The Portland daily press., 1884-11-04
THE EASTERN RAILROAD.
Decision of the Full Court on the
Question of the Lease.
THE TERMS OF THE PRESENT
ONE ILLEGAL, AND THE I'm
JUNCTION SUSTAINED.

BOSTON, Nov. 3.-About eight months ago
the stockholders of the Eastern and Boston &
Maine railroads voted to ratify lease of the
former to the latter road, agreed upon by the
directors and presented for the opinion of the
stockholders, the New Hampshire Legislature
consenting to the agreement. Thereupon one
of the trustees of the Eastern Railroad, Will
lard P. Phillips, brought a bill against the
Eastern Railroad, and Messrs. Bacon and
Rogers, the other trustees asking that they
might berestrained from the execution of the
lease on grounds which are rehearsed in the
opinion below. The defendants filed general
demurrer, preliminary injunction having
been granted, and the question went before
the full supreme bench for adjudication. The
decree of the court, written by Judge Charles
Allen, is given substantially below. The ef-
fect of the opinion is that the lease ratified by
the stockholders Of both roads is contrary to
the acts OF the Legislature and cannot be sus-
tanned, but that there is nothing in these acts
especially concerning the Eastern Railroad to
legally interfere with the execution of lease
under certain conditions not conflicting with
those acts.
The plaintiff contends, in the first place. that
through lease in terms authorized by the Statutes
of 1880, chapter 205, the execution of the pro-
posed lease should be enjoined on the general
ground that the virtual union OF the two road COM
panes in the manner contemplated is inconsistent
with the mortgage and with the Statutes of 1876
chapter 236, by which the mortgage authorized.
The argument is in substance tuat under the mort
gage and statute the net earnings of the Eastern
Railroad are to be ascertained in carefully speci-
fed manner which must be substantially followed;
that under the proposed lease there can be such
ascertanment of the net earnings; and that if as
certainable they not to be paid to the sink
ing fund.- but to be mingled with the earnings of
the Boston & Maine Railroad and to be devoted
with those other earnings to various pur-
poses, that is to say, that the earnings
Of the two roads and also their opera
psnaed Sc af ts hsc sche 6 @
mortgage and of the statute is departed from and
something else substituted which is not identical
or substantially equivalent. The judge, after
citing the provisions of the mortgage upon which
the agreement rests and also the provsi of the
statute relating thereto says: The argument is that
this requirement upon the corporation to apply its
net earnings in the manner or substantially in the
manner defined in section 13; and it becomes
question to be determined whether such was the
intention of the Legislature and of the parties to
the mortgage, as expressed by its terms. II the
plaintiffs construction Is the true one the Legisa
ture cutting itself off from the power of pass
ing any enactment thereafter within thirty years
regard to the operation of the Eastern Railroad
which would interfere with ascertaning its net
earnings substantially in that manner. 1t would
prevent the corporation from giving lease of its
own road or taking lease OF another; certainly,
rate ascertainment of its net earnings The rescrpt
reviews prior legislation relating to leases by
railroad to another, and continues There is GER
tainy sntecedent reason to think that the Legs-
lature would mean to prevent advantageous
combination or lease clearly favorable if sane
toned alike by the Legislature itself and by those
intrusted with the management of the property on
behalf OF the creditors. and if open to valid OBJ
lection which could be taken advantage of in
court of equity to prevent the execution of q lease
which the court could see to be detrimental to the
interests of creditors and that construction is
I'm ha NuhYA kn1a f1.A AFrzoN
off the legislation from the exercise of its usual
powers After "a review of the general purposes
which was paS to The sb ~
the road, the judge says that ths general and pre-
dominant purpose OF the act was not to define the
particular manner in which revenue should be
raised from the operation of the road, but
to define clearly the rights of creditors
and stockholders as between themselves, and to
require that, between these two classes all the
available revenue of the road should be applied in
the first place for the benefit Of the creditors by
direct payment of interest, by improving the value
OF the security, and by setting apart sinking fund
for the extinguishment of their debts until the
same should be reduced to $10,00U,OC0. The
directors chosen in part by the creditors, to
have reasonable liberty to improve the property
by making necessary expenditures not only for re-
newals and repairs needful to maintain the road
and equipment in good condition but also for con-
structlon. The provision enumerating what items
of disbursements might be made and included in
ed to give the directors greater powers than they
otherwise would have had. Further it is not to be
rightly inferred that the Legislature intended to
provide that during this period of thirty years the
best and only permissible way of operating the
road should be an independent line, without
giving or taking leases or forming arrangements
alliances which would to extent blend its indi-
viduaity with that of one more other railroads.
The meaning of met earnings is not limited to
earnings in any particular mode, but is broad
enough to include the revenue to be derived from
the property in any manner. The great and con-
trolling purpose OF the statute was to secure tie
proper application of all that could in any form be
realized; not to prescribe the manner in which the
amount should be realized. 1t was not intended to
prescribe or limit the method of operating the rail-
road, or to prevent the execution of favorable
and otherwise unexceptionable lease, under legs-
lative sanction to be the eafter gven by which the
receipts and disbursements incident to the opera
ton of the railroad should be blended with those of
another company. The opinion considers the fur
ther question whether there Is anything in the
details of the provisions of the proposed lease,
which is Inconsistent with the letter the spirit Of
the act of 1876, or so unfavorabe to any of the
creditors that its execution ought to be enjoined.
There is no direct charge in the bill that the
lease is likely to prove an unfavorable one; GER
tainly no Inference to that effect can be drawn
either from the position of the parties before the
event or from looking into its terms in view of such
circumstances as have been brought to an allega-
ton. The bill is brought by of the trustees who
together represent the creditors, and nobody ap-
pears to maintain that the lease is unfavorable ex
eept him, and he rests his claim not much the
ground that it would be generally or on the whole
fore illegal, and with the remark that the court
sees no reason to conclude that the lease would
this aspect of the case is dismissed as one upon
which there is no occasion to grant an injunc .ion
Inc opinion continues: The chief reliance of the
plalnt1 In this part of the is put upon three
propositlons that the terms of the lease are incon
s1stent with the obligations imposed upon the cor
poration by the act and mortgage. because: L. The
lease provides for the payment out of the net earn
lngs or interest on improvement bonds representing
expenditures for construction both roads and of
sinking fund to absorb their improvement bonds
which is also paid in annual instalments out of the
net earnings of the lessee from the new fund sys
tenn, or, in other words the net earnings which are
pledged to the mortgage sinking fund are to be
partly applied to new sinking fund to protect
junior securities: 2. The property which the
Eastern Railroad Company has the power to SELL
and the proceeds of which, if sold were to 20 to
the sinking fund, passes wholly out of ths control
OF the lessons into that of the lessee which has not
the same interest in reducing the principal of the
lessors debt and cannot be expected sell any of
the leased property for that purpose 8. The lease
provides that the lessee shall pay semi-annualy to
those bondholders who may exchange their bonds
for preferred stock under the statutes OF 1882
chapter 1877, an amount by way of dividend equal
to and enjoying the priority with the semi
annual interest upon the debt extinguished. The
first two OF those objections relate to the method of
asceraining the sums to be paid by the lessee for
the use of the leased property. But If the views
heretofore expressed are correct it is not easy to
see how objection to the details of the provisions of
| the lease in this respect be successfully
urged unless they go far as to impugn 1.-THE good
faith OF the transaction, or to show that on the
whole the lease is unfavorable to the cred-
tors 1t might have been provided that gross sum
should be absolutely payable annually without re-
gard to the result of the operation of the road If
such sum had been fixed which would be sufficient
to pay the interest, with something more from the
sinking fund.- and if the lessee had also
to keep the property in good condition with neces-
sary repairs and renewals we do not see how the
objection could be supported that the method and