HOLLY JU.Nt1Jr'GCO. II. NEWCHESTlIlB WATER 00.
87g
HOLLY l!ANuF'G Co.
et al.
t7. NEW CHESTER WATER
Co· · czl.1
COUrt, B.D. Pcmmvl'VGnia. Beptember
ie, 1891.)
L
CON'l'RAOTS-RIGIlTS OJ!'
t.
TllmD l'llRSONl!. . ' . .. The. ,New Chester Wl'terC\lmpanymBde a contract B. & Co.·. water-world contractors, to build ita wom;agreeing to pay them witi) its stocks and bondL These stocks and bonds were, as earned, pledged to W. G. H. & Co., to secure ad· Tances; After all the adv:ances had been made, said B. Co. and W. G. H. &Co. and&. D.'. W. &; Co. made a ite agreement, whioh reOited. that the stoo an.d . ..k . bonds pledged to W. G. H. & Co. been sold to &. D. W; & Co., and that B. &5 Co. represented that the New Chester water-works and tliree others could be Completed tor t2OO,ooo, and by, Whioh W. H. G. & Co. agreed to advanoe that sum toB. &Co,,1.o be applied by R. ,D. W.& Co., who guarantied the completion ot the works ofthefottr undertakingscleiU'ot allllens aheadot securities held by W. G. B. '& ,co., certain proPOrtiOlls ot the S2OO,ooo to be applied to each work. A leBs proportJon of the money specified was eI:PPI.Q.yed at the New Chllllter Compan"i works, but the whole amount, and $105,000 8dditional, was expencMi 011 the four work.. B. &; co. purohased engines for the ,New Chester .water-worka from ClOmplainanta, butonlY.parUypaid:fQr.them. BeldtlJ.at. complainants bMng parties to the tripartite'agreement; and being strangers to the considel'ation R;P., W. &; Co. w:ere:Dot persooall1llable for the, price of the engines em. aocount Of said agreement. .· ' .' Where .took·of a corporation has been transterred' tor'Iabor done, and the gooa faith of the Is ,oot impeached, lIor a'failure ofoonsideration shown, tne holde'i ls person"Ut on the grounds that said stockIs unpaid oapital alld that unpaid asBeBsmentil are a WIt. fund for the payment of the corporation indebtedness. . J'QB UNPAID AsSBSSMBNTL' ','
I. FIxTURES-Pulu'lNG-ENGINBS.
, ;.
B. &; Co.,a'ftrm engaged in fitting ull Ordered from an enginebuUd'. JJ1C qOJP-panl to beset.. up. in the works ot a water they were fitting up at Chester, agreeing to pay tor them in installments, andtbat the engine building companv should" have a lien on" the "en/{inBs and ClOnneo:. tions," and "shOUld full possebionthereof." .The engines were on land of whioh B. & Co. then held the legal title, in suoh a way that they oould readily be taken down and removed: and reJDained under the oontroi of the engine building a.,gent.·.j to 'Whom the engine..s had. been consigned at <IJhester· . Held, tbeemnes did not become realty, and a valld liel1ln favor of the vendon existed against B; &; Co. anHhe water companieL The Nllw Gllester, Water transferred all ita' shares of Btook either 4l· .reotly Co. orto Co.'Bemployes, and put ill the "absolute Qal!trol" of :a. & do., its OffioerSbel1l.g· n. & Co.'s servants. B. &; CO'lurohased machinery, m. bie.cj;,to a . lie.n,a.n.d placing it i.n the work.s 0 said wa.ter:COlllllany ; eom,e of. the direotors of the company had actual notice of the lien. Betel, the eampany had noticeof'tlie'lien. .
.
'To 'OirrlCBRSOJ'
LIBN·.
f; 'S.uloE-+V'EIIlDOR'S
Ttl,e retention of open colltrol by a vendor's employe over maohinery ill tlle'WorkB of 8 oompany whioh wetebelng fitted up by tile ,veOOee, la notice to II&id oompany of .the existence of a vendor's lien. ,. . . ' .
:
.., ,S.um-MBCJLunC'sLIBN...
, ,. The fact that the land and bUildings of a water oompany are not subject'to Uan , uOOer,the mellhallio'slien laws of Pennsylvania does not prevent a movable pieoe of machinery, ,eJelivered"conditiollal1y to such ,a oompallY-, from being SUbject to .a valid .contractuallien. Fosterv. Fowler, 6!l Pa. St: 27,iliscussed. , ""URISDrtlTWN 01/ Cllicui'r'COORTS-eITIZENSIlIP' OJ!' . P ARTrES,' Tbe parties giving a contractual lien on machinery, who, in purcbasing the1Dao ehinery,had acted solelya8 the agents of the respondents in the suit, and had conveyed aW6YIllll 'title to 'the 'property,wets, SUbsequently to the filing ot'thebill" made partie.scplsintUf by. amendment, not f01"lpUrpOses ot reliet, but tobting 'aU partiBII before the court. Said varties were oitizens of the same state as wllre the original complainants. I1eld, upon the objeot.,ionthat said parties should. ha.... been joined as parties respondent, and, when thu,s joined, the court had 1lO' lBeported b¥ Mark Wilks Cl)n.t,.Eaq., of the Phll&de1phia ba·
, .FEDERAL RIj:PORTER,
vol. 48. '
diction, that they I being in the position of mortgagors who had parted with all interest in the property, were merely formal parties, and their join(}er did not.afrect .' ,.
8.
TRUSTS-AcTIONS RELA.TING TO TRUST PROPERTY.
The trustee of a corporation mortgage need not be joined asa party defendant in a suit to enforce a specific :lieD which does not involve the validity of the trust mortgage, or affect its lien, when all the bondholders are before the court, and the joinder would oust the jurisdiction. . . . is the proper means to enforce a contractual vendor's lien on machinll.1'Y t6 secure unpaid purchase money. . OJ!' YENPOR'S LIEN. . . ,
. .
In.Equity. Bill by the Holly Manufacturing Company, a corporation brganizeq under the laws of the state of New York, and having its principal place of business in the city of Lockport in county of Niagara, ands. ,citizen of the state of New York, against the Company; the South Chester WaterCompanYi W. G.Hopperand S;:a:Qppe;r, trading as. W.G. Hopper & Sons; Willillm Bucknell; Richard George WoodjWalter WoOd, and Stulirt Wood, trading as C? ;' Supply .company, (I,l.f'terwards, :James· H. LItUei0raIg Llppmoott,.and HarryS. Hopper, trusparties 4efendant, and Samuel tees, and Wplil1m R.BuUoak.and ,J. 8. Bullook, trading. as S. R. Bullock & Co., heing joinedascCitnplainantS.) Decree forcomplainarits. . Rcnoland .Evans, Richalt'd L. Ashhurst, and L. F. &7 G. W. B(fWen, for complaiuan ta. . William. p.Hannia, G.lIopper & Sons. W. Ward, for respondeni!3 New Chester Water Company and SQuth bhesterWater Company:' .. . Richard e. Dale, for 'intervener, Thomas A. Parott. ACHESON,:T. The proofs in this Calle are unusu81lyvoluminous, and tnany and complicated. '. $ome the transactions thereby disclosed matters which we regard as immate;rial to the real issues we will not discu8sor ... Tbe'controlling facts we find to be as follows: .In the year 1885 charters. of incorporation were obtained fordour water the New Chester Water Company, the South Chester Water Companj', the Penn Water Company, and the Upland formed for the purpose of furnishing water for public of Chester and adjacent boroughs, in. Delawarecounty. Pa. On December 9, 1886, before any work was done by Wll.S. entered into. between the f01;1r capaCIty. all the stockholders thereof mdlvldually, !lbd SamuelR. Bullock & Co. ,a fil'm of water-works The leading purpose of the .· parties to' this agreemen.tia pressed in the following clause'of the preamble: . ii And. the Stockholders aro desirous of their said shares of capital stOck;:alld of transferring and surrt'ndering theabsoluto control of the ,Water companies, and. the vendees. (Bullock &; oo.).lU'O desirous of purthe sallie," Accordingly the stockholders thereby agreed to transfer all the stock of said companies to Saqlu.el R. Bullock & Co.!.and: to deliver to them
HOLLY MANUF'G CO.
v.
NEW CHESTER WATER CO.
881
llall the charters,certificates of organization, books, papers, deeds, maps, plans, estimates, stock-certificate books, transfer books, minute books, receipts, accounts, contracts, the corporate seals, and all other property of any and every description, kind, or nature belonging to the water companies, or any of them;" and, in consideration thereof Bullock & Co. agreed to enter into a contract with the water companies, on terms to be al'ranged,%'r the construction and equipment of a system of water-works for furnishing water to the places which the companies were authorized to supply.. The stockholders having complied with their part of this agreement, the following transactions took place and contracts were teredintQ, all on March 21, 1887: Resol:utions were adopted by the stockhold.e'flof the Penn Water Company and Upland Water Company to BeUand convey the franchises and property of those companies to the South· Chester Water Company, and. such written transfers were executed. Resoluti,onB were adopted by the stockholders of the .South Chester ter Company to increase its capital stock from $1,000 to $600,000,and to iBBue its ponds for $300,000, to be secured by a mortgage upon its franchises and 'property. Rei;lolutiolJ,s were adopted by the stockholders ofthe·New:Chester Water Company to increase its capital stock from $500,000 to:$l,OOO,OOO; to issue its bonds for $500,000, to be secured by a mor.tgage upon its franchises and property; and that the company guaranty the. said bonds of the South Ohester Water Company. 'fhe New Chester Water Company and the South Chester Water Company entere,d Juto an, agreement, which, inter alia, provided that tbe former company; by its machinery, and from its reservoirs, would supplywater throughthe,pipes of the latter company to its territory. And finally a contract in writing was entered into between Samuel R. Bullock & Co. and the New Chester Water Company, whereby the former agreed to provide the: necessary land fOr an engine and boiler house and a reservoir site, tllJ,d to furnish all material and labor for and to construct and equip water-works at Chester, to be accepted by the water company after 1l0mpletion alJ,d satisfactory inspection and test, for the consideration to the contractors of $500,000 in the mortgage bonds of the water company and 17,000 shares of its capital stock of the par value of $50 each. At that date, March 21, 1887, tbe stockholders of the New Chester Water Company and the number of their respective shares were as follows: Samuel R·. Bullock & Co., 9,995 shares; J. L. Forwood, 1 share; W. H. Miller, 1 share; E. F. Fuller, 1 share; Ellis Morrison, 1 share; Charles M. Berrian, 1 share. Each of the laat:named five persons then held one share. I?f s!{>ckin each of the other-named water companies, Bullock & Co. holdingthe rest of the stock thereof. Tbe proofs fully warrant the conclusion that these holdinge of stock by Forwood, Miller, Fuller, Morrison, and Berrian were nominal and formal, merely to give a legal status to the organization. These five persons constituted the board of directors of the New Cbester Water Company, Forwood being president, and Miller secnetary. Fuller· was chief ,engineer of the com pany, and an employe of Btlllock & Co. Berrian was the attorney of the company; and private counsel of Mr. Bullock. All these five directors Were comv.48F.no.1l-56
882
FEl>ERAL REPORTER,
vol.' 4 8 . ·
the controlnnd direction of SamuelR. Bullock & Co;
of that firm. Samuel Bullock hm!lihere testified: . "An arrangement was perfected whereby the personnel of the New Chester Water <Xirnpany was,suhol'dinated to the management; direction. and controlofmytirm, basedupol) the idea that we would carry out the objects for was incorporated." . , This statement is true. At the dates of the ,transactions to whichrefel'ence isabbut to be made, and from·March 21,1887, con· tiriuoul;ll1''down until November, 1888, Samuel & Co. had ".the absblutecontrol" 'of the New Chester Company, and the organization of that company was wholly under the management and practically'inthe handBof that firm. The directors acquiesced in what. ever thatfl.rm,did,andpractioally were but its agents. On April 1, 1887, the New Chester Water Company executed a mortgage of its franchiSes and property th'en ownedcor, thereafter to be acquired to the FarmerS' Loan & Trust Company, a corporation of, the state of New York,:to)se6ure payment of $500,000 of its bonds,'payable to Samuel R. Bulloek& Co., or bearer; andtbeSouth Chester' Water'Company executed 1\ like mortgage to the same trustee to secure like bonds to; the amount of $300,000. On May 31',' 1887, an agreement in writing was entered! into between the South Ward Water-Works, a :corporation, the city of Ohester, and the'New Chester:Water Company, whereby, for a considemtidn mentioned, and movirig from the company, the agreed to sell, transfer, and convey all its property, real and personal, to the New Chester Water Complmy. On June 13; 1887, a contract in writing was made between, William G. Hopper & COHtnd Samuel R. BuBock& Co., wh-ereby, for a specified consideration, the 'former -agreed to -fU1'Ilish to the latter advances of money upou tbe bonde of the New Ohester Water:Company, as earned by and delivered to Bunock & Co" and the notes of thatfirni, wjth,& deposit as further oollateral security of all the stock of the NewCheS'ter Water Companj"aiid the 'property of the South Ward Water.Works; Oil July 7, 1887,Hopper & Co. made aspeoial advanc!:' of about $300,. 000 to Bullock & Co. to enable them t6collsUmmate the purchase of the South WardWatet·Works, and as security therefor Bullock & :eo.deli''Vered to above-mentioned $300:,000 of bonds of the South Chester Water Company. In; pursuance of ,written authority signed, II J .. L. ,Forwood, President,'" and" W H.Miller, Secretary, II the realestate'oftbil South: Ward Water.:Works, by the deed of tha:tcor:potntion dated arid (iexecuted 'July 7, 1887; wascollveyed to SamuebR Bullock in fee. On July 12, 1887,:Samuel R. Bullock, by deed of that date. the said real 'estate to' H. S. Hopper, who, on July 1887, executed and gaVe to, Bullbck an instrument in writing setting 1brth that the conveyance to'him was l11ade as security for advallclis made and to be made by Hopperr &, tb Bullock & Co. ' i All the ad. vanceswhich Hopper & Co. 'ever made' uuder· thei.r contract of June 18, I
Emil W{jItman, the treasurer of the company, was the confidential clerk
HOLLY MANUF'<1 00. V. NEW CHESTER WATER CO.
383
1887, were made prior to September, 1887. On 3, 1887, Sanmel R. Bulluck tx; CO. and the Holly Manufact'qring Company, a corporation of the state of New York, entered into a written contract, whereby the latter agreed to manufacture two pumping-engines of specified capacity, and set up the same at the city of Chester for the sum of $50,000, payable $8,333.33 on each engine when delivered in Chester, and the like.su.m on engine when it has been properly run 30 days, and the like sum on each engine 30 days therealter. The contract contains the following clause: "When said engines and connections are completed and ready for service. and on notice thereof to the party of the tirst part (Bullock & Co.) to that effect. the same shall be subjel'ted to a fair trial of their capacity and effi. ciency for not exceeding tWt'nty-four hOurI', and. on the successful testmg t\1t'reot, the liability of the party of the second part (Holly Company) hl'reundt'r shall cease and dett'rminl'; but it is expressly understood and agrepd that the party of the second part shall have a lit'n on all of said engines andcoDDt'ctions, and the pllrty of the second part may remain in and have full possession thereof. until the whole amount of the pllrchase price of said engines and.connectiQlls shall have been fully paid to the party of the second Pllft or its -assigns."
One payment only, namely, the sum of$8,333.33, was made to the Holly COlllpany under its contract, and at the date of the bringing of thia the balance, or sum of $41,667, was due that company on said engines. Qn·October 26, 1887, a tripartite agreerhent was entered into between Samuel R. Bullock & Co., R. D. Wood & Co., and William G. Hopper &,Co., whereby, after· contracts between Bullock &CQ. and Hopper & Co. for advances by the latter to the former upon a pledge of" bonds and stocks of water companies, an assignment by Bullock & Co. to Wood & Co. of the bonds and stock so pledged as collateral security for materials they had turllif;;hed, and contracts between Bullock & Co. and Wood & Co' l by which the latter had undertaken to complete wllter-works at Ch('ster, Greencastle, Mobile, and the representAtion by Bull,,!ck &00. that $200,000 woulll enable them to complete, those works,:William G. Hopper & Co. agreed to advance to Bullo.ck & Co'. $200,000, the flame to be applied by Wood & Co. to the completion of the water-works at the three named places in certain ified proportions;]. W\>od & Co. to present to Hopper & Co. the detailed by Bullock. & Co. 101' money as needed, and Hopper & Co. t1;lereuponJo.1urnishsuch amounts (within the limit stated) to Wood & C().,wllOshould give their checks for the same to Bullock & Co., who should <Uf\lmrse the moneys for the purposes aforesaid; and, in consideration o(this adv.anceby Hopper & Co., Wood & Co. agreed to procure the conwletion of tbe water-w:Olks at the three named· places" clt:ar of all liens ,ahead of thesepurities held..by William G. Hopper &Co." Under QQ., ,advanced the $200,000, which was all applied to.the water-worha at the,three named places, but not in the prQportions mentioned .in the contract. The specified amount applicable toJheworks at Chester was whereas the sum wall$61,OQO only. ;But: the reprCflenta,tioQ.· by Bullock & Co. that $200,-
884
FEDERAL REPORTER,
vol.' 48.
000 would suffice to complete the works'at the three places proved to be incorrect, for, besides the inoney so advanced by Hopper & Co., Wood &00., in the completion of those works, used $105,000 of their own mOriey, and even then the balance of $41,667 due the Holly Company 611 the pumping-engines at Chester was left unpaid, and a]so$25,000 due that company on engines at Mobile; and it would seem, some other debts remained unsettled. All the advances by Hopper & ,Co. under the tripartite agrcement were made before the latter part of January, 1888, except a trifling sum, which was paid shortly afterwards. In October, 1887, the Holly Company shipped one of the pumpingengines to Chester, and in February, 1888, the other.' Each' was consigneq to that company itself, and its agents at Chester received the engines, 1l-nd pr.bceeded, at ,its expense, to ,putthe,m in, place., They were set on the'top of masoiu:y foundations, and, 'were attached. by l\ number of two-inch ironbolts. TheycouIauot be operated erwise.' The 'engines stand in a brick building erect ldon land which the SotHh' Ward Water-Works Company agreed tp sell and convey tothe Chester Water Company, but actually' conVeyed t6'Samliel ,R. ,Bullock,: who conveyed the same to H. S. Hopper for the purpose s'et forth in paperexecufedby the latter, as already ment1bnedi ' ,Eacnrengine weighs from about 70 to 80 tons; Dutthey can easily be disconnected· from tne foundations on which they rest without disturbing the foundations; and can readily be taken apart and thwugh ,the door' of the withoutinj'llty to the building.' " , When the first engine was shipped to'Chester, John 'Lockman, by order oftlie Holly Company; and as its went there to superintend the erecti6n orthe engines and to take charge and control thereof. This he did, remaining constil'll'tly in charge. The work of' up ready for service was not completed until time itlLJuly, 1888; 'but for "the delay the Holly Company lYfiS not responsible,;; From the time tbe first engine was g()t in working order Lockman acted as engi';' abdhe has maintairlell the exclusive chatge and custody of ,both engines. He' has carried Ii key of the buHding. . His wages have' all been paid by the Holly Company, and he has acted'tbroughoutas its agent. No formal test of the pumping capacity of the 'eng1nes, vided by the contract, was ever made, nor was there any formal accept;. ance' of them by lilly one. ," When ready, ·they we're set to work ing water into the reservoir, 'and have continued to do so' UDf" r Lock:' man's controL- It is shown' that explicit instruction waS gIven oy the Holly Cdmpanyto Lockman to hold possession of the engines- for that companY,but the exact date thereof does not appear. "Lockman states it was given ahom!' midsummer, 1888. Samuel R: BUl!ock, referring 'to conversations J:Je had with the' 6fficets or represerttatives of the Holly Company', testified thus: "They told me that they proposed to have Lockman remainthete as their representative in charge of the )Jumps, bufthey didn'twabt to interfere with theoperiltionsof the com'pany·.so he could act· as engineer, and run the pum'ps: right along;" and· Mr. Bullock further testified that he consented to Lockman TeBli1ifl'o
New
HOLLY MANUF'GCO. V. NEW CHESTER WATER CO.
885
lng in possession and eharge, as desired by the Holly Company. This· testimony of Mr. Bullock is uncontradicted, and there is no reason to doubt its truthfulness. The bill in this case was ·filed September 19; 1888, while Lockman was still in control of the pumping-engines, and he has since maintained his charge and custody thereof in the manner stated, as the representative and under the pay of the Holly Company. In November, 1888, Bullock &Co. assigned ing interest in the bonds and stock of the New Chester .Water Company to Wood & Co., and at the same time delivered to them resignations of the officers of the water company. Thereupon new officers were elected, .and the water company then took the. actual possession of the works, but Lockman's control of the engines continued. Hopper & Co. and Wood & Co. together hold substantially the entire mortgage bond issue of $500,000 of the New Chester Water Company. Sixteen bonds of $1,000 each are, indeed, held by Dyer and Black under a pledge made in JUly, 1887, but only to indemnify them against a claim. -which the water company itself may have against them as sureties for Bullock & Co., touching a lien of $15,000 which they were to remove·. All the bonds and stock of the New Chester Water Company which Bul-· lock & Co. were to receive under their construction contract had. been jeliveredto them probably before the first pumping-engine reached . Chester,and certainly before its erection began. On March 31,1890, .BamueIIR. Bullock and wife executed and delivered to the New Chester Water Company a deed of conveyance of the land upon which the en;gine-house and pumping-engines stand. Upon this state of facts two questions are presented for our determi- , ·nation:First, whether R. D. Wood & Co. are under any personat liability to the Holly Manufacturing Company; and; second, whether that .companyhas a valid lien upon or claim to the pumping-engines at Chester enforceable in this suit. The first question, it setms to us, is not difficult of solution. The Holly Company was not a party to the tripartite agreement of October '26, 1887. That instrument contains no provision expressed to be in its behalf. Neither was any money thereby specifically set apart to pay for pumping-engines either at Chester or Mobile. The agreement was jor the mutual benefit of the three parties who executed it, and to promote a purpose in which they had a common To secure the faithful application to that object of the fund which Hopper & Co. proposed then to advance it was stipulated that it should pass through the hands of Wood & Co., but the paper provided that ultimately the money should be distributed by Bullock & Co. It was then believed that $200,000 would complete the water-works at Chester, Greencastle, ,and Mobile. So Bullock & Co. had represented. Confiding in the cor. ftctness of that estimate, the paper provided forthe apportionment of the fund between the three places. But this did not give third persons ,any right to control the application of the fund, or any vested interest ·therein. The parties to the agreement did not relinquish their joint do.minion over the fund. As between themselves, the agreed apportion-