Andrews v. National Foundry & Pipe Works

Decision Date05 October 1896
Docket Number283,286.
Citation76 F. 166
PartiesANDREWS et al. v. NATIONAL FOUNDRY & PIPE WORKS, Limited. CITY OF OCONTO v. SAME.
CourtU.S. Court of Appeals — Seventh Circuit

These appeals are from a single decree. The suit was brought by the appellee, the National Foundry & Pipe Works, Limited, against the Oconto Water Company, S.D. Andrews, W. H. Whitcomb, the city of Oconto, the Oconto City Water-Supply Company, and others. The original bill was in the nature of a creditors' bill, and, besides averring the recovery of a judgment at law by the complainant against the Oconto Water Company for the sum of $24,192.75, and costs taxed at $57.29 the issue of execution upon the judgment and return of nulla bona, the insolvency of that company, and its indebtedness to various creditors, which it could not pay, and other facts not material here, alleged that of the capital stock of the company, consisting of 1,000 shares for $100 each, 990 shares were issued to Charles C. Garland, the president of the company, and the remaining 10 shares to persons named who took the same in the interest of Garland; that no consideration, either of money, labor, or property, was paid for any of the stock so issued, but the same was issued contrary to the provisions of the statute of Wisconsin, and was wholly fictitious and void; that afterwards, on October 2, 1890, Garland and another, who held seven shares, assigned their shares of stock to Andrews and Whitcomb; that on October 18, 1890, in lieu of the shares so assigned, and which were then surrendered, the company issued to Andrews and Whitcomb directly certificates for 997 shares of the stock of the company; that these certificates were issued without consideration, either in money, labor, or property contrary to the statute of Wisconsin, and were in all respects fictitious and void and in fraud of the rights of the complainant and other creditors of the company; that Andrews and Whitcomb are indebted to the company on account of the stock held by them for an amount sufficient to pay the complainant's judgment and the other debts of the company; that on July 9, 1890, the city of Oconto passed an ordinance authorizing the Oconto Water Company to construct and operate a system of waterworks in that city; that on or about September 13, 1890, Garland, as president, and the secretary of the water company, without any resolution of the directors, executed to Andrews and Whitcomb a writing whereby the company in form agreed to transfer and assign its franchise, its capital stock, and its bonds to the amount of $100,000, to be secured by a deed of trust of its franchise rights, and privileges, to Andrews and Whitcomb as collateral security for moneys thereafter to be advanced by them to the company; that thereupon, by an instrument dated September 13, 1890, the transfer and assignment so stipulated to be made were in form executed; that the agreement of September 13th was never recorded in the office of the register of deeds of Oconto county, nor was the same, or a copy thereof, ever filed in the office of the clerk of the city of Oconto, but the same was taken and held as a secret lien; that the assignment of the same date was not recorded until January 19, 1891, and was also taken and held as a secret lien; that since the 12th day of January, 1891, when officers of the company were elected in the interest of Andrews and Whitcomb, the conduct and management of the company and of all of its affairs have been solely in the hands of Andrews and Whitcomb, their agents and attorneys, other officers and directors acting nominally and under their direction only: that on March 13, 1891, they caused the company to transfer and reinvest in them, as collateral security for further advances, its franchise, stock, bonds, and all other property then belonging to the company, and on May 16, 1891, caused the company to make another and like agreement transferring the franchise, stock, bonds, and other property as security for further advances; that these agreements were not recorded, but held as secret liens; that the trust deed mentioned, transferring all the franchises, rights, and property of the company, was executed on the 1st and recorded on the 13th day of November, 1890; that three days later Garland, without authority, and without any consideration therefor in money, labor, or property, delivered the bonds to Andrews and Whitcomb; that at all the times named Andrews was in the employ of the Oconto Water Company as superintendent; that the company during all the time was, and was known by Andrews and Whitcomb to be, insolvent. It is alleged that the Oconto City Water-Supply Company claims to have some interest in the premises and in the franchise of the Oconto Water Company as a subsequent purchaser or incumbrancer or otherwise to complainant unknown.

The prayer of the bill in part was that a receiver be appointed; that the stockholders be adjudged to pay the amounts found due on unpaid subscriptions for stock, and that the agreement and the assignment of September 13, 1890, and later agreements executed by the Oconto Water Company to and in favor of Andrews and Whitcomb, and all other assignments, transfers, and instruments executed by that company, and the issue and delivery of mortgage bonds, be adjudged fraudulent and void. On this bill the court appointed a receiver, and directed Andrews and Whitcomb to surrender to him the possession of the waterworks plant. On appeal to this court that order was modified. 10 C.C.A. 60, 18 U.S.App. 458, 61 F. 782. The final hearing of the cause commenced December 11, 1894, pending which, on December 15, the complainant filed amendments to the bill to the effect that since the bringing of the suit, to wit, on the 3d day of October, 1892, the complainant had obtained, in the same court, a decree against the Oconto Water Company, whereby it has a mechanic's lien upon the well, buildings, machinery, and entire waterworks plant, and all the right, title, and interest of the Oconto Water Company, or of any person claiming under it, and to the premises upon which the plant is located, and the franchise of maintaining and operating the plant, the lien dating and commencing September 15, 1890, which lien, with other mechanics' liens decreed against the premises, the complainant alleges to be a first lien, and entitled to priority over all liens asserted by or on behalf of any of the defendants; and, after setting forth the contract under which the complainant had furnished materials, and the dates of delivery, it is alleged that the complainant had no knowledge or notice of the contract and the assignment of September 13, 1890, and relied upon the franchise of the water company being free and clear of all liens and incumbrances. R. D. Wood & Co., interveners, filed a like amendment to their intervening petition. The appellants Andrews and Whitcomb answered separately from the other respondents; and upon the facts, which are set forth in detail and at great length, they deny all liability as stockholders, and, insisting upon the validity of their contracts and liens upon the property and franchises of the water company, contend that in respect to the rights which they now assert they were not privy to nor bound by the decrees whereby the appellee and others were declared to have mechanics' liens, and that under a recent decision of the supreme court of Wisconsin those decrees were erroneous. The appellee joined issue.

The court decreed: (1) That the Oconto Water Company is insolvent, and that the proceeds of its property should be distributed among its creditors. (2) That the complainant and other intervening creditors have liens for amounts stated upon all the rights, franchises, and property of the Oconto Water Company, pursuant to and as provided in the mechanics' lien decrees of the court. (3) That Andrews and Whitcomb were privies to and concluded by the mechanics' lien decrees in favor of the complainant and R. D. Wood & Co. (4) That the mechanics' liens so decreed were and are each valid, and prior to the lien of the instrument claimed to be a mortgage, bearing date September 13, 1890, under which the defendants Andrews and Whitcomb assert their right to a lien upon and title to the property and franchises of the Oconto Water Company, and are superior and paramount to any and all other liens or rights of said defendants upon and in said franchises and property. (5) That the complainant and R. D. Wood & Co. are authorized to proceed to the enforcement and satisfaction of their respective liens, in accordance with their several decrees. (6) That Andrews and Whitcomb are stockholders of the Oconto Water Company, owning and holding all the shares, amounting to $100,000, issued and assigned to them, without any sum having been paid therefor by any one, of which they had notice when they received the same, and that they are liable for all unpaid amounts so far as necessary to discharge the indebtedness of the company, not exceeding $100,000 in the aggregate. (7-10) That the Oconto Water Company is indebted to parties named in unsecured sums specified. (11) That Andrews and Whitcomb pay the sums so adjudged due to secured creditors, after applying to the satisfaction of their lien decrees the proceeds of sales thereunder, the deficiency to be determined by an order of court at the foot of the decree. (12) That the mortgage bonds of the company delivered to Andrews and Whitcomb were issued contrary to the statute of Wisconsin, and are void, and are ordered surrendered to the clerk of the court for cancellation. (13) That the instruments executed in the name of the Oconto Water Company to Andrews and Whitcomb were made in good faith and for a valuable consideration, and were not...

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    ...U.S. 725, 20 S.Ct. 1022, 44 L.Ed. 338, reversed on other grounds 192 U.S. 265, 24 S. Ct. 291, 48 L.Ed. 437; Andrews v. National F. & P. Works, 7 Cir., 76 F. 166, 173, 36 L.R.A. 139, affirmed National F. & P. Works v. Oconto Water Supply Co., 183 U.S. 216, 22 S.Ct. 111, 46 L.Ed. 157; David B......
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