Spring Brook Railway Co. v. Lehigh Coal & Navigation Co. , 181 Pa. 294 ( 1897 )

Opinion by

Mr. Justice Mitchell,

This is a bill for an account, an injunction and other relief by the appellant against its mortgagee and lessee, which was in possession under a lease reserving a rent of twenty per cent of the gross receipts of the road, to be applied, to the'paymenh of taxes, certain liens, and the debt of the lessor to the lessee. The duty to account is not denied but the defendant claims that it has from time to time during the running of the lease accounted fully. On this point the master found in favor of the appellant, and holding that there had not only been no such accounting as the law required, but also that the defendant had failed to keep such books as enabled it now to account fully, he reported that the defendant should be enjoined from proceeding on its mortgage. Recognizing however, that this was as he describes it himself, a “ radical position ” "which the court might not approve, the master presented also an “ alternative report” in which the evidence is gone over with great care and skill, and an account stated, in which the amount due from appellant to defendant is fixed at $11,217.34, a little more than one third of the sum claimed by the defendant.

The court below declined to approve the master’s first recommendation, and adopted the alternative report. This action is the most important error alleged by the appellant. The assignments on this point however cannot be sustained. A conclusive answer is given by the learned judge below in the suggestion that as there was in 1882 an admitted debt of appellant to defendant, of $19,336.78, the failure to state an account correctly cannot raise a conclusive presumption of payment. But the learned judge went farther. During the larger part of the period involved the defendant sublet the road, and the judge finds that although the defendant itself did not keep such detailed and itemized accounts as appellant was entitled to, yet the sublessee did so in regard to nearly all the controverted matters, and from these books the master has in fact stated an account between appellant and defendant. While the master did not regard the evidence from which he made up his account as itemized or kept strictly as the law required, yet it has not been shown that it was not a substantial basis for an accounting, and it should be said further that its inadequacy was to some extent the appellant’s own fault. Accounts were rendered by defendant to appellant from time to time during the running of the lease, and while the latter complained that they were not such as it was entitled to, yet no further effort appears to have been made to get the details while they, were current and accessible, and even afterwards during the taking of the testimony under the present bill, the books of the defendant were offered to appellant for examination of the items, but the offer was not taken advantage of. The court was therefore right in refusing to adopt the master’s first report.

The learned judge then took up the alternative report and examined the account upon the evidence with great care, coming finally to a conclusion in substantial accord with the master. In so doing he laid down a rule at least sufficiently strict against the defendant. “ The standard of duty imposed on the defendant by the agreement of October, 1882, does not differ materially from that imposed on the usual mortgagee in possession. They are bound to account not only for what they actually received but also for what they should and could with reasonable care and attention have received. . . . While the agreement provides that the defendant might charge such rates as might be lawful and might seem best to it for its interests, the spirit of the agreement was that the road should be operated in the interest of both parties.” This rule the learned judge appears to have applied consistently throughout his examination of the account. The bone of contention, as he says, was the amount of the gross receipts, which was the agreed measure of the rent. As to amounts actually received there was no serious dispute, but it was claimed that defendant had failed to obtain earnings which it should have done, especially in the years 1885 to 1892. The railroad leased was a short road used principally for the development of lumber territory. In 1885 the sublessee, the Philadelphia & Reading Railroad Company, surrendered the road to its immediate lessor, the defendant, and the latter leased it to the Spring Brook Lumber Company, but instead of reserving rent at a percentage of actual gross earnings, it substituted a fixed rate per ton of freight carried. The defendant claimed that this was the best and most profitable arrangement it could make; that the only business the road had was carrying lumber; that the territory was nearly exhausted; and that what timber was left was practically under the control of the Lumber Company or its president, Mr. Lewis, who was threatening to extend another road which he controlled into the territory, so that this trade would be diverted, and appellant’s road become practically useless. Appellant on the other hand contended that this agreement was in violation of its rights, and that the defendant was bound to maintain both by itself and its sublessees the regular rates. The master found that defendant had departed from the agreement, and he therefore raised the rate upon which the account was to be stated from the thirty cents fixed by the parties to eighty-five cents per ton, which he found was a proper charge for what the defendant should have received from the lumber company. The court held the arrangement between the defendant and the lumber company not binding on the appellant and, after reviewing the evidence on this point, reached the result that the rate fixed by the master was “ as fair a conclusion as any other, and a legitimate inference from the evidence.” This was at least going as far in favor of the appellant as would be justifiable. There is no power in courts requiring more caution in its exercise than the post facto authority to say after a transaction is concluded how much more profit could have been made than actually was made by the interested parties.

Where a business is conducted by one who is not the exclusive owner, but is accountable in part as a quasi trustee to another, the rule undoubtedly is, as held by the learned court below, that it must be conducted with fair regard to the interest of both parties, and equity will scrutinize closely where there is any reason to suspect fraud, or even any opportunity for unfair advantage. But where as in the present case the interests of both parties are the same, to get the largest rent possible for the property, there is a presumption that the best was done which the circumstances permitted. Rates and prices must be fixed by tbe parties who áre actually conducting tlie business and therefore have the requisite knowledge. No business can be successfully managed in any other way, and in this case it was expressly agreed in the lease, that the defendant “may charge for transportation on the said railroad and its branches, any such rates as may be lawful, and as may seem best to it for its own interest,” and shall set aside twenty per cent of the gross receipts for payment of the taxes, liens, etc., and the reduction of the mortgage debt. It is thus clear that the better the terms of the sublease were for the defendant the better they would also be for the appellant, and when therefore the defendant considered it was doing the best it could for itself in the arrangement with the lumber company there is a strong presumption that it was using its judgment equally for the interest of the appellant. .It may be doubted whether, if the question were before us in the first instance, we should find the evidence sufficient to overcome this presumption. But the master and the court below have concurred in their conclusions, the defendant is not here complaining, and the appellant certainly has nothing to complain of.

Decree affirmed with costs.