LOOKOUT MOUNTAIN R. CO.V. HOUSTON.
449.
LOOKOUT MOUNTAiN
R.
CO.
et at v.
HOUSTON
et ale
(CirlJUit Court. E. D. Tennessee. S. D. Debember 2. i81lO.) 1. HEMOVAL OF CAUSES-RES ADJUDICATA.
Where a suit is removed to a federal court. iLfter the state supreme court .has' passed upon a demurrer filed in the suit. the decision on such demurrer is binding, on the federal court.
2·.. CONTRACT-EvIDENCE. In a suit upon an alleged parol agreement by railroad contractors. to assume the. debts of the railroad company, the defendants denied making the agreement, and two of the company's direct<;Jrs, who were present at the meeting at which said agreement was alleged to have been made, corroborated. their testimony. Two otter directors and the secretary of the company testified that the agreement was' made. Shortly after said meeting, one of the defendants wrote a letter to the seeretary of· the company, in which he questioned the. borrectness of a statement of the company's debts, and promised to refer it to defendants' a.'(ent, butdid not deny their liability for the debts. Be1Ai, that the evidence was sufficient to establish the contract. '
In Equity. C. P. Goree and Richmond &; Chambers, for complainants. Clark &; Brown, for defendants.
KEY, J. About the year 1880, the complainant railroad undertook to build a line of road from Chattanooga, Tenn;, to Rome, Ga. The· contract for the building of the road was first made with J. C. Stanton & Co., but, before mUch work was done, J. C. Stanton. & Co. surren-. dered their contract, and it was canceled, and a new contract was made with the defendants. They were to complete the road ready for the rolling stock within a year, and were' t6be paid per mile $8,000 of the paid-up capital stock. and $22,000 in the first-class mortgage bonds of the company. The bonds and stocks were to be issued; as needed, at the request of the (iefendants. This contract was reduced to writing, and executed by the parties. There is no dispute as to this contract, which was written, but complainants alleged that there wits an oral understanding and agreement made at the same time, tpe defendants would, pay all the debts of the railroad. and also ,the debts and expenditures made by J. C. Stanton & Co. under their contract. Defendants deny that there was any such oral contract, and· insist that it would not be binding. Complainants filed their bill, alleging that the debts tioned in their bill were to be paid under this agreement. The cause began and was for some time prosecuted in the state court. Our attention must first be directed to a demurrer which was dieposed of in the supreme court of the state. Defendants' counsel insists that the judgment of the court upon the demurrer was erroneous upon principle and upon authority, is not conclusively binding on this court, and should be disregarded. In Duncan v. Gegan, 101 U. S. 812, the court held that"The of the suit from the state cO,urt to the United States court did not vacate .what had been done in the state court previous to the removal. The circuit court, when a transfer has been effected, takes the case in the CO,1l. v.44F.no.7-29
450
FEDlmAL REPORTER,
vol. 44.
dition it was when the state court was deplived of its jurisdiction. The cir. cuit court h,as no more power o.vet: what was done before the removal than the state conrt would have had if the suit had remained therein. It takes the case up state cQurt left it off." Section 721, Rev. St., provides that the laws of the several states, except where the constitution, treaties, or statutes of the United States otherwise require or provide, shall be regarded as rules of decision in trials at common law in the courts of the United States, in cases where they apply. It OOS been said: ·· This court does not claim any supervisory or appellate power over the state court or judge. It merely entertains jurisdiction of this suit because of the citizenship of the plaintiff. and, being thus called on to administer a law of the state of Georgia, it will, if possible, follow the decision of the state judge. A state statute, when it appertains Wrights 'and titles In things having a permanent locality, and a construction is placed upon it by the highest state court, becomf's a rule of decision in the federal courts; but the rule does not apply to contracts. " Guano Co. v. M01'rison, 2 Woods, 395-406. Justice CLIFFORD
states the matter thus:
·· ·Infinite mischief would ensue,' says MARSHALL, C. J., · should thlll court observe a different rule in construing the statutes of a state from tbat establishedby the judicial authority of the state. McKeen v. Delancy's Lessee. 5 Cranch, 22. In cases depending on the statutes of a state, theAederal courts adopt the construction given to t.hestatute by the highest court of the state, construction is settled, and can be ascertained. Polk v. Wendal, 9 Crancb, 98; Elmendorfv. Taylor, 10 Wheat. 157.'" Merrillv. aityof Portland, 4 Cliff. 138-147. The supreme court of tlle United Stll.tes announces this doctrine: "Since 'the ordinary administration of the law is carried on by the state courts, it necesijarily happens that, by the course of their decisions. certain rules "re established whichbecume rules of property and pctiOn in the state, and have aU the effect of law, and Which it wOllld be wrong to disturb. This is especially true with r\.'gard to the law of real estate and the constructions of state constitutions and statntt's. Such established rules are always regarded by the federal conrls, no less than by the state courts themselves, as authoritative declarations of what the law is. But where the law has not been thus settled, it is the right and duty of the federal courts to exercise their Own Jl1dgment, as theyal ways do ill reference to the doctrines of commerciallawand general Jurisprudence. 80, when coutracts and transactions have been entered into, arid rights have accmed thert'on under a partiCUlar state' of the dt'cisions, or when there has been no decision of the state tribunals, the federal courts properly claim the right to adopt their own interpretation of the law applicable to the case, although a different interpretation may be adopted by the state courts after such rights have accrued. But, even in such cases, for the ijal)eof harmony, and to avoid confusion, the federal courts wm lean towards an agreement of views with the state courts, if the to them )itlanced doubt. Acting on tlwse principles, foonded'its they are on C01Ility and good sense, the courts of the United States. without sacrilicing their own dignity as independent tribunals, endeavor to a:voidj'lmd·in, most cases 'do avoid, any unseemly conflict with the well-considered'decisions of the state courts." Btwgessv.Beligman, 107 U. S. 34. $i,2Sup.Ct.,Rep. 10·.
LOOKOUT MOUNTAIN R. 00. tI. HOUSTON.
451
The doctrine asserted in this case is sustained and deClared in Enfteia v.Jordan, 119 U. S. 680, 7 Sup. Ct. Rep. 358, and in manyother but it applies to cases that are alike in their principles and features, but yet different cases for dedsion, and having been determined' by the state and federal tribunals, each forum deciding its case for itself; and the question is how far the federal court in its case is to follow the decisionof a state in a 'like case. Whether or not a state court is followed in its de-cision in the federal court has no effect upou the suit decided by the state court. The decision stands as the law of the case. The last decisions referred to have no application to the case on trial. This case was brought in the Sltate court. The defendants came into that court, and filed a dem'urrer to the bill. The chancellor sustai'ned the demurrer, the bill dismissed. From that decree complainants aP'" and pealed to the supreme court of the state, its highest judicial tribunaL The supreD;le court reversed the action of the chancellor, overruled thlil , demurrer, and sent the case back for answer to the merits. It is now insisted that the action of the supreme court was erroneous and the action of the chancellor right, and this court, it is ihsisted, should so determine, or, at least, disregard the decision of the supreme court as not binding on this court. Atter the case was sent back to the chancery court, the defendants removed it to this court upon the ground that, because of local prejudice or influence, they could not obtain justice in the state courts. The state courts had lawful and complete jurisdiction of the case until it was removed to this court. The chancellor had authority, and it WEtS his duty, to hrar and decide upon the matters raised by the demurrer, and the supreme court had authority, and it was its duty; to pass upon the action of the chancellor, and affirm or reverse it. When the cause came to this court, it came bodily. None of it remained in the state court. It came here the same case that it was in the state court, and in precisely the condition the state court left it when this court took it in hand. Under the twenty-fifth section of. the judiciary act, as modified by an act approved February 0, 1867, (14 S1. at Large, 385,) where there is drawn in question the validity of a treaty or under, the United States, and the statute of, or un authority decision is against their validity; or where there is drawn in question the validity of a statute of, or an authority exercised under, any state on the grou'nd of their being repugnant to the constitution, treaties, or laws of the United States. and the decision is in favor of their validity; or of the constitution, or of a treaty or statute or commission held under the United. States, and the decision is against the title, right, privilege, or exemption specially set up or claimed by either party under such clause of the constitution, treaty, statute, or ment or decree of the highest court of the state may be re-examined and reversed or affirmed in the court of the United States upon Po writ Of error IlS from a circuit court of the United States. A district or circuit court of the United States has no appellate or supervisory.auth6rity over any decision, decree, or judgment of a state court; nor does the supreme court of the United· States have such, as provided
452
FEDERAL ltEPOnTER,
.
act of 1867.
in the ,wenty-fifth section of the judiciary act, referred to, and the
Besides the decisions mentioned, there are numerous decisions of the federal courts-an unbroken line-to the effect tbat the judgments and decrees of state courts cannot be reviewed or supervised by tbe federal courts except where.a writ of error lies, as above indicated. This court is bound to respect the decision of the supreme court of the state in its in regard to the deplurrer, and regard it as a determination binding tbis court, even though it might be erroneous. Tbe decision of the stute supreme in this case is found in 85 Tenn. 224Rep. 36. It says: "Houston & Co. interpose a demurrer upon several grounds, the only one of which that was pressed in the court below or in this court is that the bill shows a promise, not in writing, .to pay the debt of another, and, as such, is void under the statute of frauds and perjuries. The demurrer was sustained by the chancellor, and complainants have appealed. In this we think there is manifest error. 'fhe verbal promise or agreement by Houston & Co. to pay these debts was the consideration for which :stanton & Co. surrendered their contract, and for which the railroad. company canceled that contract, and entered into a less advantageolls one with the defendants. The contract of Houston & Co. to pay such debts is '8 new and original undertaking,' upon a valid consideratic:m passing at the time, and does Dot fall within the statute." All that the court decides is that tbe undertaking to pay complainants' debts was not within the statute of frauds, and therefore need not be in writing; but that much it.did decide. This case is not like that of Battle v. Street, 85 Tenn. 291, 2S. W. Rep. 384. In this last case there was a demurrer which was sustained by the chancellor, but, on appeal, was .overruled by the suprl;1me court. After the case was sent back, it was insisted that the overruling of the demurrer was equivalent to an adjudication of the several questions arising upon the state of facts stated in the bill. The court said: "It is to be particularly noticed that the decree overruling. the demurrer assigns no. ground for the llction of the court. No opinion was filed by the court from which\Ve ca.o determine the precise ground upon which the court thought the ,demurrer ,bad. * *.* Such a decree. overruling in general terms a demurrer. udjudicates nothing lJut that there is sufficient equity upon the face of the bill to require an answer." In the case in hand We do have an opinion of the court givingthe reasons for the action of the court. It determines, however, but one question, and that is tbat the promise to pay the debts alleged in the bill, as therein alleged, need not be in writing. Every other question of law, Or fact, or equity is left undetermined. It is insisted that oral tP.stimony cannot be admitted to enlarge or add additioJ1al obligations to. the written agreement, and tbe proposition is generally true as to such matters; but in this case, if the parol agrel;1ment be proven at all, it must be admitted that the testimony whi9h establishes it also proves a state of facts which makeS the contract an exception to the general rule; for it would make it that· it not included ill the writteI),contract at the requestof th, their. advantage and benefit.
LOOKOUT MOUNTAIN R. CO. V. HOUSTON.
453
The great question which confronts us is, was there any such ora} agreement? There is strong testimony on both sides. Gentlemen of high standing and excellent reputation differ widely as to the facts. It is no easy matter to come to a satisfactory conclusion as to what is established. It does not appear that defendants did any work, or that the railroad company issued any certificates of stock, or executed any mortgage, or issued any bonds. The work of building the road has long since been abandoned, so that, if any vitality remains in this corporation,oran,Ything survives for it or its creditors, it is the obligation arising from this parol contract on the part of the defendants to pay the debts of the rail· road company existing when the contract was made, and the debts and expenditures of J. C. Stanton &Co. under their contract. The agreenient between the parties died in all other respectH. The defendants did nothing, and its whole project failed. At tirst blush it would sepm that the railroad company did so little-slept so deeply in the execution of its enterprise-that it would have justifier! the contractors in regarding the contract as abandoned. The subscriptions to its stock were never col. lected. It had no treasury, or, if it did have it, there was nothing in It executed no mortgage. It issued no bonds. It was certainly as lifeless as a living thing could be. It paid its officers nothing, and they are now among the complainants, asking the defendants to pay their salaries earned prior to the contract asserted. The defendants were never paid anything. The written agreement is remarkable in its terms and stipulations. The company promised to pay the contractors in that is, in paid-Up capital stock and in first mortgage bonds. There were to be issued a series of 1,800 bonds, of $1,000 each. The capital stock was to be $750,000, and the consent of the defendants in writing should be necessary before it. could be increased. The railroad, at any time the defendants were to so request in writing, was to issue bonds or stock, or both, with which the delendants were to purchase material and iron for the construction of the road. The railroad company could not make any other contract or sell either bonds or stock without the written consent and permission of the defendants, and the defendants were at all times to have the right and option to sell and dispose of all the bonds embraced in the series of 1,800. 'l'he railroad company was to assist the defendants in negotiating and selling their securities, and to use its influence in keeping up their price. The defendants were to have full and sole control and management of the railroad until conipleted, and the work on said road and its manner of execution. Under this agreement, there was little for the railroad company to do but to obey the behests of the defendants; so that the great responsibility of the failure and abandon!.. ment of the enterprise would rest in a larger degree upon detendants than upon the railroad company. We go back to the testimony in regard to the alleged parol contract. . There were present at the time the contract was made with the defend-ants four of the directors of the railroad company. Two of these (one of them its president, who presided at the meeting which agreed'to the contract) testify that no s)lchcontract was made, as the Ol'al one alleged
REiPORTIm., vol.
44.
that the written contract embraces the entire agreement beOne Qf these directors is asked if Mr. Goree did not .¥,i.q.l1We of, him, iPlQlediately after. ,the adjournment' of the meeting, if been made for the, creditors of the railroad; and if this Idirectp,r dJd not reply that provision had been made, and stated that the .qefE1oQ,a;Dts ,had agreed to pay the: dehts' of the railroad. In reply he has, nO,reCQllectiou of sQch conversation. Mr. Goree test;ifil'1s"pojlitively, and with convincing particularity ,that such a converThe direGtor's statement to Goree is not evidence of C(mtra,ct, but the contradiction ,of his material statement weakens the his , : In,ad4itiqn to the testimony of the two directors mentioned in regard wtheparol (lon,tract, the three defendants swear positively that no such ,wa,s made,or even discussed. Two of them. Houston and ,KiJ;l.lley"were present during the entire meeting, they say. Neely says thllt ,he did not come to the meeting until a short time before it ad00 the other hand, two of the directors who were present l:\"'eAr that such a contract as is alleged was not only made, but wal:l distbat the amount of the debts was estimated at from $8,000 to ,$lO,OPO; that one of the directors stated that he would withdraw, and )eav:f;lJhe a quorum, if provisions were not made lor the lPayment, of these debts; that thereupon the defendants agreed to pay 4lem, ,ooe of the directors says, to the amount of $8,000. They both 811Y th/lot it was proposed to embody this provision in the written contract, but the defendants insisted that it should not be done; because, !l$ ,Qne,of these directors says, if such a stipulation was placed where one could read it, it would injuriously aflect the negotiability of bonds., The other director says that they said it would prevent a compromise of the debts. The secretary of the railroad compllQy, who was present at the meeting, corroborates these 'last directors 4istinctly, and in quite a forcible statement of the entIre ,transMtion.The defendants say that if the payment of these debts had ,been required of them, they would never have undertaken to build the il'oad. It appears from their own statements, or at least of one of them, bidders for a lease of the Cincinnati Southern Railroad, whi(,lh hat! just been completed,and that the hope of obtaining this lease was the inducement for enteririg into this contract. They agreed with J. C. Stanton that, in the event he would surrender his contract, he,mighthecome a niember of their firm, and they would allow him a for the work he had done, provided their track should be located upon his track, as worked. They purchased of Hardin his stock in the ,railroad, which was worth nothing at all, as not one dollar had ever been ,paid. ,upon it,forwhicb they paid him,$l,OOO in money, and agreed to pay him $4,000 in bonds of the road. They say they did this to get of the"way, so that he might not give trouble about the charter Wt1).erailroad, to whiGh he, laid some claim. These transactions indi,an, anxiety upon their part to secure the contract for building the IPigilt not have, been overcome by an additional obligation
*e,
LOOKOUT MOUNTAIN R. CO. 'V. HOUSTON.
455
to pay not more than $8,000. The proof justifies the conclusion'that all interest and anxiety in connection with the building of the road ceased when defendants failed to obtain a lease of the Cincinnati South· em Railroad, and that from that time they desired to escape from their obligation. The secretary of the railroad company gives much testimony in regard to what is contained in its books, and in relation to the correspondence between him and the defendants, that is properly excepted to by defend;" ants; but there is sufficient competent testimony to show that, verysooll after the contract of May 11, 1880, had been made, there was a general conclusion on the part of the creditors of the railroad company that these debts were to be paid, and they made a simultaneous movement them paid. The secretary wrote to some of the defendants in relation to the payment of these debts, and sent him a list of them. The most powerful evidence sustaining and corroborating the testimony of complainants' witnesses is a letter, written, evidently, on July 6, 1880,'by defendant Kinsey, and addressed to the secretary. In this letter he says: "I have yours of 3d with claims that I have never heard of before except the $950 for paying the printing of bonds. Mr. Stanton has some vouchers which he paid. not to exceed $1,000, which 1 have written to him for. Perhaps they may cover some of the items you sent. I have referred your)etter to Mr. C. G. Samuels at Rome, who is the responsible party in such mattefs." There is no word of denial of the liability of the defendant for:the valid and unpaid debts of the railroad. The whole scope of the letter is a tacit admission of such liability. In this connection it may as well be stated that Samuels acted for the defendants in the purchase orHar· din's &tock, and that he tendered his resignation as director May 13, 1880, that he might "accept a position in the syndicate with R. G. Houston & Co." It is possible, but it seems hardly probable, that the defendants and their witnesses might have forgotten all about this par<>lppntract. It is certain that the witnesses for 'the complainants detail the facts they do, and as they do, without being ing falsely, if the facts stated by them are not true. They deal 'IV,th, af· firmative, positive matters, that they say did take place. The testimony of defendants and their witnesses is not strictly negative testimony,but it is such as, in its nalure, is negative. It has been held by the suprema court of the United States that itis a rule. of evidence that witness who testifies to an affirmative is to be prelerred to one whot,ElE\· tifies to a negative; because he who testifies to a negative may haver forgotten, while it is impossible to remember what never happened.1itiU v. Huidekopers, 17 Wall. 384. The conclusion arrived at is that the parol contract was made:1ls ll.li leged by complainants, and that they are liable thereon to an. in the aggregate of $8,000 should the debts'foot up so much.1'lW' as special master, will report what debts oE the :<hie from the railroad company on the 11th of May, 1880, or befp;rfl"their amount, and to .whom payable·. Vance's claim will not be reported. Such officers of the railroad company as may have such debts will' 'not
456
FEDERAL REPORTER,
. eallowed interest thereon. It appears that no salaries had been fixed b by their company; that it had an empty treasury, and was not collecting', or attempting to collect, its stock subscribed, except to a very limited extent, and that it was largely an experimental and inflated enterprise, which they must have known, so that the principal is a full satisfaction for debts of so little merit. Interest will be allowed to the other creditors.· The clerk may look to the competent testimony on file, and take such other as he deems necessary and proper in his investi-
CHATTANOOGA, R. & C. R. Co. V. CINCINNATI, N. O. & T. P. Ry. CO. et (Oircuit Oourt, E. D. Tennessee, S. D. December 26, 1890.) lc.
at.
Under Act Congo Aug. 18, 1888, c. 866, § 8, which provides that, when a proper bond.slid petition for removal are filed, "it shall be the duty of the state court to accept said petition and bond, and proceed no further in the case," where tbe record as certified shows that such bond and petition were filed, it will be presumed, on motion to remand, that they were duly accepted by the state court, though . no order of removal was entered. Sum-SEPARABLE CONTROVERSY.
REMOVAL Ol!' CAUSES-MoTION TO REMAND-PRESUMPTION.
2. .
Under sectiQn 2, Id., whioh provides that where there is in any removable suit a .controversy wholly between citizens of different states, and which can' be deter,mined, as between them, either one or more of the defendants actually interested therein may remove the suit, a suit in which the only controversy is between the complainant and one of the defendants may be removed by such defendant, though other persons, who have no interest in the suit, have been improperly joined as parties defendant.
8., CARRIERS-TRAl!'l!'IO CONTRACT-RESCISSION. A contract between railroad companies by which one company allows the other to use its freight depot and tral1ks in consideration of rent at a fixed rate per ton and per car, without any prOVision as to the length of time the contract is to remain in force, may be rescinded by either party at any time, on reasonable notice.
'In Equity. On motion to remand and oninotion to dissolve tion. McAdoo &: Barr and Olark &: Brown, for complainant. Lewis Shepherd, for defendants.
KEY, J. This suit was commenced in the chancery court of the state, and arises from a contract made by complainant and defendant Cincinnati, New Orleans & 'Texas Pacific Railway Company, June 28, 1888. The second paragraph of said contract says: "For the use of the freight depot of the Cincinnati. New Orleans & Texas Pacific Company. the Chattanooga. Rome & Columbus Company will pay at the rate of 25 cents per ton for all freight received and d.elivered at the depot; this payment to include all services for unloading. delivering. and way-billing, .lIond collecting the freight charges on merchandise of the Chattanooga. Rome & Columbus Company passing through the ffl'ight-hollse of the Cincinnati. New Orleans & Texas Pacific Company. For the use of the Cincinnati, New 'Orleans & Pacific tracks for bulk freight, the Chattanooga. Home &; 'Columbus Company will pay the sum of 75 cents per car on all freights deliv· ered,on the bulk tracks of the Cincinnati, New Ol'1eans & Texas Pacific Com· .pany:. '(.
