Kilpatrick v. Kan. City & B. R. Co.

• Decision Date: 03 January 1894
• Citation: 38 Neb. 620,57 N.W. 664
• Parties: KILPATRICK ET AL. v. KANSAS CITY & B. R. CO. ET AL., (REYNOLDS ET AL., INTERVENERS.)
• Court: Nebraska Supreme Court

38 Neb. 620

57 N.W. 664

KILPATRICK ET AL.

v.KANSAS CITY & B. R. CO. ET AL., (REYNOLDS ET AL., INTERVENERS.)

Supreme Court of Nebraska.

Jan. 3, 1894.

Syllabus by the Court.

1. Between an investment company and certain individuals it was agreed that the former should furnish substantially all the money necessary for, and to be used in, the construction of a proposed railroad, and take their notes therefor, their payment to be guarantied by an existing railroad company controlled by such individuals; that they should execute and file a certificate of incorporation of the proposed railroad, and execute, or cause to be executed, in its name, a mortgage on its anticipated property to secure its negotiable bonds, to be issued by it, and deposited with the investment company as collateral security for said notes. At the date of the execution and delivery of such bonds and mortgage, pursuant to said agreement, and at the date of the record of such mortgage, such proposed railroad company had acquired no property, right of way, or franchises, and had taken no step towards the acquisition of either, further than the filing of its certificate of incorporation, and the naming of its board of directors and officers, of all which facts the investment company had knowledge. The money agreed to be furnished by the investment company was by it paid over to the individuals aforesaid, they then being officers of the proposed railroad company, to be by them expended in the construction of said proposed railroad; and such individuals entered into contracts in the name of such railroad company for labor and material used in the building of its said road, but failed to pay therefor. Held, that the investment company should be regarded as a promoter and builder of the railroad, and was not entitled to have the mortgage decreed a lien upon the property and franchises of the railroad constructed, superior to the statutory liens against the same for labor and material furnished in its construction. Post, J., with Ryan and Irvine, CC., dissenting.

2. A waiver of a mechanic's lien will not be inferred merely from the taking of collateral security from another, and in a manner not inconsistent with the retention of the lien.

3. A former adjudication in the federal courts on the subject-matter of a controversy cannot be taken notice of in the state courts unless properly presented by the pleadings and proofs.

Appeal from district court, Gage county; Appelget, Judge.

Action to enforce a mechanic's lien by John D. Kilpatrick and others, partners as Kilpatrick Bros. & Collins, against the Kansas City & Beatrice Railroad Company, the Kansas City, Wyandotte & Northwestern Railroad Company, the Kansas City, Ft. Scott & Memphis Railroad Company, and the New York Security & Trust Company, defendants, and E. P. Reynolds & Co., interveners. From the decree rendered, the trust company appeals. Affirmed.Hornblower, Byrne & Taylor, Warner, Dean & Hagerman, and Griggs & Rinaker, for appellant.

Harwood, Ames & Kelly, I. P. Dana, and R. S. Bibb, for appellees.

Marquett, Deweese & Hall, for interveners.

RAGAN, C.

This is an appeal from a decree of the district court of Gage county, rendered July 17, 1891. The action was brought by the appellees Kilpatrick Bros. & Collins to foreclose a mechanic's lien against the property of the Kansas City & Beatrice Railroad Company (hereinafter called the “Beatrice Company”) for a balance due for labor and material furnished in the grading of that company's railroad. The appellant, the New York Security & Trust Company, (hereinafter called the “Trust Company,”) was made a party defendant, as it held a mortgage on the road of the Beatrice Company, given by it to secure an issue of $400,000 of its negotiable bonds. The appellee the Kansas City, Ft. Scott & Memphis Railroad Company (hereinafter called the “Ft. Scott Company”) was also made a party, and filed its answer, claiming a lien for a balance due it for ties sold and delivered to the Beatrice Company, and used in the construction of its road. The appellee the Kansas City, Wyandotte & Northwestern Railroad Company (hereinafter called the “Wyandotte Company”) was made a party defendant, as it was in the possession, as lessee, of the road of the Beatrice Company. By the decree of the district court, Kilpatrick Bros. & Collins were given a lien upon the property in question for the sum of $29,445.17, and the Ft. Scott Company was given a lien for the sum of $33,864.79. The two were declared first liens of equal rank, and to prorate one with the other. The Trust Company, by the decree, was also given a lien on the property, subject to the first two liens, for the sum of $278,267.85. The decree also provided that, in case of default in the payment of these amounts within a time fixed, the property and franchises of the Beatrice Company should be sold, and the proceeds of the sale applied to the satisfaction of the liens in the order of their priority. The Trust Company brings the case here, and avers that the decree is erroneous in the fact that its lien is postponed to those of Kilpatrick Bros. & Collins and the Ft. Scott Company.

It is conceded that the value of the property in controversy is insufficient to pay the amount of all the liens adjudged against it. The facts disclosed by the record before us, so far as they are deemed material, are these: That some time prior to the 29th day of May, 1889, the Wyandotte Company, a foreign corporation, had constructed a line of railroad from Kansas City, Mo., to the line between the state of Kansas and the state of Nebraska, at a point called Summerfield. For the prosecution of this undertaking, money had been furnished by the Philadelphia Investment Company, (hereinafter called the “Investment Company,”) a Pennsylvania corporation having its place of business in the city of Philadelphia, in said state, upon terms and security which are not disclosed by the record, and which are immaterial, except as showing that the Investment Company was familiar with the affairs of the Wyandotte Company, which shortly thereafter proved to be insolvent, and was, at the date of the negotiations hereinafter mentioned, financially unable to carry out an enterprise involving an outlay of considerable sums of money. Previous to this time, however, and during the progress of the construction of the road of the Wyandotte Company, and probably as a part of that undertaking, it was proposed to extend this line of road to Beatrice, Neb. At the time this project was first undertaken it was supposed and intended that this extension would be made in the name, and under the authority, of the Wyandotte Company. Subsequently, however, pursuant to correspondence between one Erb, the president of the Wyandotte Company, and one Brockie, the president of the Investment Company, the plan was so changed as to require the formation of a Nebraska corporation, and accordingly a certificate of incorporation of the Beatrice Company was executed, and recorded on the 19th day of June, 1889. On the 1st day of July, 1889, a mortgage was executed by the Beatrice Company upon all its property and franchises then existing, or thereafter to be acquired, purporting to be given to secure its negotiable bonds to the amount of $400,000. This mortgage, which was filed for record on the 13th day of July, 1889, contained, among other things, the following: “Whereas, the said party of the first part is the owner of a line of railroad constructed, and in process of construction, from a point on the line of the Kansas City, Wyandotte & Northwestern Railroad, where the same intersects the state line between Kansas and Nebraska, thence extending in a northerly direction through Pawnee county, state of Nebraska, to the city of Beatrice, in Gage county, in said state, all of said line of railroad being of the estimated length in the aggregate of thirty-five miles, or thereabouts; * * * whereas, for the purpose of building, furnishing, equipping, and operating said railroad, the party of the first part is desirous of borrowing money, and has resolved to execute bonds of said company in amounts of $500 each, as hereinafter stated: * * * Upon the execution and delivery of this mortgage, and from time to time thereunder, the trustee shall, as requested by resolution of the board of directors of the railroad company, certify the bonds hereunder to the extent of, and not exceeding, $400,000, and on said resolutions of said board of directors shall sell all bonds requested to be certified, and their proceeds shall actually be used for and applied, under the direction of said board, to the construction, completion, maintenance, and operation of said railroad, and not otherwise.” On the 17th day of July, 1889, all these bonds were delivered to the Investment Company under an agreement, as finallyperfected, that the latter company should advance, from time to time, to the Wyandotte Company, or to Erb, as its president, money for the construction of the proposed Beatrice Company, upon the notes of the Beatrice Company, guarantied by the Wyandotte Company, for the payments of which these bonds should be held as collateral security. The entire amount of the capital stock of the Beatrice Company was subscribed by, and issued to, the Wyandotte Company, but it is evident that nothing was ever paid, or intended to be paid, therefor. During the earlier weeks of these negotiations, and until about the time of the execution of the bonds and mortgage, it had not been decided whether a Nebraska corporation should be formed or not, nor, if so, what should be its name; nor had the right of way been secured, or the route, or the Nebraska terminus of the road determined upon.

Elias Summerfield, the treasurer and general manager of the Wyandotte Company, testified on the trial as follows: “Q. Was there a note for this money? A. Yes, sir. Q. Who executed it? A. It was first executed by the Kansas...