283 F. 50 | 7th Cir. | 1921
Lead Opinion
These appeals grew out of the failure of an electric railroad project. On a creditors’ bill the District Court appointed receivers, and thereafter intervening bills and petitions were filed by the trustee for bondholders, by the principal contractor and subcontractors to enforce mechanics’ liens, by the trustee in bankruptcy of the principal contractor to secure the rights of the bankrupt on behalf of creditors, by landowners to get the balance of purchase money, by parties who advanced money to the promoter to buy rights of way, by the receiver of an insolvent bank for an accounting with the principal contractor and the trustee in bankruptcy, by the hblders of receivers’ certificates, and by other creditors.
All these controversies were heard fully by the Master in Chancery. The printed record here comprises 4,480 pages, of which 276 pages are occupied by the master’s report. Next, these matters were completely reviewed by the chancellor, who entered a decree covering 112 pages of the record, fixing amounts and priorities, and ordering a sale of the property. In this court we allowed extra time for an elaborate oral presentation. To verify our conclusions in conference, the writ-' er hereof has examined the arguments advanced in 1,048 pages of briefs, and has referred to the disputed parts of the decree, the report of the master, and the evidence. In order to give members of the profession who have not appeared in these appeals an understanding of the various issues, it would be necessary to set forth all the material facts as we find them, because the law of the case can only arise from the facts. As this is impossible without having the publisher set apart a volume, or a major part thereof, we address only the parties and their counsel, believing that their acquaintance with the record and briefs will enable them to gather from this memorandum the bases of our decision.
I. Motions to dismiss appeals are overruled, because (1) they were taken in open court, in connection with the entry of the decree, and were consolidated in the District Court and here; and (2) all necessaiy opponents of each appellant were cited to appear and have been heard on the merits.
(3) The principal contractor used the certificates as collaterals to secure the payment of antecedent debts. If any creditor was led by misrepresentations to forego action to secure a mechanic’s lien, he might possibly have an action against the receiver; but that would not create in equity a lien upon the property in which actual lienholders were concerned.
Appellant in case 2821, holder of some of these void certificates, was allowed a lien to the extent that its money was traced into the receivers’ improvement of the property, on an equality with others whose money, materials or labors entitled them to liens. As no other appellant has assailed that part of the decree, it is of course allowed to stand.
Appellants in case 2749 claim that they should be put on the same footing. They were not proprietors whose lands were taken. Their relations with 'the promoter led them to agree to aid him (or his paper railroad company) by advancing money to be used in procuring rights of way from the owners of lands. They were not merely to be repaid their advances, whether actually applied to land purchases or not, but they were additionally to have substantial profits from the enterprise if the London syndicate (the only ultimate foundation of the project) should carry out its underwriting of the railroad bonds. They did not buy any of the lands. The promoter spent the money. Some deeds were taken in appellants’ names; others, in the name of the company. The decree treats all of appellants’ money that actually went into the railroad property as one sum, and gives them a lien on an equality with the liens of others whose money, materials or labors created the property. In a sense appellants made themselves partners of the promoter in the right of way part of the enterprise. Lor the promoter’s diversions of their money, contrary to his agreement that all titles should be taken in their names, they might have rights of action against him; but that would not create in them vendors’ liens on lands they never owned.' As no party by cross-appeal has challenged that part of the decree which awards a lien to appellants for
(1) The Constitution and statutes of Illinois may not thus be defied.
(2) Apart from Constitution and statutes, equity must hold that the printing press and fountain pen are not creators of bond values. Yet the promoter and principal contractor took and handled the bonds as though they had been issued by the railroad company for full value concurrently received.
(3) The trust company had no standing except to protect bona fide holders of bonds for value. There was none.
(4) Inherently the bonds were worthless, except when and as value was injected into them. Lorimer & Gallagher Company, under its contract with the railroad company, had no right to sell the bonds. It had a right to hold and use them as collateral, at 60 cents on the dollar, as the work progressed and the contractor became entitled to partial settlements. There is no showing as to what bonds, if any, were thus set off to the contractor as the work progressed.
(5) The bonds were placed with the La Salle Street Bank for safekeeping. It had knowledge of the limitations on Lorimer & Gallagher Company’s right of disposal, In pretending to sell bonds to itself, it violated its duty as custodian and the limitation on the contractor’s authority. In holding bonds as collateral, it was its duty, under the circumstances, to show that the contractor’s conditional right to use them as collateral had matured.
VI. The principal contractor and the subcontractors were properly granted liens under the railroad lien statute of Illinois (Hurd’s Rev. St. 1921, c. 82, §§ 7-14).
VII. That part of the decree which adjudges the state of the account between the receiver of the La Salle Street Bank and the trustee of Lorimer & Gallagher Company, bankrupt, is approved.
(4) As between the La Salle Street Bank and the Lorimer & Gallagher Company, depositor and borrower, Munday, the chief executive officer of the bank, was the bank.
(6) The foregoing five paragraphs cover what we regard as the main features of the accounting. Others are not deemed to require specific mention, and are disposed of under section II above.
The decree is affirmed.
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Rehearing
On Petitions for Rehearing.
All petitions are overruled without qualification, except those of holders of receivers’ certificates. As to them what was adjudicated by the District Court and affirmed by this court was that the void certificates created no liens upon the railroad property. The trustee in bankruptcy of the principal contractor is to receive a large part of the proceeds of sale. Holders of receivers’ certificates now claim that, even if they had no liens upon the property, the dealings between the principal contractor and them gave them an equitable lien or preferential claim against the trustee for payment out of what the trustee is to receive, ahead of general creditors. The trustee, representing the bankrupt and general creditors, and the holders of the certificates are all before the District Court in this cause. It may be more convenient and more equitable that the question of preferential claim against the trustee be determined in this cause.
The petitions of the certificate holders for a rehearing are overruled, with the qualification that what has been so far adjudicated shall not be a bar to their assertion of claims for preferential payment out of the sums otherwise payable herein to the trustee.