National Foundry Pipe Works v. Oconto City Water Supply Company

• Decision Date: 06 January 1902
• Docket Number: No. 33,33
• Citation: 183 U.S. 216,46 L.Ed. 157,22 S.Ct. 111
• Parties: NATIONAL FOUNDRY & PIPE WORKS, Limited, Plff. in Err. , v. OCONTO CITY WATER SUPPLY COMPANY
• Court: U.S. Supreme Court

183 U.S. 216

22 S.Ct. 111

46 L.Ed. 157

NATIONAL FOUNDRY & PIPE WORKS, Limited, Plff. in Err.,

v OCONTO CITY WATER SUPPLY COMPANY.

No. 33.

Argued and Submitted March 22, 1901.

Decided January 6, 1902.

In January, 1890, the city of Oconto adopted an ordinance authoriz to construct and operate waterworks in said city. Said Oconto Water Company is hereafter referred to as the water company. The water company commenced the construction of its plant. On August 28, 1890, it contracted with the plaintiff in error, the National Foundry & Pipe Works, Limited,—hereafter styled the pipe works—for a supply of pipe to be used in said water plant, the pipe to be delivered at intervals, and to be paid for partly in cash and partly on credit.

While the pipe was being delivered and placed in position, the water company, by an instrument in writing of date September 13, 1890, agreed with a firm known as Andrews & Whitcomb, whose members were domiciled in the state of Maine, in substance as follows:

In consideration of cash advances to aggregate $40,000, to be made by said firm from time to time for the completion of the waterworks, the water company was to execute its promissory notes for the amount of each advance. The water company agreed as to collateral security as follows:

'To make an immediate transfer, in trust, to said parties of the first part (Andrews & Whitcomb) of the Oconto Water- works franchise as issued to said Oconto Water Company, together with the entire one hundred thousand ($100,000.00) dollars of stock of said Oconto Water Company; and further agrees to make an immediate issue of one hundred thousand ($100,000.00) dollars in the first mortgage bonds of the said Oconto Water Company, the same to be secured by deed of trust on the entire Oconto waterworks franchise and all of the rights and privileges of said company in said waterworks franchise; said deed of trust to be made to some trust company to be hereafter mutually agreed upon.'

About contemporaneously with the execution of said agreement a formal mortgage was given to Andrews & Whitcomb by the water company upon 'all the rights, privileges, immunities, franchises, and powers, of whatsoever name or nature, which had been granted to it.'

This mortgage was not at once placed on record, and, moreover, a considerable time elapsed before delivery was made to Andrews & Whitcomb of the stock and bonds provided for in the agreement previously referred to.

In the meanwhile all the pipe contracted for was delivered, and the same had been used in connection with the waterworks plant. Although the water company was during this time obtaining money from Andrews & Whitcomb, it failed to use the money in payment for the pipe. In consequence the pipe works on September 15, 1890, recorded a claim for a lien on the plant of the water company. After the recording of this lien, and on January 13, 1891, the mortgage in favor of Andrews and Whitcomb, which, as already stated, had been executed on or about September 13, 1890, was placed on record.

On January 30, 1891, the pipe works filed its bill in the circuit court of the United States for the eastern district of Wisconsin to foreclose its asserted lien, and to procure a sale thereunder of the plant of the waterworks company and of the interest of that company in certain real estate upon which the company had constructed its pump and water wells, the legal title to the real estate being in the city, but the company having taken possession, under an agreement by which it secured the right to obtain a conveyance, from the city, upon compli- ance with certain conditions. To this bill the water company was alone made defendant. The lien asserted was contested by the defendant. This litigation will be hereafter referred to as the mechanics' lien suit.

Andrews & Whitcomb having made the advances provided in the contract of September 13, 1890, and additional advances being required, they were made by Andrews & Whitcomb under contracts executed on March 13 and May 16, 1891, of tenor like unto the September agreement, the collateral security provided under that contract being made liable for the new advances. No independent mortgage was executed.

The water company not having performed the stipulations made in its contracts with Andrews & Whitcomb, on June 17, 1891, that firm commenced proceedings in a court of the state of Wisconsin to foreclose an asserted lien which it claimed was created upon the franchise and property by the mortgage and contracts to which we have already referred. This litigation will be hereafter referred to as the mortgage foreclosure suit. To this suit the water company was alone made defendant. On August 13, 1891, a personal judgment was entered for $63,889.23 and costs, and a sale was decreed to enforce the lien declared in the following clause of the conclusions of law of the court:

'Third. In addition to such personal judgment, the plaintiffs are entitled to a further judgment decreeing, adjudging, and declaring the amount thereof, together with the proper costs for the enforcement of the same, a lien upon all of the property shown by the complaint in this action and the proofs adduced by the plaintiff herein in support thereof to have been sold, assigned, transferred, and set over or pledged to the plaintiffs by the defendant in trust and as collateral security for the repayment of the sums loaned and advanced the defendant by the plaintiffs under the contracts set forth in the complaint.'

Under this decree a sale was made at public auction to Andrews & Whitcomb, of the rights, privileges, immunities, franchises, and powers granted to the water company by the ordinance of July 9, 1890, and the stock and bonds pledged as aforesaid. The sale was confirmed by the court, and possession of the waterworks plant was taken by Andrews & Whitcomb. At the offering a representative of the pipe works notified those present that the pipe works claimed a paramount lien upon the property proposed to be sold, and that the purchaser would take subject to its rights.

Pending the mechanics' lien suit and the sale and purchase by Andrews & Whitcomb, the pipe works brought an action at law against the water company in the circuit court of the United States for the eastern district of Wisconsin, making also defendants thereto Andrews & Whitcomb, sued as garnishees. A judgment for the amount due was obtained on January 2, 1892, as aginst the water company, but the action was never prosecuted to a termination as against the garnishees.

On January 11, 1892, the pipe works filed in the circuit court of the United States a creditors' bill based upon its judgment at law and the return of execution thereon unsatisfied. This litigation will be hereafter referred to as the creditors' suit. The water company, Andrews & Whitcomb, an alleged corporation styled the Oconto City Water Supply Company, to be hereafter referred to as the water supply company, as well as various parties whom it was claimed were liable as stockholders for unpaid subscriptions, and others, were made defendants. It would seem that in the original bill the water supply company was averred to be a corporation and a resident or citizen of Wisconsin, but Andrews & Whitcomb denied such averment. Thereafter, in an amendment to the creditors' bill it was alleged that subsequently to the filing of the bill the water supply company had been organized, and that it claimed to have derived, through Andrews & Whitcomb, title to the rights and property of the water company, but that said claim was subordinate to the lien of the plaintiff. Whether at the time of this amendment the water supply company had acquired the waterworks plant, or such acquisition was made subsequently thereto, does not appear, nor is it stated in the record that it was ever served with process.

A full statement of the grounds for the equitable relief asked for in the creditors' bill is contained in the opinion in Andrews v. National Foundry & Pipe Works, reported in 36 L. R. A. 139, 22 C. C. A. 110, 46 U. S. App. 281, 76 Fed. 167. It suffices here to say that the bill assailed the validity of the mortgages to Andrews & Whitcomb and the transfer of stock and bonds to them, and attacked their foreclosure sale, and asserted the liability, as stockholders, of Andrews & Whitcomb and others, for unpaid subscriptions to the stock of the water company. A receiver was asked to take possession of and operate the waterworks plant, then in the possession of Andrews & Whitcomb, and an injunction was prayed to restrain Andrews & Whitcomb from holding, managing, or interfering in any way with the rights, franchises, plant, property, rents, profits, bonds, and affairs in the hands of said receiver, and from asserting any right, title, or interest in the property, or the rents, issues, and profits thereof, until the further order of the court.

The mechanics' lien suit culminated on October 3, 1892, in a decree in favor of the pipe works, recognizing its mechanics' lien for the amount of pipe unpaid for, and a sale was decreed to satisfy such indebtedness. The conclusions of the circuit court were supported by an elaborate opinion holding that, under the laws of the state of Wisconsin, a lien existed which it was the duty of a court of equity to enforce. 52 Fed. 43. From the decree thus rendered an appeal was prosecuted to the circuit court of appeals for the seventh circuit.

On October 10, 1892, the circuit court, in the creditors' suit, appointed a receiver, and allowed a preliminary injunction. 52 Fed. 29. From the interlocutory decree granting an injunction an appeal was prosecuted to the circuit court of appeals for the seventh circuit.

On November 7, 1893, the court of appeals for the seventh circuit (Woods, Circuit Judge, and Bunn and Baker, District Judges, sitting) affirmed the decree of the court below in the mechanics' lien suit, in which decree had been declared the existence of...