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together with the corporate rights and fran Among the property mentioned in "Schedule chises granted by this Act." Section 2. A” is included sereral cars, and other rolling
It is contended that the authority to mort- stock, as well as numerous articles which gage the railway, corporate rights and fran- are clearly personal property that belonged chises did not include the right to mort- to the Wilmington and New Castle Electric gage rolling stock or any personal property Railway Company before the merger. Inof the company. Although the argument cluded in “Schedule B” is the car in quesmade in support of this proposition is inter- tion, and other articles which are clearly esting, I do not think it should be consid- personal property, that were acquired at vaered at this stage of the protracted litiga- rious times between the organization of the tion connected with the mortgage The Wilmington and New Castle Electric Railquestion was not raised at any of the ar-way Company and the appointment of the guments made in resisting the foreclosure receivers for the Wilmington, New Castle of the mortgage, and after a most vigorous and Southern Railway Company. and able opposition to said foreclosure, on For this Court to entertain the contention other grounds, a decree was finally made in of the receivers that the Wilmington and pursuance of 'which the property described New Castle Electric Railway Company had in the mortgage, including cars, was sold at no authority in law to include cars in its public sale and purchased by Solomon Han- mortgage would be, in effect, to hold that ford, who is now claiming the car in ques- its decree of foreclosure was erroneous and tion. No objection was made, at any time, void so far as the rolling stock was concernby the receivers, or any one else, to the sale ed. Such a ruling would be entirely inconof the cars, and no objection is made now sistent with said decree and the sale made to the sale of any car other than the one thereunder. in controversy.
The second contention made by the receiv. Moreover, in a petition filed by the re- ers, is that in this State, at the time of the ceivers subsequent to the sale, for the pur- execution of the mortgage, there was no pose of definitely ascertaining whether cer- law authorizing the mortgaging of personal tain property sold under the foreclosure de- property except the chattel mortgage statute, cree belonged to the purchaser at the sale, and that the mortgage in question was to it was stated:
all intents and purposes a real estate mort“In the opinion of these receivers all the gage, and was not executed and recorded in property set forth in 'Schedule A' is cover-conformity with said statute. ed by the descriptive language of said de  The Legislature of this State on Febcree and of the mortgage so as aforesaid ruary 17, 1897, enacted a supplement to the foreclosed by said decree. In the opinion chattel mortgage law (Chapter 579, Vol. 20, of these receivers the property mentioned Laws of Delaware, Vol. 15, Laws of Delaand set forth in 'Schedule B' is not cor-ware, c. 477) by adding thereto the followered by the descriptive language of said ing words: decree or of the mortgage foreclosed there "Provided, that none of the provisions of by. In order that these receivers may be this Act shall be applicable to mortgages or protected in their action in the premises, deeds of trust including both real and perthey respectfully pray your Honor to make sonal property, heretofore or hereafter exan order directing such disposition by them ecuted by any corporation to secure an issue of the property mentioned in 'Schedule A' of bonds." and 'Schedule B' respectively, as shall seem Without undertaking to decide what was proper and equitable under the circum- the effect of such supplementary Act upon stances."
the mortgage under consideration, its intent Accordingly a decree was made authorize and purpose was manifestly to remove any ing and directing the receivers to deliver doubt that may hare existed respecting the unto Solomon Hanford, the purchaser, ab- lien of such mortgages upon the personal solutely and unconditionally, all the proper- property included therein. And said Act is ty mentioned in "Schedule A" attached to also significant and pertinent in that it the petition; and further authorizing and clearly recognizes the fact that such mortdirecting the receivers to deliver unto the gages embraced personal as well as real said Hanford possession of the property property. It does seem to have been passed mentioned in “Schedule B,” to be held, kept, to cover just such cases as this, if not this maintained and cared for by the said Ilan- particular case; and it was certainly the inford subject to the further order of the tention of the Legislature, in its enactment, Court as to the final disposition thereof, and to recognize the power of a corporation to subject to such further order as the Court include in a mortgage upon its railway, rights should make touching the question as to and franchises, property that was clearly whether all or any part of said property personal in its character. mentioned in "Schedule B" is covered by But without regard to this Act, I would the terms of the said decree of foreclosure repeat here what I have said relative to the and by the descriptive language and terms first contention made by the receivers. The of the said mortgage so as aforesaid fore objection that the mortgage does not con
NATIONAL BANK v. WILMINGTON, N. C. & S. RY. CO.
stitutes, therefore, no lien upon the car in, cient to uphold the grant of both together, question, could have been as well made to the one as incident to the other. Their title any cars or personal property described in the to the railroad is the foundation of an intermortgage and sold without objection, under est in the cars and engines to be acquired the decree of the Court.
for its use. When the Court made the foreclosure de "We think that such property as this, of a cree, and directed that all the property de- class specifically mentioned in the mortgage, scribed in the mortgage should be sold, it acquired for lawful railroad purposes, on necessarily decided that such property was hand for present use, or to meet expected rebound by the lien of the mortgage, which quirements, is held by the mortgagors subwould not have been the case if the company ject in equity to the mortgage from the time that executed the mortgage had no right or their title and possession accrued, and that authority to include therein its rolling stock. when the trustees become actually possessed I, therefore, consider that I have already of it under the mortgage, they may hold passed upon the first and second questions such possession at law against the attacking raised by the receivers.
creditors of the corporation." But while I do not, for the reasons stated, The following cases were cited by counsel think it necessary or proper to consider the for the receivers, and some of them seem interesting and able arguments made by to sustain their contention: counsel in support of the receivers' first and Miller v. Rutland Ry. Co., 36 Vt. 452; Wilsecond contentions, I do not want to be un- liamson v. R. R. Co., 29 N. J. Eq. 311; derstood as recognizing the soundness of State Treasurer v. Sommerville, 28 N. J. such contentions. While the authorities ap- Law, 21; Hoyle v. Plattsburgh R. R. Co., pear to be conflicting upon these points, 54 N. Y. 314, 13 Am. Rep. 595; Howe v. there are many that hold that the rolling Freeman, 14 Gray (Mass.) 566; Coe v. stock of a railroad or railway company is Columbus, 10 Ohio St. 372, 75 Am. Dec. 518; not personal property in the ordinary or Railroad Co. v. Gilmore, 37 N. H. 410, 72 common law sense, but rather in the nature Am. Dec. 336; Railroad Co. v. Ft. Howard, of fixtures, which are bound by a mortgage 21 Wis. 45, 91 Am. Dec. 458. upon the railway, rights and franchises of
 The third and last point made by the the company. And there are other very receivers, and upon which I assume they. strong authorities which take the position mainly rely, is, that even if under the charthat the cars of the company, and whatever ter of the Wilmington and New Castle Elecelse is essential to the operation of the road tric Railway Company, and the existing are necessary incidents and appendages of laws of the State at the time of the executhe railway, and are lawfully covered by a tion of its mortgage, it were possible that mortgage thereon. Randolph v. Wilmington the mortgage could be a lien upon rolling & Reading R. R. Co., 20 Fed. Cas. 264; Pul- stock, it could not be a lien upon the car lan v. Cin. & C. Air Line R. R. Co., 20 in question although the mortgage does, by Fed. Cas. 32; Hamlin v. Jerrard, 72 Me. 62; its terms, embrace cars and other rolling Jones on Corporate Bonds and Mortgages. stock of the company; and although the de
I desire to make special reference to the scriptive language of the mortgage includes case of Hamlin v. Jerrard in this connection. also property "which may hereafter belong It is also noticed later in this opinion in re- to said company"; and Article 4 of the mortspect to another point. In the course of a gage provides “that the said Railway Comwell considered opinion the Court in that pany shall also have full power from time case said:
to time to dispose of, according to its dis“But all the rolling stock to be acquired, cretion, such portion of its equipment, maas well as materials and equipment for con- chinery and implements at any time held or structing, maintaining, operating, repairing acquired for the use of said Company as and replacing the road and its appurte- may have become unnecessary and unfit for nances, or any part thereof, are within the such use, replacing the same by new which specific statement of property mortgaged. shall then become subject to the lien of this
“If the engines and cars are not fixtures, mortgage.” they are so connected with the railroad, and It is argued first, that Article 4 does not so indispensable to its operation, that there apply to the facts of the present case beis a clear distinction between them and other cause there was no actual disposition of the kinds of personal property. They may well car which it is alleged by the purchaser the be held to be exceptions to the general rule car in question was bought to replace. It is that property in esse cannot be conveyed. insisted that the old car was not worn out We do not mean to intimate that rolling or unfit for use, but that it was remodeled stock to be subsequently acquired could be and in use when the road was turned over mortgaged without the railroad, But when to the purchaser. In the second place, it the railroad itself is mortgaged with the is contended, and this is obviously the imfranchise, the rolling stock to be acquired portant point in the case, that the mortgage, for the purpose of completing or repairing it under the after acquired property clause, is so appurtenant to it, that the company cannot by any construction be held to cover have a present, existing interest in it suffi- I any after acquired property other than prop
erty after acquired by the Wilmington and In the Hinchman Case the Court said: New Castle Electric Railway Company, the "That no part of the money secured by mortgagor. That it could not, therefore, the mortgage was loaned upon the faith or cover the car in dispute which was purchas- the credit of the property so afterwards aced by the receivers of the Wilmington, New quired, is apparent. * * Nor can it be Castle and Southern Railway Company, a said that it was purchased by the new comcorporation created by the consolidation of pany to replace the former equipment of the the Wilmington and New Castle Electric line covered by the respondent's mortgage." Railway Company and the New Castle and  It is contended, I know, that the car Delaware City Railway Company under the in question does not fall within the proviGeneral Corporation Law of this State. sions of the mortgage which I have quoted
The broad contention of the receivers in from Article 4, because it appears from the this connection, is “That when there is a agreed statement of facts that the car which merger of several corporations into one cor- it is alleged to have been bought to replace poration, under such a statute as ours, and as worn out and unfit for use, was in fact the consolidated corporation thereafter ac- repaired, remodeled and continued in use, quires rolling stock, which may by the ter- and was not replaced by the new car. But minology of the mortgages upon the com- it also appears from the said statement of ponent constituent corporations, be sufficient- facts that the receivers presented to this ly included, and which constituent corpora- Court a petition dated August 19, 1909, relations have included, in their mortgages after tive to the purchase of the new car, which acquired property clauses, that those clauses recited, among others, the following facts: do not cover, and the mortgage cannot be a "That the said freight car has been in conlien upon rolling stock subsequently acquir- tinuous use, excepting at times when it needed by the consolidated corporation.” In sup-ed to be repaired, by the receivers throughport of this contention the following authori- out the whole operation of the road by them ties were cited, viz.:
until a few weeks ago, when it became so Security & Trust Co. v. Louisville R. R. thoroughly out of repair, worn out, defecCo. (C. C.) 102 Fed. 398; Hinchman v. Port tive and useless as that it was impossible to Defiance Ry. Co. et al., 14 Wash. 349, H Pac. be used by these petitioners in the operation 872; Pullman Palace Car Co. v. Mo. Pac. Ry. of the said road, or to be repaired and put in Co., 115 U. S. 587, 6 Sup. Ct. 194, 29 L. Ed. such condition as that its further use would 499; Chicago Ry. Co. v. Kansas City Ry. Co. be practicable. These receivers have had the (C. C.) 38 Fed. 58.
old freight car thoroughly examined with It is claimed that the first mentioned case the view of repairing it, if possible, but the (102 Fed.) is particularly in point, and on all result of such examination, both by themfours with the present one. The following selves and by mechanics, is conclusive of the words taken from the very long opinion de fact that it is impossible to repair the old livered by the Court seem to warrant such car so that it can be safely used. * claim:
These petitioners further represent that it “The after acquired property clause in is necessary that they purchase such a new each of the mortgages can rightly be constru- freight car to enable them adequately to ed, I think, to extend only to property sub- operate the road and attend to the freight sequently acquired by the mortgagor. The business which comes to the road, and, in consolidated company is a new and different the opinion of these petitioners, a failure to organization." The Court then say: "The purchase such a new car, or otherwise procase of Hinchman v. Railway Co. is quite in vide said road with such adequate equippoint, and in principle the question seems ment, would be greatly to the detriment of to be covered by the decision in Pullman the road and would detract from its value as Palace Car Co. v. Missouri Pac. Ry. Co." a going concern, inasmuch as it would lose
It is not clear why the Court used the to the road the very valuable freight business language I have quoted, because it does not which it now has." seem that it was necessary or pertinent to It would be difficult to imagine facts or the decision of the case. The facts are very conditions which would show that a new car complicated, and the opinion exceedingly was more necessary, or that the old car was long, and it may be that I have not, from more worthless, unnecessary and unfit for use. my reading of the case, fully comprehended upon the representations made in said petithe points involved. But I have not beention the Court authorized the receivers to able to find that the exact question now be purchase the new car, which is now in disfore me was involved in that case. Even pute, and the order was made upon the asthough I should be mistaken in this, it is sumption that the old car was useless for quite certain that the Hinchman Case which the purpose for which it was acquired and was considered "quite in point,” is not so in used, and that there was an actual and the present case. Neither is the question pressing need for a new car to replace the which the Court said was covered in the old one. There can be no question that the Pullman Palace Car Case the same as the new car was obtained to replace one that
NATIONAL BANK V. WILMINGTON, N. C. & S. RY. CO.
and it does, therefore, come within Article 4 | ever account, as well for stock subscriptions of the mortgage.
as all other things in action or belonging to But whether or not this after acquired each of such corporations shall be vested in property was bound by the lien of the orig- the consolidated corporation; and all propinal mortgage must depend upon the inten- erty, rights, privileges, powers and franchistion of the parties, the statute and agreement es, and all and every other interest shall be under which the merger or consolidation thereafter as effectually the property of the was effected, and other existing laws of the consolidated corporation as they were of the State.
several and respective former corporations; Inasmuch as the mortgage provided that * * provided, that all rights of creditors the company should have power at any time and all liens upon the property of either of to dispose of any part of its equipment that said former corporations shall be preserved was unfit for use, and replace the same by unimpaired, and all debts, liabilities and dunew, which should become subject to the ties of the respective former corporations lien of the mortgage, it is manifest that it shall thenceforth attach to said consolidated was the intention of the parties that any corporation, and may be enforced against it new car which was acquired to replace an to the same extent as if said debts, liabilities old one should be bound by the lien of the and duties had been incurred or contracted mortgage. This fact, together with the fur- by it.” ther fact, that the new car was authorized to In determining the right of each consolbe bought to replace one that was unfit for idated company after consolidation, the meruse, clearly distinguishes this case from the ger agreement and the Act under whose auHinchman Case, upon which the receivers, thority the consolidation was effected must and the Court in the 102 Fed. case, so much be especially considered. The part of the Act relied. In the Hinchman Case, it will be most material to the present question is the remembered, the Court said:
provision, "that all rights of creditors, and “Nor can it be said that it (the property in all liens upon the property of either of said question) was purchased by the new com- former corporations shall be preserved unpany to replace the former equipment of the impaired, and all debts, liabilities and duties line covered by the respondent's mortgage.” of the respective former corporations shall
Section 123 of the General Corporation thenceforth attach to said consolidated corLaw of this State authorizes the consolida- poration.” tion of railway companies, and provides that In the agreement of consolidation and merthe consolidated corporation shall "be pos- ger is found substantially the same provision, sessed of, exercise and enjoy all the fran-viz: “And all the rights of creditors, and all chises, rights, powers, privileges, immunities liens upon the property of either of said corand benefits which any corporation of this porations, parties hereto, shall be preserved State, constituent thereof, was possessed of, unimpaired; and the said corporations, paror entitled to exercise, under its charter or ties hereto, may be deemed to continue in any law of this State; and shall be subject, existence to preserve the same," &c. within this State, to the conditions and re In that part of the mortgage which describstrictions imposed by its charter, or any cor-ed the property bound thereby is the followporation of this State, constituent thereof." | ing language:
Section 59 provides that the directors of "Together with all the rolling stock, tools, the consolidating companies may enter into machinery, implements and materials now bean agreement prescribing the terms and con- longing, or which may hereafter belong to ditions of consolidation, the mode of carry- said Railway Company, and now or hereafter ing the same into effect, &c.
in use, or intended for use upon said railSection 60 is the most important and perti- ways or property,” &c. nent part of said Act, so far as the present Under the foreclosure decree the property inquiry is concerned, and it is in the follow- was advertised and sold as described in the ing language:
mortgage. “When the agreement is signed, acknowl It cannot be denied that the language of edged, filed and recorded, as in the preceding the mortgage, which I have quoted, would section is required, the separate existence of be sufficient to cover the car in question if it the constituent corporations shall cease, and had been acquired by the Wilmington and the consolidated carporations shall become a New Castle Electric Railway Company after single corporation in accordance with the the execution of the mortgage. In other said agreements, possessing all the rights, words, it is clearly sufficient in its terms to privileges, powers and franchises, as well of cover after acquired property. It is equally a public as of a private nature, and being clear, I think, that it was the intention of the subject to all the restrictions, disabilities and parties to the mortgage that any property duties of each of such corporations so con- acquired at any time to replace that which solidated, and all and singular the rights, had become unnecessary and unfit for use privileges, powers and franchises of each of should be bound by the lien of the mortgage. said corporations, and all property, real, per It is not denied that after acquired propsonal and mixed, and all debts due on what erty may be bound by the lien of a mortgage
executed before the acquisition of said prop-dated company, notwithstanding the articles erty, but it is claimed that the car in ques- of union declare it one, must still be regardtion is not so bound because it was acquired ed, to save the rights of prior (reditors, as by the receivers of the consolidated company. two, one in Maine, and one in New Bruns
I have already referred to the leading cas- wick, having the same name and officers, and es cited by counsel for the receivers, and re- each representing the original company to lied upon to sustain their position. The fol- whose rights and liabilities it succeeded; lowing cases were cited by counsel for the with which it has a unity of interest and of purchaser:
obligation. There can be no loss of identity Hamlin v. Jerrard, 72 Me. 62; Wabash, of the original companies in the consolidaSt. L. & Pac. R. R. Co. v. Ham, 114 U. S. tion, to the prejudice of the rights of prior 587, 5 Sup. Ct. 1081, 29 L. Ed. 235; Tysen v. creditors, or to the destruction of prior liens. Wabash (C. C.) 15 Fed. 763; Strang v. Mont. See Central Railroad & Banking Co. v. Georgomery & E. R. Co., 23 Fed. Cas. 218.
gia, 92 U. S. 665 [23 L. Ed. 757]." I wish to refer again to the case of Ham The reasoning of the Court in that case imlin v. Jerrard, because it seems to me to con- presses me as being sound in principle, and tain not only a very thorough and able treat- entirely consistent with the intention and ment and discussion of the subject under con- rights of the parties to the mortgage. 1, sideration, but also to be more in point than therefore, hold in the present case, that alany other case that has been cited on either though the car in dispute was purchased by side. The Court in delivering their opinion the receivers of the consolidated company, it said:
was nevertheless, after its acquisition, sub"It would be an important question, if it ject to the lien of the mortgage of the Wilwere directly presented, whether the net in- mington and New Castle Electric Railway come of the property of the Maine company, Company, and passed to the purchaser at the so far as it became invested in property such sale made under the foreclosure decree. as is described in that mortgage, even if the  It was suggested at the argument that investment were made by a new corporation if the car purchased by the receivers was that had acquired the right to run the road, covered by the mortgage of the Wilmington could ever rightfully be direrted from its and New Castle Electric Railway Company, legitimate use in lending additional security it was just as clearly covered by similar lanto the first mortgage bondholders. It is clear guage employed in the mortgage of the New that all accessions to the road and its appur- Castle and Delaware City Railway Coinpany, tenances in Maine, after consolidation as be- and the mortgage of the consolidated comfore, were accessions to a mortgaged prop- pany. erty by the avails of a later mortgage, such In reply to such suggestion it may be said mortgage must be postponed to the earlier that the old car, which the new car was one on each part, just as if each company bought to replace, was never owned by the separately had put a second mortgage on its New Castle and Delaware City Railway Comown line of road. The consolidated company pany at all; and as the mortgage of the assumed the debts of its several parts, and Wilmington and New Castle Electric Railrecognized the prior liens upon them.
It way Company constituted, in my opinion, a assumed also, by force of law, the burden of lien upon the new car, as after acquired prophaving any increased value of the road and erty, the other two mortgages were necessariits appurtenances, go as security, first, for ly junior liens and subordinate to the original those prior liens. It cannot claim that its mortgage, even if their descriptive clauses duty was merely to keep them in statu quo, were sufficient to include said car. in as good condition as when received, and
It is an undisputed fact that all the rollthat, as against the first mortgagees, addi- ing stock held by the consolidated corporations and improvements belong to itself as tion, or the receivers thereof, except the one a distinct entity. If such a claim were sus
car purchased by the receivers, was, before tained, the very income of the property of the consolidation, purchased, owned and used the Maine road might go to swell its value, by the Wilmington and New Castle Electric and the clauses conveying future acquisitions Railway Company; and it is undisputed that become void of effect; although the newly the New Castle and Delaware City Railway acquired property made part of the value of Company never owned any rolling stock at the road itself. The first mortgage on the all. Maine road, and the first mortgage on the The thought of the receivers seems to be, New Brunswick road, remain the first liens that because the new car was purchased by on all acquisitions of the consolidated com- them from the income of the consolidated pany, which issue from, and become part of road it could not be a part of the mortgaged the estate to which those mortgages applied. property. Upon this point I desire to quote A due regard for vested interests impera- briefly from the opinion delivered by the tively demands such a legal conclusion and Court in Strang v. Montgomery & E. R. Co., effect. To reach this result, if the original viz.: companies have ceased to exist, or to be capa "The next question to be settled is, did