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which the remainder of the price of construction was to be paid. If that indorsement enhanced the market value of those bonds, that enhancement furnished a reasonably fair measure of the value of the shares which were part of the contract price. Before all the bonds had been indorsed, and before most of them indorsed had been sold, the act of the Indiana Railroad Company in undertaking to indorse the bonds of another railroad corporation was, in a judicial proceeding instituted by the Indiana Company against the contract company and other holders of indorsed bonds, declared null and void as ultra vires. This decision operated to deprive the contract company of any benefit from such indorsement on unsold bonds, but it did not rob it of the benefit already realized through the enhanced value of such bonds as had been sold theretofore. To the extent of this benefit, it had been able to realize value from the shares of stock, and this enhanced value of the bonds actually sold was a fair measure of the value of that part of the price of construction paid in shares. Costs of appeal will be paid out of the fund arising from the sale of the railroad.
RICHMOND & I. CONST. CO. v. RICHMOND, N., I. & B. R. CO. et al.
(Circuit Court of Appeals, Sixth Circuit. May 7, 1895.)
Nos. 231, 236-239, 241-246.
1. CORPORATIONS--IDENTITY OF STOCKHOLDERS.
The fact that the stockholders in two corporations are the same, or that one corporation exercises a control over the other, through ownership of its stock, or through the identity of the stockholders, such corporations being separately organized under distinct charters, does not make either the agent of the other, nor merge them into one, so as to make a contract
of one corporation binding upon the other. 2. MECHANICS' LIENS-KENTUCKY STATUTE-EFFECT OF APPROVAL OF SUBCON
TRACT BY OWNER.
The R. Ry. Co. made a contract with the 0. Contract Co. to build its road. Before the completion of the work, the contract company, through exhaustion of its resources, became unable to continue it and thereupon made a contract with the R. Construction Co. to complete the work. The railway company was informed of such contract, and its board of directors passed a resolution consenting thereto, and consenting, so far as it could lawfully do so, that the construction company should have a contractor's lien upon the railroad for all work done. Held, that such resolution did not make the construction company a principal contractor with the railway company, nor give rise to a principal contractor's lien under the Kentucky statute (Barb. & C. Ky. St. 1894, 88 2492–2495), but, at most, created a lien by contract, which could not be superior to mortgages or
liens arising by statute. & SAME-APPLICATION OF PAYMENT TO SUBCONTRACTOR.
The contract between the contract company and the construction company for the completion of the railroad provided for the doing of a variety of things, some of which were, and some were not, proper subjects of liens against the property of the railway company; and such contract, together with a modification thereof subsequently agreed upon, provided that the construction company should be paid by the contract company the amount of money it expended in doing such things, and an equal amount of bonds of the railway company, which, at the time of the contract, were worth about 40 cents on the dollar. Held, that any hardness in the bargain between the principal and subcontractor not amounting to fraud upon other lienors or the railway company was not a reason for applying to payments made by the principal to the subcontractor any different rule from that prevailing in other cases of such payments, and that the bond payments, applicable to the lienable part of the construction company's claim, the money payment not having been made, and, being only obtainable through a lien on the railroad, should be applied primarily to that part of such claim in excess of what could be obtained by lien.
Central Trust Co. v. Richmond, N., I. & B. R. Co., 68 Fed. 90, followed. 4. SAME-LIENABLE CLAIMS.
Held, further, that the construction company was not entitled to claim a lien, under such Kentucky statute, for money expended either for purchase of rights of way for the railroad, or for payment of salaries of its officers, or for stationery and office expenses, or for a commission to a trust company for guarantying a contract for the purchase of rails, such guaranty being made necessary by the construction company's lack of funds and credit, or for legal expenses in purchasing and condemning rights of way, rights of way not being material and legal services not
being labor, within the meaning of the lien act. 8. SAME-CONTRACT PRICE.
The original contract between the railway company and the contract company included an agreement by the latter to pay the interest on the bonds of the former during construction, and for a year after. Held that, in estimating the gross contract price for the building of the railroad,
such interest was properly deducted from the whole amount to be paid. 8. SAME-INTEREST-LIENS OF DIFFERENT PRIORITIES.
Held, further, the amounts due from the contract company to its various subcontractors having been due at the completion of the work, except in the case of the construction company, whose payment was due at a fixed date after the completion of the work, that such subcontractors were entitled, as against the contract company, to interest from the completion of the work, and, in the case of the construction company, from such fixed date, and that such interest was also properly allowable as against mortgage bondholders whose lien was by statute made subsequent to the
liens for labor and material furnished. 7. SAME-MATERIAL LOST BY NEGLIGENCE.
One W., a subcontractor under the contract company for the construction of a bridge, claimed a lien for material lost by the fall of a part of such bridge during construction. His contract provided that the material for the bridge, as delivered and paid for, should become the property of the contract company. It did not appear that the material had been paid for, but it did appear that the loss was due to W.'s own negligence. Held,
that he was not entitled to a lien. 8. SAME-PLACE OF FILING LIEN.
The statute provided that the statement claiming a lien should be filed in each county in which the labor was performed. One D.. filed a lien for services as engineer in J. county. It appeared that his work had been principally in J. county, but that he did a small amount of work in W. county. Hela that he should be allowed a lien for two-thirds of the amount
of his claim. 9. SAME-MATERIAL NOT DELIVERED.
D. & C. prepared a quantity of railroad ties under a contract with the contract company. That company notified D. & C. that it would not accept the ties, and they were never delivered. Held, that D. & C. were not entitled to a lien,
Appeal from the Circuit Court of the United States for the District of Kentucky.
These were appeals in the suit of Central Trust Co. v. Richmond, N., I. & B. R. Co., 68 Fed. 90, severally taken by the Richmond & Irvine Construction Co., L. F. Mann, J. E. Dougherty, G. W. Gourley, W. B. Smith, D. Shannahan & Co., J. W. Walker and others, John Mitchell & Co., M. A. Sullivan, Dickason & Crawford, and John McLeod, from the decree of the circuit court settling the priorities among the various claimants of the fund arising from the sale of the railroad.
Each of the appellants named above has prosecuted a separate appeal. The general facts out of which the questions presented by them arise have been stated in the opinion filed upon the appeal of Central Trust Co. v. Richmond, N., I. & B. R. Co. (being No. 240 on this docket) 68 Fed. 90. These general facts need not be again stated. Many of the questions arising upon the separate assignments of error filed by the several appellants are fully covered by the opinion in the case above referred to. The court, in this opinion, will confine itself to such questions as were not necessarily involved in the former case.
A. E. Richards and J. B. Baskin, for Central Trust Co.
Before TAFT and LURTON, Circuit Judges, and SEVERENS, District Judge.
LURTON, Circuit Judge, after stating the facts as above, delivered the opinion of the court.
1. One of the principal questions presented by the appeal of the Richmond & Irvine Construction Company concerns the relation which it bears to the appellee the Richmond, Nicholasville, Irvine & Beattyville Railroad Company. Its contention is that it is properly to be considered as a contractor with the railroad company, and it assigns as error that the circuit court did not so hold, instead of construing it to be a subcontractor under the Ohio Valley Improvement & Contract Company. As will appear more fully by the opinion of the court heretofore filed in the case of Central Trust Co. v. Richmond, N., I. & B. R. Co., 68 Fed. 90, the Ohio Valley Improvement & Contract Company had contracted with the said railroad company to construct and equip the entire line of railroad of the said railroad company. The Ohio Valley Improvement & Contract Company, hereafter designated as the “Contract Company,” after doing the larger part of the work and furnishing the greater part of the materials for that purpose, became financially embarrassed, and unable to complete its contract without assistance. It had agreed to construct and equip the said line of railroad for the bonds and stocks of the railroad company. Thus all the assets of the railroad company had either been paid or pledged to it, and when the latter became unable to go on with the work the railroad company was in no condition, financially, to complete the construction itself. In this situation of affairs the contract company entered into an agreement with the appellant the Richmond & Irvine Construction Company, hereafter designated the “Construction Company,” that the latter should complete the work of construction between Richmond and Irvine, Ky., and furnish all necessary materials. It also agreed to purchase and hold certain coupons detached from the bonds of the railroad company, which coupons the contract company, under its agreement with the railroad company, was under obligation to pay, and to purchase and hold certain subcontractors' lien claims due by the contract company. The agreement between the construction company and contract company provided that the former should have a "subcontractors' lien” on the property of the railroad company.
The subscribed capital stock of the construction company was estimated to be $200,000. It contracted to do work and furnish materials of an estimated value of not more than $140,000, and to expend the balance of its subscribed capital stock in the purchase of the coupons and subcontractors' liens designated by the contract. The contract concluded in the following words:
"And said contract company agrees to pay the said construction company for said work, materials, and such claims as may be so purchased, the sum * $400,000, to be paid as follows: In the new 5 per cent. first mortgage bonds of said railroad company the sum of $200,000 as soon as the bonds are printed and ready for delivery, and the sum of $200,000 in money due and payable at the expiration of thirty days after the track of said railroad is laid and completed as aforesaid from Richmond, Ky., to the Kentucky river, opposite Irvine, Ky.; but, should said sum not be paid at maturity, the same shall bear no interest until January 1, 1892."
It was signed only by the contract company and the construction company. The contention of appellants that this contract is to be construed as a contract of the railroad company, and its relation as that of an original contractor, is based upon two propositions:
First. It contends that under the evidence in this case the contract company was, in legal effect, the railroad company, and that engagements made by it were, in legal effect, engagements made by the railroad company. In support of this, appellant has endeavored to show that the stockholders in each corporation were the same, and that the contract company dominated and controlled the railroad company. The contract company was a legal corporation, wholly distinct and separate from the railroad company. The fact that the stockholders in each may have been the same persons does not operate to destroy the legal identity of either corporation. Neither does the fact that the one corporation exercised a controlling influence over the other through the ownership of its stock or through the identity of stockholders, operate to make either the agent of the other, or to merge the two corporations into one. There is no pretense of any fraudulent concealment of the interest of the one corporation in the other, or of the fact that the persons controlling the one corporation likewise controlled the other. The officers and agents of the construction company were fully aware of the relations which existed between the two companies. They also knew that the contract company was under obligation to build and equip the rail. road for the railroad company. With this knowledge of the relations of each corporation to the other, it deliberately entered into a contract with the contract company to do work for and under the contract company, as a subcontractor. The facts of this case are very much the facts which appeared in the case of Trust Co. v. Bridges, 6 C. C. A. 539, 57 Fed. 753. In that case the court distinctly held, on substantially the same facts, that the corporations were to be treated as distinct entities, and that neither was to be treated as the agent of the other, when openly contracting for itself, and in its own corporate name.
Second. Appellant also rests its contention upon the legal effect of the action of the board of directors of the railroad company contained in certain resolutions found upon the minutes of the board, as follows:
"Whereas, the Richmond, Nicholasville, Irvine & Beattyville Railroad Company, hereinafter designated the 'Railroad Company,' is informed by the Ohio Valley Improvement & Contract Company, hereinafter designated the 'Improvement Company,' that it desires to make a subcontract with the Richmond & Irvine Construction Company, hereinafter designated the 'Construction Company,' substantially as follows, to wit: First. That said construction company will finish the work of construction necessary to be done upon the railroad of the railroad company from Versailles to Irvine, according to the construction contract of October 11, 1888, which, it is es. timated, will require something less than $140,000. Second. That said construction company shall purchase and take up certain lien claims of subcontractors, now existing and unpaid, for work heretofore done and material furnished on the line of the railroad, the lien claims to be purchased, added to the cost of the work and materials, to aggregate $200,000. Third. That said improvement company will pay to said construction company, in money, the amount so paid out both in construction and in the purchase of subcontractor's lien claims, amounting in the aggregate to $200,000, and will pay to the said construction company, as an additional consideration, in 5 per cent. bonds of this company, an amount equal, at par value, to the amount of money to be so paid by the improvement company to the construction company. Now, be it resolved, that the Richmond, Nicholasville, Irvine & Beattyville Railroad Company does hereby consent to the subletting by said improvement company to said construction company upon substantially the terms above mentioned, and consents, so far as this company can lawfully do so, that said construction company shall have a contractor's lien upon the railroad for all work done and material furnished and claims purchased as above mentioned."
These resolutions do not operate to make the railroad company a principal contractor, within the meaning of the Kentucky lien act, being sections 2492–2495, St. Ky. 1894, by Barbour and Carroll, and which have been fully set out in the opinion of this court filed in the principal case. A contractor, within the meaning of that act, is one who does work or furnishes material for the owner, and upon a contract with the owner for the payment of the contract price. A subcontractor, within the meaning of that act, is one who contracts under and with the principal contractor. Now, nothing in these resolutions obligated the railroad company to pay the construction company for the work and materials which it was to do and furnish, and or the lien claims which it was to purchase and hold. The railroad company was obligated to the contract company to the extent of the contract price mentioned in the contract between them. The labor and materials which the construction company undertook to furnish are a part of the same labor and materials which the contract company had agreed to furnish, and for which the railroad company was bound to pay. There is nothing in these resolutions which indicates that the railroad company intended to personally assume liability to the construction company. The language that "it consents, so far as this company can lawfully do so, that said construction company