Cox v. Terre Haute & I. R. Co.

JENKINS, Circuit Judge (after stating the facts as above). The agreement or lease was ultra vires the Terre Haute Company, was contrary to the public policy of the state of Indiana, and was void. Central Trust Company v. Indiana & Lake Michigan Railroad Company, 39 C. C. A. 220, 98 Fed. 666; Central Transportation Company v. Pullman’s Palace Car Company, 139 U. S. 24, 11 Sup. Ct. 478, 35 L. Ed. 55. Therefore no court should lend its assistance in any way to carry out the terms of this illegal contract, or to enforce any claimed rights directly springing therefrom. Pullman’s Palace Car Company v. Central Transportation Company, 171 U. S. 138, 18 Sup. Ct. 808, 43 L. Ed. 108; McMullen v. Hoffman, 174 U. S. 639, 19 Sup. Ct. 839, 43 L. Ed. 1117. So far, therefore, as any claim here asserted is dependent upon this illegal and void contract, it cannot be approved. East St. Rouis Connecting Railway Company v. Jarvis, 34 C. C. A. 639, 92 Fed. 735. One may recover property or money parted with on the faith of such a contract. Pullman’s Palace Car Company v. Central Transportation Company, 171 U. S. 138, 18 Sup. Ct. 808, 43 L. Ed. 108; Gilbert v. American Surety Company, 57 C. C. A. 619, 121 Fed. 499, 61 L. R. A. 253. But that question is not presented here, the property having been returned. The petition here seeks to obtain a fund arising from setting apart the 25 per cent, of the gross earnings. This fund was tentatively set aside by the court and maintained intact to await the determination of the question of right. The appellant’s claim thereto arises either under and because of the illegal contract, or because it may rightfully claim compensation out of the fund for the value of the use of the road during its possession by the Terre Haute Company or by its receiver.In the former case the claim cannot be sustained. “Ex turpi causa non [375] oritur actio.” The claim in the latter case is to be looked at in two aspects: First, as a claim for the value of the use of the road from March 1, 1896, to November 13,1896, during the time of its possession by the Terre Haute Company; second, for the value of the use of the road from November 13, 1896, when the receiver took possession, until February 28, 1899, when, under order of the court the receiver redelivered possession. With respect to the first: Assuming that the appellant, as trustee, may assert a claim for the value of this use, either by virtue of its mortgage, or of the decree adjudging payment to it of the deficiency upon the sale, there is one conclusive answer to the claim, namely, that the fund in court arose, not from the earnings of the road during that period, but represents gross earnings accruing subsequently to the latter date, and during its operation by the receiver. The appellant can have no equitable lien upon this fund for the misappropriation of moneys by the Terre Haute Company, no part of which has come to the receiver. With respect to the second claim: By the mortgage the rents, issues, and profits of the railway were pledged to the appellant trustee as security for the payment of the bonds. This was coupled with a provision that, until default in payment of the interest and principal of the bonds, the Lake Michigan Company should remain in undisturbed possession and management of the road. The trustee is not entitled to the rents and profits of the mortgaged premises under such a provision until he takes actual possession, or until possession is taken in his behalf by a receiver, or until, in proper form, he demands and is refused possession. Hook v. Bosworth, 12 C. C. A. 208, 64 Fed. 443, and authorities cited. No step was taken by the Central Trust Company which would entitle it to the income of the road under this provision. There was default in the payment of interest by the Terre Haute Company on the 1st of September, 1896, and continuously thereafter. The Central Trust Company commenced foreclosure on November 27, 1896, praying, among other things, for a receiver, but at no time made application for one. On the 13th of November the railway passed into the possession of the receiver in this suit under the bill against the Terre Haute- Company. From that time until February 28, 1899, when possession was surrendered by the court to the purchasing bondholders upon foreclosure of the trust deed to the Central Trust Company, no demand was made for the possession of the road, or any claim asserted for rentals. During all this period these bondholders received monthly statements from the receiver of the gross earnings and operating expenses of the road, which showed that during that period the operating, expenses exceeded the income.. Under these circumstances, knowing that this road was operated at a loss, it must be assumed that the Central Trust Company was content not to assume the burden of the operation of the road, but was content to allow that burden to rest upon the receiver of the Terre Haute Company. The court below would doubtless have directed délivery of possession, had it been demanded, because the Central Trust Company was entitled thereto. It cannot, therefore, now rightfully claim this fund for the use and occupation of the road upon the basis of its rental value,-when the fund does not represent net, [376] earnings from the operation of the road. United States Trust Company v. Wabash Western Railway Company, 150 U. S. 287, 14 Sup. Ct. 86, 37 L. Ed. 1085. Nor can the Central Trust Company claim this fund as a trust fund appropriated to the payment of the interest upon the bonds, because such claim can only be spelled out through and under the provisions of an illegal contract. The fund was set apart from the gross earnings, that it might be kept intact to render to the parties entitled upon the determination of the validity of the agreement or lease. The railway having been operated at a loss, this fund does not represent profits, but in fact represents so much money received from the operation of the line owned by the Terre Haute Company. There is therefore no equity in appropriating this fund in execution of an illegal and forbidden agreement. The decree is affirmed.