Palmer v. Forbes

Caton, C. J. Railroad mortgages, like all other contracts, must be enforced according to the intention of the parties to them, and conformable to the law under which they were issued. We cannot make or mollify these any more than any other contracts, or the law by which they shall be governed and enforced. Railroad mortgages are of very recent origin, and, although now so common in this country and in England, in comparatively but few instances, have the courts been called upon to enforce the rights of parties under them, especially to the extent of appropriating the estate mortgaged to the satisfaction of the debt. And the courts first leading the way in this branch of jurisprudence cannot but be deeply impressed with the weight of the responsibility thrown upon them, and it would be remarkable indeed should there not, at the outset, be some diversity of opinion on the subject. We think we see in the future that, which is likely to throw upon us our full share of the earliest of this responsibility, and we cannot approach the subject but with the deepest solicitude. Railroad companies can only issue these mortgages in pursuance of a power conferred upon them by their charters, or some general statute. Hence it is of primary importance in the first instance, to see what the law is under which a mortgage is executed. The charter of this road authorized it to issue bonds and “ secure the payment of the same by mortgage, or deed of trust, on the whole or any part of the road property and income of the company, then existing or thereafter to be acquired.” Nowhere do we find any provision made as to the mode of acknowledging or recording these mortgages, or of the effect they shall have upon the rights of subsequent purchasers or creditors. This seems to have been left, by the legislature, to be influenced and controled by the general law of the State on the subject. The road and property of the company may include its personal property, as well as the real estate, consisting of the road and its appurtenances. As there is no specification as to how the personal property shall be mortgaged, the general law regulating chattel mortgages, is left to regulate the mode of executing that power. There is as much propriety in defending and protecting the rights of third persons, who deal with railroad companies, as there is of those who deal with individuals, who possess the same natural rights and powers which have, by law, been imparted to these corporations, and there is nothing in our legislation indicating an intention to make any distinction, except in a few special cases, where charters have made special exceptions, as in the case of the St. Louis, Alton and Chicago Railroad Company, where the fourth section of the charter of which provides that the mortgages upon personal property of the company shall be valid liens thereon, although not acknowledged as required by our chattel mortgage law. How far this would dispense with conformity to other provisions of that statute, it is not necessary now to inquire. Where the charter, or a general law of the State, authorizes a railroad company to mortgage either its real or personal estate, and provides no mode of execution or recording, and specifies no form for the instrument, and declares no effect which it shall have upon the rights of the parties or others, it would seem to follow, necessarily, that such mortgages must be subject to and governed by the general laws of the State, regulating mortgages; at least, so far as the general laws are applicable to the subject matter of the mortgage. As our laws applicable to mortgages of real and personal estate differ, the necessity of determining what is and what real estate is imposed us. / That the railroad itself, including the ground and superstructure, as well as the depot grounds, buildings and turntables, and the like, are real estate, no doubt has ever been xpressed, but it is denied that the rolling stock and other proerty, capable of being removed from the road without break-)g the soil or leaving a trace of the removal, is to be treated s a part of the road itself, and pertaining to the real estate. We are of opinion that the rolling stock, rails, ties, chairs, pikes, and all other material brought upon the ground of the ompany incumbered by the mortgage, and designed to be ttached to the realty, should be considered as a part of the salty, and incumbered by the mortgage as such; but fuel, oil, nd the like, which are designed for consumption in the use, nd which may be sold and carried away, and used as well for ther purposes as in the operation of the road, and when taken away have no distinguishing marks to show that they were designed for railroad uses, cannot, we think, with any propriety, be treated or considered as anything but personal . property, and subject to, .and governed by the law applicable to such property. Indeed, it is hardly to be supposed, that it was the understanding of the parties, that personal property, designed for immediate consumption, was ever intended to be embraced in the mortgage, except such as might be on hand at the time the mortgagees or trustees should foreclose or take possession under the mortgage. So long as the mortgagors should retain possession of and operate the road, all knew and intended that such property could never in any event be sold, or in any way appropriated to the satisfaction of the debt, by the trustees. All knew, that the process of consumption and fresh supplies of such property must be ever going on, and that it could never be touched by the trustees, except what might happen to be on hand at the moment possession should be taken. To say that a morí- \ gage, which upon its face provides for its maturity twenty years \ hence, was designed to embrace and hold the fuel and oil which I all knew and intended should be consumed to-morrow, if not absurd, is a refinement beyond that practical common sense which we are capable of comprehending. As a practical truth, we cannot for a moment believe that such was the honest purpose or intention of either party. Indeed, such an intention ' could have been entertained by either party, only for the purpose of protecting the property from the creditors of the company for its benefit, that it might consume and use it, and not that it might be appropriated by the law or by the trustees in the payment of the bonds. But property designed for permanent use, and which was expected would continue permanently in the use of the road, or if worn out graduálly, would be as gradually replaced, so that practically the same thing continued, it was the undoubted design of both parties should be embraced in the mortgage, and ultimately appropriated to the payment of the debt. We are not departing from the common law rule, when we hold that the rolling stock and material provided for the repair of the track, are a part of the real estate. It is not necessary in all cases that things should be actually affixed to the freehold, in order to constitute a part of it for the purpose of transfer and sale. Take the case of mill stones, which are constantly being taken up and sharpened; when up, they are as much a part of the mill as when in their beds, and would pass by a deed or mortgage of the mill, if they had been, in fact, detached for six months. So of various kinds of machinery, as a screw or cutting engine, or lathe, where a great multitude of different sized pinions or cutters are kept on hand, but only one of which can be used at a time. All of these are necessary to make the complete machine, and would pass by a sale of the factory as being a part of it, but with no more propriety than is the rolling stock a part of the railroad. No road can be complete without its machinery, any more than would a cotton or a grist mill./ Would not the sale of a foundry, as such, convey the flasks and moulds within it? Yet who would contend that the coal on hand would pass by such a description, or that a mortgage of a foundry and the stock on hand, would protect the coal which the mortgagor was actually putting into the furnace, from an execution against him, or prevent him from selling it to his neighbor, and conveying a' good title ? Money is property, and by the terms of the mortgage, was embraced within it, but we cannot presume that it was the intention of the parties that the money on hand, and which both parties expected and intended should be immediately paid out and expended in the operation of the road by the mortgagor, was subject to the lien of the' mortgage, and that no person knowing of the existence of the mortgage, could receive it of the company, without making himself liable to the mortgagees. We venture to say that no one expected or intended that any such right was secured to the mortgagee by | the mortgage. Nor do we want analogies in the well settled ' Í principles of the common law, to hold that materials provided j and designed to be attached to the road, are, for the purposes of f a mortgage or a conveyance, a part of the real estate itself. It < j is a familiar principle to all, that rails hauled on to the land, i / designed to be laid into a fence, or timber for a building, alU though not yet raised, but lying around loose, and in no way ^attached to the soil, are treated as a part of the realty, and i (pass with the land, as appurtenances. By applying these familiar principles of the common law, we may be enabled to determine what we should consider as appurtenant to the freehold, and what should pass by a conveyance of the road, and consequently what is covered by and embraced within a mortgage encumbering the road, acknowledged and recorded as a mortgage of real estate. This case presents another question of the gravest importance as connected with the rights of the trustees or mortgagees. Here, the grantees in the trust deed, or mortgagees, claim to have taken possession under the mortgage, with the consent of the mortgagors, before the rights or lien of these creditors had intervened, and that they are now operating the road as mortgagees in possession. The facts are, that, in June, 1857, the company—being in default by the non-payment of the interest due on the first and second mortgage bonds, whereby the whole of those bonds became due by the express provisions of the mortgage—executed, by its president, Mr. Bushnell, a deed of possession, to the trustees named in the mortgage, whereby it placed in their hands the road and its appurtenances, and all its personal property of every description procured for the use of the road; and the trustees, without going upon the road, personally, appoint Mr. Bushnell their agent, and attorney in fact, to run and operate the road for them, and that Mr. Bushnell immediately undertook the charge thus confided to him, and notified the superintendent of the road of the change of possession, continued him in his position, and caused printed notices to be posted along the road, of the same fact, and thenceforward continued for more than a year before this judgment was obtained, to operate the road as the agent and attorney of the trustees. No visible change was made in the conduct or management of the road, the same officers and employees being continued in the conduct of it. It is insisted that this was not a sufficient change of possession to affect third persons. We think this change of possession was sufficient. It was not necessary that the trustees should come on to the ground and take the personal supervision of the running of the road, and discharge all the old officers and employees of the road, whose knowledge of its business, connections and affairs generally, endowed them with peculiar qualifications to operate the road to the best possible advantage. Indeed, we think no other judicious course was open before them, till others could become qualified to conduct the business understandingly. Even an assignee for the benefit of creditors may appoint the assignor to close up the business, without rendering the assignment necessarily void, although that may properly be considered as one evidence of fraud, but it is certainly not conclusive evidence of it. In this caso we see not the slightest evidence of actual fraud, but it was manifestly done with the honest purpose of allowing the mortgagees to reap the legitimate fruits of the mortgage. The necessities of the case almost compelled the trustees to avail themselves of Mr. Bushnell’s services, whose familiarity with the road, its business and employees, certainly rendered it prudent to secure his services. From the nature of the case, no apparent change could take place in the management of the road without deranging its business and operations. We agree with the jury that the transfer of the possession of the road to the trustees was actual and bona fide. We find then, in June, 1857, the trustees or mortgagees in possession of the mortgaged property, for condition broken. And the important question arises, what are the rights of trustees under such circumstances ? Can they run the road and exercise the franchises of the company, the mortgagor ? It is evident' that all parties have from the beginning looked upon this as an embarrassing question. This embarrassment grows out of the intervening rights of the public. A franchise granted by law to a corporation or an individual, has been considered as inalienable, except with the consent of the law-making power. It has been treated as a special trust confided to select hands, and not to be entrusted to casual hands, who might purchase of the grantee or donee of the franchise. That the public have an interest in its exercise, and must have assurance that it will not be abused by those who are to exercise it. The embarrassments felt as growing out of this subject are manifested by certain provisions in the mortgages or trust deeds, and also in the deed delivering possession to the trustees, and in their power of attorney appointing Mr. Bushnell as their substitute in the management of the property. The mortgage or trust deed, after the proper recitals, grants, bargains, sells, transfers and conveys, all the road and its appurtenances, and all property provided for the use of the road, all choses in action, and the franchises of the company, to have and to hold the same upon the following trusts: that if the party of the first part should fail to pay the principal or interest due on the bonds secured by the mortgage or the sinking fund, then the whole amount of the principal should become due, and after sixty days, and upon the request of any bondholder, the trustees might enter and take possession of the mortgaged premises, “ and as the attorneys in fact or agents of the said Northern Cross Railroad Company, by themselves, or agents, or substitutes, duly constituted, have, use and employ the same,” making repairs and additions, etc., and after deducting the expenses, apply the proceeds towards the payment of the indebtedness secured by the mortgage, or the trustees may, on the written request of the holders of ten per cent, of the indebtedness, advertise and sell the property, and make a good conveyance of the same, subject to the first mortgage, and to restore or pay over the excess of the proceeds, if any, after paying the specified indebtedness, to the mortgagor. This clause which authorizes the trustees to conduct the business as the agents or attorneys in fact of the railroad company, it is insisted, made the possession and operation of the road by the trustees, the possession of the company, making it liable for the debts contracted by the trustees in managing the road, and the property still liable to be seized for the payment of these or any antecedent debts of the company. We were at first impressed with this suggestion, but on a more careful examination and reflection, we are satisfied that the position is not tenable. In order to ascertain the true intention of the parties, and the real 1 nature of the transaction, we must look to the instrument by which the possession of the road was surrendered to the trustees as well as to the trust deed under which the right to the possession accrued. This deed recites the execution of the two mortgages, and of the bonds mentioned therein, the default of the company, and the demand of possession by the trustees, under the mortgage. The deed then transfers the whole of the property to the trustees, and authorizes them to take possession thereof, and all the rights and franchises of the company, to have and to hold the same for the uses and purposes contemplated by the two recited mortgages. And the trustees covenant that they will continue to run, use and occupy the road, in the name of, and as the attorneys in fact and agents of the road, and after paying the expenses, to apply the proceeds as specified in the deed, and when the specified indebtedness is paid, to surrender the road and property to the company, reserving the right of the bondholders to demand a sale of the property as provided in the mortgages. The doubt existing as to what extent the trustees in possession, as purchasers under the mortgage, might use and exercise the franchises of the corporation in running and operating the road, manifestly led to the insertion of the provisions, upon which the present objection arises. Had there been no doubt that the trustees or purchasers might, in their own names, have exercised all the franchises and enjoyed all the rights and immunities, conferred upon the company by the charter, there is no probability that any provision would have been made for the use of the company’s name, in the management of the business of the trust. Without at this moment saying to what extent the trustees in possession might, in their own name, use and operate the road, and exercise and enjoy the franchises granted by the legislature to the company, it is manifest that they could only enjoy some of the rights granted in the deeds of trust and posséssion, by using the name of the company. For instance, the dioses in action could only be collected by the use of the name of the company. It does not necessarily follow, that all which is done in the name of a party is done for him and his benefit, or even to enforce his rights, although the person doing it may, in form, act as the agent or attorney of the one whose name is used. Even a court of law will regard and protect the rights of an assignee, though he may be obliged to use the name of the assignor, to enforce or enjoy the rights assigned. But the mortgage does not provide that the trustees should take possession of the property as the attorneys and agents of the company, nor does the deed of possession grant and convey to them the title and possession of the property, as such attorneys and agents, but these are granted to them positively and absolutely, as trustees, and for the uses specified and declared; but the trustees covenant that they will use the property in the name of and as the attorneys and agents of the company. This was evidently not designed to affect or give character to the title or possession of the property to be held lay the trustees, but to the mode, manner and form of using it. It was supposed that the use of the company’s name, and the enjoyment of the company’s franchises, in the running and managing of the railroad and business, could only be done in the form of an agency, and' hence that form was adopted for the real and bona fide object of carrying out the trust provided for in the deeds. If this assumption was correct, then it inevitably follows, that this mode of doing the business was right and proper, for the idea that there is no mode in which the trustees or purchasers could carry on and operate the business of the road, cannot for a moment be listened to in a court of justice. And even if the assumption was wrong, so long as it was entertained and acted upon, it no more affects the good faith of the transaction, than if it were true, and as to some portion of the business confided to the trustees, it was undoubtedly true. In authorizing the construction of this road, and the execution of these mortgages, the legislature had two objects in view. The first was to secure the construction and operation of a railroad, and to the people the enjoyment of its use, upon paying a reasonable compensation therefor; and the other was, to secure to those who. should loan money to the company to enable it to construct and equip the road, the means of enforcing the repayment of the money which they should thus advance, by appropriating, if need be, the road and other property of the company to that object. The first object would seem to forbid the idea that the mortgagees, or purchasers under them, could take up the road and dispose of the material, so as to deprive the public of its use, whose sovereign powers had been exercised in the condemnation of private property for the construction of the road. If it was the intention that the road should not be taken up and destroyed for the payment of the mortgage debt, but that it should be sold subject to the duty towards the public of continuing and operating it as a road, it follows necessarily, that it was the intention of the legislature that those into whose hands the road might fall, and upon whom this duty to the public of running and operating the road would devolve, should possess all the necessary rights and powers to enable them to perform this duty. The authority to mortgage implies the authority to sell the thing mortgaged, and to convey to the purchaser all needful powers to use the thing purchased, in a proper and beneficial manner. To this extent at least, we entertain no sort of doubt of the rights of the trustees or purchasers. If this right were withheld, we must allow, nay, we necessarily compel the road to be taken up and the material to be sold to pay the mortgage, or else compel the parties to resort to shifts and colorable proceedings which subjects them to the imputation of indiscretion and fraud, as we find exhibited in this record. Perhaps it is not too much to say, that the extent of right conferred upon the company for the purpose of enabling it to finish, repair and operate the road, was designed to be impliedly conferred upon the mortgagees in possession or purchasers under the mortgage, to enable them to accomplish the same object; but it is not necessary now to say this, but we do say unhesitatingly, that the trustees or purchasers are endowed with sufficient powers which are undoubtedly in the nature of a franchise, to enable them to discharge the duty which the public have a right to demand of them, by keeping in repair, maintaining and operating the road, and to demand and receive a suitable reward therefor, and for this purpose they may use their own proper names, or adopt any other convenient business name, as any other individual or company may do, and they are under no necessity of adopting the name of the company to whose rights in the property they have succeeded. In the case before us, the trustees took possession of the property as they had a right to do under the mortgage, long before the judgment was rendered upon which the execution was issued, under which the marshal seized and took away the portion of the property which belonged to the road at the time of the transfer of the possession under the mortgage. From that time, even that portion of it which should be treated and considered as not appurtenant to the real estate, was not subject to be taken for the payment of the general debts of the company, and that portion which was purchased and brought on to the line of the road by the trustees, after they took possession, of course was theirs for the purposes of the trust, and no more liable for the debts of the company than was the property of any third person. Indeed the whole defense depended upon impeaching the good faith of the transaction, and showing that no actual and legal transfer of the property to the trustees had taken place under the mortgage, and in the argument and reference to authorities on this point, this case was confounded with the case of an assignment of a debtor in failing circumstances to a trustee for the benefit of his creditors, whereas there is no analogy between the two cases. These trustees took possession as mortgagees, for condition broken, in pursuance of their right distinctly expressed in the trust deed, and the duties of mortgagees in possession are imposed upon them, not only by the law, but by the special provisions of the trust deeds and the deed of possession, and these rights and duties are very different from those of an assignee of a failing debtor for the benefit of his creditors. The former are not bound to know, and indeed have no right to know, that there are any debts except the mortgage debt, and when that is paid, they must surrender all the residuum to the debtor. Whereas the latter must take notice of all the liabilities of the debtor, or at least all those that come to his knowledge, whether mentioned in the assignment or not, and any provision in the assignment, giving the debtor the remainder before all these are satisfied, would be in law a fraud, and would invalidate the whole assignment. We think the verdict was properly found for the plaintiffs, and the judgment must be affirmed. Judgment affirmed.