A railroad company authorized to borrow money and issue their
bonds, to enable themselves to finish and stock the road, may
mortgage as security not only the then-acquired property, but such
as may be acquired in future.
Although the maxim is true that a person cannot grant what he
has not got, yet in this case a grant can take effect upon the
property when it is brought into existence and belongs to the
grantor in fulfillment of an express agreement founded on a good
and valid consideration when no rule of law is infringed or rights
of a third party prejudiced. The mortgage attached to the future
acquisitions as described in it from the time they came into
existence and were placed on the road.
Hence where second mortgagees and holders of bonds of a second
issue brought suit upon those bonds, recovered judgment, issued
execution, and levied it upon a part of the rolling stock, which
was not in existence when the first mortgage was given, the
judgment creditors must be postponed to the claims of the first
mortgagees.
In the present case, a reasonable interpretation of the statutes
creating the corporation would justify it in making the road where
it was made.
A bondholder of a class covered by a mortgage to secure the
class of bonds issued in case of insolvency of the obligors cannot,
by getting judgment at law, be permitted to sell a portion of the
property devoted to the common security, as this would disturb the
pro rata distribution among the bondholders, to which they
are equitably entitled.
Page 64 U. S. 118
The bill was filed in the circuit court by Coe, mortgagee of the
road of the railroad company in trust, for securing the payment of
its bonds, to enjoin the execution of a judgment recovered at law
against the company by Pennock and Hart, two of the defendants.
The facts of the case are stated in the opinion of the
Court.
After the case was ready for a hearing, at September term, 1857,
the circuit court passed the following decree:
"This cause came on to be heard upon the bill of the
complainant, the joint answer of Joseph Pennock and Nathan F. Hart,
the separate answer of the Cleveland, Zanesville & Cincinnati
Railroad Company, the replication to said answer, the exhibits and
testimony, and the motion of said Pennock and Hart to dissolve the
injunction heretofore allowed in this case, and was argued by
counsel. On consideration whereof, the court do overrule said
motion, and the entire facts in the case being before the court,
and the arguments of the counsel upon the motion to dissolve said
injunction embracing the entire merits of the case, the court do
order, adjudge, and decree, that said injunction be made perpetual,
and that the said Pennock and Hart be forever restrained from
selling, or causing to be sold, by the marshal, the locomotives,
tenders, and cars, mentioned in said bill, to satisfy the judgment
recovered by them against said railroad company therein
described."
From this decree, Pennock and Hart appealed to this Court.
Page 64 U. S. 124
MR. JUSTICE NELSON delivered the opinion of the Court.
This is an appeal from a decree of the Circuit Court of the
United States for the Northern District of Ohio.
The bill was filed in the court below by Coe, mortgagee of the
road of the railroad company, in trust, for securing the payment of
its bonds, to enjoin the execution of a judgment recovered at law
against the company by Pennock and Hart, two of the defendants.
The facts of the case are these:
The Cleveland, Zanesville & Cincinnati Railroad Co., created
a body politic and corporate by the laws of Ohio to make a railroad
between certain termini in that state in pursuance of authority
conferred by law, issued bonds to the amount of $500,000, payable
ten years from date, with interest at the rate of seven percent,
payable semiannually, on the first day of April and October in each
year, and, to secure the payment of the same, executed a mortgage
of the railroad and its equipments to the complainant, in trust for
the bondholders, the description of which is
Page 64 U. S. 125
in the words following:
"All the present and future to be acquired property of the
parties of the first part -- that is to say, their road, made or to
be made, including the right of way, and the land occupied thereby,
together with the superstructure and tracks thereon, and all rails
and other materials used therein, or procured therefor, with the
above-described bonds, or the money obtained therefor, bridges,
viaducts, culverts, fences, depots, grounds and buildings thereon,
engines, tenders, cars, tools, machinery, materials, contracts, and
all other personal property, right thereto, or interest therein,
together with the tolls, rents, or income, to be had or levied
therefrom, and all franchises, rights, and privileges, of the
parties of the first part, in, to, or concerning the same."
At the time of the issuing of these bonds and the execution of
the mortgage, the railroad was in the course of construction, but
only a small portion of it finished. It was constructed and
equipped almost entirely by means of the funds raised from these
bonds, together with a second issue to the amount of $700,000. The
road cost upwards of $1,500,000. The stock subscribed and paid in,
amounted only to some $369,000.
The mortgage securing the payment of the second issue bears date
the first of November, 1854, and was made to one George Mygatt, in
trust for the bondholders, and the property described in and
covered by it is the same as that described in the first mortgage.
The road was finished to Millersburg, its present terminus south,
in May, 1854, and the whole of the rolling stock was placed on it
previous to the date of the second mortgage. This stock was
purchased and placed on the road from time to time as the
locomotives and cars were needed in the progress of its
construction.
The mortgage to the complainant contained a covenant on the part
of the company that the money borrowed for the construction and
equipment of the road should be faithfully applied to that object,
and that the work should be carried on with due diligence until the
same should be finished.
In case of default in the payment of the principal or interest
of the bonds, the trustee was empowered to enter upon and take
possession of the road or, at the election of a moiety
Page 64 U. S. 126
of the bondholders, to sell the same at public auction, and
apply the proceeds to the payment of the bonds.
The defendants, Pennock and Hart, being the holders of sixteen
of the bonds issued under the second mortgage, recovered a judgment
on the same, May, 1856, against the railroad company issued
execution, and levied on a portion of the rolling stock of the
road, and caused the same to be advertised for sale.
This bill was filed to enjoin the sale, and a decree was
rendered perpetually enjoining it in the court below, which is now
before us on appeal.
The first two grounds of objection taken to this decree may be
considered together. They are: 1, that the mortgage to the trustee
of the 1st April, 1852, is void or inoperative, as respects the
locomotives and cars which were levied on under the execution of
the defendants, inasmuch as they were not in existence at the date
of it, but were constructed and placed on the road afterwards,
being subsequently acquired property of the company; and 2, that
the mortgage is void on the ground of uncertainty as to the
property described or attempted to be described therein and
conveyed to the mortgagee. The description begins by conveying "all
the following present and future acquired property of the said
parties of the first part," and after specifying the road and the
several parts of it, together with the rolling stock, there is
added "and all other personal property, right thereto, and interest
therein." This clause, probably, from the connection in which it is
found, was intended to refer to property appurtenant to the road
and employed in its operation, and which had not been enumerated,
and if so, the better opinion perhaps is that it would be bound by
the mortgage even as against judgment creditors.
But it is unimportant to express any opinion upon the question,
as the property in this case the locomotives and cars levied on are
articles specifically enumerated, and the only uncertainty existing
in respect to them arises out of their nonexistence at the date of
the mortgage. An uncertainty of this character need not be
separately examined, as it will be
Page 64 U. S. 127
resolved by a consideration of the first question, which is
whether or not the after-acquired rolling stock of the company
placed upon the road attaches, in equity, to the mortgage, if
within the description, from the time it is placed there, so as to
protect it against the judgment creditors of the railroad
company?
If we are at liberty to determine this question by the terms and
clear intent of the agreement of the parties, it will be found a
very plain one. The company have agreed with the bondholders, for
the mortgagee represents them, that if they will advance their
money to build the road, and equip it, the road and equipments thus
constructed, and as fast as constructed, shall be pledged as a
security for the loan. This is the simple contract, when stripped
of form and verbiage, and, in order to carry out this intent most
effectually and with as little hazard as possible to the lender,
the company specially stipulate that the money thus borrowed shall
be faithfully applied in the construction and equipment of the
road. And in further fulfillment of the intent, the company agree
that in case of default in the payment of principal or interest,
the bondholders may enter upon and take possession of the road and
run it themselves, by their agents, applying the net proceeds to
the payment of the debt.
The bondholders have fulfilled their part of the agreement --
they have advanced the money on the faith of the security; the
company have also fulfilled theirs -- they have made the road and
equipped it; it has been partially in operation since January,
1852, and in operation upon the whole line since May, 1854. The
road therefore, as described in the mortgage, from Hudson to
Millersburg, and which was in the course of construction at the
date of the instrument, has been finished, and the rolling stock,
locomotives, tenders, and cars, also described in it, and which
were to be afterwards acquired, have been brought into existence
and placed upon it -- all in conformity with the agreement of the
parties -- and the question is whether there is any rule of law or
principle of equity that denies effect to such an agreement.
The main argument urged against it is founded upon the
Page 64 U. S. 128
maxim that "a person cannot grant a thing which he has not" --
ille non habet, non dat -- and many authorities are
referred to at law to prove the proposition and many more might
have been added from cases in equity, for equity no more than law
can deny it. The thing itself is an impossibility. It may at once,
therefore, be admitted, whenever a party undertakes by deed or
mortgage to grant property, real or personal,
in praesenti
which does not belong to him or has no existence, the deed or
mortgage, as the case may be, is inoperative and void, and this
either in a court of law or equity.
But the principle has no application to the case before us. The
mortgage here does not undertake to grant
in praesenti
property of the company not belonging to them or not in existence
at the date of it, but carefully distinguishes between present
property and that to be afterwards acquired. Portions of the road
had been acquired and finished and were in operation when the
mortgage was given upon which it is conceded it took effect; other
portions were acquired afterwards, and especially the iron and
other fixtures, besides the greater part of the rolling stock.
The terms of the grant or conveyance are "all present and future
to be acquired property, of the parties of the first part" -- that
is to say, "their road, made or to be made, and all rails and other
materials &c., including iron rails and equipments, procured or
to be procured" &c. We have no occasion, therefore, of calling
in question, much less denying, the soundness of the maxim so
strongly urged against the effect of the mortgage upon the property
in question, as its force and operation depend upon a different
state of facts, and to which different principles are applicable.
The inquiry here is not whether a person can grant
in
praesenti property not belonging to him and not in existence,
but whether the law will permit the grant or conveyance to take
effect upon the property when it is brought into existence and
belongs to the grantor, in fulfillment of an express agreement
founded on a good and valuable consideration, and this when no rule
of law is infringed or rights of a third party prejudiced? The
locomotives and cars were all placed upon the road as early as
February, 1854,
Page 64 U. S. 129
when, at the furthest, the mortgage attached to those in
question, according to its terms, if at all, and the judgment of
the defendants was not recovered till May, 1856.
We think it very clear, if the company, after having received
the money upon the bonds and given the mortgage security, had
undertaken to divert the fund from the purpose to which it was
devoted -- namely the construction of the road and its equipment,
and upon which the security mainly depended, a court of equity
would have interposed and enforced a specific performance. One of
the covenants was that the money should be faithfully applied to
the building and equipment of the road, or if, after the road was
put in operation, the company had undertaken to divert the rolling
stock from the use of the road, a like interposition might have
been invoked, and this in order to protect the security of the
bondholders. And if a court of equity would thus have compelled a
specific performance of the contract, we may certainly with
confidence conclude that it would sanction the voluntary
performance of it by the parties themselves, and give effect to the
security as soon as the property is brought into existence.
The case of
Langton v. Hasten, 1 Hare's Ch. 549,
supports this view. The mortgage security in that case was the
assignment of the ship
Foxhound, then on her voyage to the
South seas, together with all and singular her masts &c.,
"and all oil and head matter, and other cargo, which might be
caught or brought home on the said ship, on and from her then
present voyage." The cargo was levied on by a judgment
creditor on the arrival of the ship at home. A bill was filed to
have the mortgage declared a good and valid security for the moneys
advanced, and that the complainants be entitled to the benefit of
the security, in preference to the judgment creditor.
The vice chancellor, in giving his opinion, observed: "Is it
true that a subject to be acquired after the date of contract
cannot, in equity, be claimed by a purchaser for value under that
contract?"
And, in answer to the question, he said:
"It is impossible to doubt, for some purposes at least, that by
contract an interest
Page 64 U. S. 130
in a thing not in existence at the time of the contract may, in
equity, become the property of the purchaser for value."
And after reviewing the cases in the books, he concludes:
"I cannot, without going in opposition to many authorities which
have been cited, throw any doubt upon the point that Bixnie, the
contracting party, would be bound by the assignment to the
plaintiffs."
There are many cases in this country confirming this doctrine,
and which have led to the practice extensively of giving this sort
of security, especially in railroad and other similar great and
important enterprises of the day. 2 Selden 179; 3 Green Ch. 377; 32
N.H. 484; 25 Barb. 286;
ib., 284; 18 B.Munro 431; Redfield
on Railways 590, and note; 2 Story 630; 7 Jurist 771;
Tapfield
v. Hillman.
In the case of
Tapfield v. Hillman, Tindall, Ch.J.,
seems inclined to the opinion that, even at law, a mortgage
security of future acquisitions might have effect given to it, if
the terms indicated an intent to comprehend them.
The counsel for the appellee referred to the case of
Chapman
v. Weimer & Steinbacker, 4 Ohio 481, as denying effect to
a mortgage upon after-acquired property. But that was a case at
law; and even there the court held that the mortgage attached after
the property was acquired from the time the right was asserted by
the mortgagee.
In conclusion upon this point, we are satisfied that the
mortgage attached to the future acquisitions, as described in it,
from the time they came into existence. As to the claim of the
judgment creditors, there are several answers to it.
In the first place, the mortgage being a valid and effective
security for the bondholders of prior date, they present the
superior equity to have the property in question applied to the
discharge of the bonds. It is true, if the property covered by the
mortgage constituted a fund more than sufficient to pay their
demands, the court might compel the prior encumbrancer to satisfy
the execution, or, on a refusal, the mortgage having become
forfeited, compel a foreclosure and satisfaction of the bond debt,
so as to enable the judgment creditor to reach the
Page 64 U. S. 131
surplus. Or the court might, upon any unreasonable resistance of
the claim of the execution creditor, or inequitable interposition
for delay, and to hinder and defeat the execution, permit a sale of
the rolling stock sufficient to satisfy it. But no such ground has
been presented, or could be sustained upon the facts before us. On
the contrary, it cannot be denied but that the whole of the
property mortgaged is insufficient to satisfy the bondholders under
the first mortgage, much less when those under the second are
included. To permit any interference, therefore, on the part of the
judgment creditors, with a view to the satisfaction of their debt,
consistent with the superior equity of the bondholders, would work
only inconvenience and harm to the latter, without any benefit to
the former. 3 Hare's Ch. 416; 9 Ga. 377; Redfield on Railw. 506; 5
Ohio 92
In the second place, the judgment sought to be enforced by the
defendants was recovered upon bonds of the second issue, and
secured, in common with all the bonds of that issue, upon this
property, by virtue of the second mortgage. These bondholders have
a common interest in this security, and are all equally entitled to
the benefit of it, and in case of a deficiency of the fund to
satisfy the whole of the debt, in equity, a distribution is made
among the holders
pro rata. The payment of the bonds of
the second issue are also postponed until satisfaction of the issue
comprehended within the first mortgage, as the second was taken
with a full knowledge of the first. To permit, therefore, one of
the bondholders under the second mortgage to proceed at law in the
collection of his debt upon execution would not only disturb the
pro rata distribution in case of a deficiency, and give
him an inequitable preference over his associates, but also have
the effect to prejudice the superior equity of the bondholders
under the first mortgage, which possesses the prior lien.
As the judgment creditors can have no interest in the management
or disposition of the property, except as bondholders, on account
of the deficiency of the fund, it is unimportant to inquire whether
or not the court was right in refusing a receiver or to direct a
sale of the road with a view to a distribution
Page 64 U. S. 132
of the proceeds. For aught that appears, the road has been
managed, under its present directors with prudence and fidelity and
to the satisfaction of the bondholders, the parties exclusively
interested.
Another objection taken to the validity of the mortgage is the
want of power under the charter to construct the road from Hudson
to Millersburg, and consequently to borrow money and pledge the
road for this purpose. There is certainly some obscurity in the
statutes creating this corporation as to the extent of the line of
its road, but we agree with the court below that upon a reasonable
interpretation of them, the power is to be found in their charter.
They were authorized to construct the road from some convenient
point on the Cleveland & Pittsburgh road, in Hudson, Summit
County, through Cuyahoga Falls, and Akron, to Wooster, or some
point on the Ohio & Pennsylvania railroad, between Massillon
and Wooster, and to connect with said Ohio & Pennsylvania road,
and any other railroad running in the direction of Columbus. It was
clearly not limited, in its southern terminus, to its connection
with the Ohio & Pennsylvania road, for there is added, "and any
other railroad running in the direction of Columbus." The extension
of the road to the Ohio Central road at Zanesville, or at some
other point on this road, comes fairly within the description.
We have not referred particularly to the authority of the
company, under the statute laws of Ohio, to borrow money and pledge
the road for the security of the payment, as no such question is
presented in the brief or was made on the argument. Indeed, the
authority seems to be full and explicit.
Decree below affirmed.