108 F. 1 | 6th Cir. | 1900
after making the foregoing statement of the ease, delivered the opinion of the court.
The claim to a lien superior to the lien of the mortgage bonds upon the locomotive engines is not well founded. The Rhode Island Locomotive Works sold to the railroad company in June, 1891, 10 locomotives, for the consideration of $89,500. Of this, $17,900 was paid in cash upon delivery. Eor the remainder, 12 obligations, called “lease warrants,”' were executed, each for $5,966, which matured at monthly intervals, up to June 13, 1S92. The instrument evidencing this transaction was in the form of a lease; the payments made, and to he made, being called “rentals.” The legal title remained in the so-called “lessor.” The contract provided that “the lessee may, at its option, at any time within one month after the maturity and payment of said last lease warrant, purchase said locomotives at the price of one dollar, and, upon payment of said sum to it, the lessor shall ther e-upon, by a bill of sale, convey said locomotives to said lessee.” Eleven of these “lease warrants” were paid prior to June, 1892. The twelfth and last was by agreement extended to November 33, 1892. In June, 1892, S. IT. Kneeland, largely interested as a stockholder in the railroad company, undertook, at the instance of the company, to raise a loan of $60,009 to aid it in meeting interest upon its mortgage bonds. Passing over much that is immaterial, the master reported that he accomplished this by having executed to him the 10 notes, each for $10,000, which were the originals of those in suit. Kneeland then induced the Rhode Island Locomotive Works to execute an assignment ,in blank of the above-mentioned lease contract, by which it assigned “all its right, title, interest, and property in and to said locomotives, and in and to all of its rights and authority under said agreement, subject, however, to said outstanding lease warrant maturing November 13,1892, and to all securities and remedies under said contract of June 5, 1891, so far as the same may he necessary for the collection of said lease warrant.” This assignment is dated June 6, 1892, and at the foot thereof the railroad company executed an assent thereto.
It is too obvious for discussion that the1 arrangement under which the railroad company acquired the 10 locomotives in question was no ordinary letting of property for a fixed rental, and that no such thing was really contemplated, and that the retention of title was intended as a mere mode of securing the payment of the purchase price. The real character of such transactions has been often the subject of judicial construction, and their rank in relation to the claim of creditors considered with reference to the registry laws of the states within which the property is situated. Hervey v. Locomotive Works, 93 U. S. 664, 23 L. Ed. 1003; Heryford v. Davis, 102 U. S. 235, 26 L. Ed. 160; McGourkey v. Railroad Co., 146 U. S. 536, 13 Sup. Ct. 170, 36 L. Ed. 1079. The real transaction was a bargain and sale, the title being retained as security for the purchase money. Being property susceptible of separate ownership and separate liens, it passed under the after-acquired property clause of the existing mortgage, subject to the lien of the vendor; the existing mortgagees not being purchasers Tor value in respect of such after-acquired property. Harris v. Bridge
2. That the money was borrowed to pay interest upon matured mortgage coupons is no ground for giving a preference over such mortgagees. In Morgan’s L. & T. R. & S. S. Co. v. Texas Cent. E. Co., 137 U. S. 171, 196, 11 Sup. Ct. 61, 34 L. Ed. 625, the court, speaking by Chief Justice Fuller, said:
“But if the advances could therefore be treated as having been specifically procured for, or specifically applied to, the payment of interest as such (although there is no evidence to that effect), still such payment would afford no basis for the assertion of a preference as against the bondholders. So far as disclosed, the interest coupons were paid, not purchased (Ketchum v. Duncan, 96 U. S. 659, 24 L. Ed. 808; Wood v. Safe-Deposit Co., 128 U. S. 416, 9 Sup. Ct. 131, 32 L. Ed. 472), and cannot be set up as outstanding; and the contention is wholly inadmissible that the bondholders, because they received what was due them, should be held to have assented to the running of the road at the risk of returning the money thus paid, if the company, by reason of unrealized expectations on the part of those who made the advances, should ultimately turn out to be insolvent, and unable to go on. By the payment of interest, the interposition of the bondholders was averted. They could not take possession of the property, and should not be charged with the responsibility of its operation ”
This case has not been overruled or shaken by any subsequent decision of which we are aware.
That the necessity for borrowing money to pay interest was in part a consequence of the. application of current income to the payment of the purchase money for the locomotives bought from the Ehode Island Locomotive Works does not strike us as raising an equity superior to that of the mortgagees in favor of one who loaned money for the specific purpose of paying interest. The interest coupons were paid by the application of the borrowed money, and no right of subrogation to the lien of the coupon exists. The money was not used in paying off: the vendor’s lien upon the locomotives, and hence there can be no possible subrogation to that lien.
If a lender of money, for the express purpose of paying the current operating expenses of a railroad, and thereby keeping it a going concern, does not bring himself within the class of creditors entitled to a preference over an existing mortgage debt, as was expressly decided in Morgan’s L. & T. R. & S. S. Co. v. Texas Cent. R. Co., it is difficult to see the higher equity of one who lends money to pay mortgage interest to prevent foreclosure over those who were thereby prevented from asserting the lien of their mortgage. Why mortgagees, who received thereby only what was due them, should now be required to pay back the money thus paid them to those who loaned the money to the railroad company for that very purpose, is not comprehensible. The decree was right, and must be affirmed.