Empire Trust Co. v. Egypt Ry. Co.

• Decision Date: 03 October 1910
• Docket Number: 307.
• Citation: 182 F. 100
• Parties: EMPIRE TRUST CO. et al. v. EGYPT RY. CO. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

182 F. 100

EMPIRE TRUST CO. et al. v. EGYPT RY. CO. et al.

No. 307.

United States Circuit Court, E.D. North Carolina.

October 3, 1910

John W Hinsdale and R. H. Hayes, for complainants.

D. E McIver and Aycock & Winston, for claimants.

CONNOR District Judge.

This was an original bill in equity filed by complainant Empire Trust Company for the purpose of foreclosing and bringing to sale the property, pursuant to the trusts declared in a certain deed executed by said company to complainant, bearing date July 21, 1890, and duly recorded, for the purpose of securing the payment of certain bonds therein set forth. Pursuant to the prayer in the bill, a consent order was made directing the sale of the property for the sum of $25,000. This amount was insufficient to pay the bonds secured in the deed. Twenty thousand dollars was credited on said bonds and $5,000 paid into the registry of the court to await the determination of certain claims made by persons asserting an indebtedness due them from the Raleigh & Western Railway Company and the defendant Egypt Railway Company for work and labor done and materials furnished, having a right of priority over the bonded indebtedness, for which they filed complaints herein. For the purpose of having said claims determined, notice was issued to the claimants to appear before the standing master at a time and place to be fixed by him and file their claims. Pursuant to this order, Hon. W. A Montgomery, the standing master, heard the several claimants, taking testimony in regard to their several claims and their right to priority over the bondholders. In his report filed November 24, 1909, he sent the testimony taken by him with his conclusions fact and of law. He found the following facts bearing upon all of the claims filed before him, except that of A. L. Leger:

'That all of the claims asserted and filed in this cause against the Egypt Railway Company, except that of A. L. Leger, hereinafter to be referred to, were contracted with the Raleigh & Western Railway Company, lessee of the Egypt Railway Company, and while the Raleigh & Western Railway Company was operating the line of railroad (about eight miles in length) belonging to the Egypt Railway Company in Lee county, N.C., and extending from Colon, near Osgood, on the Seaboard Air Line Railroad, to Cumnock, near Egypt depot. That on the 3d day of April, 1893, the Egypt Railway Company leased its railroad property to the Raleigh & Western Railway Company, and it was operated by the latter company until about the latter part of June, 1903. That at the time the contracts were made and the services rendered by the said claimants with and for the Raleigh & Western Railway Company that company was without property and unable to meet its obligations.'

On March 11, 1908, Samuel A. Henzey was appointed temporary, and on April 6, 1909, permanent, receiver by this court. The master found the specific facts in regard to each claim including the date of material furnished and labor performed, amount due, etc. Consideration of exceptions to these findings will be postponed until the pivotal question as to the liability of the Egypt Railway Company is disposed of.

The master found as a conclusion of law:

'That a railway company in North Carolina by a lease of its property to another cannot exempt or release itself from liabilities incurred by its lessee for the maintenance, equipment, and operation of the railroad; that the Egypt Railway Company is indebted to the following named creditors, respectively, * * * for indebtedness incurred by its lessee, the Raleigh & Western Railway Company, for labor performed and material furnished, as set forth, etc.; that the respective amounts found to be due claimants constitute indebtedness superior to the lien of the mortgage creditors. Revisal N. C. 1905, § 1131.'

Complainant on December 15, 1909, filed a number of exceptions to certain of the findings of fact by the standing master and to all of his conclusions of law. Claimants did not file any exceptions to the report. The hearing upon the report and exceptions was by consent continued from time to time and heard upon briefs filed by counsel for the respective parties and oral argument; complainant insisting on its exceptions to certain conclusions of fact and the conclusions of law, claimants insisting upon a confirmation of the report. Counsel for claimants at some time during the pendency of the motion for confirmation, the exact date of which is not certain, notified the judge by letter that they would ask for a recommittal of the report.

On May 30, 1910, notice was given counsel for complainants that on Thursday, June 2, 1910, claimants 'would move the court to remand the cause to the master for the taking of further evidence with a view to showing the liability of both the Egypt Railway Company and the Raleigh & Western Railway Company to G. W. Riggsbee and others. ' Affidavits and counter affidavits were filed in support and against said motion.

Claimant's affidavits indicate a purpose to show before the master (1) that the conditions upon which the power to lease by the Egypt Railway Company to the Raleigh & Western Company prescribed by their charter and the public statutes did not exist at the date of the lease, if one was made; (2) that no valid lease was made, etc. No exception has been filed, nor any request made to file one by claimant to the master's finding of fact, that the lease was made, or that the Raleigh & Western Railway Company was operating the railroad, or that the claimants contracted with said company for the labor performed and material furnished. It is not suggested that these findings are not supported by the testimony; on the contrary, the testimony upon which they are based came from the claimants. It is not usual for the court to recommit a report to the master to take further testimony and revise his conclusions, after full opportunity has been given parties to introduce testimony. This is especially true where the party moving has filed no exceptions to the report. In so far as the affidavits tend to show that the lease found by the master to have been executed by the Egypt Railway Company is not authorized by its charter, or the general law of the state, the charters of both roads being in evidence, they will be considered by the court, but for no other purpose. The motion to recommit is denied. It is elementary that before the claimants can successfully assert a lien, or right to be paid from the proceeds of the sale of the property of the Egypt Railway Company, they must establish a valid indebtedness, based upon a contract, either express or implied. Liens or priorities created either by statute, or based upon equitable principles, are given to secure, or enable, the lienor to enforce the payment of a debt, unless enlarged by express language, as in section 1131, Revisal N.C. 1905, to claims based upon torts. There being no element of tort in claimants' demands, their right to recover is confined to a liability growing out of and founded upon a contract. This principle is well stated by the court in Bailey v. Rutjes, 86 N.C. 517. 'Before there can be a lien on property, there must be a debt due from the owner of the property; a lien being but an incident to the debt. ' Boone v. Chatfield, 118 N.C. 916, 24 S.E. 745. The primary question, therefore, is whether the Egypt Railway Company is indebted to claimants. It is not alleged that any officer or agent of this corporation employed claimants or purchased any material from them. It is conceded that they contracted with the Raleigh & Western Company. Ordinarily, the lessor is not liable to persons employed by the lessee for labor performed or material furnished in the maintenance and operation of the leased property. It is insisted that, notwithstanding this, the Egypt Railway Company, lessor, is liable to claimants for that (1) the lease is invalid, being made without authority of law; (2) that, being a public service corporation, the Egypt Railway Company continues liable, notwithstanding a valid lease for all claims accruing against its lessee, in the operation and maintenance of the property. It is well settled by the decisions of the courts of this state and the Supreme Court of the United States that 'a railroad company cannot, without legislative authority, lease its road to another company, even with the consent of all its stockholders, and, to constitute a valid lease, the lessee must have authority to take as well as the lessor to execute the lease.' 33 Cyc. 391; Thomas v. Railroad Co., 101 U.S. 71, 25 L.Ed. 950; Logan v. Railroad, 116 N.C. 940, 21 S.E. 959.

The charter of the Egypt Railway Company authorizes it to lease its road to other companies, 'provided the road or line of such companies shall be directly connected with this company'; and the charter of the Raleigh & Western Railway Company (Priv. Laws N.C. 1893, p. 36) authorizes that road to lease, 'provided the road or line of the two companies shall be connected directly or indirectly by means of intermediate roads.' These statutes were put in evidence.

The master finds that the lease was executed April 3, 1893. This was subsequent to the rising of the Legislature of that year. The only question presented in regard to the validity of the lease is whether at the time it was executed the 'roads or lines' of the two companies connected. It appears from the affidavit of Mr. Henzey:

'That at the time the Raleigh & Western Railway Company leased the road and property of the Egypt Railway Company it had located its line from the track of the Egypt Railway Company in a northwestern direction to Harper's Crossroads, a distance of 15 miles, and that it had actually graded a very considerable

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