95 Ky. 289 | Ky. Ct. App. | 1894
delivered the opinion op the court.
In 1879, tlie Northern Division of the Cumberland & Ohio Railroad Company leased to the appellee, the Louisville, Cincinnati & Lexington Railway Company, for the term of thirty years, its unfinished road-bed, rights of way, with improvements and appurtenances, depots and depot grounds, machinery, tools and implements, together with all its property rights and franchises, belonging to or in any way appertaining to its line of railway at the town of Eminence, Kentucky, thence running southwardly through the Counties of Henry, Shelby and Spencer, and terminating at .Bloomfield in the County of Nelson.
In this lease, the first-named company agreed to mortgage. to the appellee all its property, rights and franchises belonging to or in any way appertaining to its line of railway as described above, to secure the payment of three hundred and fifty bonds of one thousand dollars .each with coupons attached, to run for a term of years. The number of these bonds was subsequently reduced to two hundred and fifty. These bonds were to-he put in the hands of the appellee to he sold, and the proceeds
“ That, whereas, by authority of an act of the G-eneral Assembly of the Commonwealth of Kentucky, approved the 18th day of March, 1878, the party of the first part has entered into a contract with the Northern Division of the Cumberland & Ohio Railroad Company for the lease, construction and operation of the latter company’s line of road from Eminence, in Henry County, Kentucky, through a part of said county, and the Counties of Shelby and Spencer, and into Nelson County, so far as Bloomfield, all in the State of Kentucky; said lease to continue for thirty years upon the terms therein set out, in which it is stipulated by and on behalf of said first party herein, that if the net earnings of said leased premises do not prove sufficient to pay the interest and provide for the sinking fund of three hundred and fifty bonds of one thousand dollars each, bearing interest at the rate of seven per cent per annum, payable half yearly on the first days of June and. December, and having twenty years to run from the 2d day of July, 1879, to be issued by said Northern Division of the Cumberland & Ohio Railroad Company; and if all the sources of raising money'of said Northern Division of the Cumberland & Ohio Railroad Company fail to provide for said interest and sinking fund, then said first party herein should supply the deficiency so far as the same may be done by appropriating the net earnings, or so much thereof as
“Now, in consideration of one dollar cash in hand paid by said second party to said first party, and the premises, the said first party has this day and does hereby mortgage and put in lien all net earnings which may accrue to it by reason of business coming to it from or over said lines of the Northern Division of the Cumberland & Ohio Railroad Company to the said Joshua F. Speed, as trustee aforesaid (who is the trustee for the mortgage made by said Northern Division of the Cumberland & Ohio Railroad Company to secure said three hundred and fifty bonds, of one thousand dollars each), conditioned that if the net earnings of said leased premises do mot prove sufficient to pay the interest and provide for the sinking fund of said mortgage bonds, then said first party, if all other sources of raising money of said Northern Division of the Cumberland & Ohio Railroad Company prove insufficient, will supply the deficiency so far as it may be done by appropriating and paying over promptly the net earnings, or so much thereof as may be needed on its own lines, which may accrue by reason of business coming to it from or over said Northern Division of the Cumberland & Ohio Railroad Company’s lines for the purpose of discharging-said interest and sinking fund as they severally fall due.”
In pursuance of the contract of the lease and mort
The case was elaborately prepared, and after a number of references to, and reports from, special commissioners —experts in the tabulation of figures — and the accumulation of several thousand pages of record, the chancellor finally dismissed the petition.
The appellants contend that the net earnings made on the lines of the appellee, and put in pledge under the lease and mortgage, were the net earnings of business coming to the apj^elloe from both directions — that is to say, earnings accruing by reason of business on its own lines, brought to it on account of the building of the new road. The appellee says that it. was the intention to put or pledge only the profits of business coming literally from off the new road on to the main line, and this is the first question to be decided.
In his first opinion, the learned chancellor held that the plaintiffs and other holders of the bonds were entitled to the net earnings of the appellee “ on business coming
This construction is in accord with the spirit of the agreement and the purposes in view.
The trunk line wanted a “feeder”; it was willing to give lip temporarily all it might earn by reason of the business — all the business — brought to it by the new road for the sake of having a permanent feeder in the future. It might not pledge, its own resources — though willing to do so — to the payment of this interest, but it could give Tip all it made for the time being out .of the business created by the new road.
The gross earnings are given, but from them what shall be deducted in order to show the net earnings ?
The appellants say that the appellee being fully equipped with officers, rolling stock and other appliances for operating it roads, should account for the gross earnings received for doing the business brought to it from the Cumberland & Ohio less the cost and expense of handling this particular business. That their contract is not that they should have the net earnings of the Louisville, Cincinnati & Lexington Railway Company on business coming to it from or over the Cumberland & Ohio road after it has been thrown into hotch-potch with the other business of the appellee, and borne a proportion of the general expenses of the entire system. Nor is it that they should have what is left of the net earnings after there has been deducted therefrom a certain proportion of all the expenses and all the losses which the appellee has incurred on all its business. But that their contract is for all the net earnings which the Louisville, Cincinnati & Lexington Railway Company may make out of this particular business, which of necessity is the differeiice between its gross earnings from that particular business and the additional cost or expense of handling that particular business.
Now granting full effect to all counsel say as to limiting or restricting the deduction to be made from the gross earnings in the way of cost for handling this particular business, we fail to understand how we are to arrive at the cost of handling this business. It can not be meant that each shipment of freight, to the profit of shipping
It is said that the appellee would have carried this general freight anyway, and been to the cost of doing so whether it carried this particular freight or not; but this can be said of every pound carried on the train, and besides it is not true that the appellee could have done the business thus coming to it from the Cumberland & Ohio without additional cost. But it is to find this additional cost that we are called on to adopt some just rule.
There is nothing in the mortgage which prescribes the method of ascertaining these net earnings. They are therefore to be arrived at in the usual way. The shipments in question must be subjected to a like cost of transportation as falls on other business. From the gross receipts must be deducted the cost of producing them. The traffic from the Cumberland & Ohio is solicited by the usual methods of advertising, received at the various depots of the main lino, sorted, loaded, transported, unloaded and delivered. Counsel admit the existence of some proper charges against this business, otherwise the
It appears'from the record, that some eight or ton commissioners’ reports have been elaborately prepared and filed seeking to ascertain the net earnings in dispute. The first one (R. E.S.No.l) ignores the equitable method of distributing the cost of the business in question by proportion, as indicated above, and others reach results by using what is called “arbitrarles.” Of these we
The chancell or finally reached the conclusion that under the contracts in question the net profits which the appellee made on its own lines from the business coming to it from the Cumberland & Ohio road should be applied, not in payment of the interest on the bonds, but in paying
The loss accruing to the appellee in this case, if any, arises not out of the pledge of what it makes on its own lines from the business brought to it from the new road, but out of an unprofitable lease of the new road. The appellee had the power to make this unlucky contract of lease though it might not agree to pay this interest.
The results arrived at by the commissioner in the report R. E. S. No. 2 as the net earnings up to the date fixed in the report, are evidently fair and just to all the parties concerned, and this report is approved.
The judgment is reversed, with directions to take the report indicated herein as the basis for further proceedings consistent with this opinion.
To a petition for rehearing Judge Hazelrigg delivered the following response of the court:
In response to the inquiry as to whether or not the sums to which the bondholders are entitled under the opinion herein should bear interest, and if so, from what time, we are of opinion that, although the amount of the earnings was in dispute and the terms of the contract not altogether free from ambiguity, nevertheless, the sums due were fixed by a written contract, and the time of payment also fixed, and we perceive no reason why the earnings, as they are ascertained in the
The petition for rehearing is overruled.