Court Opinion

ID: 3554031
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:05:41.94934+00
Date Added: 2024-06-11T14:06:43.028061
License: Public Domain

The Cheshire Railroad Co. moved that the master's report be recommitted, with instructions to inquire under what contract or upon what terms the Ashuelot Railroad was run by the Cheshire Railroad during the years 1864, 1865, 1866, 1867, and to revise his statement of the account between the two roads for those years. Quite a large amount of evidence has been laid before us bearing upon this application, consisting mainly of statements by counsel of what occurred at the hearing before Mr. Justice HIBBARD in January, 1874, it being claimed upon one side that the question whether the road was run during those years under the original lease, as modified by the three memoranda found indorsed upon it, signed only by Mr. Elliot was fully discussed and considered at that hearing, and on the other, that that question was only incidentally raised, if at all, and was understood to be left open to be determined by the master.
It appears that the hearing before Judge HIBBARD occupied some four days or more; that the Cheshire Railroad was represented by very able counsel; that a considerable amount of evidence was introduced on their behalf, and that their views and claims were urged upon the court at the final argument by counsel specially employed to look after their rights and interests in the hearing.
It is not in dispute that the plaintiffs claimed in their bill, and claimed at the hearing, that the Cheshire Railroad was liable to them, and should render an account to them upon some basis or other, for the use of the Ashuelot Railroad during the whole period the latter railroad was in the possession and occupation of the former. The plaintiffs claimed fraud, — that is, that the Cheshire Railroad, acting in collusion with Mr. Elliot, obtained the possession and continued in the possession of the Ashuelot Railroad, upon terms that were unjust and unfair, discriminating greatly in favor of the Cheshire and against the Ashuelot road. One great question was, whether the Cheshire Railroad should be held to account at all to the plaintiffs; another (in case they were held to be thus liable) must have been, the basis upon which the account should be taken.
The very cautious and painstaking judge who tried the cause made a report of certain facts found by him upon the evidence, referring several questions of law to the full bench for determination, and recommending (in case those questions should be determined in the way they afterwards were) the appointment of a master to state the accounts upon the basis of the facts found and reported by him at the trial. Upon the question of fraud, his finding was adverse to the plaintiffs. He says, — "The plaintiffs claimed at the trial that the contracts between the trustee and the Cheshire Railroad were collusive and fraudulent; * * * but I find that no such collusion or fraud was proved." He also found that "On October 1, 1864, it was provided between Elliot as trustee, and the lessees, that the contract should continue in force until it should be terminated by a notice from either party to the other, with this modification [which he states]. This contract continued in force till January 1, 1868, when a new one *Page 416 
was entered into for one year," c. And his conclusion, embodying directions to the master as to taking the account, is stated in terms so clear and explicit as scarcely to leave room for doubt that he must have understood the question he was thus deciding to be, so far as concerned the Cheshire Railroad, the main question in the case. He says, — "It did not appear that the accounts between the trustee and the Cheshire Railroad have been settled in accordance with said several contracts, although payments have from time to time been made thereon; and all questions in relation to the settlement of said accounts are referred to the master, with instructions to require the Cheshire Railroad to account for all sums remaining in its hands, in accordance with the terms of said contract."
Some time after this report was printed and distributed to the court and counsel, an application was made on behalf of the Cheshire Railroad to Judge HIBBARD to amend it, by stating, in effect, that the memorandum of October 1, 1864, not having upon it the signature of the Cheshire Railroad, was simply a proposition by the trustee not accepted by the railroad. It appears that, after consideration and all examination of his minutes of the trial, Judge HIBBARD refused to make such an amendment. In his letter to counsel for both sides, of June 14, 1874, he says, — "Mr. Wheeler's amendment, to the effect that the agreement of October 1, 1864, was only a proposition not accepted by the Cheshire Railroad, is not borne out by my recollection or minutes."
It does not appear that any application for a rehearing upon this point was made to the court either at the June term or the August adjourned term, when the questions of law were settled and a master appointed, nor at the December term following; but at the hearing before the master, the Cheshire Railroad offered to prove that from 1864 to 1868 there was no lease in force, c., thus raising questions which, it is admitted, the master could not go into without disregarding the unequivocal terms of his instructions from the court. Upon the coming in of the master's report, at the March adjourned term, 1875, this application for a rehearing was, so far as I am aware, for the first time made to the court.
I have carefully examined all the papers in the case from the beginning — all the evidence and arguments of counsel — and my conclusion is, that the motion ought not to be granted.
In the first place, it seems to me impossible for any one who knows Judge HIBBARD to doubt that he did examine and consider the question with scrupulous care before he undertook to decide it as he did. That he must have understood the importance of the decision is clearly shown by the report, because he says that the accounts had not been settled in accordance with the contracts; — and even if through inadvertence he had found so important a fact without a proper hearing, it is inconceivable that, when his attention was called to the matter, as it was by counsel in June, he should have refused the proposed amendment without himself suggesting a further hearing. The inference is *Page 417 
very strong, to say the least, that he must have understood that the question was fully and sufficiently tried by him in January before.
Again: there are pretty strong probabilities, as it seems to me, pointing the same way. There is some evidence that it was claimed at the trial that the Cheshire Railroad should not be held to any accounting in this proceeding, but that the bill as to them should be dismissed. But however that may be, it would seem to be morally certain that counsel, of the experience and sagacity of those who represented that corporation, must have foreseen that such accounting might be ordered. If that were done, then the question would be, upon what basis should the account be taken? Should the contracts be all thrown aside on the ground of fraud, or on the ground that Mr. Elliot, as trustee in possession of the Ashuelot Railroad, could not contract with himself as a stockholder and director in the Cheshire Railroad, and the account be taken on the basis that the Cheshire Railroad had been for a long time operating and taking the profits of the Ashuelot Railroad without rights and in their own wrong? or should it be taken on the basis of some contract or contracts? If in the latter way, what were the contracts that should govern? These were clearly the great questions, so far as the Cheshire Railroad was concerned, at the trial; and how they could have escaped the vigilance of counsel is hardly less difficult to imagine than it is to believe that the court decided them without a hearing.
It is certain that the lease of January 1, 1861, with the memorandum of October 1, 1864, written upon it by Mr. Elliot, and signed by him, was introduced in evidence, and was before the court when the decision was made. It is certain that this lease, with that memorandum upon it, was in the hands of the Cheshire Railroad during the years when it is claimed no contract was in force. It is certain that the Cheshire Railroad, having in their hands the lease and memorandum, continued to possess and operate the Ashuelot Railroad the same as before. These facts, at least, must have appeared at the trial, and it cannot be denied that they furnished some evidence upon which the finding of the court, as to the contract under which the business was done from 1864 to 1868, might legally be based.
Mr. Wheeler, in his statement, says, — "The claims of the plaintiffs were, in substance, as I recollect them, that the Ashuelot road had been rented to the Cheshire road for a much less sum than it was worth, through the bad faith of the trustee and the connivance and aid of the directors of the Cheshire road; that there was fraud and collusion between those parties, by which the Ashuelot road had been wronged and deprived of its just income and fair earnings." All the evidence shows that this claim was made and strongly urged by the plaintiffs at the hearing. It is obvious that in no way could such a claim be more effectually met and answered than by showing the existence of a fair and equitable contract, whereby the trustee was to be paid a just and reasonable compensation for the use of the Ashuelot road. It cannot be said that the memorandum of October 1, 1864, was introduced by the Cheshire Railroad for that purpose. There is, *Page 418 
indeed, evidence that Mr. Wheeler objected to its admission, on the ground that it was not signed by his clients. It was however admitted, and its hearing on the question of fraud is so obvious and direct as to afford a strong presumption that it must have had great weight in the mind of the judge in determining that question as he did.
I do not consider it necessary to comment at length upon the evidence. It need not be said that it all comes from sources quite above the suspicion of any intentional misrepresentation; and the discrepancies of recollection which appear in it are no greater than might be expected from gentlemen actively engaged, as most of these witnesses were, in conducting the trial, and who could not avoid looking upon what transpired through the atmosphere of their personal or professional interest. I must say, however, that the impression which the evidence, as a whole, leaves upon my mind, is the same as that already stated arising from a view of the situation of the case, and the probabilities therefrom arising as to what was done.
I think it must be regarded as established by the evidence, that the statement marked "A," made up by Mr. Stuart from the books in his custody, was introduced at the trial by the Cheshire Railroad as an exhibit of their claim respecting the state of their account with the trustee, in case that matter should be gone into; and I think the fair balance of evidence is, that this statement was claimed to derive its force and validity from the adjustment concluded between Mr. Edwards and Mr. Elliot in the autumn of 1868.
Now these claims were directly contradictory to the position that the accounting should be according to the memorandum of October 1, 1864; and if the basis upon which that accounting should be made was not under consideration, and the question whether the memorandum of October 1, 1864, was in force for the four years following was not distinctly and clearly before the court, it is not easy to understand why such evidence was introduced, and such claims made on behalf of the Cheshire road.
I think it must also be taken as proved, that Mr. Stuart was inquired of and testified as to whether an account of the expense of running the Ashuelot road was kept prior to 1868; and this has a tendency, more or less direct, to show that the question whether the parties understood that they were acting under the lease and memoranda during that time was raised and considered.
Considering these things together, — namely; the fact that the court distinctly found and reported that the Ashuelot road was operated by the Cheshire road during the Years 1864, '65, '66, and '67, under the lease and memorandum; the fact, that the question how it was operated was manifestly the vital question, in case the Cheshire Railroad should be held to account; and the further fact, that evidence was introduced at the hearing bearing both ways on that question, — I am unable to hesitate in coming to the conclusion that the question was tried and intelligently passed upon by the court at the hearing in January, 1874. *Page 419 
Has it been made to appear that a rehearing of this point, either by the master or the court, would probably change the result, and that injustice will be done unless such rehearing be granted?
Mr. Murdock, the president of the Cheshire Railroad, says, — "Unless these matters can be opened, and the facts as to the leases, the terms they were in operation, and the adjustments between the Cheshire Railroad Co. and the trustee, great injustice will, in my judgment, be done to the Cheshire Railroad, and they will be subjected to heavy pecuniary loss, and that without an opportunity of being fully heard." Mr. Wheeler says that at the hearing before the master the Cheshire Railroad was prepared to prove, and offered to prove, certain facts with respect to the leases and operation of the road, and the true state of accounts between the railroad and the trustee, which in his belief would have shown that the sum due the Ashuelot road or the trustee was less by many thousands of dollars than the sum found by the master.
In determining how much weight ought to be given to these general statements and expressions of opinion, I have found myself embarrassed by the fact that we have not been informed exactly what it is that the Cheshire Railroad claim. It is true, the claim in general terms is, that they  should be held to account for what is justly and fairly due from them for the use of the road, and no more; but I do not understand from the evidence that it is now claimed absolutely that the accounting should be on the basis of the adjustment of 1868, — that is, that the yearly expense of running the road for 1864 and 1865 should be called $24,000, and for 1866 and 1867, $30,000; — and whether it is claimed that there should be an estimate by the master or the court of the expense of running the road for those years, and the Cheshire road be held for what remains of the gross earnings after deducting such estimated expense, is not clear from the evidence.
The injustice which it is claimed has been done to the Cheshire Railroad by the finding of the court consists in the fact that there has been no full hearing as to the length of time the Ashuelot road was run under each agreement, when and how long it was run without any written agreement in force, c.; but I have not found in the evidence any specific statement of this claim in that behalf, and I think it may fairly be said that they rest now upon a general allegation that the amount found due by the master is much too large, and that the lease ought not to have been found to be in force for the years 1864, 1865, 1866, and 1867. It is certain that if this matter were to be opened at all, it must be fully opened, for the question whether the conduct of the parties amounted to a legal or actual fraud upon the rights of the Ashuelot Railroad, or the stockholders in that corporation, is manifestly so intimately connected with the question of whether the lease was in force, that palpable injustice would be done by allowing a partial inquiry to be gone into, or by allowing any inquiry under restrictions that would discriminate in favor of one party and against the other.
It seems to me that, looking at the whole matter so far as it appears before us at the present time, there are several things that tend *Page 420 
strongly to  show that injustice has not in fact been done, and that a rehearing ought not materially to change the result.
I shall premise the few observations I have to make on this point by a remark which justice both to Mr. Elliot and the Cheshire Railroad may require, — and that is, that the moral complexion of their conduct may be, and probably is, much modified by the fact that they supposed the mortgage to be, in effect, foreclosed, so that Mr. Elliot owed no duties except to the holders of the bonds. How far that fact should be given weight in determining the equitable rights of the parties is another question. I suppose it can not be contended that the legal rights of these plaintiffs are to be affected by that belief, which, in the event, turned out to be unfounded. Further than that we need not now inquire.
Guarding myself by this remark against misconstruction, I say that the fact that Mr. Elliot during all those years was a director in the Cheshire Railroad is to my mind one of grave significance, if not of controlling force. The plaintiffs do not now, as I understand it, claim that any contracts made after he became such director should be set aside for that cause; otherwise I confess I do not see how they could be sustained. But here was a contract originally made, and modified in some particulars by two indorsements, before he became a director in the Cheshire road, and under which that corporation entered into possession of the Ashuelot road. That possession was continued after Elliot became a director, and the original contract remained all the time in the hands of the Cheshire road. The modification made by the memorandum of October 1, 1864, was slight. It was in favor of the Cheshire Railroad, and was made and signed by a director in that corporation. The lease was not cancelled nor given up, and the Cheshire road continued to control and use the Ashuelot the same after as before. Here is evidence, as it seems to me, of all understanding by the parties that the Ashuelot road should be run under the contract, quite too strong to be overcome by anything that has been laid before us in the evidence upon this application, or suggested in the very able arguments of counsel for the Cheshire Railroad.
When the original lease was executed, January 1, 1861, before Mr. Elliot became a director in the Cheshire Railroad, and before the act of the legislature to foreclose the mortgage, it was the judgment of the parties that the Cheshire Railroad might and should pay for the control and use of the Ashuelot forty per centum of its gross earnings; and after an experiment of six months, and still before the election of Mr. Elliot as a director in the Cheshire road, or the passage of the bill to foreclose the mortgage, it was thought, as appears by the memorandum of July 1, 1861, that a suitable arrangement would be that the Cheshire road should take the first $12,000 of the gross earnings of the Ashuelot, the Ashuelot the next $6,000, and the overplus be divided equally between the two roads.
In 1861 the gross earnings of the road are reported to have been $17,080.54. In 1864 the gross earnings had a little more than doubled, *Page 421 
being $35,746.23. In 1865 they were $41,211.83. In 1866, $44,701.42. In 1867, $44,012.76. I suppose this increase of the gross earnings must be due mainly to an increase in the business of the road, and it is reasonable to conclude that an increase of the business would be attended with an increase of the expense; but in what proportion the one kept pace with the other we are not informed. The original lease provides for a service of two passenger trains daily each way, and it does not appear that that service has been increased. How much of the increase of the earnings came from passenger traffic and how much from freight, does not appear; nor does it appear how far an increase in the expenses, arising from an increase of the business of carrying goods, ought to be compensated by the increased receipts from that source. The details are not before us. But, without the details, it seems to me there is enough to raise a strong probability, to say the least, that the largely increased receipts of the Cheshire road from the use of the Ashuelot ought to have been, and were in fact, sufficient to cover all legitimate and necessary increase of expenditure called for by the increase of the business of the road. For example: if we take the year 1867 and compare it with the first year the road was run, under the memorandum of July 1, 1861, we find that in 1862 the Cheshire would receive according to the contract $12,000, and the trustee $6,000, leaving a balance of $328.54 to be equally divided, unless it were applied towards the payment of taxes, c. In 1867 the Cheshire road received first $12,000, then one half of $26,012.76, being $13,006.38, making in the whole $25,006.38, or more than double what they could receive according to the terms of the contract in 1862, while the trustee would receive $19,006.38, less whatever sum was paid for taxes and contingent charges under the memorandum of October 1, 1864.
It is true, the statement marked "A" shows the expenses of running the road for the year 1867 to have been $33,092.50, or about three times the average expense for the first two years, — 1861 and 1862, — thus making a net loss, according to that paper, of about $8,000 when the gross receipts were $44,000, while for the first year the road was run under the contract, when the gross receipts were considerably less than half as much, viz., $18,328.54, there was not only no loss, but apparently a gain of $328.54.
I think a fair observation upon these facts is, that, unless the Cheshire Railroad derived some compensating advantage from the control of the Ashuelot that does not appear in this balance sheet, it is improbable in a high degree that they would have gone along so many years, increasing their loss each year, without any definite understanding, and without cancelling a contract which they must have known it was within the power of the trustee to enforce against them. A further observation, which also seems to me just, is, that it is hard to reconcile the conduct of Mr. Elliot in making the arrangement or adjustment of 1868, as to the four preceding years, after things had been permitted to drift on in this way so long, with a jealous and disinterested care for the rights and interests of the Ashuelot road. *Page 422 
These are some of the considerations which have led me to the conclusion that the motion for a rehearing on this point should be denied.
SMITH, J., and * FOSTER, C.J., C. C. concurred.
Upon the question of the legal relation sustained by Mr. Elliot to the Ashuelot Railroad, and the respective rights and obligations of the parties arising therefrom, counsel were heard at length, both by oral and printed arguments.
Among a large number of authorities, Lane, for the plaintiffs, cited Perry on Trusts, sec. 217, 1 Story Eq., secs. 395, 533, Page v. Page,8 N.H. 198, Lyford v. Thurston, 16 N.H. 408, Hill v. McIntire, 39 N.H. 416, Martin v. Moulton, 8 N.H. 504, Perry on Trusts, sec. 207, 1 L. C. Eq. 196. Butts v. Wood, 38 Barb. 188, York  Midland Railway Co. v. Hudson, 19 Eng. L. E. 365, Scott v. Depeyster, 1 Edw. Ch. 513, Verplank v. Mercantile Ins. Co., 1 Edw. Ch. 85, Great Luxemburg Railway Co. v. Magenay, 25 Bev. 586, E. N. A. Ry. Co. v. Poor, 59 Me. 277, Benson v. Heathorn, 1 Young  Cole, ch. 343, Sawyer v. Hoag, 17 Wall. 610, St. James's Church v. The Church of the Redeemer, 45 Barb. 356.
A board of directors cannot make a contract with one of their number, or with a copartnership in which one of their number is interested, that will bind the corporation. Railway Co. v. Poor, 39 Me. 277; Coal Co. v. Sherman, 30 Barb. 563; Ogden v. Murray, 39 N.Y. 202; Bliss v. Matteson, 45 Barb. 22; Imperial Mercantile Credit Association v. Coleman, L. R. 6, ch. 558. The cestui que trust alone may repudiate the trade and take its gains. Jackson v. Van Dalfsen, 5 John. 43, 48; Jackson v. Walsh, 14 id. 407, 415; Wilson v. Troup, 2 Cow. 196, 238; Hawley v. Cramer, 4 id. 719, 744; Jennison v. Hapgood, 7 Pick. 1; Thorp v. Cullum, 1 Gilman 615, 627; Richardson v. Jones, 3 Gill  John. 164, 184; Perry on Trusts, secs. 198, 846.
As to the rule to be applied in computing interest, — Townsend v. Riley,46 N.H. 313; Little v. Riley, 43 N.H. 113; Pierce v. Rowe, 3 N.H. 179; Craven v. Tickell, 1 Ves. Jun. 63; Arnott v. Redfern, 3 Bing. 353; Hummell v. Brown, 24 Pa. St. 310; Swamscott Machine Co. v. Partridge, 25 N.H. 379,380; McIlvaine v. Watkins, 12 N.H. 471, 481; Sedgw. on Dam. 462, 475; Hamilton v. Van Rensselaer, 43 N.Y. 244; Ludwick v. Hunzinger, 5 W.  Serg. 51, 60.