Pullman’s Palace Car Co. v. Central Transp. Co., 171 U.S. 138 (1898)

Pullman’s Palace Car Company v.

Central Transportation Company
No. 141

Argued March 24-25, 1898
Decided May 31, 1898
171 U.S. 138

APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES

FROM THE EASTERN DISTRICT OF PENNSYLVANIA,

AND ALSO CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE THIRD CIRCUIT

Syllabus

By taking an appeal to the circuit court of appeals, the Pullman Company did not, under the peculiar circumstances of this case, waive its right to appeal to this Court, and the case being now before this Court either on appeal or by the writ of certiorari, it has jurisdiction.

In order to authorize a denial of a plaintiffs motion to discontinue a suit in equity, there must be some plain legal prejudice to the defendant, other than the mere prospect of future litigation, rendered possible by the discontinuance.

Unless there be an obvious violation of a fundamental rule of a court of equity or an abuse of the discretion of the court, the decision of a motion for leave to discontinue will not be reviewed here.

The decision of the Circuit Court in denying the motion of the Pullman Company to discontinue its suit was right, as was also its decision permitting the Central Company to file a cross-bill.

In no way, and through no channels, directly or indirectly, will courts allow an action to be maintained for the recovery of property delivered under an illegal contract where, in order to maintain such recovery, it is necessary to have recourse to that contract, but the right of recovery must rest on a disaffirmance of the contract, and is permitted only because of the desire of courts to do justice as far as possible to the party who has made payment or delivered property under a void agreement which in justice he ought to recover, and no recovery will be permitted which will weaken said rule founded upon the principles of public policy.

Acting upon those settled principles the Court decides:

(1) That the Central Company is entitled to recover from the Pullman Company the value of the property transferred by it to that company when the lease took effect, with interest, as that property has substantially disappeared and cannot now be returned.

(2) That the value of that property is not to be ascertained from the market value of the shares of the Central Company’s stock at that time, but by the value of the property transferred.

(3) That the value of the contracts with railroad companies transferred by the Central Company form no part of the sum which it is entitled to recover.

(4) That the same principle applies to the patents transferred which had all expired.

(5) That it is not entitled to recover anything for the breaking up of its business by reason of the contracts’ being adjudged illegal.

The record in this case shows that, in 1870, the Central Transportation Company (hereafter called the "Central Company") was a corporation which had been in 1862 incorporated under the general manufacturing laws of the State of Pennsylvania. It was engaged in the business of operating railway sleeping cars and of hiring them to railroad companies under written contracts by which the cars were to be used by the railroad companies for the purpose of furnishing sleeping conveniences to travelers. The corporation at this time had contracts with a number of different railroad companies in the East, principally, but not exclusively, with what is known as the "Pennsylvania Railroad System," and it had been engaged in its business with those companies for some time prior to 1870. In the year last named, the Pullman’s Palace Car Company (hereafter called the "Pullmen Company") was a corporation which had been incorporated under the laws of the State of Illinois. It was doing the same general kind of business in the West that the Central Company was doing in the East. For reasons not material to detail, the two companies entered into an agreement of lease, which was executed February 17, 1870.

By its terms, the Central Company leased to the Pullman Company its entire plant and personal property, together with its contracts which it had with railroad companies for the use of its sleeping cars on their roads, and also the patents belonging to it. The lease was to run for 99 years, which was the duration of the charter of the Central Company.

It was also agreed that the Central Company would not engage in the business of manufacturing, using, or hiring sleeping cars while the contract remained in force.

In consideration of these various obligations, the Pullman Company agreed to pay annually the sum of $264,000 during the entire term of 99 years, in quarterly payments, the first quarter’s payment to be made on the 1st of April, 1870.

From the time of the execution of the contract, its terms were carried out, and no particular trouble occurred between the companies for about fifteen years. During this time and up to the 27th day of January, 1885, the Pullman Company paid to the Central Company, as rent under the contract, the sum of $3,960,000, without any computation of interest. About or just prior to January, 1885, differences arose between the companies. The Pullman Company claimed the right to terminate the contract under the eighth clause thereof, or else to pay a much smaller rent. The merits of the controversy are not material.

The two companies not agreeing, and the Pullman Company refusing to pay the rent stipulated for in the lease, the Central Company brought successive actions to recover the installments of rent accruing. In one of them, the Pullman Company pleaded the illegality of the lease as being ultra vires the charter of the Central Company. The plea prevailed in the trial court, and upon writ of error, the judgment upholding this defense was, in March, 1891, sustained in this Court. Central Transportation Company v. Pullman’s Palace Car Company, 139 U.S. 24.

After the bringing of several actions for installments of rent by the Central Company, and before the question of ultra vires had been argued in this Court, the Pullman Company, on the 25th day of January, 1887, commenced this suit by the filing of its bill against the Central Company in the Circuit Court of the United States for the Eastern District of Pennsylvania. The bill asked for an injunction to restrain the bringing of more suits for rent. It gave a general history of the transactions between the companies from the execution of the contract between hem in February, 1870, down to the time of the filing of the bill, and it alleged the election of the Pullman Company to terminate the lease under the provisions of the eighth clause thereof, and the willingness of the company to pay what should be found by the court to be equitable and right to the Central Company on account of the property which had been transferred by that company to it, and to this end it prayed the aid of the court. The bill also contained the following allegation:

And your orator shows that in said lease it is recited that the said contract of lease is made on the part of the defendant, the said Central Transportation Company, under an act of the General Assembly of the Commonwealth of Pennsylvania therein named, approved the 9th day of February, A.D. 1870, a copy whereof is hereto attached, marked "Exhibit G," and referred to as part of this bill, but your orator is advised, and therefore submits it to the court, that the said lease, being a grant, assignment, and transfer of all the property, contracts, and rights of the said defendant, the Central Transportation Company, and including a covenant on the part of said defendant corporation not to transact during the existence of said lease any of the business for the transaction of which it was incorporated, was never legally valid between the parties thereto, but was void for they want of authority and corporate power on the part of the defendant to make the said contract of lease, and because the same was in violation of the charter conferring the corporate powers of said defendant, and of the purpose of its incorporation, as by the said charter, to which, for greater certainty, reference is made, your orator is advised it will appear that the said contract of lease was never susceptible of being enforced in law by your orator against said defendant, and cannot therefore be construed and held to continue in force and obligatory upon your orator, and that your orator can be under no other legal obligation or equitable duty to the defendant than to return such of the property assumed to be demised as is capable of being returned, and to make just compensation for such other of said property as under the said contract of lease it ought to make compensation for, which it is willing and now offers to do.

In the prayer for relief it was also asked:

That the court may consider and decree whether said contract of lease was not made without authority of law on the part of the defendant, and in excess of its corporate powers, and in violation of its corporate duties, so as not to be enforceable against your orator beyond the obligation of your orator to make return of or just compensation for the property demised, and that an account may be taken between your orator and defendant, and that the amount may be ascertained that should be paid by your orator to the defendant on any account whatever, . . . and that an accounting may be had between your orator and defendant as to all the matters and things set out in this bill.

The Central Company answered the bill, denying many of the material allegations therein contained. It denied that the Pullman Company had ever elected to terminate the lease under the provisions of the eighth clause thereof, and it alleged that the lease was still in existence, and that it had the right to recover from the Pullman Company the amount of the rent named in the lease, and that no valid agreement had ever been made between the companies in any way altering the lease or reducing the amount of the rent payable thereunder. It denied that the lease was illegal, and it alleged that, even if it were, the illegality did not justify the complainant in applying for any equitable relief whatever.

Upon application on the part of the Pullman Company, the court granted an injunction restraining the bringing of suits for the collection of rent accruing after July, 1886, but it declined to enjoin those already pending for rent accruing before that date.

After considerable proof had been taken upon the issues involved in this suit, and after the decision of the other case in this Court, in March, 1891, holding the lease illegal and void, the complainant herein, on the 25th of April, 1891, applied to the court for leave to dismiss its bill at its own cost. This application was opposed by the defendant, who, on the same day, moved for leave to file a cross-bill in which it said it would avail itself of the tenders of relief made by the complainant in its bill, and that it would pray such relief in its cross-bill as might be pertinent to the case made by the bill. In December, 1891, complainant’s motion for leave to dismiss its bill was denied, and the defendant’s motion for leave to file a cross-bill was granted. Thereupon the cross-bill was filed, in which the Central Company, acknowledging, under the decision of this Court, that the lease in question was void, claimed to avail itself of the tenders made in complainant’s bill upon the subject of the return of its property and compensation for that which it was impossible to return, and claimed, among other things, that the Pullman Company should account for all the profits which it had derived since the making of the lease by the use of the property transferred to it under the agreement, and that the amount found due should be paid to the Central Company, and that the Pullman Company should be adjudged to be a trustee for the Central Company of all the contracts for transportation, whether original, new, or renewals, held by the Pullman Company with railroad companies with which there were contracts of transportation with the Central Company at the time of the making of the lease in February, 1870, and that the Pullman Company should be adjudged to pay the Central Company all such sums as should be due to it by the Pullman Company as such trustee, and that defendant should in the future from time to time account for the sums which should be due by reason of future operations under those contracts. It also prayed for a discovery and an accounting by the Pullman Company of its use and disposition of the property turned over to it by the Central Company.

To this cross-bill the Pullman Company filed three demurrers, the first being a general demurrer, on the ground that the cross-bill was filed contrary to the practice of the court, and also that it appeared that the court had no jurisdiction of the case. The second demurrer related to the portions of the cross-bill praying that the cross-defendant might be regarded as a trustee and decreed to account accordingly. The third demurrer related to that part of the cross-bill which asked for an account of profits since the making of the lease and for future profits.

The demurrers were overruled, with leave to present the questions on final hearing, and the Pullman Company then answered the cross-bill. Among other things, it set up that the agreement in question was void,

and that, being null and void between the parties hereto because of such character of the agreement, it cannot be made the lawful foundation of any action or application for any relief whatever between the parties thereto. And this respondent submits that the rule which precludes the granting of relief by any court of either equity or law, upon a contract void for contravention of public policy, forbade this circuit court to allow such affirmative relief upon this cross-bill which asserts no claim of right not founded directly upon the express undertakings of this contract of lease, held void by this Court itself and by the supreme court for the reasons aforesaid.

The Pullman Company therefore denied that it owed any duty to the cross-complainant which was enforceable at law or equity to return to the Central Company the property assigned under the lease, or to account for any profits derived under and by reason of any property delivered to it under the agreement.

Testimony was taken under these pleadings, and the case came before the circuit court for final hearing, and that court held that the cross-complainant made out a case for an accounting by the cross-defendant for the value of the property when received, together with its earnings since, less the amount paid as rent. The court therefore referred it to a master for the purpose of ascertaining the facts, with directions to report within the time named in the order of reference. Under this order, testimony was taken, and the master reported in favor of the Central Company, and, the exceptions filed having been overruled, judgment was entered in favor of the Central Company for the sum of $4,235,044, together with costs. From this judgment the Pullman Company appealed directly to this Court. It also appealed to the circuit court of appeals. The case was there argued upon a motion to dismiss the appeal, and the motion denied, and the further argument was postponed until some disposition was made of the appeal taken directly to this Court. 76 F. 401. A motion has also been made to this Court to dismiss the appeal, and thereupon an application was made to us for a writ of certiorari to the Circuit Court of Appeals for the Third Circuit, and, on account of the peculiar circumstances, it was granted, and the record has been returned to this Court by virtue of that writ.