Cent. Tr. Co. of N.Y. v. Marietta & N.G. Ry. Co., 48 F. 850 (5th Cir. 1891)

It is to be noted that the intervener, in its amended petition, alleges the title to two of the locomotives, Nos. 14 and 15, is in Burnham, Parry, Williams tfc Co. The intervention, without being put in issue, having been referred to a special master in chancery, the testimony of George R. Eager and J. B. Giover, receiver, was taken. This testimony, together with exhibits introduced by intervener, shows substantially the following facts: That George R. Eager was the contractor to build the Marietta & North Georgia Railway; that he was also the president and a [p. 852] large stockholder in a company organized under the laws of New Hampshire, known as the North Georgia Improvement Company, w'ith its headquarters in Boston, Mass.; that said Eager, as contractor, was to receive stock and bonds of the Marietta & North Georgia Railway for its construction; that said Eager procured the North Georgia Improvement Company to purchase and pay for the whole equipment hereinbe-fore stated, except the sum of $4,908, the balance due Burnham, Parry, Williams & Co., of Philadelphia, for engines Nos. 14 and 15, which amount was evidenced by six notes outstanding, not produced at the hearing of the cause, presumably in the hands of the payees; and that the Hiawassee Company was organized under the laws of Maine, and was, among other things, authorized to invest in stocks, bonds, and real estate; that the said equipment was purchased from various original vendors, w'as marked in name of said Marietta & North Georgia Railway Company, and put in the possession, custody, and control of said company, the Marietta & North Georgia Railway Company, by said Eager, contractor and president, as aforesaid; that by the writings executed by Burnham, Parry, Williams & Co. and the North Georgia Improvement Company, the title was reserved until full payment, and the locomotives are stated to be loaned to the lessees, to be used “upon their railroad,” etc.; that by writing executed between Jackson & Sharp Company and North Georgia Improvement Company, it is stated that the cars are to be used on the Marietta & North Georgia Railway Company; that for the engine bought from S. W. Groome there was no written agreement; that the Marietta & North Georgia Railway had been in possession of locomotive engines 14 and 15 since about May, 1889, upon which w'as still due the sum of $4,908 to Burnham, Parry, Williams & Co., represented by six notes still held and owned by them; that the railway company had been in possession of the two first-class passenger-cars, 14 and 15, one combination mail, baggage, and express car, numbered 11, and one combination mail, baggage, and express car, numbered 12, since April 17, 1889, and that said company had been in possession of locomotive engines Nos. 11 and 12 since about 20th day of December, 1888.

“Question. What was your plan, Mr. Eager, in regard to the purchase of this rolling stock? Did you control a majority of the stock of the M. & 27. G. Ry.? Answer. Yes; land my friends controlled three-fourths of it. Q. What was your plan with regard to this rolling stock, — in regard to the future? A. Our plan was, when we got the road fully completed, it would improve our mines, and we bought as much rolling stock as we should want for the immediate present; that we would endeavor to arrange equipment, and issue equipment bonds for sufficient amount to cover all the rolling stock, and to secure all the rolling stock we thought it w’ould be necessary to have. Q. Up to this time no contract betw'een the M. & in. G. Ry. and the North Georgia Improvement Company was made? A. No, sir; none whatever. Q. Was there any agreement, verbal or otherwise, between the improvement company and the railway company as to the improvement company furnishing stock to the railway company? A. No, sir; no agreement in any shape. [p. 853] Tlie rolling stock was sent down there with the idea that the railway company very soon would be done, and would make a car trust, — get somebody to let them have money, and make a car trust.”

After the first hearing before the master, and prior to a second hearing, the Central Trust Company filed in the court certain answers, setting up defense substantially as follows: (1) A general denial of the statements made in the original and amended intervention. (2) Averment as to the appointment of receiver on 19th January, 1891, and that Burnham, Parry, Williams & Co. were still due the sum of $4,908, balance upon two locomotives, Nos. 14 and 15, and that the North Georgia Improvement Company had paid in full to parties from whom it was purchased for all the other equipment mentioned in said petitions. That upon such payment full right and title to said equipment vested in said Marietta & North Georgia Railway Company, without any lien or reservation of title on the part of the North Georgia Tmprovemer* Company; and that, if any sum was duo for such equipment, so paid [p. 854] for by said North Georgia Improvement Compaq-, it was only an open account debt, and that said equipment was purchased by said North Georgia Improvement Company, and placed in the possession and control of' said Marietta & North Georgia llaihvay Company for its special use and benefit, and became and was subject to the lien of the mortgage now being foreclosed. (3) Setting forth that the North Georgia Improvement Company on the 27th of January, 1891, undertook to sell and to convey to the Hiawassee Company said equipment, and controverting the right of said improvement company to make such sale as to the two locomotives 14 and 15, because the title was in Burnham, Parryr Williams & Co. as to them, and as to the other equipment, because, it having been fully paid for by the North Georgia Improvement Company, the title was in the Marietta & North Georgia Railway Company. (4) That when the Hiawassee Company, on the 27th of January, 1891, accepted from the North Georgia Improvement Company the writing undertaking to convey the title to said equipment, said Hiawassee Company knew, or was bound to know, all that the North Georgia Improvement Company, or its officers; knew in relation to said equipment. (5) That George It. Eager negotiated for all of said equipment, and at the time was president of the North Georgia Improvement Company, and was a very large stockholder and controlling spirit therein, and had absolute control of said company in every way; and that the deed of trust securing the bonds of said railway, delivered to said Eager, as contractor, recited that they were for the purpose of improving, completing, and ('quipping said railway. "(0) That the information and knowledge of 'Eager, contractor, as to the purchase of said equipment, was legal and actual notice to the North Georgia Improvement Company. (7) That the title to the two locomotives, 14 and 15, was.in Burnham, Parry, Williams & Co., etc. (8) That the title to the remainder of said equipment, having been paid for by the North Georgia Improvement Company, was in the Marietta & North Georgia Railway Company, etc. And, further, that the Hiawassee Company is composed of stockholders who hold claims and debts due to them by the North Georgia Improvement Company, and occupy intimate and confidential relations with said company, and as such they"were put upon notice and bound to know the relations existing between Eager, the North Georgia Improvement Company, and the Marietta & North Georgia Railway Company. (9) ('ailing attention to the provisions in the deed of trust now being foreclosed, as to how the bonds should be issued, and that the railway-should be constructed and equipped out of the proceeds of said bonds, etc. (10) That the North Georgia Improvement Company or Eager caused said equipment to be delivered to the Marietta & North Georgia Railway, as Eager, as contractor, was in duty .bound to do, and without any reservation and title thereto, and thereupon Eager procured the Marietta & North Georgia Railway Company to execute, in accordance with ’the mortgage now being foreclosed, certificate, or certificates, that the railway had been completed and equipped, to the extent to authorize the issuing of said bonds, which certificate Eager caused to be delivered [p. 855] to (Central Trust Company of Now York, ami .thereupon procured the issue by said Central Trust Company to Eager, as contractor, of the bonds of said Marietta & North Georgia Railway Company.

Upon the resubniission, the only witness examined in this intervention was ,1. B. Glover, the receiver, whose testimony shows substantially as follows: That all the railway equipment set forth in the ITiawassee intervention was placed upon the road by George R. Eager, and marked with the name of the Marietta & North Georgia Railway Company, and wrent into the custody, control, and use of said railway, the same being received by said Glover, who was then superintendent of said railway. That at that time Eager was the contractor, building part of the Marietta <fc North Georgia Railway, and broadening the gauge of other parts. Eager was the chief stockholder in said railway, was the president and general controller of the North Georgia Improvement Company, and his sister, 11. A. Eager, was treasurer, with headquarters at Boston, Mass. That in addition to the duties of superintendent of the railway, said Glover was the agent of Eager, receiving a salary of a month. That, as the line of railway was constructed, the North Georgia Improvement Company paid many of the bills duo for such construction. That the N ortli Georgia I improvement Company would frequently furnish to Glover, as agent of Eager, money with which to pay claims duo laborers under Eager, as contractor, and also height on rolling stock coming to the North Georgia Improvement Company or to Eager, and which Eager caused to be placed on the Marietta & North Georgia Railway. That whenever the Marietta & North Georgia Railway would pay claims against Eager, contractor, or against the North Georgia Improvement Company, <¡-lover, as agent for Eager, would then send the bills to 11. A. Eager, treasurer of the North Georgia Improvement Compauy, at Boston. That if there was any charge for freight upon locomotive or passenger equipment consigned to or received by the Marietta & North Georgia Railway, a charge would he made up against George R. Eager, and sent to 11. A. Eager, treasurer of the North Georgia Improvement Company, and that drafts would be drawn on H. A. Eager, as such treasurer, to settle these accounts, and the vouchers would be sent to her. That there were throe ways that Glover, as agent for Eager, obtained money for claims due laborers for construction or for freight upon the railway equipment furnished the Marietta & North Georgia Railway: (1) By drawing on II. A. Eager, treasurer; (2) by checks drawn by George It. Eager upon some bank in Boston or Now York; (8) by drafts drawn by George R. Eager on H.-A. Eager, treasurer, — that is, whatever was paid out of the funds of the Marietta & North Georgia Railway Company by Glover, as superintendent, for debts due by George R. Eager, as contractor, or for debts due by George R. Eager or the North Georgia Improvement Company for freight on railway equipment sent to the Marietta & North Georgia Railway, was reimbursed in one of the three ways above mentioned. That George R. Eager was contractor, not only to build and widen the gauge of the Marietta & North Georgia Railway in the states of Georgia and North Carolina, hut he was at the same time [p. 856] contractor to build the Knoxville Southern Ralilroad, then being constructed in the state of Tennessee, and which was afterwards consolidated with the Marietta & North Georgia Railway, under that name.

An agreement was made on 25th August, 1888, between Hambro & Son, of England, Marietta & North Georgia Railway Company, George R. Eager, contractor, and Knoxville, Cumberland Gap & Louisville Railway Company, whereby the said Hambro & Son were, among other things, to place $1,000,000 of the consolidated mortgage bonds of. the Marietta & North Georgia Railway Company, now being foreclosed in the main suit, upon certain terms, conditions, promises, and agreements set forth in said contract. This agreement was signed by George R. Eager, as general manager for the Marietta & North Georgia Railway Company, and by George R. Eager, contractor, and by George R. Eager as general manager of the Knoxville, Cumberland Gap & Louisville Railroad, and for the Cumberland Gap Construction Company. Further, there was an indorsement upon this contract by which George R. Eager signed his own name, and also signed as attorney in fact for Royal M. Pulsifer, and guarantied that the contract between Hambro & Son and others should be carried into effect, and the completion of the Marietta & North Georgia Railway assured, by Eager and Pulsifer, at their own cost and expense, if the proceeds of the sale of the mortgage bonds were not sufficient for the purpose. This contract recites “that it has been agreed, for the purposes of this agreement, completed sections shall consist of not less than five miles, with the corresponding proportion of rolling stock and equipment;” and therein it is agreed by the Marietta & North Georgia Railway Company that no certificate of completion shall be given until there shall be delivered and in good working order an amount of rolling stock, etc. This contract and agreement also had attached to it authority from the Marietta & North Georgia Railway Company, giving George R. Eager the power to enter into such agreement with Hambro & Son; and it appears that thereafter the form of the certificate was changed so as to show completed sections fully equipped with rolling stock. Also three separate contracts and agreements: (1) Contract made between the Marietta & North Georgia Railway Company by Joseph Kinsey, its president, and George R. Eager, whereby Eager was employed as contractor to do certain work on that railroad, and the company was to furnish certain convicts and make certain payments to Eager. This contemplated [p. 857] only a narrow-gauge road. (2; Agreement between Eager and the Marietta & North Georgia Railway Company, made on the 4th of August, 1881, whereby Eager was employed as contractor to build certain lino of railroad for said company. (3) Another contract between George R. Eager and the Marietta & North Georgia Railway Company, whereby Eager was to broaden the gauge of the said line of railway, was to put down steel rails not lighter than 5(> pounds to the yard, and was to do other things therein set forth, upon the consideration of receiving certain bonds and stock and $3,000 a mile in cash. In said contract the following language is used:

It was conceded at the hearing before the court that the mortgage or [p. 858] deed of trust given by the Marietta & North Georgia Railway Company to Central Trust Company of New York, under which bonds were issued upon certificates of completion and equipment, contained the following:

“(2) The evidence shows that the North Georgia Improvement Company in 1888 and 1889 bought all of this rolling stock, and placed the same on the Marietta & North Georgia Railway Company. The contract between the North Georgia Improvement Company and the original owners of said rolling stock was in writing; the contract in each case being a conditional sale, with title reserved until fully paid for. These contracts were all duly executed, ■but none of them have ever been recorded. The North Georgia Improvement Company placed all of said rolling stock on said Marietta & North Georgia Railway, without any contract or agreement, either oral or written, with said company. The evidence shows that the North Georgia Improvement Company has fully paid for all of said rolling stock, except six notes, aggregating $4,908, payable to Burnham, Parry, Williams & Co. The proof shows that the North Georgia Improvement Company, on the 27th day of January, 1891, duly transferred and assigned all its right, title, and interest in and to said rolling stock to the Iliawassee Company, the intervener in this case. The master is of the opinion that these contracts, reserving title between the original owners and the North Georgia Improvement Company, are good except as to subsequent purchasers or creditors without notice; and, when the [p. 859] Xorth Georgia Improvement Company had fully paid for said rolling slock, it acquired a valid title, which it could legally transfer. The master is of opinion that, when said rolling stock was placed on said Marietta & North Georgia liailway without any contract, the legal effect was to create a bailment, subject to the termination at option of either party, and that therefore this property was held by the Marietta & Xorth Georgia liailway Company as bailee. Counsel for the Central Trust Company further contend that George U. Eager was under written contract to equip said railway with rolling stock; that said Eager was really the Xorth Georgia Improvement Company; and that, when said company placed said rolling stock upon said railway, it did so in pursuance of said Eager’s contract to equip said railway, and therefore it became the property of said railway, and became subject to the mortgage executed by said railway to secure the payment of its bonds. The master does not think that this position is sustained by the evidence. In his opinion, a careful examination of the contract made between Eager and the railway company, the original railroad company, the certificates of O. II. Walton, chief engineer, the contract with Ilambro & Sou, of London, will show that George II. Eager was not to equip the road with roiling stock. In the opinion of the master, the intervener, tlie Iliawassee Company, has a valid title to all of said rolling stock, and has a good title to all of said property, except as to Xos. 14 and 15, Baldwin locomotives, upon which there is still due the sum ■of $4,908. The evidence shows that this rolling stock is essential to the operation of the railway by the receiver, and I therefore recommend that he be authorized to purchase tlie same at its value on the 19th of January, 1891, with 7 per cent, per annum interest from said date; the $4,908 balance due to be included in the amount. As to the ability of tlie receiver to pay cash for this rolling stock, the master refers to his report iilod on J une 0th, in the intervention of Samuel IV. Groome.

“Because it is shown by the evidence that there was nothing whatever duo by the Xorth Georgia Improvement Company to the original vendor for the aforesaid property, except $4,908, due to Burnham, Parry, Williams & Co. as a balance upon locomotives 14 and 15, and that there was no reservation of title or lien upon these locomotives by the original vendor, or any one else, as against the Marietta & Xorth Georgia Railway Company, hut that all of said property has been paid for, except as above stated, and had been placed by George B. Eager, president of the Xorth Georgia Improvement Company, upon the Marietta & Xorth Georgia Railway Company, three-fourths of the stock of which lie and his friends control, with the distinct understanding, at the time that said rolling slock was placed upon said line of railway, and that the railway company was thereafter to pay the said Xorth Georgia Improvement [p. 860] Company for the same by issuing equipment bonds; but that the said understanding was only on the part of the said Eager, as president of said improvement company, and without any contract or agreement to the effect being agreed to on the part of the railway company, who took said rolling stock, and used it as its own, unincumbered by any reservation of title or any contract other than the law implies to pay for the same.

The mortgage given by the Marietta & North Georgia Railwaj7 Company, suit for foreclosure of which is now pending in the court below, covers fully all after-acquired property appurtenant to the railway, and it [p. 861] contemplated that a fully constructed and equipped railroad should be provided with the proceeds of the bonds. Apparently, however, all the bonds, or the prpceeds thereof, under contracts thereto made, were to go to the contractor, who was not in terms, and perhaps not by implication, bound to equip the road. The Harnbro agreement more fully and explicitly provided for an equipped railroad. Apparently the process of issuing the bonds upon certificates of a completed road-way ready for the passage of trains was not satisfactory, and the agreement expressly recites:

The Harnbro contract tliat rolling stock and equipment should be delivered upon the road iu good working order and in requisite quantity for the proper and efficient working of the railway evidently contemplated that the rolling stock and equipment so delivered should be rolling stock and equipment belonging to the road by some title of ownership, so as to make the same a better security for the bonds than the railroad without rolling stock and equipment would be. Therefore, the agreement precluded a mere temporary gratuitous loan of the rolling stock for the purposes of the certificate. Eager was the contractor constructing the railroad, and, while he had not in terms bound himself as [p. 862] contractor to furnish the railway with rolling-stock equipment, (only the company so binding itself,) yet Eager, under the terms of the Hambro contract, could obtain no bonds for construction until the rolling stock should be delivered in good working order and in requisite quantity upon the road. The North Georgia Improvement Company, a New. Hampshire corporation, owning mining interests along the line of the-road, and to some extent a holder of the bonds of the railway, of which cofhpany Eager was president and general manager, through Eager, bought the rolling stock in question, and delivered it upon the railroad and had it marked in the name of the railway, as though it was the property of said railway, and the same went by consent of all parties into the custody and control of said railway.

Counsel for appellee urges several points in this connection, — that, as under the Hambro agreement, the rolling stock was only to be delivered upon the railroad, and was not required to be owned bjr the railway [p. 863] company, and as llambro & Son knew that Eager was not bound under his contract for construction to furnish equipment, and understood that the money from the bonds would not pay for equipment, therefore it was not contemplated that the railway company should be tho owner of the rolling stock, but that it had the right to furnish equipment through a car trust.

The case, however, as we understand it, does not require that wo should find that there was an actual sale of the rolling stock to the ra il-way company. Under the circumstances, as to tho placing of the rolling stock on the railway for use by the railway company apparently as owner, the issuance of bonds by the trust company on certificates, in accordance with the llambro contract, based upon this rolling stock and the beneficiary result thereof to Eager, both Eager and the North Georgia Improvement Company are estopped in equity from attacking the railway company’s title to the rolling stock in question as against the interest of the bondholders. As to Eager, this estoppel ought not to be questioned, and we are of opinion that it is equally clear as to the North Georgia Improvement Company, for it was charged with full notice of all the circumstances as fully as Eager himself was informed, and yet, as a volunteer, aided Eager in obtaining the rolling stock, and in delivering it upon the railroad, which otherwise he might not have been able to do, and thereby obtained the issuance of bonds based on delivery of [p. 864] the rolling stock on the railroad in good working order, etc. Tbe improvement company occupies the same position as the owner who stands by in silence while another sells his property.