Court Opinion

ID: 6648711
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:52:12.300277+00
Date Added: 2024-06-11T15:59:33.753985
License: Public Domain

Post, J.,
dissenting.
I am unable to concur in the conclusions of the majority of the court in this case. In my judgment the law is correctly stated in the following opinion submitted by Commissioner Irvine, in which Commissioner Ryan concurs:
Irvine, C.
With most of the conclusions stated in the opinion of the-court the writer concurs. He has been unable, however, to-reach the same conclusion as to the priority between the mortgage and construction liens. In his view this question must be determined upon principles somewhat different, from those upon which the majority opinion is based, and in - order that the writer’s views may be properly understood it will be necessary to discuss not only the grounds upon which the majority opinion is based, but also other questions arising in argument.
In the first place it is to be observed that our statutes, expressly permit railroad companies to mortgage their-property and franchises for the purpose of securing money borrowed by them for the construction and equipment of their roads. (Comp. Stats., ch. 16, sec. 117.) And it is also, provided that such mortgages may by their terms include and cover not only the property of the companies making them at the time of their date, but property, both real and personal, which may thereafter be acquired by them. (Comp. Stats., ch. 16, sec. 119.)
*643In the next place the legislature has provided for liens upon railroads to secure laborers and material-men for labor performed and material furnished for the construction, repair, or equipment of such railroads. This lien is created by an act somewhat similar to the general mechanic’s lien law, but passed at a different time, and as a distinct act, and differing in many of its particulars from the general law creating mechanics’ liens. These liens are wholly the creatures of statute, and depend upon the statute for their existence, extent, and construction. While the statute does not in express terms fix the time when such liens shall be deemed to accrue, the law is so far analogous to the general mechanics’ lien law that it is almost a necessary conclusion that the construction placed upon that law should apply to this, to-wit, that the lien attaches from the time labor is begun, or the first material furnished; but as between two or more lienors upon the same improvement there is no priority, unless it be where intervening rights of third persons require a different rule.
A further general observation may be made. A railroad is an entity. Its whole line, including right of way, roadbed, stations, shops, equipment, and all property necessary for the effective operation of the road, in its entirety, constitutes a single property, which cannot, in the absence of statute or of peculiar equities of a very controlling character, be dismembered by selling different portions separately. This general doctrine or policy is too well settled by the uniform current of authorities to permit any extended discussion. The mortgage here in question and the liens must be treated as co-extensive in regard to the property upon which they operate, unless a separation of this property is practicable and required by the equities of the case. Applying the ordinary rule governing the priorities of such incumbrances, the lien of the mortgage would take effect upon the date of its record, July 13, 1889, while the construction liens would not attach until August *64420. It is claimed, however, that under the facts of this case the mortgage should be subordinated to the construction liens. The principal ground upon which this contention is based is that a mortgage upon after-acquired property attaches to such property only to the extent of the mortgagor’s interest therein, and subject to any liens existing thereon at the time of its acquisition by the mortgagor. This principle is equitable, and is established by the authorities, but is subject to a broader law, that existing liens cannot be displaced in its application. The cases upon this subject appear at first inspection tobe somewhat in conflict, but a close inspection of the leading cases establishes a real harmony in the decisions.
In Galveston R. Co. v. Cowdrey, 11 Wall. [U. S.], 459, there were several mortgages upon the same railroad, the last in point of time being given to secure a debt for rails used in the construction of the road. It was there held that this .mortgage was junior to those which had priority of time. It was held that the junior mortgagee occupied the position of an assignee of the mortgagor, and that by allowing his property to go into the road he had consented that the senior mortgages should attach, to his exclusion. The impracticability of dismembering the railroad and selling its different parts was also emphasized, and so was the fact that the property acquired through purchase from the junior mortgagee had become a part of the real estate and subject to all existing liens thereon.
In United States v. New Orleans R. Co., 12 Wall. [U. S.], 362, the railroad company had purchased certain rolling stock, the vendor in the contract of purchase retaining a lien thereon for the purchase money. It was there held that a blanket mortgage, in existence at the time the rolling stock was purchased, attached to the rolling stock in the condition in which it came into the mortgagor’s hands, and only to such interest as the mortgagor acquired, and that, therefore, the lien of the vendor of the *645rolling stock was superior to the lien of the mortgage upon the rolling stock alone. This seems to be the case where the doctrine contended for by the appellees was first applied, and in this case the court said : “ Had the property sold by ■the government to the railroad company been rails as in the case of Galveston R. Co. v. Cowdrey, or any other material which became affixed to and a part of the principal thing,the result would have been different; but being loose property, susceptible of separate ownership and separate liens, such liens, if binding upon the railroad company itself, are unaffected by a prior general mortgage by the company ánd paramount thereto.” In Fosdick v. Schall, 99 U. S., 235, and in Fosdick v. Car Co., 99 U. S., 256, the doctrine of United States v. New Orleans R. Co. was reaffirmed in regard to rolling stock sold to the ■ mortgagor under a contract of conditional sale, and in Fosdick v. Schall a portion of the language just quoted from the New Orleans case was repeated.
The case of Brooks v. Burlington & S. W. R. Co., 101 U. S., 443, was decided upon the statutes of Iowa, which in terms allow to mechanics a lien upon the building, erection, or improvement prior to that of a pre-existing mortgage upon the land. Our statutes are not in this respect similar to those of Iowa. The distinction will be hereafter referred to.
Myer v. Car Co., 102 U. S., 1, was another case of a conditional sale of cars, and reaffirmed Fosdick v. Schall.
In Thompson v. White Water Valley R. Co., 132 U. S., 68, a mortgage covering after-acquired property was held superior to the liens of persons furnishing money for the construction of a portion of the road upon the profits of that portion, the portion constructed being within the original charter of the railroad.
Williamson v. New Jersey S. R. Co., 28 N. J. Eq., 277, and the same case on appeal, 29 N. J. Eq., 311, is much relied upon by appellees. In that ease certain *646docks were constructed for the Long Branch & Seashore Railroad Company, and the lien claim was filed against the New Jersey Southern company as builder, and the Seashore road as owner. The Southern company seems to have owned a controlling interest in the stock of the Seashore company, but there had been no consolidation of the roads, nor any formal purchase or conveyance. The lien for the construction of the docks was held to be superior to a blanket mortgage given by the New Jersey Southern company, and this priority was established upon the ground that the mortgage of the Southern company attached to the whole of the property of the Seashore company, subject to existing liens. It is plainly intimated that had the work been done for the Southern company upon land then owned by it, the decision would have been different.
In Botsford v. New Haven, M. & W. R. Co., 41 Conn., 454, the lien was for the construction of a depot upon land whose owner agreed to give it to the company, provided that it would build a depot thereon. No conveyance was in fact made, and the lien for construction was held superior to a blanket mortgage upon the railroad, because the legal title had never vested in the railroad and the equitable title did not vest in it until the depot was completed and after the lien attached.
In Farmers Loan & Trust Co. v. Canada & St. L. R. Co., 127 Ind., 250, the court expresses a grave doubt as to whether under the law of Indiana a mortgage can be made to attach to after-acquired property in any event, and the authority of the case upon this question is weakened by the existence of that doubt. Moreover, the court disclaims any attempt to lay down a general rule, but holds that under the special facts of that case the construction lien was superior to the mortgage, and the court was undoubtedly right in its conclusion. The bonds, to secure which the mortgage was given, were issued to a construction company, and the court held that this construction company *647could not set up the bonds, given to it under these circumstances, as superior to the liens of material-men for debts which the construction company itself owed them. It appeared that the construction company had hypothecated a portion of the bonds, but when, where, and to whom these bonds had been pledged did not appear, and the court could not in that litigation consider the rights of the pledgees.
Perhaps the best elucidation of the whole question is found in the case of Toledo, D. & B. R. Co. v. Hamilton, 134 U. S., 296, where Mr. Justice Brewer reviews the authorities and holds that a blanket mortgage creates a lien whose priority cannot be displaced by a contract between the company and a third party for the erection of buildings or other works of original construction. In this case the lien was for the construction of a dock upon land of which the mortgagor was the equitable owner, and the case was distinguished from the ease of Botsford v. Railroad Co. upon that ground.
In the Farmers Loan & Trust Co. v. Kansas City, W. & N. R. Co., 53 Fed. Rep., 182, Judge Caldwell in an exceedingly lucid, vigorous, and learned opinion discusses the relative equities of such mortgages and liens, but (so far as the case is analogous to this) upon the basis of what the law ought to be rather than . what it has heretofore been declared to be, and gives priority to certain liens as against a mortgagee of the railroad because of conditions imposed upon the mortgagee in the appointment of a receiver at its instance, the conditions receiving the assent of the mortgagee. While we are not disposed to question the correctness of the abstract opinions expressed by Judge Caldwell, nor of his determination of the law as applied to that case, his conclusions are not applicable to this case, where the mortgagee stands upon its vested rights and has not consented to any displacement of its lien nor asked the court for any relief authorizing the court to impose upon it similar conditions.
*648Other cases might be cited, but the general principles applicable are well illustrated by those referred to, and we do not think that any well considered case can be found in opposition to these principles, which may be briefly stated as follows:
A mortgage covering after-acquired property attaches to such property as it is acquired by the mortgagor. Where such property remains separable and susceptible of separate ownership, the mortgage only attaches to the interest of the mortgagor therein, and does not displace existing liens thereon. Where, however, the after-acquired property becomes inseparably a portion of the real estate to which the mortgage has attached, the mortgage extends to such property, as in the familiar case of a house erected upon a lot burdened by a mortgage. In that case, no one would now have the hardihood, under our statute, to claim that liens for the construction of the house should displace the mortgage, in the absence of special circumstances operating by way of estoppel.
In this case substantially the whole of the right of way had been acquired by the Beatrice' road before any work was done by the Kilpatricks, or. any ties furnished by the Fort Scott road. The statute gives power to railroad companies to mortgage the whole or any part of their property and franchises, and such mortgage is made binding upon the lands, roads, or other property of the railroad company mentioned in such mortgage. (Comp. Stats., ch. 16/secs. 117. and 118.) This mortgage expressly described the right of way as a part of the property mortgaged. This right of way was real estate to which the mortgage attached the instant it was acquired by the Beatrice road. The work performed and the materials furnished by the.lienors were distinctly improvements upon the real estate and inseparable therefrom; in the language of the supreme court of the United States, “not susceptible of separate ownership or separate liens.” To give the lienors priority would *649compel us to displace the priority of a mortgage existing upon the real property at the time the liens accrued. This is something which we do not think any court has the right to do.
But the appellees contend that, notwithstanding the principles just stated, they cannot be urged in support of this mortgage, because the bonds, to secure which the mortgage was given, were not in the hands of bona fide holders for value. We can see no force in this contention. In one sense it might be said that the Investment Company does not occupy the position of a bona fide holder; that is, it took the bonds with full knowledge of the facts. It knew that the railroad had not been constructed; it was bound to know that under the law persons furnishing material or performing labor in the construction of the road might become entitled to liens thereon; and if the rights of the bond holders depended upon their ignorance, at the time of receiving the bonds, of outstanding equities in favor of third persons, they certainly could not be considered bona fide holders without notice. But their rights do not depend upon their establishment of such ignorance. The Investment Company is a holder for value. It has advanced the whole loan of two hundred and sixty thousand dollars, and we take it that no one will question the doctrine that a pledgee of such securities is a holder for value to the extent of the indebtedness for which they stand pledged. .The case of Farmers Loan & Trust Co. v. Canada & St. L. R. Co., 127 Ind., 250, is not opposed to this view. The' pledgees in that case were.not protected, because, in the language of the court, there was no evidence as to “when, where, or to whom these bonds had been pledged.” The Investment Company advancing its money in good faith and promptly recording its mortgage had a right to rely upon its priority in time, and the lienors, by the record of that mortgage, were notified of the existence of its lien, and entered into their contracts and into their *650performance with such notice. Many of the cases in the supreme court of the United States heretofore cited support this view. (See, too, on this point Henry & Coatsworth Co. v. Fisherdick, 37 Neb., 207.)
It is argued at great length that the peculiar provisions of section 3 of the act providing for construction liens on railroads, Comp. Stats., ch. 54, art. 2, subject the mortgage to the liens. This section requires for the perfecting of the lien the filing with the proper county clerk of a statement of account setting forth the time when the material was furnished or labor performed, and containing a correct description of the property to be charged with the lien, and verified by affidavit. It is further provided that this statement must be filed by a principal contractor within ninety days from the date on which the last matex’ial shall have been furnished, or the last of the labor performed, and continues as follows: “ But a failure or omission to file the same within the periods last aforesaid shall not defeat the lien except against purchasers or incumbrancers in good faith without notice, whose rights accrued after the thirty or ninety days, as the case may be, and before any claim for the lien was filed.” The construction that the appellees place upon this language is that the only liens which can under any circumstances be superior to the construction liens are those which accrue during such default in the filing of claims, and without notice of the claims. It is quite clear that this construction is not cori’ect. The object of the section referred to is principally to jxrovide for the perfecting of the lien by filing a verified claim, and the proviso is inserted with reference to this objection alone. Prior incumbrancers cannot be aifected by the lien at all, much less by a failure to perfect it within time; but for the protection of bona fide, creditors, whose claims accrue after a default in filing the claim, this proviso is inserted, defeating the lien so in default where necessary to protect such creditors. The language has no reference to incum*651brances prior in time to such liens. To give the section the ■construction contended for would be to nullify the whole policy of our statutes in regard to recording and the priority of incumbrances, and would conflict with the spirit at least of section 120 of chapter 16, Compiled Statutes, providing that the recording of a railroad mortgage shall be notice to all the world of the rights of all parties under the same.
This point has been much discussed on behalf of some of the appellees and also by counsel interested in a similar question, who, by leave of the court, have filed a brief., Attention is called by all of counsel who argue this question to the similarity existing between the Iowa statutes and our own, but the arguments made differ widely. In one brief it is argued that the similarity of the statutes makes the Iowa decisions closely in point, if not controlling, and that the Iowa decisions favor the priority of the construction liens. But counsel in another brief argue the question upon general principles as to the construction of statutes, reach the same conclusion, but contend that the differences in the statutes render the Iowa decisions inapplicable. The similarities which exist warrant the inference that our law was largely taken from that of Iowa, and were the statutes in all points essentially similar we should feel bound to give our law the construction placed upon the Iowa law by the courts of that state before ours. was adopted; but the statutes differ in at least one very important feature, and the decisions do not support the contention of the appellees.
Section 3 of our law, relating to the filing of a claim of lien and the effect of the failure to file the same within the time provided, is similar to section 6 of the Iowa law. Section 9 of the Iowa law, however, contains provisions establishing the position of liens in respect to other incumbrances. One of these provisions is the following: “ The liens for the things aforesaid or the work, including *652those for additions, repairs, and betterments, shall attach to the buildings, erections, or improvements for which they were furnished or done in preference to any prior lien or incumbrance or mortgage upon the land upon which said erection, building, or improvement belongs is erected or put.” There is no such provision in our statute. It was because of that provision or a similar.one, of which that is amendatory, that the supreme court of the United States in Brooks v. Railroad Co., supra, held the construction liens paramount to the mortgage. In all the Iowa cases where such liens have been held prior to existing mortgages the decision has been based upon section 9. In all the cases wherein section 6 has been construed the question was not between construction liens and prior mortgages, but between construction liens and subsequent mortgages; and-the course of decisions has been exactly in accordance with the construction which we have above placed upon section 3 of our law. The case of the National Number Co. v. Bowman, 42 N. W. Rep. [Ia.], 557, clearly states the com-> bined effect of these two sections, and shows that in the absence of section 9 the superiority of a mortgage prior in-time to the construction liens could not be denied.
It is also urged that the bonds are void, or at least nonnegotiable, as. not conforming with that portion of section-' 117, chapter 16, Compiled Statutes, which authorizes railroad.companies to “ issue their corporate bonds, * * * secured by said mortgages or deeds of trust, * * * convertible into stock or not, as shall be' plainly expressed on the face of each and every bond so issued by said company.” These bonds are on their face an absolute obligation for the payment of money. Their language in this respect is as follows: “Promises to pay in gold coin of the United States of America of the present standard, weight, and fineness, or at the option of the holder, in sterling money at the fixed- rate of 49|-' pence per dollar.” The objection made-is that this bond fails to express on its face whether or not *653it is convertible into stock.' We construe the statute as requiring that if the bonds be convertible into stock, such fact shall be plainly expressed on their face. A more distinct and absolute obligation to pay money alone could not be expressed than is expressed on the face of the bonds in question.
Another contention is that the mortgage is in excess of the power conferred upon the corporation, in that the authority to execute mortgages is confined to roads which already have some portion of their line constructed. This contention is based upon the clause in section 120, already referred to, requiring such mortgages to be recorded in each organized county “through which said road mortgaged or deeded may run in this state.” The construction given to this language is too narrow. The word “run” in the statute is an unfortunately inexact term, but its meaning is reasonably clear, and the language taken in connection with the rest of the statute requires that it should be given a future as well as a present construction. In other words, that the word “may” should be construed in the sense of “shall hereafter.” No other construction is reasonable.
A further argument urged to sustain the position that the bonds are void is based upon the allegation that their amount is in excess of the maximum indebtedness permitted by law. It is claimed in argument that no lawful stock was issued by the Beatrice Company, or if any was issued, that its amount was not sufficient to sustain the indebtedness created, or attempted to be created, by the bonds. Whether or not evidences of indebtedness of a corporation beyond the limit permitted by law are absolutely void, as the appellees contend, need not here be determined. We cannot see how the appellees could avail themselves of such defense. The bonds were all issued before the contracts were made with the appellee, and if the issue of bonds was beyond the power of the corporation in the incurring of indebtedness, a fortiori, the indebtedness to the lienors *654was ultra vires. The lienors and bondholders would stand in precisely the same position, and it does not lie in their mouths to raise the objection. (Porter v. Pittsburg Bessemer Steel Co., 120 U. S., 649.) Furthermore, the proof does not sustain the appellees’ contention. Section 5 of article 11 of the constitution prohibits railroad corporations from issuing any stock or bonds except for money, labor, or property actually received and applied to the purposes for which such corporation was created. The articles of incorporation of the Beatrice road fix the capital stock at one million dollars. The only evidence in the record as to the issuance of stock is found in the contract of lease between the Beatrice road and the Wyandotte road, and in letters passing between officers of the Investment Company and officers-of the Beatrice and Wyandotte roads. These letters, except in so far as they amount to admissions binding upon the corporation by whose authority they were written, do not constitute competent evidence upon the subject. The inference from the documents, however, is that the Beatrice road has issued seven hundred and fifty thousand dollars of stock; sufficient, if properly issued, to carry the bonds. It does not appear that any of this issue was-illegal, unless it be certain stock issued to the Wyandotte Company in consideration of the covenants in the contract between the Beatrice and Wyandotte companies. Among-these covenants was that of guarantying the bonds, and also of paying certain rentals, and performing many other duties in connection with the lease. It is not questioned by counsel that between companies occupying such relations one may hold the stock of the other, and in the absence of evidence, at least, as to the value of the covenants obtained from the Wyandotte road, it cannot be said that this stock was not issued for money, labor, or property actually received.
The majority opinion is largely based upon the conclusion that the Investment Company made itself a promoter- *655or principal in the construction of the road. This conclusion is reached upon the doctrine first established in this state in the case of Bohn Mfg. Co. v. Kountze, 30 Neb., 719. The principle decided in that case has recently been much discussed in the cases of Pickens v. Plattsmouth Investment Company, 37 Neb., 272; Holmes v. Hutchins, 38 Neb., 601, and Sheehy v. Fulton, 38 Neb., 691. It is not necessary to repeat that discussion. We do not think the facts of this case warrant the court in applying that doctrine. Wherever it has been applied it has been for the purpose of charging the estate of the owner in fee on account of improvements made by his executory vendee. The court has in all cases for its application required the proof of facts sufficient to create the vendee the agent of the vendor expressly or by implication. Its application to this case requires a far-reaching extension of the principle. The Investment Company had no estate in the railroad company; it was not even a stockholder in the corporation; and we do not think it can be deemed an “ owner ” within the meaning of the mechanic’s lien law. It is true that the Investment Company in making the loan insisted upon the method to be adopted for the construction of the road, and had extended negotiations with its promoters in regard to the organization of the company and the form of the loan and its security. We cannot see in these acts anything more than precautionary measures to secure the loan about to be made, and we believe that if the opinion of the majority be adhered to in future cases and carried to its logical conclusion, every one-who lends money .to another with the knowledge, or at least with the intention, that the borrower shall use the money to erect improvements upon land pledged to secure the debt, must be held to have rendered his security subject to any mechanics’ liens arising out of the construction. This result would be contrary to the reason of past adjudications and we think unwarranted in principle.