Buck v. Seymour

Pardee, J. This is an action of replevin instituted by the plaintiff as trustee for the second mortgage bondholders of the Connecticut Valley Railroad Company, to obtain possession of certain personal property which had belonged to the company and was claimed to be covered by the mortgage. The Connecticut Valley Railroad Company was incorporated in 1868, with power to construct a railroad from Saybrook to Hartford, and to issue bonds and mortgage its property to secure them. In 1873 it borrowed $1,250,000 for the completion and equipment of its road, and secured it by a second mortgage upon all of its property to the treasurer of the state in trust for the bondholders. On January 1st, 1876, it took a lease for the term of five years of the Connecticut Central Railroad, extending from East Hartford to Springfield in Massachusetts, having previously obtained the right to run its trains upon the track of the Hartford and Providence road from its own terminus in Hartford to the terminus of the Central road in East Hartford, thus securing an unbroken track from Saybrook to Springfield; and it bought the property in question with intent to use it along the line of the Central road while the lease continued operative, and thereafter upon its own line. Being unable to pay the interest upon the bonds referred to, on the 29th of June, 1876, it surrendered its road, together with its franchise and all property real and personal then owned by it, to the state treasurer as trustee for the bondlioldérs, who took the road and all of — 169 — the property into his possession, and placed that portion of it here in controversy in the keeping of various persons along the line of the Central road, to hold for him, and while thus held, the defendant, on the 27th of December, 1877, attached it as the property of the Connecticut Valley Railroad Company. Upon the surrender to him the trustee terminated the lease of the Central road; after October 1st, 1876, the two roads ran trains in connection. The property when attached had never been in use upon the line of the Yalley Company. The trustee brought an action of replevin, and recovered judgment; the defendant filed amotion in error, assigning for error that the court decided that the mortgage covered after-acquired property, including that purchased primarily for use on the Central road; and which had not at the time of the attachment been in use upon the Yalley road. By its charter the Connecticut Valley Railroad Company was authorized from time to time, for the purpose of providing for the construction, equipment and maintenance of its railroad, to borrow money, issue bonds, and secure the payment thereof by a mortgage of all of its railroad property, rights and franchises to trustees. Upon default of payment of interest, the general statute provides that, upon proper application and hearing, the court may order it to surrender all such mortgaged property to the trustees, who are thereafter required to operate the road for the benefit of the bondholders. Thus permission is given to borrow money in advance of the possession, even of the existence, of the personal property.to be used in the operation of the road, for the express purpose of buying or manufacturing it; the legislature intended to allow the company to give the amplest security for the repayment of the money; the bonds are made to mature only after the lapse of many years; .the personal property of the company constitutes a valuable portion of its assets; and all of the earlier purchases are certain to be consumed in the use, and require replacement time and again before the bonds become payable. Therefore these provisions of the charter and of the general law, read together, are susceptible of but one interpretation; that the — 170 — company is authorized to pledge, and the trustees to take, such personal property as may he held for the purpose of operating the road at the time of the surrender, irrespective of the date of its purchase; the property, rights and franchises are to go as an unit to them. But, aside from this, it is now well established by decisions in various states, that a mortgage of tho railroad and franchises of a company, together with such real and personal property as may then be owned or thereafter acquired for use in connection therewith, will create a valid lien thereon; that it is so far appurtenant to the road that the company has a present, existing interest in it sufficient to uphold the grant of bo'th together—the one as incident to the other; and, in view of the vast sums of money which have been loaned upon the faith .of such grants, it is quite too late to question the doctrine. Morrell v. Noyes, 56 Maine, 458; Pierce v. Emery, 32 N. Hamp., 489; Shaw v. Bill, 95 U. S. Reps., 15; Philadelphia &c. R. R. Co. v. Woelpper, 64 Penn. S. R., 366. Again, on June 12th, 1876, the directors of the company authorized their executive committee to surrender to the trustee all of its property, real and personal, without limitation or restriction of any kind, for the benefit either of the first or second mortgagees or both. In the exercise of the power thus given the committee surrendered to him all of the property of the company for the benefit of the second mortgagees, and co-incident with the delivery of the property executed a written declaration of transfer, in which they stated that they intended to surrender all the property real and personal described in the mortgage; and we are asked to say that this operated as a reservation to the company of all property acquired after the execution thereof. We are to discover and carry into effect the intent of the parties. The execution of the power by act- of delivery was in fact as unlimited as the authority given; and as they both had and exercised unlimited power of delivery, we are to presume that an unreserved surrender was intentionally made. The effect of the expression referred to is simply to indicate the trust under which the property was delivered and not to establish — 171 — a reservation of anything from the trustee. The company intended to pledge this property; the mortgagees believed that it was pledged; the directors ordered the surrender of it as pledged, and the committee executed the order; and we cannot assume that they did it with any reservation. As a matter of law the after-acquired property was well specified and included in the mortgage; therefore a sui’render in the terms of the mortgage would constructively include it. Upon principle, the delivery to and possession by the trustee for the purpose of holding in pledge for a debt, before the intervention of the defendant, perfected the right of the trustee to the property irrespective of any infirmity in description in the mortgage deed. In Rowan v. Sharps’ Rifle Manufacturing Co., 29 Conn., 283, it was held that “where a mortgage of a factory and its equipments embraced in its terms such machinery and stock as should be afterwards purchased and placed upon the premises, and the mortgagee had afterwards taken possession of the factory, with such subsequently acquired property, that whatever effect was to be given to the provision in itself, it became operative upon possession being taken by the mortgagee.” And in Walker v. Vaughn, 33 Conn., 577, it was held that a mortgage of personal property not yet acquired by the mortgagor will take effect as against him and others not having acquired precedent rights, on the title becoming vested in him and possession taken by the mortgagee. And, going one step farther, in the absence of any mortgage the surrender and delivery of the property by the owner, to be held in pledge for a specific debt, would entitle the trustee to the possession. It was thus delivered, received and held, in fact, and in the intent of both parties. He thus acquired a right to apply it to the liquidation of the debt which takes precedence, in law as well as in time, of the lien which these defendants desire to enforce. The company in terms pledged all property which should thereafter be acquired by it and be necessary for the operation of its road. The word necessary imports more than property without which the road could not be operated at all; it — 172 — includes such property as the company should thereafter deem it best to acquire for the most profitable use of the franchise to itself, and the most beneficial use of it to the public; and all property bought for this purpose, in the reasonable exercise of a reserved discretion, becomes pledged to the bondholders. It is found that it was essential to the public convenience and the prosperity of the Yalley Company that it should be operated in connection with the Central road. The Yalley Company purchased most, and manufactured the remainder, of the property in question, intending immediately to use it on the Central line in establishing, substantially, such connected service; that service ended, ultimately upon its own road. Property purchased for this special service, found to be essential alike to corporate profit and public good, is “necessary” within-both the language and spirit of the grant. . It may be true that the company erred in the belief that it had power to assume the relation of lessee to the Connecticut Central Company; in the belief that it could use the property in the specific character of a lessee; and it may be true that upon motion of the state or of a stockholder the court would annul the lease. But, this being done, there would remain the purchase of property by the Yalley road for a service essential to any profitable exercise of its franchise; there would remain the right to use it as before at points along the Central road, without any lease; the right and the intent to use it within the limits of its own road when for any reason it should be unable or unwilling to use it along the Central line; and the right to surrender it to the mortgagee to be applied upon its debt. The presence of an error, at the time of purchase, as to the right of the company to use it in the character of lessee of the Central road, did not make it legally impossible for the Yalley Company to include it in the mortgage. As such was its intention, and as the mortgagees supposed it to have been included, we find no reason for the exclusion. Again, it is objected that the words “ all property which may hereafter belong to the company,” are too indefinite to — 173 — constitute a pledge. To this it may be said that the fact that the pledge is permitted to reach into the somewhat distant future, and attempts to include every variety of article then existing, or even thereafter to be invented, for use in operat-' ing railways, must of necessity relax the rigor of the rule as-to precision in description of what is pledged; the law having given leave to do an act, it must not be made impossible of execution by rules of construction. There is enough of limitation in this, that all included property must have been bought and be in use for the purpose of transacting and increasing the business of the road. Besides, usually the pledge of chattels is by an individual and of a part only of those belonging to him; he retaining possession as apparent owner alike of articles pledged and unpledged; persons intending to give him credit are entitled to knowledge as to what is free and what is not; for such cases a rigid rule of description has been established and enforced. But in the case before us the reason of the rule fails. The defendants knew long before they gave credit to the company that the law had given it permission to pledge all property which it should thereafter acquire and use in or about the business of its road, and they knew too that it had in fact made such a pledge to its creditors. Therefore when they attached property which they saw was in use by it in railway business they acted with all the knowledge which a description certain in every particular could give them; they had notice of the pledge and that nothing was excepted from it. They have no more occasion for complaint than would have any person taking with knowledge of existing prior rights. There is no error in the judgment complained of. In this opinion Carpenter, Loomis and Granger, Js., concurred; Park, C. J., was of opinion that articles procured with the intention to use them on the Connecticut Central Railroad were not covered by the mortgage. [Note.—This case was heard, with the next preceding, at an adjourned session of the court, when Judge Granger was present, though not present at .the regular term.]