is the transaction changed by the agreement assuming the form of a lease. In determining the real character of a contract, courts will always look to its purpose, rather than to the name given to it by the parties. If that purpose be to give the vendor a lien on the property until payment in full of the purchase-money, it is liable to be defeated by creditors of the purchaser who is in possession of it." This principle has been held to apply to a car-trust lease, where the contract described the transaction as a lease, and installments were to be paid, described as rent, but when a given number of installments had been paid, the legal title was to pass to the lessee. Speaking with reference to the facts of such a case, where the subject of the so-called lease was a locomotive-engine, the price of which, $12,093.96, was to be paid in installments in the course of one year, - Mr. Justice Davis said: "It was evidently not the intention that this large sum should be paid as rent for the mere use of an engine for one year. If so, why agree to sell and convey the full title on payment of the last installment? In both cases, the stipulated price of the property was to be paid in short installments, and no words employed by the parties can have the effect of changing the true nature of the contracts." It was accordingly held that, as the instrument had not been recorded, as required by the chattel mortgage act of Illinois, the lien attempted to be reserved thereon had no validity as against third persons, and that the instrument in question was void as to an attaching creditor and a purchaser claiming through him."

§ 7210. Lien of Such Leases Good as against Subsequent Mortgagees. But it is nevertheless clear that notwithstanding such a statute as that referred to in the preceding section, such a contract, as between the parties to it and their privies,

1 Hervey v. Rhode Island Locomotive Works, 93 U. S. 664, 672; citing Murch v. Wright, 46 Ill. 487; s. c. 95 Am. Dec. 455. So held in Kneeland v. American Loan &c. Co., 136 U. S. 89, 95.

2 Referring to the case of Murch v.

Wright, supra, where the transaction was a lease or conditional sale of a piano.

3

Hervey v. Rhode Island Locomotive Works, 93 U. S. 664, 673.

Rev. Stat. Ill. 1874, pp. 711, 712. 5 Ibid.

is just what it purports to be on its face; and one such contract was described as "a conditional sale with a right of rescission on the part of the vendor in case the purchaser shall fail in payment of his installments, a contract legal and valid as between the parties, but made with the risk on the part of the vendor of his losing his lien if it works a legal wrong to third parties." Subsequent mortgagees do not occupy the position of third parties, within the meaning of the term as used in the statute referred to. Said Mr. Chief Justice Waite: "They 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 incumbered when it comes into the hands of the mortgagor. The mortgagees take just such an interest in the property as the mortgagor acquired; no more, no less. These cars were 'loose property' susceptible of separate ownership and separate liens, and' such liens, if binding on the railroad company itself, are unaffected by a prior general mortgage given by the company and paramount thereto.' The title of the mortgagees in this case, therefore, is subject to all the rights of [the vendor] under his contract. The possession taken by the receiver is only that of the court whose officer he is, and adds nothing to the previously existing title of the mortgagees. He holds, pending the litigation, for the benefit of whomsoever, in the end, it shall be found to concern; and in the mean time the court proceeds to determine the rights of the parties, upon the same principles it would if no change of possession had taken place." But if rolling stock is purchased by the receiver out of earnings of the road, and sold with the rest of the property at foreclosure sale, and if the mortgage under which the sale takes place covers after-acquired property, the purchaser at

1 Fosdick v. Schall, 99 U. S. 235, 250, 251; quoting the language of the Supreme Court of Illinois in Murch v. Wright, 46 Ill. 487; s. c. 95 Am. Dec. 455.

Citing United States v. New Orleans Railroad, 12 Wall. (U. S.) 362.

Fosdick v. Schall, 99 U. S. 235, 251; Fosdick v. Car Company, 99 U.S. 256.

the sale will be entitled to the rolling stock as against the mortgagees.1

§ 7211. Status of Rents where the Lessor has Resumed Possession. It seems clear that if, prior to the date of the appointment of the receiver or afterwards, the lessor holding the title and right to resume possession under one of these so-called car-trust leases, exercises his privilege of resuming possession, so much of the rentals for the cars as may have accrued prior to the receivership becomes thereby remitted, prima facie at least, to the status of unsecured debts, not payable out of the fund accruing from the sale to foreclose the mortgage, unless such fund is in excess of the mortgage debt, the other preferred debts, and the costs; though circumstances may exist which will give the lessor a preference, even in respect of rents accruing prior to the receivership, where the possession of the rolling stock has been necessary to keep the railroad a going concern. But, on the principle already stated, if the receiver elects to retain possession of the rolling stock, and no new contract is made or understanding had, and no order of the court is entered disaffirming the terms of the lease, to which the lessor assents, the income in the hands of the receiver will be liable to pay, without any abatement, the rents accruing while the receiver holds possession, which rents should be estimated according to the terms of the lease, and should not be reduced to what may be regarded by the judge as a quantum meruit; and these rents are to be paid in full as a preferred claim, on the footing of being a part of the expenses of the administration, and on the further ground that the court has, through its officer, affirmed the lease. This being clear, the decision of the Supreme Court of the United States, that where, owing to a deficit in the receipts coming into the hands of the re

'Strang v. Montgomery &c. R. Co., tral Trust Co. v. Railroad Company, 3 Woods (U. S.), 613. cited in High on Receivers (2d ed.),

255.

Fosdick v. Schall, 99 U. S. 235, p. 340, n., where they ordered that

• Such seems to have been the idea of Mr. Circuit Judge Gresham and Mr. Circuit Justice Woods, in Cen

rentals for six months prior to the receivership should be paid out of the net income in the hands of the receiver.

ceiver from the operation of the road, the rental is not paid, and, four months after the appointment of the receiver, the lessor resumes possession of the rolling stock, his claim for rent is not entitled to priority over the mortgage creditors,' — cannot be supported upon any theory of equity. There seems to be no principle, under the operation of which the election of the lessor to resume possession after the receiver had used his property for four months, under the lease, and had made default in the payment of rent, can be regarded as a waiver of his right to priority attaching to rent already accrued. The same case holds, as the writer reads the opinion, that, but for the taking of the possession, there would be a right of priority over the mortgages sought to be foreclosed. If the fact of the receiver retaining possession gives the lessor a first lien for his rent, that lien could no more be impaired by the act of his resuming possession because of the default of the receiver in paying the rent, so far as regards the rental accruing from the time of the appointment of the receiver and the date of his resuming possession, than could the lien of a mortgage creditor be impaired by the fact of his taking possession of the property under a power given in the mortgage.

§ 7212. Whether Authorize Receiver to Make New Cartrust Leases. -There is a sound and conservative decision by Mr. District Judge Butler, concurred in by Mr. Circuit Judge McKennan, to the effect that where the net earnings of a railroad in the hands of a receiver of a court are sufficient to pay for the rolling stock necessary to maintain the property in the status in which the court found it, the court will not authorize the receivers to protect such rolling stock by creating car-trust leases, and issuing car-trust certificates extending over a period of ten years, so as to reserve the greater portion of the current earnings of the road for the bondholders and other creditors. The court took the just view that this was tantamount to borrowing money to be applied to the payment of the bonded creditors in the discharge of interest,

1 Kneeland v. American Loan &c. Co., 136 U. S. 89.

and the court deemed it wiser to allow such interest to go unpaid, rather than discharge it by means of borrowing money, which might tend to mislead creditors and others respecting the actual condition of the road and its earnings. And the court dwelt upon the proposition that its custody was temporary; that the foreclosure proceedings should be speeded so that the property might pass as quickly as possible into the hands of its owners; and that, to the extent that the earnings of the road might be required to keep it up in stock and equipment and to preserve the property, the receivers had authority to apply them.'

§ 7213. Purchasing Rolling Stock.- Where the property of a railroad company was placed in the hands of a receiver, who, on taking possession, found, on the railroad, certain rolling stock, which had been placed there by another corporation, the principal stockholders of which were also the controlling stockholders in the railroad company, and the rolling stock was claimed by the corporation placing it upon the road, and no contract of sale was shown, the court authorized him to purchase the same and pay the value of it, estimated at the time when the road went into the receiver's hands.2 But, on an appeal to the Circuit Court of Appeals, the facts were developed by the court in a very different manner, so as to make it appear that an improvement company, interested in the construction of the railroad, whose president was a stockholder in the railroad company and largely interested as a director in the construction of its road, equipped the railroad with the rolling stock and caused the same to be marked with the name of the railroad company; that the intent of the improvement company was to enable the railroad

1 Taylor. Philadelphia &c. R. Co., 9 Fed. Rep. 1. In the course of his opinion Mr. District Judge Butler used the following language: "The modern practice, prevailing to some extent, of transferring corporate property to the custody of the courts, to be thus held and managed for an in

definite period of years, to suit the convenience of parties (whereby general creditors are kept at bay), I regard as a mischievous innovation." Ibid.

2 Central Trust Co. v. Marietta &c. R. Co., 48 Fed. Rep. 32.