Phœnix Iron-Works Co. v. New York Security & Trust Co.

83 F. 757, 28 C.C.A. 76, 1897 U.S. App. LEXIS 2137

Opinion

CLARK, District Judge,

after stating the case, delivered the opinion of the court.

The learned circuit judge rested his decision in the case upon two grounds: First. That the machinery constituting the steam plant and motive power, without which the railway company could not be operated, became, when furnished, an essential, integral part of the railway system, and, being a part of the original construction work, passed directly under the terms of the general mortgage, and Shat the stipulation in the contract between Whitley and the petitioner, retaining title, was invalid as against the first mortgage. Second. It was further held that a contract of this character, retaining title as security for debt, is required to be registered, under the recording acts of the state of Kentucky, and that the contract was for this reason invalid as against creditors, including the bondholders whose debts áre by this mortgage secured. Either ground on which the judgment was placed, if legally valid, is conclusive of the case, and renders further discussion of the ruling unnecessary. We may remark that this question is not to be determined by any mere technical theory of what does or does not constitute a fixture, in respect to the ordinary real-estate mortgage, as between the mortgagor and the mortgagee. Nor does the determination of the case depend on any narrow question of mere physical injury to the building in the removal of the machinery placed therein. Decisions in relation to those questions furnish aid, by analogy, in the solution of a problem like the one at bar, but they are not decisive. The property of the railway company, and the uses of the machinery, are different, and this difference in the nature of the property and the uses to which it is put must be taken into account. The business is, moreover, quasi public, and the franchises of this class are granted in the interest of the public. The principle which controls the case, and the reasoning- applicable, are fully set forth in Porter v. Steel Co., 120 U. S. 649, 7 Sup. Ct. 1206; Dunham v. Railway Co., 1 Wall. 254; Railroad Co. v. Hamilton, 134 U. S. 296, 10 Sup. Ct. 546; Railroad Co. v. Cowdrey, 11 Wall. 459; Thompson v. Railroad Co., 132 U. S. 68, 10 Sup. Ct. 29. In Porter v. Steel Co., 122 U. S. 283, 7 Sup. Ct. 1208, the court said:

“Whatever is the rule applicable to locomotives and cars, and loose property susceptible of separate ownership and of separate liens, and to real estate not used for railroad purposes, as to their being unaffected by a prior mori gage given by the railroad company, covering after-acquired property, it is well settled, in the decisions of this court, that rails and other articles which become affixed to, and a part of, a railroad covered by a prior mortgage, will be held by the lien of such mortgage in favor of bona fide creditors, as against any contract, between the furnisher of the property and the railroad company, containing stipulations like those in the contracts in the present case. Dunham v. Railwav Co., 1 Wall. 254; Railroad Co. v. Cowdrey, 11 Wall. 459, 480, 482; U. S. v. New Orleans & O. R. Co., 32 Wall. 362, 365; Dillon v. Barnard, 21 Wall. 430, 440; Fosdick v. Schall, 99 U. S. 235, 251.”

As will be observed from the statement of the case, we are dealing with machinery which constitutes stationary, permanent motive power for the entire railway, affixed thereto, and an indispensable part of the railway as originally constructed. In this and other respects the case is clearly distinguishable from that class of cases relating to locomotive engines and other forms of rolling stock, and loose personal property, as to which it has been held that such property passes under the lien of the general mortgage, in the same con dition in which, it comes to the hands of the mortgagor, and burdened with prior equities and liens, just as it would be burdened in the hands of such mortgagor. The principle is that when the general mortgage covers a railway system, properly described, and on the security and faith of which bonds are issued, and pass into the hands of innocent holders, it is not within the power of the company to displace the lien of the first mortgage, and in that way destroy the security of the mortgage, either by giving a second mortgage on the property or essential parts of the original system, or, indirectly, by making contracts like that now in question, under which, if valid as against the mortgage lien, a similar result would follow. . The steam plant and motive power of this railway are stationary, and are just as essential to. the operation of the railway as are the tracks. In a system constructed like this, the power house and the stationary machinery which furnish the motive power would be worthless without the railway tracks; and, on the other hand, it is equally true that the railway tracks would be valueless, except as second-hand material, without the power house and motive power. This is quite obvious, without elaboration. There could be no reasonable distinction, in principle, between the right to claim title to machinery, and thereby dismantle a power house, and the right to take up the rails, and thereby render worthless the tracks on which the cars are propelled for the purpose of operation. A doctrine which would permit title to be asserted to the machinery of a power house, which is a fixed part of the railway, thereby taking away the motive power, and deny the same right in respect to the tracks of a railway, would be purely arbitrary. The one is an essential part of the original organic structure of the road or system as a whole, — as much so as the other; and if an essential, integral part of the plant may be taken under the claim of right, this would render the remaining parts of the system worthless. The franchise is made valuable, and furnishes security to the bondholding creditor under the mortgage, only by reason of its use in connection with property; and, if such essential parts of the property may be taken, the franchise would be thereby itself rendered valueless. Monongahela Nav. Co. v. U. S., 148 TJ. S. 312, 13 Sup. Ct. 622; Chapman Valve Manuf'g Co. v. Oconto Water Co., 89 Wis. 264, 60 N. W. 1004. It is very clear in this case that the entire plant is properly described and conveyed in connection with the franchise. This case would therefore seem to come within the principle on which judgment was pronounced in respect to a similar mortgage, with a similar description, in Andrews v. Pipe Works, 23 C. C. A. 454, 77 Fed. 774; but we need not pursue or decide upon this special phase of the question, as we are of opinion that the case is controlled by the broader proposition announced in the cases before referred to. Whether we say that an indispensable part of the original construction work of the railway or other similar system becomes a fixture, or say that it is affixed to, and is an integral part of, the property, which, as a whole, constitutes the mortgage creditor’s security, exactly the same thing is meant. When a necessary part of permanent, original construction work is put in, and becomes part of, the plant or system, such as stationary boilers, en gines, rails, sections of bridgework, and the like, it loses its previous character as separate, movable, personal property, and becomes subject to a mortgage properly conveying the entire thing of which such engine, boilers, etc., become permanently part. The view thus taken being decisive of the case, we do not find it necessary to determine the further question whether this contract was invalid, under the laws of Kentucky, for want of registration. There was no error in the decree of the court below, and it is affirmed.