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Illinois Cent. R. Co. v. Michigan Cent. R. Co.

SEPTEMBER 18, 1958.

ILLINOIS CENTRAL RAILROAD COMPANY, APPELLANT,

v.

MICHIGAN CENTRAL RAILROAD COMPANY, AND NEW YORK CENTRAL RAILROAD COMPANY, APPELLEES.



Appeal from the Circuit Court of Cook county; the Hon. CHARLES S. DOUGHERTY, Judge, presiding. Decree reversed and cause remanded with directions. JUSTICE SCHWARTZ DELIVERED THE OPINION OF THE COURT.

Rehearing denied September 18, 1958.

June 30, 1958. Supplemental Opinion,

This is an appeal from an order dismissing a suit for a declaratory judgment and for an injunction restraining breach of contract.

By an instrument dated January 5, 1894, the Illinois Central Railroad Company (Illinois Company) gave the Michigan Central Railroad Company (Michigan Company) the right to use its general passenger station house and the station grounds adjacent thereto in the City of Chicago jointly with the Illinois Company (and with such other railroad companies as the Illinois Company would permit) for "so long as the said premises shall be used for a general passenger station." For this right the Michigan Company agreed to pay to the Illinois Company an annual rent of $105,000. On January 2, 1930, the Michigan Company leased its entire railroad to The New York Central Railroad Company (New York Company) and on January 30, 1930, the Michigan Company assigned its interest in the contract to the New York Company. On July 7, 1956, the New York Company and the Michigan Company served notice of termination of their "lease" as of midnight January 4, 1957.

On September 18, 1956, the Illinois Company filed its complaint seeking to have the court declare that defendants had no right to terminate the contract; that the court order specific performance thereof and enter a temporary restraining order to maintain the status quo and a permanent injunction to restrain defendants from breaching the contract of January 5, 1894. To this, defendants filed an answer setting forth that the instrument in question was a lease; that a lease must have a certain beginning and a certain ending, otherwise it is considered a lease from year to year or month to month, depending on the rental period and as such this lease was terminated by the notice above referred to; but if defendants' position on this point is not upheld, the contract would be contrary to public policy and void.

The court heard evidence of the circumstances surrounding the execution of the contract, including the historical relationship of the Illinois and the Michigan Companies in the Chicago terminal, of events relevant to contemporaneous construction of the terms of the contract, and of admissions against interest. The court then stated that it was clearly the intention of the parties that the arrangement should last as long as the Illinois Company maintained the premises for a passenger station, but the law requires that a lease have a definite termination; that this lease had none and, pursuant to the case of Stanmeyer v. Davis, 321 Ill. App. 227 (1944), a lease having no termination date must be considered to be a lease from year to year, that being the period on which rental payments were based. Accordingly, the decree declared that the indenture of January 5, 1894 was a lease without a termination date; that the holding of defendants thereunder was a tenancy from year to year, and that the same was terminated by the notice given by defendants. It denied plaintiff's prayer for specific performance, vacated the temporary injunction previously given, denied the prayer for a permanent injunction and, having thus declared the rights of the parties, the complaint was dismissed for want of equity.

The relevant provisions of the contract in question are here summarized:

Recitals — the Illinois Company has constructed a station and laid out station grounds for passenger trains and business; the trains of the Michigan Company enter Chicago upon the Illinois Company's tracks; the Michigan Company wishes to acquire "the right to use" the general passenger station or parts thereof and the station grounds, and the Illinois Company is willing to grant to the Michigan Company a right to the "joint use" thereof with the Illinois Company and with such other railroad companies as may be permitted to participate in the use of said general passenger station and station grounds.

Article 1 — the Illinois Company retains control of certain rooms and apartments in the station house and certain parts of the upper floors of the baggage house, while the Michigan Company shall have the exclusive use of an office room in or adjacent to the building for its general baggage agent and its trainmaster and an operator from time to time. (No specific space was assigned to the Michigan Company.)

Article 2 — refers to the consideration as "rents hereinafter reserved to be paid by the [Michigan Company,]" and that the Illinois Company has "granted, demised and leased, and by these presents doth grant, demise and lease unto the [Michigan Company] . . . the right to the joint use" of the premises in question "so long as the said premises shall continue to be used for a general passenger station." There follows, in the same article, a proviso that nothing therein contained shall prohibit the Illinois Company from permitting other railroad companies to participate in the joint use of the station and grounds, so long as the Michigan Company shall not be deprived of or unreasonably restricted in its requirements for its own passenger trains and business.

Article 3 — the Illinois Company retains the general control, management and regulation of the premises.

Article 4 — it shall be the duty of the Illinois Company to keep the premises used in good order and condition.

Article 9 — the Michigan Company accepts the grants made to it and agrees that it will make use of the rights and privileges thereby granted and will continue to use the same "so long as the said premises shall be used for a general passenger station; and that for the right to use the said premises jointly, as herein provided, it will pay to the [Illinois Company] an annual rent of one hundred and five thousand dollars. . . ."

Article 10 — provides that in case the yard for storing and cleaning passenger cars shall be enlarged or an additional yard provided, valuation shall be made of the additional land, to which shall be added the cost of the improvement. Annual interest on the whole amount computed at 6% shall be the basis for an additional rent charge, and the Michigan Company shall pay to the Illinois Company such proportion of said annual interest as shall be just and equitable. If the parties fail to agree, the matter shall be arbitrated as provided in the agreement.

Article 11 — provides for the making of additional improvements on the station grounds and for the making of changes or alterations in those already provided, the Michigan Company to pay to the Illinois Company the same proportionate part of the annual interest on the cost of said improvements or changes computed at 6% as it is required to pay under Article 10.

Article 12 — provides that the Michigan Company shall pay its proportion of the cost of ordinary current repairs of the facilities, including salaries and wages of station master, baggage master, assistants and employees, cost of lighting and heating, insurance, taxes (except charter tax) and moneys paid and liabilities incurred for loss of property or injuries to persons, and various other items of operation and maintenance.

Article 13 — provides that the expense of maintaining and keeping storage and cleaning yards and of cleaning the cars, including wages of car cleaners and other employees, shall be charged to current account of expenses, and that the Michigan Company shall pay its proportionate part.

Article 14 — relates to keeping of accounts.

Article 15 — relates to damages to persons or property.

Article 16 — relates to apportionment of certain special costs.

Article 17 — the Michigan Company shall not assign the contract or underlet the same.

Article 19 — in the event of default in the performance of its obligations under the contract, and such default shall continue for 90 days after demand for performance, the rights or privileges granted shall "at the election of the Illinois Company, but not otherwise, at once cease and determine" and the Michigan Company shall yield up possession.

Article 20 — provides for arbitration of disputes.

The events which led to the making of the agreement and subsequent events throw considerable light on the issues in dispute. In 1852 the Michigan Company, having no right of way in the City of Chicago, entered the city under a contract by which the Illinois Company granted it joint operating rights over the Illinois Company's tracks from Calumet (now Kensington) to a point north of Randolph Street. From that time until the entry of the order appealed from, the Michigan Company and its assignee, the New York Company, have continuously used the tracks of the Illinois Company from Calumet north, for both passenger and freight business. Prior to 1892 a jointly owned passenger station was located north of Randolph Street. This station having become inadequate, the two railroads gave consideration to forming an independent company to build a new station and to the possibility of the station being jointly constructed and jointly owned by the parties themselves on the old site. However, in 1892 and 1893, after much negotiation, the new station was constructed by the Illinois Company on its land at Twelfth Street, without capital investment by the Michigan Company, and the contract of January 5, 1894, was entered into. It is established beyond doubt that both parties gave long and careful consideration to the construction of this station; that the station was built to accommodate both railroads; and that both intended that the arrangement created would last as long as the premises were used as a general passenger station. This is shown by minutes of meetings of directors and by correspondence between the presidents of the two companies wherein, among other things, the Michigan Company expressed concern that its rights for the future should be defined.

But even if the many documents showing the intention of the parties were not in evidence, the essential facts make it incontrovertible that this station was the product of joint negotiations and was intended and built for permanent usage by both railroads. The Chicago terminal was a very important terminal for both railroads. Of thirty-nine trains using the station in January 1894, eighteen were trains of the Michigan Company, seventeen of the Illinois Company, and four of a third company. During the period in which the Michigan Company used the terminal and its facilities, the volume of business greatly increased; the number of cars per train increased; changes were introduced in railroading and in technological development; and electricity replaced other fuel. These changes and improvements amounted to over $4,000,000. The Michigan Company approved the changes and they were added to the valuation on the capital account on which the Michigan Company paid interest, pursuant to the terms of the agreement, in addition to the annual payment before referred to.

The first question which presents itself for our consideration is whether this instrument is a lease, subject to the rule that it must have a date certain for termination, as stated in Say v. Smith, 1 Plow. Rep. 268 (1564) and applied specifically in one Illinois case, Stanmeyer v. Davis, 321 Ill. App. 227 (1944). It is argued that it is a lease because it uses words denoting a lease. It should first be observed that while the contract uses the word "lease" as a verb, it is nowhere designated as a lease nor does it designate the parties as "lessor" and "lessee." The use of the verb "lease" is not the same as an express characterization of the instrument as a lease. It uses the words "rent" and "let" and the phrases "hath granted, demised and leased," and "yield up undisturbed and peaceable possession." On the other hand, it uses the phrases "wishes to acquire the right to use," "grant of right of joint use in common with the Illinois Company and others," "rights and privileges" and other similar phrases, indicating that the instrument in question is something other than a lease.

[1-3] However, even if we assume that the parties called the contract a lease or that it contains words common to leases, that denomination would not be binding upon us. It is well established that the legal effect given an instrument is not to be determined by the label it bears or the technical terms it contains. It is the intention of the parties that will be given effect. If the implications and incidents of the writing and of the obligations which the parties assume are incompatible with the nomenclature used to describe the instrument or with the terms contained in a contract, the legal provisions of the contract will be given effect. In other words, if by calling this contract a contract or an agreement for the use of trackage and terminal facilities and not a lease, the obligations of the parties thereby become legal, we will consider it to be such a contract or agreement and not a lease. Bonde v. Weber, 6 Ill.2d 365, 377 (1955); Vermont Marble Co. v. Bayne, 356 Ill. 127, 133 (1934); Calame v. Paisley, 296 Ill. 618, 622 (1921); Geithman v. Eichler, 265 Ill. 579, 585 (1914); Consolidated Coal Co. v. Peers, 150 Ill. 344, 348 (1894). In Bonde v. Weber, supra, the court said, p. 377:

"It is too well established to require citation of authority that the legal effect to be given an instrument is not to be determined by the label which it bears or the technical terms it contains."

In Union Pac. Ry. Co. v. Chicago, R.I. & P. Ry., 163 U.S. 564, 582-583 (1896), an instrument in which it was provided that the Union Pacific Ry. Co. "lets the Rock Island Company into the full, equal and joint possession and use of its main and passing tracks" was under construction. The court referred to the fact that in several places in the instrument it was called a lease and the parties were called "lessor" and "lessee," while in the record of the proceedings of the executive committee of the Union Pacific Ry. it was called an agreement "granting trackage rights," and said that what the ...


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