Union Trust & Savings Bank v. Southern Traction Co.

• Decision Date: 01 January 1921
• Docket Number: 2875-2877.,2821,2826,2786,2825,2749,2748
• Citation: 283 F. 50
• Parties: UNION TRUST & SAVINGS BANK et al. v. SOUTHERN TRACTION CO. et al.
• Court: U.S. Court of Appeals — Seventh Circuit

283 F. 50

UNION TRUST & SAVINGS BANK et al. v. SOUTHERN TRACTION CO. et al.

Nos. 2748, 2749, 2786, 2821, 2825, 2826, 2875-2877.

United States Court of Appeals, Seventh Circuit.

October Term, 1921

John C Slade, of Chicago, Ill., for appellants Union Trust & Savings Bank and others.

P. K Johnson, of Belleville, Ill., for appellants Hamilton and others.

Shepard Barclay, of St. Louis, Mo., for appellants Kenwood Bridge Co., Naugle Pole & Tie Co., Western Electric Co., Kansas City Bridge Co., and Myers Const. Co.

Hugh O'Neill, of Chicago, Ill., for appellant Marquette Nat Fire Ins. Co.

F. M Lowes, of Chicago, Ill., Bruce A. Campbell, of East St. Louis, Ill., John R. Cochran, of Chicago, Ill., and McGlynn & McGlynn, of East St. Louis, Ill. for appellees Southern Traction Co. and others.

F. M. Lowes, of Chicago, Ill., Bruce A. Campbell, of East St. Louis, Ill., John R. Cochran, of Chicago, Ill., Geo. B. Logan, of St. Louis, Mo., and John C. Slade, of Chicago, Ill., for appellees Sanders and others.

Before BAKER, EVANS, and PAGE, Circuit Judges.

BAKER Circuit Judge.

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 holders 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 writer 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 necessary opponents of each appellant were cited to appear and have been heard on the merits.

II. Witnesses testified orally before the master. We accept his estimate of credibility. His finding of secondary facts from primary facts we accept as inferences that might reasonably be drawn. On this view of the facts of the case, we affirm the decree against each appellant on one or more of the grounds of law or equity set forth in the briefs and arguments of opposing appellees.

III. First in order of payment from the proceeds of the sale would come receivers' certificates, if duly authorized for the preservation and maintenance of the property and duly issued to actual purchasers.

(1) An order on the petition of the receivers who were appointed on a general creditors' bill, the petition being presented and allowed the day after their appointment and before any lienholders had intervened, and the order authorizing the receivers to issue certificates up to $500,000 'from time to time as in their judgment they may deem necessary,' was improvident and illegal. The judgment and discretion legally to be exercised were the court's, and could not legally be delegated.

(2) Three receivers, one of whom was the principal contractor, signed the certificates and placed them in the hands of the principal contractor to use. This constituted a secondary illegal assignment of discretion.

(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.

IV. Next to receivers' certificates in order of priority would come vendors' liens for unpaid balances on right of way contracts. Many such liens were allowed to actual proprietors whose lands were taken, and no appellant questions the correctness of the decree in that respect.

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...