Central Trust Co. of New York v. Bridges

• Decision Date: 01 August 1893
• Docket Number: 88.
• Parties: CENTRAL TRUST CO. OF NEW YORK v. BRIDGES et al. McBEE et al. v. CENTRAL TRUST CO. OF NEW YORK.
• Court: U.S. Court of Appeals — Sixth Circuit

57 F. 753

CENTRAL TRUST CO. OF NEW YORK v. BRIDGES et al.

McBEE et al. v. CENTRAL TRUST CO. OF NEW YORK.

No. 88.

United States Court of Appeals, Sixth Circuit.

August 1, 1893

[Copyrighted Material Omitted]

Statement by TAFT, Circuit Judge:

These are cross appeals from a decree of the circuit court for the eastern district of Tennessee. The decree ordered the sale of a railroad, and established, marshaled, and adjudged priority between the liens thereon. The railroad sold, known as the Knoxville Southern, runs south from Knoxville 90 miles to the North Carolina line, and is a part of the line of the Marietta & North Georgia Railroad Company, a consolidated railway corporation of Georgia and Tennessee. The main controversy in the court below was between the holders of certain mortgage bonds, represented by the Central Trust Company of New York, as trustee under the mortgage, and 50 or more contractors, material men, and others, who had assisted in the construction of the railway. The litigation began in January, 1891, when the Central Trust Company of New York filed a bill of complaint against the Marietta & North Georgia Railway Company, alleged to be a corporation created by and existing under the laws of Georgia and North Carolina having a railway and owning property and having a place of business in Tennessee, and in the eastern district of Tennessee. The bill sought to foreclose a mortgage given by the Marietta & North Georgia Railway Company in January 1887, to secure bonds issued on its line of railway constructed and to be constructed in Georgia, North Carolina, and Tennessee. The bill recited that a similar bill had been filed in the northern district of Georgia to foreclose the part of the road which lay in that district.

Several days later, in the same month, McBee & Co., a firm composed of citizens of the state of North Carolina; Wilson, a citizen of North Carolina; and Burgin, also a citizen of the same state,--filed their bill in the same court against the Knoxville Southern Railway Company, a body corporate under and by virtue of the laws of Tennessee; against Eager, a citizen of Massachusetts; and against a number of lien claimants, residents of Tennessee; against the Marietta & North Georgia Railway Company, alleged to be a corporation under the laws of Georgia; the Central Trust Company of New York, and others, none of whom was a resident of Tennessee,--in which they set up mechanics' liens for claims amounting in the aggregate to about $25,000. They averred that many of the named defendants asserted some interest as subcontractors under George R. Eager, principal contractor, or otherwise, against said Knoxville Southern Railroad; that the said railroad company was insolvent, and that the property was in danger of wasting by reason of many suits brought for the enforcement of liens; referred to the bill above described as already filed by the Central Trust Company; averred the execution of a mortgage by the Knoxville Southern in July, 1890, after the debts due the complainant and some of the defendants were contracted, to secure the bonds sued on in the suit of the Central Trust Company; attacked the mortgage as illegal and a fraud in so far as it attempted to create a mortgage prior or equal to the lien of complainants, and made similar allegations with reference to a subsequent consolidation of the Knoxville Southern Railroad Company and the Marietta & North Georgia Railway Company. The prayer was for a receiver; for an injunction against all the defendants from prosecuting claims to execution against the Knoxville Southern Road and a wasting of its property thereby, and especially against the Central Trust Company's prosecution of its bill of foreclosure; for the determining of the amounts due the several creditors therein set forth, as well as those who might become parties to the bill; for a decree declaring the pretended consolidation of the two roads and the mortgage of 1890, so far as it affected the rights of lien creditors, nullities; and for a decree that the road be sold, and out of the proceeds the complainants and other lien claimants be paid their claims.

It was ordered that these two causes be consolidated on the hearing of a motion for a receive. A receiver was subsequently appointed. The bill of McBee & Co. was ordered to be treated as an insolvent bill, and all the creditors of the Knoxville Southern or George R. Eager were directed to file their claims in the cause. Creditors who had already commenced suit in the state courts were permitted to prosecute their suits to judgment, should they so desire, and no further: and the transcripts of judgments thus obtained were directed to be filed as evidence of their claims in the circuit court.

Subsequently the Central Trust Company filed an amended bill, in which it stated that the defendant corporation named in its bill was formed by the consolidation of the Marietta & North Georgia Railway Company, duly chartered under the laws of Georgia, and the Knoxville Southern Railway Company, a corporation duly chartered under the laws of Tennessee, and set out at length the mileage of the defendant corporation, including that of both roads, and prayed as in its bill.

Subsequently the Knoxville Southern Railway Company, the Central Trust Company, and the Marietta & North Georgia Railway Company all answered the bill of McBee & Co., in which they denied that the Knoxville Southern Railway Company was indebted to McBee & Co., denied that the complainants had any lien against the company, and averred that none of the lien claimants made defendants in the bill had a lien prior to that of the Central Trust Company. Thereafter the Central Trust Company moved to dismiss the petition of McBee & Co. for want of jurisdiction, on the ground that when the parties in interest were arranged as parties plaintiff and parties defendant, according to their interest in the controversy, there would be found among the plaintiffs citizens of Tennessee, and among the defendants also a citizen of Tennessee, the Knoxville Southern Railway Company. This motion to dismiss was overruled.

The lien claimants all came in and filed intervening petitions setting up claims against the Knoxville Southern Railway as garnishee, and Eager as principal contractor, in which form their claims had generally been reduced to judgments in the state courts; but afterwards, by amendments, they stated their claims to be against the Knoxville Southern Railway Company as principal debtor. Eager, as principal contractor, filed a claim against the Knoxville Southern Railroad for something more than $370,000, and for a lien for work done and material furnished, and set up a judgment in the state court of Tennessee for this amount against that company. The answers of the Central Trust Company to all these petitions denied any indebtedness due from the Knoxville Southern Railroad to the petitioners, or any lien therefor. The case was referred to a master to take the testimony, to consider the issues, and report upon the claims of all the parties.

The master heard much evidence on the numerous issues raised by the pleadings. He found that the lien claimants, all of them, had made their contracts with Eager as principal contractor, and not with the Knoxville Southern Railroad Company; that nothing was due from the railroad company to Eager on his contract for its construction, but that everything due had been paid; that the judgment in his favor against the company was fraudulently and collusively obtained, and not binding on the Central Trust Company; that the lien claimants were not, therefore, entitled to any lien as subcontractors under the railroad lien law of Tennessee of 1883. But he found that Eager was the principal stockholder of the Knoxville Southern Railroad Company; that the directors were his tools, quick to do his bidding, and that, although the forms of a separate corporate existence were maintained, Eager was so far the company that the contracts of the lien claimants with Eager as principal contractor were in fact with Eager as the agent of the company, an undisclosed principal, and therefore directly with the company; that the lien claimants were entitled, therefore, to claim as principal contractors, and to assert liens as such; that the Central Trust Company mortgage was an equitable lien on the road subordinate to all liens for constructions, work, or materials; that certain other lien claimants--as, for instance, banks which had advanced money to contractors and others--did not come within the statute, and must be postponed as general creditors of the railroad company. The circuit court confirmed the master's report, and ordered the road sold, and the proceeds distributed as therein directed. A decree for sale pro confesso had already been entered in favor of the Central Trust Company, on its mortgage, against the Knoxville Southern Railroad Company and the Marietta & North Georgia Railroad Company. The Central Trust Company appeals from the decree postponing its lien to any claim for construction. The lien claimants who were postponed by the decree to the mortgage debt, as general creditors, filed cross appeals.

The questions raised by the parties can hardly be understood without a somewhat detailed description of the construction of the Knoxville Southern road and of the Marietta & North Georgia Railroad, of which the Knoxville Southern road subsequently became a part. The first Marietta & North Georgia Railroad Company was a corporation of Georgia, and owned and operated a narrow-gauge road, 20 miles in length from Marietta. In 1881 it became consolidated with the Georgia & North Carolina Railway, of North Carolina, under the name of the Marietta & North Georgia...