Central Appalachian Co. v. Buchanan

• Decision Date: 28 November 1898
• Docket Number: 587.,586
• Citation: 90 F. 454
• Parties: CENTRAL APPALACHIAN CO. et al. v. BUCHANAN.
• Court: U.S. Court of Appeals — Sixth Circuit

90 F. 454

CENTRAL APPALACHIAN CO. et al. v. BUCHANAN.

Nos. 586, 587.

United States Court of Appeals, Sixth Circuit.

November 28, 1898

This was a bill filed by the appellee, as a judgment creditor of the appellant, the Central Appalachian Company, Limited, to set aside certain alleged fraudulent conveyances of all of its property to the appellant, the International Development Company, and a mortgage thereof by the latter corporation to the appellant, the Corporation Trust Company, ostensibly for the purpose of securing an issue of bonds by the said mortgagor company aggregating $1,500,000. The judgment debtor, as well as its grantee in the conveyance assailed filed answers and cross bills substantially identical. The answers admitted that the conveyance by the Appalachian Company to the International Company was not upon any valuable consideration, the purpose being a mere reorganization of the former company, and that the latter, as successor to the former, stood in the shoes of the grantor and was liable for all of its just debts and liabilities. In respect to the mortgage to the Corporation Trust Company these answers averred that it had been made with no fraudulent purpose, and only with the object of raising means to discharge the liabilities of the said Appalachian Company and to carry out the business purposes of the reorganized corporation. The Corporation Trust Company was a corporation of the state of New Jersey, and had no agency within Kentucky. It was made a defendant under an order of the court, directing service upon it in the state of New Jersey. This was done. It neglected to plead within the time it was required to defend, whereupon judgment by default was entered against it. The principal questions to be determined upon this appeal arise upon the cross bills filed by the two answering corporations. These were filed for the purpose of setting off against the judgment in favor of the complainant, Buchanan, a demand for $60,000, claimed as liquidated damages arising out of a breach of the covenants in a certain conveyance of chattels and real estate theretofore made by the Southern Land improvement Company to one E. H. Patterson, for the use and benefit of the Central Appalachian Company, Limited. The same cross demand was set up in the answers as a defense to any relief upon the judgment. The cross defendant, Buchanan, excepted to so much of the answers as set out this cross demand as scandalous, and also demurred to the cross bills for want of equity. The court below sustained both the demurrer and the exception. Thereupon amended cross bills were tendered, stating with somewhat more detail the facts upon which the set-off was asserted. The learned trial judge did not regard the difficulties in the way of the assertion of this claim as an equitable set-off as having been removed by the proposed amendments, and therefore declined to allow them to be filed. He also denied a motion made by the Corporation Trust Company to allow it to file an answer, and directed a decree as upon bill and answer to be entered against all the defendants, as prayed by the bill. All of the defendants have appealed.

The averments of the cross bill, as amended and tendered, were substantially as follows: (1) That Buchanan had been appointed receiver, January 3, 1894, by the circuit court of the United States for the district of Kentucky, under a bill filed in said court by Martha G. Merriweather and others, against the said Southern Land Improvement Company; that, by the order appointing him, he was directed to take possession of all the property of the said company, and to collect all of its debts, and for this purpose to bring all necessary suits in his own name or that of the corporation. (2) That the judgment sought to be enforced in this case was upon a demand for rents which accrued to the said Southern Land Improvement Company under a lease of certain lands to the Central Appalachian Company, said lease bearing date October 13, 1892; that the demand so sued upon 'was a demand which accrued to the Southern Land Improvement Company, and to no one else, and the said company was joined with the receiver as a necessary co-plaintiff in the act at law brought on said demand'; that said receiver 'proceeded to collect said claim, only because of the fact that he was instructed by the court to collect all demands which were due or might become due to said company.' (3) It is then averred that, upon the property thus leased, the said lessor 'had certain valuable colliery properties, such as coke ovens and various appliances necessary to a colliery plant, and including the commissary house with the ground upon which it was situated.' 'These colliery properties,' it is averred, 'were indispensable to the use of certain coal mines, which were then open and in operation by the Southern Land & Improvement Company.' Cross complainant then avers that it made a proposition through 'its agent and general manager, E. H. Patterson,' to buy these colliery properties, provided it could make a satisfactory lease of the mining privileges of said company upon its lands, and that terms satisfactory were agreed upon, which resulted in the lease of October 13, 1892, mentioned above, and in the purchase and sale of said colliery properties situated upon the leased lands. The conveyance of the purchased property was made at the same time, and bears the date of the lease, and it is averred that both 'were indispensable parts of the same transaction.' The conveyance aforesaid was made to E. H. Patterson, it being averred that it was so made by direction of Patterson, who conducted the transaction for the Central Appalachian Company; that $25,000 was paid in cash, and subsequently $35,000 more. It is averred that the Southern Land & Improvement Company knew that Patterson was buying the property for the Appalachian Company, and that its money was used in paying for it. It is averred that the grantor made the title to Patterson, binding him to convey same to the Appalachian Company, when the latter should acquire title to a certain amount of lands, having no interest in the condition, which was inserted for Patterson's purposes, and to better enable him to compel his principal to receive the titles to certain lands which he was engaged in selling or procuring for it. It is averred that this conveyance was therefore made to said Patterson in trust for the real and known purchaser, and that the seller intended the warranty and covenants of said conveyance 'to inure to the benefit of the Central Appalachian Company.'

This conveyance is made an exhibit to the cross bill, and the property sold is thus described: '(1) The colliery plant of coke ovens, consisting of one hundred in number, situate upon lands this day leased by the improvement company aforesaid to the Central Appalachian Company, Limited, of Belgium, lying between the junction of the right and left forks of Straight creek, and the present terminus of the Pineville, West Virginia & Tennessee Railroad. (2) All the miners' and operators' houses, being thirty-nine in number, and all other buildings now erected and standing on said leased lands and on either side of the right fork of Straight creek, including carpenter shop, butcher shop, pump house, power house, blacksmith shop, tipple, stables, and coke-oven stables. (3) All the tools and implements, all the tramway cars, tracks' scales, mile scales, machinery, mine railway tracks, and all the property of the improvement company, the first party hereto, now in place and being used by the improvement company in the operation of the mines and coke ovens now conducted by it, excepting only the teams, harness, wagons, and cars of the improvement company. (4) The building known as the 'Commissary Building,' together with the land upon which it stands, being a lot of seventy-five (75) feet front by one hundred (100) feet deep, it being understood that the land upon which the other structure stands is not sold or conveyed. ' This instrument contains the following condition, namely: 'Said property is conveyed on condition that said Patterson will convey same, free of incumbrance or lien by him, to the Central Appalachian Company, Limited, of Belgium, whenever that company shall have received title to seventy-two thousand (72,000) acres of land in Southeastern Kentucky, unincumbered, and shall have placed the deed therefor of record, or lodged same for record,'-- and concludes with a warranty and covenant in these words: 'To have and to hold the said property, together with the rights and things and estate appurtenant thereto herein conveyed to him, the said second party, his heirs and assigns, forever, the said first party hereto warranting the title to the said property by covenant of general warranty; and said first party furthermore covenants that it is seised of a good and lawful and fee-simple title to said property.'

December 7, 1893, Patterson conveyed all this property to the said Central Appalachian Company for the nominal consideration of one dollar. The cross bills then aver that, when this conveyance and warranty were so made to said Patterson for the use and benefit of the cross complainant, said property was subject to a mortgage for $500,000, made by said Southern Land & Improvement Company to the Louisville Trust Company as trustee; that subsequently a decree foreclosing said mortgage for the satisfaction and payment of said debt was obtained in the said circuit court, and on August 11, 1896, said decree was executed by a sale of all the mortgaged property, including that so sold to cross complainant, and said property was purchased by the National Iron & Coal Company; that this sale was confirmed and deed made to the purchaser October 15,...