Brief for Respondent — St. Louis & San Francisco R. Co. v. Spiller

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PriLE COPY APR 4 1997

ae WM. R. STANSBURY

et CER

“No. 877.

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1926.

ST. LOUIS AND SAN FRANCISCO RAILROAD COM-

PANY AND ST..LOUIS-SAN FRANCISCO RAIL-

WAY COMPANY, PETITIONERS, ,

V8.

_ B. B. SPILLER ET AL, RESPONDENTS.

ON WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT COURT

OF APPEALS FOR THE EIGHTH CIRCUIT.

BRIEF FOR RESPONDENTS.

4 S. H, Cowax,

Davi A. Murpxy,

V Jonn 8. Leany,

¥ Waurer H. Saunpers,

Attorneys for Respondents.

8. H. Cowan,

512 ds Building,

Fort Worth, Texas.

Davm A. Murray,

II.

ITT.

IV.

SUBJECT INDEX

ES ESTA OPES ee Pe usm. tae haa

Points and Authoritie nt iimipnra Gt Ribot SEs

Es Ree rae eee eee eee ey Te re

The collection of said excess charges by the carriers

from the intervenors in this case was under duress,

or compulsion, the shippers being either required to

pay such illegal exactions, or abandon their business

(1) Seetion V1 of the Commerce Act requires all

railroads to publish their rates so as to secure uni-

formity a ‘ prevent discrimination among shippers,

and as long as the published rate stands, the carrier

must charge it and the shipper must pay it; but the

mere publication of the rate does not determine its

lawfulness under Section I of the act prohibiting un-

just and unreasonable charges. If the published

rates cannot be assailed because ‘‘lawful,’’ then a

Frankenstein has been created to destroy the act .

The railroad company unlawfully exacted from

these intervenors and their assignors the excess

charges, which formed the basis of this action, and

became a trustee in invitum, or ex maleficio, for their

benefit. These trust funds passed into the hands of

the receiver, and therefore should be returned to

these intervenors by a court of equity...

Intervenors without reference to their other equi-

ties are entitled to recover these excess charges

from the new company, the St. Louis, San

Francisco Railway Co., under the rule an-

nounced in Northern Pacific Ry. Co. vs. Boyd,

228 U. S. 481 and other cases to the same

effect under Point I, supra, relating to the right

of a creditor to recover against a reorganized com-

pany, where the stockholders of the original debtor

ee oath inde Set Y ESO I ANS

VI.

InDEXx

company had been given an interest in the reorgan-

ized railway company—in the instant case over $45,-

000,000 in stock without the payment of anything

therefor. This is particularly true where, as in the

instant case, the purpose of the receivership was to

preserve the railroad property as a unit, and it was

sold as such and bought in as such by stockholders

and bondholders of the original railroad company in

order to preserve the continuity of ownership

Intervenors are entitled to recover said excess

charges upon the theory of the rule, underlying the

right of preferential payment of claims for labor,

eS wey s gine va cds cows

A court of equity, as a matter of public policy, will

order said excess charges repaid to the intervenors,

the shippers and representatives of shippers of live

ER Pty ley ele te ns

VII. Neither the reorganization nor the trust fund theo-

ry is inconsistent with or abrogated by the remedy

for the collection of overcharges, prescribed by See-

tion 16 of the Act .........

VIII. The claims of intervenors for said excess charges

IX.

should be paid with interest from the date of their

Eg ee ee

Sinee the entire case is before the court upon the

writ of certiorari, the court will decide the entire

ease. Intervenors are entitled to reeover attorneys’

fees taxed as costs in the litigation in the District

Court of the United States of the Western Division

of the Western District of Missouri, because, pursu-

ant to the order of the court, the receivers of the rail-

road company contested the claims of these interven-

ors in all the Federal District Courts and, thereafter,

by the reorganized railway company for eleven

years. In this way the costs were created, including

attorneys’ fees, which, under Section 16 of the Act,

INDEX

can be recovered as an incident to the enforcement

of an order of reparation by judicial process.

In equity there is no wrong without a remedy.

‘‘Equity will do complete justice.’’ ‘‘ Kquity delights

to do justice and that not by halves.’’ ‘‘Kquity re-

gards substance rather than form.’’ ‘Equity im-

putes an intention to fulfill an obligation.””......

The intervenors are neither precluded by alleged

laches from a recovery of the excess charges (held by

the Commission to be 3¢ per ewt. in excess of a just

and reasonable rate) and condemned by Section | of

the Commerce Act as unjust and unreasonable and

condemned by the common law, nor by any alleged

bar arising out of the interlocutory decree or the

Re SE a Gao gts beds LENO MOS Edy nrc an rn hooey

The decision of the Cireuit Court of Appeals that

intervenors’ claims ‘‘arose’’ after the entry of the

tinal decree, and that they were not precluded by the

final decree and the order of confirmation of sale

from asserting said claims, is correct on this point.

Opinion of the United States Circuit Court of Ap-

peals (R. pp. 755-760) 14 Fed. 2d, 1. c. 291-293, where

the court reviews the contention of petitioners on

this point at length, states the applicable facts, holds

that the purchaser of the property, the railway com-

pany, expressly agreed, under the order of court, to

pay the claims of intervenors if established, and cites

many applicable authorities as to the meaning of the

CONE I ce ae caus. sede baei takers) Cees

T'abLE or Cases CIrep

Affirmed 240 U.S., page 166...

And cases cited, supra, under Points il and Vv

Angle vs. Chicago, St. P. M. & O. R. Co., 151 U. 8.

125, 38 Law Ed. 55 ..

Angle vs. Chicago, St. P. M. & O. R. Co., 151 U.S.1.

IV INDEX

Arkansas Fuel Co. vs. C. M. & St. P. Ry. Co., 16 I. C. C.

OS EE eer ernie eer ee 14, 3

Arkansas Fuel Co. vs. C. M. & St. P. Ry. Co., 16 I. C. C.

Reports 95, 1. ec. 96, 97, 98; (decided Apr. 5, 1909)

Atkins vs. Railroad Co., 3 Hughes 307 ...........

Baer Bros. Mere. Co. vs. D. & R. G. R. R. Co., 233 U. S.

RE ha ree eee

Barksdale et al vs. Finney et al, 14 Grattan 338

Barksdale et al., vs. Finney, et al., 14 Grattan, 338

Barksdale et al. vs. Finney et al., 14 Grattan, 338.

Blake vs. Railroad, 19 Minn. 418....................

Blair vs. Railway Co., 22 Fed. 471... .

Blake vs. Railroad, 19 Minn. 418................ a

ee eS 8 OY ere ee .

Broom on Legal Maxims, 8th Ed., p. 191... ..

Burham vs. Bowen, 111 U. S. 776 an

Coomes vs. Chicago, Milwaukee & St. rr. Ry. Co., 13 I. C,

C. 192, 1. ec. 194 (decided March 10, 1908) ..........

Crescent Coal & Mining Co. vs. Chicage & Kastern

Illinois R. R. Co., XXIVLC.C. p. 149, 1. ¢. 156-158

(decided June 8, MN PRs rn se dig me pe ies

Chapman vs. Douglass, 107 U. 8. 348..........

Central Stock & Grain ‘eed of Chicago vs. Bend-

USS ee er ree

Chapman vs. Douglas, 107 U. 5 ES er eere

Central Stock & Grain Co. vs. Bedinger, 109 Fed. 926..

Central of Georgia Railway ew vs. Paul, 93 Fed.

Rep. 878 (C. C. A,, ME os ot aw 3

Chicago Ry. Co. vs. Howard, 7 Wall. 392, 409, 74 =OUz«

S. 392, 409, 19 L. Ed. 117. hi

Chicago, B. & Q. R. R. Co. vs. Merriam Millard Co.,

gi 8k ee

Chieago R. I. & P. Ry. Co. Vs. Howard, 74 U.S. (7

Wall.) 392, 409 (19 ee Mee.

Central of Seersia Ry. Co. vs. Paul, 93 Fed. 878, 884

(Fifth Cireuit) . Ve

Central Nat. Bank of Baltimore. vs. ‘Connecticut Mutual

Life Insurance Co., 104 U. S. 54, 26 L. Ed. 693

INDEX Vv

City of Litchfield vs. Ballou, 114 U. S. 190, 29 Law

Leia shoawadt ties oak ree Hees etme e® 43

Converse vs. Sickles, 44 N. Y. Supp. 1080 (affirmed in

Se ON oy vcs cna cnevencevecnscongn neues 74

Central — ement Co. vs. Cambria Steel Co., 210 Fed. -

690 . AEM etre es pate ss ied ee eS A he ee

Central Improv coneut Co. vs. Cambria Steel Co., 201 Fed.

"pet gates are earn Serer eC ere ee eee 19

Coal Co. vs. Doran, 142 U. S. Si mai cma sient Maps 7 Re 20

Converse Vs. — 44 N. Y. Supp. 1080 eauiciiais in 161

| pie eee eee ee 20

Co Beismas| ex rel vs. Scott, 112 Ky. 252 ........... 15

Central of Georgia Railway Co. vs. Paul, 93 Fed. Rep. om

es ntanireoeher est nearer devasess ts. 0ne®

Converse VS. Sickles, 44 N. Y. Sup. 1080, affirmed in 161

Se Ay Se ener eer ry ry ok 15

Chicago Ry. Co. vs. Howard, 7 Wall. 392, 409, 74 U.S.

392, 409, 19 L. Ed. 117 ... ae

20 Corpus Juris, p. 21.2... 6.0 ee eee eee 15

a, ) ee ce co 14

TT ht SG Serre ee ee ree ey Cet tr gt Persie 17

Darnell-Taenzer vs. Southern Pacific Co., 221 Fed. 1.

“RSet ea: Pee hp rer eit. 12, 26

Darnell-Taenzer Co. vs. Southern Pacific Co., 221 Fed.

OO | RS Sera are erry 14, 26

Dayton-Goose Creek Railway Co. vs. The United —

ye ee OS oe Ce Gh ok ds be eee Oy eo 15

Doughty vs. Funk, 15 Okl. 643, 84 P. 484, 4 s R. A (N.

26 SS TT eee ree rie tis Rae

Empire State Surety Co. vs. Carroll County, 194 Fed.

593 (U. S. C. C. A., 8th Circuit) hs, REM DD Pee ge

Federal State Bank vs. McFarlin, 257 (U. S. C. C. A. 8th

ON SIO Se ee eee ee et eee ee 47

First Opinion of Judge Sanborn, (R. p. 61) | ae >.

French vs. Capen, 105 U. 8. 5309 ................- oe ea

French vs. Gapen, 105 U.S. 509... «1. ee eee 78

Guardian Trust Company vs. Cambria Steel Company

et al., 210 Fed. 696, 1. c. 721 (C. C. A., 8th Cir.).... 57

Guaranty Trust Company vs. Missouri Pacific Ry. Co.,

238 Fed. 812, 1. c. 814-816

VI Inpex

Guardian Trust Co. vs. Cambria Steel Co. et al., 210 Fed.

tere noe ene rey 16

Guaranty Trust Co. vs. Missouri Pacific Ry. Co., 238

Fed. 812, 1. ¢. 814-16 16

Hale vs. Frost, 99 U. S. 389 ......... cece ee ween 16

Harrigan vs. Gilchrist, 99 N. W. 909 19

Harrigan vs. Gilchrist, 99 N. W. 909............... 1%

Harrigan vs. Gilchrist, 99 N. W. 909 . 15

Ide vs. Trorlicht, Duncker & Renard Carpet Co., 115 Fed.

UR ec is fat any os ees

In re Bogart, Fed. Cas. No. 1596....... - 80

Ins. Co. vs. M. Girr, 263 Fed. 847, L e. 855 20

Kansas City Southern Ry. Co. vs. Guardian Trust Co.,

240 U.S. 164..... 19

Kansas City Southern R. R. Ce. vs. “May, 2 Fed. 2nd

Series, OG Sor et 0)

Love vs. North American Co., 229 Fed. l. ¢. 106. 12

Love vs. North American Co., 229 Fed. 1. ¢. 106. 14

Love, et al. vs. North American Co., et al., 229 F. 103, 106,

Ff ee 3 eee a0)

Love vs. North American Co., 299 Fed. 103, L ec. 107 16

Love vs. North American Co., 229 Fed. 1. ¢. 107 16

Love vs. North American Company, 229 Fed. 1. ¢. 106 33

Love vs. North Amr. Co., 229 Fed. 1.¢. 107......... 68, 69

Levee District vs. Pipe Line, 292 Fed. 474, 1. ce. 480 20

L. & N. R. R. Co. vs. Schloss Sheffield Steel & Iron Co.,

269 U. S. 222, 70 L. Ed. 245. . 12

Louisville Cement Co. vs. Int. Com. Comm., 246 U. 8.

638, 38 S. Ct. 408, 62 L. Ed. 914.

Louisville Trust Co. vs. L. N. A. & C. ‘Ry. Co., 174 U.

674. Se Peg sagas ce ae oe a ~ 37

Louisville &N BR. Co. vs. ieee: Sheffield S. & L. Co., 269

U. 8S. 217, 1. ce. 238, 239, 240 18

ae Trust Co. vs. L. N. A. & C. Ry. Co., 174 U.

674 . ;

Louisville & N. R. Co. vs. Sloss- Sheffield S. & I. Co.,

269 U. S. 217, 1. c. 238, 239, 240....... 75

Macon Grocery Co. vs. Atlantic Coast Line R. Co., 215 U.

S. 501, 30 S. Ct. 184, 54 L. Ed. 300..

Inpex vir

Mathieson vs. Craven, 247 Fed. 1. ¢. 226... eee

Mathews vs. Forslund, 112 Mich. 591................ 74

Matthews vs. Forslund, 112 Mich. 591 _.. 19

Matthews vs. Forslund, 112 Mich. 591 ............ 15

Mercantile Trust Co. vs. St. Louis & San Francisco Ry.

Co., 69 Fed. 193 . ME a Is dk bbe ee Cas hen 14

McDonald vs. Nebraska, 101 Fed. 171, L e. 177-182. . 60

Mercantile Trust Co. vs. St. Louis & San Francisco R. R.

Co., ER Sa ory oy ae —

Mercantile Trust Co. vs. St. Louis & San Francisco ‘Ry.

Co., Ogden et al., Intervenors, 69 Fed. 193 . i

Mercantile Trust Co. vs. St. Louis & San Francisco

ee SS a a ay se kee Sanaawe 33

Mercantile Trust Co. vs. St. Louis & San Francisco

Ry. Co., Ogden et al. Intervenors, 69 Fed. 193.... 74

Mills vs. Lehigh Valley R. R. Co., 238 U. 8. 473... 12

Mills vs. Lehigh Valley R. R. Co., 238 U. 8. 473 . .. 14,25

Moran vs. Moran, 144 Iowa, 451, 123 N. W. 202, 30 L. R. A.

(N.S.) 898. eae Pons hs ak a 80

McDonald vs. Nebraska, 101 Fed. 171, % ¢. .177- 182 16

Montgomery-Web Co. vs. Dienelt, 133 Pa. 585, 19 Atl.

tC cece aes ns Casa ous ceub sd «seas ke erks 38

Morgan vs. Louisiana, 93 U. 8. 217 16

Morgan vs. Louisiana, 93 U. 8. 217.. 68

North American vs. Lamont, 69 Fed. 496 . 16

North American vs. Lamont, 69 Fed. 496... .. Lee

Northern Pacific Ry. Co. vs. Boyd, 229 U. S. 481 ...... 15

Northern Pacific Ry. Co. vs. Boyd, 177 Fed. 804 —

Northern Pacifie Railway Co. vs. Boyd, 228 U.S. 481 .. 19

Northern Pacific Railway Co. vs. Boyd, 177 Fed. 804 19

N. Y. Guaranty Trust Co. vs. Railway Co., 83 Fed.

has Siok Gre ibie th Biece pala cca» gk ie 16

Olrichs vs. Williams, 15 Wall., 291 L. Ed., |. ¢. 224 . 14

Opinion of the U. S. Cir. Court of Appeals (R. pp. 749.

754) . 19

Opinion of U. 8S. Cir. Court of Appeals (R. pp. 762- 63)

14 Fed. (2d) 284, 1. ¢. 294. . 12

Pennsylvania R. R. Co. vs. International Coal Mining

Co., 230 U. S. 184

VIII INDEX

Peters vs. Bain, 133 U. S. 670, 33 L. Ed. 696... 0

Phillips vs. Grand Trunk Ry. Co., 236 U. S. 662. 12

Phillips vs. Grand Trunk Ry. Co., 236 U.S. 662 . 14, 25

Pom. Eq. Jur., Vol. 1, Sec. 423 . pas 14

Poor Grain Co. vs. Chicago, Burlington & Quiney R. R.

Co., 12 I. C. C. Rep., 418, 1. ¢. 421-423, 425 (decided

July 8, 1907), and . 12

5 Pomeroy’s Eq. Jur., See. 35 . 19

3rd Pom. Eq. Jur., Sec. 1055 . Ter 14

Report of Special Master (R. pp. 152- 166 ; 168- 173) 19

Rice vs. Durham, 91 Fed. 1. c. 434...... re 78

Rice et al. vs. Durham Water Co., 91 Fed. 434 20

Richardson vs. New Orleans, 102 Fed. 782... 33

Richardson vs. N. O. Debenture Redemption Co., 102 Fed

lL. c. 782 . “ 14

Robinson vs. Baltimore & Ohio R. R., 999 U. S., 506. 31

R. R. Co. vs. Lockwood, 17 Wall. 379 . 12

R. R. Co. vs. Lockwood, 17 Wall. 279 . 16

Seullin Steel Co. vs. North American Co., 255 Fed.

06 (U. B.C. C. A, Sh Civeuit) ..............-. 48

Sections I, VI, [X and XXII, Acts to Regulate Commerce 14

Sections I, VI, [IX and XXII, Act to Regulate Commerce 12

Section 15-A of the Act to Regulate Commerce . . 15

Smith vs. Mottley, 150 Fed. 266 (6th Circuit) 1. c. 268 42

Spiller vs. St. Louis & San Francisco R. R. Co., Opinion of

the U. S. Cir. Cowrt of Appeals (R. pp. 764, 767) 14

Fed. 2d, 284 1. c. 295, 296 17

Southern California Railway Co vs. Rutherford, ef al.,

GS Wedd, b. @. FOU-Oe cc . cc ceccsessess 14

Southern Pacifie Co. vs. Daradil- Taenzer Lauber Co. ef

er a Or) ped ae ds ues CaRek oo CUT 14, 24

Southern Pacific Co. vs. Darnell-Taenzer Lumber Co.,

et al., 245 U. S. 531... ; 12

Southern Pacific Co., et al. vs. Darnell, 245 U. Ss. 531, 38

S. Ct. 186, 62 L. Ed. 451 .

Southern Pacific Co. vs. Goldfield Consolidated Milling

& Transportation Co., 220 Fed. 1. ¢. 18

Southern Pacific Co. vs. Bogert, 250 U. S. 482, 1. ¢. 488-

89-90; 61 L. Ed. 1107

—

Southern Ry. Co. vs. Carnegie, 76 Fed. 496. ie

Southern California Ry Co. vs. Rutherford, “et al.,

(Cireuit Court, Southern District of California,

June 30, 1894), 3. eas. & Meer

Southern California Railway Co. vs. Rutherford, 62 Fed.

797 . ah epined sees a

Southern Railway Company vs. Carneate, 76 Fed. 496

So. Pac. Co. vs. Adjustment Co., 237 Fed. 1. ¢. 962 .

So. Pac. Co. vs. Adjustment Co., 237 Fed. 1. ¢. 962

Spiller vs. St. Louis & San Francisco R. R. Co., et al.,

Opinion of U. S. Cir. Court of Appeals (R. pp. 760-

764) 14 Fed. (2d) 284, 1. ¢. 293, 295 .

Spiller vs. St. Louis & San Francisco R. R. Co. et al.

State ex rel Barker vs. R. R. Co., 216 Fed. 564 ........

Sugar Refining Company vs. Fancher, 145 N. Y. 552,

l. e. 561

Sugar Refining Company vs. Fancher, 145 N. Y. 552,

a eat a Pee eR et oe peg nn a ee ee es

Sugar Refining Co. vs. Fancher, 145 N. Y. 552, 1. e. 561

Sweet vs. The Montpelier Savings Bank & Trust Co., 69

Kan. 641 (77 Pac. 538)

Sweet vs. The Montpelier Savings Bank & Trust Co.,

69 Kan. 641 (77 Pac. 538)... See leg et ee

Swift & Co. vs. Black, 224 Fed. 20. .

Swift & Co. vs. Black Panther Oil & Ges Co., 294 Fed. 20

Sweet vs. Montpelier Savings Bank & Trust Co., 69 Kan.

641.

Terre Haute and I. R. Co. vs. Cox, 102 Fed. Rep. 825

(7th Cireuit) . PC aca bans ee eee

Texas & Pacific R. R. Co. vs. Abilene Cotton Oil Co., 204

me a. 2h seeue. Sheer es <r x cedh ee Se eReES

Toledo A. A. & N. N. Ry. Co. vs. Penn. Co. et d. 54 Fed.

746, 1. e. 751-752 . AES AE he ea PE Ba i gt Fen

Toledo, A. A. & N. M. Ry. Ce. vs. Penn. Co. et al., 54

Fed. ee SS Seer rer reer ies

Trader’s Bank vs. Fraser, 162 Mich. 315, 1. ¢. 318

Trader’s Bank vs. Frazer, 162 Mich. 315, 1]. ¢. 318.....

Traders Bank vs. Fraser, 162 Mich. 315, 1. ¢. 318

INDEX

x Inpex

T. & P. R. R. Co. vs. Abilene Cotton Oil Co., 204 U.S. 426,

2 EEE Riso ail A Te na 12, 26, 28

Union Trust Co. vs. Morrison, 125 U. 8.591 16

United States vs. Heth, 3 Cranch, 398, 413 (2L. Ed. 479) 9

U. S. & Mexican Trust Co. vs. Kansas City M. & O. Ry.

Co., et al, 240 Fed. 505 17

U. 8. Bank vs. Bank of Washington, 6 Pet. 17; 8 L. Ed.

299

Van Meter vs. Coal Mining Co., 88 Iowa, 92, 98, 55 N. W.

NR ha Sarr ee eR res Nee 80

Walden vs. Bodley, 14 Pet. 164,10 L. Ed. 398 16

Walden vs. Bodley, 14 Pet. 164,10 L. Ed. 398 457

White vs. Delano, 270 Mo. 1.¢.38 17

White vs. Delano, 270 Mo. 216. . ays . 33

White vs. Delano, 270 Mo. 216. . 14

Williams vs. Young, 81 Atl. 1,118... ...... | 15

Williams vs. Young, 81 Atlantic 1118... ss—i«s 74

Williams vs. Young, 81 Atlantie 1118 2c

No. 577.

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1926.

ST. LOUIS AND SAN FRANCISCO RAILROAD COM-

PANY AND ST. LOUIS-SAN FRANCISCO RAIL-

WAY COMPANY, PETITIONERS,

VS.

E. B. SPILLER ET AL, RESPONDENTS.

ON WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT COURT

OF APPEALS FOR THE EIGHTH CIRCUIT.

STATEMENT.

The trial court sustained exceptions to those parts of the

Master’s report which were inconsistent with the views ¢<-

pressed in his memorandum opinion. The facts stated by the

trial court in his memorandum opinion are in harmony with

the facts found by the Master. All of the findings of fact

by the Master are consistent with the memorandum opinion.

The trial court disagreed with the Master only in his con-

clusions of law. Therefore, no exceptions were sustained to

the findings of fact of the Master and those findings of fact

constitute the facts in the case in this court. The Circuit

SPORE a athe

Court of Appeals adopted the findings of fact of the Master

and state: ‘‘The findings of the Master and the statement

by the trial court have little in dispute as to the controlling

facts.’’ The statement of facts in the brief for petitioners

(R. pp. 1-3 & 7-20) omits facts essential to a fair determina.

tion of the case, which are:

(1) In the original creditor’s bill, filed in this case, on

May 27, 1913, by the North American Company, a general cred-

itor, it was averred (R. pp. 6-7) that it was necessary to main.

tain the railroad property as a unit and the prayer of the bill

(R. p. 9) was to that effect. On the same day, (R. p. 11)

the railroad company appeared by its counsel and by motion

consented to the order appointing receivers for it, who under

said order took possession of all of the property of said rail-

road company for the benefit of its creditors, as their inter-

ests might appear, and so operated said road.

(2) On April 3, 1914, a like bill was filed by another

ereditor, containing similar averments as to the necessity for

maintaining the railroad property as a unit and a similar

prayer, which bill was consolidated with the above.

(3) On May 22nd, 1914, the trustees under the general

lien mortgage of the railroad company, dated August 27, 1907,

filed a bill for foreclosure with like averments as to the neces-

sity for maintaining the railroad property as a unit and a like

prayer.

(4) On July 9, 1914, the trustees of the railroad com-

pany’s refunding mortgage, dated June 20, 1901, filed a bill

for foreclosure, with like averments as to maintaining the

railroad property as a unit and a like prayer.

(5) The four above suits, in all of which the same re-

ceivers had been appointed, were consolidated into a single

suit, entitled ‘‘ North American Company, Complainant, v. St.

Louis and San Francisco Railroad Company, Defendant, No.

4174, Consolidated Cause Final,’’ and the final decree of fore-

closure and sale was rendered in this consolidated cause and

in each of its constituent causes (R. p. 591).

(6) Until the receivers were appointed, under the bills

filed on May 22, 1914 and July 9, 1914, by the trustees re-

spectively under the general lien mortgage and under the

refunding mortgage, the income of the road was not im-

pounded for the benefit of the respective bondholders. By

interlocutory decree, the income was impounded May 29, 1914.

(7) The bi-monthly reports of the Special Master, ap-

pointed in the original cause and subsequently in the con-

solidated cause, are found (R. pp. 559-579) and cover the pe-

riod from May 28, 1913, (the day after the appointment of

the receivers under the original bill) to April 30, 1914.

An analysis of the first bi-monthly report (R. pp. 565-6)

will show that the receivers collected on accounts ‘‘acerued

prior to the appointment of receivers and collected under re-

ceivership,’’ the sum of $2,245,153.79 from May 28, 1913 to

June 30, 1913 beginning with the cash balance, on May 27,

1913, of $603,849.96, and during the same period collected

from accounts ‘‘acerued and collected under receivership’’

the sum of $3,324,632.06, or a total from both sources of $5,-

569,785.85; whereas the disbursements (R. p. 519) show dis-

bursements made on account of debts acerued, prior to the

appointment of receivers, to the extent of $3,985,121.02, and

disbursements for debts accrued under the receivership, $950,-

821.11, or a total disbursement of $4,935,942.13, leaving a cash

balance on June 30, 1913, of $633,843.72.

It will be observed under the above table (R. pp. 565-6)

that, during the period from May 28, 1913 to June 30, 1913,

from the sums of money collected from accounts, both prior

and subsequent to the receivership $3,985,121.02 was dis-

bursed to pay debts accrued prior to the receivership, but

an analysis of this disbursement will show that $3,976.03 was

paid out for material and supplies. Taxes, $584,526.58,

Interest coupons $1,419,427.43. Interest rental $93,548.39, or

a total of $2,101,478.43, all paid on debts accrued prior

to appointment of receivers and every cent of which enured

to the benefit of the bondholders of the road. Deducting this

amount from the $2,245,153.79 collected from accounts, ac-

cruing prior to the receivership, the balance is $143,675.36.

An analysis of the five succeeding bi-monthly reports

will show large cash balances ranging from $1,964,309.60,

on August 31, 1913 (R. p. 569), to $990,612.74 on April

30, 1914 (R. p. 579) with the smallest cash balance $681,

163.58, on October 31, 1913 (R. p. 571). An analysis of

these bi-monthly reports will show millions of dollars diverted

from income for the benefit of the bondholders, prior to their

impounding said income under said two bills above referred

to. As well stated in the case of Love v. North American

Company, (C. C. A. 8th Cireuit, December 4, 1915) 229 Fed.

103, 1. ce. 106:

‘*When the receivers (of the Frisco Railroad Co.)

were appointed, they received from the Frisco Co. as

shown by their first bi-monthly report over $600,000.00

in cash. It also appears that, eliminating all items ex-

cept current receipts and current expenses, the earn-

ings and operating expenses of the Frisco Company,

from May 27, 1913 to April 30, 1914 (all prior to any

action by the bondholders), were as follows:

Earnings $48,380,219.06

Operating expenses 35,449,360.17

Leaving a balance over

operating expenses of $12,930,858.89”

The court then asked (1. c. 106) to whom the excessive

freight charges, paid by Love, belonged, and, after dis-

DEN AN AEE MET TINY INN ZF Nt RSNA RAN INT 5 ALL ONTARIANS ROL PG GTR RA

cussing the matter and pointing out the identity of the

money, 80 collected, as having passed into the treasury

of the company and into the hands of the receiver, added:

“That money came into the hands of a court of

equity. What ought such a court to have done with it?

Surely it could do nothing but direct that it be returned

to the shippers to whom it belonged. It having been

paid to the bondholders, or for permanent betterment

of the property for their benefit through the agency

of a court of equity, that court, as a court of conscience,

ean do no less than direct its restoration’’ (italics

ours).

(8) The very purpose of the reorganization scheme

under this receivership was to perpetuate the ownership of

the railroad company by its original stockholders and bond-

holders, which is shown by the plan of reorganization, set

out in full in the record, prepared by the reorganization

managers, J. & W. Seligman & Company and Speyer &

Company, bankers, dated November 1, 1915 (R. pp. 341-

433).

The ‘‘Reorganization Agreement’’ included in the re-

organization plan (R. p. 402) recited an agreement, dated

November 1, 1915, ‘‘between J. & W. Seligman & Co., and

Speyer & Co., respectively co-partnerships, hereinafter call-

ed the reorganization managers, parties of the first part,

and holders of the bonds, trust certificates and stock herein-

after mentioned, who shall become parties to this agree-

ment as hereinafter provided, their successors and assigns,

and the holders of certificates of deposit issued under or

subject to the plan, hereinafter collectively called depositors,

parties of the second part,’’? and this agreement (R. p.

403), set out what bonds, trust certificates and_ stock

might be deposited under said plan.

Tae Le OR omg

Rises

This plan of reorganization was submitted to the

Public Service Commission of the State of Missouri (R,

pp. 467-481) and the opinion of the Commission is set out

in the record (R. pp. 482-536) and supplemental report

of the Commission (R. pp. 536-548). The Public Service

Commission of Missouri made another report in this

matter (R. pp. 548-554).

This plan and these opinions show a typical case

of railroad reorganization for the benefit of its original

stockholders and bondholders, and the statement of Judge

Hook, administrative judge in the Missouri-Pacific Rail-

road receivership, in case of Guaranty Trust Co. y. Mo,

Pac. Ry. Co., 238 Fed. 815, as to the real character of

these reorganizations effected through federal receivership,

is very pertinent.

(9) Under the final decree of foreclosure in the

consolidated suit all the property of the Railroad Company

was sold in four separate parcels, as appears from said

Record (R. pp. 615-16 Final Decree) and from an indenture,

dated September ...., 1916, between Thos. T. Fauntleroy,

Special Master, appointed to make the said sale, the St. Louis

& San Francisco Railroad Company, party of the second part,

its three receivers, parties of the third part, and the

trustees under the general lien mortgage of the Rail-

road Company dated August 27, 1907, parties of the fourth

part (R. pp. 700, 703, 705). The first two sales were under

collateral trust agreements, covering a large amount of

securities, and each sale was made for the sum of $10.00.

The third sale was under a collateral note and was made

for the sum of $600,000.00, and the fourth sale was of all

the remaining property of every character and description

of the Railroad Company as an entirety, for the sum of

$45,700,200.00, which consideration was paid hy turning

over to the Special Master, to be cancelled or credited,

as provided by said final decree, bonds and coupons to be

paid out of the proceeds of sale on distribution thereof,

as set forth in said final decree, or the Special Master

was authorized to accept a receipt for a sufficient amount

of said bonds to cover said consideration, and said bonds

were delivered accordingly as per said receipt (R. pp.

682-3 Order Confirming Sale).

Under these sales the continuity of ownership, care-

fully worked out in the plan of reorganization, was pre-

served and the stockholders of the old company, as found

by the Special Master in his report in this case (R. p.

160), received $45,650,000 of the stock of the new com-

pany under the reorganization plan, as representing their

equity in the properties without the payment of anything

by them therefor, which finding is adopted in the opinion

"tt Atanet af Anneals (R. pp. 747, 767).

ADDITION 6 VARAGRAZH (9)

#0 offer o: any kind was made to these interven

Twas their claim listed the ~

by the final decree, ps e Reerer oot Se

"It 1s conceded in the record that in

terveners

no actual notice or knowledge of the interleou-

Ny decrees, or of the final Gecree, until

in, ak? mion Of C.Gsis, Rede 752, 14 Fed,

reorganized Railway Company, largely in excess or the

claims of intervenors.’’

The Special Master’s Report (Ree. p. 163) shows that

there was not a year, from June 30, 1906, to May 27, 1913,

the date of the consent receivership, except the year end-

This plan of reorganization was submitted to the

Public Service Commission of the State of Missouri (R.

pp. 467-481) and the opinion of the Commission js set out

in the record (R. pp. 482-536) and supplemental report

of the Commission (R. pp. 536-548). The Public Service

Commission of Missouri made another report in this

matter (R. pp. 548-554).

This plan and these opinions show a typical case

of railroad reorganization for the benefit of its original

stockholders and bondholders, and the statement of Judge

Hook, administrative judge in the Missouri-Pacific Rail-

road receivership, in case of Guaranty Trust Co. v. Mo.

Pac. Ry. Co., 238 Fed. 815, as to the real character of

these reorganizations effected through federal receivership

is very pertinent.

(9) Under the final decree of foreclosure in the

consolidated suit all the property of the Railroad Comr---

was sold in four separate »--

Daas , ow”

’

Th etal -. «su was made

for tue sum of $600,000.00, and the fourth sale was of all

the remaining property of every character and description

of the Railroad Company as an entirety, for the sum of

$45,700,200.00, which consideration was paid by turning

over to the Special Master, to be cancelled or credited,

as provided by said final decree, bonds and coupons to be

paid out of the proceeds of sale on distribution thereof,

as set forth in said final decree, or the Special Master

was authorized to accept a receipt for a sufficient amount

of said bonds to cover said consideration, and said bonds

were delivered accordingly as per said receipt (R. pp.

682-3 Order Confirming Sale).

Under these sales the continuity of ownership, care-

fully worked out in the plan of reorganization, was pre-

served and the stockholders of the old compzeny, as found

by the Special Master in his report in this case (R. p.

160), received $45,650,000 of the stock of the new com-

pany under the reorganization plan, as representing their

equity in the properties without the payment of anything

by them therefor, which finding is adopted in the opinion

of the Cireuit Court of Appeals (R. pp. 747, 767).

(10) ‘‘It is established by the record here that, at

all times after the excessive freight charges were col-

lected and down to the receivership, the Railroad Company

had in its treasury money in excess of the claimed over-

charges, and that it turned over to the receiver some $300,-

000.00’" (Opinion of the U. S. Cir. Ct. of Apps. R. p.

747).

The court found as a fact (Ree. p. 747) that in ad-

dition to this $300,000.00 ‘‘a large amount of cash (shown

by the record to be over $5,000,000.00 (Special Master’s Re-

port, p. 165)) was also turned over by the receivers to the

reorganized Railway Company, largely in excess of the

claims of intervenors.’’

The Special Master’s Report (Ree. p. 163) shows that

there was not a year, from June 30, 1906, to May 27, 1913,

the date of the consent receivership, except the year end-

FE OEE PONS

ing June 30, 1908, when the operating income exceeded op-

erating expenses, including taxes, by $9,944,600.89, that

the operating income of the Frisco Company did _ not

exceed its operating expenses, including taxes, by over

$11,000,000.00 (R. p. 163).

The Special Master also finds (Ree. p. 163) that the

operating income of the Frisco Railroad Company from

June, 1906, to May 27, 1913 (the date of the consent re-

ceivership), was over $92,000,000.00; that, during the re-

ceivership, the operating revenues largely exceeded the

operating expenses, including taxes. ‘‘The receivers turned

over to the Railroad Company (the new company) over

$5,000,000.00, after paying out large sums of money from

operating income as interest on bonded indebtedness and

for betterments to the road and to the equipment, and for

the purchase of new equipment’’ (Rec. p. 186).

(11) On February 21, 1921, Judge Sanborn sitting in

the United States District Court after full argument (the

attorneys for the Frisco Railway Company, opposing leave

to intervene) entered an order (R. p. 13) allowing E. B.

Spiller, et al., to intervene in said consolidated cause and

rendered the following memorandum opinion: On Feb-

ruary 12, 1921 (Ree. pp. 13-14) upon which said order, grant-

ing leave was based:

‘**Sanborn, Circuit Judge:

In view of the opinion in Love v. North American

Company, 229 Fed. 123, and of the averments of the

applicants, that on account of the necessity of first es-

tablishing their claims by the findings and orders of the

Interstate Commerce Commission they could not have

enforced them in the foreclosure proceedings at any time

before February 1, 1916, the limit of the time fixed for

presenting claims by the orders in those proceedings,

that they have been diligently establishing these claims

by necessary litigation before the Interstate Commerce

Commission, the District Court and the Supreme Court,

and that they notified the attorneys for the purchasers

at the foreclosure sale before they paid for their pur-

chase of their claims and their intention to press. them,

the court is not persuaded that they are barred in this

court of equity from a presentation and consideration of

their claims either by the orders limiting the time within

which claims were to be presented in the foreclosure pro-

ceedings or by the inexcusable laches of the applicants.’’

Subsequently, on March 10, 1921, Judge Sanborn, after

hearing arguments (the attorneys of the Frisco Railway

Company opposing leave to intervene) permitted supple-

mental intervening petitions to be filed by E. B. Spiller and

E. B. Spiller, et al. (R. pp. 91, 93-94).

When said interventions were tried before the Special

Master, a stipulation as to certain facts was made and filed

as evidence in the case, (Ree. pp. 329-333). Paragraph 1 of

the stipulation relates to the four separate bills filed, under

all of which receivers were appointed, the consolidation there-

of and the entry of the interlocutory decree on May 29, 1914

“impounding the property of defendant for the payment of

its debts and obligations.’”’

Paragraph 2 (Rec. pp. 329-332) is as follows:

“That the gross receipts of defendant during each

year from June Ist, 1906, to May 27th, 1913, exceeded

defendant’s operating expenses during each such year

in an amount in excess of interveners’ claims, including

interest thereon; that during each of said years within

said period defendant expended large sums of money in

making improvements to its lines of railroad and equip-

ment and in paying interest on its bonded indebtedness,

and during each of said years during said period expend-

ed large sums of money in current expenses incurred in

the ordinary operation of its lines of railroad; that

during each of said years within said period defendant

at all times had in cash on hand an amount of money in

excess of said claims of interveners with interest there-

on; that during the period of the receivership of the

property of defendant, to-wit: May 27th, 1913, to Janu-

ary 29th, 1918, the gross operating receipts of said re-

ceivership during each of said years within said period

were in excess of the operating expenses of said receiver-

ship, such excess amounting during each of said years to

more than the total of the claims of interveners herein

with interest; that during the period of said receiver-

ship, said receivers paid vut under orders of said court

large sums of money for improvements and betterments

to the property and equipment of defendant, and large

sums of money to bondholders of defendant by way of

interest on its bonded indebtedness; and during each

year within said period said receivers paid large sums

of money incurred as current expenses for the opera-

tion of the lines of railroad of defendant during said

receivership; that the alleged overcharges constituting

interveners’ demands were not kept by defendant in a

separate or designated account or fund, nor where they

separated from other gross receipts of defendant derived

from the operation of its lines of railroad; that said mon-

eys so collected by defendant were deposited in banks

with other moneys of defendant in defendant’s general

account and said banks had no instructions from defend-

ant to keep said moneys in a specific fund nor to refrain

from paying same out in the ordinary course of business

on defendant’s checks against its funds in said banks,

nor did said banks keep said moneys in a separate ac-

count, and that defendant checked out of its deposits in

each of said banks during each year from June Ist, 1906,

to May 27th, 1913, sums of money largely in excess of

said alleged overcharges, and deposited in said banks

during each of said years sums of money largely in

excess of said alleged overcharges; that upon the ap-

pointment of said receivers, defendant turned over to

said receivers and said receivers received from defend-

ant in cash, the sum of approximately three hundred

thirty-four thousand dollars ($334,000.). The term ‘large

sums of money’ as used in this paragraph II means at

least several hundred thousand dollars.’’

The Special Master in his report (Ree. p. 153) finds

that the Interstate Commerce Commission stated, on

August 16, 1905, its conclusion in its opinion in the case of

Cattle Raisers Association of Texas v. M. K. & T. Co. et al.,

11 I. C. C. Rep. 296, 1. ¢. 352, as follows:

and reaffirmed this ruling, April 14, 1908, 13 I. C. C. 418.

of the United States Circuit Court of Appeals (R. p. 744)

14 Fed. (2d) 284, 1. ec. 285-6.

“It has been found that the advances made dur-

ing the year 1903, as shown by the appendix were

unjust and unreasonable, and that the present rates

are unjust and unreasonable by the amount of said

advances. The defendants should, therefore, be re-

quired to cease and desist from the maintenance of

these rates. * * * All questions of reparation are

reserved.’’

This finding of the Master was adopted in the opinion

POINTS AND AUTHORITIES.

The collection of said excess charges by the carriers

from the intervenors in this case was under duress, or com-

pulsion, the shippers being either required to pay such illegal

exactions, or abandon their business.

R. R. Co. v. Lockwood, 17 Wall. 379.

So. Pac. Co. v. Adjustment Co., 237 Fed. 1. ¢. 962.

Love v. North American Co., 229 Fed. 1. c. 106.

Spiller v. St. Louis € San Francisco R. R. Co. et al.,

Opinion of U. S. Cir. Court of Appeals (R. pp. 762-

63) 14 Fed. (2d) 284, 1. ¢. 294.

Il.

(1) Section VI of the Commerce Act requires all

railroads to publish their rates so as to secure uniformity

and prevent discrimination among shippers, and as long

as the published rate stands, the carrier must charge it

and the shipper must pay it; but the mere publication of

the rate does not determine its lawfulness under Section I

of the act prohibiting unjust and unreasonable charges.

If the published rates cannot be assailed because ‘‘lawful,”’

then a Frankenstein has been created to destroy the act.

Arkansas Fuel Co. v. C. M. € St. P. Ry. Co., 16

I. C. C. Reports 95, 1. ¢. 96, 97, 98; (decided

Apr. 5, 1909).

Following the two earlier cases of

Poor Grain Co. v. Chicago, Burlington & Quincy

R.R. Co., 12 I. C. C. Rep., 418, 1. ¢. 421-423, 425

(decided July 8, 1907), and

Coomes v. Chicago, Milwaukee & St. P. Ry. Co,

13 I. C. C. 192, lL. @. 194 (decided March 10,

1908), where the Commission say:

int

(namel

rate) W

betwee

under £

Fuel ca

where 1

cause t]

ii.

th and insorpera an iliegal

or." Kot rd Ve ps he dso Vode, ++ +d pee FY ar ee eee

or yulbdcntion, ie @ sot validate

(2)

the pro

Section

2a Gi

Ld d reer

. therefore, be collected by the carrier and paid by the shipper,

‘‘Poor indeed would be the plight of shippers who

have been compelled to pay excessive rates under such

interpretation of the law.’’

(namely, that the legal published rate is always the lawful

rate) which altereth not, and both of which cases distinguish

between the legal, or published rate, and the lawful rate valid

under Section I of the act. The commission in the Arkansas

Fuel case applied the reparat'.n rule, settled conclusively in

T. &P.R. R. Co. v. Abilene Cotton Oil Co., 204 U.S.

426, 1. ¢. 442.

Crescent Coal & Mining Co. v. Chicago € Eastern

Illinois R. R. Co., XXIV I. C. C. p. 149, 1. ¢. 156-

158; (decided June 8, 1912),

where the Commission again explodes the fallacy that be-

eause the published rate is legal ynder Section 6, and must,

it must be lawful under Section I. This early construction of

the Act has never been questioned either by the Commission

or this court. Judge Sanborn’s opinion in this case is the

only dissenting note. Also in the following:

Southern Pacific Co. v. P=:rnell-Taenzer Lumber Co.,

et al, 245 U. S. 531.

Mills v. Lehigh Valley R. 2. Co., 238 U. 8. 473.

Phillips v. Grand Trunk Ry. Co., 236 U. S. 662.

Darnell-Taenzer Co. v. Southern Pacific Co., 221

Fed. 1. ¢. 894.

L. & N. R. R. Co. v. Sch:css Sheffield Steel & Iron

Co., 269 U. S. 222, 70 L. Ed. 245.

Baer Bros. Merc. Co. v. D. d R. G. R. R. Co., 233 U.

S. 479, 1. e. 481-486.

Sections I, VI, IX and XXII, Act to Regulate Com-

merce,

(2) Receivers of carriers are specifically made liable to

the provisions of the Interstate Commerce Act. Section 10,

Section 19a, Paragraph (k), Section 20, Paragraph (5).

III.

The railroad company unlawfully exacted from these jp.

tervenors and their assignors the excess charges, which form.

ed the basis of this action, and became a trustee im invitum,

or ex maleficio, for their benefit. These trust funds passed

into the hands of the receiver, and therefore should be re.

turned to these intervenors by a court of equity.

Spiller v. St. Louis € San Francisco R. R. Co., et al,

Opinion of U. S. Cir. Court of Appeals (R. pp.

760-764) 14 Fed. (2d) 284, 1. ¢. 293, 295.

3rd Pom. Eq. Jur., Sec. 1055.

Love v. North American Co., 229 Fed., 1. e. 106.

White v. Delano, 270 Mo. 216.

Mercantile Trust Co. v. St. Louis & San Francisco

Ry. Co., 69 Fed. 193.

Angle v. Chicago, St. P. M. d O. R. Co., 151 U. 8.1.

Chapman v. Douglass, 107 U.S. 348.

Central Stock & Grain Exchange of Chicago vy.

Bendinger, 109 Fed. 926.

Richardson v. N. O. Debenture Redemption Co., 102

Fed., i. ec. 782.

Arkansas Fuel Co. v. C. M. d St. P. Ry. Co., 16 1. C€.

C. Reports 97.

Southern Pacific Co. v. Darnell-Taenzer Lumber Co.

et al, 245 U. S. 531.

Mills v. Lehigh Valley R. R. Co., 238 U. S. 473.

Phillips v. Grand Trunk Ry. Co., 236 U. S. 662.

Darnell-Taenzer Co. v. Southern Pacific Co., 221

Fed., |. c. 894.

Sections I, VI, IX and XXII, Acts to Regulate Com-

merce.

39 Cye. 591.

U.S. Bank v. Bank of Washington, 6 Pet. 17; 8 L.

Ed. 299.

Olrichs v. Williams, 15 Wall., 221 L. Ed., 1. e. 224.

Broom on Legal Maxims, 8th Ed., p. 191.

Pom. Kq. Jur., Vol. 1, See. 423.

Toledo A. A. & N. N. Ry. Co. v. Penn. Co. et al., 4

Fed. 746, 1. ¢. 751-752.

Southern California Railway Co. v. Rutherford, et

al, 62 Fed., 1. e. 797-798.

SIRI LE Pg,

I¥.

Kensna City Terminal dyeCee Ve “entral Union igpust Cee, #71

Vel op poShS, 1 eG ocb2-456,70 Leode, 1028, 1 -eel0Sl-E-3;

Ae IR i aid at ae al oc ee —,

Harrigan v. Gilchrist, 99 N. W. 909.

Sweet v. Montpelier Savings Bank & Trust Co., 69

Kan. 641.

Matthews v. Forslund, 112 Mich. 591.

Barksdale et al v. Finney et al, 14 Grattan 338.

Williams v. Young, 81 Atl. 1118.

Traders Bank v. Fraser, 162 Mich. 315, 1. ¢. 318.

Converse v. Sickles, 44 N. Y. Sup. 1080, affirmed in

161 N. Y. 666.

Sugar Refining Co. v. Fancher, 145 N. Y. 552, 1. e.

561.

20 Corpus Juris, p. 21.

Dayton-Goose Creek Railway Co. v. The United

States, 263 U.S. 455.

Section 15-A of the Act to Regulate Commerce.

Commonwealth ex rel v. Scott, 112 Ky. 282.

IV.

Intervenors without reference to their other equities, are

entitled to recover these excess charges from the new com-

pany, the St. Louis, San Francisco Railway Co., under the

rule announced in Northern Pacific Ry. Co. v. Boyd, 228 U.

S. 481 and other cases to the same effect under Point I,

supra, relating to the right of a creditor to recover against a

reorganized company, where the stockholders of the original

debtor company had been given an interest in the reorgan-

ized railway company—in the instant case over $45,600,000

in stock without the payment of anything therefor. ‘This is

particularly true where, as in the instant case, the purpose

of the receivership was to preserve the railroad property as

a unit, and it was sold as such and bought in as such by

stockholders and bondholders of the original railroad com-

s4) Pany in order to preserve the continuity of ownership.

Central of Georgia Railway Co. v. Paul, 93 Fed.

Rep. 878.

Northern Pacific Ry. Co. v. Boyd, 229 U. S. 481.

Northern Pacific Ry. Co. vy. Boyd, 177 Fed. 804.

Guardian Trust Co. v. Cambria Steel Co. et al., 210

Fed. 696.

Affirmed 240 U. S., page 166.

Walden v. Bodley, 14 Pet. 164, 10 L. Ed. 398.

Guaranty Trust Co. Vv. Missouri Pacific Ry. Co. 238

Fed. 812, 1. c. 814-16.

McDonald v. Nebraska, 101 Fed. 171, 1. ¢. 177-182.

Chicago Ry. Co. Vv. Howard, 7 Wall. 392, 409, 74 U.

S. 392, 409, 19 L. Ed. 117.

Louisville Trust Co. v. L. N. A. & C. Ry. Co., Vi4

U. S. 674.

Intervenors are entitled to recover said excess charges

upon the theory of the rule, underlying the right of prefer-

ential payment of claims for labor, supplies ete.

Love v. North American Co., 229 Fed. 103, |. c. 107.

North American v. Lamont, 69 Fed. 496.

an Railway Company V. Carnegie, 76 Fed.

Blair v. Railway Co., 22 Fed. 471.

Atkins v. Railroad Co., 3 Hughes 307.

Hale v. Frost, 99 U. 8. 389.

Burham v. Bowen, 111 U. S. 776.

Union Trust Co. v. Morrison, 125 U. S. 591.

N. Y. Guaranty Trust Co. v. Railway Co., 82 Fed.

365-370.

VI.

A court of equity, as a matter of public policy, will order

said excess charges repaid to the intervenors, the shippers

and representatives of shippers of live stock.

Blake v. Railroad, 19 Minn. 418.

Morgan v. Louisiana, 93 U. S. 217.

Southern California Railway Co. v. Rutherford, 82

Fed. 797.

Mercantile Trust Co. v. St. Louis & San Francisco

R. R. Co., 193. é

Love v. North American Co., 229 Fed. 1. c. 107.

R. R. Co. v. Lockwood, 17 Wall. 279.

. Ve

Railway Co. ve Carmegie Steel Company, 176 U.Se, 257

luc. 27-279, leoe 466-468. "Affirmed the opin-

Men of | Ube Circuit Court of Appeals for the 4th Cirouit,

etal vo American Loan 4 Trust Co et al, 84 Feds, 276

iveult Seurt of Appeals Eighth Cireuit. December 6, -

pinion ty Brower ivouit Justice,copourred in by Sanborn

fhayer, Circuit Judges) lee 2776

team & Trust Co. ve american “ater “orks Co., 107

2% (Cireuit Court, D.Nebrasim. March 30, -

Sanborn, Cireuit Judge) 1.0. 30-Sl.

abrid

law ¢

addit

The «

lowed the

reparatio

rier, ther

and addi

rule

ing

VII.

te eleeticn of remedies - Pierce ve U.Se, lcs

RY. Harding, 227 U.S-,489, lete 49 57 Led. 608,

e .

een

Fed.

order

opers

d, 62

Bovis Cc

¥ nacre

(hé-0Le |

aieaian AE OR ah et 7 > ail

So. Pac. Co. v. Adjustment Co., 237 Fed. 1. ¢. 962.

State ex rel Barker v. R. R. Co., 216 Fed. 564.

U. S. & Mexican Trust Co. v. Kansas City M. & O.

Ry. Co., et al, 240 Fed. 505.

White v. Delano, 270 Mo. 1. ¢. 38.

And cases cited, supra, under Points III and V.

4. ete

>. obe VIL.

poy t Neither the reorganization nor the trust fund theory is

7 inconsistent with or abrogated by the remedy for the collec-

+o tion of overcharges, prescribed by Section 16 of the Act.

a Spiller v. St. Louis € San Francisco R. BR. Co.

| met Opinion of the U. 8. ‘ir. Court of Appeals (R.

ovary pp. 764, 767) 14 Fed. 2d, 284 1. ¢. 295, 296.

a ex

ORS, Citing and applying T. & P.R.R. Co. v. Abilene Cotton

then act and the present act, providing :

‘And nothing in this act contained shall in any way

abridge or alter the remedies now existing at common

law or by statute, but the provisions of this act are in

addition to such remedies.’’

The court added, 1. c. 295, that since the intervenors fol-

lowed the only remedy provided by the act, to reduce the

reparation order to judgment against the recalcitrant car-

rier, there could be no election, citing

20 C. J., 21,

and adding (1. ¢. 295-6) :

‘‘Further, as said in 39 Cye. p. 591: ‘As a general

rule the jurisdiction of equity in establishing and enfore-

ing trusts is in addition to and concurrent with any reme-

dies at law the party may have.’ See, also, 6 L. R. A.

(N. 8.) 793; Fitegerrell v. Federal Trust Co., (Mo. App.)

187 S. W. 600; Krippendorf v. Hyde d Another, 110 U.

S. 276, 4 S. Ct. 27, 28 L. Ed. 145.”’

See, also cases cited, infra, under Point IX.

VITl.

The claims of intervenors for said excess charges should

be paid with interest from the date of their illegal collection,

Louisville € N. R. Co. v. Sloss-Sheffield 8. & I. Co.,

269 U. S. 217, 1. ¢. 238, 239, 240,

where the court holds:

‘*Tt has been the uniform practice of the Commission

to recognize as an element of the damages, loss of inter.

est on charges unlawfully exacted; and, in ordering rep-

aration, it has usually included as a part of the damages

such interest from the date of the payment.”’

Citing many cases of this court and of the Commission

in the decision and in Notes 10 and 11 supporting this con-

clusion. This case conclusively settles the question of in-

terest.

IX.

Since the entire case is before the court upon the writ of

certiorari, the court will decide the entire case. Intervenors

are entitled to recover attorneys’ fees taxed as costs in the

litigation in the District Court of the United States of the

Western Division of the Western District of Missouri, be-

cause, pursuant to the order of the court, the receivers of

the railroad company contested the claims of these interven-

ors in all the Federal District Courts and, thereafter, by the

reorganized railway compai.y for eleven years. In this way

the costs were created, including attorneys’ fees, which, under

Section 16 of the Act, can be recovered as an incident to the

enforcement of an order of reparation by judicial process.

In equity there is no wrong without a remedy. ‘‘ Equity

will do complete justice.’’ ‘‘Equity delights to do justice and

that not by halves.’’ ‘‘Equity regards substance rather

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than form.’’ ‘‘Equity imputes an intention to fulfill an ob-

ligation.”’

Harrigan v. Gilchrist, 99 N. W. 909.

Mercantile Trust Co. v. St. Louis & San Francisco

Ry. Co., Ogden et al., Intervenors, 69 Fed. 193.

Sweet v. The Montpelier Savings Bank & Trust Co.,

69 Kan. 641 (77 Pace. 538).

Matthews v. Forslund, 112 Mich. 591.

Barksdale et al., v. Finney, et al., 14 Grattan, 338.

The intervenors are neither precluded by alleged laches

from a recovery of the excess charges (held by the Commis-

sion to be 3¢ per ewt. in excess of a just and reasonable rate)

and condemned by Section I of the Commerce Act as unjust

and unreasonable and condemned by the common law, nor by

any alleged bar arising out of the interlocutory decree or the

final decree.

First Opinion of Judge Sanborn, (R. p. 61).

Report of Special Master (R. pp. 152-166; 168-173).

Opinion of the U. S. Cir. Court of Appeals (R. pp.

749-754).

Mathieson v. Craven, 247 Fed. |. ¢. 226.

Ide v. Trorlicht, Duncker & Renard Carpet Co., 115

Fed. |. ¢. 148.

Texas & Pacific R. R. Co. v. Abilene Cotton Oil Co.,

204 U. D. 426.

Southern Pacific Co. v. Goldfield Consolidated Mill-

ing & Transportation Co., 220 Fed. 1. ¢. 18.

Northern Pacific Railway Co. v. Boyd, 228 U. 8. 481.

Northern Pacific Railway Co. v. Boyd, 177 Fed. 804.

5 Pomeroy’s Eq. Jur., See. 35.

Central Improvement Co. v. Cambria Steel Co., 210

Fed. 696.

Central Improvement Co. v. Cambria Steel Co., 201

Fed. 811.

Kansas City Southern Ry. Co. v. Guardian Trust

Co., 240 U. S. 164.

men Co. v. Black Panther Oil d& Gas Co., 224 Fed.

IT NON, ENT ARS RE

French v. Capen, 105 U. S. 509.

Rice et al. v. Durham Water Co., 91 Fed. 434.

Southern Pacific Co. v. Bogert, 250 U. S. 482, 1. ¢,

488-89-90; 61 L. Ed. 1107.

Coal Co. v. Doran, 142 U. S. 417.

Kansas City Southern R. R. Co. v. May, 2 Fed. 2nd

Series, 680.

Ins. Co. v. M. Girr, 263 Fed. 847, 1. e. 855.

Levee District v. Pipe Line, 292 Fed. 474, 1. ¢. 480,

Williams v. Young, 81 Atlantic 1118,

Trader’s Bank v. Fraser, 162 Mich. 315, 1. e. 318,

Converse v. Sickles, 44 N. Y. Supp. 1080 (affirmed in

161 N. Y. 666).

—— ig Company v. Fancher, 145 N. Y. 552

. c. 561.

’

XI.

The decision of the Circuit Court of Appeals that inter-

venors’ claims ‘‘arose’’ after the entry of the final decree,

and that they were not precluded by the final decree and the

order of confirmation of sale from asserting said claims, is

correct on this point. Opinion of the United States Circuit

Court of Appeals (R. pp. 755-760) 14 Fed. 2d, 1. ¢. 291-293,

where the court reviews the contention of petitioners on this

point at length, states the applicable facts, holds that the

purchaser of the property, the railway company, expressly

agreed, under the order of court, to pay the claims of inter-

venors if established, and cites many applicable authorities

as to the meaning of the term ‘‘arise.’’

ARGUMENT.

I, Ul, I.

The rates collected by the railroad company from these

intervenors to the extent that they were unreasonable and

unjust were unlawful and the exactions made by the railroad

company from these intervenors over and above just and

reasonable rates were unlawful exactions.

The Circuit Court of Appeals did not, as stated by peti-

tioners’ counsel, on page 22 of their brief, decide that the

collection of legally-established rates becomes unlawful be-

cause such rates are subsequently found by the Commission

to be unjust and unreasonable. The Circuit Court of Appeals

decided that ‘‘The charging of an excessive and unreasonable

rate is ipso facto unlawful.’’ The correctness of its ruling

in this regard is abundantly sustained by the decisions of

this court, by reason and by the act to regulate commerce it-

self.

At common law unjust and unreasonable charges made

by the carrier for transporting passengers or property were

unlawful.

By Section I of the Acts to Regulate Commerce it is pro-

vided :

‘All charges made for any service rendered or to

be rendered in the transportation of passengers or prop-

erty, as aforesaid, or in connection therewith, or for

receiving, delivering and handling of such property

shall be reasonable and just, and every unjust and un-

reasonable charge for such service is prohibited and de-

clared to be unlawful.’’

Section VI of the Act to Regulate Commerce requires

all railroads to publish their rates. As long as a rate is a

published rate a carrier cannot charge or demand or collect

or receive a greater or less rate than the published rate. The

published rate is the rate which the carrier must charge and

the shipper must pay.

It is contended by the petitioners that if a rate is pub-

lished in accordance with Section VI of the act, no matter how

unreasonable or unjust it may be, it is a lawful rate.

They announce the novel theory that the act of a carrier

in collecting an unjust and unreasonable rate from a shipper

is lawful when committed, but assumes the nature of a tort

because of a subsee -nt finding of the Commission that the

rate was unjust and unreasonable. They do not try to ex-

plain how an act, entirely lawful when committed, can there-

after, become unlawful and tortuous. It is difficult to under-

stand what they mean when they say that the act assumes

the nature of a tort. How can a rightful, lawful act ‘‘as-

sume’’ any other nature than that of a rightful and lawful

act. Of course, their whole contention is without merit. The

collection of an unreasonable and unjust rate is an unlawful

act at the time the collection is made.

Petitioners’ counsel quote from the opinion of Judge

Sanborn filed in the district court (288 Fed. 612, Brief page

25) and say that the language of that learned judge is pe-

culiarly apt. Let us analyze this excerpt from Judge San-

born’s opinion:

‘“‘The prohibition of Section I and that of Section

6 must be read and interpreted together, and the correct

construction of them is that the specific prohibition of

Section 6 constitutes an exception from the general pro-

hibition of Section T.’’

How can this be? Section 6 requires all carriers at all

times to publish all of their rates. How, therefore, can the

prohibition of Section 6 be an exception ‘o the prohibition of

Section 1. How can the universal ever be an exception? The

reasoning of Judge Sanborn in that part of the opinion im-

mediately following the portion just quoted is equally fal-

lacious. The carrier is not bound to publish an unjust and

unreasonable rate. When it does publish such a rate it pub-

lishes it under the admonition of Section 1, which declares

its act to be unlawful.

In enacting the Act to Regulate Commerce Congress had

at least two principal objects in view, the prohibition of un-

reasonable and unjust rates and the prevention of discrimina-

tion of all kinds. These two objects are accomplished in Sec-

tions 1 and 6 of the act and full effect may be given to both

of them. This same question has been before the Interstate

Commerce Commission many times.

In those cases it was urged by the carriers that since the

published rate was the legal rate the carrier in charging it

was doing something that it had a lawful right to do, and

that, therefore, in collecting that published rate they were

not injuring the shipper and, therefore, since the shipper

had suffered no wrong, he could not be entitled to reparation.

In passing on the proposition the Interstate Commerce

Commission in Arkansas Fuel Co. v. C. M. & St. P. Ry. Co.,

16 I. C. C. Reports, p. 97, said, citing its two earlier decisions,

Poor Grain Co. v. C. B. € Q. Rd. Co., 12 I. C. C. 418, 1. e. 425,

and Coomes v. C. M. € St. P. Ry. Co., 13 I. C. C. 192, 1. ¢. 194:

‘It has been said that the word ‘legal’ looks more

to the letter and ‘lawful’ to the spirit of the law; that

‘legal’ imports rather than the forms of law are observ-

ed and the rules prescribed obeyed, and the word ‘law-

ful’ that the act is rightful in substance. The two words

may aptly be used as illustrative of the distinction that

we have attempted to draw in the cases cited. It is pro-

vided in Section 6 of the act that no carrier shall 2ol-

lect or receive a greater or less compensation than the

rates specified in the tariff in effect at the time of the

movement. Other provisions of law make it a misde-

meanor for the carrier to depart from the published

rate. In dealing with shippers the carrier is therefore

required to conform the freight charges actually col-

lected to the amount fixed in its published tariffs. In

that sense the published rate in effect at the time of

the movement is, therefore, the legal rate. It is what

the letter of the law requires the shipper to pay and the

carrier to collect.

‘‘But the first section of the act, following the rule

of the common law, declares that all charges for services

rendered by carrier in the transportation of passengers

or property shall be reasonable and just. It also de-

clares every unjust and unreasonable charge for such a

service to be unlawful. In publishing a rate or schedule

of rates the carrier therefore acts under this admission

of the statute. * * * While it may be, and indeed is,

the legal rate—the rate that must be paid by the shipper

and collected by the carrier because it is the published

rate—the mere publication cannot make a rate lawful

that is unreasonable and excessive.”’

This same question has been decided by this court and

by the Circuit Court of Appeals on several occasions.

The case of Southern Pacific Company v. Darnell-Taen-

zer Co., 245 U. S. 531, was a reparation case. In that case

the excessive freight charge had been passed on by the

shipper to the consumer and it was contended by the rail-

road company that the shipper had suffered no loss.

Mr. Justice Holmes said, page 534:

‘“‘The plaintiffs suffered losses to the amount of

the verdict when they paid. Their claim accrued at

once in the theory of the law and it does not inquire

into later events. * * * The carrier ought not to be

allowed to retain his illegal profit, and the only one who

can take it from him is the one that alone was in rela-

tion with him, and from whom the carrier took the

sum’’ (italics ours).

If the exactions had not been unlawful, the claims could

not have accrued at the time the exactions were made. The

carrier receives the illegal profit when the exaction is made.

In this same case the court said:

‘‘But here the plaintiffs have paid cash out of pock-

et that should not have been required of them, and

there is no question as to the amount of the proximate

loss.”’

In the case of Mills v. Lehigh Valley R. R. Co., 238 U.S.

473, which was a reparation case, the Interstate Commerce

Commission had found that the shipper was entitled to the

excess charges as reparation. It was contended by the rail-

road company in that case that this was not a finding that

the shipper had been damaged.

Mr. Justice Hughes, on page 481, said:

‘‘What the Commission decided was that the ship-

pers were entitled to reparation, that is, to be made

whole, to be compensated for a loss because of an il-

legal and unreasonable exaction.’’

In the ease of Phillips v. Grand Trunk Ry. Co., 236 U.

§. 662, a case in which recovery was denied because suit had

not been filed within the time fixed by the statute, the court,

through Mr. Justice Lamar, said:

‘‘But while every person who had paid the rate

could take advantage of the finding that the advance was

unreasonable, he was obliged to assert his claim with-

in the time fixed by law. When the overcharge was col-

lected a cause of action at once arose and the shipper at

once had the right to file a complaint or to intervene in

proceedings instituted by others.”’

The cause of action at once arose because the exaction

was unlawful at the time it was made.

The Circuit Court of Appeals, in the case of Darnell-

Taenzer Co. v. Southern Pac. Co., 221 Fed. 1. ¢. 894 said:

‘‘Cases of excessive and unreasonable rates differ

from discriminating charges in the fact that in the lat-

ter there is nothing unlawful in the charging and re.

ceiving of the higher or published rate on which the

demand for reparation is based; the unlawfulness is in

giving a lower rate to someone else. On the other hand,

the charging of an excessive and unreasonable rate igs

ipso facto unlawful.’’

In the case of Texas and Pacific Ry. v. Abilene Cotton

Oil Co., 204 U. S. 426, the court said:

‘*Although an established schedule of rates may

have been altered by a carrier voluntarily or as the re-

sult of the enforcement of an order of the Commis-

sion to desist from violating the law, rendered in ae-

cordance with the provisions of the statute, it may not

be doubted that the power of the Commission would

nevertheless extend to hearing legal complaints of and

awarding reparation to individuals for wrongs unlaw-

fully suffered from the application of the unreasonable

schedule during the period when such schedule was in

force’’ (italics ours).

A wrong cannot be unlawfully suffered if the act

which causes the wrong is a lawful act. A carrier cannot

be ordered by the Commission to desist from violating the

law, if it is not violating the law.

All of these cases hold that the exaction of an unjust

and unreasonable rate is an unlawful exaction, and unlawful

at the time it is made. It can make no difference that in

the interest of uniformity, a shipper, before he can bring

his action to recover, must secure a finding of the extent

to which the rate is unreasonable and unjust. The basie

act itself is unlawful. The prescribed procedural steps

eannot affect the situation.

Petitioners in their brief seem to blow hot and cold

on this proposition. As we have seen they say that the

act was lawful when it was committed; that the exaction

of an unjust and unreasonable rate was lawful when it was

committed, but assumed the nature of a tort after the Com-

mission found that it was unjust and unreasonable.

In discussing the question of laches, later on in their

brief (page 50) they say, that intervenors’ claims arose in

November, 1908 and prior thereto, that is, when the unjust

and unreasonable rates were collected. They are right

in their latter contention, and intervenors’ causes of action

accrued when the exactions were made, because the exac-

tions were ipso facto unlawful. Aside from Section 1 of the

Interstate Commerce Act, we have a legislative declaration

of the unlawfulness ‘‘of an unjust and unreasonable rate.’’

Paragraph 17 of Section 15-A, which was added to

the Interstate Commerce Act February 28, 1920, and which

is commonly known as the recapture section of the act

provides :

‘‘The provisions of this section shall not be con-

strued as depriving shippers of their right to repara-

tion in case of overcharges, unlawfully excessive or

discriminatory rates.’’

A rate is excessive when it is unreasonable and unjust.

When it is unreasonable and unjust it is unlawfully ex-

cessive,

Counsel for amicus curiae, Missouri Pacifie Ry. Com-

pany, say that a railroad company, publishing a rate in

good faith should not be penalized simply because it is

an unjust and unreasonable one, by having its illegal profit

declared to be a trust fund. Of course there is no merit in

this contention. Why should a railroad company, regard-

less of its motives, be allowed to retain its ‘‘illegal profits’’?

Have the shippers no rights? The bondholders have no

right to the ‘‘illegal profits’’ because they did not contract

for such security. The stockholders and general creditors

have no right to such profits. Why should not a court of

equity in a receivership prearranged for the benefit of the

bondholders and stockholders, give to the shippers what is

their own by the impressing of a trust? It is immaterial what

the carriers’ motives may be in publishing an unlawfully

excessive rate. When it collects such a rate, it collects some-

thing that it is not entitled to, and it, as was said by this

court in Southern Pacific Company v. Darnell-Taenzer Co,

supra, ‘‘ought not to be allowed to retain its illegal protu.”

In this case it ean hardly be said that the Railroad

Company was acting in good faith. In August, 1905, the

Interstate Commerce Commission, after a full hearing,

found that the rates involved in this case were unjust and

unreasonable to the extent of three cents a hundred pounds

and were, therefore, unlawful. The unlawful exactions in-

volved in this ease were collected between August 29, 1906,

and November 17, 1908. Therefore, this Railroad Company

continued to make these unlawful exactions, not only in the

teeth of Section 1 of the Act, but in the teeth of this

positive finding of the Interstate Commerce Commission.

This does not seem to us to comport with the good faith

talked about by counsel. However, the motives of a carrier

in publishing a rate are wholly immaterial.

The cases cited by petitioners in support of their con-

tention that the Cireuit Court of Appeals erred in its decision

in this regard are either not applicable at all or they sus-

tain the circuit court of appeals. As we have already seen

the ease of Texas and Pacific Ry. v. Abilene Cotton Oil Co.,

204 U. S. 426, recognizes the principle that the exaction of

an unjust and unreasonable rate under the protection of a

published schedule is an unlawful exaction, and a violation

of the law.

The question involved in that case was whether or

not a shipper, under Section 22 of the Act, which provides:

‘‘Nothing in this act contained shall in any way

abridge or alter the remedies now existing at common

law or by statute, but the provisions of this act are

in addition to such remedy.’’

could bring and maintain a suit in court, before first obtain-

ing from the Commission a finding that the rate complained

of was unreasonable and unjust and a finding as to the extent

to which such rate was unreasonable and unjust.

The court points out that one of the primary objects of

the act to regulate commerce ,was to obtain uniformity and

to prevent discrimination of all kinds; that, if such a suit

could be maintained, then one shipper in one court could get

one result and another shipper in another court another

result; that by collusive action between some shippers and

the carriers favorite shippers would be_ really charged one

rate and other shippers another rate, and that thereby this

primary object of the act would be totally destroyed.

The court held, therefore, that, under Section 22 of the

Act, only those common law remedies of the shipper were

preserved to him which were not inconsistent with the

primary purpose of the act, and that to preserve uniformity

and to prevent discrimination all shippers would, before

they could bring a suit in court, have to have a finding of

the Commission that the rate complained of was unreason-

able and unjust and the extent to which it was unreasonable

and unjust.

In the case of Pennsylvania R. R. Co. v. International

Coal Mining Co., 230 U. S. 184, the plaintiff sued to recover

the difference between the published rate they paid and the

lower rates which other shippers had paid because of re-

bates allowed to them on coal shipped between the same

termini. The court held that in such case, previous action

by the Interstate Commerce Commission was not a condition

precedent to the maintenance of an action in the courts,

There was no question as to whether or not the published

rate was a reasonable rate or a just rate. The court said

that it was extremely doubtful whether at common law a ship-

per, who had paid a reasonable rate, had a right of recovery

because a lower rate was charged to another shipper, but

that the statute had given the shipper such right, and that

the measure of his recovery was the pecuniary loss suffered

by him. While the court used the language quoted in the

brief, that language was directed to the facts involved in that

ease and does not touch this case top, side or bottom. In

that part of the opinion preceding the excerpt quoted in peti-

tioner’s brief the court said:

‘‘Under the statute there are many acts of the car-

rier which are lawful or unlawful, according as they are

reasonable or unreasonable, just or unjust. The deter-

mination of such issues involves a comparison of rate

with service and calls for an exercise of the discretion

of the administrative and rate regulating body, for the

reasonableness of rates and the permissible discrimina-

tion based upon differences in conditions are not mat-

ters of law. So far as the determination depends upon

facts, no jurisdiction to pass upon the administrative

questions involved has been conferred upon the courts.

That power has been vested in a single body so as to

secure uniformity and to prevent the varying and some-

times conflicting results that would flow from the dif-

ferent views that might be taken by different tribunals”

(italies ours).

This case really sustains the decision of the Cireut

Court of Appeals in the case at bar. If acts of the carrier

om guite Meee

n Cua ag

are lawful or unlawful according as they are reasonable or

unreasonable, just or unjust, then when the carrier exacts an

unjust and unreasonable charge for transportation, its exac-

tion is unlawful.

The case of Robinson v. Baltimore & Ohio R. R., 222 U.

S., 506, involved the question as to whether or not under

Section 22 of the Act, a shipper could have recourse to the

courts because of an alleged discriminatory rate between coal

loaded from wagons and coal loaded from a tipple without a

prior determination by the Commission as to whether or not

the rate was discriminatory and the extent to which it was

discriminatory. The court, applying the rule laid down in

the Texas & Pacific Railway case, supra, held that, since a

right to appeal to the courts in such a ease would bring about

the same results as the right to appeal to the courts in ad-

vance of a finding by the Commission in cases of unreason-

able rates, the plaintiff could not maintain an action in the

courts without first obtaining the necessary findings from the

Commission.

In the ease of Chicago, B.d Q. R. R. Co. v. Merriam

Millard Co., 297 Fed. 1, the Interstate Commerce Commission

made an order that the rate complained of would be unjust

in the future to the extent stated in the order. The Commis-

sion did not order the inauguration of a new rate, but ex-

pressly stated that it expected that the carriers would put

the new rate into effect. The carriers did not do so, and

later on the Commission made another order establishing the

rate for the future and gave the carriers thirty days to pub-

lish it. No application was made by the plaintiff for an

order of reparation and no order of reparation was made by

the Commission. The court held that without first having

obtained an order of reparation the plaintiff could not main-

EERE CAN Cag

tain the suit. The statement of the court in that case that

‘the duly filed and published tariff rate while it was in force

was the only lawful rate’? was unnecessary to the decision of

that case under the views announced by the court, and is

obiter, and in our judgment, is in conflict with the decisions

of this court and with the Commerce Act itself.

The excessive charges, collected by the railroad company

in this case being unlawful, the railroad company, when it

obtained the money of the shipper, became a trustee er

maleficio of the excessive charges and held the shipper’s

money, so collected, as a trustee for the shipper. It is well

settled that where one wrongfully obtains the possession of

another’s property by fraud, duress or by taking advantage

of another’s weakness, the person thus taking the property

holds it in trust for the other as a trustee ex maleficio. In 3

Pom. Equity Jur., Section 1053, the rule is thus stated:

‘‘In general, whenever the legal title to property,

real or personal, has been obtained through actual

fraud, misrepresentations, concealments or through un-

due influence, duress, taking advantage of one’s weak-

ness or necessities, or through any other similar means

or under any other similar circumstances which render

it unconscientious for the holder of the legal title to re-

tain and enjoy the beneficial interest, equity impresses

a constructive trust on the property thus acquired in

favor of one who is truly and equitably entitled to the

same.’’

That a railroad company and a shipper are not on an

equal footing is too plain for argument. That a shipper who

pays to a railroad company a rate in excess of a reasonable

rate, is as to such excess, acting under practical duress is

equally plain. A railroad company, therefore, which collects

from the shipper an unreasonable rate is, as to the excess

over a reasonable rate, a trustee ex maleficio for the shipper.

The rule announced in Pomeroy is universally approved.

It is adopted in the following decisions:

Angle v. Chicago, St. P. M. & O. R. Co., 151 U. 8.

125, 38 Law Ed. 55.

Chapman v. Douglas, 107 U. S. 348.

Love v. North American Company, 229 Fed. 1. ¢. 106.

White v. Delano, 270 Mo. 216.

Mercantile Trust Co. v. St. Louis & San Francisco

R. R. Co., 69 Fed. 193.

Central Stock € Grain Co. v. Bedinger, 109 Fed. 926.

Richardson v. New Orleans, 102 Fed. 782.

The authorities relied upon by the petitioners and cited

in their brief relative to the tracing of trust funds had to do

with cases of actual insolvency and with the actual distribu-

tion of the assets of those insolvents among their creditors.

This is not such a case. This is a reorganization through

the offices of a court of equity by means of a_ receivership

to carry out and effectuate a prearranged plan under which

the stockholders and bondholders of the old company were

to own the property after the usefulness of the receivership

ceased.

However, the respondents in this case, in the tracing of

the moneys illegally exacted from them, have measured up

to the rigid rule announced in those cases.

Let us examine the agreed statement of facts filed in

this case (Record pp. 329-333). The parts of that stipula-

tion relevant to this issue may be stated thus:

Ist. That, at all times from June 1, 1906 to May 27,

1913, the Railroad Company had in cash on hand an amount

of money in excess of the claims of intervenors with interest

thereon.

ond. That the overcharges constituting intervenors’ de-

mands were not kept by defendant in a separate or designat-

ed account or fund, nor were they separated from other

gross receipts of the Railroad Company derived from opera-

tion of its lines of railroad.

3d. That the moneys so collected by the railroad com-

pany were deposited in banks by the defendant in defend-

ant’s general account and that said banks did not keep said

moneys in a separate account.

4th. That the Railroad Company checked out of its de-

posits in each of said banks during each year from June 1,

1906 to May 27, 1913, sums of money largely in excess of

said overcharges.

5th. That said Railroad Company deposited in said

banks during each of said years sums of money largely in

excess of said alleged overcharges.

6th. That upon the appointment of the receivers, the

Railroad Company turned over to said receivers, and said

receivers received from the Railroad Company in cash, the

sum of approximately $334,000.00.

We say that these are the relevant parts of the stip-

ulation because it is wholly immaterial what instructions the

banks had and it is wholly immaterial whether these over-

charges were separated from the other gross receipts of the

Railroad Company, derived from the operation of its lines

of raiload, and it is immateial whether the banks kept said

moneys ima sepanate account.

Petitioners seem to lay great stress upon the agreed

fact that the Railroad Company paid out, during the period

in question, large sums of money for current expenses in-

eurred in the ordinary. operation of its property. We think

that under the undisputed other facts in the ease, this fact

is wholly immaterial. It would be presumed, if the fact had

not been stipulated, that the Railroad Company paid out large

sums of money for current expenses incurred in the ordinary

PLIERS EIN I IOI SIL EEA ELE OID SR AEAE STOLE LIED REA AREY RM ELLIE YONGE LIE TEE

operation of its property. Current expense, of course, is op-

erating expense, and there was not a year from June 30, 1906,

until May 27, 1913, except one, that the operating income of

the Railroad Company did not exceed its operating expense,

including taxes, by over eleven million dollars. The only year

that its excess of operating income over operating expense

did not amount to over eleven million dollars was the year

ending June 30, 1908, when the excess amounted to $9,944,-

600.89 (Record p. 163).

The facts, therefore, as established by this stipulation

are these—that from June 30, 1906 to May 27, 1913, the Rail-

way Company at all times had on hand, in cash, an amount

of money in excess of intervenors’ claims with interest; that

the illegal exactions from the shippers were aeposited by the

Railroad Company in banks, with moneys of the Railroad

Company in defendant’s general account; that, during all of

said time, the Railroad Company checked out of its deposits

in said banks sums of money largely in excess of the over-

charges and during all of said time deposited in said banks

sums of money largely in excess of said overcharges, and had

on hand and turned over to the receivers at the time of their

appointment, on May 27, 1913, $334,000.00.

The only inference, without straining the meaning of the

language used in order to arrive at an inequitable result,

that can be drawn from these agreed facts is that in none

of the banks, in which the overcharges illegally exacted from

the shippers were deposited, was the balance ever less than

the amount of the overcharges deposited in that bank. The

Railroad Company always had on hand more than the over-

charges with interest. The overcharges were deposited in

the banks with which the Railroad Company did business with

moneys which actually belonged to the Railroad Company.

The deposits made from time to time equaled the withdrawals

made from time to time and, therefore, the balances were

never less than the amount of the overcharges.

On these facts and under the well-known rule approved

by the authorities cited in the petitioners’ brief, it will be

presumed that the Railroad Company drew out of the banks

its own money and left the trust company belonging to the

shippers intact.

But, why should the strict rule applicable to actual in-

solvents, whose assets are actually being distributed by the

court among the creditors of the insolvents, apply in all its

strictness to this case? The railroad’s operating income ex-

ceeded its operating expenses, including taxes, for a great

many years by considerably over eleven million dollars. It

had acquired two lines of road which, because of temporary

conditions, were losing money, the Chicago & Eastern Illinois

and the New Orleans, Texas & Mexico Railway Company, and

it wanted to get rid of them (Bill of Complaint, Record pp.

2-4). A plan for the reorganization of the road, leaving these

two roads out was agreed upon. A friendly creditor, who

alleged that for the purpose of preserving the unity and in-

tegrity of the property of the Railroad Company it was neces-

sary to have a receivership, brought an action in the Federal

Court and prayed for the appointment of receivers. On the

same day the Railroad Company joined with the complainant

in a motion that the prayer in the bill for the appointment

of receivers be granted (Record p. 11).

The receivers took charge and operated the properties

profitably. In order to improve the property generally dur-

ing the first two years of their operation, they increased the

expenditures for maintenance of way and maintenance of

equipment over three million dollars per year over what had

been expended during the two years preceding the receiver-

a - sts

Ba MOTKRR HNN RD ROPER BAN IIIT) NYY TMG RETIREE DONNY APR AIG TGS OE Lak Sy NERS rome oe

—

ship (Record p. 478). They expended $8,155,939.24 in redemp-

tionship of equipment trust obligations and for improvements

and additions to property which was not taken into capital

account. They turned over to the new company in excess of

five million dollars in cash. The preferred stockholders of

the old company participated share for share in the new com-

pany without paying anything for their new stock. The com-

mon stockholders received stock in the new company equal

to 85% of their holdings in the old company without paying

anything for it (R. p. 529).

We do not contend that the Railroad Company did not

have a right to effect a reorganization with the aid of a court

of equity. We do contend that the same strict rule relating

to the tracing of trust funds should not apply to such re-

organization as applies to actual insolvents actually distribut-

ing their assets among their creditors through a court of

equity. Rules of equity are supposed to be rules of con-

science and they vary with varying conditions and circum-

stances and cases. It is not so long ago that a trust could not

be impressed upon money which the trustees had commingled

with his own funds because the identical dollars could not be

traced. Under modern conditions that rule was inequitable

and it was modified accordingly. The rule commonly known

as the six months rule relating te the payment for necessary

supplies is a rule of very modern origin. This court has

pointed out the differences between these two kinds of re-

ceiverships—Louisville Trust Co. v. Louisville, etc., Ry., 174

U.S. 674, 43 L. Ed. 1130.

In that case, it was said:

‘“‘We must therefore recognize the fact, for it is a

fact of common knowledge, that, whatever the legal

rights of the parties may be, ordinarily foreclosures of

railroad mortgages mean, not the destruction of all in-

ede POISE AAG TS MEPIS ET BUREN, Dm OES

terest of the mortgagor and a transfer to the mortgagee

alone of the full title, but that such proceedings are

carried on in the interests of all parties who have any

rights in the mortgaged property, whether as mortgagee,

creditor, or mortgagor. * * * Assuming that fore-

closure proceedings may be carried on to some extent

at least in the interests and for the benefit of both mort-

gagee and mortgagor (that is, bondholder and _stock-

holder), we observe that no such proceedings can be

rightfully carried to consummation which recognize and

preserve any interest in the stockholders without also

recognizing and preserving the interests, not merely of

the mortgagee, but of every creditor of the corporation.”

In the case of Chicago, R. I. & P. Ry. Co. v. Howard,

74 U.S. (7 Wall.) 392, 409 (19 L. Ed. 117), it is said:

‘‘Equity regards the property of a corporation as

held in trust for the payment of the debts of the cor-

poration and recognizes the rights of creditors to pur-

sue it into whatsoever possession it may be transferred,

unless it has passed into the hands of a bona fide pur-

chaser; and the rule is well settled that stockholders are

not entitled to any share of the capital stock, nor to any

dividend of the properties until the debts of the corpora-

tion are paid.”’

To the same effect are the following cases:

Montgomery-Web Co. v. Dienelt, 133 Pa. 585, 19 Atl.

-428, 430.

Central of Georgia Ry. Co. v. Paul, 93 Fed. 878, 884

(Fifth Cireuit).

In the ease of Mercantile T'rust Company v. St. Louis,

San Francisco Railroad Co., 69 Fed. 193, which arose under

an earlier receivership of this same railroad, the court said:

‘‘Two-fifths of all the money that went into the

treasury of the company for fares of passengers rep-

resented unlawful and illegal exactions. That money it

still has. No portion of it has been returned to the

persons who were illegally forced to pay it. The sums

DBE TE NESE MIL IETS POLLEN SE LOS ITE IEP, ESI ARTI SSR: NSS TER NC NAG FE EE

illegally exacted from the interveners have never been

returned or tendered to them. It required eight years

of litigation for the interveners to establish their own

and the rights of the public in the premises. * * *

When, as sometimes happens, a railroad company desires

to avoid the payment of debts and obligations incurred

in the operation of its road, or to reduce the wages of

its employes below a fair and reasonable compensation

for their services—there are not many such companies,

but occasionally there is one—it seeks the aid of a friend-

ly creditor, through whose agency it is quickly placed

in the hands of a receiver, and immediately a court of

equity is asked and expected to do the mean things

which the company itself was unable or ashamed to do.

But it is believed this is the first instance in which a

court of equity has been asked to become, in effect, some-

thing bordering very closely on a receiver of stolen

goods, and urged to hold the ill-gotten gains in trust

for the guilty party, and refuse to make restitution even

of the smallest portion of them to the persons from whom

they were unlawfully taken. High considerations of pub-

lic policy, not less than the plainest principles of equity

and justice, demand that the property of the defendant

company in the custody of the court as a trust fund

should be made to respond to the payment of these judg-

ments.’’

In commingling this trust money with its own money,

the railroad company violated its duty as trustee aud the

courts, in order to correct this situation, indulge every

presumption for the beneficiary. The proposition that no

such narrow doctrine as that contended for by counsel for

the petitioners is applicable to the receivership in the in-

stant case is shown by the case of Terre Haute and I. R. Co.

_y. Cor, 102 Fed. Rep. 825 (7th Cireuit). In that case, the

railroad company leased from another railroad company

a line of road on a profit sharing basis. The court held

that the share of the gross earnings reserved to the

lessor in that lease was a trust fund and that the bond-

hoiders of the lessor company, the interest on whose bonds

the lessee company was required by the terms of the lease

{o pay from such gross earnings, were entitled to have the

reserved percentage of the earnings, misapplied by the

lessee company, restored by the receiver notwithstanding

the fact that the lessee company had commingled those

funds with its own and had operated the railroad at a

loss.

The court said:

‘*But it is insisted by the Indianapolis Company

that the excess of operating expenses over the earnings

of the Peoria Railroad necessitated and justified the

withholding of the thirty percentum, and the record

shows that a large sum of money came into the hands

of the receiver as a part of the estate at the time of

their appointment. We may, therefore, we think,

safely assume that that portion of the earnings which

otherwise would have gone to the Peoria Company

came into the hands of the Receivers, either as money

at the time they took possession of the road, or as a

benefit in virtue of the fact that they were consumed

in the general operating expenses of the Indianapolis

Company.’’

In that case, the court quoted from Peters v. Bain,

133 U. 8S. 670, 33 L. Ed. 696.

In this sort of a case, if in no other, the rule that

where a trustee mixes trust funds with his own, the whole

will be treated as a trust property, except so far as he,

the trustee, may be able to distinguish what is his own,

should be applied.

In the case of Central National Bank of Baltimore v.

Connecticut Mutual Life Insurance Co., 104 U. S. 54, 26

L. Ed. 693, this rule is stated thus:

‘“‘That, so long as trust property can be traced

and followed into other property into which it has been

converted, the latter remains subject to the trust, and

FN IE EAP ET TN ME TENT AEE ION: PR, NIE PST Oe ek" STILL Ly os ERI

that if a man mixes trust funds with his own, the

whole will be treated as the trust property, except so

far as he may be able to distinguish what is his own,

are established doctrines of equity and apply in every

ease of a trust relation, and to moneys deposited in a

bank account, and the debt thereby created, as well

as to every other description of property.’’

The court, in this last cited case, reviews the English

cases on this subject and points out that the original

doctrine, requiring money to be earmarked, or specifically

identified, had been abandoned in cases of trust relation-

ship, and quotes from the opinion of Vice-Chancellor Sir

W. Page Wood, as follows (1. c. 67):

‘Vice-Chancellor Sir W. Page Wood, in Firth v.

Cartland, 2 Hem. & M. 420, said that Pennell v. Defell

rested upon and illustrated two established doctrines.

One was that ‘So long as the trust property can be

traced and followed into other property into which

it has been converted, that remains subject to the

trust.’ The second is, ‘That if a man mixes trust

funds with his own, the whole will be treated as the

trust property, except so far as he may be able to

distinguish what is his own.’ ”’

And again the court (1. c. 70 0», (after quoting

from the opinion of the Master of Rolls, Sir George

Jessell), says:

‘‘He adopts the principle of Lord Ellenborough’s

statement in Taylor v. Plumer, 3 M. & S. 562, that ‘It

makes no difference in reason or law into what other

form different from the original the change may have

been made, whether it be into that of promissory notes

for the security of money which was produced by

the sale of the goods of the principal, as in Scott v.

Surman, Willes 400, or into other merchandise, as in

Whitcomb v. Jacob, 1 Salk. 161, for the product or

substitute for the original thing still follows the nature

of the thing itself, as long as it can be ascertained

to be such, and the right only ceases when the means of

ascertainment fail.’ But he dissents from the applica-

tion of the rule made by Lord Ellenborough when the

latter added, ‘which is the case when the subject is

turned into money and confounded in a general mass

of the same description,’ for equity will follow the

money, even if put into a bag, or an undistinguishable

mass, by taking out the same quantity. And the doc-

trine that money has no earmark must be taken as

subject to the application of this rule. The court of

appeals had previously applied the very rule as here

stated in the case of Birt v. Burt, reported in a note

to Ex parte Dale & Co., L. R. 11 Ch. D. 773.”’

This case of Central National Bank of Baltimore vy.

Connecticut Mutual Life Insurance Co., has been cited and

followed by this court, by the lower federal courts and by

nearly all of the state courts. It would be useless to at-

tempt to give this vast mass of citations. We desire, how-

ever, to call the court’s attention to the case of Smith v.

Township of Au Gres, 150 Fed. 257, 1. ¢. 260-265, (6th

Cireuit) and Standard Oil Company of Kentucky vy. Haw-

kins, 74 Fed. 395 (7th Circuit).

The case of Smith v. Township of Au Gres contains

an excellent diseussion of the doctrine above announced

and quotes from the opinion of Chancellor Kent in Hart v.

Ten Eyck, 2 Johns, Ch. 62, 1. ce. 108, as follows:

“Tf a party having charge of the property of

others so confounds it with his own that the line of

distinction cannot be traced, all the inconvenieuce of

the confusion is thrown upon the party who produces

it, and it is for him to distinguish his own property

or lose it.’’

In the case of Smith v. Mottley, 150 Fed. 266 (6th

Cireuit) 1. ¢. 268, the court refers to the Au (res case,

decided by it (150 Fed. 267) and reannounces the same

doctrine, citing additional cases in support thereof.

OE OCT OTE NIETO LED CDS CLINI A ENE EL ITER TEL “MLE TALES TERETE

PETER SE EERO ROGET

The court said (1. c. 268) that it was shown that three

times the amount of the trust fund claimed remained in

the bank from the time of payment to the time of the

assignment and came to the trustee. The court added:

‘“‘The burden of showing that his property has

been wrongfully mingled in a mass of the property

of the wrongdoer is upon the owner; but, when this

is done, the burden shifts to the wrongdoer. It is for

him to distinguish between his own property and that

of the innocent party.’’

To revert a moment to the agreed statement of facts,

and applying the rule announced in these cases, it was

certainly the duty of the railroad company, if the balances

in any of the banks were reduced below the amount of

the overcharges deposited therein, to show such fact. This

it did not do, but conceded that it always had on hand

more than the amount of the overcharges, with interest,

and that the deposits made from time to time in each of the

banks into which overcharges had gone were equal to the

withdrawals, and that it turned over to the receivers more

than ten times the amount of the overcharges. It alone

had the evidence and it is a fair inference that if the

balance in any bank had been reduced below the amount of

the overcharges in that bank, it would have shown that

fact.

The cases cited by counsel for petitioners are not

in conflict with the decision of the circuit court of appeals

in this case or with the decision of the cireuit court of

appeals in the case of Love v. North American Company,

229 Fed. 103.

In the case of City of Litchfield vy. Ballou, 114 U. S.

190, 29 Law Ed. 132, the city had issued bonds which this

court held to be void, because they were issued in viola-

Mgrs eee

tion of the state constitution. Thereupon, the purchaser

of the bonds brought a suit in equity on the theory that,

notwithstanding the bonds were wholly invalid, the city was

in possession of the money, received for the bonds, or its

equivalent in property identified as having been procured

with the proceeds of the bonds. The evidence showed that

the money represented by the proceeds of the bonds had

long since passed out of the hands of the city. However,

the evidence showed that some of the proceeds of the

bonds had gone into a water works plant. A large part,

however, of the money, which had gone into the water

works plant, was obtained by taxation, or from other

resources of the city. It was not ascertainable how much.

The land, on which the work was constructed, was pur-

chased before the bonds were issued. The streets, through

which the pipes were laid, were public property into which

no money of the complainants had entered. In connection

with the allegations in the bill that the city was in posses-

sion of the money, the court said (1. c. 133):

‘“‘The money received by the city from Ballou

has long passed out of its possession and cannot be

restored to complainant. Neither the specific money

nor any other money is to be found in the safe of the

city or anywhere else under its control.’

Speaking about the tracing of the money into the

water works property, this court used the language set out

in petitioners’ brief. In this case respondents have traced

their money into the treasury of the railroad company

and from the treasury of the railroad company into the

hands of the receivers, and from the hands of the receivers

into the hands of the railway company, and have showed

that the stockholders of the old railroad company obtained

over forty-five million ($45,000,000.00) dollars of the stock

of the new railway company without paying anything for

¥ Here respondents’ money can be recleimed and deliver-

ed without taking others’ property with it and withovt in-

jury to other persons, or interfering with others’ rights.

Moreover, the decree of the lower court appealed from in

this Ballou case did not proceed upon the trust fund theory.

It found a debt from the city to Ballou and impressed a lien

upon the water works plant for the payment of that debt.

This court held that that was as much within the condemna-

tion of the constitutional provision as the express contracts

evidenced by the bonds.

The case of Schuyler v. Littlefield, 232 U. 8. 707, 58 Law

Ed. 806, simply anonunces the familiar doctrine:

‘“‘Trust funds deposited by a trustee in his indi-

vidual bank account are dissipated if the mingled fund

is at any time wholly depleted, and cannot be treated

as reappearing in sums subsequently deposited to the

same account.’’

The next case cited is Empire State Surety Co. v. Car-

roll County, 194 Fed. 593 (U. 8. C. C. A., 8th Circuit).

In this case Judge Sanborn (1. c. 604-605) undertakes to

announce the rules governing the enforcement of a_ trust

against the proceeds of an insolvent estate in the hands of a

receiver. After announcing the general rule:

‘‘It is not sufficient to prove that the trust property

or its proceeds went into the general assets of the in-

solvent estate and increased the amount and the value

thereof which came to the hands of the receiver’’ (cit-

ing |. ec. 604 and a number of cases),

the court stated (1. ¢. 605) the second rule on this subject,

which is as follows:

‘‘Proof that a trustee mingled trust funds with his

own and made payments out of the common fund is a

sufficient identification of the remainder of that fund

coming to the hands of the Receiver, not exceeding the

smallest amount the fund contained subsequent to the

commingling. (Board of Com’rs v. Strawn, 157 Fed.

49, 51, 84 C. C. A. 553, 555, 15 L. R. A. (N. 8S.) 1100; Weiss

v. Haight & Freese Co., (C. C.) 152 Fed. 479; American

Can Co. v. Williams, 178 Fed. 420, 423, 101 C. C. A. 634,

637) as trust property, because the legal presumption is

that he regarded the law and neither paid out nor invest-

ed in other property the trust fund, but kept it sacred

(Board of Com’rs v. Patterson, (C. C.) 149 Fed. 229, 232;

Spokane County v. First National Bank, 68 Fed. 979, 16

C. C. A. 81).’’

The next case cited is the case of Winfield v. Alva Se-

curity Bank, 232 Fed. 847 (U. S. C. C. A., 8th Circuit). In

this case the complainants had purchased forged notes from

the cashier of the Alva Bank. The complainants had credit-

ed the Alva Bank with the purchase price of these notes.

Subsequently, these credits were entirely exhausted by

drafts and there was no evidence that any part of the fund

ever reached the Alva Bank. What was said by the

court in this Alva Bank case, after finding that there

was no evidence that any of the proceeds of the forged notes

ever reached the bank, may have been right on the facts in

that case, but is not authority on the facts in this case. What-

ever may have been the principles announced in that case,

they are clearly inapplicable to a reparation case like this,

the principles governing which have been stated by the United

States Circuit Court of Appeals in this and the Love case.

Certainly the robust morality of the opinion of the United

States Circuit Court of Appeals in the instant case must

appeal to all fair-minded persons. One of the deep-seated

convictions of Congress, as reflected by its legislation name-

ly, the Carmack Amendment, and the Elkins Act, designed

“ty eut up by the roots every form of discrimination, favor-

itism, and inequality’? (U. S. v. Koenig Coal Co., U. S. S. C.

Ady. Opinion, May 1, 1926, No. 12, p. 488, 1. c. 490), and by the

provisions of the Commerce Act, was to protect the ship-

per in the wholly unequal fight with the carrier. It is very

easy for the carrier to get the shipper’s money, and Congress,

as shown by its legislation, as construed by this court, is

determined that the shipper shall get it back, and has even

gone to the extent of authorizing the assessment of attor-

neys’ fees in favor of the defrauded shipper. It is the clear

intent of Congress, as shown in the Commerce Act, to restore

to the shipper all unjust and unreasonable charges, plus in-

terest from the date of payment, and attorneys’ fees, there-

by penalizing the carrier and predisposing the carrier to treat

the shipper fairly and not litigate bis just claims with him,

in season and out of season, day and night, Sundays and

holidays, for a period of twenty-two years, during which

time an opportune financial receivership is invoked to en-

tirely defeat the shipper, though the stockholders of the rail-

road company in receivership are enriched at the expense

of its creditors to the extent of over forty-five millions of

dollars.

The next case cited is the case of Federal State Bank v.

McFarlin, 257 (U.S. C. C. A. 8th Cir.).

This case involved the distribution of assets of a bank-

rupt grain company and announces the proposition, citing

the Carroll Company and Alva Bank cases, supra, that a

claimant, whose property has helped to swell the general

assets of a party, subsequently becoming bankrupt, has no

prior right in those general assets without specific identifi-

cation or tracing of the claimant’s property.

The next case cited, Scullin Steel Co. v. North American

Co., 255 Fed. 945 (U. S. C. C. A., 8th Circuit) merely an.

nounces the proposition that, where there is collusion and

fraud between the agent of the shipper and the agent of the

carrier, and the carrier had no notice of such fraud and was

not enriched by it, the money so siphoned from the shipper

could not be treated as a preferred claim over other credi-

tors of the carrier.

The next case cited is Weideman v. Newton Arms Co,

271 Fed. 302, 304 (C. C. A., 2nd Cireuit), in which the court

held that, where a trust claim was asserted on the ground that

money had been secured from claimant by the false repre-

sentations of a corporation, it was necessary to show, first,

that such representations were relied on, and, second, trace

their money into some particular property or fund which

came into the hands of the receiver; and it is not sufficient

to show that it was used by the corporation generally in its

business.

In that case the court pointed out (1. c. 303) that the cash

on hand had fluctuated down to zero, with liabilities of $400,-

000.00, and that all that claimants could prove was that their

money was spent in carrying on the business or procuring

certain articles of machinery and the like which ultimately

passed into the receiver’s hands (1. ec. 304).

How can this holding fit the facts in the instant case?

The next case cited is Titlow v. McCormick, 236 Fed.

209, 1. ec. 214, 215. This case involved the distribution of the

assets of an insolvent bank, where a trust was asserted by

one claimant. This case cites and follows (1. c¢. 211) the

Schuyler case, 232 U. S. 707, analyzed supra. This case also

announces the doctrine (1. c. 214) that, where a trust fund

has been commingled with other funds, still claimant is en-

Fak

Bs,

titled to recover if there remained in the possession of the

bank a sum of money equal to the amount due him, ‘‘Jt be-

ing the presumption of the law that, if moneys had been dis-

bursed out of such fund, it was the money which the bank

had the right to pay out, and not the money which was en-

trusted to it in a fiduciaru capacity’’ (italics ours). Again,

]. ec. 215, the court announces the same rule, quoting the case

of Brennan v. Tillinghast, 201 Fed. 609-614 (C. C. A., 6th

Cireuit), where the court declared that, when trust funds

were mingled with other funds there was a presumption of

law “That the sums first drawn out were for the moneys

which the tort feasor had a right to expend in his own busi-

ness, and that the balance which remained included the trust

fund which he had no right to use’’ (italics ours).

The next case cited on this point is the case of U. S.

National Bank of Centralia v. City of Centralia, 240 Fed. 93

(U.S.C. C. A., 9th Cirenit). This case involved the distribu-

tion of the assets of an insolvent bank in a receiver’s hands,

and announces (1. ce. 95) this proposition:

‘“‘The law impresses a trust upon funds (trust

funds so misapplied, that is commingled with other

funds) and to the extent that the said money or any

portion thereof, either in its original or a substituted

form, can be traced into the fund which came into the

possession of the receiver, the appellee is entitled to a

preference over the general creditors.’’ (Citing the Tit-

low, Schuyler and Brennan cases, supra.)

The court held in the Centralia case that there was no

proof that claimant’s moneys ever came to the Centralia bank |

or were traceable to any fund that came to the receiver’s

hands, and, therefore, there could not be any recovery upon

the trust theory. How this case applies to the facts of the

instant case, we cannot conceive.

The case of Farmers National Bank of Burlington vy.

Pribble, 15 Fed. (2nd) 175, reannounced the rule stated in

Empire State Surety Co. v. Carroll County, 194 Fed. 593, and

in the other cases heretofore referred to. However, it re-

versed the lower court because there was no proof that any

of the complainant’s money was ever received by the Farm-

ers Bank and therefore, of course, no proof of facts support-

ing a presumption that any part of plaintiff’s money came

into the hands of the receivers.

Some point is made by the counsel for petitioners and

also by counsel for amicus curiae Missouri Pacific Railroad

Company that the author of the opinion of the Circuit Court

of Appeals in this ease and one of the concurring judges

therein coneurred in the opinion of the same court in the

Pribble case. Strangely, they seem to get some consolation

from this fact, but all the fact indicates is that Judge Ken-

yon and Judge Stone were applying equitable rules to en-

tirely different facts in the two cases. Under the facts in

the instant ease, the overcharges were deposited in various

banks with moneys belonging to the railroad company. The

railroad company always had on hand, in cash, more than

the amount of the intervenor’s claims. It is true the rail-

road company constantly withdrew the money it had on de-

posit in the banks but it is equally true that it constantly

replenished the accounts of the banks in sums equal to the

withdrawals. The railroad company turned over to the re-

ceivers really over six hundred thousand dollars in cash and

the court, in both the instant ease and in the Love case, held

that presumptively the intervenor’s money was in the fund

turned over to the receivers. It is true that Judge Kenyon

in this ease held that the intervenor’s money was not ear-

marked and could not be traced into any distinct fund in the

eT tee ee

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hands of the receivers but that is not necessary in this case,

or in any case.

In the Love case, the court said:

‘*(1) The question now might be properly asked,

to whom do the excessive charges received by the Frisco

Company for the transportation of freight belong? They

certainly do not belong to the general creditors of the

Frisco Company, nor to the bondholders, nor the Frisco

| Company itself. Without question they belong to the

shippers. We must not be deceived as to the true status

of this claim, nor allow the bond, or the fact that the

claim is presented by the Corporation Cummission, to

blind us to the fact that the claim is one due to the ship-

pers for excessive charges paid by them to the Friseo

Company for transportation of freight. The shippers

not only paid the lawful charge. but they did more. They

paid an excessive charge. That payment was an illegal

exaction, and, as against the railroad company, and vol-

unteers, like the receivers, the money belonged to the

shippers after the payment the same as before. It will

be presumed that it was a part of the money in the

treasury of the company which passed to the receivers.

That money came into the hands of a court of equity.

What ought such a court to have done with it? Surely

it could do nothing but direct that it be returned to the

shippers to whom it belonged. It having been paid to

the bondholders, or for permanent betterment of the

property for their benefit through the agency of a court

of equity, that court, as a court of conscience, can do

no less than direct its restoration.’’

a II eee eoroorrreerreerreoeereee ee —EEEOEOoOoorreor ooo

Counsel for both the petitioners and for the Missouri

Pacifie Railroad Company seek to distinguish the Love case

from this ease. Counsel for ‘he Missouri Pacifie Railroad

Company make a strange distinction indeed. They say

that before the charges in the Love case were collected,

it had been adjudicated that the money belonged to the

shippers and the carrier merely collected it under the pro-

tection of supersedeas bond and not with any lawful claim

to title. They say, too, that since the claims in the Love

case accrued within six months from the date of the receiver-

ship, specific tracing of funds was not necessary. It is

manifest that neither counsel for petitioners nor for the

Missouri Pacific Railroad Company understand the Love

case.

Under the law of Okahoma, the Corporation Commission

was given power to fix intrastate rates. By various orders,

the Commission prescribed certain rates for the transporta-

tion of freight, considerably less than the rates then being

charged by the carriers in Oklahoma. Under the law of

Oklahoma, when rates are thus prescribed by the Commis-

sion, the carriers have a right to appeal direct to the

supreme court of the state from the orders of the Com-

mission and by giving a bond, they supersede the rates

prescribed by the Commission and complained of by the

carriers. In the Love case, appeals from the orders of

the Commission were taken by the St. Louis and San

Francisco Railroad Company and bonds were given as re-

quired by the Oklahoma statute and the rates prescribed

by the Commission were thereby superseded. The Supreme

Court of Oklahoma decided that the rates prescribed by

the Commission were in some respects too low and that the

rates fixed by the Railroad Companies were too high, and

fixed the rates covered by the orders of the Commission

at slightly more than the rates prescribed by the Com-

mission but considerably less than the rates charged ly

the carriers. Therefore, while the carriers were collecting

the excessive rates between the time that the orders of

the Commission were made and the time they put the new

rates as prescribed by the supreme court into effect, they

violated only their common law duty to charge just and

reasonable rates. In the instant case, the Railroad Com-

PARE TED ERREIE LEBREN i BET ELSE EE IEG GREG nS

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pany violated not only (1) its common law duty but it

violated (2) Section one of the Act to Regulate Commerce

and it acted (3) in the teeth of the order of the Commis-

sion finding that the rate that it was exacting was unrea-

sonable and unjust.

It is true that in the Love case, the Railroad Company

kept a record of the freight movements made between the

date of the orders of the Commission and the date of the

judgment of the supreme court, but how does that fact

distinguish the Love case from the instant case? The Rail-

road Company did in the Love case what it did in this

ease. It commingled the shippers’ money with its own. The

record of the shipments afforded a means of determining

the amount of the illegal exactions. Here the amount of the

illegal exactions has been determined by the finding of

the Interstate Commerce Commission, by the District Court

of the United States for the Western District of Missouri

and by the judgment of this court.

The case of Dayton-Goose Creek Ry. v. U. S., Interstate

Commerce Commission, et al., 263 U. S. 456, decided by this

court January 7, 1927, is by analogy an instructive case on

this question of the relationship between a shipper from

whom unreasonable and unjust rates have been exacted

and the carrier exacting them under Section 6 of the Act,

and of the effect of Section 15 (a) of the Act to Regulate

Commerce, added to the act in 1920.

It was contended in that case by the Railroad Company

that its income was derived from the transportation of

freight and passengers; that the rates so collected were

fair and reasonable to the shipper and were the rates pub-

lished under Section 6 of the Act; that its earnings from

such rates were the private property of the Railroad Com-

pany which could not by Congressional enactment, or other-

ae A SN NOSE aN cv THN

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wise, be made a trust fund for the United States or for any

other purpose without doing violence to the Fifth Amend-

ment to the Constitution. In other words, while it was

admitted that a carrier had ‘‘no right to collect or to de-

mand of the shipper a rate that’? was not in and of itself

reasonable for the service, yet, since, as was contended,

it obtained the legal and equitable title to the earnings which

were derived from legally published rates which were at

the same time reasonable and just to the shipper, Con-

gress could not take such earnings from it without violating

the Fifth Amendment to the Constitution, because the placing

of an undue limitation upon the use of property was

equivalent, under the Constitution, to taking of property

without due process.

Paragraph five of Section 15 (a) declares that because

it is impossible to establish uniform rates upon com-

petitive traffic which will adequately sustain all the car-

riers needed to do the business, without giving some of

them a net income in excess of a fair return, any carrier

receiving such excess shall hold it in the manner thereafter

prescribed as trustee for the United States.

The court, on this proposition said (1. c. 484):

‘*We have been greatly pressed with the argument |

that the cutting down of income actually received by

the carrier for its service to a so-called fair return

is a plain appropriation of its property without any

compensation, that the income it receives for the use

of its property is as much protected by the Fifth

Amendment as the property itself. The statute de-

clares the carrier to be only a trustee for the excess

over a fair return received by it. Though in its pos-

session, the excess never becomes its property and

it accepts custody of the product of all the rates with

this understanding. It is clear, therefore, that the

carrier never has such a title to the excess as to ren

der the recapture of it by the Government a taking

without due process’’ (italics ours).

By a parity of reasoning and by virtue of Section one

of the Act, which is declaratory of the common law, when

a carrier exacts from a shipper an excess over a just and

reasonable rate, such excess never becomes its property and

the carrier accepts custody of such excess with the under-

standing that it has no right to take or hold more than a

just and reasonable rate. If, because of Section six of the

Act, a carrier obtained both the legal and the equitable title

to an unjust and unreasonable rate or to a product of all

of its rates in excess of a reasonable return, then neither

the Commission nor Congress would have power to take

such excess away from it without compensation.

By a consideration of the whole act to regulate com-

merce and by a consideration of the basic rights of the

shipper and the carrier and from the very necessity of

things, unjust and unreasonable, and therefore unlawful,

exactions should be restored to the shipper whether there

has been a prearranged reorganization receivership or not.

Thvrs, the law fixing the rights and obligations of the car-

rier, the individual shippers and the publie will be observed.

It is not so long ago that favorite shippers could

put competitors out of business because they were able

to obtain better rates, either by rebates or by discrimina-

tions, than their competitors. Suppose two competing

shippers on two competing railroads—because of the publica-

tion of an unjust and unreasonable rate, unlawful exactions

in large amounts are made from both shippers. Both ship-

pers, after the procedural steps in the Interstate Commerce

Commission have been taken, obtain judgments against the

respective railroads for the restoration of the excess over a

just and reasonable rate. One of the railroads goes into

a pre-arranged, consent receivership for the purpose of re-

organizing. The other road does not. One shipper has re-

stored to him in full the moneys illegally exacted from him.

The reorganized railroad says to the other shipper—

‘*No, we have gone into a court of equity and you can only

share potluck with our general creditors who voluntarily

became creditors.’’ In such a case, what becomes of the

uniformity which was one of the primary purposes of the

act to regulate commerce? The answer is manifest.

We will not be betrayed into making invidious com-

parisons between Judge Kenyon and Judge Sanborn, as do

counsel for the Missouri Pacific Railroad Company. We

have the greatest respect for both of those learned judges.

We can say this, however, with perfect propriety, that the

opinion of Judge Kenyon, in this case, reflects a court

of conscience working at its best. Judge Kenyon says:

‘Every consideration of equity and fair dealing demands

that these claims should not be lost in a labyrinth of

technicalities.’’ The principle underlying this point of view

should motivate every court of equity. It motivated the

court in the case of Commonwealth ex rel. v. Scott, 112

Kentucky 252, wherein it is said:

‘But it will be noted that these arguments emanate

from those whose interest and effort it is to defeat the

action; to defeat the recovery; to defeat all recovery

of their client. From that standpoint it is not criticised.

But the court must look beyond this position. They

cannot be satisfied with considering merely reasons

why it should not be done, but must look also to those

why it should be. Conceded a tax wrongfully levied

and collected of a community, in violation of the Con-

stitution. The citizen has paid it promptly, it being

ag my with legal taxes, which should be paid prompt-

ly that Government might be supporied. The sum of

such illegal tax is in the hands of the collector or county

LOGI IP GEILE OL IE, OE GREE AECL | I, eat Gy overage

court. The citizens who paid it, not the municipality

nor the collector, are entitled to it. Question for the

courts: How to quickly, justly, inexpensively restore

to the citizen his own? Now, if either form or substance

of right must be sacrificed or one made to conform

to the other, will the courts, in this day of practical ac-

tion, hesitate as to which will be made to yield? As

justice is the end and the procedure the means, we may

well regulate the latter to attain the former.’’

IV.

Without reference to their other equities, intervenors

are entitled to recover these excess charges from the new

company, the St. Louis-San Francisco Railway Company,

under the rule announced in the case of Northern Pacific

Railway Company v. Boyd, 228 U. S., and other cases to the

same effect, supra, relating to the right of a creditor to re-

cover against the reorganized company, where the stockhold-

ers of the original debtor company have been given an in-

terest in the reorganized company.

On this point we wish to call attention to the three follow-

ing cases which are apposite:

Central of Georgia Railway Company v. Paul, 93 Fed.

Rep. 878 (C. C. A., 5th Cir.).

Guardian Trust Company v. Cambria Steel Com-

mf et al., 210 Fed. 696, 1. e. 721 (C. C. A., 8th

Walden v. Bodley, 14 Pet. 164, 10 L. Ed. 398.

In the case of Central of Georgia Railway Company V.

Paul, Mrs. Paul intervened in the receivership case of the

Central Railroad and Banking Company of Georgia, ap-

parently after the property of that company had been sold

under foreclosure. The theory of her bill of intervention

was that as a stockholder of one of the subsidiary companies

of the Central Railroad and Banking Company of Georgia,

she was entitled to dividends on stock of such subsidiary com-

pany, which had been accruing, during a period of twenty

years prior to the receivership; that the dividends so due to

her constituted a trust fund, which, prior to the receivership,

was held by the railroad company, and, since that time, by

the Receivers and that she had an equitable lien upon the

property and assets of the Central Railroad Company, which

was superior to that of all other persons. In its answer,

the defendant admitted that the amount of dividends were

correctly stated in the intervention, but denied that the divi-

dends were ever held as a trust fund. After announcing the

doctrine underlying the decision in the case of Northern Pa-

cific Railway Company v. Boyd, supra, the court, through

Judge Pardee, stated on p. 885 of the opinion:

‘‘In one of the many orders issued by the court in

the liquidation proceedings was an invitation to the gen-

eral creditors of the Central Railroad and Banking Com-

pany of Georgia to intervene and assert their claims

against the funds derived from the sale of the ‘overflow

property,’ in pursuance of which the present appellee

intervened, asserting her claim. To recover the entire

amount of her demand from the new company, on the

view herein presented, she might have been driven toa

bill in equity; but as there has been a full bearing in the

present proceedings, and the appellant has been permit-

ted to make a full defense, and as the decree appealed

from does full equity Letween the parties, it may well be

affirmed without further pleading. Taking this view of

the case, it is unnecessary to consider whether there is

any trust or other fund still under control of the court

out of which appellee can be paid, or whether the appel-

lee’s claim is entitled to consideration as one in which a

special or general deposit to her credit was made in the

banking department of the Central Railroad and Bank-

ing Company of Georgia. The decree appealed from is

affirmed’’ (italics ours).

In the case of Guardian Trust Company vy. The Cambria

Steel Co. et al., the trust company was a creditor of the Kan-

NEES RINE INS Mail ee IY YEN MARE ANNIE ANG PLS IRR TN LENT NES ARENAS Oe EL DPM ENS AON

sas City Suburban Belt Railroad Company. Under the re-

organization plan adopted in the receivership of that com-

pany, and of the Kansas City, Pittsburg and Gulf Railway

Company, the Southern Railway was organized to take over

the Belt Company property, the railroad company property,

and the property of a dock company at Port Arthur, Texas.

The stockholders of all three of the defendant companies,

including the Belt Company, were taken into the reorganized

company, and participated in the stock of the reorganized

company. The same doctrine as that applied in the case of

Northern Pacific Railway Company v. Boyd was applied in

this Guardian Trust Company case, and it was held that the

Southern Railway Company was liable to the creditors of

the Belt Company. The issues between the Southern Railway

Company and the Trust Company were framed by an inter-

vening petition, filed by the Southern Railway Company, and

by an answer filed by the Trust Company. The Trust Com-

pany asked for no affirmative relief against the Southern

Company. It only prayed that the bill of the Southern Com-

pany be dismissed. It was contended that the Trust Com-

pany was not entitled to a decree for the payment of its claim

against the Southern Company because the Trust Company

filed no cross bill and made no specific prayer for said re-

lief in its answer. This court disposed of that contention

against the Southern Company, and in opinion, 1. ¢. p. 722,

quoted from the case of Walden v. Bodley, 14 Pet. at p. 164,

as follows:

“It would be a reproach to the administration of

justice if, in this case, the parties should be left by the

decision of this court apparently as remote from a final

determination of it as they were forty years ago. It is

true, the answer prays merely for a dissolution of the in-

junction, and that the bill may be dismissed. But the

court have, by the bill, answer and evidence, the equities

of the parties before them, and, having jurisdiction of

the main points, they may settle the whole matter. A

court of equity cannot act upon a case which is not fairly

made by the bill and answer. But it is not necessary

that these should point out in detail the means which the

court should adopt in giving relief.’’

On this point we also cite the following cases:

Guaranty Trust Company v. Missouri Pacific Ry.

Co., 238 Fed. 812, 1. ¢. 814-816.

McDonald v. Nebraska, 101 Fed. 171, 1. ¢. 177-182.

Chicago Ry. Co. v. Howard, 7 Wall. 392, 409, 74 U,

S. 392, 409, 19 L. Ed. 117.

a Co. v. L. N. A. € C. Ry. Co., 174 UV.

The last two of which are quoted supra.

Intervenors are entitled to recover upon the theory of

the rule underlying the right of preferential payment of

claims for labor, supplies, etc.

The finding on this point and the reasoning of the Mas-

ter’s report are so persuasive that we have excerpted the

same and incorporate it herewith in this brief (R. pp. 186-

190).

The operating income of defendant railroad company

from June, 1906, to May 27th was over $92,000,000.00. Dur-

ing the receivership the operating revenue largely exceeded

the operating expense, including taxes. The receivers turned

over to the railroad company over $5,000,000.00 after paying

out large sums of money from operating income as interest

on bonded indebtedness and for betterments to the road and

to equipment and for the purchase of new equipment.

Equity regards the substance and not the form. These

claims represent money illegally exacted from the shippers.

BETH CES RR Gee K LOL, Ret Aerx _—

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They are not and never have been voluntary creditors of the

defendant railroad. The test of the preferential equity of a

claim of this kind is its consideration. The consideration for

those claims is the money which the railroad company wrong-

fully and unlawfully obtained from the shippers. Money,

even more than supplies, labor, ete., is necessary for the ordi-

nary operation of a railroad in the usual course of its busi-

ness. Freight rates are the lifeblood of railroad operations.

Without them no railroad could own a wheel, much less turn

one. Under both reason and authority these claims are pref-

erential under this rule. Ag was said by the Circuit Court

of Appeals in the case of Love v. North American Company,

in which claims facts identical with the facts in this case were

involved:

‘**Petitioner’s claim also comes within the rule

which underlies the right to a preferential payment.

Freight rates are the lifeblood of railroad operation. It

will not be contradicted that if there were no freight

rates paid in the United States not a wheel would turn

on any road. What does the law say in regard to the al-

lowance of preferences? We accept the laws as estab-

lished by the Supreme Court of the United States and

by this court, as follows :

‘The class of claiims which under the decisions

of the supreme court may lawfully receive an equit-

able preference in payment out of the income or out

of the corpus of the property of a mortgaged rail-

road over the bondholders secured by a prior mort-

gage is limited to claims incurred for the current ex-

penses of the ordinary operation of the mortgaged

property in the usual course of the business of the

mortgagor. The test of the preferential equity of a

claim is its consideration, If its consideration was a

current expense of the ordinary operation of the prop-

erty of the mortgagor imeurred in the usual course of its

business for labor, supplies and like things necessary for

the operation of the railroad, within a limited time, usu-

ally not exceeding six months anterior to the appoint-

ment of the receiver, the claim may be preferred in pay-

ment, otherwise it may not be. * * *

‘We think that what has been heretofore said estab-

lishes that the claim of the shippers is a claim ip.

curred ‘‘for the current expenses of the ordinary

operation of the railroad in the usual course of busi-

ness of the road.’’ On principle it cannot be dis-

tinguished from payments to sureties who have signed

bonds to stay the execution of judgments and claims

for holders of unused tickets for refunds and many

other like charges which are habitually allowed and

have been allowed in the receivership of the Frisco

Company.’ ’’

It is urged by learned counsel for the defendant and the

railway company that the bondholders received no benefit

from these illegal exactions. It seems to the Master that

it might as fairly be said that the bondholders received

no benefit from the legal freight rates collected by this

company. While it must be presumed under the facts

shown that the shippers’ money always remained in the

freasury of the company, yet the shippers’ money operated

to swell the funds in the treasury of the defendant, and

thus made it possible or at least aided in making it possible

for the bondholders to receive the interest on their bonds.

It is again urged that the preferential allowance of

these claims would impair the vested interest of the bond-

holders. Surely it cannot be reasonably claimed that the

bondholders contracted for the security of unreasonable,

unjust and unlawful freight charges. When they took

their bonds they took them with the law written into them

which forbade the charging of an unreasonable and unjust

freight rate. It follows that the bondholders acquired no

interest of any kind in these excessive charges. Therefore,

the preferential allowance of these claims takes from the

bondholders nothing to which they are entitled.

NBER ERC 5 PRONE REO! NEVE INNS NAPOLI NS PENT A TIERRA Ley heuer AE IRIE Me eee ad

It is further urged by the defendant railroad and the

railway company that under the authority of the case of

Chicago & Alton Railroad Company v. U. S. & Mex. Trust

Co., 225 Fed. 940, these claims cannot be given preferential

allowance. In the opinion of the Master that case, except

to the extent that it announces the rule underlying the

preferential equity of claims of this kind, has no applica-

tion to this case. In all respects where that case is ap-

plicable to this case it is in harmony with the Love case.

In that case Chicago & Alton Railroad Company was

attempting to have allowed as a preferred claim ear re-

pair balances and money paid for the Orient Railroad for

fuel and for the Orient’s proportionate share of over-

charge and loss and damage claims on interline shipments

of freight received by the Chicago & Alton from the Orient.

In that case there was no surplus income and no diversion

of income. The Chicago & Alton was not a shipper from

whom the Orient had unlawfully exacted freight rates. It

was a carrier and had a balance due it under some inter-

line agreement. It had paid to others some overcharges

of some kind, part of which were chargeable to the Orient.

Under the authority of the Love case the claims involved

in the Chicago & Alton would not be entitled to preferential

allowance.

It is contended by the defense that interveners’ claims

are not preferentially allowable under this rule in any event

because they accrued more than six months prior to the

appointment of the receivers. The Master cannot agree

with this contention. It must be borne in mind that these

interveners are not voluntary creditors. It must also be

borne in mind that while the shippers’ causes of action

accrued at the time the illegal exactions were made, yet

, Meedagegah eens

their rights of action did not accrue until the Interstate

Commerce Commission acted in January, 1914. Their

rights of action did not become complete until June 15,

1914, which was the limit of time given by the Interstate

Commerce Commission for the defendant to pay these

claims. In the case of Love v. North American Company,

supra, the six months rule was not technically applied,

In the Love case the orders of the Corporation Commission

fixing the rates were made on July 3, 7 and 31 and on

September 14, 1911. The appeal from the orders taken by

the railroad company was not decided until December 5,

1912. The judgment of the supreme court made the rates

approved by it effective as of the dates of the original

orders. Therefore, part of the overcharges in the Love

case were collected as much as twenty months before the

receivership.

However, the six months rule is not an inflexible rule.

The period before the receivership in which claims of this

character must accrue depends upon circumstances. The

six months period is usually fixed because usually that is

a reasonable period, but it is discretionary with courts to

allow a longer period if circumstances warrant it. The

time must be reasonable, and what is a reasonable time

depends upon the facts of each particular case.

North American v. Lamont, 69 Fed. 496.

Southern Ry. Co. v. Carnegie, 76 Fed. 496.

Blair v. Ry. Co., 22 Fed. 471.

Mr. Justice Brewer says in Blair v. R. R. Co., 22 Fed,

471:

“There is no arbitrary time prescribed, and it

should be only such reasonable time as, in the nature

of things and in the ordinary course of business, would

be sufficient to have such claims settled and paid.

nerbueerresice , . saya ease

NS os SENTATION ORE Ry te CERI ARR EROS arches ete He nxn reopen aera

Six months is the longest time I have noticed as yet

given. Ordinarily I think that is ample. Perhaps, in

some large concerns, with extensive lines of road and

a complicated business, a longer time might be neces-

sary.”’

Where equity seemed to demand it, the federal courts

have not hesitated to depart from the short six months

rule. In Atkins v. Railroad Company, 3 Hughes 307, a

claim which accrued twenty-two months before the receiver-

ship was allowed. In Hale v. Frost, 99 U. S. 389, a three-

year period was allowed. In Burnham v. Bowen, 111 U.

S. 776, eleven months was allowed. In Union Trust Com-

pany v. Morrison, 125 U. S. 591, a three-year period was

allowed. In New York Guaranty Trust Company v. Ry. Co.,

83 Fed. 365-370, a claim for cable delivered twenty-six

months before the receivership was allowed. In that case

the court said:

‘‘The time that elapsed between the delivery

of the cable and the appointment of the receiver by

the state court would therefore be about twenty-six

months, or a little over two years. But it is to be ob-

served that the intervener began suit in the state court

of Washington before the receiver was appointed, on

October 5, 1893, which would be about twelve months

after the delivery of the cable. It recovered judgment

on April 3, 1896, which was subsequent to the appoint-

ment of the receiver by the state court. The period

of time that transpired between the time that the in-

tervener instituted its action and the appointment of

the receiver cannot properly be included in this com-

putation of time. Such delay as there was, incidental

to the proceedings in the state court of Washington,

cannot be imputed to nor tend to the prejudice of the

intervener’s rights. Without elaborating upon the

proposition any further, we are of the opinion that the

claim for the cable in question should be made a pre-

ferred debt.’’

DE RIE IRE CD totaal

It is plain that whatever delay there was in this case,

chargeable largely to the vigorous opposition made by the

Railroad Company, cannot be imputed to or tend to prej-

udice the interveners in their rights. The Master rules

this point against the defendant and the railway com.

pany.

There is no conflict between the Love case and the

ease of Chicago & Alton R. R. Co. v. United States &

Mexican Trust Company, et al., 225 Fed. 940, upon this

point. In that case, the complainant was seeking to re-

cover for car repairs, loss and damage claims on shipments

of freight and overcharges. The complainant’s claims in

that case amounted to nothing more than simple debts

of the Orient Company for labor done and for money

advanced by the intervenor for the mortgagor company

(225 Fed. 1. ¢. 943). The question of the right of a

shipper to recover overcharges was not involved in any

way, shape or form in that case.

As we have heretofore stated, rules of equity are

not inflexible but are elastic and adapt themselves to the

particular right to be recognized and enforced.

As we have heretofore stated, the principle common-

ly called the six months’ rule is of modern origin. It was con-

sidered inequitable that persons furnishing supplies or

labor to a railroad company, and presumptively contracting

for payment out of current income, should lose their money

because of the intervention of a court of equity in the

management of a railroad property. The courts reasoned

that the bondholders of a railroad company impliedly con-

tracted that persons furnishing supplies within a reason-

able time hefore the receivership would be paid out of

current income and would be paid out of the corpus of

the property if current income were diverted. What was

i ta eel ee

oa ee

a reasonable time within which such claims could accrue and

be recognized depended upon the facts and circumstances.

It is usually thought that if a claim is more than six months

old, the creditor did not even impliedly contract for pay-

ment out of current income but sold to the Railroad Com-

pany on the general credit of the Railroad Company. In

this case, the Railroad Company obtained the intervenors’

money against their consent. The reasons which underlie

the rule under which supply creditors are entitled to pref-

erential payment should certainly apply to these forced

claimants.

VI.

A court of equity, as a matter of public policy, will order

the overcharges in question repaid to the interveners, the

shippers and representatives of shippers of live stock.

A court of equity, as a matter of public policy, will

order these overcharges repaid to the shippers. In charg-

ing and collecting freight rates a carrier is exercising a pre-

rogative of sovereignty. It owes a public duty to charge

only just and reasonable rates.

‘‘A franchise which, in England, is a branch of

the royal prerogative, subsisting in the hands of a

subject, in this country can only be derived from the

Legislature. Franchises are here, as in England, vriv-

ileges of the sovereign in the hands of the subject.

Whoever claims an exclusive privilege with us must

show a grant from the legislature. A privilege or im-

munity of a public nature, which cannot be legally exer-

cised without legislative grant, is a franchise. * * *

‘‘Tnasmuch as it is the duty of the Government,

with respect to the welfare of the public in general and

of trade in particular, to provide safe and commodious

ways of communication, whence flows the right of the

state to oblige those who make use of the ways it pro-

vides to contribute to the expense of making and main-

taining them, i. e., the right to levy tolls, it follows

that the right to make roads and levy tolls is a pre-

rogative of sovereignty, and, in the hands of a subject,

is a franchise, which cannot be legally exercised without

legislative authority. * * °

‘*This franchise of the defendant is a privilege of

the sovereign in the hands of a subject. The subject

is, indeed, in the present case, an artificial being; but

the sovereign might have placed this privilege in the

hands of a natural person, and it might have been his

property, as it is the defendant’s property.”’

Blake v. Railroad, 19 Minn. 418.

See, also, Morgan v. Louisiana, 93 U. 8. 217.

Railroads are common carriers and owe duties to the

public. The rights of the public in respect to these great

highways of communication should be fostered by the courts,

and ‘‘it is one of the most useful functions of a court of

equity that its methods of procedure are capable of being

made such as to accommodate themselves to the development

of the interest of the public in the progress of trade and traffic

by new metheds of intercourse and transportation.’* See,

also, the case of Southern California Railway Company v.

Rutherford et al., supra, and the case of Mercantile Trust

Company v. St. Louis & San Francisco Railroad Company,

69 Fed. 193.

However, this point is also conclusively settled by the

ease of Love v. North American Company, 229 Fed., 1. ¢.

107.

Tn the case of the Mercantile Trust Company v. St. Louis

¢ S. F. Ry. Co., 69 Fed. 193, 1. ce. 198, Judge Caldwell trench-

antly said:

‘‘But it is believed this is the first instance in which

a court of equity has been asked to become, in effect,

something bordering very closely on a receiver of stolen

goods, and urged to hold the ill-gotten gains in trust for

the guilty party, and refuse to make restitution even of

PORE AS ARTIS LOS BINA AEE EOP AOR RE IRE I SERRA IS NYS REET RANE a Np SI AT PED

the smallest portion of them to the persons from whom

they were unlawfully taken. High considerations of pub-

lie policy, not less than the plainest principles of equity

and justice, demand that the property of the defendant

company in the custody of the court as a trust fund

should be made to respond to the payment of these judg-

ments. And if the lien of the judgments had expired

and the general order relating to the payment of debts

did not comprehend them under the admitted facts of

the case a special order would have to be made for their

payment.”’

The rule thus announced by Judge Caldwell was re-

announced by this cowrt in the Love case, 229 Fed., 1. ¢. 107,

as follows:

‘«There is another aspect in which petitioners’ equi-

ty appears equally strong. The railroad company got

this money into its treasury by superseding rates that

were fixed by authority of the state. When those rates

were sustained, the carrier was bound to restore its ex-

cessive exactions. This was a duty not only to the ship-

pers. It was a public duty owing to the state whose

orders had been superseded. It is a duty which this

court and the supreme court have always been scrupu-

lously careful to safeguard when superseding rates

pending judicial inquiry as to their validity. It is a duty

which a court of equity that has taken over the busi-

ness of a public carrier, by means of a receivership,

ought to be equally careful to enforce.’’

VIL.

Neither the reorganization nor the trust fund theory is

inconsistent with or abrogated by the remedy for the collec-

tion of overcharges prescribed by Section 16 of the Act.

It is urged by petitioners that, because of the provisions

of Section 16 of the Act to Regulate Commerce, the status

of interveners is that of general unsecured creditors, with

no right to priority over anyone. Under this section of the

act, if the Interstate Commerce Commission shall determine

that a shipper is entitled to an award of damages, it shall

make an order directing the carrier to pay the sum to which

the shipper is entitled on or before a day named. If the

carrier does not comply with this order for the payment of

money, then the shipper may file in the district court of prop-

er jurisdiction, or in any state court of general jurisdiction,

having jurisdiction of the parties, a petition setting forth

the causes for which he claims damages and the order of the

Commission in the premises. Such suit shall then proceed in

all respects like other civil suits for damages, except that

the order of the Commission is made prima facie evidence

of the facts therein stated.

Does this section of the act make the shipper, as to un-

lawful exactions of freight charges, a general creditor of the

carried against the shipper’s will? The United States Circuit

Court of Appeals held that it did not. This section does pre-

scribe a remedy at law which the shipper must pursue. But

it does not take away from him his equitable remedy to there-

after impress a trust, if the latter remedy is necessary in

order that he may get back that which was unlawfully taken

from him. Too much significance must not be attached to

the word ‘‘damages.’’ If a vitizen is robbed of his money, he

is damaged. If his property is taken away from him by fraud,

he is damaged. If it is taken away from him by duress, he is

damaged, and in all three eases he ean sue the wrongdoer

in tort for damages. He may also sue to impress a trust. The

status of the interveners cannot be determined by stressing

mere procedural terms. We must consider the substance,

and not the mere form. We must look back to the facts which

lie at the root of the transaction. It is the basic facts that

must determine the rights of the intervenors and their

remedies. We must not blind ourselves to the fact that the

NA Sawaalaes Pe BOW TR AA Sg

claims of intervenors are claims due to the shippers for

excessive charges paid by them to the Railroad Company for

the transportation of freight.

It is urged by learned counsel for petitioners and by coun-

sel for the Missouri Pacific Railroad Company, amicus curiae,

that all the remedies of the shipper, except the remedy pre-

scribed in section 16 of the act, are abrogated by the act.

Section 22 of the act provides:

“Nothing in this act contained shall in any way

abridge or alter the remedies now existing at common

law or by statute, but the provisions of this act are in

addition to such remedies.’’

It is true that this section and section 9 of the act have

been limited in their scope by the Supreme Court of the

United States. The case of Texas ¢& Pacific Ry. Co. vy. Abilene

Cotton Ol Company, 204 U. 8. 426, is the leading case on the

interpretation of these sections. In that case the plaintiff

brought suit to recover unreasonable freight charges without

having secured any finding from the Interstate Commerce

Commission as to the extent to which the rate was unreason-

able and unjust. As has been heretofore stated, the purpose

of the Act to Regulate Commerce was to secure uniformity

of rates and to prevent discriminations of all kinds, as well

as to prohibit the charging of unjust and unreasonable rates.

The supreme court held that if shippers could invoke the aid

of the courts without first going to the Interstate Commerce

Commission, then one of the objects of the act—to-wit, the

securing of uniformity—would be destroyed. One shipper

might go into one court and secure a judgment. Another

shipper, similarly situated, might go into another court and

fail. Two shippers might appeal to the same court and get

different results, depending upon the evidence presented.

NCES LLOE ILE MNE: SBMES

Rebates could be secured by fictitious suits, and all of the

evils of this character which the act sought to prevent would

be revived.

A shipper cannot maintain an action against a common

carrier to obtain relief from an alleged unreasonable

freight rate exacted from him for an interstate shipment

without reference to any previous action by the Interstate

Commerce Commission, where such rate has been filed with

that commission and promulgated as provided by the act

to regulate commerce, and is the rate which it is the duty

of the carrier, under that act, to enforce against shippers

until changed in accordance with the provisions of that

statute, since the independent right of an individual origi-

nally to maintain actions to obtain pecuniary redress for

violation of the act conferred by section 9 * * * must

be confined to such wrongs as can consistently with the con-

text of the act be redressed without previous action by

the commission; and the provision of section 22 that nothing

therein ‘‘shall in any way abridge or alter the remedies now

existing at common law or by statute, but the provisions

of this act are in addition to such remedies,’’ cannot be

construed as continuing in shippers a common-law right the

continued existence of which would be absolutely inconsistent

with the provisions of the statute. In other words, the act

cannot be held to destroy itself.

204 U. S., l. ce. p. 446.

It is, therefore, clear that those common-law remedies,

the continued existence of which in the shipper would be

absolutely inconsistent with the act, are abrogated. How-

ever, it is equally clear that those common-law remedies,

the continued existence of which would not be inconsistent

with the act, are reserved to the shipper. In considering

pe ee

this proposition it must be borne in mind that appeals by

implication are not favored. This rule is clearly stated by

the supreme court in this Abilene Cotton Oil Company

ease:

“In testing the correctness of this proposition,

we concede that we must be guided by the principle

that repeals by implication are not favored, and in-

deed that a statute will not be construed as taking

away a common-law right existing at the date of its

enactment unless that result is imperatively required;

that is to say, unless it is found that the pre-existing

right is so repugnant to the statute that the survival

of such right would in effect deprive the subsequent

statute of its efficacy; in other words, render its

provisions nugatory.’’

Of course, there is nothing in the remedy these inter-

veners are now pursuing which is inconsistent with the

Act to Regulate Commerce, or which is repugnant to the Act

to Regulate Commerce. On the contrary, the existence of

this remedy in this ease is necessary in order to bring about

and insure the uniformity which the Act to Regulate Com-

merce was designed to secure. The carriers who remained

solvent repaid to the shippers the illegal exactions. This

remedy puts the carrier in this case on the same footing with

the other carriers. ee

Intervenors contended, and still contend, that there was

nothing in the Act to Regulate Commerce depriving them of

the remedy pursued in this case, nor is there anything else

depriving them of such remedy.

The basic theory of the trust fund doctrine is the right

to recover money wrongfully and unlawfully and by duress

collected (39 Cye. 591; Oelrichs v. Williams and Oelrichs v.

Spain, 15 Wall. 221, 21 L. Ed. 1. ¢. 44) and the fundamental

legal maxim is, ‘‘Ubi jus, ibi remedium,’’ and, ‘‘Equity will

not suffer a wrong without a remedy.”’

Broom on Legal Maxims (8th Ed., p. 101 et seq.), citing

the celebrated case of Ashby v. White, 2d Ld. Ryam. 953, and

also the famous opinion of Chief Justice Marshall in the case

of Marbury v. Madison, 1 Cr. 137, 2d L. Ed., p. 60.

In Pomeroy’s Equitable Jurisprudence, Vol. I, Sec. 423,

this great authority on equity jurisprudence discusses the

above corresponding equity maxim and points out the wi-

versality of its application.

Its application has been so often exemplified that it

would be useless to attempt to give more than a few control-

ling authorities.

Toledo, A, A. &d N. M. Ry. Co. v. Penn. Co. et al., 54

Fed. 746, 1. ¢. 751, 752.

Southern California Ry. Co. v. Rutherford, et al.,

(Circuit Court, Southern District of California,

June 30, 1894), 62 Fed. 1. c. 797, 798.

The federal and state courts have often invoked and ap-

plied this maxim of equity, and the other maxims, namely,

‘*Kquity delights to do justice and that not by halves,”’ or, as

more commonly expressed, ‘‘ Equity will do complete justice.”

Again, ‘‘Equity regards that as done, which ought to be

done’’; and ‘‘Equity regards substance rather than form’”’;

and ‘‘Equity imputes an intention to fulfill an obligation.”’

In equity there is no wrong without a remedy.

Harrigan v. Gilchrist, 99 N. W. 909.

Mercantile Trust Co. v. St. Louis & San Francisco

Ry. Co., Oqden et al. Intervenors, 69 Fed. 193.

Sweet v. The Montpelier Savings Bank & Trust Co.,

69 Kan. 641 (77 Pae. 538).

Mathews v. Forslund, 112 Mich. 591.

Barksdale et al. v. Finney et al., 14 Grattan, 338.

Williams v. Youna, 81 Atlantie 1118.

Trader’s Bank v. Fraser, 162 Mich. 315, 1. e¢. 318.

Converse v. Sickles, 44 N. Y. Supp. 1080 (affirmed in

161 N. Y. 666).

Sugar Refining Company v. Fancher, 145 N. Y. 552,

l. e. 561.

+ >

The cases just cited also announce the proposition that

a judgment at law is, in many cases, not such an election of the

remedy as will preclude a bill in equity to impress a trust,

because there is no inconsistency whatever between the two

proceedings.

In pursuing the remedy pointed out by Section 16 of the

Interstate Commerce Act, intervenors manifestly made no

election, because that was the only remedy available, and be-

cause that remedy had to be pursued to its final conelusion

before any other remedy became available (Southern Pac.

Co. v. Goldfield Co., 220 Fed. Rep. 14, 1. c. 18).

Since there was no freedom of choice, the doctrine of

election of remedies cannot apply in this case (20 C. J., p.

21).

These points are so well demonstrated in the opinion of

the United States Cireuit Court of Appeals (R. pp. 764-767)

that no further discussion is needed.

VIII.

The claims of intervenors for said excess charges should

be paid with interest from the date of their illegal collection.

Louisville & N. R. Co. v. Sloss-Sheffield S. & I. Co.,

269 U. S. 217, 1. ¢. 238, 239, 240,

where the court holds:

‘*It has been the uniform practice of the Commis-

sion to recognize as an element of the damages, loss of

interest on charges unlawfully exacted; and, in order-

ing reparation, it has usually included as a part of the

damages such interest from the date of the payment.’’

Citing many cases of this court and of the Commission

in the decision and in Notes 10 and 11 supporting this con-

clusion. This case conclusively settles the question of inter-

est. This rule applies both to the trust fund theory and the

reorganization theory of liability. Petitioners’ cases cannot

apply because in this case, after a

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