Newgass v. Atlantic & D. Ry. Co.

• Decision Date: 13 June 1893
• Citation: 56 F. 676
• Parties: NEWGASS et al. v. ATLANTIC & D. RY. CO., (CENTRAL CAR-TRUST CO. et al., Interveners.)
• Court: U.S. Court of Appeals — Fourth Circuit

56 F. 676

NEWGASS et al. v. ATLANTIC & D. RY. CO., (CENTRAL CAR-TRUST CO. et al., Interveners.)

United States Circuit Court, E.D. Virginia.

June 13, 1893

Evarts Choate & Beaman and Legh R. Page, for Newgass & Co.

Alexander & Green and Legh R. Page, for Mercantile Trust Co.

E. B Thomason and Murdaugh & Marshall, for Atlantic & D. Ry. Co.

Richard Walke, for receiver.

Samuel Dickson, R. C. Dale, Joseph S. Clark, and Robt. M. Hughes for Car Trust creditors.

Before GOFF, Circuit Judge, and HUGHES, District Judge.

HUGHES District Judge.

This is a contest for priority between the bondholders, claiming also as execution creditors, as to about $360,000, and the car-trust claimants, asserting liens upon the cars furnished by them, and also upon the other property of the defendant company, for about $350,000, and other supply creditors. The defendant company is a railway corporation chartered by the legislature of Virginia. It was, in its inception, a narrow-gauge road, with its terminus at Claremont, on James river. Subsequently, it was decided to make it a standard gauge, and extend it to Portsmouth, in one direction, and Danville, in the other. On September 7, 1887, it executed a mortgage to the Mercantile Trust Company of New York as trustee to secure the payment of bonds to be issued at a certain rate per mile as the road was constructed, amounting in the aggregate to $5,250,000. Prior to May 1, 1888, this mortgage had been admitted to record in but five counties, viz. Sussex, Greenville, Surry, Nansemond, and Norfolk, and prior to that date only $1,582,000 of the total bonds authorized by the mortgage had been issued. During the years 1888 and 1889 the company, finding additional rolling stock necessary on account of its increased mileage, purchased it from various car-equipment companies. It was purchased under the usual car-trust contracts, which speak of the transaction as a lease; and provide that payment shall be made in monthly installments of small amounts, extending over long periods; that if default be made the vendor may retake possession and sell, accounting to the vendee for any balance due after the payment of the outstanding notes; and, further, that the company shall own the cars after the payment of all the notes, on payment of a nominal consideration. Only one of these contracts--that of the New York Equipment Company--was dated prior to May 1, 1888. These contracts, with the exception of that of Humphreys & Sayce, were not recorded in the clerk's office of Portsmouth until April, 1891. Some of them do not seem to have ever been recorded there. Some of them were recorded with the board of public works prior to 1891; others, not at all. The claim of Humphreys & Sayce is the only one which seems to have been recorded both in Portsmouth and with the board of public works prior to 1891. These car-trust creditors, in addition to recording their contracts as described above, took steps also to mature a lien as supply creditors under the provisions of sections 2485 and 2486 of the present Code of Virginia. This they did at various times during the early part of 1891. The railroad enterprise was not a successful one. The receipts were not sufficient to pay expenses and interest charges. The largest holders of its bonds were B. Newgass & Co., of London. On January 2, 1891, the company, by R. M. Stuart-Wortley, as attorney in fact, confessed judgment in favor of B. Newgass & Co. for about $360,000, and execution was at once issued thereupon, and returned nulla bona. Thereupon, on January 3, 1891, B. Newgass & Co. filed a bill in this court reciting this confessed judgment; reciting that there is no property on which the execution can be levied; reciting that it was for moneys advanced to pay employes, and other charges; reciting that they hold $3,000,000 of the bonds, that the company is insolvent, and cannot pay its interest, or even its operating expenses; and praying for a receiver, for the payment of the amount due it, and for general relief. The company answered, admitting the allegations of the bill, and, by an order entered on the same day, receivers were appointed. This decree further provided that all applications for interlocutory relief should only be made after 10 days' notice to parties adverse in interest. On January 7, 1891, the Mercantile Trust Company filed a petition submitting itself to the jurisdiction of the court, and praying a sale under the mortgage. On March 17, 1891, an order was entered, referring to a commissioner the questions arising as to the relative priorities of liens on the road. By a subsequent order, F. M. Whitehurst, Esq., was substituted as commissioner in place of M. F. Pleasants, Esq., on account of the ill health of the latter. On April 16, 1891, the plaintiffs issued an alias execution on their judgment, and on May 8th obtained an ex parte order from the court, directing that the execution should be taken and considered as actually levied on the property named in a schedule attached to the order, which enumerated the rolling stock which had been furnished to the company by the car-trust claimants. Thereupon the marshal returned the execution as by said order directed. In addition to the liens matured by the car-trust creditors under sections 2485 and 2486 of the Code, various other supply creditors matured liens, and asserted them before the master. After a very thorough and intelligent examination the master filed his report on November 30, 1891, passing upon the questions referred to him. He found that the first lien upon the property was the bonds issued under the mortgage prior to May 1, 1888, but that this was a prior lien only upon the property of the company which was in the counties of Sussex, Surry, Greenville, Nansemond, and Norfolk prior to May 1, 1888, not including the rolling stock. He found the next lien to be the supply liens, including those matured by the car-trust creditors, and that these were liens upon the entire property of the company, including the rolling stock, thus making them a first lien upon the rolling stock, and everything else except the limited property in the above-named counties on May 1, 1888. He found that the next lien was the mortgage in the other counties, but subject to the lien of the judgment and execution of Newgass & Co. in those counties where the mortgage was recorded subsequent to January 2, 1891. In reference to the lien reserved in the car-trust contracts, he found that, as against the mortgage, it was a lien on the rolling stock, whether properly recorded or not, as the mortgage only vested upon it as after-acquired property. He found that the contract of Humphreys & Sayce was recorded seasonably and properly, but that the others were not properly recorded, and hence that the execution lien of Newgass & Co. took precedence of the lien reserved in the contracts. To that part of the report allowing the car-trust creditors a lien under sections 2485 and 2486 of the Code, and holding that they had not waived it, B. Newgass & Co. and the trustee excepted. To that part holding the execution to be a prior lien to that reserved in the contracts, the car-trust creditors excepted. Other exceptions were filed, which it is unnecessary to mention. The main questions discussed at the oral argument and in the briefs are whether the car-trust creditors can claim as supply creditors under sections 2485 and 2486 of the Code, and whether the execution lien of Newgass & Co. takes precedence over the lien reserved in the contracts of conditional sale of the rolling stock.

The law of Virginia on the subject of the liens under consideration is as follows:

'Sec. 2462. Reservation of Title to Goods and Chattels Sold to be Void as to Creditors and Purchasers, unless in Writing and Recorded. Every sale or contract for the sale of goods or chattels, wherein the title is reserved until the same be paid for in whole or in part, or the transfer of the title is made to depend on any condition, and possession be delivered to the vendee, shall be void as to creditors of, and purchasers for value without notice from, such vendee, unless such sale or contract be evidenced by writing executed by the vendor, in which the said reservation or condition is expressed, and until and except from the time the said writing is duly admitted to record in the county or corporation in which said goods or chattels may be, if said goods and chattels consist of locomotives, cars, or other rolling stock, equipments, or personal property of any description, to be used in or about the operation of any railroad, until and except from the time the said writing is duly admitted to record in the clerk's office of the county or corporation court of the county or corporation wherein the principal office in this state of the company operating the railroad is located, and a copy of said writing be filed in the office of the board of public works, and each locomotive, car, or other piece of the rolling stock be plainly and permanently marked with the name of the vendor on both sides thereof followed by the word 'owner."

'Sec. 2485. Lien of Employes, &c., of Transportation Companies, &c., on Franchises and Property of Company. All conductors, brakesmen, engine drivers, firemen, captains, stewarts, pilots, clerks, depot or office agents, storekeepers, mechanics, or laborers, and all persons furnishing railroad iron, engines, cars, fuel, and all other supplies necessary to the operation of any railway, canal, or other transportation company, or of any mining or manufacturing company, chartered under or by the laws of this state, or doing business within its limits, shall have a prior lien on the franchise, gross earnings, and on all the real and personal property of said

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