80 F. 829 | 6th Cir. | 1897
This particular litigation had its inception in a petition filed by the state of Tennessee in the consolidated causes of the Central Trust Company of Hew York against the Harriman Coal & Iron Railroad Company, and J. H. Whitemore et al. against the Harriman Coal & Iron Railroad Company. Prior to August, 1893, the East Tennessee Land Company, a real-estate association, had been organized as a corporation under the general incorporation law of the state of Tennessee, with power and for the purpose of “locating, establishing, and building of towns and cities, the purchase, improvement, development, and sale of property, and the establishment and encouragement of industries.” It was a chief aim and ambition with the original promoters and shareholders in this great company to establish in Roane county, Tenn., a prohibition city, and thereby furnish to the country an object lesson in prohibition and the good which would result therefrom. This was an undertaking which at once secured the interest and co-operation of a class of people of great intelligence and culture. Accordingly, large bodies of mineral lands were purchased and conveyed to the great company, and the city of Harriman founded at the junction of the Harriman 'Coal & Iron Railroad with the C. S. Railroad, a line extending from Cincinnati to Chattanooga, Tenn., and then under lease for a term of years to the O., H. O. & T. P. Railroad Co. The development of these large bodies of mineral lands, as well as the establishment of the city of Harriman, required the use and exercise of corporate franchises and powers beyond such as could, under the statutes of the state of Tennessee, be vested in one corporation. Accordingly, subsidiary corporations were organized, with powers suitable to carry forward to successful results the large scheme of the principal corporation. Most important among such subsidiary corporations was the Harriman Coal & Iron Railroad Company, organized for the purpose of building a railroad to connect the coal fields of the Big Brushy Mountain with the East Tennessee, Virginia & Georgia, and the Cincinnati Southern Railroads and with the city of Harriman, in order thereby to furnish means of transportation for “coal, coke, stone, timber, tan bark, and other mineral and substances found in abundance in the said Big Brushy Mountain district.” This contemplated railroad was to extend from its junction with the Cincinnati Southern, at the city of Harriman, to the junction of Stogdills 'Creek with Crooked Fork, in Morgan county, Tenn., near which last point the state of Tennessee finally purchased about 9,000 acres of mineral lands, for the purpose of erecting thereon its mining penitentiary, in order that the state convicts might be employed in developing and operating coal mines; the state of Tennessee having abandoned the previously existing lease system of dealing with its convicts, and determined, by proper legislation, to work the penitentiary convicts through a penitentiary commission in opening up and operating some of the undeveloped coal fields in the state. The penitentiary commission, under legislative authority,
First. “Nor is the same to go into effect unless, within twenty (20) days from this date, a bond is executed to the state in the penal sum of one hundred and sixty thousand dollars, conditioned that the Harriman Coal & Iron Railroad shall be completed from its present terminus to a point to be selected, at or near the junction of Stogdills creek with the Crooked Fork, by the committee or any engineer selected by it, as the place where the sidings for coal mines to be opened by the state are to be located; said road to be completed to that point within six (6) months from this date, and satisfactory arrangements made as to equipping said road for operation.”
Second. “This contract is not to go into effect until the committee on behalf of the state have arranged and agreed with the companies owning and controlling the Cincinnati Southern Railroad and the Harriman Coal & Iron Railroad, as to rates for transporting coal, coke, and the other products of said mines to be located on said lands, as well as the charges for carriage of persons and property to and from said mines over their said lines of railway.”
In tbis condition of affairs, and before tbe sale from tbe East Tennessee Land Company to tbe state of Tennessee was consummated, tbe East Tennessee Land Company, tbe Cincinnati Southern Bailroad, under lease as before stated, and tbe Harriman Coal & Iron Bailroad Company, were placed in tbe bands of receivers under foreclosure bills filed in tbe United States courts against these companies respectively. In June, 1894, a contractwas executed between tbe Cincinnati, Hew Orleans & Texas Pacific Bailway Company, through Mr. Felton, its president and receiver, and tbe Harriman Coal & Iron Bailroad Company, being a traffic contract in regard to shipments to come over tbe Harriman Coal & Iron Bailroad. Among other provisions in tbe contract were the following:
“Now, therefore, it is agreed, between the parties hereto that, in ease the said state of Tennessee shall purchase the said lands hereinbefore referred to, then and in such event the contract herein contained shall be binding upon both parties hereto upon the terms and conditions hereinafter mentioned, and which are as follows: (1) This agreement covers and applies to all freight of passenger traffic having its point of origin or point of ultimate destination on the line of the Harriman Coal & Iron Railroad Company, northwardly from and beyond De Armond Junction, Tennessee, which passes through Harriman, Tennessee, having also its destination or origin beyond Harriman.” “(3) It is agreed by and between the parties hereto that the party of the first part shall have the sole and exclusive right to fix all rates upon the traffic hereby provided for, provided, however, that such party shall assume and pay all expense incident to preparing and publishing such rates.” “This contract shall remain in force until the expiration or other determination of the present lease from the city of Cincinnati to the Cincinnati, New Orleans & Texas Pacific Railway Com*833 pnny, of the railway operated by said company. The state of Tennessee shall he entitled to any benefit or advantage that may accrue to it from the operation of this contract, but shall not be liable thereon.”
And in August, 1894, a contract was executed between tbe Cincinnati, New Orleans & Texas Pacific Railway Company and the state of Tennessee, by which freight rates on the product of the state mines to be opened and operated were fixed. Among other provisions materially affecting the matter now under consideration, the following may be set out:
“It being recognized that the primary and principal object and purpose of this contract is to provide that the party of the second part shall at no time be under any unjust disadvantage, as compared with any other mine located on the lines of the party of the first part, in regard to reaching competitive markets, and disposing of its coal in such markets, the party of the first part hereby contracts that, during the tenure of this contract, it will at all times, so far as it may have the right to do, or so far as it may be within the scope of its influence with connecting and other carriers and transportation lines, to provide and maintain such lawful tariffs and rates on coal, and other products of said mines, distances and other conditions considered, as will enable the party of the second part to meet all fair and legitimate competition in the sale of such products, at all points that can be reached by the lines of the party of the first part and. its connections, so far as the rates of transportation bear an influence on the.meeting of such comxxetilion; it being the purpose of this agreement that the party of the first x>art shall, in all legitimate ways, in the fixing and maintenance of rates for transportation, aid and assist the party of the second part in marketing the product of its mines.”
It will be observed that the previous contract between these two railroad companies expresslv conferred upon the Cincinnati, New Orleans & Texas Pacific Railway Company the power to fix a through freight rate for shipments coming over the line of the Harriman Coal & Iron Railroad Company, and it was pursuant to the authority given that company in said contract that it entered into this contract with the state of Tennessee. It will also be noticed that the reason why the state officials were anxious to secure a contract for freight rates which would continue during the lease of the Cincinnati Southern Railroad was to avoid being put at a disadvantage by unfavorable rates in reaching competitive markets, for otherwise the state would have been left completely at the mercy of the Harriman Coal & Iron Railroad Company as to local rates over its line, there being no competitive line or other means of transportation for the products of the Big Brushy Mountain coal fields.
November 21, 1893, Whitemore’s bill was filed against the Harriman Coal & Iron Railroad Company, being a general creditor, and insolvent bill to wind up the affairs of the company. Thereafter, May 7, 1894, the Central Trust Company of New York, trustee, in a mortgage executed by that company to secure certain outstanding bonds, filed its foreclosure bill in the Northern division of the Eastern district of Tennessee; and the two causes, being in the same court, were subsequently consolidated, and such steps were had that a foreclosure decree was pronounced, the property put up at a special master’s sale, and bid off by E. A. Quintard, as trustee. This bid was subsequently assigned by Quintard to William Neisel, and by Neisel to Isaac K. Punk and others, they being members of a reorganiza
“Your orators further show that the said contract between the state of Tennessee and the East Tennessee Hand Company has been so far perfected that the same is in full force and effect, to he carried out, however, only upon condition that the said railroad shall he completed to the said coal fields from its present terminus. Your orators further show that it is the purpose of the state of Tennessee to erect its penitentiary mines upon said tract of land near the junction of Stogdills and Crooked Fork creeks, in said Morgan county, and to mine therefrom coal, quarry stone, and make coke, and sell said coal, stone, and coke upon the general market, and that all the product of said mines and quarries will be transported over the line of the Harriman Coal & Iron Railroad to its junction either with the East Tennessee, Virginia, & Georgia Railroad, or the Cincinnati Southern at Harriman, Tennessee, if destined to points beyond Harriman, and that said traffic will be large, and will afford good earnings upon all the investments that have been made or will be required to be made to complete said road, and to put the same in operation, for the purpose of carrying the traffic to and from the said state mines so to he erected as aforesaid.”
A copy of the contract between the two railroad companies executed in June, 1894, was made an exhibit to this petition, containing, as we have seen, a provision that the state of Tennessee should be entitled to any “benefit or advantage that may accrue to it from the operation of this contract.” The question whether it was advisable and desirable, in the interest of the Harriman Coal & Iron Railroad Company and others, that the authority asked by the petition should be granted, was referred to a special master in chancery, and, upon his favorable report, full authority was granted to the receivers to issue the construction certificates desired, and to execute the traffic agreement. It is to be borne in mind that this contract had been previously executed between the two corporations, and nothing further was necessary or desirable to make it binding and effective on those companies. The receivers, pursuant to the authority thus conferred, duly executed the contract as receivers; and the state of Tennessee proceeded with the prosecution' of its work, and has expended large sums of money in improvements
It is also settled that the purchaser, by his bid, becomes a quasi party to the suit, and is affected with notice of every step subsequently taken in the case relating to the purchase and the title acquired thereby. Davis v. Trust Co., 152 U. S. 594, 14 Sup. Ct. 693; Kneeland v. Trust Co., 136 U. S. 89, 10 Sup. Ct. 950; Stuart v. Gay, 127 U. S. 518, 8 Sup. Ct. 1279; Blossom v. Railroad Co., 1 Wall. 655; Muse v. Donelson, 2 Humph. 169; Allen v. East, 4 Baxt. 308; Reese v. Copeland, 6 Lea, 193. And this rule holds good even as to the sureties of the purchaser, executing with him notes for deferred payments on the purchase price. Deaderick v. Smith, 6 Humph. 139; Munson v. Payne, 9 Heisk. 672. Such part of the purchase price as may have been paid in cash at the time of sale was still in the registry of the court, and, like the purchaser’s bid, completely under the control of the court. In this state of affairs, the state’s petition,
“But this decree of confirmation is made subject to whatever rights the state of Tennessee or the penitentiary commissioners may have upon the hearing- of their petition herein already filed.”
The purchaser, without invoking any action of the court whatever in view of the state’s petition, has gone forward, and completed the sale, by the payment of the purchase price; and the purchase price, except a comparatively small balance, has been disbursed in the payment of the construction certificates and other claims having-priority. In view of this situation, we have no hesitation in holding that the purchaser, with full knowledge, has elected to take the property bid off, subject to the obligations of these traffic agreements, provided there exists any obligation in favor of the state. And we are thus brought to the question of whether or not these contracts confer, and were intended to confer, upon the state, a right to their enforcement against this railroad, and whether the property passed to the purchaser by the sale subject to such right; and upon this point we entertain no doubt. It will conduce to a better understanding of the case and the question if we keep in view the main facts hereinbefore recited, which led up to making these contracts, and the relation of all parties to the same, and their interest therein. It would be entirely without the support of reason to suppose that the state’s officials would have manifested the precaution which they did to secure a contract for reasonable freight rates extending, over a period of some years, binding only on companies which had become insolvent, and were being wound up, or that these officials would have been content with the execution of such contract by the receivers of the court, with the understanding that it might at any time, however short, be ended with the termination of the receivership. The proposition that the parties interested in the state prosecuting its plan to a successful result understood that the obligations of the contract entered into by the receivers under authority of the court should last no longer than the receivership is equally unwarranted. The only just interpretation which can be placed upon the procedure which was had is that it was intended to subject this railroad, in the hands of a receiver, to the obligations of the traffic agreement in which the state was interested. Nothing short of this would have been an adequate inducement to the state to carry into effect its mining plan, and to make the large expenditures which would be necessary for that purpose. And the large freight traffic that would be thereby supplied to this line of railway, perhaps far exceeding all other sources of business combined, was fully sufficient
“Important News.
“To Investors of the Bast Tennessee Land Company:
“The Railroad Purchased—Money Wholly Subscribed.
“A most important part of the work of reorganization has now been accomplished. The railroad has been purchased, the money fully subscribed, and all of the stock (amounting to $600,000) now belongs absolutely to the reorganization committee. This is settled in the ownership of this stock. The reorganization committee has assets of solid value amounting to some hundreds of Thousands of dollars. No candid person fully acquainted with the facts will question this statement.
“A Monopoly.
“The railroad has the absolute monopoly for railroad transportation for the enormous coal fields of the Brushy Mountain region. These deposits of coal are of extraordinary proportions and value. As the purchase of the railroad is now an accomplished fact, the money to pay for it being arranged for, we trust that we run no risk of being accused of ‘booming’ if we tell you of the great value of this railroad. Now, no harm can come to you even though we should overjudge the value of this unique railroad property.”
The document then goes on to state that a foreclosure sale of the land company (meaning thereby the East Tennessee Land Company) properties has been ordered, and warning the original investors of the East Tennessee Land Company of the importance of being ready to bid in that property also. The following statement is found:
*838 “If we are not prepared to buy tbe lands at the foreclosure sale, they will be sacrificed, and the investors in the old company will lose practically all of the million dollars that have been invested in these lands. A creditors’ syndicate is being talked of to buy in these lands for its own benefit, it being assumed that the reorganization committee will not be ready to purchase. If the syndicate buys or outsiders buy, all the money invested by the stock and security holders of the old company in lands will be practically lost. It will be a most shortsighted thing for the stockholders and security holders to permit this tremendous loss, for, by a united effort, it can be prevented in a large part, and possibly wholly.”
Attention is then directed to the rich and promising oil and gas discoveries which have been made upon this great body of land called the “Cumberland Plateau.” This circular, of course, was designed mainly to secure subscriptions to the proposed plan of reorganization. After setting out in detail many other substantial grounds on which the reorganization should be supported, the document concludes with a touching and eloquent appeal to that sentiment which was expected to establish and make successful the city of Harriman, in language as follows:
“In all the bitter disappointments, in the many troubles that have come upon us, we must not forget the original aim in this whole investment,—prohibition an object lesson to the country. It is chiefly because of this that your chairman has wrought as he has during the past eighteen months. Whatever our losses may be, prohibition still remains an issue of overwhelming importance. During one of his great battles, Napoleon, riding up to his chief of staff, asked how the battle was going. The officer replied, ‘Sire, this battle is lost, but .[pointing to the sun, still an hour high] there is time enough to win another.’ The ranks were formed, and a decisive victory was won. We have lost a battle at Harriman, but there is time enough yet to win, on that same battle field, a victory that will help the entire nation, and one that will go into history. With a heart within and God o’erhead, let us go> forward.”
Keeping in view the surrounding circumstances, we do not doubt that the state’s officials accepted the court’s action in authorizing the receivers to execute the contract previously made between the railroad companies, as assurance that the court, in its subsequent dealing with this property, would make good to the state its right to the freight rates secured to it by' such contracts. We think these officials were well warranted in the belief that the court would do this, and that they have acted all along upon that assumption. The receivers were the officers, “the mere arm” and agents, of the court in the administration of the trust then in hand, and any obligation assumed by them might justly be regarded as an obligation of the court. And, certainly, a court is under the highest possible obligation to require full performance of every obligation incurred with the court’s sanction. And parties and officers in a case before the court should be allowed to create no just expectations which the court does not fully satisfy. Felton v. Ackerman, 22 U. S. App. 154, 9 C. C. A. 457, and 61 Fed. 225; Wabash, St. L. & P. Ry. Co. v. Central Trust Co. of New York, 22 Fed. 269; High, Rec. §§ 1, 2, 175;. Railroad Co. v. Hoechner, 31 U. S. App. 644, 14 C. C. A. 469, and 67 Fed. 456.
In view of what has been said, and without pursuing the discussion further, we conclude that the two contracts now under consideration are to be construed together, both of them having been ex