Central Trust Co. v. Chattanooga, R. & C.R.R.

• Decision Date: 14 September 1898
• Docket Number: 736.
• Citation: 89 F. 388
• Parties: CENTRAL TRUST CO. OF NEW YORK v. CHATTANOOGA, R. & C.R.R. et al. (OWENS et al., Interveners).
• Court: U.S. District Court — Northern District of Georgia

89 F. 388

CENTRAL TRUST CO. OF NEW YORK v. CHATTANOOGA, R. & C.R.R. et al. (OWENS et al., Interveners).

No. 736.

United States Circuit Court, N.D. Georgia.

September 14, 1898

Halstead Smith and Dean & Dean, for interveners.

King &amp Spaulding, for defendant.

NEWMAN District Judge.

In disposing of this matter, it may be proper to mention, first that, in 1892, the Chattanooga, Rome & Columbus Railroad, as to which this proceeding relates, was a part of the Central of Georgia System of railroads; that is, it was a part of the Savannah & Western System, which had become a part of the Central System. In 1892 all of the roads comprising the Central System were placed in the hands of a receiver, by order of the United States circuit court for the Southern division of Georgia. Mr. H. M. Comer, after some changes ultimately became receiver under this first bill. Subsequently, in 1893, under a bill filed to foreclose the Savannah & Western bonds, Comer and R. J. Lowry were appointed receivers of the Savannah & Western. In December 1893, a bill was filed by the Central Trust Company, trustee for certain still underlying bonds of the Chattanooga, Rome & Columbus Railroad Company, to foreclose the mortgage or trust deed. Under this last bill, Comer and Lowry having asked to be relieved as to this property, a separate receiver, E. E. Jones, was appointed by this court, in February, 1894. There was a sale of the Chattanooga, Rome & Columbus Railroad under this last foreclosure, and it was purchased by a committee, representing the bondholders. Certain judgment creditors of the Chattanooga, Rome & Columbus Railroad now come into court, by intervening petitions, and ask that the proceeds of the sale of the road be paid to them in preference to the bondholders.

These petitioners have general judgments, obtained in 1891, 1892, 1893, and 1894, of subsequent date to the trust deed, which was made in 1887. They are prior in date, however, to the deficiency judgment given the trust company for the amount due on the bonds over and above the amount realized from the sale of the road. They ask to be paid out of the proceeds of the sale of the road, in preference to the bondholders, for two reasons: First, because a considerable part of the road was not constructed at the time the trust deed was executed; and, second, because they claim that the income of the road is not covered by the trust deed.

As to the first contention, it is sufficient to say that by the terms of the trust deed it covers the line of railway commencing at Chattanooga, extending through certain counties in Tennessee, certain counties in Georgia, and into Carroll county, Ga. The supreme court of Georgia, in the case of Georgia S. & F.R. Co. v. Mercantile Trust & Deposit Co., 94 Ga. 306, 21 S.E. 701, uses the following language:

'As a practical proposition, it is well known that most, if not all, of the railroads of any length in the United States, which have been built for years past, have been constructed by issuing, in advance, bonds upon their entire line, including the unbuilt portion as well as those already constructed, with mortgages to secure the bonds covering the whole. If a de facto railroad company is a corporation for any purpose at all, it ought, on general principles, to have the power to mortgage 'future-acquired property,' and this seems to be the doctrine very generally recognized by the courts. Upon this question, see Wright v. Bircher's Ex'r, 72 Mo. 179; City of Quincy v. Chicago, B. & Q.R. Co., 94 Ill. 537; Wade v. Railroad Co., 149 U.S. 327, 13 Sup.Ct. 892; Williams v. Winsor, 12 R.I. 9; Branch v. Atlantic & G.R. Co., 3 Woods, 630, Fed. Cas. No. 1,807; Seymour v. Canandaigua & N.F.R. Co., 25 Barb. 284; Holroyd v. Marshall, 10 H.L.Cas. 191. And these citations might be indefinitely multiplied.'

The foregoing, from the supreme court of this state, is in accordance with the general rule on this subject, and is sufficient to dispose of the first contention of interveners, without quoting further authority.

The other ground on which interveners place their claim of preference is one of more difficulty. The intervention sets up that certain net income was derived from the operation of the road by Jones, as receiver, and, the demurrer on which the case is now heard admitting this to be true, it must be determined whether, as to this income, general judgment creditors should be preferred to the bondholders. The legislature of the state, in 1881, authorized this railroad company to execute a trust deed or mortgage on all its property, without specifying income. Acts 1881, p. 246. In 1886 it was authorized to issue income bonds, and to secure the same by mortgage of its property and franchise, or by pledging the income of its railroad, either or both, as the road company might deem proper. Acts 1886, p. 139. The income of the road is not covered in express terms by the trust deed. It contains, however, the following provision: 'Until default shall be made in the payment of principal or interest of the said bonds, * * * the party of the first part (grantor) shall have the right to possess and enjoy the premises and properly heretofore described, and to receive and take and use all told income, earnings, and profits thereof. ' Afterwards, in that part of the trust deed relating to the power of the trustee in the event of default for three months in the payment of interest, trustee is 'authorized and empowered and directed, on request of any bondholder, to enter into and upon, and take and hold possession of, said railroad, and all its property, rights, privileges, and franchises, as aforesaid, and, until the day of sale thereof be fixed, to maintain and operate the same. ' It will be seen, therefore, that the right of the railroad company to receive its income is restricted and limited to and during the time that it shall comply with this contract as to payment of interest, etc. Upon default of the railroad company, its right to receive the income ceases, and the trustee may enter and maintain and operate the railroad, and until the day of sale have such possession, with the railroad's rights, privileges, and franchises. By section 2723 of the Civil Code of Georgia, 'a mortgage * * * is only a security for a debt, and passes no title. ' It has been held, however, by the supreme court of the state, that this does not prevent the conveyance of the title as security for a debt. In Biggers v. Bird, 55 Ga. 650, it is said:

'Surely, there is no law against having the legal title in pledge for a debt,-- against passing that kind of title into the creditor by a bona fide conveyance, to abide in him, with all the incidents of ownership, until the debt is paid. If the parties wish to do such a thing, contract to do it, and proceed to carry their purpose into effect, we are aware of no obstacle in the law. It does not follow that, because a mortgage is only security, every security is only a common mortgage.'

But, even assuming that this is only a mortgage, there seems to be no reason why full effect should not be given to the covenants for possession in the event of default. In the case just cited (Biggers v. Bird, supra) it is said:

'Even a common mortgage might stipulate for admitting the mortgagee into possession on breach of the conditions. We will observe again that, if the plaintiff is only a mortgagee, he is entitled to the benefit of the covenants for possession; certainly so, after having been received and treated as landlord. It may be unusual for a mortgagee in Georgia to enjoy the possession, but the Code anticipates that it may occur, and takes care to prescribe the time within which the mortgagor may redeem. Section 1964. Doubtless, in

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