assumed by the Eastern Illinois Company. By the latter lease the Eastern Illinois Company assumed only such obligations as related to the business actually conducted by it. The expense of performance by the Western Indiana Company was to be divided among all the tenants using the road in proportion to their several usage upon a wheelage basis. It may be greatly doubted whether this “original lease,” so called, was other than a mere operating agreement as to what is termed the “common property.” Union Pacific Railway Company v. Chicago, Rock Island & Pacific Railway Company, 163 U. S. 564, 16 Sup. Ct. 1173, 41 L. Ed. 265.

The several agreements or leases, executed during a period of 25 years, indeed impress one with the conviction that the Eastern Illinois Company during that period thought to make use of the facilities granted during the term mentioned in the lease, but that subsequent events have changed its purpose. The question, however, is not what that company then supposed would be its course, but what has it obligated itself to do? To ascertain the extent of obligation assumed, we must have reference to these instruments. We must ascertain from them what that company has in express language covenanted to do. By the Brown contract it had obligated itself for a period of 999 years to use and operate the railway. That was an express covenant, by which the company was bound. But by the subsequent “original lease,” so called, the-contract between the parties was changed. It did not therein so obligate itself, but it was therein stipulated that it should have the mere right to use in common; and such right to use without obligation to use is found in every subsequent agreement between it and the Western Indiana Company. This is strong to show, if it be not absolutely convincing, that the Eastern Illinois Company did not contract to assume an obligation to use for that long period of time; that it kept itself free to use these privileges or not, as its interests might dictate, stipulating to pay for such use as it made of them. It is true that with respect to the payment of rental for the “exclusive property,” so called, it bound itself for the entire term, and it does not here contest its obligation in that respect. During the period of 25 years there were in all 13 agreements or leases with the Eastern Illinois Company. In each of them there is manifested a careful avoidance of statement of any obligation to use. The like feature is observable in each of the leases to the several appellants. These papers were undoubtedly drafted by experienced counsel. They are voluminous in their terms and conditions, and evidence careful study and skill in the dfafting of them. It cannot be possible that throughout these many documents an obligation to use was omitted otherwise than by design. There was the absolute obligation in each of them to pay during the term the prescribed rental with respect to the exclusive property. There is, in respect of the common property, no obligation to pay on the part of either tenant, except upon the basis of the use actually had. There is no express obligation to use. It has been well suggested that, if an owner gives one the right of way. over his lands in common with others at a certain compensation for each use of the right of way, an obligation to use is not imposed; the extent of the use being optional. We find in these various instruments no express covenant to use.

There is at least one provision in the agreement of July 1,1902, called the "joint supplemental” lease, which is in antagonism to any idea of an express obligation to use. By the terms of the leases there was an express obligation on the part of the lessee to pay the specific rental during the term for the exclusive property held by it. The thirty-second paragraph of the lease referred to has reference to this exclusive property. It gives to each lessee, upon surrender of consolidated mortgage bonds equal at their par value to the total original cost of each lessee’s exclusive property, a right to receive a deed of the property from the Western Indiana Company, with the release thereof from the consolidated mortgage, and provides that such property, so conveyed, should not be sold or leased or conveyed by the grantee, except that the Western Indiana Company and, after it, each of the other lessees, should first have the option of buying the property at the original cost and interest, or of leasing the same at a specified sum, and, upon failure to exercise such option, the grantee should have the absolute right of disposition of the property. By this provision a lessee could stop payment of rental of the exclusive property at any time, notwithstanding the obligation to pay during the entire term. It is true that this paragraph was abrogated by the agreement of December 29, 1903, but that cancellation does not do away with the effect that the paragraph should have upon the construction of the contract of 1902. It seems quite inconsistent with the theory of a covenant to use the common property that the lessees should have the right of acquisition and of disposition over the exclusive property.

It also seems to us that the practical construction placed by the parties upon these contracts during a quarter of a century of action thereunder is not consistent with the existence of a covenant to use. The several instruments imposed like obligations upon both the appellants and the appellee as to every part of the common property, including the railway from Dearborn Station to Dolton, and the railway from Hammond Junction to the state line. The Dolton branch has never been used by the appellants, nor has the Hammond branch ever been used by the appellee or by the Grand Trunk. The appellants have not contributed to the maintenance and operating expenses of the Dolton branch nor have the appellee and the Grand Trunk contributed to the maintenance and operating expenses of the Hammond branch, nor have they been required to do so. The lessee companies'have had the same right to use the nine passenger stations between Eighty-Third street and Dearborn Station that the appellee has had. The paragraph in the leases to that effect provides that the lessee has the right to use upon the terms stated any passenger station which may be erected upon the main line, and, if the lessee should wish to use such other or additional depot, it shall have the right to do so upon terms as favorable as those conceded to the Eastern Illinois Company. The obligation to use the Dearborn Station is no greater than that contained in the provision referred to. The appellee has used these nine passenger stations. The appellants have refrained from their use, and have severally declined to pay for their use and maintenance, operation, repair, renewals, and taxes. The several lessees have diverted to the terminals of other railroad companies freight -cars and trains consigned to the city of Chicago as was deemed convenient for the accommodation of the consignees. That course of business seems to have been recognized as a right of each party, and none of the leases make distinction between freight and passenger traffic or the rights or obligations of the parties in relation thereto. We think, therefore, that the practical construction placed upon these leases by the parties in interest supports the construction which we are constrained to give them, that, with respect to the “common property,” there was no covenant to use, but merely a covenant to pay certain charges in the proportion that its use by the covenantor bore to the whole use.

It is further urged that the court should imply a covenant on the ground that it is necessary to aid the execution or performance of the express covenant of the Western Indiana Company to maintain the road and the station. We need not be curious to ascertain the limit which the law places upon the doctrine of implied covenants, or to consider that question, because, if a covenant to use may properly be implied here, it is to be implied in favor of the Western Indiana Company, the lessor, which is not a party to this suit. It seems to us novel doctrine thát a covenant is to be implied in favor of co-tenants, when its implication is not sought by the lessor. The bill, seeking to establish such an implied covenant, affects corporate rights and liabilities of a corporation that is not a party to the bill and such rights are enforceable only by the corporation affected, and in such case the corporation is not merely a necessary, but an indispensable, party. Swan Land & Cattle Company v. Frank, 148 U. S. 603, 13 Sup. Ct. 691, 37 L. Ed. 577. As was said by the court in that case, no decree made could conclude the absent party.

“The defendants cannot be required to litigate those questions which primarily and directly involve issues with third parties not before the court.”

See, also, Minnesota v. Northern Securities Company, 184 U. S. 199, 22 Sup. Ct. 308, 46 L. Ed. 499.

The appellants, as lessees of the Western Indiana Company, and without the presence of the latter company, seek to have established, by construction of a contract made between the latter company and a third party, covenants to use, which shall endure for nearly 1000 years. Such covenants, if established, would run to and inure to the benefit of the Western Indiana Company, and could only properly be enforceable by it. Finding no covenant here on the part of the Eastern Illinois Company running to the appellants or either of them, we are not able, without the presence of the Western Indiana Company, to establish and enforce covenants in favor of the latter company, although the appellants might be pecuniarily benefited by the establishment of such right on the part of the Western Indiana Company.

The decree is affirmed.

NOTE.—The following is the opinion of Seaman, District Judge, in the court below:

SEAMAN, District Judge.

The bill is founded on the alleged contract obligations of the defendant under so-called leases or trackage and terminal agreements with the Chicago & Western Indiana Railroad Company, wherein the complainants have rights and interests as co-tenants Under certain supplemental agreements and a so-called “joint supplemental lease.” Relief in equity is sought upon the two-fold contentions: (1) That the contracts obligate the defendants to use the tracks and station for all passenger trains throughout the term specified, and (2) that no adequate remedy for the breach thereof is afforded at law. Both of these propositions are controverted on behalf of the defendant, and these further objections are urged against the relief prayed for: (3) That the Western Indiana Company is a necessary party to the controversy in any view of the contract, and (4) that public policy forbids enforcement in equity. I appreciate the importance of the interests and questions involved, and have carefully considered the contracts, the various contentions, and the authorities cited. The need is obvious for an early decision, and an extended discussion of the grounds thereof is neither practicable nor can it serve any useful purpose for an ultimate review. So a brief summary of my conclusions will premise the entry of decree. The objections referred to which do not touch the merits of the controversy are none of them free from difficulty, but I am so strongly impressed with the view that the contracts in suit are not entitled to the construction sought on behalf of the complainants that the determination will rest mainly thereon. For orderly consideration the points are taken up inversely.

1. As to jurisdiction in equity. On the theory of the bill that a covenant for use, either express or implied, appears in the contracts, while it is true that the wheelage charges for maintenance would remain ascertainable after diversion of trains to the Rock Island station, I am not satisfied that the remedies at law for breach would be adequate to the extent of barring equitable jurisdiction. The authorities cited sanction relief by injunction where the contract obligation is unmistakable and no public interests are involved. So the objection to the jurisdiction is overruled.

2. Is the Western Indiana Company a necessary party to the bill? I am of opinion that this objection is well taken, under the general rule (Swan Land & Cattle Co. v. Frank, 148 U. S. 603, 610, 13 Sup. Ct. 691, 693, 37 L. Ed. 577) that “the defendant cannot be required to litigate those questions which primarily and directly involve issues with third parties not before the court.” The so-calle'd lessor is the primary party in interest, and the incidental interest of the co-tenants will not authorize final adjudication, as I view it, without the presence of the lessor.

3. The question whether enforcement of the alleged covenant would be contrary to public policy is not clearly ruled by any authority cited; but, if its solution were deemed controlling, I am impressed with the view that there is force in this objection. Specific performance of the alleged covenant is sought by way of injunction, and it is the settled rule of equity to extend no aid “unless it is in accordance with policy to grant the help,” as such relief upon contracts “is the exception, and not the rule, and courts would be slow to compel” performance “in cases where it appears that paramount interests will, or even may, be interfered with by their action.” Beasley v. Texas & P. Ry. Co., 191 U. S. 492, 497, 24 Sup. Ct. 164, 166, 48 L. Ed. 274. The railroad is a public utility and the interest and convenience of the public must be recognized, so that equity will not interfere to enforce the covenant in controversy, if found in the contracts, unless it is free from liability to affect public interests, but will leave the parties to their redress at law, with the defendant company at “liberty to follow the course which its best interests and those of the public demand.” Id.; Texas, etc., Ry. Co. v. Marshall, 136 U. S. 393, 405, 10 Sup. Ct. 846, 849, 34 L. Ed. 385. The contentions on the one side and the other as to advantages or disadvantages of the respective stations in structure, use, and location do not seem to present serious difficulty; but the fact that the tracks are now elevated in the one case and not in the other— though work is in progress to that end—with other phases which appear or may arise, would make it questionable, to say the least, whether a covenant clearly expressed to make no change of station would be enforced In equity under the doctrine thus indicated.

4. Are the so-called leases in suit obligatory for use of the Western Indiana station throughout the term? The inquiry thus presented is the main subject of’ controversy between the Western Indiana Company and the defendant, whereby the latter obtained and preserved its entry into Chicago with excellent terminal and station privileges, were obviously prepared with deliberation, skill, and forethought, and the final contract of July 1, 1902, called the “joint supplemental lease” (wherein the complainants were joined as several parties), with the supplement thereto of December 29, 1903, were framed and executed in the light of and with reference to all the prior arrangements, understandings, and conditions. That none of the successive agreements were leases, in the legal sense of that term, is unquestionable under the authorities (Union Pacific Ry. Co. v. Chicago, etc., Ry. Co., 163 U. S. 564, 583, 593, 16 Sup. Ct. 1173, 41 L. Ed. 265; Chicago, Rock Island Ry. Co. v. Rio Grande R. R. Co., 143 U. S. 596, 618, 12 Sup. Ct. 479, 36 L. Ed. 277); the grant being “the right and privilege to move and operate its trains over the tracks” and to and from the station (163 U. S. 593, 16 Sup. Ct. 1173, 41 L. Ed. 265). The two cases, therefore, cited in support of an implied covenant for use—So. Ry. Co. v. Franklin Ry. Co. (Va.) 32 S. E; 485, 44 L. R. A. 297, and Schmidt v. Ry. Co. (Ky.) 41 S. W. 1015, 38 L. R. A. 809—are not strictly applicable, though instructive. Examination of the terms in the several 'instruments pointed out on behalf of complainants as express covenants for use, on reference to the context, fails to convince me that such interpretation is authorized. The strongest expression cited to that end appears in the ninth provision of the agreement of August 1, 1890, and subsequently renewed; but, as well indicated in the brief for the defendant, the construction sought is not borne out by the other provisions and the obvious understanding of the parties, especially in its insertion In the joint agreement of 1902, with the independent uses of various portions of the tracks there contemplated. The parties were equally capable and well advised to make an express covenant in clear terms, if such' were intended, and I am of opinion that the court cannot construe the vague general terms referred as expressing such intention.

The more difficult question is whether the covenant will be implied from all or any of the instruments, considering their nature and the circumstances of the ease. The general rules which govern the interpretation are well settled and need no repetition; and, otherwise than by way of exemplification of those rules, no authority is called to my attention which seems to be in point, except that of Hudson Canal Co. v. Pennsylvania Coal Co., 8 Wall. 276, 284, 288, 19 L. Ed. 349. Under the rules referred to and on the authority of that case—which is not modified by Railroad Co. v. Richmond, 19 Wall. 584, 22 L. Ed. 173, cited on the briefs—I am satisfied that no implication arises to support the complainants’ contention of covenant to use the Western Indiana station throughout the term. The parties have carefully refrained from exacting or entering into express covenant to that effect—plainly departing from terms in the preliminary Brown agreement of May 6. 1879, which might have borne such interpretation—and none can be imposed by the court under the terms so selected and renewed by the parties. Moreover, the view of public policy, before stated, would forbid such implication.

In conformity with these views, the bill must be dismissed for want of equity, and decree may be prepared to that end.