Source: https://supreme.justia.com/cases/federal/us/99/235/
Timestamp: 2019-04-19 01:02:49+00:00

Document:
On Feb. 1, 1873, a railroad company in Illinois entered into a contract with A. whereby he agreed to sell and deliver to it, at a price payable in installments, a number of cars which, until they should be paid for, were to remain his property. They, when delivered, were numbered, marked, and lettered as his property, and were thereafter used in the ordinary business of the company. Prior to said contract, the company had mortgaged to B., as trustee, its franchises, issues, and profits, and all the property it then possessed or might thereafter acquire either in law or in equity to secure the payment of certain bonds. B. filed, May 20,1875, his bill for foreclosure. The receiver appointed by the court to take charge of the road, finding that the cars had not been paid for and that they were necessary for its use, entered into an arrangement with A., subject to the approval of the court, by which they were valued at $420 each, and it was agreed that a monthly rent of $7 should be paid for each, with interest on the deferred payments, until the amount so paid should equal the value of the cars. They were then to become the property of the company. A., in January, 1876, intervened in the foreclosure suit, and after averring the payment of the rent during the period the receiver had used the cars, prayed that out of any funds standing to the credit of the cause not otherwise appropriated, he should be paid for the use of the care from October, 1874, when the last installment of the purchase money therefor had been paid, and that the cars be returned to him. B. and certain intervening bondholders, claiming that the cars, the title thereto having passed to the company under the contract, were, as after-acquired property, subject to the lien of the mortgage, denied that A. was entitled to payment for said use from the income of the road or from the proceeds of the sale, or to a return of the cars. The court, Dec. 6, 1878, ordered the sale of the mortgaged property, not including the cars. It was thereupon sold, the sale confirmed, and a conveyance to the purchasers ordered. Subsequently the court decreed that as A. had not parted with his title, the cars should be returned to him, and that the clerk should, out of the funds standing to the credit of the cause, pay to him $14,568.75 as rent for the period the cars were in use before the appointment of the receiver. It does not appear that there were any funds in court to the credit of the cause except such as arose from the sale.
1. That the lien of the mortgage did not attach to the cars upon their delivery to the company so as to defeat A.'s reclamation of them as against the mortgagee.
2. That the payment out of the earnings of the road for rent of the care for the time they were used by the receiver was proper.
3. That prima facie the fund to the credit of the cause belonged to the mortgage creditors, and that A., being only a general creditor, is not entitled to payment therefrom.
to secure an issue of $2,500,000 of bonds. This mortgage covered all the franchises, issues, and profits of the company and all the property it then owned or possessed or might thereafter acquire, either in law or equity. Provision was made to the effect that in case of default in the payment of interest on the bonds continuing for six months, the trustees in the mortgage, on demand of the holders of at least one-half the bonds then outstanding and unpaid, might take possession of all the mortgaged property, together with all the books, records, papers, accounts, and money of the company, and enter into the management and control thereof, paying all the expenses of taking, holding, managing, and operating the property from the income and profits thereof, or, if the property should be sold, from the sale thereof. The property might be sold as an entirety, and the proceeds, after deducting the expenses of sale, applied to the payment of the interest and principal of the bonds.
On the 12th of March, 1872, a second mortgage was executed to the same trustees to secure a further issue of bonds to the amount of $1,500,000.
"NEW YORK, Feb 1, 1873"
"Sold this day for account of Mr. Michael Schall, of York, Penn.,"
"To the Chicago, Danville, and Vincennes Railroad Co."
"Office 38 Pine Street, New York:"
"Two hundred (200) eight-wheel gondola coal cars, as per specifications and agreement made by J. E. Young, and herewith attached."
"Price, delivered on the track at Pittsburg, at depot of P. C. & St. L. R. R., seven hundred dollars per car. Cars to remain the property of Michael Schall until paid for."
"Delivery to commence, and cars to be taken, on or before March 1, and at least twenty-five (25) cars in each week thereafter until all are delivered, the seller having the option of increasing the number of cars to be delivered per week, if desired."
New York, and adding interest at the rate of ten percent per annum. The first notes are to be drawn at sixty days from date of delivery, and for twenty (20) dollars on each car, and the balance for a like amount and payable monthly thereafter."
"Cars to be lettered and numbered as per directions of Mr. Young."
"Invoice and shipping receipts to be sent to the railroad company's office, No 38 Pine Street, New York."
"It is understood the sellers shall not be responsible for the acts of providence, strikes of workmen, or other causes beyond their control, which may retard and delay the manufacturing and delivery of the said cars as above stated."
"Shipping receipts to be evidence of delivery."
"I hereby accept the above proposition for the R. R. Co."
"(Signed) J. E. YOUNG, Gen. Manager"
Under this contract, two hundred and twenty-five cars were delivered into the possession of the railroad company by Schall, numbered from 0141 to 0365, both inclusive, and lettered, "This car is the property of Michael Schall, York, Pa." Notes were executed by the company, according to agreement, for the price of the cars as they were delivered. Of these notes, $44,323.43 have been paid by the company and $110,334.04 are outstanding. The cars were used by the company in the usual course of business.
2. "All debts now [then] due and owing by said railroad company for labor and services rendered in operating the railroad within the [then] last three months, and all indebtedness for engines, iron, wood, supplies, cars, or other property purchased within said period of three months for the use of the company;"
4. Liabilities for animals killed by engines or cars upon the line of the road.
On the 5th of May, 1875, the cause was removed to the Circuit Court of the United States for the Northern District of Illinois on the application of Fosdick and Fish, trustees, two of the defendants, and on the 17th of the same month the receivers appointed by the state court filed in the circuit court an account of their receivership for the months of February, March, and April.
indebtedness for labor and supplies, and report the same as soon as might be, with his recommendation as to the proper disposition of the same and payment thereof. Under this order, Anderson took possession of the property, and on the 11th of June, the receivers appointed by the state court filed their final accounts and asked to be discharged from their trust.
The cars delivered under the Schall contract were in use by the company when the receivers appointed by the state court took possession. Those receivers also continued to use the cars during all the time they operated the road, and Anderson took the possession of them when he entered upon his receivership. On the 27th of November, 1875, Anderson having ascertained what the claim of Schall was, and finding that they were necessary for the use of the road, entered into an arrangement with him, subject to the approval of the court, by which they were valued at $420 each, and it was agreed that Schall should be paid seven dollars a month for each car as rent. The aggregate of payments at this rate for five years would equal the value of the cars, and it was further agreed that if the rent was paid promptly, and in addition an amount which would be equal to interest at the rate of seven percent per annum on the deferred installments, the cars should, at the end of that time, become the property of the company.
On the 19th of July, 1875, the circuit court denied a motion of Osgood to consolidate his suit removed from the state court with that of Fosdick and Fish, but made an order allowing him and his associates to intervene in the latter suit for the protection of their respective interests, upon taking the necessary steps therefor. Accordingly, on the 6th of January, 1876, Stephen Osgood, Frederick W. Huidekoper, Thomas W. Shannon, John M. Dennison, George W. Gill, Alanson A. Sumner, Chandler Robbins, and William T. Hickok, owners and holders of a large amount of bonds secured by the several mortgages which were in the process of foreclosure, filed, with the permission of the court, their petition of intervention.
during all the time the cars had been in use by the present receiver, he asked that the balance, his due, might be paid him out of any funds to the credit of the cause not otherwise appropriated, and that the cars might be returned to him.
Fosdick and Fish and the intervening bondholders answered this petition, claiming that the title of the cars had passed to the company under its contract with Schall, and that consequently the lien of the mortgages had attached to the cars as after-acquired property. They denied his right to payment for the cars out of the income of the road or out of the proceeds of the sale, and they denied his right to a return of the cars.
On the 5th of December, 1876, the court entered a decree in the suit of Fosdick and Fish for a sale of the mortgaged property, not, however, including the cars of Schall, and on the 7th of February, 1877, the property was sold in accordance with the provisions of the decree to Huidekoper, Shannon, and Dennison for $1,450,000. On the 12th of April, the sale was approved by the court, and the master ordered to convey the property to the purchasers.
On the 28th of April, 1877, the master, to whom the matter of the intervening petition of Schall had been referred, reported the facts as they have already been stated and also that the cars were necessary for the use of the road, and that the arrangement which had been made by the receiver was a beneficial one, whether the road remained in the hands of the receiver or passed into the possession of other parties.
the time the cars were used by the receivers of the state court. It nowhere appears from the record that there are any funds in court to the credit of the cause except such as arose from the sale of the mortgaged property.
From this decree Fosdick and Fish and the intervening bondholders have appealed.
on their delivery to the company under his contract, so as to prevent their reclamation as against the mortgagees if the price was not paid according to agreement?
2. Was the order for the payment out of the fund in court of the rent of the cars, during the time they were used by the receivers appointed by the state court and for six months before, justifiable under the circumstances of this case?
As to the first question, it is contended that the mortgage created a subsisting and paramount lien on the cars as soon as they were put into the possession of the railroad company under the contract, and that the reservation of the title was void under the laws of Illinois, because the contract was not recorded.
"where personal property is seized and sold under an attachment or other writ issuing from a court of the state where the property is, the question of the liability of the property to be sold under the writ must be determined by the law of that state, notwithstanding the domicile of all the claimants to the property may be in another state."
Hervey v. Rhode Island Locomotive Works, supra, was also a case of seizure and sale under judicial process, and the language of the Court, as expressed in its opinion delivered by Mr. Justice Davis, is to be construed in connection with that fact.
vendor, in case the purchaser shall fail in payment of his installments -- a contract legal and valid as between the parties, but made with the risk, on the part of the vendor, of his losing his lien"
if it works a legal wrong to third parties. Murch v. Wright, 46 Ill. 488. The question, then, is whether these mortgagees occupy the position of third parties within the meaning of that term as used in this statute.
They are in no sense purchasers of the cars. The mortgage attaches to the cars, if it attaches at all, because they are "after-acquired" property of the company; but as to that class of property, it is well settled that the lien attaches subject to all the conditions with which it is encumbered when it comes into the hands of the mortgagor. The mortgagees take just such an interest in the property as the mortgagor acquired -- no more, no less. These cars were "loose property susceptible of separate ownership and separate liens," and "such liens, if binding on the railroad company itself, are unaffected by a prior general mortgage given by the company and paramount thereto." United States v. New Orleans Railroad, 12 Wall. 362. The title of the mortgagees in this case therefore is subject to all the rights of Schall under his contract.
The possession taken by the receiver is only that of the court whose officer he is, and adds nothing to the previously existing title of the mortgagees. He holds, pending the litigation, for the benefit of whomsoever in the end it shall be found to concern, and in the meantime the court proceeds to determine the rights of the parties upon the same principles it would if no change of possession had taken place.
It follows that the decree ordering a return of the cars to Schall was right. Whether, if the property is worth more than is due upon the contract of purchase, the mortgagees can obtain the benefit of the overplus is a question we are not called upon to consider.
receivership of outstanding debts for labor, supplies, equipment, or permanent improvement of the mortgaged property as may, under the circumstances of the particular case, appear to be reasonable. Railroad mortgages and the rights of railroad mortgagees are comparatively new in the history of judicial proceedings. They are peculiar in their character and affect peculiar interests. The amounts involved are generally large, and the rights of the parties oftentimes complicated and conflicting. It rarely happens that a foreclosure is carried through to the end without some concessions by some parties from their strict legal rights, in order to secure advantages that could not otherwise be attained, and which it is supposed will operate for the general good of all who are interested. This results almost as a matter of necessity from the peculiar circumstances which surround such litigation.
to the current debt shall be paid by the court from the future current receipts before any thing derived from that source goes to the mortgagees. In this way, the court will only do what, if a receiver should not be appointed, the company ought itself to do. For even though the mortgage may in terms give a lien upon the profits and income, until possession of the mortgaged premises is actually taken or something equivalent done, the whole earnings belong to the company and are subject to its control. Galveston Railroad v. Cowdrey, 11 Wall. 459; Gilman v. Illinois & Mississippi Telegraph Co., 91 U. S. 603; American Bridge Co. v. Heidelbach, 94 U. S. 798.
The mortgagee has his strict rights which he may enforce in the ordinary way. If he asks no favors, he need grant none. But if he calls upon a court of chancery to put forth its extraordinary powers and grant him purely equitable relief, he may with propriety be required to submit to the operation of a rule which always applies in such cases, and do equity in order to get equity. The appointment of a receiver is not a matter of strict right. Such an application always calls for the exercise of judicial discretion, and the chancellor should so mould his order that, while favoring one, injustice is not done to another. If this cannot be accomplished, the application should ordinarily be denied.
of well settled rules of equity jurisprudence to the facts of the case, as established by the evidence.
In this case, no special conditions were attached to the order appointing a receiver in the circuit court of the United States, and it is not contended that the intervener has brought himself within the rule fixed by the state court in respect to the payment of general creditors. He asks to be paid a rent for his cars, but he entered into no express contract with the company which requires such a payment, and there is nowhere to be found any proof of an implied obligation to make such compensation. Two years and more before the appointment of a receiver by the state court, he contracted to sell his cars to the company at an agreed price, payable in installments, secured by what was in legal effect a paramount lien upon the cars. Payments were made according to the contract until October, 1874, when they stopped. The cars remained in use after that not under a new contract of lease, but under the old contract of sale. The price agreed upon not having been paid in full, the power of reclamation, which was reserved, has been exercised and sustained. The cars were not included in what was sold at the foreclosure sale, and consequently have contributed nothing directly to the fund now in court for distribution. So far as appears, no moneys growing out of the receivership remain to be applied on the bonded debt, and if there did, through the rent already paid by receiver Anderson, full compensation has been made for all additions to that fund by means of the use of the cars. There is nothing to show that the current income of the receivership or of the company has been in any manner employed so as to deprive this creditor of any of his equitable rights. In short, as the case stands, no equitable claim whatever has been established upon the fund in court. Prima facie that fund belongs to the mortgage creditors, and the presumption which thus arises has not been overcome. Schall, for the balance, his due, after his own security has been exhausted, occupied the position of a general creditor only.

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