Union Pacific Railway Company v. Chicago, Milwaukee & St. Paul Railway Company

by Melvin Fuller

United States Supreme Court

163 U.S. 564

Union Pacific Railway Company  v.  Chicago, Milwaukee & St. Paul Railway Company

[Syllabus from pages 564-566 intentionally omitted]

These were petitions in equity filed by the Chicago, Rock Island & Pacific Railway Company against the Union Pacific Railway Company and the Omaha & Republican Valley Railway Company, and by the Chicago, Milwaukee & St. Paul Railway Company against the Union Pacific Railway Company, in the district court of Douglas county, Neb., January 2, 1891, to compel the specific performance of two contracts, dated May 1, 1890, and April 30, 1890, respectively, and removed on petition of the Union Pacific Railway Company to the United States circuit court for the district of Nebraska, where they were heard by Mr. Justice Brewer, and decrees rendered in favor of complainants. 47 Fed. 15. From these decrees defendants appealed to the United States circuit court of appeals for the Eighth circuit, by which they were affirmed. 10 U.S. App. 98, 2 C. C. A. 174, 51 Fed. 309. Thereupon these appeals were prosecuted.

To the contract of May 1, 1890, the Union Pacific Railway Company, the Omaha & Republican Valley Railway Company, and the Salina & Southwestern Railway Companywere parties on one side and the Chicago, Rock Island & Pacific Railway Company and the Chicago, Kansas & Nebraska Railway Company on the other; and the contract of April 30th was between the Union Pacific Railway Company and the Chicago, Milwaukee & St. Paul Railway Company.

The Union Pacific Railway Company controlled and operated more than 5,000 miles of railroad, and, among others, a main line extending from Council Bluffs, Iowa, by way of Omaha and Valley Station, Neb., to Ogden in Utah territory, a distance of about 1,100 miles; a main line from Kansas City, Mo., by way of Topeka and Salina, Kan., to Denver, Colo.; the Republican Valley Railroad, extending from Valley Station, Neb., by way of Lincoln and Beatrice, in that state, to Manhattan, Kan.; the Salina Railroad, extending from Salina to McPherson, in Kansas; a railroad extending from Hutchinson, in Kansas, to the southern border of that state; and other auxiliary roads.

The Rock Island Company owned and operated a line of railway extending from Chicago, by way of Davenport, to Council Bluffs, Iowa, and from Davenport to St. Joseph, Mo. As the owner of the latter line, and lessee of the Chicago, Kansas & Nebraska Railway Company and othe corporations, it controlled and operated a through line of railway from Chicago, by way of Davenport, St. Joseph, and Beatrice, Neb., to Colorado Springs and Denver, Colo.; a line from St. Joseph, Mo., by way of Horton, Topeka, and Hutchinson, to Liberal, Kan.; and other lines,-amounting in the aggregate to more than 3,000 miles of railway.

The Union Pacific Railway owned nearly all of the stock and bonds, elected the directors, and built, controlled, and operated the railroads of the Republican Valley and Salina Companies, and the Rock Island Company owned and operated the roads of the Kansas Company under a lease for 999 years, so that the Pacific Company and the Rock Island Company were practically the real parties in interest to the contract of May 1st.

The St. Paul Company was operating more than 6,000 miles of railroad, and one of its lines extended from Chicago to Council Bluffs, Iowa.

The following sketch roughly indicates the domain of the contracts: Early in 1890 the Rock Island Company determined to connect its lines from Chicago to Council Bluffs with its southerly line to Colorado Springs by constructing a bridge across the Missouri river at Council Bluffs, and a railroad from that terminus, by way of Omaha land South Omaha and Lincoln, to Beatrice, Neb., thereby shortening its line from Chicago to Denver and Colorado Springs; and the St. Paul Company joined in the undertaking in order to extend its line from Council Bluffs on to Omaha and South Omaha. Acting in concert, the two companies caused a corporation to be created under the laws of the state of Iowa by the name and style of the Nebraska Central Railway Company, with power to build a bridge across the river at Omaha, and one or more lines from that city west. Congress granted to this corporation the necessary franchise for the bridge. (23 Stat. 43.) Preliminary surveys and estimates were made, which showed that the entire cost of the bridge and tracks to South Omaha would be about $2,500,000. In February, 1890, the presidents of the St. Paul and Rock Island Companies visited New York for the purpose of arranging for the construction of the proposed work, when the Pacific Company requested them to suspend operations, and proposed to make a trackage arrangement with them by which they could use the bridge and tracks of the Pacific Company between Council Bluffs and South Omaha for their terminal facilities in Omaha and South Omaha, and the continuous line desired by the Rock Island Company could be completed. By direction of the president and at least two directors of the Pacific Company, its chief of construction and two of its directors obtained a meeting with the presidents of the St. Paul and Rock Island Companies and agreed with them upon the terms of the contracts in question. From the memoranda then made by the chief of construction of the Pacific Company, the contracts were subsequently drawn. They were examined and approved by the general solicitor of the company at Omaha. The executive committee of the board of directors of the Pacific Company at a meeting on April 22, 1890, at which six of the seven members of that committeewere present, five in person and one by proxy, considered and unanimously voted to approve of the contracts and authorized the president to execute them. The custom of the secretary had been not to specify in the notice of the meetings of the executive committee the subjects to be considered, and the notice of this meeting did not state that the subject-matter of these contracts would be considered. The member of the executive committee who was absent and not represented was a government director.

At the annual meeting of the stockholders of the company, held April 30, 1890, at which more than two-thirds of the stock was represented, these contracts and the action of the executive committee thereon were considered, and resolutions passed, by a unanimous vote of that stock, approving and ratifying the contracts and the action of the committee authorizing their execution. The call of the annual meeting did not state that the subject-matter of these contracts would be considered, but that certain other subjects would be, and that the meeting was for the selection of directors for the coming year and the transaction of any other business which might legally come before the meeting. The record of the meeting of the executive committee, April 22, 1890, reads thus:

'The president submitted Vice President Holcomb's letter No. 1,139, dated April 18, 1890, inclosing an agreement between this company and the Chicago, Milwaukee & St. Paul Railway Company, and an agreement between this company, the Omaha & Republican Valley Railway Company, the Salina & Southwestern Railway Company, the Chicago, Rock Island & Pacific Railway Company, and the Chicago, Kansas & Nebraska Railway Company, dated May 1, 1890.

'Whereupon, after consideration, it was,

'On motion of Mr. Spaulding,

'Voted unanimously, that the agreement submitted to the committee between this company and the Chicago, Milwaukee & St. Paul Railway Company, granting trackage rights to the latter company over this company's lines between Council Bluffs, Omaha, and South Omaha, for a period of999 years from May 1, 1890, at a monthly rental of $3,750, is approved, subject to the ratification of the stockholders, and the president is hereby authorized to execute the same on behalf of this company;

'Voted, unanimously, that the agreement submitted to the committee dated May 1, 1890, between this company, the Omaha & Republican Valley Railway Company, the Salina & Southwestern Railway Company, the Chicago, Rock Island & Pacific Railway Company, and the Chicago, Kansas & Nebraska Railway Company, providing for the use of this company's lines from Council Bluffs to Omaha, including the bridge over the Missouri river and the lines of this company's Omaha & Republican Valley Branch from Lincoln to Beatrice, Nebraska, and for the use by this company of the Chicago, Kansas & Nebraska Railway Company's lines between McPherson, Kansas, and South Hutchinson, Kansas, for a period of 999 years from May 1, 1890, and for the use of the line between the cities of South Omaha and Lincoln, Nebraska, for a period of 999 years from October 1, 1890, at the rentals severally provided for therein, is approved, subject to the ratification of the stockholders, and the president is hereby authorized to execute the same on behalf of the company.'

The following are the resolutions severally adopted by a separate vote of the entire stock represented in favor of each:

'Resolved, that the agreement between the company and the Chicago, Milwaukee & St. Paul Railway Company, dated May 1, 1890, granting trackage rights to the latter company over this company's lines, between Council Bluffs, Iowa, and Omaha and South Omaha, Nebraska, a copy of which is herewith submitted, be, and is hereby, approved, and the action of the executive committee in authorizing its execution is hereby ratified, approved, and confirmed.

'Resolved, that the agreement between the Union Pacific Railway Company, the Omaha & Republican Valley Railway Company, the Salina & Southwestern Railway Company, the Chicago, Rock Island & Pacific RailwayCompany, and the Chicago, Kansas & Nebraska Railway Company, dated May 1, 1890, a copy of which is herewith submitted, granting to the latter companies trackage rights over this company's lines from Council Bluffs to Omaha, including the Omaha bridge, and the lines of this company's Omaha & Republican Valley Branch from Lincoln to Beatrice, Nebraska, and providing, further, for the use by this company of the Chicago, Kansas & Nebraska Railway Company's line between McPherson and South Hutchinson, Kansas, and the line from South Omaha to Lincoln, Nebraska, on the terms therein provided for, be, and is hereby, approved, and the action of the executive committee in authorizing the execution thereof is hereby ratified, approved, and confirmed.'

At this time the whole number of shares was 608,685, and 437,376 shares were voted.

It is not disputed that the board of directors and the body of the stockholders of the other corporations, parties to the contracts, took proper action to authorize and ratify the execution thereof by their respective corporations, and that the formal execution of the contracts by the parties to them was sufficient.

The preamble to the Rock Island contract described the several railways owned by the parties, and recited: That the Rock Island Company had become a domestic corporation of the state of Nebraska, and proposed to extend its railway from its terminus at Council Bluffs to a connection with its leased line, the Chicago, Kansas & Nebraska Railway, at the city of Beatrice. That the parties to the contract believed that the interests of all would be promoted by using, for a part of said extension, the main tracks of the Union Pacific Railway Company, in the cities of Council Bluffs and Omaha, the bridge over the Missouri river, and that portion of the Omaha & Republican Valley Company, owned by the Union Pacific Company, between Lincoln and the point of junction at the city of Beatrice; by a lease from the Rock Island Company to the Union Pacific Company of a portion of the railroad controlled by it, between McPherson and Hutchinson, Kan., a distance of about 30 miles; and a lease of the right of the Union Pacific Company to operate its trains over the road which the Rock Island Company was about to build between the cities of South Omaha and Lincoln.

The contract provided: 'The Pacific Company hereby lets the Rock Island Company into the full, equal, and joint possession and use of its main and passing tracks, now located and established, or which may be hereafter located and established, between the terminus of such tracks in the city of Council Bluffs, in the state of Iowa, and a line drawn at a right angle across said tracks within one and one-half (1 1/2) miles southerly from the present passenger station of South Omaha, in the state of Nebraska, including the bridge on which said tracks extend across the Missouri river, between said cities of Council Bluffs and Omaha; connections with Union Depot tracks in Omaha, the side or spur track leading from its main tracks to the lower grade of the Pacific Company's sidings and spur tracks in Omaha, and such extensions thereof as may be hereafter made; side tracks in Omaha, on which to receive from and deliver to the Rock Island Company freight that may be handled through the warehouses, or switched by the Pacific Company; the connections with the Union Stock Yards tracks in South Omaha, and conveniently located grounds in South Omaha, on which the Rock Island Company may construct, maintain and exclusively use a track or tracks, aggregating three thousand (3,000) feet in length, for the storage of cars and other purposes, for the term of nine hundred and ninety-nine (999) years, commencing on the 1st day of May, in the current year,-for which possession and use the Rock Island Company covenants, promises, and agrees to pay to the order of the said Pacific Company, monthly, during the continuance of said term, the sum of three thousand seven hundred and fifty (3,750) dollars,' and a certain portion of the expense incurred in maintaining and operating the property between Council Bluffs and South Omaha, and of the assessments and taxes levied thereon, in proportion as its wheelage should be to the entire wheelage over the same, and also a reasonable compensation for handling its traffic in Omaha. That the Pacific Company lets the Rock Island Company into the full, joint, and equal possession and use of its tracks, stations, and appurtenances along the line of the railway of the Republican Valley Company, from a point near the northern boundary of the city of Lincoln to the point where its tracks connect with those of the Kansas Company at Beatrice, Neb., for the same length of time, for which the Rock Island Company agrees to pay the Pacific Company a certain rental, computed on a percentage of the value of the main track, and a proportion of the cost of maintenance. That the Rock Island Company lets the Pacific Company into the full, joint, and equal possession and use of its tracks and stations along the lines of the Kansas Company from McPherson to Hutchinson for the same length of time, for a rental to be computed in the same way. That the Rock Island Company lets, leases, and demises to the Pacific Company, for a like term, commencing October 1, 1890, the right to move and operate over the tracks of the railway it proposes to construct between the cities of South Omaha and Lincoln, in the state of Nebraska, its freight and passenger trains, engines, and cars of all classes for a rental based upon a mileage of the trains. That each of the parties to the contract shall take such steps as will be necessary to continue all the stipulations of the contract in force. That each contract of lease shall attach to that portion of the railway leased during the corporate existence of the owner thereof, and all extensions of such existences, by renewal or otherwise, and that the contract shall bind the parties thereto, their successors, grantees, and assigns. That 'schedules of rufes and regulations for the movement of engines and trains over the several railways hereby let and demised shall be made for each railway by the duly-authorized officers of the lessor and lessee companies by which such railways shall at the time be operated. Such schedules shall, as nearly as may be practicable, accord equality of right, privilege, and advantage to trains of the same class operated by the lessor and lessee, and to trains of a superior class operated by either a preference over trains of an inferior class operated by the other. All rules and regulations shall be reasonable and just to both lessor and lessee, and shall secure to neither any preference or discrimination against the other. They shall be executed and all trains moved under the immediate direction of the superintendent or other officer of the lessor company. If the parties cannot agree upon the adoption of any schedule, rule, or regulation, or as to the modification of any one existing, either party may demand a decision of such controversy by referees as hereinafter provided. The referees are hereby invested with power to prescribe schedules, rules, and regulations, and to modify existing ones, and, in case of willful disregard by either party of the rights of the other, to award damages to the party injured for injuries sustained because of such willful act.' That the referees shall be appointed, when needed, by the selection of one by each party, and the appointment of a third by the two so chosen, with further provision for their action in cases of disagreement in other particulars.

It was also agreed that the Pacific Company might admit any other company to the joint use and possession of the same tracks and property upon substantially the same terms, provided such additional burden did not interfere with the Rock Island Company. Another provision was as follows: 'If, for any reason, any of the covenants, promises, and agreements in any of these articles expressed, and not material to the right of the lessee to use the property leased and demised, shall be adjudged void, such adjudication shall not affect the validity or obligation of any other covenant, promise, or agreement which is in itself valid. In the event of a failure in law of any of the covenants, promises, and agreements herein contained, such steps shall be taken and contracts made as shall be advised by counsel to carry into effect the purpose and intent herein expressed.'

The Rock Island Company was chartered to exist until 1930, but the charter provided that its existence might 'be renewed from time to time as may be provided by the laws of the states of Illinois and Iowa.'

The Rock Island Company, upon the construction of its proposed line from South Omaha to Lincoln, obtaine , by the agreement, access to Omaha and South Omaha, and a shorter continuous line from Chicago to Denver by way of Council Bluffs, Lincoln, and Beatrice, than by its southerly route; while, by the use of the proposed road from South Omaha to Lincoln, the Pacific Company obtained a line from Omaha to Lincoln and Beatrice about 40 miles shorter than its former route by way of Valley Station, and, by its use of the road from McPherson to Hutchinson, it filled the gap between its line there, and obtained a continuous line, by way of Salina, to the southern boundary of Kansas, and a rental of $45,000 a year, and other compensation as provided.

The contract with the St. Paul Company let it into the joint and equal use of the tracks and bridge between Council Bluffs and South Omaha for the same time and on the same terms named in the contract with the Rock Island Company. The main tracks of the Pacific Company, to be used under this contract, were two, extending a distance of about seven miles, from Council Bluffs, across the bridge, and through the city of Omaha, to South Omaha.

On the 17th of May the superintendent of the Pacific Company addressed a letter to the superintendent of the Rock Island Company, requesting the construction of the connecting track which would enable it to use the Kansas Railway between McPherson and Hutchinson. The Rock Island immediately constructed the track, and the Pacific Company at once began to use it, and continued to use it until January 12, 1891.

The Rock Island proceeded with the construction of its road from South Omaha to a connection with the tracks of the Republican Valley in Lincoln, and secured depots and yards in Omaha and South Omaha, and made an arrangement with the Pacific Company for the contruction of freight and passenger stations and a yard on the ground of the Republican Valley road in Lincoln, to be used by the Rock Island and Pacific Companies jointly. Prior to December 1, 1890, it had expended in such construction between South Omaha and Lincoln over $1,400,000. All this was done in reliance upon the contract, and the railway and buildings erected could be usedfor the principal purpose for which they had been constructed only in connection with the tracks of the Union Pacific at and between Council Bluffs and South Omaha and at and between Lincoln and Beatrice. The work at Lincoln had commenced on December 1st, when the Pacific Company notified the Burlington & Missouri Company, whose depot it had theretofore been using, that after December 31st it would abandon such use. This notice was given with the intention of entering into the joint use of the Rock Island depots and tracks.

About June 1, 1890, the St. Paul Company entered upon the use and possession of the bridge and the tracks between the points named in its contract.

November 26, 1890, a change of management in the Union Pacific took place, and opposition to the contracts developed. Early in January, 1891, the Pacific Company forcibly prevented the use by the Rock Island and St. Paul Companies of its tracks at Omaha, which they were entitled to use under the contracts, and absolutely refused to perform the contracts. Thereupon these suits were commenced, one by the Rock Island Company against the Pacific Company and the Republican Valley Company, and the other by the St. Paul Company against the Pacific Company. The Pacific Company set up, by way of defense, that the use of this road as claimed would deprive it of the means granted to it under the act of congress to earn moneys with which to maintain its corporate existence, perform the duties of a common carrier, and meet the demands of the government; that the officers of the Pacific Company were not so authorized to execute the contracts as to make it competent for them to do so, and that they were not so entered into as to bind the company to the performance thereof; that the contracts were unjust and inequitable, and were improvidently made, and ought not to be sanctioned and enforced by a court of equity; that the government di ectors of the Pacific Company did not authorize or sanction the contracts; that the contracts were ultra vires, and that that company did not have any right, power, or authority to enter into them; and that the contracts were not such as a court of equity could or should specifically enforce.

In the Rock Island Case, the circuit court decreed that the contract was 'the valid obligation of the parties thereto, and should be performed in good faith by each of them,' and that it secured the several rights embraced thereby, all of which were specifically set forth, subject to the following limitations:

'(1) That the engines, cars and trains of complainant shall be moved on said tracks under rules and regulations to be agreed upon by and between the parties, or ordained by referees selected and appointed in the manner provided by said contract, and securing equality of right, privilege, and advantage to trains of the same class operated by both parties, and to trains of a superior class operated by either a preference over trains of an inferior class operated by the other, which rules and regulations shall be executed, and all engines, cars, and trains moved, under the immediate direction of the superintendent or other officers of the defendant the Union Pacific Railway Company.

'(2) That the Union Pacific Railway Company may admit any other company or companies operating a connecting railway or railways to the joint possession and use of the railway, or any part thereof, at and between Council Bluffs and South Omaha, upon substantially the same terms as those granted to the complainant, and apply the compensation which it may receive from such additional company or companies to its own use, without accounting for the same or any part thereof to the complainant.

'(3) The complainant shall not do any business as a common carrier of persons or property to or from any stations on said line between said cities of Lincoln and Beatrice.

'(4) That complainant shall make compensation for such possession and use as provided by said contract.'

The decree then continued:

'III. That the defendants, the Union Pacific Railway Company and the Omaha & Republican Valley Railway Company, are commanded severally to specifically perform, keep, and observe the several covenants, promises, and agreements in said contract set out, to be by them, either jointly or severally, observed, kept, or performed; and that said railway companies, and the officers, agents, attorneys, and employes of each, are hereby commanded and enjoined to wholly refrain from directly or indirectly interposing any obstacle, interference, hindrance, or delay to the performance of the several promises, covenants, and agreements in said contract set out, or to the enjoyment of any of the rights or privileges by said contract granted, concerning the railway and railway property above described, by any and all of the parties to said contract, or by any of the officers, agents, attorneys, or emplyees of said parties, or any of them; and especially from in any manner obstructing or interfering with said complainant in restoring and maintaining the connections which have heretofore been constructed, or in constructing and maintaining, at such point or points as may be determined under the contract, additional necessary connections between the railways of the Chicago, Kansas & Nebraska Railway Company and the Omaha & Republican Valley Railway Company at Beatrice, and between the railway of complainant and that of the Omaha & Republican Valley Railway Company at Lincoln, in the state of Nebraska, and between the railway of complainant and the railway of said Union Pacific Railway Company, at South Omaha and Omaha, in the state of Nebraska, and the city of Council Bluffs, in the state of Iowa; and from doing any act or thing, or permitting the doing of any act or thing, if it shall have power to prevent the same, whereby said complainant may be prevented from enjoying any and all of the benefits and advantages secured to i by said contract, or doing any act or thing which the complainant by the terms of said contract is authorized to do, from interfering with the use of, and from removing, injuring or destroying, buildings or other structures erected by the complainant upon the grounds of the defendant the Omaha & Republican Valley Railway Company, in the city of Lincoln, in the state of Nebraska, without the consent of said complainant.

'IV. That each and every party hereto is commanded to refrain from interposing any obstacle or hindrance to the establishment, or alteration, or amendment in the manner providedby said contract, of time cards, rules, and regulations governing the operations of engines, cars, and trains over said railways and every part thereof, or to the execution and enforcement of such time cards, rules, and regulations, when so established, altered, or amended, otherwise than by apt proceedings in a court having competent jurisdiction.

'V. That nothing in this decree contained shall operate to estop any party hereto from recovering against another party or parties, by appropriate proceedings in law or equity, the compensation to which it is now or may be hereafter entitled, for the use of any of the railway and appurtenant property between and at Council Bluffs and South Omaha, between and at South Omaha and Lincoln, between and at Lincoln and Beatrice, and between McPherson and South Hutchinson, or from recovering in such proceedings damages which it has sustained, or may sustain, because of any breach or violation of said contract.

'VI. That while this decree is final in determining the rights of the parties under said contract, the court reserves the power to make additional orders from time to time, as may be necessary to enforce such rights.'

The decree in favor of the St. Paul Company was to the same effect, mutatis mutandis.

John F. Dillon and John M. Thurston, for appellants.

J. M. Woolworth, for Chicago, R. I. & P. Ry. Co. Geo. R. Peck, for Chicago, M. & St. P. Ry. Co.

Mr. Chief Justice FULLER, after stating the facts in the foregoing language, delivered the opinion of the court:

Notes