Toledo Co v. Hamilton

• Decision Date: 17 March 1890
• Citation: 33 L.Ed. 905,10 S.Ct. 546,134 U.S. 296
• Parties: TOLEDO, D. & B. R. CO. et al. v. HAMILTON
• Court: U.S. Supreme Court

10 S.Ct. 546

134 U.S. 296

33 L.Ed. 905

TOLEDO, D. & B. R. CO. et al. v. HAMILTON.

March 17, 1890.

J. M. Butler, R. G. Ingersoll, and Clarence Brown, for appellants.

J. H. Doyle and A. W. Scott, for appellee.

BREWER, J.

The question in this case arises e tween a mortgagee and a party claiming a mechanic's lien upon the mortgaged premises, as to priority of payment. The facts are these: On January 17, 1880, the Toledo, Delphos & Burlington Railroad Company executed and delivered its first mortgage to the Central Trust Company of New York, to secure the payment of $1,250,000 six per cent. bonds. The description of the property conveyed by this mortgage is as follows: 'Unto the Central Trust Company of New York, and to its successor or successors in trust, and for the uses and trusts hereby created, all and singular the line of railroad of the said party of the first part, as the same now is or hereafter may be constructed, between Toledo, Lucas county, Ohio, through the counties of Lucas, Wood, Henry, Putnam, Allen, and Van Wert, in the state of Ohio, and the counties of Adams, Wells, Huntington, Wabash, Miami, Grant, and Howard, in the state of Indiana, to the city of Kokomo, Ind., being about one hundred and eighty miles in length; together with all and singular the right of way, road-bed, made and to be made, its track, laid or to be laid, between the terminal points aforesaid; together with all supplies, depot grounds, rails, fences, bridges, sidings, engine-houses, machinery, shops, buildings, erections, in any way now or hereafter appurtenant unto said described line of railroad; together with all the engines, machinery, supplies, tools, and fixtures, now, or at any time hereafter, owned or acquired by said party of the first part, for use in connection with its line of railroad aforesaid; and all depot grounds, yards, sidings, turn-outs, sheds, machine-shops, leasehold rights, and other terminal facilities, now or hereafter owned by the said party of the first part, together with all and singular the powers and franchises thereto belonging, and the tolls and income and revenue to be levied and derived therefrom.' The trust company accepted the trust created by this mortgage, and the bonds were issued by the railroad company, certified by the trustee, and sold on the market. The mortgage was, within a few days after its execution, duly recorded in the proper counties. In October, 1883, default having occurred in the payment of interest, the trust company brought suit to foreclose. There being a conflict of interest between the bondholders under this and those under a terminal trust mortgage subsequently executed by the railroad company, a committee of bondholders under the first mortgage, consisting of James M. Quigley, Charles T. Harbeck, and John McNab, was appointed to represent the interest of such bondholders, and by order of the court duly made co-complainants. Thomas H. Hamilton, appellee, intervened, and filed his petition, claiming a mechanic's lien. On March 20, May 9, and June 2, 1883, respectively, he had entered into three several contracts with the railroad company for the erection of a dock on the Maumee river, in the city of Toledo. Under these contracts he had built the dock, and, receiving only partial payment, had filed a claim for a mechanic's lien for the balance. The lot on which the dock was built was a part of the railroad property covered by the first mortgage above referred to. The circuit court sustained his claim of lien, and decreed prior payment of the amount due him out of the proceeds of the sale of the railroad property as an entirety. No question is made as to the amount due him by the railroad company for the work he did, but the contention of the appellants is that he is not entitled to priority of payment. His claim of priority depends upon either a legal right given by his mechanic's lien, or an equitable right arising from the construction of the dock and consequent improvement of the railroad property. The master, who reported upon the intervening petition, based his award of priority upon the latter ground, holding that the fact of construction, and consequent improvement, of the railroad property, gave an equitable right to priority of payment, while the court, giving the same priority, rested it upo the fact of a mechanic's lien. We think that the views of neither the master nor the court can be sustained, and that it was error to give appellee priority over the mortgagee. It will be noticed, and it is a fact which lies at the foundation of this case, that the contracts for the construction of the dock were not made till more than three years after the execution and record of the mortgage. The record imparted notice to Hamilton, and to all others, of the fact and terms of the mortgage; and the question is thus presented, whether a railroad company, mortgagor, can, three years after creating by recorded mortgage an express lien upon its property, be contract with a third party displace the priority of the mortgage lien. It would seem that the question admits of but a single answer. Certainly, as to ordinary real estate, no one would have the hardihood to contend that it could be done, and there is in this respect no difference between ordinary real estate and railroad property. A recorded mortgage, given by a railroad company on its road-bed and other property, creates a lien whose priority cannot be displaced thereafter, directly by a mortgage given by the company, nor indirectly by a contract between the company and a third party for the erection of buildings or other works of original construction.

It is enough to refer to the decisions of this court. In the case of Dunham v. Railway Co., 1 Wall. 254, there was presented a question of priority between a mortgagee and a contractor who had expended money and labor in building a railroad under a subsequent agreement with the company that he should have possession of the road until he was fully paid, and who had never surrendered the possession, and the priority of the mortgage was sustained. Upon this point the court observed: 'Counsel of respondents concede that the mortgage to the complainant was executed in due form of law, and the case also shows that it was duly recorded on the 9th day of March, 1855, more than eight months before the contract set up by the respondents was made. All of the bonds, except those subsequently delivered to the contractor, had long before that time been issued, and were in the hands of innocent holders. Contractor, under the circumstances, could acquire no greater interest in the road than was held by the company. He did not exact any formal conveyance, but if he had and one had been executed and delivered, the rule would be the same. Registry of the first mortgage was notice to all the world of the lien of the complainant, and in that point of view the case does not even show a hardship upon the contractor, as he must have known when he accepted the agreement that he took the road subject to the rights of the bondholders. Acting, as he did, with a full knowledge of all the circumstances, he has no right to complain if his agreement is less remunerative than it would have been if the bondolders had joined with the company in making the contract. No effort appears to have been made to induce them to become a party to the agreement, and it is now too late to remedy the oversight. Conceding the general rules of law to be as here laid down, still an attempt is made by the respondents to maintain that railroad mortgages made to secure the payment of bonds issued for the purpose of realizing means with which to construct the road stand upon a different footing from the ordinary mortgages to which such general rules of law are usually applied. Authorities are cited which seem to favor the supposed distinction, and the argument in support of it was enforced at the bar with great power of illustration, but suffice it to say that, in the view of this court the argument is not sound, and we think that the weight of judicial determination is greatly the other way. Pierce v. Emery, 32 N. H. 484; Pennock v. Coe, 23 How. 130; Field v. Mayor, etc., 6 N. Y. 179; Seymour v. Railroad Co., 25 Barb. 286; Redf. R. R. 578; Langton v. Horton, 1 Hare, 549; In re Howe, 1 Paige, 129; Mith ell v. Winslow, 2 Story, 644; Dom. Civil Law, p. 649, art. 5; 1 Pow. Mortg. 190; Noel v. Bewley, 3 Sim. 103.' See, also, on this general proposition, the cases of Railroad Co. v. Cowdrey, 11 Wall. 459; Dillon v. Barnard, 21 Wall. 430, 440; Porter v. Steel Co., 120 U. S. 649, 7 Sup. Ct. Rep. 741, and 122 U. S. 267, 7 Sup. Ct. Rep. 1206; Thompson v. Railroad Co., 132 U. S. 68, ante, 29. Reference may be had to a decision of the supreme court of Ohio, the state in which this lien was attempted to be created and enforced, (Choteau v. Thompson, 2 Ohio St. 114,) in which the court, speaking of a mechanic's lien, says: ...