Mellon v. Morristown & C. G. R. Co.

• Decision Date: 19 October 1895
• Citation: 35 S.W. 464
• Court: Tennessee Supreme Court
• Parties: MELLON et al. v. MORRISTOWN & C. G. R. CO. et al.

35 S.W. 464

MELLON et al. v. MORRISTOWN & C. G. R. CO. et al.

Court of Chancery Appeals of Tennessee.

October 19, 1895.

Appeal from chancery court, Hamblen county; J. P. Smith, Chancellor.

Action by T. Mellon & Sons against the Morristown & Cumberland Gap Railroad Company and others. From a decree denying plaintiffs a lien on defendants' railroad, they appeal. Affirmed.

Tuly R. Cornick, for appellants. Helen & Bruce and Webb & McClung, for appellees.

BARTON, J.

The question before this court in this case is whether the complainants shall have a lien on the property of the Morristown & Cumberland Gap Railroad Company for their recovery, or any part of it. The bill in this case was filed October 28, 1892, and alleges, among other things not necessary to mention, that the complainants are bankers doing business in the city of Pittsburg, Pa.; that the defendant Morristown & Cumberland Gap Railroad Company is a corporation under the laws of Tennessee, with its principal office at Morristown, Hamblen county, Tenn.; that F. H. Allison, J. J. Shafer, and C. J. Allison were partners in railway construction, with an office at Morristown, Tenn., but nonresidents of Tennessee; that Allison, Shafer & Co. conceived the idea of building a line of railroad from Morristown, on the line of the East Tennessee, Virginia & Georgia Railway, in Hamblen county, to some point on the Knoxville, Cumberland Gap & Louisville Railroad in Grainger and Knox counties, and for that purpose organized the defendant corporation, of which corporation, it is alleged, they had full and sole control; that the corporation had no assets, beyond its stock and bonds; and that a single dollar was never paid into its treasury. They allege that the defendants Allison, Shafer & Co. entered into a contract with their corporation for the construction of the road, for which they were to have all of its stock and bonds, practically, and all subsidies voted or to be voted to it by the towns and counties interested in its construction. The bill sets out the details of the organization in control of the defendant corporation, and of the contract made with Allison, Shafer & Co., and alleges that Allison, Shafer & Co. and the Morristown & Cumberland Gap Railroad Company were, in point of law, identical, and that the railroad company was responsible to them, as principal, for the amount obtained from them by defendants Allison, Shafer & Co. in the manner hereinafter stated. The bill seeks a decree both against the railroad company and Allison, Shafer & Co. for the amount due and owing to it. It is unnecessary to further notice this phase of the litigation, otherwise than to say that on the hearing the chancellor decreed in favor of the complainants on this part of their contention, and held that the railroad company and Allison, Shafer & Co. were one, in law, and gave judgment against the defendant company for the amount due the complainants.

As applicable to the liens claimed, the following are the allegations of the bill: "That on October 28, 1891, the work of constructing said road had progressed to such a point as that, unless means were obtained to prosecute same, and to purchase material and supplies, and to discharge the demands and liens of contractors and material men, the work would necessarily be suspended, and disaster and ruin would be precipitated upon the enterprise, and the corporation and firm would be engulfed in bankruptcy. In this condition of affairs, on or about said date, to wit, the latter part of October, 1891, the said Allison, Shafer & Co. presented themselves and their representatives at the place of business of Messrs. Carnegie Bros. & Co., Limited, of Pittsburg, and sought to secure certain lines of credit for shipments of rails theretofore made, and used and to be used, in the construction of said railway, and for which said firm of Carnegie Bros. & Co., Limited, had a statutory lien upon said line of railway, as well as to secure a line of credit for some (14) fourteen miles of additional rails necessary for the completion of said work of construction, to secure all which, in addition to the lien allowed by law, the said Allison, Shafer & Co. agreed to deposit with the rail manufacturers aforesaid certain of the securities theretofore issued or to be thereafter issued to them by said defendant corporation under the contract for the construction of said road. Said Carnegie Bros. & Co. declined to give the lines of credit sought, and assigning, among other reasons, that such accommodation was without the scope of a manufacturer, and within the scope of a banker's business, and gave introduction or reference to complainants as being suitable persons to be applied to in the emergency; and so, on or about October 28, 1891, the said Allison, Shafer & Co. presented themselves to complainants, at their place of business in the city of Pittsburg, and sought to secure and establish the requisite credit with which to complete the construction of said railroad. That, as a condition precedent to the granting of any loan and line of credit, complainants exacted of said Allison, Shafer & Co. a statement of the construction account of said road, the liabilities thereof, and the liens thereon; it being distinctly agreed and understood that complainants would advance only such sums as were to be applied to the payment and satisfaction of their outstanding liens upon said road on account of construction and materials used therein, and in the further purchase of the necessary additional fourteen miles of steel, and the transportation thereof, and the placing of same in the track, for which said necessary amount the said Allison, Shafer & Co. agreed to execute their certain promissory notes, aggregating the sum of one hundred and nine thousand dollars, and to be secured by the hypothecation and deposit of one hundred and sixty-eight thousand dollars of the first-mortgage bonds of said railroad company, and five hundred and ten thousand dollars of its capital stock." The bill then sets out the different notes given, and the specific collateral attached to each. It further states that on October 29, 1892, the entire amount of the first five notes named, to wit, the sum of $84,000, was passed to the credit of Allison, Shafer & Co. on the books of complainants' bank, and that between October 30th and November 17th the entire amount was checked out by Allison, Shafer & Co. The bill then sets out a statement of their checks drawn at various times; that, on maturity of their notes, they were not paid, but renewed (and a statement is given of the renewal notes); that all these renewal notes are past due, and remain wholly unpaid; that, after this transaction was completed, they sent their agent to the place of construction, to see that the money and material were applied in the construction of the railroad as intended. They charge that it was so applied. They further charge that Allison, Shafer & Co. had represented to them that the amount of $84,000 would complete the road, and that there were no liens outstanding on it. They charge that this was false, and that they had discovered that there were between sixty and one hundred thousand dollars of debts outstanding, secured by liens superior to the mortgage executed, and because of such facts the value of the securities pledged to complainants are not only greatly impaired in value, but may be rendered wholly worthless. The bill then contains this charge: "Upon these conditions, complainants charge that they are entitled to be subrogated to the liens which were held by Carnegie Bros. & Co., Limited, for the amount of rails furnished and paid for by complainants, amounting to $52,034.79, and for the transportation thereof from the mills to the point where received by said railroad company, amounting to $____, and also the amounts paid by them, for and on account of Allison, Shafer & Co., to other material men and contractors and laborers, for the balance of said eighty-four thousand dollars, together with interest on the whole from October 28, 1891. Complainants cannot give the names and amounts paid to each of these several lienors, except Carnegie Bros. & Co., Limited, because the same was paid through Allison, Shafer & Co., upon checks to their own order; and, touching said persons and amounts, complainants charge that they are entitled to a discovery in accordance with the prayer of their bill." They ask for a decree both against the railroad company and Allison, Shafer & Co., and for a decree subrogating complainants to the rights of all lienors whose demands were paid by money advanced by them. Judgment pro confesso was taken against Allison, Shafer & Co., who never answered.

Some proof was taken, and the complainants, at the August term, 1893, asked leave to, and were allowed to, amend their bill so as to state and charge as follows: "Complainants further show that an inducement was offered them by the said Carnegie Steel Company to furnish to the complainants, and to be paid for by complainants, within any time within two years thereafter, all rails needed to complete said road, provided complainants would arrange said transaction with Allison, Shafer & Co., and would guaranty to said Carnegie Bros. & Co. their past-due accounts; and complainants charge that they bought from the said Carnegie Bros. & Co. and from the Carnegie Steel Company said additional miles of rails, or thereabouts, and furnished the same to the defendants, and guarantied the past-due accounts as contracted, and that no portions of said sums have been repaid to them, and so do pray for a declaration of a lien upon said railway for the material so furnished." The defendants answer, and deny this allegation of purchase of any rails or material from complainants, but allege that the purchase was made from the Carnegie Company, and that the transaction with the complainants was simply a loan. The answer to the original bill...