When a railroad company is incorporated to construct a railroad
between two cities named as its termini, a mortgage given by it
which, as expressed, is upon its line of railroad constructed or to
be constructed between the named termini, together with all the
stations, depot grounds, engine houses, machine shops, buildings,
erections in any way now or hereafter appertaining unto said
described line of railroad, creates a lien upon its terminal
facilities in those cities, and is not limited to so much of the
road as is found between the city limits of those places.
When a railroad mortgage contains the "after-acquired property"
clause, the mortgage is made thereby to cover not only property
then owned by
Page 138 U. S. 415
the company and described in it, but also property coming within
the words of description and subsequently acquired, whether by a
legal title or by a full equitable title, and there are no equities
here to set aside that rule.
The case, as stated by the Court, was as follows:
On the 17th of January, 1880, the Toledo, Delphos and Burlington
Railroad Company, a corporation organized by the consolidation of
several constituent companies, executed a mortgage to the Central
Trust Company of New York by which it conveyed the following
property:
"All and singular the line of railroad of the said party of the
first part, as the same now is or may hereafter be constructed
between Toledo, Lucas County, Ohio, through the Counties of Lucas,
Wood, Henry, Putnam, Allen and Van Wert, in the State of Ohio and
the Counties of Adams, Wells, Huntington, Wabash, Miami, Grant and
Howard, in the State of Indiana, and not including the branch line
from Delphos, Allen County, Ohio; thence via Spencerville, Mendon
and Mercer, and through the counties of Allen Van Wert and Mercer,
to Shanesville, Mercer County, Ohio, being about one hundred and
eighty miles in length, together with all and singular the rights
of way, roadbed made or to be made, its track, laid or to be laid,
between the terminal points aforesaid, together with all the
stations, depot grounds, rails, fences, bridges, sidings, engine
houses, machine shops, buildings, erections in any way now or
hereafter appertaining unto said described line of railroad,
together with all the engines, cars, machinery, supplies, tools and
fixtures now and at any time hereafter held, owned or acquired by
the said party of the first part for use in connection with its
line of railroad aforesaid, and all its depot grounds, yards,
sidings, turnouts, sheds, machine shops, leasehold rights and other
terminal facilities now or hereafter owned by the said party of the
first part, together with all and singular the powers and
franchises thereto belonging, and the tolls, income and revenue to
be levied and derived therefrom,"
and also provided:
"The said party of the first part expressly covenants and agrees
that it will, on demand, from
Page 138 U. S. 416
time to time hereafter, execute, acknowledge and deliver unto
said party of the second part any and all such further and other
conveyances and assignments as may be necessary and proper to fully
convey to and vest in the party of the second part, or the trustee
for the time being, all such future acquired depots, grounds,
estates, equipments and property as it may hereafter from time to
time purchase for use in and upon its said line of railroad and
intended to be hereby conveyed."
On June 21, 1880, the same railroad company executed to the same
trustee another mortgage, known as the "terminal trust mortgage."
The property thereby conveyed is thus described:
"All and singular the line of railroad of the said party of the
first part as the same now is or may hereafter be constructed
between the southeasterly end of Washington Street, in the City of
Toledo, Lucas County, Ohio; thence northwesterly along Washington
Street to the aforesaid canal lands in said city; thence
southwesterly along said abandoned canal lands to Swan Creek in
said city; thence over said Swan Creek and the Miami and Erie Canal
and over and along Mill Street and Canal Avenue, in said city, to
the westerly limit thereof, and thence to the point where said
railroad crosses the westerly limit of said City of Toledo,
together with all and singular the franchises, rights of way,
station grounds, shop grounds, side track grounds, and grounds of
any and every kind, for whatever purpose bought, between the points
aforesaid,
viz., the southeasterly end of Washington
Street, in the City of Toledo, Ohio, and the westerly limits of
said city, and together with the roadbed made or to be made, and
tracks and side tracks laid and to be laid thereon, together with
all stations, workhouses, engine houses, shops, turntables, water
tanks, buildings, erections of every description and all facilities
of any and every description appertaining to said roadbed, station
grounds, shop grounds and lands of every kind and for every purpose
lying between the points aforesaid owned or acquired by the said
party of the first part for the use in connection with the part of
its line of railroad aforesaid, and all its said depot grounds,
yards, sidings, turnouts, sheds, machine shops, leasehold rights
and other terminal facilities now and
Page 138 U. S. 417
hereinafter owned by the said party of the first part in
connection with the said part of its railroad, together with all
and singular the powers and franchises thereto belonging, and the
tolls, income and revenue to be levied or derived therefrom."
On foreclosure proceedings duly had of the first mortgage,
appellee became, in the interest of the bondholders, the purchaser.
After confirmation of sale and passage of title, and during the
pendency of a suit to foreclose the second mortgage referred to,
this proceeding was commenced by the trustee in the latter mortgage
and certain holders of bonds secured thereby, against Kneeland, the
purchaser. The bill was practically one to quiet the title of those
security holders to the terminals in Toledo. To this bill Kneeland
filed an answer and cross-bill. In the latter, he set up his title
under the first mortgage and the sale, and prayed to have his title
quieted to these terminals. Upon proofs and hearing, the Circuit
Court rendered a decree in favor of Kneeland quieting his title to
all except a small strip of the right of way, thereby adjudging
priority of lien to the first mortgage. This decree the appellants
brought to this Court for review.
Page 138 U. S. 419
MR. JUSTICE BREWER, after stating the facts as above, delivered
the opinion of the Court.
The first mortgage had the "after-acquired property" clause in
it. It is settled that such a clause is valid, and that thereby the
mortgage covers not only 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.
Pennock v.
Coe, 23 How. 117;
Dunham v.
Cincinnati, Peru &c. Railway, 1 Wall. 254;
Galveston Railroad v.
Cowdrey, 11 Wall. 459;
Thompson v. Valley
Railroad Company, 132 U. S. 68. And
this is true not only as to property to which it acquires the legal
title, but also as to that to which it acquires only a full
equitable title.
Railroad Co. v. Hamilton, 134 U.
S. 296.
Where a company is incorporated to construct a railroad between
two cities named as its termini, a mortgage given by it which, as
expressed, is upon its line of railroad constructed or to be
constructed between the named termini, together with all the
stations, depot grounds, engine houses, machine shops, buildings,
erections in any way now or hereafter appertaining unto said
described line of railroad, creates a lien upon its terminal
facilities in those cities, and is not limited to so much of the
road as is found between the city limits of those places. The
stations, depot grounds, etc., in the terminal cities appertain to
the railroad as fully as similar structures in places intermediate
those termini. In the absence of restrictive words, such is the
natural import, and therefore must be adjudged the intent and scope
of a mortgage containing that description. This first mortgage
contains not only the general terms referred to, but after them,
and as if it were to avoid any possible doubt, adds:
"And all its depot grounds, yards, sidings, turn-outs, sheds,
machine shops, leasehold rights, and other terminal facilities now
or hereafter owned by the said party of the first part."
It would be difficult to make language more full, accurate, and
descriptive.
Willink v. Morris Canal Co., 4 N.J.Eq. 377;
Morris & Essex Railroad v. Central Railroad Co., 31
N.J.Law 205;
Mohawk Bridge Co. v. Utica & Schenactady
Railroad, 6
Page 138 U. S. 420
Paige 554;
Commonwealth v. Erie & Northeast
Railroad, 27 Penn.St. 339. There can be no doubt that by this
mortgage, a lien was created on the terminal facilities in the City
of Toledo, and, as this mortgage was executed some months before
the terminal trust mortgage, apparently it created a prior lien,
and if there were no other facts to be considered, the disposition
of this case would be easy.
That the parties receiving bonds under this mortgage would
understand that they were to have a first lien on all terminal
facilities in Toledo then owned or thereafter acquired is clear.
That the railroad company also understood that it owned and was
giving a prior lien upon such terminals is evident from the fact
that, in the year 1879, it executed a mortgage for $1,204,000, and
negotiated $630,000 of the bonds secured thereby, which bonds and
mortgages were taken up and satisfied out of the proceeds of the
mortgage of January 17, 1880, and in the prospectus, issued for the
purpose of inviting investors to purchase those bonds, was this
statement:
"
Terminal advantages"
"The Toledo, Delphos and Burlington Railroad has the right of
way through and down the very center of the City of Toledo. It
enters the city near the Miami and Erie Canal, and substantially
follows the canal to Washington Street; thence down Washington
Street to Swan Creek and to Lake Navigation, within three squares
of the post office. This franchise is very valuable and of very
great importance to the business of the road, and adds greatly to
the pecuniary value of the property of the corporation. No other
road entering the city approaches so near to its center; none whose
freight and passenger business is transacted so near to the
business of the city. This franchise is considered valuable to the
road not only from the fact that it affords unusual business
facilities, but because it becomes independent of other
corporations, and renders its business secure, without submitting
to a heavy tax on its traffic."
Not only this, but when the mortgage of January 17, 1880,
Page 138 U. S. 421
was in contemplation, and on December 12, 1879, when its
execution was ordered, the resolution of the directors declared
"that for the purpose of borrowing money for the use of the
company to enable it to carry out the purposes for which it is
organized and was consolidated, . . . and build, complete, equip,
pay for right of way and depot grounds, and operate its railroad,
it is expedient to prepare, issue, and negotiate a series of first
mortgage bonds, amounting in the aggregate to $1,250,000,"
and
"that in order to rescue the payment of said issue of first
mortgage bonds and the interest thereon, . . . the president shall
also forthwith cause to be prepared a mortgage or deed of trust
conveying . . . all this company's present and future to be
acquired line of railroad, appurtenances, and equipment and income
thereof, between said City of Toledo, in the State of Ohio, and the
Town of Kokomo, in the State of Indiana."
No one can misunderstand these declarations. They expressed to
every purchaser of a bond secured by this first mortgage a purpose
to vest in him a prior lien on all the property of the railroad
company, including its terminal facilities -- a lien superior to
every encumbrance thereon. They unite, therefore, with the clear
language of the mortgage, the expressed intent of the mortgagor. To
thwart this purpose, so obvious and expressed, there should be a
clear disclosure of higher equity, and to the suggestions of that
we pass.
The second -- the terminal trust -- mortgage was executed on
June 21, 1880. On September 4, 1880, more than two months
thereafter, the Toledo & Grand Rapids Railroad Company executed
its mortgage to the Central Trust Company to secure not its own
indebtedness, but the bonds secured by the terminal trust mortgage,
above referred to. This mortgage, in terms, conveyed the grantor's
right of way within the City of Toledo, property which is in fact a
part of the right of way and terminal facilities of the Toledo,
Delphos and Burlington Railroad Company. On November 29, 1880,
George W. Ballou and wife executed a mortgage to the same trust
company conveying certain properties similarly situated and also as
security for those terminal trust bonds. On April 12, 1881,
Page 138 U. S. 422
the Toledo and Grand Rapids Railroad Company conveyed to the
Toledo, Delphos and Burlington Railroad Company all its properties.
The consideration of such transfer was $265,477.86 cash, an amount
supposed to be sufficient, and provided to pay all the indebtedness
of the Toledo and Grand Rapids Railroad Company. So far as the
property standing in the name of Ballou is concerned, he was the
financial agent of the mortgagor, the Toledo, Delphos and
Burlington Railroad Company, and while he took the title to some
properties in his own name, the purchase was with moneys of the
mortgagor. Hence, while he held the legal title, the full equitable
title was in the railroad company, and that property became
therefore, in equity, subject to the lien of the first mortgage.
Further, the mortgage from Ballou to the Central Trust Company, of
date November 29, 1880, was really a tripartite agreement between
Ballou, the Toledo, Delphos and Burlington Railroad Company, and
the Central Trust Company, and recited that the mortgage to the
trust company was in consideration of $40,000 of these terminal
trust bonds received by Ballou. So not only was this purchase by
Ballou made with the funds of the Toledo, Delphos and Burlington
Railroad Company, but he received also $40,000 of the terminal
trust bonds. Further than that, as we read the record -- and there
are seventy to eighty deeds and relinquishments of right of way
contained in it -- apparently the title to the bulk of the right of
way passed directly to the Toledo, Delphos and Burlington Railroad
Company, and not to Ballou nor to the Toledo and Grand Rapids
Railroad Company, so that we have these facts before us: first, the
title to the larger portion of the terminal facilities passed
directly to the mortgagor, the Toledo, Delphos and Burlington
Railroad Company; second, all that part whose title was taken in
the name of Ballou was paid for by the funds of the Toledo, Delphos
and Burlington Railroad Company, and therefore it had the full
equitable title, and he had only the naked legal title in trust for
its benefit; third, the encumbrance which he placed upon it in the
tripartite agreement was not security for an independent lien, but
simply additional security for the terminal
Page 138 U. S. 423
trust bonds issued by the Toledo, Delphos and Burlington
Railroad Company; fourth, the mortgage given by the Toledo and
Grand Rapids Railroad Company, which was generally of its right of
way and terminal facilities, was not to secure an independent debt,
but the already issued terminal trust bonds of the Toledo, Delphos
and Burlington Railroad Company; fifth, all the indebtedness of the
Toledo and Grand Rapids Railroad Company was assumed and paid by
the Toledo, Delphos and Burlington Railroad Company, as a
consideration of the appropriation by the latter of all the
franchises and property of the former. Whatever, therefore, may be
said as to the scheme and plan of the parties who in the spring of
1880 were in control of the Toledo, Delphos and Burlington Railroad
Company, the fact remains undisputed that its mortgage of January
17, 1880, covered, in terms, all subsequently acquired terminal
facilities in the City of Toledo; that purchasers of bonds secured
thereby were invited to invest, on the strength of representations
by the company that it covered the terminal facilities; that the
title to the larger portion of these terminal facilities passed
directly and unencumbered by anyone to the Toledo, Delphos and
Burlington Railroad Company; that, as to those portions whose title
passed to Ballou and the Toledo and Grand Rapids Railroad Company,
the purchase price was paid by the Toledo, Delphos and Burlington
Railroad Company, and that the mortgages which they respectively
executed to the Central Trust Company were not given to secure
independent debts, but simply as collateral to the terminal trust
bonds.
We do not question the proposition invoked by counsel for
appellant, that a mortgage with an "after-acquired property" clause
creates a lien upon property subsequently acquired only when it is
acquired, and in the condition in which it is acquired, and subject
to all existing liens; nor the other proposition, that the
ownership by one corporation of the stock of another will not of
itself prevent the creation of a new and independent lien upon the
property of the latter, as adjudged in the case of
Williamson
v. New Jersey Southern Railroad Co., 28 N.J.Eq. 278, 29
N.J.Eq. 316. Yet we think those
Page 138 U. S. 424
propositions are not decisive of the case here presented. The
mortgagor in the two mortgages of January and June, 1880, held the
legal title to a large portion of the terminal facilities, and was
the equitable owner of substantially the rest. Its first mortgage,
its expressed purpose, was a lien upon those terminal facilities.
No lien was ever placed by the holders of the legal title on that
portion of the right of way and terminal facilities which did not
stand in the name of the Toledo, Delphos and Burlington Railroad
Company, to secure any new and independent obligation. These
collateral and subsequent mortgages were in terms only to
strengthen the security already given by the terminal trust
mortgage. If they had never been executed, can there be a doubt
that on a foreclosure, the trustee in either the mortgage of
January 17, 1880, or the terminal trust mortgage, could have
subjected to its lien all property in fact a part of the right of
way and terminal facilities, whether the title of the company
thereto was either legal or equitable? They therefore only put into
writing that which was already and in equity the obligations
resting on the property. So whatever may have been the secret
thought and scheme of the parties controlling the management of
these railroad companies, we are of opinion that the various
properties included in the right of way and terminal facilities
became in fact subjected to the lien of the two mortgages of
January and June, 1880, executed by the Toledo, Delphos, and
Burlington Railroad Company. At least that is true of all
properties whose title passed to the Toledo, Delphos and Burlington
Railroad Company. Certain properties whose title did not thus pass
were by the decree exempted from the operation of this lien.
We think there was no error in the ruling of the circuit court,
and its decree is
Affirmed.
