This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Memorandum of agreement made this --------- day of ---------, A. D. -------, between A. B., trustee, and the X. Y. Company, whereby said A. B. agrees to lease to the said X. Y. Company, and the said X. Y. Company agrees to hire from him, ---------cars and --------- locomotives, bearing the numbers, and to be made by the makers set out in the schedule hereto attached and made a part thereof, marked ---------and delivered at ---------, in accordance with specifications hereto annexed, such renting and hiring to be in respect of each of said cars and locomotives for the period of --------- years from the date of the delivery of said cars to said X. Y. Company, but subject, however, to the provisions and conditions hereinafter contained. The said rolling stock to be delivered as per the contract of said A. B., with the said makers, but it is understood that the said A. B. shall in no way be liable for any delay that may arise in delivery of said cars by said makers and said X. Y. Company may for convenience make the contracts direct with said makers. The rental of said cars and locomotives payable to said A. B., lessor, or assigns, by the said X. Y. Company, lessee, shall be as follows: The gross sum of --------- dollars on delivery of said cars and locomotives, and ratably in that proportion, counting .-------- cars as equal to one locomotive in and for the delivery of any portion thereof to the persons authorized by the said X. Y. Company to receipt for the same, and the receipt of such persons or person shall be final and conclusive evidence of the acceptance of such locomotives and cars to the satisfaction of the lessees; and in addition the full sum of --------- dollars in each year from the date of this agreement of lease for the term of ---------years, together with interest on such yearly payments at the rate of --------- per cent. per annum, payable semiannually on the ---------days of ---------and ---------of each year during said term.
In case of default in the payment of any instalment or instalments of rent on the day on which the same falls due hereunder, the said lessor or assigns shall have the right at their option to enter upon the premises of the said X. Y. Company, to remove any and all locomotives and cars which shall have been delivered to said X. Y. Company under this agreement, and have the right to sell the same at public or private sale, and the proceeds to be applied to the payment of any and all instalments of rent for said cars and locomotives for the whole of said term of --------- years limited and prescribed by this agreement, whether said instalments shall have then fallen due or not, and notwithstanding said locomotives and cars shall have been taken possession of and removed and sold prior to the expiration of this lease; and if the proceeds shall be more than are sufficient to pay such unpaid instalment of rent with interest and expenses, then the surplus to be paid to the said X. Y. Company, but if there should be any deficit the said X. Y. Company shall be liable to pay such deficit on demand. The lessees to keep said cars and locomotives in proper and complete repair and condition, less the fair wear and tear, and such repair and maintenance to be done to the satisfaction of the agent or engineer of. the lessor. That at all times the name, number and plate, of other marks and signs of ownership of the lessor, to-wit, ---------, or the initial, to-wit, ---------, shall be fixed and retained upon each of the cars and locomotives aforesaid for the purpose of making the ownership publicly known, and, in the event of any such marks or signs being destroyed, the lessee will immediately restore the same; and that such other things shall be done as by the counsel of said lessor shall be deemed necessary or expedient for the full and complete protection of the rights of said lessor as owner of said cars. That said cars and locomotives are to be insured against fire to the amount of --------- ($--), and the insurance is to be paid by the lessee, loss, if any, made payable to said A. B., as his interest may appear. The lessee shall replace any cars and locomotives lost by fire, and in that case it shall receive from the lessor the amount collected from the insurance company or companies on such loss. The several payments to be paid for rental to be evidenced by obligations of the lessee due at the time of maturing of said payments, as defined by this lease, and delivered pro rata to said lessor at the time of the delivery of said rolling stock, with coupons for the interest payment hereinbefore provided for.
And the said X. Y. Company covenants and agrees to perform the agreements and undertaking in its behalf contained herein, and to pay promptly each and every obligation so as to be given thereunder; and it is further agreed that in consideration of such several hereinbefore specified payments during the said term of --------- years, and all other sums of money due hereunder, and interest which may have accrued thereon, being fully paid to the lessor, and in consideration of ---------cents for each and every of said cars and of ---------dollar [s] for each and every locomotive being also paid by the lessee within --------- days after the expiration of said term of --------- years, that then the said rolling stock, as described herein, shall become and be the absolute property of said lessee, without further conveyance or transfer. The said lessee agrees to pay the lessor or assigns not to exceed ---------dollars per annum for the expense of an agent or engineer to examine the said cars. The lessee agrees to pay the expense of preparing the obligations to be given for the rental.
In witness whereof, etc.
A so-called lease of this sort is inoperative as against a prior mortgage which contains a valid clause covering: after-acquired property; especially If no schedule is attached to such lease, at the time of its execution, designating specific rolling - stock as subject to its operation. Central Trust Co. v. Ohio Central Ry. Co., 36 Fed. 520; 6 O. F. D. 159.
In the affirmance of this case in McGourkey v. Toledo & Ohio Central Railway, 146 U. S. 536. it was said that the transaction was a sale, and the lease, in effect, a mortgage, subordinate to the lien of the prior mortgage; especially as the directors of the railway made the contract, on behalf of the railway, with themselves as so-called lessors.
For chattel mortgage, see Sec. 3896 and 3897.