Central Trust Co. v. Bridges

57 F. 753 | 6th Cir. | 1893

TAFT, Circuit Judge,

after stating the facts as above, delivered the opinion of the court:

The Central Trust Company, after answering the bill of McBee & Co., challenged the jurisdiction of the circuit court to entertain it, by a motion to dismiss, and the denial of its motion is one of its assignments of error. The jurisdiction was sustained by Judge Key in the court below on the ground that the bill was ancillary to the bill of the Central Trust Company against the Marietta & North Georgia Railway Company. It was said by him that, as the bill of the Central Trust Company prayed the court to take possession of and sell the property in which McBee and other lien claimants asserted an interest, and thus prevented the latter from pursuing their usual remedy against the property in the state courts, they must have the right to appeal to the federal court to save their rights and protect their interests, either by enjoining the trust company from proceeding under its bill, or by adjusting ’ priorities between them and the trust company, even if the lien claimants, as between themselves and the Knoxville Southern Railroad Company, might not have;, had the requisite citizenship to entitle the court originally to take jurisdiction of McBe'e’s bill as an independent bill in equity. We think this was a correct view of the law under the decisions both of the circuit and supreme courts of the United States. See Conwell v. Canal Co., 4 Biss. 195; Minnesota Co. v. St. Paul Co., 2 Wall. 609; Krippendorf v. Hyde, 110 U. S. 276, 4 Sup. Ct. Rep. 27; Pacific R. Co. v. Missouri Pac. Ry. Co., 1 McCrary, 647, 3 Fed. Rep. 772; .

By the consolidation, McBee & Co. and the other lien claimants were put in the position of interveners in the original action brought by the Central Trust Company. Certainly, in that capacity, the circuit court for the eastern district of Tennessee would have jurisdiction to consider their claims. It comes with a bad grace from the Central Trust Company to object to the jurisdiction of the federal court to do equity tó lien claimants' in respect to property which by its own application has been taken into the custody of that court, and out of the reach of lien claimants, by ordinary process in the state courts. It is by no means clear that the bill of McBee & Co. could not be considered by the federal court as an independent bill; but, as the jurisdiction can be sustained on the ground already stated, it is unnecessary to consider the bill in this aspect. . .

The liens of the contractors and material men are asserted under an act of the legislature of Tennessee, -passed March' 29, 1883. The first section of the act provides that when a railroad company contracts with any person to construct or repair any part of its railroad, or to furnish material for such construction or repair, or to superintend the same, the person so contracted with shall have a lien for the amount of the debt thus contracted for and incurred, to continue in force for six months after the performance of the work or the delivery of the material, and until the termination of any suit commenced within the six months for its enforcement. The second section directs in what courts, how,' and in what manner, the suit shall be brought to enforce the lien conferred in the first section. The third section of the act provides that; when “any principal contractor [by which is meant one who contracts directly with the railroad companies] shall refuse to pay any subcontractor, material man or other person employed by him to assist in the fulfillment of his contract, such subcontractor or other person may, by giving notice to the railway company of this fact, and the amount and value of the material and labor furnished, bind any amount (not exceeding the amount claimed) then due and owing from the company to the principal contractor, and the amount so claimed shall be a lien in favor of the claimant superior to all others, to continue ninety days from the service of such notice and until the termination of a suit begun within the ninety days to enforce it.” Provision is made for the railway company to relieve itself, if sued by the principal contractor, by paying the amount claimed into court, where the contractor and subcontractor, duly summoned, shall try the issue between them. The claim provided in this section may be enforced by the subcontractor or other person by suit against the principal contractor as debtor and the railway company as garnishee. The fourth section makes provision for the employes of the subcontractors, and permits them, in a prescribed way, to acquire a lien on the debts due from the principal contractor to the subcontractor.

Under this law, the contractor must deal directly with the company to secure a lien for his work or material, or, if a subcontractor, then he can have no lien on the railroad, unless at the time that or after he serves notice of his claim upon the company the company shall owe money to his principal on the contract wrhich his subcontract has helped to perform; and his lien is limited to the amount so due and owing to his principal. In other words, the security of the subcontractor is the balance due the principal contractor from the company when the company receives notice of the subcontractor’s claim, and, after notice is given, the lien of the subcontractor is transferred from the balance due on the contract to the corpus of the railroad, pro tanto; but, if there is no balance due on service of the notice, there can be no lien.

In the consideration of the liens adjudicated below two questions, therefore, arise: First, did the lien claimant deal directly with the company, as principal contractor? Second. If the lien claimants were subcontractors under Eager as principal contractor, was there any sum due Eager, as such principal contractor, from the Knoxville Southern Railroad Company,' after the company was notified by the subcontractors of their intention to claim liens?

1. The theory upon which the master and the learned court below held that all the intervening petitioners dealt directly with the Knoxville Southern Railroad Company as principal contractors was that Eager was an agent of the railroad company in making the contracts. One may be liable for the acts of another as his agent on one of two grounds: first, because by his conduct or statements he has held the other out a& his.agent; or, second, because he has actually conferred authorii v on the other to act as such. The master reported to tb< court below that in no case did Eager, under or in the name &>, the Knoxville Southern Railroad Company,- make any contract with any one doing work or furnish-ing material for the road; that,the men who contracted with Eager knew very little of Eager, saw him only occasionally, made no inquiry into his real relation to the company, what interest he had in it,- or how he obtained money to carry on the work. In substance, the master- reported that the intervening petitioners believed that they were dealing with Eager as principal contractor. The proof fully sustains this conclusion. All the estimates introduced in evidence upon which payments were made, bear the name of Eager as principal contractor, and every circumstance in the case rebuts the idea that the intervening petitioners either believed or had reason to believe that they were doing their work or furnishing their material to the company instead of to Eager. The most conclusive evidence on this point is that nearly every one of the intervening petitioners subsequently brought suit and recovered judgment on his claim in the state court against Eager as principal contractor and against the company as garnishee.' It is said that this does not estop the lienholders from showing that Eager was actually the agent of the company, because Eager and the company had fraudulently misled them into thinking that there was no such relation of agency between him and the company. Conceding that no estoppel arises from the judgments, they have great probative force in establishing that neither Eager nor the company did anything or said anything from which the petitioners could infer the existence of the agency. Indeed, the very argument upon which the effect of the judgments as an estoppel -against the present contention of the petitioners that Eager was the agent of the company, is sought to be explained away has for its premise that the petitioners had no reason to suppose" that Eager was anything but the principal contractor, and were led to believe, both by him and the company, that no such agency existed.

It follows, necessarily, that Eager was not the agent of the company in contracting with the petitioners for the construction of the road, unless the company had in fact conferred authority upon him to act as its agent in the matter. An agency is created — authority is actually conferred — very much as a contract is made, i. e. by an agreement between the principal and agent that such a relation shall exist. The minds of the parties must meet in establishing the agency. The principal must intend that the agent shall act for him, and the agent must intend to accept the authority and act on it, and the intention of the parties must find expression either in words or conduct between them. Now, did the relation in fact exist? There certainly was a contract between Eager as an individual and the Knoxville Southern Railroad as a corporation, entered into before May, 1890, and probably much earlier, — certainly before any of the construction, lien claims for which are here involved, -ivas contracted for, — in which Eager agreed to construct the road at-.,a price of $20,000 in bonds and $20,000 in stock per mile, and ocher considerations. It is said ¡hat this contract was a sham and a fraud, dated back nearly three years, to save the bondholders of the Marietta & North Georgia Railroad Company, and to cheat the petitioners out of their claims. The fact that the contract was signed by Arthur as vice president shows that it must have been executed some months after its date, because the date is August 20, 1887, and Arthur was not elected vice president until 1888. Moreover, it was during 1888, that the president reported to the stockholders that the work was progressing under the North Georgia Construction Company as contractor, instead of Eager. But the contract was spread on the minutes of the company in May, 1890, so that it must have been executed before that time. The evidence of one or two witnesses points to its existence before March or April of that year. All of the work and labor sued for below was contracted for by Eager after March, and substantially after May, 1890. Even if the reduction of the contract to writing was delayed until 1890, this by no means shows that there had not been before that time a verbal contract, the terms of which had been fully understood between the parties. All the circumstances point to the existence of such a contract. Eager was principal- stockholder and president. of the North Georgia Construction Company, which was referred to on the company’s minutes as contractor in 1888; and Eager says that this company transferred its contract liabilities and rights to him. This is entirely consistent with the probabilities, and there is nothing in conflict with it. Now, whether the contract of the company was originally made with the Georgia Construction Company or Eager is immaterial in this discussion, if neither was the agent of the company, but was an independent; contractor. The delay in the execution of the formal contract with Eager was doubtless due to the fact that, in the minds of the individuals whose duty it was to attend to it, the Marietta & North Georgia Railroad Company and the Knoxville Southern Railroad Company were the same enterprise, and Eager’s contract; with the former was supposed to cover his work on the latter road, just as the bonds and mortgage of the former were evidently supposed to he, in effect, the bonds and mortgage of the latter. There is not, however, anywhere in the proof, a single circumstance or statement that either the company or its directors intended, or that Eager intended, his relation to the company in constructing the road to he anything other iban what he always said it was, and what the petitioners understood it to be, — that of principal contractor. The proof is undisputed that Eager received the bonds at the rate of $20,000 per mile of completed road from the trust company as contractor, and that he sold them as contractor, and this during the years from 1887 to 1890. He never accounted to either railroad company for the proceeds of the bonds. Neither company ever demanded such an account from him. He took them as his property, — as his compensation under a contract for work done. Such conduct is not to be reconciled with his being an agent either in the work or in the negotiation of bonds.

We are clearly of the opinion, therefore, that the contract of August, 1887, whenever executed, correctly represents Eager’s actual relation to the company in constructing its road. The contract was one out of which Eager hoped to make profit for himself. It is said that it is one of those contracts frequently condemned by the supreme court. This is true; but the vice of such contracts is not that they do not represent the real relation between the parties, but that they are contracts made by a corporation with one who exercises such an undue influence over the directors, by reason of his relation to them as principal stockholder or otherwise, that it is inequitable and unconscionable for him by such influence to secure individual profit to himself at the expense of the corporation and its other stockholders and bondholders. On this ground, the other stockholders or the bondholders or the corporation itself may call upon a court of equity to set aside the contract against the other party, but no third person can deny its legal existence so long as. those who are parties to it do not object to it. ■ It is manifestly absurd to say that the petitioners who supposed they were dealing with Eager as an individual were injured by a contract made by him with the company for his personal benefit and profit, on the ground that he unduly used his influence with the directors of the company to secure this advantage to himself. As they were not injured by it, they cannot complain of it.

The reasoning by which the master, and presumably the court below, reached the conclusion that Eager was the agent of the company, may be seen from the following passage in his report:

“Above it was said that the Knoxville Southern Railroad Company had only a formal existence because of Eager’s ownership and control and direction of all its affairs and its officers and agents. This is true; but still in trying to discover and enforce the rights of the parties who may have dealt with said company and with Eager it is impossible to ignore the legal existence of said company. Eager’s omnipotence was exercised through formal legal methods, and his power was derived from and based upon Hie large stock he held in the company, which he received as part pay for the building of the road. But this interest of Eager in the road,' and his control of the company and all its officers and agents, made him its general agent, — its plenipotentiary; and whatsoever he did in the building of the road, whatever contracts he made, or were made by agents of his, for material or work for and upon said road, must be regarded as acts and contracts of the company itself, and binding upon it. He could not, by hiding his trae relation to the. company, shield the company from liability to those he dealt with, as soon as the facts were known that liability might be assorted.”

We are wholly unable to concur with the foregoing. Whether Eager hid his true relation to the company depends on whether he was its contractor or its agent. He said he was its contractor, and nothing stated by the master shows otherwise. The corporation' was a legal entity different from Eager, having its existence under the statutes of Tennessee, and governed by its directors in accordance with the law of its creation. Its directors made a contract with Eager. They intended that to be a binding contract on the company. Eager intended it to be. The company, through its legal and authorized governors and agents, therefore, made a contract with Eager. There is no law which makes it impossible for a majority stockholder to enter into a contract with his company. Wright v. Railway Co., 117 U. S. 72, 95, 6 Sup. Ct. Rep. 697. As already explained, the company may appeal to a court of equity to set such contract aside, if it is unfair or unconscionable, for fraud or undue influence; but until this is done the contract expresses the true relation between the parties. The fact that a man has controlling influence'with another does not make him that other’s agent unless the other intends such relation to exist, or so acts as to lead third persons to believe that it exists. What is true between individuals is true between an individual and a corporation. In the case at bar the master fully admits that there was no holding out of agency in Eager by the company. His finding that an agency in fact existed rests simply on the influence which Eager had over the company, and not in any intention of either that Eager should act as its agent in the construction of the road; and his conclusion is reached in the face of the fact, which he fully admits, that they both intended Eager to be an independent contractor. The master’s conclusion cannot be supported.

What has been said does not apply to McBee & Co% or to the co-complainants in their bill, or to the intervening petitioners, if any, who did not reduce their claims to judgment against Eager, for McBee and the others contend that they made their contracts directly with the Knoxville Southern Railroad Company, and refused to deal with Eager. The master made no express finding on this question. The evidence is conflicting. It was not necessary for the master, in the view he took of the case, to consider it. As the case must go back for other reasons, we shall not discuss this question of fact before it has passed under the consideration of the master, to whom it should be referred for réport. Kor do our remarks apply to the four petitioners below who recovered judgments against the company for rights of way conveyed directly to the company. We think they are entitled to a iien for the purchase price, and that the decree in their1 favor should be affirmed.

2. The second question is whether there is anything due Eager, as principal contractor, from the company for constructing the road. If there is any balance due, then, under the act of 1883, already referred to, to the extent of that balance, the intervening petitioners have a lien on the corpus of the railroad and the proceeds of its sale. It is said on behalf of the petitioners that the indebtedness of the company to Eager is conclusively established as against the Central Trust Company by the judgment which Eager recovered against the Knoxville Southern Railway Company in the state court for about |383,704. The, master reported that this judgment bad been fraudulently and collusively obtained, as averred in tbe answer and cross bill of tbe Central Trust Company, and that nothing was due Eager. An examination of tbe evidence/especially of tbe minutes of tbe Knoxville Southern Company, leaves no doubt that the judgment was tbe result of a conspiracy between Eager, tbe representatives of certain of tbe intervening petitioners, and the pliant officers of tbe Knoxville Southern Railroad Company, to place upon the minutes of that company an acknowledgment of an indebtedness to Eager of a sum sufficient to pay all tbe intervening petitioners out of tbe corpus of tbe road, and a surplus to Eager, although no such indebtedness in fact existed. However meritorious tbe claims of tbe petitioners against Eager as principal contractor, it was a manifest fraud for Eager, Bradley, Hood, and others using Eager’s controlling voice among tbe stockholders, to make an admission for tbe company of its indebtedness to Eager that was false to tbe knowledge of every one taking part in it. One thing done in tbe scheme is enough to characterize tbe whole transaction. By tbe contract Eager was entitled to $20,000 of stock a mile for 90 miles. Tbe capital stock of tbe company was only $1,500,000. This left $300,000' of stock which tbe company could not deliver except by increasing tbe stock to $1,800,000. Its charter gave tbe company full power to do so. Eager refused to permit this to be done, and refused to accept $300,000 of stock of tbe consolidated company about to be formed. Tbe committee reported, in tbe face of tbe plain words of tbe charter, that tbe company bad no power to increase its stock. It was then solemnly decided to refer tbe question of the amount due to Eager, in lieu of this stock, to three arbitrators, who were all of them interested and active in securing payment of tbe subcontractors’ claims against Eager. They reported that they bad concluded to fix tbe amount due, in lieu of $300,000 of stock, at $275,000. It is undisputed that at that time tbe stock was worthless, and that tbe road was insolvent. Eager bad 11,505 shares of a total of 15,000 at that time. What pecuniary advantage could it have been to him to have received 3,000 shares more in an insolvent corporation of which be already bad nearly three-fourths of tbe capital stock? Tbe arbitrators’ report Eager and other stockholders accepted as proper, and directed tbe company’s officers to settle with Eager on this adjudication, and the previous report of tbe stockholders’ committee that be was entitled to about $100,000 for extras. Tbe officers of tbe company followed tbe directions of this vote of tbe stockholders, employed counsel, who appeared in all tbe suits brought by Eager and bis subcontractors, and admitted the indebtedness of Eager to be as voted by Eager and bis fellow stockholders at the meetings above referred to. Ko court of equity- would allow judgments thus obtained to have any evidential effect against one whose interest in tbe property of tbe railroad company vested before tbe action of tbe stockholders’ meeting so that bis rights were prejudicially áffected thereby. Freem, Judgm, (4th Ed.) § 250. . -

We are thus brought to the question whether the Central Trust Company had any interest in the property of the Knoxville Southern which entitled it to object to and dispute the amount and validity of the judgments of Eager and the other petitioners establishing liens against the road. The mortgage of January, 1887, did not secure to the mortgagee therein any title to the railroad in Tennessee, because the Marietta & North Georgia Railroad Company, a corporation of Georgia, is not shown to have had any power under the laws of Tennessee or of Georgia to mortgage after-acquired railroad property in Tennessee. The mortgage bonds under that mortgage, however, were given to the contractor of the Knoxville Southern Railroad Company by the Marietta & North Georgia Railroad as his compensation for building the road, which both companies intended should ultimately become a part of the railroad of the Marietta & North Georgia Company. The Knoxville Southern Railroad Company agreed with its contractor, who negotiated the bonds for the purpose stated, that it would give a mortgage on its road to secure those bonds. The Knoxville Southern Railroad Company had power under its charter to issue bonds and mortgage its railroad to secure them. It would he yielding to a mere technicality to say that it could not, under such a power, mortgage its road to secure the bonds issued to build its road, simply because the bonds were issued iu the name of some other company. The debt was really the debt of the Knoxville Southern Railroad Company, and the bonds représen ted the debt. When the Knoxville Southern Company agreed with Eager to give a mortgage to the Central Trust Company to secure the bouds used by him in building its road to the extent of $20,000 a mile, it did what it had the right and power to do, and what it was its duty to°do. This agreement created an equitable mortgage upon the Knoxville Southern Railroad Company as old as the contract between Eager and it, of which it was a part. The contract goes back by its date to August, 1887, and by the evidence at least to March or April, 1890. It is said that the mortgage executed in July, 1890, in accordance with ihe agreement with Eager, was defective, for tin* reason that the meeting of stockholders at which it was authorized was not called by advertisements in a newspaper at Knoxville, Nashville, and Memphis, as required by statute. The mortgage was approved by all hut two shares out of a total of nearly 12,000 shares of stock. We shall not stop to consider this objection. It is enough to say that the resolution of May 20, 1890, and the mortgage, whether defectively executed or not, gave the Central Trust Company, representing the bondholders, a,n equitable lien on and interest in the railroad of the Knoxville Southern. Some point is made that the road as described in the 1887 mortgage is not the same as the one which was built, but we do not regard this as material. The language of the granting clause of the mortgage is ample to include any extension of the Marietta & North Georgia Railroad Company, as the Knoxville Southern in fact was. Nor do we think there is anv difficulty in the description in the mortgage of July, 1890. It identified the road intended to be mortgaged beyond dispute, and nothing else is needed in a description.' It granted all the property of the company “in and to any railway now completed, or hereafter completed, from any point in or near Knoxville, Tennessee, or elsewhere, to a connection with the Marietta and Forth Georgia Railway Company, together with such other main and branch lines or extensions of said railway as the company may be authorized to construct, or which it shall construct.” This description can only apply to the Knoxville Southern Railroad as built, and it sufficiently describes that. If the Central Trust Company acquired an equitable lien and interest in the property of the Knoxville Southern Railroad Company as early as March or April of 1890, then it certainly will be protected in a court of equity against fraudulent and collusive judgments establishing prior liens upon the property rendered long subsequent to the time when it acquired its interest. It was held in the ease of Hassall v. Wilcox, 130 U. S. 493, 9 Sup. Ct. Rep. 590, that a judg'ment in a state court against a railway company, recovered in accordance with a statute securing a contractor’s lien thereon, was not even prima facie evidence in a foreclosure suit against the mort>'gagee, because the statute under which the lien was recovered ¡made no provision for such a general notice as to give it validity as a proceeding in rem. It was there held that it was essential .to a proceeding in rem that there should at least be constructive notice by some form of publication or advertisement to adverse, claimants to appear and maintain their rights. As in the Texas statute, so in the Tennessee statute applicable to this case, no notice, either personal or constructive, to other than the parties, was provided foi;. ■ If the judgments, therefore, against the Knoxville Southern Railroad Company are to be taken simply as judgments in personam, it would seem to follow that the Central Trust Company was not bound by the findings and conclusions thereof, unless it was privy to the Knoxville Southern Railroad Company at the time the judgments were rendered. Freem. Judgm. § 154.

It is said, however, that as the interest of the Central Trust Company was only an equitable one, and the Knoxville Southern Railroad Company represented the legal title, the trust company is bound by the judgments as privy to the railroad company. Whether this distinction can be supported we need not determine. We do not rest our conclusion as to the effect of these state court judgments upon the principle laid down in Hassall v. Wilcox, but rather on the actual fraud and conspiracy of the officers and stockholders of the railroad, instigated and connived at by Eager and the representatives of the intervening petitioners in allowing such judgments to go against the company in order to defeat the equitable claim of the Central Trust Company,‘and to obtain an unlawful priority over it.

It is objected to the mortgage of July, 1890, that it was a preference of one creditor by an insolvent corporation, and therefore void under ,the law of Tennessee. If the intervening petitioners below have any claim at all against the Knoxville Southern Railroad Company, their claim is a lien prior in right to that of the Central Trust Company, and therefore they are not injured by the mortgage. If they have no claim against the Knoxville Southern Railroad Company, then they certainly cannot object to any disposition which that company may make of its property. There are no general creditors in this case entitled to make this objection to the mortgage. The only general creditor of the Knoxville Southern Railway in the whole case is the Mechanics’ National Rank for §3,000 on a draft discounted after the mortgage was given. It cannot object to previous conveyances by its debtor to secure a valid debt.

With reference to the question whether there was any indebtedness of the company to Eager or not, we have examined the record with care. The committee of stockholders reported that there was §100,000 or more due for extras, in addition to the §275,000 already alluded to. As this was the committee which took part in the fraudulent settlement already alluded to, the evidential weight; of their report is not considerable. The amount due, if any, depends upon the exact terms and requirements of the contract between Eager and the company. That refers to certain specifications, which are not set forth in the record. The view which the master took below of the relation existing between Eager and the company enabled him to reach the conclusion that the intervening petitioners were entitled to liens against the company without regard to the indebtedness of the company to Eager. We do not think that the question of the company’s actual indebtedness to Eager was as fully presented on the evidence, or as fully considered by the master, as the importance of the issue, under our view of the relations of the parties, requires. For that reason we do not pass upon it, but remand the case to the court below, with instructions to refer the question of the indebtedness of the company to Eager to the master for further consideration and report, with leave to all parties in interest to adduce such further evidence as they may desire.

We have thus far considered this case in the light of the provisions of file act of 1883. Under that act we conclude that the intervening petitioners can only claim as subcontractors, and have no lien against the railway company, unless they can establish an existing indebtedness on the principal contract from the company to Eager, and then only to the extent of that indebtedness. There are two other acts of the legislature of Tennessee to which reference has been made by counsel for the appellees, and upon which reliance was had by the master and the court below. They deserve notice here. The first act was approved February 24, 1873, (Acts 1873, p. 8, c. 8,) and gave authority to certain railway companies of the state to issue consolidated or income bonds, and to mortgage their properly to secure the same for the purpose of paying off their indebtedness. ¡Section 5 of the act provided that the provisions o'f the act should in no way impair any lien or mortgage or priorities of lien that the state of Tennessee, or any individual, or any corporation, had upon any of said railroad companies, or upon the property of such companies, and contained a proviso also that no such mortgage should bar any judgment against any “such” railroads for work or labor done, or damages done to person or property. The other act was passed in 1877, (chapter 72, p. 92,) to amend the law in relation to the consolidation of railways, and contained this proviso at the end of section three:

“Provided1 further, that no railway company shall have power under this act, or any of the laws of this state, to give or execute any mortgage, or other bind of lien, on its railway property in this state, which shall he valid and binding against judgments and decrees, and executions issued therefrom, for timbers furnished and worb and labor done on, or for damages done to persons or property in the operation of its railroad in this state.”

The effect of this proviso was considered by the supreme court of Tennessee in a learned and convincing opinion by Judge Lurton in Frazier v. Railway Co., 88 Tenn. 138, 12 S. W. Rep. 537. It was there decided that the proviso applied to all railroads of the state, and had not been repealed by a general act in 1881, authorizing railroad companies to issue mortgages; that the legislature had the right to impose the limitation as a condition precedent to the exercise by the companies charged with public functions of the power to mortgage all their property. The case there considered was a suit to fasten as a lien upon the property of the East Tennessee, Virginia & Georgia Railroad Company a judgment for damages sustained by the plaintiff from the operation of the same road when it was owned by a railway company against whom a mortgage had since been foreclosed, and from whom title had passed to the defendant. It was held that the lien was valid and binding, under the act of 1877, upon the road in the hands of the purchaser.

We do not think that these acts, or the principles announced in Frazier v. Railway Co., have application to the case at bar. The judgments, decrees, and executions for timbers furnished and work and labor done on, or for damages done to person or property in the operation of, its railroad, referred to in the act, are judgments, decrees, and executions againát the railway company; and therefore the timber furnished and the work and labor done must be so furnished and done that under the laws of Tennessee the company would be liable to pay for them to the contractor or material man. If, as we have found, under the act of 1883, the subcontractor or material man had nó claim against the company except after notice, and then only for the balance due the principal contractor, a judgment or decree could not be properly rendered against the company in favor of a subcontractor if no balance was due the principal contractor. If, however, such a judgment is obtained by a fraudulent1 statement of that balance, the statute of 1877 was clearly not intended to prevent a court, of equity from disregarding it, and examining the evidence, and determining therefrom whether any balance in fact existed. It is obvious, therefore, that under the circumstances of this case the acts of 1873 and 1877 add nothing to the force of the act of 1883.

We have considered the validity of the mortgages under which the Central Trust Company claims, and the right which the Central Trust Company derives therefrom, only for the purpose of determining that it has a sufficient interest in the property to give it a standing in this cause to object to the validity and enforcement of the claims of the intervening petitioners against the property of the Knoxville Southern Bailroad Company. The right of the company, as the mortgagee under the Knoxville Southern mortgage, to have .the property sold, cannot he contested by the intervening petitioners, unless they have themselves an interest in the property; that is, unless they have a lien under the act of 1883. If they have a lien under the act of 1883, it is indisputably prior to the rights of the mortgagee, the Central Trust Company; and after the sale of the road, which they pray, and which is also prayed by the Central Trust Company, their liens, if any exist, should he satisfied before the Central Trust Company receives any of the proceeds. If they have no lien upon the road, then it is immaterial to them what the exact right of the Central Trust Company is, and they cannot object to the equitable relief which has been accorded to the Central Trust Company by the decrees pro confesso against the Knoxville Southern Railroad Company and the Marietta & North Georgia Railroad Company, namely, of the foreclosure of the mortgage, sale of the road, and distribution of the proceeds. It follows, therefore, that after the payments of the liens which are found to he valid against the railway company in favor of the intervening petitioners, the proceeds must go to the Central Trust Company upon its mortgage.

These views render it unnecessary for us to consider the consolidation of the Knoxville Southern Railroad Company and the Marietta & North Georgia Railroad Company, its validity or its effect.

The decree is reversed, with instructions to the court below to take such further proceedings as shall he in accordance with ihis opinion.

Cross Appeals.

A number of lien claimants filed cross appeals. One of them, the Mechanics’ National Bank of Knoxville, sought to have a lien declared in its favor for three drafts. The first, for $2,000, was drawn by George R. Eager in favor of the North Georgia Construction Company upon H. A. Eager, treasurer, Herald Building, Boston, Mass., and was indorsed by the construction company, by George R. Eager, president. No liability appears on this draft against the Knoxville Southern Railroad Company, and no reason is shown why recovery should be had against that .company thereon. The third draft, for $2,535, was drawn by George R. Eager to the order of the North Georgia Construction Company upon H. A. Eager, treasurer, Herald Building, Boston, Mass., and indorsed by the North Georgia Construction Company, by George R. Eager, president. There is nothing upon the face of this draft, and nothing in the evidence, to indicate that this is an obligation of the Knoxville Southern Railroad Company. The two foregoing drafts are within the class of debts already referred' to in the opinion, made with Eager as contractor and an individual, but held by the master to he debts of the company, 'on the ground that he was acting as agent for the company. The second draft, for $3,000, was drawn by the Knoxville Southern Railroad Company, by -Melvin R. Gay, treasurer, in favor of itself, on the North Georgia Construction Company, Herald Building, Boston, Mass. It was accepted by the improvement company, by H. A. Eager, treasurer, and indorsed by the Knoxville Southern Railroad Company, by Melvin R. Gay, treasurer, and George R. Eager, president. This draft was duly protested, and entitled the holder to a judgment against the Knoxville Southern Railroad Company as an indorser. The fact that the money on the draft was deposited to the credit of Eager, and was used by him to pay for labor and material in the construction of the road, cannot by any theory of law give 'to the holder of the draft a lien under the act of 1883. It makes 'the holder simply a general creditor of the company, and entitled 'to share in the proceeds after those who have liens upon the ¡property shall have been paid, if any surplus remains. The appeal of the Mechanics’ National Bank is therefore dismissed.

. The appeal of the State National Bank is also dismis .ed, for tli • ; reasons that the drafts upon which it sought to have a lien adjudged to it against the Knoxville Southern Railroad Company show .that they were drafts drawn by George R. Eager and accepted by H. A. Eager, and did not have upon them any indorsements or acceptance of the Knoxville Southern Railroad 'Company. They are not, therefore, claims against the railroad company, and the appeal of their holder, the State National Bank, is dismissed.

We have considered all the other assignments of error that have been brought to our attention. There are some general assignments of error based on exceptions which appear in the record, but which are not referred to in the briefs of counsel, and which, in such a voluminous record, it is not possible for ns to consider without having onr attention called to them specifically, in accordance with the rule requiring that assignments of error shall fully point out the action of the court objected to. For these reasons the cross appeals are all dismissed.

Case Details

Case Name: Central Trust Co. v. Bridges

Court Name: Court of Appeals for the Sixth Circuit

Date Published: Aug 1, 1893

Citation: 57 F. 753

Docket Number: No. 88

Court Abbreviation: 6th Cir.