property on the road subsequently acquired shall be bound, and a conveyance of it duly be executed, gives an equitable lien on "It appears that Geisse, before he received the sixteen bonds, had taken from the company a draft for the amount due on New York or some other place, which was returned protested for non-payment. On the return of the draft the bonds were paid to him as the only means of payment within the power of the company. From this statement it is clear that the defendants Pennock and Hart, as creditors of the company, stand upon no other ground and have no higher claim than any other holders of bonds issued under the second mortgage. Geisse, the builder of the cars, having delivered them to the company without taking a special lien, if he continued to be the holder of the bonds, would have no better claim than the defendants, who are his assignees. The bonds, it is presumed, are payable to bearer, and pass by delivery. Pennock and Hart are purchasers in the market, the same as other holders of bonds, covered by the second mortgage. "A part of the gravel cars levied on by the sheriff were sold with the consent of the counsel in this case, and also of the complainant and the first bondholders; but the levy is understood still to include cars, &c., which belonged to the company when the first mortgage was given. "In the first mortgage, for the consideration stated, the company covenanted to 'execute and deliver any further reasonable and necessary conveyance of the premises, or any part thereof to the party of the second part, his successors in said trust, and assigns, for more fully carrying into effect the objects hereof, particularly for the conveyance of any property acquired by said parties of the first part, subsequently to the date hereof, and comprehended in the description contained in the premises.' It is presumed the third mortgage deed to the complainant was executed in 1855 under this covenant. Entertaining the opinion that the first mortgage, by virtue of the above and other covenants which it contains, operated as an equitable mortgage on subsequently acquired equipments for the road, which was not displaced by the second mortgage, it is not deemed necessary to inquire what, if any, legal effect can be given to the last mortgage. Holley v. Brown, 14 Conn. R. 255. "It is alleged in the bill that the entire property of the road will be inadequate to the payment of the first mortgage. The wisdom of the first bondholders was manifestly shown, by permitting the road to remain under its present management, being satisfied that the directors had discharged their duties faithfully and economically. This seems to be the only course that can retrieve the affairs of the company. In most cases, to place such a concern in the hands of a receiver involves it in hopeless ruin. “Had Pennock and Hart, as holders of the sixteen bonds, a right to bring suit on them at law, and, having obtained a judgment, to sell on execution a part of the mortgaged property, without reference to the claims of other creditors under the same or other mortgages? Against such a procedure there are three insuperable objections: 1. A sale on execution would convey to the purchaser no exclusive right to the property sold. 2. Such a sale would not divest the equi property subsequently acquired, to the bondholders of bonds secured by the mortgage. table rights of other bondholders. The purchaser could receive only the same and no greater right than that which was vested in them by the bonds. 3. The claim must be prosecuted in equity, where all who have an interest in the subject-matter may be made parties. In equity only can the rights of all the parties be properly adjusted. And this is especially the case where the property mortgaged is inadequate to the payment of all the creditors. In addition to these considerations, from the nature of the property levied on, it could not be separated from the road without suspending, in whole or in part, its operations. And what could be more unjust than this to the other bondholders? The operation of the machinery on the road, in the transportation of passengers and freight, constitutes its chief value. "The railway, like a complicated machine, consists of a great number of parts, a combined action of which is essential to produce revenue. And as well might a creditor claim the right to levy on and abstract some essential part from Woodworth's planing machine, or any other combination or machinery, as to take from a railway its locomotives or its passenger cars. Such an abstraction would cause the operations to cease in both cases. As before remarked, the proper mode of enforcing payment against a railway company on bonds secured by mortgage, is to bring the creditors and the railway company into chancery, where the earnings of the road, through a faithful agency, may be distributed equitably among the creditors. And in a case where such a course would not satisfy the reasonable demands of creditors, to sell the road and distribute among them its proceeds. Such an extreme procedure, however, should not be authorized by any court, except under circumstances of absolute necessity. 13 Serg. & Rawle, 210; 9 Georgia Rep.; 9 Watts & Serg. 27. "A stronger ground for an injunction than is taken in this case could not well be conceived. The defendants, under a judgment at law, have levied upon a large part of the rolling-stock on the road, which, if sold and removed, will stop its operations, while the same stock is under mortgage to creditors whose lien is prior to that of the defendants. Such a procedure, if carried out in this and other cases, would defeat the liens of creditors in such cases to many millions of dollars, and put an end to the structure if not the maintenance of railways. "The court will perpetually enjoin the proceedings in the case at law, as prayed by the bill, at the costs of the defendants, Pennock and Hart." See the same case on appeal in the Supreme Court of the United States, 23 Howard (U. S.), 117. In the case of Phillips v. Winslow Trustee, 18 B. Mon. 431, 445, it was held that the power to pledge the franchise of a railway company implies the power to pledge everything necessary to the enjoyment of the franchise, and the conveyance of the road-bed with the superstructure and rolling-stock includes cars, wheels, firewood obtained for the use of the engines, and coal for the use of the machine-shop, as incidents. In Dunham v. Earl (Sheriff), in the Circuit Court for the District of Michi A charter must be construed according to the intent of the legislature, if such intent can be ascertained, by the language used. A person who constructs cars or other rolling stock for a rail gan, it was held recently, on motion for an injunction against the sale of the personal property of the company, at the suit of one of the mortgagees, that under a railway mortgage, including the railway and its appurtenances, engines, cars, and all rolling-stock and personal property, which the company possessed at the date of the mortgage, as well as all after-acquired property, wood collected for the use of the engines, was held under the mortgage, and could not be taken by the sheriff upon the debts of the company. The same views were also maintained in a recent case in Pennsylvania, in which it was further decided that where there is a question in the case whether the company had power to mortgage, the court, without deciding this point on a motion for a special injunction, will enjoin creditors and the sheriff from proceeding to sell property covered by the mortgage, but will also cause the lien of the fi. fa. to be continued till further order. Loudenschlager v. Benton, 3 Grant's Cas. 384. In Ohio it is held that a railway company may effectually mortgage its property, real or personal, connected with the use of its franchises, but hereafter to be acquired; but the existence of such mortgage does not operate to exempt such property, in its nature personal, and while in the possession of the corporation, from being levied upon by the judgment creditors of the company. Coe v. Peacock, 14 Ohio St. 187. And see Coe v. Columbus, &c. Railw., 10 Id. 372; Coe v. Knox County Bank, Id. 412. And in Massachusetts the right to mortgage, by apt words, subsequently acquired property, has been recognized. Howe v. Freeman, 14 Gray, 566. See also State v. Northern Railw., 18 Md. R. 193. And see Coe v. McBrown, 22 Indiana R. 252; Farmers' Loan & Trust Co. v. Commercial Bank, 15 Wisconsin R. 424. But in State Treas. v. Somerville & Easton Railw., 4 Dutcher, 21, where a tax of one half of one per cent was imposed annually upon the cost of the road, it was held that this did not include the equipments, cars, engines, and other personal property of the company. And in New York it has been held that rolling stock, rails, ties, platform scales, &c., and all articles not constituting a part of the road-bed, or firmly affixed to the land or to some building which is itself a fixture, including such articles as are usually denominated chattels, but which are annexed by a screw or the like to some building, and can be removed without detriment, not including a stationary engine and boiler, are not embraced in a mortgage of the railroad, real estate, chattels real, and franchises of the company, but are subject to execution as personal property. Beardsley v. Ontario Bank, 31 Barb. 619. And unless a mortgage of the rolling-stock, &c. is filed as a chattel mortgage under the statute, a purchaser under a judgmeut sale, even though notified of the mortgage, takes the property in New York clear of such encumbrance. Stevens v. Buffalo, &c. Railw., 31 Barb. 590. way, if he deliver the stock to the company without any special provision therefor, can claim no lien on the work. He may effect this lien while this work is in his possession. And if he obtain a judgment against the company for the work, an execution cannot be levied on the rolling-stock on which a former lien exists. Where there are liens on the property of a railway company, the liens must be adjusted in chancery, where each claimant shall receive his proportionate share of the proceeds. The appointment of a receiver is generally ruinous, and a sale of such property should not be made under a reasonable prospect of payment, by a faithful application of the profits of the road. 17. It was held that a judgment creditor and debenture holder of a railway company, was neither entitled to a foreclosure or sale. The Master of the Rolls said: "There could be neither a sale nor foreclosure; but the plaintiff might possibly be entitled to be relieved from the burden of accounting as an encumbrancer in possession." "That all he could do at present was to direct inquiries as to what was due the plaintiff, what charges there were on the railway and their priorities, and what, if anything, was due the land-owners, and what lands were subject to their lien." 34 18. Where a mortgage covering a railway and all apparatus was executed, and three hundred of the bonds issued before the road was wholly graded, and when no more than one fourth of the cost of construction had been expended, and while in that state the company, being unable to finish the construction, contracted with some third party to do it, under a contract to pay him partly in their bonds and partly in money, and with an agreement that he should retain the possession and use of the road and its fixtures, &c., until paid; it was decided, in equity, that the contractor acquired a lien prior to that of the mortgage to the extent of his expenditures.35 34 Furness v. Caterham Railw. Co., 25 Beavan, 614, 619. SECTION IIa. Opinion in case of Knapp and Miller v. Rutland and Washington Railway. I. As between debtor and creditor these questions would be of entirely different consideration. II. But all bonâ fide creditors stand upon equal equity; and a prior right among creditors must rest upon some legal advantage, fairly gained. III. In this view the defects in the plaintiff's legal claim are numerous, and of a very marked character. It professes to be a mortgage of the real estate and franchises of the corporation without any action of that body, but through the agency of the directors merely. This cannot be maintained in law. 1. Because the title resides in the corporation alone, and can be conveyed only by the corporate action, in conformity with its charter and by-laws, and the general laws of the state. | 2. All corporate franchises, and especially those of railways, are strictly personal and inalienable. 3. This is a question of capacity and power in the corporation to make the deed, and may be raised by any one having an interest in it. 4. Such an act, being ultra vires, is not susceptible of confirmation by any subsequent acquiescence of the corporation, either express or implied, or by any general act of the legislature. IV. Creditors are only affected by the registry of a valid mortgage, or knowledge of its existence. 1. The fact of an entry in the books of the company, that the bonds were delivered at a time subsequent to the statute, is not proof of the fact, and if the fact were proved, it could not affect subsequent bonâ fide encumbrancers, since it does not appear upon the registry. 2. An instrument deficient in the statute requirements not entitled to registry, and not, therefore, constructive notice. V. There was not only a defect of power in the corporation to execute the deed; but there is an entire want of any proper action of the corporation. 1. It is not done in the name of the corporation, and does not therefore profess to be their act. 2. There is no pretence of any action of the corporation, but only of the directors, which is as absolutely incompetent as if it were the act of a single stockholder or director. 3. The expression "all the business of the company," does not enlarge the ordinary powers of directors. It is not the proper business of a corporation to assign all their franchises, or even all their property. That would be to annihilate and not to transact their business." 4. Directors of joint-stock companies have no such power, as has often been decided. VI. This attempt to convey the real estate of the corporation by a vote of the directors is in direct conflict with express provisions of the general statutes. |