International Trust Co. v. T.B. Townsend Brick & Contracting Co.

Decision Date05 July 1899
Docket Number642,643.
Citation95 F. 850
PartiesINTERNATIONAL TRUST CO. v. T.B. TOWNSEND BRICK & CONTRACTING CO. (two cases). [1]
CourtU.S. Court of Appeals — Sixth Circuit

This is an appeal from a decree awarding priority over several pre-existing railroad mortgages to a debt due from the mortgagor company to the appellee for the construction of the pier and abutments of a railroad bridge over the Cuyahoga river in the city of Cleveland, Ohio. This claim was asserted by an intervening petition filed by the appellee in the case of Cleveland, C. & S. Ry. Co. v. Knickerbocker Trust Co., 86 F. 73, a cause pending in the circuit court, under which a receiver had been appointed who was in possession and exclusive operation of the railroad against which the intervener's claim was asserted as a preferential lien. The only complainant in the bill under which the receiver was appointed was the Cleveland, Canton &amp Southern Railroad Company, a corporation of Ohio. The only defendants named in the bill were the Knickerbocker Trust Company of New York, trustee under the junior mortgage upon the property, the appellant, the International Trust Company a corporation of Massachusetts, trustee under five distinct mortgages, all senior to that represented by the Knickerbocker Trust Company, and Clara, William, and Morgan Rotch, executors of William J. Rotch, and citizens of Massachusetts. The object of this bill was to place the property of the railroad company in the custody of the court that its operation might be continued, and the property, held together, and preserved for the benefit of its creditors. To this end it confessed its inability to meet its floating indebtedness, and provide for its interest obligations, and at the same time meet its ordinary expenses of operation. Its property is described, its mortgages enumerated, and its other liabilities, matured or about to mature, tabulated. Some of its mortgages are stated to cover the entire railroad, while others rest upon parts of the railroad which had been acquired by the complainant subject to existing mortgages. The dismemberment of the railroad is alleged to be threatened, and the consequences to creditors and stockholders averred to be most disastrous. Texas are said to be due, and mechanics' lien claims are said to threaten immediate disruption of the property. The present inability of the corporation to meet its current operating expenses is averred as necessitating either a stoppage of its operation or the protection of the property by the appointment of a receiver. While no default in the interest of the bonds secured by the mortgages represented by the trustees named as defendants had occurred, the complainant avowed its inability to pay the interest about to accrue. The complainant therefore prayed the court to appoint a receiver for the purpose of preserving the property for the benefit of creditors and continuing the operation of the railroad; that, after paying current expenses, the income be applied to the payment of past-due operating expenses, for labor, material, supplies, rentals, etc., and that 'the court will fully administer the trust funds in which the creditors and stockholders of your orator are interested, consisting of its railroad and its properties and assets of every kind, and will, for such purpose, marshal all its assets, and ascertain the several respective liens and priorities existing upon it, and every part thereof, and the amount due upon each and every part of said mortgages or other liens, and enforce and decree upon the rights, liens, and equities of all parties, as the same may be finally ascertained and adjudicated by this court.'

Counsel representing the Knickerbocker Trust Company and the executors of Rotch appeared, and consented to the appointment of a receiver, who at once took possession of the railroad, and operated same until the road was sold under decree in separate foreclosure suits begun and prosecuted as independent suits in the same court. When the receiver was appointed, the court authorized him 'to pay and discharge out of the net income of said railroad all unpaid traffic balances, and the indebtedness of said company to its servants and employes, and for materials and supplies accruing within six months last past, and also the unpaid coupons, amounting in all to $4,000, due July 1, 1893, on the Coshocton & Southern Railroad line, and mentioned in the said bill of complaint. ' The International Trust Company was never served with process, or brought before the court through publication or constructive service of any kind. But, shortly after the bill was filed, a general appearance for it was entered upon the rule docket by its counsel, though no answer was ever filed. Thereafter it specially appeared for the purpose of consenting to a decree ordering the issuance of receivers' certificates for the purpose of paying off certain alleged preferential claims adjusted by agreement. Still later it appeared, and answered, and defended the intervention of the appellee, who was seeking to obtain a preference over all the mortgages. On May 16, 1894, the appellee filed the intervening petition upon which the present decree was obtained. This petition alleged that the railroad company, in 1892, had entered into a verbal contract with the T.B. Townsend Brick & Contracting Company for the furnishing of the materials and performing the work and labor for the building and construction for the railroad company of a stone pier for a drawbridge over the Cuyahoga river. The terms and conditions of the contract, as averred, were that the said brick company was to be paid by measurement an agreed price for the work and materials, the quantity to be estimated the first of each month as the work progressed by the engineer of the railroad company, and payment of each estimate made on the 20th of each month. That the work was done and materials furnished and estimates made as follows: On December 1, 1892, estimates for $4,758.46; on January 1, 1893, estimates for $2,770.53; on February 1, 1893, estimates for $5,688; on March 1, 1893, estimates for $4,992; on April 1, 1893, estimates for $1,417.50; on July 1, 1893, estimates for $1,327. Under the contract the amounts for which each estimate was furnished was due and payable upon the 20th of the month following the month in which the work was done. None of these estimates were in fact paid, and, when due, the brick company accepted the notes of the railroad company for the amount of each, due six months after date, except in the case of the March estimate, for which a note was made payable in five months. None of these notes were paid. The petition then averred that on the 16th of August, 1893, the said brick company had recorded its account, and claimed a mechanic's lien under the lien law of Ohio 'on said structure and the land on which the same is situated, and the railway line and its branches, of which said bridge and appurtenances constitute a part. ' The petition concluded by praying an enforcement of the mechanic's lien thus fixed, and for such other and further relief, etc.

The International Trust Company appeared, and asked leave to answer and defend this petition, and did file an answer traversing every claim to any lien prior to the pre-existing mortgages under which it was trustee. There was a reference to a master to hear proof and report what was due upon this claim, how much 'was done or furnished within six months next prior to the appointment of the receiver, and which should be allowed as one of the six-months claims. ' The master reported that there was due $20,610.19 on account of the construction of the stone pier, and $1,327 due and payable on account of certain work done in June, 1893, upon certain abutments of the same bridge, done under a subsequent agreement. He also reported that of this work done and materials furnished $6,072.50 was done or furnished within six months prior to the appointment of a receiver. This report was filed February 29, 1896. On June 30, 1896, an amended petition was filed by the said brick company, in which, among other things, it was averred: 'That upon the location and site of the said Independence Street Bridge described in its original intervening petition,-- for the erection and construction of the substructure, pier, abutments, masonry, foundations, and approaches thereof and thereto, this intervening petitioner, under the provisions of its said contract with the Cleveland, Canton & Southern Railroad Company, furnished the materials and performed the work and labor set forth and described in its original intervening petition,-- there was formerly, and at the time of the making of said contract for the furnishing of said materials and performing said labor, a stationary wooden bridge or structure, which was erected about the year 1880, and had been used continuously since that time by the said the Cleveland, Canton & Southern Railroad Company and its predecessors as a part of its railroad, and to enable it and them to have entrance into the city of Cleveland. That said original bridge, its approaches, abutments, and supports, had become and were weak, decayed, insufficient, and unsafe, and it was hazardous and dangerous for the railroad company's cars and engines to approach or pass over the same; said structure and its approaches, abutments, and supports having been condemned and pronounced unsafe by the engineers of said railway company several years before the making of said contract with this intervening petitioner, and very expensive repairs had been made thereon from time to time, in order to render it at all safe or suitable for railroad purposes. Furthermore, the properly constituted authorities of the city of Cleveland, some time previous to the...

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