South Carolina & G. R. v. Carolina, C. G. & C. Ry. Co.

93 F. 543, 35 C.C.A. 423, 1899 U.S. App. LEXIS 2256

• Court: Court of Appeals for the Fourth Circuit
• Decided: March 31, 1899
• Docket: No. 260
• Status: Published

Opinion

BRAWLEY, District Judge

(after stating the facts as above). The parties interested in this controversy are certain holders of the first mortgage bonds of the Carolina, Cumberland Gap & Chicago Bailroad Company and the South Carolina & Georgia Bailroad Company, which will hereinafter he designated as the appellant. These two companies were entirely independent of each other, — each free to manage its own affairs, and neither owing any duty to the other, except such as the law prescribed with respect to interchange of business. Those duties to the public, which the law imposes upon all railroad corporations, could not be invoked by one as against the other; and, while the statute permitted one to lease the other, it did not impose it as a duty. In entering into an agreement, each party was free to consult its own interest or inclination. The receiver of the one, and the president of the other, were men of sufficient intelligence to understand the condition and interest of their respective roads. As to the receiver, the record contains evidence of his standing among men of business; for in March, 1894, when Croft and others made an effort to remove him, 10 or 12 citizens of New York, some of whom are readily recognized as men of substance, holders of 492 of the 550 first mortgage bonds, united in a petition, sworn to by each of them, in which they state their belief that Herbert was “fully competent to act as receiver, and that he could fully protect the interest of all in any way interested in the railway company, and that any change would he prejudicial to all concerned.” Among these bondholders will be found the names of the members of -the committee which intervened to contest this claim; and the same bondholders, when the motion for the removal of the receiver was renewed before Judge Simonton in March, 1895, again united in the request for hi's retention. In November of the same year, long after this agreement had been made, and while the road was being operated under it, the counsel for the trustee moved and secured his appointment as receiver in the United States court. That he had the confidence of the court appears from the fact that all of Ms.recommendations seemed to have met its approval, and nothing appears to impeach his character or capability. We have, then, as one of tbe parties to this contract, a person whom nine-tenths of the bondholders, the trustee, and the judges of the state court and of the United States court have selected as a fit and proper person to manage this road. When, the contract with the receiver of the South Carolina Railway Company terminated, he had either to operate the road himself, or to have it operated by another, or to stop operations altogether. With its meager rolling stock and beggarly receipts, which in the year preceding the making of this contract were insufficient to pay operating expenses, it cannot be imputed to 1dm as a fault that be did not undertake to operate the road himself; and, if it were to be kept as a going concern, he must, of necessity, make some operating agreement, either with tbe Southern Railway, which crossed it at Trenton, or with the South Carolina & Georgia Railroad Company, with which it connected at Aiken. As it appears from tiie petition of tbe receiver, filed January 4, 1895, the principal business of the road was the transportation of rock from a quarry on its line. This rock was used in building the jetties in Charleston. Naturally, therefore, the last-named company was the most likely to make a favorable arrangement with him. He had, it appears, made a satisfactory agreement with Mr. Chamberlain, the receiver of the South Carolina Railway Company. It is beyond our province now to go into that agreement. Whether Mr. Chamberlain made it with the expectation of so far encouraging the owners of the property as to lead them to extend their road, or whether its business at the time was better iban it subsequently became, or whether it was simply an improvident contract on .his part, it is not for ns to determine. It is sufficient to say that Mr. Parsons was unwilling to enter into any such arrangement when he became the president of tbe new company, and in view of the earnings of the year before, as shown in the record, it is hardly to be conceived that any sensible business man, having due regard to the interests of his own company, would pay any such sum for the privilege of operating this road. That he had some interest in keeping the road going is obvious, for Ms road derived a certain amount of business from it, and this doubtless was tbe consideration that moved him. The contract was not made in haste, but apparently with due deliberation. The receiver bad the benefit of the advice of counsel, for it appears from the itemized statement of (be account <rf receiver’s counsel in New York, contained in the record, that this agreement was the subject of long and frequent consultations between the receiver and bis counsel. As this account was submitted to the circuit judge, and compensation was allowed for if, it is to be presumed that tlie judge considered the advice to be worth something.

The order of .Judge Aldrich appointing Herbert receiver, December 1, 1893, provides as follows:

“Said receiver is hereby authorized and empowered to maintain and operate said railroad, and hold, preserve, and care for said property and assets, with power to do all such acts and make such contracts as are necessary or proper to enable him to fully carry out and discharge the purposes of this appointment; and the said Wilbur B\ Herbert, as such receiver, shall succeed to all the rights and assets of said Carolina, Cumberland Gap & Chicago Railway Company.”

And, after providing for Ms giving a bond and appointing a local attorney, it adds that he may apply to the court or judge thereof from time to time for such instructions and orders as may be deemed necessary.

In the nature of things, a receiver cannot, iñ person, perform the manifold /luties required in the operation of a railroad. Engineers, firemen, conductors, trainmen, trackmen, a general manager or superintendent to supervise, and accountants to keep the accounts, are all necessary. In other words, he must have agents to do the physical work demanded in its operation; and whether he selects these various employés himself, or chooses a general agent who is charged with the duty, he himself keeping a general supervision over the whole, and reserving the right to terminate such general agency whenever dissatisfied with the conduct of the business, is a question of detail, resting in his sound discretion, subject always to the discretion and control of the court which appoints him. It is an elementary principle that an agent who exercises ordinary diligence and reasonable skill in conducting the business intrusted to him, conformably to the usages and customs applicable to the particular business for which he is engaged, is entitled to be reimbursed all expenses and advances properly incurred; and, unless guilty of fraud or misconduct or gross negligence, he will be reimbursed for all losses that are the immediate results of his employment. A request to undertake an agency or employment operates as an implied request on the part of the principal, not only to incur the expenditures necessary to its proper performance, but also as an implied promise to indemnify the agent for any losses or damages directly incurred in the proper discharge of the-duties for which he is employed. Looking at the correspondence between Mr. Parsons and Mr. Herbert, it seems to be nothing-more than what on its face it purports to be, — an agreement whereby the South Carolina & Georgia Railroad Company undertook, upon the terms therein stated, “to operate the Carolina, Cumberland Gap & Chicago Railroad Company.” It is clearly not a lease, and the obligations growing out of that relation commonly implied by law, and which are binding unless expressly stipulated- against, have no application. The1 record shows that the accounts were kept in the name of the receiver, and all the net revenue earned by the road was to be turned over to him, after deducting the actual cost of operation. No extraordinary repairs to roadway, bridges, or rolling stock were to be made until he was advised thereof; and charges for labor, material, and supplies were to be made at rates not exceeding those paid by the South Carolina & Georgia Railroad Company. The accounts were to be at all times open to his inspection, a statement of the gross earnings was to be rendered to him weekly, settlements were to be made monthly, and the agreement was terminable by either party upon 15 days’ notice.

The particular clause which has given rise-to this litigation is as follows:

“The South Carolina and Georgia it. It. not to lie held responsible to the said Carolina, Cumberland Gap and Chicago Ky. Co., or its receivin', or accountable in any way, for any accident or damages to either persons or property that may occur on Hie line of the Carolina, Cumberland Gap and Chicago Ity. in its operation, and to be held harmless and be indemnified from any suits, actions, or damages against said South Carolina and Georgia It. It. Go. by reason thereof.”

While it may be that, if this agreement had been drawn by lawyers, its different terms and conditions might have been expressed more artificially, it would be difficult to make plainer the true intent and meaning of it as it was understood by the plain men of business who entered into it. Every word chosen has a well-understood meaning among railroad men, and the obvious meaning of plain terms cannot be rejected because ingenious reasoning may give to them an interpretation involving consequences at which the legal mind may affect to be sliocked. That Mr. Parsons, whom the learned judge below characterizes as a man of great ability and experience in railroad management, would enter into any agreement whereby all the profits were; to go to another, and all the losses and risks were to fall upon him, is incredible. Every one at all acquainted with railroad management knows that accidents will happen, and that nearly every so-called accident can be traced back to some carelessness, some neglect, some inatiention; that Hie most careful of men will sometimes slip, the most vigilant will sometimes sleep. Damages arising from negligence are so much the usual incident of railroad operation, that they are classed as operating expenses, and it Is not to be believed (hat any one who undertook to make an agreement to operate a railroad should fail lo take them into account. When, therefore, Mr. Parsons stipulated that he was not to be held responsible or “accountable in any way for any accidents or damages to either persons or property,” and that he was to be “held harmless and be indemnified from any such suits, actions, or damages against the said Mouth Carolina and Georgia Railroad Company by reason thereof,” he must have had in mind such suits and damages as are the ordinary incidents of railroad management. Suits for damages to persons are always predicated upon negligence, and, if he did not intend to be indemnified against them, the words used would be meaningless and without effect. That Receiver Herbert so understood the agreement is equally plain; for, when the accident which gave rise to these claims occurred, he applied to the court for leave to settle them, which the court wisely ordered, but which order Ihe counsel for trustees most unwisely caused to be vacated, and, when the suits were brought in ihe state court the counsel for the receiver appeared and took part in the defense! If we bear in mind what was the real condition of this road at the time the agreement was made, we can well understand why it was made, and any suspicion that it was of such an improper and improvident diameter that it ought not to have been made will disappear. The accounts show that for the year ending December 31, 1893, when it was under lease to the receiver of the Mouth Carolina Railway Company, the gross earnings were less than the operating expenses. That the road was operated more economically by this receiver than it could possibly have been if operated independently, seems certain. So, when that agreement terminated, the receiver, Herbert, had on his hands a road that could not pay expenses. If he had undertaken to operate the road himself, there can be no doubt that any deficit in its operation would have been allowed by the court, and any damages recovered against him on account of the negligence of his servants would have been treated as operating expenses. As was said by the court in Cowdrey v. Railroad Co., 93 U. S. 352:

“The allowance for goods lost in transportation and for damages done to property whilst the road was in the hands of a receiver was properly, made. The earnings received were as much chargeable with such loss and damage as they were chargeable with the ordinary expenses of managing the road. The bondholders were only entitled to what remained after charges of this kind, as well as the expenses incurred in their behalf, were paid.”

And in the later case of Barton v. Barbour, 104 U. S. 131, the court, after citing the above, says:

“The claim of the plaintiff, which is against the receiver for a personal injury sustained by her Avhile traveling on the railroad managed by him, stands on precisely the same footing as any of the expenses incurred in the execution of the trust and must be adjusted and satisfied in the same way.”

Claims against the receiver in his capacity as a common carrier are on the same footing, precisely, as the salaries of his subordinates, or as claims for labor and material used in carrying on the business. If the South Carolina & Georgia Railroad Company was conducting the road for the receiver, it would seem that such claims would stand upon precisely the same footing as if he was operating it by other agents or servants; and was not that the true relation of the parties? He was to receive all the net income that was earned. The accounts were at all times open to his inspection. Statements of the earnings were to be furnished to him Aveekly, and settlements were .to be made monthly. He was allowed by Judge Simonton’s order of January 17, 1895, to issue certificates and to borrow money for the repairs of the trestle on Pace’s branch, and to pay other expenses necessary to be paid by him, which included the deficit of §524.27 due the South Carolina & Georgia Railroad Company for the four months ending November 30, 1894, as set forth in his petition upon which the order was predicated. He was also allowed, by order of August 31, 1895, to purchase cross-ties for the road. An order of September 6, 1895, made upon motion of his counsel and upon his petition, authorized him to compromise the claims which are in- part the subject of the present conüwersy, and he had the right at any time to terminate the operating agreement upon 15 days’ notice. These various petitions show that the receiver was keeping a proper supervision over the operations of the road, and the petition, in respect to the cross-ties, shows that he regarded himself as in a measure responsible for its safe operation. The fact that he did not seek to terminate the operating agreement, and that the notice of the termination came from the other party some time after the accident which is now imputed to the negligence of the appellant, leads to the inferenoe that he had no reason to complain of the manner in which it was operated by the party charged by him with that duty.

The next question is, was this agreement one which the Carolina, Cumberland Cap & Chicago Railroad Company could lawfully make? The general rale is that a corporation possesses only such powers as are conferred by its charter, with such incidental powers as may be necessary to carry into effect those expressly granted. The general powers of this company were to construct, maintain, and operate a railroad, and no special provisions of its charter bearing upon the point have been cited; but, under the general railroad law of Bouth Carolina (section 1(524, 1 Rev. St. 1893), all railroad companies created by or existing under the laws of that state were empowered “to enter into contracts for the purchase, use or lease of other railroads upon such termo as may be agreed upon with the companies owning the same, and may run, use and operate such road or roads in accordance with such contracts or lease,” provided that the roads so contracting are connected with each other. By the same general law (page 544, Id.), whim a railroad is lawfully maintained and operated by trustees or receivers, they are subject to the duties, liabilities, restrictions, and other provisions attaching to the corporation.for whose creditors they are trustees or receivers. Those provisions of the general law plainly authorize one railroad company to make contracts for the lease or use of other railroads, and it may be considered as settled law that a receiver may 'be authorized by the court to do any act which the corporation of which he is receiver had the power to do. A receiver represents the court which appoints him, and the corporation itself, which, by the order appointing him, is devested of its rights, privileges, and franchises, all of which are for the time being vested in the receiver. If this agreement was one which the corporation could lawfully make, the receiver could likewise make it. He could not make any contract binding upon the corpus beyond the term of his appointment. And there are certain other limitations upon the powers of a receiver, that need not be discussed at this stage; nor will it be necessary now to determine precisely the measure of a receiver’s powers to make contracts relating to the operation of the road in his hands without obtaining the approval of the court appointing him. As he is selected by the court from a presumed fitness, he is generally clothed with a large measure of discretion as to the details of the operation.

We have already slated our views as to the nature of the agreement in question, and will now state our conclusions upon the next point to be determined: Was it authorized by the court, and is it binding upon (lie parties to the controversy?

That the order of Judge Aldrich was regularly entered and valid, and binding upon all the parties then before the court, unless appealed from, cannot be denied. Thai court had had jurisdiction and possession of the res since December 1, 1893, when it appointed Herbert receiver in the suit of McDonald, in which the only parties were the plaintiff and the corporation. A petition subscribed and sworn to on March 28, 1894, by holders of about nine-tenths of the first mortgage bonds, was filed in that cause, praying the retention of the said receiver. On April 27, 1894, an order was entered granting leave to join as party plaintiff the trustee of the bonds. On November 28, 1894, the trustee filed a petition in the cause, entitling it “Neil McDonald and the Farmers’ Loan & Trust Company, Plaintiffs, against the Carolina, Cumberland Gap and Chicago Railroad Company, T. G. Croft, and others, Defendants,” in which it states that “it is one of the plaintiffs in the above-entitled suit,” praying a removal of the cause to the United States court, and filing at the same time a removal bond; but no order of removal was then taken. Wh.en^he trustee thus became a party to the McDonald suit, the jurisdiction of the state court over all essential parties was complete; and there can be no doubt that the trustee was then in a position to appeal from Judge Aldrich’s order, if it had been so advised. If the cause had not been subsequently removed to the United States court, this order would have been binding until reversed; and it is at least doubtful whether it can be impeached collaterally in another jurisdiction, but it is not doubtful that it was binding upon all the parties in the state court when the cause was removed. The removal of the cause to the United States court was somewhat anomalous, but it is not necessary to discuss the regularity of this proceeding. Judge Simonton’s order of January 17, 1895, recited that, by consent of all the counsel, “the cause is removed” to the United States court, and consolidated with the suit of the Farmers’ Loan &• Trust Company, and thereafter all the orders are entitled as in both causes; and the record contains numerous illustrations of the fact that Judge Simonton regarded the orders in the state court as valid and binding. Among them may be cited the orders providing for the payment of counsel employed in that cause, and for the carrying out of the contracts for the purchase of cross-ties made in pursuance of orders there. In no respect, save as to the subject-matter of this controversy, is there anything in the record to show that the proceedings in the state court were regarded as a nullity; but, on the contrary, everything indicates that the United States court regarded the cause - as regularly removed, and the proceedings therein as regular and binding. The petition of the receiver, filed January 4, 1895, wherein he asked leave to borrow money, informed the court of the existence of the operating agreement', and the correspondence with appellant was annexed to, and made part of, the petition; and some of the money to be borrowed was for the purpose of paying the indebtedness incurred under that agreement. Judge Simonton’s orders of January 17, 1895, and January 22, 1895, allowed the receiver to borrow the money for the purposes set forth in the petition. The court and all the parties to the cause were then-fully and formally advised of the existence of this agreement between the receiver and the appellant. The parties took no steps looking to its disaffirmance, and the court recognized its validity in so far as it authorized its receiver to borrow money, a part of which was to be used in the discharge of obligations incurred under it. There was no formal confirmation of this agreement, but we do not apprehend that that was necessary. Contracts made by a receiver of an insolvent corporation do not necessarily end with his resignation or dismissal. His successor may, in certain cases, disaffirm them, and a reasonable time may be allowed him for that purpose; but, if be does not seek their disaffirmance, they bind him as they did his predecessor. They are not personal, but representative. So, when Herbert the receiver in the United States court succeeded Herbert the receiver in the state court, he could, within a reasonable time, have moved for a rescission or modification of the agreements of his predecessor. If he did not do so, he would be bound by them. He liad had more than six months to observe the operations of his road under this agreement, and, although the result showed a. deficit, the accounts and affidavits filed sufficiently accounted for the deficit, for they showed that the principal business of bis road (the hauling of rock) had decreased to about a fourth of its former volume, and that the dangerous condition of the trestle at Pace’s creek had necessitated the transportation of liis freight over another road; and he asked leave of the court to borrow money to repair this trestle and to pay the deficit thus caused, and tlié court, with full knowledge of the condition of the road and of the existence of ihis agreement by which its receiver was operating its road, granted his petition. It would be difficult to have a more complete ratification by acts than this record discloses. The appellant here was not a party to that suit. He could not be heard in it. He was operating this receiver’s road under an agreement which had received the formal approval of one court, which, after six months’ experience, had been brought to ilie attention of another, with no sign of disapproval or dissatisfaction from the receiver, the trustee, the bondholders, or the courts; and, under these circumstances, lie had the right to assume that, so long as he performed his part in good faith, the other party would be bound to perform its part; and, as this agreement was terminable on 15 days’ notice, he could not be expected or required to appear in a court where he- was not a party, and seek a formal ratification. It is fair to assume that all the parties interested were at that time satisfied that this operating agreement was the best method of securing the continued operation of the road.

The facts in Vault Co. v. McNulta, 153 U. S. 554, 14 Sup. Ct. 915, are very different from those here. In that case a receiver had taken a lease for a term of years of some rooms for.general offices, paying-rental monthly. His successor continued to pay the stipulated monthly rent until the road was sold, up to which date the rent was fully paid. The monthly reports of the respective receivers showed the payment of rent, but did not disclose the terms of the lease, which had'never received the approval of the court. The petition asked for the payment of the rent during the whole term of the lease, which extended beyond the period of the receivership, which petition was dismissed upon the ground that a receiver could not make a contract extending beyond his receivership, without the approval of the court; that the mere approval by the court of the master’s accounts, wherein the monthly payments of rent were allowed, could not be held to be a confirmation of the lease, because there was no knowledge on the part .of the court that such a lease had been entered into by its receiver. The rent had been fully paid for the time when the premises were occupied for the benefit of the trust. Many of the cases cited before us are referred to in that case, and it is unnecessary to cumber this opinion by reviewing them. They do not conflict with the general principles upon which our judgment rests. All that was decided was that a receiver’ cannot bind the trust property by a contract extending beyond his receivership, without the approval of the court. There is no contention in the case before us that he has such power. As to the general powers of the receiver in the operation of the road, the court says (page 561,153 U. S., and page 918, 14 Sup. Ct.):

“It is undoubtedly true that a receiver, without the previous sanction of the court, manifested by special orders, may incur ordinary expenses or liability for supplies, material, or labor needed in the daily administration of railroad property committed to his care as an officer of the court.”

We cannot leave out of view for a moment that a railroad is a peculiar kind of property; that it is a matter, not only of public concern, but of private interest, that it should be kept going; that its franchises are liable to forfeiture if it stops running; that its property is specially liable to deterioration and decay; and that its business may be irrecoverably lost. Purchasers of its bonds take them with the knowledge of that infirmity; and when they ask a court to manage their property, and its receivers, in good faith and fair judgment, incur obligations for the ordinary expenses of its management and maintenance, courts of equity would be reluctant to sanction any repudiation of those obligations, even if incurred without their express authority.

It is claimed by the appellee that this agreement is ultra vires, in so far as it relates to the clause of indemnity. Counsel for the appellant, in their argument as to the proper interpretation of. this clause, likened it to a contract for casualty insurance, which common carriers, in their dealings with each other, were not forbidden to make, to which appellee replies that any contract of insurance by a railroad corporation is ultra vires and void. It requires no weight of authority to illustrate the obvious and to demonstrate the evident. That a railroad corporation cannot engage in the insurance business is plain. That it cannot, unless the power is expressly given by its charter, enter into a contract of suretyship or guaranty, even if it result in gain or benefit to the corporation, is equally true, if it be beyond the scope of the business authorized by its charter. But we do not accept appellant’s interpretation of this agreement as being “a contract of casualty insurance.” The agreement, as we conceive it, was within the corporate power of both the railroad companies. Under the general railroad law of South Carolina, any railroad company was authorized to make a contract to run, use, or operate another road “upon such terms as may be agreed upon”; and the stipulation for indemnity is simply one of the terms upon which the appellant company agreed to run and operate the other road. It was a mere question of detail as to which company should pay the operating expenses, and whether, in the adjustment of the mutual accounts, one should refund to the other any sums that it may have been compelled to pay by reason of “any suits, actions, or damages.” Similar provisions will doubtless be found in every contract whereby one railroad company undertakes to lease or operate another. Suits, actions, or damages are incidental to the operation of every railroad, and provision must always be made whereby one or the other of the contracting corporations assumes such burdens. The cases cited in the brief of the apx>ellee were upon facts easily distinguishable from those now being considered. Davis v. Railroad Co., 131 Mass. 261, was upon a guaranty _ to contribute towards any deficiency that might arise in defraying tlie expenses of a jubilee and musical festival. Louisville, N. A. & C. R. Co. v. Ohio Val. Improvement & Contract Co., 69 Fed. 431, was upon a guaranty, by a board of directors, of bonds of another railroad company, which, under the statute of Indiana, could be made only by stockholders. Seligman v. Bank, Fed. Cas. No. 12,642, was upon a guaranty by the bank of certain drafts, which was held to be beyond the corporate power of the bank. Trust Co. v. Boynton, 19 C. C. A. 118, 71 Fed. 797, was upon the right of the corporation to lend its bonds, to be used as collateral to secure the individual debts of parties with whom it was dealing. Humboldt Min. Co. v. American Manufacturing Mining & Milling Co., 10 C. C. A. 415, 62 Fed. 356, was upon a guaranty by defendant company that the Variety Iron Company would perform its contract with the plaintiff company. Pacific Postal Telegraph Cable Co. v. W. U. Tel. Co., 50 Fed. 493, was uj)on a contract whereby a railroad company undertook to give one telegraph company tlie exclusive right to construct a telegraph line upon its light of way. Pennsylvania R. Co. v. St. Louis, A. & T. R. Co., 118 U. S. 308, 6 Sup. Ct. 1094, decided that unless specially authorized by its charter, or aided by some other legislative action, a railroad company cannot, by lease or other contract, turn over to another company, for a long period of time, its road, and the use of its franchises and the exercise of its powers. In that case the Illinois company had sufficient authority, but the Indiana company had not; hence the contract was held void as to it. In Central Transp. Co. v. Pullman’s Palace-Car Co., 139 U. S. 54, 11 Sup. Ct. 478, a contract for 99 years ’was held unlawful and void, because it was beyond the powers conferred on the plaintiff by the legislature, was in unreasonable restraint of trade, and because it involved an abandonment by plaintiff of its duty to the public. Navigation Co. v. Hooper, 160 U. S. 515, 16 Sup. Ct. 379, held that it was within the chartered power of a railroad company, in the absence of legislative prohibition, to lease and maintain a summer hotel at its seaside terminus, and where the lessee had contracted to keep it insured, and failed to do so, it was liable to the lessor for its value when destroyed by fire during the term. In this case the court approves the language of Lord Chancellor Selborne in Attorney General v. Great Eastern Ry. Co., 5 App. Cas. 473, where, in declaring the importance of the doctrine of ultra vires, he said:

“Tliis doctrino ought to be reasonably, and not unreasonably, understood and applied; and whatever may fairly be regarded as incidental to or consequential upon those things which the legislature has authorized, ought not, unless expressly prohibited, to be held by judicial construction to be ultra vires.”

Mr. Justice Gray, who delivered the opinion in Central Transp. Co. v. Pullman’s Palace-Car Co., says (page 60, 139 U. S., and page 488, 11 Sup. Ct.):

“A contract ultra vires being unlawful and void, not because it is in itself immoral, but because the corporation, by the law of its creation, is incapable of making it, the courts, while refusing to maintain any action upon the unlawful contract, have always striven to do justice between the parties, so far as it 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.”

We are of opinion that the defense of ultra vires is not sustained by principle, or by the authorities cited in support of it.

The following cases: Woodruff v. Railway Co., 93 N. Y. 609; Vanderbilt v. Railroad Co., 43 N. J. Eq. 669, 12 Atl. 188; Trust Co. v. Cooper, 162 U. S. 544, 16 Sup. Ct. 879,—go far to sustain the proposition that, when a contract has been fully performed in good faith, and the corporation has had the full benefit of its performance, even if it might appear improvident and unreasonable, in the absence of fraud or collusion the corporation could not avail itself of the defense of ultra vires.

The next objection is that this agreement, in so far as it is claimed that it indemnifies the appellant for damages arising from his own negligence, is void, as being against public policy. This is generally the last defense of desperate causes, but in this instance it has an air of reasonableness that entitles it to respectful consideration. Contracts that have in them some taint of immorality, or that tend to restrain competition or trade, or contravene any established interest of society, are held to be void; but, as there is no precise definition of “public policy,” each case must be adjudged according to its peculiar circumstances, and courts can only justly exercise this delicate and undefined power in cases free ’from doubt. The only ground upon which this agreement can be held to contravene public policy is that it tended to cause the appellant to omit that care and duty which every railroad company owes to the public. In many of the states, railroad corporations are forbidden by statute to make any contract which exempts them from liability for negligence. The leading case on this subject in the federal courts is Railroad Co. v. Lockwood, 17 Wall. 359, where Justice Bradley states the reason for the rule, which is that a common carrier, in the carrying of passengers and freight, is performing a public duty; that the policy of the law demands that, all of his dealings with the public should be reasonable, and, as the customer is largely in the power of the carrier, the latter cannot exact terms which would tend to relieve him of his duty to be careful. The following are extracts from this opinion.

“The carrier and his customer do not stand on a footing of equality. The latter is one individual of a million. He cannot afford to higgle or stand out, and seek redress in the courts. His business will not admit such a course. He prefers rather to accept any bill of lading, or sign any paper, the carrier presents,“Often, indeed, without knowing what one or the other contains. In most cases he has no alternative but to do this or abandon his business.”

Again:

“If the customer had any real freedom of choice, if he had a reasonable and practicable alternative, and if the employment of the carrier were not a public one, charging him with the duty of accommodating the public in the line of his employment, then, if the customer chose to assume the risk of negligence, it could with more reason be said to be his private affair and no concern of the public.”

“Contracts of common carriers, like those of persons occupying a fiduciary character, giving them a position in which they can take undue advantage of the persons with whom they contract, must rest upon their fairness and reasonableness.”

In the case of Liverpool & G. W. Steam Co. v. Phenix Ins. Co., 129 U. S. 397, 9 Sup. Ct. 469, Mr. Justice Gray thus sums up the doctrine of Lockwood’s Case:

“This analysis of the opinion in Railroad Co. v. Lockwood shows that it affirms and rests upon the doctrine that an express stipulation by any common carrier for hire, in a contract of carriage, that he shall be exempt from liability for losses caused by the negligence of himself and of his servants, is unreasonable and contrary to public policy, and consequently void.”

It will be observed that the contract referred to by Judge Gray is not any contract by a common carrier, but “a contract of carriage.” In Hartford Fire Ins. Co. v. Chicago, M. & St. P. Ry. Co., 17 C. C. A. 62, 70 Fed. 202, where a railroad company leased a part of its right of way upon a condition that the company should not be liable for any damage to buildings situated thereon resulting from the negligence of its officers or agents, or from fire communicated from its locomotives, Judge Sanborn distinguishes the class of cases wherein, owing to the inequality of the situation of the parties, which would, if permitted, enable the railroad company to obtain unfair contracts from passengers and shippers, and the fact that contracts with them which exempt the company from liability for negligence relieve it from an absolute duty imposed by law, thus increasing the danger to lives and property of the people from the operation of the railroad, and that class of cases where no duty to lease is imposed, where the companies have an option to lease or refuse to lease. In the latter class, he says:

“The condition excepting the company from liability for damages to the property of the lessees caused by lire set by the negligence of the company relieved 1he company from no duty it was required by law to perform, but simply provided that it should not assume the additional burden which it had the option to take or refuse.”

A railroad company does not assume, by such a contract, to relieve itself of any of its essential duties as a common carrier. He cites the case of Railroad Co. v. Lockwood, and shows clearly that the reason upon which it rests has no application in cases where the parties are upon the same plane, and free to contract with each other, and says:

“The burden is on the party who seeks to put a restraint upon the freedom of contracts to make it plainly and obviously clear that the contract is against public policy.”

Stephens v. Southern Pac. Co., 109 Cal. 86, 41 Pac. 783, is a similar case, wherein the court, in discussing the agreement that such exemption from liability has a tendency to lessen the amount of care the defendants would exercise in preventing fire, and that one who is protected by an agreement against the results 'of his carelessness will not take the same care as he otherwise would, sajrs that, while this line of reasoning is ingenious, it is not sound law;

“If the doctrine enunciated by respondent be sound, then a multitude of contracts, covering many and diverse subjects, and which are being entered into every day of tbe world, and recognized and acted upon both by parties and courts, must fall to the ground.”

Among such are the ordinary contracts of fire insurance, which have a tendency to lessen the care which the owner would otherwise exercise in the protection of his property from fire.

Contracts which common carriers make with insurance companies, whereby property under their control and in transit is protected, undoubtedly would seem to have such a tendency to lessen the care which is ordinarily demanded of common carriers in the transportation of goods; yet such contracts are sustained by the courts. A very well considered case of this class'is that of Casualty Ins. Co.’s Case, 82 Md. 535, 34 Atl. 778, wherein McSherry, J., discusses the whole subject with great ability:

“But they are all, it is alleged, repugnant to public policy, because, by furnishing the carrier with a fund with which to reimburse himself for losses caused by his own negligence, their inevitable tendency or effect is to induce less vigilance or to promote greater carelessness on the part of the carrier.”

He shows that precisely the same reasoning would invalidate every species of fire and marine insurance; that, because there may be temptation to negligence, such insurance does not necessarily beget negligence; that it cannot be assumed as a postulate that a carrier, solely in consequence of having such indemnity, will necessarily disregard his duty to exercise care.

That a railroad company may by insurance indemnify itself against loss or injury to property intrusted to its care, even when the loss or injury is caused by its negligence, is settled in this court by Phœnix Ins. Co. v. Erie & W. Transp. Co., 117 U. S. 324, 6 Sup. Ct. 750, 1176, and California Ins. Co. v. Union Compress Co., 133 U. S. 387, 10 Sup. Ct. 365. It is well-settled law, too, that a carrier may require a shipper, who has insured his goods in transit, to give him the benefit of his insurance. In all of this class of cases the carrier is protected against ultimate liability. So it is not enough to avoid a carrier’s contract, as in contravention of public policy, to show that, because he is protected from loss, he may be tempted to violate his duty to the public.

The cases cited by appellee in support of his contention are, in the main, I hose where common carriers have endeavored to relieve themselves by special contract against their common-law liability. We have already referred to Lockwood's Case. Voight's Case, 79 Fed. 561, simply decided that the railroad company was not relieved of its liability for Injury to the messenger of an express company, by a contract between the railroad and the express company. In Stevens’ Case, 95 U. S. 655, it was held that the railroad company could not contract against its negligence, and the owner of a car company traveling on a pass was entitled to recover for injuries. It is not claimed that the appellant here is protected against its common-law liability to the public as a common carrier; and it does not seem necessary to review all the cases that fall wiiliin the rule in Lockwood’s Case, from which this is so readily distinguishable. Contracts in derogation of the common-law responsibility of carriers must not only be plain, so that the unwary public may not be imposed upon, but must also be reasonable, because the carrier and his customer do not stand upon (he same footing. They should therefore be construed strictly, and all ambiguities resolved against the carrier; but the reason for the rule ceases when the carriers deal with each other, each having equal opportunities of choosing the language in which to express their agreements, and neither being required to enter into any contract at all. The rights' of the public in its relation to common carriers, and the reciprocal obligations flowing from that relation, have no place in this discussion; and this agreement should be construed as if it were between two individuals standing on the same plane, and the court should simply endeavor to carry out the true intent of the parties, as expressed in words and ’nterpreted by their conduct. In so far as relates to this case, the alleged inability of the receiver is entirely foreign to the question whether the agreement is in contravention of public policy. We hold that if is not, and that the only question of public policy involved in it is the wholesome public policy that requires ~parties to perform their contracts.

The next question relates to the alleged displacement of vested liens, as to which the court below uses this language:

“The p«mc-iity of vested Hens has always been recognized by the court in the adimnifdration of property. They are never displaced, except to preserve the properiy and keep it from destruction.”

The right of the court to preserve the property has already been exercised in this case by its order allowing the issue of receiver's certificates, that have priority to the claims of the bondholders, for the repairs of the trestle on Pace’s creek. The act of February 9, 1882 (17 Bt. at Large, S. C. p. 791), provides that judgments recovered against railroad corporations for personal injuries “shall take precedence and priority of payment of any mortgage, deed of trust or other security given to secure the payment of bonds made by said railroad company,” provided actions are brought within the 12 months from the time the injury was sustained.

The mortgage in this case, being subsequent to that act, is subject to its provisions. The court below uses this language:

“This is a contract between, two common carriers, — one of these, the receiver, who owes a duty to the public to operate the road in his charge. This, perhaps, he could not do. At all events, he contracted with the other carrier, the South Carolina & Georgia Railroad Company, to perform this duty for him.”

It will not be disputed that a court of equity, which puts property in the charge of its receiver for its preservation pending the litigation, will provide for the payment of all the necessary expenses incurred in the proper administration of the estate, before it orders distribution among creditors; and, if the receiver had operated this road himself, there can be little doubt that the court would have ordered the payment of all of these claims in priority to any claims of the bondholders. To what extent a receiver may incur obligations without the sanction of the court has not been precisely defined. That he may incur ordinary operating expenses is not disputed. This embraces all salaries of employés, ordinary supplies of material, and all expenses for keeping road and rolling stock in order; and the courts have held that claims for damage to either person or property, are included in the general class of operating expenses. It is only when the receiver has undertaken to make contracts involving large expenditures, or for extraordinary purposes, or obligations extending beyond his term as receiver, that it has been necessary to obtain the sanction of the court. The case of Vanderbilt v. Railroad Co., 43 N. J. Eq. 669, 12 Atl. 188, may be referred to, to show how far the courts will go to compel performance on the part of the receiver in cases where contracts have been made without their express approval or ratification. In a well-considered opinion this language is used:

“If the contract has been completely performed, and its performance accepted by the receiver, and the claim is merely for compensation, relief of that nature would seem necessarily to be awarded, unless the applicant should, appear to have dealt fraudulently or collusively with the receiver, to the detriment of the trust. Even if, in the judgment of the chancellor, the contract, was improvident and unreasonable, unless the contractor should appear to have contracted with notice of the improper character of the contract, no just reason could be given for debarring him from the agreed-on compensation, •which the receiver might, for his negligence or misconduct, be required to repay to the fund.”

And in Vault Co. v. McNulta, 153 U. S. 563, 14 Sup. Ct. 918, the supreme court of the United States says:

“In respect to contracts which have been completely performed by a party dealing with a receiver, and when the claim is merely for compensation, equitable relief is often granted, although there was no previous approval or subsequent ratification of the receiver’s act. This is pointed out by the chancellor in Vanderbilt v. Railroad Go., ubi supra.”

“It may be laid down as a general proposition,” says Mr. Justice Bradley in Cowdrey v. Railroad Co., “that all outlays made by the receiver in good faith, in the ordinary course, with a view to promote and advance the interests of the road, and to render it profitable and successful, are fairly within the line of discretion which is necessarily allowed to a receiver intrusted with the management and operation of a railroad in his hands. His duties, and the discretion with which lie is invested, are very different from those of a passive receive!', appointed merely to collect and hold moneys due on prior transactions, or rents accruing from houses and lands. And to such outlays in ordinary course may be properly referred, not only the keeping of the road, buildings, and rolling stock in repair, but also the providing of such additional accommodations, stock, and instrumentalities as the necessities of the business may require; always referring to the court, or to the master appointed in that behalf, for advice and authority in any matter of importance, which may involve a considerable outlay of money in lump.”

In Smith v. McCullough, 104 U. S. 25, referred to by the court below, the receiver had been authorized to borrow money upon receiver's certificates, to be expended in completing an unfinished portion of the road. He made a contract with the authorities of Hullivan county for municipal aid. It was this contract, which the court had never approved or ratified, that the supreme court held to be unauthorized.

The case is not before us in a shape which permits a final disposition of it. The motion to dismiss the petition was in (he nature of a demurrer, and the statements in the petition, in that aspect, are to he taken as true. We are of opinion that, upon a fair construction of the agreement between the receiver and the appellant, the latter was operating the road as agent of the receiver, who was to receive all the possible benefits that would have followed from its personal operation by himself, with a saving of expense, and that inasmuch as appellant could derive no benefit therefrom, except that which followed indirectly as a feeder, the receiver should bear the .direct burdens as if the same had been directly operated by him; that all the claims stated in the petition arose out of the operation of the road after it came into the hands of the receiver of the United States court; that that court was fully advised of the operating agreement; that it permitted its receiver to continue the arrangement which liad been made first with the direct sanction of the judge of the state court; that, on the face of it, the agreement does not appear improvident; that, under the circumstances, it was probably the best arrangement that could be made; .that with the experience of actual operation under it, for more than six months prior to the transfer of the road, the receiver, who could at any time have terminated it upon 15 days’ notice, continued it, with the tacit acquiescence of all the parties and of the court. If, therefore, it should appear, upon the investigation which will be directed, that the appellant has fairly and in good faith performed the duties devolved upon it by the agreement, the same must be sustained as valid and binding. The learned counsel for appellee say that this construction leads to this result (using the language of their brief):

“It practically says: ‘Take tills road, run it as you please, he as reckless and extravagant in your expenditure as you are minded, conduct it as carelessly and negligently as you may choose; for the trust property will be made to refund you all amounts squandered, and shall indemnify you for, and keep you harmless from, all the damages resulting from your carelessness and negligence. Waste, ruin, imperil, and wreck, if you wish, for this contract will protect you from all.’ ” •

It is scarcely to be conceived that such apprehension can be seriously entertained, but it may bé as well to state briefly the principles that should govern the allowance of any claims made by the petitioner. If there is a deficit in operating expenses, and the petitioner shows that such deficit is not in any wise due to his fault or extravagance, and that he operated the road with care and diligence and economy, such deficit should be allowed. If there was any extravagance, recklessness, waste or betrayal, it should not be allowed. If the petitioner has been compelled to pay for damages to persons or property, and such damages are due to his recklessness or gross carelessness, he should not be reimbursed therefor; but if the damages are due to mere carelessness or negligence of the servants employed by him in the operation of the road, and he employed them without the knowledge that they were careless, exercising due care in their selection, — such care as he exercised in the selection of servants on his own road, provided the master shall find that his own road was managed with ordinary care, — then such damages fall within the class of operating expenses, and the petitioner is entitled to be reimbursed therefor. In other words, if the appellant can show that he operated the road of the receiver, while it was in his hands, with the same care, diligence, and economy that well-managed railroad companies ordinarily exercise in the operation of their own roads, he is entitled to stand in the place of the receiver, whose agent he was, and to be reimbursed for his losses and damages. The judgment of this court is that the decree below be reversed, and the case remanded, with directions to proceed in accordance with the principles herein announced. Kéversed.