0. A R T R U S T S
in the
U N I Tº E. D S Tº A T E S
***Q- ºsº
A brief statement of the law of contracts Of
conditional sale of rolling stock to railroads
by
GHERARDI DAVIS and G. MORGAN BROWNE, Jr.
of the New York Bar.
***@***
NEW YORK
&ººm,
1894
HE
| 222
, Tl2C
Copyright, 1894
by
Gherardi Davis and G. Morgan Browne, Jr.
Printed by the Evening Post Job Printing Office
~!-s
~r-
:s
º
The following pages were suggested by the difficulties which presented
themselves in several cases in which the question of the validity of cer-
tain Car Trusts was raised. Since the very able and interesting address made by
Mr. Rawle, of Philadelphia, before the American Bar Association in 1885, there
has been no publication on car trusts specifically, and only brief references
have been made to this form of contract in a few text-books. We hope, for this
reason, that members of the 1egal profession and others who may read this psm-
phlet will find in it something of interest e
GHERARDI DAVIS
G. MORGAN BROWNE, Jr.
44 ºine Street, New York,
February, 1894.
Lib. Gong, card 12–13093
John Crerar Lib. no. 656,09ſºł02
-- 454,0413 P402.

(1)
(2)
QAR TRUSTS IN THE UNITED STATES
tºº sºme ºmnama º ºsº
Car Trusts are a form of mercantile contract first developed in the
United States. Their origin is recent as compared with other legal institu-
tions, and their use in the equipment of railroads, which have not the means
to purchase outright the necessary rolling stock, is an interesting example
of business and legal ingenuity. At first misgivings as to the validity
of these contracts existed in the minds of certain judges, before whom they
were brought for adjudication. There were criticised in and out of the courts
as being usurious, not to say iniquitous, perhaps even contrary to public
policy, but their value and importance were soon recognized, and since 1883
the legislatures of many of the 8tates have passed laws regulating such con-
tracts and defining conditions under which they shall be valid.
The usual method of creating a Car Trust is as follows: The intending
purchaser and the owner of rolling stock execute a contract of conditional
sale by which the former agrees to buy of the latter the rolling stock in
question, to make a part payment of the purchase price upon the execution
of the contract, and to pay the balance of the purchase price in one or more
installments. The rolling stock remains the [roperty of the original owner
until the last installment is paid, but the possession of the rolling stock
is delivered to the purchaser. The installments which the purchaser agrees
to pay are represented by his promissory notes which are commonly called
"lease warrants," and they are made to mature at fixed intervals over a term
of years. The parties to the contract are usually oalled lessor and lessee .
These terms are generally used for the sake of brevity, although to meet the
objection which might be raised in some States that there cannot be a condi-
tional sale of personal property valid as against third parties, the contracts
are often purposely dºwn as leases The lessee, as he is called, is usually
(3)
bound by the contract to keep the rolling stock in proper repair, and some-
times to replace it if destroyed; to hold it at all times subject to the inspec-
tion of the lessor, and to keep it insured for the latter's benefit. In case
of default in any of the payments, or of any failure to perform any other
provision of the contract, the lessor has the right to enter upon the premises
of the lessee and to take insulate possession of the rolling stock, to sell
it at private or public sale, and to apply the proceeds $6 the payment of
the amount remaining due under the contract; at the same time he is bound
to pay over the balance, if any, after paying the expenses of the sale to
the lessee.
when the contract of conditional sale has been properly executed it is
assigned with the lease warrants and the rolling stock to a trustee under a
Car Trust agreement. Under this agreement the trustee issues Car Trust
Bonds or certificates bearing interest, that is to say, obligations equal in
value to the total amount of the lease warrants under the original contract
of conditional sale. The interest is represented by coupons which are *
payable at certain fixed times, and for the payment of the bond and coupons
the trustee holds the proceeds of the lease-warrants in trust. These Gar
Trust bonds are payable to bearer and can be sold and negotiated like any
bond, and usually contain a provision for registration. The holder of a -
Car Trust bond must look to the original contract of conditional aale and
the lease-warrants issued under it, for payment of the bond and coupons,
and if default is made in payment of the lease-warrants, the trustee must
proceed under the original contract of conditional sale to collect from the
lessee the amounts aws.”
For the sake of brevity, but as appears inaccurately, this entire trans-
action is usually called a Gar Trust or a Gar Trust. Lease-
* In the Appendix will be found a form of Contract of conditional sale, a
form of Car Trust agreement and a form of Car Trust bond drawn on the above
lines, which have been used in the sale of many millions of dollars' worth
of property to railroads in all parts of the United States •
(4)
As Car Trusts are based upon contracts for the conditional sale of per-
sonal property, it may be well briefly to refer to the general law on the sub-
ject of such contracts. In New York, Massawrechusetts and many other states,
conditional sales of personal property have long been recognized and pro-
tected, and the Courts have even gone so far as to sustain the conditional
seller's title against that of an innocent purchaser for value without notice.
It is true thet chancellor Kent” cast at one time a doubt upon the validity
of such contracts, and in Pemsylvania, Illinois and Kentucky such sales have
frequently been held not to be valid.” but the learned Chancellor's opinion
has not been extensively followed, and in least of all his own State, where
it has been decided in numerous cases that an innocent marchaser for valºxo
from a conditional buyer can “et no better title than the conditional buyer
had at the time of the sale.”
In 1869 the Court of Anpeals of New York had before it a case" where
the plaintiff sold to one F., a yoke of oxen under an agreement thet the oxen
were to remain the property of the plaintiff until they should be paid for
by F., the letter in the meantime having possession. Afterward, and before
F. had paid for than, he cold the oxen to the defendent without notice of the
defendent's rights. It was held that defendent acquired no title as against
the plaintiff, the Court ssying: "the possession of the contemplated purchaser
1 2 Kent. Corne, 49?,
3 Stadtfeld v. Huntsman, 92 Penn. St., 53; Peek v. Heim, 127 Penn. St., 500;
Murch v. Wright, 46 Illinois, 487; Michigan Central Railroad v. Phillips,
60 Illinois, 190; Waughn v. Hobson, 10 Bush, 337; Baldwin v. Crow, 86 Ken-
tucky, 679. See, however, the statutes cited upon p. 47 relating to con-
ditional sales of rolling stock.
* See Herring v. Hoppock, 15 N.Y., 409.
* Ballard v. Burgett, 40 N.Y. , 314.
gives him no better opportunity to impose upon purchasers than that of an or—
dinary bailee." In the latter case it has never been claimed that any title
would be acquired by such a purchaser from such a bailee." In a more recent
case decided by the General Term of the Supreme Court of the same State, and
subsequently affirmed by the Court of Appeals, the following language was used
by the Court: "Under the contract of sale, by which possession of the property
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was acquired by the vendee, the legal rights of the parties are well defined
in this state • The rights of the vendee were those of a *ause only. He
was the lawful custodian of the property, s , , but he acquired no title
against the plaintiff, and upon his failure to pay in pursuance of the terms
of the contract, the title remained in the plaintiff as fully as if neither
sale nor delivery thereof had been made or at tempted.”
In the case of Bean ve Edge.” the Court of Appeals had before it a case
in which it passed upon a contract or conditional sale of furniture. The
case as stated in the head note is as follows: Bean who had leased a hotel
in New Jersey of defendant's intestate, ana who owned the furniture, leased
the hotel and furniture for the unexpired term to Ely for a sum specified
in addition to the rent as it accrued under the lease to Bean. Ely agreed
to keep the furniture insured, and not to sell, remove or permit the same to
be removed, Bean agreed that upon rement of the rent and performance of the
covenants by Ely, he would, at the expiration of the tem, sell and convey
the furniture to Ely. In case of default on the part of Ely, Bean was au-
thorized to re-enter and take possession of, and to sell the furniture at
* Campbell Printing Press Co. v. Walker, 43 Hun, 449; 114 N.Y., 7: Rathburn
v. Waters, 1 City Court Rep. , 36. In the latter case MacAdam, I, , gives
a very complete review of the law. -
* 84 N.Y., 510.
(6)
auction, retaining out of the proceeds the amount of rent unpaid, paying over
the surplus to Ely. Bean subsequently transferred his interest in the lease
to plaintiff, and assigned to him his interest in the furniture. Defendant's
intestate caused the furniture to be distrained for non-payment of rent under
the statute of New Jersey which authorized a landlord to seize for rent in
arrears, within six months after the same becomes due, the goods of his tenant
on the demised premises, but not those of any other person, although in the
possession of the tenant. On these facts the Court decided that the trans-
action between Bean and Ely ºn as to the furniture was a conditional sale,
the title remaining in Bean until performance by Bly; that no such interest
was transferred to Ely, as rendered the property subject to be distrained
for rent due from him; and that the transfer from Bean vested the title in
plaintiff, and upon default made by Ely he had a right to take possession.
In Massachusetts the Supreme Judicial Court has sustained such contracts
and in one case says: "All the gases turn on the principle that the compliance
with the conditions of sale and delivery is, by the terms of the contract,
precedent to the transfer of the property from the vendor to the vendee. The
vendee in such cases acquires no property in the goods; he is only a bailee
for a specific purpose. The delivery which in ordinary cases passes the
title to the vendee must take effect according to the agreement of the parties,
and can operate to vest the property only when the contingency contemplated
by the contract arises. The vendee, therefore, in such cases, having no
title to the property, can pass none to others. He has only a bare right to
possession, and those who claim under him, either as creditors or purchasers,
can acquire no higher or better title. . . . If the property does not pass
out of the vendor for one purpose it certainly does not for another. If it
remains in him at all, it is because such is the agreement of the parties,
and it cannot be divested by any act of the vendee until the contract is ful—
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filled.”
As we have already said, a different rule has prevailed in the States of
Pennsylvania and Illinois. "It has long been an established rule in Pennsyl-
vania," says Paxon, J., in delivering the opinion of the Court in *tadtfeld v.
Huntsman,” "that a sale and delivery of personal property with an agreepent
that the ownership shall remain in the vendor until the rurchase money is paid,
is fraudulant and void as to the cre': itors of the vendee and innocent pur-
chasors." This doctrine is upheld by a long line of Pennsylvania decisions,
to which it is unnecessary to refer. These decisions, however, recognize a
contract not far removed from that of a conditional sale, that is to say, a
lease, with an option to the lessee to purchase at a price agreed upon at the
end of the teria. Mr. Justice Sterrett, in deciding the case of Forest v.
Nelson,” thus distinguished between the two cases: “A present sale and delive-
ery of personal property to the vendee, coupled with an agreement that the title
shall rºot vest in the latter, unless he pays the pride agreed won at the time
appointed therefor, and that in default or such payment the vendor may resume
possession of the property, is quite different in its effect from a bailment
for use, or, as it is sometimes called, a lease of the Troperty, coupled with
an agreement whereºy the lessee may subsequently become owner of the property
upon the payment of a price agreed upon. As between the parties to such con-
tracts, both are valid and binding; but as to the ore [itors, the letter is good
while the former is invalid. In some cases the line of demarcation between a
conditional sale and a bailment is not very clearly drawn." Edºardg' Avraal"
1. Coggill v. Hartford and New Havan Railroad Co., 3 Gray, 545.
* 92 Penn. St., 53.
* 108 Penn. St., 481.
* 105 Penn. St., 103. See also Rowe v. Sharp, 51 Penn. St., 26; Enlow v.
Klein, 79 Penn, St. , 488.
is another case where this distinction was made, and the contract held to
amount to a mere bailment for hire, even though coupled with a right in the
hirer to purchase at the end of the term. It must be coarsenea, however,
that it; is rather difficult to see exactly wherein lies the difference be-
tween these leases and true conditional sales, except in the words used to
describe what takes place, and yet all the judges agree that the words used
should go for very little, and that the oontract must be interpreted accord-
ing to its true legal erreot.”
From conditional sales of property in general, it was but a step to
conditional sales of rolling stook to railroads, and yet it was a step that
was not taken for many years after railroads came into existence. Inasmuch
as a very large number of railroads are not, at the time of their organiza-
tion, in a condition to purchase a sufficient amount of rolling stock out-
right, and as, at the same time, manufacturers and owners of rolling stock
would often hesiſtate to accept the obligation of a railroad of perhaps doubt-
ful future, even when secured by collateral, in payment for cars and engines,
some other security or means of protecting the manufacturer became necessary.
A conditional sale was decided on for the reason that it preserves to the
seller the property itself, and that his property remains free from equities
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of every kind. A chattel mortgage would only secure to the mortgagee an
equity in the property mortgaged, and is, furthermore, a cumbersome method
Of •wins the person advancing the money in those 6tates where the annual
xaſiling of the mortgage is necessary. When once contracts of conditional
sale were applied to the sale of rolling stock they rapidly developed to an
extraordinary degree, and they have reached a magnitude wholly unheard of in
1 The law in Illinois is the same as in Pennsylvania. See, in addition
to the cases cited above, Brundage v. Camp, 21 Ill., 330; Wan Duzor v.
Allen, 90 Ill., 409; Chickering v. Bastress, 130 Ill., 206. See the
opinion in Harkness v. Russell, 118 U.S. , 663, for a very complete re-
view of the law in the United States and England.
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conditional sales of other personal property. Thousands of cars and engines,
required by railroads all over the country, have been sold under such con-
tracts.”
Before passing to the consideration of the legal aspect of conditional
sales of rolling stock, we shall briefly refer to Car Trust agreements. As
we have said, such agreements are created by the assignment of the contract
of conditional sale to a trustee, who issues Car Trust bonds or certificates
with coupons representing interest. Car Trusts are made solely for the
purpose of creating readily negotiable securities in the shape of bonds, and
are merely personal agreements, the validity or invalidity of which can in no
way affect the contract of sale. The trustee collects the amounts paid under
the contracts of sale, and pays the coupons or certificates as they respective-
ly fall due; the purchaser under the contract of conditional sale is in no way
arrected by the terms of the Car Trust, and to him the trustee is merely the
assignee of the contract of sale to whom the payments specified in that con-
tract are to be made • It will be seen from what we have said that whatever
attack there may be to make upon a Car Trust will be made through the original
contract of conditional sale, as that contract is the foundation upon which
the Car Trust rests,
* Some of the Car Trust agreements executed by one company which is engaged
in this particular business are given below for the purpose of showing the
magnitude of these contracts. These contracts were with the New York,
Pennsylvania and Ohio Railroad, affecting 2,700 cars, valued at $1,571,000;
the East Tennessee, Virginia and Georgia Railroad, affecting locomotives
and cars valued at $1,475,215; the Norfolk and Western Railroad, affecting
9 engines, valued at $110,000, and 1,050 cars, valued at $613,750; the St.
Louis, Arkansas and Texas Railroad, affecting locomotives valued at $928–
000; the Richmond and Danville Railroad, affecting locomotives and cars
valued at $576,155; the Atlantic and Pacific Railroad, affecting 50 loco-
motoves valued at $500,000; the Canda Cattle Car Company, affecting 2,000
cattle cars valued at $1,510,000; the Pittsburgh and Western Railroad, af-
fecting 500 cars, valued at $210,000; the Central Railroad and Banking Com-
pany, of Geºrgia, affecting cars valued at $1,369,000.
The total amount flavolved in Car Trusts made by this one company in
fourteen years was over $46,000,000.
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car Trusts have often been violently assailed. The principal groux
for attacking them has been that, no matter what the parties choose to call
themselves, and no matter in what terms they may refer to the contracts,
the contracts are really agreements of aale with a mortgage back to the sel-
1er; that they therefore in any event as against third parties, are nothing
but chattel mortgages, and as such subject to all the rules of law affecting
onattel mortgages, and among others to the rule that the seller merely retains
an equity in the property covered by the mortgage .
In a casa decided in 1880, the Supreme Court of the United States had
occasion to pass upon such a contract.”
It was decided against its valid-
ity and held to be a sale of the property with a mortgage back to the seller;
it held that the lessor, as he described himself, was a vendor, and that he
had an equity merely in the property. The contract was further held to be
a chattel mortgage and not a lease, although by its terms it appeared to be
the la ‘ter, and hence as the statutes of Mississippi, where the contract was
to be etºrried out, required the recording of a chattel mortgage, and as this
contract was not recorded, the so-called lessor's rights were aubject to the
lien of a judgment creditor. The contract recited that A, a manufacturer of
cars, agreed to loan B, a railroad company, certain cars to be used on B's
road. That A had received from B its certain promissory notes payable at
various dates, together with certain bonds of the B company as collatºral.
That until payment was made in full B should have no title, right, claim
or interest in the cars, and in default of payment of the notes, A might
take possession of the cars are retain the sums of money collected on the
notes, Bell the cars, apply the proueeds to the payment of the balance due
ſº.
l Heryford v. Öavis, 102 U.S., 235.

on the notes and return to B any surplus. Strong, J., in writing the opin-
ion, said: "What then is the true consideration of the contract? The ans-
wer to this question is not to be found in any name which the parties may have
given to the instrument, and not in any particular provisions it contains,
disconnected from all others, but in the ruling intention of the parties
to be gathered from all the language they have used. Though the contract
studiously and industriously spoke of loaning the cars to the railroad com-
pany for hire for four months, and delivering them for use for hire, it is
manifest that no mere bailment for hire was intended. . . . It is quite
plain that these stipulations were inserted to enable the manufacturing com—
pany to enforce payment, not of any rent, but of the selling prive of the
cars for which the company took the notes of the railroad company. No part
of the money was to be returned to the railroad company in any event, not
even if the cars should be returned. . . . . The railroad company was not
accorded any option to buy or not; they were bound to pay the price, either *
by paying their notes or by surrendering the property to be sold in order to
make payment. This giving the property as a security for the payment of a
debt is the very essence of a mortgage, which has no existence in the case of
a conditional sale."
In considering this case it is well to bear in mind that the notes given
by the lessee were given to be held "as gº
2ral security," and that the les-
sor took thirteen one thousand dollar bonds as collateral for the notes given
in payment. This decision did not establish s general rule for the interpre-
tation of these contracts and has not been universally followed by the courts.
In fact, Justice Bradley dissented from the decision of the Court, and,
by coincidence, had in 1886 an opportunity of qualifying and limiting Justice
Strong's opinion.” The question came before the Supreme Court whether a cer-
* Harkness v. Russell, 118 U.S., 663.

(11) tain agreement affecting an engine and smill was a mortgage or contract of
conditional sale. The case arose in Idaho, where a chattel mortgage, if un-
recorded, would be void as against third parties. The agreement in question
had not been recorded. It was re resented by certain promissory notes, which
thus stated the condition of the sale: "The express condition of this trans-
action is such that the title, ownership or possession of said engine and saw-
mill. does not pass from A until this note and interest shall have been paid
in full." (Possession was, however, delivered to the vendee.) If a note
was not paid at maturity, the vendors could take the property and credit the
them value of it, or the proceeds, if they sola it , upon the unpaid notes •
If this did not pay the notes, the balance was still to be paid by the makers
of the notes w way of "damages and rental for said machinery." It needs
but a moment's consideration to see that this contract is, as compared with
the one printed in the appendix, crude and loosely drawn. Nevertheless,
Justice Bradley said of it: "This stipulation is strictly in accord with
the rule of damages in such cases. Upon an agreement to sell, if the purcha-
ser fails to execute his contract, the true measure of damage for its breach
is the difference between the price of the goods agreed on and their value
at the time of breach or trial, which may fairly be stipulated to be the price
they bring on a resale. It cannot be said, therefore, that the stipulations -
of the contract were inconsistent with, or repugnant to , what the parties de-
clared their intention to be, viz., to make an executory and conditional con-
tract of sale. Such contracts are well known in law, and often recognized,
and when free from any fraudulent intent, are not repugnant to any principle
of justice or equity, even though possession of the property is given to the
proposed purchaser.”
* This is also held by the Court of Appeals of New York, in Empire State
Type Founding Co. v. Grant, 114 N.Y., 40.
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The Supreme Court, in 1889, had before it again a contract not unlike
those in the cases before that Court, which we have considered above. In
this case” twenty-five promissory notes were executed in the Stete of Illi-
nois and delivered to the promisee; one of which notes was acquired by a
bona fide indorsea. Jhis note read as follows: "$5,000. Chicago, I11. ,
January 20, j. D. 1884. For value received, four months after date, the
Chicago Railway Equipment Company promise to pay to the order of the North-
wastern Manufacturing and Car Company of Still:73tor, Minnesota, five thousand
dollars, at First National Bank of Cilicago, illiºols, ºri tº interest thereon,
at the rate of -- per cerit. per annum, from inte until ſaid. This note is
one of a series of twenty-five notes, of evan date 1.ere with , of the surn of
five thousand dollarſ; each, and shall become due and payable to the holar
on the failure of the maker to pay the principal and interest on any one of the
notes of said series, ana all of said notes ºre given for the arease prioe
of two ºundred 2nd fifty railway freight cars, manufactured by the payee here-
of, and sold by gaid payee to the razer hereof, sligh cars are numbered from
13,000 to 13, 249, inclusive, and marked on the side thereof with the words
and letter 5, Blue Line C. & E. I. R. R. Co.; and it is agreed by the maker
hereof that the title to said cars shall remain in tºe said payee until all
the notes of said series, both principal and interest, are fully paid, all
of said notes being equally and ratably secured on said cars. No. 1, Geo -
B. Burrows, Vice-President. Countersigned by 3. . . Ruffington, ºrgaſi."
It was held upon the authority of Heryford v. Tavis, that “the notes upon
their face show they were given for the purchase price" of cars sold "by the
buyer to the maker and were secured equally and ratably, on the cars in order
to prevent the holder of one of the notes from obtaining out of the common
l Chicago Railway Equipment Co. v. Merchants' Bank, 136 U.S. , 268.
(13)
security a preference over holders of others of the same series. This pro-
vision placed the parties upon the same footing they would have occupied
if a chattel mortgage covering all the notes had been executed by the pur-
chasers of the cars." The Court, in quoting from Heryford v. Davis, refers
approvingly to the language used in that opinion: "This giving property as the
security for the payment of a debt is the very essence of a mortgage which has
no existence in a case of conditional sale." In fact, it may be stated that,
wherever the Supreme Court has held contracts of the kind we are considering
to be in the nature of mortgages and not contracts of conditional sale, it
has appeared upon the face of the contracts that the property was to be sec-
larity for the payment of the amounts due under them, and that the title to the
property was to remain in the vendor. The Court, in the case we are con-
sidering, says further: "It is a mistake to suppose that there is a conflict
between these views (i.e., the views expressed in Heryford v. Davis) and those
expressed in the subsequent case of Harkness v. Russell, where the whole doc-
trine of conditional sales of personal property is carefully examined and in
which the particular instrument there in question was held to impart, not an
absolute sale, but only an agreement to sell upon condition that the purchasers
should pay their notes at maturity. With the principles laid down in the lat-
ter case we are entirely satisfääd, but as pointed out in Arkansas Cattle Co.
v. Mann, 130 (J.S., 69, 77, 78, the agreement in Harkness v. Russell was upon
the express oondition that neither the title, ownership, nor possession of
the engine or sawmill, which was the subject of the transaction, should pass
from the vendor until the note given by the vendee for the stipulated price
was paid."
In another case” decided in 1876, the Supreme Court had before it for
consideration a case where a true contract of lease and conditional sale had
* Hervey v. Rhode Island Locomotive Works, 93 U.S., 664.
(14)
been made, but was rendered ineffectual by the peculiar laws of Illinois.
There was no actual Car Trust, in this case; that is to say, the conditional
vendor had never assigned his rights to any trustee, and no Car Trust bonds
had ever been issued founded on the lease-warrants; but as far as the lease
or conditional sale of the property is concerned, the transaction was pre-
oisely such as we have outlined at the beginning of this paper. There was
an agreement to lease a certain locomotive and put the lesaee in possession
thereof; a certain sum was to be paid down, and certain notes or lease-warrants
were to be executed by the lessee. The lessee was to keep the locomotive
in repaiº, and to replace it if destroyed or injured, beyond ordinary wear
and tear. Finally, upon payment of the last note to fall due, the lessor was
to convey the locomotive to the lessee . But if the lessee failed to make
any of the payments agreed upon, the lessor might enter and take possession
of the locomotive, and sell it and apply the progoods to the payment of any
balance due upon the contract. On the authority of Murch ve wright" it was
held that the conditional vendor could have no valid lien upon or claim to
the locomotive in question, unless he had fulfilled all the requirements of
the Illinois Chattel Mortgage Act. As this had not been done in this case
it was held that the property was subject to be taken on execution by credi-
tors of the lessee. "The courts of Illinois," says Davis, I., in delivering
the opinion of the Court, "say that to suffer without notice to the world
the real ownership to be in one person and the ostensible ownership in another,
gives a false credit to the Aatter and in this way works an injury to third
persons. Accordingly the actual owner of personal property, oreating an
interest in another to whom it is delivered, if desirous of preserving a lien
upon it, must comply with the provisions of the Chattel Mortgage Act • * ~ *
Secret liens which treat the vendor of personal property who has delivered
1 46 Illinois, 487.
(15)
possession of it to the purchaser, as the owner until the payment of the
purchase money, cannot be maintained in Illinois. . . . Nor is the
transaction changed by the agreement assuming the form of a leage. In
determining the real character of the contract courts will always look to
its purpose rather than to the name given to it by the parties." It is
obvious that had the engine been in New York, where a different law prevailed,
the decision would have heen different, and this decision is far from be-
ing an authority against conditional sale agreements of rolling stock as a
Whole. -
In another case" it was held that in accordance with the decisions of
the ſentucky courts a contract of conditional sale cºme tradier the local re-
gistration law,” which is much more broadly drawn trºh most registration achs ,
not aimed directly at conditional sales. Judge Barr held that property
which had been gold and delivered in Ohio under tº contract of coaditional
sale, which was not recorded in Kentucky, could be reached by the creditors
of the conditional vendee in Kentucky. The learned Judge, it is true, re-
lies strongly upon Heryford v. Davis, and seems to have a decided inclina-
tion to hold that no contract of conditional sale should protect the title
of a vendor out of possession, whether recorded or not; but he does not go so
far as to base his decision of this ground. "Whatever may be the decisions
in other courts," says the Judge, "the decisions which are ºut?..ority in this
court declare such agreements . . . to be within the statute of kentucky
requiring lions to be recorded.” -
As we have said, the law in many states allowed the ownership of pro-
perty to be in one person, while the actual physical possession of the property
* Hart v. Barnay & Gmith Co., 7 Fed. Rep., 545.
* Gen. Stat. Ky., Sec. 10, c. 24, p. 256.
* See The Marina, 19 Fed. Rep. , 760; Green v. Wan Buskirk, 7 Wall, 139;
Keller v. Paine, 107 N.Y. , 834 Jones on Chattel Mortgages, sec. 505.
(16)
was in another, and at the same time did not compel the owner of the pro-
perty to give actual or constructive notice of his title by recording or
by otherwise making public the contract under which the property was dis-
posed of. And while with contracts of minor importance, such as the sale
of household furniture, comparatively little injury could be caused by the
secret lien retained, when similar contracts were made use of in the sale
of rolling stock on the scale we have indicated, and when railroads could
equip their lines with expensive rolling stock marked with the name of the
railroad and bearing no indication of title in any one but the railroad, the
necessity of some provision for the protection of innocent third parties
dealing with the railroad became apparent. These considerations have influ-
enced the legislatures of various States to pass acts regulating the condi-
tional sale of rolling stock to railroads. One of the first acts of this
* and provided that the
nature was passed by the State of New York in 1883,
contract of Gonditional sale must be in writing, that it must be recorded
in the office of a county clerk or register of deeds, that the rolling stock
must be conspicuously marked with the owner's name, and that, if these three
provisions are not complied with, the contract shall be void as against sub-
sequent judgment creditors and innocent purchasers for value without not ice.”
Generally speaking the rights of third parties are those of innocent pur-
chasers for value without notice, subsequent judgment creditors of the cond-
itional vendee, and mortgagees, or other lienors. The first of these classes
of persons; that is to say, innocent purchasers for value without notice,
* Laws of New York, 1883, chap. 383.
* A list of the statutes relating to Gonditional Sales of Rolling Stock will
be found in the Appendix on pages 47, 48 and 49. {
In states where statutes affecting contracts of conditional sale of rolling
stook are in force, it may be generally stated that the only questions
which can Brise are such as may come from a neglect to comply with the sta-
stute or from oontracts so drawn as to be of doubtful meaning, a condition
of things which no amount of statute or other law can prevents
(17)
become vested in the mortgagor
can only come into existence by the deliberate fraud of the original vendee
or lessee; but, nevertheless, in those States where statutes like that of
New York are in force, a failure to record the contract and mark the pro-
perty in the manner provided by the statute will prevent the original owner
from attacking a transfer to an innocent third party. The owner will have
himself alone to blame if he fails to secure his rights, as the acts were
passed for the very purpose of enabling the owner to protect himself as well
as for the purpose of protecting third parties •
An equally simple state of things exists where a subsequent judgment
creditor's claim attaches. It is true that his position is better than
that of a purchaser, for the reason that there is usually no quest ion of
good faith in connection with a judgment. If such a judgment creditor
levies upon property sold or leased under a contract of this character,
where there has been a failure to comply with the statutes, he can enforce
his judgment as if the property were that of the judgment debtor, and the
original owner oannot prevent him from thus enforcing his rights. The two
cases of failure of the agreement to protect the owner to which we have just
referred, can arise only when the owner has been guilty of carelessness or
ignorance of the law.
* In considering the rights of mortgagees, the question of whether the
mortgage is subsequent or prior to the Car Trust must be taken into consider-
ation. While it has been urged that a mortgage covering after acquired
property takes precedence over a contract of conditional sale, it will be seen
that this contention is neither sound in law nor is it common sense. The
mortgage can attach only to property the title to which has in some manner
l, and inasmuch as in the case of properly ex-
ecuted contracts of conditional sale, the title to the property remains in
the vendor, a prior mortgage executed by the vendee cannot in any way affect
that title. Where a mortgage is executed subsequently to a contract of con-
(18)
ditional sale, the failure of the lessor to record the contract, or in any
other manner to comply with the statute, may raise other and more serious
questions.
It will be observed that a law worded like the New York statute, which
we have quoted, does not in any manner affect the force of the contract as
between the parties themselves • On them such a contract is binding in any
event, and it is only as against third parties that the contract may become
void if the statutory provisions are not complied with. This question -
Wºº; raised in a case which came before the Unted States Circuit Court of
Appeals for the Fifth Circuit in 1891 .1 A railroad company in Georgia
had executed a general mortgage covering atter-acquired property, and sub-
sequently came into possession of certain rolling stook under a contract of
conditional sale. This contract was not recorded as required by the regis-
try laws of Georgia. An attempt was made by the trustee of the mortgage
to hold the rolling stock as part of the property covered by the mortgage
executed w the railroad. The court assiae, that the failure to record the
contract of conditional sale, although required by the statute, did not in
any manner affect the force of the contract as between the parties to it.
The Court held further that as between the railroad company and the owner
of the rolling stock and the trustee of the mortgage of the railroad company
there could exist no estoppel, and that the Trust Company could not claim
the property as asure. by the railroad. Judge Pardee in deciding the
case uses the following language: "It is very doubtful if a well-considered
adjudged case can be found holding in a contract of conditional sale, which
expressly reserved title in the vendor, that the title actually passed by
reason of subsequent failure to record or register the contract in accordance
l Central Trust Co. v. Groome, 2 U.S. App. , 95.
(19)
with the local law. But it is not necessary to pursue this line of inquiry;
the law in question is a registry law; it can have no other purpose than to
give notice to the party dealing with the vendee or lessee.”
In a case in the Supreme Court, where it was held that the rights of
the conditional vendor of rolling stock to a railroad oould not be postponed
to those of bondholders secured by a mortgage covering after-acquired pro-
perty, Chief Justice Waite says.” "They (i.e., the mortgagees) are in no sense
purchasers of the cars. The mortgage attaches to the cars, if it attaches
at all, because they are after-acquired property of the company, but as to
that class of property it is well settled that the lien attaches subject
to all the conditions with which it is encumbered when it comes into the
hands of the mortgagore The mortgagees take just such an interest in the
property as the mortgagor acquired, no more, no less." The court cites with
approval United States v. New Orleans Railway Company, which we have referred
to above.”
in a case aeoidea in 1885,” the circuit court for the District of Colo-
rado held that a contract whereby cars and locomotives were leased to a rail-
road company, which agreed to pay for every car and locomotive so delivered
an annual rent equivalent to one-sixth of the original cost thereof, for a
period of ten years, at the end of which period the cars and locomotives should
become the property of the railroad company, with a proviso that upon default
* See also the cases of Central Trust Co. v. Jackson & Sharp Co., 2 U.S. App.,
120, which sustain the same point.
* Fosdick v. Schall, 99 U.S., 235.
5 12 Wall. , 362. See Myer v. Car Company, 102 U.S., l.
* Frank v. Denver and Rio Grande Railway Company, 23 Fed. Rep., 123.
(20)
in payment of the annual rent or failure to observe any of the covenants of
the lease the rights of the railroad company should be determined, and the
property reclaimed by the lessors, was a mortgage and not a lease. And
when such mortgage is not recorded as required by the laws of the State where
the property concerned is situated, it will not establish a lien as against
creditors of the railroad company proceeding by attachment and execution.
Such a mortgage, however, will be paramount to the claims of a prior mortgagee
who claims under a mortgage covering after-acquired property.
Cases have nevertheless arisen where the lien of a mortgage, covering
after-acquired property, has attached, and where the vendor under the Car
Trust lost the rights which he had apparently reserved. *t will be found,
however, that in many of these cases questionable transactions had occurred
between the parties to the contract of conditional sale, and that the person
or corporation, who appeared to be the vendor, either never had any title
to the property or had a mere shadow of a title, against which there prevailed
equities in favor of other persons. There are two very recent cases which,
we believe, will explain this point, and in referring to these cases we shall
quote extensively from the opinions of the Courts, for the reason that in
both cases the Judges rendering the opinions have expressed the views of the
Court, in no uncertain language •
The Supreme Court had before it, in 1892,” a case in which a very in-
volved state of facts existed, which we find necessary to set forth at con-
siderable length. MoCourkey was an intervener in a suit brought by the
Central Trust Company to foreclose a mortgage of the Ohio Central Railroad.
The facts as stated in the opinion of the Supreme Court are as follows:
* Mogourkey v. Toledo and Ohio Central Railroad, 146 U.S., 536. This case
is reported under the name of Central Trust Company v. Ohio Central Rail-
road Co., in 36 Fed. Rep., 520. It came before the Circuit Court of
the United States for the Northern District of Ohio, and was decided by
Jackson, I., whose decision is sustained by the Supreme Court •
(21)
"The history of this case properly begins with a contract made on December 3,
1879, between a syndicate, known as the $3,000,000 pool, through its committee,
composed of three prominent capitalists, and the firm of Brown, Howard & Co.,
who were also members of the syndicate, wherein the firm agreed to purchase
two lines of railway, and to organize a new company under the name of the
Ohio Central Railway Company, with a capital stock of $4,000,000, which was
to be delivered to the syndicate, to proceed and complete the road, and to
purchase at the lowest cost $560,000 worth of equipment and plause it upon
the line, free from liens or charges. They further agreed to procure the
issue of $3,000,000 of first mortgage bonds, and also $3,000,000 of income
bonds, secured by a mortgage upon the same property, inferior only to the
first mortgage. These bonds were placed in the Metropolitan National Bank
of New York for delivery to the subscribers to the $3,000,000 pool represen-
ted by the syndicate, as their assessments were paid. In consideration of
this, the syndicate agreed to pay the firm $3,000,000 in cash. Brown, How-
ard & Co. proceeded to organize the company under this contract, received
from the syndicate the $3,000,000, and turned over to them the ten millions
©f stocksand bonds, which were distributed among the members of the syndi-
cate in proportion to their subscriptions to the pool. rats first mortgage
provided for was executed January 1, 1880, and was signed by the president
and secretary of the company. Brown, Howard & Co., however, never furnished
the $560,000 of equipment provideº for in the contract; but, it seems, by
subsequent agreement with the pool or syndicate committee, they were released
from their obligation to furnish the equipment, and instead of it were re-
quired to make further expenditures on the railway property, which were said
to have exceeded the $560,000, the firm accepting the notes of the railway
company for the excess.
"On July 7, 1880, the President of the Ohio Central Railroad Company,
acting in his capacity as president, ordered of the Brooks Locomotive Works
(22)
of Dunkirk five locomotives, to be delivered in December, 1880, and January,
1881. On July 19 he ordered five others, and on August 22 four others.
These wºre all ordered for the railroad company. On August 20 the first
lease, known as Leage. As was executed between McGourkey and the railroad
company. By this instrument the railroad company agreed to hire of the
petitioner, as trustee, and he agreed to lease 800 coal cars and 14 locomo-
tives for the period of ten years from the date of delivery of the same to the
company, the company agreeing to pay him as rent $100,000 on the delivery
thereof, and in addition thereto $40,000 per year with interest thereon at
8 per cent. in case of default in the payment of any instalment of interest,
the lessor reserved the right of entering upon the premises of the company,
removing any of the locomotives and cars, selling them at public or private
sale, and applying the proceeds upon any and all instalments of rent or in-
terest thereon not theretofore paid, for such cars, for the whole of said
term, whether said instalments had then fallen due or not, and if there should
prove a surplus after paying such rent, interest and expenses • the same should
be paid to the company; but if there should be any deficit, the company should
be liable to pay the same upon demand. The company was to keep the property
in good repair, and keep the name, number and plate or other marks, to wit,
"Ohio Central Car Trust" or '6. C. C. T.," fixed and retained upon each of
the cars and locomotives for the purpose of making the ownership publicly
known; also to keep all the property insured against fire, loss payable to
the trustee, and to replace any cars or locomotives lost by fire. Sche-
dule A referred to in the lease was not actually annexed until February 23,
1881 e The 14 locomotives were ordered, as above stated, by the resident
of the company, and marked "Ohio Central C. T.," and mumbered from 17 to
30 inclusive. The 800 coal cars were also marked in the same manner.
(23)
"Mr. McGourkey, who, by this and two other similar instruments, assumed
to own and to loan to the railroad company this large amount of rolling
stock, was not a manufacturer or dealer in 10comotives or cars; he was not
a resident of Ohio nor engaged in the railroad business, and, so far as appears,
never saw the property, at least until after it went into the possession of
the Receiver, nor knew of the contracts which were made for its purchase.
He was the cashier of the Metropolitan National Bank of New York, the corres-
pondent bank of the Commercial National Bank of Cleveland, of which the pre-
sident of the railroad company was also president. He had very little know-
legge as to the origin of the car trusts which he represented, and knew very
little about the arrangements which were made for paying in and paying out
the money; he says the understanding was that he was to have little or no
trouble in regard to the details; "that B. G. Mitchell, who is present here,
and who is connected with the bank, was to take charge of that part • † - O
I mentioned to him (the president) that I was made trustee of this car trust,
and I was sorry. He said Mr. Mitchell will attend to the details, and it
will not give you much trouble." Beyond taking the receipts for the cars
from the road, signing the subscription certificates and endorsing the payments,
he appears to have had nothing to do with the transaction. In short, Mr.
McGourkey was a mere figurehead. Mr. Mitchell, who attended to the details,
was secretary of the railroad company and a clerk in the Metropolitan National
Bank; he had no more than Mr. McGourkey to do with ordering the cars, but at-
tended to the finances of the trust. The names of the subscribers to the trust
were given to him by three persons, who were all directors of the road.
They instructed him to make a subscription certificate, which would be signed
by the bank as fiscal agent, certifying that the holders would be entitled
to so many thousand dollars of car trust certificates when the several instal-
ments were endorsed as paid in full. The subscription certificates were signed
(24)
by the cashier, or stamped by him as paid for the cashier. The money received
was credited to an account called the "Equipment account of the Ohio Central
Railroad' in the Metropolitan National Bank, and was paid out to the presi-
dent of the road, who had charge of buying the equipment, by transferring it
to the account of the Commercial National Bank of Cleveland, of which he was
also president; also by paying equipment notes issued by the equipment cº-
pany, so called, which were endorsed individually by the president and one
of the directors,
*Mr. Mitchell further says: "When these instalments were all paid on
the subscription certificates, and a certificate from the general manager
of the road, with a schedule of the numbers and the marks of the equipment
under the several trusts which were on the road, was returned to me, I turned
them over to Mr. McGourkey and he certified to the car trust certificates.
These certificates I turned over to the several subscribers, as appeared on
my record, cancelling their subscription certificates as they surrendered
them • * It apnears from the testimony of the president that the men who fur-
nished the money to purchase thia equipment were most of them interested
in the organization of the company; that it was all paid in New York, ex-
cept $50,000 which he subscribed himself; that the contracts were all made
by him or by his authority; that the moneys were received from the Metro-
politan National Bank and credited upon the books of the Commercial National
Bank to the Ohio Central Railroad Company, without distinguishing these mo–
neys from others that were credited to the same company; and that no separate
accounts were kept with the car trusts. "his account was drawn upon from
time to time for the general pur oses of the company, as well as for the pay-
ment of the rolling stock covered by the leases in question.
"Mr. Mitchell, who appears to have been more familiar with these car
trust certificates than any one, except possibly the president of the com-
pany, says that the same persons who controlled the subscriptions for the
$3,000,000 pool also, to a certain extent, controlled the subscriptions for
the equipment. "There were other subscribers, bat they controlled the mat-
ter." And again: "There were different subscribers for the equipment to
what there were for the main line, although many of them were the same."
Again, in answer to the question who constituted constituted the Ohio Central
Gar Trust, he mentioned the names of several gentlemen, all of whom were di-
rectors or connected with the organization or the road. Mr. Martin, himself
a director states: "I myself held about in the neighborhood of $150,000; Mr.
Lyman, A. A. Low & Bros. had, I think, about the same amount, and Mr. Lyman
would naturally speak for his friend A. M. White. . I think he was in the
pool for about $150,000." It is true that another director states: "The
names of the various subscribers I do not recollect, but may say in a general
way that they were a different class of persons from those who subscribed to
the syndicate or held the stock an bonds of the Ohio Central Railroad Company."
But he does not seem to have had that acquaintance with the details of the
transaction which the other witnesses had, and his testimony is outweighed
in that particular.
"The car-trust associations were not corporations or partnerships, nor
(25) legal entities of any desription, but were simply car-trust certificates in
the hands of various persons, who were represented by the petitioner McGour-
keye the 14 locomotives included in the schedule attached to the Isaaße. A
Were those wnlon ina been ordered by the president of the railroad before
the organization of the first car trust, and were all delivered between
December 20, 1880, ana February 10, 1881, buled to the Ohio Central Railroad
cºw, ana paid for by drafts drawn by G. G. Hadley, general manager, upon
H. G. *u. assistant treasurer of the company at Cleveland. Of the 800
coal gara, 606 ap ear to have been purchased of the Lafayette Car Works, and
\
(26)
paid for by the railroad company. These 606 cars were mostly received by
the company during the fall of 1880. The remaining 194 coal cars were con-
structed by the Peninsular Car Works of Detroit under a contract made by Mr.
Hadley, general superintendent, in the name of the Ohio Central Railroad Com-
pany, and they were paid for by the railroad company by drafts drawn by Mr.
Andrews, the assistant treasurer at Toledo, where the cars were turned over
to the company. These locomotives and cars were by direction of Mr. Hadley,
the general manager, marked in large letters "Ohio Central," and in small
letters " Ohio Central C. T.," either placed upon a small plate so as to be
removed easily, or upon the end of the sill of the coal cars."
The Court also states the facts selating to other leases, which we do
not think it necessary to set forth, as the facts under Lease A are suffi-
cient to explain the case.
The Court goes on to say: "In relation to this rolling stock, the pres-
ident testifies that the understanding was that the railroad company expected
to own this equipment when all the car-trust certificates were paid, as the
company had agreed to pay; that they had, therefore, a large interest in get-
ting the best contracts they could for the purphase of the equipment; that he
made all the contracts himself for such equipment, or authorized Mr. Hadley
to make them, under the stipulation in the leases that the railroad company
might make the contracts direct with the makers. It is somewhat difficult
to see how the president could have acted as the agent of the car-trust cer-
tificate holders, or of Mr. McGourkey, in making the contracts for this rol-
ling stock, inasmuch as the greater portion of these contracts were entered
into before the associations were formed, the leases executed or the certi-
ficates issued.
(27)
"The facts of this case, then, briefly stated, are as follows: A syndi-
cate of capitalists, known as the three-million-dollar pool, contracted with
Brown, Howard & Co. for the purchase of certain lines of railroad, for the
purpose of organizing the Ohio Central Railroad Company. They raised three
million dollars in cash, paid it to Brown, Howard & Co., and in return re-
ceived four millions in a took and three millions in first mortgage bonds
and three millions of income bonds, a total of ten millions in stock and se-
curities, which were distributed among the members of the syndicate according
to their subscriptions. In further consideration of the three million dollars
in cash, Brown, Howard & Co. agreed to complete and organize the road and fur-
nish it with $560,000 of rolling stock. The latter provision was never com-
plied with, though it is said they exnended that amount for the benefit of
the road. It does not satisfactorily appear what the actual value was of
the ten millions in stock and securities turned over to the syndicate, although,
in the opinion of the Court below, it is said that they were, "at the date
of the issuance or very soon thereafter, worth in the market largely more by
several millions than the sum of $3,000,000 paid out therefor." If the law
were complied with the four millions of stock should have been represented
by money or property to that amount, and if the market value of this stock
were merely nominal it is probably because little, if anything, was ever paid
upon it, and it was used merely as a method of retaining control of the cor-
poration. It is safe to say that if the stock had been actually paid up in
money or property, and the money raided by the bonds had been applied to the
construction and equipment of the road, these securities would have been worth
far more than the three millions of dollars that were paid for them, and the
device of borrowing money upon car-trust certificates might not have been
necessary. Evidently the syndicate took this stock without recognition of
any obligation imposed upon them by their subscriptions to the same, but looked
upoğ it merely as a voting power in stockholders' meetings, and as a means of
retaining control of the corporation. Finding that the road was in need of
further equipment, and assuming that there was no other way of providing the
money for that purpose, they proceeded to purchase rolling stock in the name
of the road and to raise money by certificates issued to subscribers of an
equipment fund. Had the directors of the road made a bona fide arrangement
with the manufacturers to lease a certain amount of rolling stock for their
equipment of this road, there could be no doubt of the propriety of their ac-
tion, though the arrangement had contemplated an ultimate purchase by the rail-
road.
"The vice of this arrangement, however, consisted in the fact that the
directors were, as far as it appears, the subscribers to most ar not all of
these certificates, and had complete control of the purchase of the stock;
and the money realized from them, though kept in a separate account in the
Metropolitan Bank, was mixed with the other money of the railroad company
on the books of the Commercial Bank at Cleveland; that the rolling stock in
question was purchased in the name of the road largely before the leases
were made, and was paid for out of the money of the road thus deposited
with the Commercial Bank; that so far from it appearing that the money raised
upon these certificates wentigolely to the purchase of this rolling stock,
it appears affirmatively by the minutes of the directors' meeting, held at
New York, March 1, 1882, that the company was indebted to the bank in the sum
of $400,000, for a portion of which the president and one director were in-
dorsers, an indebtedness created for the purpose of raising money for equip-
ment and other purposes; that $1,200,000 of car-trust certificates were pledged
to the bank as security for this indebtedness, and that the president and trea-
(28) surer were authorized to liquidate the same out of the said certificates and
their proceeds. How much of this indebtedness was incurred for equipment
purposes was left entirely uncertain,
"It also appears from the testimoney of one of the directors that the
estimated cost of the equipment for which these $1,200,000 of certificates
were issued was but $850,000, and that the remaining $350,000 was to be ex-
pended by the company at its pleasure •
"The directors of this road wºre evidently acting in two inconsistent
capacities • As directors they were bound to watch and protect the interest
of the road and obtain the rolling stock upon the most advantageous terms.
As holders of the car-trust certificates or representatives of such holders,
it was to their interest to lease the same at the best possible rate, and to
make sure that as directors this rolling stock should never become their
property except at the highest price. In other words, they were both buy-
ers and sellers or lessors and lessees of the same property.
*No principle of law is better settled than that any arrangement by which
directors of a corporation become interested adversely to such corporation
in contracts with it, or organize or take stock in companies or associations
for the purpose of entering into contracts with the corporation, or become
parties to any undertaking to secure to themselves a share in the profits
of any transactions to which the corporation is also a party, will be looked
upon with suspicion • , , ,
"In fine, we are of opinion that this transaction should be adjudged to
be in law what it appeared to be in fact, a purchase by the railway of the rol-
ling stock in question, and that the device of the car-trust certificates
was inoperative either to vest the legal title in McGourkey, or to prevent
the lien of the mortgage from attaching to it upoº, its delivery to the roads
At the same time the holders of these certificates, who stand in the position
of having advanced money toward the equipment of the road, and particularly
those who purchased them for value before maturity, are entitled to certain
[29] rights with respect to the same which must be guaged in a measure by a con-
* sideration of the so-called leases themselves. The title to this property
being, as we hold, in the railroad company, obviously the petitioner is not
entitled to rent t his position is that of one who has advanced money to a
railroad company for the purchase of equipment, with the understanding, which,
though not raised directly from the instruments themselves, may, perhaps, be
implied from the nature of the transaction, that he was to have a lien upon
cartain rolling stock, to be thereafter designated upon a schedule to be fur-
nished by the railway company. As a lien upon this property, evidenced by
these leases, was acquired after the purchase of the property by the railway,
and the property to which it was to attach was not designated until after it
had passed into the possession of the company, and after the lien of the
future-acquired property clause of the mortgage had attached to it, the lien
of these certifieates, if any there be, should be postponed to that of the
bondholders •
"If transactions such as this is claimed to be, could be sustained,
there is nothing to prevent any syndicate of men, who obtain the capital stock
of a railway, from organizing car-trust associations, and equipping the road
with their own property, regardless of the capital which they may have at
their disposal, and holding it as against the mortgagees. Persons investing
their money in the bonds of railways in active operation, do so upon the the
ory that their security consists largely in the rolling stock of the road,
and hence any arrangement by which the road is equipped with rolling stock
belonging to another corporation, should be distinct, unequivocal and above
suspicion. Much reliance is placed in this connection upon the fact that the
leases provided that the railway company might contract for the delivery of
this stock directly with the makers; that the property should be marked or
stenciled in such manner as to indicate it belonged to the car-trust associa-
(30)
tions, and that the mortgagees and the public were duly apprised of the fact
that it was no proper part of the equipment of the railway. Did the vice
of these contracts lie in an attempted concealment of the actual facts, as
is frequently the case where preferences are secretly reserved in assignments,
there would be much force in this suggestion; but if it inhares in the very
nature of the contract -- if there be a thread of covin running through the
web and woof of the entire transaction -- in other words, if the purpose be
unlawful, it is not perceived that an open avowal of such purpose makes it
the less unlawful. We do not wish to be understood as saying that the trans-
action in question necessarily involved actual fraud on the part of those par-
ticipating in it. As before observed, contracts of this description, for the
purpose of leasing rolling stock, are by no means uncommon, and it is not im-
probable that this syndicate may have taken it for granted that the raising
of money by car-trust certificatea, issued to themselves, or to those in con-
fidential relations with them, was but another mode of accomplishing the same
result. The law, however, characterizes the transaction as a constructive
fraud upon the mortgagee.
"We think the Court below was correct in holding that these leases, so
far as they are a security at all, must be treated as mortgages • Reading
between the lines of these instruments, it is quite evident that no ordinary
letting of property for a fixed rental was contemplated, but that the reten-
tion of title by the lessor was intended as a mere security for the payment
of the purchase money. Thus, by Leggs. As there was to be a payment of a gross
sum of $100,000 upon the delivery of the property, and an annual rental of
$40,000, with interest at 8 per cent., with a further provision that if such
payments were promptly made for the ten years specified, the Iroperty should
belong to the railroad company without further conveyance. In case of *-
fault, however, the lessor made no provision for resuming his title to the
(31)
property, but merely for the resumption of possession for the wo- of sales
as in an ordinary foreclosure of a mortgage. All these provisions are incon-
sistent with the indea of an ordinary lease of personal property."
The Court in another part of its opinion says: "Contracts by which rail-
ways, insufficiently equipped with rolling stock of their own, lease or pur-
chase, under the form of a conditional sale, such equipment from manufacturers,
are not of uncommon occurrence, and, when entered into bona fide for the bene-
fit of the road, have been universally respected by the courts. United States
v. New Orleans Railroad, 12 Wall. , 362; Fosdick v. Schall, 99 U.S. , 235; Myer
v. Car Company, 102 U.S. , 1.
"Indeed, the business of manufacturing rolling stock and loaning it to
railways which have not a sufficient capital to purchase a proper equipment
of their own, has become a recognized industry. If, however, such contracts
are made by directors of the road with themselves, or with others with whom
they stand in confidential relations, they are open to the suspicion which
ordinarily attaches to transactions between a corporation and its directors,
and if they appear to have been made directly or indirectly for their own bene-
fit, courts will refuse to give them effect."
This case is a very good example of the class of cases in which the per-
son claiming to be the owner of property dis oosed of under a Car Trust failed
to establish his title by reason of the fact that the property at one time
was the property of the railroad, and therefore subject to the mortgage lien,
and that such lien could not be got rid of by any juggling of contracts or
terms •
As the Court says (p. 552), "If the property, though nominally leased
"by the railway company, was aqquired under an arrangement. Whigh amounted in
"lºt to a purohase by it, we know of no rule of law which will astop the
"mortgagee or a gurohaser at a foreclosure sale from insisting that the
"railway thereby acquired the title to the property, and that it had begoma
(32)
"subjegt to the lign of the mortgages." This is the most recent expression
of opinion by the Supreme Court on the subject of Car Trusts. The case is
a very long one, covering over sixty pages of the volume of the reports.
The second case we referred to, where the trustee of a railroad mort-
gage established its title to the rolling stock involved in the litigation
as against one who claimed to be the owner and lessor under a Car Trust is
that of the Central fragt Co. v. Hiawassee Co., decided in 1891.* The facts
are stated in the head note as follows: "Gertain rolling stock and equipment
were placed upon the line of the North Georgia, &c., Railway Company, and
marked with its name, by the North Georgia Improvement Company, which bought
the rolling stock through Eager, who was its president and general manager,
and also the contractor for the construction of the railroad and the chief
stockholder in the railway company. Bonds were issued in aid of the con-
struction of the lines of the railway company, and were secured by a mortgage
to the Central Trust Company, which covered fully all after-acquired property
appurtenant to said railroad, and contemplated that a fully constructed and
equipped railroad should be provided with the proceeds of the bonds, which
were issued to Eager on certificates of the completion of sections of the rail-
road, which stated "that there had been delivered and in good working order
upon said railway an anount of rolling stock and equipment requisite for the
proper and efficient working of th. railway as the mumber of miles completed
at the date of this certificate bears to the total mileage of said railway,"
and no bonds for the construction could be obtained by Eager until such cer-
tificates, showing an apparent title in the railway company to the rolling
stock were issued, The Contract (referred to in the opinion as the Hambro
* 2 U.S. App., 1.
contract) for the placing of the bonds, which was negotiated by Eager, and
executed on behalf of the railway company by Eager, by authority of the rail-
way company, as its general manager and also as contractor, and on which
was endorsed in writing by Eager individually, and as attorney in fast for
the president of the railway company, a guaranty that the contract should
be garried into effect, and the completion of the railroad assured by Eager
(33) and the president of the railway company at their own cost and expense, if
§ the prodeeds of the sale of the mortgage bonds were not sufficient for the
purpose, required that rolling stock and equipment should be delivered upon
the road in good working order and requisite quantity for the proper and ef-
ficient working of the railroad. The rolling stock in controversy was placed
upon the railroad aubsequently to the execution of said contract, the evidence
showing that it was contemplated by Eager that the railway company was to
have and keep it, and was to pay for it thereafter, either by raising money
on equipment bonds, or through a car trust, and the evidence also showing
that the improvement company was charged with full notice of all the circum-
stances, and yet, as a volunteer, aided Eager in obtaining the rolling stock,
The intervenor (that is the Hiawassee Company), deriving its title to the
rolling stock through the improvement company, filed a petition of inter-
vention in a suit brought by the trust company to foreclose said mortgage,
asserting its title to the rolling stock."
The Court in deciding thas case said: "The question for our determination
is whether the transfer of the rolling stock made as aforesaid was a mere
temporary gratuitous loan or sale. As Eager negotiated the whole business
for the improvement company, and was the president of the improvement com-
pany and the apparent controller of the railway company, the question is re-
duced to this: Did Eager intend a temporary gratuitous loan or a sale?
"The elements of a sale, the thing, the price, delivery, are there, and
the sale was complete if there was the necessary consent." &
The Court goes on to say that the "evidence shows that it was contem-
plated by Eager that the Marietta and North Georgia Railway Company was to
have and keep the rolling stock, and was to pay for it thereafter either by
raising the money on equipment bonds, or through a car trust -
"The destination and future use and control of the rolling stock was
(34) thus fixed in the Marietta and North Georgia Railway 9ompany, and that by
the consent of all the parties. The railway company did not create a car
trust, but it took the property as apparent owners
"The case does not require that we should find that there was an actual
sale of the rolling stock to the railway company. Under the circumstances,
as to the placing of the rolling stock on the railway for ºxse by the railway
company apparently as owner, the issuance of bonds by the trust company on
certificates in accordance with the Hambro contract, lased upon this rolling
stock and the beneficiary result thereof to Eager, both Eager, and the North
Georgia Improvement Company are estopped in equity from attacking the rail- *
way company's title to the rolling stock in question, as against the interest
of the bondholders. As to Eager, this estoppel ought not to be queationed,
and we are of opinion that it is equally clear as to the North Georgia Im-
provement Gompany, for it was charged with full notice of all the circum-
stances as fully as Eager himself was informed, and yet as a volunteer aided
Eager in obtaining the rolling stock, and in delivering it upon the railroad --
which otherwise he might not have been able to do -- and thereby obtained the
issuance of bonds based on delivery of the rolling stock on the railroad in
good working order, etc.
"The improvement company occupies the same position as the owner who
stands by in silence while another sells his property.
"It is conceded that the intervener, the Hiawassee Company, stands in
(35)
the shoes of the North Georgia Improvement Company, so far the rolling stock
is concerned, and can assert no better ttitle thereto than the improvement
company could have asserted had no transfer been made."
We have quoted this case at such length that comment on it appears to
be unnecessary. We have not found any cases in which a better and more
complete statement of the law is contained than the two cases here reviewed.
Where a mortgage is made subsequently to the making of a Car Trust, if
the Car Trust is in any manner defective, the property disposed of under it
will usually come under the mortgage • There will, of course, be a distino-
tion between the law in those States where statutes regulating Car Trusts
are in force, and those where no such statutes exist. In the former a fail-
ure to comply with the statutes will, in most instances, prove fatal, for the
reason that the statutes, as a rule, refer specifically to innocent purcha-
sers for value without notice, and this includes a mortgagee; in the latter
the general law on the subject of conditional sales will apply and determine
whether or not the mortgage lien attaches •
It may be said generally that if a Car Trust can be construed into a mort-
gage, the courts will undoubtedly give it that construction. They will look,
first, at the terms of the agreement, and, as we have seen in the cases of
Herstors v. Davis and Harkness v. Russell, determine the meaning of the agree-
ment from its terms. This is not all, however. The Courts will then, in
a proper case, go a step farther and inquire into the relations of the parties
to the agreement, and, as in the McGourkey case and in that of the Central
Trust Co. v. Hiawassee Co., decide against the Car Trust, if it appears that
the rights of third parties have been injuriously affected or overridden by
the making of the Car Trust .
Such questions will frequently arise upon the foreclosure of a mortgage
or upon the appointment of a receiver of a railroad to which property has
(36)
been sold under Gar Trusts. When such a railroad is placed in the hands
of a receiver, if the Car Trust is a valid agreement, the lessor should be
subjected to but little annoyance. The receiver has, of course, no legal
right to use peoperty which is not part of that of which he is receiver,
without compensation to the owner, but the courts have not infrequently
permitted a receiver to hold the rolling stock and use it, with directions
to pay either the rent reserved by the agreement or a reasonable rental for
it a use.” In the case of Coe v. New Jersey Midland Railway Co., where an
application was mads by The Rhode Island Locomotive Works to have the Court
direct receivers to issue certificates to pay rentals due under a Car Trust,
Chancellor Runyon said: "It might have been a very improvident act on their
part to have paid the rent under the lease. . . . I am unwilling to grant
the prayer of the petition until I shall be satisfied that it is for the in-
terest of the trust that it should be done. If the petitioners are willing
to accept for the property in the hands of receivers what it is in fact worth,
irrespective of the price fixed in the agreement, and to allow on account of
such price what has been received by them on account of rent, the receivers
will be authorized to purchase the nine locomotives and tenders of them at
their true value and pay for them in certificates; and in any event the peti-
tioners will be allowed just compensation for the use of the property since
it has been held by the receivers." In practical experience it will be
found that receivers have not always given such property the necessary care,
and the lessors have not infrequently been subjected to loss, which ought not
to have been forced upon them. The lessees should see to it that the re-
ceiver is directed to pay the rentals as they fall due. This the creditors
could not very well oppose, inasmuch as they are directly and materially
interested in the running of the road, and in many instances the leased rol-
ling stock is all that the railroad has upon its tracks. If payment is not
1 coe v. New Jersey Midland Railway Co., 27 N.J. Eq. , 37; Miltenburger V-
(37)
made under the Car Trust, or if a reasonable amount is not paid for the use
of the cars, and the owner applies to the Court to have the receiver directed
to surrender the property, his application would in most cases undoubtedly
be granted.
We have already referred to cases in which the extraterritorial effect
of Car Trusts and conditional sales in general have been considered, and
we believe that the language used by the Supreme Court of the United States,
in a case which is quoted in every text book and probably in every case in
which the general question has been considered, is still the clearest state-
ment of the law. The Court says: "We do not propose to discuss the question
how far the transfer of personal property lawful in the owner's domicile
will be respected in the Courts of the country where the property is located,
and a different rule of transfer prevails. It is a vexed question on which
learned Courts have differed; but after all there is no absolute right to
have such transfer respected, and it is only on a principle of comity that
it is ever allowed. And this principle of comity always yields when the
laws and policy of the State where the property is located have prescribed
a different rule of transfer from that of the State where the owner lives.”
In the oase of The Marina” the District Court of the United States for
the District of New Jersey had before it the question of the extra-territor-
ial effect of an agreement of conditional sale of an engine attached to a steam
lighter. The Court held that the contract, which was made in New York,
would, in the absence of fraud upon creditors, prevail over an attachment
in New Jersey. Judge Nixon in his decision followed the case of Cole v.
Berry,” and said: "It is undoubtedly the settled doctrine of most, if not all,
* Green v. Van Buskirk, 7 Wall., 139.
2 19 Fed. Reps , 760,
*42 N.J. Law, 308.
(38)
civilized countries that personal property has no locality, and that it is
subject to the law that governs the person of its owner, both with respect
to its disposition and transmission. Out of this principle has grown the
rule in the construction of contracts, that when they relate to movables,
they shall be construed according to the 1aw of the place where they are made,
and not according to the local law where they are utternpted to be enforced.
But the rule is not without its exceptions; it is founded iri comity and must
yield when the legislation of a State, in which it tº property happens to be,
has prescribed a different rule (Story, Conflict of Laws, Pec. 390). Thus
the Supreme Court held in a series of cases -- Green v. Van Ruskirk and Her-
vey v. Locomotive Works -- that every 3&ate has the right to regulate the
transfer of property within its limits, and that whoever sends property into
it impliedly submits to the regulations concerning its transfer in force
there, although a different rule of transfer prevails in the jurisdiction
where he resides, or where the contract was entered into."
In the case of Hervey v. Locomotive Works, which We have cited above,
the same rºle was held to apply, and it was decided, 3.s will appear by re-
ference to the portion of the opinion which we have quoted, that a conditional
sale of property valid in New York was invalid in Illinois, because the law
of Illinois did not recognize such a contract. It will be closerved that in
the case of Hervey v. Locomotive Works the local law was adverse to the con-
tract in question, while in the case of The Marina the local law recognized
the validity of a contract siriilar to that then before the court.”
1 See on the subject of the extra-territorial effect of a contract of condi-
tional sale; Nichols v. Mase, 94 N.Y., 160; Hirschorn v. Canney, 98 Mass. ,
149; Homans v. Newton, 4 Fed. Rep. , 880; Waters v. Cox, 2 Ill. Apps, 129;
Marvin Safe Co. v. Norton, 48 N.J. Law, 410; Croman v. Fox, 50 N.J., Law,
417; Weinstein v. Freyer, 93 Alabama, 257; Boydson v. Goodrich, 49 Mich.,
65. See also Green v. Wan Buskirk and Harkness v. Russell, cited above .
(39)
As to the effect of the Car Trust statutes, cited in the Appendix, upon
this question, it is very difficult to lay down any general rule. In none
of them is any reference made to the necessity of recording contracts, exe-
outed and recorded in another State, conformably to the laws of that State;
and as yet there appears to be no decided case on the subject. While it is
undoubtedly true that considerations of interstate comity have great weight
with our courts, and might induce them to uphold a Car Trust, even when the
local statute had not been complied with, yet the very purpose of these
statutes was to protect the citizens of a 3tate in dealing with the rail-
roads which traversed it, against secret liens or property rights existing
in favor of persons unknown and at a distance, and such object would be en-
tirely defeated if a person dealing with a railroad in his own State, were
put upon inquiry at his peril as to every record of a Caie-Trust agreement in
every State of the Union. It is evident that if a Car Trust is to be made
strong beyond all questions it should be recorded, and all the requirements
of the statute fulfilled, in every State which the cars or engines may enter.
There have been many applications made of the particular form of contracts
which we have had under consideration. Land has been sold under a contract
similar to a Gar Trust, and rails and ties have been sold under such con-
tracts. In the case of property like rails, the seller has been forced
to protect himself in one or more ingenious ways against the rule of law
that rails and ties become fixtures, and it may be said that a sale of such
property conditionally to a common carrier would not be valid as against
mortgagees • Probably the most original case reported on conditional sales
of railroad property is that of Porter v. Pittsburg Bessemer Steel Company.”
where a bridge company endeavored to sell a bridge to a railroad on the in-
1 122 U.S., 267.
(40)
stalment plan, retaining in itself the title to the bridge. Mr. Justice
Blatchford, writing the opinion of the Court, said, in reference to this
contract: "Whatever is the rule applicable to locomotives and cars, and loose
property susceptible st separate ownership and separate liens, and to real
estate not used for railroa purposes, as to their being unaffected by a
prior mortgage given by a railroad company, covering after-acquired property,
it is well settled in the decisions of this Court that rails and other arti-
cles 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 fida
creditors, as against any contract between the furnisher of the property
and the railroad company, containing stipulations like those in the contract
in the present case e”
While we do not wish to deory Car Trust •ertificates as a valuable in-
vestment, we can but point out the necessity of careful inquiry into the
original contract of conditional sale in each case. Such contracts will
be found as a rule to be valid and in nearly every instance have been sustained
by the courts, unless, as in the McGourkey and the Hiawassee cases, there never
was a title in the pretended owner of the equipment which a court of equity
would sustain. These are questions which an investor in Gar Trust certifi-
cates must constae, and he should not overlook the fact that the owner of
the equipment must not practically be the purchaser as in the Hiawassee case;
nor must the owner, the trustee and the purchaser be the same persons, or di-
rectors or officers of the lessee, as in the McGourkey case, is the parties
to the contract are practically the same persons a court of equity will, we
believe, always upset such a contract where the rights of third parties are
injuriously affected. An investor should therefore first look to the ori-
ginal contract of conditional aale and then to the Car Trust agreement. If
the former is valid his rights will not be affected by any formal defect in
the latter, for * reason that the Gar Trust agreement is merely a business
arrangement, made to facilitate the sale of shares” in the proceeds of the
original contract of oonditional sale,
To what extent the ingenuity of business men aided, perhaps, by the legal
profession, may extend the application of Car Trusts we do not pretend to
predict. We have endeavored to * a brief summary of the general law
, ºr, this class of contract. as it now stands, without, however, attempting
to give a specific statement of the law as it exists in the separate States
of the Union, an undertaking which we reserve for the future.
1 There are, of course, many methods, of disposing of these shares. A Gar
Trust agreement, such as we have described, is probably the simplest
method, but any kind of a combination, partnership or association can
be formed, and in some instances the Car Trust agreement has been execu-
ted even before the conditional sale agreement, in order to raise money
with which to purchase the equipment. See the case of Ricker v. Amer-
ican Loan and Trust Co., 140 Mass., 346. -
(41) –A–F–F–A–H-P-L-A-
(1.) FORM OF CONTRACT of CONDITIONAI, SAIE
AGREEMENT made this day of • As De , one
thousand eight hundred , between A. B. and ºhe X- Xe
A• Be agree to lease to the X- X* Cºmpany, and The Å, Ä, Company agree
to hire from A. B. the following railroad equipment and rolling stock.
Numberg.
Locomotives. . . . . . . . . . . . . . . . . . . . .1,001 º ine,
Passenger cars • - - - - - - - - - - - - - - - - - 501 - º
Freight cars • - - - - - - - - - - - - - - - - - - - 101 - $º
Such renting and hiring to be in respect to each of said cars for the
period from , A.J) , , one thousand eight hundred
• subject, however, to the provisions and conditions
hereinafter contained. *
It is agreed that the value of said railroad equipment and rolling stock
is as follows: -
Locomotives at $ each;
Passenger cars at $ each;
Freight cars at $ each;
amounting in all to the sum of fiellars.
The rental of said rolling stock, payable to said A. B., lessors, by
the said the K. Y. Company, lessee, shall be as followst -
A cash payment of dollars and in addition
to the cash payment as fellowst
dollars on 18
dollars on 18
dollars en 18
making in all, for the deferred. . . . . . payments, the stºm of
dollars.
Each of such deferred payments shall be represented by a lease warrant
of the lessee, of the following tenors ve


(42)
(43)
"NEW YORK, 18
Without, grace on the day of
18 there will be due to the order of A. B.
dollars for the rental of rolling stock, under oontract
of lease of 18 , payable at their office in the City
of New York.
The K. Y. Company."
In case of a default in the payment of any installment or installments
of rent on the day on which the same falls due hereunder, the said lessors
or assigns shall have the right at their option to enter upon the premises
of The X. X. Company to remove any and 311 (logomotives) delivered to the said
The X- Ye Company under this agreement, and shall have the right to sell the
same on notico, at public or private sale, and to apply the proceeds to the
payment of any and all installments of rent of said rolling stook for the
whole of said term of . . . . . . limited and prescribed by this leage, whether
said installments shall then have fallen due or not, less interest at five
per cent. per annum, and notwithstanding that said rolling stock may have
been taken possession of and removed and sold prior to the expiration of
this lease. If the proceeds shall be more than all-sufficient to pay such
unpaid installment of rent, with interest and expenses, then the surplus
shall be paid to The X, Y. Gompany; but if there should be any deficit, then
The X. X. Gompany shall be liable to pay such deficit on demand •
The lessee shall keep said rolling stock in proper order and in com-
plete repair, and in working condition, less fair wear and tear; such re-
pairs and maintenance to be done to the satisfaction of the agent or engin-
Ger of the lessors.
At all times, the name, number, plates and other marks and signs of
ownership of the lessors shall be fixed and retained upon each of said
(logomotivag), for the purpose of making the ownership publicly known.
In the event of any such marks or signs being destroyed, the lessee will im—
mediately restore the same, and such other things shall be dome as by the
counsel of said lessors shall be deemed necessary or expedient for the full
and complete protection of the rights of said lessors as owners of said rol-
ling stock.
The said rolling stock shall be insured against fire by the lessors and
for their benefit, and the insurance premium shall be paid by the lessee.
The lessee shall replace any (logomotives) lost by fire, or otherwise
destroyed, and in that case they shall receive from the lessors the amount
collected from the insurance company on such loss,
IT IS MUTUALLY COVENANTED AND AGREED between the parties hereto, their
successors and assigns, that alt ough hereafter, by written agreement, the
provisions as to the rental to be paid under this contract may be changed,
and this contract in other respects modified; yet that no such change or mo-
dification chall or can be made as shall in any respect, or to any extent, dim-
inish the total sum due hereunder from the lessee as rental or otherwise,
and that no such modification or change shall or can be made as shall in any
respect, or to any extent, change or affect the title to, or the ownership
of, the railroad equipment or rolling stock herein referred to until the to-
tal sum due from the lessee hereunder, as rental or otherwise, also the to-
tai sum due, as rental or otherwise, under any agreement changing or modi-
fying this contract, shall have been fully paid, either by the lessee it:-
self, or by its successors or assigns to the lessors, or to their suddessors
and assigns •
The X? Y. Company covenants and agrees to erform the agreements and
undertakings in its behalf contained herein, and to pay promptly each and
every lease warrant to be given by it hereunder •
1T IS FURTHER AGREED that in consideration of such several payments
hereinbefore specified, during the ºakd term of . . . and all other
sums of money due hereunder, and any interest which may have accrued thereon,
being fully paid to the lessors within thirty days after the expiration of
said term of , , , then the rolling stock as described herein shall become
and be the absolute property of said lessee without further conveyance or
transfer.
The lessee agrees to pay whatever tax may be payable on said rolling stock,
and to reimburse the said lessors, or their assigns, for any expenses incurred
by them attending the exexution, acknowledgment, filing or recording of this
agreement as required by law.
IN WITNESS WHEREOF, A, B, have hereunto set their hand, and the said
The X. Y. Gompany hath caused its corporate seal to be affixed and its
President to sign, his name to these presents the day and year first above
Written.
Executed in triplicate.
A• 2.
Tha Ā. I.- Company-
(44)
(2.) FORM OF CAR TRUST AGREEMENT.
KROW ALL MEN BY THESE PRESENT3, that A. B., for the sum of one dollar,
1awful money of the United States, to them in hand paid, the receipt whereof
they hereby acknowledge, and for divers other good and valuable considera-
tions them thereunto moving, have this day granted, hargained, sold, assigned,
set over and transferred to the Trust. Company all their
right, title and interest in and to the contract or agreement of lease hereto
attached, mºde by A. B. With ºfta X-_Y. Company, dated the
day of , 18 , and also all their right, title and interest
in and to the railroad equipment and rolling stock in said contract described,
together with all the rights, rainedies, powers and privileges in said contract
reserved and secured to them, the said A. A.
TO HOLD the said contract and said railroad equipment and rolling stock
to it, the said ºrust. Company, in trust, nevertheless,
for the following uses and purposes;
FIRST -- To exercise all the powers, rights, ramadies and privileges
to the said A, B, reserved and sedured by said contract.
3ECOND.-- To allow the said A. B. to take and receive, freed and dis-
charged from all trusts herein created, the cash payment of per
cent. of the value of said railroad equipment and rolling stock aggregating
dollars by said contract made payable by Tºis X, Y, Gompany
upon the delivery of the said railroad equipment and rolling stock.
THIRD,-- To issue from time to time, as hereinafter provided, to the
said A. B. and to such persons as they shall direct, certificates
of interest or shares of dollars each, dated the
day of , 18 , numbered and redeemablo as follows:
Nose 1 to redeemable
@ Q © ſº Q $ Q º Q © 40 © tº wº * {}
Said certificates or shares to be certificates of interest in said
contract and in said railroad equipment and rolling stock only, and not to
be in anywise obligations or promises to pay either of the said
Trugt. Company or of the aaid A. B., and said certificates or shares, with
the dividend warrants or coupons attached thereto, to read as per Schedule
A, to be hereto attached.
FOURTH e--. To see to and enforce the performance of all and singular
the flººnants and stipulations of the said lease, and to receive and collect
from the said The X. Y. gompany all rents and sums of money (save and except
the per cent. cash payment, aggregating dollars,
hereinbefore mentioned) from said contract and from said railroad equipment
and rolling stock, in any manner arising, when and as the same shall become
due and payable, and to apply and distribute the same, when and as received,
to the respective purposes, as follows:
(45)
1. To the payment of dividends at the rate of per cent per annum
from and after 18 , payable on the days
of the mothºhs of upon the principal of the certi-
ficates of interest or shares outstanding, on the surrender of the dividend
warrants or coupons •
The first of said dividends shall be due and payable on the
day Of * 18 & q
2. To the payment, purchase, redemption and cancellation of the said
certificates of interest or shares at the par value thereof as the same shall
fall due and payable, according to the tenor thereof, and all dividends
shall cease upon the said certificates or shares when, as and after they
shall be and become due and payable,
FIFTH...-- Whereas, under said contract or agreement of lease hereby as-
signed to the said Trust. Company, all the lease warrants therein agreed to
be made may bot be delivered to A. B., by reason of the fact that all the rail-
road equipment and rolling stock to be leased under said contract may not have
been delivered there under; Now, therefore, it is expressly covenanted and
agreed between the parties hersto that the said A. B. will deliver to the
said Trust Company bach and all of the said lease warrants received by them
under said contract, and that the said Trust. Sompany may and shall from time
to time issue the certificates of interest or shares of dollars
each hereinbefore mentioned, but only in the proportion which the total
amount in dollars of the said lease warrants at the time actually delivered
to and received by aaid Trust Company shall bear to the total amount in dol-
1ars of all the lease warrants which the lessees in said contract have agreed
to makö.
SIXTH...-- The said Trustee shall not be liable or responsible for any
matter or thing connected with the trust hereby interded to be created,
except for its own willful and intentional breaches hereof.
SEWENTH,-- In case of the non-payment of the principal or of dividends
on any or all of the certificates of interest or shares issued in accordance
with and under this agreement, there shall be no right of action by reason
of such non-payment against A- B, or against the said Trust. Company, and the
said Trustee is not to be made liable for any default of said lessees •
EIGHTH,-- The contract hereby assigned, together with this assignment,
shall be known as the X, Y, Gompany Car Trust, Series • * *
IN WITNESS WHEREOF, A. B. have hereunto set their hand, and the Trust
, Trustee, has caused its corporate seal to be hereunto affixed, and
the same to be attested by its secretary, as evidence of the acceptance of
the within trust, this day of 18 .
Executed in duplicate.
(46)
(47)
(3.) FORM OF CAR TRUST CERTIFICATE.
NEW YORK,
• - - - - - - - - - - - - - -18. . .
Series • . . . . . . .
• . . . . . . . . . . . Shares
No - - - - - - - - - - * c e s a e s e e º f **śr
Total Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * * * * * * * * * * * * * * **hares
• . . . . . . . . . . . . . . . CAR TRUST.
• . . . . . . . . . . . . . Trust. Compºny, Trustee.
THIS IS TO GERTIFY that the bearer hereof, unless this certificate be
registered, as hereinafter provided for, and if so registered, then the
registered holder hereof is the owner of parts of the title
to the railroad equipment and rolling stock in the Car
Trust of the above series as conveyed to the Trust. Company, by the contract
of lease and the assignment thereof, in trust, mentioned below, said part
being valued at DOLLAR5 ($ ),
which amount is payable to such owner, whether bearer or registered owner
as aforesaid, in the manner hereinafter mentioned, or, the
day of , together with the quarterly payments of rent equal
to per cent. per annum on said sum, payable quarterly on the
days of until the payment of such principal
sum; such interest, if the Certificate be not registered, to be paid to the
bearer of the coupons for such interest, hereto annexed, uron presentation
and surrender of such coupons, or if the Certificate be registered, such in-
terest to be payable to the registered holder hereof or his lawful attorney,
the coupons for which will have been surrended on such registration.
All said amounts of principal and interest respectively, whether the
Certificate is registered or not, are payable at the office of the
Trust. Company, but only from and out of the rentals and other moneys that
are and shall become due, and shall be received from time to time under a
contract of lease and executory sale bf said railroad equipment and rolling
stock, made by and between A. B. and ºhā K. Y. Gompany, under date of
, and an assignment thereof in trust, made by A * B.
to said ºrust Company under date of
Šaid contract and the warrants issued thereunder are held by said
ºrust. Company in trust, according to the terms of
said agreement, for the sole benefit of the holders of this and
other Certificates of like amount, tenor and date herewith, except as to
the time the same are respectively due.
The Traat. Company has the unlimited right to change
or modify said agreement of lease as specified in said agreement and in
the assignment thereof, in trust; and in case any of the warrants issued
under said agreement or any part of such warrants are taken up, acquired
or paid by said A. B. or by their successors or assigns, instead of by the
said X. X. Gºmpany, then, as provided in said agreement and in said assignment
thereof, in trust, said A. B. , their successors or assigns, as the holders
of said warrants, shall be entitled in and to the security of said agreement
of lease Jºrg rata with the total amount due thereunder.
Unless this Certificate shall be registered, the same shall be trans-
ferable by delivery, but the holder thereof shall be entitled at any time,
upon surrendering the coupons to the Traat Qompany for
cancellation to have this Certificate registered in his name by said
Trust Company, upon the book kept by said company for
such purpose, and thereafter the same shall be transferable only in writing
upon such book by the registered holder thereof, or his lawful attorney or
representative, which transfer, with the ſhame of the transferee, shall be
noted by endorsement hereon signed by the of the said
Trust. Company-
In witness whereof, &c."
(47)
(48)
T-A B I. º. 9 F. S.T.A." J. T. B-3
Relating specifically to Gonditional Sales of Holling Stock,
Alabama,
Arkansas,
Colorado,
Connecti-
out,
Delaware,
Georgia,
Illinois,
Indiana,
Kentucky,
Maryland,
Michigan,
referred to on page 3•
Conditional
Recording:
marked.
Codg 1886, Seos. 1821,
1822,
sales of rolling stocke
contract. Equipment to be
1893, Apr. 10, ch. 143. Conditional sales and Leases of Rolling
3tock. Recording contract. Equip-
ment to be marked.
Annot. State 1891, Seos. Conditional sales of rolling stock,
3745-3750, 1885, March Recording contract. Equipment to be
31, pe 502. marked.
1893, May 18, ch. 119. Gonditional sales of Rolling Stock.
Recording contract . Equipment to be
marked.
Rev. Stats as amended
Eds 1893, pe 552,
1883, Feb. 7, ch.
146.
Conditional sales of Rolling Stock.
Recording contract. Marking Equip-
ment. Limitation of ten years •
1889, Nov. 13, No. 756. Gonditional sales and ſeases of Rolling
Stock. To be recorded within six
months. Equipment to be marked.
1893, June 20, p. 165. Conditional sale of rolling stock.
Cars to be marked.
Rev. State 1892, Seos.
8032–8038, Amended
1893, March 4, ch, 132.
Reº e Stat. 1892,
Seca. 7596-7598, p.
447,
Conditional sales of Rolling Stock.
Becording contract. Marking Equip-
ment • Limitation of ten years •
Relates to electric street railways
specifically.
1890, March 7, ch. 304
(amending 1882, March
17, ch. 484).
Conditional sales of Rolling Stock,
Recording contract . Limitation of
25 years. Equipment to be marked.
Pub. Gen. Hawa, 1889,
Art. 21, Seo. 84, p.
275,
Conditional sales of Rolling Stock.
Recording contract. Limitation of
ten years.
1893, May 16, No. 81;
Pub. Asts, P a 84.
Conditional sales of Rolling Stock.
Recording contract • Marking equip-
ment. Penalty for failure to make
declaration of payment in full-
(49)
Minnesota, Gene State 1891, Seos.
2552-2556.
Montana, 1893, March 3, Pe 148.
New Jer- 1883, March 8, Rev.
sey, Stat. 1878–1886, p.
New Mex- Comp. Laws 1884, Sec •
ico, 2739,
New York, 4 R. Sº a 8th Ede pº
2521, ; Laws 1883,
Chap. 383, as amendad.
North Car- l. Gode, 1863, Sec •
olina, 2006 •
Ohio, 1 Rev. State, 1894, 6the
Ride, Seos. 3378, a,
b, c, d.
Oregon, 2 Hill's Annot. Laws,
1892, Seos. 4042-3.
Pennsyl- 1883, July 5, No. 165,
vania, p. 176 (Penn, Rail-
road & Peiegraph
Laws 1816–1883, pe
313).
Rhode Island 1893, Febe 21, che
1160, Iº e 202.
Tennessee, Acte of 1885, April 3,
tº a 96.
Wirginia, Code 1887, Sec. 24.62,
Washing-
ton,
1 Hill's Annot * 5tat.
and Codes, Seds a
1456, 1457; see also
1893, March 10, 6.
106.
Conditional sales of Rolling Stock.
Recording sontraat, Equipment to be
marked. Limitation of ten years •
Conditional sales of rolling stock,
Recording contract. Marking Equip-
ment e
Conditional sales of Rolling Stocks
Recording contract. Marking Equip-
ment.
Conditional sales of Rolling Stocks
Recording contract. Marking Equip-
mºnt •
Leases or conditional sales of Rolling
Stock. Recording of contract.
Property to be marked,
Leases or conditional sales of rolling
stock. Recording of contract.
Property to be marked,
Gonditional sales of Rolling Stock.
Recording of contract.
Uonditional sales of rolling stocke
Recording of contract. Property to
be marked.
Conditional sales of Railroad Equipments
Recording of contraat. Property to
be marked,
Conditional sales of Rolling Stocks
Recording contract. Marking. Equip-
ment.
Conditional sales of Rolling Stocks
Limitation of 6 years. Recording of
contract. Property to be marked.
Gonditional sales of Rolling Stocks
Recording of contract. Property to
be markede
Conditional sales of Rolling Stocks
Recording of contract. Property to
be marked. Memorandum to be filed
filed within 10 days,
West Wire Code 1891, qhe 74, Sees Gonditional males of relling stocks
ginia, 3, pe 680s Motide ef reservation of title to be
federdºde
Wisconsin, 1 3, & B, Arnot, State Conditional sales of rolling stoº,
1889, 306, 1839 as Iisaitation of ten years. Recording
ef contrast. Property to be marked.
TY OF MICHIGAN
08
O35 6879
|liſi
3 9015