New Chester Water Co. v. Holly Manuf'g Co.

53 F. 19, 3 C.C.A. 399, 1892 U.S. App. LEXIS 1443

• Court: Court of Appeals for the Third Circuit
• Decided: November 14, 1892
• Docket: No. 7
• Status: Published

Opinion

WALES, District Judge,

(after stating the facts.)

OH THE QUESTION OF JURISDICTION.

¡r Bullock & Go. had been made parties defendant, as suggested by í.Ííh demurrer to the bill, ibe jurisdiction of the circuit court would i::* o been ousted, because the individual members of that firm were citizens of the same state with, the Holly Company. But, as there was no subject or matter of controversy existing between the Holly Company and Bullock & Co., there was no necessity for making the 'firm' defendants, and they were therefore made coplaintiffs only for the purpose, as stated in the amendment to the bill, of investing “the court with full jurisdiction of the premises, so that a complete decree protecting the rights of all parties can be made.” The firm had divested themselves of all interest in the bonds and stock of the water companies by their assignments to Wood & Co. and to Perrott, and on March 30, 1890, Samuel R Bullock and wife had conveyed to the New Chester Water Company the land upon which the engine house and pumping engine stand. In addition- to this, the amount due by Bullock & Co. to the Holly Company had been reduced to a judgment by confession, so that there was no dispute about the indebtedness of the firm to their coplaintiff. Under these circumstances, it is evident that Bnllock & Co. are no more than nominal parties. No relief is sought against them, the object of the bill being to enforce the complainants’ lien in rem; and the rule is well settled that the assignor of a mortgage, who has parted with his interest in the mortgaged premises, is not a necessary party to a foreclosure bill. 2 Jones, Mortg. § 1404 Under the rule laid down in Wormley v. Wormley, 8 Wheat. 451, it would seem that Bullock & Co. might have been joined as defendants without depriving the court below of jurisdiction. In that case Wormley was made one of the defendants to the suit, and his wife and minor children were plaintiffs, so that all the parties on each side of the cause were not citizens of different states; but the court held that Wormley was but a nominal defendant, joined for the sake of conformity in the bill, against whom no decree was sought. He voluntarily appeared, though perhaps he could not have been compelled so to do, and the court would not suffer its jurisdiction to be ousted by the mere joinder or nonjoinder of formal parties, but rather proceed without them, and decide upon the merits of the case between the parties who had the real interests before it, whenever it could be done without prejudice to the rights of others. In Kerr v. Watts, 6 Wheat. 559, the court, in describing the necessary parties in equity, said: “No one need be made a party complainant in whom there exists no interest, and no one a party defendant from whom nothing is demanded.” The pumping engines had never been delivered to or accepted by Bullock & Co., and no ownership had been vested- in, claimed, or exercised by that firm. The engines were intended to be, when paid for, the property of the New Chester Water Company. -

The objection that the Farmers’ Loan & Trust Company was not joined as a defendant is perhaps ■ still less tenable. That company was the trustee of the bondholders, but, as substantially all of the lat ter were before the court, the appearance of their trustee was not necessary. The enforcement of the complainants’ lien on the engines will not affect the validity of the trust mortgage which attaches to the land, and not necessarily to the personal property which may be found thereon. But, if there was any doubt as to the necessity of making the trust company a party defendant, it would be removed by the application of equity rule 47, which provides that “in all case's where it shall appear to the court that persons who might otherwise be deemed necessary or proper parties to tbe suit cannot be made parties by reason of their being out of the jurisdiction of the court, or incapable otherwise of beiug made parties, or because their joinder would oust the jurisdiction of the court; as to the parties before the court, the court may, in their discretion, proceed in the cause without-making suck persons parties; and in such cases the decree shall be without prejudice to the rights of absent parties.” This rule is declaratory of the previous decisions of the supreme court on the subject. The'general rule as to parties iu chancery is that persons falling within the definition of “necessary parties” must be brought; in for the purpose of putting an end to the whole controversy, or the bill will be dismissed; but in the federal courts this rule has been relaxed, resulting from two causes: First, the limitation imposed upon the jurisdiction of these courts by the citizenship of the parties; and, secondly, their inability to bring in parties, out of their jurisdiction, by publication. Notwithstanding this rule, a circuit court can make no decree affecting the rights of an absent person, and all persons whose interests would be directly affected by the decree are indispensable parties. Chadbourne v. Coe, 51 Fed. Rep. 481. But the Farmers’ Loan & Trust Company does not belong to this category.

ON THE QUESTION OF LIEN.

The counsel for the appellants rely ou their ignorance of the contract between the Holly Company and Bullock & Co. by which a lieu ou the engines was reserved. The evidence shows that, to whatever extent the other parties defendant may have been ignorant of the lien, the New Chester Wider Company must have had knowledge of the contents of the contract of August 3,1.887, for, prior to that date this company had become virtually identical with Bullock & Go., and was subject to the control and management of that firm for all practical purposes. The officers and directors of the water company were the agents and servants of Bullock & Co., and some of the directors had personal knowledge of the terms oí the contract. From the time when the engines wan delivered at Chester, consigned to the Holly Company, they remained in the exclusive possession of that company, through its agent, J ohn Lockxnan, whose wages were paid by the company, and who was instructed to retain possession of the property. These facts were open to the observation, and must have come to the knowledge, of the water company. The precise date when Hopper & Co. and R. D. Wood & Co. first acquired knowledge of the lien is a matter of dispute, but it sufficiently appears that they had intimate business relations wi ch Bullock & Co. in reference to the loans of large sums of money to be applied to lire construction of the waterworks at Chester; and the tripartite agreement of October 26, 1.887, between the three firms, provided that these waterworks should be completed clear of all liens prior to the securities held by Hopper & Co. Bamuel R. Bullock testified 1hat be gave to Hopper & Co. a,nd to R. I). Wood ,■& Co. typewritten copies of tbe contract of August 3, 1887, of which the latter say they have no recollection, but the probabilities are ■strongly iu favor of the truth of Bullock’s statement. Apart from this, -there is nothing in the history of these transactions rrom which it can he inferred that either Hopper & Co. or Wood & Co. advanced money or gave credit to Bullock & Go. on the faith of the engines, or under the belief that they would constitute a part of the real property of the water company.

But it is contended that it would be against the policy of the law to enforce the lien against an integral part of the property of a public corporation, and in support of this proposition reference is made to the case of Foster v. Fowler, 60 Pa. St. 27, in which the court decided that the buildings, etc., of such a corporation, necessary for carrying on its operations, are not subject to a mechanic’s lien. In that case the plaintiff attempted to enforce a statutory mechanic’s lien, which, if effectual at all, covered not only the machinery and building containing it, but also the entire premises on which they stood. Here the Holly Company claims a contractual lien on a specific piece of property, which, in fact, had not been delivered to or accepted by the water company before the filing of the bill, September 19, 1888, and which up to that time had not become a part of the real estate. The Holly Company had not parted with its possession of the engines which had been placed On foundations for trial, to test their capacity and efficiency, and, had they proved to be defective, would have been removed and thrown back on the vendor’s hands. By attaching the engines to the foundations the Holly Company did not intend to waive their lien, which they continued to maintain by actual possession of the property. The sale to Bullock & Co. was not an absolute one, the lien was not a secret one, and up to the filing of the bill possession in fact of the property had not passed to the water company.

It is conceded that the validity of the lien depends on the laws of Pennsylvania, and an examination of the judicial decisions of that state will put at rest any doubt that may be entertained on this subject. These decisions hold that the intention of the parties to the contract is the main thing to be considered in deciding whether they meant to give the vendor a lien on the property sold. Thus, in Shell v. Haywood, 16 Pa. St. 523, where manufacturers had fixed parts of ■machinery in a building attached to a mill, the owner of the latter, becoming embarrassed, agreed that the boilers and the machinery ■ attached or to be attached to them were the property of the manufacturers, who were to be left to their legal remedy for the materials already furnished, or to the removal of the same at their option; and the court held that, as the parties had agreed that the property sold to the mill owner should be considered as personal property, it was immaterial whether or not, or in what manner, it was attached to the realty. In Hill v. Sewald, 53 Pa. St. 271, the court said that it was not the physical character of the connection with the realty which constitutes the criterion of annexation, but the intention to annex, whether rightfully or wrongfully, is the true legal criterion. In Vail v. Weaver, 132 Pa. St. 363, 19 Atl. Rep. 138, it was decided that the engine, machinery, and appliances of an electric light plant do not pass, with the real estate upon which it is operated, to the purchaser of the realty, at a sale under a mortgage judgment, unless it was the intention to make the plant a part of the realty when it was erected. If, therefore, under the law of Pennsylvania, as declared Tbv its highest judicial tribunal, the intention of the contracting parties is the standard by which the character of boilers, engines, and their appliances which, may be placed upon the premises of another, is to be judged, it will not be necessary in the present case to pursue the inquiry as to whether or not a mortgage of the premises will cover after-acquired property; for we have only to discover what was the intention of the parties to the contract of August 3, 1887, to ascertain -whether the pumping engines manufactured by tbe Holly Company were to be considered as personalty or realty. In Vail v. Weaver, supra, the court emphasized its conclusion by saying, “No matter what the law formerly may have been,” mere physical attachment with the realty is no longer a criterion of annexation, but the latter depends on the intention of the par-ties; citing Hill v. Sewald, supra; Seeger v. Pettit, 77 Pa. St. 437; Morris’s Appeal, 88 Pa. St. 368.

It is admitted by counsel for the appellants that, while the engines remained detached and separable from tbe real estate, the Holly Company was entitled to its lien, but it is claimed that when they were incorporated into the real estate the rights of the defendants, as mortgage creditors and bondholders, attached, and the lien was lost. If, however, this question is to be determined by the law of Pennsylvania, as announced in the cases just cited, then the intention of tbe parties to the contract of August 3, 1887, must prevail. What the intention was is to be gathered from the terms of the contract, and the parties to it could not have used plainer language than they did to express their understanding of the conditions on which the engines were to be made and placed in position, namely: “It is expressly understood and agreed that the party of the second part (the Holly Company) shall have a lien on all of said engines and connections, and the party of the second part may remain in and have full possession thereof until the whole amount of the purchase price of said engines and connections shall have heen fully paid to the party of the second part or its assigns.” The parties did not intend an absolute sale of the property. The sale was uot to be perfected until the property had been paid for, and to secure the payment of the price the vendor was to retain possession until this condition had been complied with. Retention of possession under such circumstances is inconsisient with an absolute sale. Hineman v. Matthews, 138 Pa. St. 204, 20 Atl. Rep. 843. The words used by the contracting parties must be taken in their ordinary sense, and there is no rule of construction which admits of any other meaning being given to them than that the sale was made subject to the payment of the price agreed on; aud this interpretation is confirmed by the action of the Holly Company in holding on to the possession of the engines, and by the proof that there had been no delivery of the property to Bullock & Co. or to the water company, or of acceptance by either of the latter-.

As to tbe general rule of law, uncontrolled by local statutes, governing conditional sales, the opinion of tbe supreme court of the United States, in Harkness v. Russell, 118 U. S. 663, 7 Sup. Ct. Rep. 51, contains an elaborate discussion of the whole subject, with a full review of the adjudged cases both in England and in the courts of our own country; and the decision of the court was that, both on principle and authority, a conditional sale of personal property, even where it has been accompanied by delivery, is valid both as against the parties and third persons; and the court stated the general rule, as established by overwhelming authority, to be “that, in the absence of fraud, a conditional sale is good and valid as well against third persons as against the parties to the transaction.”

The present case does not fall within the class of cases cited by appellants’ counsel, in which it has been held that the rails and bridges of a railroad, of necessity, become a permanent part of the whole structure, and therefore cannot be made the subjects of special liens, but is more analogous to the class in which the rolling stock of a railroad company has been held to be the subject of a conditional sale; and on which a lien may be reserved by the vendor. And this appears to be reasonable. Locomotive engines and cars are as essential to the operation sof a railroad as pumping engines are to waterworks, but it has been held that the former may be treated as personal property, and as such may be liable to a lien in favor of the seller, which will not be lost in consequence of a prior mortgage which, by its terms, was made to cover after-acquired property. U. S. v. New Orleans & O. R. Co., 12 Wall. 362. See, also, Gregory v. Morris, 96 U. S. 619; Harlan v. Harlan, 20 Pa. St. 303; Benedict v. Marsh, 127 Pa. St. 309, 18 Atl. Rep. 26; Haak v. Linderman, 61 Pa. St. 199; Krause v. Com., 93 Pa. St. 121; Peek v. Heim, 127 Pa. St. 500, 17 Atl. Rep. 984; Summerson v. Hicks, 131 Pa. St. 566, 19 Atl. Rep. 808; Levan v. Wilten, 135 Pa. St. 61, 19 Atl. Rep. 945; Hineman v. Matthews, 138 Pa. St. 204, 20 Atl. Rep. 843.

As between the parties to the contract, there can be no question of the validity of the lien, or of the right of the Holly Company to enforce it against Bullock & Co.; and it must not be overlooked that Bullock & Co., at the date of the contract, were substantially the owners of the whole capital stock of the Hew Chester Water Company, and that Samuel R. Bullock held the legal title to the real estate on which the pumping engines were erected, and did not convey it to the water company until long after this suit had been instituted.

It has not been deemed necessary to consider the question of the invalidity of the bonds, issued by the water companies, on the ground that the companies had no power to issue these obligations because of the failure to comply with the requirements of the Pennsylvania statute which authorizes the issue of bonds by stock corporations to an amount proportioned to the value of their paid up shares. .The facts found by the circuit court, and confirmed by an examination of the evidence, are sufficiently conclusive to establish the creation of the lien of the Holly Company, and to satisfy us that this lien was not lost or waived by any act of that company, and that no one of the appellants had acquired a superior equitable right to the property in dispute. The decree of the circuit court is therefore affirmed.