Commercial Trust Co. v. Chattanooga Ry. & Light Co.

• Decision Date: 05 March 1921
• Docket Number: 23.,22
• Citation: 281 F. 856
• Court: U.S. District Court — Eastern District of Tennessee
• Parties: COMMERCIAL TRUST CO. v. CHATTANOOGA RY. & LIGHT CO. et al. MARYLAND TRUST CO. v. SAME.

281 F. 856

COMMERCIAL TRUST CO. v. CHATTANOOGA RY. & LIGHT CO. et al.

MARYLAND TRUST CO. v. SAME.

Nos. 22, 23.

United States District Court, E.D. Tennessee, Southern Division.

March 5, 1921

Bill in equity by the Commercial Trust Co., a Pennsylvania corporation, against the Chattanooga Railway & Light Co., a Tennessee corporation, et al., to foreclose a trust deed or mortgage executed in 1906 by the Chattanooga Railways Co., a Tennessee corporation, to the plaintiff's predecessor in trust. Subsequent bill, by the Maryland Trust Co., a Maryland corporation, against the Chattanooga Railway & Light Co. et al. to foreclose a prior trust deed or mortgage executed to it by the Chattanooga Railways Co. in 1898. Each bill prayed a mortgage foreclosure and that it be sustained as a general creditors' bill. The two causes were consolidated.

Default in the two mortgages and the general rights of foreclosure thereof were not denied; but a controversy was presented between the two plaintiffs on the one side and the Chattanooga Railway & Light Co. and the Fidelity Trust Co., a Pennsylvania corporation, a defendant under the Maryland Trust Co.'s bill, as to the extent of the property of the Chattanooga Railway & Light Co. covered by the liens of the two mortgages, arising out of the following general situation: In 1909, after the Chattanooga Railways Co., a street railway corporation, had executed these two mortgages each of which contained an after-acquired clause, the Chattanooga Railway & Light Co. was organized as a Tennessee corporation, authorized to operate both a street railway and a light and power plant. After its organization it acquired by deeds, all the property of the Chattanooga Railways Co. subject to the two mortgages in suit, and also all the property of the Chattanooga Electric Co., a Tennessee light and power company. Thereafter all these street railway and light and power properties were operated by the Chattanooga Railway & Light Co., which in turn executed a third trust deed, or blanket mortgage, on all its properties, to the Fidelity Trust Co., and thereafter added extensively to its properties.

On preliminary applications receivers were appointed by the court, under the two bills, of all the street railway properties of the Chattanooga Railway & Light Co., but not of its light and power properties.

Hearing on various interlocutory motions and on pleadings and proof as to decree of foreclosure. Bills not sustained as general creditors' bills; but foreclosure decree awarded and scope determined.

Charles T. Cates, of Knoxville, Tenn., and John Hampton Barnes, of Philadelphia, Pa., for Commercial Trust Co.

J. M. Trimble, of Chattanooga, Tenn., for Maryland Trust Co.

Brown, Spurlock & Brown, of Chattanooga, Tenn., and Joseph S. Clark and Percy H. Clark, both of Philadelphia, Pa., for Chattanooga Ry. & Light Co.

Finlay & Campbell, of Chattanooga, Tenn., and Morgan, Lewis & Bockius and Francis B. Bracken, all of Philadelphia, Pa., for Fidelity Trust Co.

SANFORD District Judge.

I have carefully considered the evidence, and the arguments and briefs of counsel, dealing with many questions and citing many authorities.

My conclusions on what, after such consideration, appear to me to be the crucial and determinative questions, briefly stated, without elaboration or detailed citation or discussion of the authorities, are:

1. Neither the Commercial Trust Co. nor the Maryland Trust Co. are, as trustees under their respective mortgages, themselves creditors of the Chattanooga Railway & Light Co. (hereinafter called the Railway & Light Co.); neither has any judgment against it or return of nulla bona; and neither, under the allegations of its bill, is entitled to maintain the same as a general creditors' bill against the Railway & Light Co. See Scott v. Neely, 140 U.S. 106, 11 Sup.Ct. 712, 35 L.Ed. 358, and Cates v. Allen, 149 U.S. 451, 13 Sup.Ct. 883, 37 L.Ed. 804.

2. The Railway & Light Co. is neither the corporate successor of the Chattanooga Railways Co. (hereinafter called the Railways Co.), nor a consolidated company of which the Railways Co. is a constituent member; but it is the purchaser of all the street railroad properties which were conveyed to it by the Railways Co. in August, 1909, and successor in title thereto.

3. It is admitted that the mortgage of 1898 made by the Railways Co.-- under its former name of the Chattanooga Electric Railroad Co.-- to the Maryland Trust Co. (hereinafter called the Maryland mortgage), and the mortgage of 1906 made by the Railways Co. to the Trust Co. of America, the predecessor in trust of the Commercial Trust Co. (hereinafter called the Commercial mortgage), constitute a first and second lien, respectively, upon all the street railroad properties which were conveyed to the Railway & Light Co. in August, 1909, as aforesaid; and that such liens cover all the street railroad lines and properties which came into the possession of the receivers herein and are now being operated by them, except the following lines and properties built or acquired by the Railway & Light Co., namely, (a) the West Sixth Ave., Rossville and Vance Ave. lines, (b) new cars, (c) double tracks, (d) air hoist equipment and (e) certain poles. It is also denied that either of these two mortgages extends to the electric light and power properties conveyed to the Railway & Light Co. in August, 1909, by the Chattanooga Electric Co. or to certain electric light and power equipment placed by the Railway & Light Co. in the Seventh St. and Ridgedale power stations.

4. When a railroad company, authorized by its charter to build and operate a certain line of railroad, mortgages such railroad with its appurtenances as an entire system, as then built or thereafter to be built or acquired, the lien of such mortgage thereafter extends to all additions and accessions coming within its terms, made and added thereto either by the mortgagor or by a successor in title, even although such successor be not mentioned in the after-acquired clause; every one thereafter acquiring such line of railroad, or any interest therein, from the mortgagor, taking the same cum onere, and being estopped by privity of title with the mortgagor, to deny that such additions and accessions are embraced within the mortgage. Wade v. Chicago Railroad, 149 U.S. 327, 341, 342, 13 Sup.Ct. 892, 37 L.Ed. 755; Compton v. Jesup (6th Circ.) 68 F. 286, 287, 15 C.C.A. 397, cited with approval in Railway Springs Co. v. Chicago Railroad (D.C.) 246 F. 338, 347, and Metropolitan Trust Co. v. Chicago Railroad (7th Circ.) 253 F. 863, 871.

5. On the other hand a railroad company is without authority to mortgage as after-acquired property a line of railroad or other property which it is not authorized within the limitations of its then charter to build or acquire; such attempted mortgage being ultra vires. See Alexandria Railway Trustees v. Graham, 31 Grat. (Va.) 769, 777; and by implication, Galveston Co. v. Cowdrey, 11 Wall. 459, 481, 20 L.Ed. 199; Pennock v. Coe, 23 How. 117, 132, 16 L.Ed. 436; Compton v. Jesup (6th Circ.) 68 F. 263, 37 L.Ed. 755, supra. Thus the after-acquired clause of a railroad mortgage will not extend to a line of railroad not within the charter limits of the mortgagor, subsequently acquired by a consolidated company of which it becomes a constituent, under the charter of another railroad company. Railway Springs Co. v. Chicago Railroad (D.C.) 246 F. 338, supra, at page 347 (affirmed sub nom. Metropolitan Trust Co. v. Chicago Railroad, 253 F. 863, supra). Nor will a railroad mortgage, though expressly including property afterwards acquired by the mortgagor's 'successors,' extend to a connecting line of railroad subsequently built by a purchasing company under another charter. Mississippi Valley Trust Co. v. Southern Trust Co. (8th Circ.) 261 F. 765.

6. The liens of the Maryland mortgage of 1898 and the Commercial mortgage of 1906 are not in any wise enlarged by the fact that the street railroad properties were conveyed to the Railway & Light Co., subject to these two mortgages. Even if these mortgages were thereby, or otherwise, assumed by the Railway & Light Co., this creates merely a personal obligation of the Railway & Light Co. and does not enlarge the mortgage liens. Mississippi Valley Trust Co. v. Southern Trust Co. (8th Circ.) 261 F. 765, supra, at page 767. And it is not necessary to determine whether such personal obligation was thereby created, since in any event, neither mortgage creates the mortgagee a trustee to enforce such personal obligation, arising subsequently to and independently of the mortgages themselves, and if such obligation has been created, the right of action for its enforcement is vested in the bondholders alone.

7. It is clear that neither the Maryland mortgage of 1898 nor the Commercial mortgage of 1906 extends to the electric light and power property conveyed by the Chattanooga Electric Co. to the Railway & Light Co. in August, 1909. The Railways Co. was chartered under the general incorporation Act of 1875 for the sole 'purpose' of constructing and operating a street railroad in Chattanooga over specified routes, and with specified powers to that end. Tenn. Acts of 1875, c. 142, Sec. 13, p. 250. It was no part of its purpose to operate an electric light and power plant; and it had no charter power so to do, either in 1898 or in 1906. It is true that the Tennessee Acts of 1903, c. 406, p. 1150, amended the general incorporation Act of 1875, so as to invest street railway companies with power to construct and operate electric light and power plants. However, this did not operate of itself to extend the charter power of the Railways Co.; and if it desired to obtain this additional power it...