Cunningham v. City of Cleveland

• Decision Date: 04 December 1899
• Docket Number: 693.
• Citation: 98 F. 657
• Parties: CUNNINGHAM v. CITY OF CLEVELAND. [1]
• Court: U.S. Court of Appeals — Sixth Circuit

98 F. 657

CUNNINGHAM v. CITY OF CLEVELAND. ^[1]

No. 693.

United States Court of Appeals, Sixth Circuit.

December 4, 1899

This is an appeal of R. J. Cunningham, receiver of the Cleveland Water & Electric Light Company, from a decree of the circuit court for the Eastern district of Tennessee, dismissing his ancillary bill against the city of Cleveland, Tenn. The litigation was begun in the court below by the National Waterworks & Construction Company, which filed a bill against the Cleveland Water & Electric Light Company and W. W Cunningham and four other individual defendants, to foreclose a mortgage held by complainant upon all the real property plant, and franchises of the defendant company, securing an indebtedness of $47,000. The lien of the mortgage specifically covered two contracts with the city of Cleveland, one conferring upon W. W. Cunningham an his associates the right to construct, maintain, and operate waterworks in the city of Cleveland for 20 years, and to receive rentals therefor, and the other conferring upon the same persons a similar franchise to construct, maintain, and operate an electric light plant. The bill averred that the grantees of these two franchises had organized a corporation under the laws of Tennessee, known as the Cleveland Water &amp Electric Light Company, and had assigned the franchises to it; that though the waterworks and electric light plant had been erected by this company, and had been operated, and the city had received the benefit thereof, it had refused to pay its stipulated rentals, on the ground that the company was not duly incorporated; that, however this might be, complainant had dealt with the company as a corporation, and had lent it money as such, with the express understanding that it should receive a mortgage on its property and these municipal contracts; that the loan and the W. W. Cunningham and his associates, and that they were made parties in order that the lien upon the contracts might be declared, not only against the company, but also against the original grantees of the municipal contracts, the sold incorporators of the company. The bill averred the insolvency of the defendant company, and represented that unless the works were continuously operated the franchises would be lost. The complainant prayed

a foreclosure of the mortgage, and a sale of all the interest of the defendant company and of Cunningham and his associates in the works, plant, and franchises described in the bill. There was a further prayer for the appointment of a receiver who should take charge of and operate the works, collect the rents, and, after paying the expenses of operation, hold the surplus to apply on complainant's indebtedness. Cunningham and his associates filed an answer to the bill, admitting all its averments, and disclaiming any interest in the two municipal contracts. The defendant the Cleveland Water & Electric Light Company also answered, admitting the averments of the bill, and consenting to a decree of foreclosure. Subsequently the complainant was permitted to amend its bill by adding averments giving it the character of a creditors' bill as well as that of a pure foreclosure bill.

Shortly after the filing of the bill, R. J. Cunningham was appointed receiver of all and singular the property of the Cleveland Water & Electric Light Company, of every description, including operating contracts, and was directed to take possession thereof, to continue the business of the company, and to institute all such suits as he might deem necessary to collect its assets. The receiver accordingly, and by leave of court in the main action, filed an ancillary bill against the city of Cleveland to collect the rentals due from it to the Cleveland Water & Electric Light Company for public hydrants and public exhibits the two contracts embodied in duly-enacted ordinances accepted by the grantees. It averred the assignment of the contracts to the company organized by the grantees of the franchises as sole incorporators; the erection of the works in accordance with the contracts, and the furnishing of the hydrants and lights thereunder to the city, and the complete fulfillment of the conditions by the grantees to be performed; the failure of the city to pay the rentals stipulated to be paid; and its repudiation of the contract, as excessive and void, by the passage of an ordinance repealing so much of the contracting ordinances as provided that the city should pay so much rental per year for averred that for one year the city, through its board of mayor and aldermen, levied a tax to provide for the payment of what was due from it under the contracts, but only devoted a part thereof to the payment of the amount due for light to the company. The amount due per year under the water contract was $2,200, and under the light contract was $1,728, and the total amount due at the filing of the bill was $8,319, for which a decree was asked against the city.

To this bill the city pleaded in bar that there never was such a corporation as the Cleveland Water & Electric Light Company; that it never had corporate existence or power to maintain a suit; and that the complainant, as receiver thereof, could not possess, and could not assert, any rights which the alleged company did not possess. Without waiving the plea, the defendant answered, averring: That the alleged company had brought a suit against the answering defendant in the chancery court of Bradley county, Tenn., whereby it sought a decree on the same cause of action. That therein the defendant pleaded that it had not corporate existence-- First, because the signatures of its pretended corporators had not been properly acknowledged; second, because the certificate of the secretary of state, that the charter had been registered in his office, had not been registered in Bradley county, where its main business was to be conducted, as required by law; and, third, because the powers and franchises attempted to be granted by said charter were not authorized by the laws of Tennessee, and said charter was not in form prescribed by any general law of the state. That, after proof taken, a decree was passed dismissing the bill. That an appeal was taken to the court of chancery appeals of Tennessee, and the decree was affirmed on the grounds-- First, that complainant was not a corporation; and, second, that no assignment of the contracts with the city to the complainant company was alleged or shown. That, on appeal to the supreme court, the decree was affirmed, as shown by filed opinion (1) because complainant failed, in both pleading and proof, to show itself entitled to contracts of Cunningham and associates; (2) because complainant's charter was void for at least two reasons, namely, (a) it was not properly acknowledged; (b) was not properly b registered. Whether the charter was void also, because amalgamating the functions of a water company and of an electric light company, was reserved, and not decided. In the supreme court the bill was decreed to be dismissed. Subsequently this order was amended 'so far as to show that the bill is dismissed without prejudice. ' This decree was averred by the answer of the defendant herein to be a conclusive former adjudication upon the complainant receiver's cause of action, and to require a dismissal of his bill. As a third defense, the answer averred that no permission was given by the city to the alleged company to become incorporated for the purpose of exercising the functions of a water company, as required by law; and, further, that no inspectors were appointed, as required by law, before a company should be granted a water franchise, to file a report concerning the sources of water supply; that these were conditions precedent to the due incorporation of water company; and therefore that the alleged company had no corporate existence. As another defense, the answer averred that the mortgage foreclosure suit was a collusive suit, to enable this bill to be filed; that the real party taking the franchises, and building the plants and operating the same, was the National Waterworks & Construction Company, a corporation of West Virginia; that it had not filed its charter in the office of the secretary of state of Tennessee, or recorded an abstract thereof in Bradley county, and was not authorized to do business in Tennessee, but was expressly forbidden by law to do so; and that, therefore, the contracts were void. The answer further denied that the ordinances were legally passed, and averred that the board of mayor and aldermen had no power to bind the city by contracts for water and lighting beyond the term of said board; that the limit of annual taxation in defendant city was 75 cents on $100 of property, and that this would not permit it to pay the amounts annually due on the contracts; that the total indebtedness attempted to be imposed by such contracts was more than $100,000; and that this could not be done under the law, except by a vote of the people, which had never been taken.

By replication, the cause was brought to an issue, and proofs were taken. It appeared from the evidence that the ordinances were duly passed by the mayor and board of aldermen. The assignment of the contracts by Cunningham and his associates to the new company was produced in Evidence. The charter of the company was properly registered on February 17, 1897 long before the filing of this bill. It also appeared that the charter was duly acknowledged, and the acknowledgment duly recorded. This last was in conflict with the evidence upon the same point in the state court. The evidence showed satisfactorily that the requirements of the contracts had been fully performed by the company, and that the amounts claimed in the bill had been fully earned...