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
Page 79 U. S. 363
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.
Page 79 U. S. 364
MR. JUSTICE BRADLEY delivered the opinion of the Court.
The appellants contend, first, that the court had no authority
to make the decision; that the proceeding was wholly irregular,
without proper pleadings, and
coram non judice. This
objection hardly comes with a good grace from the appellants, who
all joined in submitting the question to the court. But the
jurisdiction was undoubted. A court of equity, in a suit for the
foreclosure of a mortgage, clearly has cognizance of all questions
relating to priority of lien on the property in litigation, as
between the parties to the suit and those whom they lawfully
represent. The mode in which the jurisdiction shall be exercised is
not so much a matter of substance as of form. Ordinarily a
reference to a master before the final decree would be the formal
method to pursue, but where, from oversight or other cause, this
has been omitted, the parties may certainly agree (as was done
here) to submit the matter to the court, upon a statement of facts,
after the decree.
The appellants contend in the next place that the decision upon
the facts was erroneous; that the mortgages, being prior in date to
the bond given for the purchase money of these locomotives and
cars, and being expressly made to include after-acquired property,
attached to the property as soon as it was purchased and displaced
any junior lien. This, we apprehend, is an erroneous view of the
doctrine by which after-acquired property is made to serve the uses
of a mortgage. That doctrine is intended to subserve the purposes
of justice, and not injustice. Such an application of it as is
sought by the appellants would often result in
Page 79 U. S. 365
gross injustice. 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 that property is
already subject to mortgages or other liens, the general mortgage
does not displace them, though 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. And in
such case, a failure to register the mortgage for purchase money
makes no difference. It does not come within the reason of the
registry laws. These laws are intended for the protection of
subsequent, not prior, purchasers and creditors.
Had the property sold by the government to the railroad company
been rails, as in the case of the
Galveston Railroad Company 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 on the railroad company
itself, are unaffected by a prior general mortgage given by the
company, and paramount thereto.
In the case before us, the United States, at the time of making
the sale, reserved a lien on the property, and imposed a condition
of non-alienation until the price should be paid. Taken all
together the transaction amounts to a transfer
sub modo,
and the lien must be regarded as attaching to the property itself,
and as paramount to any other liens arising from the prior act of
the company.
Decree affirmed.
