United States v. New Orleans Railroad - 79 U.S. 362 (1870)
U.S. Supreme Court
United States v. New Orleans Railroad, 79 U.S. 12 Wall. 362 362 (1870)
United States v. New Orleans Railroad
79 U.S. (12 Wall.) 362
1. A mortgage by a railroad company covering all future acquired property attaches only to such interest therein as the company acquires, subject to any liens under which it comes into the company's possession.
2. If the company purchase property subject to a lien for the purchase money, such lien is not displaced by the general mortgage.
3. If the company give a mortgage for the purchase money at the time of the purchase, such mortgage, whether registered or not, has precedence of the general mortgage.
4. This rule fails, however, when the property purchased is annexed to a subject already covered by the general mortgage and becomes a part thereof, as when iron rails are laid down and become a part of the railroad.
This was a suit instituted by the United States, as the holder of a number of the first and second mortgage bonds of the New Orleans & Ohio Railroad Company, against that company and one Trimble, trustee of them, to foreclose the mortgages given to secure the said bonds. These mortgages were executed in 1858 and 1860, respectively, and covered all the company's property of every kind, with a stipulation to include also all future acquired property. The trustee of the mortgages and several individual bondholders were made parties, and the bill contained proper allegations as to the impracticability of making all of them parties. After a final decree of foreclosure and sale, and whilst the execution was in the hands of the marshal, it transpired that a portion of the rolling stock, consisting of two locomotives and ten cars, had been sold to the railroad
company by the United States in 1866, and that, simultaneously with the sale, the company gave to the United States a bond for the purchase money, wherein it was stipulated that the latter should have a lien therefor upon the property sold, and that the company should not sell it or part with it until payment of the price, without the written consent of the United States. Hereupon the respective solicitors of all the parties, complainant and defendant, directed the marshal in writing not to sell the said locomotives and cars. The rest of the property was sold, but brought less than the amount of the mortgage bonds.
The parties then, by their respective solicitors, filed a written statement of the facts in relation to said locomotives and cars, adding to what is above stated the further fact that the bond given for the purchase money thereof was not recorded, and that its contents were unknown to all the bondholders of the railroad company except Mr. Trimble, the trustee of the mortgages. Upon this statement the question whether the United States had a superior equity in this property to that of the bondholders under the mortgages was submitted to the court for its decision, and the court decided that they had a superior equity, and made a decree to that effect. This was the decree appealed from.