(2) The so-called "Philadelphia plan." Under this plan the equipment is purchased by an individual, association, or corporation which leases the equipment to the railroad for a term of years at a rental equivalent to the interest and maturing instalments of the bonds. The contract of lease is then assigned to a trust company as trustee, which thereupon issues its certificates in substantially the form described in the plan above, these representing a beneficial interest in the equipment, which are usually guaranteed both principal and interest by the railroad. The lease runs until the last bond has been paid, after which the trustee assigns title to the railroad as above. The chief advantage of this plan over the other is that in some States, notably Pennsylvania, certificates issued in accordance with its terms are exempt from taxation, whereas under the conditional sale plan, as the direct obligation of the railroad, the bonds would be taxable. It is evident from the foregoing description that equipment bonds differ in two important respects from all other classes of railroad issues. First, the title to the property which secures the bonds does not vest in the railroad; and, secondly, the property is movable and not fixt in any one locality. By virtue of these two points, the holders of equipment bonds possess a great advantage over the holders of mortgage bonds in the event of a railroad's becoming bankrupt. If a railroad is unable to meet its interest charges, the mortgage bondholders can rarely do better than have a receiver appointed who will operate the railroad in their interest; but if, with honest and efficient management, the railroad can not be made to earn its interest charges, the mortgage bondholders usually have to consent to the scaling of their bonds to a point where the railroad can operate upon a paying basis. With the holders of equipment bonds the case is quite different. If the receiver defaults upon their bonds they have only to direct the trustee to enter upon possession of the equipment and sell it or lease it to some other railroad. The knowledge that they possess this power renders its exercise generally unnecessary. The equipment of a railroad is essential to its operation. It is the tool with which the railroad handles its business. If the receiver were deprived of the equipment it would be impossible for him to operate the road, and so he could never satisfy its creditors. Consequently the courts, both State and Federal, have ruled that the necessary equipment of a bankrupt railroad must be preserved, and have placed the charges for principal and interest of equipment obligations upon an equality with charges for wages, materials, and other operating expenses, and in priority to interest of even first-mortgage bonds.