Frazier v. East Tennessee, V. & G. Ry. Co.

Decision Date28 October 1889
Citation12 S.W. 537,88 Tenn. 138
PartiesFRAZIER v. EAST TENNESSEE, V. & G. R. Co. et al.
CourtTennessee Supreme Court

Appeal from chancery court, Knox county; HENRY R. GIBSON Chancellor.

Ingersoll & Peyton, for complainant. W. M. Baxter, Henderson & Jouroleman, and Thornburg & Sanford, for defendants.


Some time prior to 1860, there existed two separate railroad corporations,-- one known as the "East Tennessee & Virginia Railroad Company," and the other as the "East Tennessee & Georgia Railroad Company." Each owned, and was operating, an independent line of railway under charter granted by this state. Under the internal improvement acts of 1851-52, state bonds to a large amount were loaned to each company, and thus each became largely indebted to the state. By an act passed February 25, 1869 railroad companies so indebted were permitted to consolidate, and adopt the name and charter of either of the consolidating companies. Under this act, these two corporations consolidated, adopting the name and charter of the East Tennessee & Virginia Railroad. Subsequently, by an act passed December 17, 1869, this consolidation was recognized, and the name of the consolidated company changed to "East Tennessee, Virginia & Georgia Railroad Company." On June 15, 1881, this consolidated company executed to the Central Trust Company of New York a mortgage to secure an issue of $22,000,000 of its bonds. This mortgage was known and described as its "Consolidated First Mortgage," and all the corporate property and franchises of the consolidated company, including certain other roads, either purchased or built after the consolidation above referred to, were included therein. On the same day another mortgage, known as the "Income Mortgage," was executed to the same trustee, to secure $16,500,000 of bonds, known as its "Six per cent. Income and Mortgage Bonds." All the corporate property and franchises of the company were conveyed herein, subject, however, to the consolidated first mortgage, and in addition the income of the road was pledged. Default having been made in the payment of interest upon the bonds thus secured, such proceedings were had in the United States circuit court for the eastern division of Tennessee as resulted in the sale of the mortgaged property and franchises. The purchasers at the sale were a committee of the holders of the bonds, duly authorized to purchase as trustees for the creditors. This committee bid in the entire corporate property for the sum of $10,000,000. Of this sum, $100,000 were paid in cash; the remainder of the bid being paid in bonds of the company, under a scheme agreed upon by the holders of bonds. The title was, by deed and decree, conveyed to the purchasers. Subsequently these purchasers, by virtue of an act passed March 12, 1877, organized as a corporation, and adopted the name of the "East Tennessee, Virginia & Georgia Railway Company." After this reorganization the purchased roads were regularly conveyed to the new organization, by the persons in whom the legal title stood, for the nominal consideration of $10. This foreclosure sale occurred May 25, 1886, and the other proceedings shortly thereafter, and during same year.

Complainant, claiming to be a creditor of the old and insolvent corporation, files this bill under the provision of sections 1492-1496, 3431, 4294, 4295, Code. The old corporation, as well as the new, are the parties defendant. The bill is filed upon the theory that under the law of this state, at the time the foreclosed mortgages were executed, regulating the execution of mortgages by railroads in this state, that the East Tennessee, Virginia & Georgia Railroad Company had no power to make a mortgage of its property in this state which should be valid as against judgments for timber furnished or work and labor done, or for injury to persons or property, incurred in operation of the road in this state, and that the property of the insolvent and debtor corporation in the hands of the reorganized corporation is subject to the demands of all such creditors; the purchasers thereof having no other or higher title than the mortgagees had. The bill is filed under sections 4294, 4295, and 3431, as a creditors' bill, to reach and subject assets of an insolvent corporation, and apply them equally to all creditors of the preferred class. A large number of creditors, having judgments unsatisfied for injuries sustained in the operation of the old road, or work and labor or timber furnished, have come in by petition, and been allowed by interlocutory orders to become co-complainants in the original bill. The learned chancellor, upon the whole case, decreed as follows: (1) That complainant was a creditor, and as such was entitled to judgment and decree against the East Tennessee, Virginia & Georgia Railroad Company, and that his claim was for injuries sustained in the operation of said railway in this state after the execution of the foreclosed mortgages, and while the road was being operated by the mortgagors. (2) That the East Tennessee, Virginia & Georgia Railroad Company was an insolvent corporation, and that since June, 1886, had parted with all its property and franchises, and had ceased to perform its functions as a common carrier; and that complainants have no means at law of obtaining satisfaction of their several demands, unless they may compel satisfaction from the property of said corporation in the hands of the new organization. (3) That the mortgages of June, 1881, under which the new company claims title, were subject to the provisions of the act of March 24, 1877, by which act said company was prohibited from making any mortgages or creating any lien superior to claims of the class to which complainants belong. (4) That the East Tennessee, Virginia & Georgia Railway Company is not an innocent purchaser. (5) That a receiver should be appointed, and empowered to take possession and sell a sufficiency of the property of the insolvent debtor corporation, owned by it at the date of the foreclosure sale, and situated in this state, and now in possession of the reorganized company, to satisfy the several judgments determined in this cause to be entitled to priority over the mortgages of June, 1881. From this decree the East Tennessee, Virginia & Georgia Railway Company have appealed, and assigned errors upon each of the several matters so decreed. The original complainant, Frazier, has likewise appealed from so much of the decree of the chancellor as held that his claim should be abated by the sum of $1,491.

We will first dispose of the first assignment of error filed by the railway company, which challenges the character of Frazier's claim, and insist that it is neither for damages to his person nor for work and labor, but for a breach of contract, and that, therefore, he is not a creditor of the class entitled to invoke the provisions of the act of 1877. Frazier, in January, 1883, was an engineer in the service of the old corporation, and was badly injured by the overturning of an engine. On the 9th August thereafter he entered into a contract with the company for the settlement of his claim for damages thus sustained. This contract is too lengthy to set out. Its substance and legal effect was that the company, on its part, agreed to pay him the sum of $90 per month for five years. He, on his part, agreed to do such work in the shops of the company as he should be called upon to do, and which he might be physically able to do. If any question should arise as to his ability to do the work, then it was agreed that Dr. Deadrick should settle such question and, if he should decide that complainant was able to do the work required, then his payments should be abated for the time so lost. The contract further provides that all his medical bills should be paid by the company, and that the sum of $1,800 should be paid to him as an advance payment upon the contract. In consideration of the foregoing, Frazier released the company from all liability for any damages he might otherwise recover. For several months he was regularly paid the agreed sum of $90 per month. But when the road passed into the hands of a receiver he was notified that his name had been dropped from their pay-roll. Thereafter he was paid nothing more. Neither before nor after this action of the receiver was he ever called upon or required to render any service. During the time he was paid, he was utterly unable to render any service, and for the greater part of the remainder of the period covered by the contract he continued to labor under disabilities so severe as to have made it physically impossible that he should render any services in the shops of the company. After his payments were stopped, it is shown that for a part of the time he engaged himself in the management of a small family grocery, and that the service he was able to render was such as could probably have been procured at $35 per month. The chancellor was of opinion that his monthly claim should have been abated to the extent that he had been able to make earnings in this avocation, and accordingly he abated the gross sum due by $1,491. We are of opinion that the sum agreed to be paid complainant under this contract was in liquidation of his claim and right of action for personal injuries. The agreement that he should, if able, render services in their shops, if called upon, was a mere incident of the settlement, and the sums agreed to be paid him are not for work and labor, but are agreed payments in liquidation of damages, to be reduced by the value to them of his services to them in their shops, if he should ever be called upon to so labor, and should be physically able. This demand is therefore one for personal injuries. We think it was error...

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