Central Trust Co. v. Condon

• Decision Date: 05 March 1895
• Docket Number: 207.
• Citation: 67 F. 84
• Parties: CENTRAL TRUST CO. v. CONDON et al.
• Court: U.S. Court of Appeals — Sixth Circuit

67 F. 84

CENTRAL TRUST CO. v. CONDON et al.

No. 207.

United States Court of Appeals, Sixth Circuit.

March 5, 1895

[Copyrighted Material Omitted]

This is a second appeal in this case. The opinion of the court on the former appeal is reported under the name of Central Trust Co. v. Bridges, 16 U.S.App. 115, 6 C.C.A. 539, 57 F 753. The controversy relates to the priority of liens on a railroad running from Knoxville south towards Marietta, in Georgia, 118 miles, and known at the time of its construction as the Knoxville Southern Railroad. The Marietta & North Georgia Railway Company of Georgia owned a narrow-gauge railroad running north from Marietta towards the North Carolina and Tennessee lines. Persons interested in its stock, especially R. M. Pulsifer and George R. Eager conceived the plan of making it a standard-gauge road, and extending its line to Murphy, N.C., and thence to Knoxville, Tenn. Accordingly contracts were made between the railroad company and George R. Eager, by which the latter agreed to carry out the proposed improvement in Georgia as principal contractor, receiving his pay in his first mortgage bonds of the company. The mortgage under which these bonds were issued contained a provision that they should be used to pay for the construction of the road in Georgia and North Carolina at not exceeding $16,000 a mile, and in Tennessee at not exceeding $20,000 a mile. The mortgage was executed in 1887, and at that time the Marietta & North Georgia Railway Company had no authority to build or mortgage a railroad in Tennessee. About the same time, however, the same persons organized the Knoxville Southern Railroad Company to build and operate what was intended to be and was the Tennessee extension of the Georgia Company's railroad. The Knoxville Company made a contract in 1887 or 1888 with a corporation of New Hampshire known as the North Georgia Construction Company as principal contractor to build the road in Tennessee. Eager was president of this construction company, and a large owner of its stock. The city of Knoxville agreed to subscribe for $275,000 of the stock of the Knoxville Southern Railroad Company on condition that the railroad should be completed in time to permit the running of trains from Marietta to Knoxville by August 13, 1890. Much work was done on the Knoxville road during the year 1888. From the fall of that year until the spring of 1890 the work was substantially suspended. R. M. Pulsifer, a large stockholder in the railroad company and in the construction company, died late in 1888, and this seemed to stay the further prosecution of the work. The construction company, for all the work it did, received its pay in bonds of the Marietta & North Georgia Railway Company, issued under the mortgage already referred to, although that company did not own the road being constructed, and had no authority to mortgage it. The construction company, in 1889, assigned to Eager all its rights under its contract, and all its liabilities, and in April, 1890, a contract was made between the Knoxville Southern Railroad Company, acting by Arthur, its vice president, and George R. Eager, for the construction of the entire railroad. The contract was dated back to August 1887, and was thus made doubtless to overreach the time during which the building had proceeded under the contract of the North Georgia Construction Company. This contract was spread on the minutes of the meeting of the stockholders of the Knoxville Southern Railroad Company of May 29, 1890, and was ratified and approved. The contract provided that the Knoxville Company would mortgage its road to secure the bonds of any other company issued to Eager to pay him for the construction of the road. Accordingly, at a meeting of the stockholders of the Knoxville Company of July 14, 1890, the directors and officers were directed to execute a mortgage to the Central Trust Company to secure all the bonds of the Marietta & North Georgia Railway Company issued to pay for the building of the Knoxville Southern Railroad not exceeding $20,000 a mile. The meeting at which the mortgage was authorized does not appear to have been advertised in the Knoxville, Nashville and Memphis papers. Before August 13, 1890, trains were running from Marietta to Knoxville, and the subscription of the city of Knoxville became absolute, and was paid in bonds of the city. In November, 1890, the Marietta & North Georgia Railway Company and the Knoxville Southern Railroad Company were consolidated, in accordance with the laws of Georgia and Tennessee, under the name of the former company.

In the construction of the Knoxville Southern Railroad, with but one or two exceptions, all the claims of contractors and material men for work done or material furnished before 1890 were paid. When the road went into the hands of a receiver, in January, 1891, there were left unpaid upwards of $300,000 of claims by contractors and material men. Substantially all the contracts under which these claims arose were made after the execution of the contract between Eager and the Knoxville Company in April, 1890, and the work and materials were all furnished thereafter. In October, 1890, Eager became slow in his payments, and suits were begun by subcontractors. Many of these suits were prosecuted to judgment in the state courts of Tennessee against Eager as principal contractor and the railroad company as garnishee. In November, 1890, in a manner described in the opinion on the former appeal. Eager secured a judgment as principal contractor for $375,000, and subsequently assigned this judgment to S. B. Luttrell, trustee, for the benefit of all the subcontractors and material men to whom he was indebted. Of the men who did work or furnished materials for the construction of the railroad, McBee & Co., J. W. Wilson, W. McD. Burgin, W. B. Crenshaw, J. H. Odell, James H. Moses, and George Bruster were the only lien claimants who did not take judgment against Eager as principal contractor and the railroad company as garnishee in the state courts. On January 12, 1891, the Central Trust Company files its bill in the circuit court of the United States for the Northern district of Georgia against the Marietta & North Georgia Railway Company to foreclose the mortgage of 1887. The next day a similar and ancillary bill was filed against the same company in the court below, the circuit court of the United States for the Eastern district of Tennessee. The next day, McBee & Co., J. W. Wilson, and W. McD. Burgin filed a bill in the same court to establish their liens against the Knoxville Southern Railroad, to marshal the liens, and to sell the railroad. To this bill they made parties the Knoxville Southern Railroad Company, the Marietta & North Georgia Railway Company, and all the contractors, including Eager, and all the material men having claims against the road, so far as they knew them. They attacked the validity of the mortgages of 1887 and of 1890 and the consolidation. The foreclosure bill and that of McBee & Co. et al. were consolidated, and a receiver was appointed. It was ordered that the McBee bill be treated as a general creditors' bill, and that all persons having claims against the Knoxville Southern Railroad Company be brought in by due advertisement. Subsequently the Central Trust Company filed an amended bill, setting up the Knoxville Southern mortgage of 1890, and praying foreclosure under that. The central Trust Company and the two railroad companies filed answers to the McBee bill, in which they averred that the work for which liens were claimed had been done for George R. Eager, principal contractor, and not for the Knoxville Southern Railroad Company; and that, as nothing was due from the company to Eager, no lien could be asserted against the railroad. The contract relied on specifically was that dated August 20, 1887, and actually executed in April, 1890. Thus was evolved a controversy, which was referred to a master to hear and determine, between the bondholders on one side and the contractors and lien holders on the other, and in which the main claimants had been done for George R. Eager, principal contractor, or for the Knoxville Southern Railroad Company. The master reported that, although Eager represented himself to be a contractor, and actually did the work under a contract, his contracts were nevertheless the contracts of the railroad company, because he was the largest stockholder of the company, and the directors were his tools and employes, quick to do his bidding. This view was confirmed by the circuit court, and all the claims were decreed to be liens against the road as principal contractor's liens, and in no way dependent on or limited by the amount owing, if anything, from the railroad company to Eager. In its decision on the former appeal this court differed from the court below and the master, and held that Eager was a principal contractor with the railroad company under the contract dated August 20, 1887, and that all who had taken judgment against him as principal contractor were in fact subcontractors, and could only assert liens as such against the railroad company to the extent of the company's indebtedness to him. This court also held that Eager's judgment against the Knoxville Company was fraudulently obtained, and that it did not furnish even prima facie evidence of the amount due him. The case was accordingly remanded to the circuit court for two purposes: First, for the hearing and determination on further evidence of the amount due from the Knoxville Southern Railroad Company to Eager; and, second, for the hearing and determination on further evidence of the question whether McBee & Co., J. W. Wilson, W. McD. Burgin, W. B. Crenshaw, J. H. Odell, James H. Moses, and George...