SUNFLOWER OIL CO. V. WILSON, 142 U. S. 313 (1892)

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U.S. Supreme Court

Sunflower Oil Co. v. Wilson, 142 U.S. 313 (1892)

Sunflower Oil Company v. Wilson

Nos. 122, 123

Argued and submitted December 15, 1891

Decided January 4, 1892

142 U.S. 313


An oil company contracted with a railway company to purchase certain rolling stock and lease the same to the railway company at an agreed rental, the latter agreeing to purchase the same on or before a given day and pay for it in cash, or if it should be unable to do so, to turn it over to the oil company at the expiration of the contract in good order and condition. It was further agreed that freights earned by the railway by transportation for the oil company might be applied to the payment of the rental and of the purchase money. The railway company was insolvent and, before the expiration of the contract, its mortgage bondholders had proceedings instituted in equity for the foreclosure of their mortgage, in which W. was appointed receiver. The receiver continued to use the rolling stock. The oil company intervened, claiming to recover from the receiver the balance of the purchase money, and to secure the carrying on of the contract by the receiver and the retention by it of the amount of freights due from it, and their application to the payments of the rent and the purchase money. The receiver answered, declining to complete the contract, and averring that the rental had been paid in fall and that there was a balance due him for freight. He also

filed a cross-petition to recover the surplus.


(1) That the contract provided that if the railway company became unable to pay its current debts in the ordinary course of business, it should be released from its obligation on returning the property.

(2) That the receiver had the right to return the property upon complying with the terms of the contract in respect thereto.

(3) That notwithstanding the absence of a provision in the contract forfeiting payments already made in case of failure to complete the purchase, it was open to doubt whether an action at common law world lie to recover such payments.

(4) That the dismissal of the intervening petition did not necessarily involve the dismissal of the cross-petition, and that the court might do full justice between the parties.

(5) That the receiver was as much entitled to recover the money due upon the contract made with the railway company as with himself.

Page 142 U. S. 314

(6) That as between the railway company and the receiver, the latter was entitled to the money, subject to any valid setoff of the oil company.

The Court stated the case as follows:

This was an intervening petition by the Sunflower Oil Company to enforce the specific performance of a contract by the railway company to purchase certain engines and cars until a balance of $6,732.15, claimed to be due, should have been paid and discharged, and a cross-petition by the receiver to recover freights earned, in the sum of $10,258.86, in excess of the rental of such engines and cars.

The case arises upon the following facts. In 1877, the Mobile and Northwestern Railway Company, for the purpose of raising money to build its road, executed a trust deed upon all its property, in the amount of $250,000, to secure a series of bonds in that amount, to be negotiated. The railway company made early default in the payment of its interest upon these bonds, but notwithstanding its default, the bondholders suffered the property to remain in its hands and under the uninterrupted control and management of the company until November 15, 1886, when the original bill in this case was filed. During the continuance of such default, and in January, 1883, the president of the railway company contracted with the Baldwin Locomotive Works for two locomotives at a cost of $7,600 each, to be completed in the autumn of that year. Just preceding their completion, the only locomotive the railway then had became permanently disabled, and, though the new locomotives ordered were nearing completion, the company had no money, nor means of raising money, to pay for them. In this strait, the bondholders being unwilling to extend their assistance, application was made to the Sunflower Oil Company, appellant, for the means necessary to purchase the rolling stock and avert a total suspension of the company's business. Under these circumstances, a contract was executed October 6, 1883, between the oil company and the rail way company to the following effect: the oil company agreed to purchase from the Baldwin Locomotive Works two

Page 142 U. S. 315

locomotives and tenders complete, named, respectively, "La Flour" and "Yazoo," at the price of $7,600 each, and to invest the further sum of $2,400 in box and flat cars, and to lease the same to the railroad to January 1, 1886, for $1,408 per annum, payable in monthly installments. This was exactly eight percent upon the amount invested. The La Flour and the cars were to be paid for by the oil company in cash, and were at once to be and to continue its property until purchased by the railway company in the manner hereinafter provided. The Yazoo was to be purchased upon the obligation of the railway company, payable in six months from date, guaranteed by the mercantile firm of Fargason and Co., of Memphis, which guaranty the oil company agreed to procure, and until payment the title to the Yazoo was to remain in the Baldwin Locomotive Works. Should the railway company pay the obligation at maturity, the title to the engine was to vest in it; but should the same be paid by Fargason and Co., the title was to be and remain in the Sunflower Oil Company until the railway company should acquire title to it and the other property in the manner hereinafter set forth. Should the railway company promptly meet its obligation to the locomotive works for the Yazoo, then the rents payable to the oil company were to be reduced to $800 per annum, payable monthly. The railway company agreed to take all proper care of the rolling stock and turn the same over in good order to the oil company at the end of the contract, "should said railroad company be then unable to purchase the same at the price hereinafter mentioned," and agreed to use the same upon its line of road and to turn the same over at the demand of the oil company should it at any time violate its agreement.

The railway company further agreed that it would, on or before January 1, 1886, purchase all said property from the oil company and pay for it in cash at the cost price, and should also have the right at any time before that date to purchase the whole by paying the cash price thereof, in which event the contract for rent should immediately cease and determine, but the other terms of the contract were to remain unimpaired. The railway company

Page 142 U. S. 316

houses at several of its depots for the purpose houses at several of its deports for the purpose of receiving cottonseed in bulk for the oil company, and would provide scales for weighing seed, and would haul seed in bulk from various points along the line of its road for the oil company; that the agents of the railway company would weigh the cottonseed and purchase the same, if desired, free of cost for any such services; that it would haul all sacks for the oil company free of charge; that it would receive and haul all freights for the oil company at the Mississippi River, opposite Helena, free of charge for storage or commission, and that the freight paid should be at reasonable rates to be fixed at various times by the presidents of the two companies, but the freight on seed in bulk was not to exceed $1.75 per ton, and that on seed in sacks was not to exceed $2.00 per ton. It was further agreed that the railway company would not haul cottonseed in bulk for any other corporation or person, nor permit its agents to purchase or pay for cottonseed for any other corporation or person, and that it would give all needed facilities and preferences to the oil company to enable it to control all the cottonseed along the line of its road, "as it now is, or as it may be while this contract is in force." All freights earned were to be credited on the rental of the property, and, should there remain a surplus after paying the rent, it was to remain in the hands of the oil company and go as a credit upon the purchase money of said property. Interest was to be allowed said railway company on said surplus at the rate of eight percent per annum. The railway company was to furnish a monthly statement of freights at the end of each month while the contract continued, to be credited in the manner above stated. The contract was to continue in force until January 1, 1886, and on this day, January 1, 1886, a further contract was made extending the time for one year from that date for the purchase by the railway company of such engines and cars.

In November, 1886, Moses H. Katzenberger and others, holders of a majority of the bonds, filed a bill in the District Court of the United States for the Northern District of Mississippi to enforce a sale of the property and franchises covered by the trust deed, and praying for a receiver pending the proceedings.

Page 142 U. S. 317

Subsequently the bill was amended, and on December 16, 1886, Benjamin Wilson, the defendant and appellee in this case, was appointed receiver of the company. Having duly qualified, the receiver took charge of the road and began to operate the same under the orders of the court, using the rolling stock under an arrangement for that purpose. The same day the receiver was appointed, an order was made that the receiver continue any existing contract for the purchase or use of the rolling stock then used on said road until, for sufficient cause shown, such contract should be annulled. A subsequent order permitted him to "make any change in the contract heretofore existing" in relation to the rolling stock.

On February 14, 1887, the Sunflower Oil Company, appellant, which was not a party to the original bill, interposed by petition, setting up its contract with the railway company, alleging a balance due it of $6,732.15 on the purchase of said engines and cars, and praying that the receiver be required to carry out the terms of said contract by continuing to carry freights for the appellant, and by allowing it to retain all moneys due or to become due the receiver for such services, as credits on such rental and purchase money accounts, until the full indebtedness of the railway company was discharged. The receiver answered denying that the railway company had ever made any binding contract to purchase such rolling stock and that the contract was a contract of rental with a mere option to buy; that appellant had retained of the freights earned by said railway the sum of $10,258.86 in excess of the agreed rental of the property, and for the recovery of the same filed his answer in the nature of a cross-petition. The court was of the opinion that the relation between the parties was one of lessor and lessee, and decreed that the oil company pay to the receiver the amount above named, being the excess of the earnings of the road in the hands of the oil company over the amounts due for rents. From that decree, the first appeal was taken. At the same time, an account was taken of the amount due the receiver for the surplus of freights earned by the railroad, while in his hands, over the rents due the oil company during the same period, which

Page 142 U. S. 318

resulted in a further decree against the oil company, in favor of the receiver, for $3,729.82. From that decree, the second appeal was taken to this Court.

Page 142 U. S. 320

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