McDougall v. Hazelton Tripod-Boiler Co.

• Decision Date: 05 July 1898
• Docket Number: 537,538.
• Citation: 88 F. 217
• Parties: McDOUGALL v. HAZELTON TRIPOD-BOILER CO. et al. HAZELTON TRIPOD-BOILER CO. et al. v. McDOUGALL.
• Court: U.S. Court of Appeals — Sixth Circuit

88 F. 217

McDOUGALL v. HAZELTON TRIPOD-BOILER CO. et al.

HAZELTON TRIPOD-BOILER CO. et al. v. McDOUGALL.

Nos. 537, 538.

United States Court of Appeals, Sixth Circuit.

July 5, 1898

The original bill in this cause was filed on Jan the Hazelton Tripod-Boiler Company against the Citizens' Street-Railroad Company for the purpose of obtaining a decree, and enforcing a mechanic's lien upon a lot in Memphis on which were the steam power and machinery by which the railroad company operated its railway system. The amount for which a decree and the enforcement of the lien were prayed was the sum of $17,000, and some interest; the principal sum being the purchase price for three steam boilers furnished by the boiler company, a corporation located at Chicago, to the railroad company, a corporation doing business at Memphis, for the purpose of supplying the latter with power. The contract between the companies, under which the boilers were supplied, had been made in April 1891, and the boilers were set up during that year; but the purchase price, though in terms due some time previous to the filing of the bill, had not been paid,-- the railroad company having refused payment upon the ground that the boilers were defective, and not in conformity with the contract. Upon the filing of the bill the railroad company appeared and answered; setting up the faulty execution of the contract on the part of the boiler company in defense, and further alleging that the contract itself, in respect to the purchase, was modified by a further stipulation that it should not exceed the cost of construction. On June 6 1892,-- a few months after filing the bill,-- the boiler company, being in need of funds, borrowed $10,000 from George Linyard, of New York, and gave him its promissory note therefor, with interest; therein also pledging the boiler company's interest in the contract with the railroad company above set forth. This instrument was in the language following: '$10,000. Chicago, Illinois, June 6th, 1892.

'Five days after demand, for value received, we promise to pay to the order of ourselves the sum of ten thousand dollars, at our office, 1410 Manhattan Building, with interest at the rate of six per cent. per annum after date; having deposited with said legal holder of same, as collateral security, our contract with Citizens' Street-Railroad Company of Shelby County, Tennessee, Memphis, Tennessee, dated April 15, 1891 and accepted May 2, 1891, which we hereby give the said legal holder of said note, his agent or assignee, authority to sell, or any part thereof, on the maturity of this note, or at any time thereafter, or before, in the event of said securities depreciating in value in the opinion of said legal holder of said note, at public or private sale, at the discretion of said legal holder of said note, his assignee, without advertising the same or demanding payment, or giving us any notice, and to apply so much of the proceeds thereof to the payment of this note as may be necessary to the same, with all interest due thereon, and also to the payment of all expenses attending the sale of the said collateral, including attorney's fees; and in case the proceeds of the sale of the said collateral shall not cover the principal, interest, and expenses, we promise to pay the deficiency forthwith, after such sale. Hazelton Tripod-Boiler Co.,

'By C. B. Holmes, President.'

In October, 1892, as Linyard alleges, he sent this instrument to L. H. Bisbee, one of the solicitors for the boiler company in the then pending suit, with instructions to collect it, and, after paying Linyard what was due him, to pay the balance to the boiler company. In December following, the boiler company, having become insolvent, made an assignment for the benefit of its creditors to G. W. Griffin, as trustee; and he subsequently became a party to the suit, as co-complainant. The taking of proof, and other preliminary matters, prolonged the suit for several years. In November, 1894, Linyard tendered, and by leave of the court filed, a supplemental bill, so called, alleging his acquisition of the note and pledge above mentioned, that he had sent the instrument to Bisbee, as above stated; that Bisbee had not collected the note, and had refused to return it to Linyard on the latter's request; that he had therefore revoked Bisbee's authority; and he prayed that the proceeds of the suit should first be applied in satisfaction of the note. To this bill the boiler company and Griffin, assignee, were made defendants, and they answered, admitting the substantial allegations of the bill. During the progress of the suit, and after considerable proof had been taken, the case was brought on for hearing; and the court, apparently being in doubt whether the contract for the boilers was modified to the extent that the price should not exceed their actual cost, ordered a reference to the master to ascertain and report what that cost was. This duty was performed by the master, but, as it was finally held by the court that the decree should be for the contract price, further reference to that report is unnecessary.

On January 6, 1896, Linyard, after having made, as he claims, repeated but ineffectual efforts to realized his debt by demand upon the assignee, and endeavored to sell his collateral, finally sold the contract to William McDougall for the sum of $11,000. On the 17th of the same month, Judge Hammond, who had heard the case, filed an opinion ordering a decree in favor of the boiler company for the amount specified by the contract, with interest. 72 F. 317. A few days thereafter, McDougall made application to the court for leave to file a supplemental bill setting up the transfer to him of the subject-matter of the suit, and praying that the decree might be entered in his favor. Leave to file this bill was postponed until after the decree should be entered. On January 31st the final decree in the primary controversy for $18,473.37 was entered in favor of the boiler company against the railroad company, and, this being done, McDougall's bill was permitted to be filed. Id. 325. The railroad company paid the amount decreed against it into court, and this was turned into the registry to await the determination of the claims upon it set up by various parties. The boiler company, upon grounds stated in the opinion, claimed that the pledge of the collateral in the note was unauthorized, and, further, that the sale by Linyard to McDougall was inoperative to convey more than so much of the interest in the contract as would suffice to pay the $10,000 borrowed from Linyard, with interest, and therefore it was entitled to the whole of the decree, or at all events to the surplus of the decree after that debts was satisfied. Bisbee and Metcalf & Walker, the counsel who had conducted the suit for the complainant, asserted a lien upon the fund for their services, the value of which, upon reference, was fixed at $3,000; and $131.70 were allowed them for personal expenses which they also claimed. Griffin made claim for his personal expenses incurred in the progress of the litigation, which by like reference were found to amount to $548.62. All these claims were denied by McDougall, who insisted that the whole amount of the decree should be paid to him. Upon final hearing, Judge Clark, who heard the case upon these controversies, held that the claim of the boiler company to the whole decree or to the surplus was not maintainable; that Bisbee and Metcalf & Walker were entitled to the lien claimed by them for counsel fees and expenses, in the amounts above stated; and that Griffin was not entitled to be reimbursed for his personal expenses incurred in the suit. A decree for distribution of the fund was entered accordingly. Some minor details of fact are noted in the opinion following. The boiler company and Griffin appeal from so much of the decree as denies their respective claims, and McDougall appeals from the allowance of the claims of Bisbee and Metcalf & Walker for counsel fees and expenses.

J. H. Watkins, for McDougall.

S. P. Walker, for Hazelton Tripod-Boiler Co.

Before TAFT and LURTON, Circuit Judges, and SEVERENS, District Judge.

SEVERENS District Judge, having stated the case as above, .

The boiler company, upon its appeal, contests the right of McDougall to take the whole of the decree against the railroad company, subject to the lien of counsel, on various grounds:

1. It is urged that the pledge of the collateral to the note was void because in excess of the authority conferred upon Holmes, the president of the company, who transacted the business, by the board of directors. The resolution authorizing him in terms empowered him to assign the contract to the holder of the note, as security therefor, and to authorize such holder to collect the amount due on the contract, to satisfy himself for the sum due on the note with interest, together with all expenses of collection, and thereupon to require him to account to the boiler company for the surplus. The note was negotiable, and it is manifest that it was anticipated that the note, with the collateral, might pass into other hands by transfer from the original holder. The collateral was an incident, and would pass by the transfer of the debt to the new holder, and he would be authorized to take all appropriate measures for the collection of the money due on the contract pledged. Construing the resolution of the board strictly, it might be doubted whether, if Linyard had known its terms, he could have enforced the payment of the note by a sale of the contract pledged. Possibly it might still have been competent for him to have urged that under the resolution itself he was entitled to the ordinary rights of a pledgee, which would have...