90 F. 322 | 6th Cir. | 1898
This action in equity was begun in the circuit court for the district of Kentucky by the complainant the Youngstown Bridge Company to foreclose a mechanic’s lien asserted by it upon the bridge and approaches of the Kentucky & Indiana Bridge Company. The parties defendant to the bill included the Kentucky & Indiana Bridge Company; John H. Stotsonberg and Alexander Dow-ling, trustees under a first mortgage given by the company upon the bridge; the Louisville Trust Company, trustee under a second mortgage; Theodore Harris, trustee under a terminal deed of trust; and the Columbia Finance & Trust Company, claiming a lien upon a part of the bridge under another deed of trust. J. W- Gaulbert and others by intervening petition claimed a lien under the same deed of trust as that upon which the claim of the Columbia Finance & Trust Company was founded; and the Central Thomson-Houston Company, by intervening petition, claimed a, mechanic’s lien for the furnishing of an electric railway plant to the bridge company. The decree for sale by the circuit court directed the sale of the bridge and its approaches as an entirety, and marshaled the liens. This appeal questions the action of the circuit court in its adjustment of the priorities of the various liens, in its denying the existence of one of the asserted liens, and in its ordering the sale of the bridge and its approaches as an entirety.
The Kentucky & Indiana Bridge Company was the result of a consolidation of an Indiana company and a Kentucky company bearing the same name. In 1881 the consolidated and the two constituent companies issued a mortgage upon the bridge and its approaches, and upon all its after-acquired property, to secure $1,000,000 of bonds of the consolidated company. The bridge was built to connect the cities of New Albany, Ind., and Louisville, Ky., and was intended for steam-railway, street-railway, and wagon transportation, and foot passengers. The original construction included an approach on the Kentucky side, built of wood, and a railway extending from the south end of the bridge, west of Louisville, to Fourteenth street, in that city, where a connection was made with the line of the Short-Route Transfer Railway Company. The bridge as thus constructed is known as “the bridge and the main line.” In 1886, for the purpose of securing the Ohio & Mississippi Railway Company as a tenant, the bridge company agreed to connect the bridge with other railroads in the city of Louisville, and to reconstruct the wooden approach by a steel structure. The company had no funds, but succeeded in procuring these
The issues which arise for decision are: (1) Is the lien of Theodore; Harris, trustee under ihe terminal trust mortgage upon the new approaches and connections described therein, prior in right to that which the first mortgage bondholders have upon the same property by virtue of the after-acquired property clause in their mortgage? (2) Is the lien of the Columbia Finance & Trust Company upon the land and structure upon which the new steel approach in the main line was built prior in right to that of the first mortgage? (3) Is the lien of J. W. Gaulbert and others upon the new steel approach prior to the first mortgage? (4) Is the lien of the Youngstown Bridge Company prior in right to that of Gaulbert and others? (5) Has the Thomson-Houston Company any mechanic’s lien whatever upon the property of the bridge? ((>) Hhouid the circuit court have ordered the bridge and all the approaches and terminals sold as an entirety? We shall consider these questions in their order.
1. The first mortgage conveyed the bridge of the company to Dowling and Stotsonberg, trustees, by the following description:
“Its lauds, bridge piers, abutments, toll houses, approaches, and all the property, real, personal, and mixed, wherever situated, and all its rights, I>rivileges, franchises, immunities, owned or possessed, or which may be hereafter acquired, by if, * * * and which may be acquired by further legislation, or in any manner whatever.”
The bonds issued under this mortgage had been sold and were all outstanding prior to October, 1886. The bridge and its main line were completed in the summer of 1886. The railway and approaches acquired under the terminal trust deed for the purpose of complying with the Ohio & Mississippi Railway contract were secured and constructed in the fall of 1886 and the spring of 1887. This was done in accordance
The contract provided that the payment of the bonds should be secured by a terminal deed of trust, in which the lands, rights of way, buildings, and all the appurtenances thereto, should be conveyed to Theodore Harris, as trustee, and should be further secured by a similar deed of trust to be executed by the bridge company, conveying by mortgage to Theodore Harris, trustee, the main-line approach of the bridge company, and all other branch lines extending therefrom, to connect with other railroads or depots in the city of Louisville, and all terminal facilities connected therewith. The deed of trust in pursuance of this contract was made on the 1st of December, 1886, between the Kentucky & Indiana Bridge Company, the Southwestern Contract & Bridge Company, E. F. Trabue, trustee (in whose name much of the real estate was acquired by the contract company), and Theodore Har
The contract company was originally organized in 1881, at the instance of the directors of the bridge company, to build the bridge for the bridge company, in consideration of a large amount of the first mortgage bonds and the capital stock of the bridge company. The contract company complied with the contract, and built the bridge. It seems fo have taken contracts from other companies for construction. The company was run by its president and secretary, who made contracts in its name, from time to time, without, calling a meeting of its directors. Between 188-1 and 1888 it does not appear that any directors’ meeting was called. In 1888, however, the board of directors continued all the contracts made by its president. The capital stock of the construction company was $10,000. It does not appear from the record that at the time of the making of this contract, or indeed at any other time, the stockholders of the contract company and the bridge company were the same, except as it may be inferred from the fact that part of the contract price for building the bridge received by the contract company was stock in the bridge company. The two companies did not have the same officers, and, so far as appears, they did not have the same directors. The bonds under the terminal trust deed were delivered at the time of the execution of the deed, and not at the time of the execution of the contract. When the deed was executed the contract company had already purchased, and had taken in its name, or that of Trabue, trustee, 30 acres of land afterwards used for freight yards, and about one-half of the private property needed as a right of way for the proposed improvements; and, from the recitals of the deed, we may infer that the work of laying the track and making other improvements had been under way for some time. It is agreed as a fact that Theodore Harris, the trustee under (.he terminal trust deed, was not advised, either at: the time of receiving the deed or afterwards, of any facts conducing to show that the contract company and the bridge company were otherwise than independent corporations contracting in good faith with each other in manner and form as provided by the deed of October 1, 1886, and that all (he bonds were sold for value before this action began. The new railway approaches were 26,60!) feet in length. Of this, 8,300 feet was laid upon the streets and alleys of the city of Louisville, under ordinance's granting to the bridge company the right to occupy them with tracks. An additional 2,864 feet was laid along the streets in Parkland, a suburban
It is well settled, since the decision of the supreme court of the United States in Pennock v. Coe, 23 How. 117, that one may execute a mortgage, valid at least in equity, upon property not in existence or not owned by him, the lien of which will immediately attach to the property when it shall come into existence, or become the property of-the mortgagor; and this whether the title of the mortgagor is legal or equitable. The rule has been applied both to real and to personal property. Dunham v. Railway Co., 1 Wall. 254, 266; Railroad Co. v. Cowdrey, 11 Wall. 459, 481; U. S. v. New Orleans R. R., 12 Wall. 362; Dillon v. Barnard, 21 Wall. 430, 440; Fosdick v. Schall, 99 U. S. 235, 251; Myer v. Car Co., 102 U. S. 1; Porter v. Steel Co., 122 U. S. 267, 283, 7 Sup. Ct. 1206; Thompson v. Railroad Co., 132 U. S. 68, 74, 10 Sup. Ct. 29; Railroad Co. v. Hamilton, 134 U. S. 296, 10 Sup. Ct. 546; Trust Co., v. Kneeland, 138 U. S. 414, 423, 11 Sup. Ct. 357; McGourkey v. Railway Co., 146 U. S. 536, 567, 13 Sup. Ct. 170; Wade v. Railroad Co., 149 U. S. 327, 341, 13 Sup. Ct. 892; Irrigation Co. v. Garland, 164 U. S. 1, 17 Sup. Ct. 7. The limitations of the rule are clearly drawn in the foregoing cases. The chief is that the mortgagee of after-acquired property is not a purchaser for value, and cannot acquire an interest by way of lien greater than that which the mortgagor has himself acquired. The lien of the mortgage attaches to after-acquired property in the condition in which the mortgagor takes it from his vendor, and subject to all known liens and equities valid against the vendor, and also subject to all liens or equities valid against the vendee and moj ':gagor which arise in the act of purchase or acquisition, and therefore necessarily qualify its scope and extent. Thus, a vendor’s lien on the property, good against the mortgagor, is prior in right to that of the mortgagee under an after-acquired property clause. So, too, a purchase-money mortgage upon after-acquired property is not displaced by the lien of a prior mortgage of the mortgagor containing an after-acquired property clause, because in equity the purchaser is regarded as taking only the difference between the value of the property and the amount still due on the price. U. S. v. New Orleans R. R., 12 Wall. 362. In cases of conditional sales to the mortgagor, the mortgagee, under the after-acquired property clause, obtains a lien subject to the same defeasance or forfeiture as that to which the title of his mortgagor is subject. Fosdick v. Schall, 99 U. S. 235, 251; Myer v. Car Co., 102 U. S. 1; Trust Co. v. Groome, 2 U. S. App. 95, 105, 1 C. C. A. 133, 48 Fed. 868; Loomis v. Railroad Co., 17 Fed. 301, 305. And it is even held that if the property comes into the hands of the mortgagor subject to a lien which is good against him, though, for want of formalities, it is not good against his subsequently attach
It is urged upon the court that such a conclusion as that just reached will make it possible to commit great frauds upon first mortgage bondholders. It is said that most first mortgage bonds are issued in advance of the acquisition and improvement of the mortgaged property, with the understanding that the money paid for the bonds is to be used to buy and construct the subject-matter of the mortgage, and that this very useful plan will be entirely defeated, if the mortgagor may, by a device like that here used, create liens on the newly-acquired property prior in right to the original mortgage. Our conclusion would not validate any such proceeding as that supposed in the illustration. There is a clear distinction between the obligations of a mortgagor
The learned judge who heard this case at the circuit was led to the conclusion that the terminal trust deed did not secure a first lien on the new terminals to the holders of bonds issued under it, because he found that the contract company was nothing but the alter ego of the bridge company, with no real, independent existence, and with no capital or means of carrying out the contract except what the bridge
What has been said applies only to the private property bought by the contract company with its money. With resnect to the; lights of way obtained by ordinances from ihe'city of Louisville and the village of Parkland, the case is different. The contract company paid nothing for diese rights of way, and contributed nothing to (heir acquisi-' tion. Therefore they came into the possession and enjoyment of the bridge company burdened with no lien except such as might arise from the improvement of that which was already the property of the bridge company. The right which a city confers upon a railway company to.
The result, is. that the lien of the terminal trust bondholders upon the new terminals is, as to that part situate upon real estate or rights of way for which the contract company paid, prior in right to the lien of the first mortgage, to the extent of ihe sums expended in buying the lands or easements, and in erecting the necessary structures there on, buf that as to the remainder of the new terminals their lien is junior to that of the first mortgage. The new terminals, however, cannot now be divided up into their component parts; and these two liens upon the separate portions must, in view of the unit character of the subject-matter of th<¿ liens, be transferred to an undivided portion of flu; whole. Unless 1 he parties can agree upon the proportionate value of the two parte of the new terminals distinguished as above, then the ease must be referred Lo a nuts ter for decision of the ques lion. If, then, for illustration, the master were to report that the terminals were worth $300,000, of which the part bought by the contract company was worth $100,000, and it had expended in its purchase and improvement $100,000, then the result would be that the terminal trust bondholders would have a lien to the extent of $100,000 on an undivided one-third of the new terminals, and the first mortgage bondholders would have a lien on the remainder to secure their entire claim.
2. The lien of the Columbia Finance & Trust Company arose under a contract between that company and the bridge company, by which the trust company agreed to purchase the necessary right of way for the purpose of eroding a new approach to the bridge to lake the place of the old wooden approach. The contract stipulated that the title to the property for the approaches was to be taken in Hie name of the trust company, and. was to be conveyed to the bridge company when that company paid to the trust company the money expended in its purchase, together with a reasonable compensation for the transaction. It was further provided that, in case (here were consequential damages to other property by the use of the properly bought for bridge purposes, such damages, to the extent of $3,t>00, were to be paid by the trust company, and reimbursed to it. The inonev advanced by the trust company to buy these lots has never been paid by the bridge company. The title to the lots was taken in the name of the trust company. The only title, therefore, which the bridge company has in the property is the title which is subject to the payment of the purchase price, which the Columbia Finance & Trust Company, as the holder of the lots, is entitled to. This property was bought, not with the money of the bridge company, but with the cash of the trust company. The consequential damages were a part of the cost of the
3. We now come to the intervening petition of J. W. G-aulbert and others, based upon two notes of the bridge company (one for $8,000, and the other for $1,000), upon which the petitioners became indorsers at the request of the bridge company, and which they have been obliged to pay. They claim a lien upon the property held in trust by the Columbia Trust Company junior to the lien of that company, but prior in right to the lien of the first mortgage. Their case rests on the following provision of the trust agreement between the bridge company and the Columbia Trust Company:
“After the said trust company shall have been fully repaid the advances to he made by it for the purchase of ground as above mentioned, the said property conveyed to it as aforesaid, and the said railroad to be constructed thereon, shall be held by said trust company in trust to secure the payment of such moneys as may be advanced by any other persons to or for the account of the bridge company to enable it to pay for the labor and material to be used in the construction thereof. The amounts of said advances by other persons, with the names of the parties making the advancements, and who shall become thereby entitled to the benefit of the security of this trust deed, shall be furnished from time to timo by the bridge company to the trust company; it being understood that the term ‘advances’ shall embrace, not only money loaned by individuals to the bridge company, but moneys raised upon notes or other obligations upon which individuals may have become bound for the bridge company, as indorsers, guarantors, accommodation makers, or otherwise; and, subject to the right of the trust company to its prior lien, it shall, when called upon, take all proper steps to subject the trust property herein above mentioned to the payment of said advances; but the time within which the advances to be made by the trust company shall fall due under this agreement shall not be prejudiced by any arrangement with such other persons.”
It is by no means clear that the money raised upon the two notes here in question was kept as a trust fund to build the structure. It seems to have been turned into the general account of the bridge company, and all that the president of the bridge company can say is that an amount,equal to the sum so raised was at some time expended by the bridge company in the erection of the new part of the bridge. In our view of the case, it is not very material how the money was expended, for on no possible hypothesis can the lien to secure the indebtedness supplant that of the first mortgage. The after-acquired property clause in a mortgage does not displace any equitable lien which really grows out of the act of acquisition, by purchase or otherwise, so that the mortgagor may be properly said to acquire the property with the lien on it, or less the lien. It is not infrequently a nice question to decide whether the lien really inheres in the act of acquisition, or whether it is given the false appearance of doing so at the instance of the purchaser, for the purpose of evading an after-, acquired property clause in a prior mortgage, and is really nothing-more than a lien taking effect after the act of acquisition, and not as part of it, and is thus subordinate to the mortgage. In the case of
4. The lien of the Youngstown Bridge Company grows out of the mechanic’s lien law of 1888. That provides that any one complying with the provisions of the statute shall have a lien on the property and franchises of the owner and owners thereof for the full contract price of said labor and material, etc. The Youngstown Bridge Company crecí (id the bridge on land which was held by the Columbia Finance & Trust Company. The contract by the Youngstown Bridge Company was with tiie Kentucky & Indiana Bridge Company. We concur in the view of the court below that, as the lien can only arise against the property of the owner, the contract made by the Kentucky & Indiana Bridge Company did not confer a lien upon the bí-teres t that the trust company had in the property upon which the bridge was built, and therefore that the lien must be subordinate to the rights of the Columbia Finance & Trust Company in the main line of the bridge. As between the Youngstown Bridge Company and J. W. Gaulbert and others, however, the result must be different. Gaul-beri’s only lien is on the equitable interest of the bridge company, and to that the mechanic's lien also attaches. The statute which gives the mechanic's lien provides that the lien upon the structure shall be prior in right to mortgages -¡heretofore and thereafter created upon the land. This, of course, applies to prior or subsequent liens as well. As a consequence, the mechanic’s lien of the Youngstown Bridge Company must be prior in right to that of J. W. Gaulbert upon the equitable interest of the bridge company in the property conveyed to and held by tin» Columbia Finance & Trust. Company.
5. The claim of the Central Tliomson-Houston Company for a me
6. The only-question remaining is as to the mode of sale. Shall the bridge be sold as a whole? Or shall the bridge and the main line be sold as a parcel, and the new terminals be sold as a parcel, and then the whole be offered as an entirety? The circuit court ordered the bridge and all the terminals sold as an entirety. We shall not discuss the wisdom of that order, beeausé it was based on a conclusion as to the rights of the parties in the new terminals different from that which we have reached. Harris, trustee under the terminal trust deed, and Dowling and Stotsonberg, trustees under the first mortgage deed, are, so to say, tenants in common of the terminals covered by the terminal trust deed, in proportions to be fixed by a reference. It is of much importance, therefore, that the value of the new terminals should be established by a sale. This may be done by offering the terminals separately, the bridge and main line separately, and then the bridge and all the terminals as an entirety. If the bids for the parcels 'are less than the bid for the whole, then the latter bid shall be accepted. If greater, then the separate bids shall be accepted: In either case the separate bids fix the relative value of the parcels. The statute under which the terminals were erected provided that they might be mortgaged separately. This, of course, implied the power and duty of the court, in a proper case, to order them sold separately. The second mortgage bondholders who have a lien on the bridge and terminals as an entirety, pray for a sale of the parcels, and then a sale of the whole. Only the Youngstown Bridge Company, with a lien for $20,000, asks a sale of the whole without a sale by parcels. This lien is subordinate to the lien of Harris, trustee, on the new terminals, and subordinate to that of the Columbia Trust Company on the bridge and main line. The voice of its owner ought not to be given great weight, therefore, in influencing the discretion of the court to depart from the ordinary course pursued in the sale of a unit property, parts of which are covered by divisional mortgages. The sale