Foundry v. Oconto City Water-Supply Co.

• Decision Date: 15 December 1899
• Citation: 81 N.W. 125,105 Wis. 48
• Court: Wisconsin Supreme Court
• Parties: NATIONAL FOUNDRY & PIPE WORKS v. OCONTO CITY WATER-SUPPLY CO.

105 Wis. 48

81 N.W. 125

NATIONAL FOUNDRY & PIPE WORKS

v.OCONTO CITY WATER-SUPPLY CO.

Supreme Court of Wisconsin.

Dec. 15, 1899.

Syllabus by the Judge.

Andrews & Whitcomb, mortgagees of the waterworks plant and franchises of the Oconto Water Company, used by it to supply water for public and private purposes in, and under contract with, the city of Oconto, foreclosed their mortgages by suit in which such proceedings were had that, in due form of law, they became the owners of all such property, the plaintiff not being a party to such suit. When such action was commenced plaintiff claimed a lien on the waterworks property for pipe furnished and used in the construction thereof by the Oconto Water Company while the mortgagees were the owners of the stock of such company. Plaintiff foreclosed its lien claim in the federal court without making the mortgagees parties to the action. Thereafter, in an action in the federal court commenced by plaintiff against Andrews & Whitcomb and others to determine the status of the lien judgment as regards the title under the mortgages, it was decided that waterworks property, circumstanced as the property in controversy, is not subject to material men's or mechanics' liens under chapter 143, Rev. St., that Andrews & Whitcomb, not being parties to the lien suit, were not affected by the judgment rendered therein, and in effect that they owned the property in controversy under the mortgage foreclosure sale free from any claim under such lien judgment. Thereafter, plaintiff enforced the lien judgment, a sale being made by the United States marshal and deed executed and delivered by him pursuant to such sale, in form conveying the property to plaintiff. After Andrews & Whitcomb obtained title under the mortgages, they organized the defendant corporation for the purpose of having such corporation acquire title to the property in controversy, with the incidental right to exercise the powers, privileges and franchises formerly possessed by the Oconto Water Company, pursuant to section 1788, Rev. St., which purpose was carried out. After the conveyance under the lien decree, plaintiff commenced this action to obtain possession of the property, claiming that defendant, as a successor corporation, under section 1788, Rev. St., assumed the liabilities of its predecessor, and that, in taking the benefit of the property, it became at least equitably bound to discharge the burdens upon it. Held:

1. The principle, that when one corporation goes out of existence by merger with or annexation to another corporation, in the absence of any provision or arrangement as to the liabilities of the former, the latter is answerable therefor, does not apply.

2. A reorganized corporation, so called, entitled under section 1788, Rev. St., to exercise the rights, privileges and franchises of its predecessor, is not a continuation of the old corporation, but an entirely new body entitled to hold and enjoy the property formerly owned by the old corporation free from the latter's liabilities, including liens against such property not prior to that through which the new corporation acquired title.

3. A mortgage of the property, rights and franchises of a corporation carries with it the right, under section 1788, Rev. St., in case of the legal title being acquired under the mortgage by a new corporation organized for purposes similar to those of the mortgagor, to exercise all the rights, privileges and franchises of the old corporation. Its purpose is to add to the value of the property, as security, the incident of a successor corporation having the same rights as its predecessor, free from all its liabilities which were not liens thereon under the prior corporate ownership paramount to the lien forming the basis of the new title.

4. The rule rendering a new owner of property liable for liens resting upon it,--that he must bear the burdens who would derive the advantages,--does not apply, because the title came to respondent free from any claim of the appellant.

5. The commencement of the lien suit in the federal court did not conflict with the jurisdiction of the state court of the action subsequently commenced to foreclose the mortgage, since the subject of the first suit was distinct from that of the second, and the federal court did not acquire actual possession of the property.

6. When pleaded facts constitute a defense without any judgment decreeing affirmative relief, it is not error to adjudge affirmatively the existence of such facts, if established by evidence, and the legal effect thereof, though there be no prayer for affirmative relief in the answer.

Appeal from circuit court, Oconto county; Samuel D. Hastings, Jr., Judge.

Action by the National Foundry & Pipe Works against the Oconto City Water-Supply Company to obtain possession of certain property. Judgment for defendant, and plaintiff appeals. Affirmed.

The Oconto Water Company, a corporation organized to construct a system of waterworks in the city of Oconto, and to which, prior to the creation of the indebtedness hereafter mentioned, such city granted the usual franchise to construct, maintain and operate such a system, to furnish water for public and private use in such city, between September 8, 1890, and November 24, 1890, became indebted to the plaintiff for pipe which was used in such construction, in the sum of $25,637.32. September 13, 1890, the water company mortgaged its franchises and property to Andrews & Whitcomb, under which mortgage, and two others subsequently executed, such mortgagees loaned to the water company $64,000, which was used in constructing the waterworks. Plaintiff seasonably filed a petition for a lien for its claim on the waterworks plant under chapter 143, Rev. St. Such proceedings were had in the federal court for the Eastern district of Wisconsin, in an action brought by the plaintiff against the water company to enforce such lien, that a decree was entered in plaintiff's favor in due form of law October 3, 1892. Plaintiff also obtained a judgment at law for the amount of its claim, in the same court. June 17, 1891, Andrews & Whitcomb commenced an action in the state court to enforce their mortgages, and such proceedings were duly had therein that a decree of foreclosure and sale was entered in due form of law August 13, 1891, pursuant to which the waterworks plant and the rights and franchise of the company, including all the property covered by such mortgages, were sold to the mortgagees, and thereafter the sale was duly confirmed and a deed executed and delivered in accordance therewith. After the title was vested in Andrews & Whitcomb as aforesaid, and on the 12th day of July, 1892, they transferred the property to the defendant, the Oconto City Water-Supply Company, a corporation organized for the purpose of purchasing the property and obtaining the powers and privileges conferred by section 1788, Rev. St. January 11, 1892, plaintiff commenced a creditors' suit in the federal court, supplemental to its judgment at law against the Oconto Water Company and Andrews & Whitcomb. One of the purposes of such suit was to obtain a decree of priority of its lien claim over the title of Andrews & Whitcomb under the mortgage foreclosure proceedings. In such action the rights of all the parties, including the right of plaintiff to a lien under the laws of this state as against Andrews & Whitcomb, were presented to the court for adjudication. The claim on the part of Andrews & Whitcomb was that they were not bound by the lien judgment because not made parties to the suit to enforce it, and that the waterworks property was not subject to the laws of this state respecting mechanics' and material men's liens. On the part of the plaintiff, the validity of the mortgages under which Andrews & Whitcomb claimed title was attacked, and it was further claimed that its lien was a first claim against the water company property, and that it should be so adjudged in the creditors' suit. Before the case was finally determined this court decided, in Chapman Valve Mfg. Co. v. Oconto Water Co., 89 Wis. 264, 60 N. W. 1004, that a waterworks plant, provided by a city by contract with a private corporation, for the protection and convenience of its citizens, is not subject to lien claims under chapter 143, Rev. St. The federal court entered a decree in the creditors' suit sustaining the lien judgment, and that it was binding upon Andrews & Whitcomb as privies of the water company, the theory that they were so circumstanced being based on the fact that they were the owners of the stock of the water company when the indebtedness for which the lien was claimed accrued. The cause was carried to the court of appeals where the decree, so far as adverse to Andrews & Whitcomb, was reversed, that court holding that their mortgages covered all the water company's franchises as well as the plant; that the question of the validity of the plaintiff's lien, as between them and the water company, was res adjudicata, but that it was not binding on, and that plaintiff had no lien as to, Andrews & Whitcomb; that independent of the effect of the judgment upon the parties to the lien suit and their privies, plaintiff's claim was not lienable under the statutes of Wisconsin; that Andrews & Whitcomb were not privies of the water company, or affected by the lien judgment in any way whatever; that the lien claim as to them was void, and that the title acquired by them under the mortgages was paramount to plaintiff's claim under the lien judgment. A mandate in accordance with such decision was duly filed in the lower court. Thereafter plaintiff caused the lien judgment to be enforced in form by a sale of the waterworks property by the United States marshal, a confirmation of such sale, and the issuance of a marshal's deed pursuant thereto to the plaintiff as purchaser, the deed purporting to convey all the right, title and interest which the...