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April 24, 1948

EWEN et al.

The opinion of the court was delivered by: HAND

This case has now come back to us upon objections to the report of the Master under the rules. *fn2" On July 29, 1940, we passed a decree, Section 24 of which, as amended by our opinion on April 3, 1941, 37 F.Supp. 917, we quote in the margin. *fn3" Early in 1943 the 'Central' filed the annual account between the roads required by Article Fourth of the Operating Agreement, to which the director of the 'Peoria' who had been appointed by the Bondholders filed objections. Thereafter and on Paril 1, 1943, the 'Central' petitioned for a supplemental order, appointing a master under this decree to hear and report upon the validity and amount of their claim against the 'Peoria' in the sum of $ 2,485,482.58, as of December 31, 1939; and by order entered May 20, 1943, we appointed a master to conduct such an inquiry. The parties to the accounting were the 'Central,' a protective committee of the Income Mortgage Bondholders, and the 'Peoria.' On July 2, 1943, we appointed an independent attorney to represent the 'Peoria' upon a petition of the 'Central' with the understanding that he should 'to the best of his ability as an attorney, protect the interest of the Peoria & Eastern * * * and * * * look only to the best interest of the Peoria & Eastern without regard to any * * * control,' by the 'Central.' The Bondholders engaged a firm of accountants who were given access to the books of the 'Peoria' and of the 'Central,' and who reported to them on June 30, 1944. This report the 'Central' took some six months to prepare to meet, and the hearings began on February 2, 1945. The Master took some four thousand pages of testimony, considered nearly six hundred exhibits, and filed his report on April 28, 1947. The original claim of the 'Central' had grown by the end of 1945 to $ 2,600,441.68; but the account as stated by the Bondholders showed not only that no part of this was due, but that there was due to the 'Peoria' over $ 12,000,000. By consent, neither party made any effort to carry the accounting back of January 1, 1920; but the Bondholders challenge the accounts for every year thereafter until the close of the year 1945. Before taking up the several items which make their challenge, it is necessary to consider (1) the underlying relations between the 'Central' and the 'Peoria' which determined their mutual rights and duties; (2) the effect of the annual statements of account of the 'Central' made to the 'Peoria' and to the trustees for the Bondholders; and (3) the Statute of Limitations. Throughout we shall assume an acquaintance with our earlier decisions; *fn4" but we will endeavor in our discussion to state of the separate items enough of the facts to make understandable what we say.


 The Duty of the 'Central' to the 'Peoria' and The Burden of Proof.

 As we said in our original opinion, the 'Central' completely dominated the 'Peoria' through the ownership of a majority of its shares, and the first question is, how far as a majority shareholder, it was free to use its power over the minority and the Bondholders to its own advantage; in short, to what extent it occupied the conventional position of a fiduciary. As the Bondholders point out, the Court of Appeals of New York in Farmers' Loan & Trust Company v. New York & N.R. Company *fn5" and Ticonderoga R. Company v. Delaware & Hudson Company *fn6" was concerned with the duties imposed upon one railroad as majority shareholder of another; but we cannot find in either decision any guidance in construing the agreement of February 22, 1890, under which the 'Peoria' was operated throughout the period before us. We shall assume that, as its majority shareholder, the 'Central' would have been subject to the usual limitations of a trustee in any dealings between the two, had it not been for the powers granted it in the 'Agreement'; but both the Bondholders and the 'Peoria' concede that these to some extent modified its duty. A moment's reflection shows that if it were to be held strickly accountable as a fiduciary in the conventional sense, the 'Agreement' could not have been performed at all. Both parties entered into it because, as it recites, they thought that it would be 'beneficial to the business and traffic of said railways that the same be put under one management'; and 'one management' presupposed that the 'Central' should have power to determine the interests of both in those mutual transactions which would constantly arise between the two. Moreover, it was apparent that those determinations could not be 'beneficial' at once to the 'business and traffic' of the 'Central' and of the 'Peoria,' unless the 'Central' were permitted to profit from the joint 'business and traffic.' Indeed there would have been no conceivable motive for its entering into the agreement at all, if it were bound to fix the terms of every transaction with an eye only to the interest of the 'Peoria.'

 The law has dealt with situations in which it is understood that an agent or a trustee is to deal with his principal or beneficiary in the interest of both; and the usual solution has been to say that the fiduciary must be 'fair' to the beneficiary. *fn7" In International Radio Tel. Co. v. Atlantic Communications Co., *fn8" the Circuit Court of Appeals for the Second Circuit accepted as a test: 'whether the proposition submitted would have commended itself to an independent corporation'; and that is very close to what seems to us to be the proper test, although it needs further analysis. Whatever the right rule, clearly it does not advance to a solution to say that the fiduciary must be 'fair,' or must not 'abuse' his power, or that he shall use it as the parties 'intend.' Here, as so often, a court must 'interpret' the words, by imputing to them that meaning which in the main it will gather from the dominant purpose of thedocument as a whole. When the 'Central' and the 'Peoria' declared their wish that both should 'be put under one management,' they could only have meant that the 'Peoria' should be treated as though it were a division of the 'Central,' so far as concerned the routing of traffic, the upkeep, disposition and distribution of rolling stock, the maintenance of repair shops, engine-houses and other buildinys. In short, the 'Peoria' was to become part of a single railway system, operated as a constituent unit after the conventional pattern in such cases. There were advantages and disadvantages in this, the prospective balance between which seemed inducement enough to both. Implied was a duty of the 'Central' not to discriminate against the 'Peoria' by denying it that share of traffic which it would allocate to a wholly owned division; and implied on the other side was a surrender by the 'Peoria' of any right to ask more; so much and no more was to be the general frame of their mutual relations. That does not, however, give any clue to what part of the income and of the expenses of the new system should be assigned to the 'Peoria,' and this is the source of most of the difficulties, because the 'Peoria' did not, and could not, appear as an independent party in any of the transactions of the 'Central' with third persons. The proper apportionment inevitably presupposed some hypothetical and fictitious dealings between the two, determined by the 'Central' in the interest of both; and it is necessary first to decide what, if any, general principle should govern these.

 Theoretically, the ideal principle, if only it were in practice capable of application, would be that the 'Central' should not use its power to the prejudice of the 'Peoria': That is, that it should fix the terms of any transactions between the two as though each had in fact exerted its bargaining power against the other at arm's length. Indeed, there are situations in which that can be done within a narrow margin or error. For example, an agent permitted to trade with his principal in fungibles, dealt in upon an active market, can fix with substantial accuracy the price at which the principal would buy or sell, if the two dealt at arm's length. In the case at bar, however, it must be at once admitted that in the transactions here involved, it is wholly impossible even approximately to set the terms upon which the 'Central' and the 'Peoria' would have agreed at arm's length. On the other hand it may in fact be possible, to set limits on either side outside of which one can say with some assurance that the parties would not have agreed at all: that is to say, that the 'Peoria' would have been unwilling to accept less and would -- with possible recourse to the Interstate Commerce Commssion -- have been successful in its refusal; and that the 'Central' on the other hand would have been unwilling to give more. In other words, although it is impossible to know whether the 'Central' did discharge its duty, as fiduciary, to divide the income and expenses as they would have been divided, had it and the 'Peoria' traded it out against each other, it may be possible to learn whether the actual division was worse than the 'Peoria' would have accepted, or could have been forced to accept. Under such a test the crucial question becomes who carries the burden of proof. If the 'Peoria' carries it, it will not succeed as to a given division, unless it was outside the range we have described; if the 'Central' carries it, it will not succeed unless it would have refused to deal at all on terms more favorable to the 'Peoria' than those it made. Decisions such as Geddes v. Anaconda Copper Mining Company, *fn9" and Pepper v. Litton *fn10" are quite beside the point; they dealt with occasions upon which the fiduciary -- a director, or a majority shareholder -- had not been authorized to deal with his principal. On the other hand, although we have not been able to find any cases which have explicitly laid down that the burden of proof is on the beneficiary, there are several in which the result appears to have depended upon just that. *fn11" They were situations in which the character permitted the directors to deal with the company; and in each the beneficiary failed because he had not affirmatively proved that the fiduciary had been 'unfair.' On this branch of the case we therefore conclude that the effect of the 'Agreement' was as follows. As to the actual conduct of the business -- the routing of traffic, the disposition and acquisition of plant or rolling stock, the locating of cars and all other matters of joint 'management' -- the 'Peoria' and the Bondholders have the burden of proof to show that the 'Central' managed the 'Peoria' as it would not have managed a wholly-owned division of its system. As to the division of the income and expenses, the 'Peoria' and the Bondholders have the burden of proof to show that, had the two roads been dealing at arm's length, the 'Peoria' would not have accepted the division made. In applying this second test, it must always be assumed that management as a single system over which the 'Central' has control is not to be embarrassed.


 Accounts Stated.

 The 'Central' insists that the Bondholders are concluded from challenging the accounts which were annually submitted by the 'Central' to the 'Peoria,' and by both the 'Central' and the 'Peoria' submitted to the trustees for the Bondholders. At the end of each year, in accordance with Article Fourth of the 'Agreement,' which we quote in the margin, *fn12" the 'Central' made up an account of the transactions between itself and the 'Peoria,' and submitted it to the trustees for the Bondholders and to the directors of the 'Peoria'; and the directors in each case passed a resolution approving the account as rendered. The 'Peoria' also submitted the accounts to the mortgage trustees of the Bondholders, who retained them without objection, though they did not formally approve them. Article Sixth of the mortgage of the 'Peoria' provided, among other things, that on or before the first day of March of each year the 'Peoria' should furnish the trustees with a statement of earnings and income; and, 'If the trustees shall not be satisfied with said statements, or if said trustees shall be notified in writing by the holders of bonds to the amount of one-fifth of the amount outstanding that they object to the same within thirty days after the same shall have been received by the trustees, it shall be the duty of the said trustees forthwith to notify the Railway Company of such objection.' The trustees had the right to inspect the books of the 'Peoria' by an expert accountant, for whose services the 'Peoria' would pay; and then the Article went on: 'If the said difference for any reason shall not be adjusted by agreement * * * it shall be lawful for and the duty of the trustees to file a bill in equity against the Railway Company in any court of competent jurisdiction, for an account of the net earnings and income under the provisions of this mortgage, and if it shall be adjudged in such action that there are such net earnings and income available * * * then, unless the Railway Company shall, within three months after such adjudication, pay the said balance * * * such non-payment shall constitute a default in the payment of interest, for which the trustees shall be authorized to proceed under the terms of the second, third and fourth articles of this mortgage. The remedy herein provided for ascertaining the amount of the net earnings, in case of dispute, shall be exclusive of all other proceedings, actions, suits, and demands whatsoever.' The Fourth Article of the mortgage provided that 'No delay or omission of the trustees or of the holders of the bonds hereby secured to exercise any of the rights and powers given to them * * * by these presents, shall be held to impair or defeat said rights and powers, or any of them, or be construed or taken to be a waiver of them, or of any of them, or an acquiescence in any default upon which the same may arise.'

 Had the 'Peoria' had not been under the control of the 'Central' there could have been no question that the annual rendition of these accounts and the express approval of them by the directors' resolution, would have made them accounts stated, and have concluded the 'Peoria' unless it could have opened them for mistake or fraud, of which there was neither. The Bondholders answer that, since the 'Peoria' was under the 'domination' of the 'Central,' the assent of its directors was no assent at all, and that the accounts remained merely accounts rendered. That is quite untrue. The directors were the authorized representatives of the 'Peoria,' and there is not a tittle of evidence that they did not honestly do their duty as they understood it: that is, that they did not examine the accounts and in fact approve the. What is, however, true is that, because of their equivocal position, as directors elected by and under the 'domination' of the 'Central,' their assent did not conclude the 'Peoria' or the Bondholders, if either chose to challenge their action. The critical fact is the until they did, and unless they did, the accounts stood as accounts stated quite as though the 'Central' had not 'dominated' the 'Peoria,' and from that it follows that whatever conduct or inaction disabled either the 'Peoria,' or the Bondholders, from making their challenge left the accounts as accounts stated. In short, the directors' consent, though voidable, was not void. There cannot be any doubt that the Bondholders did disable themselves from making such a challenge. Their trustees had received the accounts from both the 'Peoria' and the 'Central' and had retained them without objection, which was quite as conclusive an assent as the formal resolutions of the directors. *fn13" Moreover, this is the just result, plainly forecast in the mortgage, whose draftsmen were aware that just such disputes as have now arisen might arise, and who wished to prevent their settlement being put off until the evidence, then accessible, might have disappeared. For that reason they provided the Bondholders with full opportunity of acquainting themselves with how the 'Central' was discharging its duties, and gave them ample remedy for any derelictions they might discover. Moreover, this remedy was made exclusive so that the 'Central' might be able to know as it went along whether it might safely continue the joint 'management' in the way it had been conducting it.

 The Bondholders retort that the language, which we have quoted from Article Fourth of the mortgage, protected them against their own inaction or that of their trustees; and that consequently the continued absence of objection by either was without significance or legal effect. We do not agree. The provisions of Article Fourth which preserved the 'rights and powers * * * given by these presents,' irrespective of inaction by the trustees or the Bondholders, was intended to apply only to rights conditioned upon a defined default, and not to incidents of the exclusive remedy provided by Article Sixth for the ascertainment of net earnings and income. This construction is suggested both by the context and content of the very clause upon which the Bondholders rely. Article Fourth, in which it occurs, confirms to the trustees and the Bondholders' rights relating to a receivership and sale of the mortgaged property; rights which by their very nature could not come into effect until after a default. Indeed, under Article First the 'Peoria' as mortgagor was entitled to remain in possession until default. Again, by the very language of the clause in question the draftsman indicated his concern lest a failure to exercise their rights might be deemed 'an acquiescence in any default upon which the same' (the rights) 'may arise': Language plainly directed to rights dependent upon a default. Article Sixth makes it plan that the 'right' to object to the annual statements of accounts -- and in case of dispute to sue for an accounting -- cannot constitute a 'default' until entry of a judgment declaring that income additional to that originally reported is available for bond interest, and until that judgment remains unpaid for three months. Only after such a 'default' are the trustees empowered to proceed under Articles Second, Third and Fourth. Articles Second and Third are expressly confined to rights arising upon default, and the fact that Article Sixth places Article Fourth in the same category tends to support this construction. Furthermore, we find some significance in the verbal distinction between the 'rights and powers,' which Article Fourth was solicitous to preserve, and the 'remedy * * * for ascertaining the amount of the net earnings,' which Article Sixth made 'exclusive of all other proceedings.' This distinction may possibly also explain a curious difference between the several provisions for the Bondholders' control over their trustees. Under Article Sixth, the holders of only one-fifth of the bonds may initiate the 'remedy' for ascertaining the net earnings; but to compel the exercise of a 'right' upon a default under Article Second, the holders of one-quarter of the bonds are required. However that may be, we think it plan that the 'remedy' here referred to included the procedure expressly stated in Article Sixth 'for ascertaining the amount of the net earnings, in case of dispute' as well, of course, as all incidental procedural steps to that end: not until that 'remedy' resulted in a judgment, followed by a 'default,' did the 'rights and powers' referred to in Article Fourth arise.

 The Bondholders seek to escape the effect of these provisions by saying that, although they may have lost their rights as lienors on the income, they retained them as unsecured creditors of the 'Peoria'; and that, if the 'Peoria' be entitled to challenge the accounts, they are entitled to their share in any funds which may come into its treasury. One answer to this is that the 'Central' was itself to render the accounts to the Bondholders' trustees, whose assent made them accounts stated as between the Bondholders and itself, as much as between the 'Peoria' and itself. Another answer is that it would be altogether unreasonable to confine the effect of Article Sixth to the interests of the Bondholders as lienors, for that would accomplish nothing but to deprive them of their priority over other creditors of the 'Peoria.' That might have been a plausible purpose -- though it would not have been convincing -- if there could have been other unsecured creditors; but there could not, for the 'management' was to be in the hands of the 'Central,' and the 'Central' undertook to pay, not only fixed charges and taxes, but 'all claims arising out of the operation or management thereof.' Thus, if, in spite of the loss of their rights as lienors, the Bondholders remained unsecured creditors to the extent of any income which the 'Central' failed to pay, they would have been the only creditors, and the only difference in their rights would be that they must proceed by execution rather than by foreclosure. For the foregoing reasons we hold that, as to all questions which affected the income or expenses of the 'Peoria,' the accounts became accounts stated as against the Bondholders by their failure seasonably to object. The first objection made to the accounts was on February 24, 1943, and, as we have said, by the Bondholders' director; hence the Bondholders are concluded as to all net income which accrued before January 1, 1942.

 The 'Peoria' is not so concluded, because the minority shareholders never assented to the correctness of the accounts, and the directors' assent was always open to challenge by them. It is true that they have never questioned the action of their directors, and that we have done what we could to protect them by appointing an able, assiduous and disinterested attorney for the 'Peoria.' Nevertheless we should be unwilling to deny them the benefit of any rulings which we make in favor of the Bondholders during the years in which the accounts are open to the Bondholders themselves, or, so far as the minority are not concluded by the Statute of Limitations, even to deny them the benefit of the same rulings back of those years. This position raises an added problem, however, in those years in which the Bondholders are concluded by the accounts stated. Should the fact that they lost the right to surcharge the accounts inure to the benefit of the 'Peoria' (i.e., the minority shareholders), or to that of the 'Central'? In other words, in computing the earnings properly due to the 'Peoria' should the 'Central' be allowed a credit in each of those years up to $ 160,000 -- four percent upon the principal of the mortgage? Article Third of the 'Agreement' is the only relevant provision: the 'Central' is to 'receive all earnings and income' of the 'Peoria' and to 'apply the net earnings' first to the payment of the fixed charges, to 'apply the balance * * * to the payment of interest' on the mortgage, 'and pay over to the Peoria Co. any amount thereof finally remaining.' That is a direction to the 'Central' how to dispose of the income; and, if the Bondholders had surrendered, once and for all and in advance, a share of their right to the income -- say, a fifth -- it may well be that in subsequent years the 'Central' would have had to distribute to the 'Peoria' what was left after they had distributed four-fifths to the Bondholders. That is not what took place. In each year before 1942 the Bondholders became at once entitled to any income beyond that disclosed in the accounts up to $ 160,000 before anything was to go to the 'Peoria'; and that right remained unimpaired throughout that year. It was only in the subsequent year that they lost it by assenting to the correctness of the accounts; the result was not different from a formal release of the claim that had accrued against the 'Central' in their favor. We cannot see why this should be treated as an assignment to the 'Peoria'; nor do we discover any equity which requires the 'Central' to pay to the minority shareholders sums which the 'Agreement' did not intend them to have. The equities being equal, we are content to let the legal right prevail, and we hold that, before the 'Peoria' becomes entitled to share in the income of any year before 1942, it must concede a debit up to the $ 160,000 which would have gone to the Bondholders.


 The Statute of Limitations.

 The disposition we have made of the defence of accounts stated makes it unnecessary to consider the Statute of Limitations as applied to the Bondholders. True, their trustees never objected to the accounts at any time, but we accept as an equivalent the objection on February 24, 1943, of the Bondholders' director. Since, even so, the accounting cannot go back of January 1, 1942, no question of limitation arises. Not so as to the 'Peoria,' whose rights it may assert on behalf of the minority. The relevant statute is that of New York, *fn14" and the action would be against the 'Central' upon the breach of their duty to account in accordance with Article Fourth of the 'Agreement.' We will assume for argument that an action brought against the 'Central' on an open account would require the accounting to go back to the first transactions between the parties; that is, to 1920. *fn15" However, for the reasons we have already given, it would be wrong to treat an action brought in the 'Peoria's' name, as merely an action upon an open account; it would not become such until the assent of the 'Peoria's' directors to the correctness of the accounts was set aside. Even though we assume, as we do, that the 'Peoria' may speak in the name of its minority shareholders, it must do so subject to those conditions which would have limited a shareholders' derivative suit brought in the 'Peoria's' name to set aside the assent. One of those conditions would be the Statute of Limitations, the period of which the New York statute fixes at ten years in suits which, like this, must be brought in equity. *fn16" As we have just said, the first objection to the accounts -- except for one that was later settled -- was by the Bondholders' director on February 24, 1943; and that objection did not extend to the accounts for earlier years. Nevertheless, on April 1, 1943, the 'Central' petitioned to be allowed to withdraw surplus income in payment of their advances, and this opened the accounts for the whole period save as they were foreclosed as accounts stated. We cannot find in the record when for the first time in the proceeding so instituted the 'Peoria' explicitly challenged the accounts stated, but we assume that it was some time during 1943. Since it must have been after April 1st of that year, it was more than ten years after the account became an account stated for the year 1932. Hence it follows that the 'Peoria' may insist upon a restatement of the accounts for 1933 and those which followed, so far as the accounts rendered were open to challenge on the merits.

 This concludes our preliminary rulings, and we proceed to the specific items of surcharge.


 Freight Revenues.

 The first of these items is that the 'Central' did not divide the freight revenues 'fairly': it is in three parts, called respectively 'Superimposition,' 'Minimums' and 'Equalization.' It was the general practice in the territory of the Central Freight Association to divide joint rates between t4o or more carriers, in proportion to the distance over which each hauled a shipment. That applied without qualification in the case of what is known as an 'overhead' carrier: i.e., one which hauls a shipment intermediately between the first or 'originating' carrier and the last or 'terminating' carrier. A division of the joint rate in proportion to the miles of each carrier's haul does not, however, make allowance for the cost of loading, switching, making up the train at the point of origin, or of the costs of discharge at the point of unloading. To meet these it has been long customary to compute the haul of a shipment by adding what is called 'inflated mileage' at each end of the haul, and credit the 'originating' and the 'terminating' carrier with the addition. This is done by dividing the joint mileage into sections or 'blocks,' fixed by the consent of the carriers concerned. For example, if a shipment starts on Road A, passes over the rails of Roads B and C and ends on Road D, the distance which it has travelled on A and D will be divided into sections or blocks which we may call X, Y and Z, of Road A, and U, V and W, of Road D. No matter where on any block of Road A the shipment starts or ends, and no matter where on any block of Road D it ends or starts, the joint rate will be divided upon the assumption that Road A has hauled it over the whole of block X, or Y, or Z on which it has started or ended, and similarly as to Road D. True, neither Road A nor Road D will receive any return for the costs of loading or discharge, when a shipment begins to move, or comes to a stop, at the further end of a block; but as to all shipments beginning or ending in the middle of a block, it will receive a proportion of the rate increased by the number of miles of that block over which the shipment has not been hauled. By and large this is designed to make up for the extra costs of all shipments 'originating' or 'terminating' on that block.

 It often happens, however, that this allowance is not enough. Sometimes the proportion of a joint rate, which an 'originating' or a 'terminating' carrier will receive -- even though it hauls over two blocks -- will not pay it for its added costs at the beginning or end of its haul. In such cases it is the common, though not the uniform, practice to make an arbitrary allowance of twenty per cent of the joint rate to each 'originating' or 'terminating' carrier, if its proportion of the rate, calculated upon the end block together with any intervening blocks does not come to that much. This allowance is called a 'minimum.'

 The 'Peoria' does not join in the Bondholders' claims because its attorney does not think that the court has jurisdiction of the issue; he believes that the question of the division of a joint rate is for the Interstate Commerce Commission. *fn17" However, the Commission's power is confined to the division of 'joint rates,' appearing in 'joint tariffs,' and 'joint tariffs' must contain the names of the participating carriers who must file their 'concurrence or acceptance.' The 'Peoria's' name did not appear on the divisions of joint rates, nor did it figure in fact as a carrier at all; the 'Central' divided the rate as though it was the carrier over the 'Peoria's' rails. No doubt, the same considerations which enter into the Commissions' divisions come up between the 'Peoria' and the 'Central'; but we are disposed to read the statute literally, as the Commission itself has done, *fn18" and to hold with the Master that it has no jurisdiction over the division of the 'Central's' share between itself and the 'Peoria.

 (a) 'Superimposition.'

 'Superimposition' is a name coined by the Bondholders to describe how the 'Central' divided the proportion of joint rates which it received in cases where it was an 'overhead' carrier: that is, when the shipment passed over but did not begin or end on its own rails, but on the rails of the 'Peoria.' When the shipment left, or came upon, the 'Peoria's' rails for, or from, those of an outside carrier the question does not arise, for the 'Peoria' was allowed the 'Central's' share; but that was not the case when the 'Central' hauled a shipment over its own rails as though it were an 'overhead' carrier. As between itself and connecting carriers the 'Central' succeeded in getting established as two blocks in the division of through rates, one block, Peoria to Danville -- 127 miles -- and the other, Danville to Indianapolis -- 85 miles -- which together made up the 'Peoria's' total mileage -- 212 miles. Thus, if a shipment began or ended between Peoria and Danville, the 'Central's' share of the joint rate had a credit of 127 miles, and if between Danville and Indianapolis of 85 miles, which the 'Central' collected for itself. In accounting to the 'Peoria' for the income so received the 'Central' did not, however credit it with the amounts so collected; but in place thereof it substituted what it somewhat naively called 'Family Percentages.' It divided the whole road into three blocks, of which the middle and eastern were each seventy-five miles, and the western, sixty-two; and it computed the credits to the 'Peoria' for terminal shipments as though these had been the blocks on which its own share of the joint rates had been computed. The Bondholders have christened these substitutions as 'superimpositions,' and say that they were 'unfair.'

 So far as we can see, the 'Central' does not really seek to defend this substitution beyond suggesting that in the end things probably evened up, the 'Peoria' gaining upon some shipments what it lost upon others. That however is not an answer unless the practice was defensible in itself; and if it was not, the account must be to this extent restated. The Bondholders do not question the propriety of the divisions of joint rates between the 'Central' and connecting carriers, including the blocks made use of for that purpose, but they say that the 'Peoria' was entitled to the same amounts which the 'Central' secured by those divisions. Whether the 'Family Percentages' were 'fair,' depends -- under the standard we have set -- upon whether, had the 'Peoria' been negotiating divisions of the joint rates as an independent carrier, it and the 'Central' would have agreed upon the same two blocks that the 'Central' and the connecting carriers had agreed upon. The Bondholders did not indeed prove that this would have been the result of free higgling between the two; but we think that, as the record stands, the evidence was strong enough to put the 'Central' to a rebuttal which it did not make. It cannot deny that the blocks, as between itself and the connecting carriers, provided 'fair' compensation for the added costs of handling shipments at either end of the haul; yet those costs presumably would have been no less, had the 'Peoria' been an independent carrier. That being so, it is a reasonable inference that either by bargaining, or by recourse to the Commission, the 'Peoria' could have secured recognition of the same blocks, had it been dealing with the 'Central.' Notwithstanding that upon this, as the other issues, the Bondholders have the burden of proof, we hold that the evidence supported a positive inference upon the issue.

 Nor are we embarrassed that the Master found against the Bondholders. Into his general finding that the use of the 'Family Percentages' was justified, there necessarily entered a legal standard, or 'norm,' and such findings do not have the protection of the rule. *fn19" We hold that during the years that are open -- 1933 to 1945 inclusive -- the income of the 'Peoria' must be recast so as to credit it with 'inflated mileage' based upon two blocks divided at Danville; but the Bondholders will share in this only from January 1, 1942.

 (b) 'Minimums.'

 The Bondholders' claim as to 'minimums' is that the 'Central' could have obtained for the 'Peoria' 'minimums' based upon the blocks which it used, taken without including any other mileage. Ordinarily, as we have said, when a shipment passes over a whole block, and begins or ends within another block, both of the same carrier, the 'minimum' is based upon the combined mileage of both blocks; it is this combined mileage which must fetch twenty per cent of the joint rate, whether or not the mileage of that block alone on which the shipment begins or ends fetches twenty per cent. In its divisions with connecting carriers the 'Central' made no effort to secure 'minimums,' based upon the mileage over which shipments passed on the 'Peoria's' rails, and this failure is the basis of the claim. We do not understand that the Bondholders go so far as to say that, for example, the 'minimum' upon a shipment coming from east of Indianapolis and ending west of Danville ought to have been based on the block between Danville and Peoria; but it does assert that it should have been based upon the whole mileage of the 'Peoria' as it would have been had the 'Peoria' been independent.

 There was indeed evidence that in several cases the 'Central' had secured 'minimums,' based upon the combined mileage of a division, treated as though it were an independent carrier. Particularly striking was the case of shipments beginning or ending on the Springfield Division and passing through Cleveland; and there were other instances also. The 'Central' replies that in all these cases the practice had been carried over from a time when the mileage on which the 'minimum' was computed, had been that of an independent carrier which had been later consolidated with the carrier which was party to the division. That was the case with the Springfield Division, although the date at which the practice began of basing 'minimums' upon that division alone is uncertain. The evidence is baffling and unreliable, and certainly before the Cleveland, Cincinnati, Chicago and St. Louis Railway Company was united with the New York Central Railroad in 1930, we should be unwarranted in saying that the first of these two roads could have secured 'minimums' from the second, based upon the mileage of both blocks of the 'Peoria.' Moreover, the Master found otherwise. The Bondholders, however, argue that at least after 1930, when the two systems united, it must have been possible for the New York Central itself to grant such 'minimums' upon hauls which began or ended on its own rails. That is of course true, but it does not follow that it became the 'Central's' duty to do so. The situation thereafter can be looked at in two ways: either as though the 'Central' were a single system after a merger; or as though the Cleveland, Cincinnati, Chicago and St. Louis Railway Company retained the independent existence it had had before. On the first hypothesis the 'Peoria' had become functionally a division of the new system, enlarged by the addition of the New York Central Railroad, and there was no more reason to establish 'minimums' upon shipments beginning or ending on its rails than there had been before 1930 on the shipments beginning or ending on the rails of the Cleveland, Cincinnati, Chicago and St. Louis Railway, which the Bondholders do not claim. On the second hypothesis, although the New York Central Railroad would be regarded as a connecting carrier (as it continued to be regarded for other rate divisions) that is a faction which should be consistently applied; and, if so, there is no more reason for saying that it would have conceded 'minimums' upon shipments beginning or ending on its rails, than before 1930. On no theory did the Bondholders prove that the 'Central' was negligent in failing to get 'minimums.' Finally, there is a clear distinction between 'minimums' and 'superimpositions,' for the claim to the second is for the revenues which the 'Central' actually received.

 (c) 'Equalization.'

 'Equalization' is another word, coined by the Bondholders to describe the following situation and their proposed remedy for it. It applies for the most part, if not altogether, to shipments originating on the 'Peoria,' and bound over the 'Central's' rails to a connecting carrier. It often happened that, if these shipments had left the 'Peoria's' rails for an immediate connecting carrier's, the 'Peoria's' share of the joint rate would have been larger than when they went first over the 'Central's' rails, and thence to those of connecting carriers. The 'Central' routed all shipments (so far as it could, for the last word is always the shipper's) over as much of its own rails as it could, since that brings in the largest income to the system as a whole. The Bondholders do not complain of this; they agree that the 'Central' was free to route shipments so as to get the most return; but they do complain that it was not free to do this at the 'Peoria's' expense. By 'Equalization' they mean a surcharge in the accounts which shall return to the 'Peoria' those parts of the joint rates which it would have got, had the shipments been routed as the 'Peoria's' traffic manager, acting as the agent of an independent carrier, would have routed them.

 The claim would in any event be practically extremely difficult, if not impossible, to liquidate, because no one can now say how many of the shipments in question the shipper would not independently have routed just as they were in fact routed. However, the claim is invalid anyway; for once it be conceded that the 'Agreement' authorized the 'Central' to route the shipments with an eye to the interest of the system as a whole, the rest follows: If we assume that the 'Family Percentages' have been corrected, the 'Peoria' will have got its proper share of the joint rate over the route actually used. If it was not a breach of the 'Agreement' to choose that route, there was no breach of any kind; and, if the 'Peoria' is to recover more it can only be through an implied promise, to add an imputed income calculated upon income never earned at all. There is no possible basis for such a promise; on the contrary, whatever the financial ...

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