Case ID: ohio-st_64/html/0011-01.html
Source: Caselaw Access Project
Author: {"author": "Davis, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Reed et al. v. Ginsburg & Sons. Same v. Frank H. Blodgett. Same v. David E. Blodgett.
    
      Railroad mortgages and liens — Lien of mortgage on railroad covering after acquired property attaches, when, — Mechanic’s lien for labor and material in improving real estate is subsequent to the lien of mortgage on after acquired property, when — Act of April 6, 1883 — Section 320S, Rev: Stat.— Law of mechanic’s lien.
    
    The lien of a mortgage on a railroad covering after-acquired property, attaches at the time of the acquisition of the property, subject to all rights against the property then existing; but the lien of a mechanic’s lien for labor and materials used in making improvements on real estate after the title to such real estate was acquired by the mortgagor, is subsequent to the lien of such a mortgage on after-acquired property, when such mortgage was executed oefore the passage of the Act passed April 6, 1883, now section 3208 of the Revised Statutes, and before the acquisition of the property, and was recorded before such materials and labor were furnished.
    (Decided January 22, 1901.)
    Error to the circuit court of Alien county.
    The facts are stated in the opinion.
    
      Harmon, Colston, Goldsmith & Hoadly and Doyle cf Lewis, for plaintiffs in error.
    Certain propositions may be assumed as settled. We understand they are not questioned.
    A recorded mortgage, given by a railroad company on its roadbed and other property, creates a lien whose priority cannot be displaced thereafter, directly by a mortgage given by the company, nor indirectly by a contract between the company and a third party for the erection of buildings or other works of original construction. Railway Co. v. Hamilton, 134 U. S., 296; 6 O. F. D., 537.
    A mortgage covering a railroad built or to be built, and also all property thereafter acquired and used as part of the same, attaches to such property the moment it is acquired by the mortgagor. Coe v. Peacock, 14 Ohio St., 187; Coopers & Clark v. Wolf, 15 Id., 523; Dunham v. Railroad Co., 68 U. S. (1 Wall.), 254; Thompson v. Railroad Co., 132 U. S., 68; Central Trust Co. v. Kneeland, 138 U. S., 414; Wade v. Railroad Co., 149 U. S., 327.
    The mortgage, when it so attaches to after-acquired property, is inferior and subject to all liens and equities which existed upon it at the time it was acquired by the mortgagor or -which arose from the acquisition itself. Harris v. Bridge Co., 90 Fed., 322.
    It may be conceded, therefore, that if the Ginsburg lien had existed when the company acquired title to the property, it would prevail against the mortgage, although the latter was long prior in date. It may even be conceded, for argument’s sake, that if Ginsburg had, when the company obtained the title, already commenced the performance of a contract on whose completion he would, be entitled to a lien, such lien, when duly taken, would reach back and prevail over the mortgage. But the Ginsburgs are not helped by this. The company had acquired title and consequently the lien of the mortgage had attached long before the Ginsburgs appeared on the scene.
    The exact proposition they must maintain is that, no matter what the terms or conditions of a mortgage may be, a subsequent statute giving certain liens priority to the mortgage operates to displace such mortgage on property to which it has attached, when such property was acquired after the passage of the, law, in favor of liens the right to which arose and was perfected after the mortgage had so attached.
    We submit that there is neither reason nor authority in favor of this proposition, and that its application would, moreover, in this case, cause the law in question to contravene section 10, article 1 of the federal constitution, which prohibits the states from passing any “law impairing the obligation of contracts.”
    The act of 1883, giving a lien to certain persons for work and material on railroads cannot have a retroactive effect so as to displace liens already created and recorded.
    
      Feike v. Railroad Co., 12 C. C. R., 362, 5 Circ. Dec., 640; Kelley v. Kelso, 5 Ohio St., 198; Bernier v. Becker, 37 Ohio St., 72.
    The act, section 3208, Rev. Stat., to be valid at all, must be construed to mean as if Avritten: “Shall have precedence o\rer any lien taken or to be taken, after the passage of this act;” othenvise it would be, for this reason, unconstitutional.
    Section 3286 authorizes a mortgage on its property. Section 3287 authorizes a mortgage upon its property and income, and such mortgage may include personal as Avell as real property. Section 3288 relates to the recording.
    This mortgage or trust deed embraced in its terms as fully as did the one before the court in the case cited, “all the following present and future to be acquired property of the company.”
    The present mortgage embraced all property, including additions, extensions, branches, now owned or hereafter to be acquired; it included all the income of the property, all franchises and all legal and equitable interests.
    When it acquired the right'of way for this extension in 1893, as between the railroad company mortgage if the same is recorded in the recorder’s and the mortgagee, that right of way became subject to the lien of the mortgagee.
    Rails and ties, and other structures placed on that right of way, became a part of the railroad, and also subject to the mortgage, as much as would a house on a mortgaged lot.
    Any statute is unconstitutional as impairing the obligation of contracts which introduces a change into the express terms of the contract or its legal construction, or its' validity, or its discharge. The extent of the change is not material; any impairment of the contract is unlawful. Black’s Const. Law, p. 525; Bank v. Sharp, 47 U. S. (6 How.), 301-27; Life Ins. Co. v. Richardson, 77 Fed., 395; Am. & E. Enc. Law, Vol. 15, p. 1047; Note Vol. 10 L. R. A., page 405; Bronson v. Kinzie, 42 U. S. (1 How.), 311; Phinney v. Phinney, 4 L. A. R., 348; Yeatman v. King, 2 N. D., 421; Railroad Co. v. Hamilton, 134 U. S., 296, 10 Sup. Ct. Rep., 546; 6 O. F. D., 537.
    The state cannot interfere with the remedy given by existing laws to enforce a contract when the consequence is an impairment of the creditors’ rights. This doctrine has perhaps been more frequently enunciated and applied in the cases of an attempted statutory extension of the mortgagor’s right to redeem, made after the mortgage has been executed. Scobey v. Gibson, 17 Ind., 580; Inglehart v. Wolfin, 20 Ind., 32; Rucker v. Steelman, 73 Ind., 390; Ex parte Pollard, 40 Ala., 77; Collins v. Collins, 79 Ky., 88; Coddington v. Bispham, 36 N. J. Eq., 574; Car
      
      gill v. Power, 1 Mich., 369; Maloney v. Fortune, 14 Iowa, 417; Phinney v. Phinney, 81 Me., 450, 4 L. R. A., 348.
    Railway bonds were secured by deed of trust. The legislature endeavored to give a preference in the earnings to claims which before the enactment of the law, had no lien on such earnings. It was held that: Receiver v. Stanton, 86 Tex., 620; Phinizy et al. v. Railroad Co. et al., 63 Fed., 923; Crowther v. Fidelity Ins., Trust & Safe Co., 85 Fed., 41, 42 U. S. App., 701; Central Trust Co. v. Continental Iron Works, 51 N. J. Eq., 605, 28 Atl., 595; Nelson v. Railroad Co., 8 Am. Ry. Rep., 82; Trust Co. v. L. St. L. & T. R. R. Co., 70 Fed. Rep., 282.
    
      Gable & Parmenter and J. M. McGillivray, for defendants in error.
    We maintain the,decrees of the lower courts are correct for two reasons:
    1. At the time the Ohio Southern Railway Company executed its mortgage, 1881, it had no authority to mortgage or acquire any property in Clinton or Greene counties, Ohio, and the finding of said mortgage in said counties would not thereby make the same a lien on said extension, by virtue of, the after-acquired property clause therein contained.
    2. Should we be in. error as to the above proposition, and said mortgage became a lien on said Jeffersonville extension by reason of its provisions and the recording thereof as above stated, still we maintain the lien of said mortgage is subordinate to the said lien of defendants in error, and this is true notwithstanding the mortgage may have been filed fojr record at a date prior to. the delivery of the rails by defendants in error. Jones on Corp. Bonds and Mortgages, Sec. 105; Hatry v. Railway Co., et al., 1 C. C. R., 426, 1 Circ. Dec., 238; Meyer v. Johnson, 53 Ala., 237; 64 Ala., 603; 28 N. J. Equity (1 Stewart), 49; Coe v. Midland R. Co., 31 N. J. Equity, 145; Branch et al. v. Jessup, etc., 9 Am. & Eng. R. R. Cases, 558 (U. S. Sup. Ct. Jany. 15th, 1883.); Spies v. Railroad Co., 40 Am. & Eng. R. R. Cases, 401 (U. S. Cir. Ct. Southern Dist. of N. Y. Oct. 10, 1889); Thomp. on Corp., Sec. 6197; Rapalje & Mack’s Digest, Vol. 6, 425, et seq Coe v. Railroad Co., 4 Am. & Eng. R. R. Cases, 520, s. c. 34 N. J. Equity, 266; Calhoun v. Railroad Co., 9 Cent. Law Journal, 66; Rutherfoord v. Railway Co., 35 Ohio St., 559; Williamson v. Railway, 28 N. J. Equity, 277, 29 N. J. Equity, 311; Brooks et al. v. Railway Co., 101 U. S., 443; Railway Co. et al. v. Lewton, 20 Ohio St., 401; Harris v. Youngstown Bridge Company et al., 90 Fed Rep., 322.
    All the argument of counsel for plaintiff in error as to statutes being retroactive has no application to this case. They overlook the fundamental principle of the law that no man or corporation can give a mortgage upon property not by them owned; and that when a mortgage so given does eventually become effective and attach to something, it is subject to and restricted by the laws' in force at the then time and not some fifteen years prior when the mortgage had no force or effect upon the property thereafter sought to be held under it.
    The provision contained in the mortgage that it is to include property to be thereafter acquired by the mortgagor, does not create a lien upon such property at othe time of the execution of the mortgage, because neither a person or corporation can mortgage property which is not then in existence.
    
      Hence section 10, article 1 of the federal constitution has no application to this case. Rousculp v. Railroad Co., 10 C. D., 621, 19 C. C., 436; Cooley’s Const. Limitations, 6th Ed., pages 438-463; Pierce v. Emery, 32 N. H., 484; United States v. Railroad Co., 79 U. S. (12 Wall.), 362; Beall v. White, 94 U. S., 382; Beach on Eq. Jur., Sec. 817.
    The difference between counsel in this cause is easily stated: Our opponents assume and contend they have some rights to said branch which we are trying-to take away, while we deny that even today they have any interest in .the distribution of funds arising from the sale of said branch, because of never having acquired a lien thereon.
    Whether this be true or not may be immaterial in view of the fact that:
    
      a. A mortgage takes effect and becomes a lien upon the property described in it, not from the date of its execution, but from the date of its being delivered to the recorder of the proper county for record. Sections 3289, 4133, Bev. Stat.
    
      b. The date of execution of a mortgage is an immaterial matter, in a contention of priority between it and another lien. “As to third persons, mortgages have no effect either at law or in equity until delivered to the recorder of the proper county for record.” Bloom v. Noggle, 4 Ohio St., 45; Coe v. Railway Co., 3 0 Ohio St., 390; Doherty v. Stimmel, 40 Ohio St., 298.
    It follows, therefore, that until the mortgage was recorded, it was not a lien as against third parties, and as it did not take effect until after the passage of the act of April 6, 1883, it became a lien (if at all) subject to the provisions of that act, and as the liens under that act are prior to any lien “taken or to be taken,” they are superior to that of said mortgage.
    The trust company, as to this Jeffersonville branch, stands in no different or better position from what it would occupy if its mortgage had been executed in the spring of 1894. Jones on Corp., Bond and Mortgages, Sec. 105; Hatry v. Railroad Co., 1 C. C., 434, 1 Circ. Dec., 238; Meyer v. Johnson, 53 Ala., 237; Coe v. Railway Co., 31 N. J. Eq., 145; Branch v. Jessup, 106 U. S., 468; Spies v. Railroad Co., 40 Am. & Eng. R. Cas., 401; Coe v. Railroad Co., 34 N. J. Eq., 266.
    
      e. Subsequently acquired property, in order to find its way under an “after-acquired property” clause must be described in the mortgage; to use the language of Justice Brewer, “It is settled that such a clause is valid, and that thereby the mortgage covers not only the property then owned by the railroad company, but becomes a lien upon all property subsequently acquired by it which comes within the description in the mortgage.” Trust Co. v. Kneeland, 138 U. S., 414, 7 O. F. D., 1.
    And again — the after-acquired property must be “appurtenant” to said line of railroad — note the language, “and all other property of every kind or nature, appurtenant to the said line of railroad, whether now held and owned by the party of the first part, or hereafter to be acquired, and particularly including all its coal and other lands and mines.”
    And as one tract of land cannot be appurtenant to another tract, one railroad or piece of a railroad cannot be appurtenant to another railroad. Phila v. Railway Co., 58 Pa. St., 253.
    
      d. If said branch was described in said mortgage and found its way under it, in virtue of the “after-acquired” property clause, then the rule is that “a mortgage intended to cover after acquired property can only attach itself to such property in the condition in which it comes into the mortgagor’s hands. If the property is already subject to mortgages or other liens, the general mortgage does not displace them, although they may be junior to it in point of time. It only attaches to such interest as the mortgagor acquires; and if he purchase property, and give a mortgage for the purchase money, the deed which he receives and the mortgage which he gives are regarded as one transaction, and no general lien impending over him, whether in the shape of a general mortgage or judgment or recognizance, can displace such mortgage for purchase money.
    
      United States v. Railroad, 79 U. S. (12 Wall.), 362; Harris v. Bridge Co., 90 Fed., 322; Williamson v. Railway, 28 N. J. Eq., 277, 29 N. J. Eq., 311; Montgomery v. Keppel, 75 Cal., 128; Irrigation Co. v. Garland, 164 U. S., 1.
    And in the light of the further fact that under the act of March 20, 1889, sections 3201, 3202, 3203, 3204, 3205 and 3206, Rev. Stat. Mr. Blodgett being a contractor constructing said branch, was authorized to hold possession of the same until he was paid, as against the Ohio Southern Railroad Company; he took the necessary steps to fix his lien but was prevented from retaining possession by the appointment of the receiver, and seizure of the road by the court.
    If it be suggested that this act is unconstitutional, the answer has already been given — the rights of the railroad company, and of the trust company (if any it had) were acquired in 1894, and subsequent to the passage of the act. This matter was before the Supreme Court of the United States, where it was held: “In Iowa a mechanic’s lien has preference over a prior recorded mortgage.” Brooks v. Railway Co., 101 U. S., 443.
   Davis, J.

The several defendants in error are claiming a preference in the application of the fund arising from the sale of the Ohio Southern Railroad under a decree of foreclosure. The plaintiffs in error are the purchasers of the railroad on behalf of the holders of the first mortgage bonds and the Central Trust Company of New York. The fund is insufficient to pay the amount of the outstanding first mortgage bonds, with the interest, and the defendants in error insist that mechanics’ liens for materials and labor furnished by them respectively, in the construction of the Jeffersonville branch of the Ohio Southern Railroad are prior to the lien of the holders of the first mortgage bonds. The circuit court so held. 19 C. C., 436."

On May 23, 1881, the Ohio Southern Railroad Company made a mortgage or trust deed to the Central Trust Company to secure four million dollars of bonds. It was provided that 1920 bonds of $1,000 each should be issued immediately, and the remainder at the rate of $15,000 a mile for each and every mile of completed railroad, branch, extension or addition in excess of one hundred and twenty-nine miles, or when the purchase money of said bonds should be deposited in a suitable depositary, to be used only for the purpose of constructing, etc., said line, or any "branch or extension thereof. The property mortgaged was described as “all and singular the line of railroad of the party of the first part, extending from the city of Springfield in the county of Clark, in the state of Ohio, through the counties of Clark, Madison, Fayette, Highland, Pike, Ross, Jackson, Gallia and Lawrence, in said state, to the village of Rockwood in said county of Lawrence, and to all branches, additions and extensions pertaining thereto * " * all materials and other supplies for the constructing, operating, maintaining, repairing or replacing, or for the operating, or improvement of the said railroad or any part thereof, or any part of its equipments or appurtenances. Also all rights, powers, privileges and franchises connected with or relating to the said line of road or the construction and maintenance, operation or improvement thereof, and all other property of every kind or nature pertaining to the said line of railroad whether now held and owned by the said party of the first part or hereafter to be acquired.” It was provided that the liens of the bondholders as between themselves should be equal in priority.

In article 8 of said trust deed it was provided that the party of the first part “covenants and agrees that the entire- proceeds of the sale of bonds secured hereby shall and will be faithfully and exclusively applied to the redemption of the one million dollars of bonds lately issued by the Springfield Southern Railroad Company, to the building, constructing, completing, equipping, extending, renewing, and replacing of the said railroad and branches. * * * And that the said money shall not be appropriated to or used for any other purpose or purposes whatsoever.”

This mortgage was filed for record in Fayette county on the 26th of May, 1881, and it was filed for record in Greene county, June 22, 1894, and in Clinton and Warren counties somewhat earlier, these with Fayette county being the counties in which what was known as the Jeffersonville branch was located. It appears from the record that the railroad company acquired the right of way to the Jeffersonville branch by contract in 1883, and received deeds therefor during the year 1894. The defendants in error furnished materials and did work for the construction of the Jeffersonville branch from March, 1895, to May, 1895, and perfected mechanics’ liens on the Ohio Southern railroad in May, 1895.

It does not appear in the record that any of the money paid for these bonds was actually applied to the construction of thé Jeffersonville branch, nor does it definitely appear that it was not. But although the trustee, The Central Trust Company of New York, and the railroad company may not have applied the money strictly as provided in the trust, yet the holders of bonds purchased in the open market cannot be made to suffer for their delinquency. They should, at least, stand with equal favor before the court along with material men and laborers, so that the money furnished under this mortgage creates as strong an equity, appealing as forcibly to the conscience of the court, as that created by the furnishing of labor and materials.

The question made in this case is whether the mechanics’ liens of the defendants in error are prior to the lien of the mortgage aforesaid upon the after-acquired property of the Ohio Southern Railroad, namely, the Jeffersonville branch. The circuit court seems to have based its conclusion upon a proposition of law stated by Taft, J., in the case of Harris v. The Youngstown Bridge Co., 90 Fed. Rep., 322, to the effect that a mortgage covering after-acquired property attaches only to such interests as the mortgagor has at the time the mortgagor acquires the title thereto. This had been decided in many cases before the one mentioned, and the proposition is not controverted in this case by anyone. It is even conceded that if the defendants in error had, when the company obtained thé title to the Jeffersonville branch, already commenced the performance of a contract on the completion of which he would be entiled to a lien, such lien when duly taken would reach back and prevail over the mortgage. But just here the point of contention arises. When did the railroad company acquire title to the Jeffersonville branch? The circuit court seems to have assumed that the title was not acquired until the construction of the branch was completed, and that the lien of the. defendants in error accrued in the acquisition of the property. If the circuit court had taken the trouble to read carefully the opinion of Taft, J., in the case cited, it probably would not have relied upon that case as authority for the judgment which it rendered. For example this: “It follows that the lien given by the after-acquired property clause of the first mortgage attached to the rights of way in the streets immediately upon the passage of the ordinances, and that improvements upon the rights of way only increased the security by becoming a part of the realty. The lien asserted by Harris, trustee, on this part of the terminals, did not arise in the act of acquisition, but only in the improvement after acquisition. * * * It was the ordinance which passed the title, and not the laying of the tracks by its authority.” Harris v. The Youngstown Bridge Company, 90 Fed. Rep. 332.

We take this to be the law, and applying that principle to the present case, the Ohio Southern Railroad Company acquired the title to the Jeffersonville branch when it acquired its right of way in 1893 and 1894. The claims of the defendants in error arose, not in the act of acquisition, but in making the improvements on the property after the acquisition, in the year 1895. If the case stood thus, there could be little doubt that the lien of the first mortgage was prior to the mechanics’ liens. But what effect has the intervention of the statute of 1883, being now section 3208 of the Revised Statutes of Ohio? If the statute be prospectively construed, that is to say, if we construe it as though it should read “shall have precedence over any lien taken or to be taken after ihe passage of this act,” then it is contended that the mechanics’ liens are still prior to the liens under the mortgage, because the right to a mortgage lien on the Jeffersonville branch was not acquired until the title in the Jeffersonville branch was acquired and the mortgage was recorded in the counties through which it runs, that is, in 1894, so that the statute would give priority to those mechanics’ liens over a mortgage thus “taken” after the passage of the act. But the answer to this is that the contractual right of the plaintiffs in error to have a lien under the mortgage, was acquired at, and dated from, the time of its execution in 1881, and simply attached to and became operative upon, the after-acquired property, on the acquisition of the property in 1894. The argument that the mortgage on after-acquired property is operative only as a contract to mortgage and that a new mortgage must be executed in order to acquire a lien in behalf of the bondholders on that property, is untenable and hardly calls for analysis. But whether the instrument of 1881 be a mortgage or a contract for a mortgage, it must be conceded that it conferred a contractual right upon the bondholders to have the first lien on the after-acquired property, and hence, if the statute of 1883 be construed so as to defeat that right, then the statute is retroactive, and impairs the obligation of the contract, and it is so far unconstitutional and void.

We therefore conclude that the court of common pleas and the circuit court were in error in deciding that section 3208 does not violate any contract obligation held under and by virtue of this mortgage; and, in holding that it is not retroactive as to the mortgage of 1881, if it be held that, by force of the statute, the mechanics’ liens of the defendants in error have priority thereto.

The judgment of the court of common pleas and that of the circuit court are reversed and judgment is rendered for the plaintiffs in error.

Reversed.

Shauck, O. J.; Burket and Spear, JJ., concur.

Minshall and Williams, JJ., dissent.