48 F1d 868

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Case Text

868

FEDERAL REPORTER, vol. 48.

that said Eager was to equip said railway, it could not affect the right of the intElrveners to recover their property; as nothing has ever been paid, and as it was' placed on the railway with the distinct· understanding that it was to rexhain the p;operty of the interveners until fully paid for. It

H. B. Tompkins, for appellant. HokeSmith, for appellee. Before PARDEE, Circuit Judge, and LOCKE and

BRUCE,

District Judges.

PAR,DEE, J. We donotthink it or analyze all the evidence, nor to pass upon all the excep,tions and assignments of error with which the record teems, .because it is clear that appellee never parted with the title and oWilership of the property sued for; that it hadt;lo notice, and is charged with none, oithe equities claimed to exist as between Eager, contractor, and the bondholders of the Marietta & North; Georgia Railway Company, in regard to rolling stock furnished said railway company as a preliminary to the issuance of bonds; that the contract or conditional sale between appellee and theN-orth Georgia Improvement Company was made outside of the slate of Georgia between two foreign 'corporations, and is not affected by the Georgia law of 1889 relied upon by appellant, Qowever the Same irtay be construed, particularly as the contract was made months before said law was passed, and neither .one of the parties thereto was the owner or tbe operator of a railway in the state of Georgia, and that the appellee is entitJed to the reof its property or to payment for the Same. We are satisfied there is',#o the decreel'endel'ed in tbe 'court below prejudicial to the appellant! and it is theteforeaffirmed, with c,osts. .. .
I

CENtrRALTRUST Co. OF

NEW YORK v; MARIETTA &N. G. Ry. Uo., (GRooME, Intervener.)
F(fth

December'l',1891,.}

i.,.

Oll' RAILR()AJ.)· DITIONll.dSALE-RIGHTS 011' VENDOR,

ok AFTER-AOQl11RlIb'

Eiring,"all after-acquired" as well as property of the railroad compan,Y. which, was duly rec9rded. 'l'hereafterthe rl/.ilroad company purchased certam 'cars car-builder, under an agreement by which the car-builder retained title cars until they should be fully paid .for, which agl'eement was in writing, bllt:Was never recorded. :In a suit by the trust company tl) .foreclose its mortgaga the ,car-builder intervened,claiming the cars under his reservation of title. . trust company was not a third party, within the meaning of Code Ga. In955a, (Laws 1881, p. 143;) providing that, in order to retain title to personal property sold and delivered, as against third parties, "title must be reserved in 'writing, and the paperquly execllted and recllrded as a mortgag"" on personalty, " and tb.at the trust com",any could derive no advantage from the car-builder's failureto record'his reservation'oftitle, as the act was intended onry for the benefit of .subsequent purchasers arid crEiditors of the vendee. ,

.!\. railroad company issued 'bonds secured bya mortgage to a trust company cov-

SAME-CciNSTR110TION OF STATUTE.

Nor, in such case, were oft.he. car-Puilder affected,.as againBt.the trust ,company, by 1889,p.lil!l. vfUidating conditional sales of rOllin,g's:to,ck to

. '

CENTRAL TRUST CO. OF :NEW YORK

MARIETTA

& N. G.

BY. co.

869

railroad companies with reservation of title, but requiring (section 3) that such reservation sball be in writing, and shall be recorded witbin six months after the execution thereof; as that act was also intended only for the benefit of third parties, and operated to repeal section 1955a no further than to provide a different method for the execution of contracts for the conditional sale of railroad equip.. ments.

Appeal from the Circuit Court of the United States for the Northern District of Georgia. Bill in equity by the Central Trust Company of New York against the Marietta & North Georgia Railway Company to foreclose a mortgage made by the railway company. Samuel W. Groome intervened, claiming title to certain cars in possession of the receiver appointed in the suit. Decree for intervener. Plaintiff appeals. Affirmed. H. B. Tompkin8, for appellant. Hoke Smith, for appellee. Before PARDEE, Circuit Judge, and LOCKE and BRUCE, District Judges. PARDEE, J. Samuel W. Groome filed an intervention in the suit of OentralTrUBt Company of New York vs. Marietta & North Georgia Rail'way Company, which was a suit for foreclosure of mortgage pending in the circuit court of the United States for the northern district of Georgia, claiming that he had made a conditional sale to the Marietta & North Georgia Railway COmpan)T of certain rolling stock; that the terms of the sale had not been complied with; that he was entitled to possession of the property, which was in the possession of the receiver in the main case; and asking an order for its restoration. The contract for the conditional sale of the property was in writing, but the writing was not recorded. The case was referred to a master, who made a report in favor of the intervener. The Central Trust Company has filed, exceptions thereto, not necessary to here set forth. The court referred the ease back to the. master, with instructions to take additj.onal evidence,and report any suggestions or recommendations as to what the .court should order. in reference to the purchase of said cars and trucks, and as t6 what price should be paid in view of the new evidence taken. After hearing additional evidence, the master filed a second report in favor of intervener" among other things as follows: "The evidence shows that these cars were leased by Samuel W. Groome; the intervener, to the Marietta & Nortb Georgia Railway Company on Feb'ruary 1, 1890, and notes were given by the company to Groome covering the value of the cars. On payment of these notes by the company the title to said cars was to vest absolutely in the railway company, without any further conveJance. In the opinion- of the master, this contract, while called a 'lease,' was in fact a conditional sale; the principal condition being that the title was to remain in the vendor, Groome, until the cars were fully paid for. This contract is executed properly, but has never been recorded. It is contended by counsel for the Central Trust Company, the trustee of the bondholders, that, this contract of Sam uel W. Groome never having been as prOVided by section HJ55a of the Code of Georgia, be bas no lien on said cars superior to that of the mortgage executed by the railway company to seL cure the payment of the bonds. The section of the Code referred to requireS

670

FEDERAJ"REPORTER,

.vol. 48.

that, "in order, to retain title to personal property sold and delivered, title niust'be, teserved in writing, and the paper duly executed ,ahd recorded as a The mortgage to securA the pa;YIDt'nt of the bond!! was executed 1st Januli&ry, The contract between Groome and the railway company was made in 1890, and the cars were delivered to the railway company in 1890. The general mortgage executed to secure the payment of the bonds covers not only all Property o)Vnec.l by the rail-.yay date of its execution, blit 'also all after-acquired prope'rty. In the opiniob of the master, Samuel W. Groome, the intenener, under the fact'S of this case, has a lien on these cars BUIll'rior to that of the general mortgage given to secure the paymentof the bonds now being fOJeclosed by the Central Trust Company of New York. The railwa)' cO!Ilpany did not acquire title t,o said cars, and the general mortgage, covering allfutul'e acquired property ,of the railway company, attached only to such interests therein as the company acquired. The master thinks that the fail me to record the contract retaining title in Groome until the cars were paid for does not deprive him of his lien except as to subsequent innocent purchasers and creditors of the MarieUa& North Georgia Railway Complilly. ,In support of this opinion the master cites the decision of the supreme court of Georgia in the case of Conder v. Holleman, 7I Ga. 93, and the case of U.I$.,v. Railroad Co., 12 Wall. 362, and thA case of Meyer v. Car Co., 102 U. A. 1. The facts in these last two cases'are very similar to the facts in the Groome Case, and the master desires to call especial attention to the case cited from 12 Wall. .. 'Ie 'Ie The aggregate net value of all this rolling stock which came into the possession of the receiver on the 19th day of January, I8n. was $41,105. The evidence shows that these box-cars and coal-cars are necessary ,for the operation of the road by receiver, and I the1'...fore recommend that he be allowed to purchase the same for the aggregate net sum above stated, With seven per cent. interest from, the 19th Januar.y, 1891. The evidence shows, however. that the receiver has no money with which to purchase said rolling stock, RR the road is not earning its current expenses; and that, therefore, it will be necessary for the receiver to issue receiver's certificates to raise the money to purchase said rolling stock." To this report the Central Trust Company filed four exceptions, all of which can be summed up in this: "The master erred in finding that there was any conditional sale made by Groome to the Marietta & North Georgia Hail way Company as against the Central Trust Company, trustee, because the act of sale was not executed and recorded according to the law of Georgia." -And the 11 alleged errors, as assigned by the appellant for the purposes of appeal after the court below had affirmed the master's report. cover no more extensive ,ground; and counsel for appellant takes this view, for in his brief, after briefly reciting the facts, hesays: "The sole qUl'stion is, then, did this equipment come into the use, custody, and control of the Marietta & North Georgia 'iailway Company charged with a contract of lease or a mortgage or a lien. so that it did not become subject to the after-acq uired px:operty clause in the mortgage now being foreclosed in this court P" Further on: "It is conceded that the authorities go to this extent: that, if the title to the equipment did not puss to the mortgagor, the Marietta & North Georgia Railway Company, or if it passed incumbered with a mortgage or lien or lease which could be enforced between the vendor (the intervener here) and ,the railway company, by retaking the pruperty. rather than by demanding

CENTRAL TRUST CO. OF NEW YORK 'D. MARIETTA & N: G. RY. CO.

871

full payment for it, then the property did not become subject to the lien of the mortgage being foreclosed under the after-acquired property clause. The question is 'whether, nnder the act of the Georgia legislatnre of 1889. (page 188.) any mortgage or retention of title or lease was executed in favor of the vendors upon the railway equipment under the facts in this case?" .

Thelaw of Georgia, which, it is claimed, controls this case, is as follows: " An act to require the conditional sales of personal property to be evidenced in writing, and for othE>r purposes. "Section 1. Be it enacted by the generaf assembly of Georgia, that from and after the passage of this act. whenever personal property is sold and delivE>red, with the condition affixed to the sale that the title thereto Is to remain in the vendor of such personal properly until the purchase price thereof shall have been paid. every such cOnditional salt'. in order for the reservation of title to be valid as against third parties, shall be evidenced in writing, and not otherwise; and the written contract of every such conditional sale shall be executed and attested in the same manner as is now provided by existing laws. for the execution and attestation of mortgages. on personal property: provided. nevertheless, that. as between the parties themselves, the contract 8S made by them shall be valid, and may be enforced, whether evidenced in writing or not. 2. Be it further enacted by the authority aforesaid, that the existing statutes. and, laws of this state in relation to the registration and record of mortgages on personal. property shall apply to and affect all conditional sales of personal property as defined in the preceding section. "Sec. 3. Be it further enacted by the authority aforesaid, that all laws and parts of laws in conflict with tbis act be, aud the same are hereby, repealed. "Approved September 27th, 1881." Georgia Laws 1880-81, p. 143. " An act to authorize contracts providing for the conditional sale of railroad equipment or rolling stock. or the leasing of the same, to be used in this state; to fix the time and place within and at which such contracts shall be recorded; to make valid such contl"d.cts heretofore made and recorded in the manner herein set forth; to authorize the record of such contrauts heretofore made; and for other purposes. "Section 1. The general assembly of the state of Georgia do hereby enact that it shall be lawful for any person or corporation to make a contract in writing with any railroad company or pt>rson owning and operating a railroad in this state to furnish said company or person with rolling stock or other eqnipment, deliverable either immediately or subsequently at stipulated periods, by the terms of which contract the purchase money for said property, in whole or in part, is to be paid thereafter, and in which contract it may be agreed that the title to the property So suld or contracted to be sold shall not pass to or vest in the vendee until the purchase money for the same shall have been fully paid, notwithstanding the delivery of such property to, and the possession of the same by. the vendee: but that. until said purchase money shall have been fully paid. the title to said property remain in said vendor and his its assigns. "8ec. 2. Be it further enacted, that it shall also be lawful for the manufact· urer, owner, or assigns of any railroad equipment or rolling stock to make a written contract for the lease of such equipment or rolling stock to any railroad company or person owning or operating a railroad in this state; and in such contract it shall be lawful to stipulate for a conditional sale of said property to the said lessee 011 the termination of such lease, and to stipulate that

872

FEDERAr., REPORTER,

vol. 48.

the rentllll'eceived for said property may, as paid. or when fully paid, be npplied and treated as purchase money, and that the tiLle to such property shall not vestin'such lessee or vendee until the amount of such purchase money shall, have been paid in full to the lessor or vendor. or ,to his or its assigns, notwithstanding the delivery of suqh property to, and possession of the same by, such lessee or vendee; but that, until such purchase money shall have been' fUlly paid, the title to such property shall remain ie said lessor or vendor, or in his or i.ts assigns. , "Sec. 3. Be it further enacted, that every such contract hereby authorized shall be good, valid, and effectual to retain the title to said property in said yendOl: or lessor" or in his or its assigns, as against the said vendee or lessee, a,nd against all persons' claiming thereunder: prOVided-First. That such contracts, if nlllde within this state, shall be executed in the presence of, and i1ttested by, or be proved before, a notary public, or justice of any court in this state, or a clerk of the superi()r court. If made without this slate, it sti;t11 be executed in the presence of, and attested by, or proved before, a c;ommissioner of deeds for the state of Georgia, or a consul or vice-consul of the, United States, (the certificates Of the foregoing officers, under their seals, being evidence of the fact.) or by a judge of a court of record in the state where. executed. SeGond. That such contract shall be recorded within six months after the date' of its execution, in the office of the clerk'of the superior c(luItof the county wbere is situated the principal office; in this state, of the !laid railroad company. l'hil'd. That each locomotive engine and each car so sold. or contracted tq be sold. or leased. as aforesaid, shall have the name of tb'e v:eriilor or lessor plainly placed or marked on the same, or be otherwise so 'marked as to plainiy indicate theowllership thereof. ,"Sec.4. Be it further enacted, all such contracts heretofore made, exand recorded in the manner herein authorized and prOVided for shall be <leemed as valid, and shall have the, same effect as if the same had been made. executed, and recorded under the terms and by autbority of this lict. "Sec. 5. Be it further enacted, that all such contracts hel"etofore made shall be valid, and be entitled to the provisions of this act, upon compliance with the terms thereof, and upon record of the same, .8.l;l. herein prOVided, within six months after the date of the passage of this act. , "Sec. 6. Be it further enacted, that all laws and parts of laws in conflict with this act be, and the same are hereby, repealed· .. Appro\'ed November 13, 1889." Georgia Laws 1889, p. 188.

If the said law of 1889, as claimed by appellant, governs this case, the contract of conditional sale between appellee and the Marietta & North Georgia Railway Company is invalid against the vendee and all persons claiming thereunder because of the failure to record the same as provitled in sajd law, still we fail to see wherein the appellant will be benefited. Appellant's mortgage covers only after-acquired property of the railway company. For the mortgage to have effect, the property !)lust first be, acquired by the railway company. If the only title the railway company pretends to have is invalid, must not the title to the property in question still be in the appellee, who has never parted with it otherwise than is stipulated in the alleged invalid contract? As to third persons and subsequent creditors who have dealt with the railway as the appareht owner of the property in its possession, there would be no difficulty the property as helonging to the railwaycompallY .on the doctrine of estoppel; but there. can hellO

CENTRAL TRUST CO. OF NEW YORK V. MARIETTA & N. G. BY. CO.

873

as between the appellee and the Central Trust Company claiming the property as acquired by the railway company. Whether or not the title passes in a conditional sale is most thoroughly v. Russell, 118 U. S. 663,7 Sup. Ct. Rep. 51, considered in where Mr. Justice BRADLEY in an exhaustive opinion reviewing the whole subject on principle and authority, decided that a conditional sale does not as a matter of law and fact actually pass the title as between the parties. See, also, Segrist v. Crabtree, 131 U. S. 287, 9 Sup. Ct. Rep. 687; Equipment Co. v. Bank, 136 U. S. 268, 10 Sup. Ct. Rep. 999. It is very dO}lbtful if a well-considered adjudged case can be found hoMing in a contract of conditional sale, which expressly reserved title in vendor. that the title actually passed by reason of subsequent failure tQ record or register the contract in accordance with local law. But it is not neccAsary to pursue this line of inquiry. The law invoked is a registry la:w. It can have no other purpose than to give notice to the parties dealing with the vendee or lessee. In Conder v. Holle.rnan,71 Ga. 93, a case very like the present, the supreme court of Georgia says: "It is insisted by counsel for plaintiff in ermr that under the act of 1881\ (Code, § 1955a.) this bping a conditional sale from the claimant to the de·

fenoant in execution, whereby the title to the property levied on was reserved to cla;,uant, and inasmuch as the same was not recorded within thirty days. that it was, subject to the judgment lipn of plaintiff, although sllch judgment had been obtained long prior to the sale hy claimant to the defendant in execution. One provision in the statute referred to is, 'the eXisting statutes and laws of this state in relation to the registration and record of mortgages on personal property shall apply to and afft'ct all conditional sales of personal property as defi ned in this section.' IIenee it becomes necessary that the conditionalsale in this case should be recorded within thirty days, ,the same as the record of mortgages on personal property. But the object of the regisr tration of mortgages is to give notice to aU persons having dealings with the mortgagor of the existence of the mortgage; and in this case it appears that the dealings had between the plaintiff in execution and the defendant had taken place long before the sale of the property levied on, which Was sold by the claimant to the defendant in execution; and the judgment in said case had, been obtllined long before said conditional sale. Then, whether said conditional sale had beendul.y recorded or not, it would not in any manner affect the plaintiff, whose jUdgment had bt'en obtained before the sale, and as to him. it made no difference whether tbe 8ule was recorded or not. A judgment creditor of a mortgagor. whose judgment was obtained before the making of a mortgage. would not be affected by the record of such mortgage in any way. So this judgment creditor is in no wise affected by the non-record of this conditional sale. No right has accrued to him between the ing of the conditional sale and the record of the same. He, is not hurt by its non-record, and as to him it is the same as jf the sale had been duly recorded. The title to this property was in the claimant, he baving reserved the same until it was paid for by the defendant in execution; and he did not lose tbe same, nor render it Hable or SUbject to the judgment and execution of plain.. tiff, by reason of not haVing his conditional sale recorded within thirty days. The lien of this jUdgment never attached to the property levied on. Such being tbe jUdgment of the court below, the same is affirmed."

It is to be noticed that the Code of Georgia under which the above' decision was rendered (and hereinbefore given) declares all conditional

874

FEDEnAL REPORTER, VQl.

48.

sales not recorded according to its requirements void as to third parties, and the court held that third parties with prior judgments were not benefited by the .failure to register according to law. In U. S. v. Railroad Co., 12 Wall. 862, the supreme court of the United States,in considering. the effect of a railroad mortgage covering after-acquired property, and the effect of registry laws, says: "The appeUants contend, in the nextpla.ce. that the decision upon the facts was erroneous; that the mortgaj;Ces, being priQr in date to the bond given for the purchase money of these locomotives and cars, and beiug expressly made to include after-acquired property, attached to the property as soon as it was purchased, and displaced junior lien. This, we apprehend. is an errona- . OU8 view of the doctrine by which after-acquired property is made to serve the uses of a mortgage. That uoctrine is intended to subserve the purposes by the of justice, and not injustice. Such an application of it as is appellants would often result in gross .injustice. A mortgl\ge intended to cover after-acquired property can only,attach itself to such property in the hands. !fthat property is condition In which it comes into the already SUbject to mortgages or other liens the mortgage does not displace them, though they may be junior to it In point of time. It onlyattaches to such interest Rsthe mortgagor acquires; and if he purchase prop. erty, and give a mortgage for the purchase money, the deed' which he receives and the mortgage which he gives are regarded as one transaction, and no generalHl'n impending. over him, whether in the shape of Ii general mortgage or judgment or recognizauce. candisphlce such mortgage for purchase money. And in such cases a failure ,to register the mortgage for purchase money makes no difference. It does not come within the reason oftha registry laws. These laws'are intended for the protection of subsequent, not prior, plirchasers and creditors." See, also; as to the effect of the after-acquired property clause, F08dick v. SchaU, 99U. S. 235; Meyer .... Car 102 U. S:1. A careful examination 'the said act of 1889 leads. to the conclusion ,that it was not intended to jnvalidate any contract that under the general Jaw was valid ; that it was rather intended to facilitate the making of conditional sales and leases of railroad equipments·to be used on the railrbRdsin the state. In terms it declares nothing inVAlid, and it is only by implication that contracts for a conditional sale of railroad equipment are for nQt complying with to registry. The law .Qf 1881, ,as found in the Code, is not repealed. except by implication, which is not favored, (McCool v. Smith, 1 Black, 470;) and that only as to one kind of personal property, the many being left to the operation of the prior law. ,. It seems clear that the actof1889 is a registry law intended for of third parties; that it does 'not repeal .the lawas cOl'l:tained in the Code further than to provide a different method of executing contracts for the conditional sale orlease of railroad equipment where the vendor or lessor retains title, and the recording and otherwise giving notice to the public of the character of the railroad's 'Ownership; thl;tt a mortgagee in a ptior mortgage,although his mortgage covers after-acquired property, is not a'third person, within the meanof the registry lawsQf Georgia; and that a failure to record. a conditionalsale of railroad eqwpment according to the Georgia act of 1889

CENTRAl. TRUST CO. OF NEW YORK

'/I.

MARIETTA & N.

RY.

CO.

875

does not invalidate the contract as between the parties or in favor of a prior mortgagee. The deoision appealed from should he affirmed, and it is so ordered.

CENTRAL TnusT Co. OF NEW YOR'" '11, MARIETTA & N. G. Ry. Co., .(JACKSON & SHARP CO., Intervener.)
(C1Ircuit Oourt oj .AppeaZs, Fifth Circuit. December 7, 1891.)
FORECLOSURB OJ' RULliOAD MORTGAGE -CoNDITIONAL SALE-RIGHTS OJ' VBNDOJlINCREASED· VALUB OF ROLLING STOCK.

In a Buit to foreclose a. railroad mortlrage, wherein an intervener claimed title to certain rolling stock as vendor under a conditional sale tbereof, tbe evidence sbowed tbatthe value of rollinK stock had increased 10 per cent. since·tbe time when the rolling stock in question was furnished by the. intervener, HeW that, in deter. mining the Bum which the receiver in the Buit should pay in order to retain pOBBes- . SiOD of the rolling stock, 10 per cent. should be added to tbe COBt thereof before deducting a pereentage per annum for wear and tear. .

of.

48 F. 868 -

48 F1d 868

i.,.