555' 
 
HAY 141004 
 
 Cornell University Library 
 KF2301.S55 
 
 The law of railway bonds and mortgages 
 
 3 1924 019 289 721 
 
Cornell University 
 Library 
 
 The original of tiiis book is in 
 tine Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924019289721 
 
THE LAW 
 
 OF 
 
 EAILWAY BONDS AND MORTGAGES 
 
 IN THE 
 
 UNITED STATES OF AMERICA. 
 
THE LAW 
 
 OP 
 
 RAILWAY BONDS AND MORTGAGES 
 
 IN THE 
 
 UNITED STATES OF AMERICA. 
 
 WITH 
 
 ILLUSTRATIVE CASES FROM ENGLISH AND 
 COLONIAL COURTS. 
 
 BY 
 
 EDWAKD LYMAI^ SHOKT, 
 
 OF THE NEW YORK BAR ; 
 OENEBAL SOLICITOR OF THE MUTUAL LIFE INSUEAHOE COMPANY OP NEW YORK. 
 
 BOSTON: 
 
 LITTLE, BROWN, AND COMPANY. 
 
 1897. 
 
^Copyright, 1897, 
 By Edwaed Ltman Shobt. 
 
 MAY UBOi 
 
 John Wilson and Son, Cambridge. U. S. A. 
 
TO 
 
 A. L. S. 
 
1>W Lliit<AKV 
 
PREFACE. 
 
 The idea of arranging the reported cases relating to 
 railway bonds and mortgages on the plan here followed 
 grew out of a collection of the Federal cases on this sub- 
 ject begun by me in 1884 for use in private practice. At 
 that time there was no exhaustive work on this topic. 
 Such collection was gradually added to by including the 
 State cases, and subsequently, illustrative cases from Eng- 
 lish and other non-American Courts (including one or two 
 cases from Hawaii) were woven into the book. Cases 
 involving questions arising out of trust mortgages for the 
 benefit of holders of bonds of gas and water and other 
 miscellaneous companies have also been inserted. 
 
 The demands of an active practice have left only outside 
 hours, during the past ten years, in which to arrange and 
 oversee the arrangement of the cases embraced herein. 
 
 It has always been my view that the chief value of the 
 text-book to the practitioner lies in the fact that, when 
 properly compiled, it will enable him to find any point in 
 the law of his subject which has either been decided, dis- 
 cussed, or even referred to incidentally. Ordinary Digests 
 are incapable of such detail owing to lack of space. 
 
 Even if time permitted any practitioner who undertakes 
 a legal work to cull out all the principles, compare and 
 
Till PREFACE. 
 
 analyze all the decisions, and accompany such comparison 
 and analysis with his individual views, it is questionable 
 whether the labor, time, and expense of such an ideal 
 work would be compensated for by the help he would 
 give his professional brethren, although his work should 
 be thoroughly and ably done. 
 
 What the lawyer mainly wants is a case, or cases, on the 
 particular points involved in the matter before him, and 
 these he must consider from the point of view of his par- 
 ticular needs. No writer can foresee all the uses to which 
 a judicial opinion may be put. These considerations are, 
 of course, merely general ones. There are useful text- 
 books of all kinds, and a few .very able ones which almost 
 conform to the above ideal, — such as Benjamin on Sales 
 and Parsons (James) on Partnership, the latter one of the 
 most unique in existence. The intelligent and success- 
 ful practice of the law requires book learning, insight into 
 principles, original creative imaginative thought, if I may 
 use such an expression, and, more than all, good judg- 
 ment. It is doubtless the fashion for lawyers pre-eminent 
 in one rather than the other of these possessions to dis- 
 parage the other. A learned codifier may emphasize the 
 definiteness and certainty of statute law ; an old-fashioned 
 case lawyer may pour forth his too often empty names 
 and dates ; a brilliant advocate (lacking time for studious 
 reading) may dwell on the elasticity and adaptability of 
 the common law. 
 
 No practising lawyer can do the work required to pro- 
 duce an entirely satisfactory treatise on the case law of 
 the average subject. The plan of a division of labor 
 adopted in large modern encyclopaedias of law is admir- 
 able, and should be adopted even in treatises on a single 
 subject ; but this is impracticable if the present style of 
 
PREFACE. IX 
 
 identifying the author with his work is to be followed. 
 But States spend much money in codifying their statute 
 law, and I have often thought that money should be spent 
 by States in having their case law thoroughly digested in 
 the form of text-books, the labor of the preparation of 
 which should be greatly divided, even on a single subject, 
 and paid for by the State, such works, of course, not to be 
 authoritative statements of what the law is. Digesting 
 should not be left as it is to the fancy and uncertain action 
 of members of the bar, who can ill afford the necessary 
 time. 
 
 Legal opinions are largely mere predictions of what 
 courts would more or less certainly decide. 
 
 In the application of the principles and rules of law to 
 the business life of the world, it is safer for clients that 
 advice given should rest, wherever possible, on known de- 
 cisions of controlling courts, rather than on thQ clever 
 guesses of able counsel. 
 
 The author has attempted to give out a work which will 
 assist, he hopes, the bench and bar in promptly finding 
 discussions of points in which they are interested. To 
 this end the index has been made as full as is consistent 
 with the proper size of the book. This is the feature in 
 which most text-books fail, although it is not necessary to 
 carry an index as far as was done in Allibone's well-known 
 story of the index which read, " Mind, his great," and when 
 the reader of the life of the learned justice turned to the 
 page indicated, found that he once had said " He had a 
 great mind to commit the witness." 
 
 No one can be familiar with the decisions in this volume, 
 especially those of the Federal Courts, without being im- 
 pressed with the acuteness and vigor, independence and 
 impartiality, learning and ability, which they display. 
 
X PREFACE. 
 
 It is hoped that this book will assist the bench in pre- 
 serving harmony in their decisions, and thus enhancing 
 and keeping permanent the value of railway bonds in this 
 country and England, so far as such value depends on cer- 
 tainty as to the rights and remedies of bondholders. This 
 is alike in the interest of wage-earners and capitalists. 
 
 I believe that a code of equity practice in the Federal 
 Courts would be of benefit to clients and practitioners, 
 and that much of the practice relating to foreclosures 
 could be advantageously codified, so as to produce uniform 
 practice in all Circuits. 
 
 E. L. S. 
 
 The Mutual Life Building, 
 
 59 Cedar Street, New York. 
 
 September, 1897. 
 
CONTENTS. 
 
 CHAPTER I. 
 Nature and Isstte of Bonds .... 
 
 PAOEB 
 
 1-41 
 
 § 1. Power of Railway Companies gen- 
 erally to issue Bonds. 
 
 2. Constitutional Provisions as to the 
 
 Issue of Bonds. 
 
 3. Special Charter Provisions as to Is- 
 
 sue of Bonds. 
 
 4. General Statutory Provisions as to 
 
 the Issue of Bonds. 
 
 (a) Construction of Statutory Pro- 
 
 visions specifying the Pur- 
 poses for which Bonds may 
 be issued. 
 
 (b) Construction of Statutory Pro- 
 
 visions as to the Considera- 
 tion of Bonds. 
 
 (c) Construction of Statutory Pro- 
 
 visions limiting the Amount 
 to which Bonds may be is- 
 sued. 
 
 5. Rate of Interest at which Bonds may 
 
 be issued. 
 
 6. Power to issue Bonds after Consoli- 
 
 dation. 
 
 7. Validity of Bonds. 
 
 Objections to the Validity of the 
 Bonds on the Ground of the Re- 
 lations of the Purchasers to the 
 Corporation. 
 
 Informality of Issue, when this is an 
 Objection of which only Corpora- 
 tions can take Advantage. 
 10. When the Company is estopped to 
 dispute the Validity of Bonds. 
 
 Bonds not void because Mortgage 
 securing them is unauthorized. 
 
 Deferred Income Bonds, Power to 
 issue. 
 
 13. Validity of Pledges of Bonds. 
 
 14. When the Issue of Bonds will be 
 
 enjoined. 
 Suits to annul Bonds. 
 Certificates of Indebtedness and for 
 
 Bonds. 
 State-aid Bonds. 
 
 Convertible Land-grant Certificates. 
 Bonds convertible into Stock. 
 Exchanges of Bonds. 
 Lloyd's Bonds. 
 
 9. 
 
 11 
 
 12. 
 
 15. 
 16. 
 
 17. 
 18. 
 19. 
 20. 
 21. 
 
 CHAPTER II. 
 
 Rights of Bondholders 42-99 
 
 §23, 
 
 Art. I. 
 
 Rights of Bondholders gen- 
 erally, NOT INVOLVING THE 
 Negotiable Character of 
 SUCH Bonds. 
 § 22. Bonds and Mortgage must be con- 
 strued together. 
 
 24. 
 
 Bonds are inoperative as Obliga- 
 tions until they are issued to 
 Purchasers. 
 
 No Vendor's Lieu in Favor of a 
 Seller of Bonds. 
 
xu 
 
 CONTENTS. 
 
 § 25. The Eelation of Bondholders to 
 the Road is sometimes substan- 
 tially that of Proprietors. 
 
 26. The Relation of Bondholders to 
 
 each other generally. 
 
 27. Majority and Minority Rights 
 
 generally. 
 
 28. Powers of Majority un(j.er Jlxpregs 
 
 Clauses in the Mortgage. 
 
 29. Subscriptions for Bonds, Eights 
 
 under. 
 
 30. Bondholders' Rights as affected by 
 
 Circulars issued by the Com- 
 pany. 
 
 31. Control of the Proceeds of Bonds. 
 
 32. "When Bondholders entitled to 
 
 demand Repayment of the Un- 
 spent Portion of the Proceeds 
 of their Bonds. 
 
 33. Lien of Bondholders not lost by 
 
 Surrender of Bonds. 
 
 34. Bondholders' Bight to sue Trus- 
 
 tees in Possession for Money 
 received by them. 
 
 35. Eights of Bondholders to convert 
 
 Bonds into Stock. 
 
 36. Priorities where Old Bonds are 
 
 exchanged for New. 
 
 37. Transactions raising the Question 
 
 whether Bonds have been paid 
 or are outstanding. 
 
 38. Effect of Fraud upon Priorities 
 
 between Bondholders. 
 
 39. Priority of Holders of Bonds 
 
 guarantied by other Holders. 
 
 40. Rights of Income Bondholders. 
 
 41. Bonds, in what payable. 
 
 42. When Principal of Bonds becomes 
 
 due. 
 
 43. Legislature cannot accelerate Ma- 
 
 turity of Principal. 
 
 44. Company not entitled to pay off 
 
 Bonds before Maturity. 
 
 45. Acceleration of Maturity of Prin- 
 
 cipal as a Consequence of De- 
 fault in Interest. 
 
 46. Acceleration of Maturity of Prin- 
 
 cipal at Option of Individual 
 Bondholders or Trustees. 
 
 47. Sale of Pledged Bonds. 
 
 48. Payment of Income Tax by Bond-, 
 
 holders. 
 Art. II. — Rights of Bondholders in- 
 volving Negotiable Char- 
 acter OF suoH Bonds. 
 
 i 49. 
 50. 
 51. 
 
 .52. 
 53. 
 54. 
 
 55. 
 56. 
 
 57. 
 58. 
 
 59. 
 60. 
 
 61. 
 
 62. 
 63. 
 
 64, 
 
 65, 
 66 
 67, 
 68, 
 
 Negotiable Character of Corporate 
 Bonds generally. 
 
 Bonds not non-negotiable because 
 
 no Payee is named. 
 Uncertainty in Time of Payment 
 or Amount as affecting Nego- 
 tiability. 
 
 Op the Law that governs the 
 Question of Negotiability. 
 
 Who are Bona Fide Holders of 
 Bonds generally. 
 
 Bondholders are entitled to as- 
 sume that Statement in Bonds 
 as to Date of Issue is correct. 
 
 Bona Fide Holders not protected, 
 if Issue was uUra vires. 
 
 Bona Fide Holders protected if 
 Issue was merely irregular, 
 but Purchaser with Notice of 
 Circumstances qualifying his 
 Eights not protected as a 
 Bona Fide Purchaser. 
 
 Eights of Holders where there is 
 an Over-issue. 
 
 Rights of Bona Fide Holders not 
 affected by Misapplication of 
 Proceeds of Bonds, by Original 
 Holders or others. 
 
 No Recovery on Bonds when 
 Trustee's Certificate is forged. 
 
 Amount recoverable where less 
 than the Face Value has been 
 paid for Bonds. 
 
 Title of Bona Fide Purchaser not 
 affected by Fraud of Person 
 intrusted with the Negotia- 
 tion of the Bonds. 
 
 Purchase of Bonds by Directors of 
 Company at a Discount. 
 
 Amount recoverable on Bonds 
 tainted with Fraud in their 
 Issue. 
 
 Innocent Purchaser of Stolen 
 Bonds entitled to recover 
 thereon. 
 
 Eights of Purchaser of Bonds the 
 Coupons of which are overdue. 
 
 Pledgees of Bonds as Bona Fide 
 Holders. 
 
 Rights of Purchasers of Pledged 
 Bonds. 
 
 Whether Benefit of Mortgage 
 clear of Equities passes with a 
 Transfer of the Bonds. 
 
 Doctrine of Lis Pendens does not 
 apply. 
 
CONTENTS. 
 
 XUl 
 
 CHAPTER m. 
 Rights of Coupon-holders 
 
 PAGIS 
 
 100-113 
 
 §70. 
 71. 
 
 72. 
 
 73. 
 
 74. 
 
 76. 
 
 Introductory. 
 
 Eate of Interest on Bonds before 
 and after Maturity. 
 
 Whether Coupons arc entitled to 
 Days of Grace. 
 
 Interest on Coupons after Default. 
 
 Negotiability and Transfer of Cou- 
 pons generally. 
 
 Recovery on Detached Coupons. 
 
 § 76. Rights of Purchasers of Stolen or 
 Lost Coupons. 
 
 77. Whether Coupons have been bought 
 
 or paid. 
 
 78. Rights of Persons participating 
 
 in Arrangements for funding 
 Coupons. 
 
 79. Recoupment of Defaulted Interest 
 
 in an Action to recover Dam- 
 ages for failing to accept Bonds. 
 
 CHAPTER IV. 
 
 GUAKANTY OP BONDS 114-129 
 
 § 80. Introductory. 
 
 81. A Contract of Guaranty creates 
 
 Independent Rights and Lia- 
 bilities. 
 
 82. Guaranty for Accommodation not 
 
 valid. 
 
 83. What is generally a SuflScient 
 
 Consideration. 
 
 84. Guaranty given as Part of the 
 
 Consideration of a Lease is 
 valid. 
 
 85. Guaranty to save Corporation from 
 
 Actual Financial Embarrassment 
 is valid. 
 
 88. Guaranty of Obligations of Com- 
 panies carrying on another 
 Business, how far valid. 
 
 86 a. Guaranty valid where it forms 
 part of a Compromise Arrange- 
 ment with a Debtor of the 
 Guarantor. 
 
 5 87. Guaranty of Bonds owned by the 
 Corporation is valid. 
 
 88. Guaranty may be validated by 
 
 Ratification, where not abso- 
 lutely ultra vires. 
 
 89. Negotiability of Guaranty. 
 
 90. Guaranty not invalidated as to 
 
 Innocent Purchasers by the 
 Omission of merely Directory 
 Formalities. 
 
 91. Improper Exercise of a Power of 
 
 Guaranty, Rights of Innocent 
 Purchaser not impaired by. 
 
 92. Eights of Guarantor of Interest 
 
 when postponed to those of 
 Eondholders. 
 
 93. State-indorsed Bonds are subject 
 
 to Constitutional Limitations in 
 Force when Guaranty Act was 
 
 CHAPTER V. 
 Definitions of Words and Phrases 130-145 
 
 § 94. Introductory. 
 96. All other Property. 
 
 96. Apparatus. 
 
 97. Appendages. 
 
 98. Appurtenances. 
 
 99. Charge. 
 
 § 100. Claims. 
 
 101. Compromise. 
 
 102. Consolidation. 
 
 103. Corpus. 
 
 104. Earnings. 
 
 105. First-mortgage Bonds. 
 
IV 
 
 106. 
 
 Franchises. 
 
 CONl 
 
 BNTS. 
 
 §121. Preferred Stock. 
 
 107. 
 
 Fuel. 
 
 
 122. Profits used in Construction. 
 
 108. 
 
 Going Concern. 
 
 
 123. Property. 
 
 109. 
 
 Income and Profits. 
 
 
 124. Protected. 
 
 110. 
 
 Income and Revenues. 
 
 
 124 a. Railway. 
 
 111. 
 
 In sucli Case. 
 
 
 124 6. Eoad-bed. 
 
 112. 
 
 Labor and Supply Creditors. 
 
 125. Road aud Property. 
 
 113. 
 
 Laborer. 
 
 
 125 a. Servant and Employee. 
 
 114. 
 
 Lien. 
 
 
 126. Sinking Fund. 
 
 115. 
 
 Materials. 
 
 
 127. Stock. 
 
 116. 
 
 Maturity. 
 
 
 128. Tax. 
 
 117. 
 
 Moneys. 
 
 
 129. Terms, Conditions, and Limita- 
 
 118. 
 
 Net Earnings. 
 
 
 tions. 
 
 119. 
 
 Operating Expenses. 
 
 
 129 a. Written Assent. 
 
 120. 
 
 Past-due Interest. 
 
 
 
 
 
 CHAPTER VI. 
 
 
 
 
 PASES 
 
 ONS 
 
 rEUCTiON Contracts 
 
 • • • 
 
 146-152 
 
 § 130. Construction Contracts violating 
 Constitutional or Statutory Pro- 
 visions. 
 131. Securities issued under Construc- 
 tion Contracts held invalid be- 
 cause Directors were interested. 
 
 § 132. Lien of Construction Contracts. 
 183. The Equities of the Contractor. 
 134. Suits to have Construction Con- 
 tracts declared invalid. 
 
 CHAPTER VII. 
 Notice 153-159 
 
 § 135. Of what the Bond is Notice. 
 
 136. Of what the Mortgage is Notice. 
 
 137. Notice of Extrinsic Circumstances, 
 
 Effect of. 
 
 j 138. Statutes relating to Bonds or Mort- 
 gages which Bondholders are pre- 
 sumed to have Notice of. 
 139. Notice under Recording Statutes. 
 
 CHAPTER VIIT. 
 
 MOBTGAGES AND THEIR VALIDITY 160-209 
 
 General Statement. 
 Art. I. — Validity or Railway Mort- 
 gages AS DEPENDENT ON THE 
 
 Power to Mortgage. 
 A. Mortgages of Corporate Prop- 
 
 §140. 
 
 141. 
 
 Common-law Power to mort- 
 gage all Corporate Property. 
 
 Common-law Power to mort- 
 gage when implied from Statu- 
 tory Powers. 
 
 i 142. Common-law Power to mortj 
 when limited by Implication. 
 143. General Implications from Ex- 
 press Grants of Power to mort- 
 
 144. 
 
 145. 
 
 Implications from Grant of Power 
 to mortgage for a Particular 
 Purpose. 
 
 Power to execute Mortgage im- 
 plies Power to insert Provisions 
 for enforcing it. 
 
CONTENTS. 
 
 XV 
 
 § 146. Power to mortgage not re 
 stricted by Statute declaring 
 Lien in Favor of State. 
 
 147. Power of Consolidated Compa- 
 
 nies to mortgage their Property. 
 
 148. Legislative Ratiiieation. 
 
 B. Power to mortgage Franchises. 
 
 149. General Principles respecting 
 
 Power to mortgage Fran- 
 chises. 
 
 150. Franchise to be a Corporation 
 
 placed by some Courts on a 
 Different Footing from other 
 Franchises. 
 
 151. Existence of Power to mortgage 
 
 Corporate Existence not usu- 
 ally inferred. 
 
 152. Power to mortgage Franchises 
 
 implied from Grant of Power 
 to sell them. 
 C. Power to mortgage After-ac- 
 quired Property. 
 163. Power expressly conferred by 
 Statute. 
 
 154. Power implied from Enumera- 
 
 tion of the Kinds of Property 
 which may be mortgaged. 
 
 155. Power to mortgage Uncalled 
 
 Capital. 
 
 156. Limits of the Power to mort- 
 
 gage After-acquired Property. 
 
 157. Effect of the Want of Power to 
 
 hold the Property attempted 
 to be mortgaged. 
 Art. II. — Validity op Railway Mort- 
 gages AS AFFECTED BY 
 
 THE Manner and Circum- 
 stances OF ITS Execution. 
 § 158. Formal Requisites, 
 (a) Witnesses. 
 (6) The Oath. 
 
 (c) Acknowledgment. 
 
 (d) Seal. 
 
 (e) Delivery. 
 
 (/) Special Requirements. 
 
 159. When a. Mortgage executed by 
 
 a Corporate Agent is the Deed 
 of the Corporation. 
 
 160. When a Mortgage is not vitiated 
 
 by Vagueness of Descriptive 
 Clause. 
 
 161. Authority of Corporate Officers 
 
 generally to execute a Mort- 
 gage binding on the Corpora- 
 tion. 
 
 § 162. Authority of Individual Officers. 
 (a) Directors. 
 (J) President, 
 (c) Superintendent. 
 
 163. Requisite Consent of Stock- 
 
 holders. 
 
 164. Notice of Meeting. 
 
 165. Place of Execution, Acknowl- 
 
 edgment, or Authorization. 
 
 166. Bondholders entitled to pre- 
 
 sume that the Mortgage has 
 been regularly executed. 
 
 167. Mortgages validated by Ratifica- 
 
 tion. 
 
 168. Improper Application of the 
 
 Proceeds of the Bonds, Trust 
 Deed not invalidated by. 
 
 169. Fraud inferred from Personal 
 
 Interest in Contract of which 
 the Mortgage is a part. 
 
 170. Constructive Fraud as to Credit- 
 
 ors and Preferences. 
 
 171. Effect of the Chattel-mortgage 
 
 Acts. 
 
 172. Mortgage to secure Future Ad- 
 
 vances, when not invalid. 
 Art. III. — • Partial Invalidity of Con- 
 tract, Effect of. 
 § 173. Invalidity of Part of the Bonds 
 secured. Validity of Mortgage 
 not affected by. 
 174. Mortgage may be Valid as to 
 Part of the Subject-matter 
 and Void as to Residue. 
 
 175. 
 
 Mortgage of Franchises may be 
 
 
 Valid as to Part of them. 
 
 176. 
 
 Excess of Power by Agent as 
 
 
 regards Part of the Mort- 
 
 
 gage. 
 
 177. 
 
 Defective Execution as to One 
 
 
 Kind of Property, Effect of. 
 
 Art. IV. 
 
 — Who may and who may not 
 
 
 Question the Validity of 
 
 
 THE Mortgage. 
 
 §178. 
 
 The Mortgagor Company. 
 
 179. 
 
 The Stockholders individually. 
 
 180. 
 
 Junior Mortgagees. 
 
 181. 
 
 General Creditors of the Com- 
 
 
 pany. 
 
 182. 
 
 Receivers. 
 
 183. 
 
 Purchasers at Foreclosure Sale. 
 
 184. 
 
 The State. 
 
XVI 
 
 CONTENTS. 
 
 CHAPTER IX. 
 
 . PAGES 
 
 Instruments constituting Mortgages 210-213 
 
 § 185. Mortgages directly to Bondholders. 
 186. Trust Deeds constituting Mort- 
 gages. 
 
 §187. Instruments operating as Equitable 
 Mortgages. 
 188. Liens in favor of the State. 
 
 CHAPTER X. 
 
 What the Mortgage 
 Property . . . 
 
 COTERS, INCLUDING AftER-ACQUBBED 
 
 214-258 
 
 § 189. General Statement. 
 Art. I. — General Rules of Constkuc- 
 
 TION. 
 
 § 190. Introductory. 
 
 191. General Laws the Standard. 
 
 192. Lex Loci. 
 
 193. Construction a Question for the 
 
 Court. 
 
 194. All the Writings must be con- 
 
 strued together. 
 
 195. General Words followed by Par- 
 
 ticular (Ei^essio unius, etc.). 
 
 196. Particular Words followed by 
 
 General {Verba ejiisdem gene- 
 ris). 
 Art. II. — What is a Sufficient De- 
 scription TO PASS Property 
 
 OWNED WHEN THE MORTGAGE 
 IS EXECUTED. 
 
 §197. The Entire Property will pass 
 by an Appropriate Generic De- 
 scription in a Mortgage. 
 
 198. Mortgage covers whatever is 
 
 necessary to the Enjoymenv 
 of the Thing gi-anted. 
 
 199. The same Rule prevails as to 
 
 the Construction of a Lien 
 declared by Statute in Favor 
 of the State. 
 Art. III. — Principles on which Mort- 
 gages purporting to con- 
 vey After-acquired Prop- 
 erty are enforced. 
 § 200, General Principle that of an 
 Executory Contract. 
 201. Subsidiary Principles on which 
 the Enforcement of the Ex- 
 ecutory Contract rests. 
 
 Art. IV. — What is a Sufficient De- 
 scription to pass Property 
 acquired after the Mort- 
 gage IS EXBCUTBD/ GEN- 
 ERAL Rules stated. 
 § 202. The Requirement of a Specific 
 Description in the Case of 
 Future Acquisitions, on what 
 Principle based. 
 
 203. The Reqxurement of a Specific 
 
 Description to pass After- 
 acquired Propeiiy, applicable 
 to Statutory Liens. 
 
 204. Application of General Prin- 
 
 ciples to Property acquired 
 and not required for Railroad 
 Purposes. 
 
 205. Property used for Railroad Pur- 
 
 poses, What is. 
 
 206. Property acquired by Consoli- 
 
 dated Company when covered. 
 Art. V. — What is a Sufficient De- 
 scription TO PASS After- 
 acquired Interests in Real 
 Estate. 
 § 207. General Rules. 
 
 208. General Words limited by Sub- 
 
 sequent. 
 
 209. Land, beyond the Chartered Lim- 
 
 its will not pass. 
 
 210. Land-gi-ants subsequently made 
 
 to assist in the Construction 
 of the Road not covered. 
 
 211. Land acquired for Depots, etc., 
 
 covered. 
 
 212. Lands acquired for Right of 
 
 Way covered. 
 
 213. Terminal Facilities covered. 
 
CONTENTS, 
 
 xni 
 
 §214. 
 
 Lands held by Equitable Title 
 
 
 covered. 
 
 215. 
 
 Leasehold Interests, when cov- 
 
 
 ered. 
 
 Art. VI. 
 
 — What is Sufficient De- 
 
 
 scription TO PASS Aftee- 
 
 
 ACQUiBED Personalty. 
 
 §216. 
 
 General Principles. 
 
 217. 
 
 Materials for the Track, when 
 
 
 covered. 
 
 218. 
 
 Rolling-stock, when covered. 
 
 219. 
 
 Office Furniture, when covered. 
 
 220. 
 
 Fuel, when covered. 
 
 221. 
 
 Personaltj' not used for llail- 
 
 
 road Purposes. 
 
 222. 
 
 Choses in Action, and Stock, 
 
 
 when covered. 
 
 223. 
 
 Permanent and Temporary Dis- 
 
 
 use, Effect of. 
 
 224. 
 
 Alterations in the Subject-mat- 
 
 
 ter of the Pledge. 
 
 225. 
 
 Property bought to replace that 
 
 
 worn out, embraced by the 
 
 
 Mortgage. 
 
 , 226. 
 
 Income, Bevenues, etc. 
 
 Art. VII. — Necessity fob a Specific 
 Description qualified by 
 the Doctrine of Fixtures. 
 § 227. General Rule. Things which 
 are absolutely Fixtures. 
 228. Detached Personal Property. 
 Art. VIII. — Necessity for a Specific 
 Description qualified by 
 the Doctrine that a Rail- 
 road IS an Entirety. 
 § 229. The Doctrine of Accession ex- 
 tended. 
 230. Objections to this Extension of 
 the Doctrine of Accession. 
 Art. IX. — What will pass under the 
 Term " Appurtenances." 
 §231. Realty. 
 232. Personalty. 
 Art. X. — What will pass under the 
 Word "Undertaking." 
 § 233. In Instruments creating Charges 
 on Railroad Property. 
 234. In Instruments creating Charges 
 on other Property. 
 
 CHAPTER XI. 
 
 PAGES 
 
 Peiorities between Moetgages and other Obligations of 
 
 THE COMPANT 259-280 
 
 Art. I. — Priorities considered with- 
 out Reference to the Ef- 
 fect OF AN After- acquired 
 Property Clause. 
 § 235. Existing Liens are not displaced 
 by Mortgage. 
 
 236. Priorities as affected by Regis- 
 
 tration Laws. 
 
 237. Priorities as Dependent on the 
 
 Terms of the Decree ordering 
 the Sale at which the Mort- 
 gagor purchased the Property. 
 
 238. Priority of Judgment Lien es- 
 
 tablished by State Law rec- 
 ognized by Federal Courts. 
 
 239. Claims not protected by Specific 
 
 Lien necessarily postponed to 
 Later Mortgage'. 
 
 240. Existing Mortgage, how far af- 
 
 fected by Creation of Subse- 
 quent Obligations. General 
 Principles. 
 
 § 241. Traffic Agreement, when not a 
 Lien on the Corporate Prop- 
 erty. 
 
 Priorities expressly reserved may 
 be lost by Estoppel. 
 
 Priorities not disturbed by Con- 
 solidation. 
 Art. II. — Priorities considered with 
 Reference to the Special 
 Effect of an After-ac- 
 quired Property Clause. 
 
 General Rule. 
 
 After-acquired Property passes 
 eum onere. 
 
 Vendor's Lien, how far preferred 
 generally. 
 
 Priority of Vendor's Lien where 
 the Property sold is a Fix- 
 ture. 
 
 Lien when defeated by Vendor's 
 Acts. 
 
 242. 
 
 243. 
 
 §244. 
 245. 
 
 246. 
 
 247. 
 
 248. 
 
XVIU 
 
 CONTENTS. 
 
 Art. III. — Priority op Mortgages 
 
 AS MODIFIED BY LEGISLA- 
 TION IN Favor oe Certain 
 Classes oe Creditors. 
 § 249. General Statement. 
 
 250. Lien of Mortgage not displaced 
 
 by Subsequent Legislation. 
 
 251. General Lien Laws, how far ap- 
 
 plicable to Bailroads. 
 
 252. Waiver of Mechanic's Lien. 
 
 253. Statutes creating Mechanics' 
 
 and Laborers' Liens, strictly 
 construed. 
 
 254. No Lien obtainable by Contrac- 
 
 tor except in Manner pre- 
 scribed by Statutes. 
 
 § 255. Bondholders, when not bound 
 by Proceedings under these 
 Statutes, 
 
 256. Stockholder in Construction 
 
 Company which floats and 
 guaranties Bonds, entitled to 
 claim Lien. 
 
 257. Statutes declaring Liens in Fa- 
 
 vor of Debts arising from the 
 Operation of the Eoad, Effect 
 of. 
 257 a. Priorities in Case of English 
 Debentures. 
 
 CHAPTER XII. 
 
 Trustees 
 
 FAOBB 
 
 281-322 
 
 Art. I. — Creation and Termination 
 of the Trust. Appointment 
 and Eemoval of Trustees. 
 § 258. The Selection of the Trustee. 
 
 259. Legal Capacity of Individuals 
 
 and Corporations to be Trus- 
 tees. 
 
 260. A State may be a Trustee. 
 
 261. Resignation of Trustee. 
 
 262. Appointment, Eemoval, and 
 
 Substitution of Trustees by a 
 Court of Chancery, generally. 
 
 263. Grounds of Eemoval. 
 
 264. Mortgage Provisions for filling 
 
 Vacancies. 
 
 265. Appointment by the Company 
 
 itself. 
 
 266. Election by the Surviving Trus- 
 
 tees. 
 
 267. Statutory Provisions regulating 
 
 the Manner of the Election of 
 Trustees of Railroad Mort- 
 gages. 
 
 Statutes respecting the Election 
 of Trustees cannot override 
 the Provisions of a Trust Deed 
 previously executed. 
 
 Termination of the Trust. 
 — Nature and Extent of 
 THE Trustee's Estate and 
 Powers. 
 
 The Precise Character of the 
 Interest. 
 
 268. 
 
 269. 
 Art. II. 
 
 §270 
 
 § 271. The Trustee takes an Estate 
 sufficient to enable him to 
 execute his Trust. 
 
 Quality of Trustee's Estate, how 
 affected by Statutory Pro- 
 visions. 
 
 Devolution of the Trust Estate. 
 
 Powers of Trustees generally. 
 
 Bondholders' Rights under the 
 Mortgages cannot be altered 
 by the Trustees without their 
 Consent. 
 
 The Power to declare the Prin- 
 cipal due. 
 
 The Power of a Trustee to waive 
 Defaults in Interest or Princi- 
 pal. 
 
 Power of Entry conferred on the 
 Trustee. 
 
 Power of Sale. 
 
 Trustee not confined to the Ex- 
 ercise of a Single Power 
 only. 
 
 Special Powers of Trustee for 
 
 Enforcement of the Security 
 
 cumulative upon the Right 
 
 of Foreclosure. 
 
 Art. III. — Notice to Trustee, Effect 
 
 OF. 
 
 Bondholders affected with No- 
 tice of Everything learned by 
 Trustee in Course of Litiga- 
 tion. 
 
 272. 
 
 273. 
 274. 
 275. 
 
 276. 
 
 277. 
 
 278. 
 
 279. 
 280. 
 
 281. 
 
 §282. 
 
CONTENTS. 
 
 XIX 
 
 § 283. Effect of Notice to Trustee not 
 given in Active Litigation. 
 Art. IV. — Duties of the Trustees 
 
 GENERALLY. 
 
 The General Duties of the Trus- 
 tee the same as those of other 
 Trustees. 
 
 The Duties of a Trustee become 
 active when a Default occurs, 
 and are not then merely min- 
 isterial. 
 
 The Duties of the Trustee are 
 owed to the Bondholders sev- 
 erally as well as collectively. 
 
 A Trustee's Duties are personal, 
 and cannot be delegated. 
 
 A Trustee should consult the 
 Court. 
 
 Trustee's Duty to report to the 
 Court. 
 
 Trustee's Duty to account. 
 
 Trustee's Duty to prevent Mis- 
 feasance of Co-trustees. 
 
 Duty of Trustee as to Invest- 
 ment of Trust Funds. 
 
 The Application of the Money 
 which comes into the Hands of 
 the Trustees. 
 
 §284. 
 
 285. 
 
 286. 
 
 287. 
 
 288. 
 
 289. 
 
 290. 
 291. 
 
 292. 
 
 293. 
 
 Art. V. 
 
 §294. 
 
 295. 
 
 296. 
 
 297. 
 
 298. 
 
 299. 
 
 300. 
 301. 
 
 302. 
 
 303. 
 304. 
 
 — Tkustebs in Possession. 
 
 General Statement. 
 
 The Right of the Trustee to 
 exercise the Corporate Fran- 
 chises after entering a De- 
 fault. 
 
 Trustee's Duty to account to 
 Bondholders for the Avails of 
 the Property. 
 
 Relation of the Trustee in Pos- 
 session to the Mortgagor or 
 Corporation. 
 
 Trustee taking Possession not 
 an Assignee of a Lease made 
 subsequently to the Mortgage. 
 
 Surrender of Possession by 
 Trustee. 
 
 Liabilities to Third Persons. 
 
 Trustees in Possession are within 
 the Purview of Statutes, etc. 
 
 Liability of the Company while 
 the Trustees are in Posses- 
 sion. 
 
 Fiduciary Position of Trustee, 
 Acts inconsistent with. 
 
 Trustee not compelled to coun- 
 tersign and deliver Bonds. 
 
 CHAPTER XIII. 
 
 Statutoet Liens in Favor op Bondholders 
 
 323-335 
 
 } 305. Introductory. 
 
 306. When a Lien is deemed to have 
 
 been created by the Statute. 
 
 307. Construction of Statutory Mort- 
 
 308. 
 
 309. 
 310. 
 
 311. 
 
 Waiver of the Benefit of a Statu- 
 tory Lien by the State. 
 
 Release of Statutory Lien. 
 
 Remedies of Bondholders for the 
 Enforcement of Statutory Liens. 
 
 Condition for the Benefit of the 
 State in the Enabling Act can 
 only be taken Advantage of by 
 the St^te. 
 
 § 312. Subrogation of Bondholders to the 
 Rights of the State. 
 
 313. Right of Holders of State Bonds 
 
 negotiated by Company to en- 
 force Lien declared in Favor of 
 the State. 
 
 314. Unconstitutionality of Part of Act 
 
 authorizing Issue of State Bonds 
 not a Bar to Enforcement of Lien 
 by Bondholders. 
 
 315. Effect of Subsequent Legisla- 
 
 tion on the Rights of Bond- 
 holders secured by a Statutory 
 Lien. 
 
XX 
 
 CONTENTS. 
 
 CHAPTER XIV. 
 Rolling-stock and Car Trusts .... 
 
 PASES 
 
 336-354 
 
 Art. I 'Whether Rolling-stock is a 
 
 Fixture. 
 
 Authorities conflicting. 
 
 Doctrine in New York. 
 
 Doctrine in New Jersey. 
 
 Doctrine in Illinois. 
 
 Doctrine in Alabama. 
 
 Doctrine in New Hampshire. 
 
 Doctrine in Ohio. 
 
 Eule under Laws of California 
 and Washington. 
 
 Doctrine of the Federal Courts. 
 
 Legal Character of Rolling-stock 
 considered in other Connections. 
 
 Opposing Doctrines discussed. 
 
 -Car Trusts and other Con- 
 ditional Contracts for the 
 Supply of Kolling-stock. 
 
 Introductory. 
 
 Definition of Car Trust. 
 
 Vendor of Rolling-stock only a 
 General Creditor unless Lien 
 reserved. 
 330. Mortgage Lien generally post- 
 poned to Rights reserved by 
 Vendor till Price is paid. 
 
 §316. 
 317. 
 318. 
 319. 
 320. 
 321. 
 322. 
 323. 
 
 324. 
 325. 
 
 326. 
 Art. II.- 
 
 §327. 
 328. 
 329. 
 
 § 331. Eights of Persons lending Money 
 to the Company for the Pur- 
 chase of Rolling-stock. 
 332. Title of Lessor of Rolling-stock 
 paramount to that of Mort- 
 
 333. Car-trust Certificates which are in 
 
 Effect Mortgage Bonds of the 
 Company. 
 
 334. Car-trust Agreements in Breach 
 
 of Fiduciary Obligations of 
 Directors. 
 
 335. How far Rolling-stock Contracts 
 
 are effectual ag.'iinst Creditors 
 of the Company. 
 
 336. Wording of Contract not conclu- 
 
 sive as to its Real Character. 
 
 337. Rights of Dissenting Holders of 
 
 Car-trust Certificates where 
 Modifications are attempted. 
 
 338. Rights under Car Trusts, how 
 
 affected by Appointment of 
 Receiver. 
 
 339. Can the Court authorize a Re- 
 
 ceiver to create a Car Trust ? 
 
 CHAPTER XV. 
 
 Preventive Remedies, or Remedies of Bondholders for In- 
 terference WITH THE Mortgaged Property . . . 355-370 
 
 § 340. Injunctions against Acts of the 
 Mortgagor impairing the Se- 
 curity. 
 
 341. Injunctions against Acts of Third 
 
 Persons which impair the Se-, 
 curity, generally. 
 
 342. Injunctions against Execution 
 
 Sales of Personalty, generally. 
 
 343. When Equity will interefere to 
 
 protect the Lien of the After- 
 acquired Property Clause. 
 
 344. Inadequacy of Legal Remedy as 
 
 a ground for Interference of 
 Equity. 
 
 345. Public Interest in Operation of 
 
 Road a Ground for Interference 
 of Equity. 
 
 346. Injunction to restrain Levy on 
 
 Net Revenues specifically ap- 
 propriated to Payment of State 
 Loan. 
 
 i 347. Injunctions against Sales of 
 Realty. 
 
 348. Injunctions against Execution 
 
 Sales where Trustees have 
 gone into Possession. 
 
 349. Injuuctions to prevent ii Bond- 
 
 holder from obtaining an In- 
 equitable Preference over his 
 Co-bondholders. 
 
 350. Execution Sale when enjoined 
 
 at the Instance of the Mort- 
 gagor. 
 
 351. Execution issuing out of State 
 
 Court cannot be enjoined by 
 Federal Court. 
 
 352. Injunctions in Aid of Holders of 
 
 Income Bonds. 
 
 353. Injunctions against Enforcement 
 
 of a Railroad Commission 
 Law. 
 
CONTENTS, 
 
 XXI 
 
 CHAPTER XVI. 
 
 PAGES 
 
 Remedies of Bondholders fok the Enfoecemenx op Bonds. 
 
 — Remedies in General 371-379 
 
 5 354. Introductory. 
 
 355. Boudholders not restricted to 
 
 any Single Remedy. 
 
 356. General Powers of Equity for the 
 
 Relief of Bondholders. 
 
 357. State when not a Trustee for 
 
 Benefit of Junior 
 
 358. 
 
 Federal 
 of State 
 
 359. 
 
 Chancery Powers of 
 Courts Independent 
 Laws. 
 
 Statutes affecting Remedies only, 
 not unconstitutional as im- 
 pairing the Obligation of Con- 
 tracts. 
 350 a. Illustrative Cases on English 
 Debentures. 
 
 CHAPTER XVn. 
 
 Remedies op Bondholders for ~ the Enforcement of their 
 
 Bonds Actions on the Bonds and Coupons . . . 380-385 
 
 5360. Eight of Individual Bondholders 
 to maintain an Action at Law on 
 their Bonds. 
 (a) General Rule. 
 (h) Right restricted iu the Bonds 
 and Mortgage. 
 
 (c) Right not suspended by Impli- 
 
 cation merely. 
 
 (d) Right of Personal Action when 
 
 Money is lent on the Credit 
 of the "Undertaking." 
 361. Individual Bondholders cannot levy 
 upon the Property mortgaged for 
 the Security of the Whole Class. 
 
 § 362. Suit maintainable on Bonds though 
 Mortgage is void. 
 
 363. Coupons payable out of Revenues, 
 
 no Recovery on, unless Existence 
 of Fund is shown. 
 
 364. In whose Name an Action on a 
 
 Bond may be brought. 
 
 365. Demand of Payment, how far nec- 
 
 essary before bringing Suit on a 
 Bond or Coupon. 
 
 366. Suits on Lost Coupons. 
 
 CHAPTER XVm. 
 
 Remedies of Bondholders. — Suits for Possession 
 
 386-390 
 
 § 367. Generally. 
 
 368. The Trustee's Right of Entry must 
 
 be exercised in Strict Accordance 
 with the Provisions of the Mort- 
 gage which confer the Right. 
 
 369. The Right of a Trustee to bring 
 
 Suit for Possession is sometimes 
 implied. 
 870. When a Business is "unprofit- 
 able " so as to authorize Trustee 
 to enter. 
 
 § 371. Trustees of First Mortgage cannot 
 be ousted from Possession by 
 Junior Mortgagees. 
 
 372. Special Powers of Trustee not avail- 
 
 able to Bondholder suing on his 
 own Behalf. 
 
 373. Equitable Jurisdiction of Suits for 
 
 Possession. 
 
 374. Possession by the Corporation 
 
 under Scrutiny of Court and 
 Parties to the Suit. 
 
 375. What Law governs in Suits for 
 
 Possession. 
 
xxu 
 
 CONTENTS. 
 
 CHAPTER XIX. 
 
 Foreclosure and Sale 
 
 PAGES 
 
 391-409 
 
 Art. I. - 
 
 -In Genbeal. 
 
 §390. 
 
 §376. 
 
 Right to foreclose on Default 
 in Paj'ment of Interest inher- 
 ent in Mortgage Contract. 
 
 
 377. 
 
 Provisions negativing the Eight 
 to foreclose and sell. 
 
 391. 
 
 378. 
 
 Mortgagee not required to resort 
 to Sinking Fund for Payment, 
 when. 
 
 392. 
 
 379. 
 
 Improper Motives of Complainant 
 no Ground for denying Relief. 
 
 393. 
 
 380. 
 
 Right of Prior Mortgagee of Part 
 
 
 
 of Property to foreclose pend- 
 
 394. 
 
 
 ing Suit to foreclose Mort- 
 
 
 
 gage on whole. 
 
 
 381. 
 
 Matters not considered in Fore- 
 closure Suits. 
 
 395. 
 
 382. 
 
 Right to file a Bill ceases when 
 
 
 
 the Company is dissolved. 
 
 Art. IV. 
 
 Art. II.- 
 
 -Remedy of Foreclosure cu- 
 mulative UPON Special 
 Remedies provided by the 
 
 
 
 MORTGAOE. 
 
 §396. 
 
 §383. 
 
 General Rule. 
 
 
 384. 
 
 Application of Rule where Trus- 
 tee is precluded from taking 
 
 
 
 Possession until the Default 
 
 397. 
 
 
 has continued a Specified 
 
 
 
 Period. 
 
 398. 
 
 385. 
 
 Application of Rule where a Re- 
 
 
 
 quest from the Bondholder is 
 
 399. 
 
 
 a Prerequisite to Entry by the 
 
 
 
 Trustees. 
 
 
 Art. Ill 
 
 — When the Default is com- 
 plete FOR Purposes op Suit. 
 
 Art.V. 
 
 §386. 
 
 Generally. 
 
 
 387. 
 
 Right to foreclose, how far 
 
 
 
 affected by Special Agree- 
 
 §400 
 
 
 ments. 
 
 401 
 
 388. 
 
 Words of Bonds controlling as to 
 
 
 
 whether Default has occurred. 
 
 402 
 
 389. 
 
 What amounts to a Default 
 where Bondholders are re- 
 ceiving the Income. 
 
 403. 
 
 Defaults in the Payment of In- 
 terest on Divisional Bonds not 
 available in a Suit to fore- 
 close a Consolidated Mortgage. 
 
 What is a Suifioient Demand, 
 where that is required. 
 
 Presentation of Coupons at Place 
 designated for Payment not a. 
 Condition Precedent to Suit. 
 
 Waiver of the Right to have 
 Instalments of Interest paid at 
 a Particular Place. 
 
 No Relief in Equity against Con- 
 sequences of Default without 
 Excuse. 
 
 Benefit of Alternative Agree- 
 ment not available after De- 
 fault. 
 
 — Powers of Trustees and 
 Bondholders respectively 
 IN Regard to commencing 
 Foreclosure Suits. 
 
 Power of Trustee to foreclose 
 considered with Respect to 
 Provisions for a Request from 
 the Bondholders. 
 
 Bondholder estopped by Decree, 
 though no Request made. 
 
 Default may be taken Advantage 
 of by a Single Bondholder. 
 
 Majority of Bondholders may 
 sometimes prevent Foreclos- 
 ure. 
 
 — Effect of Provisions accel- 
 
 erating the Maturity op 
 THE Debt on Default in 
 THE Payment of Interest. 
 
 Generally. 
 
 Default when complete so as to 
 render Principal due. 
 
 Rights of Minority Bondholders. 
 
 Acceleration of Maturity pre- 
 vented by Words of Statute 
 authorizing Issue of Bonds. 
 
CONTENTS. 
 
 XXIU 
 
 CHAPTER XX. 
 
 Remedies of Bondholders. — Steict Foreolosuke . 
 
 § 404. Generally. 
 405. Remedy not generally applicable in the Case of Kailroad 
 
 410-411 
 
 CHAPTER XXI. 
 Jurisdiction 412-431 
 
 Art. I. — How FAR THE Peior Control 
 OF THE Subject-matter in- 
 vests A Court with Ex- 
 clusive Jurisdiction, and 
 Jurisdiction generally. 
 § 406. The General Eule as to the Con- 
 trol of Litigation by Courts of 
 Concurrent Jurisdiction. 
 
 407. Application of General Rule to 
 
 Process from Different Courts. 
 
 408. Possession of Receivers not in- 
 
 terfered with. 
 
 409. Jurisdiction of Court exclusive 
 
 as to Proceedings taken to set 
 aside Decrees or Judgments 
 rendered by it. 
 
 410. Exolusiveness of Jurisdiction in 
 
 Respect to the Subject-matter 
 of Foreclosure Suits. 
 
 411. Suit in Co-ordinate Court per- 
 
 missible where Possession of 
 First Court is not interfered 
 with. 
 
 412. Second Court may pass upon 
 
 Questions not raised in First 
 Suit. 
 
 413. Jurisdiction as to Decrees ob- 
 
 tained by Fraud in other 
 Courts.' 
 
 414. Citizenship of Parties to Ancil- 
 
 lary Proceedings is not ma- 
 terial. 
 
 415. Exclusiveness of Jurisdiction, 
 
 how far affected by Territorial 
 Limits. 
 
 § 416. Rule that Equity acts in Per- 
 sonam applied so as to give 
 Extra-territorial Jurisdiction. 
 
 417. When Jurisdiction attaches. 
 
 418. Jurisdiction not lost by Dis- 
 
 missal of Bill on Demurrer. 
 
 419. What Posses.sion is necessary to 
 
 give a Court Control of the 
 Bea as against a Co-ordinate 
 Tribunal. 
 
 420. Who may assert the Exclusive- 
 
 ness of the Jurisdiction of the 
 Court which first obtains 
 Control. 
 
 421. Procedure and Practice. 
 
 Art. II. — To WHAT Extent the Pen- 
 dency OF A Suit in One 
 Court is a Bar to a Suit 
 in another. 
 § 422. Introductory. 
 
 423. Suit not barred by Pendency 
 
 of Suit in Foreign Jurisdic- 
 tion. 
 
 424. Plea of lAs Pendens not sus- 
 
 tainable unless there is an 
 Identity between the two 
 Suits. 
 
 425. Second Suit not barred if Parties 
 
 are different. 
 
 426. Prior Suit not barred where 
 
 Different Relief is asked for. 
 
 427. Second Suit allowed to proceed, 
 
 because best calculated to lead 
 to Decision on Merits. 
 
XXIV 
 
 CONTENTS. 
 
 CHAPTER XXIL 
 
 Citizenship and Removal op Causes . . 
 
 PAOIS 
 
 432^48 
 
 Art. I. - 
 
 §428. 
 
 429. 
 
 430. 
 
 431. 
 
 Art. II. - 
 §432. 
 
 433. 
 
 434. 
 435. 
 436. 
 437. 
 438. 
 
 439. 
 
 ■ Citizenship of Cobpoeations. 
 
 Introductory. 
 
 Corporation is Citizen of State 
 
 where it was organized. 
 Citizenship of Corporations doing 
 
 Business in Foreign States. 
 Corporation suable in Sister 
 
 State. 
 -Removal of Causes. 
 Right of Eemoval must exist at 
 
 the Commencement of the Suit. 
 Eight not affected by State 
 
 Legislation. 
 What is a " Controversy." 
 Removal by Consent. 
 Who may remove a Cause. 
 Amount involved in Suit. 
 Removal when there are Several 
 
 Parties on either Side. 
 Arrangement of Parties accord- 
 ing to their Real Interests. 
 
 § 440. Introduction of New Party in- 
 eifectual to divest Juiisdic- 
 tion. 
 
 441. Rule where a State is Party to 
 
 the Suit. 
 
 442. Separable Controversies. 
 
 443. What does not affect the Right 
 
 to remove. 
 
 444. Eemoval takes the whole Cause. 
 
 445. What bars the Eight of Eemoval. 
 
 446. When the Petition and Bond 
 
 must be filed. 
 
 447. Contents of Application. 
 
 448. Formal Requisite of Record and 
 
 Petition. 
 
 449. Bringing up the Record. 
 
 450. Irregularities in the Eemoval do 
 
 not vitiate it. 
 
 451. Waiver of Objections to Removal. 
 
 452. Requisites of Removal Bonds. 
 
 CHAPTER XXm. 
 Pleadings 449-456 
 
 i 453. Introductory. 
 454. The Bill in Foreclosure Suits and 
 
 Demun'ers. 
 465. The Bill in Suits for Possession. 
 
 § 456. Supplemental Bills. 
 
 457. The Answer. 
 
 458. Cross-bills. 
 
 459. Dismissal of BUI, and its Effects. 
 
 CHAPTER XXIV". 
 
 Pakties in Suits relating to Cobporate Securities . 
 
 457-491 
 
 § 460. Introductory. 
 Art. I. — Rule requiring all Parties 
 
 MATERIALLY INTERESTED IN 
 
 THE Mortgage to be joined 
 EITHER AS Plaintiffs or 
 Defendants. 
 § 461. Who should be Parties Plaintiff 
 generally. 
 462. Bondholders as Parties Plaintiff 
 and Committees of Bond- 
 holders. 
 
 §463. 
 
 464. 
 
 465. 
 
 466. 
 
 467. 
 468. 
 
 Effect of pledging the Bonds on 
 
 the Question of Proper Paities 
 
 Plaintiff. 
 Who are Necessary Parties 
 
 Defendant. 
 Prior Mortgagee, when Necessary 
 
 Party. 
 Subsequent Mortgagee, Necessity 
 
 of joining. 
 Mortgagee of Divisional Mortgage. 
 Mortgagor Company. 
 
CONTENTS. 
 
 XXV 
 
 § 469. Stockholders when sufficiently 
 represented. 
 
 470. Directoi-s of Construction Com- 
 
 pany to wliom Bonds have been 
 issued, when Proper Parties. 
 
 471. Guarantors of the Bonds. 
 
 472. Receivers. 
 
 473. States as Parties Defendant. 
 
 474. United States as a Party De- 
 
 fendant. 
 
 475. States and United States bound 
 
 by Decree, if actually Parties. 
 
 476. Intervention of Parties materially 
 
 interested. 
 Art. II.— Parties in Suits by ok against 
 
 THE TkBSTEES or REPRESENT- 
 ATIVE Bondholders. 
 § 477. Introductory. 
 
 478. Representation of Bondholders by 
 
 one or more of their Number. 
 
 479. Bondholder allowed to sue, when 
 
 Trusteeship of Foreign Corpo- 
 ration is vacant. 
 
 480. Bondholder allowed to sue when 
 
 Trustee is Non-resident. 
 
 481. Suit by a Representative Bond- 
 
 holder, when not permissible. 
 
 482. Participation of Bondholders in 
 
 a Suit begun by one of their 
 Number. 
 
 483. Representative Position of Trustee 
 
 in Suits affecting the Trust 
 Property generally. 
 
 484. Request to begin Suit must come 
 
 from Owner, not merely Holder 
 of Bond. 
 
 Suits in which the Trustee is the 
 Proper Party Plaintiff. 
 
 Bill tiled by or against Trustees 
 alone not demurrable for De- 
 fect of Parties. 
 
 Defences available against the 
 Bondholders are available 
 against the Trustee. 
 
 Trustee as Paity Defendant 
 generally. 
 
 Joinder of Non-resident Trustee, 
 whether necessary. 
 
 Trustee's Control of Suits affect- 
 ing the Trust Property. 
 491. Proper Way to raise Question of 
 Trustee's Unfitness. Interven- 
 tion by Bondholder in Trustee's 
 Suit. 
 
 Proper Time to intervene. 
 
 Intervention must be to enforce 
 Rights accruing under Mort- 
 
 §485 
 
 486. 
 
 487. 
 
 488. 
 
 489. 
 
 490. 
 
 492. 
 493. 
 
 494. Intervention by Trustee in Bond- 
 
 holder's Suit. 
 
 495. Action of Trustees, to what Extent 
 
 binding on Bondholders gen- 
 erally. 
 
 496. Discretionary Acts of Trustee are 
 
 binding. 
 
 497. In what Matters Trustee cannot 
 
 bind Bondholders. 
 
 498. Action of Trustee inures to 
 
 Benefit of Bondholders. 
 
 499. Remedies of Dissatisfied Bond- 
 
 holder after Rendition of 
 Decree. 
 
 CHAPTER XXV. 
 
 PAGES 
 
 Control and Disposition op the Mortgaged Property while 
 
 THE Company is in Possession 492-503 
 
 Art. I. — Control op the Corpus of the 
 
 Property. 
 § 500. Control usually left by Mortgage 
 to the Railway Company. 
 
 501. Power to mortgage Property al- 
 
 ready charged by Way of 
 " Floating Security." 
 
 502. Liability of the Mortgaged Prop- 
 
 erty to be levied on. 
 
 503. Power of Judgment Creditor to 
 
 sell the Mortgagor's Equity of 
 Redemption. 
 
 Art. II. — Control and Disposition of 
 
 THE Income. 
 § 504. Company generally entitled to 
 dispose of Income, even if 
 pledged. 
 
 505. Same Rule as against Holders of 
 
 Income Bonds. 
 
 506. Specific Appropriations of the 
 
 Income. 
 
 507. Stockholder's Right to a Dividend 
 
 when complete or against the 
 Mortgagor. 
 
XXVI 
 
 CONTENTS. 
 
 § 508. Attachment of Income while 
 Mortgagor is in Possession. 
 609. When the Mortgagee's Right to 
 the Income becomes absolute 
 in Suits for Possession. 
 
 § 510. When the Mortgagee's Eight to 
 the Income becomes absolute in 
 Suits for Foreclosure. 
 511. Effect of the Divestiture of the 
 Company's Control by the Suit 
 of a Party other than the one 
 claiming the Earnings. 
 
 CHAPTER XXVI. 
 
 Appointment, Eemotal, and Discharge op Eeceivees 
 
 PAGES 
 
 504-545 
 
 § .512. Introductoiy. 
 Art. I. — Appointment 
 
 OF Eeoeiveks 
 
 GENERALLY. 
 
 § 513. For what Objects a Receiver is 
 appointed. 
 
 514. Eeluctance of the Courts to ap- 
 
 point a Receiver. 
 
 515. Jurisdictiou to appoint a Re- 
 
 ceiver. 
 
 516. Who should be appointed Re- 
 
 ceiver. 
 
 517. Necessity of Notice to Parties 
 
 who will be affected by the 
 Appointment. 
 
 518. The Court will not go into the 
 
 Merits of the Case on the 
 Hearing of an Application. 
 
 519. A Full and Fair Denial of the 
 
 Allegations of the Bill wUl 
 prevent Appointment. 
 
 520. When the Mortgagor Company 
 
 may obtain the Appointment 
 of a Receiver. 
 
 521. At whose Instance a Receiveri 
 
 may be appointed, generally. 
 
 522. When the Mortgagor Company 
 
 may obtain the Appointment 
 of a Receiver. 
 
 523. Receiver not usually appointed 
 
 at the Instance of General 
 Creditors. 
 
 524. Successive Applications for Re- 
 
 ceivers in the same Court, 
 how treated. 
 
 525. Appointment of Additional Re- 
 
 ceivers in other States or Dis- 
 tricts. 
 
 Art. II. — CiROrjMSTANCBS UNDER WHICH 
 
 A Receiver will or will 
 
 NOT BE appointed. 
 
 § 526. General Principles on which Re- 
 ceivers are appointed. 
 
 § 527. 
 
 Limits to the Discretionary Pow- 
 ers of the Courts in appoint- 
 ing Receivers. 
 
 528. The Appointment of a Receiver 
 
 not justifiable merely because 
 convenient. 
 
 529. No Receiver appointed unless 
 
 Appointment will give Effec- 
 tual Relief. 
 
 530. Existence or Non-existence of 
 
 Danger to the Fund deter- 
 mines whether Receivership 
 shall be granted or denied. 
 
 Adequacy of Legal Remedy 
 Reason for Refusal to ap- 
 point. 
 
 Default of Mortgagor alone not 
 suflScient to justify Appoint- 
 ment. 
 
 No Receiver appointed if the 
 Existence of a Default is 
 doubtful. 
 
 Prevention of Fraud. 
 
 Prevention of Waste. 
 
 A Long-continued and Hopeless 
 Condition of Insolvency. 
 
 Dissensions among Corporate 
 Officers. 
 
 Indisposition of Company to 
 pay its Debts to the Extent 
 of its Ability. 
 
 539. Wrongful Failure to apply Rev- 
 
 enues to Bonded Debt. 
 
 540. Danger to Fund arising from 
 
 Mismanagement of the Cor- 
 porate Property. 
 
 Numerous Executions threaten- 
 ing Integrity of Property. 
 
 Circumstances under which a 
 Judgment Creditor will be 
 granted a Receivership of 
 Mortgaged Property. 
 
 531. 
 
 532. 
 
 533. 
 
 534. 
 535. 
 536. 
 
 537. 
 
 538. 
 
 541. 
 
 542. 
 
CONTENTS. 
 
 XXVll 
 
 § 543. Eight to Receiver lost by Laches. 
 
 544. Effect of Provision in Mortgage 
 
 authorizing Trustee to take 
 Possession. 
 
 545. Last Subject continued. 
 
 546. Appointment of a Receiver after 
 
 Rendition of Foreclosui'e De- 
 cree, when proper. 
 Art. III. — Removal, Substitution, and 
 Final Disohaege of Re- 
 ceivers. 
 § 547. Generally. 
 
 548. Power of Removal. , 
 
 549. Jurisdiction to remove Ancillary 
 
 Receivers. 
 
 550. Questions which will not be 
 
 decided on Applications for 
 Removal. 
 
 § 551. Removal on Account of Circum- 
 stances existing at the Time 
 of the Appointment. 
 
 552. Removal of Receivers appointed 
 
 ex parte. 
 
 553. Right to object to Appointment 
 
 lost by Delay. 
 
 554. Removal on Account of Circum- 
 
 stances arising after Appoint- 
 ment. 
 
 555. Termination of Receiverships 
 
 generally. 
 
 556. No Formal Discharge necessary 
 
 to terminate Receivership. 
 657. Receiver himself cannot be heard 
 
 in Opposition to a Motion for 
 
 his Discharge. 
 558. Effect of the Discharge. 
 
 CHAPTER XXVII. 
 
 Title, Possession, Office, and Duties of EECEnrEBS 
 
 PAGES 
 
 546-580 
 
 Art. I. — Title and Possession gener- 
 ally. 
 § 559. Existing Rights not changed by 
 Appointment of Receiver. 
 
 560. To what Property Receiver ac- 
 
 quires Title. 
 
 561. Jurisdiction of Property ille- 
 
 gally in the Custody of the 
 Receiver. 
 
 562. Interference with Possession by 
 
 Strikers. 
 
 563. Possession not allowed to in- 
 
 terfere with Public Improve- 
 ments. 
 664. Exercise of corporate Franchises 
 by Company after Appoint- 
 ment of Receiver. 
 
 566. Duty of Oflicers to deliver Cor- 
 
 porate Property to Receiver. 
 Ai-t. n. — Territorial Limits of Juris- 
 diction OF Court Appoint- 
 ing Receiver. 
 § 566. General Rule. 
 
 567. General Rule not affected by 
 
 Fact that Road extends into 
 another State or Judicial Dis- 
 trict. 
 
 568. Ancillary Courts exercise only 
 
 Limited Jurisdiction over the 
 Properties. 
 
 § 669. Operation of General Rule qual- 
 ified by Powers of Court of 
 Equity to act in Personam. 
 Art. Ill — Office and Duties of Re- 
 ceivers. 
 § 670. Nature of Office generally. 
 
 571. Receiver appointed for Benefit 
 
 of all Parties interested. 
 
 572. Receiver represents Creditors in 
 
 Litigation. 
 
 573. Fiduciary Position of Receivers. 
 
 574. Receiver's Transaction of Busi- 
 
 ness with other Lines. 
 
 575. Duties and Powers of Receiver 
 
 as to his Employees gener- 
 ally. 
 
 576. Receiver's accounting. 
 
 577. Receivers asking Advice from 
 
 Court. 
 Art. IV. — Suits affecting Mortgaged 
 Property during the Re- 
 ceivership. 
 § 678. Right of Receiver to maintain 
 Actions. 
 
 579. Permission of Court necessary to 
 
 bring Suit in same Court. 
 
 580. Co-ordinate Courts precluded 
 
 from entertaining Jurisdic- 
 tion Suits affecting Trust 
 Estate. 
 
SXTIU 
 
 CONTENTS. 
 
 ) 581. Principle precluding such Inter- 
 ference recognized by Co-ordi- 
 nate Courts. 
 
 582. Co-ordinate Court will not ap- 
 
 point Receiver where Prop- 
 erty already under Control of 
 K«ceiver. 
 
 583. This Rale not applicable where 
 
 Prior Appointment was a 
 Nullity. 
 
 584. Assignee in Bankruptcy cannot 
 
 dispossess Receiver appointed 
 by a State Court. 
 
 685. Suits affecting Property main- 
 
 tainable in other Courts, if 
 his Possession will not be in- 
 terfered with. 
 
 686. Suits affecting Property after 
 
 termination of Receivership. 
 
 587. Suits against Receivers gener- 
 ally. 
 
 688. Eule as to Suits for Damages. 
 
 § 589. The Proper Prooedui-e to enforce 
 Claims against Property in 
 Receiver's Hands. 
 
 590. Failure to obtain Leave to sue 
 
 Receiver can be taken Advan- 
 tage of by him alone. 
 
 591. General License to sue Receiver 
 
 in other Courts sometimes 
 given. 
 
 592. Claims against Employees of Re- 
 
 ceiver subject to Exemption 
 Laws of State where the Re- 
 ceiver was appointed. 
 
 593. Enforcement of Taxes upon 
 
 Property in the hands of 
 Receiver. 
 
 594. Federal Legislation altering the 
 
 Former Rules of Equity 
 Courts. 
 
 595. Exclusive Control of Receivers 
 
 of Federal Courts not affected 
 by State Legislation. 
 
 CHAPTER XXVIII. 
 
 Peefekred Debts 
 
 PAGES 
 
 581-628 
 
 Art. I. — General Principles. 
 § 596. Introductory. 
 697. Substance of Leading Case, Fos- 
 dick V. Schall. 
 
 598. Preferred Debts not Liens. 
 
 599. Superior Equity of Preferred 
 
 Debts based upon the Charac- 
 ter of Railroad Business. 
 
 600. What Corporations are Subject 
 
 to the Rule. 
 
 601. Anomalies of the Doctrine as 
 
 now administered. 
 
 602. Theory that Company becomes 
 
 Agent sjiJ Modo of Bond- 
 holders, if allowed to remain 
 in Possession. 
 Art. II. — The Priority op Back 
 Claims. 
 § 603. Power of Court on Appointment 
 of Receiver to impose Con- 
 ditions as to Payment of 
 Back Claims. 
 604. Limits of Discretionary Power 
 of Court to impose Conditions 
 as to payment of Back Claims. 
 
 § 605. Claimants referred to in Order 
 of Appointment not invested 
 with Absolute Right as against 
 Bondholders. 
 
 606. Upon whom Conditions of Order 
 
 are binding. 
 
 607. Back Claims to be preferred 
 
 need not be particulaiized in 
 the Order. 
 
 608. Limits of Power to prefer Unse- 
 
 cured Debts when no Provi- 
 sion 's made for their Payment 
 in Order appointing a Re- 
 ceiver. 
 
 609. Assignee of Preferred Debt en- 
 
 titled to Preference. 
 
 610. Debts will not be preferred 
 
 merely because Bondholder 
 has promised Priority. 
 
 611. Judgment of another Court not 
 
 conclusive as to whether a 
 Claim is to be preferred. 
 
 612. Back Claims not ordinarily Lien 
 
 on Corpics. 
 
CONTENTS. 
 
 XXIX 
 
 § 613. Back Claims Lien on Corpus 
 where Diversion of Earnings 
 is established. 
 
 614. Payments of Interest, when not 
 
 Diversion of Earnings. 
 
 615. Back Claims may be made Lien 
 
 on Corpus if Preservation of 
 Property requires. 
 
 616. Assumption of Floating Indebt- 
 
 edness by Purchasers does not 
 create Lien, etc. 
 
 617. Back Claims not Lien on Corpus, 
 
 because Income of Receiver- 
 ship insufficient to pay them. 
 
 618. Preferential Debts of any Part of 
 
 Composite System a Charge 
 on whole Property. 
 
 619. Doctrine of Diversion not appli- 
 
 cable to Ordinary Creditor's 
 Suit. 
 Art. III. — Within what Period Back 
 Claims must have accrued 
 to be allowed prefer- 
 ENCE. The Six Months' 
 Rule. 
 § 620. Generally. 
 
 621. The Six Months' Rule. 
 
 622. Rule where there is a Running 
 
 Account. 
 
 623. Payment of Unsecured Claims 
 
 antedating Period fixed in 
 Order. 
 
 Art. IV. Classes of Back Claims en- 
 titled TO Priority. 
 
 Generally. 
 
 Debts for Freight and Ticket 
 Balances. 
 
 Debts incurred in Transporta- 
 tion of Passengers and Freight. 
 
 Debts for Wages due Employees. 
 
 Claims for Legal Services not 
 preferred unless they have 
 inured to Benefit of Bond- 
 holders. 
 
 Debts for Supplies and Ma- 
 terials. 
 
 Debts for Materials or Equip- 
 ments furnished on Credit not 
 preferred. 
 
 Rentals due by Mortgagor Com- 
 pany as Lessee of another 
 Line. Rule. 
 
 Diversion of Earnings immaterial 
 where Credit is given for Ma- 
 terials furnished. 
 
 Debts contracted for Original 
 Construction not preferred. 
 
 Damages for Breach of Contract 
 not preferred. 
 
 Debts for Damages caused by 
 Operation of Eoad. 
 
 §624. 
 625. 
 
 626. 
 
 627. 
 628. 
 
 629. 
 
 630. 
 
 631. 
 
 632. 
 
 634. 
 
 635. 
 
 CHAPTER XXIX. 
 
 PAQBS 
 
 Position of Creditors who make expenditures either con- 
 tributing TO Preservation or enuring to benefit of 
 Mortgaged Property 629-637 
 
 636. 
 
 637. 
 
 638. 
 
 639. 
 
 Mortgage Lien usually preferred to 
 Claim of Lender to Company to 
 pay Interest or Operating Ex- 
 penses. 
 
 Lender, how far entitled to Benefit 
 of Statutory Lien held by Cred- 
 itor paid. 
 
 Rule when Lender is a Court Offi- 
 cial. 
 
 Lender of Money to pay for Roll- 
 ing-stock, when not entitled to 
 Preference on Ground of Subro- 
 gation to Vendor's Lien. 
 
 § 640. Preference for Lender's Claim as- 
 serted on Ground of Estoppel. 
 
 641. What Protection is accorded or 
 
 Preferences given to Sureties on 
 Bonds given by Company dur- 
 ing Litigation. 
 
 (a) Appeal Bond, Sureties on. 
 
 (6) Surety on Injunction Bond. 
 
 642. Status of Persons paying Taxes on 
 
 Mortgaged Property. 
 
XXX 
 
 CONTENTS. 
 
 CHAPTER XXX. 
 
 FAOES 
 
 Powers of a Cohkt and its Eeoeivek in Management of 
 
 Railway 638-683 
 
 Art. I. — In General. 
 
 § 643. Power of appointing Court ple- 
 nary in Regard to the Manage- 
 ment of the property. 
 
 644. Nature and Extent of Powers 
 
 exercised hy Eeceiver, how 
 determined. 
 
 645. Keceirers have only such Powers 
 
 as are conferred by Court. 
 
 646. Principles upon which Contract 
 
 Claims against Receivers will 
 be allowed or rejected. 
 
 647. Powers conferred on Appoint- 
 
 ment liberally construed. 
 
 648. Power of Court to cease run- 
 
 ning a Section of Composite 
 System. 
 
 649. Receiver's Right to revoke Run- 
 
 ning Powers given by Com- 
 pany to a Connecting Road. 
 
 650. Receiver authorized to take Lease 
 
 of another Road. 
 
 651. Limited Powers of Receiver ap- 
 
 pointed for Special Purpose. 
 
 652. Control over Property sometimes 
 
 reserved by Court after Sale. 
 Art. II. — Disposition of Trust Fund 
 DURiNO Receivership gen- 
 erally. 
 § 653. General Rule as to Expenses of 
 Management. 
 
 654. Claims against Receivership 
 
 should be paid before Ee- 
 ceiver discharged. 
 
 655. Expenses of Company after Ap- 
 
 pointment of Receiver not 
 Proper Charge on Property. 
 
 656. Expenses of Refunding Scheme, 
 
 when not allowed ex parte. 
 
 657. Expenses of canning out Reor- 
 
 ganization Scheme. 
 
 658. When the Payment of Interest 
 
 on Bonds will be ordered. 
 
 659. Property in Hands of Receiver 
 
 not exempt from Taxation. 
 
 660. General Principles on Allowance 
 
 of Operating Expenses in Re- 
 ceiver's Accounts. 
 
 661. Expenditures for Supplies. 
 
 § 662. Office Rent. 
 
 663. Interest on Money borrowed by 
 
 Receiver. 
 
 664. Interest paid on Bonds. 
 
 665. Expenditures usual in Business 
 
 with Dependent Road. 
 
 666. Expenditures to prevent Con- 
 
 struction of Rival Road. 
 
 667. Receiver's lower to purchase on 
 
 Credit. 
 
 668. Liabilities arising from Contracts 
 
 of Company adopted by Ee- 
 ceiver. 
 
 669. Liabilities arising out of Torts 
 
 incident to Operation of Road. 
 
 670. Compensation to Injured Em- 
 
 ployees. 
 
 671. Consolidated System adminis- 
 
 tered as Entirety. 
 
 672. Restoration of Earnings diverted 
 
 from Payment of Operating 
 Expenses during Receivership. 
 Art. III. — PowEE OF Receiver to raise 
 Monet for Operating Ex- 
 penses BY Issue of First- 
 lien Certificates. 
 § 673. Eeceiver cannot, on his own 
 Motion, contract Debts charge- 
 able upon Fund in Litiga- 
 tion. 
 
 674. Expenses of Management some- 
 
 times made First Lien on 
 Property by Order appointing 
 Eeceivei'. 
 
 675. General Principles upon which 
 
 Power to issue First-lien Cer- 
 tificates depends. 
 
 676. Purchasers take Property Subject 
 
 to Lien for Operating Expenses, 
 when. 
 
 677. Lien of Certificates when not 
 
 transferred to Proceeds of 
 Sale. 
 
 678. Issue of Certificates to pay Op- 
 
 erating Expenses may be au- 
 thorized without Consent of 
 Lien Creditors. 
 
 679. Dissent of some Parties inter- 
 
 ested a Material Circumstance. 
 
CONTENTS. 
 
 XXXI 
 
 § 680. Consent of Bondholders Pre- 
 requisite to Issue of First-lien 
 Certificates. 
 
 681. Notice should be given to Par- 
 
 ties interested. 
 
 682. Necessity for Issue must be 
 
 clearly established. 
 Art. IV. — Purposes for which First- 
 lien Certificates may be 
 
 ISSUED. 
 
 § 683. Funds required to keep Road in 
 Operation may be procured by 
 Issue of First-lien Certificates. 
 
 684. Issue of First-lien Certificates to 
 
 pay Taxes. 
 
 685. Issue of First-lien Certificates to 
 
 pay Back Claims for Labor, 
 Supplies, etc. 
 
 686. Issue of First-lien Certificates to 
 
 keep up Single Divisions of 
 Consolidated System. 
 
 687. Issue of First-lien Certificates to 
 
 pay for Construction Work 
 generally. 
 
 688. Certificates to pay for Construc- 
 
 tion Work cannot be made First 
 Lien on Road without Consent 
 of Prior Lienors. 
 Art. V. — Rights of Holders of Receiv- 
 er's Certificates. 
 § 689. Receiver's Certificates not Nego- 
 tiable Instruments. 
 
 § 690. Purchasers charged with Notice 
 of all Circumstances attending 
 Issue of Certificates. 
 
 691. Rank of Certificates depends on 
 
 Final Decree. 
 
 692. Negotiation and Sale of Certifi- 
 
 cates a Trust personal to Re- 
 ceiver. 
 
 693. Property is not liable for Pay- 
 
 ment of Receiver's Certificates 
 unless Proceeds come under his 
 Actual Control. 
 
 694. Purchasers not bound to see to 
 
 Application of Proceeds. 
 
 695. Rights of Purchasers not affected 
 
 by taking Collateral Security. 
 
 696. Bondholders, when estopped to 
 
 dispute Validity of Certificates. 
 
 697. Receiver, when estopped to dis- 
 
 pute Validity of Certificates. 
 
 698. Court, when bound to recognize 
 
 the Estoppel against Receiver 
 to dispute Validity of Certifi- 
 cates. 
 
 699. Amount recoverable by Holders' 
 
 Certificates. 
 
 700. Usury Laws applicable to Cer- 
 
 tificates. 
 
 701. Holders need not present Cer- 
 
 tificates for Payment before 
 Foreclosure Sale. 
 
 CHAPTER XXXI. 
 
 PAGES 
 
 Liabilities op Company and Receiver during Receiver- 
 ship 684-701 
 
 Art. I. — Liabilities of Company dur- 
 ing Receivership. 
 § 702. Contract Liabilities pf Company 
 suspended by Appointment of 
 Receiver. 
 
 703. Company's Liability in Tort 
 
 ceases after the Receiver as- 
 sumes Control. 
 
 704. Liability of Company, after be- 
 
 ing restored to Possession, for 
 Claims arising during Receiv- 
 ership. 
 Art. II. — Liabilities of Receiver. 
 § 705. Liability of Receiver that of 
 Common Carrier. 
 
 § 706. Liability of Receiver not usually 
 personal. 
 
 707. Receiver officially liable to Third 
 
 Persons for Torts of his Em- 
 ployees. 
 
 708. Receiver, whethersuable on Cause 
 
 of Action arising prior to Ap- 
 pointment. 
 
 709. Receiver's Liability for Injuries 
 
 to his own Employees. 
 
 710. How far Receiver is bound by 
 
 Company's Contracts generally. 
 
 711. Receiver succeeds to Company's 
 
 Rights as to Annulment of 
 Contracts. 
 
xxxu 
 
 CONTENTS. 
 
 § 712. What Contracts of Company 
 should be carried out by Re- 
 ceiver. 
 
 713. Contract Liabilities of Receivers 
 
 ill Regard to Leased Roads. 
 
 714. Withdrawal of Consideration of 
 
 Lease a Sufficient Ground for 
 renouncing it. 
 
 §715. 
 
 716. 
 
 Receiver cannot enjoy Benefit 
 of Contract without assuming 
 Burdens. 
 
 When Receiver's Liability, as 
 such, ceases. 
 
 CHAPTER XXXII. 
 
 PAOES 
 
 Compensation op Trustees, Receivers, and others, and At- 
 
 TOKNETS, IN Suits relating to Mortgaged Property 702-725 
 
 Art. I. — Personal Compensation of 
 Trustees, Receivers, etc., 
 FOR their Services. 
 § 717. Introductory. 
 
 718. Personal Compensation of Trus- 
 
 tees. 
 
 719. Amount allowed for Personal 
 
 Compensation of Trustee. 
 
 720. Apportionment of Compensation 
 
 between several Trustees. 
 
 721. Compensation of Discharged 
 
 Trustee. 
 
 722. Compensation of Successor of 
 
 Deceased Trustee. 
 
 723. Compensation of Representative 
 
 Bondholders. 
 
 724. Compensation of Receivers. 
 
 725. Method of determining a Re- 
 
 ceiver's Compensation. 
 Art. IL — Expenses of Trustees, Re- 
 ceivers, AND others. 
 § 726. Expenses of Trustees. 
 
 727. Expenses of Representative 
 
 Bondholders. 
 
 728. Expenses of Pledgees of Bonds. 
 
 729. Expenses of Receivers in Con- 
 
 duct of Litigation. 
 
 730. Expenses of Mortgagor in Con- 
 
 duct of Litigation. 
 
 731. Costs as between Different Mort- 
 
 gagees. 
 
 732. Costs of Unsecured Creditors 
 
 seeking to enforce Claims 
 against Receivers. 
 
 § 733. Sheriff's Fees. 
 734. Amount of Attorney and Coun- 
 sel Fees allowed in Foreclos- 
 ure Suit is in Discretion of 
 Court. 
 Art. III. — Out of what Funds Com- 
 pensation AND Expenses 
 IN Foreclosure Suits are 
 
 PAID. 
 
 § 735. Mortgaged Property must in 
 general bear Expenses of its 
 Administration in Court of 
 Equity. 
 
 736. Necessary Charges Lien on 
 
 Mortgaged Property. 
 
 737. Lien for Counsel Fees. 
 
 738. General Fund, when chargeable 
 
 and when not. 
 
 739. Liability of Prior Mortgagee for 
 
 Expenses of Suit by Junior 
 Mortgagees. 
 Art. IV. — Practice. 
 § 740. Proper Time to settle Compen- 
 sation and Expenses. 
 
 741. Trustee's Claim for Compensa- 
 
 tion and Expenses, how as- 
 . serted after Redemption of 
 Property. 
 
 742. Rehearing after Remand by Ap- 
 
 pellate Court. 
 
 743. Exceptions to Amounts allowed 
 
 by the Master, etc. 
 
CONTENTS. 
 
 XXXIU 
 
 CHAPTER XXXIII. 
 
 
 
 
 PAGES 
 
 FORECLOSnKB Dedrees . . . . 
 
 
 726-751 
 
 Art. I. - 
 
 -Provisions op Decree. 
 
 §754. 
 
 Decree may find Amount due 
 
 §744. 
 
 Conformity of Decree to Provi- 
 
 
 on Bonds, before Proof of 
 
 
 sions of Mortgage. 
 
 
 same. 
 
 74.'). 
 
 Conformity of Decree to Bill. 
 
 755. 
 
 Decree nisi may be rendered be- 
 
 746. 
 
 Conformity of Decree to Man- 
 
 
 fore Production of Bonds. 
 
 
 date of Appellate Court. 
 
 756. 
 
 Allowance of Time for Payment 
 
 747. 
 
 Provisions of Ordinary Foreclos- 
 
 
 of Amount found due. 
 
 
 ure Decree. 
 
 757. 
 
 Provision of Decree reserving 
 
 748. 
 
 Deficiency Judgments. 
 
 
 Control of the Property. 
 
 749. 
 
 Provisions of Decree foreclosing 
 
 758. 
 
 Modifications of Decree, and 
 
 
 Mortgage on Eoad in Posses- 
 
 
 what is Final Decree. 
 
 
 sion of Junior Mortgagee. 
 
 Art. II. - 
 
 — Effect of Decree. 
 
 750. 
 
 Provisions of Decrees directing 
 
 §759. 
 
 Effect of Foreclosure Decree 
 
 
 Sale subject to Liens. 
 
 
 generally. 
 
 751. 
 
 Provisions of Decree directing 
 
 760. 
 
 Conclusiveness of Decree. 
 
 
 Sale before Settlement of Con- 
 
 761. 
 
 Federal Courts bound by Deci- 
 
 
 troversies regarding Final Dis- 
 
 
 sion of State Courts respect- 
 
 
 position of Assets. 
 
 
 ing State Statutes. 
 
 762. 
 
 Decree preserving Lien of Un- 
 
 762. 
 
 Estoppel by Decree. 
 
 
 matured Part of Debt. 
 
 763. 
 
 Decree pro confesso. 
 
 753. 
 
 Decree ordering Trustee to sell 
 
 764. 
 
 Decree by Consent. 
 
 
 before Maturity of Bonds, 
 
 765. 
 
 Estoppel by Acquiescence in De- 
 
 
 though not authorized by 
 
 
 cree. 
 
 
 Trust Deed. 
 
 766. 
 
 Estoppel of Junior Lienor. 
 
 CHAPTER XXXIY. 
 
 Distribution of Proceeds op Foeeolostjre Sale 
 
 752-764 
 
 5 767. Introductory. 
 
 768. Master or other Person appointed 
 
 to make Distribution is bound 
 by Decree. 
 
 769. Lien Creditors, with some Excep- 
 
 tions, always preferred. 
 
 770. Holders of Equitable Debentures 
 
 entitled to share pari passu 
 with Legal Holders. 
 
 771. Undisputed Prior Claims may be 
 
 paid immediately. 
 
 772. When Distribution is to be made 
 
 according to Maxim " Equal- 
 ity is Equity." 
 
 773. Coupons usually payable pari 
 
 passu with Bonds. 
 
 774. Priorities between Bondholders 
 
 and Lenders of Money to take 
 up Coupons. 
 
 775. Priorities of Persons surrender- 
 
 ing Securities and thereby in- 
 creasing the Corporate Assets. 
 
 § 776. Priorities affected by Funding 
 Interest. 
 
 777. Relative Eank of Preferred Stock- 
 
 holders and Bondholders. 
 
 778. Judgments against Corporation 
 
 for Damages. 
 
 779. Priorities of Builder of Extension 
 
 of Road during Receivership. 
 
 780. Receiver's Operating Expenses 
 
 not payable out of Proceeds. 
 
 781. Amount recoverable by Pledgees 
 
 of Bonds. 
 
 782. Pledgee not entitled to share in 
 
 Proceeds when Pledge is ultra 
 vires. 
 
 783. Lienholder on Part of Road, 
 
 when entitled to be paid out 
 of whole Proceeds. 
 
 784. Surplus, after paying Bondhold- 
 
 ers, belongs to Unsecured 
 Creditors of Company. 
 
XXXIV 
 
 CONTENTS. 
 
 CHAPTER XXXV, 
 
 Sales of Mortgaged Peopertt 
 
 785. 
 786. 
 787. 
 
 788. 
 
 790. 
 
 Manner of Sale generally. 
 Sale of Property as Entirety. 
 Power of Court and Officers to 
 
 postpone Sale. 
 Conduct of Sale under Power in 
 
 Mortgage generally. 
 Sale under Power not postponed 
 
 till Number of Bonds justly 
 
 due ascertained. 
 Place of Sale. 
 
 
 PAGES 
 
 
 765-778 
 
 § 791. 
 
 Advertisement of Sale under 
 
 
 Power. 
 
 792. 
 
 Eeaerved or Upset Prices. 
 
 793. 
 
 Bids. 
 
 794. 
 
 Deposits of Bidders. 
 
 795. 
 
 Liability of Bidders for Loss 
 
 
 upon Resale. 
 
 796. 
 
 Payment in Bonds. 
 
 797. 
 
 Who may be Purchaser. 
 
 798. 
 
 Confirmation of Sale. 
 
 CHAPTER XXXVI. 
 
 Eights of Purchasers at a Sale of the Mortgaged Prop- 
 erty 779-807 
 
 Art. I. 
 
 § 799. 
 
 800. 
 
 801. 
 
 802. 
 
 Art. II. - 
 
 §803. 
 804. 
 
 805. 
 
 806. 
 
 807. 
 
 808. 
 
 809. 
 
 ■ Effect of Sale as eegakds 
 the mortgagok. 
 
 Corporation not dissolved by 
 Sale. 
 
 How far Rule affected by Stat- 
 utes permitting Purchasers to 
 incorporate. 
 
 Extent to which Liability of 
 Mortgagor Company ceases 
 ■with Foreclosure Sale. 
 
 Effect of Sale upon Rights of 
 Debtors and Creditors of 
 Mortgagor Company. 
 - Eights of Purchasers at 
 Foreclosure Sales. 
 
 Purchaser bound by Decree. 
 
 What passes to Purchaser at 
 Trustee's Sale. 
 
 Right to Municipal Aid does not 
 pass by Foreclosure Sale. 
 
 Purchaser's Right to Earnings 
 of the Road accumulated in 
 the Receiver's Hands. 
 
 Right to use Lands appropriated 
 by Company not lost by Non- 
 use of Mortgagor Company's 
 Franchises. 
 
 Statutory Eight to regulate 
 Tolls does not pass. 
 
 Exemption from Taxation some- 
 times passes to Purchaser. 
 
 § 810. The same Principle of Con- 
 struction is applied where the 
 Rights of Purchasers are de- 
 fined by Statute. 
 811. Vested Rights of Purchasers 
 cannot be impaired by Leg- 
 islation. 
 Art. III. — Liabilities of Purchasers 
 AT Foreclosure Sales. 
 § 812. Generally. 
 
 (a) Purchaser takes free from 
 
 •Subsequent Liens. 
 (6) Purchaser sometimes takes 
 free from Liens held 
 by Persons not Actual 
 Parties. 
 
 (c) Purchaser takes free from 
 
 Liens -which he had a 
 Right to suppose dis- 
 charged. 
 
 (d) Purchaser takes free from 
 
 Tax Lien sometimes. 
 
 (e) Purchaser takes subject to 
 
 Liens absolutely para- 
 mount by Statute. 
 
 (/) Purchaser takes subject to 
 Statutory Obligations as 
 to Operation of Road. 
 
 {g) Purchaser takes subject to 
 Obligations and Restric- 
 tions imposed by Mort- 
 gagor's Charter. 
 
CONTENTS. 
 
 XXXV 
 
 § 813. Contracts of Mortgagor Com- 
 pany are not, as a General 
 Rule, binding on its Successor. 
 
 814. Trust availing against Purchaser 
 
 avails against his Assignee. 
 
 815. Purchaser takes subject to Ven- 
 
 dor's Lien sometimes. 
 
 816. Assumption of Obligations in- 
 
 ferred from Fact of Purchase 
 under a given Decree. 
 
 817. Purchaser affected with Notice 
 
 of Proceedings in Foreclosure 
 Suit. 
 
 818. Liability of Purchaser by Rea- 
 
 son of its Occupation of Land 
 acquired by Mortgagor. 
 
 819. Assumption of Obligations in- 
 
 ferred from Agreements of 
 
 Kew Company or its Trans- 
 ferrers. 
 § 820. Purchaser not generally liable 
 for Mortgagor's Torts in Oper- 
 ation of Road. 
 
 821. Liability of New Company for 
 
 Damages caused by Operation 
 of Road by Trustees. 
 
 822. Liability of Purchasers for Dam- 
 
 ages caused by Operation of 
 Road by Receiver. 
 
 823. No Liability attaches to Pur- 
 
 chasers until Sale is con- 
 firmed. 
 
 824. Purchasers organizing as a New 
 
 Company not liable for Debts 
 of Mortgagor. 
 
 825. The Right of Redemption. 
 
 CHAPTER XXXVII. 
 
 Eemedies in Cases of Objections to Sales . 
 
 PAOZS 
 
 808-824 
 
 Art. I. — Stat of Sales by Injunc- 
 tion. 
 
 §826. 
 
 827. 
 
 828. 
 
 829. 
 
 830. 
 
 831. 
 
 832. 
 
 Art II. ■ 
 
 When Injunction will be 
 granted. 
 
 Sale not restrained merely be- 
 cause Mortgagee had no Right 
 to make it. 
 
 Sale not restrained if Defendant 
 capable of responding in 
 
 § 833. 
 
 834. 
 835. 
 
 Trustee's Sale not restrained be- 
 cause Amount of Bonds justly 
 due has not been ascertained. 
 
 Sale under Power in Mortgage 
 securing Bonds issued by Di- 
 rectors to themselves will be 
 restrained. 
 
 Sale restrained if Default caused 
 by Misconduct of Debtor's 
 Agent. 
 
 Sale when not restrained at 
 Instance of Junior Incum- 
 brances. 
 - Settino aside Foreclosure 
 Sales. 
 
 Methods of Procedure to vacate 
 Sales. 
 
 "Who may except to Sale. 
 
 Eight to Relief as affected by 
 Laches of Petitioner. 
 
 § 836. Errors in or prior to Decree not 
 reviewable on Motion to set 
 aside Sale. 
 
 837. Remedy by Annulment of Sale. 
 
 838. Declaring Purchaser a Trustee 
 
 equivalent to Annulment. 
 
 839. Confirmation of Fraudulent Sale 
 
 by Legislature. 
 
 840. Effect of declaring Sale void for 
 
 Fraud. 
 (a) As to Corporation itself. 
 {b) As to Bondholders and other 
 Creditors. 
 Art. III. — Grounds for vacating a 
 Sale. 
 § 841. Inadequacy of Price. 
 
 842. Actual Fraud. 
 
 843. Colhision between Tnistees and 
 
 Purchasers. 
 
 844. Collusion between Trustees and 
 
 Corporate Officers. 
 
 845. Collusion between Corporate 
 
 Officers and Combinations of 
 Bondholders. 
 
 846. Surprise, Mistake, etc. 
 
 847. Breach of Professional Duties 
 
 by Attorney. 
 
 848. Sale not set aside because same 
 
 Person is Trustee under both 
 Mortgages foreclosed. 
 
XXS.V1 
 
 CONTENTS. 
 
 § 849. Extension of Benefits of Eeor- 
 ganization to Bondholders 
 after Time for coining in has 
 passed not Ground lor invali- 
 dating Sale. 
 
 § 850. Foreclosure hefore Maturity of 
 Principal. 
 851. Excessive Amount of Judg- 
 ments. 
 
 CHAPTER XXXVIII. 
 
 PAGES 
 
 Appeals feom Deceees and Okdeks in Fobeclosuee Suits 825-840 
 
 Art. I. - 
 
 § 852. 
 853. 
 
 854. 
 855. 
 856. 
 857. 
 
 858. 
 
 859. 
 
 860. 
 
 861. 
 
 862. 
 
 Art. II. 
 
 864. 
 865. 
 866. 
 
 -jukisdiotion and parties to 
 
 Appeals. 
 Jurisdiction in general. 
 Jurisdiction of Supreme Court of 
 
 United States as dependent 
 
 on Amount involved. 
 Supersedeas Bonds. 
 Who may appeal in general. 
 Who cannot appeal in general. 
 Purchaser at Foreclosure Sale as 
 
 Appellant. 
 Appeals from Decrees against 
 
 Receivers. 
 Junior Incumbrancers as Appel- 
 lants. 
 Stockholders as Appellants. 
 Company as Party to Appeal. 
 Trustee as Party to Appeal. 
 — Appealable Deokees_ and 
 
 Ordees. 
 Consent Decrees. 
 Discretionary Orders. 
 Final Decrees in general. 
 Decree dismissing Cross-bill 
 
 not final. 
 
 § 867. Foreclosure Decree final. 
 
 868. Decrees final on Confirmation of 
 
 Sale. 
 
 869. Decrees setting aside Sales not 
 
 final. 
 
 870. Finality of Decrees providing 
 
 for Eeference to Master. 
 
 871. Appealability of Interlocutory 
 
 Orders. 
 
 872. Appeal from one of several 
 
 Decrees. 
 Art. III. — What Appeal bkings up foe 
 Revievit and Effect. 
 § 873. What Rulings of Lower Court 
 reviewable. 
 
 874. Rulings not prejudicial to Ap- 
 
 pellant not reviewable. 
 
 875. Objections not presented to 
 
 Lower Court not reviewable 
 on Appeal. 
 
 876. Effect of Appeal on Control of 
 
 Property. 
 
 877. Decree for Deficiency, when not 
 
 appealable. 
 
 CHAPTER XXXIX. 
 
 Railway Eeoeganizations, Eeconste0Ctions, and Compeomise 
 
 Ageeements 841-867 
 
 Art. I. — State Statutes governing 
 Reorganizations. 
 § 878. References to General Statutes 
 governing Reorganizations. 
 
 879. Purchasers organize subject to 
 
 certain Constitutional Pro- 
 visions. 
 
 880. Distinction between Incorpora- 
 
 tion and Organization of New 
 Company. 
 
 §881. 
 
 882. 
 
 Existing Companies not pre- 
 vented by General Reorganiza- 
 tion Statutes from purchasing. 
 Special Statutes governing Re- 
 organizations. 
 {a) As aifected by the United 
 
 States Constitution. 
 (b) Rule in Countries where 
 there is no Provision 
 against impairing the Ob- 
 ligation of Contracts. 
 
CONTENTS. 
 
 XXXVll 
 
 § 883. Statutory Provisions must be 
 strictly complied with by any 
 one taking Advantage of 
 them. 
 
 884. Statutes prohibiting Fictitious 
 
 Increase of Stock. 
 
 885. Statutes fixing Kate of Interest 
 
 on Loans. 
 
 886. Statutoiy Powers of a Majority 
 
 of Bondholders. 
 Art. II. — Mortgage Provisions gov- 
 erning Reorganizations. 
 § 887. Mortgage Provisions as to Dis- 
 tribution of Stock in New 
 Company. 
 888. Rights of Majority under Mort- 
 gage or Debenture Provisions. 
 Art. III. — Agreements between Par- 
 ties having Interests in 
 Mortgaged Property gov- 
 erning Reorganizations. 
 § 889. General Considerations. 
 
 890. Reorganization Agreements are 
 
 favorably viewed by the 
 Court. 
 
 891. Power of Majority of Bond- 
 
 holders under Agreement. 
 
 892. Subscribers to Agreement not 
 
 bound unless carried out sub- 
 stantially as made. 
 
 893. When Right to share in Benefits 
 
 of Scheme terminates. 
 
 894. Rights of Parties to Agreement, 
 
 when complete. 
 
 895. Reorganization: Trustee's Con- 
 
 trol of Scheme. 
 
 § 896. Power of Reorganization Com- 
 mittee to fix Date for Maturity 
 of New Issue of Bonds. 
 
 897. Discretion of Reorganization 
 
 Trustees as to Issue of Stock 
 in New Company. 
 
 898. Discharge of Liens of Creditors 
 
 participating in Schemes, 
 when inferred. 
 
 899. Bondholders accepting Preferred 
 
 Stock in New Corporation 
 give up their Rights as i 
 Creditors. 
 
 900. Restoration of Bondholder to his 
 
 Rights as Creditor, when prop- 
 erly refused. 
 
 901. "Who estopped to object to Re- 
 
 organization Scheme. 
 
 902. Plans held Equitable, or the 
 
 Contrary. 
 (a) Bondholders. 
 (6) Stockholders. 
 (c) Unsecured Creditors. 
 
 903. Rights of Stockholders after Re- 
 
 organization. 
 
 (a) Right to take Part in the 
 Management of the Prop- 
 erty. 
 
 (6) Right to join in Division of 
 Earnings. 
 
 904. Effect of Reorganization upon 
 
 Liabilities of Old Company. 
 
 905. Costs in England on Reconstruc- 
 
 tion. 
 
 906. In Conclusion. 
 
 Index 
 
 FADE 
 
 869 
 
TABLE OF CASES CITED. 
 
 THE FIGURES KEFEB TO PAGES. 
 
 Abbot v. Johnstown, &c. Ey. Co. 170 
 Abbott V. Jewell 84.3 
 
 Ableman v. Booth 652 
 
 Ackerson v. Lodi Branch R. Co. 461 
 
 Acres v. Mayne 843 
 
 Adams' Cotton Mills i;. Dimmick 4 
 
 Addison v. Lewis 587, 616, 633 
 
 Agar u. Life Assn. Co. 87 
 
 Agra & Masterman's Bank, In re 30 
 
 Agricultural Society v. Paddock 163 
 
 Ahem v. Evans 278 
 
 Alil V. Rlioades 10, 192 
 
 Alabama v. Montague 131, 143, 219 
 
 Alabama & Chatt. R. R. Co. v. Jones 
 
 413, 419, 426, 567 
 Alabama & Georgia Mfg. Co. r. 
 
 Robinson 408, 431, 731 
 
 Alabama Iron & Ry. Co. u. Anniston 
 
 L. & T. Co. 681, 682, 683 
 
 Alabama Nat. Bank u. Mary Lee C. 
 
 & R. Co. 243, 247, 471 
 
 Alabama Ry. Co., In re 844, 849, 855 
 
 Albert v. Grosvenor Invest. Co. 400 
 
 Albert Life Assn. Co., Re 844, 849, 855, 
 
 867 
 Alden v. Boston, H. & E. R. Co. 568 
 
 Alexander v. Atlantic, Tenn. & Ohio 
 
 R. Co. 72, 385 
 
 V. Central R. Co. of Iowa 397, 399, 
 
 459, 471, 487 
 Alexandria, &c. Ry. Co. v. Graham 184 
 Alexandria, Wasli. & Georgetown R. 
 
 Co. V. Alexandria & Wash. R. Co. 773 
 Allaire v. Hart.shorne 96 
 
 Allan V. The Manitoba & N. W. Ry. 
 
 Co. 463 
 
 Allen V. Central R. Co. 572 
 
 V. Dallas & W. Ry. Co. 96, 266, 
 
 517, 529, 534, 539, 541, 676 
 
 V. Dillingham 693 
 
 V. Montgomery & W. P. R. Co. 167, 
 
 176, 198, 202, 208, 768, 819 
 Allentown Nat. Bank, Appeal of 40 
 
 AUis V. Jones 26 
 
 American Biscuit Co. u. Klotz 524 
 
 American Bridge Co. u. Heidelbach 68, 
 
 496, 535 
 
 American L. & T. Co. v. East & W. 
 
 R. Co. 285, 286, 430, 458, 619 
 
 V. Toledo C. & S. R. Co. 516, 526, 
 
 527, 528 
 American Nat. Bk. v. American 
 
 Wood-Paper Co. 2, 43, 78 
 
 American Tabe, &c. Co. v. Ken. 
 
 Southern, &c. Co. 472 
 
 American Water Works Co. v. Farm- 
 ers' Loan & T. Co. 166, 196, 776 
 Ames V. N. 0., Mob. & Tex, R. Co. 40, 58, 
 
 853 
 
 V. Pacific Ry. Co. 651 
 
 V. Ry. Co. 855 
 
 V. Trustees of Birkenhead Docks 280 
 
 u. Union Pac. Ry. Co. 554, 555, 660, 
 
 561, 562, 625, 666, 673, 694, 698, 700 
 Ammaut v. New Alexandria Tpke. 
 
 Co. 165, 170 
 
 Amy !!. Supervisors 413 
 
 Anderson v. Gold Mine Co. .30 
 
 Andrews u. Nat. Foundry Co. 17, 25, 252 
 
 V. Smith 418, 427, 428, 429, 463, 546, 
 
 670 
 Anglo-American Leather Cloth Co., 
 
 Lim., In re 280, 603 
 
 Anglo-Australian Inv. Fin. & Land 
 
 Co., In re 4, 164 
 
 Ansted v. Land Co. of Australia 164 
 
 Antietam Paper Co. v. Chronicle 
 
 Pub. Co. 207 
 
 Arbuckle i-. Illinois Mid. Ry. Co. 273, 278 
 Arkansas River, Land, Town, & Canal 
 
 Co., et al. V. Farmers' Loan & T. Co. 
 
 et al. 6 
 
 Arms V. Conant 195 
 
 Armstrong v. Burkitt 213 
 
 Arnot V. Erie Ry. Co. 118, 125, 128 
 
 Arthur v. Cakes S.'iO 
 
 V. Pres. of Commercial Bk. 170 
 
 Ashbury Ry. Carriage, &c. Co. o. 
 
 Riche 121, 122 
 
 Ashley Wire Co. v. 111. Steel Co. 196 
 
 Ashuelot R. Co. v. Elliot 104, 317, 321, 
 322, 410, 80.5 
 Ashurst V. Montour Iron Co. 373 
 
 Astbury, Ex parte 342 
 
xl 
 
 TABLE OP CASES CITED. 
 
 Astor V. Westchester Gas Light Co. 167 
 Atchison, Top. & S. F. By. Co. v. 
 
 Fletelier 125, 128 
 
 Athenseum Society, In rs 86 
 
 Atkins V. Petersburg R. Co. 587, 630, 674 
 
 V. Wabash, St. L. & Pac. R. Co. 512, 
 
 519, 522, 538, 542, 553, 739 
 Atkinson v. JVIarietta & Cin. Ry. Co. 134, 
 
 170, 780 
 Atlantic City Water Works Co. v. 
 
 Read 84 
 
 Atlantic & Gulf B. Co. v. Allen 787 
 
 Atlantic, Tenn. & Ohio R. Co. u. Car. 
 
 Nat. Bk. 72 
 
 Atlantic Trust Co. v. The Vigilanion 
 
 et al. 196 
 
 Attorney-General v. Joy 842 
 
 V. Sittingbourne & Sheerness 
 
 Ry. Co. 548 
 
 V. Southern Minnesota Ry. Co. 49 
 
 V. W. Wisconsin R. Co. 49 
 
 Auerbach v. Le Sueur Mill Co. 29 
 
 Augusta Bank «. City of Augusta 107 
 Augusta, &c. R. Co. v. Kittel 188, 205 
 Aurora City v. West 78, 104, 107 
 
 Baass v. Chicago & N. W. R. Co. 464 
 Bailey v. Railroad Co. 36 
 
 Baily v. Smith 93 
 
 Bainbridge v. Louisville 108 
 
 Baker v. Guarantee T. Co. 84, 85, 87, 96, 
 
 181 
 Baldwin Investment Co. u. Bailey 408 
 Ballon V. Farnum 319, 320 
 
 Baltimore & L. Turnpike Co. v. Moale 280 
 Baltimore & Ohio Ry . Co. v. Gary 433, 434, 
 
 438 
 
 V. Gallahue 434 
 
 Baltimore Tr. & Guar. Co. v. Atlanta 
 
 Traction Co. 692 
 
 Range v. Flint 93 
 
 Bank v. Cheney 30 
 
 V. Tennessee 254 
 
 Bank of Ashland a. Jones 23, 127 
 
 Bank of Genesee u. Patchin Bank 126. 
 
 128 
 
 Bank of Little Rock v. McCarthy 189 
 
 Bank of Middlebury v. Edgerton 175 
 
 Bank of Montreal v. Chicago, C. & W. 
 
 R. Co. 642, 647, 678, 679, 680 
 
 V. Thayer 689 
 
 Bank of So. Australia v. Abrahams 181, 
 
 225 
 Banque Franco-Egyptienne v. Brown 52, 
 
 452 
 Barber v. Barber 416 
 
 Bardstown & Louisville B. Co. v. Met- 
 calfe 2, 3, 175, 190, 295, 394, 475, 477, 
 478, 731, 768, 775 
 Barnard, In re 577 
 
 Barnard v. Norwich, &c. Ry . Co. 224, 236 
 Barnes v. Chicago, Milw. & St, P. Ry. 
 Co. 293, 478, 818, 864 
 
 V. Mobile & N. W. R. Co. 45 
 
 Barney v. Latham 440 
 
 Barr v. New York, L. E. & W. K. Co. 28, 
 
 147, 150 
 Barrowes v. Molloy 392 
 
 Barry v. Merchants' E^ch. Co. 175 
 
 V. Missouri, K. & T. Ry. Co. 40, 58, 
 
 65, 66, 139, 368, 369, 441, 472, 478, 853 
 Barter v. Wheeler 319 
 Bartlett w. Keim 571 
 V. Northumberland Ave. Hotel 
 
 Co. 645 
 
 V. Tramways 769 
 
 V. West Met. Tramway Co. 509 
 
 Barton v. Barbour 268, 508, 573, 574, 593 
 Barton-upon-Humber & District 
 
 Water Co., In re 378 
 
 Batchelder v. Council Grove Water 
 
 Co. 381, 407 
 
 Batten v. Dartmouth Harbour Commrs. 
 
 708 
 
 V. Wedgwood Coal & Iron Co. 712, 
 
 720 
 Baughman, Petitioner, v. Superior 
 
 Court 840 
 
 Baxter v. Nashville, &c. Turnpike 
 
 Co. 165 
 
 Bayard, Appeal of 170 
 
 Bayles v. Kansas Pac. R. Co. 645 
 
 Bay liss K. Lafayette, &c. R. Co. 1 37, 612, 
 
 616, 635 
 589 
 290 
 
 Beach v. Miller 
 Beadleston v. Knapp 
 Beals V. 111., Miss. & Tex. R. Co. 487, 488, 
 
 741 
 Bear v. Burl., C. R. & M. R. Co. 274 
 
 Beardsley v. Ontario Bank 337 
 
 Beckwith v. Trustees 102 
 
 Beebe v. Richmond Light, Heat, & 
 
 Power Co. 12, 145, 175, 182, 192, 193, 
 300, 311 
 Beecher v. Marquette & Pac. Boiling 
 
 Mill Co. 24, 29, 33, 204 
 
 Beecher Ex. v. Chicago & N. W. R. 
 
 Co. 39 
 
 Beekman v. Hudson B., &c. Ry. Co. 
 
 208, 236, 405, 429, 472 
 Beers v. Wabash R. Co. 541, 550, 552, 559 
 Belden v. Burke 53, 84, 92, 292, 472 
 
 Belfast & Moosehead Lake R. Co. ;'. 
 
 City of Belfast 140, 141 
 
 Bell, In re 280, 603 
 
 Bell V. Chicago, St. Louis, & N. O. B. 
 
 Co. 178, 226, 742, 791 
 
 V. Ohio Life & Trust Co. 423 
 
 Belmont v. Erie By. Co. 34, 39, 540 
 
 Beloit V. Morgan 742 
 
 Bement v. Plattsburg & Montreal E. 
 
 Co. 261 
 
 Benedict v. Danbury & N. R. Co. 274 
 
 V. Heineberg 165 
 
 V. St. Joseph, &c. By. Co. 530, 636, 
 
 771 
 Benjamin v. Elmira, &c. By. Co. 207, 217, 
 224, 745, 746 
 Benson v. Heathon 147 
 
 Bergen v. Porpoise Fishing Co. 199, 260 
 Bessemer S. & 0. Co., In re 849 
 
TABLE OP CASES CITED. 
 
 xli 
 
 Beverly v. Brooke 506, 507, 547, 571, 688 
 Bibb !-•. Montgomery Iron Works 35 
 
 Bickford v. G. J. Ky. Co. 24, 162 
 
 Bifleld V. Taylor 476 
 
 Bill D. New Albany, &c. R. Co. 312, 417 
 Binkert v. Wabash Ry. Co. 217, 339, 792 
 Birdaall v. Russell 164 
 
 Birmingham, &c. R. Co., In re 509 
 
 BischoHslieim v. Brown 54 
 
 Black V. Delaware, &g. Canal Co. 165, 
 
 170 
 
 Blackburn v. Selma M. & M. R. R. 15, 
 
 422, 426, 435, 436, 437, 444, 774, 819 
 
 Blackman v. Lehman 78 
 
 Blau: V. St. Louis, H. & K. R. Co. 55, 514, 
 
 527, 666, 597, 602, 603, 6B5, 611, 
 
 613, 615, 635, 665, 716, 720, 774 
 
 V. St. Louis, K. & T. B. Co. 140, 156 
 
 V. Walker 744, 747 
 
 Blake v. Ala. & Chatt., &o. R. Co. 567 
 V. Board of Commrs. of Living- 
 ston Co. ■ 78 
 
 V. Pine Mt. Iron & Coal Co. 270, 614 
 
 Blakely Ordnance Co., In re 30 
 
 Blakert). Herts & Essex Water Works 
 
 Co. 378, 762 
 
 Blanchard v. Portland & Bumford 
 
 Falls R. Co. 137 
 
 Bleckley, Re 712 
 
 Blondheim v. Moore 525 
 
 Blood V. La Serena L. & W. Co. 196 
 
 Bloomer v. Union Coal, &c. Co. 178, 258 
 Blossom V. The Milwaukee, &c. Ry. 
 Co. 830, 838 
 
 0. Railroad Co. 738, 772, 775, 778 
 
 Blumenthal v. Brainerd 688 
 
 Board of Commrs. of Hamilton Co. v. 
 
 The State 243, 784, 842 
 
 Board of Supervisors v. Mineral Point 
 
 R. Co. 297, 487, 742 
 
 Boggs V. Lakeport Agri. Park Ass'n 196 
 Bondholders of York & C. R. Co., In re 
 
 284, 292 
 Bonner v. City of New Orleans 126 
 
 Boom Co. V. Patterson 438 
 
 Booth V. Brown 561 
 
 V. Clark 506, 522, 552, 642 
 
 Borden v. Croak, Admrx. 221 
 
 Borough of Portsmouth, &c. Tram- 
 ways Co., In re 378 
 Boss V. Hewitt 95 
 Boston & Co. V. Cliea. & Ohio R. Co. 277 
 Boston, Concord, & Montreal R. Co. 
 V. Boston & Lowell R. Co. 526 
 
 V. Gilmore 340 
 
 Boston & N. y. Air Line v. Coffin 183, 
 230, 232, 235, 476 
 Boston & Prov. R. Co. v. New York & 
 
 N. E. R. Co. 205, 532, 749, 797 
 
 Boston Safe Deposit Co. v. Chamber- 
 lain 710, 719 
 Boston Safe Deposit & Trust Co. r. 
 
 Groome 620, 668 
 V. Holders of $130,500 of Receiv- 
 ers' Certificates 620, 668 
 V. Hudson 280, 628 
 
 Boston & Worcester Ry. Corp. v. 
 
 Haven 723 
 
 Bostwick V. Brinckerhoff 739 
 
 Botsford V. New Haven, M. & W. R. 
 
 Co. 236, 274 
 
 Bound V. South Car. Ry. Co. 592, 593, 
 616, 618, 619, 622, 650, 730, 733, 735 
 Bowen v. Brecon Ry. Co. 379 
 
 Bower v. Breen Ry. Co. 384, 732 
 
 Boj'd u. Chesapeake & Ohio Canal 
 
 Co. • 367 
 
 V. Kennedy 78, 81 
 
 Boylan v. Kelly 843 
 
 Boyle 0. Bettws Llantwit Colliery 
 
 Co. 556 
 
 V. Zacharie 376 
 
 Bradford, Eldred, & Cuba R. Co. v. 
 
 N. Y., L. E. & W. R. Co. 121 
 
 Bradley v. Chester Valley R. Co. 302, 
 
 310, 373, 374, 414, 772 
 
 Brady v. Johnson 270, 861, 365, 366, 367 
 
 V. State 358, 361, 366, 498 
 
 Brainerd o. N. Y. & N. H. 11. Co. 78, 81 
 
 V. Peck & Colby 219, 228, 243 
 
 Branch v. Jesup 184 
 
 V. Macon & Brunswick 11. Co. 468, 
 
 469 
 Branch, Sons & Co. v. Atl. & Gulf R. 
 
 Co. 1, 158, 163, 177, 184, 268 
 
 Braslin v. Somerville Horse R. Co. 170 
 Brassey u. New York cSb N. E. R. Co. 
 
 529, 5.33, 540 
 Bridgeport City Bank v. Empire Stone 
 
 Dressing Co. 128 
 
 Brine v. Ins. Co. 806 
 
 Brinsley v. Lynton Hotel Co. 384, 730 
 Bristol & N. S. Ry. Co., In re 844 
 
 British Linen Co. u. So. American & 
 
 Mex. Co. 645 
 
 Brockert v. Cent. Iowa Ry. Co. 685, 686, 
 
 791 
 Brocklebank v. The East London R. 
 
 Co. 655 
 
 Brockway v. Innes 137 
 
 Bronson v. La Crosse cSb M. R. Co. 26, 
 
 155, 158, 207, 452, 454, 718, 724, 761, 
 
 827, 828 
 
 V. McKinzie 376, 378 
 
 V. Railroad Co. 453, 466, 467, 471, 
 
 834 
 
 V. Schulten 739 
 
 Brooks V. Railway Co. 274 
 
 V. Vermont Cent. R. Co. 46, 289, 
 
 293, 419, 430, 462, 570 
 Brooks & Hardy v. O'Hara Bros. 741 
 
 Brown, Ex parte 831 
 
 Brown v. Chesapeake & Ohio Canal 
 
 Co. 529 
 
 V. Comer 685 
 
 V. Duluth M. & N. R. Co. 17 
 
 V. New York & Erie R. Co. 612, 648 
 
 V. Ohio Val. Ry. Co. 614 
 
 V. State of Maryland, &c. 2, .", 168, 
 
 • i'. Toledo P. . 
 ■ V. Ward 
 
 328, 773, 810 
 I W. R. Co. 659, 698 
 97 
 
xlii 
 
 TABLE OP CASES CITED. 
 
 Brown v. Warner 693 
 
 Bruce v. Manchester, &c. Ry. Co. 413, 
 
 417, 826 
 Bruffett V. Great Western E. Co. 170, 781 
 Brunswick & Albany R. Co. «. Hughes 
 
 280, 302, 326, 772 
 Brunswick Gaslight Co. v. Brunswick 
 Gas Co. 368 
 
 V. United Gas, &c. Co. 172, 366 
 
 Buck V. Colbath 414, 418, 425, 430 
 
 V. Memphis, &c. Ry. Co. 247 
 
 V. Seymour • 219, 226, 228, 242 
 
 Buell V. Cin., E. & Q. Const. Co. 443 
 
 Buenos Ayres Water Supply Co., 
 
 In re 866 
 
 Buffalo V. Buffalo & N. T. City R. Co. 337 
 Buffalo L. T. & S. D. Co. v. Medina 
 
 Gas & E. L. Co. 28, 103 
 
 Buffalo, N. Y. & Phila. R. Co. v. Har- 
 vey 798 
 Bunting's Admrs. v. Camden & A. Ey. 
 
 Co. 79, 118, 385 
 
 Burgess v. Memphis, &o. R. Co. 274 
 
 Burke o. Dillingham 693 
 
 V. Shortt 741, 756 
 
 Burlington, &c. Ry. Co. v. Simmons 835 
 
 Burnhara v. Bowen 593, 596, 602, 603, 
 
 604, 606, 608, 611, 612, 618, 636, 661 
 
 V. Chicago, D. & M. E. Co. 439, 442 
 
 Burnley v. Stevenson 414 
 
 Burrowes v. Molloy 400 
 
 Burt V. Batavia Paper Mfg. Co. 792 
 
 V. Rattle 759 
 
 Burt, Boulton, & Co. v. Bull 689 
 
 Butler V. Edgerton 20 
 
 V. Myer 20 
 
 V. Rahm 83, 199, 203, 211, 217, 261, 
 
 46 L 
 Butterfield w. Cowing 299 
 
 V. Usher 835 
 
 Byers v. Union Trust Co. 319 
 
 Cake v. Woodbury 712 
 
 Caley v. Cobourg, P. & M. R. & M. 
 
 Co. 57 
 
 Calhoun v. Memphis, &c. Ey. Co. 231,268 
 
 V. St. Louis, &c. R. Co. 38, 601, 606 
 
 Cal. Safe Deposit Co. v. Cheney Elec- 
 tric Light, &c. Co. 396, 459 
 Cambrian Ry. Co.'s Scheme, In re 844 
 Camden Safe Deposit & Trust Co. v. 
 
 Burlington Carpet Co. 169, 186, 188 
 Cameron v. Tome 110, 757 
 
 Camp V. Barney 689 
 
 Campbell u. Argeuta, &c. Mining 
 
 Co. 204, 206 
 V. Compagnie Generate de Belle- 
 garde 645 
 
 V. Pitts & W. E. Co. 800, 802 
 
 0. Eailroad Co. 472, 476, 478, 485, 
 
 487, 490 
 
 K. Texas & New Orleans R. Co. 21, 
 
 101, 267, 335, 733, 768 
 
 Canada Southern R. Co. v. Gebhard 46, 
 
 47, 49, 847 
 
 Canal Co. v. Gordon 275 
 
 Cardos v. Barney 689, 690 
 
 Carey v. Houston & Texas Cent. R. 
 
 Co. 416, 421, 745, 824, 843, 866 
 
 Carpenter v. Blault Hawk Co. 175 
 
 V. Catlin 59, 858 
 
 V. Northern Pac. R. Co. 439 
 
 V. Rommel 83 
 
 Carr v. Le Fevre 79, 118 
 
 V. United States 470 
 
 Carrick v. Wigan Tramways Co. 708 
 
 Carswell v. Farmers' L. & T. Co. 699 
 
 Case V. Terrell 470 
 
 Casey o. Kortliern Pac. R. Co. 687 
 
 Cass County v. Chicago, B. & Q. E. 
 
 Co. 143 
 
 Caylus V. N. Y., K. & S. R. Co. 44, 155 
 Central Bank v. Empire Stone Dress- 
 ing Co. 126 
 Central Electric Co. v. La Grande 
 
 Edison El. Co. 460 
 
 Central Gold Mfg. Co. v. Piatt 210 
 
 Central Nat. Bank v. Hazard 797 
 
 Central Railroad Bk. Co. v. Georgia 845 
 Central R. & Bkg. Co. v. Pettus 717, 721 
 Cent. E. & Bkg. Co. of Ga. v. Farmers' 
 
 L. & T. Co. 620, 794 
 
 Central Transportation Co. v. Pull- 
 man Pal. Car Co. 150, 165 
 Central Trust Co. .;. Bridges 279, 413 
 
 V. Carter 856 
 
 V. Central Iowa Ry. Co. 263 
 
 V. Charlotte, C. & A. R. Co. 472, 622 
 
 V. Chattanooga, E. & C. R. Co. 566 
 
 V. Cliattanooga & Southern E. 
 
 Co. 603, 616 
 
 V. Cincinnati, J. & M. Ey. Co. 637, 
 
 710, 776, 777, 853, 862 
 
 V. Condon 208 
 
 V. East Tenn., &c. R. Co. 554. 555, 
 
 596, 624, 627, 643, 692, 760 
 
 V. Grant Locom. Works 739, 830, 
 
 832, 833 
 
 !'. Kneeland 235 
 
 V. Loaisville, St. L. & Texas R 
 
 Co. 264 
 
 V. Madden 627, 828 
 
 V. Marietta & North Ga. Ey. Co. 60, 
 
 187, 206, 668 
 
 V. Moran 357 
 
 V. New York E. Co. 29 
 
 V. N. Y. City & Northern E. 
 
 Co. 397, 398, 577, 654 
 
 V. Oiiio Central R. Co. 346, 347, 350, 
 
 698 
 
 V. St. Louis, A. & T. E. Co. 578, 
 
 579,603,612,827 
 
 V. Seasongood 303, 838 
 
 I'. Sloan 263, 687 
 
 V. Texas & St. Louis Ey. Co. 136, 
 
 274, 278, 312, 399, 485, 547, 574, 
 609, 612, 814 
 
 V. Thurman 583, 661 
 
 V. Toledo E. Co. 353 
 
 V. United States Rolling Stock 
 
 Co. 854 
 
TABLE OF CASES CITED. 
 
 xliii 
 
 Central Trust Co. v. Valley Ry. Co. 712 
 
 V. Wabash, St. Louis, & Pac. R. 
 
 Co. 132, 386, 418, 446, 468, 496, 
 502, 521, 551, 553, 554, 557, 571, 
 577, 502, 605, 609, 624, 635, 642, 
 649, 659, 663, 674, 676, 697, 698, 
 703, 709, 711, 719, 722, 724, 733, 
 748, 796 
 Central Trust Co., Trustee, v. Conti- 
 nental Iron Works 262, 264 
 Chaffe V. Ludeling 791 
 Chaffee v. Middlesex R. Co. 57, 104 
 
 V. Rutland & Burlington R. Co. 31, 
 
 38, 297, 759 
 Chamberlain v. Connecticut Cent. R. 
 Co. 401, 480 
 
 V. N. Y., Lake Erie, & W. R. 
 
 Co. 439, 685 
 
 V. St. Paul & S. C. R. Co. 44, 331, 333 
 
 Chambers v. Manchester & Milford 
 
 Railway Co. 2, 88 
 
 Chandler v. Gushing- Young Shingle 
 Co. 835 
 
 V. O'Neil, Delany, & Murphy 465 
 
 Chapin v. Vt. & Mass. R. Co. 78, 81 
 
 Chapman v. Borer 375 
 
 V. Pittsburg & S. R. Co. 226 
 
 Charlebois v. Great N. W. Central 
 
 Ry. Co. 149, 162 
 
 Charles, Exparte 575 
 
 Charlotte, C. & A. R. Co. v. Chester 
 
 & L. Narrow Gauge R. Co. 694 
 
 Chase v. Peck 211 
 
 Chattanooga Terminal Ry. Go. v. Fel- 
 
 ton 537, 538, 572 
 
 Cheever v. Rutland & Burlington Ry. 
 Co. 19, 71, 102, 103, 104, 187, 194, 284, 
 291, 301, 431, 479, 487,489, 535 
 Cherry v. North & Soulh R. Co. 277 
 
 Ches. & Ohio R. Co., Case of 487 
 
 Chesapeake & Ohio Ry. Co. v. Miller 786, 
 
 844 
 Chicago & Alton Ry. Co. v. Union 
 
 Rolling Mill Co. 455, 456, 830 
 
 Chicago, Danville, & Vincennes R. 
 
 Co. V. Fosdick 74, 77, 300, 393, 403, 404, 
 
 405, 407, 469, 472, 730, 738, 761, 769, 
 
 833, 840 
 
 V. Loewenthal 26, 99, 770 
 
 Chicago Deposit Vault Co. v. Mc- 
 
 Nulta 644, 648 
 
 Chicago & Erie R. Go. v. Towle 803 
 
 Chicago & I. R. Co. v. Pyne 74, 144 
 
 Chicago, Kansas, &c. R. Co. v. Hazels 842 
 Chicago, Mil. & St. Paul R. Co. o. 
 Keokuk Nat. Line Packet Co. 652 
 
 V. Pfaender 790 
 
 Cliicago & N. W. R. Co. V. Borough 
 
 of Fort Howard 341 
 
 Chicago & 0. R. Go. v. McCammon 796 
 Chicago Ry. Equipment Co. v. Mer- 
 chants' Bank 73 
 Chicago, St. Louis & New Orleans Ry. 
 
 Go. V. McGomb 27, 437, 440, 446 
 
 Chicago, St. Paul, M. & C. R. Go. v. 
 Lundstrom 802, 842 1 
 
 Cliicago & S. E. Ry. Co. v. Cason 
 
 515, 
 587 
 647' 
 
 Cliicago Title & Tr. Co. v. Smith 
 Chicago Title & Tr. Co., Rec, u. Cald- 
 
 weU 836 
 
 Chicago & W. I. R. Co. </. Dunbar 134 
 Chickering, In re 474, 490 
 
 Child V. New York & N. B. R. Co. Ill, 
 129, 756, 851 
 Cliittenden v. Brewster 423 
 
 Chouteau v. Allen 77 
 
 Christian v. Atl. & N. Car. R. Co. 469 
 Cincinnati City v. Morgan 326 
 
 Cincinnati, S. & G. R. Co. v Sloan 606, 
 536, 537, 837 
 City V. Lamson 106 
 
 City Bank, Ex parte 80 
 
 City of Bath v. Miller 225, 242, 361 
 
 City of Chicago v. Cameron 7, 14, 34, 
 
 744 
 City of Dubuque v. 111. Central R. 
 
 Co. 341 
 
 City of Menasha v. Milwaukee & 
 
 North R. Co. 793, 844 
 
 City of Palestine v. Barnes 165 
 
 City of Quincy v. Chicago, B. & Q. R. 
 
 Go. 178 
 
 City of Rochester v. Bronson 631 
 
 Glaflin v. Railroad Go. 262, 264 
 
 V. So. Carolina R. Go. 14, 68, 83, 
 
 90, 110, 112, 187, 191, 307 
 Clap V. Interstate St. Ry. Co. 521, 675 
 Clark V. Bever 5 
 
 V. Cent. Ry. & Bkg. Co. 619 
 
 V. Flint & Pere Marquette Ry 
 
 Co. 
 
 V. Iowa City 
 
 V. Reyburu 
 
 V. St. Louis, &c. R. Go. 
 
 V. Williamsport R. Go. 
 
 Clarke v. Cent. Ry. & Bkg. Co. 
 
 321 
 78, 106 
 
 410 
 314, 490 
 584, 595 
 542, 543, 
 557, 662 
 
 103 
 
 170 
 68, 499 
 
 V. Janesville 
 
 V. Omaha, &c. Ry. Co. 
 
 Clay y. E. Tenn. & V. R. Co. 
 
 Clay et al. v. Selah Valley Irrigation 
 
 Co. 358 
 
 Cleveland v. Booth 392 
 
 Cleveland, C. & S. R. Co. o. Knicker- 
 bocker T. Co. 663 
 Cleveland Iron Co. v. Ennor 52 
 Cleveland, cSbc. R, Co. v. Penn. 78 
 Clews & Go. u. First Mortgage Bond- 
 holders 332, 576, 748 
 Clokey v. Evansville & T, H. R. Co. 
 
 100, 127 
 Close V. Glenwood Gem. 29 
 
 Clyde V. Richmond & D. R. Go. 289, 460, 
 
 699 
 Glyne Tin Plate Co., In re 645 
 
 Coal Go. V. Blatchford 440, 471, 477 
 
 Cockcroft, Ex parte 828 
 
 Coddington v. Gilbert 23, 45 
 
 !'. Railroad Go. 157, 7-50, 814 
 
 Codman v. Vermont & Canada Ry. 
 Co. 19, 103, 104, 119 
 
xliv 
 
 TABLE OF CASES CITED. 
 
 Coe V. Columbus, P. & I. R. Co. 6, 20, 
 
 134, 155, 158, ld4, 170, 177. 180, 340, 
 
 367, 36a, 483, 495, 719, 754, 767, 769, 
 
 775, 782 
 
 V. Delaware, &c. Ry. Co. 208 
 
 V. East & W. E. Co. of Ala- 
 bama et al. 6, 18, 28, 207, 208, 
 264, 278 
 
 i;. Johnson 211 
 
 V. Knox County Bk. 268, -359 
 
 V. McBrown 211, 362 
 
 V. New Jersey Mid. By. Co. 21, 
 
 234, 260, 269, 295, 346, 356, 394 
 
 V. Peacoek 357, 359 
 
 V. Pennock 221, 344, 362, 363 
 
 Colegate v. Mich. & Lake Shore Ry. 
 
 Co. 837 
 
 Coleman v. Llanelly Ry. & Dock Co. 378 
 Coler V. Grainger Co. 549 
 
 CoUingham v. Sloper 55 
 
 Collins o. Central Bank 326 
 
 Colonial Trust Corp., In re 181, 370 
 
 Colorado Midi. Ry. Co. v. Jones 438 
 
 Colt V. Barnes 134, 328, 331, 332, 729 
 
 Columbia Finance, &c. Co. v. Ken- 
 tucky Union Ry. Co. 236, 467 
 Columbia, &c. Ry. Co. v. Gibbs 843 
 Col., H. & G. R. Co. V. Braden 252 
 Columbus, H. V. & T. By. Co. v. 
 
 Burke 53, 54 
 
 Combs V. Smith, Rec. 692 
 
 Comer v. Felton 696 
 
 Commercial Bank v. Great Western 
 
 Ry. Co. 2, 162 
 
 Commrs. w. Aspinwall 87, 107 
 
 Commrs. of Craven Co. v. Atl. & N. C. 
 
 R. Co. 2, 3, 19, 20 
 
 Commonwealth v. Central Passenger 
 Ry. 781, 782, 804, 843, 846 
 
 V. Chesapeake &Ohio Canal Co. 104, 
 
 106, 107, 112 
 
 V. Inhabitants of Williamstown 134 
 
 V. Lehigh Valley R. Co. 144 
 
 V. Louisville Tr. Co. 394 
 
 V. Owensboro & N. R. Co. 788 
 
 V. Smith 1, 16, 24, 91, 164, 170, 171, 
 
 175, 206 
 
 V. Susquehanna, &e. R. R. Co. 294, 
 
 309, 310, 311, 362, 367, 384 
 Company of Free Fishermen of 
 
 Faversham, In re 378 
 
 Compton V. Jesup 180, 215, 229, 422, 
 
 426, 733, 742, 766, 836, 864 
 
 Conant v. Nat. Ice Co. 843 
 
 Conkling v. Butler 563 
 
 Conn. M. Life Ins, Co. v. Cleveland, 
 
 C. & C. Ry. Co. 78, 104, 105, 117, 118, 
 
 123, 124, 128 
 
 Consolidated Assn. v. Avegno 95 
 
 Consolidated Kansas City Smelting &, 
 
 Refining Co., In the matter of 843, 845 
 Consolidated Tank Line Co. v. Kan- 
 sas City Varnish Co. 207 
 Continental Tr. Co. v. Toledo, St. 
 
 Louis, & K. C. R. Co. 560, 768, 843 
 Cook V Burley 427 
 
 Cooke V. Detroit & Mil. E. Co. 515, 803, 
 
 804, 805, 842 
 
 Cooley V. Brainerd 320 
 
 Cooper V. Corbin 339, 791, 792 
 
 V. Wolf 244 
 
 Cooper et al. v. Gabonry et al. 276 
 
 Coquard v. Bank of Kansas City 141 
 Corbett v. Woodward 1 94 
 
 Corcoran v. Chesapeake & Ohio Canal 
 
 Co. 71, 104, 385, 460, 487, 488 
 
 Cornwall Minerals Ry. Co. 353 
 
 Corp. of Quebec v. Quebec C. R. Co. 24 
 Cotton V. Imperial Agency 844 
 
 County of Beaver v. Armstrong 104, 105 
 County of Gloucester Bank v. Rudry 
 
 Merthyr, &c. 195, 220 
 
 County of Leavensworth v. Chicago, 
 
 R. 1. & Pac. R. Co. 395 
 
 County Commrs. of Hampshire, Pe- 
 titioners 320 
 County Court of Taylor Co. u. Bait. 
 
 & Ohio Ry. Co. 198, 434 
 
 Covey V. Pittsburgh, &c. Ry. Co. 166, 
 180, 199, 239, 240, 268 
 Covington & Lex. R. Co. v. Bowler's 
 
 Heirs 816 
 
 Cowdrey u. Galveston, H. & H. R. 
 
 Co. 655, 656, 657, 658, 713, 722 
 
 V. RaUroad Co. 539, 562, 563, 641, 
 
 642, 644, 709, 711 
 Cozart V. Georgia R. & Bkg. Co. 122, 126 
 Craig V. City of Vioksburg 78, 81 
 
 Crampton v. Zabriskle 84 
 
 Cranston v. Union T Co. 275 
 
 Crawford v. Houston & T. Cent. R. 
 
 Co. 701 
 
 Crawshay v. Soutter 8U4 
 
 Credit Co. o. Arkansas Cent. E. Co. 399, 
 405, 478, 487, 750, 769, 816 
 Cromwell v. Sac County 93, 95, 102, 103 
 Crosby v. New London, W. & P. R. 
 
 Co. 381 
 
 Crouch V. Credit Fonder 80 
 
 Crumlin Viaduct Works Co., In re 280 
 Crumlish's Admrs. u. Shenandoah 
 
 Val. R. Co. 655 
 
 Cumming v. Metcalfe's London Hy- 
 dro, Lira. 731, 807 
 Cunningham v. Macon & Brunswick 
 
 R. Co. 287, 468, 469 
 V. Penn., Slatington, & N. E. R. 
 
 Co. 23 
 
 Curtin v. Decker 437 
 
 Curtis V. Leavitt 204, 294, 304, 305 
 
 Cushman r. Benfield 849 
 
 Cutting, Ex parte 828, 8-32 
 
 Cutting V. Florida R. & Nav. Co. 560 
 
 V. Tavares, 0. & A. R. Co. 603, 618 
 
 Cutts r. Brainerd 688 
 
 Daggett v. Rankin 212 
 
 Damarin v. Huron Iron Co. 199 
 
 Daniels v. Hart 319 
 
 Da Ponte v. Northern Pacific R. Co. 2, 6, 
 
 192 
 
TABLE OP CASES CITED. 
 
 xlv 
 
 Davenport v. Eeceirers 528, 690 
 
 Davidson v. Mexican Nat. E. Co. 856 
 
 Davies v. Bolton & Co. 280 
 
 V. Vale of Evesliam Preserves 506 
 
 Davis V. Duncan 645, 670, 571, 685, 686, 
 687, 689, 691 
 
 V. Gray 416, 469, 606, 509, 557, 
 
 673, 674, 642 
 
 V. Old Colony R. Co. 121 
 
 V. Railroad Co. 568 
 
 Day V. Micon 435 
 
 V. Newark Mfg. Co. 436 
 
 V. Ogdensburgii & L. Champlain 
 
 Ry. Co. 69, 70, 369, 498 
 
 V. Syke8,Walker, & Co. 556 
 
 Dean v. Biggs 24.S 
 
 De Betz, Petition of 310, 472, 484 
 
 Decker v. Gardner 691 
 
 De Graff v. Thompson 497, 499, 500 
 
 De Graffenied v. Brunswick & Albany 
 
 R. Co. 573 
 
 De Grille, Houdret, & Co. u. Bull 689 
 De Kay v. Voorhis 32 
 
 Delaware, Lackawanna, & W. Ry. 
 
 Co. „. Erie Ry. Co. 509 
 
 i: Oxford Iron Co. 277 
 
 Denniston v. Chicago, A. & St. Louis 
 
 R. Co. 685 
 
 Denny v. Cleveland & Pitts. R. 66 
 
 Denver & R. G. Ry. Co. u. United 
 
 States T. Co. 312 
 
 De Ruyter v. St. Peter's, &c. Church 162 
 Des Moines & Fort Dodge R. Co. v. ' 
 
 Wabash, &c. R. Co. 265, 280 
 
 Des Moines Gas Co. v. West 31, 516, 534 
 Despatch Line, &c. v. Bellamy Mfg. 
 
 Co. 162, 187, 188, 191, 203 
 
 De Visser v. Blackstone 565, 566 
 
 Devon R. Co., In re 844 
 
 De Witt V. C, B. & Q. R. Co. 40 
 
 De Wolf V. A. & W. Sprague Mfg. 
 
 Co. 396 
 
 Dexter v. Long 197 
 
 V. Ross 842 
 
 V. Union Pac. Ry. Co. 645 
 
 Dexterviile Mfg. & Boom Co., In re 597 
 Dickey v. Bates 647 
 
 Dickson v. Swansea Vale & N. & B. 
 
 J. Ry. Co. 
 Dillingliam v. Hawk 
 
 V. Scales 
 
 Dillon i\ Barnard 
 
 r. Oregon, &c. R. Co. 
 
 Dimpfel v. Ohio & M. Ry. Co, 
 Dinsmore v. Duncan 
 V. Racine, &c. Ry. Co 
 
 30 
 575 
 693 
 132, 148 
 5-38 
 22, 204 
 78 
 228, 2.S2, 247, 
 250, 251 
 Dominion of Canada F. & T. Co., 
 
 In re 849 
 Doolittle, In re 550, 560 
 Dorn & McKee, Trs , o. Crank 670 
 Dougan v. Evansville & T. H. R. Co. 127 
 Douglass V. Cline 158, 496, 52.3, 684, 587, 
 598, 599, 612, 616, 688 
 Dow V. Beidleman 786 
 I). Iowa Cent. E. Co. 868 
 
 Dow V. Memphis & Little Rock R. Co. 68, 
 
 138, 388, 389, 390, 399, 600, 530, 531, 
 
 54.5, 548, 654, 577, 578, 697, 600, 616, 
 
 618,624,663,706,707,712 
 
 Downs V. Farmers' L. & T. Co. 785 
 
 Drury v. Cross 816, 822 
 
 V. Midi. By. Co. 799 
 
 Dubuque & Sioux City R. Co. v. 
 
 Pierson 296 
 
 Dudley v. Collier 285 
 
 Dummer v. Lindley 678 
 
 Duncan u. Atlantic, Miss. & Ohio R. 
 
 Co. 674, 705, 740, 771 
 
 V. Mobile & Ohio R. Co. 105, 107, 
 
 110, 298, 696, 630, 754, 706, 776 
 
 V. Trustees 584, 597, 615 
 
 Duncomb v. N. Y,, H. & N. R. Co. 2, 14, 
 
 24, 29, 33, 94, 96, 166, 762 
 
 Dunham v. Cinn., Peru, &c. Ry. Co. 73, 
 
 224, 628, 765 
 
 V. Earl et al. 242 
 
 V. Isett 64, 68, 177, 178, 268, 361, 496 
 
 Dupont V. Bushong 365 
 
 Durant v. Iowa County 101 
 
 Dutchess Co. M. Ins. Co. v. Hatch- 
 field 95 
 Dutenhoferi;. Adirondack R. Co. 12, 
 
 857, 860 
 Dwight V. Central Vt. E. Co. 428, 430 
 
 W.Smith 66,289,316 
 
 Dynevor D. & N. A. Collieries Co., 
 In re 849, 864 
 
 East Boston Freight Ry. Co. ;'. East- 
 ern R. Co. 170, 203, 234 
 
 V. Hubbard 12, 170 
 
 East Tenn., V. & G. R. Co. u. Atlanta 
 & Florida R. Co. 567 
 
 V. Frazier 627 
 
 Eastern Electric Cable Co. v. Great 
 
 Western Mfg. Co. 46, ?&2 
 
 Eastern & Midi. R. Co., In re. 35.3, 357, 
 370, 620, 6!I7, 865 
 Eastern Railroad, In re 288, 312 
 
 Eastern H. Co. v. Rogers 140 
 
 Eastern Township Bank r. St. Johns- 
 bury & L. C. R. Co, 119,127 
 Easton v. Houston & Texas Cent R. 
 
 Co. 613, 624, 695, 706, 713, 719 
 
 Eaton & Hamilton R. Co. v. Hunt 399, 
 
 422, 428 
 Eckfelt V. Starr 363 
 
 Edison Gen. El. Co. u. Edmonds 143 
 
 Edwards v. Edwards 501 
 
 V. Martin 392 
 
 !'. Standard Rolling Stock Syn- 
 dicate 370, 506, 582, 556 
 Eells V. Johann 136, 359 
 Elder v. Whitesides 5-50 
 Eldridge v. Smith 177, 220, 228 
 Elevator Co. v. Memphis & C. R. Co. 120 
 Elizabethtown, &c. R. Co v. Trustees 
 
 of Elizabethtown 341 
 
 Ellis V. Boston, H. & E. R. Co. 68, 497, 499, 
 
 601, 647, 599, 642, 694, 696, 697, 721 
 
xlvi 
 
 TABLE OP CASES CITED. 
 
 Ellis V. Vernon Ice Co. 594, 670 
 
 Ellsworth V. St. Louis, Alton, & Terre 
 
 Haute Ry. Co. 23, 26, 53, 87 
 
 Eimira Iron and Steel Rolling Mill 
 
 Co. V. Erie Ry. Co. 649 
 
 Elwell V. Eastern R. Co. 35 
 
 V. Fosdiek 49, 489 
 
 V. Grand Street, &c. Ry. Co. 204, 
 
 234 
 Emerson v. Eur. & N. Am. R. Co. 501 
 Emien v. Leliigh Coal & NaT. Co. 105 
 Empire Mining Co., In re 849, 855, 865 
 Eng. & Scot. Inr. Co. v. Brunton 265 
 
 Engel V. So. Met. Brewing Co. 645 
 
 English, Scottish, & Australian Char- 
 tered Banli, In re 850, 865 
 Enthoven v. Hoyle 81 
 Equitable T. Co. v. Fisher 289, 773 
 Erie Ry. Co. v. Del., Lack.& W. R. 
 
 Co. 507 
 
 Erskine v. Mcllrath 689 
 
 Ettlinger v. Persian Rug Co. 473 
 
 Earopean & N. Am. R. Co. v. Poor 147 
 Evans v. Boston Heating Co. 171, 191, 193 
 Evansville, H. & N. R. Co. u. Com- 
 monwealth 787 
 Evertson v. Nat. Bank of Newport 81, 
 104, 106, 107, 108, 109 
 Ewing V. Oroville Mining Co. 5 
 Exhall Coal Co., Lim., In re 280, 712 
 Exmouth Docks Co., In re 378 
 Express Co. v. Railroad Co. 696 
 
 Fahs v. Roberts 359 
 
 Fargo V. Oil Creek, &c. Ry. Co. 373 
 
 Farley v. St. Paul M. & M. R. Co. 659 
 Farhnger, &c.. In re 30 
 
 Farmers' L. & T. Co., Petitioner 833, 836 
 Farmers' L. & T. Co. v. Bankers' & 
 Merchants' Tel. Co. 631 
 
 V. Can. & St. Louis R. Co. 274 
 
 c. Candler 278 
 
 V. Cape Fear R. Co. 461, 514 
 
 V. Cary 243, 247 
 
 V. Central R. of Iowa 476, 489, 545, 
 
 559, 562, 570. 650, 689, 700, 701, 711 
 
 V . Central R. of Montana 487 
 
 — — V. Chicago R. Co. 699 
 V. Chicago & A. R. Co. 284, 285, 352, 
 
 399, 405, 423, 526, 599, 644, 738, 796 
 
 V. Chicago & N. P. R. Co. 286, 396 
 
 V. Chicago, P. & S. W. Ry. Co. 
 
 443, 445, 447 
 
 V. Commercial Bank 138, 239, 247, 
 
 251, 256, 267 
 
 V. Detroit, B. C. & A. R. Co 200, 
 
 626 
 
 V. Equity Gas Light Co. 192 
 
 V. Fisher 2.36 
 
 V. Grape Creek Coal Co. 670, 732 
 
 V. Green • 720 
 
 V. Green Bay, &c. Ry. Co. 395, 599, 
 
 624, 727, 777, 814 
 
 V. Harmony Ins. Co. 286 
 
 V. Hendrickson 200, 261, 337 
 
 Farmers' L. & T. Co. v. Houston & 
 Texas Cent. R. Co. 414 
 
 V. Hughes 288, 312 
 
 V. Iowa Water Co. 112, 190 
 
 V. Kansas City, &c. Ry. Co. 487, 
 
 507, 517, 523, 588, 595, 596, 603, 
 612, 615, 623, 686 
 
 V. McHenry 484 
 
 V. Missouri, 1. & N. Ry. Co. 268, 764, 
 
 866 
 
 V. Newman 739, 768, 815 
 
 V. N. Y., Lake Erie, & W. R. Co. 414 
 
 V. New York & Northern Ry. Co. 
 
 301, 395, 477 
 
 V. Northern Pac. R. Co. 290, 4B0, 511, 
 
 513, 560, 614, 626, 635, 636, 698 
 
 V. Nora Scotia Ry. Co. 398 
 
 V. Oregon & C. Ry. Co. 392, 740, 
 
 757, 768, 769 
 
 V. Oregon Pac. Ry. Co. 774, 778 
 
 V. Pine Blufl' R. Co. 46, 605, 623 
 
 V. Rockaway Valley R. Co. 18, 22, 
 
 27, 393, 745 
 
 V. St. Joseph, &c. Ry. Co. 248, 262, 
 
 340 
 
 V. San Diego St. Car Co. 5, 17, 239, 
 
 24.3, 396, 549 
 
 V. Staten Island Belt Line R. 
 
 Co. 640 
 
 V. Toledo, A. A. & N. M. Ry. Co. 26, 
 
 27, 28, 396, 695 
 
 V. Vicksburg & Meridian R. Co. 
 
 606, 615, 618, 632 
 
 V. Waterman 826, 828, 829 
 
 V. Winona & S. W. Ry. Co. 398, 
 
 459, 472, 532 
 Farmers' & Mechanics' Bank v. 
 
 Butchers' & Drovers' Bank 86, 187 
 
 Farmers' & Merchants' Nat. Bank 
 u. Waco Electric Ry. & Light Co. 27, 
 99, 431, 582, 765 
 Farrell v. Union T. Co. 320 
 
 Farwell v. Gt. Western Tel. Co. 644 
 
 Fauntleroy v. Hannibal 103 
 
 Fearing k. Clark 98 
 
 Felton V. Potomac Ins. Co. 366 
 
 Fernschild v. D. G. Yuengling Brew- 
 ing Co. 843, 853 
 Fidelity Ins. Co. v. Huntington 443 
 
 V. United N. J. R. & Canal Co. 314, 
 
 490 
 
 V. West Pa., &c. R. Co. 10, 18, 26, 27, 
 
 30, 33, 112 
 Fidelity Ins. & T. Co. v. Norfolk & 
 West. R. Co. 624 
 
 I). Roanoke Iron Co. 670 
 
 Fidelity T. Co. v. Mobile St. R. Co. 459, 
 
 819 
 Fidelity Tr. Co. v. Shenandoah Val. 
 R. Co. 61, 161, 187, 291, 297, 298, 307, 
 350, 611, 620, 6.33, 653 
 Fifth Nat. Bank of Pittsburgh v. 
 Pitts. & Castle Shannon R. Co. 510, 
 540, 571 
 Fifty-four first Mortgage Bondhold- 
 ers, In re 558, 647 
 
TABLE OF CASES CITED. 
 
 xlvii 
 
 Filon V. Miller Brewing Co. 124 
 
 Finance Co. of Penn. v. Charleston, 
 &e. Ry. Co. 280, 512, 607, B23, 691, 716, 
 
 760 
 First Division of St. Paul, &c. R. Co. 
 
 V. Parcher 178, 788, 790 
 
 First Nat. Bank, &e. v. Commrs. 95 
 
 First Nat. Banlc of Cleveland v. Shedd 47, 
 461, 487, 489, 734, 737, 834, 836 
 First Nat. Bank of Jeffersonville, Ind,, 
 V. Ohio Falls Trolley Car & Loco- 
 motive Works 77 
 First Nat. Bank of North Bennington 
 
 V. Bennington 103 
 
 First Nat. Bank of Montpelier v. 
 Sioux City Term. R. & Warehouse 
 Co. 18, 190, 196 
 
 First Nat. Bank of Salem v. Ander- 
 son 244 
 
 u. Salem Capital Flouring Mills 
 
 Co. 421 
 
 First Nat. Fire Ins. Co. v. Salisbury 
 
 308, 311, 397, 399, 472, 487 
 Fisher v.'B. & 0. Ry. Co. 843 
 
 Fisk V. Potter 261, 270, 272 
 
 Fitchett V. North. Penn. R. Co. 105, 109, 
 
 385 
 Fleming, Ex parte 812 
 
 Fletcher v. Rutland, &c. R. Co. 290, 292 
 Flint & Marquette River R. Co. v. 
 
 Dewey 147 
 
 Florida v. Anderson 311, 330, 334, 374, 
 
 380 
 
 V. Jacksonville, P. & M. R. Co. 552 
 
 Floyd Acceptances Case 157 
 
 Fogg V. Blair 5, 263, 623, 753 
 
 l''ollit V. Eddystone Granite Quarries 51, 
 
 849 
 Forbes v. Memphis, El Paso, & Pac. 
 R. Co. 470, 532 
 
 V. San Rafael Turnpike Co. 197 
 
 Ford V. Central Tr. Co. 594 
 
 V. Earl of Chesterfield 708 
 
 ii. Kansas City, &c. Ry. Co. 509 
 
 Fordyce v. Dubose 625 
 
 Foreman v. Cent. T. Co. of New York 625 
 Forrest Exrs. v. Luddington 330, 331, 
 426, 428, 465, 470 
 Fort Payne Furnace Co. v. Fort Payne 
 
 C. & I. Co. 520 
 
 Fort Wayne, M. & C. R. Co. v. Mel- 
 
 lett 571 
 
 Fosdick w. Car Co. 346, 353, 798 
 
 V. Schall 38, 268, 271, 345, 346, 349, 
 
 3r,-\ 354, 453, 496, 525, 547, 584, 585, 
 
 587, 588, 589, 590, 591, 593, 594, 596, 
 
 599, 601, 604, 606, 608, 61.5, 616, (il8, 
 
 619,620,631,642, 760 
 
 !■. Sturges 20 
 
 Foster v. Mansfield, C. & L. M. R. Co. 421, 
 
 749, 812 
 Fountaine v. Carmarthen Ry. Co. 30 
 
 Fowler V. Jarvis Conklin Mortgage 
 Co. 542, 543, 557 
 
 V. Strickland 93 
 
 Fox V. Hempfleld R. Co. 417 
 
 Fox V. Seal 150, 792 
 
 Frank v. Denver & Rio Grande R. Co. 
 
 137, 270, 345, 346, 348, 353, 560, 
 620, 660, 697 
 
 V. Hicks ^04 
 
 V. N. Y., Lake Erie, & W. R. Co. 
 
 495, 794 
 Fraser v. Cooper, Hall, & Co. 461 
 
 Frayser's Admrs. v. Richmond & A. 
 
 R. Co. 501 
 
 Frazier v. Railway Co. 167 
 
 V. East Tenn., V. & G. R. Co. 169, 
 
 279, 613, 626, 793 
 Freedman's Savings & Tr. Co. v. Shep- 
 herd 496 
 Freeman v. Howe 222, 413, 415, 421, 426, 
 
 444 
 Fries v. So. Penna. R. & Mining Co. 799 
 Fripp V. Chard, &c. Ry. Co. 509 
 
 Fuld V. Burr Brewing Co. 124 
 
 Fullerton v. Fordyce 691 
 
 Furness v. Caterham Ry. Co. 280, 732 
 
 Gaeert v. Olcott 549 
 
 Gage !>. Pontiac, 0. & N. R. Co. 793 
 
 Gaines v. Fuentes 438 
 
 Galena & Chicago Union R. Co. v. 
 
 Menzies 67, 246, 501 
 
 Galena & S. W. R Co. v. Barrett 74, 113 
 Gait V. Erie & N. R. Co. 270 
 
 Galveston, H. & Henderson Ry. Co. 
 
 V. Cowdrey 68, 82, 96, 169, 194, 22.3, 
 224, 271, 473, 496, 497, 500, 623 
 Gamble v. Queen's County Water 
 
 Co. 14, 20 
 
 Gardner v. Butler 147 
 
 w.London,C. &D. Ry. Co. 257, .'!70, 
 
 509, 556, 641 
 Garrett v. May 6, 70 
 
 Gasquet v. Fidelity Trust Co. 322 
 
 Gates V. Boston & N. Y. Air Line R. 
 
 Co. 47, 49, 76, 303, 409, 847 
 
 Geddes v. Toronto St. R. Co. 12 
 
 Gelpcke v. City of Dubuque 78, 105 
 
 General Assets Purchase Co. v. Ches- 
 terton Coal Co. 645 
 Gen. Prov. Assn. Co., In re 87, 88, 262 
 Gen. So. Am. Co., In re 87, 88, 258. 263, 
 
 280, 603 
 George v. St. Louis Cable & W. K. 
 
 Co. 609 
 
 Georgier v. Mieville 81 
 
 Germania Safety Vault & Trust Co. 
 
 V. Boynton 29 
 
 Gernsheim v. Central T. Co. 860, 862 
 
 Gibbs V. Greenville & C. R. Co. 35, 37, 
 
 59, 62, 296, 330, 334, 658 
 
 GiV)ert v. Washington City, &c. R. 
 
 Co. 104,112,184,296,496,499,641, 
 
 649, 675, 770 
 
 Gibson v. Bruce 437 
 
 I'. Lenhart 83 
 
 V. Richmond, &c. R. Co. 287, 375 
 
 Gilbough V. Norfolk & P. R, Co. 83, 108 
 Gilchrist v. Helena, &c. Ry. Co. 200 
 
xlviii 
 
 TABLE OF CASES CITED. 
 
 Giles V. Nuttall 645 
 
 V. Stanton 625 
 
 GilfiUan c. Union Canal Co. 48, 846 
 
 Grilman ». Des Moines Valley R. Co 718 
 
 V. Illinois & Miss. Tel. Co. 68, 372, 
 
 496, 499, 607, 543, 648 
 
 V. Perkins 426 
 
 V. Sheboygan & Fond du Lac R. 
 
 Co. 799, 844 
 
 Oilman & Cowdrey u. Des Moines 
 
 Val. R. Co. 705 
 
 Girard Life Ins. Co. v. Cooper 644, 695 
 Gladwin v. Hitchman 392 
 
 Gloninger v. Pittsburgh & Connells- 
 
 ville R. Co. 4, 10, 166, 203 
 
 Godfrey v. Ry. Co. 686 
 
 Gooderham v. Toronto, &o. Ry. Co. 583 
 Goodlett V. Louisville & Nashville Ry. 
 
 Co. 434 
 
 Goodman v. Harvey 96 
 
 V. Simonds 96 
 
 Goodwin v. Roberts 78, 81 
 
 Gordon v. Gilfoil 428 
 
 V. Longest 445 
 
 V. Newman 680, 811 
 
 V. Preston 162 
 
 Gorringe v. Irwell India Rubber, &c. 
 
 Co. 280 
 
 Goshorn v. Supervisors 434 
 
 Gould V. Town of Sterling 157 
 
 Government Stock Invest. Co. v. Ma- 
 nila R. Co. 258, 280, 372, 493 
 Gower v. Winchester 806 
 Graham v. Chamberlain 744 
 
 V. Chapman 692 
 
 V. Railroad Co. 26, 207 
 
 Grahams v. Boston, H. & E. R. Co. 25, 
 169, 195, 202, 417, 420, 442, 467, 
 812, 814 
 Grand Rapids & Ind. R. Co. v. San- 
 ders 93, 97, 105 
 Grand Tower, &c. Co. ». Ullnian 321 
 Grand Trunk Ry. Co. u. Cen. Ver- 
 mont R. Co. 69, 614 
 
 V. Corp. 30 
 
 Grant v. Hartford & N. H. R. Co. 142 
 
 V. Phoenix Ins. Co. 739 
 
 Grant et al. v. East & West R. Co. of 
 
 Alabama et al. 5, 18 
 
 Grape Creek Coal Co. </. Farmers' L. 
 
 & T. Co. 221, 231, 407, 731 
 
 Gravenstine, Appeal of 514 
 
 Gray v. Manitoba & N. W. Ry. Co. 463, 
 
 701, 766 
 Great Luxembourgh R. Co. v. Mag- 
 
 enay 147 
 
 Great Northern Ry. Co. v. Tabourden 357, 
 
 370 
 Great Western Tel. Co. v. Gray 467 
 
 Greeley v. Provident Sav. Bank 664 
 
 Green v. Coast Line R. Co. 136, 626 
 
 i>. Fisk 739 
 
 Green Bay & Minn. R. Co. u. Union 
 
 Steamboat Co. 123 
 
 Greenpoint Co. v. Whitin 193 
 
 Greensburgh, &o. Co. v. McCormick 166 
 
 Greenwood v. Algeciras Ry. 280, 667 
 
 Gregg V. Sanford ^ 248 
 
 Griffin V. Macon Co. 108 
 
 Griffith V. Burden 78 
 
 V. Pound 461 
 
 Griggs c. Banks 132 
 
 Grinnell v. Trustees, &c. 162, 770 
 
 Grissell, Ex parte 630 
 
 Griswold v Central Vermont R. Co. 568 
 Guarantee Trust & Safe Deposit Co. 
 
 V. Duluth & Winnipeg R. Co. 467 
 
 Guaranty T. Co. v. Green Cove R. 
 
 Co. 399, 425, 738 
 
 Gue V. Tidewater Canal Co. 165, 170, 
 
 366, 3U7 
 Guignon v. Union T. Co. 705, 713 
 
 Guilford v. Minneapolis, Ste. Marie, 
 
 & A. E. Co. 44, 80, 406 
 
 Guion V. Liverpool, Lon. & Globe 
 
 Ins. Co. 828 
 
 Gulf, Col. & S. F. R. Co. V. Morris 170, 
 
 780 
 Gumbel v. Pitkin 549 
 
 Gurney v. Atl. & Gt. Western Ry. 
 
 Co. 616, 674, 716 
 
 Hack v. Chi. & G. S. R. Co. 440, 441 
 
 Hackensack Water Co. v. De Kay 78, 84, 
 85, 88, 474 
 Hackettstown Nat. Bank u. D. G. 
 
 Yuengling B. Co. 51 
 
 Hagan v. Lucas 413, 415 
 
 Haiglit V. Pittsburg, &c. Ry. Co. 78 
 
 Haima e/a/. y. State Tr. Co. 594 
 
 Hale U.Frost 612 
 
 V. Nashua, &c. R. Co. 288, 478, 677 
 
 Hale, Ayer, & Co. i/. Burlington, &c. 
 
 R. Co. 277 
 
 Halev V. Halifax St. R. Co. 162, 507 
 
 Hall V. Mill Co. 276 
 
 V. Mobile & Montgomery R. Co. 795 
 
 V. Sullivan R. Co. 169, 170, 175 
 
 Hamilton v. Chouteau 566 
 
 V. New Castle & Danville R. Co. 3 
 
 Hamlin o. European, &c. Rv. Co. 232, 
 
 236 
 
 V. Jerrard 201, 246, 268 
 
 Hammock v. Farmers' L. & T. Co. 200, 
 339, 510, 567, 568 
 
 Hammond v. Atlee 
 
 V. Port Royal & A. Ry. 
 
 Hammons v. Barclay 
 Haraor v. Eastern Ry. Co. 
 Hampshire Land Co., Jn re 
 Hancock v. Toledo, Peoria, 
 bash R. Co. 
 
 Co. 
 
 716 
 
 802 
 
 137 
 
 35 
 
 30 
 
 & Wa- 
 
 64, 866 
 
 Hand v. Savannah & Charleston R. 
 
 Co. 105, 113, 329, .334, 470, 618, 
 
 658, 662, 715, 721, 722, 723, 735, 
 
 736, 753, 766, 758, 761, 762, 775, 7C0 
 
 Handley v. Stutz 5 
 
 Handy v. Cleveland & M. R. Co, 542 
 
 Hanna et al. v. State Tr. Co. et al. 463, 
 
 670, 673 
 Hannibal o. Fauntleroy 103 
 
TABLE OP CASES CITED. 
 
 xli 
 
 340 
 466, 816, 822, 
 843 
 Harrisburgh & E. E. Co., Appeal of 
 
 Hardesty v. Pyle 
 Harpending v. Munson 
 
 Harrison v. Annapolis & E. Ry. Co. 
 
 297, 
 490 
 30, 
 773 
 280 
 124 
 
 V. Cornwall Minerals R. Co. 
 
 V. Union Pac. Ry. Co. 
 
 V. Union T. Co. 290, 313 
 
 Harrison et ux. v. Lexington & F. R. 
 
 Co. 
 
 Harrison Wire Co. v. Wheeler 
 Hart V. Barney & Smith Co. 
 
 V. Eastern Union R. Co. 
 
 Harwood v. Railroad Co. 
 
 Hassall v. Wilcox 
 
 Hatcher v. Toledo, &c. By. Co. 
 
 235 
 418 
 345, 547 
 257,383 
 480, 814 
 279, 826 
 135, 169, 
 177,790 
 186, 493 
 272 
 
 Haven v. Adams 
 
 V. Emery 
 
 V. Grand Junction R. & Depot 
 
 Co. 7^, 105, 110, 757 
 
 Hawkins v. Mitchell 385 
 
 Hawkins et al., Trustees, u. Mercan- 
 tile T. & D. Co. 229 
 Haxton v. Bishop 162 
 Hay V. Alexandria & W. Ry. Co. 305, 416, 
 429, 430, 437, 818 
 
 u. Swedish & Norwegian Ry. Co. 52 
 
 Hayden v. Androscoggin Mills 436 
 
 Havden, Trustee, v. Lincoln City El. 
 
 R. Co. 96, 213 
 
 Hayes v. Columbus L. & M. Ry. Co. 679 
 Haywood v. Lincoln Lumber Co. 532 
 
 Hazard v. Vermont & Can. R. Co. 252 
 Hebberd v. Southwestern Land & Cat- 
 tle Co. 27 
 Heidritter v. Oil Cloth Co. 425 
 Heinsheimer v. Dayton, &c. Ry. Co. 25, 
 88, 517, 526, 530 
 Hendee v. Pinkerton 163, 165, 166, 170, 
 
 189 
 Henderson v. Walker 685, 692 
 
 Henen's Admr. u. Balto. & Ohio R. 
 
 Co. 435 
 
 Henry Pound, In re. See Pound. 
 Hercules Ins. Co., In re 88 
 
 Heme Bay Waterworks Co., In re 379 
 Herring v. New York, Lake Erie, & 
 
 West. Rv. Co. 467, 557, 746 
 
 Hervey v. 111. Midi. Ry. Co. 187, 195, 204, 
 
 207, 285, 440, 445, 447, 510, 518, 523, 
 
 633,608,671 
 
 V. Rhode Island Locomotive 
 
 Works 349, 350 
 
 Heryford v. Davis 849, 350 
 
 Hibblewhite v. McMorine 81 
 
 Higgins, In re 550 
 
 Higgins V. Lansing 89, 94 
 
 Highland Ave. & Belt E. Co. v. 
 
 Thornton 657 
 
 Hiles V. Case 597, 624 
 
 Hinchman v. Point Defiance Ry. Co. 229, 
 
 242 
 Hinckley, In re 742 
 
 Hinckley v. Oilman, C. & S. By. Co. 830, 
 
 836 
 
 V. Morton 742 
 
 V. Railroad Co. 557, 563, 640, 703, 
 
 711 
 Hitchcock V. Midland Ry. Co. of New 
 
 Jersey 859 
 
 Hodder v. Kentucky, &c. Ry. Co. 83, 179, 
 
 183, 189, 191, 194, 407 
 
 Hodges V. Shuler 78 
 
 Holland ik Lee 22 
 
 V. State of Florida 287 
 
 Holland Tr. Co. v. Cons. Gas Co. 539 
 
 Hollins V. Brierfield Iron & Coal Co. 470 
 Hollister v. Stewart 298, 301, 313, 485 
 Holman v. Galv., H. & S. A. Ry. Co. 688 
 Holmes, Booth, & Haydens u. Wil- 
 
 lard 122, 123 
 
 Holroyd v. Marshall 222 
 
 Home Ins. Co. v. Morse 437 
 
 Hood V. First Nat. Bank of Tremont 533 
 Hook V. Bosworth 548 
 
 Hooper v. Central T. Co. 63, 593, 670 
 
 V. Savannah, &c. Hy. Co. 269 
 
 V. Western Counties Tel. Co. 844 
 
 Hoover v. Montclair & Greenwood 
 
 Lake R. Co. 667, 671 
 
 Hope V. Croydon & Norwood Tram- 
 ways Co. 379, 732 
 Hornsby v. Eddy 693 
 Hotchkiss V. Nat. Banks 95, 164 
 
 t. Tradesman's Nat. Bk. 154 
 
 Hotel Co. V. Wade 205, 475 
 
 House Imp. Supply Assn., In re 64o 
 
 Houston, E. & W. T. Ry. Co. v. Kel- 
 ler 803, 860 
 Houston & Tex. Cent. R. Co. v. Craw- 
 ford 795,802,803 
 
 0. Kelly 803 
 
 0. McFadden 803 
 
 V. Shirley 170, 843 
 
 V. Stycharski 575,803 
 
 Hovelman u. Kan. City Horse Ry. 
 
 Co. 252 
 
 How V. Jones 836 
 
 Howard «. Iron & Land Co. of Minn. 212, 
 
 449, 450, 451, 452 
 
 V. La Crosse and Milwaukee R. 
 
 Co. 643, 544, 545 
 
 V Patent, &c. Co. 181 
 
 Howe V. Freeman 222, 268, 414 
 
 V. Harding 700 
 
 Howe, Brown, & Co. v. Sanford Fork 
 
 & Tool Co. 200 
 
 Howell V. Western R. Co. 409, 730, 738 
 Hoyle V. Plattsburgh, &c. Ry. Co. 337 
 Hubbard v. N. Y. & Harlem R. Co. 78, 81 
 Hubbell «. Syracuse Iron Works 564 
 
 Hubbuck V. Helms 370, 609 
 
 Hudson, Ex parte 2!50 
 
 Huff V. Winona & St. Peter R. Co. 804 
 Hughes V. Chicago, Mil. & St. P. Ry. 
 
 Co. 288 
 
 Huidekoper u. Hinckley Locom. 
 
 Works 354, 620 
 
 Hull, In re 280 
 
TABLE OP CASES CITED. 
 
 Humboldt Mining Co. v. Am. Mfg. 
 
 M. & M. Co. 120 
 
 V. Variety Iron Works Co. 121 
 
 Humphreys v. Allen 637, 664, 682 
 
 V. McKissock 258, 254 
 
 V. Morton 64, 104, 754 
 
 u. New York, L. Erie, & Western 
 
 R. Co. 344, 352 
 
 Hunt V. Bay State Iron Co. 239 
 
 V. Bullock 228, 247, 248, 839 
 
 V. Memphis Gaslight Co. 593 
 
 Hunter o. Burlington C. R. & N. R. 
 
 Co. 800 
 
 Huntington v. Little Eock & Fort 
 
 Smith Ry. Co. 487, 812, 857 
 
 Ide v. Passumpsic, &c. R. Co. 105 
 
 Illinois Tr. & Sar. Bank i). Pacific 
 
 Ry. Co. 831 
 
 Imperial Land Co. of Marseilles, In re 80 
 Imperial Merc. Credit Assn. v. Newry 
 
 & Armagh Ry. Co. 280 
 
 Indiana, 111. & Iowa E. Co. v. Swan- 
 
 nell, Exr. 309, 460, 795 
 
 Indiana So. R. Co. v. Liverpool, L. & 
 
 G. Ins. Co. 454, 828, 833, 839 
 
 Industrial & Gen. Tr. Co. v. So. 
 
 American & M. Co. 506, 645 
 
 Inglehart v. Thousand Island Hotel 
 
 Co. 94 
 
 Inhabitants of Anson, Petitioners, &c. 288 
 Insurance Co. v. Brune's Assignee 428 
 
 V. Dunn 437, 444, 445 
 
 V. Pechner 437 
 
 International & Gt. Northern R. Co. 
 
 I'. Hemdon 644 
 
 ?■. Wentworth 644 
 
 Int. Pulp Co., In re 87, 88 
 
 Inter-Oceanic Ry. Co. of Mexico 850 
 
 Investment & Gen. Tr. Co. v. Inter- 
 national Co. 849 
 Investment Co. of Penn. w. Ohio & N. 
 
 W. R. Co. 669, 713 
 
 Jackson v. Brown 162 
 
 w. Liideling 46,133,420,865 
 
 V. Mut. Life Ins. Co. 437 
 
 V. North. Cen. Ry. Co. 78 
 
 V. Vicksburg S. & T. Ry. Co. 95 
 
 V. York & Cumberland R. Co. 78, 
 
 105, 107 
 Jackson & Sharp Mfg. Co. v. Burline- 
 
 ton & L. R. Co. 103, 433, 475, 7.38 
 
 Jamaica Ry. Co. v. Attorney-General 66 
 James v. Cowing 299, 312, 489, 843 
 
 (,■. Pontiac & G. P. R. Co. 170 
 
 r. Railroad Co. 821 
 
 Jarvis et al. v. State Bank of Fort 
 
 Morgan 276 
 Jeflrej' v. Moran ' 760 
 Jennings v. Phil. & Read. R. Co. 5.53, 555 
 Jerome f. McCarter 97, 463, 464, 676 
 Jessup V. Atlantic & Gulf R. Co. 277 
 V. Bridge 64, 199, 246, 496 
 
 Jesup V. City Bank of Eacine 24, 28, 98, 
 190, 191, 203, 732, 831 
 
 V. Wilmington & M. R. Co. 60, 61, 
 
 62, 864 
 Johnson v. Norwich & Worcester R. 
 
 Co. 72 
 
 V. Phil., W. & B. Ey. Co. 433 
 
 Johnson County v. Thayer 294, 305 
 
 Joliet Iron & Steel Co. v. Scioto Fire 
 
 & B. Co. 97 
 
 Jones «. Cent. T. Co. of N. Y. 637 
 
 V. Municipality, &c. 30 
 
 V. Nat. Building Assn. 29 
 
 V. Seligman 320 
 
 V. Smith 453 
 
 V. Terre Haute & Eiclimond E. 
 
 Co. 56 
 
 Jordan, Ex parte 828 
 
 Joshua Stubbs, In re. See Stubbs. 
 Joy V. Jackson, &c. Plank Kd. Co. 177 
 Junction R. Co. v. Bank of Ashland 20 
 
 V. Cleneay 78 
 
 V. Ruggles 234 
 
 Kain v. Smith 658, 690 
 
 Kansas, &c. Construction Co. u. To- 
 
 peka, &c. Ry. Co. 436 
 
 Kansas Fac. Ey. Co. v. Bayles 693 
 
 Kanouse v. Martin 437 
 
 Kappner v. St. Louis, &c. Ey. Co. 198 
 Karn v. Rorer Iron Co. 672 
 
 Keating, In re 200, 626 
 
 Keep V. Michigan, &c. Ry. Co. 517, 581, 
 
 566 
 Kelly V. Calhoun 185, 194 
 
 V. Green Bay & Minn. R. Co. 636 
 
 V. Trustees of the Ala., &c. R. Co. 2, 
 
 3, 26, 31, 162, 168, IHO, 246, 463, 
 469, 508, 531 
 Kemble v. Wil. & Northern R. Co. 6, 17 
 Kenawha Coal Co. v. Kenawha & 
 
 Ohio Coal Co. 806 
 
 Kennebec & Portland R. Co. ;•. Port- 
 land & Kennebec R. Co. 172, 317, 318, 
 376, 377, 807 
 Kennedy v. I. C. & L. R. Co. 416, 573, 574 
 
 1). St. Paul & Pac. R. Co. 529, 676, 
 
 678 
 Kent V. Lake Superior Ship Canal 
 Ky. & Iron Co. 303, 487 
 
 0. N. Y. Cent. R. Co. 278 
 
 V. Quicksilver Mining Co. 32 
 
 Kentucky Centr. R. Co. v. Common- 
 wealth 789 
 Kern v. Huidekoper 444, 445 
 Kerr v. White 510 
 Kerrison v. Stewart 460, 476, 487 
 Ketchum r. City of Buffalo 144 
 
 K.Duncan 105,110,410,754,755, 
 
 756, 757, 776, 777, 853 
 
 V. Mobile & Ohio E. Co. 288, 294 
 
 V. Pac. R. Co. 157, 327, 578 
 
 V. St. Louis 67, 325, .327, 332, 498 
 
 Kildare Lumber Co. v. Nat. Bank of 
 Commerce 441 
 
TABLE OF CASES CITED. 
 
 Kilpatrick v. Kansas City & B. E. Co. 274 
 Kimball o. Goodburn 518 
 
 King V. Housatonic R. Co. SOU 
 
 V. Marshall 18], 258 
 
 V. Ohio & Miss. R. Co. 650, 758, 863 
 
 V. Tuscumbia, C. & D. R. Co. 210 
 
 Kinney v. Crocker 673, 688 
 
 Kirk V. Bell 125 
 
 Kirkpatrick !>. Corning 467 
 
 Kitchen v. Pac. K. Co. 585 
 
 Klein v. Jewett 688, 690 
 
 Knapp V. St. Louis, K. City, & Nortli- 
 
 ern Ry. Co. 8, 275 
 
 V. Railroad Co. 282, 292, 477 
 
 Kneeland v. American L, & T. Co. 353, 
 601, 615, 620, 621, 626, 657, 666, 672, 
 
 761 
 
 V. Bass Foundry Works 672 
 
 ;;. Braintree St. R. Co. 2 
 
 V. Lawrence 78 
 
 Knevais v. Florida Cent. R. Co. 255 
 
 Knox Co. V. Aspinwall 78 
 
 Knoxville & Ohio R. Co. i;. Hicks 789 
 Kountze v. Omaha Hotel Co. 496 
 
 Kribba v. Alford 270 
 
 Krippendorf v. Hyde 421 
 
 KrophoUer v. St. Paul, Minn. & M. 
 
 Ey. Co. 474, 676, 776, 819, 822 
 
 V. St. Paul & Pac. R. Co. 854 
 
 Kuser v. Wright 196 
 
 Lackawanna. Iron & Coal Co. v. 
 
 Farmers' L. & T. Co. 620 
 
 La Crosse E. R. Co. Bridge, In the 
 
 matter of 676 
 
 Lafayette Co. v. Neely 663, 643, 785 
 
 Lake Erie & W. Ry. Co. v. Griffin 
 
 799, 800, 803, 842 
 Lambertville Nat. Bank v. McCready, 
 
 &c. Co. 463, 480 
 
 Lamphear v. Buckingham 320 
 
 Lanark v. Cameron 221, 252 
 
 Land Credit Co., In re 87 
 
 Land Mortgage Bank of Florida, Re 864 
 Landis v. Western Penna. R. Co. 57, 843, 
 
 859 
 Landowners' West of England & 
 
 South Wales Drainage & Incloaure 
 
 Co. v. Ashford 2 
 
 Lane v. Baughman 357, 358 
 
 , Rec. V. Macon & Atl. Ry. Co. 621, 
 
 622 
 Langdon v. Horton 222 
 
 0. Vermont & Canada Ey. 656, 559, 
 
 647, 651, 682 
 
 Langston v. South Carolina R. Co. 78, 
 
 102, 104, 385 
 
 Lannian «. Lebanon Val. Ry. Co. 170 
 
 Larson v. Nelson & Fort Sheppard 
 
 Ey. Co. 274 
 
 Latham v. Chaffee 427, 428, 429 
 
 Lathrop v. Union Pac. Ry. Co. 434 
 
 Laughlin v. U. S. Rolling Stock Co. 693, 
 
 670 
 Law V. Glenn 378 
 
 Lawrence v. Morgan's L. & Tex. R. 
 
 St. Ship Co. 134 
 
 Le Blanc, In the matter of 498 
 
 Ledwich v. McKim ■ 9-3 
 
 Leedum v. Plymouth, &c. Ey. Co. 164 
 Legg V. Mathieson 258, 280, 356 
 
 Leiiigh Coal & Nav. Co. v. Central Ry. 
 Co. of New Jersey 69, 277, 519, 551, 
 572, 642, 646, 861, 863 
 Lehman v. Tallahassee Mfg. Co. 78 
 
 L'Engle v. Florida Centr. Ey. Co. 637, 515 
 Lewis V. Brady 30 
 
 V. Jeffries 10 
 
 V. Meier 162, 20-5 
 
 V. The Ship Orphans 413 
 
 Libby v. Eosekrans 557 
 
 Lincoln v. Iron Co. 187 
 
 Linder v. Hartwell R. Co. 461, 466 
 
 Linn v. Jos. Dixon Crucible Co. 865 
 
 Little V. Dusenberry 576, 688, 690, 691 
 Little Rock & Fort Smith Ry. Co. u. 
 Huntington 314 
 
 V. McGehee 7&6 
 
 Little Rock, &c. Ry. Co. v. Page 223, 267 
 Lloyd V. Chesapeake, O. & S. W. U. 
 Co. 653 
 
 B. E.& M. A. R. Co. 221 
 
 Loder v. N. Y., Utica, & Ogd. E. Co. 617 
 Logan V. Greenlaw 418 
 
 V. Vernon, Greensburg, & R. R. 
 
 Co. 785 
 
 Lombard Invest. Co. v. Seaboard Mfg. 
 
 Co. 470 
 
 London Chartered Bank of Australia, 
 
 In re 844, 867 
 
 London Financial Assn. o. Wrexham 
 
 Ry. Co. 844 
 
 Long Branch, &c. E. Co. v. Sneden 544 
 Long Branch & Sea Shore E. Co., 
 
 In re 544 
 
 Long Dock Co. v. Mallory 529, 633 
 
 Long Island L. & T. Co. w. Columbus, 
 
 C. & I. C. Ey. Co. 93, 95, 96 
 
 Longdendale Cotton Spinning Co., 
 
 In re 370, 772 
 
 Loomis V. Davenport, &c. Ey. Co. 270, 
 
 798 
 Lord V. Fonkers Fuel Gas Co. 167, 192, 
 
 193 
 Lord Crewe v. Edleston 280 
 
 Lorman u. Clarke 375 
 
 Loudenslager v. Benton 211, 267, 361 
 
 Louisiana State Bank b. New Orleans 
 
 Nav. Co. 120 
 
 Louisville, Cin. & Charleston R. Co. 
 
 V. Letson 432 
 
 Louisville, E. & St. L. R. Co. v. Wil- 
 son 601, 616,618 
 Louisville & Nashville R. Co. u. Ken- 
 tucky 7 
 
 V. Orr 802 
 
 V. Palmes 786, 788, 789 
 
 Louisville, N. A. & Chi. R. Co. v. Oliio 
 
 Valley Imp. Co. 116,117 
 
 Louisville, &c. R. Co. u. Ohio V. Im- 
 provement Co. 85 
 
lii 
 
 TABLE OP CASES CITED. 
 
 Louisville T. Co. ». Cincinnati In- 
 clined Plane Ry. Co. 645 
 
 V. Louisville, N. A. & Chi. E. Co. 
 
 116, 117, 433 
 LouisTille Water Co. v. Hamilton 165 
 Low V. Cent. Pac. R. Co. 119 
 
 Lucas V. White Line Transfer Co. 121 
 Ludlow V. Clinton R. Co. 261, 263, 494, 
 
 770 
 
 V. Hurd 180, 242, 357 
 
 Luse V. Isthmus Transit Co. 191 
 
 Lyman v. Central Vermont R. Co. 673 
 
 MxAS V. Mo., K. & T. R. Co. 24, 92, 95 
 Macalaster's Admrs. v. Maryland 364, 498 
 McAllister v. Plant 2, 6, 14, 162, 1 63, 170, 
 206,296,303,372,397 
 McCalmont v. Phila. & Reading K. Co. 10 
 McCammon v. Detroit, L. & N. R. 
 
 Co. 773 
 
 McClelland d. Norfolk So. R. Co. 44,106, 
 
 107, 382 
 MeCullough V. A. & E. R. Co. 12 
 
 V. Merchants' L. & T. Co. 512 
 
 McCurdy, Appeal of 186, 189, 461 
 
 McDonald v. Charleston, &c. R. Co. 426, 
 
 767 
 
 V. Smallejr 443,444 
 
 McElrath, In re 564 
 
 McElrath v. Pittsburgh, &c. R. Co. 373, 
 414, 487, 753 
 McFadden v. May's Landing, &c. R. 
 
 Co. 388, 397, 407, 472, 768 
 
 McGeorge v. Big Stone Gap Improve- 
 ment Co. 406 
 McGourkey v. Toledo, &c. Ry. Co. 344, 
 345, .346, 347, 348, 835 
 McGran v. Memphis, &o. Ry. Co. 225, 
 245, 246, 247, 271, 323 
 McGregor v. Cov. & Lex. R. Co. 2 
 McHenry, Petition of 464, 465, 478 
 McHenry v. New York, P. & 0. R. Co. 46, 
 440, 446, 544, 848, 866 
 Mcllhenny v. Binz 150, 206, 519 
 Mcllrath v. Snure 548 
 McKee v. Grand Rapids & Reed's 
 
 Lake St. R. Co. 24, 33, 743 
 
 Mackintosh v. Flint & P. M. R. Co. 141, 
 842, 849, 852, 853, 867 
 McKittrick v. Arkansas Cent. Ry. 
 
 Co. 326 
 
 McLane v. Placerville, &c. R. Co. 13, 96, 
 
 188, 211, 389, 398, 535, 716, 721,737 
 
 McLean v. St. Paul, &c. Ry. Co. 437 
 
 McLoughlin v. Nat. Mut. Bond & 
 
 Inv. Co. 528 
 
 McMahon v. North Kent Iron Works 
 
 Co. 370 
 
 McMasters v. Reed's Exrs. 3 
 
 McMurray v. Moran 89, 154, 156, 158 
 
 McNulta V. Lockridge 689, 691 
 
 McTighe v. Macon Constr. Co. 163, 229 
 Macon & Augusta R. Co. v, Ga. R. 
 
 Co. 122, 126, 204, 291, 302, 303, 372, 
 387, 773, 809 
 
 Macon & Western R. Co. v. Parker 771 
 Madeley v. Ross 372 
 
 Madison &I. Ry. Co. v. Norwich Sav. 
 
 Soc. 86, 126, 128, 155 
 
 Madison, &c. Plank Road Co. v. Water- 
 town Plank Road Co. 121 
 Madras Irrigation & Canal Co., In re 850 
 Magdalena Steam Nav. Co., In re 88 
 Mahoney v. E. Holyfbrd Mijiing Co. 86 
 Makins v. Percy Ibotson & Son 556 
 Mallory v. West Shore & H. Ry. Co. 382 
 Manchester Locomotive Works v. 
 
 Truesdell 273, 611 
 
 Manchester, &c. Ry. Co., In re 533, 656 
 Manhattan Trust Co. v. Seattle Coal 
 
 & Iron Co. 200, 280, 614 
 
 V. Sioux City Cable Ry. Co. 252, 270 
 
 Manning v. Norfolk So. R. Co. 382, 383 
 Mansfield, C. & L. M. Ry. Co. o. 
 
 Swan 437 
 
 Manuf. L. Co. v. Conover 30 
 
 Marbury v. Kentucky Union Land 
 
 Co. 120, 124, 125, 126, 127 
 March v. Eastern R. Co. 472 
 Marine Mansion Co., In te 181 
 Market Street Ry. Co. v. Hellman 144 
 Marlor v. Texas & P. Ry. Co. 43, 71 , 105, 
 153, 154,403 
 Marshall v. Baltimore & Ohio Ry. Co. 432 
 V. So. Staffordshire Tramways 
 
 Co. 370 
 
 V. Tramways Co. 769 
 
 V. Western N. Car. R. Co. 804 
 
 Martin v. Niagara Falls Paper Co. 126, 
 
 187, 196 
 Martin & Merriweather u. Mobile & 
 
 Ohio R. Co. 367, 384 
 
 Marwick v. Thurlow 731 
 
 Maryland v. Baltimore & Ches. R. 
 
 Co. 72 
 
 V.Brown 310 
 
 Mase «. Nichols 201 
 
 Mason v. York & C. R. Co. 27, 28, 284, 
 
 459, 472 
 Mass. Mut. Life Ins. Co. v. Chicago & 
 
 A. R. Co. 430, 468, 481, 571 
 
 Massie v. Watts 414 
 
 Mather v. Union T. Co. 120 
 
 Mather Humane Stock Trans. Co. v. 
 
 Anderson 353 
 
 Matthews v. Murchison 526, 533, 843, 864 
 Maury v. Chesapeake & Ohio R. Co. 708 
 Maxwell v. Wilmington Dental Mfg. 
 
 Co. 216 
 
 May V. Printup 426, 510 
 
 Mayer «. Denver, T. & Fort W. R. 
 
 Co. 34 
 
 Mayor of the City of Knoxville a. 
 
 Knoxville & Ohin Ry. Co. 843 
 
 Mead v. New York, Housatonic, & N. 
 
 R. Co. 22, 40, 168, 261, 422 
 
 Means v. Cincinnati & Chicago R. Co. 45 
 
 Meara's Admrs. u. Holbrook 573, 676, 685, 
 
 688, 690. 691 
 
 Meclianics' Bank, In the matter of 
 
 the Petition of 290 
 
TABLE OF CASES CITED. 
 
 ILii 
 
 Mechanics' Bank v. N. Y. & N. H. K. Co. 81 
 Mecklenberg v. Phil. & Read. Ry. Co. 57 
 Meier v. Kansas Pac. R. Co. 470, 512, 511, 
 
 639,513 
 Melendy v. Barbour 571, 690, 830 
 
 Mellon V. Morristown & C. Gap li. 
 
 Co. 611 
 
 Memphis & Charleston R. Co. i-. Ala- 
 bama 435 
 Memphis & C. R. Co. v. Hoeclinet 685 
 Memphis & Little Rock R. Co. w. Dow 4, 
 5, 17, 21, 102, 812, 849 
 
 w. Comrars. 134, 176, 178, 780, 782, 
 
 786, 787, 842, 845 
 
 V. State 159, 465 
 
 Mendenhall v. Westchester & Pliila. 
 
 R. Co. 373 
 
 Mercantile Inv. & Gen. T. Co. v. In- 
 ternational Co. of Mex. 51, 1-32 
 Mercantile Tr. Co. v. Atl. & Pac. R. 
 Co. 427 
 
 V. Balto. & Ohio R. Co. 614 
 
 V. Chicago, P. & St. L. R. Co. 398 
 
 V. Kanawha & O. R. Co. 449, 450, 
 
 466, 522, 666, 679, 680, 681, 683, 796, 
 831 
 
 V. Kiser 122 
 
 V. Lamoille Val. R. Co. 419, 428, 
 
 429, 459, 482, 484, 569 
 
 V. Missouri, K. & T. Ry. Co. 397, 
 
 399, 405, 496, 526, 643, 712, 716, 724 
 
 V. Pittsburg, &c. R. Co. 269, 467 
 
 V. Portland, &o. R. Co. 296, 478, 480, 
 
 481 
 
 !,•. River Plate 51, 525 
 
 V. St. Louis & San Fran. R. 
 
 Co. 261, 572 
 
 V. Southern Iron Car Line Co. 620 
 
 V. Texas & Pac. Ry. Co. 370 
 
 Mercer Co. v. Hacket 78, 80, 106 
 
 Merchants' Bank v. Petersburg R. 
 
 Co. 499 
 
 Merchants' Bank of Atlanta v. 
 
 Moore 593 
 
 Merchants' Nat. Bank a. Eastern R. 
 
 Co. 35 
 
 Merrill v. Farmers' L. & T. Co. 282, 312 
 Mersey Ry. Co., In re 280, 657 
 
 Messchaert v. Kennedy 474 
 
 Metrdpolitan Trust Co. v. N. Y. Tr. 
 & W. R. Co. 252 
 
 V. Penn , &o. Ry. Co. 338 
 
 y. Tonawanda, &c. R. Co. 464, 673 
 
 Metz I. Buffalo, Corry, & Pitts. R. 
 
 Co. 685, 781, 803, 804, 843 
 
 Meyer v. Car Co. 346, 353 
 
 V. City of Muscatine 105 
 
 II. Construction Co. 277 
 
 V. Hornby 275, 279 
 
 ij Johnston 61, 133, 176, 177, 184, 
 
 189, 224, 233, 234, 235, 252, 268, 270, 339, 
 
 345, 430, 607, 509, 527, 623, 656, 663, 665, 
 
 667, 672, 677, 683, 717 
 
 V. Utah & Pr. Ry. Co. 812, 815 
 
 Michigan T. Co. v. Lansing Lumber 
 Co. 388 
 
 Middleton v. New Jersey West Line 
 
 R. Co; 734, 736 
 
 Midland R. Co. v. Stevenson 367 
 
 Midland R. Co. of New Jersey v. 
 
 Hitchcock 374, 859 
 
 Midland Waggon Co. u. The Potteries 
 
 S. & N. W. Co. ■ 370 
 Miles V. Roberts 319 
 Millard v. Burley 252 
 Miller v. N. Y. & E. E. Co. 2, 3, 12, 39 
 u. Rutland & Washington Ry. Co. 2, 
 
 3, 14, 98. 109, 162, 170, 174, 175, 186, 204, 
 
 212, 234, 241, 295, 297, 298, 305, 308, 855 
 
 Miltenberger v. Logansport Ry. Co. 463, 
 
 591, 593, 602, 603, 604, 607, 6U8, 615, 63 1, 
 663, 672, 673, 674, 675 
 Milwaukee & Minn. R. Co. v. Mil. & 
 
 Western R. Co. 567 
 
 V. Soutter 507, 527, 636, 537, 562, 730, 
 
 778, 834, 839 
 Milwaukee, &e. R. Co. i'. Brooks 
 
 Locomotive Works 318 
 
 Milwaukee & St. Paul K. Co. v. Milw. 
 
 & Minn. R. Co. 784 
 
 Minnesota Co. <.. St. Paul Co. 241, 340, 
 417,421, 451, 571 
 Mississippi Val. Co. v. Chicago, St. 
 
 Louis, & N. 0. Ry. Co. 216, 227, 230, 
 255, 261, 548 
 Miss. Val. & W. R. Co. v. United 
 
 States Express Co. 68, 217, 497, 499, 501 
 Missouri, K. & T. R. Co. v. Lacy et al. 802 
 
 V. Wylie 701 
 
 Missouri Pac. Ry. Co. v. Texas Pac. 
 
 Ry. Co. 560, 563, 574, 658, 718 
 
 Mitchell, Ex parte 670 
 
 Mitchell, Assignee, v. Winslow 221 
 
 Mobile & Cedar Point R. Co. r. Tal- 
 
 man 167, 186, 202, 204, 212, 291, 29B, 
 
 481 
 Mobile & Montgomery R. Co. v. 
 
 Steiner 79.S, 842 
 
 Mobile & Ohio R. Co. v. Davis 570, 658 
 
 V. Niciiolas 62, 866 
 
 Montgomery v. Elliott 401 
 
 y. Petersburg Sav. & Ins. Co. 711 
 
 Montgomery County Agri. Soc. u. 
 
 Francis " ' 380 
 
 Montgomery & West Point R. Co. v. 
 
 Branch 65, 793 
 
 Moor ti. Anglo-Italian Bank 258 
 
 Moore v. Baird 98 
 
 Jloran v. Pittsburgh, &e. Ry. Co. 237 
 
 Morgan v. Kansas Pac. Ry. Co. 472, 478 
 
 !•. Louisiana 135, 786, 787, 788, 789, 
 
 790 
 
 V. Union Pac. Ry. Co. 66 
 
 V. United States 75, 95 
 
 Morgan, &c. v. Donovan 1.34, 18.3, 2ns, 
 228, 242, 2;VJ 
 Morgan County v. Thomas 243, 782, 805 
 Morgan's La. & Tex. R. & St. Ship 
 
 Co, I'. Farmers' L. & T. Co. 020 
 
 Morgan 's Louisiana & Texas R. Co. 
 
 V. Texas Cent. R. Co. 397, 404, 41 3 
 
 421, 427, 453, ,629, 839 
 
liv 
 
 TABLE OP CASES CITED. 
 
 Morrill v. Noyes 224, 234, 267 
 
 Morris v. Cheney ie4, 243 
 
 Morris Canal & Bkg. Co. u. Pisher 33, 
 
 78, 79, 83, 97 
 
 V. Lewis 78, 79, 83, 93, 97 
 
 Morrison v. Buckner 534 
 
 V. Eaton & Hamilton R. Co. 20 
 
 II. G. T. By. Co. 356 
 
 Morse v. Brainerd 688 
 
 Morton V. New Orleans & Selma By. 
 
 Co. 91, 95, 260, 453, 461, 481, 712, 714, 
 715, 719, 722, 754, 762 
 Morton, Rose, & Co. v. Barbadoes 
 
 Water Supply Co. 556 
 
 Mosgrove v. Kountze 152 
 
 Mower v. Kemp 208 
 
 Mowry v. F. L. & T. Co. 17, 60, 62, 853, 
 
 856 
 Muhlenberg u. Phila. & Reading B. 
 
 Co. 57 
 
 MuUer v. Dows 414, 428, 433, 454, 480, 
 
 555 
 Munns v. Isle of Wight By. Co. 844 
 
 Munson et al. v. Syracuse, Geneva, 
 
 & Corning R. Co. et al. 15 
 
 Murdock v. Woodson 329, 469, 475, 478 
 Murphy v. Holbrook 685 
 
 Murray v Deyo 500 
 
 V. Lardner 95, 96, 106 
 
 Murrietta v. Nevada, L. & C. Co. 663, 
 
 673 
 Myatt V. St. Helens, &o. By. Co. 256 
 
 Myer v. Car Co. 650 
 
 Myers v. Dorr 433 
 
 V. York & Cumberland E. Co. 79, 
 
 105, 107 
 
 Naslee v. Alex. & Fred. R. Co. 171 
 
 Nashua & Lowell B, Corp. u. Boston 
 
 & Lowell R. Corp. 433 
 
 Nashville, C. & St. L. By. Co. v. Mat- 
 
 tingly 826 
 
 Nat. Bank of Augusta v. Carolina, K. 
 
 & W. R. Co. 605, 606, 617 
 
 National Bank of Gloversville v. 
 
 Wells 120 
 
 Nat. Bank of Mich. v. Green 93 
 
 Nat. Bank, &c. v. Kirby 95 
 
 Nat. Bolivian Nav. Co. v. Wilson 44, 55 
 Nat. Ex. Bank v. Hartford, &c. Ry. 
 
 Co. 78, 105, 106, 381 
 
 National Fnnndrv & Pipe Works v. 
 
 Oconto Water Co. 197, 273 
 
 National Park Bank v. German Am. 
 
 Warehousing Co. 120 
 
 National Rubber Co. <. Rhode Island 
 
 Hosp. Tr. Co. 303 
 
 National Waterworks Co. v. Kansas 
 
 City 305 
 
 Native Iron Ore Co., Inre 88, 262 
 
 Neafie, Appeal of 670, 680 
 
 Neal r. Foster 454 
 
 Noath & Brecon Ry. Co., In re 849 
 
 Nefi V. The Wolf River Boom Co. 802, 
 
 844 
 
 Nelson v. Iowa Eastern Ey. Co. 84, 202, 
 262, 264, 274, 275, 340 
 
 V. Hubbard 4, 298, 387, 396 
 
 Neves v. Scott 375 
 
 New Albany, &c. Plank Boad Co. v. 
 
 Smith 78 
 
 New Brunswick & Canada E. Co., 
 
 In re 49 
 
 New Castle Northern B. Co. v. Simp- 
 son 146, 150, 151, 716 
 New Clydach, &c. Co., In re 225 
 New England B. Co. v. Carnegie Steel 
 
 Co. 583 
 
 New Jersey Midi. Ey. Co., Eeceivers 
 
 of, r. Wortendyke 634 
 
 New Orleans & Pae. E. Co. v. Parker 
 
 233, 252, 253, 255, 405 
 New Orleans, &c. R. Co. v. Harris 170, 
 
 842 
 
 V. Union T. Co. 233 
 
 New Orleans, Spanish Fort, & L. R. 
 
 Co. V. Delamore 135 
 
 New York & Greenwood Lake E. Co. 
 
 V. State 793 
 
 New York, L. B. & W. E. Co. o. 
 
 Nickals 863 
 
 New York, P. & 0. E. Co. v. New 
 
 York, L. E. & W. B. Co. 538, 622, 695, 
 
 698 
 New York Security & Trust Co. v. 
 
 Capital By. Co. 270, 614 
 
 V. Equitable Mtge. Co. 756 
 
 V. Lincoln St. Ey. Co. 300, 451 
 
 V. Louisville, E. & St. L. R. 
 
 Co. 
 V. Saratoga Gas & El. Light 
 
 Co. 
 Newbold v. Peoria & Springfield E. 
 
 Co. 680 
 
 Newby v. Oregon Cent. B. Co. 44, 856 
 Newell V. Smith 688 
 
 Newgass v. Atlantic, &c. R. Co. 264, 345 
 Newport v. Bury 613 
 
 Newport & Cincinnati Bridge Co. i'. 
 
 Douglass 75, 92, 97, 98, 102, 103, 1-58, 
 
 216, 296, 828, 496, 499, 501, 526, 566, 629 
 684, 708, 724, 7(^4 
 
 V. Woolley 433 
 
 Newport & Covington R. Co. v. 
 
 Douglass 21 
 
 Nichols V. Mase 25, 88, 185 
 
 Nichols, Treas., &c. u. New Haven 
 
 & N. Co. 788 
 
 Nickals v. N. Y., L. E. & W. R. Co. 
 Nickerson v. Atch., Top. & Sf nta Fe 
 
 R. Co. 
 Nixon's Navigation Co., In re 
 Noble V. Alabama 
 Noonan v. Lee 
 
 Norfolk & W. E. Co. v. Pendleton 
 North Hudson, &e. Asso. o. Hudson 
 
 First Nat. Bk. 29 
 
 North Penn., &c. B. Co. v. Adams 104, 
 
 105 
 North Side Ry. Co. v. Worthington 1 1 , 
 
 15, 17 
 
 626 
 
 541 
 
 863 
 
 721 
 861 
 366 
 375 
 
 785 
 
TABLE OP CASES CITED. 
 
 Iv 
 
 Northampton Nat. Bank v. Kidder 75 
 Northern Central Ry. Co. o. Bastian 187 
 
 V. Keighler 373, 7U3, 7U4 
 
 Northern Indiana Ry. Co. v. Michigan 
 
 Central Ry. Co. 423, 555 
 
 Northern Pac. R. Co. u. Lamont 605, 613, 
 
 619 
 
 V. Shinimell 134, 367 
 
 Northern Penn. R. Co. v. Adams 386 
 
 Northern T. Co. v. Columbia Straw 
 
 Paper Co. 738 
 
 Norwich & Worcester R. Co. v. John- 
 son 832 
 Noyes v. Rich 68, 601 
 
 O'Beihnb v. Allegheny & K. Ry. Co. 460 
 Ogilvie V. Knox Ins. Co. 416 
 
 O'Hara v. Mobile & 0. R. Co. 361 
 
 Ohio Central Ry. Co. c;. Central T. 
 
 Co. 7:i7, 731, 732 
 
 Ohio & M. R. Co. V. McCarthy 29 
 
 Ohio & Miss. R. Co. v. Fitch 580 
 
 1'. Russell 551 
 
 V. Wheeler 433 
 
 Olcott V. Tioga R. Co. 126 
 
 Olmstead v. Distilling & Cattle Feed- 
 ing Co. 541 
 Olypliant v. St. Louis Ore & Steel 
 
 Co. 396, 624 
 
 Omaha Hotel Co. v. Kountze 628 
 
 Omaha, &c. R. Co. u. Wabash, &c. R. 
 
 Co. 236, 255 
 
 Opdyke v. Pacific R. Co. 126 
 
 Opelika City v. Daniel 826 
 
 Opera, Lim., In re 280, 603 
 
 Ormerod, Grierson, & Co., In re 630, 
 
 670, 708 
 Orphan Asylum Soc. v. McCartee 525 
 Osborn v. Michigan Air Line R. Co. 421 
 Osgood V. Cliicago, D. & V. R. Co. 
 
 443, 444, 445, 447 
 Osterber v. Union T. Co. 783, 784 
 
 Overton o. Memphis & Little Rock 
 
 R. Co. 516,526,526,540,811 
 
 Owen V. Cronk 689 
 
 V. Homan 517 
 
 Owens 0. Ohio Central R. Co. 423, 426, 
 446, 472, 653, 568 
 Oxley Stave Co. v. Coopers' Int. 
 Union of N. A. 550 
 
 P. & C. R. Co. V. Allegheny County 171 
 Pacific- R. Removal Cases 438 
 
 Pacific R Co. V. Cass Co. 341 
 
 V. Ketchum 441, 487, 510, 747, 
 
 778, 825, 832 
 
 V. Missouri Pac. R. Co. 416, 749, 
 
 750, 812, 814, 815 
 
 V. Wade 576 
 
 Pacific Rolling Mill v. Dayton, Sheri- 
 dan, & G. R. Ry. Co. 190, 713 
 
 '■. Jamps St. Const. Co. 276 
 
 Paige I . Smith 688 
 
 Paine v. Little Rock R. Co. 678 
 
 Palmer v. Farbes 201, 240, 245, 248, 
 
 316, 339, 366 
 Palys V. Jewett 573, 676 
 
 Panama, N. Z. & A. Royal Mail Co., 
 
 In re 216, 258 
 
 Parish v. Wheeler 228, 242, 266 
 
 Park V. N. Y., Lake Erie, & Western 
 
 R. Co. 413, 414, 653, 664, 
 
 696, 698, 09J 
 
 Parker i'. Aldridge 413 
 
 V. Bluff'ton Car Wheel Co. 766 
 
 i;. drowning 574, 676 
 
 u. New Orleans, &c. R. Co. 178, 
 
 224, 226, 233, 250 
 Parkhurst v. Northern Central R. Co. 
 
 246, 496, 499 
 Parkinson u. Wainwright 730 
 
 Parsons !'. Greenville, &c. R. Co. 419 
 
 V. Jackson 82, 89, 95 
 
 e. Lyman 376 
 
 V. Robinson 836, 836 
 
 Patent Automatic Knitting Co., In re 844 
 Patent Bread Machine Co., In re 88 
 
 Patterson v. Central R. & Bkg. Co. 685 
 Paulding i;. Chrome Steel Co. 193 
 
 Payne v. Hook 375, 462 
 
 V. Wilson 211, 212 
 
 Peale v. Phipps 57] 
 
 Peatman u. Centerville, L. H. & P. 
 
 Co. 91 
 Peck V. Jenness 137, 413 
 V. New York & N. Jersey R. 
 
 Co. 728, 819, 823, 824, 832 
 
 V. Trinsmaran Iron Co. 656 
 
 Peckham v. Dutchess Co. R. Co. 700 
 
 Pegge V. Neath Dist. Tramways Co. 
 
 370, 509 
 Peirce v. Van Dusen 692 
 
 Pekin v. Reynolds 105 
 
 Pendleton v. Russell 664 
 
 Peninsular Iron Co. v. Eells 45, 793 
 
 Fenn v. Calhoun 633 
 
 Pennock :;. Coe 13, 131, 180, 221, 222, 
 
 223, 224, 234, 250, 262, 268, 359, 360, 
 363, 364, 867, 368 
 Pennoyer v. Neff 552 
 
 Penna. R. Co. v. Allegheny "Valley R. 
 
 Co. 734, 737, 766 
 
 V. Jones 686 
 
 V. St. Louis, &c. R. Co. 1.50, 170, 
 
 435, 436 
 Penna & Del. R. Co. v. Leuffer 137 
 
 Penna. Co. for Insurance on Lives v. 
 
 Jacksonville, J. & K. W. R. Co. 429, 
 521 8.3 r 
 
 V. Phila. & Reading R. Co. '392, 
 
 8'.)9, 401, 405 
 Penn. Transportation Co., Appeal of 
 
 777, 778, 852 
 Pensacola Provisional Mun. v. North- 
 rop 
 People V. AH)any & Vermont R. Co. 
 
 ■ V. Brooklyn, F. & C. L R. Co. 
 
 ■ V. McLane 
 
 273 
 40, 
 171) 
 84:!, 
 846 
 567 
 
Ivi 
 
 TABLE OP CASES CITED. 
 
 843 
 49 
 
 51 
 
 843 
 
 176 
 278 
 
 443 
 
 799 
 
 17 
 103 
 280 
 104 
 104 
 
 People v. O'Brien 
 
 People ex rel. v. Long Island R. Co. 
 
 People ex ret. Gore v. Illinois, B. & L. 
 
 Assn. 
 People ex rel. Scliwarz v. Cook 
 People's Bank v. Calhoun 438, 439 
 
 Peoria & Pekln Union Ry. Co. i.'. 
 
 Chicago, Pekin, & S. W. R. Co. 699 
 Peoria & Springfield Ry. Co. v. Bryan 453 
 
 V. Thompson 4, 7, 24, 91, 99, 
 
 204, 767 
 Perry v. Oriental Hotels Co. 520, 645, 
 
 772 
 Peter v. Kendel 
 
 Peters v. St. Louis & Iron Mt. R. Co. 
 Petersburg Sav. & Ins. Co. v. DeDa- 
 
 torre 703, 740 
 
 Pettibone c Tol., Cin. & St. Louis 
 
 R. Co. 45, 280 
 
 Pettris V. Georgia Ry. Co. 
 Pfeifer v. Sheboygan & Pond du Lac 
 
 R. Co. 
 Pfister V. Milwaukee Electric R. Co. 
 
 et al. 
 Phelps V. Lewiston 
 
 V. St. Catharine's & N. C. R. Co. 
 
 Phila., &c. R. Co. u. Fidelity T. Co. 
 
 V. Knight 
 
 Phila. & Baltimore Central Ry. Co. 
 
 V. Johnson 380, 385 
 
 Phila. & Reading R. Co., Appeal of 2, 
 
 4,32 
 Phila. & "Reading R. Co. v. Hickman 3 
 
 V. Smith 104 
 
 Phila. & Sunbury R. Co. v. Lewis 3, 24, 
 
 32, 92, 96 
 Phila., Wilmington, & Balto. R. Co. 
 
 V. Woelpper 179, 223, 241, 367 
 
 Philips V. Winslow 180, 238, 249, 360 
 
 Phillip's Trustee o. Eastern Ry. Co. 
 
 139, 141 
 Phinizy v. Augusta & K. R. Co. 86, 
 
 274, 397, 399, 483, 512, 538, 632, 655, 
 656, 660, 666 
 Phoenix, &e. Steel Co., In re 181 
 
 Physick et al. v. Baker 19, 29 
 
 Picard v. East Tenn., &c. R. Co. 786 
 
 Pierce v. Emery 184, 136, 162, 221, 
 
 223, 248, 249, 250, 269, 307 
 
 V. Madison & Indianapolis R. Co. 14 
 
 V. Milwaukee, &c. Ry. Co. 164, 272 
 
 Pillsbury u. Cons. Eur. & N. A. Ry. 
 
 Co. 
 Pinkard v. Allen's Admr. 
 Pittsburg, &o. Ry. Co. f. Alleghany 
 
 Co. 
 Pitts., Cin. & St. Louis Ry. Co. v. 
 
 Fierst 782, 843 
 
 V. Marshall 280, 747 
 
 Pittsburgh R. Co. u. Keokuk & Ham. 
 
 Bridge 
 Pittsburgh, C. C. & St. L. Ry. Co. 
 
 V. Lvnde et al. 16, 4.5, 98, 99 
 Piatt V. New York & L. B. Ry. Co. 252 
 V. Philadelphia & Reading R. 
 
 Co. 522, 650, 560, 652 
 
 292 
 740 
 
 170 
 
 150 
 
 Pocahontas Coal Co. v. Henderson 
 
 El. Liglit & Power Co. 138 
 
 Poland V. Lamoille Val. R. Co. 213, 265, 
 454, 547, 590, 596, 699, 617 
 Polhemus v. Fitchburg R. Co. 266 
 
 Pollard V. Maddox 234 
 
 PoUitz V. Farmers' L. & T. Co. 487, 488 
 Pollock V. Eastern R. Co. 35 
 
 Fomeroy v. New York & N. H. Ry. 
 
 Co. 436 
 
 Pond V. Framingham, &g. Ry. Co. 519 
 
 V. Sibley 440 
 
 !J. Vermont Valley R. Co. 441 
 
 Pontet V. Basmgstoke Canal Co. 383 
 
 Port Royal & Augusta R. Co. u. 
 
 King 522 
 
 Portstewart Tramway Co., In re 506 
 
 Porter ;;. Pittsburgh Bessemer Steel 
 
 Co. 96, 148, 149, 150, 151, 188, 198, 
 
 207, 272, 623, 838 
 Portsea Island Building Soc, Ex parte 30 
 Portsmouth Tramways Co., Petition 
 
 of 882 
 
 Post V. Industrial Land Development 
 
 Co. 
 
 408 
 408 
 338 
 
 Potomac Mfg. Co. v. Evans 
 
 Potter V. Cromwell 
 
 Potts V. Warwick & Birm. Canal Nav. 
 
 Co. 280 
 
 Pound, Henry, Son, & HutcViins, In re 
 
 520, 645 
 Powell V. Blair 10 
 
 Pratt V. Munson 843, 848 
 
 V. Northam 376 
 
 Price V. Great Western Ry. Co. 379 
 
 Prince of Wales Assn. Co. v. Harding 87 
 Printup !;. Cherokee R. Co. 469 
 
 Pullan V. Cin. & Chicago Air Line 
 
 Ry. Co. 166, 170, 177, 202, 210, 218, 
 240, 246, 603, 607, 527, 528, 531, 659 
 
 V. City of New Albany 416 
 
 Pullman v. Osborne 413 
 
 Pusey V. N. J. West Line R. Co. 16 
 
 Putnam o. Jacksonville, &c. Ry. Co. 529 
 Pyle Works, In re 164, 181, 280, 603 
 
 Qdeensl.\nd Land & Coal Co., In re 
 
 280, 753 
 Quincy v. Chicago, B. & Q. Ry. Co. 221 
 Quincy, M. & P. R. Co. v. Hutnphreys 
 
 572, 698 
 
 Raoet v. Erie Ry. Co. 117 
 Racine & M. R. Co. u. F. L. & T. Co. 81, 
 169, 203, 317, 732 
 Radebaugh y. Tacoma, &c. Ry. Co. 201, 
 340, 558, 837 
 Ragan v. Aiken 170 
 Raht V. Attrill 592, 608, 670 
 R. Commissioners v. Portland & Ox- 
 ford R. Co. 49 
 Railroad Co., Ex parte 827, 833 
 Railroad Co. v. Bradleys 833, 834 
 V. Brown 686 
 
TABLE OP CASES CITED. 
 
 Ivii 
 
 Railroad Co. v. County of Hamblen 786 
 
 V. Donough 685 
 
 V. Harris 434, 436 
 
 V. Haward 1, 118, 123, 466, 6i30, 
 
 679, 769, 763, 782, 801, 865 
 
 V. Humpiiries 
 
 V. Johnson 
 
 V. Koontz 
 
 V. Mississippi 
 
 V. Orr 
 
 V. Ramsey 
 
 V. Soutter 
 
 V. Sprague 
 
 V. Stringfellow 
 
 0. Supervisors 
 
 V. Swasey 
 
 558 
 
 71, 661 
 
 434 
 
 444 
 
 210, 474 
 439 
 543, 544, 818 
 401 
 685 
 434 
 
 739, 834 
 
 Railroad Companies v. Chamberlain 421 
 
 V. Gaines 787 
 
 V. Schutte 26, SI, 324, 325, 332, 
 
 333 
 Railway Co. v. Jewett 515 
 
 V. Sprague 75, 95, 98, 105 
 
 V. Whitton 432, 433 
 
 Ralph V. Shiawassee Circuit Judge' 530 
 Ralston v. Crittenden (see Tenn. Bond 
 
 Cases) 39, 328, 810 
 
 V. Wash. & C. C. R. Co. 513 
 
 Ramsdell v. Citizens' Electric Light 
 
 & P. Co. 131, 201 
 
 Ramsey v. Erfe R. Co. 39, 515 
 
 Randall v. Elwell 341 
 
 Randolph v. Lamed 170, 301, 736 
 
 V. Middleton 73, 407 
 
 V. New Jersey West Line Ry 
 
 Co. 
 
 V. Wilmington, &c. Ry. Co. 
 
 Rankine v. Elliott 
 
 Raymond v. Clark 
 
 Raynor v. Selmes 
 
 Read v. Dupper 
 
 Reagan v. Farmers' Loan & Trust Co 
 
 Ream ?>. Stone 
 
 Receiver v. Stanton 
 
 Redmond u. Galena & So. Wise. R. 
 
 Co. 
 
 Reed, Appeal of 18, 26, 30, 150, 262, 264 
 Regent's Canal Iron Works Co., In re 
 
 630, 632, 670, 754 
 Reid V. Bank of Mobile " 78, 83, 96 
 
 Reinach v. Meyer 101 
 
 Removal Cases 440, 441, 444, 446, 447 
 Rennselaer & Saratoga R. Co. v. 
 
 Miller 712, 720, 721, 724 
 
 Republic Life Ins. Co. v. Swigert 564 
 Resor v. Ohio, &c. Ry. Co. 272 
 
 Reyburn v. Consumers' Gas Co. 595 
 
 Ribon V. Railroad Co. 480 
 
 Rice, Appeal of 753, 754, 762 
 
 Rice V. Railroad Co. 226 
 
 1). St. Paul & Pac. R. Co. 302, 389, 
 
 534 
 Richards u. Chesapeake & Oliio R. 
 
 Co. 464, 466, 483, 487, 512, 613 
 II. Merrimack & Conn. River R. 
 
 Co. 2,3,8,162,164,16.5,169,185, 
 202, 284, 287 
 
 155, 184 
 
 184 
 565 
 219 
 46'' 
 618 
 370 
 280 
 759 
 
 278 
 
 Richards v. People 
 Richardson, Re 
 Ricliardson v. Green 
 
 V. Sibley 
 
 Richter v. Jerome 
 
 708 
 
 45 
 
 170, 172, 177 
 
 460, 487, 490, 812 
 
 Ricker v. Am. L. & T. Co. 343, 344 
 
 V. London, &c. Bkg. Co. 82 
 
 Riddle v. New York, &c. Ry. Co. 436 ' 
 
 Ridley v. Plymouth, &c. Banking Co. 124 
 Riggs V. Johnson County 416 
 
 V. Pennsylvania, &c. R. Co. 156, 298 
 
 Rio Grande & E. P. R. Co. v. Ortiz 800 
 Roberts v. Denver, L. & G. R. Co. 106 
 Robinson v. Ala. & Ga. Mfg. Co. 477 
 
 V. Atlantic & Gt. Western R. Co. 220, 
 
 565 
 
 V. Campbell 375 
 
 V. Dolores C. Co. 197 
 
 V. Iron Ry. Co. 489, 823 
 
 V. Pliila. & Reading Ry. Co. 864 
 
 Robison v. Coal Cliff Co. 162 
 
 Rochester Bank v. Averell 193 
 
 Rochester Distilling Co. v. Rasey 182 
 
 Rockwell V. Elkhorn Bank 2 
 
 Rogers v. Dexter & P. H. Co. 137 
 
 V. Mobile & Ohio R. Co. 573, 6»j 
 
 V. Wheeler 319, 320, 686 
 
 Rogers Locomotive Co. v. Lewis Si's) 
 Rogers Locomotive & M. Works v. 
 
 Southern Ry. Assn. 126, 128 
 
 Rogersville, &c. Ry. Co. v. Kyle 780 
 
 Rome & D. R. Co. v. Sibert 636 
 
 Romford Canal Co., In re 31 
 
 Roper V. McWhorter 170 
 
 Rosa V. Butterfield 20 
 
 Rosenkraus c. La Fayette, B. & M. R. 
 
 Co. 57 
 
 Rothgerber v. Dupuy 278 
 
 Rothschild v. Rochester & Pittsburgh 
 
 Ry. Co. 10, 23, 25, 192, 202, 423 
 
 Rouede v. Mayor of Jersey City 87 
 
 Rouse V. Harry 693 
 
 V. Letcher 413 
 
 V. Redinger 680 
 
 Royal British Bank v. Turquand 86 
 
 Ruggles V. Simonton 368, 415 
 
 Runkle v. Lamar Ins. Co. 436 
 
 Russell V. East Anglian Ry. Co. 280, 361, 
 
 370, 509 
 
 V. Texas & Pac. R. Co. 547, 567 
 
 Rutter V. Union Pac. Ry. Co. 67, 75 
 
 Ryan v. Anglesea Ry. Co. 208, 558 
 
 Hays 
 
 658, 700, 701, 762, 802 
 
 Sacramento & Placerville 
 
 Superior Ct. 
 Sadler v. Worley 
 Sage V. Central Ry. Co. 
 
 411, 727, 729, 773, 
 
 r. Central Rj'. of Iowa 
 
 V. Memphis & Little 
 
 Co. 502, 507, 523, 
 
 i: Railroad Co. 
 
 Sahlgaard v. Kennedy 48 
 488, 769, 812, 818, 
 
 R. Co. !•. 
 
 389 
 
 280, 392 
 
 49, 145, 353, 
 
 , 777, 851, 852 
 
 482,827,829 
 
 Rock R. 
 
 632, 533, 540 
 
 8.^5 
 
 ,420,441,474, 
 
 i, 819, 820, 857 
 
Iviii 
 
 TABLE OP CASES CITED. 
 
 St. John V. Erie Ev. Co. 139, 141, 862, 
 
 863 
 St. Joseph & St. Louis R. Co. v. 
 
 Humphreys 572, 698 
 
 St. Joseph Union Depot Co. v. Clii- 
 
 cago, K. I. & Pac. K. Co. 800 
 
 St. Louis, A. & T. H. R. Co. v. Cleve- 
 land, C. C. & I. R. Co. 606, 607, 694 
 St. Louis Car Co. v. Stillwater St. 
 
 Rv. Co. 521 
 
 St. Louis, Fort S. & W. R. Co. v. Che- 
 
 nault et al. 94 
 
 St. Louis, Iron Mt. & So. R. Co. v. 
 
 Southern Exp. Co. 833 
 
 St. Louis, &c. Ry. Co. v. Whitaker 231, 
 
 268 
 St. Louis & San Fran. R. Co. v. James 433 
 St. Louis S. W. Ry. Co. o. Holbrook 
 
 575, 651, 803 
 
 V. Stark 797 
 
 St. Louis T. Co. V. Kelly 625 
 
 St. Paul & Duluth Ry. Co. «. United 
 
 States 243 
 
 St. Paul, &c. R. Co. V. St. Paul, &c. 
 
 R. Co. 256 
 
 St. Paul Title Ins. Co. v. Diagonal 
 
 Coal Co. 611, 673, 712 
 
 Sanborn v. Clough 100 
 
 Sandford ;-. Mt-Lean 637 
 
 San Francisco v. Cent. Pac. R. Co. 143 
 San Francisco, &c. R. Co. u. State 
 
 Board 143 
 
 Sangamon p. Co. v. Morgan Co. 341 
 
 Sankey Brook Coal Co., In re 392 
 
 Santa Clara County ;;. So. Pac. Ry. 143 
 Sanxey v. Inwa City Glass Co. 64 
 
 Savannah, F. & W. R. Co. v. Jackson- 
 ville, T. & K. W. Ry. Co. 614 
 Savannah & Memphis R. Co. v. Lan- 
 caster 1, 162, 189, 190, 450, 476, 478 
 Schallard v. Eel River Nav. Co. 713 
 Schmidt v. Louisville & N. R. Co. 1 39, 246 
 
 V. Mitchell 419 
 
 SchoUenberger, Ex parte 436 
 
 Schurr v. Omaha & St. Louis Ry. Co. 685 
 Schutte V. Florida Cent. Ry. Co. 83, 92, 
 330, 651, 795 
 Scotland County v. Hill 103 
 
 Scott V. Clinton & Springfield Rv. Co. 
 
 223, 339, 444, 446, 447, 610 
 
 w. Farmer's Loan & Tr. Co. 549,670 
 
 V. Mansfield, C. & L. M. R. Co. 470 
 
 V. Ry. Co. 687 
 
 V. Rainier Power & Ry. Co. 643 
 
 Searles v. Jacksonville, P. & M. R. Co. 
 
 459, 515, 810 
 Seattle, L. S. & E. R. Co., In re 560 
 
 V. Union T. Co. 729, 7.32 
 
 Secor V. Toledo, P. & W. Ry. Co. 550 
 Securities Inv. Corp. a. Brighton Al- 
 
 hambra 556, 670, 672 
 
 Seibert i-. Minneapolis, &c. Railroad 
 
 Co. 168, 386, 406, 463, 472, 502 
 
 Selignian v. Prince 15 
 
 Seney v. Wabash Western Ry. Co. 693, 
 
 Seventh Nat. Bank v. Shenandoah 
 
 Iron Co. 594 
 
 Sewall V. Brainerd 107, 754 
 
 Sewell V. Cape May, &c. Ry. Co. 527, 543 
 Sewing Machine Cos., Case of 440 
 
 Seybel u. Nat. Currency Bank 95 
 
 Seybert v. City of Pittsburg 106 
 
 Seymour v. Canandaigua, &c. Ry. Co. 
 
 221, 223, 224, 234, 235, 250, 267 
 Shamokin Val. Ry. Co. v. Livermore 
 
 134, 228, 231, 255 
 Shaver v. Bear River, &c. Co. 384 
 
 V. Hardin 197 
 
 Shaw V. Bill 218, 245, 451, 823 
 
 V. Little Rock Ry. Co. 48 
 
 V. Norfolk Co. R. R. Co. 169, 291, 
 
 310, 389, 451, 475, 478, 479 
 
 V. Railroad Co. 460, 487, 489, 490, 
 
 678, 842 
 
 V. Saranac Horse Nail Co. 763 
 
 Sheboygan County v. Parker 106 
 
 Sheffield & B. Coal, Iron, & Ry. Co. 
 
 V. Newman 795 
 
 Shelby v. Beacon 429 
 
 Shepard v. Richardson 394, 805 
 
 Shepley v. Atlantic, &c. Ry. Co. 169, 
 
 172, 302, 389 
 Sherwood v. Alvis 285 
 
 ■ V. Atlantic & D. R. Co. 844 
 
 Shields v. Thomas 416 
 
 Shopp V. Norristown Pass. Ry. Co. 10 
 Shrewsbury Ry. Co. v. London Ry. 
 
 Co. 29 
 
 Sickles V. Richardson 23, 45 
 
 Silliman v. Fredericksburg, 0. & C. 
 
 Ry. Co. 88, 157 
 
 Simmons v. Burlington, Cedar Rapids, 
 
 & N. Ky. Co. 750, 751 805, 806 
 
 V. Taylor 65, 98, 465, 720, 743, 750, 
 
 783, 798 
 Simpson v. Palace Theatre, Lira. 844 
 
 Skiddy v. Atlantic & Miss. R. Co. 35, 
 
 37, 63, 112, 154, 165, 307, 483, 597, 
 602, 612, 618 
 Slater v. Darlaston Steel Co. 850 
 
 Sloan !'. Cent. Iowa Ry. Co. 687 
 
 Smead v. Indianapolis, P. & C. R. 
 
 Co. 122, 123, 124, 
 
 Smith V. Atlantic Mutual Fire Ins. 
 
 Co. 
 
 0. Chicago & N. W. Ry. Co. 
 
 Chicago & Prairie du Chien R. 
 
 Co. 
 
 !'. Clark County 
 
 0. Clay 
 
 V. Eastern R. Co. 
 
 V. Gower 
 
 v. Kernochen 
 
 V. McCuUough 
 
 V. Port Dover, &c. R. Co. 
 
 V. Potter, Receiver 
 
 Smith's Exrs. v. Washington City, 
 
 &c. Ry. Co. 372, 
 
 Smythe v. Chicago & S. R. Co. 
 Sneath v. Valley Gold Co. 51, 851, 
 Snively v. Loomis Coal Co. 
 
 128 
 
 428 
 844 
 
 801 
 106 
 813 
 35, 68, 140, 499 
 783 
 444 
 142, 218, 243 
 525 
 690 
 
 724 
 
 44 
 
 855 
 
 594 
 
TABLE OF CASES CITED. 
 
 lix 
 
 Snow V. Texas Trunk R. Co. 442, 446 
 Society for Savings v. New London 118 
 Somerset Ry. v. Pierce 377 
 
 South Carolina R. Co., In the mat- 
 ter of 530, 532 
 South Carolina R. Co. v. People's 
 Sav. Inst. 366, 427, 428, 434, 553 
 
 V. Wilmington, C. & A. R. Co. 794 
 
 South Covington Ry. Co. v. Gest 110, 111 
 South Essex Gas Light Co., In re 88 
 
 South St. Louis R. Co. v. Plate 400 
 
 Southern Development Co. f. Farm- 
 ers' Loan & T. Co. 620 
 Southern Pac. R. Co. v. Doyle 211, 387, 
 
 390, 492 
 Southern Ry. Co. v. Adams 619 
 
 V. Am. Brake Co. 619 
 
 V. Bon Knight 627 
 
 V. Carnegie Steel Co. 619 
 
 V. Dunlop Mills 619 
 
 V. FoUett 614 
 
 Southwestern Ark. & L T. Ry. Co. 
 V. Hays 2, 769, 774 
 
 Sovereign Life Assn. Co. v. Dodd 
 
 Spence v. Mobile & M. R. Co. 
 
 Spencer v. Brooks 
 
 Spies V. Chicago & E. I. R. Co. 
 
 Spoon V. C. & W. M. R. Co. 
 Sprague v. Smith 
 Squire v. Wilton 
 Stainbuck v. Junk Bros. 
 Mfg. Co 
 
 850 
 
 96, 266 
 
 643 
 
 68, 231, 
 
 478 
 
 252 
 
 319, 690 
 
 81 
 
 Lumber & 
 
 28 
 
 Standard Ins. Co. i;. Langston 143 
 
 Standard Mfg. Co., In re 280, 603 
 
 Stanford Banking Co. v. AUchin 645 
 
 Stanley, Case of 181 
 
 Stanley, Ex parte 258 
 
 Stanton v. Ala. & Chat. R. Co. 90, 153, 
 156, 677, 678, 679, 681, 683, 689, 725 
 
 V. Embrey 427, 428, 484 
 
 Stark Bank v. \J. S. Pottery Co. 120 
 
 State V. Board of Freeholders 84 
 
 V. Brown 206, 741, 742, 746, 809,833 
 
 V. Central Iowa Ry. Co. 794 
 
 V. Clinton 129 
 
 V. Con. Eur. & N. American Ry. 
 
 Co. 321 
 
 V. Florida Centr. R. Co. 331, 828,831 
 
 V. Glenn 228, 252 
 
 1). Hartford & N. H. R. Co. 49 
 
 V. McDaiiiel 843 
 
 u. Morgan 170 
 
 V. Nashville, Chat. & St. Louis 
 
 Ky. Co. 789 
 
 V. Nichols 13 
 
 V. Northern Centr. Ry. Co. 240, 508, 
 
 526, 529 
 
 V. Port Royal & A. Ry. Co. 669, 837 
 
 V. Sherman 845 
 
 V. Spartanburg & N. R. Co. 107, 108, 
 
 V. Wabash Ry. Co. 
 
 State ex rel. v. Cheraw & C. Ry. 
 
 V. Funding Board 
 
 V, Mays 
 
 Co. 
 
 332 
 685 
 141 
 129 
 
 72 
 
 State ex rel. o. Merchant 551 
 
 V. Recorder of Mtges. 274 
 
 State ex rel., &c. u. Atchison & Ne- 
 braska R. Co. 9 
 State ex rel. Plock v. Cobb 25, 59, 90, 
 9-5, 154, 157 
 State ex rel. Rolston et at. Trustees 
 
 V. Chappell 329 
 
 State of California i: Wells, Fargo, & 
 
 Co. 95 
 
 State of Florida v. Anderson 73, 311 
 
 V. Florida Centr. K. Co. 287, 330 
 
 V. Jacksonville, P. & M. R. Co. 507, 
 
 . 515, 520 
 State of Maryland v. Northern Cen- 
 tral Ry. Co. 826 
 State of Missouri v. McKay 817 
 State of New Jersey v. Montclair R. 
 
 Co. 843 
 
 State of New Jersey, N. J. So. R. Co., 
 
 Prosecutor, v. Railroad Conimrs. 654 
 State of Tennessee v. Edgefield & 
 Kent R. Co. 544, 643 
 
 V. McMinnville & M. R. Co. 832 
 
 State of Virginia v. State of Mary- 
 land 78 
 State Journal Co. v. Commonwealth 
 
 Co 526, 530 
 
 State Line R. Co., Appeal of 10, 23 
 
 State Treasurer i'. Somerville & East- 
 ern R. Co. 131 
 State Tr. Co. of N. Y. v. Nat. Land 
 
 Impv. & Mfg. Co. 512 
 
 Steelman et al. v. Baker 19, 29 
 
 Stein V. Howard 5 
 
 Steiner, Appeal of 165 
 
 Stephen v. Banque d'Hochelaga 766 
 
 Stephens v. Benton 91 
 
 Stern v. Wisconsin Cent. R. Co. 393, 4.54, 
 
 482, 484 
 Stevens v. Buffalo, &o. Ry. Co. 200 
 
 V. Davison 507 
 
 V. Eldridge 290, 472 
 
 V. Mid. Hants Ry, Co. 844 
 
 V. New York & Oswego Midi. 
 
 R. Co. 107, 577, 654, 755 
 
 V. Railroad Cos. 455, 853 
 
 V. Union T. Co. 293 
 
 V. Watson 20, 234, 267, 2(18 
 
 Stevens et al. u. Louisville & Nash- 
 ville R. Co. .^9 
 Stevenson r. Davison 651 
 Stewart, Appeal of 801, 80-') 
 Stewart v. Chesapeake & Ohio Canal 
 Co. 47, 390, 431, 470, 481, 525, 5:TI 
 532, 715, 7 1 H 
 
 V. Jones 170 
 
 V. Wheeling & L. E. R. Co. 747, 701 
 
 Stockton t). Central Ry. Co. 170 
 
 Stoney v. Am. L. Ins. Co. 86, 156 
 
 Stradley v. Pailthorpe 91 
 
 Strang v. Montgomery & Eufaula R. 
 
 Co. 136,246,781 
 
 Stratton v. Allen 3 
 
 i-. European & N. A. Ry. Co. "19, 
 
 320, bU2 
 
Is 
 
 TABLE OP CASES CITED. 
 
 Strauss v. United Tel. Co. 71, 82, 118 
 
 Ktreatham & Gen. Estates Co., In re 258 
 Street v. Maryland Cent. R. Co. 669, 673, 
 
 674 
 Strong V. Carlyle Press Co. 506, 520, 645 
 Stuart V. James River & R. Co. 331 
 
 Stubbs, Joshua, In re 620, 645 
 
 Sturges V. Knapp 288, 293, 308, 309, 311 
 
 0. Stetson 20, 39 
 
 Suddath v. Gallagher 632 
 
 Sullivan v. Portland & K. Ey. Co. 137, 
 376, 745, 813, 867 
 Sunflower Oil Co. v. "Wilson 564, 693 
 Supervisors v. Durrant 416 
 
 Sussex R. Co. v. M. & E. R. Co. 29 
 
 Sus. Bridge & Bank Co. v. General 
 
 Ins. Co. 162, 187 
 
 Susquehanna Canal Co. v. Bonhan 165 
 Sutherland & Lake Superior Ship 
 
 Canal Co. 393, 464, 565 
 
 Sutliff V. Cleveland & W. Ry. Co. 56 
 
 Swann v. Clark 678, 683 
 
 V. Gaston 252 
 
 V. Wright's Exrs. 735, 736, 746, 
 
 796, 797 
 Swasey v. North Carolina Ry. Co. 392, 
 
 442, 469 
 Sykes v. Hastings 513 
 
 Syracuse Savings Bank v. Syracuse, 
 
 &c. Ry. Co. 833 
 
 Taber v. Cinn., &c. Ey. Co. 183 
 
 Taggart v. N. C. Ry. Co. 58 
 
 Tailby v. Receiver 258 
 
 Talcott V. Township of Pine Grove 501 
 Taunton v. Warwickshire Sheriff 280, 370 
 Taylor i: Burlington, &c. Ry. Co. 271, 
 
 274, 275 
 
 V. Carryl 413, 416 
 
 V. Phil. & Reading R. Co. 32, 3.3, 
 
 354, 508, 620, 543, 651, 672, 674 
 
 V. Trustees of Atl. & Gt. Western 
 
 R. Co. 15, 25, 101, 164 155, 168 
 
 Teal V. Walker 496 
 
 Temple v. Glasgow 
 Tenn. Bond Cases (Ralston v. Crit- 
 tenden) 
 Terhune v. Midland R. Co. 
 
 V. Potts 
 
 Texas, &c. R. Co. v. Collins 
 Texas Ry. Co. v. Watts 
 Texas & Mex. Ry. Co. v. Wright 
 Texas & Pac. R. Co. v. Bledsoe 
 
 V. Bloom 
 
 V. Cox 
 
 V. Gaal 
 
 826 
 
 334 
 
 467 
 
 71 
 
 693 
 
 578 
 
 367 
 
 693 
 
 661, 687, 701 
 
 579, 693 
 
 0. Gay 553, 686 
 
 V. Geiger 692 
 
 V. Huffman 572, 687 
 
 n. Johnson 687, 701 
 
 V. McAllister 447 
 
 V. Marlor 43, 71 
 
 V. Watson 685 
 
 Texas Trunk R. Co. v. Lewis 566 
 Texas West. Ry. Co. v. Gentry 204, 212 
 
 384 
 
 91 
 
 39 
 
 95 
 
 573, 674 
 
 200 
 
 623 
 
 105 
 
 449 
 
 96 
 
 Third Nat. Bank of Boston v. Eastern 
 
 R. Co. 35 
 
 Third Nat. Bank of City of N. Y., In 
 
 the matter of the claim of 631 
 
 Third St. Suburban Ry. Co. v. Lewis 614 
 Thomas v. Brown ville, Fort K. & Pac. 
 
 R. Co. 25, 94, 147, 150, 152, 198 
 V. Cincinnati, N. 0. & T. P. Ry. 
 
 Co. 560, 643 
 
 V. Citizens' Horse Ry. Co. 192, 204 
 
 V. Dakin 134 
 
 V. E. Tenn., V. & Ga. R. Co. 658 
 
 V. Jones 708 
 
 V. N. y. & G. L. R. Co. 69, 2a0 
 
 V. Peoria & R. I. R. Co. 852, 584, 
 
 606, 611, 621, 661, 697 
 
 V. Railroad Co. 121, 174 
 
 V. Western Car Co. 619, 621, 657 
 
 V. Williams 683 
 
 Thompson v. Erie Ry. Co. 14, 162 
 
 V. Huron Lumber Co. 
 
 V. Lambert 
 
 V. Memphis, S. & B. R. Co. 
 
 V. Perrine 
 
 V. Scott 
 
 V. Van Vechten 
 
 V. White Water Valley R. Co. 
 
 Thomson v. Lee Co. 
 
 V. Wooster 
 
 Thomson-Houston Electric Co. v 
 
 Capitol Electric Co. 
 Thorn v. Nine Reefs 370, 606 
 
 Thornton v. Highland Ave. R. Co. 652, 
 
 657 
 
 V. Wabash Ry. Co. 843, 868 
 
 Thurman v. Cherokee R. Co. 692 
 
 V. Railroad Co. C86 
 
 Tilley v. Savannah, Florida, & West. 
 
 R. Co. 
 Tillinghast v. Troy & Boston R. Co. 
 Titus V. Ginheimer 
 
 V. Mabee 248, 339, 868, 834 
 
 Tobias v. Tobias 577 
 
 Tod V. Kentucky Union Land Co. 120, 
 
 124, 127 
 
 Toledo, &c. Ey. Co. v. Hamilton 235, 236, 
 
 264, 273, 623 
 
 Toledo, Wab. & West. R. Co. v. Beggs 688 
 
 Toler V. East Tennessee, &c. R. Co 312, 
 
 395, 399, 449, 482. 738 
 
 Tome u. King 464, 635, 707, 710, 72.3, 
 
 734, 829, 831, 838 
 
 Tommey v. Spartanburg & A. R. Co. 274 
 
 Tompkins v. Little Rock & Ft Smiih 
 
 Ry. Co. 39, 136, 137, 145, 824, 382, 374 
 Tonawanda Valley & Cuba R. Co. v. 
 
 N. Y., L. E. & W. R. Co. 121 
 
 Toppan V. Cleveland, C. & C. E. Co. 118, 
 
 127, 128 
 Tottenham v. Swansea Zinc Ore Co. 645 
 Town of Eagle v. Kohn 78 
 
 Town of Genoa v. Woodruff 104 
 
 Township, &c. v. Toronto & N. R. Co. 30 
 Traders' Nat. Bk. v. Lawrence Mfg. 
 
 Co. 20, 61. 63 
 
 Trask v. Maguire 787, 788, 789 
 
 370 
 406 
 308 
 
TABLE OP CASES CITED. 
 
 Ixi 
 
 Treadwell v. Salisbury Mfg. Co. 162, 164 
 Tripp V. Bridgewater & T. Canal Co. 613 
 Troy & Boston K. Co. v. Boston, H. T., 
 
 &c. \i. Co. 170 
 
 Troy & Rutland Ky. Co. v. Kerr 170 
 
 Truman & Co. v. Redgrave 656 
 
 Trust Co. V. Morrison 637 
 
 V. Biley 694 
 
 Trustees u. Greenough 703, 704, 705, 
 
 706, 708, 712, 714, 719, 837 
 
 Tunis Ry. Co., In re 867 
 
 Turner v. Conant 40 
 
 V. Cross 693 
 
 V. Farmers' L. & T. Co. 440, 839 
 
 V. Indianapolis, B. & W. Ry. Co. 133, 
 
 353, 426, 446, 558, 584, 687, 591, 610, 
 
 661, 689, 690, 735, 736, 740, 767, 776, 
 
 778, 806, 818, 819 
 
 V. Peoria & Springfield K. Co. 667, 
 
 679 
 Twin Lick Oil Co. c. Marburg 147 
 
 Tyler, In re 413, 421, 577, 654 
 
 Tyrell v. Cairo & St. Louis R. Co. 26, 31, 
 
 107 
 Tyrone & Clearfield R. Co. v. Jones 747 
 Tysen v. Wabash, &c. Ry. Co. 47, 523, 625 
 Tyson's Reef Co., In re 30 
 
 Undebbank Mills Co., In re 280, 604 
 Underhill v. Santa Barbara Land, 
 
 Building, & Improvement Co. 5 
 
 Union Bank v. Jacobs 2 
 
 Union Bank of Chicago u. Bank of 
 
 Kansas City 547 
 
 Union Cattle Co. u. International 
 
 Trust Co. 82 
 
 Union Mut. Life Ins. Co. v. Union 
 
 Mills Plaster Co. 402, 516, 528 
 
 V. University of Chicago 423, 666 
 
 Union Pac. R. Co. v. Stewart 40 
 
 V. United States 133, 139 
 
 Union Trust Co. u. Atchison, &c. R. 
 
 Co. 560, 602 
 
 V. Chicago & Lake Huron R. Co. 662, 
 
 678, 681 
 
 V. Cuppy 319 
 
 V. Illinois Midi. Ry. Co. 285, 303, 
 
 478, 487, 529, 593, 601, 607, 615, 644, 
 657, 660,661, 662, 664, 667, 670, 671, 
 672, 673, 678, 680, 681, 683, 853 
 V. Missouri, Kansas, & Tex. Ry. 
 
 Co. 75, 137, 318, 387 
 V. Monticello & Port Jervis Ry. 
 
 Co. 109, 110, 767 
 
 V. Morrison 357, 368, 635, 636, 637 
 
 V. Nevada & 0. R. Co. 24, 89 
 
 V. New York C. & S. L. R. Co. 26 
 
 V. Olmsted 423 
 
 V. Roch. & Pittsburg R. Co. 433 
 
 V. Rochford, R. I. & St. Louis 
 
 R. Co. 424, 426 
 r. St. Louis, Iron Mt. & Southern 
 
 R. Co. 400, 401, 627, 535, 731 
 
 V. Southern Cal. Motor Road Co. 5, 
 
 28, 81, 83, 340, 652, 696 
 
 Union Trust Co. v. Soutter 66, 593, 598, 
 
 606 
 
 V. Walker 587, 604 
 
 V. Weber 647, 648 
 
 Union Water Co. o. Murphy's Flat 
 
 Flume Co. 29, 229, 247 
 
 United Lines Tel. Co. v. Boston Safe 
 
 Deposit & T. Co. 
 
 224 
 
 United States v. Cassidy 
 
 5oO 
 
 u. Elliott 
 
 660 
 
 
 78 
 
 V. Flint 
 
 470 
 
 V. How land 
 
 376 
 
 V. Kane 
 
 550 
 
 y. Kansas Pac. Ry. Co. 
 
 139 
 
 0. New Orleans R. Co. 
 
 268, 270, 
 
 
 276, 345 
 
 
 138 
 
 
 38 
 
 U. S. Rolling Stock Co., Matter of 647 
 United States Tr. Co. v. New York, 
 W. S. & B. R. Co. 509, 555, 605, 613, 
 
 709 
 
 V. Omaha & St. Louis R. Co. 561, 
 
 562, 677 
 
 I). Wabash, St. Louis, & Pac. 
 
 Ry. Co. 235, 254 
 
 V. Wabash & Western Ry. Co. 241, 
 
 •245, 496, 519, 565, 640, 657, 693, 698 
 Uruguay Central, &c. R. Co., In re 379, 
 
 459, 732 
 Usher v. Raymond Skate Co. 120 
 
 Vail o. Hamilton 192 
 
 Valpy V. Chaplin, Ex parte 262 
 
 Tan Cott v. Van Brunt 28 
 
 Vanderbilt v. Central R. Co. 696 
 
 V. Little 646, 647, 648 
 
 Van Hostrup v. Madison City 106 
 
 Van Weel v. Winston 43, 53, 64, 589 
 
 Varner v. St. Louis & C. R. Co. 800 
 
 Vatable u. N. Y., L. E. & W. R, Co. 741, 
 
 777, 780, 843, 848 
 
 Venables v. Baring 82, 95 
 
 Vermont & Can. Ry. Co. v. Vermont 
 
 Central Ry. Co. 139, 207, 507, 625, 643, 
 
 545, 640, 649, 667, 675, 749, 762 
 
 Verplanck v. Mercantile Ins. Co. 515, 642 
 
 Vertue v. East Anglian R. Co. 379 
 
 Vicksburg & Meridian R. Co. «. Mc- 
 
 Cntchen 494, 731 
 
 Vicksburg, S. & P. Ry. Co. v. Elmore 842 
 
 '■. Sledge 208 
 
 Victoria Steamboats, Lim., In re 370, 606 
 Vilas ('. Milwaukee & Prairie du 
 Chien Ry. Co. 804 
 
 V. Page 656, 570, 650, 662, 666, 667, 
 
 668, 672, 723, 801 
 Virginia Tidewater Coal Co. v. Mer- 
 cantile T. Co. 810 
 Vlatch I). Am. L. & T. Co. 626 
 Voorhees v. McGlnnis .".".8 
 Voorhis v. Freeman 342 
 Vose V. Bronson 4S6 
 I). Reed 623, 524, 526, 628 
 
Ixii 
 
 T^BLE OF CASES CITED. 
 
 Wabash By. Co., In re 
 Wabash Ky. Co. v. Dykeman 
 
 550 
 
 515, 616, 
 
 637 
 
 V. Stewart 797 
 
 Wabash, St. Louis, & Pac. R. Co. v. 
 Central T. Co. 462, 464, 518, 621, 605, 
 641, 672, 697, 852, 854 
 
 V. Hain 142 
 
 Waco & Tap. Ry. Co. v. Shirley 212 
 
 Wade V. Chicago, S. & St. L. R. Co. 93, 
 
 235, 267 
 
 V. Donan Brew. Co. 46, 186 
 
 Wahlig V. Standard Pump Mfg. Co. 120 
 Wakefield u. Fargo 137 
 
 Waldoborough v. Knox & L. R. Co. 47 
 Walker v. Montclair, & Greenwood 
 Lake Ry. Co. 824 
 
 u. Quincy, M. & P. Ry. Co. 707, 718, 
 
 724 
 
 Wallace v. Loomis 72, 303, 487, 593, 
 
 663, 667, 668, 671, 672 
 
 . V. McConnell 401 
 
 Wallbridge v. FarweU 341, 583, 596 
 
 Walsh V. Barton 230 
 
 Ward i>. Montclair Ry. Co. 813 
 
 Wardell v. Union Pac. Railroad Co. 94, 
 
 147, 697 
 Warner v. Rising Fawn Iron Co. 402, 535 
 Warren v. King 863 
 
 Warwick Iron Co. v. Morton 402 
 
 Washington, A. & G. R. Co. v. Alex- 
 andria & Wash. R. Co. 289, 291, 435, 
 
 734 
 Washington City & Point Lookout R. 
 
 Co. V. So. Maryland Ry. Co. 837 
 
 Washington, Ohio, & W. R. Co. v. 
 Cazenove 746 
 
 - V. Lewis 801 
 Water Co. v. DeKay 26 
 Waterhouse v. Comer 660, 561 
 Watson V. Jones 419, 429 
 Watt V. H. M. & F. R. Co. 252, 356 
 
 V. Senecal 356 
 
 Waymine v. San Franc. & S. M. R. 
 
 Co. 417 
 
 Webb V. Commrs. of Heme Bay 30, 87 
 
 I). Vermont Centr. R. Co. 294, 888, 
 
 459, 472 
 Wedgwood Coal & Iron Co., In re 850, 
 
 865 
 Weetjen v. St. Paul, &c. R. Co. 239 
 
 V. Vibbard 313, 472 
 
 Welch V. Nat. Cycle Co. 774 
 
 V. Sage 78 
 
 Wells V. So. Minn. Ry. Co. 143 
 
 Wellsborough, &c. Plank Road Co. 
 
 V. Griffin 782, 804, 843 
 
 Welsh V. St. Paul, &c. R. Co. 104, 293, 380 
 West V. Madison Co. Agri. Board 163 
 West Branch Bank v. Chester 392 
 
 West of England Bank, In re 125, 126 
 Western Div. of Western North Caro- 
 lina R. Co. V. Drew 302 
 Western of Canada Oil Co., In re 844 
 Western Penn. Ry. Co. v. Johnston 134, 
 164, 269, 798, 800 
 
 Western R. Co. v. Nolan 472, 478 
 
 Western U. Tel. Co. v. Burlington, 
 
 &c. Ry. Co. 272 
 
 V. Thorn 695 
 
 Wetmore v. St. Paul & Pac. R. Co. 491, 
 739, 748, 774, 812, 819, 822, 835, 842, 
 
 854 
 Wheeling, P. & B. R. Co. v. Warrell 798 
 Wheelwright v. St. Louis, &c. Traut-ip. 
 
 Co. 98, 473 
 
 Whitaker v. Hartford, &c. Ry. Co. 106 
 White, Ex parte 61, 62, 8U4 
 
 White V. NashTille & N. W. R. Co. 798 
 
 V. Vt. & Mass. R. Co. 78, 79, 81 
 
 V. Wood 861 
 
 White Mountains R. Co. v. Bay State 
 
 Iron Co. 77 
 
 V. White Mts. (N. H.) Co. 816, 
 
 817, 821 
 White, Potter, & Page Mfg. Co. v. 
 
 Pettee's Importing Co. 136 
 
 White Water Val. Canal Co. v. Val- 
 
 lette 3,13,20,211,212,528 
 
 Whitehead v. Vineyaid l43, 144, 2-^0 
 
 u. Wooten 534 
 
 Whitely v. Cent. T. Co. of N. Y. 636 
 
 Whiting V. Bank of the U. S. 834 
 
 Whitley v. Collis 220, 556 
 
 Whitney Arms Co. v. Barlow 29 
 
 Wickham v. N. B. & C. A. By. Co. 252, 
 
 258 
 Widener v. Ry. Co, 
 Wiggins Ferry Co. v. Illinois & St. L. 
 
 R. Co. 
 
 ;;. Ohio & Miss. R. Co. 
 
 Wild V. Mid. Hants R. Co. 
 Wilkinson v. North River Construc- 
 tion Co. 
 Wilkinson el al. Trustees v. Fleming 
 Willamette, &c. Ry. Co. b. Bank of 
 
 British Columbia 
 Williams, £a; parte 78,685 
 
 Williams v. Little Rock & Fort S. 
 
 Ry. Co. 39 
 
 V. Missouri, &c. Ry. Co. 434 
 
 V. Morgan 461, 483, 707, 739, 827, 837 
 
 V. Stevens Point Lumber Co. 30 
 
 Williamson v. New Albany, &c. R. 
 
 Co. 363, 397, 399, 606, 523, 526, 631, 
 535, 557 
 
 V. New Jersey Southern R. Co. 179, 
 
 184, 200, 201, 223, 224, 236, 242, 
 244, 260, 270, 271, 276, 341, 451 
 V. Washington City, Va. Midi. 
 
 & G. S. R. Co. 587, 598, 699, 606, 612, 
 
 618 
 Willink V. Andrews 2.58 
 
 V. Morris Canal, &c. Co. 168, 168, 
 
 186, 234, 260, 267, 874, 467, 468, 
 476, 477, 478, 481, 547 
 Willmott V. London Celluloid Co. 645 
 Willoughby v. Chicago, J. R. & 
 
 Union Stock Yards Co. 3, 13, 34 
 
 Wilmer v. Atlanta & Richmond Air 
 
 Line R. Co. 310, 393, 423, 424, 472, 
 
 474, 543, 555, 768 
 
 381 
 
 839 
 794 
 356 
 
 571 
 321 
 
 178 
 
TABLE OP CASES CITED. 
 
 Wilmington R. Co. v. Downward 781, 
 
 783, 842 
 Wilson V. Barney 5iO 
 
 V. Beokwith 144, 159, 220, 252 
 
 0. Boyce 143, 220 
 
 V. Gaines 787 
 
 Winboum, Case of 690 
 
 Wincliester, &c. Turnpike Co. v. Ver- 
 mont 165 
 Winnipeg & H. B. R. Co. v. Mann 12, 162 
 Winslow 0. Minnesota, &c. R. Co. 483, 485 
 Wiswall V, Sampson 547 
 Witlierspoon v. Texas Pacific R. Co. 843 
 Witter V. Grand Rapids Flouring Mill 
 
 Co. 204 
 
 Woerishoffer v. North River Con- 
 struction Co. 570 
 Wood V. Corry Waterworks Co. 26, 30 
 
 V. Dubuque & S. C. R. Co. 797 
 
 V. Goodwin 317, 806 
 
 V. Guarantee T. Co. 63, 592, 694, 
 
 606, 607, 623, 670 
 
 V. Holly Mfg. Co. 272 
 
 V. N. Y. & New England R. Co. 612 
 
 V. Oregon Development Co. 539 
 
 V. Truckee Tpke. Co. 170 
 
 V. Whelen 24, 500, 767 
 
 Woodbury et al, v. Alleghany & K. 
 
 R. Co. et al. 10, 205, 414, 423 
 
 Woodhams v. Anglo-Aus. Co. 88 
 
 Woodruff 0. Erie Ry. Co. 558, 640, 699 
 
 «. New York, L. E. & W. R. Co. 705, 
 
 725 
 
 V. State of Miss. 71 
 
 Woods & McBrown v. Pitts., Cin. & 
 St. L. E. Co. 742, 743, 747 
 
 Woodson V. Murdoek 329 
 
 Woodworth v. Blair 463 
 
 Wookey v. Pole 81 
 
 Worcester Exchange, In re 30 
 
 Wright V. Bundy 194, 210 
 
 V. Ellison 148 
 
 V. Hughes 29 
 
 V. Kentucky & Great Eastern 
 
 Ry. Co. 149, 194 
 
 V. Kirby 708 
 
 V. Ohio, &c. R. Co. 107 
 
 Wyatt V. L. & K. Ry. Co. 252 
 
 Wylie V. Missouri Pac. R. Co. 25 
 
 Wynn Hall Coal Co., In re 262 
 
 Wynne v. Lord Newborough 514 
 
 Yoakum v. Selph 693 
 
 York & Cumberland R. Co. v. Myers 809 
 York & North Mid. Ry. Co. v. The 
 
 Queen 49 
 
 Yorkshire Ry. Co. v. Maclure 4, 354, 370 
 Young V. Montgomery & Eufaula Ry. 
 
 Co. 21, 88, 101, 156, 157, 332, 460, 464, 
 469, 487, 568 
 
 V. Rollins 431, 512, 516, 662 
 
 Youngblood v. Comer 685 
 
 Youngman v. Elmira, &c. Ry. Co. 164, 
 
 231, 302, 373 
 
 Yulee V. Vose 445, 446 
 
 Zabriskie v. Cleveland, Columbus, & 
 
 C. R. Co. 78, 127, 167, 435 
 
 Zebley v. Farmers' L. & T. Co. 317 
 
THE LAW 
 
 or 
 
 RAILWAY BONDS AND MOETGAGES. 
 
 CHAPTER I. 
 
 NATURE AND ISSUE OF BONDS. 
 
 i 1. Power of Eailway Companies gen- 
 erally to issue Bonds. 
 
 2. Constitutional Provisions as to the 
 
 Issue of Bonds. 
 
 3. Special Charter Provisions as to Is- 
 
 sue of Bonds. 
 
 4. General Statutory Provisions as to 
 
 the Issue of Bonds. 
 
 (a) Construction of Statutory Pro- 
 visions specifying the Pur- 
 poses for which Bonds may 
 be issued. 
 
 (5) Construction of Statutory Pro- 
 vLsions as to the Considera- 
 tion of Bonds. 
 
 (c) Construction of Statutory Pro- 
 visions limiting the Amount 
 to which Bonds may be is- 
 sued. 
 
 5. Kate of Interest at which Bonds may 
 
 be issued. 
 
 6. Power to issue Bonds after Consoli- 
 
 dation. 
 
 7. Validity of Bonds. 
 
 Objections to the Validity of the 
 Bonds on the Ground of the Ke- 
 lations of the Purchasers to the 
 Corporation. 
 
 Informality of Issue, when this is an 
 Objection of which only Corpora- 
 tions can take Advantage. 
 10. When the Company is estopped to 
 dispute the Validity of Bonds. 
 
 Bonds not void because Mortgage se- 
 curing them is unauthorized. 
 
 Deferred Income Bonds, Power to 
 issue. 
 
 13. Validity of Pledges of Bonds. 
 
 14. When the Issue of Bonds wUl be 
 
 enjoined. 
 Suits to annul Bonds. 
 Certificates of Indebtedness and for 
 
 Bonds. 
 State-aid Bonds. 
 Convertible Land-grant Certificates. 
 
 19. Bonds convertible into Stock. 
 
 20. Exchanges of Bonds. 
 
 21. Lloyd's Bonds. 
 
 9. 
 
 11 
 
 12. 
 
 § 1. Fovrei o^ Rail'way Companies generally to issue Bonds. — 
 The general rule is that private corporations, in the absence of an 
 express prohibition, may borrow money and issue negotiable in- 
 struments in the transaction of their legitimate business ; and 
 until the contrary is shown, the legal presumption is that their 
 acts in this connection are done in the regular course of their 
 authorized business.^ 
 
 ' Railroad Co. v. Howard (1869), 7 len, 448 ; Savannah & C. E. Co. ■». Lan- 
 WaU. 392 ; Com. v. Smith (1865), 10 Al- caster (1878), 62 Ala. 555; Branch & Sons 
 
 1 
 
RAILWAY BONDS AND MORTGAGES. 
 
 [chap. I. 
 
 A company is not impliedly prohibited from giving other evi- 
 dences of debt besides bonds and debentures, by reason of the fact 
 that those forms of obligations are alone mentioned in the act 
 authorizing a loan to be secured by a pledge of its property .^ 
 
 The power to issue bonds is, however, frequently limited by 
 constitutional or statutory provisions, and some of these are 
 noted in the succeeding sections.^ 
 
 Railway companies have such powers as are specifically granted 
 by statute, or as are necessary for the purpose of carrying into 
 effect such powers, and no others. These powers are implied 
 from the duties imposed by their charters. In the latter case 
 
 V. Atl. & Gulf R. Co. (1879), 3 Woods, 
 481. See also American Nat. Bank v, 
 American Wood Paper Co. (R. I., 1895), 
 32 Atl. 305, as to the general principle 
 that a private corporation has the power 
 to issue negotiable honds. See also Da 
 Ponte V. Northern Pac. B. Co. (1883), 21 
 Blatch. 534 ; Miller v. R. & W. R. Co. 
 (1863), 36 Vt. 452 ; McAllisters. Plant, 54 
 Miss. 106; McGregor v. Gov. & Lex. E. 
 Co., 1 Dis. (Ohio) 509. 
 
 "It is H well-acknowledged rule that 
 the right to contract debts carries with it 
 the power to give negotiable notes or bills 
 in payment or security for such debts, 
 unless the corporation is restrained by its 
 charter or statute from doing so." Rock- 
 well V. Elkhom Bank (1861), 13 Wis. 653, 
 per Dixon, C. J. See also Commrs. of 
 Craven County v. Atlantic, etc. R. Co. 
 (1877), 77 N. C. 289. 
 
 On the power to borrow, see the follow- 
 ing cases : Richards v. Merrimack & Conn. 
 E. Co. (1862), 44 N. H. 127; Bardstown 
 & Louisville E. Co. v. Metcalfe (1862), 4 
 Mete. (Ky.) 199; Eelly v. Trustees, etc. 
 (1877), 58 Ala. 489 ; s. o. 21 Am. Ey. 
 Eep. 138 ; Miller v. New York & E. E. 
 Co. (1859), 18 How. Pr. 374 ; Brown v. 
 Maryland (] 880), 62 Md. 439 ; Duncomb 
 V. N. Y., H. & N. R. Co. (1881), 84 
 N. Y. 190; s. c. 4A. & E. R. R. Cas. 293 ; 
 Phila. & Reading R. R. Co.'s Appeal (1882), 
 4 A. & E. R. R. Cas. 118 ; Union Bank v. 
 Jacobs (1845), 6 Humph. (Tenn.) 515. 
 
 See also on this subject generally. 
 Pierce on Railroads, 503; 1 Rorer on Rail- 
 roads, 229, 237, 241, 244 ; 2 Redfield's 
 Law of Railways, 536 ; 1 Woods' Railway 
 Law, 523 ; note to 7 A. & E. E. E. Cas. 
 117 ; 2 Am. L. Reg. 713, 728. See also 
 Kneeland v. Braintree St. Ry. Co. (Mass.), 
 
 45 N. E. Rep. 86 ; South Western Ark. & 
 I. T. Ry. Co. V. Hays (Ark.), 38 S. W. 
 Eep. 665. 
 
 In connection with subjects of this 
 treatise see "Principles and Practice of 
 Finance," by Edward CarroD, Jr. 
 
 1 Commercial Bank v. Great Western 
 Ey. Co., 3 Moore P. C. 295. 
 
 " For a constmction of a power given 
 in an English statute, see Landowners' 
 West of England & South Wales Drainage 
 and Inclosure Company v. Ashford (1880), 
 L. R. 16 Ch. Div. 41l", 437. 
 
 A special power of borrowing money 
 by the issue of debentures secured by 
 mortgage is given companies in the English 
 Companies Clauses Act, 8 & 9 Vict., c. 16. 
 It was claimed in this case that outside of 
 the act the company were authoi-ized to 
 raise certain moneys. Fry, J., approved as 
 an exposition of the law remarks of Mr. Jus- 
 tice Crompton, in his judgment in the case 
 of Chambers v. Manchester & Milford Rail- 
 way Company (1864), 5 B. & S. 588, 607. 
 Referring to section 8 of the special act, 
 Mr. Justice Crompton said: "It is said 
 that this leaves untouched the power of 
 borrowing on bond or by simple contract, 
 so that though the company can only bor- 
 row that sum on mortgage, the legislature 
 have left to the company a larger power of 
 borrowing money on other security. But 
 it is a strange construction that by an 
 enactment giving them a limited express 
 power of borrowing, they are to have a 
 general implied power of borrowing. I 
 agree with Mr. Lush that the more natural 
 construction is, that this is an enabling 
 section giving power to the company which 
 it would not otherwise have possessed, and 
 that the directors cannot borrow money in 
 any other way, so as to bind the company." 
 
§1-J 
 
 NATURE AND ISSUE OP BONDS. 
 
 they are but incidents to the principal matter. An incidental 
 power is one that is directly and immediately appropriate to the 
 execution of the specific power granted, and not one that has a 
 slight or remote relation to it.^ These powers, whether express or 
 implied, as incident to their creation, to make contracts, whether 
 by bond, bill of exchange, or negotiable note, which are entered 
 into in the usual and necessary course of their legitimate busi- 
 ness, are upheld by the courts.^ 
 
 The power of a corporation to issue bonds being independent 
 of statute, it results that, if it is vested with authority to borrow 
 money for specific purposes, it has the right to issue any instru- 
 ment in acknowledgment of the debt which may be thought proper. 
 Without any express provision empowering it to issue bonds, it 
 may do so for the purpose mentioned in the enabling act.* 
 
 1 McMasters v. Eeed's Exrs. (1854), 1 
 Grant's Cases (Pa.), 36. Power to borrow 
 money on mortgage does not imply that 
 the company cannot issue bonds alone. 
 Phila. & Sunbury E. Co. v. Lewis (1859), 
 33 Pa. St. 33. Bonds not avoided because 
 mortgage securing them is invalid. Com- 
 pare Bardstown & Louisville R. Co. v. 
 Metcalfe (1862), 4 Mete. (Ky.) 199 ; Mil- 
 ler V. Rutland & W. E. Co. (1863), 36 
 Vt. 452; Richards v. Merrimack & Conn. 
 E. Co. (1862), 44 N. H. 127. 
 
 2 Phila. & Read. R. Co. v. Hickman 
 (1857), 28 Pa. St. 318 ; White Valley Canal 
 Co. V. Vallette (1858), 21 How. 414 ; 
 Miller w. New York & E. R. Co. (1859), 
 18 How. Pr. 374 ; Commrs. of Craven 
 County V. Atlantic & R. Co. (1877), 77 
 N. C. 289 ; Stratton v. Allen (1863), 16 
 N. J. Eq. 229 ; Bardstown & Louisville 
 R. Co. V. Metcalfe (1862), 4 Metc.(Ky.) 199; 
 Richards v. Merrimack & Conn. R. Co. 
 (1862), 44 N. H. 127 ; Kelly v. Trustees, 
 etc. (1877), 58 Ala. 489 ; s. o. 21 Am. 
 Eep. 138 ; Brown v. State of Maryland 
 (1884), 62 Md. 439 ; Hamilton v. New- 
 castle & Danville R. Co. (1857), 9 Ind. 
 359 ; WiUoughby v. Chicago J. R. & Union 
 Stock Yards Co., 50 N. J. Eq. 656 ; s. o. 
 25 Atl. Eep. 277. 
 
 3 Miller v. New York & E. E. Co. 
 (1859), 18 How. Pr. 374; Kelly v. Trus- 
 tees, etc. (1877), 58 Ala. 489 ; s. c. 21 
 Am. Rep. 138. As to Massachusetts, see 
 § 4, below. An English railway company, 
 needing money to pay certain debts, and 
 having exhausted its power of borrowing 
 money, by advice of counsel resorted to 
 
 the plan of selling portions of their rolling- 
 stock to a wagon company for the money 
 they wished, and leasing the same from 
 the wagon company upon a contract which 
 in its terms bound the railway company 
 to repay the amount advanced, with inter- 
 est, in payments annually, covering a 
 period of five years. In an action for a 
 part of the money due on the lease, the 
 Court of Appeals held that the transac- 
 tion was a legitimate one, and the wagon 
 company entitled to a judgment against 
 the railway company and the guarantors 
 of the contract, certain of the company's 
 directors. In the argument before the 
 court, the rights of debenture-holders, as 
 against rolling-stock, were referred to. In 
 his opinion, Jessel, M. E., had this to say : 
 " Fii'st of all, I am not going to say that 
 debenture-holders have not some sort of 
 security over rolling-stock, though what 
 its precise nature may be is another mat- 
 ter. It may be that they have this kind 
 of security, that is, a security on the roll- 
 ing-stock for the time being, because it is 
 always changing ; it is not like a mort- 
 gage, subject to the right of the railway 
 company not only to use it in the ordinary 
 course of business, but to replace it in the 
 ordinary course of business ; that is to say, 
 they may sell, or part with, or use these 
 wagons, engines, locomotives, and so on, 
 and replace them by others, either of a 
 better description or otherwise, so that 
 they may part with them for any reason- 
 able purpose in the ordinary course of 
 business. If there is a new invention, 
 and they find they can buy some better 
 
RAILWAY BONDS AND MORTGAGES. 
 
 [chap. I. 
 
 8 2. Constitutional Provisions as to the Issue of Bonds. — The 
 
 constitutions of some of the States of the United States contain 
 various provisions in reference to the issue of bonds by railway 
 companies. The text of these is given in the subjoined note.^ 
 
 locomotires, they may part with the old 
 stock ; or if they become useless, and they 
 can hire a better class of locomotives, I 
 should say that they might part with them 
 in the ordinary course of business. But 
 as at present advised, I do not think they 
 could sell the whole of the rolling-stock 
 to pay the debts which were subsequent in 
 priority to the debentures." Yorkshire 
 Eailway Co. v. Maclure (1882), L. R. 21 Ch. 
 Div. 309, 314, 315 ; Phil. & Read. R. Co.'s 
 Appeal, 11 W. N. C. 325 ; s. o. 4 Am. & 
 Eng. R. R. Gas. 118 ; Gloninger v. Pitts- 
 burgh & Connellsville R. Co., 139 Pa. St. 
 13; s. c. 21 Fed. Rep. 211. See also 
 Anglo- Australian Co., 16 N. S. "Wales, 38 ; 
 North Central Wagon Co. v. Manchester, 
 etc. Ry. Co., 35 Ch. Div. 191 ; White v. 
 Carmarthen Ry. Co., 1 H. & M. 786; 
 Mowatt V. Castle Steel & Iron Works Co., 
 34 Ch. Div. 68. 
 
 - All the constitutional provisions re- 
 lating to any of the subjects treated in 
 this book are collected here, although 
 some of them relate to subjects treated in 
 other chapters. 
 
 Alabama. — Const., Art. XIV., § 6. 
 " No corporation shall issue stock or bonds 
 except for money, labor done, or money or 
 property actually received ; and all ficti- 
 tious increase of stock or indebtedness 
 shall be void. The stock and bonded in- 
 debtedness of corporations shall not be 
 increased, except in pursuance of general 
 laws, nor without the consent of the per- 
 sons holding the larger amount in value 
 of stock, first obtained at a meeting to be 
 held after thirty days' notice is given in 
 pursuance of law." 
 
 The Alabama Supreme Court said in 
 Nelson o. Hubbard, Adams' Cotton Mills 
 V. Dinimick (1892), 96 Ala. 238, 250 ; s. o. 
 11 So. Rep. 428 ; 12 Ry. & Corp. L. J. 
 182: "The constitutional provision [Art. 
 XIV., § 6], standing by itself, does not 
 require that the amount of money, or the 
 value of the labor or property for which 
 stock or bonds are issued, shall correspond 
 with the face value of the stock or bonds 
 for which it is issued. ... In the case of 
 bonds there is not, as there is in the case 
 
 of stock subscribed, any statutory pro- 
 vision requiring the value or consideration 
 received by the corporation to con'espond 
 with the amount, or nominal or face value, 
 of the bonds issued therefor. Such bonds 
 are not issued in contravention of the pro- 
 vision contained in the first sentence of 
 the above-mentioned section of the consti- 
 tution If the issue does not effect a ' ficti- 
 tious increase of indebtedness,' and if they 
 can properly be regarded as issued for 
 ' money, labor done, or money or property 
 actually received. ' The constitutional pro- 
 vision in question operates to invalidate 
 evidence of indebtedness when there is in 
 fact no debt ; to require every issue of 
 stocks or bonds of private corporations to 
 represent substantial values received by the 
 corporations ; to impose upon those charged 
 with the disposition of corporate securities 
 the duty to procure therefor a fair and 
 reasonable equivalent in money, labor, or 
 property actually contributed to the corpo- 
 ration. Courts of the highest authority 
 which have considered the effects of such 
 provisions have not construed them, when 
 not fortified by more stringent statutory 
 requirements, as invalidatory issues of 
 stocks and bonds in exchange for money, 
 property, or labor, upon such terms as the 
 corporate authorities, in the fair exercise 
 of their judgment and discretion, may 
 deem proper, though the amount received 
 therefor was less than the face value of 
 the securities. The negotiation of bonds 
 must be a real transaction, carried through 
 to promote legitimate corporate purposes, 
 and not a mere trick or device to evade 
 the law and impose greater obligations 
 upon the corporation than there is any 
 occasion for it to assume in order to obtain 
 the consideration received thereof. Issues 
 of stocks and bonds have been sustained 
 under constitutional or statutory provisions 
 of the same import as the one under con- 
 sideration, when they were disposed of for 
 the best price that could be obtained, 
 though for considerably less than their face 
 value." Memphis & Little Rook Rail- 
 road V. Dow (1887), 120 U. S. 287; s. o. 
 7 Sup. Ct. Rep. 482 ; Peoria & Springfield 
 
3.] 
 
 NATURE AND ISSUE OP BONDS. 
 
 § 3. Special Charter Provisions as to Issue of Bonds. — When 
 companies are organized under special legislative charters, and 
 
 R. Co. V. Thompson (1882), 103 111. 187 ; 
 Stein V. Howard (1884), 65 CaL 616; 
 Handley v. Stutz (1891), 139 U. S. 417; 
 s. c. 11 Sup. Ct. Eep. 511 ; Clark o. 
 Bever (1891), 139 U. S. 96; s. C. 11 Sup. 
 Ct. Rep. 468 ; Fogg v. Blair (1891), 139 
 U. S. 118; s. c. 11 Sup. Ct. Rep. 476. 
 The power "to borrow money, and to 
 mortgage, or otherwise convey or pledge 
 its property, real or personal, and its fran- 
 chises, to secure the payment of the money 
 so borrowed, or any other debt contracted 
 by it," includes the power to pledge the 
 bonds of the corporation, secured by its 
 mortgage on property as collateral security 
 for debts of the corporation presently 
 created or already owing. . . . "And we 
 do not think that such pledge, if made 
 without fraud, and solely for the bona fde 
 purpose of satisfactorily securing the pay- 
 ment of corporate debts, can properly be 
 regarded as effecting a. fictitious increase 
 of indebtedness, or as not issued for money, 
 labor done, or money or property actually 
 received, though the amount of the bonds 
 pledged exceeds the amount of the in- 
 debtedness to be secured." 
 
 See Coe v. East & West E. Co. of 
 Alabama et al. (1892), 52 Fed. Rep. 531, 
 and Grant et al. v. East & West R. Co. 
 of Alabama et al. (1893), 54 Fed. Rep. 
 669, for a construction of this provision in 
 the Constitution of Alabama. 
 
 Const., Art. XIV., § 9. "No corpora- 
 tion shall issue preferred stock without the 
 consent of the owners of two-thirds of the 
 stock of said corporation." 
 
 Const., Art. XIV., § 11. "... No 
 telegi-aph company shall consolidate with, 
 or hold a controlling interest in, the stock 
 or bonds of any other telegraph company 
 owning a competing line, or acquire, by 
 purchase or otherwise, any other competing 
 line of telegraph." 
 
 Arkansas. — Const., Art. XII., § 8. 
 " No private corporation shall issue stocks 
 or bonds, except for money or property actu- 
 ally received or labor done, and all fictitious 
 increase of stock or indebtedness shall be 
 void ; nor shall the stock or bonded in- 
 debtedness of any private corporation be 
 increased, except in pursuance of general 
 
 laws ; nor until the consent of the persons 
 holding the larger amount in value of 
 stock shall be obtained at a meeting held 
 after notice given for a period not less 
 than sixty days, in pursuance of law.'' 
 
 See Memphis & Little Rock Railroad v. 
 Dow (1887), 120 U. S. 287, where this 
 provision of the Constitution of Arkansas 
 is construed by the U. S. Supreme Court. 
 
 Const., Art. XVII., § 11. "The 
 rolling-stock and all other movable prop- 
 erty belonging to any railroad company 
 or corporation in this State shall be con- 
 sidered personal property, and shall be 
 liable to execution and sale in the same 
 manner as the personal property of indi- 
 viduals, and the general assembly shall 
 pass no law exempting any such property 
 from execution and sale." 
 
 California. — Const., Art. XII., § 10. 
 "The legislature shall not pass any laws 
 permitting the leasing or alienation of any 
 franchise, so as to relieve the franchise or 
 property held thereunder from the liabili- 
 ties of the lessor or grantor, lessee or 
 grantee, contracted or incurred in the 
 operation, nse, or enjoyment of such fran- 
 chise, or any of its privileges." 
 
 Const., Art. XII., § 11. "No corpora- 
 tion shall issue stocks or bonds, except for 
 money paid, labor done, or property actu- 
 ally received, and all fictitious increase of 
 stock or indebtedness shall be void. The 
 stock and bonded indebtedness of corpora- 
 tions shall not be increased except in pur- 
 suance of general law, nor without the 
 consent of the persons holding the larger 
 amount in value of the stock, at a meeting 
 called for that purpose, giving sixty days' 
 public notice, as may be provided by law. " 
 
 As to first clause, see Farmers' Loan & 
 Trust Co. 1). San Diego St. Car Co. (1891), 
 45 Fed. Eep. 518 ; Ewing v. Oroville 
 Mining Co. (1880), 56 Gal. 649 ; Underbill 
 V. Santa Barbara Land, Building, & Im- 
 provements Co. (1892), 93 Cal. 300 ; s. c. 
 28 Pac. Rep. 1049. 
 
 It was held in Union L. & T. Co. v. 
 Southern Cal. Motor Road Co. (1892), 51 
 Fed. Rep. 840, that the provision in the 
 Constitution of California prohibiting that 
 the bonded indebtedness of corporations 
 
6 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap, I. 
 
 not under general laws, such charters frequently contain pro- 
 visions expressly authorizing the issue of bonds.^ 
 
 shall not be increased without the con- 
 sent of the persons holding the larger 
 amount of stock, does not apply to the 
 first issue of bonds. That provision is 
 strictly limited to the "increase" of such 
 indebtedness, and has no applicatiou to its 
 "creation." 
 
 Colorado. — Const., Art. XV., § 9. " No 
 corporation shall issue stocks or bonds, 
 except for labor done, service performed, or 
 money or property actually received, and 
 all iictitious increase of stock or indebt- 
 edness shall be void." 
 
 The meaning of this provision is, that 
 an issue of bonds except as above stated is 
 in direct violation of the constitution, and 
 ipso facto invalid. Arkansas River, Land, 
 Town, & Canal Co. et al. v. Farmers' 
 Loan & Trust Co. et al. (1889), 13 Col. 
 587, 601 ; s. c. 22 Pao. Rep. 959. 
 
 Const., Art. XV., § 5. "No railroad 
 corporation, or the lessees or managers 
 thereof, shall consolidate its stock, prop- 
 erty, or franchises with any other railroad 
 corporation owning or having under its 
 control a parallel or competing line." 
 
 Georgia. — Const., Art. IV., § 2, par. 
 4. Buying stock, etc., in other corpora- 
 tions; competition. "The General As- 
 sembly of this State shall have no power 
 to authorize any corporation to buy shares 
 or stock in any other corporation in this 
 State or elsewhere, or to make any con- 
 tract or agreement whatever with any 
 such corpoi'ation which may have the 
 effect, or be intended to have the effect, to 
 defeat or lessen competition in their respec- 
 tive businesses, or to encourage monopoly ; 
 and all such contracts aud agreements 
 shall be illegal and void." 
 
 Idaho. — Const., Art. XL, § 9. " No 
 corporation shall issue stocks or bonds 
 except for labor done, services performed. 
 
 or money or property actually received ; 
 and all fictitious increase of stock or in- 
 debtedness shall be void. . . ." 
 
 Const., Art. XL, § 14. "If any rail- 
 road, telegraph, express, or other corpora- 
 tion, organized under any of the laws of 
 this State, shall consolidate, by sale or 
 otherwise, with any railroad, telegraph, 
 express, or other corporation organized 
 under any of the laws of any other State 
 or Territory, or of the United States, the 
 same shall not thereby become a foreign 
 corporation ; but the courts of this State 
 shall retain jurisdiction over that part of 
 the corporate property within the limits of 
 the State in all matters that may arise, as 
 if said consolidatiop had not taken place." 
 
 Const., Art. XL, § 15. "The legis- 
 lature .shall not pass any law permitting 
 the leasing or alienation of any franchise 
 so as to release or relieve the franchise or 
 property held thereunder from any of the 
 liabilities of the lessor or grantor, or lessee 
 or grantee, constructed or incurred in the 
 operation, use, or enjoyment of such fran- 
 chise, or any of its privileges." 
 
 Illinois. — Const., Art. XL, § 10. 
 "The rolling-stock, and all other movable 
 property belonging to any railroad com- 
 pany or corporation in this State, shall be 
 considered personal property, and shall be 
 liable to execution and sale in the same 
 manner as the personal property of indi- 
 viduals, aud the general assembly shall 
 pass no law exempting any such property 
 from execution and sale." 
 
 Const., Art. XL, § 11. "No railroad 
 corporation shall consolidate its stock, 
 property, or franchises with any other rail- 
 road corporation owning a parallel or com- 
 peting line ; and in no case shall any con- 
 solidation take place, except upon public 
 notice given of at least sixty days, to all 
 
 1 Coe V. Columbus, P. & I. R. Co. 
 (1859), 10 Ohio St. 372 (company em- 
 powered to borrow a sum not exceeding 
 its capital stock, at a specified rate of in- 
 terest, and to execute bond.s therefor) ; 
 Garrett v. May, 19 Md. 187 (1862) (com- 
 pany empowered to borrow money on its 
 
 credit, and execute bonds, secured by 
 pledge of property). 
 
 See also McAllister v. Plant (1876), 54 
 Miss. 106 ; s. c. 17 Am. Ry. Rep. 389 ; 
 Eemble v. Wilmington & Northern R. Co. 
 (1878), 13 Phila. 469 ; Da Ponte v. North- 
 ern Pac. R. Co. (1883), 21 Blatchf. 564. 
 
§3.J 
 
 NATURE AND ISSUE OP BONDS. 
 
 The inherent power of a railroad company to borrow money 
 and mortgage its property is not limited by a clause in its charter 
 
 stockholders, in such manner as may be 
 provided by law. A majority of the direc- 
 tora of any railroad corporation, now in- 
 corporated or hereafter to be incorporated 
 by the laws of this State, shall be citizens 
 and residents of this State." 
 
 Rev. Stat. 111. Const., Art. XL, § 13. 
 " No railroad corporation shall issue any 
 stock or bonds, except for money, labor, 
 or property actually received, and applied 
 to the pui-poses for which such corporation 
 was created ; and all stocks, dividends, 
 and other fictitious increase of the capital 
 stock or indebtedness of any such corpo- 
 ration shall be void. ..." 
 
 In Peoria & S. R. Co. v. Thompson 
 (1882), 103 111. 187 ; s. c. 7 A. & E. R. 
 R. Cas. 101, this provision of the constitu- 
 tion has been held not to have been in- 
 tended to interfere with the usual and 
 customary methods of raising funds by 
 railroad companies by the issue of its 
 stocks and bonds for the purpose of build- 
 ing their roads, or of accomplishing other 
 legitimate corporate purposes. 
 
 In City of Chicago v. Cameron (1887), 
 120 111. 447 ; 8. c. 11 N. E. Rep. 899, 
 bonds issued, not for the construction of 
 the road, but to pay the debt of another 
 corporation, were held to be void as against 
 holders with notice of the purposes of their 
 issue. 
 
 Kentucky. — Const., § 193. " No corpo- 
 ration shall issue stock or bonds except for 
 an equivalent in money paid or labor done, 
 or property actually received and applied 
 to the purposes for which such corporation 
 was created, and neither labor nor property 
 shall be received in payment of stock or 
 bonds at a greater value than the market 
 price at the time said labor was done or 
 property delivered, and all fictitious in- 
 crease of stock or indebtedness shall be 
 void." 
 
 Const., § 200. " If any raUroad, 
 telegraph, express, or other corporation, 
 organized under the laws of this Common- 
 wealth, shall consolidate, by sale or other- 
 wise, with any railroad, telegraph, express, 
 or other corporation organized under the 
 laws of any other State, the same shall not 
 thereby become a foreign corporation, but 
 
 the courts of this Commonwealth shall 
 retain jurisdiction over that part of the 
 corporate property within the limits of 
 this State in all matters which may arise 
 as if said consolidation had not taken 
 place. " 
 
 Const., § 201. "No railroad, tele- 
 graph, telephone, bridge, or common car- 
 rier company shall consolidate its capital 
 stock, franchises, or property, or pool its 
 earnings, in whole or in part, with any 
 other railroad, telegraph, telephone, bridge, 
 or common carrier company owning a 
 parallel or competing line or structure, or 
 acquire by purchase, lease, or otherwise 
 any parallel or competing line or struc- 
 ture, or operate the same. . . ." 
 
 In Louisville & Nashville R. Co. v. 
 Kentucky (1896), 161 U. S. 677 ; s. o. 16 
 Sup. Ct. Rep. 714, the railroad company 
 sought to consolidate with a parallel or 
 competing railroad. The U. S. Supreme 
 Court held that, conceding that the requi- 
 site power existed in both the companies 
 as claimed, sect. 201 of the Constitution 
 of Kentucky, adopted in 1891, was a 
 legitimate exercise of the police power of 
 the State, and forbade such consolidation, 
 at least so far as such power remained 
 unexecuted. 
 
 Const., § 203. " No coi-poration shall 
 lease or alienate any franchise so as to 
 relieve the franchise or property held 
 thereunder from the liabilities of the les- 
 sor or grantor, lessee or grantee, contracted 
 or incurred in the operation, use, or en- 
 joyment of such franchise, or any of its 
 privileges." 
 
 Const., § 212. "The rolling-stock and 
 other movable property belonging to any 
 railroad corporation or company in this 
 State shall be considered personal property, 
 and shall be liable to execution and sale 
 in the same manner as the personal prop- 
 erty of individuals. The earnings of any 
 railroad company or corporation, and 
 choses in action, money, and personal 
 property of all kinds belonging to it in 
 the hands, or under the control, of any 
 officer, agent, or employee of such corpora- 
 tion or company, shall be subject to pro- 
 cess of attachment to the same extent and 
 
8 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. I, 
 
 providing that shares shall not be assessed over one hundred 
 dollars, and that if more money is necessary it shall be raised by 
 creating new shares.^ 
 
 in the same manner as like property of 
 indiTiduals -when in the hands or under 
 the control of other persons. Any such 
 earnings, choses in action, money, or other 
 personal propertj' may be subjected to the 
 payment of any judgment against such 
 corporation or company, in the same 
 manner and to the same extent as such 
 property of individuals in the hands of 
 third persons." 
 
 Louisiana. — Const., Art. 238. "No 
 corporation shall issue stock nor bonds, 
 except for labor done or money or property 
 actually received, and all fictitious issues 
 of stock shall be void, and any corporation 
 issuing such fictitious stock shall forfeit 
 its charter." 
 
 Const., Art. 246. " If any railroad 
 company, organized under the laws of 
 this State, shall consolidate, by sale or 
 otherwise, with any railroad company or- 
 ganized under the laws of any other State 
 or of the United States, the same shall 
 not thereby beeome a foreign corporation, 
 but the courts of this State shall retain 
 jurisdiction in all matters which may 
 arise, as if said consolidation had not 
 taken place. In no case shall any con- 
 solidation take place except upon public 
 notice of at least sixty days to all stock- 
 holders, in such manner as may be pro- 
 vided by law." 
 
 Mississippi. — Const., Art. VII., § 185. 
 " The rolling-stock belonging to any rail- 
 road company or corporation in this State 
 shall be considered personal property, and 
 shall be liable to execution and sale as 
 such." 
 
 Const., Art. VII., § 196. " No trans- 
 portation corporation shall issue stocks or 
 bonds except for money, labor done (or in 
 good faith agreed to be done), or money 
 or property actually received ; and all 
 fictitious increase of stock or indebtedness 
 shall be void." 
 
 Michigan. — Const., Art. XIX. A, § 2. 
 "No railroad corporation shall consolidate 
 its stock, property, or franchises with any 
 
 other railroad corporation owning a par- 
 allel or competing line ; and in no case 
 shall any consolidation take place except 
 upon public notice given of at least sixty 
 days to all stockholders, in such manner 
 as shall be provided by law." 
 
 Missouri. — Const., Art. XII., § 8. 
 ' ' No corporation shall issue stock or 
 bonds, except for money paid, labor done, 
 or property actually received, and all fic- 
 titious increase of stock or indebtedness 
 shall be void. The stock and bonded 
 indebtedness of corporations shall not be 
 increased, except in pursuance of general 
 law, nor without the consent of the persons 
 holding the larger amount in value of the 
 stock first obtained at a meeting called for 
 the purpose, first giving sixty days' public 
 notice, as may be provided by law." 
 
 Const., Art. XII., § 10. "No cor- 
 poration shall issue preferred stock with- 
 out the consent of all the stockholders." 
 
 Const., Art. XII., § 16. " The rolling- 
 stock and all other movable property be- 
 longing to any railroad company or cor- 
 poration in this State shall be considered 
 personal property, and shall be liable to 
 execution and sale in the same manner as 
 the personal property of individuals ; and 
 the general assembly shall pass no law 
 exempting any such property from execu- 
 tion and sale." See Knapp v. St. Louis, 
 Kansas City, & Northern Ry. Co. (1881), 
 74 Mo. 374. 
 
 Const, Art. XII., § 17. " No railroad 
 or other corporation, or the lessees, pur- 
 chasers, or managers of any railroad cor- 
 poration, shall consolidate the stock, 
 property, or franchises of such corporation 
 with, or lease or purchase the works or 
 franchises of, or in any way control, any 
 railroad corporation owning or having 
 under its control ». parallel or competing 
 line ; nor shall any ofiBcer of such railroad 
 corporation act as an officer of any other 
 railroad corporation owning or having the 
 control of a parallel or competing Une. 
 The question whether railroads are parallel 
 
 1 Richards i;. Merrimack & Conn. River R. Co. (1862), 44 N. H. 127. 
 
§3.] 
 
 NATURE AND ISSUE OP BONDS. 
 
 9 
 
 Business corporations were authorized by section 13 of the act of 
 1875, as amended by chapter 394 of the Laws of New York, 1888, to 
 
 or competing lines shall, when demanded, 
 he decided hy a jury, as in other civil 
 issues." 
 
 Const., Art. XII., § 18. " If any rail- 
 road company organized under the laws 
 of this State shall consolidate, by sale or 
 otherwise, with any railroad company 
 organized under the laws of any other 
 State or of the United States, the same 
 shall not thereby become a foreign cor- 
 poration ; hut the courts of this State 
 shall retain jurisdiction in all matters 
 which may arise, as if said consolidation 
 had not taken place. In no case shall 
 any consolidation take place, except upon 
 public notice of at least sixty days to all 
 stockholders, in such manner as may be 
 provided by law." 
 
 Montana. — Const., Art. XV., § 6. 
 " No railroad corporation, express or other 
 transportation company, or the lessees or 
 managers thereof, shall consolidate its 
 stock, property, or franchises with any 
 other railroad corporation, express or other 
 transportation company, owning or having 
 under its control a parallel or competing 
 line ; neither shall it in any manner unite 
 its business or earnings with the business 
 or earnings of any other railroad corpora- 
 tion ; nor shall any officer of such Tailroad, 
 express, or other transportation company 
 act as an officer of any other railroad, 
 express, or other transportation company 
 owning or having control of a parallel or 
 competing line." 
 
 Const., Art. XV., § 10. " No corpora- 
 tion shall issue stocks or bonds, except 
 for labor done, services performed, or 
 money and property actually received ; 
 and all fictitious increase of stock or in- 
 debtedness shall be void. ..." 
 
 Const., Art. XV., § 15. " If any rail- 
 road, telegraph, telephone, express, or 
 other corporation or company organized 
 under any of the laws of this State shall 
 consolidate, by sale or otherwise, with any 
 railroad, telegraph, telephone, express, or 
 other corporation organized under any of 
 the laws of any other State or Territory, 
 or of the United States, the same shall 
 not thereby become a foreign corporation ; 
 but the courts of this State shall retain 
 
 jurisdiction over that part of the corpo- 
 rate property within the limits of the 
 State, in all matters that may arise, as if 
 said consolidation had not taken place." 
 
 Const., Art. XV., § 17. "The legisla- 
 tive assembly shall not pass any law per- 
 mitting the leasing or alienation of any 
 franchise so as to release or relieve the 
 franchise or property held thereunder 
 from any of the liabilities of the lessor or 
 grantor, or lessee or grantee, contracted 
 or incurred in the operation, use, or enjoy- 
 ment of such franchise, or any of its 
 privileges." 
 
 Nebraska.— Const., Art. XL, § 2. " The 
 rolling-stock and all other movable prop- 
 erty belonging to any railroad company or 
 corporation in this State shall be liable to 
 execution and sale in the same manner as 
 the personal property of individuals, and 
 the legislature shall pass no law exempt- 
 ing any such property from execution and 
 sale. " 
 
 Const, Art. XI., § 3. "No railroad 
 corporation or telegraph company shall 
 consolidate its stock, property, franchises, 
 or earnings, in whole or in part, with any 
 other railroad corporation or telegraph 
 company owning a parallel or competing 
 line : and in no case shall any consolida- 
 tion take place, except upon public notice 
 of at least sixty days to all stockholders, 
 in such manner as may be provided by 
 law." 
 
 The sense in which the word "consoli- 
 date " is used is that of ' ' join " or 
 "unite." State ex rel., etc. v. Atchison 
 & Nebraska R. Co. (1888), 24 Neb. 143, 
 164 ; s. c. 38 N. W. Rep. 43. 
 
 Const., Art. XL, § 5. "No railroad 
 corporation shall issue any stock or bonds, 
 except for money, labor, or property actu- 
 ally received and applied to the purposes 
 for which such corporation was created, 
 and all stock, dividends, and other fic- 
 titious increase of the capital stock or in- 
 debtedness of any such corporation shall 
 be void. . . ." 
 
 See State ex rel., etc. v. Atchison k 
 Nebraska R. Co. (1888), 24 Neb. 143, 
 164 ; s. c. 38 N. W. Rep. 43. 
 
 North Dakota. — Const., Art. VII., 
 
10 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. I. 
 
 issue bonds and to mortgage their real estate to an amount not to 
 exceed one-half of the entire corporate property. The section 
 
 g 138. "N"o corporation shall issue stock 
 or bonds except for money, labor done, or 
 money or property actually received ; and 
 all fictitious increase of stock or indebted- 
 ness shall be void. 
 
 "The stock and indebtedness of cor- 
 porations shall not be increased except in 
 pui'suance of general law, nor without the 
 consent of the persons holding the larger 
 amount in value of the stock first ob- 
 tained at a meeting to be held after sixty 
 days' notice, given in pursuance of law." 
 
 § 141. "No railroad corporation shall 
 consolidate its stock, property, or fran- 
 chises with any other railroad corporation 
 owning a parallel or competing line ; and 
 in no case shall any consolidation take 
 place except upon public notice given at 
 least sixty days to all stockholders, in 
 such manner as may be provided by law. 
 Any attempt to evade the provisions of 
 this section by any railroad corporation, 
 by lease or otherwise, shall work a forfeit- 
 ure of its charter." 
 
 Pennsylvania. — Const., Art. XVI. , § 7. 
 " No corporation shall issue stocks or 
 bonds except for money, labor done, or 
 money or property actually received ; and 
 all fictitious increase of stock or indebted- 
 ness shall be void. The stock and in- 
 debtedness of corporations shall not he 
 increased except in pursuance of general 
 law, nor without the consent of the per- 
 sons holding the larger amount in value 
 of the stock, first obtained at a meeting 
 to be held after sixty days' notice given in 
 pursuance of law." 
 
 See Rothschild v. Rochester & Pitts- 
 burgh R. Co. (1887), 1 Ry. & Corp. L. J. 
 321, reversing Appeal of State Line R. 
 Co. (1880), 1 Ry. & Corp. L. J. 139 ; Ahl 
 V. Rhoades (1877), 84 Pa. St. 319; Glos- 
 singer v. Pittsburgh & Connellsville R. 
 Co. (1890), 139 Pa. St. 13 ; s. o. 21 Atl. 
 E.ep. 211 ; 27 W. N. C. 497 ; Lewis v. 
 Jeffries (1878), 86 Pa. St. 340; Powell 
 V. Blair (1890), ]33 Pa. St. 550; s. c. 19 
 Atl. Rep. 559. The provision of the Con- 
 stitution of Pennsylvania as to fictitious 
 increase of indebtedness has been held not 
 to apply to the sale of mortgage bonds of 
 a railroad company for which it received 
 
 the money from innocent purchasers at 
 par for construction and equipment. The 
 debt would not be fictitious, though the 
 securities might turn out to be largely so. 
 Fidelity, etc. Co. v. West Penn., etc. R. 
 Co. et al. (1891), 138 Pa. St. 494; s. c. 21 
 Atl. Rep. 21. As to notice of a meeting 
 to increase stock under this constitutional 
 provision see Shopp v. Norristown Pass. 
 Ry. Co., 2 Pa. Dist. Rep. 679. See as to 
 issuing deferred income bonds, McCalmont 
 V. Phil. & Read. R. Co., 14 Phil. 479. 
 
 Where plans have been perfected for a 
 consolidation of railroad companies and 
 the building of another, a mortgage exe- 
 cuted and bonds executed and sold, and 
 the purchase-money of the bonds applied 
 to the purposes for which the mortgage 
 and negotiations stated they were to be 
 used, such bonds are not issued in con- 
 travention of the constitutional provision 
 of Pennsylvania, that "No corporation 
 shall issue stocks or bonds except for 
 money, labor done, or money or property 
 actually received ; and all fictitious in- 
 crease of stock or indebtedness shall be 
 void." Woodbury et al. v. Allegheny & 
 K. R. Co. et al. (1895), 72 Fed. Rep. 371. 
 
 Const, Art. XVII., § 4. " No railroad, 
 canal, or other corporation, or the lessees, 
 purchasers, or managers of anj' railroad 
 or canal corporation, shall consolidate the 
 stock, property, or franchises of such cor- 
 poration with, or lease or purchase the 
 works or franchises of, or in any way con- 
 trol any other railroad or canal corpora- 
 tion owning or having under its control a 
 parallel or competing line ; nor shall any 
 officer of such railroad or canal corpora- 
 tion act as an ofiicer of any other railroad 
 or canal corporation owning or having the 
 control of a parallel or competing line ; 
 and the question whether railroads or 
 canals are parallel or competing lines 
 shall, when demanded by the party com- 
 plainant, be decided by a jury as in other 
 civil issues." 
 
 South Carolina. — Const., Art. IX., 
 § 7. " No railroad or other transportation 
 company, and no telegraph or other trans- 
 mitting corporation, or the lessees, pur- 
 chasers, or managers of such corporation, 
 
§3.] 
 
 NATURE AND ISSUE OP BONDS. 
 
 11 
 
 did not imply that bonds in excess of that amount would be void, 
 but only that the directors should be personally liable for any 
 
 shall consolidate the stock, property, or 
 franchises of such corporation with, or 
 lease or purchase the works or franchises 
 of, or in any way control any other rail- 
 road or other transportation, telegraph, 
 or other transmitting company owning 
 or having under its control a parallel 
 or competing line ; and the question 
 whether railroads or other transportation, 
 telegraph, or other transmitting companies 
 are parallel or competing lines shall, 
 when demanded by the party complain- 
 ant, be decided by a jury as in other civil 
 causes." 
 
 South Dakota. — Const., Art. XVII., 
 § 8. "No corporation shall issue stocks 
 or bonds except for money, labor done, or 
 money or property actually received ; and 
 all fictitious increase of stock or indebted- 
 ness shall be void. . . . The stock and 
 indebtedness of corporations shall not he 
 increased except in pursuance of general 
 law, nor without the consent of the per- 
 sons holding the larger amount in value 
 of the stock first ohtained, at a meeting 
 to be held after sixty days' notice given 
 in pursuance of law." 
 
 Const., Art. XVII., § 13. " The roll- 
 ing-stock and all other movable property 
 belonging to any railroad company or cor- 
 poration in this State shall be considered 
 personal property, and shall be liable to 
 execution and sale in the same mnnner as 
 the personal property of individuals, -ind 
 the legislature shall pass no laws exempt- 
 ing such property from execution and sale. " 
 
 Const., Art. XVII., § 14. "No rail- 
 road corporation shall consolidate its 
 stock, property, or franchises with any 
 other railroad corporation owning » par- 
 allel or competing line ; and in no case 
 shall any consolidation take place except 
 upon public notice given out, at least 
 sixty days, to all stockholdera in such 
 manner as may be provided by law. Any 
 attempt to evade the provisions of this 
 section by any railroad corporation, by 
 lease or otherwise, shall work a forfeit- 
 ure of its charter." 
 
 Texas. — Const, Art. III., § 54. " The 
 legislature shall have no power to release 
 or alienate any lien held by the State 
 
 upon any railroad, or in any wise change 
 the tenor or meaning or pass any act ex- 
 planatory thereof ; but the same shall be 
 enforced in accordance with the original 
 terms upon which it was acquired." 
 
 Const., Art. X., § 4. "The rolling- 
 stock and all other movable property be- 
 longing to any railroad company or cor- 
 poration in this State shall be considered 
 personal property, and its real and per- 
 sonal property, or any part thereof, shall 
 be liable to execution and sale in the same 
 manner as the property of individuals ; 
 and the legislature shall pass no laws 
 exempting any such property from execu- 
 tion ami sale. 
 
 Const., Art. X., § 5. "No railroad 
 or other corporation, or the lessees, pur- 
 chasers, or managers of any railroad cor- 
 poration, shall consolidate the stock, 
 property, or franchises of such corporation 
 with, or lease or purchase the works or 
 franchises of, or in any way control any 
 railroad corporation owning or having 
 under its control a parallel or competing 
 line ; nor shall any officer of such railroad 
 corporation act as an officer of any other 
 railroad corporation owning or having the 
 control of a parallel or competing line." 
 
 Const., Art. X., § 6. "No railroad 
 company organized under the laws of this 
 State shall consolidate, by private or judi- 
 cial cale or otherwise, with any railroad 
 company organized under the laws of any 
 other State or of the United States. " 
 
 Const., Art. XII., § 6. "No corpora- 
 tion shall issue stock or bonds except for 
 money paid, labor done, or property actu- 
 ally received, and all fictitious increase of 
 stock or indebtedness shall be void." 
 
 In Northside Ey. Co. v. Worthington, 
 88 Texas, 573 (1895), the court says : " The 
 decisions of the courts upon like provisions 
 in the Constitutions of other States have 
 been such as in most cases to practically 
 destroy its efi'ect. It may be that it was 
 not intended to prohibit corporations from 
 selling their bonds below par, — provided 
 the transaction was in good faith. " 
 
 Utah. — Const., Art. XII., § 5. " Cor- 
 porations shall not issue stock, except to 
 bona fide subscribers thereof or their 
 
12 
 
 EAILWAT BONDS AND MORTGAGES. 
 
 [chap. I. 
 
 damages to bondholders or mortgage-holders caused by such 
 
 excess.' 
 
 An objection may be taken to the validity of a mortgage secur- 
 
 assignee, nor shall any corporation issue 
 any bond or other obligation for the pay- 
 ment of money, except for money or 
 property received or labor done. . . . All 
 fictitious increase of stock or indebtedness 
 shall be void." 
 
 Const., Art. XII., § 7. "No corpora- 
 tion shall lease or alienate any franchise, 
 so as to relieve the franchise or property 
 held thereunder from the liabiKties of the 
 lessor or grantor, lessee or grantee, con- 
 tracted or incurred in operation, use, or 
 enjoyment of such franchise or of its 
 privileges. " 
 
 Const., Art. XII., § 13. " No railroad 
 corporation shall consolidate its stock, 
 property or franchise with any other rail- 
 road corporation owning a competing line." 
 
 Const., Art. XII., § 14. " The rolling- 
 stock and other movable property belong- 
 ing to any railroad company or corporation 
 in this State shall be considered personal 
 property, and shall be liable to taxation 
 and to execution and sale in the same 
 manner as the personal property of indi- 
 viduals, and such property shall not be 
 exempted from execution and sale." 
 
 Washington. — Const., Art. XII., § 6. 
 " Corporations shall not issue stock, ex- 
 cept to bona fide subscribers therefor or 
 their assignees ; nor shall any corporation 
 issue any bond, or other obligation for the 
 payment of money, except for money or 
 property received or labor done. . . . All 
 fictitious increase of stock or indebtedness 
 shall be void. " 
 
 Const., Art. XII., § 8. " No corpora- 
 tion shall lease or alienate any franchise, 
 so as to relieve the franchise or property 
 held thereunder from the liabilities of the 
 lessor or grantor, lessee or grantee, con- 
 tracted or incurred in the operation, use, 
 or enjoyment of such franchise or any of 
 its privileges." 
 
 Const., Art. XII., § 16. "No railroad 
 corporation shall consolidate its stock, 
 property, or franchises with any other rail- 
 road corporation own ing a competing line. " 
 
 Const., Art. XII., § 17. "The rolling- 
 stock and other movable property belong- 
 ing to any railroad companj' or corporation 
 in this State shall be considered personal 
 property, and shall be liable to taxation 
 and to execution and sale in the same 
 manner as the personal property of indi- 
 viduals, and such property shall not be 
 exempted from execution and sale." 
 
 West Virginia. — Const., Art. XI., § 8. 
 "The rolling-stock and all other movable 
 property belonging to any railroad com- 
 pany or corporation in this State shall be 
 considered personal property, and shall be 
 liable to execution and sale in the same 
 manner as the personal property of indi- 
 viduals ; and the legislature shall pass no 
 law exempting any such property from 
 execution and sale." 
 
 Const., Art. XI., § 11. "No railroad 
 corporation shall consolidate its stock, 
 property, or franchise with any other rail- 
 road owning a parallel or competing line, 
 or obtain the possession or control of such 
 parallel or competing line, by lease or 
 other contract, without the permission of 
 the legislature." 
 
 Wyoming. — Const., Art. X., § 8. 
 " There shall be no consolidation or com- 
 bination of corporations of any kinds 
 whatever to prevent competition, to con- 
 trol or influence productions or prices 
 thereof, or in any manner to interfere with 
 the public good and general welfare." 
 
 As to the eff'ect of charter provisions 
 and statutes on issuing bonds, see Geddes 
 V. Toronto St. R. Co., 14 Up. Can. C. P. 
 Eep. 513 ; "Winnipeg & H. B. R. Co. v. 
 Mann, 7 Man. 81 ; East Boston Freight R. 
 Co. V. Hubbard, 10 Allen, 459, note; Miller 
 V. New York & Erie R. Co., 8 Abb. Pr. 
 431 ; s. 0. 18 How. Pr. 374. As to the 
 effect of reorganization agreement, see 
 Dutenhofer v. Adirondacks R. Co., 60 
 Hun, 578, under a statute authorizing an 
 issue of bonds to creditors as payees. 
 McCuUough V. A. & E. R. Co., 4 Gill 
 (Md.), 58. 
 
 1 Beebe v. Richmond Light, Heat, & Power Co., 13 Misc. Rep. 737 ; s. c. 
 N. Y. Suppl. 1 (1895). 
 
 35 
 
§ 4.J NATURE AND ISSUE OP BONDS. 13 
 
 ing bonds, on the ground that there is a want of power under its 
 charter to construct its road on the hne selected, and consequently 
 to borrow money and pledge the road for this purpose.* 
 
 But the legality of bonds issued under a charter power is no 
 longer open to question after a special act has been passed, for- 
 mally declaring them to be valid.^ 
 
 So also certificates of organization under general laws some- 
 times contain such provisions. Thus, where such a certificate 
 empowered a company in general terms " to issue bonds, . . . 
 and to sell or pledge such bonds for proper corporate purposes," 
 and the validity of the contract in pursuance of which they are 
 issued is established, the question whether they shall be ordinary 
 bonds, or income bonds, or simple debentures, is a matter of cor- 
 porate regulation with wliich the courts will not interfere.^ 
 
 § 4. General Statutory Provisions as to the Issue of Bonds. — The 
 principal statutory provisions of the different States relating to 
 the issue of bonds by railway companies are not here tabulated, 
 but the cases are cited which have construed such provisions. 
 
 The subjects dealt with in the provisions which have been con- 
 strued may be conveniently reviewed under four heads : (a) The 
 purposes for which bonds may be issued ; (J) The consideration for 
 which they may be issued ; (c) The amount to which they may be 
 issued; (c?) The rate of interest for which they may be issued.* 
 
 (a) Construction of Statutory Provisions specifying the Purposes 
 for which Bonds may he issued. — Statutory conditions as to the 
 nature of the bonds to be issued as a security for the loan of the 
 State credit must be strictly complied with to give the corporation 
 a right to claim the benefits of the legislation. Where the legisla- 
 ture requires as a security for the loan of the State's credit by the 
 issue of State bonds a deposit of corporate bonds which shall have 
 forty years to run, without any qualification, the issue of corporate 
 bonds containing a clause providing that the principal debt shall 
 become immediately exigible is not such a compliance with the 
 statute as will enable the corporation to compel the State officials 
 to issue the State bonds.^ 
 
 1 Pennock v. Coe (1860), 23 How. 117. may be exercised by the majority of the 
 
 2 White Water Val. Canal Co. v. Val- board of directors. McLane v. Placer- 
 lette (1858), 21 How.. 414 (1858). ville T. T. Vo. (1885), 66 Cal. 606; s. c. 
 
 8 Willoughby !). Chicago Junction Rail- 26 A. & E. R. R. Cas. 404 (1885), constru- 
 
 ways, etc. Co. (1892), 50 N. J. Eq. 656 ; ing the statutes of California (1861), § 15, 
 
 s. 0. 25 Atl. Rep. 277. as amended by the statute of 1862, § 547. 
 
 * In the absence of some restrictive ' State v. Nichols (1878), 30 La. Ann. 
 
 provision, the power to issue bonds for the Part 11, 1217. The court held that the 
 
 purposes mentioned in an enabling statute insertion of such a clause was a departure 
 
14 RAILWAY BONDS AND MORTGAGES. [CHAP. I. 
 
 The rule that railway companies may issue honds to carry into 
 effect tlie purpose of their organization necessarily involves the 
 proposition that such issue may be made in payment for work 
 done and materials furnished in the construction of the road. 
 
 An issue of bonds which is not for the construction, equipment, 
 or operation of the road, but, for instance, to pay the debts of 
 another corporation, is void as against any holders with notice 
 of the purposes of the issue. ^ 
 
 Bonds may be pledged as collateral upon an extension or 
 renewal of the floating debt of a company, or to secure notes 
 given in payment of unsecured bonds of the company.^ 
 
 While a provision of the law of New York (Laws 1850, ch. 140, 
 § 28, subd. 10), that railroad corporations could "from time to 
 time borrow such sums of money as might be necessary for com- 
 pleting and finishing or operating their railroad, and issue bonds 
 for the money borrowed, and secure their repayment by a mort- 
 gage upon the corporate property and franchises," may have been 
 designed to carry with it an implication that mortgage bonds can- 
 not be issued for any other purpose, it is competent for the legis- 
 lature to remove such a restraint, and place it within the power 
 of a consolidated road, as was done in a case by the act of 1869, 
 ch. 917, § 2, prescribing terms and conditions for the consolida- 
 tion. In such a case the consolidated company may issue bonds 
 
 from the terms presented by the legisla- procurement of rails for its road, see Mil- 
 ture, which increased the liability of the ler v. Rutland & Washington R. Co. 
 State beyond the risk which it was in- (1863), 36 Vt. 452. As to the use of 
 tended to incur, the possible result of its bonds in paying indebtedness growing out 
 enforcement being that the mortgaged of the purchase of another road, or in con- 
 property might be thrown upon the mar- structing an unfinished portion of it, see 
 ket at any time, however unpropitious, McAllister v. Plant (1876), 54 Miss. 106. 
 and the State thus deprived of the protec- A company organized under the Manu- 
 tion aiforded by its own laws, which were facturing Act of New York (Laws of 1848, 
 designed to prevent any such sacrifices. ch. 40, § 5, as amended by Laws of 1881, 
 I City of Chicago v. Cameron (1887), ch. 213, § 5) has the power to borrow 
 120 111. 447 ; s. c. 11 N. E. Rep. 899. As money for the purpose of constructing its 
 to the principle governing this decision see works, and to issue bonds for its payment. 
 Pierce v. Madison & Indianapolis R. Co. , 21 This provision empowers such a company 
 How. 441 (1858). In Thompson u. Erie to purchase works already constructed, and 
 K. Co. (1871), 42 How. Pr. 8, it was held fit and suitable for its purposes. Gamble 
 that the issue of bonds for the purposes v. Queen's County Water Co. (1890), 123 
 expressed in a mortgage, — which were N. Y. 91 ; s. c. 25 N. E. Rep. 201 ; 81 
 " to consolidate its funded debt, obtain Am. & Eng. Corp. Cas. 313. 
 the money and material necessary for pro- 2 Claflin v. South Car. R. Co. (1880), 8 
 tecting its line of railway, enlarging its Fed. Rep. 118. See also as to other debts 
 capacities, and extending the facilities for which bonds may be pledged, Duncomb 
 thereof," — was within the power of the v. N. Y., Housatonic, & Northern E. Co, 
 company. As to issuing bonds for the (1881), 84 N. Y. 190. 
 
§ 4. J NATURE AND ISSUE OP BONDS. 15 
 
 for the purpose of paying the liabilities of the constituent 
 companies.* 
 
 As the law of New York (Laws 1850, ch. 140, §§ 14, 15) au- 
 thorized a railroad corporation to acquire land for its track and 
 other necessary purposes, by voluntary purchase or by condemua- 
 tion, an agreement made on the purchase of rights of way to pay 
 therefor in bonds of the purchasing corporation, secured by a 
 mortgage on its property, was deemed by the New York Court 
 of Appeals clearly within the implied, if not within the express, 
 powers of a railroad corporation, as stated in sect. 28, subd. 10, of 
 the Law of 1850.2 
 
 A railroad company, when not restricted by its charter, may 
 acquire lands at its pleasure, and where it executes a mortgage to 
 secure bonds to be used to raise money for construction purposes, 
 may devote part of the bonds to the purchase of lands, to be util- 
 ized by including them in the mortgage, as additional security 
 for all bonds.8 
 
 In the absence of some restriction in the charter, the salaries of 
 the officers of the company, being a necessary part of the expenses 
 of the construction of the road, may be paid with bonds used to 
 raise funds for the construction.* 
 
 Where two companies were organized under the laws of Texas, 
 and neither company had the power to extend its credit to foster 
 the interests of the other, the issuance by the two companies of 
 joint bonds, dividing the proceeds, was held equivalent to bor- 
 rowing the money to be divided between them, each to be surety 
 of the other ; and, further, the bonds of the two companies would 
 be binding on each to the extent of value received by it for which 
 they had been issued.^ 
 
 A company empowered to issue bonds to raise money for the 
 
 1 Taylor et aJ. v. Trustees of Atlantic & row or raise money by issuing debentures. 
 
 Great Western R. Co. et al. (1878), 53 Seligman t>. Prince (C. A.), L. R. (1895), 2 
 
 How. Pr. 26. Ch. 617. It was pointed out by Lopes, 
 
 ' Munson et al. v, Syracuse, Geneva, & L. J., that no question could have been 
 
 Corning R. Co. et al. (1886), 103 N. Y. 58 ; made as to the validity of the transaction, 
 
 s. c. 8 N. E. Rep. 355. if the company, as they might have done, 
 
 ' Blackburn v. Selma R. Co. (1879), 2 had issued the debentures to the owner of 
 
 Flip. 525. the business, as a part of the consideration 
 
 * Ibid. for the purchase, aud he had then raised 
 
 ' Northside Ry. Co. v. "Worthington, the amount of the debt upon them, and 
 
 88 Texas, 562 (1895). Where a company handed it to the person now suing as 
 
 is formed to take over the business of a the holder of the debentures. What 
 
 person, and agrees to indemnify him had been actually done was practically 
 
 against his debts, an issue of debentures the same thing done in a less circuitous 
 
 to pay those debts is valid, if the company manner, 
 is vested with a general authority to bor- 
 
16 RAILWAY BONDS AND MORTGAGES. [CHAP. I. 
 
 construction of its road has the implied power to issue to the 
 contractor, in payment for work done, negotiable certificates of 
 indebtedness, payable in money or bonds.^ 
 
 The Massachusetts statute of 1854, ch. 286, hais had the effect 
 of entirely abrogating the common-law power to- issue bonds, so 
 far as railroad companies are concerned, and any bonds issued 
 for a purpose and in a manner not expressly authorized by the 
 statute are absolutely void.^ 
 
 (b) Construction of Statutory Provisions as to the Consideration 
 for Bonds. — A statute of Ohio passed in 1820 (1 Swan & C. 862) 
 was in force when the bonds of a railway company were issued. 
 The statute provided " that all bonds, promissory notes, bills of 
 exchange, foreign and inland, drawn for any sum or sums of 
 money certain, and made payable to any person or order, or to 
 any person or bearer, or to any person or assigns, shall be nego- 
 tiable by indorsement thereon," etc. It was claimed that these 
 railway bonds, though stated on their face to be transmissible by 
 delivery, were not negotiable under this statute unless indorsed. 
 The bonds were payable in New York city. The Supreme Court 
 of Ohio held the bonds to be negotiable without indorsement.^ 
 
 An hypothecation of bonds has been held to be an " issue " of 
 
 1 Pusey V. New Jersey B. Co. (1873), 14 in regard to railroad tonds, together witk 
 Abb. Pr. (N. S.) 434. the express declaration of transmissibility 
 
 2 Commonwealth o. Smith (1865), 10 appearing on the face of the bonds in con- 
 Allen, 448 (1865). troTersy, and the manifest necessity of the 
 
 This mling of the Massachusetts couil; quality of negotiabOity by mere delivery to 
 does not seem to have been overruled, but their availability to accomplish the object 
 the Public Statutes upon the subject of expected of them, would require us to hold 
 bonds and mortgages have been altered them to be negotiable by mere delivery 
 very much since the act of 1854, and the even if of the opinion that they were 
 powers of railroad companies as to the sealed instruments according to the strict 
 issue of bonds and execution of mortgages construction of that statute. ... In the 
 have been much enlarged. See Pub. case of railroad or other corporate securi- 
 Stats. Mass. (1882), 612, ch. 112, §§ 62- ties, however, the attaching of a corporate 
 73, Acts 1874, 1875, 1876 ; and by Pub. seal bears a strong analogy to the signa- 
 Stats. Mass. (1882-1888), 502, ch. 191, ture of a natural person, and is its sub- 
 Act 1887, April 16, the time for which stantial equivalent lu view of the vast 
 such bonds may run has been extended sums of money represented by this class 
 from " twenty " to " fifty " years. of securities, and of the existence of a 
 
 " Pittsburgh, C. C, & St. L. Ey. Co. v. practice of passing them from hand to 
 
 Lynde et al. (Ohio), 44 N. E. Eep. 596 hand by delivery, so universal and long 
 
 (1896). The court, after referring to the continued aa to be within the common 
 
 fact that it had held, in deference to a long- knowledge of every one, they should not 
 
 continued practice, the indorsement to be be shorn of this valuable attribute on this 
 
 unnecessary to the transfer of a promissory account, unless the words of the statute 
 
 note (not under seal) payable to bearer, and the former decisions of the court im- 
 
 said ; " We think the same considerations peratively require it." 
 based on a similar long-continued practice 
 
§ 4.] NATURE AND ISSUE OP BONDS. 17 
 
 bonds within the prohibition of the Wisconsin statute, providing 
 that " no corporation shall issue any bonds . . . except for 
 money, labor, or property, estimated at its true money value, 
 actually received by it, equal to seventy-five per cent of the par 
 value thereof." Bonds hypothecated without a stipulation that 
 tiiey shall be accounted for at not less than seventy-five cents on 
 the dollar of their value are Void.^ 
 
 Under a constitutional or statutory provision which expressly 
 forbids a company to issue bonds except for money paid, labor 
 done, or property actually received, it cannot dispose of its bonds 
 by pledging them for an antecedent debt.^ 
 
 So under a statute authorizing the issue of bonds by a railroad 
 company to an amount not exceeding the capital secured by 
 mortgage of the property and franchises, such bonds cannot be 
 issued otherwise than for a new adequate valuable consideration 
 increasing the available funds of the corporation.^ 
 
 A statute forbidding the issuance of bonds except for money, 
 labor, or property received, is sufl&ciently complied with where 
 the bonds are issued in payment for the construction of the com- 
 pany's road, and the amount of the issue does not unreasonably 
 exceed the value received.* 
 
 Such a statute cannot be construed as indicating a purpose to 
 make the validity of every issue of bonds dependent upon the 
 inquiry whether the money, property, or labor actually received 
 therefor was of equal value in the market with the bonds issued.^ 
 
 Under a similar constitutional provision in Texas, it has been 
 held that bonds sold at ninety cents on the dollar were not void, 
 but were binding obligations to the extent of the money received. 
 For the excess the company received nothing, either in money, 
 labor, or property.^ 
 
 Where a railroad is taken as the consideration of an issue of 
 stock and bonds, the question whether there has been an over- 
 valuation is to be determined with reference to its actual capacity 
 
 Pfister V. Milwaukee Electric Ey. § 11, art. 12, and the corresponding pro- 
 Co. et al. (1892), 83 Wis. 86 ; s. c. 53 vision of the Civil Code, § 359. 
 N. W. Rep. 27. » Kemble v. "Wilmington R. Co. (1878), 
 
 In Mowry v. F. L. & T. Co., 76 Fed. 13 Phil. 469. 
 
 Rep. 45, the same statute was construed * Brown v. Duluth, M., & IT. Ey. Co. 
 
 and held not to apply to a deposit of (1893), 63 Fed. Rep. 889 ; s. c. 54 Am. 
 
 bonds under a reorganization agreement. & Eng. R. R. Cas. 219. 
 
 See also Andrews u. Nat. Foundry Co., 76 ^ Memphis & Little Rock Railroads. 
 
 Fed. Rep. 166. ~ Dow (1887), 120 U. S. 298. 
 
 '^ Farmers' Loan & Trust Co. «. San ^ Northside Ry. Co. v. Worthington 
 
 Diego Car Co. (1891), 45 Fed. Kep. 518; (1895). 88 Texas, 573. See also § 2, 
 
 BO construing the California Constitution, above, note " Texas." 
 
18 RAILWAY BONDS AND MOETGAGES. [CHAP. I. 
 
 to make net earnings at the time of the transaction, and not bj 
 the price originally paid for it.-' 
 
 Under the law of Alabama, bonds issued by a railroad com- 
 pany, and taken in part payment by a construction company for 
 the construction of its road, have been held not to be void where 
 there was no over- valuation, and the circumstances indicated that 
 there had been a fair exercise of judgment and discretion on the 
 part of the railroad company, honestly directed to secure a sub- 
 stantial compliance with the law.^ 
 
 Bonds issued for the purpose of constructing a road are not 
 invalidated by the fact that the road could have been or was con- 
 structed for less than the amount of the bonds issued to pay 
 therefor.^ 
 
 (c) Oonstruction of Statutory Provisions limiting the Amount 
 to which Bonds may le issued^ — The execution by a company of 
 a mortgage on its own real estate to secure bonds has been held 
 to be a " transfer of real-estate securities," within the meaning 
 of the Iowa statute (McClain's Code, § 1611), which provides 
 that, without such transfer, the maximum of the corporate in- 
 debtedness shall not exceed two-thirds of its capital stock.^ 
 
 Bonds of a railroad company in the hands of directors of the 
 company, who had full knowledge that the bonds issued were in 
 excess of the amount of stock actually paid, have been held by 
 
 1 Grant et al. v. East & West R. Co. of and warehouse, although it has previously 
 
 Ala. etal. (1893), 54 'Fed. Rep. 569, af- been leased to a railroad company. The 
 
 firming Same v. Same (1892), 52 Fed. ground taken by the court was that the 
 
 Rep. 531. A large number of cases are terminal property was of no value unless 
 
 cited in the opinion as to payment for leased to a transportation company, and 
 
 bonds in property. that the lease of the property was actu- 
 
 If bonds are delivered in payment for ally the only means by which it could be 
 
 work done and materials furnished, it is made to serve as a security for the bonds, 
 
 equally as good as if they had been sold See Fidelity, etc. Co. v. West Penn., etc. 
 
 for cash. See 7 Fed. Rep. 796 (1881). R. Co. et al. (1891), 138 Pa. St. 424 ; 
 
 " Coe V. East & West R. Co. et al. s. c. 21 Atl. Rep. 21, to an amount where 
 
 (1892), 52 Fed. Rep. 531. a company had issued bonds more than 
 
 ^ Farmers' Loan & Trust Co. v. Eocka- twice the amount of the capital stock 
 
 way Valley R. Co. (1895), 69 Fed. Rep. 9. paid in, and executed a mortgage to se- 
 
 * As to the rights of holders where cure them in contravention of the act of 
 
 there are contractual limitations on the April 4, 1868, P. L. Pa. 62. The court 
 
 issue, see Chap. II., Art. II. reaffirmed Reed's Appeal (1888), 122 Pa. 
 
 6 First Nat. Bank of Montpelier v. St. 565; s. c. 16 Atl. Rep. 100, holding 
 
 Sioux City Terminal E. & Warehouse Co. that the mortgage was unauthorized, and 
 
 (1895), 69 Fed. Rep. 441. might he held inoperative and void as 
 
 The game case holds that the provi- to parties having the right to complain, 
 
 sions of the same section, that the real but, as between bona fide holders of the 
 
 estate thus transferred shall be " unin- mortgage bonds and the company, the 
 
 cumbered," is sufficiently complied with mortgage was a lien upon the mortgaged 
 
 where the property is a terminal station property. 
 
§ 5- J NATURE AND ISSUE OP BONDS. 19 
 
 the Court of Errors and Appeals of New Jersey to be invalid and 
 worthless.-' 
 
 But where such pass in good faith to third parties, who have no 
 knowledge of their being a part of an over-issue, or the real over- 
 issue of the bonds occurs subsequently to their obtaining title to 
 them, the rule is different, and they will be entitled to be paid.^ 
 
 § 5. Rate of Interest at which Bonds may be issued. — That the 
 statutes regulating the rate of interest on bonds do not apply 
 to bonds issued under reorganization agreements, see Chap. 
 XXXVII., post. 
 
 In determining how far bonds shall be invalidated for the reason 
 that they reserve more than the legal interest, the essential point 
 is upon the question as to the laws of what State was the contract 
 entered into. The usual presumption is that the State is the 
 one where the corporation has its legal home, and this presump- 
 tion is not rebutted by the fact that the interest is made payable 
 in another State, the arrangement being regarded as one merely 
 for the convenience of coupon-holders, and not as having the 
 effect of bringing the contract under the familiar qualification of 
 the general rule, viz., that the law of the place of performance 
 yields to the law of the place of the contract. Thus where a Ver- 
 mont railroad company issued bonds, the interest on which was to 
 be paid in Boston, it was held that, as the parties had apparently 
 contracted with special reference to the law of Vermont, and 
 made the interest payable at Boston merely because it was a 
 financial centre, the contract was governed by that law, by which 
 the result of stipulating for a usurious rate of interest was not to 
 vitiate the obligation, but to disable the creditor from collecting 
 more than the legal rate.^ 
 
 1 Steelman ei a?, w. BakerCN". J., 1896), the effect of usury in these bonds by 
 
 33 Atl. Rep. 815. P. L. N. J., 1878, p. pleading the statute of New York, which 
 
 20, ch. xii., § 20, limits the issue of bonds forbids corporations pleading usury as a 
 
 of railroad companies to the amount of defence. The court, however, held that as 
 
 their paid-up capital stock. See Nowell v. North Carolina was the State where the 
 
 Andover & Eedbridge R. Co. , 7 Jur. n. s. work was done, and the bonds given in 
 
 Ch. 839. payment for the work, and where the prop- 
 
 "^ Physick et al. v. Baker (N. J., 1896), erty mortgaged as security was situated, 
 
 33 Atl. Rep. 815. and where payment could be enforced, the 
 
 ° Codman v. Vermont & C. R. Co. laws of the latter State as to interest 
 
 (1879), 16 Blatchf. 165, 177 : .s. c. 5 Fed. governed. 
 
 Cas., Case No. 2935, following Cheever When bonds are payable in a State 
 
 V. Rutland & Burlington R. Co. (Vt., where corporations cannot interfere, the 
 
 1869); s. c. 4 Am. Ry. Rep. 291. defence of usury, unless the place men- 
 
 In Commrs. of the County of Craven v. tioned is adopted as a shift or device to 
 
 Atlantic & N. C. R. Co. (1877), 77 N. C. avoid the statute of usury, such a de- 
 
 289, the bonds were payable in New fence will not avail. See 12 Wall. 276 
 
 York, and an attempt was made to avoid (1870). 
 
20 RAILWAY BONDS AND MORTGAGES. [CHAP. I. 
 
 (a) When an Issue of Bonds is usurious. — A railway corpora- 
 tion cannot legally sell its bonds bearing the highest legal rate of 
 interest at a discount for the purpose of borrowing money. Such 
 a sale would be in effect a loan and a usurious transaction.^ 
 
 (b) When an Issue of Bonds is not usurious. — It has been held 
 that a usury law has no application in a case where the transac- 
 tion is in effect an issue of bonds to pay for the completion of a 
 road, although the transfer is styled a loan by the parties, and 
 although the sum for which the bonds are issued is largely in 
 excess of the estimated cost of the work.^ In many States there 
 are statutes authorizing railroad companies to borrow money and 
 sell their securities at any rate of interest or price they may deem 
 proper, and it has been said that a company is at liberty to sell 
 its bonds at any price it pleases, unless prohibited by statute (see 
 13 Fed. Rep. 524). 
 
 A statute authorizing railroad companies to sell their bonds 
 and notes at such prices as they may deem expedient justifies a 
 sale of such bonds at less than their par value.^ 
 
 So a charter authorizing the company to borrow money " in 
 such terms as might be agreed upon between the parties" em- 
 powers them to borrow money at a rate of interest beyond that 
 established by the general law.* 
 
 So a charter which declares that a corporation may borrow 
 money on such terms as the directors may determine upon, and 
 may issue bonds or other evidences of indebtedness, authorizes 
 the corporation to sell its bonds below their face value, and where 
 it does so the loan is not usurious.^ 
 
 Wherever the Statute of Usury has been repealed, no objection 
 can be raised as to the validity of bonds on the score of their 
 having been negotiated at less than par.® 
 
 1 Commrs. of the County of Craven v. Manufg. Co. (1887), 96 N. C. 298 ; s. o. 
 Atlantic & N. C. R. Co. (1877), 77 N. C. 3 S. E. Eep. 63. 
 
 289 ; West Cornwall Ey. Co. v. Mowatt, As to the issuing of bonds convertible 
 
 17 L. J. Ch, 366 ; Jn. re Regent's Canal Iron- into stock, and a statute prohibiting a sale 
 
 works Co., 3 Ch. Div. 43 ; In re Anglo- of stock below par, see Sturges v. Stetson 
 
 Danubian,,etc. Colliery Co., 20 Eq. 339 ; (1858), 1 Biss. 246; Fosdick ». Sturges 
 
 In re Compagnie G^ncSrale de Bellegarde, (1858), 1 Biss. 255. 
 
 4 Ch. Div. 470. e Gamble v. Queen's Co. "Water Co. 
 
 2 White Water Val. Canal Co. v. Val- (1890), 123 N. Y. 91 ; s. c. 25 N". E. 
 lette (1858), 21 How. 414. Rep. 201 ; 32 Am. & Eng. Corp. Cas. 313; 
 
 * Junction Railroad Co. v. Bank of Stevens v. Watson (1865), 4 Abb. App. 
 Ashland (1870), 12 Wall. 226. Cas. 202; Rosa v. Butterfield (1865), 33 
 
 * Morrison v. Eaton & Hamilton R. Co. N. Y. 665. See IST.Y. Laws, 1850, ch. 172. 
 (1860), 14 Ind. 110, an action on a note Bonds are not invalidated by the fact 
 of the company. See Butler v. Edgerton, that the company is empowered to issue 
 15 Ind. 15 ; Butler v. Myer, 17 Ind. 77. them at a certain rate of interest, and 
 
 s Traders' National Bank v. Lawrence stipulates that the interest shall be paid 
 
§ 6.] NATURE AND ISSUE OP BONDS. 21 
 
 A statute of Arkansas provided that " Whenever any railroad 
 company . . . shall, in the opinion of the directors thereof, re- 
 quire an increased amount of the capital stock, . . . they shall 
 have power to borrow money ... at a rate of interest not ex- 
 ceeding seven per cent per annum . . ." There was a suit to 
 foreclose a mortgage securing bonds issued bearing 10 per cent 
 interest, as agreed upon in a plan of reorganization. It was con- 
 tended that these bonds were void, having been issued at a rate 
 of interest greater than that allowed in the above-mentioned act. 
 The court sustained the validity of these bonds against this con- 
 tention by simply saying that this statute had no application to 
 the case, for there was here no increase of the existing capital 
 stock of a corporation. This new railway company had acquired 
 the ownership of the interests in question upon terms and condi- 
 tions, and this statute was no obstacle to its full performance of 
 those terms and conditions, i 
 
 Where a legislature authorizes the indorsement by the State 
 of bonds of a railroad company bearing interest at 8 per cent per 
 annum, the fair construction is that it means 8 per cent in any 
 legal-tender currency on which the parties may agree.^ 
 
 Bonds stipulating for semi-annual payments of interest, and 
 that, in default of the reasonably prompt payment of interest as 
 it should accrue, the principal sum might be treated as due and 
 payable, are not invalid because the provisions of the act autho- 
 rizing their issue are that the bonds shall bear a rate of interest 
 not exceeding 8 per cent per annum, and have no longer than 
 thirty yeai's to run.^ 
 
 § 6. Power to issue Bonds after Consolidation. — The general 
 rule that a consolidated company acquires the charter powers, 
 privileges and immunities of the constituent companies * is appli- 
 cable to the power to issue bonds.^ 
 
 semi-annually. Coe v. Columbus, P. & R. of 6 per cent interest. The bonds to be 
 
 Co. (1859), 10 Ohio St. 372. given the State for the loan of the School 
 
 1 Memphis & Little Rook Railroad u. Fund were to run ten years, and a sinking 
 
 Dow (1887), 120 U. S. 300. fund was to be provided for their pay- 
 
 ^ Young V. Montgomery & Eufaula R. ment. As issued they were to run fifteen 
 
 Co. (1875), 2 Woods, 614. years, and no sinking fund was required 
 
 ' Newport & Covington R. Co. o. to be set apart for their payment. The 
 
 Douglass (1877), 12 Bush (Ky.), 673; court held that these circumstances were 
 
 .s. 0. 18 Am. Ry. Hep. 221. not of the essence of the contract, and that 
 
 In Campbell v. Tex. & New Orleans the legislation authorizing the changes did 
 
 R. Co. (1872), 2 Woods, 263, bonds of not impair the obligation of the contract 
 
 a railroad company which, by the an- contained in the original first mortgage, 
 thority of the statutes were to bear 6 per * Thompson on Coi-p., § 365. 
 
 cent interest, were issued to bear 8 per ^ See, for example, Coe v. New Jersey 
 
 cent interest. ' They were ordered to be Midland Ry. Co. (1879), 31 N. J. Eq. 105. 
 paid with a priority only to the extent The legislature of Connecticut pro- 
 
22 RAILWAY BONDS AND MORTGAGES. [CHAP. I. 
 
 When several years have elapsed since the consolidation of two 
 companies, and the issue of bonds by the consolidated company, a 
 stockholder will not be permitted, as against bona fide holders of 
 such bonds, to raise the objection that they are invalid for the 
 reason that the consolidation was illegal.' 
 
 § 7. Validity of Bonds. 1. Miscellaneous Cases. — An issue of 
 bonds in payment for the construction of a railroad will not be 
 invalidated by the fact that the railroad could have been, or was, 
 perhaps, built and constructed for less than the amount of the 
 bonds which were issued to pay for it ; especially is this true where 
 there is no charge of fraud in the inception or execution of the 
 contract for the construction of the railroad.^ 
 
 It is no more competent for stockholders than for a company 
 to question the authority of contracts of consolidation or the 
 execution of mortgages, after the lapse of several years and the 
 sale of bonds to hona fide purchasers on the faith of such 
 contracts.^ 
 
 Where a railroad company, incorporated in and under the laws 
 of one State, enters into a contract in another State, which, by its 
 terms, is to be performed in the latter State and is valid under 
 its laws, prohibitions in the corporate charter, which would render 
 the contract illegal in the State where the corporation was organ- 
 ized, do not render it illegal in the other State ; their only effect 
 in the other State is as restrictions on the corporate power. Thus, 
 although a law of the State where the corporation was organized 
 may have positively forbidden the sale of its bonds at less than 
 par, yet if the bonds are issued and sold in another State, and the 
 interest and principal are both payable there, the courts of the 
 
 Tided that, whenever a certain railroad new company became possessed of all the 
 
 company owning a road lying partly with- rights in Connecticut which had been 
 
 in that State should be consolidated with possessed by the old company, succeeding 
 
 any other company in the State of New to the power possessed by the old company 
 
 York in pursuance of the laws of the in both States to issue its bonds to an 
 
 latter State, the new company should amount necessary for completing its road, 
 
 have all the rights within the State of and to mortgage its property and fran- 
 
 Connecticut that were possessed by the chises for their security. Mead ». New 
 
 old. In a case involving the power of the York B. Co. (1879), 46 Conn. 199 ; s. c. 17 
 
 consolidated corporation, the existence of Am. By. Bep. 367. As to bonds given for 
 
 which had been recognized by an act sub- the purchase price of the road, see Holland 
 
 sequently passed by the New York legis- u. Lee, 71 Md. 338 ; s. o. 18 Atl. Bep. 661. 
 lature, it was held that this act validated ^ Dimpfel v. Ohio & M. By. Co. (1879), 
 
 and established the agreement under which 9 Biss. 127. 
 
 the consolidation was made, and that, ^ Farmers' Loan & Trust Co. v. Rock- 
 when the legal existence of the new cor- away Valley B. Co. et al. (1895), 69 Fed. 
 poration in the State of New York became Eep. 9. 
 
 thus established, it satisfied the require- « Dimpfel w. Ohio&M. By. Co. (1879), 
 
 ments of the Connecticut act, and the 9 Biss. 127. 
 
§ 7.J NATUBB AND ISSUE OP BONDS. 23 
 
 latter State in passing upon the rights of a bona fide holder of 
 the bonds will test the validity of the issue by the local law.^ 
 
 A foreclosure sale, in proceedings instituted by the holders of 
 railroad bonds, in a State where such bonds are valid, will be 
 treated as null and void in the courts of another State in which 
 their issue is unconstitutional and contrary to public policy. In 
 such a case a decree in the first State is not binding upon the 
 courts of the second, and the sale will be ineffective to pass the 
 title to that portion of the corporate property which is situated 
 in the latter.^ 
 
 But such a sale will be recognized by the second court, if a part 
 of the bonds are valid, for the invalidity of the remainder cannot 
 then affect the validity of the foreclosure proceedings.^ 
 
 Bonds executed in proper form and according to legal require- 
 ments for sale by a railroad company have no validity until 
 delivered by the company.* 
 
 In Sickles v. Richardson the court held that bonds never 
 delivered in the course of business, and levied upon and sold to 
 satisfy a judgment, were invalid ; that no title passed by the sale 
 to the purchaser. It was held, however, that bonds of the same 
 class pledged for advances made were valid bonds, as there had 
 been in such a case a delivery ; further, the pledgee, though a 
 purchaser of the bonds, as claimed by other bondholders at a 
 sale under execution, had at least a title which would require the 
 company to redeem his bond by payment of the sums for which 
 they were pledged, in order to divest his title. 
 
 The Supreme Court of Illinois have sustained the validity of 
 bonds issued and sold by a railroad company, where the proceeds 
 of the sale were used in the legitimate construction of its road, as 
 not in contravention of the constitutional provision of that State 
 as to what bonds should be issued for. 
 
 The court held that this provision was never intended to limit 
 the issue of bonds by a railroad company to such only as would 
 be in payment for an existing obligation for money, labor, and 
 
 1 Ellsworth V. St. Louis, Alton, & the "increase of indebtedness" without 
 Terre Haute K. Co. (1885), 98 N. Y. 553; the consent of the stockholders (act of 
 Bank of Ashland v. Jones, 16 Ohio St. April 18, 1874). 
 
 145. 8 Eothschild v. Rochester E. Co. (1887), 
 
 2 Appeal of State Line R. Co. (1886), 1 Ry. & Corp. L. J. 321. 
 
 1 Ey. & Corp. L. J. 139 [Penn. Common < Sickles v. Richardson (1881), 23 
 Pleas ; case affirmed on appeal by the Hun, 559. See also Coddington v. Gil- 
 Supreme Court without discussion]. The bert (1858), 17 N. Y. 489; Cunningham v. 
 constitutional provision infringed by the Penn., Slatington, & N. E. R. Co., 11 
 issue of these bonds was that relating to N. Y. St. Eep. 663. 
 
24 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. I. 
 
 property actually received and appraised for the purposes of the 
 company.^ 
 
 Bonds taken as a bonus on stock subscriptions by directors of a 
 company, in their own hands or the hands of others, or pledgees, 
 have been held not to be valid claims on a fund for distribution 
 after a foreclosure sale.^ 
 
 Bonds of a railroad company are not rendered void because of 
 being secured by a mortgage which the company may have had 
 no authority to execute, neither does the illegality of the rate of 
 interest avoid a bond. It is good for the sum actually loaned 
 with the legal rate of interest.^ 
 
 All bonds issued by railroad companies except for the purposes 
 and in the mode authorized by the statute of Massachusetts upon 
 that subject have been held to be void.* 
 
 A railroad company has been held not liable even to a hona fide 
 purchaser of a stolen bond which lacked the seal of the company 
 and a certificate of the trustees when stolen, but to which a seal 
 and certificate had been afiixed and inserted which were shown 
 to be forged.* 
 
 1 Peoria & Springfield R. Co. v. Thomp- 
 son (1882), 103 111. 117; s. o. 7 Am. & 
 Eng. R. R. Cas. 101. As to validity of 
 bonds not being affected by conditions 
 precedent not having been substantively 
 fulfilled, see Corp. of Quebec v. Quebec C. 
 Ry. Co., 10 Can. S. C. Rep. 563; Bickford 
 V. G. J. Ry. Co., 1 Can. S. C. Rep. 696. 
 See Union Trust Co. v. Nevada & 0. R. 
 Co., 10 Sawy. 122. 
 
 2 Duncomb v. New York, Housatonic, 
 & Northern R. Co. (1881), 84 N. Y. 190 ; 
 s. c. 4 Am. & Eng. R. R. Cas. 293. 
 
 In McKee v. Grand Rapids & Reed's 
 Lake Street Ey. Co. (1879), 41 Mich. 274, 
 bonds meant only to be sold in open mar- 
 ket which had been turned over to a 
 mortgagee (who knew they had never 
 been sold), as collateral security for the 
 private debts of the treasurer of the com- 
 pany, who had a controlling interest in its 
 property, without authority from, or rati- 
 fication by, the corporation. As against 
 a judgment creditor of the corporation, 
 these bonds were held not to have been 
 properly issued and to be invalid, so far 
 as to prevent giving the mortgagee pri- 
 ority of lien over the levy of the execution 
 of the judgment creditor. 
 
 ' Philadelphia & Sunbury R. Co. v. 
 
 Lewis (1859), 33 Pa. St. 33 ; "Wood 
 V. Whelen (1879), 93 111. 153 ; Beecher v. 
 Marquette & Poe Rolling Mill Co. (1881), 
 45 Mich. 103. 
 
 In Jesup V. City Bank of Racine (1 861), 
 14 Wis. 331, bonds and mortgage were 
 held valid except as to a provision "that 
 the principal sum should become due 
 at the option of the holder upon default in 
 the payment of interest," inserted in the 
 bonds and mortgage by the president of 
 the company, without corporate authority, 
 upon the rule that where an agent adds 
 something beyond his authority, the ex- 
 cess will not invalidate that which may 
 weH stand without it. 
 
 If there was want of authority origi- 
 nally to issue these bonds with a provision 
 changing the time of maturity from fifteen 
 years to the option of the holders upon 
 default, and the board of directors had 
 ratified it, that would have rendered them 
 valid. But in this case the president 
 may have relied on his general authority 
 as agent to dispose of all securities, and, 
 if so, that would have been no ratification. 
 
 * Commonwealth v. Smith (1865), 10 
 Allen, 448. (See above, § 4 (a).) 
 
 5 Maas V. Missouri, K. & J. Ry. Co. 
 (1880), 83 N. Y. 223 ; s. c. 3 Am. & Eno. 
 
§ 7.] NATURE AND ISSUE OF BONDS. 25 
 
 (2) Holders' Rights though Bonds are void. — The holders of 
 bonds wliich had been declared void in this case on account of 
 the construction company to which they were issued having 
 some of the directors of the railroad company as members of 
 its board of directors, were held entitled to a decree of payment 
 of the sums actually expended for construction under this 
 contract.^ 
 
 The invalidity of some of the bonds issued by a railroad com- 
 pany secured by a mortgage cannot affect the validity of the 
 mortgage or the validity of proceedings for its foreclosure.^ 
 
 (3) Burden to show Validity or Invalidity. — Where railroad 
 bonds are valid on their face, the burden is not upon the holder 
 to show that the provisions of law authorizing their issue have 
 been complied with, but upon the party claiming them to be 
 invalid to show their invalidity. In the case cited there was no 
 ground for claiming that the bonds were not issued in accordance 
 with the charter, and without regard to the amount expended and 
 the sworn statement of the engineer. There was no proof on the 
 trial that there was any failure in this respect ; the plaintiff was 
 held not bound to prove that these provisions of the law were 
 complied with.^ 
 
 Nor may it be shown against hona fide holders of bonds issued 
 by a railroad corporation that restrictions imposed by its charter 
 upon the power to negotiate its bonds were violated. Such cor- 
 porations having general power to issue bonds, persons dealing 
 therein, in the absence of notice, have the right to assume that 
 
 R. R. Cas. 30, afarming Same v. Same Co. (1887), 1 Ry. & Corp. L. J. 321, re- 
 
 (1877), 11 Hun, 8. See Wy lie u. Missouri versing appeal of State Line R. Co. 
 
 Pac. R. Co., 41 Fed. Rep. 623 ; s. o. 43 (1880), 1 Ry. & Corp. L. J. 139. See as 
 
 Am. & Eng. R. R. Cas. 431. to validity of bonds sold to a syndicate of 
 
 See as to the effect of numbers of bonds wliich the directors of the company were 
 
 in determining the validity or invalidity members under Ohio statutes. Union Trust 
 
 of the bonds where there is an over-issue. Co. v. New York C. & S. L. R. Co. (1886), 
 
 State ex rel. Plock v. Cobb (1879), 64 Ala. 1 Ry. & Corp. L. J. 50. 
 127; s. 0. 7 Am. & Eng. R. R. Cas. 147. ^ Thomas v. Brownville, Fort Kearney, 
 
 See as to validity of bonds issued by a & Pac. R. Co. (1883), 109 U. S. 522. On 
 
 consolidated railroad company for the the question whether money received by a 
 
 bonds of its constituent companies, Tay- company on a pledge of void bonds must 
 
 lor V. Atl. & Great Western R. Co. (1878), be restored, see Andrews v. National Co., 
 
 57 How. Pr. 26. See as to validity of bonds, 76 Fed. Eep. 176. 
 
 Rorer on Railroads, 252 ; Redfield Am. Ry. ^ Graham v. Boston, Hartford, & Erie R. 
 
 Cases, 588. See as to the constitutional Co. (1886), 118 U. S. 61. 
 provisions of Pennsylvania requiring the ' Nichols v. Mase (1883), 94 N. Y. 
 
 assent of stockholders not invalidating 160 ; s. c. 17 Am. & Eng. R. R. Cas. 230, 
 
 bonds issued as collateral security for a affirming Same w. Same (1881), 25 Hun, 
 
 prior indebtedness of a railroad company, 640 ; see also Heinshiemer v. Dayton R. 
 
 Rothschild v. Rochester & Pittsburg R. Co. (1888), 3 Ry. & Corp. L. J. 268. 
 
26 RAILWAY BONDS AND MORTGAGES. [CHAP. I. 
 
 all restrictions upon the power to issue have been complied 
 with.i 
 
 (4) Estoppel. — Junior mortgagees and all parties claiming 
 under them are estopped from questioning the validity of bonds 
 issued under a former mortgage, where the subsequent mortgage 
 is made in express terms subject to the bonds secured by this 
 former mortgage. The company can thus waive objections to 
 their validity.^ 
 
 So, general creditors of a railroad company who had given credit, 
 after notice of a prior issue of bonds, and execution of a mortgage, 
 have been held to be in the position of the company and estopped 
 to deny the validity of the bonds and mortgage, on the ground 
 that the company had issued bonds to an amount more than 
 double the amount of paid-up stock, — an act which was ultra 
 vires, it being positively prohibited by the laws of the State.^ 
 
 Upon a contention that, as the bonds of a railroad company 
 which were to be exchanged for State bonds were fraudulently 
 issued by the officers of the company, and the issue of the State 
 bonds was unconstitutional, the bondholders could therefore 
 receive from the company only the amount they paid for them, 
 the Supreme Court of the United States held that the bonds, 
 though void as to the State, were valid as to the company 
 which sold them ; that having been put upon the market as 
 valid bonds, the companies were estopped from setting up their 
 unconstitutionality.* 
 
 1 Ellsworthv. St. Louis, Alton, &Terre * Kailroad Companies ?;. Schutte (1880), 
 Haute E. Co. (1888), 98 N. Y. 553, 103 U. S. 118, 144. 
 
 affirming Same t). Same (1884), 33 Hun, 7. In Kelly v. Trustees, etc. (1877), 58 
 
 2 Bronson et al. o. La Crosse & Mil- Ala. 489 ; s. c. 21 Am. Ky. Rep. 138, it 
 waukee R. Co", et al. (1863), 2 Wall. 283. was held that although railroad honds 
 
 ' Fidelity, etc. Co. v. "West. Perm., etc. were indorsed by the State in conti-aven- 
 
 E. Co. (1891), 138 Pa. St. 494 ; s. o. 21 tion and fraud of the internal improve- 
 
 Atl. Rep. 21. See also Reed's Appeal ment law of the State, and the indorse- 
 
 (1888), 122 Pa. St. 565 ; s. c. 16 Atl. ment, by reason thereof, was void, the 
 
 Eep. 100 ; Graham v. Railroad Company corporation would not be relieved of its 
 
 (1880), 102 XJ. S. 148. liability for such bonds which it had 
 
 As to estoppel of a company to claim secured by a deed of trust upon its prop- 
 that its bonds were invalid as having been erty. In Tyrell v. Cairo & St. Louis E. 
 issued in contravention of a statute limit- Co. (1879), 7 Mo. Ap. 294, the defence 
 ing them in amount to the amount of of ultra vires was held not to be available 
 its capital stock, see Farmers' Loan & against holders for value of negotiable 
 Trust Co. et al, v. Toledo, A. A. & N. M. bonds issued by the directors of the cor- 
 Ey. Co. et al. (1895), 67 Fed. Rep. 49, poration where the stockholders failed to 
 which cites to the same point Allis i). take any steps to repudiate the action of 
 Jones, 45 Fed. Rep. 148 ; Wood v. Water- the directors, and, to the contrary, allowed 
 works Co., 44 Fed. Rep. 146 ; Water Com- the honds to he sold, and availed them- 
 pany v. DeKay, 36 N. J. Eq. 548. selves of the benefit thereof. In Chicago 
 
§ 7.] NATURE AND ISSUE OP BONDS. 27 
 
 Even if an issue of bonds be entirely void, as being in violation 
 of an express statutory provision limiting the amount of the issue 
 to double the amount of capital stock paid in, general creditors 
 who give credit to the company with full notice of the execution 
 of the mortgage and the negotiation of the bonds must be re- 
 garded as having elected to do so subject to the earlier lien, and 
 will, therefore, be postponed to the bondholders in the distribu- 
 tion of the proceeds to the extent of the money actually received 
 by the company from the sale of the bonds. ^ 
 
 The holder of bonds is not estopped to set up the invalidity or 
 want of consideration of bonds other than those he holds.'' 
 
 (5) Lack of Certification of Bonds. — The point has been taken 
 that if bonds do not have the certificate of the trustee to their 
 genuineness, as required by the mortgage, they are void. But 
 this was connected with notice of their invalidity, and without 
 having parted with value for them.^ 
 
 Bonds of a railroad company issued without any authority ex- 
 isting in the officers who issued them, by virtue of a specific vote 
 previously passed or existing at the time of their issue, in pay- 
 ment of and allowed toward liabilities of the company, were 
 held, by the Maine Supreme Judicial Court, cured of the effects 
 of this irregularity by the company's subsequent action approving 
 and ratifying the unauthorized acts of its officers.* 
 
 (6) Ratification of Bonds. — Certain bonds of a railroad com- 
 pany were held to be valid except as to a provision inserted with- 
 
 D. & V. Ry. Co. et al. v. Loewenthal closure suit on the ground that some of 
 
 (1879), 93 111. 433, it was held that where the bonds were without consideration be- 
 
 the proof clearly showed that the railway cause the railroad could have been, or per- 
 
 company never received any consideration haps was, built and constructed for less 
 
 for bonds issued by it to the payee, a con- than the amount of the bonds issued ; but 
 
 tractor, which bonds were secured by a he can raise the question as to whether 
 
 mortgage on its road, this would consti- any part of the bond issue was fraudu- 
 
 tute a good defence against the payee or lent before the master on the distribution, 
 
 person to whom delivered, and as against Farmers' Loan & Trust Co. v. Rockaway 
 
 a lona fide purchaser when seeking to Valley R. Co. (1895), 69 Fed. Rep. 7, 11. 
 
 foreclose the mortgage in a court of See also Farmers' Loan & Trust Co. 
 
 equity. How far binding on company in et al. v. Toledo, A. A. & N. M. Ry. Co. 
 
 hands of hoTia fide purchasers, see Heb- et al. (1895), 67 Fed. Rep. 49, where the 
 
 herd v. Southwestern Land & Cattle Co. decree of foreclosure expressly provided 
 
 (N. J. Eq.), 36 Atl. Rep. 122. that the bonds might be attached as 
 
 1 Fidelity, etc. Co. v. Western Penn., fraudulent on the distribution. 
 
 etc. R. Co. (1891), 138 Pa. St. 494 ; s. c. 8 Chicago, St. Louis, & New Orleans 
 21 Atl. Rep. 21. R. Co. v. Macomb (1880), 2 Fed. Rep. 
 
 2 Fanners' & Merchants' Bank v. West 18, Choate, D. J. 
 
 Electric Ry. & Light Co. (Tex., 1896), 36 « Mason v. York & Cumberland R. Co. 
 S. W. Eep. 131. (1861), 52 Me. 82. 
 
 A bondholder cannot defend a fore- 
 
28 RAILWAY BONDS AND MOETGAGES. [CHAP. I. 
 
 out authority. If the board of directors had subsequently 
 ratified the bonds as issued, that would have rendered them valid 
 as to all their provisions.^ 
 
 In so far as the validity of the bonds is dependent upon the 
 regularity of the proceedings incident to the issue of bonds, the 
 case is obviously one where the principle omnis ratihahitio retro- 
 trahitur, et mandato priori cequiparatur is applicable. Thus any 
 invalidity arising from a want of original authority in the direct- 
 ors is cured by the subsequent recognition of their binding effect 
 at annual meetings of the company, and its payment of the inter- 
 est upon the indebtedness.''' 
 
 § 8. Objections to the Validity of the Bonds on the Ground of the 
 Relations of the Purchasers to the Corporation. — A sale of bonds to 
 a director of the company issuing them cannot be impeached by 
 the corporation, where the director has paid full value for the 
 bonds, and the money has been received and appropriated to 
 corporate uses, with the knowledge and approval of the stock- 
 holders.^ 
 
 Neither will bonds issued by a railroad company to a construction 
 company be rendered void by the fact that all the stockholders of 
 the one company were also stockholders of the other, or by the 
 fact that the two corporations have substantially the same directors 
 who were the active agents in negotiating the contract.* 
 
 So where a contract is made whereby a person controlling the 
 board of directors is to receive in bonds the full value of prop- 
 erty conveyed to a corporation, such bonds being secured by a 
 mortgage on the same property, and also a large amount of the 
 stock of the company for which no consideration is received by 
 
 1 Jesup V. City Bank of Racine (1861), lation of the law, if it has inured to the 
 14 Wis. 331. See Stainback v. Junk benefit of the railroad company, and was 
 Bros.' Lumber & Mfg. Co. (Tenn., 1897), the best available method for securing the 
 39 S. W. Rep. 530; Quebec v. Quebec C. construction of the road, and there was no 
 By. Co., 10 Sup. Ct. Rep. (Can.) 563. palpable over-valuation of the work per- 
 
 2 Farmers' Loan & Trust Co. o. Toledo, formed and moneys advanced, nor under- 
 A. A. & N. W. E. Co. (1895), 67 Fed. valuation of the stock and bonds received 
 Rep. 49 ; Mason v. York & Cumberland in payment." Compare Van Cott v. Van 
 R. Co. (1861), 52 Me. 82. Brunt (1880), 82 N. Y. 535 ; Barr v. New 
 
 s Union Loan & Trust Co. v. Southern York, L. E. & W. K. Co. (1891), 125 
 
 Cal. Motor Road Co. (1892), 51 Fed. Rep. N. Y. 263 ; s. c. 26 N. E. Rep. 145, re- 
 
 840. ferred to with approval by the court. See 
 
 < Coe V. East & West R. Co. of Ala. Buffalo L. T. & S. D. Co. v. Medina Gas 
 
 (1892), 52 Fed. Rep. 531, citing several & E. L. Co., 42 N. Y. Supp. 781, where 
 
 decisions of the U. S. Supreme Court. bonds were held valid though negotiated 
 
 The court said that such a contract ,by an officer other than the one designated 
 
 " should not be set aside on technicalities, in the resolution authorizing them, 
 but only in case of palpable intended vio- 
 
§§ 9, 10.] NATURE AND ISSUE OP BONDS. 29 
 
 the corporation, the bonds issued in pursuance of the contract 
 will be void, except as against bona fide purchasers.-^ 
 
 Bonds given to a director as a mere bonus on his subscribing 
 to the stock are without consideration. The director, being a 
 trustee of the company, has no right to receive the bonds, and in 
 his hands they are void." 
 
 Where a board of directors pass a resolution reciting authority in 
 the president and secretary to issue bonds, the receipt of a bid for 
 the bonds from them as individuals, and the acceptance of the bid, 
 and the bonds are then delivered to a person as security for a claim 
 against the president and secretary individually, such person is not 
 a bona fide purchaser acting in reliance on such resolution.^ 
 
 § 9. Informality of Issue, •w^hen this is an Objection of -which 
 only Corporations can take Advantage.* — Although a statute de- 
 clares that the proceedings at a meeting of the stockholders shall 
 not be " of any force or effect " unless certain formalities are 
 observed in advertising the meeting, it is only the stockholders 
 themselves who can raise any question as to the validity of bonds 
 issued at a meeting held without the exact notice required by the 
 statute. The right of a holder of the bonds cannot be contested 
 by the grantee of the parties who purchased the corporate prop- 
 erty at an execution sale.^ 
 
 § 10. 'When the Company is estopped to dispute the Validity of 
 Bonds. — It is a familiar rule that a corporation cannot reap the 
 benefit of a loan, and then refuse to repay it on the plea that it 
 had no power to borrow the money.® 
 
 1 Central Trust Co. v. New York R. ' Compare Chap. VII. 
 
 Co. (1886), 18 Abl). N. C. (N. Y.) 381. « Beeclier v. Marquette & Pac. Eolling 
 
 2 Duncombv. New York R. Co. (1881), Mill Co. (1881), 45 Mich. 103. 
 
 84 N. Y. 190, 203 ; 4 Am. & Eng. R. R. » North Hudson Mut. B. & L. Assn. -o. 
 
 Cas. 293. First Nat. Bank (1891), 79 Wis. 31 ; s. c. 
 
 s Germania Safety Vault & Trust Co. 47 N. W. Rep. 300, citing the following 
 
 V. Boynton (1896), 71 Fed. Rep. 797. See cases: Ohio & M. Ry. Co. v. McCarthy, 
 
 also Steelman v. Baker, supra, § 4 (c). 96 U. S. 258 ; Whitney Arms Co. v. 
 
 But where a first issue of bonds is valid, Birlow (1875), 63 N. Y. 62; Union 
 
 and afterwards such bonds become the AVater Co. v. Murphy's Flat Flume Co. 
 
 property of directors, who subsequently (1863), 22 Cal. 620 ; Sussex R. Co. v. 
 
 become charged with a knowledge that a M. & E. E. Co. (1868), 19 N. J. Eq. 13; 
 
 later issue of bonds was not upon a paid-up Close v. Glenwood Cemetery, 107 U. S. 
 
 stock basis, it was held that the first issue 466 ; Shrewsbury Ry. Co. u. London Ry. 
 
 was valid, and that in a suit to have the Co., 16 Beav. 441 ; Auerbach v. Le Sueur 
 
 mortgage declared void the bonds could Mill Co. (1881), 28 Minn. 291 ; Wright 
 
 not be taken from them either as a pen- v. Hughes (1889), 119 Ind. 324 ; Jones v. 
 
 alty, or as a contribution to the general Nat. Bldg. Assn., 94 Pa. St. 215 ; Wil- 
 
 dividend fund for the holders of subsequent liams v. Stevens Point Lumber Co., 72 
 
 issues. Physick w. Baker (1895), 53 New Wis. 487; s. c. 40 N. W. Rep. 154; 
 
 Jersey Eq. 673; s. c. 33 Atl. Rep. 815. Manuf. L. Co. v. Conover, 6 Phil. 18. 
 
30 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. I. 
 
 This rule operates for the benefit of bondholders. Thus, where 
 all the stockholders agree to an issue of bonds, knowing that the 
 amount authorized is beyond that permitted by the law, the cor- 
 poration cannot, after having received and enjoyed the fruits of 
 the bonds, assail their validity in the hands of bona fide holders on 
 the ground that the issue was in excess of the statutory amount.^ 
 
 A company could not be allowed to disavow and repudiate its 
 own acts to the injury of hona fide holders of its bonds without 
 notice, where the trust deed and bonds had been executed with 
 all the legal formalities required by the company's charter, and 
 the bonds negotiated in open market, the proceeds of the sale 
 paid to it, and appropriations made by it to pay the interest.^ 
 
 Compare Reed's App. (1888), 122 Pa. St. 
 56.5 ; Fidelity, etc. Co. v. Western Penn., 
 etc. R. Co. (1891), 138 Pa. St. 494. 
 
 1 Wood et al. v. Corry Waterworks 
 Co. et al. (1890), 44 Fed. Rep. 146. 
 
 2 Harrison o. A. & E. R. Co. (1878), 
 50 Md. 490. 
 
 Where a company have power to issue 
 securities, an irregularity in the issue can- 
 not be set up against even the original 
 holder if he has a right to presume omnia 
 rite acta. Fountaine v. Carmarthen Ry. Co., 
 li. R. 5 Eq. 316 ; Jones v. Municipality, 
 etc., 20 N. B. 78 ; 21 N. B. 200 ; In re Far- 
 linger, etc., 16 Out. Rep. 722 ; Lewis v. 
 Brady, 17 Out. Rep. 377 ; Township, etc. 
 0. Toronto & N. Ry., 17 Grant Ch. 425 ; 
 Anderson v. Gold Mine Co., 1 Australian 
 Jurist, 161 ; In re Worcester Exchange, 3 
 De G., M. & G. 180 ; In re Tyson's Reef 
 Co., 3 W. W. & A. B. Cas. at Law, 162 ; 
 G. T. Ry. Co. ('. Corporation, etc., 10 R. L. 
 612 ; Bank v. Cheney, 15 Up. Can. Q. B. 
 400 ; Hampshire Land Co., In re, Portsea 
 Island Building Soc, Ex parte (1896), 2 
 Ch. 743 ; Hill v. Manchester & Salford 
 Waterworks Co., 2 B. & Ad. 544 ; In re 
 German Mining Co., 4 De G., M. & G. 19 ; 
 In re Magdalena St. Nav. Co., Johns. 690 ; 
 Baker's Case, 1 Dr. & Sm. 55 ; Troup's 
 Case, 29 Beav. 353; Hoare's Case, 30 Beav. 
 225 ; Pare v. Clegg, 29 Beav. 589 ; Agar v. 
 Athenajum Life Ass. Soc, 6 W. R. 277. 
 
 If such security be legally transferable, 
 such an irregularity, and, a fortiori, any 
 equity against the original holder, cannot 
 be asserted by the company against a bona 
 fide transferee for value without notice. 
 Webb V. Commissioners of Heme Bay, 
 L. R. 5 Q. B. 642. 
 
 Nor can such an equity be set up 
 against an equitable transferee, whether 
 the security was transferable at law or not, 
 if, by the original conduct of the company 
 in issuing the security, or by the subse- 
 quent dealing with the transferee, he has 
 a superior equity. In re Agra & Master- 
 man's Bank, L. R. 2 Ch. 391 ; /» re Blakely 
 Ordnance Company, L. R. 3 Ch. 154; Dick- 
 son V. Swansea Vale and Neath & Breem 
 Junction Ry. Co., L. R. 4 Q. B. 44. 
 
 In the winding up of a canal company 
 under the English laws, the claims were 
 as follows : C. claimed as the transferee of 
 debentures for value of Y., a sub-contractor, 
 to whom the contractor had transfeiTed 
 them for a nominal consideration. P. 
 claimed on debentures deposited as se- 
 curity of a bill against the contractor due 
 Y., which he had discounted. These de- 
 bentures were not transferred to P., and 
 the transfer to Y. was not registered. 
 
 T. took ■-, transfer of debentures from 
 Y. for a nominal consideration, which had 
 not been registered in the name of the 
 contractor, but the transfer to Y. had been 
 registered, and T. alleged that he gave 
 value to Y. C. had a transfer for full 
 value, and registered. These debentures 
 had been authorized by a resolution passed 
 at a meeting of the shareholders, at which 
 an insufficient number were present. The 
 contractor to whom the company issued 
 them was present at the meeting and 
 knew that fact. Upon the principles just 
 stated, the court held that C. had a valid 
 claim to be paid up his debentures, and 
 that the company was estopped from set- 
 ting up the irregulaiity of issuing them. 
 
 They also held that P. and T. must be 
 
§ 10.] KATUBE AND ISSUE OP BONDS. 31 
 
 The principle by which a company may, in certain cases, be 
 precluded from disputing its liability upon bonds, for the reason 
 that the proceeds have been devoted to corporate uses, operates 
 quite independently of the question whether the bonds in the 
 given case are negotiable instruments or not.^ 
 
 Nor can a corporation deny its corporate existence for the pur- 
 pose of escaping liability on bonds issued by it as a corporation. 
 As was emphatically said by the court in an Illinois case : " We 
 are not saying that a corporation is estopped by its bonds and 
 mortgage from raising the question as to whether, in making 
 them, it was acting within its chartered powers. But we do say, 
 that where a company has issued its bonds and mortgages under 
 the circumstances above detailed, the courts of every civilized 
 country must hold it estopped from denying its own corporate 
 existence, for such a defence is repugnant to every sentiment of 
 justice and good faith." ^ 
 
 In a case before the Supreme Court of the United States the 
 gi'ound was taken that, as certain bonds of a railroad company, to be 
 exchanged for State bonds, were fraudulently issued by the officers 
 of the company, the issue of the State bonds was unconstitutional, 
 and the bondholders could therefore receive from the company 
 only the amount they paid for them ; but it was held that the 
 bonds, though void as to the State, were valid as to the company 
 wliich sold them ; that, having been put upon the market as 
 valid bonds, the companies were estopped from setting up their 
 unconstitutionality.* 
 
 So it has been held in Alabama that, although railroad bonds 
 were indorsed by the State, in contravention and fraud of the 
 Internal Improvement Law of that State, and the indorsement was 
 therefore void, the company was nevertheless liable on such of the 
 bonds as it had secured by a trust deed on its property.* 
 
 treated as equitable transferees only, but the directors, and, tothe contrary, allowed 
 
 without reason to suspect any irregularity the bonds to be sold, and availed them- 
 
 in the issue, and that they conld be selves of the benefit thereof, 
 allowed to recover such a sum as they i Des Moines Gas Co. v. West (1878), 
 
 might be able to show to have been bona 50 Iowa, 16. A like ruling as to certifl- 
 
 /fie advanced by them upon the debentures cates representing dividends on preferred 
 
 they held. In re Romford Canal Company stock which the holder was entitled to 
 
 (1883), L. R. 24 Ch. Div. 85. See also convert into bonds was made in Chaffee v. 
 
 Bill II. Dareuth R. Co., 1 H. & N. 305. Rutland R. Co. (1882), 55 Vt. 110; 16 
 
 In Tyrell v. Cairo & St. Louis R. Co. Am. & Eng. R. R. Gas. 408. 
 (1879), 7 Mo. Ap. 294, the defence of " Racine & Mississippi R. Co. v. Farm- 
 
 uUra vires was held not to be available ers' Loan & Trust Co. (1868), 49 III. 331. 
 against holders for value of negotiable ' Railroad Companies v. Schiitte 
 
 bonds issued by the directors of the corpo- (1883), 103 U. S. 118, 144. 
 ration where the stockholders failed to * Kelly v. Trustees, etc. (1877), 58 
 
 take any steps to repudiate the action of Ala. 489 ; s. o. 21 Am. Ry. Rep. 138. 
 
32 RAILWAY BONDS AND MORTGAGES. [CHAP. I. 
 
 The same principle of estoppel will be enforced against any one 
 who sells and gives currency to the bonds. Thus a contractor to 
 whom bonds have been issued in part payment for work done by 
 him, and who had thereafter purchased the corporate property at 
 a receiver's sale, subject to all legal liens, and organized a new 
 company, to which he transferred the property, was held estopped 
 from alleging the invalidity of the bonds as a defence to a fore- 
 closure suit instituted by the holders of the bonds.^ 
 
 § 11. Bonds not void because Mortgage securing them is unau- 
 thorized. — The bonds being the principal thing, and the mortgage 
 securing them the accessary merely, the fact that a company has 
 exceeded its authority in executing the mortgage will not have any 
 effect on the validity of the bonds.^ 
 
 § 12. Deferred Income Bonds, Power to issue. — Whether a gen- 
 eral authority to borrow money entitles a railroad company to issue 
 deferred bonds without any provision for redemption is a question 
 as to which there is a direct conflict between two courts. By the 
 Federal Circuit Court for the Eastern District of Pennsylvania it 
 has been held that such an authority is applicable only to such 
 methods of borrowing as fall within the ordinary sense of the 
 word, and cannot be made to cover any transaction which does 
 not embrace the essential feature of a loan ; viz., an obligation to 
 return the property borrowed.^ 
 
 The Supreme Court of Pennsylvania, on the other hand, has 
 ruled, in regard to the same transaction, that the power to issue 
 irredeemable bonds was one which might be exercised without 
 any specific authority in the company's charter.* 
 
 1 De Kay v. Voorhis (1882), 36 N". J. « Phila. & Read. R. Co.'s App. (Penn., 
 Eq. 37. 1882), i Am. & Eng. R. R. Cas. 118. The 
 
 2 Phila. & Sunhury R. Co. i'. Lewis court considered that the view taken in 
 (1859), 33 Pa. St. 33. the case just cited was too narrow, and 
 
 ^ Taylor v. Phila. & Read. E. Co. that "while the borrowing of money is 
 
 (1881), 7 Fed. Rep. 386; s. c. 3 Am. & usually accompanied by a contract for the 
 
 Eng. R. R. Cas. 163. The company in this return of the principal in a stated time, it 
 
 case was undertaking to issue deferred is not always nor necessarily so." The 
 
 bonds on the English plan, which placed word "borrow," in its broader sense, it 
 
 the bondholders virtually in the position was thought, simply implies a contract for 
 
 of stockholders, except as regai-ds the the use of money. If a sum of money, 
 
 right to vote. The issue was enjoined at repaymentof which is not to be demanded, 
 
 the suit of a stockholder on the ground is volnntarily advanced, the transaction is 
 
 stated in the text, the court pointing out presumably entered into for some benefit 
 
 that in England such schemes are expressly to the lender. Judge Mercur dissented, 
 
 authorized by act of Parliament. In the on the ground that the contract, being 
 
 reporter's note to this case it is suggested one which entitled a stockholder who ad- 
 
 that the "preferred stock" cases present vanced |15 to receive $50, was usurious, 
 
 some points of analogy. See Kent d. Quick- and should, therefore, not be enforced by 
 
 silver Mining Co. (1879), 78 N. Y. 159. a court of equity. 
 
§§ 13, 14.] NATURE AND ISSUE OP BONDS. 33 
 
 § 13. Validity of Pledges of Bonds. — Railroad bonds, being 
 negotiable securities, may be pledged like other commercial 
 paper.' 
 
 A company empowered to issue bonds to pay for the construc- 
 tion or operation of a road may pledge its bonds to raise money 
 for the discharge of a debt already incurred for either of those 
 purposes.^ 
 
 An ofBce being an essential adjunct of the business of a rail- 
 road company, a debt incurred for rent of an office is within this 
 principle.^ 
 
 A claim of a president of a company for his salary, being as 
 legitimate as any other claim for services, may be secured by a 
 pledge of the company's bonds.* 
 
 Although a note given by a company for money borrowed from 
 a loan company may be void, as being in violation of the statute 
 against unauthorized banking, the loan itself and the bonds 
 pledged as a security therefor are valid and enforceable.^ 
 
 A pledge of bonds to secure the private debts of a railroad com- 
 pany's treasurer is void, as against a subsequent judgment creditor, 
 where the pledgee is aware of the purpose for which he received 
 the securities, although the pledgor is the virtual owner of the 
 road, and the debts were incurred in building it.^ 
 
 Where the bonds of a corporation are issued on the understand- 
 ing that they are to be sold for cash, but are in fact pledged to a 
 creditor as collateral to secure corporate notes held by him, the 
 objection that this disposition of them is unlawful is one that is 
 open only to the corporation or the stockholders.' 
 
 § 14. When the Issue of Bonds will be enjoined.^ — It need 
 scarcely be said that a stockholder can always procure an in- 
 junction to restrain an issue of bonds which is ultra vires.^ 
 
 A stockholder in one company which is the equitable owner 
 of stock in a second company which is a stockholder in a third 
 company, is a stranger to the affairs of the third company, 
 
 1 Morris Canal & Banking Co. u. Fisher ' Beecher v. Marquette & Pac, etc. 
 
 (1855), 9 N. J. Eq. 667. Rolling Mill Co. (1881), 45 Mich. 103. 
 
 ^ Duncomb w. New York, Housatonio, ' For suits to annul bonds, see Chap. II. 
 
 & Northern R. Co. (1881), 84 N. Y. 190 ; " For recognitions of this doctrine see 
 
 s. c. 4 Am. & Eng. R. E. Cas. 293 Taylor v. Phila. & Read. R. Co. (1881), 7 
 
 (1881). Fed. Rep. 386 ; s. c. 3 Am. & Eng. R. R. 
 
 8 Ibid. Cas. 163 ; Fidelity, etc. Co. v. West Penn., 
 
 * Ibid. etc. B. Co. (1890), 138 Pa. St. 494; ». 0. 
 
 s Ibid. 21 Atl. Rep. 21. In the second case the 
 
 " McKee v. Grand Rapids & Reed's right of the stockholders in such a case 
 
 Lake Street Ry. Co. (1879), 41 Mich, was referred to as heing a matter of 
 
 274. course. 
 
34 RAILWAY BONDS AND MOETGAGES. [CHAP. I. 
 
 and not entitled to maintain a suit to enjoin it from issuing 
 bonds.^ 
 
 An issue of bonds will also be restrained by injunction where 
 the court is satisfied that they are about to be issued, not for the 
 payment of money actually borrowed for the purposes authorized 
 by the charter, but as a part of a fraudulent device to increase the 
 stock.^ 
 
 Neither preferred nor common stockholders can complain of the 
 issue of income bonds in payment of the consideration of a con- 
 tract shown to be valid, where the interest payable thereon is 
 postponed to the dividends on the preferred stock, and the com- 
 mon stockholders are given the opportunity of exchanging their 
 stock at par for the bonds to the total amount of the issue.^ 
 
 § 15. Suits to annul Bonds. — If corporate bonds are delivered 
 for improper purposes by an officer having charge of them, a court 
 of equity may declare them void, cancel them, and set aside a 
 deed of trust given to secure their payment. A stockholder or 
 stockholders combined may bring a suit for this purpose, where 
 the corporation actually or virtually refuses to institute or prose- 
 cute sucli a suit. If there is a reasonable certainty that the cor- 
 poration will refuse, the stockholders may bring such a suit 
 without first requesting the corporation to bring it. Such suits 
 may be brought against the director or directors who have been 
 guilty of malversation ; but it is absolutely necessary that the cor- 
 poration be joined as a party, — usually defendant.* 
 
 And where no attempt has been made to enforce the payment 
 of bonds thus wrongfully delivered for other than corporate pur- 
 poses, a delay of eleven and a half years by stockholders before 
 bringing such a suit has been held not to constitute a bar to the 
 relief sought.^ 
 
 The mere fact that stockholders to whom bonds are issued have 
 paid no consideration for them will not entitle the holder of senior 
 bonds not yet due to have the new issue cancelled, there being no 
 averment that the corporation is in any way impairing or misusing 
 the mortgaged property, or that the petitioner has any lien upon, 
 claim' to, or control of the earnings of the company, or that the 
 
 1 Mayer v. Denver, T. & Ft. W. R. issue of stock in couversion of them might 
 Co. etal. (1889), 38 Fed. Kep. 197. also he enjoined. 
 
 2 Belmont v. Erie Ry. Co. (1869), 52 s Willonghhy v. Chicago Junction Ry. 
 Barh. 637. It was also intimated that while & Union Stockyards Co. (1892), 60 N". J. 
 such honds remained in the hands of per- Eq. 656 ; s. c. 25 Atl. Rep. 277. 
 
 sons affected with notice, that they did not * City of Chicago v. Cameron (1887), 
 represent a bona fide indehtedness, hut 120 111. 447 ; s. c. 11 N. E. Rep. 899. 
 were issued with a fraudulent design, the ' Ihid. 
 
§ 16.] NATURE AND ISSUE OP BONDS. 35 
 
 company has made default in the payment of the interest due 
 on the bonds held by him or his co-bondholders.^ 
 
 § 16. Certificates of Indebtedness .^ — In the adjustment of the 
 affairs of embarrassed companies, a change in the form of their 
 obligations is sometimes provided for by the issue of certificates 
 of indebtedness representing the amount of the valid claims of a 
 part or the whole of the creditors. Such an issue may be either 
 for the mere purpose of facilitating a funding scheme, being made 
 either as an exercise of corporate power implied from the au- 
 thority to execute the original evidences of debt,^ or by virtue of a 
 special statute.* 
 
 It may be made under a statute operating virtually as a 
 special insolvency act giving, all the creditors who elect to take 
 advantage of their provisions an equal participation in the 
 security provided by them, without regard to whether they are 
 unsecured.^ 
 
 A railroad company which was limited by its charter to divi- 
 dends of 10 per cent on a capital stock which could not be further 
 increased, had accumulated from its earnings over and above 
 dividends and expenses a surplus of 80 per cent on its capital 
 stock. It was concluded to use this in constructing and equip- 
 ping the road, purchase of property, etc., to increase its traffic. 
 For this, in proportion to stock owned by each, the company 
 issued to its stockholders certificates which it called " interest 
 certificates," which certified that A. B., " being the holder of 
 shares of the capital stock of the company, was entitled to i , 
 payable ratably with the other like certificates, at the pleasure of 
 the company out of its future earnings, with dividends thereon at 
 the same rates and times as dividends should be paid upon the 
 capital stock of the company." The certificates were declared 
 transferable, with an appointment in blank of an attorney to 
 transfer in the form common at the foot of certificates of stock. 
 The United States revenue officers compelled a payment of an 
 
 ^ Bibb V. Montgomery Iron Works The substance of this and the last case is 
 
 (1893), 101 Ala. 301 ; s. c. 13 So. Rep. given in Chap. II. 
 
 224. ' An example of a statute of this class 
 
 ' These instruments are issued by re- is the Massachusetts act of 1876, ch. 236, 
 
 ceivers or by a company. The rights construed in Third Nat. Bank of Boston 
 
 under the former are discussed in connec- v. Eastern Railroad Co. (1877), 122 Mass. 
 
 tion with Receivers' Certificates. 240 ; Smith v. Same (1878), 124 Mass. 
 
 ' AsinSkiddyw. Atlantic & Mississippi 154; Pollock v. Same (1878), 124 Mass. 
 
 E. Co. (1879), 3 Hughes, 320, 323, 356. 1.58 ; Elwell v. Same (1878), 124 Mass. 
 
 * See, for example, the act discussed in 160; Merchants' Nat. Bank w. Same (1878), 
 
 Gibbes v. Greenville, etc. R. Co. (1879), 13 124 Mass. 518 ; Hamor et al. Execrs., etc. 
 
 S. 0. 228 ; 4 Am. & Eng. R. R. Cas. 459. t\ Same (1882), 133 Mass. 315. 
 
36 RAILWAT BONDS AND MOETGAGBS. [CHAP. I. 
 
 income tax on these certificates, under the internal revenue laws 
 of the federal government. In an action by the company to 
 recover the money thus paid from the collector, the U. S. Supreme 
 Court construed these certificates. It was held that the issue of 
 these certificates amounted to a " dividend in scrip " within the 
 twenty-second section of the Internal Revenue Act of June 30, 
 1864, as subsequently amended, which enacts that " any railroad 
 company which may have declared any dividend in scrip or money 
 due or payable to its stockholders as part of the earnings, profits, 
 income, or gains of such company, carried to the account of any 
 fund or used for construction, shall be subject to and pay a tax of 
 five per centum on the amount of such dividends or profits, when- 
 ever and wherever the same shall be payable ;" and which author- 
 ized the company making such dividend to withhold the 6 per 
 cent tax.i 
 
 1. Refunding Bonds. — An embarrassed railroad company, 
 being unable to meet its bonded obligations, resorted to a plan 
 of funding the old indebtedness in new bonds : for amounts under 
 $1,000 it issued to the holders of the original bonds certificates of 
 indebtedness ; it also issued certificates of indebtedness in the 
 fractional amounts for coupons past due, not requiring those who 
 received them to waive the mortgage lien nor to accept the last- 
 mentioned certificates as payment of the coupons for interest past 
 due. It was held that these certificates were a substitution for 
 the old obligations, and not a novation of the contract, and that 
 
 1 Bailey v. Kailroad Company (1874), the company should be authorized to in- 
 
 22 Wall. 604 ; s. C. 11 Am. Ky. Rep. 121. crease their capital to an amount sufficient 
 
 Referring to these " interest certificates," for the purpose, and that they should have 
 
 in the opinion rendered by Mr. Justice a, pro rata share in the distribution of 
 
 Clifford, it was said : " Such a paper, there- whatever assets may remain at the dissolu- 
 
 fore, by whatever name it may be called, tion of the company." Again . "Corpo- 
 
 is, upon its face, evidence for each stock- ration bonds are the representatives of 
 
 holder, to persons with whom he may have money, because they are issued for sale in 
 
 dealings, of the amount of the previous negotiable form; but certificates of stock 
 
 net earnings of the company ; that such are not securities for money, nor are they 
 
 net earnings to the amount specified have negotiable instruments in the strict com- 
 
 been expended in constructing and equip- mercial sense. Like dividends in scrip, 
 
 ping the railroad and in the purchase of they are simply muniments of and evidence 
 
 real estate and other properties appertain- of the holder's title to a described share or 
 
 ing to the same, and that the holders of interest in the property and franchises of, 
 
 the certificates will be entitled to dividends the corporation ; and the dividend in scrip 
 
 whenever dividends are paid upon the evidences the same extent of interest in 
 
 capital stock." Again: " B<ma fide hoMexa such property and franchise as the dividend 
 
 of the certificates might demand that the of stock, except that it is the right of the 
 
 certificates should be paid out of the future company to pay the same out of their future 
 
 earnings of the company, or that they earnings, and that the dividend in scrip 
 
 should be converted into stock whenever confers no right to vote." 
 
§ 16.] NATURE AND ISSUE OF BONDS. 37 
 
 they retained the lien on the properties which the original obliga- 
 tions were entitled to.^ 
 
 2. For Coupons unpaid. — So the Supreme Court of South Caro- 
 lina held that certificates of indebtedness issued by a company 
 under authority of statute for coupons for interest due and 
 unpaid on its bonds, which were secured by a lien under a certain 
 statute which was extended by the statute authorizing the issue 
 of these certificates to cover them, were but a substitution and 
 not a payment, and therefore retained the original lien on the 
 property .2 
 
 3. To preferred Stockholders — '■'■ Scrip Dividend." — A Ver- 
 mont railroad company was authorized to issue preferred stock with 
 the lien of a mortgage. Instead of paying dividends which were 
 guaranteed upon such stock, it issued to the holders of the same, 
 certificates of " scrip dividends," some of which on their face in 
 express terms sliowing their convertibility into any mortgage 
 bonds the company might issue, others not showing their con- 
 vertibility ; but in the case of the latter the officials of the com- 
 pany represented to purchasers of the same that they were 
 convertible by action of the stockholders. One contention in 
 the case involving these certificates was that the holders were 
 creditors of the company and not stockholders. As between 
 the holders and creditors for floating indebtedness, for instance, 
 the court held the holders of the certificates not creditors, 
 but stockholders, in effect, and that their right of payment 
 would be subordinate to that of the owners of the floating in- 
 debtedness. As between the company and the holders of these 
 certificates the latter were held to have the right to convert into 
 bonds, and if the company had not so converted them or refused 
 to do it, the holders had a right of action, — each holder in a suit 
 in his own name for money against the company, on his certifi- 
 cates ; and, under the circumstances of this case, the company 
 was estopped from denying its power to issue such certificates. 
 
 As to the consideration for them the court said : — 
 
 " The right to dividends of 7 per cent existed under the charter 
 
 when there should be funds applicable. As before shown, this 
 
 is a continuing right. The company issued the certificates in 
 
 settlement. 
 
 " The shareholder took them in settlement. The votes were 
 
 in effect to pay the dividends in this form. The certificates 
 
 ' Skiddy v. Atlantic, Miss. & Ohio '^ Gibbs ». Greenville & Columbia E. Co. 
 R. Co. (1879), 3 Hughes, 320, 323, (1879), 13 S. 0. 228 ; s. c. 4 Am. & Eng. 
 356. K. R. Cas. 459. 
 
38 RAILWAY BONDS AND MORTGAGES. [CHAP. I. 
 
 were taken, and the right to a dividend in any other form 
 surrendered. 
 
 " They were taken in settlement of a claim made by the share- 
 holders, and recognized as valid by the company and authorized 
 by the terms of the charter. There would be no question but 
 that this would constitute a good consideration if the financial 
 condition of the company had warranted a dividend." Again 
 they said : " The company having obtained the surrender in tlie 
 exercise of a power existing under the charter, and having always 
 treated the certificates as resting upon the same consideration as 
 though given in surrender of a dividend actually earned and 
 warranted, cannot, under the facts disclosed, be heard to say that 
 the certificate holders surrendered nothing." ^ 
 
 An individual agreed to purchase the whole stock of a railroad 
 company from one who held it after the sale of the property of 
 an old company under foreclosure of a mortgage and a rein- 
 corporation of it, and as consideration gave certificates for bonds 
 of the company, to be delivered when issued and secured by 
 mortgage, which were signed by himself as president and another 
 as secretary of the company. There was a contest as to whether 
 or not the lien of the certificates was superior to certain statutory 
 liens of holders who had been engaged in the construction of the 
 road. 
 
 It was urged that the certificates for bonds had all the force 
 and effect of the bonds agreed to be issued, and that the 
 court should regard the mortgage for their payment as having 
 been executed at the execution and delivery of the certificates. 
 The court said : " To make [these certificates] binding obliga- 
 tions upon the part of the corporation, they must have been 
 authorized upon the part of the stockholders, or the directory 
 of the company, or must have been within the scope of the 
 business of the company and powers of the president and secre- 
 tary, or by some clear and unmistakable act on the part of the 
 stockholders and directory, ratified and confirmed." The court 
 
 1 Chaffee v. Rutland R. Co. (1882), 55 on them. This order was made under the 
 
 Vt. 110; s. c. 16 Am. &Eng. R.R.Cas. 408. rule in Fosdick v. Schall, 99 U. S. 235. 
 
 In Calhoun v. St. Louis & E. R. Co. In United States v. Wilson (1882), 106 D". 
 
 (1880), 14 Fed. Rep. 9, the court ordered S. 520; s. c. 27 L. Coop. ed. 310, the 
 
 a receiver of a railroad company to pay Supreme Court of the United States held 
 
 certificates of indebtedness issued hy the that certificates of indebtedness issued by a 
 
 company to its employees for work and receiver of a railroad under order of the 
 
 labor done and for supplies and materials court were not taxable as "circulation" 
 
 furnished in preference to mortgage liens, under the United States revenue laws, as, 
 
 Those assigned were allowed for the amount in their opinion, they were not calculated 
 
 given for them, and no interest was allowed or intended to circulate as money. 
 
§§ 17-19.] NATURE AND ISSUE OP BONDS. 39 
 
 held, under the facts, it had no power to convert these certificates 
 into bonds and to create an equitable mortgage to secure their 
 payments.^ 
 
 § 17. State-aid Bonds. — The nature of State-aid bonds and the 
 rights created by them have been discussed in the following cases. 
 
 The remedies afforded by the State are given to and enforceable 
 by the State alone ; they cannot be set up by the purchaser of the 
 road in a contest between them and the holders of indorsed 
 bonds secured also by the corporation's mortgage, whatever might 
 be their effect if the State were a party, and the holders of in- 
 dorsed bonds secured also by the corporation's mortgage should 
 seek to set up rights under the mortgage to embarrass the State 
 in procuring the remedies.^ 
 
 § 18. Convertible Land-grant Certificates. — Instruments thus 
 denominated have been issued under these circumstances. Cou- 
 gress granted to the State of Wisconsin certain lands for the 
 purpose of aiding in the construction of railroads. The State 
 granted them to a company, which mortgaged them to secure a 
 bonded indebtedness. This mortgage was foreclosed and the 
 lands transferred to a now company. An arrangement was made 
 whereby these lands were devoted to the payment of such indebt- 
 edness of the old company ; but the conditions of the grant not 
 having been complied with, the title still remained in the United 
 States. The new company therefore issued these instruments, 
 certifying that after a certain time the bondholders were entitled 
 to a deed to proportionate shares of the land. The bonds were 
 surrendered for these. 
 
 It was held that the holders of these certificates had power to 
 protect the lands from injury, and that the defendant was liable 
 only for proceeds of timber received by it, or for timber used by it. 
 The holders were the beneficiaries of a trust.^ 
 
 § 19. Bonds convertible into Stock. — Various questions aris- 
 ing on bonds convertible into stock are discussed in the cases and 
 books referred to in the note below.* See further on this subject 
 § 35, below. 
 
 1 Thompson v. Memphis, Selma, & B. ' Beecher Ex. v. Chicago & N. W. R. 
 
 R. Co. (1885), 24 Fed. Rep. 338. Co. (1882), 14 Fed. Rep. 211. 
 
 'Stevens v. Louisville & Nash. R. * Sturgese. Stetson (1858), 1 Biss. 246 ; 
 
 Co. (1880), 3 Fed. Rep. 673 (1880), Tenn. Miller v. New York & Erie R. Co. (1859), 
 
 Bond Cases ; Ralston v. Crittenden (1882), 18 How Pr. 374 ; Ramsey v. Erie Ry. Co. 
 
 13 Fed. Rep. 508 (1882); Tompkins v. Little (1869), 38 How. Pr. 193 ; Belmont v. Erie 
 
 Rock & Ft. S. Ry. Co. (1883), 15 Fed. Ry. Co. (1869), 52 Barb. 637 ; Rorer 
 
 Rep. 6; s. c. 18 Fed. Rep. 344 (1883); on Railroads, 184; Woods' Ry. Law, 
 
 Williams v. Same (1883), ib.; s. c. 21 Fed. 616. 
 Rep. 370. 
 
40 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. I. 
 
 § 20. Ezchanges of Bonds and Rights thereunder. — Eights aris- 
 ing out of exchanges of bonds have been discussed in the cases 
 noted below.^ See further on this subject § 36, below. 
 
 1 Appeal of Allentown Nat. Bank, 
 (1884), 18 Rep. 641 ; Barry v. Mo. K. & T. 
 Ry. Co. (1888), 7 Ry. & Corp. L. J. 198 ; 
 Mead v. New York, Housatonic, & North- 
 ern R. Co. (1870), 45 Conn. 199 ; s. c. 
 17 Am. Ry. Rep. 367 ; Union Pac. R. Co. 
 V. Stewart, 95 U. S. 279 ; DeWitt v. Chi- 
 cago, B. & Q. R. Co., 41 Fed. Rep. 484 ; 
 Ames V. N. 0., M. & T. R. Co., 2 "Woods, 
 206; Turner v. Conant, 18 Abb. N. C. 160. 
 For some of the statutes in some of the 
 States affecting the matters covered by this 
 chapter see the following : Ala., Code 1886, 
 § 158, 114, Borrowing money. Ariz., Rev. 
 Stat. 1887, § 310, ditto; § 319, Bonds must 
 not exceed capital stock ; § 320, Bonds 
 previously issued validated. Ark., § 6175 
 (10), ditto ; § 6268, Bonds may be sold at 
 discount. Cal., Civ. Code, § 456, Bor- 
 rowing money. Colo., G. L., ch. xix. , § 4, 
 Stat. 1891, § 476, Borrowing money ; ch. 
 XXX., § 618, Issue of bonds for labor done, 
 etc. Conn., Gen. St. 1888, § 3570, Borrow- 
 ing money and issuing bonds for ; mode of 
 disposal of bonds ; issue of bonds, regula- 
 tion of. Fla., Rev. St. §2241 (10), Issuing 
 ■bonds. Ga., Code 1882, § 1689 (i) (nre). 
 Borrowing money, terms of. Idaho, Rev. 
 St. 1887, § 2664, Borrowing money ; is- 
 sue and disposal of bonds. 111., Eev. St. 
 ch. 114, § 22, Issue of bonds for money, 
 labor, etc.; § 20, Borrowing money. Ind., 
 Rev. Sts. 1888, § 3911, Borrowing money ; 
 issuing bonds, terms of sale, etc. ; ch. 19, 
 § 3019, Disposal of bonds, interest, etc. ; 
 § 3020, Sale of at discount ; ch. 37, § 3948, 
 Issue of bonds by company incorporated 
 by purchasers. Iowa, Code 1888, § 1965, 
 Issue of bonds. Ky., Gen. Laws, § 771, 
 Issue of bonds ; § 568, Restrictions upon 
 issue ; must be for value. La. , Rev. L. 
 1884, § 692, Borrowing money ; issue of 
 bonds. Me., Rev. St. 1883, ch. 51, § 56, 
 Issue of bonds ; terms of sale. Md., Pub. 
 Gen. Laws 1888, art. 23, § 171, Borrow- 
 ing money, restricted to amount of capital 
 stock, etc.; § 189, By a new company 
 formed by purchasers. Mass., Pub. St. 
 1882, ch. 112, § 62, Issue of bonds ; § 6.5, 
 Sold at less than par. Mich. , 1882, § 3352, 
 
 Borrowing money ; § 3409, Issue of bonds, 
 must be for money, labor, etc. Minn., St. 
 1891, § 2460, Borrowing inonej'; issue of 
 bonds ; § 2523, Por money, labor, etc. ; 
 § 2529, Terms of sale of bonds, in discre- 
 tion of officers. Miss., Code 1892, § 3581, 
 Issue of bonds ; § 3600, Issue of bonds, for 
 labor, etc. Mo., Rev. St. 1889, ch. 42, 
 § 2499, Issue of bond.s, forlabor done, etc.; 
 § 2543 (8), For construction and equipment. 
 Mont, Civ. Code 1S95, § 525, Issue of 
 bonds for actual value ; § 899, Borrowing 
 money ; issue of bonds ; interest on bonds. 
 Nebr., Comp. Laws 1895, §§ 1759, 1820, 
 Issue of bonds ; § 4043, By street-railway 
 companies. Nev., Gen. St. 1885, § 849, 
 Borrowing money ; issue of bonds ; limi- 
 tation on rate of interest. N. H., Pub. St. 
 1891, ch. 157, § 26, Discount of bonds. 
 N. J., Rev. St. 1709-1877, p. 619, § 6, 
 Bonds sold below par ; Snpp. to Rev. 1877- 
 1886, p. 153, § 35, Payment of bonds 
 provided for by increase of capital stock ; 
 pp. 824, 825, § 12, Borrowing money ; 
 issue of bonds ; limited to amount of 
 capital stock ; p. 839, § 59, By consolidated 
 company ; p. 842, § 71, Borrowing money, 
 consolidated company ; p. 847, § 94, Issue 
 of bonds to complete leased roads ; N. M., 
 Comp. Laws 1884, § 2665 (4), Borrowing 
 money ; issue of bonds ; terms, etc. N. Y., 
 Rev. St. (8th ed.), p. 1752, § 10, Bor- 
 rowing money ; p. 1775, § 1, Borrowing 
 money. N. C, Code 1883, § 1957 (10), 
 Borrowing money ; issue of bonds. iS^. 
 Dak., Code 1895, § 2877, Issue of bonds 
 for value, etc. ; § 2906, Formalities ; 
 § 2947 (11), For construction and equip- 
 ment ; §2962, Defence of usury prohibited. 
 Ohio Rev. St. 1890, §§3286-3290, 3309(a), 
 Issue of bonds ; § 9814, By narrow-gauge 
 companies ; § 3313, Bonds purchased by 
 directors void. Okl., St. 1893, § 1011, 
 Issue of bonds ; § 1023, Plea of usurj' 
 prohibited. Pa., Dig. Suppl. 1887, p. 2378, 
 § 5, Issue of bonds for value, etc. ; capi- 
 tal stock must be fully paid up ; Dig. 
 1883, p. 1415, § 6, Restricted to so much 
 per mile ; Dig. Supp. 1887, p. 1416, § 8, 
 Limited to double the stock paid up; 
 
§21.J 
 
 NATURE AND ISSUE OP BONDS. 
 
 41 
 
 §21. "Lloyd's Bonds." — Bonds issued purporting to be for 
 work done or materials supplied for the purposes of the undertak- 
 ing are called in England " Lloyd's Bonds ; " and these have been 
 sometimes issued by companies for the purpose of defeating the 
 limitations by Parliament on the power of companies to borrow 
 money. They may be sued upon, judgment recovered, and exe- 
 cution issued. In re Cork & Youghal R. Co.^ the holders of such 
 bonds were held to have a valid claim against the assets of the 
 company to the extent the company had been benefited by the 
 money raised on the bonds. 
 
 p. 1422, § 43, Same as to narrow-gauge 
 companies; p. 140, § 77, By consolidated 
 companies. S. C, Gen. St. 1882, Mort- 
 gages must include bonds previously issued. 
 So. Dak., Comp. L. 1887, § 2981, Borrow- 
 ing money ; issue of bonds. Tenn., t'ode 
 1884, § 1261, Borrowing money ; issue 
 of bonds. Tex., Civ. Stats. 1888, § 4219, 
 Borrowing money ; § 4222, Converting 
 bonds into stock ; § 4154, Issue of bonds 
 for money, labor, etc. Utah, Comp. Laws, 
 1888, § 2368, Issue of bonds ; valid though 
 sold below par. Vt., Rev. Laws 1880, 
 § 335, Bonds sold below par valid ; St. 
 1894, § 3797, Issue of bonds, interest not 
 to exceed seven per cent ; § 3799, Sold 
 below par. Va., Code 1887, Borrowing 
 money, limitations upon power. W. Va., 
 Code 1891, ch. 54, § 50 (11), Issue of 
 bonds for construction and operation ; 
 § 52, Bonds sold below par ; for money, 
 labor, etc. Wis., Ann. Stats. 1889, § 1828 
 
 (10), Issue of bonds for construction and 
 equipment. Wyo., Rev. St. 1887, § 549, 
 Issue of bonds ; sale below par ; plea of 
 usury prohibited. 
 
 1 L. R. 4 Ch. 748. Blackmore v. Yates, 
 36 L. J. Exch. 121, is a case involving an 
 assignment of rolling-stock to satisfy a 
 Lloyd's bond. As to the rights of the 
 holders of a Lloyd's bond against the di- 
 rectors of a company, see Rashdall v. Ford, 
 35 L. J. Ch. 769 ; Beattie v. Lord Ebury, 
 L. R. 7 Ch. 777 ; 41 L. J. Ch. 804 ; Weeks 
 «. Propert, 42 L. J. C. P. 129. For a 
 review of the cases involving " Lloyd's 
 Bonds"' up to 1870, see In re Bagnals- 
 town & Wexford K. Co., I. R. 4 Eq. 505. 
 For a case showing the circumstances 
 under which such bonds, in the hands 
 of a purchaser for value without notice, 
 may be good, see In re South Essex 
 Estuary Co., Ex parte Chorley, L. R. 11 
 Eq. 157. 
 
42 
 
 EAILWAT BONDS AND MORTGAGES. 
 
 [chap. II. 
 
 CHAPTER II. 
 
 RIGHTS OP BONDHOLDERS. 
 
 Art. I. — Eights of Bondholders gen- 
 erally, NOT INVOLVING THE 
 Negotiable Character of 
 SUCH Bonds. 
 § 22. Bonds and Mortgage must te con- 
 strued together. 
 
 23. Bonds are inoperative as Obliga- 
 
 gations until they are issued 
 to Purchasers. 
 
 24. No Veudor's Lien in Favor of a 
 
 Seller of Bonds. 
 
 25. The Eelatiou of Bondholders to 
 
 the Road is sometimes substan- 
 tially that of Proprietors. 
 
 26. The Relation of Bondholders to 
 
 eaeh other generally. 
 
 27. Majority and Minority Eights 
 
 generally. 
 
 28. Powers of Majority nuder Express 
 
 Clauses in the Mortgage. 
 
 29. Subscriptions for Bonds, Eights 
 
 under. 
 
 30. Bondholders' Rights as afifected by 
 
 Circulars issued by the Com- 
 pany. 
 
 31. Control of the Proceeds of Bonds. 
 
 32. When Bondholders entitled to de- 
 
 mand Repayment of the Un- 
 spent Portion of the Proceeds 
 of their Bonds. 
 
 33. Lien of Bondholders not lost by 
 
 Surrender of Bonds. 
 
 34. Bondholders' Right to sue Trus- 
 
 tees in Possession for Money re- 
 ceived by them. 
 
 35. Eights of Bondholders to convert 
 
 Bonds into Stock. 
 
 36. Priorities where Old Bonds are 
 
 Exchanged for New. 
 
 37. Transactions raising the Question 
 
 whether Bonds have been paid 
 or are outstanding. 
 
 i38. 
 
 39. 
 
 40, 
 41, 
 42. 
 
 43, 
 
 44, 
 45. 
 
 46. 
 
 Art. II. 
 
 §49. 
 50. 
 51. 
 
 52. 
 53. 
 
 54. 
 
 55, 
 56, 
 
 Effect of Fraud upon Priorities 
 between Bondholders. 
 
 Priority of Holders of Bonds 
 guaranteed by other Holders. 
 
 Rights of Income Bondholders. 
 
 Bonds, in what payable. 
 
 When Principal of Bonds becomes 
 due. 
 
 Legislature cannot accelerate 
 Maturity of Principal. 
 
 Company not entitled to pay off 
 Bonds before Maturity. 
 
 Acceleration of Maturity of Prin- 
 cipal as a Consequence of De- 
 fault in Interest. 
 
 Acceleration of Maturity of Prin- 
 cipal at Option of Individual 
 Bondholders or Trustees. 
 
 Sale of Pledged Bonds. 
 
 Payment of Income Tax by Bond- 
 holders. 
 , — Rights of Bondholders in- 
 volving Negotiable Chae- 
 aoter of such bonds. 
 
 Negotiable Character of Corporate 
 Bonds generally. 
 
 Bonds not non-negotiable, because 
 no Payee is named. 
 
 Uncertainty in Time of Payment 
 or Amount as affecting Negotia- 
 bility. 
 
 On the Law that governs the 
 Question of Negotiability. 
 
 Who are Bona Fide Holders of 
 Bonds generally. 
 
 Bondholders are entitled to els- 
 sume that Statement in Bonds 
 as to Date of I.ssue is correct. 
 
 Bona Fide Holders not protected, 
 if Issue was ultra vires. 
 
 Bona Fide Holders protected if 
 Issue was merely irregular, but 
 
§22.] 
 
 RIGHTS OP BONDHOLDERS. 
 
 43 
 
 Purchaser with Notice of Cir- 
 cumstances qualifying his Eights 
 not protected as a BcrrM VvU 
 Purcliaser. 
 j 57. Eights of Holders where there is 
 an Over-issue. 
 
 58. Rights of Bona Fide, Holders not 
 
 affected by Misapplication of 
 Proceeds of Bonds, by Original 
 Holders or others. 
 
 59. No Recovery on Bonds when 
 
 Trustee's Certificate is forged. 
 
 60. Amount recoverable where less 
 
 than the Face Value has been 
 paid for Bonds. 
 
 61. Title of Bona Fide Purchaser not 
 
 affected by Fraud of Person 
 intrusted with the Negotia- 
 tion of the Bonds. 
 
 Purchaser of Stolen 
 entitled to recover 
 
 § 62. Purchase of Bonds by Directors of 
 Company at a Discount. 
 
 63. Amount recoverable on Bonds 
 
 tainted with Fraud in their 
 Issue. 
 
 64. Innocent 
 
 Bonds 
 thereon. 
 
 65. Eights of Purchaser of Bonds the 
 
 Coupons of which are overdue. 
 
 66. Pledgees of Bonds as Botw, Fide 
 
 Holders. 
 
 67. Rights of Purchasers of Pledged 
 
 Bonds. 
 
 68. Whether Benefit of Mortgage 
 
 clear of Equities passes with a 
 Transfer of the Bonds. 
 
 69. Doctrine of Lis Pendens does not 
 
 apply. 
 
 Article I. — Rights of Bondholders generally, not involving 
 THE Negotiable Character of such Bonds. 
 
 8 22. Bonds and Mortgage must be construed together. — The 
 bonds and mortgage are one obligation, and should be read and 
 construed together.^ 
 
 The mortgage may qualify the absolute promise of the bond. 
 There is, however, an apparent conflict of opinion as to the effect 
 of a reference in the bonds to the mortgage. It has been held 
 that a mere recital in a bond, that it is secured by a mortgage, 
 does not import the terms of that mortgage into the bonds either 
 to the advantage or disadvantage of a bondholder. A default in 
 the interest on such a bond does not entitle the holder to sue for 
 the principal of the bonds, independently of foreclosure proceed- 
 ings, although the mortgage provides that, in case of default, one- 
 third of tlie bondholders in amount may require the trustee to sell 
 the property, and that the bonds shall forthwith become due and 
 payable. To hold that a single bondholder could precipitate the 
 maturity of the bond by a suit would be quite incompatible with 
 the requirement that a sale can be procured only at the instance 
 of a certain proportion of the whole class to which he belongs.^ 
 
 The Supreme Court of Minnesota has also held that the holder 
 
 1 Marlor e. Texas & Pacific R. Co. v. Winston (1885), 115 U. S. 228, cited 
 
 (1884), 19 Fed. Eep. 867 ; Marlor v. below. 
 
 Texas & Pacific Ry. Co. (1884), 21 Fed. « American Nat. Bank v. American 
 
 Rep. 383 ; s. c. 22 Blatch. 464, affirmed Wood Paper Co. (E. I., 1896), 32 Atl. 
 
 in Texas & Pacific Ry. Co. v. Marlor Rep. 305. 
 (1887), 123 U. S. 687. See also Van Weel 
 
44 
 
 EAILWAY BONDS AND MORTGAGES. 
 
 [chap. II. 
 
 of a bond will not be deprived of his rights as an innocent pur- 
 chaser of an instrument prima facie negotiable, because a mort- 
 gage to which it refers in general terms contains provisions which 
 limit his personal right of action on the security.^ 
 
 The Supreme Court of New York, however, has decided that a 
 purchaser of bonds which refer to a mortgage is bound by any 
 statement contained therein.^ 
 
 The report of the New York case does not show the character 
 of the reference t.o the mortgage, whether it was merely general 
 or particular. If it was particular, it is not inconsistent with the 
 two cases above cited, and harmonizes with a decision of the New 
 York Court of Appeals to the effect that, where there is an ex- 
 press reference on the face of the bond to the terms and conditions 
 of the mortgage, and the mortgage authorizes the trustees to post- 
 pone the payment of interest becoming due, coupon-holders are 
 bound by their action, and are not entitled to sue upon their 
 coupons in a court of law.^ 
 
 That the provisions of the bonds are controlling as to when 
 there has been a default, see Chap. XIX. 
 
 1 Guilford v. Minneapolis S. Ste. M. & 
 A. Ky. Co. (1892), 48 Minn. 560; s. c. 
 51 N. W. Kep. 658. 
 
 In this case the mortgage provided 
 that the bondholders were not to take any 
 proceedings at law or in equity to enforce 
 their debt, until the trustee had been re- 
 quested to take action and neglected to do 
 so. It was held that ag the bonds did 
 not contain this restriction, they were not 
 rendered non-negotiable because of the 
 general reference in them to the mortgage. 
 The court said : " Bonds of this charac- 
 ter generally refer to the mortgage or 
 trust deed by which they are secured ; 
 and being placed in the market as negoti- 
 able securities, to be sold to bona fide 
 purchasers, the fair inference from the 
 general recital in the bonds, that it is one 
 of a series secured by a mortgage deed to 
 a certain trustee, upon the property of 
 the railway company, whose absolute ob- 
 ligation it purports to be, is that such 
 recital is introduced into the bond to in- 
 dicate the nature of the security and add 
 to the credit of the bond, and does not 
 alone import into the bond special pro- 
 visions not affecting the nature or enforce- 
 ment of the security, and at variance with 
 the tenor of the bond itself. The policy 
 
 of the law is to hold such instruments 
 negotiable, unless there is enough on the 
 face of the bond to suggest inquiry in re- 
 spect to the existence of facts destroying 
 their negotiability." 
 
 2 Caylus V. New York, etc. R. Co., 10 
 Hun, 295 (1877). This New York case 
 was distinguished by the Minnesota court 
 in Guilford v. Minneapolis S. Ste. M. & 
 A. Ry. Co., supra., on the ground that the 
 bondholder was not a bona fide purchaser. 
 
 8 McClelland v. Norfolk Southern R. 
 Co. (1888), 110 N. Y. 469, 473 ; s. c. 18 
 N. E. Rep. 237. See 19 Am. L. Reg. 
 (N. S.) 725, report of an English case ; 
 National Bolivian Navigation Co. v. Wil- 
 son (1880), L. Rep. 5 App. Cas. 176, on 
 rights of bondholders ; Smythe v. Chicago 
 & S. R. Co. et al. (1879), 8 Rep. 709 ; s. c. 
 22 Fed. Cas. 710, Case No. 13,135. For a 
 case discussing a suit by bondholders to 
 protect the property of the company bound 
 as a security for the bonds, see Newby v. 
 Oregon Cent. Ry. Co. (1870), 1 Sawy. 63 ; 
 s. 0. 18 Fed. Cas. 42, Case No. 10,145. 
 For a case discussing remedies of bond- 
 holders where there have been land grants 
 to railroads, see Chamberlain v. St. Paul & 
 Sioux City E. Co. et al. (1 873), 1 Cent. L. J. 
 53 ; s. c. 5 Fed. Cas. 417, Case No. 2578. 
 
§ 23.] EIGHTS OP BONDHOLDERS. 45 
 
 § 23. Bonds inoperative as Obligations until issued to Purchasers. 
 — Bonds and a mortgage securing them, while in the hands of a 
 trustee, and before they are sold, pledged, or used in any way, are 
 subject to the control of the maker, who has the right to have the 
 bonds cancelled and the mortgage discharged.' Hence they 
 cannot he levied upon before they are delivered.^ 
 
 In the case cited below, a manufacturing corporation had ex- 
 ecuted a mortgage on its plant and delivered it to a trust company 
 as trustee to secure bonds which were placed in the hands of the 
 trustee for the purpose of being sold, and the proceeds to be 
 turned over to the mortgagor. A portion of these bonds remained 
 in the possession of the trustee unsold, and the trustee had made 
 no advances upon them. A creditor of the mortgagor sought to 
 reach these unsold bonds as property of the mortgagor, to be ap- 
 plied to the settlement of its debts. The court held that these 
 unissued bonds of the mortgagor did not constitute a part of its 
 property or assets.^ 
 
 The court further held that the rights of the mortgagor to any 
 surplus which might remain in the hands of the trustee, or to a 
 release in case the bonds were paid in full by the mortgagor, and 
 to require a return of the bonds in the hands of the trustee, were 
 too contingent and conjectural to be reached as property and ap- 
 plied in payment of its debts.* 
 
 But the lien created by a pledge of its bonds by a corporation 
 itself may be waived by the pledgee, and he may levy upon the 
 bonds an execution obtained against the corporation for the 
 debt.6 
 
 The lien of all the bonds of a series issued by a railroad com- 
 pany is not affected by the time at which it was issued. All the 
 bonds of the series outstanding in the hands of bona fide holders 
 for value are equal in priority, the lien of each bond dating from 
 the record of the mortgage securing it, and not from the time it 
 was issued.® 
 
 1 Peninsular Iron Co.u. Eelk (C. C. A., Railroad (1877), 12 Hun, 126 ; Sickles v. 
 
 1895), 68 Fed. Rep. 24. Richardson (1881), 23 Hun, 559. 
 
 ^ Means v. Cincinnati & Chicago R. * Eastern Electric Cable Co. v. Great 
 
 Co. (1859), 2 Disney (Ohio), 465 ; Sickles Western Manufacturing Co. (1895), supra, 
 
 V. Richardson, 23 Hun, 559. citing, in support of this ruling, Pettibone 
 
 ' Eastern Electric Cable Co. v. Great v. Toledo, Cin. & St. Louis Railroad, 148 
 
 Western Manufacturing Co. et al. (1895), Mass. 411 (1889) ; s. c. 19 N. E. Rep. 337. 
 164 Mass. 274 ; s. o. 41 N. E. Rep. 295, 6 Sickles v. Richardson (1881), 23 
 
 citing, in support of the ruling, Richard- Hun, 559. 
 
 son V. Green (1890), 133 U. S. SO, 47 ; « Pittsburgh, P. C. & St. L. Ry. Co. 
 
 Coddington v. Gilbert (1858), 17 N. Y. v. Lynde et al. (Ohio, 1896), 44 N. E. 
 
 489 ; Barnes v. Mobile & Northwestern Rep. 596. 
 
46 EAILWAT BONDS AND MORTGAGES. [CHAP. II. 
 
 The mortgage itself is not operative until the bonds are de- 
 livered to the purchasers.* 
 
 § 24. No Vendor's Lien in Favor of Seller of Bonds. — Corporate 
 bonds being personal property, there is no lien for purchase-money 
 where the title to such bonds has passed from a seller, and they 
 have been delivered to a buyer.^ 
 
 § 25. The Relation of Bondholders to the Road is sometimes sub- 
 stantially that of Proprietors. — Arrangements have been made in 
 one case which, so far as the management of the property is con- 
 cerned, place the bondholders in the position of proprietors, and 
 leave the stockholders a merely nominal interest in the business. 
 Such is the result where the value of the road is much less than 
 the bonded debt, and the stock is issued not directly to the stock- 
 holders, but to trustees elected by the bondholders, to be voted on 
 by the latter. A court of equity will not, under these circum- 
 stances, entertain a petition by the stockholders to set aside a 
 lease made by the company as thus controlled by the bond- 
 holders.^ 
 
 § 26. The Relation of Bondholders to each other generally. — A 
 bondholder is in equity a quasi owner in common with the other 
 bondholders of whatever rights the mortgage gives. He is not a 
 partner with them, nor strictly a tenant in common, but the re- 
 lation with which he introduces himself by his purchase imposes 
 upon him some duties. Having a common interest with others in 
 the security of the mortgage, he is under the duty of so acting as 
 not to destroy its value. He has a right to make use of the mort- 
 gage to enforce the payment of his bonds, but not to obtain an 
 advantage over the other bondholders. Equity will not permit 
 him to reap the profits of a sale made in pursuance of a scheme 
 for obtaining possession of the property in conjunction with 
 strangers to the security, and so conducted as to result in the 
 transfer of that property at a totally inadequate price.* 
 
 1 Wade V. Donan Brewing Co. (1894), C. J., referring to Canadian Ry. Co.'s 
 
 10 Wash. 284 ; s. c. 38 Pac. Rep. 1009. scheme, L. R. 3 Ch. 294. The statutes 
 
 ■' Farmers' Loan & Trust Co. o. Pine of Vermont make a bondholder who has 
 
 Bluff Ry. Co. (Ark., 1893), 21 S. W. Rep. not entered into a reorganization scheme 
 
 652. a tenant in common with the new corpora- 
 
 ' McHenry v. New York, P. & 0. E. tion. Brooks ■». Vermont Gent. R. Co. 
 
 Co. (1884), 22 Fed. Rep. 130. In Eng- (1884), 22 Fed. Rep. 211. 
 land it would seem that bondholders are, * Jackson v. Ludeling (1864), 21 Wall, 
 
 in a sense, considered as part proprietors 616. As to the rule that any litigation 
 
 of the existing capital of the company, instituted by a bondholder to enforce his 
 
 and dealt with by Parliament and the, debt through the mortgage must be for 
 
 courts accordingly. Canada So. K. Co. v. the benefit of his co-bondholders as well 
 
 Gebhard (1883), 109 U. S. 527, perWaite, as himself, see hereafter. See also § 27, 
 
§ 27.] EIGHTS OP BONDHOLDERS. 47 
 
 § 27. Majority and Minority Rights. — No majority of the bond- 
 holders, however large, can, by direct means, compel a minority, 
 however small, to enter into an agreement which involves the 
 surrender of a portion of their rights.'' 
 
 But it is now the accepted doctrine that, in view of the peculiar 
 character of corporate bonds, each bondholder is deemed to have 
 entered by implication into certain contract relations with his 
 co-bondholders, which, although not identical with, are analogous 
 to, the relations existing between stockholders ; and that, as re- 
 gards the determination of the question, what is the most desirable 
 way of safeguarding and promoting the interests of the whole 
 class, the will of the majority must often be allowed to prevail, 
 even though the indirect result of the course adopted may be 
 seriously to impair the value of the rights to which individual 
 bondholders are technically entitled. 
 
 Thus the appointment of a receiver in deference to mere tech- 
 nical rights of a very small minority of bondholders has been 
 refused where it appeared that such action would imperil, if not 
 destroy, the interests of others whose rights were entitled to 
 equal consideration.^ 
 
 So a foreclosure sale will not be delayed, at the instance of a 
 few bondholders, for the purpose of ascertaining and determining 
 the conflicting rights of lienors, where the various trustees and 
 much the larger part of the creditors are of opinion that the inter- 
 est of all concerned will be subserved by an immediate sale.^ 
 
 But the results of the application of this principle referred to 
 are most frequently illustrated in those cases where reorganiza- 
 tion schemes are carried through in opposition to the wishes of 
 a minority of the bondholders. It is sufficiently obvious -that a 
 minority can never have the power to prevent the consummation 
 of such schemes through a foreclosure and a purchase by the ma- 
 jority ; for if there is no limitation in the mortgage on the right to 
 foreclose, even a single bondholder may enforce his lien in that 
 manner, and no mortgage has ever been drawn with any specific 
 
 below. Gates v. Boston & New York Air large majority of the bondholders and 
 
 Line R. Co. (1885), 63 Conn. 333 ; s. c. stockholders favored a funding plan which 
 
 24 Am. & Eng. R. R. Cas. 143 ; 5 Atl. was being negotiated. 
 
 Rep. 695. Similar considerations have influenced 
 
 1 Canada So. R. Co. v. Gebhard(1883), a court to refuse to appoint a receiver for 
 
 109 U. S. 527 ; see also Waldoborough v. a canal company on the application of a 
 
 Knox & L. R. Co., 84 Me. 469 ; s. o. 24 single bondholder. Stewart v. Chesapeake 
 
 Atl. Rep. 942. & Ohio Canal Co. (1881), 5 Fed. Rep. 149, 
 
 ' Tysen v. Wabash Ry. Co. (1878), 8 153. 
 
 Biss. 247. There was another reason for ' First Nat. Bank of Cleveland v. Shedd 
 
 the court's action in this case, viz., that a (1887), 121 U. S. 74. 
 
48 BAILWAY BONDS AND MORTGAGES. [CHAP. II. 
 
 restriction on this right except in favor of the majority. The 
 property, being thus exposed for sale to the highest bidder, must 
 inevitably pass to any person or persons who satisfy that descrip- 
 tion ; and the alternative finally set before the minority is either 
 to see the property acquired by others, or buy it in themselves. 
 Whichever of these alternatives is chosen, the rights of the 
 minority will evidently have been in some measure sacrificed.^ 
 
 Agreeably to the above principle, it has been laid down by the 
 highest authority that to allow a small minority of bondholders, 
 in the absence of any pretence even of fraud or unfairness, to 
 defeat the wishes of a majority of those associated with them in 
 the benefits of their common security, would be to ignore entirely 
 the relation which bondholders bear to each other.^ 
 
 It is scarcely necessary to point out that no transaction in which 
 the exercise of this power of the majority to coerce the minority 
 indirectly is tainted with fraud will be allowed to stand. For in- 
 stance, a trustee who is also a representative of a committee or 
 syndicate of bondholders cannot, in actual fraud of the rights of 
 the minority bondholders, enter into a scheme with such syndicate 
 to sacrifice the property, so that the syndicate may acquire the 
 same in a manner to defraud the minority.^ 
 
 The majority having the power virtually to override the wishes 
 of the minority to this extent, it follows that no legislation which 
 merely facilitates and regulates the exercise of this power can be 
 objected to on the ground of its unconstitutionality. Thus it is 
 competent for the legislature to pass an act requiring bondhold- 
 ers to take some positive action when an arrangement for the dis- 
 position of the property is proposed by the majority, and providing 
 that all should be bound by such arrangement who did not, in 
 some direct way, within a reasonable time after notice, signify 
 their refusal to concur.* So also the legislature may authorize 
 the bondholders, by a vote of the majority, with equal oppor- 
 
 1 See further, as to the validity of such purchasing it to the exclusion of the other 
 proceedings as against the minority, Chap, creditors, and the trustee also has in his 
 XXXVII. (Reorganization). possession, as agent, the evidences of deht 
 
 2 Shaw V. Railroad Company (1879), belonging to the creditors with whom he 
 100 U". S. 605. has combined, and the property, by the act 
 
 ' Sahlgaard v. Kennedy (1880), 2 Fed. of the trustee, passes into the possession of 
 Rep. 295. Nelson, D. J., said: "While those creditors at a price much less than its 
 there is no doubt that creditors may com- value, it can hardly be claimed that a pur- 
 bine to purchase the property of their chase thus consummated is not ine(jui- 
 debtor, and such action is proper and will table." 
 
 be sustained, yet if a trustee, holding the * Gilfillan v. Union Canal Co. (1883), 
 
 property for the benefit of all the credit- 109 U. S. 401. 
 ors, combine with a part to aid them in 
 
§28.] 
 
 RIGHTS OP BONDHOLDERS, 
 
 49 
 
 tunity to all, to reorganize as a new corporation with the rights 
 of the old.i 
 
 The extent of the power of a legislature to compel the minor- 
 ity to submit to the majority is of course unlimited in theory, 
 where, as in Canada, there is no constitutional restriction against 
 passing laws which impair the obligation of contracts.^ 
 
 § 28. Powers of Majority under Express Clauses in the Mortgage. 
 — Bach bondholder holds his interest subject to the controlling 
 power given to the majority of the bondholders by an express pro- 
 vision in the mortgage, as where the trustee is empowered to 
 purchase at the foreclosure sale, upon receiving a written request 
 from the majority, and to organize a new company for the benefit 
 of the bondholders, upon such terms, conditions, and limitations as 
 the majority may direct.^ 
 
 A trustee is authorized to discontinue a suit for the collection 
 of the mortgage debt, if the majority of the bondholders so desire, 
 where the mortgage empowers him to commence such litigation at 
 the instance of a majority of such bondholders.* 
 
 1 Gates V. Boston & New York Air 
 Line B. Co. (1885), 53 Conn. 333 ; s. c. 5 
 Atl. Rep. 695 ; 24 Am. & Eng. E. R. Cas. 
 143. The court based its decision on two 
 grounds: (1) The qiKtsi public character 
 of a railroad coi-poration ; (2) the more 
 special consideration that, in view of the 
 nature of this class of securities, a minor- 
 ity cannot obstruct the action of the 
 majority beyond a certain point. 
 
 Judge Stoddard said ; " Upon prin- 
 ciple it would seem plain that railroad 
 property once devoted and essential to 
 public use must remain pledged to that 
 use, so as to carry to full completion the 
 purpose of its creation ; and that this pub- 
 lic right, existing by reason of the public 
 exigency, demanded by the occasion, and 
 created by the exercise by a private person 
 of the powers of a State, is superior to 
 the property rights of corporations, stock- 
 holders, and bondholders." [As illustrating 
 this general principle, see High on Manda- 
 mus, §§ 315, 316, 317 ; State v. Hartford 
 & N. H. R. Co. (1861), 29 Oonn. 538; 
 R. Commissioners v. Portland & Oxford 
 E. Co. (1874), 63 Me. 269, 278 ; Attorney- 
 General V. West Wisconsin R. Co. (1879), 
 36 Wis. 466 ; People v. Albany & Vermont 
 E. Co. (1862), 24 N. y. 261; People ex rel. 
 V. Long Island R. Co. (1883), 31 Hun, 
 127 ; Attorney-General v. Southern Min- 
 
 nesota R. Co. (1871), 18 Minn. 40 ; In re 
 New Brunswick & Canada Ry. Co., 1 
 Pugsley & Barb. (N. B.) 667; York & 
 North Midland Ry. Co. i,. The Queen, 1 
 El. & Bl. 858.] 
 
 In a subsequent part of the opinion in 
 Gates V. Boston & New York Air Line R. 
 Co., supra, the learned judge drew atten- 
 tion to the provision in the mortgage that 
 " should any of the coupons remain un- 
 paid for six months after presentation and 
 default, the principal sum secured hereby 
 shall, at the option of the holder, become 
 due and payable," and said : "In relation 
 to the other bondholders it is manifest 
 that each bondholder enters into contract 
 relation with each and all of his co-bond- 
 holders. His right to appropriate the 
 security in satisfaction of his bond is 
 modified by the same existent right in 
 every other holder. His absolute right of 
 control is limited not only by the express 
 provisions of the mortgage, but also, in a, 
 great measure, by the nature and character 
 of the security." 
 
 2 Canada So. R. Co. v. Gebhard (1883), 
 109 U. S. 633. See further as to this case, 
 Chap. XXXVII. (Reorganization). 
 
 3 Sage V. Central Railroad Co. (1878), 
 99 U. S. 334. 
 
 * Elwell V. Fosdiok (1889), 134 U. S. 
 500. 
 
50 RAILWAY BONDS AND MOETGAftES. [CHAP. II. 
 
 Similarly a clause in a trust deed empowering a three- 
 fourths majority to " assent to any modifications " of the pro- 
 visions of the deed justifies a court of equity in sanctioning 
 a scheme accepted by the requisite majority, whereby persons 
 who agree to advance money to the corporation, are to re- 
 ceive a rent charge, which is to stand in priority to the 
 debentures.! 
 
 In a recent case before the U. S. Circuit Court of Appeals of 
 the Second Circuit, a brewery company had issued bonds to the 
 amount of $1,000,000, and secured them by a trust deed. The 
 bonds, by an indorsement upon them, could be declared due after 
 a default of three calendar months ; but this right of the bond- 
 holders was subject to a provision of the trust deed which placed 
 it in the power of three-fourths in interest of the bondholders 
 to agree with the company for any modification or alteration of 
 the contract, including the release of the property charged, and 
 any postponement of the time for the payment of the moneys se- 
 cured, etc., which was to bind the minority. After the default in 
 payment of interest, Y., the principal stockholder of the company, 
 induced B., an outsider, to pay up such an amount of the bonds as 
 would constitute, with those owned by Y. and his relatives, such a 
 majority as provided in the trust deed. Y. having an option to 
 purchase from B. the bonds, he might purchase and hold. Y. 
 and B., with the others in sympathy with their purpose, entered 
 into an agreement with the company, and evidenced their agree- 
 ment by a consent that the company and trustees should sign 
 an agreement to postpone the payment of all interest coupons past 
 due and to become due until the year of the maturity of the bonds. 
 A., holding some of the bonds, brought an action upon them, and 
 the trial court directed a verdict for the defendant, taking from 
 the jury the consideration of the question of the hona fides of this 
 consent. The Circuit Court of Appeals held that the evidence 
 upon the trial presented such a question for the jury, and it was 
 error to withdraw it from their consideration. Wallace, Circuit 
 Judge, said : "We cannot doubt that a consent to postpone the pay- 
 ment of the demands of the minority bondholders, made coUusively 
 by majority bondholders for the purpose of defeating the remedy 
 of the minority, and not in the exercise of an honest discretion 
 in the general interest, is not a consent within the meaning of 
 the eleventh condition ; or that a vote at a meeting of bondhold- 
 ers, sanctioning a modification of the rights of the bondholders, 
 passed by a corrupt majority for the purpose of effectuating such 
 
 1 In re Dominion of Canada, etc. Co. (1886), 55 L. T. N. S. 347. 
 
§28.] 
 
 RIGHTS OF BONDHOLDERS. 
 
 51 
 
 a collusive consent, is not within the power contemplated by the 
 provision in the trust deed." ^ 
 
 A mere general clause to the effect that a resolution by the 
 majority of the holders of debenture stock will "bind all the 
 holders as effectually as if all such holders were competent to 
 consent, and had consented thereto in writing for a valuable con- 
 sideration," will not warrant a resolution, sanctioning the appli- 
 cation of certain funds vested in trustees, and set apart for the 
 payment to debenture-holders of the interest on their debentures. 
 The words of such a clause, however wide, cannot be supposed to 
 
 1 Haokettstown National Bank v. D, 
 G. Yuengling Brewing Co. (1896), 74 Fed. 
 Bep. 110. It was also said in this case : 
 ' ' Powers in tnist deeds, conferred on a 
 majority of bondholders, to bind the 
 minority, have been the subject of con- 
 sideration in several cases in the English 
 courts, and were given full effect. In 
 these oases the power was contained in a 
 provision similar to that in the present 
 trust deed, by which the bondholders at a 
 meeting, by extraordinary resolution, were 
 authorized to sanction any modification or 
 compromise of the rights of the bond- 
 holders against the company or its prop- 
 erty. It was assumed by the court in all 
 of these cases that the power was only 
 called into existence when required by the 
 exigencies of the situation, and when ex- 
 ercised must be exercised in good faith. 
 Mercantile Investment & General Trust 
 Co. V. International Co. of Mexico (1893), 
 1 Ch. 484, note ; Mercantile Investment 
 & General Trust Co. v. River Plate Co. 
 (1894), 1 Ch. 596; Follit v. Eddy.stone 
 Granite Quarries (1892), 3 Ch. 75 ; Sneath 
 0. Gold Co. (1893), 1 Ch. 477. In the 
 above cases the holdings were as follows : 
 
 A power given to the majority to 
 " sanction any modification or compro- 
 mise of the rights of debenture-holders 
 against the company or against its prop- 
 erty " does not justify the passage of a 
 resolution to the effect that the rights of 
 the debenture-holders be compromised by 
 the acceptance, in lieu of such debentures, 
 of preference shares in another company. 
 It was remarked by Liudley, L. J., that 
 ambiguities of language ought not to be 
 taken advantage of to stretch powers given 
 to majorities. " The power to compro- 
 mise the rights of the debenture-holders 
 
 presupposes some dispute about them, and 
 does not include a power to exchange their 
 debentures in another company, where 
 there is no dispute or difficulty." Mer- 
 cantile Investment & General Trust Co. v. 
 International Co. of Mexico (1893), 1 Ch. 
 (C. A.) 484 n. ; S. 0. 7 Times E. 616; 40 
 Am. & Eng. Corp. Cas. 337. 
 
 A resolution of debenture-holders sanc- 
 tioning a loan to the debtor corporation, 
 and providing that it shall take priority 
 over the debentures as a charge on the 
 corporate property, is a "modification'' of 
 the rights of such debenture-holders with- 
 in a condition in the covering deed au- 
 thorizing a certain majority of such holders 
 to "sanction any modification or com- 
 promise of the rights " of the whole class 
 of lienors, and if such a resolution is duly 
 passed by the requisite majority it is bind- 
 ing on the dissentient minority. Follit 
 V. Eddystone Granite Quarries (1892), L. R. 
 3 Ch. 75 ; s. c. 41 Am. & Eng. Corp. Cas. 
 49. 
 
 An appropriate occasion for the opera- 
 tion of such an enabling clause arises 
 where the whole of the property subject 
 to the charge will be forfeited unless a 
 sum of money is paid by the company at 
 a certain date, and an arrangement is pro- 
 posed by which a new company is to be 
 formed to supply the money and carry 
 on the business. An agreement by the . 
 debenture-holders to accept shares in that 
 company in lieu of their debentures is a 
 " compromise " of their rights, and may 
 be entered into by the majority so as to 
 bind a dissenting minority. Sneath v. 
 Valley Gold (1893), L. R. 1 Ch. 477, dis- 
 tinguishing Mercantile Investment & Gen- 
 eral Trust Co. 0. International Co. of 
 Mexico, supra. 
 
52 EAILWAT BONDS AND MORTGAGES. [CHAP. II. 
 
 contemplate the passage of a resolution which would be inconsis- 
 tent with the rights given to the debenture-holders under the body 
 of the trust deed.^ 
 
 § 29. Subscriptions for Bonds^ Rights under. — A secret agree- 
 ment that subscribers for railroad bonds should be required to 
 take and pay for only part of the bonds subscribed for, is fraudu- 
 lent as to other subscribers and void ; and the subscription is a 
 valid one for the amount subscribed.^ 
 
 Where the property mortgaged to secure bonds, for the sub- 
 scription price of which a judgment has been rendered against a 
 subscriber, has already been sold, he is entitled in equity to have 
 credited and allowed on such judgment the proportionate share 
 of the bonds in the avails of the property." 
 
 § 30. Bondholders' Rights under Circulars issued by the Com- 
 pany. — Bondholders, although relying upon a statement in a 
 prospectus of promoters which might be construed to be a prom- 
 ise that the moneys derived from tlie sale of the bonds would be 
 used for certain specified objects, and not otherwise, cannot, upon 
 the theory of a trust, reclaim the money, when the promoters have 
 paid it out to creditors of the company, disregarding this promise, 
 and follow it into the hands of persons who received it lawfully 
 from the promoters, although with notice of the promise.* 
 
 1 Hay V. Swedish & Norwegian Ry. tations concerning material facts and not 
 Co., 5 Times L. R. 460. The rule as to the of mere matters of opinion, and must re- 
 construction of such powers, they being in late to existing facts and not to matters of 
 derogation of the rights of the minority, future conduct or expectation. It cannot 
 is that they must he strictly construed. be founded upon the breach of pure prom- 
 
 2 Cleveland Iron Co. v. Ennor (111. ), 2 issory statements. Unless promissory 
 West Rep. 831. statements are such as imply that a cer- 
 
 8 Ibid. tain condition of things or state of facts 
 
 * Banque Franco-Egyptienne v. Brown exists at the time to form the basis of the 
 
 (1888), 34 Fed. Eep. 162 [bill for re- promised future state of things, they do 
 
 scission of the contract of purchase of not give birth to a right of rescission, 
 
 bonds on the ground of fraud in false Fraud cannot be predicated of promises not 
 
 representations in prospectus for the sale performed for the purpose of avoiding a 
 
 of these bonds']. contract. If a prospectus contains false 
 
 Wallace, J., in this case stated some representations, those who authorize it to 
 
 rules which are pertinent to the subject of be issued cannot repudiate them as made 
 
 this section, to wit : Misrepresentation without their authority, while retaining 
 
 by prospectus, except as between pro- the fruits of the prospectus. A statement 
 
 meters and shareholders, is to be tried by in a prospectus respecting the way in 
 
 the ordinary criterion of misrepresentation, which the moneys to be derived from the 
 
 But a reasonable construction of the Ian- sale of bonds are to be applied is to be 
 
 guage of a prospectus may require that a constrned as a representation of intention, 
 
 future tense should be given to words in or the expression of the expectation and 
 
 the past or present tense. A right of purpose of the promoters, if the language 
 
 rescission because of misrepresentations in falls short of a distinct and unequivocal 
 
 a prospectus must rest upon misrepresen- promise. 
 
§ 31. J EIGHTS OP BONDHOLDERS. 63 
 
 A bona fide purchaser of bonds at less than par, where a com- 
 pany has issued a circular which neither placed any limits upon 
 the price nor mentioned any restriction of its charter as to the 
 price for which its bonds might be sold, and asked proposals for 
 purchase of bonds, is not bound by restrictions in the charter, 
 and is protected against a defence that such a sale of bonds was 
 illegal.* 
 
 Where the president of a company issues circulars signed by 
 him in his official capacity, inviting subscriptions to bonds, the 
 representations therein will usually be considered as the repre- 
 sentations of the company, and he cannot be made personally 
 liable to a purchaser of the bonds for misstatements as to the 
 length of the proposed line. The position of such a purchaser in 
 a suit for relief on the ground of misrepresentations is still weaker 
 where a mortgage securing the bonds is subsequently executed, 
 reserving to the company the right to build a shorter line if the 
 interests of the company should require it ; for the representations 
 in the circular are superseded by the provisions of the mortgage, 
 and the purchaser is bound to look to the mortgage for the descrip- 
 tion of the mortgaged property.^ 
 
 § 31. Control of the Proceeds of Bonds. — Money in the hands 
 of the directors of a company realized from a sale of its bonds, 
 where the purposes of its use have been set forth in the mortgage, 
 constitutes a trust fund, to be used in good faith by the company 
 for those purposes.^ 
 
 1 Ellsworth II. St. Louis, Alton, & Terre of the security. The Court of Appeals of 
 
 Haute E. Co. (1885), 98 N. Y. 553, affirm- New York, on the ground of his peculiar 
 
 ing s. c. 33 Hun, 7. The court said: relation to the case and his knowledge, 
 
 " A (railroad) corporation (having) a gen- etc., held that he was not entitled to re- 
 
 eral power to make contracts and to lief. Belden v. Burke (1895), 147 N. Y. 
 
 borrow money, . . . persons dealing in 642 ; s. c. 42 N. E. Eep. 261. 
 
 securities issued by it may, in the absence The court, however, held that subse- 
 
 of notice to the contrary, assume that quenf holders of these bonds in good faith 
 
 restrictions upon this power have not been and without notice would not be pre- 
 
 violated." eluded from relief on the ground that the 
 
 » Van Weel v. Winston (1885), 115 first takers of the bonds from the railroad 
 
 ^- ^- ^^^- company took with notice of the actual 
 
 ' A purchaser of some of these bonds transaction. 
 in open market, with notice of the facts, See Columhus, Hocking Valley, & 
 well known to the bankers from whom he Toledo Ry. Co. v. Burke (1887), Court of 
 purchased them, afterwards sought, in a Common Pleas, Ohio, 3 Ry. & Corp. L. .T. 
 court of equity of the State of New 26, where the use of such a trust fund by 
 York, to have the funds raised upon these the directors of the company in purchas- 
 bonds, which he claimed were diverted ing from a majority of themselves and 
 from the purpose stated in the covenant others the entire capital stock of a mining 
 embraced in the mortgage, restored by the corporation was held prima fade a viola- 
 defendants and applied to the betterment tion of the rights of the owners and hold- 
 
54 RAILWAY BONDS AND MORTGAGES. [CHAP. II. 
 
 But there is no privity or trust relation between the president 
 of a company and the bondholders as to the use of the money 
 borrowed. The right to redress for any improper use of the 
 money by the president is not in the bondholders, but in the com- 
 pany or its stockholders,^ who may maintain suit against directors 
 illegally diverting such funds for an accounting as to the funds 
 received by them. If, for instance, a majority of the directors 
 have made an illegal purchase of property from themselves with 
 such a trust fund, the company would not be estopped from an 
 action by the fact that a minority of its directors had no interest 
 as sellers, nor by the fact that at the time of such a purchase and 
 misuser of the funds the directors owned all of its capital stock, 
 and as stockholders unanimously ratified what they as directors 
 had done.^ 
 
 The agents for the negotiation of bonds of a railroad company 
 sold its bonds and became accountable for the price, but after- 
 wards bought them back in their own interest, and led the com- 
 pany to suppose that they had not been negotiated. Afterwards 
 they made a loan to the company upon these bonds as collateral 
 security, at the same time entering into an agreement that the 
 trustees (who had the equitable title to the proceeds) would treat 
 the loaned money as a trust fund, and disburse it for certain speci- 
 fied objects. The survivor of this firm, which was the agent of the 
 company, brought suit to enforce the agreement, alleging an ap- 
 propriation by the trustees of this firm to foreign purposes. It 
 appeared that the company was in ignorance that there had ever 
 been a negotiation of these bonds, and that this firm had then in 
 its hands moneys unaccounted for. It was held that a court of 
 equity would not assist the complainant, as he did not come into 
 court with clean hands, and that the trustees could invoke the 
 principles of equitable set-off to defeat the action.^ 
 
 As to the right of the bondholders to reclaim the unspent pro- 
 ceeds of the bonds, see the preceding and the following sections. 
 
 § 32. When Bondholders are entitled to demand Repayment of 
 the Unspent Portion of the Proceeds of their Bonds. — Where money 
 has been subscribed by bondholders for a particular purpose, such 
 as the construction of a railroad, and a part of that money has 
 
 ers of the bonds and an injury to them, ^ Columtus, Hooking Valley, & Toledo 
 
 which equity, upon their application, Ry. Co. ». Burke (Court of Common 
 
 could prevent by injunction. This case Pleas, Ohio, 1887), 3 Ry. & Corp. L. J. 
 
 was settled by arbitration finally, and a 26. 
 
 judgment entered in favor of defendants. ' Bischoffsheim V, Brown (1888), 34 
 
 1 Van Weel v. Winston (1885), 115 Fed. Rep. 156. 
 U. 3. 228. 
 
§§ 33, 34.J BIGHTS OP BONDHOLDERS. 55 
 
 been placed in the hands of trustees, — the duty of such trustees 
 being to pay portions of the money as portions of the road are 
 constructed, — if no such railroad nor any portion of it is con- 
 structed, and its construction becomes impracticable, the bond- 
 holders are entitled to demand from the trustees repayment of 
 what remains in their hands. The practicability of completing 
 the work is not to be determined solely by physical or finan- 
 cial reasons, but conditions previously stipulated must also be 
 considered.1 
 
 § 33. Lieu of Bondholder not lost by Surrender of Bonds. — A 
 bondholder who surrenders his bonds for the mere purpose of 
 having the indebtedness scaled down, and receives new bonds, 
 leaving a fraction over for which no bond was issued, will 
 be entitled, to the extent of such fraction, to come in on 
 the same footing with other bondholders in respect to his 
 lien.2 
 
 § 34. Bondholders' Right to sue Trustees in Possession for 
 Money received by them. — Where trustees in possession of the 
 mortgaged property have received money applicable to the bonds, 
 and, instead of paying it over to the bondholders, have diverted it 
 to their own uses and otherwise, a suit in equity will lie against 
 such trustees by and on behalf of all the bondholders for the 
 recovery of such moneys and the removal of the trustees. In 
 such a suit bondholders who have acquired their bonds since the 
 moneys accrued are entitled to share in the recovery, for the 
 
 1 National Bolivian Nav. Co. v. Wilson (1893), L. E. 2 Ch. 96, 54 Am. & Eng. K. R. 
 
 (1880), L. R. 5 App. Cas. 176. In this Cas. 623, involved very similar circum- 
 
 caae a loan was raised to construct a rail- stances, the completion of the road having 
 
 road id Bolivia, the loan being raised on become impossible, owing to litigation 
 
 the faith of a prospectus which set forth, which delayed the realization of the bonds, 
 
 as a security to the bondholders, the grant The unspent portion of the proceeds was 
 
 of a concession by the government of administered on the principle that such 
 
 Bolivia, in virtue of which the bond- funds ought to be applied, in the first 
 
 holders would have the benefit of the place, in saving and realizing the property 
 
 customs duties imposed by that govern- charged, and then distributed among the 
 
 ment on goods passing along the railroad, bondholders. 
 
 The government revoked the concession, ^ Blair v. St. Louis, H. & K. E. Co. 
 
 and it was held that the loss of the (1885), 23 Fed. Rep. 524. An arrange- 
 
 seourity wkich the concession had afforded ment for surrender of old mortgage bonds 
 
 to the bondholders entitled them to treat and the scaling of the indebtedness and an 
 
 the scheme as a failure, and to demand the issue of new bonds was entered into. No 
 
 return of their subscriptions. Whether bonds were issued for so small an amount 
 
 the revocation was rightful or not was as A. 's fraction amounted to. His equitable 
 
 declared to be a question which could not lien for this fraction was recognized as 
 
 be considered by the courts of any other equal to that of those who had received 
 
 country. the bonds. 
 
 A subsequent case, Collingham v. Sloper 
 
56 RAILWAY BONDS AND MORTGAGES. [CHAP. II. 
 
 reason that such moneys are a part of the security for the debt 
 which passed with it, unless a contrary intention appears.^ 
 
 § 35. Conversion of Bonds into stook.^ — Bonds convertible into 
 stock are not as common as formerly, although there are some 
 recent instances of loans on this basis. Where a bond is made 
 " convertible into capital stock at the pleasure of the holder, upon 
 the surrender thereof, with the unpaid interest-coupons, to the 
 secretary of the company," the convertible clause inures to the 
 advantage only of an actual holder. A petition, therefore, which 
 does not aver that the plaintiffs were at the commencement 
 of their action the owners and holders of any of the convertible 
 bonds is fatally defective and demurrable.^ 
 
 A bondholder who has the option of converting his bonds into 
 stock at any time has no right to share in stock issued in lieu of 
 dividends to the persons holding stock prior to the conversion of 
 his bonds. To allow him to do so would amount to giving him 
 interest not only on his bonds, but also on the stock for which 
 he is entitled to exchange them, and would entail the conse- 
 quence that the longer he delays his election the more stock he 
 would receive.* 
 
 On the other hand, a charter providing that semi-annual divi- 
 dends shall be paid on certain days of so much of the profits as 
 the corporation may deem expedient, contemplates that the divi- 
 dends shall be payable to those parties who are stockholders at the 
 time of making them. Hence a holder of bonds which he con- 
 verts into stock before the declaration of a dividend is entitled to 
 a proportionate share of such dividend, and the directors have no 
 right to discriminate between him and his associate stockholders. 
 The circumstance that the directors have adopted some particu- 
 lar day as the close of the fiscal year, or selected special days for 
 declaring dividends, or closed the transfer books for any purpose, 
 does not, in any way, impair the legal rights of stockholders to 
 share in dividends subsequently declared.® 
 
 1 Dwight V. Smith (1882), 13 Fed. comply with a demand for the conversion 
 Eep. 50. of their bonds into stock. It was declared 
 
 See, as to distinction between a bond- that the holder of such bonds could not 
 
 holder's right in an action on the bond assign to another the right of action for a 
 
 itself and his right against a trustee of the breach of the stipulation for conversion, 
 
 mortgage, Dwight v. Smith (1881), 9 and yet retain the bond for the benefit of 
 
 Fed. Eep. 795. himself and his future assignees. 
 
 2 See also § 30, amte (circulars). * Sutliff v. Cleveland, etc. E. Co. 
 ' Denney v. Cleveland, etc. R. Co. (1873), 24 Ohio St. 147. 
 
 (1875), 28 Ohio St. 108. In this case * Jones v. Terre Haute, etc. R. Co. 
 
 several owners of convertible bonds had (1874), 57 N. Y. 197, Earl and Grav, 
 
 assigned to the plaintiff their rights of C. C, dissenting, 
 action for the refusal of the company to 
 
§ 35.] EIGHTS OP BONDHOLDERS. 67 
 
 The right to convert bonds into stock at the option of the 
 holder is forfeited, if not exercised within the specified period, 
 unless some agreement to the contrary is shown. A simple 
 acceptance by the bondholder of the terms of a circular, in which 
 he is asked to assent to an extension of the time for the payment 
 of the bonds, would possibly be treated as such an agreement ; but 
 where the bondholder, in giving his assent, fixes his own terms of 
 acceptance without any reference to the circular, the right of 
 conversion will be deemed to have expired at the date originally 
 named.^ 
 
 Where a bondholder, having the privilege of presenting his 
 bonds at or before maturity for conversion into stock of the cor- 
 poration, fails to present the bonds and demand conversion until 
 after maturity, his right to I'eceive the stock is forfeited.^ 
 
 Where bondholders have a right under their contract to con- 
 vert their bonds into stock at any time before maturity, they 
 cannot, upon the consolidation of the company issuing the bonds 
 with another, be deprived of this privilege, and thrown upon the 
 rights conferred upon them by the articles of consolidation, 
 unless, after having received reasonable notice of the proposed 
 consolidation, they have elected to retain their bonds instead of 
 taking the stock they were entitled to.' 
 
 So a bondholder who is also a stockholder of the company 
 which issued his bonds, and who, as such, takes part in proceed- 
 ings by which a consolidation with another company is effected, and 
 assents thereto, is bound by all the legal consequences of the con- 
 solidation, among which is the inability of the obligor company 
 to create and issue any fresh stock. Any right which he may 
 have up to the time of the consolidation to convert his bonds into 
 stock expires when the consolidation is thus completed with his 
 acquiescence, especially where the statute authorizing the consoli- 
 dation expressly provides that the consolidated company is to 
 assume the existing contracts and liabilities of the constituent 
 companies, " in such manner as shall be satisfactory to all parties 
 having an interest in the same." Under such circumstances his 
 own assent to what was done precludes him from relying on the 
 principle that the successor to the liabilities of the obligor com- 
 
 1 Muhlenberg v. Phila., etc. E. Co. 146 Mass. 224; s. c. 16 ST. E. Eep. 
 (1864), 47 Pa. St. 16; where an election 34. ' 
 
 must he made, see Landis v. West Pa. R. ' Rosenkrans !>. Lafayette, etc. R. Co. 
 
 Co., 133 Pa. St. 579 ; s. c. 19 Atl. Rep. (1883), 18 Fed. Rep. 513. See Caley v. 
 
 556. Cobourg, P. & M. R. & M. Co., 14 Grant 
 
 2 Chaffee v. Middlesex R. Co. (1888), Ch. (Can.) 571. 
 
58 RAILWAY BONDS AND MOETGAGES. [CHAP. II. 
 
 pany ought to respond in damages for the breach of the contract 
 to deliver stock, for the reason that the impossibility of doing so 
 arises from the acts of the obligor company .^ 
 
 § 36. Priorities where Old Bonds are exchanged for New.^ — 
 There is no principle which forbids a corporation that has issued 
 a series of bonds from purchasing a part of them back and reissu- 
 ing them again before their maturity, when the financial interests 
 of the corporation will be thereby promoted, unless the organic 
 law of the corporation prohibits the exercise of such a power. It 
 is wholly immaterial whether it pays money upon such a pur- 
 chase, or exchanges other bonds instead. Nor, if it should 
 destroy the bonds purchased and issue duplicates, not intending 
 to extinguish the debt evidenced by the bonds, will the lien of 
 the mortgage be affected by the substitution of the new bonds.'^ 
 
 The contract with the individual bondholder is no more than 
 that he shall have his due proportion of the security implied on 
 the face of the mortgage.* 
 
 Hence where a company first executes a mortgage to secure a 
 limited number of bonds, and then another mortgage to secure 
 a larger number, the second mortgage reciting that the holders of 
 bonds secured by the first mortgage had agreed to surrender the 
 same, and receive in substitution therefor new bonds to be secured 
 by the first mortgage, as modified by the second, and all the 
 bonds secured by the first mortgage except twenty are exchanged 
 in pursuance of this agreement, the holders of these twenty bonds 
 are not entitled to receive any larger share of the proceeds of a 
 subsequent foreclosure sale than they would have been entitled to 
 had the new bonds not been issued.* 
 
 So a holder of income bonds who does not surrender his bonds 
 in pursuance of an agreement by which they were to be exchanged 
 for bonds of a new issue, will be restricted in a suit for an account- 
 ing to a recovery of the sum which would have been due to him if 
 no bonds had been surrendered.^ 
 
 The State of South Carolina guarantied the payment of certain 
 bonds of a railroad company, to be issued in exchange for out- 
 standing bonds secured by mortgages. The statute authorizing 
 the guaranty provided that the State should take and retain pos- 
 
 1 Taggart v. Northern Central, etc. R. » Claflin v. Railroad Co. (1880), 4 
 Co. (1868), 29 Md. 557. Hughes, 12 ; s. c. 8 Fed. Rep. 118. 
 
 2 As to the exchange of bonds in 5 ^mes v. New Orleans, Mob. & Tex. 
 reorganization proceedings, see Chap. R. Co. (1876), 2 Woods, 206. 
 XXXVII. 6 Barry u. Missouri, etc. Ry. Co. (1888), 
 
 8 Barry B. Missouri, etc. By, Co. (1888), 34 Fed. Rep. 829. 
 84 Fed, Eep. 827. 
 
§ 36.] EIGHTS OP BONDHOLDERS. 59 
 
 session of the bonds surrendered and exchanged " as security to 
 the State," the State thereby to be given the lien of the mortgages 
 until the bonds should all be retired. Some bonds were not sur- 
 rendered and exchanged. It was held that the State could assert 
 her lien for such bonds as she held, together with the coupons 
 thereto attached, with equal rank with the bonds secured by the 
 prior mortgages, but never surrendered and exchanged.^ 
 
 The State of Alabama, as authorized by the legislature, in- 
 dorsed an issue of bonds of the Alabama & Chattanooga Eail- 
 road Company. The strict letter of these statutes not having 
 been conformed to, there proved to be an over-issue of these bonds 
 by the company. The bonds, however, went to bona fide pur- 
 chasers in the markets of the country. An adjustment of the 
 liability of the State to these bondholders was provided for after- 
 wards, and an act passed by the legislature providing for an issue 
 of State bonds to a certain amount, to be exchanged for these 
 old indorsed bonds, the latter to be retired and extinguished. 
 A question was made on the relation of a bondholder as to 
 whether or not under this act the holders of the over-issue of 
 the indorsed bonds, if they could be ascertained, were entitled 
 to have their bonds allowed a benefit in this adjustment of the 
 State's liability. It was held that the holders of the whole issue 
 of bonds, whether or not, shown by the numbering or otherwise, 
 any of them held the over-issue, were entitled to have their bonds 
 retired and extinguished, and to receive the State bonds in ex- 
 change for them.^ 
 
 A l3ondholder who signs an agreement for the purchase of the 
 property of a railroad company by the bondholders and a re- 
 organization, the new company to execute a mortgage and issue 
 bonds to be exchanged for the bonds of the old company, and 
 receives a notice to surrender his bonds for exchange, but fails 
 to do so until after the purchase of the road and the formation of 
 the new company, notwithstanding the agreement bound him to 
 surrender when requested to do so, will have no right to claim 
 any benefits under the agreement, or to insist on the delivery of 
 new bonds.^ 
 
 An intervener in a foreclosure suit claimed that as he had a 
 separate agreement in the matter of a purchase and reorganiza- 
 tion of a company, and the exchange of bonds of the old for bonds 
 
 1 Gibbes v. GreenvUle & Colnmbia R. Ala. 127 ; s. c. 7 Am. & Eng. R. E. Cas. 
 Co. (1880), 13 S. C. (N. S.) 228 ; s. c. 4 147. 
 
 Am. & Eng. R. R. Caa. 459. s Carpenter «. Catline et al. (1865), 
 
 2 State ex rel. Plook v. Cobb (1879), 64 44 Barb. 75. 
 
60 EAILWAT BONDS AND MORTGAGES. [CHAP. II. 
 
 of the new, if all the old bondholders did not come into the 
 arrangement, his bonds which had been surrendered should be 
 returned to him, and himself restored to all the rights he origi- 
 nally held, and prayed that his old bonds be restored to him, and 
 that he be paid out of the proceeds of the sale as a creditor under 
 the original mortgages. It was held that he was not entitled to 
 the relief he asked as against purchasers of the bonds who had 
 no notice of his equity.-^ 
 
 A railroad company which builds an extension of its line exe- 
 cuted a mortgage on such extension which provided that the 
 " trustee may issue bonds secured by these presents, and ex- 
 change for an equal amount of the existing outstanding bonds of 
 the [company], which bonds so received in exchange shall be 
 held by said trustee as collateral for the bonds issued under this 
 mortgage until all of said bonds issued by the [company] shall 
 have been surrendered ; and when all of said bonds shall have 
 been surrendered, they shall be forthwith cancelled by said 
 trustee." 
 
 This provision has been construed by a federal judge to mean 
 that a bondholder exchanging old bonds for new would not 
 have the right, in case all the old bonds were not surrendered and 
 cancelled, to have his old bonds returned to him by the trustee 
 upon his surrender of the new ; that the trustee would hold the 
 old bonds as a collateral for such bondholder and other holders ; 
 that those who had made the exchange would have the benefit of 
 the new bonds on the extended line of the road not covered by 
 the old bonds, and also the benefit of the old bonds as a collateral 
 for their new bonds.^ 
 
 The surrender of bonds secured by a first mortgage by bond- 
 holders, under a reorganization agreement, to their committee, to 
 be held as additional security for them, to be exchanged for bonds 
 of a consolidated mortgage to be delivered to them on a certain 
 contingency which has never happened, is not a transaction pro- 
 hibited by a statute providing that " no corporation shall issue 
 any bonds or other evidences of indebtedness except for money, 
 labor, or property estimated at its true money value actually 
 received by it, equal to seventy-five per cent of the par value 
 thereof." 3 
 
 Holders of bonds secured by deed of trust upon property which, 
 
 1 Je3up V. Wilmington & Manchester (Morse, Intervener), 73 Fed. Rep. 589 
 R. Co. (1871), 2 S. C. (N. S.) 469. (1896). 
 
 2 Central Trust Co. of New York v. 8 Mowry v. Farmers' Loan & Trust 
 Marietta & North Ga. Ky. Co. et al. Co. (1896), 76 Fed. Rep. 38, 45. 
 
§ 37.] EIGHTS OP BONDHOLDERS. 61 
 
 together with other property not included in such deed, was after- 
 wards mortgaged to secure a subsequent series of bonds, some of 
 which were placed in the hands of a special trustee, " to be applied 
 exclusively for the purpose of discharging the property conveyed 
 from prior liens," are not entitled to have the fund for the pay- 
 ment of their claims increased by means of these bonds in the 
 hands of said special trustee, it being the evident purpose of the 
 deposit of the bonds to put all the debts of the company upon an 
 equal footing, retiring the old and substituting the new bonds, and 
 not to furnish additional security for those already provided for.^ 
 
 Where a railroad company enters into an agreement with the 
 holders of first-mortgage bonds that they are to surrender those 
 bonds and receive in lieu thereof second-mortgage bonds, which 
 are by express stipulation to be subject to a new issue of first- 
 mortgage bonds, the subsequent rights of the parties surrendering 
 the bonds depend upon the agreement ; and notwithstanding the 
 failure of the company to perform the agreement to deliver the 
 second-mortgage bonds, they are not entitled to claim the benefit 
 of the lien held by them, prior to the agreement, as assignees of 
 the original issue of first-mortgage bonds. The measure of the 
 compensation for the failure to perform the agreement is the face 
 value of the bonds called for therein.^ 
 
 A bondholder who may have surrendered his bonds under a 
 separate agreement that, if an arrangement for the exchange of 
 old bonds for new is not adopted by all the bondholders, his old 
 bonds should be returned to him, and he be restored to all his 
 rights thereunder, would have no equity, as against purchasers 
 of the new bonds without notice of such agreement, to be restored 
 to his original rights.^ 
 
 § 87. Transactions raising the Question whether Bonds have been 
 paid or are still outstanding.* — When a bond is surrendered, and 
 a new bond taken in its place, the new bond will be secured by 
 the mortgage, unless it appears that an extinguishment of the 
 debt was intended.^ 
 
 Where debentures are exchanged for mortgage bonds, the ques- 
 
 1 Meyer v. Johnston (1875), 53 Ala. rence Mfg. Co., 96 N. 0. 298, under § 37, 
 237 ; s. c. 15 Am. Ry, Rep. 467. below, and cases generally cited under that 
 
 2 Fidelity Ins. Trust & Safe Deposit Co. section. 
 
 V. Shenandoah Valley R. Co. (1890), 33 * Compare similar discussion in the 
 
 AV. Va. 761 ; s. c. 11 S. E. Rep. 58 ; 43 case of coupons. Chap. III., below. 
 Am. & Eng. R. R. Gas. 356. 6 Traders' Nat. Bank v. Lawrence 
 
 8 £x parte White, In re Jesup v. Wil- Mfg. Co. (1887), 96 N. C. 298; s. o. 
 
 mington & Manchester R. Co. (1873), 2 3 S. E. Rep. 363. 
 S. C. 461. See also Traders' Bank v. Law- 
 
62 EAILWAT BONDS AND MORTGAGES. [CHAP. II. 
 
 tion whether the former securities are extinguished by the accept- 
 ance of the latter depends upon the intention of the parties, as 
 manifested by the agreement in virtue of which the exchange is 
 effected, the stipulations of the bonds, and the provisions of the 
 general mortgage. The conclusion that they are intended to be 
 extinguished is not vs^arranted whei-e the agreement declares " that 
 the lien of the debentures deposited with the trustee of the new 
 mortgage shall be maintained for the security and benefit of the 
 bonds issued under said new mortgage," and several other provi- 
 sions are inserted which cannot be carried out if the debentures 
 are extinguished.^ 
 
 Where a receiver, in the exercise of the discretion allowed him 
 in the financial manipulation of the assets, takes up bonds and 
 then reissues them, for the purpose of saving interest and meeting 
 the current expenses on the most economical footing, it cannot be 
 assumed that the lien of the bond thereby taken up is destroyed. 
 In the first place, the receiver, as the mere " hand " of the court, 
 is not vested with any such extensive authority to pay a bond, 
 cancel, and then reissue it, deprived of the protection of the 
 original mortgage by which it was made valuable and negotiable. 
 In the second place, it would be extravagant to suppose that a 
 man of ordinary business capacity would advance his money to 
 a corporation the property of which is being administered by a 
 receiver unless he believed himself to be protected by the mort- 
 gage. Especially will the court decline to view such bonds as 
 having been retired if the receiver describes them in several 
 annual reports as " first-mortgage bonds then outstanding," and 
 in some of his promissory notes as "first-mortgage bonds past 
 due." Under such circumstances, the actual intent of the receiver 
 is clear, that the purchasers are to take them, upon the reissue, 
 clothed with all the- protection to which they were entitled when 
 they were first issued.^ 
 
 Similarly where an embarrassed railroad company, unable to 
 meet its bonded obligations, resorted to funding them in new 
 bonds, and, for amounts under £1,000, issued to the holders of 
 the original bonds certificates of indebtedness for coupons past 
 due, not requiring those receiving them to waive the mortgage 
 
 1 Mobile & Ohio R. Co. v. Nicholas et 2 S. C. 461. For a case where bonds were 
 
 at (1893), 98 Ala. 92 ; s. c. 12 So. Rep. held not extinguished, see Mowryt). Fann- 
 
 723. For a case where old bonds exchanged ers' L. & T. Co. (1896), 76 Fed. Rep. 43. 
 for new under an agreement were treated ^ Gibbes v. Greenville, etc. R. Co. 
 
 as extinguished by the surrender and ex- (1880), 15 S. C. 304 ; s. c. 9 Am. & Eng. 
 
 change, see Ex parte White, In re Jesup «. R. R. Cas. 739. 
 Wilmington & Manchester R. Co. (1873), 
 
§ 38.] EIGHTS OP BONDHOLDERS. 63 
 
 lien, nor to accept those last-mentioned certificates as payment of 
 the coupons for interest past due, upon the question of the rights 
 of the holders a federal court held that these certificates must be 
 regarded as substituted for the original secured obligations, and 
 not as a novation of the contract, and their holders were entitled 
 to avail themselves of the lien to which the original obligations 
 were entitled.^ 
 
 But the rule that the obligee in the new bond is entitled to the 
 benefit of the mortgage by which the first one was secured is not 
 applicable to a case where the mortgage is actually cancelled and 
 discharged of record, and the adverse claimant is a creditor to 
 whom a debt has been contracted between the time of such can- 
 cellation and the execution of a mortgage to secure the new 
 bond.^ 
 
 § 38. Effect of Fraud upon Priorities between Bondholders.^ — The 
 superior legal title of the holders of first-mortgage bonds will be 
 postponed to that of the holder of second-mortgage bonds, where 
 the latter was induced to accept the position of a subordinate 
 lienor by the fraudulent representation of the former.* 
 
 Where coupons of outstanding bonds have been dishonored 
 before the bonds came into the hands of one who holds such a 
 large portion of the stock that, in a business point of view, he is 
 himself substantially the company, and therefore interested in 
 floating the residue of the bonds at as high a price as possible, 
 and it is evident that he purchased the bonds with a view to 
 bringing about that result, equity will neither allow him a prefer- 
 ence over the purchasers of any bonds thereafter negotiated nor 
 coequal rights with them.^ 
 
 But where the holders of bonds, in placing a portion of them 
 upon the market, and their agent in selling the same have not 
 made any representations, or done anything which would be likely 
 to deceive or defraud the persons purchasing bonds of them, they 
 will not be postponed in the payment of the interest on their 
 remaining bonds until the payment in full of the bonds sold by 
 them ; nor will they be so postponed because of their having neg- 
 
 1 Skiddy v. Atlantic, Miss. & Ohio R. In this case the vendor of land was induced 
 
 Co., 3 Hughes, 320 ; s. o. Case No. 12,922, to relinquish his lien as such by an assur- 
 
 22 Fed. Cas. 274. ance made in behalf of the purchasers that 
 
 ^ Traders' National Bank v. Lawrence they had sufficient funds to pay for certain 
 
 Mfg. Co. (1887), 96 N. C. 298; s. o. 3 S. betterments which were to be placed on 
 
 E. Rep. 363. the land, and took second-mortgage bonds 
 
 ' Compare §§ 78, 79, post. ill part payment of the price. 
 
 * Hooper et al. v. Central Trust Co. ^ "Wood v. Guarantee T. Co. (1888), 
 
 (1895), 81 Md. 559 ; s. o. 32 Atl. Rep. 505. 128 U. S. 416. 
 
64 RAILWAY BONDS AND MORTGAGES. [CHAP. 11. 
 
 lected to inform such purchasers of the fact that the mortgagor 
 had failed to keep the interest paid on their bonds.^ 
 
 § 39. Priority of Holders of Bonds guarantied by other Holders. — 
 The priority of a bondholder whose bonds have been guarantied 
 by his co-bondholders cannot be in any way impaired without his 
 consent. A court has therefore no authority to make a decree 
 over an objection of such bondholder directing the trustee to bid 
 in the property on foreclosure for the full amount of the bonded 
 security, inasmuch as the effect of such action would be that he 
 would be deprived of the benefit of his guaranty, and instead 
 thereof would be invested with only his pro rata share of the 
 property.^ 
 
 § 40. Eights of Income Bondholders.^ 
 
 (a) Gienerally. — " Income bonds " are a well-known class of 
 securities, deriving their name from the pledge of the income of 
 the corporations issuing them, set out upon their face as the secu- 
 rity, and the only security, offered for their payment over and 
 above the general liability of the corporation. 
 
 In income bonds the rate of interest is stated, as also the par- 
 ticular income, usually net income out of which they are paid ; 
 this is sometimes more specifically stated, and the mode of ascer- 
 taining the net income appears on the bond. If cumulative, or 
 payable out of future incomes, in case of deficiency during inter- 
 est periods, this also must particularly appear on the face of the 
 bond. 
 
 It is within the power of a railroad company to mortgage its 
 future net earnings to secure the prompt payment of interest on 
 its construction bonds.* 
 
 A scheme of reorganization is not fraudulent as against the 
 unsecured creditors, when it provides for giving them, in lieu of 
 their evidence of debt against the old company, preferred income 
 bonds, equal to the amount of their claims, with interest thereon.^ 
 
 1 Humphreys v. Morton (1881), 100 111. « Hancock v. Toledo, etc. R. Co. (1882), 
 592. 9 Fed. Eep. 738 ; s. c. 11 Biss. 148. In 
 
 ^ Sanxey v. Iowa City Glass Co. (1883), sustaining the agreement for reorganization 
 
 63 Iowa, 707; s. c. 17 N. E. Eep. Judge Blodgett said : " This income bond 
 
 429. is, by the terms of agreement, a higher 
 
 2 See generally, on this subject, 2 Redf. grade of security than the stock of the old 
 Ry. Law, 628. An interesting article on company ; that is, the stockholders get do 
 Income Bonds and Mortgages, by 6. W. dividends until the interest on these bonds 
 Field, is to be found in 25 Am. L. Reg. is all paid. The stockholders are placed 
 (N. S. ) 555 (1886). behind the holders of these bonds, and the 
 
 * Jessup et al. Trustees v. Bridge et at. plan seems to fairly contemplate the pro- 
 (1861), 11 Iowa, 572 ; Dunham u. Isett tection of all classes of creditors of the old 
 et al. (1863), 15 Iowa, 284. company in the equitable order of their 
 
§ 40.] EIGHTS OF BONDHOLDERS. 65 
 
 (b) Unsecured Income Bondholders, when entitled to a Lien. — ■ 
 The holders of unsecured income bonds acquire a right enforceable 
 in equity against the property of a company which passes into the 
 hands of a purchaser under the authority of a statute providing 
 for the surrender of the corporate charter when the sale is con- 
 summated, and declaring that the purchase " shall in no way affect 
 the rights of the creditors of the company," the presumption from 
 such a clause being that it was introduced for the benefit of un- 
 secured rather than of secured creditors, the latter being already 
 possessed of vested rights of which the legislature could not 
 have deprived them, even if it had undertaken to do so. Under 
 such circumstances the familiar principle is applicable, that, if a 
 corporation is dissolved, or has become so disorganized that it 
 cannot be made answerable at law, a court of equity will follow 
 and lay hold of its property for tlie satisfaction of its debts, unless 
 that property has passed into the hands of a bona fide transferee. ^ 
 
 (c) Rights of Income Bondholders when Purchaser at Foreclos- 
 ure Sale fails to complete his Purchase. — The utmost right that in- 
 come bondholders are entitled to when a company purchasing at 
 a sale under foreclosure of mortgages prior to the income mort- 
 gage fails to pay the amount found due to these income bond- 
 holders, is the right to redeem from the sale already had, and on 
 failure to redeem within the time limited in the decree their right 
 would be forever barred.^ 
 
 (d) Suits hy Income Bondholders for an accounting, when they 
 lie. — Under a mortgage to a trustee by a railroad company to 
 secure income bonds by the payment of interest on those bonds 
 at stated periods, out of the surplus earnings of the company, the 
 mortgagor owes a duty to the bondholder to keep such an ac- 
 count of its earnings as will show the net results of each interest 
 period, and the trustee owes an active duty to the bondholders in 
 the supervision of the account.* 
 
 So, where the interest payable is dependent upon the amount 
 of net earnings as ascertained by the directors, a bondholder can 
 maintain a bill to have the amount justly due for interest ascer- 
 tained and paid.* 
 
 priority. It was the evident purpose of the i Montgomery & "West Point E. Co. 
 
 parties to this agreement to place these v. Branch (1877), 59 Ala. 139. 
 
 floating debt-holders in at least as good a ^ Simmons v. Taylor (1889), 38 Fed. 
 
 relation to the new company as they bore Rep. 682. 
 
 to the old company. They got for their ^ Barry v. Missouri, K. & T. Ey. Co. 
 
 unsecured indebtedness something which (1886), 27 Fed. Eep. 1. 
 
 at least bears the semblance of a security. * Spies v. Chicago, etc. Ry. Co. (1887), 
 
 It was a second-mortgage bond." 30 Fed. Rep. 397, per Wheeler, J. 
 
66 RAILWAY BONDS Als^D MORTGAGES. [CHAP. II. 
 
 (e) Scope of Suits for accounting. ^— Where the holder of in- 
 come bonds, the coupons of which are payable from the " net earn- 
 ings " and " cumulative," brings suit for an accounting of the net 
 earnings accrued during an interest period for which the com- 
 pany is in default, and brings actions at law for the amount of 
 coupons falling due six and twelve months afterwards, the law 
 suits may be stayed without prejudicing the plaintiff, since he is 
 entitled to an account in the equity suit not merely for net earn- 
 ings prior to its institution, but also for net earnings received 
 during its progress up to the time the accounts are stated, and all 
 his rights can be protected in that suit.^ 
 
 (f ) Computation of Amount due to Income Bondholders in Suits 
 for an accounting. — Special amounts chargeable in any one year, 
 as against holders of income bonds drawing non-cumulative in- 
 terest, must be regulated by what is fair in the interest of all 
 concerned."'^ 
 
 The cost of issuing income bonds cannot be charged against 
 income to the prejudice of the holders of the bonds.^ 
 
 Where a plan has been arranged for retiring income bonds by 
 giving in exchange for them other bonds, the bonds surrendered 
 to be held uncancelled until all are retired, a bondholder who did 
 not consent to surrender his bonds could only claim from the in- 
 come, in an accounting under the mortgage, the share to which 
 he would have been entitled had no bonds been surrendered.* 
 
 Trustees for bondholders, though the mortgage securing their 
 bonds may cover the income of the road when in possession, 
 through a receiver appointed at their instance, with a condition at- 
 tached that he pay from the income certain claims for labor, etc., 
 will not be allowed to have appropriated to their bonds out of the 
 earnings in preference to the holders of such labor claims, etc., ' 
 any of the income, on the ground that the income had been di- 
 verted by the receiver for the improvement of the property.^ 
 
 The courts have in many cases treated the mortgaging of the 
 
 1 Morgan v. Union Pac. Ey. Co. (1882), taken as if there were to be a periodical 
 
 11 Fed. Eep. 692, per Blatchford, J. stoppage of the business and a recurring 
 
 ^ Jamaica Ey. Co. v. Atty.-Gen. winding up. 
 (1893), L. E. C. A. 127. The court » Jamaica Ey. Co. v. Atty.-Gen. of 
 
 adopted a view intermediate between the Jamaica (1893), L. R. C. A. 127. 
 extreme doctrine that, as the directors of * Barry v. Missouri, Kansas, &, Texas 
 
 the company were placed in the manage- Ey. Co. (1888), 34 Fed. Rep. 829 ; s. c. 
 
 ment of its affairs, the court ought not to 4 Ey. & Corp. L. J. 198. 
 interfere with their discretion when they ' Union Trust Co. u. Souther (1882), 
 
 are acting lona fide, and the equally ex- 107 U. S. 591. 
 treme doctrine that the account should be 
 
§ 40,] EIGHTS OP BONDHOLDERS. 67 
 
 income, net earnings, etc., of a railroad company as an appro- 
 priation of those revenues to the payment of the particular 
 interest on the bonds secured by it, and enforceable as an equi- 
 table charge in favor of the bondholders as against all others, such 
 as creditors, for instance, attaching to reach it by process of the 
 courts to the exclusion of the income bondholders. 
 
 A railroad company may appropriate its earnings or income to 
 the payment of interest on its bonds, and where this has been 
 done, a court of equity will enforce the lien of the bondholder as 
 an equitable charge upon the earnings or income.^ 
 
 The rule has, however, been different in cases of general 
 mortgages upon the property of all kinds of a railroad company, 
 including the tolls, income, etc., for the security of the general 
 bondholders. In these cases, as long as the mortgagor remains 
 in possession, the claims of judgment creditors or attaching 
 creditors upon such income have been regarded as having a 
 preference. 
 
 Where by the terms of a mortgage or trust deed which covers 
 the income of a railroad company until default in the payment of 
 interest on its bonds, the mortgagor is to retain possession of its 
 road and property, and receive the profits and income arising from 
 such use, the income of the company, before possession is taken 
 
 1 Ketchum v. St. Louis (1879), 101 been consolidated with other companies 
 
 U. S. 306, a case where the State of Mis- into the defendant company was secured, 
 
 souii had a statutory lien, and through so far as the interest on the bonds was 
 
 its Fund Commissioner controlled the concerned, by the income of that company 
 
 earnings of the Pacific Eailroad Com- from the sale of its land. The bondholder 
 
 pany, to secure it against loss by reason of was treated as a creditor, having a specific 
 
 bonds of the State having been issued to aid lien upon the income from the sale of those 
 
 in its construction. To enable the com- lands which had gone into the hands of the 
 
 pany to complete its road by a loan of the consolidated company, and allowed to file 
 
 bonds of the county of St. Louis to a cer- a bill in equity to enforce his lien after 
 
 tain extent to the company, a special act default in the payment of interest on his 
 
 was passed by which the State relinquished bonds. In Galena & Chicago Union R. 
 
 its lien to that extent upon the earnings of Co., Garnishee, etc. v. Menzies (1861), 26 
 
 the road, and provided for the payment by 111. 122, judgment creditors sought by 
 
 the Fund Commissioner, or whatever other garnishee process to reach certain iu- 
 
 person might have charge of the earnings come of a railroad company from a con- 
 
 of the company, for the purpose of meeting tract for transportation of freights, etc. 
 
 the interest upon the county's bonds. The This company had executed a mortgage to 
 
 act was accepted, and this was held to trustees for its bondholders, which covered 
 
 hare amounted to an appropriation of the in terms itstoUs, incomes, etc. The Illinois 
 
 earnings to this purpose, and to constitute Supreme Court held that these revenues 
 
 a lien therefor upon those earnings. In were pledged by the trust deed for the 
 
 Eutten I). Union Pacific Ry. Co. et al. payment of the interest and principal of 
 
 (1883), 17 Fed. Rep. 480 ; s. 0. 16 Rep. the bonds, and that the trustees were en- 
 
 109, the holder of certain bonds of a rail- titled to the money, 
 road and telegraph company which had 
 
68 RAILWAY BONDS AND MORTGAGES. [CHAP. II. 
 
 by the trustee or mortgagee, will be subject to garnishee process, 
 at the motion of its other creditors.^ 
 
 Though a mortgage may embrace, as part of the security, " in- 
 come, earnings, moneys," etc., of a mortgagor company, it has 
 been held that the mortgagor, notwithstanding the use of the 
 word " moneys," would not be required to account for moneys 
 received as earnings while in possession, to a mortgagee coming 
 into possession under the mortgage or trust deed.^ 
 
 In holding that the receiver of an insolvent railroad company 
 would not be ordered to pay the interest on certain income bonds 
 which had been issued by an after agreement among the secured 
 and general creditors of the company, the Chancellor of New 
 Jersey thus referred to the bonds : " The exchange of income 
 bonds for stock surrendered was (though that was not the form 
 of the transaction) in effect creating preferred stock to the ex- 
 tent of the surrender." Again : " The floating debt is a prior 
 claim. Had the usual form of preferring the stock been adopted, 
 the stock would of course have been entitled to no dividends until 
 the debts should have been paid or provided for. The obligation 
 to pay dividends is necessarily subject to the paramount obliga- 
 tion to pay the debts. It is not to be supposed that the parties to 
 the agreement intended to give to holders of the income bonds, 
 for which nothing was paid or to be paid, but which merely repre- 
 sented so much of the stock of the insolvent corporation, a lien 
 
 1 Mississippi Valley & "Western Ky. Trustee (1877), 124 Mass. 154 ; Ellis v. 
 Co. I). United States Express Co. (1876), Boston, Hartford, & Erie R. (1871), 
 81 111. 534. The court distinguished 107 Mass. 1. In Clay v. East Tennessee 
 Galena & Chicago Union R. Co., supra, & Virginia R. Co. et als. (1871), 6 Heisk. 
 in that the income in that case came to (Tenn.) 421, the court held that an attach- 
 the trustees while they were in pes- ment of the tolls, etc., of the company while 
 session. It was insisted in Mississippi the road remained in its possession gave 
 Valley & Western R. Co. o. United States the attaching creditor a preference over the 
 Express Co., supra, that as- the road of the trustees named in the deed of trust. In 
 company passed also through the State of the deed the trustees were given the right 
 Iowa, the Illinois court should, by comity, to enter into possession in case of default 
 he controlled by what it was claimed was and control the tolls, income, etc., for the 
 a different ruling in that State. The lUi- payment of the bonds, 
 nois Supreme Court saiil : " The ruling in ^ -Qq-^ „, Memphis & Little Rock R. 
 Dunham v. Isett et al. (1863), 15 Iowa, Co. (1884), 20 Fed. Rep. 768, upon the 
 284, seems to go to the extent claimed, authority of Galveston Railroad v. Cow- 
 although the distinction between income drey (1870), 11 W.all. 459, 482, 483 ; Gil- 
 received by trustees in possession and man et al. v. Illinois & Mississippi Tele- 
 income received by the mortgagor be- graph Co. (1875), 91 U. S. 603, 617; 
 fore possession taken by the trustees, American Bridge Co. o. Heidelbach (1876), 
 does not appear to have been discussed in 94 U. S. 798 ; Noyes v. Rich (1861), 52 
 argument or considered by the court." Me. 115. 
 See also Smith v. Eastern Railroad Co. & 
 
§ 40.] EIGHTS OP BONDHOLDERS. 69 
 
 ou the annual income for their interest, after paying claims fall- 
 ing due within the year, whatever the amount of other indebted- 
 ness of the company might be. On the contrary, it is evident 
 that it was the intention merely to make the interest payable out 
 of money which otherwise would be applicable to the payment of 
 the dividend on the stock at large." ^ 
 
 (a) Out of what Income Interest on Income Bonds is payable. — 
 Primarily, but not solely, interest is payable out of income of a six 
 months' period. Under a certain mortgage the court laid down the 
 following as the rights of the income bondholders : Unless within 
 some one of the six months' periods between the date and the 
 maturity of the bonds net income should be realized, the company 
 is not in default, and is under no present obligation to pay 
 interest. 
 
 This was based upon the promise to pay intei'cst provided the 
 net or surplus earnings should be sufficient therefor.^ 
 
 (b) Principal secured hy Mortgage and not Income. — It was 
 contended by complainants in this case that the company had no 
 power to lease another road, that the terms of the lease were such 
 that it would absorb the " net earnings " of the company to which 
 they claimed to be entitled by the terms of certain income bonds 
 in the way of interest upon the same, and the bill praying that 
 the company be restrained, etc., the court held that the plaintiffs 
 were simply contract creditors, having no lien or right other than 
 to have their interest paid out of the proper fund, i. e. " net earn- 
 ings ; " that the power of the company to change the condition of 
 the road by additions, extensions, or improvements consistent 
 with the purposes of its incorporation was not restricted by the 
 provisions of the bonds referred to ; that the parties contem- 
 
 ' Lehigh Coal & Navigation Co. v. pons of the insolvent company. The 
 
 Central R. Co. of New Jersey (1881), 34 holders of these income bonds, former 
 
 N. J. Eq. 88. In this case the " income stoclcholders, had asked an order from the 
 
 bonds " had been used under the agree- chancellor for payment of their interest 
 
 ment for a compromise and settlement of on their income bonds, and the receiver 
 
 all claims against the company in the had objected on the ground that there 
 
 hands of a receiver in insolvency proceed- were floating indebtedness coupons still 
 
 ings, including bonds, coupons, floating unpaid. 
 
 indebtedness, etc., as well as the claims of ^ Day v. Ogdensburgh & Lake Cham- 
 
 the stockholders on their stock and a res- plain R. Co. (1887), 107 N. Y. 129 ; s. o. 
 
 toration of the property to the company, 13 N. E. Rep. 765, approved in Thomas v. 
 
 and given in exchange to the stockholders N. Y. & G. L. R. Co., 139 N. Y. 163. As 
 
 for their stock which was to be surrendered, to what amounts to an irrevocable assign- 
 
 and to the holders of floating indebtedness ment to bondholders of the net earnings 
 
 of the insolvent company. New bonds of a railroad company, see Grand Trunk 
 
 secured by a regular mortgage were given Ry. o. Central Vt. R. Co. (1897), 78 Fed. 
 
 in exchange to holders of bonds and cou- Rep. 690. 
 
70 RAILWAY BONBS AND MORTGAGES. [CHAP. n. 
 
 plated a line of active and efficient railroad managed in the usual 
 manner according to the discretion of defendant's directors, not 
 one in suspense or liquidation ; and that, therefore, the directors 
 had the right to use the earnings of the corporation for such 
 improvements, or other lawful purposes in its business, as they 
 might think best.^ 
 
 In an equity cause, in which the holdei-s of certain income bonds 
 sought to restrain by injunction the holders of " third-mortgage " 
 bonds which were placed with them by the company to secure 
 advances of money and loans, on the ground that the complain- 
 ants had an agreement as to further securing their income 
 bonds, the Maryland Court of Appeals saw " nothing in the 
 stipulations of the ' income bonds ' which in any way precluded 
 the railroad company from executing other obligations to obtain 
 means to complete their road," and reversed the order granting 
 an injunction. The court evidently viewed the bonds as counsel 
 for the respondents did, who, in his brief, said : " What is the 
 nature of this bond, and what rights and security does it give ? 
 The word income here means net income from the road and its 
 appurtenances. The holder is thus made only a preferred 
 stockholder." ^ 
 
 The New Jersey Midland Railroad Company was a consolidated 
 company ; its property and franchises were afterwards sold at 
 foreclosure sale, and purchased by a committee of bondholders for 
 the benefit of the bondholders, and such general creditors and 
 stockholders as might choose to unite in a reorganization of the 
 company upon a proposed plan. A part of this proposed plan 
 was to issue " income bonds " to stockholders and holders of cer- 
 tain junior mortgage bonds for their stock and bonds surrendered. 
 T. surrendered certain of these bonds and his stock, and received 
 the new obligations of the Midland Railroad Company of New 
 Jersey, the name of the reorganized corporation. This new com- 
 pany under the general laws of New Jersey effected a consolida- 
 tion of itself and several other companies, corporations of that and 
 neighboring States, under a new name. T., as the holder of income 
 bonds of Midland Railroad Company of New Jersey, applied to the 
 Supreme Court for leave to file an information in the nature of 
 
 1 Day et al. v. Ogdensbnrgh & Lake the dividends on the capital stock " of the 
 Champlain E. Co. (1887), 107 N. Y. 129 ; company issuing them, of "the income 
 s. 0. 13 N. E. Rep. 765. arising from their road and its appurte- 
 
 2 Garrett et al. v. May et al. (1862), 19 nances." On the hack of them these bonds 
 Md. 177. The "income bonds" in this were declared to be convertible into stock 
 case were secured on their face by a of the company. 
 
 pledge ' ' in preference to the payment of 
 
§ 41. J EIGHTS OP BONDHOLDERS. 71 
 
 a writ of quo warranto to determine the validity of this last con- 
 solidation. The court, on the idea that such a writ would not lie 
 at the instance of a private relator, denied the leave to T., the 
 holder of the income bonds.^ 
 
 If bonds contain simply a promise to pay interest out of income 
 earned, such a promise would be merely conditional, and in an 
 action on his bond the burden would be upon the holder to show 
 that sufficient income had been earned to warrant the payment 
 of the interest.^ 
 
 An income bondholder may recover in money in an action on 
 his coupons for interest, notwithstanding a provision in the bonds 
 that the company issuing them may, at its option in a certain 
 contingency, issue scrip in payment at the maturity of the 
 coupons, provided the day passes without an election on the part 
 of the company.^ 
 
 § 41. Bonds, in what payable. — A tender of legal-tender notes 
 in payment of coupons attached to bonds made before the Legal 
 Tender Act has been held good. It was claimed that the tender 
 should have been made in gold and silver coin.* 
 
 It has been held in a particular case that it was the intention 
 of the railroad company that the principal of its bonds should be 
 
 I In the matter of Terhune, Applicants, scrip. This case was approved by the 
 
 etc. 0. Potts et al. (1885), 47 N. J. L. Supreme Court of Judicature of Massachu- 
 
 218 ; s. c. 23 Am. & Eng. R. R. Cas. setts when it held that, in an action to re- 
 
 754. cover interest on a bond of a corporation 
 
 ^ Corcoran v. Chesapeake & Ohio Canal which contained an absolute promise to 
 
 Co. (1874), 1 MacArthur (D. C), 358. pay interest on certain specified days, the 
 
 ' Marlor o. Texa-s & Pacific E. Co. burden of proof was not upon the holder 
 
 (1884), 21 Fed. Rep. 383 ; s. c. 22 Blatch. of the bond to show that income had been 
 
 464, affirmed in Texas & Pacific B. Co. i>. earned to warrant the payment of interest. 
 
 Marlor (1887), 123 U. S. 687. The bonds Strauss u. United Telegram Co. (1895), 
 
 on which this action was brought were 164 Mass. 130, 132, 133; s. 0. 41 N. E. 
 
 secured by mortgage on lands granted to Rep. 57. 
 
 the company and the income of the road. 4 Railroad Company v. Johnson (1873), 
 
 There was a provision in them that in case 15 Wall. 195 ; s. o. 21 L. ed. 178. See 
 
 the net earnings were not sufficient to pay Cheever v. Rutland & Burlington R, Co. 
 
 the interest coupons as they became due, (Vt., 1869), 4 Am. Ry. Eep. 291, 311, de- 
 
 the company might, at its option, issue dining to make a decree for payment of 
 
 scrip, which was to be receivable for railroad bonds in gold, the court adhering 
 
 pufchase-money of any of the lands at to its opinion of the constitutionality of 
 
 the ordinary schedule price, in payment of the Legal Tender Act. On contracts to 
 
 the interest on the bonds. This provision pay in gold coin, see 30 Am. Law Rev. 
 
 was construed and a judgment in money 907, 950 ; 15 N. Y. Law Journal, 508, 
 
 rendered for the interest due and unpaid, May 18, 1896 ; Woodruff v. State of Mis- 
 
 as appeared by the coupons, it being shown sissippi, 162 XT. S. 281 ; 53 Alb. L. J. 292, 
 
 that the company had allowed the day of May 9, 1896 ; N. Y. L. J., Feb. 13, 1896 ; 
 
 the maturity of these coupons to pass 2 Woods, 614. See also Castle v. Kupena, 
 
 without exercising their option to pay in 5 Hawaiian Rep. 27. 
 
72 RAILWAY BONDS AND MORTGAGES. [CHAP. 11, 
 
 paid in lawful money instead of Confederate notes, and that the 
 interest must follow the character of the principal.^ 
 
 The Supreme Court of North Carolina have, however, held a 
 railroad bond executed in North Carolina in 1862 to come within 
 the provisions of an ordinance of the Convention of 1865, and 
 presumably to be solvable in money of the value of Confed- 
 erate currency, subject to evidence of a different intent by the 
 parties.^ 
 
 But a different intent would not be implied from a provision in 
 the charter that the company may make contracts for building 
 the road, and may pay contractors in bonds at par value. 
 
 It has also been held that a claim that payment of bonds should 
 be made in gold coin must rest upon a contract to that effect.^ 
 
 Where bonds, as prepared and issued, promise payment in 
 lawful money, a stipulation afterwards indorsed by the corpora- 
 tion upon them that they shall be paid in coin, this being required 
 of it by the purchasers of the bonds, would bind the corporation 
 only, and not a State which had guarantied the payment of those 
 bonds previous to this indorsement.* 
 
 The Missouri Supreme Court has held that railroad State 
 bonds issued for the construction of railroads payable on their 
 face " in gold and silver " were obligations for payment in coin, 
 but that as the legislature had ordered the State agents to pay 
 the same in legal-tender notes, and it was competent for it so to 
 do, no writ of mandamus could be issued to compel a payment 
 in coiu.^ 
 
 In Johnson v. Norwich & "Worcester R. R. Co.,® a case reserved 
 for advice, the Supreme Court of Connecticut advised (1) That, 
 upon the authority of the U. S. Supreme Court's decision as to 
 the unconstitutionality of the Legal Tender Act, a petitioner for 
 foreclosure on bonds issued before the Legal Tender Act was 
 passed, was entitled to payment of the bonds and coupons in 
 coin ; (2) That he was entitled to have such proportion of the 
 stock of another corporation held in trust for the security of 
 these bonds, as the amount of his bonds bore to the whole amount 
 secured, sold, and the net avails converted into coin and paid 
 over to him, to be applied upon the coupons and bonds ; (3) That 
 
 1 Atlantic, Tennessee, & Ohio R. Co. (1871), 22 Wall. 105; s. c. 22 L. ed. 
 ct, al. V. Carolina National Bank (1874), 19 715. 
 
 Wall. 548 ; s. 0. 22 L. ed. 196. * Wallace«.Loomis(1877),97 tJ.S. 146. 
 
 2 Alexander v. Atlantic, Tennessee, & 6 State ex rel. v. Mays et al. (1872), 50 
 Ohio R. Co. (1872), 67 N. C. 198. Mo. 34. 
 
 * Maryland v. Railroad Company « 37 Conn. 433 (1870). 
 
§§ 42-44.] EIGHTS OF BONDHOLDERS. 73 
 
 for any balance remaining unsatisfied a decree should be passed 
 foreclosing the mortgage unless such balance should be paid in 
 coin ; (4) That there was no principle upon which the payment of 
 the bonds and coupons could be decreed to be made in currency 
 to an amount equal to the currency value of the gold on the day 
 when the bonds fell due, but that payment must be decreed in 
 coin itself. 
 
 § 42. When Principal of Bonds becomes due. — Bonds not becom- 
 ing due till Original Date of Maturity/. — A clause in a mort- 
 gage providing that in no case should the principal of any bond 
 be considered due until twenty years after its date, has been 
 held to have been inserted merely to exclude any possible in- 
 ference that a bondholder, under any circumstances, might bring 
 an action for the principal of a bond before it became due by its 
 terms. The same mortgage provided that in case of default in 
 payment of interest or principal of any bond, and a sale or other 
 proceedings to coerce the same, all bonds which should be a lien 
 in common therewith, and the interest accrued thereon, sliould 
 be considered, and should in fact be equally due and payable and 
 entitled to a pro rata dividend of the proceeds of such sale or 
 other proceedings. The court below had provided for payment 
 of overdue interest-warrants to the exclusion of the principal of 
 the bonds.^ 
 
 Where there is no stipulation that the principal shall become 
 due by the non-payment of the interest, the lien cannot be so 
 enforced as to compel the payment of the principal, on default in 
 the payment of the interest.^ 
 
 § 43. Legislature cannot accelerate Maturity of Principal. — Where 
 trustees who can elect that the principal should become im- 
 mediately due upon default of principal or interest have not 
 exercised the right of election, a legislature cannot, by an act 
 subsequently passed, authorize the sale of the railroad property 
 free from the mortgage, for the reason that the effect would be to 
 make a loan of money become due before the time fixed in the 
 contract, and it could not be enforced.^ 
 
 § 44. Contract held not to entitle Company to pay off Bonds before 
 Maturity. — A traffic contract indorsed upon the bonds, whereby 
 the mortgagor stipulates that another railroad shall retain com- 
 plainant's share of the earnings under the contract, and pay them 
 
 • Dunham v. Cincinnati, Peru, etc. Ey. ' Eandolph et at. Trustees, v. Middleton 
 
 Co. (1864), IWall. 254. (1875), 26 N. J. Eq. 543. A proceeding 
 
 ^ State of Florida v. Anderson et al. against the railroad company under the 
 
 (1875), 91 U. S. 667. New Jersey act as an insolvent corporation. 
 
74 EAILWAT BONDS AND MORTGAGES. [CHAP. 11. 
 
 over semi-annually to a trustee to be applied to the " ultimate re- 
 demption " of the bonds, such contract to continue in force for 
 thirty years, or " for so long a time as will be sufficient to provide 
 a fund large enough to redeem all of the bonds," does not give the 
 railroad company the right to pay off the bonds as soon as a fund 
 sufficient for that purpose has accumulated. The mere fact tliat 
 the parties have agreed in this manner, that a fund shall be 
 created for the payment and redemption of the bonds, does not 
 involve the inference that they necessarily contemplate that the 
 fund shall be applied to that purpose as soon as it is of sufficient 
 amount to discharge the debt.^ 
 
 § 45. Acceleration of Maturity as Result of Default in Payment of 
 Interest. — It is usual for the bonds and mortgage to provide that 
 a default in payment of interest shall cause the principal to be- 
 come due and payable.^ 
 
 An indirect result of such a provision is illustrated by a case 
 in Illinois, which, in an action to recover tlie price of three bonds 
 of the company under a contract by which defendant agreed to 
 take five of those bonds at a fixed sum per bond, and had already 
 accepted and paid for two, held that the payment of the interest 
 upon those two bonds was a vital part of the contract with de- 
 fendant, and that under the provision in the mortgage that, upon 
 default of the interest upon those bonds for ninety days after be- 
 coming due, the entire principal and interest coupons should 
 become immediately due, the effect of failure to pay the interest 
 on those bonds for ninety days was that the bonds became due to 
 defendant. He was therefore allowed to recoup for the sum due 
 upon them against the damages claimed of him for his refusal to 
 accept and pay for the others.^ 
 
 The provision for a sale under a power for default in payment 
 of interest, and application of proceeds of sale, after payment of 
 overdue interest, to payment of principal, though not yet due, 
 does not accelerate time of payment of principal. The mortgagor 
 can prevent a sale by payment of interest only.* 
 
 § 46. Acceleration of Maturity of Principal at Option of Individual 
 Bondholders or Trustees. — The provision most commonly found 
 in mortgages with regard to the acceleration of the maturity of 
 the principal is that in case of default of interest for six months 
 
 1 Chicago, E. I., etc. R. Co. v. Pyne ' Galena & Southern Wisconsin E. Co. 
 (1887), 30 Fed. Rep. 86. v. Barrett (1880), 95 lU. 467 ; s. c. 2 Am. 
 
 2 Cases dealing with such a provision & Eng. E. R. Cas. 520. 
 
 are reviewed in the chapter on Foreclosure, * Chicago, etc. R. Co. v. Fosdick 
 post. (1881), 106 U. S. 47. 
 
§ 46.J EIGHTS OP BONDHOLDERS. 75 
 
 after demand the principal shall become due at the option of 
 the holders of a majority in interest.^ 
 
 A provision that default of interest for sixty days after demand 
 makes the principal " subject to become due and payable " has 
 been construed to mean subject to become so at the option of the 
 holder. The bill must show that the petitioner has elected to 
 have the bonds become due.^ 
 
 In foreclosure proceedings of a junior mortgage, the bond- 
 holders having elected to treat the default in the payment of 
 interest as a forfeiture of the contracts so far as they prescribed 
 the length of time for which the bonds were to run, this election 
 on their part operates prima facie to cancel all coupons represent- 
 ing interest not then due ; and, unless tlie mortgaged property 
 shall be sold subject to one or more of the elder mortgages, this 
 election should be regarded as having precipitated the payment of 
 the principal sums, and they would bear interest at the agreed 
 rate per annum.* 
 
 In an action to recover railroad bonds which had been stolen 
 and sold to defendant, the question arose as to whether these 
 bonds were overdue when purchased. Construing a provision in 
 the bonds, that, in case of the continuance for six months of a 
 default in the payment of interest, or in contributing to a sinking 
 fund, " the principal shall, without further demand or notice, be- 
 come due or payable from and after the expiration of six months 
 from the date of such default," the court held that (1) as the de- 
 fault had occurred, proceedings to foreclose the mortgage showed 
 an election to have the bonds become due, if such an election was 
 necessary, and the bonds were overdue when stolen ; (2) that there 
 was no evidence of a waiver of the election to have them become 
 due, as, although some portion of past-due coupons was paid to 
 this plaintiff, the bondholder, pending the foreclosure of the mort- 
 gage, it was in accordance with some provision of the mortgage, 
 and was not a waiver of such election.* 
 
 As to the effect upon the contract of apparently variant pro- 
 visions in a mortgage that the bonds were payable in twenty 
 years from date, and that bondholders might elect to have 
 them mature upon default as to interest for a fixed period, the 
 
 1 See, for example, the mortgages con- ' Newport & Cincinnati Bridge Co. v. 
 strued in Union Trust Co. of New York Douglass (1877), 12 Bush (Ky.), 673 ; 
 V. Missouri, etc. Ry. Co. (1880), 26 Fed. s. o. 18 Am. Ry. Eep. 221. 
 
 Rep. 485, and in the cases cited post, in the * Northampton Bank v. Kidder et al. 
 
 chapter on Foreclosure. (1887), 106 N. Y. 221, distinguishing Eail- 
 
 2 Ruttenti. Union Pac. Ry. Co. (1883), way Co. v. Sprague, 103 U. S. 756, and 
 17 Fed. Rep. 480. Morgan v. United States, 113 U. S. 476. 
 
76 RAILWAY BONDS AND MORTGAGES. [CHAP. II. 
 
 Supreme Court of Connecticut has expressed its opinion as fol- 
 lows : " The provision that the bond should continue for twenty 
 years an outstanding subsisting security, if any existed, was with 
 reference to the corporation. The provision that the bonds by the 
 action of the bondholders might mature before that time was in 
 reference to the co-bondholders. And while it would impair the 
 obligation of a contract, if such contract existed, so far as the 
 corporation is concerned, to change the time of maturity, it docs 
 not have that effect when the co-bondholders proceed upon their 
 common and undisputed right to cause the bonds to mature, and 
 by foreclosure to discharge the bonds by taking the property in a 
 legal way." ^ 
 
 Exercise of Option to become due, accompanied hy Restriction on 
 Right to foreclose. — In a case where the provision was that, after 
 the principal of the bonds had been declared by the trustees to 
 have become due by reason of the default, and the mortgagor noti- 
 fied thereof, the trustees, " upon the written request of the holders 
 of a majority of the said bonds then outstanding, shall proceed to 
 collect both principal and interest of all said bonds outstanding by 
 foreclosure and sale of said property, or otherwise as herein pro- 
 vided," it was held that, " even had the trustees rightfully declared 
 the principal sum of the mortgage debt due, and given the proper 
 notice thereof, nevertheless the foundation of a proceeding to fore- 
 close for that cause and of the decree requiring payment of that 
 amount would fail, without proof that the bill had been filed for that 
 purpose, upon the written request of the holders of a majority of 
 the bonds then outstanding." In thus construing the mortgage 
 the court says : " In declaring the principal sum due before the 
 date fixed by the credit upon a default in the payment of interest, 
 the trustee is acting for the whole number of bondholders, and the 
 provision that subjects his action, in enforcing the stipulation, to 
 the wishes of a majority, is meant, as we think, for the protection 
 of the class. Many cases may be mentioned to illustrate the im- 
 portance in their interests of such a control, rather than to put it 
 in the power of one or a minority to require all to accept what 
 the majority might consider to be a premature and less valuable 
 satisfaction for their existing security. The larger number might 
 think it to their advantage even to defer the collection of their 
 overdue interest, much less not to anticipate the payment of the 
 principal, even when the security was ample to meet both, for 
 they might esteem the ultimate investment higher than present 
 
 1 Gates V. Boston & N. Y. Air Line B. Co. (1885), 53 Conn. 333 ; s. c. 24 Am. & 
 Eng. R. E. Caa. 143. 
 
§§ 47, 48.] EIGHTS OF BONDHOLDERS. 77 
 
 payment, and while they could not and ought not to prevent others, 
 even a single individual, from exacting the promptest payment of 
 what is due, and may be important as current income, by legal 
 process, they may nevertheless rightfully object to an anticipation 
 of payment that may in their opinion prove to be a sacrifice ; and 
 this becomes especially important when the present value of the 
 security is insufficient to prepay the incumbrance, but contains 
 the solid promise of future indemnity or an investment. It is that 
 interest, we think, that dictated the clause in question, and can 
 be satisfied only by the construction which secures to the major- 
 ity of the bondholders the right to veto the proceeding of the 
 trustees." ^ 
 
 § 47. Sales of pledged Bonds.^ — Where by the contract a defi- 
 nite time is fixed for the payment of the debt, a sale of the pledge 
 may be made without notice or demand ; and where bonds are 
 pledged as security for the payment of acceptances, the time when 
 the pledgee may sell the bonds is determined by the maturity of 
 the note, and not of the acceptances. And while, as a general 
 rule, the pledgee cannot buy the pledged property at his own sale, 
 this rule may be waived by express agreement of the parties.^ 
 
 Where the pledgee of bonds assigns them as collateral security 
 for a debt of his own, and the assignee forecloses against the 
 original pledgor, and buys in the bonds himself, he must account 
 to the assignor for the bonds or their value, and not merely for 
 the amount paid by him at the foreclosure sale.^ 
 
 A bill in equity may be maintained to redeem bonds pledged, if 
 an accounting is wanted, or if there has been an assignment of 
 the pledge. This right is not cut off by the foreclosure of the 
 mortgages executed to secure these bonds.^ 
 
 § 48. Payment of Income Tax by Bondholders. — A provision in 
 the mortgage that the debt and interest shall be paid " without 
 any deduction, defalcation, or abatement to be made of anything 
 for or in respect of any taxes, charges, or assessments whatsoever," 
 does not oblige the company to pay the interest on its bonds 
 which, by section 122 of the Revenue Act of 1864, such companies 
 " are authorized to deduct and withhold from all payments on 
 account of any interest or coupons due and payable." Such a 
 
 1 Chicago, etc. E. Co. v. Fosdick (1881), « Chouteau v. Allen (1S79), 70 Mo. 290. 
 
 106 U. S. 47. 4 First Nat. Bank v. Ohio Falls Car 
 
 ^ As to the status of purchasers at & Locomotive Works (1884), 20 Fed. Rep. 
 
 sales of pledged bonds, see § 67, post. 65. 
 
 This section is inserted here, though its ^ White Mountains R. Co. v. Bay 
 
 subject is not within the general scope of State Iron Co. (1870), 50 N. H. 57 ; s. c. 
 
 the book. 1 Am. Ey. Eep. 158. 
 
78 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. II. 
 
 provision is inserted to secure the mortgagee, who may not be 
 in possession, from a demand for taxes incurred while the mort- 
 gagor is in possession, and has no application to the income tax 
 of bondholders.! 
 
 Article II. — Eights of Bondholders intolving the 
 Negotiable Character op such Bonds. 
 
 § 49. Negotiable Character of Corporate Bonds generally. — It is 
 
 now well settled by the overwhelming weight of authority in this 
 country that a corporate bond in the usual form is, though under 
 seal, a negotiable instrument entitled to all the privileges of com- 
 mercial paper .^ 
 
 In Jackson v. York & Cumberland R. Co.^ the court adhered 
 
 1 Haight!;. Railroad Co. (1867), 6 Wall. 
 15. See also Cleveland, etc. E. Co. v. 
 Penn., 15 Wall. 300 ; s. o. 4 Am. Ry. Eep. 
 368; Jackson v. Northern Central Ry. 
 (1868), Chase's Dec. 268 ; Haight v. Pitts- 
 Ijurg, etc. Ry. Co. (1867), 1 Abb. 81 ; 
 United States v. Erie Co. (1877), 9 Ben. 
 67. 
 
 2 White V. Vermont & Massachusetts 
 R. Co. (1858), 21 How. 675 ; Zabriskie 
 V. Cleveland, Col. etc. R. Co. (1859), 23 
 How. 381 ; Kneeland !J. Lawrence (1891), 
 140 U. S. 209 ; Chicago Ry. Equipment 
 Co. V. Merchants' Bank (1890), 136 U. S. 
 268 ; Gelpcke v. Dubuque (1863), 1 Wall. 
 175 ; Clark v. Iowa City (1874), 20 Wall. 
 583; Aurora City v. West (1868), 7 
 Wall. 82 ; Mercer Co. v. Hacket (1863), 1 
 Wall. 83 ; Knox Co. v. Aspinwall (1858), 
 21 How. 539 ; Eeid v. Bank of Mobile 
 (1881), 70 Ala. 199 ; Blackmau v. Leh- 
 man (1879), 63 Ala. 547; Lehman v. 
 Tallassee Mfg. Co. (1879), 64 Al*. 567; 
 Town of Eagle v. Kohn (1876), 84 111. 
 292 ; Junction Railroad Co. v. Cleneay 
 (1859), 13 Ind. 161 ; New Albany, etc. 
 Plank Road Co. (1864), 23 Ind. 353; 
 Griffith V. Burden et al. (1872), 35 Iowa, 
 138 ; State of Virginia i). State of Mary, 
 land (1870), 32 Md. 501 ; Haven v. 
 Grand Junction Railroad & Depot Co. 
 (1871), 109 Mass. 88 ; Chapin v. Ver- 
 mont & Massachusetts R. Co. (1857), 8 
 Gray (Mass.), 575 ; Craig v. City of Vicks- 
 burg (1856), 31 Miss. 216; Hackensack 
 Water Co. v. De Kay (1883), 36 N. J. Eq. 
 648 ; Morris Canal & Bkg. Co. v. Lewis 
 
 (1858), 12 N. J. Eq. 323 ; Boyd v. Ken- 
 nedy (1875), 38 N. J. L. 146 ; Morris Canal 
 & Bkg. Co. V. Fisher (1855), 9 N. J. Eq. 
 667 ; Hubbard v. New York, etc. R. Co. 
 (1862), 36 Barb. 286 ; Brainerd v. New 
 York, etc. R. Co. (1862), 25 N. Y. 496 ; 
 Dinsmore v. Duncan (1862), 57 N. Y. 
 573 ; Connecticut, etc. Ins. Co. v. Cleve- 
 land, etc. R. Co., 41 Barb. 9 ; Blake v. 
 Board of Commrs. of Livingston Co. (1871), 
 61 Barb. 149 ; Welch v. Sage (1872), 47 
 N. Y. 143 ; Hodges v. Shuler (1860), 22 
 N. Y. 114; National Exch. Bank ti. 
 Hartford, etc. R. Co. (1866), 8 R. I. 375; 
 American Nat. Bank v. American, etc. Co. 
 (1895), 32 Atl. Rep. 305 ; Langstou v. 
 South Carolina R. Co. (1870), 2 S. C. 248 ; 
 Ex parte Williams (1882), 18 S. C. 299. 
 Even a writing which does not contain a 
 direct promise to pay money, but only a 
 promise to give security for money, such 
 as the scrip issued by European govern- 
 ments, entitling the holders to an equal 
 amount of bonds to be afterwards issued, 
 will be treated as negotiable paper, if the 
 usage of the monetary world has given it 
 that character. Goodwin v. Roberts (1875), 
 L. R. 10 Exch. 337. This case combats 
 with great force of reasoning, and an 
 imposing array of authorities, the nar- 
 row view that the law merchant is fixed 
 and stereotyped, and incapable of being 
 enlarged so as to meet the wants and 
 requirements of trade in the varying 
 circumstances of commerce. 
 8 48 Me. 147 (1858). 
 
§ 49.] EIGHTS OF BONDHOLDERS. 79 
 
 to the strict common-law rule that bonds, being specialties, 
 were not legally assignable, so that a suit could be sustained 
 in the name of an assignee. But this case and the somewhat 
 similar one of Myers v. York & Cumberland R. Co.^ cannot be 
 regarded as authority outside the State. Apparently they have not 
 been overruled in that State. 
 
 A clear and authoritative statement of this rule will be found 
 in the opinion of the court in White v. Vermont, etc. R. Co., 
 quoted below. 
 
 The cautious doctrine of some cases is that these bonds are not 
 strictly negotiable under the law merchant, as are promissory 
 notes and bills of exchange, and the rights of the holders are based 
 upon the theory that they are instruments of a peculiar character, 
 and being expressly designed to be passed from hand to hand, and 
 by common usage actually so transferred, are capable of passing 
 by delivery, so as to enable the holder to maintain an action on 
 them in his own name.^ 
 
 But this seems to be an unnecessary refinement. A simpler 
 and more accurate view is that the necessities of commerce and 
 the customs of the financial world have imparted to these instru- 
 ments the quality of negotiability, in spite of technical rules of 
 law, and that the law merchant has taken them under its protec- 
 tion in deference to precisely the same conditions as those which 
 have, from a much more remote period, secured for ordinary bills 
 and notes the well-known and distinctive privileges which place 
 them in a class apart from ehoses in action generally. As was well 
 said by Nelson, J., pronouncing the decision of the Supreme Court 
 of the United States to this effect in White v. Vt. & Mass. R. Co., 
 supra : " We think the usage and practice of the companies them- 
 selves, and of the capitalists and business men of the country 
 dealing in them, as well as the repeated decisions or recognition 
 of the principle by courts and judges of the highest respectability, 
 have settled the question. Indeed, without conceding to them the 
 
 1 43 Me. 232 (1857). made under the hand and seal of the 
 
 " CaiT V. LeFevre (1856), 27 Pa. St. assignor before two or more credible wit- 
 
 413, cited with approval in the later case nesses. The negotiability of bonds is also 
 
 of Banting's Admr. w. Camden, etc. E. Co. accounted for in the same way in two 
 
 (1876), 81 Pa. St. 254 ; s. 0. 15 Am. Ey. early New Jersey cases. Morris Canal, 
 
 Rep. 570, where it was held that bonds etc. Co. v. Fisher (1855), 9 N. J. Eq. 667 ; 
 
 payable to A. or his assigns were within Monis Canal, etc. Co. v. Lewis (1858), 12 
 
 the act of May 28, 1715, and that a N. J. Eq. 323. See Williams v. Sidmoiith 
 
 holder other than the obligee could not Ey. & Harbour Co., L. E. 2 Exch. 284, 
 
 sue thereon in his own name without suit in the name of obligee on an assigned 
 
 proving that the assignment had been "Lloyd's bond." 
 
80 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. II. 
 
 quality of negotiability, much of the value of these securities in 
 the market, and as a means of furnishing the funds for the accom- 
 plishment of many of the greatest and most useful enterprises of 
 the day, would be impaired. Within the last few years large 
 masses of them have gone into general circulation, and in which 
 capitalists have invested their money ; and it is not too much to 
 say that a great share of the confidence they have acquired, as a 
 desirable security for investment, is attributable to this negoti- 
 able quality, as well on account of the facility of passing from hand 
 to hand, as the protection afforded to the bona fide holder." ^ 
 
 In England it has been held that debenture bonds payable to 
 bearer, whether they should properly be called promissory notes 
 or not, are at all events negotiable instruments, because the con- 
 tents of such an instrument amount to a representation by the 
 company to all the world that it will, at the expiration of the 
 period for which they are to run, pay the sum for which they are 
 given to the holder, together with interest half-yearly in the mean 
 time. 2 
 
 The feature common to these and all other instruments that 
 have been adjudged to be negotiable is that they are in some form 
 
 1 So also the same court, through Mr. 
 Justice Grier, in Mercer County v. Hacket, 
 1 "Wall. 83, 95, has said, speaking of 
 municipal bonds : "This species of bonds 
 is a modern invention, intended to pass 
 by manual delivery, and to have the 
 qualities of negotiable paper, and their 
 value depends mainly upon this character. 
 Being issued by States and corporations, 
 they are necessarily under seal. But there 
 is nothing immoral or contrary to good 
 policy in making them negotiable, if the 
 necessities of commerce require that they 
 should be so. A mere technical dogma 
 of the courts on the common law cannot 
 prohibit the commercial world from in- 
 venting or using any species of security 
 not known in the last centui-y. Usages 
 of trade and commerce are acknowledged 
 by courts as part of the common law, al- 
 though they may have been unknown to 
 Bracton or Blackstone. And this mallea- 
 bility to suit the necessities and usages of 
 the mercantile and commercial world is 
 one of the most valuable characteristics 
 of the common law. When a corporation 
 covenants to pay to bearer, and gives a 
 bond with negotiable qualities, and by 
 this means obtains funds for the accom- 
 
 plishment of the useful enterprises of the 
 day, it cannot be allowed to evade the 
 payment by parading some obsolete judi- 
 cial decision that a bond for some techni- 
 cal reason cannot be made payable to 
 bearer." See also Guilford v. Minneapo- 
 lis, St. Marie, & A. E. Co., 48 Minn. 561 ; 
 s. c. 51 N. "W. Rep. 658 ; 51 Am. & Eng. 
 R. R. Cas. 98. 
 
 2 In re Imperial Land Co. of Marseilles 
 (1870), L. R. 11 Eq. 478 ; Ex parte City 
 Bank, L. R. 3 Ch. 758.. The Eng- 
 lish debenture-bonds vary considerably in 
 form, and the decisions bearing on their 
 negotiability are for this reason less valu- 
 able as precedents to the American lawyer. 
 It has been considered advisable to ab- 
 stain from noticing in the present work 
 the English cases turning upon language 
 not found in the corporate securities of 
 this country, and not illustrating gen- 
 eral principles. Debentures subject to a 
 condition, as that a certain number of 
 them are to be drawn and paid off every 
 half-year, are not promissory notes. 
 Crouch V. Credit Foncier of England, 
 Lim. (1873), L. R. 8 Q. B. 374. See 
 Young V. McNider (1895), 25 Sup. Ct. 
 (Can.) Rep. 272. 
 
§§ 50, 51. J RIGHTS OF BONDHOLDERS. 81 
 
 the representative of money, and may be satisfied by payment in 
 money at a time specified.^ 
 
 § 50. Bonds not non-negotiable, because no Payee is named. — 
 The fact that a bond is issued with a blank for the name of the 
 payee does not make it any the less a negotiable instrument. The 
 authority of a subsequent bona fide holder writing his ow'n name 
 in the blank space, and making the instrument complete, is im- 
 plied from the act of the obligors in putting it in cii'culation in 
 that condition.^ 
 
 In putting such an instrument on the same footing, as regards 
 negotiability, with ordinary commercial paper, the courts of this 
 country have, for reasons of public policy, departed from the tech- 
 nical rule of common law that a bond executed with a blank for 
 tlie name of the payee is void, and that the authority of an agent 
 to fill a blank in an instrument, and thus make it the valid deed 
 of his principal, must be conferred by deed.^ 
 
 § 51. Uncertainty in Time of Payment or Amount as affecting 
 Negotiability. — (a) What is not an Uncertainty in the Time of 
 Payment destructive of Negotiability. — Provided a bond is pay- 
 able at a fixed date, its negotiability is not destroyed by the 
 insertion of a clause reserving to the obligor the option of 
 discharging the obligation at any time prior to that date ; * 
 
 1 Mechanics' Bank v. New York & mode, and at certain periods, mentioned 
 New Haven R. Co. (1856), 13 N. Y. 599, in the hond. It is, therefore, in its na- 
 denying negotiabilitj' on this ground to tiire precisely analogous to a bank-note 
 shares of stock. Similar language may payable to bearer, or to a bill of ex- 
 be found in Craig v. City of Vicksburg change, indorsed in blank." Georgier v. 
 (1856), 31 Hiss. 216. Compare also the Mieville (1824), 3 B. & C. 45. See also 
 opinion of Lord Tenterden in Wookey i>. Evertson u. National Bank (1876), 66 
 Pole, 4 B. & Aid. 1. "Abstracted from N. Y. 14, and the elaborate judgment of 
 authority, I think this instrument (an Chief Justice Cockburn in Goodwin v. 
 exchequer bill) is of the same nature as Robarts (1875,) L. E.. 10 Q. B. 337. 
 notes and bills of exchange. Like them ^ Boyd v. Kennedy (1875), 38 N. J. L. 
 it is neither valuable nor useful in itself 146, citing White v. Vermont & Massa- 
 as goods and chattels, such as a horse, a chnsetts E. Co. (1858), 21 How. 575 ; 
 book, a picture, or a pipe of wine are. Brainerd v. New York & New Haven 
 It is valuable only as entitling the holder E. Co. (1862), 5 N. Y. 496 ; Hubbard 
 to receive, at some future time, a. certain v. New York & Harlem R. Co. (1862), 36 
 sum of money, which is a value precisely Barb. 286 ; Chapin v. Vermont & Massa- 
 of the same nature as the value of a note chusetts R. Co. (1857), 8 Gray, 575, as 
 or bill." The same judge, speaking of illustrations of the same doctrine, 
 bonds issued by the King of Prussia, said : ' Cases asserting this common-law rule 
 "This instrument, in its form, is an ac- are Hibblewhite v. McMorine, 6 M. & W. 
 knowledgment by the King of Prussia that 200 ; Enthoven v. Hoyle, 13 C. B. 373 ; 
 the sum mentioned in the bond is due Squire v. Wilton, 1 H. L. C. 333. 
 to every person who shall, for the time * Union L. & T. ''o. i'. Southern Cal. 
 being, be the holder of it. And the prin- Motor Eoad Co. (1892), 51 Fed. Rep. 840. 
 cipal and interest is payable in a certain This case was decided vnth special refer- 
 
 6 
 
82 RAILWAY BONDS AND MORTGAGES. [CHAP. 11. 
 
 nor by the fact that the bond is made subject to the condi- 
 tion of an agreement between the obligor and a trust company, 
 whereby it is provided that a sinking fund of not less than 
 $50,000 nor more than $100,000 in each year shall be applied 
 to the purchase or drawing at par of said bonds, and that the 
 whole issue may be drawn at par on " a given date, or any coupon 
 day thereafter ; " ^ nor by a provision that, if any of the payments 
 of interest cannot be made at the dates named, all interest due 
 shall be paid as soon thereafter as sufficient money has been 
 earned to enable the company to do so.^ 
 
 (b) When the Amount is uncertain so as to render the Bond 
 non^negotiahle. — Where by the terms of the bond the amount 
 payable remains uncertain until the place of payment is fixed by 
 the indorsement of the president of the obligor company, the 
 bond is not a negotiable instrument until the requisite indorse- 
 ment is made.^ 
 
 § 52. On the Law that governs the Question of Negotiability. — 
 The mere fact that an instrument is negotiable by the law of one 
 country will not invest it with the quality of negotiability in 
 another country. The question of its negotiability must be de- 
 termined with reference to the law or custom of the country in 
 which the action on the instrument is brought* 
 
 Foreign bonds, however, will be treated by the courts as nego- 
 tiable instruments, if it is shown that they are customarily circu- 
 lated as such among merchants and men of business.* 
 
 § 53. ^Who are Bona Fide Holders of Bonds generally. — For a 
 general discussion of the question what constitutes a bona fide 
 holder, reference will, of course, be had to treatises on negotiable 
 instruments. The cases cited in this and the following sections 
 are inserted merely to illustrate the application of principles of 
 negotiability to transfers of corporate securities. 
 
 A bondholder who testifies that he purchased his bonds for a 
 price named in good faith in the open market, supposing them to 
 be the valid obligations of the company, and being told that they 
 were, will be held a bona fide holder for value.® 
 
 ence to the Civil Code of California, 2 Stranss v. United Telegraph Co. (1895), 
 
 §§ 3087-3089, 3093 ; but those provisions 164 Mass. 130 ; s. o. 41 N. E. Eep. 57. 
 
 are merely declaratory of the rules of a Parsons v.. Jackson (1878), 99 U. S. 
 
 common law. 434. 
 
 1 Union Cattle Co. v. International * Ricker v. London, etc. Bkg. Co. 
 
 Trust Co. (1889), 149 Mass. 492 ; s. c. 21 (1887), L. R. 18 Q. B. D. 515. 
 
 N. E. Rep. 962. The court held the 6 Venables u. Baring (1892), L. R. 3 
 
 bond negotiable both under the statute Ch. Div. 527. 
 
 (Pub. St., c. 77, § 4) as well as by 6 Galveston, etc. R. Co. v. Cowdrey 
 
 custom. (1870), 11 Wall. 459. 
 
§ 53.] EIGHTS OP BONDHOLDERS. 83 
 
 The rule is not disputed that bonds in the hands of a holder 
 acquiring them for value, before due, without notice, are not sub- 
 ject to the equities with which they were affected as between the 
 original parties or while in the hands of a party holding them.^ 
 
 Tlie transferee of a coupon bond is presumed to be a bona fide 
 holder for value,^ and the transferee of a bona fide purchaser of 
 bonds, even if lie has notice of equities between the obligor and 
 the obligor's original assignee, is himself protected as a bona fide 
 purchaser.^ 
 
 And the possession of a negotiable bond, being strong prima 
 facie evidence of just title in ordinary cases, throws upon the 
 party questioning it the burden to show that the holder had 
 notice of some vice or defect which would vitiate his title.* 
 
 As the mortgage security is a continuing one, and the bonds 
 are negotiable by the company in such a sense as to carry the 
 mortgage security until they have become commercially dishon- 
 ored, or something else has been done to deprive the company of 
 the power of putting them out, a dealer who finds bonds of a given 
 series in the hands of a company, with the certificate of the trus- 
 tee upon them, may buy in good faith with safety. The execution 
 of a junior mortgage is not sufficient to deprive one who there- 
 after purchases from the company bonds secured by a prior 
 mortgage of his privileges as a bona fide holder, unless the 
 junior mortgage in terms limits the lien of the prior mortgage 
 to bonds actually disposed of, and probably not even then. It 
 might fairly be held that the junior mortgagee is guilty of a com- 
 mercial wrong in not protecting himself and the public by refusing 
 to accept his security until the remaining bonds of the earlier 
 series are cancelled, and should be made to suffer accordingly.^ 
 
 Persons doing work for, or furnishing material to, a railroad 
 company receiving its bonds therefor are bona fide holders of the 
 same as much as if they had paid cash for them.^ 
 
 1 Reidt). Bank of Mobile (1881), 70 Ala. L. R. Co., 7 Mo. Ap. 294 ; Galveston Rail- 
 199; s. c. 14 Am. & Eng. R. R. Cas. 554. road v. Cowdrey, 11 "Wall. 459 ; who are 
 
 2 Gibson o. Lenhart (1882), 101 Pa. not : Garrard v. P. & C. R. Co., 29 Pa. St. 
 St. 522. See also Morris Canal & Bkg. Co. 154 ; Am. L., & T. Co. v. St. L. & C. R. 
 V. Fisher (1855), 9 N. J. Eq. 667 ; Same Co., 42 Fed. Rep. 819 ; Smith v. Fla., C. 
 V. Lewis (1858), 12 N. J. Eq. 32-3 ; Car- & W. R. Co., 43 Fed. Rep. 741. 
 
 penter v. Rommel (1862), 5 Phil. 34 ; * Schutte v. Florida Cent. R. Co. 
 
 Gilbough K. Norfolk & P. R. Co. (1877), (1879), 3 "Woods, 692. See also Butler v. 
 
 1 Hughes, 410. Rahm (1877), 46 Md. 541; s. c. 18 Am. 
 
 " Morris Canal, etc. Co. v. Lewis (1858), Ky. Rep. 86. 
 
 12 N. .1. Eq. 323; Union L. & T. Co. v. ^ Claflin v. South Carolina R. Co. 
 
 Southern Cal. Motor Road Co. (1892), 51 (18S0), 8 Fed. Rep. 118, per Waite, C. J. 
 
 Fed. Rep. 840. Cases illustrating who are ^ Hndder v. Kentucky & Great East. R. 
 
 honafide. purchasers ; Tyrell v. Cairo & St. Co. (1881), 7 Fed. Rep. 793. 
 
84 RAILWAY BONDS AND MORTGAGES. [CHAP. II. 
 
 As between the bondholders and persons acquirmg liens on the 
 mortgaged property subsequent to the recording of the mortgage, 
 the rights of bona fide holders of bonds are to be determined as if 
 they were acquired at the date of the recording of the mortgage.^ 
 
 S 54. Bondholders are entitled to assume that Statement in Bonds 
 as to Date of Issue is correct. — Purchasers of bonds issued under 
 a mortgage purporting to be of even date with the bonds are not 
 put on their inquiry as to whether the bonds and mortgage were, 
 in fact, issued simultaneously, or whether in tlie meantime liens 
 of material-men have attached.^ 
 
 § 55. Bona Fide Holders of Bonds not protected, if Issue viras ultra 
 vires. — Persons dealing with the negotiable securities of a cor- 
 poration are chargeable with knowledge of the extent of the power 
 to make them, as conferred by the charter or the general statute 
 by virtue of which the incorporation was effected. This principle 
 is elementary, and its existence is assumed in all the statements 
 of the rights of bona fide holders of bonds irregularly issued. The 
 most difficult cases are those in which it becomes necessary to 
 determine whether the legislative direction which the company 
 has failed to observe is in the nature of a mandatory condition 
 precedent, or of a merely directory formality. In regard to cor- 
 porate securities, the New Jersey Court of Appeals has formulated 
 a general rule on the following terms : " If the power granted by 
 the charter is subject to a condition relating either to the form in 
 which the security shall be made in order to be valid, or to some 
 preliminary proceeding extraneous to the acts of the corporation 
 or its officers, securities not in the prescribed form, or issued 
 without the preliminary proceedings had, are subject to defences 
 in consequence thereof even in the hands of bona fide holders.^ 
 
 Where bonds are shown to have been illegally issued, the bur- 
 den is thrown on the holder of showing that he paid value for 
 them, and had no notice of their illegality ; and bonds issued in 
 violation of a statute limiting the issue to the amount of stock 
 actually paid in at the time are void as between the parties to the 
 transaction.* 
 
 The defect of power will, it seems, be more fatal in proportion 
 as the contract is of a usual or unusual character. Thus, on the 
 ground that a contract of guaranty is outside the ordinary busi- 
 
 1 Belden v. Burke (1894), 72 Hun, 51. Eq. 1895), 31 Atl. Rep. 174, citing State 
 
 2 ISTeilson v. Iowa Eastern Ry. Co. v. Board of Chosen Freeholders (1877), 39 
 (Iowa, 187.';), 8 Am. R.y. Rep. 82. N. J. L. 632; Crampton v. Zabriskie 
 
 8 Haekensack Water Co. v. DeKay (1879), 101 U. S. 601; Atlantic City 
 (1883), 36 N. J. Eq. 548. Waterworks Co. v. Read (1888), 50 N. J. 
 
 1 Bilker v. Guarantee Trust Co. (N. J. L. 665 ; s. o. 15 Atl. Rep. 10. 
 
§ 56.] BIGHTS 0? BONDHOLDERS. 85 
 
 ness of a railroad company, it has been held that the purchaser of 
 bonds of one company guarantied by another is bound to inquire 
 into the corporate powers of the guarantor company. In other 
 words, the commercial character of the bond and guaranty do not 
 relieve a purchaser from the risk of the want of corporate au- 
 thority to execute the bonds ; and although a purchaser for value 
 and without actual notice of the want of authority, he will not be 
 accorded the rights of an innocent purchaser as regards the obli- 
 gation of the guaranty.^ 
 
 § 56. Bona Fide Holders of Corporate Bonds protected if Issue was 
 merely irregular. — In the courts of this country and of England 
 the law is settled that, where the corporation has power under 
 any circumstances to issue negotiable securities, a bona fide holder 
 has a right to presume that they were issued under the circum- 
 stances which give the requisite authority .^ 
 
 The distinction is between limitations and conditions in the 
 statute from which the corporation derives its powers — external 
 matters of which the public had notice by the public record — and 
 acts to be done by the corporation or its officers, as conditions 
 precedent to the making of such securities, in the internal affairs 
 of the company.^ 
 
 The most common example of the rule that a bona fide holder 
 is not obliged to take notice of the " indoor management of the 
 company" is found in that class of cases where certain formalities 
 in the making of corporate contracts are prescribed for the secu- 
 rity of the stockholders. It is well settled that the non-observance 
 
 1 Louisville, etc. R. Co. v. Ohio Valley capital was subscribed and paid up to the 
 Improvement, etc. Co. (1894), 69 Fed. Rep. extent demanded by the charter. The 
 431. The Indiana statute, under which bonds were secured by a mortgage, exe- 
 this case was decided, provided that the cuted with all due formalities, and having 
 directors of a railroad company might, on its face every appearance of having 
 upon the petition of the holders of a been made in strict pursuance of the 
 majority of the stock of the company, power of the company. It was held that, 
 direct the execution of a guaranty of the as against a bona fide holder of these 
 bonds of another company. The guaranty bonds, who had taken them upon the 
 held to be invalid was executed without faith that the mortgage was what it 
 any such petition, and promptly disavowed appeared to be, the company could not de- 
 by tlie stockholders. fend on the ground of imperfections due 
 
 2 Hackensack Water Co. v. DeEay solely to the omission of acts which the 
 (1883), 36 N. J. Eq. 548, citing a large directors should have done in the man- 
 number of cases. In that case a company agement of the private business of the 
 was authorized to issue bonds to an company. 
 
 amount not exceeding two-thirds of its ^ Hackensack Water Co. u. DeKay 
 
 paid-up capital. The directors violated (1883), 36 N. J. Eq. 548; s. p. Baker v. 
 
 their duty by issuing bonds of an amount Guarantee T. Co. (N. J. Eq. 1895), 31 
 
 withiu the limits allowed, but before the Atl. Rep. 174. 
 
EAILWAT BONDS AND MORTGAGES. 
 
 [chap. II. 
 
 of these formalities in issuing bonds will not invalidate them in 
 the hands of a bona fide holder.^ 
 
 Another application of the general principle is that the fact of 
 a bond having been issued for a purpose not authorized by the 
 company's charter will not prevent a bona fide holder from re- 
 covering thereon, provided there is nothing on the face of the 
 instrument to show that it has not been duly issued in conformity 
 with the provisions of the charter.^ 
 
 Thus, where the doctrine is held that it is within the corporate 
 power of a railroad company to sell and guaranty bonds held in 
 the usual course of business,^ a bona fide holder may hold the com- 
 pany on such a guaranty, though it was given for the purpose of 
 enabling the obligor company to raise money for the construction 
 of a road, and such construction was foreign to the objects for 
 which the guarantor company was incorporated.* 
 
 1 Mahoney v. East Holyford Mining 
 Co., L. R. 7 H. L. 893, where Lord 
 Hatherley drew a distinction between 
 acts done in reference to the indoor man- 
 agement of the company, and acts which 
 must be sustained, if at all, by a consid- 
 eration of the contents of the enabling 
 statute and the articles of association. In 
 another case the same eminent judge re- 
 marked that if the party contracting with 
 the directors finds the acts to be within 
 the scope of their power under the deed 
 of settlement, he has a right to assume 
 that all conditions precedent to its exer- 
 cise have been complied with. In re 
 Athenaeum Society, 4 K. & J. 549. 
 
 In the registered deed of settlement of 
 a joint-stock company the directors were 
 authorized to bori'ow on bonds such sums 
 as should from time to time be authorized 
 by a general resolution of the company. 
 A bond, sealed with the common seal, was 
 given by the directors to a banker, with- 
 out a resolution of the company authoriz- 
 ing it. It was adjudged that, under the 
 circumstances, the obligee had a right to 
 presume that there had been a resolution 
 at a general meeting, as the deed of settle- 
 ment prescribed. Chief Justice Jervis, in 
 delivering the opinion of the Court of 
 Exchequer Chamber, said : " The party 
 here, on reading the deed of settlement, 
 would find, not a prohibition from hon'ow- 
 ing, but a permission to do so on certain 
 conditions. Finding the authority might 
 be made complete by a resolution, he 
 
 would have the right to infer the fact of a 
 resolution, authorizing that which on the 
 face of the document appeared to be 
 legitimately done." Eoyal British Bank 
 V. Turquand, 6 El. & Bl. 327. 
 
 " A citizen who deals directly with a 
 corporation, or who takes its negotiable 
 paper, is presumed to know the extent of 
 its corporate power. But when the paper 
 is, upon its face, in all respects such as 
 the corporation has authority to issue, 
 and its only defect consists in some ex- 
 trinsic fact, such as the purpose or object 
 for which it was issued, to hold that the 
 person taking the paper must inquire as 
 to such extraneous fact, of the existence 
 of which he is in no way apprised, would 
 obviously conflict with the whole policy 
 of the law in regard to negotiable paper." 
 Farmers' & Mechanics' Bank v. The Butch- 
 ers' & Drovers' Bank, 16 N. Y. 125. 
 
 Bonds cannot be invalidated in tlie 
 bands of bona fide holders by the fact that 
 they were not submitted by the directors 
 to the vote of the stockholders. Phinizy 
 V. Augusta, etc. R. Co. (1894), 62 Fed. 
 Rep. 678. 
 
 ^ Rule as to all kinds of negotiable 
 securities of corporation so stated by 
 Walworth, Ch., in Stoney v. American L. 
 Ins. Co. (1845), 11 Paige Ch. 635. 
 
 ^ Some courts deny this. See next 
 section and Chapter IV. 
 
 ^ Madison, etc. R. Co. v. Norwich Sav. 
 Soc. (1865), 24 lud. 457. 
 
§ 56.] EIGHTS OP BONDHOLDERS. 87 
 
 The operation of the same principle is also seen in those cases 
 which lay down the rule that, as a railroad company has a general 
 power to make contracts and borrow money, persons dealing in 
 securities issued by it may, in the absence of notice to the con- 
 trary, assume that restrictions upon this power, for example, iu 
 regard to the price at which bonds may be sold, have not been 
 violated.^ 
 
 The reasons for applying the principle are of course much 
 stronger where the bonds expressly recite that they were issued 
 in accordance with the enabling statute. Such a recital is usually 
 found in debentures issued by English joint-stock companies. 
 As to these, the rule is now axiomatic that, where they purport 
 to have been issued pursuant to powers conferred by statute, the 
 company is estopped from alleging against innocent assignees for 
 value that the debentures were issued illegally, and in contraven- 
 tion of the corporate powers.^ 
 
 In this country an express recital of this kind in the bonds 
 themselves is not very common. But it has been held in a New 
 Jersey case that purchasers of bonds which profess to have been 
 issued in accordance with a law limiting the amount of the issue 
 to the amount of the capital paid in have a right to rely on the 
 statement so made. Whether there has been a violation of such 
 a law necessarily depends upon facts within the knowledge of the 
 corporate officers only.^ 
 
 A similar rule has been applied in the case of State-indorsed 
 bonds, in regard to which it has been held that where the statute 
 authorizing the indorsement refers to them as first-mortgage 
 bonds, bona fide holders have a riglit to presume that all pre- 
 cedent requirements had been complied with, and that there were 
 no prior liens upon the railroad. So far as they were concerned 
 
 ^ Ellsworth's Admrs. v. St. Louis, same principle has frequently been applied 
 
 Terre Haute, & Alton R. Co. (1885), 98 in cases relating to municipal bonds. 
 N. Y. 553. The general rule is that where bonds 
 
 2 Webb V. Commissioners, L. R. 5 Q. B. import a compliance with the law under 
 
 642. Other expositions of this principle which they are issued, bona fide purchasers 
 
 will be found in Agar v. Life Assn. Co., are not bound to look further for evidence 
 
 3 C. B. N. S. 725 ; Prince of Wales Assn. of a compliance with tlie conditions of 
 
 Co. V. Harding, El., Bl. & El. 183; In re the grant of power. Commissioners u. 
 
 Land Credit Co., L. R. 4. Ch. App. 460; Aspinwall, 21 How. 539. The only mat- 
 
 In re Gen. Prov. Assn. Co., L. R. 14 Eq. ters open to inquiry are the bona fides of 
 
 507; In re Gen. South Amer. Co., L. E. 2 the purchase, and the statutory authority 
 
 Ch. Div. 337; In re Int. Pulp Co. L. R. to issue the bonds. Rouede v. Mayor, etc. 
 
 6 Ch. Div. 556. of Jersey City (1883), 18 Fed. Rep. 719. As 
 
 ^ Baker v. Guarantee Trust Co. (N. J. to what will put a purchaser upon inquiry, 
 
 Eq. 1895), 31 Atl. 174. See also on effect see Riggs v. Penn. & Nfew Engl. R. Co.. 
 
 of i-ecitals in this section, below. The 16 Fed. Rep. 804. 
 
88 RAILWAY BONDS AND MORTGAGES. [CHAP. II. 
 
 in the case cited below, it was held that this presumption could 
 not be rebutted.^ 
 
 Where railroad bonds are valid on their face, the burden is not 
 upon the holder to show that the provisions of law authorizing 
 their issue have been complied with, but upon the party claiming 
 them to be invalid to show their invalidity.^ 
 
 But a Purchaser with Notice of Circumstances qualifying his 
 nights is not protected as a Bona Fide Purchaser. — The doctrine 
 which validates securities within the apparent powers of the cor- 
 poration, but improperly and therefore illegally issued, applies only 
 in favor of hona fide holders for value. A person who takes such 
 a security with knowledge that the conditions on which alone the 
 security was authorized were not fulfilled is not protected, and 
 in his hands the security is invalid, though the imperfection is in 
 some matter relating to the internal affairs of the corporation, 
 which would be unavailable against a hona fide holder of the 
 same security.^ 
 
 The special relations of the purchasers to the company and to 
 each other will occasionally justify a court in denying them the 
 rights of bona fide holders.* 
 
 The recitals of the bonds may sometimes be such as to operate 
 as implied notice of circumstances qualifying the purchasers' 
 rights. Thus they are put upon inquiry as to the validity of the 
 
 1 Young V. Montgomery & Eufaula E. * Silliman w. Fredericksburg, etc. K. 
 Co. (1875), 2 Woods, 606, where such Co. (1876), 27 Gratt. 119; 17 Am. Ry. 
 holders were held to be entitled to be sub- Kep. 157. There a part of the bonds were 
 rogated to the rights of the State in the held by the president of the company, an- 
 security taken as indemnity for its in- other part jointly by the president and A. , 
 dorsement of the company's bonds. another part jointly by A. and a certain 
 
 2 Nichols V. Mase (1883), 94 N. Y. bank. Under such a showing it was held 
 160 ; s. 0. 17 Am. & Eng. E. R. Cas. 230, that they must be held to have taken 
 affirming Nichols v. Mase (1881), 25 Hun, their bonds with knowledge of the State's 
 640. See also Heinsheimer v. Dayton B. right to forfeit the property and franchises 
 Co. (1888), 3 Ry. & Corp. L. J. 268. of the company if the road was not com- 
 
 s Hackensack Water Co. v. DeKay pleted at a specified date. 
 (1883), 36 N. J. Eq. 548, citing In re Mag- In Chambers v. M. & M. By. Co., 5 B. 
 
 dalena Steam Nav. Co., 6 Jur. N. S. 975 ; & S. 588, a railway company was enipow- 
 
 Woodhanis v. Anglo- Australian Co., 8 Jur. ered by its special act to raise a sum in 
 
 N. S. 148 ; In re South Essex Gas Light addition to its original capital, but not 
 
 Co., 8 Jur. N. S. 357 ; In re Patent Bread until the whole of the capital had been 
 
 Machine Co., 7 Ch. App. 289 ; In re Gen. subscribed for and one-half paid up. The 
 
 Provident Ass. Co., L. R. 14 Eq. 507 ; In court held that no action could be sus- 
 
 re Hercules Ins. Co., L. R. 19 Eq. 302, tained on a bond held by the chairman of 
 
 310; /»)•« International Pulp Co., L. R. 6 the company, who had knowledge of the 
 
 Ch. Div. 556, 560 ; In re Native Iron Ore purpose for which the bond was executed 
 
 Co., L. R. 2 Cli. Div. 345 ; In re S. Amer. and was a party to the re.solutions by which 
 
 Co., L- R. 2 Ch. Div. 337. the secretary was authorized to seal them. 
 
§ 57.] RIGHTS OF BONDHOLDERS. 89 
 
 issue of bonds, where they declare that they are to be payable at 
 the place which shall be determined by the president's indorse- 
 ment, and that the sum payable shall depend on that indorsement, 
 and yet no indorsement appears upon them. Especially will it 
 be impossible for the purchasers of such bonds to claim the rights 
 of bona fide purchasers, if the price at which they were offered 
 for sale was a suspiciously small one, and there are several years 
 of unpaid coupons still attached to them.^ 
 
 (As to imputed notice of statutory provisions which render an 
 issue of bonds ultra vires, see ante.) 
 
 The purchaser of bonds expressly reciting that they are for the 
 principal and interest of other bonds which are held as coUatei'al 
 security, is chargeable with notice of the fact that the indebted- 
 ness secured was overdue, and he is thereby subject to all in- 
 firmities attaching to it, although the date of payment named 
 in the original bonds held as collateral was later than the time of 
 the purchase.^ 
 
 § 67. Rights of Holders where there is an Over-issue. — Where a 
 corporation agrees that the amount of bonds issued shall be 
 limited to a fixed number per mile, whoever purchases any of 
 tlie bonds upon the faith of such contract is as much entitled 
 to the benefit of such a contract as though it had been made 
 with him, and bonds issued in excess are to be postponed in 
 payment to those within the limit.^ 
 
 Where a mortgage of property is made to secure bonds of 
 certain desci'iptions, not exceeding a certain sum in the aggre- 
 gate, and recites other bonded indebtedness covered by prior 
 
 1 Parsons v. Jackson (1878), 99 U. S. nal agreement with the contractor as to 
 
 434. the limitation upon the issue of these 
 
 ^ Higgins V. Lansingh (1895), 154 111. bonds, recognized such agreement. The 
 
 301 ; s. c. 40 N. E. Rep. 362. court said, in giving judgment in favor of 
 
 ' Union Trust Co. v. Nevada & 0. E. such bondholders' lien, in preference to 
 
 Co. (1884), 2U Fed. Rep. 80, modified in that claimed by persons to whom, for 
 
 McMurray v. Moran (1889), 134 U. S. 159. various debts due to them, the company 
 
 In this last case the company had con- had paid bonds which were, in view of 
 
 trapted to build a portion of its road, and this agreement, an over-issue: " The limi- 
 
 agreed that the contract should be paid tation upon the issue of first-mortgage 
 
 partly in bonds to the amount of a fixed Ijonds is the sole condition which gave the 
 
 sum per mile of the road, and that this bonds value and made it possible to nego- 
 
 was to be the liuiit of bonds issued upon tiate them, and whoever purchased any of 
 
 that part of the line. Afterwards the these first- mortgage bonds upon the faith 
 
 company settled with the contractor, and of this railroad companv, as pledged in 
 
 made an agreement by which it could these contracts with Moore, limiting the 
 
 draw money due as a balance on certain of amount of issue, is as much entitled to 
 
 these bonds in the hands of a purchaser the benefit of those contracts in this re- 
 
 from the contractor; and in this and all spect as though they had been made with 
 
 other negotiations subsequent to the origi- the purchaser himself." 
 
90 RAILWAY BONDS AND MOETGAGES. [CHAP. II. 
 
 liens, and that the new bonds were to be substituted for the old, 
 the lien of the new mortgage is confined to an amount which, 
 added to the prior specified incumbrances, shall not exceed the 
 limit fixed. But this is the sole restriction implied by the con- 
 tract. Subsequent incumbrancers will not be permitted to assert 
 a priority as against the holders of that portion of the issue 
 which is not needed for the purpose of paying off the old bonds. 
 Such surplus bonds will take precedence in the hands of bona fide 
 holders, whether sold before or after the execution of the junior 
 mortgage.^ 
 
 In a controversy between bondholders,, part of whom claimed 
 that certain bonds of higher numbers were an over-issue, and 
 therefore not entitled to any payment from the proceeds of the 
 road on account of issue being limited to $16,000 per mile, it 
 was held by the court that, since the holders of bonds issued in 
 excess of this amount had purchased them in good faith and 
 after ascertaining that the Governor had indorsed them, and, as 
 the law authorizing their issue required, had recited in his in- 
 dorsement that he had done so in pursuance of law, and all the 
 statements on bonds and mortgages which put the purchasers on 
 inquiry lulled and satisfied inquiry, they were not bound to look 
 any further. These bonds of the higher numbers, or excessive 
 issue, if it were such, were therefore entitled to share pro rata 
 with the others. The purchasers were entitled to presume that, 
 as the bonds bore the indorsement of the State, the Governor 
 had not violated his duty, and that there was evidence on file to 
 the effect that a sufficient number of miles had been constructed 
 to authorize him to indorse the bonds.^ 
 
 1 Claflin V. South Carolina R. Co. this contention, and said : " The second 
 
 (1880), 8 Fed. Rep. 118, 122. mortgagee voluntarily permitted the first 
 
 In this case a first mortgage was exe- mortgage to stand as it was. In this the 
 
 cuted to secure an issue of bonds to a stated second mortgage bondholders are repre- 
 
 amount by a railroad company. The bonds sented and bound by their trustees, 
 
 were to he used in substitution for bonds of Whatever the company could do with 
 
 a former issue, and any not used in that the first bonds before, it might do after, 
 
 way were to be left in the hands of the so far as any express limitations in the 
 
 company, to be used as they should see second mortgage were concerned. The 
 
 proper. A holder of bonds under a second lien of the first mortgage to its full amount 
 
 mortgage, which recognized the first mort- was recognized, and nothing was said or 
 
 gage as a lieu to the extent of the amount done having directly any intention to limit 
 
 of bonds authorized upon it, maintained the power of the company under it." 
 
 that bonds of the first issue, used by the ^ Stanton et al. Trustees v. Alabama & 
 
 company as pledges and otherwise \o Chattanooga R. Co. (1875), 2 Woods, 523. 
 
 secure loans to the company, were bonds See also State ex rel. Plock & Co. v. Cobb 
 
 issued contrary to the limitations of the (1879), 64 Ala. 127 ; 7 Am. & Eng. R. R. 
 
 mortgaje, and should not be preferred to Cas. 147. 
 these bonds. Waite, C. J., ruled against 
 
§ 58.J EIGHTS OF BONDHOLDERS. 91 
 
 In a case in Kentucky, where a mortgage was made for 
 1400,000, to insure four hundred bonds, twenty extra bonds were 
 issued by mistake and wei'e purchased bona fide. There was a cer- 
 tificate to each of these bonds that it was secured by mortgage, 
 and that the amount of such bonds issued and to be issued was not 
 to exceed $400,000. The bonds were not numbered consecutively, 
 but in two classes, for which reason holders could not detect the 
 over-issue by examination of the mortgage, as the latter did not 
 desci'ibe the manner in which the bonds were numbered. As to 
 the company, it was held to be estopped to deny that the twenty 
 extra bonds were secured by the mortgage, and that by this 
 estoppel the mortgagor gave the holder of them an equitable 
 lien, which, though unrecorded, was superior to the lien given by 
 unrecorded income-bonds subsequently issued, but inferior to that 
 given by a subsequently recorded mortgage. Further, that where 
 the purchaser of the third-mortgage bonds had no notice of the 
 over-issue, but had notice of the income bonds, the holder of the 
 latter would be substituted to the legal advantage which the pur- 
 chaser acquired by the record of the third mortgage, and was 
 consequently entitled to a preference over the holders of the 
 extra bonds.^ 
 
 The Massachusetts statute of 1854, ch. 286, limited the issue of 
 the bonds to the amount of capital actually paid in. A company 
 having issued largely in excess of that amount, the court held 
 that the illegality of those bonds was apparent on their face, and 
 open equally to the knowledge of the party who issued and the 
 party who received them, and that, though the company did not 
 seek to repudiate them, one who had taken a valid second mortgage 
 containing no contracts of warranty, but not made expressly subject 
 to the former mortgage, might take advantage of their invalidity .^ 
 
 § 58. Rights of Bona Fide Holders not affected by Misapplication 
 of Proceeds of Bonds by Original Holders or others. — The misap- 
 propriation of the proceeds of a sale of bonds cannot affect a 
 purchaser^ unless he has notice of such misapplication.* 
 
 1 Stephens v. Benton (1863), 1 Duv. (1882), 103 111. 187; s. c. 7 Am. & Eng. 
 (Ky.)112. E. R. Gas. 101; Stradley v. Pailthorp 
 
 2 Comm. u. Smith (1865), 10 Allen, (1893), 96 Mich. 287; s. c. 55 N.W.Eep. 
 448. The provision here construed is in- 807 ; Thompson et al. v. Lambert et al. 
 corporated in the Ma,ss. Pub. Stat, of (1876), 44 Iowa, 239 ; Morton u. New Or- 
 1882, ch. 112, § 62. See Peatman v. leans & Selma Ry. Co. (1885), 79 Ala. 
 C'enterviUe Light, Heat, & Power Co. 590. See also Haley v. Halifax St. Ey. 
 (Iowa), 69 N. W. Eep. 541, holding the Co., 25 Nova Scotia L. E. 140. 
 
 bonds issued in excess to be valid to the ex- * Morton v. New Orleans & Selma Ey^ 
 
 tent of the consideration received for them. Co. (1885), 79 Ala. 590. 
 ^ Peoria & S. E. Co. v. Thompson 
 
92 RAILWAY BONDS AND MORTGAGES. [CHAP. 11. 
 
 Bona fide purchasers of bonds are not affected in their rights 
 by the fact that the original holders, who were the president and 
 vice-president of the company, consented to the misappropriation 
 of the proceeds.^ 
 
 Such a purchaser is not bound to see to the application of the 
 money to the purposes of the corporation.^ 
 
 "The duty of the company to pay the bonds, and the duty of the 
 chancellor to subject to their payment the security pledged for that 
 purpose, cannot be called in question because of the subsequent 
 default of the company in the performance of a public duty." ^ 
 
 That bonds were issued and exchanged for State bonds in order 
 that the stockholders of the company might use the proceeds of 
 the State bonds for their own private advantage, and that they 
 were so used contrary to the statute authorizing the exchange, is 
 no defence against the bonds of the company in the hands of a 
 bona fide holder.* 
 
 § 59. No Recovery on Bonds where the Trustee's Certificate is a 
 Forgery. — Wherever a part of the bonds, upon the genuineness of 
 which the obligatory effect of the bonds depends, is a forgery, the 
 general principle is applicable, that no liability can be predicated 
 upon a forged negotiable instrument, even if the holder is an in- 
 nocent purchaser. Thus where each bond provides on its face 
 that it " shall not become obligatory until it shall have been 
 authenticated by a certificate indorsed thereon, duly signed by 
 the trustee," a purchaser must at his peril ascertain whether the 
 certificate is genuine. If he takes a bond relying on the assur- 
 ance of his vendor that it is genuine, and the signature of the 
 trustee proves to be a forgery, the fact that he paid value and 
 bought in good faith cannot relieve him from the consequences of 
 his omission to make proper inquiries.^ 
 
 § 60. Amount recoverable on Bonds virbere they have been pur- 
 chased at less than the Face Value. — In a late case in the Supreme 
 Court of the United States the rule as to the amount which a 
 holder of bonds is entitled to recover was stated as follows : " By 
 the decisive weight of authority in this country, where negotiable 
 paper has been put in circulation, and there is no infirmity or de- 
 fence between the antecedent parties thereto, a purchaser of such 
 
 1 Belden v. Burke (1894), 72 Hun, 61. 5 Maas v. Missouri, Kansas, & Texas 
 
 2 Philadelphia & Sunbury R. Co. v. Ry. Co. (1880), 83 N. Y. 223. As to 
 Lewis (1859), 33 Pa. St. 33. liability of trustee to bondholder upon a 
 
 8 Newport & Cincinnati Bridge Co. v. certificate on bond that it is secured by 
 
 Douglass (1877), 12 Bush (Ky.), 673. a mortgage which in fact was never ex- 
 
 * Schutte 0. Florida Cent. K. Co. eouted, see Miles v. Roberts (1896), 76 
 
 (1879), 3 Woods, 692. Fed. Rep. 919. 
 
§§ 61, 62.] RIGHTS OF BONDHOLDERS. 93 
 
 securities is entitled to recover thereon, as against the maker, the 
 whole amount, irrespective of what he may have paid therefor.^ 
 
 This rule avails in favor of a purchaser from one who has 
 bought at a pledgee's sale.^ 
 
 As to whether one who holds bonds as collateral security for a 
 debt smaller in amount than the face of the bonds should be 
 allowed to recover the whole amount due thereon, the courts are 
 at variance. The generally received doctrine is believed to be 
 that the pledgee should recover the full amount due on the in- 
 struments, though in excess of the debt secured thereby. 
 
 § 61. Title of Bona Fide Purchaser not affected by Fraud of Person 
 intrusted with the Negotiation of the Bonds. — The entire absence 
 of delivery of negotiable instruments has, in a majority of cases, 
 been regarded as a sufficient defence even against an innocent 
 holder, unless the maker has executed an instrument perfect in 
 form, and been negligent in letting it go out of his possession.^ 
 But when a corporation has made its negotiable bonds perfect in 
 form, payable to bearer, and has caused them to be certified by 
 the trustee, as evidence that they have become obligatory, and 
 has placed them in possession of its president, with authority to 
 exchange them for the benefit of the company alone, the company 
 cannot defeat the title of an innocent purchaser for value and 
 before maturity by showing that its president has fraudulently 
 pledged or sold such negotiable bonds for his own private use, 
 with its knowledge or consent.* 
 
 § 62. Purchase of Bonds by Directors of a Company at a Dis- 
 count. — Upon the question whether a director may purchase the 
 bonds of his own company at a discount, the authorities are in 
 
 ^ Wade V. Chicago, Springfield, & St. quired in the ordinary course of business, 
 Louis R. Co. (1894), 149 U. S. 327, citing and not at a sale upon the pledgor's 
 Cromwell v. Sao County (1877), 96 U. S. default in the payment of his debt, as in 
 51; Fowler y. Strickland (1871), 107 Mass. the cases cited in § 56, ante. Butitisnot 
 552 ; Moore i;. Baird (1858), 30 Pa. St. quite apparent why the orip^nal and the 
 138; Banger. Flint (1876), 25 Wis. 544; second transferees, if, as the court de- 
 Nat. Bank of Mich. v. Green (1871), 33 clared, they were both in the position of 
 Iowa, 140; Baily v. Smith (1863), 14 6on(i_^de purchasers, should not both have 
 Ohio St. 396. been entitled to recover the face value of 
 
 2 Morris Canal, etc. Co. v. Lewis (1858), the bonds. Admitting that the transfer 
 12 N. J. Eq. 323; Wade v. Chicago, by the pledgee was wrongful, the trans- 
 Springfield, & St. L. R. Co. (1894), 149 ferees were surely in at least as strong a 
 U. S. 327. In Grand Rapids, etc. R. Co. position as one who acquires lost or stolen 
 U.Sanders (1877), 54 How. Pr. 214, the commercial paper payable to bearer, 
 court restricted the recovery of one who ' Long Island Loan & Trust Co. v. 
 bought from a transferee of the pledgee to Columbus, C. & I. C. Ey. Co. (1895), 65 
 the amount actually paid to such trans- Fed. Rep. 455. 
 feree. The bonds were apparently ac- * Ibid. 
 
94 RAILWAY BONDS AND MORTGAGES. [CHAP. II. 
 
 conflict. In New York it is held that a director cannot purchase 
 such bonds below par except on peril of the avoidance of the 
 transaction by the courts on the application of the corporation, 
 hut he is entitled in a foreclosure suit to prove as many bonds as 
 he may hold as pledgee, and share in the distribution up to the 
 amount of the debt secured by the pledge.^ 
 
 By a subsequent decision, however, the application of this rule 
 would seem to be confined to cases where the director is dealing 
 directly with the company, and not to cases where he is dealing 
 wholly with third persons to whom he owes no duty.^ 
 
 In Illinois it has been quite recently ruled that a director may 
 purchase claims against his corporation at a discount and enforce 
 them in full, provided he acts fairly and for the interest of the 
 corporation, and the corporation is given a fair opportunity to be- 
 come the purchaser itself, and cannot or will not embrace the 
 opportunity.^ 
 
 Such is apparently the rule in Kansas also.* 
 
 § 63. Amount recoverable on Bonds tainted ■with Fraud in their 
 Issue. — Bonds given by a company in pursuance of a construction 
 contract fraudulent and void, on account of its being made with 
 another company in which the directors of the obligor corpora- 
 tion are interested, are themselves void, and cannot be enforced 
 unless they have passed into the hands of innocent holdei's for 
 value. But a holder who does not receive them in the ordinary 
 course of business may recover upon them to the extent of the 
 value of the work actually done by the construction company, 
 such value to be estimated as on a quantum meruit without 
 regard to the prices fixed by the contract.^ 
 
 § 64. Innocent Purchaser of Stolen Bonds entitled to recover 
 thereon. — A purchaser of negotiable bonds before maturity, in 
 the usual course of business, acquires a good title thereto, although 
 
 1 Dunoomb v. New York, etc. E. Co. knew nothing about the intended sale of 
 (1881), 84 N. Y. 190 ; s. 0. 4 Am. & Eng. the securities. 
 
 R. R. Cas. 293. « St. Louis, Fort Scott, & Wichita R. 
 
 2 Inglehart v. Thousand Islands Hotel Co. v. Chenault et al. (1886), 36 Kan. 
 Co. (1888), 109 N. Y. 454, where the 51, 57. 
 
 president of the company was allowed to ^ Thomas v. Brownville, Fort Kearney, 
 
 make a profit out of a judgment against it. & Pac. R. Co. (1883), 109 TJ. S. 522, 
 
 8 Higgins i>. Lausingh (1895), 154 approving Wardell w. Railroad Co. (1877), 
 
 111. 300, 386 ; s. c. 40 N. E. Rep. 362. 4 Dill. 330, 339 ; Wardell v. Railroad Co. 
 
 The court, however, thought the case a (1880), 103 U. S. 651, 659, where the 
 
 proper one for denying this privilege to plaintiflf was allowed to recover a fair 
 
 the director, as at the time of the pur- compensation for his personal services 
 
 chase he practically controlled the corpora- under a contract in itself fraudulent, 
 tion, and the other members of the board 
 
§65.J 
 
 EIGHTS OP BONDHOLDERS. 
 
 95 
 
 they may have been stolen ; and in a suit by the purchaser the 
 burden of proof that he did not acquire them in good faith is 
 upon the defendant.^ 
 
 § 65. Rights of Purchaser of Bonds the Coupons of which are 
 overdue. — A purchaser of negotiable bonds in good faith and for 
 their full market value does not lose his rights as a lona fide 
 holder merely by reason of the fact that some of the interest 
 coupons attached thereto are past due and unpaid at the time of 
 the purchase.^ 
 
 A few cases countenance the doctrine that this fact is suffi- 
 ciently suspicious to put the purchaser on inquiry, and to impair 
 his title to that extent ; but these are opposed to the general cur- 
 rent of authority.^ 
 
 1 Murray v. Lardner (1864), 2 Wall. 
 110, containing a review of the previous 
 authorities in this country and in Eng- 
 land ; same principle, Hotchkiss v. Na- 
 tional Banks (1874), 21 Wall. 354 ; 
 Consolidated Association, etc. v. Avegno 
 (1876), 28 La. Ann. 552 ; Dutchess Co. 
 Insurance Co. u. Hachfield (1874), 1 Hun, 
 675 ; Venables v. Baring Bros. (1892), 
 L. R. 3 Ch. 527. Compare Seybel v. 
 National Currency Bank (1873), 54 N. Y. 
 288, a case where United States bonds 
 had been stolen, and State of California v. 
 Wells, Fargo, & Co. (1860), 15 Cal. 336, 
 where the instruments were warrants of 
 State indebtedness. 
 
 In Lcdwich v. McKim (1873), 53 N". Y. 
 307, incomplete bonds, stolen from the 
 office of a Southern railroad company by 
 Federal soldiers during the war, and sold 
 in New York, were held not to be good 
 against the company even in the hands of 
 lona fide purchasers. This ruling was 
 based upon the principle that the rule 
 that the bona fide holder of an incomplete 
 instrument, negotiable but for some omis- 
 sion capable of being supplied, has an 
 implied authority to supply the omission 
 and to hold the maker thereon, only 
 applies wliere the latter has, by his own 
 act or the act of another, authorized, con- 
 fided in, or invited with apparent author- 
 ity by him, put the instrument in circula- 
 tion as negotiable. See also Jackson v. 
 Vicksburg, Shreveport, & Texas R. Co. 
 (187.')), 2 Woods, 141. 
 
 In Maas v. Missouri, K. & T. R. Co. 
 (1880), 83 N. Y. 223, affirming Same v. 
 
 Same (1877), 11 Hun, 8, it was held that 
 neither the payment of value nor good 
 faith on the part of the purchasers of 
 bonds which had been stolen, and a seal 
 and certificate forged thereon to appar- 
 ently complete them, created a cause of 
 action ; nor did the failure of the obligor, 
 after discovering that the bonds had been 
 lost or stolen, to notify the public of that 
 fact constitute negligence that would 
 make it liable. 
 
 2 Cromwell v. County of Sao (1877), 
 96 U. S. 51 ; Morgan i). United States 
 (1885), 113 U. S. 476 ; Railroad Co. v. 
 Sprague (1880), 103 U. S. 756 ; Thompson 
 V. Perrine (1882), 106 U. S. 589 ; McLane 
 V. Placerville & Sacramento Valley R. Co. 
 (1885), 66 Cal. 606 ; National Bank, etc. 
 V. Kirby (1871), 108 Mass. 497; State 
 ex rel. Plock & Co. o. Cobb (1879), 64 Ala. 
 127 ; s. c. 7 Am. & Eng. R. R. Cas. 147 ; 
 Boss V. Hewitt (1862), 15 Wis. 260 ; Long 
 Island Loan & Trust Co. a. Columbus, C. & 
 I. C. Ry. Co. (1895), 65 Fed. Rep. 455. 
 
 ^ First National Bank, etc. v. Commis- 
 sioner (1869), 14 Minn. 77 ; Morton v. 
 New Orleans & Selma R. Co. (1885), 79 
 Ala. 590; Parsons ■». Jackson (1878), 99 
 U. S. 434. In the last case, however, the 
 fact of overdue coupons being still at- 
 tached to the bonds was only one of 
 several circumstances of suspicion, and it 
 is scarcely an authority for the naked 
 proposition that, as n, matter of law, the 
 purchaser is put upon inquiiy by this one 
 circumstance alone. Indeed, to put this 
 construction on the decision would render 
 it quite irreconcilable with the other rul- 
 
96 RAILWAY BONDS AND MORTGAGES. [CHAP. II. 
 
 § 66. Pledgees of Bonds as Bona Tide Holders. — Whether a 
 pledgee of bonds is to be regarded as a bona fide holder must be 
 determined by the principles accepted on this subject in the juris- 
 diction where the question arises, and as to some of those prin- 
 ciples there is, as is well known, an irreconcilable difference of 
 opinion between the courts of this country. 
 
 The weight of authority is in favor of the view that a pledge of 
 bonds for an antecedent debt secures to the pledgee the rights of 
 a bona fide holder, as long as the debt for which they were hypothe- 
 cated remains unpaid, provided the other elements of an innocent 
 transfer are present.^ 
 
 Thus one who in good faith advances money upon a sham note 
 secured by a pledge of bonds is a bona fide holder of such bonds, 
 where he has no knowledge of fraud in their issuance.^ 
 
 But this doctrine has been repudiated in several States, among 
 others in Alabama, where it has been held that taking bonds as 
 collateral security for an antecedent debt is not a purchase for 
 value, even when forbearance or indulgence is granted, a distinc- 
 tion being taken between the acquisition of bonds in this manner 
 and receiving them in payment of a pre-existing debt.^ 
 
 A like rule prevails in New York.* 
 
 § 67. Rights of Purchasers of Pledged Bonds. — The ordinary 
 rule is that a pledge of commercial paper does not carry the 
 power to sell or dispose of it. 
 
 ings of the same court cited in the last i Allen v. Dallas & Wichita R. Co. 
 note, especially Cromwell v. County of (1878), 3 Woods, 316 ; Baker v. Guaran- 
 Sac, as well as with the general doctrine tee T. Co. (X. J. Eq., 1895), 31 Atl. Rep. 
 now accepted in respect to negotiable 174; Allaire v. Hartshorne (1847), 21 
 instruments, that suspicion of defect of N. J. L. 665 ; Hayden, Trustee, o. Lincoln 
 title, or the knowledge of circumstances City Electric, etc. Ry. Co. (1895), 43 Neb. 
 that would excite suspicion in the mind 630; s. 0. 62 N. W. Rep. 73. See also Porter 
 of a prudent man, or even gross negligence v. Pittsburg Bessemer Steel Co. (1887), 
 on the buyei''s part, will not affect his title. 120 U. S. 649, holding the pledgees of 
 Nothing short of bad faith on the part of railroad bonds for advances of money 
 the purchaser of commercial paper passing already made and to be made to be used 
 by delivery, and fair upon its face, will in the construction of the railroad to be 
 destroy its validity, and the burden of hona fide \io\Aers and entitled to priority 
 proof lies on the person who assails the in the distribution of sale under fore- 
 title of the party in possession. See closure of mortgage. 
 Murray v. Lardner (1864), 2 Wall. 110 ; 2 Thomson-Houston Electiic Co. u. 
 Phil. & Sunbury R. Co. v. Lewis (1859), Capitol Electric Co. (1894), 65 Fed. Eep. 
 33 Pa. St. 33 ; Galveston Riiilroad v. 341 ; s. c. 12 C. C. A. 643. 
 Cowdrey (1870), 11 Wall. 459 ; Spence v. » Reid v. Bank of Mobile (1883), 70 
 Mobile & Montgomery R. Co. (1885), 79 Ala. 199 ; 14 Am. & Eng. R. R. Cas. 
 Ala. 576 ; Goodman v. Simonds (1857), 554. 
 
 20 How. 343 ; Goodman v. Harvey, 4 Ad. * Dnncomb v. Xew York, etc. K. Co. 
 
 & El. 870 ; Long Island Loan & Trust (1881), 84 X. Y. 190 ; s. c.4 Am. & Eng. 
 
 Co. V. Columbus, C. & I. C. Ry. Co. K. R. Cas. 293. 
 (1895), 65 Fed. Rep. 455. 
 
§ 67.] EIGHTS OP BONDHOLDERS. 97 
 
 In Illinois this rule has been applied to a sale of railroad 
 bonds.i 
 
 But by most of the courts in which the subject has been dis- 
 cussed the bonds of corporations have been excepted from the 
 operation of the rule. Thus in New Jersey it has been held that 
 when a corporation which has pledged its bonds as collateral for 
 a loan upon a note, and at its maturity failed to pay the note, the 
 pledgee is not bound to sue the corporation upon the note, but 
 can, as usual with pledges, on his own motion, and with proper 
 notice, sell the bonds pledged, and the purchaser at such sale 
 acquires the whole interest in the bonds, and can enforce them 
 against the corporation for their full amount. Such a deposit, it 
 was said, differs entirely from a deposit of ordinary bonds, mort- 
 gages, promissory notes, and like choses in action, which, in the 
 absence of an agreement to that effect, the creditor cannot expose 
 to sale, because they have no market value, and it cannot be pre- 
 sumed that it was the intention of the parties thus to deal with 
 them.^ 
 
 In New York also the rule is that pledged railroad bonds may 
 be sold at public auction, after the debt is due, upon a demand of 
 payment and due notice of the time and place of sale, unless a 
 sale is restricted by positive stipulation.^ 
 
 The Supreme Court of the United States has taken the same 
 view, declaring a contention that the pledgee could not sell 
 pledged bonds after the company had been adjudicated bankrupt 
 to be quite untenable. The ground taken was, the bonds were 
 negotiable instruments, passing by delivery, and that, even where 
 there is no expressed stipulation in contracts of pledge, to the 
 effect that the pledgee may sell on default of the pledgor, such a 
 right is presumable from the nature of the transaction.* 
 
 Where bonds are purchased in proceedings to foreclose the lien 
 of the pledgee, the purchaser is entitled to have his rights as an 
 owner for value enforced ; ^ and the fact that, at the foreclosure. 
 
 ^ Joliet Iron & Steel Co. v. Scioto Fire road bonds was assumed iu the argument ; 
 
 & Brick Co. (1876), 82 111. 548. but the above case was not referred to, 
 
 ^ Morris Canal & Bkg. Co. v. Lewis nor was anything said in regard to the 
 
 (1858), 12 N. J. Eq. 323. See also Morris general rule and the exception in the case 
 
 Canal & Bkg. Co. v. Fisher (1855), 9 N. J. of bonds. 
 Eq. 667. * Jerome v. McCarter (1876), 94 U. S. 
 
 8 Brown v. Ward (1854), 3 Duer, 660, 734. 
 also distinguishing railroad bonds from ^ Newport & Cincinnati Bridge Co. v. 
 
 other commercial paper. In Grand Eapids, Douglass (1877), 12 Bush, 673; s. o. 18 
 
 etc. R. Co. V. Sanders (1877), 54 How. Pr. Am. Ky. Rep. 221. 
 214, the power of the pledgee to sell rail- 
 
98 RAILWAY BONDS AND M0ETGAGE9. [CHAP. U, 
 
 the bonds brought a very small price will not affect the pur- 
 chaser's title, unless some fraud is shown.^ 
 
 In a bill for redemption it was held that bonds given as col- 
 lateral security only, and taken by the holder with notice, should 
 be treated as valid only to the extent of the debt due,^ the balance 
 being in such case held by him in trust for the pledgor. Other 
 authoi-ities limit the amount of the recovery to the debt actually 
 secured.^ 
 
 The divergence of opinion is clearly one rather of practice than 
 principle, as in any event the pledgee cannot by the suit become 
 the beneficial owner of a sum larger than the debt. 
 
 One who places in the hands of another, upon information from 
 the latter that certain bonds had been placed in a bank as col- 
 lateral, money with which to purchase them, is not bound by an 
 agreement made by this other as to the bonds. He is a pur- 
 chaser from the bank, and can enforce the bonds accordingly.* 
 
 In a suit where it was held the purchaser at a foreclosure sale 
 under a decree whereby a second mortgagee was not cut off, could 
 redeem from such second mortgage by paying the amount due, it 
 was held that bonds given as collateral security only were bind- 
 ing to the extent of the debts secured thereby, and not as valid 
 for their face.* 
 
 Bonds of a railroad company properly and legally executed and 
 secured by mortgage, if placed with the president of the company, 
 not due as appears on their face, and by him pledged as collateral 
 to a broker, a purchaser in good faith, for value of these bonds, 
 when regularly and properly sold by the broker, will obtain a 
 clear title to the bonds, and be entitled to have enforced for his 
 benefit the mortgage which secures them.^ 
 
 § 68. 'Whether the Benefit of the Mortgage clear of Equities 
 between the Original Parties passes -with a Transfer of the Bonds. — 
 
 "■ Wheelwright v. St. Louis, etc. Trans- ' ' Where this class of paper, complete in 
 
 portation Co. (1893), 56 Fed Rep. 164. form, and transmissible by delivery, is 
 
 2 Simmons v. Taylor (1885), 23 Fed. placed by the maker or owner in the 
 
 Rep. 849, 857. custody of one who is thereby clothed 
 
 ' Jesup V. City Bank (1861), 14 Wis. with an apparent power of disposition, 
 
 331 ; Newport & Cincinnati Bridge Co. v. and the custodian avails himself of the 
 
 Douglass (1877), 12 Bush, 673 ; s. c. 18 opportunity thus afforded him to nego- 
 
 Am. Ry. Rep. 221. tiate it to an innocent party, the title of 
 
 ' Miller v. Rutland & W. R. Co. the holder is not to be tested by principles 
 
 (1867), 40 Vt. 399. applicable to stolen securities, but by 
 
 6 Simmons v. Taylor (1885), 23 Fed. principles properly applicable to the 
 
 Rep. 849. transaction as it actually occurred. " See 
 
 8 Pittsburg, C. C. & St. L. Ry. Co. v. Railway Go. v. Sprague, 103 U. S. 756 ; 
 
 Lynde et al. (Ohio, 1896), 44 N. E. Rep. Fearing v. Clark, 16 Gray (Mass.), 74. 
 596. The court said, in the opinion : 
 
§ 69.] EIGHTS OF BONDHOLDERS. 99 
 
 This is a question which can scarcely be said to be settled, at least 
 if a corporate mortgage is to be placed on the same footing as 
 mortgages given to secure ordinary notes or other evidences of 
 indebtedness.^ 
 
 But the Supreme Court of Illinois, one of those which has 
 adopted the doctrine that the mortgage is subject to equities even 
 when a bona fide holder of the instrument secured is suing 
 thereon, has expressly decided that another rule is properly 
 applied in the case of railroad coupon bonds, intended to be 
 thrown on the market and held as permanent investments, and 
 that to hold otherwise would be doing violence to the manifest 
 intention of the parties, and would unquestionably lead to very 
 disastrous consequences.^ 
 
 § 69. Doctrine of Lis Pendens does not apply. — Where a bond- 
 holder acquires bonds pending a litigation, the bonds being nego- 
 tiable in form, it is immaterial whether or not he has notice of a 
 foreclosure suit, for instance, as the doctrine of lis pendens does 
 not apply to a purchaser of bonds for value.* 
 
 The doctrine of lis pendens does not apply to negotiable paper 
 transferred before due, in due course of business, for value.* 
 
 1 As to the conflict of opinion in regard " Fanners' & Merchants* National Bank 
 
 to such mortgages, see Daniel's Negot. v. Waco Electric Ey. & Light Co. et al. 
 
 Instr., sect. 834. (1896, Tex. Ct. App.), 36 S. W. Rep. 131, 
 
 " Peoria & Springfield R. Co. v. Thomp- 135. 
 son (1882), 103 111. 187, disapproving on * Pittsburg, C. C. & St. L. Ey. Co. v. 
 
 this point Chicago, etc. Ey. Co. v. Lynde et al. (Ohio, 1896), 44 N. E. Eep. 
 
 Loewenthal (1879), 93 111. 433. 596. 
 
100 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. III. 
 
 CHAPTER III. 
 
 RIGHTS OF COUPON-HOLDERS. 
 
 i 70. Introductory. 
 
 71. Kate of Interest on Bonds before 
 
 and after Maturity. 
 
 72. Whether Coupons are entitled to 
 
 Days of Grace. 
 
 73. Interest on Coupons after Default. 
 
 74. !Negotiability and Transfer of Cou- 
 
 pons generally. 
 
 75. Recovery on Detached Coupons. 
 
 § 76. Rights of Purchasers of Stolen or 
 Lost Coupons. 
 
 77. WhetherCoupous have been bought 
 
 or paid. 
 
 78. Rights of Persons participating 
 
 in Arrangements for funding 
 Coupons. 
 
 79. Beooupment of Defaulted Interest 
 
 in an Action to recover Dam- 
 ages for failing to accept Bonds. 
 
 § 70. Introductory. — It is not within the scope of this work 
 to narrate the history of the rates of interest upon railroad bonds 
 in this country, nor to discuss the principles which govern in 
 determining what rates have been and should be obtained. The 
 capital which has built the roads of this country is, speaking 
 generally, represented by their bonded debt. The non-payment of 
 interest has been the usual basis for railway foreclosures and 
 reorganizations. Such interest is usually evidenced by coupons. 
 
 The term " coupon " or " interest warrant " is applied to an in- 
 strument attached to a bond, evidencing the right to interest upon 
 the bond for a specific period of the life of the bond, usually 
 six months, sometimes three months, and rarely one year. This 
 instrument, as it is substantially complete in itself, and capable of 
 being severed from the bond, is often dealt with and treated for 
 many purposes as independent of the bond to which it was origi- 
 nally attached.^ 
 
 The general idea as to coupons and the bonds to which they 
 are attached which has governed the courts has been that they 
 are of modern invention, and should have the effect intended by 
 
 1 In Sanborn v. Clough (1887), 64 
 N. H. 315 : s. c. 10 Atl. Rep. 678, it was 
 held that coupons being, in legal effect, 
 equivalent to separate bonds for instal- 
 ments of interest, passed to a legatee as 
 bonds under a clause by which he was to 
 receive " all the rest of all the testator's 
 money in banks, stocks, and bonds." 
 
 In Clokey v. Evansville & T. H. R. 
 Co. (1897), 44 N. Y. Supp. 631, the Ap- 
 pellate Division of the Supreme Court of 
 New York held that the holder of a de- 
 tached coupon could not recover the 
 amount of his coupons of a company 
 which had guarantied the bonds on this 
 guaranty. O'Brien, J., dissented. 
 
§ 71.] EIGHTS OF COUPON-HOLDERS. 101 
 
 the parties, and be governed by the usage of the country, and 
 not by sharp rules of law applicable to instruments of a different 
 nature. Thus the possession of coupons is prima facie evidence 
 that the holder of them is holder of the bond (or was so, at least, 
 when they were cut off), and as such entitled to receive the 
 interest.^ 
 
 § 71. Rate of Interest on Bonds.^ — (a) Stipulation to pay In- 
 terest in Gold, Meaning of. — A contract to pay 8 per cent in 
 gold is not a contract to pay more than 8 per cent, for the reason 
 that when the interest falls due gold may happen to be at a pre- 
 mium. Whether interest in gold is better than interest in currency 
 depends upon contingencies not to be foreseen.^ 
 
 (b) Rate of Interest cannot be changed to Prejudice of other 
 Lienors. — Where an extension of the time of payment of bonds 
 has been agreed upon between the bondholders and the company, 
 with the consent of a majority of its stockholders (the interest to 
 be payable in gold instead of in currency as theretofore), but the 
 agreement was to be subject to confirmation by the courts, the 
 consideration that it may prove an injury to the second-mortgage 
 bondholders, as being tantamount to increasing the rate of interest, 
 has been held to be probably a sufficient reason for a court's with- 
 holding its approval* 
 
 But this ruling might, it seems, have been made without any 
 qualification, as it has been expressly decided that an enactment 
 providing for a substitution of bonds of a company to secure a 
 loan from the State, the new bonds to bear an increased rate of 
 interest, is, to the extent of the increase, an invasion of the rights 
 of holders of first-mortgage bonds who had agreed to allow the 
 State security to have priority over their mortgage, inasmuch as 
 these holders had the right to claim that only bonds for so much 
 a mile, as agreed upon, and bearing the first-named lesser rate of 
 interest, should be made superior to theirs.^ 
 
 1 See cases cited in notes to § 74, post. the ground stated in the text. In Reinaeh 
 
 See article on "Coupons" by Charles u. Meyer (1877), 55 How. Pr. 283, this 
 
 W. Hassler in 4 Cent. L. J. 315 (1877); niling was approved and acted upon hy 
 
 Durant v. Iowa County (1864), 1 Woolw. another New York court. 
 
 69 ; s. 0. 8 Fed. Cas. 117, Case No. 4189. ^ Campbell v. Texas & N. 0. R. Co. 
 
 ^ As to the rate of interest as affecting (1872), 2 Woods, 263. 
 
 the validity of bonds, see Chap. I. § 9. As to the inability of the legislature to 
 
 8 Young V. Montgomery & Eufaula R. validate, as against non-assenting bond- 
 Co. (1875), 2 Woods, 606, 614. holders, a scheme of reorganization which, 
 
 * Taylor v. Atlantic & Great Western among other features, contemplates an ex- 
 
 Ey. Co. (1877), 55 How. Pr. 275. The change of the original bonds for new ones 
 
 Ohio court ratified the agreement, while at a lower rate of interest, see Chap, 
 
 that New York court declined to do so on XXVII. (Reorganization). 
 
102' 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. m. 
 
 (c) Party subrogated to Rights of Lienor can claim only Legal 
 Rate of Interest. — Where a junior incumbrancer protects the 
 property against a forced sale by a prior lien, and then becomes 
 subrogated to the rights of the latter to the extent of the &um paid, 
 the court in reimbursing him for this outlay should allow what- 
 ever is the legal rate of interest at the time of the contract, and 
 not the rate stipulated for by the prior lienor.^ 
 
 (d) Rate of Interest on Bonds not paid at Maturity. — In some 
 States the rate of interest on commercial paper which is not paid 
 at maturity is the statutory rate, whether that is higher or lower 
 than the contract rate. But the doctrine most generally accepted 
 is that the contract rate is payable after, as well as before, matu- 
 rity, though the rate fixed by the general law may be lower .^ 
 
 1 Memphis & Little Rock Railroad v. 
 Dow (1887), 120 U. S. 287 ; s. o. 7 Sup. 
 Ct. Rep. 482. In this case the facts were 
 that a reorganized company had covenanted 
 in its mortgage that the interests conveyed 
 were free from incumbrances, and that it 
 would warrant and defend the title against 
 all lawful claims whatsoever. The debt 
 due the State by the terms of her contract 
 with the old company bore interest at the 
 rate of 8 per cent per annum until paid. 
 The entire claim with interest at that rate 
 was paid by the trustees. The constitu- 
 tion of the State prohibited any contract 
 for interest above 10 per cent, and fixed 
 the legal rate at 6 per cent. By statute, 
 judgments on decrees upon contracts 
 bearing more than 6 per cent interest 
 were to bear the same interest as might be 
 specified in such contracts, and the rate 
 of interest was to be expressed in all such 
 judgments and decrees, while all other 
 judgments carried 6 per cent. The court, 
 in considering what these trustees were 
 entitled to in the way of interest, nsed the 
 following language : " The right of subro- 
 gation is not founded on contract. It is a 
 creature of equity, is enforced solely for 
 the purpose of accomplishing the ends of 
 substantial justice, and is independent of 
 any contractual relations between the par- 
 ties. All that these trustees can in good 
 conscience demand is reimbursement for 
 their outlay in protecting the mortgaged 
 property against the prior lien of the State. 
 When relief to that extent is accorded they 
 will have no just ground to complain, 
 especially as the debt held by the State 
 
 was not the personal debt of the reorganized 
 company. There was no agreement be- 
 tween them and this company in respect 
 to interest upon any sum they might be 
 compelled to pay in order to relieve the 
 property from prior incumbrances." The 
 trustees, therefore, were adjudged to have 
 a lien upon the mortgaged property for 
 the whole amount actually paid to the 
 State, with interest thereon from the date 
 of such payment at the rate established by 
 law in cases where there was no agreement 
 as to rate. 
 
 "^ Cases applying this rule to bonds are 
 Cromwell v Sac Co. (1877), 96 U. S. 
 51 ; Newport & Cincinnati Bridge Co. v. 
 Douglass (1877), 673 ; 18 Am. Ry. Eep. 
 221 ; Langston v. South Carolina R. Co. 
 (1870), 2 S. 0. 248 ; Cheever v. Rut- 
 land, etc. E. Co. (Vt., 1869), 4 Am. Ry. 
 Rep. 291 ; Beckwith v. Trustees (1860), 29 
 Conn. 268. In the last case the court 
 very clearly explains the rationale of the 
 doctrine as follows : " This, though an ar- 
 bitrary rule, will generally operate justly, 
 and is much more convenient than any 
 other which could be adopted. But the 
 usual rate of interest at any place, which, 
 of course, is but another mode of speaking 
 of the legal rate at such place, is itself 
 as arbitrary a provision of law as the dam- 
 ages dependent upon it, and is by no 
 means uniform. It is not only known to 
 differ in different States and countries, 
 generally depending upon positive stat- 
 utes, but may vary from the ordinary or 
 more general rate by the parties agreeing 
 upon a lesser rate, or, if authorized so to 
 
§72.] 
 
 EIGHTS OF COUPON-HOLDBES. 
 
 103 
 
 Where the bonds and coupons are both silent as to the rate of 
 interest after the coupons are in default, interest is payable at the 
 rate fixed by the law of the place where the coupons are payable ; ^ 
 until the claim is merged in judgment, after which the law of the 
 former governs.^ 
 
 But if the parties contract with reference to the law of one State 
 and appoint a place of payment in another State, merely for the 
 reason that it is a convenient financial centre, interest will be 
 adjudged at the rate established in the former State.^ 
 
 (e) Coupons falling due after Maturity of Principal owing to 
 Election to have Principal due are deemed to be cancelled. — The 
 election of the bondholders to treat a default in the payment of 
 interest as a forfeiture of the contracts, so far as they prescribe 
 the length of time for which the bonds were to run, operates prima 
 facie to cancel all coupons representing instalments of interest 
 not then due.^ 
 
 § 72. Whether Coupons are entitled to Days of Grace. — The 
 
 do, as in the case under consideration, ty 
 their agreement upon a higher rate for 
 money borrowed for some particular pur- 
 pose, or by a particular class of persons or 
 corporations ; as is the case in respect to 
 money borrowed by railroad companies 
 under the act of 1849. Eev. Stat. (Comp. 
 1854), 750, § 23. And the different rates 
 thus agreed upon become the legal rates of 
 interest in respect to particular contracts 
 during their existence. And the rates of 
 interest thus established by agreement 
 must be presumed to be just and equitable 
 under the circumstances ; that is, a fair 
 compensation in such case for the use of 
 money between the parties during the 
 time the contract had to run. Then why 
 should we not presume, as between the 
 same parties, that such interest continues 
 a, fair compensation for its use until the 
 contract is performed, as well after as be- 
 fore the day when the principal was to he 
 paid, and thus permit the rate of interest 
 agreed upon to control the damages to be 
 paid for the detention of the money, as 
 well as tlie interest for its use ? There is 
 no equity in favor of one rate of interest 
 rather than another, where they are both 
 legal, and within reasonable limits, and 
 the defendants ought not to complain so 
 long as it is in their power, by paying the 
 principal, to protect themselves from pay- 
 
 ing what they thought a reasonable rate 
 when they borrowed the money." The 
 statutes and decisions of each State where 
 this question arises must, however, be ex- 
 amined. It was held error to allow inter- 
 est on past due coupons in Buffalo Loan 
 Co. V. Medina Gas & Electric Light Co. 
 et al., 12 App. Div. 199. 
 
 1 Scotland County v. Hill (1889), 132 
 U. S. 107 ; s. c. 10 Sup. Ct. Eep. 26. 
 
 2 Ibid. 
 
 ^ Codman v. Vermont & Canada E. Co. 
 (1879), 16 Blatch. 165 ; Cheever v. Ver- 
 mont, etc. Ey. Co. (1869), 4 Am. Ry. Eep. 
 291 ; Cromwell u. County of Sac (1877), 
 92 U. S. 51 ; Jackson & Sharp Co. v. Bur- 
 lington, etc. E. Co. (1887), 29 Fed. Eep. 
 474. See also Fauntleroy v. Hannibal 
 (1879), 5 Dill. 219 ; s. c. 8 Fed. Cas. 
 1093, Case No. 4692, affirmed in Han- 
 nibal .,. Fauntleroy, 105 U". S. 408 ; 
 Phelps u. Lewiston (1878), 15 Blatch. 
 131 ; s. c. 19 Fed. Cas. 450, Case No. 
 11,076; Clarke v. Janesville (1856), 1 
 Bi.ss. 98 ; s. 0. 5 Fed. Cas. 962, Case No. 
 2854 ; First National Bank of North Ben- 
 nington V. Bennington, 16 Blatch. 53 ; 
 s. c. 9 Fed. Cas. 97, Case No. 4807. 
 
 ^ Newport & Cincinnati Bridge Co. v. 
 Douglass (1877), 12 Bush, 673 ; s. o. 18 
 Am. Ey. Rep. 221. 
 
104 RAILWAY BONDS AND MORTGAGES. [CHAP. HI. 
 
 New York courts have taken the ground that coupons payable to 
 bearer at a fixed time and place, being in legal effect promissory 
 notes, necessarily have all the characteristics of such instruments, 
 and are entitled to the benefit of the days of grace allowable on 
 bills and notes payable at a given day or time.^ 
 
 But the Supreme Court of Massachusetts is of a different opinion, 
 holding that the reasons why days of grace were allowed on foreign 
 bills of exchange payable at sight or at a future day certain have 
 little application to coupon bonds issued by corporations, which 
 usually have a long time to run and are commonly bought as an 
 investment.^ 
 
 § 73. Interest on Coupons after Default. — That interest is re- 
 coverable upon coupons from the time they are in default is 
 universally conceded.^ 
 
 This interest is allowed by way of damages as a compensation 
 for the delay of payment.* 
 
 The allowance of interest on coupons after demand and refusal 
 of payment is not open to objection on the ground that it is an 
 infringement of the laws against usury .^ 
 
 The default on coupons payable on presentation and demand is 
 only complete from the time of presentation and demand, and the 
 interest on them will not begin to run till then.® 
 
 1 Evertson v. National Bank (1876), 66 strong (1862), 44 Pa. St. 63 ; Phila., etc. 
 N. Y. 14, holding that one purchasing he- R. Co. v. Fidelity, etc. T. Co. (1884), 105 
 fore the days of grace expire is a purchaser Pa. St. 216 ; Phila., etc. R. Co. v. 
 before maturity. This is immaterial in Knight (1889), 124 Pa. St. 58 ; Lang- 
 New York now, as days of grace have been ston v. S. 0. R. Co. (] 870), 2 S. C. 
 abolished. 248 ; Ashuelot R. Co. v. Elliot (1874), 
 
 2 Chaffee v. Middlesex R. Co. (1888), 57 N. H. 397; s. o. 13 Am. Ry. 491 ; 
 146 Mass. 224 ; s. 0. 16 N. E. Rep. 34. Humphreys v. Morton (1881), 100 111. 
 In this case the only question actually 592 ; Phila. & Read. R. Co. v. Smith 
 decided was that interest warrants payable (1884), 105 Pa. St. 195 ; s. c. 29 Am. & 
 to bearer, when detached from the bonds Eng. R. R. Cas. 400 ; Gibert v. Wash. & 
 with which they were issued, were not ne- Gt. So. R. Co. (1889), 33 Gratt. 686 ; 
 gotiable notes within the meaning of Mas- s. c. 1 Am. & Eng. R. R. Cas. 473. 
 sachusetts Rev. Stat., ch. 77, § 9 ; but the * Connecticut Mut. Life Ins. Co. v. 
 court expressly dissented from the New Cleveland, Cincinnati, etc. R. Co. (1863), 
 York case just cited. The statutes of each 41 Barb. 9 ; Codman v. Vermont, etc. 
 State must be consulted on this point. R. Co. (1879), 16 Blatch. 165, ad- 
 
 ^ Dan. Neg. Inst., sect. 1513; Town hered to in Codman et al. v. Veimont & 
 
 of Genoa v. Woodruff (1875), 92 U. S. Canada R. Co. (1879), 17 Blatch. 1 ; s. 0. 
 
 502 ; Aurora City v. West (1868), 5 Fed. Cas. 1162, Case No. 2936 ; Cheever 
 
 7 Wall. 82; Commonwealth v. Chesa- u. Vermont, etc. R. Co. (Vt., 1869), 4 Am. 
 
 peake & Ohio Canal Co. (1870), 32 Ry. Rep. 291, and cases cited above. 
 Md. 501 ; Welsh v. St. Paul, etc. ' County of Beaver v. Armstrong 
 
 R. Co. (1879), 25 Minn. 314; North (1862), 44 Pa. St. 63. 
 Penn., etc. R. Co. «. Adams(1867), 64Pa. « Corcoran «. Ohio, etc. Canal Co. 
 
 St. 94; County of Beaver Co. v. Arm- (1874), 1 MacArthur (D. C), 358 ; Aurora 
 
§ 74.] EIGHTS OP COUPON-HOLDERS. 105 
 
 On the other hand, if there are no funds at place of payment, 
 interest runs after maturity without presentation ; i though if the 
 company has funds sufficient to meet the coupons and other obli- 
 gations at the place named for payment, it will not be held liable 
 for interest merely because the money for the payment of the 
 coupons is not segregated from its other funds.^ 
 
 § 74. Negotiability and Transfer of Coupons generally. — (a) 
 When Coupons are negotiable. — The rules of law applicable to 
 coupons of municipal bonds and railroad bonds are in the main 
 the same, the decisions as to each class of coupons being cited 
 indifferently by the courts irrespective of the character of the 
 obligor. 
 
 Interest coupons are instruments of a peculiar character. The 
 title passes from hand to hand by delivery.^ 
 
 Bonds executed by a railroad company may not be put upon 
 the market until one or more coupons have matured. The com- 
 pany may cut them off when it sells the bonds, or leave them to 
 be accounted for in the purchase.* 
 
 When payable to order and indorsed in blanks or payable to 
 bearer, they are transferable by delivery, and subject to the same 
 rules and regulations, so far as respects the title and rights of 
 the holder, as negotiable bills and promissory notes. Holders are 
 as effectually shielded from the defence of prior equities between 
 the original parties, if unknown to them at the time of the trans- 
 fer, as the holder of any other class of negotiable instruments. 
 A transfer of possession is presumptively a transfer of title, but 
 does not import a guaranty of payment.^ 
 
 City V. West (1868), 7 Wall. 82 ; Pekin land R. Co. (1857), 43 Me. 232 ; Jack- 
 
 V. Reynolds (1863), 31 111. 529 ; Whit- son v. York & Cumberland R. Co. (1858), 
 
 aker «. Hartford, Prov. & F. R., etc. Co. 48 Me. 147 (see a note on this case by 
 
 (1864), 8 R. I. 47 ; Nat. Exchange Bk. Mr. Redfield in 2 Am. Ry. Law, 595) ; 
 
 V. Hartford, Prov. & F. K. Co. (1866), 8 Nat. Exchange Bank v. Hartford, Prov. & 
 
 R. I. 375 ; Fitchett v. North Penn. F. R. Co. (1866), 8 R. I. 375 ; Haven 
 
 R. Co. (1863), 5 Phil. 132. v. Grand Junction R. & Depot Co. 
 
 1 North Penn., etc. R. Co. v. Adams (1871), 109 Mass. 88 ; Grand Rapids & Ind. 
 (1867), 54 Pa. St. 94 ; Marlor v. Texas, R. Co. v. Sanders (1877), 54 How. Pr. 
 etc. R. Co. (1884), 21 Fed. Rep. 383. 214 ; Hand v. Sav. & Charleston R. Co. 
 
 2 Emlent). Lehigh Coal & Navigation (1879), 12 S. C. 314; Same v. Same 
 Co. (1864), 47 Pa. St. 76. (1881), 17 S. C. 219 ; 12 Am. & Eng. 
 
 8 Ketchum v. Duncan (1877), 96 U. S. R. R. Gas. 495 ; County of Beaver v. 
 659, 662, affirming Duncan v. Mobile & Armstrong (1862), 44 Pa. St. 63 ; Thorn- 
 Ohio R. Co. e< ai. (1877), 3 Woods, 567; son v. Lee Co. (1865), 3 WaU. 327; 
 8. c. 8 Fed. Cas. 19, Case No. 4138. Connecticut, etc. M. Co. v. C. C. & 
 
 * Railway Co. v. Sprague (1880), 103 C. R. Co., 41 N. Y. 921 ; Ide v. Pas- 
 
 U. S. 756 ; s. c. 26 L. ed. 554. sumpsic, etc. R. Co., 32 Vt. 297 ; Gelpcke 
 
 ' Ketchum v. Duncan (1877), 96 TJ. S. v. City of Dubuque, 1 Wall. 175 ; Meyer 
 
 659, 662; Myers v. York & Cumber- d. City of Muscatine (1863), 1 Wall. 384 ; 
 
106 EAILWAT BONDS AND MOETGAGES. [CHAP. III. 
 
 Railroad coupons are not rendered non-negotiable by the fact 
 that they are not made payable to a particular person.^ 
 
 The principle that coupons are negotiable instruments has no 
 application in a case where the rights of the parties are dependent 
 merely on the true construction of a public statute. A provision 
 in such a statute waiving the liens of the State in favor of certain 
 bonds to be issued, " so as to make such bonds and interest to 
 accrue thereon" preferred liens "until such bonds and interest 
 shall be fully paid," is a waiver only in favor of the bonded debt 
 and simple interest that may accrue thereon, and does not extend 
 to interest that may accrue on the coupons.^ 
 
 (b) When Coupons are not negotiable. — An interest warrant or 
 coupon not made payable to bearer or order is not negotiable when 
 separated from its bond, although the latter is negotiable.* 
 
 Coupons which, by appropriate references, are made subject to 
 conditions in the mortgage under which the time of payment of 
 the debt secured thereby can be changed and postponed at the 
 option of a majority of the bondholders lack one of the essential 
 characteristics of negotiable paper.* 
 
 § 75. Recovery on Detached Coupons. — Coupons are written 
 contracts for the payment of a definite sum of money on a day 
 named, being purposely drawn and executed in such a form and 
 manner that they may be separated from the bonds with which 
 they are negotiated. After being so separated, they retain the 
 same nature and character as to security as the bonds, and do 
 not become simple contracts.^ 
 
 They are attached to bonds in the expectation that they will be 
 paid as they mature, however distant the period fixed for the pay- 
 ment of the principal. Upon being severed from the bonds, they 
 cease to be incidents of the bonds, and become, in fact, indepen- 
 dent claims. They do not lose their validity if for any cause the 
 bonds are cancelled or paid before maturity, or their negotiability, 
 or their capacity to support separate actions.^ 
 
 Seybert v. City of Pittsburg (1865), 1 of bonds of a railroad company cannot sue 
 
 "Wall. 272 ; Van Hosti'up t: Madison City on them and enforce his judgment against 
 
 (1863), 1 "Wall. 291, 294 ; Mercer County the income of the company. Roberts v. 
 
 V. Haokett (1863), 1 Wall. 83; Murray Denver, L. & G. B. Co. (Colo. App.), 46 
 
 V. Lardner (1864), 2 Wall. 110 ; Sheboy- Pac. Rep. 880. 
 gan County v. Parker (1865), 3 Wall. 93. * McClelland v. Norfolk Southern R. 
 
 1 Smith V. Clark County (1873), 54 Mo. Co. (1888), 110 N. Y. 469 ; s. c. 18 N. E. 
 58. Rep. 237. 
 
 2 Commonwealth v. Chesapeake & Ohio ^ City v. Lamson (1869), 9 Wall. 477. 
 Canal Co. (1870), 32 Md. 501. « Clark v. Iowa City (1874), 20 Wall. 
 
 3 Evertson v. National Bank (1876), 66 586 ; s. P. Nat. Exchange Bank v. Hart- 
 N. Y. 14. A holder of overdue coupons ford, P. & F. R. Co. (1866), 8 R. I. 
 
§75.] 
 
 EIGHTS OP COUPON-HOLDERS. 
 
 107 
 
 To enable the holder to maintain such a suit, it is not necessary 
 that the bond itself should be produced. As was said by Mr. 
 Justice Nelson in a leading case : " These coupons or warrants 
 for the interest were drawn and executed in a form and mode for 
 the very purpose of separating them from the bond, and thereby 
 dispensing with the necessity of its production at the time of the 
 accruing of each instalment of interest, and at tlie same time to 
 furnish complete evidence of the payment of the interest." ^ 
 
 375 ; State v. Spartanburg & N. R. Co. 
 (1874), 8 S. C. 129 ; Tyrell v. Cairo & 
 St. Louis R. Co. (1879), 7 Mo. App. 294; 
 McClelland v. Norfolk Southern R. Co., 
 110 N. Y. 469 (see note to this case 1 
 Lawyers' Reports Ann. 299); Evertson v. 
 Nat. Bank (1876), 66 N. Y. 14 ; Dun- 
 can V. Mobile, etc. R. Co. (1877), 3 
 Woods, 567 ; Stevens v. New York, etc. 
 R. Co. (1876), 13 Blatch. 412. In Sewall 
 V. Brainerd (1865), 38 Vt. 364, though the 
 bond was to pay A. B. or bearer ' ' with 
 interest at the rate of 7 per cent per 
 annum, payable semi-annually on presen- 
 tation of the interest coupons hereto 
 attached," it was held that, as the coupons 
 were made payable to bearer, and as the 
 coupon only was required to be presented 
 when paid, it was more reasonable to sup- 
 pose the intention was to pay the coupon 
 to the holder of the coupon in case it should 
 be severed and sold without the bond. 
 
 In Maine the authorities indicate some 
 wavering of opinion. At first the Supreme 
 Court adopted the commonly received doc- 
 trine as to the potency of custom to impart 
 a negotiability to the coupons, the ruling 
 in Myers v. York & C. R. Co. (1857), 43 
 Me. 232, being that, in the absence of proof 
 of custom as to the negotiability of coupons 
 or interest warrants disconnected from the 
 bonds with which they were issued, an in- 
 dependent negotiable character cannot be 
 given, them without the interposition of 
 the legislature, unless the intention of the 
 party issuing them distinctly so appears 
 upon the face of the coupon itself. But 
 when the question again came a few years 
 later, in Jackson v. York, etc. R. Co., 48 
 Me. 147 (1858), it was held (though by a 
 divided court), that, in the absence of some 
 statutory provision, no action could be 
 maintained, in the name of an assignee, 
 Ulion interest coupons which contain no 
 negotiable words, nor any language from 
 
 which it can be inferred that it was the 
 design of the company to treat them as 
 negotiable paper, or as creating any obli- 
 gation distinct from and independent of 
 the bonds to which they were severally 
 attached. The court based its opinion on 
 the theory that each of the coupons in 
 question should continue to be part of the 
 instrument until it became due and pay- 
 able, and rejected evidence of custom as 
 bearing on the character of the coupons, 
 asserting that whether paper is negotiable 
 or not is a question of law, to be determined 
 from the paper itself by fixed and well- 
 settled rules. The earlier case was not 
 referred to by the court, but its concession 
 that custom alone can render such instru- 
 ments negotiable was clearly inconsistent 
 with this ruling as to evidence. The doc- 
 trine thus formulated was adhered to in 
 Augusta Bank v. City of Augusta (I860), 
 49 Me. 507, where it was denied that a 
 coupon, not payable to order or bearer, or 
 containing other equivalent words, was 
 negotiable. The court said that a coupon 
 to be negotiable must be so upon its face 
 without reference to any other paper, and 
 that a coupon not negotiable on its face 
 will not be held to be so upon proof that 
 similar coupons have been passed from 
 hand to hand as if negotiable. 
 
 In an early case in the Court of Common 
 Pleas of Ohio it was held that an interest 
 coupon, which has no payee designated 
 therein, is not a negotiable instrument, 
 and that the purchaser of such a coupon 
 cannot, by reason of the interest so ac- 
 quired, maintain an action in his own 
 name to enforce the mortgage. Wright «. 
 Ohio, etc. R. Co. (1857), 1 Disney, 465. 
 1 Commrs., etc. v. A spin wall (1858), 
 21 How. 539 ; s. p. Aurora City o. West 
 (1868), 7 Wall. 82; Commonwealth v. 
 Chesapeake &' Ohio Canal Co. (1870), 32 
 Md. 501. 
 
108 RAILWAY BONDS AND MOETGAGES. [CHAP. III. 
 
 While coupons are recognized as choses in action having many 
 of the incidents of commercial paper, transferable from hand to 
 hand when payable to bearer, and bearing interest because pay- 
 able on a given day, yet, though detached from the bond, they 
 still remain a part of it in contemplation of law, and are protected 
 by and subject to the covenants which it contains.^ 
 
 A severed coupon being an independent obligation, the debt 
 evidenced by the coupon cannot be recovered as interest in an 
 action on the bonds after the Statute of Limitations has run 
 against the coupon itself.* 
 
 § 76. Rights of Purchasers of Stolen or Lost Coupons. — It has 
 been seen in the preceding chapter that the fact of a negotiable 
 bond having been stolen will not invalidate the title of a bona fide 
 purchaser who subsequently acquires it before its maturity. The 
 same rule holds in regard to the interest coupons of such bonds, 
 provided they are drawn in such terms as to be themselves nego- 
 tiable instruments.^ 
 
 If the purchaser has bought stolen bonds with the coupons 
 attached, some of them overdue and some of them not yet ma- 
 tured, he takes a clear title as to the latter only.* 
 
 When the maker of a bond has notice that it has been stolen, 
 he is bound to act on the supposition that the paper is still in the 
 possession of the thief, and to refuse to pay it to any holder who 
 cannot show that he is an innocent purchaser.* 
 
 And if such maker pays to the purchaser any overdue coupons, 
 he will be liable to the real owner whether the purchaser is a 
 bona fide holder or not, as these coupons wiU then have lost all 
 their virtue as negotiable paper.^ 
 
 One who purchases a non-negotiable coupon detached from 
 
 1 state V. Spartanburg, etc. E. Co. stolen bond, upon his tendering a bond of 
 (1874), 8 S. C. 129. indemnity, was not appropriate in a ease 
 
 2 Griffin v. Macon Co. (1888), 36 Fed. where the lost bonds are numerous and 
 Eep. 885, distinguishing these cases from will not mature for several years. An 
 those in which no separate contract to amendment to the petition so as to make 
 pay instalments of interest is annexed to it ask for an injunction against the obli- 
 the obligation. gor to prevent it from paying any of the 
 
 ^ Evertson v. National Bank (1876), bonds until his right as against the origi- 
 
 66 N. Y. 14. nal owner should be determined, with an 
 
 * Gilbough u. Norfolk, etc. Co. (1877), order requiring the obligor to make each 
 
 1 Hughes, 410. claimant a party, as each bond or coupon 
 
 5 Bainbridge v. Louisville (1885), 83 should be presented, so that he might 
 Ky. 285. litigate his rights with the real owner, 
 
 6 Bainbridge v. Louisville (1885), 83 the case being kept on the docket for 
 Ky, 285. In this case the court eon- that purpose, was thought to be a more 
 sidered that the usual course of requiring effectual mode of securing the various 
 the obligor to pay the original owner of a parties. 
 
§ 77.] EIGHTS OP COUPON-HOLDERS. 109 
 
 a negotiable bond acquires no title thereto if it has been 
 stolen.^ 
 
 The holder of lost coupons, upon tendering indemnity, is en- 
 titled to recover thereon with interest from the date of demand.^ 
 
 § 77. Whether Coupons have been bought or paid. — It happens 
 not infrequently that persons interested in the financial condition 
 of a company take up maturing coupons themselves, or advance 
 money to the company for that purpose. It then becomes essen- 
 tial to determine the precise character of the transaction. This, 
 it is plain, must be, in every case, a matter of evidence as to the 
 intention and understanding of the parties interested. But the 
 effect to be given to such evidence is materially different accord- 
 ing as the person who furnished the money is seeking to establish 
 his position as a secured creditor against other secured creditors, 
 or merely against unsecured creditors. The rule, as now settled, 
 has been thus stated by the New York Court of Appeals : In- 
 terest coupons received by one who has advanced the money 
 with which they were taken up, under an agreement that they 
 were to be delivered to him uncancelled as security for the ad- 
 vances, are, as against the corporation, valid securities in the 
 hands of the holder, and a mortgage upon the corporate property 
 given to secure the bonds may be enforced for his benefit. But 
 as between him and bondholders who received the amount of 
 their coupons in ignorance of the transaction, and supposing them 
 to have been paid, the latter have the prior equities ; and if the 
 proceeds of sale after foreclosure are not sufficient to pay the face 
 of the bonds, the company cannot share in the proceeds.^ 
 
 The latter half of this rule is a special application of the 
 familiar principle that a court of chancery will uphold a mort- 
 gage for the benefit of a party who has advanced money upon it 
 when equity requires it ; but will not convert a payment into a 
 purchase in favor of a party advancing the money, when there is 
 a superior countervailing equity in another party.* 
 
 1 Evertson v. National Bank (1876), showed that there was no equity in any 
 
 66 N. Y. 14. of them superior to that of the pur- 
 
 ^ Fitchett V. Northern Penn. R. Co. chaser, and said: "The corporation can- 
 
 (1683), 5 Phil. 132. not ohject in the face of their agreement. 
 
 ' Union T. Co. v. Monticello & Port The third-mortgage bondholders cannot 
 
 Jervis Ry. Co. (1875), 63 N. Y. 311. object, for these coupons are a part of the 
 
 * Miller v. Rutland & Washington R. original mortgage debt under this prior 
 
 Co. (1867), 40 Vt. 399.. In this case the mortgage. If it appeared that Bradley 
 
 purchaser took up the coupons on the represented to them when they took their 
 
 faith of an agreement that he should have mortgage that the coupons were paid, the 
 
 the benefit of the mortgage. The court case might be different. The third mort- 
 
 thus examined all the adverse claims, and gages are in no worse condition if these 
 
110 
 
 RAILWAY BONDS AND MOETGAGfES. 
 
 [chap. in. 
 
 A review of the cases shows that the rights of the parties de- 
 pend principally upon whether the agreement under which the 
 coupons were taken up was known to the other secured creditors 
 or not.i 
 
 The theory which underlies the cases denying the lender equal 
 rights with other secured creditors is that, although such arrange- 
 ments, as between him and the company, are allowable, — a legiti- 
 mate mode of furnishing pecuniary aid to the company, changing 
 the form, but not increasing the amount of the actual debt, — the 
 lender is estopped, as against the secured creditors who supposed 
 that the coupons surrendered by them were paid in the usual 
 course of business, from coming forward as a purchaser and 
 assignee, and diminishing the dividend which such creditors are 
 entitled to receive from the proceeds of the mortgaged property .^ 
 
 coupons are allowed as now presented, 
 than if they still remained unpaid at- 
 tached to the bonds ; neither are the first 
 mortgagees, so far as it appears. But it 
 is said that these coupons being taken up 
 in the manner they were, the bondholders 
 under the first mortgage had a, right to 
 suppose it was a payment, and may have 
 thereby been induced to postpone pro- 
 ceedings to foreclose their mortgage. This 
 is a mere conjecture. It may be so, and 
 may not. But whether it is or not, if 
 this mortgage is redeemed, it is no preju- 
 dice to them to have these coupons al- 
 lowed, as they will get their whole debt. 
 It cannot be assumed that it will not be 
 redeemed. But if it is not redeemed, it 
 does not appear, nor is it claimed in argu- 
 ment, that the property is insufficient in 
 value to pay the whole of this first-mort- 
 gage debt, including these coupons ; so 
 that in either event the first-mortgage 
 bondholders will receive their whole pay. 
 No equity should be crowded out when 
 there is enough to pay all. This will not 
 be done even in a case of a subsequent 
 lien ; much less against a party who holds 
 a part of the original first-mortgage debt. 
 But it is insisted that the allowance of 
 these coupons interferes with the chance 
 of the first-mortgage bondholders obtain- 
 ing this property by foreclosure for less 
 than its value. That is a chance that 
 must be postponed till all equitable liens 
 are discharged. It cannot be allowed to 
 stand in the way of an equity so obvious 
 
 as this. A mortgagee who wishes to 
 speculate out of the mortgage security by 
 getting more than his full pay, at the 
 sacrifice of a holder of a part of the mort- 
 gage debt, must do it without the aid of a 
 court of equity. 
 
 1 Circumstances which were held suffi- 
 cient in a leading decision to warrant the 
 inference that coupons were bought were, 
 that the money was not received by the 
 company itself or any one under a duty to 
 act for it ; that the transferees of the 
 coupons had repeatedly informed the hold- 
 ers of the bonds and the rest of the cou- 
 pons, that a purchase, not a payment, was 
 intended ; that the coupons in question 
 had been pre-served uncancelled. Ketchum 
 V. Duncan (1878), 96 U. S. 659, affirming 
 Duncan v. Mobile, etc. R. Co. (1877), 3 
 Woods, 567. This case was followed in 
 Claflin V. South Carolina R. Co. (1880), 8 
 Fed. Rep. 118, 138, where Chief Justice 
 Waite, upon a review of the evidence, es- 
 pecially the publicity given to the fact that 
 the transaction was intended as a purchase, 
 reached the conclusion that it should be 
 treated as in law « purchase. The fact 
 that the agreement was undisclosed was 
 also relied on in Cameron v. Tome (1886), 
 64 Md. 507 ; s. c. 24 Am. & Eng. R. K. 
 Cas. 213 ; 2 Atl. Rep. 837 ; Union T. Co. 
 V. Monticello, etc. Ry. Co. (1875), 63 N. Y. 
 311 ; South Covington Ry. Co. v. Gest 
 (1888), 34 Fed. Rep. 628. 
 
 2 Haven v. Grand Junction R. Co. 
 (1871), 109 Mass. 88. 
 
§77.] 
 
 EIGHTS OP COUPON-HOLDERS. 
 
 Ill 
 
 Tliis consideration is entitled to special weight in the case of 
 subsequent purchasers of the bonds and coupons, whose estimate 
 of the value of these evidences of debt must be more or less in- 
 fluenced by the tact that a portion of the interest is or is not still 
 unpaid, and is decisive where the coupons have been paid by one 
 who has guarantied their payment.^ 
 
 Where the person asserting himself to be the owner of the 
 coupons is the financial agent of the company charged with 
 the duty of receiving and applying its earnings to the payment 
 of its debts, including coupons as they mature, and such earnings 
 have been blended and confused with his private funds, there is 
 no presumption in his favor, arising from his retention and pos- 
 session of the coupons. Nor can a resolution passed by the 
 company, after the coupons were actually taken at his instance 
 and to serve his purpose, have any effect upon the relations be- 
 tween the parties, for those were fixed at the time the coupons 
 were surrendered by the holders.^ 
 
 Where the lien of the coupons has once ceased to exist, it 
 cannot be revived, as against other secured creditors, by any sub- 
 sequent arrangement between the company and party whose 
 money paid off the coupons.^ 
 
 1 In Child V. New York & New Eng- 
 land R. Co. (1880), 129 Mass. 170 ; s. c. 
 2 Am. & Eng. R. R. Cas. 329, a, certain 
 railway company under a contract with 
 another had paid off certain coupons for 
 interest, and afterwards claimed to have 
 equal rights with the bondholders in a 
 reorganization plan of the latter com- 
 pany. The court say : " The holders 
 bought their bonds with the agreement of 
 this company indorsed upon it, and upon 
 the faith of that agreement, which is 
 essentially a guaranty. The company 
 agrees that the several interest warrants 
 shall be paid as they mature. If the 
 maker of the bonds did not pay the 
 interest, it was the duty of the guaran- 
 tor to pay it. When these bondholders 
 received the amounts of the interest war- 
 rants, they had the right to regard it as 
 payment and extinguishment of the inter- 
 est which diminished the amount of their 
 debt and strengthened their security." 
 
 ^ South Covington, etc. Ey. Co. i/. 
 Gest(1888), 34 Fed. Rep. 628. 
 
 ' South Covington, etc. Ry. Co. v. 
 Gest (1888), 34 Fed. Rep. 628. In this 
 
 ease a bondholder agreed with a company 
 to pay off its pressing debt, including cer- 
 tain coupons for interest, upon receipt of 
 the company's notes for $15,000, due at 
 different times, he to hold the coupons, 
 when taken up, as collateral security, and 
 that, as fast as the notes were paid, cou- 
 pons to a proportionate amount were to be 
 surrendered to the company. An outsider 
 agreed with him that he would buy him 
 out if he would secure his being placed in 
 full control of the road. This was done, 
 and the latter raised the money on the 
 company's notes, and paid the bond- 
 holder, and had turned over to him, not 
 only the coupons detached from this bond- 
 holder's bonds, but certain others that 
 had been paid to other holders, when pre- 
 sented at the company's office, and had 
 passed into this bondholder's hands with- 
 out the knowledge or consent of the 
 former holders. Concerning the effect of 
 this transaction the court say : " This 
 bondholder had realized money on the 
 notes ; this money in his hands was ap|ili- 
 cable to the payment of these coupons 
 which he undertook to pay off with the 
 
112 EAILWAY BONDS AND MORTGAGES. [CHAP. III. 
 
 § 78. Riglits of Persons participating in Arrangements for funding 
 Coupons. — When coupon-holders accept a scheme which involves 
 the funding of overdue interest, and the issue of new evidences of 
 debt in place of their unpaid coupons, the presumption is that 
 there is no novation in their contract, and that they are still en- 
 titled to the benefit of the security of the mortgage; and this 
 presumption can be overcome only by clear evidence that it was 
 their intention to waive their lien.^ 
 
 It is immaterial that the new evidences of debt are under seal, 
 and the coupons only simple contracts, for the bonds themselves 
 are also sealed instruments, and it is by force of these that a lien 
 and priority are secured to the bondholder both for the principal 
 sum and for the interest thereon. Nor can the acceptance of 
 such evidences of debt be made to operate as payment of the in- 
 terest funded, on the ground that by their terms the coupon- 
 holder obtains the obligation of the company to pay interest on 
 interest, the result being a new and different contract between 
 the parties. As the bondholder is entitled to interest on the 
 coupons from the time of their maturity, the new instruments 
 merely secure in express terms something which the bondholder 
 already possessed, and therefore changes neither the rights nor 
 the obligations of the parties.^ 
 
 proceeds thereof. Witli the receipt of & S. C. R. Co., 138 Pa. St. 494 ; s. c. 21 
 
 that money said coupons, as between him Atl. Rep. 21, where coupons which have 
 
 and the company, were paid. The cou- been apparently paid were treated by the 
 
 pons were not turned over to the party or court as paid. See Farmers' Loan & Trast 
 
 parties who purchased, or discounted and Co. v. Iowa Water Co., 78 Fed. Rep. 881, 
 
 held, the notes before maturity, but they decided upon the authority of the case last 
 
 were delivered up to the one who was cited, and Claflin v. South Carolina E. 
 
 then the sole managing and financial Co., 8 Fed. Rep. 118. 
 agent of the company, and the proper ^ Skiddy v. Atlantic, Mississippi, & 
 
 officer to receive and cancel the same as Ohio R. Co. (1878), 3 Hughes, 320. In 
 
 no longer subsisting liabilities of the com- Gibert u. 'Washington, Va. Mid. & Great 
 
 pany. When the arrangement was made Southern, etc. R. Co. (1880), 33 Gratt. 586 ; 
 
 with the company afterwards to surrender s. c. 1 Am. & Eng. R. R. Cas. 473, where 
 
 the notes and hold the coupons absolutely, the company was unable to pay its in- 
 
 they constituted nothing more than newly terest, and gave what they called coupon 
 
 issued evidences of debt. Other holders bonds to the holder, the court held them 
 
 of first-mortgage bonds and outstanding to be secured by the original mortgage, 
 
 coupons due or to become due could not upon the principle that "so long as the 
 
 be aflFected by the substitiition, nor could debt exists the courts will never presume 
 
 said coupons be reinvested with the lien the chief security taken for its payment 
 
 which had once ceased, even for a moment, has been surrendered without satisfaction, 
 
 to exist." See, as to an agreement between unless upon the clearest and most con- 
 
 a third party furnishing the money to pay vincing testimony." 
 
 coupons and the mortgagor not being en- " Commonwealth v. Chesapeake, etc. 
 
 forceable against the bondholders. Fidelity Canal Co. (1871), 35 Md. 1. 
 Ins. Trust & Safe Deposit Co. v. West Pa. 
 
§ 79.] RIGHTS OP COUPON-HOLDERS. 113 
 
 One who funds coupons under a statute is bound by its terms, 
 not merely as to the coupons actually funded, but also as to any 
 bonds or coupons held by him at the time of funding, at least 
 where they belong to the same class as the coupons funded. The 
 statute operates upon the entire obligation, both principal and 
 interest, and one who accepts its provisions for one purpose 
 accepts it for all purposes. The principle that when a contract 
 is one and indivisible, if it takes effect at all it must take effect 
 as to all its parts, necessarily involves the conclusion that the 
 benefit of such a statute must either be accepted as a whole or 
 rejected as a whole. ^ 
 
 8 79. Recoupment of Defaulted Interest in an Action to recover 
 Damages for failing to accept Bonds. — Where a party binds himself 
 on a certain condition to take a certain number of bonds, secured 
 by a mortgage which provides that, if any of the interest on the 
 bonds is not paid within ninety days after it is due, the entire prin- 
 cipal and interest shall become immediately due, and receives and 
 pays for a portion of the bonds, he may, in an action brought by 
 the company to recover damages for failing to take the residue, 
 such action being brought after the interest on the bonds paid for 
 has been in default more than ninety days, recoup the amount due 
 thereon against the damages growing out of his refusal to accept 
 and pay for the remaining bonds. The undertaking of the party 
 agreeing to receive the bonds amounts to a promise to make a 
 loan to the company of the amount indicated by the subscription, 
 for the length of time and upon the terms specified in the mort- 
 gage. The payment of interest, in this view, is a vital part of 
 the consideration and affects the entire contract.^ 
 
 1 Hand v. Savannah & Charleston R. consideration in Hand v. Savannah, etc. 
 
 Co. (1879), 12 S. C. 314, 350. The appli- R. Co. (1883), 17 S. C. 219 ; s. c. 12 Am. 
 
 cation of the doctrine stated in the text to & Eng. R. R. Cas. 495. 
 
 the peculiar circumstances of these coupon- ^ (Jalena, etc. K. Co. v. Barrett (1880), 
 
 holders and other lienors was again uuder 95 111, 467. 
 
114 
 
 RAILWAY BONDo AKD MORTGAGES. 
 
 [chap. IV. 
 
 CHAPTER TV. 
 
 GUARANTY OP BONDS. 
 
 80. Introductory. 
 
 81. A Contract of Guaranty creates 
 
 Independent Eights and Lia- 
 bilities. 
 
 82. Guaranty for Accommodation not 
 
 valid. 
 
 83. What is generally a Sufficient 
 
 Consideration. 
 
 84. Guaranty given as Part of the 
 
 Consideration of a Lease is 
 valid. 
 
 85. Guaranty to save Corporation from 
 
 Actual Financial Embarrassment 
 is valid. 
 
 86. Guaranty of Obligations of Com- 
 
 panies carrying on another 
 Business, how far valid. 
 86 a. Guaranty valid where it forms 
 part of a Compromise Arrange- 
 ment with a Debtor of the 
 Guarantor. 
 
 § 87. Guaranty of Bonds owned by the 
 Corporation is valid. 
 
 88. Guaranty may be validated by 
 
 Ratification, where not abso- 
 lutely ultra vires. 
 
 89. Negotiability of Guaranty. 
 
 90. Guaranty not invalidated as to 
 
 Innocent Purchasers by the 
 Omission of merely Directory 
 Formalities. 
 
 91. Improper Exercise of a Power of 
 
 Guaranty, Eights of Innocent 
 Purchaser not impaired by. 
 
 92. Eights of Guarantor of Interest 
 
 when postponed to those of 
 Bondholders. 
 
 93. State-indorsed Bonds are subject 
 
 to Constitutional Limitations in 
 Force when Guaranty Act was 
 
 § 80. Introductory. — The fundamental rule upon which the 
 enforceability of contracts of guaranty depends has been thus 
 enunciated in an English treatise of high authority : " It is no 
 part of the ordinary business of commercial, and a fortiori still 
 less so of non-commercial, corporations . to become security for 
 others. Under ordinary circumstances, without positive author- 
 ity in this behalf in the constating instruments, all engagements 
 of this description are ultra vires, whether they take the direct 
 form of suretyship or the indirect forms of joining in accommoda- 
 tion bills, or otherwise becoming liable for the debts of others, or 
 the still more indirect form of guaranteeing profits or expenses, 
 or otherwise assisting the business of others, or in the development 
 thereof, or obtaining further powers therefor. Therefore, there 
 ought properly to be an express power to this effect." ^ This 
 
 1 Brice's Ultra Vires (Green's Am. ed., illustrative of the principles applicable to 
 
 1880), p. 252. The decisions in this chap- guaranty of railway bonds. See note in 
 
 ter are not limited to cases involving rail- 26 Am. & Eng. R. E. Gas. , 105, on guaranty 
 
 way bonds, but include some others as of bonds of another company. 
 
§ 80.] GUARANTY OF BONDS. 115 
 
 would seem, however, to be a more rigorous statement of the rule 
 than is justified either by the principles on which the rule is 
 founded, or the cases in which those principles have been applied. 
 There is no question but that the courts have fully recognized the 
 doctrine that corporate officers have, under various circumstances, 
 implied authority to bind the corporation by a guaranty. In fact 
 it is only in a few of the States that the legislature has made any 
 express provision for this contract by general laws, and the litiga- 
 tion on the subject ^ indicates that it is rarely, if ever, regulated 
 by provisions either in special charters or in by-laws. The actual 
 task of the courts, therefore, has been to determine when such 
 authority is implied. 
 
 While it is difficult to frame a rule which shall be sufficiently 
 definite to furnish a key to the solution of all the manifold prob- 
 lems arising in connection with this subject, the cases at all 
 events show that, provided the transaction of which the guaranty 
 is a part is not ultra vires, and the guaranty is sustained by a 
 sufficient consideration, the proper officers of the corporation 
 may bind it by guarantying tlae obligation of other corporations 
 or of individuals, wherever the guaranty will render the transac- 
 tion more beneficial to the corporation on behalf of which it is 
 executed, either by saving it from loss or securing some dii-ect 
 benefit. The preliminary question, then, in every case is, whether 
 the transaction in which the guaranty was given was wholly be- 
 yond or within the powers of the corporation. If it was beyond 
 those powers, this excess of authority necessarily vitiates the 
 guaranty, this being the result, according to the weight of author- 
 ity, whether the stockholders have ratified it or not (see §§ 85, 88, 
 infra). On the other hand, if the transaction was not ultra vires 
 in this absolute sense, the binding character of any guaranty 
 which the corporate officers may have executed while engaged in 
 carrying it through, depends, at least where the peculiar policy 
 of the law in regard to commercial paper does not qualify the 
 rights of the parties, upon the ordinary considerations which de- 
 termine the validity of the acts of such officers. If it was reason- 
 ably appropriate for the purpose of securing the benefits of the 
 transaction for the shareholders, there seems to be no reason why 
 it should not be enforced against them by any one who has not 
 actual notice of a defect of authority. The proper way, therefore, 
 to determine whether the guaranty is valid is to regard it, not as 
 a separate transaction, but as a part of a larger transaction. It 
 is submitted that there is nothing in the cases at variance with 
 
 1 See notes to § 93, below. 
 
116 RAILWAY BONDS AND MORTGAGES. [CHAP. IV. 
 
 this theory, so far as the actual decisions are concerned ; though 
 it must be conceded that the courts have in the majority of in- 
 stances argued as though a corporate guaranty was something 
 distinct, which must stand or fall on its own merits. This has 
 been a source of needless diflBculties, if not of actual errors. A 
 review of the cases cited below shows they have really turned 
 upon two questions : First, whether the transaction on which the 
 guaranty was given was within the corporate powers ; and, second, 
 whether, supposing the transaction to be of that character, the 
 circumstances were such as would have warranted the directors 
 in undertaking to place the corporation in the position of a prin- 
 cipal obligor, for the performance of some act which was to con- 
 stitute the consideration for the benefit anticipated from the 
 transaction. Or more briefly still, it may be said that the only 
 point to be decided is, whether the case is one in which the di- 
 rectors can render the corporation directly liable. If it is such a 
 case, they can clearly impose upon it the secondary liability of a 
 guarantor. If it is not such a case, their inability to charge it 
 with this secondary liability is equally manifest. 
 
 The directors of a railroad companj', being trustees and repre- 
 sentatives charged with the exercise of all the powers of the 
 corporation, which do not involve fundamental changes in the 
 purposes of the incorporators, under a power given the company 
 to guaranty bonds of another company which may prove a feeder 
 to its business, may make such guaranty without the assent of the 
 stockholders.^ 
 
 1 Louisville Trast Co. c<aZ. V. Louisville conditions as miglit be agreed upon 
 
 N. A. & Chicago R. Co. (1896), 75 Fed. between the companies. The company 
 
 Rep. 433, reversing Louisville N. A. & leased a road, and one to be constructed in 
 
 Chicago R. Co. o. Ohio Valley Improve- the State would continue the leased road 
 
 ment & Contract Co. et al. (1894), 69 Fed. toward the line of Virginia. The lessor 
 
 Rep. 431. company guarantied the bonds of the 
 
 A railroad company incorporated in company whose road was to be constructed, 
 
 Indiana was made a corporation by the to be delivered to the contractors for its 
 
 legislature of Kentucky. As a Kentucky construction, and received stock of the 
 
 corporation the legislature granted it au- company for the guaranty. The U. S. 
 
 thority to indorse or guaranty the prin- Circuit Court of Appeals for the Sixth 
 
 cipal and interest of the bonds of any rail- Circuit held that, under the powers 
 
 way company then constructed or to be granted by the Kentucky legislature, the 
 
 thereafter constructed within the limits of company was authorized to make the 
 
 the State of Kentucky, and to consolidate guaranty of bonds and to acquire the stock 
 
 its rights, franchises, and privileges with of the other company ; that the guaranty 
 
 any railway company authorized to con- was binding on it and enforceable against 
 
 struct a railroad from the city of Louis- its property in Kentucky, notwithstanding 
 
 ville to any point on the Virginia line, the fact that, as an Indiana covporatioii, 
 
 such indorsement, guaranty, or consolida- it may not have had gi-anted to it such 
 
 tion to be made upon such terms and power. 
 
§ 81.] GUARANTY OF BONDS. 117 
 
 § 81. A Contract of Guaranty creates Independent Rights and Lia- 
 bilities. — For this reason the guarantor of bonds cannot, in an ac- 
 tion on his guaranty, escape liability on the ground that the bonds 
 are void.^ On the other hand, where the mortgage expressly 
 provides that entry by the trustees, upon default in the payment 
 of interest, shall not deprive them or any other parties of their 
 full rights and remedies, a bondholder who has taken no part in 
 proceedings by the trustees to obtain possession may bring an 
 action to enforce a guaranty indorsed on the bonds by another 
 company .2 
 
 One accepting the guaranty of one railroad company of the 
 bonds of another will be charged with notice of a statute of the 
 State of its creation which requires a petition of its stockholders 
 for such a guaranty to be filed before its board of directors, and 
 if he knows such a petition of stockholders was not filed with 
 the board, cannot hold the guarantor to any liability on the 
 guaranty.^ 
 
 The negotiability of the guaranty of such bonds is not affected 
 by such statutes as that of Kentucky (Gen. St., c. 22, §§ 6, 13, 14), 
 with respect to the negotiability and assignability of bonds and 
 promissory notes, as they have no application to bonds like rail- 
 road bonds payable to bearer. They apply only when an assign- 
 ment is necessary to pass the title to the chose in action.*' 
 
 Though a statute empowering a railroad company to guaranty 
 the bonds of another may require a petition to that effect from 
 the stockholders to the board of directors, if such a guaranty is 
 directed by the board without such a petition, the guaranty is not, 
 as ultra vires the company, absolutely void. It may be ratified, 
 and one purchasing such guaranty witliout notice of the fail- 
 ure to petition will be entitled to enforce the same against the 
 guarantor.^ 
 
 Bonds issued by corporations or joint-stock companies, and 
 
 1 Connecticut Mutual Life Ins. Co. v. Fed. Eep. 433, reversing Louisville, N. A. 
 ClevelanJ, Columbus, & Cincinnati R. Co. & Chicago R. Co. i;. Ohio Valley Improve- 
 (1863), 41 Barb. 9. ment & Contract Co. et al. (1894), 69 Fed. 
 
 2 Racey u. Erie Ry. Co. (1881), 12 IT. Rep. 431, in which case the court sus- 
 Y. Weekly Dig. 4.57 ; s. o. 24 Hun, 342. tained an injunction against the bond- 
 
 8 Louisville Trust Co. et al. v. Louis- holders and decreed a cancellation of the 
 
 ville, N. A. & Chicago R. Co. (1896), 75 guaranty. There is upon this point an 
 
 Fed. Rep. 433, 450. elaborate argument and a very full reference 
 
 * Louisville Trust Co. v. Louisville, N. to the cases pertinent to the subject in the 
 A. & Chicago R. Co. et al. (1896), 75 Fed. opinion of the C. S. Circuit Court of Aii- 
 Rep. 433, 458. peals in Louisville Trust Co. et al. v. Louia- 
 
 * Louisville Trust Co. et al. v. Louis- ville, N. A. & Chicago R. Co., supra. 
 ville, N. A. & Chicago R. Co. (1896), 75 
 
118 RAILWAY BONDS AND MORTGAGES. [CHAP. It. 
 
 made negotiable by the Pub. Sts. Mass., c. 77, § 4, and the holder 
 of such bonds, although not the person to whom they were origi- 
 nally delivered, and though no consideration moved from him to 
 the corporation, may maintain an action upon them in his own 
 name.^ 
 
 § 82. Guaranty for Accommodation not valid. — It is well settled 
 that no corporate agent has implied authority to give away any 
 portion of the corporate property, or to create a corporate ob- 
 ligation gratuitously. From this principle it follows that the 
 assumption of the position of surety for a liability in which the 
 corporation has no direct interest is undeniably a transaction 
 which is outside the scope of its business, and that the corporate 
 officers of the corporation have no implied power to place it in 
 such a position by making an accommodation indorsement. 
 
 The cases in which this rule is qualified by circumstances 
 amounting to a ratification on the part of the corporation, or by 
 the special principles protecting innocent purchasers of negoti- 
 able paper, are noticed below, §§ 88, 91. 
 
 § 83. What is generally a Sufficient Consideration. — ■ Where the 
 contract of guaranty is indorsed on the bonds before their issue 
 and delivery by the obligor company, the credit given to the 
 latter is a sufficient consideration to support the contract of 
 guaranty. But if the guaranty is given after the execution and 
 delivery of the bonds, the contract is not binding on the guarantor 
 unless he receives some separate consideration for the guaranty.^ 
 
 A guarantor who inserts the words "value received" in his 
 guaranty is not a mere accommodation indorser, as this expres- 
 sion imports a sufficient consideration.^ 
 
 In the leading case of Railroad Co. v. Howard * it was held that, 
 as railroad companies have power to issue their own bonds to con- 
 struct their roads, they have also power to guaranty the bonds of 
 cities and counties which have been lawfully issued, and are sold 
 instead of their own, as the means of accomplishing the same 
 end. Being entitled to receive such bonds, they may transfer 
 them to others ; and having the capacity to make such transfer, 
 they may, if they deem it expedient, guaranty their payment for 
 
 1 Strauss v. United Telegram Co., 164 ' Connecticut Mutual Life Ins. Co. v. 
 Mass. 130 ; s. c. 41 N. E. Kep. (1895). CleTeland, Columbus, & Cincinnati E. Co. 
 See Carr v. LeFevre (1856), 27 Pa. St. 413, (1863), 41 Barb. 9. 
 
 418 ; Bunting v. Camden & Atlantic Rail- * 7 Wall. 392 (1868), followed in Amot 
 
 road (1876), 81 Pa. St. 254; Society for Sav- v. Erie Ry. Co. (1876), 67 N. Y. 35. See 
 ings V. New London (1860), 29 Conn. 174. §§ 86 a, 91. 
 
 2 Toppan u. Cleveland, Columbus, & 
 Cincinnati R. Co. (1860), 1 Flip. 74. 
 
§84.] 
 
 GUARANTY OF BONDS. 
 
 119 
 
 the purpose of augmenting their credit in the market. So, also, 
 under a general authority to issue bonds for construction pur- 
 poses, a lessor company may lawfully guaranty the payment of 
 notes issued for that purpose by the trustees and managers 
 appointed in proceedings to enforce a mortgage upon all the prop- 
 erty of a company to which the guarantor has leased its road in 
 perpetuity.-' 
 
 § 84. Guaranty given aa Fart of the Consideration of a Lease is 
 valid. — Authority to accept a lease of another road necessarily 
 implies authority to arrange for paying rent, and one of the ways 
 in which such payment may legitimately be effected is by paying 
 the coupons of the lessor's bonds, or guarantying their payment.^ 
 
 So, also, a statute providing that railroad corporations may 
 lease their roads to other corporations, and " shall be capable in 
 law to make all contracts . . . necessary for the construction, 
 completion, and maintenance of its road, . . . and generally to 
 possess all the powers and privileges for the purpose of carrying 
 on the business of the corporation, that private individuals and 
 natural persons now enjoy," has been held to entitle such a cor- 
 poration to guaranty the bonds of a company whose line it has 
 leased. 2 
 
 ' Codman v. Vermont & Canada E. Co. 
 (1879), 16 Blatch. 165. 
 
 2 Eastern Township Bank v. St. Johns- 
 bury & L. C. R. Co. (1889), 40 Fed. Rep. 
 423. 
 
 » Low u. Central Pac. R. Co. (1877), 
 52 Cal. 53 ; s. c. 9 Am. Ey. Eep. 366. The 
 majority of the court proceeded upon the 
 gi'ound that it was competent for the les- 
 see company to contract to pay as rent an 
 amount equal to the amount of the lessor's 
 bonds, and that this iuYolved the propo- 
 sition that the company might, upon a 
 sufficient consideration, guaranty such 
 bonds, the power to make an absolute 
 promise of payment necessarily embrac- 
 ing the power to make a conditional prom- 
 ise of payment. Stress was also laid 
 on the fact that the statute placed the 
 company on the same footing as private 
 persons in regard to contracts. The latter 
 reason is possibly open to the objection 
 noticed by Judge MoKinstry in his dis- 
 senting opinion, viz., that as the clause 
 conferring this freedom of contract followed 
 an enumeration of certain powers specifi- 
 cally conferred, it was merely declaratory 
 of the rule that powers incidental to the 
 
 powers expressly conferred may be exer- 
 cised by a corporation. But the former 
 reason is quite sufficient to justify the 
 ruling in view of the fact that the court 
 was not called upon to determine whether 
 the contract was one which the corporators 
 might have objected to on the ground of 
 its improvideuce, but whether, when those 
 corporators were satisfied with the arrange- 
 ment, it was competent for one who had 
 agreed to take the bonds to refuse to 
 fulfil his contract on the ground that the 
 guaranty was void as being absolutely 
 ultra vires. It is to be regretted that the 
 court has somewhat weakened the author- 
 ity of the decision, and provoked criticism 
 by opening up the subject of the implied 
 powers of corporations, instead of planting 
 itself firmly on the absurdity of maintain- 
 ing that the debt of a corporation may be 
 acknowledged directly by- its own notes, 
 and not indirectly by the assumption of a 
 secondary liability on the obligations of 
 other parties. It is undoubtedly one of 
 the numerous cases in which the unfor- 
 tunate ambiguity of the term ultra vires 
 has produced a mischievous confusion of 
 thought. 
 
120 RAILWAY BONDS AND MORTGAGES. [CHAP. IV. 
 
 § 85. Guaranty to save Corporation from Actual Financial Em- 
 barrassment is valid. — The assumption of a third person's debt is 
 within the scope of the powers of the directors of a corporation 
 when such assumption is urgently required for the purpose of 
 saving the credit of the corporation and enabling it to go along 
 with its business.! 
 
 § 86. Guaranty of Obligations of Companies carrying on another 
 Business, how far valid .^ — (a) Cases in which the Power has 
 teen denied. — The well-settled doctrine, that a company in- 
 corporated for a special purpose cannot devote any part of its 
 funds to objects unauthorized by its charter, however desirable 
 such an application may appear to be, involves the corollary that 
 any guaranty is invalid which is essentially an undertaking that 
 a corporation, partnership, or individual shall be indemnified 
 against loss, or receive certain profits in the conduct of a busi- 
 ness which the guarantor itself is not authorized to engage in. 
 The State which confers the franchise of a corporation, as well 
 as the stockholders who have invested their money in the enter- 
 prise, and the creditors who have advanced their money on the 
 faith of it, have a right to assume that no such diversion of the 
 corporate funds shall be made.^ 
 
 Thus a railroad company cannot guaranty that the subscribers 
 to the stock of an elevator company shall receive a certain per- 
 centage of dividends, though it may undoubtedly build or rent 
 elevators for the purpose of facilitating the conduct of its own 
 business.* 
 
 The mere ground that conjectural or speculative benefits were 
 believed by the corporate ofiicers to be likely to result from the 
 guaranty, and that the other party has incurred expenses on the 
 faith of it, will not render the contract enforceable. Since, there- 
 fore, the holding of a " World's Peace Jubilee and International 
 Musical Festival " is an enterprise wholly outside the objects for 
 
 1 stark Bank v. U. S. Pottery Co. Mass. 1 ; s. c. 39 N. E. Rep. 416 ; Hum- 
 (1860), 34 Vt. 144. holdt Mining Co. v. American Manufactur- 
 
 2 Louisiana State Bank v. Orleans Nav- ing, Mining, & Milling Co. (1894), 62 Fed. 
 igation Co. (1848), 3 La. Ann. 294 ; Rep. 356 ; National Bank of Gloversville 
 National Park Bank v. German-American u. "Wells (1880), 79 N. Y. 498. 
 Warehousing, etc. Co. (1889), 116 N. Y. * Marbury v. Kentucky Union Land 
 281 ; s. 0. 26 N. Y. St. Rep. 67.5 ; 22 N. Co. (1894), 62 Fed. Rep. 335 ; 10 C. C. A. 
 E. Rep. 567 ; Wahlig v. Standard Pump 393, and cases cited, affirming Tod v. Een- 
 Manufe. Co. (1889), 5 N. Y. Suppl. 420; tucky Union Land Co. (1893), 57 Fed. Rep. 
 s. c. 25 N. Y. St. Rep. 864 ; Mather v. 47. 
 
 Union Loan & Trust Co. (1889), 7 N. Y. * Elevator Co. v. Memphis & Charles- 
 
 Siippl. 213 ; s. c. 26 N. Y. St. Rep. 58 ; ton R. Co. (1887), 85 Tenn. 703 ; s. c. 5 
 Usher v. Raymond Skate Co. (1895), 163 S. W. Rep. 52. 
 
§ 86.] GUAEANTT OP BONDS. 121 
 
 which raih'oad and manufacturing companies are established, a 
 guaranty of the expenses of such a festival, although it will 
 have a favorable effect on the profits of both companies, in the 
 one case by increasing the passenger travel, and in the other by 
 creating a more active demand for the articles manufactured, has 
 been held to be ultra vires the corporation.-' 
 
 So, also, a guaranty by the secretary of a transportation com- 
 pany that a brewing company shall be paid for all the beer 
 purchased by one of its customers is ultra vires against the 
 shareholders at least, if not absolutely so.^ 
 
 Similarly it has been held that a guaranty of a loan made to 
 another for the purpose of constructing a connecting road, 
 expected to be advantageous to the guarantor, was unauthorized, 
 and that, if the guarantor discharged the loan, it could not hold 
 the second company liable for the money.^ 
 
 So, also, it is an excess of power for a company organized to 
 manufacture ironwork for mines, to guaranty the performance 
 of another's contract, although the object of the guaranty is to 
 secure a customer.* 
 
 According to a recent English case, contracts of this description 
 are ultra vires, not merely of tlie corporate officers, but of the cor- 
 poration itself, and therefore incapable of ratification even by the 
 whole body of shareholders.* 
 
 This principle has been accepted by at least two courts of the 
 highest authority in this country.'' 
 
 1 Davis V. Old Colony Railroad (1881), being apparently that the contract was not 
 
 131 Mass. 258. An agreement by which contrary to the policy of the statutes of the 
 
 the E. Company agreed to make good any State. 
 
 deficiencies of the interest on the bonds of 2 Lucas v. White Line Transfer Co. 
 
 the T. Company, the consideration being (1886), 70 Iowa, 541 ; s. c. 30 N". W. Rep. 
 
 that the T. Company should deliver to 771. 
 
 the E. Company all the freight which 8 Madison, etc. Plank Road Co. v. 
 
 it could control, and that the T. Com- Watertown, etc. Plank Road Co. (1859), 7 
 
 pany should use its influence, so far as it "Wis. 59. 
 
 could with proper regard to its own inter- i Humboldt Mining Co. v. Variety Iron 
 
 ests, to promote the business of the E. Works Co. (1894), 62 Fed. Rep. 356 ; 
 
 Company, has been held to contain s. c. 10 C. C. A. 415. 
 
 nothing obnoxious to the laws of New » Ashbury Ry. Carriage & Iron Co. v. 
 York. Touawanda Valley & Cuba R. Co. Riche, L. R. 7 H. L. 653. 
 V. New York, Lake Erie, & West. R. Co. « Thomas v. Railroad Co (1879) 101 
 (1886), 4 N. Y. St. Rep. 744 ; s. c. 42 U. S. 71 ; Davis v. Old Colony Railroad 
 Hun, 496 ; Bradford, Eldred, & Cuba R. Co. (1881), 131 Mass. 258. In Lucas «. White 
 V. New York, L. E. & Western R. Co. Line Transfer Co. (1886), 70 Iowa 541 • 
 (1888), 23 N. Y. St. Rqi'r, 208 ; s. c. 48 s. c. 30 N. W. Rep. 771, the court left 
 Hun, 621. In the last case Daniels, J., the point undecided, but said that at 
 dissented on the ground that such a con- all events the ratification would be inef- 
 tract was itUra vires, the ground of decision feclual unless the assent of all the share- 
 by the majority of the court in both cases holders was obtained. In Indiana an 
 
122 RAILWAY BONDS AND MORTGAGES. [CHAP. IV. 
 
 A less rigid rule perhaps prevails in other jurisdictions. Thus 
 it has been held in New York that when the officers of a cor- 
 poration engage in an ultra vires business for the benefit of the 
 corporation, and when the business is so carried on with the 
 acquiescence of the stockholders that it actually, although illegally, 
 becomes the business of the corporation, it cannot maintain an 
 action against such officers for any damages it has suffered in the 
 business.^ 
 
 So it has been held that a lumber company may guaranty rail- 
 road bonds issued to construct a road penetrating the country 
 from which the timber for such lumber company is to be drawn, 
 and essential to the successful prosecution of its business, where 
 the express consent of the stockholders and directors is given 
 thereto.^ 
 
 Supposing the former doctrine to be the true one, the question 
 presents itself, whether, in case the guaranty should take the 
 shape of an indorsement of the negotiable securities of the com- 
 pany to whom the guaranty is given, a lona fide holder would be 
 able to recover on the guaranty. The conclusion that he would 
 not seems to be warranted by the rulings which deny such a 
 holder the right to recover on bonds issued for an entirely unau- 
 thorized purpose (see Chap. II.), for the principle is clearly recog- 
 nized that the power to issue bonds is coextensive with the power 
 
 acceptance of paper for an unauthorized ^ Mercantile Trust Co. v. Kiser el al. 
 purpose by a railroad company apparently (1893), 91 Ga. 636 ; s. c. 18 S. E. 358. In 
 raises no legal liability even in favor of an Cozart v. Georgia Railroad & Bkg. Co. 
 innocent holder : Smead v. Indianapolis, (1875), 54 Ga. 379, the court assumed that 
 Pittsburg, &, Cleveland E. Co. (1858), 11 an arrangement embracing a joint guaranty 
 Ind. 104; though the court held that under of the bonds of another company for the 
 the special provisions of the company's purpose of sharing in the advantages of 
 charter the guaranty was valid. the control obtained by the other guaran- 
 1 Holmes, Booth, & Haydens v. Willard tor over the management of the company 
 (1890), 125 N. Y. 75 ; s. o. 25 N. E. Rep. which had issued the bonds, was only 
 1083. It is, however, worthy of note that idtra vires as against the stockholders of 
 (1) the action here was not by a third the guarantor companies, 
 party against the corporation on an execu- In Macon & Augusta R. Co. v. Georgia 
 tory contract, like the cases cited above. Railroad & Bkg. Co. (1879), 63 Ga. 103, 
 and that it was virtually an attempt by the court referred to the fact of there 
 one set of wrongdoers to recover damages being no statute to legalize the guaranty 
 from another set who had participated in by the defendant ; but it is evident that it 
 the same wrong ; and (2) that, apart from was not intended to lay down the rule that 
 this special ground for the decision, one of a statute is necessary for that purpose 
 the authorities relied on as to the possibil- where innocent purchasers are suing on 
 ity of the stockholders ratifying an illegal the guaranty. The actual gi-ound of de- 
 contract was the decision in a lower court cision in both cases was that parties who 
 to that effect in the Ashbury Railway might have objected successfully to the 
 Carriage, etc. Co. case, supra, which was guaranty had by acquiescence lost their 
 overruled by the House of Lords. right to do so. 
 
§ 86.] GUARANTY OF BONDS. 123 
 
 to guaranty them.^ But no direct decision on the point has, so 
 far as is known, been rendered.^ 
 
 (b) Cases in which the Power has been conceded. — The prin- 
 ciples on which the above cases were decided will be more clearly 
 realized by considering the decisions in which the power of a 
 corporation to assist other parties in their business has been 
 sustained. It is evident, in the first place, that a guaranty must 
 be valid if it was executed to further a transaction which the 
 corporation was competent to carry through as principal. Thus 
 a railroad company empowered to build, construct, and run, as a 
 part of their corporate property, such number of steamboats or 
 vessels as they may deem necessary to facilitate its business 
 operations, has, by implication, the power to employ steamboats 
 belonging to others, in connection with its own business, under 
 an agreement by which it guaranties to the proprietors of the boats 
 that their gross earnings shall not fall below a certain sum. The 
 ground of the decision was that the power to secure steamboat 
 connection by the guaranty was of the same character as that 
 of owning and running a steamboat, and involved less responsi- 
 bility and risk of loss on the part of the railroad company.^ 
 
 An analogous principle is illustrated in those cases where the 
 power of one corporation to guaranty the obligations of another 
 has been inferred from a statutory authority to assist it by direct 
 contributions, or to participate in the enterprise to be promoted. 
 Thus a company authorized to aid another company in construct- 
 ing its road " by means of subscription to its capital stock or other- 
 wise," for the purpose .of forming a connection with the road of 
 the company furnishing the aid, may guaranty the. bonds of such 
 other company, as a part of an arrangement for aiding it.* 
 
 Sufficient consideration for a guaranty in such a case exists, 
 
 ^ Railroad Co. v. Howard (1868), 7 his notes and by its credit raising money 
 
 Wall. 392. thereon, looking for reimbursement out of 
 
 2 See, however, Smead v. Indianapolis, the goods to be manufactured and delivered 
 
 Pittsburg, & Cleveland K. Co. (1858), 11 to it. Holmes, Booth, & Haydens v. Wil- 
 
 Ind. 104, referred to, supra, a case involv- lard (1890), 125 N. Y. 75 ; s. c. 25 N. E. 
 
 ing an acceptance of a bill. Eep. 1083. By the laws of New York 
 
 ' Green Bay & Minnesota E. Co. v. manufacturing companies may hold stock 
 
 Union Steamboat Co. (1882), 107 U. S. 98. in' corporations engaged in supplying such 
 
 A corporation dealing in manufactured materials as are required in the prosecu- 
 
 ds, and needing them for sale, may, as tion of their business. N. Y. L. 1848, ch. 
 
 a proper incident to its business, extend 40, § 4. 
 
 financial aid to a manufacturer by advane- * Connecticut Mut. Life Ins. Co. i-. 
 
 ing him money to enable him to furnish Cleveland, Columbus, & Cincinnati R. Co. 
 
 the goods, and that this aid may be ex- (1863), 41 Barb. 9. 
 
 tended by a loan of its own money, or take 
 
124 EAILWAY BONDS AND MORTGAGES. [CHAP. ly. 
 
 where it is a part of an arrangement between the guarantor and 
 other companies for the purpose of securing a uniform gauge on 
 their connecting roads and thus securing an increase of profits." 
 
 So the fact that a railroad company holds stock in another, and 
 that the latter road, when constructed, will become a feeder to the 
 former line, is "a sufficient consideration for the guaranty by the 
 former of bonds issued by the latter to aid in the construction of 
 the road.^ 
 
 Similarly the power of one company to guaranty the bonds of 
 another is necessarily implied where the charter of the former 
 authorizes it to effect a temporary or permanent consolidation 
 with the latter, since this virtually amounts to a permission to 
 risk its whole capital in another business.^ 
 
 Some courts have shown a disposition to extend the operation 
 of these principles further than is perhaps warrantable. Thus it 
 has been held that a guaranty by a brewing company of a lease of 
 premises occupied by one of its customers is not ultra vires.^ 
 
 But this doctrine is, to some extent, inconsistent with an earlier 
 decision by the same court to the effect that a brewing company 
 cannot guaranty the payment of rent by a hotel-keeper, the 
 ordinary rule being applied, that the fact of the guarantor's ex- 
 pecting to reap some profit from the arrangement did not give 
 the company that direct interest in the contract which alone 
 could justify such an undertaking.^ 
 
 Finally it is evident that there is no reason why a corporate 
 
 1 Connecticut Mut. Life Ins, Co. r. Supr. Ct., 1892), 18 N. Y. Supp. 456. No 
 Cleveland, Columbus, & Cincinnati R. Co. reasons are given for its opinion by the 
 (1863), 41 Barb. 9. Somewhat similar in court, which is possibly based on the fact 
 principle is Smead v. Indianapolis, Pitts- that it is customary for brewers to set up 
 burg, & Cleveland E. Co. (1858), 11 Ind. saloon-keepers in business by advancing 
 104, where a raih-oad company empowered money to them, or guarantying the pay- 
 to make such contracts with a company meut of their liabilities. If so, the de- 
 owning a connecting road for the trans- cision may perhaps be justified on the 
 portation of freight and passengers, and ground that the guaranty, under the pecu- 
 for the use of its road, as the board of liar circumstances of the case, was given to 
 directors might think proper, was held protect the guarantor's loan. 
 
 to have power to give its bills and notes 5 pilon v. Miller Brewing Co. (N. Y. 
 
 to the second company, to enable it to Supr. Ct, 1891), 60 Hun, 582; s. c. 15 K. 
 
 change the gauge of its road. Y. Supp. 57. In Ridley v. Plymouth, 
 
 2 Harrison v. Union Pac. Ry. Co. etc. Baking Co. (1848), 2 Exch. 711, the 
 (1882), 13 Fed. Rep. 522. court seems to have assumed that a con- 
 
 * Marbury v. Kentucky Union Land tract to indemnify a sul>tenant against the 
 Co. (1894), 62 Fed. Rep. 335 ; s. 0. 10 C. payment of any of the head rent was ultra 
 C. A. 393, containing an elaborate review vires, as the discussion was confined to the 
 of cases, affirming Tod v. Kentucky Union question whether the contract made by 
 Land Co. (1893), 57 Fed. Rep. 47. the directors was invalid for the reason 
 
 * Fuld V. Burr Brewing Co. (N. Y. that it was not under seal. 
 
§ 86 a.] GUARANTY OF BONDS. 125 
 
 guaranty designed to enhance the credit of another company 
 should not be regarded as within the power of the directors, 
 where it takes the shape of a guaranty of debentures of the 
 second company assigned to the guarantor in liquidation of a 
 debt. The exercise of such a power is justifiable on the prin- 
 ciple that, having lawfully become vested with the ownership 
 of the debentures, they are entitled to dispose of them to the 
 best advantage. 1 
 
 § 86 a. Guaranty valid ■where it forms Part of a Compromise 
 Arrangement -with a Debtor of the Guarantor. — It has been sug- 
 gested obiter in an English case by Lord Campbell that a con- 
 tract by directors to indemnify a debtor on certain obligations 
 might possibly be upheld as a reasonable part of a compromise 
 arrangement.^ 
 
 This suggestion enunciates a principle which has been recognized 
 in some cases. A guaranty of the bonds of another company 
 which a person having a valid claim against the guarantor agrees 
 to accept in discharge of such claim is a lawful transaction. The 
 company having the option of paying the claim in anything that 
 has a money value may obviously impart additional value to the 
 choses in action of another obligor by making itself responsible for 
 their payment. In such a case it is of no importance whether 
 the guaranty, when originally executed, was ultra vires or not, 
 for the transfer of the bonds with the guaranty upon them to a 
 creditor amounts to a renewal of the guaranty upon a sufficient con- 
 sideration then passing between the parties. The transferee takes 
 the guaranty as part of the purchase, although it is not mentioned, 
 the failure to express the true consideration being immaterial, 
 since that is always open to explanation and variation by parol.^ 
 
 So also bonds of one company transferred to another in payment 
 of a debt owed by the obligor may be guarantied by the trans- 
 
 1 In & West of England Bank (1880), Fed. Eep. 335 ; 10 C. C. A. 393. See 
 
 14 Ch. Div. 317, Viee-Chaucellor Ma- §§ 83, 87. 
 
 lius laid a good deal of stress on the ex- ^ Kirk v. Bell (1851), 16 Ad. & E. 
 
 tensive character of the powers bestowed (X. S. ) 290. 
 
 on the directors ; but this reasoning is in ^ Arnot v. Erie Ry. Co. (1 876), 67 X. Y. 
 
 other respects of a general description, and 315 ; s. 0. 15 Am. Ry. Rep. 133. Judge 
 
 indicates clearly that the distinction pres- Earl remarked that the transaction might 
 
 ent to his mind was that which exists be treated as if the company had said to 
 
 between engaging in an entirely diiier- its creditor, " Here are our bonds and here 
 
 ent business and augmenting the credit is our guaranty, take them in satisfaction 
 
 of one of the company's debtors by giv- of your claims." The case was followed in 
 
 ing cuiTency to the obligations of the Atchison, etc. R. Co. «. Fletcher (1886), 
 
 latter. To the same effect see Marbnry 35 Kan. 236 ; 24 A. & E. 234. See also 
 
 )'. Kentucky Union Land Co. (1894), 62 §§ 83, 91. 
 
126 RAILWAY BONDS AND MORTGAGES. [CHAP. IV. 
 
 feree as a means of augmenting the credit of the bonds, and 
 thus enabling the guarantor to obtain an adequate price from 
 a purchaser.^ 
 
 § 87. Guaranty of Bonds ow^ned by the Corporation is valid. — 
 The power of a corporation to indorse the written obligations of 
 others, which it holds as owner, with a view to raising money on 
 them, is as complete as that of an individual.^ 
 
 Hence a guaranty of the bonds of another corporation is valid, 
 when such bonds have been taken by the guarantor in payment of 
 a debt due to it.^ 
 
 § 88. Guaranty may be validated by Ratification, ■where not 
 absolutely ultra vires. — The rule that, where a transaction is 
 ultra vires merely as between the directors and the corporators, 
 the latter may be estopped from repudiating it, either by ex- 
 press ratification or by such acquiescence and an enjoyment of 
 its fruits that to permit it to be set aside would constitute a 
 fraud, applies to an indorsement by one company of another's 
 bonds.* 
 
 Thus where the proper officers of a corporation have negotiated 
 a bill to an indorsee, representing it to belong to the corporation, 
 and upon the faith of that representation the indorsee has dis- 
 counted it in the usual course of business, advancing the proceeds 
 to the corporation, the latter is precluded from setting up that it 
 was indorsed without authority.^ 
 
 So an accommodation indorsement will create a liability against 
 the corporation if the stockholders assent to it.® 
 
 ^ Rogers Locomotive & Machine Works Co. (1875), 54 Ga. 379 ; Macon & AugiTsta 
 
 V. Southern Railroad Association (1888), 34 E. Co. v. Georgia Railroad & Bkg. Co. 
 
 Fed. Rep. 278. (1869), 63 Ga. 103. 
 
 2 Bank of Genesee ij. Patchin Bank ^ Bank of Genesee v. Patchin Bank 
 
 (1855), 13 N. Y. 309 ; Madison, etc. R. (1855), 13 N. Y. 309 ; s. p. Central 
 
 Co. u. Norwich Sav. Soc. (1865), 24 Ind. Bank v. Empire Stone Dressing Co. 
 
 457. Compare Bonner u. City of New (1858), 26 Barb. 23. An allegation 
 
 Orleans, 2 Woods, 135, where a railroad that the defendant has caused a represen- 
 
 company, having transferred by indorse- tatioii to be indorsed on the bonds of an- 
 
 raent a negotiable bond issued by a muni- other company to the effect that the 
 
 cipal corporation to the company as payee, payment of the interest of those bonds is 
 
 was held bound as indorser, upon the guarantied by the defendant for a specific 
 
 default of the municipal corporation, period, sets forth a good cause of action. 
 
 See also Olcott v. Tioga R. Co., 27 N. Y. inasmuch as proof of the fact aDeged will 
 
 546. make the defendant liable for the interest. 
 
 s Marhury v. Kentucky Union Land Opdyke v. Pacific R. Co. (1874), 3 Dill. 
 
 Co. (1894), 62 Fed. Rep. 335 ; s. c. 10 C. 55. 
 
 C. A. 393 ; In re West of England Bank « Martin v. Niagara Falls Paper Mf-j. 
 
 (1880), 14 Ch. Div. 317. See also §§ 85, Co., 122 N. Y. 165 ; s. c. 25 N. E. Rep. 
 
 86 rt. 303, affirming Martin v. Niagara Falls 
 
 * Cozart V. Georgia Railroad & Bkg. Paper Mfg. Co. (1887), 44 Hun, 130. 
 
§§ 89, 90.J GUARANTY OP BONDS. 127 
 
 A court will be very slow to set aside a contract of guaranty 
 as being ultra vires, in the sense of not being beneficial to the 
 corporations, where stockholders, at the time it was executed, 
 with the information they then possessed, considered it to be 
 beneficial. 1 
 
 § 89. Negotiability of Guaranty. — A general guaranty indorsed 
 by one company upon the bonds of another at the time of their 
 issue is negotiable like the bonds themselves.^ 
 
 But it is otherwise with what is on its face a purely collateral 
 guaranty given as a part of the consideration of a contract subse- 
 quent to the issue of the bonds, as where a lessee guaranties the 
 interest on the bonds of a lessor. ^ 
 
 § 90. Guaranty not invalidated as to Innocent Purchasers by the 
 Omission of merely Directory Formalities. — The principle that a 
 corporation acting within the range of its general authority, but 
 failing to comply with some formality or regulation which should 
 have been observed, is precluded from setting up its neglect, with 
 a view to defeat the rights of the parties with whom it has been 
 dealing, operates so as to prevent a stockholder of a guarantor 
 company from obtaining an injunction against the payment of in- 
 terest on the bonds guarantied by it, after the bonds have been 
 sold to innocent purchasers on the faith of representations that 
 the legal prerequisites to the execution of the guaranty have been 
 duly complied with.* 
 
 A bondholder suing a guarantor company on its guaranty is not 
 bound to aver that the guaranty was given agreeably to the pro- 
 visions prescribed by the enabling statute in regard to obtaining 
 the assent of the stockholders, the presumption being that the 
 
 1 Marbury v. Kentucky TJniou Land bonds, and, in equity, could be enforced by 
 
 Co. (1894), 62 Fed. Rep. 335 ; s. c. 10 C. a subsequent purchaser of the bonds. In 
 
 C. A. 393, affirming Tod v. Kentucky the Appellate Division of the Supreme 
 
 Union Land Co. (1893), 57 Fed. Rep. 47. Court of New York, 1st Dept., the court 
 
 - Toppan V. Cleveland, Col. & Cine. E. held that coupons severed from bonds 
 
 Co. (1862), 1 Flip. 74. A guarantor com- which had been guarantied became inde- 
 
 pany is liable on its guaranty for the prin- pendent obligations, and were not within 
 
 cipal when the bonds become due by the the guaranty of the principal and interest 
 
 terms of the mortgage on account of default on these bonds. Clokey v. Evansville & 
 
 in payment of interest, and they are de- T. H. E. Co. (1897), 44 N. Y. Supp. 631. 
 
 clared due by the trustee. Dougan v. O'Brien, J., dissented. 
 Evansville & T. H. R. Co., 15 App. Div. 3 Eastern Township Bank v. Johnsbnry 
 
 483; s. c. 44 N. Y. Supp. 503. The & S. C. R. Co. (1889), 40 Fed. Rep. 423. 
 
 Supreme Court of Ohio held in Bank of In this case the guaranty was not by its 
 
 Ashland v. Jones et a!. (1865), 16 Ohio St. terms made negotiable, and under the stat- 
 
 145, that a guaranty of the bonds of a ute of Vermont it was not made so. 
 company by its directors to make them ' Zabriskie v. Cleveland. Columbus, & 
 
 salable would pass as an incident of the Cincinnati R. Co. (1859), 23 How. 381. 
 
128 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. IV. 
 
 defendant in executing the guaranty has complied with all legal 
 requirements and regulations.^ 
 
 § 91 . Improper Exercise of Po'wer of Guaranty, Rights of Innocent 
 Purchaser not impaired by. — A stockholder in a company which 
 has executed a guaranty under the provisions of a statute empower- 
 ing it to guaranty the bonds of another company " whose road is 
 being constructed to connect with its own," cannot, after the bonds 
 have passed into the hands of bona fide purchasers, maintain a 
 suit to cancel them on the ground that there was no actual connec- 
 tion between the roads at the time the guaranty was executed.^ 
 
 So also a corporation is bound by the act of its officer in affix- 
 ing its signature to accommodation paper, when such paper has 
 passed into the hands of an innocent holder.^ 
 
 In determining the rights of a bona fide purchaser of guarantied 
 bonds, the guaranty will be treated as if written at the time of the 
 purchase, wliere there is nothing to show that the guaranty did not 
 pass as a part of the consideration.* 
 
 § 92. Rights of Guarantor of Interest -when postponed to those of 
 Bondholders. — A Company which has guarantied the interest on 
 
 1 Toppan V. Cleveland, Columtus, & 
 Cincinnati R. Co. (1862), 1 Flip. 74 ; 
 Connecticut Mut. Life Ins. Co. v. Cleve- 
 land, Colnmbus, & Cincinnati K. Co. 
 (1863), 41 Barb. 9. 
 
 2 Atchison, Topeka, & Santa Fe R. Co. v. 
 Fletcher (1880), 35 Kan. 236; s. c. 24 Am. 
 & Eng. R. R. Cas. 234 ; 10 Pac. Rep. 596. 
 
 ^ Bank of Genesee v. Patehin Bank 
 (1855), 13 N. Y. 309 ; s. P. Bridgeport City 
 Bank r. Empire Stone Dressing Co. (1859), 
 30 Barb. 421 ; Madison, etc. R. Co. v. 
 Norwich Sav. Soc. (1865), 24 lud. 457. 
 In the last-mentioned case the guarantied 
 bonds were made payable by the company 
 which issued them to the company which 
 guarantied them. The assignment with 
 the guaranty, therefore, amounted to a rep- 
 resentation that the assignor was the owner 
 of the bonds. The court said that a differ- 
 ent question would have been presented if 
 the bonds had been payable to bearer, as 
 that would have implied little or nothing 
 as to the fact of ownership by the guaran- 
 tor, and would have had but a slight ten- 
 dency to mislead as to a circumstance on 
 the existence of which the power to make 
 the guaranty depended. Granting that 
 every person taking the bonds was bound 
 to take notice of the limits of the powers 
 
 of the company which guarantied them, 
 the question whether they had been re- 
 ceived by the company in the course of its 
 lawful business, or whether the company 
 had no ownership or interest in them, was 
 a question of fact, and not of law. To hold 
 that the purchaser in such a case was 
 obliged at his peril to ascertain these 
 extrinsic facts was a doctrine utterly at 
 variance with the settled principle of law 
 relating to commercial paper ; viz., that the 
 general agent of a corporation, clothed with 
 a certain power by the charter, or by the 
 lawful act of the corporation, may use that 
 power for an unauthorized, or even a pro- 
 hibited purpose, in his dealings with an 
 innocent third party, and yet render the 
 corporation liable for his acts. Smead v. 
 Indianapolis, etc. R. Co., 11 Ind. 104, was 
 overruled as to the distinction there taken 
 between paper executed beyond the corpo- 
 rate power, and that executed within that 
 power, but by an abuse of it in the partic- 
 ular instance. Compare on this subject 
 Chap. II., § 55, ante. 
 
 * Rogers Locomotive & Machine Works 
 V. Southern Railroad Association (1888), 
 34 Fed. Rep. 278, citing Amot v. Erie 
 Ry. Co. (1876), 67 N. Y. 315 ; s. c. 15 
 Am. Ry. Rep. 133. See also §§ 83, 86 a. 
 
§ 93.] GUARANTY OP BONDS. 129 
 
 the bonds of another company, and, in pursuance of the contract, 
 taken up maturing coupons, cannot, as against the holders of the 
 bonds, assert a right to share pro rata in the allotment of stock 
 in a new company organized by those bondholders. When the 
 bondholders receive the amount of the coupons, they have a right 
 to regard it as payment and extinguishment of the interest which 
 diminishes the amount of their debt and strengthens their se- 
 curity. To allow the guarantors under such circumstances to 
 be subrogated to the rights of the bondholders in regard to the 
 coupons, whether detached or not, would violate the spirit of the 
 contract of guaranty.^ (Compare Chap. II., § 37 ) 
 
 § 93. state-indorsed Bonds are subject to Constitutional Limita- 
 tions in Force when Guaranty Act was passed. — After the obli- 
 gation of a State to guaranty the bonds of a railroad company 
 has lapsed through the non-performance within the time limited 
 of the acts which were to have entitled the company to such 
 guaranty, it can only be renewed subject to such constitutional 
 provisions as may have been adopted since it was first offered 
 to the company.'' 
 
 And if the legislature could not create a debt when the bonds, 
 the validity of which is questioned, was guarantied, they are 
 equally without the power to enact that the Governor's certifi- 
 cation of guaranty shall be the conclusive proof of an indebted- 
 ness by the State, and thereby cut off the judiciary from inquiry 
 into the validation of the obligation arising from the guaranty.^ 
 
 1 Child u. New York & New England company. Mich., How. Ann. St. 1882, 
 R. Co. (1880), 129 Mass. 170 ; s. c. 2 Am. § 3413, Under what circumstances guar- 
 & Eng. E. R.. Cas. 329. anty may be made of bonds of another 
 
 2 State V. Clinton (1876), 28 La. Ann. company. Mont., Civ. Code 1895, §§ 912, 
 393. 923, Guaranty of bonds of connecting 
 
 » State ea;reZ., etc. v. Funding Board line. Nebr., Comp. St. 1895, § 4026, 
 
 (1876), 28 La. Ann. 249. Guaranty of bonds of connecting line. 
 
 For some of the statutes in some of the See New York Stock Corporation Law. 
 
 States affecting the subject of this chapter Pa., Br. Purd. Dig. 1887, p. 1442, § 738, 
 
 see the following : Ark., Dig. 1894, § 6321. Guaranty of bonds of another company. 
 
 Guaranty of bonds of connecting com- S. C, Gen. St. 1882, Guaranty of bonds 
 
 panics ; § 6322, By foreign companies of connecting road. Tenn., Code 1884, 
 
 connecting, lud.. Rev. St. 1888, § 3951 a. Aid of other roads by purchasing these 
 
 3951 c. Guaranty of bonds for construe- bonds. W. Va., Acts 1877, ch. 88 ; Acts 
 
 tion of a line beneficial to guarantor. See 1872-73, oh. 88, § 40. Wash., Code 1891, 
 
 also Rev. St. 1894, §§5216, 5218. Kan., May own and guaranty bonds of iiTigation 
 
 Gen. St. 1889, §§1247, 1269,1272, Pur- companies. See article on Power of Com- 
 
 cha.se or guaranty of bonds of another panics to Guaranty, 31 Am. L. Rev. 363. 
 
130 
 
 EAILWAT BONDS AND MOETGAGES. 
 
 [chap. V. 
 
 
 
 CHAPTER V. 
 
 
 DEFINITIONS OF 
 
 WORDS AND PHRASES. 
 
 §94. 
 
 Introductoiy. 
 
 
 
 § 115. Materials. 
 
 95. 
 
 All other Property. 
 
 
 
 116. Maturity. 
 
 96. 
 
 Apparatus. 
 
 
 
 117. Moneys. 
 
 97. 
 
 Appendages. 
 
 
 
 118. Net Earnings. 
 
 98. 
 
 Appurtenances. 
 
 
 
 119. Operating Expenses. 
 
 99. 
 
 Charge. 
 
 
 
 120. Past due Interest. 
 
 100. 
 
 Claims. 
 
 
 
 121. Preferred Stock. 
 
 101. 
 
 Compromise. 
 
 
 
 122. Profits used in Construction. 
 
 102. 
 
 Consolidation. 
 
 
 
 123. Property. 
 
 103. 
 
 Corpus. 
 
 
 
 124. Protected. 
 
 104. 
 
 Earnings. 
 
 
 
 124 a. Railway. 
 
 105. 
 
 First-mortgage Bonds. 
 
 
 
 124 6. Road-bed. 
 
 106. 
 
 Franchises. 
 
 
 
 125. Road and Property. 
 
 107. 
 
 Fuel. 
 
 
 
 125 a. Servant and Employee. 
 
 108. 
 
 Going Concern. 
 
 
 
 126. Sinking Fund. 
 
 109. 
 
 Income and Profits. 
 
 
 
 127. Stock. 
 
 110. 
 
 Income and Revenues. 
 
 
 
 128. Tax. 
 
 111. 
 
 In such Case. 
 
 
 
 129. Terms, Conditions, and Limita. 
 
 112. 
 
 Labor and Supply Creditors. 
 
 
 tions. 
 
 11.3. 
 
 Laborer. 
 
 
 
 129 a. Written Assent 
 
 114. 
 
 Lien. 
 
 
 
 
 § 94. Introductory. — It not infrequently happens that, in seek- 
 ing to determine the rights of bondholders, the courts find that 
 the inquiry narrows itself down to ascertaining the precise signifi- 
 cation of some particular word or phrase occurring in the instru- 
 ment or statute upon which those rights are founded. In the 
 present chapter it is proposed to give the judicial construction 
 which has been placed upon words or phrases of controlling im- 
 portance, either by way of explanation or formal definition. But 
 only those cases are cited which embrace other subjects treated 
 of in this book. For convenience of reference, an alphabetical 
 arrangement will be adopted. 
 
 § 95. All other Property. — This phrase, when found neither in 
 the beginning of the granting clause of a mortgage, to be after- 
 wards emphasized by a more minute description, nor at the end, 
 as a summary of what precedes it, is interpreted on the principle 
 
§§ 96-99.] DEFINITIONS OF WOEDS AND PHEASES. 131 
 
 of ejusdem generis, as being intended to remove any doubt that 
 may arise as to the meaning of the words with which it is imme- 
 diately connected. Thus where a railway company, in pursuance 
 of a statute, made a mortgage giving the State of Alabama a first 
 lien upon all lands granted by the United States to the company, 
 and " on the telegraph line and telegraph offices along the line of 
 said road belonging to said company ; also on the machine shops 
 and ' all other property,' " in four specified States ; " also on all 
 coal mines, etc. ; also on all iron or mineral lands, etc.," the lien 
 does not extend to certain town lots owned by the company, but 
 not coming within any of the specified classes. In the position 
 in which the disputed words occurred, it was held that they were 
 only designed to cover property of the company in and about the 
 telegraph offices, machine shops, etc., in regard to which a doubt 
 might otherwise arise whether it formed part of those classes of 
 property.! 
 
 Where a mortgage, after specifying the road and the several 
 parts of it, together with the rolling-stock, added " and ' all other 
 personal property ' and rights thereto, and interest therein," the 
 words " all other personal property " were thought probably to 
 refer to '' property appurtenant to the road, and employed in its 
 operation;" but the case did not require a direct decision of the 
 question.^ 
 
 § 96. Apparatus. — The word " apparatus '' in a mortgage by an 
 electric light company includes the lamps.^ 
 
 § 97. Appendages. — The phrase " road and its ' appendages' " 
 in a railroad charter does not include the equipments, cars, en- 
 gines, or other personal property of the company, but is applied 
 to its real estate.* 
 
 § 98. Appurtenances. — The meaning of this word, when used 
 in mortgages, is discussed in Chap. IX., post. 
 
 § 99. Charge. — In the Alabama statute giving a judgment 
 creditor the right to redeem real estate which has been " sold 
 under execution," or by virtue of any decree in chancery, or under 
 any deed of trust or power of sale in a mortgage, ... or payment 
 bid for the land, interest thereon, and " all lawful ' charges,' " the 
 word " charges " implies every lien, or incumbrance, or claim the 
 purchaser may have upon the premises, and for which, at law or 
 in equity, he would be entitled to hold the lands as security, or 
 
 ' Alabama v. Montague (1886), 117 Power Co. (1894), 103 Mich. 89: s. 0.61 
 
 U. S. 602. N. W. 275. 
 
 2 Pennock v. Coe (1859), 23 How. 117. * State Treasurer v. Somerville & 
 
 " EamsdeU v. Citizens' Electric Light & Eastou B. Co. (1859), 28 N. J. L. 21. 
 
132 EAILWAT BONDS AND MOETGAGES. [CHAP. V. 
 
 to the satisfaction of which a court of equity would condemn them. 
 It includes, therefore, a mortgage debt antedating the levy of the 
 attachment in the suit in which the creditor seeking redemption 
 obtained judgment.^ 
 
 A mortgage provided for the approval by the trustees of the 
 expenditure of all moneys realized from the sale of the bonds, and 
 required the written assent of said trustees to all contracts of tlie 
 company before such contracts should be a " charge " upon said 
 funds. A contractor for the construction of a part of the road 
 claimed a lien upon the funds from the sale of bonds. The court, 
 however, held that the term, as used in the mortgage, did not, in 
 a technical sense, import a lien upon those funds. It simply war- 
 ranted that a claim such as this of the contractor might be payable 
 out of them. For instance, the company might have appropriated 
 the funds to the satisfaction of such claims, and, by thus depriv- 
 ing itself of their control, have conferred upon the contractor the 
 right to have them applied to reimburse him for services ren- 
 dered or materials furnished.^ 
 
 § 100. Claims. — In a decree ordering the conveyance of a rail- 
 road which had been sold, it was declared that the conveyance 
 should not have " the effect of discharging any part of the said 
 property from the payment of ' claims ' or demands chargeable 
 against the same." Several claims were then specifically enumer- 
 ated, all relating to matters which would come in during the pro- 
 cess of the administration. It was held that the word must be 
 confined to these matters, and could not be construed as charging 
 on the purchasers the burden of prior underlying mortgagees, 
 none of which were being foreclosed.^ 
 
 § 101. Compromise. — Under this term are comprehended 
 agreements between two or more persons for the ascertainment 
 of their rights when there is some question in controversy between 
 them, or some diihculty in the enforcement to the uttermost 
 farthing of the rights of the claimant.* 
 
 § 102. Consolidation. — " Tlie words ' consolidate ' and ' consoli- 
 dation,' as used in statutes authorizing and ratifying the union or 
 combination of several railroad corporations into one, have not 
 acquired a recognized judicial construction which imports that all 
 the companies are dissolved and merged into one new company ; 
 
 1 Griggs V. Banks (1877), 59 Ala. 311. * Fry, L. J., in Mercantile Investment 
 
 2 Dillon V. Barnard (1874), 21 Wall. Trust Co. v. International Co. of Mexico 
 430. (1893), 1 Ch. 484, n., 68 L. T. 60.3, n., 
 
 3 Central Tiiist Co. v. Wabash, St. Louis, reprinted in note to 40 Am. & Eng. Corp. 
 & Pac. R. Co. (1887), 30 Fed. Rep. 332. Cas., p. 337. 
 
§§ 103-105.] DEFINITIONS OP WORDS AND PHRASES. 1S3 
 
 on the contrary, the terms are equally applicable to a union of 
 two or more companies in such a way that one of them is con- 
 tinued in existence, though under a new name and with enlarged 
 powers, while the others are merged in and absorbed by it ; and 
 when the statute authorizes the companies to unite and consolidate 
 to such an extent and upon such terms as may be agreed on by 
 and with the company or companies entering into agreement with 
 them, the character of the consolidation is determined by the 
 stipulations of the agreement." ^ 
 
 § 103. Corpus. — The corpus of an estate is the material object, 
 or species of property, of which the estate is composed. As ap- 
 plied to a railroad, the term embraces the " roadway, embank- 
 ment, superstructure, and equipment." ^ 
 
 The fund obtained from the sale of this property in foreclosure 
 proceedings is, of course, subject to any charges or liens estab- 
 lished against the property itself ; and although the franchises of 
 the company are not specified by Mr. Justice Bradley in the case 
 just cited as a portion of the corpus, this omission is presumably 
 owing to the fact that his definition was given rather in view of 
 the character of the question before him — the right of one oc- 
 cupying another's land in bad faith to be allowed compensation 
 for improvements thereon — than as a comprehensively accurate 
 explanation of the expression. So far as regards liens on the 
 proceeds of the foreclosure sale, there is nothing in the adjudged 
 cases to warrant the conclusion that the money derived from the 
 sale of the franchises is any less a part of the corpus, than the 
 money derived from the sale of the rest of the property. It has 
 been held, in fact, that the corpus includes franchises and other 
 intangible property, where claims of preferred creditors are in 
 question.^ 
 
 § 104. Earnings. — This word includes the receipts arising from 
 the company's operating as a railroad company, but not those 
 from sales of lands granted to it by the government, nor fictitious 
 receipts from the transportation of its own property.* (See also 
 under " Income and Revenues," and " Net Earnings.") 
 
 § 105. First-mortgage Bonds. — An agreement by a railroad 
 company to deposit " first-mortgage bonds " as a security for an 
 issue of municipal bonds has been held to have been sufficiently 
 complied with, although the mortgage securing the bonds deposited 
 
 1 Meyer v. Johnston (1879), 64 Ala. ' Turner v. Indianapolis, B. & W. R. 
 608 ; s. 0. 8 Am. & Eng. R. R. Cas. 584. Co. (1878), 8 Biss. 315. 
 
 2 Jackson v. Ludeling (1879), 99 U. S. * Union Pacific R. Co. v. United States 
 513, 521. (1879), 99 U. S. 402. 
 
134 EAIL'WAT BONDS AND MORTGAGES. [CHAP. V. 
 
 was junior to one previously given to the State to secure a bond 
 of indemnity for advances made to the mortgagor.^ 
 
 § 106. Franchises. — A " franchise " is a special privilege con- 
 ferred by government upon individuals, which does not belong of 
 common right to citizens generally. It is not essential to every 
 franchise, even in its legal sense, that it should in all cases be 
 exclusive.^ 
 
 " A corporation is itself a franchise belonging to the members 
 of the corporation ; and a corporation, being itself a franchise, 
 may hold other franchises of the corporation." ^ 
 
 " The essence of a corporation consists in a capacity (1) to 
 have perpetual succession under a special name and in an arti- 
 ficial form ; (2) to take and grant property, contract obligations, 
 sue and be sued by its corporate name as an individual; and 
 (3) to receive and enjoy in common grants of privileges and 
 immunities."* 
 
 The ordinary franchise of a railroad company is, by virtue of 
 the sovereign power of eminent domain, to condemn, take, and 
 use lands for the purpose of a public highway, and to take tolls 
 from those who use it as such ; ^ or, as it has been expressed in 
 another case, the franchise of a railroad is the right derived from 
 the charter to construct and maintain the road in its entire length 
 on the route designated in the charter, and to receive compen- 
 sation for the transportation of persons or property over that 
 road.^ 
 
 This franchise to maintain and enjoy a road is not restricted 
 ahd limited to what is barely necessary for that purpose, but 
 extends to what is appropriate and useful and actually in use. 
 It includes the right of appropriating lands for the construction 
 of necessary appurtenances without which the road could not be 
 successfully operated.'^ 
 
 1 Commonwealtli v. Inhabitants of " Coe v. Columbus, Piqua, & Indian- 
 Williamstown (1892), 156 Mass. 70 ; s. 0. apolis R. Co. (1859), 10 Ohio St. 372, cited 
 30 N. E. Rep. 472 ; 36 Am. & Eng. R. in Memphis & Little Rook R. Co. v. Rail- 
 Corp. Cas. 574. road Commrs. (1884), 112 U. S. 609 ; At- 
 
 2 Chicago & Western Indiana R. Co. v. kinson v. Marietta & Cincinnati E. Co. 
 Dunbar (1880), 95 111. 571 ; s. c. 1 Am. & (1864), 15 Ohio St. 21 ; Shamokin Valley 
 Eng. R. R. Cas. 214. E. Co. v. Livermore (1864), 47 Pa. St. 465, 
 
 8 Pierce v. Emery (1856), 32 N. H. 484, cited in West Pennsylvania E. Co. v. 
 
 cited on this point in Coe v. Columbus, Johnston (1868), 59 Pa. St. 290. 
 
 Piqua, & Indianapolis R. Co. (1859), 10 « Colt v. Barnes (1879), 64 Ala. 108. 
 
 Ohio St. 372, and in Morgan i^. Donovan ^ Northern P.icific R. Co. v. ShimmeU 
 
 (1877), 58 Ala. 241. (1886), 6 Mont. 161 ; s. c. 9 Pac. Rep. 889 ; 
 
 * Thomas v. Dakin (1839), 22 Wend. 9 ; Lawrence v. Morgan's L. & Tex. R. & St. 
 
 see p. 71, Judge Nelson's opinion. Ship Co. (1887), 39 La. Ann. 427 ; s. o.'2 
 
§ 107.] DEFINITIONS OP WOEDS AND PHRASES. 135 
 
 When the wotd " franchises " is used in the plural number in a 
 railroad mortgage, it signifies rights and privileges which are 
 essential to the operations of the corporation, and without 
 which its roads and works would be of little value, — such as 
 the franchise to run cars, to take tolls, to appropriate earth 
 and gravel for the bed of its road, or water for the engines, 
 and the like.^ 
 
 It will also include a grant by a municipal corporation of a 
 right of way through certain streets of a municipality, with the 
 right to construct a railroad thereon and occupy them in its use.*^ 
 But exemption from taxation is not ordinarily embraced by this 
 term when used as descriptive of the property which passes to the 
 purchasers at a foreclosure sale. (See Chap. XXXIV.) 
 
 § 107. Fuel. — Under a statute giving a lien to " all persons 
 who should do any work or labor in constructing or improving 
 the road-bed of railroad companies within Missouri," and to " all 
 persons who shall furnish ties, ' fuel,' bridges, or materials " to 
 such companies, Mr. Justice Brewer ruled that the word " fuel " 
 did not enlarge the meaning of the other words, " materials, etc.," 
 so as to give it a different meaning from that which " materials " 
 bore in prior statutes, but merely added a specified matter for 
 which a lien was given. The language used could not, therefore, 
 be made to cover an article like lubricating oil, which, although a 
 part of the supplies necessary for the operation of the road, did 
 not go into the permanent structure and thus come within the 
 principle underlying the statutes which give a lien for labor and 
 materials.^ 
 
 In another case it was contended that a lien should be awarded 
 for certain scales, trucks, letter-presses, and similar articles, on 
 the ground that, by the use of the word " fuel " the legislature 
 intended to enlarge the scope of the word " materials," and make 
 it include everything which passed, not merely with the structure, 
 but into the permanent equipment ; but the same learned judge 
 adhered to the opinion he had expressed in his first opinion, and 
 refused to allow the claim.* 
 
 So. Rep. 69 ; 30 Am. & Eng. R. R. Cas. R. Co. v. Delamore (1885), 114 U. S. 50 ; 
 
 309 ; see also 20 Am. L. Rev. 867 et seq. ; s. c. 5 Sup. Ct. Rep. 1009. 
 Pierce v. Emery (1856), 32 N. H. 484 ; » Central Trust Co. v. Texas & St. 
 
 Hatcher v. Toledo, "Wab. & "West. R. Co. Louis R. Co. (Waters Pierce Oil Co., 
 
 (1872), 62 111. 477 ; s. c. 16 Am. Ry. Rep. Intervener) (1885), 23 Fed. Rep. 703. 
 405. * Central Trust Co. v. Texas & St. 
 
 1 Morgan v. Louisiana (1876), 93 IT. S. Louis R. Co. (Borden, Intervener) (1886), 
 
 217. 27 Fed. Rep. 178. 
 
 - New Orleans, Spanish Fort, & Lake 
 
136 EAILWAT BONDS AND MORTGAGES. [CHAP. V. 
 
 § 108. Going Concern. — This expression is properly applied 
 to a corporation which, although it may be insolvent, still con- 
 tinues to transact its ordinary business.^ 
 
 This term cannot be used of a railroad unless it is constantly 
 in operation. If the rolling-stock is lying idle in the round-houses 
 or upon the tracks, the company is not discharging the duty it 
 owes to the public for the franchises granted to it. To discharge 
 this obligation, the company must keep its road in operation, 
 transporting passengers and freight.^ 
 
 § 109. Income and Profits. [In hands of receiver for cred- 
 itors.] — The phrase "income and profits" signifies the surplus 
 after all expenses and repairs and necessary replacements have 
 been made.^ 
 
 § 110. Income and Revenues. — In the "income and revenues" 
 of a railroad company are included all the income and revenues 
 of the company, and these words necessarily embrace the " earn- 
 ings " of the road, when used in a statute creating a lien in favor 
 of the State, as a security for a loan of its bonds.* 
 
 § 111. In such Case. — Where a clause in a mortgage provided 
 that, in case the payment of interest should be in default for six 
 months the whole principal of the bonds should, at the option of 
 the holders of a majority in interest of the bonds, become due 
 and payable ; and it was declared further that, " in such case," 
 it should be lawful for the trustee to enter on and operate the 
 road, it was held that a mere default in the payment of interest 
 for six months was not enough to confer this extraordinary power 
 
 1 White, Potter, & Page Mfg. Co. v. would treat as a preferential debt a claim 
 
 Pettee's Importing Co. (1887), 30 Fed. for the coal or wood consumed in generating 
 
 Rep. 865. the steam which killed them, but would 
 
 In Green v. Coast Line E. Co. (1895), deny any preference whatever to a judg- 
 
 97 Ga. 15, 37 ; s. 0. 24 S. E. Rep. 814, ment for damages resulting from the 
 
 820, the late Chief Justice Buckley refers homicide. Public policy certainly favors 
 
 to the doctrine of a debt against a com- keeping the franchises active, but it favors 
 
 pany assuming a preferential character, as more the security of all who as a part of 
 
 against the claims of bondholders by reason the public are liable to suffer by their 
 
 of its having been incurred in keeping the activity. No policy is subserved by going 
 
 road a, "going concern," in these words; wrong. Nonfeasance is better than mis- 
 
 " There seems to be a theory that if mort- feasance ; idleness is better than homicidal 
 
 gaged roads can be kept ' going concerns,' mischief resulting from a vicious or negli- 
 
 it matters not what else may stop. That gent activity. " 
 
 the public is decidedly the most important ^ EeHg „_ Johann (1886), 27 Fed. Rep. 
 
 ' going concern ' in existence appears to be 327. 
 
 overlooked. As a part of the public the ' Strang v. Montgomery & Eufaula R. 
 
 husband and son of llrs. Green were 'going Co. (1879), 3 Woods, 613, 619. 
 concerns,' and the going of the railroad * Tompkins v. Little Rock & Fort 
 
 w;is the cause of their ceasing to be such. Smith R. Co. (1884), 15 Fed. Rep. 6, 14. 
 The cases on which we are animadverting 
 
§§ 113, 114.J DEFINITIONS OP WORDS AND PHRASES. 137 
 
 on the trustee, and that the words " in such case " implied that 
 the right of entry was to arise only after the option of the bond- 
 holders had been exercised in the manner specified. ^ 
 
 § 112. Labor and Supply Creditors. — These WOrds include SUCll 
 as have wrought and given of their substance under promises of 
 prompt payment from the railway company, and for that reason 
 are preferred creditors of the income.^ 
 
 §113. Laborer. — The term "laborer," in an order requiring 
 the mortgagees to pay claims for services, embraces counsel en- 
 gaged by the receiver for services necessary to the successful 
 management of the road.^ 
 
 Railroads are made liable by Rev. Stats. Me., c. 52, § 141, for 
 the wages of laborers employed by contractors for labor actually 
 performed on the road. One who superintends the building of 
 bridges at an agreed compensation of seven dollars per day, keeps 
 an account of the men's time and makes out their pay-rolls, has 
 been held not to be a " laborer " within the meaning of this 
 statute.* 
 
 § 114. Lien. — Taken in its widest sense, the term " lien " 
 includes every case in which personal or real property is charged 
 with the payment of a debt. Statutory liens depend upon the 
 construction of the statute, and contract liens on the terms of the 
 contract." ^ 
 
 A common-law lien has been defined as a right in one man to 
 retain that which is in his possession belonging to another, till 
 certain demands of him, the person in possession, are satisfied ; ^ 
 but this definition is clearly too narrow to cover equitable liens, 
 
 ^ Union Trust Co. v. Missouri, K. & s. c. 33 Am. Rep. 348 ; nor one who has 
 
 T. R. Co. (1880), 26 Fed. Rep. 485. contracted to do a certain amount of 
 
 2 Frank v. Denver & Rio Grande R. grubbing, notwithstanding he labors with 
 
 Co. (1885), 23 Fed. Rep. 123, 128. the men employed by him to do the work: 
 
 " Bayliss v. Lafayette, Muncie, & Rogers v. Dexter & Piscataquis R. Co. 
 
 Bloomington R. Co. (1879), 9 Biss. 90. (1893), 85 Me. 372 ; s. c. 27 Atl. Rep. 
 
 4 Blanchard v. Portland & Rumford 257. 
 
 Falls Ry. (1895), 87 Me. 241 ; s. c. 32 6 gulUvan v. Portland & Kennebec R. 
 
 Atl. Rep. 890. Co. (1874), 4 Cliff. 212, 225. For general 
 
 It was said in the opinion: "In the discussion of the meaning of this word 
 
 construction of statutes similar to our own, see 19 Am. Law Rev. 783. See also 
 
 it has been held that the word ' laborer ' Peck v. Jenness (1849), 7 How. 612, 619. 
 
 does not include a book-keeper or a super- ^ Hammons v. Barclay, 2 East, 227. 
 
 intendent:" Wakefield v. Fargo (1882), That the use of the word "lien" in a 
 
 90 N. Y. 213 ; nor a civil engineer : statute may not always be conclusive as 
 
 Pennsylvania & Delaware R. Co. v. to the actual existence of a lien, see 
 
 Leuffer (1877), 84 Pa. St. 168 ; s. c. 24 Tompkins v. Little Rock & Fort Smith 
 
 Am. Rp]i. 189; nor an assistant engineer: R. Co. (1888), 125 U. S. 109 ; s. c. 8 
 
 Brockvvay v. Inues (1878), 39 Mich. 47 ; Sup. Ct. Rep. 762. 
 
138 BAILWAY BONDS AND MOKTGlGES. [CHAP. V. 
 
 and the liens created by statute for the benefit of certain classes 
 of creditors with specially meritorious claims. 
 
 § 115. Materials. — In Central Trust Co, v. Texas & St. 
 Louis R. Co.^ it was said that, when employed in relation to rail- 
 roads, the word " materials," in statutes giving laborers, etc., a 
 lien, is limited to such articles as pass into the permanent struc- 
 tures and equipment of the company. (See supra, as to fuel not 
 being " material " in this sense.) 
 
 In a railroad mortgage the word " materials " relates only to 
 such materials as the railroad company there had, and which 
 were ciapable of being conveyed. If the words " used in operat- 
 ing the road " relate to all kinds of property specifically named, 
 the word " materials " would be limited by them. The word does 
 not cover " chairs " which were lying on the ground in stacks and 
 had never become appurtenant to the road.^ 
 
 Coal furnished to an electric light and power company, used by 
 it to operate its plant, has been held to be " material furnished " 
 within the meaning of section 1255, Code of North Carolina, 
 which disables corporations from mortgaging their property freed 
 from liability on judgments obtained against them " for labor per- 
 formed, for material furnished," etc. * 
 
 § 116. Maturity. — The word " maturity," in its application to 
 bonds and similar instruments, refers to the time fixed for their 
 payment, which is the termination of the period they have to 
 run.* 
 
 § 117. Moneys. — Where the mortgage conveys " all the in- 
 come, rents, tolls, profits, receipts, ' moneys,' rights," etc., the use 
 of the word " moneys " does not enlarge the rights of the mort- 
 gagee so as to convey to him such moneys as are simply past in- 
 come or earnings. The words are prospective, not retrospective, 
 in their operation ; the only exception to this rule being the case 
 in which the mortgagor has in his possession moneys received 
 from the sale of rolling-stock, lands, or other tangible property.^ 
 
 § 118. Net earnings have been variously defined as the ex- 
 cess of the gross earnings over the expenditures defrayed in pro- 
 ducing them aside from and exclusive of the expenditures for 
 construction and the ordinary expenses incident to operating and 
 
 1 23 Fed. Eep. 703 (1885). « United States v. Umon Pac. E. Co. 
 
 2 Farmers' Loan & Trust Co. v. Com- (1875), 91 U. S. 72. 
 
 mercial Bank (1860), 11 Wis. 211. ^ -Qovi v. Memphis & Little Rock K. 
 
 8 Pocahontas Coal Co. v. Henderson Co. (1884), 20 Fed. Eep. 772. 
 Electric Light & Power Co. (N. C, 1896), 
 24 S. E. Kep. 22. 
 
§ 118.] DEFINITIONS OP WORDS AND PHRASES. 139 
 
 maintaining the roads and works of a railroad company ; ^ as the 
 gross receipts, less the expenses of operating the road to earn 
 such receipts, 2 or what is left of the income after paying the 
 legitimate cost and expense of working earnings by the use of 
 the property.^ 
 
 Nor " is the meaning of ' net earnings ' limited to earnings in 
 any one particular mode, but the expression is broad enough to 
 include the revenue to be derived from the property in any 
 manner." * 
 
 Thus, where a company operates leased roads in addition to its 
 own, the '"net earnings' of the road" are not limited to those 
 derived from its own road, but embrace all those which accrue 
 from the business done on the leased roads also.^ 
 
 But the net earnings of one of the roads may also be segre- 
 gated by the express terms of the mortgage ; as where the L. 
 railroad gave the C. railroad a mortgage of the " net earnings " 
 of all business coming to it from the C. road. In this case the 
 " net earnings " specified were ascertained by deducting from the 
 gross receipts of such business the expenses of operating the road 
 by which the receipts were earned. The expenses were found 
 by proportion, and the proper proportion charged to the business 
 in dispute.® 
 
 For further information as to this term, see 25 Am. L. Reg. 
 N. S. 558, and the notes in 1 Am. & Eng. R. R. Gas. 517, and 23 
 Am. & Eng. R. R. Gas. 745. 
 
 1 Union Pacific R. Co. v. United States ^ St. John v. Erie R. Co. (1872), 10 
 
 (1879), 99 U. S. 402, 420 ; followed in Blatch. 271, affirmed in St. John v. Erie 
 
 Barry v. Missouii K. & T. K. Co. (1886), R. Co. (1874), 22 Wall. 136, 149. 
 
 27 Fed. Rep. 3, 5. ' Vermont & Canada R. Co. .;. Vermont 
 
 In United States v. Kansas Pacific Ry. Central R. Co. (1877), 50 Vt. 500; s. c. 
 Co. (1879), 99 U. S. 455, the court 14 Am. Ry. Rep. 497. 
 excluded the money needed to place the * Phillip's Trustee v. Eastern R. Co. 
 road in proper repair, but not actually et al. (1884), 138 Mass. 122, 128 ; s. c. 22 
 expended for that purpose, the expenses Am. & Eng. R. R. Cas. 247, in which case 
 of the Land Department and the interest on the words of the statute were referred to 
 the funded debt, which had priority over by the court in these words: "The phrase 
 the lien of the United States, from the ' net earnings,' as used in this act, is sub- 
 amount to be charged against the gross stantially synonymous with ' net income ' 
 earnings to ascertain the " net earnings ; " or ' net profit.s,' and required all the sums 
 but allowed the equipment account, or received for a lease of the road to be 
 replacing and rebuilding rolling-stock, applied as the statute required the net 
 machinery, etc., the amounts paid for earnings to be applied." 
 depot grounds and the expenses of the * St. John v. Erie R. Co. (1874), 22 
 same, and the construction account, or Wall. 136. 
 
 improvements and additions to the track, * Schmidt v. Louisville & N. R. Co. 
 
 where they had been actually paid out of (1894), 95 Ky. 289 ; s. c. 25 S. W. Rep. 
 
 the earnings of the road, to be deducted. 494. 
 
140 RAILWAY BONDS AND MORTGAGES. [CHAP. V. 
 
 As to the meaning of " earnings," " income," and " revenues," 
 see those words. 
 
 " Net earnings," in a by-law providing that dividends should be 
 paid therefrom, are the gross receipts, less the expenses of oper- 
 ating the road, and less also interest on such of the company's 
 indebtedness as it is prudent and proper to keep in a permanent 
 form, and less also any floating or temporary liabilities which 
 good judgment would require to be presently paid, and less also 
 any annual contribution to a sinking fund for the payment of 
 debts, whenever expedient and proper to provide such a fund.^ 
 
 § 119. Operating Expenses. — Interest on receivers' certificates 
 made payable out of the corpus of the mortgaged property, and 
 costs and allowances to the master or other officers of court, are 
 not a part of the " operating expenses " of a road to be taken 
 into account in determining the " net earnings " of a road.^ 
 
 A Massachusetts statute, passed for the relief of a railroad com- 
 pany, provided that it might mortgage its property, and that, 
 after default in the payment of interest should continue for twelve 
 months, the trustees named might, at the request of a certain 
 proportion of the bondholders, take possession and proceed to 
 foreclosure ; but no provision was made for disposing of the gross 
 income of the corporation while it was in control of the road, 
 except that authority was given for applying the net earnings 
 over and above operating expenses to certain specified purposes. 
 It was held that, until the mortgagees should enter, the income 
 of the road remained liable to attachment by trustee process 
 founded on claims arising out of the operation of the road since 
 the statute went into effect, and that a claim founded on damage 
 done to property at a crossing must be paid to one suing by such 
 process, as a part of the " operating expenses," which the com- 
 pany was empowered to liquidate before the application of the 
 earnings, in pursuance of the act.^ 
 
 In a later case an attempt was made to show that the interest 
 on certain bonds securing a loan and guarantied by the lender 
 came under the "operating expenses" mentioned in the same 
 statute ; but this view did not prevail.* 
 
 Where a railroad company is authorized by a statute embody- 
 ing a compromise agreement to remain in possession, and apply 
 
 1 Belfast & Moosehead Lake R. Co. v. « Smith v. Eastern R. Co. (1878), 124 
 City of Belfast (1885), 77 Me. 445 ; s. c. Mass. 154. 
 
 1 Atl. Rep. 362 ; 23 Am. & Eug. R. R. < Eastern R. Co. v. Rogers (1878), 124 
 Cas. 736. Mass. 527. 
 
 2 Blair v. St. Louis, K. & T. R. Co. 
 (1885), 25 Fed. Rep. 232, 234. 
 
§§ 120-122.] DEFINITIONS OP WORDS AND PHRASES. 141 
 
 to the payment of the incumbrances any portion of its net earn- 
 ings over and above its " operating expenses," including therein 
 its necessary expenditures for construction, insurance, taxes, 
 renewals, and repairs needful to maintain its road in good condi- 
 tion, and its rentals, certificates of indebtedness, and such pay- 
 ments as may be required by the statute, the term " operating 
 expenses " has a wider scope than that which it ordinarily bears.-^ 
 
 The " operating expenses " which are commonly to be paid 
 under reorganization schemes before the common stockholders 
 are entitled to the benefit thereof do not include money spent on 
 steel-rail betterments, or on steamers owned by the company to 
 make them more efficient, or the purchase of engines and cars. 
 Nor should the expense account be charged with an estimate de- 
 preciation, where the money so charged was not actually spent 
 upon repairs.^ 
 
 § 120. Past due Interest. — This term can only mean interest 
 which has matured and which is collectible on demand.^ 
 
 § 121. Preferred Stock. — Stock of this description differs from 
 other capital stock merely in the preference given to it in the 
 payment of dividends, and does not confer on the holder any 
 other privilege or entitle him to priority in any other respect.* 
 
 A preferred " stockholder " is, therefore, not a creditor ; nor is 
 a dividend guaranteed to him.^ 
 
 § 122. Profits used in Construction. — This expression does not 
 embrace earnings expended in repairs for keeping the property 
 up to its normal condition, but refers to new constructions adding 
 to the permanent value of the capital ; and when these are made 
 
 1 Phillips V. Eastern E. Co. (1886), companies, means money invested in the 
 138 Mass. 122 ; s. C. 22 Am. & Eng. R. R. business of the company, represented by 
 Cas. 247. certificates of shares known as ' capital ' or 
 
 2 Mackintosh v. Flint, P. & M. R. Co. ' capital stock, ' and there is no other 
 (1888), 34 Fed. Rep. 582 ; s. c. 36 Am. & known stock belonging to such companies 
 Eng. R. R. Cas. 340. having a distinct and separate character- 
 
 ' t'oquard v. Bank of Kansas City istic from ' capital stock, ' what effect can 
 
 (1882), 12 Mo. App. 261. the word 'preferred,' when attached to it, 
 
 * St. John 1'. Erie R. Co. (1872), 10 have except to indicate that in the case it 
 
 Blatch. 271 ; State ex rel., etc. v. Cheraw is to have some advantage which otherwise 
 
 & Chester R. Co. (1881), 16 S. C. 524. it would not have ? In other words, in 
 
 In the latter case the court said :" The such case can it be anything else than 
 word 'preferred' is relative to something 'preferred capital stock,' or a 'preferred 
 else, and it means that the thing to which interest ' in the money paid in by stock- 
 it is attached, whatever that may he, has holders, divided into shares and repre- 
 some advantage over other things of the sented by certificates showing the share of 
 same character, which but for this advan- each holder ? " 
 
 tage would be like the former. If then ^ Belfast v. Moosehead Lake R. Co. 
 
 the term 'stock,' when employed in v. City of Belfast (1885), 77 Me. 445; 
 
 connection with railroad or other chartered s. c. 23 Am. & Eng. R. E. Cas. 736. 
 
142 RAILWAY BONDS AND MORTGAGES. [CHAP. V. 
 
 to take the place of prior structures, it includes only the increased 
 value of the new over the old when in good repair.^ 
 
 § 123. Property. — A mortgage conveying " all the present and 
 in future to be acquired 'property' of the L. Branch of the B. 
 & S. W. R. Co., that is to say, all the branch railroad," etc. (these 
 words being followed by a detailed description of the different 
 kinds of property embraced by the general words), do not cover 
 the interest which the mortgagor has previously acquired in mu- 
 nicipal subscriptions which have been previously obtained and 
 accepted by the company for the purpose of raising money to 
 build the road. The court conceded that the word " property " 
 was sufficiently broad and comprehensive to include every kind of 
 possession and right, and that " in its literal acceptation it 
 might include such rights, whether legal or equitable, absolute or 
 contingent, as the railroad company had acquired " under the aid- 
 bonds ; but was of opinion that such a construction of the mort- 
 gage was not imperatively demanded, and was also inconsistent 
 with the intention of the parties, as deduced, according to the 
 ordinary rules established for the interpretation of written instru- 
 ments, from the addition of the explanatory phrase, " that is to 
 say," and the subsequent enumeration of several specific kinds of 
 property .2 See also § 95. 
 
 § 124. Protected. — In Wabash, St. L. & Pac. R Co. v. Ham^ 
 it was contended by the holders of certain unsecured equipment 
 bonds, issued by one of the companies which had entered into a 
 consolidation agreement, that a stipulation in that agreement 
 that the bonds and debts of the former companies " shall be pro- 
 tected by the said consolidated company " created a lien in their 
 favor. The court, however, declined to accept this view. As the 
 agreement " to protect " expressly referred to the time of pay- 
 ment, and the effect of the " equipment bonds " had been merely 
 to create a personal and unsecured debt of one of the former 
 companies, the words "shall be protected" must be taken to have 
 the same meaning which they ordinarily have in promises of men 
 of business to " protect" drafts or other debts not made or con- 
 tracted by themselves, — that is to say, a personal obligation to 
 see that they were paid at maturity. 
 
 § 124a. Railway. — A Canadian court has Said : "There is no 
 technical meaning in the term " railway." A tramway and street 
 railway are both railways in the sense of a road constructed with 
 
 I Grant v. Hartford & New Haven R. 2 Smith v. McCuUough (1881), 104 
 
 Co. (1876), 93 U. S. 225. V. S. 25. 
 
 » 114 U. S. 587 (1885). 
 
§§ 124 6-125 a.] definitions of words and phrases. 143 
 
 parallel lines of rails on which cars or trains operate. They 
 may both be moved by the same power, but there the analogy 
 ends." 1 
 
 § 124 h. Road-bed. — This word, when used in reference to rail- 
 ways, means the foundation on which the superstructure of the 
 railway rests, and the superstructure is the sleepers or ties, rails 
 and fastenings. This includes the side tracks, which form a part 
 of the railway.^ 
 
 § 125. Road and Property. — A statute by which certain bonds 
 issued by the State of Missouri were to be a first lien on a " road 
 and its appurtenances " was amended so as to make the same 
 bonds a lien on the " road and property " of the company. It 
 was held that this alteration must be presumed to have been 
 made advisedly, and to have been intended to enlarge the applica- 
 tion of the lien. The word " property " was therefore taken to 
 comprehend the lands which had previously been granted by 
 Congress to aid the construction of the road, and by the State to 
 the railroad company, and the contention negatived, that the lien of 
 the State was confined to the road and such property immediately 
 connected with the road as was necessary for its operation.^ 
 
 § 125 a. Servant and Employee. — Words " servant " and " em- 
 ployee " in act providing that a court granting a foreclosure decree 
 should order that the purchaser should pay " all sums due by 
 the foreclosed company to a servant or employee," do not include 
 a secretary of the company.* 
 
 This decision was to a great extent rendered out of deference 
 to the supposed effect of a previous decision in the State court.* 
 
 ^ Edison Gen. Electric Co. v. Edmonds S. 602, where the words " all other prop- 
 
 (1895), 4 Br. Col. Rep. 354, holding the erty " occurring in the middle of an enu- 
 
 Railwaj' Act of Canada not to apply to meration of several kinds of property, 
 
 undertakings in the nature of tramways or were construed on the principle of ejusde^n 
 
 street railways. generis, and held not to extend to lands 
 
 ^ Standard Insurance Co. o. Langston which did not fall within the classes of 
 
 (1895), 60 Ark. 381, 385, citing Santa property specified. See § 95, in/'c. 
 
 Clara County v. Southern Pac. Ry. (1886), ^ Wells v. Southern Minn. Ry. Co., 1 
 
 118 U. S. 394, 413; San Francisco v. McCrary, 18. 
 
 Central Pacific R. Co. (1883), 63 Cal. 467, ^ -whitehead v. Vineyard (1872), 50 
 
 469 ; San Francisco, etc. R. Co. v. State Mo. 30. There, after a consideration of 
 
 Board (1882), 60 Cal. 12, 34 ; Cass County all the acts relating to the lands, of the 
 
 «. Chicago, B. & Q. R. Co. (1889), 25 Neb. policy of the State in regard thereto, 
 
 348, 353. and of the contemporaneous construction 
 
 ' Wilson V. Boyce (1873), 2 Dill. 639, which various officials appeared to have 
 
 affirnicil in Wilson u. Boyce (1876), 92 U. placed upon the legislation, it was deter- 
 
 S. 320. mined that the lands were not covered by 
 
 This case was commented on and dis- the phrase in question, 
 tinguished in Alabama v. Montague, 117 U. 
 
144 RAILWAY BONDS AND MORTGAGES. [CHAP. T. 
 
 But the opinion of the Missouri court, as given in a recent case, 
 is to the effect that Whitehead v. Vineyard was not intended to 
 have the scope attributed to it by the federal courts, and, so far 
 as the ruling of the latter is a matter of mere precedent, its 
 authority is seriously shaken.^ 
 
 § 126. Sinking Fund. — This term signifies a fund created for 
 extinguishing or paying a funded debt.^ 
 
 § 127. stock. Capital. Stock. — The words " stock " and 
 " capital stock " may be defined as meaning the fund or property 
 belonging to a firm or corporation, and used to carry on its 
 business.^ 
 
 When shares of "stock" of a corporation or a majority of 
 shares are spoken of in statutes, it usually refers to the subscribed 
 or issued or outstanding shares.* 
 
 § 1 28. Tax. — The State of Arkansas passed an act which 
 provided for the issue of aid-bonds, and declared, among other 
 things, that a " tax " should be imposed from time to time on 
 any railroad company, to which the bonds should be issued, such 
 " tax " to be equal in amount to the annual interest upon the 
 bonds then outstanding and unpaid, and further that the " taxa- 
 tion " was to continue until the amount of bonds issued to such 
 company with the interest thereon should have been paid by the 
 company, in which case the said road should be " entitled to a 
 discharge from all claims or liens on the part of the State." It 
 was held in the Supreme Court of the United States that the ex- 
 action made by the State, under such circumstances and for such 
 purposes, was not a " tax," although so designated, and that the 
 statute, therefore, did not create any charge on the property of 
 the company which could be enforced by the purchasers of the 
 bonds, their only remedy being against the State. It was denied 
 that the provision for the " discharging from all claims or liens " 
 was sufficient of itself to establish a lien, if the lien did not other- 
 wise attach. Such a provision, it was conceded, might be used in 
 aid of construction, if there were any doubt ; but, upon an exami- 
 nation of the rest of the statute, the conclusion reached was that 
 
 1 Wilson V. Beckwith (1893), 117 Mo. Co. v. Pyne (1887), 30 Fed. Rep. 
 61 ; s. 0. 22 S. W. Rep. 639. In this 86. 
 
 case it was held that the lien created by ' Commonwealth v. Lehigh Avenue 
 
 the act of 1857, March 3, did not extend Ry. Co. (1889), 129 Pa. St. 405, 414 ; s. 0. 
 
 the State's lien over the railroad's lands 18 Atl. Rep. 414, 498 ; 7 Ry. & Corp. L. 
 
 granted by Congress to the State and by J. 43. 
 the State to the company. 4 Market Street Ry. Co. v. Hellman 
 
 2 Ketchum v. City of Buffalo (1856), (1895), 109 Cal. 571, 688 ; s. c. 42 Pac. 
 14 N. Y 356, 379 ; Chicago & I. R. Rep. 221. 
 
§§ 129, 129 a.] DEFINITIONS OF WORDS AND PHEASES. 145 
 
 there was nothing therein from which the creation of a lien might 
 be reasonably implied.^ 
 
 § 129. Terms, Conditions, and Limitations. — A mortgage con- 
 tained a provision to the effect that, in case of a foreclosure sale, 
 and a written request by a majority of the bondholders, the trustee 
 might purchase the property for the use and benefit of those bond- 
 holders, after which he might take such lawful measures as he 
 deemed for the interest of the said bondholders, to organize a new 
 company for their benefit, the organization to be effected upon such 
 " terms, conditions, and limitations," and in such a manner as the 
 holders of a majority of the outstanding bonds secured by the 
 mortgage should direct. It was held that the primary object of 
 the deed being to secure to the bondholders a prior right to the 
 entire property, the subject of the trust, so far as it was needed 
 for the payment of the bonds, no exception could be taken to a 
 decree which fully preserved this right, and directed an organiza- 
 tion of the new company which was for the benefit of the bond- 
 holders. "The power" (to carry out the reorganization), said 
 Mr. Justice Strong, " was coupled with a large discretion. The 
 majority was authorized to define the ' terms, conditions, and 
 limitations ' under which the new company should be organized. 
 What those should be was thus left to the discretion of the donors 
 of the power. ' Terms, conditions, and limitations ' are broad 
 words. Let it be conceded that the new organization must be 
 for the benefit of the holders of the first-mortgage bonds, how can 
 we say it is not for the benefit of those holders that entirely sub- 
 ordinate interests are conceded to junior lien creditors and to the 
 stockholders of the former corporation ? How can we say that 
 such a concession was beyond the discretion with which the 
 agents of the bondholders, that is to say, the majority, were 
 clothed ? Such concessions are generally made in reorganization 
 of railroad companies, and they are regarded as beneficial to the 
 joint lienholder.2 
 
 § 129 a. Written Assent. — The " written assent " required by 
 the statute of New York of stockholders to the execution of a 
 mortgage by a corporation is accomplished by the adoption of a 
 resolution authorizing the issue of such a mortgage at a meeting of 
 stockholders by a vote of those holding more than two-thirds of the 
 stock, and entered on the minutes and attested by the secretary.^ 
 
 1 Tompkina a. Little Rock & Fort ^ Sage v. Central R. Co. (1878), 99 
 Smith R. Co. (1887), 125 U. S. 109 ; s. o. U. S. 334, 343. 
 
 8 Sup. Ct. Rep. 762, affinning s. c. 18 » Beebe v. Richmond Light, Heat, & 
 
 Fed. Rep. 344. Power Co. (1895), 13 Misc. Rep. (N. Y.) 
 
 737 ; s. 0. 35 N. Y. Suppl. 1. 
 10 
 
146 
 
 KAILWAT BONDS AND MORTGAGES, 
 
 [chap. TI. 
 
 CHAPTER VI. 
 
 CONSTKUCTION CONTEACTS. 
 
 i 130. Construction Contracts violating 
 Constitutional or Statutory Pro- 
 visions. 
 131. Securities issued under Construc- 
 tion Contracts held invalid be- 
 cause Directors were interested. 
 
 § 132. Lien of Construction Contracts. 
 
 133. The Equities of the Contractor. 
 
 134. Suits to have Construction Con- 
 tracts declared invalid. 
 
 It is not of course within the scope of this work to cite all 
 cases involving contracts for the construction of railroads. Such 
 contracts generally provide for the payment of the work done, in 
 the securities of the company, and only questions arising out of 
 this feature of such contracts, with a few exceptions, are consid- 
 ered here. Construction contracts should be entered into with 
 due reference to any provisions of the constitution and- statutes 
 of the State under whose law the company is created, or which 
 govern the issue of securities provided for in the contract. 
 
 § 130. Construction Contracts violating Constitutional or Stat- 
 utory Provisions. — Reference to constitutional provisions touching 
 this subject are given in a note to Chapter I.^ 
 
 Some constitutions, as will be seen by reference to Chapter I., 
 provide that " no corporation shall issue stock or bonds, except 
 for money, labor done, or property actually received, and all 
 fictitious increase of stock or indebtedness shall be void." It 
 has been held that the object of such a provision in the Pennsyl- 
 vania Constitution was to interdict every issue of stock or bonds 
 which does not, in good faith, represent a consideration in labor 
 done, or property or money received, substantially corresponding 
 in value with the face amount of the issue. An issue of stock 
 and bonds to a contractor, with a face value of more than three 
 times the value of the labor and materials furnished by him, was 
 accordingly set aside at the suit of the corporation.^ 
 
 Nor can a construction contract stand which involves an issue 
 
 1 See supra, Chap. I. 
 
 2 New Castle Northern E. Co. 
 
 Simpson (1884), 21 Fed. Eep. 533. 
 
§§ 131, 132.] CONSTRUCTION CONTRACTS. 147 
 
 of bonds entirely disregarding a statute which enacts that railroad 
 companies shall be limited in their indebtedness to the amount of 
 the capital stock subscribed, and authorizes an issue of bonds not 
 to exceed double the amount actually paid up of the stock sub- 
 scribed, with a further provision that the indebtedness cannot be 
 increased beyond the amount of stock subscribed until the sub- 
 scriptions shall have been fully paid in.^ 
 
 § 131. Securities issued under Construction Contracts held in- 
 valid because Directors -were interested. — The rights of the 
 holders of bonds issued in pursuance of a construction contract 
 are sometimes determined by an application of the well-settled 
 principle that a transaction in which the directors have a per- 
 sonal interest opposed to the interest of their company will be set 
 aside at the instance of parties interested. Thus in a case in 
 which two directors were to derive benefit from a construction 
 contract, and the construction company furthermore agreed to 
 relieve twelve shareholders in the railroad company from paying 
 any subsequent assessments on the stock they had subscribed for, 
 it was held that the contract could not be enforced in equity, 
 when resisted by other shareholders, and that the mortgage bonds 
 issued in pursuance of the contract to the construction company 
 were voidable at the election of those affected by the fraud, until 
 they passed into the hands of bona fide purchasers.^ 
 
 So, also, where bonds were issued to a contractor, and by him 
 assigned to a director who was concerned in awarding the con- 
 tract, the court ordered them to be delivered up, on the ground 
 that, if they should pass into the hands of an innocent holder, the 
 company would be liable upon them.^ 
 
 § 132. Lieu of Construction Contracts. — This matter is impor- 
 tant as affecting the relative rights of tlie contractor and the bond- 
 holders, but construction contracts are not generally intended to 
 give any lien to the contractors, nor is it the tendency of the 
 courts to endeavor to establish such liens. 
 
 1 But it is to be observed that the general principle referred to in the text is 
 
 opinion in this case does not show enforced in the following cases, among 
 
 whether the stocks and bonds received by others : Twin Lick Oil Co. v. Marbiiry 
 
 the contractor were issued as a payment (1875), 91 U. S. 587 ; "Wardell v. Union 
 
 for labor and materials. Pac. R. Co. (1880), 103 U. S. 651, afllrm- 
 
 ^ Thomas I). Brownville, Fort Kearney, ing s. 0. 4 Dill. 330, 339; Gardner i: 
 & Pac. R. Co. (1883), 109 U. S. 522. Butler (1879), 30 N. J. Eq. 702 ; Euro- 
 See also Barr v. New York, L. E. feWest. pean & N. A. R. Co. v. Poor (1871), 59 
 R. Co. (1891), 125 N. Y. 263 ; s. 0. 9 Ry. Me. 277; Great Luxembourgh R. Co. 
 Corp. & L. J. 171 ; 26 N. E. Rep. 145. v. Magenay, 25 Beav. 586 ; Benson v. 
 
 ' Flint & Marquette River R. Co. Heathon, 1 Y. & Coll. 326. 
 V. Dewey (1866), 14 Mich. 477. The 
 
148 
 
 EAILWAT BONDS AND MORTGAGES. 
 
 [chap. VI. 
 
 (a) Contract when not a Lien on the Proceeds of Bonds. — There 
 are no reported cases, it is believed, where the construction con- 
 tract has been held to give tlie contractor a lien upon the proceeds 
 of the bonds. In the absence of a statutory provision, the general 
 rule is that unsecured floating debts for construction are post- 
 poned to the lien of a valid mortgage duly recorded, and of bonds 
 secured thereby and held by lona fide purchasers for value.^ 
 
 If, therefore, there is no statutory provision, the question 
 whether, in any given case, the contractor has obtained a lien 
 upon the whole or a specific part of the company's property, 
 superior to that of a subsequent mortgage, must be determined 
 by general equitable principles, the rights of the parties being 
 ascertained by a consideration of the mortgage and the construc- 
 tion contract.^ 
 
 1 Porter v. Pittsburg Bessemer Steel 
 Co. (1887), 120 U. S. 649 ; s. c. 30 Am. 
 & Eng. R. K. Cas. 472. In this case the 
 court remarked that it was not aware of 
 any well-considered adjudged case that 
 sustained the contrary proposition. 
 
 2 In Dillon v. Barnard (1874), 21 
 Wall. 430, affirming s. c. 1 Holmes, 386, 
 a provision made the assent of the tnistees 
 necessary ' ' before the expenditure should 
 be a charge upon any of the sums received." 
 It was argued that the word charge was 
 here synonymous with lien, and that a 
 specific lien was created in the contractor's 
 favor when the trustees had consented to 
 the payment of his claim ; but the court 
 rejected this construction, being of the 
 opinion that the context showed the word 
 to have been employed in the general 
 acceptation of a claim that might be made 
 payable out of the proceeds, and not in 
 any technical sense. The clause was de- 
 signed not for the benefit of the contrac- 
 tor, but to increase the security against 
 a wasteful expenditure of the proceeds. 
 Mr. Justice Field remarked that the case 
 was not different, in its essential features, 
 from those cases of daily occurrence 
 where the expectation of a contractor 
 that funds of his employer derived from 
 .specific sources will be devoted to the 
 payment of his services or materials, is 
 disappointed, and laid down the general 
 rnle as follows : ' ' Before there can arise 
 any lien on the funds of the employer, 
 there must be, in addition to an express 
 
 promise, upon which the contractor relies, 
 some act of appropriation on the part of 
 the employee depriving himself of the 
 control of the funds, and conferring upon 
 the contractor the right to have them 
 applied to his payment when the services 
 are rendered or the materials are furnished. 
 There must be a relinquishment by the 
 employer of the right of dominion over 
 the funds, so that without his aid or con- 
 sent the contractor can enforce their 
 application to his payment when his con- 
 tract is complete." The clause merely 
 meant that, as against the parties to the 
 mortgage, the contractor was not entitled 
 to any benefit except that, upon the assent 
 of the trustees being given to his contract, 
 the use of the moneys for their payment 
 was permissible. This being the proper 
 construction of the provision, it amounted 
 practically to nothing more than a condi- 
 tion precedent to the use of the proceeds 
 of the bonds to pay the contractors. The 
 reporter cites in a note several cases in 
 support of this general proposition. See 
 also Wright v. Ellison (1863), 1 Wall.l6. 
 For a case in which it was ruled that the 
 priority of a lien could not be established 
 by mere implication from an agreement 
 by which the owner of a railroad guaran- 
 ties to the holders of unsecured contract 
 claims that in consideration of their 
 clearing off all claims against the com- 
 pany which may be declared by the court 
 to be liens upon the railroad, paramount to 
 the lien of a subsequent mortgage and the 
 
§ 132.] 
 
 CONSTRUCTION CONTRACTS. 
 
 149 
 
 (b) Contract when not a Lien on the Constructed Road. — In 
 Wright V. Kentucky & Great Eastern Ry. Oo.^ the court refused, 
 under the particular circumstances of the case, to declare a lieu in 
 favor of a construction company j the terms of the contract being 
 inconsistent witli the idea of any ownership of the completed road 
 by the contractors or the possession by them of any lien thereon. 
 
 (c) Statutory Lien of Construction Contracts. — The extent to 
 which a contractor or other material-man obtains by his ser- 
 vices a lien on the property of the company is a matter which, 
 in most instances, is to be decided with reference to the statutes 
 enlarging the common-law rights of this class of creditors. One 
 of the earliest of these enactments, the Pennsylvania resolution 
 of Jan. 21, 1843, declared that it should not be lawful for a com- 
 pany engaged on the construction of a railroad or other work of 
 
 bonds secured thereby, "the claims, liens, 
 and possible indebtedness " to be thus 
 disposed of shall not exceed a certain 
 aura, see Porter v. Bessemer Steel Co., 120 
 IT. S. 649. Such a clause merely provides 
 for the rights of the parties as between 
 themselves, in case the court establishes 
 the priority referred to. 
 
 1 117 U. S. 72 (1888). In this case 
 the coustraction company under its con- 
 tract was to have all the money, municipal 
 bonds, and property issued or given in 
 payment of subscriptions to stock, and 
 all stock not necessary to maintain the 
 charter, or not issued to municipal cor- 
 porations for subscriptions to stock, and 
 also two issues of bonds, one secured by 
 a mortgage as " a first lien " and the other 
 secured by an equipment mortgage. This, 
 it was said, was tantamount to giving the 
 company everything except the road, and 
 the railroad company was necessarily to 
 have and own that, so as to be able to 
 give a mortgage on it as a "first lien." 
 It was further held that a provision in 
 the contract giving to that company all 
 the earnings of the road " during con- 
 struction" and "until accepted" by the 
 railroad company, was vague and indefi- 
 nite, and could not be construed as giving 
 a lien, fftr that would be inconsistent with 
 the whole tenor of the instrument. 
 
 In the same case it appeared that the 
 construction company had done some 
 work on the road purchased by the rail- 
 road company, and for this work the 
 
 assignees in bankruptcy of the former 
 claimed a lien. It was held that, as the 
 contractors when they made the contract 
 were aware that the title by which the 
 road was held was conditional and liable 
 to be divested, upon a breach of the con- 
 dition, by the re-entry of the grantor, 
 they could not claim a lien after the 
 grantor had exercised the rights reserved 
 and resumed. 
 
 Fifty miles of a railway in Manitoba 
 was built and equipped under an agree- 
 ment with a contractor, which entitled 
 him to a lien on the same, and a right to 
 hold possession of the railway and the 
 franchise, rolling-stock, land grant, etc., 
 which belonged to it, as security for the 
 sum due him for its construction. He ob- 
 tained judgment for the amount due for 
 the construction, and the company was 
 given six months by order of the court to 
 pay it, with interest. Having defaulted, 
 the contractor obtained a second judgment, 
 which ordered the possession of the rail- 
 way, etc., to be delivered to him, and jier- 
 petually restraining the company from sale, 
 negotiation, or issue of bonds, and from 
 dealing with the land grant. The Court 
 of Queen's Bench for Manitoba overruled a 
 demurrer to this bill of the contractor to 
 compel the delivery of possession, etc., as 
 ordered in the court rendering judgment 
 in his favor, holding such an agreement 
 to be within the power of the company. 
 Charlebois v. Great North West Central 
 Ey. Co. (1892), 9 Man. 1. 
 
150 RAILWAY BONDS AND MORTGAGES. [CHAP. VI. 
 
 internal improvement to execute a mortgage or other trans- 
 fer of its property so as to defeat the claims of contractors, 
 laborers, and workmen, which were at the time unpaid. It was 
 held in Fox v. Seal^ that the lien thus given was of indefinite 
 duration ; that, in whatever shape the contractor's debt might be, 
 it retained the benefit of the privilege conferred on it by the reso- 
 lution ; and that the lien was consequently not merged in any 
 judgment obtained by the contractor against the company for his 
 debt, nor lost owing to the fact that the lien of such a judgment 
 was allowed to expire by lapse of time. And if the contract 
 itself is set aside as being ultra vires, and the court allows the 
 contractor compensation for the work actually perforined by him, 
 he is entitled, under the same resolution, to a lien for the sum 
 allowed.^ 
 
 The resolution of Jan. 21, 1843, is a protection to the contrac- 
 tor only where his claims accrued prior to the execution of the 
 mortgage.^ 
 
 § 133. The Equities of the Contractor. — The rule is well settled 
 that, where a company procures the rescission of a construction 
 contract, on the ground that it is fraudulent, ultra vires, against 
 public policy, or in violation of constitutional or statutory pro- 
 visions, the court will require the complainants, agreeably to the 
 principle that he who seeks equity must do equity, to compensate 
 the contractor for what he has done. He is not, in such a case, 
 to be put off with a bare reimbursement for his actual outlay, but 
 is entitled to have the value of his work estimated as on a quantum 
 meruit, without regard to the prices fixed by the contract.* 
 
 1 22 Wall. 424 (1874). last case it waa also held that interest on 
 
 2 New Castle E. Co. u. Simpson (1886), the amount found to be due at the time 
 26 Fed. Eep. 133. the work was stopped should be given as 
 
 * Reed'.s Appeal (1888), 122 Pa. St. part of the compensation. The principle 
 
 565 ; s. 0. 16 Atl. Rep. 100. As to statu- here announced is the same as that which 
 
 tory liens for construction and their underlies the rulings of the same court 
 
 priority over mortgage bonds, see Mcll- which permit a quantum meruit recovery 
 
 henny v. Binz (1890), 80 Tex. 1 ; s. c. on contracts, although invalid, because 
 
 13 S. W. Rep. 655. So far as mechanics' they are ultra vires. Pittsburgh R. Co. v. 
 
 and laborers' liens have actually come into Keokxik & Hamilton Bridge (1889), 131 
 
 conflict with liens of mortgages, they are U. S. 371 ; Pennsylvania E. Co. v. St. 
 
 treated in the chapter on priorities. See Louis R. Co. (1886), 118 U. S. 290 ; Cen- 
 
 Chap. XI., post. tral Transportation Co. o. Pullman Palace 
 
 4 Porter ti. Bessemer Steel Co. (1889), Car Co. (1891), 139 TJ. S. 24. See espe- 
 
 120 U. S. 649 ; Thomas v. Brownville, cially the remarks of Mr. Justice Gray at 
 
 F. & K. & Pac. R. Co. (1883), 109 U. S. p. 60 of the report of the last case for a 
 
 522 ; New Castle Northern Ry. Co. v. statement of the grounds on which such 
 
 Simpson (1884), 21 Fed. Rep. .')33 ; Same relief is granted. The recent case of Barr 
 
 V. Same (1885), 23 Fed Rep. 214. In the v. New York, etc. E. Co. (1891), 125 X. Y. 
 
§ 134.J CONSTRUCTION CONTRACTS. 151 
 
 A contractor to whom bonds have been issued may, under some 
 circumstances, lose the priority of his lien by surrendering them. 
 Thus in Fidelity Ins. Co. v. Shenandoah V. R. Co.^ bonds secured 
 by first mortgage had been issued to a construction company 
 under its contract, and were subsequently surrendered, with an 
 agreement that it should receive from the company second-mort- 
 gage bonds and income bonds, and that, to carry on the con- 
 struction of the road, a mortgage constituting a first lien on the 
 property should be executed to secure the new contractors. 
 
 Held, (1) that, the second mortgage never having been executed 
 and delivered, the agreement operated as an equitable mortgage ; 
 
 (2) that the construction company was therefore entitled to a 
 proper compensation for the bonds it was to have received; 
 
 (3) that the old mortgage securing the surrendered bonds gave 
 it no lien for such compensation, but that it was entitled to a lien 
 next after that of the mortgage securing the second contractor's 
 bond. 
 
 § 134. Suits to have Construction Contracts declared invalid. — 
 (a) By the Company. — As long as a contract remains execu- 
 tory, the maxim in pari delicto does not apply. Hence a construc- 
 tion contract which is against public policy will be rescinded, even 
 though partially executed, at the suit of the company. Nor is it 
 a sufficient reason for refusing to interfere, that all the share- 
 holders, by their approval, expressly given, or by acquiescence in 
 what has been done, under the agreement, have adopted the 
 transaction. Even for the officers of the company who made the 
 contract there is a locus pcenitentice? 
 
 On the other hand, if the contract has been executed so that 
 the company has received its benefits, the courts will withhold 
 
 263 ; s. 0. 9 Ry. & Corp. L. J. 174, 26 passed to lonafide holders and having 
 
 N. E. Rep. 145, may also be consulted, been strictly used for the purpose of com- 
 
 the court there holding that a lessee could pleting the road. The court distinguished 
 
 not hold leased property and refuse to pay the case from those in which, on equitable 
 
 rent merely because the lease was made as grounds, the proceeds of the sale of the 
 
 a part of a contract voidable because in property of a railroad, as a completed 
 
 breach of the judiciary obligations of the structure, open for travel and transporta- 
 
 directors. tion, are to be applied to restore earnings 
 
 In Portem. Bessemer Steel Co., supra, which, instead of having been applied to 
 
 a case in which the priorities in the dis- pay operating expenses and necessary 
 
 tribution of a fund arising from the sale repairs, have been diverted to pay interest 
 
 of a road were to be determined, prefer- on mortgage bonds and the improvement 
 
 ence was given to the bonds of one owning of the mortgaged property, 
 most of the stock of the company, under i 33 W. Va. 761 (1890) ; s. c. 11 S. E. 
 
 a construction contract to complete the Rep. 58. 
 
 road, over other floating indebtedness for " New Castle Northern Ey. Co. v. 
 
 original construction, these bonds having Simpson (1884), 21 Fed. Rep. 533. 
 
152 BAIL WAY BONDS AND MOETGASES. [CHAP. YI. 
 
 affirmative relief. Thus where a company, through its board of 
 directors, entered into a construction contract with certain per- 
 sons, some of whom were directors of the company, and, in pursu- 
 ance of such contract, issued bonds secured by a mortgage on its 
 property, it cannot, in a suit to foreclose the mortgage, maintain 
 a cross-bill to set it aside and cancel it as a cloud upon its title. 
 The proper remedy in such a case was to defend against the con- 
 tract on the ground of its being fraudulent, as the other parties 
 would not be in a position to enforce it.^ 
 
 (b) By Individual Stockholders. — In Thomas v, Brownville, 
 Et. Kearney, & Pac. R. Co.^ a portion of the stockholders were 
 allowed to intervene as defendants in a suit to foreclose a mort- 
 gage securing bonds issued in pursuance of an invalid contract. 
 
 (c) By Judgment Creditors. — In Mosgrove v. Kountze ^ judg- 
 ment creditors of a railroad company filed a bill against persons, 
 some of whom were directors of the company, for the purpose of 
 subjecting to the payment of their judgment certain real estate 
 acquired under a construction contract, affirmed to be void on the 
 ground of its being contrary to public policy. No question was 
 raised as to their right to file such a bill, the only point decided 
 being that leave could not be granted them to file a supplemental 
 bill for the purpose of setting up matters which might by due 
 diligence have been ascertained and pleaded by way of amend- 
 ment in the original suit. 
 
 1 Lewis V. Meier (1882), 14 Fed. Eep. ^ xo9 U. S. 522 (1883). (See the facts 
 
 311. of this case in § 131, above.) 
 
 3 U Fed. Eep. 315 (1882). 
 
§ 135.] 
 
 NOTICE. 
 
 153 
 
 CHAPTER VII. 
 
 NOTICE. 
 
 i 135. Of what the Bond is Notice. 
 
 136. Of what the Mortgage is Notice. 
 
 137. Notice of Extiinsio Circumstances, 
 
 Effect of. 
 
 § 138. Statutes relating to Bonds or Mort- 
 gages which Bondholders are pre- 
 sumed to have Notice of. 
 139. Notice under Recording Statutes. 
 
 § 135. Of what the Bond is Notice. — Whether the rights ac- 
 quired by the ownership of bonds are unqualified or not frequently 
 depends, as in the case of other written obligations for the pay- 
 ment of money, upon the question whether the holder has notice 
 of facts limiting or modifying the contract of the obligor. Broadly 
 speaking, the rulings on this subject may be divided into two 
 classes, — (1) those which deal with the effect of notice imparted 
 to the holders by the contents of the bonds or mortgages them- 
 selves, and (2) those which deal with the effect of notice received 
 or presumed to have been received from an actual or imputed 
 knowledge of certain extrinsic facts.^ 
 
 Bonds are notice of what appears on their face, and of anything 
 that can be ascertained by a perusal either of the bonds them- 
 selves or of the mortgage securing them ; and if the bonds and 
 mortgage are so expressed that they lull and satisfy the inquiry, 
 the purchaser is not bound to look any further .^ 
 
 1 Some of the cases cited in this chap- ance of law ; that the face of the bond 
 
 ter are cited elsewhere, hut it has been recited that it was one of a series of num- 
 
 thought that the grouping of these cases bered bonds issued in accordance with the 
 
 under the head of notice would facilitate laws of the State, and secured by the in- 
 
 the practitioner. dorsement of the Goyernor, aflSxed in pur- 
 
 ^ Marlor v. Tex. & Pac. E. Co. 19 Fed. suance of the same laws, and was a first 
 
 Eep. 867 (1884), Stanton v. Alabama & lien upon the railroad and other property 
 
 Chattanooga R. Co. (1875), 2 Woods, 523, of the railroad company ; and that the 
 
 where the purchasers were held to be bonds bore the indorsement of the trustees 
 
 affected with notice of the contents of an named in the mortgage deed to the effect 
 
 indorsement on the bonds. Judge Woods that they were the bonds described in and 
 
 remarked : " Had they taken such notice, 
 they wonld have seen that the Governor 
 had indorsed them, and recited in his in- 
 dorsement that he had done so in pursu- 
 
 secured by said mortgage. In this instance 
 the very bonds and mortgages which put 
 the purchasers on inquiry lulled and stu- 
 pefied inquiry." 
 
154 RAILWAY BONDS AND MOETGAGES. [CHAP. VU. 
 
 So also a bondholder may be precluded from acquiring a pri- 
 ority over the other holders by the fact that the bonds gave him 
 explicit notice of the circumstances under which the mortgage 
 was executed, and that these circumstances were such that his 
 lien was not entitled to any special precedence.^ 
 
 But the rights of a purchaser are not to be affected by con- 
 structive notice unless it clearly appears that the inquiry sug- 
 gested by the facts disclosed at the time of the purchase would, if 
 fairly pursued, have resulted in the discovery of the defect exist- 
 ing, but hidden at the time. The purchaser of a bond in the open 
 market and in the usual course of business is not bound to make 
 a close and critical examination to escape the imputation of bad 
 faith in the purchase. Thus the numbers of the bonds are not 
 an integral part of the bonds themselves, and therefore the fact 
 that the numbering has been changed is not, as a matter of law, 
 notice, or even an intimation, of the larceny .^ 
 
 Nor is a purchaser in the ordinary course of business bound to 
 inquire into the title of his vendor merely because at the time of 
 the sale certain certificates of scrip-preferred stock which had 
 been fastened to the bonds by a pin have been detached from that 
 position before the bonds are offered to him.^ 
 
 Nor is the question of validity deemed to be raised for such a 
 purchaser by the fact that the interest on some of the coupons 
 has not been paid, for such a default does not dishonor either the 
 bonds themselves or the other coupons.* (See also Chapter II.) 
 
 § 136. Of what the Mortgage is Notice. — Where bonds ex- 
 pressly refer to the mortgage which secures them (as is usually 
 the case), the two instruments must be regarded as one obligation 
 and construed together. A purchaser of railroad bonds is bound 
 to take notice of all statements contained in any part not only of 
 the bonds, but also of the mortgage, whereby the promise of the 
 obligor may be qualified.^ (See also Chapter 11.) 
 
 Thus a mortgage provision giving priority to some bondholder 
 secured by it over other bonds of the same issue would be notice 
 to the bondholders that they were not all on the same footing.^ 
 
 1 Taylor v. Atlantic & Great 'Western ♦ State ex rel. Plock v. Cobb (1879), 
 E. Co. (1878), 57 How. Pr. 26 ; Skiddy 64 Ala. 127, 161 ; s. c. 7 Am. & Eng. E. 
 V. Atl., Miss. & Ohio E. Co. (1879), 3 R. Oas. 147. 
 
 Hngbes, 320, especially p. 356. « Marlor v. Tex. & Pacific E.. Co. (1884), 
 
 2 Birdsall v. Eussell (1864), 29 K Y. 19 Fed. Eep. 867, 869. 
 
 220. « McMurrayi'. Moran (1889), 134 U. S. 
 
 ' Hotchkiss V. National Banks (1874), 150, the case being here put hypothetically 
 
 21 Wall. 354, 359, affirming Hotchkiss v. by Mr. Justice Harlan, arguendo, and dis- 
 
 Tradesman's Nat. Bank (1873), 10 Blatehf. posed of as perfectly clear. 
 384. 
 
§ 137.] NOTICE. 155 
 
 Illustrations of this principle are also found in those cases 
 where the bonds of a certain issue recite that they are subject to 
 the lien of a prior mortgage on the same property,^ or to a prior 
 equitable lien of preferred stock.^ 
 
 So where a railroad company issues certain bonds designated 
 " Consolidated First-Mortgage Bonds," and reference is made 
 therein to a mortgage from which it appears that the intention 
 was to substitute a portion of the bonds for first-mortgage bonds 
 already issued upon the road, and to devote the remainder thereof 
 to the extension and the completion of the line, the use of the 
 word "consolidated" is sufficient to put a purchaser upon inquiry. 
 Since these bonds referred to the mortgage, the purchaser was 
 bound by the statement contained therein, and it was his duty to 
 ascertain whether or not the holders of the old bonds were willing 
 to make the exchange contemplated by the transaction.^ 
 
 So also if a mortgage has been recorded in full, and its provi- 
 sions require that the trustees should have an estate in fee simple 
 in order to execute them, the record is notice that the mortgage 
 was intended to pass a fee.* 
 
 § 137. Notice of Extrinsic Circumstances, Effect of. — The gen- 
 eral principle that any one dealing with a corporation is bound to 
 take notice of the extent of its powers is applicable to the case of 
 the purchase of bonds of one railroad company guarantied by 
 another, but if it is within the corporate powers of the latter to 
 guaranty bonds held in the usual course of business, the fact 
 that the guaranty was made for a purpose not authorized by the 
 charter will not debar a bona fide assignee of the company from 
 recovering on the contract.^ This principle is developed at greater 
 length in Chapter II. 
 
 The circumstances from which notice is inferred may be such 
 as should have put the purchaser of the bonds, as a prudent man, 
 upon inquiry regarding the regularity and validity of their issue ; 
 
 1 Bronson o. La Crosse Railroad Co. 24 Ind. 457, citing with approval the 
 
 (1862), 2 Wall. 283, 311; Coei). Columhus, ruling of Chancellor Walworth in Stoney 
 
 Piqua, & Indiana R. Co. (1859), 10 Ohio v. American Life Ins. Co. (1845), 11 
 
 St. 372. Paige Ch. 635, that the negotiable se- 
 
 ■■^ Skiddy V. Atlantic, Miss. & Ohio R. curity of a corporation which upon its face 
 
 Co. (1879), 3 Hughes, 320, 356 (1879). appears to have been duly issued by such 
 
 ' I 'aylus V. New York, Kingston, & corporation, and in conformity, is valid in 
 
 Syracuse R. Co. (1877), 10 Hun, 295 ; see the hands of a bona fide holder thereof 
 
 also Taylor v. Atlantic &, Great Western without notice, although such security was 
 
 R. Co. (1878), 57 How. Pr. 26. in fact issued for a purpose and at a place 
 
 * Randolph v. New Jersey West Line not authorized by the charter of the com- 
 
 R. Co. (1877), 28 N. J. Eq. 49. pany, and is in violation of the laws of the 
 
 ' lladison R. Co. v. Norwich San. Soc. State where it was actually issued. 
 
156 RAILWAY BONDS AND MORTGAGES. £OHAP. VII; 
 
 as where the trustee whose proper functions and duty are not to 
 deal with purchasers, but to act for the bondholders and to enforce 
 their security, sells the bonds, and even sells them for a very in- 
 adequate price.^ 
 
 So far as the application of this rule is concerned, it can of 
 course make no difference that the lien so recognized is an equi- 
 table one merely;^ 
 
 Other cases are controlled by more special considerations, as 
 where a company induced a bank to buy its bonds by agreeing 
 that they would be issued only to a certain amount on each mile 
 of the constructed road. Here it was held that the lien of persons 
 taking any bonds subsequently issued in violation of this agree- 
 ment must be declared inferior to the lien of the bank, if they 
 had notice of the agreement ; but that the holders of such bonds 
 without notice of it, whether taking them originally from the com- 
 pany or by purchase from one who took with knowledge, were 
 entitled to share with the bank in the distribution of the proceeds 
 of the foreclosure sale.^ 
 
 In Blair v. St. Louis R. Co.* it was argued that the doctrine 
 of constructive notice should be applied to cases in which an 
 inspection of the corporate records would have disclosed the ex- 
 istence of facts constituting a prior equity against the company ; 
 but this contention did not prevail. 
 
 § 138. Statutes relating to the Bonds or Mortgages 'which Bond- 
 holders are presumed to have Notice of. — But bona fide holders 
 have, on the other hand, a right to presume that all the precedent 
 requirements of a statute authorizing the indorsement of the bonds 
 they hold have been complied with, and that if the statute author- 
 izes the indorsement of first-mortgage bonds, there are no prior 
 liens on the property. Under such circumstances they cannot be 
 charged with constructive notice that the bonds thus indorsed were 
 not first-mortgage bonds.^ 
 
 On analogous principles it is held that a bondholder cannot 
 procure the rescission of a contract for the exchange of unpaid 
 coupons for the preferred stock of a railroad company on the 
 ground of fraud, where the only facts alleged are that the com- 
 pany had no authority to issue such stock, and that, if it had such 
 authority, the certificates were invalid for want of the common 
 
 1 RigSS V. Pennsylvania, etc. R. Co. * McMurray v. Moran (1889), 134 
 (1883), 16 Fed Kep. 804, 809. V. S. 150. 
 
 2 Stanton u. Alabama & Chattanooga ^ 25 Fed. Rep. 684 (1885). 
 
 R. Co. (1875), 2 Woods, 523. * Yoans v. Montgomery R. Co. (1875), 
 
 2 Woods, 606. . 
 
§ 138.] KOTiCE. 157 
 
 seal of the company. Such question depends on the general stat- 
 utes of the State or the charter of the company. 
 
 Since the provisions of a statute regulating any given trans- 
 action are regarded as au integral part of it, the existence of any 
 enactments which make the validity of the bond dependent upon 
 the doing of some particular tiling in a specified manner (as in 
 this case the attaching of the common seal of the company) must 
 be reckoned among those extrinsic facts and circumstances of 
 which a bondholder is presumed to have notice.^ 
 
 Thus if a company has been granted the power to mortgage its 
 property subject to the State's right of forfeiture in case the road 
 is not completed at a certain date, every purchaser of the bonds 
 issued under the authority of the act must, at his peril, take 
 notice of this restriction,^ so far as that law imposes restrictions 
 upon the powers of the corporation, the general rule being that, 
 even in the case of negotiable instruments, a party contracting 
 with an agent must inquire into his authority, since a corporation 
 is bound only when its agents keep within the limits of their 
 authority.^ 
 
 A void statute, however, is not constructive notice of anything 
 to anybody.* 
 
 So also the mortgagees under a mortgage made after the passage 
 of two acts, one charging the earnings of a railroad with a lien in 
 favor of a county in case it should avail itself of the power granted 
 by the same act of lending money to the company, and the other 
 reciting that the loan was then unpaid, are affected with notice of 
 the existence of this prior lien.^ 
 
 The same principle holds in regard to a special act fixing upon 
 the property an earlier lien than the mortgage securing the bonds, 
 or regulating the manner in which the bonds are to be indorsed by 
 the State.6 
 
 The priority of the lien of bonds may also be made to depend on 
 the knowledge imputed to holders respecting the functions and 
 duties of railroad companies as quasi public corporations. This 
 
 1 Coddington v. Eailroad Co. (1880), 119, cited in Zabriskie v. Cleveland, Col. & 
 
 103 U. S. 409. Cincinnati R. Co. (1859), 23 How. 381. 
 
 ^ Silliman v. Fredericksburg, Orange, * Young v. Montgomery & Eufaula E. 
 
 & Charlottesville R. Co. (1876), 27 Gratt. Co. (1875), 2 Woods, 606. 
 119, citing with approval Gould u. Town ^ Ketchum v. Pacific E. Co. (1877), 4 
 
 of Sterling (1861), 23 N. Y. 456, and the Dill. 78. 
 
 Floyd Acceptances Case (1868), 7 Wall. 8 Ketchum v. Pacific R. Co. (1877), 4 
 
 666, 680. Dill. 78 ; State exrcl. Plock v. Cobb (1879), 
 
 8 Silliman v. Fredericksburg, Orange, 64 Ala. 127 ; s. c. 7 Am. & Eng. E. E. Cas. 
 
 & Charlottesville R. Co. (1876), 27 Gratt. 147. 
 
158 RAILWAY BONDS AND MOETGAGES. [CHAP. VII. 
 
 was the basis of the ruling in Douglass v. Cline/ in which case 
 wages of employees were given a preference over the claims 
 of bondholders in the distribution of proceeds of a foreclosure 
 sale. Bondholders, it has been said, accept their securities with 
 knowledge that the railroad company, though technically a pri- 
 vate corporation, is under obligation to the State to render certain 
 important public services. They know that the railroads are in 
 a certain sense public highways, and that whoever holds them in 
 pledge is bound to see that they are at all times to operate as to 
 observe the public interest.^ 
 
 § 139. Notice under Recording Statutes. — Bondholders are 
 affected with notice of any adverse claims evidenced by a writing 
 which is entitled to record under the laws of the State in which 
 the debtor corporation was organized.^ 
 
 A deed of trust is such a writing under the laws of Georgia,* 
 and presumably of other States also. 
 
 This rule is, of course, to be taken subject to the limitation that 
 the registry of such a deed is not of itself notice to parties subse- 
 quently dealing with the mortgaged property, unless it is executed 
 in such a manner as to entitle it to be recorded." 
 
 As a result of the registration laws, the bondholders under sub- 
 sequent mortgages have implied notice of the rights and statutory 
 remedies of the beneficiaries of older mortgages and deeds of 
 trust.^ 
 
 And if the p.rior mortgage is not properly acknowledged, the 
 later mortgages will, nevertheless, be postponed to earlier, if the 
 junior mortgage is expressly made subject to the prior one.^ 
 
 The same consequence follows if the junior mortgagee has actual 
 knowledge of the existence of the prior mortgage, even if it has 
 not been so acknowledged as to be entitled to record ; ^ or actual 
 knowledge of an agreement, whereby the company stipulated with 
 a bank, as part of the consideration for the latter's acquisition of 
 its bonds, that it would issue bonds only to a certain amount for 
 each mile of its constructed road.® 
 
 1 12 Bush, 608 (1876). 6 Newport & Covington Bridge Co. o. 
 
 ^ This and similar preferences are dis- Douglass (1877), 12 Bush, 673. 
 cussed at length in Chap. XXVIW., post. ' Coe v. Columbus, Piqua, & Ind. R. 
 
 8 Newport & Cincinnati Bridge Co. o. Co. (1859), 10 Ohio St. 372 ; Bronson v. 
 
 Douglass (1877), 12 Bush, 673; Coe v. La Crosse Railroad (1863), 21 Wall. 283, 
 
 Columbus, Piqua, & IndianaR. Co. (1859), 311. 
 10 Ohio St. 372. 8 Willink v. Morris Canal & Banking 
 
 * Branch v. Atlantic & Gulf R. Co. Co. (1843), 4 N. J. Eq. 377. 
 (1879), 3 Woods, 481. 9 McMurray v. Moran (1889),134 U. S. 
 
 5 r.rnnch v. Atlantic & Gulf R. Co. 150. In this case the parties taking bonds 
 
 (1870). 3 Woods, 481. subsequently issued in violation of the 
 
§ 139.] 
 
 NOTICE. 
 
 159 
 
 The State is not prejudiced by the non-registration of a mort- 
 gage executed in pursuance of a statute to secure a loan by it. In 
 such a case the statute is notice to all the world that the property 
 is subject to the lien of the mortgagee.^ 
 
 agreement, and having notice thereof, were 
 held-entitled to share in the proceeds of a 
 foreclosure sale only after the funds had 
 heen applied to the honds held by the 
 bank. Those taking bonds without notice 
 of the agreement were placed on an equal 
 footing with the bank. 
 
 1 Memphis & Little Rock R. Co. v. State 
 (1881), 37 Ark. 632. A statute authorized 
 the issue of aid bonds to the C. & T. R. 
 Co. , and provided that no part of the bonds 
 should he issued until the company signi- 
 fied its acceptance by filing a receipt there- 
 for with the secretary of state, and that, 
 
 when recorded in the office of that function- 
 ary, each certificate should be a mortgage 
 on the road. It was held that all persons 
 claiming under a deed of trust executed by 
 the company under the powers conferred 
 by a previous act, the said deed reciting 
 that it was subject to the lien of the State 
 created under the later act, took subjectto 
 all the certificates previously filed with the 
 secretary of state, although the statutory 
 mortgage had not been recorded in the 
 counties in which the company's lands 
 were situated. Wilson v. Beckwith (1893), 
 117 Mo. 61 ; s. c. 22 S. W. Eep. 639. 
 
160 
 
 EAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 CHAPTER VIII. 
 
 MORTGAGES AND THEIR VALIDITY. 
 
 General Statement. 
 Art. I. — Validity of Kail way Moet- 
 
 GA6ES AS DEPENDENT ON THE 
 POWEE TO MOKTGAGE. 
 
 A. Mortgages of Corporate Prop- 
 
 erty generally. 
 § 140. Common-law Power to mort- 
 gage all Corporate Property. 
 
 141. Common-law Power to mort- 
 
 gage when implied from Statu- 
 tory Powers. 
 
 142. Common-law Power to mort- 
 
 gage when limited by Impli- 
 cation. 
 
 143. General Implications from Ex- 
 
 press Grants of Power to mort- 
 gage- 
 
 144. Implications from Grant of 
 
 Power to Mortgage for a Par- 
 ticular Purpose. 
 
 145. Power to execute Mortgage im- 
 
 plies Power to insert Proyi- 
 sions for enforcing it. 
 
 146. Power to mortgage not re- 
 
 stricted by Statute declaring 
 Lien in Favor of State. 
 
 147. Power of Consolidated Com- 
 
 panies to mortgage their Prop- 
 erty. 
 
 148. Legislative Ratification. 
 
 B. Power to mortgage Franchises. 
 
 149. General Principles respecting 
 
 Power to mortgage Fran- 
 chises. 
 
 150. Franchise to be a Corporation 
 
 placed by some Courts on a 
 Different Footing from other 
 Franchises. 
 
 151. Existence of Power to mortgage 
 
 Corporate Existence not usu- 
 ally inferred. 
 
 § 152. Power to mortgage Franchises 
 
 implied from Grant of Power 
 
 to sell them. 
 
 C. Power to mortgage After-ac- 
 
 guired Property. 
 
 153. Power expressly conferred by 
 
 Statute. 
 154; Power implied from Enumera- 
 tion of the Kinds of Property 
 which may be mortgaged. 
 
 155. Power to mortgage Uncalled 
 
 Capital. 
 
 156. Limits of the Power to mort- 
 
 gage After-acquired Property. 
 
 157. Effect of the Want of Power to 
 
 hold the Property attempted 
 to be mortgaged. 
 Art. II. — Validity of Railway Mort- 
 gage AS AFFECTED BY 
 THE MaNNEE and CiKCUM- 
 STANCES OF ITS EXECUTION. 
 § 158. Formal Requisites. 
 (a) Witnesses. 
 (J) The Oath. 
 
 (c) Acknowledgment. 
 
 (d) Seal. 
 
 (e) Delivery. 
 
 (/) Special Requirements. 
 
 159. When a Mortgage executed by 
 
 a Corporate Agent is the Deed 
 of the Corporation. 
 
 160. When a Mortgage is not vitiated 
 
 by Vagueness of Descriptive 
 Clause. 
 
 161. Authority of Corporate Officers 
 
 generally to execute a Mort- 
 gage binding on the Corpora- 
 tion. 
 
 162. Authority of Individual Officers. 
 
 (a) Directors. 
 
 (b) President. 
 
 (d) Superintendent. 
 
§ lio.j 
 
 MORTGAGES AND THEIE VALIDITY. 
 
 161 
 
 § 163. Requisite Consent of Stock- 
 holders. 
 164. Notice of Meeting. 
 16j. Place of Execution, Acknowl- 
 edgment, or Authorization. 
 
 166. Bondholders entitled to pre- 
 
 sume that the Mortgage has 
 been regularly executed. 
 
 167. Mortgages validated by Ratifica- 
 
 tion. 
 
 168. Improper Application of the 
 
 Proceeds of the Bonds, Trust- 
 deed not Invalidated by. 
 
 169. Fraud inferred from Personal 
 
 Interest in Contract of which 
 the Mortgage is a Part. 
 
 170. Constructive Fraud as to Credit- 
 
 ors and Preferences. 
 
 171. Eifect of the Chattel-mortgage 
 
 Acts. 
 
 172. Mortgage to secure Future Ad- 
 
 vances, when not invalid. 
 Art. III. — Partial Invalidity of Con- 
 TKACT, Effect of. 
 
 § 173. Invalidity of Part of the Bonds 
 secured, Validity of Mortgage 
 not affected by. 
 
 174. Mortgage may be Valid as to 
 
 Part of the Subject-matter 
 and Void as to Residue. 
 
 175. Mortgage of Franchises may be 
 
 Valid as to Part of them. 
 
 176. Excess of Power by Agent as 
 
 regards Part of the Mortgage. 
 
 177. Defective Execution as to One 
 
 Kind of Property, Effect of. 
 Art. IV. — Who may and who may not 
 Question the Validity of 
 the Mortgage. 
 § 178. The Mortgagor Company. 
 
 179. The Stockholders individually. 
 
 180. Junior Mortgagees. 
 
 181. General Creditors of the Com- 
 
 pany. 
 
 1 82. Receivers. 
 
 183. Purchasers at Foreclosure Sale. 
 
 184. The State. 
 
 General Statement. — The validity of a corporate mortgage may 
 be considered with reference (1) to the capacity of the company 
 to execute it, or (2) to the circumstances and objects of its ex- 
 ecution. A corporation being the creature of the legislature, the 
 question of its capacity to execute any given mortgage is neces- 
 sarily dependent upon the laws, whetlier general or special, under 
 which it has been organized. Assuming a corporation to have 
 the legal power to mortgage, there may be circumstances raising 
 a question as to the enforceability of the particular mortgage. 
 These circumstances may be such as might arise in tlie case of a 
 mortgage by a natural person, or such as arise from the peculiar 
 limitations which the artificial constitution of a corporate body 
 imposes upon it. 
 
 Article I. — Validity as dependent on the Power to 
 
 EXECUTE THE MORTGAGE. 
 
 A. Mortgages of Corporate Property generally. 
 
 § 140. Common-la-w Power to mortgage all' Corporate Property. — 
 The general rule as to the extent of the common-law power of a 
 corporation to alienate its property is thus succinctly stated by 
 Chancellor Kent : " Independent of positive law, all corporations 
 have the absolute jus disponendi of lands and chattels, neither 
 
 11 
 
162 KAILWAT BONDS AND MORTGAGES. [CHAP. VIII. 
 
 limited as to objects nor circumscribed as to quality. They may 
 execute a mortgage to secure a debt." ^ 
 
 The application of this rule to railway companies has been 
 repeatedly recognized. " It is now to be regarded as settled be- 
 yond any proper ground of question that a corporation may con- 
 tract debts necessary for the accomplishment of the purposes of its 
 creation, and may give valid security for their payment by pledge 
 or mortgages of any property or interests in property tliat are 
 subject to its disposal, by virtue of the implied power existing in 
 it, and without any express provisions of statute to that effect, 
 provided it be not restricted by statute in this respect." ^ 
 
 " Corporations created for the construction of railroads, in the 
 absence of limitation or restraint by statute, have power at com- 
 mon law to borrow money and to make bills, bonds, and promis- 
 sory notes for its repayment, and may mortgage their real and 
 personal property to secure debts thus created." ^ 
 
 " There is no doubt that such a corporation, like any other 
 trading company, may convey, either absolutely or upon condition, 
 all property which it is authorized to hold, or which is essential 
 to carrying on the business for which it was designed."* 
 
 " Generally corporations have the power at common law to sell 
 and convey their property as they think proper. The power of a 
 corporation to sell and convey its property, and to borrow money, 
 and to make contracts, implies power to mortgage its property, 
 real or personal, to secure the payment of its debts." ^ 
 
 1 2 Kent's Comm. 281. See note Law Eiver Railroad (1862), 44 N. H. 127. 
 Rep. Ann. 142; 32 Can. L. J. N. S. 167. " These principles," added the court, "are 
 
 2 Miller v. Rutland & Washington R. regarded as so well settled by author- 
 Co. (1863), 36 Vt. 452. ity and by the common sentiment of the 
 
 ^ Kellj' V. Trustees, etc. (1877), 58 community as to require no discussion" 
 Ala. 489 ; 21 Am. Ry. Rep. 138 ; followed The following ca.ses were cited : Gordon !'. 
 in Sav. & Memphis R. Co. v. Lancaster Preston (1833), 1 Watts, 385 ; Teadwell 
 (1878), 62 Ala. 555. See also Bickford v. Salisbury Mfg. Co. (1856), 7 Gray, 393, 
 V. Grand Junction Ry. Co., 1 S. C. Rep. 404 ; Haxtun v. Bishop (1829), 3 Wend. 
 (Can.) 696; followed in Charlebois v. 13; De Ruyter v. St. Peter's Church 
 Great North West Cent. Ry. Co. (1892), (1848), 3 Barb. Ch. 119, 124 ; 3 Comsfc 
 9 Man. 1 ; Win. & H. B. Co. v. Mann, 7 238, 240 (1849) ; Despatch Line of Pack- 
 Man. 81 ; Robison v. Coal Cliff Co., 12 ets Co. ». Bellamy Manufg. Co. (1841), 12 
 New Sonth Wales L. R. Eq. 293 ; Haley N. H. 205 ; Pierce v. Emery (1856), 32 
 V. Halifax Street Ry. Co., 25 Nova Scotia N. H. 484 ; Jackson v. Brown (1830), 5 
 L. li. 140; Thompson v. Erie R. Co., 11 Wend. 590, 594. See also Susquehanna 
 Abb. Pr. N. S. 188. See note 26 Am. & Bridge & Bank Co. v. General Ins. Co. 
 Eng. R. R. Cas. 661 ; Comm. Bank v. (1852), 3 Md. 305, and Grinnell v. Trus- 
 Great Western R. Co., 13 L. T. 105. tees, etc. (Ohio Ct. of Common Pleas), 2 
 
 * McAllister v. Plant (1876), 54 Miss. Redf. Law of Railways, 497, as to the 
 
 106 ; s. c. 17 Am. Ry. Rep. 389. point that the power of a corporation to 
 
 ' Richards v. Merrimack & Connecticut boiTow money carries with it, as an inci- 
 
§ 141-] 
 
 MORTGAGES AND THEIR VALIDITY. 
 
 163 
 
 A corporation de facto can make any contracts, including mort- 
 gages of future-acquired property, which the law authorizes cor- 
 porations to make.i 
 
 § 141. Common-law Power to mortgage when implied from 
 Statutory Powers. — The power to mortgage corporate property 
 will, of course, be still more strongly implied if the legislature 
 bestows upon the corporation, in addition to tlie ordinary powers 
 which such bodies are usually endowed with, the right to effect 
 such a disposition of their property, or to enter into such contracts 
 regarding it, that the intention to permit a mortgage or pledge of 
 the property is a natural and reasonable inference. Thus the 
 power to sell ordinarily includes the power to mortgage.^ 
 
 It has, however, been held in Illinois that this doctrine is not 
 applicable to stock subscriptions, especially if the statute confer- 
 ring the right to mortgage corporate property enumerates several 
 kinds of property, and omits such securities from the list. Hence, 
 although a railroad company may assign a claim for unpaid stock 
 
 dent, and without an express grant in its 
 charter, the power to secure the loan by a 
 mortgage. 
 
 In view of these authorities the state- 
 ment of the Illinois court, that "it would 
 seem the power of a corporation to mort- 
 gage its real estate might be regarded as a 
 necessary incident to the power to acquire 
 and hold real estate," is needlessly cau- 
 tious. See Agricultural Society v. Pad- 
 dock (1875), 80 111. 263 ; Westw. Madison 
 County Agri. Board (1876), 82 111. 205 ; 
 see article in 19 Am. L. Rev. 440 (1885), 
 on " The Power of a Railroad Company to 
 mortgage its Property and Franchises." 
 See article on " Railroad Mortgages of 
 Future-acquired Property," annotated 
 case by Redfield, 3 Am. L. Reg. N. S. 
 18. See article on "Railroad Mortgages 
 — to the State or Individuals, Validity 
 of," in 28 Alb. L. Jour. 92. See article 
 on "Conveyances of Franchises by Rail- 
 road Companies," in 20 L. Reg. 301, 361. 
 On power to issue debentures in Eng- 
 land, see note at end of this chapter. 
 
 ' McTighe v. Macon Construction Co. 
 (1893), 94 Ga. 306 ; s. c. 21 S. E. Rep. 
 701. 
 
 2 McAllister v. Plant (1876), 54 Miss. 
 106 ; 17 Am. R}'. Rep. 3S9 ; Branch v. 
 Atl. & Gulf R. Co. (1879), 3 "Woods, 
 481 ; Hendee ^. Pinkerton (1867), 14 
 
 Allen, 381. In the last-mentioned case 
 the court said (p. 386): "We entertain 
 no doubt that the Grand Junction Rail- 
 road and Depot Company could lawfully 
 sell and convey the lands embraced in this 
 bill. They were not acquired to enable 
 the corporation to carry on the business 
 which it was chartered to do for the bene- 
 fit of the public, nor needed or used for 
 that purpose. Their alienation in no wise 
 impaired or affected the usefulness of the 
 company as a railroad, or its ability to 
 exercise any of its corporate franchises. 
 In the absence of any express or implied 
 legislative prohibition, this corporation 
 possessed all the ordinary rights of owner- 
 ship over these lands, and could convey 
 them away absolutely, or mortgage them 
 to secure any valid indebtedness. The 
 recent cases in which railroad mortgages 
 have been adjudged invalid by this court 
 do not countenance any doubt of the power 
 of a railroad company to sell and convey 
 whatever property it may hold, not 
 acquired under the delegated right of 
 eminent domain, or so connected with the 
 franchise to operate and manage a railroad 
 that the alienation would tend to disable 
 the corporation from performing the pub- 
 lic duties imposed upon it, in consider- 
 ation of which its chartered privileges 
 have been conferred." 
 
164 RAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 subscriptions, like any other chose in action, they cannot be 
 mortgaged. 1 
 
 A power to execute " such securities in amount and kind " as 
 the company may deem expedient has been held to authorize a 
 mortgage of the entire road, with its franchises and all its prop- 
 erty, including all future acquisitions for the use of its road.^ 
 
 § 142. Commou-la-w Po-wrer to mortgage -when limited by Impli- 
 cation. — The power of a corporation to alienate its property is 
 sometimes said to be plenary, except in so far as it is limited by 
 express legislation. This way 'of stating the rule, however, is not 
 strictly correct. Ordinarily, it is true, an intention to restrict the 
 jus disponendi will not be ascribed, by implication, to the legisla- 
 ture. Thus the fact that the charter contains a clause providing 
 that the shares shall not be assessed over one hundred dollars, 
 and that, if more money is necessary, it shall be raised by the 
 creation of new shares, will not curtail the power to mortgage.^ 
 
 But the inference drawn will be just the opposite wherever the 
 exercise of the right of alienation would be incompatible with the 
 attainment of the objects for which the corporate franchises were 
 bestowed. It is well settled, therefore, that this right is limited 
 by the purposes for which the corporation is created, and the 
 nature of the duties and liabilities imposed by its charter.* 
 
 This principle is applied, in the case of railway companies and 
 other quasi public corporations, to property which is essential for 
 the performance of the duties owed to the State, or, as it is some- 
 times expressed, for the exercise of its franchises.^ 
 
 Such property, it is universally held, cannot without legislative 
 authority be alienated either voluntarily or by a forced sale.^ 
 
 1 Morris v. Cheney (1869), 51 111. 451. Co. (Lira.), 1895, 16 New South Wales 
 
 "The purpose of the mortgage," said the L. R. Eq. 38. See § 155, post. 
 court, " was to enahle the company to raise ^ Pierce v. Milwaukee E. Co. (1869), 
 
 money to build ami equip the road. Would 24 Wis. 551. 
 
 it not, then, be a fr\istration of the object ^ Richards ■!!. Merrimack & Connecticut 
 
 it they should sell their cash means ? " River Railroad (1862), 44 N. H. 127. 
 
 Ill England, however, a mortgage of * Treadwell v. Salisbury Mfg. Co. 
 
 unpaid-np capital is valid, provided the (1856), 7 Gray, 393, 401 ; Commonwealth 
 
 power is reserved by apt language in the v. Smith (1865), 10 Allen, 448. 
 articles of association. Re Pyle Works * Richards v. Merrimack & Connecticut 
 
 (C. A.), L. R. 44 Ch. D. 534 (1890). River Railroad (1862), 44 N. H. 127. 
 The jioint emphasized by the Illinois ^ Coe v. Columbus, Piqua, & Indiana 
 
 court does not seem to have been relied R. Co. (1859), 10 Ohio St. 372 ; Young- 
 
 upon either in the argument of counsel or man v. Elmira & Willianisport R. Co. 
 
 by the Lords Justices. See also Ansted (1874), 65 Pa. St. 278, 286 ; Western 
 
 V. Land Co. of Australia (1893), 14 New Pennsylvania R. Co. v. Johnston (1868), 
 
 South ^Vales L. R. Eq. 330 ; In n Anglo- 59 Pa. St. 290, 294 ; Leedom v. Plymouth 
 
 Australian Investment Finance & Land R. Co. (1843), 5 Watts & Serg. 265; 
 
§ 142.] MORTGAGES AND THEIE VALIDITY. 165 
 
 In determining the practical effect of this principle, the courts 
 have drawn some distinctions wliich appear to be scarcely jus- 
 tifiable on logical grounds. The alienability of such property has 
 usually been discussed in connection with the validity of execu- 
 tion sales, and the courts have very generally assumed that the 
 protection of the rule is confined to the real estate and fixtures of 
 the corporation. While, tlierefore, the rolling-stock of a railroad, 
 when not in actual use, is liable to execution,^ even if it is covered 
 by a mortgage,^ it is held in many States that the road-bed and 
 fixtures of a railroad company or a turnpike company, the canal 
 and appurtenances of a canal company, the market-house of one 
 holding a market franchise, and the plant of a water company 
 cannot be levied upon, unless the legislature has provided.^ 
 
 If the interest which the public lias in the discharge of the 
 duties undertaken by the corporation is the foundation of the doc- 
 trine as to the inalienability of a portion of the corporate property, 
 it is difficult to see any valid reason why the road-bed and rails 
 should be protected, and the cars, witliout which the road-bed and 
 rails are of no utility wliatever, should be subject to execution. 
 Both rolling-stock and track are indispensable agencies in the 
 work of transportation, which is the special function of a railroad, 
 one not being more indispensable than the other. There would 
 seem, therefoi'e, to be much inconsistency in placing them in dif- 
 
 Hendee v. Piukerton (1867), 14 Allen, » Plymouth R. Co. u. Colwell (1861), 
 
 381 ; Richards v. Merrimack & Connecti- 39 Pa. St. 337; Western Pennsylvania R. 
 
 cut River Railroad (1862), 44 N. H. 127;. Co. v. Johnston (1868), 59 Pa. St. 290, 
 
 Susquehanna Canal Co. v. Bonhani (1845), 294 ; Coe v. Columbus, Piqua, & ludiau- 
 
 9 Watts & Serg. 27 ; Gue v. Tidewater apolis R. Co. (1859), 10 Ohio St. 372 ; 
 
 Canal Co. (1860), 24 How. 257 ; Black v. Youngman v. Elmira & Williamsport R. 
 
 Delaware & Raritan Canal Co. (1871), 22 Co. (1874), 65 Fa. St. 278, 286; Leedom v. 
 
 N. J. Eq. 130, 399 ; Central Transporta- Plymouth R. Co. (1843), 5 Watts & Serg. 
 
 tion Co. «. Pullman Palace Car Co. (1891), 265; Ammant v. New Alexanilria Tnrn- 
 
 139 U. S. 24 ; Ammant v. New Alexan- pike Co. (1825), 13 Serg. & Eawle, 210 ; 
 
 dria Turnpike Co. (1825), 13 Serg. & Winchester Turnpike Co. v. Vimont 
 
 Eawle, 210; Winchester Turnpike Co. d. (1844), 5 B. Monr. 1; Steiner's App. 
 
 Vimont (1883), 5 B. Mon. 1; Steiner's (1856), 27 Pa. St. 313; Baxter!). Nash- 
 
 App. (1856), 27 Pa. St. 313 ; Foster ville Turnpike Co. (1882), 10 Lea, 488 ; 
 
 u. Fowler (1868), 60 Pa. St. 27 ; City Gue v. Tidewater Canal Co. (1860), 24 
 
 of Palestine v. Barnes (1878), 50 Tex. How. 257 ; Susquehanna Canal Co. v. 
 
 538. Bonham (1845), 9 Watts & Serg. 27 ; 
 
 1 Boston, Concord, & Montreal R. v. City of Palestine v. Barnes (1878), 50 
 Gilmore (1858), 37 N. H. 410. Tex. 538 ; Louisville Water Co. „. Hamil- 
 
 2 Cop v. Columbus, Piq\ia, & Indiana ton (1883), 81 Ky. 517. But an aban- 
 R. Co. (1859), 10 Ohio St. 372; Union doned road-bed, not in use for any pur- 
 Trust Co. V. Morrison (1888), 125 U. S. pose of public service, is not exempt from 
 591 ; M. c. 33 Am. & Eng. R. R. Cas. 33. execution. Benedict «. Heineberg (1870), 
 But, of course, the execution sale is made 43 Vt. 231. 
 
 subject to the mortgage. See post. 
 
166 RAILWAY BONDS AND MORTGAGES. [CHAP. Till. 
 
 ferent categories as regards their liability to be appropriated to 
 pay the debts of the corporation. The theory that the line which 
 divides property susceptible of a voluntary or forced alienation 
 from property not susceptible of such alienation is identical with 
 that which divides realty from personalty, involves the assumption 
 that the personalty of a railroad is not indispensable to the exer- 
 cise of its franchises, and such an assumption evidently begs the 
 very question at issue. The practical importance of the subject, 
 however, is much diminished both in consequence of the compre- 
 hensive legislation by which the disposition of railroad property 
 is now regulated in the various States, and also by reason of tlie 
 fact that, as the personal property of railroad companies is almost 
 invariably subject to the lien of a mortgage, the right to levy upon 
 it is now most commonly discussed with reference to the protec- 
 tive effect of the " after-acquired property " clause, and not with 
 reference to its indispensability or otherwise for the exercise of the 
 corporate franchises. 
 
 § 143. General Implications from Express Grants of Power to 
 mortgage. — A railroad company having a general express power 
 to mortgage its road may mortgage any part of it,^ or any exten- 
 sions which may subsequently be constructed, no fresh legislative 
 authority being necessary in this case to supplement the general 
 grant of power.^ 
 
 So also it has been held that the grant of a power to mort- 
 gage " property and income " confers a power which is plenary as 
 regards both real and personal property.** 
 
 If the power conferred is to mortgage the corporate property to 
 secure a debt incurred by the borrowing of money to complete and 
 operate a railroad, an already existing debt incurred for that pur- 
 pose may be secured by such a mortgage.* 
 
 A corporation of one State clothed with authority by the stat- 
 utes of that State to mortgage its property carries that power into 
 every State in which it owns property, and a mortgage of such 
 property by the corporation in any State will be valid unless 
 there is some special provision in laws of the latter State to 
 prohibit it.* 
 
 1 PuUan V. Gill. & Chicago Air Line * Duncomb v. New York, Housatonic, 
 E. Co. (1865), 4 Biss. 35. & Northern R. Co. (1881), 84 N. Y. 190 ; 
 
 2 Gloninger v. Pittsburg & Connells- Greensburgh, Milford, & Hope Turnpike 
 ville E. Co. (1890), 139 Pa. St. 13 ; s. 0. Co. «. McCormiok (1873), 45 Ind. 239. 
 21 Atl. Rep. 497. See also Hendee v. ^ American Water Works Co. of lUi- 
 Pinkerton, 14 Allen (Mass.), 381. nois et al. v. Farmers' Loan & Trust Co. 
 
 8 Covey V. Pittsburg & Conuellsville R. (1896), 73 Fed. Kep. 956. The New York 
 Co. (1858), 3 Phil. 173. act of 1864 (ch. 517, as amended by the 
 
§ 144.J MORTGAGES AND THEIB VALIDITY. 167 
 
 § 144. Implications from Grant of Po-wer to mortgage for a Par- 
 ticular Purpose. — Whether a grant of authority to mortgage 
 railroad property for a particular purpose is to be construed as 
 restricting the power of the company to that extent depends upon 
 whether the grant purports to augment its common-law powers, 
 or is merely declaratory of the common law in regard to one of 
 the purposes for which a corporation is deemed to be capable of 
 pledging its property. Thus it has been held that where a com- 
 pany is authorized to " borrow money . . . and to pledge the prop- 
 erty to pay such loans," there is nothing to induce the supposition 
 that the legislature intends to take away the general power of the 
 corporation to create liens for any other purpose. As regards the 
 exercise of that general power, the mode in which the debt is 
 created is quite immaterial.^ 
 
 On the other hand, a provision in the charter of a Tennessee 
 railroad company allowing it to " increase its capital to a sum 
 sufficient to complete its road and to stock it with everything 
 necessary to give it full operation and effect, either by opening 
 books for new stock or by borrowing money on the credit of the 
 company and on the mortgage of its charter and works," has been 
 held to give only the limited power to the company to issue bonds 
 and mortgage its property to complete and equip its road, and for 
 no other purpose.^ 
 
 These cases are, it will be observed, fairly reconcilable on the 
 ground that the Alabama court was virtually asked to recognize 
 the doctrine that the general power of a corporation to mortgage 
 its property may be restricted by implication,^ — ■ a doctrine which, 
 as we have seen, is not countenanced by the authorities, except in 
 regard to property essential to the exercise of its franchises, — 
 while the Tennesee court was dealing with a charter which 
 granted, for certain specified purposes, a power unknown to the 
 common law, and was therefore applying a perfectly familiar 
 principle of statutory construction in holding that, as the power 
 in question originated with the statute, it ought not to be ex- 
 tended beyond the express provisions of that statute.^ 
 
 act of 1871, ch. 481), authorizing manu- strued in Astor ». "Westchester Gas Light 
 
 facturing corporations to mortgage their Co. (1884), 33 Hun, 333. 
 
 property to secure the payment of any ^ Allen o. Montgomery & West Point 
 
 debt which may be contracted by it in its E. Co. (1847), 11 Ala. 437, approved in 
 
 business, authorizes it to execute a mort- Mobile & Cedar Point E. Co. v. Talman 
 
 gage to secure not only antecedent debts, (1849), 15 Ala. 472. 
 
 but debts contracted at the time the se- ^ Pi-azier v. Eailway Co. (1889), 88 
 
 cnrity is given. Lord v. Yonkers Fuel Tenn. 138 ; s. c. 12 S. W. Eep. 637. 
 
 Gas Co. (1885), 99 N. Y. 547 ; s. o. 2 « Sutherland on Statutory Construc- 
 
 N. E. Eep. 909. This act is also con- tiou, § 325. 
 
168 RAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 Where the provision in a charter which confers the power to 
 borrow money and secure the loan by a mortgage is couched in 
 unqualified language, the fact that the charter contains another 
 provision, authorizing the building of a certain extension, does 
 not warrant the conclusion that the power to mortgage is to be 
 exercised only for the purpose of procuring money to build that 
 extension.^ 
 
 § 145. Povrer to execute Mortgage implies Poiwer to insert Pro- 
 visions for enforcing it. — A company empowered to pledge its 
 income has an implied authority to insert in the mortgage a 
 stipulation that the mortgagee may take possession and receive 
 the earnings, since, without such action, the pledge could not be 
 made effectual.^ 
 
 On similar grounds it is held that the legislature, in giving au- 
 thority to a corporation to execute a mortgage, intends to invest 
 the mortgagee with all the power and authority incident to an 
 instrument of that kind, and that, although no express authority 
 is given by the statute to sell the premises by virtue of the mort- 
 gage, a power of sale is to be inferred from the authority to 
 mortgage.^ 
 
 § 146. Power to mortgage not restricted by Statute declaring Lien 
 in Favor of State. — A statute by which the State, upon indorsing 
 the bonds of a railroad company, obtains a lien upon the property 
 of such company prior to all other liens cannot be construed as 
 forbidding the creation of a lien, by mortgage or otherwise, in 
 favor of the bondholders, to coexist with the lien of the State, 
 nor as operating to restrain or abrogate the power which the 
 company would otherwise have to execute a mortgage as a se- 
 curity for the payment of its bonds.* 
 
 § 147. Power of Consolidated Companies to mortgage their Property. 
 — The general rule is that the power to mortgage possessed by a 
 company formed by the legally consummated consolidation of two 
 companies, organized under the laws of different States, is coex- 
 tensive with the powers possessed by the constituent companies 
 before the consolidation, under the laws of their respective States.* 
 
 To ascertain whether the consolidation is valid, reference must 
 be had to the laws of those States.® 
 
 1 Brown v. Maryland & Annapolis & * Kelly v. Trustees, etc. (1877), 58 
 Elkton E. Co., 62 Md. 439. Ala. 489 ; s. c. 21 Am. Ey. Rep. 138. 
 
 2 Seibert v. Minneapolis & St. Louis ^ Mead v. New York, Housatonic, & 
 Ry. Co. (1893), 52 Minn. 246 ; s. c. 53 Northern R. Co. (1877), 45 Conn. 199. 
 N. W. Eep. 1151. « Taylor v. Atlantic & Great "Western 
 
 8 Willink V. Morris Canal & Bkg. Co. R. Co. (1878), 57 How. Pr. 26. 
 U843), 4 N. J. Eq. 377. 
 
§ 148.] MORTGAGES AND THEIR VALIDITY. 169 
 
 But even if the constituent companies, in making the contract 
 for consolidation, fail to pursue the terms of their charters, an 
 act passed by the legislature of one of the States, for the purpose 
 of confirming the consolidation, will have the effect of validating 
 a subsequent mortgage on the property of the consolidated com- 
 pany in that State.^ (See following section.) 
 
 As railroad companies cannot consolidate without legislative 
 permission, the power granted to consolidated companies to make 
 mortgages may be restricted and qualified in any manner which 
 the legislature deems proper.^ 
 
 Where corporations have consolidated under the statute of 
 New Jersey, P. L. 1898, p. 121, ch. 67, authorizing domestic cor- 
 porations to merge and consolidate their corporate franchises 
 and other property, the new corporation has power to execute 
 a corporate mortgage to secure bonds which are intended for 
 use in paying indebtedness of the constituent corporations and 
 securing advances of money for the use and purposes of their 
 business.^ 
 
 § 148. Legislative Ratification. — Subsequent ratification by the 
 legislature will have the effect of validating a mortgage which 
 would otherwise be invalid.* 
 
 Such ratification will be inferred from an act authorizing the 
 mortgage trustees to sell the road covered by the mortgage.^ 
 
 So also if a trust mortgage is invalid in so far as it purports to 
 convey the franchises of the road, but otherwise valid, and the 
 legislature prior to the sale thereunder authorizes the president 
 of the company to transfer the franchises to the purchasers, the 
 latter will acquire a good title to the franchises by the execution 
 of a deed in accordance with the enabling statute.® 
 
 So also where an instrument, purporting to be the mortgage of 
 the company, executed prior to the passage of an act authorizing 
 such companies to mortgage their property, but the bonds se- 
 cured thereby are not issued till after the passage of that act, it 
 
 1 Eacine & Mississippi R. Co. v. FaiTQ- 161; Shaw v. Norfolk County Kailroad 
 
 ers' Loan & Trust Co. et al. (1868), 49 111. Co. (1855), 5 Gray, 162 ; Galveston Rail- 
 
 331. road Co. v. Cowdrey (1870), 11 Wall. 
 
 * Frazier o. East Tennessee, V. & G. 459; Shepley v. Atlantic & St. Lawrence 
 
 Ey. Co. (1889), 88 Tenn. 138; s. 0. 12 R. Co. (1867), 55 Me. 395; Eacine & 
 
 S. W. Rep. 537. Mississippi R. Co. v. Farmers' Loan & 
 
 8 Camden Safe Deposit & Trust Co. v. Trust Co. (1868), 49 HI. 331. 
 
 Burlington Carpet Co. et al. (N. J. Eq., ° Kicliards v. Merrimack & Connecticut 
 
 1895), 33 Atl. Rep. 479. River Railroad (1862), 44 N. H. 127. 
 
 < Hall V. Sullivan Railroad Co. (1857), « Hatcher v. Toledo, Wahash, & "Wes- 
 
 21 Law Rep. 138; Graham r. Boston, ton R. Co. (1872), 62 lU. 477; s. c. 6 
 
 Hartford, & Erie K. Co. (1886), 118 U. S. Am. Ry. Rep. 405. 
 
170 
 
 EA'ILWAT BONDS AND MORTGAGES. [CHAP. Till. 
 
 will be regarded as operating upon the transaction so as to cure 
 any invalidity whicli arises from the want of legislative au- 
 thority.^ 
 
 B. Power to mortgage Franchises. 
 
 § 149. General Principles respecting Pow^er to mortgage Franchises. 
 
 — Mortgages^ of that portion of the property of a corporation 
 which consists in its franchises have very generally been con- 
 sidered to stand upon a different footing from mortgages of its 
 other properties and rights. The great preponderance of au- 
 thority is in favor of the view that franchises cannot be mort- 
 gaged without the express permission of the legislature. The 
 fact that a mortgage contemplates, in certain contingencies, a 
 sale of the thing mortgaged necessarily brings a mortgage of 
 franchises within the reach of the general rule that franchises 
 cannot be transferred without the consent of the sovereign 
 grantor, the mode in which the transfer is sought to be effected 
 being quite immaterial. The authorities for this general rule are 
 very numerous, as the subjoined note shows.^ 
 
 1 Miller v. Rutland & Washington E. 
 Co. (1863), 36 Vt. 452. 
 
 ^ Commouwealth o. Smith (1865), 10 
 Allen, 448 ; East Boston Freight R. Co. 
 V. Eastern K. Co. (1866), 13 Allen, 
 422 ; Brasliu v. Summerville Horse R. 
 Co. (1888), 145 Mass. 64 ; s. c. 13 N. E. 
 Rep. 65 ; Hendee v. Pinkertou (1867), 14 
 Allen, 381 ; East Boston Freight R. Co. 
 u. Hubhard (1865), 10 Allen, 459 ; Rich- 
 ardson V. Sibley (1865), 11 Allen, 65; 
 Troy & Rutland R. Co. v. Kerr (1854), 17 
 Barb. 581 ; Troy & Boston R. Co. v. Boston, 
 H. T., etc. E. Co. (1881), 86 N. Y. 107; 
 Abbott V. Johnstown, 6. & K. Horse R. Co. 
 (1880), 80 N. Y. 27 ; People v. Albany & 
 Vermont R. Co. (1879), 77 N. Y. 232 ; Lau- 
 man v. Lebanon Valley E. Co. (1858), 30 
 Pa. St. 42 ; Ammant v. New Alexandria 
 Turnpike Co. (1825), 13 Serg. & Rawle, 
 210 ; Bayard's Appeal (1872), 72 Pa. St. 
 453 ; Pittsburg, etc. R. Co. v. Alleghany 
 Co. (1869), 63 Pa. St. 126 ; Roper v. Mc- 
 Whorter (1883), 77 Va. 214; Coe v. Co- 
 lumbus, Piqua, & Ind. R. Co. (1859), 10 
 Ohio St. 372 ; Black v. Delaware & Rari- 
 tan Canal Co. (1873), 24 K. J. Eq. 455, 
 465 ; Stockton v. Central E. Co. et al. 
 (1892), 50 N. J. Eq. 52 ; Eandolph .7. 
 Lamed (1876), 27 N. J. Eq. 557 ; Wood v. 
 
 Truckee Turnpike Co. (1884), 24 Cal. 474 ; 
 Clarke v. Omaha & S. W. R. Co. (1876), 
 4 Neb. 458 ; Bruifett v. Great Western E. 
 Co. (1861), 25 111. 353 ; Gulf, Col. & S. F. 
 R. Co. V. Morris (1887), 67 Tex. 692; 
 James v. Pontiac & Grovesdale Plank 
 Road Co. (1860), 8 Mich. 91 ; Ragau v. 
 Aiken, 9 Lea (Tenn.), 609 ; Pullan v. 
 Cincinnati, etc. R. Co. (1865), 4 Biss. 35; 
 HaU V. Sullivan R. Co. (1857), 2 Redf. 
 Am. Ey. Cas. 621 ; Gue v. Tidewater 
 Canal Co. (1860), 24 How. 257 ; Pennsyl- 
 vania R. Co. V. St. Louis, Alton, & T. H. 
 R, Co. (1886), 118 U. S. 290 ; Stewart v. 
 Jones (1867), 40 Mo. 140. In McAllister 
 V. Plant (1876), 54 Miss. 106, it was 
 doubted whether franchises could be mort- 
 gaged without legislative authority, al- 
 though it had been previously decided in 
 that State that a railroad company could 
 not, without special authority, mortgage its 
 franchises and the property essential to 
 the exercise thereof. Arthur v. President 
 of Commercial Bank (1848), 9 Sm. & M. 
 394 ; New Orleans, Jackson, & Great 
 Northern R, Co. v. Harris (1854), 27 
 Miss. 517. See note 46 Am. & Eng. 
 R. R. Cas. 661 ; State v. Morgan, 28 La. 
 Ann. 482 ; Houston & Tex. Cent. R. Co. 
 V. Shirley, 54 Tex. 125 ; Atkinson v. Mari- 
 
§ 149.] MORTGAGES AND THEIR VALIDITY. 171 
 
 One of the most forcible presentations of the reasons on which 
 the rule is founded is contained in the following passage from the 
 opinion in Commonwealth v. Smith,^ in which the impossibility of 
 finding any foundation, either of logic or public policy, for con- 
 ceding the quality of assignability as to some franchises and 
 denying it as to others is very clearly shown. 
 
 " But in the case of a railroad company, created for the express 
 and sole purpose of constructing, owning, and managing a rail- 
 road ; authorized to take land for this public purpose under the 
 right of eminent domain; whose powers are to be exercised by 
 officers expressly designated by statute ; having public duties, the 
 discharge of which is the leading object of its creation ; required 
 to make returns to the legislature, — there are certainly great and, 
 in our opinion, insuperable objections to the doctrine that its fran- 
 chise can be alienated, and its powers and privileges conferred by 
 its own act upon another person or body, without authority other 
 than that derived from the fact of its own incorporation. The 
 franchise to be a corporation clearly cannot be transferred by any 
 corporate body, of its own will. Such a franchise is not, in its 
 own nature, transmissible. The power to mortgage can only be 
 coextensive with the power to alienate absolutely, because every 
 mortgage may become an absolute conveyance by foreclosure. 
 And although the franchise to exist as a corporation is distin- 
 guishable from the franchises to be enjoyed and used by the cor- 
 poration after its creation, yet the transfer of the latter differs 
 essentially from the mere alienation of ordinary corporate prop- 
 erty. The right of a railroad company to continue in being 
 depends upon the pei'formance of its public duties. Having once 
 established its road, if that and its franchise of managing, using, 
 and taking tolls or fares upon the same are alienated, its whole 
 power to perform its most important functions is at an end. 
 A manufacturing company may sell its mill, and buy another ; 
 but a railroad company cannot make a new railroad at its 
 pleasure."^ 
 
 Some courts have expressed their dissent from this doctrine in 
 more or less unqualified terms. In Maine the theory that fran- 
 chises could not be mortgaged has been thought to be " little 
 
 etta & C. R. Co., 15 Ohio St. 21 ; Naglee the public streets is an ordinaiy inanufac- 
 
 V. Alex. & Fred. R. Co., 83 Va. 707; s. o. taring corporation which may mortgage 
 
 32 Am. & Eng. R. R. Cas. 401 ; P. & C. R. its property, and not a public or quasi 
 
 Co. V. Allegheny County, 63 Pa. St. 126. public corporation which the public policy 
 
 ^ 10 Allen, 448 (1865). of Massachusetts prohibits from so doing. 
 
 2 A corporation organized to supply Evans b. Boston Heating Co. (1892), 157 
 
 heat to buildings through pipes laid in Mass. 37 ; s. o. 31 N. E. 698. 
 
172 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 better than practical repudiation," and to have " little to commend 
 it, and much to condemn it," ^ though it may be remarked that 
 the point was not practically involved in the case in which these 
 expressions were used, as the legislature had ratified the mortgage. 
 
 1 Shepley v. Atlantic & St. Lawrence 
 E. Co. (1867), 55 Me. 395. The sweep- 
 ing condemnation of the common view 
 was supported by the following reason- 
 ing : " The whole argument seems to 
 have no greater force than this, that it 
 is dangerous to the public interests to 
 have the powers and privileges con- 
 ferred by a railroad franchise trans- 
 ferred from the original corporators to a 
 new body. But when we consider how 
 little importance is attached to the per- 
 sons of the original corporators, how soou 
 death must, and other circumstances may, 
 remove them from all participation in the 
 affairs of the road, how constantly those 
 who have the active management of it 
 are in fact being chauged, we shall see 
 how little practical merit this argument 
 has. At the beginning the corporators 
 undoubtedly have a controlling influence, 
 but afterwards the directors are elected by 
 the stockholders, and are often changed. 
 Is there any reason to suppose that if a 
 mortgage should, by foreclosure, transfer 
 the franchise to new hands, that as capable 
 men would not be appointed to manage 
 the road as before ? Would not the bond- 
 holders be as interested and as capable of 
 appointing suitable managers as the stock- 
 holders ? Does any one fear that the pub- 
 lic interest would not be as safe with the 
 former as with the latter ? Why, then, is 
 it dangerous to the public interests to al- 
 low such a transfer ? " 
 
 But this view was approved in a later 
 case in the same State. Kennebec & 
 Portland R. Co. v. Portland & Kennebec 
 E. Co. (1871), 59 Me. 9. Much stress was 
 there laid upon the fact that such an 
 objection to the validity of the mortgage 
 rested solely on public policy, and was, 
 therefore, rather for the State, than any of 
 the parties in interest, to raise. Upon an 
 examination of the various enactments of 
 the legislature in regard to railroads the 
 court concluded that the State conld not, 
 and did not, object to the mortgage. It 
 was also pointed out that as a statute 
 
 had conferred upon the bondholders power 
 to organize as a corporation, after fore- 
 closure, with all the powers of the former 
 corporation, and in effect to assume a new 
 franchise and act under it, the question 
 what became of the old franchise was of 
 little practical importance. A late de- 
 cision by the Maine court seems to indi- 
 cate very strongly that its earlier views 
 have been modified so as to bring them 
 into a closer conformity with the general 
 current of authorities. In the case of 
 Brunswick G. L. Co. v. United Gas, etc. 
 Co., 85 Me. 532, it was held that a qvMsi 
 public corporation is not allowed to sell or 
 lease its corporate powers or franchises 
 without legislative authority, the reason 
 assigned being the usual one, that " if they 
 were able to do so, they might thereby 
 disable themselves from the performance 
 of their public duties, and thus escape 
 from the power of the courts and of the 
 legislature to enforce their performance." 
 
 It is true that the same case also de- 
 clares the law of Maine to be that the 
 franchise of a corporation having the right 
 to receive tolls may be lost by an execu- 
 tion sale, or the foreclosure of a mortgage. 
 But unless this doctrine is intended to be 
 based on the existence of a statute ex- 
 pressly permitting these modes of transfer, 
 — a point which the opinion does not 
 show, — it cannot be reconciled with the 
 opinion expressed as to the illegality of an 
 unauthorized sale or lease. No distinction 
 can be drawn between voluntary and in- 
 voluntary transfers. "A mortgage trans- 
 ferring a title, which, upon the happening 
 of a certain coutingency, may be made 
 absolute by sale or foreclosure, has the 
 effect, as soon as it becomes of any value 
 to secure the purpose for which it was 
 made, to accomplish as complete a transfer 
 of the corporate franchise and property, 
 and the means of performing the corpo- 
 rate duty, as if it had been originally an 
 outright sale." Richardson v. Sibley, 11 
 Allen, 65 (per Gray, J.). 
 
§ 1-19.] MORTGAGES AND THEIR VALIDITY. ITS 
 
 Similar views have been thus expressed by another New Eng- 
 land court: "It is assumed by the court that, if a corporation 
 would entitle itself to the enjoyment of its franchises, it must 
 comply with the provisions and requirements of its charter, both 
 express and implied, so far as its duty to the public is concerned. 
 It must act under its charter for the accomplishment of the pur- 
 poses designed by it. But it is at the option of the corporation 
 whether it will do so or not. The only remedy in favor of the 
 public is by a proceeding to enforce a forfeiture of the charter. 
 The corporation cannot be compelled either to make or operate a 
 railroad. Whether it will do so or not depends on the expecta- 
 tion of its being a feasible and prosperous enterprise. If it 
 should find it to be a losing undertaking, it would be likely to 
 cease to prosecute it. K it should find or expect it to be a profit- 
 able one, it would be likely to continue its prosecution. If the 
 corporation should, for prudential considerations, see fit to trans- 
 fer to others its property, with the franchises appertaining to 
 such property, the same motives would operate upon the assignees, 
 and to the same intents, as upon the corporation. The assignees 
 would hold subject to the obligations and duties to the public 
 which rested upon the corporation, and, in order to take any 
 benefit from the assignment, would find it necessary to answer to 
 those obligations and duties. The same remedy would be as effec- 
 tual, so far as rights depending on the franchises of the corpora- 
 tion were concerned, upon the assignees as upon the corporation. 
 The assignees could no more pervert the roadway to other uses 
 than could the corporation. They could no more turn to any 
 other account than the operating of a railroad any of the corpo- 
 rate rights and privileges, than could the corporation. So far as 
 property held in absolute title is concerned, the corporation and 
 the assignees could equally dispose of it as they should see fit, 
 whether such property was essential to the operating of tlie rail- 
 road or not. So long as the rights and privileges conferred upon 
 the corporation should be exercised in accomplishment of tlie pur- 
 poses for which they were conferred, there would seem to be not 
 only no occasion, but no right, on the part of the public to inter- 
 pose between the corporation and its assignees, — certainly not 
 by way of taking a forfeiture of the charter ; and, as it seems to 
 us, equally none on the part of individuals, by way of questioning 
 the validity of the assignment on the score of public policy. 
 
 " The idea of a particular confidence reposed in the particular 
 persons who compose the corporation, for the service of the public 
 interests involved in the making and operating of the proposed 
 
174 EAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 railroad, seems to us altogether fanciful and theoretical. In fact, 
 there is no such confidence. From the nature of the case there 
 could not be. For who shall compose the corporation at any 
 given time depends on who owns shares of the capital stock, — 
 one set of men to-day, another to-morrow ; some citizens of the 
 State, some foreigners. The true idea is that the public relies 
 for its assurance that its rights will be duly answered upon the 
 fact that they must be, in order that the conferred privileges may 
 be held and enjoyed by the corporation, of whomsoever composed ; 
 not upon any personal confidence which the legislature has in 
 an indiscriminate body of persons, — men, women, and children, 
 citizens and foreigners, — daily changing, who may become or 
 cease to be stockholders at their own pleasure and without 
 restraint." ^ 
 
 The arguments adduced in these passages are rather in the 
 nature of reasons why the legislature should permit the transfer 
 of franchises than a refutation of the commonly received rule. 
 To show that that rule may, for many, or even most purposes, be 
 practically evaded by the sale of each corporator's interest in the 
 franchise does not prove that the rule itself does not exist, or that 
 it should be entirely abrogated. Besides, it should be noticed 
 that these courts have misapprehended, or at least misstated, the 
 real foundation of the doctrine which is combated. The transfer 
 of franchises without legislative authority is illegal, not because 
 the charter creates a personal trust or confidence in the original 
 members of the corporation, but because (1) the charter of a cor- 
 poration is the measure of its powers, and the enumeration of 
 these powers excludes all others ; and (2) because a grant of 
 franchises, like any other grant, creates a contract between the 
 sovereign grantor and the corporation, as a corporation, by which 
 the latter obligates itself to discharge certain functions ; and this 
 contract is necessarily violated if the corporation undertakes to 
 deprive itself of that possession of the franchise without which 
 performance of the contract is impossible.^ 
 
 The relation created by a grant of franchises, therefore, is no 
 more one of personal confidence than the relation created by any 
 other contract, and an argument based wholly upon the theory 
 that a grant has the effect attributed to it by the courts of Maine 
 and Vermont is unsound. 
 
 A business corporation organized under the law of New York, 
 ch. 611, N. Y. Laws, 1875 (now repealed), though it might at 
 
 1 Miller v. Rutland & Washington K. ^ See the leading case of Thomas o. 
 Co., 36 Vt. 452, 491. Railroad Co. (1879), 101 U. S. 71. 
 
§ 150.] MORTGAGES AND THEIR VALIDITY. 175 
 
 common law mortgage its property at will the same as natural 
 persons,! was subject to the restrictions of the statute, and, unless 
 authorized by statute, could not mortgage its franchises. There 
 was no such authority under the act of 1875.^ 
 
 § 150. Franchise to be a Corporation placed by some Courts on 
 a Different Footing from other Franchises. — In regard to the power 
 to mortgage franchises some courts have drawn a distinction, 
 though not on tlie same grounds, between tlie franchise to be a 
 corporation and other franchises. According to one view " a cor- 
 poration being an artificial being, cannot transfer its own exist- 
 ence into another body ; nor can it enable natural persons to act 
 in its name, save as its agents, or as members of the corpora- 
 tion, acting in conformity with the modes required by or allowed 
 in its charter. But the franchises to build, own, and manage a 
 railroad, and to take tolls thereon, are not necessarily corporate 
 rights ; they are capable of existing in and being enjoyed by 
 natural persons; aiid there is nothing in their nature inconsistent 
 with their being assignable. The franchise to be a corporation, 
 therefore, is not a subject of sale or transfer, unless the law, by 
 some positive provision, has made it so, and pointed out the 
 modes in which such sale and transfer may be made effectual."^ 
 
 In Bardstown & Louisville R. Co. v. Metcalfe* a further refine- 
 ment on this doctrine was introduced, and it was held that a 
 railroad company authorized by its charter to borrow money to 
 
 1 See Barry v. Merchants' Exchange rule seems to have no bearing on the 
 Co. (1S44), 1 Sandf. Ch. 280. question whether the party undertaking to 
 
 2 Beebe v. Richmond Light, Heat, & make the grant has the power to do so. 
 Power Co. (1895), 13 Misc. Rep. 737 ; In Peter v. Kendal the controversy arose 
 s. c. 35 N. y. Suppl. 1, citing as author- out of the lease of a ferry franchise, but 
 ity Carpenter v. Black Hawk Co. (1875), there was no question as to the power to 
 65 N. Y. 43, 50. make the lease. Moreover, the franchise 
 
 ^ Hall u. Sullivan Eailroad Co. (1857), was held by an individual, and not by a cor- 
 
 1 Biunner Coll. Cases, 613 ; 21 Law Rep. poration, — a circumstance which renders 
 
 138 ; 11 Fed. Cas. 257 (1857). Compare this case still less pertinent, if, as seems 
 
 Miller V. Rutland cSb Washington R. Co. most consistent with general principles, 
 
 (1863), 36 Vt. 452 ; Bank of Middlebury the validity of a transfer of franchises by 
 
 V. Eilgerton (1858), 30 Vt. 182. a corporation resolves \tself in every in- 
 
 In the first of these cases Mr. Justice stance into a question of the express or 
 Curtis cited in support of the doctrine implied powers of that artificial body. 
 Comyus's Digest, " Grants," C, and Peter So far as our researches extend, it does not 
 V. Kendal, 6 Birn. & C. 703. It may be appear that the English courts recognize 
 fairly questioned whether either of these the distinction made by Mr. Justice Cur- 
 authorities is properly in point. In the tis. See also the passage cited from Corn- 
 former, franchises are merely enumerated monwealth y. Smith, § 149, sjtpra, which is 
 as being among the various subjects of a a weighty authority against admitting any 
 grant. In other words, they " lie in qualification of the general rule, 
 grant" and not "in livery." But this ■* 4 Mete. (Ky.), 199 (1862). 
 
176 RAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 complete the road, but not expressly authorized to make a mort- 
 gage on its property and franchises to secure the bonds evidencing 
 the loan effected for that purpose, has an implied power to make 
 such a mortgage, but cannot mortgage its corporate existence or 
 any prerogative franchise conferred upon it. 
 
 Another theory has also been formulated. " The franchise to 
 be a corporation," it is said, " is not strictly a corporate fran- 
 chise," or " a franchise of the corporation " at all. It is a fran- 
 chise of the individual corporators, or the natural persons who are 
 shareholders of the capital stock, and pertains to them as such 
 corporators ; and the corporation itself, as such, in its collective 
 capacity, or by its board of directors, has no more power to sell 
 this franchise thus pertaining to the corporators individually than 
 it has to sell their paid shares of capital stock. ^ 
 
 § 151. Existence of Potrer to mortgage the Corporate Ezistence not 
 usually inferred.^ — Whatever is the essential distinction between 
 the franchise to be a corporation and the corporate franchises, the 
 authorities are very clear as to existence of a general rule of con- 
 struction which requires the courts to lean strongly against the 
 inference that the legislature intended in any particular instance 
 to grant the power to mortgage the former franchise. In an early 
 Alabama case ^ tlie court, in passing upon the effect of a statutory 
 provision by which the president and directors of a company were 
 empowered " to borrow money to carry into effect the objects of 
 the charter, to issue certificates or other evidence of such loans, 
 
 1 Meyer v. Johnston (1875), 53 Ala. portance. It may be questioned, there- 
 237 ; s. c. 15 Am. Ry. Rep. 467, per fore, whether, in view of this alternative, 
 Manning, J.; Memphis & Little Rock R. it is not preferable to fall back upon the 
 Co. u. Commissioners (1884), 112 U. S. simple principle in support of which this 
 609. This doctrine is certainly not free rather subtle theory has been enunciated ; 
 from objections. If the franchise to be a viz., tbat while the existence of a power 
 corporation is private property in the same to mortgage the corporate existence is 
 sense as shares of stock, why should it not never inferred except from words specially 
 be capable of transfer by the collective importing a grant of that power, the ex- 
 consent of all the parties in interest ? On istence of a power to mortgage the other 
 the other hand, if tlie legislature has franchises may be deduced from the general 
 authorized the body organized as the cor- tenor of the enactment under which the 
 poration to assign the franchise in the corporation has been organized. See the 
 manner in which corporate property is following section. 
 
 usually assigned, it seems clear that the ^ The subject-matter of this section 
 
 corporators must be assumed to have should be read in connection with those 
 
 taken their shares of stock subject to the which deal with the question what passes 
 
 contingency that the franchise may in this to the purchasers at the foreclosure sale, 
 
 way pass from them. Under such circum- See Chap. XXXVI. 
 
 stances, the fact that the franchise is, ' Allen v. Montgomery & West Point 
 
 technically speaking, their individual E. Co. (1847), 11 Ala. 437. 
 property, would appear to be of no im- 
 
§ 151.] MORTGAGES AND THEIR VALIDITY. 177 
 
 and to pledge the property of the company for the payment of 
 such loans," considered it unnecessary for the purposes of the 
 decision to inquire whether authority was thus granted to pledge 
 the franchise of the corporation, in common with its other prop- 
 erty, but at the same time considered it not uuliliely tliat this was 
 the intention of the legislature. The expression " franchise " as 
 used by the court was somewhat ambiguous. If the court in- 
 tended to suggest that the provision in question authorized a 
 mortgage of the franchise to be a corporation, that view is not 
 sustainable in the light of more recent decisions, in which the 
 point was raised and passed upon. Thus it has been held in an 
 oft-cited case ^ that under a power to pledge, " by mortgage or 
 otherwise, the entire road, fixtures, and equipments, with all the 
 appurtenances, income, and resources thereof," the company could 
 mortgage all its franchises except tliat of its corporate exist- 
 ence. A similar ruling has been made in regard to a power to 
 mortgage " the road, income, and other property," ^ and a power 
 to mortgage the company's " means," property, and effects.^ 
 
 Nor is a mortgage of a corporate franchise validated by the fact 
 that, in the general law to which the charter is expressly made 
 subject, provisions are inserted requiring the class of corporations 
 to which the mortgagor belongs to make annual reports showing, 
 among other things, the number of mortgages on road and fran- 
 chises, " and on any other property of the corporation, and the 
 increase or decrease of mortgage debt during the year." * 
 
 1 Coe V. Columbus, Piqua, & Ind. R. the president of the company to execute a 
 Co. (lSo9), 10 Ohio St. 372. In Joy v. deed for that purpose. Whether ch. 43 of 
 .lackson Planlt Road Co. (1863), 11 Mich. Iowa Code of 1851, which gave railroad 
 150, it was held that where a mortgage companies the power to incumber their 
 was executed in pursuance of a special act, real and personal property, implied the 
 empowering a plank road company to grant of a power to mortgage its franchise, 
 mortgage the road and other property of was a question raised but not answered in 
 the company, the franchise of taking tolls Dunham v. Isett (1863), 15 Iowa, 284. 
 was to be understood as included with the s Meyer v. Johnston (1875), 53 Ala. 
 road and its fixtures. 237 ; s. c. 15 Am. Ry. Rep. 467, in which 
 
 2 Piillan V. Cincinnati & Chicago Air case Eldridge v. Smith, 34 Vt. 484, is re- 
 Line R. Co. (1865), 4 Biss. 35. In Hatcher viewed. In Alabama, however, the pur- 
 0. Toledo, Wabash, & Western R. Co. chasers of a railroad are enabled by st.ntute 
 (1872), 62 111. 477, however, it is denied to constitute themselves into a body cor- 
 that the right to mortgage the "road, porate, and have all the rights and fran- 
 property, and income " can be construed chises in respect to it with which the 
 to confer the right to mortgage any of the company was vested, and a power to sell a 
 franchises, the transfer of the franchises road. Branch Song & Co. v. Atlantic & 
 to the purchasers at the sale under the Gulf R. Co. et al. (1879), 3 Woods, 481. 
 power in the trust deed under discussion * Richardson i-. Sibley (1865), 11 Allen, 
 being held effectual only because the legis- 65. In this case there was the additional 
 lature, prior to the sale, had authorized feature that the same statute had also 
 
 12 
 
178 EAILWAT BONDS AND MOETGAGES. [CHAP. Tin. 
 
 Authority to borrow money " on the credit of the company and 
 on the mortgage of its charter and works " does not confer upon 
 the company power to convey to the bondholders the franchise to 
 be a corporation in such a sense that they will have the right to 
 organize under the act as successor to, and substitute for, the 
 original company .^ 
 
 Power to mortgage the corporate franchise is necessarily 
 implied where the company is authorized to mortgage all its 
 franchises.^ 
 
 § 152. Power to mortgage Franchises implied from Grant of 
 Power to sell them. — If the power is conferred in unqualified 
 terms to sell the corporate franchises, the company must neces- 
 sarily have the power to mortgage them.^ 
 
 C. Power to mortgage After-acquired Property^ 
 
 § 153. Pow^er expressly conferred by Statute. — The pOwer of a 
 railroad company to mortgage its after-acquired property is often 
 based upon the terms of a statute explicitly conferring that 
 power.^ 
 
 In Louisiana, railroad companies are specially privileged in this 
 respect, as the prohibition of the Code of that State against 
 mortgaging future property is levelled against private persons 
 merely.^ 
 
 Book debts of the company are its "property" within the 
 meaning of a power to raise money by mortgage of any of its 
 " property." ^ 
 
 § 154. Power implied from Enumeration of the Kinds of Property 
 which may be mortgaged. — Some decisions rest on the principle 
 that, as a matter of verbal construction, and in view of the objects 
 
 decisively negatived the inference thus ^ See, for example, the statutes con- 
 rejected by providing that no such corpo- strued in Dunham v. Isett (1863), 15 Iowa, 
 ration should "lease or sell its road or 284 ; City of Quincy «. Chicago, Burling- 
 propei'ty, unless authorized so to do by its ton, & Quincy R. Co. (1880), 94 111. 537. 
 charter or special act of the legislature. " ° Bell v. Chicago, St. Louis, & N. 0. 
 
 1 Memphis & Little Rock R. Co. v. R. Co. (1882), 34 La. Ann. 785 ; Parker 
 Commissioners (1884), 112 0. S. 609. v. New Orleans, B. R. & V. R. Co. (1888), 
 
 2 First Division of St. Paul, etc. R. Co. 33 Fed. Rep. 693. The former case con- 
 V. Parcher (1869), 14 Minn. 297. tains a full review of the statutes and 
 
 * Willamette R. Co. ■». Bank of British case laws of Louisiana in regard to this 
 Columbia (1886), 119 U. S. 191. subject. In Minnesota it is also provided 
 
 * For a general discussion of the ques- that after-acquired property may be mort- 
 tion whether a chattel mortgage can cover gaged : Stat, at Large, 1873, p. 431; and 
 after-acquired property, see two papers in in many other States not neces.sary to be 
 21 Albany L. J., pp. 227 and 346, the enumerated here. 
 
 latter dealing mainly with the law in ' Bloomer v. Union Coal, etc. Co. 
 lUssisbippi. (1873), L. R. 16 Eq. 383. 
 
§ 154.] MORTGAGES AND THEIB VALIDITY. 179 
 
 for which railroad mortgages are sanctioned, some expression 
 which occurs in the statutory enumeration of the various things 
 which may be mortgaged should be held to embrace future acqui- 
 sitions. Thus it has been held that the use of the comprehensive 
 term " property " in such enumeration will authorize a mortgage 
 which purports to cover after-acquired rolling-stock and other 
 property essential to the use of the road. Judge Sharswood 
 stated the views of the court as follows : " But the principal con- 
 tention here has been that the mortgage by this corporation, so 
 far as it included subsequent acquisitions, was ultra vires, — be- 
 yond the power conferred upon them by the legislative grant. 
 The act authorized them to mortgage all their ' property,' a word 
 of very large extent. Property (proprietas) is whatever is a man's 
 own (proprius). Ilis future acquisitions, though subject to a con- 
 tingency, are his own, and if, as we have seen, they can be granted 
 or assigned, they are his present property, valuable now to him 
 because they can be enjoyed or used by anticipation. There is 
 no refinement in this reasoning as applied to the construction of 
 this statute. The legislature evidently intended it. Every law is 
 to be interpreted according to its subject-matter. This act 
 relates to a railroad and its usual necessary appurtenances. The 
 words are ' road, property, rights, liberties, and franchises,' includ- 
 ing the road and its adjuncts. The very objects of the loan and 
 of the mortgage to secure it as expressed in the act was ' for the 
 purpose of constructing and equipping the road.' It evidently 
 contemplated a condition of things in the future. The bare road, 
 only then constructed in part, without any rolling-stock or equip- 
 ments, would have ' been no security,' or a very inadequate one. 
 Had the road even been fully equipped at the date of the mort- 
 gage, can it be doubted that the legislature meant that it should 
 confine everything subsequently acquired to replace old and worn- 
 out materials, and to maintain and keep up the equipment ? No 
 money would have been loaned on a security daily deteriorating, 
 and which must eventually perish entirely." ^ 
 
 So also has it been held that authority to mortgage " per- 
 sonalty" conferred the power to mortgage personalty acquired 
 after the execution of the mortgage.^ 
 
 ' Philadelphia, Wilmington, & Balti- conferred authority to mortgage after- 
 more R. Co. V. Woelpper (1870), 64 Pa. acquired property. The court, however, 
 St. 366. does not give any reasons for its opinion, 
 Compare Hodder v. Kentucky R. Co., and it is not apparent upon what precise 
 7 Fed. Rep. 793, where it was held that grounds the ruling was made, 
 authority to mortgage the " property, ^ Williamson v. New Jersey Southern 
 franchises," etc., of the railroad company E. Co. (1875), 26 N. J. Eq. 398. 
 
180 RAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 As the power to grant the product of property includes, by 
 reasonable implication, the power to grant the means by which 
 that product is brought into existence, the reasons for holding 
 that the company may mortgage future acquisitions are stronger 
 when it is authorized to borrow money on the security of its 
 " property and income," than when the " property " alone is 
 mentioned as the permissible subject-matter of the pledge.^ 
 
 In Coe V. Columbus, Piqua, & Ind. E. Oo.^ the same words 
 were construed in the same manner for the same reasons. " The 
 pledge," said the court, " is to be of the property and income. 
 The income intended must have been the future income, and 
 was to have been produced by property in possession and to be 
 acquired. If this future product can be conveyed, why not that 
 by which it is to be created ? " 
 
 And in a recent case in the Circuit Court of Appeals it was 
 held that a railway company might, under this Ohio statute, 
 mortgage its road and any subsequent accessions or accretions 
 properly appurtenant thereto, whether acquired by itself or its 
 successor in title, and whether the road, at the time the new 
 property is acquired, is maintained by virtue of the original 
 franchises, or of franchises newly conferred by the State. The 
 company, therefore, may make a mortgage the lien of which will 
 attach to a terminal depot subsequently acquired by a consoli- 
 dated company formed by the several companies of which the 
 mortgagor is one.^ 
 
 Power to pledge the franchises and rights of the corporation 
 includes by necessary implication the power to pledge everything 
 that is necessary to the enjoyment of those franchises. Cuicun- 
 que aliquis quid concedit, concedere videtur et id sine 'quo res ipsa 
 esse non potuit. A grant of such power, therefore, will render 
 valid a mortgage of after-acquired property.* 
 
 1 Ludlow 0. Hurd (1857), 1 Disii. includes the power to pledge future 
 (Ohio) 552 ; Coyey v. Pittsburg, Ft. acquisitions." 
 Wayne, & Chicago R. Co. (1858), 3 Phil. 2 iq Ohio St. 372 (1859). 
 173. In the last-cited case Agnew, P. J., The view of the Ohio court as to the 
 .said : " In giving the power to borrow effect of the statute of that State was inci- 
 and pledge, it must be supposed the power dentally sanctioned in Pennock v. Coe, 23 
 was given to its fullest extent in order ' to How. 117, where, although an express de- 
 carry into effect the objects of the incorpo- cision on this point was not rendered, for 
 ration.' But if any doubt remains, the the reason that it had not been raised by 
 power to pledge the 'income' as well as counsel, the opinion was expressed that the 
 the pi'operty would banish it. Income is authority to mortgage after-acquired prop- 
 necessaiily an after-acquisition, and is erty was ample. 
 
 brought into existence by future efforts ' Compton v. Jesup (C. C A., 1895), 68 
 
 and the use of accruing property. It is' Fed. Eep. 263. 
 
 potential and dependent. It is a fair * Phillips v. Winslow (1857), 18 B. 
 
 inference that the power to pledge it Mon. (Ky. ) 431. 
 
§ 155.J 
 
 MORTGAGES AND THEIR VALIDITY, 
 
 181 
 
 A mortgage of a railroad not yet built, or of property not yet 
 acquired, is not forbidden by the policy or the letter of a statute 
 limiting the amount of bonds which may be issued and secured 
 by mortgage to the amount of the capital actually paid in at the 
 time of the issue.^ 
 
 § 155. Power to mortgage Uncalled Capital. — The power to 
 mortgage uncalled capital has been discussed in numerous Eng- 
 lish cases, and the doctrine now accepted may be shortly stated 
 as follows : Future calls are not " property of the company." ^ 
 
 For this reason a power which merely extends to the mortgage 
 of property will not authorize a mortgage of uncalled capital.^ 
 
 But there is nothing in the Companies Act of 1862 and its 
 amendments which either expressly or by necessary implication 
 prohibits a company from executing such a mortgage.* 
 
 The question whether the company possesses the power is 
 merely one of the proper construction of the memorandum and 
 articles of association.^ 
 
 1 Baker v. Guarantee T. Co. (N. J. Eq., 
 1895), 31 Atl. Rep. 174. 
 
 ^ Bank of South Australia v. Abrahams, 
 L. E. 6 P. C. 562. 
 
 * Bank of South Australia v. Abrahams, 
 L. R. 6 P. C. 562 (company empowered 
 to charge property) ; Stanley's Case, 4 
 DeG., J. & S. 407 (company empowered 
 to charge property and funds). These 
 cases were distinguished in Howard v. 
 Patent, etc. Co., L. E. 38 Ch. Div. 156 
 (1888), where a mortgage of future calls 
 was held valid under a power to mortgage 
 the " property and rights " of the company. 
 It has been held that the existence of such 
 a power cannot be inferred from the use of 
 the word " effects " in addition to the 
 word " property " in the enabling act. In 
 re Sankey Brook Coal Co. (1870), L. R. 
 10 Eq. 381. In this case Vice-Chancellor 
 James took the broad ground that " prop- 
 erty" means a thing actually existing, a 
 position which seems diifioult, if not im- 
 possible, to reconcile witli the opinion of 
 the Supreme Court of Pennsylvania above 
 referred to. 
 
 Under an assignment of " all the lands, 
 tenements, and estates of the company, 
 and all their undertaking," future calls, 
 whether to he made, or already made and 
 not yet paid, will not pass. King v. Mar- 
 shall, S3 Beav. 565. 
 
 But the capital of the company is not 
 
 covered by the lien of a debenture in which 
 the directors pledge " the property belong- 
 ing to us, with all the buildings and stock 
 on and connected with our said property, 
 and all the receipts and revenues to arise 
 therefrom," and in which the debenture 
 loan is declared to be a first charge on our 
 undertaking and property, and receipts and 
 revenues aforesaid." The declaration of 
 such a charge, therefore, is not ultra vires. 
 In re Marine Mansion Co. (1867), L. R. 4 
 Eq. 601. 
 
 * In re Pyle Works (1890), L. R, 44 Oh. 
 Div. 534, per Cotton and Lindley, L.JJ. 
 
 ^ See the following cases in illustration 
 of this rule : Stanley's Case (1864), 4 
 DeG., J. & S. 407 ; In re Phoenix, etc. 
 Steel Co. (1875), 44 L. J. Ch. 683 ; In 
 re Sankey Brook Coal Co., L. E. 9 Eq. 
 721 ; 10 Eq. 381 ; In re Colonial Trust 
 Corporation, L. R. 15 Ch. D. 465 ; Bank 
 of South Australia v. Abrahams, L. R. 6 
 P. C. 265; Howard v. Patent, etc. Co., 
 38 Ch. Div. 166 ; In re Pyle Works 
 (1890), L. R. 44 Ch. Div. '534. " The last- 
 mentioned case contains an elaborate re- 
 view of the authorities. Hulme a. Gold 
 Syndicate, 13 Rep. 346 ; Newton v. Anglo- 
 Australian Co., 72 L. T. 305 ; Page v. In- 
 ternational Co., 68 L. T. 435 ; Fowler v. 
 Broad's Night-Light Co., 1 Ch. 724. See 
 § 141, wrde, and also In re Streatham Co. 
 (1897), 1 Ch. D. 15. 
 
182 RAILWAY BONDS AND MORTGAGES. [CHAP. Till. 
 
 § 156, Limits of the Po'wer to mortgage After-acquired Property. 
 
 — In some States the power to mortgage is expressly limited by 
 the legislature, in accordance with the doctrine which will be 
 developed below in discussing the extent of the mortgage lien ; 
 viz., that nothing is covered by an after-acquired clause couched 
 in general terms except what is acquired for railroad purposes. 
 Thus in Florida it is provided that a corporation may mortgage 
 or otherwise convey such real and personal estate as the purposes 
 of the corporation shall require, not exceeding the amount limited 
 in the articles of incorporation, and the special statute relating to 
 railroad mortgages enumerates, as the permissible subject-matter 
 thereof, various kinds of property, tangible and intangible, all 
 growing out of or used in connection with the business of 
 transportation, and concludes with the general term " appurte- 
 nances used in connection with such railroad." ^ 
 
 But by most of the enabling statutes the company may pledge 
 its corporate " property and franchises," a form of phraseology 
 which, according to the doctrine of the cases cited in the last 
 section, confers authority to mortgage any after-acquired property 
 which the company is empowered to hold, and leaves the actual 
 scope of the lien to be determined by the principles of construc- 
 tion which are illlustrated below. 
 
 A mortgage by a business corporation to a trustee, for the 
 security of bondholders, of its real and personal property, though 
 it purport to cover future-acquired property, will not be construed 
 to cover personal property other than that held at the time the 
 mortgage was executed and recorded, and such additions to it as 
 have become part and parcel of the original articles, and incapable 
 of a separate identification.^ 
 
 A provision in a mortgage of a business corporation for the 
 security of its bondholders that it covers all future-acquired 
 property is regarded by the courts only as an executory agree- 
 ment to do what is competent and necessary to give a lien upon 
 such personal property as the corporation may afterwards acquire 
 as it comes into existence. It has no force against subsequent 
 liens by attachment and execution creditors or mortgagees, unless 
 such lien be actually effected prior to their liens.^ 
 
 § 157. Effect of the Want of Power to hold the Property attempted 
 to be mortgaged. — Such want of power may be owing to the 
 
 1 Bush's Dig. (1872), p. 165 ; Laws ^ Beehe v. Richmond Light, Heat, & 
 
 1874, ch. 1987, § 9, par. 10. Power Co. (1895), 13 Misc. Rep. 737 ; s. o. 
 
 2Beebe v. Richmond Light, Heat, & 35 N. Y. SuppL 1 (1895), citing as author- 
 Power Co. (1895), 13 Misc. Eep. 737 ; s. c. ity Rochester Distilling Co. v. Rasey 
 35 N. Y. Suppl. 1. (1894), 142 jST. Y. 570. 
 
§ 157.] MORTGAGES AND THEIE VALIDITY. 183 
 
 absence of a direct legislative authorization. Thus where a char- 
 ter empowering the company to acquire and hold such real prop- 
 erty " as might be necessary and convenient for the construction, 
 maintenance, and management of the road," and also to acquire 
 " any steamboats, piers, wharves, and the appurtenances thereto 
 belonging, that the directors may deem necessary, profitable, and 
 convenient for the corporation to own, use, and manage in con- 
 nection with said railroad," it was held that property bought of 
 an opposition steamship line, not with a view of employing it in 
 the business of the road, but to withdraw it from business, thereby 
 preventing competition, was not property which the company was 
 authorized to acquire, and therefore could not be mortgaged.^ 
 
 So although a company whose powers, as regards the acquisition 
 of land, are restricted to such lands as are " necessary and con- 
 venient " for the purposes of the railroad, may purchase and hold 
 other lands temporarily, when, by doing so, they can acquire lands 
 within the scope of their charter powers at a smaller cost than 
 they could otherwise have been obtained, it cannot hold these sur- 
 plus lands permanently, nor subject them to a mortgage which 
 contemplates a prolonged ownership.^ 
 
 A similar result follows if the acquisition of the property is 
 invalid, because made without observing the conditions prescribed 
 by the legislature for such a transaction. Hence if the company 
 is empowered to purchase other lines, provided the purchase is 
 assented to by a majority in value of its stockholders, the mort- 
 gage will not cover a line of railroad which was not a part of the 
 system at the time the mortgage was executed, and was purchased 
 without procuring the necessary concurrence of the stockholders.* 
 
 Even if the power to hold lands is given in general terms, a 
 court may be justified, from a consideration of the policy of the 
 State as disclosed by its legislation, in holding that only such 
 lands as are necessary for railroad purposes are intended to be 
 embraced in the power. But if by a later statute railroad com- 
 panies are given the right to receive lands, without limitation as 
 to amount, in payment of stock subscriptions, provided they are 
 disposed of in a reasonable time, a mortgage on lands so acquired 
 which creates a lien not inconsistent with such a statute as re- 
 spects duration, amount, and purpose will be valid.* 
 
 1 Morgan & Rajmor, Trustees, v. Dono- ' Hodder v. Kentucky & Great Eastern 
 van (1877), 58 Ala. 241 ; s. c. 21 Am. Ey. E. Co. (1881), 7 Fed. Rep. 793. 
 
 Eep. 109 (1877). * Taber v. Cincinnati, Logansport, & 
 
 2 Boston & New York Air Line E. Co. Chicago R. Co. (1860), 15 Ind. 459. The 
 ». Coffin (1882), 50 Conn. 150 ; s. o. 12 court in this case expressly waived the 
 Am. & Eng. E. E. Cas. 375. question whether a lien which did not an- 
 
184 
 
 RAILWAY BONDS AND M0ETGAGE8. [CHAP. VIII. 
 
 So where the company at the time of the execution of the mort- 
 gage has no power under its charter to accept a grant of lands 
 from the United States, and no such acquisition was contem- 
 plated, the lands obtained by such a grant will not pass under the 
 " after-acquired property clause." ^ 
 
 Similarly if a company has no power to consolidate with an- 
 other at the date of the mortgage, but subsequently does so by 
 the consent of the legislature expressly given for that purpose, 
 the property of the second company is not covered by the after- 
 acquired clause of the mortgage.^ 
 
 A like rule applies to branch roads ^ or extensions* which 
 the company was not authorized to build when it made the 
 mortgage. 
 
 On the other hand, a general after-acquired clause covers a pur- 
 chased road if within the chartered limits of the company ; ^ and 
 
 swer the above description would have heen 
 invalid. As the existence of the mortgage 
 would not in any way alfect the power of 
 the company to sell the land, or disable it 
 from complying with the provisions of the 
 statute, it is difficult to see any ground for 
 supposing that lands acquired under such 
 circumstances might not be subjected to 
 every kind of lien. It surely can make no 
 difference, so far as the policy of the stat- 
 ute in question is concerned, whether the 
 company receives a part of the price of 
 the land as an advance on the security of 
 the mortgage, and the rest when it is sold 
 subject to the mortgage, or receives the 
 whole price at one time. 
 
 1 Meyer v. Johnston (1875), 53 Ala. 
 237 ; s. c. 15 Am. Ky. Eep. 467. 
 
 2 Gibert v. Washington, Va. Mid. & 
 Gt. So. R. Co. (1880), 33 Graft. 586. The 
 court decided this case partly on the ground 
 stated in the text, and partly on the more 
 general ground that the term ' ' after-ac- 
 quired property" applies only to "such 
 necessary accretions as are requisite to keep 
 up the road, such as new rails, cross-ties, 
 depots, rolling-stock, machinery, and, it 
 may be, real estate acquired for the legiti- 
 mate purposes of the corporation." This 
 limitation of the meaning of the words 
 seems scarcely justified by the authori- 
 ties. If a leasehold interest in another 
 road will pass under the mortgage, it 
 is difficult to see why another road ac- 
 quired in full ownership should not also 
 
 pass, provided the acquisition is author- 
 ized. This latter condition, it is submitted, 
 is the only one necessary to be fulfilled in 
 regard to such property as a, purchased 
 road. 
 
 8 Meyer v. Johnston (1875), 53 Ala. 
 237 ; s. c. 15 Am. Ey. Rep. 467. 
 
 * Randolph v. New Jersey R. Co. (1877), 
 28 N. J. Eq. 49 ; Alexandria & Freder- 
 icksburg E. Co. V. Graham et al. (1879), 
 31 Graft. 769. In Randolph v. WQming- 
 ton & Reading E. Co., 11 PhU. 502 (tJ. 
 S. C. Ct., 1876), where it was held that 
 if a mortgage is executed of a rail- 
 road, as then made or to be made, and 
 under authority of a subsequent act a 
 later mortgage is executed on an extension 
 of the original road, — the special act 
 providing that the later mortgage should 
 be a first lien on the extension, — a sale 
 under the original mortgage must be 
 exclusive of the branch. No reasons are 
 given for this ruling, but from the state- 
 ment of the case it is to be presumed that 
 the company would have had no power to 
 build the extension without the second 
 statute. Under these circumstances the 
 extension came into their hands burdened 
 with the lien declared by the legislature, 
 and they took it cum onere. 
 
 ' Branch v. Jesup, 106 U. S. 468; 
 Branch v. Atlantic & Gulf R. Co. (1879), 
 3 Woods, 481 ; Williamson v. New Jersey 
 Southern R. Co. (1874), 25 N. J. Eq. 
 13. 
 
§ 158.] MORTGAGES AND THEIR VALIDITY. 185 
 
 an extension, provided its construction has been authorized either 
 by its original charter or an act subsequently passed for that 
 purpose at some time before the execution of the mortgage.^ 
 
 Article II. — Validity op the Mortgage as affected by the 
 Manner and Circumstances op its Execution. 
 
 § 158. Formal Requisites. 
 
 (a) Witnesses are not necessary to the validity of a mortgage 
 executed by a corporation in Connecticut, the laws of that State 
 being sufficiently complied with where the instrument is signed 
 by the president and sealed with the corporation seal.^ 
 
 (b) Oath. — A mortgage of the personal property, if actually 
 sworn to by the agents who executed it, is not invalid in New 
 Hampshire, for the reason that the signatures affixed by them to 
 the oath do not purport to have been subscribed on behalf of the 
 corporation, provided the instrument throughout purports to be 
 the deed of the corporation, and is executed in the corporate 
 name.^ 
 
 (c) Acknowledgment. — Under a Tennessee statute providing 
 the following formula for the acknowledgment of deeds : " Per- 
 sonally appeared before me . . . the within named bargainor, 
 with whom I am personally acquainted," etc., it has been held 
 that where the mortgage of a Tennessee railroad company was 
 executed in New York, and the officer taking the acknowledg- 
 ment of the grantors, the president and secretary of the company, 
 certified that each of them was " personally known " to him, a 
 sufficient compliance with the statute was shown, the expressions 
 " to be personally acquainted with " and " to know personally " 
 being in such certificates regarded as equivalent phrases.* 
 
 (d) Seal. — For the general rules as to necessity of affix- 
 ing the corporate seal to its written contracts the reader will refer 
 to works on corporation law.^ 
 
 (e) Delivery. — Where a mortgage has been duly executed, 
 acknowledged, and recorded, and treated as a valid lien by the 
 
 1 Willink V. Morris Canal & Bkg. Co. Tennessee as to the execution and acknowl- 
 
 (1843), i N. J. Eq. 377. edgment of deeds by a corporation, the 
 
 ^ Nichols V. Mase (1883), 94 N. Y. officer who affixes the corporate seal to a 
 
 160 ; s. 0. 17 Am. & Eng. R. E. Cas. deed is the party executing it, within the 
 
 230. meaning of the statute requiring deeds to 
 
 ' Richards v. Merrimack & Connecticut be acknowledged by the grantor. 
 River R. Co. (1862), 44 N. H. 127. 6 See Thompson Corp., §§ 5044 et seq. 
 
 * Kelly c. Calhoun (1878), 95 U. S. Some cases as to the authority of corpo- 
 
 710. It was also held in the same case rate agents to affix a seal to mortgages are 
 
 that, as there was no statutory provision in cited in §§ 162, 166, post. 
 
186 EAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 company, the fact that the trustee has not had manual possession 
 of the instrument does not affect its validity .^ 
 
 A mortgage given to secure bondholders does not go into opera- 
 tion until the bonds are delivered to the bondholders.^ 
 
 (f) Special Requirements. — An affidavit of the secretary of a 
 consolidated corporation attached to a mortgage, " that the true 
 consideration of the above mortgage is the issue of four himdred 
 thousand dollars ($400,000) in the bonds of the mortgagor, for 
 the purpose specially set forth in the mortgage," has been held 
 sufficient to relieve the mortgage from being declared void under 
 the requirements as to an affidavit, etc., contained in Supp. Rev., 
 N. J., p. 491, par. 11.3 
 
 § 159. When a Mortgage executed by a Corporate Agent is the 
 Deed of the Corporation. — A mortgage executed by the presi- 
 dent cannot take effect as the deed of the corporation unless it 
 was executed by or in the name of the corporation, even though 
 the action of the president was taken in pursuance of tlie votes 
 of the corporation, and the instrument was designed to take effect 
 as its deed.* 
 
 But the corporation will be bound by a mortgage executed in 
 these words : " In testimony whereof the said party of the first 
 part have caused these presents to be signed by their president, 
 and their common seal to be thereto affixed. A. B., President," 
 and seal. Such an instrument purports to be the deed of the 
 corporation to which they have caused their seal to be affixed, not 
 to be the deed of the agent executed by him in behalf of the 
 principal, and it therefore conveys the company's title.^ 
 
 § 160. When Mortgage is not vitiated by Vagueness of its Descrip- 
 tive Clause, — An agreement construed, under the circumstances, 
 to operate as an equitable mortgage, has been held not to be invalid 
 for the reason that it pledged the real and personal estate of the 
 company without specification, and did not state the amount to 
 be secured.^ 
 
 § 161. Authority of Corporate Officers generally to execute a 
 Mortgage binding on the Corporation. — A corporation can act 
 only by its agents, and in order to bind the corporation the 
 authority of the agent must appear. This need not be shown 
 
 1 McCurdy'a Appeal (1870), 65 Pa. St. * MUler v. Rutland & ■Washington K. 
 290. Co. (1862), 36 Vt. 452. 
 
 2 Wade V. Donau Brewing Co. (189i), 6 Haven v. Adams (1862), 4 Allen, 
 10 Wash. 284 ; s. C. 38 Pac. Rep. 1009. 80. 
 
 5 Camden Safe Deposit & Trust Co. v. " Mobile & Cedar Poiut E. Co. ■». 
 
 Burlington Carpet Co. et al. (N. J. Eq., Talman (1849), 15 Ala. 472. 
 1895), 33 Atl. Rep. 479. 
 
§ 161.]' MORTGAGES AND THEIR VALIDITY. 187 
 
 by any resolution of the board or other written evidences ; it may 
 be implied from facts and circumstances.^ And the presumption 
 being that such persons ai-e rightfully in oiiBce,it is not incumbent 
 on the party claiming under their acts, unless some evidence is 
 offered on the subject, to show that they were properly elected.^ 
 
 The authority to execute a mortgage of the corporate property 
 may, as in other cases of agency, be shown either by evidence of 
 the acts of the corporation prior to the time of the execution, or 
 by acts subsequent to such execution from which a ratification 
 may be inferred.^ (See section below as to ratification.) 
 
 Where a mortgage covering property of a railroad in two States 
 has been regularly foreclosed in a federal court of one of the 
 States, concurred in by the federal court in the other, and regu- 
 larly entered there, the court decreeing the foreclosure will not 
 consider afterwards the question of the validity or invalidity of 
 the mortgage.'* 
 
 If it appears that acts like the one in question would, under 
 ordinary circumstances, be within the authority, a presumption 
 arises that the necessary circumstances did exist, and that the 
 act in question was authorized.^ 
 
 Thus where a contract purporting to be sealed with the seal of 
 a corporation is proven to have been signed and executed by the 
 proper agents, the presumption is that the seal was regularly 
 affixed by the proper authority ; and a contract under seal exe- 
 cuted by an agent within the scope of his appointed power will be 
 held valid and binding on the corporation until evidence to the 
 contrary has been introduced.® 
 
 The presumption of authority to affix the seal of the corpora- 
 tion to a contract will not be overcome by the mere fact that no 
 vote of the directors authorizing it is shown.^ 
 
 1 Northern Central R. Co. u. Bastian Co. (1890), 122 N. Y. 165 ; s. c. 25 N. E. 
 
 (1859), 15 Md. 494. Eep. 303 ; 9 Ry. & Corp. L. J. 15 ; Lin- 
 
 * Susquehanna Bridge & Bkg. Co. v. coin v. Iron Co. (1880), 103 IT. S. 412 ; 
 General Ins. Co. (1852), 3 Md. 305. Farmers' & Mechanics' Bank v. Butchers' 
 
 ' Despatch Line of Packets v. Bellamy & Drovers' Bank (1857), 16 N. Y. 125. 
 
 Mfg. Co. (1841), 12 N. H. 205 ; Cheever " Ang. & Ames on Corp., § 224 ; Fi- 
 
 V. Rutland K. Co. (Vt., 1869), 4 Am. Ey. delity Ins., Trust, & Safe Deposit Co. v. 
 
 Eep. 291 ; Hervey v. 111. Midi. Ey. Co. Shenandoah Valley E. Co. (1889), 32 
 
 (1884), 28 Fed. Eep. 169, 175 ; Claflin v. W. Va. 244; s. 0. 9 S. E. Eep. 180; 38 
 
 South Car. Ey. Co. (1880), 8 Fed. Rep. Am. & Eng. R. E. Cas. 677. 
 
 118, 135. ' Waterman on Corp., § 96; North- 
 
 * Central Trust Co. of New York v. em Central E. Co. o. Bastian (1859), 15 
 Marietta & North Ga. Ey. Co. et al. Md. 494; Fidelity Ins., Trust, & Safe 
 (Morse, Intervener) (1896), 73 Fed. Eep. Deposit Co. v. Shenandoah Valley R. Co. 
 589. (1889), 32 W. Va. 244 ; s. c. 38 Am. & 
 
 s Martin v. Niagara Falls Paper Mfg. Eng. R. R. Cas. 577 ; 9 S. E. Eep. 180. 
 
188 RAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 Thus the seal of a corporation may be attached to a mortgage 
 of its property by a person recognized by its president and board 
 of directors as its secretary, although he is not de jure secretary.^ 
 
 The official acts of persons who are de facto officers of a cor- 
 poration, and hold themselves out to the world as such, bind the 
 corporation and all who claim under it.^ 
 
 General Corporation Act, N. J., § 16, providing for the manage- 
 ment of the business of corporations by directors who are share- 
 holders, does not apply to the directors for the first year of a 
 corporation consolidated under P. L. N. J., 1893, p. 121, ch. 67, 
 and a mortgage of the property of the corporation executed by the 
 directors for the first year who are not stockholders is valid.** 
 
 § 162. Authority of Individual Officers, (a) Directors. — When 
 the by-laws of a private corporation confer upon the directors 
 power to act in behalf of such corporation, and do not put any 
 special limitation on the manner in which that power is to be 
 exercised, a majority of the board may act within the scope of 
 the authority conferred, either when there is a consultation of 
 the whole body and a concurrence of the majority, or there is a 
 regular meeting at which all the directors might be present, and 
 a majority are actually in attendance, and act by virtue of a note 
 given by the majority of those present.* 
 
 A statute empowering tlie directors to " manage the affairs of 
 the company, make and execute contracts of whatsoever kind fuUy 
 and completely, to carry out the objects and purposes of the cor- 
 poration in such way and manner as they think proper, and to 
 exercise generally the corporate powers of the company," has 
 been construed as merely declaratory of the common-law prin- 
 ciple, though the statute also states that the company " shall have 
 power to borrow from time to time, on the credit of the corpora- 
 tion, and under such regulations and restrictions as the directors 
 thereof, by unanimous concurrence., may impose, such smn of 
 money as they may deem necessary for constructing and com- 
 pleting their railroad." * 
 
 If the by-laws of a corporation provide that, in the management 
 of its affairs, the directors shall have all the powers which the 
 
 1 Augusta T. & G. R. Co. ;,. Kittel * Despatch Line of Packets v. Bellamy 
 (1892), 52 Fed. Eep. 63 ; 2 C. C. A. 615. Manufg. Co. (1841), 12 N. H. 205. The 
 See Davies v. Bolton & Co., 3 Ch. 679. transaction discussed in this case was a 
 
 2 Porter o. Pittsburg Bessemer Steel mortgage. 
 
 Co. (1886), 120 TJ. S. 649. 6 McLane v. PlacerviUe & Sacramento 
 
 3 Camden Safe Deposit & Trust Co. o. Valley R. Co. (1885), 66 Cal. 606 ; 8. c. 
 Burlington Carpet Co. et al. (X. J. Eq., 6 Pac. Rep. 748 ; 26 Am. & Eng. E. R. 
 1895), 33 Atl. Rep. 479. Gas. 404. 
 
§ 162.] MORTGAGES AND THEIE VALIDITY. 189 
 
 corporation itself possess not incompatible witli the provisions of 
 the by-laws and the laws of the Commonwealth, and there is 
 nothing in the by-laws incompatible with the exercise by the 
 directors of the power to borrow money, issue bonds, or convey 
 in mortgage the bonds of the corporation as security therefor, the 
 directors may exercise such power.^ 
 
 The effect of a section of a charter which places full power in 
 the board of directors to manage the property, business, and affairs 
 of the company, and authorizes the issue and sale of the coupon 
 bonds and the execution of a mortgage or deed of trust to secure 
 their prompt payment, is not restricted by the fact that the direc- 
 tors could do cei-tain other things only with the consent of the 
 stockholders.^ 
 
 The original charter of an Alabama railroad company author- 
 ized the borrowing of money and the execution of a mortgage to 
 secure the loan by a majority vote of the board of directors, the 
 number of that board being fixed at nine members. By an amend- 
 ment to the charter, the number of the members was afterwards 
 changed to eleven, inclusive of the president. The powers of the 
 board were to be the same as under the original charter, but it 
 was provided that six members should constitute a quorum. It 
 was contended that a mortgage executed by six members, in the 
 absence of the president, was not valid ; but the court held that 
 the mention of the president in the amended charter must be 
 construed to mean that he, if present, would make one of the six 
 constituting the quorum, and not that he was thereby made an 
 integral part of the corporation, without whose presence it was 
 impossible to complete the quorum. The mortgage was therefore 
 sustained.^ 
 
 Under the provisions of the Arkansas statute (Mansf. Dig., 
 §§ 964, 969) providing that the business of a corporation must 
 be transacted by a majority of its directors convened according to 
 its by-laws, a mortgage for past indebtedness and for a present 
 loan executed by a majority of the directors at a special meeting 
 is void, where the by-laws of the corporation contain no provision 
 for a special meeting, and one of the directors temporarily absent 
 from the State had no actual notice of the meeting.* 
 
 1 Hcndee v. Pinkerton (1867), 14 Al- 237, approved in Savannah & Memphis E. 
 
 len, 381. The same rule prevails under Co. v. Lancaster (1878), 62 Ala. 555. 
 the statutes of Pennsylvania. McCurdy's * Bank of Little Rock v. McCarthy 
 
 Appeal (1870), 65 Pa. St. 290. (1892), 55 Ark. 473 ; s. c. 18 S. W. 
 
 ^ Hodder v. Kentucky & Great Eastern Eep. 759. See also Davies v. Bolton 
 
 Ey. Co. (1881), 7 Fed. Eep. 793, 797. & Co., 3 Ch. 679, disqualified director 
 
 8 
 
 Meyer v. Johnston (1875), 53 Ala. voting. 
 
190 RAILWAY BONDS AND MORTGAGES. [cHAP. VHI. 
 
 The fact that a trust deed differs from that authorized by its 
 board of directors does not destroy its validity where the changes 
 are recognized and approved by the board, and the bonds secured 
 thereby are directed to be sold.^ 
 
 But where the president and secretary of a corporation are 
 directed by a meeting of directors at which a quorum are not 
 present, and of which no notice has been given, to execute a 
 mortgage, and exceed their authority by inserting an unusual pro- 
 vision, the fact that the deed is ratified at a full meeting of the 
 board will not operate as an adoption of that provision where the 
 directors have no knowledge of the actual contents of the mort- 
 gage, except as indicated by the order for its execution in the 
 records of the corporation.^ 
 
 (b) President. — The president of a railroad company, under a 
 resolution of the directors authorizing him to execute a mortgage 
 on " all the real estate and personal property now or hereafter 
 belonging to the company," may create a specific lien upon the 
 income, profits, and earnings of the road.^ 
 
 And a resolution authorizing the mortgage of " the road and its 
 property, etc.," will authorize a mortgage of the road with all its 
 rights and privileges. The expression " etc.," it was thought, 
 could apply to nothing but the franchises, and should, therefore, 
 be regarded as embracing them.* 
 
 On the other hand, as a corporate mortgage is usually so drawn 
 as to provide a foreclosure for the whole debt on default of pay- 
 ment of principal or interest, the implied authority of the ofiicer 
 who executed such a mortgage extends to the insertion of a pro- 
 vision to that effect.^ Compare § 145, ante. 
 
 If his authority is given in general terms, he may insert in the 
 mortgage any usual provisions, but not unusual ones.^ 
 
 Thus a note of the directors authorizing the president to execute 
 a mortgage to secure the payment of a specific debt does not 
 authorize him to insert in the instrument a contract binding the 
 corporation to pay the mortgagee an attorney's fee in case legal 
 proceedings are taken to enforce the lien.'^ 
 
 1 First National Bank v. Sioux City * Savannah & Memphis E. Co. v. Lan- 
 Terminal Ry. & 'Warehouse Co. fl895), caster (1878), 62 Ala. 555. See also 
 69 Fed. Eep. 441. Farmers' Loan & Trust Co. v. Iowa Water 
 
 2 Pacific Rolling MUl v. Dayton, Sheri- Co. (1897), 78 Fed. Eep. 881. 
 
 dan, & Grande Ronde Ry. Co. (18S1), 5 « Jesup v. City Bank of Racine (1861), 
 
 Fed. Eep. 852. 14 Wis. 331. 
 
 3 Kelly ». Alabama R. Co. (1877), 58 ' Pacific EoUing Mill w. Dayton, Sheri- 
 Ala. 489 ; s. c. 21 Am. Ey. Eep. 138. dan & Grande Ronde R. Co. (1881), 5 
 
 4 Bardstown & Louisville R. Co. v. Fed. Eep. 852. 
 Metcalfe (1862), 4 iletc. (Ky.) 199. 
 
§ 163.] MORTGAGES AND THEIE VALIDITY. 191 
 
 If the president, in executing a mortgage, should add something 
 beyond his authority, the excess will not vitiate those provisions 
 of the instrument which can stand without the invalid portion.^ 
 
 And even if his action was not authorized by the original resolu- 
 tion under which he acted, the subsequent approval of the board 
 will be sufficient to give it validity .^ 
 
 No authority to mortgage the property of the company can be 
 inferred, where, under the general incorporation law of a State, 
 the president is merely authorized to preside at the meetings of 
 the directors, and " to perform such other special duties as the 
 directors may authorize," nor is any such power implied from 
 the fact that, under the by-laws of the company, he is appointed 
 its " business and financial agent." ^ 
 
 (c) Superintendent. — No power to execute a mortgage is 
 vested in an agent appointed by the directors merely for the 
 purpose of superintending and carrying on the business of the 
 corporation.* 
 
 § 163. Requisite Consent of Stockholders. — The concurrence of 
 the stockholders is not necessary to authorize the execution of a 
 mortgage, where the charter empowers the company to issue and 
 sell bonds, and execute a mortgage to secure the same, and vests 
 the general management and control of the corporate business in 
 the board of directors. The fact that the charter requires such 
 concurrence to authorize consolidation with another company 
 cannot be construed as meaning that a mortgage is invalid with- 
 out that concurrence.^ 
 
 A new vote of the stockholders to authorize a mortgage is not 
 made necessary by the fact that, since the mortgage was author- 
 ized, the interest of the company has changed from an estate for 
 years into a freehold estate.* 
 
 Where a statute authorizes a company to borrow money and 
 mortgage its property and franchises, upon the concurrence of 
 the holders of two-thirds of the stock, such concurrence to be 
 expressed at a meeting of the stockholders called by the directors, 
 and a mortgage is authorized at a meeting of the directors, who are 
 
 1 Jesup V. City Bauk of Racine (1861), presented to the finance committee of the 
 14 Wis. 331. hoard and approved. 
 
 2 Claflin V. South Carolina R. Co. ^ Xjuse v. Isthmus Transit R. Co. 
 (1880), 8 Fed. Rep. 118, 135. There it (1876), 6 Or. 125. 
 
 was doubtful whether an agreement with * Despatch Line of Packets v. Bellamy 
 
 a syndicate to furnish money and buy up Mfg. Co. (1841), 12 N. H. 205. 
 coupons for interest due, and to secure * Hodder v. Kentucky & Great Eastern 
 
 the retention of the priorities of those R. Co. (1881), 7 Fed. Rep. 793. 
 coupons, was authorized by the resolution, ^ Evans v. Boston Heating Co. (1892), 
 
 but the draft of the agreement had been 157 Mass. 37 ; s. o. 31 N. E. Rep. 698. 
 
192 EAILWAT BONDS AND MORTGAGES. [CHAP. VIII. 
 
 shown to be the only stockholders except one, and subsequently 
 assented to by the entire body of shareholders, a substantial com- 
 pliance with the law is established, and the mortgage will be held 
 valid. 1 
 
 A constitutional provision forbidding an issue of mortgage 
 bonds to secure an increase of indebtedness without the con- 
 sent of the stockholders, does not apply to a case in which the 
 debts secured have been already incurred ; ^ and if, without such 
 consent, bonds are issued partly for the purpose of securing a new 
 indebtedness, the mortgage will be valid to the extent of the 
 prior indebtedness.^ 
 
 Under the New York Manufacturing Act, which provides that 
 a manufacturing corporation may mortgage its goods and chat- 
 tels, and " also the franchises, rights, privileges, and liberties 
 thereof," provided the written consent of the holders of two- 
 thirds of the stock is obtained, the consent of such stockholders 
 to mortgage the real and personal estate will not authorize a 
 mortgage of the corporate franchises.* 
 
 The main object of the New York act on this subject being 
 to prevent mortgages by these corporations being given with- 
 out the assent of owners of more than two-thirds of the stock, 
 in requiring the assent to be in writing, it has been held that 
 a resolution passed at a stockholders' meeting, by the vote of 
 stockholders owning more than two-thirds of the stock, entered 
 upon the minutes, and attested by the secretary, amounted to 
 the " written assent " required.-^ 
 
 A corporation which itself owns shares of its own capital 
 stock cannot vote them so as to make up the majority which is 
 a prerequisite under this statute to the validity of a mortgage.^ 
 
 A purchase-money mortgage could be issued without the con- 
 sent of the stockholders under the former New York statute 
 (Laws of 1848, ch. 37), which authorizes the formation of gas 
 companies.''' 
 
 1 Thomas v. Citizens' Horse Ry. Co. Ct. Com. PL, March, 1887), 1 Ry. & Corp. 
 (1882), 104 111. 462 ; s. c. 11 Am. & Eng. L. J. 321. 
 
 R. R. Cas. 306. * Lord v. Yonkers Fuel & Gas Co. 
 
 For a construction of the special act (1885), 99 N. Y. 547 ; s. c. 2 N. E. Rep. 
 
 relating to mortgages by the Northern 909. 
 ' Pacific Railroad Company, see Da Ponte v. ^ Beebe v. Richmond Light, Heat, & 
 
 Northern Pac. Ry. Co. (1884), 21 Blatch. Power Co. (1895), 13 Misc. Rep. 737 ; 
 
 534. There the consent of the three- s. 0. 35 N. Y. Suppl. 1. 
 fourths of the preferred stockholders was ^ VaU v. Hamilton (1881), 85 N. Y. 
 
 held to be the necessary condition. 453. 
 
 2 Ahl I'. Rhoads (1877), 84 Pa. St. 319. 7 Farmers' Loan & Trust Co. v. Equity 
 s Rothschild v. Rochester R. Co. (Pa. Gas Light Co. (1894), 84 Hun, 373. 
 
§§ 164, 165.] MORTGAGES AND THEIR VALIDITT. 
 
 193 
 
 An objection that a mortgage of a business corporation under 
 the laws of New York was not authorized by the assent of stock- 
 holders owning two-thirds of the stock, may be taken by any one 
 interested in defeating the mortgage. ^ 
 
 § 164. Notice of Meeting. — The requirement of the Mass. Pub. 
 Stat., ch. 106, § 23, that a mortgage of corporate property must 
 be authorized " at a meeting called for that purpose," is satisfied 
 when the notice of the meeting states the object to be " to con- 
 sider the question of an issue of bonds of the company secured by 
 a mortgage of its property .^ 
 
 § 165. Place of Execution, Acknowledgment, or Authorization. — 
 In an early case in Indiana the validity of a railroad mortgage was 
 attacked on the ground that it had been executed out of the State. 
 
 This objection was disposed of by the court in the following 
 manner : — 
 
 " We do not think the contract void because executed out of 
 the State. There is nothing in our railroad act requiring the 
 directors of corporations to transact their business within the 
 State. It is true that corporations cannot migrate from one sov- 
 ereignty into another so as to become legal, local existences within 
 the latter sovereignty ; but it is also true that the migration of the 
 directors of a corporation from one sovereignty into another does 
 not terminate the existence of such corporation within the sover- 
 eignty which created it ; for by our statute (1 Rev. Stats., p. 409) 
 the stockholders are the corporation, the directors its agents, and 
 by inter-State and international courtesy corporations created in 
 one State are permitted to contract and sue in others ; and if 
 all the directors could there, as agents of the corporation, make a 
 contract, why can they not there authorize one of their number 
 to make it ? 
 
 " The mere place where the active agents of a corporation enter 
 into a contract must, in general, be immaterial. The important 
 question arising must be one of power, not of place. The exer- 
 cise of the power has relation to the place of their legal establish- 
 ment, where the contract may be subsequently acted under. The 
 meetings of the directors of a business corporation are not analo- 
 
 1 Beebe ti. Richmond Light, Heat, & decision, in Greenpoint Company i>. 
 
 Power Co. (189.5), 13 Misc. Kep. 737; Whitin (1877), 69 N. Y. 328 ; Paulding t>. 
 
 s. c. 35 N. y. Suppl. 1. This was settled Chrome Steel Co. (1884), 94 N. Y. 334 ; 
 
 in the case of Lord h. Yonkera Fuel & Gas Rochester Bank v. Averell (1884), 96 N. 
 
 Co. (1885), 99 N. Y. 547 ; s. c. 2 N. E. Y. 473. 
 Rep. 909. 2 Evans v. Boston Heating Co. (1892), 
 
 Doubts as to this point had been ex- 157 Mass. 37; s. c. 31 N. E. Rep. 698. 
 pressed by the courts previously to this 
 
 13 
 
194 RAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 gous to the sessions of a judicial tribunal. The corporation is 
 organized by the election of directors ; but the mere organization 
 of the directors into a formal meeting for business afterwards is 
 quite a different tlaing. 
 
 " States cannot migrate, but by their agents they are daily 
 making contracts without their territorial boundaries. Besides, 
 our law seems to contemplate that corporations chartered in this 
 State, and local to it, may have offices for business in other States. 
 1 Rev. Stats., p. 113, § 32 ; Acts of 1853, p. 102. Such, also, is 
 the spirit of our legislation authorizing railroad companies in this 
 State to consolidate with those in other States." ^ 
 
 In a Vermont case a like conclusion has been reached ; but the 
 argument against the validity was based not so much on the want 
 of statutory authority as on the theory that the resolution of the 
 directors empowering the president to execute and deliver the 
 mortgage in the name of the corporation did not empower him to 
 exercise the agency so conferred outside the State. The court 
 held that, as he had not been directed to execute the mortgage in 
 any particular place, a restriction in this respect could not be im- 
 plied, especially as the validity of the deed had been subsequently 
 authorized by the company.^ 
 
 A similar ruling has been made in a case where the president of a 
 company operating a railroad in Kentucky acknowledged the execu- 
 tion of a mortgage on its property while he was residing in Ohio.^ 
 
 On grounds similar to those which control the cases just 
 noticed, it is held that a company cannot repudiate a mortgage 
 given to secure its bonds, at least after they have passed into the 
 hands of bona fide holders, for the reason that the resolution by 
 which the execution of the instrument was authorized was passed 
 outside the State* 
 
 1 Wright (/. Bundy (1858), 11 Ind. R. Co. (1881), 7 Fed. Kep. 793, affirmed 
 
 398, 404, N in Wright v. Kentucky & Great Eastern 
 
 For a case involving a mortgage of a R. Co., 117 U. S. 72. lu Kelly v. Cal- 
 
 corporation where the meeting. of direc- houn, 95 U. S. 710, the circumstances 
 
 tors was called to be held at a place other were such as to involve the same point, 
 
 than the principal place of business of but it was not raised, the case being 
 
 the corporation, see Corbett u. Woodward made to turn on the sufficiency of the 
 
 (1879), 5 Sawy. 403; s. c. 6 Fed. Cas. certificate of acknowledgment, couched 
 
 531, Case No. 3223. in terms somewhat different from that 
 
 ^ Cheever v. Rutland R. Co. (Vt., Nov., employed in the formula prescribed by the 
 
 1869), 4 Am. Ry. Rep. 291. It was also statute of the State in which the corpo- 
 
 held that such a mortgage could not be ration was organized, 
 invalidated on the grounds that it allowed * Galveston Railroad v. Cowdrey 
 
 the trustees to be residents of another (1876), 11 Wall. 459. The estoppel in 
 
 State. Such a provision is not contrary to such a case extends to the purchaser at an 
 
 public policy. execution sale of the road. 
 
 ' Hodderi'. Kentucky & Great Eastern 
 
§ 166.] MORTGAGES AND THEIB VALIDITY. 195 
 
 This doctrine is placed in Vermont on the grounds that the 
 directors in conferring authority to execute a deed are not per- 
 forming an act, but are themselves acting as agents of and in 
 behalf of the corporation.^ 
 
 This power of acting through agents beyond the limits of the 
 State is not affected by a constitutional req^uirement that every 
 railroad corporation organized or doing business in a State under 
 its laws shall have a public office or place of business in that 
 State. Such a provision is not intended to prevent the corpora- 
 tion from having an office beyond the limits of the State also, nor 
 to invalidate the acts which it performs outside the State.^ 
 
 A resolution authorizing the execution of a mortgage on the 
 property of a company which owns a line extending through sev- 
 eral States, from each of which it has received a charter, making 
 it a corporation in and of that State, may be lawfully passed at a 
 meeting held in any one of those States.^ 
 
 § 166. Bondholders entitled to presume that the Mortgage has 
 been regularly executed. — It has been stated above (in Chap. II.) 
 that a bondholder purchasing bonds which on their face have been 
 issued in accordance with the provisions of the statute or other 
 instrument from which the corporation derives the authority for 
 such issue, and purport to have been executed by the proper for- 
 malities, is not bound to inquire into the manner in which they 
 may have been actually executed by the corporate officers (§ 37). 
 A similar rule prevails as respects the right of the bondholders to 
 assume the mortgage to be valid. 
 
 Thus the fact that the seal was affixed by resolution at a meet- 
 ing of directors at which less than a quorum was present will not 
 invalidate the mortgage, as between the corporation and a mort- 
 gagee without notice of the irregularity.* 
 
 1 Arms V. Conant (1864), 36 Vt. 7ii. s Graham v. Boston, Hartford, & Erie 
 
 2 Hervey v. 111. Midi. R. Co. (1884), 28 R. Co. (1883), 14 Fed. Rep. 753 ; s. o. 118 
 Fed. Rep. 169, 175. In this case the court, U. S. 161 (1886). In this case it was de- 
 was also referred to a statutory provision termined, upon an examination of the sev- 
 which avoided the acts of any meeting eral statutes under which the consolidated 
 beyond the limits of the State, unless that company was doing business, that, wbile 
 meeting was authorized or its acts ratified it was originally a Connecticut corporation, 
 by a vote of two-thirds of the directors or it had acquired a domicil also in Massa- 
 trustees, but was of the opinion that, even chusetts, Rhode Island, and New York, and 
 if that provision applied to any railroad apart from this fact it also appeared that 
 corporations except those operating horse the proceedings of the company in making 
 and dummy roads, the evidence showed the mortgage had been expressly ratified 
 that the meeting at which the mortgage by the legislature of all the States. 
 
 was authorized had been duly convened, * County of Gloucester Bank v. Rudry 
 
 or at least subsequently ratified and Merthyr, etc. Co. (1895), L. R. 1 Ch. 
 approved. 629. See § 162, ante. 
 
196 BAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 Nor is the validity of a corporate mortgage executed by two 
 out of three directors affected, as regards the mortgagee, by 
 the fact that no notice of the meeting pf directors was given 
 to tlie third director, unless the mortgagee has actual knowl- 
 edge of the absence of such notice. Whether such notice was 
 given or not is a matter into which the mortgagee is not bound 
 to examine.^ 
 
 For additional cases illustrating this rule see Art. IY.,po8t. 
 
 § 167. Mortgages validated by Ratification.^ — The general rule 
 as to ratification and its rationale is thus clearly stated in a recent 
 New York case : " The stockholders are the equitable owners of 
 the corporate property, and if the officers or trustees do an unau- 
 thorized act, or incur indebtedness. which would not create a cor- 
 porate liability, the stockholders may subsequently ratify the acts 
 and validate the originally unauthorized transaction. What they 
 might originally have done they may do afterward, and their sub- 
 sequent assent is equivalent to original authority .^ 
 
 Although a trust deed authorized by the board of directors may 
 differ in the manner of its execution in many particulars from t^he 
 one authorized, if it appears that the directors afterwards recog- 
 nized its validity, and directed the sale of the bonds secured by 
 it, it will not be held to be void.* 
 
 A corporation which has executed a corporate mortgage upon 
 its property to secure its bonds, and afterwards sells its property 
 to another corporation subject to the lien of this mortgage, and 
 not contracting with its vendee for the payment of the mortgage 
 debt, nor giving a guaranty that there will be no foreclosure of the 
 mortgage, will not be heard in a court of equity to claim the mort- 
 gage invalid because of its lack of authority to execute it.^ 
 
 1 Kuser v. Wright (1894), 52 N. J. Eq. al. u. Lakeport Agricultura] Park Assn. 
 825 ; s. c. 31 Atl. Rep. 397. et al. (Cal., 1896), 43 Pac. Rep. 1106 ; 
 
 2 Some cases dealing with the operation Ashley Wire Co. et al. v. Illinois Steel 
 of the analogous principle of estoppel will Company, 60 111. App. 179 (1895). 
 
 be found in § 173, post. See also § 162, For a rule as to the authorization and 
 
 ante. execution of mortgages by a corporation, 
 
 3 Martin v. Niagara Falls Paper Manufg. see Atlantic Trust Co. v. The Vigilanion 
 Co. (1890), 122 N. Y. 165 ; s. o. 25 N. E. et al. (1896), 73 Fed. Rep. 452; s. c. 19 
 Rep. 303 ; 9 Ry. & Corp. L. J. 15. C. C. A. 528. 
 
 * First Nat. Bank of Montpelier t'. As to the ratification of an unauthorized 
 
 Sioux City Terminal R. & Warehouse mortgage by a corporation, see Blood v. 
 
 Co. (Trust Co. of North America, Inter- La Serena Land & Water Co. (Cal., 1895), 
 
 vener) (1895), 69 Fed. Rep. 441. 41 Pac. Rep. 1017. 
 
 As to what would amount to an ' American Waterworks Co. of Illinois 
 
 authorization of the directors of a corpo- et al. v. Farmers' Loan & Trust Co. (1896), 
 
 ration to execute a corporate mortgage, or 73 Fed. Rep. 956. 
 a ratification of its execution, see Boggs et 
 
§§ 1G8, 169.] MORTGAGES AND THEIR VALIDITY. 197 
 
 Any technical defect in the original execution of a corporate 
 mortgage is cured by the corporation's subsequent acquiescence, 
 — as where it uses the consideration received by the officers upon 
 the execution of the mortgage.^ 
 
 Ratification, however, can never be given effect, so as to displace 
 intervening rights that liave accrued while the mortgage was still 
 awaiting validation in this manner. Thus the lien of a mortgage, 
 invalid because not authorized by the directors and not sealed, 
 will be postponed to the claims of parties whose claims have be- 
 come fixed at any time prior to ratification.^ 
 
 A resolution of a corporation authorizing the president and 
 secretary to execute mortgages subject to mortgages previously 
 executed by them, and specified therein, is a ratification of the 
 notes secured by the mortgage, as well as of the mortgages them- 
 selves, although the notes are not expressly mentioned.^ 
 
 But where the votes of a certain proportion of the stockholders 
 are required to enable the directors to mortgage the corporate 
 property, there is no legal ratification of an unauthorized mortgage 
 unless it is formally adopted by at least that number of stock- 
 holders. The fact that an assessment to pay the mortgage is 
 levied by the vote of a mere majority of the stockholders, and 
 actually paid by two-thirds of them, does not constitute a valid 
 ratification.* 
 
 § 168. Improper Application of the Proceeds of the Bonds, Trust 
 Deed not invalidated by. — It has been stated above (in Chap. II.) 
 that the misapplication of the proceeds of the bonds will not 
 invalidate those instruments in the hands of the holders. For 
 analogous reasons such misuse of the loan will not affect 
 the rights of the beneficiaries of the mortgage securing the 
 bonds.^ 
 
 § 169. Fraud inferred from Personal Interest of OflEcers in Con- 
 tract. — Where the president and vice-president of a railroad 
 company are secret members of a company organized with a de- 
 clared object of completing and acquiring the ownership of the 
 railroad, a mortgage made by the railroad company to secure a 
 debt due to the construction company will, in view of the fiduci- 
 ary relations between the parties, be pronounced constructively 
 
 1 Dexter, Horton, & Co. D.Long (1891), * Forbes v. San Rafael Turnpike Co. 
 
 2 Wash. 435 ; s. c. 27 Pac. Rep. 271. (1875), 50 Cal. 340. See § 163, ante. 
 
 ^ National Foundry & Pipe Works v. ^ Robinson et wx. v. Dolores Number 
 
 Oconto Water Co. (1895), 68 Fed. Rep. Two Land & Canal Co. et al. (1892), 
 
 1006. 2 Colo. App. 17; s, c. 29 Pac. Rep. 
 
 ' Shaver v. Hardin (1891), 82 Iowa, 750. 
 378 ; s. c. 48 N. W. Rep. 68. 
 
198 RAILWAY BONDS AND MORTGAGES. [CHAP. Till. 
 
 fraudulent ; but in bankruptcy proceedings the advance may be 
 proved as an unsecured debt.^ 
 
 So also though the bonds evidencing the sums of money due on 
 a construction contract are held void, for the reason that the direc- 
 tors of the railroad company are interested in the construction 
 company, the mortgage securing the bonds may be foreclosed in 
 order that the sums of money actually expended on the construc- 
 tion of the road may be paid to the bondholders.'' 
 
 There are, however, some transactions between the company 
 and the directors which are not constructively fraudulent, but are 
 allowed to stand, on the ground that they are for the interest of 
 the company, and the directors have not thereby obtained any 
 unfair advantage. Thus the action of a board of directors of a 
 corporation in delivering corporate stock in payment of a portion 
 of its indebtedness, and consolidating the remainder into a mort- 
 gage on the corporate property, is not rendered illegal by the 
 fact that members of the board have become guarantors for fur- 
 ther advances made to the corporation, after it had exhausted 
 its credit, which advances were to be paid by the delivery of the 
 stock ; nor will an issue of bonds in pursuance of such an agree- 
 ment be enjoined.^ 
 
 Nor can subsequent creditors attack the validity of bonds issued 
 for the purpose of reimbursing a director who has made large 
 advances out of his own means, and of raising money to enable 
 him to complete the work of construction which he has under- 
 taken, unless some actual bad faith, irregularity, or fraud in the 
 execution of the mortgage is shown.^ 
 
 § 170. Constructive Fraud as to Creditors and Preferences. — 
 Circumstances which, in the case of an ordinary grantor, would 
 render a mortgage fraudulent as to creditors will not necessarily 
 have that effect in the case of a railroad company. Thus a mort- 
 gage executed by an insolvent railroad company to secure bonds 
 issued for the purpose of enabling it to complete its road is not 
 void for the reason that the company is insolvent, nor yet because 
 it is provided in the deed that the whole estate which it covers is 
 to be retained by the company until the maturity of the bonds, 
 and then sold, in case of default, for the benefit of the holders of 
 the bonds primarily, and afterwards of its general creditors.® 
 
 1 Kappner v. St. Louis & St. Joseph Baltimore & Ohio R. Co. (.1885), 35 Fed. 
 E. Co. (1875), 3 Dill. 228. Eep. 161. 
 
 2 Thomas ». Brownville, Fort Kearney, * Porter v. Pittsburgh Bessemer Steel 
 & Pac. R. Co. (1883), 109 U. S. 522 ; s. 0. Co. (1886), 120 U. S. 649. 
 
 8 Si\p. Ct. Rep. 315. 5 Allen v. Montgomery & West Point 
 
 8 County Court of Taylor County v. K. Co. (1847), 11 Ala. 437. Such a 
 
§ 170.] MOETGAGES AND THEIB TALIDITT. 199 
 
 A similar ruling has been made as to the effect of a provision 
 allowing the company before default to sell, hypothecate, or other- 
 wise dispose of any of its property not necessary, in its judgment, 
 for the use of the road. The very nature of the business of a 
 railroad company, the means and power requisite to keep it up, 
 the wear and tear of its rails, ties, and rolling-stock, and the con- 
 stant necessity of replacing injured or worn-out appurtenances 
 with new ones, were declared to negative the existence of any 
 fraudulent purpose in inserting such a provision.^ 
 
 So also, in the absence of a statute forbidding preferences, a 
 mortgage executed to secure bonds the proceeds of which are to 
 be used to pay debts and current expenses is not invalid as 
 against judgment creditors, even if the company be insolvent,^ 
 provided, of course, the transaction is a lona fide one, and there 
 is no purpose at the time of immediately abandoning business or 
 making an assignment.'' 
 
 As has been said in a Pennsylvania case, " The purpose of a 
 railroad, the nature of its property, the necessity of possession to 
 accomplish its purpose, and the powers conferred in [its] charter 
 [to ' pledge its property and income'], leave no room to doubt 
 the validity of a mortgage, without delivery of possession, of 
 those chattels which are necessary to carry out the object of 
 incorporation." * 
 
 Hence, although the income received by a company between the 
 time when a mortgage covering it was executed, and the time 
 when the mortgagee forecloses the mortgage, or enters into pos- 
 session of the road, is left in the possession of the mortgagor 
 with powers of use and disbursements, as the income is of the 
 nature of personal property, this fact does not raise any im- 
 plication of fraud whereby the mortgage is rendered void as to 
 creditors.^ 
 
 But although the insolvency of a corporation does not deprive 
 it of the power of preferring one creditor or class of creditors, 
 provided it is still a going concern when the preference is granted, 
 this power cannot be exercised in favor of the directors, and a 
 
 stipulation, it was said, had no tendency ' Damarin & Co. v. Huron Iron Co. 
 
 to hinder or delay creditors, as they could, (1891), 47 Ohio St. 581 ; o. o. 26 N. E. 
 
 at any time after their judgments, have Rep. 37 ; 32 Am. & Eng. Corp. Cases, 
 
 compelled the trustees to close the trust. 625. 
 
 1 Butler V. Rahm (1877), 46 Md. 541 ; « Covey, for the use, etc. v. Pittshurg, 
 
 18 Am. Ry. Rep. 86. Fort Wayne, & Chicago R. Co. (1858), 3 
 
 ^ Bergen v. Porpoise Fishing Co. Phil. 173, 178, per Agnew, P. J. 
 (1886), 42 N. J. Eq. 397 ; s. o. 8 Atl. Rep. ' Jessupei al. Trustees, u. Bridge et al. 
 
 623. (1861), 11 Iowa, 572. 
 
200 BAILWAt BONDS AND MOETGAGES. [CHAP. Vllt. 
 
 iaortgage given for that purpose is invalid as against a general 
 creditor.! 
 
 § 171. Effect of the diatteX-mortgage Acts. — The principles 
 illustrated in the foregoing section are, however, considerably 
 modified, in regard to the personal property of the company, by 
 the statutes of some States which make a mortgage of such 
 property void as to purchasers, mortgagees, and creditors, un- 
 less the mortgage is recorded or the property is delivered to the 
 mortgagee. These statutes have usually been discussed ia con- 
 nection with the question whether the rolling-stock is a fixture, 
 and the cases on the subject have been placed in that portion 
 of this treatise which deals with that question. In Montana 
 a special statute has been passed for the recording of railroad 
 mortgages rendering registration in each county unnecessary, 
 and tills law was not repealed by the more recent Chattel 
 Mortgage Acts.^ 
 
 Railway mortgages are not within the purview of State statutes 
 regulating chattel mortgages.^ 
 
 A chattel mortgage, even if not properly registered, is good 
 against every one who is not hindered or defeated, and will ordi- 
 narily prevail against the mortgagor himself, and also against a 
 subsequent purchaser or mortgagee of the chattels with notice.* 
 But the terms of the statute may be such as to place the cred- 
 itors in a more favored position in this respect, and if it is pro- 
 vided in unqualified terms that the mortgage shall be void against 
 creditors unless it is duly registered, or accompanied by an imme- 
 diate delivery of things mortgaged, followed by an actual and 
 continued change of possession, the fact that the creditor has 
 notice of the mortgage will not prevent him from taking advan- 
 tage of the failure to comply with the requirements of the 
 statute.* 
 
 1 Howe, Brown, & Co. v. Sanford Fork United States held that the Illinois stat- 
 
 & Tool Co., 44 Fed. Rep. 231 (1890) ; ute as to chattel mortgages was couched 
 
 s. c. 9 Ry. & Corp. L. J. 185. in such terms that the legislature could 
 
 ^ Gilchrist v. Helena, H. S. & S. R. not have intended that it should he ap- 
 
 Co. (1891), 47 Fed. Rep. 593. See Man- plicable to the personalty of railroad com- 
 
 hattan Trust Co. of New York v. Seattle panics. 
 
 Coal & Iron Co. (1897), Wash. 48 Pac. * Williamson v. N. J. Southern R. Co. 
 
 Kep. 333, for a ruling as to the Chattel (1875), 26 N. J. Eq. 398. 
 Mortgage Act of Washington. ^ Williamson ». N. J. So. R. Co., 29 
 
 ' Farmers' Loan & Trust Co. v. Detroit, N. J. Eq. 311, citing Farmers' Loan & 
 
 B. C. & A. E. Co., In re Keating (1895), Trust Co. v. Hendrickson (1857), 25 Barb. 
 
 n Fed. Rep. 29. 485 ; Stevens v. Buffalo & N. Y. City R. 
 
 In Hammock v. Loan & Trust Co. Co. (1858), 31 Barb. 590 ; Thompson v. 
 
 (1881), 105 U. S. 77 ; s. c. 7 Am. & Eng. Van Vechten (1863), 27 N. Y. 568. 
 R. R. Cas. 465, the Supreme Court of the 
 
§ 172.] MORTGAGES AND THEIE VALIDITY. 201 
 
 On the other hand, if the mortgage merely declares that the 
 mortgage is void, except as between the parties, " unless posses- 
 sion of such property is delivered to and retained by the mort- 
 gagee, or the mortgage is recorded," an unrecorded mortgage 
 will take precedence of an attachment lien, provided possession 
 is actually taken before the levy is made.^ 
 
 There is a sufficient change of possession within the meaning 
 of such statutes where the trustees assume control of the road, 
 even though they carry on the business through the agency 
 of the former superintendent and other employees of the 
 company .2 
 
 Where it is necessary to the validity of a mortgage covering 
 rolling-stock that the instrument should be registered as a chattel 
 mortgage, or that possession should be taken by the mortgagee, 
 the lien cannot prevail against creditors whose claims accrued 
 before the mortgagee was entitled under the terms of his mort- 
 gage to take possession.^ 
 
 The term " apparatus," in a mortgage of the real estate 
 and property of an electric lighting company, will include the 
 lamps. It is therefore good to that extent as a chattel mort- 
 gage, and must be filed as such to prevail against subsequent 
 creditors.* 
 
 The capital stock of a corporation is not goods and chattels 
 within the meaning of the Chattel Mortgage Acts, and the mort- 
 gage of such stock need not be filed according to the provisions 
 of those acts.^ 
 
 A mortgage of railroad personalty shown to be valid by the lex 
 loci contractus will be treated as valid in another State, on the 
 principle of comity, although it does not comply with the law of 
 that State under which the registration, in accordance with the 
 provisions either of the Chattel Mortgage Acts or the statute 
 relating especially to the mortgage of railroad personalty, is an 
 indispensable condition of validity.^ 
 
 § 172. Mortgage to secure Future Advances ■when not invalid. 
 — A mortgage of railroad property to secure bonds to be issued 
 
 1 Hamlin v. Jerrard (1881), 72 Me. 62 ; (1893), 8 Wash. 570 ; s. c. 36 Pac. Kep. 
 
 9 Am. & Eng. R. R. Cas. 488. In this 460. 
 
 case the trustee in possession recovered * Ramsdell v. Citizens' Electric Light 
 
 in trespass against a sheriff who levied & Power Co. (1894), 103 Mich. 89; s. c. 
 
 on certain rolling-stock covered by the 61 N. W. Eep. 275. 
 mortgage. * Williamson v. New Jersey Southern 
 
 " Palmer v. Forbes (1860), 23 111. E. Co. (1875), 26 N. J. Eq. 398. 
 301. « Mase v. Nichols (1863), 94 N. Y. 
 
 ' Kadebaugh v. Tacoma & P. E. Co. 160 ; s. c. 17 Am. & Eng. E. R. Cas. 230. 
 
202 ' RAILWAY BONDS AND MORTGAGES. [CHAP. VIH. 
 
 to raise money to pay the debts of the corporation cannot be 
 declared invalid merely on the ground that it is given to secure 
 future advances.-' 
 
 But if the rights of a creditor to seize the estate of the corpora- 
 tion becomes complete by judgment and execution before the 
 bonds come into possession of a lona fide holder, the mortgage 
 will not operate against that right.^ 
 
 Article III. — Partial Invalidity of Contract, Effect op. 
 
 § 173. Invalidity of Part of Bonds, Validity of Mortgage not 
 affected by. — The fact that some of the bonds secured by a 
 mortgage are invalid will not, as a general rule, affect the valid- 
 ity of the mortgage, or the proceedings for its foreclosure.^ 
 
 § 174. Mortgage may be Valid as to a Fart of the Road and 
 Void as to the Residue. — Thus where two companies organized 
 in different States become consolidated into a single company, 
 which takes the name of one of the constituent companies, and a 
 mortgage is executed by the consolidated company covering the 
 entire property, then, even if the consolidation contract is illegal, 
 the mortgage will be good as to tliat part of the line which is right- 
 fully owned by the constituent company whose name was adopted 
 by the consolidated company. The principle governing such a 
 case is that the consolidation does not make the constituent 
 companies one corporation of both States, or of either. The 
 corporation of each State continues a corporation of the State of 
 
 1 Richards ti. Merrimack & Connecticut 2 Am. L. Reg. (N. S.) 1 ; 3 Am. L. Keg. 
 River Railroad (1862), 44 N. H. 127; (N. S.) 79-93; Pingrey on Mortgages, 
 Mobile & Cedar Point R. Co. ■/. Talman §§ 483 et seq. In NeQson v. Iowa Eastern 
 (1849), 15 Ala. 472 (a case of an equitable R. Co. (Iowa, 1875), 8 Am. Ry. Rep. 82, 
 mortgage) ; Allen v. Montgomery & West it was held that a mortgagee who has con- 
 Point R. Co. (1847), 11 Ala. 437. tracted to make advances or incur liabil- 
 
 2 Allen V. Montgomery & "West Point ities may tack the liabilities incurred on 
 R. Co. (1847), 11 Ala. 437. The court the advances made by him to the mort- 
 added : " In our judgment the validity of gage, and his mortgage, when recorded, is 
 a conveyance of this description rests on a valid lien upon the property for all such 
 precisely the same principles as obtained claims, even though the liabOities were 
 when deeds are made which provide for incurred on the advances made after he 
 the security of future advances or future had notice of subsequent mortgages or 
 liabilities." The doctrine stated in the incumbrances on the property. 
 
 text would perhaps not be approved in ' Graham v. Boston, Hartford, & Erie 
 
 some States without qualification. For E. Co., 118 U. S. 161 ; PuUan v. Cin- 
 
 discussions of the protection afforded to a cinnati & Chicago Air Line R. Co. (1865), 
 
 mortgagee by a mortgage for future ad- 4 Biss. 35 ; Rothschild v. Eochester R. Co. 
 
 vances, see articles in 11 Weekly Law (Penn. Ct. of Com. Pleas, 1887), 1 Ry. & 
 
 Bulletin, 157; 11 Am. L. Rep. (X. S.) 273 ; C. L. J. 321. 
 
§§ 175-178.] MOETGAGES AND THEIR VALIDITY. 203 
 
 its creation, although the same persons, as officers and directors, 
 manage and control both corporations as one body.^ 
 
 § 175. Mortgage of the Franchises may be Valid as to Part of 
 them and Invalid as to the Rest. — Thus where a mortgage is 
 executed in accordance with the provisions of an enabling statute, 
 covering the whole of the property of the franchises of a railroad 
 company, and another statute is subsequently passed permitting 
 the alteration of a portion of the route, the altered section of the 
 road may perhaps be regarded as having been built under the 
 franchise granted by the latter act, and not by way of substitu- 
 tion. But even if that view be taken, the operation of the mort- 
 gage upon so much of the road as was constructed within the 
 limits of the franchise originally granted will not be invalidated 
 for the reason that the altered section is embraced in the deed.^ 
 
 § 176. Excess of Powers by Officer as regards a Fart of the 
 Mortgage. — The fact that the officer deputed to execute the mort- 
 gage transcends his powers by inserting a stipulation that the 
 principal sum is to become due at the option of the holder, on 
 default of the payment of the interest, will not vitiate the mort- 
 gage as a whole.' 
 
 § 177. Defective Execution as to One Kind of Property, Effect 
 of. — Where a mortgage is defectively executed as regards realty, 
 but fulfils the legal requirements as to a mortgage of personalty, 
 the latter part will be sustained.* 
 
 Article IV. — Who may and who may not question the 
 Validity of the Mortgage. 
 
 § 178. The Mortgagor Company. — The right of the corporation 
 or of the stockholders to assail the validity of a mortgage executed 
 by the corporate officers without the due observance of the for- 
 malities and procedure prescribed by the charter or the by-laws 
 is a necessary corollary of the elementary rule that a principal 
 may always repudiate the unauthorized act of an agent. More- 
 over, it is only by the corporation or the stockholders that this 
 defect of authority can be taken advantage of. It is well settled, 
 therefore, that a mortgage which was within the powers of the 
 
 1 Racine & Mississippi R. Co. v. Far- 139 Pa. St. 13; s. c. 21 Atl. Rep. 211 ; 
 mevs' Loan & Trast Co. (1868), 49 111. 331. 27. W. N. C. 497. 
 
 2 East Boston Freight R. Co. v. East- ' Jesup v. City Bank of Racine (1861), 
 ein R. Co. (1866), 13 Allen, 422 ; Butler 14 Wis. 331. 
 
 V. Rahm (1877), 46 Md. 541 ; Gloningerw. ' Despatch Line of Packets v. Bellamy 
 
 Pittsburg & ConnellsTille R. Co. (1890), Mfg. Co. (1841), 12 N. H. 205. 
 
204 EA-ILWAT BONDS AND MORTGAGES. [CHAP. VIII. 
 
 corporation, but was not executed with the formalities prescribed 
 either by statute or the corporate by-laws, as a safeguard against 
 improvident contracts, can be avoided only by the corporation 
 or the stockholders for whose benefit those formalities were 
 intended.^ 
 
 The right of the corporation and its members is of course sub- 
 ject to the same limitations as those which restrict the right of 
 any other principal from releasing himself from an obligation 
 which an agent has contracted in his behalf ; that is to say, the 
 corporators will not be permitted to repudiate a mortgage, if their 
 subsequent conduct can be construed as an intentional ratification 
 thereof. For a review of some cases in which this rule has been 
 applied, see § 163, ante. Similarly the principle of equitable 
 estoppel will sometimes operate to prevent the corporation from 
 relieving itself of the obligation of the mortgage. Perhaps the 
 most frequent illustration of this result is found in those cases 
 where the corporation has acted under its contract and received 
 the benefit arising from it. Under such circumstances it will not 
 be allowed, after receiving the loan secured by a mortgage, to 
 avoid its liability, by raising the question of its power to make 
 the mortgage, or showing that such power has been defectively 
 executed,^ nor by denying the authority of the agents who con- 
 tracted the loan on its behalf.* 
 
 On similar grounds a company which executes a mortgage to 
 indemnify another which has guarantied the bonds of the mort- 
 gagor, cannot, after the liabilities thus assumed have been met as 
 a real one, and discharged as to certain coupons which the mort- 
 gagor has failed to pay, invalidate the mortgage on the ground 
 that the giving of the guaranty was, illegal.* 
 
 Thus when the stockholders sanction a contract under which 
 moneys were loaned to a corporation by its directors, and its 
 
 1 Campbell v. Argenta Gold & Silver ' Miller v. Rutland & 'Washington R. 
 Min. Co. (1892), 51 Fed. Rep. 1 ; Hervey Co. (1863), 36 Vt. 452, citing Redf. Kail. 
 V. 111. Midland R. Co. (1884), 28 Fed. Rep. 572 ; Curtis v. Leavitt (1857), 15 N. Y. 
 169; Beecher v. Marquette & Pac. Rolling 947 ; Elwell v. Grand Street & Newtown R. 
 Mill Go. (1881), 45 Mich. 103. Consult Co. (1874), 67 Barb. 83 ; MobUe & Cedar 
 also the two following sections. Point R. Co. v. Talman (1849), 15 Ala. 
 
 2 Dimpfel v. Ohio & Miss. Ry. Co. 472 ; Frank v. Hicks (Wyo., 1894), 35 
 (1879), 9 Biss. 127 ; Tex. West. R. Co. v. Pac. 475 ; Witter v. Grand Rapids Flour- 
 Gentry (1888), 69 Tex. 625 ; s. o. 33 Am. ing Mill Co. (1891), 78 Wis. 543; s. c. 9 
 & Eng. R. K. Cas. 46 ; Hervey v. 111. Ry. & Corp. L. J. 236 ; 47 N. W. Rep. 
 Midland R. Co. (1884), 28 Fed. Rep. 169 ; 729. 
 
 Thomas D. Citizens', etc. R. Co. (1882), 104 * Macon & Augusta R. Co. v. Georgia 
 
 111. 462 ; s. c. 33 Am. & Eng. R. R. Cas. R. & Bkg. Co. (1879), 63 Ga. 103 ; s. c. 
 
 306 ; Peoria, etc. E. Co. o. Thompson 1 Am. & Eng. R. R. Cas. 378. 
 (1881), 103 111. 187. 
 
§ 179. j MORTGAGES ANI) THEIR VALIDITY, 205 
 
 bonds therefor secured by mortgage given, and the moneys have 
 been properly applied, the corporation is estopped from setting 
 up that the bonds and mortgage are void by reason of the trust 
 relation which the directors sustain to it.^ 
 
 The rule that neither party to a fraudulent contract has a 
 standing in a court of equity to have it set aside is as applicable 
 to corporations as to individuals, and operates so as to prevent a 
 mortgagor railroad company from procuring the cancellation of a 
 mortgage executed as a part of a scheme by which the directors 
 acting within the scope of their powers attempt to obtain, through 
 a construction contract with a company of which they are mem- 
 bers, certain unfair advantages for themselves. Such a contract 
 cannot be enforced ; but, on the other hand, neither party can ask 
 to have it set aside.^ 
 
 The agent's want of authority must be promptly taken advan- 
 tage of ^,s soon as it is ascertained. Otherwise his act will be 
 treated as having been validated by the subsequent acquiescence 
 of the corporation.^ 
 
 Where a railroad mortgage which has been authorized by reso- 
 lution of a board of directors of the company, and executed by its 
 officers, and, upon discovery of an omission of a default clause in 
 the same, altered by action of its officers, to meet the requests' of 
 proposed purchasers of bonds, by inserting such clause without a 
 re-execution of the mortgage, the mortgagor company, as against 
 the purchasers of bonds, upon a representation that it was all 
 right, will not be allowed to claim the mortgage to be invalid 
 by reason of the alteration.* 
 
 § 179. The Stockholders individually. — Stockholders, if they 
 stand by without objection and allow the bonds secured by a 
 mortgage to pass into thfe hands of bona fide purchasers, and 
 large sums to be invested on the faith of validity of the security, 
 will be estopped from denying that validity afterwards ; and the 
 longer the time during which they have omitted to assert their 
 rights, the stronger are the reasons for refusing to allow them to 
 impair that validity.^ 
 
 1 Hotel Co. V. "Wade (1877), 97 IT. S. * Boston & Providence K. Co. New 
 13. York & New England R. Co. (1881), 13 R. 
 
 2 Lewis V. Meier (1882), 14 Fed. Rep. I. 260 ; s. o. 2 Am. & Eng. R. R. Cas. 300. 
 311. In this case the complainants were mi- 
 
 ' Augusta, Tallahassee, & Gulf R. Co. nority stockholders, without whose assent 
 
 V. Kittel (1892), 52 Fed. Rep. 63 ; s. c. the company had leased the road in per- 
 
 2 C. C. A. 615. petuity to another company, the effect of 
 
 * Woodbury et al. v. Allegheny & K. the agreement being to leave nothing to 
 
 R. Co. et al. (1895), 72 Fed. Rep. 371. the lessor but the bare franchise to exist 
 
206 
 
 RAILWAY BONDS AND MOETGAGES. [CHAP. VIII. 
 
 After the bonds have been issued to bona fide purchasers, it is 
 too late to question the authority of the directors to insert a 
 power of sale in the trust deed securing them.^ 
 
 § 180. Junior Mortgagees. — If two mortgages are made, both 
 purporting to convey the same property, the question whether the 
 company had the power to convey that property cannot be raised 
 by the junior mortgagee, for the only claim which that mortgagee 
 has upon the property of the company necessarily depends upon 
 the existence of the very power which, by attacking the validity 
 of the first mortgage, he denies the company to possess.^ 
 
 This rule is, of course, subject to the qualification that, if the 
 junior mortgage is executed by virtue of express statutory au- 
 thority, and not of the law upon the construction of which the 
 validity of the prior mortgage depends, the junior mortgagee is in 
 a position to take advantage of any defect in the prior mortgage.^ 
 
 Nor can a junior mortgagee object to the validity of a prior 
 mortgage executed without the requisite consent of the stock- 
 holders where the latter have acquiesced in the contract.'^ 
 
 Still less can a junior mortgagee impeach the indebtedness 
 
 as a corporation. This being a transaction 
 which the majority had no right to carry 
 out against the will of the minority, it 
 was held that the latter might ha^e set it 
 aside by a timely application. As they 
 had not made such an application, and 
 permitted a mortgage by the lessee com- 
 pany to stand unquestioned for twelve 
 years, they were denied relief. 
 
 In Central Trust Co. v. Marietta & 
 North Ga. R. Co. (1891), 48 Fed. Rep. 
 14, a, trustee brought suit to foreclose a 
 mortgage executed by a consolidated rail- 
 road company which was formed by the 
 union of a Georgia corporation with a 
 North Carolina corporation and a Ten- 
 nessee corporation. Certain stockholders 
 in the original Georgia corporation filed a 
 petition asking to be allowed to defend 
 against the suit, on the ground that 
 the mortgage was invalid and void, for the 
 same reason that the consolidation of the 
 companies was illegal, and that there was 
 no authority to execute the mortgage. As 
 an additional reason for granting the appli- 
 cation the company was alleged to be so 
 situated as to be estopped to make this 
 defence, even if disposed to do so. The 
 court refused the prayers of the petition 
 for the reason that there was no charge of 
 
 fraud or collusion on the part of the com- 
 pany and its officers, and the stockholders 
 were left to assert their rights by an 
 independent proceeding. For a statement 
 of the circumstances under which the 
 court thought it very questionable whether 
 not only the company itself, but the ad- 
 ministrator of a deceased president of the 
 company and holder of its stock, should 
 not be estopped to deny the validity of a 
 mortgage, see Mcllhenny v. Binz (1890), 
 80 Tex. 1 ; s. c. 13 S. W. Rep. 655. 
 
 1 State V. Brown (1855), 64 Md. 199. 
 
 2 McAllister v. Plant (1876), 54 Miss. 
 106. 
 
 8 Commonwealth v. Smith (1865), 10 
 Allen, 448. Here the junior mortgagee 
 was the State itself. 
 
 It was held that such a case does not 
 fall within the principle that » violation 
 of corporate powers cannot be taken ad- 
 vantage of collaterally. The court, how- 
 ever, dismissed the bill for the cancellation 
 of the first mortgage, on the ground that 
 the petitioner had an adequate remedy at 
 law. 
 
 * Campbell v. Argenta Gold & Silver 
 Mining Co. (1892), 51 Fed. Rep. 1. See 
 §163. 
 
§ 181.J MORTGAGES AND THEIR VALIDITY. 207 
 
 secured by an earlier mortgage of which he has notice, where 
 all the defects of consideration, and all equities existing to the 
 prejudice of the prior bonds, have been waived and extinguished 
 by the obligor.^ 
 
 A chattel mortgagee having knowledge of prior mortgages is 
 not a bona fide mortgagee, and cannot impugn them on the ground 
 that they were not properly filed. ^ 
 
 Parties standing in the same position as junior mortgagees are 
 subject to the same disabilities, so far as regards impugning the 
 validity of an earlier contract. Thus bondholders secured by a 
 mortgage which expressly recognizes the superiority of the obli- 
 gation created by a lease which, in legal effect, amounts to a 
 pledge of the tolls and income, cannot question the legal capacity 
 of the company to execute the lease.^ 
 
 Since the directors of an insolvent corporation become trustees 
 for its creditors, a bill to set aside as fraudulent a deed of trust of 
 corporate assets to secure debts for which the directors are them- 
 selves liable as sureties need not show that the complainant has 
 established his claim by judgment.* 
 
 § 181. General Creditors of the Company. — These cannot ques- 
 tion the validity of a mortgage, so far as regards its execution and 
 delivery, where such execution and delivery are admitted by the 
 company.^ 
 
 Nor can they be heard to impugn the validity of a mortgage 
 executed by the same board of directors as that with which he 
 contracted, on the ground that sucli board was not legally consti- 
 tuted, for his own claim must necessarily be invalid if the direc- 
 tors were illegally acting as such.® (Compare the similar rule as 
 to junior mortgagees, § 180, ante.^ 
 
 Nor can they raise the objection that the resolution pursuant to 
 which the mortgage was executed was not passed at a general 
 meeting, as required by the by-laws.'^ 
 
 1 Coe 0. East & West R. Co. of Alabama (1884), 28 Fed. Rep. 169, 174. The mort- 
 (1894), 52 Fed. Rep. 531, citing Bronson gage in tliis case was assailed on the 
 V. La Crosse & Milwaukee R. Co., 2 Wall, ground of failure to comply with the pro- 
 283, 287 ; Graham v. Railroad Co. (1880), visio is of an act requiring the assent of a 
 102 U. S. 148. certain number of shareholders to the 
 
 2 Benjamin v. Elmira, Jefferson, & execution of a mortgage. This statute 
 Canaudaigua R. Co. (1873), 54 N. Y. was said to be primarily, if not exclusively, 
 675. for the benefit of the stockholders. 
 
 ' Vermont & Canada R. Co. v. Vermont » Porter v. Pittsburgh Bessemer Steel 
 
 Central R. Co. (1861), 34 Vt. 1. Co. (1887), 120 U. S. 649 ; s. c. 30 Am. 
 
 * Consolidated Tank Line Co. v. Kansas & Eng. R. R. Cas. 472. 
 City Varnish Co. (1891 ), 45 Fed. Rep. 7 ; ■ Antietam Paper Co. v. Chronicle Pub. 
 
 9. 0. 9 Ry. & Corp. L. J, 329. Co. (1S94), 115 N. C. 143 ; s. c. 20 S. E. 
 
 ■ 5 Hervey «. Illinois Midland R. Co. Rep. 367. 
 
208 RAILWAY BONDS AND MORTGAGES. [CHAP. VIII. 
 
 Nor will failure to publisli the notice required by statute to be 
 given to stockholders before mortgaging corporate property in- 
 validate the mortgage as to third parties where no stockholder 
 objects.^ 
 
 Creditors, however, may take advantage of the omission to 
 register the mortgage, provided they raise the issue by an appro- 
 priate allegation in the bill. As registration is necessary only as 
 to creditors without actual notice, the party claiming under a 
 mortgage may rely on the allegation that the creditor had such 
 notice.^ 
 
 The validity of a mortgage which was executed for the express 
 purpose of defrauding subsequent creditors may, of course, be 
 assailed by any of them upon that ground.^ 
 
 § 182. Receivers. — A receiver has sufficient interest in the 
 property under his charge to raise a question as to the validity 
 of a mortgage or the sufficiency of the consideration of the debt 
 secured thereby as a defence to a foreclosure suit brought by the 
 owner of all the claims against the company.* 
 
 § 183. Purchasers at the Foreclosure Sale. — These Cannot ques- 
 tion the authority of the company to make the mortgage, inasmuch 
 as the validity of their own claims depends upon the validity of the 
 mortgage.^ 
 
 For similar reasons the validity of a mortgage, in so far as 
 it is dependent on the validity of the incorporation of the mort- 
 gagor company, cannot be questioned by a trustee of the road 
 who derives his title through various mesne assignments com- 
 mencing with a sale by the mortgagor. " It does not lie in 
 the mouths of such a transferee to dispute the existence of 
 the corporation whose acts constitute his own sole source of 
 title." 8 
 
 § 184. The State. — The State is estopped to dispute the validity 
 of a mortgage which it has authorized after third parties have 
 acquired rights under it.'^ 
 
 1 Central Trust Co. v. Condon et al., tecome fixed before his claim arose, and 
 
 C. C. A. (1895), 67 Fed. Rep. 84. no fraudulent design was alleged. 
 
 "^ Allen V. Montgomery & West Point * Ryan v. Anglesea By. Co. (N. J. 
 
 R. Co. (1847), 11 Ala. 437. This answer, Eq. Feb., 1888), 3 Ey. & Corp. L. J. 
 
 however, would presumably not be open 426, 
 
 where the mortgage is on chattels, and the ^ Morgan v. Donovan (1879), 68 Ala. 
 
 statute peremptorily declares it to be void 241 ; s. c. 21 Am. Ry. Rep. 109. 
 unless registered. See § 171, ante. ' Beekman v. Hudson River West Shore 
 
 3 Coe V. East & West R. Co. of Alabama R. Co. (1888), 35 Fed. Rep. 3. 
 (1892), 52 Fed. Rep. 531, where the court ' Vicksburg, Shreveport, & Pac. R. Co. 
 
 refused relief to a creditor for the reason v. Sledge (1889), 41 La. Ann. 896, 902 ; 
 
 that the rights of the bondholders had s. c. 6 So. Rep. 725 ; Mower v. Kemp 
 
§ 184.J 
 
 MORTGAGES AND THEIR VALIDITY. 
 
 209 
 
 (1890), 42 La. Ann. 1007 ; s. c. 8 So. Eep. 
 830; 46 Am. & Eng. Corp. Cas. 480. 
 
 The following are some of the statutes 
 of different States authorizing mortgages of 
 the property of railroad companies : Ala., 
 Code 1886, § 1580, subd. 14. Ark., Dig. 
 1894, § 6168. Cal., Civ. Code, § 456. 
 Colo., St. 1891, ch. 30, § 476. Conn., 
 Gen. St. 1888, § 344, Consolidated com- 
 panies, power to mortgage ; §§ 3."j70-3580, 
 Execution of. Fla., Rev. St. 1892, § 2241. 
 Ga., Code 1882, § 1689 (i). Idaho, Comp. 
 L. 1887, § 2664. 111., Rev. St. 1891, 
 p. 1143, § 20, subd. 10. Ind., Rev. St. 
 
 1888, § 3911, Power to mortgage. Iowa, 
 Code, §§ 1965, 1996, Mortgage of benefits 
 from certain contracts of leases, etc. Ky., 
 Gen. St. 1887-1894, § 771. La., Rev. L. 
 1884, § 692. Me., Rev. St. 1883, ch. 51, 
 § 56. Md., Pub. Gen. L. 1888, art. xxiii. 
 p.' 171. Mass., Pub. St. 1882, ch. 112, 
 §§ 62 to 73. Mich., How. Ann. St. 1882, 
 § 3352. Minn., Gen. St. 1891, § 2529. 
 Miss., Rev. Code, § 3586. Mo., Rev. St. 
 
 1889, § 2543. Mont., Civ. Code 1895, 
 §§ 899, 913, Chattel mortgage. Nehr., 
 Comp. St. 1895, § 4018, Mortgage of an 
 extension ; § 1823, Record ; § 1821, Covers 
 rolling-stock; §§ 1759, 1820. Nev., Gen. 
 St. 1885, p. 849. N. J., Suppl. to Rev. 
 
 1877 to 1886, p. 824, § 12. New Mex., 
 Comp. L. 1884, § 2665, subd. 14. N. Y., 
 Eev. St. 8th ed. p. 1752, § 10 ; L. 1868, 
 § 1, Chattel mortgage. N. C, Code 1883, 
 § 1957, subd. 10. N. Dak., Code 1895, 
 §2947 (11). Ohio, Rev. St. 1890, §§ 3286, 
 3290, 3309 a, 3398, Lien of mortgage 
 postponed to certain claims. Okl., St. 
 1893, § 1011. Pa., Br. Purd. Dig. 1883, p. 
 1422, §§ 41, 1436. So. Dak.,Comp. L. 1887, 
 § 2981. Tenn., Code 1884, §§ 1251, 1271, 
 Liens preferred to mortgage. Tex., Civ. 
 St. 1888, § 4219. Utah, Comp. L. 1888, 
 §§ 2368, 2369, The lien of the mortgage. 
 Vt., St. 1894. Va., Code 1887, § 1232. 
 Wash., Code 1891, ch. 135. W. Va., Code, 
 p. 520, § 50, subd. 11, 12. Wis., Ann. 
 St. § 1828, subd. 10. Wyo., Rev. St. 
 1887, p. 206, § 549. 
 
 On power to issue English debentures, 
 see Mersey Ry., In re, 1895, 2 Ch. Div. 
 287, Debenture stock ; Campbell's Case, 
 4 Ch. Div. 470, Issue debentures at dis- 
 count ; also Webb v. Shropshire Ry. Co. 
 (1893), 3 Ch. Div. 307 ; Robison v. Coal 
 Cliff Co., 12 New South Wales Rep. (Eq.) 
 293, Debentures ordered issued by court 
 secured on property after two prior mort- 
 
 U 
 
210 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. IX. 
 
 CHAPTER IX. 
 
 INSTRUMENTS CONSTITUTING MORTGAGES. 
 
 i 185. Mortgages directly to Bondholders. 
 186. Trust Deeds constituting Mort- 
 
 § 187. Instruments operating as Equitable 
 Mortgages. 
 188. Liens in favor of the State. 
 
 § 185. Mortgages directly to Bondholders. — The ordinary mort- 
 gage by which the payment of railroad bonds is secured is in the 
 form of a conveyance to a trustee, the instrument reciting that 
 the mortgage is made to him in trust to secure the bonds de- 
 scribed to the holders thereof. Such bonds have been executed 
 directly to the creditors who make the loan, and are not invalid 
 on that ground.-^ But a holder of a portion of bonds executed in 
 this form, and secured by a mortgage which states the name of 
 each creditor and the amount of the debt covered by the lien, 
 will not be allowed, even when professing to act in behalf of all 
 bondholders who may come in and contribute to the expenses of 
 the suit, to proceed alone against the company, and ask a sale 
 of the mortgaged property, where it is doubtful whether that 
 property is of sufficient value to secure the whole debt. In such 
 a case it is the interest of each bondholder to diminish the debt 
 of the others, and it is therefore proper that every bondholder 
 should be present, both that he may defend his own claims and 
 that he may attack the other claims, should there be any just 
 occasion for it.^ 
 
 § 186. Trust Deeds constituting Mortgages. — Wherever a mort- 
 gage in the form of a trust deed has been recognized and sanc- 
 tioned by the courts, a grant by the legislature of the power to 
 mortgage will be deemed to embrace the power to execute that 
 kind of mortgage.^ 
 
 I Wright V. Bundy (1858), 11 Ind. 
 398. 
 
 " Railroad Co. v. Oit (1877), 18 Wall. 
 471. For a case where the bonds of a 
 company were considered as mortgages, 
 see King el al. v. Tuscumbia, C. & D. 
 
 R. Co. (1846), 7 Pa. L. J. 166 ; s. c. 14 
 Fed. Cas. 554, Case No. 7808. 
 
 3 Central Gold Mfg. Co. v. Piatt (1870), 
 3 Daly, 263; PuUan v. Cincinnati & 
 Chicago Air Line R. Co. (1865), 4 Bias. 
 35 ; Wright v. Bundy (1858), 11 Ind. 398. 
 
§ 187.] INSTRUMENTS CONSTITUTING MORTGAGES. 211 
 
 The legal effect of a trust deed of the ordinary kind is that of 
 a contract between the company and all persons who may become 
 holders of the bonds thereby secured, whereby they become en- 
 titled to the same benefits as if they were parties to the deed.^ 
 
 The true consideration of such a deed is, not the recital, which 
 it contains, of the resolution of the directors authorizing the bonds 
 to be executed, but the fact of its being a security for the 
 bonds issued in conformity with that resolution.^ 
 
 Such a trust deed, being a de facto mortgage, protects the 
 property conveyed thereby as effectually as a deed actually ex- 
 ecuted as a mortgage, and the trustees may obtain an injunction 
 restraining a levy upon the property.^ 
 
 So also, on the familiar equitable principle, " once a mortgage, 
 always a mortgage," a trust deed of this liind is affected with the 
 usual incidents of a mortgage, and the grantor company has, 
 therefore, an equity of redemption, which, if that species of 
 property is subject to execution, may be levied upon and sold. 
 Such a sale will not be enjoined at the instance of the trustee.* 
 
 § 187. Instruments operating as Equitable Mortgages. — An equi- 
 table mortgage may be constituted by any writing from which tlie 
 intention to create it may be gathered.^ 
 
 Thus bonds which purport to pledge the real and personal 
 property of a company for the payment of a debt, and contain 
 various other corresponding stipulations, will be treated by a 
 court of equity as a mortgage.^ 
 
 So a recital in a debenture bond that " the company hereby 
 charges with such payment {i. e. of the debentures) its under- 
 
 1 Butler «. Rahm (1877), 46 Md. 541 ; management and control" of the lands, 
 
 s. 0. 18 Am. Ey. Eep. 86 ; McLane v. and a provision for entry, foreclosure, and 
 
 Placerville & Sacramento Valley R. Co. sale by the trustees only upon default and 
 
 (1885), 66 Cal. 606 ; s. c. 26 Am. & Eng. subsequent demand by the bondholders, 
 
 R. R. Cas. 404. was in substance a mortgage within the 
 
 The construction of the provisions of meaning of the Code. Until such default 
 the California Code in regard to mortgages and demand, therefore, the right of posses- 
 was extensively discussed in the case of sion remained in the mortgagor. 
 Southern Pac. Co. u. Doyle (1882), 11 Fed. 2 Butler v. Rahm (1877), 46 Md. 541 ; 
 Rep. 253, and it was held that a convey- s. o. 18 Am. Ry. Rep. 86. 
 ance of railroad lands to M. and T. in trust » Loudenslager v. Benton (1861), 4 
 to secure the payment of certain "first- Phil. 382. 
 
 mortgage bonds," in the usual form of a * Cop v. Johnson (1862), 18 Ind. 218 ; 
 
 mortgage, except that it was with a con- Coe v. McBrown (1864), 22 Ind. 262. 
 dition of defeasance, providing that upon ^ chase ji. Peck (1860), 21 N. Y. 581 ; 
 
 the payment of the bonds " the indenture Payne v. Wilson (1878), 74 N. Y. 348. 
 and the estate thereby granted .should 6 White Water Valley Canal Co. a. 
 
 cense and determine, there being a reserva- Vallette (1858), 21 How. 414. 
 tion to the grantor of the sole and exclusive 
 
212 RAILWAY BONDS AND MORTGAGES. [CHAP. IX. 
 
 taking, all its property, whatsoever and wheresoever, both pres- 
 ent and future," creates an equitable mortgage as between the 
 parties.! 
 
 So if a corporate officer, acting within the scope of his agency, 
 fails, owing to the non-observance of certain technical requisites, 
 to execute a mortgage effectual to convey the legal estate, the 
 transaction will be regarded as an equitable mortgage, and en- 
 forced for the benefit of the bondholders.^ 
 
 So if a company promises to make a mortgage of a railroad, 
 and thereafter goes into possession and operates it, this promise 
 will, in equity, be a mortgage as between the parties.^ 
 
 So it is held that stipulations in a contract with a contractor 
 for mortgages to secure such sums as are specially mentioned in 
 the contract, raise the implication that no other or different mort- 
 gage or lien was to be given, and have the effect of a mortgage to 
 the extent indicated.* 
 
 So an agreement which, for the expressed purpose of securing 
 payments to agents deputed to buy railroad iron, pledges the real 
 and personal estate of the company to these agents, constitutes an 
 equitable mortgage.^ 
 
 So where a junior trust-mortgage provided that no bonds 
 
 1 Howard v. Iron & Land Co. of Minne- dently iuteuded to be issued under the 
 
 seta (1895), 62 Minn. 298 ; s. c. 64 N. W. provisions of their 'Companies Clauses 
 
 Rep. 896. Act' of 1863, which regulates the creation 
 
 '' Miller v. Rutland R. Co. (1863), 36 of debenture stock or bonds in companies, 
 
 Vt. 452. and makes it a firm charge on the under- 
 
 ^ Texas Western R. Co. v. Gentry takiug. The evident purpose, as well as 
 
 (1888), 69 Tex. 625; s. c. 33 Am. & efiTect, of the provisions of these debentures 
 
 Eng. R. R. Cas. 46 ; 8 S. W. Rep. 98. is to create a charge in the nature of a 
 
 The court said : " Every express agree- floating mortgage, as security for their 
 
 ment in writing, whereby the party clearly payment, upon all the property of the 
 
 indicates an intention to make some par- company, present or future, but which 
 
 ticular property therein described a security would in the meantime leave the company 
 
 for a debt, creates an equitable lien upon at liberty to sell and dispose of any of it 
 
 the property which is enforceable. The in the course of its business, free from the 
 
 form of the writing is not important, pro- incumbrance of the mortgage, without 
 
 vided it sufficiently appears that it was being required to apply the proceeds to the 
 
 thereby intended to create a security. If payment of the mortgage debt. As we 
 
 that intention appears, it will create a have no such statute, it is quite evident 
 
 mortgage in equity, or a specific lien on that such a form of security is in many 
 
 tlie property so intended to be mortgaged," respects wholly unsuited to this State, and 
 
 citing Pom. Eq. Jur., §§ 123.'i, 1236; that very serious questions will arise as to 
 
 Payne v. Wilson (1878), 74 N. Y. 348 ; its validity or effect as against creditors 
 
 Daggett V. Rankin (1866), 31 Cal. 321 ; and subsequent purchasers." 
 
 Canal Co. c. Vallette (1858), 21 How. 414. * Waco & Tap. R. Co. v. Shirley (1876), 
 
 Further on the Minnesota court said : 45 Tex. 355 ; s. c. 13 Am. Ry. Rep. 233. 
 
 "The Iron & Land Company is an English 5 jiobile & Cedar Point Ry. Co. v. 
 
 company, and these debentures were evi- Talman et al. (1849), 15 Ala. 472. 
 
§ 188.] INSTEUMENTS CONSTITUTING MORTGAGES. 213 
 
 should be issued thereunder until holders of the prior mortgage- 
 bonds to a specified amount should have signed an agreement to 
 the effect that bonds secured by the junior mortgage might be 
 issued, such bonds to constitute a lien on the property taking 
 precedence of the bonds held by the signers of the agreement, it 
 was held that the agreement, when signed by the holders of 
 bonds to the amount specified, operated as an equitable mortgage 
 covering the interests which the signers had under the first mort- 
 gage, and taking precedence of the latter, but that it in no way 
 affected the interest of the bondholders who did not sign it, and 
 the priority of their lien.^ 
 
 Contractors proposed to construct a railroad upon condition that 
 they should assume one-fourth the cost of construction and sub- 
 scriptions to stock obtained, and the subscribers to assume three- 
 fourths. Subscribers agreed, and contracted with the promoters 
 that their subscriptions should be loans bearing interest, and 
 maturing at a certain date, to be paid as soon as securities of the 
 company could be negotiated, the subscribers to own a three- 
 fourths interest in the grade if the securities were not negotiated 
 on maturity of the loan. This contract was held to be a mort- 
 gage of three-fourths interest in the grade.'' 
 
 § 188. Liens in Favor of the State. — As to liens declared by 
 statute in favor of the State, see Chap. XIII., post. 
 
 ^ Poland !). Lamoille Valley R. Co. et to authorization of a corporate mortgage, 
 
 al. (1879), 52 Vt. 144 ; s. 0. 4 Am. &Eng. see Hayden, Trustee, o. Lincoln City Elec- 
 
 E. R. Cas. 408. trie Ry. Co. (1895), 43 Neb. 680 ; s. c. 62 
 
 2 Armstrong e< aZ. v.'Ruvkittetal. (Tex. K W. Eep. 73. 
 CiT. App. 1896), 34 S. W. Eep. 759. As 
 
214 
 
 EAILWAT BONDS AND MOETGAGES. 
 
 [CFAP. X. 
 
 CHAPTER X. 
 
 WHAT THE MORTGAGE COVERS, INCLUDING AFTER-ACQUIRED 
 
 PKOPERTT. 
 
 §189. 
 
 Greneral Statement. 
 
 §202. 
 
 The Requirement of a Specific 
 
 Art. I. - 
 
 - General Eules of Constetjc- 
 
 
 Description in the Case of 
 
 
 TION. 
 
 
 Future Acquisitions, an what 
 
 §190. 
 
 Introductory. 
 
 
 Principle based. 
 
 191. 
 
 General Laws the Standard. 
 
 203. 
 
 The Requirement of a Specific 
 
 192. 
 
 Lex Loci. 
 
 
 Description to pass After- 
 
 193. 
 
 Construction a Question for the 
 
 
 acquired Property, applica- 
 
 
 Court. 
 
 
 ble to Statutory Liens. 
 
 194. 
 
 All the Writings must be con- 
 
 204. 
 
 Application of General Prin- 
 
 
 strued together. 
 
 
 ciples to Property acquired 
 
 195. 
 
 General Words followed by Par- 
 
 
 and not requii-ed for Railroad 
 
 
 ticular (Expressio vmius, etc.). 
 
 
 Purposes. 
 
 196. 
 
 Particular Words followed by 
 
 205. 
 
 Property used for Railroad Pur- 
 
 
 General (verba ejasdem gen- 
 
 
 poses, What is. 
 
 
 eris). 
 
 206. 
 
 Property acquired by Consoli- 
 
 Art. 11. 
 
 — What is a Sufficient De- 
 
 
 dated Company when covered. 
 
 
 scription TO PASS Property 
 
 Art. V. - 
 
 -What is a Sufficient De- 
 
 
 OWNED WHEN THE MORTGAGE 
 
 
 scription to pass After- 
 
 
 IS EXECUTED. 
 
 
 acquired Interests in Real 
 
 §197. 
 
 The Entire Property will pass 
 
 
 Estate. 
 
 
 by an Appropriate Generic 
 
 §207. 
 
 General Rules. 
 
 
 Description in a Mortgage. 
 
 208. 
 
 General Words limited by Sub- 
 
 198. 
 
 Mortgage covers whatever is ne- 
 
 
 sequent. 
 
 
 cessary to the Enjoyment of 
 
 209. 
 
 Land beyond the Chartered Lim- 
 
 
 the Thing granted. 
 
 
 its will not pass. 
 
 199. 
 
 The same Rule prevails as to 
 
 210. 
 
 Land-grants subsequently made 
 
 
 the Construction of a Lien 
 
 
 to assist in the Construction 
 
 
 declared by Statute in Favor 
 
 
 of the Road not covered. 
 
 
 of the State. 
 
 211. 
 
 Land acquired for Depots, etc., 
 
 Art. III. 
 
 — Principles on which Mort- 
 
 
 covered. 
 
 
 gages PURPORTING to CON- 
 
 212. 
 
 Lands acquired for Eight of 
 
 
 VEY After-acquired Prop- 
 
 
 Way covered. 
 
 
 erty ARE enforced. 
 
 213. 
 
 Terminal Facilities covered. 
 
 §200. 
 
 General Principle that of an 
 
 214. 
 
 Lands held by Equitable Title 
 
 
 Executory Contract. 
 
 
 covered. 
 
 201. 
 
 Subsidiary Principles on which 
 
 215. 
 
 Leasehold Interests, when cov- 
 
 
 the Enforcement of the Ex- 
 
 
 ered. 
 
 
 ecutory Contract rests. 
 
 Art. VI 
 
 — What is Sufficient De- 
 
 Art. IV. 
 
 — What is a Sufficient De- 
 
 
 scription TO pass After- 
 
 
 scription TO pass Property 
 
 
 acquired Personalty. 
 
 
 ACaUIRED after THE MORT- 
 
 §216. 
 
 General Principles. 
 
 
 GAGE IS EXECUTED. GEN- 
 
 217. 
 
 Materials for the Track, when 
 
 
 ERAL Rules stated. 
 
 
 covered. 
 
§ 189.] 
 
 WHAT THE MORTGAGE COVEfiS. 
 
 215 
 
 §218. 
 219. 
 220. 
 221. 
 
 222. 
 
 223. 
 
 224. 
 
 225. 
 
 226. 
 Art. VII, 
 
 227. 
 
 Rolling-stock, when covered. 
 
 Office Furniture, when covered. 
 
 Fuel, when covered. 
 
 Personalty not used for Kail- 
 road Pui'poses. 
 
 Choses in Action and Stock, 
 when covered. 
 
 Permanent and Temporary Dis- 
 use, Eifect of. 
 
 Alterations in the Subject-mat- 
 ter of the Pledge. 
 
 Property bought to replace that 
 worn out, embraced by the 
 Mortgage. 
 
 Income, Revenues, etc. 
 
 — Necessity for a Specific 
 Description qualified by 
 THE Doctrine of Fixtures. 
 
 General Rule. Things which 
 are absolutely Fixtures. 
 
 § 228. Detached Personal Property. 
 Art. VIII. — Necessity for a Specific 
 Description qualified by 
 THE Doctrine that a Rail- 
 road IS' AN Entirety. 
 § 229. The Doctrine of Accession ex- 
 tended. 
 230. Objections to this Extension of 
 the Doctrine of Accession. 
 Art. IX. — What will pass under the 
 Term "Appurtenances." 
 § 231. Realty. 
 
 232. Personalty. 
 
 Art. X. — What will pass under the 
 Word "Undertaking." 
 
 233. In Instruments creating Charges 
 
 on Railroad Property. 
 
 234. In Instruments creating Charges 
 
 on other Property. 
 
 § 189. General Statement. — In determining the effect of clauses 
 of railroad mortgages which cover " after-acquired " property, there 
 must be considered, first, what property the company had power to 
 mortgage ; second, what property it intended to mortgage ; third, 
 the effect of the words which were descriptive of the property 
 alleged to be covered. In Compton v. Jesup ^ it was remarked 
 by the circuit judge (Taft) who delivered the opinion that the 
 extent of the property included in tiie grant of a mortgage de- 
 pended on the first two of these questions. The authorities 
 cited in the following cliapter are amply sufficient to show that 
 the third question is equally important in the case of after- 
 acquired property. In fact the learned judge, by implication, 
 admits this when he says in another place that there was no 
 controversy possible as to the identity of the property under dis- 
 cussion. If there had been any controversy as to its identity, the 
 third question would have demanded an answer as well as the 
 others. The inquiries respecting the intention of the grantor 
 and the adequacy of the description are, however, of very differ- 
 ent importance, according as the subject-matter of the mortgage 
 was owned by the mortgagor at the time the instrument was 
 executed, or was subsequently acquired. In the former case 
 the intent of the grantor is the paramount consideration, and if the 
 intent to embrace property not mentioned in terms is reasonably 
 apparent, effect will be given, in favor of the mortgagee, to a 
 general description, not only against the grantor himself, but 
 
 68 Fed. Rep. 263, 286 (1895). 
 
216 EAILWAT BONDS AND MORTGAGES. [CHAP. X. 
 
 against subsequent purchasers and creditors, except, of course, 
 in so far as tliis result may be controlled by the rules regarding 
 notice, and, in the case of personal property, regarding construc- 
 tive fraud. As was remarked in Mississippi Valley Co. v. Chicago, 
 St. Louis, & N. 0. K. Co.,1 a man or a corporation may well mort- 
 gage " all property " then owned, " without further words of de- 
 scription, because the fact of present ownership serves as an 
 indicator." On the other hand, if the instrument purports to 
 cover after-acquired property, even though the intent to convey 
 the grantor's whole estate, present as well as after-acquired, 
 may be unquestionable, a court will not fasten the lien on the 
 latter portion of the property, unless it is either specifically de- 
 scribed, or so connected, visibly and physically, with the former 
 portion, or so essentially necessary for the conduct of the busi- 
 ness in which the mortgagor is engaged, that third parties may 
 fairly be presumed to understand that it is subject to the lien.^ 
 
 Article I. — General Rules op Construction. 
 
 § 190. Introductory. — Usually the crucial question involved in 
 defining the scope of the mortgage lien is, whether the description 
 is sufficiently specific to pass the property alleged to be covered. 
 But before entering upon this part of the subject it will be con- 
 venient to group together the cases which illustrate the appli- 
 cation of some of the common rules of construction to railroad 
 mortgages. 
 
 §191. General Laws the Standard. — The validity and effect 
 of railroad mortgages must be determined by the charters of the 
 companies, so far as they supersede general laws. But the general 
 laws will be applied in the construction and enforcement of such 
 mortgages when lawfully made, unless they are suspended by 
 special legislation.^ 
 
 ^ 58 Miss. 896 (1881). following sections of this chapter. See an 
 ^ In the Mississifipi case just cited it article entitled " After-acquired Rolling- 
 was observed that "neither a man nor a stock is Subject to Mortgage," by Leonard 
 corporation can, by general terms only, A. Jones, in 4 So. L. E,ev. N. S. 199. 
 mortgage, so far as subsequent purchasers See, for a rule of construction, Maxwell v. 
 and creditors are concerned, everything Wilmington Dental Mfg. Co. (1896), 77 
 that may thereafter be acquired, through Fed. Rep. 938, in which case In re Pan- 
 all time ; for this would be a mere pledge ama, N. Z. & A. Royal Mail Co., 5 Ch. 
 of the capacity of acquisition, and would App. 318, was distinguished, 
 afford no sort of indication of what was to ' Newport & Cincinnati Bridge Co. v. 
 pass under the instrument." The rest of Douglass (1877), 12 Bush (Ky. ), 673 ; s. c. 
 the .<!tatement in the text is amply siis- 18 Am. liy. Eep. 221. 
 taiued by the rulings referred to in the 
 
§§ 192-194.J WHAT THE MORTGAGE COVERS. 217 
 
 § 192. Lex Loci. — If the mortgage to be construed embraces 
 property situated in two States, and there is no proof as to the 
 place of its execution, a court will not be bound by the rule of 
 comity to adopt the construction given by the courts of one of 
 those States to a similar mortgage, but will presume that the 
 courts of other States will construe the instrument in accord- 
 ance with common-law principles. ^ 
 
 § 193. Construction a Question for the Court. — A mortgage 
 is subject to the general rule which makes the construction of 
 all written instruments matter to be passed on by the court and 
 not the jury.2 It has been held, however, that a finding by a 
 court of first instance, that a certain mortgage embraces property 
 on which a prior lien is claimed,, is. not erroneous as stating a 
 conclusion of law, and not a conclusion of fact. For such a 
 purpose the issue as to whether an instrument is operative as 
 a mortgage is deemed to present a mixed question of law and 
 fact, like the issues whether a given instrument is the last will 
 and testament of an alleged testator, or whether one claiming 
 as heir or executor is entitled to a particular estate.^ 
 
 § 19-1. All the Writings must be construed together. — The rule 
 that the meaning of a written contract is to be ascertained by a 
 consideration of all the writings executed by the parties is pecu- 
 liarly applicable to the instruments discussed in this treatise. 
 The rights of holders of railroad bonds are almost always de- 
 pendent upon the effect of two instruments, — the bonds them- 
 selves and the mortgage securing them. Both must, therefore, 
 be construed together as part and parcel of the contract.* (See 
 also Chap. II., § 22.) 
 
 The bonds cannot be excluded from the security of the mort- 
 gage merely on the ground that the latter instrument does not 
 specify the date of the bonds it is alleged to secure, provided 
 those bonds are in all other respects clearly described therein, and 
 there is nothing in its terms inconsistent with the fact that they 
 had been executed. Whatever ambiguity or doubt may arise in 
 such a case is removed by parol evidence that no other bonds were 
 executed or issued by the company than those with which the 
 mortgage is sought to be connected.^ 
 
 * Miss. Valley & Western Ey. Co. v. ■ * Benjamin v. Elmira, Jefferso", & 
 United States Express Co. (1876), 81 111. Canandaigua E. Co. (1867), 49 Barb. 
 534. 441. 
 
 2 Parsons on Contr. «492. 6 Butler v. Eahm (1877), 46 Md. 541 ; 
 
 " Binkert ci al. v. Wabash Railway Po. s. c. 18 Am. Ry. Rep. 86. 
 (18S1), 98 111. 205. 
 
218 RAILWAY BONDS AND MaETGAGES. [CHAP. X, 
 
 § 195. General Words followed by Particular (Ezpressio unius, 
 etc.). — Where a mortgage in describing property employs at first 
 general terms, and afterwards proceeds to describe particularly 
 each thing mortgaged, the latter description will control the 
 former, if there be a repugnancy, the rule being that, in a deed, 
 specification generally includes things not specified. Thus a mort- 
 gage of " property," with a specific description of the different 
 kinds, does not cover municipal aid-bonds not embraced in the 
 description.^ 
 
 But this rule is subject to the qualification that the omission to 
 specify a thing without which the things specified would be of no 
 value does not exclude the thing omitted.^ 
 
 So also, where a general reference to certain property has been 
 inserted, it will not be limited by the addition of a clause referring 
 to property of that kind which may afterwards be acquired with 
 the proceeds of the bonds. Such a clause is merely intended to 
 remove any doubt which may possibly arise as to whether the 
 property thus purchased would also go to increase the security 
 offered. 3 
 
 § 196. Particular Words followed by General (Verba ejusdem 
 generis). — The familiar rule of statutory construction, that where 
 several words preceding a general expression point to a confined 
 meaning, the general expression shall not have such a meaning as 
 to extend the effect beyond subjects ejuidem generis, is sometimes 
 applied to descriptions in railroad mortgages. Thus it has been 
 held that the effect of a mortgage of after-acquired property, con- 
 taining the following words : " All the articles of personal prop- 
 
 1 Smith 0. McCullougli (1881), 104 ployed in its maintenance after completion. 
 
 U.S. 25. Harlan, J., said. "But the rules The "rights, privileges, and franchises " 
 
 established for the interpretation of written mortgaged were, it seems to us, only such 
 
 instruments will not justify us in detach- as had direct connection with the manage- 
 
 ing these general words from those of an ment and operation of the road after it was 
 
 explanatory character which immediately constructed and put in use as a public 
 
 follow in the same sentence. The subse- highway. There was no purpose, we think, 
 
 quent phrase 'that is to say,' followed by to pass the mortgagee any interest what- 
 
 a detailed description of the different kinds ever in municipal subscriptions which had 
 
 of property which are embraced by the been previously obtained and accepted by 
 
 general words quoted, indicates that the the company for the purpose of raising 
 
 mortgage was not intended to embrace money to build a road." 
 
 every conceivable possession and right be- ^ Pullan v. Cincinnati & Chicago Air 
 
 longing to the railway company, but only Line R. Co. (1865), 4 Biss. 35, applying 
 
 the road and its adjuncts and appurte- the rule so as to bring rolling-stock under 
 
 nances. It specifies diflFerent kinds of the lien of a mortgage in which it was not 
 
 property, some of which would enter into specified. 
 
 the construction of the branch road and » Shaw v. Bill (1877), 95 U. S. 10. 
 some of which would necessarily be em- 
 
§ 197.} VHAT THE MORTGAGE COVERS, 219 
 
 erty acquired by the company since the date of the mortgage, 
 consisting, among other things, of the following, towit," etc., after 
 which followed an enumeration by name of several engines, and, 
 by number, of several different kinds of cars, must be restricted to 
 articles of the same nature as those specifically named.^ 
 
 So also, when the comprehensive phrase " all other property " 
 is used neither at the beginning nor the end of the granting 
 clause, but in a position where its proper function is evidently to 
 remove any doubt there miglit be as to whether certain miscel- 
 laneous articles in and around certain specified parts of the prem- 
 ises are covered, its use is limited to explaining the words with 
 which it is immediately connected, and it cannot be construed so 
 as to extend the lien to town lots not coming within the specified 
 description contained in the instrument.^ 
 
 If, however, it appears from a consideration of the entire instru- 
 ment that it was the intention of the parties to give the words of 
 general description a wider reach than the application of this rule 
 would indicate, that intention must prevail.^ 
 
 Article II. — What is a Sufficient Description to pass 
 Property owned when the Mortgage is executed. 
 
 § 197. The Entire Property will pass by an Appropriate Generic 
 Description in a Mortgage. — As most railroad mortgages have 
 been executed for the express purpose of construction, the cases 
 in wliich their effect, as regards property owned at the time of 
 their execution, is discussed are naturally few in number. The 
 general rule is that, as already stated, tlie fact of present owner- 
 ship sufficiently identifies the property to admit of its being con- 
 veyed by the most general words, if such appears to be the intent 
 of the grantor. Whether the property is necessary to the enjoy- 
 ment of the franchises is entirely beside the question. The duty 
 of the court is confined to ascertaining the true construction of 
 the instrument without regard to any extraneous considerations. 
 Thus, where the granting clause covers " all and singular the 
 estate and property real," together with " all and singular the 
 lands, etc., rights, and interests, real estate," etc., all the lands 
 
 1 Brainerd et al. v. Peck & Colby (1861), ture. Whether this property comes under 
 
 84 Vt. 496. the protection of the principle that things 
 
 ^Alabama ». Montague (1885), 117 necessary for the operation of the road are 
 
 U. S. 602 ; s. c. 6 Sup. Ct. Eep. 911. covered (see below) was a question which 
 
 ' Raymond v. Clark (1878), 46 Conn, was discussed and answered in the afiirm- 
 
 129, where the mortgage was held upon ative in Buck w. Seymour (1878), 46 Conn, 
 
 this principle, to cover some ofiSce furni- 156. 
 
220 RAILWAY BONDS AND MORTGAGES. [CHAP. X. 
 
 belonging to the company will pass without regard to the pur- 
 pose for which they may be used.^ 
 
 The word " franchise," however, is not one which will be con- 
 strued as implying an intent to cover the whole property of the 
 company, unless, perhaps, by those courts which have adopted 
 the theory that a railroad and its franchises constitute an entire 
 indivisible thing.* 
 
 Hence a mortgage covering a " railroad and franchises, also all 
 the station-houses, etc., and other appendages, with all the lands 
 belonging to and intended for the use and accommodation of the 
 road," will only cover property connected with the road.^ 
 
 § 198. Mortgage covers -whatever is necessary to the Enjoyment 
 of the Thing granted. — The right to carry on the business of a 
 colliery company, occupying mineral land as a lessee, passes under 
 a mortgage, expressed to be the company's lands, mines, coal, and 
 other premises described in certain leases referred to, with its 
 buildings and fixed machinery. Under any other construction the 
 mortgagee would virtually have no security, for the value of the 
 property consists in its being kept up as an active concern, and 
 a cessation of work would enable the lessor to put an end to the 
 lease by re-entry.* Such a case is entirely different from one 
 where there is a mortgage of a house or a hotel which does not 
 pass the business of the mortgagor or the goodwill.^ 
 
 § 199. The same Rule prevails as to the Construction of a Lien 
 declared by Statute in Favor of the State. ^ — Thus a lien declared 
 in favor of the State as security for its aid, in which the sweeping 
 phrase " the road and property of the company " is used, will 
 cover lands granted by Congress to a State, and by tlie State to 
 the company, for the purpose of raising money to construct the 
 road, although the lands are in no way connected with the opera- 
 tion of the road.' 
 
 1 Robinson v. Atlantic & Great 'Westera 639, a contrary ruling as to another portion 
 
 Ey. Co. (1870), 66 Pa. St. 160. of these landa was made, but the court ex- 
 
 '■' See § 200, below. pressly disclaimed any intention to throw 
 
 ' Eldridge v. Smith et al. (1861), 34 doubt upon the propriety of the general 
 
 Vt. 484. principle of construction applied in Wilson 
 
 « County of Gloucester Bank v. Rudry v. Boyce, and based its opinion upon its 
 
 Mei-thyr, etc. Co. (189.t), L. R, 1 Ch. 629. views as to the effect of the acts of Con- 
 
 5 Whitley v. CoUis (1892), L. R. 1 Ch. gress relating to those lands. 
 64. ' In Whitehead v. Vineyard (1872), 50 
 
 ' See generally as to these liens. Chap. Mo. 29, 30, the same words were held to 
 
 XIII., post. cover after-acquired lands as well, though 
 
 ' Wilson u. Boyce (1875), 92 U. S. 320. not connected with the operation of the 
 
 In the recent case of Wilson v. Beckwith road. This ruling was also based upon a 
 
 (1893), 117 Mo. 61 ; s. c. 22 S. W. Rep. consideration of all the legislation upon the 
 
§ 200.] WHAT THE MORTGAGE COVERS. 221 
 
 Article III. — Principles upon which Mortgages purporting 
 TO convey After-acquired Property are enforced. 
 
 § 200. General Principle that of an Executory Contract. — The 
 doctrine of equity with regard to the effect of the after-acquired 
 property clause of a mortgage is that it amounts to an executory 
 contract on the part of the mortgagor that, as soon as the prop- 
 erty embraced therein comes into existence, he will subject it to 
 the lien of the mortgage.^ 
 
 The general rule as to the effect of a mortgage containing such 
 a clause was announced in the following terms by Mr. Justice 
 Story as early as 1843 : " It seems to me a clear result of all 
 the authorities, that wherever the parties by their contract intend 
 to create a positive lien or charge, either upon real or personal 
 property, whether it is then in esse or not, it attaches in equity as 
 a lien or charge upon the particular property as soon as the as- 
 signor or contractor acquires a title thereto, against the latter, 
 and all persons asserting a claim thereto under him, either volun- 
 tarily, or with notice, or in bankruptcy." ^ 
 
 The doctrine thus formulated was applied to a railroad mort- 
 gage in 1857 by the Supreme Court of New York,^ which also 
 adopted as an alternative ground for its ruling the theory of 
 Pierce v. Emery,* that a railroad and its franchises might be 
 regarded as an entirety. 
 
 The question as to the validity of such a clause, at least, as 
 against creditors, seems, however, to have been still regarded as 
 an open question, for it was carried to the Supreme Court of the 
 United States very soon afterwards in the well-known case of 
 Pennock v. Coe.^ There Mr. Justice Nelson, after observing that 
 the main argument urged against the validity of the mortgage 
 was founded on the maxim that " a person cannot grant a thing 
 which he has not " (jqui non habet, ille non dat'), and conceding 
 tlie soundness of the principle that a deed or mortgage, by which 
 
 subject of the aid-bonds, and is therefore ' Seymour v. Canandaigua & Niagara 
 
 not inconsistent with the oases which hold Falls R. Co. (1857), 25 Barb. 284. 
 
 that under ordinary circumstances such * 32 N. H. 484 (1856). 
 
 an indelinite description would not cover ^ 23 How. 117 (1859). The report of 
 
 after-acquired property. (See below.) this case as Coe v. Pennock (1857), in the 
 
 I Grape Creek Coal Co. v. Fanners' lower court, will be found in 6 Am. Law 
 
 Loan & Trust Co. (1894), 63 Fed. Rep. Reg. 27 ; s. c. 3 Fed. Cas. 1172, Case No. 
 
 891 ; s. 0. 12 C. C. A. 350 ; Borden v. 2962. See Lloyd v. E. & N. A. R. Co., 18 
 
 Croak, Admrx. (1889), 131 111. 68 ; s. c. New Br. 194 ; Lanark v. Cameron, 9 Upp. 
 
 22 N. E. Rep. 793. Can. C. P. 109; Quiney v. C, B. & Q. R. 
 
 ''■ Mitchell, Assignee, v. Winslow et 0,1. Co., 94 111. 537. 
 (1843), 2 Story, 630. 
 
222 RAILWAY BONDS AND MORTGAGES. [CHAP. X, 
 
 a party undertakes to grant, in presenti, property which does not 
 belong to him or has no existence, is inoperative and void, either 
 in law or equity, proceeded as follows : " But this principle has 
 no application to the case before us. The mortgage does not 
 undertake to grant, in presenti, property of the company not be- 
 longing to them or not in existence at the date of it, but carefully 
 distinguishes between present property and that to be afterwards 
 acquired. . . . The inquiry here is, not whether a person can 
 grant, in presenti, property not belonging to him and not in exist- 
 ence, but whether the law will permit the grant or conveyance to 
 take effect upon the property when it is brought into existence, 
 and belongs to the grantor, in fulfilment of an express agree- 
 ment, founded on a good and valuable consideration." The 
 learned justice then points out that if the money raised on the 
 security of the mortgage had been diverted from the purposes to 
 which it should have been devoted, namely, the building of the 
 road and its equipment, a court of equity would have interposed 
 and compelled a specific performance of the agreement. This 
 being the case, it might certainly be concluded with confidence 
 that such a court would sanction the voluntary performance of 
 the agreement by the parties themselves, and give eifect to the 
 security as soon as the property was brought into existence. 
 This view being also supported by authorities, both English and 
 American, it was held that the mortgage was a valid security 
 upon the property described therein (rolling-stock), from the 
 time of its acquisition by the company.^ 
 
 The authority of Pennock v. Coe does not seem to have been 
 universally admitted at first. Thus we find the Supreme Court 
 of Massachusetts in the following year saying that, if the mort- 
 gage of after-acquired rolling-stock in the case under review had 
 not been recognized and ratified by the legislature, it would not 
 have protected the property against an execution. No reference 
 was made to the equitable doctrine.^ This declaration of the law 
 was diametrically opposed to that of the Supreme Court of the 
 United States, and that court, wlien the same case came before 
 it, merely referred to Pennock v. Coe as being decisive of the 
 doctrine that a mortgage of after-acquired property is, within cer- 
 tain limits, valid against judgment creditors.^ 
 
 1 In EDgland the validity and effect of House of Lords until 1860, when Holroyd 
 
 assignments of future acquisitions had been v. Marshall, 10 H. L. C. 190 , was decided, 
 clearly expounded in Langton v. Horton, ^ Howe v. Freeman (1860), 14 Graj-, 
 
 IHareCh. 249 (1842), which was strongly 666. 
 
 relied upon in Pennoek v. Coe; but the • Freeman v. Howe (1860), 24 How. 
 
 doctrine did not receive the sanction of the 450. 
 
§ 201.J WHAT THE MORTGAGE COVERS. 223 
 
 At the present time the doctrine of Pennock v, Coe is the 
 one which is universally relied upon for the purpose of giving 
 effect to mortgages of after-acquired property, and the theory 
 of Pierce v. Emery/ which for the same purposes treats the 
 railroad and its franchises as an indivisible whole, is practically 
 exploded.^ It is possible that the latter theory may have been 
 due not merely to an imperfect realization of the real effect 
 and scope of a comparatively new doctrine, but also to a desire 
 to bring mortgages of after-acquired property within the reach 
 of legal as well as equitable principles. Such a considera- 
 tion, however, is plainly of no weight where equitable rules are 
 enforced.^ 
 
 § 201. Subsidiary Grounds on 'which the Enforcement of the Ex- 
 ecutory Contract rests. — There is some divergence of opinion, or 
 more correctly, perhaps, of statement, as to the rationale of the 
 enforcement of executory contracts of this class. Sometimes the 
 principle relied upon is that " equity considers that as actually 
 done which ought to be done." * In other cases the operative 
 principle is assumed to be that of estoppel.^ 
 
 This difference of opinion is of little moment, as it merely in- 
 dicates that the doctrine was considered from two equally possi- 
 ble points of view. 
 
 By whatever principle the enforcement of the contract embodied 
 in the after-acquired clause is explained, there is complete unan- 
 imity as to the practical result ; namely, that the property intended 
 
 1 32 N. H. 484 (1856). 6 Galveston Railroad v. Cowdrey (1870), 
 
 2 See §§ 229, 230, below. 11 Wall. 459. There the court, speaking 
 8 Pliila., Wilm. k Bait. R. Co. i-. of three deeds of trust, said that they es- 
 
 Woelpper (1870), 64 Pa. St. 366. There it topped the company and all persons claim- 
 was said : " It is indubitable that a mort- ing under it and in privity with it from 
 gage of land will pass all structure.s or fix- asserting that those deeds did not cover all 
 tures that may be afterwards erected upon the property and rights they professed to 
 it by the mortgagor. But it is not neces- cover. " Had there been but one deed of 
 sary to maintain that the rolling-stock and trust," it was remarked, " and had that 
 equipment of a railroad are part of its ac- been given before shovel had been put into 
 cretions and fixtures, so as to make the the ground towards constructing the rail- 
 transfer good at law. It is unquestionably road, yet if it assumed to convey and mort- 
 good in equity." gage the railroad, which the company was 
 * Phila., Wilm. & Bait. R. Co. v. authorized by law to build, together with 
 Woelpper (1870), 64 Pa. St. 366 ; Wil- its super-structures, appurtenances, fix- 
 lianison v. New Jersey Southern R. Co. tures, and rolling-stock, these several 
 (1878), 29 N. J. Eq. 311 ; Little Rock items of property as they came into ex- 
 & Fort Smith Ry. Co. v. Page (1880), istence would become instantly attached to 
 35 Ark. 304 ; s. 0. 7 Am. & Eng. and covered by the deed, and would have 
 E. R. Cas. 36; Seymour v. Canandaigua fed the estoppel created thereby. " Similar 
 & Niagara Falls E. Co. (1857), 25 Barb, language is used in Scott v. Clinton & 
 284. Springfield E. Co. (1876), 6 Biss. 529. 
 
224 RAILWAY BONDS AND MORTGAGES. [CHAP. X. 
 
 to be covered becomes subject to the lien the instant it becomes 
 a portion of the corporate effects.^ 
 
 Article IV. — What is a Sufficient Description to pass 
 Property acquired after the Mortgage is executed. Gen- 
 eral Rules stated. 
 
 § 202. The Requirement of a Specific Description in the Case of 
 Future Acquisitions, upon -what Principle based. — From the prin- 
 ciple that the enforcement of the lien of the after-acquired clause 
 is essentially the enforcement of an executory contract, it neces- 
 sarily follows that the terms of that contract must satisfy the 
 conditions which a court of equity exacts as a prerequisite to 
 granting a decree of specific performance. The most important 
 of those conditions in the present connection is that the property 
 intended to pass should be described with reasonable certainty. 
 " The contract must relate to some particular property described 
 in the mortgage, wliich, though not in existence, must be reason- 
 ably certain to come into existence, so that the minds of the par- 
 ties may be in agreement as to which it is to be. The mortgagor 
 must have a present actual interest in it or concerning it. There 
 must be something in presenti, of which the thing in fitturo is to 
 be the product, or with which it is to be connected, as necessary 
 for its use, or as incident to it, constituting a tangible existing 
 basis for the contract." ^ Similarly it was observed in a case de- 
 cided by the Supreme Court of New York two years before the 
 leading case of Pennock v. Coe : " It must be the intention of the 
 parties to create a lien, and the lien must have a specific refer- 
 ence, and must necessarily apply to some designated property, 
 either in esse or in expectancy, and this clearly and unmistakably. 
 Unless the agreement or mortgage plainly describes or designates 
 particular lands, it will be regarded as a mere executory contract 
 and enforceable only as such." ^ (By "executory contract" is 
 clearly meant one binding upon the person and general estate of 
 the grantor, as opposed to a contract of that description binding 
 upon some specific property.) 
 
 ' Benjamin v. Elmira, Jefferson, & New Jersey Southern R. Co. (1875), 25 N. 
 CanandaiguaR. Co. (1867), 49 Barb. 441 ; J. Eq. 13 ; Dunham v. Cincinnati R. Co. 
 Morrill v. Noyes (1863), 56 Me. 458; (1863), 1 Wall. 254 ; United Lines Tele- 
 Parker V. Xew Orleans, B. R. & V. R. Co. graph Co. v. Boston Safe Deposit & Trust 
 (1888), 33 Fed. Rep. 693 ; Meyer v. John- Co. (1893), 147 U. S. 431 ; s. c. 13 Sup. 
 ston (1875), 53 Ala. 237 ; Galveston Rail- Ct. Rep. 396. 
 road u.Cowdrey (1870), 11 Wall. 459, 481 ; ^ 23 How. 117 (1859). 
 Barnard et al. 0. Norwich & Worcester R. 8 Seymour v. Canandaigua Niagara 
 Co. (1876), i Cliff. 351 : Williamson u. Falls R. Co. (1857), 25 Barb. 284. 
 
§ 203.] WHAT THE MORTGAGE COVERS. 225 
 
 Similar language has been used by English judges. After- 
 acquired property, it has been said, will not come under the lien 
 in the absence of some words expressive of the intent that it shall 
 so pass,^ and the lien will not take effect, as against adverse 
 parties, unless that intent is declared by apt terms, or a sufficient 
 context.^ 
 
 § 203. The Requirement of a Specific Description to pass after- 
 acquired Property, applicable to Statutory Liens. ^ — This necessity 
 for a specific description exists not only in the case of ordinary 
 mortgages, but also in the case of those liens in the nature of 
 mortgages which are fastened by statute upon the railroad prop- 
 erty, as a security for State or municipal aid. On this ground it 
 has been held that after-acquired property is not covered by the 
 lien created by an act which provides that " all liabilities which by 
 said city may be assumed or incurred under or by virtue of any of 
 the provisions of this act shall at the time, and by force thereof 
 and for security and payment of the same, create in favor of said 
 city a lien in the whole of said railroad, its franchises and all its 
 appendages, and all real and personal property of said railroad 
 corporation." The court said : " Acts creating liens should not 
 be construed to attach to after-acquired property any more than 
 grants or mortgages, unless such is the plain meaning of the 
 language used. The language used includes such a construction. 
 The lien provided for in this section is to take effect at the time 
 the liability is assumed, and cannot be held to include property 
 not then owned by the company.* 
 
 In Tennessee, however, it has been held that a lien declared by 
 statute upon " the entire road, including the stock, right of way, 
 grading, etc., and all the property, owned by the company as in- 
 cident to or necessary to its business," embraces not only the 
 properties of the description designated which were in existence at 
 the time the mortgage took effect, but also properties of that 
 kind which may afterward come into existence and be acquired 
 by the company. s 
 
 1 III re New Clydach, etc. Co. (1868), cision is not based express!)' on the 
 L. R. 6 Eq. 514. ground that a legislative grant, if its 
 
 2 Bank of South Australia v. Abrahams meaning is doubtful, should be construed 
 L. R. 6 P. C. 265. in favor of the State (Rice i-. Railroad 
 
 ' As to these liens generally, see Chap. Company (1861), 1 Black, 358), but on 
 
 XIII., posi. the secondary consideration, perhaps 
 
 * City of Bath v. Miller (1865), 63 Me. deemed by the court to be a justifiable 
 
 308. deduction from that principle, — that if 
 
 ' McGraw v. Memphis & Ohio R. Co. the efiect of the mortgage were to be lim- 
 
 (1866), 5 Coldw. (Tenn.) 434. This de- ited to the former class of property, the 
 
 15 
 
226 EAILWAT BONDS AND MORTGAGES. [CHAP. X. 
 
 § 204. Application of General Principles to Property acquired 
 and not required for Railroad Purposes. — The degree of precision 
 required in the language employed depends entirely upon whether 
 the property alleged to be covered was acquired for necessary 
 railroad purposes, or, in other words, to be used in facilitating the 
 discharge of the company's function as a common carrier. If the 
 property was acquired to be employed in this manner, it will pass 
 under a generic description, the fact of its forming a part of the 
 railroad being deemed sufficient to identify it and distinguish it 
 from other property of the same kind owned by others. 
 
 If, on the other hand, the property has no immediate connection 
 with the operation of the road, a merely generic description will 
 not fasten a lien upon it. The language used must in this case 
 be sufficiently specific to designate the property without reference 
 to extraneous circumstances. This distinction is fundamental, 
 and pervades all the cases which turn upon the sufficiency of the 
 description. 
 
 The rule that a generic description is effectual to this extent is 
 of course subject to be controlled by words which show an intent 
 to limit the lien in some way, and is not applicable where the de- 
 scription of the mortgage, by its precise terms, limits the property 
 (in this case, lands) to those lying between certain termini in a 
 specified State .^ 
 
 It lias been said that there is not the same necessity for a par- 
 ticular description in railroad mortgages as in mortgages by a 
 private person.^ 
 
 But this statement seems to be incorrect. Mutatis mutandis, 
 the requisites of a valid mortgage of after-acquired property are 
 the same, whether the mortgagor ia a railroad company or an 
 individual.'' 
 
 ordinary wear and tear of the subject- benefit of the bondholders created a lien 
 
 matter would in a few years deprive the in their favor upon it, even if the mortgage 
 
 State of a large part of its security. This had not been sufficient for that purpose, 
 is certainly carrying the doctriue to its ^ Chapman v. Pittsburg & Steubenville 
 
 extreme limits. R. Co. (1885), 26 "W. Va. 299, 328. 
 
 In Buck V. Seymour (1878), 46 Conn. ^ 3^,]- ^. Seymour (1878), 46 Conn. 
 
 156, it was held that, where the directory 156. 
 
 of a company, under a general statute ' Compare Parker v. New Orleans, B. 
 authorizing trustees in such a case to take R. & V. R. Co. (1888), 33 Fed. Rep. 693 ; 
 possession, surrendered to the trustees Bell v. Chicago, St. Louis, & New Orleans 
 with a written declaration that they sur- R. Co. (1882), 34 La. Ann. 785. The last 
 rendered all the property covered by the two cases were decided under the law of 
 mortgage, such a surrender constructively Louisiana, which limits the power of the 
 included the property acquired after the company, as regards mortgages of after- 
 date of the mortgage ; and that a deliv- acquired property, to property acquired 
 eiy of the after-acquired property for the for railroad purposes (see above, § 200), 
 
§ 201.] WHAT THE MOETGAGB COVERS. 227 
 
 The true principle is laid down in Miss. Yalley Co. v. Chicago, 
 St. Louis, & New Orleans R. Co.,^ where Chambers, C. J., in de- 
 livering the opinion of the court, used tlie following language : 
 " It is said that a mortgage of a railroad and its future property- 
 will carry all after-acquired property appurtenant to and neces- 
 sary for building and operating the road and carrying out the 
 purposes for which it was created, while a similar instrument will 
 be inoperative if executed by a private person. This is true if 
 the mortgage executed by a private person is upon a specified 
 piece of property, without reference to any accretions or additions 
 to it, because there can be no accretions of property appurtenant 
 to the person of the mortgagor ; but it is untrue if the individual 
 has mortgaged his business and the property then appurtenant to, 
 or afterwards to grow out of, and to be added by accretion to the 
 particular business that is pledged. Thus a natural person, equally 
 with a corporation, can execute a valid mortgage of a ship and the 
 profits of its voyage, or of a factory and the machinery then in it 
 or to be placed in it, or of a farm and the products to be produced 
 upon it, or of a flock of sheep and its natural increase and future- 
 grown wool ; and so a railroad company can execute in general 
 terms a valid mortgage of its road-bed and franchises, and all of 
 its real and personal property then owned or thereafter acquired, 
 provided the future acquisitions be such as belong naturally to the 
 business of construction and maintaining the road and performing 
 its primary end as a common carrier of passengers and freights. 
 The things which may be deemed essential or useful, and there- 
 fore appurtenant to the great worlt of building and operat- 
 ing a railroad, will frequently be more extensive and varied in 
 their character than those which can properly be regarded as 
 accretions," etc. 
 
 The actual decision of the Connecticut case referred to above 
 was quite in harmony with this exposition of principles, as it was 
 merely held that a description of after-acquired property as " all 
 property which may hereafter belong to said company, and be 
 usei as a part of said road" was not too indefinite, and therefore 
 the distinction drawn between mortgages by railroad companies 
 and private persons was quite uncalled for. 
 
 The fact that the comprehensive clause, " and all rights, privileges, 
 franchises, and property whatever, now belonging or hereafter to 
 belong to or to be acquired by said party of the first part," is 
 
 and the raling was that, provided the descrihed in the instrument. The latter 
 
 mortgage was confined by definite terms to case gives a succinct resumS of the Civil, 
 
 such property, the lien would attach to it French, and Spanish laws on the subject, 
 as efi'ectually as if it had been specifically i 58 Miss. 896 (1881). 
 
228 RAILWAY BONDS AND MORTGAGES. [CHAP. X. 
 
 added at the conclusion of the granting part of the mortgage, will 
 not be a ground for drawing any other than the usual deduction, 
 that only property used in connection with the railroad, in pro- 
 moting the direct purposes of its construction, especially where 
 the clause is preceded by a minute description of specific kinds of 
 property, all of which are of that character, and so referred to.^ 
 
 § 205. What is Property used for Railroad Purposes. — Property 
 may come under the category of that used for railroad purposes 
 without being indispensably necessary for the proper conduct of 
 the company's business.^ 
 
 It is " necessary," within the meaning of the rule, if it is such 
 as the company, in the reasonable exercise of its discretion, con- 
 sidered it best to procure for the most profitable use of the road, 
 even though the road might have been operated without it.^ 
 
 Instructions embracing the word " indispensably " have, how- 
 ever, been held correct upon appeal.* 
 
 Mere convenience is certainly not enough to bring property into 
 this category, as where lands are purchased for the sake of the 
 timber on them.^ 
 
 In regard to lands, the proper test has been held to be whether 
 they could or could not have been taken by proceedings in emi- 
 nent domain for the purposes to which they are applied. In the 
 former case they are covered by the mortgage ; in the latter case 
 they are not. Thus the entire surveyed line to its full width will 
 pass, and also land required for piling wood ; but not land acquired 
 for the purpose of erecting a car factory, and dwelling-houses for 
 its employees.^ 
 
 ^ State V. Glenn (1883), 18 Nev. 34. he constructed, or in which the company 
 
 Compare Hunt v. Bullock (I860), 23 111. might acquire the right of way, or lots or 
 
 320, where the court rejected the idea that parcels of land along the line of the road 
 
 the word "franchise" would cover such used or to he used for erecting thereon 
 
 property as wood, coal, writing-desks, depots, engine-houses, shops, and all such 
 
 stationery, and all kinds of household structures as might he necessary for the 
 
 furniture which might happen to be used by operation and business of the road, or 
 
 the company in carrying on its business. upon which drains and embankments 
 
 '^ Morgan & Raynor v. Donovan (1877), might be made for the preservation and 
 
 58 Ala. 2-tl ; .s. c. 21 Am. Ey. Rep. 199. protection of the road. Compare Parish 
 
 3 Buck V. Seymour (1878), 46 Conn. v. Wheeler (1860), 22 N. Y. 494, and 
 
 146. Brainerd v. Peck (1861), 34 Vt. 496, sum- 
 
 * Shamokin Valley R. Co. v. Liver- marized below in this chapter, 
 more et al. (1864), 47 Pa. St. 465. ^ Eldridge v. Smith et al. (1861), 34 Vt. 
 
 ^ Dinsmore v. Racine & Mississippi R. 484. The last part of this ruling seems 
 
 Co. (1860), 12 Wis. 649. Here the infer- scarcely reconcilable with those which 
 
 ence was strengthened by the language hold that a hotel for the accommodation 
 
 employed in the instrument, all the lands of passengers and employees may pass 
 
 aud real estate spoken of in the mortgage under a general description. See § 212, 
 
 being those upon which the road was to below. 
 
§§ 206, 207.] WHAT THE MORTGAGE COVERS. 229 
 
 City lots purchased by a railroad company designed for legiti- 
 mate railroad uses and purposes in certain contingencies will pass 
 under and be covered by a subsequent mortgage covering property 
 present and to be acquired, though the contingencies may never 
 happen, and the lots be not used as originally designed from their 
 unsuitability for railroad purposes.^ 
 
 § 206. Property acquired by a Consolidated Company when 
 covered. — Property acquired by a consolidated company will be 
 subject to the lien of a mortgage made by one of the constituent 
 companies, provided the property is such that it would have passed 
 under the mortgage if the consolidation had not taken place.^ 
 
 Where a mortgage of a street-railway company covers a con- 
 templated extension, it may be enforced against such extension 
 though it may have been constructed by another company which 
 had purchased the franchises, etc., of the mortgagor.^ 
 
 A mortgage on a flume or ditch not completed, but projected 
 and in course of construction, covers the whole work when com- 
 pleted, if the instrument contains apt terms expressing the intent 
 of the mortgagor that it shall have that operation.* 
 
 Article V. — What is a Sufficient Description to pass After- 
 acquired Interests in Real Estate.^ 
 
 § 207. General Rules. — In many, if not most, instances in 
 which real estate is mentioned it will be found that the mort- 
 gage contains expressions which indicate that the draughtsman 
 was designedly composing it in conformity with the general prin- 
 ciple stated in the preceding section. If the property is described 
 as that " used or appropriated in operating and maintaining the 
 
 1 Hawkins et al. Trustees v. Mercantile any interest in It from the mortgagors, 
 
 Trust & Deposit Co. (1895), 96 Ga. 580 ; took title to the mortgages thus construed, 
 
 s. c. 23 S. E. Bep. 498 (1895). See Mc- and in making additions or accessions 
 
 Tighe et al. v. Macon Construction Co. et within the terms of the mortgages was 
 
 al. (1894), 94 Ga. 306 ; s. c. 21 S. E. Eep. estopped by privity of title with the mort- 
 
 701. gagors to deny that such accretions were 
 
 '^ Compton V. Jesup (C. C. A. 1895), subject to the mortgage lien." 
 68 Fed. Rep. 263. Tlie court concluded, » Hinchman v. Point Defiance Ry. Co. 
 
 from the wording of the earlier mortgages et al. (Boyle et al., Interveners), (Wash., 
 
 through which the consolidated company 1896), 44 Pac. Rep. 867. 
 deduced its tith', that it was the intention * Union Water Co. v. Murphy's Flat 
 
 of the mortgagors to subject to the liens Fluming Co. et al. (1863), 22 Cal. 620. 
 whatever was added to the railroad at each 5 Por a review of the cases in which 
 
 of the terminal points named for use as the effect of the mortgage as regards 
 
 part of it. "Every person, therefore, realty is rather a question of power than 
 
 acquiring the railroad thus described, or of construction, see Chap. VIII. 
 
230 RAILWAY BONDS AND MORTGAGES. [CHAP. X. 
 
 road," the inference is conclusive that no other property but this 
 can pass under the mortgage.^ The rule, however, is independent 
 of the effect of phraseology apparently intended to embody it, and 
 cannot be overridden by any description, however comprehensive, 
 which is of a merely generic character. An instructive case on 
 this point, and one which also affords illustration of the circum- 
 stances which will place after-acquired land upon one side or other 
 of the line which separates property used in the operation of tlie 
 road and property not so used, is Miss. Valley Co. v. Chicago, St. L. 
 & N. 0. R. Co.2 There a railroad company executed a mortgage 
 of all its property, present and future, in the most comprehensive 
 terms possible, the descriptive clause winding up with the words, 
 "intending hereby to include all its present real and personal 
 estate and franchises now owned or hereafter to be acquired, 
 without any exception or reservation whatever;" and it was 
 argued that the lien covered a hotel, a storehouse, some vacant 
 lots, and a farm of three acres. The words of the mortgage were 
 admitted to be broad enough to cover this property, but it was 
 said that neither a natural person nor a corporation could mort- 
 gage property to be acquired in the future by words so vague and 
 general as to afford to creditors and subsequent purchasers no 
 notice whatever of the property to be embraced. The vagueness 
 of the description therefore prevented the clause as to future 
 acquisitions from taking effect as to the particular property 
 alleged to be embraced in the mortgage, and it must be excluded 
 from its operation unless it was appurtenant to the business of 
 the road. This condition, it was held, was not satisfied by a hotel 
 which was not used as an eating-house for passengers, and real 
 estate which was rented out for the several purposes to which it 
 was adapted, the company deriving no benefit therefrom except it 
 received the rents. 
 
 § 208. General 'Words limited by subsequent. — The general 
 terms of an after-acquired clause may be limited by subsequent 
 words shoVing an intention to restrict the operation of the lien. 
 Thus where an income mortgage includes " all and singular the 
 line of railways belonging or hereafter to belong to" the mort- 
 gagor, and then goes on to describe them as extending from cer- 
 tain specified points to others, and the directors are required to 
 set apart for payment of the interest on the income bonds the net 
 income derived from the road, after deducting operating expenses 
 
 1 Walsh V. Barton (1873), 24 Ohio St. 150 ; s. c. 12 Am. & Eng. E. E. Cas. 
 28. Compare Boston & New York Air 375, referred to in the next section. 
 Line E. Co. v. Coffin (1882), 50 Conn. = 58 Miss. 896 (1881). 
 
§ 209.] WHAT THE MORTGAGE COTEES, 231 
 
 and betterments necessary to keep the line in first-class condi- 
 tion, the lien of the mortgage attaches only to the roads then 
 belonging or thereafter to be acquired between the termini named, 
 and the directors cannot deduct from the fund for the payment of 
 interest, operating and other expenses incurred on new lines 
 acquired beyond those termini. ^ 
 
 The inference that the after-acquired property clause covers 
 only lands acquired for business purposes is sometimes strength- 
 ened by some words used in the other parts of the instrument. 
 Thus although the granting clause may purport to cover all future- 
 acquired lands in a certain county, yet if there is an express 
 covenant for further conveyance and assurance which is restricted 
 to future-acquired lands purchased for use in carrying on its busi- 
 ness of mining, the mortgage should not be construed to include 
 lands not purchased for that purpose.^ 
 
 § 209. Land beyond the Chartered Limits ■will not pass. — Agree- 
 ably to the principles laid down in the preceding section, it has 
 been held that the mortgage does not cover lands purchased by 
 the company beyond the limit allowed in the charter and never 
 used for its road.^ 
 
 Nor will town lots, unless directly appurtenant to the railroad, 
 and indispensably necessary to the enjoyment of its franchises, 
 pass by a mortgage of a road " with its corporate privileges and 
 appurtenances." * 
 
 Nor will a mortgage conveying " the railroad then constructed 
 and to be constructed, etc., and all other corporate property, real 
 and personal, of said railroad company, belonging or appertaining 
 to the said railroad, whether then owned or thereafter to be 
 acquired," cover lands granted as an inducement to erect a depot 
 at a certain place, and never used for any railroad purposes.^ 
 
 Nor will the use of the words " necessary and convenient " in 
 connection with the lands which the mortgage purports to convey 
 cover a portion of a lot which was never used for railroad pur- 
 poses, except as a site for the temporary office during the time 
 when the building ordinarily occupied for that purpose was being 
 re-erected.* 
 
 1 Spies V. Chicago & Eastern Iowa R. * Shamokin Valley R. Co. v. Livermore 
 
 Co. (1889), 40 Fed. Rep. 34 ; s. o. 40 Am. (1864), 47 Pa. St. 465. 
 & Eiig. R. R. Gas. 401. ' Calhoun v. Memphis & Paduoah R. 
 
 " Grape Creek Coal Co. v. Farmers' Co. (1879), 2 Flip. 442. 
 Loan & Trust Co. (1894), 63 Fed. Rep. « st_ Lonjg_ Arkansas, & Texas Ry. Co. 
 
 891 ; s. 0. 12 C. C. A. 350. v. Whitaker (1887), 68 Tez. 630 ; s. c. 6 
 
 ' Youngman v. Elmira & Williamsport S. W. Rep. 448. 
 R. Co. (1870), 65 Pa. St. 278. 
 
232 EAILWAT BONDS AND MORTGAGES. [CHAP. X. 
 
 Similarly -where the general words of the description are quali- 
 fied by such phrases as, " that may be included in the location of 
 said railroad ; " " used as a part of said railroad ; " " appurtenant 
 thereto ; " " necessary for the construction, operation, or security 
 thereof ; " " necessary for the completion and operation of the 
 road," — the lien will be confined to the lands which were pros- 
 pectively necessary and convenient for the construction and future 
 operation of the road, and will not embrace lands situated outside 
 the lay-out of the road, which had been taken over by the com- 
 pany in order to acquire at a less cost the lands actually needed 
 for the line itself.^ 
 
 On the other hand, in deference to the general principle that 
 " the case of a railroad holding more property for its own pur- 
 poses than its present needs demand, is entirely different from one 
 in which the company buys other property distinct from the road 
 and its appurtenances, not intended or necessary for the present 
 or prospective exercise of its franchise," the court will subject to 
 the lien of a mortgage covering all its property " then possessed 
 or to be thereafter acquired," land purchased for terminal facili- 
 ties at a time when the company believed it to be required for 
 the accommodation of the road, even though their expectations 
 of business have not been realized, and the land has never been 
 actually put to the use for which it was bought.^ 
 
 It has been already stated that in some early cases a greater lati- 
 tude of construction was asserted in regard to railroad mortgages, 
 on the theory that a railroad is an indivisible thing. An unsuc- 
 cessful attempt was made on this ground in Dinsmore v. Racine 
 R. Co.* to establish the lien of a mortgage upon lands several miles 
 distant from the line which had been purchased for the timber 
 thereon, whether owned at the time of the mortgage or subse- 
 quently acquired, whatever condition it might be, provided it was 
 obtained for the necessary use of the road. The court declined 
 to accept this theory, saying, " I cannot adopt this view of a rail- 
 road, or think that such is the peculiar nature and character of the 
 property belonging to these corporations. A railroad corporation, 
 with its franchises and property, has undoubtedly many things 
 peculiar to itself. But theoretically I have great difficulty in con- 
 sidering it, with all those franchises and real and personal prop- 
 erty, as being one entire and indivisible thing My first conception 
 
 1 Boston & New York Air Line R. Co. can Ry. Co. (1881), 72 Me. 83 ; s. c. 4 
 
 1-. Coffin (1882), 50 Conn. 150 ; s. c. 12 Am. & Eng. R. R. Cas. 503. 
 Am. & Eng. R. R. Cas. 375. 8 12 Wis. 649 (1860). 
 
 ^ Hamlin v. European & North Ameri- 
 
§ 210.] WHAT THE MORTGAGE COVERS. 233 
 
 of it is contrary to this idea. A railroad with all its property and 
 franchises cannot, with much precision of language, be likened to 
 a machine or even a vessel. It is an attempt to compare things 
 which have few, if any, points of resemblance. A railroad is de- 
 fined by Webster to be ' a road or way on which iron rails are laid 
 for wheels to run on for the conveyance of heavy loads in vehicles.' 
 This, I think, is the popular understanding of the term. There is 
 no difficulty in conceiving of a railroad as separate and distinct 
 from its rolling-stock, cars, engines, and depots. The idea of a 
 railroad is complete without these accessories. We speak of the 
 real estate belonging to a railroad, and of personal property be- 
 longing to it, without meaning that all these are inseparable from 
 it. They do not form one entire thing which is incomplete with- 
 out all these accessions. I can understand how a railroad 
 corporation with its franchises may be said to be an entire, 
 indivisible thing, — a unity. But I cannot well conceive how a 
 railroad with all its property, real and personal, of every nature 
 and character, can with accuracy be said to be an indivisible 
 thing, nor do I think the law so regards it." 
 
 § 210. Land-grants subsequently made to assist in the Construction 
 of the Road not covered. — Such laud-grants are not, as a general 
 rule, covered, the idea of acquisition for the immediate purpose of 
 furthering the business of a company as a carrier not being deemed 
 to extend to this class of property, although it may, as a matter of 
 fact, supply the only available means for enabling that business to 
 be started.! 
 
 The same rule applies, of course, still more strongly in States 
 where the authority of the company to mortgage after-acquired 
 property is expressly limited to such as becomes a portion of the 
 railroad. Thus it has been held under the law of Louisiana that 
 a grant from the United States of lands entirely exterior to the 
 right of way, and in no way promoting the business of the com- 
 pany except by the money received from purchasers or tenants, is 
 not covered.^ 
 
 A land-grant, however, may be covered by appropriate words 
 before it has been located by the filing of the map, or even before 
 it has been made by the government.^ 
 
 1 Meyer v. Johnston (1875), 53 Ala. Ey. Co. v. Parker (1892), 143 U. S. 42, 
 
 "37 ; s. c. (1879), 64 Ala. 603, where the where, however, the court laid more stress 
 
 mortgage was of the railroad, " and all upon the fact of such lands not falling 
 
 other property now owned, and which may under the description of "appurtenances" 
 
 be hereafter owned." (see § 23] , below), the theory that they did 
 
 " New Orleans & Pac. Ey. Co. v. Union so fall having been relied upon by counsel. 
 Trust Co. (1890), 41 Fed. Eep. 717. This s Parker v. New Orleans, B. E. & V. 
 
 decision was affirmed in New Orleans Pac. E. Co. (1888), 33 Fed Eep. 693. 
 
234 RAILWAY BONDS AND MORTGAGES. [CHAP. X. 
 
 § 211. Lauds acquired for Depots, etc., covered. — It is well 
 settled that lands purchased for the erection of such buildings 
 as depots, stations, warehouses, woodyards, machine-shops, and 
 the like are covered bj the after-acquired clause.^ 
 
 § 212. Lands acquired for the Right of "Way are covered. — A 
 right of way is an easement appurtenant to the road as an 
 entirety, which in its nature must be perpetual. Being there- 
 fore assignable, it will pass to the purchaser at the foreclosure 
 of a mortgage of the property and franchises of the company.^ 
 
 The right of way for the purposes of this rule is not necessarily 
 that which was first located. The mortgage binds the road as it 
 is actually built, such being the fair construction of the language 
 ordinarily employed in railroad mortgages.^ 
 
 This construction is sometimes corroborated by the language of 
 the statute authorizing the change of route. Thus, where the 
 right of transfer conferred contemplates the acquisition by the 
 company of a branch road by which to connect with another rail- 
 road, and a change in this contemplated link of connection is 
 authorized by a subsequent statute which does not declare the 
 original right to be withdrawn or limited, there is a strong impli- 
 cation that the right extends to the substituted route.* 
 
 But in no case is the position of the land the sole test applied ; 
 and it has been expressly held that the fact of its being outside 
 the right of way is not incompatible with the lands being subject 
 to the lien, provided it has been devoted to railroad purposes, such 
 as the erection of a depot or station.* 
 
 On the other hand, the fact that the tract in question is outside 
 the right of way is of considerable importance in determining 
 
 1 Seymour v. Canandaigua & Niagara has been located and constructed beyond 
 Falls E. Co. (1857), 25 Barb. 284 ; Stevens one terminus of its location and survey, as 
 V. Watson (1865), i Abb. Ct. App. Dec. it was at that time. Still, if it is the 
 302. railroad of the corporation under its char- 
 
 2 Junction R. Co. v. Euggles (1857), 7 ter, the whole becomes, in our apprehen- 
 OhioSt. 1 ; s. P. Pollards. Maddox (1856), sion, subject to the mortgage. . . . The 
 28 Ala. 321. road then [when the mortgage was exe- 
 
 ' Elwell V. Grand St. & Newtown R. Co. c.uted] in the process of construction, with 
 
 (1874), 67 Barb. 83; Seymour t). Canan- the rights and privileges of the company in 
 
 daigua & Niagara Falls R. Co. (1857), 25 itasa road completed, was the thing mort- 
 
 Barb. 284 ; Meyer v. Johnston (1879), 64 gaged" (citing Willink v. Morris Canal & 
 
 Ala. 603 ; s. u. 8 Am. & Eng. R. R. Cas. Bkg. Co. (1843), 4 N. J. Eq. 377 ; Pennock 
 
 584 ; Miller v. Rutland & Washington R. v. Coe (1859), 23 How. 117 ; Morrill v. 
 
 Co. (1863), 36 Vt. 452. In the case last Noyes (1863), 56 Me. 458). 
 
 cited the court said : " It may be taken as • East Boston Freight R. Co. v. Eastern 
 
 granted that, in fact, the location of the R. Co. 1866), 13 Allen (Mass.), 422. 
 
 road was changed, at different points, from ' Coe v. New Jersey Midland Ry. Co. 
 
 the place fixed upon in the original location, (1879), 31 N. J. Eq. 105. 
 after the mortgage took effect, and that it 
 
§§ 213, 214.] WHAT THE MOETGAGE COVERS. 235 
 
 whether it falls into the category of land acquired for railroad 
 purposes or not,^ or of a building intended to serve as a boarding- 
 house for the employees of the company and an eating-house for 
 the passengers. The mere fact that such a building, besides being 
 thus used in forwarding the business of the company, is also used 
 as a house of entertainment for the public at large, does not make 
 it an outside, independent enterprise.^ 
 
 If the rights acquired by the company in the right of way are 
 simply in the nature of an easement, and the track is never laid, 
 owing to a change of route, the abandoned lay-out necessarily re- 
 verts to the owner and is not covered by the mortgage.^ 
 
 A sale under a foreclosure of a statutory mortgage whereby 
 everything contained therein is to pass to the purchaser will 
 carry a right of way obtained subject to a condition of reverter 
 in the event of a failure to complete the road.* 
 
 § 213. Terminal Facilities covered. — Terminal facilities are cov- 
 ered by a mortgage expressed to be upon a " line of railroad con- 
 structed or to be constructed, together with all the stations, depot 
 grounds, engine-houses, machine-shops, buildings, erections in 
 any way now or hereafter appertaining unto said described line 
 of railroad." The stations, etc., in the terminal cities appertain 
 to the railroad as fully as similar structures in places between 
 the termini.^ 
 
 § 214. Lands held by Equitable Title covered. — If the other 
 conditions necessary to bring the land under the protection of the 
 mortgage are satisfied, the fact that the legal title is outstanding 
 in another, while the company holds only the equitable title, will 
 not prevent the lien from attaching under words of general 
 description.^ 
 
 1 Seymour v. Canandaigua & Niagara general principles, but "terminal faeili- 
 Falls K. Co. (1857), 25 Barb. 284 ; Boston ties" were specified in the mortgage under 
 & New York Air Line R. Co. v. Coffin discussion in the clause following that 
 (1882), 50 Conn. 150 ; s.c. 12 Am. & Eng. which was construed. 
 
 R. E. Cas. 375. « Toledo, D. & B. E. Co. v. Hamilton 
 
 2 Omaha & St. Louis Ry. Co. u. Wabash, (1890), 134 TJ. S. 296 ; 3. c. 10 Sup. Ct. 
 St. Louis, & P. Ry. Co. (1891), 108 Mo. Eep. 546 ; Central Trust Co. i>. Kneeland 
 298 ; s. c. 18 S. W. Rep. 1101 ; United (1891), 138 U. S. 414 ; s. c. 11 Sup. Ct. 
 States Trust Co. v. Wabash, St. Louis, & Rep. 357; Wade v. Chicago, Springfield, 
 P. Ry. Co. (1887), 32 Fed. Eep. 480. & St. Louis R. Co. (1893), 149 0. S. 327; 
 
 8 Meyer v. Johnston (1875), 53 Ala. s. c. 13 Sup. Ct. Rep. 892. In the last 
 
 237 ; s. c. 15 Am. Ey. Eep. 467. two cases the legal title had been taken by 
 
 * Harrison et ux. v. Lexington & Frank- the financial agent of the company under 
 
 fort R. Co. (1849), 9 B. Monr. (Ky.) 470. circumstances which raised a resulting 
 
 ' Central Trust Co. v. Kneeland (1891), trust in favor of the company. To the 
 
 138 U. S. 414; s. c. 11 Sup. Ct. Rep. 357. same effect is Boston & New York Air 
 
 In this case the above ruling was made on Line R. Co. v. Coffin (1882), 50 Conn. 150, 
 
236 EAILWAT BONDS AND MORTGAGES. [CHAP. X. 
 
 Such a title is acquired by a contract for the conveyance of land 
 entered into after the execution of the mortgage.^ 
 
 The situation is not affected by the mere fact that the contract 
 was originally made by other parties, and assigned by them to the 
 company.^ 
 
 This principle, however, will not be applied in favor of the 
 mortgagee and against an adverse claim for a lien on the prop- 
 erty, unless the title is completed before the second lien has 
 attached.^ 
 
 § 215. Leasehold Interests, when covered. — A leasehold inter- 
 est in real property will pass, provided the words of the mortgage 
 comprehend it, either expressly or by reasonable implication, and 
 the contract by which it vests in the company was entered into 
 with the purpose of forwarding its business as an agency of 
 transportation.* 
 
 So also a mortgage purporting to convey, among other prop- 
 erty, " all the corporate rights, privileges, franchises, and immu- 
 nities, and all things in action, contracts, claims, and demands," 
 of the mortgagor, whether now owned or hereafter acquired," 
 will cover a lease of a belt railroad necessary to afford the mort- 
 gagor proper terminal facilities.^ 
 
 A railroad company had executed a mortgage upon its line of 
 railroad, " with the appurtenances now completed, or to be hereafter 
 
 12 Am. & Eng. R. R. Cas. 375, where the New Jersey Southern E. Co. (1877), 28 
 
 president and treasurer had purchased the N. J. Eq. 277; s. c. 29 N. J. Eq. 311 
 
 lands with the funds of the company, and (1878), and Botsford v. New Haven, 
 
 taken the title in their own names. Middletown, & Willimantic K. Co. (1874), 
 
 1 Hamlin v. European & North Anieri- 41 Conn. 454, where the mortgage was 
 
 can Ry. Co. (1881), 72 Me. 83 ; s. c. 4 postponed on the ground that the second 
 
 Am. &, Eng. R. E. Cas. 503. The court lien had attached when the full equitahle 
 
 attached some importance to the fact that title rested in the mortgagor, 
 the right of the contractee in such a case * Barnard v. Norwich & "Worcester E. 
 
 had a legal existence, and was subject to Co. (1876), 14 N. B. E. 469; s. c. 4 
 
 levy. But this circumstance was not alone Cliff. 348. In this case "leases" were 
 
 relied upon, and in any case it is plainly specifically mentioned, but the court (per 
 
 immaterial in considering the effect of the Clifford, J.) rested its decision also on the 
 
 after-acquired clause. The whole founda- ground that a lease was covered by a mort- 
 
 tion of the mortgagee's rights under that gage of " all the estate, real, personal, and 
 
 clause is of an equitable nature, and its mixed," of any of the descriptions named, 
 
 effect is necessarily determined on equitable In Beekman v. Hudson River West Shore 
 
 principles, and according to those the con- Ry. Co. (1888), 35 Fed. Eep. 3, the lease 
 
 traotee is the owner of the land. was assumed to be valid, the only argu- 
 
 ^ Earmers' Loan & Trust Co. u. Fisher ment being as to whether the transfer was 
 
 (1862), 17 Wis. 114. valid. 
 
 8 Toledo, D. & B. E. Co. v. Hamilton ^ Columbia Finance & Trust Co. v. 
 
 (1890), 134 U. S. 296 ; s. c. 10 Sup. Ct. Kentucky Union Ry. Co. (1894), 60 Fed. 
 
 Eep. 546, commenting on Williamson v. Rep. 794. 
 
§ 215.] WHAT THE MORTGAGE COVERS. 237 
 
 constructed, together with all the lands, tenements, heredita- 
 ments, fixtures, buildings, cars, engines, tools, and machinery, 
 franchises, privileges, interest, and estate of the first party apper- 
 taining thereto, which the party of the first part now possesses 
 or owns, or may hereafter acquire," in trust to secure an issue of 
 bonds. Subsequently the mortgagor leased its road and property 
 for ninety-nine years to another company. By the terms of the 
 lease the lessee company covenanted in a certain event to ad- 
 vance money to pay accruing coupons for interest on the bonds of 
 the lessor when due. This lease was, in a State court, cancelled 
 in an action brought by stockholders of the lessee company. 
 Upon default in payment of the interest coupons of the bonds 
 the trustees of the bondholders, before a federal court, in an action 
 for foreclosure of their mortgage, sought to have their decree 
 cover this lease, and have the covenants of the lease as to the 
 lessee's making advances to pay interest on their bonds enforced 
 against the lessee company, contending that their mortgage 
 covered tiie rights of the mortgagor company against the lessee 
 under the lease. The holding of the court was adverse to this 
 contention, and the trustees were allowed a decree of foreclosure 
 against the property of the lessor company only.^ 
 
 ' Moran c. Pittsburg, C. & St. L. Ey. the lease and quit," citing many eases. 
 
 Co. etal. (1887), 32 Fed. Eep. 878. The Further on it was said: "The lease in 
 
 court said : " That said lease having been question does not come within the descrip- 
 
 executed subsequent to the mortgage, no tion of the pi'operty, rights, or franchise 
 
 privily of estate or eontraet was thereby covered by the mortgage, nor is it in any 
 
 created between the mortgagee and lessee, sense 'after-acquired property ' within the 
 
 It is the well-settled rule in this country meaning of these terms as used in said 
 
 and in .England that, inasmuch as no mortgage. Even if the income, rents, and 
 
 reversion vests in the mortgagee under profits of the road had been covered by 
 
 such circumstances, he cannot distrain or the mortgage, the personal covenant of 
 
 bring an action, either at law or in equity, the lessee to make 'advances,' as pro- 
 
 for the rents payable by the tenant, nor is vided in the lease, could not be treated as 
 
 he entitled to enforce the covenants and ' income ' of the road, or as part of the 
 
 provisions of the lease. He has no eleo- ' purchase ' of the mortgage. The subject 
 
 tion, either before or after the mortgagor's of ' after-acquired property,' under mort- 
 
 defanlt, to adopt and demand the benefits gages containing similar provisions and 
 
 of the lease without the consent of the clauses as the present, has often been 
 
 lessee. His remedy is to foreclose upon before the Supreme Court, but no case yet 
 
 default of the mortgagor, or to take pos- decided has gone to the extent of holding 
 
 session of the premises and thereby place that personal contracts or covenants en- 
 
 himself in position to obtain the future tered into with the mortgagor, and tinder 
 
 profits. Either step operates as an evic- which no new estate is acquired by the 
 
 tion of the tenant by title paramount, mortgagor, come within these terms ; " 
 
 and leaves him at libertj' to terminate citing cases. 
 
238 RAILWAY BONDS AND MORTGAGES [CHAP. X. 
 
 Article VI. — What is a Sufficient Description to pass 
 After-acquired Personalty. 
 
 § 216. General Principles. — The rule that a specific descrip- 
 tion of the property intended to be conveyed is necessary, unless 
 it is acquired for railroad purposes, is equally applicable to 
 personalty. As to certain kinds of personalty there is no dif- 
 ficulty in pronouncing that they do or do not belong to the class 
 which calls for such a description. But some articles lie near 
 the border line, and a thoroughly consistent rule cannot be ex- 
 tracted from the authorities, while the uncertainty inherent in the 
 subject is increased both by the varying phraseology employed in 
 the mortgages, and by the fact that some courts have deemed it 
 necessary to consider not merely the nature of the article and the 
 purposes of its acquisition, but also whether, supposing it to have 
 been acquired for railroad purposes, the application to such pur- 
 poses has actually begun or not. The doctrine of these courts is 
 that, unless the property is ali'eady in use upon the road, it is not 
 protected by the mortgage. 
 
 § 217. Materials for the Track and for the Operation of the Road 
 generally. — The uncertainty arising from the cause just referred 
 to is well exemplified in the case of personalty, about which it 
 would prima facie have been supposed that there could have been 
 no doubt whatever, provided the mortgage contained any term 
 covering personalty as a whole. If the destination of the arti- 
 cles is the true criterion, there seems to be no valid reason for 
 excluding from the protection of the lien chattels acquired with a 
 view of constructing or repairing the track, replacing the worn- 
 out parts of rolling-stock, and supplying the locomotives and ma- 
 chine-shops with fuel. The preponderance of authority is in favor 
 of the doctrine that such personalty is covered as soon as the 
 company becomes its owner, and without regard to the fact that, 
 at the time when an adverse claim to it is asserted, it has not 
 been put into actual use. In fact no other rule could be enforced, 
 consistently with the continued operation of the road ; for if the 
 lien were not effectual to this extent, the general creditors might, 
 by constantly intercepting the necessary supplies, soon reduce the 
 railroad to a helpless condition. Accordingly it has been held 
 that cars, wheels, firewood obtained for the use of the engines, 
 and coal for the use of the machine-shop are covered, on the 
 broad ground that they are things incident and indispensable to 
 the use and enjoyment of the thing conveyed.^ 
 
 1 Phillips V. Winslow (1857), 18 B. Monr. (Ky.) 431. 
 
§ 217.] WHAT THE MORTGAGE COVERS. 239 
 
 So also a clause covering personal property " now owned or 
 hereafter to be acquired " embraces old or new rails along the 
 track in readiness for repairs.^ 
 
 So also rails, fish-plates, and bolts, purchased by the company 
 for the use of its road, but not yet actually used, and stacked on 
 land not within the right of way, are covered by a mortgage which 
 includes all real and personal property of every kind and descrip- 
 tion " used or intended to be used in connection with or for the 
 purpose of the railroad." ^ 
 
 A fortiori will the same rule prevail as between the bondholders 
 and the company.^ 
 
 In an early Wisconsin case,* on the other hand, it was held that 
 certain railroad chairs, never used in the construction of the track, 
 were not covered by the conveyance of a " railroad, with all the 
 superstructure, track, and all other appurtenances, made or to be 
 made, also all and singular the furniture, including the engines, 
 etc., materials, machinery, and every other kind of personal prop- 
 erty which shall be used in operating said railroad.''' The ruling 
 was based upon the ground that the rails, under these circum- 
 stances, could not be brought under the description of " appurte- 
 nances," nor could they be said to be " used in operating the 
 road." 
 
 This decision is certainly opposed to the earlier and later 
 authorities cited above. The consideration that the rule stated 
 in this last case would, if accepted, place the company in the po- 
 sition of carrying on its business by the mere sufferance of its 
 general creditors, is an unanswerable objection to it if the inter- 
 ests of the community are to be taken into account. " If," as was 
 pertinently observed by Mr. Justice Agnew, in a case decided in 
 the Pennsylvania Court of Common Pleas, " besides the rails and 
 their supporting chairs actually embedded in the track, the com- 
 pany may not maintain deposits of others, at convenient inter- 
 vals, for immediate repair, and, if because they thus lie in piles, 
 they may be seized all along the route by successive writs, the 
 usefulness of the railway as a public work must cease. If it may 
 
 • Covey V. Pittsburg, Fort Wayne, & ever," acquired or furnished for the use of 
 
 Chicago R. Co. (1858), 3 Phil. 173. said railroad. See Huntu. Bay State Iron 
 
 "^ Farmers' Loan & Trust Co. v. San Co., 97 Mass. 279, as to rails attached to 
 
 Diego Car Co. (1891), 45 Fed. Kep. 518. realty remaining chattels of vendor, hy 
 
 ' Weetjen u. St. Paul & Pao. R. Co. agi-eement between vendors and railway 
 
 (1875), i Hun, 629. Here the property, company. 
 
 iron rails, was held to be covered by a * Farmers' Loan & Trust Co. v. Corn- 
 mortgage covering "any and all rolling- mercial Bank of Racine (1860), 11 Wis. 
 stock, equipment, and materials whatso- 207; s. c. 15 Wis. 424 (1862). 
 
240 EAILWAY BONDS AND MORTGAGES, [CHAP. X. 
 
 be dismantled by attacking it in detail and seizing those things 
 most easily removed, thougli essential to its preservation, it would 
 be but a step to the end ; when stripped of all but its road-bed 
 and fixtures, it would be powerless to serve the public or benefit 
 itself." 1 
 
 On the other hand it would be a very strained construction of 
 the words of such a mortgage to assume that the intention of the 
 parties is merely to protect the articles while in actual use. Such 
 a construction, in fact, would give the after-acquired clauses no 
 greater protective effect than that of the common-law rule which 
 declares that personalty is not liable to seizure while it is being 
 actually applied to the discharge of the duties connected with 
 that franchise. This can scarcely be the meaning of tlie words, 
 interpreted, as they should be, not according to narrow techni- 
 cal rules, but with a constant reference to the interests of the 
 public. 
 
 Apart from these objections there is high authority for the doc- 
 trine that the articles denied by the Wisconsin court to be subject 
 to the mortgage in question are a part of the realty and pass as 
 fixtures, independently of whether the description is worded so 
 as to include them or not.^ 
 
 § 218. Rolling-stock, when covered. — Rolling-stock will pass 
 under a mortgage of " all the present and future to be acquired 
 property of the company, including the right of way and land 
 occupied, and all rails and other materials used thereon or pro- 
 cured therefor," — the reason assigned being that the specific 
 pledge of a thing carries other things without which it would be 
 of no use.^ 
 
 On the analogous principle that, when a thing is granted, all 
 the means to attain it, and all the fruits and effects of it, are 
 granted, a mortgage of the entire line of the railroad, with all the 
 tolls and revenues, covers not only the line of the road, but all 
 the rolling-stock and fixtures, whether movable or immovable, 
 essential to the production of tolls and revenue.* 
 
 A like effect has been given to a mortgage of " all the road, 
 property, rights, liberties, privileges, corporate franchises, incomes, 
 tolls, and receipts, then held or thereafter to be acquired," as far 
 
 1 Covey V. Pittsliurg, Fort Wayne, & stock is now usually acquired through 
 Chicago R. Co. (1858), 3 Phil. 173. what are known as car-trust contracts. 
 
 2 Palmer v. Forbes (1860), 23 111. 301. These are discussed in another part of the 
 See §§ 227 et seq., post. work (Chap. XIV.). 
 
 ^ Pullan «. Cincinnati & Chicago Air * State v. Northern Central Ry. Co. 
 Line E. Co. (1865), i Bias. 35. Rolling- (1861), 18 Md. 193. 
 
§ 218.] WHAT THE MORTGAGE COVERS. 241 
 
 as regards rolling-stock in actual use and required for the trans- 
 action of its business. 1 
 
 It seems, however, that some word signifying an intent to pass 
 the personal property of the company is necessary to constitute a 
 description sufficient to cover rolling-stoclc, unless, of course, wliere 
 the doctrine obtains that it is a fixture. Thus a mortgage of the 
 " road and its franchises " will not be construed as embracing the 
 rolling-stocic, or any of the furniture or equipment of the road 
 which is not so connected with the realty as to partake of its 
 character.^ 
 
 Where a railroad consists of two or more divisions, and a mort- 
 gage is given at different times on each division, and then upon 
 the whole line, eacli mortgage being worded so as to cover '* all 
 and singular the locomotive engines and other rolling-stock, and 
 all other equipments of every kind and description which have 
 already been or may hereafter be procured for or used on said 
 road," and expressly made subject to prior mortgages of the road, 
 and the rolling-stock is purchased with the general funds of the 
 company, and used upon the whole line without any apportion- 
 ment between the several divisions, the mortgages will, as regards 
 the' entire rolling-stock, take rank according to their dates, and 
 the earliest divisional mortgage will have a priority over the 
 other divisional mortgages as well as over the mortgage of the 
 entire line. This inference in regard to the rolling-stock will, 
 however, be rebutted by words which show the intention of the 
 parties to make the several mortgages distinct as to everything 
 else conveyed by them.^ 
 
 Where a mortgage of a division contains a covenant to desig- 
 nate in a certain mode, as belonging to that division, such a pro- 
 portion of the whole rolling-stock owned by the mortgagor, as 
 that division bears to the entire railway, only such rolling-stock 
 as is thereafter designated is covered, although it is less in amount 
 than the amount which by the covenant is to be so designated.* 
 
 A chattel mortgage covering the property of a street-railway 
 company, including its after-acquired property, has been held 
 not to cover rolling-stock and other equipments purchased by 
 
 ' Philadelphia, Wilm. & Bait. R. Co. In the opinion of Mr. Ju.stice Miller in 
 
 V. Woi'lpper (1870), r,4 Pa. St. 366. Minnesota Co. «. St. Panl Co., svpra, lie 
 
 2 Miller w. Hiitliind & Washington R. refers to the competency of a railroad 
 
 Co. (1863), 36 Vt. 452. company to de.signate and assign a certain 
 
 ' Minnchota Co. v. St. Paul Co. (1864), portion of its rolling-.stock to one division 
 
 2 Wnll. 609. of its road and another portion to another 
 
 ' United States Trust Co. v. Wabash as a conceded matter. 
 W. Ry. Co. (1889), 38 Fed. Rep. 891. 
 
 16 
 
242 RAILWAY BONDS AND MORTGAGES. [CHAP. X. 
 
 a company which had before purchased the franchises and prop- 
 erty of the mortgagor company, to be used in conducting the 
 business over the whole line of road.-^ 
 
 § 219. Office Fvirniture, when covered. — Office furniture, suitable 
 in kind and of a necessary amount, provided for the use of the 
 employees in the performance of their daily duties, as well as for 
 the directors to transact their business, are covered by a general 
 " after-acquired property " clause.^ 
 
 § 220. Fuel, when covered. — In City of Bath V. Miller * the 
 court declined to express an opinion as to whether the " after- 
 acquired property" clause embraced wood used for fuel; but, 
 under the given circumstances it was held to be attachable. 
 
 § 221. Personalty not used for Railroad Purposes. — The Converse 
 of the rule illustrated by the preceding sections has often been 
 applied. Thus the general clause as to after-acquired personal 
 property will not cover canal-boats, purchased with the funds of 
 the corporation, and used in connection with the railroad, but 
 beyond its terminus ; * and still less will it embrace property 
 bought of an opposition steamship line, not with a view of employ- 
 ing it in connection witli the business of the road, but in order 
 to put a stop to its competition.^ 
 
 1 Hinchman v. Point Defiance Ry. Co. belonged to and was "the property of the 
 et al. (Boyle et al., Interveners) (Wash., whole of said railroad." 
 
 1896), 44 Paii. Rep. 867. The " after-acquired " clause, therefore, 
 
 2 Ludlow V. Hurd (1857), 1 Dis. 552. could have no application, since it was 
 Comiiare Buck o. Seymour (1878), 46 only in reference to the " extension " that 
 Conn. 156. It will be shown hereafter this term was employed. 
 
 that such property is not covered as » That fuel will not pass under the mort- 
 
 Jixture. g^g* ^s a. fixture, see § 220, post. 
 
 3 51 ile. 341 (1863) ; ts. c. 53 Me. 308 For a case holding that a mortgage of 
 (186.'i). The mortgages to be construed the "franchises" of a railroad company 
 were executed in pursuance of a statute will cover " fuel," see Dunham v. Earl et 
 authorizing the company to execute to the al. (1859), 8 Fed. Gas. 41, Case No. 4149. 
 Treasurer of the City of Bath a mortgage * Parish v. Wheeler (1860), 22 N. Y. 
 of a certain extension of their railroad, 494. This case turned paitly on the 
 
 . and o{ all the property of said exten- meaning of the word "appurtenances" 
 
 sion which they then had or might subse- (see §§ 231, 232). With this case may he 
 
 qnently acquire, "the said mortgage to contrasted Williamson v. New Jersey 
 
 he maile " so as to embrace not only the Southern R. Co. (1874), 25 N. J. Eq. 13, 
 
 said extension, but also the original road where a mortgage coveiing after-acquired 
 
 of snid company, and all the property of personalty in general terms, and specin- 
 
 said road. The court pointed out that cally enumerating as a part of such per- 
 
 this statute treated the "extension" and sonalty "steamboats," etc., to be used in 
 
 the "original road " as separate and dis- connection with the business of the road, 
 
 tinct coi-porations, and that the wood in was allowed to take effect, 
 controversy, not having been bought with ' Morgan & Raynor v. Donovan (1877), 
 
 the special funds of either portion, did not 58 Ala. 241 ; s. c. 21 Am. Ry. Rep. 109. 
 
 belong to either. Being bought with the In this case there was also a lack of 
 
 funds of the "whole of said railroad," it authority to make the purchase. 
 
§ 222.] WHAT THE MORTGAGE COVERS. 243 
 
 Nor does a mortgage on all other " personal property belonging 
 to said company as the same is now in use by said company, or 
 as tlie same may be hereafter changed or renewed by said com- 
 pany," embrace certain machinery for burnetizing ties and timber 
 to render them more durable, the machinery not having been in 
 existence at the time of the execution of the mortgage, nor sub- 
 stituted for anything that was therein specified, but merely con- 
 structed by the railroad company as a mere experiment.^ 
 
 § 222. Choses in Action and Stock, -when covered. — Choses in 
 action are not, as a general rule, covered. Thus the phrase " char- 
 tered rights, privileges, and franchises" does not embrace the 
 unpaid balance of a subscription to the stock of the company.^ 
 Nor will a mortgage in the usual form, covering personalty, carry 
 the interest of the mortgagor in a contract with the United 
 States government for carrying the mails ; ^ nor municipal sub- 
 scriptions to aid in the construction of the road ; * nor an appro- 
 priation by a county for that purpose, at least until the claim of 
 the company is capable of being enforced against the county ; ® 
 nor notes given by a real-estate company with a mortgage upon 
 the property, as security to the company, in consideration of its 
 agreement to extend its line through or to the mortgagor's 
 property.^ 
 
 A deed of trust made by a coal and railway company embrac- 
 ing all the " personal property of every kind now owned, or here- 
 after to be acquired and owned and used, whether by purchase or 
 otherwise, in connection with, and for use in developing and oper- 
 ating, its said coal mines or other works of improvement now on 
 or hereafter to be opened upon said lands or any part thereof," 
 was construed by the Alabama Supreme Court. The court 
 said : " This clause manifestly refers not to the product or income 
 from said mines, but to chattels used in carrying on the mining 
 operations, and in operating in connection therewith the railway 
 covered by the instruments, such as engines, cars, live-stock, min- 
 ing implements, and the like." ^ 
 
 1 Krainerd v. Peck (1861), 34 Vt. 496. * Morgan County v. Thomas (1875), 
 
 2 Dean v. Biggs (1881), 2.5 Hun, 122. 76 111. 120 ; Smith v. McCullough (1881), 
 Comjiare Morris v. Cheney (1869), 51 111. 104 U. S. 25. 
 
 451. 6 Board of Commrs. v. The State 
 
 ' St. Paul & Duluth R. Co. v. United (1888), 115 Ind. 64. 
 
 States (1885), 112 U. S. 733; s. c. 5 « Farmers' Loan & Trust Co. v. San 
 
 Sup. Ct. Rep. 366. In Farmers' Loan & Diego Street Car Co. (1891), 45 Fed. Rep. 
 
 Trust Co. V. Cary (1860), 13 Wis. 110, a 518. 
 
 like ruling was made on the ground that ^ Alabama Nat. Bank v. Mary Lee 
 
 there were no apt tei-ms to cover the Coal & Railway Co. (Ala., 1896), 19 So. 
 
 income. Rep. 404, In which a bill was filed by 
 
244 RAILWAY BONDS AND MORTGAGES. [CHAP. X. 
 
 The capital stock of another company, acquired by lawful 
 authority with a view to consolidation with that company, is 
 covered by a mortgage embracing after-acquired personalty.-^ 
 
 § 223. Permanent and Temporary Disuse, Effect of. — After the 
 lien has once attached, it is not displaced by the permanent dis- 
 use of the mortgaged articles. Thus personalty cast off because 
 worn out, and fragments and old materials, have been held to 
 continue under the mortgage, if a proper and judicious manage- 
 ment of the road requires that they shall be recast or exchanged 
 for new articles for the use of the road.^ 
 
 The limitation here implied is perhaps unnecessary. At all 
 events, it has been held in another State that where the mortgage 
 expressly covered " rails," the mortgagees had a right to insist 
 that the money received from the sale of old rails shall be ap- 
 plied to keep down the interest on the bonds,^ — a ruling which 
 seems to assume the existence of a general principle, that the 
 lien attaches to anything which may take the place of the article 
 mortgaged, whether the substituted article be another manufac- 
 tured from the old materials, or another of the same kind pur- 
 chased with the proceeds, or the proceeds themselves. Nor, 
 indeed, does there seem to be any valid reason why the doctrine 
 should not be carried further, so as to give the mortgagees a 
 prior claim to property acquired with the proceeds, although that 
 property is not of a kind wliich would be covered by an ordinary 
 after-acquired clause, apart from such a consideration. Such an 
 extension of the doctrine would obviously be quite in harmony 
 with the equitable rule which denies the possibility of divesting 
 an equitable lien by any change in the form of the property, so 
 long as the rights of bona fide purchasers without notice have 
 not intervened. 
 
 general creditors to withdraw from the ^ 'Williarason v. New Jersey Southern 
 
 possession of the receiver in foreclosure R. Co. (1875), 26 N. J. Eq. 398. 
 proneedings certain coal which had been ^ Cooper v. Wolf (1864), 15 Ohio St. 
 
 mined, certain coke and pig-iron which 523. In this case the subject-matter of 
 
 had been manufactured and was in the the lien was the " engines, cars, tools, 
 
 possession of the company before the re- materials, machinery, contracts, and all 
 
 ceivership, as well as certain bills receiv- other personal property, right, or interest 
 
 able which the company had representing therein." Two judges dissented from the 
 
 the proceeds of sales of such manufactured decision on the special ground that the 
 
 articles, or to have them administered for mortgagor had reserved a right to control 
 
 the benefit of the general creditors, the the property in question, and that it was 
 
 receiver having, when appointed, taken therefore liable to execution, 
 possession of them for the benefit of the ' First National Bank of Salem ». 
 
 bondholders. Anderson (1881), 75 Va. 250; S. 0. 12 
 
 Am. & Eni'. E. R. Cas. 411. 
 
§§ 224, 225.] WHAT THE MORTGAGE COVERS. 245 
 
 The mortgage also continues in effect although the articles 
 temporarily cease to form a part of the property employed in the 
 operation of the road.^ 
 
 § 224. Alterations in the Subject-matter of the Pledge. — If an 
 essential alteration is made in one part of the equipment of a 
 railroad, the necessary alterations in the rest of the equipment 
 may be made for the purpose of adapting it to the new conditions, 
 without divesting the lien.^ 
 
 A fortiori must the lien continue where the changes simply 
 create a difficulty in identifying the property. Thus, where 
 rolling-stock is purchased for a certain division of the road, and 
 designated accordingly, the subsequent obliteration of the desig- 
 nation will not deprive the bondholders of their security, if the 
 property be otherwise traceable.^ 
 
 § 225. Property bought to replace that worn out, embraced by 
 the Mortgage. — The terms of an ordinary after-acquired clause 
 necessarily embrace articles such as cars bought to replace those 
 worn out, not on the ground of the substitution, but on the 
 ground that the new articles are themselves in the category of 
 those which it is the intention to cover.* 
 
 The effect of a clause which would ordinarily receive this con- 
 struction is not limited by the fact that a special reference is also 
 made to cars which may afterwards be acquired with the proceeds 
 of the bonds issued on the security of the mortgage. This addi- 
 tion will be deemed to have been inserted merely to obviate 
 any possible doubt as to whether such cars are intended to be 
 covered.^ 
 
 The same result must, of course, follow if the articles are held 
 to be subject to the lien on the ground that they are fixtures.^ 
 
 In Tennessee the courts have gone still further, and held, in 
 the case of a lien declared in favor of the State, that it extends 
 to property acquired to replace that worn out, although the 
 articles are not fixtures, and there is no specific reference to 
 subsequent acquisitions.^ 
 
 1 Hamlin v. Jerrard (1881), 72 Me. 62 ; * Shaw v. Bill (1877), 95 U. S. 10. 
 s. f. 4 Am. & Eng. R. E. Cas. 62. Here 6 Ibid. 
 
 rolling-stock was laid up pending a change " Palmer v. Forbes (1860), 23 111. 301. 
 in (he L'auge. ' McGraw v. Memphis & Ohio R. Co. 
 
 2 Hamlin V. Jerrard (1881), 72 Me. 62; (1868), 5 Coldw. (Teun.) 434. Some 
 4 Am. & Eng. R. R. Cas. 62. Here the comments have been made above on this 
 cars were altered to suit a change of decision (§ 208). It seems to be only 
 gauge. sustainable on the principle that the 
 
 ' I'nited States Tnist Co. v. Wabash State, and not a, private party, was the 
 W. R. Co. (1889), 38 Fed. Rep. 891. mortgagee. 
 
246 EAILWAT BONDS AND MORTGAGES. [CHAP. X. 
 
 Replacements of rolling-stock while the road is in the hands of 
 the receiver become, in like manner, a part of the mortgaged 
 property, and pass to the purchaser at the foreclosure sale.^ 
 
 § 226. Income, Revenues, etc. — Income, if specifically men- 
 tioned, as where "tolls, income," etc., are referred to among the 
 various kinds of property intended to be embraced, will, of course, 
 be subject to the lien.^ 
 
 In such a case the agreement of the parties is that, as soon as 
 the income is received, it shall be held in equity for the fulfil- 
 ment of the obligation of the mortgagor, and persons who, with 
 notice of the contract, take possession of the road by virtue of a 
 decree and sale have no claim on the money .^ 
 
 The income pledged by such a clause is understood to be the 
 " net income " remaining after payment of all expenses, including 
 the money applied to the payment of interest, and laid by to 
 form a sinking fund for the eventual liquidation of the bonds.* 
 
 If one railroad company mortgages to another the " net earn- 
 ings " which may accrue to it, by reason of business " from and 
 over" the line of the latter, the earnings include those arising 
 from business carried on in both directions, whether going or 
 coming.^ 
 
 Income has also been held to be covered by the comprehensive 
 term " personal property." ^ 
 
 If the mortgage contains no reference to future acquisitions of 
 personal property, the earnings are not covered ; and this rule has 
 been adhered to even in the case of a statutory mortgage which 
 was held to cover after-acquired personal property, although not 
 specifically mentioned, provided it is such as is to be used for 
 railroad purposes.'^ 
 
 1 Strang v. Montgomery & Eufaula R. to the construction of the instrument, but 
 
 Co. (1879), 3 Woods, 613. to the priorities as between the mort- 
 
 ^ Galena & Chicago Union E. Co. k. gagees and creditors whose claims are 
 
 Menzies (1861), 26 111. 121 ; Jesup v. based upon some alleged superior equity. 
 
 Bridge (1861), 11 Iowa, 572. It should (See Chap. XXVIII., preferred debts.) 
 
 be noticed that these cases were decided at See 86 Tex. 627 ; 79 Fed. Rep. 215. 
 
 a date when the power to mortgage after- * Pullan v. Cincinnati & Chicago Air 
 
 acquired property was still to some extent Line R. Co. (1873), 5 Biss. 237. 
 
 disputed. The discussion in the opinions * Parkhurst v. Northern Central R. Co. 
 
 deals rather with this aspect of the case (1863), 19 Md. i72. 
 
 than whether, as a ^natter of construction, ^ Schmidt v. LouisYille, etc. Ry. Co. 
 
 the mortgage covered the income. In (Ky., 1894), 25 S. W. Rep. 49. 
 
 later cases most of the litigation in which ^ Kelly v. Trustees (1877), 58 Ala. 
 
 the effect of the mortgage upon the in- 489 ; s. c. 21 Am. Ry. Rep. 138. 
 
 come has been considered have related ' McGraw v. Memphis & Ohio R. Co. 
 
 neither to the powers of the company nor (1860), 5 Cold. (Tenn.) 434. 
 
§§ 227, 228.J WHAT THE MORTGAGE COTEES. 247 
 
 Nor will a mortgage of the " franchises, pledges, and rights of 
 the company in and to " the road, etc., pass the income.-' 
 
 The trustee's rights to the earnings is independent of its situs, 
 and does not require the striking of a balance in order to ascer- 
 tain the net profits. Hence, where a mortgage covering income 
 was made on an Arkansas railroad extending into Tennessee, the 
 lien protects against attachment moneys derived from this source, 
 found in Tennessee in the hands of the treasurer of the company .^ 
 
 Article VII. — Necessity for a Specific Description qualified 
 
 BY the DoCTKINB OP FIXTURES. 
 
 § 227. General Rule. — Things which are absolutely Fixtures. — 
 It is common learning that a mortgage of real property will, as 
 a general rule, carry, as a part of the security, all fixtures belong- 
 ing to the realty, without any special mention of them being 
 made in the mortgage. A railroad corporation, therefore, when it 
 mortgages its road, tracks, and franchises, thereby mortgages all 
 its permanent fixtures, such as the road equipments for its con- 
 tinued use ; and by such a mortgage all future additions to it of 
 the same permanent nature, being an incident to the real estate, 
 must become subject to the lien in the same manner as improve- 
 ments to the real estate mortgaged by individuals.^ 
 
 The practical application of this rule involves no difficulty up 
 to a certain point. There is no controversy as to the principle 
 that personalty which is worked up into bridges, depots, and other 
 structures become invested with the character of real property, 
 and will therefore pass under a mortgage of the road, although 
 not referred to in terms, and although erected after the making 
 of the mortgage.* 
 
 A mining ditch or flume is in the nature of real estate, and a 
 mortgage thereon will, without any special provision, include all 
 improvements or fixtures then on the line located for the work, as 
 well as those which may thereafter be put thereon.^ 
 
 § 228. Detached Personal Property. — Detached personal prop- 
 erty, on the other hand, such as fuel, office furniture, material 
 
 1 Farmers' Loan & Trust Co. v. Cary Co. (Tenn. Sap. Ct., 1877), 4 Cent. L. J 
 (1860), 13 Wis. 110, referring to Farmers' 430. 
 
 Loan & Trust Co. v. Commercial Bank 3 jjunt v. Bullock (1860), 23 111. 320. 
 
 (1860), 11 Wis. 207 ; Dinsmore v. Racine * McGraw v. Memphis & Ohio E. Co. 
 
 R. Co. (1861), 12 Wis. 649. See Alabama (1868), 5 Colflw. (Tenn.) 434. 
 Nat. Bank v. :\Iary lee Coal & Ey. Co. 5 Union Water Co. v. Murphy's Flat 
 
 (.ila., 1896), 19 So. Eep. 404. Fluming Co. (1863), 22 Cal. 620. 
 
 2 Buck V. Memphis & Little Eock R. 
 
248 RAILWAY BONDS AND MORTGAGES. [CHAP. X. 
 
 for lights, which are not designed, like road equipments, for the 
 continued use of the road, are held to be chattels which can only 
 be subjected to a mortgage lien by an instrument specifically men- 
 tioning them, and executed in conformity with the laws relating 
 to chattel mortgages.^ 
 
 Such articles are merely intended for consumption, and may be 
 sold and carried away, and used for other purposes, as well as the 
 operation of the road. Nor have they any distinguishing mark 
 to show that they are designed for purely railroad purposes. ^ 
 
 An iron safe has been held to be property of this description, 
 on the ground that it has " none of the distinctive features or 
 essential qualities that belong to real estate." ^ 
 
 Whether rolling-stock is a fixture is a question upon which the 
 courts are divided. The authorities are reviewed in another 
 chapter. (See Chapter XIV., on Car Trusts.) 
 
 A planiug-mill, unless it is so attached to the realty as to in- 
 dicate that it is designed to be permanent, or its removal would 
 be injurious to the freehold, is personal property.* 
 
 Article VIII. — Necessity for a Specific Description quali- 
 fied BY THE Doctrine that a Railroad is an Entirety. 
 
 § 229. The Doctrine of Accession. — The doctrine of accession, 
 of which the rules relating to fixtures are the most familiar illus- 
 tration, has been extended by some courts to cover a much wider 
 class of cases than those referred to in the preceding subdivision 
 of this chapter. The theory that a railroad and its franchises 
 constitute an entire indivisible thing, and that for this reason 
 a mortgage of the road will pass after-acquired property, even 
 though not specifically mentioned or described in the instrument, 
 was first propounded in Pierce v. Emery .^ There the trustees 
 
 1 Hunt V. Bullock (1860), 23 111. 320 ; should be consumed to-morrow, is, if not 
 Gregg V. Sanford (1860), 24 111. 17 ; absurd, a refinement beyond that prac- 
 Fanners' Loan & Tnist Co. v. St. Jo. & tieal common sense we are capable of 
 Denver City Ey. Co. (1875), 3 Dill. 412. understanding." 
 
 2 Palmer v. Forbes (1860), 23 111. 301. ^ Titus v. Mabee (1861), 25 lU. 257. 
 The intention to make articles of this It is presumed, however, that this ruling 
 sort fixtures is clearly absent, as well as was intended to apply to a detached safe, 
 the requisite physical connection with Such an article, it is submitted, is to be 
 the rPiilty. As was observed by Caton, classed with those which may or may not 
 r. J., in the case just cited : " To say be fixtures, according to the nature of 
 that a mortgage which upon its face pro- their connection with the realty and the 
 viiles for its maturity twenty years hence intention of the parties. 
 
 was designed to embrace ami holil the * Titus u. Mabee (1861), 25 111. 257. 
 
 fuel and oil which all knew and intended ^ 32 N. H. 484 (1856). 
 
§ 229.] WHAT THE MORTGAGE COVERS. 249 
 
 were empowered by the statute authorizing the execution of a 
 trust mortgage on the railroad to sell the property upon the non- 
 payment of the principal or interest of the bonds, and the con- 
 veyance executed to the purchasers was to have the effect of 
 transferring to them " all the real and personal estate named in 
 the mortgage deed, together with all the rights, franchises, powers, 
 and privileges in relation to the same which the corporation en- 
 joyed, or possessed, or were entitled to at the time of the execu- 
 tion of the mortgage deed." A mortgage executed in pursuance 
 of the provisions of this statute was alleged to. cover a quantity 
 of railroad iron afterwards purchased for the use of the road, and 
 therefore not specifically mentioned in the mortgage. This view 
 prevailed, the position taken being that the right to acquire prop- 
 erty was one of the franchises of the company, so that a transfer 
 of the franchises necessarily involved a transfer of the property 
 which might subsequently be acquired by the exercise of that 
 franchise. In the opinion much stress is laid on the special cir- 
 cumstances of the case, and the apparent intention of the legis- 
 lature in conferring the power specified in the charter. For this 
 reason a doubt has been expressed whether the decision is, prop- 
 erly speaking, an authority for the general principle which it is 
 thought to have laid down. 
 
 This doubt, however, has not been shared by other courts, and 
 upon a review of the argument we think it can scarcely be dis- 
 puted that the decision was really intended to rest on the doctrine 
 of accession, although the fact that the conclusion thus arrived at 
 was apparently the one best calculated to give effect to the pre- 
 sumed intent of the legislature was not without its influence. A 
 similar doctrine was applied soon afterwards in Kentucky, the 
 court holding that a pledge of the road itself, with its profits and 
 privileges, and the rights and franchises of the corporation, cov- 
 ered all such future acquisitions as were necessary and proper for 
 the full and complete use of the road.^ 
 
 The court reasoned as follows : " Now it is evident that as the 
 pledge was to continue during many years, and new cars and en- 
 gines and materials of different description would from time to 
 time become necessary, and fuel would all the time have to be 
 purchased as it was needed, these articles were therefore included 
 in the deed ; and as the business of this road could not be carried 
 on without them, the power to pledge the road itself with its 
 
 1 Philips V. Winslow (1857), 18 B. ascertained from the report, Pierce v. 
 Mon. (Ky. ), 431. This conclusion was Emery not being referred to. 
 arrived at independently, so far as can be 
 
250 RAILWAY BONDS AND MORTGAGES. [CHAP. X. 
 
 profits and privileges, and the rights and franchises of the cor- 
 poration, carried along with it the implied authority to pledge all 
 such future acquisitions of the company as were necessary and 
 proper to the full and complete use and operation of the road 
 itself." 
 
 In the same year the Supreme Court of New York lent its 
 sanction to the same theory, though the property in question (the 
 right of way) was also held to be subject to the lieu by virtue of 
 the rule enforced in Pennock v. Coe.^ 
 
 § 230. Objections to this Extension of the Doctrine of Accession. 
 — The doctrine announced in these early cases, though sometimes 
 mentioned with respect in recent decisions,^ seems to rest on very 
 dubious foundations, and it has frequently been attacked. That 
 it is not in harmony with the general principles of law relating 
 to the effect of a mortgage upon subsequent acquisitions is not 
 denied, and no satisfactory reason has been given for applying 
 different rules in a case of this kind to mortgages by individuals 
 and mortgages by railroad companies. A specially serious objec- 
 tion to the principle formulated in Pierce v. Emery is that, if it is 
 tested by carrying it to its logical conclusion, it will have the 
 effect of attaching the lien of a railroad mortgage not merely 
 to property acquired for railroad pui-poses, but also to property 
 which has no connection with the business of the company as a 
 carrier. The difficulty which must necessarily arise in accommo- 
 dating such a rule to the practical working of the registration laws 
 is self-evident. This consideration was forcibly presented in Dins- 
 more V. Racine, etc. R. Co., decided about four years after the New 
 Hampshire case. There Judge Cole, in combating the theory 
 that a railroad with its franchises and property is an indivisible 
 thing, used the following language : — 
 
 " I can understand how a railroad corporation, with its fran- 
 chises, may be said to be an entire, indivisible thing,— a unity. But 
 I cannot well conceive how a railroad, with all its property, real 
 and personal, of every nature and character, can with accuracy 
 
 1 Seymour v. Canandaigua R. Co. an extension of the canal, because that 
 (1857), 25 Barb. 284. One of the cases was deemed to be the intention of the 
 cited to sustain this theory was Willink v. legislature. It is also apparent from the 
 Morris Canal & Bkg. Co. (1843), 4 N. J. arguments of counsel that the principle of 
 Eq. 377. But an examination of that case estoppel was, to some extent at least, re- 
 shows that no general principle of the lied upon, — a circumstance which seems 
 kind ascribed to it is laid down by the to indicate that the case should be classed 
 chancellor. The decision was based en- rather with Pennock v. Coe than with 
 tiivly upon a construction of the statute Pierce v. Emery. 
 
 empowering the company to mortgage its ^ Parker v. Wew Orleans, B. K. & V. 
 
 property, and the lien was fastened on E. Co. (1888), 33 Fed. Rep. 693. 
 
§ 230.] WHAT THE MORTGAGE COVERS. 251 
 
 be said to be an indivisible thing, nor do I think the law so re- 
 gards it. If this doctrine be sound, consider one of the conse- 
 quences in this case. Does it not work a revolution in our 
 registry laws ? At the time the mortgage was given to the Farm- 
 ers' Loan & Trust Company upon the eastern division of the 
 road, there was no statute authorizing a railroad company to 
 mortgage its franchises, in force in this State. Neither was there 
 any law giving to a mortgage made by a railroad company greater 
 effect than was given to a mortgage by a natural person. If the 
 mortgage of the Farmers' Loan & Trust Company became a prior 
 lien upon the timber lands mentioned in this case, by virtue of 
 the doctrine of entirety, there could be no safety in depending 
 upon the record ; for a person going to buy these lands of the 
 railroad company would find nothing upon the record to apprise 
 him that they had been mortgaged to that company. If he looked 
 into that mortgage, he would find nothing in the description of 
 the mortgaged premises which related to them. Finding the title 
 of record in the railroad company unincumbered so far as he 
 could see, he might buy or take a mortgage upon the lands, trust- 
 ing to the registry law. Thinking that the same legal conse- 
 quences attached to a mortgage given by a railroad company as 
 would attach to one given by a natural person, he would find that 
 the record was but a reference to railroads and railroad property, 
 — such a person could only complain of his ignorance and 
 folly. " 1 
 
 It is clear that the doctrine, even if correct, cannot be applied 
 to a case where several mortgages are given on different divisions 
 of the road.^ 
 
 The only way of escaping from this difficulty is to draw a line 
 between property used for railroad purposes and property not so 
 used, and to declare the doctrine to be applicable to the former 
 and not to the latter. It may readily be admitted that there 
 would be no greater hardship in imputing notice of the lien to 
 this extent to persons who deal with the company, where the 
 description covers merely the road and its franchises in general 
 terms, than in imputing such notice to those persons where the 
 description employs such vague words as " personalty " or the 
 like. But it will scarcely be maintained that a doctrine which 
 has to be limited in this arbitrary manner to adopt it to the policy 
 of the registration laws is at all satisfactory. Once such a limita- 
 tion is admitted, the doctrine allows no wider scope to the lien 
 
 ' Dinsmore v. Eac, etc. R. Co, (1860), 2 Farmers' Loan & Trust Co. v. Com- 
 
 12 Wis. 649, 657. mercialBauk (1860), 11 Wis. 207. 
 
252 ■ EAILWAT BONDS AND MORTGAGfES. [CHAP. X. 
 
 than the principle of Pennock v. Coe ; and as the latter is appli- 
 cable to all mortgages, it seems better to give it the preference, 
 and to discard a theory which is fraught with so many embarrass- 
 ing results in practice, and which, when thus restricted to its only 
 allowable function, is shown to be quite unnecessary and super- 
 fluous as a part of the law of mortgages. The doctrine has also 
 been repudiated in Alabama.^ 
 
 Article IX. — What will pass under the Word 
 " Appurtenances." 
 
 § 231. What Real Property viill pass under the Term "Appur- 
 tenances." — In construing railroad mortgages the courts have 
 repudiated the narrow, technical meaning of the word " appurte- 
 nances." Such a meaning is deemed to be unsuited to a complex 
 organization like a railroad, and the principle to be deduced from 
 the cases is that, whatever property is required for the purpose of 
 facilitating the performance by the company of its functions as a 
 carrier will pass under this term if such appears to be the intent 
 of the parties. This more liberal doctrine has been discussed 
 and its precise limits defined in two recent cases decided by the 
 Supreme Court of the United States. In New Orleans Pacific Ry. 
 Co. V. Parker^ the question was whether a mortgage by a company 
 of its " railroad, rights of way, road-bed, and all its real estate 
 then owned, or which might be thereafter acquired, appurtenant 
 to or necessary/ for the operation of the railroad, and all other 
 property, wherever situated in the State, then owned or which 
 might thereafter be acquired by the company, and which should 
 be appurtenant to or necessary for the operation of the railroad, 
 and also the tenements, hereditaments, and appurtenances there- 
 
 1 Mever v. Jolmston (1877), 53 Ala. City Horse Ry. Co., 79 Mo. 632 ; Spoon 
 
 237; Morgan (SbEaynorw. Donovan (1879), v. 0. & W. M. R Co., 86 Mich. 309; 
 
 58 Ala. 241 ; s. 0. 21 Am. Ry. Rep. 109. Watt «. H. M. & F. R. Co., 1 Brewst. (Pa.) 
 
 As to what a mortgage covers or does not 418 ; Hazard v. Vermont & Can. R. Co., 17 
 
 cover, see Corp. of Lanark & Renfrew v. Fed. Rep. 753 ; Swann v. Gaston, 87 Ala. 
 
 Cameron, 9 Tip. Can. C. P. 109 ; Wyatt y. 569; Millard o. Burley, 13 Nehr. 259; 
 
 L. & K. Rv. Co., 6 Que. L. E. 213 ; Wick- State v. Glenn, 18 Nev. 34 ; Metropolitan 
 
 ham V. N. B. & C. A. Rv. Co., L. R. 1 P. T. Co. u. N. Y. Tr. & W. K Co., 45 Hun, 
 
 C. 64 ; JIanhattan Trust Co. v. Sinux City 84. 
 
 Cable Ry. Co. (1896), 76 Fed. Rep. 658; = 143 U. S. 42 (1891). The doctrine 
 
 Andrews v. Xat. Foundrv & Pipe Works of this case was followed in Wilson v. 
 
 (Lim.), (1896). 76 Fed. Rep. 166 ; Piatt Beckwith (1893), 117 Mo. 61, as to the 
 
 V. New York& L. B. Ry. Co. (1896), 41 point that the word " apphrtenances " 
 
 N. Y. Supp. 42 ; Col, H. & G. R. Co. v. does not cover the land-grant from the 
 
 Bradeu, 110 Ind. 658 ; Hovelman v. Kan. State. 
 
§ 231. J WHAT THE MORTGAGE COVERS. 253 
 
 unto belonging," covered a grant of lands within the State 
 subsequently made by Congress to the company in aid of the 
 construction of its road. The court said tliat the word " appur- 
 tenances," as ordinarily defined, was that which belonged to or 
 was connected with something else to which it is subordinate or 
 less worthy, and with which it passes as an incident, such as an 
 easement or servitude to land ; the tackle, apparel, rigging, and 
 furniture of a ship ; a right of common to a pasture, or a barn, 
 garden, or orchard, to a house or messuage. The rule was affirmed 
 that, in a strict legal sense, land could never be appurtenant to 
 land ; but the mortgage in question evidently contemplated the 
 subsequent acquisition of real estate, such as land for stations, 
 machine-shops, or other purposes immediately connected with the 
 road, and this realty would pass under the lien or the mortgage, 
 the general rule being modified to that extent by the intent of the 
 parties. The land-grant in question, however, not being con- 
 nected with the plant, and not forming a part of the organic 
 structure of the road, could not be treated as appurtenant to it. 
 
 In Humphreys v. McKissock,i cited with approval in New Or- 
 leans Pacific Ry. Co. v. Parker, supra, it was held that the com- 
 missioner had " committed a manifest error " in ruling that an 
 elevator was a common appurtenance to the roads of several 
 railroad companies which owned the stock of the company which 
 constructed* the elevator, and therefore formed a part of the 
 property which should pass to a receiver appointed in a suit to 
 foreclose a mortgage executed by one of the railroad companies, 
 and embracing the word " appurtenances." Mr. Justice Field 
 said : " It is difficult to understand the course of reasoning by 
 which a certificate of stock in an independent corporation can be 
 an appurtenance to a railroad. If stock in the company in ques- 
 tion could be considered an appurtenance to a railroad, by the 
 same rule stock in a bank, or in any other corporation with which 
 the railroad did business, might be so considered. 
 
 " But were we to consider the Wabash Company as possessing 
 a separable legal interest in the elevator, it would not be appur- 
 tenant to its railroad. That building is situated at some distance 
 from the railroad, — more than half a mile, — and is erected on 
 land not belonging to that company, but leased from the Union 
 Pacific Railway Company, and can only be reached by crossing 
 the tracks of another company. Had the elevator been con- 
 structed upon property covered by the mortgage, it miglit have 
 been contended that it fell, to the extent of the one-sixth interest, 
 
 1 140 U. S. 304 (1891). 
 
254 RAILWAY BONDS AND MORTGAGES. [CHAP. X. 
 
 under the mortgage, as one of the depots of the company. The 
 term ' depot ' in tlie mortgage is not necessarily limited to a place 
 provided for the convenience of passengers while waiting for the 
 arrival or departure of trains. It applies also to buildings used 
 for the receipt and storage of freight, which, when received, is to 
 be safely kept until forwarded by the cars of the company or 
 delivered to the owner or consignee. Such a building, whether 
 existing at the time of the mortgage or constructed afterwards 
 upon the property of the company covered by it, may pass as an 
 appurtenance to the property previously existing. A thing is 
 appurtenant to something else only when it stands in the relation 
 of an incident to a principal, and is necessarily connected with 
 the use and enjoyment of the latter." 
 
 The learned justice then reviewed some earlier decisions and 
 proceeded as follows : " Under the term ' appurtenances,' as used 
 in the mortgage in question, only such property passes as is 
 indispensable to the use and enjoyment of the franchises of the 
 company. It does not include property acquired simply because 
 it may prove useful to the company and facilitate the discharge of 
 its business. A distinction is made in such cases between what 
 is indispensable to the operation of a railway and what would be 
 only convenient. Bank v. Tennessee (1881), 104 U. S. 493, 496. 
 The elevator in question was at all times under an independent 
 management, and was used in the same manner as any other 
 warehouse not on the premises of the railway company to which 
 it sent cars for freight." ^ 
 
 Whether a hotel erected by the company is " appurtenant " to 
 the road depends upon whether the purpose is to use it for the 
 convenience and comfort of the employees and passengers, thereby 
 contributing to the proper conduct of the business of the com- 
 pany as a carrier. If the building fulfils that purpose it will 
 pass as an appurtenance.^ 
 
 This ruling was approved in a late Missouri case, where the 
 same mortgage was under discussion. The court, however, laid 
 more stress upon the fact that after-acquired " real estate " was 
 referred to in unambiguous terms. For this reason, it *was said, 
 the effect of the mortgage did not depend on the technical mean- 
 ing of the word " appurtenances," and it was not confined to such 
 
 1 Humphreys K. McKissock (1891), 140 nated points, "as said railroad is or may 
 tJ. S. 304. be hereafter constrncted, maintained, op- 
 
 2 United States Trust Co. v. AVabash, erated, or acquired, together with all the 
 St. Louis, & Pac. R. Co. (1887), 32 Fed. privileges, rights, franchises, real estate, 
 Rep. 480. The moi-tgage in this ease cov- etc., and other appurtenances thereto be- 
 ered the entire line of road between desig- longing." 
 
§ 231] WHAT THE MORTGAGE COVERS. 255 
 
 real estate as is acquired for the right of way, depot grounds, 
 side tracks, etc. Although the words did not include real estate 
 not used in connection with the road, they must be taken tp com- 
 prehend any real estate which was acquired for use in its opera- 
 tion. Of this character was the real estate bought as a site of a 
 building.i 
 
 If, on the other hand, the building is merely an ordinary hotel 
 for the entertainment of many guests that may apply for accom- 
 modation, and neither solely nor in part a structure designed to 
 subserve the convenience of passengers or employees, it is not 
 covered by the word " appurtenances." ^ 
 
 In a Pennsylvania case the court upheld a finding of a jury 
 that lots of land across the mere edge of which the track was 
 laid, but which were not in any other way used for railroad 
 purposes, but which had been held for many years after the 
 original intention had been abandoned, were not appurtenant to 
 the railroad.^ 
 
 But an essentially different case is presented when the track 
 is laid along the edge of lots, and the remainder of them either 
 actually used for facilitating the business of transportation, or 
 held witli the bona fide intention of applying them to such uses at 
 some future time.* 
 
 Lands to which the company has no valid title will not, of 
 course, pass under a mortgage purporting to convey " the lands 
 
 1 Omaha & St. Louis Ey. Co. v. Wa- * Knevals v. Florida Central E. Co. 
 bash, St. Louis, & Pac. E. Co. (1891), (1894), 13 C. C. A. 410 ; s. c. 66 Fed. 
 108 Mo. 298 ; s. c. 18 S. W. Eep. 1101. Eep. 224. 
 
 Compare the remarks of the court in New There the lots in question, which ex- 
 Orleans Pacific Ey. Co. v. Parker (1891), tended in part into the water of a harbor, 
 143 U. S. 42, referred to above. were purchased for the purpose of furnish- 
 
 2 Miss. Valley E. Co. v. Chicago, St. ing terminal facilities where a projected 
 Louis, & ISTaw Orleans R. Co. (1881), 58 system of lines was intended to reach the 
 Mi.ss. 896. The court conceded the sound- sea, and subsequently occupied by throw- 
 ness of the general principle that the ing out embankments or building wharves, 
 things that may be deemed essential or until much of the company's business was 
 useful, and therefore appurtenant to the transacted on the exten.sions thus secured, 
 great work of building and operating a Under these circumstances the court held 
 railroiid, will frequently be more extensive that the appropriation for railroad jiur- 
 and varied in their character than those poses was virtually complete as regards 
 which can probably be reg.irded as accre- the whole tract, and refused to except any 
 tions to the business of private persons, of it from the lien of the mortgage, or to 
 but held that the property in question countenance the narrow doctrine put for- 
 could not possibly be regarded as either ward by counsel, that only land which is 
 necessary or legitimate to the business of in a strict sense " necessary" for the rail- 
 the railroad coqioration. road is "appurtenant." 
 
 ^ Shamokin Valley E. Co. v. Liver- 
 more (1864), 47 Pa. St. 465. 
 
256 RAILWAY BONDS AND MOETGAGES. [CHAP. X. 
 
 appertaining to the road." For example, such a phrase can have 
 no operation as regards lands conveyed to the company in excess 
 of the amount authorized by a statute passed for the purpose of 
 aiding the construction of the road by a land-grant.^ 
 
 § 232. What Personcilty will pass under the Term " Appurte- 
 nances." — The clause " all other personal property in any way 
 belonging to or appertaining to the railroad of the said company " 
 will not embrace " canal-boats " acquired to be used in connection 
 with the business of the line, but beyond its terminus, and not 
 subservient to railroad uses excepting so far as they facilitated 
 the traffic in this way.^ 
 
 It has also been held that railroad chairs, never actually used 
 in the construction of the track, are not embraced under the term 
 " appurtenances." ^ 
 
 It should be observed that many of the cases in which the 
 mortgage is construed which contains the word " appurtenances " 
 do not turn so much upon the meaning of that word as upon the 
 proper application of the principle that property covered in gen- 
 eral terms will not pass unless it is acquired for railroad purposes. 
 The present section should, therefore, be read in connection with 
 the one (§ 205) in which the wider question is the controlling 
 feature. 
 
 Aeticlb X. — What is covered by. the Word "Undertaking." 
 
 § 233. "What the Word " Undertaking " embraces -when used in 
 Instruments creating Charges on Railroad Property. — The earliest 
 case on tliis point was decided largely with reference to the fact 
 that the mortgagor company alone was authorized by the en- 
 abling act to gather tolls. The inference drawn was that a mort- 
 gage covering its undertaking did not amount to a demise of the 
 land, nor empower the mortgagee to take possession of the road. 
 Any other construction would, it was said, enable the mortgagee 
 to put an end to the undertaking, inasmuch as he has no power 
 to levy the tolls ; and this supposition would be quite inconsistent 
 with the evident purpose of the act, which is that the borrowed 
 money shall be repaid by the carrying on of the undertaking by 
 the company itself.* 
 
 1 St. Paul, etc. Ry. Co. v. St. Paul, * Myatt v. St. Helens, etc. Ry. Co. 
 etc. Ry. Co. (1893), 57 Fed. Rep. 272. (1841)," 2 Q. B. 364, per Coleridge, J., 
 
 2 Parish v. Wheeler (1860), 22 N. Y. who pointed out that the intention of the 
 494. legislature was made slill clearer liy the 
 
 ' Fanners' L. & T. Co. v. Commercial pi-ovision declaring that the mortgagees 
 Bank (1860), 11 Wis. 207; s. c. 15 Wis. should not be entitled to vote as share- 
 424 (1862). holders. 
 
§ 234.J 
 
 WHAT THE MORTGAGE COVERS. 
 
 257 
 
 This ruling was followed by another, to the effect that " an 
 assignment of the 'undertaking' of a railroad company, and all 
 the tolls and sums of money arising by virtue " of the act incorpo- 
 rating it, operates as a pledge of the tolls and property of the 
 company as proprietors, but not their stock or property as car- 
 riers, or the soil of the railway itself.^ 
 
 But the meaning of the word was not thoroughly settled until 
 the delivery of the well-known opinion of Lord Cairns in Gardner 
 V. London, etc. Ry. Co.,^ where the nature and extent of the 
 power of debenture-holders to enforce their security against 
 the company's property, so far as that question depended on the 
 effect of the pledge of the " undertaking," were thus defined.^ 
 
 8 234. What the Word " ITndertakmg " embraces when used in In- 
 struments creating Charges on Corporate Property other than Rail-ways. 
 — The word "undertaking" is not invariable in meaning. The 
 construction placed upon it, as it is used in railway debentures, is 
 attributable to the peculiarity of the subject-matter on which 
 those instruments operate, — ^that is to say, a permanent railway, 
 known to every one to be permanent, and incapable of being mort- 
 gaged, sold, or dealt with in any way. A debenture bond of a 
 steamboat company " charging the undertaking and all sums of 
 
 1 Hart V. Eastern Union Ey. Co. 
 (1862), 7 Exch. 246 ; 8 Exch. 116. 
 
 2 L. E. 2 Ch. App. 202 (1867). 
 
 ' Lord Cairns used these words : " The 
 object and intention of Parliament, how- 
 ever, in the case of each of these various 
 undertakings, was clearly to create a rail- 
 way which was to be made and main- 
 tained, by which tolls and profits were to 
 be earned, which was to be worked and 
 managed by a company according to cer- 
 tain rules of management, and under a 
 certain responsibility. The whole of this, 
 when in operation, is the work contem- 
 plated by the legislature, and it is to this 
 that, in my opinion, the name of 'under- 
 taking' is given. Moneys are provided 
 for, and various ingredients go to make up 
 the undertaking ; but the term ' under- 
 taking' is the proper style, not for the 
 ingredients, but for the completed work, 
 and it is from the completed work that 
 any return of moneys or earnings can arise. 
 It is in this sense, in my opinion, that the 
 ' undertaking ' is made the subject of a 
 mortgage. Whatever may be the liability 
 to which any of the property or eifects con- 
 
 nected with it may be subjected through 
 the legal operation and consequences of a 
 judgment recovered against it, the undei- 
 taking, so far as these contracts of mort- 
 gage are concerned, is, in my opinion^ 
 made over as a thing complete or to be 
 completed ; as a going concern, with in- 
 ternal and parliamentary powers of man- 
 agement not to be interfered witli ; as a 
 fruit-bearing tree, the produce of which is 
 the fund dedicated by the contract to se- 
 cure and to pay the debt. The living and 
 going concern thus created by the legisla- 
 ture must not, under a contract pledging 
 it as security, be destroyed, broken up, or 
 annihilated. The tolls and suras of money 
 ejusdam generis — that is to say, the earn- 
 ings of the undertaking — must be made 
 available to satisfy the mortgage ; but, in 
 my opinion, the mortgagees cannot, under 
 their mortgages, or as mortgagees, — by 
 seizing, or calling on this court to seize, 
 the capital, or tlie lands, or the proceeds of 
 sales of land, or the stock of tlie under- 
 taking, either prevent its completion, or 
 reduce it into its original elements when 
 it has been completed." 
 
 17 
 
258 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. X. 
 
 money arising therefrom, and all the estate, right, title, and 
 interest of the company therein, with the payment" of the sum 
 named, with interest until the repayment of that sum, does not 
 cover merely the income from the business, but all the property 
 of the company, both that which exists at the date of the de- 
 benture and that which may afterwards be acquired. The 
 meaning of the debenture is that the company will continue 
 to transact its business, and that the debenture-holder cannot 
 interfere until either the interest is in default, or the principal 
 is not repaid when it matures. This being the relation between 
 the parties, the conclusion necessarily follows that the moment 
 the company comes to be wound up, and the property has to be 
 realized upon, the rights of the debenture-holders attach, and that 
 the general creditors can touch nothing till they are paid.^ 
 
 1 In n Panama, etc. Co. (1870), L. R. 
 5 Ch. App., per Gifford, L. J. See In re, 
 Sti-eatham & General Estates Co. (1897), 
 L. R. 1 Ch. 15, where debentures charged 
 the undertaking and all its ' ' property what- 
 soever and wheresoever, both present and 
 future." The company went into liquida- 
 tion. The debentures were held not to 
 cover the uncalled capital as it existed at 
 the commencement of the liquidation, dis- 
 tingnishing Ex parte Stanley, 33 L. J. 
 Ch. 535. 
 
 "What passes under a mortgage of the 
 " undertaking : " see Legg v. Mathieson, 
 2 Giff. 71 ; Wickham v. New Brunswick, 
 etc. Ry. Co., L. R. 1 P. C. 64. 
 
 What does not pass : see King v. Mar- 
 shall, 33 Beav. 665 ; Moor v. Anglo- Italian 
 Bank, 10 Ch. Div. 681. Charge upon 
 after-acquired property : see In re Gen- 
 eral South American Co., 2 Ch. Div. 337 ; 
 Willink V. Andrews, 16 Ir. C. L. 201 ; 
 Blooner u. Co., L. R. 16 Eq, Cas. 384; 
 Tailby v. Receiver (1888), 13 App. Cas. 
 546. 
 
 For a recent definition of a "float- 
 ing security" in England, see Govern- 
 
 ments Stock, etc. Co. V. Manila Ry. Co. 
 (1897), 1 L. R. App. Cas. 86, where Lord 
 Macnaghten says: "A floating security 
 is an equitable charge on the assets for 
 the time being of a going concern. It 
 attaches to the subject charged in the 
 varying condition in which it happens to 
 be from time to time. It is of the essence 
 of such a charge that it remains dormant 
 until the undertaking charged ceases to 
 be a going concern, or until the person in 
 whose favor the charge is created inter- 
 venes. His right to intervene may, of 
 course, be suspended by agreement. But 
 if there is no agreement for suspension, 
 he may exercise his right whenever he 
 pleases after default." 
 
 The following are statutes of some 
 of the States referring to mortgages of 
 "after-acquired" property* ■ Iowa, Code 
 1884, McClain's, § 1995, power to mort' 
 gage after-acquired property. Minn. 
 Gen. St. 1891, § 2530, same. Nebr. 
 Comp. Stats. 1895, § 1822, same. N. Dak, 
 Code 1895, § 2947, same. Okl., Stats. 
 1893, § 1020, same. Utah, Comp. L. 1888, 
 § 2370, same. 
 
§ 235.] 
 
 PEI0EITIE3 BETWEEN MOETGAGBS, ETC. 
 
 259 
 
 CHAPTER XI. 
 
 PEIORITIES BETWEEN MOETGAGBS AND OTHEB OBLIGATIONS OF THE 
 
 COMPANY. 
 
 Art. I. — Peiorittes considered with- 
 out Eefeeence to the Ef- 
 fect OF AN After-acquired 
 Property Clause. 
 § 235. Existing Liens are not displaced 
 by Mortgage. 
 
 236. Priorities as affected by Regis- 
 
 tration Laws. 
 
 237. Priorities as Dependent on the 
 
 Terms of the Decree ordering 
 the Sale at which the Mort- 
 gagor purchased the Property. 
 
 238. Priority of Judgment Lien es- 
 
 tablished by State Law rec- 
 ognized by Federal Courts. 
 
 239. Claims not protected by Specific 
 
 Lien necessarily postponed to 
 Later Mortgage. 
 1 240. Existing Mortgage, how far af- 
 fected by Creation of Subse- 
 quent Obligations. General 
 Principles. 
 
 241. Traffic Agreement, when not a 
 
 Lien on the Corporate Prop- 
 erty. 
 
 242. Priorities expressly reserved may 
 
 be lost by Estoppel. 
 
 243. Priorities not disturbed by Con- 
 
 solidation. 
 Art. II. — Priorities considered with 
 Reference to the Special 
 Effect of an After-ac- 
 quired Property Clause. 
 § 244. General Rule. 
 245. After-acquired Property passes 
 cum (mere. 
 
 1246. 
 
 247. 
 
 Vendor's Lien, how far preferred 
 generally. 
 
 Priority of Vendor's Lien where 
 the Property sold is a Fix- 
 ture. 
 248. Lien when defeated by Vendor's 
 Acts. 
 Art. III. — Priority of Mortgages 
 AS modified by Legisla- 
 tion IN Favor of Certain 
 Classes of Creditors. 
 
 General Statement. 
 
 Lien of Mortgage not displaced 
 by Subsequent Legislation. 
 
 General Lien Laws, how far ap- 
 plicable to Railroads. 
 
 "Waiver of Mechanic's Lien. 
 Statutes creating Mechanics' 
 and Laborers' Liens, strictly 
 construed. 
 
 No Lien obtainable by Contrac- 
 tor except in Manner pre- 
 scribed by Statutes. 
 
 Bondholders, when not bound 
 by Proceedings under these 
 Statutes. 
 
 Stockholder in Construction 
 Company which floats and 
 guaranties Bonds, entitled to 
 claim Lien. 
 
 Statutes declaring Liens in Fa- 
 vor of Debts arising from the 
 Operation of the Road, Effect 
 of. 
 257 a. Priorities in Case of English. 
 Debentures. 
 
 §249. 
 250. 
 
 251. 
 
 252. 
 253. 
 
 254. 
 
 255. 
 
 256. 
 
 257. 
 
 AeTICLE I. — PbIOEITIES CONSIDERED WITHOUT REFERENCE TO THE 
 
 Special Effect of an " After-acquired Peopeety " Clause.^ 
 
 § 235. Existing Liens are not displaced by Mortgage. — Except in 
 SO tar as the registration laws have modified the practical applica- 
 
 ^ See also Chap. XXXIV., distribu- priorities so far as they depend on the va- 
 tion of proceeds ; Chaps. I. and VIL, as to lidity of the bonds ; Chaps. II. and III., 
 
260 RAILWAY BONDS AND MORTGAGES. [CHAP. XI. 
 
 tion of the principle embodied in the maxim, qui prior est in 
 tempore prior est in jure (see next section), it is clear that no 
 existing lien can be displaced by a mortgage. 
 
 This rule is applicable in a case where a judgment lien was 
 fastened on the corporate property, while the persons who organ- 
 ized the corporation were carrying on business, after having taken 
 some steps towards organization, but before such organization 
 was completed. Third persons should not suffer from such an 
 irregularity ; and since the corporators were holding themselves 
 out as a corporation when the lien was claimed to attach to their 
 property, it will be preferred to the lien of a mortgage executed 
 after the organization is legally perfected.^ 
 
 So also, where the superiority of the judgment lien has once been 
 fixed in accordance with the laws prevailing at the time of its 
 rendition, the creditor thus acquires a vested right in the property 
 to which the lien attaches, and he cannot be deprived of such 
 right by subsequent legislation which validates a void mortgage 
 on the same property,^ or makes the claims of certain employees 
 for wages a paramount claim on that property.^ 
 
 § 236. Priorities as affected by the Registration Laws. — The 
 effect of the registration laws in modifying the operation of the 
 rules of equity by which priorities are determined is too exten- 
 sive a subject to enter upon in the present treatise, especially as 
 there are no rules specially applicable in this connection to cor- 
 porate obligations. In the present section we shall merely collect 
 such cases under this head as have a direct bearing on the riglits 
 of the holders of corporate securities. 
 
 The necessary effect of the registration laws is to postpone a 
 judgment lien which attaches after the record of a duly executed 
 mortgage to the lien of that mortgage.* 
 
 as to priorities so far as dependent on of material and supply men in railroad 
 whether a bondholder is a bona fide pur- foreclosures, see article in 30 Am. Law Eev. 
 chaser or not; Chap. XXVIII., as to 520 (1896). On priority over mortgage 
 priority of "preferential claims." On the of debts contracted by lailroad before re- 
 priority of claims for labor and materials ceivership, see article in 39 Cent. L. J. 241 
 over lien of railroad mortgages, see article (1894). 
 
 by Charles Chauncey Savage, 21 Cent. L. J. i Bergen v. Porpoise Fishing Co. (1886), 
 
 125 (1885). On the rights of material-men 42 N. J. Eq. 397 ; s. c. 2 Cent. Eep. 461 ; 
 
 and employees of railroad companies as 8 Atl. Eep. 523. 
 
 against mortgagees, see article by George ^ "Williamson v. New Jersey Southern 
 
 Tnoker Bispham, 6 So. L. Rev. N. S. 535 R. Co. (1878), 29 N. J. Eq. 311 ; Coe v. 
 
 (1880). On po.stponing the priorities of New Jersey Midland Ry. Co. (1879), 31 
 
 fu'st liens, see article in 13 Am. L. Rev. 40. N. J. Eq. 105. 
 
 On what claims are prior liens to railway ^ Coe v. New Jersey Midland Ry. Co. 
 
 mortgages, see 3 Cent. L. J. 636 (1876). (1879), 31 N. J. Eq. 105. 
 On liens for railroad supplies, see article * Morton v. New Orleans & Selma Ry. 
 
 iti 4 Cent. L. J. 544 (1877). On rights Co. (1885), 79 Ala. 590. 
 
§ 236.] PRIOBITIES BETWEEN MORTGAGES, ETC. 261 
 
 A like preference is given to an unrecorded mortgage of 
 which the judgment creditor has actual notice, and this priority 
 prevails against both the creditor himself ^ and his assignee. 
 Whether the latter has or has not notice in such a case is 
 immaterial.^ 
 
 If a railroad mortgage is properly recorded in some of the 
 counties through which the road passes and not in others, 
 the judgment lien will prevail as to the latter portion of the 
 property.^ 
 
 The converse question, namely, whether a judgment is inferior 
 or not to a lien of which the creditor has no notice, either actual 
 or constructive, must be decided with reference to the effect of 
 the registration laws, which in this respect may either leave the 
 judgment creditor to his common-law rights, or place him in the 
 favored position of a subsequent purchaser without notice.* 
 
 Where a statute has the former effect, tlie lien of the judgment 
 is deemed to attach merely to the interest actually possessed by 
 the defendant, and if his ownership is subject to secret equities, 
 the operation of the judgment lien is proportionately contracted.^ 
 
 But although the registration laws may protect the judgment 
 creditor against secret liens, and, through him, the purchaser at 
 the execution sale, this protection does not extend to one purchas- 
 ing at an execution sale under a judgment against a subsequent 
 grantee of the property burdened with the secret lien, even though 
 the grantee has notice of such lien.^ 
 
 ^ Mead v. New York, Housatonic, & the assignee of a creditor who had obtained 
 Northern R. Co. (1879), 45 Conn. 199 ; judgment against a company formed by- 
 Mississippi Valley Co. v. Chicago, St. consolidation of two other companies, the 
 Louis, & New Orleans K. Co. (1881), 58 obligations of which it assumed. Prior to 
 Miss. 896. the consolidation, one of the companies had 
 
 2 Butler D. Rahm (1877), 46 Md. 541. executed a mortgage on its property which 
 
 Compare Farmers' Loan & Trust Co. v. was not recorded. The court distinguished 
 
 Hendrickson (1857), 25 Barb. 484 ; Bement the case from one in which the plaintiif 
 
 V. Plattsburgb & Montreal E. Co. (1866), might have been the creditor of the mort- 
 
 47 Barb. 104. gagor himself, and held that the protection 
 
 8 Ludlow V. Clinton Line Railroad Co. which the registration laws would have 
 
 (1861), 1 Flip. 25. afforded under the latter circumstances 
 
 * Freeman on Judgments, § 366 (a), could not be extended to the creditors of 
 
 Against secret vendors' liens many courts subsequent grantees of the mortgagor, 
 
 have held that the creditor should be pro- Judgments for penalties under a statute of 
 
 tected, irrespective of the recording stat- Arkansas prescribing a penalty for excessive 
 
 utes. Warvelle on Vendors, p. 701 ; Fisk charges for passage or freight against a 
 
 1). Potter (1865), 2 Abb. Ct. App. Dec. 138. railroad company were ordered to be paid 
 
 ' Freeman on Judgm., loc. cit. in a foreclosure suit in preference to the 
 
 ° Mississippi Valley Co. v. Chicago, St. bondholders in Mercantile Trust Co. v. St. 
 Louis, & New Orleans R. Co. (1881), 58 Louis & S. F. Ry. Co. (Ogden e< oi., Inter- 
 Miss. 896. In this case the plaintiff was veners), (1895), 69 Fed. Rep. 193. 
 
262 RAILWAY BONDS AND M0ETGAGB8. [CHAP. XI, 
 
 Where the other doctrine prevails, the lien of a mortgage 'will 
 not prevail against that of a subsequent judgment, obtained with- 
 out notice of the existence of the mortgage, unless it has been 
 duly registered before the rendition of the judgment.^ 
 
 Holders of mortgage bonds of a corporation have a lien on the 
 mortgaged property of the corporation relating back to the date 
 of record of the mortgage, and the mortgage from that date will 
 be deemed an incumbrance upon the mortgaged property prior to 
 claims for mechanics' liens and the like for improvements made 
 subsequent to the record of the mortgage.^ 
 
 Under the general system in force in this country, the mere 
 fact that the lienor holds some fiduciary relation to the company 
 would probably not make his omission to register his lien fatal to 
 the extent of incapacitating him from setting it up against 
 unsecured creditors ; ^ but this consequence follows if such a 
 lienor fails to comply with section 43 of the English Companies 
 Act of 1862, requiring incumbrances on the property of any com- 
 pany formed under that act to be registered. Thus directors who 
 take a mortgage on the corporate property and omit to register 
 it,* or, in registering it, give no description of the property,^ will 
 not be permitted to set it up against the general creditors. 
 
 The same rule is applicable where a solicitor is employed in 
 a certain transaction, and receives a charge on the property as a 
 security for his costs.® 
 
 But the bankers of a company are not its officers in such a 
 sense as to invalidate to this extent unregistered mortgages given 
 to them by the company.^ 
 
 Nor is a shareholder who takes a debenture, charging the entire 
 property of the company, precluded from asserting the priority of 
 his lien against the general creditors of the company, even though 
 
 ^ Farmers' Loan & Trust Co. v. St. Jo. Eastern E. Co. (Iowa, 1875), 8 Am. Ey. 
 
 & Denrer City E. Co. (1875), 3 DiU. Kep. 82; Eeed's Appeal (1888), 122 Pa. 
 
 412. St. 565. 
 
 2 Central Trust Co., Trustee, v. Conti- ° See, however, the decisions cited in 
 
 nental Iron Works (1893), 51 N. J. Eq. Chapter Till., as to the results in some 
 
 605; s. c. 28 Atl. Eep. 595. The Court States of failing to comply with the Chattel 
 
 of Errors and Appeals said : " Bonds of Mortgage Acts. 
 
 corporations secured as are these bonds * In re Wynn Hall Coal Co. (1870), 
 
 are dealt with in commercial transactions, L. E. 10 Eq. 515. 
 
 and are treated almost without exception ^ In re Nature Iron Ore Co. (1876), L. E. 
 
 by the courts as a class by themselves, not 2 Ch. Div. 345. 
 
 subject in all respects to the stricter rules ^ Hx parte Valpy & Chaplin (1872), 
 
 which pertain between natural persons." L. E. 7 Ch. App. 289. 
 
 See on this point Claflin v. Eailroad Co. ' In re General Provident Ass. Co. 
 
 (1880), 4 Hughes, 12 ; NeUson v. Iowa (1872), L. E. 14 Eq. 607. 
 
§§ 237-240.] PRIORITIES BETWEEN MORTGAGES, ETC. 263 
 
 the officers have not performed the duty incumbent on them of 
 keeping the register of liens in a proper form.^ 
 
 § 237. Priorities as Dependent on the Terms of the Decree order- 
 ing the Sale at which Mortgagor purchased the Property. — Any lia- 
 bility which a purchaser at a judicial sale is required to assume e 3 
 a condition of acquiring the property constitutes a lien thereon 
 which is paramount to a later deed of trust executed by the pur- 
 chaser. The mortgagee under such circumstances is bound to 
 know that the title of the mortgagor is based on the decree, and 
 any order made when the sale is confirmed.^ 
 
 § 238. Priority of Judgment Iiien established by State Statute 
 is recognized by Federal Courts. — If State legislation makes a 
 judgment for personal injuries a lien on the railroad property 
 superior to the lien of all mortgages executed after a certain 
 date, this lien will be recognized in a federal court, and de- 
 clared to extend not only to the costs in that court itself, but 
 also to those incurred, during the progress of the action, in the 
 State court.^ 
 
 The lien of a judgment rendered in the Circuit Court of the 
 United States attaches to the property of the debtor through 
 the district in which it is held, as does that of a judgment in 
 the State court to the property in the county in which it is 
 rendered.* 
 
 § 239. Claims not protected by Specific Liens are necessarily post- 
 poned to a Later Mortgage on the Corporate Property. — The opera- 
 tion of this rule is not affected by the fact that the mortgagor is a 
 purchaser of the property of the company by whom the debt was 
 incurred, and has agreed to assume and pay it as a part of the 
 consideration of the purchase. Such an agreement does not invest 
 the claim with any higher dignity than it previously possessed.^ 
 
 § 240. Existing Mortgage, how far affected by Creation of Sub- 
 sequent Obligations. — General Principles. — That a lien created on 
 the property after the execution of a valid and duly recorded 
 mortgage must, apart from the effect of the registration laws, 
 take rank after the mortgage unless the mortgagee waives his 
 
 1 In re General South American Co. line of the road passing through more than 
 
 (1876), L. R. 2 Ch. Div. 337. one county, asale of the road as an entirety 
 
 = Central Trust Co. v. Sloan (1885), 65 must he made according to the manner 
 
 Iowa, 655 ; s. c. 23 Am. & Eng. E. E. Cas. prescribed by the statutes of the State in 
 
 398 ; 22 N. "W. E«p. 916. which it is situated for the sale of a tract 
 
 ' Central Trust Co. v. Central Iowa Ry. of land lying in different counties. 
 
 Co. (1889), 38 Fed. Eep. 889. 6 Pogg v. Blair (1889), 133 tJ. S. 534 ; 
 
 * Ludloww. Clinton Line R. Co. (1861), s. c. 10 Sup. Ct. Rep. 338. See further, 
 
 1 Flip. 25. Under such a judgment, the Chap. XXXIV. (distribution of proceeds).' 
 
264 RAILWAY BONDS AND MORTGAGES. [CHAP. XI. 
 
 paramount right, or unless he has taken his security subject to 
 the contingency of its being postponed to subsequent claims the 
 creation of which was contemplated at the time the contract was 
 entered into, is a proposition which necessarily results from the 
 legal relations created between the parties by the instrument. 
 The rule itself is illustrated by the well-settled doctrine that a 
 properly executed and duly recorded mortgage, given by a rail- 
 road company on its road-bed or other property, creates a lien 
 which cannot be displaced thereafter, either directly by a mort- 
 gage, or indirectly by a contract between the company and a third 
 party for the erection of buildings or other works of original 
 construction.^ 
 
 Still less is a sub-contractor whose agreement is wholly with 
 the principal contractor entitled to have a mere money judgment 
 which he Obtains against the company declared a lien on the 
 property prior to that of an earlier mortgage on the same 
 property.'^ 
 
 Bondholders secured by a mortgage executed and recorded 
 before the passage of the Ky. act, March 27, 1888, giving a lien 
 for construction of a railroad, declaring this " said lien shall be 
 prior and superior to all other liens theretofore or thereafter created 
 thereon," will have priority under their mortgage lien over the 
 lien of contractors, even though their bonds may have been issued 
 to them subsequently to the passage of the act.^ 
 
 The first exception to the rule finds an illustration in a case 
 where the bondholders consented to the issuance of new bonds 
 which were, by express stipulation, to be preferred to their own. 
 
 1 Toledo, D. & B. E. Co. v. Hamilton mortgage bonds thereon, a mechanic's lien 
 (1890), 134 U. S. 296 ; s. c. 10 Sup. Ct. attaches to the mortgaged premises, the 
 Eep. 546. On debentures ea^r«ssZj^ subject holders of such mortgage bonds, without 
 to prior debentures, see 3 Rep. (Chy. ) 363. actual notice of the mechanic's Hen, have 
 
 2 Coe V. East & "West R. Co. of Ala- a lien on the mortgaged premises relating 
 bama (1892), 52 Fed. Rep. 531. back to the time the mortgage was re- 
 
 » Central Trust Co. of Kew York ». corded, prior and superior to that of the 
 
 Louisville, St. L. & Texas R. Co. (1895), mechanic's lien. See also Reed's Appeal 
 
 70 Fed. Eep. 282. See Claflin v. RaUroad (1888), 122 Pa. St. 565 ; s. o. 16 Atl. Rep. 
 
 Company (1880), 8 Fed. Eep. 118; Cen- 100; Neilson o. Iowa Eastern R. Co. 
 
 tral Trust Co. o. Contiuental Iron Works (Iowa, 1875), 8 Am. Ry. Rep. 82, 88 ; Kew- 
 
 (1893), 51 N. J. Eq. 605 ; s. 0. 28 Atl. gass v. Atlantic & D. Ry. Co. (Central Car 
 
 Rep. 595, holding that mortgages for future Trust Co., Intervener), (1893), 56 Fed. Rep. 
 
 advances operate from the time of record- 676, which appears to take a contrary view, 
 
 ing, although the advances are not made and which the court, in Central Trust Co. of 
 
 until a subsequent date, and they have New York v. LouisvOle, St. L. & T. R. Co., 
 
 priority for all advances made before actual supra, said did not clearly show that the 
 
 notice of subsequent incumbrances. When question there was material, and, it was 
 
 between the time of the execution and re- plain, it was not presented and argued. 
 cording of a mortgage, and the issue of the 
 
§§ 241, 242,] PRIORITIES BETWEEN MORTGAGES, ETC. 265 
 
 Such a transaction was deemed equivalent to a pledge of their 
 interest under the first mortgage, and left that interest otherwise 
 intact and enforceable subject to the new lien. In such a case an 
 equitable lien is created taking precedence of the mortgage, as 
 against all the bondholders who assent to the contract. The 
 others retain all their rights under the mortgage, but gain nothing 
 except such increased value as their security may acquire from the 
 transaction.^ 
 
 A second exception to the general rule arises in those cases 
 where the mortgagees take their security subject to the rights 
 created by laws which confer a more or less absolute priority of 
 claims of certain kinds, or to the analogous rights which, under 
 the prevailing practice of courts of equity in foreclosure suits, are 
 accorded to creditors of a few specified classes. The cases deal- 
 ing with rights of the latter description will be reviewed in a sub- 
 sequent chapter (Chap. XXVIII., preferential debts). The statutes 
 enlarging the common-law rights of persons who furnish labor and 
 materials are referred to in Article III. of the present chapter, in 
 so far as they have been discussed in cases bearing upon the rights 
 of the holders of corporate securities. 
 
 § 241. Traffic Agreement, when not a Lien on the Corporate Property. 
 — An agreement between two companies providing, among other 
 things, for the use of a portion of the road of one of them by the 
 other, does not create an obligation running with the land, so as 
 to be entitled to precedence over a subsequent moi'tgage on the 
 property of either of the companies, although it is stipulated that 
 " the contract, and any damages for the breach of the same, shall 
 be a continuing lien upon the roads, and their equipment and in- 
 come, into whosesoever hands they may come." ^ 
 
 § 242. Priority expressly reserved, may be lost by Estoppel. — 
 Although a construction contract antedating the mortgage has 
 been so drawn as to give the contractor a paramount lien upon 
 the property, as where it is provided that he shall retain the pos- 
 session of the road, and receive its issues and profits until the 
 completion of the contract, yet if the contractor transfers bonds 
 received by him as payment for work, such bonds giving the 
 trustees a right of entry upon default, he will be estopped, as 
 
 1 Poland V. Lamoille Valley R. Co. to debentures, see (1897), 1 L. E. App. 
 
 (1879), 52 Vt. 144. Conapare the cases Cas. 81; s. c. 2 Chy. 551; also Co. v. 
 
 where bondholders surrender their bonds Brunton, 4 Rep. (Q. B.) 58. 
 and accept new evidences of debt. Chap. 2 Dgg Moines & Fort Dodge E. Co. v. 
 
 II., ante; Chap. XIII. (statutory liens); Wabash, St. Louis, & Pac. E. Co. (1890), 
 
 Chap. XXXIV. (diatribution of proceeds). 135 U. S. 576 ; 40 Am. & Eng. R. R. Cas. 
 
 On priority of subsequent mortgage bonds 694 ; 10 Sup. Ct. Rep. 753. 
 
266 RAILWAY BONDS AND MORTGAGES. [CHAP, XI. 
 
 against those trustees, from asserting his right of possession 
 under his contract. The transfer, therefore, will operate as a 
 waiver of his rights under that contract.^ 
 
 S 243. Priorities not disturbed by Consolidation.^ — The general 
 rule is that, if no arrangements are made respecting the liabilities 
 of a corporation which consolidates with another, the liabilities of 
 the constituent companies are enforceable against the new one, in 
 the same way as if no change had been made.^ 
 
 But it is usual to embody in statutes, whether general or spe- 
 cial, authorizing consolidation a provision recognizing this rule 
 in terms of greater or less precision, and the decisions dealing 
 with the liabilities of consolidated companies have practically 
 turned upon the construction of such provisions. 
 
 The fact that a statute incorporating a consolidated company 
 declares that such consolidation " shall in no way affect the 
 rights of the creditors" of the constituent companies, operates 
 as constructive notice to all the world of the existence of any 
 claims still outstanding against those companies. Purchasers 
 of the bonds of the consolidated company, therefore, will be 
 subordinated to the holders of unpaid bonds secured by a mort- 
 gage on the property of one of the constituent companies, so 
 far as regards that property itself, although the new bonds are 
 issued as first-mortgage bonds under a statute the terms of 
 which are such that the offer of the bonds amounts to an oflScial 
 certification that all prior liens on the road have been paid and 
 cancelled.* 
 
 The New York act of 1869 (ch. 917), which authorized the con- 
 solidation of railroad companies, provided that " all debts and 
 liabilities incurred by either of the (constituent) corporations ex- 
 cept mortgages, shall thenceforth attach to such new (consolidated) 
 corporation." It has been held that this provision does not deprive 
 the holder of bonds of one of the constituent companies from suing 
 on the bonds themselves. The word " mortgages " in such a case 
 cannot be construed as meaning " mortgage debts," and the ex- 
 ception merely expresses the intention of the legislature that the 
 property lien of the mortgages shall be confined to the property 
 theretofore held by each of the consolidating companies." 
 
 1 Allen V. Dallas & Wichita K. Co. » Thompson on Corp., § 372. 
 (1878), 3 Woods, 316. « Spence v. Mobile & Montgomery Ey. 
 
 2 On the general subject of the liability Co. (1885), 79 Ala. 576. 
 
 of a consolidated company for the debts ' Polhemus v. Fitchburg Eailroad Co. 
 
 of its predecessors, see note, 23 Lawyers' (1890), 123 N. Y. 502 ; s. c. 46 Am. & 
 Kep. Ann. 231. Eng. R. B. Cas. 330 ; 26 N. E. Rep. 31. 
 
§ 244.] PRIORITIES BETWEEN MORTGAGES, ETC. 26T 
 
 Article II, — Priorities considered with Reference to the 
 Special Effect op an " After-acquired Property " Clause. 
 
 § 244. The General Rule is that a mortgage of after-acquired 
 propertj' binds that property as against the mortgagors and all 
 persons claiming under them, except purchasers for value and 
 without notice, and against junior judgment-creditors.' 
 
 It will, therefore, prevail against a subsequent mortgagee with 
 actual or constructive notice of its existence ; ^ or against a com- 
 pany which, with notice of the lien, purchases the various rights 
 and interests of another company in a road which is in process of 
 construction, and upon which a mortgage with the usual " after- 
 acquired property " clause has been given. In such a case the 
 lien covers the entire road, and not merely the completed part in 
 payment for which the bonds were issued, and the purchasers take 
 their acquisition cum onere, and the lien is in no way displaced 
 after the road has been built by them.^ 
 
 The title of the purchasers of certificates for public lands to be 
 received by the company on the completion of its road, if those 
 purchasers have no notice of the trust deed, will be preferred to 
 the claims of the bondholders.* 
 
 One who purchases the personal property of the company with 
 knowledge of the fact that it is covered by a mortgage containing 
 an " after-acquired property " clause, and that this mortgage ex- 
 pressly provides that no such sale shall take place except with 
 the assent of the trustees, stands in the position of a purchaser 
 with full notice of the prior equities of the bondholders. His 
 rights in the property, therefore, are inferior to those of the bond- 
 holders and of a company to whom the road passes in subsequent 
 foreclosure proceedings.^ 
 
 A subsequent attachment or judgment lien is also postponed to 
 the after-acquired clause.® 
 
 1 SteTens v. Watson (1865), 4 Abb. Ct. Farmers' Loan & Trust Co. v. Commercial 
 App. Dec. 302. In Little Rock & Fort Bank (1860), 11 Wis. 207. 
 
 Smith By. Co. v. Page (1880), 35 Ark. » Wade v. Chicago, S. & St. Louis R. 
 
 304 ; s. c. 7 Am. & Eng. R. R. Gas. 36, it Co. (1893), 149 U. S. 327 ; s. c. 13 Sup. 
 
 was said that "equity binds everybody to Ct. Rep. 892. 
 
 respect the equitable lien [created by the * Campbell v. Tex. & New Orleans R. 
 
 after-acquired clause], who knows of it, or Co. (1872), 2 Woods, 263. 
 
 without knowing of it, has got the prop- * Little Eock & Fort Smith Ry. Co. v. 
 
 erty without valuable consideration." Page (1880), 35 Ark. 304 ; s. c. 7 Am. & 
 
 2 Morrill v. Noyes (1863), 56 Me. 458 ; Eng. R. R. Cas. 36. 
 
 Willink V. Morris Canal & Bkg. Co. * Seymour </. Canandaigua & Niagara 
 
 (1843), 4 N. J. Eq. 377 ; Steven v. Wat- Falls R. Co. (1857), 25 Barb. 284 ; 
 son (1865), 4 Abb. Ct. App. Dec. 302 ; Loudenslager o. Benton (1861), 4 Phil. 
 
268 RAILWAY BONDS AND MORTGAGES. [CHAP. XL 
 
 But this rule must of course be considered with reference to 
 the very important exceptions introduced by the legislation which 
 has raised certain debts incurred in construction or in thfe opera- 
 tion of the road to a favored position, and by the decisions of 
 courts of equity regarding the so-called preferential debts. With 
 regard to preferential debts it should be remembered that, although 
 such debts have frequently been reduced to judgment before being 
 presented as claims against the property of the company, their pri- 
 ority over the mortgage is not in the least dependent upon whether 
 judgment has been obtained or not. It is not necessary to the 
 right of intervention to participate in a trust fund in custodia 
 legis, that the intervener should first obtain judgment at law, or 
 that he should have any lien on the fund.' 
 
 § 245. After-acquired Property passes cum onere. — A mortgage 
 intended to cover after-acquired property can only attach itself to 
 such property in the condition in which it comes into the mort- 
 gagor's hands. If the property is already subject to mortgages 
 and other liens, the general mortgage does not displace them, 
 although they may be junior to it in point of time. It only 
 attaches to such interest as the mortgagors acquire, — no more, 
 no less.^ 
 
 Thus the lien of a prior mortgage on a purchased road will 
 take precedence of a general mortgage on the property of the 
 purchasing company.^ 
 
 Similarly, if a railroad company, by accepting the benefit of a 
 contract made by another company, whose road it acquires, estops 
 itself from repudiating the contract, it will take the road with the 
 obligation of doing that which was the consideration of the con- 
 tract, and the trustees of a mortgage covering the road will also 
 take the property cum onere.* 
 
 382 ; Coe v. Knox County Bank (1859), v. "miitaker (1887), 68 Tex. 630 ; s. c. 5 
 
 10 Ohio, 412 ; Dunham v. Isett (1863), S. W. Eep. 448. 
 
 15 Iowa, 284 ; Stevens v. Watson (1865), ^ Fanners' Loan & Trust Co. v. Mis- 
 
 4 Abb. Ct. App. Dec. 302; Covey v. souri, I. & N. Ey. Co. (1884), 21 Fed. 
 
 Pittsburg, Ft. Wayne, & Chicago E. Co. Eep. 264 ; s. c. 17 Am. & Eng. E. E. Caa. 
 
 (1858), 3 Phil. 173; Howe c. Freeman 314, citing Barton ... Barbour (1881), 104 
 
 (1860), 14 Gray, 566 ; Hamlin v. Jerrard U. S. 126. 
 
 (1881), 72 lie. 62 ; B. c. 4 Am. & Eng. R. 2 United States v. New Orleans EaU- 
 
 R. Cas. 488 ; United States v. New Or- road (1870), 12 Wall. 362. 
 
 leans Railroad (1870), 12 Wall. 362 ; » Branch & Sons v. Atlantic & Gulf R. 
 
 Fosdick V. Sehall (1878), 99 U. S. 235 ; Co. (1879), 3 Woods, 481. 
 
 Pennock v. Coe (1860), 23 How. 117 ; * Coe v. Delaware, Lackawanna, & 
 
 Calhoun v. Memphis E. Co. (1829), 2 Western E. Co. (1881), 34 N. J. Eq. 266 ; 
 
 Flip. 442 ; Meyer v. Johnston (1875), 53 s. c. i Am. & Eng. E. E. Cas. 513. 
 
 Ala. 337 ; St. Louis, A. & T. E. Co. 
 
§ 245.] PRIORITIES BETWEEN MORTGAGES, ETC. 269 
 
 So also the lien for damages assessed against a company for 
 land condemned by it for its right of way is superior to the lieu 
 of a prior mortgage covering the property ; ^ and the same rule 
 holds in regard to a claim for consequential damages resulting 
 from the construction and maintenance of a railroad on a street.^ 
 
 A right of a similar character is created where the com- 
 pany, instead of taking proceedings in eminent domain, enters 
 into a written contract with the landowner, after the track has 
 been constructed over his property, stipulating to pay him a cer- 
 tain amount in cash, and perform, within a certain time and 
 under a certain penalty, work which was necessary in order to 
 give convenient access to the lot, and the landowner agrees at 
 the same time to give the company a right of way over the land, 
 he himself retaining the legal title. Here the company's title is 
 at most merely equitable ; and a mortgagee of the company, being 
 chargeable with notice of the nature of that title and the circum- 
 stances under which the company has possession of the land, 
 cannot be regarded as a bona fide purchaser for a valuable con- 
 sideration. He takes only the equitable rights of the company, 
 and takes them with the obligation of doing the work which the 
 contract called for.^ 
 
 In Pierce v. Emery * it was held that the lien of a mortgage em- 
 bracing after-acquired personalty would prevail against a later 
 mortgage given by the company to secure a party who had ad- 
 vanced money to pay the government duties on certain materials 
 within the scope of the mortgage, and had allowed these materials 
 to pass into the possession of the company. The court also 
 refused to accept the view that the lien of the government was 
 transferred to the lender of the money by which it was discharged. 
 The latter ruling is doubtless correct ; for it is a familiar prin- 
 ciple that the benefit of a lien does not pass to one who discharges 
 it merely because he had discharged it. But the former position 
 seems to be inconsistent with the doctrine laid down at the begin- 
 ning of this section ; provided, that is to say, the mortgage secur- 
 ing the lender of the money was given simultaneously with and 
 
 1 Western Penn. R. Co. v. Johnston ^ Mercantile Trust Co. v. Pittsburg & 
 
 (1868), 59 Pa. St. 290. Under the constitu- Western R. Co. (1887), 29 Fed. Rep. 
 
 tion of Pennsylvania the company has no 732. 
 
 title or interest of any kind in the land, » Hooper v. Savannah & Memphis R. 
 
 not even an easement, until the proprietor Co. (1881), 69 Ala. 529 ; s. c. 14 Am. & 
 
 has been paid therefor, or his damages Eng. R. E. Cas. 256. 
 secured. To the .same effect see Coe v. * 32 N. H. 484 (1856). 
 
 New Jersey Midland Ry. Co. (1879), 31 
 N. J. Eq. 105. 
 
270 EAILWAT BONDS AND MORTGAGES. [CHAP. XI. 
 
 as a part of the arrangement resulting in the discharge of the 
 lien, — an important point, upon which the report throws no light. 
 There is no apparent reason why the reservation of a lien on per- 
 sonalty should be a privilege conceded to a vendor alone. Doubt- 
 less the view of the court was largely influenced by the ground 
 taken as to the principle on which an " after-acquired property " 
 clause operates ; viz., that a railroad is an entire thing, and it is 
 very questionable whether the more generally received doctrine 
 regarding such a cla,use, as being in effect an executory agree- 
 ment, can be reconciled with the decision here rendered. 
 
 § 246. Vendor's Lien, how far preferred generally.^ — If a ven- 
 dor's lien is reserved upon property sold either by a formal pur- 
 chase-money mortgage, a purchase-money bond, or in any other 
 manner, it will be given precedence of the lien attaching to the 
 same property by virtue of the " after-acquired property " clause 
 of a prior general mortgage executed by the mortgagor .^ 
 
 In New York, however, a doctrine which seems scarcely recon- 
 cilable with the cases just cited has been propounded, the court 
 holding that where a landowner sells land to a railroad company 
 and reserves a lien for the purchase-money, the circumstances con- 
 stitute a case in which a secret equitable lien and a recorded legal 
 lien attach simultaneously to the same property, and for this reason 
 the mortgage must be given preference.^ 
 
 This view that the after-acquired clause creates a legal lien 
 appears to be contrary to the theory of Pennock v. Coe * and other 
 cases which are based upon the principle that mortgages of after- 
 acquired property are given effect because they raise an executory 
 contract for valuable consideration which the contractee is entitled 
 to have specifically performed.^ (See Chap. X.) 
 
 It is true that the court attached great importance to the 
 fact that the vendor had been agent for the company in procuring 
 lands for railroad purposes, but it is plain that the decision was 
 
 1 This and the following sections shonld v. Pine Mountain Iron & Coal Co. (1896), 
 be read in connection with Chapter XIV., 76 Fed. Rep. 624 ; New York Security & 
 on car trusts. Trust Co. v. Capital Ry. Co. (Phoenix 
 
 2 United States v. New Orleans Rail- Ironworks, Intervener), 77 Fed. Eep. 529 ; 
 road (1870), 12 "Wall. 362 ; "Williamson v. Brady v. Johnson, 75 Md. 445 ; Gait v. 
 New Jersey Southern R. Co. (1877), 28 Erie & N. R. Co., 15 Grant's Ch. (Up. 
 N. J. Eq. 277 ; Frank v. Denver & R. G. Can.) 637. 
 
 R. Co. (1885), 23 Fed. Rep. 123; Meyer w. 3 Fisk ». Potter (1865), 2 Abb. Ct. 
 
 Johnston (1875), 53 Ala. 237 ; s. c. 15 App. Dec. 138. 
 
 Am. By. Rep. 467 ; Loorais v. Davenport * 23 How. 117. 
 
 & St. Paul R. Co. (1882), 3 McCrary, 489 ; 5 This principle is fully recognized in 
 
 JIanhattan Trust Co. v. Sioux City Cable New York. See Kribbs v. Alford (1890), 
 
 Ey. Co. (1896), 76 Fed. Rep. 658 ; Blake 120 N. Y. 519; s. c. 24 N. E. Rep. 811. 
 
§ 247.] PEIOEITIES BETWEEN MORTGAGES, ETC. 271 
 
 intended to rest on the more general principle also. The whole 
 question hinges on the correctness of the assumption that the lien 
 of the after-acquired clauses is of a legal nature. That assump- 
 tion is not borne out by the authorities. 
 
 If the property sold is personalty, the equitable rule will some- 
 times be qualified by the laws regarding registration. Thus a 
 federal court sitting in Iowa has held that verbal unrecorded 
 agreements, that the title to personalty shall remain in the vendor 
 until the property is paid for, are invalid and ineffectual against a 
 general mortgage covering the same property.^ 
 
 The rights of the vendor of personalty who is induced by 
 fraudulent means to part with his property under color of a 
 contract to purchase are, as against a mortgage, the same as 
 those of a vendor who explicitly reserves a lien. No title in 
 such a case passes to the vendee, and the property may be re- 
 claimed at any time before it passes into the hands of a hona fide 
 purchaser.^ 
 
 § 247. Priority of a Vendor's Lien ■where the Property sold is a. 
 Fixture. — This question depends upon which class of fixtures the 
 subject of the agreement belongs to. In the present point of view 
 there is a radical distinction between articles which actually be- 
 came part of the realty and those which are merely attached to the 
 realty in such a manner that they may be detached therefrom 
 without being destroyed or materially injured, and without the 
 destruction of, or material injury to, the things real with which 
 they are connected. In the former class is reckoned personalty 
 which is worked up into bridges, depots, and other structures, or 
 used for laying the track. The rule as to personalty of this 
 description is that, by no agreement of the vendor can it be 
 made to retain its character as personalty, so far as the mort- 
 gagee is concerned.^ 
 
 So also the mortgage will prevail against an agreement made 
 by a bridge company that the bridges built by it should continue 
 to be its property until fully paid for, and that in default of such 
 
 1 Taylor v. Burlington, C. K. & M. (1870), 11 "Wall. 459, where a vendor's 
 Ry. Co. (1877), 4 Dill. 570. The seller in lien on rails was postponed to the mort- 
 this case claimed a mechanic's lien also gage, after they had become part of the 
 upon the property (locomotives), but did track. This case was decided with 'refer- 
 not prevail on this ground either, as he ence to the law of the State, where there 
 had taken "collateral security" within was no special statute for the benefit of 
 the meaning of the statute. material-men. Compare the remarks in 
 
 '•i Williamson t). New Jersey Southern Fosdick v. Schall (1878), 99 TJ. S. 235 ; 
 
 R. Co. (1878), 29 N. J. Eq. 311 ; s. c. 15 McGraw v. Memphis & Ohio R. Co. 
 
 Am. Ry. Rep. 572. (1868), 5 Cold. (Tenu.) 434. 
 
 8 Galveston Railroad v. Cowdrey 
 
272 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. XI. 
 
 payments they should have the right to remove the materials used 
 for the bridges.^ 
 
 In the second class will fall personalty, such as telegraph poles 
 erected on the right of way. As to these an agreement that they 
 shall retain the character of personalty is valid without the assent 
 of the mortgagee.^ 
 
 So the lien of a vendor of machinery which has been attached 
 to property subject to a mortgage covering after- acquired property 
 ranks above the lien of the mortgage.'* 
 
 § 248. Lien when defeated by Vendor's Acts. — A vendor's lien 
 may be lost by laches in setting it up, as where it is not asserted 
 till after the foreclosure sale.* 
 
 An estoppel on the ground of laches and want of caution is more 
 readily inferred in the case of a vendor who has been an agent for 
 the company in procuring lands for its use.^ 
 
 Or the vendor's conduct may be such that he is estopped as 
 against the mortgagees from asserting his claim to the property ; 
 as where he puts the vendee into possession of the land, and ex- 
 ecutes and places in the hands of the latter a deed for the land 
 sold, with an understanding that the deed should not be considered 
 as delivered until the purchase-money had been paid, and the ven- 
 dee afterwards puts the deed on record and mortgages the laud 
 for value.8 
 
 ' Porter v. Pittsburg Bessemer Steel 
 Co. (1887), 122 U. S. 267 ; s. c. 7 Sup. 
 Ct. Rep. 1206. The court said: "The 
 bridges hecame a part of the permanent 
 structure of the railroad, as much so as 
 the rails laid upon the bridges, or upon 
 the railroad outside the bridges. What- 
 ever is the rule applicable to locomotives 
 and cars and loose property susceptible 
 of separate ownership and of separate 
 liens, anil to real estate not used for rail- 
 road 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 articles which 
 became affixed to and a part of a railroad 
 covered by ", prior mortgage will be held 
 by the lien of such mortgage in favor of 
 hona fide creditors, or against any con- 
 tract between the furnisher of the prop- 
 erty and the railroad company containing 
 stipulations like those in the present 
 
 ' Western Union Tel. Co. v. Burling- 
 ton, C.R. & S". R. Co. (1882), 3 McCrary, 
 130. In Haven v. Emery (1S56), 33 N. 
 H. 66, the language of the court would 
 indicate that it regarded rails as being 
 in the same category. But the case deals 
 with the rights of a subsequent mort- 
 gagee, who had notice of an agreement 
 between the vendor and the company that 
 the raOs should be the property of the 
 fonner until paid for. The case, there- 
 fore, is not parallel to those in which the 
 rights of a prior mortgagee claimed under 
 an " after-acquired property " clause are 
 in question. 
 
 ^ Wood 0. Holly Manufacturing Co 
 (1893), 100 Ala. 326 ; s. c. 13 So. Eep. 
 948. 
 
 * Pierce v. Milwaukee R. Co. (1869), 
 24 Wis. 551. 
 
 6 Fisk V. Potter (1865), 2 Abb. Ct. 
 App. Dec. 138. 
 
 ^ Resor v. Ohio & Mississippi K. Co. 
 (1866), 17 Ohio St. 139. 
 
§§ 249/250.] PRIORITIES BETWEEN MORTGAGES, ETC. 273 
 
 If the vendor of personalty by his acts turns a conditional de- 
 livery into an absolute one, his position will be changed to that of 
 a general creditor of the company.^ 
 
 Article III. — Priority of Mortgages as modified by Legis- 
 lation IN Favor op Certain Classes of Creditors. 
 
 § 249. General Statement. — All the States have passed statutes 
 the general result of which has been to place the claims of mechanics 
 and material-men in a more favored position than they occupied 
 under common-law rules, and in some jurisdictions the same policy 
 has been pursued with regard to other debts arising out of the 
 operation of the road. To enter upon a discussion of these stat- 
 utes would of course be altogether beyond the scope of the present 
 treatise, but it will be useful to collect the decisions in which these 
 statutory rights have actually come into collision with those of 
 holders of corporate bonds. The phraseology of the various stat- 
 utes is extremely diversified, and the cases decided in one State 
 are often only of partial value as pi-ecedents in another. From 
 the point of view of a bondholder the most important fact to 
 remember is that the statutes belong, broadly speaking, to two 
 classes, — that in which the legislature has gone no further than 
 to raise these claims to the rank of secured debts, leaving the 
 question of priority to be decided by ordinary rules, and that in 
 which the claims have been given an absolute priority over all 
 mortgages upon the property of the debtor.^ 
 
 § 250. Lien of Mortgage not displaced by Subsequent Legislation. 
 — The general rule that a statute passed after the execution of a 
 mortgage will not affect any rights created by it has been applied 
 to statutes for the protection of material-men,^ and to an act mak- 
 
 ' Manchester Locomotive Works v. stockholders, and » formal instrument 
 
 Truesdale (1890), 44 Minn. 115 ; s. 0. 46 executed under the corporation, sealed and 
 
 N. W. Rep. 301 ; 8 Ry. & Corp. L. J. antedated Septemher 13. The mortgage 
 
 226. was held not to operate to create a lien 
 
 ^ In National Foundry & Pipe Works prior to the mechanic's lien. 
 (Lim.) V. Oconto Water Co. et al. (1895), » Toledo, D. & B. R. Co. ti. Hamilton 
 69 Fed. Rep. 1006, a mortgage had been (1889), 134 U. S. 296 ; s. o. 10 Sup. Ct. 
 executed by the corporation on September Rfp. 546. Upon the authority of this 
 13, 1890, by its officers, without the au- case the Circuit Court of Appeals lately 
 thority of the board of directors, and held, without any argument, that an exist- 
 without a corporate seal. On the 15th day ing mortgage on a railroad cannot be dis- 
 of September it was delivered to a bank, placed by a lien for street improvements 
 which made an advance of money on it. arising out of a later contract. Pensacola 
 On September 15, a mechanic's lien Provisional Municipality u. Northrop 
 accrued on the property included in the (1895), 66 Fed. Eep. 689. Compare also 
 mortgage. On October 29, 1890, the Arbuckle u. Illinois Midland Ey. Co. e< aJ. 
 mortgage was ratified by the directors and (1876), 81 111. 429. 
 
 18 
 
' 274 - - EAILWAT BONDS AND MOSTGAGES. [CHAP. 21. 
 
 ing Jiidgmeiits against railroad .'companies :for personal injuries 
 liens as of thedate when the cause of action arose prior to any 
 mortgage.^ '- '-" ■ ' : . - 
 
 § 251. General Lien Laws, how far applicable to Railroads. — If 
 no special law relating to railroad :companies has been . enacted 
 for the benefit of laborers and material-ni:en, it will be a question 
 wheth,er the,.genera,l_law on the subject is applicable or not to 
 railro^djS.^ 
 
 If it is not so applicable, claims for labor done in the construc- 
 tion of, the road subsequently to the execution of the mortgage 
 must be, postponed, to the mortgage debt, even though the claim- 
 ants , have filed a lien in accordance with the provisions of the 
 sta^te befpre the mortgage was registered.^ 
 
 Claimant^ who rely upon these statutes must show that their 
 .dejits were contracted for labor furnished or materials useii in the 
 actual, cpnstruction of the road, and not merely in its operation.* 
 
 Jf thp statute,. p,s in Iowa, gives a lien in general terms, it dates 
 :(rpm the qommencement of the building, of the railway, and is 
 prior to. a mortgage executed at any time dui'ing its construction, 
 even, though , it may have been executed befoi-e the particular 
 piece pf work was done for which the lien is claimed.^ Under 
 ,such a. statute; the lien attaches to the whole road; and this rule 
 is not affected by the fact that the claimant has done work only 
 Qn,on,e division after the other was finished, and under a distinct 
 contract with the company made after such completion.^ 
 
 ' Phinizy v. Augusta & K. R. Co. railroad com-panies as well as those of indi- 
 
 (lS94)', 63 Fed. Rep. 922. vidaals. Botsford v. New HaveBj Middle- 
 
 ,2 The rulings Tary in the different town, & Willimantic R. Co. (1874), 41 
 
 States. .The note ,jln 20 ^ni. & .Eng. Conn. 454, explaining Benedict v. Dan- 
 
 R. R. Gas. 502-506 cites a large numher burj' &.N'orwalk Railroad (l856), 24 Conn, 
 
 of authorities on questions raised by the ' 820. The Kansas . Rev. Stats, of 1868 
 filing of mechanics'.-. liens on railroad' have, it is held, repealed a provision in an 
 
 property. See Larsen v. Nelson & Fort earlier act authorizing a., mechanic's lien 
 
 / Sheppard Ey. Co. (1895), 4 Br. Col. Rep. on a railroad. Burgess v. Memphis, etc. 
 
 151 ; State ex rel. v. Recorder of Mort- R, Co. (1877), 18 Kan. 53. 
 
 gages, 28 La. Ann. 534; Farmers' Loan & * Central TrustCo. u. Texas & St. Louis 
 
 TnistCo; u.Can. & St. Louis R, Co., 127 Ry. Co. (Waters Pierce Oil Co., Interyener), 
 
 Ind: 250 ; Bear v. Burl., C. R. & M. R. Co., (1885), 23 Fed. Rep. 703 ; Central Trust 
 
 48 Iowa, 619 ; ' Ktlpatrick v. Kansas City Co. v. Texas & St. Louis Ry. Co. (Borden, 
 
 & B. R. Co., 38 Nebr. 620. ' Intervener) , (1886), 27 Fed. Rep. 178, 
 
 * Tommey v. Spartanburg- & Asheville ^ Taylor 0. Burlington, C. R. & M. R- 
 
 R. Co. (1881), 4 Hughe.s, 640, construing Co. (1877), 4 Dill. 570. 
 
 the law of North Carolina. ^ Brooks v. Railway Co. (1879), 101 
 
 A Connecticut law giving mechanics TJ. S. 443. It was contended that the 
 
 a lien upon buildings for work done and circumstance of the road in question h?.v- 
 
 mateiials furnished in their erection has ing been bnilt in sections was enough to 
 
 been held applicable to the buildings of distinguish this case from Neilson v. Iowa 
 
§ 251.} 
 
 PRIORITIES BETWEEN MORTGAGES, ETC. 
 
 275 
 
 In Missouri a like conclusion has been arrived at.^ 
 On the other hand, the lien under such a statute will be 
 deemed subordinate to the mortgage, if it is claimed for work 
 done on a completed road ; as, for instance, to replace a bridge.^ 
 
 A distinction, however, has been taken between those cases in 
 which it is optional for the mortgagee to incur the future liabili- 
 ties secured by the mortgage, and those in which the mortgagee, 
 at the time the mortgage is executed, enters into a valid contract 
 to incur expenses in connection with the property. In the la,tter 
 case it has been held that a mortgage of after-acquired property 
 will take precedence of a mechanic's lien for materials furnished 
 after the deed was recorded.^ 
 
 Eastern Co. (1876), ii Iowa, 71, where 
 the Supreme Court of the State had held 
 that where the construction of the road 
 was continuously carried on, though- under 
 different contracts, it was an entire " im- 
 provement " within the meaning of the 
 statute, and that the whole property was 
 therefore subject to the lien of persons 
 who did work under the later contracts. 
 This contention was rejected by the court 
 as extremely technical, and the principle 
 laid down that where n road is in every 
 other respect but that of its construction 
 an entirety, that circumstai)ce will not be 
 sufficient to prevent the lien from attach- 
 ing to the whole road. It was also pointed 
 out that the mortgagees, upon any other 
 theory than that of the entirety of such, a, 
 road, could only claim a lien on the first 
 few miles of the line, and that it was not 
 easy to see how the road could' be one for 
 the purposes of the mortgage, and several 
 pieces of road for the purposes of the 
 mechanics. The case of Canal Co. v. 
 Gordon (1867), 6 Wall. 561, relied on by 
 the mortgagees, differed in the essential 
 point that the first section of the canal 
 had been finished and in operation for a 
 considerable time before work on the 
 second section was begun, and for aught 
 that appeared in the report of tlie case 
 the resumption of work was an after- 
 thought. This construction of the Iowa 
 statute was adhered to in Meyer v. Hornby 
 (1879), 101 U. S. 728. 
 
 1 Knapp V. St. Lnuis, Kansas City, & 
 Northern Ry. Co. (1881), 74 Mo. 374; 
 s. 0. 7 Am. & Eng. R. R. Cas. 394. Com- 
 pare Cranston v. Union Trust Co. (1881), 
 75 Mo. 29 ; s. c. 11 Am. & Eng. R. R. 
 
 Cas., 638. In the first of these cases it was 
 remarked that although in foreclosing such 
 a lien the whole road must be sold, if sold 
 at all, only so much of the rolling-stock and 
 other movable property as is necessary to 
 satisfy the lien ' need be sold , if it is elected 
 f proceed against that part of the property. 
 
 2 Taylor v. Burlington, C. R. & M. 
 Ry. Co. (1877), 4 Dill. 570. 
 
 " Neilsoni;. Iowa Eastern R. Co. (1875), 
 8 Am. Ry. Rep. 82. Here the bonds were 
 issued to a contractor iii part payment for 
 the building and equipment of the road. 
 Subsequent to. the issuing and, recording 
 of the mortgage, and when the contractor 
 had expended a large sum of money in 
 pursuance of his contract, but before the 
 issue of the bonds, material-men acquired 
 a lieu for ties. Under these circumstances 
 it was held that the material-man was in 
 no better position than a second mortgagee 
 would have been, if- he had taken his 
 security before the negotiation of the 
 bonds secured by the first mortgage. It 
 was' further held that sect. 1855 of the Iowa 
 Code, giving material-men a specific lien 
 upon a building in preference to prior liens, 
 did not apply to a case like the one in 
 question, where the specific property, when 
 it comes into the hands of the mortgagor, 
 is so incorporated with the other mort- 
 gageil property that it cannot be removed 
 without a destruction of the whole. This 
 case was reheard (see 44 Iowa, 71) upon 
 a different theory, put forward by the 
 claimant. Instead of relying on the rule 
 that after-acquired property is subject to 
 the liens attaching to it when it comes 
 into the possession of the mortgagor, and 
 seeking to have the lien established against 
 
276 EAILWAT BONDS AND MORTGAGES. [CHAP. XI. 
 
 The rule under the lien law of the State of Washington, as 
 determined by the State courts and followed in the Federal 
 courts, is that a material-man who furnishes materials for the 
 construction of a street railway can obtain no lien upon the struc- 
 ture in the streets of a city; nor can he have a lien upon the 
 power-house and land for furnishing materials for the construc- 
 tion of tracks and conduit for a cable road.^ 
 
 The Florida act of June 3, 1887, gave a lien to any person per- 
 forming any labor upon or for the benefit of any railroad. In a 
 revision of the statutes of the State approved June 8, 1891, the 
 commissioners, in section 1727, provided that any person perform- 
 ing by himself or others any labor upon any railroad should have 
 a lien upon the property of the road. These statutes have been 
 construed to give a contractor a lien upon the road as against a 
 mortgagee of its property.^ 
 
 It was contended in a Colorado case that the trust deed given 
 by a canal company of all its rights, franchises, ditches, flumes, 
 reservoirs, etc., which thereafter it might acquire, whether the 
 same were then or thereafter to be constructed, was prior to the 
 liens of sub-contractors for materials and labor in constructing, 
 after the mortgage was given, a flume across a stream on the line 
 of the right of way. Upon the general principle that a corpora- 
 tion under such circumstances takes the property after acquired 
 cum onere, the liens of the sub-contractor were held to be prior to 
 the trust deed.* 
 
 § 252. Waiver of Mechanic's Lien. — A statement in a contract 
 between a railroad company and a contractor that the latter is to 
 be paid out of a certain fund, — the subscription of a particular 
 county along the line, — is not such an acceptance of collateral 
 security by the contractor as will vitiate his lien. Such a promise 
 does not constitute an equitable assignment of the fund, and gives 
 the contractor no power to collect the money for himself.* 
 
 the materials actually furnished, he con- ^ Pacific Rolling Mills Co. v. James 
 
 tended that his claim fell under the statu- Street Construction Co. (1895), 68 Ped. 
 
 toiy provision that a mechanic's lien Rep. 966 ; h. c. 16 C. C. A. 68. 
 
 should have priority over a mortgage exe- ^ Cooper et ah v. Gaboury et a?, (1895), 
 
 cuted upon the land and the building or 69 Fed. Rep. 7 ; s. c. 16 C. C. A. 112. 
 
 improvement, after the commencement of ' Jarvis et al. r. State Bank of Ft. II or- 
 
 the building or improvement. It was gan et al. (Colo., 1896), 45 Pac. Rep. 505, 
 
 held that the word " improvement " here on authority of Williamson v. Railroad 
 
 meant the road as a whole, and not the Co., 28 If. J. Eq. 277; 29 N. J. Eq. 311; 
 
 ties, and the plaintiff's claim wa-s, upon U. S. v. New Orleans R. Co., 12 Walt. 362; 
 
 this ground, declared to have the priority Hall v. Jlill Co., 16 Mo. App. 454. 
 
 as against the mortgage. But the general * Meyer v. Construction Co. (1879), 
 
 principle laid down in the first decision 100 U. S. 457 ; s. c. 21 Am. Ry. Rep 
 
 was not impugned. 465. 
 
§ 253.J PEIORITIES BETWEEN MORTGAGES, ETC. 277 
 
 In Iowa, where the taking of collateral security is a waiver of 
 a mechanic's lien, it has been held that the taking of bonds secured 
 by a divisional mortgage does not operate as such a waiver, inas- 
 much as the lien extends to the whole line, a distinct thing from 
 the one division the bonds of which are taken. i 
 
 § 253, statutes creating Mechanics' and Laborers' Liens are strictly 
 construed. — These statutes being in derogation of the right of the 
 general creditors to be placed on an equality as regards the pay- 
 ment of their debts, and in the distribution of the earnings and 
 the proceeds of a foreclosure sale, priority will be granted only to 
 the laborers and material-men who have perfected their liens 
 according to the technical requirements of the law.^ Thus if the 
 lien is given on the property of a railroad in its entirety, it can be 
 secured only by filing the account in the proper clerk's office of 
 every county or municipal corporation through which the road 
 passes.^ 
 
 So also, where a statute gives all " laborers " in the employ of 
 a corporation which becomes insolvent a lien upon the corporate 
 assets, this word will be restricted to the persons who actually 
 perform labor or services, and cannot be construed so as to 
 embrace one who furnishes the labor or services of others, under 
 a contract to do the whole of a particular branch of the business 
 of the corporation.* 
 
 So also the failure to sue on a contractor's lien within twelve 
 months, such being the requirement of the statute, has been held 
 to be fatal to the vitality of the lien.^ 
 
 But if the claim is on an open and current account for materials 
 furnished, the material-man will be entitled to a lien for the whole 
 amount due, if the last item accrued subsequently to the time 
 within which a lien could be filed.^ 
 
 In some States the rule of strict construction has been held to 
 
 1 Hale, Ayer, & Co. v. Burlington, C. R. first suggested in argument and not in 
 & N. R. Co. (1881), 13 Fed. Rep. 203. the reeord. 
 
 2 Jessup V. Atlantic & Gulf R. Co. ■• Lehigh Coal & Navigation Co. v. 
 (1879), 3 Woods, 441. Central R. Co. of itew Jersey (1878), 29 
 
 ' Boston & Co. V. Chesapeake & Ohio N. J. Eq. 252 ; s. c. 18 Am. Ry. Rep. 207 ; 
 
 R. Co. (1882), 76 Va. 180. In this case s. v. Delaware, Lackawanna, & Western 
 
 the claimants also asserted that, even if R. Co. o. Oxford Iron Co. (1880), 33 N. .J. 
 
 they had no lien under the statute, they Kq. 192 ; s. o. 1 Am. &Eng. R. R. Cas. 20.5. 
 had an equitable priority over the mort- ^ Cherry v. North & South R. Co. 
 
 gagees ; but this contention was rejected (1880), 65 Ga. 633 ; 11 Am. & Eng. R. R, 
 
 by the court on the ground that the mate- Cas. 636. 
 
 rials were furnished, not for maintenance, Central Trust Co. v. Tex. & St. Louis 
 
 but for construction purposes, and also on R. Co. (Camden Lumber Co., Intervener), 
 
 the technical ground that the lien was (1885), 23 Fed. Rep. 673. 
 
278 EAILWAT BONDS AND MORTGAGES. [CHAP. XI. 
 
 exclude a sub-contractor of a sub-contractor from the b6ilefit of 
 an act creating a mechanic's lien in favor of a sub-contractor.^ 
 
 But elsewhere such statutes have been construed so as to 
 include sub-contractors.^ 
 
 § 254. No liien obtainable by Contractor except in the Manner 
 prescribed by the Statute. — A contractor who has secured a statu- 
 tory lien on a road, but failed to enforce it in the manner pre- 
 scribed, cannot abandon that lieu, and fall back on an alleged 
 equitable lien arising out of the same state of facts, and thereby 
 defeat or postpone -an earlier mortgage on the property.^ 
 
 So where a contractor is working under an agreement with a 
 construction company, and not with the railroad company itself, 
 and there is no stipulation that he shall be paid out of the bonds 
 to be issued to the construction company as the wOrk progresses, 
 a mere money judgment obtained by him against the company 
 will not be recognized in a suit to enforce the bonds, except as a 
 lien inferior to that of the bonds.* 
 
 § 255; Bondholders, -when not bound by Proceedings under these 
 Statutes ' unless Parties thereto. — A proceeding under a statute 
 giving labor claims a priority of lien upon railroad property, and 
 requiring the court having jurisdiction of the cause to render 
 judgment for the amount of wages found to be due, and to order 
 the railroad, or so much of it as may be necessary, to be sold 
 to satisfy the judgment, is not, it has b6en held, a proceeding in 
 rem, there being no provision in the enactment for giving to 
 adverse claimants notice by some form Of publication or adver- 
 tisement. A judgment rendered in such a proceeding is, therefore, 
 not binding upon the trustees or the bondholders unless they were 
 actually parties thereto. This result is not altered by the fact that 
 the statute declares that, in the suits authorized by it, the plaintiff 
 need not maike the other lienholders parties, but -that such lien- 
 
 ^ Eothgerber v. Dnpuy (1872)', 64 111. whether, in the absence of the statute, the 
 
 452 ; Ahem v. Evans (1872), 66 111. 125 ; contractor would have had any superior 
 
 Arhuckle v. Illinois Midland Ky. Co. equity on the fund produced by the fore- 
 
 (1876), 81 111. 429. The statute under re- closure sale, merely deciding that it was 
 
 view in these cases gave a lien for materials the clear iiitention of the legislature that 
 
 "furnishedby contract with the company." the contractor should be restricted to his 
 
 2 Peters v. St. Louis & Iron Mountain statutory lien. That he could have no 
 
 E.. Co. (1857), 24 Mo. 586 ; Kent v. New equitable claim paramount to the mortga- 
 
 York Central K. Co. (1855), 12 Jf. Y. gee, on the ground of his having supplied 
 
 628; Redmond v. Galena & Southern the materials for the road, is also clear from 
 
 "Wisconsin E. Co. (1876), 39 ^yis. 426. the authorities, see Chap. XXVIII., post 
 
 * Farmers' Loan & Trast Co. V. Candler (preferential debts). 
 (1893), 92 Ga. 249; s. c. 18 S. E. Rep. * Coe ii. East & West R. Co. of Alabama 
 
 540. The court declined to inquire (1892), 52 Fed. Rep. 531. 
 
§§ 256, 257.] PRIOIHTIB&BEtFWEEN MGETGAGES, ETC. 27;9 " 
 
 holders may intervene and have their jrights adjusted. Not being 
 obliged to intervene, they have aright to come.intoa.cpurt of con- 
 current jurisdiction, and compel any plaintiff whpse claim originated . 
 after the mortgage was made to prove affirmatively, the existence 
 and priority of his liei) ,iHid«r the provisions of the statute.^ 
 
 § 256., stockholder in . Construction Company '\vbicli floats and 
 guaranties Bonds, entitled to claim a Iiien. — The faQt tha^t a con- 
 tractor is a stockholder in a construction company which places 
 the bonds upon' the market, and guaranties that sufficient nioney 
 will be forthcoming from local' subscriptions and graiits to prepare 
 the road for the reception of the rails,, will not estop him from seitipg 
 up his lien against the mortgage. The' remedy for the breach of 
 such a guaranty is against the company as' siich, .and not against' 
 an ipdiyidual stockbpl<3.er whp hi^d nothing to dp with .giving, it.^ 
 
 § 257. statutes declaring Iiiens ia Favor lOf Debts arising- from the 
 Operation of the Road, Effect Of. ^^ In Tennessee an act declares 
 that " no railway company shall have power 'to execute a mort- 
 gage which shall be binding against decrees and judgments " for 
 material and work, or for damages to- person or property, in 'the 
 operation' of the road. A lieh obtained undfer this act is binding 
 on the ro,ad,in,the bands of the purchasers.^ 
 
 But a sub-conferaCtor cannot avail himself of its provisions, 
 owing "to the peculiar nature of the remedies to whidh he iScOh-' 
 fined by' the statute defiiiing his rights in Tennessee.* 
 
 The act, it is held, does not violate the contract of the State 
 with the comjjany.^ ' ' 
 
 In North Carolina the statutory priority of certain '' claims de- 
 pends, on two sections of the Code, — 685, 1255. The first of 
 these provides that a mortgage (or other conveyance) shall be 
 " Void " as tc) existing bi'editors, and as to torts committed 'by the 
 company pr,ior to^ or at the time of the execution' of the. de§d, 
 provided, thei. action to enforce the claim, is commenced , within 
 sixty days after its registration. The second d'eclalres thatrdort- 
 gages shall liot have power to exempt the property' or earnings of 
 the corporation frpm executions on judgijienits obtained fpr, labor ■; 
 or materials or torts, i It has -been held that the beneficial pro- 
 
 1 HassallB. WUcox (1890), 130 tJ.'S.-' Rep. &37;- 40 iAtn. & Eng. R. R. Gas. ' 
 493 ; s. c; 9 Sup. Ct. Rep.-490 -, '« 'lim. ■ 358;;-;'' ' ■ 
 
 &-Ehg:R. R. Gas: 385; construing Tex; '< benfral' Trust Co. w. 'Bridge's (189S),-- 
 Gen.La\vs;§79, ch. 12. 6 C. C. A. 539 ; s^ o. 57 Fedv Rep. '753 ^ 
 
 2 Meyer w; Hdraby (1879); lOl'U. 'S. ' 51 Ani..& Eng. R.E. Oas. 452. • 
 
 728. '■ ■.,■ ■ r .-'- • ; 5 FVXzieru. East Tennessee, Va. &'Ga.- 
 
 » FrHzier t). East Tenn., Va. & Ga. R. R. Co.'<188£0, 88 Tenn. 138 ; s. c. 12 S. W. 
 Co. (1889), 8« Tenti;' 138 ; s. c. 12 S. W. Rep. 537 ; '4Q Am. &Eiig. R. H; Cas: 35& ■■ 
 
280 
 
 EAILWAY BONDS AND MORTGAGES. 
 
 [chap. XI. 
 
 visions of the second section are applicable to all claims of the 
 specified classes, whether accruing before or after the execution 
 of the mortgage, and are not limited by the proviso in the former 
 section as to the time for beginning suit.^ 
 
 § 257 a. Priorities in the Case of English Debentures. — The cases 
 cited in the note below illustrate questions of priorities between 
 debenture-holders and others.^ 
 
 1 Boston Safe Deposit & Trust Co. v. 
 Hudson (C. C. A. 1895), 68 Fed. Kep. 758, 
 affirming Finance Co. of Pennsylvania v. 
 Charleston, C. & C. R. Co., Ex parte Hud- 
 son (1894), 61 Fed. Rep. 369. The opinion 
 in the Court of Appeals contains a review 
 of the decisions on this statute in the Su- 
 preme Court of North Carolina. 
 
 As to liens having priority to mortgage, 
 see the following English cases: Eussellw. 
 East Anglian Ky. Co., 3 McN. & G. 125 ; 
 Imperial Merc. Credit Assn. v. Newry & 
 Armagh Ry. Co., I. R. 2 Eq. 524. Judg- 
 ment creditors subordinate to mortgagees; 
 Potts V. Warwick & Birm. Canal Nav. Co., 
 Kay, 142 ; Ames v. Trustees of Birkenhead 
 Docks, 20 Beav. 332 ; Lord Crewe a. 
 Edleston, 1 De G. & J. 93 ; Legg v. 
 Mathieson, 29 L. J. Ch. 385 ; 2 Giff. 71 ; 
 Furness v. Caterham Ky. Co., 25 Beav. 
 614 ; Harrison v. Cornwall Minerals R. 
 Co., L. R. 18 Ch. Div. 334. 
 
 Cases involving priorities in general: 
 Phelps V. St. Catharine's & N. C. R. Co., 
 19 Ont. 601 ; Pittsburg, C. & St. L. R. Co. 
 V. Marshall, 85 Pa. St. 187 ; Thomas v. 
 N. Y. & G. L. R. Co., 54 N. Y. St. Rep. 
 ,498 ; Pettibone v. Tol., C. & St. L. E. Co., 
 148 Mass. 411 ; Br. & Alb. K. Co. o. 
 Hnghes, 52 Ga. 557 ; Ream v. Stone, 102 
 111. 359 ; Des Moines & Fort Dodge R. Co. 
 V. Wat., St. L. & Pac. R. Co., 135 U. S. 
 576 ; Bait. & L. Turnpike Co. v. Moale, 
 71 Md. 359 ; Manhattan Trust Co. v. 
 Seattle Coal Co. (1897), 48 Pac. Rep. 
 333. 
 
 2 As between general creditors and de- 
 benture-holders on the winding up of the 
 company, see In re Opera, Limited (1891), 
 39 Wkly. Rep. 705 ; In re Standard Manu- 
 facturing Company (1891), 1 Ch. D. 627 ; 
 In re General South American Company 
 (1876), 2 Ch. D. 337 ; In re Pyle Works 
 (1889), 44 Ch. D. 534 ; In re The Anglo- 
 American Leather Cloth Company, Lim- 
 
 ited (1880), 42 L. T. R. 504-507 ; In re 
 Crumlin Viaduct Works Company (1879), 
 11 Ch. D. 755 ; In re Underbank Mills 
 Company (1885), 31 Ch. D. 226 ; Gorringe . 
 V. Irwell India Rubber, etc. Company 
 (1886), 34 Ch. D. 128. As h&tvm&n judg- 
 ment or execution creditors and debenture- 
 holders on the winding up of the company, 
 In re Opera, Limited, supra ; In re Stand- 
 ard Manufacturing Co., supra; In re , 
 General South American Co., supra; 
 Taunton v. Warwickshire Sheriff (1895), 
 1 Ch. 734 ; In re Bell (1886), 34 Wkly. 
 Rep. 363. Holding that the debenture- 
 holders have priority only as to the 
 " undertaking," meaning the company as 
 a going concern, not upon the surplus 
 lands, as against judgment creditors who 
 have by their diligence obtained a specific 
 right to the proceeds of the sale, In re 
 Hull (1888), 40 Ch. Div. 127. As be- 
 tween trustee of debenture-Jwlders' deed, 
 and the debenture-holders themselves, 
 holding that the trustee has priority 
 in respect of liabilities incurred by him, 
 In re Exhall Coal Company, Limited 
 (1866), 35 Beav. 449. As between hold- 
 ers of debentures of different dates of issue, 
 Sadler v. Worley (1894), 8 E. 194 ; In re 
 Mersey Railway Co. (1895), 2 Ch. 287. 
 Debentures treated as valid on question of 
 priorities though irregularly issued. In re 
 Queensland Land & Coal Company, Lim- 
 ited (1894), 8 R. 476 ; Davies v. Bolton & 
 Co. (1894), 8 R. 685. Priority of receiver 
 of a company as to moneys raised under 
 court's authority. Greenwood v. Algeciras 
 Railway (1894), 7 R. 620. As to priority 
 of debentures issued after, first, default in 
 payment of interest, and, second, the ap- 
 pointment of a receiver, Government 
 Stock Railway Co. v. Manila Railway 
 (1895), 2 Ch. 551, affirmed L. E. App. 
 Cases (1897), 2 Ch. p. 81, holding that 
 the debenture-holders have a lien. 
 
CHAP. XII.] 
 
 TEUSTEE3. 
 
 281 
 
 CHAPTER XII. 
 
 TRUSTEES. 
 
 Art. I. 
 
 5258. 
 259. 
 
 260. 
 261. 
 262. 
 
 263. 
 264. 
 
 265. 
 
 266. 
 
 267. 
 
 269. 
 Art. II. 
 
 )270. 
 271. 
 
 272. 
 
 273. 
 274. 
 275. 
 
 — Creation and Tbemination 
 
 OF THE Trust. Appointment 
 AND Removal of Trustees. 
 
 The Selection of the Trustee. 
 
 Legal Capacity of Individuals 
 and Corporations to be Trus- 
 tees. 
 
 A State may be a Trustee. 
 
 Resignation of Trustee. 
 
 Appointment, Removal, and 
 Substitution of Trustees by a 
 Court of Chancery, generally. 
 
 Gi'ounds of Removal. 
 
 Mortgage Provisions for filling 
 Vacancies. 
 
 Appointment by the Company 
 itself. 
 
 Election by the Surviving Trus- 
 tees. 
 
 Statutory Provisions regulating 
 the Manner of the Election of 
 Trustees of Railroad Mort- 
 gages. 
 
 Statutes respecting the Election 
 of Trustees cannot override 
 the Provisions of a Trust Deed 
 previously executed. 
 
 Termination of the Trust. 
 
 — Nature and Extent of 
 the Trustee's Estate and 
 Powers. 
 
 The Precise Character of the 
 Interest. 
 
 The Trustee takes an Estate 
 sufficient to enable him to 
 execute his Trust. 
 
 Quality of Trustee's Estate, how 
 affected by Statutory Pro- 
 visions. 
 
 Devolution of the Trust Estate. 
 
 Powers of Trustees generally. 
 
 Bondholders' Rights under the 
 Mortgages cannot be altered 
 by the Trustees without their 
 Consent. 
 
 § 276. The Power to declare the Prin- 
 cipal due. 
 
 277. The Power of a Trustee to waive 
 
 Defaults in Interest or Princi- 
 pal. 
 
 278. Power of Entry conferred on the 
 
 Trustee. 
 
 279. Power of Sale. 
 
 280. Trustee not confined to the Ex- 
 
 ercise of a Single Power only. 
 
 281. Special Powers of Trustee for 
 
 Enforcement of the Security 
 cumulative upon the Right 
 of Foreclosure. 
 Art. III. — Notice to Trustee, Effect 
 
 OF. 
 § 282. Bondholders affected with No- 
 tice of Everything learned by 
 Trustee in Course of Litiga- 
 tion. 
 283. Effect of Notice to Trustee not 
 given in Active Litigation. 
 Art. IV. — Duties of the Trustees 
 
 GENERALLY. 
 § 284. The General Duties of the Trus- 
 tee the same as those of other 
 Trustees. 
 
 285. The Duties of a Trustee become 
 
 active when a Default occurs, 
 and are not then merely min- 
 isterial. 
 
 286. The Duties of the Trustee are 
 
 owed to the Bondholders sev- 
 erally as wc41 as collectively. 
 
 287. A Trustee's Duties are personal, 
 
 and cannot be delegated. 
 
 288. A Trustee should consult the 
 
 Court. 
 
 289. Trustee's Duty to report to the 
 
 Court. 
 
 290. Trustee's Duty to account. 
 
 291. Trustee's Duty to prevent Mis- 
 
 feasance of Co-trustees. 
 
 292. Duty of Trustee as to Invest- 
 
 ment of Trust Funds. 
 
282- 
 
 EAILWAT BONDg AND MORTGAGES. [CHAP. XIU 
 
 § 293. The Application of the Money 
 which comes into the Hands of 
 the Trustees. 
 Art. V — Trusteks in Possession. 
 
 § 294. General Statement. 
 
 295. The Eight of the Trustee to 
 
 exercise the Corporate Eran-' 
 chises after entering a Default . 
 
 296. Trustee's Duty to account to 
 
 Bondholders for the Avails' of 
 the Property. 
 297.' Relatibtf'of the Trustee in' Pos- 
 session to tl 
 'Corporation. 
 
 §298. 
 
 299. 
 
 300. 
 301. 
 
 392. 
 
 303. 
 
 304. 
 
 Trustee taking Possession not 
 an Assignee of a Lease made 
 subsequently to the Mortgage. 
 
 Surrender of Possession by 
 Trustee. 
 
 Liabilities to Third Persons. 
 
 Trustees in Possession are within 
 the Purview of Statutes, etc. 
 
 Liability of the Company while 
 the Trustees are in Possession. 
 
 Fiduciary Position of Trustee,, 
 Acts inconsistent iiU'th. ■ - '' r 
 
 Trust/ee not compelled to coun- 
 tersign and deliver Bonds. 
 
 Article I. — Creation' and Termination of the Tkust. 
 Appointment and Eemotal pi: .Trustees.^. , , , 
 
 § 258. The Selection of the Trustee.—" The salability of rail- 
 road bonds depends, in no inconsiderable degree^ upon the char- 
 acter of the persons who are selected to' manage the trust. If 
 these persons , are, of well-known integrity and pecuniary ability, 
 the bonds are more readily sold than if this were not the case. 
 It i_s natural that it should be so, and on this account the trustees 
 usually appointed in tltiis class' of mortgages are persons of gopd 
 reputations in the cities where the bonds are likely to sell." ^ 
 
 A railroad mortgage confers upon the; designated trustetes spe- 
 cific powers which, although dormant a^ long Sls the mortgagor 
 is solvent, may, by the occurrence of a default or some conduct 
 which threatens the interests of the bondholders, demand the 
 performance of duties' of a very delicate' and onerous nature. It 
 is true that the question whether, under all the circumstances of 
 the case, it is for the advantage of the cestuis que tr.ustent that 
 the trustees should assume control of the mortgaged property, is 
 generally, by the expreiss terms of the instrument, a matter to be 
 determined by a certain portion of the bondholders.- Usually, 
 however, the bondholders are so widely scattered, 'and possess 
 such a slender acqusiihtance with the fabts requisite tb enable 
 
 1 As to the extent to which bondhold- 
 ers are bound by the action of a trustee in 
 litigation affecting their rights, see Parties, 
 Chap. XXIV. On the duty of » trustee 
 to countersign, and (J^liver, ,bonds, ,.see 
 Chap. I. , 
 
 2 Knapp V. Eailroad, Cp. (1874), 20 
 Wall.. 117,;, s. 0, 22 L. Coop.,, ed. 328. 
 Compare Merrill v. J?^rmers' Loan & Trust 
 
 Co. (1881), 24 Hun, 297, where the court 
 says: "In, trusts of this nature respon- 
 sible and intelligent parties, are commonly 
 selected to rf,ceive tl^ei^ij fpr, the purpose 
 of assuring the credit9rs tjhat they will be 
 faithfully, ejtecijted, for theiij' ^benefit, and 
 their interests in the property, , protected, 
 as far a^^thjt, can ,be,done,by fidelity and 
 attention on the part of the trustee." - 
 
§ 259.] TRUSTEES. ' 283 
 
 them to arrive at a correct decision, that, for practical' purposes, 
 the opinion of the trustees in regard to the propriety of such a 
 step is often apt to be of great, if -not controlling, weight ; and 
 the effect of this restrictive provision will probably be, that in 
 most cases the selection of the course to be adopted will be as 
 much in their hands as if no such limitation had been placed 
 upon their authority. In view of these considerations, it seems 
 clear that good administrative capacity, and a knowledge of the 
 details of railroad business in general, and of the business of the 
 mortgagor company in particular, if possible, are ■qualifications 
 quite as necessary for a trustee as financial ability. In the early 
 history of railroad securities, natural persons were quite- com- 
 monly chosen as trustees. In such cases, however, troublesome 
 questions will arise as to filling of vacancies in case of death. ' 
 
 Besides this, the difficulty of finding individuals possessing the 
 manifold qualifications required in the depositary of a trust 'of- 
 this description has latterly led' more and' more to the selection 
 of corporations which, as they> control a large capital and make a 
 specialty of this class of business, possess in a far higher degree 
 both the financial standing which will inspire confidence in in- 
 vestors, and the experience and skill which will enable them to 
 manage the trust estate to the best advantage, if it should become 
 necessary to enter into possession. 
 
 § 259. Legal Capacity of Individuals and Corporations to be Trus- 
 tees. — (&) The general rule on this subject has been thus stated 
 by a well-known text writer in words which are as applicable to 
 the trustees of a railroad mortgage as to others : " Whoever is 
 capable of taking the legal title or beneficial interest in property' 
 may take the same trust for others. Whatever persons or cor- 
 porations are capable of having the legal title or berieficial inter- 
 est cast upon them by gift, grant, bequest, or operation of law, 
 may take the same subject to a trust, and they will beconie trus- 
 tees. But it does not follow that whoever is capablef of taking in 
 trust is capable of performing or executing it. ■ The inquiry, then, 
 is not so much, who may take in trust, as it is, who may execute 
 and perform a trust." ^ 
 
 The principles here formulated are applied without qualification 
 where the proposed trustee resides in the State in which the prop- 
 erty to be mortgaged is situated.. The capacity. to accept the 
 trust is decided, in the case of natural persons,' by the law of the 
 State applicable in such case, and as to corporations, by the' terms 
 of their charters or general statutes under which they are orgau- 
 
 1 Perry on Trustees, § 39. 
 
284 RAILWAY BONDS AND MORTGAGES. [CHAP. XII. 
 
 ized, and the law of the State applicable to trusts. On the other 
 hand, where the domicil of the trustee and the situs of the 
 property are in different States, it becomes necessary to consider 
 whether this circumstance creates any partial or complete inca- 
 pacity under the laws of either State. If the ownership of bonds 
 to a certain amount be a necessary qualification under the mort- 
 gage, a candidate for the office is not rendered ineligible for the 
 reason that he acquired bonds to that amount expressly for the 
 purpose of making himself eligible ; nor will a sale of the bonds 
 after his election disqualify such a trustee for continuing to per- 
 form the duties of the office.^ 
 
 (b) Non-residence of Natural Person. — It is apparently well 
 settled that no disqualification on the ground of non-residence 
 will be inferred merely on grounds of public policy. Thus where 
 a trust deed, by implication, required the trustees to be residents 
 of another State, the court, while waiving tlie inquiry whether 
 public policy, even in the most narrow sense, would be promoted 
 by limiting the right to control and manage railroads to residents 
 of the State in which the railroad was situated, said that it was 
 very clear that the provision was not against public policy in any 
 such sense as would affect the validity of the contract. The 
 stipulation was merely an innocent provision made to answer tlie 
 convenience of the parties, and one which, in the absence of any 
 legislation forbidding it, they were at perfect liberty to make.^ 
 
 Positive legislation on this subject is necessarily circumscribed 
 by the constitutional provision which declares that " the citizens 
 of each State shall be entitled to all the privileges and immunities 
 of citizens of the several States." An Indiana uct, therefore, 
 which declared non-residents to be incapable of acting as trustees 
 has been held invalid, so far as regards citizens of the United 
 States, since they cannot be denied the right to take and hold 
 absolutely real or personal property in any State of the Union, or 
 to accept the conveyance of such property in trust for their sole 
 benefit, or for the benefit of themselves and others.^ 
 
 1 Richards v. Merrimack & Connecticut he will be treated under the mortgage as 
 
 Eiver Railroad (1862), 44 N. H. 127. The trustee for the holders of the honds. In re 
 
 trust relationship may be created without Bondholders of York & C. R. Co. (1861), 
 
 a designation of the mortgagee as trustee. 50 Mc. 652 ; Mason u. York & C. R. Co. 
 
 Thus where a mortgage on railroad prop- (1861), 52 Me. 82. 
 
 erty is executed to an individual and his ^ Cheever v. Rutland, Burlington, & 
 
 assigns (and not to him as trustee), who W. E. Co. (1869), 4 Am. Ry. Rep. 291. 
 may subsequently become holders of bonds ' Farmers' Loan & Trust Co. v. Chicago 
 
 to be issued to him by the railroad com- & A. R. Co. (1886), 27 Fed. Eep. 146 ; 
 
 pany, should he assign any such bonds, s. c. 24 Am. & Eng. E. R. Cas. 66. 
 
§ 259.] TRUSTEES. 285 
 
 (c) Foreign Corporations as Trustees. — In this subdivision we 
 consider the position of a corporation which is foreign to the 
 State where the property is situated. The subject must, then, be 
 considered, first, from the point of view whether the corporation 
 can by the law of the State to which it belongs take a trust of 
 property in another State; and, secondly, whether it can do so 
 under the law of the foreign State where the property is situated. 
 The statutes of both States must be considered. It is the gen- 
 eral law throughout the United States that foreign corporations 
 can become trustees of railroad mortgages, — " foreign," for the 
 purpose of this rule, meaning foreign to the particular State of the 
 United States where the property is situated. An entirely differ- 
 ent case is presented where the corporation is organized under 
 laws of a State other than one of the United States. The laws 
 against aliens holding lands are generally such as to prevent such 
 corporations from becoming trustees. As respects corporations, 
 the constitutional provision in (b), supra, has no application. 
 
 Presumably, therefore, an act invalidating all trust deeds 
 executed to foreign corporations would be unobjectionable on 
 constitutional grounds.^ 
 
 The limitations on the powers of foreign corporations, ho'w- 
 ever, so far as they concern the present discussion, have been 
 considered chiefly in relation to the common provision, statutory 
 or constitutional, which prohibits such corporations from " doing 
 business " in a State, except on certain conditions. 
 
 The mere acceptance of a trust which is to be executed after- 
 wards on a contingency is probably not within the prohibition.^ 
 
 A trust mortgage to secure a debt is not within the prohibition 
 
 1 This was assumed in Farmers' Loan & pendent opinion to the effect stated in the 
 Trust Co. V. Chicago & A. Ry. Co., supra ; text, but based its actual decision that the 
 but Judge Gresham, upon a review of the trust deed to the foreign corporation was 
 wording of the statute, concluded that it voidable merely, and not void, upon the 
 could not have been intended to apply to case of Sherwood v. Alvis (1887), 83 Ala. 
 corporations. But on the point as to 115 ; s. c. 3 Am. St. Rep. 695. This case, 
 public policy referred to supra, a similar as explained in the subsequent decision of 
 ruling has been made in regard to foreign Dudley v. Collier (1888), 87 Ala. 431, can- 
 corporations by Mr. Justice Harlan, of not be regarded as an authority for the 
 the Supreme Court of the United States, point to which it was cited. This and 
 Hervey i'. Illinois Midland Ry. Go. (1884), other rulings of the same court have estab- 
 28 Fed. Eep. 169, 1 75. This point was lished the doctrine in that State that even 
 not noticed on the appeal. See Union the single act of making one loan of money. 
 Trust Co. V. Illinois Midland Ry. Co. and taking a mortgage to secure it, by a 
 (1886), 117 U. S. 434. foreign company engaged in the business of 
 
 ^ American Loan & Trust Co. v. East& lending money on mortgages, is " doing 
 
 West R. Co. of Alabama (1889), 37 Fed. business." See Thompson on Corp., 
 
 Kep. 242. The court expressed an inde- §§ 7955, 7957. 
 
286 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. XII. 
 
 of the Illinois, act of June 15, 1887, as amended by the act of 
 
 June 1, 1889, declaring a trust unlawful where it is taken by a 
 
 ..corporation organized, for the purpose of accepting and executing 
 
 .^trusta^ unless the corporation' has' made a certain deposit for the 
 
 benefit of its creditors.^ 
 
 Even if such a statute should disable the' trustee from executing 
 the trust, it cannot have the effect of preventing the bondholders 
 from enforcing it in a federal court.^ 
 
 .; The questions above considered present themselves in a some- 
 what different aspect, when the power of a trust company to take 
 a mortgage of the property of a foreign railroad is disputed in 
 one -of the courts of the State in which the company was organ- 
 ized. The true principle seems to be that the grant of a charter to 
 do business of the kind for which such corporations are organized 
 will not, in the absence of some express limitation, be deemed to 
 refer merely :to those cases in which the subject-matter of the 
 pledge is situated in the State by which the charter was granted.^ 
 
 1 Farmers' Loan & Trust Co. v. Chicago 
 P. & N.'R. Co. (1895), 68 Fed. Eep. 'M2.' 
 
 2 Farmers' Loan & Trust Co. v. Chi- 
 cago & N. P. R. Co. (1895), 68 Fed. Eep. 
 412. Judge Jenkins said : " It may be 
 that certain trusts contained in the trust 
 deed or mortgage cannot be enforced by 
 
 , the, trustee while in contempt of, and until 
 compliance with, the laws of the State of 
 Illinois. I refer to those provisions of the 
 instrument which authorize the trustee to 
 take possession of,, acquire title' to, arid 
 convey the property. , It is npt, however, 
 necessary, nor by this bill is it sought, to 
 execute those trusts. If they are void, 
 their invalidity does not necessarily invali- 
 date the instrument as a mortgage. The 
 court will treat it as a'mortgage nierely, 
 the trustee, as mortgagee, 'holding the 
 naked legal title to the security, the bond- 
 holders being the beneficial owhers. The 
 court will enforce the security by judicial 
 sale, not permitting the execution of any 
 trust that may be inoperative until com- 
 pliance with the law of the State of Illi- 
 nois. The statute has provided a penalty 
 for the act of the trustee, if its assump- 
 tion of duty is within the prohibition of 
 the act. That penalty is the measure of 
 punishment which the State saw fit to 
 impose for violation of^its laws. It has 
 not undertaken to render void the trust 
 deed or mortgage, or to deny to innocent 
 
 parties the enforcement of it in protection 
 of their rights. It may be that the courts 
 of the State of Illinois ' "ivould refuse to 
 recognize the trustee standing in defiance 
 of its laws. I do not think, however, that 
 the duty is imposed upon a federal court 
 to punish innocent parties in vindication 
 of the authority of the State. " 
 
 The Farmers' Loan & Tru.?t Co., in a 
 late action in the Superior Court of Cook 
 County, Illinois, has been removed from 
 ■ the trusteeship of a deed of tinist made by 
 a street~railroad company, on the ground 
 that it had not complied with the require- 
 ments of the law of the State of Illinois 
 as to a deposit of securities by foreign cor- 
 porations doing biisiness within the State. 
 ' The decree of the lott'er court was af- 
 ' fittned by the appellate '"toirt for that 
 district in February, 1897. 
 
 In American Loan & Trust Co. v. East 
 & West Railroad Co. (1889), 37 Fed. Eep. 
 2'42, it was strongly intimated that a stat- 
 ute of this character would debar a trustee 
 corporation which had not complied with 
 the laws from interfering actively in the 
 enforcement of the trust. 
 
 ' ^ Farmers' Loan & Trust Co. v. Har- 
 mony Ins. Co.' (1868), 51 Barb. 33. The 
 doctrine stated in the text is not explicitly 
 enunciated in this case, but seems to be 
 fairly deducible from the ruling and the 
 language cJ the 'court.' 
 
§§ 260-262.] TRUSTEES. 2187 
 
 .§.260. A state may be a Trustee.! — fhis relation to the bond- 
 holders is sometimes the result of -the express language of the 
 acts by which State aid' is granted for carrying out works of 
 internal -improvement by the exchange of State for railroad bonds. 
 Under these circumstances the lien usually created by these stat- 
 utes to indemnify the State 'for the loan of its credit is for "the 
 benefit of the holders of the State bonds, and the State is 
 the instrument through which the liability of the company to 
 the bondholder is to be discharged.^ ' " ' 
 
 ■ In -such a case no special, mortgage is required to fasten the lien 
 upon the (property, or to put -the State iil the position of a trustee.^ 
 The State does not, however, become 'a trustee toefely by indorsing 
 thei bonds and declaring a lien upon the company's property for its 
 own protection. Under such circumstances, therefore, the pur- 
 chase by the State' of thait' property, in order to ' secui'e itself , is 
 not invalid, and the transaction will not be set aside at the suit of 
 a bondholder.* ' '^ 
 
 ; Nor does the 'State assume the position di a' trustee by hypothe- 
 cating, as a security for a certain issue of bonds, the stock of the 
 company which it holds by virtue of an act- allowiilg it to sub- 
 scribe for the shares, and giving it the right to appoint a majority 
 of the' directors. In such a case there is no implied agreement 
 to- charge itself with the duty of exercising its powers of control 
 so as to preserve the earnings of the road, and ■ appropriate them 
 to the payment of the bonds. The State is no more a trustee 
 than any other majority stockholder of a corporation, arid is 
 under no duty to the mortgagee except to conduct itself honestly 
 in exerting its powers of control for the interests of the mort- 
 gagees and other ^creditors and stockholders of the corporation.^ 
 ■ ^ 261. Resignation' of Trustee. — A trustee; after he has accepted 
 the office, cannot discha^"g^ himself by a subsequent, resignation 
 merely, or by his own act. fle must be discharged either by vir- 
 tue of some special provision in the trust deed, or by g.n order of 
 Some court of competent jurisdiction, or by the consent of all 
 perspns intprested.^ , , ■ 
 
 § 262. Appointment, Jtetnofal, and Substittttion of Trustees by a 
 Court of Chancery, generally. — The inherent authority of equity 
 
 1 Perry on Trusts, § 41. R. Co. (1878), 3 Woods, 418; s. c. 6 Fed. 
 
 2 Holland «. State of Florida (1876), Cas. 974,'Case No. 3483. 
 
 15 Fla. 455 (see especially p. 534). 5 Gibson v. Eichmond & Danville E. 
 
 3 State of Florida v. Florida Central R. Co.' (1889), 37 Fed. Rep. 743 ; s. o. 5 Ry. 
 Co. (1876), 15 Fla. 690. & Corp. L. J. 461. 
 
 * Cunningham v. Macon & Brunswick ^ Richards v. Merriinack & Connecticut 
 
 River RaQroad (1862), 44 N. H. 127. 
 
288 RAILWAY BONDS AND MORTGAGES. [CHAP. ZII. 
 
 to effectuate a trust extends to the appointment of trustees to 
 administer a statutory trust, although no provision for such an 
 appointment is made by the statute itself.^ 
 
 By the general law of trusts a court of equity has power to re- 
 move and appoint trustees, in order that the trust shall survive 
 and be executed so as to effect the purposes for which it is 
 established.^ 
 
 This power is not defeated by the fact that there are special 
 legislative provisions respecting the election of trustees. These 
 are regarded merely as " auxiliary regulations designed to aid the 
 court in the discharge of its duty, and to facilitate the action of 
 the bondholders who may desire to co-operate to secure a more 
 efficient execution of the trust, and are not intended to prohibit 
 an individual bondholder from directly invoking the aid of a court 
 of equity in behalf of himself and others entitled to the protec- 
 tion of the same security.^ 
 
 A court, however, cannot remove trustees from a part of their 
 trust, leaving them burdened with, and responsible for, the re- 
 mainder.^ 
 
 § 263. Grounds for Removal. — (a) Non-residents. — A railroad 
 trustee who becomes a resident of a foreign country is deemed to 
 have thereby incapacitated himself for the duties of the office, and 
 if he attempts thereafter to bring suit as trustee in a Federal court, 
 the State court will enjoin him.^ 
 
 The jurisdiction of a court of chancery to substitute another 
 trustee in such a case may be exercised even though the absent 
 trustee is within the military lines of an enemy, and cannot be 
 served with process. Such a circumstance does not detract from 
 the power of the court to remove him and appoint another, but 
 rather furnishes a good reason for the appointment of a successor.^ 
 
 1 In re Eastern Railroad (1876), 120 , extension of the road ; nor by the fact that 
 Mass. 412. a majority of the bonds was represented 
 
 2 Hale V. Nashua & Lowell Railroad at the organization of the new corporation, 
 (1880), 60 N. H. 333. there being nothing in the mortgage au- 
 
 8 Inhabitants of Anson, Petitioners, thorizing a majority of the bondholders to 
 
 etc. (1892), 85 Me. 79 ; S. O. 26 Atl. Rep. act for the minority in matters respecting 
 
 996. It was also held that the inherent the mortgage. 
 
 jurisdiction of a court of equity was not, * Sturges v. Knapp (1858), 31 Vt. 1. 
 
 in this case, defeated by the formation of ^ Farmers' Loan & Trust Co. v. Hughes, 
 
 a new corporation by a majority of the 11 Hun, 130. Compare Hughes ». Chicago, 
 
 bondholders ; nor by the foreclosure pro- Milw. & St. Paul Ry. Co. (1881), 47 N. Y. 
 
 moted by the bondholders, the trustees Supr. Ct. 531 ; 15 J. & S. 531. 
 not being parties thereto, and a sale of the * Ketchum v. Mobile & Ohio R. Co. 
 
 equity of redemption on execution to the (1876), 2 Woods, 532. Woods, 0. J., 
 
 new corporation ; nor by the creation of a said : " The war might have lasted twenty 
 
 new debt, secured by mortgage, for the years, during aU which time it would 
 
§ 263.] TRUSTEES. 289 
 
 Where the trust deed itself provides that, in case the trustee 
 therein nanied is absent from the State when required to act, 
 another person shall be appointed to succeed him, the clause will 
 be construed as referring to a permanent absence, and not to an 
 absence that is merely casual or temporary. i 
 
 (b) Acquisition of Hostile Interests. — The fact that the trustees 
 have acquired interests hostile to those of the bondholders is a 
 sufficient ground for their removal. ^ 
 
 The fact that what is alleged in a petition filed in a Federal 
 court for the removal of trustees was done by them in another 
 capacity and in another relation to the property, under the direc- 
 tions of a State court, will not constitute any reason why they 
 should not be removed, where they have come out of those pro- 
 ceedings with such interests in the property that their position is 
 hostile to that of the petitioners.^ 
 
 Whether a trustee who represents several different classes of 
 bondholders secured by successive mortgages is thereby disquali- 
 fied from acting for more than one of those classes in foreclosure 
 proceedings, is a question which has been answered differently by 
 the two federal circuit judges to whom it has been submitted. 
 In Clyde v. Richmond & Danville R Co.,* Judge Goff refused to 
 allow committees of bondholders to become parties on this ground 
 alone,^ taking the position that it would not be presumed that 
 the trustee would be unfaithful to the trusts confided to him, 
 and that it would be time enough to consider the question 
 whether the bondholders should be made parties for their own 
 protection when the trustee failed promptly and faithfully to dis- 
 charge his duties. 
 
 have beon impossible to serve the absent cence. This case may be contrasted with 
 trustee. It seems to me to be a very that of Washington, Alexandria, & George- 
 unreasonable proposition that during all town R. Co. v. Alexandria & M'ashington 
 this time a court of chancery must see the R. Co. (1870), 19 Gratt. ( V'a. ) 592, cited 
 trust estate perishing for want of a trustee, in § 264, post, where the trust deed re- 
 and refuse to act on the ground that a quired notice of the application for a new 
 naked trustee, whom it was impossible to trustee to be given to certain officers of 
 serve, had not been served with process." the corporation. 
 
 In this case there was the additional cir- ^ Equitable Trust Co. v. Fisher (1883), 
 
 cumstance that the trustee had made no 106 111. 189. 
 
 claim to the office for ten years after the ^ Dwight o. Smith (1882), 13 Fed. 
 
 war. The court held that, even if with- Ri-p. 50. See Perry on Trusts, § 275. 
 out notice, the appointment of another ' Brooks v. Vermont Central R. Co. 
 
 trustee was good for temporary purposes (1878), 14 Blatch. 463. 
 only, and the power of the court extended * 55 Fed. Eep. 445 (1893). 
 
 that far, undoubtedly; also that the trustee ^ As to the general rule in reo-ard to 
 
 who had been removed had lost his right the intervention of bondholders, see Chap. 
 
 to resume his office by his long acquies- XXIV. (parties). 
 
 19 
 
290 RAILWAT BONDS AND MORTGAGES. [CHAP. XII. 
 
 In the recent case of Farmers' Loan & Trust Co. v. Northern 
 Pacific R. Co.,^ Judge Lacombe, under similar circumstances, 
 considered that the proper course was either to substitute new 
 trustees under all the mortgages but one, or to allow representa- 
 tive bondholders to become parties to the suit, the latter being 
 the course actually adopted. The action of Judge Goff was re- 
 ferred to with disapproval. 
 
 (c) Breach of Trust. — If there has been an actual breach of 
 trust on the part of the trustee, the proper remedy of the bond- 
 holders is to take appropriate measui-es to have them removed, 
 and their places filled by others who will perform their duty.^ 
 
 The court, however, will not remove a trustee for every mistake 
 and neglect of duty, but only for such conduct as endangers the 
 trust property, or shows a want of capacity, honesty, or reason- 
 able fidelity.^ 
 
 Thus a trustee under two railroad mortgages should not be 
 removed from his trusteeship, on the application of a majority 
 in interest of the bondholders under the first mortgage, for the 
 reason that lie declined to employ counsel selected by them to 
 foreclose their mortgage, and refused to elect under which mort- 
 gage he would servo and which he would resign, especially if, for 
 anything that appears, the trustee's judgment in the matter was 
 sound and not against the interest of any bondholders.* 
 
 On the other hand, it has been held a proper case for the 
 removal of a trustee that he suffered a portion of the bonds to 
 remnin unpaid after maturity, and neglected and refused to take 
 possession of the mortgaged property and to execute the trust by 
 enforcing the mortgage on the request of the bondholders. It is 
 a clear violation of the trust to attempt to compel the cestuis 
 que frustent to wait the pleasure of the trustee in foreclosing the 
 mortgage, or to coerce them to afford facilities to the debtor to 
 raise means to pay its debts.^ 
 
 A complaint in an action for the removal of a trustee is not de- 
 murrable where it alleges that the defendant has refused to obey 
 an order to convey the trust property, made by a competent court, 
 and therefore valid until reversed and vacated.® 
 
 § 264. Mortgage Provisions for filling Vacancies. — Generally the 
 mode of filling vacancies is governed by the instrument itself. 
 
 1 70 Fed. Rep. 423 (1895). See also * Beadleston b. Knapp (1872), 13 Abb. 
 subd. (c), below. Pr. N. S. 335. 
 
 2 Stevens v. Eldridge (1876), 4 Cliff. ^ i„ the Matter of the Petition of the 
 348. Mechanics' Bank (1848), 2 Barb. 446. 
 
 8 Fletcher v. Rutland & Burlington R. ^ Harrison v. Union Trust Co. (1895), 
 
 Co. (1858), 39 Vt. 633. 144 N. Y. 326; s. o. 39 N. E. Rep. 353. 
 
§§ 265, 266.] TRUSTEES. 291 
 
 Hence althougli the mortgagor may, by general rules of law, have 
 the right to be notified of the application to fill a vacancy, an 
 appointment is valid without such notice where the mortgage 
 merely requires nomination by one of the beneficiaries, and ap- 
 proval by a judge of one of the courts of the State.' 
 
 On the other hand, if such notice is expressly required, and not 
 given, this will invalidate the appointment.^ 
 
 Where the deed provides the mode in which the successors of 
 the original trustees are to be selected, and proceedings are insti- 
 tuted to procure confirmation of an appointment which is asserted 
 to be invalid for the reason that the terms of the deed have not 
 been strictly followed, it is not necessary that every individual 
 bondholder should be notified of such proceedings, the duty of the 
 court being merely to see that service is made upon the grantor 
 and the different beneficiaries under the trust so as to insure a full 
 and fair representation of that interest.^ 
 
 S 265. Appointment by the Company itself. — The company itself 
 may appoint a new trustee, if it has reserved the power to do so ; "i 
 and in such a case the propriety of an appointment to which it has 
 consented cannot be questioned by it, although there may have 
 been no formal resolution on the subject.^ 
 
 § 266. Election by the Surviving Trustees. — Where the trustees 
 themselves are vested with the power of filling vacancies, they 
 cannot do discretionary acts without filling a vacancy. Taking 
 possession of the road, where the deed allows the trustees to do so 
 without any requisition of the bondholders, is an act of that cliai- 
 acter, and therefore, if one of the trustees dies after the filing of 
 a bill to obtain possession, his place must be supplied by the sur- 
 vivors before the suit can proceed. The corporation can take 
 advantage of the failure to fill the vacancy, for it is uncertain 
 what may be the opinion of the new trustee as to the further 
 prosecution of the suit.^ 
 
 1 Macon & Augusta R. Co. u. Georgia doctrine which would rigidly insist iipon 
 
 Kailroad & Bkg. Co. (1879), 63 Ga. 103 ; notice under such circumstances seems to 
 
 s. c. 1 Am. & Eng. K. R. Cas. 378. be of very dubious soundness. See § 263, 
 
 ^ Washington, Alexandria, & George- ante. 
 
 town R. Co. V. Alexandria & Washington * Cheever v. Rutland & Burlington R. 
 
 R. Co. (1870), 19 Gratt. ( Va.) 592. In Co. (1869), 4 Am. Ry. Rep. 291 Oit p. 305). 
 
 this case the officers of the company to * Fidelity Insurance, Trust, & Safe De- 
 
 whom notice of the application to fill a posit Co. v. Shenandoah Valley R. Co. 
 
 vacancy was to be given were all within (1889), 32 W. Va. 244 ; s. c. 9 S. E Rep. 
 
 the enemy's lines when the vacancy oc- 180 ; 38 Am. & Eng. R. R. Cas. 577. 
 
 curred, and for a considerable time there- 6 Jlohile & Cedar Point R. Co. v. Tal- 
 
 after. This is certainly a strict ruling, man (1849), 15 Ala. 472. 
 
 and, considering the inherent powers of a ^ Shaw v. Norfolk County R. Co. 
 
 chancery court in reference to trusts, a (1855), 5 Gray (Mass.), 162, 176. 
 
292 RAILWAY BONDS AND MORTGAGES. [CHAP. XII. 
 
 § 267. Statutory Provisions regulating the Manner of the Election 
 of Trustees. — These have been enacted in some States. Those of 
 Maine have been held to be applicable only when no other method 
 of filling vacancies is prescribed in the mortgage itself or by spe- 
 cial law.i 
 
 The Maine statutes have been held to apply only where the 
 trust, the trustee, and the cestui que trust are all created by one 
 and the same deed ; and accordingly they did not authorize the 
 parties to whom the grantee named in a mortgage which was ex- 
 ecuted to him upon his taking a contract for the construction of 
 the road had assigned the bonds secured by the mortgage to elect 
 a substitute for the mortgagee, such a grantee not occupying the 
 position of trustee for the assignees of the bonds.^ 
 
 § 268. statutes respecting the Election of Trustees cannot override 
 the Provisions of a Trust Deed previously executed. — If, therefore, 
 that instrument specifies the manner in which the trust shall be 
 perpetuated, a statute subsequently enacted which provides for 
 the appointment of trustees annually, in case -the railroad is 
 in the possession of and being operated by the trustees, inter- 
 feres with the vested rights of the trustees, and is therefore 
 repugnant to the constitutional provision which forbids a State 
 legislature from passing any law impairing the obligation of a 
 contract.^ 
 
 Nor can the legislature, without the consent of tlie cestui que 
 trust, substitute a new trustee in place of the persons named in 
 the mortgage. The particular trustees are selected for special 
 reasons, and to change them is to change the contract in an 
 important point.* 
 
 § 269. Termination of the Trust. — The general rule is that the 
 trust continues until all bonds are paid, unless in the meantime 
 the trustee is discharged.** 
 
 As long as any bonds are outstanding unmatured, it is the right 
 and duty of the trustee to enforce the provisions of the mortgage 
 for the benefit of the bondholders.® Foreclosure does not termi- 
 
 1 Pillsbury v. Consolidated European & ' Fletcher v. Rutland & Burlington R. 
 
 N. A. Ry. Co. (1879), 69 Me. 394. Here Co. (1858), 39 Vt.633. This case was de- 
 
 the appointment of a trustee by the court, cided by Judge Bennett sitting as chan- 
 
 upon the request of a majority in interest cellor, but the decision was concurred in 
 
 of the bondholders, was sustained on the by three judges of the Supreme Court, 
 
 ground that, as the terms of the trust deed * Knapp v. Railroad Co. (1874), 20 
 
 had been followed, the appointment was Wall. 117. 
 
 fidly authorized by law. 6 Knapp v. Railroad Co. (1874), 20 
 
 '^ /)i re Bondholders of York & Cumber- Wall. 117. 
 
 land R. Co. (1861), 50 Me. 552. » Belden v. Burke (1883), 72 Hun, 519. 
 
§ 270.] TRUSTEES. 293 
 
 nate tlie duties of a trustee who has entered into possession. He 
 is still bound to manage the road for the benefit of the cestuis que 
 trust just as an experienced owner would, looking to the nature of 
 the property, the public demand upon those in charge, and the 
 duty of securing the greatest permanent return to the cestuis que 
 trust. This obligation continues until his discharge by the Court 
 of Chancery, or by the unanimous and legally binding consent of 
 the beneficiaries, or until the latter acquire a legal organization 
 and a capacity to act through a majority .1 
 
 The appointment of a referee to make a foreclosure sale does 
 not abrogate a trustee's right and duty to enforce by proper reme- 
 dies a judgment in favor of the bondholders.^ 
 
 The functions of the trustees, on the other hand, cease whenever 
 the trust property is disposed of and applied in accordance with the 
 terms of the trust deed.^ 
 
 It follows, therefore, that a trustee who, under the provisions of 
 an enabling statute, purchases the property at the foreclosure sale, 
 and then transfers it to a company organized from the general 
 body of the bondliolders, is thereby divested of his title as 
 trustee, and has no right to maintain a bill to take advantage 
 of alleged frauds or irregularities in the foreclosure of prior 
 liens.* 
 
 Article II. — Nature and Extent of the Trustee's Estate 
 
 AND Powers. 
 
 § 270. The Precise Character of the Interest acquired by the Trustee 
 in the trust property bas given rise to much discussion. It may 
 be readily conceded that, where the trust deed is worded so that 
 defeasance can be made only by payment to tlie bondholders, the 
 trustees take nothing but a dry, naked trust.^ 
 
 But this can scarcely be the effect of a trust mortgage in the 
 ordinary form. The authority conferred upon the trustee by such 
 an instrument may possibly be regarded as investing him with a 
 
 ' Sturges V. Knapp (1858), 31 Vt. 1. 6 Brooks v. Vermont Central R. Co. 
 
 2 Stevens v. Union Trust Co. (1891), (1878), 14 Blatcli. 463. The position 
 
 67 Hiiii, 493; s. c. 33 N. Y. St. Rep. here taken as to the nature of the trustees' 
 
 130 ; H N. Y. Supp. 268. interest was one of the steps in the chain 
 
 ' Welsh V. First Division, etc. St. of reasoning which led Judge Wheeler to 
 
 Paul & Pacific R. Co. (1879), 25 Minn, the conclusion that a suit for foreclosure 
 
 31 *• brought by a portion of the bondholders 
 
 * Barnes v. Chicago, Milw. & St. Paul was not barred by a pending suit for the 
 
 Ry. Co. (1887), 122 U. S. 1 ; s. c. 7 Sup. same purpose brought by the trustees and 
 
 Ct. Rej). 1043. another portion of the bondholders. 
 
294 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [CHAP. XII. 
 
 merely dry, naked trust at the outset ; ^ but potentially, at least, it 
 is one of a much more extensive scope.^ 
 
 This being admitted, it seems an unnecessary refinement to con- 
 sider the estate of the trustee to be of a different quality at differ- 
 ent times. A simpler and more straightforward doctrine is to 
 hold that the nature of the trust is what the trust instrument 
 makes it, and continues the same from first to last, but that the 
 powers and duties of the trustee remain in abeyance until the 
 events occur which are to call them into activity. To take a 
 somewhat analogous case, a tenant in fee is none the less such 
 because he has leased the estate, and has thus abandoned most of 
 his rights over it until the term is ended, or the lessee, by the 
 breach of some condition imposed by the instrument of demise, 
 renders himself liable to be dispossessed. And this seems to be 
 the effect of the cases in which the nature of the trust was the 
 question fairly presented to the court, and it became neces- 
 sary to determine precisely what the powers of the trustee were. 
 " We are unable," remarked the court in a Vermont case, " to 
 assent to the proposition that the trustees are only agents of the 
 cestuis que trust for holding the lec/al title. They are agents for 
 
 1 Curtis V. Leavitt (1857), 15 N. Y. 9 
 (followed in Johnson County v. Thayer, 
 94 U. S. 631). Judge Paige . declared the 
 trustee to be a mere assignee without 
 interest in the property held by him, this 
 theory being made the foundation, at least 
 in part, of a mling that notice to a trustee 
 was not notice to the cestuis que trust (see 
 below). In this case the extent of the 
 trustees' powers was not in question, and 
 it is not easy to see how this doctrine 
 can be reconciled with the rule that a 
 trust which is to protect an estate for a 
 given time, to preserve contingent remain- 
 ders, or the like, is one of those active 
 trusts which are excluded from the opera- 
 tion of the Statute of Uses (see Perry on 
 Trusts, § 305 and notes). In Ketchum v. 
 Mobile & Ohio R. Co. (1876), 2 Woods, 
 532, a trustee was considered to hold a 
 " naked trust " to the extent that his 
 absence and residence in a place where it 
 was impossible to serve him with process 
 would not prevent a court of equity from 
 entertaining a suit for his removal. Here 
 again it was not a question of the trustee's 
 powers, and to have made a different ruling 
 would have involved the anomalous resnlt 
 that non-residence is a legitimate ground 
 
 for removal, but that the court is disabled 
 from exercising its jurisdiction until ser- 
 vice is made on the trustee. So far as it 
 appears from the authorities the power of 
 removal for this cause exists in the case of 
 the most active, as of merely passive trus- 
 tees (see Perry on Trusts, § 275), and per- 
 haps the phrase " naked trust " is used here 
 merely in the sense of a trust not coupled 
 with an interest, — a somewhat loose ap- 
 plication of the term. In Webb v. Ver- 
 mont Central R. Co. (1882), 20 Blatch. 
 218, the court speaks of the trustees as 
 holding only a ' ' dry legal title ; " but the 
 only question before it was as to the 
 ability of the bondholders to sue, when 
 the trustee acquires interests hostile to 
 theirs, and it is not apparent what bearing 
 the character of the trust could have on 
 such a point. The elementary principle 
 that a trustee cannot be allowed to occupy 
 a position in which his interests are 
 opposed to those of his cestuis que trust is 
 presnmablj' applicable to every description 
 of trust. 
 
 2 Commonwealth v. Susquehanna & 
 Delaware River R. Co. (1888), 122 Pa. St. 
 306 ; R. c. 15 All. Rep. 448; 36 Am. & 
 Eng. R. R. Cas. 269. 
 
§ 271. J TRUSTEES. 295 
 
 holding just such title as is created by the transaction, and for ad- 
 ministering it according to the terms of the trust: and whatever 
 title the cestuis que trust have, whether legal or equitable, is through 
 and in virtue of the title conveyed to and held by the trustees." ^ 
 
 § 271. The Trustee takes an Estate sufBcient to enable him to execute 
 his Trust. — If, therefore, the provisions of the mortgage are such 
 that they cannot be carried out unless the trustee holds in fee 
 simple, he will be deemed to be invested with an estate of that 
 character, although the granting clauses contain no words of in- 
 heritance. Thus where he is empowered by the provisions which 
 regulate the sale of the trust property to convey the entire estate 
 of the railroad company in the mortgaged premises, he must be 
 clothed with that entire estate in order to be capable of executing 
 hia trust. Of this fact subsequent mortgagees and creditors have 
 notice from the record itself, and, as against them, the mortgage 
 will, if necessary, be reformed so as to make its terms correspond 
 with the intention of the grantor.^ 
 
 In Kentucky also it has been declared that a trustee is not a 
 naked one where he has a power of sale on default.^ 
 
 Trustees of a mortgage covering the lands included in a land- 
 grant to a railroad company, with power to sell them on such 
 
 ' Miller v. Rutland & Washington R. and infants who composed the body of 
 
 Co. (1863), 36 Vt. 452, 483. The reasons bondholders. Where so many of the 
 
 for the doctrine here laid down had been cestuis que trust were under such disabili- 
 
 thus stated in a case decided not long ties that they could not act for themselves, 
 
 before by the same court, the opinion and where consequent delay must ensue in 
 
 being entitled to exceptional respect, as it providing the means of obtaining their 
 
 was written by Chief Justice Redfield : "If consent in a legal form, with possibly fatal 
 
 the interest on the coupons and the princi- results to the property, it was clearly the 
 
 pal, as it falls due, are promptly paid by duty of the trustees to continue to manage 
 
 the corporation, so that no forfeitui-e occurs, that property for the benefit of those whom 
 
 it will never become of sufficient impor- they represented, until they couhl be regu- 
 
 tauoe to consider the. question what is the larly discharged. The conclusion arrived 
 
 precise nature of the trust created by the at was that the trustees, even after fure- 
 
 contract in the first instance. But after closure, had the power to lease the prop- 
 
 the forfeiture occuns, either by non-pay- erty to a connecting roa<l, if, in the exercise 
 
 ment of interest or principal, or both, as of a sound discretion, they deemed such a 
 
 in the present case, the duties of the trus- contract to be the best way of serving the 
 
 tee become not only active and responsible, interests of the cestuis que trust, especially 
 
 but critical and delicate. It is not only not where that lease contained a clause allow- 
 
 a dead, dry trust, but it is one of the most ing the majority of the bondholders to 
 
 activi' and momentous responsibility." The revoke it upon giving a yenr's notice, 
 duties thus undertaken, it was held, did ^ (jog ^^ jj^^, Jersey Midland Rv. Co. 
 
 not cease with the foreclosure of the niort- (1879), 31 N". J. Eq. 105. See generally 
 
 gage. It was not to be expected that there on this point Perry on Trusts, § 313. 
 should be an immediate surrender of the ^ Bardstown & Louisville R. Co. i. 
 
 property to the heterogeneous and chaotic Metcalfe (1862), 4 Mete. (Ky.) 199. 
 mass of men, women (single and married). 
 
296 EAILWAT BONDS AND MORTGAGES. [CHAP. XII. 
 
 terms and conditions as they may deem best, are authorized to 
 warrant the title of the lands to purchasers.^ 
 
 § 272. Quality of Trustee's Estate, how affected by Statutory Pro- 
 visions. — Since the terms of the deed decide the extent and char- 
 acter of the trustee's estate, a general statutory provision as to 
 trusts, that the legal title and right of possession shall vest in 
 trustees, will not have the effect of making the latter the proper 
 parties to prosecute a suit for a trespass upon the trust property .^ 
 
 On the other hand, if there are statutes prescribing the duties 
 of trustees, there is no necessity for specifying those duties in the 
 mortgage for the purpose of fixing the quantum of interest taken 
 by them, and the fact that the instrument is silent in this respect 
 is in such a case no ground for contending that the trustees take 
 merely the dry legal title. 
 
 § 273. Devolution of the Trust Estate. — Upon the death of One or 
 two or more trustees, the whole estate devolves on the survivors, 
 and not upon the heirs or personal representatives of the deceased 
 trustee.^ 
 
 Such heirs or personal representatives, therefore, are not proper 
 or necessary parties to a foreclosure suit begun during the lifetime 
 of their ancestor.* 
 
 The question who are the proper parties in case the trustees of 
 a mortgage are all dead, was discussed in Gibert v. Washington 
 City, Va. Midi. & Great Southern R. Co.^ There proceedings were 
 taken to determine the relative priorities of certain claims against 
 a railroad company formed by the consolidation of several others, 
 and the objection was raised that, as the trustees under the several 
 deeds had deceased, the legal title was outstanding, and there was 
 no one before the court to represent the legal title " with respect 
 to this argument." The court said : " It is sufhcient to remark 
 tliat if, on the death of the trustee Lamar, the legal title was in 
 abeyance, that would not defeat the trust, nor prevent the juris- 
 diction of the court from attaching, in the absence of a represent- 
 ative of the legal title, no such representative being in existence. 
 Indeed, it would be a potent reason for the court to proceed, and 
 
 1 Dubnqiie & Sioux City R. Co. f. S. C. N. S. 228 ; 4 Am. & Eng. K. R. 
 Pierson (189.5), 70 Fed. Rep. 30-3. Cas. 459 ; Mobile & Cedar Point R. Co. 
 
 2 Mercantile Trust To. v. Portland & u. Talman (1849), 15 Ala. 472 ; ilcAUis- 
 Osdensburgh R. Co. (1882), 10 Fed. Rep. ter v. Plant (1876), 54 Miss. 106 ; s. o. 17 
 604. Am. Ry. Rep. 389 ; Newport & Cinuinnati 
 
 3 McAllister I). Plnnt (187G), 'A Miss. Bridge Co. v. Douglass (1877), 12 Bush 
 106; s. c. 17 Am. Ry. Rep. 389. See (Ky.), 673 ; >. c. 18 Am. Ry. Rep. 221. 
 Perry on Trusts, §§ 343, 344. * 33 Giatt. 473 ; s. c. 1 Am. & Eng. 
 
 * Gibbes v. G. & C. R. Co. (1879), 13 B. R. Cas. 473 (1880). 
 
§ 274.J TRUSTEES. 
 
 297 
 
 take upon itself the execution of the trust, on the principle that a 
 court of equity will never suffer a trust to fail for want of a trustee. 
 If, however, the legal title was not in abeyance, then upon the 
 death of Lamar it either devolved by operation of the statute on 
 Lamar's personal representative, or else it resulted to the old com- 
 panies ; and in either case such title was represented by parties 
 before the court. The court, having possession of the property, 
 works, rights, and franchises of the company, will have no diffi- 
 culty in conveying the mere legal title to the purchaser whenever 
 it becomes necessary and proper." Of the three alternative doc- 
 trines here suggested, that which supposes the trust property to 
 devolve upon the personal representatives of the surviving trustee 
 is the one which accords with the general law of trusts.^ 
 
 If a public functionary is made trustee ex officio, as where tlie 
 mortgage is made to the Treasurer of the State " and his succes- 
 sors in office," the trust will devolve upon his successors in office, 
 and will not be retained by him after the termination of his official 
 duties.^ 
 
 § 274. Powers of Trustees generally. — The trustee can only do 
 with the trust property what the deed, either in express terms or 
 by necessary implication, authorizes him to do.^ 
 
 He is not a general, but a special, agent of the bondholders, and 
 he is limited to the legitimate purposes of the relation he sustains 
 to the security and the parties entitled to the benefit thereof, under 
 the trust with which he is clothed.* 
 
 The implied limitation upon his powers is that they do not ex- 
 tend beyond matters affecting the enforcement of the security, and 
 the administration of the trust property, in so far as it may be 
 under his control." 
 
 He cannot bind the bondholder personally by a contract entered 
 into for supplies to be furnished for the use of a road which he is 
 operating in fulfilment of his trust duties and not otherwise.^ 
 
 1 Perry on Trusts, §§ 343, 344. Trustee (1881), 53 Vt. 345 ; s. c. 4 Am. & 
 
 ^ Board of Supervisors v. Mineral Eng. R. R. Cas. 212. 
 Point R. Co. (1869), 24 Wis. 93. In this ease the trustees had continued 
 
 * Fidelity Insurance, Trust, & Safe to operate the road by the procurement 
 Deposit Co. V. Shenandoah Valley R. Co. and iu the interest of the defendant com- 
 (1889), 32 W. Va. 244 ; s. c. 9 S. E. Rep. pany organized after foreclosure by the 
 180 ; 38 Am. & Eng. K. R. Cas. 577. bondholders. The contract on which re- 
 
 * Miller V. Rutland & Washington R. covery was sought was at first verbally 
 Co. (1863), 36 Vt. 452 ; Appeal of Harris- entered into just after the organization, 
 burg & Eastern R. Co. (Pa. Sup. Ct., and subsequently reduced to writing. 
 1888), 36 Am. & Eng. R. R. Ciis. 249. One of the trustees was at this time acting 
 
 ' See the two cases last cited. in the double capacity of president of the 
 
 ° Chaffee v. Rutland Railroad Co. and company and as one of the trustees of the 
 
298 RAILWAY BONDS AND MORTGAGES. [CHAP. XII. 
 
 Nor does his authority necessarily include the power to place 
 the bonds upon the market for sale, and the exercise of such a 
 power is enough to put a purchaser of the bonds on inquiry as to 
 the regularity of their issue.^ 
 
 § 275. Bondholders' Rights under the Mortgage cannot be altered by 
 the Trustees without their Consent. — A non-assenting bondholder, 
 therefore, is not bound by a scheme of reorganization by which 
 his mortgage is to be postponed to three others which are to re- 
 place it. Such a scheme " can only be made effective in one of two 
 ways, — by the consent of all the bondholders, or by a foreclosure 
 cutting off their lien, and so enabling a new corporation to make 
 its own mortgages in its own way. A bondholder has a clear 
 right to stand upon his contract, and the trustees have no power 
 or authority to compel him to make a new and different one." ^ 
 So also it is outside the powers and duties of a trustee of a mort- 
 gage drawn in the usual form to undertake to give his assent, in 
 behalf of the bondholders, to a scheme involving the allowance of 
 a preference to the floating unsecured debts of the company.^ Nor 
 has he the power to discharge, change, or compromise the security, 
 which he holds as trustee.* 
 
 So also, as his implied powers do not extend to the release of 
 the mortgage, he must, if such a power is conferred on him by 
 the trust instrument, execute it in the manner prescribed therein, 
 or, at all events, not until the condition of defeasance has been per- 
 formed ; and a subsequent purchaser must, at his peril, ascertain 
 whether there has been such a performance.* 
 
 bondholders. The other had never acted, the burden of the contract. But it was 
 nor pretended to act, except in the single held that the facts in evidence were in- 
 capacity of trustee. The defendant com- sufiBcient to establish any such change in 
 pany had never authorized the making of the relations of the parties, 
 the contract, and there was no finding that ^ Riggs ". Pennsylvania & New Eng- 
 the trustees held any such relation to land R. Co. (1883), 16 Fed. Rep. 804. 
 the company as authorized them to bind See also Chap. II. (buna fide purchaser), 
 it by their contract. Under these circum- ^ Hollister v. Stewart (1889), 111 N. 
 stances it was held, first, that the bond- Y. 644; s. c. 19 N. E. Hep. 782; 38 
 holders, as such, were not bound, since Am. & Eng. R. R. Gas. 599 ; Nelson v. 
 the relationship between the trustees and Hubbard (1892), 96 Ala. 238 ; s. c. 11 
 cestuis que tnisl is not one of agency ; and. So. Rep. 428 ; 12 Ry. & Corp. L. J. 182. 
 secondly, that the company was equally ' Duncan et al. v. Mobile & Ohio R. 
 exempt from liability because there had Cn. (1876), 2 Woods, 542; s. c. 8 Fed. 
 been no act, or omission to act, on its Cas. 17, Case No. 4187. 
 part, from which the plaintiff had a right * Miller v. Rutland & Washington E. 
 to understand that the trustees had the Co. (1863), 36 Vt. 452, 483. 
 right to bind, or were in fact biniliiif;, it to ^ Fidelity Insurance, Trust, & Safe 
 the performance of the contract. It was Heposit Co. v. Shenandoah Valley R. Co. 
 also contended that there had been a no- (1889), 32 "VV. Va. 244 ; s. c. 9 S. E. Eep. 
 vation by which the company had assumed 180 ; 38 Am. & Eng. R. R. Cas. 577. 
 
§ 276.] TRUSTEES. 299 
 
 So also, if the sole authority of a trustee in case of a foreclosure 
 sale is to purchase the property, upon receiving the written re- 
 quest of a majority of the bondholders, and thereupon to take 
 certain prescribed steps looking to the reorganization of the bond- 
 holders into a new corporation, to which he is to convey the prop- 
 erty thus purchased, he has no right to sell the property even 
 though requested to do so by a majority of the bondholders. The 
 dissent of a single bondholder is enough to invalidate such a sale. 
 It makes no difference that the reorganization scheme which the 
 mortgage calls for has apparently become impossible of execution, 
 for the reason that the majority of the bondholders have pro- 
 nounced in favor of the sale. If the trustee refuses to sell, as 
 being beyond his authority, it is a reasonable presumption that 
 those who are seeking the sale will concur in the reorganization 
 rather than the contrary. And even if for this reason, or for any 
 other, the due execution of the trust seems to the trustee impos- 
 sible, he should ask for the direction of a court. To allow him 
 such a measure of discretion as a sale under such circumstances 
 would imply, might, in many cases, make him independent and 
 despotic.^ 
 
 Such an excess of his powers by the trustee, however, cannot 
 be taken advantage of by a bondholder who, either by previous 
 consent or subsequent ratification, has sanctioned the act.^ 
 
 § 276. The Power to declare the Principal due. — This power is 
 not rendered imperative by the addition of a clause to the effect 
 that, " upon the written request of the holders of a majority of 
 the bonds, the trustee shall proceed to collect both principal and 
 interest." Such an agreement with regard to the result of the 
 non-payment of interest is in the nature of a penalty, and must 
 be strictly construed. The true meaning of the added clause, 
 therefore, is that the majority of the bondholders shall have the 
 right to veto the proceedings of the trustee, and the written re- 
 quest mentioned is a condition precedent to any action by the 
 trustee to enforce the bonds. Only by such a construction is it 
 possible to effect what is evidently one purpose at least of such a 
 clause ; viz., to protect the bondholders as a class against the 
 views of individuals and combinations of individuals, being a 
 minority, pursuing separate interests.^ While the majority can- 
 
 1 James v. Cowing (1880), 82 N. Y. 8 That the various limitations imposed 
 
 449; 38 Am. & Eng. R. R. Cas. 336. by trust deeds upon the exercise of this 
 
 '^ Bntterfield v. Cowing (1889), 112 power do not affect the power of the trus- 
 
 N.Y. 486 ; s. c. 20 N. E. Rep. 369, a case tee to foreclose upon being requested to do 
 
 dealing with the same matter as the one so by one or more of the beneficiaries, 
 
 last cited. see Chap. XVIII. (foreclosure). 
 
300 RAILWAY BONDS AND MORTGAGES. [CHAP. XII. 
 
 not and ought not to prevent others, even a single individual, 
 from exacting the promptest payment of what is due and may be 
 important as current income, by legal process, they may never- 
 theless rightfully object to an anticipation of payment that may in 
 their opinion prove a sacrifice.^ 
 
 A provision in a mortgage that no action shall be commenced 
 by reason of any default on the part of the mortgagor by the 
 trustee, except upon the reasonable request of the bondholders, is 
 not a limitation upon the right and power of the trustee to insti- 
 tute proceedings whenever in its judgment such a course is needed 
 in the interests of the bondholders. Primarily it is left to the 
 discretion of the trustee to determine whether proceedings for 
 foreclosure should or should not be instituted.^ 
 
 A letter from a bondholder informing the trustee of a mortgage 
 that the writer is the holder of a majority of the bonds of a cor- 
 poration, and that he desired " to ask the proper court to fore- 
 close and sell the property," and asking the trustee " what action " 
 he would take, and adding that he had attorneys prepared to act, 
 who would arrange for the trustee's protection " in any manner 
 that may be necessary," will not be interpreted to amount to a 
 request on the part of the holder of the majority of bonds of the 
 trustee to take action ; and the failure on the part of the trustee 
 to act in such case will not justify an action on the part of thp 
 bondholder to foreclose the mortgage.^ 
 
 The trustee of a mortgage, upon the receipt of such a letter, has 
 a right to ask that the bonds of the bondholder be deposited with 
 him for inspection, as well as to require of the bondholder that he 
 indemnify him against loss before bringing a suit for foreclosure 
 of the mortgage.* 
 
 Where a mortgage provides that, at the request of the holders 
 of two million dollars of the mortgagor's bonds, the trustee must 
 institute foreclosure proceedings, and a request is made by a bank 
 claiming the ownership of one million seven hundred thousand 
 dollars of the bonds, and to represent a sufficiency in amount of 
 other bonds, if it appear that in reality the first-named bonds 
 were the property of the competing railroad company, and that 
 this company had "simply contracted to purchase the latter-named 
 bonds, this request would be insufficient to justify a foreclosure 
 
 1 Chicago, D. & V. R. Co. v. Fosdick ' Beebe v. Richmond Light, Heat, & 
 (1882), 106 U. S. 47 ; s. c. 7 Am. & Eiig. Power Co. (1895), 13 Misc. Rep. 737; 
 R. R. Cas. 427, Waite, C. J., dissenting. s. c. 35 N. Y. Suppl. 1. 
 
 2 New York Security & Trust Co. v. * Ibid. 
 Lincoln St. Ey. Co. et al. (1896), 74 Fed. 
 
 Kep. 767. 
 
§§ 277, 278.] TRUSTEES. 301 
 
 suit ; and one having been brought under such a request by the 
 trustee, the trustee's right of action, in spite of the invalidity of 
 the request, will not be upheld because the trustee might in its 
 discretion have brought the suit without a request.^ 
 
 § 277. The Po-wer of a Trustee to waive Defaults in Interest or 
 Principal. — The existence of this power, subject only to the con- 
 trol of a majority in interest of the bondholders will not be 
 readily inferred ; for the effect of admitting it would be to 
 enable stockholders of the company, by buying a trifling 
 excess over half of the bonds, to practically annul the whole 
 debt, and take to themselves the entire net earnings of the 
 business.^ 
 
 § 278. Trustee's Power of Entry. — This power is regarded as 
 a vested right of the bondholders, which cannot be impaired by 
 subsequent legislation, either direct or indirect.^ It exists as 
 long as there is default in the payment of any of the coupons. 
 The acceptance of the preferred stock of a new corporation in 
 lieu of bonds aifects the rights only of those bondholders who 
 assent to this arrangement, and is not a waiver of the right of 
 the trustees to take possession of the property for the benefit of 
 those who do not assent.^ 
 
 The trustees, in a Minnesota case, having acquired possession 
 of the road, were held expressly authorized to collect and receive 
 
 1 Farmers' Loan & Trust Co. v. New held, to instruct said trustees to waive 
 York & Northern Ry. Co. (N". Y. Ct. of such default, or to enforce their rights by 
 App., 1896), 44 N. E. Rep. 1043. reason thereof. It was held that, in spite 
 
 2 Hollistert). Stewart (1889), 111 N. Y. of the generality of the words "in any 
 644 ; s. 0. 19 N. E. Rep. 782 ; 38 Am. provisions herein contained to be per- 
 & Eng. R. R. Cas. 599. There the trus- formed or kept by said company," this 
 tees were reijuired to exercise their power article of the mortgage must he construed 
 of entry or sale, or both, if the default to relate to the provisions respecting cov- 
 was in the payment of interest or principal enants for assurance, etc., and not to those 
 of the bonds, upon the requisition of the in regard to which other and more strin- 
 holders of one-fourth of the aggregate gent directions had been given in other 
 amount of the bonds ; while if the default parts of the instrument. 
 
 was in anything required to be done for In Randolph «. Lamed (1876), 27 N.J. 
 the further assuring of the title of the Eq. .557, the trustees of a first moi'tgage 
 trustees to any property of the company, were held entitled to the property of a 
 or in any provisions contained in the railroad company in preference to a re- 
 mortgage to be performed by said com- ceiver under the Insolvent Oovporation 
 pany, the ri'quisition was to be as afore- Acts of New Jersey, and permitted to 
 said ; but it was left within the discretion operate the road. 
 
 of the trustees to enforce or waive the ^ See also Chap. XVIU. (suits for 
 rights of the bondholders by reason of possession); Cheever v. Rutland & Bur- 
 such default, subject to the power hereby lington R. Co. (1869), 4 Am. Ry. Rep. 
 declared of a majoritv in interest of the 291. 
 
 holders of the said bonds, by requisition in * Cheever v. Rutland & Bnrlingtou R 
 
 writing, or by a vote at a meeting duly Co. (1869), 4 Am. Ry. Rep. 291. 
 
302 BAILWAT BONDS AND MORTGAGES. [CHAP. XII. 
 
 all tolls, freights, incomes, rents, and issues of the same, and of 
 every part thereof.^ 
 
 The rights acquired by the stipulation in the trust instrument 
 granting the power may be enforced by a bill for specific perform- 
 ance,^ or the trustee may resort to an action of ejectment.^ 
 
 § 279. The Power of Sale.* — This power being a legitimate 
 part of a trust instrument, the trustee's sale will, if carried out 
 according to the terms of the instrument, divest the title of the 
 company, without a foreclosure.^ 
 
 Being a power annexed to the estate, and coupled with an 
 interest, it is necessarily irrevocable. It becomes part of the 
 mortgage security, and vests in any person who, by assignment or 
 otherwise, becomes entitled to the money secured to be paid.® 
 
 A mortgage which makes it the duty of trustees to take posses- 
 sion after default, on the application of a certain percentage of the 
 bondholders, and also declares that they are authorized to sell at 
 their option " upon the like application," entitles them to decline 
 to sell, after entry, or both to enter and sell, as they may think 
 proper.'^ 
 
 The trustee with such a power has the right to decide in the 
 first instance upon the sufficiency of the claim of the bondholders 
 who seek to liave the property sold to pay the bonds which they 
 profess to hold ; but tlie railroad company has also the right to 
 appeal to the courts to have the validity of that claim passed 
 upon.s 
 
 The execution of the power of sale by the trustee may be con- 
 trolled by a court of equity at the suit of a cestui que trust? 
 
 The power of sale is rarely exercised. It appears in many 
 railroad mortgages where it is entirely inoperative because the 
 statutes of the State where the property is situated forbid such a 
 power from being exercised. 
 
 Where trustees of a mortgage securing bonds of a corporation 
 are proceeding to sell the property under a power of sale in their 
 
 1 Eice V. St. Paul & Pacific R. Co. Hughes (1874), 52 Ga. 557 ; s. c. 7 Am. 
 
 (1878), 24 Minn. 464. Ey. Eep. 137. 
 
 ^ Shepley ». Atlantic & St. Lawrence ' Bradley v. Chester Valley E. Co. 
 
 Eiver E. Co. (1868), 55 Me. 395. (1860), 36 Pa. St. 141. 
 
 ° Eice V. St. Paul & PaciBc R. Co. ' Macon & Augusta E. Co. v. Georgia 
 
 (1878), 24 Minn. 464. Eailroad & Bkg. Co. (1879), 63 Ga. 103; 
 
 * See also Chap. XVIII. (suits for s. 0. 1 Am. & Eng. E, E. Cas. 378. 
 
 possession) ; Bradley v. Chester Valley E. ' Western Division of We.stern North 
 
 Co. (1860), 36 Pa. St. 141 ; Perry on Carolina R. Co. u. Drew et al. (1877), 3 
 
 Trusts, § 602. Woods, 674. 
 
 ^ Brunswick & Albany E. Co. v. ' Youngman v. Elmira & Williams- 
 port R. Co.' (1870), 65 Pa. St. 278. 
 
§§ 280-282.] TRUSTEES. 303 
 
 mortgage for the benefit of a holder of its bonds who shows a 
 good title to his bonds, a court of equity will not enjoin the sale 
 till the corporation can have adjudicated an unliquidated and dis- 
 puted claim against the holder of the bonds.^ 
 
 8 280. Trustee not confined to the Exercise of a Single Po'wer only. 
 — A trustee who is given both the power of entry and sale need 
 not confine himself to either measure, but may first enter and 
 then sell, using the road for the purposes of the trust until the sale 
 is eff6cted.^ 
 
 § 281. Special Powers of Trustee for Enforcement of the Security 
 cumulative upon the Right of Foreclosure.^ 
 
 Article III. — Effect of Notice to Trustee. 
 
 § 282. Bondholders affected with Notice of Everything of which 
 their Trustee is notified in the Course of Litigation concerning the 
 Bonds. — It will be shown in another chapter that for all purposes 
 of active litigation to which a trustee is a party he represents the 
 bondholders, and binds them fully by what he does in the course 
 of the proceedings, unless he is shown to have been guilty of a 
 breach of his fiduciary duties. Notice of any step taken by the 
 court at the instance of other parties will operate as notice to the 
 bondholders. Thus notice to a trustee of an application by a re- 
 ceiver for permission to issue certificates is notice to the bond- 
 holders ; and if the trustee makes no objection to the issue, the 
 bondholders are bound by the action of the court in granting the 
 application.^ 
 
 Especially is a bondholder concluded by the action of the trus- 
 tee where the latter is a State ofiicial designated by statute, and 
 not a person selected by the contract of the parties. Foreclosure 
 proceedings and a subsequent reorganization carried through by 
 such an official will, therefore, bind each bondholder though he 
 has no notice thereof.* 
 
 ' National Rubber Co. et al. v. Rhode Midland R. Co: (1886), 117 TJ. S. 434, 
 
 Island Hospital Trust Co. et al. (R. I., 463; s. c. 6 Sup. Ct. Eep. 809; Kent v. 
 
 1895), 33 Atl. Rep. 254. Lake Superior Ship Canal Ry. & Iron Co. 
 
 2 Macon & Augusta E. Co. v. Georgia (1892), 144 U. S. 75 ; s. c. 12 Snp. Ct. 
 
 Railroad & Bkg. Co. (1879), 63 Ga. 103 ; Eep. 650 ; Central Trust Co. v. Season- 
 
 s. c. 1 Am. & Eng. R. R. Cas. 378 ; good (1889), 130 U. S. 482; s. o. 9 Supr. 
 
 McAllister v. Plant (1876), 54 Miss. Ct. Rep. 575. 
 
 106 ; a. c. 17 Am. Ry. Rep. 389. 6 Qates v. Boston & New York Air 
 
 ' See Chap. XVIII., on cumulative Line R. Co. (1885), 53 Conn. 333 ; s. c. 
 
 character of remedies. 5 Atl. Rep. 695 ; 24 Am. & Eng. R. R. 
 
 * Wallace o. Loomis (1877), 97 U. S. Cas. 143. 
 146, 163; Union Trust Co. v. Illinois 
 
304 EAILWAT BONDS AND MORTGAGES. [CHAP. XII. 
 
 § 283. Effect of Notice to Trustee as to Matters not arising in 
 Active Litigation. — (a) When Notice to Trustee has been held not 
 to he Notice to Bondholders. — If the trustees who take a convey- 
 ance for the purpose of upholding the estate, without having any 
 previous connection with the title, are to be considered as invested 
 with a merely dry, naked trust, it will probably be conceded that 
 notice to them is not always, nor perhaps usually, regarded as no- 
 tice to the cestuis que trust. The leading case in which this theory 
 has been made the partial basis of a decision that notice to a trustee 
 in a corporate mortgage is not effectual as notice to the bondhold- 
 ers is Curtis v. Leavitt,^ in which Judge Paige, after pointing out 
 that the grounds here assigned for upholding the claims of the bond- 
 holders, as lona fide purchasers of the securities, without notice of 
 irregularities in their issue, was not necessary for the decision of 
 the case, and that it rested upon the individual opinion of two 
 judges, the other four having arrived at the conclusion that these 
 irregularities did not vitiate the issue, on the broader grounds that 
 it was within the scope of the corporate powers, and that the 
 alleged defects had been cured by subsequent acts of recognition 
 and ratification, expressed his reasons in the following language: 
 '■' The trustees are not to be regarded as the purchasers of the 
 bonds and mortgages assigned to them. No consideration pro- 
 ceeded from them ; they were mere assignees of these securities, 
 coupled with no interest in trust to hold them as a security for 
 the payment of all tlie mortgage bonds that should thereafter be 
 sold or negotiated by the company, and, after the payment of such 
 bonds, to hold the same subject to the disposition of the company. 
 Whoever purchased the mortgage bonds became purchasers of the 
 bonds and mortgages so assigned as security for their payment, 
 or of an equitable right to hold them as such security." Nor, it 
 was thought, could the contention be supported on the ground 
 that tlie trustee stood in the relation of an agent as respects bond- 
 holders. " Ue was selected," said the learned judge, " by the 
 company, not by the cestuis que trust. His powers and duties 
 were conferred and prescribed by the company, not by the bond- 
 holders. There were at the time of the execution of the trust 
 deeds no bondholders, — no cestuis que trust. It is a necessary 
 attribute of an agency that it should be created by the principal. 
 . . . The doctrine that notice to an agent operates as constructive 
 notice to his principal is applicable only to cases where an agency 
 in fact has been created, and in such cases only where the notice 
 is to the agent while engaged in the same transaction or negotia- 
 
 1 15 N. Y. 9 (1857). 
 
§ 283.] TRUSTEES. 
 
 305 
 
 tion to which the agency applies." In this case, as the relation of 
 principal and agent did not exist between the bondholders and 
 Graham, notice to him or knowledge by him that there was no pre- 
 ' vious resolution was not constructive notice to the bondholders.^ 
 
 The arguments here used were accepted as convincing in a 
 similar case by the Supreme Court of the United States, where 
 the court held that, where a railroad company mortgaged, for the 
 purpose of securing its own bonds, various property, including 
 certain aid bonds issued by a county, the knowledge of one of the 
 trustees that the aid bonds were irregularly issued did not, in a 
 suit brought to enforce them, operate to deprive the holders of the 
 company's bonds of their rights as bona fide purchasers without 
 notice.^ 
 
 So also in Hay v. Alexandria &, Washington R. Co. ,3 the court 
 held that, although the trustee had personal notice of an execution 
 on the company's property, this notice could not bind the bond- 
 holders represented by him, who took the bonds without notice, 
 and that, for all purposes of notice, the trust deed was in the 
 case in question to be treated as made to the bondholders. No 
 reasons for this ruling are given. 
 
 (b) When Notice to Trustee has been held to be Notice to Bond- 
 holder. — Other courts have adopted the doctrine that bond- 
 holders, in all matters affecting their security, are charged with 
 the knowledge of the trustees. The most elaborate statement of 
 this view is contained in the opinion delivered by Judge Barrett 
 in Miller v. Rutland & Washington R. Co.,* where some weighty 
 reasons are given for rejecting the theory propounded in Curtis v. 
 Leavitt, supra, which is affirmed to be not only founded on an 
 erroneous conception of the functions of a trustee of this descrip- 
 tion, but also productive of much injustice in its practical opera- 
 tion. " Whatever title the cestuis que trust have, whether legal or 
 equitable, is through and by virtue of the title conveyed to and 
 held by the trustees. Even if it should be granted that the trus- 
 tees were agents merely for holding the legal title, still, as the 
 rights of the cestuis que trust depend upon, and are to be asserted 
 through, the legal title, whatever affects such title in its creation in 
 the trustees must affect the rights and interests that are dependent 
 on it. If the legal title is charged with an incumbrance in its 
 
 1 See criticism of Judge Ban-ett in 2 Johnson County v. Thayer (1876), 
 
 MilleT V. Rutland & Washington R. Co. 94 U. S. 631. 
 (1863), 36 Vt. 4.52. See also National 8 20 Fed. Rep. 1,5 (1884). 
 Waterworks Co. of N. Y. w. Kansas City * 36 Vt. 452 (1863). 
 (1896), 78 Fed. Rep. 428. 
 
 20 
 
306 RAILWAY BONDS AND MORTGAGES. [CHAP. XII, 
 
 creation in the hands of the trustees, it is difficult to see how the 
 cestuis que trust can have an equity suspended upon the legal title 
 that shall override such incumbrances. However that might be 
 as a proposition applicable to a dry trust, still, as to a trust which, 
 in addition to the holding of a title, is administrative of the prop- 
 erty for the purpose of rendering the security effective, the trus- 
 tees must be regarded as the agents of the cestuis que trust with 
 reference to all their rights and interests, both in the title held 
 and in the administration and fruits of the trust, according to its 
 terms and legal operation. The fact that the bonds are treated 
 as negotiable, and pass from hand to hand like bank-bills, does 
 not affect the question of the agency of the trustees in reference 
 to the security provided by the mortgage. Such bonds purport to 
 be secured by a mortgage in trust to trustees who are designated 
 and known. They are negotiated and purchased upon the security 
 thus existing. By the purchase of the bonds, the purchaser volun- 
 tarily adopts the security as it exists in the trustees, and becomes 
 a cestui que trust iinder them, thereby adopting said trustees as 
 his agents for holding the existing title and administering the 
 property held thereby to the intents specified in the creation of 
 the trust. The question is not how cestuis que trust would be 
 affected by notice to trustees of transactions subsequent to the 
 creation of tlie trust, or to their becoming cestuis que trust, but as 
 to how they are affected by notice to the .trustees, which, as to 
 them personally, affects the legal estate at the time and in the 
 act of their becoming trustees." 
 
 The learned judge then discussed the practicability of a contrary 
 doctrine, pointing out that the fact of the bonds passing from 
 hand to hand, almost daily, without record or notice, shows that 
 the matter of fixing an equity by actual notice to the holders 
 would be virtually impossible. The result would necessarily be 
 that, however well grounded an equity a party might have against 
 the corporation, and against the trustees personally, attaching 
 upon the legal title held by such trustees, it would prove barren 
 and futile to any beneficial intent, by reason of the impossibility 
 of knowing and notifying the ever-shifting parties who have an 
 interest, and claim an equity, subsequently created and subse- 
 quently accruing. On the other hand, it would be comparatively 
 easy for persons desirous of investing in railroad bonds to apply 
 to the trustees holding the security, and elicit the true state of 
 the title; and it was declared to be, in the opinion of the court, no 
 hardship that they should be required to do so. The conclusion 
 arrived at was that the bondholders secured by a second mort- 
 
§ 283.J TRUSTEES. 307 
 
 gage should be postponed to those secured by an earlier instru- 
 ment which took effect as an equitable mortgage, and of which 
 the trustees of the second mortgage had actual notice. 
 
 For similar reasons, more briefly expressed, the mortgage bond- 
 holders secured by an after-acquired property clause had previously 
 been held in New Hampshire to take their securities subject to the 
 lien of an agreement known to one of the trustees, whereby a 
 portion of that property was to be hable to be removed by certain 
 parties, if the money which they had advanced for the purpose of 
 enabling the company to take it from the custom-house, where it 
 was held for duties, was not repaid at a certain time. The court 
 said that under the mortgage in question the trustees " must be 
 considered in the light of agents for the negotiating of the loan ; 
 they act for those who lend their money on the security of the 
 mortgage ; they are charged with the duty of protecting the inter- 
 ests of the bondholders, who are unconnected individuals, having 
 no ready means of acting together except through the trustees, 
 whom the law appoints to act for them. Notice to the trustees 
 would be all that could be given in this case."^ 
 
 In West Virginia this has been carried to its strict logical con- 
 clusion, and applied to a case in which a bondholder was merely 
 shown to be aware of facts which put him upon inquiry as to the 
 existence of a prior equitable lien.^ 
 
 From the above summary it is apparent that the important 
 question is left by the authorities in an extremely unsatisfactory 
 position. There are doubtless serious difRculties involved in the 
 adoption of either of the opposing doctrines. If, on the one hand, 
 the rule is established that intending purchasers of bonds must, 
 at their peril, inquire of the trustee and ascertain whether he is 
 aware of the existence of any prior equity, the value and negoti- 
 ability of these instruments will be much impaired. On the other 
 
 1 Pierce v. Emery (1856), 32 N. H. bonds as collateral. For several years 
 
 484. Compare Skiddy v. Atlantic, 0. & there was no complaint, and one of the 
 
 M. R. Co. (1879), 3 Hughes, 320 ; Redf. trustees named in the mortgage was a 
 
 Am. Ry. Cas. 568 (1879) ; Claflin v. director during these years with a knowl- 
 
 SoutU Carolina R. Co. (1880), 8 Fed. edge of all that was done. Held, that it 
 
 Hi'p. 118, 133. In the last-mentioned was too late for other bondholders, after 
 
 case a railroad company gave its notes to many of these bonds had been sold under 
 
 a tin:ini'ial institution controlling a claim the pledge, to object to their use or dispute 
 
 against an embarrassed company, an im- their lien. 
 
 portant feeder to itself, in the stock of 2 Fidelity Insurance, Trust, & Safe 
 
 which it owned a controlling interest, the Deposit Co. v. Shenandoah Valley R. Co. 
 
 object being to prevent its falling under (1889), 32 W. Va. 24-1; s. c. 9 S. E. 
 
 the control of an antagonistic interest, and Rep. 180; 38 Am. & Eng. R. R. Cas. 
 
 secured these notes by its second-mortgage 577. 
 
808 RAILWAY BONDS AND MORTGAGES. [CHAP. XII. 
 
 hand, it seems scarcely consistent with justice that the secured 
 creditors, by thus interposing a trustee between themselves and the 
 company, should be able to obtain a higher rank for their claims 
 than parties who have acted with due diligence in giving the only 
 kind of notice of which the circumstances admit. That the bond- 
 holders in such a case should be permitted to postpone existing 
 equities in favor of theirs is a far more stringent doctrine than 
 that which entitles bona fide transferees of a note secured by a 
 mortgage to enforce the mortgage without regard to equities 
 between the original parties.-' The technical objection that the 
 trustee cannot be the agent of those who purchase the bonds, for 
 the reason that he is appointed, not by them, but by the corpora- 
 tion, seems to be sufficiently answered by the theory propounded 
 in Miller v. Rutland & Washington R. Co., supra, that the act of 
 purchase may be deemed to amount to an acceptance of the 
 trustee as agent, subsequent ratification being here regarded, 
 according to the ordinary rule, as equivalent to a prior appoint- 
 ment. The question, therefore, is pre-eminently one to be settled 
 by a resort to general considerations of commercial expediency. 
 
 Article IV Duties of the Trustee generally. 
 
 5 284. The General Duties of the Trustee are the same as those of 
 other Trustees. — He must act in good faith for the best interests 
 of the bondholders ; he must take care that the property is not 
 wasted nor depreciated ; he must see that the income is not 
 improperly diverted from the payment of interest on the mort- 
 gage as it accrues ; and, in case of a manifest purpose on the 
 part of the mortgagor to waste or destroy the property, or not to 
 apply the income to payment of interest, to the injury of bond- 
 holders, it is the trustee's duty to take possession of the property 
 and manage it for the security of the cestuis que trust.^ 
 
 A trustee for bondholders, authorized by them to purchase the 
 property at a foreclosure sale with a view to reorganization with 
 obligations on the side of the bondholders, to exchange their bonds 
 for those of the reorganized corporation, to pay assessments, etc., 
 has a right to abandon the sale and to refuse to complete it upon 
 the failure of a sufficient number of bondholders to meet their 
 obligations under the agreement. This would leave the propert}' 
 under the lien, and a resale could be had under the decree. But, 
 
 1 See Dan. on Neg. Instr., § 834. et cd. (1881), 130 Mass. 303 ; S. c. 4 Am. 
 
 2 Sturges V. Knapp (1858), 36 Vt. 1 ; & Eng. K. K. Cas. 480. 
 First National Fire Ins. Co. v. Salisbury 
 
§ 285.] TRUSTEES. 309 
 
 after bidding off the property as the trustee of the bondholders, 
 and proceeding to complete the purchase made as their trustee, 
 he will be held bound by all the terms of the trust until released 
 therefrom by the bondholders. And if he, in such a case, sells the 
 property to third parties, the bondholders will be entitled to relief 
 against the trustee, and may follow the property in trust in the 
 hands of the purchaser.^ 
 
 § 285. The Duties of a Trustee become active when a Default 
 occurs, and are not then merely ministerial, — From the usual terms 
 of mortgages it follows that, unless the safety of the security is 
 threatened by the mortgagor or by attacks from without, or there 
 has been a default in the payment of the bonds or the interest, 
 the trustee has no active duties to perform, but is simply the 
 depositary of the title to the property mortgaged. " The actual 
 possession of the franchises and the property remains in the 
 railroad company to enable it to discharge its duties to the public, 
 and earn an income from which to pay its liabilities. But when 
 a default occurs, the duties of the trustee become active and 
 important ; he represents all the bondholders, and is under obli- 
 gation to protect them, so far as the property in his hands in 
 trust for them will enable him to do so." ^ 
 
 The duties of a trustee, after forfeiture, become, not only active 
 and responsible, but critical and delicate. He must then elect 
 between delay and action ; between, on the one hand, taking pos- 
 session of the road and its fixtures where he is entitled to do so, 
 and, on the other, delay and consequent further embarrassment, 
 complication, and loss, or he must undertake the ulterior and 
 final remedy of foreclosure. It is the sole or the first purpose of 
 his office that he should act, and should exercise his wisdom and 
 discretion lipon the possible occurrence of the emei'gency of a 
 default. He is selected with reference to his capacity and respon- 
 sibility for this very contingency, both by the corporation and 
 the cestuis que trust; and neither of these parties has stipulated 
 to deal directly with the other, but only with the trustee, as the 
 responsible party.^ 
 
 1 Indiana, 111. & Iowa R. Co. a. bondholder and an ordinary mortgagee, 
 Swannell, Exr., etal., 157 111. 616; s. 0. decided that a sale of the property and 
 41 N. E. Rep. 989 (1895), affirming Same franchises of the corporation under exeou- 
 1). Same, 64 111. App. 260. tion of a judgment obtained by a bond- 
 
 2 Commonwealth v. Susquehanna & holder, not as one of a class, but as an 
 Delaware River K. Co. (1888), 122 Pa. individual, did not cut off the lien of the 
 St. 306 ; s. 0. 36 Am. & Eng. R. R. Cas. mortgage, as would have been the case had 
 269. The court, after examining, in a the property been sold to satisfy an ordi- 
 passage of which this extract forms a part, nary mortgage, 
 
 the difiference between the rights of a ' Sturges v. Knapp (1858), 31 Vt. 1. 
 
310 RAILWAY BONDS AND MORTGAGES. [CHAP. XII. 
 
 In carrying through a foreclosure suit, it is not enough for a 
 trustee to be ready to contest a demand against the estate to which 
 the bondholders may call his attention. He is under the positive 
 duty of seeing that the property is not burdened with unjust 
 claims or unnecessary expenditures.^ 
 
 A court of equity will take jurisdiction of the trusts created by 
 the mortgage, and compel the trustees to execute them in the 
 manner indicated by the terms of the instrument itself.^ 
 
 Thus, if the trustee neglects or refuses to move after a de- 
 fault, any bondholder may proceed, by bill filed on behalf of 
 himself and the other members of the class of creditors to which 
 he belongs, to compel a sale of the mortgaged premises, a re- 
 moval of the trustee, or such other relief as may be appropriate.^ 
 
 The duty imposed upon a trustee by the ordinary provision, 
 that, if the payment of principal and interest continues in default 
 for a specified period, he shall, upon receiving the request of a 
 certain proportion of the holders of the bonds, take possession 
 and sell it in the manner prescribed, is purely ministerial, and, if 
 the necessary requisition is made, he has no option but to comply 
 with it.* 
 
 And as the remedy of foreclosure may be put in motion inde- 
 pendently of any such requisition,^ the trustee may be compelled, 
 upon a proper sliowing, to comply with the demand of any number 
 of the bondholders, to enforce the security in that manner. Thus, 
 where it is provided that, until default and for six months there- 
 after, the mortgagor shall remain in possession, and that, on 
 request of one-half of the owners of the bonds, the trustees might, 
 upon the continuance of a default for six months, sell the road, 
 bondholders owning only one-sixth of the amount of the issue 
 secured by the mortgage may maintain a bill in equity to compel 
 the trustees to take possession of the property, for the purpose of 
 foreclosing the lien, where it is alleged that there has been a de- 
 fault in the payment of the interest on the bonds ; that the cor- 
 poration has signified a purpose not to pay interest on the bonds 
 unless the holders thereof will take a less rate than that which 
 
 1 De Betz's Petition (1878), 9 Abb. (1855), 5 Gray (Mass.), 162 ; Bradley v. 
 N. C. 246. Chester Valley E. Co, (1860), 36 Pa. St. 
 
 2 Bradley v. Chester Valley E. Co. 141; Wilmer ». Atlan ta & Richmond Air 
 (1860), 36 Pa. St. 141. Line Ry. Co. (1875), 2 Woods, 409; 
 
 8 Commonwealth v. Susquehanna & Maryland v. Brown (1885), 64 Md. 199 ; 
 
 Delaware River R. Co. (1888), 122 Pa. St. s. c. 1 Atl. Rep. 54 ; 6 Atl. Eep. 172 ; 
 
 806 ; s. c. 15 Atl. Rep. 448 ; 36 Am. & 24 Am. & Eng. E. E. Cas. 192. 
 Eng. E. R. Cas. 269. ' See chapters on remedies. 
 
 * Shaw 11. Norfolk County R. Co. 
 
§ 286.] TRUSTEES. 811 
 
 the bonds call for ; that the net income of the corporation is in- 
 sufficient to pay the interest on the bonds ; that the corporation is 
 applying the income to unsecured debts ; and that there is danger 
 that, if this course is continued, the property will be inadequate 
 security for the payment of the mortgage. To such a bill it is 
 no defence that litigation may be necessary to ascertain what 
 property is covered by the mortgage, or that a great burden and 
 personal liability for injuries done and debts subsequently in- 
 curred will thereby be imposed on them. This burden and this 
 liability are incident to the trust which the trustees assume in 
 taking the mortgage, and it is not for them to say that the cestuis 
 que trust must suffer because it is inconvenient or burdensome 
 for them to do their duties as trustees.^ 
 
 Where the primary right to proceed is in the trustees and not 
 in the bondholders, as is the case under the Florida Improvement 
 Act, it is the absolute duty of the trustees to proceed against the 
 property which stands as the security of the bondholders, when 
 the interest is in default, and no funds are available from the 
 other sources provided in the act.^ 
 
 The relation between mortgage trustees and bondholders is not 
 such as makes it the trustee's duty in every case to promptly fore- 
 close the mortgage without any request from the bondholders. 
 It follows that the failure of a trustee to foreclose for a long time 
 after default will not give a bondholder the right to bring an 
 action for foreclosure on the ground of abandonment or neglect 
 on the part of the trustee.^ 
 
 § 286. The Duties of the Trustees are owed to the Bondholders 
 severally as -well as collectively. — They are, therefore, not at 
 liberty to follow the advice or comply with the wishes of a ma- 
 jority of the bondholders. The minority may still hold them 
 liable for a faithful administration of the trust. Nor are they 
 allowed to discriminate between members of the same creditor 
 class. The bonded debt is a unit, so far as their duties and 
 powers are concerned, and they must regard the bondholders as a 
 class, not as individuals.* 
 
 A voting power which the trustee of a mortgage of stock is 
 entitled under the instrument to exercise, after a three months' 
 
 1 First National Fire Ins. Co. v. Co. (1893), 13 Misc. Eep. 737 ; s. o. 35 
 
 Salisbury (1881), 130 Mass. 303 ; s. c. 4 N. Y. Suppl. 1. 
 Am. & Eng. R. K. Cas. 481. * Sturges v. Knapp (1858), 36 Vt. 1 ; 
 
 '■* Florida v. Anderson (1875), 91 U. S. Commonwealth v. Susquehanna & Dela- 
 
 667. ware Eirer R. Co. (1888), 122 Pa. St. 
 
 8 Beebe v. Richmond L. H. & Power 306 ; s. c. 15 Atl. Rep.' 448 ; 36 Am. & 
 
 Eng. R. E. Cas. 269. 
 
312 RAILWAY BONDS AND MORTGAGES. [CHAP. 211. 
 
 default in the interest, should be used for the advantage of all 
 the cestuis que trust, and not in obedience to the desires of the 
 majority.^ 
 
 A trustee of more than one mortgage must take such action as 
 will preserve the interests of the bondholders secured by all the 
 mortgages, and not simply those secured by the first one.^ 
 
 S 287. A Trustee's Duties are personal, and cannot be delegated. 
 — He is, therefore, liable for damages caused by allowing other 
 persons to institute proceedings and to sell the trust property.^ 
 
 For the same reason he incapacitates himself for the perform- 
 ance of the trust by voluntarily removing to and becoming a 
 permanent resident of a foreign country. By such a change of 
 domicil he will be deemed to have vacated his office, and if he 
 attempts to prosecute an action, as trustee, in the United States 
 court, a State court may enjoin him from proceeding in the case.^ 
 
 § 288. A Trustee should consult the Court, and is justified in 
 doing so, when the words of the trust deed which prescribe his 
 duties are ambiguous,® or where the due execution of his trust 
 seems impossible.*" 
 
 § 289. "When a Trustee may be required to report to the Court. — 
 The rule that the trustee must, when so required, repoi't to the 
 court, is applicable to a case in which a court of equity, in the ex- 
 ercise of its general jurisdiction, has appointed the trustees called 
 for by the provisions of a statute authorizing a mortgage, although 
 no express reference to such reporting is made either in the 
 statute or the order of appointment.'^ 
 
 A like duty is incumbent on a trustee who has been placed in 
 possession of the property in course of proceedings for fore- 
 closure.* 
 
 1 Toler V. East Tennessee, V. & G. Ry. (1877), 11 Hun, 130. Compare § 263, ante, 
 Co. (1894), 67 Fed. Rep. 168. as to the removal of a trustee for this 
 
 2 Central Trust Co. v. Texas & St. cause. 
 
 Louis Ry. Co. (1885), 23 Fed. Eep. 846. ^ Denver & E. G. E. Co. v. United 
 
 8 Merrill v. Farmers' Loan & Trust Co. States Trust Co. (1890), 41 Fed. Eep. 
 
 (1881), 24 Hun, 297. In this case the 720. 
 
 trustee was held responsible for the loss ® James v. Cowing (1880), 82 N. Y. 
 
 sustained by allowing certain contractors 449 ; s. c. 2 Am. & Eng. R. R. Cas. 336. 
 
 who held a large quantity of the bonds See article entitled " Legal Responsibility 
 
 to control the foreclosure proceedings and of Trustees under Corporate Bonds and 
 
 to arrange among themselves for a sale. Mortgages or Deeds of Trust," by Robert 
 
 without giving any notice to outside Ludlow Fowler, 24 Am. L. Rev. 703. 
 
 bondholders of the time of sale, the ' In the Matter of Eastern Railroad 
 
 contractors being thus enabled to obtain Co. (1876), 120 Mass. 412. 
 
 the property at an unreasonably low 8 Bill v. New Albany, etc. R. Co. 
 
 price. (1870), 2 Biss. 390; s. c.3 Fed. Cas. 379, 
 
 * Farmers' Loan & Trust Co. v. Hughes Case No. 1407. 
 
§§ 290-292.] TRUSTEES. 313 
 
 § 290. Trustee's Duty to account. — No action for an account- 
 ing can be maintained against a trustee after the foreclosure sale, 
 where he has always stood in the attitude merely of the mortgage 
 trustee, foreclosing and selling when his trust duty required, 
 never buying at any such sale or taking possession under it, or 
 operating the railroad; and where, although he has received 
 certain checks from the purchasers, and, owing to his failure to 
 collect them, might have been made responsible for the money, 
 the election of the bondholders to disaffirm the sale has released 
 him from the liability incurred by this neglect of duty.^ 
 
 S 291. Duty to prevent Misfeasance of Co-trustees. — The mort- 
 gage sometimes provides that a trustee shall be liable only for 
 his own wilful default or misconduct,^ and this is the general rule, 
 in the absence of any express provision in the mortgage.^ 
 
 But a trustee will be personally liable for the acts of a co- 
 trustee, if he becomes aware of any circumstances tending to 
 show that the co-trustee is committing a breach of trust, and 
 omits to take active steps to protect the trust property.* 
 
 8 292. Duty of Trustee as to Investment of Trust Funds. Sink- 
 ing Funds. — The rule is that the instructions as to investment 
 contained in an instrument of trust are comparatively obliga- 
 tory on the trustee, but that by the direction of a competent 
 court he may depart from them. The court, however, will exer- 
 cise its authority in such cases only when there is a necessity to 
 do so, and after giving full opportunity to the parties who are to 
 be affected by such action to be heard. The bondholders are en- 
 titled to the advantage of the agreements as made on the issuing 
 of the bonds, and unless it appears indisputably that an occasion 
 had arisen which calls for the action of the court, any interference 
 with the provisions of the trust deed is unwarrantable. If a sink- 
 ing fund is directed to be invested in certain specified bonds of the 
 mortgagor company, the court will not, without the consent of 
 the bondholders themselves, authorize the trustee to invest that 
 fund in other bonds of the company merely because the latter 
 would, as may be alleged, prove more remunerative in the exist- 
 ing condition of the money market. That the trustee recom- 
 mends the change is not a sufficient reason for allowing it to be 
 
 1 Harrison v. Union Trust Co. (189.5), N. Y. 644 ; s. c. 19 N. E. Rep. 782 ; 38 
 
 144 N. Y. 326 ; s. o. 39 N. E. Rep. 353. Am. & Eng. R. R. Gas. 599. 
 As to duty of trustees in possession to ' Perry on Trusts, §§ 415 et seq. 
 
 account, see §§ 296, 301, post. * Weetjen v. Vibbard (1875), 5 Hun, 
 
 ^ A moi-tgage of this character was 265 ; Perry on Trusts, § 419. 
 under review in HoUister v. Stewart, 111 
 
314 RAILWAY BONDS AND MORTGAGES. [CHAP. XII, 
 
 made, since, for the purposes of such an application, he does not 
 represent the bondholders.^ 
 
 § 293. The Application of the Money 'which comes into the 
 Hands of the Trustees in the Execution of their Trust. — This appli- 
 cation should be made in such a manner as to diminish the in- 
 debtedness of the company as far as possible. In Little Rock & 
 Fort Smith Ry. Co. v. Huntington ^ the trustees were required by 
 the trust deed to apply the moneys arising from the sales of the 
 company's lands (1) to the payment of the coupons as fast as 
 they should become payable, to the extent that the net earnings 
 of the business should be insufficient for that purpose ; (2) to the 
 purchase and cancellation of such outstanding bonds as could be 
 obtained at their market value, not exceeding, however, a premium 
 of 10 per cent ; (3) to the payment of such of the bonds as should 
 not have been purchased in accordance with these provisions, when 
 the same should become due and payable. Any money not used 
 for any of these pui-poses was to be invested in United States se- 
 curities, or lent from time to time in such manner as was permitted 
 to savings banks by the law of Massachusetts. During the first 
 two years after the execution of the mortgage the net earnings, 
 even when united with the proceeds of the land sales, were in- 
 sufficient to meet the coupons ; and an agreement was thereupon 
 made with the holders whereby they surrendered their coupons to 
 the trustees, and the company issued to the latter negotiable scrip, 
 by which it promised to pay the trustees or bearer the amount of 
 the coupons surrendered, in ten years from their maturity, with 
 interest at the rate of 7 per cent, the company reserving the right 
 to pay the scrip and interest at any time previous to its maturity. 
 The scrip also provided that the trustees should hold the coupons 
 surrendered as collateral security for the payment of the scrip thus 
 issued therefor, and that the coupons should not be surrendered 
 or cancelled until the scrip should be paid. Subsequently the net 
 earnings became, and promised to continue to be, amply sufficient 
 to meet the interest on the coupons, and the price of the bonds 
 increased so greatly as to exceed the limit at which the trustees 
 were entitled to purchase them. Under these circumstances it 
 was held that as the surplus funds accruing from the land sales, if 
 invested according to the provisions of the mortgage, would bring 
 in a much lower rate of interest than the coupons were drawing, 
 
 1 Fidelity Insurance, Trust, & Safe De- effect see Clark v. St. Louis, Alton, & 
 
 posit Co. w. United New Jersey Railroad & Terre Haute R. Co. (1879), 58 How. 
 
 Canal Co. (1884), 36 N. J. Eq. 405; 12 Pr. 21. 
 Am. & Eng. B. R. Cas. 404. To the same 2 120 U. S. 160 (1887). 
 
§§ 294, 295.] TRUSTEES. 315 
 
 there was a manifest justice in the demand of the company that 
 the money thus obtained should be devoted to tailing up the out- 
 standing coupons. 
 
 Aeticle Y. — Trustees in Possession. 
 
 § 294. General Statement. — A trustee who enters into posses- 
 sion of the road, eitlier ex propria motu or at the instance of the 
 bondholders, assumes a position which imposes upon him new 
 duties and corresponding liabilities. Having taken under his 
 charge the subject-matter of the trust, he is bound to administer 
 it in such a manner as will promote the best interests, not merely 
 of the bondholders whom he more immediately represents, but also 
 of the company itself, which is justly entitled to demand that this 
 method of liquidating the debt shall not be abused. His control 
 of the railroad necessarily subjects him to the various responsi- 
 bilities incident to the ownership of that class of property, whether 
 as regards the public as a whole, or that portion of it with which 
 he comes into business relations. In short, although his duty is 
 still primarily to the bondholders, he becomes for some purposes 
 the agent of the corporation as well, and the party to whom those 
 who are in any way affected by the management of the road may 
 properly look for satisfaction. 
 
 § 295. The Right of the Trustees to exercise the Corporate 
 Franchises after entering for Default. — In an early Illinois case 
 it was contended that the trustees were incapable of operating 
 the road of which they had taken possession, for the reason 
 that to do so involved the exercise of the corporate franchises, 
 which, as the law then stood in the State, could not be mort- 
 gaged or transferred. The parties had endeavored to get over 
 this difficulty by providing that the trustees were to operate it 
 as the agents of the company ; but it was held that even with- 
 out this provision the trustees were endowed with sufificient 
 powers to enable them to maintain and operate the road : that for 
 this purpose they might use their own proper names or adopt any 
 other convenient business name, as any other individual or com- 
 pany might do ; and that they were under no necessity of adopt- 
 ing the name of the company to whose rights in the property they 
 had succeeded. Any other construction of the mortgage would, 
 it was pointed out, lead to the conclusion that the rights of the 
 mortgagee could be enforced only by taking up the road and dis- 
 posing of the material ; and it was thought to be impossible that 
 the legislature, in authorizing the mortgage of the railroad prop- 
 
316 RAILWAY BONDS AND MORTGAGES. [CHAP. XII. 
 
 erty, could have intended that any consequences so disastrous to 
 the public should be allowed to result from the default of the 
 company. " If," said the court, " it was the intention that the 
 road should not be taken up and destroyed, for the payment of 
 the mortgage debt, but that it should be sold subject to the duty 
 towards the public of continuing and operating it as a road, it 
 follows necessarily that it was the intention of the legislature that 
 those into whose hands it might fall, and upon whom this duty to 
 the public of running and operating the road might devolve, should 
 possess all the necessary rights and powers to enable them to per- 
 form this duty. The authority to mortgage implies the authority 
 to sell the thing mortgaged, and to convey to the purchaser all 
 needful powers to use the thing purchased in a proper and bene- 
 ficial manner." ^ 
 
 § 296. Trustee's Duty to account to Bondholders for the Avails 
 of the Property. — Trustees in possession of the road and operating 
 it must account to the bondholders for the income while it is under 
 their management. A failure to do so is a neglect and a violation 
 of their duty to such bondholders, and renders them liable to a 
 suit for an accounting. Such claims of the bondholders against 
 the trustees, although claims on account of the bonds, are claims 
 against the trustees personally for the moneys received to the 
 use of the bondholders.^ 
 
 Each bondholder has a right to receive his share of any money 
 which comes into the hands of the trustee, and is applicable to 
 the payment of the bonds. Whether the bondholders who have 
 acquired their bonds since the money became available for this 
 purpose are entitled to a share of it depends upon the nature of 
 the transaction by which the bonds were acquired. In dealing 
 with a demurrer to a complaint in an action brought by a bond- 
 holder to enforce his claim to such money, it will be presumed 
 that the securities passed to the plaintiff with all their incidents, 
 among which would be the right to have a proportionate amount 
 of the money applied to the payment of his bonds, and that the 
 time when the transfer occurred is, therefore, not material. The 
 demurrer will accordingly be dismissed in the absence of some 
 averment on this point.^ 
 
 A bondholder's remedy to compel a trustee to account for the 
 proceeds of the sale of property which, in accordance with tlie 
 provisions of the mortgage, he has bid in at the foreclosure sale 
 
 1 Palmer v. Fortes (1860), 23 111. 301. = Dwighti;. Smith (1882), 13 Fed. Rep. 
 
 2 Dwight V. Smith (1881), 9 Fed. Bep. 50. 
 795. 
 
§ 297.] 
 
 TRUSTEES. 
 
 317 
 
 for the benefit of the bondholders and afterwards conveyed, is not 
 confined to an intervention in the foreclosure suit, for the facts 
 on which such relief is claimed do not arise until after the entry 
 of the judgment in the foreclosure suit.^ 
 
 § 297. Relation of the Trustee in Possession to the Mortgagor 
 Corporation. — A trustee in possession of the mortgaged property 
 is for some purposes regarded as the agent of the corporation as 
 well as of the bondholders.^ 
 
 He must account for the earnings to the company,^ or any one 
 claiming by the same right as the company, — such as the purchaser 
 of the equity of redemption, for instance.* 
 
 He is bound to manage the property with reasonable care, pru- 
 dence, and faithfulness, and to apply the net income according to 
 the legal rights of all parties.^ 
 
 But where the trustee is known not to be a man having expe- 
 rience in the direct management of a railroad, he is not held 
 responsible for the highest skill, or for failing to attain, in the 
 operation of the road, the same degree of success which might 
 
 1 Zebley v. Farmers' Loan & Trust Co. 
 (1893), 139 N. Y. 461 ; s. c. 34 N. E. 
 Eep. 1087. 
 
 2 Ashuelot R. Co. v. Elliot (1874), 57 
 N. H. 397 ; s. c. 13 Am. Ry. Rep. 491 ; 
 Racine & Miss. R. Co. v. Fanners' Loan & 
 Trust Co. (1868), 49 111. 331. 
 
 ' Racine v. Mississippi R. Co. v. Farm- 
 ers' Loan & Trust Co. (1868), 49 III. 331. 
 
 * Wood V. Goodwin (1861), 49 Me. 260. 
 
 5 Kennebec & Portland R. Co. v. Port- 
 laud & Kennebec R. Co. (1871), 59 Me. 9. 
 In tills case a foreclosure sale made by 
 virtue of proceedings instituted by a trus- 
 tee in possession under a first mortgage, 
 was attacked by the bondholders secured 
 by a second mortgage, in which the same 
 party was also named as trustee. Upon a 
 review of the facts the sale was sustained ; 
 but the court, in the course of its opinion, 
 declared a different ruling would have 
 been proper if fraudulent or negligent 
 conduct on the part of the trustees had 
 been shown. " A mortgagee in posses- 
 sion," it was remarked (p. 47), "is un- 
 doubtedly in an important sense a trustee 
 for the mortgagor, and hound to regard his 
 intprest. These trustees knew that in 
 three years the equity would be fore- 
 closed, and that it was their duty to pre- 
 vent this consequence if they could 
 legally, and had the means or money in 
 
 their hands which they could, properly 
 and consistently with their obligations to 
 others, and with their duty under the law 
 or stipulations under which they acted, 
 apply to the payment of these second- 
 mortgage coupons, due and unpaid. And 
 we think, further, that if, having such 
 means, they diverted them to other ille- 
 gitimate objects, or entered into combi- 
 nations with others to allow the time of 
 redemption to run out, when it could have 
 been prevented by the use of earnings or 
 assets in their hands, which might, under 
 their responsibilities and duties, have 
 been so applied that the foreclosure should 
 not be set up or held effectual. Again, if by 
 intentional mismanagement or neglect, or 
 by such gross and clearly proved misfea- 
 sance in their office, and inattention to the 
 wants and interests of the road as would 
 amount to constructive fraud, the income 
 was thereby reduced so as to affect the net 
 profits, which a different mode of adminis- 
 tration would have produced, which profits 
 would have been, or might h.Tve been, 
 properly applied to the payment of those 
 coupons before the three years would liave 
 expired, and would have been sufficient, 
 we think that the same result as to strict 
 foreclosure would follow. It would be 
 against right, reason, and fair dealing to 
 hold otherwise." 
 
318 RAILWAY BONDS AND MORTGAGES. [CHAP. XII. 
 
 possibly be reached by an experienced, long-tried, and exceptional 
 manager.^ 
 
 § 298. Trustee taking Possession not an Assignee of a Lease made 
 subsequently to the Mortgage.^ — The trustees of a mortgage exe- 
 cuted prior to the leasing by the company of another road are 
 not, when they enter into possession, bound by the terms of the 
 lease, nor under any obligations to undertake its burdens. They 
 will not, therefore, be required to account for the earnings of the 
 leased road to a trustee selected by the lessor and lessee jointly, 
 who, under the stipulations of the leases, was to receive those 
 earnings for the purpose of being applied to the payment of the 
 interest on the bonds, the surplus, if any, to be handed over to 
 the lessor. Any money derived from this source is liable, as 
 being the property of th'e lessor company, to be garnished in 
 the hands of the trustees thus in possession.^ 
 
 §299. Surrender of Possession by Trustee. — A trustee who 
 has entered into possession by virtue of a special agreement 
 which by its terms is plainly made for the benefit of the rail- 
 road company, to prevent the necessity of a foreclosure by either 
 of the methods pointed out in the mortgage, must surrender the 
 road as soon as the company is ready to pay all the interest that 
 is due, and is in a condition to meet future instalments, although 
 the end of the period of possession specified in the agreement 
 may not have arrived. Under such circumstances the company 
 may waive the condition made for its benefit if it so desires.* 
 
 § 300. Liabilities of Trustees to Third Persons. — A trustee of a 
 corporate mortgage, by a certificate on each of the bonds of the 
 corporation that " This bond is one of a series of bonds within 
 mentioned, and is secured by mortgage as therein described duly 
 recorded," etc., does not thereby render himself liable to a purchaser 
 of the bonds from the corporation in case the mortgage proves not 
 to have been a first lien upon the property covered by it.* 
 
 1 Kennebec & Portland R. Co. v. Port- had occurred which were to give the 
 land & Kennebec R. Co. (1871), 59 Me. 9. right of possession under that instrument ; 
 
 2 Compare the simOar rule as to a re- viz., a default in the payment of the 
 ceiver. Chap. XXVII., post. interest, and a declaration by the major- 
 
 3 Milwaukee & "W. R. Co. v. Brooks ity of bondholders that the principal was 
 Locomotive Works (1887), 121 TJ. S. 430; "forthwith due and payable," or a re- 
 s. c. 7 Sup. Ct. Rep. 1094 ; 30 Am. & quest, after such default, by the holders 
 Eng. R. R. Cas. 499. of bonds to a certain amount to foreclose 
 
 * Union Trust Co. v. Missouri, K. & T. the mortgage. 
 Ey. Co. (1880), 26 Fed. Rep. 485. It was ^ Byers v. TTnion Trust Co. (1896), 175 
 
 also argued that the terms of the mortgage Pa. St. 318 ; s. c. 34 Atl. Rep. 629 ; S8 
 
 required the possession to continue ; but W. N. C. 207. See Miles v. Roberts 
 
 the court said that neither of the events (1896), 76 Fed. Rep. 919, where such a 
 
§ 300.] TRUSTEES. 319 
 
 The general rule is that the trustees who take possession of a 
 railroad for breach of the condition in the mortgage stand in the 
 place of the corporation, vested with all the rights and subject to 
 all the liabilities incidental to the exercise of the franchise and 
 the operation of the railroad.^ 
 
 They are, therefore, liable for an injury to property caused by 
 the creation and maintenance of a nuisance on the railroad lands, 
 and for injuries generally caused by the negligence of those whom 
 they employ to operate the road ; ^ and their responsibility, as 
 regards passengers and freight, is that of a common carrier.^ 
 
 The liability in these cases is personal, for they are not in pos- 
 session as receivers or officers of the court, and their accountability 
 is to tlie bondholders.* 
 
 But where a statute expressly limits the liability of the trustees 
 as such to the moneys received from the operation of the road, 
 and their personal liability to malfeasance or fraud, they cannot 
 be held absolutely liable for an injury to property by fire, under a 
 statute which provides that, " when a building or other property 
 is injured by fire communicated by a locomotive engine, the corpo- 
 ration using it is responsible for such injury." It was suggested, 
 however, that in the proper proceedings, under an allegation of 
 receipts beyond what was necessary to liquidate prior claims, the 
 trustees might be required to appropriate enough to pay the claim, 
 either as an incident to and a part of the " running expenses," or 
 as " damages arising from misfeasance in the management of the 
 road," which the statute defining their liabilities required them 
 to pay.5 
 
 Their liability for the negligence of their employees still con- 
 tinues where, after entering into possession, they lease the prop- 
 erty to others, but, under a verbal agreement, go on operating it 
 for the lessees, and receive the earnings, pay the expenses, select, 
 contract with, and discharge the persons employed on the road, 
 and exercise all the powers usually exercised by railroad corpora- 
 tions over their own roads.^ 
 
 certificate of the trustee was held to * Rogers v. Wheeler (1871), 43 N. Y. 
 amount to a warranty. 598. Compare Sprague v. Smith (1857), 
 
 1 Daniels v. Hart (1875), 118 Mass. 29 Vt. 421. 
 
 543 ; Union Trust Co. ». Ciippy (1882), 26 ' Stratton v. European & North Ameri- 
 
 Kans. 754 ; s. c. 11 Am. & Eng. K. R. can Ey. Co. (1883), 74 Me. 422. 
 
 Cas. 562. « Ballou v. Farnum (1864), 91 Mass. 
 
 2 Ballou B. Farnnm (1864), 91 Mass. 47. 47. The reasoning of the court was that, 
 ' Barter v. Wheeler (1869), 49 N. H. in spite of the ambiguity of the language 
 
 9; Rogers v. Wheeler (1870), 2 Lans. of the agreement, that " they should con- 
 486; on appeal (1871), 43 N. Y. 598; tinne to operate the road for the lessees," 
 Sprague v. Smith (1857), 29 Vt. 421. the practical construction put upon thi- 
 
820 RAILWAY BONDS AND MORTGAGES. [CHAP. XII. 
 
 Nor is their liability as common carriers affected by the sur- 
 render of the whole property to a company newly organized under 
 a decree which provides for full indemnity to them by lien upon 
 the property, as against all liability of every description incurred 
 or to arise out of any act or contract done or made by them as 
 such trustees.^ 
 
 § 301. Trustees in Possession are within the Purview of Statutes 
 imposing duties and liabilities to which the company itself is 
 made liable, either for the reason that it is a railroad company, or 
 for the reason that it is one of a certain class of property owners. 
 Thus they are liable under the various statutes requiring the com- 
 pany to pay damages in certain cases where injuries are inflicted 
 in the operation of the road upon person or property .^ 
 
 So also trustees who have taken possession of a road and com- 
 pleted it are within the terms of a statute requiring railroad 
 companies to erect and maintain fences and cattle-guards, and 
 may be compelled by a decree of specific performance to carry out 
 the duty thus imposed upon them.^ 
 
 So also, if improvements on a river made by statutory authority 
 benefit the railroad property among others, the trustees are liable 
 to be assessed for a proportionate share of the expenses.* 
 
 § 302. Liability of the Company while the Trustees are in Posses- 
 sion. — The liability of the trustees under such circumstances 
 would seem necessarily to involve a complete exemption from 
 liability on the part of the corporation itself, which has no longer 
 the right or the power to control the property, and cannot be 
 brought within the reach of the principle that the burdens of the 
 position must be borne by one who enjoys its advantages. This 
 doctrine has been adopted in a case in which the corporation 
 was held not liable under a statute requiring the payment of 
 damages to the " widow and family of a person whose life is 
 lost by the negligence of servants or agents in the operation 
 of the road." 5 
 
 words showed that they were to be treated 352 ; Cooley v. Brainerd (1866), 38 Vt. 
 
 as a form of expression indicating that 394. 
 
 the defendants had become substitutes for 8 Jones v. Seligman (1880), 81 N. Y. 
 
 the lessees. 190 ; s. c. 3 Am. & Eng. R. K. Cas. 
 
 1 Rogers u. Wheeler (1871), 43 N. Y. 236. 
 
 598. 1 Connty Commrs. of Hampshire, Pe- 
 
 2 Lamphearr. Buckingham (1866), 33 titioners (1887), 143 Mass. 424; s. c. 9 
 Conn. 237 ; Stratton v. European & North N. E. Rep. 756. 
 
 American Ry. Co. (1884), 76 Me. 269; 6 state ». Consolidated European & 
 
 s. 0. 17 Am. & Eng. R. R. Cas. 277 ; North American Ry. Co. (1878), 67 Me. 
 
 Farrell v. Union Trust Co. (1883), 77 Mo. 479. 
 475 ; s. c. 13 Am. & Eng. R. R. Cas. 
 
§ 303.] 
 
 TRUSTEES. 
 
 321 
 
 But another view has also been taken, and it has been held 
 that, where the trustees are exercising the same functions as the 
 corporation which has selected them, and are operating the road 
 to earn money to pay the debts of that corporation, the trustees 
 will be regarded as the agents of the corporation so far as relates 
 to the transaction of business with third persons, and such per- 
 sons may sue the corporation directly and recover for damages, in 
 respect to transactions had with the trustees.^ 
 
 § 303. Fiduciary Position of Trustee, Acts inconsistent -with. — 
 The trustee in possession, as he is thus considered to occupy a 
 fiduciary position with regard to the debtor and the creditor, is 
 forbidden by the ordinary principles of equity applicable to such 
 a position to deal with the property under his control in such a 
 manner as to place his individual interests in a state of antag- 
 onism with those of either the bondholders or the makers of the 
 bonds. Thus, although there is no rule of law which incapacitates 
 him from purchasing and holding the bonds,* he will not be per- 
 mitted to speculate in them for his private advantage, and for any 
 profits which accrue from a rise in the value of the securities he 
 will be compelled to account to the company.^ 
 
 1 Grand Tower Manufacturing & 
 Transportation Co. v. UUman (1878), 89 
 111. 244. Here the company was held 
 liable, as a common carrier, for the de- 
 struction of goods by fire. No reason 
 except the position of agency for the com- 
 pany occupied by the trustees is given by 
 the court for this ruling, which is difficult 
 to reconcile with the cases cited already in 
 this and the two preceding sections, or 
 with a previous decision of the same court 
 in which the trustee's property was re- 
 quired to answer in damages for a personal 
 injury, although they had carried on the 
 business of the road in the name of the 
 company. Wilkinson etal. Trustees, etc. 
 V. Fleming (1863), 30 111. 353. 
 
 2 Clark V. Flint & Pere Marquette Ky. 
 Co. (1875), 5 Hun, 556 ; Ashuelot Ky. 
 Co. I'. Elliot (1874), 57 N. H. 397 ; s. c. 
 13 Am. Ey. Rep. 491, per Foster, C. J. 
 
 3 Ashuelot Ry. Co. v. Elliot (1874), 
 57 N. H. 397 ; s. c. 13 Am. Ry. Rep. 
 491. There the reasons for applying the 
 general rule in this case were explained as 
 follows by Ladd, J., who deli%'ered the 
 principal opinion : " It is true, as the 
 defendant says, that the legal liability of 
 
 21 
 
 the corporation on the bonds has all the 
 time been to pay their full amount with 
 interest to the holders. It is at the same 
 time true that, when the bonds are selling 
 in the market or otherwise at fifty cents 
 on a dollar, the debt might be extin- 
 guished by the corporation for one-half 
 the amount they are legally liable to pay. 
 The actual value of the bonds was all the 
 time [i. e. while they were outstanding] 
 measured by the amount for which they 
 could be sold, and this would depend 
 upon the understood ability of the com- 
 pany eventually to pay them in full. 
 Now, when Mr. Elliot [the trustee], after 
 he had taken possession of the road under 
 the mortgage, became the owner of $46,000 
 of the bonds secured thereby, his indi- 
 vidual interest lay strongly in the direction 
 of enhancing their salable value, and so 
 of increasing the amount for which the 
 corporation might procure the extinguish- 
 ment of the debt and remove the mortgage. 
 The master finds that his buying up of 
 the bonds was in part the cause of advanc- 
 ing their price from about fifty per cent, 
 to about par. His duty did not call for 
 any such private speculation for such » 
 
322 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XII. 
 
 Nor can he make a valid contract for the lease of the road to 
 another corporation in which he is a stockholder and director.'' 
 
 It constitutes no breach of trust for a trust company, under a 
 mortgage of one corporation covering its property and stock (the 
 controlling share) of another corporation, for the trustee to accept 
 from this second corporation a mortgage upon its property, to secure 
 bonds issued and turned over to the trust company to be used as 
 a collateral to secure a debt owed by this second corporation to the 
 first, the transaction being for the benefit of the bondholders.^ 
 
 § 304. Trustee not compelled to couutersign and deliver Bonds. — 
 The trustee of the mortgage in whose possession bonds are, 
 cannot be compelled at the suit of a creditor of the corporation to 
 issue the bonds of the corporation.^ 
 
 purpose ; and even though it should be 
 said that a legal wrong was not thereby 
 done to the mortgagors, inasmuch as their 
 undertaking was to pay the full face of 
 the bonds, the proceeding, nevertheless, 
 strikes my mind as quite inconsistent, in 
 an equitable point of view, with the re- 
 lation of confidence and trust in which 
 he stood to them. The reasons for scruti- 
 nizing with considerable care the acts of 
 one situated as this trustee was, and 
 applying the equitable rules relative to 
 the conduct of trustees with a reasonable 
 degree of strictness, seem to me, indeed, 
 strong and imperative. He has the whole 
 control and management of the road. 
 His position necessarily gives him means 
 of knowing its present resources and 
 future prospects possessed by no one else. 
 By accepting that position he assumed 
 obligations to all the real parties in 
 interest altogether inconsistent, as it 
 seems to me, with the interposition of 
 any private or personal interest of his 
 own. With respect to the duties thus 
 voluntarily assumed, the individual was 
 absorbed, as it were, in the trustee. The 
 interest of the corporation, which he was 
 bound to protect so far as he could with- 
 out infringing the legal rights of the 
 bondholders (also in his keeping), lay iu 
 the direction of extinguishing the debt. 
 In his relative capacity he represented the 
 debtor and creditor both. A purchase of 
 bonds by him on behalf of the corporation 
 would be an extinguishment of the debt 
 pro tanto. In doing that he would not be 
 buying of his cestuis que trust, because 
 
 as an individual he would represent the 
 debtor. If, as an individual, he may 
 buy the bonds, that woiild be, in the first 
 place, a purchase by a trustee of his 
 cestuis que trust, and, iu the second place, 
 would to that extent . change his position 
 from that of a trustee with no interest 
 but to preserve the just and legal rights 
 of both debtor and creditor, to that of the 
 creditor having in his control and man- 
 agement the property of the debtor." 
 
 1 Ashuelot R. Co. v. Elliot (1874), 57 
 N. H. 397 ; 13 Am. Ry. Rep. 491. 
 
 2 Gasquet v. Fidelity Trust & Safety 
 Vault Co. (1896), 75 Fed. Rep. 343. 
 
 ' Eastern Electric Cable Co. v. Great 
 Western Mfg. Co. (1895), 164 Mass. 274 ; 
 41 N. E. Rep. 295. 
 
 In England debentures are often cer- 
 tified to by the trustees, and the United 
 States Mortgage and Trust Company of 
 New York has recently originated a sys- 
 tem of authentication of municipal bonds 
 so as to guard against fraud, over-issue, 
 etc. 
 
 Statutes of some of the States relating 
 to trustees of railroad mortgages ; Maine, 
 Rev. Stats. 1883, ch. 51, §§ 85-90, Elec- 
 tion, power, and duties of mortgage 
 trustees ; § 91, Foreclosure by trustees. 
 Massachusetts, Pub. Stats. 1882, ch. 112, 
 § 66, Power of trustees entitled to posses- 
 sion. Pennsylvania, Br. Purd. Dig. 1887, 
 p. 1440, § 127, Liabilities of tnistees 
 in possession. S. C, Gen. Stats. 1882, 
 § 1415, Liabilities of trustees in posses- 
 sion. Vt., Gen. Stats. 1894, ,§§ 3941 et 
 seq., Duties, etc. of trustees. 
 
§ 205.] 
 
 STATUTORY LIENS IN FAVOR OF BONDHOLDERS. 
 
 323 
 
 CHAPTER XIII. 
 
 STATUTORY LIENS IN FAVOR OP BONDHOLDERS. 
 
 805. Introductory. 
 
 306. When a Lien is deemed to have 
 
 been created by the Statute. 
 
 307. Construction of Statutory Mort- 
 
 309. 
 310. 
 
 311. 
 
 Waiver of the Benefit of a Statu- 
 tory Lien by the State. 
 
 Release of Statutory Lien. 
 
 Remedies of Bondholders for the 
 En forccment of Statutory Liens. 
 
 Condition for the Benefit of the 
 State in the Enabling Act can 
 only be taken Advantage of by 
 the State. 
 
 § 312. Subrogation of Bondholders to 
 the Eights of the State. 
 313. Bight of Holders of State Bonds 
 negotiated by Company to en- 
 force Lien declared in Favor of 
 the State. 
 
 Unconstitutionality of Part of 
 Act authorizing Issue of State 
 Bonds not a Bar to Enforce- 
 ment of Lien by Bondholders. 
 
 Eff'ect of Subsequent Legisla- 
 tion on the Eights of Bond- 
 holders secured by a Statutory 
 Lien. 
 
 314. 
 
 315. 
 
 § 305. Introductory. — In the present chapter it is proposed to 
 review the cases dealing with the rights of bondholders under 
 statutes creating liens or mortgages (the terms are used indiffer- 
 ently by the courts) ^ in favor of a State to secure it for the loan 
 of its credit to railroad companies. Such loans of the State 
 credit are usually effected in one of two ways. Either the State 
 guaranties the railroad bonds by indorsing them, or issues its 
 own bonds to the company for negotiation. In the latter case 
 it is usual to provide for a deposit in the State treasury of the 
 railroads bonds to an amount equal to those issued by the State 
 to the company. 
 
 The effect of the acceptance of the provisions of such statutes, 
 therefore, is that the State occupies the position either of guaran- 
 tor or principal debtor as regards the purchasers of the bonds 
 negotiated by the company. Whether the lien reserved by the 
 State can be enforced directly by the bondholders depends upon 
 the construction of the statute itself, and each case must be 
 decided in view of the terms of the particular statute. If the 
 State has guarantied the railroad bonds by any words showing 
 
 ' In some cases such liens are said to 
 bo substantially " in the nature of mort- 
 
 McGraw v. Memphis & Ohio E. 
 Co. (1868), 5 Coldw. (Tenn.) 434. 
 
324 RAILWAY BONDS AND MORTGAGES. [CHAP. XIII. 
 
 that the lien is created for the benefit not only of the State itself, 
 but also of the bondholders, as will be seen below, the latter 
 have a locus standi to apply to a court of equity for relief and to 
 be subrogated to the rights of the State. If the loan of the 
 State credit has been effected by the issuance of State bonds, 
 the principle of subrogation cannot operate, and the action of 
 the State is necessary to enable the bondholders to obtain the 
 benefits of the lien, unless the effect of the statute is not 
 simply the creation of a lien in favor of the State, but also a 
 specific appropriation of some definite part of the property to the 
 payment of the debt secured thereby. 
 
 § 306. 'When a Lien is deemed to have been created by the Statute. 
 — To create a statutory lien on the corpus or earnings of a rail- 
 road as a security for municipal or State aid, the expressions used 
 in the statute must show clearly that it was the intention of the 
 legislature to call the lien into existence. No such inference can 
 be drawn from the fact that the companies accepted the State 
 bonds issued in accordance with its provisions, thereby rendering 
 themselves liable to the payment of a requisition, called in the 
 statute a " tax," which was to be paid at stated times to the State 
 treasurer, whose duty it was, in case of default in such payments, 
 to sequester the revenues and hold them until the default had been 
 fully paid up. Nor can a lien be created by implication from a 
 section of such a statute providing that, upon the payment of this 
 " taxation," the said road shall be entitled to a discharge from 
 all " claims or liens " on the part of the State.^ 
 
 ' Tompkins v. Little Rock & Fort 1)011(13, and tliat they were entitled to be 
 
 Smith Ry. Co. (1882), 15 Fed. Rep. 6; subrogated to the same in equity and have 
 
 18 Fed. Rep. 344 (1883) ; 21 Fed. Rep. it euforced against the property. When 
 
 370 (1883) ; 125 U. S. 109 (1888). In the matter came up in the United States 
 
 this case a company receiving the bonds Circuit Court a demurrer to the bill was 
 
 issued under the statute in question had overruled, both the Circuit and the Dis- 
 
 executed a mortgage to secure its own trict Judges holding, upon the authority 
 
 bonds. This mortgage had been foreclosed, of Railroad Cos. v. Schutte (1880), 103 
 
 and the property sold subject to any lien TJ. S. 118, that this act created a statutory 
 
 of the State which might be declared to mortgage on the roads, their income and 
 
 exist on account of the State-aid bonds, revenues, to secure the payment of the 
 
 and the purchaser at the sale had organ- State bonds by the companies accepting 
 
 ized a new company. Thereafter the the loan ; that all persons were bound to 
 
 State Supreme Court had declared the take notice of the lien reserved by the act, 
 
 issue of their State-aid bonds unconstitu- and when it occurred ; that the lien 
 
 tional and the bonds void. The holder of reserved to secure the payment of the 
 
 some of these bonds and coupons brought bonds was financially a security for those 
 
 suit against this new company, alleging holding the bonds ; that, as between the 
 
 that there was a statutory lien under the State and the company receiving the bonds 
 
 acts in favor of the State to secure these the company was the principal debtor, 
 
306.] 
 
 STATUTORY LIENS IN FAVOR OP BONDHOLDERS. 
 
 325 
 
 Nor can an intention to create such a lien be deduced from the 
 fact that, unless the particular clause of the act relied on is oper- 
 
 and bound to pay the bonds or pay to the 
 State money for that purpose ; that, if the 
 bonds were void as obligations against the 
 State, the company which received and 
 negotiated them as genuine was bound to 
 pay them to bona fide holders ; and that 
 the latter might, therefore, enforce the 
 lien reserved by the act to secure this 
 result. Upon final hearing the bill was 
 dismissed in conformity with the opinion 
 of Miller, Circuit Justice, in which he 
 held that there was nothing in the bonds 
 themselves, without indorsement by the 
 companies, to bind those that received 
 and sold them to pay either the principal 
 or interest ; that the holder of the bonds, 
 though the latter might be void as to the 
 State, would be entitled to such remedy 
 as the statute gave against any railroad 
 companies which had accepted and sold 
 the bonds, and thereby ratified the reme- 
 dies provided by the statute ; but that 
 there was nothing in the act which would 
 constitute a statutory lien for the benefit 
 of those bondholders, or against the rail- 
 road property itself. Caldwell, District 
 Judge, adhered to his former opinion. 
 
 Upon appeal to the Supreme Court the 
 decision of Justice Miller was upheld. In 
 the course of his opinion Waite, C. J. , said : 
 " The bonds were bonds of the State, pure 
 and simple ; they carried on their face no 
 express obligation of the railroad company 
 to the holder. The promise made by the 
 company on the acceptance of the bonds 
 was to pay the State, not the bondholder. 
 The failure of the company to meet its 
 obligations to the State did not operate in 
 any manner to relieve the State from its 
 liability on the bonds. The debt of the 
 State still remains, and was the only debt 
 the bonds expressed on their face. The 
 debt of the company was to the State for 
 the bond, not to the bondholder on the 
 bond, payment of which to the State dis- 
 charged the obligation of the company. 
 If these bonds were invalid, and relief was 
 sought on that account against the com- 
 pany selling them, the liability would not 
 be on the bonds, but for the money had 
 and received on their sale ; that certainly 
 would be the debt of the original company 
 
 alone, and in no way binding on a pur- 
 chaser of its property." 
 
 The distinction between the case before 
 the court and those of Railroad Cos. v. 
 Schutte (1880), 103 U. S. 118, and 
 Ketchum v. St. Louis (1880), 101 U. S. 
 306, was then pointed out. "The facts of 
 the latter showed a complete equitable 
 assignment of the fund in question, while 
 in the present one there was no specific 
 appropriation of the earnings of the road. 
 The company was required to pay what 
 was called the ' tax,' to enable the State 
 to meet the semi-annual instalments of 
 interest on the State bonds, and provide a 
 fund for the redemption of the principal 
 whenever it falls due. No specific amount 
 of the earnings of the road was specially 
 set apart by law for that purpose. There 
 was no provision for a custodian of the 
 earnings, whose duty it shall be to pay the 
 State, out of the earnings as they accrue, 
 any definite amount on the days named. 
 The tax is to be paid by the company on 
 certain specific days, but there is no statu- 
 toiy appropriation of earnings for that 
 purpose. If the company fails to meet 
 the ' tax ' as it falls due, the income and 
 revenues of the ' said company ' may be 
 sequestered. Under the operation of this 
 sequestration the receiver to be appointed 
 may take possession of all the income and 
 revenue of said defaulting company, with 
 authority to demand and receive all moneys 
 coming to the same from the operation of 
 such road ; but this falls very far short of a 
 specific appropriation of the earnings of the 
 road as they accrue, so that they can be 
 demanded under the statute as earnings 
 of the road, without sequestration." The 
 learned Chief Justice, while admitting the 
 propriety of considering the intention to 
 charge the property with a lien, and the 
 duty of the court of equity to use its 
 power to enforce such charge, and to put a 
 liberal construction on such statutes, with 
 a view to establish such charges against 
 the companies and in favor of the State, 
 thus concluded: "The wide departure 
 which Arkansas made in this statute from 
 the accustomed form of proceeding, both 
 at home and elsewhere, is strongly indica- 
 
326 
 
 EAILWAT BONDS AND MORTGAGES. [CHAP. XIII. 
 
 ative for this purpose, it will be merely declaratory of the law as 
 it was already ; especially when the result of such a construction 
 would be to make another clause in the same section devoid of 
 meaning.^ Nor do bonds issued in pursuance of an act providing 
 that they " shall be binding upon the property of the company, 
 and on such other property belonging to the stockholders as they 
 may pledge to the company by mortgage, to meet their own en- 
 gagements or the engagements of the company," become ipso 
 facto a lien on the property superior to other bonds, secured by a 
 later trust deed, and held by persons who have no notice of the 
 lien.2 
 
 It is not, however, necessary that the legislative intention to 
 call the lien into existence should be expressed in direct words. 
 Thus where the issue of a county's bonds to a railroad company 
 and the appropriation of the income of the road to the payment 
 of the interest and principal of the bonds are authorized by a 
 
 tive of an intention to waive security any 
 further than it was embraced in the re- 
 served power of sequestration. ... In 
 our opinion the new companies took the 
 roads free of incumbrance in favor of 
 the State, and neither the State nor its 
 bondholders are entitled to a sequestration 
 of the income and revenue arising there- 
 from in their hands." This statute was 
 again under discussion in the recent case 
 of McKittrick v. Arkansas Central Ey. 
 Co. (1894), 152 U. S. 473 ; s. c. 14 Sup. 
 Ct. Kep. 661, and the court adhered to its 
 former opinion. 
 
 1 Cincinnati City v. Morgan (1865), 3 
 Wall. 275. Here the act authorizing the 
 City Council of Cincinnati to issue its 
 bonds to a railroad contained the following 
 section : "It shaU be the duty of the said 
 City Council ... to secure by mortgages, 
 transfers, or hypothecations of stock of said 
 company, or by such other liens or securi- 
 ties as may be mutually agreed upon, the 
 payment of the principal as it may become 
 due, and the reimbursement of the interest 
 on the same which shall have been paid 
 by the city ; and, for the further purpose 
 of securing the city against all losses, 
 whether by the payment of the said princi- 
 pal or interest, the above-described liens, 
 etc., shall have precedence of all claims or 
 obligations subsequently contracted by the 
 company, and over other liens, securities, 
 or mortgages which were not duly entered 
 
 into before the respective loans and issues 
 aforesaid." The court said: "Tlie first 
 clause of this section would be quite as 
 idle and absurd a piece of legislation, 
 which conferred on the parties the au- 
 thority of agreeing on their own terms as 
 to the nature and character of the security, 
 for the loans, as the latter, if by the latter 
 clause, whatever might be the security 
 agreed upon, it must operate as a mortgage 
 on the road, and have precedence over all 
 others. Why give this choice of security 
 if this would be the result ? There was no 
 necessity to stipulate for a mortgage on the 
 road if the statute gave the lien without 
 it; nor propriety or sense in the choice be- 
 tween a mortgage and a pledge of stock, 
 if a lien on the road followed either 
 security." 
 
 2 Brunswick & Albany E. Co. v. Hughes 
 (1874), 52 Ga. 557; s. c. 7 Am. Ey. 
 Eep. 137, distinguishing Collins v. Central 
 Bank, 1 Kelly (Ga.), 435, where, by the 
 statute, the corporate property was to be 
 " pledged and bound " for the redemption 
 of certain bills to be issued by the bank. 
 The court emphasized both the stronger 
 terms by which the lien was created in the 
 earlier case, and the different nature and 
 character of the two debts. The bonds 
 were an ordinary debt ; the bills were 
 issued for circulation among the people 
 of the State, and formed a part of the 
 currency. 
 
§ 307.] 
 
 STATUTORY LIENS IN FAVOR OP BONDHOLDERS. 
 
 327 
 
 statute, the acceptance of the terms specified in the statute, and 
 the issue of the county bonds in accordance with its provisions, 
 were held to operate as a contract by which the company agreed 
 that the official who was to receive the earnings should pay the 
 sums necessary to defray the interest on the bonds ; and the effect 
 of this contract is the creation of a lien of an equitable nature 
 upon the earnings as tliey accrued, and this lien is enforceable as 
 long as the bonds are unpaid.^ 
 
 § 307. Construction of Statutory Mortgages, — As regards the 
 property covered, a statutory lien or mortgage is constructed 
 according to the same principles as an ordinary trust deed or 
 mortgage. If the words used in the statute are such that they 
 would, in a trust deed or mortgage, be deemed to cover the whole 
 
 1 Ketchum v. Pacific Railroad (1877), 
 4 Dill. 78, affirmed in Ketchum «. St. 
 Louis (1880), 101 U. S. 306. 
 
 The legislature of Missouri had, be- 
 tween the years 1851 and 1855, passed 
 various acts loaning the credit of the State 
 to aid and secure the completion of the 
 Pacific Railroad. This aid was given in 
 the shape of bonds, the State being secured 
 by a statute lien with a power of sale. 
 The work of construction was suspended 
 .by the Civil War, but in 1864 another act 
 was passed authorizing the company to 
 borrow $1,500,000 to complete the road. 
 This loan was to be secured by a first lien 
 on a portion of the line, the State waiving 
 its prior lien to this extent. By this act a 
 fund commissioner was appointed, who was 
 to have control of all the revenues of the 
 company, which were to be applied, after 
 all expenses of operation, etc., had been 
 paid, in the following order: (1) To his 
 salary; (2) To liquidate the interest on 
 the first-mortgage bonds for which the 
 act provided ; (3) To the dividends on the 
 preferred stock which the same act au- 
 thorized to be created. The surplus, if 
 any, was to be applied to the purchase of 
 outstanding State bonds. The money was 
 obtained, but while the work was in prog- 
 ress the line was " raided " by the insur- 
 gent forces, and further aid was needed, 
 both to repair the damage thus inflicted 
 and to finish the line. In this emergency 
 the legislature authorized the County of 
 St. Louis to loan its credit or bonds for 
 this purpose. It was provided in this act 
 
 that the county should have a lien upon 
 the earnings of the company in the hands 
 of the fund commissioner, or any other 
 person, to secure the undertaking of the 
 company to pay the interest and principal 
 of these county bonds as they matured. 
 The provisions of the statute were accepted 
 by the company, and the bonds of the 
 county were issued to it. 
 
 When a subsequently executed mort- 
 gage was foreclosed, a question of priority 
 of lien as to the earnings arose. The 
 court said, referring to the terms of the 
 act : " Such appropriation and waiver 
 were, by agreement of all the parties then 
 interested in the property and the disposi- 
 tion of its income, to continue until the 
 bonds themselves were paid, or the county 
 discharged from liability thereon. It was 
 not a simple, naked covenant to pay out 
 of a particular fund; but the act, being 
 accepted by the parties interested, operated 
 as an equitable assignment of a, fixed por- 
 tion of that fund, — an assignment which 
 became efiectual without any further inter- 
 vention upon the part of the debtor, and 
 which the party holding the funds of the 
 company, whether the fund commissioner 
 or some other person, could respect without 
 liability to the debtor for so doing. . . . 
 It was an engagement to pay out of a 
 specially designated fund, accompanied by 
 express authority to its custodian to apply 
 a specific part thereof to a definite object 
 in the accomplishment of which all the 
 parties to the arrangement were directly 
 interested. " 
 
328 RAILWAY BONDS AND MORTGAGES. [CHAP. XIII 
 
 property of the company, including after-acquired property, the 
 statutory lien will be equally extensive. This result is not changed 
 by the fact that a portion of the road may have already been built, 
 before that particular section, upon the completion of which the 
 indorsement is authorized to be made.^ 
 
 § 308. "Waiver of the Benefit of a Statutory Lien by the State. 
 — As between itself and subsequent incumbrancers the State is 
 deemed to have waived its statutory lien by authorizing the com- 
 pany to issue bonds, and secure them by mortgages on the road, if 
 the enabling acts contain no intimation that such liens were to be 
 subject to the prior lien of the State.^ 
 
 § 809. Release of Statutory Lien. — Where the assignment of a 
 statutory State lien to a company is authorized upon the payment 
 to the State treasurer of a sum of money equal in amount to all 
 indebtedness due or owing by the company to the State, and all 
 liability incurred by the State by reason of having issued bonds 
 and loaned the same to the company, together with all interest 
 that has, or may have, at the time when such payment shall have 
 been made, accrued and remained unpaid by the company, the lien 
 of the State remains enforceable until payment has been made not 
 only of the face value of the bonds, but also of all outstanding 
 coupons which are, or have been, attached to the bonds, whether 
 due or not, together with all indebtedness due or owing by the 
 company to the State by reason of the latter's having issued its 
 bonds, or paid interest thereon.^ 
 
 The same act was also discussed in the Supreme Court of Mis- 
 souri, and the petition of the trustees for a mandamus to the 
 treasurer directing him to assign the lien was denied, on the 
 ground that, even if the act had the meaning contended for, viz., 
 that they were not obliged, as a prerequisite to the assignment, 
 
 1 Colt V. Barnes (1879), 64 Ala. 108. in improving it, the inference would 
 Compare Chap. IX. amount to certainty." 
 
 2 Newport & Cincinnati Bridge Co. v. « Kalston v. Crittenden (1882), 10 Fed. 
 Douglass (1877), 12 Bush (Ky.), 673; Eep. 254. Coupons, it was observed, are 
 Brown v. State of Maryland (1884), 62 obligations capable of a distinct suit, and 
 Md. 439. In the latter case it was ob- so far separate obligations from the bonds, 
 served : " In the ordinary affairs of life. As long as such pieces of paper were out- 
 if an individual who has a lien on prop- standing, they were each an item of debt 
 erty authorizes a mortgage of it for the owing at the time this transaction 
 purpose of raising money, it would be in- occuiTed. Whatever the State had be- 
 ferred that he intended his lien to be come liable for, under the issue of those 
 subordinated to the mortgage. But sup- bonds, was to be paid by a sum of money 
 pose his lien exceeded the value of the equal to it if paid in money, before tbe 
 property, and that the money to be ob- right to the assignment of the statutoi^ 
 tained by the mortgage was to be expended lien accrued. This had not been done. 
 
§ 310.J 
 
 STATUTORY LIENS IN FAVOR OP BONDHOLDERS. 
 
 329 
 
 to provide for the future interest, any such construction would 
 make it repugnant to a subsequent constitutional provision for- 
 bidding the legislature to release or alienate a State lien on any 
 railroad, and as no vested rights were created by the mere pas- 
 sage of the act, and its proposals had not been accepted until 
 after the adoption of the constitution, it ceased to operate as 
 soon as that event occurred.^ 
 
 On the other hand a constitutional provision that the legislature 
 shall have no power for any purpose whatever to release the lien 
 held by the State upon any railroad, does not prevent that legis- 
 lature from discharging its lien on receiving the full value of the 
 security, the legislature itself being the judge of what the full 
 value is.2 
 
 § 310. Remedies of Bondholders for the Enforcement of Statutory 
 Liens.2 — When the State indorses railroad bonds, and reserves by 
 statute a lien upon the property of the company for its own in- 
 demnification, the presumption is that the lien so reserved is 
 for the protection and benefit not only of the State itself, but also 
 of the persons who take the bonds relying upon the guaranty of 
 the State.* 
 
 1 The State ex rel. Rolston et al. Trus- 
 tees V. Chappell (1881), 74 Mo. 336. 
 
 2 Murdock v. Woodson (1873), 2 Dill. 
 188 ; aflElrmed in Woodson v. Murdock 
 (1874), 22 Wall. 351. 
 
 ' As to the remedies for the enforce- 
 ment of the lieu of ordinary mortgages or 
 trust deeds, see post. 
 
 * Hand v. Savannah & Charleston E. 
 Co. (1879), 12 S. C. N. S. 314. In this 
 case it was contended that the language 
 of the statute vesting a lien in the State 
 upon its indorsing the bonds of a railroad 
 company, and making no mention of bond- 
 holders, implied that it was the intention 
 of the legislature to hold the lien for its 
 own benefit. In discussing this theory 
 the court made the following remarks: 
 ' ' In the payment of the bonds and inter- 
 est, not only the State but the bondholders 
 were interested ; and if security is given 
 for the performance of a particular act, 
 why should it not inure to all interested 
 in the performance of the act, whose in- 
 terests were the subject of consideration 
 and protection in the transaction that gave 
 origin to the security ? If a private indi- 
 vidual had stood in the place of the State, 
 and the terms of the act had been the 
 
 terms of a private contract, there can be 
 no doubt that as such contract, in effect, 
 created the rights of the bondholders, such 
 as might on the contingency contemplated 
 arise, such terms would be held to amount 
 to a declaration of trust in favor of the 
 after-springing rights of the bondholders, 
 and the surety could not be regarded as 
 holding, subject merely to a general equity 
 of subrogatioQ. There was nothing to 
 prevent the title acquired by the State in 
 the lien or mortgage from passing under 
 the operation of the same directly to and 
 vesting in the bondholder, according to 
 the extent of his interest, and therefore 
 there was no inconsistency in creating a 
 lien, attached to a bond, that may pass 
 from hand to hand, and vesting that lien 
 in the State." The court then commented 
 on the language of the act as follows: 
 "The intention is clearly expressed that 
 the security taken shall be for the payment 
 of the bonds. It is in no case said that 
 it is taken for the special indemnity of the 
 State as indorser. That is undoubtedly 
 implied, but the direct provision is for 
 the payment of the bonds. A provision 
 for the payment of the bonds is primarily 
 a security for those holding the bonds. 
 
330 RAILWAY BONDS AND MOETGAGES. [CHAP. XIII. 
 
 Such statutes usually provide special remedies for the enforce- 
 ment of the lien by the agents of the State, and it is only the State 
 itself that can use these remedies.-' 
 
 But if the State fails to put those remedies in motion, the bond- 
 holders may apply to a court of equity for relief, and thus avail 
 themselves of the existence of the lien created for their benefit,^ 
 unless there is some express provision in the statute that the 
 remedies given by it are to be exclusive.^ 
 
 Where a railroad company issues bonds which, in accordance 
 with the provisions of a statute, are guarantied by the trustees of 
 an internal improvement fund, and a subsequent statute makes 
 those bonds a first lien on the corporate property, the bondholder 
 has, in addition to the personal liability of the company, two 
 securities ; viz., the guaranty of the improvement fund, and the 
 statutory lien.* 
 
 But the bondholders cannot avail themselves of the lien as if it 
 were a mortgage given to secure the bonds alone. They must 
 induce the trustees of the guaranty fund to act in the mode 
 pointed out. If they refuse to act when they ought to do so, the 
 bondholders may either compel them to act by mandamus, or file 
 a bill in equity to obtain the relief to which they may be entitled." 
 
 It is always so in equity and at law when " State u. Florida Central K. Co. (1876), 
 
 its forms permit it." This reasoning was 15 Fla. 690. 
 
 approved ty the same court in Gibbes v. * Florida v. Anderson (1875), 91 U. S. 
 
 Greenville & Columbia K. Co. (1880), 13 667. 
 
 S. C. N. S. 228 ; B. c. 4 Am. &Eng. E. E. ' Florida v. Anderson (1875), 91 U. S. 
 
 Cas. 459. 667. Compare Schutte v. Florida Central 
 
 1 Forrest's Exrs. ». Luddington (1883), E. Co. (1879), 3 'Woods, 692. At the 
 68 Ala. 1 ; s. 0. 12 Am. & Eng. R. K. Cas. time the former of these suits was insti- 
 830. In this case the court thought it tuted the road had passed into the hands 
 was also incontestable that the State itself of the purchasers at the sale under a fore- 
 was not restricted to the statutory rem- closure against the company to which the 
 edy, but might resort, if such a course was bonds were originally issued. A portion 
 deemed preferable, to a court of equity, of the purchase-money had been paid, and 
 and have the lien enforced by the ordinary with this a corresponding amount of the 
 methods of chancery. This oMter dictum bonds had been retired. The holders of 
 is supported by State of Florida v. Florida the residue contended that their bonds 
 Central E. Co. (1876), 15 Fla. 690, where were still a first lien on the road, notwith- 
 it was held that, if there is a trust and a standing the trustees' sale, and that, at 
 mortgage, and connected with them, in all events, they were entitled to prosecute 
 order to secure their due enforcement, the lien for the unpaid purchase-money 
 there is a statutory power of sale, a court due on that sale in order to obtain satis- 
 of equity, at the suit of the trustee, might faction of their bonds, and to do so by 
 decree a sale conformably to the statutory right paramount to that of the State or 
 power. trustees to enforce the vendor's lien for the 
 
 2 Forrest'sExrs. p. Luddington (1883), unpaid purchase-money. The court, how- 
 68 Ala. 1 ; s. c. 12 Am. & Eng. E. R. Cas. ever, said that, as the lien was a statutory 
 330. one, it could only be enforced in the 
 
§§ 311, 312.] STATUTORY LIENS IN FAVOR OP BONDHOLDERS. 331 
 
 § 311. Condition for the Benefit of the State in the Enabling Act can 
 only be taken Advantage of by the State. — All act by which the State 
 empowers the company to borrow money upon its consenting to 
 recognize certain State-aid bonds as a part of its floating debt, 
 does not create the relation of debtor and creditor between the 
 company and the bondholders who were not parties to the trans- 
 action, or give them any right of action against the company.^ 
 
 § 312. Subrogation of Bondholders to the Rights of the State. 
 — ■ As already stated, the right of bondholders to enforce statutory 
 liens declared to indemnify the State for its indorsement of rail- 
 road bonds depends upon the principle of subrogation. This term 
 as used in this connection has a wider signification than that 
 which it ordinarily bears in respect to mortgages ; viz., the right 
 which arises when the mortgage debt has been extinguished by 
 any other than the party entitled to redeem. In most of the 
 cases on the subject the bondholders have been seeking to enforce 
 the lien while the debt was still in existence, and their claims to 
 be subrogated to the lien declared in favor of the State depend 
 rather upon the broad principle that a creditor is entitled to the 
 benefit of all pledges and securities, given to or in the hands of 
 a surety for his indemnity, and this whether the surety is damnified 
 or not, such pledges and securities being regarded as a trust cre- 
 ated for the better security of the debt.^ 
 
 " The right of the creditor arises from the natural justice of 
 allowing him to have applied to the discharge of his demand the 
 property deposited with the surety for that purpose, if required by 
 the default of the principal." ' 
 
 The operation of the principle of subrogation is not affected by 
 the rule that the State cannot be made a party to a suit in a 
 federal court, and refuses to be a party in any other court. The 
 
 raanner pointed out by the statute. The case will be found in the note appended to 
 
 primary right to proceed against the the report of it in 3 Am. & Eng. E. R. 
 
 property being in the trustees, and they Cas., p. 25 flF. Compare also State v. 
 
 having exercised that right with the result Florida Central E. Co. (1876), 15 Fla. 
 
 of being able to extinguish a portion of 690. 
 
 the bonds with money realized by the ^ Stuart v. James Eiver & Kanawha Co. 
 
 foreclosure sale, the original lien of the (1874), 24 Gratt. 294. 
 bonds was consummated and merged in ^ Colt v. Barnes (1879), 64 Ala. 108 ; 
 
 the title acquired by the purchasers at s. c. 7 Am. & Eng. B. E. Cas. 129. Com- 
 
 that sale. The holders of the outstanding pare the language of the same court in 
 
 bonds, therefore, had no right to interfere Forrest's Exrs. v. Luddington (1883), 68 
 
 with the proceedings instituted by the Ala. 1 ; s. c. 12 Am. & Eng. R. R. Cas. 
 
 State or the trustees for the enforcement 330. 
 
 of their vendor's lien, and might properly ' Chamberlain v. St. Paul & Sioux City 
 
 be enjoined from any such action. A R. Co. (1876), 92 U. S. 299, per Justice 
 
 useful note on the points raised in this Field. 
 
332 RAILWAY BONDS AND MORTGAGES. [CHAP. XIII. 
 
 law of subrogation being the creation of equity, and resorted to 
 to prevent a failure of justice, a court of equity would be guilty 
 of a singular inconsistency if it should deny the right of subroga- 
 tion for such a reason.^ But there can be no subrogation except 
 as to the bonds actually indorsed by the State.^ 
 
 And if some of an issue are indorsed, and others are not, the 
 holders of the former are entitled to be paid before the holders 
 of the latter out of the proceeds of a sale made by virtue of a 
 decree in proceedings to foreclose a mortgage executed by the 
 company to secure the bonds, and expressed upon its face to be 
 subordinate to the statutory lien.^ 
 
 Subrogation being a strictly equitable doctrine, creditors who 
 seek the enforcement of the claims by being subrogated to the 
 rights of the State must submit to the operation of the equitable 
 principle that " equality is equity." The holders of the bonds, 
 therefore, are entitled to share equally with the holders of past- 
 due coupons in the proceeds of a sale made under a decree fore- 
 closing the statutory lien.* 
 
 § 313. Right of Holders of State Bonds negotiated by Company to 
 enforce Lien declared in Favor of the State. — When the loan of the 
 State's credit is made by issue of State bonds to the railroad com- 
 pany, the State is, as regards the bondholder, the principal debtor, 
 and the company the surety. In such a case the company by 
 negotiating the bonds is liable under the rule that makes every 
 indorser of commercial paper the guarantor of the genuineness 
 and validity of the instrument he indorses.^ 
 
 But the relations of the parties do not admit of the application 
 of the doctrine of subrogation in favor of tlie bondholders. Their 
 right to enforce the lien of the State to secure payment of its 
 bonds depends upon the words of the statute creating that lien. 
 If that lien is made a security for the bondholders, they have their 
 own recourse thereon.^ So also, if there is by the statute a specific 
 appropriation of a definite portion of the company's property, into 
 whosesoever hands it may come, and it will be the duty of a court 
 of equity to do everything in its power to enforce that charge.'^ 
 
 1 Young V. Montgomery & Eufaula E. ' Kallroad Cos. v. Schutte (1880), 103 
 
 Co. (1875), 2 Woods, 606. U. S. 118 ; s. o. 3 Am. & Eng. R. R. Cas. 1. 
 
 " Clews & Co. 0. First Mortgage Bond- « Ibid, 
 
 holders of the Brunswick & Albany R. Co. ' Ketchum ». St. Louis (1879), 101 
 
 (1875), 54 Ga. 315. U. S. 306, explained and distinguished in 
 
 8 Colt y. Barnes (1879), 64 Ala. 108 ; Tompkins ». Little Rock & Fort Smith 
 
 s. c. 7 Am. & Eng. E. R. Cas. 129. Ry. Co. (1888), 125 U. S. 117, fromwhich 
 
 * State V. Spartanburg & Union R. Co. several extracts were given in the note 
 
 (1874), 8 S. C. 129. above. 
 
§ 314.J STATUTORY LIENS IN FAVOR OP BONDHOLDERS. 333 
 
 On the other hand, where a company, in accordance with the 
 provision of a statute authorizing a loan of State bonds, mort- 
 gages to the State certain lands, as an indemnity against loss 
 thereon, and after purchasing those bonds at a foreclosure sale 
 sells them to other companies, the bondholders have no equity for 
 the application of the land to the payment of the bonds which can 
 be enforced against the State, and the grantees take the property 
 discharged of any claim of the bondholders.^ 
 
 § 314. Unconstitutionality of Part of Act authorizing Issue of State 
 Bonds not a Bar to Enforcement of Lien by Bondholders. — If the 
 intention of the legislature is clearly expressed that the debt con- 
 tracted on the combined credit of the company and the State shall 
 be a lien on the railroad property, even the unconstitutionality of 
 that portion of the act which authorizes the execution of State 
 bonds, and their exchange for railroad bonds, will not necessarily 
 be fatal to the validity of the portion which creates the lien. 
 That portion will still be upheld, if, after striking out all that is 
 invalid, it is possible to give eifect to what appears, upon a con- 
 sideration of the whole enactment, to have been the legislative 
 will. The result in this case is to avoid the bonds as State 
 obligations, and to leave them good against the company which 
 actually put them out.^ 
 
 1 Chamberlain a. St. Paul & Sioux City agreement of tlie parties. It did not create 
 
 E. Co. (1875), 92 U. S. 299. It was con- any lien wliicli attached to and followed 
 
 tended by the counsel for the bondholders the property. It was a right to be enforced, 
 
 that, notwithstanding the form of the con- if at all, only by a court of chancery against 
 
 tract, the company was in fact the princi- the surety. But the State being the .surety 
 
 pal debtor, and the State its surety, thus here, it could not be enforced at all, and, 
 
 bringing the case under the rule illustrated not being a specific lien on the property, 
 
 in the preceding section. The court dis- cannot be enforced against the State's 
 
 posed of this theory as follows : " In this grantees. (Strong, J., dissented.) 
 
 case the deed and mortgage were not in- " Railroad Companies v. Schutte 
 
 tended to create a trust in favor of the (1880), 103 U. S. 118 ; s. o. 3 Am. & 
 
 holders of her own bonds. The State was Eng. R. R. Gas. 1, especially p. 142. The 
 
 primarily liable to the bondholders, and it court thought it clear that " the object of 
 
 was only as between her and the company the legislature was, not to create a debt 
 
 that the relation of principal and surety which the State was expected to pay, but 
 
 existed. It may be doubted whether the to aid the company in borrowing money 
 
 bondholders could call on the company in on the credit of the State," and laid stress 
 
 any event. The indorsement made by the upon the fact that, "in any event, the 
 
 president simply transferred the bonds ; it company was to be bound for the payment 
 
 was not the act of the company. Be that of the entire debt when it matured, and 
 
 as it may, whatever right the plaintiff had its property was to be given as security." 
 
 to compel the application of the bonds Under these circumstances " the uncon- 
 
 received by the State to the payment of the stitutional part of the statute might be 
 
 bonds held by him, it was one resting in stricken out, and the obligation of the 
 
 equity only. It was not a legal right company, including its statutory mortgage 
 
 arising out of any positive law or any in favor of the holders of the State bonds. 
 
334 BAILWAY BONDS AND MORTGAGES. [CHAP. XIII. 
 
 § 315. Xifiect of Subsequent Legislation on the Rights of Bondholders 
 secured by a Statutory Lien. — A statutory lien created for the ben- 
 efit both of the State which indorses railroad bonds and of those 
 who take such bonds relying on the guaranty by the State itself 
 (see Chap. IV., above), cannot be postponed or in any way impaired 
 by a subsequent statute.^ 
 
 Where a later act is passed purporting to extend the original 
 lien so as to cover an additional issue of bonds, and at the same 
 time offering certain advantages to persons holding bonds under 
 the provisions of the first act, if they will surrender their bonds 
 for an equal amount of the new issue, those who come under this 
 provision must take the new bonds on the conditions on which 
 they are offered. Qui sentit commodum, sentire debet et onus. 
 The bonds issued under the first act and never passed under the 
 second act will have priority and take rank from the date of the 
 former act. The rights of those holding bonds which have so 
 passed under the second act will be no more than they can claim 
 by virtue of that act.^ 
 
 But if it appears from a consideration of the whole act that the 
 lien with which the State is to be invested was created to secure 
 payment to the State of the amount of indebtedness it undertook 
 to incur by issuing its aid bonds, and not payment to the holders 
 of those bonds, the State can accept payment of the bonds in other 
 modes than those pointed out by the statute creating the lien, and 
 can cause the property to be released from it, either by legisla- 
 tion or by foreclosure under the statute, while the bonds issued 
 to the company for the construction of the road are still outstand- 
 ing and unpaid. 2 
 
 If a mortgage is made subject to a special reservation that, 
 whenever a certain State loan should be obtained, and bonds 
 
 left in fall force." The effect of the same Co. (1880), 13 S. C. 228 ; s. c. 4 Am. & 
 act as the one under which the bonds in Eng. E. K. Cas. 459. 
 this case were issued was largely discussed ' Tennessee Bond Cases (1885), 114 
 in Florida v. Anderson, 91 U. S. 667. The U. S. 663 (Harlan, J., dissenting). The 
 question of its unconstitutionality was not court distinguished them from the cases 
 passed upon, the court saying that, in a like Hand v. Savannah & Charleston R. 
 suit which was merely ancillary to proceed- Co. (1879), 12 S. C. 314, where the pil- 
 ings in the State courts, such a question mary liability for the payment of the bonds 
 should be left for the latter to determine, rests on the company, and the State is 
 
 1 Hand v. Savannah & Charleston R. boundonly as a surety, and laid great stress 
 Co. (1879), 12 S. C. 313 ; Gibbesr. Green- upon the principle that " contracts created 
 ville & Columbia R. Co. (1880), 13 S. C. by, or entered into under, the authority of 
 228 ; s. c. 4 Am. & Eng. R. R. Cas. statutes are to be interpreted according to 
 459. the language used in each particular case 
 
 2 Gibbes v. Greenville & Columbia E. to express the obligation assumed." 
 
§ 31 5. J STATUTORY LIENS IN FAVOR OP BONDHOLDERS. 335 
 
 executed to secure the payment thereof, those bonds should have 
 priority over the mortgage, a subsequent statute authorizing the 
 company to mortgage the unfinished portion of the road, on con- 
 dition of relinquishing all claims to the State loan so far as that 
 section of the road is concerned, is to be construed merely as a 
 permission given to the company to substitute some other lender 
 in the place of the State. A creditor lending in pursuance of that 
 statute is, therefore, subrogated to the right of the State as re- 
 spects the priority of its prospective lien, and takes precedence 
 of the bondholders secured by the first mortgage so far as the 
 unfinished section of the road is concerned. Such a statute cannot 
 be objected to on the grounds of unconstitutionality, even though 
 there are some variations between the stipulations of the first 
 issue of bonds and of the second, provided the essential elements 
 of the transaction are left unaffected. The controlling, substan- 
 tial agreement between the company and the first bondholders 
 was that the State should furnish a loan, and that this loan was 
 to be a first lien. All the rest was matter of detail between 
 the company and the State, of no particular concern to the 
 bondholders.^ 
 
 1 Campbell v. Tex. & N. 0. E. Co. (1872), 2 "Woods, 263; s. c. 4 Fed. Cas. 1188, 
 Case No. 2369. 
 
336 
 
 EAILWAT BONDS AND MORTGAGES. [CHAP. XIT. 
 
 CHAPTER XIY. 
 
 ROLLING-STOCK AND CAR TRUSTS. 
 
 Art. I. — Whether Rolling-stock is a 
 Fixture. 
 § 316. Authorities conflicting. 
 
 317. Doctrine in New York. 
 
 318. Doctrine in New Jersey. 
 
 319. Doctrine in Illinois. 
 
 320. Doctrine in Alabama. 
 
 321. Doctrine in New Hampshire. 
 
 322. Doctrine in Ohio. 
 
 323. Rule under Laws of California and 
 
 Washington. 
 
 324. Doctrine of the Federal Courts. 
 32.5. Legal Character of Rolling-stock 
 
 considered in other Connections. 
 326. Opposing Doctnnes discussed. 
 Art. II. — Oak Trusts and other Con- 
 ditional Contracts for the 
 Supply of Rolling-stock. 
 Introductory. 
 Definition of Car Trust. 
 Vendor of Rolling-stock only a 
 General Creditor unless Lien 
 reserved. 
 Mortgage Lien generally post- 
 poned to Rights reserved by 
 Vendor till Price is paid. 
 
 §327, 
 328, 
 329, 
 
 330. 
 
 § 331. Rights of Persons lending Money 
 to the Company for the Pur- 
 chase of Rolling-stock. 
 
 332. Title of Lessor of Rolling-stock 
 
 paramount to that of Mort- 
 gagees. 
 
 333. Car- trust Certificates which are in 
 
 Effect Mortgage Bonds of the 
 Company. 
 
 334. Car-trust Agreements in Breach of 
 
 Fiduciary Obligations of Direc- 
 tors. 
 
 335. How far Rolling-stock Contracts 
 
 are effectual against Creditors 
 of the Company. 
 
 336. Wording of Contract not conclu- 
 
 sive as to its Real Character. 
 
 337. Rights of Dissenting Holders of 
 
 Car-trust Certificates where 
 Modifications are attempted. 
 
 338. Rights under Car Trusts, how 
 
 aSected by Appointment of 
 Receiver. 
 
 339. Can the Court authorize a Re- 
 
 ceiver to create a Car Trust ? 
 
 Article I. — Whether Rolling-stock is a Fixture. 
 
 § 316. The Authorities are irreconcilably conflicting in regard to 
 the question whether rolling-stock is a fixture or not, — that is, 
 there is no uniformity in the holdings on this point, and the law 
 differs in different States, so that there is a diversity of view as 
 to the applicability of chattel-mortgage acts to rolling-stock. In 
 treating the subject, therefore, statement is made of the result of 
 the decisions in some of the principal States where the question 
 has been raised. 
 
 § 317. Doctrine in New York. — In New York, when this ques- 
 tion first presented itself, it was held by the Supreme Court that 
 
§ 317.] EOLLING-STOCK AND CAR TRUSTS. 337 
 
 locomotives and cars were covered by a mortgage of the road and 
 real estate generally of the company.^ 
 
 Stress was laid upon the fact that personalty need not neces- 
 sarily be stationary to be a fixture in the technical sense, and 
 reference made to the common-law rule that pigeons in a pigeon- 
 house, deer in a park, and fish in an artificial pond, are deemed 
 fixtures. " That railway cars," said Strong, J., " are a necessary 
 part of the entire establishment, without which it would be in- 
 operative and valueless, there can, of course, be no doubt. Their 
 wheels are fitted to the rails ; they are constantly on the rails, 
 and, except in cases of accidents or when taken off for repairs, 
 nowhere else ; they are not moved off the land belonging to the 
 company ; they are peculiarly adapted to the use of the railway, 
 and in fact cannot be applied to any other purpose ; they are not, 
 like farming utensils, and possibly the machinery in factories, and 
 many of the movable appliances in stores and dwellings, the ob- 
 jects of general trade ; they are permanently used on the particular 
 road where they are employed, and seldom, if ever, changed to any 
 other. Many of these are strong characteristics of the realty ; 
 some of them have often been deemed conclusive." This view 
 did not long remain unquestioned, and two years afterwards the 
 Supreme Court ruled that rolling-stock was personalty.''' 
 
 The question was finally settled in New York by a decision in 
 the Court of Appeals to the effect that rolling-stock was per- 
 sonalty.^ 
 
 1 Farmers' Loan & Trust Co. v. Hen- Ry. Rep. 283, reversing the decision in 
 drickson (1857), 25 Barb. 484. the Supreme Court, which had returned to 
 
 2 Buffalo V. Buffalo & New York City its earlier opinion. It was said that, to 
 K. Co. (1858), 31 Barb. 590 ; Beardsleyu. constitute personal property a fixture, some 
 Ontario Bank (1859), 31 Barb. 619. In element of annexation, usually physical, 
 the former case Judge Grover, in his must be present. Cases of constructive 
 concurring opinion, reviewed the several annexation were few, and rested on peculiar 
 grounds on which Judge Strong had based reasons of their own. In all of them there 
 his decision in Farmers' Loan & Trust Co. existed both adaptation to the enjoyment 
 ■0. Hendrickson, and concluded that they of the land, and localization in use as 
 were inadequate to sustain it. Much obvious elements of distinction from mere 
 emphasis was laid on the fact that railway chattels personal. The court then pro- 
 cars are frequently on other lines and con- ceeded thus : — 
 
 stantly shifting their position, and there- " Even in respect to cases of actual anr 
 
 fore did not correspond with the leading nexation to the realty and consequent 
 
 idea of a fixture; viz., that " it is something change of character from chattel personal 
 
 affixed to land, or to buildings on the to realty, it is held that there ought to be 
 
 land ; something fixed, permanent in its the concurrence of actual annexation, of 
 
 location, or a mere incident to something applicability to the use to which that part 
 
 so fixed." of the realty is appropriated with which it 
 
 ' Hoyle V. Plattsburgh & Montreal R. is connected, and, lastly, an intention on 
 
 Co. (1873), 54 N. Y. 314; s. c. 7 Am. the part of the party making the annex- 
 
338 RAILWAY BONDS AND M0ETGAG3S. [CHAP. XIV. 
 
 § 818. Doctrine in New Jersey. — In New Jersey the question 
 was still an open one, in 1877, when it presented itself in Wil- 
 liamson V. New Jersey Southern R. Co.^ 
 
 In the lower court the chancellor delivered an elaborate opin- 
 ion asserting the doctrine that rolling-stock is realty ; but this 
 ruling was unanimously reversed by the Court of Errors and Ap- 
 peals. The opinion rendered by Depue, J., contains an exhaustive 
 and extremely careful review of the previous decisions ; the con- 
 clusion that rolling-stock is not a fixture was finally rested on 
 grounds very similar to those which commended themselves to 
 the New York Court of Appeals. The difficulty of ascribing the 
 attributes of realty to property which is so frequently disconnected 
 from the road-bed of its owners and scattered over many different 
 lines was strongly emphasized, as it had been in the sister court. 
 
 It has been ruled by a federal court sitting in New Jersey that 
 the enactment of a supplement to the Chattel Mortgage Act, re- 
 quiring certain additional formalities in the filing of a chattel 
 mortgage, was not intended to affect the act which had placed 
 railroad mortgages on a distinct and separate footing.^ 
 
 § 319. Doctrine in Illinois. — In Illinois rolling-stock was held 
 in some early cases to be a fixture, whether on the authority of 
 
 ation to make a permanent accession to venience. At the present time independ- 
 
 the freehold. Potter v. Cromwell (1869), ent companies exist, owning no tracks, 
 
 40 N. Y. 287 ; Voorhees v. McGinnis whose trains run through State after State 
 
 (1872), 48 id. 278. Looking now at the on the railroad track of other companies, 
 
 rolling-stock of a railroad, it is originally It is no uncommon sight to see the cars 
 
 personal in its character, it is suhservient of half a dozen companies formed into a 
 
 to a mere personal trade, — the tra.nsporta- single train and running from Few York 
 
 tion of freight and passengers. The track to Illinois and Missouri. It is impossible 
 
 exists for the use of the cars rather than to deal with such property as part of the 
 
 the cars for the use of the track. There realty without introducing anomalies and 
 
 IS no annexation, no immobility from uncertainties of the gravest character. 
 
 weight ; there is no localization in use. Call cars and engines part of the realty ; 
 
 The only element on which an argument where shall they be taxed ? Real estate 
 
 can be based to support the character of is to be taxed at its site. What is the 
 
 realty is adaptation to use, with and upon site of a railroad train running from New 
 
 the track. Even in respect to this, were York to Buffalo in a day ? Shall it be 
 
 the same contrivance adopted by a tenant taxed in each town where the assessors 
 
 for use in his trade upon leased lands, his catch sight of it rushing by at thirty 
 
 right to remove both cars and track would miles an hour ? Or, if a judgment he 
 
 be beyond question. It is perhaps fortu- docketed in one county on the line, will 
 
 nate that this question was not finally its lien attach on each car as it is whirled 
 
 adjudicated in the early days of railroad past ? " 
 
 enterprise, for then unity of ownership in ^ 28 N. J. Eq. 277 ; s. c. on appeal, 29 
 
 track and cars, and independence of roads N. J. Eq. 311 (1878). 
 upon each other, seemed to render it pos- " Metropolitan Trust Co. v. Pennsyl- 
 
 sible to consider rolling-stock part of the vania, S. & N. E. E. Co. (1885), 25 Fed. 
 
 realty without introducing great incon- Rep. 760. 
 
§ u20.] ROLLING-STOCK AND CAR TRUSTS. 339 
 
 the first New York case referred to above or independently, it is 
 impossible to say, as the court did not cite any authorities.^ 
 
 Some years later the same court declined to express an opinion 
 whether a mortgage of rolling-stock was subject to the provision 
 of the Chattel Mortgage Act ; ^ but when the question was squarely 
 presented soon afterwards, laid down the doctrine that a mortgage 
 comprehending the company's property of every description, both 
 real and personal, and recorded in all the counties through which 
 the road passed, created a valid lien on the personal property, 
 although the instrument was not acknowledged as the Chattel 
 Mortgage Act required.^ 
 
 The same conclusion as regards that act had been arrived at 
 two years earlier, and on somewhat similar grounds, by the Su- 
 preme Court of the United States.* 
 
 In this State the question is now no longer an open one, as it 
 had been provided by the constitution of 1870 that rolling-stock 
 is to be considered personal property.^ 
 
 § 320. Doctrine in Alabama. — In Alabama it has been held that 
 rolling-stock is a chattel personal, not converted into realty by 
 being put upon the railroad, and that liens attaching to it, when 
 delivered to tlie company, will not thereby be displaced in favor 
 of a prior mortgage upon the road and its equipments.® 
 
 1 Palmer w. Forbes (I860), 23 111. 301. the reasonable inference being that "it 
 The question was dismissed very briefly, was never intended to have any application 
 and the doctrine of constructive annex- to a species of property which then had no 
 ation was certainly carried very far in the existence, but which had grown up since 
 ruling that materials provided for the its passage, but was intended to apply to 
 repair of the track were also part of the chattels that were owned, possessed, and 
 real estate. This case was approved in used as they were at that time in use 
 Hunt B.Bullock (1860), 23 111. 320, and among the people in their pursuits of life." 
 Titus V. Mabee (1861), 25 111. 257. (Walker, J., dissented, partly on account 
 
 2 Binkerti'. Wabash Ry. Co. (1881), 98 of the earlier rulings, and partly because 
 111. 205 ; s. c. 58 Am. & Eng. R. R. Cas. the constitution had declared rolling-stock, 
 113. etc., to be personal property.) 
 
 ' Cooper V. Corbin (1883), 105 111. 224. * Hammock v. Farmers' Loan & Trust 
 
 The reasons assigned for the decision were: Co. (1881), 105 U. S. 77. 
 (1) That the act required a mortgage of ^ This provision has been declared by 
 
 chattels to be recorded in the township in a federal court not to change the rule that 
 
 which the mortgagor resided, a provision a mortgage covering all after-acquired 
 
 quite inapplicable to a mortgagor owning property includes rolling-stock, if the Hen 
 
 a property like a railroad passing through of the mortgage attaches before that of a 
 
 numerous townships ; (2) that under the contesting judgment creditor. Scott n. 
 
 act u chattel mortgage would run only Clinton & Springfield R. Co. (1876), 6 
 
 two years, and therefore, if a railroad Biss. 529 ; s. c. 21 Fed. Cas. 820, Case 
 
 mortgage was to be governed by its pro- No. 125,271. 
 
 visions, the right to borrow money on ^ Meyer w. Johnston (1875), 53 Ala. 237; 
 long time, to construct or equip a road, s. c. 15 Am. Ry. Rep. 467. See further 
 would in effect be taken away ; (3) that, on the principle here made to depend on 
 when the act first became a law of the the character of rolling-stock as person- 
 State, railroad mortgages were unknown, alty, Art. II., post. 
 
340 RAILWAY BONDS AND MORTGAGES. [CHAP. XIT. 
 
 § 321. Doctrine in New Hampshire. — Iq this State also roUiug- 
 stock appears to be regarded as personalty .^ 
 
 § 322. Doctrine in Ohio. — The question does not seem to have 
 been passed upon definitely in this State, but the doctrine that 
 rolling-stock is personalty seems to be involved in one case.^ 
 
 § 323. Under the Laws of 'Washington and California a mortgage 
 of rolling-stock, whether united to a mortgage of the realty or not, 
 is void as to creditors unless executed and recorded in the manner 
 prescribed for chattel mortgages.* 
 
 § 324. The Doctrine of the Federal Courts is a matter of some 
 uncertainty. The dissenting justices in Minnesota Co. v. St. Paul 
 Co.* said, amongst other things : " We agree that the rolling-stock 
 upon this road covered by the several mortgages, and as respects 
 any other valid liens upon the same, is inseparably connected with 
 the road ; in other words, is, in technical language, a fixture to the 
 road, so far as in its nature and use it can be called a fixture." 
 
 But the doctrine of fixtures was not invoked by the majority of 
 the court, and was in no way involved in the case, the question 
 being whether the rolling-stock was appurtenant to the entire road 
 or to the several divisions. 
 
 In one case in a Circuit Court,^ Mr. Justice Miller, while de- 
 clining to express an opinion as to whether rolling-stock was 
 technically a fixture or not, ruled that it was so far a part of the 
 road that a mortgage purporting to cover it in specific words was 
 effectual without being recorded as a chattel mortgage ; and in 
 another it was held that rolling-stock was not a fixture in the 
 rigid common-law sense of the word so as to become a part of the 
 realty independently of the agreements of the parties, and that a 
 mortgage, although in terms covering after-acquired property, did 
 not attach to the rolling-stock of a third person subsequently 
 placed on the road under a contract with the company.^ 
 
 § 325. The Legal Character of Rolling-stock has been also con- 
 sidered in other Connections, with results exhibiting the same 
 contrariety as the cases referred to in the foregoing sections. 
 It has been held in Iowa to be personalty for the purposes of 
 the mechanics' lien laws, and therefore not subject to such liens.'^ 
 
 1 Boston, Concord, & Montreal Railroad * 2 Wall. 644 ; also 6 Wall. 742 (1867). 
 V. Gilmore (1858), 37 N. H. 410. ^ Farmers' Loan & Trust Co. v. St Jo. 
 
 2 Coe V. Columbus, Piqua, & Indian- & Denver City E. Co. (1875), 3 Dill, 
 apolis R. Co. (1859), 10 Ohio St. 372. 412. 
 
 8 Eadebaugh v. Tacoma & Puyallup R. « Hardesty „. Pyle (1883), 15 Fed. 
 
 Co. (1894), 8 Wash. 570 ; s. c. 36 Pac. Rep. 778. 
 
 Rep. 460 ; United Loan & Trust Co. v. ' Neilson v. Iowa Eastern E. Co. 
 
 Southern Cal. Motor Road Co. (1892), 51 (1879), 51 Iowa, 184. 
 Fed. Rep. 840. 
 
§ 326.] EOLLING-STOCK AND CAE TRUSTS. 341 
 
 In several cases it has been treated as personalty for taxation 
 purposes.^ 
 
 This view has prevailed even in Wisconsin, where rolling-stock 
 has been declared to be realty for other purposes.^ 
 
 Yet in Kentucky it is held to be taxable as a fixture.^ 
 
 § 826. Opposing Doctrines discussed. — The courts which hold 
 rolling-stock to be personalty have laid far too much stress upon 
 the fact that it is capable of being, and constantly is, transferred 
 from the road-bed of the company to which it belongs to the road- 
 beds of other companies. The instance of the pigeons flying from 
 and returning to the dove-cote furnishes at least one illustration 
 which goes to show that this circumstance is not a conclusive test. 
 But this is, at best, a rather distant analogy, and it is more satis- 
 factory to recur to general principles in determining the quality of 
 a kind of property so essentially novel, relatively speaking, as the 
 rolling-stock of a railroad. The really important fact to remember 
 is that the track and the rolling-stock form, in combination, one 
 great piece of machinery which performs the work of transporta- 
 tion, and thus enables the owners to carry on their business as 
 carriers.* 
 
 Such machinery is not complete if either the track or the 
 vehicles running upon it are missing. Under these circum- 
 stances it would seem a necessary inference that the character 
 of realty which is indisputably possessed by the rails should be 
 imparted to the rest of the machine of which they form an in- 
 tegral part. Under the general law of mortgages it is not 
 thoroughly settled to what extent the machinery in a factory 
 or mill will pass by the real-estate mortgage, but it would be 
 difficult, we think, to find a case in which the court, having 
 decided that a portion of a machine was a fixture, has, never- 
 theless, ruled that other portions necessary for its proper opera- 
 tion are not fixtures. If such a mortgage on a rolling-mill, for 
 instance, will cover the entire set of rolls used in the mill, even 
 
 > Randall v. Elwell (1873), 52 N. Y. * This poiut is strongly enforced in the 
 521 ; Sangamon & Morgan R. Co. v. lucid and erudite opinion of the chancel- 
 County of Morgan (1852), 14 111. 163; lor in Williamson ». New Jersey Southern 
 Pacific R. Co. V. Cass Co. (1873), 53 Mo. Ry. Co. (1878), 28 N. J. Eq. 277 ; and 
 17; s. 0. 12 Am. Ry. Rep. 336 ; City of the rule that rolling-stock is a fixture, 
 Dubuque v. Illinois Central R. Co. (1874), which prevails in Canada upon the author- 
 39 Iowa, 56 ; s. 0. 8 Am. Ry. Rep. 496. ity of the expounders of the French Civil 
 
 2 Chicago & North Western R. Co. v. Code and of the civil law, is hased upon 
 
 Boroughof FortHoward(1866),21 Wis.44. essentially similar reasoning. See the 
 
 ' Elizabethtown & Paducah R. Co. v. opinion of Taschereau, J., in Wallbridge 
 
 Trustees of Elizabethtown (1876), 12 Bush ». Farwell (1890), 18 Can. S. C. 1. 
 (Ky.), 233. 
 
342 EAILWAY BONDS AND MORTGAGES. [CHAP. XIV. 
 
 those temporarily detached,^ it is hard to see why the cars and 
 locomotives of a railroad should not be subject to a like rule. 
 The principle involved does not seem to be at all different. A 
 still closer analogy may be found in passenger and freight eleva- 
 tors. We are not aware that it has ever been directly ruled that 
 these are fixtures ; but it would scarcely be seriously contended 
 that they are not. How do these vehicles differ in any essential 
 point from the rolling-stock of railroads ? They both move in 
 particular lines, established in the one case by the ways, in the 
 other by the rails. That the movement of the one is vertical and 
 produced by a cable worked from a stationary engine, and the 
 movement of the other horizontal and produced by an engine 
 travelling with its train, are surely quite immaterial details. 
 And if on such grounds as these we should conclude that rolling- 
 stock is realty, the mere fact that it is often removed from the 
 land which was acquired for the purpose of operating the machine, 
 of which it is the most indispensable portion, seems to be an insuf- 
 ficient reason for rejecting that conclusion. Whatever be its 
 true quality, that can hardly be dependent on mere locality. A 
 mortgage lien on a building is not lost if the mortgagor moves it 
 from the land without the consent of the mortgagee, and it is 
 impossible to argue that this result is changed by the fact that 
 such consent is given on the understanding that the building is 
 to be restored to its position, when the purpose for which it was 
 removed has been fulfilled. The true principle, it is submitted, is 
 to determine the character of the property by considering its 
 relation to the realty on which it is ordinarily placed, and to treat 
 the fact of its occasional or even frequent removal from that 
 realty as a mere incident. 
 
 Aeticlb II. — Car Trusts and other Conditional Contracts 
 FOR THE Supply of Rolling-stock. 
 
 § 327. Introductory. — In an earlier chapter (X.) the cases were 
 reviewed which deal with the general principle that the lien of 
 the " after-acquired property " clause is, as against one who sells 
 property to the railroad company, postponed to any rights which 
 the vendor may have reserved in such property when it passed 
 out of his possession. The special application of this rule to 
 transactions which contemplate the use and ultimately the trans- 
 fer of rolling-stock is of sufi&cient importance to warrant a more 
 
 ' Ex parte Astbuiy, L. E. 4 Ch. App. 630 ; Voorhis o. Freeman (1841), 2 Watts 
 & Serg. (Pa.) 116. 
 
§ 328.] ROLLING-STOCK AND CAB TRUSTS. 343 
 
 particular discussion. Manufacturers or others who desire to 
 enter into a contract of this kind may, apart from statute, secure 
 a priority not only against the mortgage lienors, but also against 
 subsequent creditors of the railroad company, by several different 
 forms of agreements ; but, in the ultimate analysis, these reduce 
 themselves to three, — viz., a lease (or, more correctly speaking, a 
 bailment for hire), a conditional sale, or a reservation of a lien in 
 the nature of a mortgage.^ But where the rights of creditors are 
 concerned, the validity of the agreement will depend largely upon 
 the character of the chattel mortgage act which may under the 
 circumstances be applicable. (See below.) 
 
 The interposition of a trustee and the creation of a trust are by 
 no means essential features of these transactions. It is simply a 
 device resorted to as a matter of convenience, in order to enable a 
 larger number of investors to become interested in a single con- 
 tract. The term " car trust " is, however, derived from this prac- 
 tice, and has become in popular, if not in legal, phraseology a 
 generic title for any contract of this class, whether it is accom- 
 panied by a trust or not. It is clear that a form of association 
 adopted by the parties cannot either limit or enlarge the rights of 
 the railroad company or others interested in the validity of tlie 
 contract. For the elucidation of the subject under discussion, 
 therefore, cases involving leases and sales of rolling-stock are 
 equally pertinent, whether the contract is made by a car-trust 
 association, by an individual, or by a corporation.^ 
 
 § 328. A Car Trust may be defined as an agreement of several 
 owners of cars to place them in the hands of an agent to sell on 
 the instalment plan, the agent having the power to issue certifi- 
 cates representing an interest in the instalments. A typical 
 example of such an agreement was under review in Ricker v. 
 American Loan & Trust Co.,^ the subject of discussion being 
 the amenability of the car-trust association to a certain taxation 
 statute. The essential features of the contract were thus de- 
 scribed by the court : " A number of persons formed an associa- 
 tion, by an instrument in writing containing numerous articles, 
 
 ^ Except in PeDiisylvania, where con- cussed the subject in its financial and legal 
 
 ditional sales are not valid against cred- aspects in an address to the American Bar 
 
 iters, and the expedient of a bailment for Association. See Vol. 8 of the publications 
 
 hire, with an option of purchase after a of that association, p. 277. The same pam- 
 
 certain time, is resorted to. phlet may also be referred to for informa- 
 
 ^ An interesting article by Mr. Brod- tion as to the provisions usually found in 
 
 head, dealing in popular language with rolling-stock contracts, 
 car- trust certificates, will be found in the '140 Mass. 346 ; s. 0. 5 N. E. Rep. 
 
 " North American Review " for March, 284 (1885). 
 1891. Mr. Eawle has also very ably dis- 
 
344 RAILWAY BONDS AND MOETGAGES. [CHAP. XIV. 
 
 for the purpose of buying, selling, and leasing railroad rolling- 
 stock, to be sold or leased to the New York and New England 
 Railroad Company, with provisions for admitting other persons to 
 membership. The members of the car trust were to furnish 
 money for the purchase of the rolling-stock, and were to have 
 certificates for the amounts so furnished, providing that the prin- 
 cipal sum contributed by each member should be repaid in ten 
 annual instalments, with interest; both principal and interest being 
 payable only out of the rentals received for the rolling-stock. 
 Instead of the lease being made to the railroad company directly 
 by the car trust, a plan was adopted by which the car trust de- 
 livered the property to the American Loan and Trust Company, 
 as trustee, which trustee issued the certificates to the members of 
 the car trust, and also executed the leases to the railroad com- 
 pany with provisions for a rental sufficient to meet the above pay- 
 ments, which in the course of ten years would pay in full for the 
 rolling-stock, so that the rolling-stock would become the property 
 of the railroad company at the end of that time. All contracts 
 relating to any business of the car trust, involving liabilities for 
 the payment of money, were to be in writing, and made under the 
 direction of the board of managers. The original board of man- 
 agers was named in the articles of association, but the share- 
 holders were to have the power to remove them and to elect 
 others. At all meetings every shareholder was to have one vote 
 for each share of the stock owned by him, and provision was 
 made for the transfer of shares, and the association was not to be 
 dissolved by the death of members. Every owner of one or more 
 shares was to be entitled to a proportionate share of the rentals 
 received." ^ 
 
 § 329. Vendor of Rolling-stock in the Ordinary Course of Business 
 ranks only as a General Creditor. — The rights of one who, in pur- 
 suance of a contract of sale embracing no special provisions for 
 his protection, delivers possession of rolling-stock to the company, 
 without receiving payment therefor, can assert no lien upon it, 
 either in law or equity. In relation to the company he stands on 
 the same footing as other unsecured creditors.^ 
 
 1 Eicker v. American Loan & Trust N. Y. 435 ; s. c. 24 N. E. Kep. 695 ; 43 
 
 Co. (1885), 140 Mass. 346, 347 ; s. c. 5 Am. & Eng. E. R. Cas. 700. On the 
 
 TS. E. Eep. 284. Private Ownership of Railway Rolling 
 
 Example of car trust : McGourkey v. Stock in England, see the brief treatise by 
 
 Toledo & 0. C. R. Co. (1892), 146 IT. S. Taynton. 
 
 536 ; s. 0.13 Sup. Ct Rep. 170. Another 2 Coe ». Pennock (1857), 2 Redf. Am. 
 
 car-trust agreement is set out at length in Ry. Cas. 669 ; s. c. 5 Fed. Cas. 1172, 
 
 the report of Humphreys u. New York, Case No. 2942 ; 6 Am. L. Reg. 27. 
 Lake Erie, & Western R. Co. (1890), 121 
 
§ 330.] ROLLING-STOCK AND CAR TRUSTS. 345 
 
 § 330. Mortgage Lien generally postponed to Rights reserved by 
 Vendor until the Purchase Price is paid. — It is well settled that the 
 title of a vendor of rolling-stock sold under a contract which pro- 
 vides that, although delivered to the company, it is to remain his 
 property until the price is paid, will prevail against the lien 
 created by the after-acquired property clause of a prior mortgage.^ 
 But to take a conditional sale out of Registration Acts, it must be 
 conditional both as to the payment of the purchase-money as well 
 as the passing of the title. An agreement by the terms of which 
 the purchaser becomes liable unconditionally for the purchase 
 price, although he may never acquire the ownership of the prop- 
 erty, is an evasion of such acts, as its purpose is simply to retain 
 a secret lien.^ 
 
 The rights of the vendor are the same as under a conditional 
 sale, where, instead of reserving the ownership of the rolling-stock, 
 he fixes a lien upon it for the payment of the price. Cars being 
 " loose property susceptible of separate ownership and separate 
 liens," any liens which are binding upon a railroad company itself 
 are unaffected by a prior general mortgage given by the company, 
 and are paramount thereto.^ 
 
 A like preference for like reasons will be given to a lien de- 
 clared by statute in favor of creditors supplying rolling-stock to 
 railroad companies.* 
 
 The paramount rights of the vendor may be recognized either 
 
 1 Fosdick u. SchaU (1878), 99 tJ. S. 146 U. S. 536; s. c. 13 Sup. Ct. Rep. 170, 
 
 235; s. 0. 7 Rep. 449. to have been universally recognized by the 
 
 In this case the court said that such an courts, 
 agreement was undoubtedly one which. The same doctrine doubtless applies to 
 
 under the Chattel Mortgage Actof Illinois, all agreements which are within the terms 
 
 could not be valid against " third persons " of chattel mortgage acts, whatever their 
 
 unless recorded, but declared that mort- precise provisions, those acts being in- 
 
 gagees could not properly be described as tended for the protection of subsequent 
 
 such. " They are," said Chief Justice creditors and purchasers. See Frank v. 
 
 Waite, "in no sense purchasers of the Denver & Rio Grande Ry. Co. (1885), 23 
 
 cars. The mortgage attaches to the cars, Fed. Rep. 123. 
 
 if it attaches at all, because they are after- ^ Hart v. Barney & Smith Mfg. Co. 
 
 acquired property of the company ; but as (1881), 7 Fed. Rep. 543, construing the 
 
 to that class of property it is well settled Kentucky statute. 
 
 that the lien attaches subject to all the ' United States w. New Orleans Railroad 
 
 conditions with which it is incumbered (1870), 12 Wall. 362; Meyer v. Johnston 
 
 when it comes into the hands of the mort- (1879), 64 Ala. 603 ; s. c. 4 Am. & Eng. 
 
 gagor. The mortgagees take just such an E. R. Cas. 584. 
 
 interest in the property as the moi-tgagor * Newgass v. Atlantic & D, R. Co. 
 
 acquired — no more, no less." The validity (CentralCarTrust Co., Intervener) (1893), 
 
 of bona fide contracts of this description 56 Fed. Rep. 676, construiug the Virginia 
 
 was stated, in the recent case of McGourkey Code, § 2462, 
 i>. Toledo & Ohio Central E. Co. (1892), 
 
346 RAILWAY BONDS AND MORTGAGES. [CHAP. XIV. 
 
 by a return of the rolling-stock in specie,^ or by the payment of 
 the price out of the proceeds of the sale.^ 
 
 § 331. Rights of Persons lending Money to the Company for the 
 Purchase of RoUing-stock. — The protection to vendors is also 
 extended to persons who furnish the money with which a railroad 
 company purchases rolling-stock. If they reserve a lien on the 
 property as security for repayment, they may stand in the place 
 of the seller, and have the advantage of all remedies to which he 
 would be entitled in the same situation.^ 
 
 Directors of the corporation are entitled to the benefit of this 
 rule where there is a distinct understanding between them and 
 their colleagues that they are to be subrogated to the rights of 
 the vendors to secure reimbursement for their advances, though, 
 aside from such an understanding, their rights would be measured 
 by the rule under which a payment by a director to secure the 
 property of the corporation does not of itself entitle him to con- 
 ventional subrogation.* 
 
 § 332. Title of Lessor of Rolling-stock paramount to that of Mort- 
 gagees. — The title of one who makes a bona fide contract for the 
 lease of rolling-stock to the company is not divested by the delivery 
 of the propei'ty to the lessee ; but rolling-stock, when once placed 
 upon the road under circumstances which create no lien in favor 
 of a car-trust association, cannot be brought within the operation 
 of a lease subsequently executed, which purports to embrace the 
 stock thus delivered.^ 
 
 As against a prior mortgage of the company containing an after- 
 acquired property clause the title of a manufacturer of cars will 
 hold good under an unrecorded contract by which the company 
 agrees to pay certain monthly sums for the " hire " of the cars, 
 and is to have the option of buying them at a fixed price ; while 
 the "lessor" is to have the right, in case of a default in the 
 monthly payments, to rescind the contract and retake the cars.^ 
 
 1 Fosdick V. Sohall (1878), 99 U. S. brought out more clearly in the opinion of 
 235 ; s. c. 7 Rep. 449. the lower court. See pp. 630, 531, of the 
 
 2 FoscUck V. Car Co. (1878), 99 U. S. report. 
 
 256. 6 Meyer v. Car Co. (1880), 102 U. S. 1. 
 ^ Frank v. Denver & Eio Grande R. The court considered it unnecessary to de- 
 Co. (1885), 23 Fed. Eep. 123. cide " whether a lease of personal property 
 
 * Coe V. New Jersey Midland E. Co. at a specified rent, with an option in the 
 (1879), 31 N. J. Eq. 105. lessee to buy for a fixed price, is in effect a 
 
 * McGonrkey v. Toledo & Ohio Central conditional sale." That question would 
 R. Co. (1892), 146 U. S. 536 ; s. c. 13 doubtless have been of paramount impor- 
 Sup. Ct. Rep. 170 ; affirmed Central Trust tance if the adverse interest had been that 
 Co. fc. Ohio Central R. Co. (1888), 36 Fed. of a creditor. See below. 
 
 Eep. 520. The principle is, however, 
 
§ 333.] ROLLING-STOCK AND CAB TRUSTS. 347 
 
 § 333. Car-trust Certificates in Effect Mortgage Bonds of the Com- 
 pany itself. — These are inferior in point of lien to an earlier 
 mortgage on the railroad containing the after-acquired property 
 clause. This construction has been placed upon a contract of 
 lease which provided that the yearly instalments to be paid for 
 the use of rolling-stock which was to be subsequently manufac- 
 tured and delivered to the company, and to become its property 
 when all the instalments during the stipulated period had been 
 paid, should be evidenced by obligations of the company maturing 
 at different times, with interest coupons attached. The rolling- 
 stock not being in existence at the time the contract was made, 
 the transaction could not, it was held, be regarded as a conditional 
 sale ; while the provisions that, if the annual payments were made 
 promptly for the period specified, the property should belong to 
 the railroad company without further conveyance, and that in 
 case of default the lessor might resume possession for the pur- 
 pose of sale, showed that it was not an ordinary bailment con- 
 templating merely the use of the equipment by the company. The 
 so-called " lease " and the car-trust agreements entered into for 
 the purpose of carrying it out really amounted to a contract for 
 the loan of money to the company, for which it was to execute its 
 bonds, to be secured by a mortgage on its rolling-stock, to be 
 selected and designated at a future day after it had come into the 
 possession of the company.^ 
 
 In an earlier case in another court a very similar ruling had 
 been made as to the status of persons supplying equipment under 
 a contract of this description, it being held by Judge Hallett that, 
 in so far as they have any position in the law, lessors of roUing- 
 
 1 Central Trust Co. v. Ohio Central R. objection insisted upon by Judge Jackson, 
 Co. (1888), 36 Fed. Rep. 520. This view that if such agreements are to be given 
 as to the true character of the so-called effect to, the after-acquired property clauses 
 leases was approved by the Supreme Court would become idle and useless provisions, 
 (McGourkey v. Toledo & Ohio Central is scarcely conclusive, when it is conceded 
 R. Co. (1892), 146 U. S. 536 ; s. c. 13 that certain kinds of contracts which pro- 
 Sup. Ct. Rep. 170), which, however, relied duce that result are enforceable. Unless, 
 mainly on the principle that, as the car- therefore, such contracts are subject to ex- 
 trust certificates were evidences of a con- ception, for some reason apart from the 
 tract made by the directors in breach of fact that they deprive bondholders of their 
 their fiduciary obligations, the transaction lien over the subject-matter, it is difficult 
 was a constructive fraud upon, and there- to see why they should not be equally 
 fore voidable by, the bondholders or valid, in whatever form they are couched, 
 tliuse claiming under them. (See next That this was the view of the Supreme 
 section.) Court may perhaps be inferred from the 
 
 Whether the case can be sustained stress laid upon the constructively fraudu- 
 
 solely on the grounds assigned in the lent character of the transportation. (See 
 
 lower court seems very questionable. The the case next cited. ) 
 
348 RAILWAY BONDS AND MOETGAGES. [CHAP. XIV. 
 
 stock are to be regarded as mortgagees, where neither they nor 
 any one represented by them have at any time owned the stock, 
 and the so-called " lease " is merely a contract for the loan of 
 money, to be repaid by periodical instalments styled " rent." But 
 it was at the same time declared that the assumption of a false 
 character by the payees would not affect their rights if the equi- 
 ties of the transaction were with them.^ 
 
 § 334. Car-trust Agreements in Breach of Fiduciary Obligations 
 of Directors not upheld as against Bondholders. — The lien of the 
 holders of car-trust certificates will not prevail against the lien of 
 an earlier mortgage covering after-acquired rolling-stock, where 
 the transaction violates the well-settled rule which renders any 
 arrangements by which the directors of a corporation become in- 
 terested adversely to such corporation in contracts with it void- 
 able at the option of parties prejudiced by such contracts. If, 
 therefore, the directors make with themselves, or those holding 
 confidential relations to them, a contract for the supply of 
 rolling-stock to the company, which, though in form a lease, is 
 in effect a purchase by the company, with a lien reserved in favor 
 of the holders of the car-trust certificates, most, if not all, of such 
 certificates being held by the directors, the transaction will be 
 construed as a constructive fraud on the mortgagees. The device 
 of the car-trust certificates will in such a case be inoperative either 
 to vest the legal title in the trustee named therein, or to prevent 
 the mortgage attaching as a prior lien to such rolling-stock 
 as is delivered under the contract. The position of the holders 
 of the car-trust certificates is not strengthened in such a case by 
 the fact that the lease provides that the company may contract 
 for the delivery of the stock directly with the maker, and that 
 the stock shall be marked in such a manner as to show that it 
 belonged to the car-trust association. The essential vice of such 
 a transaction does not lie in any attempted concealment of the 
 actual facts, but inheres in the very nature of the contract. The 
 purpose being unlawful, an open avowal of that purpose does not 
 make it less unlawful.^ 
 
 § 335. How far Rolling-stock Contracts are effectual against Sub- 
 sequent Creditors of the Company. — At common law a contract by 
 which the owner of personalty gives to another party the posses- 
 sion and use thereof in consideration of the latter's paying certain 
 
 1 Frank v. Denver & Rio Grande K. Sup. Ct. Rep. 170, Fuller, C. J., and 
 
 Co. (1885), 23 Fed. Rep. 123. Brewer, J., ably dissenting. For a state- 
 
 ^ McGourkey v. Toledo & Ohio Central ment of the ruling in the lower court, 
 
 E. Co. (1892), 146 U. S. 536 ; s. c. 13 see above. 
 
§ 336.] EOLLING-STOCK AND CAR TRUSTS. 349 
 
 sums of money at stated times, with the understanding that the 
 title to the property will not pass till the last of those sums is 
 paid, will be upheld against the creditors of the owner of the per- 
 sonalty, whether he be called bailor, lessor, or vendor.^ 
 
 But the practical working of this principle has been greatly 
 modified by the various chattel mortgage acts, the effect of 
 which may in many cases be that a contract of sale which is a 
 perfect protection to the vendors, so far as the mortgagees are 
 concerned, may some time be treated as invalid where the rights 
 of creditors are in question.^ 
 
 Where the policy of the law is, as in Illinois, against the main- 
 tenance of secret liens which treat the vendor of personal prop- 
 erty, who has sold and delivered possession of it to the purchaser, 
 as the owner until the payment of the purchase-money, a vendor 
 of rolling-stock, if he wishes to retain a security for the price 
 which will prevail against the creditors of the company, must 
 comply with the provisions of the Chattel Mortgage Act.^ 
 
 On the other hand, it is held that the title of a vendor of 
 rolling-stock will prevail against that of one who purchases it at 
 an execution sale of the company's property, where the registry 
 law, like that of Missouri, embraces only mortgages and deeds of 
 trust of personal property.* 
 
 § 336. Name given by the Parties to the Contract not conclusive 
 as to its Real Nature. — In view of the limitations upon the free- 
 dom of contract under chattel mortgage acts, the point upon 
 which a case in which the rights of creditors are concerned must 
 often turn is the question whether the contract of sale is within 
 its provisions. It is well settled that " the answer to this ques- 
 tion is not to be found in any name which the parties may have 
 
 1 See the cases cited in Bennett's (1877), 4 Dill. 158. Judge Dillon, however, 
 edition of Benjamin on Sales, Bk. 2, Chap, in view of the decision in the case last cited, 
 III- expressed a wish that the case would be 
 
 2 See, for example,the facts of Fosdick taken to the Supreme Court. The correct- 
 V. Schall, referred to ante. ness of his ruling does not seem to have 
 
 = Hervey v. Rhode Island Locomotive been directly passed upon by that court. 
 
 Works (1876), 93 U. S. 664. but its reasoning in Heryford v. Davis 
 
 The court said: "The policy of the law (see below) shows very plainly that it 
 
 in Illinois will not permit the owner of did not regard a bona fide conditional 
 
 personal property to sell it, either abso- sale as being within the purview of the 
 
 lutely or conditionally, and still continue Missouri statute. That statute provides 
 
 in possession of it. Possession is one of that no chattel mortgage " shall be valid 
 
 the strongest evidences of title to this class against any other person than the parties 
 
 of property, and cannot be rightfully thereto, unless possession of the m.ortgaged 
 
 separated from the title, except in the property shall be delivered to and retained 
 
 raauner pointed out by the statute." by the mortgagee, or unless tha mortgage 
 
 * Rogers Locomotive Works v. Lewis shall be recorded " in a prescribed manner. 
 
350 RAILWAY BONDS AND MORTGAGES. [CHAP. XIT. 
 
 given to the instrument, and not alone in any particular provision 
 it contains, disconnected from all others, but in the ruling inten- 
 tion of the parties, gathered from all the language they have 
 used.^ 
 
 The operation of a statute applicable to sales in which the 
 vendor reserves a lien upon the subject-matter until the purchase 
 price is fully paid cannot be evaded by giving the transaction the 
 form of a lease. Wherever such a statute exists, its provisions 
 must be complied with in order to validate what are essentially 
 conditional sales ; otherwise they are liable to be defeated by 
 creditors of the purchaser who is in possession of it. A provision 
 that the title is to pass to the purchaser when the last of a certain 
 number of periodical payments is discharged, is regarded as 
 almost conclusive evidence that the transaction is a sale and not 
 a lease, even though the sums stipulated to be paid are termed 
 rent.2 
 
 Similarly a contract in the form of a lease will be avoided as 
 against the creditors of the so-called lessee, where it is in effect a 
 mortgage, and not recorded as such in conformity with the stat- 
 ute. Since genuine contracts of lease or bailment for hire must 
 include, as one of their essential features, a stipulation to pay for 
 the use of the thing hired, an instrument which not only does not 
 provide for any such payment, but strongly negatives the inten- 
 tion to demand it, cannot be classed among such contracts. Thus 
 where the manufacturing company takes promissory notes for the 
 entire selling price of the property, and in addition thereto col- 
 laterals to a large amount, and those notes are all to mature 
 within a few months, the result being that the vendors will, at 
 the end of that time, have in hand the full price of the cars, the 
 contract cannot be construed as a mere letting or bailment for 
 hire.^ 
 
 1 Heryford w. Davia (1880), 102 U. S. 235. Mr. Justice Bradley, dissenting, held 
 235, per Strong, J. ; s. P. Hervey v. that the contract was >■ valid conditional 
 Rhode Island Locomotive Works (1876), sale. This decision is certainly sfrjrfmmi 
 93 U. S. 664 ; Fidelity Insurance, Trust, juris, as it virtually amounts to a ruling 
 & Safe Deposit Co. v. Shenandoah Valley that, even under a chattel mortgage act 
 E. Co. (1889), 32 West Va. 244 ; s. c. 38 drawn in terms apparently very favorable 
 Am. & Eng. E. R. Cas. 559 ; 9 S. E. to the validity of conditional sales, the 
 Eep. 185 ; Central Trust Co. v. Ohio Cen- vendor cannot so arrange the payment of 
 tral E. Co. (1888), 36 Fed. Rep. 520. the instalments of the price or the rent as 
 Compare the cases cited above in this to make the passing of the title conditional 
 chapter. on the payment of the last one, without 
 
 2 Hervey v. Rhode Island Locomotive running a serious risk, to say the least, of 
 Works (1876), 93 TJ. S. 664, citing Murch finding himself postponed to creditors. 
 V. Wright, 46 111. 487. The practical inference which may per- 
 
 s Heryford v. Davis (1880), 102 U. S. haps be drawn from this and other deci- 
 
§ 337.] ROLLING-STOCK AND CAB TRUSTS. 351 
 
 In the case just cited it was further sought to sustain the pri- 
 ority of the vendors' rights on the ground that the transaction 
 was one contemplating a reservation of the ownership until the 
 price was fully paid. The contract stated that the cars were " to 
 remain the property of the vendors, to be accounted for and to 
 be redelivered to them when demanded, in default of the pay- 
 ment" of the aggregate sum evidenced by the promissory notes 
 given by the railroad company. But the court said this stipula- 
 tion, when construed in connection with the other provisions, was 
 plainly inserted to enable the manufacturers to enforce payment, 
 not of any rent or hire, but of the selling price for which they 
 took the notes. It was, in short, intended as additional security 
 for the payment of the company's debt. 
 
 The result of the decision cited in this and the preceding 
 section would seem to be briefly this: The true nature of the 
 contract must first be ascertained by a consideration of all its 
 provisions. If it is construed to be a sale, and the title as well 
 as the possession is found to have vested in the vendee, and the 
 only interest preserved in the property by the vendor is a lien, the 
 transaction will probably be void as against creditors under every 
 chattel mortgage act. If the title remains in the vendor, and the 
 vendee has only the possession and use of the property until the 
 price is fully paid, the question whether the vendor's rights will 
 prevail against those of the creditors of the vendee depends 
 upon whether the chattel mortgage act which is applicable be- 
 longs to the same class as that of Illinois or that of Missouri. In 
 the latter case the contract will protect him, in the former it 
 will not. 
 
 § 337. Rights of Certificate Holders 'M7ho refuse to assent to a 
 Modification of a Car-trust Lease. — These rights are those secured 
 to them by the original instrument, when the trustees in the 
 second contract expressly state that they are acting on behalf of 
 assenting certificate holders only. Under such circumstances the 
 actual extent of the trustees' power to bind dissentients is imma- 
 terial. The trustees, therefore, are not assuming an inconsistent 
 
 siona is that the safest plan in every case is option to purchase, at the end of a speci- 
 
 to bring the transaction under the provision fied period, for a substantial and not 
 
 of a chattel mortgage act, unless the merely nominal sum of money over and 
 
 legislature happens to enact some statute above what he may already have paid by 
 
 which contemplates the recording of con- way of compensation for the use of the 
 
 ditional sales of rolling-stoct. The only cars. On rights after default, see O'Hara 
 
 alternative plan which offers anything v. Mobile & 0. K. Co. (1895), 75 Fed. 
 
 like equal security is to draw the contract Eep. 130. 
 so that the leseees or vendee may have an 
 
352 EAILWAY BONDS AND MOETGAGBS. [CHAP. XIV. 
 
 position when they undertake to sue the company for the rent 
 stipulated in the first lease, provided they act as representatives 
 of those certificate-holders only who have withheld their assent 
 to the second contract. This result cannot be affected by the fact 
 that the railroad company and the assenting holders supposed the 
 action of the trustees to be binding on the non-assenting holders, 
 .as that would merely be an error as to the legal effect of a writ- 
 ten instrument.^ 
 
 § 338. Rights of the Holders of Rolling-stock Securities when the 
 Road has passed into the Hands of a Receiver. — Where the pay- 
 ments due under a car-trust lease have been in default for some time 
 previous to the appointment of a receiver, and the lessor, when such 
 appointment is made, demands immediate possession of the cars, 
 the failure of the receiver to comply with that demand, and his 
 continuing the use of the cars for some months afterwards, do not 
 amount to a conversion of the property entitling the lessor to 
 have a lien declared upon the corpus of the estate for the amount 
 due to him. The receiver in such a case does his full duty in 
 relation to the car-trust property by reporting the facts to the 
 court and asking its direction, and he cannot surrender it without 
 the authority of the court. Nor can the lessor assert that by 
 permitting the insolvent railroad company to remain in possession 
 of the road after default had occurred the bondholders in effect 
 pledged the mortgaged property as security for the rental in ad- 
 vance of the mortgages. All that the lessor is entitled to is that 
 the cars shall be surrendered in a reasonable time, and that he 
 shall be paid a fair rental as on a quantum meruit for the use by 
 the receiver.^ 
 
 Where the lessor and mortgagor companies are dominated by 
 the same persons, the court will disregard the terms of the lease 
 and award the lessor company such reasonable rent as it could 
 obtain in the open market for similar cars to be used in the same 
 manner.^ 
 
 The periodical payments maturing within a reasonable time 
 prior to a receivership under a contract of sale of rolling-stock, 
 whereby the title is reserved to the vendor until all the payments 
 are made, may properly be included among the debts which a 
 
 1 Humphreys v. New York, Lake Erie, Fed. Rep. 6 ; B. o. 8 Ry. & Corp. L. J. 
 & Western R. Co. (1890), 121 N. Y. 435 ; 184. 
 
 s. 0. 24 N. E. Rep. 695 ; 43 Am. & Eng. a Thomas v. Peoria & R. I. Ry. Co. 
 
 R. R. Gas. 700. ' (Western Car Co., Intervener), (1888), 36 
 
 2 Farmers' Loan & Trust Co. v. Fed. Rep. 808 ; 36 Am. & Eng. R. R. 
 Chicago & Atlantic R. Co. (1889), 42 Cas. 381. 
 
§ 338.] 
 
 ROLLING-STOCK AND CAR TRUSTS. 
 
 353 
 
 receiver will be directed by the order appointing him to discharge 
 out of the income of the road.^ 
 
 But such payments are not entitled to priority, as against the 
 mortgage debt, in the distribution of the proceeds of the sale.^ 
 
 For the purposes of this rule, it is immaterial whether the peri- 
 odical payments are styled rentals or instalments of the price.^ 
 
 If, however, the receiver takes possession of and uses rolling- 
 stock sold on these terms, the sum which he thereby becomes 
 liable to pay is a charge upon the corpus of the estate prior to the 
 mortgage lieu.* 
 
 After the vendor of rolling-stock, who reserves the ownership 
 thereof until the purchase price is paid, has exhausted his special 
 remedy by reclaiming the property from the receiver, he stands, 
 as regards the proceeds of the foreclosure sale, merely in the posi- 
 
 1 Fosdick V. Schall (1878), 99 U. S. 
 235 ; s. c. 7 Rep. 449 ; Sage v. Central K. 
 Co. (1878), 99 U. S. 334 ; Frank v. Den- 
 ver & Bio Grande R. Co. (1885), 23 Fed. 
 Rep. 123. 
 
 ^ Kneeland v.. American Loan & Trust 
 Co., 136 U. S. 89; s. c. 10 Sup. Gt. 
 Rep. 950 ; 43 Am. & Eng. R. B. Gas. 519 ; 
 Central Trust Co. v. Toledo, D. & B. R. 
 Co. (Circuit Ct., Dist. of Ind.), an unre- 
 ported case, in which, as stated in High 
 on Receivers (2d ed.), 340, note 2, it was 
 ordered by Gresham, J., Woods, J., concur- 
 ring, that rentals of rolling-stock held by 
 the company under car-trust leases should, 
 for the period of use by the receiver, be 
 paid as a first lien out of receiver's income, 
 or out of the proceeds of foreclosure sale 
 before distribution to mortgage bondhold- 
 ers, and that rentals for six months prior 
 to the receivership should be paid out of 
 the net income of the receiver. See also 
 Mather Humane Stock Trans. Co. v. 
 Anderson (1896), 76 fed. Rep. 164 ; East- 
 ern & Midlands Railway, 65 Law Times, 
 669. 
 
 ' Kneeland v. American Loan & Trust 
 Co. (1890), 136 U. S. 89 ; s. c. 10 Sup. 
 Ct. Rep. 950 ; 43 Am. & Eng. R. K. Gas. 
 619. 
 
 4 Fosdick V. Car Co. (1878), 99 U. S. 
 256 ; Myer v. Car Co. (1880), 102 U. S. 
 1 ; Kneeland v. American Loan & Trust 
 Co. (1890), 136 U. S. 89 ; s. c. 10 Sup. 
 Ct. Rep. 950 ; 43 Am. & Eng. R. R. Ca.s. 
 619 ; Central Trust Co. v. Toledo, D. & B. 
 
 R. Co. (Circuit Ct., Dist. of Ind. ), an un- 
 reported case. 
 
 Id Turner v. Indianapolis, Blooming- 
 ton, & Western B. Co. (1879), 8 Bias. 
 527, the court allowed the vendor of cer- 
 tain locomotives to a railroad company to 
 bring an action against the receiver for 
 rental and for damages to them while be- 
 ing used by him, and held that the 
 amount found to be due was payable out 
 of the funds in the receiver's hands. 
 But the report does not show whether 
 those " funds " were earnings or the pro- 
 ceeds of the sale. 
 
 The "working expenses" which a re- 
 ceiver appointed at the instance of a judg- 
 ment creditor under the English act of 
 1867 is required to pay, include, as 
 against the debenture-holders, the instal- 
 ments due on an agreement for the hire 
 of rolling-stock, which is to become the 
 property of the company upon the payment 
 of all the instalments of rent. In re 
 Eastern k Midlands Railway Co. (1890), 
 L. R. 45 Cli. Div. 367. See also, in same 
 matter, 65 L. T. Rep. 668; 66 L. T. Rep. 
 N. S. 153 ; 8 Ry. & Corp. L. J. 384 ; Ee 
 Cornwall Minerals Ry. Co., 48 L. T. N. S. 
 41. The former case holds that the ex- 
 pression "working expenses" covers in- 
 stalments in arrear as well as the current 
 ones. For a transaction which was held 
 not to be a borrowing of money, but a 
 bona fide sale and hiring of rolling-stock, 
 and valid, see Yorkshire Ry. Wagon Co. 
 V. Maolure (1882), 21 Ch. Div. 309. 
 
 23 
 
354 RAILWAY BONDS AND MORTGAGES. [CHAP. XIV. 
 
 tion of a general creditor, and therefore cannot claim any special 
 preference in the distribution of the fund, unless it can be shown 
 that the current income of the receivership or of the company 
 has been employed in a manner which has deprived him of his 
 equitable rights.^ 
 
 § 339. Can the Court authorize a Receiver to create a Car Trust. -^ 
 The essentially temporary nature of the control exercised by the 
 court over the corporate property during a receivership renders it 
 very doubtful whether the equipment of a road through a car-trust 
 agreement which it will require a considerable period to carry 
 out is within the proper scope of a chancellor's authority. But 
 such an agreement should, at all events, not be authorized where 
 the ground on which the receiver supports his application is that 
 the earnings will, as a result of the car trust, be set free for the 
 payment of the bonded interest. It is better to allow the interest 
 to go unpaid rather than to pay it by means of borrowed money, 
 and so mislead creditors and others respecting the actual condi- 
 tion of the road.2 
 
 1 Fosdick V. Schall (1878), 99 TJ. S. not in reality for the use and repair of the 
 
 235 ; s. o. 7 Rep. 449 ; Huidekoper v. engines, but on account of what was 
 
 Hinckley Locomotive Works (1878), 99 agreed to be paid for the purchase, and 
 
 U. S. 258. reyersed the decree of the Circuit Court 
 
 In the latter case locomotives, after be- which allowed it to be paid out of the 
 
 ing used for some time, were returned in proceeds of the sale in the receiver's 
 
 an injured condition, and then sold to hands. 
 
 other companies, leaving a certain sum ^ Taylor v. Philadelphia & Reading E. 
 
 due to the vendors. The Supreme Court Co. (1881), 9 Fed. Rep. 1 ; s. c. 3 Am. & 
 
 held that the sum thus found due was Eng. E. E. Cas. 177. 
 
§ 340.] 
 
 PREVENTIVE REMEDIES. 
 
 355 
 
 CHAPTER XV. 
 
 PREVENTIVE REMEDIES, OR REMEDIES OP BONDHOLDERS FOR INTER- 
 FERENCE WITH THE MORTGAGED PROPERTY. 
 
 ,340, 
 
 Injunctions against Acts of the 
 Mortgagor impairing the Se- 
 curity. 
 
 Injunctions against Acts of Third 
 Persons which impair the Se- 
 curity, generally. 
 
 Injunctions against Execution 
 Sales of Personalty, generally. 
 
 When Equity will interfere to 
 protect the Lien of the After- 
 acquired Property Clause. 
 344. Inadequacy of Legal Remedy as 
 a Ground for Interference of 
 Equity. 
 
 Puhlic Interest in Operation of 
 Road a Ground for Interference 
 of Equity. 
 
 Injunction to restrain Levy on 
 Net Revenues specifically ap- 
 propriated to Payment of State 
 Loan. 
 
 341. 
 
 342. 
 
 343 
 
 345 
 
 346. 
 
 §347. 
 
 348. 
 
 349. 
 
 350. 
 
 351. 
 
 352. 
 
 353. 
 
 Injunctions against Sales of 
 Realty. 
 
 Injunctions against Execution 
 Sales where Trustees have 
 gone into Possession. 
 
 Injunctions to prevent a Bond- 
 holder from obtaining an In- 
 equitable Preference over his 
 Co-bondholders. 
 
 Execution Sale when enjoined 
 at the Instance of the Mort- 
 
 Execution issuing out of State 
 
 Court cannot he enjoined by 
 
 Federal Court. 
 Injunctions in Aid of Holders of 
 
 Income Bonds. 
 Injunctions against Enforcement 
 
 of a Railroad Commission 
 
 Law. 
 
 § 340. Injunctions against Acts of the Mortgagor impairing the 
 Security. — It is familiar learning that equity will interfere at the 
 instance of a mortgagee to prevent waste by the mortgagor in 
 possession.! 
 
 Thus an injunction will be granted against the company, at the 
 suit of a bondholder, to restrain it from taking up any part of 
 the railroad covered by the mortgage. The company have no 
 right to touch it except for proper repairs and lawful use ; and it 
 is no defence to a suit for such injunction that the security of the 
 plaintiff will not be materially impaired by the proposed action of 
 the defendants, or that the portion of the road they are taking up 
 is not self-sustaining, but an expense to other roads belonging to 
 
 1 High on Injunctions, § 478. 
 
356 RAILWAY BONDS AND MORTGAGES. [CHAP. XV. 
 
 them, or that the defendants are willing to give security for the 
 moneys received from the sale of the materials of that part of the 
 road which is being taken up.^ 
 
 § 341. lujunctious against Acts of Third Persons impairing the 
 Security. — Any act of a third person which will impair the secu- 
 rity of the bondholders by diminishing the value of the mortgaged 
 property presents an occasion for the intervention of a court of 
 equity, provided the ordinary condition precedent to such inter- 
 vention exists, viz., that the legal remedy is inadequate. 
 
 Thus a bondholder secured by a mortgage on the lands of a 
 corporation has an interest therein equally with stockholders, and 
 may, like the latter, maintain a suit to prevent another corporation 
 from obtaining the same lands by the wrongful use of the name of 
 the corporation the bonds of which he holds. But such a suit can 
 be maintained only upon an allegation that the corporation has 
 refused to take proper steps to protect the rights of the peti- 
 tioner .^ So also a receiver has been granted an ex 'parte injunc- 
 tion to restrain another company from building approaches to a 
 tunnel over the mortgaged property, to the prejudice of the bond- 
 holders, where the right to do so was claimed under an agreement 
 made after the execution of the mortgage. But it was held to 
 be improper to determine the question whether the license thus 
 granted was subordinate to the rights of the mortgagees, without 
 making the second company a party to the proceedings. The 
 temporary injunction was, therefore, modified so as to allow 
 the second company to proceed with the construction of the 
 approaches, upon condition that it should pay for all the altera- 
 tions in the petitioner's track, where rendered necessary by the 
 work to be done, and also give a bond to pay for all the other 
 damage inflicted in case the result of the proceedings was un- 
 favorable to it.^ 
 
 § 342. Injunctions against Execution Sales of Personal Property 
 generally. — The settled rule is that "until the mortgage is en- 
 forced by entry or judicial claim the personal property of the 
 railroad company is subject to its disposal in the ordinary course 
 
 1 Watt V. Hestonville, Mantua, & 140 (1893); Watt v. Senecal, 4 Q. L. E. 
 
 Fairmount Passenger Ry. Co. (1867), 1 76 ; 1 L. N. 98 ; Morrison v. G. T. Ky. 
 
 Brewst. (Pa.) 418; s. c. 6 Phil. 386. Co., 5 L. C. J. 313 ; Legg t). Matthieson, 2 
 
 That waste by the mortgagor may also be Giff. 71 ; Wild v. Mid. Hants Ry. Co., 16 
 
 a ground for appointing a receiver, see W. E. 409. 
 
 post. Chap. XXIX. For miscellaneous ^ Newby v. Oregon Central R. Co. 
 
 cases on the remedies of bondholders for (1870), 1 Sawy. 64. 
 protection of the property mortgaged see ' Coe v. New Jersey Midland R. Co. 
 
 the following cases : 25 Nova Scotia R. (1877), 28 N. J. Eq. 27. 
 
§ 343.] PREVENTIVE REMEDIES. 357 
 
 of business, and as such is liable to be seized and taken on exe- 
 cution for its debts." ^ 
 
 Under Minnesota Gen. Stat. 1878, ch. 34, §§ 72, 73, the rolling- 
 stocii and property of a railroad mortgaged under these sections 
 is an entirety, and cannot be levied on separately, and an execu- 
 tion sale will be enjoined at the instance of the mortgagee.^ 
 
 Under Texas Const., art. 10, § 4, providing that rolling-stock 
 shall be personal property, and that all of the property of a rail- 
 road shall be subject to execution, and Texas Rev. Stat., art. 2287, 
 providing that a levy shall be first made on personal property 
 where it is delivered into possession of an officer, the fact that a 
 levy on a box-car was not made before a levy upon the realty will 
 not be ground for an injunction where possession was not deliv- 
 ered as required by the statute.* 
 
 In England, before tlie act of 1867 was passed, a judgment cred- 
 itor could issue his fi. fa. and seize all the rolling-stock and all 
 other chattels of the company. As this placed it in the power of 
 such a creditor to strangle the whole undertaking, Parliament 
 interfered and limited his remedy to a receivership.^ 
 
 A dock company authorized by the act incorporating it to build 
 a railway is entitled to the protection given by the act of 1867.^ 
 
 § 343. 'When Equity will interfere to protect the Lien of an After- 
 acquired Property Clause. — In practice the effect of the rule just 
 stated is considerably modified by the fact that railroad personalty 
 is almost invariably subject to the lien of an after-acquired clause. 
 Tliat this lien must be allowed priority over a subsequent judg- 
 ment follows from the nature of the contract creating it. (See 
 Chap. X., ante.') That a court of equity will always interfere 
 when the result of an execution sale will be to render an already 
 inadequate security still more inadequate, or change an adequate 
 security into an inadequate one, also follows from the general 
 principle that an irreparable injury to property rights will be pre- 
 vented as a matter of course by injunction. So far the authorities 
 are quite harmonious.® 
 
 1 Union Trust Co. v. Morrison (1888), Eastern & Midland Ey. Co. (1890), L. 
 125 U. S. 591 ; s. 0. 8 Sup. Ct. Rep. R. 45 Ch. Div. 367 ; s. c. 8 Ey. & Corp 
 1004 ; 33 Am. & Eng. R. R. Cas. 33. L. J. 384. 
 
 2 Central Trust Co. f. Moran (1894), 6 Qreat Northern Ey. Co. v. Tabour- 
 56 Minn. 188 ; s. c. 57 N. W. Rep. 471 ; den, L, R. 13 Q. B. D. 320, where an 
 29 Law Rep. Ann. 212. execution sale of a hydraulic lift used by 
 
 ' Texas & Mexican Ry. Co. v. Wright the company was enjoined. 
 
 (Tex. Sup. Ct., 1895), 31 S. W. Rep. e Coe v. Columbus, Piqua, & Ind. R. 
 
 613. Co. (1859), 10 Ohio St. 372 ; Coe v. Pea- 
 
 * Sec the opinion of Kay, J., In re cock (1863), 14 Ohio St. 190 ; Lane v. 
 
358 RAILWAY BONDS AND MORTGAGES. [CHAP. XV. 
 
 Upon the ground of the resulting inadequacy of the security, 
 the court will enjoin an execution sale by a creditor whose claims 
 come under the head of " running expenses," even though the 
 mortgage contains an express reservation of so much of the in- 
 come as may be necessary to pay for those expenses. The proper 
 remedy of such a creditor is, in equity, to charge the earnings of 
 the company as a fund, and to subject so much thereof as may be 
 necessary to the payment of the judgment not to remove and 
 sell by execution disconnected portions of the road, and thus 
 deprive the mortgagee of his security.^ 
 
 But a somewhat embarrassing divergence of view is disclosed 
 by the cases in regard to the further question, whether the 
 inadequacy of security resulting from a sale on execution is 
 the sole ground on which an injunction to restrain it will be 
 granted. 
 
 In some jurisdictions it would appear that, unless some special 
 equity is alleged, the bondholder will not be granted an injunction 
 even for the temporary purpose of ascertaining whether the case 
 is a proper one for interposition. In other words, a judgment 
 creditor is allowed to act on the defensive all through the proceed- 
 ings, and compel the bondholders to show affirmatively that there 
 is some reason besides the mere existence of the lien which ren- 
 ders it inequitable to permit the judgment to be enforced. This 
 is the doctrine in Ohio, where at any stage of the proceedings 
 the one essential condition precedent to obtaining equitable 
 relief against the enforcement of a judgment is to show that 
 the mortgaged property will be rendered by the execution sale 
 an inadequate security for the mortgage debt. That the constant 
 and uninterrupted use of the property by the company is indis- 
 
 Baughman (1867), 17 Ohio St. 642 ; Lud- he was ultimately obliged to pay on his 
 
 low V. Hurcl (1857), 1 Dis. (Ohio) 552. bond. 
 
 In Union Trust Co. v. MoiTison (1888), In Brady v. State (1866), 26 Md. 290, 
 
 125 U. S. 591 ; s. c. 8 Sup. Ct. Rep. 1004 ; a part of the relief asked for in a petition 
 
 33 Am. & Eng. R. R. Cas. 33, the opinion for an injunction against an attachment 
 
 of the court that the serious dislocation of was that the sale of certain specific articles 
 
 the, business of the company which must of personal property subject to a statutory 
 
 result from a seizure of rolling-stock, and mortgage should be restrained, inasmuch 
 
 its consequent separation from the corpus as they were necessary to keep the canal 
 
 of the estate, was a sufficient reason for subject to the mortgage in proper repair, 
 
 giving a person who prevented such a Under the circumstances disclosed in the 
 
 catastrophe by becoming surety on an record the court did not think it necessary 
 
 injunction bond, in a suit filed by the to express any formal opinion, but thought 
 
 company to resti-ain the levy, a preference that the facts showed a case in which an 
 
 over the mortgagees, in the distribution of injunction would be proper, 
 the proceeds of a subsequent foreclosure ^ Lane v. Baughman (1867), 17 Ohio 
 
 sale of the estate, for the amount which St. 642. 
 
§ 343.] 
 
 PREVENTIVE REMEDIES. 
 
 359 
 
 pen sable to enable it to earn money with which to pay interest 
 on the bonds is not a circumstance which will raise a. superior 
 equity in favor of the bondholders.^ 
 
 A similar view has been taken by a federal judge who denied 
 the petition of a trustee for an injunction against an execution 
 sale of certain portions of the property of a railroad company, 
 taking the broad ground that the sale would be made subject 
 to any prior rights of the bondholders, and that he could not 
 assent to the theory on which the bill was framed; viz., that 
 none of the obligations of the corporation, even though judicially 
 determined, are enforceable against its property, where there is 
 a prior mortgage covering such property.^ 
 
 In Illinois also it would appear that a court of equity, when 
 asked to restrain an execution sale of railroad personalty, requires 
 some special ground to be shown for an injunction besides the 
 mere fact that it is subject to a mortgage. Where a bill was 
 filed on the theory that rails, bridge timber, and wood were not 
 subject to levy, it was held that no injunction should have been 
 issued to restrain the sale of the wood. The other two species 
 of property were protected as being fixtures.^ 
 
 1 Coe V. Knox County Bank (1859), 10 
 Ohio St. 412. In Coe v. Peacock, 14 Ohio 
 St. 187 (1862), the trustee undertook to 
 replevy the property after the sale. It was 
 held that, as the mortgage gave him no 
 right "to take from the corporation por- 
 tions of the property mortgaged, except 
 when exercising a bona fide attempt to 
 possess himself of the whole work, he stood 
 upon no higher ground in this respect than 
 an officer who had legally levied an execu- 
 tion on the property, and thereby succeeded 
 to all the interests which the corporation 
 had, and that in no event could he he 
 permitted to use the power, either with or 
 without legal process, for the purpose of 
 restoring to the corporation the possession 
 and use of the property which had been 
 taken from it "(by the levy). The replevy, 
 therefore, was wrongful, but as it appeared 
 that the lien very far exceeded the entire 
 value of the property included in the mort- 
 gages, the defendant in the replevin suit 
 was allowed to recover only nominal dam- 
 ages. Under such circum-stances the levy 
 bound no substantial interest, and the 
 defendants lost substantially nothing in 
 losing the possession of the property. 
 
 2 Eells t>. Johann (1886), 27 Fed. Eep. 
 
 327. The learned judge does not refer to 
 any of the earlier authorities on the subject, 
 which are cited in the present section, and 
 the case seems to have been decided without 
 much consideration. It is quite possible 
 to agree fully with the propositions on 
 which the opinion was based, and yet 
 dissent from the conclusion drawn from 
 them, unless it is intended merely as a 
 ruling that on the pleadings submitted 
 tlje relief asked for could not he granted. 
 Possibly this is all that the case is really 
 meant to decide, though the report does 
 not state what the precise allegations of 
 the bill were. If its contents were at all 
 similar to those of the bill in Pennock v. 
 Coe, infra, it is evident that the case is in 
 conflict with the doctrine adopted by the 
 Supreme Court. The questions raised by 
 the learned judge, however, were quite 
 unnecessary, as the execution had issued 
 out of a state court, and in such a case a 
 federal court is powerless to act. (See 
 post.) 
 
 8 Fahs I). Roberts (1870), 54 111. 192. 
 The report is too meagre to show whether 
 this case is not open to the same objection 
 as the one last cited. 
 
360 RAILWAY BONDS AND MORTGAGES. [CHAP. XV. 
 
 Other courts have shown much greater readiness in interfering 
 for the protection of the bondholders, and we think that a reason- 
 able inference from the authorities cited below is, that the mere 
 fact of the property levied upon being subject to the lien of the 
 after-acquired property clause will warrant a court of equity in 
 issuing an injunction to stay the sale, the question whether the 
 injunction shall be made perpetual being left to be decided by 
 the facts disclosed. Several very weighty reasons, as will be 
 seen, may be given for at least a temporary assumption of exclu- 
 sive control of the proceedings by a court of equity. 
 
 One of the grounds upon which the Supreme Court of the 
 United States, in the leading case of Pennock v. Coe,^ upheld 
 the issuance of an injunction restraining a judgment creditor 
 from levying on certain rolling-stock subject to the lien of an 
 after-acquired property clause, was that the bondholders presented 
 the superior equity to have the property in question applied to the 
 discharge of the bonds. 
 
 The remedy suggested, in case the property was more than 
 sufficient to pay the demands of the bondholders, was, not to 
 allow the execution creditor to sell the property covered by the 
 mortgage, but to compel the prior incumbrances to satisfy the 
 execution, or, on a refusal, the mortgage having become forfeited, 
 compel foreclosure and satisfaction of the bond debt, so as to 
 enable the judgment execution creditor to reach the surplus, or 
 upon any unreasonable resistance of the claim of the execution 
 creditor, or inequitable interposition for delay, and to hinder and 
 defeat the execution, permit a sale of the rolling-stock sufficient 
 to satisfy it. So in Kentucky it has been held that a party 
 having an equitable lien on railroad property by virtue of the 
 after-acquired clause of a mortgage may, if such property is 
 sold on execution by a third person, apply to a court of equity 
 for a redelivery thereof, or for an order restraining its removal, 
 and, if the sale has not yet taken place, procure an injunction to 
 stay it.^ 
 
 1 23 How. 117 (1859). The judgment complained of (in this case an actual sale) 
 creditor in this case was a holder of bonds was not only in violation of the plain- 
 secured by a junior mortgage, and the tiff's right ; (2) that it was of a character 
 injunction was asked for by the trustees of that might produce irreparable injury to 
 the first mortgage. But from the present the plaintiff, and great inconvenience to 
 point of view it is clearly quite immaterial the public. The jurisdictional powers of 
 that the execution was to satisfy a secured the court were placed upon the ground 
 and not an unsecured debt. that, "as the mortgagee had only an 
 
 ^ Phillips V. Winslow (1857), 18 B. equitable right to the property, he had a 
 
 Mon. (Ky.) 431. The court placed its clear right to apply to a court of equity for 
 
 decision on two grounds : (1) that the act relief." 
 
§ 343.] PREVENTIVE REMEDIES. 361 
 
 So also it has been ruled in Pennsylvania that the rolling- 
 stock and equipments of a railroad cannot be seized in execution 
 after the company has become insolvent, or has mortgaged such 
 rolling-stock and equipments, the equity which in such a case 
 will restrain the sale, springing out of the insolvency, or the 
 trusts created by the mortgage.^ 
 
 So also in Iowa the rights of the trustee to restrain an attachment 
 or execution against the earnings of a railroad was placed upon 
 the ground that they were among the property expressly pledged.^ 
 
 These four cases receive a negative support from a Maine case, 
 where the court denied an injunction, on the ground that the 
 consent of a mortgagee that a railroad may use and dispose of 
 articles like fuel for its own benefit, and the use of such articles 
 in pursuance of that consent, are acts tantamount to a waiver of 
 the lien of the mortgage, and therefore constitute a sufficient 
 reason for the refusal of a court of equity to interfere for the 
 protection of the lienors' rights.^ 
 
 Possibly it may be said that in Maryland also the same view 
 prevails.* 
 
 It is also deserving of notice that the ground on which general 
 creditors were allowed, prior to the English Railway Act of 1867, 
 to levy on the property of a company was that the bondholders had 
 no specific lien on the property of the company under the forty- 
 fourth section of the Companies Clauses Act, providing to be paid 
 out of the " tolls, property, and effects " of the company.^ 
 
 Plainly, therefore, if they had been held to have such as bond- 
 holders in this country have, an execution sale would have been 
 illegal, and would presumably have been restrained as a matter of 
 course, as in the cases cited above. 
 
 1 Londenslager v. Benton (1861), i the pertinency of the authority in regard 
 
 Phil. 382. In thia case, as there was a to the subject under discussion. As to the 
 
 doubt about the power of the company to rights of the lienor where the earnings are 
 
 mortgage, the court, while refusing to de- specifically appropriated to certain pur- 
 
 cide that question on a motion for a special poses, see post. 
 
 injunction, enjoined the creditors and = City of Bath y. Miller (186.5), 53 Me. 
 
 sheriff from selling the property covered 308. 
 
 by the mortgage, but directed that the lien * See Brady v. State (1866), 26 Md. 
 
 of the fi. fas. should continue till further 290 ; Brady v. Johnson (1892), 75 Md. 
 
 orders. As to the special case in which 445 ; s. c. 26 Atl. Rep. 49, where, however, 
 
 the judgment creditor is one of the bond- the fact that the rights of the parties were 
 
 holders, see below. created by legislation having some peculiar 
 
 ^ Dunham v. Isett (1863), 15 Iowa, features may, to some extent, have influ- 
 
 284. Other cases hold that such a pledge enced the courts. 
 
 does not change the general rule that a « Russell v. East Anglican Ey. Co. 
 
 mortgagor is entitled to the income of the (1850), 3 Mac. & G. 124. See note at end 
 
 mortgaged property as long as he remains of chapter, 
 in possession. But this fact does not affect 
 
362 EAILWAT BONDS AND MORTGAGES. [CHAP. XV. 
 
 The difference of opinion disclosed by the above summary is 
 perhaps due, in some degree, to a difference of opinion as to the 
 precise nature of a trust deed. The attitude of the courts which 
 decline to interfere with an execution sale, unless it is affirma- 
 tively shown that impairment of the security will result, is 
 intelligible if the deed merely creates a lien, for on technical 
 grounds, at least, there is then no reason why the mere existence 
 of this, any more than other liens, should preclude an execution 
 sale. The maxim caveat emptor being applicable, the property 
 remains burdened with the lien after as before the transfer. 
 On the other hand, if, as seems to be most in accordance with 
 principle, and perhaps with authority,^ a conveyance to trustees 
 which leaves nothing but the equity of redemption in the grantor, 
 it is difficult to see how a sale of the property itself can be 
 proper except through equitable proceedings. Even wliere stat- 
 utes have made such an interest subject to levy, the sale will 
 not deprive the' corporation of the use of the property ; for if 
 the words of the trust deed are to have due force, it can only 
 be deprived of such use by proceedings taken upon breach of one 
 or other of the conditions of that instrument. In an early Indiana 
 case, however, it was held that the sheriff would not be enjoined 
 from selling the company's equity of redemption in personalty 
 covered by an " after-acquired property " clause, but that the pur- 
 chaser would not be allowed to take possession of the property 
 until he had complied with the conditions of the mortgage.^ 
 
 § 344. Inadequacy of Legal Remedy as a Ground for Interference of 
 Equity. —A consideration not emphasized very strongly in the 
 cases cited in the latter part of the preceding section, but ap- 
 parently sufficient of itself to turn the scale in favor of the doctrine 
 which they announce, is that, under the peculiar circumstances 
 
 1 In Commonwealth v. Susquehanna & its effect on the legal title, it must he con- 
 Delaware River R. Co. (1888), 122 Pa. St. sidered as the equivalent of a common-law 
 306 ; s. 0. 15 Atl. Eep. 448 ; 36 Am. & mortgage. 
 
 Eng. R. E. Cas. 269, the court said, in the 2 Ooe v. McBrown (1864), 22 Ind. 252. 
 
 course of its opinion : " If the title (to the The trial judge, whose judgment was 
 
 corporate property) had been pledged or affirmed without comment in that case, 
 
 conveyed to trustees before the seizure (on cites Cos r. Pennock, supra, but seems to 
 
 execution), the defendant corporation has have assumed that the effect of the statute 
 
 only an equity of redemption in the prop- making the equity of redemption a leviable 
 
 erty mortgaged or conveyed." The conse- interest was to do away with the special 
 
 queuce here predicated of the execution of reason for drawing the proceedings into a 
 
 an ordinary mortgage would doubtless not court of equity. This can scarcely be 
 
 be admitted in the States where the lien regarded as an indisputable proposition, 
 
 theory, pure and simple, is accepted. But hut the obligation imposed on the pur- 
 
 in the absence of some statute expi'essly chaser by the rnling was doubtle-ss a full 
 
 declaring a trust deed a mere hypotheca- protection to the bondholders, 
 tion, it would seem that, so far as regards 
 
§ 344.] PREVENTIVE REMEDIES. 863 
 
 involved in the adjustment of conflicting rights to railroad prop- 
 erty, a court of equity is, as a general rule, the only forum where 
 complete justice can be done to all the parties in interest. The 
 unsatisfactory consequences from this point of view, of allowing 
 a judgment creditor to sell a part of the mortgaged property, 
 without reference to the claims of other creditors, are very 
 clearly brought out in the opinion of Mr. Justice McLean, in 
 delivering the judgment of the lower court in the case of Pen- 
 nock V. Coe,' supra. He said : " There are three insuperable 
 objections against such a procedure : (1) A sale on execution 
 would convey to the purchaser no exclusive right to the property 
 sold. (2) Such a sale would not divest the equitable rights of the 
 bondholders. (3) The claim must be prosecuted in equity, where 
 all who have an interest in the subject-matter may be made par- 
 ties. In equity only can the rights of the parties be adjusted." ^ 
 
 That the learned justice intended to lay down the doctrine that 
 the inadequacy of legal remedies was, apart from any question of 
 the impairment of the security, a sufficient ground for enjoining 
 an execution sale of the mortgaged personalty of a railroad com- 
 pany is, we think, clearly shown by the remark which follows the 
 above citation ; " And this is especially the case where the property 
 mortgaged is inadequate to the payment of all the creditors. In 
 addition to these considerations, from the nature of the property 
 levied on it could not be separated from the road without suspend- 
 ing in whole or in part its operations. And what can be more 
 unjust than this to the otiier bondholders ? The operation of the 
 machinery on the road in the transportation of passengers and 
 freight constitute its chief value. The railroad, like a compli- 
 cated macliine, consists of a great number of parts, a combined 
 action of which is essential to produce revenue. And as well 
 might a creditor claim the right to levy on and abstract some 
 essential part from Woodworth's planing machine, or any other 
 combination of machinery, as to take from a railroad its locomo- 
 tives or its passenger cars. Such an abstraction would cause the 
 operations to cease in both cases." 
 
 1 See Coe v, Pennoek (1857), 5 Fed. and existing liens on the road can only be 
 
 Cai. 1172, Case No. 2942; s. o. 2 Eedf. adjusted by a court of equity. " William- 
 
 Aui. Ey. Cas. 673 ; 6 Am. L. Reg. 27. son v. New Albany, etc. R. Co. (1857), 1 
 
 ^ The same judge, in a case decided Bias. 198. In Eckfelt v. Starr (1864), 5 
 
 about the same time, states the same prin- Phil. 497, an injunction against an exeou- 
 
 ciple somewhat more succinctly, as follows : tion sale of railroad personalty was denied 
 
 " When property is purchased and placed on the ground that the Interpleader Act of 
 
 upon the road, no lien being taken by the Pennsylvania furnished the trustees with 
 
 seller, it becomes subject to the mortgage an adequate legal remedy for the assertion 
 
 lien on the road, so that it is not liable to of their rights, 
 an execution, except under the mortgage ; 
 
364 RAILWAY BONDS AND MORTGAGES. [CHAP. XV. 
 
 § 345. Public Interest in Operation of Railroad a Ground for Inter- 
 ference of Equity. — Still another aspect of the question which tends 
 to support the same view is that the restraining power of a court 
 of equity seems to be absolutely necessary for the purpose of giving 
 time in each case to determine whether the sale of the property 
 levied upon will prejudice the public, whose interests in the con- 
 tinued operation of the road are, as is shown in another part of 
 this treatise,^ paramount for some purposes even to those of secured 
 creditors. The presumption certainly is that any severance from 
 the property of articles covered by the mortgage, and coming under 
 the head of appurtenances, will cripple the company to some ex- 
 tent. Is it not more consistent with the view ordinarily taken as 
 to the quasi public character of the functions of a railroad com- 
 pany, to require a judgment creditor to overcome that presumption 
 before he shall be allowed to take final action on his judgment, 
 than to throw the burden of proof on the mortgagor ? 
 
 § 346. Injunction to restrain Levy upon Net Revenues specifically 
 appropriated to Payment of State Loan. — Where the effect of a 
 statutory mortgage giving the State a lien on the tolls and rev- 
 enues of a canal company is specifically to appropriate, in so far as 
 it is not required for current expenses, the money derived from 
 that source to the payment of a loan made by the State, the right 
 which unsecured creditors ordinarily have to levy on the corpo- 
 rate income as long as the mortgagees are out of possession does not 
 exist, and an attempt to make such a levy will be restrained by an 
 injunction, unless the debt for which the judgment was obtained 
 is one for current expenses.^ 
 
 In an earlier case in the Maryland court the rights of the State 
 to restrain the attachment of the revenues pledged under the same 
 statute was also considered, and the same conclusion was arrived 
 at. The injunction was asked on the ground that the moneys 
 attached were required to keep the canal in proper repair, as the 
 company had expressly stipulated to do. The court said that this 
 part of the income was as much protected as the net earnings, 
 since upon its use depended both the vitality of the canal as a 
 public and profitable improvement, and also the ultimate security 
 of the State as a creditor. The right of the State to see to the 
 
 1 Chapter on receivers. and of the trustees for bondholders secured 
 
 2 Macalaster's Admrs. v. Maryland by a prior mortgage of the canal would 
 (1885), 114 U. S. 598; s. o. 5 Sup. Ct. be affected by a levy which diverted the 
 Kep. 1065. This case raises a somewhat money in suit from its lawful object, is 
 different question from that of the suscep- quite analogous to that which underlies 
 tibility of railroad personalty generally to Pennock v. Coe (1859), 23 How. 117, and 
 levy, but the principle on which it was similar rulings cited above. 
 
 decided, viz., that the security of the State 
 
§ 3-17.] PREVENTIVE REMEDIES. 365 
 
 proper application of the revenues to the repairs, as well as to the 
 other legitimate objects contemplated by the legislation relating 
 to the property, could not, it was said, be interfered with by the 
 application of the technical rules which govern the ordinary rela- 
 tion of mortgagor and mortgagee.^ 
 
 § 347. Injunctions against Execution Sales of Realty. — For prac- 
 tical purposes the conflict of opinion noticed above is confined to 
 cases where personalty is levied upon. So far as regards the real 
 estate of a railroad company acquired for railroad purposes, any 
 attempt of a judgment creditor to sell a portion of it must, in the 
 nature of the case, be prejudicial to a bondholder, and it seems to 
 be an established doctrine that the sale will, as a matter of course, 
 be stayed, so as to compel the creditor to obtain such relief as he 
 may be entitled to by applying to a court of equity. Impairment 
 of the security is a necessary result of a breaking up a property 
 which the intention clearly is to have operated as an entirety for 
 the benefit of the lienors. The unity of the mortgaged realty of 
 a railroad company or other corporation of similar character may 
 be threatened in two ways by a levy. It may be made on an entire 
 division of the road, including both the land occupied by the track 
 and that required for the convenient transaction of its business.^ 
 
 An injunction is especially appropriate where the sale of a sec- 
 tion of the road is being pressed by numerous creditors ; for a 
 court of equity then has a double foundation for the exercise of 
 its jurisdiction, viz., the prevention of a multiplicity of suits, and 
 the prevention of irreparable damage to the other creditors whose 
 interest it is that the road should be sold as an entirety, and, in 
 the meantime, that it should be operated throughout its entire 
 length, for the benefit of all concerned, so that, when it is sold, it 
 may bring its full market value.^ 
 
 1 Brady v. State (1866), 26 Md. 290. the jurisdiction of the court under the 
 See also Brady v. Johnson (1892), 75 Md. Judiciary Act, suggested that some anii- 
 445 ; s. 0. 26 Atl. Eep. 49. cable arrangement should be made. 
 
 2 In Du Pont v. Buahong (1875), 1 W. » Noble Bros, et al. v. State of Alabama 
 N. C. (Pa. ) 378, an injunction was sought (1871), 43 Ga. 466. Compare also the 
 in a federal court by a bondholder to remark of the court in South Carolina R. 
 restrain another bondholder from levying Co. v. I*eoples' Sav. Inst. (1879), 64 Ga. 
 on and selling that part of the property of 18, to the effect that a court of equity, on 
 a railroad company which was subject to a proper case being made, would perhaps 
 the Jurisdiction of the court. The point restrain judgment creditors of a company 
 emphasized by the applicant's counsel was having property both beyond and within 
 that the value of the property would be the State limits from levying on the latter 
 greatly diminished if it was broken up. portion, and order the whole road to be 
 The court said he had no doubt that the sold. But this question was not directly 
 circumstances presented a case forequitahle presented. 
 
 interference, but, having some doubt as to 
 
366 
 
 RAILWAY BONDS AND MOETGAGES. 
 
 [chap. XT. 
 
 Or the judgment creditor may be undertaking to sell merely a 
 particular piece of land belonging to the company and essential to 
 the exercise of its franchises.^ 
 
 Wherever an injunction will be granted to restrain an execution 
 sale of real estate, the same relief is of course appropriate where 
 a levy is made on personalty which is a fixture ; but, as we have 
 already seen, the courts are not entirely in harmony as to what 
 property is embraced in that term. (See Chap. IX.) 
 
 § 348. Injunctions against Execution Sales -vrhere Trustees have 
 gone into Possession. — In this case they can, of course, restrain 
 an execution sale of all corporate property covered by an after- 
 acquired property clause.^ 
 
 Particularly must this be so where the trustees hold under a 
 decree which authorizes their possession, and obligates them to 
 account to the court for the faithful performance of their duties. 
 The property being then in the custody of the court, an injunction 
 will, upon familiar principles, be granted to restrain any proceed- 
 ings to enforce a judgment, unless the leave of the court is first 
 obtained for that purpose.^ 
 
 § 349. Injunctions to prevent a Bondholder from obtaining an In- 
 equitable Preference over his Co-bondholders. — If a bondholder 
 
 1 In Gue V. Tide Water Canal Co. 
 (1860), 24 How. 257, the company was 
 granted an injunction to restrain the sale 
 of a part of its property on this ground. 
 " It would," said Chief Justice Taney, "be 
 against the principles of equity to allow a 
 single creditor to destroy a fund to which 
 other creditors had a right to look for pay- 
 ment, and equally against the principles 
 of equity to permit him to destroy the 
 value of the property of the stockholders, 
 dissevering from the franchise property 
 which is essential to its useful existence." 
 It was further said that the court did not 
 deem it proper to express any opinion as 
 to the right of such a creditor in some 
 other form of judicial proceeding to compel 
 the sale of the whole property for the pay- 
 ment of his debt. If so, his remedy 
 was in a court of chancery, where the 
 priorities of all the creditors might be pro- 
 tected, and the corporate property disposed 
 of to the best advantage for the interests 
 of all concerned. The reasoning of the 
 court is perfectly general, and it can 
 scarcely be doubted that the injunction 
 would have been granted at the suit of a 
 bondholder. In fact, it was cited as an 
 apt authority in the recent case of Brady 
 
 V. Johnson (1892), 75 Md. 445; s. c. 26 
 Atl. Rep. 49, where one of the grounds 
 assigned for restraining a sale of certain 
 realty belonging to a canal company was 
 that it was essential for the operation of 
 the canal, the petition for the injunction 
 being filed by the trustees. 
 
 In Coe 0. Columbus, Piqua, & Ind. R. 
 Co. (1859), 10 Ohio St. 372, the judgment 
 creditor had undertaken to levy on a part 
 of the road. In the appellate court his 
 right to do so was not pressed, and the 
 discussion centred upon the extent of his 
 rights in regard to the personalty. But it 
 was observed in passing that, being an 
 interest in real estate, held for the sole and 
 exclusive purpose of the exercise of a fran- 
 chise, the road could not be alienated by 
 the corporation, and, of course, would not 
 be liable to execution. For a list of the 
 authorities supporting the general prin- 
 ciple here referred to see Brunswick, etc. 
 Co. V. United Gas Co., 35 Am. St. Kep. 
 466. 
 
 2 Felton V. Potomac Ins. Co. (1873), 
 4 Del. Ch. 573. Compare Palmer v. 
 Forbes (1860), 23 111. 301. 
 
 » Brady ». Johnson (1892), 75 Md. 445 ; 
 s. c. 26 Atl. Rep. 49. 
 
§§ 349, 350.] PREVENTIVE REMEDIES. 367 
 
 levies upon property covered by the after-acquired property clause, 
 any of his co-bondholders may file a bill to restrain the sale and 
 procure a decree that the property is exempt from sale under that 
 or any other execution that may be issued on the same judgment.^ 
 
 So also an injunction will be granted to the bondholders secured 
 by a first mortgage to restrain a bondholder secured by a second 
 mortgage from selling on execution property so covered, both be- 
 cause it would disturb the pro rata distribution in case of a defi- 
 ciency, and give him an inequitable preference over his associates, 
 and also because it would have the effect of prejudicing the superior 
 equity of the bondholders secured by the prior mortgage.^ 
 
 It would seem, however, that bondholders may attach the mort- 
 gaged property in an action at law, if they allege that the residue 
 of the secured debts have been paid, and make the trustees or 
 legal title-holders parties to the proceedings.^ 
 
 § 350. Execution Sale not enjoined at the Instance of the Mort- 
 gagor. — The railroad company itself cannot shield its property 
 from execution by the allegation that it is covered by sundry 
 mortgages. Whatever protection the mortgagee may be entitled 
 to must be asserted by itself, and cannot be considered in pro- 
 ceedings instituted by the company to enjoin the sale.* 
 
 The mortgagor may, however, take action when an injunction 
 is asked for on the ground that the property to be sold is essen- 
 tial for the useful existence of the franchise.^ 
 
 ^ Philadelphia, Wilm. & Bait. R. Co. v. merely unwilling, to pay a debt had no 
 
 Woellper (1870), 64 Pa. St. 366 ; Common- standing in a court of equity to have ita 
 
 wealth V. Susquehanna & Delaware River collection enjoined. " If the company was 
 
 R. Co. (1888), 122 Pa. St. 306 ; s. c. 15 Atl. insolvent," said the court, "and this suit 
 
 Rep. 448 ; 36 Am. & Eng. R. R. Cas. 269. had been instituted by the trustees for the 
 
 ^ Pennocku. Coe (1859), 23 How. 117. bondholders, as was the case in Titus v. 
 
 » Martin & Meriwether v. Mobile & Mabee (1861), 25 111. 257, and Titus v. 
 
 Ohio E. Co. (1870), 7 Bush (Ky.), 116. Ginheimer (1861), 27 111. 462, a different 
 
 * Boyd V. Chesapeake & Ohio Canal question would be presented." This de- 
 Co. (1860), 17 Md. 195. cision, it is submitted, is contrary to 
 
 s Gue V. Tide Water Canal Co. (1860), authority. It is doubtless true that the 
 
 24 How. 257 ; Northern Pao. Co. v. question whether certain personalty is a 
 
 Shimmell (1886), 6 Mont. 161 ; s. o. 9 fixture cannot be raised, as against a 
 
 Pac. Rep. 889 ; 24 Am. & Eng. R. R. Cas. 1. creditor, by the mortgagor itself, but the 
 
 Contra, see Midland Ry. Co. v. Steven- question whether personalty is protected 
 
 son (1891), 130 Ind. 97 ; s. c. 29 N. E. from levy as being essential to the exercise 
 
 Kep. 385, where the court denied a petition of the franchise, so far from being one 
 
 by the mortgagor company for an injunc- which cannot be raised by the owner, is 
 
 tion, asked on double ground : (1) that one which has almost always, in the 
 
 the rolling-stock levied upon was realty, numerous cases on the subject, been raised 
 
 and (2) that it was property essential to by such owner. See the list in the note to 
 
 the exercise of the franchise. The dis- Brunswick Gaslight Co. v. Brunswick Gas 
 
 cussion of these vexed questions was Co., 35 Am. St. Rep. 405. Whether such 
 
 deemed unnecessary for the decision of the property is or is not mortgaged is a matter 
 
 case, the position being taken that a com- entirely outside the issue when exemption 
 
 pany not insolvent, and not unable, but from levy is claimed on this ground. 
 
368 RAILWAY BONDS AND MOETGAGES. [CHAP. XV- 
 
 § 351. A Federal Court has no Jurisdiction to restrain an Execu- 
 tion Sale under the Process of a State Court. — Under 1 U. S. Stat. 
 L. 335, § 5, such an injunction is illegal, and a federal court is 
 powerless to act, in spite of the doctrine of Pennock v. Coe, supra} 
 
 § 352. Injunctions in Aid of Holders of Income Bonds.^ — It has 
 been shown in another part of this treatise (Chap. XV.), that, 
 as long as the company is permitted to remain in possession of 
 the estate, the holders of bonds secured by a general mortgage 
 which specifically pledges the income amongst other kinds of 
 property have no right to interfere with the use of the earnings 
 by the mortgagor. 
 
 Doubtless an abuse of the discretion thus reserved to the com- 
 pany would furnish a ground for the interposition of a court of 
 equity, but the circumstances under which relief against a posi- 
 tive misapplication of the funds would be granted where the 
 income is only a part of the security do not seem to have been 
 judicially considered. 
 
 The question has, however, been raised in regard to income 
 bonds which expressly obligate the company to devote whatever 
 surplus of the earnings remains, after paying the operating ex- 
 penses, to keeping down the interest. The holders of such bonds 
 may file a bill for an accounting and enjoin any misapplication.^ 
 
 But no misapplication is shown where the principal only of 
 income bonds is secured by the mortgage, the payment of interest 
 
 1 Euggles o. Simonton (1872), 3 Bias, incurred on account of old indebtedness 
 325. existing before the mortgage was createil, 
 
 2 Dividends on preferred stock must be or arising from a loss incurred by the snle 
 paid after interest on bonds. See chapter of bonds issued to pay off old indebtedness." 
 on reorganization. Afterwards, in the same matter, this 
 
 ' Barry v. Missouri, Kans. & Tex. R. judge held that if the court had seen fit to 
 
 Co. (188.')), 27 Fed. Rep. 1. There the pay a higher rate of interest than needful 
 
 court refused to allow the company to upon prior incumbrances, it could not 
 
 charge against income, for any period charge the difference against the income to 
 
 during the life of the mortgage, a liability the injury of the bondholders, in direct 
 
 incurred on account of old indebtedness contravention of the provisions of the 
 
 existing before the mortgage was created, mortgage securing the income bonds. He 
 
 or arising from a loss incurred by the sale also sustained the rejection by the master 
 
 of bonds issued to pay off old indebtedness, of a lump sum of money paid to a company 
 
 The basis on which an accounting in whose road had been leased by the mort- 
 
 such a case will be had was thus stated by gagor as a compensation for what was 
 
 Wallace, J. ; " The expenses defrayed or styled an "allowance" to the lessor com- 
 
 incurred in producing the earnings for a pany, on adjustment of earnings diverted 
 
 given interest period are the only charges from its line to the lessor's railway. The 
 
 which can enter into the income account master had disallowed it as not falling 
 
 for that period, except the payment of within the category of expenses incurred 
 
 interest on prior incumbrances, as stipu- in operating and keeping in repair the 
 
 lated by the terms of the mortgagor, and road as covered by the income mortgage, 
 
 the company cannot charge against income Barry v. Missouri, Kans. & Tex. R . Co. 
 
 for any period during the life of the (in- (1888), 34 Fed. Rep. 829 ; s. o. 4 Ky. & 
 
 come) mortgagor, a payment or liability Corp. L. J. 198. 
 
§ 353.] PREVENTIVE REMEDIES. 369 
 
 being subject to the condition that " the net earnings " for each 
 year should be sufficient to pay it, and the amount of the net 
 earnings left to be determined by the board of directors, and the 
 mortgagor, having under the mortgage the right " to retain 
 the free and uncontrolled use, enjoyment, and management " of 
 the property, so long as no default is made in payment, accord- 
 ing to the terms of the bonds, expends money in carrying out 
 a lease, and thereby absorbs earnings which would otherwise be 
 available for the payment of interest. So far as that interest is 
 concerned, the income bondholders are, in such a case, simply 
 general creditors, having no lien or right other than to have it 
 paid out of tlie proper fund, i. e. " the net earnings." The 
 power of the company to change the condition of the road by 
 additions, extensions, or improvements, consistent with the pur- 
 poses of its corporation, is not restricted by provisions of this 
 character. The parties contemplate a line of active and efficient 
 railroad managed in the usual manner according to the discretion 
 of the company's directors, not one in discharge or liquidation ; 
 and the directors, therefore, have the right to use the earnings 
 of the corporation for such improvements or other lawful pur- 
 poses in its business as they may think best.^ 
 
 § 363. Right of Bondholders to maintain a Suit to enjoin Enforce- 
 ment of a Railroad Commission Law. — In a recent case the bond- 
 holders of several Texas railroads filed bills against the railroad 
 companies, the State railroad commissioners, and the Attorney- 
 General, alleging that the interest on the bonds was not being 
 paid, that the companies were willing and anxious to meet all their 
 obligations to the complainants, but were unable to do so owing 
 to the action of the railroad commissioners in fixing unprofitable 
 rates. The statute under which those officials undertook to pre- 
 scribe the rates complained of was asserted to be unconstitutional, 
 and the petition of the bondholders was for an injunction restrain- 
 ing its enforcement. They were held to have shown a sufficient 
 interest in the road to enable them to maintain the suit.^ 
 
 1 Day V. Ogdensburgh & Lake Cham- interfere, and it was taken for granted that 
 
 plain R. Co. (1887), 107 N. Y. 129 ; s. c. they had a sufficient interest in the matter. 
 
 13 N. E. Eep. 765. A- stockholder has also a right to bring 
 
 ^ Mercantile Trust Co. v. Texas & Pac. a suit for the same purpose : Tilley v. 
 
 Ry. Co. (1892), 51 Fed. Rep. 529. Savannah, Florida, & Western R. Co. 
 
 The rights of a trustee to maintain such (1881), 5 Fed. Rep. 641; s. c. 4 Woods, 
 
 a suit are fully recognized in the recent 427 ; where the injunction was dissolved 
 
 case of Reagan v. Farmers' Loan & Trust on the broad ground that the legislature 
 
 Co. (1894), 154 U. S. 362 ; but the ques- has power to modify railway rates. Since 
 
 tion was discussed merely with reference the decision in Reagan v. Farmers' Loan & 
 
 to the extent of the power of the courts to Trust Co., supra, this case must be taken 
 
 24 
 
370 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XV, 
 
 with the qualification that the power 
 cannot be used so as to destroy the value 
 of the property altogether. 
 
 The following cases from the English 
 courts illustrate the principles discussed 
 in this chapter : — 
 
 In England, prior to the Railway Com- 
 panies Act of 1867, a judgment creditor 
 might prevent a company from carrying 
 on business at all by seizing all its rolling- 
 stock, and a debenture-holder could do 
 nothing to prevent the seizure, for he had 
 no specific lien upon the property of the 
 company, under the Companies Clauses 
 Act, but merely the company's "under- 
 taking " as a going concern. Gardner v. 
 London, C. & D. Ry. Co. (1866), L. R. 
 2 Ch. App. 201. By the act of 1867, how- 
 ever, the judgment creditor was deprived 
 of his power, for which was substituted a 
 power to obtain a receiver and manager 
 of the line. In re Eastern & Midlands Ey. 
 Co. (1890), L. R. 45 Ch. D. 367 ; Russell 
 V. East Anglican Ry. Co. (1850), 3 Mac. 
 & G. 124. A dock company, although 
 not a railway company in the ordinary 
 sense of the term, was held to be a " com- 
 pany " within section 3 of the act of 1867, 
 as being a part of the plant of a railway, 
 notwithstanding that the railway was 
 merely an ancillary and subordinate part 
 of the whole undertaking, and the dock 
 plant was protected by injunction from 
 seizure under an execution. The Great 
 Northern R. Co. v. Tahourden (1883), 
 13 Q. B. Div. 320. Once a railway is 
 opened for public traffic, the protection of 
 the act arises, and continues, although 
 the railway is afterwards closed for traffic. 
 The Midland Waggon Company v. The 
 Potteries S. & N. W. Co. (1880)', 6 Q. B. 
 Div. 36. Where the security is endan- 
 gered, a debenture-holder may obtain the 
 appointment of a receiver and manager of 
 a railway, although no interest is due on 
 the debentures, and the time for payment 
 has not arrived. Edwards o. Standard 
 Rolling Stock Syn. (1893), 3 R. 226 ; 
 Thorn v. Nine Reefs (1892), 67 Law 
 Times, 93. In a winding-up proceeding, 
 where there appears a probability that the 
 property comprised in the debenture will 
 have to be realized by sale in the near 
 future, the court will appoint a receiver 
 and manager of the business of the com- 
 pany, though no winding-up order has yet 
 been made and nothing has become ac- 
 
 tually due upon the debenture. In re 
 Victoria Steamboats, Limited (1897), 66 
 L. J. Ch. 21. A debenture of a tramway 
 company governed by the Tramways Act 
 of 1870 does not entitle the holder to 
 have the "undertaking" sold, or a man- 
 ager as well as a receiver appointed. Mar- 
 shall V. South Staifordshire Tramways Co. 
 (1895), 64 L. J. Ch. 481, the court dis- 
 approving a number of prior decisions 
 tending to the contrary. Nevertheless, 
 where such a receiver and manager had 
 been appointed prior to the decision in 
 the case last cited, his acts were recog- 
 nized as valid and binding. Pegge v. 
 Neath District Tramways Co. (1895), 64 
 L. J. Ch. 737. Where the proceeds of 
 chattels of a company sold under an exe- 
 cution have not been handed over to the 
 execution creditor, the holder of a debent- 
 ure which creates a charge on the chat- 
 tels may, on behalf of himself and the other 
 debenture-holders, intervene and claim 
 the proceeds, if the amount secured by the 
 debenture is presently payable. Taunton 
 V. Warwickshire (Sheriff), (1895), 1 Ch. 
 734, affirmed (1895), 2 Ch. 319. 
 
 Injunction proceedings and kindred 
 remedies are available to debenture-hold- 
 ers to the same extent in England as in 
 this country. " The court, by coercion of 
 the person within its jurisdiction, is en- 
 abled in effect to exercise jurisdiction over 
 the property of that person wherever it 
 may be situate." Jessel, M. R. In re 
 Longdendale Cotton Spinning Co. (1878), 
 L. R. 8 Ch. Div. 152. The appointment 
 of a receiver as a preventive remedy is 
 the remedy most frequently resorted to as 
 being the most appropriate in the large 
 majority of cases. A receiver wUl be ap- 
 pointed on grounds of insolvency, although 
 the principal of the debenture is not im- 
 mediately payable : McMahon v. North 
 Kent Ironworks Co. (1891), 2 Ch. 148; 
 or where there is danger of the property 
 which is the subject of the debenture be- 
 ing disposed of during the progress of the 
 trial, otherwise than in the ordinary course 
 of business : Hubbuck v. Helms (1887), 
 56 L. T. R. 232; and in a variety of other 
 cases in which the security of the debent- 
 ure-holders is jeopardized: Yorkshire Ry. 
 Wagon Co. v. Maclure (1882), 21 Ch. D. 
 309 ; In re Colonial Trust Coi'poration 
 Co. (1879), 15 Ch. D. 473. 
 
§ 354.] 
 
 EEMEDIES OP BONDHOLDERS, ETC. 
 
 371 
 
 CHAPTER XVI. 
 
 REMBDIEa OP BONDHOLDERS FOR THE ENFORCEMENT OP BONDS. 
 REMEDIES IN GENERAL. 
 
 \ 354. Introductory. 
 
 355. Bondholders not restricted to 
 
 any Single Remedy. 
 
 356. General Powers of Equity for the 
 
 Relief of Bondholders. 
 
 357. State when not a Trustee for 
 
 Benefit of Junior Mortgagees. 
 
 358. Chancery Powers of Federal 
 
 Courts independent of State 
 Laws. 
 § 359. Statutes affecting Remedies only, 
 not unconstitutional as im- 
 pairing the Obligation of Con- 
 tracts. 
 359 a. Illustrative Cases on English 
 Debentures. 
 
 § 354. Introductory. — The remedies available to bondholders ^ 
 for the enforcement of their rights may be divided into three 
 classes : — 
 
 1. Those which they have in common with all creditors, 
 whether secured or unsecured. This class includes the common- 
 law remedies by action of assumpsit on the debt itself, or of 
 covenant on the bond, and the equitable remedy of sequestration 
 of profits, wherever that is appropriate. 
 
 2. Those which are incident to the mortgage contract itself, 
 without regard to any special provisions therein. This class 
 includes the legal action of ejectment (except in jurisdictions 
 where the doctrine that a mortgage is merely a lien has been 
 adopted), and the equitable remedies of sequestration of profits 
 and suits for foreclosure and sale. 
 
 Various local modifications of the remedies in this class have 
 been introduced in some States. But these it is not material to 
 notice in the present connection. 
 
 3. Those which are provided by the instrument for the pur- 
 pose of enabling the bondholder to obtain a more speedy enforce- 
 ment of his lien than is possible by proceedings taken in the 
 ordinary manner. This class includes the summary powers of 
 entry and sale, which the mortgage itself usually authorizes the 
 trustee to exercise, upon certain specified conditions, in behalf 
 of the beneficiaries. 
 
 1 For remedies of bondholders secured by statutory liens in the nature of mort- 
 gages, see Chap. XIII. 
 
372 RAILWAY BONDS AND MORTGAGES. [CHAP. XVI. 
 
 The above statement is based on the following passage of the 
 opinion in Gilman v. Illinois & Mississippi, etc. Tel. Co. (1875), 
 91 U. S. 603, in which the historical reason for the existence of 
 several concurrent remedies is also glanced at : " The civil law 
 is the spring-head of the English jurisprudence upon the subject 
 of these securities (conveyances subject to defeasance). Origi- 
 nally, according to that jurisprudence, mortgages of the class to 
 which those here in question belong vested the fee, subject to be 
 divested by the discharge of the debt at the day limited for its 
 payment. If default was then made, the premises were finally 
 lost to the debtor. In the progress of time more liberal views 
 prevailed, and the debt came to be considered as the principal 
 thing, and the mortgage only as an incident and security. In the 
 present state of the law, where there is no prohibition by statute 
 it is competent for the mortgagee to pursue three remedies at the 
 same time. He may sue on the note or obligation, he may bring 
 an action of ejectment, and he may file a bill for foreclosure and 
 sale." 1 
 
 § 355. Bondholders not restricted to any Single Remedy. — The 
 several remedies available for the enforcement of the mortgage 
 may be pursued concurrently or successively ,2 and in any order 
 that the mortgagee may think fit.^ 
 
 This choice of remedies is of course narrowed where the right 
 of action on the bonds is barred by the Statute of Limitations. In 
 that case resort must be had to the remedy on the mortgage, 
 which is not barred by any lapse of any shorter period than that 
 sufiicient to raise the presumption of its discharge.* 
 
 The special illustrations of the general rule afforded by those 
 cases which hold that special remedies created by the agreement 
 of the parties are cumulative upon the remedy by foreclosure in a 
 court of equity are referred to below. 
 
 § 356. General Powers of a Court of Equity for the Relief of Bond- 
 holders. — The fact that an ordinary railroad mortgage is drawn 
 
 1 Some useful information as to the Railroad & Bkg. Co. (1879), 63 Ga. 103. 
 remedies of mortgagees will be found in an For a short sketch of the law regulating the 
 article in 2 Mo. West. Jur. 641. See also enforcement of powers of sale, and a state- 
 2 Redfield's Law of Railways, 484. ment of the reason why that remedy is 
 
 On injunction by debenture-holders to regarded as concurrent with that of fore- 
 restrain payments to bondholders, see The closure, see 16 Cent. L. J. 247. 
 Governments Stock, etc. Co, v. The ' McAllister v. Plant (1876'), 54 Miss. 
 Manila Ry. Co. & Others (1897), 1 L. R. 106 ; s. o. 17 Am. Ry. Rep. 183. 
 App. Cas. 81. On the character of a * Smith's Execr-s. v. Wa.shington City, 
 debenture-holder's action, see Madeley v. Va. Midi. & Great Southern R. Co. (1880), 
 Ross (1897), 1 Ch. Div. 605. 33 Gratt. (Va.) 617. 
 
 2 Macon & Augusta R. Co. o. Georgia 
 
§ 356.] EEMEDIES OF BONDHOLDERS, ETC. 373 
 
 in the form of a deed of trust brings such instruments within the 
 rule, that a court of equity will assume jurisdiction of a con- 
 ventional trust and direct its administration, on the application 
 of the trustee or a party in interest, where there is any difficulty 
 or complication likely to arise in the execution of the trust, or 
 any question or dispute as to the powers or duties of the trustee, 
 or as to the rights of the parties beneficially interested in tlie 
 trust.1 
 
 Even if a court of equity has no general jurisdiction over mort- 
 gages, as was formerly the case in Pennsylvania, where the en- 
 forcement of such liens was left to the common law and statutory 
 remedies, yet if a mortgage creates a trust and provides that the 
 power of sale is to be exercised by the trustee in certain contin- 
 gencies, he may be controlled, restrained, and directed by such a 
 court, at the suit of a party standing in the relation of cestui que 
 trust, the rule for his guidance being derived from the instrument 
 itself.2 
 
 The fact that a discovery is asked maybe a sufficient ground for 
 the interposition of equity in a case where a bill would otherwise 
 be dismissed. Thus, although a statement that the defendant, a 
 reorganized company, is about to issue its own bonds to certain 
 holders of the first-mortgage bonds issued by the original com- 
 pany, the bill not showing that the new bonds were to be secured 
 by mortgage, does not lay a ground for equitable jurisdiction in 
 favor of the complainant, a holder of a first-mortgage bond, who 
 had agreed to come in under the reorganization scheme ; yet equity 
 will take cognizance of such a suit where there is also an allega- 
 
 1 Northern Central Ry. Co. v. KeigMer R. Co. (1867), 55 Pa. St. 189 ; tut it was 
 
 (1868), 29 Md. 572. held that this objection could not he sus- 
 
 * Bradley o. Chester Valley R. Co. tained, since it merely provided a new 
 (1860), 36 Pa. St. 141. Compare Menden- remedy for the mortgagor's breach of con- 
 hall V. Westchester & Philadelphia R. Co. tract. The jurisdiction thus conferred on 
 (1860), 36 Pa. St. 146; Youngman o. the Supreme Court was taken away by the 
 Elrnira & Williamsport R. Co. (1870), 65 constitution of 1874. See Fargo v. Oil 
 Pa. 278. Before the statute of 1862 was Creek & Alleghany City Ey. Co. (1875), 
 passed (1 Brightly's Purdon's Dig. 593), a 81 Pa. St. 266, where a bill was filed in 
 court of equity in Pennsylvania had no the Supreme Court for a decree to sell, etc. 
 power to decree a sale of the mortgaged One of the prayers was for an injunction to 
 property at the instance of the mortgagee, restrain the defendants from selling, or in 
 even though the mortgage was in the form any manner disposing of, the property 
 of a deed of trust to secure bonds. Ash- covered by the mortgage. Eeld, that the 
 hurst t). Montour Iron Co. (1860), 35 Pa. injunction was merely incidental to the 
 St. 30. The constitutionality of that act sale, the substantial thing asked for, and 
 was attacked, so far as it was made ap- did not therefore bring the bill within the 
 plicablo to mortgages before its passage, jurisdiction of the Supreme Court. The 
 in McElrath v. Pittsburg & Steubenville decree of sale was accordingly vacated. 
 
374 RAILWAY BONDS AND MOETGAGBS. [CHAP. XVI. 
 
 tion that the defendant refused to disclose what the scheme was. 
 "The complainant," said the court, "is entitled to this infor- 
 mation, and it is also clear that we cannot say whether her 
 rights are legal or equitable until such discovery shall have been 
 obtained." ^ 
 
 In an oft-cited New Jersey case, decided when questions aris- 
 ing under corporate mortgages and trust-deeds were still new, it 
 was argued that the remedy of the mortgagee was confined to the 
 sequestration of the profits of the business. The court rejected 
 this doctrine, and held that the legislature, by giving authority to ■ 
 the company to execute a mortgage, intended to invest the mort- 
 gagee with all the powers incident to such an instrument, the 
 power to foreclose and sell being one of those powers.^ 
 
 The remedy of sequestration under the general powers of a 
 court of equity is very rarely, if ever, resorted to for the relief of 
 railroad bondholders, except for temporary purposes, as where 
 the property is placed in the hands of a receiver with a view to 
 foreclosure and sale. The rights and liabilities of the various 
 parties in interest under such circumstances are reviewed in the 
 chapters relating to receivers, post. 
 
 A remedy in the nature of sequestration is also given by most 
 railroad mortgages, those instruments usually embracing provi- 
 sions stipulating that the trustees may, if certain specified condi- 
 tions are broken by the mortgagor, enter into possession of the 
 road and operate it for the benefit of the bondholders. The legal 
 relations arising from a resort to this remedy are discussed 
 below, and in the chapter on trustees. 
 
 Provisions similar to those inserted in mortgages for this pur- 
 pose are usually found in those statutes which create a lien in 
 favor of the State to secure it for its loan of its own bonds to the 
 company, or for its indorsement of the company's bonds.^ 
 
 § 357. State -when not a Trustee of Earnings for Benefit of Junior 
 Mortgagees. — A State which subscribes for the majority of the 
 stock in a railroad corporation organized by special statute does 
 not by such subscription become a trustee of the earnings of the 
 
 1 Midland Railway Co. v. Hitchcock Sup. Ct. Rep. 762; Florida v. Anderson 
 (1881), 34 N. J. Eq. 278; s. c. 4 Am. & (1875), 91 U. S. 667. 
 
 Eng. E. E. Cas. 278. Compare the remarl^s of Judge Wood- 
 
 2 Willink V. Morris Canal & Bkg. Co. ward in Bradley v. Chester Valley E. Op. 
 (1843), 4 N. J. Eq. 377. (1860), 36 Pa. St. 141, as to the recognized 
 
 ' See, for example, the statutes discussed legal remedies of mortgagees, wherever the 
 in Tompkins v. Little Eook & Fort Smith common-law and chancery jurisdictions 
 Ry. Co. (1888), 125 U. S. 109 ; s. o. 8 have uot been restrained and regulated by 
 
 statute. 
 
§ 358.] REMEDIES OP BONDHOLDERS, ETC. 875 
 
 road for the benefit of the holders of bonds secured by statutory 
 mortgages thereafter declared upon its stock. Hence, if the road 
 is leased to another company for a rent sufficient only to pay the 
 interest upon a first mortgage so declared, a bondholder secured 
 by a junior mortgage of the same kind cannot maintain a bill 
 against the lessee company, to compel it to account for the excess 
 of the earnings of the leased road over the stipulated rent, upon 
 the theory that the State, by the hypothecation of its stock, im- 
 pliedly assumed a fiduciary relation to the complainant and other 
 bondholders, and agreed to exercise its control as a majority stock- 
 holder of the lessor company, so as to preserve the earnings for 
 the benefit of their bonds, thus making such earnings a trust 
 fund which the bondholders could follow into the hands of any 
 one receiving them with notice. " Such a case is not distinguish- 
 able in its legal aspects from one where an individual who is a 
 majority stockholder in a corporation has hypothecated his shares 
 to a creditor as security for a loan. In such a case it may be 
 assumed that both parties to the transaction understand at the 
 time that the value of the security is to depend upon the finan- 
 cial prosperity of the corporation ; but no promise or duty can 
 reasonably be implied from that understanding that the share- 
 holder who has mortgaged his shares is to use his power of control 
 in the corporate affairs exclusively in the interest of the mort- 
 gagor, or is not to consent to or promote any scheme or under- 
 taking in the conduct of its business which is within the scope of 
 its legitimate functions, and which he may believe to be expedient 
 and proper." ^ 
 
 § 358. Chancery Powers of Federal Courts are independent of 
 State Laws. — Tlie doctrine that the jurisdiction of federal courts 
 in equity coincides and is coextensive with the jurisdiction of 
 chancery in England, and cannot be limited and restrained by 
 State laws, has been repeatedly recognized.^ 
 
 Thus a controversy between a cestui que trust and a trustee 
 respecting the latter's management of the trust estate belongs 
 peculiarly to a court of chancery, and is therefore within the juris- 
 diction of the federal courts, when the proper parties are before 
 them, and the required sum is in dispute; nor can they be deprived 
 
 1 Gibson V. Richmond & Danville E. (1819), 4 Wheat. 108, 115 ; Neves i-. 
 Co. (1889), 37 Fed. Rep. 743, per Wal- Scott (1851), 13 How. 268, 271; Noonan u. 
 lace, J. Lee (1860), 2 Black, 499 ; Payne v. Hook 
 
 2 Lormanw. Clarke (1841), 2 McLean, (1868), 7 Wall. 425 ; Pratt v. Northam 
 568 ; Bnyle v. Zacharie (1837), 6 Pet. 635, (1828), 5 Mason, 95, 105 ; Chapman v. 
 658; Robinson v. Campbell (1818), 3 Borer (1880), 1 McCrary, 49. 
 
 Wheat. 212 ; United States v. Howknd 
 
376 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XTI. 
 
 of this jurisdiction, or any portion of it, by its absorption, through 
 State legislation, into any State tribunals, or by any attempted 
 transfer of the subjects of litigation from one department of juris- 
 prudence to another.! 
 
 § 859. Statutes affecting Remedies only are not unconstitutional, 
 as impairing the Obligation of Contracts.^ — The legislature may, 
 therefore, vary or add to or diminish the different modes of fore- 
 closure as to existing mortgages, provided no essential right that 
 existed before is taken from either of the parties to the mortgage. 
 If the distinctive features of the law regulating foreclosures when 
 the mortgage is made are, on one side, a right to redeem within 
 three years, and on the other a mode of foreclosure of which 
 reasonable notice must be given to the mortgagor, a foreclosure 
 is valid which is made under a subsequent statute which pre- 
 serves those rights, but prescribes new forms of procedure for the 
 enforcement.^ 
 
 1 Parsons v. Lyman (1863), 5 Blatch. 
 170. 
 
 2 Bronson v. McKinzie (1843), 1 How. 
 311. 
 
 ^ Kennebec & Portland R. Co. v. Port- 
 land & Kennebec R. Co. (1871), 59 Me. 9. 
 In this case the original mortgagor filed a 
 bill to be allowed to redeem, contending 
 that the statute law of Maine, as it existed 
 in 18.')2, was not applicable to railroad 
 mortgages ; that, from the peculiar nature 
 of those instruments, there could be no 
 foreclosure of them except by bill in 
 equity without a special legislative pro- 
 vision therefor ; and that this right to 
 foreclose by bill in equity was a vested 
 one, which entered into the contract. 
 
 Under these circumstances, it was ar- 
 gued, a subsequent statute prescribing a 
 new and exclusive proceeding for the fore- 
 closure of such mortgages necessarily vio- 
 lated the obligation of the contract. The 
 majority of the court adopted the view 
 that, as the courts of Maine had no general 
 equity powers, the rights of mortgagors 
 and mortgagees were merely what the 
 legislature had made them, and that the 
 mortgagee had therefore no ' ' equity of re- 
 demption," as that term is understood in 
 England, and in the States which have 
 adopted the English doctrine on the sub- 
 ject, whether by statutes dealing directly 
 with the remedy, or by statutes investing 
 courts with powers analogous to those 
 
 exercised by the English Court of Chan- 
 cery. Barrows and Tapley, JJ., dissented. 
 The latter filed an elaborate opinion, in 
 which he took the ground that there was 
 nothing in the words of the statute to show 
 that it was intended to act retrospectively, 
 and much to indicate the reverse ; that 
 the prior statute in force when the mort- 
 gage was executed did not reach a railroad 
 mortgage, and was not designed to do so ; 
 that consequently the only remedy exist- 
 ing when the contract was entered into by 
 which the right of redemption could be 
 foreclosed was by application to a court of 
 equity ; and that the courts of Maine had 
 power to deal with cases under the general 
 legislation defining their authority. The 
 learned judge also took the ground that 
 whether the equity powers of those courts 
 were or were not sufficient, treating the 
 suit as one for foreclosure merely, their 
 powers in regard to trusts were such as to 
 furnish an adequate and complete remedy 
 for the enforcement of rights springing 
 from a conveyance in trust. ' The later 
 statutes, therefore, having in no way modi- 
 fied the rights of the complainants, the 
 trustees still held the title in trust and 
 were answerable as such. 
 
 In Sullivan v. Portland & Kennebec E. 
 Co. (1874), 4 Cliff. 212, it was held that 
 this judgment as to the validity of this 
 foreclosure was binding on a federal court. 
 
 The statutes of Maine (1876, oh. 122) 
 
§ 359.] EEMEDIES OP BONDHOLDERS, ETC. 377 
 
 The Supreme Judicial Court of Maine, in the case last cited, 
 have said on the subject of foreclosure : " Aside from the fore- 
 closure proceedings authorized by the trustees, equity furnishes 
 the best and perhaps now the exclusive forum for foreclosure of 
 this class of mortgages. The ordinary method of foreclosure of 
 mortgages on real estate is ill adapted to the foreclosure of rail- 
 road mortgages. The protection of all the large interests usually 
 i ivolved in the latter may require a receivership, or an injunction, 
 or an order of sale, none of which can be accomplished by the 
 ordinary proceedings for foreclosure, but can easily be provided 
 for by the flexible processes of equity. The case of Kennebec & 
 Portland Railroad v. Portland & Kennebec Railroad, 59 Maine, 1, 
 holding otherwise, was decided when the equity powers of this 
 court were limited, and is not applicable under tlie full equity 
 powers now possessed. " ^ 
 
 On the other hand, where a mortgagee has a fixed, certain, and 
 definite right to a foreclosui'e under a bill in equity, and to a 
 decree of the court for an absolute and immediate sale of the 
 premises for the payment of his debt, the legislature cannot de- 
 prive him of this right by statutes creating a new equity of 
 redemption after the sale, and abrogating the right to sell under 
 
 gave the benefit of the provisions of R. S. value. There was a sale of the equity of 
 1871, ch. 51, from §§ 47 to 70, to the redemption under the mortgage under 
 holders of all mortgage bonds, whether execution, and the railway company pur- 
 the mortgage was foreclosed as provided in chased it. The trustees under the mort- 
 ch. 51, " or in any other legal manner ; " gage afterwards instituted an action for 
 and 1878, ch. 53, having made the same foreclosure of the mortgage. The Supreme 
 sections of ch. 51 of E. S. 1871 apply to Judicial Court held that the action "of the 
 and include all such mortgages, "in all bondholders under the statutes amounted 
 cases in which the principal of said scrip to a complete foreclosure of the mortgage ; 
 or bonds shall have been due and payable that the bondholders who had surrendered 
 for more than three years, and shall re- their bonds for stock were stockholders, 
 main uupaid in whole or in part, in the and those who had not surrendered their 
 same way and to the same extent as if the bonds, shareholders in the Somerset Rail- 
 mortgage had been legally foreclosed." way Company, and that the title of the 
 The bondholders of the Somerset Railway latter to the property of the former corn- 
 Company, there having been a default in pany was ai)soIute and complete, and 
 payment of interest on their bonds for enjoined the trustees against further 
 more than three years, by the votes of proceeding in their foreclosure suit, and 
 one-half in interest, had the Somerset ordered them to convey their naked legal 
 Railway Company incorporated and took title to the newly organized railway corn- 
 possession of the property, the votes of pany. Somerset Railway i;. Pierce et al. 
 the stockholders of the Somerset Railway (1895), 88 Me. 86; s. c. 33 Atl. Rep. 
 Company having also been cast in favor of 772. 
 
 the new organization. Under the pro- i Somerset Railway v. Pierce et al. 
 
 visions of the statutes the most of the (1895), 88 Me. 86, 96 97 • s. 0. 33 Atl. 
 
 bondholders surrendered their bonds in Rep. 772. 
 exchange for shares of stock at their face 
 
378 RAILWAY BONDS AND MORTGAGES. [CHAP. XTI. 
 
 tlie decree, except where two-thii'ds of a value fixed by apprais- 
 ers shall be offered at the auction sale.^ 
 
 Where bondholders of a corporation, by a bill alleging the in- 
 solvency and unfitness of its trustee to serve the holders of bonds 
 of the corporation, as well as its holding an adverse interest to 
 them, have a receiver appointed, this is equivalent to a removal 
 of the trustee. The bondholders then will be entitled to declare 
 the principal of the bonds due in default of interest when pro- 
 vided for in the mortgage, and to foreclose the mortgage without 
 any request of the trustee prior to beginning the action.^ 
 
 § 359 a. Illustrative Cases on English Debentures. — English 
 bondholders secure to themselves a summary method of realizing 
 upon their security by procuring to be executed along with their 
 mortgage an instrument called a receivership deed, under which 
 a receiver, to collect the rents and profits of the mortgaged prem- 
 ises to be applied in extinguishment of the debt, may be appointed 
 without an application to court.^ 
 
 Power of sale under the Conveyancing and Law of Property 
 Act, 1881, which applies " to any charge, or any property, for 
 securing money or money's worth," does not apply to limited 
 companies formed under the Companies Act of 1862, and such 
 companies can have that power only by express agreement.* 
 
 A debenture-holder has the right of an ordinary creditor to 
 petition for a winding-up order under section 199 of the Compa- 
 nies Act of 1862, and he is not debarred from the exercise of that 
 right by the circumstance that he has pursued another remedy, 
 that, to enforce his security.* But a winding-up order will not 
 be made where no good could result from it.® 
 
 Where, in an act of Parliament incorporating a company, it is 
 stated that the construction of the works authorized by the act is 
 of public advantage, the court will be reluctant to make an order 
 to wind up the company, unless it is shown that there is no other 
 process by which its difficulties may be overcome.^ 
 
 1 Bronson v. McKinzie, 1 How. 311. ' Blaker v. Herts & Essex Waterworks 
 
 2 Clay et at. v. Selah Valley Irrigation Co. (1889), 41 Cli. D. 399. 
 
 Co. et al. (Wash., 1896), 45 Pac. Rep. * In re Burrough of Portsmouth, etc. 
 
 141. Tramways Co. (1892), 2 Ch. 362. 
 
 Certain sections of an act of Parliament " In re Barton upon Humber and Dis- 
 
 held not to prohibit an action by a mort- trict Water Co. (1889), 42 Ch. D. 585 ; 
 
 gagee of the company to recover the In re The Company of Free Fishermen of 
 
 principal due on it. Coleman v. Llanelly Faversham (1887), 36 Ch. D. 329. 
 Ey. & Dock Co. (1867), 17 L. T. Eep. ' In re Exmouth Docks Co. (1873), 17 
 
 N. S. 86. Equity, 181 ; In re The Company of Free 
 
 8 Law 0. Glenn (1867), 2 Ch. App. Fishermen, etc. (1887), 36 Ch. D. 329. 
 634. 
 
§ 359 a.J EEMEDIES OP BONDHOLDERS, ETC. 379 
 
 Where debenture-holders of a company, formed under a special 
 act which gives them only one remedy, namely, the appointment 
 of a receiver, with that remedy they must be content, and a peti- 
 tion to wind up, presented on their behalf, will not be sustained.^ 
 
 The benefits of a personal judgment may be secured by debent- 
 ure-holders, whereby they may avail themselves of any property 
 not included in their security. Such a judgment may be recov- 
 ered in an action by one holder on behalf of himself and the others, 
 or rather the court will declare that the debenture-holders are 
 entitled to stand in the position of judgment creditors.^ 
 
 Debenture-holders are entitled to recover interest by way of 
 damages, after the last interest coupon has been presented and 
 paid by the company, if the principal be not paid at maturity .^ 
 
 The holder of a bond issued, under the provisions of a trust 
 deed, by a company is not a creditor of the company, either at 
 law or in equity, within the meaning of the Companies Act of 
 1862, his right of action being through the -trustees only.* But 
 it has been held that the holder of a bond, transferred to him 
 under the Companies Clauses Consolidation Act, 8 <fe 9 Vict., 
 ch. 16, is entitled to sue upon it in his own name and behalf.^ 
 
 A debenture-holder who has recovered judgment against the 
 company issuing the debentures, and obtained the appointment 
 of a receiver of the company's earnings, is not entitled to issue 
 execution, except as a trustee for himself and the other debenture- 
 holders, but the receiver may be directed to take proceedings for 
 the purpose of making the judgment available for the benefit 
 of all.6 
 
 1 In re Heme Bay Waterworks Co. * In re Uruguay Central, etc. Ey. Co. 
 (1878), 10 Ch. D. 42. (1879), 11 Ch. D. 372. 
 
 2 Hope V. Croydon & Norwood Tram- ^ Vertue c^. The East Anglian Ey. Co. 
 ways Co. (1887), 34 Ch. D. 730. (1850), 19 L. J. Exch. 235. 
 
 ' Price V. Great Western Ey. Co. (1847), ^ Bowen v. Brecon Eailway Co. (1867), 
 244. 3 L. E. Eq. Cases, 551. 
 
380 
 
 EAILWAY BONDS AND MORTGAGES. [CHAP. XVII. 
 
 CHAPTER XVII. 
 
 REMEDIES OP BONDHOLDERS FOR THE ENFORCEMENT OF THEIR 
 BONDS. — ACTIONS ON THE BONDS AND COUPONS. 
 
 § 360. Eight of Individual Bondhold- 
 ers to maintain an Action at 
 Law on their Bonds. 
 (a) General Rule. 
 (J) Right restricted in the 
 Bonds and Mortgage. 
 
 (c) Right not suspended by Im- 
 
 plication merely. 
 
 (d) Eight of Personal Action 
 
 when Money is lent on 
 the Credit of the " Under- 
 taking." 
 361. Individual Bondholders cannot 
 levy upon the Property mort- 
 
 gaged for the Security of the 
 Whole Class. 
 1 362. Suit maintainable on Bonds 
 though Mortgage is void. 
 
 363. Coupons payable out of Rev- 
 
 enues, no Recovery on, unless 
 Existence of Fund is shown. 
 
 364. In whose Name an Action on a 
 
 Bond may be brought. 
 
 365. Demand of Payment, how far 
 
 necessary before bringing Suit 
 on a Bond or Coupon. 
 
 366. Suits on Lost Coupons. 
 
 § 360. Right of Individual Bondholders to maintain an Action at 
 Law upon their Bonds. — (a) General Rule. — Since railroad bonds 
 import an absolute promise to pay, the company is personally liable 
 for the principal and interest thereof, and upon its failing to pay is 
 liable to suit for the amount due.^ 
 
 The bond is the principal debt ; the mortgage an incidental se- 
 curity. Remedies peculiar to each exist both in law and equity ; 
 but they do not clash and destroy each other : they coexist. In 
 an action of debt upon the obligation itself, the fact that the mort- 
 gage contains a provision whereby the trustees are empowered to 
 sell for breach of condition upon the written request of the holders 
 of not less than a given amount of the bonds is entirely irrelevant 
 as a defence.^ 
 
 Nor, it has been held, can the company defend against an action 
 for defaulted interest upon the ground that the mortgage provides 
 that if the coupons are not paid, the trustees, at the request of hold- 
 
 1 Florida v. Anderson (1875), 91 U. S. Montgomery Co. Agricultural Soc. v. 
 667. Francis (1883), 1 03 Pa. St. 379 ; Welch ». 
 
 2 Philadelphia & Bait. Central R. Co. St. Paul & Pacific E. Co. (1878), 25 Minn. 
 II. Johnson (1867), 54 Pa. St. 127 ; s. p. 314. 
 
§ 360.] EEMEDIES OF BONDHOLDERS, ETC. 381 
 
 ers of a certain amount of the bonds, shall enter into possession 
 of the railroad and sell it for tlie benefit of the creditors ; and also 
 contains the following stipulations : " It being further expressly 
 understood and agreed (any law or usage to the contrary notwith- 
 standing) that neither the whole nor any part of the property . . . 
 shall be sold under proceedings, either in law or equity, for the 
 recovery ... by the holder or holders of the bonds ... of the 
 whole or any portion of the principal or interest of the said bonds, 
 it being the agreement and intention of the parties for the better 
 securing the largest possible price . . . that the method of sale 
 hereinbefore provided shall be exclusive of all others. ^ 
 
 The well-settled rule that a coupon is itself a negotiable instru- 
 ment, and when detached may be sued on independently of whether 
 the bond has been paid or not, has already been noticed (Chap. III., 
 ante). See also ^o«i, this chapter. 
 
 The amount of a coupon so detached, with interest after demand 
 of payment, is recoverable under a general count in debt.^ 
 
 (b) Right restricted hy Provisions in the Bonds and Mortgage. — 
 A provision in the mortgage that upon the continuance of a de- 
 fault for six months the principal shall become due and payable, 
 does not entitle an individual bondholder to recover the principal 
 as well as the interest of his bonds upon the occurrence of the event 
 referred to, where the provision is followed by one to the effect 
 that the trustee, upon the written request of the holders of a ma- 
 jority of the bonds, shall proceed to collect both the principal and 
 interest of all such bonds by foreclosure and sale. The method 
 prescribed in the second provision for the enforcement of the debt 
 impliedly excludes all other methods, and confines the bondholder 
 to tlie remedies expressly provided.^ 
 
 So it has been held that a bondholder cannot maintain an action 
 on his bonds, so far as the principal is concerned, because of a 
 provision contained in the mortgage but not in the bond, " that 
 the principal sum secured shall become due in case the interest 
 on the bonds remains unpaid for four months." A provision of 
 this kind in a mortgage is not designed to give the several bond- 
 
 1 Widener v. Eailroad Co. (Pliila. did not import a promise, but was a mere 
 Com. PI., 1875), 1 W. N. C. 472. acknowledgment of indebtedness for inter- 
 
 2 National Exchange Bank v. Hartford, est on the bond itself, and therefore could 
 Prov. & Fitchburg R. Co. (1866), 8 E. I. not be made the ground of an action. 
 375. Crosby v. New London, Willimantic, & 
 
 In an early Connecticut case, a suit Palmer R. Co. (1857), 26 Conn. 121. 
 to recover the amount of an interest war- ' Batchelder v. Council Grove Water 
 
 rant, the court held that an interest war- Co. (1892), 131 N. Y. 42 ; s. c. 29 N. E. 
 
 rant of the old style on u railroad bond Eep. 801. 
 
382 EAILWAT BONDS AND MORTGAGES. [CHAP. XVIT. 
 
 holders actions at law for the principal of their bonds in case of 
 non-payment of interest, but to give the trustees a right to bring 
 suit for the foreclosure of the mortgage, thus making the mortgage 
 a more complete security to the bondholders.^ 
 
 So where the bonds themselves as well as the mortgage contain 
 conditions that the time of payment of principal and interest may 
 be .changed and postponed from time to time at the option of the 
 majority of the bondholders, the coupons are not negotiable in- 
 struments, and a coupon-holder, being chargeable with notice of 
 the terms of the bonds, cannot maintain an action at law upon his 
 coupons until an extension of the time for payment of interest 
 granted by the majority of the bondholders has expired, although 
 he has not assented to the postponement.^ But the conditions 
 under which the powers of the trustees or the majority are to be 
 exercised must be fully and exactly complied with in order to de- 
 prive a coupon-holder of his right of action against the company. 
 Bonds which provide that a majority of the holders shall have the 
 power to postpone the time of payment " in case of a default," do 
 not entitle them to grant an extension of time before a default 
 has actually occurred, so as to debar a coupon-holder who has not 
 assented to the postponement from enforcing his claim by a suit 
 at law.^ 
 
 The fact that the mortgage which secures the bonds covers all 
 the property of the corporation, and must eventually be enforced 
 for the benefit of all the bondholders equally, although it may 
 subject the plaintiff to the imputation of attempting to extort 
 payment from the company, constitutes no defence to such an 
 action. The remedy of the bondholders, if any there is, must be 
 found in the exercise by the trustees of the power conferred upon 
 them by the mortgage to take possession of the property covered 
 thereby, and use its proceeds for the benefit of all the secured 
 creditors.* 
 
 (c) Right not suspended hy Implication merely. — This right of 
 suing to judgment upon a written obligation admitted to be valid 
 is of too high a character to be taken away by implications, espe- 
 cially if these are drawn from instruments other than that which 
 
 1 Mallory v. "West Shore & Hudson On renaedy by petition to wind up, see 
 River K. Co. (1873), 35 N. Y. Sup. Ct. Portsmouth Tramways Co. (1892), 2 Ch. 
 174. Div. 363. 
 
 2 McClelland v. Norfolk Southern R. s McClelland v. Norfolk Southern R. 
 Co. (1888), no N. Y. 469 ; s. o. 18 N. E. Co. (1888), 110 N. Y. 469 ; s. c. 18 N. E. 
 Rep. 237. Manning v. Norfolk Southern Rep. 237. 
 
 R. Co. (see following section) was cited by * Ibid, 
 counsel, but not referred to by the court. 
 
§ 360.] REMEDIES OP BONDHOLDERS, ETC. 383 
 
 is given in direct and positive acknowledgment of the debt. The 
 provisions of a mortgage securing the bonds control the disposi- 
 tion of the property which it conveys, but do not, in the absence of 
 some explicit declaration to that effect, prevent bondholders from 
 enforcing their claims by an action upon tlie bonds themselves. 
 This right of action is not taken away by the provision commonly 
 found in a railroad mortgage, to the effect that if interest shall re- 
 main in default for the specified period the principal may, at the 
 option of the bondholder, become forthwith due and payable, and 
 that the trustee shall exercise such option and declare the whole 
 amount due upon the request of a majority in interest of the bond- 
 holders, or upon a like request waive his right to exercise the 
 option. Nor is the right affected by a provision that the election 
 of the trustees to pursue one or other of the alternative remedies 
 given by the mortgage shall be subject to the power of a majority 
 in interest of the bondholders to instruct the trustees to waive a 
 default or to enforce their claims. Hence, althougli the mortgage 
 contains provisions of this description, a bondholder who refused 
 to assent to a funding scheme, whereby the majority of his co-bond- 
 holders agree to extend the time of payment of the coupons, may 
 sue in assumpsit upon defaulted coupons.^ 
 
 (d) Right of Personal Action when Money is lent on the Credit 
 of the Undertaking. — Where a canal company is authorized to 
 borrow money on the credit of the " undertaking," and it is spe- 
 cially provided that the creditors are to have no priority over each 
 other, an assignment of the property and its dues to the persons 
 lending the money, as a security for the principal and a stipulation 
 that the interest is " to be paid half-yearly," does not give the 
 lenders a right of action against the company itself. Their 
 remedy is by entering on the corporate property .^ 
 
 1 Manning v. Norfolk Southern R. Co. "Where, however, the instrument evi- 
 (1887), 29 Fed. Rep. 838. dencing the contract not only implies a 
 
 2 Pontet V. Basingstoke Canal Co. transfer of the subject-matter till the debt 
 (1837), 3 Bing. N. C. 433. The Canal is satisfied, but also includes a stipulation 
 Acts, one of which was here construed, that the principal is to be repaid on a 
 were modelled on the theoiy that the specified date, this imports a covenant by 
 proprietors were to derive the returns the company that the money shall be paid 
 from their investment, chiefly through the at the time appointed, and for the breach 
 use of the canal by the public in general, of this covenant an action lies against, the 
 Parke, B., in Hart v. Eastern Union Ey. company, the judgment thereon to be 
 Co. (1852), 7 Exch. 246. That the cred- satisfied out of the whole property be- 
 itors who had lent money on the security longing to it. Hart v. Eastern Union 
 of an assignment such as that refeiTed to Ry. Co. (1852), 7 Exch. 246; affirmed 
 in the text should have no personal right by the Exchequer Chamber, 8 Exch. 
 of action against the proprietors was a 116. 
 
 necessary deduction from this theory. 
 
384 RAILWAY BONDS AND MORTGAGES. [CHAP. 2TII. 
 
 § 361. Individual Bondholders cannot levy upon the Property 
 mortgaged for the Security of the Whole Class. — A bondholder 
 when suing at law stands on the same plane as any other creditor. 
 An execution sale of the property covered by the mortgage in pur- 
 suance of a judgment obtained in such a suit does not affect in 
 any manner the title of the trustees, and passes only such interest 
 as the company has in the property.-'^ 
 
 As to the rights to restrain such a levy, see Chap. XV. 
 
 A bondholder may, however, subject the mortgaged property to 
 the payment of a judgment in an action on his bonds, if he is in a 
 position to allege that the residue of the debts secured by the 
 mortgage have been satisfied, and brings the trustees before the 
 court.2 
 
 § 362. Suit maintainable on Bonds though Mortgage is void. — 
 As already stated (Chap. II.), the invalidity of a mortgage does 
 not render invalid the bonds secured by it. An action to recover 
 the debt evidenced by a bond may, therefore, be maintained by 
 the holder, although the mortgage is void.^ 
 
 § 363. Coupons payable out of Revenues, no Recovery on, unless 
 Existence of Fund shown. — Where coupons are expressly made 
 payable out of net revenues it is necessary, in a suit to establish 
 the lien of the bondholders, to allege and prove the existence of 
 
 1 Commonwealtli o. Susquehanna & The English Companies Clauses Act 
 Delaware River R. Co. (1888), 122 Pa. St. provides expressly that debenture-holders 
 3.06 ; s. 0. 15 Atl. Kep. 448 ; 36 Am. & shall be paid without any respect to pri- 
 Eng. R. R. Gas. 269. "The corporation ority in the date of their debentures, and 
 in such a case," said the court, "mort- this provision has been held to be incon- 
 gages its franchises, the gift of tlie State, sistent with a right of any individual de- 
 its corporate powers and corporate prop- benture-holder to have execution of a 
 erty. These are not land, and the mort- judgment for his debt otherwise than as 
 gage is a lien upon them only because the a trustee for all the debenture-holders, 
 making of such a mortgage is expressly Bower v. Breen Ry. Co. (1867), L. K. 3 
 authorized by law. By the terms of the Eq. 540. See also Brinsley v. Lynton 
 mortgage this personal property is con- Hotel Co. (1895), 13 Rep. 371. 
 veyed to the mortgagee in trust for sale 2 Martin & Merriwether v. Mobile & 
 and conversion into money in a particular Ohio R. Co. (1870), 7 Bush (Ky.), 116. 
 manner, and he is charged to apply the 8 Shaver v. Bear River & Auburn Water 
 proceeds to the payment of the bondhold- & Mining Co. (1858), 10 Cal. 396. 
 ers pro rata. . . . That the remedy of the Upon much the same principle a bona 
 bondholders against the property conveyed fide creditor is not precluded from par- 
 te the trustees is through him only, is ticipating in the assets of an insolvent 
 fairly to be inferred from the cases. . . . corporation, for the reason that he has 
 When it becomes necessary for him to taken a mortgage to secure his debt; 
 reach the property, he must proceed and this is declared invalid as an illegal 
 against the trustee, not for his own sep- preference of a creditor. Thompson v. 
 arate benefit, but as a bondholder, and on Huron Lumber Co. (1891), 4 Wash. 600 ; 
 behalf of the bondholders as a class." s. c. 30 Pac. Eep. 741 ; 31 Pac. Rep. 25. 
 
§§ 364-366.J REMEDIES OP BONDHOLDERS, ETC. 385 
 
 the fund ; and when there are no such revenues on hand, a demand 
 of payment is properly refused.^ 
 
 § 364. In whose Name an Action on a Bond may be brought. — 
 Wherever bonds are conceded to be negotiable instruments, or in 
 the nature of negotiable instruments (see Chap. II., ante), the 
 holder may, of course, sue on them in his own name ; but in Penn- 
 sylvania a distinction has been taken between a bond payable " to 
 bearer " and one payable " to A. or his assigns." A bond in the 
 latter form cannot be sued on in the name of the assignee unless 
 the provisions of the statute of 1715 are complied with, which allow 
 a suit by such assignee only when the assignment has been made 
 under hand and seal before two or more credible witnesses.^ 
 
 § 865. Demand of Payment, hew far necessary before bringing 
 Suit on a Bond or Coupon. — As to whether the obligor is in de- 
 fault on a bond or coupon payable at a particular place, where no 
 demand of payment has been made, the authorities are in conflict.^ 
 In Pennsylvania it is held that coupons payable at a particular 
 place import that the debtor will have a deposit at the time and 
 place specified to answer what is substantially a draft on the funds 
 of the debtor. Without showing that such a fund was provided, it 
 is no defence to an action on coupons to allege a want of demand.* 
 On the other hand, the rule in South Carolina is that an action 
 may be maintained on a bond payable on a day certain at a place 
 named, without allegations or proof of demand of payment at the 
 time and place mentioned.^ 
 
 Where a railroad company issues bonds payable at its office in 
 a particular way, and at the maturity of the bonds there is no 
 office at that place, a demand for payment elsewhere is sufficient.^ 
 § 366. Suits on Lost Coupons. — The right to sue on a lost 
 coupon is subject to the same limitation as the right to sue on 
 any lost negotiable instrument, — that is to say, the plaintiff must 
 tender indemnity as a condition of being allowed to bring the 
 action.^ 
 
 1 Corcoran v. Chesapeake & Ohio ' See as to commercial paper generally, 
 Canal Co. (1874), 1 MacArthur, 358 Dan. on Neg. Instr., § 1514. 
 
 (1874). * Philadelphia & Bait. Central R. Co. v. 
 
 As to the liability of the trustees of the Johnson (1867), 54 Pa. St. 127 ; Northern 
 
 Internal Improvement Fund of the State of Pennsylvania R. Co. v. Adams (1867), 54 
 
 Florida to pay out of that fund the interest Pa. St. 94. 
 
 on the railroad bonds guarantied by the * Langston v. South Carolina R. Co. 
 
 State, .see Hawkins v. Mitchell (1895), 34 (1870), 2 S. C. (U. S.) 248. 
 Fla. 405 ; s. 0. 16 So. Rep. 311. ° Alexander v. Atlantic, Tennessee, & 
 
 2 Bunting's Admrs. v. Camden & At- Ohio R. Co. (1872), 67 N. C. 198. 
 
 lantic R. Co. (1876), 81 Pa. St. 254; s. o. ' Fito.hett v. Northern Pennsylvania R. 
 15 Am. Ry. Rep. 570. Co. (1863), 5 Phil. 133. 
 
 25 
 
386 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XVIII. 
 
 CHAPTER XYIII. 
 
 REMEDIES OP BONDHOLDERS. 
 
 I 367. Generally. 
 
 368. The Trustee's Eight of Entry 
 
 must he exercised in Strict 
 Accordance with the Provi- 
 sions of the Mortgage which 
 confer the Eight. 
 
 369. The Right of a Trustee to bring 
 
 Suit for Possession is some- 
 times implied. 
 
 370. When a Business is "unprofit- 
 
 able "so as to authorize Trus- 
 tee to enter. 
 
 371. Trustees of First Mortgage can- 
 
 — SUITS FOR POSSESSION. 
 
 not be ousted from Possession 
 by Junior Mortgagees. 
 § 372. Special Powers of Trustee not 
 available to Bondholder suing 
 on his own Behalf. 
 
 373. Equitable Jurisdiction of Suits 
 
 for Possession. 
 
 374. Possession by the Corporation 
 
 under Scrutiny of Court and 
 Parties to the Suit. 
 
 375. What Law governs in Suits for . 
 
 Possession. 
 
 § 367. Generally.^ — If the mortgage simply stipulates that, 
 upon default iu the payment' of interest, the trustee may take 
 possession, he may take possession without bringing an action to 
 foreclose, and, if he be prevented from taking possession, may 
 have an action to be put in possession.^ 
 
 But after a receiver has been appointed for an entire system of 
 railroads, the right of the trustee of a divisional mortgage upon 
 which default has been made is not absolute. At one stage of 
 the Wabash litigation ^ several divisional trustees were placed in 
 control of the properties covered by their respective mortgages, 
 but a subsequent application by the trustee of another of these 
 mortgages to be put in possession was refused. The court, in its 
 discussion of the inexpediency of further disintegrating the sys- 
 tem, considered the rights and expectations of the stockholders 
 and all the various classes of bondholders. It was pointed out 
 that the general mortgage bondholders did not purchase their 
 bonds with the simple expectation that they would be paid out 
 of merely the residuum left after paying the divisional mortgages, 
 
 1 As to questions of conflicting jurisdic- Co. (1893), 52 Minn. 246 ; s. c. 53 N. W. 
 
 tion in suits for possession, see Chap. XXI., Rep. 1151. 
 on jurisdiction. 8 gee Central Trust Co. v. Wabash, St. 
 
 » Seibert v. Minneapolis & St. Louis E. L. & Pao. Ey. Co. (1885), 23 Fed. Rep. 693, 
 
§ 368.] REMEDIES OF BONDHOLDERS, ETC. 387 
 
 but that there was a grand system to be worked as a unit, and 
 that this would make a greater and better security for their bonds. 
 As there was a movement to keep it together, and have a decree 
 for the sale of the entire property by agreement between the 
 representatives of the majority of the bondholders, the petition 
 was declined until the development of events showed whether 
 this scheme would be carried out or not. 
 
 Default in the principal is not necessary to enable the trustees 
 to maintain a suit for possession, where the mortgage expressly 
 gives the right to enter, either upon the failure of the company to 
 pay any of the overdue coupons, or to pay the principal of the 
 bonds.i 
 
 The right of the trustee to take possession and control of the 
 property, and carry on the business for which it is used, is a 
 property right or interest which survives the voluntary dissolu- 
 tion of the corporation.^ 
 
 § 368. The Trustee's Right of Entry must be exercised in Strict Ac- 
 cordance -with the Provisions of the Mortgage which confer the Right. 
 — If they are permitted to take possession after six months' de- 
 fault in interest, " on being requested to do so by the holders of 
 at least $100,000 of bonds," a request from such bondholders is a 
 condition to any action on the part of the trustees.^ 
 
 A provision that, " in case default shall be made in the payment 
 of interest, etc., and such default shall continue six months after 
 the same has been demanded, the whole principal sum shall, at 
 the option of a majority in interest of the bonds, become forthwith 
 due and payable ; and in such case it shall be lawful for the trustee 
 to enter upon the property," etc., must be construed as meaning 
 that this extraordinary power can be exercised only when there 
 has been both a default in the interest and also a declaration of 
 the bondholders that the principal has become due. Especially 
 should this meaning be attributed to the provision when another 
 section of the deed contains directions as to the powers and duties 
 of the trustee in regard to foreclosure for a default in interest.* 
 
 So also, where the mortgage gives the right of entry after a 
 month's default in interest, the court will not read into the instru- 
 ment a provision requiring the interest to be paid out of profits, 
 and on this theory enforce specific performance of the contract, 
 
 1 Macon & Anniston R. Co. v. Georgia ' Southern Pacific R. Co. n. Doyle 
 Railroad & Bkg. Co. (1879), 63 Ga. 103 ; (1882), 11 Fed. Rep. 253, 266. 
 
 s. c. 1 Am. & Eng. R. R. Cas. 378. ^ Union Trust Co. v. Missouri, Kans. 
 
 2 Nelson v. Hubbard (1892), 96 Ala. & Tex. Ry. Co. (1881), 26 Fed. Rep. 
 238 ; s. 0. 11 So. Rep. 428 ; 12 Ry. & Corp. 485. 
 
 L. J. 182. 
 
388 RAILWAY BONDS AND MORTGAGES. [CHAP. XVIII, 
 
 when the interest has been actually paid, but out of insurance 
 money received upon the destruction of the corporate plant.^ 
 
 § 369. The Right of a Trustee to bring Suit for Possession is 
 sometimes implied. — Where the mortgage provides that the com- 
 pany, as long as it is not in default as to the interest or principal 
 of its bonds, may retain possession, the right of a trustee to bring 
 suit for possession is implied. Such a provision embraces the 
 converse proposition, that, if the company does make default, it 
 is not entitled to retain possession.^ 
 
 § 370. When a Business is " unprofitable " so as to entitle Trustee 
 to take Possession. — The business of a corporation is not "un- 
 profitable," within the meaning of a provision in a trust deed, 
 that, if the business is not profitable, the trustee may, upon 
 request of the bondholders, take possession of the property where, 
 after making allowances for differences in inventory prices and 
 for extraordinary expenses in refunding its indebtedness, profit is 
 shown, although its books, by reason of failure to make such 
 allowances, show a loss.^ 
 
 § 371. Trustees of First Mortgage cannot be ousted from Pos- 
 session by Junior Mortgagees. — Bondholders under a second mort- 
 gage have no riglit to bring action for possession against the 
 trustees of a first mortgage in possession or one holding under 
 them. Their rights are subordinate to the first mortgage, and 
 they have merely a right to redeem.* 
 
 § 372. Special Powers conferred on Trustee not available to Bond- 
 holder suing on his own Behalf.^ — If a beneficiary of the trust deed 
 comes into court in his own name, upon the refusal of the trustee 
 to act, he is restricted to the remedies furnished by the procedure 
 of the court appropriate to the end desired. He may, as shown 
 in the succeeding chapter, foreclose for default in interest, but he 
 is not entitled to have the court exercise the powers of sequestra- 
 tion and sale conferred on the trustee in case of such default.® 
 
 § 373. Equitable Jurisdiction of Suits for Possession. — An action 
 of ejectment may be maintained by the trustee immediately after 
 default wlierever the common-law rule as to the rights of a mort- 
 gagee, after condition broken, still prevails; but not where the 
 
 1 Michigan Trust Co. v. Lansing Lum- * Webb v. Vermont Central E. Co. 
 ber Co. (1895), 103 Mich. 392; s. c. 61 (1881), 9 Fed. Rep. 793. 
 
 N. W. Rep. 668. 5 jPqj. tj^g special powers of the trustee, 
 
 2 Dow V. Memphis & Little Rock R. Co. consult Chap. XI. 
 
 (1884), 20 Fed. Kep. 260, 265. ^ McFadden v. Mays Landing & Egg 
 
 3 Michigan Trust Co. v. Lansing Lum- Harbor City R. Co. (1891), 49 N. J. Eq. 
 her Co. (1895), 103 Mich. 392 ; s. c. 61 176 ; ri. c. 22 Atl. Rep. 930. 
 
 N. W. Rep. 668, 
 
§ 373.] REMEDIES OP BONDHOLDERS, ETC. 389 
 
 doctrine that a mortgage is simply a lien has been adopted, for 
 the legal title is then in the mortgagor.^ The effect of the usual 
 provisions in trust mortgages, that the trustees may take possession 
 after default, is to invest him, by the express stipulation of the 
 parties, with the same right that a mortgagee possessed under the 
 rule of the common law. 
 
 The view has been taken that the trustee has an adequate 
 remedy for the enforcement of this right by an action of eject- 
 ment for the real estate, and action of claim and delivery for the 
 personalty.* But the better opinion is that the remedy at law is 
 not adequate in the case of a railroad mortgage. The forms aud 
 processes of law are not flexible enough to transfer as an entirety 
 mortgaged property of such a complicated character, embracing, 
 as it does, real, personal, and mixed, and a separation of these 
 several kinds of property would be repugnant to the presumed 
 intentions of the parties in entering into the contract.^ 
 
 " The nature of the property with the possession of which they 
 [the trustees] seek to be invested renders it impossible to find a 
 remedy in a single suit at law. Unless resort be had to equity, 
 there must be a multiplicity of actions if the property extends 
 over more than one county, and resistance is made to their claim 
 of possession, besides such other proceedings as may be necessary 
 to obtain control of the franchise of tlie corporation. In addition 
 to this, the trust is to be regulated after possession is taken. To 
 control all this property, to enforce all these obligations, and to 
 preserve the rights of all the parties interested, it is only when 
 exercising equitable powers that a court can afford a complete 
 remedy." * Such a suit may be regai'ded as one for the specific 
 performance of the contract,* or as an application to tlie court to 
 exercise its general powers for the administration of the trust.® 
 
 1 Dow V. MempMs & Little Rock R. Co. * Shaw v. Norfolk County R. Co. 
 (1884), 20 Fed. Rep. 260, 265 ; s. c. 17 (1855), 5 Gray, 162. 
 
 Am. & Eng. R. R. Cas. 324, decided with ^ McLane v. Placerville & Sacramento 
 
 reference to the law~of Arkansas. Valley R. Co. (1885), 66 Cal. 606; s. c. 
 
 2 Rice V. St. Paul & Pacific B. Co. 26 Am. & Eng. R. R. Cas. 404 ; Shepley 
 (1878), 24 Minn. 464. v. Atlantic & St. Lawrence River R. Co. 
 
 » Dow V. Memphis & Little Rock R. Co. (1868), 55 Me. 395 ; Sacramento & Placer- 
 
 (1884), 20 Fed. Rep. 260, 265 ; s. 0. 17 ville K. Co. v. Superior Court (1880), 55 
 
 Am. & Eng. R. R. Cas. 824, where the Cal. 453 ; Dow v. Memphis & Little Rock 
 
 court thought it beyond question that an R. Co. (1884), 20 Fed. Rep. 260, 265; 
 
 action of claim and delivery for non- s. c. 17 Am. & Eng. R. R. Cas. 324. 
 delivery of property could not be an ade- ^ Shaw c.-. Norfolk County R. Co. 
 
 quate remedy against a mortgagor which (1855), 5 Gray (Mass. ), 162. In that case 
 
 was insolvent. This ruling is in direct the court, in considering the question of 
 
 antagonism to the Minnesota case cited. the propriety of a suit in equity, observed 
 
390 EAILWAT BONDS AND MORTGAGES. [CHAP. XVIII. 
 
 § 374. Possession by the Corporation under Scrutiny of Court and 
 Parties to the Suit. — In the case of Chesapeake & Ohio Canal Co. 
 the mortgage provided that the corporation should retain pos- 
 session of the canal so long as it should comply with the agree- 
 ments in the mortgage ; and if it should fail to comply with these 
 agreements from any cause, except a deficiency of revenue arising 
 from a failure of business, without fault on its part, the default to 
 be made to appear by the trustees, — then the trustees might 
 demand, and should receive, possession, and should appropriate 
 the tolls and revenues. On a bill for the appointment of a. 
 receiver, the court failed to find from the evidence that the bond- 
 holders were not paid because of mismanagement. The State of 
 Maryland, as the owner of a majority of valueless stock of the cor- 
 poration, appointed the managers. But it appeared to the court 
 equitable that the bondholders should be afforded some convenient 
 method of scrutinizing the receipts and expenditures of the canal 
 company. The court retained the bill, and decreed that the com- 
 pany file with the court quarterly reports for the information and 
 protection of the bondholders. The court dealt with the corpora- 
 tion as a trustee.^ This case does not conflict with that class of 
 cases which hold that the mortgagor has uncontrolled powers of 
 earnings while not in default, but it gives a right of inspection 
 and scrutiny of accounts of a company to bondholders. 
 
 Analogous to this is the effect of the commencement of a suit 
 for possession. In such case, from the time of the bringing of the 
 suit the company itself is to be treated in all respects as a receiver 
 of the property, holding for the benefit of whomsoever in the end it 
 should be found to concern, and liable to account accordingly.^ In 
 this last case, pending the appointment of a receiver the defendant 
 was ordered to hold the property subject to the order of the court. 
 
 § 375. What La-w governs in Suits for Possession. — The law of 
 the State where the railroad is situated furnishes the rule for 
 determining the rights of the mortgagees under the mortgage, 
 unless that rule can be and has been changed by the contract of 
 the parties.^ 
 
 that, on the discharge of the duties imposed of proceeding to procure for that purpose 
 
 upon the trustees by the contract, " the the intervention and exercise of its 
 
 possession, management, and control of the authority. " 
 
 estates and interests conyeyed to them may i Stewart v. Chesapeake & Ohio Canal 
 
 become indispensable, and presumably do Co. (1881), 5 Fed. Rep. 149, 157. 
 
 become so, when the circumstances arise 2 Dq^ „. Memphis R. Co. (1887), 124 
 
 which entitle them to possession. For the TJ. S. 6.55. 
 
 due enforcement of such a trust ample ' Dow v. Memphis R. Co. (1884), 20 
 
 power is found in a court of equity, and a Fed. Rep. 260 ; Southern Pacific R. Co. n. 
 
 biU for possession is an appropriate course Doyle (1882), 11 Fed. Rep. 253. 
 
CHAP. XIX.] BEMEDIES OP BONDHOLDERS, ETC. 
 
 391 
 
 CHAPTER XIX. 
 
 FORECLOSURE AND SALE. 
 
 Art. I. — In General. 
 
 § 376. Right to foreclose on Default 
 in Payment of Interest inher- 
 ent in Mortgage Contract. 
 
 377. Provisions negativing the Eight 
 
 to foreclose and sell. 
 
 378. Mortgagee not required to resort 
 
 to Sinking Fund for Payment, 
 when. 
 879. Improper Motives of Complainant 
 no Ground for denying Relief. 
 
 380. Eight of Prior Mortgagee of Part 
 
 of Property to foreclose pend- 
 ing Suit to foreclose Mort- 
 gage ou whole. 
 
 381. Matters not considered in Fore- 
 
 closure Suits. 
 
 382. Eight to file a Bill ceases when 
 
 the Company is dissolved. 
 Art. II. — Remedy of Foreclosure ou- 
 mula-nvb upon special 
 Remedies provided by the 
 moetqage. 
 §383. General Rule. 
 
 384. Application of Rule where Trus- 
 
 tee is precluded from taking 
 Possession until the Default 
 has continued a Specified 
 Period. 
 
 385. Application of Rule where a Be- 
 
 quest from the Bondholder is 
 a Prerequisite to Entry by the 
 Trustees. 
 Art. III. — When the Default is com- 
 plete FOR Purposes of Suit. 
 §386. Generally. 
 
 387. Right to foreclose, how far 
 
 affected by Special Agree- 
 ments. 
 
 388. Words of Bonds controlling as to 
 
 whether Default has occurred. 
 
 389. What amounts to a Default 
 
 where Bondholders are re- 
 ceiving the Income. 
 
 § 390. Defaults in the Payment of In- 
 terest on Divisional Bonds not 
 available in a Suit to fore- 
 close a Consolidated Mortgage. 
 3S1. What is a Sufficient Demand, 
 where that is required. 
 
 392. Presentation of Coupons at Place 
 
 designated for Payment not a 
 Condition Precedent to Suit. 
 
 393. Waiver of the Eight to have 
 
 Instalments of Interest paid at 
 a Particular Place. 
 
 394. No Relief in Equity against Con- 
 
 sequences of Default without 
 Excuse. 
 
 395. Benefit of Alternative Agree- 
 
 ment not avaOable after De- 
 fault. 
 Art. IV. — Powers of Trustees and 
 Bondholders respectively 
 
 IN E.EGARD to COMMENCING 
 
 Foreclosure Suits. 
 § 396. Power of Trustee to foreclose 
 considered with Eespect to 
 Provisions for a Request from 
 the Bondholders. 
 
 397. Bondholder estopped by Decree, 
 
 though no Request made. 
 
 398. Default may be taken Advantage 
 
 of by a Single Bondholder. 
 
 399. Majority of Bondholders may 
 
 sometimes prevent Foreclos- 
 ure. 
 Art. v. — Effect of Provisions accel- 
 erating THE Maturity of 
 the Debt on Default in 
 THE Payment of Interest. 
 §400. Generally. 
 
 401. Default when complete so as to 
 
 render Principal due. 
 
 402. Rights of Minority Rpndholders. 
 
 483. Acceleration of Maturity pre- 
 vented by Words of Statute 
 authorizing Issue of Bonds. 
 
392 RAILWAY BONDS AND MOETGAGES. [CHAP. XIX. 
 
 Abticlb I. — In General. 
 
 § 376. Right to foreclose on Default in Payment of Interest 
 inherent to the Mortgage Contract. — In the absence of any specific 
 provision to the contrary in the mortgage, the right to foreclose 
 accrues as soon as the interest is in default, although the prin- 
 cipal may be only payable at the end of a fixed period.^ 
 
 The foundation of this rule is that the interest is not a mere 
 incident of the debt, but a part of the debt itself, and therefore 
 no less secured by the property subject to the lien than is the 
 principal itself. The rights of the parties are accordingly deter- 
 mined by the principle that whenever a debt is payable in instal- 
 ments, a mortgage securing that debt may be foreclosed whenever 
 one of the instalments is in default.^ 
 
 It is usual for railroad mortgages to contain express provisions 
 to the effect that the lien is created to secure the payment of the 
 interest as well as the principal of the bonds, and that a default 
 in the payment of the interest alone will entitle the beneficiaries 
 to have the lien enforced by certain specified proceedings. But 
 the right to set the law in motion for the enforcement of the lien 
 by a foreclosure suit exists apart from any such stipulation as to 
 the employment of certain remedies, — a doctrine thus clearly 
 and emphatically laid down by the Supreme Court of the United 
 
 1 Edwards v. Martin, 25 L. J. Ch. N. S. delphia & Reading E. Co. (1895), 69 Fed. 
 
 284, following a dictum of Sir Edward Rep. 482. 
 
 Sugden in Barrowes v. Molloy, 2 Jones & In Swasey v. North Carolina R. Co. 
 
 Lat. 521. (1874), 1 Hughes, 17; s. c. reported in 71 
 
 " West Branch Bank v. Chester (1849), N. C. 571, corporate stock had been pledged 
 11 Pa. St. 282, citing Gladwin v. Hitch- for the " redemption " of certain "certifi- 
 man, 2 Vern. 135. See also Goodman c< aZ. cates of debt, " and the certificates bound 
 Trustees, etc. v. Cincinnati & Chicago the debtor for the payment of the " sum 
 R. Co. (1858), 2 Disn. (Ohio), 176, where therein mentioned and other interest 
 the court remarked that the interest "may thereon." ffeld, that the stock was bound 
 grow out of and be dependent on the prin- for the payment of the interest itself, and 
 cipal debt, yet, when once due, it must that a foreclosure might be decreed on de- 
 draw after it the benefit of the security fault of any instalment thereof, 
 given for its payment ; not by its ultimate A debenture in the usual English form, 
 discharge when the principal shall become charging all the property of the company, 
 due, but its prompt and certain liquidation both present and future, including its un- 
 at the several times at which it was agreed called capital, confers upon the holder, 
 to be paid." To the same effect see in the event of the debenture becoming 
 Farmers' Loan & Trust Co. a. Oregon & C. immediately payable in consequence of 
 Ry. Co. (1885), 24 Fed. Rep. 407 ; Cleve- a winding up, the ordinary mortgagee's 
 land V. Booth (1890), 43 Minn. 16; s. c. remedy by foreclosure against the uncalled 
 44 N. "W. Rep. 670 ; Penna. Co. for Ins. capital, as well as the other property com- 
 on Lives and Granting Annuities v. Phila- prised in the security. Sadler v. Worley 
 
 (1894), L. R. 2 Ch. 170. 
 
§ 376.] FORECLOSURE AND SALE. 393 
 
 States : " Inasmuch as by the terms of the first article (of the 
 mortgage) the conveyance is declared to be for the purpose of 
 securing the payment of the interest as well as the principal of 
 the bonds, and by the fourth article the mortgagor's right of pos- 
 session terminates upon a default in the payment of interest as 
 well as principal on any of the bonds, we are of opinion that, inde- 
 pendently of the provisions of the other articles, the trustees, or, 
 on their failure to do so, any bondholder, on the non-payment of 
 any instalment of interest on any bond, might file a bill for the 
 enforcement of the security by the foreclosure of the mortgage 
 and sale of the mortgaged property. This right belongs to each 
 bondholder separately, and its exercise is not dependent upon the 
 co-operation or consent of any others, or of the trustees. It is 
 properly and strictly enforceable in the name of the latter, but if 
 necessary may be prosecuted without, or even against, them. It 
 follows from the nature of the security, and arises upon its face, 
 unless restrained by its terms." * 
 
 A practical consideration which militates strongly against a 
 difi"erent construction of the mortgage contract is, that, if resort 
 could not be had to foreclosure and sale of the property for default 
 in the payment of interest, the company would be enabled to hold 
 the money of its bondholders for a long period of years, and that if 
 the bondholders' remedy were thus suspended (possibly for the life- 
 time of a generation), no company could be so bold as to ask, nor 
 any capitalist so foolish as to grant, a loan for railroad purposes.^ 
 An agreement of certain bondholders of a railroad company 
 operating its road at a loss, and owing a large floating indebted- 
 ness, with a lessee of the road, unknown to the company or the 
 trustee of the mortgage securing the bonds, that they would not 
 seek to enforce the payment of interest on the bonds for ten 
 years, which further has been soon repudiated by some of the 
 parties to it, cannot be interposed by a bondholder to prevent a 
 foreclosure of the mortgage for default in payment of the interest 
 in an action brought by the trustee.^ 
 
 1 Chicago, Danville, & Vincennes K. by subsequent incumbrancer, Sutherland 
 
 Co. V. Fosdick (1882), 106 U. S. 47. See etal. (/. Lake Superior Ship Canal, Eailroad, 
 
 article on "Foreclosure of Kailroad Mort- & Iron Co. et al. (1874), 9 N. B. R. 298; 
 
 sages," by Lisle, 20 Am. L. Eev. 867. s. c. 1 Cent. L. J. 127; 23 Fed. Cas. 459, 
 
 See note on request that ti-ustee fore- Case No. 13,643. 
 
 close mortgage, by Adelbert Hamilton, ^ Wilmer v. Atlanta & Richmond Air 
 
 23 Am. L. Reg. N. S. 49. See as to Line Ry. Co. (1875), 2 Woods, 447. 
 foreclosure by bondholder. Stern v. Wis- ' Farmers' Loan & Trust Co. v. Rocka- 
 
 consin Cent. R. Co. etal. (1879), 8 Rep. way Valley R. Co. et al. (1895), 63 Ted. 
 
 488 ; s. 0. 22 Fed. Cas. 1310, Case No. Rep. 9. 
 13,378. See as to foreclosure of mortgage 
 
39J: RAILWAY BONDS AND MOETGAGES. [CHAP. XIX. 
 
 The right to foreclose for interest being inherent in the con- 
 tract, the mere omission to insert a provision in the mortgage 
 that the principal is to become due upon a default in the payment 
 of interest will not prevent a resort to this remedy.^ 
 
 For the same reason a resolution of the board of directors 
 directing an issue of bonds and a mortgage to secure them, pay- 
 able in twenty-five years, with semi-annual payments of interest, 
 authorizes the insertion of a provision that, " in case of default in 
 tl^e payment of interest, the whole principal and interest shall be 
 due." These words, it was declared, were necessary to render the 
 bonds marketable, and added nothing which the law itself would 
 not grant.^ 
 
 § 377. Provisions which negative the Right of the Trustees to 
 treat a Corporate Trust Deed as a Mortgage and foreclose it. — 
 These are occasionally found in such instruments. This con- 
 struction has been placed on a deed securing bonds issued to 
 raise money to discharge existing liens on tracts of unimproved 
 land, and render them available for sale, where it was apparent 
 from the general term of the instrument that the essence of the 
 plan contemplated when the bonds were issued was the general 
 discharge of the debt as the land was improved and sold off for 
 building lots, and that the plan was to remain the same whether 
 the companies or the trustees carried it out. Special stress was 
 laid by the court on the points that the deed fixed no limit to the 
 mortgagor's right to redeem ; that the trustees, upon entry for 
 default, were to manage and dispose of the property " as agents of 
 the mortgagor," — a provision evidently referring to a possession 
 of a different character from that stipulated for in ordinary mort- 
 gages ; and that the trustees, after applying surplus proceeds of 
 sales to the payment of the bonds, were to restore the residue and 
 all the property remaining in their possession to the mortgagor.^ 
 
 § 378. Mortgagee not required to resort to Sinking Fund for Pay- 
 ment, when. — The fact that the act authorizing a corporation to 
 issue bonds also provides for a sinking fund for their redemption 
 to be created out of the rents of certain buildings which it is pro- 
 posed to erect on the land covered by the mortgage securing the 
 bonds, does not preclude a bondholder from foreclosing the mort- 
 gage when the bonds fall due.* 
 
 1 Bardstown & Louisville R. Co. v. ' Shepard v. Eichardson (1887), H5 
 Metcalfe (18G2), 4 Mete. (Ey.) 199. Mass. 32 ; s. C. 11 N. E. Eep. 738. 
 
 2 Coe V. New Jersey Midland Ry. Co. ♦ Commonwealtli v. LouisTille Trust 
 (1879), 31 N. J. Eri. 105. Co. (1894), 26 S. W. Eep. 582, not 
 
 officially reported. 
 
§§ 379, 380.J FORECLOSURE AND SALE. 395 
 
 § 379. Improper Motives of Complainant no Ground for denying 
 Relief. — That the plaintiff is actuated by personal or improper 
 motives in bringing a foreclosure suit is, as a general rule, no 
 ground for denying him the relief he is legally entitled to. The 
 sale will not be delayed merely because it appears that he is 
 acting in the interest of a rival company, and that his object 
 is to bring the mortgaged property to a speedy sale upon a de- 
 pressed market, and thus enable that company to acquire it at 
 a low price,! ^qj. because the object of the bondholders seeking 
 foreclosure is to obtain ultimate control of the property.^ 
 
 But an important exception to this rule exists where the holders 
 of the bonds who are pressing for foreclosure are also holders of 
 a majority of the stock of the mortgagor company, and the pro- 
 ceedings are for the purpose of obtaining an undue advantage 
 over the minority stockholders. It is therefore a good defence to 
 an action for foreclosure that the bonds held by the plaintiff's 
 cestuis que trust were acquired by them, together with a majority 
 of the mortgagor company's stock, in pursuance of a scheme to 
 throw the company into insolvency by misusing the power to con- 
 trol its affairs, which they obtained by their purchase of the stock, 
 and then enforced the mortgage lien under circumstances which 
 will enable them to purchase the property at less than its market 
 value. Such conduct is inconsistent with the duty which majority 
 stockholders owe to the minority .^ 
 
 § 380. Right of Prior Mortgagee of Part of Property to foreclose 
 pending Suit to foreclose Mortgage on Entire Property. — The con- 
 solidation of the mortgagor company with another, and the exe- 
 cution of mortgages by the consolidated company, one covering 
 its entire property, and the other the property not embraced in 
 the first mortgage, does not affect the right of a bondholder 
 secured by the first mortgage to enforce his security as respects 
 that part which it embraces. He cannot be delayed in the fore- 
 closure of his mortgage and compelled to abide the sale of the 
 entire property in a suit instituted by the trustee of one of the 
 subsequent mortgages. The mere fact that some of the principal 
 bondholders secured by the first mortgage have interests antago- 
 nistic to the portion of the property belonging to the consolidated 
 company which is not embraced in that mortgage does not con- 
 
 1 Toler «. East Tennessee, v. & G. Ry. en worth v. Chicago, R. I. & P. R. Co. 
 Co. (1894), 67 Fed. Eep. 168. (1885), 25 Fed. Rep. 219, 229. 
 
 2 Farmers' Loan & Trust Co. v. Green 8 Farmers' Loan & Trust Co. v. New 
 Bay & Minnesota R. Co. (1881), 6 Fed. York & Northern Ry. Co. (N. Y. Ct. of 
 Bep. 100, 110. Compare County of Leav- App., 1896), 44 N. E. Eep. 1043. 
 
396 RAILWAY BONDS AND MORTGAGES. [CHAP. XIX. 
 
 stitute any equitable reason for refusing to allow the mortgage to 
 be foreclosed.^ 
 
 § 381. Matters 'which 'will not be considered in Foreclosure Suits. 
 — A claim of title paramount to that of the mortgagor cannot be 
 tried in a foreclosure suit, unless the jurisdiction of the courts is 
 aided in this respect by some statutory provision.^ 
 
 The Code of Washington (§§ 143, 150) has not changed the 
 rule that a claim of prior and paramount adverse title cannot be 
 litigated in a foreclosure suit.^ 
 
 The question of the fairness and equity of reorganization plans 
 will not be considered upon an application by stockholders of a rail- 
 road company to interpose a defence to foreclosure of a mortgage, 
 since any person is entitled to purchase at a foreclosure sale, 
 and if the stockholders believe the property mortgaged exceeds in 
 value the debts upon it, they may purchase it themselves.* 
 
 A judgment creditor of a mortgagor corporation cannot, in a 
 suit to foreclose the mortgage, assert that there was no resolution 
 of the stockholders for its issuance, or that it was not recorded.^ 
 
 § 382. The Right to file a Bill of Foreclosure in an Original Proceed- 
 ing ceases 'when the Corporation is dissolved. — The claims evidenced 
 by the trust deed and the bonds can be asserted only in the disso- 
 lution proceeding, after it has been instituted ; and if an original 
 bill is filed by the trustee in the court where that proceeding is 
 pending, it should be treated on the footing of a claim presented 
 therein, and dealt with accordingly.^ 
 
 Article II. — Remedy of Foreolositre cumulative upon 
 Special Remedies provided by the Mortgage. 
 
 § 383. General Rule. — It is well settled that the special powers 
 conferred upon the trustees by the provisions of an ordinary rail- 
 road mortgage, for the purpose of enabling them to enforce the 
 security, in case of a default in the payment of principal or interest, 
 are merely cumulative to the remedy by means of foreclosure.'^ 
 
 1 Olyphant v. St. Louis Ore & Steel * Farmers' Loan & Trust Co. v. Toledo, 
 
 Co. (1885), 23 Fed. Rep. 465. A. A. & N. M. R. Co. (1895), 67 Fed. 
 
 ^ It is believed that the Practice Act of Rep. 49. 
 Connecticut admits of the trial of such a ^ Farmers' Loan & Trust Co. v. Chicago 
 
 claim. See DeWolf v. A. & W. Sprague & N. P. R. Co. (1895), 68 Fed. Rep. 412. 
 Manufacturing Co. (1881), 49 Conn. 282 ; « Nelson v. Hubbard (1892), 96 Ala. 
 
 Farmers' Loan & Trust Co. v. San Diego 238 ; s. c. 11 So. Rep. 428 ; 12 Ry. & 
 
 Street Car Co. (1889), 40 Fed. Rep. 105. Corp. L. J. 182. 
 
 ' California Safe Deposit & Trust Co. ' McFadden v. May's Landing and Egg 
 
 V. Cheney Electric Light, TeL & Power Harbor City R. Co. (1891), 49 N. J. Eq. 
 
 Co. (1895), 12 Wash. 138 ; s. c. 40 Pac. 176 ; s. c. 22 Atl. Rep. 932 (citing a large 
 
 Rep. 732. number of cases); McAllister v. Plant 
 
§ 383.] 
 
 FORECLOSURE AND SALE. 
 
 397 
 
 Especially should the remedy by entry and sale be regarded as 
 cumulative when the laws of the State in which the railroad is 
 situated forbid sales under a power in a trust deed by proceedings 
 out of court. The remedy in this case would be of no value.^ 
 
 In the case of the trustees there is an additional reason why 
 the mere fact that they are invested with these special powers 
 should not preclude them from a resort to ordinary equitable 
 remedies. They are holders of the legal estate in the mortgage 
 for the benefit of the bondholders, and a trustee can always come 
 into a court of equity for aid or instruction in conserving his 
 trust. ^ 
 
 Sometimes the mortgage itself recognizes by its terms the prin- 
 ciple illustrated in the cases already cited in this section by an 
 express declai'ation to the effect that the remedies of entry and 
 sale conferred by it are " cumulative to tlie ordinary remedies by 
 foreclosure," ^ or provides that nothing therein shall be held or 
 construed to prevent or interfere with the foreclosure of the 
 instrument by any court of competent jurisdiction.* 
 
 probable motives of the parties in inserting 
 such a clause, evidently out of abundant 
 caution, inasmuch as it merely embodied 
 the general rule on the subject, were 
 thus explained by Chief Justice Fuller : 
 "It is easy to see why taking possession 
 and selling without the intervention of the 
 court should be guarded against, and the 
 trustee not be required or allowed to pro- 
 ceed in that summary manner except on 
 the request of a certain percentage of the 
 holders of the bonds. Such proceedings 
 might result in injury, which could not be 
 predicted of those regularly taken in a, 
 court of equity. Arbitrary procedure by 
 the trustee was not deemed desirable in 
 view of the interests of both mortgagor 
 and the bondholders as a class, while each 
 would find the protection to which it might 
 be entitled at the hands of the court." A 
 provision to the effect that neither the 
 whole nor any part of the premises mort- 
 gaged shall be sold, under proceedings 
 either at law or equity, for the recovery of 
 the principal or interest of the bonds, it 
 being the intention of the parties that the 
 mode of sale provided by the mortgage 
 shall be exclusive of all others, is not en- 
 forceable, as it is an attempt to provide 
 against a remedy in the ordinary course of 
 judicial proceedings, and oust the juris- 
 diction of the courts. 
 
 (1876), 54 Miss. 106 ; s. c. 17 Am. Ry. 
 Rep. 389 ; Central Trust Co. o. New York 
 City & Northern R. Co. (1884), 33 Hun, 
 513; Alexander v. Central Railroad of 
 Iowa (1874), 3 Dill. 487 ; First Nat. Fire 
 Ins. Co. V. Salisbury (1881), 130 Mass. 
 303; 4 Am. & Eng. R. R. Cas. 480; 
 Williamson v. New Albany, etc. R. Co. 
 (1857), 1 Biss. 198. 
 
 The mortgagees of a section of a Cana- 
 dian railway in the hands of a receiver, 
 appointed in a judgment creditor's action, 
 were held entitled to proceed in equity for 
 a sale of the property immediately npon 
 default, regardless of a clause in the mort- 
 gage providing for a sale after the lapse of 
 a certain time. Allan v. The Manitoba & 
 Northwestern By. Co. (1894), 10 Man. 
 Rep. 106. 
 
 1 Alexander v. Central Railroad of 
 Iowa (1874), 3 Dill. 487. 
 
 2 Phinizy v. Augusta & K. R. Co. 
 (1893), 56 Fed. Rep. 273. 
 
 3 See, for example, the mortgage under 
 review in Mercantile Trust Co. v, Mis- 
 souri, K. & T. R. Co. (1888), 36 Fed. 
 Rep. 221; s. c. 36 Am. & Eng. R. R. Cas. 
 259. 
 
 * Morgan's Louisiana & Texas R. & 
 Steamship Co. v. Texas Central Ry. Co. 
 (1890), 137 U. S. 171 ; s. c. 11 Sup. CL 
 Rep. 61; 45 Am. & Eng. R. R. Cas. 63. The 
 
398 RAILWAY BONDS AND MORTGAGES. [CHAP. XIX. 
 
 § 384. Application of Rule to Cases where a Trustee is precluded 
 from taking Possession until the Default has continued a Specified 
 Period. — Agreeably to the principle stated above, it has been 
 uniformly held by the courts that the various provisions by which 
 the action of the trustees is regulated in the exercise of those 
 powers will not, in the absence of an express stipulation to that 
 effect, be construed as applicable to this concurrent remedy .^ 
 
 Thus where it is stipulated that " until default shall be made 
 in the payment of interest for six months, after written demand 
 for payment by the trustee, the mortgagor shall remain in posses- 
 sion, and control the property," but that " after such default the 
 trustee may take possession," it is only the right to take posses- 
 sion that is limited, and the trustee may foreclose immediately 
 upon dpfault.2 
 
 Similarly a provision authorizing entry and sale by the trustee 
 upon the expiration of twelve months after the default of the 
 company in paying the principal and interest, does not prevent 
 the trustee from bringing an action to foreclose immediately upon 
 default in the payment of interest.^ 
 
 Nor is the trustee precluded from foreclosing before the default 
 thus continued six months, although the mortgage provides that 
 "until default the mortgagor shall be permitted to remain in pos- 
 session," and that " in case of default in the payment of interest 
 for six months it shall be the duty of the trustee to take steps to 
 enforce the rights of the bondholders." * 
 
 Nor, it seems, is the right of the trustee to foreclose immediately 
 upon default in the payment of interest affected by the fact that 
 the mortgage provides that, in case the mortgagors " fail to pay 
 the interest on any of the said bonds at any time when the same 
 may become due and payable according to the terms thereof, and 
 shall continue in default for six months after such payment has 
 been demanded, . . . then and thereupon the principal of all the 
 bonds hereby secured shall become immediately due and payable, 
 provided, etc., and that in such case . . . the trustee . . . may 
 take, with or without entry and foreclosure, actual possession of said 
 road," and there is no express provision in the deed for immediate 
 
 1 See generally on this subject an * Mercantile Trust Co. v. Chicago, P, 
 article in 16 Centr. L. J. 247. & St. L. R. Co. (1893), 61 Fed. Rep. 372. 
 
 2 Farmers' Loan & Trust Co. v. Winona Compare Farmers' Loan & Trust Co. u. 
 & St. L. R. Co. (1893), 59 Fed. Rep. 957. Nova Scotia Ry. Co. (1894), 24 Nov. Scot. 
 
 8 Central Trust Co. v. New York City 542, where the law of the Province made 
 
 & Northern R. Co. (1884), 33 Hun, 513 ; the whole principal due upon default, and 
 
 coinpare McLane v. Plncerville & Sacra- it was held that a provision such as that in 
 
 mento Valley R. Co. (1885), 66 Cal. 606 ; the text was no obstacle to an immediate 
 
 26 Am. & Eng. R. R. Cas. 404. foreclosure. 
 
§§ 385, 386-] FORECLOSURE AND SALE. 399 
 
 foreclosure upon such default. Such a provision merely relates to 
 the manner in which the principal shall be made due.^ 
 
 § 885. Application of Rule to Cases where a Request from Bond- 
 holders is a Prerequisite to Entry by Trustees. — The right of fore- 
 closure for interest, whether by the trustee acting in behalf of one 
 or more bondholders acting in behalf of the whole class, is not 
 affected by a provision that the trustee cannot, without the re- 
 quest of a certain percentage of bondholders, take possession of 
 the road,2 or declare the principal due, and foreclose thereon ; ^ nor 
 by a provision that until default the mortgagor shall remain in 
 possession, and that, on default of the principal and interest on 
 any bond, and on request of the holders of one-half in amount of 
 the bonds, the trustee shall sell the property and apply the pro- 
 ceeds to the payment of the bonds.* 
 
 The same conclusion has been reached where a trust deed 
 hypothecating stock provided that after the continuance of a de- 
 fault for six months the trustee might, and upon the demand of 
 a majority in amount of the bondholders should, declare the prin- 
 cipal due, and that in either of such cases might, and upon request 
 of a like majority should, proceed to sell the shares, and also 
 reserved to the majority the right to revoke the declaration of the 
 maturity of the principal and put a stop to the proceedings. In 
 spite of the powers thus conferred on the majority, the trustee 
 may, at the instance of the minority, foreclose the trust deed in 
 their behalf.^ 
 
 Article III. — When the Default is complete for Purposes 
 
 OF Suit. 
 
 §886. Generally. — "Default" means "something wrongful, 
 some omission to do that which ought to have been done by one 
 
 1 Central Trust Co. v. Texas & St. Louia 1 Biss. 198 ; Guaranty Trust & Safe De- 
 R. Co. (1885), 23 Fed. Rep. 846. posit Co. v. Green Cove Springs & M. R. 
 
 2 Fhinizy v. Augusta & K. R. Co. Co. (1890), 139 U. S. 137 ; s. c. 11 Sup. 
 (1893), 56 Fed. Rep. 273 ; Farmers' Loan Ct. Rep. 512; 45 Am. & Eng. R. R. Cas. 
 & Trust Co. V. Chicago, etc. R. Co., 689 ; Credit Co. w. Arkansas Central R. 
 27 Fed. Rep. 152 ; s. P. Alexander v. Co. (1882), 15 Fed. Rep. 46 ; MercantUe 
 Central Railroad ot Iowa (1874), 3 Dill. Trust Co. v. Missouri, K. & T. R. Co. 
 487 ; Central Trust Co. v. Texas & St. L. (1888), 36 Fed. Rep. 221. 
 
 R. Co. (1885), 23 Fed. Rep. 846 ; Dow v. s Farmers' Loan & Trust Co. v. Chicago 
 
 Memphis & Little Rock R. Co. (1884), 20 & A. R. Co. (1886), 27 Fed. Rep. 146, 
 
 Fed. Rep. 260 ; Eaton & Hamilton R. 152. 
 
 Co, 0. Hunt (1863), 20 Ind. 457 ; Penn. * First National Fire Ins. Co. v. Salis- 
 
 Co. for Ins. of Lives and Granting An- bury (1881), 130 Mass. 303 ; s. c. 4 Am. 
 
 nuities v. Philadelphia & Reading R. Co. & Eng. R. R. Cas. 480. 
 
 (C. C. E. D. Pa.), 36 W. N. C. 534 ; Wil- » Toler v. East Tennessee, V. & G. R. 
 
 liamsou v. New Albany, etc.R. Co. (1857), Co. (1894), 67 Fed. Rep. 168. 
 
400 RAILWAY BONDS AND MORTGAGES. [CHAP. XIX. 
 
 of the parties, and this cannot be the case when the omission to 
 make payment has the concurrence of the other party." Hence, 
 if the mortgagee assents to a request made by the mortgagor that 
 the payment of an instalment of interest shall stand over till a 
 certain day, there can be no such " default " as will justify the 
 foreclosure of the mortgage on that ground until the stipulated 
 day arrives, or, supposing the promise of the mortgagee to have 
 been made without consideration, until he revokes the license to 
 extend the time, and makes a fresh demand for payment of the 
 instalment.^ 
 
 § 387. Right to foreclose, ho'w far afTected by Special Agreements. 
 — The right to foreclose for interest may be suspended by an 
 absolute covenant on the part of the mortgagee that the principal 
 shall not be called in during a specified period, or until the hap- 
 pening of a certain event.^ 
 
 But a mere agreement on the part of the bondholders to consent 
 to the company's paying only half interest for an indefinite time, 
 understood not to exceed a certain period, cannot be construed as 
 binding the bondholders to wait until the end of that period 
 before instituting proceedings to enforce their lien. The only 
 restriction which such an agreement puts upon their action is that 
 they cannot terminate the plan thus entered upon without reason- 
 able or fair notice to the company.^ 
 
 Nor do the bondholders forego their right to sell the road 
 for default in payment in interest merely by entering into a 
 contract whereby a person, in consideration of his advancing 
 sufficient money to pay the floating debts, is given a lien on the 
 road for the amount prior to that of the mortgage, and invested 
 with the control and management of the property for a period 
 of three years. Such a contract raises no implication of a 
 promise by the bondholders to extend the time for payment 
 of interest, and leaves the riglits and obligations existing 
 between them and the company precisely what they were 
 before it was executed.* 
 
 § 388. Words of Bonds controlling as to -ro-hether Default has 
 occurred. — The bonds being the principal thing, containing the 
 
 1 Albert v. Grosvenor InTestment Co. concluding from an examination of the 
 (1867), L. R. 3 Q. B. 123. evidence in the case, which was very vo- 
 
 2 Burrowes v. Molloy, 2 Jones & Lef. luminous, that the bondholders were 
 621, per Sugden, L. C. equitably estopped to foreclose the mort- 
 
 3 Union Trust Co. v. St. Louis, Iron gage until the end of the stipulated period, 
 Mountain, & Southern R. Co. (1878), 5 provided one-half of the interest was paid. 
 Dill. 1, citing Albert v. Grosvenor Invest- * South St. Louis E. Co. v. Plate (1887), 
 ment Co., supra. Treat, J., dissented, 92 Mo. 614 ; s. c. 5 S. W. Rep. 199. 
 
§§ 389-392.] FORECLOSURE AND SALE. 401 
 
 obligation of the parties, and the mortgage a mere security for 
 the performance of that obligation, the terms of the bonds are 
 controlling in regard to the question whether demand is or is 
 not necessary to render the default complete.^ (But see Chap. 
 II., ante.) 
 
 § 389. 'What amounts to a Default where Bondholder is receiving the 
 Income of the Mortgaged Property. — Where the holder of the bonds 
 sued upon is a railroad company which has leased the mortgaged 
 road, and, in place of paying rent, has agreed to apply the net 
 earnings to the payment of the interest coupons, the complainant 
 must, in order to establish a default, show that such earnings 
 have been insufficient to pay the coupons.^ 
 
 § 390. Defaults in the Payment of Interest on Divisional Bonds are 
 not available in a Suit to foreclose a Consolidated Mortgage. — This 
 is true even if the complainant has paid the divisional bondhold- 
 ers, so as to become subrogated to their rights. Such rights are 
 limited to the separate divisions of the road, and must be asserted 
 against the specific property mortgaged.^ 
 
 8 391. VThat is a Sufficient Demand, where that is required before 
 bringing Suit. —The Opinion has been expressed that a paper 
 addressed to a railroad company, which, after reciting that 
 payment of certain interest coupons had been demanded, and 
 refused, and that the holder will look to the company for pay- 
 ment thereof, is a sufficient compliance with an article of the 
 mortgage to the effect that there shall be a " demand made in 
 writing ; " but the case was decided on another point.* 
 
 § 392. Presentation of Coupons at Place designated for Payment of 
 Interest when not a Condition Precedent to Suit thereon. — Generally 
 a suit may be brought on any commercial paper payable at a 
 particular place, without demand at that place.^ 
 
 This rule is applicable to a suit to enforce overdue coupons 
 although the bond promises to pay the principal and " interest 
 
 1 Railroad Co. «. Spragae (1880), 103 receipts from the leased road by itself, 
 U. S. 756, 761. In this case the mortgage and had no right to pro-rate them with 
 declared that the principal sum became the receipts from its own road upon the 
 due after a six months' default in the pay- entire mileage. 
 
 ment of interest, whether it had been de- ^ Union Trust Co. v. St. Louis, Iron 
 
 manded or not, while the bonds declared Mountain, & Southern R. Co. (1875), 5 
 
 this result would follow if the default Dill. 1. 
 
 continued for that space of time after de- * Pennsylvania Co. for Ins. of Lives 
 
 mand of payment and Granting Annuities v. Philadelphia 
 
 2 Chamberlain v. Connecticut Central & Reading R. Co. (1895), 69 Fed. Rep. 
 R. Co. (1889), 54 Conn. 472; ,s. c. 9 Ath 482. 
 
 Rep. 244, where it was also held that, in ^ W'allace v. McConnell (1839), 13 
 
 accounting for the receipts, the lessee was Pet. 136 ; Montgomery u. Elliott (1844), 
 bound to account for and apply the net 6 Ala. 701. 
 
 26 
 
402 RAILWAY BONDS AND MOETGAGES'. [CHAP. XIX. 
 
 at the rate of ten per cent per annum, payable semi-annually on 
 the first days of January and July in each year, on presentation of 
 the respective coupons hereto attached, both principal and interest 
 being payable at the financial office of said company in the city 
 of New York. It is no objection to holding the default to be 
 complete without such " presentation " that the bonds also 
 declare that, after a continuance of a default for six months, 
 the principal shall become due. A coupon-holder cannot, by 
 a mere failure to present his coupon for payment when due, 
 accelerate the maturity of the principal under this provision ; 
 for the claim that the principal of the bonds had become due 
 by reason of default in the payment of interest would be con- 
 clusively answered by an averment of the company that it had 
 funds at the place designated for payment sufficient to pay the 
 coupons if they had been presented.^ 
 
 §393. Waiver of the Right to have Instalments of Interest paid at a 
 Certain Place. — Where the mortgage stipulates that, upon the 
 continuance of a default for sixty days, the whole principal is 
 to become due and payable at the mortgagee's election, the 
 mortgagee must, if he knows that the mortgagor has an instal- 
 ment ready at the usual place of payment, and requires payment 
 at the place designated in the mortgage, so notify the mortgagor ; 
 and if he fails to do so, and his agent at the usual place of pay- 
 ment refuses to receive payment except on certain conditions, he 
 waives the right to payment elsewhere, and cannot, on default 
 thereof, treat the whole debt as due.^ 
 
 8 394. No Relief in Equity against Consequences of Default without 
 Excuse. — A mortgagor upon whose unexcused failure to pay an 
 instalment of interest the principal sum has been declared due, 
 pursuant to a provision in the mortgage, cannot be relieved in 
 equity from foreclosure for the principal upon payment of inter- 
 est and costs. ^ 
 
 § 395. Benefit of Alternative Agreement as to Payment in Scrip not 
 available after Default. — When the mortgage simply authorizes 
 the trustee to sell the property in case of default as to the 
 principal sum at maturity of the debt, and apply the proceeds 
 to satisfy the amount due, the right to foreclose becomes abso- 
 lute immediately upon a default in the payment of the interest, 
 and the company cannot afterwards avail itself of a stipulation, 
 
 1 "Warner v. Rising Fawn Iron Co. Mills Plaster Co. (1889), 37 Fed. Eep. 
 (1878), 3 Woods, 514. 286. 
 
 " Union Mut. Life Ins. Co. v. Union ' Warwick Iron Co. v. Morton (1891), 
 
 148 Pa. 72 ; s. o. 23 Atl. Eep. 1065. 
 
§ 396.] FORECLOSURE AND SALE. 403 
 
 whereby the company has the option of paying the interest in 
 scrip in case the net earnings should prove insufficient to meet 
 the same. The fact that the mortgagee made no demand for the 
 payment of the interest on the day when it was due is no bar to 
 a foreclosure suit under such circumstances, for the company 
 should then have paid in money or scrip, or shown itself pre- 
 pared to do so.i 
 
 Article IV. — Powers op Trustees and Bondholders respec- 
 tively IN Regard to commencing Foreclosure Suits. 
 
 § 396. PoTwer of Trustee to foreclose considered w^itli Respect to 
 Request from the Bondholders. — (a) Request from Bondholders, 
 when necessary. — The power of the trustees to take the initiative 
 in foreclosure proceedings for the enforcement of the lien is often 
 restricted by some provision requiring them to. procure the consent 
 of all or a part of the bondholders before they act in their behalf. 
 Such consent is then an indispensable prerequisite to the validity 
 of a decree of foreclosure.^ 
 
 Thus a provision that, after the principal of the bonds has 
 been declared by the trustees to have become due, by reason of 
 a continuance in the default of the interest for a given period, 
 they shall, " upon the written request of the holders of a ma- 
 jority of the said bonds then outstanding, proceed to collect both 
 principal and interest, by foreclosure and sale of the property 
 or otherwise, as therein provided," does not entitle the trustees, 
 at their option, to file a bill for foreclosure. The office of this 
 clause in reference to the written request of a majority of the 
 bondholders is not merely to make the obligation of the trustees 
 imperative, instead of optional, but it is to be construed as 
 securing to such majority the right to control the proceedings 
 of the trustees. Under the former supposition the provisions 
 as to a request by the majority would be nugatory, inasmuch 
 as the debt having become fully due, by the declaration of the 
 trustees, for all the purposes of the mortgage, it would be in 
 the power of a single bondholder to proceed for himself and his 
 associates directly for the same object, and to procure the same 
 relief.^ 
 
 1 Marlori). Texas&Pac. R. Co. (1884), » Chicago, Danville, & Vincennes R. 
 21 Fed. R«p. 383. Co. v. Fosdick (1882), 106 U. S. 47 ; s. c. 
 
 2 Chicago, Danville, & Vincennes R. 12 Am. & Eng. R. R. Cas. 367, Waite and 
 Co. V. Fosdick (1882), 106 U. S. 47 ; S. C. Harlan, JJ., dissenting, who thought that, 
 12 Am. & Eng. R. R. Cas. 367. though the trustees might possibly be 
 
404 RAILWAY BONDS AND MORTGAGES. [CHAP. XIX. 
 
 (b) Request from Bondholders, when not necessary. — On the 
 other hand, no request from the bondholders is necessary to 
 entitle the trustee to begin suit when the mortgage expressly 
 provides that, upon the continuance of the default for a specific 
 period, the principal shall immediately become due and payable, 
 although the article containing this provision also states that 
 the trustee, upon the request of the holders of 75 per cent, of 
 the outstanding bonds, may take possession of and operate the 
 road, and that, upon a like request, it shall be the trustee's duty 
 to foreclose the mortgage, and, after advertisement, sell the 
 property at public auction to the highest bidder for cash. Es- 
 pecially must this be regarded as the. true construction of the 
 provision when the mortgage contains in another place a clause 
 whereby it is stipulated that nothing therein shall be construed to 
 prevent or interfere with the foreclosure of the instrument, the 
 appointment of a receiver, or any other act or proceeding, appro- 
 priate in such casesj in any court of competent jurisdiction. Such 
 a clause, although not imparting any right which does not exist 
 without it, serves to show that the restrictive provisions as to 
 a request by the bondliolders are not intended to apply to fore- 
 closure by bill in equity, but merely to the cumulative remedy 
 specified. The reason for the distinction is obvious. The sum- 
 mary proceedings of taking possession and selling may result in 
 injury which cannot be predicated of proceedings regularly taken 
 in a court of equity. In the former case, arbitrary action on the 
 part of the trustee may be deemed undesirable in view of the 
 interests of the mortgagor and of the bondholders as a class. 
 In the latter, each will certainly find the protection to which it 
 may be entitled at the hands of the court.^ 
 
 restrained from going on witi a suit, if the presentation and default upon the 
 
 the majority of the bondholders should in- coupons was full and was not disputed, 
 
 terfere in an appropriate way, yet when The mortgages specilically provided that, 
 
 they all came in and availed themselves of upon such default continuing for sixty 
 
 what had been done by the ti'ustees, the days after demand, the principal of all the 
 
 corporation itself was in no position to bonds should become immediately due and 
 
 defend because a request had not been payable. The Texas Company and the 
 
 formally made in advance. (See p. 80 of Morgan Company both admitted that the 
 
 opinion.) principal had become due and payable. 
 
 ' Morgan's La. & Texas Railroad & The instruments did not require a written 
 Steamship Co. v. Texas Central R. Co. request for the declaration by the trustee 
 (1891), 137 U. S. 171 ; s. o. 11 Sup. Ct. that the principal was due, or such a dec- 
 Rep. 61 ; 45 Am. & Eng. R. R. Cas. 63, laration and notification to the defaulting 
 distinguishing Chicago, Danville, & Vin- company, in order to make the principal 
 cennes K. Co. v. Fosdick, supra, as fol- mature. That was a consequence of a de- 
 lows : — fault continuing sixty days after demand. 
 
 " In the case at bar the proof of Nor was there any restriction upon the 
 
§§ 397, 398.J FORECLOSURE AND SALE. 405 
 
 § 397. Bondholder estopped by Decree, though no Request made. 
 — Even if a trustee is not entitled to foreclose without the request 
 of the holders of a certain percentage of the bonds, a bondholder 
 is estopped to complain of a decree rendered in a suit brought by 
 the trustee if, with a full knowledge of all the facts, he proves 
 before the master bonds of a value exceeding that percentage.^ 
 
 § 898. Default may be taken Advantage of by a Single Bondholder, 
 unless the Mortgage provides otherwise.^ — This rule is based upon 
 the simple principle that the failure to pay even one of the instal- 
 ments of interest is a breach of the conditions of the trust deed, 
 the declared purpose of which is to secure the payment of the 
 principal as well as the interest.^ 
 
 The right of a coupon-holder to foreclose for default in the pay- 
 ment of interest is not affected by a provision in the mortgage 
 that, if the interest shall remain unpaid for a given period, the 
 principal shall become due, and that the trustees " may, and upon 
 the written request of a majority in amount of the bonds shall, 
 . . . within a reasonable time proceed to foreclose the mortgage." 
 Such a clause is operative as a restriction upon the coupon-holder's 
 right to bring suit, only when it is sought to take advantage of the 
 default as advancing the date when the principal becomes due.* 
 
 The reasons for not denying to individual bondholders the right 
 to foreclose are still stronger where the mortgage expressly provides 
 that they may not levy upon any part of the mortgaged premises.^ 
 This right of the individual bondholder is not however carried 
 to the extent of allowing him to obtain a decree for his exclusive 
 benefit. He is bound to act for all standing in a similar position, 
 and not only to permit other bondholders to intervene, but to see 
 that their rights are protected in the final decree.® 
 
 power to proceed by bill in equity, but, on ' Farmers' Loan & Trust Co. ti. Chicago 
 
 the contrary, any intention to impose such & A. Ry. Co. (1886), 27 Fed. Eep. 152 ; 
 
 a restriction was disowned." Pennsylvania Co. for Ins. on Lives and 
 
 As to the reasons here assigned for Granting Annuities v. Philadelphia & 
 
 placing such special limitation upon the Reading R. Co. (1895), 69 Fed. Eep. 482. 
 
 power of the trustee to resort to the sum- * Beekman v. Hudson River & West 
 
 mary remedies given by the mortgage. Shore R. Co. (1888), 35 Fed. Rep. 3 ; s. c. 
 
 compare the remarks of Brewer, J., in 4 Ry. & Corp. L.J. 220; compare Penn- 
 
 Mercantile Tru.st Co. v. Missouri, K. & T. sylvania Co. for Ins. on Lives and Granting 
 
 R. Co. (1888), 36 Fed. Rep. 221 ; 36 Am. Annuities v. Philadelphia & Reading R. 
 
 & Eng. R. R. Caa. 259. Co. (1895), 69 Fed. Rep. 482. 
 
 ' Credit Co. v. Arkansas Central E. ^ Pennsylvania Co. for Ins. on Lives 
 
 Co. (1882), 15 Fed. Rep. 46. and Granting Annuities v. Philadelphia & 
 
 2 Chicago, Danville, & Vincennes R. Reading R. Co. (1895), 69 Fed. Rep. 482. 
 
 Co. V. Fosdick (1882), 106 U. S. 47 ; s. o. 6 New Orleans & Pacific Ry. Co. v. 
 
 12 Am. & Eng. R. E. Cas. 267, from which Parker (1891), 143 U. S. 42 ; s. c. 12 Sup. 
 
 a quotation was made, supra. Ct. Eep. 364. 
 
406 RAILWAY BONDS AND MORTGAGES, [CHAP. XIX. 
 
 The right of an individual bondholder to begin suit is some- 
 tiines circumscribed by the provisions of the mortgage. A stipula- 
 tion therein that no proceedings shall be taken by any bondholder 
 secured thereby to foreclose independently of the trustee, until 
 after the refusal of the trustee to comply with a requisition first 
 made upon him by a certain percentage of the bondholders, is 
 reasonable and valid. It is not the purpose and effect of such a 
 stipulation to divest the bondholders of their rights to judicial 
 remedies, or to oust the courts of their jurisdiction, but it is 
 merely the imposition of certain conditions upon themselves in, 
 respect to the exercise of that right.^ In this connection compare 
 the " debenture-holder's action " in England. 
 
 So a provision in a mortgage that " no suit, action, or proceed- 
 ing for its foreclosure or for the execution of the trusts or other 
 remedy, shall be brought or instituted except by the trustee 
 after notice upon default, upon request in writing of one-fifth 
 in value of the holders of the bonds and the offer of indemnity 
 against costs," is binding on the bondholders in the absence of 
 fraud or mismanagement on the part of the company .^ 
 
 § 399. A Majority of the Bondholders may sometimes prevent a 
 Foreclosure for Interest at the Instance of some of their Co-bond- 
 holders. — Thus it has been held that where the mortgage secures 
 bonds to the amount of $1,500,000, which had several years to 
 run, and were above par in the market, and it appeared that the 
 foreclosure suit was begun in behalf of holders of only f 79,000 
 worth of the bonds, and was instituted for the purpose of re- 
 organizing the company, and compelling the bondholders to 
 take the sums due to them or accept a lower rate of inter- 
 est, those bondholders who did not wish to foreclose sliould be 
 allowed to purchase the bonds of those who did wish to fore- 
 close, and stop the proceedings upon payment of all costs and 
 expenses.^ 
 
 So a single holder of bonds, providing that the principal shall 
 become due upon default in the payment of interest, cannot recover 
 such principal upon default in the payment of interest, where the 
 scheme of payment provided in the mortgage shows that the in- 
 tention was that the bondholders should look to the mortgaged 
 
 1 Seibert v. Minneapolis & St. Louis ^ McGeorge v. Big Stone Gap Improve- 
 
 Ry. Co. et al. (Grigges, Intervener, 1893), ment Co. (1893). 57 Fed. Kep. 262. 
 52 Minn. 148 ; s. c. 53 N. W. Rep. 1134 ; » Tillinghast v. Troy & Boston R. Co. 
 
 57 Am. & Eng. R. R. Cas. 209 ; Guilford (1888), 48 Hun, 420 ; s. c. 1 N. Y. Suppl. 
 
 V. Minneapolis, S. Ste. M. & A. Ry. Co. 243. 
 (1892), 48 Minn. 560 ; s. c. 51 N. W. Rep. 
 658. 
 
§ 400.] 
 
 FORECLOSUEE AND SALE. 
 
 407 
 
 property for repayment, and that foreclosure should rest in the 
 discretion of the majority of the bondholders.-^ 
 
 Article V. — Effect of Provisions accelerating the Matueitt 
 OF THE Debt upon Default in Payment of Interest. 
 
 § 400. Generally. — A common provision in mortgages is that, 
 on the continuance of a default in the payment of interest for a 
 specified period, the principal shall become due either absolutely 
 or at the option of the trustees. Whether this right to accelerate 
 the time of payment exists is a question which must be decided by 
 the circumstances existing when it was made. It cannot be sup- 
 ported by subsequent occurrences.^ 
 
 The right must also be granted in express terms, for the court 
 cannot engraft a clause for that purpose on the contract.^ 
 
 Thus, if the principal is to become due at the election of the 
 trustees, it must be shown that they have exercised their right of 
 election.* 
 
 1 Batchelder v. Council Grove Water 
 Co. (Superior Ct. N. Y., 1891), 38 N. Y. 
 St. Repr. 529 ; s. c. 14 N. Y. Suppl. 306. 
 
 2 Chicago, Danville, & Viiicennes R. 
 Co. 1). Fosdick (1882), 106 U. S. 47. 
 
 8 MoFadden v. Mays Landing & Egg 
 Harbor City R. Co. (1891), 49 N. J. Eq. 
 176 ; s. 0. 22 Atl. Rep. 932, where it was 
 held that the right of a bondholder to 
 demand the discharge of the principal 
 after a default in the interest could not be 
 inferred from a clause in the mortgage 
 empowering the trustee, after such a de- 
 fault had continued for a stated time, to 
 take possession of the mortgaged property 
 and apply the proceeds to the payment of 
 interest and principal. See also Chicago, 
 Danville, & Vincennes R. Co. v. Fosdick, 
 106 XT. S. 47, where it was denied that a 
 provision whereby, in the event of a fore- 
 closure and sale for non-payment of inter- 
 est, whether on one or more coupons, the 
 property is to be sold as an entirety, and 
 free of the incumbrances of the mortgage, 
 so as to pass all the title, both of mort- 
 gagor and mortgagee, and the proceeds of 
 the sale are to be applied, after payment 
 of overdue interest, to the payment of the 
 principal of the debt, though not yet due, 
 had the effect of making the whole debt 
 due before the stipulated day of payment. 
 
 Nor will a power to declare the principal 
 
 due be inferred from provisions to the 
 effect that (1) the trustee, when in posses- 
 sion, may apply the residue of income on 
 the principal of outstanding bonds ; (2) 
 that he may cause the property to be sold 
 as an entirety ; and (3) that, if he is pro- 
 ceeding to sell the property for default in 
 interest, the mortgagor, at any time before 
 sale is made, may pay all interest then in 
 arrear, costs, expenses, disbursements, and 
 reasonable compensation, and that there- 
 upon the trustee shall discontinue the 
 proceeding and surrender the possession. 
 Grape Creek Coal Co. v. Farmers' Loan & 
 Trust Co. (1894), 63 Fed. Rep. 891 ; s. c. 
 12 C. C. A. 350 ; citing Chicago, Danville, 
 & Vincennes K. Co. v. Fosdick, supra. 
 
 The word " foreclosure " itself, in a re- 
 strictive provision, must be construed with 
 reference to the context. Thus, where the 
 mortgage provides that " foreclosure shall 
 not take place until ninety days after pub- 
 lication of the commencement of proceed- 
 ings to that end shall have been made," 
 such notice applies to the foreclosure itself, 
 not to the bringing of the suit for foreclos- 
 ure. Hodder v. Kentucky & Great Eastern 
 Ry. Co. (1881), 17 Fed. Rep. 793. And 
 the provisions of a clause giving the power 
 must be strictly followed. 
 
 1 Randolph v. Middleton (1875), 26 
 N. J. Eq. 543. 
 
408 RAILWAY BONDS AND MORTGAGES. [CHAP. XIX. 
 
 § 401. Default ■when complete so as to render Principal due. — 
 A provision in a bond that, " in case of the non-payment of any 
 coupon, ... if such default shall continue for six months after 
 maturity and demand of payment, the principal of the bond shall 
 become immediately due and collectible," has the effect of con- 
 stituting a period of contract grace distinct from the period of 
 commercial grace, — not an additional period, but another ; not one 
 to be tacked on to the period of commercial grace, but one to be 
 substituted therefor ; and, like days of commercial grace, to be 
 computed from the day of payment named in the promise to pay. 
 The right to foreclose is complete when the period of contract 
 grace expires. Time being of the essence of the contract, a court 
 of equity will not relieve the party interested in preventing the 
 maturity of the bonds from the consequences of failure to make 
 payment, or tender of payment, of the interest before the end of 
 the six months, especially if there has been a systematic post- 
 ponement of the payment of several previous instalments of interest 
 to the very end of the period.^ 
 
 Where the payment of the principal of a bond secured by a 
 mortgage is postponed for several years conditioned upon the 
 payment of the interest semi-annually, and in default of the pay- 
 ment of the interest for thirty days the principal shall become 
 due at the option of the mortgagee, such mortgagee will be entitled 
 to a decree foreclosing the mortgage, and declaring the whole 
 amount of principal and interest due upon default in any of tlie 
 payments of interest, according to the condition in case of no re- 
 sponsibility for such defaults upon the part of the mortgagee, not- 
 withstanding he waived one previous default by accepting the 
 interest, the non-payment of which had occasioned such default.^ 
 
 Under a trust deed providing that, on default " after demand " 
 for a period of six months, the trustee may sell the property, and 
 that, " in the event of any default in the payment of interest for a 
 period of six months, the whole principal shall become due, there 
 is no default except upon refusal to pay after a demand has been 
 made; and such default must continue for the period named be- 
 fore an action can be commenced to foreclose the mortgage." The 
 word " default," as used in the second provision, is deemed to have 
 the same meaning as in the first provision, viz., a default after 
 demand.^ 
 
 1 Alabama & Georgia Mfg. Co. v. 137. See, on this point, Baldwin Invest- 
 Robinson (1893), 56 Fed. Rep. 690 ; s. 0. ment Co. v. Bailey et al. (1895), 45 Neb. 
 6 C. C. A. 79 ; 13 U. S. App. 359. 580. 
 
 2 Post V. Industrial Laud Development ^ Potomac Mfg. Co. v. Evans (1888), 
 Co. et al. (N. J. Eii., 1896), 34 Atl. Rep. 84 Va. 717 ; s. o. 6 S. E. 2. 
 
§§ 402, 403.] FORECLOSURE AND SALE. 409 
 
 § 402. Rights of Minority Bondholders under Provisions as to 
 Acceleration of Maturity of Debt.^ — Where it is stipulated that 
 the bonds are not to mature for twenty years, and the mortgage 
 also contains a provision that bonds may be considered due by 
 any bondholder on default of interest for a specified period, and 
 tliat the mortgage may then be foreclosed, each bondholder takes 
 his bonds subject to this right of his co-bondholders, and cannot, 
 by electing not to have his own bonds become due, obstruct the 
 action of the majority, who desire to foreclose the mortgage and 
 carry out a scheme of reorganization sanctioned by the legislature.^ 
 
 § 403. Acceleration of Maturity prevented by Words of Statute 
 authorizing Issue of Bonds. — The words of the statute authoriz- 
 ing the issue of the bonds may be such that the maturity of 
 the debt cannot be accelerated even by an express provision in the 
 mortgage, as where it is declared that the bonds are " not to 
 mature at an earlier period than thirty years." Such a declara- 
 tion " differs widely from a mere direction as to the length of 
 time the bonds should run, or the period when they should be 
 made payable," and is to be construed as an express enactment 
 that they shall not mature earlier.^ 
 
 1 Aa to the rights of majority and holders might mature before that time was 
 minoiity bondholders generally, see Chap, in reference to the co-bondholders. And 
 II., supra. while it would impair the obligation of a 
 
 2 Gates V. Boston & New York Air Line contract, if such existed, so far as the cor- 
 E. Co. (1885), 53 Conn. 333, 347 ; s. c. 5 poratiou is concerned, to change the time 
 Atl. Rep. 695. The court said : " When it of maturity, it does not have that effect 
 was provided in the bonds and mortgage when the co-bondholders proceed upon 
 that the bonds were payable in twenty their common and undisputed right to 
 years from date, it was also provided by the cause the bonds to mature, and by foreclos- 
 bond, the mortgage, and the law [under ure to discharge the bonds by taking the 
 which the mortgage was executed], that, property in a legal way." 
 
 under certain circumstances, at the option ' Howell v. Western Railroad Co. 
 
 of the bondholders and the trustee, the (1876), 94 U. S. 463. 
 bonds should mature and the mortgage be Some statutory provisions relating to 
 
 foreclosed before that time, thus preventing foreclosure: Kansas, G. L. 1889, §§ 1248 
 
 the contemplated running for twenty years, and 1276; Maine, R. S. 1893, oh. 51, 
 
 The provision that the bond should con- § 91 : New Jersey, Supp. Rev. 1877 to 
 
 tinue for twenty years an outstanding sub- 1886, p. 845 ; New York, Banks & Bros., 
 
 sisting security, if any existed, was with R. S., 9th ed., p. 1005 ; North Dakota, 
 
 reference to the corporation. The provision Code 1895, § 2947) subs. 11. 
 that the bonds by the action of the bond- 
 
410 EAILWAT BONDS AND MORTGAGES. [CHAP. XX. 
 
 CHAPTER XX. 
 
 REMEDIES OP BONDHOLDERS. — STRICT FORECLOSURE. 
 
 § 404. Generally. 
 405. Remedy not generally applicable in the Case of Eailroad Mortgages. 
 
 § 404. Generally. — A decree for strict foreclosure provides for 
 payment by a day named, or, in default thereof, that the con- 
 veyance shall become absolute and the equity of redemption 
 foreclosed and barred. To what extent the remedy of strict fore- 
 closure may be pursued is now very generally regulated by statute. 
 Where it is allowed, it is confined to a very limited class of 
 cases,^ and these perhaps occur less frequently where railroad 
 mortgages are in question than any others. 
 
 Where the requisites of a valid strict foreclosure are a matter 
 of statutory regulation, the directions of the enactment must be 
 strictly complied with. Thus, if it is provided that foreclosure 
 shall be by peaceable entry, one year's possession, and publica- 
 tion of notice, actual notice is not sufficient, but the notice must 
 be actually published.^ 
 
 § 405. Remedy not generally suitable in the Case of Railroad Mort- 
 gages. — The great objection to granting a strict foreclosure of 
 a railroad mortgage is, that it must commonly result in making 
 a large number of persons virtual co-tenants of the property, and 
 probably lead to a renewal of the very troubles which have led 
 to the institution of the foreclosure proceedings. 
 
 In Ketchum v. Duncan^ the court said: "That a sale was 
 properly directed here rather than a strict foreclosure is quite 
 evident. It was the object of all the consolidated bills to procure 
 a sale, and if there was not assent by all parties, there was at 
 least no objection to it. A strict foreclosure would not have 
 converted the property into money. It would, in fact, have 
 
 1 A useful summary of cases will be ^ Ashuelot R. Co. v. Elliot (1873), 52 
 found in the note appended to Clark v. N. H. 387. 
 Eeyburn, 75 U. S. 318, in the Lawyers' 8 96 U. S. 659, 671 (1877). 
 
 Co-operative Edition (Bk. 19, p. 354). 
 See further in 2 Mo. West. Jurist, 643. 
 
§ iOS.] REMEDIES OP BONDHOLDERS, ETC. 411 
 
 required tlie creditors to advance more funds to pay the costs 
 and expenses. This no bondholder could justly require from his 
 associates. Besides, a strict foreclosure could not be a winding 
 up of the matter. It would leave an undivided beneficial interest 
 in an unmanageable property in the hands of a large number of 
 persons, who are very likely to disagree in regard to its use." 
 It was then shown that the same objections were applicable to 
 a purchase by the trustee, the opinion of the court being summed 
 up thus : " It is too plain for any further comment that neither 
 a strict foreclosure, nor a purchase by a trustee to buy, would 
 have been for the interest of any bondholder." 
 
 So also in Sage v. Central R. Co.,^ although the specific relief 
 asked for was a strict foreclosure, a decree for a sale was held 
 to be unquestionably appropriate under the prayer for general 
 relief, and the reasons for making such a decree in the given case 
 were thus explained : " A strict foreclosure was undesirable 
 for all parties. Not only would it have cut off entirely the bond- 
 holders secured by the second and third mortgages, whose in- 
 terests were before the court, and which it was bound to protect 
 as far as possible, but it would have made a large number of 
 bondholders under the first mortgage practically tenants in 
 common of the railroad property. The inconveniences of such 
 a result are obvious enough. A sale therefore was for the in- 
 terest of all, and to that no one objected. Indeed it was con- 
 templated as possible in each of the three mortgages. The 
 bondholders, through their trustee, had made arrangements in 
 view of such a contingency. They had agreed what should be 
 the effect and consequence of a judicial sale." It was therefore 
 held that, as the deed of trust containing this agreement had 
 been made part, of the bill, it was not going outside of the case 
 to enforce it. 
 
 1 99 U. S. 334 (1878). 
 
412 
 
 RAILWAY BONDS AND MORTGAGES. 
 
 [chap. XXI. 
 
 CHAPTER XXL 
 
 JURISDICTION. 
 
 Art. I. — How PAK THE Prior Conteol of 
 THE Subject-matter invests 
 a Court with Exclusive 
 Jurisdiction, and Jurisdic- 
 tion GENERALLY. 
 § 406. The General Rule as to the Con- 
 trol of Litigation by Courts of 
 Concurrent Jurisdiction. 
 
 407. Application of General Rule to 
 
 Process from Different Courts. 
 
 408. Possession of Receivers not in- 
 
 terfered with. 
 
 409. Jurisdiction of Court exclusive 
 
 as to Proceedings taken to set 
 aside Decrees or Judgments 
 rendered by it. 
 
 410. Exclusiveuess of Jurisdiction in 
 
 Respect to the Subject-matter 
 of Foreclosure Suits. 
 
 411. Suit in Co-ordinate Court permis- 
 
 sible where Possession of Pirst 
 Court is not interfered with. 
 
 412. Second Court may pass upon 
 
 Questions not raised in First 
 Suit. 
 
 413. Jurisdiction as to Decrees ob- 
 
 tained by Fraud in other 
 Courts. 
 
 414. Citizenship of Parties to Ancil- 
 
 lary Proceedings is not ma- 
 terial. 
 
 415. Exclusiveness of Jurisdiction, 
 
 how far affected by Tenitorial 
 Limits. 
 
 §416. 
 
 417. 
 418. 
 
 419. 
 
 420. 
 
 421. 
 Art. II. 
 
 1422. 
 423. 
 
 424. 
 
 425. 
 426. 
 427. 
 
 Rule that Equity acts in Per- 
 sonam applied so as to give 
 Extra-territorial Jurisdiction. 
 
 When Jurisdiction attaches. 
 
 Jurisdiction not lost by Dismissal 
 of Bill on Demurrer. 
 
 What Possession is necessary to 
 give a Court Control of the lies 
 as against a, Co-ordinate Tri- 
 bunal. 
 
 Who may assert the Exclusive- 
 ness of the Jurisdiction of the 
 Court which first obtains 
 Control. 
 
 Procedure and Practice. 
 — To what Extent the Pen- 
 dency of a Suit in one 
 Court is a Bar to a Suit 
 IN another. 
 
 Introductory. 
 
 Suit not barred by Pendency of 
 Suit in Foreign Jurisdiction. 
 
 Plea of Lis FcTidens not sus- 
 tainable unless there is an 
 Identity between the two 
 Suits. 
 
 Second Suit not barred if Parties 
 are different. 
 
 Prior Suit not barred where 
 Different Relief is asked for. 
 
 Second Suit allowed to proceed, 
 because best calculated to lead 
 to Decision on Merits. 
 
 Article I. — How far the prior Control of the Subject- 
 matter INVESTS A Court with Exclusive Jurisdiction op a 
 Suit, and Jurisdiction generally.^ 
 
 § 406. The General Rule as to Control of Litigation by Courts of 
 Concurrent Jurisdiction. — It is stated in its most comprehensive 
 
 1 On jurisdiction to hear appeal, see on jurisdiction to decree sale of propei-ty in 
 Chap. XXXVIII. ; on binding effect of de- another State, see Chap. XXXV. (sales) ; 
 crees and judgments, see Chap. XXXIII. ; as to the exclusive jurisdiction of courts 
 
§ 406.] JURISDICTION. 413 
 
 form by Justice Grier in the following passage of his opinion in 
 Peck V. Jenness ; ^ " It is a doctrine of law too long established 
 to require a citation of authorities, that, where a court has juris- 
 diction, it has a right to decide every question which occurs in 
 the cause, and whether its decision be correct or otherwise, its judg- 
 ment, till reversed, is regarded as binding in every other court ; 
 and that where the jurisdiction of a court, and the right of a 
 plaintiff to prosecute his suit in it, have once attached, that right 
 cannot be arrested or taken away by proceedings in another court." 
 The rule is, therefore, universally applied that, in all cases in 
 which the jurisdiction of Federal and State courts is concurrent, 
 neither can impede or arrest any action which that other may 
 take within tlie limits of its jurisdiction.^ 
 
 This rule prevails even though there are irregularities and defect 
 in the proceedings of the sister court which render them void.^ 
 
 Wliere a citizen of another State brings an action in a federal 
 court in the State of which a railroad company is a citizen 
 against such company to enforce an express lien upon the accrued 
 earnings and income, without seeking to disturb the prior liens, 
 and in advance of an application for foreclosure of a mortgage, 
 the court will have jurisdiction to take possession of the property 
 of the company and appoint a receiver for the same.* 
 
 And the court, having acquired jurisdiction of the property and 
 appointed receivers with the express consent of the railroad com- 
 pany, does not lose jurisdiction when other persons interested 
 therein come in and are made parties, even though some of them 
 be citizens of the same State with those whose interests in the 
 same property are adverse to the interveners ; for when property 
 is in the actual possession of the federal court this draws to it 
 the right to decide upon conflicting claims as to its ultimate pos- 
 session and control.^ 
 
 appointing a receiver, see Chap. XXVI.; • Lewis v. The Ship Orpheus (1858), 
 
 on the extra-territorial jurisdiction of re- 3 Ware, 143. 
 
 ceivers, see Chap. XXVI. * Park w. New York, Lake Erie, & West- 
 
 1 7 How. 612 (1849). ern R. Co. et al. (1895), 70 Fed. Eep, 641. 
 
 2 Amy V. Supervisors (1870), 11 Wall. ^ Pavk v. New York, Lake Erie, & 
 136 ; Freeman v. Howe (1860), 24 How. Western R. Co. et al. (1895), 70 Fed. Rep. 
 450; Taylor v. Carryl (1857), 20 How. 641, upon authority of Morgan's La. & 
 583 ; Peel; v. Jenue.ss (1849), 7 How. 612, Tex. Ry.& Steamship Co. v. Texas Central 
 625 ; Hagan v. Lucas (1836), 10 Pet. 400; Ry. Co. (1890), 137 U. S. 171, 201 ; s. c. 
 Pullman v. Oshorne (1854), 17 How. 471; 11 Sup. Ct. Rep. 61; Freeman v. Howe 
 Parker v. Aldridge (1881), 8 Fed. Eep. (1860), 24 How. 450, 466 ; In re Tyler 
 220, 223; Alabama & Chattanooga R. Co. (1893), 149 U. S. 164, 181; s. c. 13 Sup. 
 V. Jones (1875), 7 N. B. R. 169 ; Bruce r. Ct. Rep. 785; Rouse v. Letcher (1895), 
 Manchester & Keene Railroad (1884), 19 156 U. S. 49 ; s. c. 15 Sup. Ct. Eep. 266 ; 
 Fed. Rep. 342, 344. The last case cites a Central Trust Co. v. Bridges (1893), 67 
 large number of authorities. Fed. Rep. 753 ; F. c. 6 C. C. A. 529 ; 
 
414 RAILWAY BONDS AND MOETGAGES. [CHAP. XXI. 
 
 And the court may in such a case retain the jurisdiction which 
 it has acquired to dispose of the claims of all parties appearing, 
 whatever their citizenship.^ 
 
 Nor will the jurisdiction of the court be arrested by the fact 
 that, after the action is begun by service of summons, the defend- 
 ant does not continue to resist the demands of the complain ant.^ 
 
 Where there has been a default in interest on the bonds of a 
 railroad company which has mortgaged its property lying in two 
 States, and the required majority in value of the bondholders 
 have requested the trustee to foreclose, and the trustee has brought 
 an action in the State court of one of the States, which the com- 
 pany has had enjoined in that court, the bondholders may request 
 the trustee to bring an action in the other State, and if he fails to 
 comply, may bring it in their own names for the benefit of all 
 others interested. And where the parties in interest, after the 
 filing of such bill, have appeared and answered, the court will 
 have jurisdiction to foreclose the mortgage upon all the property 
 in the two States.^ 
 
 § 4G7. Application of General Rule to Process from Different Courts. 
 — That property seized under an execution by the officer of one 
 court cannot be subjected to process issuing out of another court 
 has always been a well-recognized doctrine ; but its precise scope 
 was perhaps not thoroughly understood before the decision in 
 Freeman v. Howe, which elicited a noteworthy conflict of opinion 
 between two courts of the very highest authority.* 
 
 In that case a United States marshal attached certain rolling- 
 stock to satisfy a judgment recovered upon the bonds of a railroad 
 company, and the trustees thereupon replevied the property in a 
 State court. This action was upheld by the Supreme Court of 
 Massachusetts on the ground that the case in which the judgment 
 had been recovered involved only the question of the contract 
 liability of the railroad company, and the decision of such a mat- 
 ter would not be affected by the possession of the rolling-stock by 
 
 Farmers' Loan & Trust Co. v. Houston & U. S. 444 ; Massie v. Watts (1810), 6 
 
 Texas Central R. Co. (1890), 44 Fed. Eep. Cranch, 148; Bradley w. Chester Valley 
 
 115. R. Co. (1863), 36 Pa. St. 141 ; Burnley 
 
 1 Farmers' Loan & Trust Co. v. New v. Stevenson (1873), 24 Ohio St. 474; 
 York, Lake Erie, & Western R. Co. (1895), McElrath v. Pittsburg & Steuhenville E. 
 70 Fed. Eep. 641. Co. (1867), 55 Pa. St. 189, 208. 
 
 2 Park V. New York, Lake Erie, & * 24 How. 450 ; s. c. 14 Gray, 566, s>/5 
 Western R. Co. et ah (1895), 70 Fed. nom. Howe v. Feeeman (1860). In Buck 
 Rep. 641. V. Colbath (1865), 3 Wall. 334, it was ad- 
 
 8 Woodbury v. Allegheny & K. R. Co. mitted that " this decision took the pro- 
 e< al. (1895), 72 Fed. Eep. 371, upon fession by surprise." 
 authority of MuUer v. Dows (1876), 94 
 
§§ 408, 409.] JURISDICTION. 415 
 
 the marshal. That property, it was argued, could not be regarded 
 as having been made subject to the jurisdiction of the federal 
 court by a process which was merely a command to the marshal 
 to seize the property of the railroad company, and not a warrant 
 to seize these particular cars. The question of the ownership of 
 the cars was an entirely collateral question, which the federal 
 court did not decide in the action pending before it, and if they 
 were really the property of the trustees under the " after-acquired 
 property " clause of the mortgage, they were not taken in pursu- 
 ance of the precept issued to the marshal. The Supreme Court 
 of the United States, to which the case was removed on a writ of 
 error, declined to accept this view, and held that the interference 
 with the possession of the marshal was entirely irregular. The 
 question as to which authority was to prevail under the given cir- 
 cumstances did not, as was declared, depend upon the rights of 
 the respective parties to the property seized, but upon the question 
 which jurisdiction had first attached by the seizure and custody 
 of the property under its process.^ 
 
 The converse of the rule applied in Freeman v. Howe also holds, 
 and property levied upon by the sheriff of a State court cannot be 
 taken in execution by a United States marshal.^ 
 
 Nor can a federal court, at the instance of the mortgagees, 
 enjoin a sheriff from selling the railroad's property under an 
 execution issued from a State court.^ 
 
 § 408. Possession of Receiver not interfered with by other Courts. 
 — That property lawfully in the hands of a receiver duly appointed 
 by a court of competent jurisdiction cannot be affected by litiga- 
 tion in a co-ordinate court follows directly from the same prin- 
 ciple which exempts property in the hands of a sheriff from 
 external interference. This rule and its qualifications will be 
 discussed in a later chapter. 
 
 § 409. Jurisdiction of Court exclusive as to Proceedings taken to 
 set aside or enforce Decrees or Judgments rendered by it. — The im- 
 munity from interference to which the court which first obtains 
 control of the res is entitled extends also to the proceedings taken 
 to enforce judgments. Thus, if a mandamus is obtained from a 
 federal court to compel a town to pay a judgment recovered 
 against it by a holder of its bonds, issued to aid a railroad, the 
 
 1 The laws of Scotland were held to (1891), 1 Ch. Div. 536; affirmed (1892), 
 control in determining the question of 1 Ch. (C. A.) 219. 
 
 priorities to calls on stock held there, in a '^ Hagan v. Lncaa (1836), 10 Pet. 399; 
 winding-up proceeding in England. In re Taylor v. Carry! (1857), 20 How. 583. 
 Queensland Mercantile Agency Company ' Buggies v. Simonton (1872), 3 Biss. 
 
 325. 
 
416 EAILWAT BONDS AND MOETGAGES. [CHAP. XXI. 
 
 fact that a State court has issued an injunction prohibiting 
 the payment of the judgment is no excuse for disobedience to 
 the writ/ 
 
 So also a suit to set aside a foreclosure is so far auxiliary to the 
 original suit that it can only be instituted in the court where the 
 decree was rendered ^ (unless the application is made on the ground 
 of fraud ; see post). 
 
 This rule that a suit to set aside a foreclosure decree on the 
 ground of fraud is an ancillary suit so far as the jurisdiction of 
 the federal courts is concerned will prevent an appeal to the 
 Supreme Court of the United States under the act constituting 
 the Circuit Court of Appeals in any case in which the jurisdiction 
 is entirely dependent upon the opposite parties to the suit or con- 
 troversy being aliens and citizens of the United States, or citizens 
 of different States.^ 
 
 A suit by a judgment creditor, brought for the purpose of ascer- 
 taining the rank of the lien which he holds, is also so far ancillary 
 to a foreclosure suit involving the same property that jurisdiction 
 to hear it need not be acquired by any fresh service of process 
 upon the parties already in court.* 
 
 But a creditor's bill in aid of an execution issuing out of a 
 State court may be filed in a federal court.^ 
 
 § 410. Bxclusiveness of Jurisdiction in Respect to Subject-matter 
 of Foreclosure Suits.^ — The jurisdiction acquired by a bill to fore- 
 close a mortgage on the defendant's property extends to the whole 
 subject-matter of the litigation, and invests the court with au- 
 thority to hear and determine all collateral issues that may be 
 involved in the controversy.^ 
 
 Thus a bill which requires a construction of the orders and 
 
 1 Eiggs V. Johnson County (1867), 6 How. 253, and Barber v. Barber (1868), 
 Wall. 166, 184 ; Supervisors v, Durrant 21 How. 582, in which a prior decree had 
 
 1869), 9 Wall. 415, 417. been rendered in another State. The 
 
 2 Pacific R. Co. V, Missouri Pacific R. court deemed this circumstance of no im- 
 Co. (1880), 3 Fed. Rep. 772. Such a suit, portance, referring to Ogilvie v. Knox Ins. 
 however, partakes so far of the nature of Co. (1859), 22 How. 380; s. c. 2 Black, 
 an original bill, that the parties cannot be 539, where a bill filed under these cir- 
 brought into court in any other way than cumstances was sustained, though no 
 by subpoena. Ibid. question of jurisdiction was actually 
 
 ' Carey v. Houston & Texas Central raised. 
 Ky. Co. (1896), 161 U. S. 115. ^ As to cases in which a receiver has 
 
 * Hays V. Alexandria & Washington R. been appointed in a foreclosure suit, see 
 
 Co. (1882), 4 Hughes, 331. Chap. XXVI., post. 
 
 6 Pullan». City of New Albany (1869), ' Kennedy v. I., C. & L. R. Co. (1880), 
 
 4 Biss. 365, 368, decided mainly on the 3 Fed. Rep. 97, 105, following Davis v. 
 
 authority of Shields v. Thomas (1855), 18 Gray (1872), 16 Wall. 203. 
 
§ 410.] JURISDICTION. .417 
 
 decrees made in a foreclosure suit is properly brought in the court 
 where that suit was instituted.^ 
 
 So also a decree of foreclosure rendered in a State court and 
 still in full force is a bar to a suit in a federal court by a share- 
 holder who seeks, among other things, the removal of the trustees. 
 The petitioner has an ample and complete remedy for his alleged 
 grievances in the State court, and there is no occasion for his 
 application to the federal court.^ 
 
 A corporation which is the principal defendant in a foreclosure 
 suit cannot invoke by suit another court to restrain such action, 
 but is bound to plead any facts, — such, for instance, as that the 
 bonds secured by the mortgage have been fraudulently issued, or 
 without consideration by answer or cross-complaint in the fore- 
 closure suit. If it should not prosecute its defence, or fails to 
 answer, its stockholders may intervene, cause all necessary parties 
 to be brought in, and show all the facts which may be essential to 
 a complete defence.^ 
 
 So where a State court has decreed the foreclosure of a mort- 
 gage and the sale has taken place, a federal court will decline to 
 entertain a bill to place the trustees in possession, although such 
 bill was filed before the sale, and the sale when made was de- 
 clared to be subject to the result of the suit in the federal court.* 
 
 So a federal court will refuse to enforce a judgment upon 
 the property of a railroad company which a State court has 
 ordered to be sold in foreclosure proceedings instituted by the 
 bondholders.^ 
 
 So where a foreclosure suit in a federal court is compromised, 
 and a scheme of reorganization adopted and ratified by a decree 
 of the court, the trustee of the property appointed to carry out 
 the sclieme cannot lawfully proceed to foreclose in a State court 
 the mortgage which was the subject of the first suit. A sale of the 
 property made by the State court under such circumstances is an 
 unauthorized interference with the control of the federal court; 
 and as the jui'isdiction of the latter is not divested thereby, the 
 holder of a bond secured by a subsequent mortgage is entitled to 
 its interposition to protect his rights, and to demand an account 
 from the trustees.® 
 
 1 Minnesota Co. v. St. Paul Co. (1864), * Bruce v. Manchester & Keene Rail- 
 2 Wall. 609. road et al. (1884), 19 Fed. Eep. 342. 
 
 2 Graham v. Boston, Hartford, & Erie ^ j-qx v. Hempfield Railroad Co. 
 K. Co. (1883), 14 Fed. Rep. 753. (1870), 2 Abb. U. S. 151. 
 
 8 Waymine et al. v. Sau Francisco & ° Bill v. New Albany, etc. R. Co. 
 S. M. Rv. Co. et al. (Cal.), 75 Fed. Rep. (1870), 2 Biss. 390 ; s. c. 3 Fed. Cas. 379, 
 1086 (1896). Case No. 1407. 
 
 27 
 
418 EAILWAT BONDS AND MORTGAGES. [CHAP. XXI. 
 
 It is sometimes desirable, for the sake of simplifying the litiga- 
 tion, that a co-ordinate court should refrain from exercising its 
 technical rights. Thus where there is a general mortgage on a 
 composite system of roads situate in different States, and various 
 underlying mortgages on the several divisions, it is advisable, for 
 the sake of avoiding unseemly collisions and conflicts of courts, 
 that any suit instituted to foreclose divisional mortgages, after the 
 general mortgage is already under foreclosure in a federal court, 
 should be carried on in the 'federal courts of the various districts, 
 so that if it should be necessary to resort to an appellate tribunal 
 there will be but one to pass upon the matters in dispute.^ 
 
 § 411. Suit in Co-ordinate Court permissible 'where Possession of 
 First Court is not interfered with. — As the exclusiveness of the 
 jurisdiction of the first court in this class of cases is predicated on 
 the ground that suits in another court would interfere with its 
 control of the subject-matter of the litigation, it necessarily fol- 
 lows that suits which do not interfere with its possession may be 
 prosecuted elsewhere. " To exclude other courts, the first court 
 should be so administering the property, by virtue of its preroga- 
 tives and functions as a court, as to draw the control of the prop- 
 erty and its avails to the court as such, and to make the decision 
 of questions respecting it necessary in order to award it to the 
 rightful claimant and put it out of court." ^ 
 
 The mere fact that the effect of the judgment or decree of one 
 court may be to modify or control the suit in another court, and 
 to limit or guide its decision, is no reason why the two courts 
 should not take jurisdiction of different actions respecting or 
 growing out of the same subject-matter.^ 
 
 A federal court, therefore, will take jurisdiction of a case in- 
 volving the same subject-matter as a suit already before a State 
 court of concurrent jurisdiction, if a full disposition of the case 
 can be made without disturbing the possession of the latter 
 court.* 
 
 Thus the pendency of a general creditor's bill in a State court, 
 accompanied by the usual orders of injunction, but not by the 
 appointment of a receiver, will not prevent a creditor who is not 
 a party to the bill from suing in a federal court to recover the 
 
 1 Central Trust Co. v. Wabash, St. ' Harrison Wire Co. v. Wheeler (1882), 
 Louis, & Pao. Ry. Co. (1886), 26 Fed. 11 Fed. Rep. 206. 
 
 Rep. 74, 77. * Andrews v. Smith (1881), 5 Fed. Rep. 
 
 2 Andrews v. Smith (1881), 5 Fed. 833; s. c. 19 Blatch. 100; Logan v. 
 Rep. 833, per Wheeler, D. J. Greenlaw (1882), 12 Fed. Rep. 10, 18 ; 
 
 Buck V. Colbath, 3 Wall. 342. 
 
§§ 412, 413.] JURISDICTION. 419 
 
 amount due on certain coupons. Especially is this the case where 
 such creditor merely seeks to reduce his claim to judgment, and 
 not to subject the property of the company to its payment.^ 
 
 So a suit by a bondholder for foreclosure and the removal of 
 the trustees will not be dismissed by a federal court for the reason 
 that one of them has been appointed receiver in a foreclosure suit 
 in a State court, though it will do nothing to interfere with the 
 receiver's possession. The fact that the federal court cannot settle 
 the receiver's accounts in the suit before it will not prevent it 
 from proceeding to a decree of foreclosure.^ 
 
 So a foreclosure suit may be instituted against the mortgagor 
 after the property has been surrendered to the trustees in pursu- 
 ance of the mortgage, and has not since been in the possession of 
 the mortgagor or of any one claiming under him by any title sub- 
 sequently acquired.^ 
 
 In an action by stockholders or officers of a corporation in one 
 State against officers in possession disputing the right of the 
 latter to hold their offices, the court has no jurisdiction to enjoin 
 the trustee of bondholders from proceeding to foreclose the mort- 
 gage given as security when the terms of the mortgage justify 
 such foreclosure in the courts of the State where the property 
 lies.* 
 
 (The circumstances under which suits respecting property 
 which is being administered by a receiver may be entertained by 
 a co-ordinate court are discussed in Chap. XXVII., post.^ 
 
 § 412. Second Court may pass upon Questions not raised in First 
 Suit. — A second exception to the general rule is, that a federal 
 court, although it will not interfere with the possession of a State 
 court, may properly pass upon questions not raised in the latter, 
 even though the parties and subject-matter are identical in the 
 second suit.^ 
 
 Thus a federal court will inquire into the nature of the pos- 
 session of the State court, and if a trust appears, which was not 
 involved in the first suit, will assume the control of it.^ 
 
 § 413. Jurisdiction as to Decrees obtained by Fraud in other 
 Courts. — A third exception to the general rule is recognized in 
 cases where a party applies to a court alleging that a decree 
 
 1 Parsons v. Greenville & Columbia R. 32 S. "W. Eep. 599 (1896) ; Same v. Same 
 Co. (1876), 1 Hughes, 279. (Ky.), 33 S. W. Rep. 408 (1895). 
 
 2 Mercantile Trust Co. v. Lamoille ^ Alabama & Chattanooga R. Co. v. 
 Valley R, Co. (1879), 16 Blatch. 324. Jones (1875), 7 N. B. R. 169. 
 
 ' Brooks V. Vermont Central R. Co. 6 Watson v. Jones (1871), 13 Wall. 
 
 (1878), 14 Blatch. 463. 679, 718. 
 
 * Schmidt etal. v. Mitchell et al. (Ky.), 
 
420 RAILWAY BONDS AND MOETGAGES. [CHAP. XXI. 
 
 obtained in a court of concurrent jurisdiction is tainted with 
 fraud. This principle has been formally stated in the following 
 words : " Wherever, in a direct proceeding, there are parties 
 before a court other than that in which a decree has been ren- 
 dered, and it is charged that the decree was fraudulent, the court 
 can entertain jurisdiction, and, if the fraud is proved, can prevent 
 all parties who are before it from enforcing, and, of course, from 
 obtaining, any advantage from a sale made thereunder. Tlie 
 court acts upon the decree and sale through the parties who are 
 before it, not directly upon the decree in the .other court, but 
 adjudges that, notwithstanding the decree the parties who ob- 
 tained it, and those before the court who claim property by virtue 
 of a sale under it, with knowledge of the fraud, shall not appro- 
 priate to their use the property thus acquired. To this extent a 
 federal court can aifect the operation of a decree of a State court, 
 and it cannot be contended that, in such a case, the federal court 
 has no jurisdiction to interfere with, set aside, or annul the decree 
 of the State court, for the reason that the latter belongs to 
 another sovereignty." ^ 
 
 A federal court is not precluded from opening up the decree 
 of a State court for fraud, merely because the State legislature 
 has enacted that, if the parties interested in the property omit, 
 after due notice given, to present their objections to the sale on 
 the ground of informalities in the proceedings, the judgment of 
 confirmation shall be conclusive on all the world.^ 
 
 It has, however, been held that this power of a federal court 
 to set aside or revise, on the ground of fraud, a final decree ren- 
 dered in a State court is limited t6 those cases in which the in- 
 jured party has had no opportunity to apply to the State court.^ 
 
 Courts should refrain from interfering with the decrees of 
 other courts, except when such interference is plainly necessary ; 
 and this rule is especially applicable where the party applying to 
 the second court for relief has already sought the interposition 
 of the first court, and that court has passed on his demand 
 adversely.* 
 
 § 414. Citizenship of Parties to Ancillary Proceedings is not ma- 
 terial. — If the original suit was properly brought in a federal 
 court, the fact that litigation growing out of and dependent upon 
 
 1 Sahlgaard v. Kennedy (1880), 2 Fed. » Graham v. Boston, Hartford, & Erie 
 Kep. 295. E. Co. (1883), 14 Fed. Rep. 753. 
 
 2 Jackson v. Ludeling (1874), 21 Wall. * Sahlgaard v. Kennedy (1882), 13 Fed. 
 616, construing the Louisiana statute in Eep. 242. 
 
 regard to homologating a sheriff's sale. 
 
§ 414.J 
 
 JUEISDICTION. 
 
 421 
 
 this suit is between citizens of the same State does not affect the 
 right of the court to hare exclusive jurisdiction of the ancillary 
 proceedings. Thus, when a federal court has taken possession 
 of property on the original bill, its jurisdiction in passing upon a 
 cross-bill filed for complete relief in disposing of such property 
 does not depend on the citizenship of the parties.^ 
 
 The same principle is applicable to bills filed on the equity side 
 of federal courts to restrain or regulate judgments at law, and 
 thereby prevent injustice or an inequitable advantage under 
 mesne or final process;^ to suits to impeach, on the ground of 
 fraud, a decree made in a former suit ; ^ to subsequent foreclosure 
 suits affecting the same property.* 
 
 So, also, where a federal court has taken control of a fore- 
 closure suit, it may, without regard to the citizenship of the 
 petitioners, assume jurisdiction of a suit to obtain a declaration 
 of what was intended by the decrees and orders made in the 
 former suit.* 
 
 1 In re Tyler (1893), 149 U. S. 164, 
 181 ; s. c. 13 Sup. Ct. Kep. 785 ; Morgan's 
 La. & Tex. R. & St. Ship Co. v. Texas 
 Central R. Co. (1890), 137 U. S. 171, 201 ; 
 s. c. 11 Sup. Ct. Rep. 61 ; First Nat. Bk. 
 of Salem ». Salem Capital Flouring Mills 
 Co. (1867), 12Sawy. 485 ; s. c. 31 Fed. 
 Rep. 580 ; Railroad Companies v. Cham- 
 berlain, 6 Wall. 748. 
 
 2 Krippendorf v. Hyde (1883), 110 
 U. S. 276 ; Freeman v. Howe (1860), 24 
 How. 450. One reason advanced in the 
 latter case (see above) for upholding the 
 validity of the proceedings in the State 
 court was that, as the parties were both 
 citizens of Massachusetts, a different doc- 
 trine would leave them without remedy. 
 This objection was shown to be futile, 
 owing to the existence of the rule stated in 
 the text. 
 
 » Foster v. Mansfield, C. & L. M. E. Co. 
 (1888), 36 Fed. Rep. 627 ; Osborn v. 
 Michigan Air Line R. Co. (1879), 2 Flip. 
 503. 
 
 * Carey v. Houston & Texas Central R. 
 Co. (1892), 52 Fed. Eep. 671 ; s. c. 45 
 Fed. Rep. 438 (1891). 
 
 6 Minnesota Co. v. St. Paul Co. (1864), 
 2 Wall. 609. 
 
 In this case the ancillary issue was 
 raised by what was called a " supplemen- 
 tal bill" filed by one of the defendants. 
 It was objected that this was a violation 
 
 of the rules of equity pleading, and that 
 the subject-matter of the suit and the new 
 parties made by it were such as could not 
 properly be brought before the court by a 
 bill of that description. The court, how- 
 ever, said : " We think that the question 
 is not whether the proceeding is supple- 
 mental and ancillary, or is independent 
 and original, in the sense of the rules of 
 equity pleading, but whether it is supple- 
 mental and ancillary, or is to be considered 
 entirely new and original, in the sense 
 which this court has sanctioned with ref- 
 erence to the line which divides the juris- 
 diction of the federal court from that of 
 the State courts. No one, for instance, 
 would hesitate to say that, according to 
 the English chancery practice, a bill to 
 enjoin a judgment at law is an original bill 
 in the chancery sense of the word. Yet 
 this court has decided many times that, 
 when a bill is filed in the Circuit Court to 
 enjoin a judgment of that court, it is not 
 to be considered as an original bill, but as 
 a continuation of the proceeding at law ; 
 so much so that the court will proceed in 
 the injunction suit without actual service 
 of subpoena on the defendant, and though 
 he be a citizen of another State, if he 
 were a party to the judgment at law. 
 The case before us is analogous. An un- 
 just advantage has been obtained by one 
 party over another by a perversion and 
 
422 RAILWAY BONDS AND MORTGAGES. [CHAP. 2X1. 
 
 In an ancillary suit a federal court has power to bring in, by 
 compulsory process, any person claiming an interest in the prop- 
 erty whose presence is necessary to the relief sought by the 
 complainants, although such person does not himself seek the 
 establishment of his interest in the suit, and his citizenship is 
 such that it would defeat the jurisdiction of the court if the pro- 
 ceeding were an original one.^ 
 
 § 415. Exclusiveness of Jurisdiction, how far affected by Terri- 
 torial Limits. — After a federal court in any one of tlie several 
 districts over which a mortgaged railroad extends acquires juris- 
 diction of the property by the institution of a foreclosure suit, 
 subsequent proceedings in another of the districts to subject the 
 property for a different claim cannot oust the first court of its 
 jurisdiction to proceed to a sale.^ 
 
 If, however, it is a question of the jurisdiction of a State court 
 over tliat part of a railroad which lies in another State, the exclu- 
 siveness of its control of litigation affecting that part depends 
 upon whether the legislature of the latter State has assented to 
 its exercising jurisdiction beyond the limits of the sovereignty 
 from whom it derives its powers. Thus, although the consolida- 
 tion of two railroad companies in adjoining States may have 
 resulted in extinguishing the existence of one of the companies, 
 the courts of the State to which the other company belongs are 
 not necessarily invested with authority to entertain a jurisdiction 
 in rem, as respects the property of the extinct company, unless 
 the legislature has expressly so declared. The power of those 
 courts to decree a sale of the property of the extinct company 
 cannot be inferred merely from the fact that the consolidated 
 company has been authorized to exercise its franchises within the 
 limits of the other State.^ 
 
 § 416. Rule that Equity acts in Personam applied so as to give 
 Extra-territorial Jurisdiction. — The rule that equity acts primarily 
 in personam and not merely in rem is applied for the purpose of 
 enabling a court of chancery to entertain jurisdiction of a bill 
 for the foreclosure of a mortgage on property which lies outside 
 as well as within the State where the suit is brought.* 
 
 abuse of the orders of the court, and the i Compton v. Jesup (1895), 68 Fed. 
 
 party injured comes now to the same court Eep. 263. 
 
 to have this abuse corrected, and to carry ^ Blackburn v. Selma, Marion, & Mem- 
 
 into effect the real intention and decree of phis E. Co. (1879), 2 Flip. 625. 
 
 the court, and that while the property ^ Eaton & Hamilton R. Oo. v. Hunt 
 
 which is the subject of contest is still et al. (1863), 20 Ind. 457. 
 
 within the control of the court and subject * Mead ». New York, Housatonio, & 
 
 to its order." Northern R. Co. (1877), 45 Conn. 199; 
 
 B. 0. 17 Am. Ry. Eep. 367. 
 
§§ 417, 418.] JURISDICTION. 423 
 
 A sale of a railroad as an entirety may be decreed not only in 
 the court in which the original foreclosure suit was brought, but 
 also ill any of the other courts in which ancillary suits have been 
 instituted.* 
 
 In such a case the court may require the defendant to execute 
 to the receiver assignments of that part of the property which 
 lies outside its territorial jurisdiction.^ 
 
 A federal court of one of the States through which a railroad 
 runs, having acquired jurisdiction of the subject-matter in an 
 action of bondholders to foreclose the mortgage given by the rail- 
 road company upon all of its property in all the States, will not 
 be ousted of its jurisdiction by a suit having been brought by the 
 trustee in the State court of one of the other States for fore- 
 closure on the property in that State.^ 
 
 § 417. When Jurisdiction attaches. — The rule as generally 
 stated is that priority of jurisdiction is acquired by bringing of 
 suit, the suit being for this purpose deemed to be brought when 
 process is served,* and not when the petition and summons have 
 merely been filed.^ 
 
 If a case is removed to a federal court, its jurisdiction will 
 relate back to the time of the original service of process.^ 
 
 Where a suit to foreclose a trust mortgage executed by two 
 corporations chartered in different States to secure bonds issued 
 by tliem jointly is instituted in the district in which one of them 
 is resident, and the resident corporation is served with process, 
 while the non-resident one enters its appearance and answers 
 jointly with the other, the decree rendered in the suit will be 
 binding upon both.'' 
 
 § 418. Jurisdiction not lost by Dismissal of Bill on Demurrer. — 
 After the dismissal of a bill on demurrer the jurisdiction of the 
 court is not lost, as the case may be restored at any time before 
 the end of the term. A second court, therefore, cannot, by taking 
 
 1 Muller V. Dows (1876), 94 U. S. 444 ; = "Woodburj- et al. v. Allegheny & 
 
 Farmers' Loan & Trust Co. v. Chicago & K. R. Co. et al. (1895), 72 Fed. Rep. 
 
 A. Rv. Co. (1886), 27 Fed. Rep. 146. 371. 
 
 - Union Trust Co. v. Olmsted (1886), * Owens v. Ohio Central R. Co. (1884), 
 
 102 N. Y. 729 ; s. c. 7 N. E. Rep. 822 ; 20 Fed. Rep. 10, 13 ; Union Mut. Life 
 
 26 Am. & Eng. R. R. Cas. 61 ; Northern Ins. Co. v. University of Chicago (1881), 
 
 Ind. K. Co. V. Michigan Central R. Co. 6 Fed. Rep. 443 ; Chittenden v. Brewster 
 
 (1853), 15 How. 233, 243 ; Wilmer v. (1864), 2 "Wall. 191, 197. 
 Atlanta & Richmond Air Line, etc. R. Co. ^ Bell v. Ohio Life & Trust Co. (1858), 
 
 (1874), 2 Woods, 409 (citing several cases 1 Bias. 260. 
 
 as to extra-territorial jurisdiction obtained * Owens v. Ohio Central E. Co. (1884), 
 
 by acting in personam) ; Rothschild v. 20 Fed. Rep. 10. 
 
 Rochester, etc. R. Co. (Penn. Comm. PI., ^ Wilmer v. Atlanta & Richmond Air 
 
 1887), 1 Ry. & Corp. L. J. 321. Line R. Co. (1875), 2 Woods, 447. 
 
424 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXI. 
 
 jurisdiction of the case during the interval between such dis- 
 missal and restoration, oust the first from its control of the 
 proceedings.^ 
 
 § 419. 'What Possession is necessary to give a Court Control of the 
 Res as against a Co-ordinate Tribunal. — This is a question which the 
 authorities leave iu an embarrassing state of uncertainty. Some 
 judges have held that the constructive possession which is obtained 
 by commencing an action of which possession of the res is a neces- 
 sary incident will prevail against an actual seizure under a later 
 service of process. Other judges take the contrary view, not 
 merely when the proceedings are not, technically speaking, in rem, 
 but also when they are at least in the nature of such proceedings, 
 — as, for example, to charge property with a lien. To formulate 
 a general rule under these circumstances is out of the question, 
 and it is deemed sufficient to exhibit the actual result of the cases 
 in the subjoined note.^ 
 
 1 Union Trust Co. v. Rockford, R. I. & 
 St. Louis R. Co. (1874), 6 Biss. 197. 
 
 ^ In Union Tnist Co. v. Rockford, R. I. 
 & St. L. R. Co. (1874), 6 Biss. 197, Judge 
 Blodgett used the following language : 
 " It will hardly be necessary to cite au- 
 thorities to show that it is, and has long 
 heen, the settled rule of law in all cases jf 
 conflict of jurisdiction that the court 
 which first takes cognizance of the contro- 
 versy is entitled to retain jurisdiction to 
 the end of the litigation, and incidentally 
 to take possession of or control the res, 
 the subject-matter of the dispute, to the 
 exclusion of all interference from other 
 courts of co-ordinate jurisdiction. The 
 proper application of this rule does not 
 require that the court shall also first take 
 by its officers possession of the thing in 
 controversy, if tangible and susceptible of 
 seizure, for such a trifle would only lead 
 to unseemly haste on the part of officers to 
 get the manual possession of the property ; 
 and, while the court first appealed to was 
 investigating the rights of the respective 
 parties, another court, acting with more 
 haste, might by a .seizure of the property 
 make the first suit wholly unavailable. 
 To avoid such a result, the broad rule is 
 laid down that the court first invoked will 
 not be interfered with by another court 
 while the jurisdiction is retained." In 
 another case decided about the same time 
 (Wiliner v. Atlanta & Richmond Air Line 
 
 R. Co. (1874), 2 "Woods, 409), Judge 
 "Woods considered that, after service on 
 the railroad company of a subpoena and a 
 restraining order, enjoining it from deliver- 
 ing possession of the tnist property to any 
 one except a receiver appointed by the 
 federal Circuit Court, possession taken by 
 a State court under color of process served 
 in a. suit subsequently commenced was a 
 contempt of the jurisdiction of the Cir- 
 cuit Court, even though the State court 
 first obtained actual possession of the 
 property. The jurisdiction of a court was 
 declared not to be dependent on actual 
 seizure of the property. Constructive 
 possession was obtained by the subpoena 
 and the restraining order, and the prop- 
 erty was thereafter in gremio legis. The 
 receiver appointed by Judge "Woods being 
 unable to obtain possession of the part of 
 the property situated in Georgia, owing to 
 the fact that one of the State courts had 
 appointed a receiver and taken actual 
 possession in a suit subsequently com- 
 menced, applied for a writ of assistance. 
 The application was heard by Circuit Jus- 
 tice Bradley and District Judge Erskine, 
 and denied. The learned circuit justice 
 said that the test was not which action 
 was first commenced, nor which cause of 
 action had priority, but which court first 
 acquired jurisdiction over the property. 
 If the State court had power to take 
 possession when it did so, and did not 
 
§ 420.] 
 
 JURISDICTION. 
 
 425 
 
 § 420. Who may assert the Exolusivenesa of the Jurisdiction of the 
 Court which first acquires Control. — It is only by those who are 
 clothed with the authority of the first court to assert the priority 
 
 ley as to the effect of the service of process 
 in proceedings in rem and proceedings in- 
 personam seems to be ignored in a late case 
 in the Circuit Court of Appeals, Compton 
 V. Jesup (1895), 68 Fed. Eep. 263. There 
 it was held that a proceeding in a State 
 court by the holder of an equipment bond 
 to subject a portion of a railroad system to 
 his lien, although it might be a proceeding 
 in rem, did not involve the actual seizure 
 of the property, and therefore did not pre- 
 vent a federal court from taking possession 
 of the property in a suit to foreclose all 
 the liens on the entire property. The 
 court lays down the broad rule that 
 "mere constructive possession is not 
 enough to exclude the possession of an- 
 other court," thus putting into formal 
 words the principle upon which Justice 
 Bradley's opinion was founded. But this 
 theory is opposed to the opinion of the 
 Supreme Court of the United States in 
 Buck 0. Colbath (1865), 3 "Wall. 334, 
 where the sufficiency of constructive pos- 
 session is recognized, to say nothing of 
 the opinions of Judges Blodgett and 
 Woods, referred to above. Unfortunately 
 the Supreme Court of the United States 
 has not, so far as we have been able to as- 
 certain, stated precisely what it under- 
 stands by "constructive" possession, the 
 use of the term being merely obiter in the 
 case just cited. The principle laid down 
 by that court in the late case of Heidritter 
 V. Elizabeth Oil Cloth Co. (1884), 112 U. S. 
 294 ; s. c. 5 Sup. Ct. Rep. 135, that when 
 the object of the action requires the con- 
 trol and dominion of the property involved 
 in the litigation, that court which first 
 acquires possession, or that dominion which 
 is equivalent to possession, draws to itself 
 the exclusive right to dispose of it for the 
 purpose of its jurisdiction, is expressed 
 in terms too vague to indicate precisely 
 what view would be adopted by the most 
 authoritative tiibunal in the country, if 
 the question under discussion were to 
 come before it. The case in question was 
 one of actual possession, and its relevancy 
 therefore lies principally in the fact that, 
 although the theory of Justice Bradley and 
 
 invade the possession or jurisdiction of 
 the federal court;, the possession of the 
 former would not be interfered with. 
 That the State court had such power was 
 the conclusion arrived at. "Service of 
 process," it was said, gives jurisdiction 
 over the person. Seizure gives jurisdic- 
 tion over the property ; and until it is 
 seized, no matter when the suit was com- 
 menced, tlie court does not have jurisdic- 
 tion. ... A bill to foreclose is a personal 
 proceeding, although it has reference to a 
 specific thing. Its object is to put an end 
 to an existing equity, and to procure a 
 sale of the mortgaged premises. Posses- 
 sion may be taken in the course of the 
 proceedings, but, until it is taken, can it 
 be said that the property is sacred from 
 the touch of other persons or courts ? " 
 Virtually, therefore, the doctrine of the 
 learned justice is that there is no such 
 thing as constructive possession of the res, 
 at least in a personal proceeding. The 
 authority of this ruling, however, is very 
 seriously impaired by the fact that it 
 Seems to be based mainly on the hypothe- 
 sis that foreclosure is a proceeding in per- 
 sonam only for all intents and purposes, a 
 position which is by no means beyond dis- 
 pute. In Day v. MicOu (1873), 18 Wall. 
 166, 160, it was laid down that proceed- 
 ings to foreclose a mortgage are quasi 
 proceedings, in rem at least. In Guaranty 
 Trust & Safe Deposit Co. v. Green Cove 
 Springs & Melrose R. Co. (1891), 139 
 U. S. 137 ; s. c. 11 Sup. Ct. Eep. 512, the 
 same court was confronted with an argu- 
 ment of counsel based on the assumption 
 that a proceeding to foreolo-se a trust deed 
 was a proceeding in rem, and though it 
 declined to accept the inferences sought to 
 be drawn from that assumption, it did not 
 cast any doubt on the assumption itself. 
 And such seems to be the more general 
 view which the courts take of a foreclosure 
 suit, at all events where, as is commonly 
 the case, an order of sale is asked for. See 
 Waples Proceedings in Rem, §§ 607 et seq., 
 where it is pointed out that such a suit is 
 one of a dual aspect. 
 
 The distinction drawn by Justice Brad- 
 
426 
 
 RAILWAY BONDS AND MOETGAGES. 
 
 [chap. XXI. 
 
 and exclusiveness of its jurisdiction that an objection to the juris- 
 diction of the second court, founded on possession and control of 
 the subject-matter, can be raised.^ 
 
 § 421. Procedure and Practice. — Objections to the jurisdiction 
 of a court must be addressed to the court itself, and cannot be 
 raised in a co-ordinate court.^ 
 
 Such objections must be submitted by a plea in abatement. A 
 demurrer for want of equity or an answer is a voluntary appear- 
 ance, although the demurrer may also seek to aver a want of 
 jurisdiction.^ 
 
 It is too late to raise such objections after the defendant's an- 
 swer is filed, whether replication is put in or not,* and still more 
 is this true after a trial on the merits.^ 
 
 the Court of Appeals that the constructive 
 possessiou which is obtained by service of 
 process is not, as against actual possession, 
 enough to invest a court with exclusive 
 control of the res may be correct, this 
 principle does not hold with all kinds of 
 constructive possession. 
 
 The case of Union Trust Co. ■;;. Kock- 
 ford, E.. 1. & St. L. R. Co. (1874), supra, 
 was approved in Owens v. Ohio Central 
 E. Co. ( 1884) , 20 Fed. Kep. 13, but the 
 ruling of Justice Bradley apparently was 
 not brought to the attention of the court. 
 That ruling has, however, been expressly 
 disapproved in May v. Printup, 59 Ga. 
 128. 
 
 As bearing upon the question, it may 
 also be noted that in a recent case in Ten- 
 nessee also the court denied that an attach- 
 ment on railroad property, after the court 
 has taken charge of it in insolvency pro- 
 ceedings, gives any lien, though the re- 
 ceiver has not yet taken actual manual 
 cajition of it. McDonald u. Charleston, 
 C. & C. R. Co. (1893), 93 Tenn. 281 ; s. c. 
 24 S. W. 252. 
 
 "Whatever may be the proper technical 
 designation of a foreclosure suit, there 
 would seem to be two unanswerable rea- 
 sons why the view set forth in the passage 
 cited at the beginning of this note should 
 prevail. The first is the one forcibly 
 stated by Judge Blodgett. The second is 
 that it is a highly anomalous position to 
 maintain that a suit in which the court 
 cannot give effect to its decrees without 
 the possession of the res, and in which the 
 
 commencement of the proceedings is un- 
 doubtedly intended to operate as a notifi- 
 cation to all the world that the court has 
 assumed the control of the subject-matter, 
 should be endered virtually nugatory be- 
 cause another court and another litigant 
 have used somewhat more physical activ- 
 ity. If comity between courts is to have 
 any practical results at all, it should cer- 
 tainly be an obstacle to interference in 
 such a case. The only consideration 
 which can justify co-ordinate tribunals in 
 undertaking to nullify the action of each 
 other is that the cause of abstract justice 
 will thereby be subserved. In the absence 
 of such a reason, we think, all the subse- 
 quent litigation should be conducted in 
 the court which, in a liberal sense of the 
 phrase, first acquires possession of the 
 res. 
 
 1 Forrest's Exrs. v. Luddington (1880), 
 68 Ala. 1 ; s. c. 12 Am. & Eng. E. E. Cas. 
 330. 
 
 2 Freeman v. Howe (1860), 24 How. 
 4_50 ; Alabama & Chattanooga E. Co. u. 
 Jones (1872), 7 N". B. R. 145. 
 
 8 Blackburn v. Selma, M. & M. R. Co. 
 (1879), 2 Flip. 523 ; s. o. 3 Fed. Cas. 526, 
 Case No. 1467. See, however, Dan. Ch. 
 PI. 655, where it is said that a demurrer 
 may in some cases be a proper way of ob- 
 jecting to the jurisdiction. 
 
 * Turner v. Indianapolis, B. & "W. E. 
 Co. (1878), 8 Biss. 380; s. 0. 26 Fed. 
 Cas. 367, Case No. 14,259. 
 
 6 Oilman v. Perkins (1881), 7 Fed. 
 Eep. 887. 
 
§ 422.] JURISDICTION. 427 
 
 Where attacliments have been levied on the property of a foreign 
 corporation, and a receiver is afterwards appointed in the State 
 where the corporation was organized, he cannot plead to or defend 
 the attachment suits without first applying to the courts where 
 they are pending, and becoming a party thereto.^ 
 
 Article II. — To what Extent the Pendency of a Suit in 
 ONE Court is a Bar to a Suit in another. 
 
 § 422. Introductory. — It has been shown above that between 
 courts of concurrent jurisdiction the rule is applicable, and that 
 the one which has first obtained jurisdiction in a given case must 
 retain it exclusively until it is finally disposed of. Different 
 principles prevail where the mere pendency of a prior suit is set 
 up to defeat a second one. " It is the interference with the pos- 
 session of another court which would ensue that prevents taking 
 jurisdiction in one class of cases, and the pendency of the same 
 identical controversy in another court of concurrent jurisdiction 
 that prevents it in the other." ^ 
 
 A court of equity, having jurisdiction of the subject-matter in a 
 foreclosure suit on a second mortgage to which the ti'ustee of a 
 first mortgage is a party defendant, with all others interested, 
 will not allow the filing of an independent bill to foreclose the first 
 mortgage, asking no special relief against parties in interest, in- 
 asmuch as there can be a decree relating to and adjusting the 
 rights of all the other parties in the action of the trustee of the 
 second mortgage.^ 
 
 A full discussion of the numerous decisions on this subject 
 would of course be out of place in this volume. The reader will 
 find ample materials for investigation by referring to the authori- 
 ties cited in Bennett on Lis Pendens, §§ 343 et seq., and in the 
 note to Cook v. Burley, 11 Wall. 659, in the Lawyer's Co-opera- 
 tive edition. See also the list of cases cited in the opinions in 
 Lathan v. Chaffee (1881), 7 Fed. Rep. 520, and Stanton v. Embrey 
 (1877), 93 U. S. 548, 554. It will be sufficient to state the gen- 
 eral doctrine and the exceptions thereto, citing as authorities only 
 cases involving corporate securities, and such others as may be 
 necessary for the sake of clearness. 
 
 ^ South Carolina E. Co. v. People's Pac. R. Co. et al. (1895), 70 Fed. Eep. 
 
 S.iv. Institution (1879), 64 Ga. 18 ; s. c. 528. See Morgan's La. & Tex. E. & St. 
 
 12 Am. & Eng. R. R. Cas. 432. Ship Co. v. Texas Central Ry. Co. (1890), 
 
 2 Andrews v. Smith (1881), 5 Fed. 137 U. S. 171, 201 ; s. c. 11 Sup. Ct. 
 
 Rep. 833, per Wheeler, D. J. Rep. 61. 
 
 ' Mercantile Trast Co. v. Atlantic & 
 
428 RAILWAY BONDS AND MORTGAGES. [CHAP. XXI. 
 
 § 423. STiit not barred by Pendency of a Prior Suit in a Foreign 
 Jurisdiction. — It is well settled that the plea of the pendency of a 
 suit in a foreign jurisdiction will not abate a suit in a domestic 
 tribunal, though the prior suit is for the same cause of action, and 
 between the same parties.^ 
 
 For the purposes of this rule the different States in the Union 
 are considered to be foreign to each other .^ 
 
 And the same relation undoubtedly prevails between State 
 courts and federal courts not exercising jurisdiction over the same 
 territory.^ 
 
 But whether the pendency of a suit in a federal court in a given 
 district be successfully pleaded to the furtlier prosecution of a like 
 suit in a State court in the same district is a question as to which 
 there has been some conflict of opinion. It has been said to be 
 now well settled that this is not a good plea.* 
 
 § 424. Plea of Lis Pendens not sustainable, unless there is an Iden- 
 tity between the two Suits. — Whether the courts in which the 
 two suits are brought are foreign to each other in the sense that 
 they exercise jurisdiction over a different territory, or only foreign 
 in the sense that they derive their powers from different sover- 
 eignties, as is the case with the Federal and State courts, a second 
 Suit will in no event be abated because a prior one dealing with 
 the same subject-matter is pending, unless the cases are the same. 
 
 There must be the same parties, or at least such as represent 
 the same interest, there must be the same rights asserted and the 
 same relief prayed for. This relief must be founded in the same 
 facts, and the title or essential basis of the relief sought must be 
 the same. The identity in these particulars should be such that 
 if the pending case had already been disposed of, it could be 
 
 1 Insnrance Co. c Brune's Assignee Dwighti). Central Vermont R. Co. (1881), 
 (1877), 96 U. S. 588; Stanton v. Embrey 9 Fed. Rep. 785, modifying his former 
 (1877), 93 U. S. 548; Eaton & Ham- opinion, as stated in Mercantile Trust Co. 
 iltou R. Co. V. Hunt (1863), 20 Ind. v. Lamoille Valley R. Co. (1879), 16 
 457; South Carolina R. Co. v. People's Blatch. 324, and Andrews?;. Smith (1881), 
 Sav. Ins. (1879), 64 Ga. 18 ; s. 0. 12 Am. 6 Fed. Rep. 833, and relying on the au- 
 & Eng. R. R. Gas. 432. thority of Gordon v. Gilfoil, 99 U. S. 168, 
 
 2 Bennett on Lis Pendens, § 348 and and Latham v. Chaffee (1881), 7 Fed. Rep. 
 cases cited. 520. 
 
 8 Stanton v. Emhrey (1877), 93 TJ. S. Mr. Bennett, in his treatise on Lis Pen- 
 
 548 ; Bennett on Lis Pendens, §§ 379, dens (§§ 381, 382), lays down a conti-ary 
 
 380 ; Forrest's Exrs. s.Luddington (1880), rule on the authority of Smith v. Atlantic 
 
 68 Ala. 1 ; s. c. 12 Am. & Eng. E. R. Gas. Mut. Fire Ins. Co. (1850), 22 (2 Fost.) 
 
 330 ; South Carolina R. Co. v. People's N. H. 21 ; hut although there is some 
 
 Sav. Institution (1879), 64 Ga. 18; s. c. lack of distinctness in the language of the 
 
 12 Am. & Eng. R. R Cas. 432, courts, the doctrine of the later cases is 
 
 * Rule so stated by Judge Wheeler in opposed to this view. 
 
§ 425.] JURISDICTION. 429 
 
 pleaded in bar as a former adjudication of the same matter 
 between the same parties.^ 
 
 § 425. Second Suit not barred if Parties are different. — If the par- 
 ties in the second suit are different from those in the first, the 
 court applied to will not abate the suit merely because a co-ordinate 
 court has already assumed jurisdiction of the subject-matter.^ 
 
 Thus a suit for an accounting in a federal court between the 
 bondholders and their trustees will not be abated for the reason 
 that there is pending in a State court a similar suit in regard to 
 the same subject-matter, and for the same relief, between the 
 trustees and other persons.^ 
 
 So where a railroad company is sued by a few minority stock- 
 holders who ask for a receiver, the suit being opposed by the great 
 majority of the stockholders, the court may properly entertain a 
 petition of the bondholders for foreclosure, and the appointment 
 of a receiver of their own selection. Bondholders whose interest 
 is not being paid cannot be stayed in proceedings to enforce their 
 lien until a battle between the stockholders is fought out, nor can 
 they be compelled to obtain their relief by intervening in the 
 stockholders' suit.* 
 
 Although the trustees represent the bondholders for most pur- 
 poses in respect to litigation for the enforcement of the securities, 
 the bondholdei"s are not deemed to be parties to a foreclosure suit, 
 brought by the trustees in a State court, in such a sense that they 
 are debarred from seeking the same remedy in their own names 
 in a federal court. Therefore, in the absence of some restriction 
 in the deed of trust upon the right of coupon-holders, with the 
 assent of a majority of bondholders, to foreclose for default in in- 
 terest, one of those coupon-holders may maintain a suit for such 
 default in a federal court, though a suit for the same purpose has 
 been instituted by the trustees in the State court.^ 
 
 A fortiori, where the character of the trust is such that a fore- 
 closure suit cannot be instituted by the trustees without joining 
 some of the bondholders, and some of them have been accordingly 
 made parties in a suit brought in a State court, the pendency of 
 
 1 Watson V. Jones (1871), 13 "Wall. * Pennsylvania Company for Insurance 
 679 ; Hay v. Alexandria & Washington on Lives and Granting Annuities v. Jack- 
 R. Co. (1882), 4 Hughes, 331. See also sonville, J. & E. W. R. Co. (American 
 the cases reviewed in Latham v. Chaffee Construction Co., Intervener), (1893), C. 
 {I'SSI), 7 Fed. Rep. 520. C. A. 55 Fed. Rep. 131. 
 
 2 Shelby v. Bacon (1850), 10 How. ^ Mercantile Trust Co. v. Lamoille 
 56- Valley R. Co. (1879), 16 Blatch. 324; 
 
 ' Andrews v. Smith (1881), 5 Fed. Rep. Beekman v. Hudson River West Shore 
 833. R. Co. (1888), 35 Fed. Rep. 3. 
 
430 RAILWAY BONDS AND MORTGAGES. [CHAP. XXI. 
 
 that suit will be no bar to another suit in a federal court for the 
 foreclosure of the mortgage and the removal of the trustees. The 
 trustees under such circumstances do not represent the entire body 
 of the bondholders.^ 
 
 § 426. Prior Suit not a Bar where Different Relief is asked for. — 
 If the relief asked in the second suit is materially different from 
 or more comprehensive and extended than that asked in the first, 
 the pendency of the first suit is not a bar to the second lien in the 
 same court.^ 
 
 Thus, a party having notes secured by a mortgage may, unless 
 restrained by statute, sue in a court of chancery to foreclose his 
 mortgage, and in a court of law to recover a judgment on his notes, 
 and in another court of law, in an action of ejectment for posses- 
 sion of the land.^ 
 
 A suit in a State court which is essentially one for foreclosure 
 is not a bar to another in a federal court in the same district, the 
 object of which is to maintain the right to the road independently 
 of the right to redeem.* 
 
 What is essentially a general creditors' bill is not barred in a 
 federal court by a pending suit of any less scope in a State court, 
 and therefore not by a suit which does not aim at marshalling all 
 the creditors and their claims, and ascertaining all liens and their 
 priorities.^ 
 
 The trustee of a first mortgage upon a portion of the road can- 
 not plead the pendency of a foreclosure suit brought by him in a 
 federal court in bar of a foreclosure suit in a State court against 
 him and others, by trustees of a subsequent mortgage covering the 
 entire property of the mortgagor.^ 
 
 A suit filed by a contractor to have a judgment for the sum 
 due to him for building parts of the road declared a first lien 
 thereon, and also for an accounting and for foreclosure of certain 
 trust mortgages executed by the company, is not a bar to a sub- 
 sequent suit by the trustee to foreclose the same mortgages. Here, 
 although the original complaint has asked for foreclosure, no such 
 relief can be given unless on the application of the trustees or the 
 bondholders whom he represents.^ 
 
 1 Brooks V. Vermont Central R. Co. * Dwight v. Central Vermont R. Co. 
 (1878), 14 Blatch. 463. (1881), 9 Fed. Rep. 785. 
 
 2 Massachusetts Mut. Life Ins. Co. v. ^ Hay v. Alexandria & Washington R. 
 Chicago & A. R. Co. (1882), 13 Fed. Rep. Co. (1882), 4 Hughes, 331. 
 
 857, 860. 6 Meyer v. Johnston (1875), 53 Ala. 
 
 3 Buck V. Colbath (1865), 3 Wall. 334. 237 ; s. c. 15 Am. Ry. Rep. 467. 
 
 See chapter on remedies. ' American Loan & Trust Co. ■». East 
 
 & West R. Co. (1889), 37 Fed. Rep. 242. 
 
§ 427.] JURISDICTION. 
 
 431 
 
 So a bill filed in behalf of the holder of certain corporation 
 bonds secured by a trust mortgage, alleging the refusal of the 
 trustee to proceed under the mortgage according to its provisions, 
 and a misappropriation by the defendant of the tolls and revenues 
 mortgaged, will not be dismissed because a bill to which such 
 trustees were made parties had been previously filed in the State 
 court to define the priorities of the various lien creditors of the 
 corporation.^ 
 
 The converse of this principle also holds good. Thus the prior 
 jurisdiction acquired by the pendency of a former action in which 
 an injunction and receivership are sought will exclude the inter- 
 ference of the court in another suit of which the principal object 
 is the same original remedies. ^ 
 
 § 427. Second Suit allowed to proceed sometimes. — The fact 
 that the later suit is best calculated to lead to a decision on the 
 merits is sometimes a sufficient reason for allowing it to proceed, 
 in spite of the fact that the earlier suit is for the same cause of 
 action and comprehends the same parties.^ 
 
 Where a trustee for bondholders is attempting to foreclose a 
 mortgage upon bonds and subject the property thereto, which are 
 not valid debts against a corporation, such action would be in 
 hostility to a holder of valid bonds ; and in such a case the remedy 
 by foreclosure is not exclusive in the trustee, but may be pursued 
 by the holder beneficially interested in the bonds.* 
 
 A decree of foreclosure which declares all the bonds due where 
 it appears in the case of some of the bonds the bondholders had 
 accepted interest after the limit of time in which a default in 
 interest entitled them to declare the principal of their bonds due 
 had expired, and thereby waived the default, will be reversed.^ 
 
 1 Stewart v. Chesapeake & Ohio Canal not defeat a suit brought many years 
 
 Co. (1880), 1 Fed. Eep. 361. afterwards by the trustees under the first 
 
 '■^ Young f. Eollins (1881), 85 N. C. mortgage to enforce their security as 
 
 485 ; s. 0. 12 Am. & Eng. R. E. Cas. against the second-mortgage interest. The 
 
 455. circumstances that many of the parties to 
 
 ' Cheever v. Rutland & Burlington R. the former suit were dead, that the former 
 
 Co. (1869), 4 Am. Ey. Rep. 291. There decree was dormant, and that it was re- 
 
 the trustees under three successive mort- pudiated by the second-mortgage interests 
 
 gages of the property of a railway cor- as a fraud upon them, rendered proper an 
 
 poration filed a bill in equity against the original bill setting forth the original 
 
 corporation to settle and establish the cause of action, as well as the suit and 
 
 powers and duties of each other and to- decree therein. 
 
 wards the corporation in respect to the * Farmers' & Mechanics' Nat. Bank v. 
 title, poRsession, and control of the jirop- Waco Electric Ky. & Light Co. (Tex. Civ. 
 erty, and a decree was made in accordance App.), 36 S. W. Eep. 131 (1896). 
 with the prayer of the bill, but was never 6 Ala. & Ga. Manufg. Co. et al. v. Rob- 
 completely executed. Held, that the fact inson, 56 Fed. Rep. 690 ; s. 0. 6 C. C. A. 
 that this suit was technically pending did 80, 13 U. S. App. 359 (1893). 
 
432 
 
 EAILWAT BONDS AND MORTGAGES. [CHAP. XXII. 
 
 CHAPTER XXII. 
 
 CITIZENSHIP AND REMOVAL OP CAUSES. 
 
 Art. I. — Citizenship of Cokpoeations. 
 § 428. Introductory. 
 
 429. Corporation is Citizen of State 
 
 where it was organized. 
 
 430. Citizenship of Corporations doing 
 
 Business in Foreign States. 
 
 431. Corporation suable in Sister 
 
 State. 
 Art. II. — Removal of Causes. 
 § 432. Right of Removal must exist at 
 the Commencement of the Suit. 
 
 433. Right not affected by State 
 
 Legislation. 
 
 434. What is a " Controversy. " 
 
 435. Removal by Consent. 
 
 436. Who may remove a Cause. 
 
 437. Amount involved in Suit. 
 
 438. Removal when there are Several 
 
 Parties on either side. 
 
 439. Arrangement of Parties accord- 
 
 ing to their Real Interests. 
 
 § 440. Introduction of New Party in- 
 effectual to divest Jurisdic- 
 tion. 
 
 441. Rule where a State is Party to 
 
 the Suit. 
 
 442. Separable Controversies. 
 
 443. What does not affect the Right 
 
 to remove. 
 
 444. Removal takes the Whole Cause. 
 
 445. What bars the Right of Removal. 
 
 446. When the Petition and Bond 
 
 must be filed. 
 
 447. Contents of Application. 
 
 448. Formal Requisite of Record and 
 
 Petition. 
 
 449. Bringing up the Record. 
 
 450. Irregularities in the Removal do 
 
 not vitiate it. 
 
 451. Waiver of Objections to Removal. 
 
 452. Requisites of Removal Bonds. 
 
 Article I. — Citizenship op Corporations.^ 
 
 § 428. Introductory. — Questions relating to the citizenship of 
 corporations frequently arise in suits upon railroad securities. A 
 short review of some of the decisions in such suits will therefore 
 be useful to the practitioner in connection with the other subjects 
 treated in this book. 
 
 § 429. A Corporation is for Jurisdictional Purposes a Citizen of 
 the State under -whose La-ws it was organized. — The theory is that 
 although a corporation cannot be a citizen of any State in the 
 sense in which the word is used in the United States Constitution, 
 and a suit against a corporation in a federal court is regarded as 
 a suit against its stockholders, it is conclusively presumed, by a 
 legal fiction, that all the stockholders are citizens of the State 
 which created the corporation.^ 
 
 1 A useful article on this subject will R. Co. v. Letson (1844), 2 How. 497 ; 
 be found in 13 Centr. L. J. 482. Marshall v. Baltimore & Ohio R. Co. (1853), 
 
 2 Louisville, Cincinnati, & Charleiston 16 How. 314 ; Railway Co. v. Whitton 
 
§ 430.] CITIZENSHIP AND REMOVAL OF CAUSES. 433 
 
 From this doctrine it follows that, although two or more rail- 
 road companies in different States may unite under the laws of 
 those States for the purpose of forming a single consolidated com- 
 pany, the existence of the constituent corporations still continues, 
 so far as the jurisdiction of the Federal and State courts is con- 
 cerned. In other words, the consolidated company is, for the 
 purposes of suits instituted against it in any one of the States, 
 deemed to be a citizen of such State. Hence a company thus 
 formed cannot remove a cause to the federal courts if sued in one 
 of the States by a citizen of that State ;^ and if a citizen of one 
 of the States sues it in another of those States, the suit may be 
 removed to a federal court.^ 
 
 Though a corporation of one State be incorporated by the legis- 
 lature of another as a corporation of the latter, it continues a 
 citizen of the State of its original corporation, so as to give juris- 
 diction to a federal court as between citizens of different States in 
 an action by it ; for instance, to cancel a guaranty of bonds in the 
 hands of a citizen of the second State incorporating it.^ 
 
 The effect of the doctrine that a corporation is a citizen of the 
 State where it was organized, and of the rule that the federal 
 courts have jurisdiction only of suits between citizens of different 
 States, is that, on a bill of foreclosure by citizens of one State 
 against a railroad corporation of another State, in the United States 
 court, for the latter State, bondholders who are citizens of the 
 State where the suit is brought cannot be made co-plaintiffs.* 
 
 § 430. Citizenship of Corporations carrying on Business in States 
 other than that in which they ■were organized. — If a foreign corpo- 
 ration is carrying on business in a sister State, the question 
 whether it is a citizen of that State so as to render it incapable 
 of removing a suit brought against it from the State courts to the 
 federal courts is one of legislative intent. If the rights conferred 
 
 (1871), 13 Wall. 270 ; Ohio & Mississippi « Louisville Trust Co. et al. o. Louis- 
 
 R. Co. V. Wheeler (1861), 1 Black, 286; ville, N. A. & C. R. Co. (1896), 75 Fed. 
 
 Mailer c Dows (1876), 94 U. S. 444; Rep. 433, upon authority of Nashua & 
 
 Myers u. Dorr (1870), 13 Blatch. 22; Lowell E. Corp. v. Boston & Lowell R. 
 
 Baltimore & Ohio R. Co. v. Cary (1876), Corp. (1890), 136 U. S. 856 ; s. c. 10 
 
 28 Ohio St. 208 ; Union Trust Co. v. Sup. Ct. Rep. 1004 ; Newport & Cin- 
 
 Rochester & Pittsburg R. Co. (1886), 29 cinnati Bridge Co. v. "Woolley (1880), 78 
 
 Fed. Rep. 609. Ky. 523 ; St. Louis & San Francisco R. 
 
 1 Johnson v. Philadelphia, Wilraing- Co. v. James (1896), 161 U. S. 545 ; s. o. 
 
 ton, & Baltimore R. Co. (1881), 9 Fed. 16 Sup. Ct. Rep. 621. 
 Eeri. 6. 4 Jackson & Sharp Mfg. Co. v. Burling- 
 
 ■^ Railway Co. v. "Whitton'a Admr. ton & Lamoille R. Co. (1887), 24 Blatch. 
 
 (1871), 13 Wall. 270; MuUer v. Dows 194; s. c. 29 Fed. Rep. 474. 
 (1876), 94 U. S. 444. 
 
 28 
 
434 
 
 EAILWAY BONDS AND MORTGAGES. [CHAP. XXII. 
 
 amount to a' mere license to do business in the State, it retains its 
 jurisdictional privileges as a foreign corporation, and may remove 
 a suit brought against it.^ Nor does a statute permitting a for- 
 eign corporation to extend its road into a State, and conferring 
 upon it, for the purpose of enabling it to operate that extension, 
 such powers as have been conferred upon it by the State where it 
 was created, make it a corporation of the second State.^ Nor 
 does a corporation, by merely leasing, possessing, and operating 
 in another State the property of a corporation chartered in that 
 State, become a citizen thereof.^ Nor will the intent to create a 
 new corporation be presumed from an act, for instance, which 
 grants in Tennessee to a specific company, " incorporated by the 
 •legislature of Kentucky," a right of way, and invests it with all 
 the rights, powers, and privileges, and subjects it to all the re- 
 strictions and liabilities, prescribed in its original charter. This 
 conclusion will not be rebutted by the fact that the statute con- 
 tains other sections which are in form designed to make altera- 
 tions in and additions to that charter, provided their actual effect 
 is merely to lay down the conditions upon which the corporation 
 is to be allowed to exercise its powers.* 
 
 1 Railroad Co. v. Harris (1870), 12 
 Wall. 65. In this case the Baltimore cSb 
 Ohio K. Co., a corporation chartered in 
 Maryland, was granted the right to extend 
 its road into Virginia by an act which 
 granted to the company in Virginia the 
 same rights and privileges, and subjected 
 it to the same pains, penalties, and obliga- 
 tions, as had been granted and imposed 
 by the original Maryland enactment, and 
 reserved to the State of Virginia and her 
 citizens the same rights, privileges, and 
 immunities as had been reserved to the 
 State of Maryland and her citizens. The 
 court said: "The permission was broad 
 and comprehensive in its scope, but it was 
 a license and nothing more. It was given 
 to the Maryland corporation as snoh, and 
 that body was the same, in all its elements 
 and in its identity, afterwards as before. 
 In its name, locality, capital stock, the 
 election and power of its officers, in the 
 mode of declaring dividends, and doing all 
 its business, its unity was unchanged. 
 Only the sphere of its operations was en- 
 larged." The rulings in Bait. & Ohio R. 
 Co. 0. Gallahue's Admrs. (1855), 12 Gratt. 
 655, 658; Goshorn v. Supervisors (1865), 
 1 W. Va. 308 ; and Railroad Co. v. Super- 
 
 visors (1869), 3 W. Va. 319, were con- 
 curred with as to the point that this cor- 
 poration was suable in Virginia and West 
 Virginia, that position not being at all 
 inconsistent with the right of removing 
 the suit after its commencement. Railroad 
 Co. V. Harris was followed in Railroad Co. 
 V. Koontz (1881), 104 U. S. 5 ; Goodlettu. 
 Louisville & Nashville R. Co. (1887), 122 
 U. S. 391 ; County Court v. Baltimore & 
 Ohio R. Co. (1888), 35 Fed. Rep. 161. 
 
 2 Pennsylvania R. Co. v. St. Louis, 
 Alton, & T. H. R. Co. (1886), 118 U. S. 
 290. 
 
 3 Bait. & Ohio R. Co. v. Gary (1876), 
 28 Ohio, 208 ; s. c. 14 Am. Ry. Rep. 97 ; 
 Williams v. Missouri, K. & T. K. Co. 
 (1875), 3 Dill. 267 ; Lathrop o. Union 
 Pac. R. Co. (1873), 1 Macarthur (D. C.) 
 234. Compare South Carolina R. Co. v. 
 People's Savings Ins. (1879), 64 Ga. 18, 
 where it was held that a mere permission 
 to extend a road into a State does not 
 change the status of the company as a 
 foreign corporation, so as to exempt its 
 property from the attachment allowed by 
 State laws on the property of non-residents. 
 
 * Goodlett V. Louisville & Nashville R. 
 Co. (1887), 122 U. S. 391. 
 
§ 430.] CITIZENSHIP AND REMOVAL OP CAUSES. 435 
 
 On the other hand, if the original charter is duplicated, and 
 the legislation assumes the form of creating a new corporation, 
 the effect will be to make the foreign corporation a citizen of the 
 State.^ 
 
 So also an intent to create a new corporation is manifested by 
 the provision of a statute which grants to a foreign corporation a 
 right of way for the construction of a railroad with which any 
 railroad company chartered or to be chartered in tlie State shall 
 have the right to connect its road, and requires it to construct a 
 branch railroad in the State, to open books for subscriptions of 
 stock to a certain amount in the State, to apply the money so 
 subscribed to the construction of the road within the State, and 
 to hold elections in the State. Such a construction of the statute 
 receives confirmation from the fact that it is followed by other 
 statutes, each speaking of the company as being " incorporated " 
 by the legislature of the State.^ 
 
 When incorporation in a foreign State is obtainable by a com- 
 pliance with certain formalities prescribed by a general law, an 
 act which prima facie shows an intention on the part of a com- 
 pany to take advantage of the law may not be conclusive as to its 
 status. Thus the mere filing of a certificate of organization in a 
 foreign State by some of the stockholders, the purpose of which 
 seems to be only the preservation of certain rights formerly 
 granted by that State to the company, which has been succeeded 
 by the reorganized corporation to wliich those stockholders be- 
 long, and which is not followed by any acts, such as the election 
 of officers, which would indicate the intention of the company to 
 recognize the existence of the new company in the second State, 
 will not liave the effect of constituting the reorganized corpora- 
 tion a corporation in that State. ^ 
 
 But a corporation chartered by statute in a State doing business 
 there, and dealing as if organized, by reciting in its bonds and 
 mortgage that it has been chartered by that State, is estopped, 
 when sued in the federal court, to deny that it was only organized 
 under the laws of that State.^ 
 
 1 Blaelcbiim v. St'lma, M. & M. R. Co. 3 Pennsylvania R. Co. v. St. Louis, 
 
 (1879), 2 Flip. 525 ; s. c. 3 Fed. Cas. Alton, & T. H. E. Co. (1886), 118 U. S. 
 
 5'Jil, C;ise No. 1467 ; Hencn's Admr. v. 290. 
 
 liiilt. & Ohio R. Co. (1881), 17 W. Va. 881 ; * Blackburn v. Selma, M. & M. R. Co. 
 
 M':isliin£rton, Alexandria, & Georgetown (1879), 2 Flip. 525 ; citing Zabriskie v. 
 
 1!. Co. V. Alexandria & Washington R. Co. Cleveland, Columbus, & Cincinnati E. Co. 
 
 (1870), 19 Grntt. 592. (1859), 23 How. 381. 
 
 - Meiii)iliis & Charleston R. Co. i'. Ala- 
 iiaiiia (1SS2), 107 U. S. 581. 
 
436 RAILWAY BONDS AND MORTGAGES, [CHAP. XXII. 
 
 § 431. Corporation suable in Sister State. — A foreign corpora- 
 tion, thougli not adopted by the sister State, is suable there if it 
 has impliedly^ or expressly ^ consented to be sued there in con- 
 sideration of its being permitted by the legislature to exercise its 
 corporate powers and privileges within the State. 
 
 Under such circumstances a foreign corporation is, for the pur- 
 poses of suit in a federal court, deemed to be " an inhabitant of " 
 nnd " found within " the district corresponding to the sister State, 
 under the provisions of the act of Congress regulating the service 
 of process.^ 
 
 But a foreign construction company will not be allowed to main- 
 tain a bill in equity against a foreign railroad corporation and a 
 citizen of the State where suit is brought, to enforce specific per- 
 formance of a covenant in a contract for the delivery of bonds and 
 certificates of stock in payment of work to be performed by the 
 construction company in a foreign State, although the railroad 
 corporation has appeared by attorney and has an office in the 
 State where suit is brought for the transfer of shares of its capital 
 stock. " The determination of the question " (said the court), 
 " who shall be entitled to receive from the corporation certificates 
 of its stock so that they shall thereby become members of it, is 
 one which does not alone affect the external relations of the cor- 
 poration but involves its organic laws, which are necessarily local 
 and require local administration." * 
 
 If the express condition on which the foreign corporation is to 
 be permitted to do business in the sister State is that it shall have 
 an agent there upon whom a valid service of process may be 
 made, the corporation may be sued either in the Federal or State 
 courts.^ 
 
 If the suit is one to subject to liens railroad property which lies 
 wholly within the district in which the suit is brought, the suit 
 will not be defeated by the fact that non-residents are joined with 
 the railroad company as defendants, for such a case comes within 
 the provisions of the act of Congress permitting service to be 
 
 1 Railroad Co. u. Hanis (1870), 12 tion Co. v. Topeka, Salina, & Western R. 
 Wall. 65 ; Blackburn v. Selma, M. & M. Co. (1883), 135 Mass. 34 ; s. 0. 16 Am. & 
 R. Co. (1879), 2 Flip. 525. Eng. R. R. Cas. 495. 
 
 2 Ex parte Schollenberger (1877), 96 6 Ex parte Schollenberger (1877), 96 
 U. S. 369. TJ. S. 369 ; Rankle u. Lamar Insurance 
 
 3 Ex imrte Schollenberger (1877), 96 Co. (1880), 2 Fed. Rep. 9. In the former 
 U. S. 369 ; Haydeu v. Androscoggin Mills case the earlier decisions to the contrary 
 (1879), 1 Fed. Kep. 93; Riddle !>. New efifect in Day ti. Newark Mfg. Co. (1850), 
 York, L. E. & W. R. Co. (1889), 39 Fed. 1 Blatch. 628, and Pomeroy v. New York 
 Rep. 290. & New Haven R. Co. (1857), 4 Blatch. 
 
 * Kansas & Eastern Railroad Construe- 120, were overruled. 
 
§§ 432, 433.] CITIZENSHIP and removal op causes. 43T 
 
 made by publication ; and if it has been duly made in the manner 
 prescribed, a plea to the jurisdiction is not sustainable.^ 
 
 A foreign corporation, by filing an answer, waives the right to 
 be sued only in the federal district of the State creating it, and 
 if the suit be in equity to enforce a lien or claim to property within 
 the federal district, the jurisdiction of the court is not limited 
 to the property situated therein, but is plenary for all proper pur- 
 poses after such voluntary appearance.^ 
 
 Article II. — Removal op Causes.^ 
 
 § 432. There can be no Removal of a Cause unless the Right to remove 
 it exists when Suit has begun. — In several cases it has been held 
 that a suit may be removed if the necessary conditions of diverse 
 citizenship exist when the petition for removal is filed, and that 
 the citizenship of the parties at the commencement of the suit is 
 immaterial.* 
 
 But the Supreme Court of the United States has settled the 
 question the other way, by holding that both under the Judiciary 
 Act of 1789 5 and the act of 1875 ^ there can be no right of re- 
 moval unless the requisite citizenship existed both at the time 
 when suit was begun and when the petition for removal is 
 filed. 
 
 § 433. State Legislation cannot affect the Right of Removal. — 
 Hence a statute is.void which denies a foreign corporation the 
 privilege of transacting business within a State, unless on the 
 condition of agreeing that it will not remove any suit commenced 
 against it by a citizen of the State into the Federal courts.'^ 
 
 So also a provision in a statute that the leasing, purchasing, or 
 
 1 Hay V. Alex. & Washington R. Co. Louis, & New Orleans E. Co. v. McComb 
 (1882), 4 Hughes, 331. In that case there (1879), 17 Blatch. 371 ; Jackson v. Mutual 
 was an additional circumstance to support Life Ins. Co. (1878), 3 Woods, 413, 417; 
 the jurisdiction of the court, viz. that the Curtin v. Decker (1881 ), 5 Fed. Rep. 385, 
 validity of the liens in question depended 386 ; Jackson v. Mutual Life Ins. Co. 
 upon the construction of a law of the (1878), 60 Ga. 427. 
 
 United States, the question being whether ^ Insurance Co. v. Pechner (1877), 95 
 
 a guaranty of bonds by the District of U. S. 183. 
 
 Columbia was li^Zra vires or not. 6 Gibson v. Bruce (1883), 108 U. S. 
 
 2 Blackburn v. Selma, M. & M. E. Co. 661 ; Mansfield, C. & L. M. Ry. Co. v. 
 (1879), 2 Flip. 525. Swan (1884), 111 U. S. 379. 
 
 ' For a more detailed review of this ' Home Ins. Co. v. Morse (1874), 20 
 
 subject the practitioner will, of course, refer Wall. 445 ; Insurance Co. v. Dunn (1873), 
 
 to other treatises. 19 Wall. 214 ; Eanouse v. Martin (1853), 
 
 < McLean v. St. Paul & Chicago R. Co. 14 How. 23 ; 15 How. 198 (1853). 
 (1870), 16 Blatch. 309 ; Chicago, St. 
 
438 RAILWAY BONDS AND MORTGAGES. [CHAP. XXII. 
 
 operating a railroad ia a State by a foreign corporation shall be 
 regarded as a waiver of the rights of the latter to remove suits 
 against it is unconstitutional and ineffective as a statutory 
 
 waiver.^ 
 
 Nor can a State, by making special provisions for the trial of any 
 particular controversy, as, for instance, the amount of compensa- 
 tion which shall be paid to the owner of land condemned by the 
 exercise of the right of eminent domain, deprive a litigant of the 
 right of removal.^ 
 
 § 434. What is a Controversy. — A controversy within the mean- 
 ing of the act of Congress is involved in a suit whenever any 
 property or claim of the parties capable of pecuniary estimation 
 is the subject of litigation, and is presented by the pleadings for 
 judicial determination.^ 
 
 Hence, although the right of eminent domain is one that apper- 
 tains to the sovereignty of the State in which the land to be con- 
 demned is situated, and the United States, a separate sovereignty, 
 cannot interfere with the exercise of that right, yet when the 
 sovereign power attaches conditions to its exercise, the inquiry 
 whether the conditions have been observed is a proper matter for 
 judicial cognizance ; and if that inquiry takes the form of a pro- 
 ceeding before the courts between parties, the owners of the land 
 on the one side and the company seeking the appropriation on the 
 other, there is a " controversy " which is subject to the ordinary 
 incidents of a civil suit, and the suit involving it is therefore 
 removable to the federal courts if the requisite conditions of 
 citizenship exist.* 
 
 § 435. Removal by Consent. — The general rule is that an action 
 pending in a State court cannot be removed to the United States 
 Circuit Court by written stipulation, where there is nothing in 
 such stipulation or in the record to show that by reason of the 
 subject-matter or the character of the parties the latter court can 
 take cognizance of it.^ 
 
 But if the stipulation by which the parties agree to remove the 
 cause binds them to do nothing more than they might by an in- 
 junction of the federal court have been compelled to do, the juris- 
 
 1 Baltimore & Ohio E. Co. v. Gary U. S. 403, 408 ; Pacific R. R. Removal 
 (1876), 28 Ohio St. 208. Cases (1885), 115 TJ. S. 1 ; Colorado Mid- 
 
 2 Colorado Midland R. Co. v. Jones land R. Co. v. Jones (1886), 29 Fed. Rep. 
 (1886), 29 Fed. Rep. 193. 193. 
 
 3 Gaines u. Fuentes (1875), 92 U. S. <> People's Bank a. Calhoun (1880), 102 
 10, 20. U. S. 256. 
 
 1 Boom Co. V. Patterson (1878), 98 
 
§§ 43G-438.J CITIZENSHIP and removal op causes. 
 
 439 
 
 diction of the latter will not be defeated/ and the parties can 
 admit facts upon which the jurisdiction depends.^ 
 
 A citizen of Ohio having brought in Ohio an action for damages 
 for personal injuries against the receivers of a New York railroad 
 corporation who were citizens of New York, which injuries were 
 sustained on an Ohio railroad leased by the New York corpora- 
 tion, the Ohio and New York companies were made parties defend- 
 ant. Such a case was held to have been properly removable on 
 motion of the receivers to the federal court, on the ground that 
 the sole controversy was between the plaintiff and the receivers.^ 
 
 § 436. Who may remove a Cause. — Who may remove a cause 
 is a question which turns entirely upon the construction of the 
 various statutes which have, from time to time, regulated removal 
 proceedings. Under the act of 1789, only defendants could 
 exercise the right when sued where they did not reside. The 
 act of 1867 extended the right of removal to both plaintiff and 
 defendant, and this enlargement of the right was continued by 
 the act of 1875 ; * but by the act of 1888 the right was once 
 more restricted to the defendant or defendants. 
 
 A federal court which has appointed a receiver of a railroad 
 company in a foreclosure suit, will have jurisdiction of an action 
 against its receiver for injuries caused by his employees, as ancil- 
 lary to the main suit, without regard to the citizenship of the 
 parties. And if such a suit be first brought in a State court, it 
 can be removed to the federal court.^ 
 
 § 437. Amount involved in Suit. — The amount which must be 
 involved in a suit to entitle a party to remove it was fixed at $600, 
 exclusive of costs, until the enactment of the statute of 1887, 
 which fixes the limit at $2,000, exclusive of interest and costs. 
 
 § 438. Removal vrhen there are several Parties on either Side. — 
 The general rule which has been adhered to through all the 
 
 1 People's Bank v. Calhoun (1880), 102 held that the court might presume from 
 
 U. S. 256. Here the stipulation was made the action of the parties, and of the court 
 
 in a case in which a bank was attempting below, that jurisdiction appeared on the 
 
 in a State court to enforce under an attach- face of the record which had been destroyed, 
 ment a lien conflicting with that of the ' Chamberlain v. New York, Lake Erie, 
 
 mortgage, which the trustees were foreclos- & Western B. Co. et al. (1895), 71 Fed. 
 
 ing in the federal court. Eep. 636. 
 
 ^ Railroad Company i>. liamsey (1874), * Burnham v. Chicago, Dubuque, & 
 
 22 Wall. 322, 326. Here the record had Minnesota E. Co. (1876), 4 Dill. 503, 
 
 been burnt after the removal of the case to where one of the defendants was a cor- 
 
 the federal court, and the parties having poration chartered in the State where suit 
 
 asked that the record be renewed, it was was brought. 
 
 partially renewed, but made no mention of 5 Carpenter v. Northern Pac. E. Co. 
 
 facts necessary to give jurisdiction ; it was ei al., 75 Fed. Eep. 850 (1896). 
 
440 RAILWAY BONDS AND MORTGAGES. [CHAP. XXII. 
 
 various legislation on the subject is that, when there are several 
 plaintiffs or several defendants, all the parties on one side must 
 be citizens of the State where suit is brought, and all on the other 
 side must be citizens of the other State or States.^ 
 
 But in the application of this rule, nominal, formal, and un- 
 necessary parties are not taken into account.^ 
 
 Thus, if individual defendants are joined with a corporation, 
 merely as being agents and officers of the corporation, this joinder 
 may be disregarded for the purpose of deciding whether removal 
 is proper.^ 
 
 So if the relative priority of the claims of a judgment creditor 
 and of a trustee suing for bondholders is the sole controversy, 
 the corporation being insolvent and its stock worthless, the cor- 
 poration, if joined with the judgment creditor, will be regarded as 
 a merely nominal party.* 
 
 So also, where non-resident plaintiffs expressly sue as a class 
 for tlie benefit of a class, all of whom, whether named or not, 
 may avail themselves of tlie decree if obtained, a citizen member 
 of the class who is joined with them may be regarded as an un- 
 necessary party, whose joinder does hot affect the defendant's 
 right of removal.^ 
 
 On the other hand a necessary party who is wrongfully ex- 
 cluded from the proceedings in the State court will be treated in 
 the federal court as an actual party, and the motion for removal 
 determined accordingly.® 
 
 And as it is proper that, when joint parties seek to upset 
 judicial decrees, charge trusts, and fasten supposed liens in con- 
 sequence of joint interests, all of them should be before the court, 
 in order that it may be known to what extent, and in whose 
 favor, a decree may be had, jurisdiction of a suit to have certain 
 bonds declared a lien upon tlie defendant's property cannot be 
 entertained by a federal court, where it is shown that, although 
 the plaintiff himself is a non-resident, he is only one of many 
 joint owners who have assigned their bonds to him for the pur- 
 
 1 See especially case of the Sewing R. Co. (1885), 25 Fed. Rep. 65 ; Cliicago, 
 Machine Companies (1873), 18 Wall. 553, St. Louis, & New Orleans R. Co. v. Mo- 
 where the court, Bradley and Miller, JJ., Comb (1879), 17 Blatch. 371. 
 dissenting, held that the act of 1875 had ' Pond o. Sibley (1881), 19 Blatch. 
 not altered this rule. Compare Hervey v. 189. 
 
 lUinoisMidlandR. Co. (1876), 7Biss. 103. * Hervey v. Illinois Midland R. Co. 
 
 2 Removal Cases (1879), 100 U. S. (1876), 7 Biss. 103. 
 
 457 ; Barney v. Latham (1880), 103 0. S. « McHenry v. New York, P. & 0. R. 
 
 205; Pond v. Sibley (1881), 19 Blatch. Co. (1885), 25 Fed. Rep. 65. 
 189; Hervey ». Illinois Midland R. Co., 7 * Hack i'. Chicago &G.S.R. Co. (1885), 
 
 Biss. 103 ; McHenry v. New York, P. & 0. 23 Fed. Rep. 356. 
 
§§ 439, 440.] CITIZENSHIP and removal op causes. 441 
 
 pose of the litigation, and that those who hold a majority interest 
 in the bonds are citizens of the State where the suit is brought.^ 
 § 439, Arrangement of Parties according to their Real Interests. 
 
 — Prior to the Removal Act of 1875 the pleadings only were 
 looked at, and the rights of the parties in respect to a removal 
 were determined solely according to the position they occupied as 
 plaintiffs or defendants in the suit. Since the enactment of that 
 statute the position of the parties in the record is immaterial. 
 For the purposes of a removal, the matter in dispute may be 
 ascertained, and the parties arranged on opposite sides of that 
 dispute. If in such arrangement it appears that those on one 
 side are all citizens of different States from those on the other, 
 the suit may be removed.^ 
 
 Thus, where a mortgage trustee is made a party defendant to 
 a suit by a bondholder against the railroad company, because 
 such trustee asserts that no duty is imposed on him in respect 
 to the matters involved in the suit, and has refused to bring suit, 
 the court has jurisdiction, even though the complainant and the 
 trustee are citizens of the same State, on the ground that no 
 relief is asked against the trustee, and his interests and those of 
 the plaintiff are identical.^ 
 
 A similar doctrine has been applied where suit was brought 
 against the company, and there were two boards of directors, one 
 illegal and the other legal, and the latter refused to bring suit to 
 redress the wrong complained of. Their interests being really 
 identical with the interests of the complainants in the suit, the 
 jurisdiction of the federal court was held not to be defeated by 
 the fact that they were citizens of the same State as those com- 
 plainants.* 
 
 Still less can the citizenship of a trustee who is not a party 
 in fact, and has refused to be made a party or otherwise execute 
 the trust, defeat the right of removal.^ 
 
 § 440. Introduction of New Party inefifectual to divest Jurisdiction. 
 
 — After the jurisdiction of the federal court has once attached, it 
 
 • Sahlgaard U.Kennedy (1882), 13 Fed. * Pond t>. "Vermont Valley E. Co. 
 
 Rep. 242. (1874), 12 Blateh. 280. 
 
 "^ Removal Cases (1879), 100 U. S. 457, ' Hack v. Chicago & G. S. K. Co. 
 affirmed in Pac. R. Co. v. Ketchum (1879), (1885), 23 Fed. Rep. 356. 
 101 U. S. 289, 298; Turner v. Farmers' As to the jurisdiction of a federal court. 
 Loan & Trust Co. (1882), 106 U. S. 552, growing out of the different citizenship of 
 555 ; Coal Co. v. Blatchford (1870), 11 the parties, and the arrangement of par- 
 Wall. 172, 174. ties, see Kildare Lumher Co. v. National 
 
 » Pacific R. Co. V. Ketchum (1879), 101 Bank of Commerce et al., 69 Fed. Kep. 2 ; 
 
 U. S. 289, followed in Barry v. Missouri, s. o. 16 C. C. A. 107 (1895). 
 K. & T. R. Co. (1886), 27 Fed. Rep. 1. 
 
443 RAILWAY BONDS AND MORTGAGES. [CHAP. XXII. 
 
 cannot be ousted by the fact that, without the consent or con- 
 currence of the original plaintiff, a citizen of the same State as 
 the defendants is, by leave of the court, made a party plaintiff.^ 
 
 § 441. The Rule that, where the State is a Party to the Suit, the 
 federal courts have no jurisdiction, is not applicable where 
 the State is merely a party in interest, but not a party to the 
 record. The United States Circuit Court, therefore, has juris- 
 diction in such a case, where it has jurisdiction of the State's 
 agent who has charge of the property as a trustee, and where the 
 property which is the subject of the trust is stock and shares in 
 a railroad company held by it in pledge for the security of a debt 
 due to the complainant.^ 
 
 § 442. Separable Controversies. — By the Removal Act of 1875 
 it was provided that when in certain suits there should be a con- 
 troversy which was wholly between citizens of different States, 
 and could be fully determined between them, either one or more 
 of the plaintiffs or defendants actually interested in such con- 
 troversy might remove the suit to the Circuit Court of the United 
 States, and the act of 1887 continues this privilege as respects 
 the defendants. Under the earlier act the residence of one 
 of the defendants in the State where suit is brought will not 
 defeat the right, provided that the controversy between the re- 
 maining parties is one which can be wholly determined between 
 tiicm; as where mortgage trustees who are citizens in Massa- 
 cliusetts bring suit against the debtor company, an Iowa cor- 
 poration, and join as defendants an Illinois and an Indiana 
 corporation, who claim liens on the railroad property. Here 
 there is a controversy as to the priority of liens lying wholly 
 betvreen citizens of different States, and the cause is removable.^ 
 
 So also a party who intervenes in a suit, and asks to have the 
 priorities determined between his own lien and the one which 
 it is the object of the suit to enforce, has a right to remove the 
 cause.* 
 
 1 Graham o. Boston, Hartford, & Erie was dominus litis, and the suit must stand 
 
 K. Co. (1883), 14 Fed. Eep. 753, 762. The or fall on the ca.se which he makes. If 
 
 court in this case held that jurisdiction the admission of this party was an error 
 
 once having attached, it could not be de- of the court, it should not prejudice the 
 
 feated by the fact that the parties whom original plaintiff, as it was not done at 
 
 the plaintiff represented were disqualified, his instance. 
 
 He neither consented nor concurred in the ^ gwasey v. North Carolina Railroad 
 
 making of this citizen a party. The ad- Co. (1874), 1 Hughes, 17. 
 mission of the latter by leave of the court ' Burnham i: Chicago, Dubuque, & 
 
 did not, in a jurisdictional sense, make Minnesota R. Co. (1876), 4 Dill. 603. 
 him a plaintifl'. He acquired thereby no * Snow v. Texas Trunk R. Co. (1882), 
 
 control of the suit. The original plaintiff 4 Woods, 394. 
 
§ 443.] CITIZENSHIP AND EEMOVAL OP CAUSES. 443 
 
 So also a suit to enforce a lien for professional services against 
 the purchasers of a-railroad at the foreclosure sale which termi- 
 nated the suit in which the services were rendered, is not a graft 
 upon or appendage to the original suit, and may, if the other 
 requisite conditions exist, be removed to the federal court.^ 
 
 So also there is a separable controversy which renders a cause 
 removable when the questions involved are whether certain 
 bonds which the complainant seeks to enforce by obtaining a 
 foreclosure of the mortgage securing them are valid debts against 
 the company, and whether the officers of the company have been 
 guilty of the breaches of trust alleged against them.^ 
 
 On the other hand, where a receiver has been appointed for a 
 corporation in a State court, and empowered to make contracts, 
 a contractor litigating with the receiver and other claimants in 
 that court as to what he is entitled to have paid him on his con- 
 tract cannot remove the case to the United States Circuit Court. 
 Under such circumstances, whatever controversy there is has 
 arisen in that court in the administration of the property or assets 
 which it has taken in charge. It is nob the case of an independ- 
 ent controversy which existed when the suit was commenced, 
 but one which had arisen in the execution of the power of the 
 court.* 
 
 Nor does a creditor's bill to subject incumbered property to 
 the payment of his judgment, by sale and distribution of the 
 proceeds among lienholders according to priority, create a sepa- 
 rate controversy as to the separate lienholders, parties respondent, 
 within the meaning of the Removal Act, although their respec- 
 tive defences may be separate.* 
 
 § 443. What does not affect the Right to remove. — Collateral 
 issues connected with the property in the State court do not 
 destroy the right of removal, providing the parties desiring to 
 remove are within the statute.^ 
 
 Even if decrees had been made and appeals taken therefrom.^ 
 
 Nor in a suit by a bondholder to foreclose the mortgage will 
 
 1 Pettus V. Georgia Railroad & Bkg. « Osgood v. Chicago, Danville, & Vin- 
 Co. (1879), 3 Woods, 620. cenues E. Co. (1875), 6 Biss. 330. 
 
 2 OsRood V. Chicago, Danville, & Vin- « Farmers' Loan & Trust Co. v. Chi- 
 cennesR. Co. (1875), 6Biss. 330. cago, Pekin, & South Western R. Co. 
 
 8 Buell V. Cincinnati, Effingham, & (1879), 9 Biss. 133. But it seems that 
 Quincy Construction Co. (1881), 9 Fed. the decision of the higher court of the 
 Rep. 351. State upon such questions will be carried 
 
 ♦ Fidelity Ins. Co. v. Huntington out by the federal court in the same man- 
 (1886), 117 F. S. 280. ner as they would have been by the State 
 
 court if the cause had remained there. 
 
444 RAILWAY BONDS AND MORTGAGES. [CHAP. XXII. 
 
 the fact tliat there are various judgment creditors whose rights 
 are subject to the prior liens of the bondholders affect the power 
 to remove, as their rights remain unchanged. 
 
 Nor will that right be affected by the fact that a judgment 
 creditor has filed a cross-bill, for then it would always be in the 
 power of a creditor to prevent the operation of the statute.-^ 
 
 The fact that the sheriff, under an order of the State court, is 
 in possession of the property which is the subject-matter of the 
 suit does not defeat the right of removal.^ 
 
 Nor will possession by the trustees under the order of a State 
 court, made in a suit by the stocliholders of a railroad company, 
 against the company and its directors, charging the latter with 
 certain wrongful acts to the injury of such stockholders, affect 
 the right to remove a suit brought by bondholders under a deed 
 of trust which is paramount to the rights of the stockholders. 
 In such a case the possession will follow into the federal court.^ 
 
 Since any action by a State court in a cause wiiich has been 
 properly removed is a usurpation, the fact that the party at 
 whose instance it was removed has, after the removal, contested 
 the suit in the State court does not, after judgment against him, 
 constitute a waiver on his part of the question of the jurisdiction 
 of the State coxirt to try the case.* 
 
 The fact that property is acquired for the purpose of enabling 
 a party to sue in the federal courts will not defeat his right to 
 sue therein, provided the right is otherwise perfect.^ 
 
 The motive of the transfer under such circumstances will not 
 be inquired into.^ 
 
 The only ground of objection that is valid being that the 
 assignor or grantor is the real party in interest, and the plaintiff 
 on the record nominal and colorable, his name being used merely 
 for the purpose of jurisdiction.' 
 
 1 Osgood V. Chicago, Danville, & Vin- ' Scott v. Clinton & Springfield E. Co. 
 cennes R. Co. (1875), 6 Biss. 330. (1876), 6 Biss. 529. 
 
 2 Kern K. Huidekoper (1880), 103 U. S. * Insurance Co. v. Dunn (1875), 19 
 485. The court distinguished the circum- Wall. 214 ; Removal Cases (1879), 100 U. S. 
 stances from those in such ca.ses as Free- 457 ; Railroad Co. v. Mississippi (1880), 
 man v. Howe (1860), 24 How. 450, whicli 102 U. S. 135 ; Kern v. Huidekoper (1880), 
 decide that property held by an officer of 103 0. S. 485. 
 
 the court, by virtue of process is.sued in a * Blackburn v. Selma, M. & M. R. Co. 
 
 cause pending therein, cannot be taken (1879), 2 Flip. 525. 
 
 from his possession by the officer of an- ^ McDonald v. Smalley (1828), 1 Pe- 
 
 other court of concurrent jurisdiction, ters, 620. 
 
 upon process issued in another case pend- ' Smith v. Kemochen (1849), 7 How. 
 
 ing in the latter court. To the same effect 198. 
 
 see Osgood v. Chicago, Danville, & Vin- 
 
 cennes R. Co. (1875), 6 Biss. 330. 
 
§ 444.J CITIZENSHIP AND KEMOVAL OP CAUSES. 445 
 
 § 444. The whole Cause is removed. — The removal of the con- 
 troversy from the State to the Federal court takes the whole 
 suit, though there may be other controversies in it, and the 
 subject-matter of the suit is in possession of the State court.^ 
 
 The rule is not altered by the fact that the removal of the 
 separable controversy which takes the whole cause will have the 
 effect of bringing into the federal court another controversy 
 which is between citizens of the same State. In this respect the 
 jurisdiction of that court is larger than can be obtained by an 
 action brought there in the first instance.^ 
 
 After a proper petition and bond have been filed in the State 
 court, the filing of the transcript of the record in the United 
 States Circuit Court invests that court with full jurisdiction of 
 the cause, irrespective of the action of the State court.^ The 
 general principle being that, if the cause is removable, and the 
 statute providing for its removal has been complied with, no 
 order of the State court is necessary to confer jurisdiction on 
 the court of the United States, and no refusal of such an order 
 can prevent this jurisdiction from attaching.* 
 
 Since the State court has no jurisdiction in granting or deny- 
 ing the removal after the petition and bond are duly filed, it is 
 immaterial that the filing was made in vacation.^ 
 
 Every step which a State court takes in the exercise of juris- 
 diction in a case, after an application has been made in proper 
 form for its removal, and facts submitted which are such as to 
 bring it within the provision of the act of Congress, is coram 
 non judice and absolutely void.^ 
 
 The jurisdiction of a court of the United States to which a 
 cause has been removed from a State court relates back to the 
 time of the original service of process.'^ 
 
 1 Farmers' Loan & Trust Co. v. Chi- Louis, & Pao. E. Co. (1885), 23 Fed. Eep. 
 cago, Pekin, & South Western E. Co. 613. 
 
 (1879), 9 Biss. 133; HerTey v. Illinois ^ Kern u. Huidekoper (1880), 103 U. S. 
 
 Miilland R. Co. (1876), 7 Biss. 103 ; Kern 485. 
 
 V. Huidekoper (1880), 103 U. S. 485 ; Os- < Insurance Co. v. Dunn (1875), 19 
 
 good u. Chicago, Danville, & Vincennes Wall. 214, followed in Kern d. Huidekoper 
 
 R. Co. (1875), 6 Biss. 330. (1880), 103 TJ. S. 485. 
 
 It seems, as stated above, that the ^ Osgood v. Chicago, Danville, & Tin- 
 decisions of the higher court of the State cennes E. Co. (1875), 6 Biss. 330, fol- 
 upon such incidental questions will be lowed in Owens v. Ohio Central R. Co. 
 only carried out by the federal court in (1884), 20 Fed. Eep. 10, 15. 
 the same manner as would have been ' Gordon v. Longest (1842), 16 Pet. 
 done by the State court if the cause had 97 ; Kern v. Huidekoper (1880), 103 U. S. 
 remained there. Farmers' Loan & Trust 485. See also Yulee v. Vose (1879), 99 
 Co. V. Chicago, Pekin, & South Western U. S. 539, 546. 
 E. Co. (1879), 9 Biss. 133. ' Owens v. Ohio Central E. Co. (1884J, 
 
 2 Central Trust Co. v. Wabash, St. 20 Fed. Eep. 10. 
 
446 RAILWAY BONDS AND MORTGAGES. [CHAP. XXII. 
 
 And it seems that where the State law allows service in 
 chancery proceedings by publication, and a cause is removed 
 after publication, but before proof thereof has been filed in the 
 State court, the State court will thus have acquired jurisdiction 
 by such publication, and that the federal court will retain it.^ 
 
 § 445. What bars the Right of Removal. — To bar the right of 
 removal, it must appear that, when the application was made, the 
 trial of the State court was actually in progress in the orderly 
 course of proceedings.^ 
 
 Ex parte orders made without notice to the defendant are 
 not a " final trial or hearing " which cuts off the right of removal. 
 Hence the entry, before the application for removal, of an 
 office order, that the bill will be taken pro confesso as against 
 two of several defendants, for want of a formal appearance by 
 paper filed, such order under the rules not being absolute, will 
 not prevent a removal.^ 
 
 § 446. When the Petition and Bond must be filed. — Under the 
 provision that the petition for removal of the cause shall be filed 
 in the suit in the State court before the term at which said 
 cause could be first tried, the petition is filed in time if, when 
 it is filed, there has been no issue made up in the case on wliich 
 the case could be tried, although a term has elapsed during 
 wliich that might have been done.* 
 
 The rule as to the petition's being in time if presented before 
 issue joined is applicable to a case iu which the removal is 
 petitioned for by parties intervening in the original suit.^ 
 
 § 447. Contents of Application. — In a Suit by a corporation of 
 one State against a citizen of another State it is not necessary 
 in a petition for removal by the defendant to state that he is a 
 citizen of such other State, and it is not necessary to state that 
 he was such citizen when the suit was commenced.® 
 
 But if the application is grounded on the federal law which 
 permits a defendant to remove a cause on a petition that he has 
 a defence arising under the constitution, or a treaty or law of the 
 United States, it must not be concluded in merely general terms, 
 but must specifically set forth what the defence is. If the nature 
 of the defence is neither shown by the petition nor appears from 
 
 1 Turner v. Indianapolis, B. & W. R. (1876), 6 Biss. 529 ; s. 0. 21 Fed. Cas. 
 Co. (1878), 8 Biss. 380 ; s. 0. 24 Fed. 820, Case No. 12,527. See also Yulee v. 
 Cas. 367, Case No. 14,259. Vose (1879), 99 U. S. 539, 545. 
 
 2 Removal Cases (1879), 100 U. S. 457. ^ Snow v. Texas Trunk R. Co. (1882), 
 8 McHenry ;;. New York, P. & 0. R. 4 M^oods, 394. 
 
 Co. (1885), 25 Fed. Rep. 65. *> Chicago, St. Louis, & New Orleans 
 
 * Soott V. Clinton & SpringEeld R. Co. R. Co. u. McComb (1879), 17 Blatch. 371. 
 
§§ 448-452.] CITIZENSHIP and removal op causes, 447 
 
 the record, the defendant is not entitled to a removal. Whether 
 the necessary conditions entitling him to a removal is a question 
 ■which may be examined into by a State court.^ 
 
 § 448. Formal Requisites of Record and Petition. — It is not 
 essential that the record be certified by the judge of the State 
 court : the attestation of the clerk under the seal of the court 
 is sufiBcient. Nor is it necessary that the petition for removal be 
 verified by affidavit.^ 
 
 § 449. Bringing up the Record. -^ Where the record of the State 
 court is before the United States Circuit Court, the issue of a 
 writ of certiorari by the latter court would be a useless act.^ ■ 
 
 § 450. Irregularities in the Removal of a Cause. — These do not 
 vitiate it, nor authorize the federal court to remand or dismiss 
 it; if it lias jurisdiction, the cause should be retained.* 
 
 § 451. Waiver of Objections to Removal. — Waiver of objections 
 to removal founded on the citizenship of the parties or on irregu- 
 larities in the bond will be implied, if such objections are not 
 raised in eighteen months.^ 
 
 § 452. Requisites of Removal Bond. — Nothing is to be secured 
 by the bond in removal cases but the filing of the transcript in 
 the United States Circuit Court on the first day of its (then) next 
 term, and the payment of any costs that may be awarded by that 
 court in case it shall hold that the suit had been wrongfully or 
 improperly removed. " Good and sufficient security " is all that is 
 required, and this is satisfied if there is one surety able to respond 
 to the condition of the bond. The State court has no discretion 
 in such a matter. Its action is governed by fixed principles. 
 Hence, if no objection is made to the pecuniary responsibility of 
 the one person who signed as surety, and was competent under 
 the laws of the State to do so, it is an error for the court to refuse 
 to accept the bond because a second surety was an attorney of the 
 court, who was prohibited by the laws of that State from becom- 
 ing such a surety.^ 
 
 1 Texas & Pacific Ry. Co. v. McAllister ^ Hervey v. Illinois Midland E. Co. 
 (1883), 59 Tex. 349 ; 12 Am. & Eng. R. (1880), 3 Fed. Rep. 707. 
 
 R. Cas. 289, where the doctrine of the text ^ Removal Cases (1879), 100 U. S. 457. 
 
 was applied in the case of a petition for For a discussion as to the effect of the act 
 
 ri'iiioviil presented by a corporation char- of 1875 upon the requisites of a bond, 
 
 tered by Congress. where the application to remove is based 
 
 2 Osgood V. Chicago, Danville, & Vin- on the "local prejudice" sections of the 
 cennes R. Co. (1875), 6 Biss. 330. act of 1867, see Farmers' Loan & Trust 
 
 * Siott V. Clinton & Springfield R. Co. Co. v. Chicago, Pel;in, & South Western 
 (1876), 6 Biss. 529; s. c. ±1 Fed. Cas. E. Co. (1879), 9 Biss. 133; s. c. 8 Fed. 
 820, Case No. 12,527. Cas. 1043, Case No. 4665. 
 
 * Osgood V. Chicago, Danville, & Vin- 
 cennes E. Co. (1875), 6 Biss. 330. 
 
448 RAILWAY BONDS AND MORTGAGES. [CHAP. XXII. 
 
 Thus when a foreign railroad corporation purchases the rights, 
 titles, properties, and franchises of a domestic railroad corpora- 
 tion, which latter corporation is, by the terms of its charter, 
 authorized to sell such rights, titles, properties, and franchises, 
 and the purchasing company assumes all the liabilities of the 
 purcliased road, and becomes merged and consolidated with it, 
 doing business under its charter, such purchasing company be- 
 comes a domestic coi'poration. 
 
 A like result will follow from a purchase under an act author- 
 izing the sale of two domestic corporations to a foreign corpora-- 
 tion, and providing that such sale shall pass the title to the 
 corporate franchises and property, and that the purchasing com- 
 pany shall thereby "become possessed of the rights of charter 
 and property sold," and thereafter have, hold, and use the same 
 in its " own name and right." 
 
§§ 453, 454.] 
 
 PLEADINGS. 
 
 449 
 
 CHAPTER XXIII. 
 
 PLEADINGS. 
 
 j 453. Introductory. 
 
 454. The Bill in Foreclosure Suits and 
 
 Demurrers. 
 
 455. The Bill in Suits for Possession. 
 
 § 456. Supplemental Bills. 
 
 457. The Answer. 
 
 458. Cross-bills. 
 
 459. Dismissal of Bill, and its Effects. 
 
 § 453. Introductory. — This chapter contains a summary of 
 various rulings on points of equity pleading which have been 
 decided in cases falling within the scope of this treatise.^ 
 
 § 454. The Bill in Foreclosure Suits. — The ownership of the 
 bonds which are the subject of a foreclosure suit is sufficiently 
 alleged, where the complaint avers that the coupons maturing at 
 a certain time are " due and wholly unpaid, together with interest 
 thereon, to your orator and other holders of the bonds." ^ 
 
 In a complaint to foreclose as an equitable mortgage an instru- 
 ment executed by a corporation, an allegation, in substance, that 
 certain parties made defendants claimed some interest in a lien 
 upon the mortgaged premises, but that such interest or lien, if 
 any, was junior and subsequent to the lien of plaintiff's mortgage, 
 is sufficient.^ 
 
 A bill for foreclosure is defective as an original bill when it 
 does not give a sufficient description of the mortgaged premises, 
 nor show the terms and conditions of the mortgage, nor the 
 amount secured by it, nor the sum due and unpaid by the 
 mortgagor.* 
 
 ^ Daniell's Chancery Pleading and Prac- 
 tice, except so far as It illustrates doctrines 
 based upon recent orders of the English 
 Court of Chancery, may be considered as an 
 authoritative commentary by which the 
 equity rules promulgated by the Supreme 
 Court in 1842 are to be interpreted. See 
 the note of Mr. Justice Bradley in Thom- 
 son V. Wooster (1885), 114 U. S. 104, 112. 
 
 2 Toler V. East Tennessee, Va. & Ga. 
 Ey. Co. (1894), 67 Fed. Eep. 168. 
 
 ' Howard v. Iron & Laud Company of 
 Minnesota et al. (1895), 62 Minn. 298 ; 
 8. c. 64 N. W. Rep. 896. 
 
 1 Mercantile Trust Co. v. Kanawha & 
 0. R. Co. (1889), 39 Fed. Kep. 337. In 
 this case the bUl in question was filed in a 
 circuit different from that in which the 
 original suit was filed, the relief asked for 
 being the appointment of a receiver. Mr. 
 Justice Harlan ruled that such an appoint- 
 ment could be made only in a separate. 
 
 29 
 
450 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIII. 
 
 But a bill to foreclose a deed of trust executed to secure bonds 
 issued and put in circulation by a corporation and made payable 
 to bearer is not demurrable because it fails to allege to whom 
 such bonds were negotiable in the first instance, or how much 
 was paid for them, or when they were issued. Nor is a bill 
 averring defaults in payment of interest demurrable because it 
 fails to allege that the interest coupons were presented for pay- 
 ment at the ofiice or agency at which they were payable.* 
 
 The only question in an action for foreclosure of an equitable 
 mortgage given by a corporation which lienholders, who are 
 defendants, can raise on a demurrer that the complaint does not 
 state a cause of action, is whether the complaint showed a valid 
 mortgage as between the parties.^ 
 
 Lienholders, defendants to an action to foreclose an equitable 
 
 independent suit, and for the purpose of 
 commencing this the bill hefore him was 
 held to be insufficient. This ruling was 
 substantially an indorsement of the doc- 
 trine applied by Judge Gresham in the 
 Wabash case. Mr. Justice Harlan, in ren- 
 dering his judgment, said : "The request 
 that this court will simply confirm the 
 appointment of a receiver, made in another 
 circuit, and by its order invest that receiver 
 with the possession and control of the 
 mortgaged premises within this district, — ■ 
 no other relief being contemplated, — is, 
 in effect, a request that this court will 
 compel all who have claims and rights in 
 respect to the mortgaged property situated 
 in West Virginia to seek relief in the orig- 
 inal suit for foreclosure pending in another 
 State ; and this, notwithstanding such 
 parties may have the right, under exist- 
 ing legislation, to invoke the jurisdiction 
 of this court, or of some court of general 
 jurisdiction established by this State. It 
 might be well if Congress would so enlarge 
 or regulate the jurisdiction of the courts of 
 the United States as to enable a Circuit 
 Court in which is brought an original suit 
 for the foreclosure of a mortgage resting 
 upon an interstate railroad to take actual 
 possession, by its officers, of the entire line, 
 and of all the mortgaged property, wher- 
 ever situated, and administer it for the 
 benefit of all concerned ; preserving in that 
 mode the unity of the railroad, and the 
 just rights of mortgagors, mortgagees, 
 creditors, as well as those of the general 
 
 public interested in commerce among the 
 States. But there has been no such legis- 
 lation, and we do not see our way clear to 
 effect any such result by judicial orders 
 merely. A good deal was said at the argu- 
 ment about the injury that might possibly 
 ensue to mortgagors, mortgagees, creditors, 
 and the public, if an interstate railroad, 
 covered by one mortgage, be placed under 
 the management of different receivers, each 
 acting under the orders of the court ap- 
 pointing him, and sold under separate 
 decrees, rendered in distinct foreclosure 
 suits brought in different Circuit Courts of 
 the United States. Undoubtedly railroad 
 property of that kind could be very mate- 
 rially injured in value, and the general 
 public put to serious inconvenience, if the 
 courts in which such separate suits are 
 brought decline to act in harmony, or ac- 
 cording to some fixed plan, in the admin- 
 istration and sale of the property. It is 
 not, however, to be assumed that this 
 court, if its jurisdiction is properly invoked 
 in reference to this railroad, so far as it lies 
 iu West Virginia, will fail in any duty 
 imposed upon it by law, or the comity 
 prevailing between courts of equal dignity 
 and authority." Mercantile T. Co. v. 
 Kanawha & 0. Ey. Co., 39 Fed. Eep. 
 337. 
 
 ^ Savannah & Memphis R. Co. v. Lan- 
 caster (1878), 62 Ala. 655. 
 
 ^ Howard u. Iron & Land Company of 
 Minnesota et al. (1895), 62 Minn. 298 ; 
 s. c. 64 K. W. Kep. 896. 
 
§§ 455, 456.] PLEADINGS. 451 
 
 mortgage, cannot, by demurrer, raise the question that plaintiff's 
 mortgage was, on its face, void as to creditors and subsequent 
 incumbrancers.^ 
 
 § 455. The Bill in Suits by Trustees to obtain Possession. — A bill 
 filed by trustees to obtain possession after default with a view to 
 foreclosure usually asks that, unless the sums due to the bond- 
 holders be' paid within a time to be prescribed, possession of the 
 mortgaged premises be given by the corporation to the plaintiffs 
 for the purposes of foreclosure.^ 
 
 § 456. Supplemental Biils.^ — After the filing of an original bill 
 for foreclosure of mortgage for a default in interest, if other 
 defaults of interest occur and it be desired to change the action 
 with a view to declaring the principal debt due, such facts are 
 germane to the foreclosure proceedings, and a supplemental bill 
 is the proper mode to bring them before the court.* 
 
 A supplemental bill will be dismissed, as relating to matters 
 not in their nature supplemental, where it is filled with matters 
 of complaint which have occurred since the original decree, and 
 which have no necessary connection with that decree, such as a 
 claim for the use of rolling-stock, the title to which is still in 
 litigation, and an alleged violation of the charter, and attempt to 
 divert the travel and interrupt the through communication in 
 running the road.^ 
 
 After the trustees have taken a decree pro confesso, bondholders 
 may, by filing a petition which alleges that the original bill was 
 not sufficiently specific in its description of the mortgaged prop- 
 erty to secure their claims to a lien on certain after-acquired per- 
 sonalty, obtain an order directing the trustees to file a suplemental 
 bill distinctly and fully setting up the claim of the petitioners, and 
 making all parties in adverse interest defendants. The litigation 
 under such supplemental bill to be confined to subject-matter 
 thereof.^ 
 
 A supplemental bill being a mere adjunct to an original bill, it 
 is not necessary to serve a subpoena upon any of the parties named 
 therein except those who were not included in the original bill.'^ 
 
 ' Howard v. Iron & Land Company of ^ Minnesota Co. v. St. Paul Co. (1867), 
 
 Minnesota et al. (1895), 62 Minn. 298 ; 6 Wall. 742. 
 s. 0. 64 N. W. Rep. 896. « "Williamson v. New Jersey Southern 
 
 2 See, for instance, Shaw v. Norfolk R. Co. (1874), 25 N. J. Eq. 13. 
 County R. Co. (1855), 5 Gray (Mass.), 162. ' Shaw v. Bill (1877), 95 U. S. 10, 14. 
 
 » Seesenerally DaniellCh. PI., §§ 1515 In this case the defendant company was 
 
 etseq.; Story's Eq. PI., ZZ2 et seq. ruled to answer, and the new parties 
 
 * New York Security & Trust Co. v. appeared by counsel. This was held 
 
 Lincoln St. Ry. Co. et al. (1896), 74 Fed. sufficient. 
 Eep. 67, 70. 
 
452 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIII. 
 
 § 457. The Answer.^ — The answer of stockholders who appear 
 by leave of the court cannot be taken as the answer of the cor- 
 poration itself ; for the latter must not be under oath, but under 
 the common seal of the corporation. An omission on the part of 
 the corporation to appear and answer in conformity with this 
 rule entitles the plaintiffs to an order that the bill be taken pro 
 confesso? ' ' 
 
 Lieuholders made parties defendant in an action to foreclose 
 an equitable mortgage executed by a corporation, the complaint 
 in which action has sufficiently alleged that they claimed such 
 liens, if they have any interest, must set it up by answer.* 
 
 § 458. Cross-bills.* ^- It frequently happens that a complete de- 
 cree cannot be made without a cross-bill, to bring the whole 
 matter in dispute completely before the court. In such a case it 
 becomes necessary for some or one of the defendants to the origi- 
 nal bill to file a bill against the plaintiff, and, if necessary, other 
 defendants to the bill, or some of them, and bring the litigated 
 point before the court.® 
 
 Thus, where a bill has been filed against certain parties and 
 trustees in the mortgage, asking relief on the theory that they 
 have participated in a fraudulent scheme by which the complain- 
 ants were induced to invest in certain bonds, any of the defend- 
 ants who wish to set up their discharge in bankruptcy as a 
 defence may file a cross-bill for that purpose.^ 
 
 So a bill in which a trustee, who has been brought in by supple- 
 mental bill as a defendant, in a suit commenced by an unsecured 
 creditor who asks for a receiver and a sale of the property, — such 
 supplemental bill alleging that the plaintiff's claim is an equitable 
 lien on the property superior to that of the mortgage, — sets up the 
 mortgage and a default in the payment of the bonded interest, and 
 asks for a receivership and a sale, and a decree to the effect that 
 the plaintiff's claim, if a lien at all, is inferior to that of the mort- 
 gage, is properly styled and treated as a cross-bill. Such a bill 
 comes under the head of cross-bills filed to obtain full relief to all 
 parties, touching the matters of the original bill. The mere fact 
 that, so far as it seeks the further aid of the court beyond the pur- 
 poses of defence to the original bill, it is not a pure cross-bill is 
 
 See generally Danlell's Ch. PI., ch. * See Daniell's Ch. PI., ch. xxxiv. j 
 
 xvii. ; Story's Eq. PI., ch. xviii. Story's Eq. PI., §§ 389 et seg. 
 
 2 Bronson v. La Crosse & Milwaukee 5 Daniell's Ch. PI., § 1548 ; Story's Eq. 
 
 R. Co. (1863), 2 Wall. 283, 302. PI., § 392. 
 
 ' Howard v. Iron & Land Company of ^ Bauque Franoo-Egyptienne v. Brown 
 
 Minnesota et al., 62 Minn. 298 ; s. 0. 64 (1885), 24 Fed. Rep. 106. 
 N. W. Rep. 896. 
 
§ 458.] PLEADINGS. 
 
 453 
 
 immaterial. Different relief from that sought in the original bill 
 will necessarily be asked for by a pleading filed on the theory that 
 without it a complete determination of the matters already in liti- 
 gation cannot be obtained.^ 
 
 If the cross-bill sets up new matter which is intimately con- 
 nected with the subject-matter of the original bill, it is error to 
 strike it from the files and refuse leave to defendant to refile and 
 prosecute it. In such a case it is impossible to say that all the 
 facts have been as fully shown as they would have been if the 
 defendant had been allowed to investigate them under the alle- 
 gations of his cross-bill.^ 
 
 When a cross-bill is necessary to bring the parties before the 
 court, in order that equity may be done, the court may order one 
 filed ; but where a party is merely entitled to a cross-bill in order 
 to obtain affirmative relief, he may or may not file it, at his dis- 
 cretion, and without prejudice to his rights.^ 
 
 The circumstances under which the filing of a cross-bill is op- 
 tional are frequently illustrated in those cases where the interests 
 of co-defendants are antagonistic. Thus where the original bill 
 was filed by a judgment creditor denying the validity of the bonds, 
 a cross-bill may properly be filed between the several bondholders 
 who assert antagonistic interests under the deed of trust, for 
 the purpose of adjusting and settling their conflicting liens and 
 priorities.* 
 
 If such co-defendants wish to have the equities between them 
 settled without instituting an original suit for that purpose, the 
 proper course is to make application to the court at an early stage 
 of the litigation. To undertake to do this by filing a cross-bill 
 after the rendition of the decree is a course which has been 
 strongly condemned by the Supreme Court of the United States.^ 
 
 As a general rule a cross-bill can be filed only by one who is an 
 actual party to the suit. But creditors belonging to the classes 
 whose claims are preferred to the mortgage lien, either by virtue 
 of some statute passed for the protection of material-men and 
 laborers, or under the doctrine of Fosdick v. Schall,'' as to the 
 equitable liens acquired by those who, by labor or supplies fur- 
 nished to the company, keep up the company as a going concern, 
 
 1 Morgan's La. & Texas Railroad & St. ' American Loan & Trust Co. v. East & 
 Ship Co. V. Texas Central R. Co. (1890), West R. Co. (1889), 37 Fed. Rep. 242. 
 137 U. S. 171 ; 45 Am. & Eng. R. R. Cas. * Morton v. New Orleans & Selma E. 
 631, citing Story's Eq. PI., § 389. Co. (1885), 79 Ala. 590. 
 
 2 Peoria & Springfield R. Co. v. Bryan * Bronson «. Railroad Company (1862), 
 (1879), 5 Bradw. (111.) 387, citing Jones 2 Black, 524, 528. 
 
 V. Smith (1852), 14 111. 229. « 99 U. S. 235 (1878). 
 
454 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIII. 
 
 may, although not parties to the original suit, file a cross-bill in 
 behalf of themselves and others holding like claims, for the pur- 
 pose of having those claims declared a paramount charge on the 
 earnings of the road in the hands of the receiver.^ 
 
 Such a cross-bill is not multifarious, since the orators are seek- 
 ing, as a class, to enforce a common right against a common 
 fund, which they assert to be in equity, chargeable in their 
 favor.2 
 
 A bondholder is deemed a quasi party to a suit in which he is 
 represented by the trustee of the mortgage, and, as the question 
 of the trustee's fraud is one incidental to the suit, a bondholder, if 
 he wishes to r^ise that question, may and should file a cross-bill 
 for that purpose, and not institute an independent suit. If he 
 takes the latter course, bis bill will be dismissed, and the trustee's 
 suit alone proceeded with, the bondliolder having the option of 
 filing a cross-bill therein, and thus obtaining full relief.^ 
 
 One who is already a party to the suit need not file a cross-bill 
 for the purpose of obtaining the appointment of a receiver.* 
 
 The filing of a cross-bill on a petition without the leave of the 
 court is an irregularity, and such a cross-bill may be properly set 
 aside.^ 
 
 But the permission of the court to file a cross-bill will, upon 
 appeal, be presumed to have been given when action has been 
 taken upon it.^ 
 
 § 459. Dismissal of Bill by Complainant, and its Effect. — The 
 general rule is that a complainant may, upon payment of costs, 
 dismiss his own bill at any time before the rendition of a final or 
 
 > Poland V. Lamoille Valley R. Co. antjority for any wider proposition than 
 
 (1879), 52 Vt. 144 ; s. 0. 4 Am. & Eng. that a person who is a stranger to the suit 
 
 R. R. Gas. 408. cannot file a cross-bill without leave. Neal 
 
 2 Poland V. Lamoille Valley R. Co. v. Foster (1888), 13 Sawyer, 236 ; s. o. 34 
 
 (1879), 62 Vt. 144 ; s. c. 4 Am. & Eng. Fed. Rep. 496, per Deady, J. It seems, 
 
 R. R. Cas. 408. however, very doubtful whether the posi- 
 
 ^ Stern v. Wisconsin Central R. Co. tion thus taken by the learned circuit 
 
 (1880), 1 Fed. Rep. 555. judge can be sustained in view of the lan- 
 
 * Indiana Southern R. Co. v. Liverpool, guage of the Supreme Court of the United 
 
 London, & Globe Ins. Co. (1883), 109 U.S. States in the above case, which is appar- 
 
 168. ently the only direct decision on the sub- 
 
 5 Bronson v. La Crosse & Milwaukee ject. The decision cited in the following 
 
 R. Co. (1863), 2 Wall. 283. There a note certainly implies the existence of a 
 
 stockholder petitioned for leave to answer wider rule than that supposed by Judge 
 
 in the name of the mortgagor corporation, Deady to be laid down in the Bronson case, 
 
 and to file a cross-bill. Leave was granted as the companies whose cross-bills were 
 
 to pat in the answer, but not to file the asserted to have been filed without leave 
 
 bill, which was for this reason set aside, were parties defendant in the original suit. 
 
 This case has been declared not to be an ^ MuUer v. Dows (1877), 94 U. S. 444. 
 
§ 459.] PLEADINGS. '455 
 
 interlocutory decree. After a decree has been made determining 
 the rights of a party defendant, or such proceedings have been 
 taken as entitle the defendant to a decree, the complainant will 
 not be allowed to dismiss his bill without the consent of the 
 defendant.! 
 
 The fact that the defendant has not only answered, but has 
 also filed a cross-bill for the purpose of securing more complete 
 relief, merely affords stronger grounds for the application of the 
 rule. Hence, where several defendants have independent rights 
 in the subject-matter of the suit, and one defendant after having 
 answered, setting up his particular right, files a cross-bill to en- 
 force it, and the cases proceed together and are heard together, 
 and an interlocutory decree is entered to protect and enforce the 
 rights thus set up, entitled as of both suits, the complainant in 
 the original suit cannot, unless upon consent, dismiss his bill, 
 and thus deprive the defendants of the right acquired by the 
 decree.^ 
 
 The exception to the general right of the plaintiff to dismiss 
 his bill on payment of costs is not confined to rights acquired by 
 some order or decree entered in the case. It may arise out of 
 any proceeding in it, and may be found in the nature of the de- 
 fence, the condition of the pleadings, the agreement of the parties, 
 or any circumstance appearing in the record which shows that it 
 would be inequitable to allow the dismissal. Thus where the de- 
 fendant pleaded an estoppel which, if established, would amount 
 to a defeasance of a lien claimed by the plaintiff on his property, 
 and which it was the object of the bill to enforce, and it appeared 
 that this defence could be endangered by a transfer of the lien 
 after dismissal, the plaintiffs were not allowed to dismiss.* 
 
 But the mere ordinary inconveniences of double litigation are 
 not such an injury to the defendant as will prevent the plaintiff 
 from dismissing his bill. Such inconveniences are, in the view of 
 the law, compensated by the costs.* 
 
 A dismissal is usually " without prejudice to the bringing of 
 another suit ; " ^ but the plaintiff will not be allowed to dismiss 
 on these terms, unless the circumstances are such that the court 
 would, upon final hearing, permit the bill to be so dismissed.® 
 
 1 Chicago & Alton R. Co. v. Union » Stevens ». Eailroad Companies (1880), 
 Rolling Mill Co. (1883), 109 U. S. 702, 4 Fed. Bep. 97. 
 
 citing Daniell's Ch. Pr., § 793, and numer- * Ibid. 
 
 ous cases. 6 Daniell's Ch. Pr., § 790, note. 
 
 2 Chicago & Alton E. Co. v. Union « Stevens v. Railroad Companies (1880), 
 Rolling MiU Co. (1883), 109 U. S. 702. 4 Fed. Bep. 97. 
 
456 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIII. 
 
 When an original bill is dismissed before final hearing, a cross- 
 bill filed by a defendant falls with it.* 
 
 So also, after a bill has been dismissed on the ground that it is 
 defective as an original bill, an order made in the same suit, 
 allowing a person to become a party defendant, will be set aside, 
 and his answer and cross-bill will be stricken from the files, but 
 without prejudice to any right that he may have to become a 
 party to a subsequent suit brought by an amended bill.^ 
 
 1 Chicago & Alton E. Co. v. Union ^ Mercantile Trast Co. v. Kanawha & 
 Rolling Mill Co. (1883), 109 U. S. 702. O. B. Co. (1889), 39 Fed. Rep. 337. 
 
§ 460.] 
 
 PARTIES IN SUITS, ETC. 
 
 457 
 
 CHAPTER XXIV. 
 
 PAETIES IN SUITS RELATING TO CORPORATE SECURITIES. 
 
 § 460. Introductory. 
 Art. I. — Rule requiking all Parties 
 
 MATERIALLY INTERESTED IN 
 
 THE Mortgage to be joined 
 EITHER AS Plaintiffs oe 
 Defendants. 
 § 461. Who should be Parties Plaintiff 
 generally. 
 
 462. Bondholders as Parties Plaintiff 
 
 and Committees of Bond- 
 holders. 
 
 463. Effect of pledging the Bonds on 
 
 the Question of Proper Parties 
 Plaintiff. 
 
 464. Who are Necessary Parties 
 
 Defendant. 
 
 465. Prior Mortgagee, when Necessary 
 
 Party. 
 
 466. Subsequent Mortgagee, Necessity 
 
 of joining. 
 
 467. Mortgagee of Divisional Mortgage. 
 
 468. Mortgagor Company. 
 
 469. Stockholders when sufBciently 
 
 represented. 
 
 470. Directors of Construction Com- 
 
 pany to whom Bonds have been 
 issued, when Proper Parties. 
 
 471. Guarantors of the Bonds. 
 
 472. Receivers. 
 
 473. States as Parties Defendant. 
 
 474. United States as a Party De- 
 
 fendant. 
 
 475. States and United States bound 
 
 by Decree, if actually Parties. 
 
 476. Intervention of Parties materially 
 
 interested. 
 Art. II. — Parties in Suits by or against 
 the Trustees or Represent- 
 ative Bondholders. 
 § 477. Introductory. 
 
 478. Representation of Bondholders by 
 
 one or more of their Number. 
 
 479. Bondholder allowed to sue, when 
 
 Trusteeship of Foreign Corpo- 
 ration is vacant. 
 
 480. Bondholder allowed to sue when 
 
 Trustee is Non-resident. 
 
 § 481. Suit by a. Representative Bond- 
 holder, when not permissible. 
 
 482. Participation of Bondholders in 
 
 a Suit begun by one of their 
 Number. 
 
 483. Representative Position of Trustee 
 
 in Suits affecting the Trust 
 Property generally. 
 
 484. Request to begin Suit must come 
 
 from Owner, not merely Holder 
 of Bond. 
 
 485. Suits in which the Trustee is the 
 
 Proper Party Plaintiff. 
 
 486. Bill filed by or against Trustees 
 
 alone not demurrable for De- 
 fect of Parties. 
 
 487. Defences available against the 
 
 Bondholders are available 
 against the Trustee. 
 
 488. Trustee as Party Defendant 
 
 generally. 
 
 489. Joinder of Non-resident Trustee, 
 
 whether necessary. 
 
 490. Trustee's Control of Suits affect- 
 
 ing the Trust Property. 
 
 491. Proper Way to raise Question of 
 
 Trustee's Unfitness. Interven- 
 tion by Bondholder in Trustee's 
 Suit. 
 
 492. Proper Time to intervene. 
 
 493. Intervention must be to enforce 
 
 Rights accruing under Mort- 
 gage. 
 
 494. Intervention by Trustee in Bond- 
 
 holder's Suit. 
 
 495. Action of Trustees, to what Extent 
 
 binding on Bondholders gen- 
 erally. 
 
 496. Discretionary Acts of Trustee are 
 
 binding. 
 
 497. In what Matters Trustee cannot 
 
 bind Bondholders. 
 
 498. Action of Trustee inures to 
 
 Benefit of Bondholders. 
 
 499. Remedies of Dissatisfied Bond- 
 
 holder after Rendition of 
 Decree. 
 
458 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIV. 
 
 § 460. Introductory. — The cases involving controversies as to 
 the proper parties in suits relating to corporate securities may 
 be divided into two classes : the first illustrating the application 
 of the general rule of equity practice, that all persons materially 
 interested in the subject of the litigation ought, under ordinary 
 circumstances, to be made parties thereto, either as plaintiffs or 
 defendants ; ^ the second embracing instances of the well-estab- 
 lished qualification of this rule, that a plaintiff may sue on behalf 
 of himself and of all the others of a numerous class of which he 
 is one, and that one of a numerous class may be brought into 
 court as the only defendant, and be treated for the purpose of the 
 suit as representative of the others in that class, on the allegation 
 that they are too numerous to be made parties.^ The doctrines 
 applied in the first of these classes are in no way peculiar to suits 
 for the enforcement of corporate mortgages, and it would there- 
 fore carry us beyond the scope of the present treatise to refer to 
 any decisions except those actually rendered with regard to suits 
 on railroad mortgages. The second class, dealing mainly with 
 the peculiar functions of the trustee, has developed the familiar 
 doctrine as to suits by or against a representative of a class in 
 such a manner as to have created almost a separate branch of 
 equity practice, and therefore calls for a fuller treatment. 
 
 Article I. — Rule requiring all Persons materially interested 
 IN THE Mortgages to be joined either as Plaintiffs or 
 Dependants. 
 
 § 461. Who should be Parties Plaintiff generally. — As any one 
 who has a real interest in the mortgage or the debt secured 
 thereby may set the machinery of the law in motion to enforce 
 the security, the most natural arrangement of the parties would 
 be that all those whose interests are similar should join as plain- 
 tiffs in a suit for that purpose. But this is not necessary to 
 enable the court to adjudicate their rights. Provided all the 
 persons wliom it is intended to bind by the decree are actually 
 brouglit in as parties, it is immaterial whether they are brought 
 in as plaintiffs or defendants. The familiar rule of equity pro- 
 cedure now embodied in the codes of many States is that any one 
 whose interests are similar to those of the originator of the suit 
 may, if he declines to be a plaintiff, be joined as a defendant. 
 
 The only proper parties to a foreclosure suit are the mortgagor, 
 
 1 DanieU Ch. Pr., p. 190. « Daniell Ch. Pr., p. 191. 
 
§ 462.] PARTIES IN SUITS, ETC. 
 
 459 
 
 the mortgagee, and those who have acquired any interest from 
 either of them subsequently to the mortgage.^ 
 
 Persons belonging to a class represented in a foreclosure suit, 
 or on whose behalf the suit is brought, are regarded as quasi 
 parties. They may have a standing in court, and be heard for the 
 purpose of protecting their interest.^ 
 
 § 462. Bondholders as Parties Plaintiff. — Unless the mortgage 
 qualifies in some way the inherent right of a secured creditor to 
 institute proceedings for the enforcement of his security, it is 
 plain that the bondholders may bring suit to foreclose whenever 
 the necessary breach of condition occurs. So far as the abstract 
 existence of this right is concerned, it is immaterial whether the 
 mortgage is executed directly to the bondholders or in the form 
 of a trust deed.2 The interposition of a trustee, however, although 
 not limiting in any decree the abstract right itself, modifies the 
 remedial procedure for its enforcement to the extent that the 
 bondholders are not allowed to take any active steps in initiating 
 a foreclosure suit, unless they show that the trustee has refused to 
 bring the suit, or is for some reason an improper person to repre- 
 sent their interests. (See Art. 11., below.) 
 
 Be Uruguay Central Ry. Co. (1879), 11 Ch. D. 372, was a 
 proceeding in which a bondholder of a limited railway company 
 presented a winding-up petition, the interest on the bond debt 
 having fallen into arrear. The petition was dismissed on the 
 ground, first, that the bondholder was not a creditor of the com- 
 pany, either at law or in equity, within the meaning of the 
 Companies Acts, his right of action being through the trustees 
 named in the trust deed under the provisions of which the bonds 
 were issued ; and, second, that assuming a bondholder to be a 
 creditor, then, under the act mentioned, regard must be had to the 
 wishes of the bondholders other than the petitioner, all of whom 
 opposed the motion. It is, however, recognized, in this case, as a 
 general rule that an unpaid creditor of a company is entitled to a 
 winding-up order ex dehito justitice. 
 
 1 California Safe Deposit & Trust Co. v. Mason v. York & Cumberland R. Co. 
 Cheney Electric Light, Telephone, & Power (1861), 52 Me. 82; Mercantile T. Co. v. 
 Co. el al. (1895), 12 Wash. 138 ; s. c. 40 Lamoille Valley E. Co. (1879), 16 Blatch. 
 Pac. Rep. 732. 324 ; Webb v. Vermont Central R. Co. 
 
 2 Fidelity Trust & Safety Vault Co. v. (1882), 20 Blatch. 218 ; Farmers' Loan 
 Mobile St. Ry. Co., 53 Fed. Rep. 850 & Trust Co. v. Winona & S. W. R. Co. 
 (1893); Searles r. Jacksonville, Pensacola, (1893), 59 Fed. Rep. 957; Alexander v. 
 & Mobile R. Co. (1873), 2 Woods, 625 ; Central Railroad of Iowa, 3 Dill. 487 ; 
 21 Fed. Cases, No. 12,586. s. c. 1 Fed. Cas. 363, Case No. 166 ; 
 
 8 Chicago, Danville, & Vincennes R. Woods Ry. Law, 1970, 1974. See Chap. 
 Co. II. Fosdick (1882), 106 [J. S. 47, 68 ; XVIII., ante. 
 
460 EAILWAT BONDS AND MORTGAGES. [CHAP. XXIT. 
 
 But a bondholder of a railway company is entitled to maintain 
 an action on behalf of himself and the other bondholders for the 
 specific performance of an agreement contained in the mortgage 
 securing payment of his bonds, upon the refusal of the trustee of 
 the mortgage to bring the action, and whatever rights are vested 
 in the trustee through the mortgage instrument inure to the bene- 
 fit of the bondholders.-' 
 
 A trustee refusing to sue for specific performance of a covenant 
 to bondholders to give an additional security under the mortgage, 
 the bondholder, for himself and others, may bring such action 
 before default upon the bonds.^ 
 
 The bondholders cannot ignore the trustee of the mortgage 
 securing them, and proceed in their own names to foreclose, 
 without showing that they have requested the trustee to proceed 
 and he has refused.^ 
 
 If the company has failed to execute a trust deed to secure its 
 bonds, the bondholders are, of course, the only possible parties 
 plaintiff in any suit which touches their interest in the company's 
 property.* 
 
 Though there may be differences in the immaterial circum- 
 stances of other bondholders from those of the complainant bond- 
 holder in an action against their trustee under a mortgage, it is 
 proper that they be joined as parties plaintiff in his action.^ 
 
 In a foreclosure suit brought by a trustee under different mort- 
 gages of diverse interests, a committee of each series of bonds 
 will be made parties, so that they may represent the interests of 
 each set of bondholders, unhampered by any obligation to opposing 
 interests.^ 
 
 While a trustee in foreclosure proceedings represents all the 
 bondholders, and his acts are binding upon them,^ and though 
 when differences exist between the bondholders it is not improper 
 that he should be governed by the voice of the majority acting in 
 
 1 O'Beirne v. Allegheny & Klnzua Ry. ^ Farmers' Loan & Trust Co. v. North- 
 Co., N. y. L. J., Jan. 26, 1897. ern Pac. R. Co. (1895), 70 Fed. Rep. 423, 
 
 ^ O'Beirne «. A. & K. R. Co., 151 N. Y. following Farmers' Loan & Trust Co. v. 
 
 372. Northern Pac. R. Co. (1895), 66 Fed. 
 
 "Central Electric Co. v. La Grande Rep. 169; Clyde u.Richmond & Danville R. 
 
 Edison Electric Co. (1897), 79 Fed. Co. (1893), 55 Fed. Rep. 445, disapproved. 
 
 Kep. 25. ' Eichter v. Jerome (1887), 123 U. S. 
 
 * Young V. Montgomery & Eufaula R. 246 ; s. c. 8 Sup. Ct. Rep. 233, 246 ; s. c. 
 
 Co. (1875), 2 Woods, 606, 612. 7 Sup. Ct. Rep. 807 ; Kerrison v. Stewart 
 
 5 Indiana, 111. & Iowa R. Co. v. Swam- (1876), 93 U. S. 155, 160 ; Corcoran i'. 
 
 mell, Execr. et al. (1895), 157 111. 616 ; Chesapeake & Ohio Canal Co. (1876), 94 
 
 s. c. 41 N. E. Rep. 989, affirming Same v. U. S. 741, 745 ; Shaw v. RaUroad Co. 
 
 Same, 54 111. App. 260 (1894). (1879), 100 U. S. 605, 611. 
 
§§ 463, 464.] PARTIES IN SUITS, ETC. 461 
 
 good faith and without collusion, if what they ask is not incon- 
 sistent with the provisions of the trust,' his decision is not final 
 or conclusive upon the bondholders. Where different sets of bond- 
 holders, as represented by their committees, differ as to a manner 
 of sale of the property, for instance, or the distribution of the 
 assets, they should be allowed to intervene so as to be heard by 
 the court before a decree is made.^ 
 
 A minority bondholder's bill to foreclose a mortgage will be 
 sustained where the road of the mortgagor is controlled and oper- 
 ated by another company which owns more than one-fourth of the 
 stock and bonds of the mortgagor, notwithstanding the require- 
 ment of the mortgage that the request of one-fourth of the bond- 
 holders was necessary to a foreclosure, especially when his bill 
 seeks an accounting from the company operating the road, alleging 
 that the latter has diverted the earnings of the mortgagor and 
 appropriated them to his own use, and caused the insolvency of 
 the mortgagor, and the examination of its books is either denied 
 him or they are inaccessible to him.^ 
 
 § 463. The Asaignmeut of the Bonda by way of Collateral Security. 
 — Tills does not deprive the pledgor of his right to maintain a 
 suit in behalf of himself and the other bondholders for the protec- 
 tion of their joint interests in the mortgaged property.* But in 
 such a case the pledgee should also be a party .^ 
 
 The pledgee of bonds, on the other hand, may also institute 
 proceedings for the foreclosure of the mortgage by which they 
 are secured.^ But the owner of the bonds should also be made a 
 partyJ 
 
 § 464. Who are Neceasary Parties Defendant. — This question in 
 a suit affecting the mortgaged property depends upon the nature 
 
 ^ First Nat. Bank of Cleveland!). Shedd pany, as he alleged, on behalf of himself 
 
 (1884), 121 0. S. 74, 86; s. o. 7 Sup. Ct. and other bondholders. A bondholder 
 
 Kep. 807. appeared and petitioned, as he and others 
 
 ^ Farmers' Loan & Trust Co. v. Cape dissented from this action of the plaintiff, 
 
 Fear & Y. V. Ry. Co. et al. (1895), 71 Fed. that he be made a party defendant, which 
 
 Rep. 38. See Williams v. Morgan, 111 was allowed. Fraser v. Cooper, Hall, & 
 
 U. S. 684 ; s. c. 4 Sup. Ct. Rep. 638. Co. (1882), 21 Ch. Div. 718. 
 
 Where the equity of redemption in one ' Linder v. Hartwell R. Co. et al. (1896), 
 
 of several mortgages had been purchased 73 Fed. Rep. 320. 
 
 by a company limited, which company * Butler v. Rahm (1877), 46 Md. 541 ; 
 
 had issued debentures to a large amount, s. c. 18 Am. Ry. Eep. 86. 
 which were a charge upon the mortgaged 6 -Wiltsie on Mortgage Foreclosure, 
 
 property, the English court held that all §§ 87, 88, and authorities cited, 
 the debenture-holders, having an interest « McCurdy's Appeal (1870), 65 Pa. St. 
 
 in the equity of redemption, should be 290 ; Morton v. New Orleans & Selma R. 
 
 made parties to a foreclosure action. Grif- Co. (1885), 79 Ala. 590. 
 fith V. Pound (1889), 45 Ch. Div. 653. ' Ackerson et al. v. Lodi Branch E. Co. 
 
 A holder of railway bonds sued a com- (1877), 28 N. J. Eq. 542. 
 
462 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIV. 
 
 and extent of the relief asked. If the proceedings are for fore- 
 closure of the mortgage, it is obvious that where the complainant 
 merely wishes to extinguish the equity of redemption which the 
 mortgagor possesses under the mortgage to be foreclosed, the 
 mortgagor himself is, strictly speaking, the only necessary party 
 defendant.^ 
 
 But in practice a foreclosure suit of such unlimited scope is 
 unknown. Wherever there are several antagonistic liens upon 
 the mortgaged property, the invariable object of such a proceeding 
 is to cut off all subordinate liens, and thus offer for sale a title as 
 free from incumbrances as the case admits. Necessary parties, 
 therefore, are those who must be joined in order to attain that 
 object.^ 
 
 But the mortgagor company is not a necessary or proper party 
 in a suit brought to reach and adjust rights which accrue upon a 
 foreclosure of the mortgage. The rights of the company having 
 been extinguished by the sale, it has no interest in the corporate 
 property to defend or protect, nor can any relief against it be had 
 in respect to that property.^ 
 
 § 465. Prior Mortgagee, when a Necessary Party. — A prior mort- 
 gagee is not a necessary party when the decree cannot injure or 
 affect him. " It can never be indispensable to make defendants of 
 those against whom nothing is alleged, and from whom no relief 
 is asked." * 
 
 Hence a prior mortgagee is not a necessary party where a bill 
 is filed by a junior mortgagee seeking only a foreclosure or sale 
 of the equity of redemption. This rule prevails in the Supreme 
 
 1 Wabash, St. Louis, & Pac. E. Co. v. the Supreme Court of the United States 
 
 Central Trust Co. (1885), 23 Fed. Rep. that an independent controversy between 
 
 513, 514, in which the following pertinent the mortgagor and a third party, one in- 
 
 remarks were made by Judge Brewer : — • volving the question of paramount title, is 
 
 " In the foreclosure of a mortgage there not to be litigated in a foreclosure suit, 
 
 is a certain sense in which you may say yet all those things which simply involve 
 
 that the only indispensable parties are the matters of liens on the property, whether 
 
 mortgagor and the mortgagee. You can prior or not, may be considered in such a 
 
 foreclose that mortgage and divest the suit." 
 
 mortgagor of all his interest, and transfer '^ Wiltsle in Ms work on Mortgage 
 
 it by sale into the mortgagee or any other Foreclosures criticises, very justly, in our 
 
 purchaser, and that without the presence opinion, the extreme looseness with which 
 
 of other incumbrancers as parties. And yet the word "necessary" is often used in 
 
 we all know that there are certainly proper this connection by the courts. See also 
 
 parties, or may be proper parties, other Pomeroy Rem., § 329. 
 than the mortgagor and mortgagees. Sub- ^ Brooks v. Vermont Central R. Co. 
 
 se(iuent mortgagees, of course, are proper (1884), 22 Fed. Rep. 211. 
 parties, in order to cut off any equity of * Payne v. Hook (1868), 7 Wall. 425, 
 
 redemption ; and while it is laid down in 432. 
 
§ 465.] PARTIES IN SUITS, ETC. 463 
 
 Court of the United States,^ and in all other courts of equity both 
 in this country and in England. In Manitoba it was recently 
 held that mortgagees holding the first lien on a railway company 
 and its revenues are not proper parties in a judgment creditors' 
 action, and the inquiry should be confined to subsequent incum- 
 brancers.^ If the State is the prior lienor, this rule will, of itself, 
 be a sufficient ground for dismissing a demurrer to a bill for 
 foreclosure, based on the omission to make the State a party 
 defendant, though such omission may also be justified on ac- 
 count of the impossibility of making the State a party against its 
 consent.^ 
 
 In a suit for an accounting brought against the trustees by the 
 bondholders, it is equally unnecessary to make the claimant of a 
 prior lien upon the trust fund a party to the proceedings.* 
 
 When the prior mortgage is not due, an additional reason 
 exists for holding the owner of such a mortgage not to be a neces- 
 sary party to a foreclosure suit brought by a subsequent mort- 
 gagee, for in that case nothing more than the equity of redemption 
 under the later mortgage could be sold without the consent of 
 the prior mortgagee.^ A contrary doctrine would be equivalent 
 to holding that a prior mortgagee might be compelled to foreclose 
 his lien before the maturity of the debt, a theory inconsistent 
 with the paramount character of that lien.^ 
 
 If the prior mortgage is due, its holder may be compelled to 
 surrender it upon being tendered the sum due thereon.^ 
 
 On the other hand, a prior mortgagee is a proper party to bill 
 for foreclosure, which asks at the same time that a receiver be 
 appointed, and that the net revenues of the receivership be paid 
 to such persons as the court should adjudge to be entitled to 
 them. The priority of the earlier mortgagee should be admitted 
 and no direct relief asked against him.^ 
 
 The reason of this qualification of the general rule is that 
 the effect of the appointment of a receiver is to defeat the power 
 
 1 Jerome v. McCarter (1877), 94 U. S. * Andrews v. Smith (1881), 19 Blatch. 
 734 ; Woodworth v. Blair (1884), 112 100 ; s. o. 5 Fed. Kep. 833, 845. 
 
 U. S. 8 ; Hanna et al. v. State Trust Co. ^ Jerome v. McCarter (1877), 94 U. S. 
 
 et al. (1895), 70 Fed. Rep. 2, 7 ; s. o. 16 734. 
 
 C. C. A. 586. ° Siebert v. Minneapolis & St. Louis E. 
 
 2 Allan V. The Manitoba & N. "W. Ey. Co. (1888), 52 Minn. 148 ; s. c. 53 N. W. 
 Co. (1894), 10 Manitoba, 106. See Grey Rep. 1134. 
 
 V. Manitoba & N. W. Ry. Co. (1897), ' Lambertrille National Bank v. Mc- 
 
 L. R. App. Cas., p. 254. Cready Bag & Paper Co. (N. J. Eq., 
 
 ' Kelly B. Trustees of Alabama & Cin- 1888), 1 Law Rep. Ann. 334. 
 
 cinnati R. Co. (1880), 58 Ala. 489 ; s. c. ^ MUtenberger v. Logansport Ry. Co. 
 
 21 Am. Ey. Rep. 138. (1882), 106 U. S. 286, 306. 
 
464 RAILWAY BONDS AND MOETGAGES. [CHAP. XXIV. 
 
 of those trustees to take possession of and operate the road, as 
 the deed authorizes them to do.^ 
 
 So, also, a prior mortgagee should be made a party where the 
 junior mortgagee is endeavoring to obtain a sale of the entire 
 property or estate, and not merely of the equity of the redemp- 
 tion ; 2 or where there are real doubts respecting the amount of 
 the debt due to the prior lienor.^ 
 
 The grantee of a trust deed alleged to be prior to the mortgage 
 in suit should be made a party to the suit if the defendant so 
 desires, as he has a right to have the question of the priority 
 determined in the proceedings.* 
 
 Senior mortgagees will not be allowed to become parties to an 
 action for the foreclosure of a junior mortgage and contest the 
 accuracy of the judgment rendered therein. If their rights are 
 in any way impaired, they should bring a separate action 
 through their trustees, or, if the trustees are hostile, in their 
 own names.^ 
 
 Where the prior mortgagee is improperly made a party, the 
 usual course is to dismiss the bill as to him, and retain it as to 
 all the other parties ; ® and if a subsequent mortgagee or other 
 incumbrancer brings in a prior mortgagee as a party, for the pur- 
 pose of ascertaining the priorities of the different lienors, and 
 does not offer to redeem the prior incumbrance, the prior mort- 
 gagee may insist upon being dismissed with costs.^ 
 
 In foreclosure proceeding instituted by a junior mortgagee, the 
 prior mortgagee can be made a party only by service of process 
 or voluntary appearance. A general notice calling upon him to 
 present his claims will not make him a party, nor bind him ; ^ in 
 all cases in which he is not made a party, the sale is made subject 
 to the lien of his mortgage.^ 
 
 His rights, not being prejudiced in any way by such proceedings, 
 an order will not be granted making him a party to such proceed- 
 
 1 Tome V. King (1891), 64 Md. 166 ; * Baassw. Chicago & Northwestern Ey. 
 s. c. 21 Atl. Rep. 279. Co. (1876), 39 Wis. 296. 
 
 2 Jerome v. McCarter (1877), 94 U. S. b McHenry's Petition (1878), 9 Abb. 
 734- N. C. (N. Y.)256. 
 
 8 Jerome v. McCarter (1877), 94 V. S. e Wabash, St. Louis, & Pac. Ry. Co. 
 
 734 ; Sutherland v. Lake Superior Ship v. Central Trust Co. (1884), 22 Fed. Rep. 
 
 Canal, Railroad, & Iron Co. (1874), 2 138, 144. 
 
 Flip. 449 ; s. 0, 9 N. B. R. 298 ; Richards ' Daniell's Ch. Pr. 1390 ; Tome v. King 
 
 V. Chesapeake & Ohio R. Co. (1875), 1 (1891), 64 Md. 166; s. c. 21 Atl. Eep. 
 
 Hughes, 28 ; Metropolitan Trust Co. v. 279. 
 
 Tonawanda Valley & Cuba R. Co. (1887), 8 Young v. Montgomery R. Co. (1875), 
 
 43 Hun, 521. 2 Woods, 606, 620. 
 
 » Ibid. 
 
§ 466.] PARTIES IN SUITS, ETC. 465 
 
 ings, and allowing him to contest the accuracy of the judgment 
 entered therein, there being nothing to show him that the suffi- 
 ciency of his security has been impaired by the judgment.^ 
 
 The holder of a mortgage, filing a bill to foreclose the same, 
 need not make other mortgagees parties ; the rights of those 
 whose mortgages have precedence over his he cannot disturb, 
 and this bill will affect the rights of only such subsequent mort- 
 gagees as he makes parties to his suit : they are proper, but not 
 necessary, parties.^ 
 
 8 466. Subsequent Mortgagees, Necessity of joining.^ — From the 
 general principle noticed above, that the question whether there 
 are any necessary parties defendant omitted depends upon the 
 object of the suit, it follows that, wherever the intention of 
 the complainant is to clear the title of incumbrances as far as is 
 possible, having due regard to the paramount rights of prior 
 lienors, every holder of a lien subsequent to that which is being 
 foreclosed must be made a party, in order that his rights may be 
 determined by the decree. In other words, such a lienholder is 
 always a proper, but is never an indispensable, party.* 
 
 If he is not made a party, his right to redeem is unaffected by 
 the decree ;^ and this right passes to one who purchases at a sale 
 in foreclosure proceedings afterwards instituted by such junior 
 lienholders.^ 
 
 Even though the junior mortgagee be made a party to the suit, 
 the terms of tlie decree may show that it was not intended to cut 
 off his lien ; and unless his rights are actually determined, the 
 mere fact that he was made a party does not estop him from 
 afterwards asserting those rights and redeeming from the fore- 
 closure sale.'^ 
 
 1 McHenry's Petition ( 1878), 9 Abb. ^ Jongs on Mortg., § 1431 ; Wiltsie on 
 N. C. (N. Y.) 256. Mortg. Forecl., § 160. 
 
 2 Chandlei- v. O'Neil, Delany, & Mur- « Memphis & Little Eock R. Co. as 
 phy (a corporation), 62 111. App. 418 reorganized v. The State (1881), 37 Ark. 
 (189.5). 632; s. C. 12 Am. & Eng. R. R. Cas. 
 
 8 See generally on this subject a useful 322. 
 collection of cases in the notes to 1 Law- ' Simmons v. Taylor (1885), 23 Fed. 
 
 yers' Rep. Ann. 334 ; 3 Ain. & Eng. E. R. Kep. 849. In regard to the question of 
 
 Cas. 530; 12 Am. & Eng. R. R. Cas. 329. estoppel. Judge Brewer expressed his views 
 
 ' Forrest's Exrs. (-. Luddingtpn (1880), as follows : — 
 68 Ala. 1 ; s. c. 12 Am. & Eng. R. R. Cas. " A second mortgagee is not bound to 
 
 330, and the full list of cases cited in the insist upon a foreclosure of bis mortgage, 
 
 notes to Jones on Mortgages, § 1425, and It matters not whether the first mortgagee 
 
 AViltsie on Mortgage Forecl., § 188. To forecloses or not. The second mortgagee 
 
 thp.se works reference must be made for owes no duty to anybody to act. If the 
 
 f\iller information as to the application of fir.st mortgagee wishes to cut off his equity 
 
 the general rule. of redemption, it is the duty of such first 
 
 30 
 
RAILWAY BONDS AND MORTGAGES. [CHAP. XSIT. 
 
 If the trustee of a subsequent mortgage has been made a party 
 to a foreclosure suit, and it is found that his being a party to the 
 litigation will hinder or defeat the suit, the bill will be dismissed 
 as to him.^ 
 
 § 467. — Mortgagee of Divisional Mortgages. — Such mortgagee 
 is not a necessary party in a foreclosure suit brought by another 
 divisional mortgagee, whose lien operates upon an entirely dis- 
 tinct portion of tlie road.^ 
 
 § 468. Mortgagor Company. — A Company which, during the 
 pendency of such a bill, takes from the operating company, as its 
 successor, the bonds of the mortgagor company, after their ma- 
 turity, will stand in the shoes of the original defendant company.^ 
 
 §469. The stockholders. — The stockholders of the company 
 are sufficiently represented in a suit brought by the holders of 
 municipal bonds, which the company has guarantied, to enforce 
 the priority of a claim as against the stockholders to the proceeds 
 of the foreclosure sale, where not only the company itself, but the 
 committee appointed by the stockholders and bondholders, are 
 made parties to the proceedings.* 
 
 The proper party to impeach the legal title of the purchaser by 
 impressing a trust upon the property in favor of the company, as 
 against the purchasers at a foreclosure sale, is not a single stock- 
 holder, but the corporation which represents the whole body of 
 stockholders." And since the stockholders, being an integral part 
 of the corporation, are regarded as parties to proceedings involving 
 the corporation, they are bound by the decree entered in such 
 
 mortgagee to make him a, party, and to of the mortgage by the decree were that 
 
 take a decree against him ; and if he fails the claim of the second mortgagee was not 
 
 to do that, the second mortgagee is not con- barred in terms, that there was no finding 
 
 eluded. The mere fact that he is made a of the amount due to him, nor any order 
 
 party casts no obligations upon him. He of sale to satisfy his lien, nor in fact any 
 
 may remain silent, and if no decree is reference to that lien except a simple ref- 
 
 taken against him, his rights remain as erence for future determination by the 
 
 though he had not been made a party. No court of so much of its claim as asserted 
 
 one would pretend that, if not made a a first lien upon specific per.sonal property. 
 
 ])arty, his rights are cut off by his mere i Richards v. Chesapeake & Ohio E. 
 
 failure to come into court and ask to be Co. (1875), 1 Hughes, 28. 
 
 made a party. And afterwards in all pro- ^ gronson v. Kailroad Company (1862), 
 
 ceedings by the first mortgagee the second 2 Black, 524. 
 
 mortgagee stands on the defenisive. His « Linder v. Hartwell K. Co. et al. 
 
 rights are perfect, unless at the instance of (1896), 73 Fed. Rep. 320. 
 
 the first mortgagee they are affirmatively * Railroad Company w. Howard (1869), 
 
 cut off, or lost through the running of the 7 Wall. 392. 
 
 Statute of Limitations." In this case the 6 Harpending v. Munson (1883), 91 
 
 grounds assigned by Judge Brewer for his N. Y. 650, 653 ; s. c. 12 Am. & Eng. R. 
 
 conclusion that there was no foreclosure R. Cas. 408. 
 
§§ 470-472.] PARTIES IN SUITS, ETC. 467 
 
 proceedings, and cannot impeach it collaterally on the ground 
 of fraud.i 
 
 Stockholders, on allegations that the directors of a railroad 
 company, for the purpose of sacrificing the interest of the stock- 
 holders, refuse to defend a foreclosure suit, will be allowed to 
 intervene and become parties defendant, so as to protect their 
 own interests and those of other stockholders choosing to join 
 them in the defence.^ 
 
 § 470. Directors. — The directors of a construction company to 
 whom bonds and stock are alleged to have been fraudulently trans- 
 ferred are proper parties, with a view to a discovery, in a suit in 
 which the complainant, besides asking for another relief, insists 
 that those bonds sliould be surrendered.^ 
 
 §471. Guarantors. — The guarantor of the bonds, who after- 
 wards joins the mortgagor in borrowing money to pay the interest 
 coupons, does not thereby become subrogated pro tanto to the 
 rights of the mortgagee, so as to become an indispensable, or even 
 proper, party to a subsequent foreclosure suit. Subrogation does 
 not take place until the payment of the whold debt for which the 
 security is liable.* 
 
 § 472. Receivers. — When a foreclosure suit is instituted after 
 the appointment of a receiver, he is a proper, though not neces- 
 sary,^ party defendant therein. Still less is it necessary to make 
 him a party to a suit already begun in another court when he was 
 appointed ; ^ especially when a decree ^ro confesso has already been 
 taken in the earlier suit, by which the right of the complainant to 
 recover has been ascertained.'' 
 
 1 Graham v. Boston, Hartford, & Erie N. J. Eq. 234 ; Herring v. ISTew York, 
 R. Co. (1886), 118 U. S. 161 ; s. c. 6 Sup. Lake Erie, & Western R. Co. (1887), 105 
 Ct. Eep. 1009 ; 25 Am. & Eng. R. R. Cas. N. Y. 340. 
 
 53. Compare Great Western Tel. Co. for ^ Mercantile Trust Co. v. Pittsburgh & 
 
 Use, etc. V. Gray (1887), 112 111. 630 ; s. c. W. R. Co. (1887), 29 Fed. Kep. 732. 
 
 14 Jf. E. Rep. 214. l Willink v. Morris Canal & Bkg. Co. 
 
 2 Guarantee Trust & Safe Deposit Co. (1843), 4 N. J. Eq. 377. There the court 
 V. Duluth & Winnipeg R. Co. etal. (1895), said, in reply to the contention that the 
 70 Fed. Rep. 803, on authority of Bronson rpceirers should be joined as defendants 
 V. Riiilroad Co. (1864), 2 Wall. 302. (p. 400) : " The title to the property is not 
 
 8 Terhune o. Midland R. Co. of New changed, but a power only is deleo-ated tii 
 
 Jersey (1884), 38 N. J. Eq. 423 ; s. c. 38 the receivers to take charge of it and sell 
 
 Am. & Eng. R. R. Oas. 665. it. These receivers, too, may brine; suits in 
 
 * Columbia Finance & Trust Co. v. their own name, and, for aught I see, in 
 Kentucky Union R. Co. (1894), 60 Fed. the name of the corporation, should they 
 Rep. 794. As to when a guarantor should prefer it ; and if so, they may defend a suit 
 he joined, see generally Jones on Mortg., in the name of the corporation. As a decree 
 § H'''2. pro confesso in this cause was taken against 
 
 * Raynor v. Selmes (1873), 52 N. Y. this company before the receivers were 
 579; Kirkpatrick u. Corning (1884), 38 appointed, by which the right of the com- 
 
468 RAILWAY BONDS AND MORTGAGES. [CHAP. XXlV. 
 
 If the receiver should ask to be made defendant, with a view to 
 making a defence, the court will permit him it at any stage of the 
 proceedings.! 
 
 A receiver is, to the extent of his interest, a proper party to a 
 suit instituted by a stockholder in the mortgagor company to have 
 certain bonds held by the receiver in his official capacity declared 
 ultra vires and illegal.^ 
 
 After the receiver has ceased to exercise his functions, and the 
 property has passed out of his control by a sale under the decree 
 of a State court, he is not a necessary party to a suit brought in a 
 federal court to have the proceedings in the State court avoided 
 on the ground that they were collusive and fraudulent.^ 
 
 § 473. States as Parties Defendant. — The general rule is that 
 the State cannot be made a party to a suit without its consent. 
 For this reason an injunction against the sale of a railroad to 
 satisfy the lien of the State, imposed upon the property of a rail- 
 road company to indemnify it for its indorsement of the company's 
 bonds, will be refused to the holder of a portion of a subsequent 
 issue of sucli bonds, which had recently been declared not binding 
 upon the State. Under such circumstances the relief cannot be 
 given without passing upon the rights of the State, and this would 
 necessitate the joinder of the State as a party.* 
 
 Such a case is to be distinguished from those in which the courts 
 have sustained suits against State officers for the recovery or pro- 
 tection of property belonging to the complainants, in which the 
 State has no interest or right ; and the pretension of the agents 
 in behalf of the State were unconstitutional and void.^ 
 
 But if the State is the real party in interest, the operation of 
 
 plainant to recover is ascertained, and the (1875), 2 Woods, 885, 388, per Bradley, J., 
 
 amount only remains to be settled, and who said: "The State was here in pos- 
 
 more especially as the corporation is not session of this property, and rightfully so. 
 
 put an end to by this act of the court, and The object of this bill could not be effected 
 
 the receivers may appear and controvert except by displacing the State, and subro- 
 
 the amount in the name of the corporation, gating the bondholders in its stead in refer- 
 
 I see no good reason why the proceedings ence to this property, and dispossessing the 
 
 in this cause should be delayed to bring State of the actual possession of the same." 
 
 them before the court." In deciding that such dispossession was not 
 
 1 Willink V. Morris Canal & Bkg. Co. allowable, the learned justice deferred to 
 
 (1S43), 4 N. J. Eq. 377. the opinion of the court of the State in 
 
 " Central Trust Co. v. Wabash, St. which he was sittinfc. Printup v. Cherokee 
 
 Louis, & Pac. Ey. Co. (1885), 23 Fed. R. Co. (1872), 45 Ga. 365. 
 
 Rep. 858. ^ Branch v. Macon & Brunswick R. Co. 
 
 8 Massachusetts Mutual Life Ins. Co. v. (1875), 2 Woods, 385, 388. See also the 
 
 Chicago & A. R. Co. (1882), 13 Fed. Rep. authorities cited in the opinion of Justice 
 
 857. Miller in Cunningham v. Macon & Bruns- 
 
 * Branch v. Macon & Brunswick R. Co. wick E. Co. (1883), 109 U. S. 446. 
 
§ 473.] 
 
 PARTIES IN SUITS, ETC. 
 
 469 
 
 the general rule cannot be evaded by making the State officers the 
 nominal parties.^ 
 
 On the other hand, the mere fact that the State cannot be sued 
 is no reason why holders of bonds indorsed by the State should 
 not be subrogated to the rights of the State, and have the benefit 
 of the security. In a suit by them to enforce the lien thus im- 
 posed for their benefit, the State should be joined, if that can be 
 done, for the reason that it is concerned in the subject-matter in 
 the proceedings ; but its non-amenability to suit is a sufficient 
 reason for not joining it as a party.? 
 
 Still stronger reasons exist for permitting the bondholders to 
 assert their claims under such circumstances where the State has 
 disclaimed its rights in respect to the enforcement of the statutory 
 lien, and disavowed all liability for the payment of the bond. The 
 State, when a lien is declared in its favor to indemnify it for its 
 indorsement of corporate bonds, is not merely a beneficiary of the 
 lien, but stands also in the relation of a trustee in respect to the 
 
 1 Printup V. Cherokee Railroad Co. 
 (1872), 45 Ga. 365 ; Cunningham v. Macon 
 & Brunswick R. Co. (1878), 3 Woods, 418, 
 affirmed in Cunningham v. Macon & Bruns- 
 wick R. Co. (1883), 109 U. S. 446. This 
 ca.ie was an attempt to get over the diffi- 
 culty which had proved fatal to the claims 
 set up in Branch v. Macon & Brunswick 
 R. Co. (1875), 2 "Woods, 385. In the 
 Supreme Court Justice Miller exposed the 
 unsoundness of the complainant's position 
 thus : " No foreclosure suit can be sus- 
 tained without the State, because she has 
 the legal title to the property, and the 
 purchaser under the foreclosure decree 
 would get no title in the absence of the 
 State. The State is in the natural posses- 
 sion of the property, and the court can 
 deliver no possession to the purchaser. 
 The entire interest adverse to the plaintiff 
 in this suit is the interest of the State of 
 Georgia, in the property of which she has 
 both the title and possession." Cunriing- 
 haiii V. Macon & Brunswick R. Co. (1883), 
 109 tr. S. 446, was fully approved in 
 Christian v. Atlantic & North Carolina R. 
 Co. (1890), 133 U. S. 233, where the 
 holder of certain aid-bonds issued by the 
 State of North Carolina sought to have 
 the dividends, due upon the railroad stock 
 purchased by the State with the proceeds 
 of the bonds, applied to the payment of the 
 
 interest on the bonds, — the company, the 
 person holding the proxy of the State, and 
 the treasurer of the State being made par- 
 ties defendant to the bill. The court dis- 
 missed the bill, taking occasion to remark 
 that anything which appeared to counte- 
 nance the possibility of such a suit in 
 Swasey v. North Carolina R. Co. (1873), 
 1 Hughes, 17, was bad law. In Mnrdock 
 V. Woodson (1873), 2 Dill. 188, Judge 
 Dillon held that the Governor and Attor- 
 ney-General of the State of Missouri might 
 be made parties defendant in a suit by the 
 trustee of a railroad mortgage to enjoin the 
 sale of the road for the satisfaction of an 
 earlier statutory mortgage in favor of the 
 State. The State in this case was said to 
 be asserting merely the right of the cred- 
 itor or lienholder, and not any right in 
 her sovereign character. The precedent 
 most relied upon was Davis v. Gray (1873), 
 16 Wall. 203, 215 ; but after the criticism 
 upon this decision in Cunningham ti. Macon 
 & Brunswick R. Co., supra, it seems ques- 
 tionable whether the doctrine of Murdock 
 0. Woodson can now be accepted without 
 some qualification. 
 
 2 Young V. Montgomery & Eufaula R. 
 Co. (1875), 2 Woods, 606 ; Kelly v'. 
 Trustees of Alabama & Cincinnati R. Co. 
 (1880), 58 Ala. 489 ; s. 0. 21 Am. Ry. 
 Rep. 138. 
 
470 EAILWAT BONDS AND MORTGAGES. [CHAP. XXIV. 
 
 holders of the bonds. The failure of the State to execute the trust 
 by enforcing the lien brings into play the principle that a court 
 of equity will not suffer a trust to fail because of the want of a 
 trustee to execute it. The enforcement of such a lien does not 
 require any decree or judgment against the State, and therefore 
 the freedom of the suit attaching to its sovereignty is a sufficient 
 reason for dispensing with its presence as a party .^ 
 
 § 474. The United States as a Party Defendant. — The rule that 
 a sovereign body cannot be made a party without its consent ap- 
 plies to the United States also.^ 
 
 § 475. If a state or the United States become Parties to a Suit, 
 they are as much bound by the Decree as the other Parties.^ 
 
 § 476. Intervention of Parties materially interested. — The prin- 
 ciple that all those who are materially interested in the subject of 
 the suit must be brought before the court, if the decree will affect 
 their rights, involves the corollary that, if any such persons are 
 not joined, they may be made parties on their own motion. Thus 
 judgment creditors who assert their lien to be superior to that of 
 a mortgage may intervene in a suit to foreclose it, and contest its 
 priority.* 
 
 A simple contract creditor may intervene in a foreclosure suit 
 if he has any equities in respect to the property, whether prior or 
 subsequent to those of the complainant, and can secure their 
 determination and protection.^ 
 
 Eival creditors may contest the validity of their claims and the 
 priority of their respective liens in foreclosure suits, but in subor- 
 dination to the general object and purpose of the suit in which 
 they are allowed to intervene, and not to defeat that object and 
 purpose, or to interpose obstacles to the progress of the suit.^ 
 
 1 Forrest's Exrs. v. Luddington (1880), Co. (1880), 13 S. C. 467 ; United States 
 68 Ala. 1 ; s. c. 12 Am. & Eng. R. R. Cas. v. Flint (1876), 4 Sawyer, 58. 
 
 330. A similar decision was made in * Scott v. Mansfield, Coldwater, & Lake 
 
 Stewart v. Chesapeake & Ohio Canal Co. Michigan R. Co. (1877), 2 Flip. 15. The 
 
 (1880), 1 Fed. Rep. 361. court expressly said that to allow this in- 
 
 2 Case V. Terrell (1870), 11 Wall. 199 ; tervention was simply the enforcement of 
 C:irr V. United States (1878), 98 U. S. 433, the general practice in chancery of making 
 437 ; Hiiwes on Parties, § 40. In Meier t:. all lienholders defendants, where one of 
 Kansas R. Co. (1877), 4 Dill. 378, the them brings suit upon his own lien, 
 method by which the United States was ^ Lombard InT. Co. et at. v. Seaboard 
 made a party was by directing a notice, Manufg. Co. (1896), 74 Fed. Rep. 325, 
 under the seal of the court, to the Attor- 326 ; Hollins v. Brierfield Iron & Coal Co. 
 ney-General of the United States, stating (1893), 150 U. S. 371 ; s. c. 14 Sup. Ct. 
 that a suit had been instituted against the Rep. 127. 
 
 United States, and requesting him to ^ Forbes v. Memphis, El Paso, & Pac. 
 
 appear. For other suggested methods, see R. Co. (1872), 2 Woods 323 ; S. c. 9 Fed. 
 
 Hawps on Parties, § 11. Cas. 408, No. 4926. 
 " Hand v. Savannah & Charleston R. 
 
§§ 477, 478.] PARTIES IN SUITS, ETC. 471 
 
 Such intervention, however, is not permissible in the case of a 
 general creditor having no specific lien, especially where the 
 cause has passed to an appellate court.^ 
 
 Where, in a foreclosure suit, the company has answered and 
 been represented by the counsel of the trustee, and consented to a 
 receivership and a decree by which the receiver is authorized to 
 take possession of all the company's personal property not covered 
 by the mortgage, thus shielding it from the general creditors, such 
 a decree will be treated as a void and collusive one to that extent ; 
 and while general creditors might intervene in the foreclosure 
 suit, it is their right instead to file an original bill to have the 
 property not covered by the mortgage administered for their 
 benefit by an extension of the receivership in the foreclosure suit 
 to a receivership in their bill.^ 
 
 (As to intervention of parties in interest who are not formal 
 parties to suits instituted by individual bondholders or the trustee, 
 see Art. II., post.') 
 
 Article II. — Parties in Suits by or against the Trustees 
 OR Representative Bondholders. 
 
 § 477. Introductory. — The operation of the subsidiary rule of 
 equity practice, that numerous parties having a common interest 
 may be represented in a suit affecting that interest by one or 
 more of their number, and when so represented are bound by the 
 action of their representative, whether the suit is brought by or 
 against them,^ may, for the purposes of the present treatise, be 
 conveniently considered in its application (1) to cases in whicli 
 one or more of the bondholders act as representative of the rest ; 
 (2) to cases in which the bondholders as a body are represented 
 by the trustee named in the mortgage, or substituted in one of 
 ways already discussed in Chapter VII., above. 
 
 § 478. Representation of Bondholders by one or more of their 
 Number. — It is well settled that the bondholders secured by a 
 trust mortgage in the usual form may themselves set the machinci'v 
 of the law in motion for the protection of their interests, making 
 the trustees defendants whenever the trustees have either refused 
 to institute a suit for that purpose,* or have been guilty of some 
 
 1 Bronson I). Railroad Company (1862), ' See generally DanielFs Cli Pr. ym 
 
 2 Black, 524. 238 et seq., and pp. 278 et seg. 
 
 " Alabama Nat. Bank v. Mary Lee 4 Alexander v. Central Railroad of 
 
 Coal & Railway Co. et al. (Ala.), 19 So. Iowa (1874), 3 Dill. 487 • r r 1 Fcrl Cis 
 
 Rep. 404 (1896). 363, Case No. 166 ; Coal Co. v. lilatch^ 
 
472 
 
 RAILWAY BONDS AND MOETGAGES. [CHAP. XXIV. 
 
 active misconduct,* or have acquired interests adverse to those of 
 the bondholders, and are consequently incapable of maintaining 
 the rights of the latter without attacking their own.^ 
 
 The same right of independent suit necessarily exists for 
 the bondholders when the removal of the trustee is the object 
 of the suit, or where it is sought to obtain the appointment of 
 new trustees after the original ones have abandoned their 
 trust.^ 
 
 In proceedings instituted by individual bondholders in any of 
 the allowable cases just mentioned, one or more of their number 
 may sue for the benefit of the whole body,* such representative 
 or representatives being under the obligation of acting with the 
 utmost fairness and good faith in procuring a final decree, which 
 is to be binding upon all parties in interest." 
 
 Several classes of bondholders may properly be represented by 
 persons who hold bonds of the different classes. This fact does 
 
 ford (1870), 11 ■Wall. 172 ; "Weetgeu v. Vib- 
 bard (1875), 6 Hun, 265 ; Campbell ». Rail- 
 road Co. (1871), 1 Woods, 368 ; First 
 National Fire Ins. Co. v. Salisbury (1881), 
 130 Mass. 303 ; s. c. 4 Am. & Eng. E. R. 
 Cas. 480 ; De Betz's Petition (1878), 9 
 Abb. N. C. 246 ; Owens v. Ohio Central 
 R. Co. (1884), 20 Fed. Rep. 10, 13; Beek- 
 nian v. Hudson River West Shore E. Co. 
 (1888), 35 Fed. Rep. 3 ; Seibert v. Min- 
 neapolis & St. L. R. Co. (1893), 52 Minn. 
 148 ; s. c. 53 N. W. Rep. 1134 ; 57 Am. 
 & Eng. R. R. Cas. 208 ; Chicago & Vin- 
 cennes E. Co. u. Fosdiok, 106 U. S. 47, 
 68 ; s. c. 7 Am. & Eng. R. R. Cas. 427 ; 
 BaiTy I'. Missouri, K. &T. K. Co. (1886), 27 
 Fed. Rep. 1 ; s. o. 36 Fed. Rep. 228 (1888); 
 Central Trust Co. v. Charlotte, C. & A. R. 
 Co. (1895), 65 Fed. Eep. 264 ; McFadden 
 V. May's Lauding & Egg Harbor City E. 
 Co. (1891), 49 N. J. Eq. 176 ; Beden o. 
 Burke (1893), 72 Hun, 51. 
 
 A provision in the mortgage that no 
 independent action to foreclose shall be 
 brought by a bondholder, until the trus- 
 tee has refused to comply with the requi- 
 sition of a certain percentage of the bond- 
 holders, is reasonable and valid. Seibert 
 V. Minneapolis & St. Louis R. Co. (1893), 
 52 Minn. 148 ; s. c. 53 N. W. Rpp. 1134; 
 57 Am. & Eng. R. E. Cas. 208. The bill 
 of a bonilholder who brings suit to enforce 
 any of his rights under the mortgage must 
 
 allege the refusal or neglect of the trustee 
 to institute proceedings, or such other 
 cause as is relied on to justify his claim to 
 become dominus litis, and if the answer 
 of the railroad company is such as to 
 make the unfitness of the trustee an issue 
 in the case, and he neither appears volun- 
 tarily nor is served with process, the bill 
 will be dismissed. Morgan v. Kansas Pa- 
 cific Ry. Co. (1882), 15 Fed. Rep. 55; 
 Barry v. Missouri, K. & T. Ey. Co. (1884), 
 22 Fed. Eep. 631. 
 
 1 Weetjen v. Vibbard (1875), 5 Hun, 
 265 ; Western Railroad Co. v. Nolan 
 (1872), 48 N. Y. 513 ; Central Tru.'st Co. 
 V. Charlotte, C. & A. R. Co. (1895), 65 
 Fed. Rep. 264. 
 
 2 Webb 0. Vermont Central E. Co. 
 (1881), 9 Fed. Rep. 793 ; American Tube, 
 etc. Co. V. Kentucky, etc. Co. (1893), 52 
 Fed. Rep. 826. 
 
 8 Stevens .,•. Eldridge (1876), 4 Cliff. 
 348. 
 
 4 Campbell v. Railroad Co. (1871), 1 
 Woods, 368 ; Wilmer v. Atlanta & Rich- 
 mond Air Line Ry. Co. (1875), 2 Woods, 
 447; March v. Eastern R. Co. (1S62), 
 40 N. H. 548 ; Mason r. York & Cumber- 
 land R. Co. (1861), 62 Me. 82 ; Farmers' 
 Loan & Trust Co. v. Winona & S. W. 
 Ry. Co. (1893), 59 Fed. Rep. 957. 
 
 6 Campbell v. EaUroad Co. (1871), 1 
 Woods, 368. 
 
§§ 479-481.] PARTIES IN SUITS, ETC. 473 
 
 not constitute such an antagonism of interest as to prevent the 
 application of the usual rule.^ 
 
 § 479. Bondholder allowed to sue ■when Trusteeship of Foreign 
 Corporation is vacant. — Where the subject-matter of the suit lies 
 in one State, and the mortgagor corporation was organized in 
 another, a court in the former State will not compel a person 
 holding a majority of the bonds to apply to the courts of the latter 
 to fill a vacancy in the office of trustee, but will allow such bond- 
 holder to carry on a foreclosure suit in his own name. Especially 
 will this course be allowed when the trust deed expressly pro- 
 vides that the remedies therein specified are " cumulative to all 
 other remedies allowed by law, and that the same shall not be 
 deemed in any manner whatever to deprive the trustee or the 
 beneficiaries under the trust of any legal or equitable remedy by 
 judicial proceedings." ^ 
 
 § 480. Bondholder allow^ed to sue when Trustee is Non-resident. 
 
 — One of two bondholders protected by a trust mortgage may 
 bring an action for the foreclosure of the mortgage in his own 
 name, where the trustee is absent in a foreign country, and the 
 bondholder has sufficient reason to believe that he has become 
 insane.^ 
 
 § 481. Suit by Representative Bondholder, when not permissible. 
 
 — Where the mortgage is executed to the bondholders by name, 
 
 1 Galveston Eailroad v. Cowdrey (1871), laid down by Judge Story (Eq. PI., § LiiS), 
 11 Wall. 459, 478. The court said (pp. that it is sufficient, in a suit by incuin- 
 478, 479) : "They are no more antago- brancers, to file the bill on behalf of all 
 nistic to each other than the several bond- the creditors and incumbrancers, thus 
 holders of the same class are. It is the making them all, in a sense, parties to 
 interest of each bondholder to have as few the extent of asserting their own lights, 
 prior claims to his, and as few partici- or of enabling them to contest the mat- 
 pants with him, as possible. Every co- ter before a master, and proceeded thus : 
 bondholder is in one sense an antagonist. " But the case before us is much stronger 
 But the objection is entirely without foun- than this. The complainants must set out 
 dation. The complainants do, in fact, their own claims under the different mort- 
 hold bonds of the three different classes, gages, and it would be impossible to make 
 and they have a perfect right to state that all the bondholders of either class partie.':, 
 fact in their bill, and to ask for relief for they could not be discovered ; and the 
 suitable to the fact, and no possible harm rights of all are protected by the oppor- 
 or inconvenience can arise in their suing tunity given to all to contest the claim of 
 in behalf of themselves and all other any." 
 
 bondholders in each class according to ^ Wheelwright .-. St. Louis, N. 0. & 
 
 their several priorities. If any class of 0. Canal Transportation Co. (1893), 56 
 
 bondholders wish to contest the preced- Fed. Rep. 164. 
 
 ence of a prior mortgage they have a per- 3 Ettlinger v. Persian Rug & Carpet 
 
 feet right to intervene in the suit, and Co. (1894), 142 N. Y. 189 ; s. c. 36 N. E. 
 
 file a cross-bill setting up the objection." Rep. 1055. 
 The court then referred to the doctrine 
 
474 EAILWAT BONDS AND MORTGAGES. [CHAP. XXIV. 
 
 and expressly declares the interest of each of them, it comes 
 under the rule that a suit upon a written instrument must be 
 brought in the name of all who are formal parties thereto and 
 retain an interest therein ; and if a single one of the bondholders 
 secured by such a mortgage brings suit to foreclose it, the bill 
 will be dismissed for defect of parties.^ Nor is it competent for 
 one of several joint owners of bonds, without joining the other 
 owners as plaintiffs, to institute a suit thereon, the purpose of 
 which is to upset judicial decrees, charge trusts, and fasten sup- 
 posed liens in consequence of joint interests. Since the decree in 
 ISuch a suit must be for the benefit of all, and binding upon all, 
 the real parties in interest must appear. The fact that the bonds 
 are payable to bearer, and that the plaintiff has manual possession 
 of them, does not entitle him to maintain the suit.^ 
 
 § 482. Participation of Bondholders in Suit begun by a Portion of 
 their Number. — Where a suit is brouglit upon an ordinary trust 
 mortgage by any number of the bondholders less than the whole, 
 it is not necessary that the others should be joined as parties, 
 either plaintiff or defendant ; for their interests are represented 
 not only by the complainants, but by the trustee, who is neces- 
 sarily made a party defendant (see above). They may, how- 
 ever, come in at any stage of the proceedings, and become 
 parties plaintiff, or they may propound their claims before a 
 master.^ 
 
 Tbe privilege of intervention is open to them even after the suit 
 has passed to the appellate court and been remanded to the lower 
 court.* 
 
 An order made in a federal court allowing all the bondholders 
 to come in and be made complainants in a suit instituted by a 
 bondholder must be limited to bondholders who are not citi- 
 
 1 Railroad Co. o. Orr (1873), 18 Wall, he may make timely arrangements to se- 
 
 471. The court said: " The adequacy of cure a sale of the property at its full 
 
 the security of the mortgage to paj' all the value." 
 
 bonds being doubtful, it is the interest of ^ Sahlgaardu. Kennedy (1882), 13 Fed. 
 
 every bondholder to diminish the debt of Eep. 242, 244 ; Kropholler v. St. Paul, 
 
 every other bondholder. In so far as he Minneapolis, & Manitoba Ey. Co. (1880), 
 
 succeeds in doing that he adds to his own 3 Fed. Eep. 302, ou demurrer. Compare 
 
 security. Each holder should be present Messchaert v. Kennedy (1882), 4 Mc- 
 
 to defend his own claim, and that he may Crary, 133. 
 
 attack the other claim should there be 8 Willmer v. Atlanta & Richmond Air 
 
 just occasion for it. If, upon a fair ad- Line R. Co. (1875), 2 Woods, 447, 451 ; 
 
 justment of the amount of the claim.s, Hackeusack Water Co. ti. De Kay (1883), 
 
 there should be a deficiency in the se- 36 N. J. Eq. 548, citing Daniell's Ch. Pr. 
 
 curity, real or apprehended, every one 217. 
 
 interested should have notice in advance * Li re Chickering (1883), 56 Vt. 
 
 of the time, place, and mode of sale, that 82. • 
 
§ 483.] PARTIES IN SUITS, ETC. 475 
 
 zens of the State with which the district is wholly or partially 
 coterminous.^ 
 
 Bondholders and not coupon-holders, declining to come in as 
 parties plaintiff, may be joined as defendants.^ 
 
 § 483. Representative Position of Trustee in Suits affecting the 
 Trust Property generally. — From the fact that the trustee and the 
 cestuis que trust are the owners of the whole interest in tlie trust 
 estate, it follows from the fundamental rule of equity in regard to 
 parties that, in suits relating to the estate brought by or against 
 strangers, both the trustee and the cestuis que trust are, under 
 ordinary circumstances, necessary parties.^ 
 
 Upon this rule, however, there have been engrafted several 
 exceptions.* 
 
 One of these, in the case of railroad mortgages, may almost be 
 said to overshadow the rule itself. The doctrine now universally 
 accepted is that the trustee is, in the absence of some special 
 consideration, the only necessary party in suits to enforce or 
 defend the rights of bondholders. This doctrine may be referred 
 to two principles : (1) The bondholders usually constitute a 
 numerous class having a common interest, and therefore suits by 
 or against them fall into the category of those in which appear- 
 ance by a representative is permissible. (2) The nature of the 
 contract is such that the bondholders, in purchasing their securi- 
 ties, may reasonably be assumed to have agreed that the trustee 
 should, under ordinary circumstances, be that representative. 
 
 In some of the cases the inconvenience and unnecessary 
 expense which would be caused by an adherence to the general 
 rule as to joining all parties in interest is emphasized in some 
 of the cases which sustain this doctrine.^ In others stress is 
 
 1 Jackson & Sharp Mfg. Co. o. Bur- shows that this principle was deemed to 
 
 lington & L. R. Co. (1887), 29 Fed. Eep. be properly ajaplied, whether the trustee 
 
 474. be a nominal or an active one. In this 
 
 " Hotel Company v. Wade (1877), 97 respect the case is in conflict with Bards- 
 
 TJ. S. 1 3. town & Louisville E. Co. v. Metealf (1862), 
 
 8 Perry on Trusts, § 873 ; Daniell's Ch. i Mete. (Ky.) 199, where it was held 
 
 Pr., pp. 220 ff. and 256 S. that a statutory provision declaring that, 
 
 * See Perry on Trusts, § 873 ; Wood's " where the question is one of common or 
 
 Ry. Law, 1630. general interest of many persons, or where 
 
 ' Willink 0. Morris Canal & Bkg. Co. the parties are numerous, and it is im- 
 
 (1843), 4 N. J. Eq. 377; Murdock v. practicable to bring them all before the 
 
 Woodson (1873), 2 Dill. 188 ; Shaw v. court within a reasonable time, one or 
 
 Norfolk County E. Co. (1855), 5 Gray more may sue for the benefit of all," dons 
 
 (Mass.), 162. not apply to a naked trustee. It was coii- 
 
 In the first case the court based its sidered, however, that as the morto-aw in 
 
 opinion expressly on the ground that the question conferred upon the trustee the 
 
 parties were numerous, and its language power " to proceed by due course of law" 
 
476 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIV. 
 
 laid rather upon the nature of the contract, and the understand- 
 ing of the parties as gathered from its terms, that the bondholders 
 will be bound by what is done by the trustee.^ 
 
 The rule as to the representative functions of a trustee applies 
 to an ex officio trustee, such as a State treasurer, to whom the 
 conveyance is made by virtue of a statute.^ 
 
 The title and interest of trustees are sufficiently alleged where 
 they are described in the bill as "trustees for divers parties" 
 and others, as " certain holders of said coupon bonds and cestuis 
 que trust " of the trustees, and the stating part of the bill alleges 
 the execution of the mortgage by which they were constituted 
 trustees.^ 
 
 to sell the railroad property upon default 
 in the payment of the interest or princi- 
 pal of the bonds, he was more than a 
 naked trustee, and that this fact took the 
 case out of the ordinary rule of equity 
 practice which requires a trustee, under a 
 mortgage to secure payment of money to 
 others, to join his cestuis que trust in a 
 suit for foreclosure and sale. 
 
 1 " Under some circumstances," said 
 Chief Justice Waite in Kerrison v. Stew- 
 art (1876), 93 D". S. 155, 160, "a trustee 
 may represent his beneficiaries in all 
 things relating to their common interest 
 in the trust property. He may be in- 
 vested with such powers and subject to 
 such obligations, that those for whom he 
 holds . . . will be bound by him. The dif- 
 ficulty lies in ascertaining whether he 
 occupies such a position, not in determin- 
 ing the effect if he does. If he has been 
 made such a representative, it is well 
 settled that his beneficiaries are not neces- 
 sary parties to a suit by him against » 
 stranger to enforce the trust, or to one by 
 a stranger against him to defeat it in 
 whole or in part." In Farmers' Loan & 
 Trust Co. V. Central Railroad of Iowa 
 (1877), 4 Dill. 533 ; s. u. 8 Fed. Gas. 1037, 
 Case No. 4663, Judge Dillon used very 
 similar language : " Under a railway mort- 
 gage, where it is contemplated that bonds 
 to a large number will be executed and 
 negotiated, and where the holders of these 
 bonils may be scattered over the whole 
 face of the earth, it becomes very im- 
 portant to appoint a trustee, and the 
 trust deed for that purpose usually pre- 
 scribes the powers and duties of the trus- 
 tee. Now all the purchasers of the bonds 
 
 must take under the rights which that 
 instrument gives them, and the effect of 
 this is that the trustee, while acting in 
 the line of his duty, and within the scope 
 of his powers, is a representative of all the 
 bondholders." So also in Campbell u, 
 Eailroad Co. (1871), 1 Woods, 368, Jus- 
 tice Bradley considered that the very fact 
 that trustees are interposed to receive and 
 hold the mortgage given to secure an 
 issue of bonds amounting to hundreds and 
 thousands, and transferable by delivery, 
 shows that it is the intent and under- 
 standing of all parties, unless the contrary 
 appears, that the trustees are to represent 
 the bondholders in all matters of litiga- 
 tion respecting their common and general 
 rights. 
 
 This view of the matter had been 
 anticipated by the Irish Court of Chan- 
 cery many years previous in dealing with 
 an objection on the non-joinder of the 
 cestuis que trust, under a trust deed to 
 raise arrears of an annuity, Hart, L. C, 
 laying down the general rule that " when 
 it appears on the face of the contract that 
 it was the intention of the parties to ex- 
 clude the cestuis que trust from the neces- 
 sity of taking any part in the transactions 
 relating to the management of trust, a 
 court of equity will dispense with their 
 being made parties to the suit. Bifield v. 
 Taylor, 1 Beaty, 92 ; s. c. 1 Moll. 192, 
 cited in Kerrison v. Stewart, supra. 
 
 ^ Boston & New York Air Line R. Co. 
 V. Coffin (1882), 50 Conn. 150; s. c. 12 
 Am. & Eng. R. R. Cas. 375. 
 
 ^ Savannah & Memphis R. Co. v. Lan- 
 caster (1878), 62 Ala. 655. 
 
§ 484.J PARTIES IN SUITS, ETC. 477 
 
 As to whether it is necessary that the trustee who brings suit 
 without joining his cestui que trust should state upon the face of 
 his bill that they are numerous and cannot, without great incon- 
 venience, be brought before the court, the authorities are at 
 variance. In New Jersey it has been held that no such aver- 
 ment is necessary, as the mortgage itself, when set out in the 
 bill, sufficiently discloses the character of the transaction.' 
 
 In Kentucky it has been held that even where the trustee 
 has the power to " proceed by due course of law " to have the 
 railroad property sold, he cannot sue without joining his cestuis 
 que trust, unless he alleges and shows that they are numerous, 
 and that it is impracticable to bring them before the court 
 within a reasonable time.^ 
 
 When thus suing as the representative of the bondholders, 
 for a breach of the contract of the mortgage, a trustee must be 
 treated as a real party plaintiff for purposes of jurisdiction as 
 between the Federal and State courts.^ 
 
 A foreclosure suit may be maintained by one of three trustees, 
 where one of the others is dead, and the third is interested in 
 the property and assets of another company which has purchased 
 the property mortgaged.* (Compare § 490, post.} 
 
 It is at least doubtful whether a trustee who has commenced 
 a suit on the theory that he has received, in accordance with a 
 provision of the mortgage, a request from the holders of a certain 
 proportion of the bonds, can, upon its being shown that a suffi- 
 cient number of bondholders have not joined in the request, 
 maintain the suit by virtue of a discretionary power which he 
 has under the mortgage to take action whenever he deems it to 
 be for the interest of the bondholders and all concerned.^ 
 
 § 484. Request to begin Suit must come from Owners, not 
 merely Holders of Bonds. — Proceedings to enforce a mortgage 
 cannot be instituted by virtue of a provision authorizing the 
 trustee to apply to a court for foreclosure and sale upon receiving 
 a request to that effect from the holders of a certain amount of 
 the bonds, unless tlie parties so requesting are not only holders 
 but owners of the bonds. A request from an agent who holds 
 the bonds subject to the order of the real owners will not 
 authorize the trustee to take action.^ 
 
 ' Willink V. Morris Canal & Bkg. Co. « Eobinson v. Alatama & Georgia Mfg. 
 
 (1843), 4 N. J. Eq. 377. Co. (1891), 48 Fed. Rep. 12. 
 
 2 Bard.stown&LouisTilleR. Co. (1862), 5 Fanners' Loan & Trust Co. u. Kew 
 
 4 Mete. (Ky.) 199. York & Northern R. Co. (N. Y., 1896), 
 
 ' Knapp V. Railroad Company (1873), 44 N. E. Rep. 1043. 
 20 Wall. 117 ; Coal Company v. Blatch- « Ilnd. 
 ford (1870), 11 Wall. 172. 
 
478 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIV. 
 
 § 485. Suits in -which the Trustee is the Proper Party Plaintiff. — 
 From the above principles it follows that, under ordinary circum- 
 stances, the trustees are the proper parties to institute a suit for 
 the foreclosure of the mortgage ; ^ or to maintain and defend the 
 trust fund against wrongful attack or injury tending to impair its 
 safety or amount ; ^ or to apply for an injunction to restrain an 
 alleged illegal proceeding which will injure the value of the 
 bonds and cast a cloud upon the security ; or to bring suit to 
 liave a controverted priority or lien settled before an irredeem- 
 able sale is made under another mortgage which is claimed to 
 rank above the one made to the petitioners;^ or to secure from 
 the company an accounting where it has neglected to apply 
 the earnings to the mortgage debt.^ 
 
 § 486. Bill iiled by or against Trustees alone not demurrable for 
 Defect of Parties. — Where the trustees unite in bringing a fore- 
 
 1 Willink V. Morris Canal & Bkg. Co. 
 (1843), 4 N. J. Eq. 377 ; Shaw v. Norfolk 
 County K. Co. (1855), 5 Gray (Mass.), 
 162 ; Bardstown & Louisville R. Co. v. 
 Metcalfe (1862), 4 Mete. (Ky.) 199 ; 
 Campbell v. Railroad Co. (1871), 1 Woods, 
 368 ; Credit Co. i-. Arkansas Central R. 
 Co. (1882), 15 Fed. Rep. 46, 52; McHenry's 
 Petition (1878), 9 Abb. N". C. 256 ; Hale 
 V. Nashua & Lowell R. Co. (1880), 60 
 N. H. 333; Barnes v. Chicago, Milw. 
 & St. Paul Ry. Co. (1887), 122 U. S. 1 ; 
 Savannah & Memphis R. Co. v. Lancaster 
 (1878), 62 Ala. 555. 
 
 2 Western Eailroad Co. u. Nolan (1872), 
 48 N. Y. 513 ; Union Trust Co. v. Illinois 
 Midland Ry. Co. (1886), 117 U. S. 434, 
 455. 
 
 » Mnrdock v. Woodson (1873), 2 Dill. 
 188. 
 
 * Morgan v. Kansas Pacific R. Co. 
 (1882), 15 Fed. Rep. 55 ; Barry v. Mis- 
 souri, R. & T. Ry. Co. (1884), 22 Fed. 
 Rep. 631 ; Mercantile Trust Co. v. Port- 
 land & Ogdensburg R. Co. (1882), 10 
 Fed. Rep. 604. 
 
 This principle has, however, been held 
 not to be applicable where it is stipulated 
 that- the bonds are to bear such interest 
 as the directors fix in accordance with the 
 provisions of a trust mortgage pledging 
 the net earnings to the payment of the 
 principal and interest, and the right of 
 action is based on the allegations that 
 the directors have fraudulently conspired 
 to compel the bondholders to surrender 
 
 their bonds, have fraudulently withheld 
 net earnings payable thereon, and have 
 made false, fraudulent, and fictitious ascer- 
 tainments of the income. An action may, 
 it is said, be maintained by a bondholder, 
 under such circumstances, for ascertain- 
 ment and payment of the amount due, 
 and the trustee is not a necessary party. 
 The reason assigned was that such a pro- 
 ceeding is merely an attempt to compel 
 the defendant to fulfil its agreement fairly 
 and honestly without resorting to the se- 
 curity provided by the deed of trust. 
 There being no foreclosure of the mort- 
 gage asked for, but simply an endeavor 
 to collect a. debt due to the bondholder, 
 the trustee could not bring the suit, and 
 had no interest in it. The first two cases 
 cited in the present note were distinguished 
 on the ground that the remedy sought in 
 them could be obtained only through the 
 trustee. Spies v. Chicago & E. I. R. Co. 
 (1887), 30 Fed. Rep. 397, 39S. The dis- 
 tinction here drawn .seems to be of very 
 dubious soundness. The earnings plcdgeil 
 by the mortgage in question can only be 
 regarded as a portion of the trust propJ 
 erty, and it is difficult to see liow the ap- 
 plication of such earnings to the interest 
 on the bonds can be enforced except 
 thi-ough the person whose title as grantee 
 under the mortgage is the sole foundation 
 of the bondholder's claim. The imputa- 
 tion of fraud, it is submitted, is not a 
 sufficient ground for breaking in upon the 
 general rule. 
 
§ 486.] PARTIES IN SUITS, ETC. 479 
 
 closure suit ; the mortgagor cannot demur to the bill on the 
 ground that, because the bondholders are not joined, there is a 
 defect of parties. Shaw v. Norfolk County R. Co.^ is perhaps the 
 leading American case on this point. There Judge Bigelow, after 
 referring to tlie general rule which requires all parties to be joined 
 who are materially interested in the subject-matter of the suit, 
 and reviewing some of the cases illustrating the exception made 
 to that rule, where there are numerous parties having a common 
 interest, proceeded as follows : " The case at bar clearly comes 
 within the principles on which these decisions rest. The bond- 
 holders for whose benefit the mortgage set out in the bill was 
 made are very numerous, and the bonds being assignable, it 
 would be very difficult, if not wholly impracticable, to ascertain 
 with accuracy at any given time who were the owners of them, 
 so as to make them all parties to a suit in equity. Nor is it 
 necessary that any of them should be joined to represent their 
 own rights and interests and those of the other eestuis que trust 
 under the indenture. The main purpose of the instrument was 
 to vest the property in the trustees, with full power and authority 
 to act as the representatives of the eestuis que trust in all things 
 relating to their common rights and interests. The sole object of 
 the bill is to secure and protect these rights and interests. The 
 trustees have no adverse claims against their eestuis que trust. On 
 the contrary, they only seek, as the representatives of the bond- 
 holders, to enforce the trusts created for their benefit, and in 
 which they all have a common interest. It is sufficient, therefore, 
 that the court have before them those who are the full representa- 
 tives of the parties beneficially interested in the property, so that 
 those interested will be bound by the decree." For the purposes 
 of this rule it makes no difference that some of the bondholders 
 hold bonds of the corporation issued before the date of the mort- 
 gage. So far as they claim any benefit or interest under the 
 indenture, they are as fully represented by the trustees as those 
 whose bonds were acquired after the execution of the mortgage.^ 
 
 ^ 5 Gray, 162 (1855). bondholders, even those who had actunlly 
 
 ^ Shaw V. Norfolk County R. Co. been joined in a former snit to which tlie 
 
 (185.')), 5 Gray (Mass.), 162. This case present one was in a manner supplemen- 
 
 was followed in Clieever v. Rutland & tary, hut that tliey were adnjissible as 
 
 Burlington R. Co. (Vt., 1869), 4 Ann. partie.s, and their joinder served the pur- 
 
 Ry. Rep. 291, where the trustees under a pose of assuring the court that there was 
 
 first mortgage filed a suit for foreclosure such publicity to the suit as would shut 
 
 of their lien, making the trustees under a the door to collusion, and secure as full a 
 
 second mortgage, and some of the bond- defence as the facts would warrant. The 
 
 holders, defendants. The court said tliat cases in which bondholders apply to be 
 
 it was not necessary to join any of the admitted as parties raise questions as to 
 
480 RAILWAY BONDS AND MOETGAGES. [CHAP. XXIV. 
 
 Proceedings under cross-bills to which the trustees are made 
 parties defendant will not be invalid for the reason that some 
 bondholders who may have intervened after the cross-bills were 
 filed have not been made parties thereto. ^ 
 
 § 487. Defences available against the Bondholders are available 
 against the Trustee. — Since bondholders are the real parties in 
 interest, every defence available against tliem is available in a 
 suit brought by the trustee in their behalf. Thus, where a com- 
 pany, holding the bonds of another company, goes into possession 
 of the property of the latter under a lease, agreeing to apply the 
 net income to the payment of the interest on the bonds, the mort- 
 gagor has a valid defence to a trustee's suit to foreclose the 
 mortgage for default in the payment of the interest coupons, if 
 he can show that the net income has been sufficient to discharge 
 the sum due upon such coupons.^ 
 
 § 488. Trustee as Party Defendant generally. — The principles 
 illustrated in the preceding sections are equally applicable where 
 the interests of the bondholders as a class are attacked. In such 
 a case the trustees are necessary parties defendant. Thus the 
 trustees of mortgages on a road which the majority of the stock- 
 holders sell by means of an amicable foreclosure suit, in which 
 all the trustees and the corporation are parties, must be joined 
 as defendants in a subsequent suit against the purchasers, in 
 which the dissenting stockholders seek to set aside the sale." 
 
 So also the trustees under a second mortgage are necessary 
 parties defendant to a bill filed by the holder of bonds secured by 
 a first mortgage on a part of the road and a second mortgage on 
 the rest of it, for the purpose of having an accounting of the 
 earnings of the different portions of the road.* 
 
 the fitness of the trustee to art as their may he called upon to refund, and com- 
 
 representative, not as to the sufficiency of pelled to do so. A question wouhi also 
 
 tile parties, and will be considered below, arise whether the consideration of the 
 
 To the same effect see Lambertville Nat. agreement under which the fixed amount 
 
 Bank i>. McCready Bag & Paper Co. (N. J. of bonds was paid had not failed, and 
 
 Eq., 1888), 1.5 Atl. Rop. 388. whether all the bondholders and shave- 
 
 1 Muller V. Dows (1877), 94 U. S. 444. holders who participated in the distribu- 
 
 ■■= Chamberlain j. Connecticut Central tion of the proceeds of the sale should not 
 
 R. Co. (1887), 54 Conn. 472 ; s. c. 9 Atl. be required to refund. If either or both 
 
 Eep. 244. were too numerous for all to be brought 
 
 3 Ribon V. Railroad Co. (1872), 16 before the court, some might have been 
 
 Wall. 446. There the Supreme Court, in made parties in their own behalf, and as 
 
 sustaining the dismissal of the bill for de- the representatives of the others." To 
 
 feet of parties, said : " If the sale should the same effect see Harwood v. Railroad 
 
 bo annulled, they might be in the situa- Co. (1872), 17 Wall. 78. 
 tion of the plaintiff who collects a judg- * Mercantile Trust Co. v. Portland & 
 
 ment which is afterwards reviewed. He Ogdensburg R. Co. (1882), 10 Fed. Kep. 
 
§§ 489, 490.] PARTIES IN SUITS, ETC. 481 
 
 But it is not necessary that a trustee who has been substituted 
 by the voluntary act of the parties, and without the sanction of 
 the court, during the pendency of a suit to enforce the trust 
 should be brought in as a party .^ 
 
 The same rule holds good where the substitution is made by 
 the consent of the court.^ 
 
 § 489. Joinder of Non-resident Trustee as Defendant. — The fact 
 that a railroad trustee is non-resident does not obviate the neces- 
 sity of joining him as a defendant to a foreclosure suit in a court 
 of any jurisdiction where a statute is in force which, like the 
 federal statute of 1875, provides that indispensable parties may 
 be brought into court by publication, if the suit be one to en- 
 force any legal or equitable lien upon, or claim to, or remove an 
 incumbrance or lien or cloud upon the title to real or personal 
 property within the district where such suit is brought. See cli. 
 137, § 8, U. S. Rev. Sfcat.^ 
 
 But where there are five trustees, and four of them have been 
 served with process, the presence of the fifth, if a non-resident, 
 may be dispensed with. The cestuis que trust are fully repre- 
 sented in such a case by the majority of the trustees. In fact, 
 if but a single one of the trustees is in court, the cestuis que trust 
 are sufiiciently protected against any possible harm from an 
 adverse decree.^ 
 
 § 490. Trustee's Control of Suits affecting the Trust Property. — 
 The principle that the trustee is the proper party to protect the; 
 
 604. In Willinlc ■». Morris Canal & Bkg. be particularly applicable to a trustee sub- 
 Co. (1843), 4 N. J. Eq. 377, an objection stitiited pendente lite. 
 that the trustee of a second mortgage was ^ Mobile & Cedar Point R. Co. v. Tal- 
 not made a party defendant was overruled man (1849), 15 Ala. 472. 
 on the ground that the property subject ^ Mercantile Trust Co. v. Portland & 
 to the mortgage was small, and the cestuis Ogdensburgh R. Co. (1882), 10 Fed. Rep. 
 que trust were themselves before the 604 ; Massachu.setts Mut. Life Ins. Co. v. 
 court. Chicago & A. R. Co. (1882), 13. Fed. Rep. 
 
 1 Morton v. New Orleans & Selma R. 857. 
 Co. (1885), 79 Ala. 590. The court con- * Stewart v. Chesapeake & Ohio Canal 
 
 sidered that the Alabama statute authoriz- Co. (1880), 1 Fed. Rep. 361. The court 
 
 ing amendments at any time before final said : " The absent trustee has no interest, 
 
 decree, by "striking out or adding new He is a mere trustee for the purpose of 
 
 parties," was not to be construed as au- doing a duty upon a certain contingency, 
 
 thorizing, in every case, as a matter of He holds a public trust. He has no title 
 
 right, the introduction by amendment of to anything. He has no legal estate in 
 
 new parties who by purchase or assign- any property. His claim for compensa- 
 
 ment pendente lite have acquired an in- tion, even in the event of his being 
 
 terest in the subject-matter of the suit, called upon to exercise the trust reposed 
 
 The rale that a purchaser of property in him, is a, matter not fixed by law, but 
 
 pendente lite takes it subject to the haz- is altogether within the discretion of a 
 
 ards of the pending suit was considered to court of equity." 
 
 31 
 
482 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIV. 
 
 interest of the bondholders as a body is deemed to involve 
 the conclusion that, under ordinary circumstances, individual 
 bondholders will not be permitted to take part in litigation by or 
 against their trustee in regard to the trust property .^ 
 
 In this respect, it will be observed, there is an important differ- 
 ence between the position of a trustee representing the whole 
 body of bondholders and of a representative bondholder acting 
 for his co-bondholders. In the latter case the bondholders not 
 named in the bill may come in as a matter of right, since the 
 suit is instituted expressly for the benefit of such as do come in. 
 (See § 482, ante.) 
 
 The incapacity of the bondholders to act independently will, 
 of course, be more strongly inferred, if special powers are con- 
 ferred on the trustee in regard to litigation for the enforcement 
 of the security. Thus where the trustees, and not the bondholders, 
 have the option of declaring the principal due upon default in the 
 interest, a bondholder who dissents from a funding scheme sanc- 
 tioned by the majority on the ground that it contemplates a 
 diversion of the trust funds, cannot come into a court of equity 
 and ask for a foreclosure, without a demand being made on the 
 trustees in any form, but is entitled to be made a party to a suit 
 already commenced by the trustees for possession. When this is 
 done, it will be for the court to consider what his equities are, 
 and how far they have been impaired, if at all, by the acts of the 
 trustees.^ 
 
 To entitle bondholders to intervene in a trustee's suit for the 
 purpose of taking an active part in the proceedings, it must be 
 shown that the trustee has exceeded his authority, or is for some 
 reason an unfit person to have charge of their interests. Thus 
 holders of a majority in amount of the bonds, who contend tliat 
 under a proper construction of the mortgage there can be no 
 foreclosure without permission of a majority, should be permitted 
 to come in as defendants in a foreclosure suit instituted by the 
 trustees at the instance of the minority of the bondliolders.^ 
 
 So a case in wliich intervention is permissible and proper 
 arises when it appears that the trustee is also trustee under 
 another mortgage on the same property, for which priority is 
 claimed, as against the one on which the suit is being brought ; * 
 or that his intei'ests have ceased in some other way to be identical 
 
 1 Sage V. Central Railroad Co. of Iowa ' Toler v. East Tennessee, Va. & Ga. 
 (1876), 93 U. S. 412. By. Co. (1894), 67 Fed. Eep. 168. 
 
 2 Stern v. Wiscon.sin Central R. Co. * Mercantile Trust Co. o. Lamoille Val- 
 (1879), 1 Fed. Rep. 555 ; s. c. 8 Rep. 488. ley R. Co. (1879), 16 Blatch. 324. 
 
§ 490.] 
 
 PARTIES IN SUITS, ETC. 
 
 483 
 
 with those of the bondholders,* as, for example, that the proper 
 amount of his allowance has become a contested question in the 
 suit ; 2 or that the trustee has done, or contemplates doing, in the 
 proceedings some act which will be detrimental to the interest of 
 such bondholder or set of bondholders ; ^ or that he is not respon- 
 sible, or is likely to prove unfaithful to his trust ; * or is negligent 
 and incompetent in the discharge of his duties.^ 
 
 1 Skiddy v. Atlantic, Miss. & Ohio R. 
 Co. (1878), 3 Hughes, 320, 329 ; 8. c. 22 
 Fed. Cas. 274, Case No. 12,922, which 
 holds that the fact of the bondholders 
 being divided as to the proper course to 
 take, and the trustees acting in accordance 
 with the wishes of one of these factions, 
 does not make the interest of the trustees 
 adverse to those of the other faction in such 
 a sense as to entitle the latter faction to 
 intervene personally in the suit. The court 
 said in answer to the point thus raised : 
 " There is but one class of bondholders 
 under this mortgage. The interests of each 
 bondholder are identical. Some of the 
 bondholders have moved the actions of the 
 trustees, and others have not. The one 
 are active bondholders and the other are 
 inactive. Some of them are represented 
 by one committee and others are repre- 
 sented by another ; but this does not con- 
 stitute a class of bondholders. Their 
 interests are identical, and one might as 
 well say that, because bondholders under 
 the same mortgage were represented in 
 court by different counsel, that constituted 
 them a different class of bondholders, and 
 that they were, because represented by 
 different persons, entitled to be parties to 
 this suit. " 
 
 In Phinizy v. Augusta & K. E. Co. 
 (1891), 55 Fed. Eep. 445, it was argued, 
 as a ground for allowing the intervention 
 of a committee of bondholders of a number 
 of bonds issued by several of the companies 
 composing a large system, that the interests 
 represented by the trustee were conflicting ; 
 but the court replied that, if those interests 
 were so conflicting as to render it improper 
 for the trustees to act, it must follow that 
 the petitioners themselves, for the same 
 rea.'ion, would also be incapacitated to act. 
 
 2 Williams v. Morgan (1884), 111 U. S. 
 684, 696. 
 
 ' Skiddy v. Atlantic, Miss. & Ohio R. 
 Co. (1879), 3 Hughes, 320, 351. There 
 
 the court, in refusing an application of 
 bondholders to be allowed to intervene, 
 said : ' ' The moment a petition is presented 
 to this court by any party interested in the 
 conduct or result of the suit, which alleges 
 that these trustees are derelict, incompe- 
 tent, or partial in any action they propose 
 to the court, that petition shall be, as it is 
 entitled to be, respectfully heard ; and if, 
 after consideration of the proof, it shall be 
 ascertained that the petitioner is correct, 
 the trustees will be removed, and the bond- 
 holders allowed to conduct the suit in their 
 own way, without the intervention of 
 trustees except so far as they may be nom- 
 inal parties to it." 
 
 The provision thus made for the inter- 
 ests of the dissatisfied bondholders was 
 deemed to answer all the purposes of the 
 petition whereby they were seeking to be- 
 come parties to suit, except that the bond- 
 holders represented, or alleged to be 
 represented, by the signers of that petition 
 might not have the right of appeal from 
 any decree of the court which they thought 
 unfavorable to their specific and personal 
 interests, unless made parties to the record. 
 In regard to this possible objection it was 
 observed : " Under those circumstances, 
 when they arise, we think any bondholder 
 who feels that his rights are injured by the 
 action of the trustees or of the court has 
 the right to be put in such position either 
 as plaintiff or defendant as will enable him 
 to have them adjudicated by an appellate 
 court." It was considered also by Judge 
 Hughes that the bondholders who did not 
 unite in directing the trustees to move for 
 forenlosure might of mere right be made 
 parties defendant to the suit. 
 
 * Coe 1'. Columbus, Pirjua, & Indian- 
 apolis R. Co. (1859), in Ohio St. 372 ; 
 Winslow r. Minnesota & Pacific R. Co. 
 (1860), 4 Minn. 313. 
 
 ' Richards!;. Chesapeake & Ohio R. Co. 
 (1875), 1 Hughes, 28. 
 
484 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIV. 
 
 A minority of the bondholders who object that they have been 
 unjustly discriminated against by the trustee in regard to a 
 reorganization scheme, and that he has awarded the receiver 
 improper compensation and extravagant amounts for expenditure, 
 should be allowed to become parties so far as to permit an exami- 
 nation of these charges.^ 
 
 So also, as the minority bondholders may institute proceedings 
 for the removal of a trustee for breach of trust, the trustee 
 cannot bring an action in the same court, and on the theory that 
 such bondholders are improperly resisting a scheme of reorganiza- 
 tion to which a large majority of the bondholders have assented, 
 and which is for the best interest of all, obtain an injunction 
 perpetually staying the action for such removal. That the trustee 
 in seeking the injunction offers to perform such parts of his 
 trust as he is charged with having omitted or neglected cannot 
 affect the application of this rule, for the very question involved 
 in the first action is whether he shall be allowed to act at all as 
 trustee, — whether, in other words, he has not forfeited all au- 
 thority to act in his representative character.^ 
 
 § 491. The Proper Way for a Bondholder to raise the Question of 
 the Trustee's Unfitness to conduct the Suit is to apply to be admitted 
 as a party thereto for the purpose of having that question deter- 
 mined. A bill filed by him in an independent suit, in which he 
 complains that the trustee has in various ways violated his trust, 
 and asks for a foreclosure of the mortgage, will be dismissed, 
 inasmuch as it would be an anomaly to have pending at the same 
 time in the same court two suits in which the relief asked for in 
 regard to the property rights of the bondholders is identical.^ 
 
 This rule, however, is applicable only to cases in which the 
 bondholder files his suit in a court of the same sovereignty. The 
 pendency of proceedings for foreclosure in a State court, at the 
 instance of the trustee, is no bar to another suit in a federal 
 court by one of the bondholders asking both for the foreclosure of 
 the mortgage and the removal of the trustee.* 
 
 1 DeBetz's Petition (1878), 9 Abb. suit in which the trustees are the actual 
 
 N. C. (N. Y.) 246. plaintiffs, are not represented by him to 
 
 ^ Farmers' Loan & Trust Co. u. Me- such an extent that, when he brings suit, 
 
 Henry (1878), 9 Abb. N. C. 235. they become parties thereto, whether they 
 
 ' Stern v. Wisconsin Central R. Co. will or not ; according to the doctrine of 
 
 (1879), 1 Fed. Rep. 555. Stanton u. Emery, 93 U. S. 548, which 
 
 * Mercantile Trust Co. i>. Lamoille lays down the general rule that the pen- 
 Valley R. Co. (1879), 16 Blatch. 324. In dency of a suit m ;9crs(»uim in a State court 
 that case the court based its ruling, par- is no bar to a similar suit between the same 
 tially at least, upon the ground that the parties. 
 Ijdudholders, although quasi parties to a 
 
'§§ 492, 493.] PAETIBS IN SUITS, ETC. 485 
 
 "Whether the cestui que trust shall be allowed to intervene in a 
 suit in which he is already represented by the trustee is a matter 
 which lies in the discretion of the trial judge ; and the appellate 
 court will not interfere with the exercise of that discretion unless 
 it is abused. 1 
 
 The same principle holds where the pending trustee's suit is in 
 a sister State.'^ 
 
 § 492. Proper Time to intervene.* — The general rule is that 
 the bondholders, being quasi parties in a trustee's suit, may, if 
 adequate cause is shown, intervene and make themselves actual 
 parties as long as the proceedings are in fieri, and not definitely 
 closed by the course and practice of the court.* But at the same 
 time it is necessary that bondholders who are discontented with 
 the conduct of the trustees must act with due diligence in assert- 
 ing their alleged rights, and take upon themselves the responsi- 
 bility for the consequences of the litigation. After a period of 
 sixteen months has elapsed, during which the trustee has been 
 recognized as the representative of the bondholders, and the court 
 is about to close the case finally, a bondholder will not be allowed 
 to appear for the railroad company to open and prolong the litiga- 
 tion, to the apparent injury of all concerned, without an offer on 
 his part to assume the responsibility for what might result from 
 his interference.^ 
 
 § 493. Bondholder allo'wed to intervene only to enforce Rights 
 accruing under the Mortgage. — A bondholder can intervene in a 
 foreclosure suit brought by a trustee only to procure the enforce- 
 ment of rights which he possesses by virtue of the provisions of 
 the mortgage itself. Hence the personal claim of a bondholder 
 
 1 Winalow v. Minnesota & Pacific R. trust funds, the case came under the prin- 
 
 Co. (1860), 4 Minn. 313. In a federal ciple that a bondholder has a right to take 
 
 court, even for the same relief, it seems to independent action whenever his interests 
 
 be scarcely necessary to rely upon the become antagonistic to those of the trustee, 
 
 special reason here put forward. See also The court remarked that it would be little 
 
 the following note. less than repulsive to one's sense of justice 
 
 ^ HoUister D.Stewart (1889), 111 N". Y. to hold that the trustee represented the 
 644 ; s. 0. 19 N. E. fiep. 782 ; 38 Am. & complaining bondholder in a suit the 
 Eng. R. R. Cas. 599. In this case there object of which was virtually to have his 
 was said to be a still stronger objection to violation of the trust condoned, 
 the position that the pendency of the other ' See above as to the time during which 
 suit debarred the bondholder from seeking intervention in a suit brought by a bond- 
 relief ; viz. , that he was not a party to the holder is allowed. 
 
 proceedings in the court of the sister State, * Campbell v. Railroad Co. (1871), 1 
 
 and had a full right to pursue hia remedy Woods, 368. 
 
 in his chosen tribunal. The application * Central Trust Co. v. Texas & St. 
 
 of the plaintiff being based upon the alle- Louis R. Co. (1885), 24 Fed. Eep. 153. 
 gation that the trustee had misapplied the 
 
486 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP, XXIT. 
 
 arising out of an outstanding equity against the company, cannot 
 be adjusted in the foreclosure suit, nor his demand attached to 
 the foot of the mortgage, for the purpose of enabling him to reach 
 the unappropriated balance of the lien.^ 
 
 § 494. Intervention by Trustee in Bondholder's Suit. — The trus- 
 tee's riglit to control the proceedings is not lost merely because 
 he has refused at first to bring suit. He may answer a bond- 
 holder's bill in which such refusal is alleged, and ask to be made 
 complainant ; and unless there is some additional reason why he 
 
 1 Vose V. Branson (1867), 6 Wall. 452. 
 There tonds were issued to a material-man 
 in payment for railroad iron, the transac- 
 tion being consummated on the assump- 
 tion that they were worth eighty per cent 
 of their face value. To guard against loss 
 by depreciation of the securities it was 
 agreed that, if the company should sell 
 any of their bonds to any one during a 
 certain time named, at a less rate than 
 eighty per cent of the face value, the ma- 
 terial-man should receive so many addi- 
 tional bonds as would pay for the iron in 
 full, estimating the bonds already given, 
 and those to be given, at the lowest rate at 
 which any bonds had been sold. The 
 price of the bonds fell to forty per cent of 
 their face value, and, as the decree had 
 determined the actual amount due on the 
 whole issue to be considerably less than 
 the amount secured by the mortgage, the 
 assignee of the claim of the material-man 
 applied to be allowed to have the benefit 
 of this unappropriated lien. In approving 
 of the refusal of the lower court to grant 
 this application, the Supreme Court said : 
 " To do this there must be a power some- 
 where to enlarge the mortgage, and where 
 is it lodged ? Cei-tainly not with the 
 trustees, for their duty is to see that the 
 security held by them for their cestui que 
 trusts is enforced according to the terms 
 of the deed. They could neither enlarge 
 the mortgage nor consent to its enlarge- 
 ment. The court could not do it, nor the 
 La Crosse Company, as it had covenanted 
 with the trustees in behalf of the bond- 
 holders that it would only issue four mil- 
 lions of dollars in bonds. The rights of 
 the bondholders were fixed by the terms 
 of the mortgage. The value of the bonds 
 as an investment depended in a great 
 
 measure on the number to be issued, and 
 doubtless each purchaser, before he bought, 
 had information of the character of the 
 security on which he relied. The property 
 might be very well a safe security for four 
 millions of dollars, and very unsafe for any 
 additional amount. The doctrine con- 
 tended for would utterly destroy the mar- 
 ketable value of all corporate securities. 
 No prudent man would ever buy a bond 
 in the market if the provisions made for 
 its ultimate redemption could be altered 
 without his consent. But it is said, as the 
 court rendered a decree for less than the 
 face of the bonds, equity will step in and 
 allow the appellant to apply the vacuum 
 of principal secured by the mortgage to 
 liquidate his claim. The answer to this 
 is, that it does not concern the appellant 
 whether the court rightfully or otherwise 
 reduced a portion of the bonds. The 
 bondholders, whose bonds were thus re- 
 duced, are the only parties in interest 
 who could have any just cause of com- 
 plaint against the action of the court ; and 
 if they did not feel aggrieved, no other per- 
 son has any right to complain. The se- 
 curity of the mortgage extended to four 
 millions of bonds only, and whatever 
 amount the court should ascertain was due 
 on those four millions was the amount se- 
 cured and no more. 
 
 " If Vose had been made a party defend- 
 ant to the foreclosure suit, the decree 
 would have been the same. But he was 
 not a necessary party to that suit. The 
 trustees, as the representatives of all the 
 bondholders, acted for him as well as the 
 others. It would be impracticable to make 
 the bondholders parties in a suit to foreclose 
 a railro.ad mortgage, and there is no rule 
 in equity which requires it to be done." 
 
§ 495.J 
 
 PARTIES IN SUITS, ETC. 
 
 487 
 
 should not be permitted to exercise his representative functions, 
 the cause will be prosecuted thereafter in his name.^ 
 
 The result of their being thus permitted to avail themselves of 
 the suit already begun is that in legal effect the suit becomes their 
 suit,^ and thenceforth they become charged with its conduct.^ 
 
 § 495. Action of Trustees, to what Extent binding on Bondholders 
 generally. — The general rule is well settled that, in the absence 
 of fraud, the beneficiaries in railway mortgages are bound by 
 whatever is done by their trustees in suits instituted by the latter 
 for the protection of the interests of such beneficiaries.* 
 
 An order or decree in proceedings to which a ti'ustee is made a 
 party as defendant is equally conclusive, — a principle most fre- 
 quently applied where it is sought to cut off the lien of bondholders 
 secured by a junior mortgage.^ 
 
 1 Alexander v. Central Railroad of 
 towa (1874), 3 Dill. 487 ; s. c. 1 Fed. 
 Cas. 363, Cas. No. 166 ; Chesapeake & Ohio 
 R. Co. (1877), 1 Hughes, 28. 
 
 2 Pacific Railroad v. Ketehum (1879), 
 101 U. S. 289, 299. 
 
 ' Richards v. Chesapeake & Ohio R. 
 Co. (1876), 1 Hughes, 28. In this case 
 the trustees had commenced proceedings 
 in a State court, and were admitted as 
 parties in a suit afterwards begun by the 
 bondholders in a federal court. Having 
 thus obtained control of the suit, the 
 trustees asked that the bill be dismissed 
 in the latter court, so that the first one 
 might proceed, the ground assigned for 
 the request being that it was for the ad- 
 vantage of all the parties in interest that 
 prior as well as subsequent incumbrancers 
 should be made parties to the proceedings, 
 in order to realize the full value of the 
 premises ; and that this could not be done 
 in the federal court for the reason that a 
 trustee under a prior, and a trustee under 
 a subsequent, mortgage were citizens of 
 the same State as the petitioners. The 
 court acceded to this request, and refused 
 to permit the bondholders who objected 
 to the dismissal of the bill to file a new 
 bill, making the proper parties, and re- 
 lating back to the time of filing the one 
 dismissed. It was declared that, as the 
 trustees had undertaken to foreclose the 
 mortgage, no bondholder had a right to 
 proceed in his own name for the same 
 purpose, 
 
 * Young V. Montgomery, etc. R. Co. 
 
 (1875), 2 Woods, 606 ; Credit Co. v. Ar- 
 kansas Cent. R. Co. (1882), 15 Fed. 
 Rep. 46; Richter v. Jerome (1887), 123 
 U. S. 233 ; Kerrison v. Stewart, 93 U. S. 
 155 ; Shaw r. Railroad Co. (1879), 100 
 U. S. 605 ; Corcoran v. Chesapeake & 
 Ohio Canal Co. (1876), 94 U. S. 741 ; 
 First National Bank of Cleveland v. Shedd 
 (1887), 121 U. S. 74 ; Beals v. 111., Miss. 
 & Tex. R. Co. (1890), 133 U. S. 290 ; 
 Campbell v. Railroad Co. (1871), 1 Woods, 
 368 ; Farmers' Loan & Trust Co. v. Kan- 
 sas City, W. & N. W. R. Co. (1892), 53 
 Fed. Rep. 182 ; PoUitz u. Farmers' Loan 
 & Trust Co. (1892), 53 Fed. Rep. 210 ; 
 Huntington v. Little Rock & Fort Smith 
 Ry. Co. (1882), 16 Fed. Rep. 906; Farm- 
 ers' Loan & Ti'ust Co. v. Central Railroad 
 of Mont. (1877), 4 Dill. 633 ; Kent o. 
 Lake Superior Ship Canal, Iron, & Coal 
 Co. (1892), 144 U. S. 75. 
 
 6 McElrath v. Pittsburgh & Steuben - 
 ville R. Co. (1871), 68 Pa. St. 37 , s. c. 
 1 Am. Ry. Rep. 139 ; First National Fire 
 Ins. Co. V. Salisbury (1881), 130 Mass. 
 303 ; s. c. 4 Am. & Eng. R. R. Cas. 480; 
 Board of Supervisors v. Mineral Point R. 
 Co. (1869), 24 Wis. 93 ; Wallace v. Loo- 
 mis (1877), 97 U. S. 146; Union Trust 
 Co. V. Illinois Midland Ry. Co. (1886), 
 117 U. S. 434; Cheever o. Rutland & 
 Burlington R. Co. (1869), 4 Am. Ry. 
 Rep. 291 ; Campbell v. Railroad Co. 
 (1871), 1 Woods, 368; Union Trust Co. 
 V. Illinois Midland Ry. Co. (1886), 117 
 V. S. 434, 455 ; Beals v. 111., Misa. & 
 Tex. R. Co. (1886), 27 Fed. Eep. 721. 
 
488 
 
 RAILWAY BONDS AND MOETGAGES. [CHAP. XXIV. 
 
 As regards the rights of the bondholder so secured, the con- 
 clusiveness of a decree is not impaired by the fact that the trustee 
 happens to be also the trustee of the first mortgage, and was made 
 defendant in that capacity in a suit brought by coupon-holders for 
 the foreclosure of the mortgage.^ 
 
 Even if the trustee has been guilty of fraud, a decree annulling 
 the bonds cannot be set aside after the railroad property has 
 passed by virtue of the judicial sale into the hands of a purchaser 
 without notice of the fraud.^ 
 
 The decree of a federal court in one district in a suit in which 
 the trustees represent the bondholders will be a bar to an action 
 by one of a minority to whom the trustee's course was not accept- 
 able, instituted in another district for the purpose of having his 
 bonds collected according to the terms of the mortgage, provided 
 the interests of the minority have been duly protected by the first 
 court, and no fraud on the part of the trustee is shown.' 
 
 ' Corcoran v. Chesapeake & Ohio Canal 
 Co. (1876), 94 U. 3. 741 ; affirming s. c. 
 Macarthur, 358 (1874). In this case the 
 tondholders, after the rendition of a de- 
 cree in the State court in the suit of the 
 coupon-holders, instituted proceedings in 
 the federal court, contending that, as be- 
 tween the mortgagor, the State, and the 
 trustees, who had all been made defend- 
 ants, no issue was raised by the plead- 
 ings, and no adversary proceedings were 
 had. In answer to this argument the 
 court said : " In chancery suits, where 
 parties are often made defendants because 
 they will not join as plaintiff, who are 
 yet necessary parties, it has long been 
 settled that adverse interests, as between 
 co-defendants, may be passed upon and 
 decided ; and if the parties have had a 
 hearing and an opportunity of asserting 
 their rights, they are concluded by the de- 
 cree, as far as it affects rights presented to 
 the court and passed upon by its decree." 
 " The very object of that suit in the State 
 court was to determine the order of dis- 
 tribution of the revenues of the mortgagor 
 canal company, and these trustees were 
 made defendants for no other purpose than 
 that they might be bound by that decree." 
 The complainant also contended that he 
 was only a party in his representative ca- 
 pacity of trustee, and, as he was now su- 
 ing in his individual capacitj', was not 
 bound by the decree. The court disposed 
 
 of this theory as follows : "But why is 
 he not bound ? It was his duty as trustee 
 to represent and protect the holdei-s of 
 these bonds ; and for that reason he was 
 made a party, and he faithfuDy discharged 
 that duty. It would be a new and very 
 dangerous doctrine in the equity practice 
 to hold that the cestui que trust is not 
 bound by the decree against his trustee in 
 the very matter of the trust for which he 
 was appointed. If this complainant owned 
 any of those bonds and coupons, then he 
 is bound because he was representing him- 
 self. If he had bought them since, he is 
 bound as privy to the person who was 
 represented." 
 
 In Sahlgaard v. Kennedy (1882), 13 
 Fed. Eep. 242, the court did not decide, 
 but intimated, that complainant, a bond- 
 holder, who had asked and was allowed 
 to intervene in a State court, and resist 
 the confirmation of a sale of the railroad 
 property by the trustee under foreclosure, 
 on alleged charges of unfaithfulness to the 
 trust on the part of the trustee, would be 
 estopped thereby as to asking the United 
 States court on such grounds to set aside 
 the decree of sale of the State court. 
 
 2 Beals V. 111., Miss. & Tex. R. Co. 
 (1886), 27 Fed. Rep. 721 ; on appeal 
 (1890), 133 U. S. 290. 
 
 ' Pollitz V, Farmers' Loan & Trust Co. 
 (1893), 53 Fed. Eep. 210. 
 
§§ 496, 497.] PARTIES IN SUITS, ETC. 489 
 
 § 496. The Binding Effect of the Trustee's Acta extends to Acts of 
 Discretionary Character. — This occurs where he decides that it is for 
 the interests of the bondholders to begin suit, — especially if in 
 doing so he is backed by the opinion of the majority of the bondhold- 
 ers ; ^ or releases errors in the foreclosure proceedings and decree, 
 and waives the right of appeal ; ^ or by appearing in a suit in which 
 he is made defendant, has waived defects in the service of process ; ^ 
 or has decided that the interests of the bondholders will be best 
 subserved by not having a sale until an appeal from the decree 
 has been determined ; * or it is agreed between the trustees of sev- 
 eral mortgages that it will be for the best interests of the bond- 
 holders represented by them that the property shall be sold as an 
 entirety.^ So also, if the terms of the mortgage put no restraint 
 upon the amount which the trustee may bid at the foreclosure 
 sale in the exercise of the power conferred upon him of buying in 
 the property for the bondholders, an order issued in the course of 
 the proceedings with the consent of an intervening bondholder, 
 whereby the trustee is directed to bid " up to " a certain sum, will 
 not, as against that bondholder, be construed as limiting the dis- 
 cretion which the mortgage allows him in regard to the price 
 which he may offer.® 
 
 So bondholders under a second mortgage cannot maintain a 
 bill to set aside a sale of the property under foreclosure of the 
 first mortgage, and annul a plan of reorganization of the first- 
 mortgage bondholders, where they charge no collusion by or un- 
 faithfulness of the trustee under the two mortgages in making the 
 sale under the first mortgage.^ 
 
 § 497. In -what Matters Trustee cannot bind Bondholders. — 
 The bondholders are not represented by the trustee in an 
 application for leave to invest the trust fund in a way not au- 
 thorized by the trust deed, at least . to such an extent that they 
 would be bound by a judgment changing the investment without 
 being actual parties to the proceedings, and having an opportunity 
 
 1 Shaw V. Railroad Co. (1879), 100 cal points must still more clearly be coq- 
 U. S. 605, 612. elusive upon them. 
 
 2 Elwell V. Fosdick (1890), 134 U. S. * Farmers' Loau & Trust Co. v. Central 
 500 ; s. 0. 43 Am. & Eng. R. R. Cas. Railroad Co. of Iowa (1877), 4 Dill. 533. 
 450. 6 First National Bank of Cleveland v. 
 
 » Cheever v. Rutland & Burlington R. Shedd (1887), 121 U. S. 74. 
 
 Co. (1869), 4 Am. Ry. Rep. 291. The « James v. Cowing (1880), 82 N. Y. 
 
 court remarked that, if the trustee suffi- 449 ; s. c. 2 Am. & Eng. R. R. Cas. 
 
 ciently represents the bondholders to make 336. 
 
 his defence upon the merits conclusive ' Robinson v. Iron Railway Co. (1890), 
 
 upon them, his defence upon mere techni- 135 U. S. 522. 
 
490 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIT. 
 
 to contest the propriety of granting the relief asked for by the 
 trustee.^ 
 
 Nor are the bondholders obligated by the result of a suit 
 brought to adjudge mortgage void, in which the trustee alone is 
 served with process. There is nothing in the relation of the 
 trustees and the bondholders which makes the former general 
 agents or attorneys of the latter as to all matters affecting the 
 bonds. The right to defend the validity of the bonds is per- 
 sonal to the owners of the bonds, and whenever that right is 
 assailed they are entitled to protect their interests in their own 
 persons and by their own counsel. ^ 
 
 § 498. Action of Trustee inures to Benefit of the Bondholders. — 
 The bondholders receive the advantages as well as the disadvan- 
 tages of the principle that the trustee is their representative. 
 Hence the commencement of a suit by him will have the effect of 
 stopping the running of the Statute of Limitations.^ 
 
 § 499. Remedies of Dissatisfied Bondholders after Rendition of the 
 Decree. — The propriety of a trustee's action cannot be tested by a 
 bill of review. The complaining bondholders must bring an action 
 directly against the trustee.* Nor can the bondholder commence 
 an independent and original suit to foreclose as long as the decree 
 remains in force.^ His proper remedy, where the decree or the 
 sale thereunder is in fraud of his rights, is by a direct proceed- 
 ing to set aside tlie sale or the decree.^ 
 
 Such a proceeding may take the form of an application to be 
 allowed to intervene and become actual parties to the former suit, 
 the court being then asked for such relief as it is competent for 
 parties to make in the same suit ; or the bondholder may effect 
 his purpose by instituting such other auxiliary, reversionary, or 
 supplemental proceedings as a party to the suit may institute.'^ 
 The bondholder who seeks for this relief must use due diligence. 
 He will not be allowed to become a party to the original suit for 
 the purpose of impeaching the decree, when he has remained 
 
 1 Clark V. St. Louis, Alton, & Terre « Shaw v. Railroad Co. (1879), 100 
 Haute E. Co. (1879), 58 How. Pr. 21 ; U. S. 605, 612. 
 
 Fidelity Ins. Trust & Safe Deposit Ins. Co. 6 Rjchter v. Jerome (1 887), 123 U- S. 
 
 u. United New Jersey Railroad & Canal 233, 247 ; Campbells Railroad Co. (1871), 
 
 Co. (1883), 36 N. J. Eq. 405 ; s. c. 12 1 Woods, 368. 
 Am. & Eng. E. R. Gas. 404. 6 Richter v. Jerome (1887), 123 U. S. 
 
 2 Appeal of Harrisburg R. Co. (Pa. 233, 247. 
 
 St., Oct., 1888), 36 Am. & Eng. R. R. ^ CampbeU o. Railroad Co. (1871), 1 
 
 Cas. 249. Woods, 368. 
 
 3 In re Chickering (1883), 56 Vt. 82 ; 
 s. c. 26 Am. & Eng. R. R. Cas. 646. 
 
§ 499.] 
 
 PARTIES IN SUITS, ETC. 
 
 491 
 
 inactive during five years of litigation, and not only has the sale 
 been confirmed, but the purchasers have been reorganized as a 
 new corporation, and, as such corporation, have issued bonds to 
 bona fide holders.^ 
 
 1 Wetmore v. St. Paul & Pao. R. Co. 
 (1880), 3 Fed. Rep. 177, 179. The court 
 said there was lio principle or precedent 
 which would warrant granting a request 
 which was tantamount to asking that the 
 petitioners should be made parties, and 
 then treated in the double aspect of per- 
 sons who were parties to the suit, and had 
 all the rights of parties from the beginning, 
 and also in the aspect of persons who 
 were not parties to the suit, and whose 
 rights had not been foreclosed. 
 
 Besides those cases already cited upon 
 the question of parties, see the following 
 instructive cases: Craft v. Indianapolis, 
 D. & W. R. Ry. Co. (1897), 46 N. E. Rep. 
 1132 ; In re The Continental Oxygen Co., 
 Limited (1897), 76 L. T. E. N. S. 229 ; 
 Roberts v. Denver, L. & G. R. Co. (1896), 
 46 Pao. Rep. 880. 
 
 Also, upon the subject of the right of 
 intervention, see an article entitled " Inter- 
 ventions in the Federal Courts," in 31 Am. 
 Law Review, at page 377 ; "Wiltsie on 
 Mortgage Foreclosure ; and the following 
 cases : Hyman v. Cameron, 46 Miss. 726 ; 
 Lacroix v. Menard, 15 Am. Dec. 161; 
 Brown v. Saul, 16 Am. Dec. 177 ; Gould 
 V. Mortimer, 1 6 Abb. Pr. 448 ; Schenck v. 
 Ingraham, 5 Hun, 397 ; People v. Albany 
 & Vermont Ry. Co., 77 N. Y. 232 ; Doe v. 
 Childress, 21 Wall. 642 ; Horn v. Volcano 
 Water Co., 13 Cal. 62; Speyer v. Ihmels, 
 21 Cal. 280 ; Gradwohl v. Harris, 29 Cal. 
 154 ; Farmers' Loan & Trust Co. v. Central 
 Ry. Co., 17 Fed. Rep. 758 ; Farmers' Loan 
 & Trust Co. V. Miss., I. k N. Ry. Co., 21 
 Fed. Rep. 264 ; French v. Gapen, 105 
 U. S. 509 ; Williams v. Morgan, 111 U. S. 
 685, 698, 699. 
 
492 
 
 BAILWAT BONDS AND MOBTGAGES, [CHAP. XXV. 
 
 CHAPTER XXV. 
 
 CONTROL AND DISPOSITION OF THE MORTGAGED PEOPEETT WHILE 
 THE COMPANY IS IN POSSESSION. 
 
 Art. I. — Control of the Cokpus of thb 
 Property. 
 § 500. Control usually left by Mortgage 
 to the Railway Company. 
 
 501. Power to mortgage Property al- 
 
 ready charged by Way of 
 " Floating Security." 
 
 502. Liability of the Mortgaged Prop- 
 
 erty to be levied on. 
 
 503. Power of Judgment Creditor to 
 
 sell the Mortgagor's Equity of 
 Redemption. 
 Art. II. — Control and Disposition of 
 THE Income. 
 
 504. Company generally entitled to 
 
 dispose of Income, even if 
 pledged. 
 
 505. Same Rule as against Holders of 
 
 Income Bonds. 
 
 ! 506. Specific Appropriations of the 
 Income. 
 
 507. Stockholder's Right to a Dividend 
 
 when complete or against the 
 Mortgagor. 
 
 508. Attachment of Income while 
 
 Mortgagor is in Possession. 
 
 509. When the Mortgagee's Right to 
 
 the Income becomes absolute 
 in Suits for Possession. 
 
 510. When the Mortgagee's Right to 
 
 the Income becomes absolute in 
 Suits for Foreclosure. 
 
 511. Effect of the Divestiture of the 
 
 Company's Control by the Suit 
 of a Party other than the one 
 claiming the Earnings. 
 
 Article I. — Control op the Corpus op the Property. 
 
 § 500. Control usually left to Mortgagor by Terms of Mortgage. — 
 
 The management and control of the property subject to an ordi- 
 nary trust mortgage is by the terms of the instrument usually left 
 in the grantor until condition broken. Where this is the case the 
 company, and not the trustee, is the proper plaintiff in an action 
 to enforce rights in regard to land embraced by the mortgage.^ 
 
 1 Southern Pacific R. Co. e. Doyle 
 (1882), 11 Fed. Rep. 253. This case was 
 decided with reference to the California 
 Code, which, it was contended, changed 
 the rule that the mortgagee is, until posses- 
 sion taken, only the owner in a very lim- 
 ited sense. The court, however, said that, 
 although a trust is necessarily raised, where 
 a power of sale is conferred on any person 
 
 other than the parties secured, it does not 
 necessarily follow that the trustee has a 
 right of possession, at least until condition 
 broken. Even if the instrument in ques- 
 tion were strictly a trust deed rather than 
 a mortgage, the result would be the same ; 
 for no right was conveyed by it to the 
 possession, etc. of the land until after 
 default and a demand by the bondholders. 
 
§§ 501, 502.] DISPOSITION OF MOKTGAGED PROPERTY. 
 
 493 
 
 Where, in addition to the ordinary provision by which the un- 
 disturbed possession of the premises conveyed is reserved to the 
 mortgagor, it is also stipulated that nothing in the deed " shall be 
 construed so as to prevent the corporation' from improving the 
 real estate or making leases of such parts thereof as they may 
 desire and have an opportunity to make, any lease made by the 
 mortgagor will remain valid as long as the condition of the mort- 
 gage is performed by the payment of interest, but will cease to 
 have any validity against the mortgage after condition broken, 
 while a lease not made till after condition broken is altogether 
 unauthorized.^ 
 
 § 501. Right to mortgage Property already charged by Way of 
 " Floating Security." — Debenture-holders for whose protection the 
 whole property of a company, both present and future, is charged 
 " by way of floating security," the company having the right to 
 deal with the property until after the continuance of a default of 
 the interest for three months, will be postponed to bondholders, 
 secured by a mortgage executed while the company is still in con- 
 trol of the property, although there has been a three months' 
 default in the interest. Even after the expiration of that period 
 the security of the debenture-holders remains a floating security 
 merely, until they take some steps to enforce it and stop the com- 
 pany from carrying on its business. Otherwise the consequence 
 would follow, that the debenture-holders could, if they chose, allow 
 the company to go on after the three months, allow debts to be 
 contracted, and then say that none of them shall be paid, although 
 the company is still carrying on its business.^ 
 
 § 502. Liability of the Mortgaged Property to be levied on. — 
 The extent of the protection afforded to the mortgagee's interest 
 by the mortgage clearly depends upon the scope of the lien, and 
 upon the validity of the transaction by which it is created, and 
 must therefore be determined by an examination of the cases re- 
 viewed in another part of this treatise. (See Chapter VII., etc.) 
 The existence of the mortgage lien necessarily involves the conse- 
 quence that the rights of the bondholders should not be allowed 
 to suffer any prejudice from legal proceedings to enforce later 
 claims. But the authorities are scarcely in harmony as to the 
 proper method for rendering this protection practically effective.^ 
 
 The fact that the mortgagor is a corporation does not in any 
 way limit the right of a judgment creditor to subject the mort- 
 
 1 Haren v. Adams (1862), 4 Allen, v. Manila R. Co. L. E. (1895) 2 Ch 
 80. 551. 
 
 ' Governments Stock Invest., etc. Co. ^ gee Chap. XX. (preventive remedies) 
 
494 EAILWAY BONDS AND MOETGAGES. [CHAP. XXV. 
 
 gaged property to the payment of his claim, for property which a 
 debtor has a right to dispose of by a voluntary alienation must 
 necessarily be liable to involuntary alienation.^ 
 
 Questions arising under this head must be carefully distin- 
 guished from those in which the corporate property is deemed 
 to be protected by the fact of its being essential to the exercise 
 of the franchises, and not by the fact of its being mortgaged. As 
 railroad mortgages ordinarily run, all the property entitled to pro- 
 tection for the former reason is also entitled to protection for the 
 latter reason. The distinction is important in so far that, where 
 the former reason is relied upon, the question of immunity from 
 levy can be, and in most if not all of the cases has been, raised 
 by the company itself, while the extent of the protective power of 
 the mortgage concerns only the mortgagee and the levying creditor. 
 A discussion of the first class of cases does not fall within the 
 legitimate scope of a treatise dealing with the rights and liabili- 
 ties arising out of the mortgage contract itself. 
 
 § 503. Power of the Judgment Creditor to sell the Mortgagor's 
 Equity of Redemption. — Whatever may be the extent and character 
 of the protection afforded by the mortgage as regards the property 
 itself, it is clear that a judgment creditor may always reach the 
 mortgagor's equity of redemption, either by proceedings of an 
 equitable nature, or by execution where that is permitted by the 
 practice of the court.^ 
 
 A railroad company cannot defeat this right of a creditor by 
 executing a deed of trust with a long time to run. To hold this 
 would amount to " a recognition of a right in the company to 
 secure itself in the possession and enjoyment of its property, and 
 compel all who become its creditors to resort to the means pro- 
 vided by that instrument for their payment, and not to those 
 given by the law to all who choose to invoke its aid against a 
 defaulting debtor." ^ 
 
 1 Ludlow V. Clinton Line R. Co. (1861), long period of time, however desirable it 
 1 Flip. 25; «. c. 15 Fed. Cas. 1099, Case may be to have the arrangement carried 
 No. 8600. out, may be disappointed owing to an 
 
 2 See Freeman on Executions, §§ 117, imperfection incident to such an arrange- 
 382. ment, — an imperfection resulting from the 
 
 * Vicksburg & Meridian R. Co. v. Mc- policy of the law, — that parties cannot be 
 
 Cutcben (1876), 52 Miss. 645. This case permitted to retain indefinitely tbe use and 
 
 was decided more especially in reference to enjoyment of property by simply giving a 
 
 the Mis-sissippi Code ; but the reasoning of security upon it for the payment of their 
 
 the court is quite general, the following debt. The property must be subject in 
 
 language of the Ohio court being cited some form to the first claims of the party 
 
 with approval : " Those who take a mort- subsequently ari.sing, and this will fre- 
 
 gage upon property to secure a loan for a quently and necessarily lead to an inter- 
 
§ 504.] DISPOSITION OF MORTGAGED PBOPEETY. 495 
 
 This Mississippi statute referred to in the note indicates what 
 is undoubtedly the proper procedure for the practitioner, whether 
 the legislature has expressly prescribed it or not, for the cases 
 cited in chapter on preventive remedies show that the litigation 
 will always be drawn into a court of equity by the bondholders if 
 their interests, as is usually the case, are endangered by the levy. 
 To resort to a court of law under such circumstances is simply to 
 run the risk of incurring useless expense. 
 
 Besides, it is manifest that, for the same reasons which have led 
 courts of equity to assume jurisdiction of trustees' suits for posses- 
 sion (see the chapter on that subject), those courts offer the only 
 suitable forum for the adjustment of the manifold rights which 
 will be affected by an execution sale of the residuum of the mort- 
 gagor's interest ; and even if the bondholders should not think fit 
 to interfere, a much more satisfactory settlement can be obtained 
 by applying for equitable relief in the first instance. 
 
 Article II. — Control and Disposition of the Income. 
 
 § 504. Company entitled to dispose of the Income while it is in 
 Possession, even though such Income is expressly pledged. — The 
 rights of the mortgagee in regard to the avails of the mortgaged 
 property stand upon a different footing from his rights in regard 
 to the property itself. So long as the mortgagor is allowed to 
 remain in possession he is entitled to receive and apply to his own 
 use the income and profits of the mortgaged estate. 
 
 If, therefore, a mortgagor corporation has leased a portion of 
 the property, it can contract as it chooses in regard to the rents 
 with an assignee of the lease. ^ 
 
 It has been strenuously contended in several instances that the 
 insertion in the mortgage of a provision by which the income of the 
 property is specifically pledged supersedes the common-law rule. 
 But this theory has been discredited in almost every court in ' 
 which it has been presented, and it is now well established that, 
 if the mortgagor company is given, either expressly or by impli- 
 cation, the right to remain in possession of the estate until a 
 
 ruption and disappointment in a prior the Chancery Court should have exclusive 
 
 arv.iiigement as to the time within which jurisdiction in all cases when that equity 
 
 it is to be performed." Coe v. Columbus, is sought to be sold. 
 
 Pi(]ua, & Indianapolis R. Co. (18.59), 10 i Frank v. New York, Lake Erie, & 
 
 OliinSt. 372, 401. Western R. Co. (1891), 122 N. Y. 197 ; 
 
 The equity of redemption was made by s. c. 25 N. E. Rep. 335 ; 46 Am. & En", 
 
 the Mississippi Code subject to execution R. R. Cas. 356. 
 (§ 2295); but a later statute provided that 
 
496 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXV. 
 
 default occurs, it is entitled to control the use of the earnings, as 
 long as the mortgagees allow its possession to continue. In a 
 case where a mortgage of this description was under review the 
 Supreme Court of the United States said : " It is clearly implied 
 in these mortgages that the railroad company should hold pos- 
 session and receive the earnings until the trustees should take 
 possession or the proper judicial authority should interpose. Pos- 
 session draws after it the right to receive and apply the income. 
 Without this the road cannot be operated, and no profit could be 
 made. Mere possession would be useless to all concerned. The 
 right to apply enough of the income to operate the road will not 
 be questioned. The amount to be so applied was within the dis- 
 cretion of the company. The same discretion extended to the 
 surplus. It was for the company to decide what should be done 
 with it. In this condition of things the whole fund belonged to 
 the company ; it was subject to its control. It was, therefore, 
 liable to the creditors of the company, as if the mortgages did not 
 exist. If the mortgagees were not satisfied, they had the remedy 
 in their own hands, and could at any moment invoke the aid of 
 the law, or interpose themselves without it." ^ 
 
 1 Oilman v. Illinois & Miss. Tel. Co. 
 (1876), 91 U. S. 603; s. P. Galveston 
 Railroad v. Cowdrey (1870), 11 Wall. 459 ; 
 American Bridge Co. v. Heidelbach (1876), 
 94 U. S. 798 ; United States Trust Co. v. 
 Wabash & Western B. Co. (1893), 150 
 IT. S. 287 ; Kountze v. Omaha Hotel Co. 
 (1882), 107 U. S. 378; Teal v. Walker 
 (1884), 111 U. S. 241 ; Central Trust Co. 
 V. Wabash, St. Louis, & Pao. R. Co. (1887), 
 30 Fed. Rep. 332; Fosdick v. Schall 
 (1879), 99 U. S. 235 ; Mercantile Trust 
 Co. V. Missouri, K. & T. R. Co. (1888), 
 36 Fed. Rep. 221. See also Gibert v. 
 Washington City, Va. Midi. & Grt. South- 
 ern R. Co. (1880), 33 Gratt. 645 ; Newport 
 & Cincinnati Bridge Co. v. Doiiglass 
 (1877), 12 Bu.sh (Ky.), 673; s. c. 18 
 Am. Ry. Rep. 233. The rule as to other 
 corporations is the same. Freedman's 
 Savings & Trust Co. v. Shepherd (1888), 
 ' 127 U. S. 494. In view of these rulings 
 the statement of the court in Douglass ». 
 Cline (1877), 12 Bush (Ky.), 608, that a 
 mortgagee who has no specific jdedge of 
 the profits of the mortgaged premises can- 
 not claim them as a legal incident or a legal 
 right growing out of his mortgage, seems 
 
 to be unduly cautious, even to the extent 
 of implying an erroneous doctrine. 
 
 The decisions in two Iowa cases — Jessup 
 V. Bridge (1861), 11 Iowa, 572, and Dun- 
 ham V. Isett (1863), 15 Iowa, 284 — are to 
 the effect that a positive stipulation of this 
 character gives the mortgagees a specific 
 lien on the net earnings, which can be 
 enforced against other creditors. These 
 rulings were made before the doctrine of 
 the Supreme Court of the United States 
 and of other courts had been established 
 by the cases referred to above, and can 
 hardly be deemed authorities outside the 
 State of Iowa itself. The clause allowing 
 the company to remain in possession till 
 after default has been regarded in another 
 case as an affirmative covenant, which, 
 whatever may be the effect of the grant- 
 ing clauses, amounts to a re-demise, and 
 therefore, as respects thenecessary expenses 
 of operation, gives the company the right 
 to contract for articles reijuired to keep up 
 the road as a going concern. Parkhuist v. 
 Northern Central R. Co. (1862), 19 Md. 
 472. This is an early case, and, in view 
 of later decisions, needlessly circumscribed 
 in its scope. 
 
§ 505.J DISPOSITION OF MORTGAGED PROPERTY. 497 
 
 The usual clause giving the trustee a right to take possession 
 of the property after default is merely intended to " define and 
 point out the manner in which the pledge of the tolls and income 
 is to be carried into effect ; " ^ and as the terms of the mortgage 
 thus explicitly declare the mode in which the mortgagees may 
 reach and control the use of the corporate property and franchises, 
 and appropriate the income thereof, no lien or priority of claim 
 upon such income can be acquired in any other mode.^ 
 
 The mere fact that the mortgage makes it the duty of the com- 
 pany to apply the income, after paying the current expenses, to 
 the liquidation of the interest does not create an obligation which 
 " of its own force carries title to the particular money received as 
 income, any more than the obligation to pay a debt in ordinary 
 cases carries to the creditors a title to tlie money in the debtor's 
 pocket. The fact that the mortgagor is in possession, operating 
 the road, renders it indispensable that he shall pay current ex- 
 penses and necessary repairs and improvements, and that he shall 
 exercise his judgment and discretion as to the extent to which 
 repairs and improvements shall be made ; and this can only be 
 paid out of the income. It is inconsistent with such control over 
 the income that it shall be the property of the trustees."^ 
 
 Possibly the doctrine of the cases cited in this section may be 
 arrived at more directly by considering that the possession to 
 which the mortgagee is entitled is, as regards the corpus of the 
 property, merely prospective and dependent upon certain contin- 
 gencies, and that, in the absence of words clearly evincing a con- 
 trary intention, the same principle of construction ought to be 
 applicable to the rents and profits. To deduce such an intention 
 from words which merely give the trustee the rights of a common- 
 law mortgagee under certain circumstances, would obviously be a 
 very strained construction of the contract. 
 
 § 505. Same Rule as against Holders of Income Bonds. — The 
 holders of income bonds the interest of which is payable out 
 of the " net earnings " remaining after satisfying the operating 
 expenses and prior claims in each interest period, cannot object 
 to the management of the road in the usual manner, accord- 
 ing to the discretion and judgment of the directors. The mort- 
 gage contract, therefore, does not prevent the mortgagor from 
 
 1 Galveston Eailroad v. Cowdrey United Statos Express Co. (1876), 81 111. 
 (1870), 11 Wall. 459, 483. 534. Similar reasoning may lie found in 
 
 2 Ellis V. Boston, Hartford, & Erie R. De Graff v. Thompson (1878), 24 Minn. 
 Co. (1871), 107 Mass. 1. 452 ; s. c. 5 Rep. 561. 
 
 » Miss. Valley & Western Ry. Co. 
 
 32 
 
498 RAILWAY BONDS AND MORTGAGES. [CHAP. XXV. 
 
 leasing the road to another company, even though the arrange- 
 ment involves a reduction in the amount available for the payment 
 of the interest on the bonds.^ 
 
 § 506. Specific Appropriation of the Income, -which -virill prevail 
 against all other Claims. — This may, of course, be effected by the 
 terms of the instrument creating the lien. Such was the effect 
 of the Missouri statute which authorized St. Louis County to issue 
 county bonds in aid of the Pacific Eailroad Company. It was 
 held that a provision in that statute declaring that the official who 
 should have charge of the funds of the company was to pay into 
 the county treasury every month a specific portion of the earnings, 
 created, when the benefits of the statute were accepted, an equi- 
 table lien to that extent upon those earnings, and that this lien 
 was enforceable not only against the receiver appointed in a sub- 
 sequent foreclosure suit instituted by another incumbrancer, but 
 also against the purchaser under the decree in that suit, and any 
 one wlio might hold the property or have the custody of its 
 earnings.^ 
 
 § 507. Stockholder's Right to a Dividend -when complete as 
 against the Mortgagor. — Dividends can be paid only out of net 
 profits ; and the right to declare a dividend depends on the state of 
 the company's finances at the time when the dividend is declared. 
 
 The control of the income by the company involves a right 
 to distribute a portion of the surplus funds remaining after the 
 expenses and the interest on the bonds and other debts have been 
 paid ; and if the directors, in the exercise of a proper discretion, 
 have once declared and set apart a dividend in such a manner as 
 to constitute an equitable assignment of the money, it ceases to 
 be a part of tlie corporate assets, and therefore cannot be reached 
 by the bondliolders. Thus, if the directors have deposited in a 
 bank a sufficient sum to pay a dividend previously declared, the 
 appropriation of the money to the stockholders is complete, and 
 the right of a stockholder to draw his proportion thereof at any 
 time will not be defeated by the subsequent appointment of a 
 receiver.3 
 
 1 Day V. Ogdensturgh & Lake Cham- cally appropriating the net earnings to the 
 plain R. Co. (1888), 107 N. Y. 129 ; s. o. payment of interest, and thus precluding 
 13 'S. E. Eep. 765 ; 35 Am. & Eng. E. R. any levy on such earnings until their para- 
 Cas. 102, reversing s. c. (1886), 42 Hun, mount claim had been satisfied, see Mao- 
 654 ; s. 0. 1 Ry. & Corp. L. J. 70. Alester's Admr. v. Maryland (1885), 114 
 
 2 Ketchum v. St. Louis (1879), 101 U. S. 598 ; s. 0. 5 Sup. Ct. Rep. 1065 ; 
 U. S. 306. Brady v. State (1866), 26 Md. 290. 
 
 For other cases in which the effect of a ^ In the Matter of Le Blanc (1878), 14 
 
 statute declaring a lien in favor of the Hun, 8 ; affirmed without comment in 75 
 State was held to have the effect of speoifi- N. Y. 598. 
 
§ 508.] DISPOSITION OP MORTGAGED PROPERTY. 499 
 
 § 508. Income of Road may be attached or levied upon by Cred- 
 itors while the Mortgagor is in Possession. — The mortgagor's right 
 to control the income while in possession carries with it the usual 
 incident of ownership, viz., that it may be subjected to the pay- 
 ment of his debts. A creditor, therefore, by attaching the avails 
 of the property in the hands of the mortgagor will ordinarily ob- 
 tain a lien thereon which is paramount to that of the mortgage.^ 
 
 The rights of the creditor are fixed when judgment is recovered 
 and execution sued out, and the mortgagee obtains no title to a 
 fund derived from this source merely for the reason that a re- 
 ceiver is appointed before the creditor has actually appropriated 
 the amount due to him.^ 
 
 The right of creditors with claims coming under the head of 
 operating expenses to attach the earnings is sometimes strength- 
 ened by provisions in the mortgage. Thus where the company is 
 expressly authorized to remain in possession until default, and to 
 apply any of the income or personal property to the construction 
 or repair of the road, or to its current expenses, or payment of 
 debts, and to pay dividends out of the net profits, afLer deducting 
 enough for interest and a sinking fund, the implication is that 
 the receipts of the road do not come under the lien of the mort- 
 gage until the net profits have been ascertained, Before default, 
 therefore, a creditor whose claim comes under the head of cur- 
 rent expenses may attach tolls belonging to the road.^ 
 
 1 Gilmaa v. Illinois & Miss. Tel. Co. return of nulla bona, undertook to levy an 
 (1875), 91 U. S. 603, 616 ; De Graff v. attachment, according to the provisions of 
 Thompson (1878), 24 Minn. 452 ; Smith the Kentucky Code of Practice (§ 474), 
 V. Eastern Railroad Co. (1888), 124 Mass. by serving on the president of the eom- 
 154; Merchants' Bank v. Petersburg Rail- pany a copy of the process, on which was 
 road Co. (1877), 12 Phil. 482 ; Mississippi indorsed the object of the action, viz., to 
 Valley & Western Ry. Co. v. U. S. Express appropriate "the income, etc." to the pay- 
 Co. (1876), 81 111. 534; Ellis a. Boston, ment of tlie judgment. It was held, how- 
 Hartford, & Erie R. Co. (1871), 107 Mass. ever, that a notice of this kind did not 
 1 ; Gibert v. Washington City, Va. Midi, affect the power of the officers of the com- 
 & Grt. Southern R. Co. (1880), 33 Gratt. pany to exercise a reasonable and proper 
 645 ; s. 0. 1 Am. & Eng. R. R. Cas. 512 discretion as to the order in which debts 
 (18S1) ; Parkhurst v. Northern Central R. should be paid. At all events, the de- 
 Co. (1862), 19 Md. 472. livery of the summons to the pre.5ident 
 
 2 Gibert v. Washington City, Va. Midi, was but equivalent to service on the com- 
 & Grt. Southern R. Co. (1880), 33 Gratt. pany itself, and there was no section of 
 645 ; s. 0. 1 Am. & Eng. R. R. Cas. 512. the code providing that an attachment lien 
 
 In Newport & Cincinnati Bridge Co. v. on intangible property might be created ' 
 
 Douglass (1877), 12 Bush (Ky.), 673 : s. c. by the service of any character of process 
 
 18 Am. Ry. Kep. 221, one of tlie general on the judgment defendant alone, 
 creditors, the Western Bank, had recovered ' Clay v. East Tenn., Va. & Ga. E. 
 
 a judf;ment against the company before the Co. (1871), 6 Heisk. 421; s. 0. 12 Am. 
 
 appointment of the receiver, and, upon a Ry. Rep. 38. 
 
600 RAILWAY BONDS AND MORTGAGES. [CHAP. XXV. 
 
 The creditors of the company may reach by garnishment pre 
 cess all income accruing prior to default, even when it has passed 
 into the hands of the mortgagees, if the latter have appropriated 
 it without the consent of the company.^ 
 
 § 509. When the Mortgagee's Right to the Income becomes abso- 
 lute in Suits for Possession. — Under a mortgage of the ordinary 
 form entitling the trustee to take possession upon a default, the 
 possession of the company is unlawful from the time when it fails 
 to comply with a demand of the trustee to surrender the property, 
 and cannot thereafter furnish a foundation for any rights which 
 are dependent on its legality. The trustee is, therefore, entitled 
 to all earnings which accrue after a demand for possession, and 
 the institution of a suit for possession is equivalent to a demand. 
 It is immaterial that no receiver is appointed for some time after 
 the commencement of the proceedings. The company itself is to 
 be treated in all respects from the time the suit is begun as a 
 receiver of the property, holding it for the benefit of whomsoever 
 it may in the end be found to concern.^ 
 
 After the possession of the trustees is perfected, they are en- 
 titled to receive all sums earned through the operation of the 
 road ; as the rentals of a leased line,^ and moneys due for carry- 
 ing the mails collected by an agent of the company.* 
 
 Whatever net earnings are found in the possession of the 
 trustee at the time of the foreclosure are properly applied to 
 the reduction of the mortgage indebtedness.* 
 
 If necessary, the earnings will be apportioned between the 
 trustee and an attaching creditor. Thus where the trustee takes 
 possession during the currency of a month, at the end of which 
 the company is to be entitled to receive a sum of money, as com- 
 pensation for services performed under a contract, entered into 
 after the execution of the mortgage and not covered by it, the 
 money will be apportioned so as to give an attaching creditor 
 
 ■1 De Graff v. Thompson (1878), 24 "the bill itself did not contain any alle- 
 
 Minn. 452 ; s. c. 17 Am. Ry. Rep. 183. gation of such a demand." 
 
 2 Dow V. Memphis & Little Rock R. ^ ^ing v. Housatonie R. Co. (1877), 45 
 
 Co. (1888), 124 U. S. 652 ; s. o. 33 Am. & Conn. 226. 
 
 Eng. K. R. Gas. 12. Compare Galveston ^ Murray v. Deyo (1877), 10 Hun, 3. 
 
 Railroad v. Cowdrey (1870), 11 Wall. 459, There the agent for ooUectioa undertook 
 
 ■where the Supreme Court of the United to hold the money collected as a set-off 
 
 States, in upholding the right of a creditor against a claim which he had against 
 
 to levy on the earnings accruing before the company ; but the court refused to 
 
 suit brought, said that it did not "appear allow him to do so. 
 
 that the complainants or their trustees ^ Woods. Wlielen (1879), 93 111. 153 
 
 made any demand for the tolls and income (not a railroad case), 
 till they filed the present bill," and that 
 
§§ 510, 511.] DISPOSITION OP MORTGAGED PROPERTY. 601 
 
 the part which was earned during the time which elapsed be- 
 tween the beginning of the month and the entry of the trustee. 
 
 The principle that the trustees are entitled to the income after 
 taking or demanding possession necessarily involves the corollary 
 that money earned by the operation of the road, while they are 
 actually or constructively in possession, cannot be reached by 
 garnishment in the hands of the debtor by a creditor of the 
 latter.^ 
 
 § 510. When the Mortgagee's Right to the Income becomes abso- 
 lute in Suits for Foreclosure. — Ordinarily the assumption of 
 control by a receiver in a foreclosure suit has the effect of se- 
 questrating the earnings for the benefit of the mortgagee from 
 that time onward.^ 
 
 But the terms of the mortgage may be such as lead to the 
 conclusion that the bondholders have no right to the earnings 
 until actual entry by the trustee. In this case even the appoint- 
 ment of a receiver in a foreclosure suit instituted on their behalf 
 does not give them any priority of claim as regards the earnings 
 thereafter accruing.* 
 
 The possession of the receiver for the purpose of cutting off 
 the right to levy on the earnings is not complete until he has 
 given the required security for the faithful discharge of his 
 duties.^ 
 
 § 511. Effect of the Divestiture of the Company's Control in a Suit 
 brought by a Party other than the one claiming the Earnings. — To 
 entitle a mortgagee to income accruing after the control of the 
 company ceases, it is not necessary that such control should have 
 
 1 Emerson K. European & North Ameri- the receipt thenceforward of the income 
 
 can R. Co. (1877), 67 Me. 387. ^J the trustees, and also declared that, on 
 
 ^ Galena & Chicago Union E. Co. v. taking possession, they should file a writ-. 
 
 Menzies (1861), 26 111. 121. This case ten notice of the fact in the office of the 
 
 has sometimes heen cited as countenancing secretaries of State in the three States 
 
 the broader proposition that income specifi- over which the railroad extended. The 
 
 cally pledged is no longer under the con- court thought that this explicit language 
 
 trol of the mortgagor ; but in a later case excluded the possibility of acquiring a lieu 
 
 in the same court (Mississippi Valley & on the income in any other mode than the 
 
 Western Ry. Co. v. IT. S. Express Co. one stated. 
 
 (1876), 81 111. 534) the possession of the ^ Frayser's Admrs. v. Richmond & A. 
 
 trustees was stated to he the distinguish- R. Co. (1886), 81 Va. 388, relying on 
 
 ing feature which determined the rights Edwards u. Edwards (2 L. E. Ch. Dlv. 
 
 of the parties. 291), where it was held that a levy on 
 
 ° Newport & Cincinnati Bridge Co. v. goods before the receiver had given se- 
 Douglass (1877), 12 Bush (Ky.), 673 ; 18 curity or taken po.ssession was not a con- 
 Am. Ey. Rep. 221. tempt of court. Such also seems to be 
 
 < Ellis V. Boston, Hartford, & Erie R. the rule in Maine : Noyes v. Rich (1861), 
 
 Co. (1871), 107 Mass. 1. There the trust 52 Me. 115; though the point is only 
 
 deed provided for entry after default, and passed on by implication. 
 
502 RAILWAY BONDS AND MORTGAGES. [CHAP. XXV. 
 
 been terminated at his own instance, provided his own right be 
 superior to that of the party actually moving in the matter, and 
 he has taken active steps to enforce his claim. Thus if a senior 
 mortgagee is made a party to a suit brought by a junior incum- 
 brancer to foreclose his lien, and a receiver is appointed upon the 
 application of the latter, the senior mortgagee may obtain an 
 order directing the receiver to hold for and to pay to them so 
 much of the net earnings as are covered by their mortgages.^ 
 
 On the other hand, if a receiver has been appointed at the 
 instance of a judgment creditor for the protection of his own 
 interests, and not for the interests of the trustees, bondholders, 
 and other creditors, the trustees cannot have the net earnings of 
 the property, while in the hands of such receivers, applied to the 
 discharge of the bondholders' claims, unless they have previously 
 demanded possession or intervened in the suit.^ 
 
 So, also, where a receiver has been appointed in a suit to fore- 
 close a general mortgage covering a system composed of several 
 divisions, some of which are subject to prior underlying mort- 
 gages and others are not, the bondholders secured by underlying 
 mortgages cannot object to the disposition of the income prior to 
 the time when they commence proceedings to enforce the lien, 
 and have the money used for the payment of preferential claims 
 taxed by receivers' certificates, or in some other way, upon the 
 earnings of the divisions upon which there are no prior liens. 
 Especially must such relief be denied them after the rendition of 
 a decree to which their trustees have assented.^ 
 
 There is some authority for carrying this pi'inciple still further, 
 and holding that the mortgagee's contingent right to the income 
 matures immediately after the possession of the company is ter- 
 minated by the institution of proceedings by any of the creditors, 
 although the mortgagee does nothing to assert his right, and 
 allows the assignees of the corporate property to go on receiving 
 the income for several years before attempting to enforce his 
 lien. Thus it has been held that where a portion of a road is 
 subject to a mortgage which embraces income, and a later mort- 
 
 1 Seibertt). Minneapolis & St. Louis R. based upon the circumstances presented 
 Co. (1893), 52 Minn. 2,46 ; s. o. 53 N. W. for review, Judge Brewer based his ruling 
 Rep. 1151. on the broad ground that such relief 
 
 2 Sage f . Memphis & Little Rock R. ' ' would not be right ; because the mort- 
 Co. (1888), 125 U. S. 361 ; s. c. 35 Am. gagor has by the settled law of this coun- 
 & Eng. R. R. Cas. 40. try absolute control of the income of his 
 
 8 Central Ti-ust Co. v. "Wabash, St. property prior to the legal proceedings in- 
 Louia, & Pac. K. Co. (1887), 30 Fed. Rep. stituted by the mortgagee." 
 332. Apart from certain special reasons 
 
§ 511.J DISPOSITION OP MORTGAGED PROPEETT, 603 
 
 gage on the whole property is foreclosed, and the property sold, 
 subject to the divisional lien, the purchaser will hold the income 
 derived from the section covered by the prior mortgage in trust 
 for those protected by it, and upon being brought in as a defend- 
 ant in a suit long afterwards instituted by the representative of 
 the senior mortgagees, may be compelled to account for that 
 income for the period between the date at which he took posses- 
 sion and that at which the second suit was instituted.^ 
 
 1 PuUan V. Cincinnati & Chicago Air those in which it is operated hy an as- 
 
 Line R. Co. (1873), 5 Biss. 237 ; s. c. 20 signee. In either event the earnings are 
 
 Fed. Cas. 38, Case No. 11,462. It seems essential for the purpose of carrying, on 
 
 very doubtful whether, in view of the sub- the business, and the mortgagee secured 
 
 sequent decisions of other courts, this rul- by the income, if he takes no steps to 
 
 ing can be sustained. There is apparently assert his rights, must be presumed to 
 
 no valid reason why any distinction should have assented to the control of those earn- 
 
 be made between the cases in which the ings by the party in possession at the time 
 
 road is operated by the mortgagor, and being. 
 
504 
 
 RAILWAY BONDS AND MORTGAGES. [CHAPj XXYI, 
 
 CHAPTER XXVI. 
 
 APPOINTMENT, REMOVAL, AND DISCHARGE OP RECEIVERS. 
 
 § 512. Introductory. 
 Art. I. — Appointment 
 
 OP Receivers 
 
 (513. 
 511. 
 515. 
 516. 
 517, 
 
 GENERALLY. 
 
 For what Objects a Receiver is 
 appointed. 
 
 Reluctance of the Courts to ap- 
 point a Receiver. 
 
 Jurisdiction to appoint a Re- 
 ceiver. 
 
 Who should he appointed Re- 
 ceiver. 
 
 Necessity of Notice to Parties 
 who will he affected hy the 
 Appointment. 
 518. The Court wUl not go into the 
 Merits of the Case on the 
 Hearing of an Application. 
 , 519. A Full and Fair Denial of the 
 Allegations of the Bill wUl 
 prevent Appointment. 
 
 520. "When the Mortgagor Company 
 
 may obtain the Appointment 
 of a Receiver. 
 
 521. At whose instance a Receiver 
 
 may be appointed, generally. 
 
 522. "When the Mortgagor Company 
 
 may obtain the Appointment 
 of a Receiver. 
 
 523. Receiver not usually appointed 
 
 at the Instance of General 
 Creditors. 
 
 524. Successive Applications for Re- 
 
 ceivers in the same Court, 
 how treated. 
 
 525. Appointment of Additional Re- 
 
 ceivers in other States or Dis- 
 tricts. 
 
 Art. II. — ClBOUMSTANCES UNDER WHICH 
 
 A Receiver will or wii^ 
 
 NOT BE APPOINTED. 
 
 § 526. General Principles on which Re- 
 ceivers are appointed. 
 
 528. 
 
 529. 
 
 530. 
 
 531. 
 
 § 527. Limits to the Discretionary Pow- 
 ers of the Courts in appoint- 
 ing Receivers. 
 
 The Appointment of a Receiver 
 not justifiable merely because 
 convenient. 
 
 No Receiver appointed unless 
 Appointment will give Effec- 
 tual Relief. 
 
 Existence or Non-existence of 
 Danger to the Fund deter- 
 mines whether Receivership 
 shall be granted or denied. 
 
 Adequacy of Legal Remedy 
 Reason for Refusal to ap- 
 point. 
 
 532. Default of Mortgagor alone not 
 sufficient to justify Appoint- 
 ment. 
 
 533. No Receiver appointed if the 
 Existence of a Default is 
 doubtful. 
 
 Prevention of Fraud. 
 
 Prevention of "Waste. 
 
 A Long-continued and Hopeless 
 Condition of Insolvency. 
 
 Dissensions among Corporate 
 Officers. 
 
 Indisposition of Company to 
 pay its Debts to the Extent 
 of its Ability. 
 539. "Wrongful Failure to apply Rev- 
 enues to Bonded Debt. 
 
 Danger to Fund arising from 
 Mismanagement of the Cor- 
 porate Property. 
 
 Numerous Executions threaten- 
 ing Integrity of Property. 
 
 Circumstances under which a 
 Judgment Creditor will be 
 granted a Receivership of 
 Mortgaged Property. 
 
 534. 
 535. 
 536. 
 
 537. 
 
 538. 
 
 540. 
 
 541. 
 
 542. 
 
§§ 512, 613.] APPOINTMENT, ETC., OF RECEIVERS. 
 
 505 
 
 § 643. Right to Receiver lost by Laches. 
 
 544. Effect of Provision in Mortgage 
 
 authorizing Trustee to take 
 Possession. 
 
 545. Last Subject continued. 
 
 646, Appointment of a Receiver after 
 Rendition of Foreclosure De- 
 cree, when proper. 
 Art. III. — Removal, Substitution, and 
 Final Discharge of Re- 
 ceivers. 
 § 547. Generally. 
 
 548. Power of Removal. 
 
 549. Jurisdiction to remove Ancillary 
 
 Receivers. 
 650. Questions which will not be 
 decided on Applications for 
 Removal. 
 
 § 551. Removal on Account of Circum- 
 stances existing at the Time 
 of the Appointment. 
 
 552. Removal of Receivers appointed 
 
 ex parte. 
 
 553. Right to object to Appointment 
 
 lost by Delay. 
 
 554. Removal on Account of Circum- 
 
 stances arising after Appoint- 
 ment. 
 565. Termination of Receiverships 
 generally. 
 
 556. No Formal Discharge necessary 
 
 to terminate Receivership. 
 
 557. Receiver himself cannot be heard 
 
 in Opposition to a Motion for 
 his Discharge. 
 
 558. Efifect of the Discharge. 
 
 § 512. Introductory. — As a receiver is almost invariably asked 
 for in proceedings for the enforcement of railroad mortgages, 
 and the peculiar nature of the property of whicli the court thus 
 assumes control has developed some distinctive and novel appli- 
 cations of the familiar principles by ■which this branch of equity 
 practice is governed, it is necessary to review the cases in which 
 the appointment and functions of receivers in railway foreclosures 
 have been considered in order to a systematic treatment of the 
 questions connected with railway bonds, although the subject of 
 receiver has been fully treated in numerous other works. 
 
 Article I. — Appointment op Receivers generally.^ 
 
 § 513. With what Object a Receiver is appointed.- — A receiver 
 is an indifferent person between parties appointed by the court 
 to receive the rents, issues, or profits of land or other things in 
 
 1 See Receivership of Corporations, by 
 George A. Mercer, 3 Ga. Bar Association, 
 121 ; Receivers of Railways, by Leonard A. 
 Jones, 4 So. L. Rev. N. S. 18 ; Railroad 
 Receiverships, by M. M. Kohn, 19 Am. L. 
 Rev. 400 ; Railway Receivership, note, 20 
 Am. L. Rev. 749 ; The Courts as Railway 
 Managers, by Lawrence Gookin, 32 Alb. 
 L. J . 45 ; Receivers in Mortgage Fore- 
 closure, by James M. Kerr, 23 Am. L. Rev. 
 66 ; The Wabash Receivership, note, 21 
 Am. L. Rev. 798 ; Railway Receiverships, 
 24 Am. L. Rev. 668 ; The Court Manage- 
 
 ment of Railroads, by Seymour D. Thomp- 
 son, 27 Am. L. Rev. 481 ; Jurisdiction to 
 appoint a Receiver on Petition of Debtor, 
 note, 28 Am. L. Rev. 925; Federal and State 
 Jurisdiction ; Appointments of Receivers, 
 note, 27 Am. L. Rev. 615 ; The Commer- 
 cial Basis for Railway Eeceiverships, by 
 Thomas L. Greene, 33 Am. Law Reg. & 
 Rev. 417 ; Railroad Receiverships in the 
 Federal Courts, address by Hon. Henry 
 C. Caldwell, Judge U. S. Circuit Court 
 of Appeals, 8th Dist., 30 Am. L. Rev. 
 161. 
 
506 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVI. 
 
 question, pending the suit, where it does not seem reasonable to 
 the court that either party should do it.^ 
 
 He is appointed for the benefit of all the parties interested, 
 and not for the benefit either of the plaintiff or defendant, or of 
 any individual litigant, where there are several on one or both 
 sides.^ 
 
 By means of the appointment a court of equity takes possession 
 of the property which is the subject of the suit, preserves it from 
 waste and destruction, secures and collects the proceeds or profits, 
 and ultimately disposes of them according to the rights and pri- ' 
 orities of those entitled, whether regular parties to the cause, or 
 only parties in interest, coming before the court in a seasonable 
 time and due course of proceeding to assert and establish their 
 pretensions.^ Such appointment is analogous to proceedings in 
 attachment in a court of law, and has been styled an equitable 
 execution.* 
 
 But there is a material distinctioTi between the two remedies. 
 The appointment of a receiver, tliough a kind of equitable execu- 
 tion, results in a merely general, not a specific, appropriation of 
 the issues and profits of the subject-matter. It does not in itself 
 give to the party applying for it any advantage over other claim- 
 ants, but operates prospectively upon the rents and avails which 
 
 1 Bootli V. Clarke (1854), 17 How. 322, point a receiver and manager, thougli the 
 
 331 (per Swayne, J., quoting Wyatt's Pac. interest is not due and tim^ for payment 
 
 Eeg. 355). has not arrived. Edwards v. Standard 
 
 A holder of debentures covering all the EoDing-Stock Syndicate (1893), 3 R. 226 ; 
 
 property of a company is entitled to a Thorn a. Nine Eeefs (1892), 67 Law Times, 
 
 receiver notwithstanding that a creditor's 93 ; In re Victoria Steamboats, Limited 
 
 petition has been previously presented to (1896), L. R. 1897, Ch. Div. 158. 
 wind up. Strong v. Carlyle Press (1892), A receiver appointed generally, and 
 
 2 R. 283. directed also to act as manager for a lim- 
 
 Au express provision in an order of in- ited period, when the period expires he 
 
 corporation that mortgagees may enforce should apply for an extension as manager 
 
 payment by the aid of a receiver does not only. Davies v. Vale of Evesham Pre- 
 
 preclude them from obtaining a winding- serves (1895), 73 L. T. 150. 
 up order. In re Portstewart Tramway 2 Williamson v. New Albany, etc. R. 
 
 Co. (1896), 1 Ir. R. 265. Co. (1857), 1 Biss. 198, 205. 
 
 Where certain assets are of an excep- a Beverley v. Brooke (1847), 4 Gratt. 
 
 tional character, requiring a person of spe- 187, per Baldwin, J. 
 cial knowledge to deal satisfactorily with * Jeremy's Eq. Jurisp. 249 ; Cincinnati, 
 
 them, such a person will be appointed Sandusky, & Cleveland R. Co. v. Sloan 
 
 receiver in respect thereof, leaving the (1876), 31 Ohio St. 1. "Every kind of 
 
 ordmary assets to the oflScial receiver to property of such a nature that, if legal, it 
 
 deal with. Indnstrial & General Trust might be taken in execution, mav, if equi- 
 
 V. South American & M. Co. (1894), 7 table, be put into the receiver's posses- 
 
 R. 64;lCh. 108. sion." Davis w. Gray (1872), 16 Wall. 203, 
 
 Where debenture-holder's security is 217 (per Swayne, J.), 
 endangered, the court will sometimes ap- 
 
§ 514.] APPOINTMENT, ETC., OP RECEIVERS. 507 
 
 may come into the hands of the receiver, as a lien in favor of 
 those interested therein.^ A receiver may be appointed at any 
 stage of a foreclosure suit, even after the final decree.^ 
 
 § 514. Reluctance of the Courts to appoint a Receiver. — The 
 court, acting as it must often of necessity do before the merits of 
 the cause have been fully developed, and not infrequently when 
 the proper parties in interest are not all before it, proceeds with 
 much caution and circumspection, in order to avoid disturbing 
 unnecessarily or injuriously legal rights and equitable priorities.^ 
 To begin by levying what is virtually an equitable execution on 
 the property, and afterwards determine who is entitled to the 
 benefit of this quasi process, is plainly a reversal to a great extent 
 of the ordinary course of justice in an equitable tribunal.* 
 
 The reasons for proceeding with caution in the exercise of a 
 summary jurisdiction of this peculiar sort are recognized to be 
 especially strong in the case of a railroad company, a quasi public 
 corporation operating a public highway. The principle upon 
 which the courts act is, that a very strong case should be pre- 
 sented before they will grant a remedy so extreme, and, with 
 reference to the management of the road, so revolutionary in its 
 character.^ 
 
 " The appointment of receivers to manage the affairs of a long 
 line of railroad for five or six years is an exercise of judicial 
 power which can only be justified by the pressure of absolute 
 necessity." ^ 
 
 1 Beverley v. Brooke (1847), 4 Gratt. the easement in such a manner as to render 
 187. it less valuable to the other. Erie Ry. Co. 
 
 2 Gilman v. Illinois & Miss. Tel. Co. v. Delaware, L. & W. E. Co. (1871), 21 
 (1875), 91 U. S. 603. N. J. Eq. 283, 288. 
 
 * Beverley v. Brooke (1847), 4 Gratt. A receiver will be appointed of the 
 187. property of a street-railway company 
 
 * Ibid. when it appears necessarj' for the protec- 
 ^ Sage V. Memphis & Little Bock R. Co. tion of all parties adversely claiming to be 
 
 (1888), 125 U. S. 361; Farmers' Loan & entitled, thereto ; thus a mortgagee of a 
 
 Trust Co. II. Kansas City, W. & N. W. R. portion of the railway and equipment is 
 
 Co. (1892), 53 Fed. Rep. 182 ; State of entitled to the appointment of a receiver, 
 
 Florida v. Jacksonville, P. & M. E. Co. notwithstanding the addition to the as- 
 
 (1875), 15 Fla. 201 (p. 286); Stevens a. sets and property by a subsequent trans- 
 
 Davison (1868), 18 Gratt. 819 ; Meyer v. feree of the road, of new rolling-stock, 
 
 Johnston (1875), 53 Ala. 237; s. 0. 15 horses, etc. Haley ». Halifax Street Ry. 
 
 Am. liy. Rep. 467. The fact that railroad Co. (1893), 25 Nova Scotia, 140. 
 companies are in some sense public agen- ^ Milwaukee & Minnesota R. Co. v. 
 
 cies mftv, however, in certain cases, be an Soutter (1864), 2 Wall. 524 (per Miller, 
 
 additional reason for the assumption of J. . Compare Pullan u. Cincinnati & Chi- 
 
 control by the court, as where two com- cago Air Tjine E. Co. (1865), 4 Biss. 35, 
 
 panics are tenants in common of an ease- 47 ; Vermont & Canada R. Co. v. Vermont 
 
 ment, and it is represented that one is using Central R. Co. (1877), 50 Vt 500 ; Meyer 
 
508 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVI. 
 
 It has been contended that the appointment o£ a receiver to 
 manage a railroad is against public policy, but this extreme view 
 has been expressly negatived.^ 
 
 But the courts, although theoretically unanimous as to the 
 drawbacks of that solution of continuity in the management of 
 a railroad which a receivership entails, have, on the whole, 
 acceded with so much facility to applications for receivers, that 
 more than one distinguished judge has deprecated the freedom 
 with which this relief has been granted. ^ 
 
 V. Johnston (1875), 53 Ala. 237 ; s. c. 15 
 Am. Ry. Rep. 467 ; Kelly v. Trustees, etc. 
 (1877), 58 Ala. 489 ; 21 Am. Ry. Rep. 138. 
 
 ^ State V. Northern Central R. Co. 
 (1861), 18 Md. 193. 
 
 2 Justice Miller, in his dissenting opin- 
 ion in Barton v. Barbour (1881), 104 U. S. 
 126, 137, expressed his dissatisfaction 
 with the results of placing railroads in 
 the hands of receivers for long periods, in 
 the following Tigorous language ; " The 
 rapid absorption of the business of the 
 country of every character by corporations, 
 while productive of much good to the pub- 
 lic, is beginning also to develop many evils, 
 not the least of which arises from their 
 failure to pay debts and perform the duties 
 which by the terms of their organization 
 they assumed. One of the most efficient 
 remedies for the failure to pay, when it 
 arises from inability, is to place the corpo- 
 ration in the hands of a receiver, that its 
 affairs may be wound up, its debts dis- 
 charged, and the remaining assets, if any 
 there be, distributed among its stockhold- 
 ers. Of the beneficial results of this rem- 
 edy there can be little doubt. When it is 
 applied with despatch, and the effects of 
 the insolvent corporation are faithfully 
 used to meet its liabilities, and its dead 
 body is buried out of sight as soon as pos- 
 sible, no objection can be made to the 
 procedure, and all courts and good citizens 
 should contribute, as far as they may, to 
 this desirable object. In regard, however, 
 to a certain class of ooi-porations, — a class 
 whose operations are as important to the 
 interests of the community and as inti- 
 mately connected with its business and 
 social habits as any other, — the appoint- 
 ment of receivers, as well as the power 
 conferred on them, and the duration of 
 
 their office, has made a progress which, 
 since it is wholly the work of courts of 
 chancery and not of legislatures, may well 
 suggest a pause for consideration. It will 
 not be necessary to any observing mind to 
 say that I allude to railroad corporations. 
 Of the fifty or more who own or have owned 
 the many thousand miles of railway in my 
 judicial circuit, I think I speak within 
 limits in saying that hardly half a dozen 
 have escaped the hands of the receiver. If 
 these receivers had been appointed to sell 
 the roads, collect the means of the com- 
 panies, and pay their debts, it might have 
 been well enough. But this was hardly 
 ever done. It is never done now. It is 
 not the purpose for which a receiver is 
 appointed. He generally takes the prop- 
 erty out of the hands of its owner, operates 
 the road in his own way, with an occasional 
 suggestion from the court, which he recog- 
 nizes as a sort of partner in the business ; 
 sometimes, though very rarely, pays some 
 money on the debts of the corporation, but 
 quite as often adds to them, and injures 
 prior creditors by creating a new and supe- 
 rior lien on the property pledged to them." 
 Almost more sweeping is the following 
 expression of opinion by Judge Butler : 
 "The modern practice of transferring cor- 
 porate property to the custody of the 
 courts, to be thus held and managed for 
 an indefinite period of years, to suit the 
 convenience of parties, I regard as a mis- 
 chievous innovation." Taylor v. Phil. & 
 Reading E. Co. (1881), 9 Fed. Rep. 1. 
 See also the report of the case of the South 
 Carolina Railroad in 11 Chicago Legal 
 News, 8, where ,Tudge Bond gives some 
 statistics as to the disastrous results of 
 some receiverships. See also 27 Am. Law 
 Rev. 481. 
 
§ 515.] 
 
 APPOINTMENT, ETC., OF RECEIVERS. 
 
 609 
 
 Tn England, where a distinction is made between a mere re- 
 ceiver of rents and profits and a person who acts as a manager of 
 the business, it was held, in a leading case,i that a court of equity 
 would not appoint a functionary of the latter description to take 
 charge of the property of a railroad company. In consequence of 
 this decision, a statute was passed by which the powers of the 
 courts of equity were made virtually identical with those which 
 the courts of this country have not hesitated to exercise witliout 
 any enabling act.^ 
 
 § 515. Jurisdiction to appoint a Receiver. — The power of a 
 court of chancery to appoint a receiver pendente lite in fore- 
 closure cases is a part of its incidental jurisdiction not depending 
 on any statute.^ 
 
 In some of the United States statutes have been passed author- 
 izing the appointment of receivers, but it may fairly be questioned 
 whether any positive advantages have been gained by these enact- 
 ments. " There is no reason why the court of equity in the exer- 
 cise of its undoubted authority may not accomplish all the best 
 results intended to be secured by such legislation." * 
 
 1 Gardner v. Railway Co., L. E. 2 Ch. 
 App. 301. 
 
 ^ 30 & 31 Vict., ch. 127. See also 38 & 
 39 Vict., ch. 31. Under these acts a re- 
 ceiver manager may be appointed of the 
 undertaking of a ti'amway company, as 
 well as of a railway, iu a suit to enforce 
 overdue mortgage debentures. Bartlett v. 
 West Metropolitan Tramway Co. (1893), 
 L. R. 3 Ch. 437. See also Pegge v. 
 Neath Tramways Co. (1895), L. K. 2 Ch. 
 509. 
 
 Debenture-holders, their security being 
 a floating one on all the assets of a com- 
 pany, have a right to enforce their security 
 through the appointment of a receiver, 
 whenever the company ceases to be a 
 going concern. Hubbuck v. Helms ( 1887), 
 56 L. T. N. S. 232. 
 
 But a railway company which has never 
 commenced to acquire the lands or con- 
 struct the railways authorized by its special 
 act is not an "undertaking" within the 
 meaning of section 4 of the former of these 
 statutes, as it is applicable by its terms 
 only to a going concern. In re Birming- 
 ham, etc. Ry. Co. (1881), L. R. 18 Ch. 
 Div. 155 ; 3 Am. & Eng. R. R. Cas. 616. 
 
 The English doctrine as to the impro- 
 priety of a court's undertaking, without 
 
 special statutory authority, to appoint a 
 receiver to supersede permanently the 
 managers of a railway, and to take entire 
 charge of its affairs, was mentioned with 
 approval in a New Jersey case. Delaware, 
 Lackawanna, & Western E. Go. v. Erie 
 Ry. Co. (1871), 21 N. J. Eq. 283, 298, 
 citing Russell v. East Anglian Ry. Co., 3 
 Mac. & G. 125, and Fripp v. Chard, etc. 
 Ry. Co., 11 Hare, 254. 
 
 ^ United States Trast Co. v. New York, 
 W. S. & B. R. Co. (1886), 101 N. Y. 
 478 ; s. 0. 5 N. E. Rep. 376 ; 25 Am. & 
 Eng. R. R. Cas. 601 ; Meyer v. Johnston 
 (1875), 53 Ala. 237; s. o. 15 Am. Ey. 
 Rep. 467 ; Davis v. Gray (1873), 16 Wall. 
 203, 219 ; Ford v. Kansas City & Indepen- 
 dence Short Line Ry. Co. (1893), 52 Mo. 
 App. 439 ; High on Eec, §§ 40, 41. In 
 New York, where it was provided by stat- 
 ute (2 Rev. Stat. 463, § 38) that a receiver 
 may be appointed in an equitable action 
 instituted by the people for the dissolution 
 of a corporation, it has been held that the 
 powers and duties of such a receiver were 
 not statutory, but merely were snch as 
 devolve on them by the orders of the 
 court. 
 
 « Davis V. Gray (1873), 16 WaU. 203, 
 220. 
 
510 EAILWA.T BONDS AND MORTGAGES. . [CHAP, XXVI. 
 
 As a general rule the power is one to be exercised by a trial 
 and not an appellate court ; ^ and where an appeal has been taken, 
 the appointment of a receiver should ordinarily be made by the 
 former.^ 
 
 Under the statutes of Illinois the appointment of a receiver is 
 invalid, unless made during the term. ^ 
 
 But an appointment made during vacation will be good, if after- 
 wards confirmed during term time.* 
 
 A United States Circuit Court sitting within the district where 
 a national bank resides has jurisdiction, without respect to the 
 citizenship of the parties, to appoint a receiver of an insolvent 
 railroad company in a suit brought by such bank. This power it 
 possesses by virtue of the general jurisdiction of such courts over 
 suits brought by or against national banks.^ 
 
 In the case of the Northern Pacific Railroad, which runs through 
 the districts of Wisconsin, Minnesota, Illinois, Nortli Dakota, 
 Montana, Idaho, Washington, and Oregon, with certain offices iu 
 New York, and its principal offices in Minnesota, proceedings in 
 the form of a creditor's bill were originally instituted in the 
 Eastern District of Wisconsin, where the company controlled 
 certain lines of road under a long-term lease, the company ap- 
 peared without objecting to the jurisdiction, and the court of that 
 district appointed receivers. In all the other districts mentioned 
 the courts appointed the same receivers in ancillary proceedings. 
 The lease of the roads in Wisconsin was shortly afterwards can- 
 celled by the lessors for non-payment of rent. The trustee of the 
 bondholders filed in the same court a bill for foreclosure of their 
 mortgage, and also ancillary bills in the courts of the other dis- 
 
 1 High onEec, § 41. In Tennessee, it destruction. But for the Supreme Court 
 would seem that the Supreme Court may, to pass such interlocutory orders as might 
 in a proper case, appoint a receiver pending he necessary would he very inconvenient, if 
 an appeal. Kerru. White (1874), 7 Baxt. not impracticable. We know of no instance 
 394. In Pacific Eailroad of Missouri t). where it has heen done. The Circuit Court 
 Ketchum (1877), 95 U. S. 1, the Supreme acted with full knowledge of the facts and 
 Court of the United States declined to its practice in such cases. True, the case 
 decide whether a case might not arise in was in the Supreme Court ; but the ulti- 
 which they would exercise the power of mate disposition of the property was to be 
 appointing a receiver, pending an appeal, through the Circuit Court. We think that 
 but were of opinion tliat they ought not to court could grant such an order as it did." 
 do so on the showing made in the case. ^ Hammock v. Loan & Trust Co. (1881), 
 
 2 May V. Printup (1877), 59 Ga. 128 ; 105 U. S. 77. 
 
 s. c. 6 Kep. 392. The court said . " To * Herveys. Illinois Midi. R. Co. (1884), 
 
 us it seems very evident that either the 28 Fed. 169. 
 
 Supreme Court or the Circuit Court must ^ Fifth Nat. Bank of Pittsbui-g v. 
 
 have power to preserve the property in Pittsburg & Castle Shannon E. Co. (1880), 
 
 litigation, and to prevent its waste and 1 Fed. Eep, 190. 
 
§ 516.] APPOINTMENT, ETC., OP EECEIVERS. 511 
 
 tricts. The same receivers were again appointed in all the courts. 
 Afterwards, in the district of Washington, the court, on a bill, 
 held that the court in Wisconsin had never had or had lost its 
 jurisdiction by the cancelling of the lease, leaving no property of 
 the company within its territory, and removed the receivers.^ 
 
 By petition the trustee and railroad company presented the 
 matters and questions involved to Circuit Justices Field, Harlan, 
 Brewer, and Brown, of the Supreme Court. Their opinion and 
 judgment, after hearing all parties through their counsel, was thus 
 stated : " We are of opinion that proceedings to foreclose a moi't- 
 gage placed by a railroad company upon its lines, extending 
 through more than one district, should, to the end that the mort- 
 gaged property may be effectively administered, be commenced in 
 the Circuit Court of the district in which the principal operating 
 offices are situated, and in which there is some material part of 
 the railroad embraced by the mortgage ; that such court should 
 be the court of primary jurisdiction and of principal decree, and 
 the administration of the property in the Circuit Court of other 
 districts should be ancillary thereto." But under the circum- 
 stances of this case they determined that the court of the Eastern 
 District of Wisconsin had jurisdiction to proceed to a decree of 
 foreclosure which would bind the mortgagor company and the 
 mortgaged property, and ought therefore to be recognized by the 
 Circuit Courts of every district along the line of the road as the 
 court of primary jurisdiction ; and that proceedings in the latter 
 courts, while protecting the rights of local creditors, should be 
 ancillary in their character, and subordinate to the proceedings in 
 the court of primary jurisdiction.^ 
 
 As to conflicts of jurisdiction in suits asking for the appoint- 
 ment or removal of receivers, see Chapter XXI. 
 
 As to jurisdiction, so far as it depends upon the necessary par- 
 ties being before the court, see Chapter XXIV. 
 
 As to the appointment of receivers in other States or districts, 
 see § 525, post. 
 
 As to the removal of ancillary receivers, see § 549, post. 
 
 §516. Who should be appointed Receiver.^ — Since a receiver 
 acts as the representative of every one who has an interest in the 
 subject-matter of the suit, it is of the first importance that he 
 
 ' Farmers' Loan & Tnist Co. v. North- 26, overruling Farmers' Loan & Trust Co. 
 
 ern Pac. Ey. Co. etal. (1895), 69 Fed. Rep. v. Noithern Pac. E. Co. et al. (1895), 69 
 
 871. Fed. Rep. 871. 
 
 2 Farmers' Loan & Tnist Co. v. North- ' See geuerally High on Rec., §§ 66 et 
 
 eru Pac. R. Co. et al. (1896), 72 Fed. Rep. seq. ; Woods Ey. Law, 1652. 
 
512 
 
 EAILWAT BONDS AND MORTGAGES. [CHAP. XXVI. 
 
 should be an impartial person. For this reason the fact that the 
 proposed appointee is himself interested in the result of the litiga- 
 tion will usually be suf&cient to cause his rejection. The general 
 rule is that, unless in cases of imperative necessity, no person 
 will be appointed receiver of a railway company who is a party to, 
 or of counsel in, the cause, or who has been an ofi&cer in, or an 
 official of, the insolvent corporation.^ 
 
 A person connected with a firm who are counsel for complain- 
 ant is ineligible to the appointment of receiver.^ 
 
 A party defendant is an especially improper person to act as 
 receiver.^ 
 
 Nor ought a stockholder or director to be appointed under or- 
 dhiary circumstances.* 
 
 In the case of directors, the objection to their appointment is 
 based not merely on the improbability of their acting impartially, 
 but also on the common-sense principle that a person who cannot 
 with the aid of others manage a business successfully, is prima 
 facie unfit to conduct it alone.* 
 
 1 Finance Co. of Pennsylvania v. 
 Charleston, C. & E. Go. (1891), 45 Fed. 
 Hep. 436. In Meier v. Kansas Pac. Ry. 
 (1878), 5 Dill. 476, 479, Mr. Justice 
 Miller made the following remarks as to 
 the selection of receivers : "A receiver is 
 strictly and solely the officer of the court. 
 By reason of the inability or neglect of the 
 officers of the corporation to conduct its 
 business as it ought to be done, the conduct 
 of that business is taken charge of by the 
 court and carried on by its agent. It is 
 the duty of that agent so to conduct the 
 business as that the lawful rights and legal 
 interests of all persons in the property and 
 in the biisiness shall be protected as far as 
 possible with equal and exact justice. This 
 is much more likely to be done by a receiver 
 who has no interest in the capital stock of 
 the road, nor in its debts, and no obliga- 
 tions to those who have. Such a person 
 acting under the control of the court seek- 
 ing its fid vice (as he would be inclined to 
 do in all questions of doubtful duty), and 
 bound in a sufficient surety for the faithful 
 performance of his duty, is in my opinion 
 the proper one for such an office." As to 
 fitness and eligibility of one appointed a 
 receiver, see People ex rel. Gore, etc. v. 
 Illinois Building & Loan Assn. (1894), 
 56 111. App. 642. See "Who may be 
 
 Receivers," note, 23 Am. L. Eeg. N. S. 
 582, 589. 
 
 " State Trust Co. of New York v. 
 National Land Imp. & Manufg. Go. et al. 
 (1893), 72 Fed. Rep. 575 ; following Fi- 
 nance Co. V. Charleston, C. & C.R. Co. 
 (1891), 45 Fed. Rep. 436. See also Phinizy 
 V. Augusta & K. Ry. Co. (1893), 56 Fed. 
 Eep. 273. 
 
 8 Young V. Rollins (1881), 85 N. C. 
 485 ; s. 0. 12 Am. & Eng. R. R. Cas. 455. 
 
 < Atkins V. Wabash, St. L. & Pac. R. 
 Co. (1886), 29 Fed. Rep. 161, 174. 
 
 6 High on Rec, § 72; McCullough !>. 
 Merchants' Loan & Trust Co. (1878), 29 
 N. J. Eq. 217. In Richards v. Chesapeake 
 & Ohio E. Co. (1875), 1 Hughes, 28, the. 
 court denied a request to appoint the vice- 
 president of the road, saying: "It ap- 
 peared to the court then, as it does now, 
 that the Chesapeake & Ohio R. Co. is 
 overwhelmed with debt, secured and unse- 
 cured. How it came so is not for us to 
 determine. But the court, when called 
 upon to appoint a receiver for a corpora- 
 tion totally insolvent, who is to be the 
 mere servant of the court, upon whose 
 fidelity and ability to manage during the 
 pendency of the suit the property in- 
 trusted to him the court must rely, ought 
 not to be expected to appoint a person 
 
§ 516.J 
 
 OP RECEIVERS. 
 
 513 
 
 To induce the court to appoint a former official of the road, it 
 must in any case appear that the consent of at least the great 
 majority of tlie creditors has been obtained.^ 
 
 But even the consent of all the secured creditors has been 
 deemed insufficient to warrant such an appointment.^ 
 
 Nor will the assent of the creditors warrant the court in placing 
 the business of the company in the hands of one of its former 
 officials, unless his integrity is above suspicion, and it is shown 
 that the disasters which have led to the foreclosure have not been 
 due to liis reckless management.^ 
 
 Provided that the creditors give their assent, and there are no 
 objections on the score of personal character, the court will give 
 due weight to the consideration that the knowledge and famili- 
 arity of a particular person with the estate to be managed may 
 justify a departure from the general rule.* 
 
 The case of a railway has even been thought to furnish an 
 exceptionally strong illustration of the advisability of qualifying 
 that rule, on the ground that the best interests of all parties may 
 be promoted by the appointment of one who has been managing 
 the business.^ 
 
 under whose charge and control the re- 
 sources of the road had heen exhausted, 
 its property seized upon execution, and 
 the necessity of a receiver brought about." 
 
 1 Farmers' Loan & Trust Co. v. North- 
 ern Pacific E. Co. (1894), 61 Fed. Eep. 
 546. In this case, a former president of 
 the company was made receiver at the re- 
 quest, and on tlie nomiuation of, the trus- 
 tees who represented by far the largest 
 part of the bondholders, and with the 
 consent of those bondholders therbselves 
 and of the company. 
 
 In Ralston v. Washington & C. C. R. 
 Co. (1895), 65 Fed. Rep. 557, the court 
 ap]iroved the nomination of a president 
 of a railroad company as receiver by a 
 trustee who had the power of selecting 
 one under the provisions of the mortgage. 
 There, was said to be no inflexible rule on 
 the subject. 
 
 In Fripp v. Bridgewater & Taunton 
 Canal, etc. Co. (18:.3), 11 Hare, 241, 260, 
 a eustomer, a shipper over the canal com- 
 pany, was held not a proper person for the 
 receivership, as his double position would 
 make a conflict between his duty and 
 intei'est. 
 
 2 Richards v. Chesapeake & Ohio R. 
 
 33 
 
 Co. (1875), 1 Hughes, 28, Hughes, J., 
 said: "The receiver is not the re(teiver 
 of the bondholders or secured creditors. 
 He is the mere hand of the court. The 
 unsecured creditors, whose chances of a 
 dividend are remote, have a deep interest 
 in knowing that the road, while its assets 
 are being marshalled, and its creditors, 
 their claims and priorities, ascertained, is 
 free from the control of those whose ad- 
 min istration of its affairs ended in bank- 
 ruptcy." 
 
 5 Farmers' Loan & Trust Co. v. North- 
 ern Pacific R. Co. (1894), 61 Fed. Rep. 
 646. 
 
 * Sykesu. Hastings, 11 Ves. 363 ; New- 
 port V. Bury, 23 Beav. 30. 
 
 ^ Farmers' Loan & Trust Co. v. North- 
 ern Pacific R. Co. (1894), 61 Fed. Eep. 
 546. There Judge Jenkins, in ujiholding 
 the propriety of appointing a Ibrmer presi- 
 dent of the road to act as receiver, said : 
 " Railway management has become a pro- 
 fession. A railway is not a toy that may 
 be trifled with. Its management requires 
 gi'eat financial and executive ability, and 
 the practical experience of years. Rail- 
 way management stands apart as a spe- 
 cialty. The ablest men in other professions 
 
614 RAILWAY BONDS AND MOETGAGBS. [CHAP. XXTI. 
 
 For reasons analogous to those which lead a court to select as 
 receivers only such persons as are likely to represent impartially 
 all those who are concerned in the issue of the suit, it is held that 
 the attorney of the plaintiff should not be authorized to act as 
 attorney for the receiver.^ 
 
 A person is not disqualified for the position of receiver merely 
 because he is not a railroad expert acquainted with all the details 
 of the mechanical work of a railroad plant, provided he possesses 
 integrity of character, business experience, a knowledge of affairs, 
 a capacity for the examination into and comprehension of ac- 
 counts, is not a partisan, and has no pecuniary interest in any one 
 of the classes of creditors whose claims come before the court.^ 
 
 Prom the fact that a receiver is an oiiicer of the court by 
 which he is appointed, it necessarily follows that he must be some- 
 body living within the jurisdiction of the court,^ though apparently 
 the circumstance that he resides at a distance from the property 
 to be administered is not an absolute disqualification.* 
 
 § 517. Necessity of Notice to Parties -wrho ■will be affected by 
 the Appointment.^ — In appointing a receiver a court of equity 
 usually proceeds upon the fundamental principle that any person 
 whose rights will be affected by judicial action ought to have an 
 opportunity of presenting his side of the case. Thus the appoint- 
 ment of a receiver to take charge of corporate property will not 
 be granted where the corporation itself is not a party to the bill, 
 or in court in some other way, as on notice for a preliminary 
 injunction.'' 
 
 and in other walks of life would probatly such an arrangement is warrantable, un- 
 
 fail in the successful direction of the affairs less under a very exceptional showing of 
 
 of a railway, if they are wanting in that facts, it is evidently o])posed to the weight 
 
 knowledge of its needs and requirements of authority. 
 
 that may only be obtained by long expe- ' Blair v. St. Louis, H. & K. E. Co. 
 
 ricnce in its practical management and (1884), 20 Fed. Rep. 348. In this case it 
 
 operation. For the operation of a vast was also ruled that the receiver's attorney 
 
 system like that of the Northern Pacific, ought, in the absence of some special rea- 
 
 it seemed desirable that one of its receivers son, to be a member of the bar of the 
 
 should be a gentleman familiar with the circuit in which the receiver himself is 
 
 intricate details of its history, and with appointed. 
 
 the necessities peculiar to the system ; for ^ Farmers' Loan & Ttust Co. v. Cape 
 
 however well qualified one might be with Fear & Y. Valley R. Co. (1894), 62 Fed. 
 
 respect to railway management in general. Rep. 675. 
 
 he would, at least, for a considerable time, ^ Meier v. Kansas Pacific R. Co. (1878), 
 
 be at sea in the management of a trans- 5 Dill. 476. 
 
 continental line, of whose history he was * Wynne v. Lord Newborough, 15 Ves. 
 
 ignorant, and with the necessities of which 284. 
 
 he was not familiar." The circumstances * As to the removal of a receiver ap- 
 
 under which the order was issued are not pointed ex parte, see § 547, post. 
 
 stated, but, if the case is intended to rest ^ Gravenstine's Appeal (1866), 49 Pa. 
 
 on any assumed general principle that St. 310. 
 
§ 517.] APPOINTMENT, ETC., OF RECEIVERS. 515 
 
 Nor will a receiver be appointed to oust the possession of the 
 purchaser at a previous execution sale of a railroad, where such 
 purchaser has not been made a party to the proceedings.^ 
 
 This rule, however, is subject to the exception that a receiver 
 may be appointed upon an ex parte application, when it is shown 
 that the delay which would result from giving notice would cause 
 irreparable injury to the adverse party .^ 
 
 Sufficient urgency to justify an ex parte appointment is not 
 shown by a complaint which alleges the insol vency of the com- 
 pany and its predecessor, and levying of executions on the rolling- 
 stock, tlie result being the stoppage of a traffic at a time when there 
 are immense quantities of grain awaiting shipment. Such aver- 
 ments do not show that any great loss or damage is likely to occur 
 during the brief period required for giving notice to a resident 
 corporation.^ 
 
 Nor ought an ex parte appointment to be made where the mal- 
 administration alleged as a ground for a receivership has already 
 extended over several years, and it is evident that a brief delay 
 will cause no substantial additional injury.* 
 
 The particular circumstances which constitute the necessity 
 upon which the ex parte application is based must be set forth in 
 the petition. A mere statement of the petitioner's opinion will 
 not justify an appointment without notice.^ 
 
 The fact that the defendant is out of the jurisdiction of the 
 court is a sufficient reason for failing to give him notice of a 
 motion for a receiver ; ^ but the non-residence of the officers of a 
 
 1 Searles v. Jacksonville, Pensacola, & pointed at the instance of a minority of 
 
 Mobile R. Co. (1873), 2 Woods, 621. the directors on an ex parte iipplieation, 
 
 ^ High on Rec, §§ 111, 113; Railway such an appointment being not merely 
 
 Co. i;. Jewett (1882), 37 Ohio St. 649 ; 8 iiTegular, but absolutely void, and an 
 
 Am. & Eng. R. R. Cas. 702 ; State of abuse of the power of tlie court, which 
 
 Florida v. Jacksonville, Pensacola, & Mo- might be corrected by mandamus. This 
 
 bile R. Co. (1875), 15 Fla. 201 (see p. ruling, however, is possibly not to be re- 
 
 286); Ramsey I). Erie Ry. Co. (1869), 38 garded as intended to deny the propriety of 
 
 How. Pr. 193. See also Cooke o. Detroit an ex parte appointment, in a very urgent 
 
 & Milwaukee R. Co. (1881), 45 Mich. 453, case, at the instance of .secured creditors, 
 and tlie note in the report of this case in ^ Chicago & S. E. Ry. Co. v. Cason 
 
 12 Am. & Eng. R. R. Cas. 459. There (1892), 133 Ind. 49 ; s. 0. 32 N. E. Reji. 
 
 the Jlichigan court, in construing the stat- 827. 
 
 ute of that State regarding corporations * M'abash Ry. Co. v. Dykeman (1892), 
 
 concluded that the management ol the 133 Ind. 56 ; s. o. 32 N. E. Rep. 823. 
 corporate business could be taken from a ^ Wabash Ry. Co. v. Dykeman (1892), 
 
 board of directors only in proceedings in- 133 Ind. 56; s. c. 32 N. E. Rep. 823; 
 
 stituted to wind up the corporation in High on Rec, § 113. 
 accordance with the provisions of that ^ Verplanck v. Mercantile Ins. Co. 
 
 statute. For this reason it was held that (1831), 2 Paige Ch. (N. Y.) 438 (per Wal- 
 
 a, receiver ought not to have been ap- worth, ChanceUor). 
 
516 EAILWAT BONDS AND MOKTGAGES. [CHAP. XXVI. 
 
 lessor company is no excuse for the omission to notify its lessee, 
 which is in possession, and which is alleged by its maladministra- 
 tion to have brought about the condition of affairs which is the 
 gravamen of the application.^ 
 
 A corporation which is defunct, owing to the transfer of its 
 powers and property to a new corporation, by virtue of legislative 
 enactment, cannot, of course, be made a party to a suit ; but this 
 will not justify the court in appointing a receiver of its assets on 
 an ex parte application. Such a receiver can be appointed only in 
 a proceeding to which the successor of the extinct corporation or 
 a substitute is a party .^ 
 
 § 518. The Court Tvill not go into the Merits of the Case upon 
 the Hearing of an Application for the appointment of a receiver.^ 
 
 Hence a receiver will not be appointed on the preliminary hear- 
 ing, where the propriety of the appointment is a principal question 
 in the case, and it is required, if at all, by the view which the 
 court shall ultimately take of the case, as part of the means which 
 should be used to afford the relief contemplated by the decree.* 
 
 So also, upon the general principle that one who is lawfully and 
 by the contract of the parties in possession of property should 
 not be disturbed in that possession except in a clear case, a receiver 
 will not ordinarily be appointed in a foreclosure suit, unless the 
 right to foreclose is clear and indisputable. The appointment 
 will be refused if there is a reasonable doubt as to whether the 
 conditions of the mortgage have been broken.^ 
 
 So also the court should hesitate before making an appoint- 
 ment on the ground of a possible injury to one holding nothing 
 more than a disputed equitable claim for deferred stock.® 
 
 But the applicant need not show conclusively that he is entitled 
 to recover in order to obtain the appointment of a receiver. He 
 is only required to show a probable righf^ 
 
 And if a bondholder is seeking to enforce a mortgage which on 
 its face is susceptible of enforcement, the probable right thus in- 
 dicated cannot be affected by an allegation on the part of the 
 defendant that the securities are fraudulent and void. This prob- 
 
 1 Wabash Ey. Cn. v. Dykeman (1892), C. & S. R. Co. (1886), 29 Fed. Rep. 416, 
 133 Ind. 56 ; s. o. 32 iST. E. Eep. 823. 420. 
 
 2 Young V. Rollins (1881), 85 N. C. « Overton w. MemDhis & Little Rock R. 
 485 ; s. c. 12 Am. & Eng. R. R. Cas. 455. Co. (1882), 10 Fed. Rep. 866. 
 
 8 Kerr on Rec, p. 8. ' Des Moines Gas Co. v. West (1876), 
 
 1 Union Mut. Life Ins. Co. v. Union 44 Iowa, 23, where the court said that the 
 
 Mills Plaster Co. (1880), 37 Fed. Rep. rule was not changed by the Code of Iowa, 
 
 286. which rather strengthened than impaired 
 
 5 American Loan & Trust Co. u. Toledo, the rights. 
 
§§ 519-521.J APPOINTMENT, ETC., OF RECEIVEES. 617 
 
 ability, so far as regards the appointment of the receiver, will 
 continue until the defence is made good. If the circumstances of 
 the case show the advisability of appointing a receiver to take 
 charge of the property pending the litigation, the court will not 
 be prevented by such an allegation from making the appointment, 
 and the determination of the issue of fact thus raised will be 
 reserved for the final hearing.^ 
 
 The court will sometimes postpone the final determination of 
 an application for a receiver, so that the defendant may have 
 time to take the necessary steps to make his defence good. 
 Under such circumstances, he must act with reasonable prompti- 
 tude. Any laches in this respect will warrant the court in dealing 
 with the case, as if no defence had been put forward. Thus where 
 the defence made to a petition by a judgment creditor for the ap- 
 pointment of a receiver is that the judgment was obtained by the 
 collusion and fraud of the officers, the failure of the defendant to 
 avail himself of an opportunity, granted him by a suspension of 
 the proceedings, to apply to the court in which the judgment was 
 recovered, and have it set aside, authorizes the inference that the 
 defence is without merit, and justifies the court in proceeding 
 with the case and appointing the receiver.^ 
 
 § 519. A Full and Fair Denial by the Defendant of the Allegations in 
 the Bill ■will preclude the Petitioner from obtaining a Receiver. — To 
 appoint one in the face of such denial is judicial error ; ^ unless there 
 is other evidence besides the sworn pleadings to support the 
 application, in which case the court may consider whether that 
 evidence does not overcome the denials in the answer. 
 
 § 520. When the Mortgagor Company may obtain the Appoint- 
 ment of a Receiver. — Should the preponderance of evidence 
 appear to be in favor of the complainant, a receiver may be 
 appointed, notwithstanding the denials in the answer.* 
 
 § 521. At whose Instance a Receiver may be appointed, generally. 
 — In the great majority of the cases of the class with which the 
 present treatise deals, the application for a receiver is naturally 
 
 1 Kppp v. Michigan E, Co. (TJ. S. C. the circumstances by which a court is 
 
 Ct. 187-3), 6 Chicago Legal News, 101, guarded in dealing with applications for 
 
 follnwpd in Heinsheiraer v. Dayton R. Co. receivers. 
 
 3 Rv & Corp. L.J. 268 (Ohio Com. PI. '^ Loder «. New York, Utica, & Ogdens- 
 
 1888): Farmers' Loan & Trust Co. v. Kan- burgh R. Co. (1875), 4 Hun, 22. 
 
 sas Citv, W. & N. W. R. Co. (1892), 53 ' High on Rec, § 24. 
 
 Fed. Rep. 182. In Owen v. Homan, 4 H. * Allen v. Dallas & Wichita R. Co. 
 
 L. Rpp. 997, it was said that the probability (1878), 3 Woods, 316, 332; s. c. 1 Fed. 
 
 of the plaintiffs being ultimately entitled Cas. 465, Case No. 221. 
 to a decree is one of the most material of 
 
518 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVI. 
 
 made by the secured creditors, and in one case it was even con- 
 tended that, until the bondholders or their trustees are made 
 parties to such an application, the court has no jurisdiction to ap- 
 point a receiver at the instance of the stockholders and general 
 creditors of a railroad company whose property is under mort- 
 gage. This theory was, however, negatived, the question whether 
 the protection and preservation of the property required the 
 appointment being, it was said, necessarily addressed to the dis- 
 cretion of the court. ■'■ 
 
 § 522. When the Mortgagor Company may obtain the Appointment 
 of a Receiver. — The general rule is that a corporation cannot 
 apply, in its corporate name and capacity, to be put into the hands 
 of a receiver.^ 
 
 But a railroad company itself has been allowed in one note- 
 worthy suit to come into court, shortly before default, and obtain 
 the appointment of a receiver over its property.^ The appoint- 
 
 ^ Hervey v. Illinois Midi. Ey. Co. 
 (1884), 28 Fed. Kep. 169, 176. 
 
 2 Kimball v. Goodburn (1875), 32 Mich. 
 10. 
 
 3 Wabash, St. Louis, & Pac. Ry. Co. v. 
 Central Trust Co. (1884), 22 Fed. Rep. 
 272 ; 23 Fed. Rep. 513. On this proceed- 
 ing and the criticisms levelled at it Judge 
 Brewer made the following comments ; 
 " It may be it is not a common action, and 
 yet I believe it is not solitary, nor the first. 
 The application presented this state of 
 facts to the court : that here was a vast 
 property running through several States, 
 burdened with a variety of local incum- 
 brances and obligations whose value con- 
 sisted largely in its being preserved in its 
 entirety and with all its connections. 
 Split up into a hundred fragments, the 
 aggregate value of the varied fragments, it 
 was contended, would be as nothing com- 
 pared with the value of the single intact 
 property ; and the question was put before 
 the court whether, two days before the de- 
 fault, when various rights of attack would 
 arise in d Liferent parts of this territory, the 
 court might anticipate and take possession 
 of tlie property and preserve it intact, in 
 order to permit the general mortgagee, 
 when default actually occurred, to file its 
 bill for foreclosure, and have the property 
 as an entirety sold. While, of course, 
 there were matters in respect to this, of 
 doubt, that required consideration, yet both 
 of us then thought, and both agree now, 
 
 that it was wise that it was so done, and 
 that the court properly appointed the re- 
 ceivers." 
 
 The mortgagee in this case filed a 
 cross-biU in the suit in which the receiver 
 was appointed, and it was held that this 
 gave the court jurisdiction to proceed to 
 foreclose the mortgage. A second suit, 
 which was also commenced in the State 
 court by the same mortgagee, was removed 
 by the mortgagor company to the federal 
 court, and on its motion consolidated with 
 the former suit. Judge Brewer considered 
 that, for the purpose of putting the ques- 
 tion of jurisdiction beyond all doubt, it 
 was not unwise to institute the second suit ; 
 but that, after the removal of that suit, the 
 identity of the two suits in all respects in- 
 dicated the propriety of consolidating them 
 and proceeding with them as a .single case. 
 
 Judge Brewer did not cite any authori- 
 ties for the " unusual " course he took, but 
 the principle of the case is countenanced to 
 some extent by Macon & Western R. Co. 
 V. Parker (1851), 9 Ga. 377, where it was 
 held that equity would, at the instance of 
 an insolvent company, take control of its 
 road, when threatened by numerous^. /as., 
 and in danger of being sold in sections, 
 and have the property sold for the benefit 
 of all parties. In this case there was 
 apparently no formal appointment of a 
 receiver, but the control of the court must 
 have been exercised through what was vir- 
 tually a receivership. 
 
§ 528.] APPOINTMENT, ETC., OF RECEIVERS. 519 
 
 ment of a receiver at the instance of the corporation in this case 
 was characterized by another circuit judge as " unusual and 
 novel, to say the least," ^ and the Supreme Court of the United 
 States has also designated the bill filed by the company as " one 
 of an unusual character."^ But apparently the action of the 
 court has not been judicially condemned iu positive terms, except 
 in one case.^ 
 
 § 523. Receiver not nsually appointed on Petition of General 
 Creditors. — General creditors cannot obtain the appointment of 
 a receiver of a corporation except upon an allegation of fraud or 
 breach of trust. Such relief will not be granted to them upon the 
 ground that the corporation contemplates entering into an im- 
 provident contract, as where the bill states that it is insolvent ; 
 that all its property is mortgaged to trustees for the benefit of 
 one class of creditors ; that it owes large amounts to other cred- 
 itors, one of whom has attached all its property ; that it is about 
 to execute a lease to the attaching creditor for a long term of 
 years, at a rental which would not pay its indebtedness ; and tliat 
 the execution of the lease will be injurious to the interest of its 
 creditors and stockholders.* 
 
 Nor ought a receiver to be appointed at the instance of general 
 
 1 Atkins V. Wabash, St. L. & Pao. Ky. poration itself and its directors is not very 
 
 Co. (1886), 29 Fed. Rep. 161, per Judge intelligible, as the action of the corporation, 
 
 Gresham. The question actually presented under such circumstances, must necessarily 
 
 in this case, however, was merely the pro- be taken through the directors as its agents, 
 
 priety of removing the receiver for malver- and the directors could only be regarded as 
 
 sation in office (see below). the official representatives of the corpora- 
 
 '■^ United States Trust Co. v. Wabash tion in regard to any action they might 
 
 Western Ry. Co. (1893), 150 U. S. 287 ; take in the premises. Whatever reasons 
 
 s. 0. 14 Sup. Ct. Rep. 86. exist against allowing the corporation itself 
 
 8 In Mcllhenny v. Binz(1890), 80 Tex. to obtain tlie appointment of the receiver, 
 
 1 ; s. c. 13 S. W. Rep. 655, a receiver was must be equally valid against granting such 
 
 appointed in a suit instituted by the com- relief to the directors, 
 pany itself, the bill alleging its insolvency, * Pond v. Framingham & Lowell R. Co. 
 
 and praying that its property might be (1881), 130 Mass. 194; s. c. 9 Am. &Eiig. 
 
 sold, and its proceeds distributed. The R. R. Cas. 551. In Lehigh Coal & Navi- 
 
 court referred with disapproval to the ap- gation Co. v. Central Railroad of New 
 
 pointment in the Wabash case, but, as a Jersey (1887), 43 Hun, 546, a similar 
 
 mortgage creditor had afterwards filed a decision was made, but the decision was 
 
 cross-bill for foreclosure, and the question based upon a statute by which the power 
 
 was merely as to the validity of the subse- of ap])ointment was limited, and in which 
 
 quent proceedings, which were not objected creditors at large were not mentioned. In 
 
 to by those having the right to do so, there both these cases it was said that the proper 
 
 was no revei'sal of the action of the lower way for a creditor to obtain a standino- in 
 
 tribunal. Yet the court seems to be of court to ask for a receiver was by reducing 
 
 opinion that the directors might properly his claim to judgment and thus becoming 
 
 have obtained the appointment of a re- a lienholder. 
 ceiver. This distinction between the cor- 
 
520 RAILWAY BONDS AND MOBTGAGES. [CHAP. XXVI. 
 
 creditors merely in order to prevent a public sale of the property 
 of the corporation to satisfy its bonds, where the petition is based 
 upon unsupported allegations of a fraudulent design on the part 
 of the directors to transfer the property to the bondholders for an 
 inadequate sum, and there is no proof that the directors are wast- 
 ing or destroying the property.^ 
 
 § 524. Successive Applications for Receivers in the same Court, hoTv 
 treated. — As a general rule of convenience, the court should not, 
 in a subsequent suit, displace a receiver appointed by itself in a 
 prior suit, affecting the same subject-matter. The proper course 
 is to extend the receivership in the first suit over the second. 
 Thus where a road has been placed in the hands of a receiver on 
 the application of a junior mortgagee, and the senior mortgagee 
 afterwards asks for a receiver, the original appointment may be 
 extended to cover the second application.^ But if a second receiver 
 is appointed in the subsequent suit by an order purporting to dis- 
 place the first receiver, such displacement is not void, for the 
 reason that the order was not made in the suit in which the first 
 receiver was appointed.^ 
 
 A receiver appointed at the instance of tlie bondholders secured 
 by a mortgage on an entire system is regarded as the custodian 
 
 1 Fort Payne Furnace Co. v. Fort Payne of the receiver other than the power to take 
 Coal & Iron Co. (1892), 96 Ala. 472 ; s. c. possession and to sell it. The Court of 
 11 So. Eep. 439. Appeals distinguished such a case from the 
 
 2 Taylor v. Phil. & Eeading R. Co. more ordinary one in which a receiver is 
 (1880), 7 Fed. Rep. 377 ; s. €. 14 Phil. 451. asked for in a suit to foreclose debentures 
 An official liquidator appointed under the not empowering the holders to appoint one 
 English Companies Act is practically in the for themselves, and in which the court ex- 
 position of a receiver, and, according to the eroises its discretion as to whom it shall 
 settled practice of the courts of equity, appoint. The only reason why an applica- 
 when a suit is brought to foreclose a lien tion is necessarily made to the court, where 
 on the property in liquidation, and the the lienors thus reserve the right to appoint 
 lienors petition for a receiver, the liquidator their receiver, is that the liquidator cannot 
 is appoiijjted receiver. In re Henry Pound, otherwise be dispossessed. In re Henry 
 etc., L. R. 42 Ch. Div. 402 ; 28 Am. & Pound, etc., L R. 42 Ch. Div. 402; 28 
 Eng. Corp. Cas. 500, per Kay, J., citing Am. & Eng. Corp. Cas. 500 (1890). 
 Perry D. Oriental Hotels Co., L. R. 5 Ch. Debenture-holders have rights with 
 420, where the Court of Appeals made such which a winding-up ought not to be al- 
 an appointment on the application of an lowed to interfere, and when they have 
 equitable mortgagee. But if debentures properly obtained the appointment of a 
 give the holders the right to appoint a re- receiver, the court will not allow him to be 
 ceiver, with a power of sale, upon the con- removed and the official liquidator put in 
 tinuance of a default for a specified time, his place. Strong v. Carlyle Press (1893), 
 the court will order the official liquidator 1 Cli. 268 : In re Joshua Stubbs (1891), 
 to surrender possession of the property to L. R, 1 Ch. 475. 
 
 the receiver so appointed, sucli order to be ^ State of Florida v. Jacksonville, P. & 
 
 without prejudice as to any question which M. E. Co. (1876), 15 Fla. 201, 276. 
 may afterwards be raised as to the powers 
 
§ 524.] APPOINTMENT, ETC., OP RECEIVERS. 521 
 
 of the interests of the divisional mortgagees also, and the latter 
 cannot, as a rule, obtain the appointment of separate receivers. 
 Such an appointment would have the effect of disintegrating the 
 system and do much harm to all parties.* 
 
 For similar reasons the appointment of a separate receiver 
 for a distinct part of a street-railway system will not be granted, 
 unless some special reason is shown to exist for thus divid- 
 ing the administration of the property. The court pointed out 
 that the property was not large, that the services of another 
 receiver were not necessary, and that the appointment would 
 increase expenses, and complicate the situation by creating two 
 administrations, which might eventually become hostile. It was, 
 however, intimated that if the branch road were running, which 
 was not the case, the receiver might perhaps have been directed 
 to keep a separate account of its receipts and disbursements.^ 
 
 On the other hand it has been laid down that, on the application 
 of divisional mortgagees, a receiver appointed in a suit to foreclose 
 a general mortgage junior to their own will at any time be divested 
 of his control of the division, provided they will pay their propor- 
 tion of the charges of administration which have been made a lien 
 upon the property prior to all the mortgages.^ 
 
 A stockholder who has brought suit against the corporation, 
 asking to have a receiver appointed, cannot by intervening in a 
 subsequent suit brought by the bondholders, asking a foreclosure 
 and the appointment of a receiver, have the latter suit stayed until 
 his own is determined, unless the case is an extraordinary one. 
 Whether the stay shall be granted rests in a sound judicial dis- 
 cretion.* 
 
 The Minnesota statutes provide for the appointment of a 
 receiver under certain circumstances to sequestrate all the cor- 
 porate property for the benefit of the creditors, and it has been 
 lield that, as the powers of such a receiver are entirely different 
 from those of a receiver appointed in a foreclosure suit, the fact 
 tliat a receiver of the latter sort has been appointed is not a reason 
 why a statutory receiver should not also be appointed.^ 
 
 1 Wabash, St. Louis, & Pac. Ry. Co. v. Louis, & Pac. Ry. Co. (1886), 29 Fed. Rep. 
 Central Trust Co. (1884), 22 Fed. Rep. 616. 
 
 272 ; Central Trust Co. c. Wabash, St. * Pennsylvania Co. for Ins. on Lives 
 
 Louis, & Pac. Ry. Co. (1885), 23 Fed. Rep. and for Granting Annuities u. Jacksonville, 
 
 863, 868; Central Trust Co. v. Wabash, T. & K. W. Ry. Co. (1893), 55 Fed. Rep. 
 
 St. Louis, & Pac. Ry. Co. (1885), 25 Fed. 131. 
 Rep. 693. 5 St. Louis Car Co. v. Stillwater Street 
 
 2 Clap V. Interstate Street Ry. Co. Ry. Co. (1893), 53 Miun. 129; s. c. 54 
 (1894), 61 Fed. Rep. 537. N. W. Rep. 1064. 
 
 8 Central Trust Co. v. Wabash, St. 
 
522 EAILWAT BONDS AND MORTGAGES. [CHAP. XXTI. 
 
 S 525. Appointment of Additional Receivers in other States or 
 Districts. — Receivers have frequently been appointed in English 
 cases to take control of property or assets in other jurisdictions ; 
 but this can be done only when the parties interested in the prop- 
 erty are personally before the court, and subject to its orders. ^ 
 Receivers appointed in one jurisdiction are not entitled, as of 
 right, to recognition in other jurisdictions ; the rule being the 
 same whether they are appointed under the ordinary practice of 
 a court of chancery, or under a statute, like that of New York, 
 which defines their authority. They have no extra-territorial 
 power of official action; none which the court appointing them 
 can confer, with authority to enable them to go into a foreign 
 jurisdiction to take possession of the debtor's property ; none 
 which can give them, upon the principle of comity, a privilege 
 to sue in a foreign court or another jurisdiction.^ 
 
 Usually, however, the appointment of a receiver to take charge 
 of a railroad running into other States of federal districts will be 
 recognized, as a matter of comity, to the extent that he will be 
 reappointed in the other jurisdictions.^ 
 
 The reasons for refusing to embarrass the management of the 
 system by appointing a separate receiver are of course stronger, 
 where by far the largest and most important portion of the prop- 
 erty is situated in the State or district where the first appointment 
 was made.* 
 
 It has been held that an ancillary receiver will not be appointed 
 upon a bill not filed for a final decree of foreclosure in the cir- 
 cuit in which it is filed, but simply for the purpose of having the 
 court approve or confirm the appointment of a receiver already 
 appointed in another circuit, and for the purpose of such other 
 orders as might be necessary to vest in him the possession and 
 control of any of the mortgaged property which might be in the 
 circuit in which it was sought to have him appointed as receiver.^ 
 But in other districts than the one where this ruling was made, 
 such bills have been frequently entertained, and the appointment 
 generally, if not always, made in ex parte proceedings.^ 
 
 1 High on Rec, § 44. & Ohio Ey. Co. (1889), 39 Fed. Kep. 
 
 2 Booth V. Clark (1854), 17 How. 322. 337. 
 
 ' See, for example, Atkins v. Wabash, « See the remarks of the court in Piatt 
 
 8t. L. & Pac. Ry. Co. (1886), 29 Fed. Rep. v. Philadelphia & Reading R. Co. (1893), 
 
 161. 54 Fed. Rep. 569, where an ancillary re- 
 
 ^ Port Royal & Augusta Ry. Co. v. ceiver was appointed, but without prejudice 
 
 King (1893), 93 Ga. 63; s. c. 19 S. E. to a full consideration of the legality of the 
 
 Rep. 809. practice, in case a motion should suhse- 
 
 ^ Mercantile Trust Co. o. Kanawha queutly be made to annul the order. 
 
§ 526.] APPOINTMENT, ETC., OP RECEITEES. 523 
 
 Article II. — Circumstances under which a Receiver will or 
 
 WILL not be appointed. 
 
 § 526. General Principles upon ■wrhich Receivers are appointed.^ 
 — Whether a receiver shall or shall not be appointed in a given 
 case is always said to be a matter resting in the discretion of the 
 court.^ This principle was held to warrant a court in ruling that, 
 even if the inadequacy of the legal remedy is demonstrated, and 
 the case is such as would ordinarily lead as a matter of course to 
 the appointment of a receiver, no receiver will be appointed where, 
 upon a survey of all the circumstances, it is apparent that there 
 are special considerations of propriety or convenience which ren- 
 der the appointment, on the whole, an inexpedient remedy. By 
 the " Florida Improvement Act " certain public lauds were vested 
 in the Governor and other State officials, as trustees, to constitute 
 an " Internal Improvement Fund," and to serve, among other 
 things, as a guaranty of bonds to be issued by certain designated 
 railroad companies. The interest on the bonds of one of those 
 companies being in default, the trustees seized and sold the road, 
 and with the proceeds of the sale purchased and cancelled a large 
 part of the outstanding guarantied bonds. A holder of some of 
 the bonds not thus purchased filed a bill for relief against the 
 trustees, whom he charged with mismanaging the funds, and 
 asked for the appointment of a receiver. This petition was 
 denied by Mr. Justice Bradley, who explained his reasons as 
 follows : " In this case the trustees having possession of the trust 
 fund and property are public officers and trustees ex officio. . . . 
 Tlie State has a great interest in the trust. It is not merely to 
 preserve the fund as a security for the payment of the railroad 
 bonds that the trust is created, but to provide for the drainage 
 and reclamation of the lands, and their settlement and cultiva- 
 tion. These are political objects of the most important character. 
 . . . These public and political objects of the trust make it 
 extremely fitting that the chief executive officers of the State 
 should administer the fund. And it must be a very strong case 
 
 1 For a collection of authorities and a. Loan & Trust Co. v. Kansas, W. & N. W. 
 discussion of the subject of the appoint- R. Co. (1892), 63 Fed. Epp. 182 ; Vose v. 
 ment of receivers, see Woods Ry- Law, Reed (1871), 1 Woods, 647, 650 ; William- 
 1648-1652 ; Roreron Railroads, 889, 994 ; son v. New Albany, etc. E. Co. (1857), 1 
 and the notes in 12 Am. & Eng. R.R. Gas. Biss. 198, 205 ; Hervey v. Illinois Midland 
 461, and 30 Am. & Enjj. R. R. Cas. 158. R. Co. (1884), 28 Fed. Kep. 169 ; Douglass 
 
 2 Sase V. Memphis & Little Rock R. Co. v. Cline (1877), 12 Bush (Ky.), 608 ; s. c. 
 (1888), 12.-, U. S. 361 ; Tysen v. Waha.sh 18 Am. Ry. Kep. 273 ; High on Rec, § 7 ; 
 Ry. Co. (1878), 8 Biss. 247 ; Farmers' Kerr on Rec, p. 3 ; Beach on Rec, § 5. 
 
524 RAILWAY BONDS AND MORTGAGES. [CHAP. XXTI. 
 
 indeed which will induce the court to take the property out of their 
 hands and put it into the hands of its own officers. The legis- 
 lature has seen fit to intrust the chief officers of the State with 
 these important duties, and it would show a great disrespect to 
 this co-ordinate branch of the government for the judiciary, on 
 light grounds, to displace these officers from the trust, and to put 
 appointees of its own in their stead." It was then pointed out 
 that, if the trustees should be guilty of a breach of duty, they 
 could be enjoined ; that they were personally responsible ; and 
 that the fund could be followed into the hands of persons getting 
 hold of it in a fraudulent manner. The inconvenience of with- 
 holding the property from each new set of officers, as they might 
 be elected from time to time, was also dwelt upon, as well as the 
 peculiar and important duties attaching to the trust, which, if 
 undertaken by the court tlirough a receiver, would necessitate 
 taking cognizance of the requirements of a vast political territory 
 in reference to drainage, development, pre-emption^ and popula- 
 tion. On the whole, therefore, the learned justice considered it 
 to be a case in which, if a receiver could be appointed at all, the 
 appointment ought not to be made until every other remedy had 
 been tried in vain.^ 
 
 The court will also exercise its discretion to refuse a petition 
 for a receiver where there is good ground for the conclusion that 
 the business in and of which the complainant asks this relief is 
 not legitimate. Thus it lias been held in a recent case that, 
 whether the question arises or not in a jurisdiction where a 
 statute has been enacted for the suppression of monopolies, a 
 contract for the prevention of a healthy competition in some par- 
 ticular trade is one which should not be favored by a court of 
 equity, and that its enforcement will not be aided by the appoint- 
 ment of a receiver.^ 
 
 § 527. Limits to the Discretionary Po'wers of Courts in appoint- 
 ing Receivers. — Except in cases like those referred to in tlie 
 preceding section, the freedom of judicial action is practically 
 circumscribed by well-recognized subsidiary principles which have 
 imparted a considerable degree of precision to an extremely 
 vague and shadowy rule, and have in practice left the hypotheti- 
 cal discretion of the court little more than a name. These prin- 
 ciples we shall now proceed to examine by the light of the 
 authorities in the following sections of the present subdivision. 
 
 1 Vose V. Reed et al.. Trustees (1871), (1891), 44 Fed. Rep. 721 ; 9 Ey. & Corp. 
 X Woods, 647. L. J. 316. 
 
 2 American Biscuit Mfg. Co. v. Klotz 
 
§§ 528, 529.] APPOINTMENT, ETC., OP RECEIVERS. 
 
 625 
 
 § 528. The Appointment of a Receiver is not justifiable merely 
 because it will furnish a more agreeable and convenient way of 
 protecting the rights of the suitor ; ^ or on the abstract ground 
 that the appointment will do good ; ^ or will do harm.^ 
 
 A fortiori is it contrary to equitable principles to appoint a 
 receiver, if some of the other parties in interest would thereby 
 suffer injustice;* or if, upon a review of all the circumstances, 
 greater injury than good will result from the appointment.^ 
 
 § 529. No Receiver appointed unless Appointment will give 
 Effectual Relief. — ^ As equity does nothing in vain, the appointment 
 of a receiver will be refused, unless it will probably result in 
 effectual relief. Thus a receiver will not be appointed at the 
 instance of a judgment creditor to enable him to obtain his share 
 of the earnings of a canal, where those earnings have by statute 
 been made applicable, and are being applied by the lessee of the 
 canal towards the reduction of the incumbrances, and are suffi- 
 cient to pay the interest thereon.^ Nor will a court appoint a 
 receiver of rents and profits where there is no property coming 
 under that description which he can administer upon.'^ 
 
 ^ Overton v, Memphis & Little Rock R. 
 Co. (1882), 10 Fed. Kep. 866. 
 
 2 Vermont & Canada R. Co. v. Vermont 
 Central R. Co. (1877), 50 Vt. 500 ; s. c. 
 14 Am. Ey. Rep. 497. 
 
 ' Orphan Asylum Soc. v. McCarteeeJa?. 
 (1825). 1 Hopk. Ch. (N". Y.) 500 ; Blond- 
 heim v. Moore (1857), 11 Md. 365 ; Smith 
 V. Port Dover R. Co. (1885), 12 Ont. App. 
 288 ; s. 0. 25 Am. & Eng. R. R. Gas. 639, 
 citing the two iirst-mentioned cases. Ver- 
 mont & Canada R. Co. v. Vermont Central 
 R. Co. (1877), 50 Vt. 500 ; s. c. 14 Am. 
 Ry. Rep. 497. 
 
 * Fosdick V. Schall (1878), 99 U; S. 235, 
 253. 
 
 5 Vose V. Reed (1871), 1 Woods, 647, 
 650, followed in Tysen v. Wabash Ry. Co. 
 (1878), 8 Biss. 247, 256. In the latter case 
 the court declined to appoint a receiver, at 
 the instance of a small minority of the 
 bondholdei-g, where a funding scheme had 
 been agreed upon by an overwhelming 
 majority of such bondholders, and the 
 arrangement for the operation of the road 
 adopted as a part of the scheme was on the 
 whole snceessful. The appointment, it was 
 pointed out, would not only break up the 
 system into its original fragments, but also 
 
 overturn the funding scheme, thus destroy- 
 ing a large present income for a great 
 majority of the bondholders. Besides this, 
 thei-e was the objection that it would work 
 the financial ruin of all the interests sub- 
 ordinate to the first mortgage. " If," said 
 Mr. Justice Harlan, " the present manage- 
 ment of the road were guilty of any fraud 
 or dishonest practices in their control of 
 this property, I should feel differently. 
 While there are differences between them 
 and some of the bondholders as to certain 
 matters connected with the discharge of 
 the company's obligations, those differences 
 do not involve the integrity of those operat- 
 ing the railroad. The court is disposed to 
 recognize the absolute necessity of large 
 discretion in the management of .such vast 
 property, and in the distribution of the net 
 income arising therefrom, and it is unwill- 
 ing, for the present at least, to make honest 
 differences as to such matters the basis for 
 its interference by the appointment of a 
 receiver." 
 
 ' Stewart v. Chesapeake & Ohio Canal 
 Co. (1881), 5 Fed. Rep. 149. 
 
 ' Mercantile, etc. T. Co. v. River Place, 
 etc. Co. (1892), L. R. 2 Ch. 303. 
 
626 EAILWAT BONDS AND MORTGAGES. [CHAP. XXTI. 
 
 § 530. The Existence or Non-existence of Danger to the Fund or 
 property on which the petitioner relies for payment has been said 
 to supply the proper test for determining whether a receiver 
 should be appointed or not.' 
 
 § 531. Adequacy of Legal Remedy a Reason for refusing to appoint 
 Receiver. — The rule mentioned in the preceding section must, it is 
 scarcely necessary to point out, be applied with due reference to 
 the universal principle underlying all equitable relief, viz., that 
 the legal remedy is inadequate. The court will not exercise this 
 extraordinary power of appointing a receiver where the loss or 
 danger, such as it is, may be averted by legal proceedings.^ 
 
 Thus the application of a bondholder for a receiver, in a suit in 
 which he seeks to set aside a reorganization agreement, will be 
 denied, where no irreparable injury is threatened, and the defend- 
 ant is solvent and capable of responding in damages.^ 
 
 Nor will a receiver be appointed to take possession of a railroad 
 during litigation because of alleged failure of the operators to 
 keep it in suitable repair, where the operating company is finan- 
 cially responsible, and acknowledges its duty and is compellable 
 by law to keep the road in repair.* 
 
 § 532. Default of Mortgagor alone not sufficient to justify Appoint- 
 ment. — Frequent illustrations of the principle stated in the last 
 section but one are furnished by the cases in which the courts 
 have acted upon the rule that this extraordinary relief will not 
 be granted merely on the ground that the defendant is in default. 
 Such default may or may not be an occasion for appointing a 
 
 1 state V. Northern Central R. Co. v. Boston & Lowell Eailroad (1891), 65 
 (1861), 18 Md. 193. This principle has N. H. 393; s. o. 23 Atl. Eep. 529. 
 
 heen embodied in the statutes of several ' Williamson v. New Albany, etc. K. 
 
 States which provide for the appointment Co. (1857), 1 Biss. 198 ; Farmers' Loan 
 
 of a receiver whenever the property is " in & Trust Co. «. Chicago & A. Ry. Co. (1886), 
 
 danger ofbeiiig lo.st, removed, or materially 27 Fed. Rep. 146 ; American Loan & Trust 
 
 injured." Civil Code of Kentucky, § 329 Co. o. Toledo, C. & G. E, Co. (1886), 29 
 
 (see Newport & Cincinnati Bridge Co. v. Fed. Rep. 416, 420. In Mercantile Trust 
 
 Douglass (1877), 12 Bush (Ky.), 673) ; Co. v. Missouri, E. & T. Ry. Co. (1888), 
 
 Ohio Rev. Stat., § 5587 (see Hensheimer d. 36 Fed. Rep. 221; s. c. 4 Ry. & Corp. 
 
 Dayton R. Co., 3 Ry. & Corp. L. J. 268); L. J. 362, Judge Brewer thus stated the 
 
 Ohio Code, § 254. (See State Journal Com- general principle in regard to the effect of 
 
 pany v. Commonwealth Company (1890), a default, quoting from the report as it 
 
 43 Kans. 93 ; s. c. 22 Pac. Rep. 982 ; 28 appears in 4 Ry. & Corp. L. J. 363, 
 
 Am. & Eng. Corp. Cas. 443.) 364 : " The mere fact of a default in 
 
 2 Overton v. Mempliis & Little Rock K. payment of interest does not give the 
 Co. (1882), 10 Fed. Rep. 866. party the right to come into a court of 
 
 ^ Matthews v. Murchison (1883), 15 equity and have a receiver. Something 
 
 Fed. Rep. 691. beyond that must exist. It is dififtcult to 
 
 * Boston, Concord, & Montreal Railroad formulate any law which, briefly stated, 
 
§ 532.] 
 
 OF KECEITEES. 
 
 627 
 
 In the absence of circumstances which imperil the security, 
 corporate officers to whom no fraud or incompetency is imputed 
 are obviously, by reason of their familiarity with the details of 
 the business, more likely than a stranger to manage the property 
 to the best advantage, and should not be displaced merely because 
 a foreclosure suit has been instituted.^ 
 
 In no case, therefore, ought a receiver to be appointed if it is 
 apparent that the property is sufficiently valuable to be an ade- 
 quate security for the payment of the petitioners' claim. ^ 
 
 Still less, of course, will a receiver be appointed on the mere 
 ground of a default, if it appear that the company may excuse 
 such default, or that the plaintiff may be estopped from relying 
 on it.^ 
 
 But the continuance of a default for ten years is not excused 
 by the plea that several millions of dollars have been spent by 
 the company in perfecting its connections with a view to obtain 
 a line to a commercial centre. Whatever is done for such a 
 purpose is done at the company's own risk ; and if, by assuming 
 
 will coutrol in all cases. But if it appear 
 that there is some danger to the property, 
 that its protection, its preservation, or the 
 interests of the various owners require pos- 
 session by the court, then a receiver should 
 he appointed. It does not go as a, matter 
 of course, and yet it is a matter that a 
 court cannot refuse simply because it is an 
 annoyance." For very similar language 
 see Union Trust Co. v. St. lyouis, Iron 
 Mountain, & Southern R. Co. (1877), i 
 Dill. 114, where it was said that, in addi- 
 tion to a default, the petitioner must also 
 show that the beneficiaries under the mort- 
 gage will also suffer loss, if the property 
 is allowed to remain in the hands of the 
 company until the final decree. As to the 
 more special question involved in this case, 
 see below, in this chapter. 
 
 1 Mp>er V. Johnston (1875), 33 Ala. 
 237 ; s. c. l!i Am. Ey. Rep. 467 ; Blair v. 
 St. Loni.s, H. & K. R. Co. (1884), 20 Fed. 
 Rep. 348. 
 
 ^ Pullan V. Cincinnati & Chioajro Air 
 Line R. Co. (1865), 4 Biss. 35, 49 (in this 
 case a receiver was appointed, default hav- 
 ing continued, without a valid excuse, for 
 ten years, while the probable proceeds of 
 a foreclosure sale were not sufficient to 
 satisfv the debt) ; Milwaukee v. Soutter, 
 a Wall. 510, 623 (in this case a receiver 
 
 was refused, the amount in suit being 
 small compared with the value of the 
 property). The inadequacy of the se- 
 curity is usually recognized as a statutory 
 ground for the appointment of a receiver 
 wherever the subject has been regulated 
 by the legislature. See, for example, the 
 enactments in Kentucky and Ohio, con- 
 strued in the cases cited in the note above. 
 But in New Jersey the general rule has been 
 modified for special reasons of public policy 
 in the direction of greater severity. A com- 
 pany is there insolvent "within the mean- 
 ing of a statute which provides that a 
 receiver may be appointed in case of insol- 
 vency or suspension of its business, when 
 its entire ca[)ital stock and an additional 
 sum besides has been expended in building 
 and equipping the road, and an indebted- 
 ness for current expenses incurred and still 
 unpaid, even though that indebtedness be 
 comparatively small, and the value of the 
 whole property is sufficient to leave a sur- 
 plus, if it was sold and the affairs of the 
 company wound up. Sewell v. Cape May 
 R. Co. (N. J. Eq., 1887), 30 Am. & Eng. 
 R. R. Cas. 155. 
 
 ^ American Loan & Trust Co. v. Toledo 
 C. & S. Ry. Co. (1886), 29 Fed. Rep. 416, 
 420. 
 
528 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVI. 
 
 burdens of this description, it becomes the less able to pay the 
 interest on its bonds, this fact furnishes a reason for the appoint- 
 ment of a receiver .1 
 
 § 533. Receivership usually denied if Default not complete. — 
 Since the right to obtain the appointment of a receiver in a fore- 
 closure suit will usually depend on whether the right to foreclose 
 is complete at the time the application is made, evidence that 
 there is an agreement between the parties interested that money 
 will be furnished for the payment of interest after default will, in 
 the absence of some specific danger to the fund, justify the court 
 in denying a receivership, inasmuch as a reasonable controversy 
 is thereby raised as to whether there has been an extension of 
 tlie time of payment.^ 
 
 § 534. Prevention of Fraud. — A receiver will be appointed for 
 the purpose of preventing fraud and preserving the subject of 
 litigation, where a company issues bonds redeemable according to 
 their numbers, under a scheme which will result in great gains 
 by forfeitures of other numbers.^ 
 
 § 535. Prevention of 'Waste. — It is well Settled that a proper 
 case for the appointment of a receivership is presented, when the 
 mortgaged property is an insufificient security, and there is good 
 ground to believe that it will be wasted or deteriorate in the 
 hands of the mortgagor.* 
 
 But the mere disuse of a manufacturing plant, under an agree- 
 ment with other manufacturers to restrict production, though 
 attended with the decay and dilapidation inseparable from disuse, 
 is not such destruction or waste as to entitle a mortgagee of the 
 property to ask for a receiver.^ 
 
 A fortiori will this relief be granted when the mortgagor is 
 insolvent and without credit, and the property is already going 
 
 1 Pullan V. Cincinnati & Chicago Air ceiver had been appointed in accnrdan™ ■ 
 Line R. Co_. (1865), 4 Biss. 35, 49. with the agreement of the parties, and 
 
 2 American Loan & Trust Co. v. Toledo upon allegations that the property was 
 C. & S. R. Co. (1886), 29 Fed. Rep. 416, deteriorating in value, and being wasted, 
 *1^- scattered, and destroyed, wherehv the se- 
 
 8 McLoughlin V. National Mut. Bond curity of the first-mortgage hondholders 
 
 & Investment Co. (1894), 64 Fed. Rep. and the interest of all other persons then 
 
 ^"°' concerned in that property were suhiected 
 
 * Omaha Hotel Co. v. Kountze (1882), to danger, and upon «. showing that it 
 107 U. S. 378 ; Vose v. Reed (1871), 1 was impossible to dispose of the prop- 
 Woods, 647, 650 ; White Water Valley erty in its then condition without great 
 Canal Co. v. Vallette (1858), 21 How. sacrifice. 
 414 ; High on Rec, § 4. 6 Union Mut. Life Tns. Co. v. Union 
 
 By the decree discussed in Davenport Mills Plaster Co. (1889), 37 Fed. Rep. 
 
 V. Receivers (1875), 2 Woods, 519, a re- 286. 
 
§ 536.] APPOINTMENT, ETC., OP RECEIVERS. 629 
 
 to utter waste, and the mortgagor unable to repair or use it so as 
 to earn a revenue.^ 
 
 An appointment on the ground of threatened waste may be 
 made even before the maturity of the debt.^ 
 
 § 536. A Long-continued and Hopeless Condition of Insolvency. — 
 This may sometimes operate as a sufficient reason for appointing 
 a receiver, as where the company is in default for a large amount 
 of interest, its income diminishing, its business threatened with a 
 dangerous competition from the building of rival lines, and there 
 is an apparent lack of harmony among the bondholders, who are 
 virtually the owners of the road. An additional special feature 
 was that by the law of the State in which the corporation was 
 organized, the only way in which the mortgagee could get pos- 
 session of the rents and profits was by the institution of a fore- 
 closure suit and the appointment of a receiver. So where the 
 finances of the company are at such a low ebb that it is incapable 
 of even constructing a few miles of road, and the consequences of 
 completion within a given time will be the loss of a valuable land- 
 grant which forms a part of the security on which the bond- 
 holders rely, the court will appoint a receiver to take charge of 
 the property and finish the work.* 
 
 To establish such a hopeless state of insolvency as will induce 
 a court to grant a receiver, it has been held sufficient to show 
 that the company has allowed the taxes on some of its property 
 to go to default, and thus incurred the severe penalties attach- 
 ing to such dehnquency, and that it was largely in debt for wages 
 and supplies, which, under the so-called " six-months rule," were 
 entitled to preference over the mortgage lien, if they were not 
 otherwise provided for, such an accumulation of preferential 
 debts being a direct source of peril to the rights of bondholders.* 
 
 So also a receiver will be appointed at the instance of a mort- 
 gagee who has only a second lien on a part of the railroad, and a 
 third and fourth on other parts which lie beyond the limits of the 
 jurisdiction of the court, when the company's condition is such 
 that, in order to prevent the ruin of its creditor, and the practical 
 cessation of its business, it is forced to misapply its revenues.^ 
 
 1 Brown v. Chesapeake & Ohio Canal (1873), 2 Dill. 448, 453 ; s. c. 14 Fed. 
 Co. (1891), 73 ]\rd. 667. Gas. 321, Case No. 7706; Alien w. Dallas 
 
 2 Long Dock Co. „. Mallery (1858), 12 & Wichita R. Co. (1878), 3 "Woods, 316 ; 
 N. J. Eq. 431 ; Brassey v. New York & s. 0. 1 Fed. Cas. 465, Case No. 221. 
 
 N. E. R. Co. , 22 Blatch. 72 ; s. o. 19 * Putnam v. Jacksonville L. & St. L. 
 
 Fed. Rep. 663 ; Union Trust Co. v. Illinois Ry. Co. (1893), 61 Fed. Rep. 440. 
 Midlnnd Ry. Co. (1885), 117 U. S. 434. ' State v. Northern Central R. Co, 
 
 3 Kennedy v St. Paul & Pacific R. Co. (1861), 18 Md. 193. 
 
 34 
 
530 RAILWAY BONDS AND MORTGAGES. [CHAP. XXTI. 
 
 There can be no question but that a company is insolvent 
 when it has mortgaged all its property twice, and finally made an 
 assignment of all its bills receivable and available assets to a 
 syndicate of the directors to secure the payment of a loan to 
 defray operating expenses.^ 
 
 So also the appointment of a receiver is justified, when the 
 company is practically insolvent, its affairs are in a chaotic con- 
 dition, it has no president, vice-president, or treasurer, its trustees 
 are about to resign, and there are no means of satisfying its out- 
 standing obligations, which are about to be enforced against its 
 plant and property.^ 
 
 So a proper case for a receivership is presented when the cur- 
 rent expenses have equalled the earnings ever since the road went 
 into operation, and no interest has ever been paid.^ 
 
 There are, of course, especially strong reasons for appointing a 
 receiver as a relief when the impecuniosity of the company is so 
 extreme as to affect the interests of the public by impairing its 
 capacity to perform the duties of a carrier of freight and pas- 
 sengers. Thus a receiver has been appointed where the affairs 
 of a company were in a state of hopeless embarrassment ; the 
 physical condition of the road such that it could not be operated 
 with profit, nor without great danger to life and property ; the 
 rolling-stock insufficient for the business to be carried on ; and 
 the income not large enough to meet current expenses ; the result 
 being that the manager, in order to keep control of the em- 
 ployees, was forced periodically to borrow money on the pledge 
 of his own personal credit and that of his friends.* 
 
 § 537. Dissensions among the Corporate OfScers. — A receiver 
 may be appointed in a suit to foreclose a chattel mortgage where 
 a corporation is greatly embarrassed by its debts, and there are 
 dissensions among its officers likely to injure materially the value 
 of its property.^ 
 
 § 538. The Demonstrated Indisposition of an Insolvent Company, 
 to pay its Debts, even to the Uztent of its Ability to do so. — This 
 will, of course, weigh strongly with the court in a case where 
 there might otherwise be some doubt as to the advisability of an 
 immediate appointment.^ 
 
 1 In the Matter of the South Carolina (Ohio Com. PI., 1888), 3 Ey. & Corp. 
 R. Co., 11 Chic. Leg. News, 8. L. J. 268. 
 
 2 Ralph i). Shiawassee Circuit Judge ' State Journal Company «. Common- 
 (1894), 100 Mich. 164; s. c. 58 N. W. wealth Company (1890), 43 Kan. 93 ; s. c. 
 Eep. 837. 22 Pac. Rep. 982 ; 28 Am. & Eng. Corp. 
 
 3 Benedict v. St. Joseph & W. R. Co. Cas. 443. 
 
 (1883), 19 Fed. Rep. 174. 6 Dow v. Memphis & I^ittle Rock E. 
 
 4 Heinsheimer v. Dayton, etc. E. Co. Co. (1884), 20 Fed. Eep. 260, 263. 
 
§§ 539, 540.] APPOINTMENT, ETC., OP RECEIVERS. 531 
 
 § 539. The Wrongful Failure of the Company to apply its Revenues 
 to the Bonded Debt. — This presents an appropriate case for the 
 appointment of a receiver when its insolvency and the inadequacy 
 of the security are also established.^ 
 
 But no misapplication is shown where the revenues have been 
 applied to the reduction of a floating debt incurred for the com- 
 pletion and equipment of the road, wliereby the security of the 
 bondholders has been improved and enlarged, especially if this has 
 been done with the approval of the trustees and a large majority 
 of the bondholders.^ 
 
 A similar rule is applicable where the improper use of the rev- 
 enues is being made by persons who have superseded the company 
 in the control of the property by virtue of legal proceedings in 
 which the bondholders have taken no part. Thus a receiver will 
 be appointed where the company has been declared bankrupt and 
 practically dissolved, the amount of its outstanding bonds, with 
 the accumulations of interest thereon, exceeds the value of the 
 property mortgaged to secure them, and the purchasers of the 
 company's equity of redemption at the assignee's sale are in pos- 
 session of the road, receiving the income to which the mortgagee 
 is entitled, and using the road for their own exclusive use and 
 benefit.^ 
 
 § 540. The Danger to the Fund arising from Mismanagement of 
 the Corporate Property is a ground for appointing a receiver when 
 a prima facie case of such mismanagement is made out.* 
 
 Such mismanagement may consist in an abuse of the corporate 
 franchises,^ or may arise from the business incapacity of the man- 
 agers of the road, the result being that the property has changed 
 hands several times.** 
 
 But the fact that the property of a company in which the State 
 owns a large amount of stock has been used by the directors to 
 further political schemes, and that they have made an extravagant 
 
 1 Keep V. Michigan E. Co., 6 Chic. Leg. s EgHy v. Trustees (1877), 58 Ala. 
 News, 101 ; Dow v. Memphis & Little 489 ; .s. c. 31 Am. Ry. Rep. 138. 
 
 Rock E. Co. (1884), 20 Fed. Rep. 260. * Stewart u. Chesapeake & Ohio Canal 
 
 2 Williamson v. New Albany, etc. R. Co. (1881), 5 Fed. Kep. 149 ; PuUan v. 
 Co. (1857), 1 Biss. 198. Under the cir- Cincinnati & Chicago Air Line R. Co. 
 cumstanoes of this case it was ordered that (1865), 4 Biss. 35, 47 ; s. c. 20 Fed. Cas. 
 the officers of the company set aside one- 32, Case No. 11,461. 
 
 half of the net earnings of the road for 6, Q\xy of Rochester w. Bronson (1871), 
 
 the payment of the interest on the float- 41 How. Pr. 78. 
 
 ing debt, and a full monthly report he ^ PuHan v. Cincinnati & Chicago Air 
 
 made to the court, the complainant hav- Line R. Co. (1865), 4 Biss. 35, 47 ; s. o. 
 
 ing the ri^ht to renew his application for 20 Fed. Cas. 32, Case No. 11,461. 
 
 a receiver upon a new statement of facts. 
 
532 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVI. 
 
 outlay for entertainments and personal expenses, does not justify 
 the employment of the costly machinery of a receivership.^ 
 
 An additional reason for the interference of a court of equity 
 is presented when the mismanagement involves the element of 
 fraud, as where the directors have executed a mortgage of the 
 corporate property to themselves to secure their own claim. 
 Under such circumstances the other creditors, in a- suit brought 
 to set aside the mortgage, may have a receiver appointed.^ 
 
 So also a receiver is properly appointed where a stockholder, a 
 bondholder, and the trustees bring suit in a representative capa- 
 city against the directors, charging them with squandering and 
 embezzling the corporate property.^ 
 
 Facts which create a reasonable certainty that the directors 
 will abi^se their fiduciary position to the detriment of the com- 
 pany will also justify a receivership, as where the majority of the 
 railroad company's stock is owned by an improvement company, 
 and the officers of the two corporations are substantially the same 
 persons, the result being that the interests of the bondholders are 
 placed at the mercy of persons whose interests may be quite an- 
 tagonistic to their own.* 
 
 The fact that the mortgagee in possession is mismanaging the 
 property is the only recognized ground on which a receiver will 
 be appointed in a suit to redeem.^ 
 
 § 541. Numerous Executions threatening Integrity of Property. — 
 It is well settled that equity will interfere to prevent a railroad 
 from being sold piecemeal by execution creditors to the detriment 
 of lienors, and will, at the instance of the latter, appoint a re- 
 ceiver, with a view of having the property sold as an entirety for 
 the benefit of all parties in interest.^ 
 
 So also upon a bill for an injunction against attacks on the mort- 
 gaged property by numerous attachments, where it is shown that 
 the corporation is entirely insolvent ; that it is unable to pay its 
 secured debts, its floating debt, or the sums due to connecting 
 lines, and unable to borrow money for that purpose ; that it is in 
 peril of the breaking up and destruction of its business ; and that 
 
 1 Stewart v. Chesapeake & Ohio Canal " Boston & Providence R. Corp. v. New 
 Co. (1881), 5 Fed. Rep. 149, 156. York & New England E. Corp. (1878), 12 
 
 2 Haywood v. Lincoln Lumber Company K. 1. 220. 
 
 (1885), 64 Wis. 639 ; s. c. 26 N. W. Eop. 6 Sage v. Memphis & Little Rock R. Co. 
 
 184. (1888), 125 U. S. 361 ; In re South Car. 
 
 8 Forbes v. Memphis, El Paso, & Pao. R. Co., 11 Chicago Leg. News, 8 (U. S. 
 
 R. Co. (1872), 2 Woods, 323. Cir. Ct., 1878); Edwards b. Standard 
 
 ■• Farmers' Loan & Trust Co. u. Winona, Rolling-Stock Syndicate (1893), L. R. 1 
 
 W. & S. W. Ry. Co. (1893), 69 Fed. Rep. Ch. 574. 
 957. 
 
§§ 5i2, 543.] APPOINTMENT, ETC., OP EECEITEBS. 533 
 
 a default on its securities is imminent and manifest, — a tempo- 
 rary receiver may properly and wisely be appointed to protect the 
 property.' 
 
 The appointment of a receiver will be granted upon a bill filed 
 by a stockholder of a consolidated corporation and judgment cred- 
 itors, alleging that executions are being levied on the property ; 
 that it is being sold at a sacrifice ; and that there is great difii- 
 culty in determining upon what property the different executions 
 should be levied. Under such circumstances the court will take 
 possession by a receiver, without regard to the question how far 
 its action will affect the rights of parties not before it.^ 
 
 § 542. Circumstauces under which a Judgment Creditor -will be 
 granted a Receivership of Mortgaged Property. — A bill filed by 
 a judgment creditor of a railroad company wliich alleges in sub- 
 stance that the corporate property is so heavily mortgaged that 
 if the plaintiff should attempt to enforce payment of his debt, by 
 seizure and sale on execution, there would be no bidders except 
 at a nominal amount, while if the property were placed in the 
 hands of a receiver, and held together and carefully operated, 
 there would be a large surplus each year for tlie payment of the 
 plaintiffs, has been held to contain averments amply sufficient to 
 give a court jurisdiction to appoint a receiver.^ 
 
 § 543. Right to Receiver, when lost by Laches. — The maxim, 
 vigilantihus non dormientibus equitas suhvenit, is as applicable to 
 appointments of receivers as to other forms of equitable relief.* 
 
 Thus the failure to follow up a petition for the appointment of 
 a receiver for six years will deprive the petitioner of his right to 
 have such appointment made.^ 
 
 So also, where the suit is one to set aside the reorganization of 
 a new company by the bondholders who have purchased through 
 a committee at the foreclosure sale, the petitioner cannot procure 
 the appointment of a receiver over the property of that company 
 if his acts during the progress of the negotiations which resulted 
 in the purchase and reorganization were such as to lead the public 
 and the committee to suppose that he acquiesced in what was 
 done.^ 
 
 1 Brassey v. New York & New England paid, he may, as a matter of right, obtain 
 R. Co. (1S84), 19 Fed. Rep. 663, citing the appointment of a receiver. In re Man- 
 Long Dock Co. «. Mallery, 12 N. J. Eq. 431. Chester, etc. Ry. Co., L. R. 14 Ch. Div. 
 
 ' Hervey v. 111. Midland Ry. Co. (1884), 645 (1879). 
 
 28 Fed. Rep. 169. * High on Receivers, § 14. 
 
 ' Sage I'. Memphis & Little Rock R. Co. ^ Hood v. First National Bank of Tre- 
 
 (1888), 125 U. S. 361. niont (1886), 29 Fed. Rep. 55. 
 
 Under the English Companies Act of ^ Matthews v. Murchigou (1883), 15 
 
 1867, whenever a judgment creditor is un- Fed. Rep. 691. 
 
534 RAILWAY BONDS AND MORTGAGES. [CHAP. ZXVI. 
 
 § 544. Effect of a Provision in Mortgage authorizing the Trustee to 
 take Possession on Default. — The right of the trustee to take pos- 
 session after default has been viewed as furnishing a conclusive 
 reason for denying an application for a receiver, on the ground 
 that the legal remedy afforded by a stipulation conferring such a 
 right is fully adequate to enable the trustee to protect the in- 
 terests of his beneficiaries.^ 
 
 The rule here laid down is very much the same as that of the 
 English Court of Chancery, until it was altered by statute ; viz., 
 that a receiver ought not to be appointed in behalf of a mort- 
 gagee who had the legal estate, because he had nothing to do but 
 to take possession.^ 
 
 On the other hand it has been held that, where the trustees 
 under a mortgage by which the income is pledged to the payment 
 of the principal and interest of the bonds are empowered to take 
 possession after the continuance of a default for a specified period, 
 it is the clear duty of the court to appoint a receiver, irrespective 
 of any showing that the property is insufficient to pay the mort- 
 gage debt, that the mortgagor is insolvent, that the trust property 
 is in jeopardy, or the like.'' 
 
 So also it has been held that where the trustees have neglected 
 to take possession, a bondholder may, in a suit brought to compel 
 them to perform their duty, obtain the appointment of a receiver, 
 
 1 Rice u. St. Paul R. Co. (1878), 24 of an estate where the creditor is entitled 
 
 Minn. 464. toil, and has no way of enforcing his rights 
 
 " Daniell's Ch. Pr. 1724, 1725. except by a creditor's bill. They are not 
 
 " Allen V. Dallas & Wichita E. Co. an authority for the position that a court 
 
 (1878), 3 Woods, 316, per Woods, J. This of equity will aid a mortgagee in this way, 
 
 case seems scarcely reconcilable with the where he has, by an express stipulation in 
 
 principles upon which receivers are ordi- the mortgage, reserved a legal remedy such 
 
 narily appointed. Much stress was laid by as the right of entry upon the default of 
 
 the learned judge upon the supposed prin- the mortgagor. 
 
 ciple that the rights of railroad bondholders There is doubtless a clear and well-de- 
 were not to be measured by the same rules fined distinction as to the right to have a 
 as those which apply to a mortgage of a receiver of the income appointed where the 
 house or lot to secure one or two promis- income is expressly pledged and where it is 
 sory notes. The correctness of the doctrine, not : see Des Moines Gas Co. xi. West (1876), 
 that a mere default in the payment of in- 44 Iowa, 23 ; Jones on Mortgages, § 1516 ; 
 terest was not a ground for the appoint- but the real question in the caseof amort- 
 ment of areceiver, was admitted, butit was gage which gives the right of entry as 
 declared not to be applicable where there regards the entire property is whether such 
 is a stipulation that the mortgagee shall a stipulation does not supply an adequate 
 have the rents ; the authorities cited being legal remedy, and thus do away with the 
 Whitehead u. Wooten (1870), 43 Miss, necessity of equitable interference, except 
 523 ; Morrison v. Buckner (1843), 1 Hemp- in so far as it may be required for the pur- 
 •stead, 442. But those cases merely refer pose of compelling the trustees to do their 
 to the general rule as to the action of a duty, 
 court of equity in sequestrating the income 
 
§ 545.] APPOINTMENT, ETC., OP RECEIVERS. 535 
 
 and that such appointment was not necessarily predicated on the 
 apprehension that the debt would be lost.^ 
 
 § 645. Last Subject continued. — A like ruling has been made 
 where the suit in which the appointment was made was one 
 brought to obtain possession, the court expressly distinguishing 
 between such a suit for specific performance and one for fore- 
 closure, in which the power of appointment was limited by statute 
 to certain specified cases.^ 
 
 A doctrine intermediate between these two is, that the fact of 
 the trustees having the power to take possession of the property 
 in the event of a default does not constitute a sufficient reason for 
 refusing to appoint a receiver. Such a power may be waived, if 
 the mortgagees prefer to invoke the interposition of a court of 
 chancery .3 
 
 The more reasonable view would certainly seem to be that 
 the fact of the income's being subject to the mortgage cannot 
 affect the general principle that a mere default is not sufficient to 
 warrant the appointment of a receiver, even though such default 
 may entitle the mortgagee to enter, and that the court is still at 
 liberty to exercise its discretion in determining whether the case 
 is one which calls for the appointment of a receiver, or merely for 
 an order requiring the defendant to account for the income, and 
 pay the surplus left after defraying the necessary expenses to the 
 mortgagee, or whether the plaintiff shall be left to the usual legal 
 remedies for obtaining possession, or to his action for damages for 
 refusing to deliver. Even if these remedies are inadequate, that 
 does not constitute an imperative reason for which a court of 
 equity should become active in enforcing specifically a contract 
 which is in its nature a forfeiture of the most stringent character.* 
 
 ' Warner ti. Rising Fawn Iron Co. " Union Trust Co. v. St. Louis, Iron 
 
 (1878), 3 ■Woods, 514, also » ruling of Mountain, & Southern R. Co. (1877), 4 
 
 Woods, J. Dill. 114, per Miller, J., explaining the' 
 
 2 McLane v. Placerrille & Sacramento proper meaning of American Bridge Co. v. 
 
 Valley R. Co. (1888), 66 Cal. 606 ; s. 0. Heidelbach (1876), 94 U. S. 798, to be that 
 
 26 Am. & Eng. R. R. Cas. 404. the appointment of a receirer was one of 
 
 ° Williamson v. New Albany, etc. R. the ways by which, in a proper case, the 
 
 Co. (1857), 1 Biss. 198, per McLean, J. attachment of the income by the creditors 
 
 In Tome v. King (1891), 64 Md. 166 ; before possession was taken by the mort- 
 
 s. c. 21 Atl. Rep. 279, the trustees who gagee might be prevented, and not as 
 
 were entitled to possession on default asked contended by the plaintiff, that such an 
 
 for a receiver on the ground that some appointment was the only mode of effecting 
 
 delay would occur in preparing the case for this, or that an appointment was to follow 
 
 a decree, and that the property would in the in every case of foreclosure where the in- 
 
 meantime suffer. The petition was granted come was mortgaged. In line with this 
 
 without any questions being made as to the decision is Cheever v. Rutland & Burling- 
 
 propriety of the appointment. ton R. Co. (1863), 39 Vt. 653, a decision 
 
536 EAILWAY BONDS AND MORTGAGES. [CHAP. XXVI. 
 
 § 546. Appointment of Receivers after Rendition of Foreclosure 
 Becree, when proper. — After the foreclosure decree is rendered, 
 the bondholders have a right to demand that the earnings of the 
 road shall be received by a disinterested trustee, and the fact that 
 a part of the bondholders are in possession, to the exclusion of 
 others to whom their interests are hostile, is a sufficient reason 
 for appointing a receiver of those earnings at the instance of the 
 latter, unless the interval between the decree and the foreclosure 
 is very short.^ 
 
 Article III. — Removal, Substitution, and Final Discharge 
 
 OF Receivebs. 
 
 § 547. Generally. — The cases in which the removal of a re- 
 ceiver is asked for may be divided into two classes : (1) Those 
 in which it is alleged that, owing to circumstances existing at 
 the time the appointment was made, the court ought either to 
 have disallowed the application 'altogether, or to have appointed 
 some other person than the one actually selected ; and (2) those 
 in which the circumstances relied upon to establish the impro- 
 priety of permitting the receiver to retain the office have arisen 
 subsequently to the appointment. The second of these classes 
 comprehends both the cases in which the removal of a receiver 
 is asked for merely for the purpose of substituting another in 
 his place, and those in which there is asserted to be no longer 
 any reason why the receivership should be continued. 
 
 § 548. Power of Removal. — A court which is invested by 
 statute with the power of appointing a receiver possesses by im- 
 plication the power of discharging him also.^ 
 
 Ordinarily the question of the removal of a receiver, like the 
 question of his appointment, is a matter resting in the discretion 
 ■of the court,^ and the appellate court will not review the pro- 
 priety of the appointment.* 
 
 But to this rule there are several exceptions, the reasons for 
 
 rendered by Justice Barrett of the Supreme cumstances were not such as to call for the 
 
 Court of Vermont, while sitting as Chan- preservative management of a receiver, the 
 
 cellor. The bill in that case was for fore- application would he denied. 
 
 closure, and asked for a receiver. So far as l Benedict v. St. Joseph & W. E. Co. 
 
 the preliminary interposition of the court (1883), 19 Fed. Rep. 173. 
 
 was to be invoiced, the bill was drawn with 2 Cincinnati, Sandusky, & Cleveland 
 
 the controlling idea that this interposition R. Co. v. Sloan (1876), 31 Ohio St. 1. 
 
 was to be predicated upon the orator's right s jjjgii on Rec, § 821. 
 
 to possess as mortgagees with condition * Milwaukee & Minnesota R. Co. v. 
 
 broken. The learned judge declined to Soutter (1864), 2 Wall. 510. 
 
 adopt this view, and said that, as the cir- 
 
§ 548.] APPOINTMENT, ETC., OF RECEIVERS. 537 
 
 which are sufficiently obvious, from a statement of the rulings 
 which illustrate them. 
 
 Thus it is held that when all the questions in dispute have been 
 passed upon both in the lower and the appellate courts, with the 
 result that the right of the defendants to have the property re- 
 stored to them, on payment of the amount found to be due, is 
 cleatly established, a refusal on the part of the lower court to 
 discharge the receiver is judicial error, which may be examined 
 into on appeal, and the ruling of the lower court will be re- 
 versed, if there are no special facts presented to justify the 
 continuation of the receivership.^ 
 
 So, also, as the appointment of a receiver without notice to the de- 
 fendant is deemed to be a very dangerous exercise of the judicial 
 power, the circumstances of such an appointment will be jealously 
 scrutinized by an appellate tribunal, and if the necessary degree 
 of urgency is not shown to have existed, the receiver will be 
 removed.^ 
 
 So also, if the motion to terminate the receivership is made with 
 the concurrence of all the parties in interest, the entire control of 
 the property should be restored to the owners ; and it is an abuse 
 of the court's power to refuse the motion so far as to require the 
 receiver still to receive and disburse the earnings.^ 
 
 The rule is also to some extent modified by statute. Under the 
 Ohio Code, wliich allows an appeal from " an order affecting a sub- 
 stantial right made in a special proceeding," it has been held that 
 an order discharging a provisional receiver was subject to review.* 
 
 It is not denied that a court which appoints as ancillary receiver 
 a person who is already acting as receiver under a prior appoint- 
 ment in the court where the proceedings were, originally instituted, 
 has an abstract, technical right to remove that receiver if it thinks 
 proper, and put another in his place. ^ 
 
 1 Milwaukee & Minnesota R. Co. v. vacate an order appointing a receiver. 
 Soutter (1864), 2 Wall. 510. The facts But if an appointment ex parte without 
 of this case are referred to above. sufficient cause may he treated as judicial 
 
 2 Wahash Ey. Co. v. Dykeraan (1892), error, which is the conclusion arrived at, 
 133 Ind. 56 ; s. c. 32 N. E. Rep. 823 ; it was apparently not necessary for the 
 Chicago & S. E. Ry. Co. v. Cason (1892), appellate court to fortify its position by 
 133 Ind. 49 ; s. 0. 32 N. E. Rep. 827. this technical consideration. See note on 
 In the first of these cases it was held that these cases, 27 Am. L. Rev. 470. 
 
 the question as to propriety of the ap- ' L'Engle v. Florida Central E. Co. 
 
 pointment could be brought directly to (1873), 14 Fla. 266. 
 
 the appellate court without moving in * Cincinnati, Sandusky, & Cleveland 
 
 the lower court to have the appointment R. Co. v. Sloan (1876), 31 Ohio St. 1 ; 
 
 varated. Stress was laid on the fact that s. c. 15 Am. Ry. Rep. 376. 
 
 there was no express statutory right of ° Chattanooga Terminal Ry. Co. v. Fel- 
 
 appeal from a ruling denying a motion to ton (1895), 69 Fed. Rep. 273. 
 
538 RAILWAY BONDS AND MORTGAGES. [CHAP. XXTI. 
 
 This course was taken by Judge Gresham in the Wabash case. 
 The rule was strongly insisted upon that a federal court, by ap- 
 pointing a receiver over a railroad system extending through 
 several States, does not acquire such a primary and paramount 
 jurisdiction over the entire property that the court of another 
 district which has appointed the same person as receiver in ancil- 
 lary proceedings is precluded from entertaining an application for 
 his removal made by holders of bonds secured by sectional mort- 
 gages on portions of the property within the latter district.-' 
 
 § 549. Jurisdiction to remove Ancillary Receiver. — An ancillary 
 receiver was also removed by Judge Simonton of the District of 
 South Carolina, but it was on the ground that the receiver had 
 been appointed in the sister court at the instance of another com- 
 pany which controlled the stock of the defendant, to further the 
 interests of the dominant company's system, and not in the in- 
 terest of the creditors, and also on the ground that the appointing 
 court had in substance afterwards held that its action in the prem- 
 ises was unauthorized, while the proceedings in which the appoint- 
 ment of another receiver was asked for were instituted by creditors 
 seeking to enforce liens and equities paramount to those of any 
 stockholders.^ 
 
 But it is unquestionably more agreeable to those principles of 
 comity which regulate the attitude of the federal courts of the 
 different districts towards one another to decline to consider any 
 application for the removal of a receiver appointed in ancillary 
 proceedings.*^ 
 
 In any event, something more than mere unsupported allega- 
 tions tliat the original receivership was procured by fraud are 
 necessary to induce a court to remove an ancillary receiver.* 
 
 § 550. Questions which will not be decided upon an Application 
 for Removal. — Whether a receiver appointed in an action to fore- 
 close a first mortgage, given to secure the payment of bonds, is 
 entitled to receive the income and money previously collected by 
 a receiver appointed in an action to foreclose the second mortgage, 
 
 1 Atkins V. Wabash, St. L. & Pac. = Phinizy t'. Augusta &K.R. Co. (1893), 
 
 Ey. Co. (1886), 29 Fed. Kep. 161, Judge 56 Fed. Rep. 273. 
 
 Gresham said : " If by the mere force of its ^ Chattanooga Terminal Ry. Co. v. Fel- 
 
 orders the other court acquired the legal ton (1895), 69 Fed. Rep. 273 ; Dillon v. 
 
 custody of the res, the entire Wabash prop- Oregon, etc. Ry. Co. (1895), 66 Fed. Rep. 
 
 erty, ... it would be alike the duty and the 622. 
 
 pleasure of this court to aid that court in * New York, P. & 0. R. Co. v. New 
 
 the exercise of its primary jurisdiction. York, L. E. & W. R. Co. (1893), 58 Fed. 
 
 But taking a different view, it allowed this Rep. 268. 
 bill to proceed here for a foreclosure of 
 the sectional mortgages." 
 
§ 551.] APPOINTMENT, ETC., OP RECEIVERS. 539 
 
 will not be adjudicated on an application for a removal of the 
 receiver first appointed.^ 
 
 § 551. Removal on Account of Circumstances existing at the Time 
 of the Appointment. — The court will remove a receiver if facts 
 are presented showing that he was not a proper person to place in 
 control.^ 
 
 The fact of a receiver's holding such relations to some of the 
 parties in interest, that his sympathies are likely to predispose 
 him to favor them, is as much a reason for removing him as the 
 fact that he is shown not to possess the necessary integrity and 
 business qualifications. As was said by Mr. Justice Miller, while 
 sitting as circuit justice, " It becomes the duty of the court to see 
 that its powers are exercised on principles of strict neutrality as 
 regards the belligerents." That duty will be discharged by remov- 
 ing a representative of any one of several hostile interests, and 
 appointing a receiver who, in feeling and in conduct, will be strictly 
 neutral and strictly honest.^ 
 
 Thus a receiver appointed by a federal court under the belief 
 that substantially all interests affected were united in the applica- 
 tion therefor will be removed, where it appears that he is bitterly 
 opposed by some of the parties interested and was nominated by 
 the other parties, notwithstanding a receiver may have also been 
 appointed by a State court who is a partisan of the parties hostile 
 to the receiver in question.* 
 
 But where the defendant company has agreed that the complain- 
 ing bondholders, upon giving a specified security, shall have the 
 possession and management of the railroad, and nominate the 
 receiver, it cannot afterwards object to the person selected, unless 
 he commits some overt act of unfaithfulness to his trust.^ 
 
 If the company has been deprived of the opportunity of resist- 
 ing the application for a receiver, owing to the fact that the officer 
 on whom service of process was made fraudulently concealed such 
 service, the court will reopen the case and allow the company to 
 vacate the appointment.® 
 
 So, also, as it is an abuse of the process of the court to procure 
 the appointment of a receiver in a proceeding which is not an 
 adversary one, but really instituted by a collusive arrangement 
 between the petitioner and the company, a receiver appointed on 
 
 1 Holland Trust Co. v. Consolidated * Wood v. Oregon Development Co. 
 Gas & Electric Light Co. (1895), 85 Hun, (1893), 55 Fed. Rep. 901. 
 
 454. 6 Cowdrey ,-. Railway Co. (1870), 1 
 
 2 High on Eec, § 821. Woods, 331. 
 
 ' Meier v. Kansas Pac. Ry. Co. (1878), « Allen v. Dallas & Wichita R. Co. 
 5 Dill. 476, 478. (1878), 3 Woods, 316. 
 
640 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVI. 
 
 the application of a judgment creditor will be discharged upon 
 proof that the process of the court was not used in good faith to 
 collect the judgment, but as a means of placing the property and 
 business of the company in the hands of the court, to the end that 
 the defendant might not be subject to suits in the ordinary course 
 of judicial proceedings, and in order to enable the plaintiff and 
 defendant, by agreement between them, through the receiver, to 
 apply all the earnings of the road during a series of years to the 
 improvement and betterment of the property.^ 
 
 The appointment will also be vacated where the defendant 
 brings forward - material facts, not presented at the first hear- 
 ing, and shows that his failure to lay them before the court 
 was due to mistakes, inadvertence, or excusable negelect;^ or 
 where the proceedings were tainted in some way with fraud. 
 Thus a receivership will be vacated upon proof that it was pro- 
 cured through the collusive acquiescence of the defendant.^ 
 
 But the mere fact that the directors, or some of them, who 
 knew that a foreclosure suit was in preparation, and that a 
 receiver was to be applied for as a part of the relief, desired 
 that the petition should be granted, in the belief that it would 
 be prudent and wise to have such receiver appointed, will not 
 render the appointment collusive, nor furnish any adequate rea- 
 son for vacating it.* 
 
 § 552. Removal of Receiver appointed ex parte. — The rule that 
 a receiver should not, without some pressing necessity, be 
 appointed in ex parte proceedings (see ante') involves the 
 correlative proposition, that an ex parte appointment should be 
 vacated if it is afterwards shown that it was, under the circum- 
 stances, improperly made ; as, for example, if his personal in- 
 terests were such as to furnish a strong temptation to favor one 
 or other of the beneficiaries of the trust he has undertaken. Thus 
 a receiver appointed ex parte will be removed where it appears 
 that, though not the owner of any of the corporate stock, he was 
 under agreement to deliver upon demand a large number of 
 
 1 Sagew. Memphis & Little Eock R. Co. » Fifth National Bank of Pittsburg v. 
 (1883), 5 McCrary, 643; s. c. 18 Fed. Pittsburg & Castle Shannon R. Co. (1881), 
 Rep. 571. This case was reversed as a 1 Fed. Rep. 190 ; Overton v. Memphis 
 whole by the Supreme Court (125 TJ. S. & Little Rock R. Co. (1882), 10 Fed. 
 361) ; but the action and opinion of the Rep. 866 ; Brassey v. New York & New 
 lower court in regard to the propriety of England R. Co., 19 Fed. Rep. 663 ; Wil- 
 the discharge, supposing the facts to be son v. Barney (1875), 5 Hun, 257. 
 
 as stated, was expressly approved. * Brassey v. New York & New England 
 
 2 Belmont v. Erie Ry. Co. (1869), 62 R. Co. (1884), 22 Blatch. 72. 
 Barb. 637. 
 
§§ 553, 564.] APPOINTMENT, ETC., OP EECEIVERS. 541 
 
 shares of such stock, and that every appreciation of the stock 
 would largely reduce his private fortune.^ 
 
 A receiver will not be removed because the application was 
 necessarily made out of court, and without notice, for the purpose 
 of forestalling adverse attacks, and the clerk kept the proceedings 
 secret until the papers were filed.^ 
 
 § 553. Right to object to Appointment lost by Delay. — It has 
 been held that, after a receiver has gone forward and completed 
 the road to a certain point, expending money and materials fur- 
 nished, not by the company, but by other parties interested in its 
 completion, and thereby saved the charter of the company, and 
 prevented a forfeiture of its land-grant, the delay of the company 
 for nearly a month to object to the manner in which it was 
 served with notice of the foreclosure suit will be regarded as an 
 acquiescence in the action of the court and an estoppel of objec- 
 tions on its part. The company's motion to vacate the appoint- 
 ment of the receiver under such circumstances will be denied.^ 
 
 A receiver appointed in foreclosure proceedings will not be 
 removed on the application of one appointed receiver in seques- 
 tration proceedings, where the application is not made until after 
 the final judgment and decree of foreclosure, and until after the 
 latter receiver has lost in an effort to defeat such action.* 
 
 § 554. Removal of Receivers on Account of Circumstances arising 
 subsequent to the Appointment. — Any conduct amounting to an 
 abuse of his fiduciary position is a sufficient ground for removing 
 a receiver. Thus a receiver has been removed on the ground 
 that, while managing the road, he allowed large rebates in favor 
 of another railway company owned by persons whose business 
 interests were identified with his own, and also in favor of a coal 
 company in which he was a shareholder, and that he co-operated 
 with a purchasing committee, which was seeking to purchase the 
 road, in its efforts to compel, by threats of prolonged and ex- 
 pensive litigation, a minority of dissenting bondholders to agree 
 to the sale.^ 
 
 But a receiver of a railroad will not be removed because of the 
 organization of a company composed of the officers of the road, 
 which is alleged to have used the labor of the railroad company 
 
 1 Olmstead v. Distilling & Cattle Feed- ■• New York Security & Tnist Co. v. 
 
 ing fn. (1895), 67 Fed. Eep. 24. Saratoga Gas & Electric Light Co. (1895), 
 
 = Ibid. 88 Hun, 569. 
 
 8 Allen V. Dallas & Wichita R. Co. ^ gpprs v. Wahash, St. L. & Pac. Ey. 
 
 (1878), 3 Woods, 316, 334; s. c. 1 Fed. Co. (1886), 29 Fed. Rep. 161; s. c. 26 
 
 Cas. 465, Case No. 221. Am. & Eng. R. R. Cas. 441. 
 
542 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVI. 
 
 in operating a mine, where he is not shown to have knowledge of, 
 or consented to, such use of the labor.^ 
 
 Nor is it a ground for the removal of the receivers of a cor- 
 poration that one of them has become a member of a reorganiza- 
 tion scheme. It will be sufficient if that receiver retires from 
 membership in such committee when conflict over the plan of 
 reorganization appears imminent.^ 
 
 Still less should a receiver be removed merely because he ad- 
 vises, aids, and encourages reorganization schemes.'' 
 
 The following have also been declared to be insufficient grounds 
 for removing a receiver: Making misleading reports as to the 
 condition of the property, where it was shown that he had con- 
 tinued the method of accounting and reporting employed by the 
 directors ; fraudulent conduct of his agent to the detriment of 
 the estate, where he was shown to have used due care in the 
 selection of his agents, and to have discharged the agent as soon 
 as he had ascertained the fraud ; giving an unusually low rate for 
 the carriage of certain freight, where his object was to bring an 
 article produced on the line of the road into general demand, and 
 so add to the receipts of the trust estate ; yielding to a demand 
 made by another company under a reasonable construction of a 
 contract between it and the insolvent company.* 
 
 A court will remove receivers who are incompetent, especially 
 where some of them have interests in other corporations adverse 
 to the interests of a minority of the bondholders, and, at the 
 instigation of the majority of such bondholders, are using their 
 powers and influence as receivers in advancing those corporations 
 at the expense of the railroad.^ 
 
 A receiver who has unjustly discriminated in the charges im- 
 posed on rival shippers over the road may be removed for such 
 discrimination.^ 
 
 But a receiver of a railroad company will not be removed be- 
 cause of fraudulent acts or misconduct of a subordinate employee, 
 when his personal presence and actual inspection of the transac- 
 tions of such agent is a physical impossibility, and the agent was 
 discharged upon the transactions coming to the knowledge of the 
 receiver.^ 
 
 1 Clarke v. Central Railroad & Bkg. « Atkins v. Wabash, St. L. & Pac. Ey. 
 Co. (1893), 66 Fed. Rep. 16. Co. (3886), 29 Fed. Bep. 161, 174. 
 
 2 Fowler «. Jarvis-Conklin Mortgage ^ Handy v. Cleveland & M. R. Co. 
 Co. (1894), 63 Fed. Rep. 888. (1887), 31 Fed. Rep. 689. 
 
 8 Clarke v. Central Railroad & Bkg. ' Clarke v. Central Railroad & Bkg. 
 
 Co. (1893), 66 Fed. Rep. 16. Co. (1893), 66 Fed. Rep. 16. 
 
 * Ibid. 
 
§ 655,j APPOINTMENT, ETC., OF RECEIVERS. 643 
 
 Nor is it a ground for tlie removal of a receiver that mort- 
 gages securing debentures may have been sold at a sacrifice 
 without adequate advertisement or opportunity to bidders, inas- 
 much as the power to sell such mortgages does not rest with the 
 receivers, but with the trustees, who are not under the control of 
 the court or the receivers.^ 
 
 Nor will such a receiver be removed because, in the exercise 
 of his business judgment, for the purpose of introducing the 
 product of a mine, he has given a special freight rate which is 
 too low.2 
 
 If receivers representing two different interests, who have been 
 placed by agreement in charge of the property, cease to act har- 
 moniously, they should be removed and a single one appointed.^ 
 
 When it is represented that the trust property has fallen into 
 the hands of different receivers accountable to three different 
 courts, to the manifest detriment of the trust estate, that fact of 
 itself is a sufficient reason for the appointment of a receiver for 
 the whole property, if the court has jurisdiction to make such 
 appointment.* 
 
 § 555. Termination of Receivership generally. — In appointing a 
 receiver, whether at the commencement or during the progress of 
 the suit, the court may limit the duration of the receivership to 
 such a period as it may deem to be expedient.® 
 
 If no such limit of time has been fixed beforehand, the court 
 acts with reference to the principle that a receiver is appointed 
 essentially for the purpose of winding up the affairs of the de- 
 fendant, and that the receivership should therefore be closed at 
 the earliest possible moment consistent with the interests of the 
 creditors and stockholders.^ 
 
 1 Fowler v. Jarvis-Conklin Mortgage & Corp. L. J. 362 ; Taylor v. Phil. & Read. 
 
 Co. (1894), 63 Fed. Rep. 888. R. Co., 7 Fed. Rep. 377 ; s. c. 3 Am. & 
 
 ^ Clarke v. Central Railroad & Bkg. Eng. R. R. Cas. 177 and note ; Sewell v. 
 
 Co. (1893), 66 Fed. Rep. 19. Cape May R. Co. (N. J. Eq., 1887), 30 
 
 ' Meier v. Kansas Pac. R. Co. (1878), Am. & Eng. R. R. Cas. 155 ; Vermont & 
 
 5 Dill. 476 ; =. c. 16 Fed. Cas. 1321, Canada R. Co. v. Vermont Central R. Co. 
 
 Case No. 9395. (1877), 50 N. Y. 500 ; s. c. 14 Am. Ry. 
 
 * Wilmer v. Atlanta & Richmond Air Rep. 497. In the last case the court stated 
 
 Line R. Co. (1875), 2 Woods, 409. the principle as follows : "A receivership 
 
 ' Oilman v. Illinois & Mississippi Tel. is temporary to serve an existing exigency 
 
 Co. (1875), 91 U. S. 603, 616. of a temporary nature, and when that is 
 
 ' Howard v. La Crosse & Milwaukee R. done, it is to cease. The idea that a court, 
 
 Co. (1864), Woolworth, 49 ; s. c. on ap- in virtue of its prerogative in that behalf, 
 
 peal, sub nomine Railroad Co. v. Soutter is to take upon itself the office of institut- 
 
 (1864), 2 Wall. 610; s. P. Mercantile ing a receivership to be perpetual, and to 
 
 Loan & Trust Co. v. Missouri, K. & T. Ry. do the duty of a court in controlling, di- 
 
 Co. (1888), 36 Fed. Rep. 221 ; 4 Ry. Rep. reeling, and enforcing the administration 
 
544 
 
 EAILWAT BONDS AND MORTGAGES. [CHAP. XXVI. 
 
 Thus a receiver should be discharged when the accrued in- 
 terest has been paid in full, and the mortgagees have ample 
 security for the remainder of their debt, and a speedy and sure 
 means of enforcing its payment in case default be made therein.^ 
 
 Where an appointment has been made in a State court on 
 an ex 'parte application, and the cause afterwards removed to 
 the federal court, and both sides heard, the order will be re- 
 scinded upon its being satisfactorily shown that the property is 
 not in any jeopardy or in any need of the protection of the court.^ 
 
 A receiver is appointed for the benefit of the creditor at whose 
 instance he is appointed, and such creditor is therefore under no 
 obligation to continue the receivership any longer than he deems 
 expedient. When he petitions to have the receivership closed, the 
 court will not retain control of the property until the costs and 
 expenses of its management during the receivership have been 
 paid. The fact that the indebtedness created by the receiver 
 has enhanced the value of the property is no ground for such 
 retention.*^ 
 
 The receivership should not be continued. any longer than the 
 time required to obtain and execute by the exercise of reasonable 
 
 in the management of the parties inter- 
 ested, and not to serve a present exigency, 
 rendering it necessary in order to prevent 
 a failure of legal justice and right, has not 
 yet heen propounded in any hook on the 
 subject, nor entertained and acted on in 
 any case." A receiver which a New Jersey 
 statute allows to be appointed upon the 
 petition of any citizen, after it has ceased 
 to operate its road for a given period, will 
 be discharged, when the company satisfies 
 the court of its willingness to resume the 
 operation of the road. In re Long Branch 
 & Sea Shore R. Co. (1874), 24 N. J. Eq. 
 398. But before the company is given 
 possession of the road, it must establish 
 not only its ability and willingness to 
 operate the road, but also its right to the 
 possession of the property. In re Long 
 Branch R. Co., 24 N. J. Eq. 402. As a gen- 
 eral rule the road will be returned to the 
 company which was in possession when 
 the receiver was appointed, and the right 
 of any other company to the possession of 
 the road determined in proceedings insti- 
 tuted by the latter, asking that the prop- 
 erty be delivered to it, especially if the 
 other company is not made a party to the 
 suit. 
 
 See article Discharge of Receiver — 
 Effect upon Liabilities incurred during 
 the Receivership, by Charles L. Billings, 
 23 Am. L. Reg. N. S. 593. 
 
 A disputed claim of this character must 
 be settled between the opposing parties 
 indue course of law. Long Branch Sea 
 Siore Railroad Co. v. Sneden (1875), 26 
 N. J. Eq. 539. 
 
 1 Howard ». La Crosse & Milwaukee R. 
 Co. (1864), Woolworth, 49 ; same case on 
 appeal, Railroad Co. v. Soutter (1864), 2 
 Wall. 510. In this case it was held that a 
 road with annual receipts to the amount of 
 1800,000 will not be retained in the hands 
 of a receiver for a claim of $20,000, espe- 
 cially when the validity of the lien asserted 
 is extremely doubtful, and the creditor, 
 during the period of four years, which had 
 elapsed since the appointment of the re- 
 ceiver, had been paid only $1,000 of his 
 demand, and taken no step in the cause to 
 assert his rights. The ordinary remedies 
 are sufficient in such a ca.se. 
 
 2 McHenry v. N'ew York, P. & 0. R. 
 Co. (1885), 25 Fed. Rep. 114. 
 
 ' State of Tennessee o. Edgefield & 
 Kentucky R. Co. (1880), 6 Lea (Tenn.), 
 363 ; s. 0. 4 Am. & Eng. R. R. Cas. 87. 
 
§§ 556-558.] APPOINTMENT, ETC., OP RECEITEES. 545 
 
 diligence a final decree. Any delay or want of good faith in this 
 respect on the part of the plaintiff should result in an immediate 
 discharge of the receiver.^ 
 
 § 556. No Formal Discharge by the Court is necessary to termi- 
 nate a Receivership. — This is SO when the parties themselves have 
 by their own agreement provided for the administration of the 
 trust estate in such a manner that there is no longer any property 
 left in the custody of the court for the receivers to manage.^ 
 
 § 557. The Receiver himself cannot be heard in Opposition to a 
 Motion for the termination of the receivership, which is concurred 
 in by all the parties in interest. He is not such a party himself 
 until his accounts come up for adjustment.^ 
 
 § 558. Effect of the Discharge of a Receiver as regards the Rights 
 of Third Parties. — After an order discharging a receiver and 
 directing a surrender of the property to the defendant has been 
 entered and complied with, the court cannot, after the close of 
 the term, alter, modify, or expand such order in any way, and again 
 obtain jurisdiction over the property and funds already surrendered, 
 with a view to the adjustment and payment of claims against the 
 receiver which were not reviewed in the order of discharge.* 
 
 Nor can action be maintained against the receiver after such 
 discharge and surrender of property upon the order of the 
 court.^ 
 
 Upon the discharge of the receiver, a party who may have 
 talfcn a lease of the road as a security for a large debt, before 
 possession was taken by the receiver, is entitled to be placed in 
 possession again ; but this rule is not applicable to a lessee who, 
 by reason of his failure to pay the sums stipulated in the contract, 
 may have lost possession shortly before the appointment of the 
 receiver, especially when the validity of his lien is doubtful ; and 
 not only is the security suificient for any lien he may have, but 
 he has never, although a party to all the suits respecting the road 
 during a period of four years, set up a claim to any relief.® 
 
 1 Dow V. Memphis & Little Rock R. ■• Davis v. Duncan (1884), 19 Fed. 
 Co. (1884), 20 Fed. Rep. 260, 269. Rep. 477. 
 
 2 Andrews v. Smith (1881'), 5 Fed Ecp. * Farmers' Loan & Trust Co. v. Central 
 833, 845; Vermont & Canada E. Co. v. Railroad of Iowa (1880), 7 Fed. Rep. 
 Vermont Central R. Co. (1877), 50 Vt. 537. 
 
 500 ; s. c. 14 Am. Ry. Rep. 497. * Howard v. La Crosse & Milwaukee 
 
 » L'Engle v. Florida Central R. Co. E. Co. (1884), Woolworth, 49. 
 (1873), 14 Fla. 266. 
 
 35 
 
646 
 
 EAILWAT BONDS AND MORTGAGES, 
 
 [chap. 
 
 XXTII, 
 
 CHAPTER XXVn. 
 
 TITLE, POSSESSION, OFFICE, AND DUTIES OF RECEIVERS. 
 
 Art. I. - 
 
 - Title akd Possession genek- 
 
 ALLY. 
 
 §574. 
 
 § 559. 
 
 Existing Rights not changed by 
 Appoiutment of Receiver. 
 
 575. 
 
 560. 
 
 To what Property Receiver ac- 
 
 
 
 quires Title. 
 
 576. 
 
 561. 
 
 Jurisdiction of Property ille- 
 gally in the custody of the 
 
 677. 
 
 
 Receiver. 
 
 Art. IV. 
 
 662. 
 
 Interference with Possession by 
 Strikers. 
 
 
 563. 
 
 Possession not allowed to in- 
 terfere with Public Improve- 
 
 § 578. 
 
 
 ments. 
 
 679. 
 
 564. 
 
 Exercise of Corporate Franchises 
 
 
 
 by Company after Appoint- 
 
 580. 
 
 
 ment of Receiver. 
 
 
 565. 
 
 Duty of Officers to deliver Cor- 
 porate Property to Receiver. 
 
 
 Art. II.- 
 
 - Tbeeitoeial Limits of Juris- 
 diction OP COITET appoint- 
 ing Reoeivee. 
 
 581. 
 
 § 566. 
 
 General Rule. 
 
 582. 
 
 567. 
 
 General Rule not affected by 
 Fact that Road extends into 
 another State or Judicial Dis- 
 
 
 
 trict. 
 
 583. 
 
 568. 
 
 Ancillary Courts exercise only 
 Limited Jurisdiction over the 
 
 
 
 Properties. 
 
 584. 
 
 569. 
 
 Operation of General Rule qual- 
 ified by Powers of Court of 
 
 
 
 Equity to act m Personam. 
 
 585. 
 
 Art. III. 
 
 — Office and Duties of Re- 
 
 CEIVEES. 
 
 
 § 570. 
 
 Nature of Office generally. 
 
 
 571. 
 
 Receiver appointed for Benefit 
 of all Parties interested. 
 
 586. 
 
 572. 
 
 Receiver represents Creditors in 
 Litigation. 
 
 587. 
 
 673. 
 
 Fiduciary Position of Receivers. 
 
 588. 
 
 Receiver's Transaction of Busi- 
 ness with other Lines. 
 
 Duties and Powers of Receiver 
 as to his Employees gener- 
 aUy. 
 
 Receiver's accounting. 
 
 Receivers asking Advice from 
 Court. 
 — Suits affecting Moktgagbd 
 Peopbett during the Re- 
 ceivership. 
 
 Right of Receiver to maintain 
 Actions. 
 
 Permission of Court necessary to 
 bring Suit in same Court. 
 
 Co-ordinate Courts precluded 
 from entertaining Jurisdic- 
 tion Suits affecting Trust 
 Estate. 
 
 Principle precluding such Inter- 
 ference recognized by Co-ordi- 
 nate Courts. 
 
 Co-ordinate Court will not ap- 
 point Receiver where Prop- 
 erty already under Control of 
 Receiver. 
 
 This Rule not applicable where 
 Prior Appointment was a 
 Nullity. 
 
 Assignee in Bankruptcy cannot 
 dispossess Receiver appointed 
 by a State Court. 
 
 Suits affecting Property main- 
 tainable in other Courts, if 
 his Possession will not be in- 
 terfered with. 
 
 Suits affecting Property after 
 Termination of Receivership. 
 
 Suits against Receivers gener- 
 aUy. 
 
 Rule as to Suits for Damages. 
 
§ 559.] 
 
 TITLE, DUTIES, ETC., OF EECEIVEES. 
 
 647 
 
 § 589. The Proper Procedure to enforce 
 Claims against Property in 
 Receiver's Hands. 
 
 590. Failure to obtain Leave to sue 
 
 Receiver can be taken Advan- 
 tage of by him alone. 
 
 591. General License to sue Receiver 
 
 in other Courts sometimes 
 given. 
 
 592. Claims against Employees of Re- 
 
 ceiver subject to Exemption 
 
 Laws of State where the Re- 
 ceiver was appointed. 
 
 593. Enforcement of Taxes upon 
 
 Property in the Hands of 
 Receiver. 
 
 594. Federal Legislation altering the 
 
 Former Rules of Equity 
 Courts. 
 
 595. Exclusive Control of Receivers 
 
 of Federal Courts not affected 
 by State Legislation. 
 
 Article I. — Title and Possession generally. 
 
 § 559. Existing Rights not changed by Appointment of Receiver. 
 — The appointment of a receiver alters no existing rights in respect 
 to the property seized. It merely stays the enforcement of rights 
 by the parties in interest for the time being, and in this respect 
 operates like an injunction pendente lite,^ or an equitable attach- 
 ment, the property being put into his possession for the benefit of 
 the party ultimately entitled.^ 
 
 A receiver of a corporation is vested with title to its property 
 from the date of the order appointing him.^ And from the time 
 of the order of appointment both parties are in possession by the 
 hand of the receiver ; and when the question of right is ultimately 
 decided, the possession of the party prevailing becomes exclusive 
 throughout the whole period, by relation to the date of the 
 order.* 
 
 The possession of the receiver, therefore, does not disturb the 
 priority of legal or equitable liens.^ 
 
 Nor is any formal assignment to the receiver requisite to enable 
 the court to pass title to a purchaser through a sale made by a 
 receiver acting under its orders.® 
 
 1 Poland V. Lamoille Valley E. Co. 
 (1879), 52 Vt. 144; s. c. 4 Am. & Eng. 
 R. E. Cas. 408; Willink v. Morris Canal 
 & Bkg. Co. (1843), 4 N. J. Eq. 377 ; Un- 
 ion Tnist Co. V. Weber (1880), 96 111. 
 346; s. c. 3 Am. & Eng. R. E. Cas. 583 ; 
 Fosdick V. Schall (1879), 99 U. S. 235, 
 251 ; Hart v. Barney & Smith Mfg. Co. 
 (1881), 7 Fed. Eep. 543 ; Ellis i'. Boston, 
 Hartford, & Erie R. Co. (1871), 107 
 Mass. 1. 
 
 ^ Union Bank of Chicago o. Bank of 
 Kansas City (1890), 136 U. S. 223 ; s. c. 
 10 Sup. Ct. Rep. 1013. 
 
 » Dickey v. Bates et at (1895), 13 
 
 Misc. Eep. 489 ; s. c. 35 N. Y. Suppl. 
 525. 
 
 < Beverley v. Brooke (1847), 4 Gratt. 
 (Va.) 187, citing Story's Eq. 134. 
 
 6 Wiswall V. Sampson (1852), 14 How. 
 52 ; Central Trust Co. v. Tex. & St. Louis 
 R. Co. (1885), 23 Fed. Rep. 673; Poland 
 V. Lamoille Valley R. Co. (1879), 52 Vt. 
 144 ; s. c. 4 Am. & Eng. R. R. Cas. 408 ; 
 Chicago Title & Trust Co. v. Smith (1895), 
 158 111. 417. 
 
 ^ Russell V. Texas & Pac. Ry. Co. 
 (1887), 68 Tex. 646 ; s. o. 5 S. W. Kep. 
 686. 
 
54S RAILWAY BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 The general practice seems to be that, when it is necessary for 
 the recovery or preservation of personal property by the receiver, 
 the defendant will be required to convey the property by proper 
 written assignments, and that, when it is necessary to execute 
 leases, or to bring suits of ejectment, etc., for real estate, a con- 
 veyance shall be made to the receiver.^ 
 
 § 560. Of -what Property a Receiver acquires Title. — If the re- 
 ceiver is merely directed in general terms to take charge of the 
 property covered by the mortgage, the extent of the protection 
 afforded by the receivership must be determined by the same 
 principles as those which determine the scope of the mortgage 
 lien. (See previous chapters on mortgages.) Lands not embraced 
 in the mortgage, and not alluded to specifically in the order of 
 appointment, may be sold on execution. The mere fact that the 
 rents of such lands have been paid to the receiver is not sufficient 
 notice to the public that they are claimed as being subject to the 
 mortgage lien.^ 
 
 The principle that the income of the road belongs to the com- 
 pany as long as it is rightfully in possession, involves the conse- 
 quence that earnings in its hands derived from the operation of 
 the road prior to the appointment of the receiver do not pass under 
 the control of the latter, though there may be provisions in the 
 order of appointment as to paying past due claims. Such pro- 
 visions flow from the mere discretion of the Chancellor, and can- 
 not be made the basis of an invasion of the absolute right of the 
 mortgagor.^ 
 
 Only the property in possession of the company at the time of 
 the appointment of the receiver can in any case become subject to 
 his control. Hence a receiver who is directed to take possession 
 of a railroad, " its depots, etc., and also all other goods and chattels 
 owned by such company," etc., and is empowered " to institute 
 suits to recover or protect any of its property," is not authorized 
 to take possession of lumber and cord-wood sold upon execution 
 prior to his appointment.* 
 
 1 Union Trust Co. v. "Weber (1880), 96 ' Dow v. Memphis & Litttle Eoclr E. 
 111. 346 ; s. 0. 3 Am. & Eng. E. E. Cas. Co. (1884), 20 Fed. Rep. 768 ; Hook •,. 
 583. Bosworth (1894), 64 Fed. Rep. 443; s. 0. 
 
 As to title of receiver, see Atty.-Gen. 12 C. C. A. 208. Compare Oilman v. Illi- 
 
 V. Sittingbourne & Sheerness Ey. Co., 14 nois & Miss. Tel. Co. (187.5), 91 U. S. 603, 
 
 L. T. N. S. Ch. 92. 614, and the cases cited in previous 
 
 2 Mississippi Valley Co. v. Chicago, chapters. 
 
 St. Louis, & N. 0. E. Co. (1881), 58 < Mcllrath u. Snure (1876), 22 Minn. 
 Miss. 846 ; s. c. 2 Am. & Eng. R. E. Cas. 391. The court expressly declined to in- 
 414. quire what the rights of the trustees were 
 
§§ 561, 562.] TITLE, DUTIES, ETC., OP RECEIVERS. 549 
 
 So also the holder of a judgment constituting a lien on real 
 estate of a railroad, not embraced in mortgages under which a 
 receiver was appointed, is entitled to have such land discharged 
 from the custody of the receiver, so that it may be sold to satisfy 
 the judgment.^ 
 
 It has been held that an order appointing a receiver, which 
 includes the words " all other rights or property whatsoever," does 
 not cover certain town lots afterwards acquired, although the 
 mortgage itself to enforce which the suit was begun specifically 
 embraces such property.^ 
 
 § 561. Jurisdiction of Property illegally in the Custody of Re- 
 ceiver. — The court appointing the receiver has jurisdiction to 
 decide all conflicting rights in regard to property illegally in the 
 possession of its officer, provided such property was taken under 
 color of its authority. Personalty not embraced in the mortgage, 
 and therefore not within the terms of a decree of sale not profess- 
 ing to cover any property except that which was mortgaged, will 
 be treated as a part of the trust estate, where all the parties to the 
 suit have expressly consented to the decree. Thereafter the court 
 appointing the receiver will not allow any of those parties to ob- 
 tain an unfair advantage over the other creditors by instituting 
 proceedings in another court, and levying on personalty which is 
 not subject to the mortgage lien.^ 
 
 § 562. Interference with Possession by Strikers.* — Since prop- 
 erty in a receiver's hands is in custodia legis, any act which 
 amounts to a positive obstruction of the receiver in the manage- 
 ment of the property may be treated as a contempt of court, and 
 punished accordingly. This principle has been applied several 
 times in recent years in regard to " strikers." The rule adopted 
 
 in regard to these chattels. The rule gov- same for the benefit of the assignee, a 
 eming the cases in which a levy is made receiver of such company afterwards ap- 
 upon such chattels, when covered by the pointed is under no legal obligation to 
 after-acquired clause (it is not stated in enforce it, as the naked legal title to the 
 the report whether the lien in this case subscription would not pass to the re- 
 covered the subject-matter of the suit), is ceiver, only the power, right, and title to 
 discussed in Chapter X. such property passing to him by his ap- 
 
 1 Scott ti. Farmers' Loan & Trust Co. pointment as is necessary to a discharge of 
 (C. C. A., 1895), 69 Fed. Rep. 17. his duties. Coler ». Grainger County e< a?. 
 
 2 Gabert v. Olcott (Tex. Civ. App., (1896), 74 Fed. Rep. 16. 
 
 1893), 22 S. W. Rep. 286. The correct- ' Farmers' Loan & Trust Co. v. San 
 
 ness of this decision is clearly doubtful. Diego Street Car Co. (1892), 49 Fed. Rep. 
 
 Where a municipal" subscription to 188, citing Gumbel v. Pitkin, 124 U. S. 
 
 stock of a railroad company is transferred 131. 
 
 to a contractor, who in turn assigns it to * As to injunction against strikes by a 
 another for a loan of money, although the receiver's employees, see the note 28 Law- 
 company may have agreed to enforce the yers' Rep. Ann. 464. See also § 575, post. 
 
550 RAILWAY BONDS AND MOETGAGES. [CHAP. XXVII. 
 
 by the courts for dealing with such cases may be stated thus : 
 " Where employees of a railroad company in the hands of a re- 
 ceiver appointed by the court are dissatisfied with the wages paid 
 by the receiver, they may abandon the employment, and, by per- 
 suasion or argument, induce other employees to do the same ; but 
 if they resort to threats or violence to induce the others to leave, 
 or accomplish their purpose without actual violence, by overawing 
 the others by preconcerted demonstrations of force, and thus 
 prevent the receiver from operating the road, they are guilty of 
 a contempt of court, and may be punished for their unlawful 
 acts." 1 
 
 Any employees who feel themselves aggrieved may always ap- 
 ply to the court which is managing the property, and their com- 
 plaints will be heard, and proper instructions given to the receiver 
 accordingly.^ 
 
 § 563. Possession not allo'wed to interfere with Public Improve- 
 ments. — A federal court will not allow its possession of the property 
 to operate as an obstacle to public improvements authorized by a 
 municipality. Permission will, therefore, be granted to another 
 company to lay its tracts in front of the depot, and across the line, 
 of the company whose road is being administered by the court, 
 provided the petitioner is armed with the necessary legal powers. 
 The court will not in such a case undertake to determine what 
 compensation, if any, is proper for such injuries as may result to 
 the road under its control. Such questions will be relegated to 
 the State tribunals ; but, in view of the temporary character of the 
 receiver's control, the court will protect the interests of the parties 
 
 ' United States v, Kane (1885), 23 Fed. equity in such cases, is to he found in the 
 Eep. 748 ; s. 0. 25 Am. & Eng. E. R. Cas. able and learned opinion recently delivered 
 608. To the same etfect, see In re Hig- by Mr. Justice Harlan for the Circuit Court 
 gins (1886), 27 Fed. Eep. 443 ; In re Wa- of Appeals in Arthur v. Oakes (1894), 63 
 bash Ry. Co. (1885), 24 Fed. Rep. 217 Fed. 310, the doctrines of which case are 
 (of which a summary is given of this case approved and the case cited in XJ. S. v. 
 in the note appended to the report of Elliott (1894), 64 Fed. Rep. 27, 32 ; Tin- 
 United States B. Kane, supra, in the ion Trust Co. ». Atchison, T. & S. F. R. 
 American and English Railroad Cases); Co. (1894), 64 Fed. Rep. 724, 763; Piatt 
 In re Doolittle (1888), 23 Fed. Rep. 544 ; v. Phil. & Read. R. Co. (1894), 65 Fed. 
 Beers v. Wabash, St. Louis, & Pac. R. Co. Eep. 660, 663, 666 ; U. S. v. Cassidy 
 (1888), 34 Fed. Rep. 244, 1247; Secor v. (1895), 67 Fed. Eep. 698, 764; Oxley 
 Toledo, Peoria, & Warsaw Ry. Co. (1877), Stave Co. v. Coopers' International Union 
 7 Biss. 513 ; King o. Ohio & Mississippi of N. A. (1896), 72 Fed. Rep. 695, 698 ; 
 Ry. Co. (1877), 7 Biss. 529. Elder w. Whitesides (1895), 72 Fed. Rep. 
 
 The most elaborate examination of the 724, 725. 
 cases, and what must now be regarded as ^ In re Doolittle (1885), 23 Fed. Rep. 
 
 the most authoritative statement of the 644. 
 rule governing the action of a court of 
 
§§ 564, 565.] TITLE, DUTIES, ETC., OP EECEIVERS. 551 
 
 who may subsequently come into possession of the mortgaged 
 property by requiring the petitioner to give security for any dam- 
 ages that may ultimately be awarded against it.-' 
 
 § 664. Xizercise of Corporate Franchises by Company after Ap- 
 pointment of Receiver. — Tlie appointment of a receiver for a cor- 
 poration gives him only the temporary control of its affairs under 
 the direction of the court. The corporation may, notwithstand- 
 ing the appointment, exercise any of its franchises, provided it 
 does not interfere with the rightful management of its affairs by 
 the receiver, so far as his duties are defined by the court appoint- 
 ing him. 2 
 
 Sometimes even this limited exercise of the franchises is ex- 
 pressly forbidden by the order of appointment. But such a 
 restriction may be modified so far as to allow the stockholders to 
 meet for the election of directors ; and if the directors then refuse 
 to grant an application of the stockholders to call a meeting at 
 the time designated in the by-law, the court may direct an elec- 
 tion conforming as nearly as possible to the by-laws of the 
 corporation.^ 
 
 It seems, however, that a court will ordinarily confine itself to 
 the exercise of such functions as will secure the proper object 
 aimed at by the appointment of the receiver, viz. the preservation 
 of the property, and will therefore refuse to entertain jurisdiction 
 of a question submitted by the company as to the propriety of 
 postponing a meeting for the election of officers, unless that ques- 
 tion has some relation to the object for which the receiver was 
 appointed.* 
 
 The right of the stockholders to elect directors is not affected 
 by the sale of the corporate property by the receivers. ° 
 
 § 565. Duty of OfBcers to deliver Corporate Property to Re- 
 ceiver. — Tlie officers of the company cannot justify a refusal 
 to account with the receiver, and pay over to him the corporate 
 effects, on the ground that such accounting and assignment is not 
 expressly required in the order of appointment. It is sufficient 
 that such order invests the receiver " with the usual rights and 
 powers of receivers," and especially with power " to receive into 
 
 ' Central Trust Co. v. Wabash, St. Central Eailroad Co. of New Jersey (1882), 
 
 Louis, & Pac. Ey. Co. (1885), 26 Fed. 35 JT. J. Eq. 349 ; s. c. 9 Am. & Eng. 
 
 Rep. 3, per Brewer, J. R. R. Gas. 512. 
 
 " Ohio & Mississippi R. Co. v. Russell * Taylor v. Philadelphia & Reading R. 
 
 (1885), 115 m. 52 ; s. o. 23 Am. & Eng. Co. (1881), 7 Fed. Rep. 381, 385. 
 R. R. Cas. 149; Stevenson v. Davison ^ State, ex rel., etc. t/. Merchant, 37 
 
 (1868), 18 Gratt. (Va.) 819. Ohio St. 251 ; s. c. 9 Am. & Eng. E. E. 
 
 ' Lehigh Coal & Navigation Co. v. Cas. 616. 
 
552 RAILWAY BONDS AND MOETGAGES. [CHAP. XXVII, 
 
 his possession all the effects and choses in action " of the com- 
 pany, for this direction involves the correlative duty of delivery by 
 the officers.^ 
 
 Aeticlb II. — Territorial Limits op Jurisdiction op Court 
 APPOINTING a Receiver.^ 
 
 § 566. General Rule. — The process of a court cannot be effec- 
 tive outside the territory over which it has jurisdiction.^ 
 
 Hence a "court cannot acquire extra-territorial jurisdiction over 
 property by the appointment of a receiver ; and receivers appointed 
 by courts of one jurisdiction are not entitled, as of right, to 
 recognition in another jurisdiction.* 
 
 This rule is applicable to courts of the same State whose juris- 
 diction only extends over a limited judicial district.* 
 
 The doctrine that the powers of a receiver are coextensive only 
 with the jurisdiction of the court appointing him is not, however, 
 to be applied so as to deprive him of the control over property 
 which he has once assumed, merely for the reason that the prop- 
 erty is removed into another jurisdiction, provided such removal 
 is in the regular performance of his duty, and not for an unlawful 
 purpose.® 
 
 A receiver's right of action is frequently recognized as a matter 
 of comity in States other than that of his appointment, where the 
 right asserted is not in conflict with the rights of the citizens 
 of the latter State, nor against the policy of its laws.^ 
 
 Thus a receiver appointed in one State in a suit to foreclose a 
 mortgage covering the rolling-stock of the company has been per- 
 mitted to assert his right to the possession of a part of it by an 
 action brought in another State where such part was temporarily 
 situated. 
 
 1 Young V. Rollins (1884), 90 N. C. 5 jiorida v. Jacksonville, P. & M. R. 
 125; s. u. 25 Am. & Eng. R. R. Caa. 646. Co. (1875), 15 Fla. 201. 
 
 2 See generaUy the notes in 23 Law- 8 Chicago, Milwaukee, & St. Paul Ry. 
 yers' Rep. Ann. 52 ; 6 id. 792. As to Co. v. Keokuk National Line Packet Co. 
 the appointment and removal of ancillary (1884), 108 111. 317; s. c. 48 Am. Eep. 
 receivers, see ante. 557 
 
 8 Ableman ;;. Booth (1859), 21 How. T High on Eec, ?§ 341 et seq. A note 
 
 506 524; Pennoyer 0. Neff (1877), 95 in which the cases illustrating the stricter 
 
 4 Tj ^""^ """'''- 'i^sral views as to the recogni- 
 
 Booth y. Clarke (1854), 17 How. 322 ; tion of receivers in courts of other juris- 
 
 Beers v. Wahash, St. Louis, & Pac. Ry. Co. diction are classified will be found in i 
 
 (1886), 34 Fed. Eep. 244 ; s. c. 26 Am. & Cent. L. J. 6. " 
 Eng. R. R. Caa. 441 ; High on Rec, §§ 47 
 et seq., 239, 240. 
 
§ 567.] TITLE, DUTIES, ETC., OP EECEIVERS. 553 
 
 Where attachments have been levied on the property of a 
 foreign corporation, and a receiver is afterwards appointed in its 
 own State, and takes possession of all the property, including that 
 levied on, subject to the disposition of the attachments, it is not a 
 proper mode of effecting such disposition for the receiver to peti- 
 tion the courts where the attachments are pending to order the 
 property to be turned over to him. The only way in which it is 
 open to him to contest the attachment suits is to apply to these 
 courts, and obtain permission to become a party to the suits.^ 
 
 § 567. General Rule not affected by Fact that Road extends into 
 another State or Judicial District. — Except to the extent and in 
 the manner stated in the following section, a receiver appointed 
 in one jurisdiction has no absolute right to control any of the 
 property of the company which lies in other jurisdictions.^ 
 
 The admission that there is a necessity for thus calling in the 
 aid of an ancillary jurisdiction amounts to a concession that the 
 tribunal having primary jurisdiction is destitute of power over 
 property situated in another State or district.-' 
 
 A receiver appointed in such ancillary proceedings may at any 
 time be removed for cause by the court which appointed him, 
 especially if the order of the appointment reserves the power to 
 make such further oi-ders as may be necessary.* 
 
 If the receiver is thus removed, the court which originally ap- 
 
 1 South Carolina K. Co. o. People's which limits the exercise of the adminis- 
 Sayings Ins. (1879), 64 Ga. 18 ; S. c. 12 trative powers of a receiver to the State or 
 Am. & Eng. R. R. Cae. 432. judicial district over which the appointing 
 
 2 In Owens v. Ohio Central R. Co. court has jurisdiction. The sweeping rule 
 (1884), 20 Fed. Kep. 10, the court having stated respecting the control of a trust 
 come to the conclusion that, by the prior estate is clearly subject to this implied 
 service of process, it had acquired jurisdic- qualification. Any official acts which the 
 tion of the trust estate, entered an order receiver may undertake to perform in 
 extending the jurisdiction of the receiver extra-territorial jurisdictions are valid 
 over that part of the line which lay in only in so far as the courts may, as a 
 another circuit, and directing him, in matter of comity, sanction them. In 
 case he should be obstructed by any one practice this difficulty is usually obvi- 
 claiming to act as receiver in the latter ated by the institution of ancillary pro- 
 circuit, to apply to the court of that cir- ceedings in the other States or districts 
 cult, praying it to modify or vacate its through which the line may pass, and the 
 order appointing such receiver. This appointment of the same receivers by all 
 course was justified on the grounds that the courts, as in the Wabash Litigation 
 " the court which first takes jurisdiction Central Trust Co. v. Wabash, St. Louis, 
 of a trust estate has the legal right to ad- & Pac. R. Co. (1886), 29 Fed. Eep. 618, 
 minister upon the whole." The direction and in Jennings v. Philadelphia & Read- 
 given to the receiver as to the course to ing R. Co. (1884), 23 Fed. Eep. 569. 
 
 be adopted, if he should be obstructed in s Texas & Pac. Ry. Co. v. Gay (1894), 
 
 the second circuit, shows that the learned 86 Tex. 571 ; s. c. 26 S. W. Rep. 599. 
 judge who decided this case did not intend * Atkins v. Wabash, St. Louis, & Pac. 
 
 to enunciate any doctrine opposed to that R. Co. (1886), 29 Fed. Rep. 161. 
 
554 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 pointed him will direct him to surrender all that portion of the 
 property which lies within the jurisdiction of the second court, 
 and make such orders as may be necessary to apportion the ex- 
 penses already incurred during the receivership among the several 
 sections of the system, and in other ways to protect the sections 
 which still remain under control. The first court will, however, 
 retain its jurisdiction of any causes pending therein.^ 
 
 As to. the appointment of receivers in ancillary proceedings in 
 other districts or States, see ante, Chap. XXVI. 
 
 § 568. Ancillary Courts exercise only a Limited Jurisdiction over 
 the Property. — It has been asserted in one case that, although 
 ancillary proceedings for the appointment of receivers may have 
 been taken in other courts, the court which has control of the 
 main suit and of the funds of the receivership is the proper tribu- 
 nal in which to litigate claims which may affect the disposition of 
 those funds.^ 
 
 In the light of the other authorities, however, it seems that this 
 rule can scarcely be sustained in all its strictness. It has been 
 declared that a Circuit Court which appoints the original re- 
 ceivers in ancillary proceedings to take charge of the property in 
 its own district has jurisdiction to determine the validity and 
 amount of the claims of citizens, of that district against the receiv- 
 ers and the corporation, the broad ground being taken that citizens 
 of one district will not be required to go into another to assert 
 their claims.^ 
 
 In another case the ancillary court consented to sign an 
 order for the payment of a certain claim for supplies for the com- 
 pany prior to the receiver's appointment, making it payable out 
 of the income of the road, but declined to charge it upon the 
 
 1 Central Trust Co. v. Wabash, St. Fed. Rep. 260 ; s. c. 17 Am. & Eng. E. 
 Louis, & Pac. R. Co. (1886), 29 Fed Rep. R. Cas. 324, where Judge Caldwell de- 
 618, where the several orders to he made olared that the saving of expense to the 
 under the circumstances are stated in company and the bondholder.?, which will 
 informal terms by Judge Brewer. re.sult if the litigation growing out of the 
 
 2 Central Trust Co. v. East Tennessee, operation of the line of railroad, with its 
 Va. & Ga. R. Co. (1886), 30 Fed. Rep. manifold and complicated business rela- 
 895. tions, is concentrated in a single court, is 
 
 ' Ames V. Union Pac. R. Co. (1894), not sufficient to outweigh the inconven- 
 
 60 Fed. Rep. 966. The reason here as- iences which persons dealing with the 
 
 signed is somewhat analogous to that which road will be put to by such an arrange- 
 
 has led to the insertion in some orders ment, and that it is not necessary, for the 
 
 of appointment of a provision authorizing accomplishment of the purposes for which 
 
 suits against a receiver appointed in a receivers are appointed, to impose such 
 
 federal court in any county through which burdens and deprivations upon the citizen, 
 
 the road passes. See, for example, Dow v. and neither -fhe railroad company nor the 
 
 Memphis & Little Rock R. Co. (1884), 20 bondholders have any equity to ask it. 
 
§ 569.] TITLE, DUTIES, ETC., OF RECEIVERS. 555 
 
 corpus, except upon an order by the court in which the principal 
 receivership was created.^ 
 
 Possibly, too, the ancillary court may enforce a claim which has 
 been reduced to judgment before the appointment of a receiver, if 
 by the law of the State that judgment constitutes a lien on the 
 real estate of the company .^ 
 
 § 569. Operation of General Rule qualified by Powers of a Court 
 of Equity to act in Personam. — A COUrt which has jurisdiction of 
 a consolidated corporation created by the concurrent legislation of 
 several States over which a line of railway extends, may appoint 
 a receiver for the whole property, and through its personal con- 
 trol of the corporation reach the corporate property which lies 
 outside the territorial limits of its own jurisdiction.^ 
 
 For this purpose it may compel the corporation to execute as- 
 signments to the receiver.* 
 
 If the court's personal control of the company is not adequate 
 for the purpose of enabling the receiver to obtain possession of 
 property outside the territorial jurisdiction of the court, as where 
 such property has been seized by other persons, it will of course 
 be necessary to ask the assistance of the court in whose jurisdic- 
 tion those persons are living ; but ordinarily such assistance will 
 be freely given as a matter of comity.^ 
 
 1 United States Trust Co. v. New Va. & Ga. R. Co., supra, the court points 
 
 York, W. S. & B. R. Co. (1885), 25 Fed. out, arguendo, that if " any one has a lien 
 
 Eep. 797. on such funds, or on the property of the 
 
 2 Jennings v. Philadelphia & Reading company by reason of such funds, say for 
 
 R. Co. (1884), 23 Fed. Rep. 569. The a judgment recovered against the company 
 
 application in this case was supported on prior to the receivership, an accounting 
 
 the ground that the plaintiff had acquired and marshalling of liens must be had ; 
 
 a lien at the time the receivership began, and accounting and marshalling must be 
 
 The court held that no such lien had been had in one court or inextricable confusion 
 
 acquired, and therefore denied the applica- would result." The main principle is not 
 
 tion. But the opinion does not show disputed that the receivers must report to 
 
 quite clearly whether, if the lien had been and be governed by the court from which 
 
 showu to exist, the plaintiff would have the original order of appoiutment issued 
 
 been given relief in the ancillary tribunal, in all matters relating to the general 
 
 or refeiTed to the one in which the re- management of the trust, their general 
 
 ceivers had first been appointed. If the accounting, and their general operation of 
 
 first course had been adopted, it would the road within the territorial limits of 
 
 apparently have been in deference to the that court's jurisdiction. Ames v. Union 
 
 peculiar effect of the State law ; for it Pac. R. Co. (1894), 60 Fed. Rep. 966. 
 seems clear that the mere fact of a claim ' Wilmer v. Atlanta & Richmond Air 
 
 having been reduced to judgment ought Line R. Co. (1875), 2 Woods, 409. 
 not to affect the operation of the general * MuUer v. Dows (1876), 94 U. S. 444; 
 
 principle which makes the original court Northern Indiana R. Co. v, Michigan 
 
 the proper forum for the settlement of all Central R. Co. (1853), 15 How. 233. 
 claims upon the funds of the receivership. ^ Wilmer v. Atlanta & Richmond Air 
 
 In Central Trust Co. v. East Tennessee, Line R. Co. (1875), 2 Woods, 409. 
 
556 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 Article III. — Office and Duties op Receivers. 
 
 § 570. Nature of Office generally. — " The jurisdiction of the 
 court to appoint receivers of property has for its primary object 
 the care and custody of the property wliich is the subject of the 
 receivership, pending the determination of the questions involved 
 in the litigation, and to enable the court, by placing the property 
 under the control of its officer, to preserve it to answer the final 
 decree which may be made in the action." ^ 
 
 1 Vilas V. Page (1887), 106 N. Y. 439, 
 per Andrews, J. In England a distinction 
 is drawn between a receiver and a man- 
 ager. A receiver means ' ' a person who 
 receives rents or other income, but does 
 not manage the property in the sense of 
 buying or selling, or anything of that 
 kind." If it is desired to continue the 
 business, it is necessary to appoint a man- 
 ager, or a receiver and manager. In re 
 Manchester R. Co., L. K. 14 Ch. Div. 653 
 (per Jessel, M. R.). This principle was 
 established in regard to railroads by the 
 leading case of Gardner v. London, C. & 
 D. Ey. Co., L. R. 2 Ch. 201, where applica- 
 tion was made by the mortgagees for a 
 receiver. Lord Cairns summed up the 
 opinion of the court in the following 
 words : "In addition to the general prin- 
 ciple that the Court of Chancery will not 
 in any case assume the permanent man- 
 agement of a business or undertaking, 
 there is that peculiarity in the undertaking 
 for a railway which would, in my opinion, 
 make it improper for the Court of Chan- 
 cery to assume the management of it at 
 all. When Parliament, acting for the 
 public interest, authorizes the construc- 
 tion and maintenance of a railway, both 
 as a highway for the public, and as a road 
 on which the company may themselves 
 become carriers of passengers and goods, 
 it confers powers and imposes duties and 
 responsibilities of the largest and most 
 important kind, and it confers and im- 
 poses them upon the company which 
 Parliament has before it, and upon no 
 other body of persons. These powers 
 must be executed and these duties dis- 
 charged by the company. They cannot 
 be delegated or transferred. The company 
 will, of course, act by its servants, for a 
 corporation cannot act otherwise ; but the 
 
 responsibility will be that of the company. 
 The company could not, by agi'eements, 
 hand over the management of the railway 
 to the debenture-holders. It is impossible 
 to suppose that the Court of Chancery 
 can make itself or its officer, without 
 any parliamentary authority, the hand to 
 execute these powers ; and all the more 
 impossible when it is obvious that there 
 can be no real and correlative responsi- 
 bility for the consequences of any imper- 
 fect management. It is said that the 
 railway company did not object to the 
 order for a manager. This may well be 
 so ; but in the view I take of the case, 
 the order would be improper, even if made 
 on the express agreement and request of 
 the company." 
 
 For English cases showing difference be- 
 tween managers and receivers of railroads, 
 and the rules governing English courts 
 in appointing managers, etc., see Edwards 
 V. Standard Rolling Stock Syndicate, 41 
 Wkly. Rep. 343 ; Peck d. Trinsmaran 
 Iron Co. (1876), 2 Ch. Div. 115 ; Truman 
 & Co. V. Redgrave (1881), 18 Ch. Diw. 
 547 ; Makins v. Percy Ibotson & Son 
 (1891), 1 Ch. 313 ; Boyle v. Bettws 
 I^lantwit Colliery Co. (1876), 2 Ch. Div. 
 726 ; Morton, Rose, & Co. v. Barbadoes 
 Water Supply Co., 37 Sol. J. 729; Whit- 
 ley V. Challis (1892), 1 Ch. 64; rules 
 governing the court in its management of 
 the property : Day v. Sykes, Walker, & 
 Co. (1886), 55 L. T. Rep. 763 ; Securities 
 Investment Corporation v. Brighton Al- 
 hambra (1893), 68 L. T. Rep. 249. 
 
 This distinction between a receiver and 
 a manager seems to have been ignored in 
 this country, except in Langdon v. Ver- 
 niont & Canada R. Co. (1882), 54 Vt. 593, 
 605, where Judge Redfield took the same 
 view as Sir George Jessel and Lord Cairns. 
 
§ 571.] TITLE, DUTIES, ETC., OP RECEIVERS. 557 
 
 A receiver has often been called by the judges the " hand " of 
 the court which appoints him, and this term indicates, by way of 
 analogy, with reasonable precision the character of his office. A 
 controlling authority is vested in the court itself. The receiver is 
 merely the agent through whom that authority is exercised. 
 
 § 571. Receiver appointed for Benefit of Parties interested. — 
 The appointment of the receiver is made for the benefit of all the 
 parties in interest, and not for the advantage of plaintiff or de- 
 fendants only.^ 
 
 He has no personal interest whatever in the distribution of the 
 funds, possession of which he obtains as receiver. When the dis- 
 tribution is made, it is for the various parties concerned to contest 
 it, if they so desire.^ 
 
 No preferences are to be shown by him, no practices tolerated 
 that will give an advantage to one class of creditors to the detri- 
 ment of another class ; but the whole business must be man- 
 aged on a basis of the broadest equity. A receiver should not 
 become a partisan in favor of any particular interest, nor ad- 
 minister his trust at the expense, or to the prejudice, of any 
 interests.^ 
 
 But it is not improper for a receiver to advise, aid, and encour- 
 age reorganization schemes which offer the largest measure of 
 protection to the various interests connected with or concerned in 
 the property and assets in his possession.* 
 
 So also a receiver may without impropriety act as the selling 
 agent of the mortgage trustees.^ 
 
 As a receiver is under the duty of protecting the interest of the 
 mortgagor company, a bondholder who is proceeding to foreclose 
 his lien some years after the commencement of the receivership 
 cannot object to an answer by the receiver which goes to the 
 validity of the lien, or the consideration of the debt secured 
 thereby. It is immaterial in such a case that the receiver has so 
 far discharged his trust that he deems it safe to allow the com- 
 plainant, who had become owner of all the claims against the 
 company, to take charge of the railroad and all the corporate 
 
 1 Williamson v. New Albany, etc. R. ^ Hinckley w. Railroad Co. (1879), 100 
 
 Co. (1857), 1 Biss. 198, 205 ; Herring v. U. S. 153, 156. 
 
 New York, L. E. & W. R. Co. (1887), 105 « Clark v. Central Railroad & Bkg. Co. 
 
 N. Y. 340 ; 8. 0. 12 N. E. Rep. 763 ; (1893), 66 Fed. Rep. 16. 
 
 Libby v. Roaekrans (1869), 55 Barb. 202 ; * Clark v. Central Railroad & Bkg. Co. 
 
 Davis V. Gray (1872), 16 Wall. 203 ; Cen- (1893), 66 Fed. Rep. 16. See also cbap- 
 
 tral Trust Co. «. Wabash, St. L. & Pao. ter on reorganization. 
 
 Ry. Co. (1891), 46 Fed. Rep. 26 ; s. o. ^ Fowler v. Jarvis-Conklin Mortgage 
 
 46 Am. & Eng. R. R. Cas. 301. Co. (1894), 63 Fed. Kep. 888. 
 
558 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 assets, and has thus relieved himself of all trust property, so far 
 as was possible.^ 
 
 In a New Jersey case it appeared that the receiver of a rail- 
 road had so far discharged his trust as to deem it safe to allow 
 the complainant, who had .become the owner of all the claims 
 against the company, to take charge of the railroad, and entered 
 into an agreement with the complainant as to the payment of the 
 costs of the receivership and the receiver's commissions. This 
 was done without aid of the court, and the complainant called for 
 an answer to his bill from the receiver, and, when made, excepted 
 to the answer. The Chancellor held that, as long as the receiver- 
 ship continued, and the corporation was thereby incapacitated 
 from the discharge of its ordinary functions, the court would 
 not prohibit the receiver from setting up any defence to the 
 foreclosure suit, which would be available in the company 
 itself.2 
 
 § 672. Receiver represents Creditors in Litigation. — A receiver 
 derives his authority from the act of the court appointing him, 
 and not from the act of the parties at whose suggestion or by 
 whose consent he is appointed.^ 
 
 The receiver is to some extent the representative of the credit- 
 ors for the purpose of binding them by what is done in the course 
 of proceedings in which he appears. Thus it has been held that 
 a motion to dismiss an appeal from an order made in proceed- 
 ings in intervention will be denied where all the parties thereto, 
 and also the receiver, have been served with notice.* 
 
 So also a judgment rendered against a receiver by a court 
 of competent jurisdiction is binding upon the interests of the 
 bondholders.^ 
 
 So also the mortgagees and bondholders who are duly made 
 parties to an action in which a receiver is appointed cannot, after 
 acquiescing for several years in the receiver's exercise of the 
 powers conferred upon him by orders made in the course of the 
 proceedings, be heard to dispute or question the propriety of any- 
 thing which he may do under the authority thus conferred upon 
 him." 
 
 1 In re Fifty-four First Mortgage Bonds * Radebangli v. Tacoma & Puyallup 
 (1881), 15 S. C. 304 ; s. c. 9 Am. & Eng. R. Co. (1894), 8 Wash. 570 ; s. o. 36 Pac. 
 E. B. Cas. 337. Eep. 460. 
 
 2 Ryan v. Anglesea R. Co. (N. J. Ch., ' Turner v. Indianapolis, B. & W. R. 
 Feb. 16, 1888), 3 Ry. & Corp. L. J. 426. Co. (1879), 8 Biss. 527. 
 
 8 Railroad Co. v. Humphries (1892), ' Woodruff v. Erie R. Co. (1883), 93 
 
 145 U. S. 82, 97 ; s. c. 12 Sup. Ct. Rep. N. Y. 609 ; s. o. 16 Am. & Eng. E. R. 
 787. Cas. 501. 
 
§§ 573, 574.] TITLE, DUTIES, ETC., OF RECEIVERS. 559 
 
 § 573. Fiduciary Position of Receivers. — The fiduciary position 
 of the receiver precludes him from making a personal profit out 
 of the trust property. 
 
 Thus a receiver cannot enforce an accounting from those who 
 join with him in a scheme for the purchase of outstanding bonds, 
 with a view to using the same in buying the railroad at the fore- 
 closure sale, where it is shown that the receiver was to, and did, 
 give to the other parties information respecting the bonds pos- 
 sessed by himself alone, and that the fact that the receiver's inter- 
 est in and connection with such purchases was suppressed at the 
 time of the foreclosure sale. The rule which forbids one charged 
 with an official duty of a fiduciary nature to betray his trust 
 for private gain involves the corollary that he must bear what- 
 ever loss may fall upon him through the dishonesty of his 
 confederates.* 
 
 So also, even if a purchase of the bonds by a company 
 occupying the position of the lessee, and also of receiver and 
 manager of the insolvent road, is made in an emergency to save 
 the property from destruction, and not with any view to personal 
 gain, the receiver cannot, if the property is redeemed, charge 
 against the mortgagor more than the sum actually paid. If the 
 property is not redeemed, and it appears that the purchase was 
 made at the request of the security-holders themselves, the receiver 
 should be allowed to share in the assets pro rata with the other 
 holders of like securities.^ 
 
 But it is not fraudulent per se for the receiver to supply ma- 
 terials for the repair of the road out of a stock belonging to 
 himself. The court will not disallow an item in his accounts 
 claiming compensation for such supplies unless some specific evi- 
 dence is given that an excessive price has been charged.^ 
 
 § 574. Receiver's Transaction of Business 'with other Lines. — 
 The rights and duties of a receiver in charge of a railroad are 
 those of a common carrier. He is bound to afford to all railroad 
 companies whose lines connect with his own equal facilities for 
 the exchange of traffic. It is his own duty to receive from and 
 deliver to other connecting roads both loaded and empty cars. 
 He cannot discriminate against one road by maintaining a policy 
 of non-intercourse with it.* 
 
 1 Farley v. St. Paul, Minnesota, & ' Farmers' Loan & Trust Co. v. Central 
 
 Manitoba E. Co. (1882), 4 McCrary, 138. EailroadCo.of Iowa (1881), SFed.Rep. 60. 
 
 ^ Lfingdon v. Vermont & Canada E. * Beers i;. Wabash, St. L. & Pac. Ey. 
 
 Co. (1882), 54 Vt. .593 ; 8. c. 11 Am. & Co. (1886), 34 Fed. Eep. 244, 247 ; s. c. 
 
 Eng. E. R. Cas. 688. 26 Am. & Eng. E. R. Caa. 441. 
 
560 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 Especially is the court bound to discountenance any discrimina- 
 tion when it is expressly forbidden by statute.^ 
 
 § 575. Duties and Povrers of Receiver as to his Employees gen- 
 erally.^ — In nearly all matters pertaining to the operation of a 
 railroad the action of the receiver must necessarily be conclusive.^ 
 But exceptions to this rule will be made in cases of unusual im- 
 portance. Thus tiie employees of the receiver will be permitted 
 ' to apply to the court for relief from any substantial grievance 
 suffered by them in the operation of the road under the authority 
 of the court.* 
 
 So the court may, in its discretion, grant employees leave to 
 file a petition directing the receiver to rescind an order reducing 
 their wages.^ 
 
 But unless a receiver abuses his discretion he will not be inter- 
 fered with by the court in such a matter as fixing the schedules 
 of wages,® or the selection and discharge of his employees.'^ 
 
 A receiver is not bound by stipulation of the officers of the 
 company respecting the discharge of employees.® 
 
 A court of equity undoubtedly has the right to restrain its 
 receiver from treating his employees unjustly or oppressively; 
 but no case for interference on this ground is established by proof 
 that the receivers have undertaken to enforce a long-standing 
 rule made by the company, to the effect that no member of a 
 labor organization would be employed after a certain date, the 
 evidence showing clearly that all the employees then in the ser- 
 vice of the receivers had, before being employed, whether by the 
 company or the receivers, signed a statement that they were not 
 members of such organization, or that, if they were, they would 
 withdraw therefrom.^ 
 
 Employees of a receiver of a railroad who join in a sympathetic 
 strike, constituting a boycott, absolve their employer from all 
 
 1 Missouri Pac. Ry. Co. u. Texas Pao. (1893), .55 Fed. Rep. 149 ; Farmers' Loan 
 Ey. Co. (1887), 30 Fed. Eep. 2 ; Cutting & Trust Co. v. Northern Pac. Ry. Co. 
 V. Florida Ry. & Navigation Co. (1890), (1894), 60 Fed. Rep. 803 ; Ames v. Union 
 43 Fed. Rep. 747. Pac. Ry. Co. (1894), 62 Fed. Rep. 7. 
 
 2 As to the power of the court to re- ^ Thomas v. Cincinnati, N. 0. & T. 
 strain strikes, see ante. P. Ry. Co. (1894), 62 Fed. Rep. 669. 
 
 8 Thomas v. Cincinnati, N. 0. & T. P. « Continental Trast Co. u. Toledo, St. 
 
 Ry. Co. (1894), 62 Fed. Rep. 669. liouis, & K. R. Co. (1894), 59 Fed. Rep. 
 
 * Thomas v. Cincinnati, N. 0. & T. P. 514 ; Ames v. Union Pac. Ry. Co. (1895), 
 
 R. Co. (1894), 62 Fed. Rep. 17; Conti- 4 Interst. Coram. Eep. 625. 
 nental Trust Co. v. Toledo, St. Louis, & '' In re Seattle, L. S. & E. R. Co. 
 
 K. R. Co. (1894), 59 Fed. Rep. 514 ; Frank (1894), 61 Fed. Eep. 541. 
 V. Denver & Rio Grande Ry. Co. (1885), 8 Ibid. 
 
 23 Fed. Rep. 757 ; In re Doolittle (1885), » Piatt v. Philadelphia & Reading K. 
 
 23 Fed. Rep. 544 ; Waterhouse v. Comer Co. (1894), 65 Fed. Rep. 660. 
 
§ 575.] TITLE, DUTIES, ETC., OF RECEIVERS. 561 
 
 obligations to accoi'd them any preferential right to employment 
 by reason of their past services.^ 
 
 Nor will a court direct its receiver to enter into any contract 
 with the members of a labon organization who hold themselves 
 bound by a rule which is invalid by reason of its being in restraint 
 of commerce.^ 
 
 With a view to an orderly and economical management of the 
 trust property, the receiver of a railroad should adopt and main- 
 tain rules and regulations governing the conduct and establishing 
 the wages of all persons in his service ; but if he deems it advisable 
 to make any change in those rules which were observed while the 
 company was operating the road, there should, in the first place, 
 be a hearing before him as to the proposed alterations, and all the 
 employees to be affected thereby should be notified of tlie pro- 
 ceedings, and given an opportunity to point out to him any ine- 
 quality there may be in schedules of wages, or any injustice which 
 would result from the regulations. Any matters of difference 
 which may still remain unsettled after such negotiations are to be 
 referred to the court for final determination. If the receiver un- 
 dertakes to reverse and rearrange the rules, regulations, and 
 schedules without allowing the employees to present their objec- 
 tions to the proposed changes, the court will decline to sustain his 
 action.^ 
 
 He cannot renounce old schedules of wages and adopt new ones 
 on the ground that the old ones were mere executory contracts by 
 whicli they were not bound, where they do not absolve the men 
 from the duty of continuing to work, but ask that the new sched- 
 iiles be confirmed by the court, and all the employees directed 
 to conform thereto.* 
 
 Where the employees are faithful and competent, and the wages 
 paid to them are not higher than the wages paid to like employees 
 on other lines, operated under conditions essentially similar, the 
 court will not, against the protest of the employees, approve a 
 reduction of wages proposed by the receiver merely on the ground 
 that the reduction will turn a present operation of the road at a 
 loss into an operation without loss, even though it is shown that 
 new employees may be obtained at the lower rate of wages. " The 
 
 1 Booth V. Brown (1894), 62 Fed. Rep. " Ames v. Union Pac. Ey. Co. (1894), 
 794. As to boycotts generally, see note to 60 Fed. Rep. 674. 
 
 53 Am. & Eng. R. R. Cas. 325. Compare United States Trust Co. v. 
 
 2 Waterhouse v. Comer (1893), 55 Fed. Omaha & St. Louis R. Co. (1894), 63 Fed. 
 Rep. 149 ; s. c. 63 Am. & Eng. R. R. Rep. 737. 
 
 Cas. 329. * Ames v. Union Pac. Ry. Co. (1894), 
 
 36 
 
 62 Fed. Rep. 7. 
 
562 EAILWAT BONDS AND MORTGAGES. [CHAP. XXTII. 
 
 retention of faithful, intelligent, and capable employees is of much 
 more importance than temporary decrease in earnings, or present 
 ability to secure other employees at reduced wages." ^ 
 
 An order relative to the wages of employees should be for the 
 benefit of all parties similarly situated, whether belonging to any 
 of the labor organizations applying for it or not.^ 
 
 § 576. Receiver's Accounting.^ — It is always the duty of the 
 receiver to file his accounts when required by the court, and, 
 whether specially ordered or not, to make a full report, and pass 
 his accounts at least once a year, since in no other way can the 
 parties in the cause be informed as to their rights, or the court act 
 understandingly.* 
 
 But inasmuch as he is the officer of the court, and neither party 
 is responsible for his misfeasance or malfeasance, if any such 
 exists, the bondholders cannot be delayed in the collection of their 
 debts until the receiver's accounts have been adjusted.^ 
 
 When a report upon a receiver's account is submitted by a mas- 
 ter, the duty of the court consists in reviewing the principles and 
 rules adopted by the master in allowing the accounts, rather than 
 in examining the items in detail, or the evidence on which they 
 are founded.^ 
 
 As a general rule, the court will not consider exceptions to the 
 report unless first made before the master ; but this rule is subject 
 to the qualification that the court will direct an account to be 
 reformed where it contains manifest errors or charges clearly 
 improper.'^ 
 
 Receivers' accounts passed before the master are not subject to 
 re-examination, and are only assailable by a direct proceeding in 
 court alleging error, fraud, mistake, or the like.^ 
 
 Like other trustees, the receiver must keep the funds in his 
 charge entirely separate and distinct from his individual funds. 
 Any breach of this rule will be at his own peril. Thus a receiver 
 was charged with interest on a sum withdrawn by him from the 
 
 1 United States Trust Co. v. Omaha & 7 Ibid. 
 
 St. Louis R. Co. (1894), 63 Fed. Rep. « Farmers' Loan & Trust Co. v. Central 
 
 737. Railroad Co. of Iowa (1880), 1 McCrary, 
 
 2 Ames V. Union Pac. Ry. Co. (1896), 352. For a case in which an order of the 
 4 Interst. Comm. Rep. 625. court requiring receivers to account before 
 
 ' See generally High on Rec, ch. xix. a master was construed as meaning that 
 
 • High on Rec, § 802. accounts presented already by any of the 
 
 ' Milwaukee & Minnesota R. Co. v. receivers need not be presented again, see 
 
 Soutter (1864), 2 Wall. 510. Farmers' Loan & Trust Co. o. Central 
 
 6 Cowdrey o. Railroad Co. (1870), 1 Railroad Co. of Iowa (1880), 2 Fed. Bep. 
 
 Woods, 331. 751 
 
§ 577.] TITLE, DUTIES, ETC., OF RECEIVERS. 
 
 563 
 
 bank in which the trust funds were on deposit, and placed in 
 another bank, where he declined to explain the transaction on 
 his examination before the master to whom the matter was 
 referred.^ 
 
 A statutory receiver appointed in a suit to enforce the lien of 
 the State cannot escape any accounting demanded by the stock- 
 holders by showing that the judgment creditors will absorb the 
 fund, or that he is authorized by law to report to the governor, 
 and that the latter was satisfied with his report. But where it 
 appears that such stockholders have in no way been injured by the 
 generality of the statements of the account, and the failure to file 
 vouchers in the Executive Department, and there is no other 
 showing of false or fraudulent conduct, a court of equity will not, 
 for the purpose of merely satisfying the desire of the complainants 
 for information, require the receiver to account more in detail, 
 and file his vouchers, after they have been foreclosed of their 
 interest by the sale.^ 
 
 A receiver cannot be called to an account in any other court 
 than that which appointed him.^ (As to what expenditures the 
 receiver will be allowed in passing his accounts, see post.') 
 
 § 577. Receivers asking Advice from Court. — Receivers can, 
 by applying to the court, obtain general advice and instructions, 
 and, in special cases, particular advice and instructions as to their 
 operation of a railroad. If there are parties in interest, and they 
 have their days in court, the advice may be decisive. But if the 
 matter is ex parte, the value of the advice depends largely upon 
 the information and ability of the judge, and is probably binding 
 only on the receivers, for the judge may change his mind on hear- 
 ing a full argument.* 
 
 A receiver should always refer to the court (or a master ap- 
 pointed on that behalf, if there is such an official) for advice and 
 authority in any matter of importance which may involve a con- 
 siderable outlay of money .^ 
 
 1 Hinckley v. Railroad Co. (1879), 100 the meaning of the "long haul" clauses 
 
 U. S. 153. of the Internal Commerce Act, and Judge 
 
 ^ Lafayette Co. «. Neely (1884), 21 Pardee contented himself with referring 
 
 Fed. Rep. 738 ; s. c. 17 Am. & Eng. R. them to a decision by the commission, 
 
 R. Cas. 242. which he deemed to be sufficiently ex- 
 
 ' Conkling v. Butler (1865), 4 Biss. plicit to enable a traffic manager to pro- 
 
 22. tect himself against any serious complaint 
 
 * Missouri Pac. Ry. Co. «. Tex. Pac. of unlawful discrimination. 
 Ry. Co. (1887), 31 Fed. Rep. 862; s. c. ^ Cowdrey v Railroad Co. 1870), 1 
 
 2 Ry. & Corp. L. J. 424. In that case Woods, 331. 
 the receivers asked for instructions as to 
 
564 EAILWAT BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 A federal court should not order its receiver to disregard a State 
 law regulating freight and passenger traffic, while its validity is 
 still sub judlce. Under such circumstances it is proper to instruct 
 him to accept the rates fixed by the statute, so far as he considers 
 them to be an adequate compensation for the service, and reject 
 the rest. No one will then be injured, as the court will have the 
 funds in hand, and allow suits against the receiver for overcharges, 
 and damages will be recoverable, if the constitutionality of the 
 law is sustained.! 
 
 Aeticlb IV. — Actions affecting the Mortgaged Property 
 
 DURING THE RECEIVERSHIP. 
 
 § 578. Right of Receiver to maintain Actions. — The decided 
 weight of authority sustains the rule that, where there has been 
 no enlargement of the powers of a receiver by legislative enact- 
 ment, they have in general the same rights of action — neither 
 greater nor less — which were possessed by the persons or cor- 
 porations upon whose estates they administer.^ 
 
 He may therefore maintain an action to determine the validity 
 of the bonds ; * and he is as much entitled to recover moneys due 
 upon contracts made with the railroad company as with himself.* 
 
 But a receiver cannot take charge of any proceeding in a foreign 
 jurisdiction by commencing an action, or defending an existing 
 action without the express authority of the appointing court, so 
 as to bind any property in his hands as receiver.^ 
 
 § 579. Permission of Court necessary to bring Suit in same 
 Court. — Suits affecting the disposal of the property cannot be 
 brought in the court which appointed the receiver, unless its per- 
 mission is first obtained. 
 
 Thus, if a receiver is appointed in a suit to foreclose a prior 
 mortgage, subsequent mortgagees being made parties to the same, 
 the latter cannot file bills afterwards to foreclose the equity of 
 redemption subject to their mortgages without leave of the court. 
 The property being in custodia legis, the court can, and should, by 
 proper proceedings in the original suit, protect the interest of all 
 
 1 /wreMcElratli, 2Din. 460. » Hubbell v. Syracuse Iron Works 
 
 2 Republio Life Ins. Co. v. Swigert (1886), 42 Hun, 182. 
 
 (1890), 135 111. 150 ; s. 0. 25 N. E. Rep. * Sunflower Oil Co. v. Wilson (1892), 
 
 680 ; 9 Ry. & Corp. L. J. 22 ; 32 Am. 142 U. S. 313 ; s. c. 12 Sup. Ct. Eep. 
 & Eiig, Corp. Cas. 555 ; High on Rec, 235 ; 48 Am. & Eng. R. R. Cas. 664. 
 § 201. 6 Pendleton ». Russell (1891), 144 
 
 U. S. 640 ; s. 0. 12 Sup. Ct. Rep. 743. 
 
§ 580.J TITLE, DUTIES, ETC., OP RECEIVERS. 565 
 
 parties, and the prior mortgagee is entitled to the protection of 
 the court against numerous suits and increased costs.-' 
 
 § 580. Co-ordinate Courts precluded from entertaining Jurisdic- 
 tion of Suits affecting Trust Estate. — The principle that, if twO Or 
 more courts liave concurrent jurisdiction, that which first obtains 
 control of the subject-matter of litigation is entitled to retain it 
 to the conclusion of the others, has been already discussed in its 
 most general aspects. This principle is jealously enforced by 
 courts of equity, -which assume control of corporate property 
 through a receiver. After the receiver is fully vested with the 
 possession of the property, any attempt to disturb his possession 
 by proceedings in a co-ordinate court, without obtaining the per- 
 mission of the court which appointed him, is a contempt of that 
 court. ^ 
 
 Whenever in the course of a receivership the court makes an 
 order which the parties consider injurious to their interests, it is 
 their duty to file a motion at once asking the court to cancel or 
 modify it.^ 
 
 Any proceedings which cannot be effectual without assumption 
 of control over the res are within the purview of this rule. Prop- 
 erty in a receiver's hands, therefore, is not subject to execution;* 
 nor to the process for the enforcement of a mechanic's lien ; ^ nor 
 to attachment, although the suit in which he was appointed is 
 subsequently dismissed, where before such dismissal another re- 
 ceiver has been appointed, and the property sold under the 
 direction of the court.^ 
 
 So the claim of a party who asserts that the execution of the 
 mortgage was a breach of trust by which the property reverted to 
 
 ' Sutherland v. Lake Superioi Ship Under the Revised Statutes of New York, 
 
 Canal, Railroad, & Iron Co. (1873), 9 N. which authorize the court to restrain by 
 
 B. R. 298. injunction all proceedings at law by any 
 
 2 De Visser v. Blackstone (1868), 6 creditor against a, corporation after its 
 
 Blafch. 235. property has been placed in the hands of 
 
 ' United States Trust Oo. v. Wabash a receiver, it has been held that a ered- 
 Western Rv. Co. (1893), 150 U. S. 287 ; itor who has not Joined in the application 
 S. 0. 14 Slip. Ct. Rep. 86, where the rule for a receiver may be enjoined from prose- 
 was ajiplied against the trustees under a cuting an action against a stockholder for 
 divisional mortgage on a line leased to the amount of his unpaid subscription to 
 the company at whose instance the re- the capital stock. Otherwise the creditor 
 (M'iver was appointed, inasmuch as they would obtain a preference over other cred- 
 failed to object to an order made with itors in direct violation of the spirit of the 
 respect to the payment of preferential provision of the act. 
 debts before the rentals of the leased line. ^ De Visser v. Blackstone (1868), 6 
 
 •■ Roliinson u. Atlantic & Great West- Blatch. 235. 
 em Ry. Co. (1870), 66 Pa. St. 160 ; Ran- « Texas Trunk Ry. Co. v. Lewis (1891), 
 
 kiue V. Elliott (1857), 16 N. Y. 377. 81 T^x. 1 ; s. c. 16 S. W. Rep. 647. 
 
566 RAILWAY BONDS AND MORTGAGES. [CHAP. XXTII. 
 
 him, is a claim which must be prosecuted in the court where the 
 receiver was appointed.^ 
 
 To be entitled to the protection of the court, it is not necessary 
 that the property should actually have been reduced to possession 
 by the company at the time the receiver assumes control. For 
 this reason money due to the company cannot be garnisheed in 
 the hands of the debtor without the permission of the court.^ 
 
 Where the possession of a federal court through its receiver can 
 be traced back through several prior receivers to a time antedat- 
 ing the appointment of a receiver by a State court, the federal 
 court will not surrender the trust property to the latter, though 
 the last of the successive receivers was appointed after the one in 
 the State court.^ 
 
 § 581. Principle precluding such Interference recognized by Co- 
 ordinate Coiirta. — This right of the court which first obtains 
 jurisdiction to retain it for all purposes imposes on other courts a 
 correlative duty not to interfere with that jurisdiction. A co- 
 ordinate court in which a second suit is brought upon the same 
 matter should, upon being advised of the pendency of the first 
 suit, dismiss the case, and, if the receiver has been appointed, 
 discharge him, leaving the tribunal which has first acquired juris- 
 diction to adjudicate between the parties.* 
 
 A federal court will not entertain a bill against the stockhold- 
 ers of an insolvent corporation for a fraudulent misappropriation 
 of a part of the assets, the concern being at the time when the 
 suit is instituted in the hands of a receiver appointed by the State 
 court.^ 
 
 So a petition to have the judgment of a State court establish- 
 ing a mechanic's lien declared a paramount lien on the property 
 in the hands of a receiver appointed by a federal court will not 
 be entertained by the latter court where the petitioner obtained 
 his judgment after such appointment, even though the action in 
 the State court may have been begun before the appointment.® 
 
 1 Union Mutual Life Ins. Co. v. Uni- * Keep v. Michigan R. Co. (1873), 6 
 versity of Chicago (1881), 6 Fed. Rep. Chicago L. News, 101. 
 
 442. 6 Hamilton v. Chouteau (1881), 2 Mc- 
 
 2 Richards v. People (1876), 81 111. Crary, 509. 
 
 551 ; Newport & Cincinnati Bridge Co. n Blair ■». St. Louis, H. & E. B. Co. 
 
 V. Douglass (1877), 12 Bush (Ky.), 673. (1885), 25 Fed. Rep. 2. " The parties," 
 
 The extent to which actual caption of the it was said, " preferred to proceed in the 
 
 property is necessary to confer on a court State court, without the leave of this 
 
 exclusive jurisdiction is discussed in the court, and they must lie in the bed which 
 
 chapter on jurisdiction. they have made." s. p. De Visser v. 
 
 3 Central Trust Co. v. Chattanooga R. Blackstone (1868), 6 Blatch. 235. 
 & C. B. Co. (1894), 62 Fed. Rep. 950. 
 
§ 582.] TITLE, DUTIES, ETC., OP EECEIVEBS. 567 
 
 Nor will a federal court take cognizance of a foreclosure suit 
 involving property which has already passed into the hands of a 
 receiver appointed in a similar suit in a State court.^ 
 
 Tiie same principle is applicable where the second suit is 
 brought in a State court, after a receiver has been appointed in a 
 federal court. Under such circumstances, it is immaterial whether 
 the lien which the receiver was appointed to enforce was prior or 
 subsequent to that sought to be enforced in the second court.^ 
 
 Provided the second court is one of merely concurrent jurisdic- 
 tion for the purposes of the application made to it, it will not assume 
 any greater power to interfere with the pending suit for the reason 
 that it is an appellate court as well, and may therefore ultimately 
 be called upon to review the proceedings in the first court.^ 
 
 Fractions of a day may be taken into account in determining the 
 priority of the appointments of receivers.* 
 
 Whether the second court defers to the principle of non-inter- 
 ference or not the possession of the receiver cannot, in any case, 
 be affected by proceedings taken in another court than that which 
 appointed liim.^ 
 
 § 582. Co-ordinate Court vrill not appoint Receiver vrhere Prop- 
 erty is already under Control of Receiver. — That a receiver will 
 not be appointed to administer property already in charge of a 
 receiver duly appointed by a court of concurrent jurisdiction is a 
 rule to which there is no exception.^ 
 
 The fact that the receiver appointed by the sister court is not 
 doing his duty is not a sufficient reason for departing from this 
 rule ; for one who has a complaint against such a receiver may, 
 and must, appeal to the court which appointed him.' 
 
 Nor will such application be entertained upon the ground that 
 the complainant raises questions not raised in the previous suit.^ 
 
 1 Hammock v. Farmers' Loan & Trust ^ Russell v. Texas & Pac. Ry. Co. 
 Co. (1881), 13 Fed. Rep. 189. (1887), 68 Tex. 646; s. c. 5 S. W. Rep. 
 
 2 Milwaukee & Minnesota R. Co. v. 686. 
 
 Milwaukee & Western R. Co. (1865), 20 " Blake v. Alabama & Chattanooga R. 
 
 Wis. 165. Co. (1871), 6 N. B. R. 331. 
 
 ' People, ex reZ., etc. «. MoLane (1882), ' Alabama & Chattanooga R. Co. i/. 
 
 62 Cah 616. There the Supreme Court of Jones (1872), 7 N. B. R. 145. 
 Califoraia, which has concurrent powers 8 Alabama & Chattanooga R. Co. v. 
 
 with the Superior Courts as to the issue of Jones (1872), 7 N. B. R. 145. "This 
 
 writs of mandamus, declined to grant one court," said Woods, J., "may pass upon 
 
 to compel a receiver to operate the road, questions not raised in the other courts, 
 
 holding that there was a plain, speedy, and even between the same parties and relating 
 
 adequate remedy in the court in which to the same subject-matter, but no case can 
 
 the receiver was appointed. be found authorizing this court to inter- 
 
 * East Tenn., V. & G. R. Co. v. At- fere with property in the possession of 
 
 lanta & Florida R. Co. (1892), 49 Fed. other courts of concurrent jurisdiction." 
 Rep. 608. 
 
568 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 Still less can one court entertain a direct application for the 
 removal of a receiver appointed by another.^ 
 
 The cases in which receivers are appointed in ancillary pro- 
 ceedings rest, of course, upon a different principle. (See below.) 
 
 § 583. This Rule not applicable where Prior Appointment was a 
 Nullity. — If the appointment of a receiver was for any reason a 
 nullity, it will be no bar to the subsequent appointment of a re- 
 ceiver by a co-ordinate court.^ 
 
 § 584:. Assignee in Bankruptcy cannot dispossess Receiver ap- 
 pointed by a State Court, unless he first discharges the mortgage 
 lien. To allow him to do so would result in depriving the mort- 
 gagees of a vested right.^ 
 
 The only circumstances under which the possession of such a 
 receiver can be interfered with is where his title is subject to im- 
 peachment for some cause within the provisions of the Bankruptcy 
 Act.* 
 
 As to the somewhat analogous rules prevailing in the English 
 courts respecting the official liquidator and a receiver, see Chap. 
 XXVI. (appointment of receivers in same court). 
 
 § 585. Suits affecting Property maintainable in other Courts, if 
 his Possession will not be interfered -with. — The mere fact that 
 the property of a railroad company is being administered upon in 
 proceedings taken in a State court does not prevent citizens of the 
 State from applying to the federal court to establish their claims 
 and obtain relief, if entitled to it.^ 
 
 ^ Young V. MoDtgomery & Eufaula R. legally or judicially taken before proceed- 
 
 Co. (1875), 2 Woods, 606. ings. Hence the action of the bankrupt 
 
 2 Hammock v. Loan & T. Co. (1881), court in this case in taking the property 
 105 U. S. 77 ; Owens v. Ohio Central R. in question out of the bands of the re- 
 Co. (1884), 20 Fed. Eep. 10. ceiver was unwarranted and illegal." 
 
 8 Davis V. Railroad Co. (1873), 1 * Alden v. Boston, Hartford, & Erie 
 
 Woods, 661. The court said: "The E. Co. (1871), 5 N. B. R. 230. In this 
 
 lights which supervene upon a mortgage case an injunction directed against the 
 
 or other specific lien accompanied with receivers was so far modified as to allow 
 
 possession before proceedings in bank- them to enter upon the discharge of their 
 
 ruptcy are very different from those aris- duties. 
 
 ing from proceedings in State courts in ^ Griswold v. Central Vermont R. Co. 
 eases of general insolvency. A mere in- (1881), 9 Fed. Rep. 797. There the facts 
 solvent proceeding, or a proceeding of that were as follows : Some of the defendants 
 nature, and possession of the bankrupt sued with the company, together with 
 property taken in pursuance thereof, is other persons, had been appointed re- 
 antagonistical and repugnant to the bank- ceivers of various roads in a cause pend- 
 ruptcy law, and will be avoided by regular ing between the defendant company and 
 proceedings in bankruptcy. But a pro- the holders of its bonds in a State court, 
 ceeding to enforce a mortgage or other While those persons were thus in posses- 
 specific lien involves the rights of prop- sion, an agreement was made between the 
 erty and possession in pursuance thereof parties and embodied in a decree of the 
 
§ 585.] 
 
 TITLE, DUTIES, ETC., OP RECEIVERS. 
 
 569 
 
 Hence, as a decree of foreclosure merely cuts off the mortgagor's 
 equity of redemption, a bondholder acting in behalf of his co- 
 bondholders may sustain a bill for foreclosure and the removal of 
 the trustees in a federal court, although these trustees have already 
 commenced a suit to foreclose another mortgage on the same 
 property, and have obtained the appointment of a receiver.^ 
 
 So, although a receiver of the property may have been appointed 
 in a State court, and a reorganized company placed in possession, 
 a bondholder who has not come into the reorganization scheme 
 may maintain a bill against the mortgagor company and its suc- 
 cessor for an accounting as to the income. The decree sought in 
 such a proceeding is virtually a personal judgment for a sum of 
 
 court, whereby those in possession and 
 their successors were continued in posses- 
 sion, and the cause kept in court, with 
 liberty to any party to apply to the court 
 for further orders. The loans, the repay- 
 ment of which was sought in the action, 
 were subsequently authorized, and, as a 
 part of the decrees under which they were 
 issued, it was provided that, upon de- 
 fault of principal or interest, the cred- 
 itors might apply to the courts for aid in 
 realizing their securities. These facts 
 were held not to show the retention of 
 that exclusive control of the railroad 
 property by a State court which a federal 
 court is bound to respect. Judge Wheeler 
 said : "The jurisdiction of courts is given 
 by the law and not by the parties, and 
 can neither be conferred nor taken away 
 by thi'ir mere consent or agreement. If 
 the conditions prescribed by the law for 
 jurisdiction exist, the jurisdiction exists, 
 the conditions prescribed for giving this 
 court jurisdiction of the parties exist, and 
 jurisdiction of the case must follow, unless 
 the subject is out of reach. Neither by 
 the terms of the securities, as set forth 
 in the bill, nor as shown in the plea, nor 
 by the conditions of the proceedings, was 
 anything to be done by the court, before 
 the defendants could carry out their obli- 
 gation to set apart the earnings of the 
 rolling-stock as agreed, and apply them 
 to the satisfaction of these notes. They 
 were at liberty to do it, and, so far as 
 appears, were bound to do it. If there 
 was a failure, the holders of the notes 
 would have a right to apply to the courts 
 
 of the land for relief, and they would not 
 be deprived of the right to apply to any 
 one court because they had the right lo 
 apply to another. Those which were pro- 
 vided were provided for the purpose of 
 giving the right to apply to them. There 
 is nothing to prevent applying to this 
 court, unless it may be that, as is argued, 
 the property is in the course of adminis- 
 tration of the State court. It is, however, 
 well settled that the fact that the property 
 is being administered in State proceedings 
 does not prevent citizens of other States 
 from proceeding in the Ciicuit Courts of 
 the United States to establish their claims 
 and obtain relief if entitled to it." 
 
 ' Mercantile Trust Co. v. Lamoille 
 Valley R. Co. (1879), 16 Blatch. 324. 
 The court did not question the general 
 jirinciple that a court which has acquired 
 jurisdiction by proceedings involving the 
 possession of specific property cannot be 
 disturbed in that possession while the 
 proceedings which involve the possession 
 are pending, but held that any relief 
 which the court can give without infring- 
 ing that principle was within the scope oi 
 its powers. Such a course would not, it 
 was held, violate, either in letter or in 
 spirit, the United States statute (Rev. 
 Stat. 720) which prohibits a federal court 
 from enjoining proceedings in a State 
 court. Nor would there be any danger 
 of a conflict between the two courts or 
 their officers, if the relief was moulded 
 with due respect to the possession of the 
 State. 
 
570 RAILWAY BONDS AND MORTGAGES. [CHAP. XXTII. 
 
 money against the corporation, and does not interfere with the 
 possession of the receiver.^ 
 
 So a suit for an accounting may be maintained in a federal 
 court against parties who have been acting as receivers under an 
 appointment by a State court, where it is apparent that the account- 
 ing relates to a period subsequent to the time when the receiver- 
 ship had come to a close.^ 
 
 The usual injunction in cases of a receivership, by which inter- 
 ference with the trust property is restrained, may be modified 
 so far as to allow a creditor to enforce a judgment against any 
 property which may have been attached before the receiver's 
 appointment.^ 
 
 § 586. Suits affecting Property after Termination of the Receiver- 
 ship. — The termination of the receivership, whether by a formal 
 decree or by the acts of the parties,* will divest the court which 
 appointed the receiver of its exclusive jurisdiction of litigation 
 affecting the property.^ 
 
 But the court not infrequently reserves jurisdiction after the 
 receiver is discharged for the purpose of facilitating the enforce- 
 ment of debts and liabilities incurred by the receiver. In that case 
 suits to enforce unsatisfied claims against the receiver, which, if 
 established, will constitute liens upon the property, are to be 
 prosecuted against the property as proceedings in rem, upon proper 
 notice to the purchaser, and not against the receiver.^ 
 
 If there is no reservation of jurisdiction in regard to such suits, 
 the court cannot, after the end of the term during which the order 
 of discharge was made, alter or suspend that order, and so regain 
 jurisdiction of the property as to enable a claim for injuries 
 received during the receivership to be prosecuted against the 
 discharged receiver.'^ 
 
 Ordinarily, it is only after the actual completion of the sale and 
 the final conveyance of the property to the purchasers that the 
 court loses its exclusive power to manage the property.^ 
 
 If a receiver is illegally deprived of his possession of the prop- 
 
 1 Brooks V. Vermont Central R. Co. ^ Andrews v. Smith (1881), 5 Fed. 
 
 (1884), 22 Fed. Eep. 211. Eep. 833. 
 
 ^ Andrews v. Smith (1881), 5 Fed. « Farmers' Loan & Trust Co. v. Central 
 
 Eep. 833. Railroad Co. of Iowa (1881), 2 McCrary, 
 
 ' Woerishoffer v. North River Con- 181. 
 
 struction Co. (1885), 99N. Y. 398; s. c. ' Davis v. Duncan (1884), 19 Fed. 
 
 2 N. E. Eep, 47. Eep. 477. See also chapter on liability 
 
 * Mobile & Ohio E. Co. v. Davis of receivers. 
 
 (1884), 62 Miss. 271. 8 vilas v. Page (1887), 106 N. Y. 439 ; 
 
 s. c. 13 N. E. Eep. 743. 
 
§ 587.] TITLE, DUTIES, ETC., OP RECEIVERS. 571 
 
 erty placed in his charge, the court which appointed him is not 
 thereby deprived of its rights to determine what shall be done 
 with that property.^ , 
 
 § 587. Suits against Receivers generally .2 — The possession of 
 a receiver being the possession of the court appointing him, all 
 actions involving a claim upon the corporate property placed in 
 his charge must be prosecuted in that court.^ 
 
 Except in so far as the rule may have been altered by statute, 
 a receiver is not amenable to suit with respect of the property 
 lawfully in his possession, either in the appointing court,* or in 
 another without tlie leave of the appointing court.^ 
 
 This principle is embodied in the statutes of some of the States. 
 See, for example, the Ohio Code, § 256. 
 
 A grant of leave to bring suit against a receiver by the court 
 appointing him reserves the right to the receiver to set up any 
 defence he may have, which can be done by ple^, answer, or 
 demurrer.^ 
 
 All the defences which would have been available for the com- 
 pany if it has continued to operate the road are available to the 
 receiver, who within the sphere of his functions as manager repre- 
 sents the company. He is, therefore, entitled to claim the benefit 
 of the Statute of Limitations.^ 
 
 Conversely, if the action was originally begun against the com- 
 pany, and the receiver substituted as defendant, the court will 
 
 1 Minnesota Co. v. St. Paul Co. (1864), 23 Fed. Rep. 858. In the last case the 
 
 2 Wall. 609. court denied the petition of a stockholder 
 
 '■' For a risumi of the law as to actions in another corporation to have its receiver 
 
 by and against receivers, see 25 Am. L. made a party to litigation conducted hy 
 
 Eeg. N. S. 289. that stockholder in another jurisdiction, 
 
 ' Peale v. Phipps (1852), 14 How. holding that, as to the question involved, 
 
 368, 372; Beverley v. Brooke (1847), 4 viz. the validity of the guaranty of cer- 
 
 Gratt. (Va.) 187. tain bonds, the court itself would settle 
 
 * Fifth National Bank of Pittsburg v. it, upon its being properly brought before 
 
 Pittsburg & Castle Shannon R. Co. (1880), it. 
 
 1 Fed. Rep. 190, 192. There the court Where a State is divided into judicial 
 
 refused to sustain an action of ejectment districts like those of New York, a motion 
 
 brought in clear contempt of court, but for leave to sue a receiver cannot be made 
 
 granted the plaintiff time to institute a in one of those districts, while a general 
 
 new action. order restraining all interference with the 
 
 ^ Melendy v. Barbour (1884), 78 Va. receiver is in force ; the general order 
 
 544 ; s. c. 2.') Am. & Eng. R. R Cas. must fii-st be vacated or modified. Wil- 
 
 622 ; Fort Wayne, Muncie, & Cincinnati kinson v. North River Construction Co. 
 
 R. Co. V. Mellett (1883), 92 Ind. 535 ; 17 (1880), 66 How. Pr. 423. 
 Am. & Eng. R. R. Cas. 293 ; Mass. Mut. « Davis v. Duncan (1884), 19 Fed. 
 
 Life Ins. v. Chicago & A. R. Co. (1880), Rep. 477, 483. 
 
 13 Fed. Rep. 857, 861 ; Central Trust Co. ' Bartlett v. Keim (1888), 50 N. J. %. 
 
 V. Wabash, St. L. & Pac. R. Co. (1885), 260 ; s. c. 13 Atl. Rep. 7. 
 
572 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 restrain him from setting up the Statute of Limitations as a de- 
 fence where the claim was not outlawed when the proceedings 
 were instituted.^ 
 
 In an action against a receiver, an order of court appointing the 
 receiver is admissible in evidence where the fact of such appoint- 
 ment is put in issue by the pleadings, without the permission of 
 the court which appointed him.^ 
 
 A court of the United States will not permit its receiver to do 
 any unlawful act, nor any act which amounts to violence or a 
 breach of the peace ; and when such act shall first come to the 
 knowledge of the court, and at the first opportunity, regardless of 
 any technical pleading, will make such order as provides for full 
 restitution, and will not permit its receiver to continue the unlaw- 
 ful act, nor obtain any advantage thereby. The court, in such 
 case, properly holds that its officer and receiver, clothed with 
 power from the court, shall not use that power oppressively nor 
 unlawfully, but that, as such officer, he is under the highest obli- 
 gation at all times to set an example of obedience to law, and of 
 the pursuit of strictly peaceable methods in his conduct.^ 
 
 Where a railway company controlling a system of leased roads 
 covered by mortgages, and the leases of which are for a rental 
 to cover interest on their bonds, has executed a mortgage on 
 its system of roads, and the mortgage is being foreclosed, it is 
 not proper to allow the receiver to disaffirm these contracts of 
 lease on the ground of deficiency of the income of the different 
 roads, when shown that the latter are important as feeders of the 
 main line.* 
 
 § 588. Rule as to Suits for Damages. — The general prohibitory 
 rule stated in the last section is applicable not only to cases in 
 which the plaintiff seeks to establish a claim to a specific portion 
 of the property in the receiver's hands, but also to an action to 
 
 1 Lehigh Coal & Navigation Co. v. other points to the disadvantage of the 
 Central R. Co. (1887), 42 N. J. Eq. 591 ; other company. The court issued a.gainst 
 s. c. 8 Atl. Rep. 649. Compare Texas & him a prohibitory injunction, and a man- 
 Pacific By. Co. V. Huffman (1892), 83 datory injunction to restore the switches 
 Tex. 286 ; s. o. 18 S. W. Rep. 741. of the other company to the condition 
 
 2 Allen y. Central R. Co. (1876), 42 they were in when he removed them. 
 Iowa, 683. 4 Mercantile Trust Co. v. St. Louis & 
 
 8 Clark, D. J., in Chattanooga Terminal S. F. Ey. Co. (1896), 71 Fed. Rep. 601. 
 
 Ry. Co. .;. Felton (1895), 69 Fed. Rep. Thecourtdistinguished the cases of Quincy, 
 
 273, 284, in which case the receiver of the M. & P. R. Co. v. Humphreys (1891), 145 
 
 court had, by his employees, entered upon U. S. 82 ; s. c. 12 Sup. Ct. Rep. 787 ; and 
 
 the right of way of another railway com- St. Joseph & St. Louis R. Co. «. Humphreys, 
 
 pany, removed certain of its switches and 145 U. S. 145 ; S. 0. 12 Sup. Ct. Rep. 
 
 made connections between his road and 795. 
 
§ 589.] 
 
 TITLE, DUTIES, ETC., OP EECEIVEE8. 
 
 573 
 
 recover damages for injuries resulting from the operation of the 
 road. Such an action is virtually one the purpose of which was, 
 and the effect of which might be, to take the property of the trust 
 from the receiver's hands, and to apply it to the payment of the 
 plaintiff's claim, without regard to the rights of other creditors 
 or the orders of the court which is administering the trust 
 propei-ty.i 
 
 The objection to the power of any other court than the one ap- 
 pointing him to entertain a suit on this ground against a receiver 
 may be taken by a plea to the jurisdiction.^ 
 
 § 589. The Proper Procedure to enforce Claims against Property 
 in Receiver's Hands, under the ordinary rules of equity practice, 
 where parties have claims against funds in the hands of a receiver, 
 
 1 Barton v. Barbour (1881), 104 U. S. 
 126. To the .siime effect see Davis v. Gray 
 (1872), 16 Wall 203 ; Meara's Admr. v. 
 Holbrook (1870), 20 Ohio St. 137; De 
 Graifenied v. Brunswick & Albany R. Co. 
 (1876), 57 Ga. 22; Thompson v. Scott 
 (1876) 4 Dill. 508; s. c. 3 Cent. L. J. 
 737 ; Kennedy u. I. C. &L. R. Co. (1880), 
 3 Fed. Rep. 97 ; Rogers v. Mobile & Ohio 
 E. R. Co. (Tenn., 1883), 12 Am. & Eng. 
 R. R. Cas. 442 ; s. c. 16 Rep. 536 ; and 
 the note to High on Rec, § 254. 
 
 2 Barton v. Barbour (1881), 104 U. S. 
 126. Justice Miller dissented, adopting 
 the theory of Kinney v. Crocker, 18 Wis. 
 74, which holds that in such cases " it is 
 not a question of jurisdiction in the courts 
 of law, but only a question whether equity 
 will exercise its own acknowledged juris- 
 diction of restraining suits at law under 
 such circumstances, and dispose of the 
 matter involved, the failure of the plain- 
 tiff to obtain leave to bring suit merely 
 involving the consequence that he thereby 
 renders himself liable to have the proceed- 
 ings arrested by an injunction." See, 
 generally, High on Rec, § 254 a, where 
 numerous cases are cited showing that the 
 rule laid down by the Supreme Court of 
 the United States is not sanctioned by all 
 courts. A lengthy criticism of the au- 
 thorities will also be found in Lyman «. 
 Central Vermont R. Co. (1886), 59 Vt. 
 167, where the doctrine of Barton v. Bar- 
 bour is repudiated. The court, referring 
 to the ruling in Palya v. Jewett (1880), 32 
 N. J. Eq. 302, that the court which ap- 
 points a receiver will in a proper case grant 
 
 leave to sue him, not ex gratia, but ex 
 debito justitice, draws the inference that " a 
 rule requiring the plaintiff to go through 
 the meaningless ceremony of applying for 
 u, privilege that he already by right pos- 
 sesses, to a court powerless in itself to give 
 him relief in the premises, has no sub- 
 stantial ground to rest upon." This rea- 
 soning is not altogether conclusive, for 
 there would appear to be equally strong 
 objections to admitting the propriety of 
 B course which places a court in the in- 
 congruous and not very dignified position 
 of rendering a judgment which it is abso- 
 lutely powerless to enforce without the 
 consent of the court appointing the re- 
 ceiver. As leave either to prosecute 
 the claim in the first instance, or to en- 
 force it after a favorable termination of 
 the suit, must be obtained from the ap- 
 pointing court, it is not so irrational as 
 the critics of Barton u. Barbour declare to 
 maintain that this leave should be given 
 before, rather than after, the proceedings 
 in the court of law. It must be admitted, 
 however, that as a matter of practical 
 convenience to suitors, it is advisable that 
 the interference of the appointing court 
 should be limited to the preventive func- 
 tions of seeing that the trust estate is not 
 impaired by the payment of unwarrantable 
 claims. From this point of view legisla- 
 tion of the same character as that which 
 now permits claimants to sue the receivers 
 of o, federal court 'without first obtaining 
 leave from that court is entirely proper. 
 (See § 594, post.) 
 
574 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 is to bring tlieir demands into the appointing court, which will 
 direct him to be examined -pro interesse suo before the master. If 
 upon auditing the claim the court finds it to be a just one, it will 
 direct the receiver to pay it without litigation ; but if the court 
 finds the claim to be a doubtful one, it will give the claimant 
 leave to prosecute it before some competent court, consulting 
 herein the convenience of parties, and exercising a judicial 
 discretion.! 
 
 To assist it in coming to a correct conclusion as to disputed 
 facts, the court may, in its discretion, call in a jury, this being 
 the regular course where the action involves a claim for damages. 
 But, apart from statute, the court is not compelled to resort to a 
 trial by jury.^ 
 
 The assistance of a master may be invoked, or such other steps 
 be taken, for a judicial ascertainment of the facts as may be 
 deemed most appropriate to the particular case.^ 
 
 A master's report upon the liability of receivers in cases ordi- 
 narily triable by a jury will not be set aside by the court on an 
 issue of fact, unless the testimony on which the finding is based 
 is of such a character as to produce a firm conviction in the minds 
 of the court that the finding is erroneous.* 
 
 It was strenuously contended in one noted case that the doc- 
 trine by which the person desiring to establish a demand against 
 a receiver is precluded from bringing an action against him with» 
 out the permission of the court which appointed him may some- 
 times operate so as to deprive the claimant of his constitutional 
 right of trial by jury. This view did not prevail with the majority 
 of the Supreme Court of the United States. It was pointed out 
 that this right, considered as an absolute one, does not extend to 
 cases of equity jurisdiction; and the practice of the court in 
 regard to issues of fact in patent and bankruptcy cases was spe- 
 cially referred to as an illustration of the rule that, in the time of 
 certain classes of issues, a court of equity had jurisdiction to try 
 them according to its own course of practice.^ 
 
 1 Thompson v. Scott (1876), 4 Dill. Missouri Pac. R. Co. v. Tex. Pac. R. Co. 
 608 ; Barton v. Barbour (1881), 104 U. S. (1888), 33 Fed. Rep. 803. 
 
 126 ; Parker v. Browning (1840), 8 Paige 6 Barton v. Barbour (1881), 104 U. S. 
 
 Ch. (N. y.) 388. 126. Mr. Justice Miller expressed his 
 
 2 Duncan v. Atlantic, Mississippi, & dissent as follows ; "I know of no prin- 
 Ohio R. Co. (1880), 4 Hughes, 125. ciple, nor of any precedent, whereby a 
 
 ' Kennedy v. I. C. & P. R. Co. (1880), court of law, having before it a cause of 
 
 3 Fed. Rep. 105, following Davis v. Gray action of which that court has jurisdic- 
 
 (1872), 16 Wall. 203. tion, and a defendant charged in regard to 
 
 * Central Trust Co. v. Tex. & St. Louis his own act, also within the jurisdiction, 
 
 R. Co. (1887), 32 Fed. Rep. 448, 450 ; is bound, or is even at liberty, to deny 
 
§ 589.] TITLE, DUTIES, ETC., OP RECEIVERS. &T5 
 
 By the general law one injured by a railroad operated by a 
 receiver is empowered to sue a receiver of a federal court, and he 
 has a right to prosecute the suit until by its final act the court 
 controlling the receivership shall have put an end to his liability 
 as such. So long as that court controls the receiver and funds 
 in his hands, it may provide for the payment of liabilities in- 
 curred by him ; and so long as it may do this, it cann'ot be said 
 that his liability to suitors has ended. It is the judgment finally 
 discharging the receiver that protects him against the judgment 
 of other courts.^ 
 
 Where a person, under the provisions of the act of Congress of 
 March 3, 1887, brings a suit, vrithout leave of the court appoint- 
 ing a receiver of a railroad company, against the receiver in the 
 State court for damages for personal injuries caused by the negli- 
 gence of the receiver's employees, and has a judgment, notwith- 
 standing the case is tried by the court and not by a jury, a jury 
 not having been demanded by either party, the judgment is con- 
 clusive against the receiver as to the amount of damages.^ 
 
 Service of summons in an action for injuries to property on an 
 agent of receivers of a railroad company has been held not to be 
 justified by the statute of Alabama (Acts 1887, February 26) which 
 provides for service of summons where a railroad corporation has 
 permitted its road to be used by any other person or corporation ; 
 the statute applies only where use of the road is permitted to a 
 natural person or another corporation, and has no application 
 where possession is given to receivers.^ 
 
 If it is once shown that the case is one of equity cognizance, the 
 trial of questions involved in it belonged to the court itself, no 
 matter what might be their importance or complexity. The right 
 not being an absolute one, the propriety of trying actions against 
 the receiver, with or without a jury, was necessarily a matter to 
 be decided by the court in the exercise of its discretion. 
 
 The doctrine of Barton v. Barbour is perhaps not intended to 
 
 the party his lawful right to a trial of his erly before them the trial of their rights 
 
 cause because the defeudant is receiver of which justice requires, and which the con- 
 
 some other court, and to leave the suitor stitution and law guaranty." 
 
 to that court for remedy, where it is known ' Houston & Texas Central Ry. Co. v. 
 
 that some of the most important guaranties Strychai'ski (Tex. Civ. App., 1896), 35 S. 
 
 of the trial to which he is entitled, and W. Rep. 851. 
 
 which are appropriate to the nature of his ^ St. Louis S. W. Ky. Co. v. Holbrook 
 
 case, will be denied him. Whatever courts (1896), 73 Fed. Kep. 112, following Dil- 
 
 of equity may have done to protect their lingham v. Hawk (1892), 9 C. C. A. 101 ; 
 
 receivers, and may do to protect the fund s. c. 60 Fed. Rep. 494, 495. 
 
 in their hands, it is no part of the duty ' Ex parte Charles (Ala., 1895), 18 So. 
 
 of courts of law to deny to suitors prop- Rep. 73. 
 
576 RAILWAY BONDS AND MORTGAGES. [CHAP. XSVII. 
 
 apply to cases where the question raised is one which the adverse 
 party has an absolute right, under a special provision of a State 
 constitution, to have decided by a jury. In California it has vir- 
 tually been held that the ordinary rules of equity practice must 
 give way to tlie peremptory terms of a provision that the amount 
 of compensation to be paid in proceedings in eminent domain shall 
 be assessed by a jury.^ 
 
 Under such circumstances, the power of the court is as much 
 curtailed in this particular class of cases as it has been in Georgia 
 in all classes of cases.^ 
 
 Whether the exclusive jurisdiction of the court is also by impli- 
 cation curtailed by such a provision is not so clear, and remains 
 to be judicially settled. 
 
 It is admitted on all hands that in cases where the receiver is 
 charged with a tort, " it is more in accordance with the spirit of 
 our institutions to permit the parties complaining to proceed 
 at law, where they may have the benefit of a jury trial, than to 
 attempt to settle their rights by a reference to a master." ^ 
 
 The remedy by action is especially proper in a State whose Code 
 confers on a receiver, " under the control of the court, power to 
 bring and defend actions in his own name, as receiver." * 
 
 Where an action has been brouglit against a receiver in a com- 
 mon-law court, and a verdict rendered against him, it will be 
 assumed, on appeal, that whatever was necessary to sustain the 
 case stated in the declaration was proved on the trial, and that 
 such leave was granted.^ 
 
 1 Pacific Ry. Co. v. Wade (1891), 91 ' Meara'.s Admrs. v. Holbrook (1870), 
 Cal. 449 ; s. c. 27 Pac. Rep. 768. There 20 Ohio St. 137. In this case the action 
 the actual ruling of the court was that was brought against the receive rs, in their 
 the amount to be paid for the joint use capacity as sucli, by leave of the court, 
 of a street-railway track in the hands of a and they entered their appearance pur- 
 receiver may be determined by the court suant to an order of the court, and de- 
 on a petition, the right of the adverse fended in their official capacity. 
 
 party to a jury being denied on the ground ^ Little v. Dusenberry (1884), 46 N. .1. L. 
 
 that such a proceeding did not involve the 614. This was held, in its practical effect, 
 
 exercise of the right of eminent domain, to be merely a statutory method of procur- 
 
 where the statute, as in California, made ing redress, substantially the same as that 
 
 the payment of half the cost of construe- under the practice in Courts of Chancery, 
 
 tion the sole condition precedent to ob- where it was ordinarily obtained by pro- 
 
 taining the use of the track. ceedings pro interesse sua. The court, for 
 
 2 Clews V. First Mortgage Bondholders the same reason, pronounced that there 
 (1874), 51 Ga. 131. was no merit in the objection that any 
 
 3 Parker v. Browning (1840), 8 Paige remedy which the plaintiffs might have 
 Ch. 388, per Chancellor Walworth. Com- could be obtained only by direct applica- 
 pare Palys v. Jewett (1880), 32 N. J. Eq. tion to the court which had control of the 
 302. receivers, and not by action against them. 
 
§§ 590-593.] TITLE, DUTIES, ETC., OF RECEIVERS. 577 
 
 § 590. Failure to obtain Leave to sue Receiver can be taken Ad- 
 vantage of by him alone. — Failure to obtain leave to sue a receiver 
 can be taken advantage of by the receiver only, and does not 
 affect the jurisdiction of the court where the receiver waives the 
 requirement.^ 
 
 § 591. General License to sue Receiver in other Courts sometimes 
 given. — A general license to sue the receiver in any tribunal that 
 would be open to the plaintiff, if the controversy had arisen be- 
 tween hhn and the company, may probably be inserted in the 
 order of appointment.^ 
 
 § 592. Claims against Employees of Receiver subject to Exemption 
 Laws of State -where the Receiver -was appointed. — Creditors of a 
 receiver's employees will not be allowed to evade the exemption 
 laws of the State where the receiver was appointed by instituting 
 garnishment proceedings in another State into which the railroad 
 extends. No injunction will be issued ; the court will merely de- 
 clare that such claimants will not be allowed to receive from the 
 receiver any wages or funds that may belong to the debtors.** 
 
 § 593. Enforcement of Taxes upon Property in the Hands of Re- 
 ceiver. — Taxes levied by a State upon property in the hands of a 
 receiver appointed by a federal court can be enforced only by an 
 application to the court itself.* 
 
 1 Tobias v. Tobias (1895), 51 Ohio St. and collectors were acting thereunder in 
 519 ; s. c. 38 N. E. Rep. 317. good faith in the discharge of their duty. 
 
 2 Dow V. Mcmphia & Little Eock R. No question of jurisdiction was raised. 
 Co. (1884), 20 Fed. Rep. 260; s. c. 17 Am. In Central Trust Co. o. Wabash, St. L. 
 & Eng. R. R. Cas. 324. & Pac. R. Co. (1886), 26 Fed. Rep. 11, 
 
 " In re Barnard, United States Trust Judge Brewer laid down the general rule 
 
 Co. V. Omaha & St. Louis R. Co. (1894), that, as the State in collecting taxes is 
 
 61 Fed. Rep. 531. exercising its sovereign power, there should 
 
 As to gaiTiishment of money due from be no interference with its collection of 
 
 receiver, see note to 26 Lawyers' Rep. Ann. those taxes in the prescribed and regular 
 
 218. methods, even by a court having property 
 
 * 7)1 re Tyler (1893), 149 IT. S. 164 ; in the possession of its receivers, unless it 
 
 S. c. 13 Sup. Ct. Rep. 785, in which the is first charged that the taxes are in some 
 
 authorities were very fully reviewed by way illegal or oppressive. Accordingly he 
 
 Chief Justice Fuller. This decision lays declined to issue an attachment against 
 
 down a much more rigorous doctrine as to the collector. In Central Trust Co. v. 
 
 the exclusive nature of the court's control New York City & Northern R. Co. (1888), 
 
 of such suits than some of the earlier cases. 110 N. Y. 250 ; s. c. 18 N. E. Rep. 92 ; 13 
 
 In Stevens v. New York & Oswego Midi. Cent. Rep. 404, the court merely claimed 
 
 R. Co. (1875), 13 Blatch. 104, an injunc- for the court which is administering the 
 
 tion restraining collectors from executing property an alternative right to entertain 
 
 tax warrants was asked on the ground of an application for payment of the taxes 
 
 irregularities in the assessment. The court through the receiver, the special proceed- 
 
 refused to interfere, as the warrants were, ings prescribed by statute not being exclu- 
 
 80 far as appeared, regular on their faces, sive in cases of receivership. 
 
 37 
 
578 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 Where an act authorizing the taxation of railroad companies 
 prescribes a certain penalty for a default in payment, a court 
 which is administering the property through a receiver, even if it 
 decides that the provision is not applicable, will see that the State 
 does not suffer, and direct the receiver to pay interest from the 
 time that the tax was in default.^ 
 
 § 694. Federal Legislation altering the Former Rules of Equity 
 Courts. — So far as the federal courts are concerned, the old rule 
 as to suits against receivers has been greatly changed by a recent 
 enactment of Congress,^ which provides that " every receiver or 
 manager of any property, appointed by any court of the United 
 States, may be sued in respect of any act or transaction of his in 
 carrying on the business connected with such property, without 
 the previous leave of the court in which such receiver or manager 
 was appointed ; but such suit shall be subject to the general equity 
 jurisdiction of the court in which such receiver or manager 
 was appointed, so far as the same shall be necessary to the ends 
 of justice." The object of this act has been explained as follows : 
 " This act was intended to correct abuses that had grown up 
 under the old practice, some of wliich were pointed out before the 
 passage of the act in the opinion of this court in Dow v. Railroad 
 Co., 20 Fed. Rep. 260, 267. The act abrogates the old rule on the 
 subject of suing receivers. It is no longer unlawful to sue a re- 
 ceiver appointed by a United States court without leave of the 
 court appointing the receiver. The court now has no discre- 
 tion to say when its receiver may be sued. The act gives the 
 right without condition or qualification. It is a right not to be 
 nullified, evaded, or abridged. No conditions can be imposed on 
 its exercise. The court must give effect to that act. It has no 
 discretion to do anything else." It was accordingly held that 
 where receivers had been appointed for a railroad in a State 
 through which the road ran, but had removed into another State, 
 suits in the State court against them would be authorized ; also 
 that service might be made on their station agents or clerks 
 therein, the receivers taking the place of the railroad company in 
 the operation of the road, and that such service, being a good 
 service on the company, would be good on them.* 
 
 1 Ketchnm v. Pacific E. Co. (1876), 4 i>. Watts (Tex.), 18 S. W. Eep. 312, where 
 Dill. 41. it was held that an order of a federal 
 
 2 25 U. S. Stat. 436, § 3, ch. 866 (March court requiring claims to be presented he- 
 3, 1887). fore it by intervention was void, as an 
 
 ' Central Trust Co. v. St. Louis, A. & attempt to destroy the right conferred by 
 T. R. Co. (1889), 40 Fed. Rep. 426, per the act of Congress. 
 Caldwell, J. Compare Texas & Ey. Co. 
 
§ 595.] TITLE, DUTIES, ETC., OP EECEIVER3. 579 
 
 In a later case the same court had occasion to construe the pro- 
 vision of this act to the effect that when a receiver is sued, the 
 '' suit shall be subject to the general equity jurisdiction of the 
 court in which such receiver or manager was appointed, so far as 
 the same shall be necessary to the ends of justice," and explained 
 it as follows: " This clause of the act establishes no new rule, but 
 is merely declaratory of the previously existing laws. The receiver 
 holds the property for the benefit of all persons having any inter- 
 est in or lien upon it. The road is a unit. Broken into parts, or 
 depi'ived of its rolling-stock, its value would be greatly impaired. 
 Suits, therefore, which seek to deprive the receiver of the posses- 
 sion of the property, and all process the execution of which would 
 have that effect, are subject to the control of the court appointing 
 the receiver so far as may be necessary to the ends of justice. 
 The marshalling of the assets and the orderly distribution of the 
 fund or property according to the rights and equities of the sev- 
 eral parties in interest, is not to be interfered with by the judg- 
 ment or process of the State court. The judgment of the State 
 coui't is conclusive as to the amount of the debt, but the time and 
 mode of its payment must be controlled by the court appointing 
 the receiver.^ 
 
 This act applies to any suit which was commenced after the 
 date of its enactment, though the cause of action accrued before 
 that date.2 
 
 The right to sue in State courts receivers appointed in federal 
 courts, without obtaining leave from the appointing court, can only 
 be exercised with reference to transactions of theirs concerning 
 the management of the estate.* 
 
 Under the act, the judgment rendered by a State court having 
 jurisdiction of the parties and the subject-matter against a receiver 
 appointed by a State court is as final and conclusive as it is 
 against any other suitor. See case last cited.* 
 
 § 595. Exclusive Control of Receivers of Federal Courts not 
 affected by State Legislation. — Since a federal court cannot be 
 affected by State legislation, a statute giving one who has recovered 
 judgment against a railroad company controlled by a receiver the 
 right to collect the judgment, by obtaining an order from the 
 
 1 Central Tnist Co. v. St. Louis A. ' Hayes v. Columbus, L. & M. Ry. Co. 
 & T. E. Co. (1890), 41 Fed. Eep. 551, (1895), 67 Fed. Eep. 630. 
 
 555. -t Central Trust Co. v. St. Louis, A. 
 
 2 Texas & Pac. R. Co. v. Cox (1892), & T. E. Co. (1890), 41 Fed. Eep. 551, 
 145 U. S. 593 ; s. c. 12 Sup. Ct. Eep. 555. 
 
 905. 
 
680 EAILWAY BONDS AND MORTGAGES. [CHAP. XXVII. 
 
 State court upon the receiver for its payment out of the current 
 receipts of the railroad, cannot be made applicable to a case where 
 the receiver has been appointed by a federal court. The proper 
 remedy under such circumstances is to obtain leave to sue the 
 receiver, or to apply to the federal court for an order upon the 
 receiver to pay the judgment.^ 
 
 1 Ohio & Mississippi R. Co. v. Fitch (1863), 20 Ind. 498. 
 
CHAP. XXVIII.] 
 
 PEEFEREED DEBTS. 
 
 681 
 
 CHAPTER XXVIII. 
 
 PEEFEREED DEBTS. 
 
 Art. I. - 
 
 -General Principles. 
 
 §611. 
 
 Judgment of another Court not 
 
 §596 
 
 Introductory. 
 
 
 conclusive as to whether a 
 
 597. 
 
 Substance of Leading Case, Fos- 
 
 
 Claim is to be preferred. 
 
 
 dick V. Schall. 
 
 612. 
 
 Back Claims not ordinarily Lien 
 
 598. 
 
 Preferred Debts not Liens. 
 
 
 on Corpus. 
 
 599. 
 
 Superior Equity of Preferred 
 
 613. 
 
 Back Claims Lien on Corpm 
 
 
 Debts based upon the Charac- 
 
 
 where Diversion of Earnings 
 
 
 ter of Railroad Business. 
 
 
 is established. 
 
 600. 
 
 "What Corporations are Subject 
 
 614. 
 
 Payments of Interest, when not 
 
 
 to the Rule. 
 
 
 Diversion of Earnings. 
 
 601. 
 
 Anomalies of the Doctrine as 
 
 615. 
 
 Back Claims may be made Lien 
 
 
 now administered. 
 
 
 on Corpus if Preservation of 
 
 602. 
 
 Theory that Company becomes 
 
 
 Property requires. 
 
 
 Agent siih Modo of Bond- 
 
 616. 
 
 Assumption of Floating Indebt- 
 
 
 holders, if allowed to remain 
 
 
 edness by Purchasers does not 
 
 
 in Possession. 
 
 
 create Lien, etc. 
 
 Art. II. 
 
 — The Priority of Back 
 
 617. 
 
 Back Claims not Lien on Corpus, 
 
 
 Claims. 
 
 
 because Income of Receiver- 
 
 §603. 
 
 Power of Court on Appointment 
 
 
 ship insufficient to pay them. 
 
 
 of Receiver to impose Con- 
 
 618. 
 
 Preferential Debts of any Part of 
 
 
 ditions as to Payment of 
 
 
 Composite System a Charge 
 
 
 Back Claims. 
 
 
 on whole Property. 
 
 604. 
 
 Limits of Discretionary Power 
 
 619. 
 
 Doctrine of Diversion not appli- 
 
 
 of Court to impose Conditions 
 
 
 cable to Ordinary Creditor's 
 
 
 as to payment of Back Claims. 
 
 
 Suit. 
 
 605. 
 
 Claimants referred to in Order 
 
 Art. III. 
 
 — Within what Period Back 
 
 
 of Appointment not invested 
 
 
 Claims must have accrued 
 
 
 with Absolute Right as against 
 
 
 to be ALLOVl'ED PREFER- 
 
 
 Bondholders. 
 
 
 ENCE. The Six Months' 
 
 606. 
 
 Upon whom Conditions of Order 
 
 
 Rule. 
 
 
 are binding. 
 
 §620. 
 
 Generally. 
 
 607. 
 
 Back Claims to he preferred 
 
 621. 
 
 The Six Months' Rule. 
 
 
 need not be particularized in 
 
 622. 
 
 Rule where there is a Running 
 
 
 the Order. 
 
 
 Account. 
 
 608. 
 
 Limits of Power to prefer Unse- 
 
 623. 
 
 Payment of Unsecured Claims 
 
 
 cured Debts when no Provi- 
 
 
 antedating Period fixed in 
 
 
 sion is made for their Payment 
 
 
 Order. 
 
 
 in Order appointing a Re- 
 
 Art. IV. 
 
 Classes of Back Claims en- 
 
 
 ceiver. 
 
 
 titled to Priority. 
 
 609. 
 
 Assignee of Preferred Debt en- 
 
 §624. 
 
 Generally. 
 
 
 titled to Preference. 
 
 625. 
 
 Debts for Freight and Ticket 
 
 610. 
 
 Debts will not be preferred 
 
 
 Balances. 
 
 
 merely because Bondholder 
 
 626. 
 
 Debts incurred in Transporta- 
 
 
 has promised Priority. 
 
 
 tion of Passengers and Freight 
 
582 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVIII. 
 
 §627, 
 628. 
 
 629. 
 
 630. 
 
 631. 
 
 Debts for Wages due Employees. 
 
 Claims for Legal Services not 
 preferred unless they have 
 inured to Benefit of Bond- 
 holders. 
 
 Debts for Supplies and Ma- 
 terials. 
 
 Debts for Materials or Equip- 
 ments furnished on Credit not 
 preferred. 
 
 Rentals due by Mortgagor Com- 
 
 pany as Lessee of another 
 Line. Rule. 
 § 632. Diversion of Earnings immaterial 
 where Credit is given for Ma- 
 terials furnished. 
 
 633. Debts contracted for Original 
 
 Construction not preferred. 
 
 634. Damages for Breach of Contract 
 
 not preferred. 
 
 635. Debts for Damages caused by 
 
 Operation of Koad. 
 
 Article I. — General Principles. 
 
 § 596. Introductory. — In a preceding chapter (XXV.) it has 
 been shown that the overwhelming weight of authority is in favor 
 of the doctrine that the fact of the income's being made specifi- 
 cally subject to the lien of the mortgage does not in any* way 
 limit the power of the company, so long as it is rightfully in pos- 
 session, to use that income, as it may deem expedient, in the 
 conduct of the business. That power, however, is not entirely 
 unrestricted, for the principle is now firmly established in the 
 jurisprudence of this country that a court of equity, when asked 
 to administer the assets of an insolvent railroad corporation for 
 the benefit of the mortgagees, will mould its relief upon the theory 
 that there are certain classes of unsecured creditors which the 
 mortgagor not only may, but must satisfy, before it can rightfully 
 use any portion of the earnings for paying the bonded interest, 
 or for permanent improvements which will augment the value 
 of the corpus of the estate, and thus inure to the benefit of the 
 mortgagees. 
 
 A court administering the rights of litigants in accord with 
 the principles of law and equity has no inherent right simply by 
 virtue of its judicial authority to displace valid mortgage liens 
 that are fixed upon the property and which is subject to the liens, 
 and require that such liens shall be postponed to claims which 
 were not in existence at the time the mortgage liens were created, 
 or are not based upon some contract or provision of the law which 
 gives them a prior right over the mortgage liens.^ 
 
 A general creditor of an insolYcnt corporation, by the levy of 
 an attachment prior to a receivership, will not acquire any prefer- 
 ence, right, or lien that will deprive the court of the power to 
 equitably apportion the income from the property to claims 
 classed as operating expenses.^ 
 
 1 Farmers' & Merchants' Nat. Bank v. Waco Electric Ry. & Light Co. (Tex. Civ. 
 App., 1896), 36 S. W. Rep. 131. « Ibid. 
 
§ 596.] 
 
 PREFERRED DEBTS. 
 
 583 
 
 Where a bondholder of a corporation seeks by a bill to preser^^e 
 a railroad system from disintegration, etc., to have a receiver 
 appointed for it, if one is appointed and the court takes thereby 
 control of the property, such a receiver will in reality represent 
 the corporation and not the creditors, and his acts will be just 
 such as the corporation itself can do, in the matter of contracting 
 and payment of debts, connected with carrying on its business. 
 And the court may, on their appointment, authorize them, in 
 their discretion, from time to time, to pay the current pay-rolls, 
 vouchers, and supply accounts incurred in the operation of the 
 road prior to their appointment, and to apply funds coming into 
 their hands as the company may have applied them.^ 
 
 And where mortgage trustees afterwards proceed in the same 
 court for the foreclosure of their mortgages, and procure a modi- 
 fication of the order, and have receivers appointed, the court then 
 has power to make a claim for supplies furnished shortly before 
 the first appointment of receivers a lien upon the ^corpus of the 
 property .2 
 
 1 New England R. Co. v. Carnegie Steel 
 Co. (Lim.), 75 Fed. Eep. 54 (1896). 
 
 2 New England R. Co. v. Carnegie Steel 
 Co. (Lim.). 75 Fed. Rep. 54 (1896). 
 
 The equitable doctrine is not applica- 
 ble in a proceeding to distribute the assets 
 of an insolvent corporation under Ga. 
 Code, § 3149 et seq., forbidding the ac- 
 quisition of any preference after the ap- 
 pointment of a receiver, especially where 
 the mortgagee conies in to make defence 
 only. Central Trust Co. v. Thurman 
 (i894), 94 Ga. 735 ; s. c. 20 S. E. Rep. 
 141. 
 
 In England, so far as is known, no 
 doctrine resembling that discussed in this 
 chapter has ever, apart from statute, been 
 recognized by the coui-ts, except in re- 
 gard to the payment of wages. According 
 to Lord Denman (in Thomas v. 'Wil- 
 liams, 1 Ad. & El. 690), there had grown 
 up a " humane practice " of paying clerks 
 and servants a full six months' wages out 
 of a bankrupt estate, and this practice 
 was legalized by the Bankruptcy Act of 
 6 Geo. IV., eh. 16, § 48. A similar doc- 
 trine prevailed in Scotland prior to the 
 passage of the Scotch Bankruptcy Act, 
 the debts due to servants for the term 
 running when death or bankruptcy super- 
 vened being classed among the " privileged 
 
 debts '' recognized under the doctrine re- 
 specting "tacit hypothecs." See Bell's 
 Principles, §§ 1387, 1404. Considering 
 all the exhaustive discussion which has 
 attended the introduction of the rule as 
 to preferential debts in the courts of 
 this country, it is somewhat remarkable 
 that these precedents for at least a portion 
 of the rule, have never been alluded to, so 
 far as is known. See post. 
 
 The propriety of adopting the doctrine 
 of preferential back claims has, apparently, 
 not been directly discussed in Canada, but 
 in Wallbridge o. Farwell, 18 S. C. Can. 1 
 (1890), Justice Strong used some language 
 which would seem to show a disposition 
 to follow the lead of the courts of this 
 country. In Gooderham v. Toronto, etc. 
 Ry. Co., 8 Ont. App. Rep. 685, the "work- 
 ing expenses and outgoings of a railway," 
 for which the receiver was directed to pro- 
 vide before submitting his accounts, and 
 passing in the balance, were held to in- 
 clude working expenses which were not 
 regularly payable in the ordinary course 
 of the business until after his appointment, 
 but not those already in default at the 
 time of the appointment. But the doc- 
 trine of the courts of equity in the United 
 States was not alluded to. 
 
 Useful articles on the subject of prefer- 
 
584 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVIII, 
 
 § 597. Substance of Leading Case, Fosdick v. Schall. — The 
 leading case on this doctrine is Fosdick v. Schall,^ in which, 
 
 ential claims will be found in 6 Southern 
 Law Review, N. S. 535; 12 Am. Law Re- 
 view, 660 ; 13 Am. Law Eeview, 40. 
 
 1 99 U. S. 235 ; s. c. 7 Kep. 449 (1879). 
 The principles formulated in this de- 
 cision had been foreshadowed with more 
 or less distinctness in a few earlier cases, 
 Thus in Clark v. Williamsport R. Co. (an 
 unreported case in the Supreme Court of 
 Pennsylvania), Judge Strong (afterwards 
 Associate Justice of the Supreme Court of 
 the United States) declined to accede to 
 the request of some intervening bondhold- 
 ers, who asked him to strike out of an 
 order appointing a receiver a direction to 
 pay all sums "due and maturing" for 
 materials and supplies about the opera- 
 tion of the road, .and the amounts "due 
 and maturing " for wages of employees. 
 The conclusion of the learned judge was 
 that, as to the tolls and income, out of 
 which the claims were directed to he paid, 
 the mortgagees had no rights paramount 
 to those possessed by the claimants for 
 wages and for the price of supplies. The 
 mortgagees, it was admitted, were en- 
 titled under the mortgage to the income, 
 but only to the net income, left after pay- 
 ing current expenses. 
 
 In Duncan v. Trustees, 9 Am. Ry. Rep. 
 386; 3 Ceutr. L. J. 57 (Circuit Court Va., 
 1876), the court granted a petition for au- 
 thority to apply the surplus earnings of 
 the road, then in a receiver's hands, to the 
 payment of arrears of wages due before the 
 receiver's appointment. The decison was 
 placed on two grounds. First, because 
 ' ' the laws of humanity, the policy and 
 laws of two States, overriding all ques- 
 tions of pecuniary interest in stockholders 
 or bondholders," forbade the relaxation of 
 any means necessary to the maintenance 
 and safe operation of the road; and, secondly, 
 because, after default, "while the bond- 
 holders stood aloof without asserting their 
 rights to possession, the officers of the 
 road were to be considered pro tanto as 
 agents of the bondholders." 
 
 In Douglass v. Cline (1877), 12 Bush, 
 608 ; s. c. 18 Am. Ry. Rep. 273, certain 
 claims of labor and snpply creditors were 
 preferred to the mortgage lien, the ground 
 
 being distinctly taken that the appointr 
 ment of a receiver was a discretionary ex- 
 ercise of power, and that the bondholders, 
 having elected to avaU. themselves of the 
 equitable remedy of foreclosure, instead of 
 taking possession of the property, as they 
 were entitled to do, could not be heard to 
 complain that the court, in granting them 
 equitable relief, had imposed conditions as 
 to the payment of the meritorious claims 
 of persons whose services had contributed 
 to the preservation of the property. To 
 ask the court not only to apply the pro- 
 ceeds of the property thus preserved to 
 the payment of the mortgage debt, but 
 also to hold the fund accumulated by the 
 receiver, and refuse to apply any portion 
 of it to paying for services thus resulting 
 to their direct and substantial advantage, 
 was held to be a request incompatible 
 with the maxim, " He who seeks equity 
 must do equity." In this case it would 
 seem from the report that there was no 
 specific pledge of the income, for one link 
 in the chain of the reasoning was that a 
 mortgagee who has no specific pledge of the 
 rents and profits cannot claim them as a 
 legal incident or a legal right growing out 
 of his mortgage. But in view of later de- 
 cisions this point is immaterial. See the 
 remarks of Justice Harlan in Thomas v. 
 Peoria & R. I. R. Co. (Western Car Co., 
 Intervener), (1888), 36 Fed. Rep. 808 ; 
 s. c. 36 Am. & Eng. R. R. Gas. 381, touch- 
 ing upon this very point. 
 
 In Turner v. Indianapolis, B. & W. 
 R. Co. (1878), 8 Biss. 315, the court 
 expressed its views in words which in- 
 dicate that the doctrine had now reached 
 its full development, and was merely 
 awaiting the sanction of the Supreme 
 Court of the United States (which was 
 given the following year in Fosdick v. 
 Schall) to claim a definite position in the 
 equity jurisprudence of the federal courts. 
 "The mortgagees have come into court ask- 
 ing it to assume possession of the road to 
 protect their interests. Are the interests 
 of all others, operatives and supply men, 
 who happen to have claims against it at 
 the time to be absolutely ignored in the 
 case of insolvent companies ? I think not. 
 
§ 597.] 
 
 PREFERRED DEBTS. 
 
 585 
 
 after an exhaustive argument by some of the ablest lawyers in 
 the country, its precise scope was clearly defined. In the opinion 
 written for a unanimous court. Chief Justice Waite said, amongst 
 other things : " We have no doubt that when a Court of Chancery 
 is asked by railroad mortgagees to appoint a receiver of railroad 
 property, pending proceedings for foreclosure, the court, in the 
 exercise of a sound judicial discretion, may, as a condition of 
 issuing the necessary order, impose such terms in reference to 
 the payment from the income during the receivership of out- 
 standing supplies, equipment, or permanent improvement of the 
 property, as may, under the circumstances of the particular case, 
 appear to be reasonable. . . . The business of all railroad com- 
 panies is done to a greater or less extent on credit. This credit 
 is longer or shorter, as the 'necessities of the case require; and 
 when companies become embarrassed, it frequently happens that 
 debts for labor, supplies, equipment, and improvements are per- 
 mitted to accumulate, in order that bonded interest may be paid, 
 and a disastrous foreclosure postponed, if not altogether avoided. 
 In this way the daily and monthly earnings, which ordinarily 
 
 The appointment of a receiver is, to a 
 great extent, a matter of discretion in the 
 court, and it has heen thought that the 
 court might require the receiver to pay 
 certain of these claims, and even to hold 
 the property subject to them ; not as a 
 lien on the road, but in the exercise of the 
 equitable discretion of the court in dealing 
 with property which is of a peculiar char- 
 acter, and under circumstances of which 
 the past history of litigation affords no 
 example or precedent. Railways do not 
 come within the control of the court until 
 after default on the bonds or coupons, 
 and, generally, after absolute insolvency. 
 There are, therefore, when application is 
 made to the court for the appointment of 
 a receiver, in all cases, large balances due 
 to operatives, and for supplies and ma- 
 terials furnished. There are also con- 
 tracts running with other railways upon 
 which balances are due, and which con- 
 tracts must often be continued in force to 
 preserve the security of the mortgagees. 
 The receiver takes the road with the bene- 
 fits accruing from such contracts, and uses 
 any supplies or materials which are on 
 hand and not paid for. It therefore early 
 became a question in this species of litiga- 
 tion what rule should be adopted by the 
 
 court as to such claims against railway 
 companies." 
 
 On the other hand, in Kitchen v. Pacific 
 Railroad Co., 4 Centr. L. J. 458, an appli- 
 cation for the payment of some back claims 
 was refused, as it was opposed by the bond- 
 holders, though some similar claims had 
 previously been paid with their consent. 
 
 In Denniston v. Chicago, A. & St. L. 
 R. Co. (1864), 4 Biss. 414, an attempt 
 was made by certain supply creditors to 
 obtain the payment of their claims in 
 preference to the bonded debt out of the 
 proceeds of the foreclosure sale, but Judge 
 Drummond declined to make an order to 
 that effect. This case is still good law, 
 except in so far as the rule may have been 
 altered by statutes. See below in this 
 chapter. 
 
 In many of the federal courts during 
 the years immediately preceding the ren- 
 dition of this decision in Fosdick v. Schall, 
 it had already grown into a custom to 
 provide for debts, labor and supplies, and 
 the like, when a receiver was appointed, 
 but, apparently, this was usually done 
 with the consent of the bondholders. 
 Such, at least, was the rule adopted by 
 one eminent jurist, Judge DiUon. See 
 3 Cent. L. J. 636. 
 
586 RAILWAY BONDS AND MORTGAGES. [CHAP. SXVIII. 
 
 should go to pay the daily and monthly expenses, are kept from 
 those to whom in equity they belong, and used to pay the mort- 
 gage debt. The income out of which the mortgagee is to be paid 
 is the net income, obtained by deducting from the gross earnings 
 what is required for necessary operating and managing expenses, 
 proper equipment, and useful improvement. Every railroad mort- 
 gagee, in accepting his security, impliedly agrees that the current 
 debts made in the ordinary course of business shall be paid from 
 the current receipts before he has any claim upon the income. If, 
 for the convenience of the moment, something is taken from what 
 may not improperly be called the current debt fund, and put into 
 that which belongs to the mortgage creditors, it certainly is not 
 inequitable for the court, when asked by the mortgagees to take 
 possession of the future income and hold it for their benefit, to 
 require, as a condition of such an order, that what is due from 
 the earnings to the current debt shall be paid by the court from 
 the future current receipts before anything derived from that 
 source goes to the mortgagees. In this way the court will only 
 do what, if a receiver should not be appointed, the company ought 
 itself to do.- . . . We think, also, that if no such order is made when 
 the receiver is appointed, and it appears in the progress of the 
 cause that bonded interest has been paid, additional equipments 
 provided, or lasting and valuable improvements made out of earn- 
 ings which ought in equity to have been employed to keep down 
 debts for labor, supplies, and the like, it is within the power of 
 the court to use the income of the receivership to discharge obli- 
 gations which, but for the diversion of funds, would have been 
 paid in the ordinary course of business. This, not because the 
 creditors to whom such debts are due have in law a lien upon 
 the mortgaged property or the income, but because, in a sense, 
 the officers of the company are trustees of the earnings for the 
 benefit of the different classes of creditors aiid the stockholders, 
 and, if they give to one class of creditors that which properly 
 belongs to another, the court may, on an adjustment of the ac- 
 counts, so use the income which comes into its own hands as, if 
 practicable, to restore the parties to their original equitable rights. 
 While ordinarily this power is confined to the appropriation of 
 the income of the receivership, and the proceeds of the moneyed 
 assets that have been taken from the company, cases may arise 
 where equity will require the use of the proceeds of the sale of the 
 mortgaged property in the same way. ... No fixed and inflexible 
 rule can be laid down for the government of the courts in all cases. 
 Bach case will necessarily have its own peculiarities, which must 
 
§ 598.] 
 
 PREFERRED DEBTS. 
 
 587 
 
 to a greater or less extent influence the Chancellor, when he 
 comes to act." 
 
 The effect of the opinion of Fosdick v. Schall has been tersely 
 stated by Judge Hughes to be that " a court may for certain pur- 
 poses stand in the shoes of the company whose property it has 
 sequestrated, and satisfy equities which the company necessarily 
 contracted for the benefit of all parties interested in keeping the 
 railroad alive and in operation." ^ 
 
 § 598. Preferred Debts not Liens. — Preferred debts are not 
 ranked above the bonded interest because they are a lien,^ but on 
 the ground that the application of the income to debts incurred to 
 keep the road in operation is the paramount duty of the company, 
 aud that its failure to perform that duty is inequitable conduct, 
 the results of which a Chancellor is justified in correcting, if he 
 is asked by the mortgagees to sequestrate the income for their 
 benefit by the appointment of a receiver. This theory has been 
 justly characterized as a " new depai'ture." * 
 
 general doctrine as to a special equity, 
 which might be enforced by imposing con- 
 ditions at the appointment of a receiver, 
 had only been announced iu one case, — 
 Douglass V. Cline, supra. 
 
 In one of the earlier oases on the sub- 
 ject, the following theory was propounded 
 as an additional reason for the court's as- 
 sumption of the right to apply the earnings 
 to back claims: "There is a distinction 
 between the net earnings of a railroad 
 operated by a receiver and the ordinary 
 rents and profits of lands and tenements. 
 The receiver of a line of railways is not 
 the mere passive agent or officer of the 
 court charged with the single duty of pre- 
 serving the property and collecting the 
 rents, etc. The net earnings of a railway 
 in the hands of a receiver depend very 
 greatly upon his experience and skill as a 
 railway operator, and upon the energy and 
 fidelity he may display in the discharge of 
 his duties. The mortgagees have no claim 
 or lien upon the experience, skill, energy, 
 and fidelity of the court's receiver, who 
 represents the interests as well of the 
 mortgagors or of its creditors." Douglass 
 V. Cline (1877), 12 Bush, 608 ; s. o. 18 
 Am. Ry. Rep. 273. But this theory is 
 open to the obvious objection that the 
 court does no more than its duty in secur- 
 ing the best possible management for the 
 property which is taken out of the owner's 
 
 1 Atkins V. Petersburg Eailroad Co. 
 (1879), 3 Hughes, 307; s. o. 2 Fed. Gas. 
 90, Case No. 604. 
 
 2 See the extract given above from the 
 opinion in Fosdick v. Schall. So also in 
 Turufr v. Indianapolis, B. & W. R. Co. 
 (1876), 8 Biss. 315, the court said: " Dur- 
 ing the discussions which have taken place 
 on this subject, the allowance of these 
 ' back ' claims has been sometimes called 
 a lien, but in point of fact it never has 
 been, nor can it be justly so considered, 
 but, as already stated, is an exercise of 
 the equitable power of the court in the 
 premises." To the same effect are the 
 remarks of the court in Addison u. Lewis 
 (1882), 75 Va. 701 ; s. o. 9 Am. & Eng. 
 R. R. Gas. 702 ; Union Trust Co. i>. 
 "Walker (1882), 107 U. S. 596. 
 
 ' Williamson r. Washington City, Ya.. 
 Midland, & Great Southern R. Co. (1881), 
 33 Graft. 624 ; s. c. 1 Am. & Eng. R. R. 
 Cas. 498; Addison v. Lewis (1882), 75 
 Va. 701 ; s. c. 9 Am. & Eng. R. R. Cas. 
 702. 
 
 The view taken by the profession at 
 large as to prefen-ed debts, before the de- 
 cision in Fosdick o. Schall, is perhaps 
 fairly well expressed in the article in 3 
 Central L. J. 636. Up to the time when 
 that was written, it seems that the pay- 
 ment of these debts had been made with 
 the consent of the bondholders, and the 
 
588 
 
 RAILWAY BONDS AND MOETGAGES. [CHAP. XXVin. 
 
 To allow arrears of wages or other debts for operating expenses 
 to accumulate is not inequitable in any sense in which that term 
 is used in relation to the administration of an insolvent estate by 
 a Court of Chancery. Nor, apart from some statute, has it ever 
 been maintained in regard to any other business than that of a 
 railroad that a debtor is not entitled to favor one or more credit- 
 ors in the disposition of his income. Least of all has a debtor's 
 right to favor secured creditors ever been denied prior to the de- 
 cision of Posdick V. Schall. 
 
 § 599. Superior Equity of Preferred Debts based upon the Char- 
 acter of Railroad Business. — Such being the general principles 
 governing the riglits of the parties in similar cases, the superior 
 equity thus predicated of preferential claims must evidently rest 
 upon some entirely special ground, and the courts have found 
 what they deem an adequate basis for that equity, the peculiar 
 nature of the business conducted by a railroad company.^ 
 
 control. To infer that the performance of 
 that duty can give the court any extraor- 
 dinary rights as regards the displacement 
 of vested liens is, to say the least, rather a 
 startling proposition. 
 
 1 The unique characteristics of that 
 business have perhaps never been stated 
 with more vigor and clearness than by 
 Judge Caldwell, in the following passage 
 of his opinion in the recent case of Farm- 
 ers' Loan & Trust Co. v. Kansas Oity, 
 W. & N. W. Ry. Co. (1892), 53 Fed. Rep. 
 182: — 
 
 " Railroads and railroad mortgages are 
 of modern origin. The courts at first 
 failed to distinguish between a mortgage 
 on a railroad and a mortgage on a house 
 and lot, and receivers were appointed 
 without making any provision to pay even 
 the current wages of the employees of the 
 company, or to pay for the most essential 
 supplies, however recently furnished. Ex- 
 perience and observation demonstrated the 
 inequity of this mode of proceeding. 
 Courts of equity were compelled to in- 
 quire into the nature of railroad property 
 and railroad mortgages. It was perceived 
 that, as a security for a debt, there was 
 much more analogy between a railroad 
 and a ship than there was between a rail- 
 road and a house and lot. It was per- 
 ceived that railroads performed on land 
 the same offices that ships did on the sea. 
 They are both great and indispensable 
 
 instruments of commerce. Their chief 
 difference as such instruments is the 
 chemical composition of the elements 
 upon which they are operated. One 
 moves in the water, and the other on 
 iron rails. It is said of ships that they 
 are made to plough the seas, and not to 
 rot at the wharves ; and railroads are built 
 to be actually operated in carrying the 
 commerce of the country, and not to rust 
 out. Unless it is kept in operation, a rail- 
 road does not fulfil the purpose of its cre- 
 ation, and is comparatively valueless as an 
 instrument of commerce, or for any other 
 purpose, without incurring daily expenses 
 for work, supplies, and materials. These 
 debts are never paid at the time they are 
 contracted. That is impossible from the 
 nature of the business. In the case of 
 solvent companies, the time of payment 
 varies, and it varies with the same com- 
 pany at diflferent times. It is longer or 
 shorter, depending on the financial condi- 
 tion of the company, the length of its 
 line, and other causes. The labor, sup- 
 plies, and materials are absolutely essen- 
 tial to the operation of the road, and, as a 
 matter of fact, are in most cases furnished 
 on its credit, in the same sense that the 
 supplies of a ship are furnished on the 
 credit of the ship. For these and other 
 like reasons there has been a growing ten- 
 dency among the courts and legislatures 
 iu this country to give such debts of a 
 
§ 599.J 
 
 PREFERRED DEBTS. 
 
 589 
 
 It is true that Chief Justice Waite in his opinion in Fosdick v. 
 Schall bases the more extreme application of the doctrine, viz. 
 that relating to the restoration of diverted earnings, upon the 
 principles that the directors are " trustees of the stockholders and 
 creditors." But the implied duty of the directors to postpone 
 even the lien creditors to those of the preferred class must, it is 
 plain, be ultimately referred to the existence of some peremptory 
 equity which is recognized for some anterior and distinct reason, 
 apart from the fiduciary position of the directors. The mere fact 
 that they are trustees does not of itself obligate them to pay 
 debts in an unusual way.^ A similar remark is applicable to the 
 supposed correlative duty of the mortgagees to refuse to be favored 
 at the expense of the preferred creditors, or, if they have been so 
 favored, to acquiesce in the restoration of the diverted funds.^ 
 
 railroad company priority over the lien of 
 a mortgage. It seems probable that the 
 courts will not have to deal with the ques- 
 tion on general principles of equity much 
 longer. Some of the States have already 
 passed acts giving all obligations incuiTed 
 in the construction and operation of a 
 railroad priority over mortgages, and sim- 
 ilar statutes will probably soon be passed 
 in other States, unless the practice and 
 decisions of their courts shall render them 
 unnecessary. Undoubtedly, under the op- 
 eration of these statutes, and the later and 
 sounder practice of a condition of the ap- 
 pointment of a receiver for a railroad, the 
 payment of the class of debts mentioned, 
 the ends of justice have been promoted, 
 and a stop put to some practices which 
 were extremely inequitable and injurious 
 alike to the company, the mortgagee, and 
 the general creditors. It occurs less fre- 
 quently now than formerly that railroad 
 receivers are appointed, and mortgages 
 foreclosed, leaving unpaid in whole or in 
 part those whose labor and materials built 
 the road and created the security, — for 
 railroad mortgages are sometimes executed 
 before a shovelful of earth has been thrown 
 towards the construction of the road, — or 
 kept it in repair and operation after its 
 construction. When it is known that a 
 misapplication or fraudulent use of the 
 proceeds of the bonds, or the earnings of 
 the road, cannot be visited upon the inno- 
 cent persons whose labor and materials 
 build the road, or keep it in repair and 
 operation, the mortgagee will see to it that 
 
 the revenues of the company, derived from 
 these and all other sources, are expended 
 for legitimate purposes. Honesty and 
 economy in railroad building and man- 
 agement will thus be promoted, and the 
 company, the mortgagee, and the public 
 will alike be benefited." 
 
 1 This objectiou is independent of that 
 which arises from the difficulty, or rather 
 perhaps impossibility, of finding any au- 
 thorities, apart from those under review, 
 or those which turn upon some statute, for 
 extending the doctrine that the directors 
 of a corporation are trustees for the cred- 
 itors after insolvency, to cases in which 
 the corporation is merely in an embar- 
 rassed position, but not actually insolvent. 
 Until insolvency supervenes the directors 
 have usually no fiduciary duties except as 
 regards the stockholders. Thus the presi- 
 dent of a railroad company sustains no 
 fiduciary relation to holders of its bonds, 
 which requires him as trustee or agent of 
 such bondholders to see to the proper ap- 
 plication of the funds received from the 
 sale of the bonds, or to account to the 
 bondholders for any surplus from the pro- 
 ceeds of the bonds they may hold after 
 consti-ucting the works for which they 
 were issued. His relations and duties in 
 this respect are to the company and its 
 stockholders, not to creditors. Van Weel 
 V. Winston (1885), 115 U. S. 228 ; Beach 
 V. Miller (1889), 130 111. 162; s. c. 22 
 N. E. Rep. 464. 
 
 2 Of course the terms of the mortgage 
 may be such as to justify imputing to 
 
590 EAILWAY BONDS AND MORTGAGES. [CHAP. XXVIII. 
 
 There is, however, some lack of clearness in the cases with re- 
 gard to the question what that precise characteristic of a railroad 
 may be which justifies this marked departure from ordinary prin- 
 ciples. Possibly it may be said that there has been a development 
 of opinion on the subject. In Posdick v. Schall, supra, the Supreme 
 Court relied upon the largeness of the amounts involved, the com- 
 plicated nature of the various rights to be adjusted, and, above all, 
 on the fact that the business of railroad companies is done to a 
 greater or less extent on credit, and that debts for labor, etc., are 
 often allowed to accumulate in order to procure funds for the 
 payment of interest. It is obvious, however, that none of these 
 features are peculiar to railroads. The same remarks would be 
 equally applicable to any great industrial enterprise. It seems 
 altogether impossible to maintain with any show of plausibility 
 that the rights of persons who help to keep up a railroad should, 
 on such grounds alone, be regarded as essentially different from 
 the rights of persons who keep up a mill, a foundry, or a ship- 
 building establishment. The mere magnitude and complication 
 of the interests involved, and the practice of carrying on the busi- 
 ness on credit, seem to furnish an especially unsatisfactory basis 
 for singling out the former class of creditors, when it is remem- 
 bered that the equity, if it exists at all, must avail not merely in 
 favor of the creditors of the very largest system of railroad lines, 
 but also in favor of the creditors of a line a few miles long, the 
 business of which is insignificant compared with that of himdreds 
 of the great factories throughout the country. 
 
 The objections to resting the preference of debts for labor, etc., 
 solely upon the grounds assigned in Posdick v. Schall seem to be 
 recognized in later decisions of the Supreme Court of the United 
 States, and we think it may now be taken as the established doc- 
 trine that the differentiating feature in the cases considered in 
 the present chapter is the interest which the public have in the 
 
 tliem an implied consent to holding their ings. As, therefore, they have, whUe out of 
 
 bonds on this condition ; as where the possession, no right to earnings superior 
 
 mortgagors, as long as they remain in to the mortgagor's, it is proper that the 
 
 possession, are placed by the mortgage net income accruing after the appointment 
 
 itself under the obligation of applying the of a receiver should be first applied to the 
 
 income "to the payment of the current discharge of debts that were incurred to 
 
 expenses of the road, ... or of disposing defray current expenses. Poland v. La- 
 
 of the same for the lawful uses " of the moille Valley R. Co. (1879), 52 Vt. 144. 
 
 mortgagors. Under these circumstances Our observation in the text is intended 
 
 the mortgagees may well be regarded as to apply to cases where there are no un- 
 
 having taken their security, burdened usual conditions in the mortgage from 
 
 with an express trust, that current ex- which a modification of rights may be 
 
 penses are to be paid out of current earn- inferred. 
 
§ 599.] PREPEREBD DEBTS. 591 
 
 continued operation of the railroad " as a going concern." In 
 other words, the preference of such debts can apparently be justi- 
 fied only on the hypothesis that, for some special reason of pub- 
 lic policy, the business must be kept on foot at all costs ; and this 
 I'eason can only be found in the fact that the State has certain 
 rights in regard to railroads which are paramount to those of the 
 company and its creditors. Thus in Miltenberger v. Logansport 
 Ey. Co.^ Mr. Justice Blatchford made the following remarks in 
 the course of his opinion : — 
 
 " Many circumstances may render it necessary and indispen- 
 sable to the business of the road and the preservation of the 
 property for the receiver to pay pre-existing debts of certain 
 classes out of the earnings of the receivership, or even out of 
 the corpus of the property. Yet the discretion to do so should be 
 exercised with great care. The payment of such claims stands, 
 prima facie, on a different basis from the payment of claims aris- 
 ing under the receivership, while it may be brought within the 
 principle of the latter by special circumstances. It is easy to see 
 that payment of unpaid debts for operating expenses, accrued 
 within ninety days, due by a railroad suddenly deprived of the 
 control of its property, due to operatives in its employ, whose 
 
 1 106 tJ. S. 286 (18S2). This aspect and regular operation, as the interests of 
 of the subject has been strongly empha- the community, not those of the share- 
 sized in one case decided not long before holders, demand. Ko matter that a divi- 
 Fosdick V. Schall, in these words; "A dend is never paid, that the private 
 railway is matter of public concern. It investment is sunk and worthless, that 
 is one of the great instruments of modem the interest upon its bonds is never met, 
 commerce between States and nations, and that all its creditors go unpaid, every 
 The public as well as private interests dollar of its earnings must nevertheless be 
 require its continual operation. To refuse applied to keep up its maximum efficiency, 
 to pay anything whatever for past services as required by the political power which 
 or supplies or materials has never, it is created it." " The road once constructed 
 believed, been attempted by any court or is, instanter, and by mere force of the 
 even demanded by any mortgagee." Tur- grant, and law, embodied in the govem- 
 ner v. Indianapolis, B. & W. R. Co. mental agencies of the State, and dedi- 
 (1878), 8 Biss. 315. The paramount rights cated to public use. All and singular its 
 of the public have never been stated more cars, engines, rights of way, and property 
 strongly than in Talcott v. Township of of every description, real, personal, and 
 Pine Grove (1872), 1 Flip. 145, 23 Fed. mixed, are but a trust fund for the politi- 
 Cas. No. 13,735, which, however, was not cal power, like the functions of a public 
 a case dealing with preferential debts, office. The judicial personage, the cor- 
 In the relation of the railroad to the poration created by the sovereign power 
 public or sovereign, "the incidental inter- expressly for this sole purpose and no 
 est and profits of individuals are accidents other, is in the most strict, technical, and 
 both in theory and practice. Every far- unqualified sense but its trustee. This is 
 thing of its tolls is first to be diverted to the primary and sole, legal, political 
 paying the public tax, and to the contin- motive for its creation." 
 uance of the road, its ample equipment 
 
592 RAILWAY BONDS AND MORTGAGES. [cHAP. XXVIII. 
 
 cessation from work simultaneously is to be deprecated, in the 
 interests both of the property and the public, and the payment of 
 limited amounts due to other and connecting lines of road for 
 materials and repairs, and for unpaid ticket and freight balances, 
 and the outcome of indispensable business relations, where a stop- 
 page of the continuance of such business relations would be a 
 probable result, in case of non-payment, — the general consequence 
 involving largely also the interests and accommodation of travel and 
 traffic, may well place such payments in the category of those 
 made to preserve the mortgage property in a large sense, by 
 maintaining the good-will and integrity of the enterprise, and 
 entitle them to be made a first lien." 
 
 So also in Wood v. Guarantee Trust & Safe Deposit Co.,^ where 
 it was attempted to apply the doctrine of preferential debts in 
 favor of the supply creditor of a water-works company, Mr. Jus- 
 tice Lamar took occasion to point out that this doctrine had never 
 been countenanced in any case except that of a railroad company ; 
 but an express ruling on the point was deemed to be unnecessary, 
 in view of other considerations which were conclusive against the 
 enforceability of the plaintiff's claim. 
 
 A distinguished circuit judge announced the same principle still 
 more distinctly in the following language : " Underlying the rule 
 which the Supreme Court has laid down in respect to the pay- 
 ment of prior unsecured debts recently accrued, runs the thought 
 that a railroad corporation owes a duty to the public which has 
 given it its franchise and enabled it to construct its road, — the 
 duty of operating that road for the benefit of the public." ^ 
 
 That the doctrine as to the preferential debts of railroad com- 
 panies can be justified only by the quasi public character of such 
 corporations has been directly ruled by the New York Court of 
 Appeals, which has decided that the " back claims " of the em- 
 ployees of an insolvent hotel company have no such superior 
 equity as against the claims of tlie secured creditors ; that a 
 receiver, appointed at the instance of the latter, should be au- 
 thorized to pay them in preference to the mortgage bonds of 
 the corporation.^ 
 
 1 128 U. S. 416 (1888). » Baht v. Attrill (1887), 106 N. Y, 
 
 2 Central Trust Co. v. Wabash, St. L. 423. Referring to the cases in the Su- 
 & Pao. Ry. Co. (1885), 23 Fed. Rep. 863, preme Court of the United States, Judge 
 per Brewer, J. Andrews, on p. 436, said : " We have not 
 
 To the same effect see Bound v. South lost sight of the recent very important 
 
 Carolina R. Co. (1891), 47 Fed. Rep. 30, cases decided in the Supreme Court of the 
 
 and the cases cited in the following sec- United States, involving the question of 
 
 tion. the power which may be vested by the 
 
§ 600.] 
 
 PREFERRED DEBTS. 
 
 593 
 
 § 600. What Corporations are Subject to the Rule. — What cor- 
 porations, if any, besides railroad companies are within the scope 
 of tlie rule has not as yet been settled precisely by the courts. It 
 lias been held that the test is whether the corporation has exer- 
 cised, or can legitimately exercise, the right of eminent domain 
 for the purpose of facilitating the conduct of its business, and the 
 rule is therefore not applicable to carriers by water. ^ 
 
 Applying this ultimate test, it is clear that such corporations as 
 hotel, mining, manufacturing companies, and the like, would have 
 to be excluded from the application of the rule ^ and denied in 
 another.^ 
 
 Possibly a definite conception may be arrived at by consider- 
 ing that the doctrine of preferential claims is applied, in the 
 case of railroad companies, not solely on account of that public 
 character which demands that they shall be kept up as a going 
 concern, but also because, owing to the peculiar character of the 
 business, there is a more than ordinary danger that their operation 
 will be interrupted if certain back claims are not paid; The plant 
 and equipment of a railroad, it is obvious, are essentially different 
 from the plant and equipment of a gas company or a water corn- 
 
 court in receivers of insolvent railroad 
 corporations, and the rights of the court 
 to provide for the payment of certain 
 debts contracted before or after the ap- 
 pointment of a receiver out of income, 
 and if that is inadequate, out of the 
 corpus of the property. These cases and 
 decisions are the outcome of the growth 
 of railroad enterprises and business within 
 a comparatively recent period. It has 
 been held that under special circumstances 
 the court may direct the payment of ante- 
 receivership debts for labor or supplies 
 contracted within a limited period before 
 the insolvency, the adjustment and pay- 
 ment of traffic balances in favor of con- 
 necting roads, and may direct the receiver 
 to operate the road pending foreclosure, 
 and to that end purchase necessary rolling- 
 stock for the use of the road and make 
 repairs and improvements thereon, the 
 expense of which shall be a charge on the 
 property in priority to legal liens. (Wal- 
 lace V. Loorais (1877), 97 U. S. 146; 
 Fosdick V. Schall (1879), 99 U. S. 235 ; 
 Barton v. Barbour (1881), 104 U. S. 126 ; 
 Miltenberger v. Logansport Railway Co. 
 (1882), 106 U. S. 286 ; Union Trust Co. 
 V. Soutter (1882), 107 U. S. 591 ; Burn- 
 
 ham V. Bowen (1884), 111 U. S. 776 ; 
 Union Trust Co. o. Illinois Midland E. 
 Co. (1886), 117 U. S. 434.) It cannot be 
 successfully denied that the decisions in 
 these cases vest in the courts a very 
 broad and comprehensive jurisdiction over 
 insolvent railroad corporations and their 
 property. It will be found on examining 
 these cases that the jurisdiction asserted 
 by the court therein is largely based upon 
 the public character of railroad corpora- 
 tions, the public interest in their con- 
 tinued and successful operation, the 
 peculiar character and terms of railroad 
 mortgages, and upon other special grounds 
 not applicable to ordinary private cor- 
 porations." 
 
 1 Bound V. South Carolina E. Co. 
 (1892), 50 Fed. Eep. 312. 
 
 2 Merchants' Bank of Atlanta v. Moore 
 (1895), 106 Ala. 646; s. c. 17 So. Eep. 
 705 ; Laughlin v. United States Rolling 
 Stock Co. (1894), 64 Fed. Rep. 25; 
 Hooper v. Central Trust Co. (1895), 81 
 Md. 559 ; s. o. 32 Atl. Kep. 505, and the 
 cases cited in the preceding section. 
 
 " Hunt U.Memphis Gaslight Co. (1895), 
 95 Tenn. 136 ; s. c. 31 S. "W. 1006. 
 
 38 
 
594 RAILWAY BONDS AND MORTGAGES. [CHAP. XXTIII. 
 
 pany. The former is only valuable in so far as it is kept in readi- 
 ness to meet the demands of a business which is one of constant 
 change and flux, dependent to a large extent upon a variable body 
 of customers. The latter is designed to serve the requirements of 
 a business which would suffer comparatively little from a tem- 
 porary stoppage, and this is all that is to be apprehended in the 
 case of either class of business. The central consideration, there- 
 fore, which has influenced the courts to exercise this extraordinary 
 jurisdiction in the case of railroads is wanting, or, at all events, is 
 very much less prominent in the case of other corporations which 
 are unquestionably of a quasi public nature. This difference con- 
 stitutes a perfectly adequate reason for denying the allowance of 
 any preferences except to the creditors of railroad companies. 
 
 It has also been decided that the doctrine of preferential debts 
 is not applicable to a manufacturing company ; ^ even if there has 
 been a diversion of earnings in favor of the mortgage creditors.^ 
 
 It is not irrelevant to notice in the present connection that the 
 analogous powers conferred upon receivers in regard to borrowing 
 money on the security of the corpus of the estate for the purpose 
 of keeping the road in operation have been still more distinctly 
 placed upon the ground of the public interest in the duties which 
 a railroad company undertakes when it is organized. (See Chap. 
 XXIX.) 
 
 In a very late federal case it was held that the doctrine of the 
 case of Fosdick v. Schall, 99 TJ. S. 235, will not be applied in fore- 
 closure suits against any other corporations than railroad com- 
 panies.^ 
 
 But there are other corporations, the position of which with 
 respect to the doctrine is, in the present state of the authorities, 
 somewhat difficult to fix. That no preference will be granted to 
 back claims against a waterworks company is settled, — a doc- 
 trine which seems to involve the conclusion that the power to 
 exercise the right of eminent domain is not a decisive test.* 
 
 1 Seventh National Bank v. Shenan- (1895), 70 Fed. Eep. 2 ; s. c. 16 C. C. A. 
 
 doah Iron Co. (1887), 35 Fed. Eep. 436. 686. 
 
 ^ Snively v. Loorais Coal Co. (Phcenix * Wood v. Guarantee Trust & Safe 
 
 Powder Mfg. Co., Intervener), (X895), 69 Deposit Co. (1888), 128 U. S. 416. The 
 
 Fed. Kep. 204. Supreme Court of the United States in 
 
 In the last cited oa-se the court dis- this case is evidently inclined to hold that 
 
 tinctly took the ground that there was no the doctrine of preferential debts is appli- 
 
 public interest requiring such a corporation cable only to railroads, though it was not 
 
 to be continued as a going concern. so decided in explicit terms, and the case 
 
 ' Ford V. Central Trust Co. (1895), 70 went off on another point. In Ellis v. 
 
 Fed. Eep. 144 ; a. c. 17 C. C. A. 31. See Vernon Ice, etc. Co. (1893), 86 Tex. 109, 
 
 Haima et al. v. State Trust Co. et al. however, it was held that a waterworks 
 
§ 601.] PREFERRED DEBTS. ' 595 
 
 That a gas company is on the same footing as a railroad has 
 been asserted in one case.^ 
 
 § 601. Anomalies of the Doctrine cis now administered. — But 
 even if it is conceded that the protection of the public interests 
 furnisiies a sufficient ground for the exercise of this novel juris- 
 diction ; that " the ends of justice have been promoted " by the 
 action of the courts in paying preferential debts ; ^ that " there 
 is justice in paying out of the income the working-men and ma- 
 terial-men, who have kept the road in use ; " and that " their pref- 
 erence places the bondholders in no worse condition than they 
 would have been if payment had been made when the debts were 
 contracted," ^ — it seems fairly open to question whether the whole 
 matter would not have been settled upon a more satisfactory basis 
 if its adjustment had been left to the legislature. Two inconsist- 
 encies inherent in the judge-made law which is now administered 
 might in that way have been obviated. In the first place, there 
 seems to be no adequate reason why the courts should draw the 
 line defining preferred debts at those which are incurred for 
 operating expenses, and refuse to interfere in those equally meri- 
 torious cases where the company has failed to pay the expenses of 
 construction.* It is evident that even where the company, as is 
 commonly the case, is not the direct paymaster of the persons who 
 furnish labor and supplies for building the road, the inability of 
 the company to discharge a debt due to the contractors who actu- 
 ally do the construction work, must necessarily, as such operations 
 are usually conducted, involve the non-payment of the employees 
 of these contractors. 
 
 The bondholders get the advantage of this labor and these sup- 
 plies just as clearly as they get the advantage of the labor and 
 supplies furnished while the road is in operation. Why should 
 the fact that the security is benefited be, in one case, a reason for 
 favoring those who have contributed to the result, and not in the 
 otlier ? The actual creation of the security ought to be regarded 
 as a work entitling those who have participated therein to as much 
 favor as those who have contributed to preserve the security after 
 its creation.^ 
 
 company was so far public as to justify ' Clark v. Williamsport E. Co., an 
 
 keeping it up by tbe issue of receivers' unreported case decided by Mr. Justice 
 
 certificates, a ruling which cannot be Strong while on the Supreme Bench of 
 
 reconciled with the case just cited. Pennsylvania. 
 
 1 Reybum v. Consumers' Gas Co. * See below, § 634. 
 
 (1887), 29 Fed. Rep. 561. » This view has been taken in a recent 
 
 * Farmers' Loan & Trust Co. v. Kansas case by Judge Caldwell, though the allow- 
 
 City, W. & N. W. R. Co. (1892), 53 Fed. ance of debts for construction was as a 
 
 Rep. 182, per Caldwell, J. matter of fact assented to by the trustees. 
 
596 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXTIII. 
 
 In the second place, legislation might have been so framed as 
 not to make the payment of these debts dependent upon the cir- 
 cumstance of the appointment of a receiver. If the claims pre- 
 ferred are really meritorious, there surely cannot be instanced a 
 more deplorable result of the separation of law and equity than 
 that they should go unpaid simply because the mortgagee elects 
 to assert his rights. Yet such seems to be the unquestioned rule 
 according to the highest authority.' 
 
 § 602. Theory that Company becomes Agent sub Modo of Bond- 
 holders, if allowed to remain in Possession. — The theory that the 
 company, if allowed to remain in possession after default, becomes 
 the agent of the bondholders for the purpose of contracting debts 
 
 Farmers' Loan & Trust Co. a. Kansas City, 
 "W. & N. W. Ry. Co. (1892), 53 Fed. 
 Rep. 182. The learned judge thought 
 it a matter for congratulation that this 
 anomaly is gradually disappearing through 
 the enactment of appropriate legislation. 
 See the note appended to the report of 
 this case for a list of the statutes recog- 
 nizing the meritorious character of con- 
 struction debts. 
 
 In Vermont the right of a railroad 
 company to mortgage all its personal 
 property without the necessity for a 
 change of possession is only s'".jject to 
 the right of a creditor to attach that 
 property to secure payment of a claim 
 "for services rendered or materials fur- 
 nished for the purpose of keeping the 
 road in repair or in running the same." 
 Poland V. Lamoille Valley Ry. Co. (1879), 
 52 Vt. 144. 
 
 1 Fosdick V. Schall (1879), 99 TJ. S. 
 235 ; s. c. 8 Fed. Rep. 449. In Central 
 Trust Co. V. East Tennessee, Va. & Ga. E. 
 Co. (1886), 30 Fed. Rep. 895, it is stated 
 obiter that the doctrine of preferential 
 debts is applicable to cases where the 
 trustee takes possession, and the above 
 decision of the Supreme Court of the 
 United States, and Burnham o. Bowen 
 (1884), 111 U. S. 776; s. c. 17 Am. & 
 Eng. R. R. Cas. 308, are cited as authori- 
 ties. This is certainly an error, as no 
 such doctrine is laid down in these cases. 
 In fact Fosdick v. Schall is a distinct 
 authority against it. In Burnham v. 
 Bowen Chief Justice Waite said ; "If 
 the trustees had taken possession under 
 the mortgage, they would have been sub- 
 
 ject to similar expenses to do what the 
 company, with their consent and approba- 
 tion, was doing for them." But this re- 
 mark has certainly no such meaning as 
 that ascribed to it. The point does not 
 seem to have been directly raised in any 
 case, but in Duncan v. Mobile & Ohio R. 
 Co. (1876), 2 Woods, 542, Judge Woods 
 refused to direct trustees in possession to 
 apply the income to the payment of cer- 
 tain floating indebtedness, even though a 
 part of it had been contracted by the 
 company to pay off bonded interest and 
 to make permanent improvements, and 
 though it was represented that a scheme 
 of reorganization would be greatly facili- 
 tated by such an application of the fund. 
 The latter of these reasons would of course 
 have had no weight even if the court had 
 been considering the petition of a receiver ; 
 but under the doctrine of Fosdick v. 
 Schall it is clear that, if the property 
 had been in the hands of a receiver, the 
 bondholders would have been bound to 
 submit; to the replacement of any part of 
 the floating debt which had been applied 
 to interest or betterments. The case is 
 therefore a distinct authority for the rule 
 stated in the text, though, as it was 
 decided before the principle of the restora- 
 tion of diverted earnings was clearly for- 
 mulated, its pertinence is of a somewhat 
 negative character. 
 
 In Canada the trustees who go into 
 possession cannot be held liable for mate- 
 rials furnished or work done previous to 
 their possession : Wallbridge v. Farwell 
 (1890), 18 Can. S. C. 1. 
 
§ 602.] 
 
 ■ PREFERRED DEBTS. 
 
 597 
 
 for operating expenses, has been put forward in some cases as a 
 reason wliy such debts should be paid in preference to the bonds. 
 It seems clear, however, that there must be something more than 
 a mere failure to take possession in order to raise an estoppel on 
 this ground.' 
 
 To produce that result, the period during which the company 
 were allowed to operate the road must have been so considerable 
 as to justify the inference that the bondholders impliedly con- 
 sented that the earnings of the road should be used to discharge 
 such expenses as are incurred in a greater or less degree for their 
 benefit.2 
 
 1 Blair v. St. Louis, H. & K. R. Co. 
 (1884), 22 Fed. Rep. 471 ; Hiles v. Case 
 (1880), 9 Biss. 549 ; s. 0. 14 Fed. Rep. 
 141 ; reported also sub nom. In re Dex- 
 'terville Mfg. & Boom Co. (1880), 4 Fed. 
 Rep. 873 ; Skiddy o. Atlantic, Miss. & 
 Ohio R. Co. (1878), 3 Hughes, 320, 340. 
 
 In Blair v, St. Louis R. Co., supra, the 
 master had reported in favor of all claims 
 accruing since the first default in the 
 payment of interest, a period of over two 
 years. Judge Brewer thus commented on 
 this action : " This seems to proceed on 
 the assumption that the mortgagees, by 
 failing to take action, have made the 
 mortgagor company their agent to incur 
 debts ; have impliedly consented that all 
 such debts should take preference of their 
 secured claims. I do not think that this 
 principle is sound. There is no implied 
 agency to that extent, and I do not think 
 that the rulings of the Supreme Court ai-e 
 based upon any such doctrine. The idea 
 which underlies them I take to be this : 
 that the management of a large business, 
 like that of a railroad company, cannot 
 be conducted on a cash basis. Temporary 
 credit, in the nature of things, is indis- 
 pensable. Its employees cannot be paid 
 every month. It cannot settle with other 
 roads its traffic balances at the close of 
 every day. Time to adjust and settle 
 these various matters is indispensable. 
 Because in the nature of things this is 
 so, such temporary credits must be taken 
 as assented to by the mortgagees, because 
 both the mortgagees and the public are 
 interested in keeping up the road, and hav- 
 ing it preserved as a going concern, and 
 whatever is necessary to accomplish this 
 
 result must be taken as assented to by the 
 mortgagees. In this view, such temporary 
 credits accruing prior to the appointment 
 of the receiver must be recognized by the 
 mortgagees and such claims preferred." 
 
 2 Dow V. Memphis & Little Rock R. 
 Co. (1884), 20 Fed. Eep. 260, 267, where 
 Judge Caldwell said, among other things : 
 " It is no answer to say the company 
 used its earnings for other purposes. The 
 bondholders knew such liabilities must be 
 incurred in running the road. They had 
 it in their power to take possession of the 
 road and secure its earnings to pay such 
 liabilities. The class of persons protected 
 by this order could not do anything to 
 protect themselves, or compel a different 
 application of the earnings. The misap- 
 plication of the earnings, if there was 
 any, is not, therefore, to prejudice the 
 class of creditors named. The right to 
 require the payment of such debts does 
 not depend on whether current earnings 
 have been used to pay the mortgage debt." 
 So also in Duncan v. Trustees (1876), 9 
 Am. Ry. Rep. 386 ; 3 Centr. L. J. 579, 
 the court expressed a similar opinion in 
 the following words : "The Chesapeake & 
 Ohio R. Co. had been so long in default 
 that the right of the bondholders to claim 
 possession was fully consummate, and this 
 was a matter of common notoriety. It 
 could not be expected that the employees 
 all along the track of this road would 
 pause amid their increasing round of daily 
 duty to inquire whether the bondholders 
 had or had not asserted their rights and 
 assumed control. It was enough for them 
 to know that the service they were render- 
 ing was such service as any proprietor 
 
598 
 
 EAILWAr BOKDS AND MOBTGAGfES. [CHAP. XXTIII. 
 
 The whole theory of an implied assent, even with this qualifica- 
 tion, has been vigorously combated by Judge Jenkins in a recent 
 case, as follows : " If failure to take possession works an implied 
 assent that the earnings should be applied in compensation of 
 casualties in priority to the mortgage, why not as to all floating 
 indebtedness, to all improvements upon the road, and irrespective 
 of time ? Why not say that, through failure to take possession, 
 the bondholders assent that earnings should be devoted to the 
 payment of all debts incurred after default in the payment of 
 interest, and in priority thereto ? Why limit such priority to the 
 period of six months prior to the receivership ? If priority is to 
 be predicated upon implied assent instead of upon benefit to the 
 res, it should be allowed to all claims arising during failure to 
 take possession from which assent is implied. The priority 
 should be coextensive in point of time with the implied assent. 
 That logically results from the principle bottomed upon implied 
 assent. Such doctrine is, to my thinking, a broad departure from 
 the equitable doctrine declared by the Supreme Court, and would 
 be ruinous in its consequences. If conceded, the entire floating 
 debt of a railway company, occurring after default in payment of 
 
 would necessarily requirej and they had a 
 right to believe that all the officers left in 
 notorious occupancy of the property, and 
 charged before the public with the respon- 
 sibility of its care and custody, were 
 abundantly authorized to act for all whom 
 it might concern in contracting for their 
 services. . . . These employees had every 
 right to believe that, so long as the 
 bondholders stood aloof without asserting 
 their rights to possession, they were will- 
 ing to accept and regard prij tanto as their 
 agents for the preservation and protection 
 of the property the persons who, placed in 
 charge thereof by their defaulting debtor, 
 could not, in good faith to the creditor or 
 the debtor, abandon their posts or be 
 derelict, while they had them, to the 
 trusts which they imposed." So also in 
 Williamson's Admin, v. Washington City, 
 Va. Midi. & Grt. Southern R. Co. (1880), 
 33 Gratt. 624 ; s. c. 1 Am. & Eng. R. E. 
 Cas. 498, the court considered that the 
 fact of the mortgagees having left the 
 company iu possession for several years, 
 and allowed it to obtain credit upon the 
 faith of its control of the earnings, fur- 
 nished a good and sufficient reason for 
 requiring the debts contracted for operat- 
 
 ing expenses to be paid before the court 
 would exercise its discretion in appointirig 
 a receiver. In Union Trust Co. v. Souther 
 (1882), 107 U. S. 591 ; s. c. 11 Am. & 
 Eng. R. R. Cas. 707, the failure of the 
 trustees to take possession for three 
 months after the period of continued 
 default which gave them that right was 
 mentioned among the circumstances which 
 may make an order to pay the back claims 
 of a material-man not an unreasonable 
 exercise of the discretion of a court which 
 is asked to appoint a receiver ; but the 
 court does not take tha position that the 
 company thereby becomes the agent of the 
 bondholders. The diversion of the earn- 
 ings had, in fact, taken place with the 
 consent of the bondholders. 
 
 In Douglass v. Cline (1877), 12 Bush 
 (Ky.), 608; 18 Am. Ry. Rep. 273, the 
 court lays some stress upon the fact that 
 the debts for which a preference was 
 claimed were incurred during a period 
 when the bondholders "either could or 
 could not interfere to protect their secur- 
 ity." But the decision was rendered on 
 the broader ground of the superior equity 
 of the claims. 
 
§ 603,] PREFERRED DEBTS. 599 
 
 interest, and during failure to take possession, would necessarily 
 and logically be given priority. Vested riglits of property would 
 be subjected to great detriment under such holding. The bonds 
 of American railways are scattered throughout Europe, and are 
 held iu many hands. It requires much time to institute con- 
 certed action by the holders after default in payment of interest. 
 Meantime unprincipled directors, anxious to retain possession of 
 the road, could contract indebtedness, — given priority by such 
 ruling, — working ruin to the mortgage interest. The bondholder 
 would be ' improved out of his estate,' and his vested rights placed 
 at the mercy of hostile directors. I am unwilling to assent to 
 such doctrine. I do not understand it to be the law." ^ 
 
 Article II. — Priority op Back Claims. 
 
 § 603. Fo'wer of Court on Appointment of Receiver to impose 
 Conditions as to Payment of Back Claims. — The power of the 
 court to require the payment of certain back claims as a condi- 
 tion of granting a receivership is made to rest upon the fact that 
 it is within the discretion of the court to give or refuse this kind 
 of relief. The assumption being that, for the reasons already 
 enlarged upon, the bondholders are bound in equity to see these 
 claims paid before they themselves have any right to the income, 
 it follows that the court may require them to do equity in order 
 that they may receive equity.^ 
 
 1 Farmers' Loan & Trast Co. i>. Green In Douglass v. Gline, supra, Judge Cofer 
 Bay, W. & S. W. R. Co. (1891), 45 Fed. delivered an elaborate dissenting opinion 
 Rep. 664 ; s. 0. 46 Am. & Eng. R. K. Cas. in which he combated vigorously, and 
 296. So also in Farmers' Loan & Trust with much justice, this novel application 
 Co. V. Chicago & A. Ey. Co. (1889), 42 of a familiar maxim of equity. The 
 Fed. Rep. 6 ; s. c. 8 Ey. & Corp. L. J. ordinary meaning of the maxim, it was 
 184, Judge Gresham said that "it does pointed out, was not that the plaintiff 
 not follow that, because the bondholders should do equity to some third party, 
 failed to exercise at an earlier day their but that he should do equity to the 
 riglit to foreclose for the principal indebt- defendant in regard to the subject-matter 
 eduess, and in that connection ask for a of the litigation. In cases of any other 
 receiver, they thereby constitute the cor- kind, it has never been contended that 
 poration their agent for all purposes in the a chancellor should refuse to grant a 
 operation of the road." relief against B., because the complainant 
 
 2 Fosdick V. Schall (1879), 99 U. S. 235; has an unfair advantage against C. The 
 s, 0. 7 Fed. Rep. 449 ; Douglass v. Cline position of the bondholders is, however, 
 (1877), 12 Bush (Ky.), 808 ; s. o. 18 Am. really much stronger than this, for accord- 
 Ey. Rep. 273 ; Poland v. Lamoille Valley ing to the principles of equity, as usually 
 R. Co., 52 Vt. 144 ; 'Williamson v. Wash- administered, it cannot be maintained that 
 ington City, Ta. Midi. & Great Southern in seeking to secure all the earnings from 
 R. Co. (1880), 38 Gratt. 624 ; s. 0. 1 Am. the time the default of the company gives 
 & Eng. R. R. Cas. 498; Ellis v. Boston, them the right to foreclose, they are taking 
 Hartford, & Erie R. Co. (1871), 107 Mass. 1. an unfair advantage of any one. 
 
600 EAILWAT BONDS AND MORTGAGES. [CHAP. XXVIII. 
 
 This power of the court does not depend on whether current 
 earnings have or have not been used to pay interest, or to increase 
 the value of the property.^ 
 
 § 604. Limits of Discretionary Power of the Court to impose 
 Conditions as to Payment of Back Claims. — It is not to be ex- 
 pected that a standard so vague as the discretion of the court 
 will be applied with entire uniformity of results to the determi- 
 nation of the question, what back claims may properly be pro- 
 vided for in an order of appointment of a receiver. Some courts 
 have gone so far as to extort the assent of the bondholders to 
 schemes of liquidating antecedent debts, which amount to giving 
 all the general creditors a prior claim upon the income of the 
 receivership. This seems an unwarrantable exercise of judicial 
 discretion, and the Supreme Court of the United States has, in a 
 recent case, animadverted in severe terms upon such abuse of 
 power : " The appointment of a receiver vests in the court no 
 absolute control over the property, and no general authority to 
 displace vested contract liens. Because in a few specified and 
 limited cases this court has declared that unsecured claims were 
 entitled to priority over mortgage debts, an idea seems to have 
 obtained that a court appointing a receiver acquires power to 
 give such preference to any general and unsecured claims. It 
 has been assumed that a court appointing a receiver could right- 
 fully burden the mortgaged property for the payment of any un- 
 secured indebtedness. Indeed, we are advised that some courts 
 have made the appointment of a receiver conditional upon the 
 payment of all unsecured indebtedness in preference to the mort- 
 gage liens sought to be enforced. Can anything be conceived 
 which more thoroughly destroys the sacredness of contract obli- 
 gations ? One holding a mortgage debt upon a railroad has the 
 same right to demand and expect of the court respect for his 
 vested and contracted priority as the holder of a mortgage on a 
 farm or lot. So, when a court appoints a receiver of railroad 
 property, it has no right to make that receivership conditional on 
 the payment of other than those few unsecured claims which, by 
 the rulings of this court, have been declared to have an equitable 
 priority. No one is bound to sell to a railroad company, or to 
 work for it; and whoever has dealings with a company whose 
 property is mortgaged must be assumed to have dealt with it on 
 the faith of its personal responsibility, and not in expectation of 
 subsequently displacing the priority of the mortgage liens. It is 
 the exception and not the rule that such priority of liens can be 
 
 1 Dow V. Memphis & Little Eock E. Co. (1884), 20 Fed. Rep. 260. 
 
§§ 605, 606.] PREFERRED DEBTS. 601 
 
 displaced. We emphasize this fact of the sacredness of contract 
 liens, for the reason that there seems to be growing an idea that 
 the Chancellor, in the exercise of his equitable powers, has un- 
 limited discretion in this matter of the displacement of vested 
 liens." 1 
 
 § 605. Claimants in Order of Appointment not invested with 
 Absolute Right as against Bondholders. — An order appointing a 
 receiver does not vest in the claimants coming within its terms 
 an absolute right as against the security holders. Its terms are 
 a protection to the receiver himself ; and what he does and pays 
 within those terms is thereafter beyond the challenge of any 
 party interested in the property. But when he has not paid a 
 claim which it is alleged comes within the terms of the order, 
 and the question is presented to the court as to the liability of 
 the property for the claim, the court is not foreclosed by the 
 order, but may determine the extent of liability of the property 
 to such claim, and what its rights of priority may be.^ 
 
 § 606. Upon whom Conditions of Order are binding. — Condi- 
 tions imposed as to the discharge of back claims are binding not 
 only on the party who asks for the appointment of the receiver, 
 and accepts it on the terms laid down, but also on any one who 
 may afterwards come into the litigation.^ 
 
 As to any particular claim, the order is conclusive where all 
 
 1 Kneeland o. American Loan Co. Midland Ry. Co. (1886), 117 U. S. 434 ; 
 
 (1890), 136 U. S. 89 ; 43 Am. & Eng. R. R. s. c. 25 Am. & Eng. R. R. Gas. 660. 
 
 Gas. 519. So far as regards the subject- ^ Louisville, Evansville, & St. Louis R. 
 
 matter, the proper limits of a chancellor's Co. v. Wilson (1891), 138 U. S. 501. 
 
 discretion in requiring the payment of ^ Calhoun i>. St. Louis & S. W.Ry. Go. 
 
 back claims are probably indicated with (1880), 14 Fed. Rep. 9, 10. The court 
 
 sufficient accuracy in the following brief said : " Parties in court at the time are 
 
 but comprehensive order, issued in one of certainly bound by an order made when 
 
 the cases: "It is further ordered, ad- the court took jurisdiction of the case, and 
 
 judged, and decreed that the said receiver, all coming into the litigation afterwards 
 
 out of the income that shall come into his must be considered as coming subject to 
 
 hands from the operation of the said rail- the policy which had been prescribed by 
 
 road or otherwise, do proceed to pay all the court in relation to the payment of 
 
 just claims and accounts for labor, mate- the labor and supply claims, and certainly 
 
 rial, supplies, salaries of officers and wages subject to the order as modified by the 
 
 of employees, that may have been earned court at the instance of the first niort- 
 
 or furnished within six months prior to " gagees. Then it follows that, under the 
 
 a specific date. See the statement of rule in Fosdick v. Schall, the condition 
 
 facts in Louisville, Evansville, & St. Louis imposed upon the property should adhero 
 
 R. Go. V. Wilson (1891), 138 U. S. 501. to it during the progress of the litigation, 
 
 A more lengthy example of an order of and all claims coming within the terms of 
 
 appointment providing for the payment of the order of the court should be paid in 
 
 back claims will be found in the report of the manner there pointed out." 
 the case of Union Trust Go. v. Illinois 
 
602 RAILWAY BONDS AND EOITGAGES. [CHAP. XXTIII. 
 
 the parties accept it, whether or not the court had the power to 
 require its payment in the first instance.^ 
 
 § 607. Back Claims to be preferred need not be particularized 
 in the Order. — It is not always possible to determine before the 
 receiver is appointed what claims are in equity paramount to the 
 mortgage, and they need not be precisely specified in the order of 
 appointment. The receiver may be directed to pay such claims 
 as the master shall report to be equitably entitled to priority .^ 
 
 § 608. Limits of the Power to prefer Unsecured Debts -when no 
 Provision is made for the Payment in Order appointing a Receiver. — 
 The decision in Fosdick v. Schall left one important point in an 
 unsettled condition, as the court did not express any opinion as 
 to whether back claims could be enforced in those cases in which 
 no order had been made for their payment, when the receiver was 
 appointed, and there was no proof of diversion. This question 
 was partially resolved in Miltenberger v. Logansport Ry. Co.,-* in 
 which it was held that arrears of wages and sums due to connect- 
 ing lines for which no provision had been made in the order of 
 appointment, might be paid, where the case was brought by special 
 circumstances within the principle which regulates the payment of 
 claims arising during a receivership. Circumstances justifying 
 such a payment were held to exist if it was apparently necessary 
 for the purpose of keeping the road in operation, or, in other 
 words, if the protecUoa and preservation of the property as a 
 " going concern " required it. 
 
 In Burnham v. Bowen* this circumscribed doctrine was ex- 
 
 1 Union Trust Co. v. Atchison, T. & ployees no longer in the service of the com- 
 S. F. R. Co. (Madden, Intervener), (1895), pany the priority of the mortgage was 
 42 Pao. 89. strictly upheld, the great hardship of 
 
 2 Blair v. St. Louis H. & K. R. Co. many of the cases being at the same time 
 (1884), 22 Fed. Kep. 471, 474. conceded. 
 
 8 186 U. S. 286 (1882). A similar * 111 U. S. 776; s. o. 17 Am. & Eng. 
 
 conclusion had previously been arrived at R. R. Cas. (1884). In this case the Cir- 
 
 in Skiddy v. Atlantic, Miss. & Ohio R. ouit Court had used the income of the 
 
 Co. (1878), 3 Hughes, 320, whore, upon receivership to pay the fixed prior charges 
 
 the receiver's representing that the pay- on the mortgaged property, and thus 
 
 ment of certain back claims for the wages increase the security of the bondholders, 
 
 of persons still in the employment of the A decree of strict foreclosure was then 
 
 company was necessary for the safe and rendered, the rights of all interveners, of 
 
 successful operation of the road, and that whom Bowen was one, being saved, and 
 
 he could not be responsible for the eonse- the case continued for the final determina- 
 
 quences of a refusal of it by the court, an tion of all such questions as the one under 
 
 order was made for the payment of arrears discussion. The court held that, ' ' as the 
 
 for eight months, although no conditions diversion of the fund by the receiver cre- 
 
 were imposed at the appointment of the ated in equity a charge on the property as 
 
 receiver, but as to the back claims of em- security for the restoration, the mort- 
 
§ 608.] PREFERRED DEBTS. 603 
 
 panded, and the general rule laid down that, even if no special 
 provision has been made for the payment of operating expenses 
 in the order appointing the receiver, a court of chancery when it 
 takes possession of mortgaged railroad, and thus deprives the 
 company of the power of receiving any further earnings, ought to 
 do what the company would have been bound to do, if it had re- 
 mained in possession ; that is to say, " pay out of what it receives 
 from the earnings all the debts which, in equity and good con- 
 science, considering the character of the business, are chargeable 
 upon such earnings." The result of this decision, therefore, is 
 that debts of this class are an absolute charge in equity on the 
 continuing inconie, as well that which comes in the hands of 
 the court after the receiver is appointed as that which is collected 
 by the company itself prior to such appointment, and that their 
 payment may be enforced at any stage of the litigation, provided 
 the court has control of the subject-matter. 
 
 In one recent case it has been ruled that preference cannot be 
 accorded to a claim as to the corpus of the property, where no 
 order has been made for its payment at the time of the receiver's 
 appointment.! 
 
 In another it has been held that, under such circumstances, a 
 claim cannot be made a charge either on the corpus or earnings.^ 
 
 gagees, having elected to take the property tended doctrine of this ca.se is, however, 
 
 under a decree of Strict foreclosure, took clearly within the principle of Burnham 
 
 it subject to the charge in favor of the v. Bowen, supra. To the same effect see 
 
 current debt creditor whose money they Central Trust Co. v. St. Louis, A. & T. E. 
 
 had got." The point was also raised in Co. (1890), 41 Fed. Rep. 551 ; Farmers' 
 
 another case decided in a Circuit Court Loan & Trust Co. v. Kansas City, W. 
 
 about the same time as Burnham «. Bowen, & N. W. R. Co. (1892), 53 Fed. Eep. 
 
 and Judge Brewer expressly rejected the 182. 
 
 contention of counsel, that no unsecured ^ Cutting v. Tavares, 0. & A. R. Co. 
 claims can be preferred to the mortgage, (Florida Cent. & P. E. Co. et al., Inter- 
 unless there has been either a diversion of veiiers), (1894), 61 Fed. Rep. 150 ; s. c. 9 
 earnings, or the court has required their C. C. A. 40 ; 61 Fed. Rep. 15. 
 payment as a condition of appointing a ^ Central Trust Co. v. Chattanooga & 
 receiver. Blair v. St. Louis, H. & K. R. Southern E. Co. (1895), 69 Fed. Eep. 295, 
 Co. (1884), 22 Fed. Rep. 471. There it following the ruling of the Court of Ap- 
 was held, on the authority of Miltenbergei- peals in the case last cited. 
 v. Logansport Ry. Co., supra, that certain Holders of debentures charging all the 
 labor and supply claims might be pre- property of the company as a, floating se- 
 ferred. But the grounds on which that curity held preferred to subsequent credit- 
 case was decided were, as we have seen, ors in a winding up. ire re Opera (Lim.), 
 quite special, and it can scarcely be said (1891), 3 Ch. Div. 260 ; In re Standard 
 to be an authority for allowing back Mfg. Co. (1891), 1 Ch. 627, 640, 641 ; Ee 
 claims, not provided for in the order of Pyle Works, 44 Ch. Div. 534 ; Re General 
 appointment, where there is no averment South American Co., 2 Ch. Div. 337 ; Be 
 that their discharge is necessary for the Bell (1886), 34 W. R. 363. They also 
 preservation of the estate. The more ei- have priority over general creditors. Re 
 
604 RAILWAY BONDS AND MORTGAGES. [CHAP. XXTIII. 
 
 Tlie only precedent cited by the court in the former case was 
 Fosdick V. Schall, which does not sustain any such doctrine as 
 that attributed to it, the fact being, as already remarked, that the 
 Supreme Court of the United States did not express any opinion 
 whatever as to the rights of the parties, where no order embrac- 
 ing a claim has been made, except in the special case where a 
 diversion of earnings is shown. These cases, so far as they are 
 intended to lay down a general doctrine, are, it is evident, directly 
 opposed to Miltenberger v. Logansport Ry. Co. and Burnham v. 
 Bowen, supra, which, without in any way contradicting Fosdick v. 
 Schall, have greatly expanded the scope of that decision. The 
 Supreme Court is clearly committed to the doctrine that, within 
 certain fixed limits, back claims not provided for in the order of 
 appointment may be made a charge either on the income or (in 
 extreme cases) on the corpus. In fact it is easy to see that any 
 other position would be wholly illogical, and supported by no 
 more valid ground than a sort of technical estoppel. Obviously, 
 if a court has the right to refuse to appoint a receiver unless cer- 
 tain back claims are paid, it must also have a right to refuse to 
 continue the receivership for the same reason. The narrow theory 
 that, whatever is settled in the order of appointment is res judi- 
 cata would be singularly out of keeping with the central principles 
 underlying this extraordinary jurisdiction. If the court is to dis- 
 charge effectually its function of seeing that the public interests 
 do not suffer through the stoppage of the road, it must retain the 
 capacity for postponing the claims of the bondholders at any stage 
 of the proceedings, where the exigency requires it. To what 
 extent those claims shall be postponed, whether as regards the 
 income only or the corpus, is a question wliich, as was said in 
 Miltenberger v. Logansport Ry., supra, must be decided according 
 to the circumstances of the case. If it is simply a matter of equity 
 and good conscience, the debt will be charged on the income only. 
 If non-payment of the debt endanger the public interests, the court 
 will not hesitate to make the corpus of the estate responsible for 
 the satisfaction of the creditors' demand. 
 
 § 609. Assignee of Preferred Debt entitled to Preference. — The 
 assignee of a claim covered by an order appointing a receiver is 
 as much entitled to its benefit as the original holder.^ 
 
 Anglo-American Leather Cloth Co. (1879), ^ Union Trust Co. v. Walker (1884), 
 
 42 L. T. R. 507. 107 U. S. 596. " These creditors," said 
 
 As to priority of a mortgagee under a the court, "are paid not because they 
 
 renewal of his mortgage to unsecured cred- have in law a lien on the mortgaged prop- 
 
 itors, see Ee Underbanks Mills Cotton Co. erty or the income, but because in equity 
 
 (1868), 31 Ch. Div. 226. the earnings of the company constitute a 
 
§§ 610-612.] PEEFEREED DEBTS. 605 
 
 § 610. Debts will not be preferred merely because Bondholder 
 has promised Priority. — The promise of a bondholder to see that 
 a claim for personal services in making negotiations for a railroad, 
 which is not shown to be of a character that gives it a preference 
 over the mortgage, shall be paid before the bonds, is without con- 
 sideration, and not enforceable.^ 
 
 § 611. Judgment of another Court, when not conclusive as to 
 whether a Claim is to be preferred. — Since the priority of other 
 claims can only be conceded at the expense of the bondholders, a 
 judgment for a debt rendered in an action to which neither they 
 themselves nor the receiver in their behalf are made parties is 
 not admissible in another court, to establish that the debt is an 
 equitable charge on the mortgaged property superior in dignity to 
 the mortgage.^ 
 
 § 612. Back Claims not ordinarily Lien on Corpus. — That back 
 claims will not ordinarily be made a charge upon the corpus of the 
 estate follows as a necessary deduction from the principle that 
 " the mere fact of the appointment of a receiver to preserve the 
 property pendente lite does not change the character of a debt." 
 Such an appointment does not confer the rank of a secured claim 
 upon an unsecured claim for supplies,^ or upon an unsecured claim 
 for rent,* or upon an unsecured claim for arrears of salary.^ 
 
 fund for the payment of the expenses inter alios acta, and that the most that 
 
 which their claims represent, before any the claimant was entitled to, on the 
 
 inconje arises which ought to be applied strength of the judgment, was a general 
 
 to the discharge of the mortgage debt, unsecured allowance against the company. 
 
 Under such circumstances it is a matter ^ United States Trust Co. v. New York, 
 
 of no importance that the original cred- W. S. & B. R. Co. (1885), 25 Fed. Eep. 
 
 itor has parted with the claim. The right 800 ; Blair v. St. Louis, H. & K. R. Co. 
 
 is one that attaches to the debt, and not to (1884), 22 Fed. Rep. 471. In the first of 
 
 the person of the original creditor. Con- these cases the income of the receivership 
 
 sequently the right passes with an assign- had not been sufficient to pay the expenses 
 
 ment of the debt." s. P. Northern Pacific of operation, and the court said that, under 
 
 R. Co. V. Lament (1894), 69 Fed. Rep. 23. these circumstances, the application of the 
 
 1 Fiivmers' Loan & Trust Co. u. Pine creditor to enforce the payment of a claim 
 BUifl', M. & N. 0. Ry. Co. (Ark., 1893), not provided for in the order appointing 
 21 S. W. Rep. 652. , the receiver was substantially a request to 
 
 2 Wabash, St. Louis, & Pac. Ry. Co. v. charge the corpus of the estate. 
 
 Central T. Co. (1887), 33 Fed. Rep. 238. * Central Trust Co. v. Wabash, St. 
 
 There a creditor intervened in a federal Louis, & Pac. R. Co. (1888), 34 Fed. Rep. 
 
 court with a claim alleged to be prior to 259, the court saying that receivers, al- 
 
 the mortgage lien, but, before any action though they are liable for rent, if they 
 
 was taken, he was allowed to dismiss his elect to adopt a lease (see Chap. XXXI.) 
 
 petition without prejudice. Thereafter he due thereunder, are not bound to such an 
 
 obtained in the State court a consent extent that the lien of the mortgage upon 
 
 judgment against the company only on the corpus of the property is to be post- 
 
 the same claim. It was held that this poned to the claim for that rent, 
 pioeeeding was, as regards the receiver, ' National Bank of Augusta v. Caro- 
 
 then representing the bondholders, res Una, K. & W. E. Co. (1895), 63 Fed. 
 
606 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVIII. 
 
 To justify making a past-due claim a charge on the corpus, the 
 existence of some special equity must be affirmatively shown.^ 
 
 § 613. Back Claims Lien on Corpus where Diversion of Earnings 
 is established. — That the earnings have been diverted by the com- 
 pany to the payment of interest or to permanent improvements of 
 the estate is a well-recognized ground for declaring preferential 
 debts to be a lien on the corpus, if the current income of the 
 receivership is insufficient to discharge them.^ 
 
 This rule rests, as we have seen in a former section, upon the 
 principle that the earnings constitute a current debt fund, which 
 cannot be legitimately applied to any claims until the operating 
 expenses are fully paid.^ 
 
 In other words, the income must be first devoted to the expenses 
 of producing the income.* 
 
 If there has been a diversion of the earnings to the payment of 
 interest, the right of the preferential creditors to demand restitu- 
 tion is not defeated by the fact that another portion of the earnings 
 has been misapplied to the payment of a floating debt of previous 
 years, which was entitled to no priority.^ 
 
 The bondholders are not absolved from the obligation of restor- 
 ing diverted earnings, for the reason that the mortgage gives, in 
 terms, a lien on the profits and income ; for, as we have seen in a 
 preceding chapter, until possession of the mortgaged premises is 
 actually taken, or something equivalent done, the whole earnings 
 belong to the company, and are subject to its control.® (As to 
 the restoration of earnings diverted during the receivership, see 
 Chapter XXXI.) 
 
 § 614. Payments of Interest, -when not Diversion of Earnings. — 
 Payments of interest are not a diversion of earnings as regards 
 a creditor to whom there is nothing due at the time those pay- 
 
 Eep. 25. In this case the earnings of the St. Louis, A. & T. H. R. Co. v. Cleveland, 
 
 road were insufficient to pay even the re- C. C. & I. R. Co. (1888), 125 U. S. 658 ; 
 
 ceiver's compensation, so that the reasons s. c. 33 Am. & Eng. R. R. Cas. 16. 
 against granting the petition were stronger ^ Fosdick v. Schall, supra, § 597. 
 than usual. • Wood v. Guarantee Trust & Safe 
 
 1 National Bank of Augu.sta v. Caro- Deposit Co. (1888), 128 U. S. 416 ; s. c. 9 
 lina, K. & W. R. Co. (1895), 63 Fed. Sup. Ct. Rep. 131. 
 
 Rep. 25. 5 Williamson v. Washington City, Va. 
 
 2 Fosdick V. Schall (1879), 99 U. S. Mdl. & Grt Southern R. Co. (1880), 33 
 235; Union Trust Co. v. Souther (1882), Gratt. (Va.) 624; s. c. 1 Am. & Eng. 
 107 U. S. 59 ; s. c. 11 Am. & Eng. R. R. R. E. Cas. 498. 
 
 Cas. 707 ; Fanners' Loan & Tnist Co. v. " See the remarks of Justice Harlan in 
 
 Vicksburg & Meridian R. Co. (1888), 33 Thomas v. Peoria & R. I. R. Co. (1888), 
 
 Fed. Rep. 778 ; Calhoun v. St. Louis & 36 Fed. Rep. 808 ; s. c. 36 Am. & Eng. 
 
 S. W. Ry. Co. (1881), 14 Fed. Rep. 9, 10 ; R. E. Cas. 381. 
 Bumham v. Bowen (1884), 111 U. S. 776; 
 
§ 615.] PREFERRED DEBTS. 607 
 
 mcnts are made. A lessor of an insolvent road, for example, 
 cannot claim the restoration of earnings thus used, where the 
 evidence shows that the rent was not in arrear when the bond- 
 holders were paid their interest. A solvent road is not bound to 
 accumulate income with a view to possible future inability to pay 
 rent or other operating expenses.^ 
 
 Nor can the payment of interest be treated as a diversion where 
 the mortgagees have themselves advanced, for the purpose of 
 keeping up the road, more than the amount thus paid.^ 
 
 Nor is there any diversion where the money applied to the pay- 
 ment of interest constitutes a portion of the funds of the cor- 
 poration which has not yet become a " going concern," and which, 
 tlierefore, has no income to use for any purpose.^ 
 
 § 615. Back Claims may be made Liea on Corpus if Preserva- 
 tion of Property requires. — The impossibility or extreme difficulty 
 of preserving the property in any other way will, in some special 
 cases, constitute a sufficient reason for making back claims a lien 
 on the corpus, even if no diversion of earnings is shown.* But 
 this should not be done without giving the adverse parties an 
 opportunity to be heard.^ 
 
 It is only in the case of railroads that payment of back claims 
 can be ordered on this ground. A debt created by the receiver 
 of the' property of an insolvent hotel company to pay off arrears 
 of wages, on the ground that, unless they are so paid, there is a 
 serious risk that the property will be destroyed or seriously dam- 
 aged by riotous employees, is not an expense incurred for the 
 
 1 St. Louis, Alton, & Terre Haute R. as to the wages of employees during the 
 
 Co. V. Cleveland, 0. C. & I. E. Co. (1888), six months immediately preceding the re- 
 
 125 U. S. 638 ; s. c. 8 Sup. Ct. Eep. ceiver's appointment, in Union Trust Co. 
 
 1011. V. Illinois Midland Ey. Co. (1886), 117 
 
 " Ibid. TJ. S. 434 ; and as to freight halances, in 
 
 * Wood V. Guarantee Tmst & Safe Finance Co. of Pennsylvania v. Charleston, 
 Deposit Co. (1888), 128 U. S. 416 ; s. o. 9 C. & C. E. Co. (1895), 10 C. C. A. 323 ; 
 Sup. Ct. Eep. 131. 62 Fed. Eep. 205 ; 61 Am. & Eng. E. E. 
 
 * Miltenberger v. Logansport Ey. Co. Cas. 710. In this la-st case the issue of 
 (1883), 106 U. S. 286 ; s. c. 12 Am. & first-lien certificates to meet these, as well 
 Eng. B. E. Cas. 464. (For an extract as some other obligations, had been au- 
 from this ease showing the considerations thorized, and the trustee had raised no 
 which influenced the court in upholding objection. The circumstances, therefore, 
 these allowances, see ante. ) There arrears raised a sort of estoppel against the bond- 
 of wages due to operatives within ninety holders, but the general principle is ap- 
 days, and amounts due to connecting lines proved unreservedly by the court. 
 
 for materials and repairs, and for ticket ' Union Trust Co. v. Illinois Midland 
 and freight balances, were held to have Ry. Co. (1886), 117 U. S. 434. See fur- 
 been properly discharged out of the pro- ther as to notice to parties in interest, 
 ceeds of the sale of the corpiis. Chap. XXXI. 
 This case was approved and followed, 
 
608 EAILWAT BONDS AND MORTGAGES. [CHAP. XXVIII. 
 
 preservation of the property, and cannot be made a prior lien 
 thereon without the consent of the mortgage creditors. " It 
 clearly ought not to have been assumed," said the court, " that 
 the ordinary agencies of the law were inadequate to the situation, 
 or that the law, operating through its regularly appointed chan- 
 nels, was impotent to control it." ^ 
 
 § 616. Assumption of Floating Indebtedness by Purchasers does 
 not create Lien, etc. — The assumption by a purchasing company 
 of the floating indebtedness of two other companies does not 
 create a lien upon the' property transferred in favor of the cred- 
 itors to whom that indebtedness is owing. By such a transaction 
 those creditors merely acquire the right of looking for payment 
 to the purchasing as well as to the vendor companies.^ 
 
 § 617. Back Claims not Lien on Corpus, because Income of 
 Receivership insu£5cient to pay them. — The fact that the income 
 of the receivership is insufficient to discharge the back claims 
 specified in the order of appointment will not justify the court in 
 providing for their payment by declaring them to be a lien on the 
 corpus. As was said in Burnhara v. Bowen, " We do not now 
 hold, any more than we did in Fosdick v. Schall, that the income 
 of a railroad in the hands of a receiver can be taken away from 
 the mortgage creditors and used to pay the general creditors of 
 the road. All we then decided, and all we now decide, is, that if 
 current earnings are used for tlie benefit of mortgage creditors 
 before current expenses are paid, the mortgage security is charge- 
 able in equity with the restoration of the fund which has thus 
 been improperly applied to their use." ^ 
 
 § 618. Preferential Debts of any Part of Composite System a 
 Charge on whole Property. — Where the receiver is appointed in 
 a suit to foreclose a general mortgage on a composite system of 
 roads operated by a single corporation, the preferential debts of 
 the corporation will be charged on the earnings of the entire . 
 
 1 Eaht V. Attrill (1887), 106 N. Y. United States Supreme Court, had no 
 423, 434 ; s. 0. 13 N. E. Rep. 282. Much reference to its preservation from physical 
 stress was laid by the court on the fact violence, but only to its preservation from 
 that such a company is not a quasi public the damage to the business and to the 
 character like a railroad company, and public interest which would have resulted 
 Miltenberger i\ Logansport Ry. Co., supra, from the receiver's suddenly being de- 
 was distinguished on this ground. But it prived of the whole or a large part of 
 is submitted that the doctrine of that caiie the persons engaged in operating the 
 would not have warranted any different road. 
 
 decision if the company had been operat- ^ Hervey v. Illinois Midland Ry. Co. 
 
 ing a railroad instead of a hotel. The (1884), 28 Fed. Rep. 169. 
 necessity of "preserving" the railroad, ' 111 U. S. 776 ; s. o. 17 Am. & Eng. 
 
 which was the basis of the ruling of the R. R. Cas. 308 (1884). 
 
§ 619.] PREFERRED DEBTS. 609 
 
 system. These debts being the obligations of a single debtor, it 
 makes no difference whether they were incurred in the operation 
 of one line or of the other. The fact that some of those lines 
 are yielding a surplus income, and others are not paying their 
 expenses, does npt constitute a reason for saddling the whole bur- 
 den of such debts on the non-paying lines. Hence the bond- 
 holders secured by prior underlying mortgages on the paying 
 lines have no equity to demand that the payment of the preferen- 
 tial debts and operating expenses of the non-paying lines out of 
 the earnings of the receivership shall be treated as a diversion of 
 such earnings, entitling them to have interest on their bonds de- 
 clared a first charge on the corpus of the whole property, if the 
 earnings themselves are insufficient to satisfy their claim.^ 
 
 § 619. Doctrine of Diversion not applicable to Ordinary Creditor's 
 Suit. — The doctrine which permits a lien to be fastened on the 
 proceeds in favor of certain classes of creditors, where the cur- 
 rent earnings have been diverted for the benefit of the bond- 
 holders, has no application to a case where a receiver is appointed 
 in an ordinary creditor's suit in aid of a judgment obtained for 
 an unsecured debt, especially where the claim of the complainant 
 is as meritorious as that of the other creditors who ask to be 
 allowed to share ratably with him in the proceeds. To such a 
 case the ordinary rule is applicable, that, where the aid of a court 
 of equity is sought by judgment creditors to reach property that 
 cannot be reached by legal proceedings, the court follows the law, 
 and recognizes the priority which those judgment creditors who 
 have moved in the cause would have obtained by the levy of an 
 execution at the time of filing the bill, if no obstacles had stood 
 in the way of the levy.^ 
 
 1 Central Trust Co. v. Wabash, St. the administration is merely ancillary. 
 
 Louis, & Pac. Ry. Co. (1887), 30 Fed. Yet the rights of all the parties go hack 
 
 Kep. 332. to the statutes of the two States, and 
 
 Where the receiver appointed by a dis- although the corporation is a single con- 
 
 trict judge in one State of a raih-oad run- solidated corporation, yet its rights in 
 
 ning through two States is also appointed each of the States must largely be affected 
 
 receiver of its property in the other State, by the statutes, and the course of the 
 
 and there is some variance in the orders decision and procedure therein. This 
 
 of these courts as to the procedure and difference in the origin and source of 
 
 administration of the receiver made by the rights may naturally affect many matters 
 
 two judges, each making such orders in the of procedure in the administration of the 
 
 matter as are made in his ordinary practice, property, and it cannot be held that such 
 
 the difference not affecting any substantial procedure must in all oases be made 
 
 rights of the parties, the circuit judge will uniform in the two States." Central 
 
 not interfere or modify such orders. Trust Co. v. Texas & St. Louis R. Co. 
 
 "The court where the bill is filed and (1884), 22 Fed. Rep. 135. 
 the receiver first appointed is the court of ^ George v. St. Louis Cable & W. Ry. 
 
 primary administration, and in the other Co. (1890), 44 Fed. Rep 117 
 
 39 
 
610 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVIII. 
 
 Article III. — Within what Period Back Claims must have 
 
 ACCRUED TO BE ALLOWED PREFERENCE. ThE SiX MONTHS' 
 
 Rule. 
 
 § 620. Generally. — In the absence of special considerations, 
 the courts are disinclined to allow any back claims to rank as 
 preferred debts, unless they have accrued within six months 
 prior to the appointment of a receiver. This period was fixed 
 originally, as it seems, with reference to statutes in pari 
 materia} 
 
 In a foreclosure action by the trustee representing bondholders 
 of a corporation mortgage, the preference given under the Iowa 
 statute (Acts 23d Gen. Ass., ch. 48) to laborers or servants, for 
 wages due for three months previous to a receivership, was recog- 
 nized as against the claims of the trustees of the mortgage and 
 their attorneys, as well as the holders of the bonds secured by 
 
 1 Thus in Scott v. Clinton & Spring- 
 field R. Co. (1876), 6 Biss. 529, 535 ; s. c. 
 21 Fed. Gas. 820, Case No. 12,627, de- 
 cided in the Circuit Court of the South- 
 em District of Illinois, Judge Drummond 
 said : " "We have, as a sort of necessity 
 of the case, and yielding to some ex- 
 tent to the statute of this State, where 
 supplies and materials have been furnished 
 to a railroad, and the diligence required 
 hy the statute has been used by the cred- 
 itors to enforce their claims within six 
 mouths, allowed the payment of those 
 claims." The statute here referred to was 
 enacted in 1872, and gave a lien upon 
 railroad property of all kinds for " fuel, 
 ties, materials, supplies, or any other 
 article or thing necessary for the construc- 
 tion, maintenance, operation, or repair of 
 such roads by contracts with such cor- 
 poration," and for "work and labor for 
 such construction, maintenance, operation, 
 or repair, by the like contract," as part 
 of the current expenses of the road, " as 
 against such railroads, and as against all 
 mortgages or other liens which shall 
 accrue after the commencement of the 
 delivery of said articles or the commence- 
 ment of said work or labor," and also pro- 
 vided that "suit should be commenced 
 within six months after the completion of 
 the contract, the performance of the labor, 
 
 or furnishing the materials." Starr & 
 Curtis Annotated Stat, of 111., p. 1533. 
 
 In a later case. Turner v. Indianapolis, 
 B. & W. R. Co. (1878), 8 Biss. 315, the 
 same judge explained at greater length 
 the reasons which led him to refer to this 
 statute for guidance in determining what 
 would be a suitable time limit under such 
 circumstances. " It being conceded that 
 some claims for past services should be 
 paid, the next point to be determined was, 
 what limitation, if any, as to time, should 
 be placed upon such payment. It was 
 found in many cases that those who had 
 control of the railways, instead of paying 
 the current operating expenses of the com- 
 panies, would postpone the payment of the 
 same sometimes for many months in favor 
 of the interest due on the mortgages, 
 which they would discharge, in the hope, 
 apparently, that a more favorable time 
 in the business of the roads would enable 
 them to make up the deficiency. It was 
 in view of this and similar considerations, 
 growing out of the actual condition of 
 affairs, and of the absolute necessity of 
 fixing some reasonable time within which 
 such claims should be allowed, that the 
 court adopted, as by analogy, the rule of 
 the statute of Illinois in relation to liens 
 on railroads for work done and supplies 
 and materials furnished. 
 
§ 621.J PEBFEREED DEBTS. 611 
 
 the mortgage ; but the court held that the fees of the receiyers 
 and their attorneys were a part of the costs of the case, and were 
 properly allowed a preference, as also a balance due on a loan 
 authorized by the court and made by a receiver for carrying 
 on the business of the corporation and payment of wages due 
 prior to the receivership.^ But the true test is that the debt 
 should have been contracted in the ordinary course of a con- 
 tinuing business, to be paid out of current earnings, and 
 within such a period that it would, presumably, have been paid 
 at the time agreed upon if the company had remained in 
 possession.^ 
 
 When debts of this character remain unsettled, or are not put 
 in suit for such a time as would be deemed unreasonable, it may 
 fairly be presumed that the creditors have ceased to look to cur- 
 rent receipts for payment, and have accepted the position of 
 general creditors, who, as such, would have no claim for indemnity 
 upon any special part of the income.^ 
 
 § 621. The Six Months' Rule. — The choice of the limit of six 
 months iu the class of cases referred to has been sufficiently 
 regular to have given rise to the familiar expression, " The Six 
 Months' Rule ; " but, as a matter of fact, no absolute rule has ever 
 been established.* See § 698, ante. 
 
 Thus preference has been given to claims antedating the ap- 
 
 1 St. Paul Title Ins. & Trust Co. et al. more than six months before the appoint- 
 
 D. Diagonal Cove Co. et al. (Gunson et ment of the receiver. In Manchester 
 
 al.. Interveners) (1895), 64 N. W, Kep. Locomotive Works v. Truesdell (1890), 44 
 
 606. Minn. 115, the court sustained the disal- 
 
 In Mellon d al. v. Morristown & Cum- lowance of a claim for the price of a loco- 
 
 berland Gap R. Co. «( aZ. (Tenn. , 1895), 35 motive, principally on the ground that 
 
 S. W. Rep. 404, persons loaning money to the sale was completed more than six 
 
 contractors, with which they may have months before the appointment of the 
 
 paid for rails, etc., to be used in the con- receiver, — holding that the designation 
 
 struction of the road, without a special of a time limit was a matter within the 
 
 contract to that effect, could have no lien discretion of the court, 
 
 for their money loaned, nor could they ^ In Blair v. St. Louis, H. & K. R. Co. 
 
 be subrogated to the liens which the fur- (1884), 22 Fed. Rep. 471, Judge Brewer, 
 
 nishers of such supplies could have. while conceding that, in his opinion, a 
 
 ^ Bumham V. Bowen (1884), 111 U. S. period of six months was ordinarily 
 
 776; s. c. 17 Am. & Eng. R. R. Cas. ample, added: "There is no arbitrary 
 
 308. time prescribed, and it should be only 
 
 ^ Thomas v. Peoria & R. I. E.. Co- such reasonable time as, in the nature of 
 
 (1888), 36 Fed. Rep. 808 ; s. c. 36 Am. & things, and in the ordinary course of 
 
 Eng. R. R. Cas. 381. In this case Mr. business, would be sufficient to have such 
 
 Justice Harlan ruled that, in the absence of claims settled and paid." So also in 
 
 special circumstances, the income accru- Fidelity Co. v. Shenandoah R. Co., Va., 9 
 
 ing during the receivership would not be S, E. Kep. 759. 
 chargeable for rents of oars, etc., accruing 
 
612 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVIU. 
 
 pointment of a receiver by eight months ; ^ by eleven months ; ^ by 
 two years ; ^ by three yearg.* 
 
 The date at wliich supplies were actually furnished is the ma- 
 terial point in determining whether the debt therefor is to be 
 preferred. Hence a clause in the order appointing a receiver, 
 whereby he is authorized " to pay the amounts due and maturing 
 for materials and supplies about the operation and use of said 
 road," does not warrant the payment of a renewed promissory 
 note, originally made by the company in payment of a claim for 
 re-rolling iron for the use of the road some years before.^ 
 
 The claim of a steel company for coupling links and pins and 
 tank steel necessary to the operation of a railroad from day to 
 day, furnished within four months before the appointment of a 
 receiver in a foreclosure suit of the first mortgage and within a 
 year before the receivership was extended to a suit to foreclose 
 the second mortgage, was given a prior lien to the mortgages in 
 the United States Circuit Court for the District of Massachusetts.^ 
 
 § 622. Rule where there is a Running Account. — If, at the be- 
 ginning of the six months, there is an open and running account 
 for supplies, all the items will be given preference if the account is 
 under a subsisting contract ; otherwise all the items previous to 
 that time will be disallowed.^ 
 
 § 623. Unsecured Claims antedating Period fixed in Order, Pay- 
 ment of. — Unsecured claims antedating the period fixed in the 
 order may be paid out of any surplus earnings that may remain 
 in the hands of a receiver after paying the claims specially pro- 
 vided for, but not out of the corpus? 
 
 1 Skiddy v. Atlantic, Miss. & Ohio E. appointment, but it does not appear that 
 Co. (1879), 3 Hughes, 320; Douglass v. any stress was laid on this fact. 
 
 CUne (1877), 12 Bush (Ky.), 608. = Brown v. New York & Erie R. Co. 
 
 2 Burnham v. Bowen (1884), 111 U. S. (1860), 19 How. Pr. (N. Y.) 84. 
 
 776. * Wood V. New York & New England 
 
 ' Williamson v. "Washington City, Va. R. Co. et al. (Carnegie Steel Co., Lira., 
 
 Midi. & Grt. Southern R. Co. (1880), 33 Intervener), (1895), 70 Fed. Rep. 741. 
 
 Gratt. 624 ; Farmers' Loan & Trust Co. v. After discussing the cases pertinent to the 
 
 Kansas City, W. & N. W. Ry. Co. (1892), question, Colt, C. J., said : " As to the 
 
 53 Fed. Rep. 182 ; Central Trust Co. v. objection that these supplies were not fur- 
 
 St. Louis, A. & T. Ry. Co. (1890), 41 Fed. nished during the period of time within 
 
 Rep. 551. In this last case the court which alone a priority can be given, it 
 
 refused to be governed by the lien law of may be said that there is no fixed rule as 
 
 the State, which required a 'supply creditor to time further than is expressed by the 
 
 to take steps to enforce his claim under words " reasonable time." 
 the law within one year after it accrued. ' Central Trust Co. v. Texas & St. 
 
 * Hale V. Frost (1878), 99 U. S. 389. Louis Ry. Co. (1885), 23 Fed. Rep. 673. 
 In this case a note had been given for the ^ This doctrine was announced with 
 
 debt sixteen months prior to the receiver's some hesitancy in Bayliss v. Lafayette M. 
 
§ 624.J PEEFEEEED DEBTS. 613 
 
 Aeticle IV. — Classes op Back Claims entitled to Peioeitt. 
 
 § 624. Generally. — The underlying principle in the cases where 
 debts arising before the receivership have been allowed as prior in 
 equity to the claim of the bondholder on the earnings during the 
 receivership, has, in one case, said to be that " the debt, when 
 incurred, operated in a direct way to the advantage of the bond- 
 holder." 1 
 
 In another case, the proper test has been declared to be whether 
 or not the claim falls into the category of " payments made to pre- 
 serve the estate." ^ 
 
 These dicta appear to be merely two ways of stating the same 
 doctrine, though, if strictly construed, the latter statement would 
 obviously circumscribe preferred debts within somewhat narrower 
 limits than the former. In another case, Judge Brewer thought 
 that " whatever is necessary in the ordinary administration of the 
 affairs of the corporation comes within the spirit of the decisions " 
 of the Supreme Court of the United States. If by " necessary " is 
 meant necessary for the preservation of the road as a going con- 
 cern, this theory of the proper limits of preferred debts does not 
 differ materially from the other two.^ 
 
 The effect of the three dicta just cited may perhaps be stated 
 thus : To give a claim the status of a preferred debt, it must repre- 
 sent not merely a liability contracted in carrying on the business, 
 but a liability which in a reasonable sense it was necessary to in- 
 cur in order to keep the road in operation. The following sections 
 will show in detail what precise claims are and are not included 
 in the favored class. 
 
 The receiver of a company, no more than the company itself, 
 can raise the question of the constitutionality of an act of a State 
 
 & B. E. Co. (1879), 9 Bias. 90; s. c. 2 of appointment upon the payment of claims 
 
 Fed. Cas. 1080, Case No. 1141 ; 8 Rep. for supplies, has no effect in barring nier- 
 
 579, by Judge Drummond. But in United itorious preferential claims." Korthern 
 
 States Trust Co. o. New York, W. S. & B. PaciBc R. Co. v. Lamout (C. C. A., 1895), 
 
 R. Co. (1885), 25 Fed. Rep. 800, Judge 69 Fed. Eep. 23. 
 
 Nixon, of the New Jersey Circuit, declared i Easton v. Houston & Texas Central 
 
 that, if there had been any surplus avail- Ry. Co. (1889), 38 Fed. Rep. 12, per 
 
 able, he would not have hesitated to order Pardee, J. 
 
 the payment of the claim of a supply 2 Frazier v. East Tennessee, Va. & Ga. 
 
 creditor which accrued before the com- R. Co. (1889), 88 Tenn. 138 ; s. c. 12 
 
 mencement of the privileged period ; while S. W. Rep. 419 ; 40 Am. & Eng. E. R, 
 
 in a recent case the broad rule was laid Cas. 358. 
 
 down by the Circuit Court of Appeals ^ jji^ir v. St. Louis, H. & K. R. Co. 
 
 " that a six months' limitation, in an prder (1885), 23 Fed. Rep. 521. 
 
614 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVni. 
 
 affecting the right of a claimant to have his debt preferred as a 
 lien under such act, upon the ground that the statute discriminates 
 against citizens of other States. ^ 
 
 Where net earnings of a railroad have been irrevocably as;siglied 
 to bondholders, claimants of prior liens upon the gross earnings of 
 the company, who have let payment be made to the bondholders 
 first, will not be entitled to have payment made to them as 
 against the bondholders out of income accruing after a receiver 
 has been appointed.^ 
 
 1 Brown a. Ohio Valley Ey. Co. (1897), 
 79 Fed. Eep. 176, in which case the stat- 
 ute of Indiana, 2 Burns' Eev. St. Ind. 
 1894, § 5179, giving citizens of the State 
 a lien on the personal property of railroad 
 companies- to the amount of $100 for all 
 debts originally contracted in the State 
 superior to all other liens and mortgages, 
 has been held in the federal courts valid 
 as against a railroad company and other 
 holders of liens. 
 
 Judgment creditors of a company in 
 the possession of receivers derive no vestfed 
 right to have their claims settled in 
 full from an order of the court author- 
 izing the receivers "to compromise, ad- 
 just, and settle in their best discretion ' 
 claims against the company. Mercantile 
 Trust Co. V. Baltimore & 0. E. Co. (1897), 
 79 Fed. Eep. 389. 
 
 A judgment against a compdny grow- 
 ing out of a negligence of its servants was 
 denied a preference in Farmers' Loan & 
 Trust Co. V. Northern Pac. E. Co. (1897), 
 79 Fed. Eep. 227. 
 
 A claim for rental of terminal facilities, 
 especially for the time they were used by 
 the receiver, has been accorded a prefer- 
 ence over the mortgage in Savannah, F. & 
 W. Ey. Co. V. Jacksonville, T. & K. W. 
 Ey. Co. (1897), 79 Fed. Eep. 35. 
 
 Claims for amounts of money expended 
 in repairs of a leased road which was a 
 part of the system, and the payments of 
 interest on the bonds of the lessor, which 
 had been guarantied, have also been given 
 preference to the mortgage bondholders' 
 claims. Southern Ey. Co. v. Fillett (1896), 
 76 Fed. Eep. 507. 
 
 A case where the receiver used portions 
 of the income, under the orders of the 
 court for the betterment of the property 
 
 and the claims of creditors, were given 
 preference over the trustee of the mort- 
 gage. Manhattan Trust Co. of New York 
 V. Seattle Coal & Iron Co. (Wash., 1897), 
 48 Pac. Eep. 333. 
 
 The rule as to the lien of a vendor of 
 chattels which have become a part of the 
 realty is stated in New York Security & 
 Trust Co. V. Capital Ry. Co. (1896), 77 
 Fed. Rep. 529. 
 
 2 Grand Trunk Ey. v. Central Vermont 
 E. Co. (1897), 78 Fed. Eep. 690. 
 
 A mortgagor corporation sold land lots,, 
 which it had previously mortgaged to B., to 
 a street-railway company, which erected a 
 power-house on them and used them for 
 railroad purposes. A receiver was subse- 
 quently appointed for the company in a suit 
 against it, and, to pay operating expenses, 
 receiver's certificates were issued. A sale 
 of the company's property, including the 
 land lots, was made at the request of the 
 holders of these certificates, and the pro- 
 ceeds applied to their payment. Bi, 
 though cognizant of these proceedings, 
 was not a party to the suit. Interest on 
 his mortgage and taxes on the lots had 
 been paid by the receiver during his pos- 
 session of the property. B. 's right to 
 foreclose his mortgage after these proceed- 
 ings was sustained in Third Street Sub' 
 \irban Ey. Co. v. Lewis (1897), 79 Fed. 
 Eep. 196. 
 
 The holders of certain ' ' debentures " or 
 bonds, secured by a mortgage upon cer- 
 tain lands of tlie company, were held to 
 have a priority over the original vendor's 
 liens on those lands to which an inter- 
 vener attempted to have himself subro- 
 gated, in Blake v. Pine Mountain Iron Co. 
 (1896), 76 Fed. Eep. 624. 
 
§§ 625-627.] 
 
 PREFERRED DEBTS. 
 
 615 
 
 § 625. Debts for Freight aad Ticket Balances. — Debts for 
 freight and ticket balances in favor of other companies are 
 always allowed.^ 
 
 § 626. Debts incurred in the Transportation of Passengers and 
 Freight. — In Dow v. Memphis & Little Rock R. Co., Judge Cald- 
 well required the payment of this class of obligations as a con- 
 dition of appointing a receiver, but it is not apparent from the 
 report what precise items were included amongst them. They 
 are mentioned separately from ticket and freight balances.^ 
 
 § 627. Debts for Wages due Employees. — The general propriety 
 of allowing a preference to these is not disputed.^ 
 
 But some discussion has taken place as to whether all persons 
 who have rendered services of any description are entitled to a 
 preference. Perhaps the better opinion is that the rule avails in 
 favor of all classes of employees, whether their work is mainly 
 mental or mainly physical. In Farmers' Loan & Trust Co. v, 
 Vicksburg & Meridian R. Co.,* the effect of the authorities was, 
 said to be that the wages and salaries of employees of every grade, 
 should be placed among the preferred debts. 
 
 In one of the earlier cases priority was allowed to. a claim for 
 services rendered as counsel,^ and a similar ruling has been made 
 by Judge Brewer.^ 
 
 ^ Miltenberger v. Logansport Ey. Co. 
 (1882), 106 U. S. 286, 311 ; s. c. 12' Am. 
 <Sb Eng; E. R. Cas. i64 ; Union Trust Co. 
 V. Illinois Midland Ry. Co. (1886), 117 
 U. S. 434 ; Farmers' Loan & Trust Co. v. 
 Kansas City, W. & N. W. Ey. Co. (1892), 
 53 Fed. Rep. 182 ; Farmers' Loan & Trust 
 Co. V. Vicksburg & Meridian R. Co. (1888),. 
 33 Fed. Rep. 778 ; Dow v. Memphis & 
 Little Rock E. Co. (1884), 20 Fed. Eep. 
 260 ; s. 0. 17 Am. & Eag. R. R. Cas. 
 324. 
 
 2 20 Fed. Eep. 260 ; s. c. 17 Am. & 
 Eng. R. E. Cas. 324 (1884). This case,, 
 however, is supposed to be one of those 
 which the Supreme Court o£ the United 
 States had in mind when it. reprimanded 
 the judges who had gone to the length 
 of requiring the payment of all unsecured 
 debts (Kneeland v. American Loan & 
 Trust Co., § 605, ante,) ; and any ruling 
 for which it is the sole authority should 
 perhaps be regarded as at least open to 
 controTersy. 
 
 » Duncan v. Trustees (1876), 9 Am. 
 Ey. Eep. 386 ; Douglass v. Cline (1877), 
 
 12 Bush (Ky.), e'OS; s. c. 18 Am. Ry. 
 Eep. 273 ; Fosdick v. Schall (1879), 99 
 U. S. 235 ; Miltenberger v. Logansport, 
 Ry. Co. (1882), 106 U. S. 286 ; s. c. 12 
 Am. & Eng. E. E. Cas. 464 ; Union Trust 
 Co. V. Illinois Midland Ey. Co. (1885), 
 117 U. S. 434 ; Dow v. Memphis & C. E. 
 Co. (1884), 20 Fed. Rep. 260 ; s. c. 17 
 Am. & Eng. E. R. Cas. 324. 
 
 4 33 Fed. Eep. 778 (1888). 
 
 6 Bayliss v. La Fayette, M. & B. Ey. 
 Co. (1879), 9 Biss. 90 ; s. c. 2 Fed. Cas., 
 1080, Case No. 1141 ; 8 Fed. Rep. 679. 
 
 6 Blair v. St. Louis, H. & K. E. Co. 
 (1885), 23 Fed. Eep. 521. In this case 
 the allowance was limited to the instal- 
 ment of the salary which became due just 
 before the appointment of the receiver. 
 The learned judge declined to recognize 
 the priority of a claim for services which 
 accrued a year and a half previously, re- 
 marking : ' ' While, of course, as we in the 
 profession all agree, lawyers are benefac- 
 tors to the human race, and entitled to 
 special consideration at the hands of any 
 intelligent tribunal, yet I think that a 
 
616 EAILWAT BONDS AND MORTGAGES. [CHAP. 2XVIII. 
 
 So, also, it has been held in New York, though by a divided 
 court, that such services were included in an order directing the 
 payment of debts " owing to the laborers and employees of the 
 company for labor and services actually done in connection with 
 the company's railways."^ 
 
 If the general term " employees " is alone used in the order, 
 there seems to be no reason why the regular counsel of the com- 
 pany should not have the benefit of its provisions.^ 
 
 This is assumed to be the rule in one case, the court, however, 
 holding that the special lien of such a counsel would be allowed a 
 priority only as to the income of the receivership, and as to the 
 company's papers and muniments of title which he had in his 
 possession, and would not be recognized as extending to the 
 general corpus of the estate.* 
 
 On the other hand, in Addison v. Lewis,* the court was strongly 
 of opinion that the salary of the president of the company was 
 not a preferential claim ; but the actual ground on which his 
 claim was disallowed was that he had waived his rights by stat- 
 ing in the annual reports of the company's business that his salary 
 was one of the items paid. 
 
 A secretary of a railroad company has no priority of lien to 
 the bondholders for services rendered the company within six 
 months prior to the receivership.^ 
 
 It has also been ruled that the term " wages of employees," in 
 an order instructing the receiver as to the claims to be paid in 
 preference to the mortgage debt, did not include the money due 
 for the services of a counsel employed for special purposes.^ 
 
 lawyer who waits a year and a half before tinguished Fosdick v. Schall (1879), 99 
 
 collecting his fees is guilty of great negli- U. S. 235, and Cutting v. Tavares, 0. & A. 
 
 gence. He certainly presents no equitable E. Co., 61 Fed. Rep. 150 ; s. c. 9 C. C. A. 
 
 claims for preference." 401 (1894). 
 
 ^ Gumey v. Atlantic & Great Western This last case held that, in order 
 
 K. Co. (1874), 58 N. Y. 358. to make such a claim preferential, it 
 
 2 In Louisville, Evansville, & St. Louis must appear that there was an order of 
 
 E. Co. u. Wilson (1891), 138 U. S. 501, court at the time the receivers were ap- 
 
 505, this question was incidentally touched pointed providing for its payment, and 
 
 upon. The court declined to express any evidence that the current earnings before 
 
 decided opinion, as the point was not di- or after the appointment of the receiy- 
 
 rectly involved, and the case went off on a ers were diverted to paying interest on 
 
 special ground. the bonded debt. Neither of these facts 
 
 8 Bound V. South Carolina E. Co. were shown in the petition of Harris. 
 
 (1892), 52 Fed. Eep. 526. 6 Louisville, Evansville, & St. Louis 
 
 4 75 Va. 701 ; s. 0. 9 Am. & Eng. E. Co. v. Wilson (1891), 138 U. S. 501. 
 
 E. K. Cas. 702 (1881). Gumey v. Atlantic & Great Western Ey. 
 
 s Central Trust Co, of New York v. Co., supra, was cited, but held not to be 
 
 ChattanoogaS.R. Co. (Harris, Intervener), strictly in point. The court declined to 
 
 (1895), 69 Fed. Eep. 295. The court dis- pass any criticism on that decision, being 
 
§ 628.] PREFERRED DEBTS. 617 
 
 The construction placed upon the statutes which have created 
 legal priorities similar in character to those recognized by courts 
 of equity is rather in favor of this stricter interpretation. Thus 
 the Vermont statute makes a mortgage of railroad chattels inop- 
 erative against claims " for injuries sustained on the road by 
 reason of the neglect of the corporation, or for services rendered 
 or materials furnished for the purpose of keeping the road in re- 
 pair, or in running the same." Its protection has been declared 
 to extend to creditors who are engaged in manual labor in mak- 
 ing repairs or in operating the roads, or who have furnished 
 materials to be used therein, as iron, ties, etc., but not to claims 
 for services of directors, superintendents, civil engineers, cashiers, 
 paymasters, or heads of departments, nor to claims for rents of 
 offices occupied by them, nor to claims for telegraphing ordered 
 by them, nor to claims for the printing of tickets, bill-heads, 
 posters, time-tables, etc., and the materials used therein.^ 
 
 Since the rationale of the rule allowing debts for wages of em- 
 ployees to be preferred to the mortgage debt is that it would be 
 unreasonable as well as detrimental to the operation of the road 
 to expect them to make careful examination into the financial 
 condition of the company, and that they should therefore be en- 
 couraged to continue working by the assurance that the court 
 will provide for any claims of this description accruing a reason- 
 ble time before the receiver's appointment, it has been held that, 
 as the president of the company has full knowledge of the state 
 of its affairs, and is not bound to furnish his services a day after 
 his remuneration seems uncertain, he is not entitled to priority 
 of payment, as to the arrears of his salary, out of the proceeds 
 of the sale, where the earnings are insufficient to pay even the 
 receiver's compensation.^ 
 
 § 628. Claims for Legal Services not preferred unless they have 
 inured to Benefit of Bondholders. — A claim for legal services in 
 advising parties who have lent money to keep the road in opera- 
 tion to secure themselves by taking assignments of preferential 
 claims, which upon foreclosure are recognized, and obtain for the 
 lenders an equality of right with the security holders in a reor- 
 ganization scheme, is not entitled to a priority over the mortgage 
 debt. Funds belonging to the mortgagee cannot be taken from 
 
 apparently of opinion that the special cir- ^ Poland v. Lamoille Valley R. Co. 
 
 cumstances of the case had largely influ- (1879), 52 Vt. 144. 
 
 enced the inclusion of professional services ^ National Bank of Augusta v. Caro- 
 
 within the descriptive words of the ap- lina, K. &W. E. Co. (1895), 63 Fed. Rep. 
 
 pointnient. 26. 
 
618 EAILWAY BONDS AND MOETGAGBS. [CHAP. XXVIII. 
 
 Him to pay counsel to devise a scheme by which, a. subsequent 
 lender of money is preferred before him.^ 
 
 Nor are security holders liable for the expenses incurred by 
 their debtor ia carrying into effect a scheme which, the latter 
 believes will enable it to pay its interest to them, but which in 
 fact does not accomplish that result. Hence services rendered, 
 by counsel at the instance of a railroad company to preserve con^ 
 trol of the portion of its road which is not covered by the mort- 
 gage under foreclosure cannot be considered as services to the 
 holders of bonds secured by that mortgage.^ 
 
 On the other hand, services of counsel in recovering some of 
 the mortgagor's property from a company which has the same,, 
 and thereafter passed into a receiver's hands, inure to the benefit 
 of the secured creditors of the lessor company, and are properly 
 charged against the assets of the latter as a preferential claim.^ 
 
 The funds in the hands of a receiver appointed in a suit to fore- 
 close a mortgage executed by one who purchased the railroad at 
 a sale in earlier proceedings are not chargeable with a claim for 
 legal services to another receiver who administered the property 
 prior to that sale, even though the services resulted in reducing 
 the demand of a lienholder, and to this extent inured to the ben- 
 efit of the bondholders secured by the second mortgage.* 
 
 § 629. Debts for Supplies and Materials. — -Debts for supplies 
 and materials furnished for equipping, operating, repairing, or 
 improving the road are indisputably in the preferred class.^ 
 
 1 Louisville, Evansville, & St. Louis R. burg & Meridian R. Co. (1888), 33 Fed. 
 Co. V. Wilson (1891), 138 U. S. 501. Eep. 778 ; Dow v. Memphis & Little Kock 
 
 2 Ibid. E. Co. (1884), 20 Fed. Eep. 260 ; s. c; 
 
 LouisvUle, Evansville, & St. Louis E. 17 Am. & Eng. R. R. Gas. 324 ; William- 
 Co. V. Wilson (1891), 138 U. S. 501, cit- sou o. Washington City, Va. Midi. & Grt.- 
 ingReadw. Dupper, 6 T. R. 361. "The Southern R. Co. (1881), 33 Gratt. 624; 
 principle has long been settled that a s. c. 1 Am. & Eng. R. R. Cas. 498. In 
 party should not run away with the fruits Skiddy v. Atlantic, Miss. & Ohio E. Co. 
 of a cause without satisfying the legal de- (1878), 3 Hughes, 320, where no condi- 
 nlands of his attorney by whose industry tions had been imposed at the appointment 
 and expense these fruits were obtained." of the receiver, the court refused to accord 
 
 * Bound V. South Carolina Ry. Co. priority to the claims of material-men, and 
 
 (1892), 51 Fed. Eep. 58, citing Hand v. declined to attach any importance to the; 
 
 Savannah & Charleston E. Co. (1883), 21 fact that these claims were made under 
 
 S. C. 162, to the effect that " before n contracts just before the commencement 
 
 legal charge can be sustained there must of the proceedings, and that the material 
 
 be a contract of employment, either ex- had been used by the receivers. " Whether 
 
 pressly made or superinduced by the law a debt be an hour or a year old," said 
 
 on the facts." Judge Bond, "can make no difference. It 
 
 ° Fosdick u. Sehall (1879), 99 U. S. stands in the same relation, no matter 
 
 252 ;'Burnhani v. Bowen (1884), 111 U. S. what its age, to the secured debt of the 
 
 776 ; Farmers' Loan & Trust Co. v. Vicks- road. To allow one of these debts to be 
 
§ 630.] 
 
 PREFEREED DEBTS. 
 
 619 
 
 The rule is the same whether the supplies were upon a contract 
 with the company owning the road, or another company having 
 possession of it and operating it under the obligation of paying 
 the current expenses.^ 
 
 In the category of necessary supplies may be placed waiting- 
 rooms and ticket-offices at any point where the business requires 
 such accommodation.^ 
 
 § 630. Debts for Materials or Equipments furnished on Credit 
 not preferred. — The general principle applicable to indebted- 
 ness incurred under a specific contract for supplies, which con- 
 templates payment at some definite period or periods in the 
 future, is that the seller thereby surrenders the favored position 
 of a preferred creditor, and is only entitled to come in as an un- 
 secured claimant, except in so far as he may have reserved a lien 
 on the articles sold.^ 
 
 The case of such a claimant is declared to be very different from 
 that of workmen and employees, or of those who furnished from 
 day to day supplies necessary for the maintenance of the road.* 
 
 paid is to allow all. That is to say, the 
 unsecured debt would be paid pari passu 
 with the secured debt, and in a court of 
 equity it would come to pass that the 
 only persons who had no security would 
 be those who had taken it." But this 
 decision is, in view of its date, chiefly 
 interesting as a clear statement of what 
 the rule was considered to be before Fos- 
 diok V. Schall. 
 
 1 Clark V. Central Kailroad & Bkg. Co. 
 (C. C. A., 1895), 66 Fed. Rep. 803. 
 
 2 Northern Pacific R. Co. v. Lament 
 (C. C. A., 1895), 69 Fed. Rep. 23. 
 
 All claims for supplies contracted within 
 a reasonable time before a receiver comes 
 into possession of earnings of a company 
 must be paid before any of the earnings 
 is applied to betterments or interest on 
 bonds. Southern Ry. Co. i/. Carnegie Steel 
 Co. (1896), 76 Fed. Rep. 492 ; Southern 
 Ry. Co. w. American Brake Co. (1896), 
 76 Fed. Rep. 502. If earnings have been 
 diverted, then they must be paid out of 
 the proceeds of sale of the property. Ibid. 
 A claim for current supplies, when ap- 
 proved by the acceptance of a draft for 
 the amount by a receiver, should also be 
 paid from such proceeds under similar cir- 
 cumstances. Southern Ry. Co. u. Adams 
 (1896), 76 Fed. Rep. 504. But after ac- 
 
 cepting from the receivers the principal of 
 such a claim, the owner cannot re-petition 
 for interest. Southern Ry. Co. v. Danlop 
 Mills (1896), 76 Fed. Rep. 505. As to 
 What is a reasonable time within which 
 supplies may have been acquired before 
 the receivership to give them an equi- 
 table priority, a claim for steel rails sup- 
 plied from nine to eleven months prior to 
 receivership was held, in Southern Ry. Co. 
 V. Carnegie Steel Co. (1896), 76 Fed. Rep. 
 492, not lost by laches, as notes were 
 made in renewal of the claim, and the 
 amount was demanded promptly at their 
 maturity. Bound v. South Carolina Ry. 
 Co., 58 Fed. Rep. 473, was distinguished 
 by the court. 
 
 ' Bound d. South Carolina Ry. Co. 
 (C. C. A., 1893), 58 Fed. Rep. 473; 
 American Loan & Trust Co. v. East & 
 "West R. Co. (1891), 46 Fed. Rep. 101. 
 
 * Thomas v. Western Car Co. (1893), 
 149 XT. S. 95. 
 
 Where a company bargained for steel 
 rails in large quantities, for the purpose 
 of replacing old worn-out rails, upon a 
 contract that notes were to be given for 
 the amount at six months, with privOege 
 of renewal foi another six months, such a 
 debt was held not entitled to preference 
 over the mortgage. Lackawanna Iron & 
 
620 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVIII. 
 
 The most common illustration of this principle is furnished by 
 the cases in which there has been a conditional sale of rolling- 
 stock for a price to be paid in instalments, the title remaining in 
 the vendor till payment of the last instalment. The amounts 
 due under such a contract are not preferential debts. The vendor 
 has a priority to the extent of his lien, and may enforce it by tak- 
 ing back the rolling-stock, if the instalments of the purchase- 
 money are not duly paid ; but as to the balance of what is due to 
 him after enforcing his lien, he is a general creditor, with no spe- 
 cial equities in his favor.^ 
 
 It is immaterial for the purposes of this rule whether the sums 
 of money stipulated to be paid at the specified intervals are styled 
 in the contract instalments of the price, or rent.^ 
 
 The same principle is also held to govern cases where the con- 
 tract is in fact, as well as in name, a lease, and the remedy 
 
 Coal Co. II. Farmers' Loan & Trust Co. 
 (1897), 79 Fed. Eep. 202, followed in 
 Morgan's La. & Tex. E. & St. Ship Co. v. 
 Farmers' Loan & Trust Co. (1897), 79 
 Fed. Rep. 210, where a, claim was made 
 for money loaned, etc. ; also in Southern 
 Development Co. v. Farmers' Loan & Trust 
 Co. (1897), 79 Fed. Rep. 212, relating to 
 a claim for money advanced for certain 
 purposes. 
 
 1 Fosdick V. Schall (1879), 99 U. S. 
 235 ; s. c. 7 Eep. 449 ; Huidekoper v. 
 Hinckley Locomotive Co. (1879), 99 U. S. 
 258 ; Fidelity Insurance, Trust, & Safe 
 Deposit Co. V. Shenandoah Valley R. Co. 
 (1889), 86 Va. 1 ; s. 0. 9 S. E. Eep. 751 ; 
 38 Am. & Eng. E. R. Cas. 559 ; Frank v. 
 Denver & Rio Grande Ey. Co. (1885), 23 
 Fed. Eep. 123, 127. See also Eastern and 
 Midlands Ry., 65 Law Times, 670. 
 
 ^ Kneeland v. American Loan & Trust 
 Co. (1890), 136 U. S. 89, 97 ; s. 0. 43 Am. 
 & Eng. R. R. Cas. 519. In this case the 
 question was presented nakedly, without 
 teing complicated by any special circum- 
 stances, the appointment of the receiver 
 being at the instance of a judgment cred- 
 itor, and solely with a view of reaching 
 the surplus earnings. The mortgagees had 
 not asked for a foreclosure, nor that the 
 court should take charge of the property, 
 and the owners of the rolling-stock had 
 reclaimed it, as in Fosdick v. Schall. Only 
 the property was sold which was covered 
 by mortgages executed prior to any con- 
 
 tract with respect to the rolling-stock, so 
 that the owners of it were precluded from 
 averring that their property was sold, and 
 that this gave them an interest in the sale. 
 
 It was emphatically declared that, un- 
 der these circumstances, there was no 
 foundation whatever upon which to rest 
 a claim for priority of payment out of the 
 proceeds of the sale of the property in 
 foreclosure proceedings afterwards insti- 
 tuted by the mortgagees, Mr. Justice 
 Brewer taking occasion to deliver a strong 
 protest against the extreme instances of 
 the assumption of discretionary power by 
 some courts in respect to the preference of 
 unsecured debts. 
 
 As to preference to mortgage of car 
 rentals where the receiver has retained 
 and used cars leased by the company, see 
 Mercantile Trust & Deposit Co. v. South- 
 ern Iron Car Line Co. (Ala., 1897), 21 So. 
 Rep. 373. 
 
 As to preference over mortgage of 
 claims for receiver's certificates, see Bos- 
 ton Safe Deposit & T. Co. v. Holders of 
 $130,500 of Eeceiver's Certificates (1896), 
 75 Fed. Eep. 193 ; Boston Safe Deposit & 
 T. Co. V. Groome (1896), 75 Fed. Rep. 
 209. 
 
 When a debt for rental of a leased 
 line, part of a system, shall be treated as 
 an obligation of the receiver.ship, author- 
 ized by the court, see Central E. & Bkg. 
 Co. of Georgia o. Farmers' Loan & Trust 
 Co. (1897), 79 Fed. Rep. 158. 
 
§ 630.] PREFEiptED DEBTS. 621 
 
 reserved by the lessor is a right to terminate the contract and de- 
 mand possession of the cars forthwith upon any failure of the 
 railroad company to pay promptly the interest or principal of any 
 of its bonds or other liabilities. Such a provision shows that the 
 lessor intended to protect himself by other methods than relying 
 on the possible order of a court which might appoint a receiver. 
 The reasons for adopting this conclusion are of course much 
 stronger where the lessor is a car company, the principal officers 
 of which control the railroad company also. Having full knowl- 
 edge of the financial condition of the railroad company, they must 
 be treated as having leased the cars to it in reliance on its general 
 credit, rather than in expectation of displacing the priority of the 
 mortgage lien.^ 
 
 This general principle avails in favor of the mortgagee even as 
 to the period during which the property is controlled by a receiver, 
 provided the receiver is not appointed at his own instance. The 
 relative priorities of the liens of the mortgagees and of the vendor 
 of rolling-stock under a conditional sale are not affected by the 
 appointment of a receiver to enforce the claims of a third party. 
 Since neither lienholder has, in such a case, asked the aid of the 
 court, no obligation is assumed by either in respect to the manage- 
 ment of the property. The use of the rolling-stock by the receiver 
 for several months, therefore, can give its owners no right to 
 charge upon the mortgage estate the deficiency that may remain 
 after the application of the current income to the payment of the 
 rental.^ 
 
 Claims for rental of cars during receivership, which cars the 
 receiver has retained, and the trustee of bondholders has resisted 
 being delivered to a lessor, reserving title, are properly chargeable 
 to the proceeds of sale of the property, as expenses of administra- 
 tion to be preferred to the claims of bondholders.^ 
 
 These rules as to equities in the matter of a receiver's using 
 cars held by the railroad company under a lease have been de- 
 clared by the Supi-eme Court of Georgia : — 
 
 (a) The time for which the rental of the cars is chargeable to 
 the assets of the railway company is obviously that during which 
 the company and its receiver had possession of and used them. 
 
 1 Thomas «. "Western Car Co. (1892), Co. (1890), 136 U. S. 89; s. c. 43 Am. & 
 
 149 IT. S. 95, 110, reversing on this point Eng. E. E. Cas. 519. 
 Thomas v. Peoria & R. I. E. Co. (1888), 36 » Lane, Receiver, v. Macon & Atlantic 
 
 Fed. Rep. 808 ; s. c. 36 Am. & Eng. R. R. Ey. Co. et al. (1895), 96 Ga. 630; s. o. 24 
 
 Cas. 381. S." E. Rep. 167. 
 
 ' Kneeland o. American Loan & Trust 
 
622 EAILWAT BONDS AND MORTGAGES. [CHAP. XXYIII. 
 
 (6) As a general rule, compensation for the ordinary wear and 
 tear of a thing rented is included in and covered by the rental 
 charge. . . . But depreciation arising from careless use, or from 
 abuse, and which is greater than that caused ,by ordinary and 
 proper use, is a different .matter, and ought to be paid for, or 
 else the owner will get nothing for the injury to the property thus 
 occasioned. 
 
 (c) The expenses incurred in returning the cars as the court 
 ordered ought ;not to fall upon the owner, for it seems clear that 
 the latter cannot be fairly charged with the cost of a delivery 
 which it was manifestly the court's duty to effectuate. 
 
 Qd} Interest should be allowed on all claims Jorthe date on 
 which the cars are returned to the lessor.^ 
 
 § 631. Rentals du0 by the INIortgagor Company as Lessee of 
 another .Line. Rule. — .It will be shown in the succeeding chapter 
 that a receiver is ,not bound to adopt a lease of a road entered into 
 by the mortgagor. If he elects not to adopt such a lease, the claim 
 of the lessor for rent which accrued prior to the receivership will 
 not be accorded any preference as against the mortgage debt. A 
 claim of this kind falls into the same category as those referred 
 to in the last section.^ 
 
 The same principle prevails with regard to the interest on the 
 bonds of a lessor company which the lessee has agreed to pay 
 as rent for the leased line, under a contract made prior to the 
 mortgage under foreclosure, but not creating any lien on the 
 property.^ 
 
 § 632. Diversion of Earnings immaterial Twhere Credit is given for 
 Materials furnished. — A supply creditor who has allowed the com- 
 pany a specified period of credit is precluded from obtaining a 
 preference for his claim, even though the purchase-money was by 
 the contract to be paid out of the earnings, and it is shown that 
 some of the bonded interest was discharged out of the income 
 accruing while the period of credit was running.* 
 
 . §633. Debts contracted for Original Construction not preferred. — 
 The cases holding that the priority of a mortgage debt may some- 
 times be displaced in favor of unsecured creditors, when those 
 debts were contracted for keeping up a railroad, already built, as 
 
 1 Lane, Receiver, v. Macon & Atl. Ky. Rep.' 268, citing several cases as to rental 
 Co. et al. (1895), 96 Ga. 630, 651 ; s. c. 24 of cars. 
 
 S. E. Eep. 157. " Central Trust Co. v. Charlotte, C. & 
 
 2 New York, P. & 0. R. Co. v. New A. R. Co. (1895), 65 Fed. Rep. 264. 
 York, L. E. & W. R. Co. (1893), 58 Fed. * Bound v. South Carolina Ry. Co. 
 
 (C. 0. A., 1893), 58 Fed. Rep. 473. 
 
§ 633.] PREPEEEED DEBTS. 623 
 
 a going concern, have no application to a debt contracted for 
 original construction.^ 
 
 Hence a duly registered mortgage of a road " built and to be 
 built," takes precedence, as regards the unbuilt portion, over the 
 subsequent claim of a contractor who had himself finished it 
 under an agreement with the company that he should retain its 
 possession and apply its earnings to the liquidation of the debt 
 due to him, and who had, in accordance with such agreement, 
 taken possession of the road and retained it. " Eegistry of the 
 mortgage," said the court, " was notice to all the world of the lien, 
 and in that point of view the case does not even show a hardship 
 on the contractor, as he must have known when he accepted the 
 agreement that he took the road subject to the mortgage." ^ 
 
 Such a claim cannot be accorded priority on the ground that the 
 contractor is the last creditor, and has aided in preserving the 
 property. This doctrine has never been applied except in mari- 
 time cases, which stand on a particular reason.^ 
 
 For the purposes of the rule it is immaterial that the work is 
 done at the request of the lessee in possession of the property, and 
 that there is a special contract that the person doing the work 
 shall have a lien on the earnings.* 
 
 Of course the consent of the bondholders themselves may some- 
 times raise these debts to the preferred class, and the court will 
 sometimes order a hearing to be had for the purpose of ascertain- 
 ing their views." 
 
 The principle that there is no equity in favor of the back claims 
 of those who aid in constructing a road has been also assigned as 
 a ground for denying priority to that part of a claim of counsel 
 for fees which was based on services rendered before the road 
 became a "going concern."^ 
 
 1 Toledo, D. & B. E. Co. v. Hamilton Eng. R. R. Gas. 373 ; Meyer v. Johnston 
 (1890), 134 U. S. 296 ; s. c. 43 Am. & (1875), 53 Ala. 237. 
 
 Eng. R. R. Cas. 396 ; Foggt). Blair (1890), 5 This was done in Farmers' Loan & 
 
 133 U. S. 534 ; Farmers' Loan & Trust Co. Trust Co. v. Kansas City, W. & N. W. 
 
 V. Pine Bluff, M. & N. 0. R. Co. (Ark., Ry. Co. (1892), 53 Fed. Rep. 182, and the 
 
 1893), 21 S. W. Rep. 652 ; Porter v. Pitts- necessary consent secured, it being appar- 
 
 burg Bessemer Steel Co. (1887), 120 U. S. ent that the payment of the construction 
 
 649 ; s. c. 30 Am. & Eng. R. R. Cas. 472 ; debts was for the interests of the secured 
 
 Wood V. Guarantee Trust & Safe Deposit creditors. Judge Caldwell at the same 
 
 Co. (1888), 128 U. S. 416. time took occasion to express his regret 
 
 2 Dunham v. Cincinnati, Peru, etc. E. that any distinction was ever made as to 
 Co. (1863), 1 Wall. 254. these debts (see above). 
 
 ' Galveston Railroad v. Cowdrey (1870), ^ Finance Co. of Pennsylvania v. 
 
 11 Wall. 459, 481. Charleston, C. & C. E. Co. (1892), 52 
 
 ' Thompson v. White Water Valley R. Fed. Rep. 626. 
 Co. (1889), 132 U. S. 68 ; s. o. 40 Am. & 
 
624 RAILWAY BONDS AND MORTGAGES. [CHAP. XXTIII. 
 
 § 634. Damages for Breach of Contract not preferred. — A claim 
 for damages for breach of a contract to allow a mill-owner to haul 
 lumber over a side track will not be accorded a preference either 
 in regard to the income or the corpus.^ 
 
 Nor has a claim for unpaid moneys due on a speculative con- 
 tract any of the equitable features of a supply claim, and it does 
 not acquire any higher priority merely from the fact that, in the 
 order appointing the receiver, he was directed to carry out the 
 contracts of the insolvent company. The same rule applies to 
 a claim of damages by reason of the failure of the receiver fully 
 to complete the contract.^ 
 
 Where a railroad company enters into an agreement with a 
 mining company, for instance, that if the latter will build a 
 branch road leading to its mines and convey it to the railroad 
 company, the latter will pay a fixed sum per ton for all coal 
 shipped over the branch road to the mining company. Such a 
 contract will create an equitable charge upon the earnings of the 
 branch, and the receiver of the railroad in after-foreclosure pro- 
 ceedings will be required to give a preference over the mortgage 
 bondholders to the mining company.^ 
 
 § 635. Debts for Damages caused by Operation of Road. — 
 Debts for damages to property or persons caused by the operation 
 are not, according to the great weight of authority, within the 
 preferential class ; at all events, their payment has been specially 
 imposed as a condition of granting the appointment of a receiver. 
 Thus it has been held improper, in the absence of such a pro- 
 vision, to allow a past-due claim for damages for the destruction 
 of property by fire from a locomotive ; * or for loss of goods in 
 transit, whether by fire or otherwise ; ^ or for personal injuries.^ 
 
 1 Central Trust Co. v. Wabash, St. L. s. c. 30 Am. & Eng. R. R. Cas. 450 ; 
 & Pac. Ry. Co. (1887), 32 Fed. Rep. 566. Farmers' Loan & Trust Co. v. Green Bay, 
 
 2 Olyphant v. St. Louis Ore & Steel Co. W. & N. W. R. Co. (1891), 45 Fed. Rep. 
 (1866), 28 Fed. Rep. 729. 664 ; s. 0. 46 Am. & Eng. R. R. Cas. 296, 
 
 ^ Fidelity Ins., Trust, & Safe Deposit denying the authority of Dow v. Memphis 
 
 Co. et al. V. Norfolk & Wesitem R. Co. & Little Rock R. Co. (1884), 20 Fed. Rep. 
 
 (Virginia & T. Coal & Iron Co., Inter- 260 ; s. c. 17 Am. & Eng. R. R. Cas. 324, 
 
 vener), (1896), 72 Fed. Rep. 704. which countenances a, different doctrine. 
 
 * Hiles V. Case (1880), 9 Biss. 549; See ante, for a caution as to the doubtful 
 
 s. c. 14 Fed. Rep. 141. See also § 108, authority of this. 
 
 ante. It is, however, worthy of notice that 
 
 s Easton v. Houston & Texas Centi'al in the earlier case the question was as to 
 
 Ry. Co. (1889), 38 Fed. Rep. 12. the propriety of making the payment of 
 
 ' Central Trust Co. ■«. Wabash, St. L. the claim a condition of granting a re- 
 ft Pac. Ry. Co. (1886), 28 Fed. Rep. 871 ; ceirership, while in the later case no such 
 Central Trust Co. c. East Tenn., Va. & order had been made. The general rea- 
 Ga. R. Co. (1886), 30 Fed. Eep. 895; soning , of the later case, that the category 
 
§ 635.] 
 
 PKEPEEBED DEBTS. 
 
 625 
 
 Where a railroad has been, in proceedings quo warranto, placed 
 in the hands of a receiver by a State court, and the order after- 
 wards vacated, with a restoration of the property to the company 
 charged with a lien for damage suits during that receivership, and 
 pending a suit for such a claim a mortgage given by the company 
 is foreclosed in a federal court and a receiver appointed, notwith- 
 standing the latter, being appointed a party, may appear in the suit 
 in the State court and answer that without leave of the federal 
 court such a claim, reduced to judgment in the State court, will 
 not be recognized as having a priority of lien over the bond- 
 holders. ^ 
 
 Such claims are based upon the fact that they inure to the 
 benefit of the security, or have been the means of keeping the 
 road a going concern. A claim for damages for personal injuries 
 against a company, within the six months prior to receivership, 
 not being such a claim, will not be ordered paid from the income 
 of the receivership.^ 
 
 of claims whicli may be accorded priority 
 over the mortgage, even against the con- 
 sent of the mortgagee, and after the court 
 has assumed control of the property, does 
 not extend beyond those which are based 
 upon things done for the benefit of the 
 res, and consequently of the mortgagees, 
 is undoubtedly sound. But it is, we 
 think, fairly open to argument, whether a 
 chancellor, when invited to exercise his 
 discretion in appointing a receiver, may 
 not, in view of all the circumstances of 
 the case, require the payment of some 
 other claims besides these. Claims for 
 personal injuries, accruing while the road 
 is in the hands of a receiver, are admitted 
 to be entitled to payment as a part of the 
 operating expenses. May there not be 
 cases where it would be inequitable for 
 the mortgagees to decline to pay such 
 claims, merely for the reason that they 
 accrued before the receivership was asked 
 for, and may not the court mould its relief 
 accordingly ? The controversy really raises 
 the broad question whether the limits of 
 the class of debts known as preferential 
 are identical, whether provisions for their 
 payment is being made at the time the 
 receiver is appointed, or after the receiver- 
 ship has begun. The cases show very 
 clearly that as to most of these so-called 
 "equitable liens" there is a complete 
 identity. But no court of final resort, so 
 
 far as we know, has pronounced for or 
 against the doctrine that the domain of 
 rights in each case is coextensive. The 
 Supreme Court of the United States has 
 expressly declared that the court which 
 appoints the receiver has no right to 
 demand that the mortgagees shall a.ssent 
 to the payment of all the claims of the 
 general creditors (Kneeland v. American 
 Loan & Trust Co. (1890), 136 U. S. 89 ; 
 s. c. 43 Am. & Eng. R. E. Cas. 519); but 
 a definite rule still remains to be formu- 
 la ted. 
 
 1 Foreman v. Central Trust Co. of New 
 York et al. (1896), 71 Fed. Rep. 776 ; s. c. 
 18 C. C. A. 321. The order of the State 
 court, purporting to make this claim a 
 lien superior to the mortgage, was further 
 held not to be authorized by the Receivers' 
 Act, Rev. St. Tex., arts. 1466 et seq. See 
 Giles a. Stanton (1894), 86 Tex. 620 ; 
 s. c. 26 S. "W. Kep. 615 ; Fordyce v. 
 Dubose (1894), 87 Tex. 78 ; s. c. 26 S. W. 
 Rep. 1050, in which cases it was held that 
 the rights of the bondholders, secured by 
 a mortgage executed before the passage of 
 the Receivers' Act, could not be affected 
 or prejudiced by any lien which the 
 court was authorized to impose under the 
 provisions of that act. 
 
 2 St. Louis Trust Co. v. Kelly (1895), 
 70 Fed. Rep. 32 ; ». o. 16 C. C. A. 110, 
 followed in Ames et al. v. Union Pac. 
 
 40 
 
626 RAILWAY BONDS AND MORTGAGES. [CHAP. XXVIII. 
 
 The Supreme Court of Georgia has taken a position against 
 the theories of all the decisions of the other courts on this subject, 
 and held that a mortgagee having a right under his mortgage to 
 possession of a railroad company and to control the income, where 
 he prefers to foreclose his mortgage and to have a sale in his pro- 
 ceedings to that end, it is inequitable to give priority to the mort- 
 gage over a judgment for a tort against the railroad company 
 obtained while the company was left in control of its property 
 and income.! 
 
 In Tennessee, a statute expressly forbids the creation of a lien 
 which shall be superior to claims for injuries to person or prop- 
 erty caused by the operation of the road. A claim of this de- 
 scription does not forfeit the protection of the statute by being 
 embodied in a formal contract ; as where there is a compromise, 
 by which the company binds itself to give an injured employee 
 work for a specified period.^ 
 
 This act of 1877, ch. 12, § 3, provides " that no railroad company 
 or corporation shall have power under this act, or any of the laws 
 of this State, to create a mortgage or other kind of lien on its prop- 
 erty in this State, which shall be valid and binding against judg- 
 ments or decrees, and execution therefrom, for timbers furnished 
 
 %. Co. et al. (1896), 74 Fed. Rep., 335; Detroit, B. C. & A. B. Co., Zn re Keating 
 
 Farmers' Loan & Trust Co. v. North- (1895), 71 Fed. Rep. 29. 
 em Pac. R. Co. et al. (Watts, Inter- In New York Security & Trust Co. v. 
 
 vener), (1896), 74 Fed. Rep. 431. Louisville, E. & St. L. R. Co. (1897), 79 
 
 In this last case Gilbert, C. J., said : Fed. Rep. 386, a judgment against the 
 
 " Such claims for injuries occurring under company for a death loss during the opera- 
 
 the receiver's own management are paid, tion of the road was held not to be an 
 
 it is true, in preference to the mortgage operating expense which would entitle it 
 
 debt, not for the reason of their preferen- to priority of payment over the mortgage ; 
 
 tial nature, nor because of any superior it was further held that the holder of the 
 
 equity in their favor over claims for dam- judgment could not, on the ground that a 
 
 ages which arose before the receiver was supersedeas bond given on an appeal by 
 
 aiipointed, but because they are liabilities the company having caused him to lose 
 
 which were incurred by the receiver in the his right to levy and sell the property, 
 
 course of his own operation of the road, before it was placed in the hands of a 
 
 and are payable by him as other expenses receiver, he was equitably entitled to en- 
 
 of the management." force the rights of the surety on the bond 
 
 The court also distinguished Farmers' in behalf of his claim. See also Vlatch 
 
 Loan & Trust Co. v. Northern Pac. R. Co. v. American Loan & Trust Co. (1897), 79 
 
 (1895), 71 Fed. Rep. 245. See as to Fed. Eep. 471. 
 
 judgments for personal injuries against a ^ Green v. Coast Line R. Co. et al. 
 
 company not having a preference over (1895), 97 Ga. 15 ; 8. 0. 24 S. E. Rep. 814 
 
 bonds secured by a mortgage against earn- (1895), a well and thoroughly discussed 
 
 ings received before appointment of a case ; opinion by Bleckley, C. J. 
 receiver, voluntarily paid over to him by ^ Frazier v. East Tenn., Va. & Ga. K. 
 
 the company or from other moneys in his Co. (1889), 88 Tenn. 138 ; s. c. 40 Am. 
 
 hands, Farmers' Loan & Trust Co. v. & Eng. E. R. Cas. 358. 
 
§ 635.] PREFERRED DEBTS. 
 
 627 
 
 or work and labor done on its road, or for damage done to persons 
 and property in the operation of its railroad in this State." In an 
 intervention in a railroad foreclosure suit, a claim of a consignee 
 of goods shipped for loss of the goods, growing out of their loss by 
 fire as a result of non-delivery of the goods to intervener from 
 carelessness or negligence of the company's agent, was recognized 
 as a claim coming within the purview of this statute which gave it 
 a lien upon the property prior and superior to the mortgage secur- 
 ing the bondholders.^ 
 
 This Tennessee statute will not affect judgments obtained 
 against a Tennessee railroad company whose road runs into an- 
 other State ; in the latter State, in actions or causes of action 
 arising in that State, such judgments will not be given priority 
 to the claims of the mortgage bondholders.^ 
 
 That all contracts are made with reference to the law of the 
 State in which the subject-matter of the contract is, and in which 
 the contract is made, is true with regard to mortgages by a railroad 
 corporation. The law enters into and becomes a part of the con- 
 tract as if it were there in express terms.^ 
 
 It follows that a person securing a judgment for personal injuries 
 inflicted by negligence of a railroad company's employees, bring- 
 ing his action within the time limited under the act of South Caro- 
 lina (§ 1528, Gen. St. S. C. 1882), which makes this judgment relate 
 back to the date when the cause of action arose, and be a lien as of 
 that date, of equal force with the lien of employees for wages, and 
 superior to the lien of any mortgage securing bonds, will be en- 
 titled to enforce its payment against one purchasing the property 
 at foreclosure sale, subject to payment on his part of all liens 
 superior to the mortgage.* 
 
 Tliis ruling is in accord with that of the Supreme Court of the 
 United States in a case brought by writ of error from the Supreme 
 Court of Tennessee.^ 
 
 A judgment against a railroad company for a tort, though the 
 action be brought after the record of a mortgage upon its prop- 
 erty, will be preferred in payment out of the earnings or property 
 
 1 C'Ttral Trust Co. v. East Tenn., * Southern Ry. Co. c;. BonKnight 
 Va. & Ga. Ry. Co. (1895), 70 Fed. Sep. (1895), 70 Fed. Rep. 442; s. c. 17 C. 0. 
 764. A. 181 ; followed in Central Trust Co. v. 
 
 2 Central Trust Co. of New York v. Madden (1895), 70 Fed. Rep. 451 ; s. c. 
 East Tenn., Va. & Ga. Ry. Co. (Simmons 17 C. C. A. 31. 
 
 et al., Interveners), (1895), 69 Fed. Rep. « East Tenn., Va. & Ga. R. Co. v. 
 
 658. Frazier (1891), 139 IT. S. 288 ; s. 0. 11 
 
 ' Southern Ry. Co. v. BonKnight Sup. Ct. Rep. 517, affirming 88 Tenn. 138; 
 
 (1895), 70 Fed. Rep. 442. s. c. 12 S. W. Rep. 537 (1889). 
 
628 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP, XXVIII. 
 
 in a foreclosure sale, under § 1255, Code of North Carolina, which 
 provides that " mortgages of incorporate companies upon their 
 property or earnings . . . shall not have power to exempt the 
 property or earnings from executions for the satisfaction of any 
 judgment obtained in courts of State . . . for torts . . .," etc.^ 
 
 1 Boston Safe Deposit & Trust Co. v. 
 Hudson (1895), 68 Fed. Rep. 758 ; s. c. 
 15 C. C. A. 651 (1895). 
 
 Statutes of some of the States as to 
 priority of liens to mortgage : Illinois, 
 Rev. Stat. 1887, ch. 114, § 51, Liens 
 upon railroads ; Indiana, Rev. Stat. 1888, 
 § 3919, Lien for taxes and debts ; Kansas, 
 Gen. Stat. 1889, § 1261, Judgment for 
 damages prior in lien to mortgages exe- 
 cuted thereafter. Kentucky, Rev. Stat. 
 
 1894, § 2487, Lien of employees and 
 material-men superior to all other incum- 
 brances ; Mississippi, Code 1892, §§ 839, 
 3567, Mortgage of future earnings subor- 
 dinate to debts contracted in carrying on 
 the business of the corporation ; Montana, 
 Comp. Laws 1887, § 707, Judgment for 
 injuries prior in lien to mortgage ; Ohio, 
 Rev. Stat. 1890, § 3398, Judgment for 
 labor, supplies, or damages for injuries 
 preferred to mortgage. 
 
§ 636.] 
 
 EXPENDITURES BY CREDITORS, ETC. 
 
 629 
 
 CHAPTER XXIX. 
 
 POSITION OP CREDITORS WHO MAKE EXPENDITURES EITHER CONTRIB- 
 UTING TO PRESERVATION OR ENURING TO BENEFIT OP MORTGAGED 
 PROPERTY. 
 
 i 636. Mortgage Lien usually preferred to 
 Claim of Lender to Company to 
 pay Interest or Operating Ex- 
 penses. 
 
 Lender, how far entitled to Benefit 
 of Statutory Lien held by Cred- 
 itor paid. 
 
 Rule when Lender is a Court Offi- 
 cial. 
 
 Lender of Money to pay for Rolling- 
 stock, when not entitled to 
 Preference on Ground of Subro- 
 gation to Vendor's Lien. 
 
 637. 
 
 638. 
 
 639. 
 
 § 640. Preference for Lender's Claim as- 
 serted on Ground of Estoppel. 
 
 641. What Protection is accorded or 
 
 Preferences given to Sureties on 
 Bonds given by Company dur- 
 ing Litigation. 
 
 {a) Appeal Bond, Sureties on. 
 (6) Surety on Injunction Bond. 
 
 642. Status of Persons paying Taxes on 
 
 Mortgaged Property. 
 
 § 636. Mortgage Lien usually preferred to Claim of Lender to 
 Company to pay Interest or Operating Expenses.^ — Debts due to 
 persons who have lent money to pay interest or operating ex- 
 penses are, as a rule, not entitled to preference as against the 
 mortgage lien. Such a loan merely creates the relation of debtor 
 and creditor between the mortgagor and the lender, and in the 
 absence of some special consideration no equity can arise in favor 
 of the latter as against other creditors holding a security prior in 
 point of time, merely by reason of the voluntary application the 
 debtor may make of the money borrowed.^ 
 
 1 As to rank of creditors paying cou- 
 pons see also Chap. III. 
 
 2 Newport & Cincinnati Bridge Co. v. 
 Douglass (1877), 12 Bush, 673, 714 ; Mor- 
 gan's La. & Tex. R. & St. Ship Co. v. 
 Texas Central R. Co. (1891), 137 U. S. 
 171 ; s. c. 11 Sup. Ct. Rep. 61 ; 45 Am. 
 & Eng. R. R. Cas. 631. In the latter 
 case a railroad company which was inter- 
 ested in maintaining, as a going concern, 
 a mortijaged connecting line, made large 
 advances to the latter in consideration, 
 
 as was alleged, of being reimbursed from 
 the earnings. A large proportion of the 
 loans was applied to the payment of the 
 bonded interest, and the rest was used 
 to defray operating expenses and pay taxes. 
 Under these circumstances it was held that 
 the lender was not entitled to any prefer- 
 ence over the bondholders, either on the 
 ground of a superior equity or by way of 
 subrogation ; and that even if the advances 
 could have been treated as having been 
 specifically applied to the payment of in- 
 
630 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIX. 
 
 Oa the other hand, it has been held that bondholders who, after 
 receiving a promise from the officers of the road that they are to 
 be reimbursed out of the net earnings, advance money to pay the 
 wages of employees, and thus avert an impending strike, are en- 
 titled to be repaid this advance in preference to the rest of the 
 bondholders out of the earnings coming into the hands of a 
 receiver afterwards appointed.^ 
 
 terest, which the evidence did not show to 
 be the case, such payment would have 
 afforded no basis for the assertion of a 
 preference as against the bondholders. 
 The fact that the interest coupons were, 
 so far as disclosed, paid, not purchased, 
 excluded the possibility of setting up any 
 right based upon the hypothesis that they 
 were still outstanding ; and the contention 
 was wholly inadmissible that the bond- 
 holders, because they received what was 
 due to them, should be held to have as- 
 sented to the running of the road at the 
 risk of returning the money thus paid, if 
 the company, by reason of unrealized ex- 
 pectations on the part of those who made 
 the advances, should ultimately turn out 
 to be insolvent. To charge the bondhold- 
 ers with the responsibility of the operation 
 of a road, as against the party who, by 
 supplying funds for the payment of inter- 
 est, have prevented them from taking pos- 
 session, was declared to be unreasonable. 
 Nor was the claim of the lender strength- 
 ened by the fact that 3.\\ that he did inured 
 to the advantage of the public. " It is true," 
 said Chief Justice Fuller, " that a railroad 
 company is a corporation operating a pub- 
 lic highway, but it does not follow that 
 the discharge of its public duties excuses 
 it from amenability to its private obliga- 
 tions. If it cannot keep up and maintain 
 its road in suitable condition, and perform 
 the public service for which it was en- 
 dowed with its faculties and franchises, it 
 must give way to those who can. To al- 
 low anotlier corporation, which, for its 
 own purposes, has kept a railroad in opera- 
 tion in the hands of the oi-iginal company, 
 by enabling it to prevent those who would 
 otherwise be entitled to take it from doing 
 so, a preference in reimbursement over the 
 latter on the ground of superiority of 
 equity, would he to permit the speculative 
 action of third parties to defeat contract 
 
 obligations, and to concede a power over 
 the property of others, which even govern- 
 mental sovereignty cannot exercise without 
 limitation." 
 
 In Duncan ». Mobile & Ohio E. Co. 
 (1876), 2 Woods, 542, decided before the 
 doctrine as to "preferential debts" had 
 been fully developed. Judge Woods came 
 to the conclusion that he could not, with- 
 out the assent of the bondholders, direct 
 the application of the income of the road, 
 after the trustees had taken possession, to 
 the payment of a floating debt, part of 
 which represented money spent in paying 
 interest and making improvements. The 
 mere fact that the payment appeared, 
 under the circumstances, to be for the 
 interests of the bondholders was declared 
 not to furnish sufficient ground for such 
 an exercise of judicial authority. The 
 court has no right to make a contract for 
 them because it thinks the contract a 
 good one. In the same litigation the ques- 
 tion was subsequently presented, whether 
 a firm of bankers, who were also the finan- 
 cial agents of the company, and general 
 managers of its pecuniary concerns, were 
 precluded by their fiduciary position from 
 repaying themselves from funds in their 
 hands a loan which they had made for the 
 purpose of enabling the company to pay 
 interest on its bonds and other pressing 
 obligations. Justice Bradley sustained the 
 transaction, saying that it did not appear 
 but that they had claims of the highest 
 equity to be paid. See also Duncan v. 
 Mobile & Ohio E.. Co. (1877), 3 Woods, 
 567. 
 
 As pDrtinent to this note see Be Regent's 
 Canal Iron Works Co. , Ex parte Grissell, 
 3 Ch. Div. 411 ; Ee Ormerod, Grierson, & 
 Co. (1890), W. N. 217. 
 
 1 Atkins V. Petersburg E. Co. (1879), 
 3 Hughes, 307 ; s. o. 2 Fed. Cas. 90, Case 
 No. 604. There the order was made after 
 
§ 637.] EXPENDITDEES BT CREDITORS, ETC. 631 
 
 This rule has been declared by the Court of Appeals of New- 
 York in a late case. The right of a creditor of an insolvent cor- 
 poration in the hands of a receiver to have a preference over 
 bondholders under a first mortgage is striotissimi juris. ... A 
 party loaning money to an embarrassed corporation subsequently 
 adjudged to be insolvent, and taking security therefor, is not in a 
 position which entitles him in equity to be adjudged to have a 
 lien on mortgaged property of the corporation or its proceeds in 
 preference to bondholders under a mortgage existing when the 
 loan was made, and it is immaterial for what purpose the loan 
 was made, or how the money received thereon was applied, provided 
 the bondholders were not parties to the transaction.^ 
 
 A recognized method by which one who desires to assist a com- 
 pany to pay debts, which are entitled to some special preference 
 by way of lien or otherwise, may protect himself, is to purchase 
 those claims himself, and thus secure all the rights to which the 
 claimants may be entitled. 
 
 Further illustrations of the principle upon which the above cases 
 turned will be found in Chapters II., III., on the questions whether 
 bonds and coupons are to be treated as bought or paid. 
 
 § 687. Lender, ho'vr far entitled to the Benefit of a Statutory- 
 Lien held by the Creditor paid. — The general rule stated in the 
 ■ last section is in no way qualified by the mere fact that the cred- 
 
 the appointment of a receiver, the court lien by order of the court, further claims 
 holding that the case fell within the doc- based upon the equity of the same. "With 
 trine of Fosdick v. Schall, that preferred reference to this contention Chief Justice 
 claims may be thus provided for, even if Andrews said: "There is a sound equity 
 their payment has not been made a condi- which supports the doctrine that when the 
 tion of the appointment. Fosdick v. Schall nature of the property is such that the 
 is not an authority for the broad doctrine business to which it has been devoted 
 here attributed to it. (See Chap. XXVII. ) cannot be discontinued without great 
 Bat that doctrine is undoubtedly within probable loss, the court may authorize 
 the spirit of Miltenberger v. Logansport it to be continued by its officer and re- 
 Ry. Co. (supra), and is strongly supported ceiver, pending the closing up of the 
 by the analogy of the cases in which the affairs of the insolvent corporation. Ex- 
 surety on an injunction bond has been penses incurred by a receiver under such 
 granted the privileges of a preferred cred- circumstances may be justly said to be 
 itor. (See § 642, post.) expenses of preservation for the benefit of 
 1 Farmers' Loan & Tnist Co., Trustee, bondholders or other persons entitled to 
 V. Bankers' & Merchants' Telegraph Co. share in the final distribution, which 
 et cU., In the matter of the claim of the ought to be first paid. But it is obvious 
 Third National Bank of the City of New that with the best intentions attempts by 
 York (1896), 148 N. Y. 315 ; s. c. 42 N. the court to carry on the business of a 
 E. Rep. 707. The bank sought to have its railroad or of a telegraph company through 
 claim for money loaned the company placed its receiver are hazardous, and we think 
 on a footing with claims of persons who courts may well pause before extending 
 had in the foreclosure proceedings received the application of the principle to which 
 receiver's certificates, with a priority of we have adverted." 
 
632 EAILWAY BONDS AND MORTGAGES. [CHAP. XXIX. 
 
 iters who are paid with the money advanced had a statutory lien 
 upon the property of the corporation. ^ 
 
 A construction more favorable to the person advancing money 
 to pay oE debts of a preferred class has, however, been placed 
 upon the Mississippi Code (pars. 839 & 3567), which provides that 
 no mortgage of the income, future earnings, or rolling-stock of a 
 railroad corporation shall be valid against debts contracted in 
 carrying on the business of the corporation. Under this pro- 
 vision persons making advances to enable the company to pay off 
 taxes, balances due to other lines, and arrears of wages are en- 
 titled to payment, as against the mortgagees, out of the income, 
 whether earned before or since the appointment of the receiver, if 
 that suffices, and, if there has been a diversion of the income, out 
 of the proceeds of the sale of the railway.^ 
 
 § 638. Rule -when the Person advancing the Money is a Court 
 Official. — It has been shown in an earlier chapter that a re- 
 ceiver cannot of his own motion issue certificates wliich shall be 
 a first lien on the trust estate. As a consequence of this doctrine, 
 it has been held that a receiver who has paid interest on the bonds 
 of a subordinate company will not be reimbursed by receiver's 
 certificates constituting a lien on the property of the latter com- 
 pany prior to the mortgage securing the bonds, but that his claim 
 will be admitted, ranking next after the mortgage.^ 
 
 In England a more severe doctrine has been laid down in re- 
 gard to the administration of an insolvent canal company in wind- 
 ing-up proceedings. Advances made by a liquidator, even when 
 made under the sanction of an order of court, will not be given 
 priority of payment out of the corpus of the estate as against the 
 claims of mortgagees, even though the transaction was for the 
 benefit of the debenture-holders ; and a sale of the property at 
 the time the advances were made would probably have produced 
 a mucli smaller amount than was ultimately received, in conse- 
 quence of the fact that the advances were so made, and the 
 necessity for a sale postponed. The debenture-holders have a 
 right to express their opinion whether the business shall be car- 
 ried on at their risk, and cannot be bound by any such arrange- 
 ment unless they are brought before the court, and assent thereto.* 
 
 1 Suddath v. Gallagher (1895), 126 Mo. « In re Regent's Canal Works (1875), 
 393. L. E. 3 Ch.Div. 411. The reason here 
 
 2 Farmers' Loan & Trust Co. v. Vicks- assigned illustrates the distinction taken 
 burg & Meridian R. Co. (1888), 33 Fed. in this country between the powers of a 
 Rep. 778. court in managing the affairs of a private 
 
 ' Phinizy W.Augusta &K.R. Co. (1894), and a quasi public corporation. See 
 62 Fed. Rep. 771. Chap. XXIX. 
 
§ 639.] EXPENDITURES BY CREDITORS, ETC. 633 
 
 .The fact that the lender takes collateral security for his loan is 
 regarded as almost conclusive evidence that he relied on the credit 
 of the company and the security so furnished.^ 
 
 Thus where the company receives a loan from a bank of 
 $40,000, giving therefor an indorsed note, and at the same 
 time deposits with the lender, as collateral, 180,000 of the bonds 
 secured by the mortgage under foreclosure, the presumption is 
 that the lender relied for its ultimate security on the indorsers of 
 the note and the proceeds of the bonds.^ 
 
 But it seems that, in such a case, if the money is lent for the 
 express purpose of paying the bonded interest, and was so ap- 
 plied, the loan should be regarded as a preferential debt, at least 
 if it is made with the knowledge and consent of the trustees.^ 
 
 The same result would doubtless follow if the trustees are 
 shown to have been guilty of any fraud or deception in 'con- 
 cealing the insolvency of the company, and thus inducing the 
 lender to make the advance.* 
 
 § 689. Lender of Money to pay for Rolling-stock, when not en- 
 titled to a Preference on the Ground of Subrogation to Vendor's 
 Lien. — Aside from the cases in which subrogation is allowed in 
 cases of sureties and other persons who satisfy claims against 
 third parties to protect their own rights, subrogation can only 
 result from an express agreement either with the debtor or cred- 
 itor, and therefore cannot be predicated of a case where there is a 
 mere understanding on the part of persons advancing money to pay 
 the instalments of the price of rolling-stock, subject to a vendor's 
 lien till fully paid for, that they shall be subrogated to that lien, 
 and there is nothing to show that they occupy the position of 
 guarantors on the contract, or are in any way bound for its per- 
 
 1 Addison v. Lewis (1882), 75 Va. 701 ; to the benefit of tlie lien of the prior mort- 
 
 s. c. 9 Am. & Eng. R. R. C'as. 702 ; Fidel- gages ; but the court held, upon a. review 
 
 ity Insurance, Trust, & Safe Deposit Co. of the circnmstances, that the transaction 
 
 V. Shenandoah Valley R. Co. (1880), 86 amounted to a satisfaction of the coupons 
 
 Va. 1 ; s. c. 9 S. E. Rep. 751 ; 38 Am. & .surrendered. 
 
 Eng. R. R. Cas. 559. In the latter case 2 Yemx v. Calhoun (1887), 121 TJ. S. 
 
 the claimants, a firm of bankers who acted 251 ; s. 0. 7 Sup. Ct. Rep. 906. 
 as financial agents of a railroad comimny, * Penn v. Calhoun (1887), 121 U. S. 
 
 also contended that, as they had surren- 251 ; s. C. 9 Sup. Ct. Rep. 906. In that 
 
 dered coupons of the first and second case, however, the evidence failed to sat- 
 
 morl gages, and received in exchange bonds isfy the court that any part of the money 
 
 securi'd by an income or third mortgage lent had been used directly in the pay- 
 
 for sixty per cent, of their par value, such ment of the interest, 
 bonds being guarantied to a certain extent * This ground was also relied on in 
 
 by a third and solvent party, and issued Penn v. Calhoun, supra, but was not 
 
 to pay the floating and accruing indebt- not established by the evidence, 
 edness of the company, they were entitled 
 
634 RAILWAY BONDS AND MORTGAGES. [CHAP. XXIX. 
 
 formance. Even supposing such a loan to have been made by the 
 directors of the company, and that, as trustees, tliey are entitled 
 to an equitable lien on the trust property on the ground that the 
 money was advanced for the protection and preservation of the 
 property committed to their care, it is premature to attempt 
 the enforcement of such a lien until all the instalments of the 
 purchase price have been paid. Whatever rights the lender may 
 have in such a case are necessarily subordinate to those of the 
 owners of the rolling-stock, and until a creditor is wholly satis- 
 fied, there can be no interference with his rights or his securities, 
 which may, even by bare possibility, prejudice or embarrass him 
 in any way in the collection of the residue of his claim. For 
 this reason a petition will be denied by which persons thus ad- 
 vancing money seek, immediately after the institution of a fore- 
 closure suit and the appointment of a receiver, and while several 
 instalments of the price of the rolling-stock remain unpaid, to 
 obtain an order directing the receivers, if they decide to retain 
 possession of the rolling-stock, to pay to the petitioners the 
 amount of their advances out of the first money that comes in 
 their hands. Such an order might greatly prejudice the vendors 
 in the enforcement of their right to the control of the property 
 whicli constitutes their only security, and, in effect, would actu- 
 ally place the petitioners in a better position than the vendors, 
 by giving them a prior right to the only fund out of which pay- 
 ment can be made to either party. The presentation of such a 
 petition at such a time is also premature, for the reason that it 
 amounts to an attempt at an early stage of a foreclosure suit to 
 establish, in an irregular manner, the priority of a lien. All 
 those who claim liens antagonistic to the lien thus set up have 
 a right to be heard, and the consideration of the subject-matter of 
 such a petition must therefore be postponed until the court, upon 
 the hearing of the cause, at some other proper time, proceeds to 
 settle the respective rights and priorities of all parties claiming 
 liens upon the mortgaged premises.^ 
 
 § 640. Preference for Lender's Claim asserted on the Ground of 
 Estoppel. — Before any legal proceedings are instituted to enforce 
 the mortgage, the bondholders may undoubtedly exercise such 
 control over the property, and may so request and sanction the 
 act of a third party in advancing money for the benefit of the 
 property, as to estop them from setting up their mortgage as a 
 lien paramount to the claim of one who has thus acted on the 
 
 1 Receivers of New Jersey Midland Ey. Co. v. Wortendyke (1876), 27 N. J. Eq. 
 658. 
 
§ 641. EXPENDITURES BY CREDITORS, ETC. 6S5 
 
 faith of their request or direction. But the mere fact that the 
 bondholders have authorized a loan to be made for construction 
 purposes does not of itself give one who subsequently pays the 
 debt for the accommodation of the company an equity superior to 
 the mortgage. To obtain such an equity, he must show that he 
 acted under such inducements from the bondholders, and had 
 such dealings with them in the transaction, as to be entitled to 
 claim against them the benefit of an estoppel in pais? 
 
 § 641. What Protection is accorded and Preferences given to 
 Sureties on Bonds given by the Company during Litigation. — 
 (a) Appeal Bonds, Sureties on. — If a debt established against 
 the company by the judgment of a trial court is not itself of such 
 a character as to be entitled to priority over the mortgage, the 
 surety on an appeal bond does not, by paying the judgment, after 
 it has been affirmed by the appellate court, acquire any equitable 
 claim to be reimbursed out of the funds in the hands of a re- 
 ceiver appointed while the appeal was pending in preference to 
 the bondholders.^ 
 
 That the surety in such a case is the attorney of the company 
 does not change this rule.^ 
 
 The fact that the assets of the company are preserved and in- 
 creased by the satisfaction of such a judgment is immaterial, for, 
 whatever the amount or character of those assets, the mortgagees 
 are still entitled to be paid therefrom in preference to creditors 
 holding claims of a subordinate rank.* 
 
 One who, while a railroad company is apparently solvent, and 
 not in default as to interest on its bonds, becomes surety on an 
 appeal bond in an action on covenants made by the company, 
 will not be considered, by his act in becoming surety, to have 
 kept the company a going concern to the benefit of the bond- 
 
 1 Kelly V. Green Bay & Minnesota R. surety in a similar case to be reimbursed 
 Co. (1881), 10 Biss. 151. It may be out of the funds in the hands of the re- 
 noticed that the distinction between debts ceiver, merely remarking that, "whenever 
 for operating expenses and for construction a party in legal proceedings has become 
 was not adverted to in this case. The security for a railroad, in good faith, he 
 court rendered its decision solely upon the ought to be protected." The distinction 
 ground that, unless an estoppel was shown, taken in the text was not noticed, but the 
 the petitioner's claim had accrued too long demand for which judgment was given 
 before the receivership to be enforced un- was, as a matter of fact, a lien demand, 
 der the "six months' rule." ^ Blair v. St. Louis, H. & K. R. Co. 
 
 2 Central Trust Co. r. "Wabash, St. Louis, (1885), 23 Fed. Rep. 523. 
 
 & Pile. R. Co. 24 Fed. Rep. 98. In Bayliss * Farmers' Loan & Trust Co. v. North- 
 
 V. Lafayette, M. & B. R. Co. (1879), 9 em Pac. R. Co. (1895), 68 Fed. Rep. 36, 
 
 Biss. 90 ; s. c. 2 Fed. Cas. 1080, Case No. distinguishing Union Trust Co. w. Morri- 
 
 1141 ; 8 Rep. 579, the court allowed the son, infra. 
 
636 EAILWAT BONDS AND MORTGAGES. [CHAP. XXIX. 
 
 holders ; and, in case of foreclosure of mortgages afterwards, 
 though he may have had to pay the bond, will have no preference 
 over the mortgagees against the corpus of the property. ^ 
 
 Since the rights of the owner of land used for a railroad are 
 paramount to the lien of the mortgagees under an after-acquired 
 property clause, sureties on a bond given in an appeal from a 
 judgment rendered against the company in condemnation pro- 
 ceedings are entitled, after being forced to pay the judgment, to 
 be reimbursed from the proceeds of sale in the hands of a re- 
 ceiver appointed to take charge of the railroad after the appeal 
 was taken.^ 
 
 (b) A Surety on an Injunction Bond given to protect the rolling- 
 stock and property of the company from execution and sale is 
 entitled to be protected and indemnified by a receiver appointed 
 while an appeal from a decree dissolving the injunction is still 
 pending. If, therefore, he pays a judgment against him on his 
 bond, he is entitled to be reimbursed out of the property and as- 
 sets of the company in preference to the mortgagees. To estab- 
 lish his right it is not necessary that the surety should show that 
 there has been a diversion of earnings. Such a claim does not 
 stand on the same footing as a debt for labor supplies and the 
 like. It is based on a bona fide effort made to preserve the fund 
 itself from waste and spoliation after the mortgage was in arrear, 
 and the right to reduce it to possession had accrued.^ 
 
 Where property of a railroad company absolutely essential to 
 the operation of its road is levied upon by attachment, and the 
 trustee of a mortgage securing bondholders requests a third party 
 to go upon the replevin bonds in order that the property may be 
 retained for the service of the company, and the surety on the 
 bond afterwards, upon a judgment in favor of the attaching cred- 
 itors, becomes liable on the bond and cannot restore the property, 
 
 1 Whiteley v. Central Trust Co. of New by garnishment proceedings, were held, in 
 
 York (1896), 76 Fed. Rep. 74. a foreclosure proceeding to enforce a mort- 
 
 " Rome & D. E. Co. v. Sibert (1892), gage for bondholders begun pending the 
 
 97 Ala. 393 ; s. c. 12 So. Rep. 69. appeal, to be entitled to have their claim 
 
 ' Union Trust Co. v. Morrison (1887), deemed a current operating expense accru- 
 
 125 U. S. 591, distinguishing Burnham v. inf; during receivership and paid out of 
 
 Bowen (1884), 111 U. S. 776; s. c. 17 current earnings. See, as supporting this 
 
 Am. & Eng. R. R. Gas, 308. rule, Farmers' Loan & Trust Co. v. Kansas 
 
 In Fanners' Loan & Trust Go. u. Northern City, W. & N. W. Ry. Co. (1892), and the 
 
 Pac.R. Co. (1895), 71 Fed. Rep. 245, sure- exhaustive note of M. M. Cohen, Esq., 
 
 ties on an appeal of the railroad company appended to this case, 53 Fed. Rep. 182- 
 
 fromajudgmentagainstit.by whose action 196; and Trust Co. i). Morrison (1887), 
 
 of executing the bond the funds of the com- 125 U. S. 591-613; s. c. 8 Sup. Ct. 
 
 pany had been protected from abstraction 1004. 
 
§ 642.] EXPENDITUBES OP CREDITOKS, ETC. 637 
 
 if the trustee has instituted proceedings for the benefit of tlie 
 bondholders, and receivers have been appointed, the court may 
 properly direct the payment of the attaching creditor's claims out 
 of the proceeds of the sale of the corpus in preference to the 
 mortgagees.' 
 
 § 642. status of Persons paying Taxes on the Mortgaged Property. 
 — A bondholder has a sufficiently direct interest in the preserva- 
 tion of the trust property to be entitled to be subrogated to the 
 lien of the State for such taxes as he may pay in order to pre- 
 vent the sale of the property .^ 
 
 Such a case obviously comes within the well-recognized prin- 
 ciple that the person advancing money to pay a debt is substituted 
 to the place of the creditor, without any express agreement to 
 that effect, when the payment is made to protect the rights of the 
 lender.* 
 
 On the other hand, where a reorganized company purchases and 
 receives possession of the road, and thereafter, with the authority 
 of the court, pays certain taxes which would have been a lien on 
 the road, and also the running expenses of the road during tlie 
 receivership, the inference is that the payments were made to 
 clear the title to the property, and the reorganized company will 
 not be entitled to be reimbursed out of the proceeds of the sale.* 
 
 1 Jones V. Central Trust Co. of New persons who exposed themselves to liability 
 
 York et al. (1896), 73 Fed. Rep. 668. solely for the accommodation and benefit 
 
 Severens, D. J., said: "From what has of the beneficiaries under the mortgage, — 
 
 been stated, it is obvious that this liability the sureties having, so far as appears, no 
 
 of the sureties was incurred for the pur- interest of their own to protect." The 
 
 pose of preserving the fund which will court commented at length on Trust Co. v. 
 
 ultimately be appropriated to the payment Morrison (1887), 125 U. S. 591 ; s. c. 8 
 
 of the mortgage debt. It is not the case Sup. Ct. Eep. 1004, as authority for the 
 
 of an equity arising, as in many cases has ruling. 
 
 happened, from the diversion of current ^ Humphreys v. Allen (1881), 100 111. 
 
 income from the payment of ordinary cur- 511. 
 
 rent operating expenses to the payment of ^ Sandford v, McLean (1832), 3 Paige 
 
 the mortgage ; but it is the case of an Ch. (N. Y. ) 117. 
 
 equity arising from the saving in a case of * Central Trust Co. v. Cincinnati, J. & 
 
 necessity of the mortgaged property itself, M. Ey. Co. (1893), 58 Fed. 500. 
 and that upon the call of the trustee by 
 
638 
 
 RAILWAY BONDS AND MOKTGAGES. 
 
 [chap. 
 
 XXX. 
 
 CHAPTER XXX. 
 
 POWERS OF A COURT AND ITS BECEiVEB IN MANAGEMENT OF 
 
 RAILWAY. 
 
 Art. 1. — In General. 
 
 § 643. Power of appointing Court ple- 
 nary in Regard to the Manage- 
 ment of the Property. 
 
 644. Nature and Extent of Powers 
 
 exercised by Receiver, how 
 determined. 
 
 645. Receivers have only such Powers 
 
 as are conferred by Court. 
 
 646. Principles upon which Contract 
 
 Claims against Receivers will 
 be allowed or rejected. 
 
 647. Powers conferred on Appoint- 
 
 ment liberally construed. 
 
 648. Power of Court to cease run- 
 
 ning a Section of Composite 
 System. 
 
 649. Receiver's Right to revoke Run- 
 
 ning Powers given by Com- 
 pany to a Connecting Road. 
 
 650. Receiver authorized to take Lease 
 
 of another Road. 
 
 651. Limited Powers of Receiver ap- 
 
 pointed for Special Purpose. 
 
 652. Control over Property sometimes 
 
 reserved by Court after Sale. 
 Alt. II. — Disposition of Trust Fund 
 DURING Receivership gen- 
 erally. 
 § 653. General Rule as to Expenses of 
 Management. 
 
 654. Claims against Receivership 
 
 should be paid before Re- 
 ceiver discharged. 
 
 655. Expenses of Company after Ap- 
 
 pointment of Receiver not 
 Proper Charge on Property. 
 
 656. Expen.'?es of Refunding Scheme, 
 
 when not allowed ex parte. 
 
 657. Expenses of carrying out Reor- 
 
 ganization Scheme. 
 
 §658. 
 659. 
 660. 
 
 661. 
 662. 
 663. 
 
 664. 
 665. 
 
 666. 
 
 667. 
 
 668. 
 
 669. 
 670. 
 671. 
 672. 
 
 Art. Ill 
 
 §673. 
 674 
 
 When the Payment of Interest 
 on Bonds wiU be ordered. 
 
 Property in Hands of Receiver 
 not exempt from Taxation. 
 
 General Principles on Allowance 
 of Operating Expenses in Ee- 
 •ceiver's Accounts. 
 
 Expenditures for Supplies. 
 
 Office Rent. 
 
 Interest on Money borrowed by 
 Receiver. 
 
 Interest paid on Bonds. 
 
 Expenditures usual in Business 
 with Dependent Road. 
 
 Expenditures to prevent Con- 
 struction of Rival Road. 
 
 Receiver's Power to purchase on 
 Credit. 
 
 Liabilities arising from Contracts 
 of Company adopted by Re- 
 ceiver. 
 
 Liabilities arising out of Torts 
 incident to Operation of Road. 
 
 Compensation to Injured Em- 
 ployees. 
 Consolidated System adminis- 
 tered as Entirety 
 
 Restoration of Earnings diverted 
 from Payment of Operating Ex- 
 penses during Receivership. 
 
 — Pov^er of Receiver to raise 
 Monet for Operating Ex- 
 penses BY Issue of First- 
 lien Certificates. 
 Receiver cannot, on his own 
 Motion, contract Debts charge- 
 able upon Fund in Litigation. 
 Expenses of Management some- 
 times made First Lien on Prop- 
 ei^ty by Order appointing Re- 
 ceiver. 
 
§ 643.] 
 
 POWERS OF COUKT AND RECEIVER. 
 
 esD 
 
 § 675. General Principles upon which 
 Power to issue First-lien Cer- 
 tificates depends. 
 
 676. Purchasers take Property Subject 
 
 to Lien for Operating ExpenseSj 
 when. 
 
 677. Lien of Certificates when not 
 
 transferred to Proceeds of 
 Sale. 
 
 678. Issue of Certificates to pay Op- 
 
 erating Expenses may be au- 
 thorized without Consent of 
 Lien Creditors. 
 
 679. Dissent of some Parties inter- 
 
 ested a Material Circumstance. 
 
 680. Consent of Bondholders Pre- 
 
 requisite to Issue of First-lien 
 Certificates. 
 
 681. Notice should he given to Par- 
 
 ties interested. • 
 
 682. Necessity for Issue must he 
 
 clearly established. 
 Art. IV — Purposes for which First- 
 lien CEET1FI0A.TES MAT BE 
 ISSUED. 
 § 683. Funds required to keep Road in 
 Operation may be procured hy 
 Issue of First-lien Certificates. 
 
 684. Issue of First-lien Certificates to 
 
 pay Taxes. 
 
 685. Issue of First-lien Certificates to 
 
 pay Back Claims for Labor, 
 Supplies, etc. 
 
 686. Issue of First-lien Certificates to 
 
 keep up Single Divisions of 
 Consolidated System. 
 
 687. Issue of First-lien Certificates to 
 
 pay for Construction Work 
 generally. 
 
 § 688. Certificates to pay for Construc- 
 tion Work cannot be made First 
 Lien on Road without Consent 
 of Prior Lienors. 
 Art. V. — Rights of Holders of Receiv- 
 er's Certificates. 
 § 689. Receiver's Certificates not Nego- 
 tiable Instruments. 
 
 690. Purchasers charged with Notice 
 
 of all Circumstances attending 
 Issue of Certificates. 
 
 691. Rank of Certificates depends on 
 
 Final Decree. 
 
 692. Negotiation and Sale of Certifi- 
 
 cates a Trust personal to Re- 
 ceiver. 
 
 693. Propeity is not liable for Pay- 
 
 ment of Receiver's Certificates 
 unless Proceeds come under his 
 Actual Control. 
 
 694. Purchasers not bound to see to 
 
 Application of Proceeds. 
 
 695. Eights of Purchasers not affected 
 
 by taking Collateral Security. 
 
 696. Bondholders, when estopped to 
 
 dispute Validity of Certificates. 
 
 697. Receiver, when estopped to dis- 
 
 pute Validity of Certificates. 
 
 698. Court, when bound to recognize 
 
 the Estoppel against Receiver 
 to dispute Validity of Certifi- 
 cates. 
 
 699. Amount recoverable by Holders' 
 
 Certificates. 
 
 700. Usury Laws applicable to Cer- 
 
 tificates. 
 
 701. Holders need not present Cer- 
 
 tificates for Payment before 
 Foreclosure Sale. 
 
 Article T. — In General. 
 
 § 643. Power of appointing Court plenary in Regard to the Man- 
 agement of the Estate. — When a mortgagee in an action to fore- 
 close his mortgage invokes the extraordinary aid of a court of 
 equity by the appointment of a receiver of the mortgaged property 
 in his interest, he thereby submits to the reasonable discretion of 
 the court in the management and control of the property through 
 its receiver, and the action of the court in that respect represents 
 and binds tlie mortgagee as well as the owner. Upon the prin- 
 ciple of this rule, a contract by which a receiver in foreclosure 
 proceedings against a railroad company permitted another com- 
 
640 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 pany to Lave perpetual joint use of a portion of the route of the 
 defendant company, under order of the court, was held to be a 
 binding one, and the court denied the motion of a purchaser at 
 foreclosure sale to vacate the order or to limit the duration of 
 the agreement or lease to the time the purchaser went into 
 possession.^ 
 
 A court of general equity jurisdiction has full power, in dealing 
 with the estate of an insolvent corporation which has passed into 
 the hands of a receiver, to direct the manner in which the cor- 
 porate property shall be managed while in the receiver's pos- 
 session, and the conditions on which the funds shall be paid 
 out.2 
 
 If, in the course of the receivership, the court makes an order 
 which the parties to the suit consider injurious to their interest, it 
 is their duty to file a motion at once, asking the court to cancel 
 or modify it.^ 
 
 Where a receiver appointed by a State court has money in his 
 hands when the cause is removed to a federal court, the latter 
 court has full authority to make him account for the funds.* 
 
 After a receivership is terminated by a compromise, carried into 
 effect by a consent decree which defines the future relations of 
 the various parties in interest, the position of the court ceases to 
 be one of prerogative and control, and becomes practically one of 
 subordination to the agreement of the parties, its functions being 
 merely the giving of formal assent and sanction to the arrange- 
 ments devised by the contracting parties.^ 
 
 § 644. Nature and Extent of Powers exercised by Receiver, by 
 what determined. — The nature and extent of the powers, whether 
 ordinary or special, which a court will undertake to exercise 
 through a receiver, in administering an insolvent railroad, are 
 determined by the fact that the office is created to serve a tem- 
 porary purpose. " The management (of a receiver) is an interim 
 management; its necessity and justification spring out of the 
 jurisdiction to liquidate and sell ; the business or undertaking is 
 
 1 Farmers' Loan & Trust Co. v. Staten s. c. 14 Sup. Ct. Rep. 86. The rule in 
 Island Belt Line E. Co. (1896), 17 Misc. the text was here applied to a ease in 
 Rep. 107 ; s. u. 39 N. Y. Suppl. 872, which the court had ordered the receiver 
 afiBrmed in Same «. Same, 6 App. Div. to pay rentals only after the discharge of 
 148 ; s. 0. 39 N. Y. Suppl. 996 (1896). preferential debts. 
 
 2 Woodruff «. Erie Ry. Co. (1883), 93 * Hinckley u. Railroad Company (1879), 
 N. Y. 609 ; s. c. 16 Am. & Eng. R. R. 100 U. S. 156. 
 
 Cas. .501. 6 Vermont & Canada R. Co. v. Vermont 
 
 ' United States Trust Co. v. Wabash Central R. Co. (1877), 50 Vt. 500. 
 Western Ry. Co. (1892), 150 U. S. 287; 
 
§ 644.] POWERS OP COURT AND RECEIVER, 641 
 
 managed and continued in order that it may be sold as a going 
 concern, and with the sale the management ends." ^ 
 
 It has indeed been laid down in one case that a court of equity 
 having in charge the mortgaged property of a railroad company 
 is authorized to do all acts not beyond the powers of the company 
 itself that may be necessary to preserve the property, and to give 
 it additional value, not only for the benefit of the lien-creditors, 
 but also for the benefit of the company, whose possession the 
 court has displaced.^ 
 
 But this sweeping language needs much qualification, if it is 
 intended to serve as a statement of the powers which a court may, 
 of its own motion and without regard to the wishes of the lienors 
 and other creditors, undertake to exercise in the administration 
 of the estate, or even as a statement of what the court may do 
 with the consent of the various parties in interest. A more cor- 
 rect view of the powers which a court may legitimately exercise 
 through a receiver, is that it may authorize its officers to do every 
 thing that may be necessary to keep the property intact, and free 
 from loss or injury.^ 
 
 A court is in any case averse to making any radical changes in 
 the condition of the road, and its unwillingness to do so increases 
 in proportion as the time for the transfer of the property to the 
 new owners draws nearer. Probably a court cannot, without the 
 consent of the secured creditors, use even the earnings in building 
 extensions.* 
 
 And it is certain that no such work can be undertaken so as to 
 prejudice the rights of those creditors in regard to the corpus of 
 the property lien.^ 
 
 1 Gardner v. London, etc. E. Co., L. R. Midi. & Grt. Southern R. Co. (1880), 33 
 
 (1866), 2 Ch. App. 201, per Cairns, L, J. Gratt. (Va.) 586 ; s. c. 1 Am. & Eng. R. R. 
 
 For a general review of the limits of the Cas. 473, the court, while declining to 
 
 powers which a court may rightfully assume pass upon the abstract question of the 
 
 in contracting debts for the conservation of power of the court to authorize the re- 
 
 the property during a receivership, see an ceiver to contribute from the trust fund 
 
 article by the late Mr. Albert Gallup in towards the building of a short branch 
 
 4 Law Quarterly Review (Engl.), 300. road, held that, as the expenditure had 
 
 This article relates entirely to the practice turned out to be eminently advantageous 
 
 of the American courts. for all the parties in interest, and no ob- 
 
 ^ Gibert r Washington City, Va. Midi, jection to the action of the court had 
 
 & Grt. Southern R. Co. (1880), 33 Gratt. been raised for two years, an assignment 
 
 (Va.), 586 ; s. c. 1 Am. & Eng. R. R. Cas. of error based upon the theory that such 
 
 473. action was an excess of the court's powers 
 
 8 Wabash, St. L. & Pac. R. Co. v. Cen- must be overruled, 
 tral Trust Co. (1884), 22 Fed. Rep. 269, « In Cowdrey v. Railroad Co. (1870), 
 
 271. 1 Woods, 331, the court refused, after the 
 
 * In Gibert v. Washington City, Va. principal cause had been taken up on ap- 
 
 41 . ' '" ' -'•'^•*^' ^' 
 
642 
 
 RAILWAY BONDS AND MOETGAGES. [CHAP. XXX. 
 
 § 645. Receivers have only such Powers as are conferred on 
 them by the Court appointing them. — The receiver is but the crea- 
 ture of the court, and has no powers except such as are conferred 
 on him by the order of his appointment and the course and prac- 
 tice of the court.^ 
 
 There is no authority for the theory that, apart from statute, a 
 receiver may, in virtue of his office, make a contract without the 
 authority of the court, which will bind the trust, or which the 
 court will be bound to recognize without regard to its necessity or 
 propriety. He may, it is true, appropriate moneys in his hands 
 belonging to the trusts to such purposes connected with the trust 
 as he may think proper, always taking the risk that the court will 
 finally approve his action ; but until his contracts are approved 
 the court is at liberty to deal with them as it may deem to be just, 
 and may either modify them or disregard them entirely.^ 
 
 peal, to authorize the' receiver to purchase 
 a bridge, or to build or contract to use a 
 loop line for the purpose of making con- 
 nections with another road. 
 
 1 Booth V. Clark (1854), 17 How. 322, 
 citing Verplanck v. Mercantile Ins. Co. 
 (1831), 2 Paige Ch. 438, 452 ; Davis ;;. 
 Gray (1872), 16 Wall. 203. In Ellis v. 
 Boston, Hartford, & Erie R. Co. (1871), 
 107 Mass. 1, is given a resume of a com- 
 prehensive order of appointment of a rail- 
 road receiver. For another example of 
 such an order, see Bank of Montreal v. 
 Chicago, C. & W. R. Co. (1878), 48 Iowa, 
 518. In Central Trust Co. v. Wabash, 
 St. L. & Pac. Ry. Co. (1885), 23 Fed. 
 Rep. 863, will be found set out the proper 
 orders to be entered concerning the opera- 
 tion and management by receivers of a 
 system of roads extending through- several 
 States, made up of various consolidated 
 and leased lines. See also, as to payments 
 to be made by a receiver, the order quoted 
 in Fosdick v. Schall (1879), 99 U. S. 235. 
 
 2 Lehigh Coal & Navigation Co. v. 
 Central E. Co. of New Jersey (1882), 35 
 N". J. Eq. 426 ; s. c. 9 Am. & Eng. R. R. 
 Cas. 479, per Van Fleet, V. C, who 
 pointed out that the passage quoted be- 
 low, from Mr. Jvistice Bradley's opinion 
 in Cowdrey v. Railroad Co., simply pre- 
 scribes what expenditures, out of the 
 funds in his hands as receiver, the court 
 will recognize as legitimate and proper, 
 when the receiver comes to account for 
 
 the administrations of his trust. In a 
 later New Jersey case it was held that the 
 statute of that State which provides that, 
 if the property of an insolvent railroad 
 company passes into the hands of a re- 
 ceiver under the order of a chancellor, 
 "the receiver shall operate the railroad 
 for the use of the public, subject to the 
 order of the chancellor," enlarged the 
 powers of a receiver by constituting him 
 in effect a statutory agent, authorized to 
 do with the railroad what he thinks 
 proper for the public interest, unless re- 
 strained by the express order of the chan- 
 cellor, — the result being that he possesses 
 as an incident of the duties imposed upon 
 him an implied power to make aU such 
 contracts for labor and supplies as are 
 reasonably necessary to enable him to per- 
 form the duties of his office, and that his 
 contracts for such purposes bind the trust. 
 Lehigh Coal & Navigation Co. o. Central 
 R. Co. of New Jersey (1886), 41 N. J. Eq. 
 167. But this view was rejected by-the 
 Court of Errors and Appeals (s. o. (N. J. 
 Eq., 1888) 35 Am. & Eng. R. E. Cas. 18), 
 where the conclusion of the majority of 
 the judges was that there was "nothing 
 in this legislation giving the contracts of 
 a receiver in running a railroad any greater 
 force than contracts made by a receiver for 
 the preservation of the property of any 
 insolvent railroad. " At the same time it 
 was held that there was nothing in the 
 enactment to countenance the notion that 
 
§ 645.J 
 
 POWERS OP COOET ANP BBCElVJEg. 
 
 643 
 
 A receiver of a corporation appointed, and ordered to operate 
 and manage the property pending the action in which he is ap- 
 pointed is not bound to carry out an executory contract made by 
 the corporation prior to his appointment, and may in his discretion 
 refuse to do so. Nor is his action in such case affected by the act 
 of Congress (24 U. S. Stats, at Large, 654, §§ 2, 3).i 
 
 Where plans for work to be done upon a building, say upon 
 land belonging to a railroad company, not covered by a mortgage 
 executed by- the company in process of foreclosure under a con- 
 tract with the receiver, are submitted to the court and approved, 
 
 a receiver's contract' might be revoked or 
 annulled at the pleasure of the chancellor. 
 Theoretically the chancellor had the power 
 to retain in his hands the administration 
 of the trust, and personally to direct and 
 order each contract into which the receiver 
 should enter ; but, in the nature of the 
 case, it must have been contemplated by 
 the legislature that, in the performance of 
 the multifarious duties involved in the 
 operation of the road, some degree of dis- 
 cretion might be accorded to the receiver. 
 This legislation, therefore, seems virtually 
 to be considered as merely a declaration 
 that the discretionary powers of a receiver, 
 appointed in pursuance of it, are to be 
 what they are under the ordinary rules 
 observed by courts of equity in adminis- 
 tering upon insolvent estates of pther 
 kinds. 
 
 For a case in which the extent of the 
 powers of receivers appointed by special 
 legislative provision to take charge of a 
 railroad to enforce a lien in favor of the 
 State, see State of Tennessee v. Edgefield 
 & Kentucky K. Co. (1880), 6 Lea (Tenn.), 
 353 ; s. 0. 4 Aqi. & Eng. R. R. Cas. 87. 
 There the statutory receivers were held to 
 be in a manner public agents, who did 
 not bind the State unless they acted 
 within the scope of their powers. They 
 had no authority, it was said, to contract 
 debts to be paid otherwise than out of the 
 earnings of the road. Nor could they 
 lease the road. Any lease made by them, 
 not previously authorized or subsequently 
 ratified by the State, was absolutely void, 
 and not susceptible of being validated by 
 the fact that the receivers had accepted 
 rents from the lessee. The lessee conse- 
 (|ucntly could not recover for improve- 
 
 ments made on the road under such a 
 lease. The powers of these receivers was 
 again considered in Lafayette Co. v. Neely 
 (1884), 21 Fed. Eep. 738. After one of 
 the roads under the charge of one of them 
 had passed into the hands of a purchaser, 
 a stockholder filed a bill for an account- 
 ing, and questioned, among other things, 
 the propriety of his expending some of the 
 earnings on betterments. The court was 
 of opinion, upon general principles, that 
 his outlay upon permanent improvements, 
 and on such articles as rails, which had 
 been delivered, but had not been fully 
 paid for when the receivership began, 
 could not be complained of. Besides this, 
 he was by law invested with plenary pow- 
 ers in the matter of managing the road ; 
 and as the improvement of the road was 
 certainly conducive to the interests of the 
 State, which were paramount to those of 
 the stockholders, he was clearly entitled 
 to expend the earnings in bringing the 
 road into such o. condition that it was fit 
 to be used as one of the links in the great 
 transportation system of which it formed 
 H. part. 
 
 1 Scott et al. V Rainier Power & Rail- 
 way Co. et al. (1895), 13 Wash. 108 ; 
 s. c. 42 Pac. Eep. 531. 
 
 That a receiver of a corporation is not 
 bound to cany out its executory contracts 
 except as he elects, see Central Trust Co. 
 1). East Tennessee Land Co. (1897), 79 
 Fed. Eep. 19. 
 
 As to the remedy of a lessor in such a 
 case against a receiver, to compel an elec- 
 tion, see Thomas v. Cincinnati, N. 0. & 
 J. P. By. Co. (1896). 77 Fed. Rep. 667. 
 See also Spencer v. Brooks (Ga., 1896), 25 
 S. E. Rep. 480. 
 
644 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 this will dispense with the necessity of a prior order of the 
 court to the receiver to contract for such work, and the fact 
 that there was no prior order entered will not invalidate the 
 contract.^ 
 
 It is not absolutely necessary where there are receivers of 
 corporate property that the contracts made with third parties for 
 the benefit of the property be executed by all the receivers to bind 
 the trust property.^ 
 
 A receiver has no power to contract for legal services so as to 
 bind the fund in his hands, or the property, except by order of the 
 court appointing him.^ 
 
 Any acts of a receiver not within the scope of the authority 
 conferred by the order appointing him, and not otherwise author- 
 ized by the court, do not bind the court.* 
 
 " Under ordinary circumstances, the submission by the receiver 
 of his accounts to the master at frequent intervals, so that the 
 latter may ascertain from time to time the character of the 
 expenditures made, and disallow whatever may not meet his 
 approval, will be regarded as a sufficient reference to the court 
 for its ratification of the receiver's proceedings. But, in ex- 
 traordinary cases, involving a large outlay of money, the receiver 
 should always apply to the court in advance, and obtain its au- 
 thority for the purchase or improvement proposed." ° 
 
 Loans of a large amount, if effected without obtaining the 
 authority of the court, will not be allowed a priority as against the 
 bonds, even though the money is applied to the payment of ex- 
 penses, which the court may authorize to be met by creating a 
 first lien on the property.^ 
 
 Nor, as a general principle, has a receiver any power to bind the 
 trust by contracts which involve large outlays, and which may 
 extend beyond the life of the receivership^ 
 
 A person managing and controlling a road, as its receiver, 
 will not be assumed to have exceeded his authority in making 
 
 1 Girard Insurance & Trust Co. v. * Farmers' Loan & Trust Co. v. Chicago 
 
 Cooper (1896), 162 U. S. 529; s. c. 16 & A. Ry. Co. (1889), 42 Fed. Eep. 6; 
 
 Sup. Ct. Rep. 879. s. c. 8 Ry. & Corp. L. J. 184. 
 
 ^ Ibid. 6 Cowdrey v. Railroad Co. (1870), 1 
 
 8 International & Great Northern R. Woods, 331, per Bradley, J. 
 Co. V. Herndon (Tex. Civ. App., 1895), 33 « Union Trust Co. v. Illinois Midland 
 
 S. W. Eep. 377. See also International Ej'. Co. (1887), 117 U. S. 434; s. c. 25 
 
 & Great Northern E. Co. v. Wentworth Am. & Eng. R. R. Cas. 560. 
 (1894), 8 Tex. Civ. App. 5. '' Chicago Deposit Vault Co. v. Mo- 
 
 As to employment of counsel by re- Nulta (1894), 153 U. S. 554. 
 ceiver, see Farwell v. Great Western Tel. 
 Co. (1896), 44 N. E. Rep. 891. 
 
§ 646.] POWERS OF COURT AND RECEIVER. 645 
 
 a contract of rebatement. Such excess of authority must be 
 affirmatively shown.^ 
 
 § 646. Principles upou w^bich Contract Claims against Receivers 
 will be allowed or rejected by the Court. — The first question to 
 be determined in every case in which a claim based upou contract 
 is presented against a road in the hands of a receiver is whether 
 it is of a character to entitle the applicant to the relief asked for. 
 If the contract has been completely performed, and its performance 
 accepted by the receiver, and the claim is merely for compensation, 
 relief of that kind would seem to be proper in all cases, unless 
 where the applicant has dealt fraudulently or coUusively with 
 the receiver, to the detriment of the trust. Even if, in the judg- 
 ment of the court, the contract was injudicious, or improvident, 
 and unreasonable, no just reason can be given for debarring the 
 contractor from the stipulated compensation, unless he had notice 
 of the improper character of the contract ; for the receiver may be 
 required, as a penalty for his misconduct or negligence, to re- 
 imburse to the trust fund any payment on account of such a 
 contract. 
 
 But if the contract has not been performed, the court will pro- 
 ceed on the principle that every one who contracts with the re- 
 ceiver must be assumed to know that, if he seeks to enforce his 
 contract, it must come under the scrutiny of a court of equity ; 
 and that, if it there appears to be injurious to the trust, the court 
 will not carry it out. He cannot complain, therefore, if the court 
 
 1 Baylesr. Kansas Pacific R. Co. (1889), receiver: Re Joshua Stubbs (1891), 1 Ch. 
 
 13 Colo. 181; s. 0. 22 Pac. Rep. 341; 6 (C. A.) 475, 482; British Linen Co. v. 
 
 Ry. & Corp. L. J. 448 ; 40 Am. & Eng. South American & Mexican Co., 37 Sol. J. 
 
 Corp. Cas. '42. 840 ; Willmott v. London Celluloid Co. 
 
 Order of court as to wages of employees (1885), 34 Ch. Div. 147 ; Perry v. Orien- 
 
 of a company under its control, when not tal Hotels Co., 5 Ch. App. 420 ; Tottenham 
 
 violated by receiver. Dexter v. Union v. Swansea Zinc Ore Co., 32 Wkly. Rep. 
 
 Pac. Rv. Co. (1896), 75 Fed. Rep. 947. 716. Powers as to books: General Assets 
 
 As to a court's right to continue a Purchase Co. v. Chesterton Coal Co. 
 
 receiver of a street railway in the posses- (1888), 32 Sol. J. 645; Re Clyne Tin 
 
 sion of the streets of a city. Louisville PlateCo., 47L.T. Rep. 439; Engela. South 
 
 Trust Co. V. Cincinnati Inclined Plane Metropolitan Brewing Co. (1892), 1 Ch. 
 
 Ry. Co. (1897), 78 Fed. Rep. 307. 442. 
 
 As to powers of receiver appointed at As to the discretion of the court in 
 
 instance of debenture-holders and liqui- such appointments, see Stanford Banking 
 
 dator in winding-up proceedings under Co. v. Allchin (1891), 26 L. J. N. S. 38; 
 
 English rules and statutes, see Campbell Industrial Trust Co. v. South American 
 
 ■». Compagnie Generale de Bellegarde, 2 Co. (1893), W. N. 160 ; Giles v. Nuttall, 
 
 Ch. Div. 181 ; Bartlett v. Northumberland Re House Improvement Supply Assn. 
 
 Avenue Hotel Co. (188.')), 35 L. T. Rep. (1885), W. N. 51 ; Re Pound, Son, & 
 
 611 ; Strong v. Carlyle Press (1893), 1 Hutchins (C. A. 1889), 42 Ch. Div. 402. 
 Ch. (C. A.) 268. Liquidator acting as 
 
6i6 EAILWAT BONDS AND MOETGAGBS. [CHAP. 2XX. 
 
 declines to direct such a contract to be performed, or, in case it 
 has been repudiated by the receiver, refuses to award damages, at 
 least in the ordinary sense of the term, for its ■ non-performance. 
 If, however, the contractor has in good faith entered into a con- 
 tract with a receiver clothed with discretionary powers, and before 
 the unreasonableness and improvidence of such contract has been 
 brought to his notice or judicially determined, has expended money 
 or contracted obligations which, if the contract go unperformed, 
 he cannot be protected against, it is obviously equitable that he 
 should not be allowed to suffer any actual loss ; and since the 
 receiver merely represents the fund, the claimant should be made 
 whole out of that fund, and not left to such redress as he may be 
 entitled to against the receiver. If the conduct of the receiver 
 require it, the court might compel him to reimburse the fund for 
 what would thus be taken from it.^ 
 
 An example of an unreasonable contract which the court would 
 feel bound to repudiate would be one for the furnishing of sup- 
 plies for a period so extended as to be manifestly greater than 
 that required for winding up the affairs of the receivership by 
 foreclosure or otherwise. On the other hand, if the contractor, 
 not knowing that the receiver's power is about to be ternainated, 
 is proceeding in good faith to perform the contract for supplies, 
 the court, although it will not compel the performance of the con- 
 tract, or award the contractor damages, will indemnify him against 
 actual loss;^ 
 
 So, if the court has actually sanctioned a contract for supplies, 
 the amount due thereon must be paid without reference to the 
 
 1 The statement in the text is sum- formance of the contracts up to the time 
 
 marized from the opinion in Vanderbilt v. when they were repudiated. The practi- 
 
 Little (1887), 43 N. J. Eq. 669 ; s. 0. 35 cal result of this decision was to modify 
 
 Am. & Eng. K. R. Cas. 18. This case was the rigorous rule laid down in the trial 
 
 decided with reference to the H"ew Jersey court in Lehigh Coal & Navigation Co. v. 
 
 statute, tut the reasoning of the court in Central R. Co. of New Jersey (1882), 35 
 
 this part of the opinion seems to be of N. J. Eq. 426 ; s. c. 9 Am. & Eng. K. R. 
 
 general application. Cas. 479, and to establish the principle 
 
 * Vanderbilt v. Little (1887), 43 N. J. that a chancellor, although he will always 
 
 Eq. 669 ; s. 0. 35 Am. & Eng. R. R. Cas. refuse to direct the performance of an 
 
 18. In this case certain contracts for the improvident contract, will not leave the 
 
 delivery of ties were, upon a review of contractor entirely remediless, if he has 
 
 the circumstances, especially the near ap- acted in good faith. The lower court had 
 
 proach of the termination of the receiver- declined to go any further than to admit 
 
 ship, held to be improvident ; but, as that it would be proper to receive the 
 
 . there was nothing to show that the claim- material if it was rea.sonably necessary for 
 
 ants were guilty of bad faith, they were the use of the road in the near future, and 
 
 awarded compensation for what they had was offered at a fair price. The two courts 
 
 actually done in preparing for the per- differed as to the effect of the evidence. 
 
§ 647.] POWERS OF COURT AND RECEIVER. 647 
 
 question whether such payment will prove injurious to the proper 
 management of the road by the receiver.^ 
 
 Delivery of supplies to the agents of a receiver is sufficient to 
 take a contract out of the Statute of Frauds, so far as regards 
 the liability of the trust fund.^ 
 
 8 647. Po'wers bestoTved on Receiver in Order of Appointment. 
 Uberaiiy construed. — The powers of a receiver bestowed in the 
 order, of appointment are liberally construed in view of the pecu- 
 liar character of the property which he is authorized to take into 
 his hands.^ 
 
 The details of the business intrusted to a receiver must of 
 necessity, be left to his discretion, and to this extent he pos- 
 sesses all the incidental powers requisite to effect the object 
 of his appointment.* 
 
 The receiver may call in or put out the securities of the com- 
 pany as, in his judgment, will best enable him to secure the prop- 
 erty to the. stockholders and pay off its creditors, subject always toi 
 the check of the court.^ 
 
 The functions of a court during a receivership being essentially 
 preservative in their nature, it follows that, in the case of a rail- 
 road, the value of which mainly depends upon its being kept in 
 
 1 Matter of V. S. Rolling Stock Co. demonstrated receivers ; the former, man- 
 (1878), 57 How. Pr. 16. agers, — and a wider discretion must be 
 
 2 Vanderbilt v. Little (1887), 43 N. allowed them, because, at every moment 
 J. Eq. 669 ; s. c. 35 Am. & Eng. E. K. in the administration of such a trust, there 
 Cas. 18. is a demand for the exercise of judgment 
 
 ' Langdon v. Vermont & Canada E. in occurring incidents of vital interest to 
 Co. (188'2), 54 Vt. 593; s. c. 11 Am. & the property and to the public that cannot 
 Eng. R. E. Cas. 688. There the court be postponed nor evaded. The exactions 
 pointed out in the following words the which the law makes in such cases upon, 
 peculiar features of a railroad receivership, court managers are modified by reason and 
 which call for the application of special justice as applied to the nature and char- 
 rules in determining the proper Umits of aoter of the trust." 
 
 a receiver's powers: "The business in * Bank of Montreal v. Chicago, C. & 
 this case was necessarily administrative; W. K. Co. (1878), 48 Iowa, 518, 
 the operating of railroads is a thing in its ' In re Fifty-four First-mortgage Bond- 
 nature continuous and without limitation, holders (1881), 15 S. C. 304, 305; 9 Am. 
 requiring in the operation large expendi- & Eng. R. R. Cas. 739. The court in this 
 ttires from day to day. The duties, also, case said that, if the receiver took up 
 of such managera, as common carriers, are bonds one month, and reissued them the 
 largely to the public as well as to the next, to save interest and enable him to 
 parties in interest as owners. It is not, in meet the current expenses on the most 
 its character and incidents, like a receiver- economical scale, he did not thereby de- 
 ship in an insolvent partnership, or other stroy the lien of the bonds taken up, which 
 like business, where the only duty of the made it a secure investment when origi- 
 recciver is to marshal the assets, pay a nally issued, those bonds being supposed 
 dividend to the creditors, and close up the to retain their lien as they pass from hand 
 business. Tlie latter are more properly to hand around the financial circle. 
 
648 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 good running order, a receiver is deemed to be vested with all 
 needful authority to operate the road so as to preserve its traffic 
 and connections. That the power of a court of chancery to 
 appoint a receiver of a railroad is derived from a statute which 
 merely confers authority to convert the corporate property into 
 money and distribute it among the creditors is immaterial for the 
 purposes of this rule ; for the language of the legislature will re- 
 ceive a construction appropriate to the character of the property, 
 which is such that the cessation of the business would be fatal to 
 the interests of all concerned.^ 
 
 This principle of liberal construction, however, will be applied 
 only to such transactions as may reasonably be classed among 
 those expressly or impliedly embraced in the order of appoint- 
 ment. Thus, a receiver who is merely authorized to make all 
 contracts which may be necessary in carrying on the business of 
 the road, subject to the supervision of the court, has no power 
 to lease offices for a term of years without the sanction of the 
 court.^ 
 
 So, where a receiver is authorized by the terms of his appoint- 
 ment to pay the amounts due and maturing for materials and 
 supplies about the operation and for the use of the road, the 
 implication is that only those obligations are to be paid which are 
 necessary to keep the road in running order ; and the court will 
 not extend the construction of the order so far as to direct the 
 receiver to pay old obligations, incurred several years previously. 
 Such demands are regarded as secondary to the rights of the 
 mortgagees.^ 
 
 § 648. Power of Court to cease running a Section of a Composite 
 System. — It would seem that, in extreme cases, a court will not 
 hesitate to authorize its receiver to cease operating a subdivision 
 of the system covered by the general mortgage which is the sub- 
 ject of the foreclosure suit. Such a contingency was discussed in 
 the course of the Wabash litigation, when the system was broken 
 up by the order of the court in another circuit, displacing the 
 original receivers as to all the lines within its jurisdiction. The 
 effect was to leave a number of fragments of the road under 
 the control of the court which had thus far had the whole propr 
 erty under its control, and as these had, with one exception, been 
 run at a dead loss up to the dismemberment of the system, Judge 
 
 1 Vanderbilt v. Little (1887), 43 N. J. Nulta (1894), 153 U. S. 554. 
 
 Eq. 669; s. c. 35 Am. & Eng. R. R. Cas. » Brown v. New York & Erie B. Co. 
 18. (1860), 19 How. Pr. 84. 
 
 2 Chicago Deposit Vault Co. v. Mc- 
 
§§ 649-651.] POWERS OP court and receiver. 649 
 
 Treat said that, unless the receivers were guarantied against 
 loss, thej would have to give up running these unprofitable 
 divisions.^ 
 
 § 649. Right of Receiver to revoke Running Poivera given by the 
 Company to a Connecting Road. — A receiver is warranted in deny- 
 ing to a connecting road the benefits of a contract by which the 
 latter enjoys the use of the road and certain terminal facilities, 
 where the stipulated compensation is three months in arrears, 
 and it has failed to comply with a demand for the payment even 
 of a portion which has accrued since the beginning of the receiver- 
 ship a full month after it has fallen due. In such a case he is not 
 obliged to apply to the court for instructions, it being evident that 
 he would have been directed to do precisely what he did on his 
 own motion, — namely, require the payment of, or security for, 
 the arrears within a very brief period. The convenience of the 
 public must under these circumstances be subordinated to the 
 rights of those by whom the lines of railroad are owned.^ 
 
 § 650. Receiver may be authorized to take a Lease of another 
 Road. — The receiver may be authorized to take a lease of other 
 roads where such a course is to the advantage of the estate.^ 
 
 § 651. Limited PoTvers of a Receiver appointed for a Special 
 Purpose. — The powers of a receiver appointed merely to realize 
 profits to pay off arrears of rents are necessarily even more cir- 
 cumscribed than those of one who is appointed with a view to the 
 ultimate sale of the property for the satisfaction of debts of the 
 company generally. The property in the hands of such a receiver 
 must not be subjected to detei'ioration and waste merely because 
 the current use of it looks especially to the realizing of net in- 
 come. " It should be kept in proper condition, not only for doing 
 the current business during the receivership, but for continuing 
 to do it. without the necessity for an extraordinary outlay on its 
 passing back to the possession of the owners. But for any legit- 
 imate purpose the receivership cannot be extended to the control 
 and maintaining and repairing and equipping other roads, or to 
 the building and buying of other roads, or to the control and 
 operating of lines of steamboats, or steamboats in the lines of 
 other roads, even with the view of larger earnings and larger net 
 income of the property which is the subject of the receivership." * 
 
 1 Central Trust Co. v. Wabash, St. & Great Southern R. Co. (1880), 33 Gratt. 
 Louis, & Pac. E. Co. (1886), 29 Fed. Rep. 586 ; s. c. 1 Am. & Eng. E. E. Cas. 
 618. 473. 
 
 2 Elmira Iron & Steel Rolling Mill Co. * Vermont & Canada R. Co. v. Vermont 
 «. Erie Ry. Co. (1875), 26 N. J. Eq. 284. Central E. Co. (1877), 50 Vt. 500 ; s. c. 
 
 » Gibert v. Washington City, Va. Midi. 14 Am. Ry. Rep. 497. 
 
650 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 § 652. Control over the Property sometimes reserved by Court 
 after Sale. — 111 an order confirming a sale and discharging a re- 
 ceiver, the court may insert provisions for the payment of undis- 
 posed of claims against, the receiver in the management of the 
 property, and for continuing the lien therefor upon the property. 
 Such an order may also reserve control of the. property with a view 
 to enforcing the claims in case. the purchaser fails to pay them.i 
 
 So if the price of. rolling-stock, purchased by the receiver, is, by 
 an order of the court, made a lien on " the mortgaged premises, 
 and all proceeds which may come into this court," the intends 
 ment is that it is to be a lien on the corpus ; and, if no proceeds, 
 in cash are ultimately realized from the foreclosure sale, that lien 
 will attach, to the property in the hands of the purchasers and all 
 assignees without notice,^ 
 
 Where no provision is made in the order of^ sale for the pay^ 
 ment' of the debts contracted by the receiver, nor for their as- 
 sumption by the purchaser, a claim for legal services will not be: 
 given the status of a lien debt on the property in the. hands of 
 that purchaser. Even if such purchaser recognizes the claim and. 
 makes a payment on account, it will stand merely on the footing, 
 of other simple contracts. The claimant, therefore, cannot have 
 a charge declared in his favor on the funds, in the hands of a re- 
 ceiver appointed in a suit to foreclose a mortgage executed by 
 that purchaser. In such a case it does not avail the petitioner, 
 that his services were of such, a character as to inure to the ben- 
 efit of the parties secured by the mortgage.^ 
 
 Article II. — Disposition of the Trust Fund during the 
 Receivership generally. 
 
 § 653. General Rule as to Expenses of Administration. — The 
 
 general rule is that trust estate must bear the expenses of its 
 administration. It is, therefore, the duty of a court which ap- 
 points a receiver to pay from the trust fund in its possession 
 all the debts which it incurs in its judicial capacity while admin- 
 istering the trust assumed, pending the litigation, in behalf of the 
 litigating parties.* 
 
 1 Farmers' Loan & Trust Co. v. Central became the substitute for tbe property so 
 R. Co. of Iowa (1883), 17 Fed. Rep. far as the lienholders are concerned, and 
 758. the purchaser takes the land free from 
 
 2 Vilas V. Page (1887); 106 N. Y. 439. their claims. 
 
 The court distinguished Railroad Co. v. ' Bound v. South Carolina Ry. Co.. 
 
 Howard (1868), 7 Wall. 392, where the (1892), 51 Fed. Rfep. 58. 
 general rule, was laid down that, upon the * Myer v. Car Go. (1880), 102 U. S. l,i 
 
 sale of mortgaged premises, the proceeds 13. 
 
§ 653.] POWERS OP COURT AND RECEIVER. 651 
 
 The proceeds and profits of the business in the receiver's hands 
 are subject, in the first place, to the charges of administration and 
 management, and the liens and trusts in behalf of which he was 
 appointed. Neither the railroad company itself, nor any party 
 whose claim is based on the company's rights,^ nor the bond- 
 holders,^ have a right to any portion of the income in his hands 
 until the expenses of the receivership have been satisfied. 
 
 These expenses are, in the first place, payable out of the in- 
 come ; but, if that is inadequate for the purpose, they are charge- 
 able upon the fund produced by the sale of the property .^ 
 
 The operating expenses, which constitute a paramount charge 
 upon the trust fund, are, broadly speaking, those which it is rea- 
 sonably necessary to incur for the purpose of keeping up the road 
 as a " going concern," or, as it is sometimes expressed, those 
 which conduce to the conservation of the property. The claims 
 to which the priority is accorded form a much more numerous 
 class than those which belong to the category of "preferential 
 debts " (see Chap. XXVII., antey. But in determining the jus- 
 tifiable limits of a receiver's outlay, the essentially temporary 
 character of his office is never lost sight of, and many expendi- 
 tures which the company itself may make without laying itself 
 open to the charge of misapplying the income will neither be 
 authorized nor ratified by a court which assumes control of the 
 company's property. 
 
 In one important respect, however, the powers of the court in 
 regard to the expenditures which it does actually consider it 
 legitimate to order are much more extensive than those of the 
 company, as it may, even without the consent of prior incum- 
 brancers, make a loan procured for the purpose of defraying 
 those expenditures a paramount charge on the corpus of the es- 
 tate, if the revenue is insufficient to furnish the necessary funds. 
 See §§ 696 et seq., post, as to the scope of this principle. 
 
 Judgments against a receiver of a railroad company, in fore- 
 closure proceedings, are considered a part of the operating ex- 
 penses of the railroad, and have a priority of lien over the 
 mortgages given to secure bondholders.* 
 
 ' Schutte V. Florida Central R. Co. As to the operating expenses of a rail- 
 
 (1879), 3 Woods, 692. road company for a limited time prioi- to a 
 
 2 Langdon v. Vermont & Canada R. Co. receivership having a preference from the 
 
 (1882), 54 "Vt. 593 ; s. C. 11 Am. & Eng. subsequent income, and if that is in- 
 
 E. R. Cas. 688. sufiScient, from the coupons of the prop- 
 
 ' Central Trust Co. v. Thurman (1894), erty over bondholders' claims, see Ames 
 
 94 Ga. 735 ; s. c. 20 S. E. Kep. 141. et al. v. Pacific Ry. Co. et. al (1896), 74 
 
 * St. Louis S. W. Ry. Co. v. Holbrook Fed. Rep. 335, 344, 345. 
 (1896), 73 Fed. Rep. 112. 
 
652 RAILWAY BONDS AND MOETGAGES. [CHAP. XXX. 
 
 § 654. Claims against Receivership should be paid before Receiver 
 is discharged. — A receiver still retains the power to resume pos- 
 session of the trust estate for the purpose of enforcing all claims 
 to or liens upon it which result from previous orders or decrees. 
 The court being still the proper and only forum to give relief to 
 one having a claim against the receiver, it is judicial error to dis- 
 miss a petition praying to have such a claim paid.'^ 
 
 § 655. Xizpenses of Company after Appointment of Receiver not 
 a Proper Charge on the Trust Fund. — A receiver will not be directed 
 to pay the company moneys to be used in contesting the validity 
 of the bonds, or in paying the salaries of the corporate officers, or 
 office expenses incurred by the company after his appointment.^ 
 
 § 656. Expenses of Refunding Scheme, -when not aH.o'wed ez 
 parte. — Where lien-creditors have become parties to a suit in 
 which a receiver has been appointed, not for the purpose of realiz- 
 ing the property, but merely of preserving it, the court will not 
 allow the expenses of a refunding scheme proposed by the re- 
 ceiver, unless upon notice to the new parties, even though the 
 receiver may have been authorized to incur the liability before the 
 intervention of those parties.^ 
 
 § 657. Expenses of carrying out Reorganization Scheme. — The 
 expenses of carrying out a scheme of reorganization may to 
 a limited extent be defrayed out of the funds of the receiv- 
 ership. Thus under a case involving some peculiar features, 
 where a syndicate had proposed to effect a readjustment of the 
 affairs of the company by the advancement of funds to purchase 
 overdue coupons and interest, the court granted permission to the 
 receivers to pay the syndicate 2|- per cent commission on the 
 money so advanced in case the plan became effective.* 
 
 § 658. When the Payment of Interest on Bonds -will be ordered. — 
 Where the interest on a lien debt is about to mature, the question 
 whether it shall be allowed to go to default must be determined 
 with reference to the interests of the trust estate as a whole. The 
 court will, without hesitation, direct its receiver to pay any interest, 
 default in which would lead to a foreclosure suit and the possible 
 
 1 Thornton a. Highland Ave. & B. R. Co. (1894), 65 Fed. Rep. 872. The report 
 Co. (1892), 94 Ala. 266 ; s. c. 10 So. Rep. of the master, which was adopted by the 
 442. court, took the ground that these commis- 
 
 2 Union Loan & Trust Co. v. Southern sions were only an element of the net price 
 California Motor Road Co. (1892), 51 Fed. to be obtained for the corporate assets, 
 Eep. 106. and that the provision for their payment 
 
 8 Clarke v. Central Railroad & Bkg. did not impair the obligation of income 
 Co. (1893), 54 Fed. Rep. 556. mortgages. 
 
 * Piatt V. Philadelphia & Reading R. 
 
§ 658.] POWERS OF COUET AND RECEIVER. 653 
 
 loss of valuable parts of the property. Such interest should be 
 paid, even though it is an open question whether any title con- 
 veyed by the foreclosure sale would not be subordinate to a mort- 
 gage securing the bondholders whose trustee is petitioning to have 
 the receiver instructed. The receiver should not be allowed to 
 speculate upon the decision of another court. The interests of 
 all the creditors, including the bondholders themselves, impera- 
 tively demand that no such risk shall be taken.^ 
 
 The court will direct a receiver appointed at the instance of 
 subordinate creditors to pay the interest on first-mortgage bonds, 
 where such disposition of the funds is desired by them, and the 
 circumstances show that it is to the interest of all creditors in- 
 ferior in rank to the holders of the first-mortgage bonds that the 
 maturity of those bonds shall not be precipitated.^ 
 
 If necessary the court may even authorize a loan for the pur- 
 pose of paying such interest, and make such loan a charge on the 
 surplus earnings of the road, ranking next after claims for oper- 
 ating expenses, and a lien upon the corpus subordinate only to the 
 first-mortgage bonds and to the claims that may be adjudged 
 superior thereto.^ 
 
 But it has been held that interest on bonds secured by a prior 
 divisional mortgage should not be paid at the request of the trus- 
 tee of a junior consolidated mortgage, when the reasons urged for 
 granting this relief are merely that such trustee will be enabled 
 to foreclose the general mortgage, and procure a comprehensive 
 decree, and that the preferential creditors would thus be placed in 
 a more favorable position. The court took the ground that it 
 was its first duty to pay, as soon as it reasonably could, the in- 
 debtedness incurred by it since the appointment of the receiver, 
 and that it would be unjust at that time to the unsecured credit- 
 ors to make any further diversion of the earnings to the payment 
 of interest.* 
 
 ^ Park V. New York, L. E. & "W. E. Co. four mortgage tondholders upon the trust 
 
 (1894), 64 Fed. Rep. 190. fund. The court admitted the soundness 
 
 ^ Lloyd V. Chesapeake, 0. & S. W. R. of the ruling in the first case cited in this 
 
 Co. (1895), 65 Fed. Rep. 351. section; hut it is not easy to see why its 
 
 ' Ibid. suggestion is not equally pertinent to the 
 
 ' Cleveland, C. & S. R. Co. v. Knick- circumstances of that case as well, for it 
 
 erbocker Trust Co. (1894), 64 Fed. Rep. would certainly seem that the benefit to he 
 
 623. In this case the court suggested that, derived by preventing the dismemberment 
 
 if the advantages to accrue to the petitioner of a system has some money value to the 
 
 were as great as represented, he might creditors, who will suffer most from the 
 
 properly advance the necessary money and resulting depreciation of the property, 
 
 pay ofi'the interest, and then assert his right The distinction implied in the opinion 
 
 to be subrogated to the claims of the first would therefore appear to be an unsub- 
 
r654 RAILWAY BONDS ,:AND MORTGAGES. [CHAP. XXX. 
 
 As fuaded coupon-bonds, investing the : lioldei-s with all the 
 rights of the holders of the defaulted coupons which they replace, 
 are necessarily payable before any subsequent instalments of. inter- 
 est,' the receiver should be directed to pay the couponrbonds.in 
 ^preference to any of the later coupons.^ 
 
 § 659. Property in the Hands of a Receiver not exempt from 
 Taxation. — There is- no sound principle upon which the property 
 of a person or a corporation which is placed in the hands of a re- 
 ceiver by a court of justice, for the purposes of a suit pending in 
 such court, can be : regarded as being thereby rendered exempt 
 from the operation of the tax laws of the government within 
 whose jurisdiction such property is situated;^ 
 
 The State has, therefore, a paramount right to jCoUect out of 
 the gross income of the receivership all taxes which the corpora- 
 tion itself would have been obliged to pay if it had remained in 
 possession, and the receiver may recognize this paramount right 
 by paying the taxes which become due while he is in charge of 
 the property.^ (As to the proper and allowable procedure for 
 enforcing this paramount claim, see Chap. XXVIII.) 
 
 As to the allowance of the receiver's personal compensation 
 and of the fees of his counsel, see Chap. XXX., post. 
 
 § 660. What -will be alloTved as Operating Expenses in a Receivers 
 Accounts. General Principle. — It has been shown that it is some- 
 . times the duty, and always the right, of the receiver to consult 
 'the court as to the management of the property in a doubtful 
 , case. If he omits to do this, he will not be allowed in his ac- 
 counts any expenses except those which were absolutely essential 
 
 stantial one. DismemTjerment, after all, charge these paramount claims at an ear- 
 is only one of the ways in which the trust Her date, sacrifice the interest of all the 
 property may be depreciated, and possibly .other creditors. Yet this is perhaps the 
 the only question which it is necessary to only reason that can be urged againsfthe 
 ask, in the case of an application to have course here suggested. 
 the interest on bonds paid, is whether the i Park v. New Yoi'k, L. E. & W. K. 
 amount of money finally available for all Co. (1894), 64 Fed. Rep. 190. 
 the creditors wiU be increased by such ^ Stephens c. New York & Oswego 
 payment. The answer to this question Midland R. Co. (1875), 13 Blatch. 104; 
 necessarily includes an answer to the ques- s. p. State of New Jersey, New Jersey 
 tion emphasized by the court in this case ; Southern R. Co., Prosecutor, v. Railroad 
 viz., whether the position of the creditors Commissioners (1879), 41 N. J. L. 285. 
 of the receivership and of those holding s Central Trust Co. v. New York Cily 
 preferential claims will be jeopardized by & Northern R. Co. (1888), 110 N. Y. 250; 
 the payment ; for if the trust fund as a s. c. 18 N. E. Rep. 92; 13 Centr. Rep. 484; 
 whole is increased, their position must In re Tyler (1893), 149 TJ. S. 164 ; Greeley 
 necessarily be improved. It seems to us a v. Provident Sav. Bank (1889), 98 Mo. 
 very dubious doctrine that the court -should, 458; High on Eec, § 140, note, 
 merely for the sake of being able to dis- 
 
§ 661.] POWERS OF COURT AND RECEIVER. 655 
 
 for the preservation and use of the property, as contemplated by 
 his appointment.-' 
 
 The principles upon which it will be determined whether any 
 given expenditure comes within the limits thus prescribed have 
 been thus stated by Mr. Justice Bradley : " It may be laid down as 
 : a general proposition that all outlays made by the receiver in good 
 faith, in the ordinary course, with a view to advance and promote 
 the business of the road, and to render it profitable and success- 
 ful, are fairly within the line of discretion which is necessarily 
 allowed to a receiver intrusted with the management and opera- 
 tion of a railroad in his hands. 
 
 " His duties, and the discretion with which he is invested, are 
 very different from those of a passive receiver, appointed merely 
 to collect and hold moneys due on prior transactions or rents ac- 
 cruing from houses and lands. And to such outlays in ordinary 
 course may properly be referred not only the keeping of the road, 
 and rolling-stock in repair, but also the providing of such addi- 
 tional accommodations, stock, and instrumentalities as the neces- 
 sities of the business may require." ^ 
 
 § 661. Allowable Expenses for Supplies. — Allowable expendi- 
 tures for supplies include not merely those incurred for articles 
 used in the actual operation of the road, such as fuel, etc., but for 
 all the accessories which are commonly used for the transaction 
 of the business of a company engaged in tlie transportation of 
 passengers and freight. A receiver may, therefore, purchase 
 scales, where they are reasonably necessary for the use of the 
 road, and there is no ground for imputing improvidence in mak- 
 ing the purchase. He is also warranted in buying a truck wagon 
 and horses for the delivery of freight, and incurring the expense 
 of maintaining the same, the proof being that this was a profitable 
 outlay for enabling the, railroad, by furnishing additional accom- 
 modation to customers, to compete with an opposition line.^ 
 
 Expenditures for rails are among those which should perhaps 
 be made only under the authority of the court ; but, if upon a 
 proper investigation they seem to have been proper, the court will 
 not refuse to confirm them.^ 
 
 1 Cowdrey v. Galveston, H. & H. R. Co. Eq. N. S. 729, Fry, J., held that 
 (1876), 93 U. S. 352, per Bradley, J. stranger to action could not apply for 
 Compare Cmmlish's Admrs. v. Shenan- order to receiver directing him to pay 
 doah Valley R. Co. (1895), 40 W. Va. working expenses. 
 
 627 ; s. c. 22 S. E. Kep. 90. 8 Cowdrey v. Railroad Co. (1870), 1 
 
 2 Cowdrey v. Railroad Co. (1870), I Woods, 331. 
 
 "Woods, 331. In Brocklebank v. The * Phinizy v. Augusta & K. R. Co. 
 East London By. Co. (1879), 48 L. J. (1894), 62 Fed. Rep. 771. 
 
656 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 § 662. Office Rent. — Office rent will be allowed where the ac- 
 commodation is not shown to be excessive/ 
 
 § 663. Interest on Money borrowed by Receiver. — Interest on 
 money which the receiver is obliged to borrow in order to keep 
 a railroad in operation is necessarily a legitimate charge against 
 the trust fund if the loan itself was, within the scope of his 
 authority.^ 
 
 § 664. Interest paid on Bonds. — Money applied to the payment 
 of interest on the bonds of a subordinate road forming a part of 
 the entire system administered by the receiver will be admitted as 
 a valid claim in his favor, ranking next after the sum necessary 
 to satisfy the bonds and coupons secured by prior mortgages.* 
 (As to when the payment of bonded interest will be ordered, see 
 sect. 658, ante.) 
 
 § 665. Expenditures usual in Business with a Subordinate Road. 
 — The fact that certain expenditures are usual in the business of 
 carrying on a railroad will sometimes be a sufficient justification 
 for incurring them. In this category have been placed payments 
 made by receivers to connecting roads for moneys due to and pre- 
 viously received for them, according to the customary practice ; * 
 and rebatements on freight, or allowances returned to shippers 
 in consideration of securing their business and good-will to the 
 road, there being proof that such allowances were quite com- 
 monly made by transportation lines, and that they were necessary 
 in the given case in order to secure business, as this method 
 of attracting customers had been previously adopted by the 
 companies.^ 
 
 § 666. Expenditures to prevent Construction of Rival Road not 
 allowed. — Expenditures incurred to defeat a subsidy which a 
 rival company is trying to obtain from a city will be disallowed in 
 a receiver's accounts. It is no part of his duty to interfere with 
 the construction of a parallel line of railway, or to attempt to 
 defeat any contemplated aid for such an enterprise. The fact 
 that the success of the enterprise may possibly diminish the future 
 earnings of the company whose road is in his charge will not 
 justify such an outlay. As an officer of the court, the receiver 
 cannot be allowed to determine the question of the importance of 
 the proposed lines, either to the public or to the company, and, 
 
 1 Cowdrey v. Railroad Co. (1870), 1 * Meyer v. Johnston (1882), 64 Ala. 
 Woods, 331. 603 ; s. o. 8 Am. & Eng. E. R. Cas. 584. 
 
 2 Ibid. ' Cowdrey v. Railroad Co. (1870), 1 
 » Phinizy v. Augusta & K. E. Co. Woods, 831. 
 
 (1894), 62 Fed. Rep. 771. 
 
§§ 667-669.] POWERS of couet and beceiveb. 657 
 
 acting upon such determination to appropriate funds in his cus- 
 tody, to aid or defeat the competing road ; that they actually had 
 the efl'ect of securing a large amount of business, and that without 
 them the road would not have paid expenses, will not warrant the 
 allowance of such an item.^ 
 
 § 667. Receiver's Pov»^er to taake Purchases on Credit. — A re- 
 ceiver autliorized by the decree appointing him to run a hotel, and 
 for that purpose to make such purchases as may be necessary, has 
 the imjilicd authority to purchase the necessary supplies for the 
 hotel on credit, where he has no money on hand, and no provision 
 was made by the court for raising any,^ 
 
 One selling goods to a receiver vested with authority to pur- 
 chase goods on credit, if without funds, is not bound to know 
 that at the time of the purchase the receiver had funds available 
 therefor.^ 
 
 § 668. Liabilities arising from the Contracts of the Company 
 adopted by the Receiver. — Liabilities arising from the contracts 
 of the company which are adopted by a receiver must, of course, 
 be reckoned among the operating expenses to be provided for out 
 of the trust fund. To this category belong the sums due to other 
 companies for rent of track, under leases ratified by the receiver, 
 and the amounts to be paid for the rent of rolling-stock, hired 
 by the company and used by the receiver.* 
 
 If the rolling-stock so used is subject to a vendor's lien, the 
 rental for its use will be a prior charge on the proceeds of the 
 sale, and not merely on the earnings.^ (As to the effect of the 
 appointment of a receiver on the rights and liabilities arising 
 from car trusts and other conditional sales of rolling-stock, see 
 Chap. XV.) 
 
 § 669. Liabilities arising out of Torts incident to the Operation of 
 the Road. — Liabilities arising out of torts incident to the opera- 
 tion of the road by the receiver constitute an obligation against 
 
 1 Cowdrey v. Galveston, H. & H. E. * United States Trust Co. v. Wabasl: 
 Co. (1876), 93 U. S. 352. Compare In re Western Ry. Co. (1892), 150 U. S. 287 
 Mersey Ey. Co. (1895), 64 L. J. Ch. 623, Union Trust Co. v. Illinois Midland Ry 
 expenses for promotion of bill in Par- Co. (1887), 117 U. S. 434; s. c. 25 Am 
 liament, not "working expenses" or & Eiig. R. R. Cas. 560; Thomas v. West 
 " other proper outgoings in respect of the ern Car Co. (1892), 149 U. S. 95, 110: 
 undertaking." Kneeland v. American Loan & Trust Co, 
 
 2 Thornton v. Highland Ave. & B. R. (1890), 136 U. S. 223; s. o. 43 Am. & 
 Co. (1892), 94 Ala. 353 ; 8. c. 10 So. Rep. Eng. R. R. Cas. 102. 
 
 442. 6 Kneeland i>. American Loan & Trust 
 
 ' Highland Avenue & Belt R. Co. v. Co. (1891), 138 U. S. 509 ; s. c. 43 Am. 
 Thornton (1894), 105 Ala. 225; 8. c. 16 & Eng. R. R. Cas. 520. 
 So. Rep. 699. 
 
 42 
 
658 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 the trust-funds whicli must be discharged before the bondholders 
 are entitled to any part thereof.^ 
 
 Claims based upon such liabilities stand on the same footing as 
 the other expenses of administration.^ 
 
 For the purposes of this rule it is immaterial whether the claims 
 have been reduced to judgments or not.^ 
 
 But until they are actually reduced to judgment by a suit 
 against the receiver, and the amount due definitely fixed, they 
 will not bear interest.* 
 
 Claims for damages resulting from the operation of the road are 
 a charge on the earnings of the receivership only.* 
 
 § 670. Compensation to Injured Employees, to -what Extent 
 proper. — The doctrine that receivers, as officers of the court, 
 should be required to act toward their employees as persons of 
 ordinary humanity and right feeling would act under similar cir- 
 cumstances has been adduced to justify the allowance of compen- 
 sation to an employee injured by a fellow-servant's negligence for 
 the time lost while he is incapacitated from working.^ 
 
 But such an allowance should be made only to faithful and de- 
 serving employees, who merit special consideration from the 
 receiver. To hold him legally liable to make compensation in 
 every case, irrespective of the question of his own negligence, 
 would engraft a new principle on our jurisprudence. '' 
 
 § 671. Consolidated System of Roads administered as an Entirety.^ 
 — In administering a consolidated property made up of several 
 lines, the court must consider not merely the interest of the mort- 
 gagee in a general mortgage, but also the separate, and sometimes 
 conflicting, interests of the various subdivisions and their respec- 
 
 1 Cowdrey v. Galveston, H. & H. E. while there was a quasi receivership of the 
 Co. (1876), 93 U. S. 352, where compen- property under the management of the 
 satiou to the owners of goods lost in oflBcers, and afterwards made the subject 
 transportation, and compensation paid for of petition to a court which took direct 
 damages to property during the receiver- control by a regularly appointed receiver, 
 ship, were allowed by the court in the ^ Hand v. Savannah & Charleston E. 
 receiver's accounts. Co. (1881), 17 S. C. 219; s. 0. 12 Am. & 
 
 2 Kain v. Smith (1 880), 80 N. Y. 458 ; Eng. R. R. Cas. 495 ; Ryan v. Hays (1884), 
 Mobile & Ohio R. Co. v. Davis (1884), 62 62 Tex. 42 ; s. c. 23 Am. & Eng. R. K. 
 Miss. 271 ; s. o. 26 Am. & Eng. K. R. Cas. 501. 
 
 Cas. 425. 6 Missouri Pac. Ry. Co. v. Texas Pao. 
 
 8 Gibbes v. Greenville & Columbia R. Ry. Co. (1888), 33 Fed. Rep. 701 ; 41 
 
 Co. (1882), 18 S. C. 87 ; s. o. 17 Am. & Fed. Rep. 319 (1890). 
 Eng. R. R. Cas. 302. 7 Thomas v. East Tennessee, V. & Ga. 
 
 4 Gibbes v. Greenville & Columbia R. Ry. Co. (Cook, Intervener), (1894), 60 
 
 Co. (1882), 18 'S. C. 87 ; s. o. 17 Am. & Fed. Rep. 7, limiting the case just cited. 
 Eng. R. R. Cas. 302. In that case judg- ' Compare previous references to sub- 
 
 ment had been taken against the company, jeot. 
 
§ 671. J POWERS OP COURT AND RECEIVER. 659 
 
 tive incumbrances, and behind all that the duty which every rail- 
 road corporation owes to the public of keeping the road in 
 operation. That duty is not limited to the operation merely of 
 that particular fragment of a road which is peculiarly profitable, 
 but it extends to the road as an entirety, and to all its parts ; 
 differing in that particular from the duty which would rest upon 
 the court if it had simply taken possession of property used for 
 private purposes, in which case the single question might well be 
 said to be one of pecuniary profit.^ 
 
 Claims for the rent of separate subdivisions of a corporate sys- 
 tem of roads, if based upon an order which is expressly subordi- 
 nated to a former order directing the payment of the expenses of 
 the receivership, and of certain preferential debts of the lessor, 
 can never be enforced unless there is a surplus after paying the 
 debts thus provided for. Hence, as long as the avails of the prop- 
 erty are insufficient to discharge such debts, it is improper to 
 direct the receiver to pay the rent of a branch which is earning 
 more than its operating expenses.^ 
 
 On the other liand, it has been held that, as a court which takes 
 possession of and operates a leased line together with the rest of 
 the property does this for the benefit of the lessee, not of the 
 lessor, no part of the expenses of the receivership can properly be 
 charged against the property of the lessor.^ 
 
 1 Central Trust Co. v. Wabash, St. Where, under a decree of foreclosure 
 
 Louis, & Pac. Ry. Co. (1885), 23 Fed. Rep. against a railroad company, reference had 
 
 863, per Brewer, J. heen made to a master to ascertain the 
 
 In that case the learned judge laid gross earnings and expenses of a certain 
 down the following rules as being appro- .section of the road covered by a mortgage, 
 priate under the circumstances : (1) When it is not an erroneous principle for the 
 a division earns a surplus over expenses, master to make a pro rata estimate of the 
 the rental or subdivisional interest should earnings and expenses of the whole road, 
 be paid to the extent of the surp] us, and it being shown before him that such sec- 
 only to that extent ; and if there has been tion had not been operated separately, but 
 any past division of that surplus for gen- as a part of the vrhole road, and no sep- 
 cral operating expenses, it should be made arate accounts kept of the income or 
 good by the issue of receiver's certifi- expenses of any particular part. Though 
 cates, if need be. (2) Where a subdivi- such a rule leads, not to actual results, 
 sion earns no surplus, and simply pays but to approximation merely, it is the best 
 operating expenses, no rental or subdi- which could be adopted. Pullan v. Cin- 
 visional interest should be paid. (3) cinnati& Chicago Air Line R. Co. (1873), 
 Where a subdivision fails to pay operating 5 Biss. 237. 
 
 expenses, the strictest economy should be ^ Central Trust Co. v. Wabash, St. 
 practised, with a view of keeping the out- Louis, & Pac. Ry. Co. (1889), 38 Fed- 
 lay within the receipts ; but, if there Rep. 63, reversing s. c. (1888), 34 Fed. 
 should still be a deficiency after every Rep. 259. 
 
 expedient for saving money has been ' Brown v. Toledo, P. & W. E. Co. 
 
 tried, it must be paid out of the general (1888), 35 Fed. Eep. 444. 
 earnings of the system, or, if necessary, 
 by the issue of receiver's certificates. 
 
660 RAILWAY BONDS AND MOETGAGES. [CHAP. XXX. 
 
 Where, in proceedings to foreclose a general mortgage in a 
 composite system, it appears that the several divisions have re- 
 ceived the advantage of the use of certain leased lines and terminal 
 facilities, and it is impossible to separate the several interests as 
 to expenditures and benefits, the rents will be apportioned among 
 the several divisions on the basis of the relative length of the 
 roads. Bondholders secured by a divisional mortgage who with- 
 held their assent from the transactions resulting in the consolida- 
 tion of the lines, and the issue of the general mortgage which is 
 the subject of the suit, will be estopped to question the propriety 
 of such an apportionment if they remain inactive, and allow the 
 court and the receivers to go on, during the entire litigation, con- 
 tracting debts on the theory that the whole line is to be operated 
 as a unit.i 
 
 As the company which has obtained control of the property of 
 another, and operated it as a subdivision of ad extensive system, 
 not under any contractual relation, but solely by virtue of the 
 voting power acquired by the purchase of stock, cannot look to 
 its controlled subordinate for reimbursement for money advanced 
 in operations conducted for the benefit of the controlling com- 
 pany, so a receiver appointed to take the place of the latter is in 
 no better position, and must, as against creditors secured by a 
 mortgage on the subordinate line, bear the loss which may 
 result from its operation, as part of the system which he was 
 appointed to preserve.^ 
 
 § 672. Restoration tof Earnings diverted from the Payment of 
 Operating Expenses during the Receivership. — The principle that 
 the operating expenses are a paramount charge on the income of 
 the receivership involves the corollary that, if the fund available 
 for the payment of operating expenses proves to be inadequate 
 at any time for that purpose, because of the application of the 
 earnings to expenses of some other kind, the court will treat the 
 case as one of diversion, to be rectified, by ordering the stop- 
 page of every outlay which does not belong to the favored class 
 until the preferred creditors are fully paid off.^ 
 
 If the earnings have been devoted by the receiver to making 
 
 1 Union Trust Co. v. Illinois Midland to continue the payments under a contract 
 Ey. Co. (1887), 117 U. S. 434 ; s. c. 25 of conditional sale of rolling-stock, but 
 Am. & Eng. R. R. Cas. 560. as it appeared that some payments had 
 
 2 Phinizy v. Augusta & K. R. Co. heen made during the receivership at the 
 (1894), 62 Fed. Rep. 771. expense of the labor and supply creditors, 
 
 ' Frank v. Denver & Rio Grande Ry. it was ordered that the payments should 
 Co. (1885), 33 Fed. Rep. 123. In this he suspended until the claims of the latter 
 case the court had authorized the receiver were satisfied. 
 
§ 673.] POWERS OF COURT AND RECEIVER. 661 
 
 permanent improvements so that the value of the bondholder's 
 security has been enhanced, the restoration of those earnings to 
 the current debt fund may be effected, even by making the claims 
 for operating expenses a lien on the corpus.'^ 
 
 A similar rule applies to cases in which the payment of back 
 claims, which would, in the regular course of procedure, be dis- 
 charged out of the income, is postponed in order to bring the 
 road into a fit condition for traffic.^ i 
 
 The use of earnings in making permanent improvements is a 
 diversion of the earnings as against claimants for damages 
 caused by the operation of the road by the receiver, and if the 
 property is subsequently returned to the possession of the mort- 
 gagor company while such damages remain unpaid, an action 
 may be maintained against it for the recovery of the amount 
 thus diverted.^ 
 
 (As to the restoration of earnings diverted prior to the receiver- 
 ship, see Chap. XXYII., § 16.) 
 
 Article III. — Power of Receiver to raise Monet for the 
 Payment of Operating Expenses by the Issue of First- 
 lien Certificates. 
 
 § 673. The Receiver cannot, of his o'oirn Motion, contract Debts 
 chargeable upon the Fund in Litigation. — The court must authorize 
 
 1 Thomas v. Peoria & K. I. R. Co. rolling-stock, and in the construction and 
 (1888), 36 Fed. Rep. 808 ; s. c. 36 Am. & repair of side-tracks, bridges, station 
 Erig. R. R Pas. S81 ; Union Trust Co. v. houses, etc., thus adding to the security 
 Ulirrois Midland Ry. Co. (1887), 117 U. S. of the mortgagees by enhancing the value 
 434 ; s. 0. 35 Am. & Eng. R. R. Cas. 582 ; of the property. It has been thought 
 Biirnham v. Bowen (1883), 111 U. S. that, under the same equitable discretion 
 776. which has been heretofore referred to, 
 
 2 Turner v. Indianapolis, B. & W. Ry. this gave the operatives and material-men 
 Co. (1878), SBiss. 315. Judge Drummond a gMffisi claim upon the property itself. It 
 said : "In general, when the mortgagees has not unfrequently happened that rail- 
 have come before the court to ask for the roads which were comparatively worthless 
 aiiiinintment of a receiver, the property when they came into possession of the 
 h "i been in a very dilapidated condition, court have become, under its administra- 
 the mils nearly worn out, the ties need- tion, valuable property. But under the 
 inu replacement, the rolling-stock, station more modern practice, the funds for this 
 hou.'ses, and bridges, repairs, — the whole pm'pose would doubtless be obtained by 
 propHrty being in a condition to render the issue of receiver's certificates, so that 
 till' transit of ]iersons and merchandise the labor and supply creditors might not 
 dan<;eroiis. The practice has therefore be forced to await the distribution of the 
 been, in.'itend of immediately directing the proceeds of the sale." 
 
 receiver to pay for labor or supplies, or ' Tex. & Pac. Ry. Co. v. Bloom (1894), 
 
 mateii.ils previonsly furnished, to expend 60 Fed. Rep. 979, citing Railroad Co. v. 
 
 the reciMpts in repairs of the road, in the Johnston (1894), 151 U. S. 81 ; s. 0. 14 
 
 purchase of new iron or steel and of Sup. Ct. Rep. 250. 
 
6G2 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 expenditures on account of the property before they can be 
 charged thereon ; and while it may, and does, in its discretion, 
 allow expenses incurred by a receiver strictly for preservation 
 to be charged upon the fund, although incurred without the 
 prior authorization of the court, it is nevertheless the order of 
 the court, and not the act of the receiver, which creates the 
 charge, and on which its validity depends.^ 
 
 The view sanctioned by the Supreme Court of the United 
 States would seem to be that one who lends money to the 
 receiver to pay operating expenses is not necessarily precluded 
 from obtaining reimbursement out of the proceeds of the corpus, 
 merely because the loan has not previously been authorized by 
 the court, but that the creditor, unless the authorization is 
 given, runs the risk of the court's refusing to allow his claim 
 any precedence over the bonds. ^ 
 
 § 674. Expenses of Management sometimes made a First Lien on 
 the Property by Order appointing Receiver. — The expenses of the 
 management may be made to constitute a lien on the property 
 paramount to the mortgage by inserting a special provision to 
 
 1 Vilas V. Page (1887), 106 N. Y. 439. 
 In Union Trust Co. v. Chicago & Lake 
 Huron R. Co. (1881), 7 Fed. Kep. 513, 
 the court, arguing that the doctrine stated 
 in the text was the correct one, declared 
 that the negotiation of the certificates was 
 a personal trust which could not be dele- 
 gated. 
 
 ^ Union Trust Co. v. Illinois Midland 
 Ey. Co. (1887), 117 U. S. 434 ; s. c. 25 
 Am. & Eng. R. R. Cas. 560. There the 
 court ruled that a loan made by the re- 
 ceiver to pay operating expenses could not 
 be charged as a first lien on the trust estate, 
 on the ground that it was too large to fall 
 within the conceded discretionary powers 
 of the receiver in regard to outlays. This 
 rule is perhaps more conformable with 
 reason and justice than the more rigorous 
 one applied in South Carolina, where it 
 has been denied that labor claims against 
 the receiver can be charged upon the pro- 
 ceefls of the sale, in cases where the in- 
 come is insufficient to liquidate them, 
 unless they are secured or provided for in 
 some way by receiver's certificates issued 
 under the authority of the court. Such 
 claims, it was said, were simply "debts 
 contracted with a receiver, limited in au- 
 thority of an insolvent raOroad, known to 
 
 be covered with mortgages, and not mak- 
 ing expenses." Hand v. Savannah & 
 Charleston E. Co. (1880), 17 S. C. 219 ; 
 s. 0. 12 Am. & Eng. R. R. Cas. 495. The 
 court, in Union Trust Co. v. Illinois Mid- 
 land Ey. Co (1887), 117 U. S. 434 ; s. c. 
 25 Am. & Eng. R. E. Cas. 560, considered 
 itself to be bound by the terms of the 
 order of appointment which contemplated 
 the payment of expenses out of the income 
 only. As to the latter objection, it seems 
 clear, on principle and authority, that the 
 tenns of an order of appointment do not 
 limit the power which a court would other- 
 wise have to order claims to be paid out 
 of the proceeds of the property itself. 
 Nor is it entirely clear why the case is not 
 a proper one for applying the principle 
 that the subsequent ratification of the 
 court should be held to have the same 
 effect as a prior authorization. Those 
 who contract with an agent of limited 
 powers are always entitled to take the 
 risk that, if the contract is in excess of 
 his powers, his principal will validate it 
 by a subsequent sanction ; and there is no 
 adequate reason, it would seem, for de- 
 nying the benefit of this rule to parties 
 dealing with receivers. 
 
§ 675.] POWEES OF COURT AND KECEIVER. 6G3 
 
 that effect in the order appointing the receiver, and requiring 
 the assent of the bondholders thereto as a condition of making 
 the appointment. " In its efforts to coerce a corporation to pay 
 its debts, a court should not contract obligations of its own, and 
 neglect to make provision for their payment." ^ 
 
 An issue of certificates is sometimes ordered at the com- 
 mencement of the receivership to pay back claims for labor, 
 supplies, etc.^ 
 
 But there cannot be made a charge on the earnings, except in 
 the cases adverted to below. But, generally speaking, the issue 
 of these instruments of indebtedness is authorized, upon a 
 special application made by the receiver, at some time subse- 
 quent to his appointment. 
 
 Loans to pay operating expenses cannot be made a lien on the 
 corpus, where the statute under which the receiver was appointed 
 declares that they shall be paid out of earnings.^ 
 
 § 675. General Principles upon w^hich the Po-wer to issue First- 
 lien Certificates depends. — The peculiar nature of the property to 
 be administered in the case of a railroad receivership has been 
 held to justify any extremely liberal application of the doctrine 
 that a court may authorize a receiver to do whatever is necessary 
 for the preservation of the estate placed in his charge. Both 
 the theory that the principal value of a railroad consists in its 
 being kept up as a " going concern, " and the theory that the 
 right of the public to have the traffic carried on continuously is 
 paramount to the interests of the lien-creditors, have been 
 declared to point logically to the conclusion that, if the income 
 which the receiver obtains from the operation of the road is 
 insufficient to pay current expenses, the court may empower him 
 to make up the deficiency by issuing certificates or other evi- 
 dences of debt, which shall be a charge on the corpus superior 
 to all existing liens.* 
 
 1 Dow V. Memphis & Little Rock R. Eng. R. R. Cas. 464 ; Meyer v. JohnstoD 
 
 Co. fl884), 20 Fed. Rep. 260, 269 ; s. c. (1875), 53 Ala. 237 ; s. c. 15 Am. Ey. 
 
 17 Am. & Eng. R. E. Cas. S24. Rep. 467. In the case of a land and cattle 
 
 ^ Central Trust Co. v. Wabash, St. company, where the power was asked to be 
 
 Louis, & Pac. R Co. (1885), 23 Fed. Rep. exercised to pay taxes and get crops in, 
 
 863 ; Wallace v. Loomis (1877), 97 U. S. Barnes, J., said : "Whence is the juris- 
 
 146. diction to allow the receiver to borrow 
 
 ' State of Tennessee v. Edgefield & denied ? And the tnistee for the deben- 
 
 Kentucky R. Co. (1880), 6 Lea (Tenn.), ture-holders replied, 'It is, we submit, 
 
 353 ; s. c. 4 Am. & Eng. R. R. Cas. 86. interest in the court; we do not know how 
 
 * Wallace u. Loomis (1877), 97 U.S. else it arises.'" Murrietta ». Nevada, L. & 
 
 146 ; Miltenberger v. Logansport Ry. Co. C. Co. (1892), 68 Law Times, 442. 
 (1884), 106 U. S. 286 ; s. c. 12 Am. & This doctrine has, however, elicited 
 
664 EAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 The double basis on which this doctrine rests is very clearly 
 brought out in the following passage from the opinion of Mr. 
 Justice Blatchford in an important case: " Property subject to 
 liens, and claims and debts of various characters and ranks, 
 which is brought within the cognizance of a court of equity for 
 administration and conversion into money and distribution, is a 
 trust fund. It is to be preserved for those entitled to it. This 
 must be done by the hands of the court through officers. The 
 character of the property gives character to the peculiar species 
 of preservation wliich it requires. A railroad and its appurte- 
 nances is a peculiar species of property. Not only will its 
 structures deteriorate and decay and perish, if not cared for and 
 kept up, but its business and good-will will pass away if it is 
 not run and kept in good order. Moreover, a railroad is a matter 
 of public concern. The franchises and rights of the corporation 
 which constructed it were given not merely for private gain to 
 the corporators, but to furnish a public highway; and all persons 
 who deal with the corporation as creditors or holders of its 
 obligations must necessarily be held to do so in the view that, 
 if it falls into insolvency, and its affairs come into a court of 
 equity for adjustment, involving the transfer of its franchises 
 and property, by a sale, into other hands, to have the purpose 
 of its creation still carried out, the court, while in charge of the 
 property, has the power, and under some circumstances it may 
 be its duty, to make such repairs as are necessary to keep the 
 road and its structures in a safe and proper condition to serve 
 the public. " ^ 
 
 some vigorous protests. The most weighty ties of a law the existence of which could 
 reason against it is that it undoubtedly not even have been suspected by any one 
 deprives the bondholders of a vested right not possessed of the gift of prophecy. Nor 
 without compensation, and thereby in- can it be denied that there is much force 
 fringes a well-known constitutional pro- in the consideration that, if there be this 
 vision. The answer to this objection is great public inconvenience in the stoppage 
 that bondholders are assumed to accept of a railroad, it would be fairer that the 
 their security subject to the implied limi- public itself should provide for obviating 
 tation that their interests are to be sub- this inconvenience by appropriate legisla- 
 ordinated to the right of the public to tion, or even constitutional amendment, 
 have the road operated continuously. But than that the burden should he thrown 
 it cannot seriously be contended that this on a few private individuals. See the re- 
 hypothesis is, as regai-ds mortgagees whose marks of Judge Walker in his dissenting 
 security was created before the view of opinion in Humphreys u. Allen (1882), 101 
 the paramount right of the public obtained 111. 490, 501 ; s. 0. 4 Am. & Eng. R. B. 
 currency, more than a legnl fiction coined Cas. 14. 
 
 to lit the peculiar circumstances of these ^ Union Trust Co. v. Illinois Midland 
 
 receiverships. There is no little hard- K. Co. (1887), 117 U. S. 434 ; s. c. 25 
 
 ship in visiting upon creditors the penal- Am. & Eng. R. R. Cas. 568. 
 
§ 676.] POWERS OF COURT AND RECEIVER. 665 
 
 The same doctrine has been more briefly expressed in another 
 case, where it was said that authority to issue receivers' certifi- 
 cates is based on the ground that it is necessary to keep the 
 road a going concern, and in order to do so it is for the benefit 
 of the bondholder, as well as a duty to the sovereign whose 
 franchise the bondholders desire to operate, that it should be 
 kept in proper condition. ^ 
 
 In an oft-cited Alabama case,^ the power to issue first-lien 
 certificates is rested entirely upon the public character of func- 
 tions discharged by railroad companies. On page 348 it was 
 said : " If it were not for the public quality belonging to them, 
 for the injury that would be done to the interests of whole com- 
 munities that have become dependent on a railroad for accom- 
 modation in a thousand things, a chancellor might say to the 
 parties most interested. Unless you furnish means for the pro- 
 tection of this property, which does not itself afford an adequate 
 income for the purpose, it may become a dilapidated and use- 
 less wreck. But the inconvenience and loss which this would 
 inflict on the population of large districts, coupled with the 
 benefit to parties who perhaps are powerless to take care of 
 themselves of preventing the rapid diminution ot value, and 
 derangement and disorganization that would otherwise result, 
 seem to requii-e — not for the completion of an unfinished work, 
 or the improvement, beyond what is necessary for its preserva- 
 tion, of an existing one, — but to keep it up, to conserve it as a 
 railroad property, if the court has been obliged to take posses- 
 sion of it, that the court should borrow money for that purpose, 
 if it cannot otherwise do so in sufficiently large sums, by caus- 
 ing negotiable certificates of indebtedness to be issued consti- 
 tuting a first lien on the proceeds of the property, and redeemable 
 when it is sold or disposed of by the court. " 
 
 So also, in a recent case, Mr. Justice Brewer has referred, 
 arguendo, to the obligation of continued operation which rail- 
 road property must discharge to the public, as being the founda- 
 tion, of the power of the court to make the expenses of a 
 receivership a prior lien of the corpus of the estate.^ 
 
 § 676. Purchasers take the Property Subject to Lien for Operat- 
 ing Expenses, when. — The power of the court to create debts for 
 payment of operating expenses does not cease until the title has 
 
 1 Blair v. St. Louis, H. & K. R. Co. ' Kneeland v. American Loan & Trust 
 (1885), 25 Fed. Rep. 232. Co. (1890), 136 U. S. 89 ; s. c. 43 Am. & 
 
 2 Meyer v. Johnston (1875), 53 Ala. Eng. E. R. Cas. 519. 
 237 ; s. c. 15 Am. Ry. Rep. 467. 
 
666 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 actually passed to the purchasers at the foreclosure sale, and, if 
 the latter neglect for several years to complete the sale, they 
 will talie the property subject to the lien created in favor of a 
 vendor of rolling-stock which was acquired in pursuance of an 
 order issued after the sale had been made upon interlocutory 
 judgment, but before it had been confirmed.^ 
 
 A receiver of a system consisting of several lines is entitled 
 to be allowed his expenditures for the purchase of rails for any 
 part of the system, but the outlay is to be charged upon the 
 entire line, and subordinated to the lien of any mortgage there 
 may be upon the line where the rails are used, — at least where 
 the trustees of such mortgage have had no part in the 
 receivership.^ 
 
 The receivers of a system of railroad companies, composed of 
 various roads, are entitled to reimburse themselves, where one 
 of the component companies has failed to equal in revenue the 
 amount they may have expended in operating it, for the defi- 
 ciency, out of the corpus, in preference to bondholders of the com- 
 pany.^ This upon the principle that receivers cannot divert the 
 income or property of a system of railroads in their charge from 
 its creditors and stockholders to pay the deficit of one of the 
 constituent companies, the property of the system being a trust 
 in their hands for the benefit of its own creditors and stock- 
 holders. 
 
 § 677. Lien of Certificates -when not transferred to Proceeds of 
 Sale. — The lien of receivers' certificates is not transferred to 
 the proceeds of the foreclosure sale, when the purchasers pay in 
 only enough money to meet the costs and other expenses of the 
 case, and for the residue of the price turn in bonds, and the 
 decree confirming the sale directs the conveyance to be made 
 subject to the payment of any sums which the court may there- 
 after direct to be paid in cash on account of the purchase- 
 money.* 
 
 § 678. Issue of Certificates to pay Operating Expenses may be 
 authorized without the Consent of the Lien Creditors. — It is well 
 
 1 Vilas V. Page (1887), 106 'N. Y. 439 ; 439. In the latter case the court said : 
 s. c. 13 N. E. Rep. 743. " It could not have heen the intention of 
 
 2 Phinizy v. Augusta & E. E. Co. the court to make a constructive payment 
 (1894), 62 Fed. Rep. 771. on a purchase by the mortgagees, through 
 
 ^ Ames et al. v. Union Pac. Ry. Co. a cancellation of the mortgage debt, 
 
 et al. (1896), 74 Fed. Rep. 335. equivalent to an actual payment, so as to 
 
 * Mercantile Trust Co. v. Kanawha & relieve the property of the charge. Such 
 
 Ohio R. Co. (1892), 50 Fed. Rep. 874. a lien would be illusory merely, having no 
 
 Compare Vilas v. Page (1887), 106 N. Y. substantial quality." 
 
§ 678.] POWERS OP COUET AND RECEIVER. 667 
 
 settled that tlie power of a court to make a receiver's certificates 
 issued to raise money for the preservation of the road a para- 
 mount lien thereon does not depend upon the consent of those 
 who hold prior liens. ^ 
 
 In Greenwood v. Algeciras (Gibraltar) Ry. (1894), 7 Reports 
 Ch. App. 620, Kekewich, J., although of opinion that it would 
 be to the advantage of all concerned in the company that the 
 order should be made, declined to make it, inasmuch as he 
 doubted whether the court had jurisdiction to do so unless all 
 the debenture-holders who were formally represented in the 
 actions were personally present, having regard to the fact that 
 the money, if raised, would have priority over the existing 
 debentures. On appeal, Lindley, L. J., said that the orders 
 which have been made in previous cases justified the court in 
 acceding to the application. (See cases cited.) 
 
 Such consent is desirable,^ but, in the nature of the case, can 
 rarely be practicable where, as so often occurs, the debts exceed 
 the value of the property.*^ 
 
 Where the counsel who makes the application represents all 
 the holders of one class of bonds, and a large proportion of the 
 holders of another class, and the trustees of both mortgages 
 have expressed their desire that the certificates shall be issued, 
 the court will be fully justified in making the necessary 
 order.* 
 
 As the trustees represent the bondholders in proceedings 
 aifecting the mortgage lien,^ and the receiver represents the 
 company, neither the company nor the bondholders can assail 
 the validity of an order authorizing the purchase of rolling- 
 
 1 Wallane v. Loomis (1877), 97 U. S. lien on the incoire, revenues, and earnings 
 
 146, 162 ; Union Trust Co. v. Illinois of the railroad company, after deducting 
 
 Midland E,y. Co. (1887), 117 U. S. 434, therefrom the operating expenses, and all 
 
 455 ; s. c. 25 Am. & Eng. E. R. Cas. 560 ; other property of the company, real and per- 
 
 Meyer v. Johnston (1875), 53 Ala. 237 ; sonal. See, for example. Turner v. Peoria 
 
 s. c. 15 Am. Ry. Rep. 467; Vilas v. & Springfield R. Co. (1880), 95 111. 184; 
 
 Page (1887), 106 N. Y. 439. Vermont & s. c. 1 Am. & Eng. R. R. Cas. 348. 
 Canada R. Co. v. Vermont Central R. Co. ^ Wallace v. Loomis (1877), 97 U. S. 
 
 (1877), 50 Vt. 500 ; s. o. 14 Am. Ry. Rep. 146. 
 
 497, is apparently contra ; but the com-t in ' Union Tru.st Co. v. Illinois Midland 
 
 that case was not dealing with a technical Ry. Co. (1887), 117 U. S. 434, 455 ; s. c. 
 
 receivership looking to a final sale, the 25 Am. & Eng. R. R. Cas. 560. 
 appointment having been made in pursn- * Hoover v. Montclair & Greenwood 
 
 ance of an agreement between the parties. Lake Ry. Co. (1878), 29 N". J. Eq. 4; 
 
 and merely for the purpose of realizing s. c. 18 Am. Ry. Rep. 565. 
 profi ts to pay arrears of rent. ^ See ante, chapter on trustees and on 
 
 Receivers' certificates arc. by the order parties, 
 authorizing their issue, usually made a lirst 
 
.668 EAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 stock, which is granted on the application of the receiver and 
 other trustees.^ 
 
 Two constituent railroad companies of a consolidated company 
 had executed a first and second mortgage. The consolidated 
 company executed a mortgage also. The trustee of the latter 
 proceeded to foreclose. The trustee of the mortgages first 
 named afterward filed bills to foreclose its mortgages, but, 
 upon its assent, the court consolidated its suits with the first 
 filed. In this-suit the court ordered the receiver to issue cer- 
 tificates to be used for the purpose of constructing a bridge 
 over a river on the line for the advantage of all, and made 
 them a first lien prior to that of the bondholders. The final 
 decree of the court, declaring this priority of the certificates 
 to be paid out of the proceeds of the sale, was objected to by 
 the trustee of the constituent mortgages. This trustee, hav- 
 ing been charged with notice of the original order, and hav- 
 ing failed at the time, or at the commencement of its suit, 
 and the extension of the receivership to its suits, to object to 
 the order, and having permitted the receiver to issue the cer- 
 tificates and use them for the purpose proposed, the Circuit 
 Court of Appeals held, was bound by the order, and the decree 
 was sustained.^ 
 
 A trustee of divisional mortgages, who, after the filing of a 
 foreclosure suit by the trustee of a consolidated mortgage, brings 
 suits to foreclose his mortgages, and then has the first suit 
 extended to his ; and with full knowledge of the issue of certifi- 
 cates by the receiver under an order of court for the purpose of 
 constructing a bridge, making them a lien prior to thfe bond- 
 holders', fails at any time to object to the order, and allows the 
 receiver to issue and use them, is bound by the order originally 
 authorizing them.^ 
 
 The South Carolina Supreme Court has declared the rule that 
 a court of equity which has placed the property of a railroad 
 company in the hands of a receiver should not grant orders that 
 the receiver issue certificates for the maintenance of the road, 
 making them a lien upon the corpus of the property on an ex 
 
 1 Vilas V. Page (1887), 106 N. Y. 439 ; ' Boston Safe Deposit Co. v. Holders ot 
 Wallace v. Loomis (1877), 97 U. S. Ii6, 8130,500 of Receiver's Certificates (1896), 
 162. 75 Fed. Rep. 193, reaffirmed in Boston 
 
 2 Central Trust Co. of New York et al. Safe Deposit & Trust Co. u. Oroome et al. 
 V. Marietta & N. Ga. R. Co. et al. ; Boston (1896), 75 Fed. Rep. 209, in which case 
 Safe Deposit & Trust Co. v. Holders of the certificates were authorized by the 
 $130,500 of Receiver's Certificates (1896), court, with a prior lien, for the purpose 
 75 Fed. Rep. 193. of purchasing rolling-stock, etc. 
 
§§ 679, 680.] POWERS of court and receiver. 669 
 
 parte application of the receiver; that all the parties interested 
 as holders of prior liens should have notice of such application, 
 and be heard upon it. ^ 
 
 § 679. Dissent of some of the Parties in Interest a Material Cir- 
 cumstance. — The dissent of some of the parties in interest, 
 though not a conclusive reason for declining to authorize an 
 issue of certificates, will often have great weight with the court, 
 where the circumstances show that the result might be produc- 
 tive of sei'ious injustice to the protestants. Thus an order for 
 such an issue has been refused in a case where it was opposed 
 by the minority of the bondholders, the evidence showing that 
 the road had a merely local business, that it was wrecked and 
 irretrievably insolvent, and that its future was quite problem- 
 atical even if it should be put in running order, and furnished 
 with an equipment of its own.^ 
 
 Still less will a court, at the instance of a small stockholder, 
 restrain a foreclosure suit and authorize an issue of certificates 
 for the purpose of putting the road in good condition, and thus 
 demonstrating its earning capacity before it is offered for sale, 
 especially where it is apparent that the net earnings would not 
 in any reasonable time suffice to cancel the certificates and at 
 the same time pay the current interest on the bonds. ^ 
 
 § 680. Consent of Bondholders a Prerequisite to the Issue of 
 
 First-lien Certificates by a Receiver of a Private Corporation. - — As 
 
 • the essential ground on which the power to issue first-lien cer- 
 
 1 state V. Port Royal & A. Ey. Co. had filed consents to an order for the is- 
 et al. (S. C, 1895), 23 S. E. Rep. 380. sue, but a minority protested. The court 
 
 2 Investment Co. of Pennsylvania v. said that, if these majority bondholders 
 Ohio & N. W. R. Co. (1888), 36 Fed Rep. desired it, an order would be granted au- 
 48. The court reasoned as follows : " If the thorizing the issue of certificates; that it 
 court authorizes certificates to be issued, should not be a charge on the interest, or 
 and made a lien upon the railroad supe- affect the lien of the minority bondholders, 
 rior to the mortgages, for the purchase The court doubted whether it was even 
 anil laying of steel rails, for the purchase right, or within the power of a court, 
 of equipments, and for the completion of against the objection of the mortgagees 
 the road, the result may be to cause those and others having a large pecuniary inter- 
 things to be done at the expense of and to est in a railroad property, to undertake to 
 the detriment of the bond and lien hold- carry out expensive improvements of this 
 ers, and for the benefit of the purchasers, class. There is good ground for holding 
 or of a syndicate holding a majority in that such improvements stand on the same 
 amount of the bonds and liens, having footing as actual construction work, which, 
 peculiar advantages as bidders, and in- it is agreed, cannot be authorized, at least 
 tending to become purchasers at the sale ; on borrowed money, against the will of the 
 for it rarely occurs that improvements and secured creditors. (See below,) 
 betterments add to the salable value of the 8 Street v. Maryland Central Ry. Co. 
 road anything near their cost." A large (1893), 59 Fed. Rep. 25. 
 
 majority of the bondholders in this case 
 
670 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 tificates to keep railroads in operation is that they are public 
 agencies, it follows that this power cannot be exercised in the 
 case of private corporations unless all the parties holding prior 
 liens assent thereto. ^ 
 
 Still less will any priority be accorded to certificates issued 
 to creditors of such a corporation for claims arising in the 
 ordinary course of business prior to the receivership. ^ 
 
 It has been held in Texas that a waterworks company stands 
 on the same footing as a railroad company in regard to the 
 power of the court to provide for the expenses of a receivership 
 by issuing first-lien certificates ; ^ but this case cannot be recon- 
 ciled with the- ruling of the Supreme Court of the United 
 States in Wood v. Guarantee Trust & Safe Deposit Co.,^ where 
 it was held that, so far as the doctrine of back claims was 
 concerned, such a company cannot be treated as a railroad 
 company. 
 
 It is not in the power of a court of equity, in a foreclosure 
 suit of a mortgage of the property of any private corporation 
 other than a railroad company, to order an issue of certificates 
 by its receiver for the preservation, etc., of the property, and 
 make them a lien prior to the mortgage, upon either the earn- 
 ings of the receivership or the corpus of the property.^ 
 
 § 681. Notice should be given to Parties interested. — Notice to 
 persons interested should be given before the issue of certifi- 
 cates is authorized, so that they may have an opportunity of 
 disputing the necessity of raising money in this manner.^ 
 
 1 Farmers' Loan & Trust Co. v. Grape * 128 V. S. 416 (1888) ; s. c. 9 Sup. Ct. 
 Creek Coal Co. (1892), 50 Fed. Rep. 481 ; Rep. 131. 
 
 Fidelity Insurance, Trust, & Safe Deposit ^ Hanna et al. o. State Trust Co. et al. 
 
 Co. V. Roanoke Iron Co. (1895), 68 Fed. (1895), 70 Fed. Rep. 2 ; s. c. 16 C. C. A. 
 
 Rep. 623. 586, the court referred to Scott v. Trust 
 
 In Neafies Appeal (Pa., 1888), 12 Atl. Co. (1895), 69 Fed. Rep. 17. 
 Rep. 271, the receiver of a ship-building ^ Union Trust Co. v. Illinois Midland 
 
 company was authorized to continue build- Ry. Co. (1887), 117 TJ. S. 434, 455 ; h. c. 
 
 ing some unfinished ships, and, with the 25 Am. & Eng. R. R. Cas. 560 ; Dom & 
 
 consent of all the creditors, was authoiized McKee, Trustees, v. Crank (1892), 96 Cal. 
 
 to rai.se a sum for that purpose on first-lien 383; Ex parte Mitchell (1879), 12 S. C. 
 
 certificates. 83. 
 
 2 Laughlin v. United States Rolling Debenture-holders do not represent 
 Stock Co. (1894), 64 Fed. R"p. 25 ; other debenture-holders. Securities Co. 
 Hooper u. Central Trust Co. (1895), 81 v. Brighton Alhambra (1893), 68 L. T. 
 Md. 559 ; s. c. 32 Atl. Rep. 505 ; Raht v. (Ch.) 249. See also In re Regent's Canal 
 Attrell (1887), 106 N. Y. 423. Co. (1876), 3 Ch. D. 421, per James, L. J. ; 
 
 ' Ellis 11. Vernon Ice, Light, & Water In re Onnerod, Grierson, & Co., W. N., 
 
 Co. (1895), 86 Tex. 109 ; s. 0. 23 S. W. Dec. 13, 1890, p. 217, per Stirling, J. 
 Rep. 858. 
 
§ 682.] 
 
 POWERS OF COURT AND RECEIVER. 
 
 671 
 
 Circumstances may be judicially equivalent to notice; as 
 where those who will be affected by the issue have had their day 
 in court, and been heard, on evidence, as to the propriety of the 
 expenditures proposed, and of making them a first lien on the 
 property. ^ 
 
 Unless prior notice is given to the parties interested, both 
 the receiver and those lending money on the certificates take 
 the risk of such final action as the court may take in regard 
 to the loans. '^ 
 
 A bondholder cannot complain that certificates were issued 
 without due notice to the class of lienors to which he belongs, 
 where the trustees of the mortgage securing his bonds were 
 parties to the suit, and, having due notice of the application, 
 made no objection to its being granted. ^ 
 
 § 682. The Necessity for the Issue must be clearly established. — 
 The necessity for the issue of the certificates must be clearly 
 established, and to that end the court should not authorize such 
 a step, unless a detailed statement is first made out, specifying 
 the items of the sum needed and the purposes to which it is to 
 be applied, and satisfactory evidence is offered, after proper 
 
 1 Union Trust Co. v. Illinois Midland 
 Ey. Co. (1887), 117 U. S. 434, 455 ; s. o. 
 25 Am. & Eng. R. R. Cas. .'560. 
 
 2 Union Trust Co. v. Illinois Midland 
 E. Co. (1887), 117 U. S. 434, 455 ; s. c. 
 25 Am. & Eng. R. E. Cas. 560 ; Hervey v. 
 Illinois Midland K. Co. (1886), 28 Fed. 
 Rep. 169, 176. In the latter case Mr. Jus- 
 tice Harlan said: "Tlie holder of certifi- 
 cates issued by a receiver, under authority 
 of the court to borrow money and give 
 certificates therefor, for the protection of 
 the trast property, must be deemed to 
 have taken them subject to the rights of 
 parties who have prior liens upon the 
 property, and who have not, but should 
 have, been brought before the court ; and 
 where such piior lienholders are brought 
 before the court, they are entitled to con- 
 test the necessity, validity, effect, and 
 amo\int of such certificates, the same as if 
 such ((uestions were then first presented, 
 and the court will then declare such cer- 
 tificates to be superior or subordinate to 
 such prior liens as equity may require. 
 If it appears that they ought not to have 
 been made a charge upon the property 
 superior to the lien created by the mort- 
 
 then the contract rights of the 
 
 prior lienholders must be protected. On 
 the other hand, if it appears that the court 
 did what ought to have been done, even 
 had the trustee and the bondholders been 
 before it at the time the certificates were 
 authorized to he issued, the property 
 should not be relieved from the charge 
 made npon it for its protection and preser- 
 vation. Of these rules or principles the 
 parties (judgment creditors) who inaugu- 
 rated this litigation cannot fully complain. 
 They were not ignorant of the fact that 
 there were existing mortgages upon this 
 property, and that fact should have been 
 lirought to the attention of the court at 
 the very outset. Nor have the bondhold- 
 ers any ground of complaint if the court 
 charges upon the property such expendi- 
 tures as now appear to have been right- 
 fully made in the interest of all concerned 
 in its management while in the hands of a 
 receiver." 
 
 ? Wallace v. Loomis (1877), 97 U. S. 
 146; Hoover v. Montclair & Greenwood 
 Lake Ey. Co. (1878), 29 N. J. Eq. 4 ; 
 s. c. 18 Am. Ey. Rep. 565. As to the 
 representative position of the trustee in 
 litigation affecting the bonds, see Chap. 
 XXIV., ante (parties). 
 
672 RAILWAY BONDS AND MORTGAGES. [CHAP. XZX. 
 
 notice to the parties interested, that the statement is correct, 
 and that it is indispensable for the preservation of the estate to 
 raise the money. ^ 
 
 A receiver will not be authorized to borrow money for the 
 equipment of the road by creating a car trust, when the only 
 purpose of effecting the loan is to set the earnings free for 
 application to the bonded interest. Such a course would be 
 inconsistent with the essentially temporary character of the 
 administration of the property, as well as with the principle 
 that such loans are justified only by the necessity of providing 
 funds for the operation of the road.^ 
 
 Article IV. — Purposes for which First-lien Certificates 
 
 MAY BE issued DURING A RECEIVERSHIP. 
 
 § 683. Funds required to keep the Road in Operation may be 
 procured by Issue of First-lien Certificates. — Whatever funds are 
 required to keep up the business as a going concern may, as a 
 necessary consequence of the principles stated above, be pro- 
 cured by issuing first-lien certificates for the purpose of putting 
 the road in repair, and operating it, for the purchase of rolling- 
 stock or other equipment, and for the payment of claims for 
 labor and rental.^ 
 
 Where the mineral property of a mining company has no 
 marketable value without a railroad operated in connection 
 therewith, the proceeds of first-lien certificates may be used in 
 rebuilding a bridge to restore communications between the two 
 properties, and in acquiring by condemnation proceedings a 
 perfect title to a portion of the road-bed.* 
 
 § 684. Issue of Certificates to pay Taxes. — The lien for taxes 
 being superior to all other liens whatsoever, except judicial 
 costs, certificates issued to pay such a lien are accorded a cor- 
 responding priority.^ 
 
 1 Meyer v. Johnston (1875), 53 Ala. & Eng. R. E. Gas. 464; Union Trust Co. 
 
 237 ; s.' 0. 15 Am. Ry. Kep. 467. See v. Illinois Midland Ry. Co. (1887), 117 
 
 Securities, etc. Co. v. Brighton Alhambra, U. S. 434 ; s. c. 25 Am. & Eng. E. R. Cas. 
 
 Lim. (1893), 68 L. T. (Ch.) 249. 560 ; Vilas v. Page (1887), 106 N. Y. 439 ; 
 
 '^ Taylor t-. Philadelphia & Reading E. Kneeland v. American Loan & Trust Co. 
 
 Co. (1881), 14 Phil. 501 ; s. c. 9 Bed. (1890), 136 U. S. 89; Kneeland v. Bass 
 
 Eep. 1 ; 3 Am. & Eng. R. E. Cas. 177. Foundry, etc. Works (1891), 140 U. S. 
 
 8 Wabash, St. Louis, & Pac. R. Co. v. 592. 
 
 Central Trust Co. (1884), 22 Fed. Rep. * Earn w. Rorer Iron Co. (1890), 86 Va. 
 
 269, 271 ; Wallace v. Loomis (1877), 97 754 ; s. c. 11 S. E. Eep. 431. 
 
 U. S. 146 ; Miltenbergerc. Logansport Ey. ^ Union Trust Co. v. Illinois Midland 
 
 Co. (1884), 106 U. S. 286 ; s. 0. 12 Am. E. Co. (1887), 117 U. S. 434 ; s. c. 25 Am. 
 
§ 685.] POWERS OP COUET AND RECBIVEE. 673 
 
 Taxes being the first and paramount lien on all property 
 where the property of a corporation of any kind is in the hands 
 of a receiver, the court will authorize him, if he has no funds 
 in his hands for the purpose, to borrow money to pay the taxes, 
 and, whatever the obligation given by the receiver, whether 
 certificates or otherwise, for the borrowed money it will be a prior 
 lien on the property on which the taxes were due.^ 
 
 § 685. Issue of Certificates to pay Back Claims for Labor, Sup- 
 plies, &c. — To justify making receiver's certificates for the 
 payments of back claims a first lien on the corpus of the property, 
 it must appear either that (1) there has been a diversion of the 
 earnings to the prejudice of the claimants,^ or (2) that it is 
 absolutely necessary for the conservation of the property to raise 
 money in this way. In the latter case, back claims will come 
 within the principle which justifies the issue of first-lien certifi- 
 cates to meet the charges which accrue after the commencement 
 of the receivership.^ 
 
 The mere fact that the value of the mortgage lien has been 
 enhanced by the labor of a claimant is not a sufiicient reason 
 for displacing that lien in his favor. If this argument were 
 allowed to prevail, it is obvious that the foreclosure of a mort- 
 gage might in many instances be rendered inoperative and 
 useless.* 
 
 & Eng. R. R. Cas. 560. This was one ceiver to issue certificates with a lien prior 
 
 ground for issue of certificates in Munietta to the mortgage or trust deed, see Ames 
 
 V. The Nevada Land & Cattle Co., Lira, et al. v. Union Pac. Ry. Co. et al. (1896), 
 
 (1892), 93 Law Times, 442. 74 Fed. Rep. 335, 345. 
 
 1 Hanna et al. v. State Trust Co. et al. ' Miltenberger v. Logansport Ry. Co; 
 (1895), 70 Fed. Rep. 29. See Dummer v. (1884), 106 U. S. 286 ; s. c. 12 Am. & 
 Lindley et al. (Mich., 1896), 68 N. W. Eng. R. R. Cas. 464. For an extract from 
 Eep. 260, 264. the opinion in this case, showing the cir- 
 
 2 Street v. Maryland Central R. Co. cumstanoes under which the doctrine 
 (1893), 59 Fed. Rep. 25 ; Union Trust stated in the text was applied, see Chap. 
 Co. V. Illinois Midland Ry. Co. (1887), XXVII., (preferential debts). 
 
 117 IT. S. 434 ; s. c. 25 Am. & Eng. R. R. * Metropolitan Trust Co. v. Tonawanda 
 Cas. 560 ; St. Paul Title Ins. & Trust Co. Valley & Cuba R. Co. (1886), 108 N. Y. 
 et al. V. Diagonal Coal Co. et al. (Gunson 245 ; s. c. 8 N. E. Rep. 488. The court 
 etal., Interveners), (Iowa, 1896), 64 N. W. said: "No case has been cited where an 
 Rep. 606, where the order appointing a unsecured creditor, however meritorious 
 receiver in the foreclosure suit provided for the consideration of his claim, has been 
 the borrowing of money by the receiver for given a priority over a lien contracted for 
 the payment of wages, etc., due laborers and in force when his debt was created. 
 for the ninety days prior to the receiver- When, as in this case, the plaintifi' pro- 
 ship, and making the obligation given for cures the appointment of a receiver, with 
 the loan a preferred lien upon the corpus power to control and operate the mort- 
 of the property. gaged railroad, he cannot well object to the 
 As to what class of claims for the pay- depreciation of his security by expenses 
 ment of which a court may order a re- incurred for those purposes, but he may 
 
 43 
 
674 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 But as the fund available for the payment of " back claims " 
 ■which are allowed a priority is produced by the administration 
 of the court, it may be distributed, at the discretion of the court, 
 in such a manner as not to embarrass the receivers ; and these 
 claims may therefore be paid by certificates, bearing interest 
 and payable out of any funds applicable thereto, at such dates 
 as may afterwards be fixed by the receivers.^ 
 
 The income on which certificates issued for the payment of 
 back claims is chargeable is, of course, the net income after the 
 payment of the expenses of the receivership, and there are 
 obvious practical difficulties in the way of anticipating such 
 earnings. Some agreement between the parties would seem to 
 be absolutely necessary in order to procure money in this 
 manner, if it is desired to give immediate relief to the 
 creditors.^ 
 
 § 686. Issue of Certificates to keep up Single Divisions of a Con- 
 solidated System. — The same considerations which point to the 
 propriety of keeping a single road in operation by the issue of 
 certificates are applicable to cases where the property consists 
 of several divisions. If any of those divisions are operated at 
 
 properly seek to have excluded any pre- 
 vious one." In view of the two eases 
 cited ahove, this sweeping statement must 
 evidently be taken with some qualiiication. 
 The court also referred to some New York 
 statutes relied on by the claimant. By 
 the laws of 1850, ch. 140, § 10, and 
 of 1854,, ch. 282, § 16, a laborer was 
 given a remedy in certain cases against 
 the stockholders upon default of the cor- 
 poration to meet its obligations. This, it 
 was pointed out, could not justify a decree 
 which required the payment of such a, 
 creditor out of the property of other 
 creditors. By the act of 1885, ch. 376, 
 the receiver of an insolvent corporation 
 was required to pay the wages of em- 
 ployees in preference to the other debts. 
 It was doubted whether this statute was 
 applicable to foreclosure proceedings, but 
 it was held that, as it had not been enacted 
 when the proceedings were instituted, it 
 could not be invoked to sustain the decree 
 appealed from. 
 
 1 Taylor v. Philadelphia & Reading R. 
 Co. (1881), 7 Fed. Rep. 377. In Central 
 Trust Co. V. "Wabash, St. Louis, & Pac. R. 
 Co. (1886), 23 Fed. Rep. 863, it was men- 
 
 tioned that an issue of certificates was 
 authorized at the inception of the receiv- 
 ership to procure funds to pay back claims, 
 but no more than about one-sixth of the 
 number authorized were sold, as the earn- 
 ings were found to be sufficient to discharge 
 the debts. Compare Gumey v. Atlantic & 
 Great "Western K. Co. (1874), 58 N. Y. 
 358 ; Atkins v. Petersburg R. Co. (1879), 
 3 Hughes, 307. In this last case the cer- 
 tificates were issued to repay the advances 
 of one who had lent money to avert an 
 impending strike. The circumstances 
 were, therefore, virtually the same as in 
 Miltenberger v. Logansport Ry. Co., supra, 
 and under the doctrine of that case it 
 would seem that the certificates might 
 have been declared a lien on the corpus, 
 unless the fact that the proceeds were not 
 paid directly to the creditors whose con- 
 duct threatened the safety of the road 
 may be thought to make a difference. 
 The court, however, went no further than 
 to declare that the certificates might be 
 made a lien on the income. 
 
 2 See Street v. Maryland Central Ey. 
 Co. (1893), 69 Fed. Rep. 25. 
 
§ 687.] POWERS OP COURT AND RECEIVER. 675 
 
 a loss, the deficiency should be paid out of the earnings of the 
 entire system, supplemented, if need be, by the proceeds of cer- 
 tificates chargeable on the whole trust fund.^ 
 
 § 687. Issue of Certificates to pay for Construction Work 
 generally. — Since the functions of a court which is administer- 
 ing a road through a receiver are essentially preservative in 
 their nature, it is clear that the construction of additional lines 
 is, strictly speaking, beyond the scope of its powers. ^ 
 
 A road " should be kept in proper condition, not only for the 
 current business during the receivership, but for continuing to do 
 it, without the necessity for special and extraordinary outlay on 
 passing back to the possession and use of the owners. But for 
 any legitimate purpose a receivership cannot be extended to the 
 controlling and maintaining, and repairing and equipping, other 
 roads, or to the building or buying of other roads, or to the 
 control and operating of lines of steamboats, or steamboats in 
 the lines of other roads, even with the view of larger earnings, 
 and larger net income of the property which is the subject of 
 the receivership. It is fundamental in the law that a receiver- 
 ship is temporary, — to serve an existing exigency of a temporary 
 nature, and when that is done, to cease. " ^ 
 
 A court is reluctant to apply even the current income to the 
 construction of new lines;* though it does not now admit of 
 question that the earnings will even be anticipated by the issue 
 of certificates, for the purpose of procuring funds to construct 
 unfinished portions of the line, where there is a reasonable 
 prospect that the resulting increase of business will soon reim- 
 burse all moneys expended.^ 
 
 1 Central Trnst Co. u. "Wabash, St. Central R. Co. (1«77), 50 Vt. 500; s. 0. 
 Louis, & Pac. E. Co. (ISS.'l), 23 Fed. Rep. 14 Am. Ry. Rep. 497. 
 
 866. * In Gilbert v. Washington City, Va. 
 
 2 Clap V. Interstate St. R. Co. (1894), Midi. & Grt. Southern R. Co. (1880), 33 
 61 Fed. Rep. 537. The ground was here Gratt. (Va.) 586 ; s. 0. 1 Am. & Eng. E. R. 
 taken that it wa.s not the business of a Cas. 473, the lower court had authorized 
 court to build railroads, or to set railroads the construction of a short bi-anch to con- 
 in operation which have ceased to run, nect with another road. The appellate 
 but merely to continue the operation of court waived the question as to the right 
 the roads of which it may take charge to make such an expenditure, but said 
 wherever it is practicable, and, there that it was too late to make any objection 
 being no proof of a request from the after two years had been allowed to pass 
 parties in interest, an application from without raising any objection, especially 
 the receiver for authority to expend a as the pecuniary result of the court's 
 large sum of money to rebuild the power- action had been eminently beneficial, 
 house of one of the branches of a. street ^ Miltenberger o. Logansport R. Co. 
 railwiiy was refused. (1884), 106 U. S. 286 ; s. C. 12 Am. & 
 
 8 Vermont & Canada R. Co. v. Vermont Eng. R. R. Cas. 464. 
 
676 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 The objections to a court's engaging in construction work are 
 much stronger where the necessary funds can be procured only 
 by borrowing on first-lien certificates. Yet it is now the estab- 
 lished doctrine that exceptional circumstances may arise which 
 will justify a court in taking even this extreme step. Being an 
 extraordinary exercise of power, this displacement of earlier 
 liens is admitted to be permissible only in cases of the most 
 urgent necessity. Such a necessity, it is held, is presented when 
 the building of an additional line or lines is requisite to give 
 the mortgagees the full benefit of their security. Thus where a 
 conditional land-grant covered by the mortgage is in danger of 
 being forfeited because the embarrassed condition of the com- 
 pany prevents it from finishing the road within the period fixed 
 by the legislature, it is not improper to appoint a receiver with 
 power to raise such money as may be requisite, and to make the 
 loan a paramount lien on the estate.-' 
 
 So it has been held that where, under the provisions of cer- 
 tain acts of Congress, lands covered by the mortgage of a canal; 
 company were to revest in the United States unless the canal 
 was finished within a given time, the court might legitimately 
 authorize a receiver of the property to raise money to complete 
 the work by issuing first-lien certificates.^ 
 
 1 Allen V. Dallas & Wichita R. Co. allowed the bondholder complainants and 
 
 (1878), 3 Woods, 316 ; Kennedy i>. St. Paul the receiver to he made parties to an 
 
 & Paeiiic R. Co., 5 Dill. 519. At p. 525 of application to permit outside parties to 
 
 the opinion in the last case, Judge Dillon build this bridge, and approved a contract 
 
 said: "I assent in the fullest manner to for its construction and use, subject to 
 
 the proposition that a court of equity certain conditions limiting the duration of 
 
 ought not to enter upon the work of the contract, and regulating the compen- 
 
 either operating or building a railroad, if sation to be paid for the use of the bridge 
 
 this can possibly be avoided without the by the railroad company, or its assigns, 
 
 certain and great sacrifice of the rights or successors, or the purchasers at the 
 
 and securities of the parties in interest, foreclosure sale. In the matter of la 
 
 The original order in this case was made Crosse Railroad Bridge (1873), 2 DHL 
 
 upon this principle, and upon the excep- 465. 
 
 tional case which the road presented. It In Kropholler v. St. Paul, Minneap- 
 
 is not to be inferred from the report of olis, & Manitoba Ky. Co. (1880), 2 Fed. 
 
 that case that authority even to complete Kep. 302, the propriety of an order au- 
 
 the building of an unfinished line of thorizing a receiver to issue debentures 
 
 railway, and to issue debentures for that for the completion of the road was under 
 
 purpose, is to be conferred without an review. The power of the court to make 
 
 overwhelming necessity. When such such an issue was not questioned, the 
 
 authority is conferred, it ought to be point ruled being that the complaining 
 
 guarded with the utmost care." After- bondholder had no ground for equitable 
 
 wards, in this same matter, as the railroad relief on the ground that the issue had 
 
 company had a franchise to build a bridge been excessive. 
 
 across the Mississippi River which was ^ Jerome v. McCarter, 94 U. S. 734. 
 not included in the mortgage, the court 
 
§ 688.] POWERS OP COURT AND RECEIVER. 677 
 
 A loan secured by first-lien certificates has also been author- 
 ized in a case where some inconsiderable portions of the road 
 remained so far unfinished as to be unsafe for the passage of 
 trains.^ 
 
 § 688. Certificates to pay for Construction Work cannot be 
 made a First Lien on the Road ^^ithout the Consent of Prior Lienors. 
 — The court has, in any event, no power to charge a loan for 
 construction purposes as a first lien on the property, unless the 
 parties secured by earlier liens consent to have their claims 
 postponed in this manner. This rule receives negative support 
 from the cases cited in the foregoing section, as the application 
 for leave to borrow money was made with the concurrence of 
 the mortgagees in every instance in which a loan was authorized, 
 and has been announced in direct terms in a well-known 
 Alabama case.^ The trial court undertook to issue first-lien 
 certificates without the consent of the mortgagee, and the appel- 
 late court ruled that in doing so he had passed the bounds of 
 his jurisdiction, A railroad company, it was pointed out, the 
 fruits of whose labor and expenditures are about to be lost by 
 the failure of its enterprise, cannot, in order to raise money to 
 complete it, create liens on its property which will displace 
 older liens, and the power of a court of equity which is manag- 
 ing the property is equally limited. The court said: "If the 
 action of a chancellor in this cause goes to the extent of tak- 
 ing the property of the defendant, for the purpose, through his 
 appointees, of completing an unfinished work, or of enlarging 
 or improving a finished one, beyond what is necessary for its 
 preservation, and, to that end, of raising money by charging the 
 railroad and its appurtenances with liens which are to super- 
 sede older ones, without the consent of the holders of these, he 
 has inadvertently passed beyond the bounds of a chancellor's 
 jurisdiction." 
 
 In Hale v. Nashua & Lowell Railroad (1880), 60 N. H. 
 333, it is not apparent from the report whether the consent 
 of the secured creditors was obtained before ordering the 
 completion of the road by a receiver; but if the cases are 
 intended to go to that extent, it is opposed to the current of 
 authority. 
 
 In other courts the ground has been taken that it is not only 
 no part of the duty of a court to build railroads, but also that 
 
 1 Stanton v. Alabama & Chattanooga ^ jjj Meyer v. Johnston (1875), 53 Ala. 
 
 K. Co. (1875), 2 Woods, 506. 237 ; s. c. 15 Am. Ey. Rep. 467. 
 
678 EAILWAT BONDS AND MORTGAGES. [CHAP. XXX 
 
 even the assent of all the parties interested cannot make it 
 such. ^ 
 
 Where this view is taken, no difference will be made between 
 building a railroad and making extensive repairs and better- 
 ments, the cost of which is sometimes nearly as great as that of 
 the original construction.^ 
 
 The Supreme Court of the United States has taken a middle 
 ground, and, while conceding that the power of a court may, 
 under extraordinary circumstances, be used to enable mort- 
 gagees to protect their securities by borrowing money to com- 
 plete unfinished roads, expressed its opinion that it is always 
 better in such emergencies to reorganize the company on the 
 basis of existing mortgages as stock, or something which is 
 equivalent, and by a new mortgage with a lien superior to the 
 old raise the money which is required. The result of this plan, 
 so far as incumbering the mortgage security is concerned, is the 
 same substantially as if first-lien certificates are issued, while 
 the reorganization places the whole enterprise in the hands of 
 those immediately interested in its prosecution.^ 
 
 Article V. — Rights op the Holders op a Receiver's 
 Ceetipicates. 
 
 § 689. Receiver's Certificates not ITegotiable Instruments. —— 
 That receiver's certificates are not negotiable instruments is 
 well settled.* 
 
 They do not fulfil the conditions requisite to give written 
 instruments for the payment of money the character of negotia- 
 bility by indorsement, viz., that they shall be payable absolutely 
 and at all events, independently of any contingency either in 
 regard to the event or the fund out of which payment is to be 
 
 1 Paine v. Little Eock Ey. Co. (Circuit 100 TJ. S. 605. In tliis case, also, a land 
 
 Ct. E. D. Arkansas, 1874), per Caldwell, grant was imperilled by the non-completion 
 
 J., who declined to follow Stanton v. of the road. 
 
 Alabama E. Co. and Kennedy v. St. Paul * Union Trust Co. o. Illinois Midland 
 
 E. Co., supra, and adopted the alternative R. Co. (1887), 117 U. S. 434, 455 ; s. 0. 
 
 course of expediting the foreclosure pro- 25 Am. & Eng. R. E. Cas. 560 ; Stanton 
 
 ceedings and rendering a decree fitted to v. Alabama & Chattanooga E. Co. (1875), 
 
 meet the exigencies of the case. This the 2 Woods, 606 ; s. o. 31 Fed. Eep. 685 
 
 Supreme Court of the United States de- (1887) ; Sw'ann v. Clark (1884), 110 U. S. 
 
 clared to be a much more desirable plan 602 ; Union Trust Co. v. Chicago & Lake 
 
 than to issue certificates. (See below.) Huron E. Co. (1880), 7 Fed. Rep. 513; 
 
 " Ibid. Bank of Montreal v. Chicago, C. & W. K. 
 
 » Shaw V. Railroad Company (1879), Co. (1878), 48 Iowa, 518. 
 
§ 690.] POWERS OP COURT AND EEOEITER. 679 
 
 made, or as to the parties by whom or to whom payment is to 
 be made.^ 
 
 The most that can be said of them is that they are evidence in 
 the hands of the holder that he is entitled to receive from the 
 fund under the control of the court which authorized its officer 
 to issue them the amount specified, if the fund is sufficient to 
 pay in full all holders of such certificates, or if it is not suffi- 
 cient, then only a pro rata share with other holders. ^ 
 
 The mere fact that by their terms they inure to the benefit 
 of the " bearer " does not impart to them the quality of com- 
 mercial paper. The use of that word imports assignability, not 
 negotiability, and, even if it is omitted, they are still capable 
 of transfer.^ 
 
 § 690. Purchasers affected 'with notice of all Circumstances 
 attending the Issue of the Certificates. — Any one who purchases 
 certificates is bound to ascertain whether they were issued in 
 accordance with the terms and contingencies contemplated in 
 the order by virtue of which they were issued,* and is charged 
 with notice of all that has been done during the pendency of 
 the litigation up to the date of his purchase, as well as of all 
 subsequent proceedings therein, and that by the final action of 
 the court the validity or security of the instruments may be 
 prejudicially affected.^ 
 
 If disposed of in a manner and for a purpose not authorized 
 by the order under which they were issued, receivers' certificates 
 are invalid and of no effect as against the property,^ whether in 
 the hands of the original holder or of a subsequent purchaser 
 or pledgee. Thus if one of the set of certificates authorized for 
 the purpose of paying off an indebtedness contracted by a former 
 receiver is issued to a payee who has no claim on the trust 
 fund, his transferee will stand in no better position than him- 
 self in the court where the fund is being administered.' 
 
 1 Turner v. Peoria & Springfield E. Co. to te proper, from whichever point of 
 
 (1880), 95 111. 134 ; s. c. 1 Am. & Eng. view the rights of the parties were 
 
 R. R. Cas. 348. examined. 
 
 ^ Ibid. * Bank of Montreal u. Chicago, C. & 
 
 " Railroad Co, v. Howard (1868), 7 "W. R. Co. (1878), 48 Iowa, 518. 
 
 Wall. 392 ; Tunier v. Peoria & Springfield ^ Mercantile Trust Co. v. Kanawha & 
 
 R. Co. (1880), 95 III. 134 ; s. c. 1 Am. & Ohio Ry. Co. (C. C. A., 1893), 58 Fed. 
 
 Eng. R. R. Cas. 348. This latter case Rep. 6. 
 
 was considered both with reference to the ^ Stanton v. Alabama & Chattanooga 
 
 common-law rules regarding instruments R. Co. (1887), 31 Fed. Rep. 585. 
 
 for the payment of money, and also with ' Turner v. Peoria & Springfield R. Co. 
 
 reference to the Illinois statute on the (1880), 95 111. 134 ; s. c. 1 Am. & Eng. 
 
 subject. The same conclusion was held R. R. Cas. 348. 
 
680 RAILWAY BONDS AND MOETGAGES. [CHAP. XXX. 
 
 Authority to issue certificates " for money borrowed, material 
 furnished, labor performed, or on account of contracts made by 
 him for or on account of the construction or completion of said 
 road or any part thereof, " does not empower the receiver to 
 issue such certificates for material which is merely contracted 
 to be delivered, even though the order of appointment also con- 
 tains a general authority to " do and perform all the acts and 
 things necessary to be done and performed to construct said 
 line of railroad. " ^ 
 
 Certificates issued in excess of the number authorized in the 
 order of the court are absolutely void.^ 
 
 The rule that the certificate-holder is not bound to look behind 
 the order which authorized the issuance may also inure to his 
 benefit. Thus where the order does not limit the payment to 
 any particular fund, any such limit apparent on the face of the 
 certificates is of no force or consequence, because they are the 
 mere forms by which the Order of the court is executed.^ 
 
 § 691. Rank of Certificates depends on Pinal Decree. — That the 
 holders of receivers' certificates depend for their ultimate rank 
 upon the final decree in the cause in which the certificates are 
 issued is well settled.* 
 
 The interest of the holder of such instruments is acquired not 
 merely subject to all the restrictions imposed by the doctrine of 
 lis pendens, but by virtue of the litigation. By the very act of 
 purchasing the certificates he is put upon inquiry as to all that 
 has been done in the course of the litigation, and is charged 
 with notice of all the subsequent proceedings therein as if he 
 had been an actual party to the record.^ For example, holders 
 of certificates issued subsequent to decrees sustaining a me- 
 chanic's lien, and directing a sale of the property subject to 
 that lien, are privies to such decree and take subject to the 
 lien.® 
 
 But the lien of the certificates continues as long as the order 
 authorizing their issuance remains in force. The fact that a 
 referee is appointed to determine all claims against the receiver- 
 ship, and a report of his has been confirmed which makes no 
 allusion to the certificates, in not an adjudication against them, 
 
 1 Bank of Montreal v. Chicago, C. & * Union Trust Co. v. Illinois Midland 
 -W. E. Co. (1878), 48 Iowa, 518. Ky. Co. (1887), 117 U. S. 434. 
 
 2 Newbold v. Peoria & Springfield R. ^ Mercantile Trust Co. v. Kanawha & 
 Co. (1879), 5 111. App. 367. Ohio Ry. Co. (1893), 58 Fed. Rep. 6, 11. 
 
 8 Neafie's Appeal (1888), 12 Atl. Rep. « Gordon v. Newman (1894), 62 Fed. 
 
 271. Rep. 686 ; s. o. 10 C. C. A. 587. 
 
§§ 692-695.] POWERS op couet and receiter. 681 
 
 when it appears that they were not presented or considered, and 
 that the holder had no notice of the reference.^ 
 
 § 6!:) 2, Negotiation and Sale of Certificates a Trust personal to 
 Receiver. — The negotiation and sale of receiver's certificates 
 being a trust personal to the receiver himself, the rights of one 
 who purchases them from any person other than the receiver 
 himself must be determined on the assumption that the seller is 
 himself a holder, and not an agent of the receiver. The pur- 
 chaser, even though he has paid a valuable consideration for the 
 certificates, and is without notice of any facts bearing on their 
 validity, except such as appear in the order of the court, talces 
 them, under such circumstances, subject to all the equities be- 
 tween the original parties. If, therefore, his assignor, though 
 actually intrusted with the certificates by the receiver for the 
 purpose of negotiation and sale, fails to account with the receiver 
 for the proceeds, the purchaser does not stand in a position to 
 charge the fund of the receivership with the payment of the cer- 
 tificates. Especially is this the case when he is able to effect the 
 purchase at a very large discount very soon after the certificates 
 are issued, this being sufficient to put him on inquiry as to the 
 existence of some infirmity.^ 
 
 § 693. The Trust Fund is not liable for the Payment of a Receiv- 
 er's Certificates unless the Proceeds come under his Actual Control. 
 — This rule is sufficiently complied with where the proceeds are 
 deposited to his credit in a bank in the form of checks, drafts, etc., 
 which are afterwards duly honored by the drawers. The validity 
 of the certificates, in such a case, is not impaired by the fact that 
 the bank has never, at any time after such deposit was made, 
 been in a condition to pay over any considerable portion of the 
 deposit.** 
 
 § 694. Purchasers of Certificates not bound to see to Application 
 of Proceeds. — Persons having no connection with the case or the 
 parties, who take certificates directly from the receiver, are not 
 bound to see that the proceeds are properly applied.* 
 
 § 695. Rights of Purchasers not afiected by taking Collateral 
 Security. — Purchasers of receiver's certificates do not, by taking 
 a special collateral security, make that the only security upon 
 
 1 Mercantile Trust Co. v. Kanawha, etc. * Union Trust Co. ii. Illinois Midland 
 Ry. Co. (1892), 50 Fed. Rep. 874. Ry. Co. (1887), 117 U. S. 434 ; s. c. 25 
 
 2 Union Trust Co. v. Chicago & Lake Am. & Eng. E. R. Cas. 560 ; s. p. Stau- 
 Hnron R. Co. (1881), 7 Fed. Rep. 513. ton v. Alabama & Chattanooga R. Co. 
 
 ' Ala. Iron & Ry. Co. ■!). Anniston Loan (1875), 2 Woods, 506. 
 & Trust Co. (1893), 57 Fed. Rep. 25. 
 
682 RAILWAY BONDS AND MORTGAGES. [CHAP. XXX. 
 
 which they have a right to rely to enforce the payment of the 
 certificates.^ 
 
 § 696. Bondholders, when estopped to dispute Validity of Cer- 
 tificates. — A bondholder who, with a full knowledge of all the 
 circumstances and conditions under which certificates were is- 
 sued, lies by and permits others in good faith to invest their 
 money in receiver's certificates, cannot afterwards be heard to as- 
 sert that such certificates are not a lien on the property superior 
 to the mortgage.^ 
 
 Similarly, when the bondholders suffer certain persons to ap- 
 pear to the world in the character of receivers, and, as such, to 
 issue negotiable obligations, the rights of the purchasers of those 
 obligations are the same whether they are strict receivers or not. 
 To such a case the principle is applicable that, where one of two 
 innocent parties must suffer by the act of a third, he who gave 
 the power or opportunity to do the act must bear the burden of 
 the consequences.^ 
 
 § 697. Receiver, when estopped to dispute Validity of Certifi- 
 cates. — As against an innocent purchaser of certificates, a re- 
 ceiver cannot be heard to dispute their validity where he 
 authorized the president of a bank, in which he keeps his de- 
 posits, to sell them, and afterwards drew checks against the 
 amount credited to him for the proceeds of the sale, and reported 
 the transaction to the court. Under such circumstances it is 
 immaterial that the authority of the president of the bank to sell 
 the certificates was revoked before the sale in question was made ; 
 and the fact that the receiver, upon learning that the bank was 
 insolvent, obtained from the president certain collateral securi- 
 ties to protect his deposits, will be regarded not as a repudia- 
 tion, but rather as an additional ratification, of the sale of the 
 certificates.* 
 
 A merely personal contract, whereby the purchaser of a rail- 
 road agrees to pay off certain certificates which are invalid be- 
 cause of the manner in which they were issued, is ineffectual to 
 
 1 Langdon v. Vermont & Canada R. passed under the control of the bondhold- 
 
 Co. (1880), 53 Vt. 228; s. 0. 4 Am. & ers, their authority being derived from 
 
 Eng. R. R. Cas. 33. various decrees and orders entered hy con- 
 
 ^ Humphreys v. Allen (1882), 101 111. sent of the parties. The case, therefore, is 
 
 490 ; s. c. 4 Am. & Eng. R. R. Cas. 14. a very special one, the rights of the pur- 
 
 ' Langdon v. Vermont & Canada R. chasers being determined by the prin- 
 
 Co. (1880), 53 Vt. 228 ; s. 0. 4 Am. & ciple of the estoppel. 
 Eng. R. R. Cas. 33. In this case the * Ala. Iron & Ry. Co. v. Anniston Loan 
 
 receivers originally appointed continued & Trust Co. (1893), 57 Fed. Rep. 25. 
 to act as such after the property had 
 
§§ 698-701.] POWERS OF COURT AND RECEIVER. 
 
 683 
 
 charge the property in the hands of such purchaser when he aftei- 
 wards becomes receiver.' 
 
 § 698. Court, when bound to recognize the Estoppel of Receiver 
 to dispute Validity of Certificates. — Where the receiver recognizes 
 the validity of a sale of certificates by accepting a credit at a bank 
 for the amount of the proceeds, and afterwards drawing against 
 the deposit, the court will consider itself bound by the estoppel 
 thus raised against its agent, and treat the certificates as a valid 
 lien upon the trust fund as against the purchasers at the fore- 
 closure sale. Especially will such protection be extended to in- 
 nocent holders of the certificates, if the purchase of the railroad 
 was made with full knowledge that the certificates were out- 
 standing, and the purchasers have taken an assignment of certain 
 securities which the receiver had obtained from the bank to pro- 
 tect his deposits, and which, at the same time they were given, 
 were considered amply sufficient for that purpose.^ 
 
 § 699. Amount recoverable by Holders of Keceiver's Certificates, 
 — The purchasers of certificates taken within the limit of the dis- 
 count allowed by the court in the order authorizing their issue 
 are entitled to the face value of the certificates.^ 
 
 Those who pay for them less than the lowest percentage of the 
 par value for which they may be disposed of can be credited only 
 with the sum actually paid.* 
 
 § 700. Usury Laws applicable only to Receiver's Certificates. — 
 The Chancellor has no power to disregard the laws against usury, 
 by authorizing a receiver to borrow money by the sale of interest- 
 bearing certificates at less than their face value.^ 
 
 § 701. Holders need not present the Certificates for Payment 
 before Foreclosure Sale. — A holder of certificates is not guilty of 
 laches in failing to present them for payment before the fore- 
 closure sale. They are practically call loans, and he has a right 
 to assume that the receiver will notify him when the loan is to be 
 called or the money paid.^ 
 
 1 Stanton v. Alabama & Chattanooga hypothecated by the receivers to secure 
 
 E. Co. (1887), 31 Fed. Eep. 585. advances, the sum so received being less 
 
 " Ala. Iron & Ry. Co. v. Anniston Loan than ninety per cent of their face value. 
 
 & Trust Co. (1893), 57 Fed. Rep. 25. The court allowed the pledgees to retain 
 
 8 Union Trust Co. v. Illinois Midland only so many certificates as, rating them 
 
 K. Co. (1887), 117 U. S. 434 ; s. c. 25 Am. at ninety cents on the dollar, represented 
 
 & Eng. R. R. Cas. 560. the amount advanced, and ordered the rest 
 
 * Stanton u. Alabama & Chattanooga to be returned to the receiver. 
 R. Co. (1875), 2 Woods, 606 ; Swann v. ^ Meyer v. Johnston (1875), 53 Ala. 
 
 Clark (1884), 110 U. S. 602. In the for- 237 ; s. c. 15 Am. Ry. Rep. 467. 
 mer case the order prescribed that the ° Mercantile Trust Co. v. Kanawha & 
 
 certificates should not be sold for less than Ohio Ry. Co. (1892), 50 Fed. Rep. 874. 
 ninety cents on the dollar. They were 
 
684 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXI. 
 
 CHAPTER XXXI. 
 
 LIABILITIES OF COMPANY AND RECEIVER DURING RECEITEESHIP. 
 
 Art. I. — Liabilities of Compaiit dur- 
 ing Receivership. 
 § 702. Contract Liabilities of Company 
 suspended by Appointment of 
 Receiver. 
 
 703. Company's Liability in Tort 
 
 ceases after the Receiver as- 
 sumes Control. 
 
 704. Liability of Company, after be- 
 
 ing restored to Possession, for 
 Claims arising during Receiv- 
 ership. 
 Art. IL — Liabilities op Receiver. 
 § 705. Liability of Receiver that of 
 Common Carrier. 
 
 706. Liability of Receiver not usually 
 
 personal. 
 
 707. Receiver officially liable to Third 
 
 Persons for Torts of his Em- 
 , ployees. 
 
 708. Receiver, whethersuable on Cause 
 
 of Action arising prior to Ap- 
 pointment. 
 i 709. Receiver's Liability for Injuries 
 to his own Employees. 
 
 710. How far Receiver is bound by 
 
 Company's Contracts generally. 
 
 711. Receiver succeeds to Company's 
 
 Rights as to Annulment of 
 Contracts. 
 
 712. What Contracts of Company 
 
 should be carried out by Re- 
 ceiver. 
 
 713. Contract Liabilities of Receivers 
 
 in Regard to Leased Roads. 
 
 714. Withdrawal of Consideration of 
 
 Lease a Sufficient Ground for 
 renouncing it. 
 
 715. Receiver cannot enjoy Benefit 
 
 of Contract without assuming 
 Burdens. 
 
 716. When Receiver's Liability, as 
 
 such ceases. 
 
 Article T. — Liabilities op Company during Receivership. 
 
 As to the enforcement of liabilities of receiver, see Chap. 
 XXIX., ante. 
 
 § 702. Contract Liabilities of Company suspended by Appoint- 
 ment of Receiver. — Contractual obligations of the mortgagor 
 company arising out of the management of the mortgaged prop- 
 erty, terminate when it loses power to control the property.^ 
 
 But the existence of the corporation is not interfered with, nor 
 its officers displaced, by an order which constitutes the directors 
 in effect receivers of the corporate property, especially when the 
 corporation continues to carry on its business as before, and 
 elects its officers at regular periods. A note for current debts, 
 
 1 Newport & Cincinnati Bridge Co. v. Douglass (1877), 12 Bush (Ky.), 673 ; s. c. 
 18 Am. Ry. Rep. 221. 
 
§ 703.] LIABILITIES OP COMPANY AND RECEIVER. 685 
 
 given by the corporation, while such an order remains in force, 
 and signed by the president and treasurer as such, will, therefore, 
 be treated as having been made and taken without any reference 
 to the fund of the quasi receivership.^ 
 
 § 70-3. Company's Liability in Tort ceases after Receiver assumes 
 Control. — " Where a court of proper jurisdiction seizes a railroad, 
 takes it from the custody and-control of its corporate officers, and 
 puts the same into the hands of a receiver to be operated under 
 the directions of the court, such receiver is the governing power 
 operating the road, and is alone liable for wrongs and injuries 
 committed by himself or his servants." '^ 
 
 A railway company, in the absence of a statute imposing lia- 
 bility, is not answerable for injuries resulting from the mistakes 
 or negligence of a receiver or his agents while operating a 
 railroad.^ 
 
 A railroad company will be held liable for the acts of a receiver 
 where the property is returned to the company without sale, after 
 a large expenditure by the receiver of current revenues in better- 
 ments, etc.* 
 
 Since injuries caused by the misconduct of the employees of a 
 receiver are done while the railroad company is out of the pos- 
 session of the property, and has no control over it, no liability 
 attaches to the company on* account of those injuries.^ 
 
 1 Ex parte 'Williams (1881), 17 S. C. Youngblood v. Comer (Ga., 1895), 23 S. 
 396 ; s. 0. 12 Am. & Eng. E. E. Caa. 425. E. Rep. 509, and Patterson v. Central 
 
 2 Eicks, D. J., in Chamberlain v. New Eailroad & Bkg. Co. et al. (Ga., 1895), 23 
 York, Lake Erie, & Western E. Co. (1895), S. E. Eep. 509; Brown v. Comer et al. 
 71 Fed. Eep. 636. See Meara's Admr. v. (Ga., 1896), 25 S. E. Kep. 176. 
 Holbrook, 20 Ohio St. 137. ^ Davis v. Duncan (1884), 19 Fed. Eep. 
 
 8 Schurr v. Omaha & St. Louis Ey. Co. 477, 481 ; Roger v. Mobile & Ohio R. Co. 
 
 (Iowa, 1896), 67 N. W. Rep. 280. See (Tenn., 1882), 12 Am. & Eng. R. R. Cas. 
 
 Godfrey u. Railway Company, 116 Ind. 442; Memphis & C. R. Co. v. Hoechnet 
 
 30 ; 8. c. 18 N. E. Rep. 61 ; State v. (C. C. A., 1895), 67 Fed. Rep. 456 ; Metz 
 
 Wabash Ry. Co., 115 Ind. 406 ; s. 0. 17 v. Buffalo, Corry, & Pittsburgh R. Co. 
 
 N. E. Rep. 909: Metz v. Railroad Com- (1874), 58 K Y. 61. In the latter case the 
 
 pany, 58 N. Y. 66 ; Railroad Company v. court said : " In reference to the position 
 
 Stringfellow, 44 Ark. 322 ; Railroad Com- that the receiver and assignee was the 
 
 pany v. Donough, 72 Tex. Ill ; s. o. 10 agent and servant of the defendant, which 
 
 S. "W. Rep. 711 ; Murphy v. Holbrook, 20 were therefore liable for his acts, it must 
 
 Ohio St. 145; Thurman v. Railroad Com- be borne in mind that the defendant was 
 
 pany, 56 Ga. 376 ; Brockert v. Railway not a voluntary bankrupt. The appoint- 
 
 Company, 82 Iowa, 370 ; s. 0. 47 N. W. ment of Barrey as receiver was by the 
 
 Rep. 1026. court, against its will. It had nothing to 
 
 * Texas & Pao. Ry. Co. Watson et al. do with his appointment, or any control 
 
 (Tex. Civ. App., 1896), 36 S. W. Rep., over his employees. Upon what principle 
 
 290 ; Henderson v. Walker (1875), 55 Ga. can the defendant be held responsible for 
 
 481; Thurman v. Railroad Co. (1876), 56 their negligence ? A master or employer 
 
 Ga. 376, reaffirmed and adhered to in is held liable for the negligence of those 
 
686 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXI. 
 
 This rule is not affected by the fact that the president of the 
 company is the receiver.^ 
 
 But if a road is partly in the hands of a receiver and partly 
 operated by a lessee, and the company allows passenger tickets to 
 be issued in its name, it will be liable to a passenger for damages 
 resulting from the acts of employees engaged in operating the 
 road. In this case the road is run on the joint account of the 
 lessees and the receiver, and the servants are controlled by them 
 jointly, and not by the receiver alone.^ 
 
 It has also been held, in a recent case, that a receiver appointed 
 by a court which has no jurisdiction over the territory in which the 
 property is situated, or in proceedings instituted by the parties col- 
 lusively, in order to accomplish a purpose unlawful m itself, must 
 be considered as the agent of the company, which is therefore 
 liable for injuries resulting from the operation of tlie road by him.^ 
 
 But a railroad company is not relieved from responsibility for 
 injuries caused by the operation of the road, unless the possession 
 of the receiver is exclusive. Thus where the only substantial 
 duty discharged by the receiver is to receive the net earnings 
 of the road, and to account therefor to the court, and upon his 
 appointment he continues to employ the same officials in their 
 former positions, and the business of the road, so far as is known 
 to the public, is conducted upon the same footing as before up to 
 the time of the accident, a verdict for damages for the results of 
 a collision resulting from the negligence of those operating the 
 road is properly rendered against the company.* 
 
 in his service, for the reason that it is his liahle for the hreaeh of contracts made by 
 
 duty to enforce the observance of care by him, and for injuries sustained by his neg- 
 
 them. He is held liable to those injured ligence or that of his employees in their 
 
 bythe failure by him to perform this duty, performance." Rogers v. Wheeler (1871), 
 
 But this has no application to the present 43 N. Y. 598. 
 
 case. Here the defendant, by the act of Under the Iowa Code, § 1289, a re- 
 
 the law, has been deprived of the posses- ceiver operating a railroad, and not the 
 
 sion of the road, and of all control over company, is the proper party defendant in 
 
 those engaged in operating it ; and by like an action to recover double damages for 
 
 act the possession and control has been stock killed upon the railroad. Brookert 
 
 given to others. The defendant had not, v. Central Iowa Ry. Co. (1891), 82 Iowa, 
 
 therefore, anything to do with operating 369 ; s. c. 47 N. W. Rep. 1026. 
 
 the road. True, if profits were earned l Davis v. Duncan (1884), 19 Fed. 
 
 thereby, they would inure to the benefit Rep. 477, 481. 
 
 of the defendant by becoming assets for ^ Railroad Co. v. Brown (1873), 17 
 
 the payment of debts. But this did not Wall. 445. 
 
 make it liable for the conduct of those in ' Texas & Pao. Ry. Co. v. Gay (1894), 
 
 no sense its employees or servants. The 86 Tex. 571 ; s. c. 26 S. W. Rep. 599. 
 
 employees must look to those who em- * Pennsylvania R. Co. v. Jones (1894), 
 
 ployed them for compensation, and those 155 D". S. 333 ; s. c. 15 Sup. Ct. Rpp. 136, 
 
 who contracted with the receiver or as- citing Railroad Co. v. Brown, supra, 
 
 signee must also look to him. He was The Washington Supreme Court has 
 
§ 704.] LIABILITIES OF COMPANY AND EECEIVER. 687 
 
 § 704. Liability of Company, after being restored to Possession, 
 for Claims arising during the Receivership. — An Order discharging 
 the receiver, restoring the property to the company, and requiring 
 all claims against the receiver to be presented to the court before 
 a certain date, in default whereof they are to be barred, does not 
 preclude a plaintiff whose claim is not presented within that time 
 from recovering a personal judgment against the company, on the 
 ground that the earnings of the receivership out of which the 
 claim should have been paid were used in making permanent im- 
 provements which have inured to the company's benefit.^ 
 
 Although the receiver thus discharged may have been appointed 
 by a federal court, the action on the claim may be maintained in 
 a State court, not merely because the proceeding is not one in rem, 
 but because the property is no longer in the custody of the fed- 
 eral court after the discharge of its receiver. There is no prin- 
 ciple by virtue of which a court can, under such circumstances, 
 be held to have parted with its jurisdiction over property, by the 
 complete surrender thereof to its owner, and at the same time to 
 have constructively retained jurisdiction over the property, so as 
 in that respect to bind those who would otherwise be unaffected 
 by its orders.^ 
 
 Such a claim may also be enforced by a bill in equity to subject 
 the property to its payment, if no third party's rights have inter- 
 vened, and the injured person was given no opportunity of bring- 
 ing an action against the receiver prior to his discharge.^ 
 
 If no such application of the earnings to permanent improve- 
 ments is shown, the claimant will apparently have no remedy 
 
 held that the receivers of a railroad com- Code ; and such receiver, or rather the 
 
 pany could not be held liable for failing to property in his hands, is liable for the 
 
 carry out a contract of the company for claim of an employee for injuries received 
 
 transportation made before their appoint- through the negligence of co-employees, 
 
 ment. Casey c;. Northern Pac. R. Co. Sloan v. Central Iowa Ey. Co. (1883), 62 
 
 (Wash., 1896), 48 Pao. Eep. 53, following Iowa, 728 ; s. c. 16 N. W. Rep. 331 ; 11 
 
 Scott V. Railway Co., 13 Wash. 108 ; s. c. Am. & Eng. R. R. Gas. 145. 
 42 Pac. Rep. 531. Sec. 1309, Code Iowa, provides that a 
 
 1 Texas R. Co. v. Bloom (1894), 60 judgment against any railway corporation 
 
 Fed. Rep. 979 ; Texas & Pac. Ry. Co. v. for any injury to any person or property 
 
 Huffman (1892), 83 Tex. 286 ; S. O. 18 S. shall be a lien on the company's property 
 
 W. Rep. 741. prior and superior to the lien of any inort- 
 
 '■^ Texas & Pao. Ry. Co. v. Johnson, gage or trust deed executed since the 4th 
 
 (1894), 151 U. S. 81 ; s. o. 14 Sup. Ct. day of July, 1862, held constitutional. 
 
 Eep. 250. Central Trust Co. et al. o. Sloan (1885), 65 
 
 A receiver who is operating a railroad Iowa, 655 ; s. c. 22 N. W. Rep. 916 ; 23 
 
 under the appointment and direction of a Am. & Eng. R. R. Cas. 398. 
 court is included under the terms "per- ' Davis w. Duncan (1884), 19 Fed. Rep. 
 
 sons owning or operating railways," in 477, 481 ; s. c. 17 Am. & Eng. R. R. Cas. 
 
 contemplation of §§ 1278, 1307, of the 295. 
 
688 EAILWAT BONDS AND MORTGAGES. [CHAP. XXXI. 
 
 against the company on the property after the receiver is finally 
 discharged ; at all events, after the end of the term in which the. 
 decree discharging him was entered. The question presented is 
 then one merely of jurisdiction, and the court has no power to 
 resume control of the property under such circumstances. 
 
 A shipper of stock over a railroad in the hands of a receiver 
 after its sale, in an action to recover damages against the company 
 or purchaser, must show that the receiver received funds during 
 his management and turned them over to- the company or pur- 
 chaser, or permanently improved the property therewith.^ 
 
 A railroad company was held liable for damages incurred by 
 negligence of employees during a receivership, its property having 
 been returned to it without sale, and the receivers having ex- 
 pended the earnings during their administration in betterments 
 of the road.^ 
 
 Article II. — Liabilities of Receiver.* 
 
 § 705. Liability of Receiver that of Common Carrier. — The lia- 
 bility of a receiver operating a railroad is that of a common, carrier 
 in regard to the persons with whom they deal in their of&cial 
 capacity.* 
 
 8 706. Liability of Receiver not usually personal. — The general 
 rule is that a receiver is not personally liable, either in contract 
 or tort, for anything which he does in his official capacity. Being 
 the officer and representative of the court, subject to its orders, 
 accountable in such manner and to such persons as the com't 
 may direct, the receiver, as such, has no personal interest, but 
 that arising out of his responsibility for the correct and faithful 
 discharge of his duties. It is of no consequence to him how, or 
 when, or to whom, the court may dispose of the funds in his hands, 
 provided the order or decree of the court furnishes to him a suffi- 
 cient protection.^ 
 
 1 Holman v. Galv., H. & S. A. Ry. Co. Little v. Dusenberry (1884), 46 N. J. L. 
 (Tex. Civ. App., 1896), 37 S. W. Rep. 464. 614 ; Klein v. Jewett (1875), 26 N. J. Eq. 
 
 2 Texas & Pao. By. Co. v. Gaal (Tex. 474 ; Meara's Admrs. v. Holbrook (1870), 
 Civ. App., 1896), 37 S. W. Rep. 462. 20 Ohio St. 137 ; Toledo, Wabash, &"West- 
 
 8 Articles on this subject may be found ern Ry. Co. v. Beggs (1877), 85 lU. 80 ; 
 
 in 4 So. L. Rev. N. S. 18 ; 17 Am. L. Rev. Kinney v. Crocker (1864), 18 "Wis. 74 ; 
 
 833. Douglass v. Cline (1877), 12 Bush (Ky.), 
 
 * Blumenthal v. Brainerd (1866), 38 673, 688. 
 Vt. 402 ; Morse v. Brainerd (1869), 41 Vt. « Beverley v. Brooke (1847), 4 Gratt. 
 
 550 ; Cutts V. Brainerd (1870), 42 Vt. 187. 
 
 566; Newell 11. Smith (1877), 49 Vt. 255 ; A receiver appointed by the trustees 
 
 Paige li. Smith (1868), 99 Mass. 395 ; in a deed of trust eiecuted by a trading 
 
§ 706.] 
 
 LIABILITIES OF COMPANY AND EECEIVEE. 
 
 A receiver, therefore, is not personally liable for the torts of 
 his employees committed in respect to any property which he 
 liolds in his official capacity. It is only when he himself has 
 ccnumitted the wrong that he incurs any personal liability.^ 
 
 Thus, if they wilfully and corruptly exceed their powers, they 
 are liable for the actual damage sustained by their misconduct.^ 
 
 So, also, where the purchaser of receivers' certificates payable 
 to bearer, which have false representations upon their face as to 
 full compliance with the order of court authorizing their issue, 
 fails in a suit to enforce them against the property upon which 
 they were stated to be a lien, he has a cause of action for dam- 
 ages against the receiver personally, and can recover upon prov- 
 ing the intent to defraud by executing, the certificates and placing 
 them upon the market. But he cannot recover upon them as 
 warranties.^ 
 
 The Kansas act of 1874, ch. 94, entitled " An Act relating to 
 the killing or wounding of stock by railroads," applies to receivers 
 operating a railroad under an appointment of a court of competent 
 jurisdiction.* 
 
 But a receiver is not exempt from personal liability for negli- 
 gence of which he or his employees may be guilty in respect to 
 
 company, under a provision authorizing 
 them to make such appointment as if they 
 were mortgagees, such receiver to be 
 deemed the agent of the company and be 
 in the same position as a receiver ap- 
 pointed by the mortgagee under the Eng- 
 lish Conveyancing Act of 1881, is a mere 
 agent, and incurs no personal liability 
 in carrying on the business. Owen v. 
 Cvonk (C. A., 1895), L. R. 1 Q. B. 265. 
 But receivers and managers appointed by 
 the court at suggestion of debenture- 
 holders are court officers, not agents of 
 the company to make contracts on its 
 behalf, nor are they agents of bondholders. 
 They may be personally liable. See De 
 Grille, Houdret, & Co. v. Bull (1894), 
 10 Reports Q. B. 98. See also Burt, 
 Boulton u. Bull (1895), L. R. 1 Q. B. 
 276. 
 
 I Campi). Barney (1875), 4 Hun, 373; 
 Davis V. Duncan (1884), 19 Fed. Rep. 
 477, 480 ; Farmers' Loan & Trust Co. v. 
 Central R. Co. of Iowa (1883), 17 Fed. 
 Rep. 758; McNulta v. Lockridge (1891), 
 141 U. S. 327 ; Erskinew. Mcllrath (1895), 
 60 Minn. 485 ; s. c. 62 N. W. Rep. 1130 ; 
 Cardot v. Barney (1875), 63 N. Y. 281. 
 
 In Turner v. Indianapolis, B. & W. R. 
 Co. (1879), 8 Biss. 527, 532, this freedom 
 of the receiver from personal liability was 
 referred to as being somewhat doubtful. 
 The court said : "The operation of a rail- 
 road by a court through a receiver is some- 
 thing out of the routine duty of the courts 
 and receivers. There must be exceptional 
 rules applicable to such receivers. The 
 receiver holds the property for preserva- 
 tion, and it may be questionable whether 
 the receiver should be himself personally 
 responsible in damages for the negligence 
 of his employees, and whether public 
 policy does not require that the receiver, 
 as the organ of the court merely, should 
 be answerable under his contract as op- 
 erator of the road." But the doctrine 
 stated in the text is fully established by 
 the later cases, and was the one actually 
 applied by the learned judge, who ex- 
 pressed himself with so much hesitation. 
 
 2 Stanton v. Alabama & Chattanooga 
 R. Co. (1895), 2 Woods, 606. 
 
 ' Bank of Montreal t>. Thayer (1881), 
 7 Fed. Rep. 622. 
 
 * Rouse V. Redinger (Kans. Ct. of App., 
 1895), 41 Pac. Rep. 433. 
 
 44 
 
690 
 
 BAILWAT BONDS AND MORTGAGES. [CHAP. XXXI. 
 
 property which he is administering by virtue of a contract, and 
 not by virtue of the order of appointment. Such is the position 
 of a railroad receiver witli regard to that part of the system wliich 
 lies outside the State in which he is appointed, unless he is ac- 
 cepted in the foreign jurisdictions as ancillary receiver ; for, with- 
 out such acceptance, his acts can have no official character. ^ 
 
 § 707. Receiver ofBcially liable to Third Persons for the Torts of 
 his Employees. — In some cases the courts have expressed them- 
 selves rather hesitatingly as to the extent and nature of official 
 liability of a receiver for injuries resulting from his operation of 
 the road.2 
 
 But it is in accordance with sound principle and reason that a 
 receiver exercising the franchise of a railroad should be amena- 
 ble, in his official capacity, to the same rules of liability that are 
 applicable to the company while it exercises the same powers of 
 operating the road, and the great preponderance of authority is in 
 favor of this doctrine.^ 
 
 The fact that a receiver is an officer of the court appointing 
 him does not make him a " public officer," exempt, as such, from 
 liabilities for injuries sustained by the negligent discharge of the 
 
 1 Kain v. Smith (1880), 80 N. Y. 458; 
 s. c. 2 Am. & Eug. R. E. Cas. 545, dis- 
 tinguishing Cardot v. Barney (1875), 63 
 N. Y. 281. 
 
 2 Cardot v. Barney (1875), 63 W. Y. 
 281 (the real scope of this decision was 
 explained in Kaiu v. Smith (1880), 80 
 N. Y. 458) ; Smith v. Potter, Receiver, 
 etc. (1881), 46 Mich. 258; Davenport u. 
 Receivers (1 875), 2 Woods, 519 ; Turner 
 V. Indianapolis, B. & W. R. Co. (1879), 8 
 Biss. 527. In Davenport v. Receivers, 
 supra,, it was denied that the lien of a 
 judgment recovered for personal injuries 
 received by one travelling on a road oper- 
 ated by receivers was paramount to that 
 of the mortgage bondholders, either as re- 
 gards the earnings of the business or the 
 proceeds of the foreclosure sale, unless it 
 is so provided in the order of the court 
 placing the road in the hands of the re- 
 ceivers. In Turner v. Indianapolis, B. & 
 W. R. Co., supra, the court, while not lay- 
 ing down any general principle, held that 
 damages to engines rented to a receiver 
 were properly paid out of the earnings in 
 his hands. 
 
 3 Sprague f. Smith (1877), 49 Vt. 421; 
 Little V. Dusenberry (1884), 46 N. J. L. 
 
 614 ; Klein v. Jewett (1875), 26 N. J. L. 
 474 ; Kain v. Smith (1880), 80 N. Y. 458; 
 Melendy w. Barbour (1884), 78 Va. 544; 
 s. c. 25 Am. & Eng. E. R. Cas. 622 (1884) ; 
 Winboum's Case (1886), 30 Fed. Rep. 
 167, and the eases cited in the note to 
 High Rec, § 395. See also the cases col- 
 lected in the notes to 9 Am. & Eng. E. E. 
 Cas. 723, and 17 Am. & Eng. E. E. Cas. 
 308. 
 
 In Meara's Admr. v. Holbrook (1870), 
 20 Ohio St. 137, the court said: "The 
 reasons for holding a receiver answerable 
 in his ofBcial capacity are stronger than 
 those for holding him personally liable 
 only. For where the receiver is not in 
 default himself, there is a hardship in mak- 
 ing him personally liable for the negligence 
 of those he employs, not for his own bene- 
 fit or profit, but for that of the fund he 
 controls ; and on the other hand, those 
 having grievances growing out of his 
 official business may be practically reme- 
 diless, if they are left to the personal re- 
 sponsibility of the receiver only, and are 
 not permitted to pursue him in his official 
 capacity, and obtain redress from the 
 funds in his hand as receiver." 
 
§ 708,] LIABILITIES OF COMPANY AND EECEIVER. 691 
 
 duties imposed on him, even though he is appointed by virtue 
 of a statute empowering him to operate the railroad for the use 
 of the public. His position is rather like that of a body of com- 
 missioners or trustees incorporated for the public benefit, whose 
 wrongful acts give the injured person a right to be compensated 
 out of the funds which they have under their control, their private 
 means being exempt from liability.^ 
 
 Nor can they be exempted from liability to third persons on 
 the ground that they are agents or trustees ; for, as to the public 
 and their employees, there is no tangible principal behind them.^ 
 
 Proceedings against a receiver, as such, for the torts of his 
 employees are in the nature of a proceeding in rem, and render 
 the property in his hands, as such, liable for compensation for 
 such injuries.* 
 
 The degree of care which a receiver is bound to exercise in oper- 
 ating a railroad is the same as that which is incumbent upon a 
 railroad company.* 
 
 § 708. Receiver, whether suable on Cause of Action arising prior 
 to Appointment. — Whether the receiver can be made a defendant 
 where the cause of action arose prior to his appointment depends, 
 according to a late case decided by the New York Court of Ap- 
 peals, upon whether he is a statutory receiver, appointed for the 
 purpose of winding up the affairs of the corporation, or a receiver 
 appointed pendente lite to preserve the subject-matter of the liti- 
 gation. In the latter case, since the company is still liable for its 
 acts, after as before the appointment of the receiver, and can sue 
 and be sued, it is error to make him a party defendant in an ac- 
 tion to recover damages for a tort committed while the company 
 was operating the road.^ 
 
 In the former case, as they are vested with all the real and 
 personal estate of the corporation, and the corporation ceases to 
 be an active legal entity, the mere fact that the cause of action 
 arises from the acts of the company will not constitute any reason 
 why a court in which leave has been obtained to sue the receiver 
 should refuse to entertain the suit. He takes the trust estate 
 
 1 Little V. Dusenbeny (1884), 46 N. * Fullerton v. Fordyce (1894), 121 Mo. 
 J. L. 614 ; Meara's Admr. </. Holbrook 1 ; s. c. 25 S. W. Rep. 587. 
 
 (1870), 20 Ohio St. 137. « Decker v. Gardner (1891), 124 N. Y. 
 
 2 Meara's Admr. v. Holbrook (1870), 334 ; s. c. 26 N. E. Eep. 814 ; 9 Ry. & 
 20 Ohio St. 137. Corp. L. J. 308 distinguishing the Mis- 
 
 ' Davis V. Duncan (1884), 19 Fed. souri case cited below. Compare to the 
 Rep. 477, 480. Compare McNultav. Lock- same effect Finance Co. of Pennsylvania v. 
 ridge (1891), 141 U. S. 327. Charleston, C. & C. E. Co. (1891), 46 Fed. 
 
 Rep. 508. 
 
692 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXI. 
 
 subject to all the debts and liabilities existing against it at the 
 time of his appointment, whether they arise from contract or tort, 
 and no court except the one appointing him has anything to do 
 with the general question, how the assets are to be applied to the 
 claims of the various creditors.^ 
 
 § 709. Receiver's Liability for Injuries to his own Employees. — 
 Apart from statute, a receiver operating and controlling a rail- 
 road in the usual manner, and exercising the duties, powers, and 
 rights of the company, is liable for injuries to his employees in 
 the same manner and to the same extent as the corporation itself 
 would have been had he not been appointed.^ 
 
 His liability for injuries caused by a defect in the road is the 
 same whether the defect existed at the time he took possession, or 
 was incident to his own management.^ 
 
 As to the effect of the various statutes extending the common- 
 law liability of an employee to his servants, the authorities exhibit 
 a conflict which can apparently be attributed only to a real diver- 
 gence of views, and not to the difference in the wording of the 
 enactments. 
 
 In Georgia, where the common-law rule prevails as to all em- 
 ployees except railroad companies (Code, sects. 2202, 2083, 3033, 
 3036), it has been denied that a servant of a receiver of a rail- 
 road can hold such receiver liable for injuries resulting from the 
 negligence of a fellow-servant. The ground was taken that the 
 employees of receivers were not within the words of the Code, 
 and that " to extend those words by construction, so as to subject 
 the company's assets to pay damages for the carelessness or mis- 
 conduct of men whom neither the officers nor agents of the com- 
 pany had any part in selecting, would be attended with difficulties 
 both technical and practical." * 
 
 1 Coml)3 V. Smith, Receiver (1883), 78 481 ; Thurman v. Cherokee R. Co. (1876), 
 
 Mo. 32 ; s. 0. 20 Am. & Eng. R. R. Cas. 56 Ga. 376. These cases hare been fol- 
 
 209. The distinction taken by the New lowed by a federal court sitting in Georgia. 
 
 York court was not noticed, and there is Central Trust Co. v. East Tennessee, Va. & 
 
 nothing in the report to show that it was 6a. Ry. Co. (1888), 69 Fed. Rep. 353. See 
 
 recognized. In so far as the case may also Central Trust Co. v. East Tennessee, 
 
 have been intended to lay down any Va. & Ga. Ry. Co. (Mitchell, Intervener), 
 
 wider doctrine, it is declared in the New (1895), 69 Fed. Rep. 357, and Baltimore 
 
 York case just cited to be opposed to the Trust & Guaranty Co. ». Atlanta Traction 
 
 general current of the authorities. Co. (Bennett, Intervener), (1895), 69 Fed. 
 
 ' Graham u. Chapman (1891), 33 N. Y. Rep. 358, as to the application of a similar 
 
 St. Rt^p. 349 ; s. 0. 11 N. Y. Supp. 318 ; statute in Ohio, act of April 2, 1890 
 
 58 Hun, 602. (Laws Ohio, 1890, 149). In an action 
 
 ' Texas & Pac. Ry. Co. a. Geiger(1890), against a receiver, see Peirce v. Van 
 
 79 Tex. 13 ; s. c. 15 S. W. Rep. 214. Dusen (1897), 78 Fed. Rep. 693. 
 
 * Henderson v. Walker (1875), 55 Ga. 
 
§ 710.] LIABILITIES OF COMPANY AND RECEIVER. 693 
 
 Upon the same principle of strict construction of a statute in 
 derogation of the common law, it has been held in Texas that a 
 statute giving a right of recovery for death caused by the negli- 
 gence of the " proprietor, owner, charterer, or hirer of " any rail- 
 road, or their servants, no recovery can be had for a death caused 
 by the negligence of a receiver or his employees.^ 
 
 Where the statute of the State where an action is brought in a 
 federal court entitles an employee to recover from the receiver 
 for injuries arising from the negligence of a co-employee, such 
 recovery will not be prevented by the fact that the courts of the 
 State in which the corporation was organized have denied that 
 there is any right of recovery under the statute of that State.^ 
 
 In Kansas a diametrically opposite construction had been 
 placed on a similar statute, applying to railroads only (Gen. Stat. 
 1889, par. 1251), the court taking the view that an action against 
 a receiver is, in substance, one against the corporation, and that 
 the case of an injury to the servant of a receiver fell within the 
 spirit, if not the letter, of the law.^ 
 
 § 710. Hovr far Receiver is bouud by Company's Contracts gen- 
 erally. — The contracts of the company are not obligatory on the 
 receiver except in so far as he may adopt them.* 
 
 Nor is he bound to adopt its contracts, or otherwise step into 
 its shoes, if in his opinion it would be unprofitable to do so ; and 
 he is entitled to a reasonable time to elect whether to adopt or 
 repudiate any such contracts.^ 
 
 ^ Burke v. Dillingham (C. C. A., 1894), common law, was also remedial, and that, 
 
 60 Fed. Eep. 729 ; Allen v. Dillingham as it was of that nature, the plaintiff was 
 
 (1894), 8 C. C. A. 544 ; s. 0. 60 Fed. Eep. entitled to invoke an interpretation which 
 
 176; Dillingham ». Scales (Tex. Civ. App., would give effect to the intention of the 
 
 1894), 24 S. W. Rep. 975 ; Texas & Pac. law-maker. Considering the condition of 
 
 Ey. Co. V. Bledsoe (1893), 2 Tex. Civ. App. affairs which resulted from the appoint- 
 
 88 ; s. c. 20 S. W. Eep. 1135 ; Texas, etc. ment of a receiver, there could, it was 
 
 Ey. Co. u. Collins (1892), 84 Tex. 121 ; thought, be no doubt that the legislature 
 
 8. c. 19 S. W. Rep. 365 ; Yoakum v. Selph could not have intended to make any dis- 
 
 (1892), 83 Tex. 607; s. c. 19 S. W. Eep. tinction between the employees of the 
 
 145. These cases all rest upon the an- railroad and the employees of the receiver, 
 
 thority of Turner v. Cross (1892), 83 Tex. * Kansas Pac. Ey. Co. v. Bayles (1894), 
 
 218 ; s. c. 18 S. W. Rep. 578, reported in 19 Col. 348 ; s. c. 35 Pac. Rep. 744 ; Brown 
 
 8 C. C. A. 548, where the question was v. Warner (1891), 78 Tex. 543 ; s. o. 14 
 
 elaborately discussed. S. "W. Eep. 1032 ; 46 Am. & Eng. E. E. 
 
 2 Texas & Pac. Ry. Co. v. Cox (1892), Cas. 95. 
 
 145 U. S. 593 ; s. c. 12 Sup. Ct. Eep. 905. ^ Sunflower Oil Co. v. Wilson (1892), 
 
 » Eouse V. Harry (1895), 55 Kan. 589 ; 142 U. S. 313 ; 48 Am. & Eng. E. E. Cas. 
 
 8. c. 40 Pac. Eep. 1007 ; Hornsby v. Eddy 664 ; United States Trust Co. v. Wabash 
 
 (1893), 5 C. C. A. 560 ; s. c. 56 Fed. Eep. Western Ry. Co. (1893), 150 IT. S. 287 ; 
 
 461. In the latter case it was pointed out Seney v. Wabash Western Ey. Co. (1893), 
 
 that the statute, if in derogation of the 150 U. S. 810. 
 
694 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXI. 
 
 " They continue the operation of the road and the conduct of 
 its business, because this is essential to its proper preservation. 
 They may fulfil the contracts of the corporation, so far as bene- 
 ficial. They may not pay its debts, nor fulfil its contracts which 
 are burdensome, or tend to diminish the value of the property in 
 their control, unless such contracts are charged as incumbrances 
 on the property, or are necessary to its proper preservation and 
 security." ^ 
 
 A contract entered into by one of the constituent companies of 
 a system of railways for an allowance to it by the others on inter- 
 changed business of an amount sufficient to pay its operating ex- 
 penses, the interest on its bonds, and other fixed charges, may be 
 renounced by the receivers of the company representing the whole 
 system, under direction of the court ; and the court may then order 
 the earnings to be divided between those companies upon a mileage 
 basis, as it may deem just ; and upon its being shown by the re- 
 ceivers that this produces a deficit in the operation of that road, 
 the court may order this deficit made good from the earnings of 
 the property of the different contracting parties upon the basis 
 of the original contract. But in case then the trustees of the 
 bondholder of the latter companies proceed to foreclose their mort- 
 gages, impounding the revenues of the several companies, this last 
 order would no longer be applicable, and will not be enforced 
 after the filing of the bills of foreclosure impounding the revenues 
 of those companies.^ 
 
 A railroad company in "Virginia sold its telegraph line to a 
 telegraph company. The telegraph company agreed to do tele- 
 
 1 Ellis V. Boston, Hartford, & Erie R. te allowed under the settled rules of the 
 
 Co. (1871), 107 Mass. 1, 28, per Wells, J. law. Trust Co. v. Eiley, 70 Fed. Rep. 32 ; 
 
 As to receiver's liability to account for s. c. 16 C. 0. A. 610, 614 ; St. Louis, 
 
 and apply the income of a leased road in A. & T. H. R. Co. v. Cleveland, 0. C, fc 
 
 accordance with the covenants of the lease, I. Ey. Co., 125 U. S. 658, 673, 678. 
 see Charlotte, C. & A. E. Co. !;. Chester & The payment to connecting lines of rail- 
 
 L. Narrow-Gauge E. Co. (N. C, 1896), road of their just and equitable share of 
 
 24 S. E. Eep. 769. the earnings from interchanged business 
 
 * Ames et al. v. Union Pac. Ey. Co. is one of the necessary expenses of operat- 
 et al. (1896), 73 Fed. Eep. 49. The court, ing a railroad. The result is that the 
 arguendo, said, on p. 57 : " The filing of revenues from business interchanged with 
 a proper bill of foreclosure of a mortgage other roads derived by a railroad company 
 covering the income of a railroad company or its receiver after a bill for the fore- 
 undoubtedly impounds the revenues of closure of a mortgage upon it has been 
 that company for the benefit of its mort- filed may be, and ought to be, justly di- 
 gage bondholders, but it does not impound vided among the roads interchanging the 
 its gross revenue. It impounds only the business, and that portion of it which 
 net revenues that remain after the pay- equitably belongs to " other roads or their 
 ment of the operating expenses of the rail- owners is not impounded by the fore- 
 road, and such preferential claims as may closure." 
 
§ 710.J LIABILITIES OP COMPANY AND EECEIVEB. 695 
 
 graph service for the railroad company for a specified time and on 
 specified terms. The railroad company was placed in the hands 
 of a receiver in foreclosure proceedings, which the federal court 
 treated as a creditor's bill. The receiver, upon presentation to 
 him after his possession of a bill for telegraph tolls, asked the 
 court appointing him for instructions. The court directed its 
 receiver to pay the bill, among other reasons because the tele- 
 graph company's recorded claim was a valid lien in favor of 
 laborers in the law of Virginia, having priority as such over the 
 claims of the creditors under the mortgage deed.^ 
 
 The interests of the creditors are controlling in the determina- 
 tion of the question whether or not a receiver shall adopt a lease 
 or other contract.^ 
 
 A receiver's ratification of a contract may be implied from his 
 conduct with respect to the subject-matter. Thus he becomes the 
 assignee of the company as to a contract made by it for the lease 
 of rolling-stock, and is bound to perform the covenants therein as 
 to the care and return of the cars, if he has the use and benefit of 
 the cars, with knowledge of the terms of the lease.* 
 
 Where the receiver elects to return equipment used under a 
 lease, the lessor is entitled to a reasonable notice that the contract 
 is about to be terminated, so that he may have an opportunity to 
 inquire as to the most advantageous way of disposing of it when 
 it is thrown on his hands.* 
 
 Contractors to erect a building for a railroad company which 
 goes into the hands of a receiver are entitled to the contract price 
 up to the time when they are directed by the receiver to cease 
 work.^ 
 
 A claim under a contract with a receiver of a railroad company 
 in foreclosure proceedings for the complete construction of a 
 building which had been commenced under a contract with the 
 company prior to the receivership, the plans of which were sub- 
 mitted to tiie court and approved, and which by the findings of 
 the trial court were upon land not covered by the mortgage, and 
 were for the advantage of the railroad, have been held to have 
 been properly allowed a preference over the bondholders in an 
 order for payment by the receivers.^ 
 
 1 Western Union Tel. Co. «. Thom * Farmers' Loan & Trust Co. v. Toledo, 
 
 (1894), 72 Fed. Rep. 712. etc. R. Co. (1894), 1 Toledo Leg. News, 321. 
 
 s New York, P. & 0. R. Co. v. New ^ Girard Life Insurance, Annuity, & 
 
 York, L. E. &, W. R. Co. (1894), 68 Fed. Trust Co. u. Cooper (1892), 51 Fed. Rep. 
 
 Rep. 268. 332 ; s. c. 2 C. C. A. 245. 
 
 ' Easton v. Houston & Texas Central ' Girard Insurance & Trust Co. v. 
 
 E. Co. (1889), 38 Fed. Rep. 784. Cooper, 162 U. S. 529 ; s. c. 16 Sup. Ct. 
 
696 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXI. 
 
 § 711. Receiver succeeds to Company's Rights as to Annulment 
 of Contracts. — No lien upon the accruing fund is created by a 
 contract between the railroad company and an express company, 
 whereby the latter, in consideration of a sum of money loaned to 
 the former, is to be allowed exclusive privileges in conducting its 
 business over the road, and a special contract rate which is to be 
 applied to the extinguishment of the loan. This is simply a con- 
 tract for the transportation of property and persons over the road, 
 and a receiver cannot be required specifically to perform it.^ 
 
 To fulfil such a contract would be, in effect, to appropriate the 
 use of the property and the earnings of the road pro tarda to the 
 payment of the claim of the express company in preference to all 
 others. This a receiver may properly refuse to do in the case of 
 any contract which does not constitute a charge upon the property 
 itself.2 
 
 On the authority of this case it has been held that a receiver of 
 a street-railway company will not be directed to pay out moneys 
 in his hands for paving the street between and along the tracks, 
 where no lien exists therefor, although there be a specific contract 
 by the company to make such payment.^ 
 
 A receiver will not be compelled to carry out a lease of a road 
 which can only be operated at a loss, unless he had retained pos- 
 session for such unreasonable time or under such circumstances 
 as will constitute an election to accept the lease.* 
 
 The right of a railroad company to terminate a license given to 
 another company to use depot grounds and terminal facilities 
 passes to a receiver of the former company.^ 
 
 § 712. What Contracts of Company should be carried out by 
 Receiver. — Contracts made in the ordinary course of business 
 
 Eep. 879 (1896), affirming same case, 4 covered by the mortgage renders it the 
 
 U. S. App. 631 (1892). more equitable that the proceeds of this 
 
 Mr. Justice Brown, rendering the sale shall be applied to the payment of 
 
 opinion, said : "The work had been com- the cost of its construction." See Van- 
 
 meneed before the receivership, and was derbilt .;. Central K. Co., 43 N. J. Eq. 
 
 done in good faith, for the benefit of the 669. 
 
 company and the receivers. The building i Express Co. v. Baitroad Co. (1878), 
 
 must either have been finished, or the 99 U. S. 191. 
 
 work already done become a total loss to « Ellis ». Boston, Hartford, & Erie E. 
 
 the company. It appears to have been Co. (1871), 107 Mass. 1. 
 constructed for the accommodation of the » Union Loan & Trust Co. v. Southern 
 
 officers of the road, and in other respects California Motor Bead Co. (1892), 49 Fed. 
 
 in furtherance of the interests of the road ; B«p. 267. 
 
 and is an asset in the hands of the re- * Park ». Kew York, L. E. & W. E. 
 
 ceivers, which may be sold and the money Co. (1893), 57 Fed. Rep. 799. 
 realized therefrom applied to the payment 6 Comer v. Felton (0. C. A., 1894), 61 
 
 of the claim. The fact that it is not Fed. Eep. 731. 
 
§ 712.] LIABILITIES OF COMPANY AND BECEIVER. 697 
 
 with a connecting company — as, for example, with reference to 
 a certain mileage to be paid for the cars of one passing over the 
 lines of the other — will, in the absence of some special reason, 
 be kept on foot.^ 
 
 So the receiver should usually be directed to continue a contract 
 with an express company, giving it certain transportation privileges 
 over the railroad company's lines, though he will not be allowed 
 to fulfil such a contract in so far as that would involve giving the 
 express company a preference over the mortgagees and other 
 creditors, unless it actually amounts to a lien on the property 
 paramount to other claims.^ 
 
 So the payment of the remaining instalments of the purchase 
 price of rolling-stock taken under a contract of conditional sale 
 should generally be continued in the interest of all the parties 
 concerned.* 
 
 But for the purpose of fixing the sum to be paid for the rent of 
 the rolling-stock the court will not consider the terms of the lease 
 itself, if the evidence shows that the lessor company and the rail- 
 road company are both dominated by the same persons. To use 
 such a contract as the basis of an accounting would be to disre- 
 gard the elementary rule which prohibits an agent from under- 
 taking to serve in the same business two principals whose 
 respective interests are antagonistic* 
 
 In general it may be said that, whenever the contract is one 
 which good faith would have required the company itself to carry 
 out, the receiver will not be directed to repudiate it, even if it is 
 for the disadvantage of the trust estate. Thus a receiver has 
 been ordered to comply with a contract, made by the company for 
 the supply of rails at a certain price, and assumed by him, al- 
 though the stipulated price was higher than that for which the 
 rails could then have been bought, and although certain profits 
 from the transportation of ore to the manufacturer, which had 
 been anticipated when the contract was made, had not been 
 realized.^ 
 
 1 Central Trust Co. v. Wabash, St. * Thomas v. Peoria & R. I. R. Co. 
 
 I.oui3, & Pac. R. Co. (1888), 34 Fed. Rep. (1888), 36 Fed. Rep. 808; s. c. 36 Am. & 
 
 254. Eng. R. R. Cas. 381, citing for the general 
 
 ' Ellis V. Boston, Hartford, & Erie R. principle Wardell v. Railroad Co., 103 
 
 Co. (1871), 107 Mass. 1. U. S. 658 ; s. c. 1 Am. & Eng. R. R. Cas. 
 
 ' Frank v. Denver & Rio Grande R. 427. 
 
 Co. (1885), 23 Fed. Rep. 123, 127. See » "Wahash, St. L. & Pac. R. Co. v. 
 
 also Eastern Midlands Railway, 66 Law Central Trust Co. (1884), 22 Fed. Rep. 
 
 Times, 154, on consolidation by receiver 269. 
 and manager of rolling-stock contracts 
 made by company. 
 
698 BAILWAY BONDS AND MORTGAGES. [CHAP. XXXI. 
 
 Similarly, if a receiver recognizes and acts under a pooling con- 
 tract, in the exercise of the discretion allowed him by the court, 
 good faith requires that the proceeds of the contract which ac- 
 cumulate in the hands of the receiver should be handed over to 
 the other party to the agreement, irrespective of whether it was 
 originally valid or not.^ 
 
 § 713. Contract Liabilities of Receivers in Regard to Leased Roads. 
 — A receiver cannot abrogate a lease, valid as between the lessor 
 and lessee. Between them it must stand until it is abrogated by 
 a resort to some of the conditions contained in it.^ But as re- 
 ceivers take by order of the court, they do not, by the mere act of 
 assuming possession, become assignees of the term.^ 
 
 The fact that a receiver continues to work a leased line during 
 the period taken in coming to a determination respecting it, does 
 not operate as an adoption of the lease, when the lessor has never 
 demanded a surrender of the road, though entitled do so because 
 of the non-payment of rent.* 
 
 Nor does such action impose on them the obligation to perform, 
 for that period, the company's contract guarantying interest on 
 the bonds of the lessor.^ 
 
 In the case of an extensive system like the Union Pacific, a 
 period of sixty-five days is not an unreasonably long period for a 
 receiver to spend in ascertaining the situation of affairs, and mak- 
 ing up his mind as to whether he will accept or renounce the 
 lease.^ 
 
 But a receiver cannot take possession of the property, and enjoy 
 its use and occupation, without incurring a liability for the pay- 
 
 1 Central Trust Co. v. New York & & 0. E. Co. v. New York, L. E. & W. B. 
 
 Ohio Central R. Co. (1885), 23 Fed. Rep. Co., 58 Fed. Rep. 268. The last of these 
 
 306. cases disapproves the doctrine of Brown 
 
 " New York, P. & 0. E. Co. v. New v. Toledo & W. R. Co. (1888), 35 Fed. 
 
 York, L. E. & W. R. Co. (1894), 58 Fed. Rep. 444, as being in conflict with the 
 
 Eep. 268. above-mentioned decisions of the Supreme 
 
 s Park V. New York, L. E. & W. E. Court of the United States ; but it may 
 
 Co. (1893), 57 Fed. Eep. 799, following possibly be defended on the ground that 
 
 Quincy, M. & P. R. Co. v. Humphreys the terms of the order were such as to 
 
 (1892), 145 U. S. 82, and St. Joseph & create the liability of an assignee. The 
 
 St. Louis R. Co. (1892), 145 U. S. 105. report of the case is, however, not specific 
 
 To the same effect see Central Trust Co. on this point. 
 
 V. Wabash, St. L. & Pac. E. Co. (1888), * New York, P. & 0. E. Co. t'. New 
 
 34 Fed. Rep. 259 ; Farmers' Loan & Trust York, L. E. & W. R. Co. (1894), 58 Fed. 
 
 Co. V. Northern Pac. R. Co. (1893), 58 Eep. 268 ; Ames v. Union Pac. Ry. Co. 
 
 Fed. Rep. 257 ; United States Trust Co. (1894), 60 Fed. Eep. 966. 
 V. Wabash Western Ry. Co. (1893), 150 6 Ames v. Union Pac. Ey. Co. (1893), 
 
 U. S. 287 ; Seney v. Wabash Western Ry. 60 Fed. Eep. 966. 
 Co. (1893), 150 U. S. 310 ; New York, P. » Ibid. 
 
§ 713.J LIABILITIES OF COMPANY AND RECEIVER. 699 
 
 ment of rent under the lease by which his predecessor secured 
 its possession ; and while it is competent for him at any time to 
 negotiate a new contract and secure a modification of its terms, 
 or to repudiate it and surrender the property, yet, if he does not 
 do this, he must be held to have signified his acceptance of it 
 under the terms and conditions of the existing lease as to the 
 payment of rent,^ especially where the lessor, immediately after 
 the receiver's appointment, demands either an adoption of the 
 lease or a surrender of the road, and, against his protest, a deci- 
 sion is delayed several months. 
 
 Where a receiver recognizes and adopts a lease, he is bound to 
 disburse the earnings of the leased road in accordance with the 
 terms of the instrument which is the source of his title to the 
 possession of the property which produces the earnings. If 
 the lease provides that those earnings are to be applied first 
 to the operating expenses, insurance, and taxes, before any in- 
 terest on the bonds is paid, a payment of interest while the taxes 
 are in default is a diversion of the earnings which the court will 
 order to be restored.^ 
 
 If the lessor makes certain improvements in the property the 
 basis of a demand for an increased rent, and upon the refusal of 
 the receiver to accept the terms proposed the parties enter into a 
 temporary agreement, by which the question of the proper amount 
 of rent is to be submitted to the arbitration of the court which 
 appointed the receiver, the rent to be paid for the period during 
 which the court is considering the matter is not that demanded 
 by the lessor, but that which the evidence shows to be a fair com- 
 pensation for the property. 
 
 The amount which other companies pay for the same facilities 
 is not a proper test of what is a reasonable rent, when such com- 
 panies own all the stock of the lessor, and their contract with the 
 lessor is, therefore, substantially a contract with themselves.^ 
 
 If it appears that more than the net earnings of the leased 
 property for the period the receivers have held it have been paid 
 to the lessors, the court will instruct the receivers not to pay any 
 more out of the general corpus of the estate.* 
 
 1 Woodruff V. Erie Ry. Co. (1883), 93 Chicago, Pekin, & S. W. E. Co. (1888), 
 N. Y. 609 ; s. c. 16 Am. & Eng. R. R. 127 U. S. 200. 
 
 Cas. 501. * Park v. New York, L. E. & W. R. 
 
 2 Clyde V. Riclimond & D. R. Co. Co. (1893), 57 Fed. Kep. 799. 
 
 (1894), 63 Fed. Rep. 21. In Carswell v. Farmers' Loan & Trust 
 
 ' Farmers' Loan & Trust Co. «. Chicago Co. of New York et al. (1896), 74 Fed. 
 
 R. Co. (1883), 18 Fed. Rep. 484, affirmed Rep. 88, the receiver in foreclosure pro- 
 
 in Peoria & Pekin Union Ry. Co. v. ceedings of a railroad company was held 
 
700 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXI. 
 
 § 714. 'Withdrawal of Consideration of Lease a Sufficient Ground 
 for renouncing it. — Where the chief consideration moving to the 
 lessee company is that the road of the lessor shall be operated in 
 harmony with, and practically under the supervision of the lessee, 
 the appointment of a separate receiver for the lessor, and his as- 
 sumption of independent possession and control, operate as a 
 ■withdrawal of the consideration, and are sufficient, without more, 
 to justify the lessee in renouncing the lease from that time.^ 
 
 § 715. Receiver cannot enjoy Benefit of Contract without assum- 
 ing Burdens. — The principle that a receiver cannot enjoy the 
 benefit of a contract without assuming its burdens, has been 
 applied in some cases where the vendor of land to the company 
 has required the performance of certain acts as conditions prece- 
 dent to the passing of a complete title. Thus where the com- 
 pany has agreed, in consideration of a grant of right of way, to 
 erect and maintain a water-tank on the lands of the proprietor, to 
 be supplied with water from an elevated spring thereon, which is 
 to be used by the company, and for which the proprietor is to be 
 paid the compensation usual in such cases, the sum payable under 
 the contract is a charge on the earnings in the hands of the 
 receiver.2 
 
 So also a receiver must either comply with a judgment against 
 the company, requiring the establishment of a farm-crossing on 
 land taken for the road, or deliver up the land so taken.^ 
 
 § 716. 'When Receiver's Idability, as such, ceases. — The right 
 of action against receivers necessarily ceases when the property 
 passes out of their control, whether it be by the consummation of 
 the foreclosure sale,* or in consequence of their discharge.® 
 
 A receiver, after his discharge, is not liable in an action for 
 
 liable only for a reasonable rental under a Texas Gen. Laws, 1887, p. 121, § 15, 
 
 contract for lease of a depot, made with declaring that " all judgments, claims, or 
 
 the company by a depot company, as the causes of action when determined, existing 
 
 receiver had not elected to adopt the against any corporation at the time of the 
 
 lease, and for the time he had retained appointment of a receiver, shall be paid 
 
 possession of the depot, impliedly retained out of the earnings of such corporation 
 
 it by consent of the lessor on terms of while in the hands of a receiver, . . . 
 
 payment of a reasonable rental. and the same shall be a lien upon such 
 
 1 Ames V. Union Pac. Ry. Co. (1893), earnings." 
 
 60 Fed. Rep. 966. 8 Peckham v. Dutchess County B. Co. 
 
 2 Howe V. Harding (1890), 76 Tex. 17 ; (1895), 145 N. Y. 385 ; s. c. 40 N. E. 
 s. c. 13 S. W. Rep. 41 ; 42 Am. & Eng. Rep. 15. 
 
 R. E. Cas. 1. The ruling of the court *■ Farmers' Loan & Trust Co. v. Central 
 
 was made independently of statute, but R. Co. of Iowa (1880), 7 Fed. Rep. 537. 
 
 the decision was also inevitable, as was ^ Ryan v. Hays (1884), 62 Tex. 42. 
 pointed out, under » provision of the 
 
§ 716.] LIABILITIES OF COMPANT AND RECEIVER. 701 
 
 damages for injuries received during the time he was operating a 
 railroad.-' 
 
 Otherwise, as a raih-oad company is not responsible for dam- 
 ages sustained by plaintiff through the negligence of the servants of 
 the receiver, further than they can be paid out of the current re- 
 ceipts of the road while in his hands, it follows that the purchasers 
 will incur no obligation to pay such damages from the mere fact 
 that they purchased the property from those who bought it at the 
 receiver's sale.^ 
 
 But the court may, and frequently does, reserve control of the 
 property to such an extent as may be necessary for the enforce- 
 ment of unsatisfied claims, and the purchasers of the property 
 will then take it subject to all claims that may be established 
 against the receiver.^ 
 
 Where, after the sale in foreclosure suit, the receiver continues 
 in possession for a time the purchaser will be liable in an action 
 for damages for personal injuries incurred while the road was 
 in possession of the receiver between the date of the sale and 
 the taking possession by the purchaser, to the extent that the 
 receiver may have applied the income to the betterment of the 
 property.* 
 
 1 Missouri, K. & T. Ky. Co. v. Wylie Co. v. Bloom (1894), 60 Fed. Rep. 979 ; 
 (Tex. Civ. App. 1896), 33 S. W. Eep. Tex. & Pac. Ky. Co. v. Johnson (1894), 
 771. 151 U. S. 81 ; Farmers' Loan & Trust Co. 
 
 2 Ryan v. Hays, Receiver (1884), 62 v. Central R. Co. of Iowa (1880), 7 Fed. 
 Tex. 42 ; s. c. 23 Am. & Eng. R. R. Cas. Rep. 537. 
 
 501. * Crawford v. Houston & Texas Central 
 
 8 See, for example, Tex. & Pac. Ry. R. Co. (Tex., 1895), 33 S. W. Rep. 534. 
 
702 
 
 EAILWAT BONDS AND MORTGAGES. [CHAP. SXXII. 
 
 CHAPTER XXXII. 
 
 COMPENSATION OF TRUSTEES, RECEIVERS, AND OTHERS, AND ATTOE- 
 
 Art. I. — Personal Compensation of 
 Trustees, Receivers, etc., 
 j'OR their Sbkviobs. 
 § 717. Introductory. 
 
 718. Personal Compensation of Trus- 
 
 tees. 
 
 719. Amount allowed for Personal 
 
 Compensation of Trustee. 
 
 720. Apportionment of Compensation 
 
 between several Trustees. 
 
 721. Compensation of Discharged 
 
 Trustee. 
 
 722. Compensation of Successor of 
 
 Deceased Trustee. 
 
 723. Compensation of Eepresentative 
 
 Bondholders. 
 
 724. Compensation of Receivers. 
 
 725. Method of determining a Re- 
 
 ceiver's Compensation. 
 Art. II. — Expenses of Trustees, Re- 
 ceivers, AND others. 
 § 726. Expenses of Trustees. 
 
 727. Expenses of Representative 
 
 Bondholders. 
 
 728. Expenses of Pledgees of Bonds. 
 
 729. Expenses of Receivers in Con- 
 
 duct of Litigation. 
 
 730. Expenses of Mortgagor in Con- 
 
 duct of Litigation. 
 
 731. Costs as between Different Mort- 
 
 gagees. 
 
 732. Costs of Unsecured Creditors 
 
 seeking to enforce Claims 
 against Receivers. 
 
 § 733. Sheriff's Fees. 
 734. Amount of Attorney and Coun- 
 sel Fees allowed in Foreclos- 
 ure Suit is in Discretion of 
 Court. 
 Art. III. — Out of what Funds Com- 
 pensation AND Expenses 
 
 IN FOEBOLOSUKB SUITS ABB 
 PAID. 
 
 § 735. Mortgaged Property must in 
 general bear Expenses of its 
 Administration in Court of 
 Equity. 
 
 736. Necessary Charges Lien on 
 
 Mortgaged Property. 
 
 737. Lien for Counsel Fees. 
 
 738. General Fund, when chargeable 
 
 and when not. 
 
 739. Liability of Prior Mortgagee for 
 
 Expenses of Suit by Junior 
 
 741. 
 
 Art. lY. — Practice. 
 
 § 740. Proper Time to settle Compen- 
 sation and Expenses. 
 
 Trustee's Claim for Compensa- 
 tion and Expenses, how as- 
 serted after Redemption of 
 Property. 
 
 Rehearing after Remand by Ap- 
 pellate Court. 
 
 Exceptions to Amounts allowed 
 by the Master, etc. 
 
 742. 
 
 743. 
 
 Article I. — Personal Compensation op Trustees, Receivers, 
 
 ETC., FOR their SERVICES. 
 
 § 717. Introductory. — Most of the decisions on the suhjects 
 of this chapter deal with questions which were, and must neces- 
 
§ 718.] COMPENSATION OP TRUSTEES AND OTHERS. 703 
 
 sarily have been, determined so largely by the special circum- 
 stances of each case, and the individual opinion of the judge, 
 that it is not possible to extract definite rules applicable to all 
 cases. ^ 
 
 Receiver's certificates issued under decretal orders will be 
 given priority to claims for compensation of trustees in fore- 
 closure proceedings and their solicitors.^ 
 
 But allowances to railroad receivers and their solicitors are 
 chargeable as costs of the proceedings, and will be paid in 
 preference to the certificates of the receiver. ^ 
 
 § 718. Compensation of Trustees. — Nothing is better estab- 
 lished in England, says Perry, than that a trustee can have no 
 allowance or compensation for his time or trouble in the execu- 
 tion of a trust ; but a different principle prevails generally in all 
 the States of this country.* 
 
 This innovation upon the practice in England has been due 
 partly to the fact that the different social conditions prevailing 
 here have induced the different State legislatures to make 
 statutory provisions for remuneration to executors and guar- 
 dians, the equity of such statutes being by construction generally 
 extended to conventional trustees where the agreement is silent,^ 
 and partly to a feeling that, in the words of Judge Story, " the 
 policy of the law ought to be such as to induce honorable men, 
 without a sacrifice of their private interests, to accept the office, 
 and to take away the temptation to abuse the trust for mere 
 selfish purposes, as the only indemnity for services of an impor- 
 tant and anxious character." 
 
 The latter of these considerations is especially applicable to 
 the trustees of railroad mortgages, who may at any time, owing 
 to the occurrence of the contingencies specified in the mort- 
 gage, be required to undertake the performance of delicate and 
 burdensome duties. The allowances made to them, whether 
 expressly stipulated for in the trust instrument, or provided for 
 by the statute, or granted by the court in deference to usage, are 
 made with a view to securing greater activity and intelligence 
 
 1 See on this subject the remarks of ^ Petersburg Sav. & Ins. Co. v. Della- 
 
 Jnstice Miller in Hinckley v. Railroad Co. torre et al. (1895), 70 Fed. Kep. 643 ; s. o. 
 
 (1879), 100 IT. S. 153, cited below; of 17 C. C. A. 310. 
 Justices Bradley and Miller in Trustees v. ' Ibid. 
 
 Greenough (1881), 105 U.S. 527, 535; and * Perry on Trusts, §§ 904, 918. 
 of Brewer, J., in Central Trust Co. v. Wa- ^ Northern Central R. Co. v. Keighler 
 
 bash, St. Louis, & Pac. E. Co. (1887), 32 et al. (1868), 29 Md. 572. 
 Fed. Rep. 187 ; s. c. 2 Ry. Corp. L. J. 
 492 (see also post). 
 
704 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXII. 
 
 in the performance of the trust, and to inducing persons of 
 reliable character and business capacity to accept the office.^ 
 
 Commissions, therefore, will ordinarily be allowed to such 
 trustees where they have performed their duty, unless its per- 
 formance has imposed no labor or trouble which justly entitles 
 them to compensation, or there is something in the nature of the 
 trust itself, or in the terms of the trust instrument, to show that 
 no commissions were intended to be allowed or charged.^ 
 
 Compensation can be recovered, in any event, only for such 
 services and expenditures as are within the line of duties 
 imposed upon the trustee by the instrument creating the trust. 
 
 A trustee who institutes a suit for the benefit of the bond- 
 holders does not lose his right to be compensated for his services 
 merely because the object of that suit is, to compel a lessee com- 
 pany to pay a rental for which he is liable as surety, when the 
 evidence shows that he assumed this liability without any con- 
 sideration, and without the prospect of any personal benefit, and 
 
 I story Eq. Jurisp., 1268 m. ; Trustees 
 V. Greenough (1881), 105 U. S. 527; s. 0. 
 12 Am. & Eng. R. E. Cas. 345. There it 
 was said : "In tlie vast amount of litiga- 
 tion which has arisen in this country 
 upon railroad mortgages, where various 
 parties have intervened for the protection 
 of their rights, the fund has been sub- 
 jected to the control of the court and 
 placed in the hands of receivers or trus- 
 tees. It has been the common practice, 
 as well in the courts of the United States 
 as in those of the States, to make fair and 
 just allowances of expenses and counsel 
 fees to the trustees, or other parties pro- 
 moting the litigation and securing the 
 proper application of the property to the 
 trusts and charges to which it was subject. 
 Sometimes, no doubt, the allowances have 
 been excessive, and perhaps illegal ; and 
 we would be very far from expressing our 
 approval of such large allowances to tras- 
 tees, receivers, and counsel as sometimes 
 have been made, and which have justly 
 excited severe criticism. Still, a just re- 
 spect for the eminent judges under whose 
 direction many of these cases have been 
 administered would lead to the conclusion 
 that allowances of this kind, if made with 
 moderation and a jealous regard to the 
 rights of those who are interested in 
 the fund, are not only admissible, but 
 agreeable to the principles of equity and 
 justice." 
 
 ^ Northern Central R. Co. v. Eeighler 
 et al. (1868), 29 Md. 572. In this case 
 the trustees were authorized, in the event 
 of a sale, to apply the proceeds in the first 
 place "to the payment of all necessary 
 expenses and reasonable commissions at- 
 tending such sale." Before any default 
 had taken place, the trustees brought suit 
 to recover compensation for the adminis- 
 tration of the trust, alleging that the cus- 
 tody and care of the bonds, the collection 
 and reinvestment of the money, the keep, 
 ing of accounts, and the various other 
 duties connected with the office, involved 
 much labor, as well as care and responsi- 
 bility. It was held that it was not the 
 intention that any commissions should be 
 allowed for such services, both because the 
 trust was, in its nature, somewhat of a 
 public character, and in its execution the 
 complainants were engaged in subserving 
 great and important public interests, and 
 because the deed, by providing for com- 
 pensation in the event of the sale, nega- 
 tived the idea that commissions were to 
 be allowed in Uny other contingency. "If 
 it were supposed," said the court, "that 
 the trust was accepted with the motive of 
 receiving pecuniary reward, it is doing no 
 violence to the terms of the deed to say 
 that the prospect of receiving the large 
 commissions in the event of a sale was 
 regarded as a sufficient consideration for 
 the acceptance of the trust." 
 
§ 719.] COMPENSATION OP TRUSTEES AND OTHERS. 705 
 
 in the interest of and for the protection of the bondholders. 
 Under such circumstances it does not lie in the mouth of 
 bondholders who partake of the fruits of his action to argue that 
 he was not acting as their trustee, because he himself was per- 
 sonally liable for the payment of the rentals.' 
 
 § 719. Amount allowed for Personal Compensation of Trustee. — 
 The amount allowed for the personal services of a trustee 
 is sometimes determined by the provisions of the mortgage.^ 
 Thus where the trustees, for their services in selling and 
 conveying lands covered by the mortgage, and applying the 
 proceeds to a sinking fund for the discharge of the bonds, are 
 entitled to the sum of two per cent on the par amount of the 
 bonds cancelled in that manner, and bondholders avail them- 
 selves of the privilege given them by the trust deed to buy those 
 lands, and pay for them in bonds at their par value, which, when 
 received by the trustees, are to be cancelled by them, the latter 
 transaction will, for the purpose of determining the compensa- 
 tion of the trustees, be regarded as a sale for cash, and they 
 will, therefore, be entitled to two per cent of the par value of the 
 bonds which are thus used in payment of the purchase price of 
 the land sold to the bondholders.^ 
 
 The amount of the remuneration, where it is not fixed by the 
 trust instrument, has, in some States, been provided for by the 
 express statutory provisions, while in others the courts are 
 guided by enactments which, being applicable to persons hold- 
 ing certain fiduciary offices of similar character, are extended 
 by a sort of equitable construction to trustees,* 
 
 1 ■Woodruff V. New York, L. E. & W. ^ Gilman & Cowdrey o. Des Moines 
 R. Co. (1891), 129 N. Y. 27 ; s. o. 29 N. Valley R. Co. (1875), 41 Iowa, 22. 
 
 E. Rep. 251 ; 51 Am. & Eng. R. R. Cas. * For a review of various statutes con- 
 
 89, the court saying tliat the case came trolling the question in either of the ways 
 
 within the meaning and spirit of decision mentioned in the text, see Perry on Trusts, 
 
 in Trustees v. Greenough, referred to be- If the trustees are compensated by receiv- 
 
 low. The two cases are scarcely parallel, ing a certain statutory percentage of the 
 
 for the latter is a distinct authority that gross amount of the proceeds of the sale 
 
 one not a trustee cannot, even though of the property, the sum may be charged 
 
 performing a trustee's duties, claim a trus- with the expenses of the master who 
 
 tee's compensation. The question in the makes the sale. Duncan v. Atlantic, Miss. 
 
 New York case was merely whether the & Ohio R. Co. (1882), 4 Hughes, 125. 
 
 plaintiff was acting as trustee or in a nort- A recent example of the application of 
 
 official capacity. The court decided that the second method of computing the proper 
 
 he was a trustee, and the view thus adopted allowance, in the case of a railroad trustee, 
 
 at once took the case out of the category will be found in Woodruff !>. New York, 
 
 to which Trustees v. Greenough belongs. L. E. & W. R. Co. (1891), 129 N. Y. 27 ; 
 
 2 An instance will be found in Guignon s. c. 51 Am. & Eng. R. R. Cas. 89; 29 
 I'. Union Trust Co. (1895), 156 111. 135; N. E. Rep. 251, where a trustee, suing in 
 s. c. 40 N. E. Rep. 556. his individual name, but really, as was 
 
 45 
 
706 RAILWAY BONDS AND MORTGAGES. [CHAP. XZXII. 
 
 Even where the allowance is left by the trust instrument to 
 the discretion of the court, as where the mortgage states that 
 the trustees shall receive a reasonable compensation, thus indi- 
 cating the desire of the parlies that it shall be adjusted largely 
 as an equivalent for the responsibility which they have been 
 obliged to assume, the statutory scale of remuneration is not 
 unlikely to be adopted, if it seems, under all the circumstances 
 of the case, to yield a proper amount.-^ 
 
 But the adoption of such a standard is only a matter of con- 
 venience, and the court, in all cases in which it is free to settle 
 the amount, will do so in view of all the facts presented.^ 
 
 Thus where the services performed in a foreclosure suit by 
 the trustees do not require all, or nearly all, their time, nor 
 interfere with their own business, and they incur no great 
 responsibility, and it appears that, up to the time of the litiga- 
 tion, they have been in the receipt of |1,500 per annum, and 
 that since then they have, as receivers and trustees, been paid 
 f4,500 per annum, an extra allowance is improper. ^ 
 
 So also, upon the foreclosure of several mortgages in the 
 same suit, the trustee of one of them, whose services were 
 merely nominal, going no further than the mere use of his 
 name, and who represented the holder of a single bond of $500, 
 the rest having been paid, has been deemed amply compensated 
 by an allowance of $500.* 
 
 decided, for the benefit of the bondholders, their expenses, was, under the circum- 
 was awarded the same percentage of the stances, a fair allowance, that being the 
 fund which he had recovered as was ap- usual commission which trustees in the 
 pointed by statute for executors and guar- State of New York received. A summary 
 dians, the rule in that State being, in the of a master's report recommending various 
 absence of exceptional circumstances, that specified sums to be paid to trustees and 
 this percentage is deemed to be a full others in the "Wabash litigation will be 
 equivalent for the services performed by found in 1 Ey. & Corp. L. J. .598. 
 persons holding such fiduciary positions. ^ fhe fee bill of the federal courts is 
 1 Dow V. Memphis & Little Rock R. intended to regulate only those fees and 
 Co. (1885), 32 Fed. Kep. 185. In this costs which are strictly chargeable as be- 
 case the trustee defeated an attempt to set tween party and party, and not to regulate 
 aside the mortgage. The court, in discuss- the fees of counsel and other expenses and 
 ing the proper amount of compensation, charges, as between attorney and client, 
 said : " If the result of the suit had been nor the power of a court of equity, in cases 
 adverse, they would doubtless have been of administration of funds under its con- 
 subjected to criticism, although there trol, to make such allowances to the parties 
 would have been no reason for it. The out of the fund as justice and equity may 
 amount involved was very large, and the require. Trustees v. Greenough (1881), 
 trustees should not be exposed to con- 105 U. S. 527, 535 ; s. c. 12 Am. & Eng. 
 tingencies, in which their discretion and R, R. Cas. 345. 
 
 fidelity might come in question, without ' Easton v. Houston & Texas Central 
 
 an adequate remuneration." The conclu- R. Co. (1889), 40 Fed. Rep. 189. 
 sion arrived at was that one per cent on * Ibid. 
 
 the whole amount at stake, in addition to 
 
§ 720.J COMPENSATION OP TRUSTEES AND OTHERS. 707 
 
 So also $10,000 per annum for a non-resident trustee who 
 attended to the financiering part of the duties in New Yorlv, and 
 115,000 to a resident trustee who operated the road, and received 
 a liberal salary for doing so, has been held to be an excessive 
 allowance, although it was admitted that there had been a vast 
 amount of labor and litigation in connection with the trustee- 
 ship, and that the trustees had "really lifted the road out of 
 the mire, and kept the concern going until it could walk alone. " 
 The total amount was, therefore, reduced rather more than one- 
 third, i 
 
 Where the trial courts of a State have established rules fixing 
 the rates of commissions to be allowed to trustees making sales 
 under the orders of such courts, those rules are imperative both 
 upon the courts themselves and all persons accepting trusts at 
 their hands. ^ 
 
 § 720. Apportionment of Compensation between several Trustees, 
 — In apportioning compensation between several trustees, 
 reference should be had to the services rendered by each.^ 
 
 For example, where trustees had defended a suit to set 
 aside the trust deed, one trustee had been " active and zealous 
 in consultations with the bondholders and with counsel," the 
 second " especially active in the preparation of evidence " and 
 "unremitting in his efforts from the beginning of the litigation." 
 The third had not "taken an active part in the defence of the 
 suit." Under these circumstances the first was allowed $8,500, 
 the second, 111,500, the third, $6,000.* 
 
 So, also, where one trustee during pendency of foreclosure 
 suit was active manager of road one hundred and thirty-four 
 miles long, and controlled business amounting to $160,000, 
 while the other trustee resided in a different State, and merely 
 made examination of monthly reports of his colleague, an allow- 
 ance of $5,000 to the former and $1,500 to the latter was held 
 " eminently proper. " ^ 
 
 Where a person in first place consents to act as trustee with 
 
 ' 1 Williamsti.Morgan (1884), 111, U.S. Am. & Eng. E.. E. Cas. 217, the lower 
 
 684 ; s. c. 17 Am. & Eng. R. R. Cas. 217. court had made allowances to two trustees 
 
 - Tome V. King (1885), 64 Md. 166 ; in possession, giving resident trustee iifty 
 
 8. c. 21 Atl. Sep. 279. per cent, more than his non-resident col- 
 
 8 Dow o. Memphis & Little Eock R. league, who financiered the road through 
 
 Co. (188.5), 32 Fed. Rep. 185. its emharrassments, and in other ways 
 
 * Ibid. promoted its interests. This ratio was 
 
 '> Walker v. Qnincy, M. & P. E. Co. not disapproved of by the Supreme Court, 
 
 (1SR6), 28 Fed. Rep. 7-34. In Williams but the total of the allowances was re- 
 
 t!. Morgan (1884), 111 U. S. 684 ; s. c. 17 duced. (See above.) 
 
708 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXII. 
 
 a certain number of colleagues for a specific compensation, and 
 afterwards accepts the office with the knowledge that the mort- 
 gage, as actually executed, provides for a larger number, he can 
 claim only proportionate share of compensation which is due to 
 him as one of the increased number. ^ 
 
 § 721. Compensation of Discharged Trustee. — In the case cited, 
 a trustee who was discharged without his knowledge, after hav- 
 ing accepted a trust under a deed which expressly provided 
 for a specific compensation, did not lose his right to that 
 compensation. 2 
 
 § 722. Compensation of Successor of Deceased Trustee. — Such 
 successor is properly allowed the compensation provided for in 
 the mortgage,^ 
 
 § 723. Compensation of Representative Bondholders. — A bond- 
 holder suing in behalf of himself and other bondholders does 
 not, in regard to compensation, occupy the same position as a 
 trustee, even though litigation has been rendered necessary 
 because the trustees have neglected their duties, and the result 
 of the bondholder's labors is the rescue and reclamation of the 
 trust fund from waste and destruction. "Where an allowance," 
 said Mr. Justice Bradley, "is made to trustees for their per- 
 sonal services, it is made to secure greater activity and dili- 
 gence in the performance of the trust, and to induce persons 
 of reliable character and business capacity to accept the office 
 of trustee. These considerations have no application to case of 
 creditor seeking his rights in a judicial proceeding. It would 
 present too great temptation to parties to intermeddle in 
 management of valuable property or funds in which they have 
 only the interest of creditors, and that perhaps only to a small 
 amount, if they could calculate upon the allowance of a salary 
 for their time and having all their private expenses paid."'' 
 
 § 724. Compensation of Receivers. — The amount of compen- 
 sation which is to be awarded to receivers is left to the discre- 
 tion of the court, but the amount is discretionary only in the 
 
 1 Maury v. Chesapeake & Ohio R. Co. their own security, or suits in behalf of 
 (1876), 27 Gratt. 698. themselves and other debenture-holders, 
 
 2 Ibid. see Ford v. Earl of Chesterfield, 21 Beav. 
 8 Newport & Cincinnati Bridge Co. v. 426 ; Thomas v. Jones, 1 Dr. & Sra. 134 ; 
 
 Douglass (1877), 12 Bush (Ky.), 673; i2e Richardson, 14 Ch. Div. 611 ; Wright 
 
 s. 0. 18 Am. Ry. Rep. 221. ' v. Kirby, 23 Bear. 468 ; Batten v. Dart- 
 
 * Trustees v. Greenough (1881), 105 mouth Harbour Commrs., 45 Ch. Div. 
 
 tr. S. 527, 535 ; s. 0. 12 Am. & Eng. K. E. 612 ; Re Ormerod, Grierson, & Co. (1890), 
 
 Cas. 345. "W. N. 217 ; Carriclc v. Wigan Tramways 
 
 For rules as to costs in English courts Co. (1893), W. N. 98. 
 in actions of debenture-holders to enforce 
 
§ 724.J COMPENSATION OF TRUSTEES AND OTHERS. 709 
 
 sense that there are no fixed rules to determine the allowance 
 applicable in every case, and the courts are not at liberty to 
 give more than lair and reasonable compensation. The policy 
 of the courts is to see its officers and agents well paid, in order 
 that men of character and ability may be willing to accept the 
 burdens and responsibilities of these trusts; but at the same 
 time it is not to be forgotten that the property to be charged 
 with these allowances is not the property of the court, and that 
 there are many thousands scattered all over the land who are 
 the owners, whose property, by the strong hand of the law, has 
 been taken out of their custody, and who look to the court to see 
 that no unjust or excessive burden is cast upon them. The 
 court may not exercise the generosity of the owners, but is 
 closely limited by the justice of a judge. ^ 
 
 In arriving at a conclusion, the court will consider the 
 magnitude of the trust, the care and responsibility, the time 
 occupied, the skill and ability displayed, and the success 
 attained.^ 
 
 If there is nothing in the administration of the trust to con- 
 vict the receivers of want of integrity or good faith, a lack 
 of foresight in regard to future developments of the business 
 is no reason for denying compensation, or reducing amount, 
 especially where the management has, on the whole, been 
 attended with reasonable success.^ 
 
 1 Cpntral Trust Co. v. Wabash, St. of corporations, including the second sec- 
 Louis, & Pac. R. Co. (1887), 32 Fed. Rep. tion thereof, in reference to receiver's fees, 
 187 ; 2 Ry. & Corp. L. J. 492, per Brewer, applies only to receivers of corporations 
 J. In this case, two receivers, who man- appointed in proceedings of bankruptcy- 
 aged the vast Wabash property for three or insolvent corporations, and a receiver 
 and a half years, were each awarded appointed in an action to foreclose a mort- 
 al 12,, 500 by the master. The court, gage executed by a corporation is not 
 while admitting that the receivership of entitled to the fees specified in said seo- 
 snch a complicated system cast an im- tion. The allowance of commissions to 
 mense burden of care and responsibility such a receiver is governed by the pro- 
 on the receivers, and required on their vision of the Code of Civil Procedure, 
 part the exercise of the highest skill and § 3320, providing for the allowance by 
 ability, and conceding that their adminis- the court or judge where not otherwise 
 tnition had been perfectly successful, con- specially prescribed by statute. United 
 sidered that this sum was rather too large. States Trust Co. v. New York, West 
 and rwliiced the amount to $70,000. A Shore, & Buffalo R. Co. (1886), 101 N. Y. 
 large number of diverse opinions as to 478 ; s. c. 5 N. E. Rep. 316 ; 25 Am. & 
 proper compensation were given by rail- Eng. R. E. Cas. 601. 
 road manacTPrs and others, and this ^ Central Trust Co. v. Wabash, St. 
 amount was fixed upon as being interme- Louis, & Pac. E. Co. (1887), 32 Fed. 
 diate between the extreme estimates. Rep. 187 ; s. c. 2 Ry. & Corp. L. J. 492. 
 
 The Few York act of 1883 (ch. 378, » Cowdrey v. Railroad Co. (1370), 1 
 
 Laws of 1883), in relation to receivers Woods, 331. 
 
710 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXII. 
 
 A receiver who resides at a distance from the property, and 
 takes no part in active management of road, cannot claim same 
 compensation that is usually paid to railroad presidents and 
 receivers who are active executive heads. ^ 
 
 An order making an allowance to a receiver should be defi- 
 nite, showing not only for what services made, but also upon 
 what basis, whether by analogy to rate of commissions allowed 
 trustees, or on ground that peculiar circumstances of case justify 
 higher rate.^ 
 
 Compensation of receiver who retains office after duties and 
 responsibilities of practical management of property have ceased 
 should be less than during the period when he was in full con- 
 trol of business.^ 
 
 The Maryland Court of Appeals, while conceding that the 
 rule for compensating a receiver is not of the same invariable 
 character as that which restricts the compensation of a trust to 
 the rate established by general rules of court, considered that, 
 in the absence of special circumstances, the allowance of a 
 receiver should conform as nearly as possible to rate of commis- 
 sions given to guardians and trustees for performance of like or 
 kindred services.* 
 
 In the federal courts, however, and perhaps most of the 
 States, the rule prevailing in Maryland, that the compensation 
 of a receiver should, in the absence of some special reason, be 
 the same as that of a trustee, apparently is not observed, the 
 amount being left to the discretion of the judge. ^ 
 
 Allowance of Additional Compensation to Receiver. — The fixing 
 of rate of compensation in order of appointment, and assent of 
 receiver thereto, does not preclude him from subsequently claim- 
 ing an additional amount, where he performs duties outside 
 those imposed by acceptance of office. A case for allowing 
 extra compensation arises where receiver acts as superintendent 
 of road, and, by serving as attorney, saves the per diem fees due 
 
 1 Central Trust Co. v. Cincinnati, J. special receiver of same road, considered 
 & M. R. Co. (1892), 58 Fed. Rep. 500. as branch of extensive system, and as 
 
 2 Tome V. King (1885), 64 Md. 166 ; special master to sell the road. The court 
 s. 0. 21 Atl. Rep. 279. held that $1,760 was sufficient oompensa- 
 
 ' Boston Safe Deposit & Trust Co. v. tion for seven months' services, while he 
 
 Chamberlain (1895), 66 Fed. Rep. 847. was winding up the receivership, vafter 
 
 In this case receiver had received |6,000 road had passed into hands of purchasers 
 
 a year for managing road 170 miles long, at foreclosure sale. 
 
 which produced only gross revenue of * Tome v. King (1885), 64 Md. 166-; 
 
 $200,000, while there was an annual h. o. 21 Atl. Rep. 279. 
 deficit of $50,000. Ho had also, by * See cases already cited in this section, 
 appointment of another court, acted as 
 
§ 725.] COMPENSATION OP TEUSTEES AND OTHERS. 711 
 
 under a regular contract with another attorney,^ and where the 
 condition of the road, and litigation respecting it, are such as to 
 necessitate work and travel at night and outside usual hours of 
 business.'^ But no allowance will be made to him for saving 
 salaries of employees, effected by abolishing one office and 
 imposing duties on another. Nor can he claim commission on 
 amount paid out in connection with administration of road by 
 predecessor. In neither case has he done more than was required 
 by his contract to discharge duties of his office with fidelity and 
 economy.^ 
 
 § 725. Method of determining Amount of a Receiver's Compen' 
 satiou. — In fixing amount of compensation, it is irrelevant to 
 inquire what another competent person would have been willing 
 to do the work for.* 
 
 Expert evidence is usually taken by court; but the wide 
 differences of opinion which such evidence is sure to elicit show 
 no fixed standard or rule to guide the court, which must, there- 
 fore, fall back upon its own judgment of what, under the cir- 
 cumstances, will be fair and reasonable compensation for 
 services.^ 
 
 Nor should too much weight be attached to testimony of other 
 receivers who believe that sums which they are paid for their 
 services on other roads, and which happened to be about the 
 same as that claimed by the petitioner, are a just and fair com- 
 pensation for the discharge of their duties.® 
 
 1 Farmers' Loan & Trust Co. v. Central * Cowdrey v. Railroad Co. (1870), 1 
 Railroad Co. of Iowa (1881), 8 Fed. Rep. Woods, 331. 
 
 60. ' Central Trust Co. v. Wabash, St. 
 
 2 Ibid. Louis, & Pac. R. Co. (1887), 32 Fed. Rep. 
 8 Ibid. 187 ; s. c. 2 Ey. & Corp. L. J. 492. In 
 A receiver of a street-railway company this case tlie highest estimate was about 
 
 was appointed in March, 1891, and oper- $36,000 a year, the lowest was $6,000, 
 ated the road. In September, 1892, a with numerous amounts intermediate he- 
 decree of foreclosure was entered. In tween these. 
 
 January, 1893, a decree was entered npon ^ Hinckley v. Railroad Co. (1879), 100 
 a report of the master that the receiver be IT. S. 153. Mr. Justice Miller remarked : 
 allowed $5,000 for his services and $2,500 "Perhaps they were the best judges of 
 for the services of his attorney. In July, the value of their own services ; hut such 
 1894, another decree was rendered, a is not always the case, and as this is the 
 reference made to the master, and report iirst time we have been called on to review 
 made that he be allowed $2,400 more, and the allowance made to receivers in the 
 his attorneys $1,500 additional. The Circuit Courts, we do not see that the 
 Judge disallowed these last amonnts. U. economical administration of insolvent 
 S. Circuit Court of Appeals affirmed this companies will be promoted, or that jus- 
 disallowance. Montgomery v. Petersburg tice requires a higher standard of compen- 
 Sav. & Ins. Co. et al. (1895), 70 Fed. sation than these courts generally give, to 
 Eep. 746. whose discretion the subject must be 
 
712 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXII. 
 
 Article II. — Expenses op Trustees, Receivers, and others. 
 
 § 726. Expenses of Trustees, including Expenses for Attorneys 
 and Counsel. — " Trustees," says Perry, " have an inherent right 
 to be reimbursed all expenses which they reasonably and prop- 
 erly incur in the execution of the trust, and it is immaterial that 
 there are no provisions for such expenses in the instrument of 
 trust. If a person undertakes an office for another in relation to 
 property, he has a natural right to be reimbursed all the money 
 necessarily expended in the performance of the duty." ^ 
 
 Among such expenses are the fees of counsel employed to de- 
 fend a suit in which the validity of the mortgage is attacked, and 
 the various disbursements made in procuring necessary evidence, 
 and in other ways protecting the interests of the cestuis que trust 
 during the progress of the litigation.'^ 
 
 The same rule as to counsel fees prevails when a bill is filed by 
 the trustee to preserve the estate from waste or destruction,^ or to 
 foreclose the trust mortgage.* But a trust company, which has 
 been compelled to come into court in order to collect from the 
 receiver of a railroad company certain rentals justly due, cannot 
 claim compensation for the services of its solicitors in procuring 
 the order for payment when such services were entirely for its 
 own benefit, and not for the purpose of adding to the fund which 
 is to be distributed to the creditors in general.^ 
 
 largely remitted. There the receiver & T. E. Co. (1889), 41 Fed. Kep. 8 ; s. c. 
 
 claimed $1,000 a month, and was allowed 7 Ry. & Corp. L. J. 30. 
 only $10,000 for services for nearly two The costs which by Acts 23d General 
 
 years. Assembly of Iowa, eh. 48, relating to 
 
 1 Cited with approval in Eennselaer & laborers' claims against corporations in 
 Saratoga R. Co. v. Miller (1874), 47 Vt. the hands of receivers, are to be paid be- 
 146. fore such claims, include fees of the re- 
 Trustees of a trust deed are entitled to ceiver of the corporation and his attorney, 
 
 indemnity for their disbursements in pref- but not compensation to a trustee and his 
 
 erence to debenture-holders. See In re attorney for services in a suit to foreclose 
 
 Exhall Coal Co., Re Bleckley, 35 Beavan, a mortgage on the corporate property. 
 
 449. In a winding up of a company such St. Paul Title Ins., etc. Co. v. Diagonal 
 
 charges were ordered by the court to be Coal Co. (Iowa, 1895), 64 N. W. Rep. 
 
 paid after the costs of sale and the costs 606. 
 
 and remuneration of the receiver. Batten As to allowances to a receiver, as com- 
 
 V. Wedgwood Coal & Iron Co. (1884), L. pensation for services, expenses of adminis- 
 
 R. 28 Ch. Div. 318. tration of the trust, and counsel fees, see 
 
 2 Downs V. Memphis & Little Rock R. Cake v. Woodbury (1894), 3 App. Caa. 
 Co. (1835), 32 Fed. Rep. 185. (D. C.) 60. 
 
 s Morton v. New Orleans & Selma R. ° Central Trust Co. v. Valley Ry. Co. 
 
 Co. (1885), 79 Ala. .590. (1893), 55 Fed. Rep. 903; Trustees «. 
 
 * Mercantile Trust Co. v. Missouri, K. Greenough (1881), 105 U. S. 627 ; Invest- 
 
§ 727.] COMPENSATION OP TRUSTEES AND OTHERS. 713 
 
 A solicitor who contracts with a trustee for a retainer fee to be 
 paid for services in a foreclosure suit, and thereafter commences 
 and prosecutes a suit for some time, does not lose his right to 
 compensation for the reason that the proceedings are interrupted 
 by a civil war, at the end of which all the trustees are dead, and 
 the foreclosure is ultimately effected at the instance, not of the 
 solicitor who resumes the former suit, but of certain bondholders 
 with whom he has no dealings. But he cannot, under such cir- 
 cumstances, claim the whole amount contracted for.i 
 
 A clause by which the mortgagor agrees to pay all the fees and 
 charges of the trustees in executing the trust justifies an allowance 
 of reasonable counsel fees for foreclosing the mortgage.^ But to 
 make such a provision effectual as against the mortgagor, it must 
 be shown to have been inserted under proper authority .^ 
 
 A vote of the directors, empowering the president and secre- 
 tary to execute a mortgage, does not authorize the insertion of a 
 contract therein obligating the corporation to pay the mortgagee's 
 counsel fee in case legal proceedings are taken to enforce the lien. 
 Nor will the ratification of a mortgage, invalid because authorized 
 by a meeting of which some of the board had no notice, be deemed 
 to include such a provision, where the directors have no knowl- 
 edge of its contents, except as indicated by the order made for its 
 execution at the first meeting.* 
 
 § 727. Expenses of Representative Bondholders. — A bondholder, 
 suing in behalf of himself and other bondholders, for the purpose 
 
 ment Co. of Philadelphia v. Ohio & N. W. Me liabilities contracted in the execution 
 R. Co. (1891), 46 Fed. Rep. 696; and of their trust from the time of the employ- 
 Easton v. Houston & Texas Central R. Co. ment of the intervener. The funds de- 
 (1889), 40 Fed. Rep. 189; in all of which rived from the mortgaged property were 
 the iillowance of counsel fees was made in chargeable with the liability consequent 
 favor of parties suing for the benefit of a upon the retainer ; and it matters not 
 class of creditors. whether those funds were obtained by the 
 1 Cowdrey v. Galveston, H. & H. R. trustees, or, in consequence of their death, 
 Co. (1876), 93 U. S. 352. Mr. Justice or of the action of the court, by other par- 
 Field said: "The fact that the retainer ties having charge of the property." The 
 was by the trustees in the mortgage who lower court reduced the claim one-half, 
 have since died, and that the present suit and no objection was made in the appel- 
 was presented by the bondholders, the late court to the reduction. 
 cestuis que trust, does not affect the posi- ' Guignon v. Union Trust Co. (1895), 
 tion of the claim. The trustees, had they 156 111. 135 ; 8. c. 40 N. E. Rep. 556. 
 lived, would have been entitled to retain ' Schallard v. Eel River Steam Kav. 
 out of the funds received by them suffi- Co. (1886), 70 Cal. 144; s. c. 11 Pac. 
 cient to meet the claims. They would Rep. 590. 
 
 have had an equitable right not merely to * Pacific Rolling Mill y. Dayton, Sheri- 
 
 be reimbursed from such funds all reason- dan, & Grande Ronde Ry. Co. (1881), S 
 
 able expenses incurred, but also to retain Fed. Rep. 852. 
 from the funds sufficient to meet all reason- 
 
714 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIl. 
 
 of protecting the security, is entitled to be allowed his counsel 
 fees and other legitimate expenses out of the trust fund. Such a 
 bondholder does not stand merely in the position of a creditor 
 seeking satisfaction of his debt, and therefore having no right to 
 allowances for any expenses beyond taxed costs as between party 
 and party. In Trustees v. Greenough,^ the leading case on this 
 point, the court said : " In a case like the present, where the bill 
 ■was filed not only in behalf of the complainant himself, but in 
 behalf of the other bondholders having an equal interest in the 
 fund, and where the bill sought to rescue that fund from waste and 
 destruction arising from tlie neglect and misconduct of the trus- 
 tees, and to bring it into court for administration according to 
 the purposes of the trust ; and where all this has been done, and 
 done at great expense and trouble on the part of the complainant, 
 and the other bondliolders have come in and participated in the 
 benefits resulting from his proceedings, — if the complainant is not 
 a trustee, he has at least acted the part of a trustee in relation to 
 the common interest. He may be said to have saved the fund 
 for the cestuis que trust, and to have secured its proper applica- 
 tion to their use. There is no doubt, from the evidence, that, 
 besides the bestowment of his time for years almost exclusively 
 to the pursuit of this subject, he has expended a large amount of 
 money for which no allowance has been made, nor can properly 
 be made. It would be very hard on him to turn him away with- 
 out any allowance except the paltry sum which could be taxed 
 under the fee bill. It would not only be unjust to him, but it 
 would give to the other parties entitled to participate in the ben- 
 efits of the fund an unfair advantage. He has worked for them 
 as well as for himself ; and if he cannot be reimbursed out of the 
 fund itself, they ought to contribute their due, a portion of the 
 expenses which he has fairly incurred. To make them a charge 
 upon the fund is the most equitable way of securing such contri- 
 bution." It is clearly inequitable for one bondholder alone to 
 bear the burden of such litigation, and allow others to come in 
 and reap its fruits, when the result inures equally to the benefit 
 of the whole class. The attorneys for the original complainant 
 are also the attorneys for all who unite with him in the suit, or 
 who are afterwards permitted by the court to come in and partici- 
 pate in the proceedings.^ 
 
 Upon analogous principles, where the result of a bondholder's 
 suit, filed in behalf of the whole class, was not the actual appoint- 
 
 ' 105 U. S. 627, 535 ; s. c. 12 Am. & « Morton v. New Orleans & Selma E. 
 
 Eng. R. E. Cas. 345 (1881). Co. (1885), 79 Ala. 590. 
 
§§ 728, 729.J COMPENSATION OP TRUSTEES AND OTHERS. 715 
 
 meut of a receiver, but the rendition of a decree directing the 
 company's officers themselves to make returns of the earnings to 
 the court for the information and protection of the bondholders, 
 it was declared to be inequitable that such bondholders as refused 
 to unite in the suit should be allowed to reap the benefit of com- 
 plainant's action, and bear no proportion of the costs.^ 
 
 " The underlying principle," it has been said, " in all the cases 
 in which one has been allowed compensation out of a common 
 fund belonging to others for expenses incurred and services ren- 
 dered in behalf of the common interest is the principle of agency. 
 Such charges are allowed, not simply because services have been 
 rendered which have been beneficial to the common interest, but 
 upon the ground that they were rendered by the authority of 
 those having the common interest exercised by the representative, 
 the compensation for which was to be chargeable to the fund 
 protected or recovered." ^ 
 
 For this reason, where a representative bondholder is made 
 defendant in a suit to determine the priority of the bonds held 
 by his co-bondholders, as against those held by the bondholders 
 for whom the suit is instituted, it is only the fees of the counsel 
 retained by the defendant representative that are chargeable 
 on the common fund, though other counsel employed by other 
 bondholders of the same class render valuable services in bring- 
 ing about a successful issue of the suit.^ 
 
 § 728. Expenses of Pledgees of Bonds. — Pledgees of bonds, 
 who are holders for value only to the extent of the advances on 
 the bonds and interest, have no lien on the bonds for counsel 
 fees in a foreclosure suit to which they are made parties defend- 
 ant for the purpose of determining the validity of these bonds.* 
 
 § 729. Expenses of Receivers in Conduct of Litigation.^ — 
 Receivers are entitled in the settlement of their accounts 
 
 1 Stewart v. Chesapeake & Ohio Canal Co. (1883), 21 S. 0. 162. See also § 732, 
 
 Co. (1881), 5 Fed. Rep. 149, 158. In below. 
 
 this case the court directed the clerk to * Morton v. New Orleans & Selma R. 
 
 tax as part of the costs of complainant the Co. (1885), 79 Ala. 590. " Counsel fees," 
 
 expenses of printing the various pleadings, said the court (p. 623), " can form no part 
 
 exhibits, and briefs of the respective par- of the debt, because they accrued as an in- 
 
 ties. On the other hand, no ex]5enses will dependent obligation, and after the pledge 
 
 be allowed in a case of this kind, unless was made, and the bonds were never trans- 
 
 those which the representative himself has ferred with any intention of securing such 
 
 express or implied authority to incur. a claim." 
 
 ' Hand v. Savannah & Charleston R. ^ See further, post, as to the more gen- 
 Co. (1883), 21 S. C. 162, per Simpson, eral question of what a court will allow in 
 C J. passing a receiver's accounts. 
 
 3 Hand V. Savannah & Charleston R. 
 
716 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXII. 
 
 to payments made on account of legal services and counsel 
 fees. ^ 
 
 The professional services of a counsel are deemed to be cov- 
 ered by an order appointing a receiver and directing him to pay 
 debts " owing to the laborers and employees " of the company for 
 " labor and services actually done " in connection with the 
 company's railways.^ 
 
 § 730. Expenses of Mortgagors iu Conduct of Litigation, includ- 
 ing Expenses for Counsel. — A lawyer in the employ of the 
 company, which is placed in the hands of a receiver, is not 
 entitled to receive payment of his salary out of the proceeds of 
 the sale, prior to the satisfaction of the mortgage bonds," and 
 the various lieus, demands, and expenses in the foreclosure 
 suit.* 
 
 No allowance, therefore, can be made to the mortgagor's 
 counsel, where the sale of the property will not realize enough 
 to satisfy the mortgage.* 
 
 Counsel fees for services rendered to a railroad company, in 
 a suit in which a construction contract is declared invalid, but 
 the contractor is awarded compensation for the work actually 
 performed by him, are not entitled to priority over a lien which 
 a statute creates in favor of a contractor who does work for a 
 railroad.^ 
 
 § 731. Allowance of Costs as between Different Mortgagees. — 
 The English rule as to costs where there are several mortgages 
 has been stated as follows by Daniell (Chancery Pleading and 
 Practice, * 1890) : "The mortgagee is entitled to the payment 
 of his costs before the subsequent mortgagees receive any part 
 of their principal, interest and costs, the practice of the court 
 being to direct each mortgagee to be paid his principal, interest 
 and costs according to his priority. But it has been held that, 
 
 1 High on Eec. , § 805 ; McLane v. Pla- ceiver, as such a contract on his part in- 
 cerville & Sacramento Valley R. Co. (1885), ured only to the advantage of the trust. 
 66 Cal. 606; s. c. 26 Am. & Eng. R. R. » Finance Co. of Pennsylvania v. 
 Cas. 404. Charleston, C. & C. R. Co. (1893), 52 
 
 2 Gurney v. Atlantic & Great Western Fed. Rep. 526. 
 
 Ry. Co. (1874), 68 N. Y. 358. In Ham- * Blair u. St. Louis, H. & K. R. Co. 
 
 mond 1). Atlee (Tex. Civ. App., 1897), (1884), 20 Fed. Rep. 351. 
 39 S. W. Rep. 600, a receiver, who was an ^ Mercantile Trust Co. v. Missouri, K. 
 
 attorney, whose compensation was fixed at & T. R. Co. (1889), 41 Fed. Rep. 8 ; s. 0. 
 
 a month, made a contract with an- 43 Am. & Eng. E. R. Cas. 469. 
 
 other attorney to divide a ten per cent fee, 6 -j^^^ Castle N. Ey. Co. v. Simpson 
 
 recoverable on certain claims of the insol- (1886), 26 Fed. Rep. 133, decided with 
 
 vent company, equally between them. The reference to the Pennsylvania Eesolution 
 
 court held that the portion reserved for of 1843. 
 himself could not be allowed to the re- 
 
§ 732.] COMPENSATION OF TRUSTEES AND OTHERS. 717 
 
 where a mortgagee comraences or adopts a suit for the adminis- 
 tration and sale of the mortgagor's estate, he does not rest ex- 
 clusively on his contract, but seeks something beyond it, and the 
 costs of his suit are the first charge if the estate proves deficient." 
 
 So where a mortgagee sets up an unfounded claim or an 
 unjust defence, he will be deprived of his costs. Where, how- 
 ever, the contest is chiefly between a first and a third mortgagee, 
 the position of the latter being that the former had no lien, it is 
 not equitable to charge the gross proceeds with the costs and 
 expenses of the suit, and so prejudice a second mortgagee who 
 did not institute the litigation, and has a lien upon only a por- 
 tion of the road. In such a case it was ordered that one half 
 of the costs should be paid out of the funds which were going 
 to the first mortgagee, and the other half out of the funds which 
 were going to the second, unless the property proved to be suffi- 
 cient to pay all the mortgage creditors and their costs, in which 
 event the costs, etc., were to be paid at the expense of the 
 defendant company. ^ 
 
 § 732. Costs of Unsecured Creditors seeking to enforce Claims 
 against Receiv.ers. — It has been stated above that a bondholder 
 suing in behalf of all secured creditors is entitled to have his 
 counsel fees charged upon the fund reclaimed by him. A 
 similar principle governs the case in which the establishment 
 of the claim of an unsecured creditor inures to the benefit of 
 the whole class in which he belongs. The solicitor to whose 
 exertions this result is due has a lien upon the property for 
 fees, the amount of which is computed with reference, not to the 
 claims of his actual clients, but to the aggregate of all the 
 claims of the creditors of the same class. ^ 
 
 1 Meyer v. Johnston (1875), 53 Ala. becoming worth all, or nearly all, that 
 
 237 ; s. c. 15 Am. Ry. Eep. 467. they called for. The creditors who were 
 
 - Central Railroad & Bkg. Co. of Georgia entitled to the benefit of tlie decree had 
 V. Pettus (1885), 113 IT. S. 116, 125. The only to await its execution in order to 
 railroad companies in possession of the receive the full amount of their claims ; 
 property argned that the utmost the court and that result was due to the skill and 
 could do was to charge upon it such ex- vigilance of these solicitors, .so far as the 
 ppnses as the solicitor's clients themselves result of litigation may, in any case, be 
 incurred, and that the compensation referred to the labor of counsel. When 
 claimed in respect to claims filed by other creditors filed their claims, they had notice 
 holders of nnsecnred bonds .should not by the bill that the suit was brought, not 
 be allowed. The Supreme Court of the exclusively for the benefit of the complain- 
 TJnited States disairrped with this con- ants therein, but equally for those of the 
 tention, saying : " When the litigation same class who should come in and con- 
 was commenced, these unsecured bonds tribute to the exnensps of the litigation, 
 were without anv value in the financinl Those exppnses necessarily included rea- 
 market. That litigation resulted in their sonable counsel fees, which, upon every 
 
718 
 
 RAILWAY BONDS AND MOETGAGES. [CHAP. XXXII. 
 
 Petitions by interveners in foreclosure suits which are in the 
 nature of claims against receivers, and ask for order of the court 
 that the receivers pay them, are mere interlocutory applications, 
 and the order thereon, whether granting or refusing the power 
 of the application, are not final hearings or decrees within the 
 meaning of section 824 of the United States Revised Statutes; 
 and no docket fee for final hearing should be taxed thereon.^ 
 
 § 733. sherirfa Pees. — Where a code provides certain fees for 
 a sheriff conducting a foreclosure sale in which the execution 
 plaintiff becomes the purchaser, he is entitled to the same fees 
 if one not a party to the suit becomes the bidder and then 
 transfers his bid to the trustee.^ 
 
 § 734. Amount of Attorney and Counsel Fees allowed in Fore- 
 closure in Discretion of Court.^ — These amounts will, of course, 
 depend upon whether it goes through simply by default, or is 
 defended, giving rise to questions of considerable importance, 
 in the settlement of which a large amount of time and labor is 
 expended.* 
 
 In a case in which "the services were rendered under the eye 
 of the court, and, in the foreclosure proceedings proper, there 
 was no substantial contest, the whole matter being practically 
 
 ground of justice, should be estimated 
 with reference as well to the claims of the 
 complainants who undertook to protect 
 the rights of all the unsecured creditors 
 as of the claims of those who accepted the 
 fruits of the labors of complainants and 
 their solicitors. This compensation of the 
 solicitors should be made with reference to 
 the amount of all claims filed in the cause, 
 although the evidence thereof may have 
 been retained in the custody of the respec- 
 tive creditors ; excepting from such esti- 
 mate or calculation not only the claims of 
 the complainants named in the hill, and 
 of the unsecured creditors who may have 
 had special contracts with these solicitors 
 or settled with them, but also such claims 
 purchased by the companies holding the 
 property, as were not filed for allowance 
 under the decree." The court reduced the 
 allowance made by the trial judge one-half, 
 thus giving the solicitor the same percent- 
 age of the claims of the creditors who 
 wore not parties as he had contracted for 
 with his immediate clients. 
 
 1 Missouri Pac. R. Co. u. Tex. & Pac. 
 E. Co. (1889), 38 Fed. Rep. 775. 
 
 2 Gilman v. Des Moines Valley E. Co. 
 (1876), 42 Iowa, 495. 
 
 * Bronson v. La Crosse & Milwaukee 
 E. Co. (1884), 2 Wall. 283. 
 
 4 Walker v. Quincy, M. & P. E. Co. 
 (1886), 28 Fed. Rep. 734. In this case 
 two counsel were awarded |5,000 and 
 one 12,000 for a litigated suit. 
 
 An assistant employed by the counsel 
 appointed by the court to act as legal 
 adviser to the receivers in the Wabash 
 litigation was awarded by the Western 
 master $7,500 for services extending over 
 about four years and a half, the report 
 stating that his special duties brought 
 him more frequently before the court 
 than any other solicitor in the cause. In 
 the same report it was recommended that 
 the solicitor of the Wabash Eailway Com- 
 pany, at whose instance the receivers were 
 appointed, should receive the same amount. 
 These allowance.? seem not to have been 
 excepted to by the purchasing committee. 
 The master's report is summarized in 1 
 Ry. & Corp. L. J. 698. 
 
§ 735.] COMPENSATION OF TRUSTEES AND OTHERS. 719 
 
 carried out in pursuance of a plan of reorganization," the court 
 was of opinion that $100,000 was an ample compensation for 
 the solicitors representing the trustees of the several mortgages 
 in suit.^ 
 
 Large allowances pending a receivership are to be deprecated. 
 The proper time to examine and settle such matters as counsel 
 fees is at the end of the litigation. All allowances made in the 
 meantime for professional services should be small. ^ 
 
 For services of counsel relating solely to the receivership, a 
 fair and just method of compensation is by annual allowance 
 rather than by attempting to value each item of service.^ 
 
 Article III. — Oct op what Funds Compensation and Ex- 
 penses IN Foreclosure Suits are paid. 
 
 § 735. Mortgaged Property must in general bear Expenses of its 
 Administration in Court of Equity. — It is by this fundamental 
 principle that allowances to trustees for counsel fees and other 
 expenses are justified.^ 
 
 This principle is, of course, equally applicable whether the 
 estate is in the hands of a trustee properly so called, or of a 
 receiver, and, by analogy, where a receiver is asked for, and 
 the court, instead of appointing an officer of its own to conduct 
 the business, leaves it in charge of the company's agents, direct- 
 ing them to report the amount of the earnings for the informa- 
 tion and protection of the mortgagees.^ 
 
 1 Easton v. Houston & Texas Central come before tlie court in the character of 
 
 E. Co. (1889), 40 Fed. Rep. 189. trustees of any property or fund which 
 
 ^ Central Trust Co. v. Wabash, St. would authorize the court to charge upon 
 
 Louis, & Pac. R. Co. (1885), 23 Fed. Rep. that property or fund their expenses. 
 
 67.5, per Brewer, J., who reduced^ fee "They have not," it was reasoned, "and 
 
 allowed by the master from |6,000 to have never been, in possession of the 
 
 $2,000. property. They hold a legal title as 
 
 ' Boston Safe Deposit & Trust Co. v. security for certain creditors of the com- 
 
 Chamberlain (C. C. A., 1895), 66 Fed. pany, and, in substance, it is the same 
 
 Rep. 847. thing, for the purposes of this action, as 
 
 ■• Trustees v. Greenough (1882), 105 if the title had been conveyed directly to 
 
 U. S. 527, 535 ; s. C. 12 Am. & Eng. the creditors. There was a convenience 
 
 R. R. Cas. 345 : Morton v. New Orleans & in selecting some person to take the title 
 
 Selma R. Co. (1885), 79 Ala. 590. for the benefit of those to whom the bonds 
 
 ' Stewart v. Chesapeake & Ohio Canal might be negotiated. The mortgagees in 
 
 Co. (1881), 5 Fed. Rep. 149, 158. this case, who assumed that office, might 
 
 In Coe V. Columbus, Pif|na, & Indian- very properly have stipulated with tlie 
 
 apolis R. Co. (1859), 10 Ohio St. 372, it company for a compensation, and perhaps 
 
 was considered that the trustees who file a did so. But we cannot now recognize 
 
 bill for foreclosure of the mortgage do not them in any other character than as ordi- 
 
720 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXII. 
 
 Most of the cases within the scope of this treatise which 
 illustrate this principle are cases where the mortgage is being 
 foreclosed and a receiver is appointed, or the trustees have 
 entered into possession; but the same principle is operative 
 whatever the nature of the suit may be by which the trust is 
 being enforced. Thus it has been adjudged that costs should 
 follow a bill to redeem filed by a junior mortgagee whose rights 
 were held not to have been cut off by the decree, and that those 
 costs should be charged upon the property.^ 
 
 If a suit is pending against a railroad company when the 
 receiver is appointed, and the receiver, being ordered to defend 
 the suit, engages the services of the counsel retained by the 
 company, the trust fund is chargeable with the fees earned by 
 services during the receivership, but not those earned prior to 
 the time when the court assumed control of the property. As 
 to the latter his claim is against the company, and can be 
 paid only from the surplus in hand after the satisfaction 
 of the various liens, demands, and expenses of the foreclosure 
 suit.^ 
 
 § 736. Necessary Charges Lien on Mortgaged Property. — The 
 manner in which the above principle is worked out by the courts 
 is to make the necessary charges of managing the trust estate a 
 first lien upon it.^ Thus a claim of a trustee for his personal 
 services constitutes a lien upon the trust estate, and he will not 
 be compelled to part with the legal title of the property until 
 the claim is satisfied.* 
 
 The operation of this rule cannot be evaded by an arrange- 
 ment under which the bondholders secured by a mortgage 
 subsequent to that foreclosed pay the amount of the redemption 
 money fixed by the decree directly to the parties represented by 
 the trustee who controlled the suit. Since he could have 
 
 nary mortgagees, and fee] no more at of the foreclosure sale, though the decree 
 
 liberty to pay them for their trouble, or may be set aside and he released from his 
 
 to pay them their counsel fees, out of the bid, will be allowed ordinary taxable costs, 
 
 proceeds of a sale of the property, than but not his counsel fees and expenses, 
 
 we would in any ordinary casp." This out of the trust fund. Farmers' Loan & 
 
 view of the position of a mortgage trustee Trust Co. u. Green (1897), 79 Fed. Rep. 
 
 seems to be altogether opposed to that 222. 
 
 which is held by the majority of the Salary, expenses, and costs of a re- 
 courts, ceiver are payable from the fund real- 
 
 1 Simmons u. Taylor (1885), 23 Fed. ized. Batten v. Wedgwood Coar& Iron 
 Rep. 849. Co., 28 Ch. Div. 317. 
 
 2 Blair v. St. Louis, H. & K, R. Co. » Perry on Trusts, 907. 
 
 (1884), 20 Fed. Rep. 351. < Rensselaei & Saratoga K. Co. v. 
 
 A purchaser opposing the confirmation Miller (1874), 47 Vt. 146. 
 
§ 737.] COMPENSATION OP TRUSTEES AND OTHERS. 721 
 
 retained enough of that money, if it had come to his hands, to 
 satisfy his reasonable charges for services and disbursements, a 
 court of equity will not accede to an application to compel him 
 to convey the legal title thus left outstanding in him, unless the 
 petitioners consent to do what he could have done for himself, 
 if the arrangement which prevented his having control of the 
 money had not been made.^ 
 
 So also receivers and trustees are entitled to repayment of 
 their reasonable expenses and charges, in preference to all other 
 claims upon the property of whatever nature.^ 
 
 The general principle also avails in favor of one who, by his 
 professional services in behalf of the unsecured creditors, estab- 
 lishes their right to be paid a portion of the money in the 
 receiver's hands. The fee thus earned is a lien upon the fund 
 reclaimed." 
 
 A solicitor who is employed by the receiver to sue for a tract 
 of land held adversely, agreeing to accept as his fee one-half 
 the recovery, is entitled, after the sale of the entire property of 
 the company, to pursue the proceeds and establish his claim 
 against the fund instead of the land.* 
 
 Where a large body of land is conveyed to trustees to secure 
 the payment of the principal and interest of a great number of 
 railroad bonds which have a long time to run before maturity, 
 and the grantor, the railroad company, in the trust deed reserves 
 the right to sell the lands and pay the proceeds of the sales 
 thereof to the trustee, after deducting expenses incurred in 
 executing the trust, it may retain the proper amount for expenses 
 in making the sales, and may also pay the taxes out of the 
 proceeds thereof.^ 
 
 § 737. Lien for Counsel Fees. — The lien for counsel fees will 
 not be lost by reason of death of the trustee who employed the 
 coimsel subsequent to the commencement of the foreclosure 
 proceedings, and the litigation being subsequently carried 
 through by a bondholder. From the time of the retainer the 
 funds to be derived from the mortgaged property are chargeable 
 with the liability consequent upon the retainer, and it matters 
 not whether those funds are obtained by the trustee, or in con- 
 
 1 Rensselaer & Saratoga R. Co. v. (1885),113 U. S. 116. Foramore extendeil 
 
 Miller (1874), 47 Vt. 146. statement of this case, see above. 
 
 ^ Ellis V. Boston, Hartford, & Erie R. * Hand v. Savannah & Charleston K. 
 
 Co. (1871), 107 Mass. 1; McLane v. Co. (1883), 21 S. C. 162. 
 rincerville & Sacramento Valley R. Co. ^ Xickerson v. Atchison, Topeka, & 
 
 (1885), 66 Cil. 606. Santa Fe R. Co. (1881), 17 Fed. Rep. 408. 
 
 ' Central Railroad & Bkg. Co. v. Pettus 
 
 46 
 
722 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXII. 
 
 sequence of his death, or of the action of the court, by other 
 parties having charge of the property.^ 
 
 § 738. General Fund, ■when Chargeable and ■ro-hen not. — Ordi- 
 narily the allowances considered in the present chapter are 
 payable out of the general fund involved in the litigation.^ 
 
 A trustee in a divisional mortgage who is made party to a 
 suit brought to foreclose a general mortgage junior to his, and 
 incurs expenses in employing counsel to defend his interests, is 
 entitled to have those expenses allowed out of the fund in the 
 hands of the receiver, even where he has withdrawn from the 
 litigation and taken proceedings to enforce his own mortgage.* 
 But this rule is qualified wherever its operation would be inequi- 
 table, as in a case in which a judgment creditor of an insolvent 
 corporation seeks to set aside an assignment of the property in 
 trust for the benefit of certain bondholders, who are eventually 
 declared to have a prior claim upon the proceeds of the 
 property. 
 
 Under such circumstances the creditor is suing in antagonism 
 to the preferred bondholders, and, as the efforts of the counsel 
 are valuable to him precisely in the same proportion as they are 
 detrimental to his adversaries, it would clearly be unjust to 
 charge the fees of such counsel upon the trust fund in such a 
 manner as to diminish the amount payable to the bondholders. 
 Reasonable counsel fees, however, may properly be allowed out 
 of any fund that may remain after paying costs of the suit, and 
 discharging the preferred claims.* 
 
 Similarly an attorney who appears by the direction of the 
 trustee of one class of bonds, in a suit in which the liability of 
 a railroad company to taxation is successfully resisted, is not 
 entitled to be paid out of the common fund, when another class 
 of bondholders, whose claim that fund is insufficient to satisfy, 
 are declared to have a prior right to it. As none of the class 
 whom the attorney represented can participate in the distribu- 
 tion of the fund, it follows, of necessity, that their attorney, 
 who can claim only through them, is in like manner excluded. 
 The mere fact of his services having inured to the ultimate 
 advantage of the prevailing class of bondholders does not 
 strengthen his claim, as this result is merely one of the inci- 
 
 1 Cowdrey v. Galveston, H. & H. R. » Central Trust Co. v. 'Wabasli, St. 
 Co. (1877), 93 tJ. S. 352. Loui,s, & Pac. R. Co. (1888), 36 Fed. Rep. 
 
 2 Hand o. Savannah & Charleston R. 622. 
 
 Co. (1882), 17 S. C. 219 ; s. c. 12 Am. & < Morton v. New Orleans & Selma E. 
 Eng. R. R. Cas. 495, and the cases cited Co. (1885), 79 Ala. 590. 
 in the preceding sections of this chapter. 
 
§ 739.] COMPENSATION OP TRUSTEES AND OTHERS. 723 
 
 dental advantages which sometimes go beyond the immediate 
 object of the employment. For such benefits the law giwes no 
 compensation. ^ 
 
 So, also, where the mortgage provides that the trustees shall 
 be " entitled to receive proper compensation for every labor or 
 service performed in the discharge of such trust in case they 
 shall be compelled to take possession of said premises, or any 
 part thereof, and manage the same," they should not, in a suit 
 brought by the company to redeem the estate, after the trustees 
 have gone into possession, be allowed the fees of counsel 
 employed in the suit, nor the amount of an insurance procured 
 without the permission of the mortgagor. Such expenditures 
 are in the interest of the bondholders, and must be met by 
 them. 2 
 
 Costs awarded in favor of the party who is finally decided 
 to have a legal title to certain rolling-stock which he has 
 released to a receiver under an agreement that he shall, upon 
 the determination of the controversy in his favor, be paid a 
 specified sum as the price, are not a lien on the general fund, 
 even though the sum itself which is to be paid under the agree- 
 ment is expressly made chargeable as a first lien on the property 
 by virtue of the authority conferred on the receiver by the 
 court. ^ 
 
 § 739. Liability of Prior Mortgagee for Expenses of Suit by Junior 
 Mortgagees. — Where a receiver is appointed at the instance of 
 the trustee of a second mortgage, the trustee of the first mort- 
 gage not being made a party to the suit, and taking no part in 
 the proceedings except to intervene by petition and join in two 
 unsuccessful efforts to make a sale, and the property is finally 
 decreed to be sold subject to the first mortgage, the bondholders 
 secured by that mortgage are not liable for any costs or any 
 expenses except those incurred through the intervention of their 
 trustee, and his participation in the two unsuccessful attempts 
 to effect a sale. They cannot be assessed for the commissions 
 of the trustee of the second mortgage or of the receiver. If 
 the proceeds of the sale are insufficient to afford adequate 
 security and indemnity to the trustees and receivers, the parties 
 at whose instance the proceedings were instituted will be 
 required to provide the means of payment.* 
 
 > Hand v. Savannah & Charleston R. ' Vilas v. Page (1887), 106 N. Y. 439 ; 
 
 Co. (1883), 21 S. C. 162. s. o. 13 N. E. Rep. 743. 
 
 2 Boston & Worcester Railroad Cor- * Tome v. King (1891), 64 Md. 166 ; 
 
 poi-ationu. Haven (1864), 8 Allen (Mass.), s. c. 21 Atl Kep 279. 
 359. 
 
724 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXII. 
 
 Aeticlb IV. — Practice. 
 
 § 740. Proper Time to settle Compensation and Expenses. — 
 The proper time to settle allowances is at the end of the litiga- 
 tion. Thus receivers will not be allowed to pay more than a 
 part of the fees of their counsel pending a foreclosure suit. The 
 balance must stand until the close of the proceedings, when the 
 court will decide what final allowance is to be made.^ 
 
 The ordinary course is to allow, out of the funds produced by 
 the sale or use of the mortgaged property, the amount due to the 
 trustees for personal services and expenses incurred in the 
 execution of the trust, before paying anything to the bond- 
 holders.^ 
 
 The decree of foreclosure may direct the Master in Chancery 
 to inquire as to the proper compensation for the trustees and 
 their counsel, and this inquiry may be proceeded with after the 
 confirmation of the sale under the decree.^ 
 
 § 741. Trustee's Claim for Compensation and Expenses, bo'vr 
 asserted after Redemption of Property. — Where the trustees in a 
 first mortgage have foreclosed it, and junior mortgagees redeem 
 the property by payment of the amount fixed in the decree, the 
 trustees may file a cross-bill to assert their lien for services 
 and expenses, and have the proper amount fixed in that 
 manner.* 
 
 § 742. Rehearing after Remand by Appellate Court. — Where the 
 lower court has determined the amount of the fund to be dis- 
 tributed, and awarded the claimant a certain percentage for the 
 personal services, which, for reasons assigned, exceeds that pre- 
 scribed by statute, and an appeal is thereafter taken upon the 
 question whether anything is really due on account of those 
 services, the appellate court will not, if the question is decided 
 in the claimant's favor, but the statutory amount deemed to be 
 adequate, order a rehearing for the purpose of settling the sum 
 to be paid. The commission being thus referred to, a definite 
 
 1 Central Trust Co. v. Wabash, St. 221 ; Bronson v. La Crosse & Milwaukee 
 Louis, & Pac. K. Co. (1885), 23 Fed. K. Co. (186i), 2 Wall. 283 ; Mercantile 
 Rep. 675. Trust Co. v. Missouri, K. & T. R. Co. 
 
 2 Smith's Execrs. v. Washington City, (1889), 41 Fed. Rep. 8 ; s. c. 43 Am. & 
 Va. Midi. & Great Southern E. Co. Eng. R. R. Cas. 469. 
 
 (1880), 33 Gratt. (Va.) 617 ; s. c. 1 Am. » Walker v. Quincy, M. & P. R. Co. 
 
 & Eng. R. R. Cas. 493 ; Newport & Cin- (1886), 28 Fed. Rep. 734. 
 cinnati Bridge Co. v. Douglass (1877), 12 * Rensselaer & Saratoga E. Co. v. 
 
 Bush (Ky.), 673 ; s. c. 18 Am. Ey. Rep. Miller (1874), 47 Vt. 146. 
 
§ 743.] COMPENSATION OP TEUSTEE8 AND OTHEBS. 725 
 
 standard can be accurately computed without the necessity of 
 further proceedings.^ 
 
 § 743. Hzceptiona to Amounts alloT^ed by the Master, etc. — 
 Exceptions to the amounts allowed by the master for the salaries 
 of the various officers employed by a receiTer should be precise 
 and raise well-defined issues. A vague exception launched at 
 the compensation generally of all the officers indiscriminately, 
 and not stating what compensation was allowed to any one of 
 them, will be overruled. ^ 
 
 1 Woodruff V. New York, L. E. & "W. " Stanton «. Alabama & Chattanooga 
 
 K. Co. (1891), 129 N. Y. 27 ; s. o. 29 N. E. Co. (1876), 2 Woods, 506. 
 E. Rep. 261 ; 6 Am. & Eng. E. E. Cas. 89. 
 
726 
 
 KAILWAY BONDS AND MORTGAGES. [CHAP. XXXIII. 
 
 CHAPTER XXXIII. 
 
 FOEECLOSUEE DBCEEBS. 
 
 Decree may find Amount due 
 on Bonds, before Proof of 
 same. 
 
 Decree niH may be rendered be- 
 fore Production of Bonds. 
 
 Allowance of Time for Payment 
 of Amount found due. 
 
 Provision of Decree reserving 
 Control of the Property. 
 
 Modifications of Decree, and 
 what is Final Decree. 
 — EFrEOT OF Decree. 
 
 Effect of Foreclosure Decree 
 generally. 
 
 Conclusiveness of Decree. 
 
 Federal Courts bound by Deci- 
 sion of State Courts respect- 
 ing State Statutes. 
 
 Estoppel by Decree. 
 
 Decree pro confesso. 
 
 Decree by Consent. 
 
 Estoppel by Acquiescence in De- 
 cree. 
 
 Estoppel of Junior Lienor. 
 
 Aeticle I. — Provisions op Deceee. 
 
 § 744. Conformity of Decree to Provisions of Mortgage. — Since 
 the parties to the mortgage are at liberty, to regulate, by express 
 agreement therein, the manner in which the property subjected 
 to the lien shall be disposed of in case of default, the power of 
 the court may sometimes be limited by the contents of the 
 instrument. But the precise method by which effect is to be 
 given to stipulations of this sort is necessarily a matter within 
 the control of the court. Thus where the mortgage stipulates 
 that there shall be no judicial sale for cash unless the amount 
 bid at the sale shall equal the sum due to the bondholders, and 
 as an alternative appoints a method by which a reorganization 
 of the debtor company is to be effected in accordance with the 
 
 rt. I.- 
 
 -Peovisions of Decbbe. 
 
 §764. 
 
 §744. 
 
 Conformity of Decree to Provi- 
 sions of Mortgage. 
 
 
 745. 
 
 Conformity of Decree to Bill. 
 
 755. 
 
 746. 
 
 Conformity of Decree to Man- 
 
 
 
 date of Appellate Court. 
 
 756. 
 
 747. 
 
 Provisions of Ordinary Foreclos- 
 
 
 
 ure Decree. 
 
 757. 
 
 748. 
 
 Deficiency Judgments. 
 
 
 749. 
 
 Provisions of Decree foreclosing 
 Mortgage on Road in Posses- 
 
 758. 
 
 
 sion of Junior Mortgagee. 
 
 Art. II. 
 
 750. 
 
 Provisions of Decrees directing 
 Sale subject to Liens. 
 
 §759. 
 
 751. 
 
 Provisions of Decree directing 
 
 760. 
 
 
 Sale before Settlement of Con- 
 
 761. 
 
 
 troversies regarding Final Dis- 
 
 
 
 position of Assets. 
 
 
 752. 
 
 Decree preserving Lien of Un- 
 
 762 
 
 
 matured Part of Debt. 
 
 763 
 
 753. 
 
 Decree ordering Trustee to sell 
 
 764 
 
 
 before Maturity of Bonds, 
 
 765 
 
 
 though not authorized by 
 
 
 
 Trust Deed. 
 
 766 
 
§ 745.J FORECLOSURE DECREES. 727 
 
 wishes of the majority of such bondholders, it is not error to 
 decree that the mortgaged property shall be sold to the highest 
 and best bidder, and that the trustee shall be authorized and 
 directed to bid at the sale, as trustees for the first-mortgage 
 bondholders, at least, the amount of principle and interest of 
 the bonds. ^ 
 
 Nor can a stipulation as to terms of a sale under the power 
 in the mortgage — as that the bonds should in such a case be 
 received as part of the price, at a rate to be fixed in a certain 
 manner — be construed so as to bind the court in regard to a 
 sale in foreclosure proceedings.^ 
 
 § 745. Conformity of Decree to Bill. — The general rule, that a 
 complainant cannot be awarded by a decree more than he claims 
 in his bill, is applicable to a decree pro confesso as well as 
 others. Thus it is erroneous, where such a decree has been 
 entered in a suit to foreclose for default in the interest only, 
 and the sale consummated and confirmed, to make a further 
 decree that the complainant recover of the company the balance 
 of the principal of the bonds, left after applying the proceeds of 
 the sale to their payment, there being no provision in the bonds 
 or mortgage whereby such principal can be declared due before 
 the date of their maturity.^ 
 
 ^ Sage V. Central Railroad Co. (1878), chaser of tonds to apply to his bid, or the 
 
 99 U. S. 334, 341. proportion in which bonds should be so 
 
 ^ Farmers' Loan & Trust Co. v. Green received, or the manner in which their 
 Bay & Minnesota E. Co. (1881), 10 Biss. value should be ascertained, than it would 
 207 ; s. 0. 6 Fed. Rep. 100. In the be to adopt the directions to the trustees 
 course of his opinion. Judge Dyer said : contained in the mortgage as to the 
 " The sale authorized in the mortgage was advertisement of the property for sale, 
 one to be made in certain contingencies Undoubtedly the court might adopt, so 
 by the trustee. It was a sale to be made far as practicable, the method of prooed- 
 in accordance with the stipulations of the ure pointed out in the mortgages ; but it 
 parties. The course of procedure there pre- would not be error affecting the validity 
 scribed was one to be pursued in case of a of the decree not to do so, unless wrong 
 sale without foreclosure, and it was com- and injustice were apparent in the decree, 
 petent and proper for the parties to place and I am unable to perceive wherein the 
 upon the trustee certain restrictions, and decree in the particular under considera- 
 te define the limits within which he must tion fails to recognize the rights of all 
 act in making such a sale. But those parties." 
 
 provisions could not bind the court if ' Ohio Central Ry. Co. v. Central 
 
 foreclosure proceedings should be insti- Trust Co. of New York (1890), 133 U. S. 
 
 tated, and a sale should be made under 83 ; s. c. 10 Sup. Ct. Rep. 235. "Tlie 
 
 its directions. In such case the sale fact that a bill was taken as confessed," 
 
 would have to be made according to the said Chief Justice Fuller, "did not of 
 
 usual course of practice in judicial pro- itself justify giving complainant more 
 
 ceedings, and the court would be no more than it claimed. Under the rules and 
 
 bound to adopt the provisions of the practice of this court in equity, a decree 
 
 mortgage as to the acceptance from a pur- pro confesso is not a decree as of course. 
 
728 
 
 RAILWAY BONDS AND M0RTGAGB6. [CHAP. XXXIII. 
 
 But a decree is not open to objection merely because it deter- 
 mines matters not specifically presented by the bill. Thus, as 
 
 according to the prayer of the bill, nor 
 merely such as the complainant chooses 
 to take it, but that it is made, or should 
 be made, by the court according to what is 
 proper to be decreed upon the statements 
 of the bill assumed to be true. If the 
 allegations are distinct and positive, they 
 may be takjn as true without proof; but 
 if they are indefinite, or the demand of 
 the complainant is in its nature uncertain, 
 the requisite certainty must be afforded 
 by proof. But in either event, although 
 the defendant may not be allowed on 
 appeal to question the want of testimony 
 or the insufficiency or amount of the evi- 
 dence, he is not precluded from contesting 
 the sufficiency of the bill, or from insist- 
 ing that the averments contained in it do 
 not justify the decree. 
 
 " Under the 18th rule in equity, where 
 the bill is taken pro amfesso, the cause is 
 'proceeded in ex parte,' and the matter of 
 the bill may be decreed by the court ; 
 and hence, if a decree be passed not con- 
 fined to the matter of the bill, it may be 
 attacked on appeal for that reason. By 
 the 92d rule it is provided that in suits 
 in equity for the foreclosure of mortgages 
 'a decree may be rendered for any balance 
 that may be found due to the complain- 
 ants over and above the proceeds of the 
 sale or sales. ' Assuming that a deficiency 
 decree might be rendered in the absence 
 of a specific prayer for that relief, never- 
 theless the case made by the bill must 
 show that the amount is due ; for other- 
 wise it cannot properly be found so. This 
 rule does not authorize the Circuit Courts 
 to find a balance due because partial ex- 
 tinguishment has been effected by a sale, 
 if, as a matter of fact, the indebtedness is 
 not then payable. 
 
 " The bUl liere did not seek relief as to 
 the second mortgage, which is only re- 
 ferred to as a subordinate lien, nor did it 
 claim that anything except interest was 
 due upon the first mortgage. It sought 
 the establishment and enforcement of the 
 first-mortgage lien and the foreclosure of 
 the equity of redemption. The amount 
 realized paid the outstanding interest and 
 
 a part of the principal. Under such cir- 
 cumstances and upon these pleadings the 
 deficiency decree, which is a judgment for 
 the recovery of so much money with exe- 
 cution, was improvidently entered. With- 
 out discussing the extent of the franchises 
 authorized to be sold under the mortgage, 
 we are of opinion that the appeal was 
 properly taken in the name of the defend- 
 ant company." 
 
 The provision of the New York Code 
 of Civil Procedure, § 1207, providing that, 
 " where there is no answer, the judgment 
 shall not be more favorable to the plaintiff 
 than that demanded in the complaint," 
 was intended for protection of defendants 
 who suffer default : it cannot be invoked 
 in an attack upon the judgment by one 
 not interested in the action. Where, 
 therefore, an action is brought by a trus- 
 tee for bondholders to foreclose a railroad 
 mortgage, the amount of outstanding 
 bonds is stated at a less amount than 
 that found by the referee to whom it was 
 referred to compute the amount due, that 
 provision is not available to a bondholder 
 moving to set aside the judgment entered 
 or the report and a sale thereunder. Peck 
 V. New York & New Jersey E. Co. (1881), 
 85 N. Y. 246 ; s. c. 7 Am. & Eng. K. K. 
 Cas. 422. 
 
 A committee of bondholders, represent- 
 ing the proper amount in value of the 
 bonds by the terms of a railroad mortgage, 
 requested their trustee to institute a suit 
 for foreclosure for the unpaid and past-due 
 interest. They further declared they did 
 not wish the principal declared due. The 
 trustee filed such a bill. Months after- 
 wards there were further defaults at inter- 
 est periods, and under the mortgage pro- 
 visions the ti'ustee amended his bill and 
 elected to declare the principal of the 
 bonds due, and in the amended bill 
 prayed foreclosure for the whole amount. 
 The election of the trustee to declare the 
 whole sum due was never objected to by 
 any one, and the company answered the 
 bill. 
 
 The court, while stating that this last 
 proceeding would have been properly by 
 
§ 745.J FORECLOSURE DECREES. 729 
 
 a chancellor must, in passing upon the claims of the bond- 
 holders of various classes, necessarily decide in what order 
 those claims shall be paid, the validity of the decree cannot be 
 questioned on the ground that the holders of the bonds of one of 
 those classes asserted their right of priority in ex parte proceed- 
 ings, and that the chancellor acted upon the application without 
 notice to the other bondholders.^ 
 
 The prayer for "such other and further relief" is quite 
 liberally construed in this connection. For example, although 
 the remedy asked for specifically is strict foreclosure, the court 
 is justified by such a prayer in entering a decree which goes to 
 the length of a complete execution of the trust, and provides for 
 a reorganization of the company. ^ 
 
 The right to object to a decree on the ground of its want of 
 conformity to the bill may be lost by a want of promptitude in 
 excepting to the propriety of the court's action in the proceed- 
 ings leading up to the decree. Thus the owner of second con- 
 solidated bonds filed a bill for foreclosure and the appointment 
 of a receiver. The court appointed a receiver, required all lien- 
 holders to come into the cause, and enjoined them from asserting 
 their claims in any other case. All the lien-claimants filed 
 cross-bills, asking affirmative relief and the sale of the property. 
 For nearly three years the court dealt with the suit as a consoli- 
 dated case, and finally decreed a sale free from all liens. It was 
 held to be then too late to object to the decree, on the ground 
 that it was not in conformity with the bill, or that, because the 
 
 a supplemental bill, still, under various " It is true," the court said, " the bill 
 circumstances here, and conduct of the contained no specific prayer for such direc- 
 parties, it was proper under this amended tions ; but beyond the relief specifically 
 bill to decree the whole amount due, and asked, the complainants prayed for such 
 also that a decree for a deficiency judg- other and further relief as the nature of 
 ment was proper under the 92d rule of the case should require, and as might 
 equity of the equity courts of the United seem meet to the court. The specific 
 States, though there was no special prayer relief sought was a strict foreclosure ; but 
 for it. There was also a stipulation in under the prayer for general relief it is 
 this case as to what the mortgage covered, not questioned that the decree for a sale 
 It was held that, after such stipulation, was appropriate. And as the deed of 
 there could be made no objection to the trust was made a part of the bill, and 
 inclusion of any of the property men- provided what should be done in case the 
 tioned in the stipulation being included trustee became the purchaser at the sale, 
 in the decree of foreclosure. Seattle, it does not appear to be going outside of 
 Lake Shore, & Eastern Ry. Co. v. Union the case to enforce the agreement con- 
 Trust Co. (1897), 79 Fed. Rep. 179. tained in the deed into which the rail- 
 
 ' Colt t). Barnes (1879), 64 Ala. 108; road company, the trustee, and, through 
 
 s. c. 7 Am. & Eng. R. R. Cas. 129. the trustee, all the bondholders, had 
 
 '^ Sage V. Central EaOroad Co. (1878), entered." 
 99 U. S. 334, 341. 
 
730 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIII. 
 
 lienors had filed cross-bills, instead of obtaining leave to file 
 original bills, the proceedings were irregular. ^ 
 
 § 746. Conformity of Decree to Mandate of Appellate Court. — A 
 mandate from the federal Supreme Court to a Circuit Court, 
 which in substance directs the latter to ascertain the amount of 
 moneys in the hands of the receiver, and apply it to the payment 
 of the interest,- and also, in the event of there being a deficiency 
 after such application, to fix a date at which it must be paid or 
 the property sold to satisfy it, does not mean that the rendition 
 of the decree shall be postponed until the receiver's accounts 
 are settled. Such a mandate has reference to the sum actually 
 in the receiver's hands, which is properly applicable to the 
 payment of the complainants' debt, and not to what, as it might 
 appear upon a full investigation, ought to be available for that 
 purpose. 2 
 
 § 747. Provisions of Ordinary Decree of Foreclosure. — A decree 
 of foreclosure and sale must declare the fact, nature, and extent 
 of the default which constituted the breach of the condition of 
 the mortgage, and which justified the complainant in filing the 
 bill for foreclosure ; also the amount due on account of the 
 default, which, with any further sums subsequently accruing and 
 becoming due according to the terms of the security, the mort- 
 gagor is required to pay within a reasonable time, to be fixed by 
 the court, and a direction that the property be sold if the sum 
 thus fixed is not paid within the appointed time.^ 
 
 1 Bound I). South Carolina Ry. Co. order a sale of the mortgaged property, 
 (1893), 58 Fed. Rep. 473 ; s. o. 7 C. C. A. with a. foreclosure of all rights subordi- 
 322. Date to the mortgage, with directions to 
 
 2 Milwaukee & Minnesota R. Co. v. bring the purchase-money into court. If 
 Soutter (1875), 2 Wall. 510. the case proceeds thus far, the plaintiflF 
 
 " Chicago, Vincennes, & Danville R. will have a lien on the money thus paid 
 Co. V. Fosdick (1883), 106 U. S. 47, 70 ; into court, not only for his overdue cou- 
 s. 0. 12 Am. & Eng. R. R. Cas. 367, refer- pons, but for his principal debt, and it 
 ring to the following passage from the must be provided for in the order dis- 
 opinion in Howell v. Western Railroad tribnting the proceeds of the sale. If, 
 Co. (1876), 94 U. S. 463, as containing an however, the company shall pay the sum 
 authoritative statement of the practice to found due in the decree nisi, no further 
 he followed in cases where a bondholder is proceeding can be had until another de- 
 foreclosing for unpaid interest. fault of interest or of the principal." 
 
 "The plaintiff is entitled to a decree Under the English practice a declara- 
 
 nisi for the amount overdue and unpaid, — tion of charge of mortgage debentures 
 
 a decree which will ascertain the sum so issued by a corporation upon the corporate 
 
 due, and give the company a reasonable property is a proper preface to a judgment 
 
 time to pay it, say ninety days or six for sale of the assets at the instance of a 
 
 months, or until the next term of the debenture-holder : Parkinson v. Wainright 
 
 court, at the discretion of that court. If (1895), 64 L. J. Ch. N. S. 493 ; but court 
 
 this sum is not paid, the court must then cannot declare priorities : Brinsley v. Lyn- 
 
§ 747.] FORECLOSURE DECREES. 731 
 
 The rule that the amount unpaid should be stated is applicable 
 whether the priacipal is due or not.^ 
 
 In a suit on a general mortgage, the decree can only be 
 framed with reference to the interest unpaid thereon, where the 
 divisional mortgagees are not parties to the proceedings.^ 
 
 A provision that the purchaser shall be put in possession of 
 the property, though not usual, does not vitiate a foreclosure 
 decree. It simply anticipates what must be done after the 
 sale.-'' 
 
 A decree which includes the amount of the principal, when it 
 is not due according to the terms of the mortgage, is erroneous, 
 and will be opened.* 
 
 To give a trustee judgment for the money found to be due in 
 a foreclosure suit has been held to be erroneous, the proper 
 course being for the court to retain control over it for the benefit 
 of those who are entitled to it.^ 
 
 The decree can embrace only those who are parties to the 
 I suit. Hence the decree foreclosing a general mortgage cannot 
 include any provisions as to the unpaid interest on the divisional 
 bonds, where the holders are not before the court. ^ 
 
 Where a corporate mortgage has been foreclosed in a court of 
 equity, and a sale of the property decreed and made, if upon 
 an appeal the decree of sale is declared null, on a motion to 
 have the purchaser restore the property to the defendants, it is 
 in the power of the court to impose a condition upon the parties 
 that they pay into court the amount which had been paid in cash 
 by the purchasers under the decree of sale, to be disbursed for 
 costs, etc., before the property be restored to them. And, if 
 they fail to make the payment, the court may decree a resale of 
 the property, and reserve the adjudication of the conflicting 
 rights until the sale has been made.^ 
 
 ton, etc. Co. (1895), 13 Rep. 369. See also ' Vicksburg & Meridian R. Co. u. Mc- 
 
 Marwick v. Thurlow (1895), 13 Rep. 481. Cutchen (1876), 52 Miss. 645. 
 
 On judgment directing moneys in court * Ohio Central R. Co. v. Central Trust 
 
 or hands of receiver to he applied on ac- Co. of New York (1890), 133 U. S. 83 ; 
 
 count of amount due, see Cummingi;. Met- s. C. 10 Sup. Ct. Rep. 235. 
 
 calfe's London Hydro, Limited (1895), 13 ' Bard.stown & Louisville R. Co. v. 
 
 Eep. 501. Metcalfe (1862), 4 Met. (Ky.) 199. 
 
 1 Grape Creek Coal Co. v. Farmers' ° Union Trust Co. u. St. Louis, Iron 
 Loan & Trust Co. (1894), 63 Fed. Rep. Mountain, & Southern R. Co. (1878), 5 
 891 ; s. c. 12 C. C. A. 350. Dill. 1. 
 
 2 Union Trust Co. a. St. Louis, Iron ' Alahama & Ga. Manuf. Co. et al. v. 
 Mountain, & Southern R. Co. (1878), 5 Robinson, 72 Fed. Rep. 708 ; s. c. 19 C.C. 
 Dill. 1. A. 152 (1896), afiirming Same v. Same, 67 
 
 Fed. Bep. 190. 
 
732 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIII. 
 
 § 748. Judgment for Deficiency. — In the absence of some 
 provision in the mortgage accelerating the maturity of the 
 l9onds, in the event of a default in the payment of interest, a 
 personal judgment for the balance of the principal of the mort- 
 gage debt remaining after the proceeds of a sale in foreclosure 
 proceedings instituted on the ground of such a default cannot be 
 made ; for this would be equivalent to ordering the defendant to 
 pay an indebtedness' which is not yet due.^ 
 
 § 749. Provisions of Decree foreclosing Mortgage on Road in 
 Possession of Junior Mortgagee. — Where a first mortgage is being 
 foreclosed on a railroad in possession of a second mortgagee, 
 whom it is proposed to hold to account for the earnings of the 
 property managed by him, the decree should be that the account 
 be first taken and stated ; that a reasonable time should be given 
 for the redemption from the sale under the second mortgage, and 
 for the payment of such balance as should be found due on the 
 first-mortgage debt, after deducting the net earnings of the 
 property; and that, in default of such redemption and pay- 
 ment, the property be sold in satisfaction of the first-mortgage 
 debt. 2 
 
 § 750. Provision of Decree directing Sale subject to Liens. — In 
 the common case of the foreclosure of a junior mortgage, it must 
 
 ^ Ohio Central Ry. Co. v. Central Trust ficiency was held allowable under the 92d 
 
 Co. of New York (1890), 133 U. S. 83 ; rule in equity of the courts of equity of 
 
 s. 0. 10 Sup. Ct. Rep. 235 (see the ex- the United States. The owners of a cer- 
 
 tract from the opinion quoted in the note to tain amount of a fixed issue of dehent- 
 
 §745, above), s. p. Farmers' Loan & Trust ures of a company brought an action in 
 
 Co. r. Grape Creek Coal Co. (1894), 65 behalf of himself and the other holders of 
 
 Fed. Eep. 717 ; s. c. 13 C. C. A. 87. that issue, and asked a personal judgment 
 
 In Jesupw. City Bank of Racine (1861), that might reach other property of the 
 14 Wis. 331, it was held, that, after the company not embraced in the security, 
 repeal of the statute authorizing the join- The court declined to do this, but de- 
 der of the legal cause of action on the clared that the holders of the whole issue 
 bond or note, such a joinder was not per- of debentures were entitled to stand in the 
 missible, unless both causes of action position of judgment creditors for the 
 affected all the parties, according to the amount, and appointed a receiTer for the 
 provisions of the Code on that subject ; property seizable by a judgment creditor, 
 and that, as a result of this doctrine, no Hope v. Croydon & Norwood Tramways 
 personal judgment for the deficiency could Co. (1887), 34 Ch. Div. 730. Compare 
 be taken in a suit in which some of the par- Bowen v. Breem Ry. Co., 3 Eq. 541 ; Fur- 
 ties are brought in as subsequent incum- ness v. Caterham Ry. Co. , 27 Beav. 358 ; 
 brancers merely, and therefore cannot be In re Uruguay Central & Hyguersitas Ry. 
 afiected by that cause of action which Co. of Monte Video (1879), 11 Ch. Div. 
 seeks for a personal judgment against the 372. 
 
 mortgagor. See Seattle, Lake Shore, & ^ Racine & Mississippi R. Co. v. Farm- 
 Eastern Ry. Co. i7. Union Trust Co. (1897), ers' Loan & Trust Co. (1868), 49 111. 
 79 Fed. Rep. 179, where a decree for de- 331. 
 
§ 751.] FORECLOSURE DECREES. 733 
 
 direct the sale to be made subject to the burden of the prior 
 incumbrances.^ 
 
 And as a prior incumbrancer ought not to be deprived of the 
 right of bidding for the property up to the amount of his claim, 
 his right of priority, if in dispute, ought to be settled before the 
 sale.^ 
 
 Where the railroad is ordered to be sold subject to the burden 
 of the underlying mortgages, the decree may properly state that 
 all the parties to such mortgages may proceed to foreclose them 
 in the proper tribunals, if they so desire. Under such circum- 
 stances the amounts due on such mortgages may be given, but it 
 is usual and proper to include in the decree some proviso to the 
 effect that the " statements therein of the amount of bonds out- 
 standing, or of interest or rental, paid or unpaid, on any of the 
 mortgages shall not be taken as adjudicating or determining the 
 matters so stated, and that the amounts are stated only for 
 the purpose of enabling the parties who may desire to purchase 
 the property to determine approximately the amount of prior 
 liens or other charges upon that property and each part 
 thereof." ^ 
 
 If the property has been placed in the hands of a receiver 
 pending the litigation, and certificates issued by him, the decree 
 may properly provide that the purchasers shall take the property 
 subject to the duty of paying off the debts evidenced by such cir- 
 tificates, as well as any other debts which may have been created 
 by the court, and that the receivei's shall remain in possession of 
 the property until such time as a payment shall be made of these 
 obligations, or adequate security furnished for such payment.* 
 
 In such a case the receiver may also be required to file a de- 
 tailed statement of his outstanding obligations, so that their 
 amount may be known with sufficient certainty to enable pur- 
 chasers to bid with confidence.^ 
 
 § 751. Provision of Decree directing Sale before Settlement of Con- 
 troversies regarding the Final Disposition of Assets. — The common 
 
 1 Central Trust Co. v. Watash, St. ' Central Trust Co. v. Wabash, St. 
 Louis, & Pao. R. Co. (1886), 29 Fed. Rep. Louis, & Pac. R. Co. (1887), 30 Fed. Rep. 
 618, 621. 332, 336. 
 
 2 Campbell v. Texas & New Orleans R. * Central Trust Co. v. Wabash, St. 
 Co. (1872), 2 Woods, 263. Louis, & Pac. R. Co. (1886), 29 Fed. Rep. 
 
 For a discussion by a divided court as 618, 621. 
 to the proper remedy by which to enforce ^ Bound v. South Carolina R. Co. 
 
 a lien upon a portion of a railroad reserved (1893), 58 Fed. Rep. 473; s. c. 7 C. C. 
 
 in a saving clause of a decree, see Compton A. 322. 
 V. Jesup (1895), 68 Fed. Rep. 263. Also 
 (1897), 167 Cr. S. 1. 
 
734 RAILWAY BONDS AND MORTGAGES, [CHAP. XXXIII. 
 
 practice of the courts in regard to sales under trust mortgages is 
 to require that, if there are prior liens, either contested or doubt- 
 ful, or not precisely ascertained, such liens shall be ascertained, 
 so that they may be made known to the purchaser, for otherwise 
 he can have no knowledge of what he is buying.^ 
 
 If some of the liens are alleged to be prior, and others subse- 
 quent, to the trust deed, this same necessity of making known to 
 the purchasers which of. them are prior, and which are subse- 
 quent, demands that their relative rank shall ordinarily be ascer- 
 tai:^ed before the sale.^ 
 
 An interlocutory order for an immediate sale upon terms dis- 
 charging the lien of a mortgage not yet due will never be made, 
 unless it clearly appears that in the end there must not only be a 
 sale, but a sale on those terms.^ 
 
 But although the courts will usually proceed on the principle 
 that all disputed questions should be settled before the sale, so as 
 to obviate the danger of deterring bidders, and thus sacrificing 
 the property, this rule is subject to the reasonable qualification 
 that wherever it is apparently in the interest of the parties that 
 there should be a speedy sale of the property, the court may 
 properly decree that the whole property be sold free from all 
 incumbrances, whether mortgages, receiver's certificates, costs, 
 expenses, etc., and that all disputes and controversies between 
 the trustees of the various mortgages, and all questions regarding 
 the amount due to the bondholders, be reserved for future con- 
 sideration and determination, unaffected by anything in the 
 decree.* 
 
 1 Washington, Alexandria, & George- In Middleton v. New Jersey West Line 
 town R. Co. V. Alexandria & Washington R. Co. (1874), 25 N. J. Eq. 306, a sale 
 B. Co. (1870), 19 Gratt. (Va.) 592. free from incumbrances, ordered by virtue 
 
 2 Ibid. of a statute, was objected to by the mort- 
 " Pennsylvania K. Co. i;. Allegheny Val- gagees in a mortgage on one part of the 
 
 ley R. Co. (1890), 42 Fed. Rep. 82, dis- property, on the ground that they were 
 
 tinguishing First Nat. Bank of Cleveland unable to protect their interest thereunder, 
 
 o. Shedd (1886), 121 U. S. 74. and by the mortgagees in a mortgage on 
 
 * First Nat. Bank of Cleveland v. another part of the property on the ground 
 
 Shedd (1886), 121 U. S. 74. that it would deprive them of a portion of 
 
 In Tome v. King (1891), 64 Md. 166; their remedy for the security and collection 
 
 8. c. 21 Atl. Rep. 279, it is stated that of their debt, and was therefore unconsti- 
 
 among the orders made by the lower court tutional. The Chancellor, in view of the 
 
 was one directing the sale, free of all in- fact that an appeal would, in any case, be 
 
 cumbrances, at the instance of the tnistee taken, declined to express an opinion on 
 
 of a second mortgage, upon a representa- those points, and madeanorderpro/on)«i, 
 
 tion that the state of the property was based on the theory that the objection of 
 
 such as to render it wholly unproductive, the former mortgagees was well founded, 
 
 anil that a sale thereof was called for in and that the objections of the latter were 
 
 the interest of all parties. not sustainable. The first part of this order 
 
§ 761.] 
 
 FORECLOSURE DECREES. 
 
 735 
 
 The mere fact that some of the creditors might, by acquiring a 
 knowledge of the precise interest they have in the proceeds, be 
 placed in a more advantageous position for participating as bid- 
 ders in the sale will not justify a delay which will prejudice the 
 estate.^ 
 
 The result of a sale free from incumbrances is that the pur- 
 chasers, as a condition of receiving a complete title, are only 
 required to pay the amount bid.^ 
 
 A decree ordering a sale free from incumbrances, and reserv- 
 ing to the parties the right to redeem in the ordinary manner, 
 upon paying the several amounts found due on the various claims 
 against the defendant, will not be raised at the instance of a por- 
 tion of the lienors, who seek to have the sale made subject to all 
 incumbrances prior to the mortgage foreclosed, and all arrears of 
 interest on those incumbrances paid from the proceeds, where 
 the petitioners make no offer to bid an amount sufficient to pay 
 those arrears, or any of the costs and expenses of the suit.^ 
 
 When the threatened delay in the determination of validity of 
 claims affects only a portion of them, the court will sometimes 
 order the purchaser to pay enough to meet all claims then defi- 
 nitely ascertained, and that the property be subject to those after- 
 wards settled.* 
 
 does not seem to have been appealed 
 against, and the validity of the scheme 
 was tested in the higher court, not with 
 reference to its constitutionality, hut to 
 the first question, whether the statute au- 
 thorized a sale free from incumbrances in 
 the given case. This statute allowed such 
 a sale, provided (1) "the legality of the 
 mortgage or other lien was brought into 
 question," and (2) "the property was of 
 a character to deterioriate materially pend- 
 ing the litigation." The counsel for the 
 mortgagees sought to confine the operation 
 of the first clause to cases in which legal 
 objections were raised as to the validity of 
 the mortgage itself; but the court held 
 this construction was altogether too nar- 
 row, and that the remedy was intended to 
 take effect wherever there was any litiga- 
 tion between incumbrances respecting the 
 validity, extent, or priority of their liens. 
 
 ^ Hand v. Savannah & Charleston R. 
 Co. (1880), 13 S. C. 467; s. c. 12 Am. & 
 Eng. R. R. Cas. 488. 
 
 2 Swann v. Wright's Kxrs. (1884), 110 
 U. S. 690, 598. 
 
 " Bound V. South Carolina Ey. Co. 
 (1893), 58 Fed. Rep. 473. 
 
 * Turner v. Indianapolis, B. & W. R. 
 Co. (1878), 8 Biss. 385. In this case the 
 sale, instead of being made subject to such 
 judgments, taxes, and leases, and a pay- 
 ment by the purchaser of such sum, in 
 cash or certificates of the receiver, as 
 should be necessary to pay that portion of 
 the receiver's debts made in the operation 
 of the main line of railroad, not thereto- 
 fore directed to be assumed by the pur- 
 chaser, with such other claims as should 
 be allowed by the court on appeal to the 
 Supreme Court, was made in pursuance of 
 amendment to the decree in the lower 
 court, to the efi'ect that the sale should be 
 made subject to the judgments for rights 
 of way, to the taxes, to a certain lease 
 made by the receiver, and also to certain 
 debts which might be due from the re- 
 ceiver, as well as to such claims as might 
 be allowed by the court on appeal to the 
 Supreme Court of the United States. 
 Judge Drummond said in regard to this 
 : "It was, so to speak, simply 
 
736 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIII. 
 
 The sole essential condition to the validity of an order requir- 
 ing the payment of undisputed claims, and leaving for future 
 ascertainment the interests of persons claiming admission to the 
 several classes of creditors, is, that the debts paid have a clear 
 priority over those remaining to be ascertained.^ 
 
 In determining whether an immediate sale shall be ordered, 
 the court will be governed largely, if not altogether, by the wishes 
 of the parties interested.^ 
 
 In other cases the sale will be ordered subject both to those 
 liens which have already been established as superior in rank to 
 that of the mortgage, and also to all liens of that character which 
 may be established by references pending at the time of the 
 decree.^ 
 
 Unanimity among the bondholders is, of course, desirable in 
 such a case ; but if circumstances point strongly to the expediency 
 of an immediate sale, and the largest part of the bondholders are 
 in favor of it, the court will not hesitate to order it. A small 
 minority of the bondholders cannot, against the wishes of the 
 trustees and the rest of their co-bondholders, procure the post- 
 ponement of the sale until all disputed questions as to the distri- 
 bution of the proceeds are settled. Under such circumstances a 
 representation by such minority that the "bidding will be de- 
 terred on account of the risk and uncertainty, and the property 
 will be in great danger of being sacrificed," cannot be allowed to 
 
 changing the amount of money which was Co. (1880), 13 S. C. 467 ; s. c. 12 Am. & 
 
 required to be bid for the property. Un- Eng. R. K. Cas. 488. 
 doubtedly it would have been better, and ^ In Turner v. Indianapolis, B. & W. E. 
 
 much more satisfactory, if the court, be- Co., supra, the action of the court was 
 
 fore it had ordered a sale under the origi- concurred in by all the parties in interest, 
 
 nal decree, could have informed the parties In Middleton v. New Jersey West Line 
 
 who might purchase the property what R. Co. (1874), 25 N. J. Eq. 306, a sale 
 
 was the precise amount of liens upon it. free from incumbrances was decreed at 
 
 But that, in the nature of the case, was the instance of the receiver, although the 
 
 impossible, unless the sale of the property bondholders had not expressed any formal 
 
 had been delayed until the final determi- wish to that effect, either individually or 
 
 nation of these various claims by the Su- through the trustees, there being a strong 
 
 preme Court of the United States, which impression on the Chancellor's mind that 
 
 might have involved the retention of the a large part of the bondholders were in 
 
 property by the court for several years, favor of such action. In Randolph v. 
 
 Therefore it was thought best by the Lamed (1876), 27 N. J. Eq. 557, the Court 
 
 court, and by the parties who are interested of Errors and Appeals reversed this order, 
 
 in the property, that it should be sold, and on the ground that this impression was a 
 
 that the purchaser should pay enough to wrong one 
 
 meet all the claims then definitely ascer- ^ gwan v. Wright's Exrs. (1884), 110 
 
 tained, and that the property should be U. S. 590, 598. In this case the sale had 
 
 subject to those adjudicated hereafter." originally been ordered free of incum- 
 
 1 Hand v. Savannah & Charleston E. brances, and afterwards modified. 
 
§§ 752-754.] PORECLOSDRE DECREES. 737 
 
 prevail against the opposing consideration that the financial con- 
 dition of the company under the administration of the receiver is 
 steadily growing worse. ^ 
 
 § 752. Decree preserving Lien of Unmatured Part of Debt. — In 
 a proper case a court of equity has the power so to mould its 
 decree as to order a sale of mortgaged property to satisfy that 
 part of the mortgage debt which is overdue, and preserve the lien 
 on the mortgaged property in the hands of the purchaser as to 
 the unmatured part of the debt. Thus where the P. company 
 indorsed the bonds of the A. company, with a stipulation binding 
 it to purchase at maturity the bond and each coupon at par, and 
 providing that, when so purchased, each and all of said bonds and 
 coupons are to be held by the said company, with all the rights 
 thereby given, and with all the benefit of every security therefor, 
 and the P. company, having been obliged to purchase coupons, 
 filed a bill before the maturity of the bonds, it was held that the 
 contract was to be so construed as to preserve to the bondholders 
 their lien until the P. company should have fully performed its 
 obligations according to the tenor of its indorsement, and that, 
 in the meantime, its remedies upon purchased coupons must be 
 kept within such limits as will effect that object. The court 
 being of opinion that the original bill was framed upon the true 
 theory of the equitable rights of the parties, decreed, in accord- 
 ance with its prayer, that the sale should be made under and 
 subject to the lien of the mortgage as to the principal of the bonds 
 secured thereby, and the interest payable after the sale.^ 
 
 § 753. Decree ordering Trustee to sell before Maturity of Bonds, 
 though not authorized by Trust Deed. — A trustee may be ordered 
 to sell before maturity of bonds, though the mortgage does not 
 in terms authorize a sale upon default in payment of interest, if 
 that is the only way in which the security can be saved. A 
 sale under such a mortgage has been held to have been properly 
 decreed, where the evidence showed that the mortgagor was 
 insolvent; that a subsequent purchaser of the road, under a 
 junior incumbrance, would do nothing to discharge the interest; 
 that the road, if operated by the trustee, would be run at a 
 loss, and, if unused, would decay. ^ 
 
 § 754. Decree may find Amount due on Bonds, before Proof of 
 same. — A decree is not necessarily objectionable because it 
 
 1 First Nat. Bank of Cleveland v. ' McLane v. Plaeerville & Sacramento 
 Sliedd (1886), 121 U. S. 74- Valley R. Co. (1885), 66 Cal. 606 ; s. c. 
 
 2 Pennsylvania R. Co. v. Allegheny 26 Am. & Eng. R. R. Cas. 404. 
 Valley K. Co. (1891), 48 Fed. Rep. 139. 
 
 47 
 
738 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIII. 
 
 undertakes to declare and find the amount due under each of the 
 several mortgages foreclosed, before the bonds have been regu- 
 larly produced and proved.^ 
 
 § 755. Decree nisi may be rendered before Production of Bonds. 
 — In a suit to foreclose for default in the payment of interest, 
 a decree nisi may be rendered although the bonds are not pro- 
 duced, nor the various claimants identified. At that stage of 
 the action it is only necessary that the default and its amount 
 should appear. If the decree of sale is made absolute, the 
 holders of bonds can then be required to produce their bonds, 
 and all questions of ownership and of the amount due to each 
 claimant can be then determined.^ 
 
 § 756. Allowance of Time for Payment of Amount found due. — 
 In a suit seeking foreclosure for interest, there should be a 
 decree nisi for the amount due, and for sale of mortgaged prop- 
 erty, in case such amount is not paid at the appointed time.^ 
 
 Upon payment of the amount due, the decree will be sus- 
 pended until default occurs in the payment of interest.* 
 
 The time allowed for payment is within the discretion of the 
 court, but a period of four months is unreasonably short. If 
 the length of period to be allowed for redemption before final 
 sale is subject of an express enactment by a State, a federal 
 court sitting in that State will be guided by the terms of that 
 enactment, although the general rule is that such a court will 
 follow the federal procedure in foreclosure suits wherever it is 
 different from that of the State courts. The reason for thus 
 qualifying the general rule is that the rights of the mortgagor 
 cannot be adequately protected without allowing him the period 
 for redemption which he is entitled to by the lex looi contractus.^ 
 
 1 Toler D. East Tennessee, V. & G. E. (1865), 3 Wall. 196, provided that the 
 Co. (1894), 67 Fed. Rep. 168. mortgaged premises should be sold at pub- 
 
 2 Toler V. East Tenn., V. & G. R. Co. lie auction, unless the mortgagors should, 
 (1894), 67 Fed. Rep. 168, 181, citing prior to such sale, pay to the complain- 
 Guaranty Trust & Safe Deposit Co. v. ants the amount of the mortgage debt as 
 Green Core Springs & M. R. Co. (1891), specified in the decree. 
 
 139 U. S. 137, 150. The doctrine of the * Farmers' Loan & Trust Co. v. Chicago 
 
 text was reaffirmed in Northern Trust Co. & A. Ry. Co. (1886), 27 Fed. Rep. 146. 
 et al. V. Columbia Straw Paper Co. et al. ^ Jackson & Sharp Co. v. Burlington 
 
 (1896), 75 Fed. Rep. 936. & L. R. Co. (1887), 29 Fed. Rep. 474. 
 
 ' Farmers' Loan & Trust Co. v. Chicago There the court allowed the period of one 
 
 & A. Ry. Co. (1886), 27 Fed. Rep. 146 ; year, which was provided by the laws of 
 
 Chicago, Danvile, & Vincennes R. Co. v. Vermont in all cases in which the security 
 
 Fosdick (1883), 106 U. S. 47,70; Howell was not inadequate, and there were no 
 
 V. Western R. Co. (1876), 94 U. S. 463, other special reasons why the time should 
 
 from which a passage is quoted above, be shortened. 
 The decree in Blossom v. Railroad Co. 
 
§§ 757, 758.] FORECLOSURE DECREES. 739 
 
 § 757. Provisions of Decree reserving Control of the Property. — 
 
 Provisions in decree of foreclosure and order confirming the 
 sale, whereby the court retains authority to retake the property, 
 and resell it for failure on the part of the purchaser to comply 
 with the terms of sale, are intended as a reservation of jurisdic- 
 tion over the property, to be exercised in the event of such non- 
 compliance, and are not insei'ted to secure to that purchaser the 
 right to complete the purchase or not, as he pleases.^ 
 
 An order which would have the effect of setting aside the sale 
 altogether is not warranted by the fact that the order confirming 
 such sale contains the clause, " the right to any further order is 
 reserved,"^ or a clause reserving the power "to make further 
 orders respecting the claims, rights, or interests in, or liens on, 
 the property. " ^ 
 
 § 758. Modifications of Decree, and -what is a Final Decree. — A 
 deci-ee which terminates the litigation between the parties on 
 the merits of a case is a final decree.* 
 
 A final decree cannot be vacated, altered, or modified after the 
 close of the term at which it was rendered.^ 
 
 A decree of sale in a foreclosure suit, which settles all the 
 rights of the parties, and leaves nothing to be done but to make 
 the sale and pay out the proceeds, is a final decree.® 
 
 A decree of foreclosure and sale was entered in railroad 
 
 1 Atkins V. Wabash, St. Louis, & Pac. for I do not see anything in this decree 
 Ry. Co. (1886), 29 Fed. Eep. 161, 170. which requires the delivery of the posses- 
 
 2 Wetmore a. St. Paul R. Co. (1880), sion, — probably for the making of a deed, 
 3 Fed. Kep. 177, 180. Mr. Justice Miller (for I do not see anything here about the 
 said: "The language of that order dif- making of a deed). There are fifty things 
 fers but little from the ordinary language you can imagine which would be consist- 
 made use of in decrees, to the effect that ent with the confirmation of the sale, 
 ' further orders may be made upon a foot- and which might yet require further 
 ing of this decree;' and I cannot believe orders of the court." 
 
 that when it was made it was in the con- ' Farmers' Loan & Trust Co. u. New- 
 
 tciMplation of the court who was confirm- man (1888), 127 U. S. 649; s. 0. 8 Sup. 
 
 ing tliis sale tliat the ' further order ' Ct. Eep. 1364. 
 
 there spoken of was such an order as * Bostwick v. Brinckerhoff (1882), 106 
 
 would set aside the sale. That was the U. S. 3 ; s. 0. 1 Sup. Ct. Eep. 15. 
 thing they were passing upon." Further ^ Bronson b. Schulten (1881), 104 U. 
 
 on he continues: "It is much more in S. 410; Williams ij. Morgan (1884), 111 
 
 conformity with reason, with precedent, U. S. 684 ; s. c. 4 Sup. Ct. Eep. 638 ; 
 
 and common sense, to believe that the Central Trust Co. v. Grant Locomotive 
 
 ' further orders' referred to here are such Works (1890), 135 U. S. 207, 224 ; s. o. 
 
 orders as might be necessary for the dis- 10 Sup. Ct. Rep. 736. 
 trihntion of the funds, as between the * Grant v. Phoenix Insurance Co. 
 
 parties and the payment of the bonds (1882), 106 U. S. 429 ; s. c. 1 Sup. Ct. 
 
 which had to come in, and which might Eep. 414 ; Green v. Fisk (1880), 103 U. S. 
 
 be disputed as to their ownership — prob- 518 ; Railroad Company v, Swasey (1874), 
 
 ably for the delivery of the possession, 23 Wall. 405. 
 
740 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIII. 
 
 foreclosure proceedings, with a reference to the master to ascer- 
 tain and report the amount of the mortgage indebtedness, the 
 proper allowances to be made as compensation to and for 
 expenses of the receiver, the amount of outstanding receivers' 
 certificates, and proper allowances to the trustee and its solici- 
 tors. The master reporting, a decree was entered confirming 
 his report, though no sale had then been made. This latter 
 decree, taken in connection with and aided by the former, was 
 held to have terminated the litigation on the merits, fixed the 
 rights of the parties, and that consequently it was a final decree, 
 and was not subject to alteration or modification after the close 
 of the term.i 
 
 After the expiration of the term in which a final decree is 
 entered, the court cannot change its essential parts. ^ 
 
 But this rule does not apply to an interlocutory decree, such 
 as one allowing petitioning bondholders to come in and partici- 
 pate in the undisturbed residuum of a fund. Such a decree may 
 be altered or vacated at any time, with or without a motion for 
 that purpose.^ 
 
 On the other hand, even a final decree may be amended after 
 the end of the term, as to the mode of its execution, manner of 
 sale, time of publication of such sale, and distribution of pro- 
 ceeds arising therefrom. Thus a decree which provides that 
 purchasers shall pay enough in money to liquidate certain judg- 
 ments, taxes, and other claims, if they shall be allowed, may be 
 amended during a subsequent term by providing that the 
 property shall be sold subject to the judgments, taxes, claims, 
 etc., in the hands of purchasers.* 
 
 A decree in which the property to be sold, and method of sale, 
 are stated, and rights of parties determined, will not be altered 
 on eve of sale, long after it has been filed, at instance of an 
 applicant who alleges a difficulty in understanding its terms, 
 no party to the suit having previously objected to it.^ 
 
 '' Petersburg Sav. & Ins. Co. et al. and without the consent of, adverse par- 
 
 V. Dellatorre et al. (1895), 70 Fed. Rep. ties, and was held to have been properly 
 
 643. vacated, although the first two days of 
 
 As to modification of decrees in fore- the ensuing terra, the period within which 
 
 closure suit, see Farmers' Loan & Trust applications for the vacation of decrees 
 
 Co. et al. V. Oregon Pac. R. Co. et al. were required to be made under the rules 
 
 (Oregon, 1895), 40 Pac. Eep. 1089. of court, had already expired. 
 
 2 Turner v. Indianapolis, B. & W. Ry. * Turner v. Indianapolis, B. & W. Ry. 
 
 Co. (1878), 8 Biss. 380. Co. (1878), 8 Biss. 380. 
 
 ^ Pinkard v. Allen's Admr. (1883), 75 ' Duncan v. Atlantic, Mississippi, & 
 
 Ala. 73. There the decree in question had Ohio Ry. Co. (1882), 4 Hughes, 125, 
 
 been made in vacation, without notice to, 131. " If," said the court, " there is any 
 
§§ 759, 760.] FORECLOSUEE DECREES. 741 
 
 Article IL — Effect of Decree. 
 
 § 759. Effect of Foreclosure Decree generally. — In the absence 
 of any statute to the contrary, the foreclosure cuts off all rights 
 and interests of mortgagor in mortgaged property, and nothing 
 is left for general creditors and stockholders save their interests 
 in the surplus after mortgage is satisfied. ^ 
 
 This result is not affected by the fact that the purchase is 
 made in pursuance of a plan of reorganization authorized by 
 statute. Such a plan has reference only to the new corporation. ^ 
 
 " Where there is a fund in court to be distributed among a 
 class of creditors, a decree of distribution which seems to make 
 no provision for some of the class will not ordinarily preclude 
 any of the class having rights similar to those of other claimants 
 from asserting, by bill or petition, their rights to a share in the 
 fund. "3 
 
 § 760. Conclusiveness of Decree. — It may be said in general 
 that a judgment or decree affirming the existence of any fact is 
 conclusive upon parties or their privies, whenever the existence 
 of such fact is again in issue between them. 
 
 Hence if a court of competent jurisdiction, after full hearing 
 as to validity of bonds, has pronounced them void, a bill to 
 charge a successor corporation with such bonds will not be 
 entertained by any other court;* provided the person who seeks 
 to raise the same questions in a second suit was not prevented 
 from raising them in the former suit by the wrongful act of the 
 other party. ^ 
 
 Where the validity of a trust deed has been determined in 
 the prior suit, that question cannot again be litigated between 
 the same parties, although the allegations of the first bill are 
 supported and fortified by other charges, where no reason is 
 given why the supplementary allegations were not included in 
 the former bill.® 
 
 A State court receiver in a stockholder's suit, and afterwards 
 
 difficulty created by its terms in the bid- ^ Ibid. 
 
 ding, and it can be shown after the sale ^ Lurton, Circuit Judge, in Burke v. 
 
 that bidders were hindered by any ob- Shortt (1897), 79 Fed. Rep. 6, 8. 
 
 scnrity or harshness of its terms, the * Beals v. Illinois, M. & T. E. Co. 
 
 party suffering from that defect can come (1886), 27 Fed. Eep. 721. 
 
 into court and object to the ratification of ^ Brooks & Hardy v. O'Hara Bros. 
 
 the sale on that ground." (1881), 8 Fed. Eep. 529. 
 
 1 Vatable et al. v. New York, Lake « State v. Brown (1885), 64 Md. 199 ; 
 
 Erie, & Western E. Co. (1884), 96 N. Y. s. c. 1 AtL Rep. 54 ; 6 Atl. Rep. 172; 24 
 
 49 ; s. 0. 17 Am. & Eng. K. E. Cas. 268. Am. & Eng. R. E. Cas. 192. 
 
742 RAILWAY BONDS AND MOETGAGES. [CHAP. XXXin. 
 
 in a bondholder's, suit, who, upon removal of latter suit to 
 federal court, pays in the amount found due upon an account- 
 ing, and has his compensation fixed at the same time, the judg- 
 ment rendered on the appeal of the whole case is conclusive 
 as to the point that the liability of the fund to him has been 
 fully disccharged ; and he cannot make good a claim for addi- 
 tional compensation by reinstating the stockholder's suit on the 
 docket of the State court, and procuring an order from that 
 court granting him a further allowance.^ 
 
 The principle of res judicata also extends to the grounds of 
 defence or recovery which might have been, but were not, pre- 
 sented in former suit.^ 
 
 A foreclosure decree which adjudges that defendants named, 
 including one who holds a mortgage prior in date, but distinctly 
 alleged in the bill to constitute a subordinate lien, shall be 
 barred and foreclosed, etc., determines the question of priority 
 raised, although it does not expressly state that such defendant's 
 mortgage is inferior to one in suit.^ 
 
 So a prayer that the mortgage be decreed a first lien on the 
 road and franchises, coupled with the joinder of certain con- 
 tractors as defendants, and an allegation that they set up claims 
 against the road, which complainant does not admit to be of any 
 validity against his mortgage, constitute sufficient grounds for 
 a decree to sell the mortgaged property, discharged of all liens, 
 the result being that the contractor's claim is thereby concluded.* 
 
 Although claim of a creditor for services is paramount under 
 a statutory provision to the mortgage, yet if creditor is made 
 a party to a foreclosure in which the validity of his claim is 
 denied, and after appearance suffers the bill to be taken pro eon- 
 fesso, he will be estopped from asserting a lien upon property in 
 hands of purchaser, under a decree that the sale shall convey 
 title discharged of all liens and claims. The rights of the 
 creditor are not strengthened in such a case by the fact that he 
 
 1 In re Hinckley (1880), 3 Fed. Rep. action between the same parties is not res 
 556 ; s. c. sub. nom. Htackley v. Morton adjudicata aa to an action in another 
 (1881), 103 U. S. 764. district. Compton v. Jesup (1897), 167 
 
 2 Beloit o. Morgan (1868), 7 Wall. tj. S. 1. 
 
 619, 622; States. Brown (1885), 64 Md. ' Board of Supervisors w. Mineral Point 
 199; s. 0. 1 Atl. Rep. 54; 6 Atl. Eep. E. Co. (1869), 24 Wis. 93. 
 172; 24 Am. & Eng. R. R. Gas. 192; « Woods & MoBrown w. Pittsburg, Gin- 
 Bell V. Chicago, St. Louis, & N. 0. R. Co. cinnati, & St. Louis Ry. Co. (1881), 99 
 (1882), 34 La Ann. 785. Pa. St. 101 ; s. o. 7 Am. & Eng. E. R 
 
 A decree rendered in the United Cas. 478. 
 States Circuit Court for one district in an 
 
§ 760.J 
 
 FORECLOSURE DECREES. 
 
 743 
 
 reduced his claim to judgment before bill was filed in fore- 
 closure.^ 
 
 A bondholder is bound by decree giving priority to a levy as 
 against the mortgage when he does not show, in presenting his 
 claim, whether it arose before or after such levy.^ 
 
 On the other hand, claims which are neither expressly passed 
 upon by the decree, nor of such a character that their settlement 
 is necessarily involved in the decision actually rendered, are 
 not concluded by a decree of sale which virtually ignores the 
 pleadings in which the claims are presented, and contains no 
 reference to them, except an order that the portion of the com- 
 plainants' bill relating to those claims is to be consolidated with 
 the causes pending in the court against the same respondents, 
 and a provision reserving for the future consideration of the 
 court so much of the complainants' demand as asserts a first 
 lien upon certain specific personal property.^ 
 
 1 Woods & McBrown v. Pittsburg, Cin- 
 cinnati, & St. Louis Ry. Co. (1881), 99 
 Pa. St. 101 ; s. c. 7 Am. & Eng. E. R. 
 Gas. 478. 
 
 Chief Justice Sharswood said : " The 
 principal contention of the plaintiff has 
 been that there was no praj'er in the bill 
 that the road should be sold clear of all 
 incumbrances. If, then, contractors had 
 come and established their claim, no such 
 decree could have been made. The sale 
 would have been necessarily subject to 
 their claim. It might well be that the 
 sale would not produce siifEcient to pay 
 them. The purchasers must then take 
 cum miere. But no such contractors mak- 
 ing defence, though summoned and ap- 
 pearing, the decree of sale could then 
 properly be made, as it was, clear of all 
 incumbrances. If all that the bill sought 
 was to ascertain who were lienholders to 
 be paid from the proceeds, they were un- 
 necessary parties. This they knew very 
 well ; they have, or ought to have, known 
 that they were made parties as having an 
 interest in the road paramount to the 
 mortgage. It is perfectly clear that the 
 object, and sole object, in making them 
 parties was to ascertain what claims the 
 road would be subject to in the hands of 
 the purchasers, so that bidders might 
 know for what they were bidding. They 
 appeared to the bill : they had the oppor- 
 tunity to prove their claim conclusively 
 
 against purchasers. They did not avail 
 themselves of it. When ruled to plead, 
 answer, or demur, they suffered the bill to 
 be taken pro confesso against them. What 
 did this mean ? Surely that they had no 
 such interest in the road, as contractors, 
 as would be set up against the mortgage. 
 They chose to take this course, and must 
 adopt the consequences." 
 
 ^ McKee et al. v. Grand Eapids & 
 Reed's Lake Street Ry. Co. (1829), 41 
 Mich. 274. 
 
 8 Simmons v. Taylor (1885), 23 Fed. 
 Rep. 849. 
 
 "In the consolidated suit," said Judge 
 Brewer in the course of his opinion, 
 "there was a decree barring the mort- 
 gagor's equity of redemption in default of 
 the payment of the mortgaged sum within 
 ten days after the decree, a finding of the 
 amount due under the three first mort- 
 gages, an order requiring the payment of 
 such sums within ten days, and an order 
 for a general execution for any balance of 
 such sums not realized upon the sales 
 ordered, — in short, everything to show a 
 foreclosure of those prior mortgages, and 
 an omission of all of those matters in 
 respect to this second mortgage. There 
 was no finding, no orders, no decree of 
 foreclosure against it as concerned this 
 second mortgage. In fact, there was no 
 other reference to it than in the simple 
 reservation for future determination by 
 
744 EAILWAY BONDS AND MORTGAGES. [CHAP. XXXIII 
 
 The rule to be applied in this and similar cases is that the 
 language of the decree must be construed in reference to the 
 issue which is put forward by the prayer for relief and other 
 pleadings, and which these show it was meant to decide. 
 Hence, though such language is very broad and emphatic, suffi- 
 ciently so, perhaps, when taken in the abstract merely, to 
 include the decision of questions between co-defendants, yet 
 where the pleadings, including the prayer for relief, are not 
 framed in the usual way in equity, when it is meant to bring the 
 respective claims and rights of co-defendants before the court, 
 but are framed as in a controversy between the complainant and 
 defendant chiefly or only, such general language will be held 
 down to these two principal parties alone. ^ 
 
 An action in which the validity of the bonds is put in ques- 
 tion is not barred by a decree in a former action in which that 
 question was not raised.^ 
 
 Where the United States Circuit Court has acquired jurisdic- 
 tion of foreclosures brought by trustees of principal mortgage, 
 and afterwards consolidated with various suits for foreclosure of 
 divisional mortgages brought by their several trustees, though 
 the diverse citizenship of parties, under decree of foreclosure, 
 has been made, a bill brought by stockholders of the defendant 
 corporation in the same court to set aside the decree in the 
 original consolidated cause, on allegations that it was obtained 
 
 the court of so much of its claim as party presenting it is in court. The 
 
 asserted a first lien upon certain specific rights of the various parties to a foreclos- 
 
 personal property. The decree, except as ure suit are determined by the nature of 
 
 to a, little matter of alleged priority in the decree entered. And nothing is deter- 
 
 respect to some personal property, ignores mined which is not expressly determined, 
 
 the answer and cross-bill filed by the or which is not impliedly settled by the 
 
 appointed trustee for this second mort- terms of the decree in fact entered." 
 
 gage." Counsel had taken the ground i Graham v. Chamberlain (1866), 3 
 
 that there was such a difference between Wall. 704. 
 
 the old proceedings for strict foreclosure. The owner of a judgment in the State 
 and the ordinary proceedings at the pres- court establishing a statutory lien upon 
 ent day for foreclosure by sale, that all railroad property, whose petition to be 
 the rights of all the parties to the suit are allowed the privilege of intervening in pro- 
 cut off by the sale. The learned judge ceedings in the United States Circuit Court 
 pronounced this doctrine to be too broadly has been discussed without prejudice, will 
 stated, saying : "I agree that every right not be enjoined from enforcing his judg- 
 presented and adjudicated for or against ment, for the reason that the property has 
 any mortgage or mortgagor is determined been sold under a decree of the United 
 by the decree, but I cannot agree that a States court. Blair v. Walker (1886), 26 
 right presented by bill or cross-bill, and Fed. Rep. 73. 
 
 unnoticed in the decree, and not absolutely 2 City of Chicago v. Cameron (1887), 
 
 necessary for determination in the decree, 120 111. 447 ; s. c. 11 N. E. Rep. 899. 
 is determined by the simple fact that the 
 
§§ 761, 762,] FORECLOSURE DECREES. 745 
 
 by collusion, fraud, etc., is an ancillary or auxiliary suit to the 
 main one. If such bill be dismissed, and the complainants 
 appeal from the order to the United States Circuit Court of 
 Appeals, and this latter court make a decree affirming the 
 decree of the Circuit Court, the decree of the Circuit Court of 
 Appeals is a final decree, within the provisions of the sixth 
 section of the act of March 3, 1891, and no appeal from it 
 will lie to the Supreme Court. ^ 
 
 A bondholder will not be allowed to intervene to have the 
 decree opened and himself allowed to make a defence after a 
 decree of sale in a foreclosure suit, upon his allegations that he 
 had first heard of the foreclosure suit after the advertisements 
 of the sale were posted, where he has been directly contradicted 
 by a witness, and the foreclosure is clearly shown to have been 
 long a matter of general discussion in the neighborhood where 
 the bondholder resided. ^ 
 
 § 761. FederEil Courts bound by Decisions of State Courts 
 respecting State Statutes. — Where the Supreme Court of the 
 State in which a federal court is held has decided that the fore- 
 closure of a mortgage under the law of that State was bona fide, 
 and in conformity with the State law, such judgment must be 
 held as furnishing the rule of decision to the federal court, 
 except, perhaps, as regards the question whether the State law 
 is constitutional, ** 
 
 § 762. Estoppel by Decree.* — Persons made parties to a fore- 
 closure suit, as subsequent Incumbrancers, whose rights were 
 already acquired, and existed at commencement of suit, are 
 bound to set up their claims and assert their rights in that suit, 
 on peril of being cut off and foreclt)sed, in respect to such 
 claims.^ 
 
 So far as regards the conclusiveness of the decree upon their 
 rights, it is immaterial what their liens actually are. That 
 they are brought in as judgment creditors, owing to the fact 
 
 1 Carey v. Houston & Texas Central which they are represented by a trustee is 
 Ry. Co., 161 U. S. 115 ; s. c. 16 Sup. Ct. discussed in another chapter. 
 
 Rep. 537 (1896). See also Carey v. Hous- * Benjamin v. Elmira, Jefferson, & 
 
 ton & Texas Central Ky. Co. (1893), 150 Canandaigua R. Co. (1867), 49 Barb. 441. 
 
 U. S. 170 180. Id this case a decree declaring a mortgage 
 
 2 Farmers' Loan & Trust Co. v. Rocka- of after-acquired property to be a valid 
 way Valley E. Co. et al. (1895), 69 Fed. lien thereon was held to conclude the 
 Rep. 9. plaintiffs, who had a chattel mortgage on 
 
 3 Sullivan v. Portland & Kennebec R. a part of the same property, but who, 
 Co. (1874), 4 Cliff. 212. although made parties to the suit, failed 
 
 * The extent to which bondholders are to litigate the question of the relative 
 bound by a decree rendered in a, suit in rank of the two liens. 
 
746 EAILWAY BONDS AND MORTGAGES. [CHAP. XXXIII. 
 
 that the plaintiff does not know that they hold a chattel mort- 
 gage on the property, is, in this point of view, of no 
 consequence.^ 
 
 A company purchasing the mortgaged property at a fore- 
 closure sale, subject to the lien of a mortgage of indemnity 
 given by the vendor company to secure a county for the loan of 
 its bonds, cannot question the validity of those bonds, when the 
 county itself has already raised that point by a cross-bill filed 
 in a creditor's suit against the vendor company, and that cross- 
 bill has been dismissed by a decree absolute in its terms. ^ 
 
 The transferee of the purchaser at the sale will not be 
 allowed to reopen an inquiry as to a claim which was pending 
 at the time decree was made, where sale is expressly made sub- 
 ject to all liens of certain classes, among which is the claim in 
 question, and the purchaser made no suggestion before the con- 
 firmation of the sale that he bought the property in ignorance 
 of the existence of these claims, or that the court should reserve 
 the right to establish them as liens superior to the mortgage; 
 and neither raised an objection that they had been allowed for 
 larger amounts than those originally contended for, nor asked 
 that, in view of their allowance, he be permitted to surrender 
 his purchase, so that the property might be resold for the benefit 
 primarily of those having first liens. ^ 
 
 A suit brought for general benefit of all stockholders, as, for 
 example, to stay a foreclosure sale on ground that trust deed is 
 invalid, is binding upon all of them, and they cannot thereafter 
 be heard to deny the right of the trustees to sell in accordance 
 with terms of deed of trust.* 
 
 The unsecured creditors of a railroad company, although not 
 parties to a foreclosure suit, are bound by adjudications rendered 
 therein ; as, for instance, by an order in which it is determined 
 that certain stocks and bonds which are not in terms covered by 
 the mortgage shall be held and dealt with by the receiver as 
 part of the fund subject to the lien of such mortgage, and by a 
 final decree in which it is determined that they shall be sold as 
 part of the mortgaged property. ^ 
 
 But no one who holds a specific lien upon the corporate 
 
 1 Benjamin v. Elmira, Jefferson, & * State v. Brown (1885), 64 Md. 199 ; 
 Canandaigua R. Co. (1867), 49 Barb. 441. s. c. 1 Atl. Eep. 54 ; 6 Atl. Eep. 172 ; 24 
 
 2 Wa-shington, Ohio, & W. E.. Co. v. Am. & Eng. E. R. Cas. 192. 
 Cazenove (1887), 83 Va. 744 ; s. 0. 3 S. » Herring v. New York, L. E. & W. 
 E. Rep. 433. E. Co. (1887), 105 N. Y. 340; s. c. 12 
 
 3 Swann v. Wright's Admrs. (1884), N. E. Eep. 763. 
 110 U. S. 590. 
 
§§ 763, 764.J FORECLOSURE DECREES. 747 
 
 property is bound by decree rendered in a foreclosure to which 
 he is not a party. Hence a decree declaring a mortgage a first 
 lien upon that property will not give it precedence over a lien 
 which is actually a prior one, held by one who has no notice of 
 the proceedings, and is not privy to the decree.^ 
 
 Similarly, as a decree does not conclude judgment creditors 
 whose petition to be allowed to intervene has been dismissed, 
 the latter will not, at the instance of the purchaser at the sale, 
 enjoin the creditors from enforcing their judgment lien.^ 
 
 Nor will a decree declaring a mortgage to be a first lien on 
 the property affect the rights of a judgment creditor who had 
 no notice of proceedings, and was neither a party nor privy to 
 the decree. The existence of such a decree is, therefore, no 
 defence to a scire facias to continue the lien against the com- 
 pany which has succeeded the original judgment debtor in the 
 ownership of the road.^ 
 
 § 763. Decree pro confesBo. — A decree taken pro confesso 
 against lienholders upon their failure to plead is as binding 
 upon them as if they had actually appeared and presented their 
 case to the court. ^ 
 
 § 764. Decree by Consent. — Parties to a suit have the right to 
 agree to anything they please in reference to the subject-matter 
 of their litigation, and the court, when applied to, will ordi- 
 narily give effect to their agreement, if it comes within the 
 general scope of the case made by the pleadings. Thus it is in 
 the power of the parties to a foreclosure suit to agree that a 
 decree may be entered for a sale of the mortgaged property, 
 without any specific finding of the amount due on account of the 
 mortgage debt, or without giving a day of payment. It is also 
 competent for them to agree that, if the property is bought at 
 the sale by or for the bondholders, payment of the purchase- 
 money may be made by a surrender of the bonds. Where the 
 decree embodies agreements made by the parties as to such 
 matters, it does not lie with them to complain of what the court 
 has done to give effect to these agreements.^ 
 
 A decree by a court of record, purporting upon its face to be 
 
 1 Pittsburg, Cincinnati, & St. Louis St. 187. Compare Tyrone & Clearfield R. 
 Ry. Co. V. Marshall (1877), 8.5 Pa. St. 187. Co. v. Jones (187.'>), 79 Pa. St. 60. 
 
 2 Blair v. Walker (1886), 26 Fed. Rep. * Woods & McBroom v. Pittsburg, 
 73. Cincinnati, & St. Louis Ry. Co. (1881), 
 
 « Stewart v. Wheeling & L. E. R. Co. 99 Pa. St. 101 ; s. c. 3 Am. & Eng. R. R. 
 
 (1895), 53 Ohio St. 151 ; s. c. 41 N. E. Cas. 525. 
 
 Rep. 247 ; Pittsburg, Cincinnati, & St. * Pacific Railroad v. Ketchum (1879), 
 
 Louis Ry. Co. v. Marshall (1877), 85 Pa. 101 U. S. 289, 297. 
 
748 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIII. 
 
 taken by consent of all parties to the re,cord, has the verity of a 
 record as to the recital of the consent, and is not to be con- 
 troverted except for fraud, accident, or mistake, and then only 
 in a proceeding directly to set it aside. ^ 
 
 This principle has been held to give validity to a decree 
 which would otherwise have been objectionable as being in con- 
 travention of a statutory provision by virtue of which a court of 
 chancery is deprived of its power of deciding disputed issues of 
 fact without a jury. In Clews, etc. v. First Mortgage Bond- 
 holders,^ ruled with reference to §4206, Georgia Code of 1882, a 
 receiver was appointed in a creditor's suit to marshal the assets 
 of an insolvent railroad, and several claims, after being reported 
 upon by a master, were considered either by a jury, or, where 
 the parties so agreed, by the court sitting without a jury. 
 Judgments upon these claims having been taken, fixing the 
 amount and character of each lien upon the fund, a decree of 
 sale was entered by the consent of all the parties, reserving the 
 rights of certain creditors whose claims were still unsettled, 
 and providing that the proceeds of the sale should be brought 
 into court and distributed among the lienholders whose rights 
 had been fixed. The property was sold, and at the next term 
 the court made a final decree, holding up so much of the pro- 
 ceeds as was necessary to pay the claimants, whose rights had 
 been reserved, and ordered the remainder to be distributed by 
 commissioners according to the provisions of the consent decree. 
 This final decree was held to have been properly made without 
 the intervention of a jury, as it was merely a judgment carrying 
 into effect, through ministerial officers, the previous decree 
 taken by consent of the parties. Similarly a claim of a surety 
 on an appeal bond, asserted to have priority over the mortgage, 
 may be allowed, if assented to by all the parties concerned, 
 though otherwise it would be rejected.^ 
 
 A decree cannot be deemed to be one taken by consent, 
 although the record shows the presence of the parties, and con- 
 tains a recital that they consented to such decree, or submitted 
 a decree which they desired to have entered, where, notwith- 
 standing all this, the record goes on to state that the court did 
 not enter that particular decree, but took the papers and entered 
 a decree upon its own consideration.* 
 
 1 Clews V. First Mortgage Bondholders Louis, & Pac. Ry. Co. (1885), 24 Fed. 
 (1874), 51 Ga. 131. Eep. 98. 
 
 2 51 Ga. 131 (1874). * Wetmore v. St. Paul & Pac. E. Co., 
 » Central Trust Co. v. Wabash, St. 3 Fed Rep. 177. 
 
§ 765.J POEECLOSUEB DECREES. 749 
 
 § 765. Acquiescence in Decree. — It is a well-settled rule of 
 law that, where an unauthorized sale of property is expressly 
 or impliedly ratified by the owner, he is precluded from subse- 
 quently setting up his title against the purchaser. Acquiescence 
 is an implied sanction of the sale. As in all other cases in 
 which the aid of a court of chancery is asked, the petitioner 
 who seeks to set aside a decree must act with reasonable prompti- 
 tude in order to obtain relief. Judgments and decrees become 
 binding by the acquiescence of the parties affected by them, 
 especially when they have actually been executed and carried 
 into effect. 1 
 
 Thus, although stockholders who refuse to consent to a lease 
 of the corporate property have a right to procure the annulment 
 of a subsequent foreclosure sale, by which interests under this 
 lease pass from the lessee to another company, yet even if the 
 lease is ultra vires and tainted with fraud, they will be denied 
 relief, where they take no steps to assert their rights for about 
 ten years. The mere fact that, at the time the lease was made, 
 the lessor's road was in the hands of trustees is not an excuse 
 for such inactivity, for they still had a right to be heard before 
 a court as to the permanent alienation of the property. ^ 
 
 If corporate officers fraudulently consent to a judgment or 
 decree in a foreclosure suit, the stockholders may, perhaps, 
 afterwards file a bill to set it aside, provided they do so within 
 a reasonable time after discovery of the fraud. But if they 
 have received notice that the officers were not faithfully defend- 
 ing that suit, and notwithstanding such notice neglected to 
 intervene or take any steps in the way of endeavoring to do so, 
 and permitted final judgment or decree to be entered, and sale 
 to take place, they cannot, after tlie lapse of years, be allowed 
 to attack the validity of the proceedings, and the corporation is 
 in such a case equally estopped.* 
 
 Especially will relief be denied to a stockholder who neglects 
 to move for such a long period as ten years, when no conceal- 
 ment is charged, and the facts relied on were well known to the 
 officers of the company, and, if not actually known to the com- 
 plainant himself, might have readily been ascertained by him 
 during the progress of the foreclosure suit.* 
 
 1 Vermont & Canada R. Co. v. Ver- ' Pacific Railroad (of Missouri) v. Mis- 
 mont Central E. Co. (1877), 50 Vt. 500 ; souri Pacific Ry. Co. (1881), 2 McCrary, 
 s. 0. 14 Am. Ry. Rep. 497. 227, 231. 
 
 2 Boston & Providence R. Corp. v. * Foster v. Mansfield, C. & L. M. E. 
 New York & New England E. Co. (1881), Co. (1888), 36 Fed. Bep. 627. 
 
 13 U. I. 260 ; s. 0. 2 Am. & Eng. E. R. 
 Gas. 300. 
 
750 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIII, 
 
 Nor can the stockholders procure the cancellation of a decree 
 of foreclosure and sale rendered against the corporation, where 
 they had knowledge, pending the suit, that the corporate officers 
 were not acting in good faith, and delayed their application for 
 relief for a period of four years, during which the decree has 
 been fully executed, the property sold, the sale confirmed, and 
 the property conveyed by the purchaser to a new corporation 
 which has issued new stock, and placed negotiable bonds for 
 large sums upon the market.^ 
 
 Relief will be denied to one who, after exchanging his bonds 
 for preferred stock, makes application for a rescission of the 
 contract long after the property of the company has been sold 
 by the trustees of the mortgage securing the bonds so exchanged, 
 since such rescission would render it necessary to set aside the 
 sale and the title acquired thereunder by the purchasers. ^ 
 
 One who claims the right of avoiding the purchase made by 
 another at a judicial sale, or of holding the purchaser as a 
 trustee, and availing himself of the purchaser's bid, cannot 
 delay the assertion of this right for the purpose of being able to 
 decide, in the light of subsequent events, whether it will be 
 profitable or not to take action.^ 
 
 § 766. Estoppel of Junior Lienor. — A second mortgagee is not 
 estopped from asserting that his rights are cut off by a fore- 
 closure under a senior mortgage to which he is a party, merely 
 because he remains silent when that foreclosure is consummated 
 by a decree which does not bar his rights, nor file the amount 
 due under his mortgage, nor make any order for the sale oi the 
 property to satisfy that mortgage. The mere fact that he is 
 made a party casts no obligation upon him. He may remain 
 silent, and, if no decree is taken against him, his rights remain 
 as though he had not been made a party. * 
 
 A junior mortgagee has a right to redeem, and if he stands 
 by while a sale in a foreclosure suit to which he- was a party is 
 tnade and confirmed, he must, in equity, be deemed to have 
 waived his right. ^ 
 
 1 Pacific Eailroad (of Missouri) v. Mis- * Simmons v. Taylor (1885), 23 Fed. 
 souri Pacific Ey. Co. (1881), 2 McCrary, Rep. 849, per Brewer, J. 
 
 231. * Simmons ». Burlington, Cedar Rapids, 
 
 2 Coddington v. Eailroad Co. (1886), & Northern Ry. Co., 159 U. S. 278 ; s. C. 
 103 V. S. 409, 411. The dismissal of the 16 Sup. Ct. Rep. 1 (1895), holding that a 
 bill was based both on the Statute of delay of seven years before attempting 
 Limitation and the general doctrine of to enforce his alleged rights deprived a 
 laches. junior mortgagee of the right to a.sk the 
 
 8 Credit Co. t>. Arkansas Central E. aid of a court of equity in enforcing 
 Co. (1882), 15 Fed. Eep. 46. them. 
 
§ 766.] 
 
 FORECLOSURE DECREES. 
 
 751 
 
 A junior mortgagee who is a party defendant to a foreclosure 
 bill in which there is a prayer that he be decreed to redeem, 
 and the priority of the plaintiff's mortgage is found or conceded, 
 and a sale is ordered in default of payment, declaring the right 
 of the mortgagee to redeem to be forever barred, a similar order 
 as to right of redemption by the junior mortgagee is not sub- 
 stantially nor even formally necessary.^ 
 
 ' Simmons v. Burlington, Cedar Eapids, 
 & Northern Ry. Co. (1895), 159 U. S. 278 ; 
 s. c. 16 Sup. Ct. Rep. 1. 
 
 Mr. Justice Shiras, in the opinion, 
 said : " We think the law was correctly 
 stated by Mr. Justice Matthews in Chicago 
 & Vincennes Railroad v. Eosdick, 106 U. 
 S. 47, 68, where he said ; ' In case the 
 proceeding results finally in a sale of the 
 mortgaged premises, the sale is made free 
 from the equity of redemption of the 
 mortgagor and all holders of junior in- 
 
 cumbrances, if made parties to the suit, 
 and is of the whole premises, when neces- 
 sary to the payment of the amount due, 
 or when the property is not properly 
 divisible ; it conveys a clear and absolute 
 title as against all the parties to the suit, 
 or their privies, and the proceeds of the 
 sale are distributed after payment of the 
 amount due, for non-payment of which 
 the sale was ordered, in satisfaction of the 
 unpaid debts remaining, whether due or 
 not.' •' 
 
752 
 
 RAILWAY BONDS AND MOBTGAGES. [CHAP, XXXIV. 
 
 CHAPTER XXXIV. 
 
 DISTRIBUTION OP PROCEEDS OP PORECLOSURE SALE. 
 
 i 767. Introductory. 
 
 768. Master or other Person appointed 
 
 to make Distribution ia bound 
 by Decree. 
 
 769. Lien Creditors, with some Excep- 
 
 tions, always preferred. 
 
 770. Holders of Equitable Debentures 
 
 entitled to share pari passu 
 with Legal Holders. 
 
 771. Undisputed Prior Claims may be 
 
 paid immediately. 
 
 772. When Distribution is to be made 
 
 according to Maxim "Equal- 
 ity is Equity." 
 
 773. Coupons usually payable pari 
 
 passu with Bonds. 
 
 774. Priorities between Bondholders 
 
 and Lenders of Money to take 
 up Coupons. 
 
 775. Priorities of Persons surrender- 
 
 ing Securities and thereby in- 
 creasing the Corporate Assets. 
 
 § 776. Priorities affected by Funding 
 Interest. 
 
 777. Relative Rank of Preferred Stock- 
 
 holders and Bondholders. 
 
 778. Judgments against Corporation 
 
 for Damages. 
 
 779. Priorities of Builder of Extension 
 
 of Road during EeceiversMp. 
 
 780. Receiver's Operating Expenses 
 
 not payable out of Proceeds. 
 
 781. Amount recoverable by Pledgees 
 
 of Bonds. 
 
 782. Pledgee not entitled to share in 
 
 Proceeds when Pledge is ultra 
 vires, 
 
 783. Lienholder on Part of Road, 
 
 when entitled to be paid out 
 of Whole Proceeds. 
 
 784. Surplus, after paying Bondhold- 
 
 ers, belongs to Unsecured 
 Creditors of Company. 
 
 § 767. Introductory. — Many of the principles by which the 
 relative priorities of the various creditors of a mortgagor com- 
 pany are determined have necessarily been discussed in the pre- 
 ceding chapters, more especially in those relating to bonds, 
 mortgages, and receiver's debts. In the present chapter it is 
 proposed to collect the decisions which deal with the actual dis- 
 tribution of the fund, apart from any question as to the particular 
 effect or validity of the transactions upon which the rights of the 
 claimants are founded. 
 
 § 768. Master or other Person appointed to make Distribution is 
 bound by Decree. — The master or other officer to whom is as- 
 signed the duty of distributing the proceeds of the sale cannot go 
 behind the decree to inquire whether the various claimants on 
 the fund are entitled to a position different from that which they 
 hold under the terms of such decree. Thus, he is bound by a 
 
§§ 769-772. J PROCEEDS op poreclosuee sale. 753 
 
 decree settling the relative priorities of m-ortgages on the prop- 
 erty ; and it is only a party affected by the decision who is enti- 
 tled, upon an allegation of error, to ask for a review, or a 
 rehearing, by the court. ^ 
 
 § 769. Lien Creditors, with some Exceptions, always preferred. 
 — A creditor who fails to establish any lien, legal or equitable, 
 on the property is always postponed to those who hold such liens, 
 the only exception to this rule being in cases where debts for 
 operating expenses are, for some of the reasons explained in a 
 previous chapter, charged upon the proceeds in preference to the 
 specific liens. Thus, unless a judgment is by statute an actual 
 prior lien on the property, it confers no priority as against a sub- 
 sequent mortgage.^ 
 
 Hence one who sells land to the company, agreeing to receive, 
 as part of the consideration, second-mortgage bonds to be after- 
 wards issued, and who, upon the bonds being tendered, refuses to 
 receive them for the reason that certain judgments had been con- 
 fessed by the company prior to the execution of the mortgage, 
 has no lien, either equitable or legal, for the purchase-money for 
 which the bonds were to have been delivered to him. The mere 
 setting apart of the bonds gives him no claim for their amount in 
 the distribution. After rejecting the bonds, he has no further 
 claim on them. The company can then dispose of them as it 
 pleases, and he has only a right of action against the company 
 for the purchase-money.^ 
 
 § 770. Holders of Equitable Debentures entitled to share pari 
 passu with Legal Holders. — Though debentures issued without 
 the name of the obligee are void as legal instruments, one who 
 lends money to the obligor and receives such blank debentures as 
 collateral security is entitled to share in the benefit of the trust 
 deed securing the debentures pari passu with the holders of com- 
 plete debentures,* 
 
 § 771. Undisputed Prior Claims may be paid immediately. — 
 Claims having an undisputed priority may be paid without wait- 
 ing to ascertain the extent of other interests in the fund.^ 
 
 § 772. When Distribution is to be made according to Maxim 
 " Equality is Equity." — Bach railroad bond, by the terms of the 
 security, usually stands as an independent claim, entitled to its 
 
 1 MoElrath v. Pittsburg & Steuben- * iJe Queensland, L. & C. Co. (1894), 
 ville R. Co. (1871), 68 Pa. St. 37; s. c. L. E. 3 Ch. 181. 
 
 1 Am. Ry. Rep. 139. ^ Hand v. Savannah & Charleston R. 
 
 2 Fogg «. Blair (1890), 133 U. S. 534. Co. (1880), 13 S. 0. 467; a. c. 12 Am. 
 » Eice's Appeal (1875), 79 Pa. St. 168. & Eng. R. R. Cas. 488. 
 
 48 
 
754 RAILWAY BONDS AND MOETGAGES. [CHAP. XXXIV. 
 
 proper proportion of any fund which may be realized from the 
 3I 
 
 What that proportion is will depend on the amount which re- 
 mains for application to the particular class of securities to which 
 any given bond belongs after prior claims have been satisfied. As 
 between bondholders of the same class the principle prevails that 
 " equality is equity." ^ 
 
 In such cases the principle regulating the' distribution of money 
 among execution creditors at law is not applicable.* 
 
 Where the trust deed provides that upon continuance of default 
 in payment of interest for six months all the bonds shall become 
 due, and trustees shall take possession and sell, and from the 
 proceeds pay all such bonds, or so many as may be outstanding, 
 the intention of the parties being thus shown to be that no sale 
 shall be made except for the whole debt, the holders of bonds 
 upon which interest has not been paid will have no priority, as 
 to payment of such interest, over others upon whose bonds the 
 interest has been paid.* 
 
 Where part of mortgage debt has been assigned, and the whole 
 mortgage security is about to be appropriated to pay the debt, 
 and is insufficient to pay the whole, it is usually distributed 
 pro rata? 
 
 § 773. Coupons usually payable pari passu with Bonds. — In the 
 absence of some special provision in the mortgage, coupons sepa- 
 rated from the bonds to which they belong, and transferred to 
 other holders, have no equity superior to that of the bonds them- 
 selves, or of subsequently maturing coupons. A railroad mortgage 
 in the ordinary form stands as a security for the principal of the 
 bonds as well as the interest, with no priority as to either. The 
 coupons are mere representatives of the claim for interest, and 
 the obligation of the debtor evidenced by them cannot be higher, 
 or entitled to greater privileges, than it would be should the 
 bonds in their body undertake the payment of interest.® 
 
 1 Coei). Columbus, Piqua, & Indianapo- ' Ketchum ;;. Duncan (1878), 96 U. S. 
 
 lis R. Co. (1859), 10 Ohio St. 372, 410. 659, affirming Duncan v. MotUe & Ohio 
 
 3 Morton v. New Orleans & Selma R. R. Co. (1877), 3 Woods, 567. 
 
 Co. (1885), 79 Ala. 590 ; Rice's Appeal In this last case the mortgage re- 
 
 (1875), 79 Pa. St. 209 ; In re Regent's quired the trustees, in the event of a sale. 
 
 Canal Iron Works (1876), L. R. 3 Div. 43. to apply the residue of the proceeds, after 
 
 ' Morton v. New Orleans & Selma R. deducting costs, etc., "to pay the prin- 
 
 Co. (1885), 79 Ala. 590, 621, citing Cole- cipal and interest which may be due on 
 
 brooke on Collat. Sec, § 159 ; 1 Story Eq. the bonds issued." The court said that 
 
 Juris., §§ 554, 555. the plain meaning of this provision was 
 
 * Humphreys ». Morton (1881), 100 that the bonds and interest Awa (that is, 
 
 111. 592. owing or contracted to be paid) were to 
 
 6 Sewall I'. Brainevd (1865), 38 Vt. 364. share in the application. 
 
§ 773.] PROCEEDS OF POKECLOSUEE SALE. 765 
 
 This principle is sometimes embodied in the mortgage itself, as 
 where it is provided that in case of default and sale, or other pro- 
 ceedings to enforce the bonds, " all bonds which shall then be a 
 lien in common therewith, and the interest accrued thereon shall 
 be considered equally due and payable, and entitled to a pro rata 
 dividend of the proceeds of said sale or other proceedings." The 
 inference that overdue coupons are not entitled to any preference 
 under such an instrument is not rebutted by the addition of a 
 clause to the effect that " in no case shall the principal of any 
 bond be considered due until twenty years from the date thereof." 
 Such a clause merely means that a bondholder cannot, under any 
 circumstances, bring an action for the principal before it becomes 
 due by its terms. ^ 
 
 It has been held, however, that where the fund is insufficient 
 to pay the whole principal and interest, unpaid coupons belong- 
 ing to a class in which a part of the coupons has been already 
 paid, should be paid before coupons falling due at a later date, 
 and before the principal of any of the bonds; and that coupons 
 detached, and in the hands of others than the holders of the 
 bonds from which they were detached, should be paid before 
 such bonds. ^ That case, however, does not decide that such a 
 preference would have been just if the mortgage had contained 
 no such provision, but merely that the provision was decisive 
 against the correctness of the decree allowing the preference. 
 It was, in fact, cited in Ketchum v. Duncan, supra, to support 
 the rule that all coupons are on an equality unless the mortgage 
 provides otherwise. Assuming such preference to be proper, 
 there is no difficulty in accepting the secondary proposition 
 laid down by the learned judge, that the diligence of some of 
 the holders of the preferred class of coupons in demanding 
 and receiving their interest could not be imputed as laches to 
 those who failed to take action, so as to work a virtual prefer- 
 ence in favor of the former (see p. 416 of the opinion). The 
 priority being absolute, if the general doctrine be accepted, the 
 right of the coupon-holder to insist on it clearly cannot be for- 
 feited until the right of action itself on the debt is lost by lapse 
 of time or otherwise. But it seems impossible to sustain the 
 
 ' Dunham v. Cincinnati, Peru, etc. the pro rata payment, as in Dunham v. 
 
 Ry. Co. (1863), 1 Wall. 2.^4. Judge Cincinnati, Peru, etc. Ey. Co., s^ipra, 
 
 Blatchford in making this rnling ap- which was referred to by him, decided it 
 
 pears to have assumed that past-due should be noticed before Ketchum v. 
 
 coupons might be paid in preference to Duncan, impra. 
 
 the principal of the bonds and to later ^ Stevens v. New York & Oswego Mid- 
 coupons, unless the mortgage provided for land R. Co. (1876), 13 Blatch. 412. 
 
756 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIV. 
 
 main principle on which this decision rests, as it is quite irre- 
 concilable with the decision of the Supreme Court of the United 
 States in Ketchum v. Duncan, supra. In a case involving some- 
 what similar circumstances the Supreme Court of South Caro- 
 lina has denied its correctness, holding that the fact of some of 
 the coupons of a certain issue of bonds having been already 
 paid in bonds guarantied by the State did not raise any equity 
 for the payment of unsettled coupons of the same class and dates 
 in preference to the bonds and later coupons.^ 
 
 A decree of distribution of the proceeds of sale of railway 
 property in payment of the principal of the bonds proportionally 
 has been construed as intended to deal with the ownership of 
 bonds and their coupons under the general designation of 
 "bonds." Therefore, that coupons detached from such bonds 
 and matured at the time of foreclosure, as the mortgage had 
 given a preference to interest, were entitled to be paid in full, 
 and those maturing after the decree, if detached, to share propor- 
 tionately with the principal of the bonds. ^ 
 
 A water company had placed with a mortgage company, as 
 collateral security, certain of its bonds with the coupons 
 attached. After sale of its property in foreclosure proceedings, 
 a bank, to which the water company had assigned these 
 coupons, excepted to the report of a master disallowing the 
 bank's claim to be paid the amount of these coupons from the 
 proceeds of sale. The exceptions were overruled.^ 
 
 § 774. Priorities betvT-een Bondholders and Lenders of Money to 
 take up Coupons. — (Compare Chapters II. and III., where the ' 
 cases involving the question, whether bonds and coupons are 
 bought or paid, are discussed. ) 
 
 1 Hand v. Savannah & Charleston R. In Child v, New York & New Erig- 
 
 Co. (1881), 17 S. C. 467; s. c. 12 Am. & land R. Co. (1880), 129 Mass. 170, the 
 
 Eng. R. R. Cas. 495. Yet it was recently court said, arguendo: " It may he that if, 
 
 remarked, obiter, by Judge Acheson, in upon foreclosure, the proceeds are not suf- 
 
 Pennsylvania R. Co. v. Allegheny Valley ficient to pay both, it would be equitable 
 
 R. Co. (1891), 48 Fed. Rep. 139, that a that they should be divided pro rata be- 
 
 provisiou giving to the overdue coupons tween the holders of the bonds and cou- 
 
 priority over the principal of the bonds in pons." The point not being directly in- 
 
 the distribution of the proceeds of the sale volved, the remark is of no greater weight 
 
 is the appropriation which the law itself than any other cautious suggestion of a 
 
 makes when the fund is deficient ; namely, rule, but, as an obiter dictum, it goes to 
 
 to the discharge of accrued interest first, counteract the efifect of the last ca.se 
 
 and then of principal. No authorities cited. 
 
 were cited, and it seems as if the de- 2' Burke u. Shortt (1897), 79 Fed. 
 
 cision of the Supreme Court to exactly Rep. 6. 
 
 the opposite effect must have been over- ' New York Security & Trust Co. v. 
 
 looked for the moment by the learned Equitable Mortgage Co. (1896), 77 Fed. 
 
 judge. Rep. 64. 
 
§§ 775, 776.] PROCEEDS of foreclosdee sale. 757 
 
 As against bondholders who presented their coupons for pay- 
 ment and not for sale, and who had the right to assume they 
 were paid and extinguished, a person who advances the money 
 to take them up under an undisclosed agreement with the com- 
 pany that the coupons should be delivered to him uncancelled, 
 as security for his advances, is not entitled to an equal priority 
 in the lien, or the proceeds of the mortgage by which the coupons 
 are secured.^ 
 
 To sustain the claim of an intervener to share in the proceeds 
 upon coupons which he has paid to the holder, such payment 
 must have been made upon a distinct understanding with the 
 holders of the bonds to which such coupons belonged, that they 
 were purchased and not discharged. ^ 
 
 Coupons received by one who advanced the money with which 
 they were taken up, under an agreement that they were to be 
 delivered to him uncancelled, as security for the advance, are 
 valid securities in his hands, and he may enforce the mortgage 
 against the company. But as between him and the bondholders 
 who received the amount of their coupons in ignorance of the 
 transaction, and supposing their coupons to have been paid, the 
 latter have the prior equities ; and if the sum realized from 
 the sale is insufficient to pay the face of the bonds, the holder 
 of the coupons is not entitled to share in the proceeds.^ 
 
 § 775. Priorities of Persons surrendering Securities and thereby 
 increasing the Corporate Assets. — When title papers belonging to 
 an insolvent railroad company which have been placed in the 
 hands of a person to be held until certain amounts due to an 
 attorney for legal services in procuring rights of way, and to 
 another creditor for advances, and the assets are thereby 
 increased, the debts for which those papers were held should be 
 paid out of the proceeds of the sale next after the right of way 
 claims.* 
 
 § 776. Priorities affected by Funding Interest. — First-lien bond- 
 holders who avail themselves of the provisions of an interest- 
 
 1 Cameron v. Tome (1886), 64 Md. & Washington Territory E. Co. (1895), 67 
 507 ; s. c. 2 Atl. Rep. 837 ; 2 Cent. Rep. Fed. Rep. 404. 
 
 639, declaring the rule to be well settled ' Union Trust Co. t>. Monticello & 
 
 to this effect by Union Trust Co. v. Port Jervis R. Co. (1875), 63 N. Y. 311. 
 
 Monticello & Port Jervis R. Co. (1875), 63 Judge Earl said : " Equity will keep the 
 
 N. Y. 311 ; Haven v. Grand Junction securities in life in such cases to promote 
 
 E. & Depot Co. (1871), 109 Mass. 88; the ends of justice, but not against any 
 
 Ketchum v. Duncan (1877), 96 U. S. 659, person having a superior equity." 
 
 662. 4 McDonald v. Charieston, C. & C. R. 
 
 2 Farmers' Loan & Trust Co. v. Oregon Co. (1893), 93 Tenn. 281 ; 8. c. 24 S. W. 
 
 , Eep. 252. 
 
758 RAILWAY BONDS AND MORTGAGES, [CHAP. XXXIT. 
 
 funding act, and accept bonds guarantied by the State in 
 exchange for their coupons, forfeit the priority to which they 
 were entitled as holders of those coupons.^ 
 
 And if, in such a case, the proceeds of the sale are insufficient 
 to discharge the claims of all the secured creditors, the first- 
 lien bondholders who retain their bonds may insist on receiving 
 the full advantage of their priority. The diminution in the 
 number of their class resulting from the fact that some of them 
 have surrendered their bonds, and thus lost their rank as first- 
 lien bondholders, will not inure to the benefit of junior classes 
 of bondholders.^ 
 
 § 777. Relative Rank of Preferred Stockholders and Bondholders. 
 — Whether preferred stockholders can assert a priority of lien 
 as against subsequent bondholders depends upon what actually 
 occurred at the time the agreement was entered into under 
 which the preferred stock was issued, and upon what contracts 
 affecting the property were entered into by the parties having 
 the right to incumber the property, and not upon what may 
 have been in the minds of the preferred stockholders themselves 
 at the time the various transactions took place. An agreement 
 which merely provides that the preferred stock is to be " a first 
 claim on the property of the corporation after its indebtedness," 
 and that the interest on such stock shall be paid before any 
 dividends on common stock, will be construed as merely pre- 
 scribing a method by which the holders of the preferred stock 
 are to receive a preference as against the holders of common 
 stock, and not as meaning that the " indebtedness " referred to 
 should be that indebtedness only which then existed against the 
 company. To attribute any other meaning to the contract 
 would contravene the general rule that where stockholders 
 claim a priority of payment over mortgage creditors, a spe- 
 cific lien must be shown beyond all doubt to exist in their 
 favor. ^ 
 
 There is no statutory power in a corporation in Ohio, Indiana, 
 or Illinois to issue certificates of preferred stock, and make it a 
 lien upon the property or assets of the corporation.* 
 
 Preferred stockholders have sometimes been held to be such 
 
 1 Hand v. Savannah & Charleston E. ^ King v. Ohio & Mississippi E. Co, 
 Co. (1880), 12 S. 0. 314 ; approved in (1880), 2 Fed. Kep. 36 ; s. o. 9 Biss. 278 
 Hand «. Savannah & Charleston E. Co. (1880), per Drunimond, J. 
 
 (1882), 17 S. C. 219 ; s. o. 12 Am. & Eng. * Continental Trust Co. of New York 
 
 R. E. Cas. 495. v. Toledo, St. Louis, & Kansas City E. R. 
 
 2 Ibid. Co. (1896), 72 Fed. Rep. 92. 
 
§■778.] PEOCEEDS OP FOEECLOSUKE SALE. 769 
 
 only in name, their real position being that of persons who hare 
 lent money on mortgage security.^ But in no case have the 
 courts shown any disposition to depart from the general rule 
 that " stockholders are not entitled to any share of the capital 
 stock nor any dividend of the profits, until all the debts of the 
 company have been paid." ^ 
 
 In Chaffee v. Rutland & Burlington R. Co.^ it was strenuously 
 contended that a charter providing for the issue of preferred 
 stock by a company organized by the holders of second-mortgage 
 bonds, during proceedings for foreclosure of their lien was in- 
 tended to provide means of exchanging the first-mortgage bonds 
 into preferred stock, without affecting the security, the result 
 being to give the scrip certificates for the amount of the divi- 
 dends, convertible into bonds at the option of the holder, a 
 priority over the floating indebtedness. The whole subject was 
 very elaborately discussed by Judge Veazey, and the conclusion 
 arrived at that the preferred stockholders possessed every 
 privilege of shareholders and were exempt from none of their 
 liabilities; they must be treated as shareholders, as against 
 persons to whom any part of the floating indebtedness was 
 owing. This consequence was not prevented by the mere fact 
 that, under the charter, the preferred stock was to be issued 
 only for the purpose of paying or taking up prior claims or 
 incumbrances, and that no mortgage should take precedence of 
 the preferred stock in the application of the income. These 
 provisions were merely safeguards, designed to secure the 
 benefit of a preference between the two kinds of stock, and not 
 of a preference over the creditors of the corporation. 
 
 § 778. Judgments against Corporation for Damages. — Judgments 
 against the corporation for injuries to person or property are, 
 as we have seen, not usually reckoned among preferential debts, 
 even as against the earnings of the receivership. A fortiori 
 will they give the claim no priority, as against the mortgagees, 
 in the distribution of the proceeds of the sale.* 
 
 ' This was held to he the result of the ' 55 Vt. 110 ; s. c. 16 Am. & Eng. 
 
 issue of preferred stock in Bnrt v. Rattle R. E. Cas. 408. 
 
 (1876), 31 Ohio St. 116, where the issue * In Receiver u. Stanton (1894), 86 Tex. 
 
 was made subject to the provisions of a 620, the court, after a brief reference to 
 
 statute expressly declaring that the pre- the rule stated in the text, discussed the 
 
 ferred stock should neither give its hold- effect of the Texas statute, prescribing the 
 
 ers a right to vote nor affect them with order in which several classes of debts, in- 
 
 liahility for the debts of the corporation. eluding certain " back claims," were to be 
 
 2 Railroad Co. ti. Howard (1868), 7 paid, upon the appointment of a receiver, 
 
 Wall. 392. out of such earnings as came into his 
 
760 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIV. 
 
 But in some States a different rule is established by statute. 
 Thus, under section 1255 of the South Carolina Code, which 
 provides that "mortgages of incorporated companies, . . . 
 whether in bonds or otherwise, shall not have power to exempt 
 the property or earnings of such corporations from execution 
 for the satisfaction of any judgment obtained . . . for torts 
 committed by such corporation whereby any person is killed, or 
 any person or property injured," it has been held that a judg- 
 ment for personal injuries received before or after the execution 
 of the mortgage takes precedence of such mortgage in the distri- 
 bution of the proceeds.^ 
 
 A statute of this description has no extra-territorial force.^ 
 
 A statute which makes a judgment a lien on the real property 
 of the debtor "from the first day of the term at which it is 
 rendered," does not confer any priority on a claim for damages 
 which has not been reduced to judgment until more than a year 
 after the sale of the road. Under such circumstances there is 
 no property of the company upon which the lien of the judgment 
 can attach at the time of its rendition. After the sale "the 
 relation of the property to the company is in all respects as if 
 the company never owned it. " And since there is " no such 
 lien at law upon the road, there can be none in equity touching 
 the fund arising from the sale. " ^ 
 
 So also the foreclosure of a junior mortgage, and a decree of 
 sale subject to the prior liens, effectually cuts off the lien of all 
 judgments recovered against the maker of the mortgage so fore- 
 hands. As the statute made a judgment must rest upon the words of the statute 
 for a tort of the company a lieu only on alone, for the analogy here emphasized by 
 the earnings, the right of a creditor who the court is not in accordance with the 
 had recovered such a judgment to resort weight of authority. See chapter on pre- 
 to the corpits of the property for satisfac- ferred debts, 
 tion was denied. ^ Central Trust Co. v. East Tennessee, 
 
 1 Finance Co. of Pennsylvania v. Va.&Ga. By. Co. (1895), 69 Fed. Rep. 658. 
 Charleston, C. & C. R. Co. (1894), 61 » Jeffrey v. Moran (1879), 101 U. S. 
 
 Fed. Eep. 369. The reasoning of the 285. It was also contended that the 
 court was that the statute recognized the words of the statute, "the lien of judg- 
 e(}uity enforced under the doctrine of ments recovered against the corporation," 
 the line of cases beginning with Fosdick were equivalent to "valid claims against 
 V. Schall (1879), 99 U. S. 235, viz., that the corporation ;" but the court said : "No 
 " whoever contributes to keep a corpora- reasoning can successfully maintain that a 
 tion a going concern by materials or labor claim merely in judgment and a judgment 
 must be provided for before mortgage cred- Men are the same thing in legal effect any 
 iters can claim out of the earnings." The more than in fact. To hold otherwise 
 preferred expenses, it was considered, in- would be to make the law not to apply 
 elude "all damages done to life, person, to it. It is only when a claim has ripened 
 or property in keeping up the road." The into a judgment, where there is property 
 decision is, doubtless, correct ; but it to be bound by it, that a lien can subsist," 
 
§§ 779, 780.] PROCEEDS op foreclosure sale. 761 
 
 closed, and if any of those are not recovered till after the sale 
 has actually taken place, they can never hecome liens on the 
 property at all.i 
 
 § 779. Priorities of Builder of Extension of Road during Receiver- 
 ship. — It has been stated above that the court has no power, 
 without the consent of the lien-creditors, to charge the corpus of 
 the estate, and possibly not even the income, with the expense 
 of constructing additions to the road or making permanent 
 improvements partaking of the character of actual additions. 
 An order authorizing construction work, entered with the 
 consent of some of the bondholders, only binds those who do 
 consent. If the receiver undertakes to act upon such an order, 
 and contracts to build an extension at a cost not to exceed a 
 specific sum, the payment of which is to be made " out of the 
 surplus income, " he is to be regarded as having acted merely as 
 the agent of the consenting bondholders ; and if the work is done 
 at a greater cost than that agreed upon, and finally sold as a 
 part of the entire road, with his acquiescence, he will merely 
 have an equity to share the proceeds of the sale to the extent 
 that the section built by him has enhanced the price brought by 
 the whole property. On the other hand the proportionate share 
 of a bondholder who refused to consent to the extension is 
 entitled to his proportionate share of the entire proceeds of the 
 sale. 2 
 
 § 780. Receiver's Operating Expenses not Payable out of Proceeds. 
 — The operating expenses of a receiver are not payable out of 
 the proceeds, unless by the authority of the court regularly given 
 in proceedings of which the lien-creditors have had due notice. 
 (See Chapter XXX., relating to receivers' certificates.) A 
 different doctrine is, of course, applicable when the claimant 
 relies on a specific lien, and not merely on the fact that his debt 
 is for operating expenses. Thus it has been held that a mort- 
 gage lien will be postponed in the distribution of the proceeds 
 to a claim for the rental of rolling-stock sold to the company, 
 with a vendor's lien reserved, and used by the receiver in oper- 
 ating the road. 8 
 
 1 Bionson v. La Crosse & Milwaukee E. In a Canadian case, Gray v. Manitoba 
 Co., 2 Wall. 283, 304. & Northwestern Ry. Co., 32 Can. L.J. 
 
 2 Hand y. Savannah & Charleston E. N. S. 167, the working expenses of the 
 Co. (1881), 17 S. C. 219 ; s. c. 12 Am. & whole railway were declared in an amended 
 Eng. li. R. Cas. 495. decree of sale to be a first lien on the rev- 
 
 " Kiieeland v. American Loan & Trust enue, and must be provided for iu priority 
 Co, (1890), 136 U.S. 89; s. C. 43 Am. & of the claim of the mortgagees. See 
 Eng. R. K. Cas. 519. this case affirmed and modified in House 
 
762 BAILWAT BONDS AND MORTGAGES. [CHAP. XXXIV. 
 
 Among the operating expenses which are payable out of the 
 income of the receivership only are the amounts awarded as 
 damages for injuries resulting from the acts of the receiver's 
 servants.^ 
 
 A fortiori if the receiver was appointed merely for the pur- 
 pose of realizing profits to pay arrears of rent, and is rather 
 a managing agent for the various parties in interest than a 
 technical receiver, there is no warrant for selling the property 
 to discharge a floating debt which the earnings of the road are 
 insufficient to liquidate.^ 
 
 § 781. Amount recoverable by Pledgees of Bonds. — (Compare 
 Chapter II.) A pledgee of bonds, if a hona fide holder for value 
 before maturity, may prove for the entire amount due thereon, 
 but cannot recover more than the amount of his advances, with 
 proper costs of suit.^ 
 
 Thus, where the company authorizes an agent to raise money 
 for its uses, and delivers bonds to him to be deposited as col- 
 lateral security for such money as he might borrow, a lender 
 who makes advances on the personal note of the agent and the 
 security of a portion of the bonds intrusted to him will not be 
 entitled to receive the full amount of the bonds and account to 
 the agent, but only the amount of his loan and interest. It is 
 error in a master or referee to leave the excess in the hands of 
 the creditors, for when the proceeds of a sale of the mortgaged 
 property are brought into court, it is its duty to make distribu- 
 tion of the entire fund according to law and equity.* 
 
 § 782. Pledgee not entitled to share in Proceeds -w^hen Pledge 
 is ultra vires. — Where an issue of coupon bonds secured by mort- 
 gage on the real estate of a corporation is authorized by the 
 board of directors " for the purpose of raising money to pay off 
 the floating debts of the company," the powers of the agent 
 deputed to negotiate the bonds are restricted according to the 
 
 of Lords (1897), L. K. App. Cas., p. ^ Vermont & Canada R. Co. v. Vermont 
 
 254. Central R. Co. (1877), 50 Vt. 500 ; a. o. 
 
 The court may, in an action of a 14 Am. Ry. Rep. 497. 
 debenture-holder, decline to order a sale ^ Morton v. New Orleans & Selma Ry. 
 
 of the property of a company which is of Co. (1885), 79 Ala. 590, 621, citing nu- 
 
 publie utility in its purposes. Blaker v. merous cases, among others Duncomb w. 
 
 Hertz & Essex Waterworks Co., 41 Ch. New York, Housatonic, & Northern R. 
 
 Dir. 399. Co., 84 N. Y. 190, where a ruling of the 
 
 1 Hand v. Savannah & Charleston R. referee, based on this doctrine, was ap- 
 
 Co. (1882), 17 S. C. 219 ; s. o. 12 Am. & proved by the court without any question 
 
 Eng. E. R. Cas. 495 ; Ryan v. Hays (1884), as to its correctness. 
 62 Tex. 42; s. c. 23 Am. & Eng. R. R. i Rice's Appeal (1875), 79 Pa. St. 
 
 Cas. 501. 168. 
 
§§ 783, 784.J PROCEEDS op pobeclosuee sale. 763 
 
 terms of the mortgage, A pledge of the bonds to secure a prior 
 debt of the mortgagor is, therefore, ultra vires, and the pledgee 
 has no legal right to share in the proceeds of the mortgaged 
 property.^ 
 
 § 783. Lienholder on Fart of Road, vrhen entitled to be paid 
 out of "Whole Proceeds. — One who has a lien on a part of a road 
 only is entitled to be paid out of the aggregate proceeds of the 
 property, when the receiver, in consideration of the surrender 
 of the lien, agrees to pay a specified sum in satisfaction of such 
 a lien out of any money coming into his hands from the part of 
 the road covered by the lien, or "arising from the sale thereof 
 under the decree of the court, " and subsequently procures a sale 
 of the property as an entirety. The right of the lienor to be 
 thus paid is not to be defeated by the fact that the bondholders 
 exercise the privilege given by the decree to make payment not 
 in cash, but in bonds. If the purchasers fail to discharge the 
 lien in a reasonable time fixed for that purpose, the property 
 should be sold again as an entirety, or so much thereof sold as 
 may be necessary to raise that amount due to him, with interest 
 and costs from the time he intervened to assert his rights. ^ 
 
 § 784. Surplus, after paying Bondholders, belongs to Unsecured 
 Creditors of Company. — Whenever the lien of the bondholders is 
 legally discharged, the property embraced in the mortgage, or 
 whatever remains of it, belongs to the corporation, and is a part 
 of the assets for the payment of its other debts. Any compro- 
 mise arrangement between the bondholders and stockholders 
 which ignores the paramount right of the general creditors to 
 any surplus remaining after the claims of the various lienors 
 have been satisfied, is fraudulent as against such general cred- 
 itors. For the purposes of this rule it is immaterial that the 
 property is mortgaged for a sum exceeding the price which it 
 would fetch at an ordinary foreclosure sale, and that, if such a 
 sale had actually taken place, there would have been no funds 
 available for distribution among the general creditors. Any 
 sum which is set free for the stockholders in consequence of the 
 consent of the lienors to surrender a part of their rights belongs 
 to the general creditors.^ 
 
 The same principles are applied where the bondholders, for 
 their own interest, become parties to an arrangement by which 
 
 ^ Shaw V. Saranac Horse Nail Co. ^ Farmers' Loan & Trust Co. i>. New- 
 (1894), 144 N. Y. 220; s. c. 39 N. E. man (1887), 127 U. S. 649. 
 Rep. 73. = Kailroad Co. v. Howard (1868), 7 
 
 WaU. 392. 
 
764 BAILWAY BONDS AND MOETGAGES. [CHAP. XXXIV. 
 
 the sale of the trust property is arrested, and the unsecured 
 creditors are deprived of their right to satisfaction out of any 
 surplus which may result from such sale. Thus, if the bond- 
 holders, instead of proceeding to a sale after the rendition of a 
 decree of foreclosure, enter into an agreement with the company, 
 by which the property is to be leased to another company for a 
 rental, expressed in terms of a percentage of the earnings and 
 whatever surplus remains, after applying that rental to interest, 
 taxes, etc., is to be handed over to the lessor company, the 
 holders of unsecured notes given in liquidation of a debt grow- 
 ing out of the construction of a part of the insolvent's road, and 
 to prevent a lien thereon, are entitled to have their debts estab- 
 lished as equitable liens upon the property and funds of the 
 insolvent road paramount to the lien, of the mortgage.^ 
 
 1 Farmers' Loan & Trust Co. v. Mis- Rep. 264 ; s. c. 17 Am. & Eng. B. R. Cas. 
 souri, I. & N. B. Co. (1884), 21 Fed. 314. 
 
§ T85.] 
 
 SALES OP MORTGAGED PROPERTY. 
 
 765 
 
 CHAPTER XXXV. 
 
 SALES OP MORTGAGED PROPERTY. 
 
 7S5. 
 
 Manner of Sale generally. 
 
 § 791. 
 
 Advertisement of Sale 
 
 786. 
 
 Sale of Property as Entirety. 
 
 
 Power. 
 
 787. 
 
 Power of Court and Officers to 
 
 792. 
 
 Ee.served or Upset Prices. 
 
 
 postpone Sale. 
 
 793. 
 
 Bids. 
 
 788. 
 
 Conduct of Sale under Power in 
 
 794. 
 
 Deposits of Bidders. 
 
 
 Mortgage generally. 
 
 795. 
 
 Liability of Bidders for 
 
 789. 
 
 Sale nnder Power not postponed 
 
 
 upon Resale. 
 
 
 till Number of Bonds justly 
 
 796. 
 
 Payment in Bonds. 
 
 
 due ascertained. 
 
 797. 
 
 Who may be Purchaser. 
 
 790. 
 
 Place of Sale. 
 
 798. 
 
 Confirmation of Sale. 
 
 under 
 
 Loss 
 
 § 785. Manner of Sale generally.^ — A chancery court has the 
 power, and it is its right and duty, to supervise all sales made 
 under its decrees and made by its special otScers or commis- 
 sioners, and to protect the parties from all fraud, mistake, 
 unfairness, and imposition. This right of the court extends also 
 to purchasers at such sales, who, by the act of purchase under 
 the decree, submit themselves to the jurisdiction of the court. ^ 
 
 The statutes of a State requiring the sale of property by 
 sheriff under process of execution or order of sale may be 
 resorted to by the court administering the property through a 
 receiver ; but such statutes are not exclusive in effecting sales of 
 this character, and the court may, in the exercise of its discre- 
 tion, order a sale by the receiver or commissioners.^ 
 
 When the property cannot be sold for cash for an amount 
 sufficient to pay the bondholders, possibly the most equitable 
 modes of disposing of it are to decree a strict foreclosure in 
 which all will participate alike, or to make a sale for the equal 
 benefit of all the bondholders who choose to come in and partici- 
 
 1 See Woods' Ry. Law, 1636 ; Borer 
 on Railroads, 911, 913. 
 
 The validity of a foreclosure sale, in so 
 far as it depends upon the jurisdiction of 
 the court to order it, or the lex loci rei 
 sitoB, is discussed in Chapter XXI. 
 
 2 Parker v. Bluffton Car Wheel Co. 
 
 et al. (Ala., 1896), 18 So. Rep. 938, in 
 which the court approved the confirmation 
 of a receiver's sale over the objection that 
 the price was inadequate, etc. 
 
 ^ Farmers' & Merchants' Nat. Bank v. 
 Waco Electric Ry. & Light Co. (Tex. Civ. 
 App., 1896), 36 "S. W. Rep. 131. 
 
766 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXT. 
 
 pate. But both of these methods have their drawbacks. A 
 strict foreclosure involves special difficulties in those States 
 where a mortgage is a mere security, and does not give a legal 
 title, and, besides this, it places the property in the hands of a 
 vast number of beneficiaries whose consent may be very hard to 
 obtain in perfecting a new organization for conducting the busi- 
 ness. A sale for the benefit of all is attended with the difficulty 
 of determining who shall make the bid. The court sometimes 
 authorizes the trustees to bid for the bondholders; but it is 
 obvious that, in such a case, one class or other of the bond- 
 holders would be dissatisfied with any selection of trustees 
 which the court might make; while, on the other hand, to 
 decree that all the bondholders shall be allowed to participate 
 in any sale that may be made would practically nullify an auction 
 sale, inasmuch as no one could be expected to bid on such terms. ^ 
 
 In view of these difficulties, the court will sometimes avail 
 itself of a plan of reorganization which aims at obviating the 
 necessity of any sale, and postpone the sale for the purpose of 
 giving the bondholders who have not assented to the plan an 
 opportunity of coming in, ordering, at the same time, that if 
 the property shall, after all, be sold and purchased in behalf of 
 the reorganizing combination, the non-assenting bondholders 
 are to be allowed to participate in such purchase on the same 
 footing as the others.^ 
 
 § 786. Sale of Property as Entirety. — Whether the property is 
 to be sold as an entirety is an inquiry which presents itself in 
 two forms. The fact that a railroad is a property of an 
 extremely composite character naturally presents the question 
 whether a court would be justified in selling the component 
 elements of that property separately. On the other hand, the 
 fact that a railroad is often a property of vast extent, running, 
 it may be, through several States, and that its several sub- 
 divisions are not infrequently subject to separate liens, the 
 foreclosure of one of which only may be sought in the pending 
 litigation, gives rise to some grave and difficult problems in 
 regard to expediency or inexpediency of breaking up the system 
 under the given circumstances.^ 
 
 1 Duncan v. Mobile & Ohio E. Co. loga, M. L. R. (1886), 2 Q. B. (Can.) 491. 
 (1879), 3 Woods, 597. On the sale of a section of a road where 
 
 2 Ibid. part is within and part without the juris- 
 ' See generally, as to sale of railroad as difition of the court, see Gray v. Manitoba 
 
 an entirety, Woods' Ry. Law, 1640, 1642, & Northwestern Ry. Co. (1897), L. R. App. 
 and the note to 1 Am. & Eng. R. E. Cas. Cas. 254. Compare Comptop v. Jesup 
 516. See also Stephen v. Banijue d'Hoche- (1897), 167 U. S. 1. 
 
§ 786.] SALES OP MORTGAGED PROPERTY. 767 
 
 The former question does not seem to have been much dis- 
 cussed, the courts assuming, perhaps, that in the case of such a 
 property, everything of which it consists, both realty and per- 
 sonalty, must be sold together. Certainly where the mortgage 
 itself provides that the personal property embraced in it shall 
 be sold with the other property, the mortgagor cannot complain 
 that the sale is so made.^ 
 
 And the true rule possibly is that when a railroad, its appur- 
 tenances, and franchises are mortgaged as a whole, there is no 
 power or authority to sell them separately.^ 
 
 But in Ohio it has been held that the real estate of a railroad 
 must be sold subject to rules governing real estate, and must, 
 therefore, be appraised. As to this appraisement, it was said 
 the court had no discretion; but, on account of the peculiar 
 nature of the property, it might apply to the details of the pro- 
 ceedings, a more stringent or more liberal rule than the one 
 ordinarily adopted, as might be demanded by the circumstances 
 of the case.^ 
 
 As to the proper way of disposing of the property where, as in 
 the common case of foreclosure for interest, the total value of 
 the entire system, or even of the division covered by the mort- 
 gage which it is sought to enforce, is greater than the sum 
 demanded, the authorities are not entirely harmonious. In 
 some of the earlier cases relating to foreclosure sales we find 
 the rule laid down that, where the interest only is in default, 
 so much of the property should be sold as will discharge the 
 
 1 Wood V. Whelen (1879), 93 111. apolis, B. & W. Ky. Co. (1878), 8 Biss. 
 
 163. 380, which holds that a railroad must be 
 
 " Peoria & Springfield R. Co. v. Thomp- sold subject to redemption, as provided by- 
 son (1882), 103 111. 187 ; s. C. 7 Am. & the statute. 
 
 Eng. R. R. Cas. 101. In this case the ' Coe o. Columbus, Piqua, & Indian- 
 court, adopting this conclusion, drew the apolis R. Co. (1859), 10 Ohio St. 372. 
 further inference that, as a railroad was. In this case the court ordered "(1) That 
 strictly speaking, neither realty nor per- the railroad, with its fixtures, constituting 
 sonalty, it did not fall clearly within the an entire tract of real estate, indivisible 
 Illinois statute providing that real estate for the purpose of the sale, together with 
 must he sold subject to redemption, and the franchise connected therewith, should 
 that, as there was as much reason for con- be sold in like manner as an entire tract 
 sidering it to be personalty as realty, rail- lying in two or more counties, the pro- 
 road real estate was presumably to be ceediugs incidental to the sale to be had 
 excepted from the general provision, in the county in which the action was 
 This opinion was based partly on oonsid- brought ; (2) That the personal property 
 erations of public policy, which, it was should be sold as personal property, but 
 thought, warranted the court in giving with such precautions as to prevent a sac- 
 this construction to the statute. The nil- rifice, and to procure the highest price, as 
 Lag is in conflict with Turner v. Indian- the court in its discretion might order." 
 
768 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXT. 
 
 amount due,^ — this rule, of course, being understood with the 
 implied limitation that the property involved is susceptible of 
 division ; otherwise that the sale of the property should be as 
 an entirety, or that it should be leased, if the company pre- 
 ferred it, for the shortest term that would bring the amount 
 due.^ 
 
 The rule thus acted upon, if expressed formally, would be, 
 that, when a railroad cannot be divided and sold in pieces with- 
 out manifest injury to its value, the whole may be sold even 
 before the principal is due, upon default in the payment of 
 interest upon a mortgage which covers only a specific portion of 
 the property, while if such a division is feasible, without detri- 
 mentally affecting the interests of all the parties in interest, the 
 section incumbered should alone be sold, so that every incum- 
 brancer may have the chance of protecting his securities without 
 involving himself in onerous engagements.^ 
 
 On the authority of the more recent decisions, however, it 
 seems justifiable to state the rule much more strongly in regard 
 to the propriety of selling a railroad as an entirety. It may be 
 said that the courts now proceed upon the assumption that a 
 railroad is so rarely susceptible of being broken up without 
 detriment to the parties in interest, that a sale of the property 
 in parcels should never be ordered, unless the special circum- 
 stances of the case indicate the expediency of such a course. 
 Thus it has been expressly declared that, since a railroad and 
 its appurtenances are in the nature of an entirety, the elements 
 of which are so essentially intermingled that they cannot be 
 sold separately without disastrous results to all concerned, a 
 claim for unpaid interest on bonds should be satisfied by author- 
 izing a sale of the whole premises, although the principal is not 
 due.* 
 
 1 Gooilman v. Cincinnati & Chicago R. creditor on the ground that it waa in 
 Co. (1858), 2 Disney (Ohio), 176. In this gross, unless it was shown that there had 
 case the discussion turned upon whether heen fraud, or that the property would 
 the property could be sold at all to pay have commanded a larger sum if sold in 
 mere arrears of interest. There were no lots. 
 
 arguments presented as to the impolicy of » Wilmer v. Atlanta & Richmond Air 
 dividing the railroad by selling separate Line R. Co. (1872), 2 Woods, 447 ; Farm- 
 portions of it. ers' Loan & Trust Co. ■». Oregon & 0. Ry. 
 
 2 Bardstown & Louisville R. Co. v. Co. (1885); 24 Fed. Rep. 407. Compare 
 Metcalfe (1862), 4 Mete. (Ky.) 199. In Campbell t'. Texas & New Orleans R. Co. 
 Allen V. Montgomery & West Point R. (1872), 2 Woods, 263. 
 
 Co. (1847), 11 Ala. 437, the court, with- * McFadden v. May's Landing & Egg 
 
 out passing directly on the point, said it Harbor City R. Co. (1891), 49 N. J. Eq. 
 
 was very questionable if the sale would 176 ; s. 0. 22 Atl. Rep. 932. 
 be opened at the Instance of a judgment 
 
§ 786.] SALES OF MORTGAGED PEOPERTT. 769 
 
 In other words, the legal and proper mode of selling railroad 
 properties is in gross, not in parcels.^ 
 
 Such is also the rule as to a sale under a power, which, it is 
 held, must be executed upon all the property mortgaged.^ 
 
 A railroad company gave a mortgage in Arkansas upon " all 
 of the property, real and personal, " belonging to it, with a sub- 
 sequent specific description of the kinds of property to one, to 
 secure a note of the company given him for an indebtedness, 
 probably for construction. In his foreclosure suit there was a 
 decree ordering the property conveyed by the deed of trust sold 
 to satisfy the judgment. The company requested the court to 
 order specifically that the property be sold as a whole. This 
 the court declined to do, and the company excepted. On appeal, 
 the Supreme Court, after referring to the provision of the Con- 
 stitution of Arkansas, art. 17, § 11, declaring that "rolling- 
 stock " of railroad companies should be " considered personal 
 property," said, "Notwithstanding this provision of the consti- 
 tution requires us to treat this rolling-stock as personal 
 property, it was still within the discretion of the Circuit Court 
 to have ordered the property covered by this deed of trust to be 
 sold in bulk, as an entirety, for the deed, by its terms, does not 
 seem to contemplate but one sale." It was then intimated that 
 the wishes of the debtor might have been followed, if it was 
 clear that it could be done with safety to the creditor and with- 
 out injury to others having claims against the company or its 
 property. They construed the order of sale to be on the line of 
 this principle, one which would allow the commissioner to offer 
 it as a whole ; and if no bids could be obtained in that way, then 
 to offer the real and personal property separately, and leave the 
 final determination of the question when there was an applica- 
 tion for confirmation of the sale.^ 
 
 Where a company has mortgaged its entire road, and aban- 
 doned its construction after completing the middle section, and 
 the work is afterwards finished by another company, it is error 
 
 * Sahlgaard v. Kennedy (1882), 13 Fed. way would he defeated, see Marshall v. 
 
 Rep. 242, 245. Compare Chicago, D. & Tramways Co. (1893), L. R. 2 Ch. 38. 
 
 V. R. Co. V. Fosdick (1882), 106 TJ. S. 47; This general question is discussed earlier 
 
 Credit Co. v. Arkansas Central R. Co. in this treatise. See also Bartlett v. Tram- 
 
 (1882), 15 Fed. Rep. 46 ; Farmers' Loan ways (1894), L. R. 2 Ch. 287. 
 & Trust Co. V. Oregon & C. Ry. Co. (1885), ^ Coe v. Columbus, Piqua, & Indian- 
 
 24 Fed. Rep. 407, supporting the same doc- apolis R. Co. (1863), 14 Ohio St. 187. 
 trine in more or less decided terms. ' Southwestern Arkansas & I. T. Ry. 
 
 On the question whether the sale of a Co. v. Hays (Ark., 1897), 38 S. W. Eep. 
 
 tramway can be had if the purposes of the 665. 
 
 49 
 
ITO RAILWAY BONDS AND MORTGAGES. [CHAP. XXXV. 
 
 to order a sale of the middle section only, leaving the remainder 
 valueless. The entire road should be sold, and the proceeds 
 distributed between the new company and the mortgagee accord- 
 ing to the ratio which the work done by the first company bears 
 to the value of the whole road, as completed.^ 
 
 The rule that a railroad may be sold as an entirety, wherever 
 it cannot be sold in parcels without loss and prejudice to the 
 parties in interest, is applicable to a system created by the con- 
 solidation of several distinct divisions, upon which separate 
 mortgages have been given prior to the consolidation.^ 
 
 The fact that the particular division on which a mortgage 
 rests is sold at the same time as other divisions of the road, 
 does not violate in any manner the contract entered into with 
 the mortgagee, for a sale of all the separate divisions is plainly 
 an effectual performance of the stipulation providing that each 
 separate division may be sold upon default. The fund, after the 
 sale, will be apportioned upon equitable principles according 
 to the earnings of the different divisions of the road, with the 
 result that the lienholders of the different divisions will receive 
 in the distribution the proportion to which they are entitled; 
 and if the expectation which is the inducement for adopting 
 this method of sale is that the total sum to be apportioned 
 will be larger than the aggregate of the prices which the 
 divisions would have sold for, if sold separately, the arrange- 
 ment will, evidently, be beneficial to all the mortgagees.* 
 
 Quite in a line with the principle of the decisions cited 
 above is the rule laid down by a federal court, that a sale 
 under execution cannot be made separately of that part of the 
 road not subject to the lien of the mortgage, but that the entire 
 road, for the purposes of sale, must be treated as indivisible, 
 the proceeds being brought into court, and distributed with due 
 regard to the priority of the liens and the portions of the road 
 respectively subject to those liens.* 
 
 So also, where a number of Ji. fas. are proceeding against a 
 railroad in the various counties through which it passes, it has 
 been held that to allow the road to be thus cut up into frag- 
 ments would not only sacrifice the rights and interests of cred- 
 
 1 Chicago, Danville, & Vincennes K. & Great Southern R. Co. (1880), 33 Gratt. 
 Co. V. Loewenthal (1879), 93 111. 433. (Va.) 586 ; s. c. 1 Am. & Eng. R. B. Cas. 
 
 2 Grinnell v. Trustees (Ohio Ct. of 473. 
 
 Coram. PL, 1857), 2 Redf. Law of Rail- * Ludlow «. Clinton Line E. Co. (1861), 
 ways, 498. 1 Flip. 25. 
 
 * Gibert v. Washington City, Va. Midi. 
 
§ 787.] SALES OP MORTGAGED PROPERTY. 771 
 
 iters, but defeat the objects and intentions of the legislature in 
 granting the charter, and that a court of equity may therefore 
 properly interfere, and, having enjoined the executions, direct a 
 sale of the entire property for all concerned.^ 
 
 § 787. Po^wer of Court and Officers to postpone Sale. — A court 
 of equity, after a decree in foreclosure ordering the sale of a 
 railroad, will, if necessary, take the responsibility of delaying 
 the sale to await a better condition of the finances and business 
 of the country that exists at the time of the decree. But the 
 fact that a railroad begins, after a period of financial adversity, 
 to show a prosperous state of earnings, indicating that in a few 
 years it will be able to pay off an accumulation of overdue and 
 unpaid interest, does not furnish ground for a postponement of 
 its sale in foreclosure, — especially if the company owning the 
 railroad offers no guaranty that such prosperity will continue.^ 
 
 A sale may also be postponed where, owing to the operation 
 of a statute, only a portion of the property can be sold imme- 
 diately, and it seems advisable in the interests of all parties 
 that the property shall not be dismembered.^ 
 
 The court will not postpone the sale where an appeal is taken 
 more than sixty days after the foreclosure decree, and therefore 
 fails to operate as a supersedeas. The taking of such an appeal 
 does not cast such a shadow on the title as to afford a ground 
 for postponement.* 
 
 In regard to a sale which is actually in progress, the officer 
 designated to conduct it has a limited discretion as to whether 
 it shall be adjourned to prevent a serious sacrifice of the 
 property, as, for instance, where only a single bidder attends 
 the sale. A master or a marshal, in carrying out an order of 
 sale, is something more than an auctioneer. They have duties 
 to perform, and while engaged in the performance of those 
 
 1 Macon & 'Westem R. Co. v. Parker present case," said tlie court, "have no 
 
 (1851), 9 Ga. 377. absolute right to an immediate sale, eyen 
 
 ^ Duncan «. Atlantic, Mississippi, & of the personal property and corporate 
 
 Ohio R. Co. (1880), 4 Hughes, 125. franchises. It is not therefore necessary, 
 
 ° Benedict v. St. Joseph & W. R. Co. in order to follow the statutes, that we 
 
 (1883), 19 Fed. Rep. 173, 175. A Kansas divide and dismember the mortgaged 
 
 statute (Comp. L. § 3983) provided that property. The stay can he ordered as to 
 
 no order of sale, on the foreclosure of a the entire property, and its unity thereby 
 
 mortgage, containing a waiver of the ap- be preserved, and the statute at the same 
 
 praisement of the real estate could be time enforced, and all rights under it 
 
 issued until the expiration of six months, maintained." 
 
 It was held that, in view of such a statute, * Duncan ». Atlantic, Mississippi, & 
 
 the sale of the entire property should be Ohio R. Co. (1880), 4 Hughes, 125. 
 postponed. " The complainants in the 
 
772 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXV. 
 
 duties may postpone the sale for good cause shown. All that 
 can be required of them is that they make themselves acquainted 
 with the circumstances, and act in good faith. ^ 
 
 § 788. Conduct of Sale under Po'wer in Mortgage generally .^ — 
 When an express power to sell is conferred on the trustee, it 
 must be strictly followed in all essential respects. ^ 
 
 An authority to sell " as provided by law " has been held to 
 mean according to the law regulating public sales made 
 pursuant to decrees.* 
 
 A sale made in pursuance of a power is virtually a foreclosure 
 of the mortgagor's equity of redemption; for the mortgagor has 
 created the power expressly to give the purchaser a perfect title 
 to the whole estate, and thus to secure to himself the benefit of 
 an outside price. ^ 
 
 § 789. Sale under Po-wer not postponed till Number of Bonds 
 justly due ascertained. — Where the deed of trust makes it the 
 duty of the trustee to exercise the power of sale given by the 
 instrument upon receiving the written request of a majority in 
 interest of the bondholders, the sale will not be delayed merely 
 to ascertain how many of the bonds are justly due. Bach bond- 
 holder holds his own bonds separately and independently of the 
 others, and when his interest remains in arrear under the cir- 
 cumstances mentioned, he ought not to be delayed by a con- 
 troversy which has arisen about the validity of bonds held by 
 other persons. In this respect the proceedings differ from those 
 in the case of an ordinary foreclosure sale, for upon the filing of 
 a bill to foreclose a mortgage the authority conferred upon the 
 court is to decree a sale unless the debt and costs are paid at or 
 before the time fixed by the decree ; and it is necessary for the 
 court to ascertain the amount of the debt, so that the defendant 
 
 1 Blossom V. Railroad Co. (1865), 3 wliich their debentures are a charge by a 
 
 Wall. 196. In this case the decree was to liquidator of the company in a winding 
 
 the effect that the property should be sold up on the ground that a sale by him 
 
 at a certain time, unless the mortgagor would realize moi'e money. Perry v. Ori- 
 
 should previously pay the mortgage debt ; ental Hotels Co., 12 Eq. 127 ; Longehdale 
 
 and it was held that a few short adjourn- Spinning Co., 8 Ch. Div. 150. 
 ments, to enable the mortgagor to make ^ ^g to ^j^g cumulative character of 
 
 arrangements to pay the amount due on this remedy, see ante, on remedies, 
 the mortgage, were allowed for a sufficient ' Bradley v. Chester Valley R. Co. 
 
 cause, although granted at the Instance of (1860), 36 Pa. St. 151. 
 the plaintiff's solicitor. As to the power * Brunswick & Albany R. Cu v. 
 
 of a trustee to postpone a sale made under Hughes (1874), 52 Ga. 557 ; s. c. 7 Am. 
 
 a power in the mortgage, see Jones on Ry. Rep. 137. 
 Mortgages, § 1873. ^ Bradley v. Chester VaUey R. Co, 
 
 Debenture-holders cannot be restrained (1860), 36 Pa. St. 151. 
 from selling property of the company on 
 
§§ 790-792.] SALES OP mortgaged property. 773 
 
 may know how much it is necessary for him to pay in order to 
 prevent the sale. ^ 
 
 § 790. Place of Sale. — It has been held in Maryland that the 
 statute of that State prohibiting a sale of mortgaged premises 
 out of the county in which they lie refers to technical mort- 
 gages only, and has no application to a trust deed giving the 
 trustees a power to enter upon and sell a railroad when the 
 interest on the bonds secured by the instrument is in default.^ 
 
 § 791. Advertisement of Sale under Power. — It is proper, if 
 not necessary, that the advertisement should state how the 
 sale will be made. It should be made known generally, as well 
 as to the purchasers, whether a sale will be subject to the debts 
 and liabilities of the old company or not.^ 
 
 Where a power of sale is to be exercised by a trustee, in 
 case of continued default for sixty days after notice to the mort- 
 gagor of an intention to sell, but not until the sale has been 
 previously advertised for sixty days, the two periods are not 
 synchronous, but successive. The term required for the adver- 
 tisement to run does not begin until the term of the prescribed 
 notice has expired.* 
 
 If the decree required notice of the sale of the property to be 
 advertised in certain newspapers, among which was A., printed 
 in a certain city, and it appears that before such advertisement 
 was inserted A. had been merged into B., or its name changed 
 to B., the identity of the paper remaining, the advertisement in 
 B. is a substantial compliance with the order. ^ 
 
 A notice of foreclosure by advertisement, stating that the 
 sale will be held at the court in a designated village and county, 
 sufficiently describes the place of sale.® 
 
 Where a trust deed gives the trustee the power to advertise 
 and sell the mortgaged premises on default of payment, when 
 80 requested by the holder of the indebtedness, giving thirty 
 days' notice of such sale, these provisions must be strictly com- 
 plied with to render the sale valid.' 
 
 § 792. Reserved or Upset Prices. — The practice of the English, 
 Court of Chancery, established first by rules of court, and then 
 
 1 Brown v. State of Maryland (ISS.'i), Railroad Co. (1879), 63 Ga. 103 ; s. c. 1 
 64 Md. 199; s. c. 24 Am. & Eng. R. R. Am. & Eng. R. R. Cas. 378. 
 
 Cas. 192. ^ Sage r. Central R. Co. (1879), 99 
 
 2 Harrison ». Annapolis & Elk Ridge U. S. 334. 
 
 R. Co. (1878), 50 Md. 490. ° McCammon v. Detroit, L. & N. R. 
 
 » Alexandria, Washington, & George- Co. (1894), 103 Mich. 104 ; s. c. 61 N. W. 
 
 town R. Co. V. Alexandria & Washington Rep. 273. 
 R. Co. (1870), 19 Gratt. (Va.) 592, 618. ' Equitable Trust Co. u. Fisher (1883), 
 
 * Macon & Augusta R. Co. v. Georgia 106 111. 189. 
 
774 EAILWAY BONDS AND MORTGAGES. [CHAP. XXXV. 
 
 by legislation, is a system of reservation bids, under which the 
 court, upon application of the parties or of its own motion, 
 ascertains the probable value of the property as nearly as may 
 be, and determines the lowest price it is willing to take, has 
 received the approval of the federal courts. The property is 
 not sold unless at public auction it brings as much or more than 
 this reserved price, which, as it is not " revealed " until after 
 the sale, cannot influence the biddings.^ 
 
 By fixing an upset price the court intends to convey the 
 meaning that it is better that the road shall sell at that price 
 than not at all. If the road sells above the upset price, the sale 
 will not be set aside on the ground of the inadequacy of the 
 price, because, in the light of subsequent events, the property 
 proves to have been of greater value. ^ 
 
 The Circuit Court, in the case of Southwestern Arkansas & 
 I. T. Ry. Co. V. Hays, in its decree of sale of the railroad 
 property in a foreclosure suit on the mortgage deed securing the 
 debt, required the commissioner of sale to have the property 
 appraised, and not to sell it for less than two-thirds of its value. 
 This was excepted to by the mortgagee, and, on appeal, the 
 exception was sustained and the decree modified in this respect. 
 The Supreme Court said: "As the mortgage in this case con- 
 fers the right to an absolute sale, it is doubtful whether the 
 court could prevent such a sale by requiring that the property 
 should be appraised and not sold for less than two-thirds of its 
 value." They assumed that the court was prompted to this 
 order by a belief that the statute of Arkansas, regulating sales 
 under powers of sale contained in mortgages of deeds of trust, 
 applied in such a case, but reiterated the rule that it did not 
 apply to sales under decrees of court. ^ 
 
 § 793. Bids. — The question of sale or no sale, so far as it 
 depends on the validity of the bid, is tested by the same rules 
 
 ^ Blackburn a. Selma R. Co. (1880), 3 ' As to setting aside a sale for inade- 
 
 Fed. Rep. 689, 692. For upset price quaoy of price, see Farmers' Loan & Trust 
 
 named in decree, see Blair v. St. Louis, H. Co. et al. v, Oregon Pac. E. Co. et at. 
 
 & K. R. Co. (1885), 25 Fed. Rep. 232, 240, (Oregon, 1895), 40 Pao. Eep. 1089. 
 and Wetmore v. St. Paul & Pac. E. Co., 3 Where the reserve bid is not made at a 
 
 Fed. Rep. 177, 183. sale, and the amount bid is insufficient to 
 
 " Wetmore v. St. Paul & Pac. R. Co. pay off first and second mortgage dehent- 
 
 (1880), 3 Fed. Rep. 177, 183, per Miller, J. ures, o, sale will be stayed and a fore- 
 
 As to power of court to change the closure of the mortgages directed. Welch 
 
 reserved or upset price in its decree, see v. National Cycle Co. (1886), W. N. 27, 
 
 Farmers' Loan & Trust Co. et al, v. Oregon 196. 
 Pac. Ry. Co. et al. (Oregon, 1895), 40 Pac. 
 Rep. 1089. 
 
§§ 794, 795.] SALES op mortgaged property. 775 
 
 substantially as those which are applicable in cases of sales 
 under common-law process, or other sales at public auction. 
 There is no sale where the property has never been struck off 
 to the bidder, nor his bid, by act or word, or in any manner, 
 accepted by the seller. ^ As to the power of the trustee to bid 
 beyond the amount fixed, see ante. 
 
 § 794. Deposits by Bidders. — To guard against the failure of 
 a sale, and the consequent expense and delay, it is within the 
 discretion of the court to require a deposit of money, or other 
 satisfactory security that the terms of the sale will be complied 
 with. 2 
 
 A lien for the purchase-money may also be reserved on the 
 property as an additional security.^ 
 
 The amount of the deposit may reasonably be fixed in refer- 
 ence to the amount of cash required for the discharge of costs 
 and other claims calling for immediate payment. But the 
 officer conducting the sale should not be authorized to exact a 
 cash advance before the close of the biddings. It is considered 
 that any convenience that may result from possessing this 
 means of eliminating spurious bids, during the progress of the 
 bids is counterbalanced by the tendency of such a condition to 
 chill the bids by deterring some parties from bidding.* 
 
 A court is justified in requiring each bidder at a sale of large 
 railroad interests to make as large a deposit as teO,000.^ 
 
 § 795. Liability of Bidders for Loss upon Resale. — A reorgani- 
 zation committee which fails to make good its bids, not for 
 want of funds, but because it thinks that the price was too high 
 
 1 Blossom V. Railroad Co. (1865), 3 and other property not consumed by use, 
 
 Wall. 196. and to return the same to the company at 
 
 ^ Coe V. Columbus, Piqua, & Indian- the end of the term in as good condition 
 
 spoils R. Co. (1889), 10 Ohio St. 372, 409 ; as it may be in when received ; and, to 
 
 Bardstown & Louisville R. Co. v. Metcalfe prevent future controversy with reference 
 
 (1862), 4 Mete. (Ky.) 199. thereto, the court, before ordering the 
 
 ' Bardstown & Louisville R. Co. v. lease, should cause an inventory to be 
 
 Metcalfe (1862), 4 Mete. (Ky.) 199. This made of the property, its value, condition, 
 
 case also rules that, if the property is etc., which should be filed in the cause, 
 
 leased for the purpose of paying the ar- and declared in the decree ordering the 
 
 rears of interest, the lessee should be lease to be conclusive evidence of such 
 
 required to give bonds, with good security, value, condition, etc., at the commence- 
 
 for the payment of such arrears, and of ment of the term. 
 
 the interest to accrue while he remains in * Hand a. Savannah & Charleston E. 
 
 possession, and, as an additional security, Co. (1880), 13 S. 0. 467 ; s. c. 12 Am. & 
 
 a lien on the term should be reserved. In Eng. R. R. Cas. 488. 
 such a ease, the lessee should also be ' Turner v. Indianapolis, B. & W. Ey. 
 
 compelled to give a covenant, with good Co. (1878), 8 Biss. 380. 
 security, to keep in repair the roads, cars, 
 
776 EAILWAT BONDS AND MORTGAGES. [CHAP. XXXV. 
 
 and that it might have made a better bargain, will not be 
 excused, upon a resale of the property at a less price, from 
 making good the difference, if the unsecured creditors will 
 derive advantage therefrom.^ 
 
 § 796. Payment in Bonds. — If bondholders purchase the entire 
 property, they have an equitable right, after satisfying the costs 
 and charges of the litigation and the trust, to pay the balance 
 in bonds, so far as their own proportion of the balance extends, 
 for it is to come to them.^ 
 
 The Supreme Court of the United States, in approving a 
 decree which ordered the master to receive in payment bonds 
 and coupons ascertained by him to be due and owing, and 
 recognized by the court as valid obligations, remarked, with 
 regard to the arrangement: "Permission to bondholders who 
 are mortgagees to purchase at a sale of the mortgaged property 
 and to pay by their bonds is not only usual, but it is highly 
 advantageous to all persons who have an interest. It tends to 
 enhance the price which may be obtained, and thus benefits 
 other creditors as well as the mortgagor.^ 
 
 Bonds should not be received in payment for a bid at a fore- 
 closure sale of corporate property at par unless the purchase 
 price is adequate to pay the par value of all outstanding bonds. 
 If the price is inadequate to pay the par value, then bonds 
 should be received from the purchaser only for the proportion 
 of the sum bid as the holder of the bonds will be entitled to 
 in the distribution of the proceeds.* 
 
 Where the court has required the payment in cash of a sum 
 sufficient to discharge all allowed claims of general creditors 
 
 1 Central Trust Co. v. Cincinnati, J. & sacrifice, and turn the minority ofif with a 
 M. Ry. Co. (1892), 58 Fed. Rep. 500. mere pittance. 
 
 2 Duncan v. Mobile & Ohio R. Co. ' Ketchum v. Duncan (1877), 96 TJ. S. 
 (1879), 3 Woods, 597, per Bradley, J. It 659. This case was followed in KrophoUer 
 was, however, pointed out by the learned v. St. Paul & Pac. Ry. Co. (1880), 2 Fed. 
 justice that the result of the operation of Eep. 302, where the purchaser was author- 
 this rule would evidently be to give those ized to pay all his bid, except $50,000, 
 who, whether singly or in combination, in the debentures issued by order of the 
 hold a large portion of the bonds a great court and in the bonds secured by the 
 advantage over the minority, for they can mortgage foreclosed, at such a percentage 
 pay their own proportion of the purchase- of their fair value as should be equal to 
 money, which is much the largest, in the dividend to which they would be enti- 
 bonds, and have only » small amount in tied upon a distribution of the proceeds of 
 cash to pay ; whilst the minority can only the sale. 
 
 pay a small proportion in bonds, and have * Thayer, Circuit Judge, in American 
 a large amount to pay in cash, which, as a "Waterworks Co. of Illinois et al. v. Farm- 
 general rule, they are quite unable to pay. ers' Loan & Tnist Co. (1896), 73 Fed. Rep. 
 This practically puts it in the power of 956, 964. 
 the majority to get the property at a great 
 
§ 797.] SALES OF MOETGAGED PEOPERTT. 777 
 
 and the expenses of the suit, the rest of the price being paid in 
 bonds, the owners of such allowed claims, if they assent to the 
 subsequent application of a part of this money to liabilities not 
 properly chargeable against it, will be regarded as having 
 waived their rights to the extent that such application affects 
 the ability of the fund to discharge the principal and interest of 
 their debts, and they cannot afterwards require the purchasers 
 to substitute sufficient cash in lieu of bonds to pay their claims 
 in full.i 
 
 Where the court decrees that, at the sale, the mortgage bonds 
 may be received in part payment of the purchase price, it is 
 not necessary nor customary to fix the value of such bonds prior 
 to the confirmation of the sale.^ 
 
 § 797. Who may be Purchaser. — It is desirable to guard 
 against the perils of a forced sale of a valuable property for 
 cash. At judicial sales of railroads for cash there is, as is well 
 known, little likelihood of obtaining a bid for a sum at all com- 
 mensurate with the value of the property sold, or with the 
 amount of incumbrances upon it, the amount required being 
 usually so large, that it is beyond the reach of ordinary pur- 
 chasers. The bondholders are generally the only parties that 
 can become purchasers, because they need not pay their bid in 
 cash. These are the reasons that so often an association of the 
 bondholders is formed to effect a purchase. For convenience 
 sake they usually appoint a purchasing committee to buy the 
 property, take the title for the benefit of all, and transfer it to a 
 new corporation.^ 
 
 The arrangement in this case was made under the power 
 given in the mortgage to a majority of the bondholders. The 
 plan was for the trustee to purchase for their benefit, the 
 minority being guarded in their interest. The court made a 
 decree, therefore, authorizing the trustee to bid at the sale at 
 least the amount of principal and interest of the first-mortgage 
 bonds. This decree was approved by the Supreme Court on 
 appeal. The validity of such associations of bondholders is 
 fully recognized,* provided they are formed in good faith, and 
 not with a view to prevent others from purchasing.^ 
 
 1 Central Trust Co. v. Cincinnati, J. & * Pennsylvania Transportation Co.'s 
 M. R. Co. (1892), 58 Fed. Rep. 501. Appeal (1882), 101 Pa. St. 576 ; Vatable 
 
 2 Farmers' Loan & Trust Co. v. Green v. New York, L. E. & W. E. Co. (1884), 
 Bay & Minnesota R. Co. (1881), 10 Biss. 96 N. Y. 49 ; s. o. 17 Am. & Eng. R. R. 
 203. Cas. 268. 
 
 3 Sage V. Central R. Co. (1879), 99 » Ketchum v. Duncan (1877), 96 U. S. 
 U. S. 334, 339. 659, 674. 
 
778 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXV. 
 
 Stockholders may also combine under a like limitation to 
 buy in the property, and save it from being, sacrificed.^ Where 
 the property is thus bid in by a committee acting as agents for 
 the bondholders, the fact that the return of the officer appointed 
 to make the sale does not state who are the principals is no 
 ground for refusing to confirm the sale. The court may take 
 judicial notice that such a committee represents the owners of 
 the property, and all that can be required of them is that it 
 shall comply with the orders of the court. ^ 
 
 A purchase by the solicitor of the company, who takes the title 
 for the bondholders, is not necessarily in and for itself invalids 
 He simply holds the title until the real purchasers are in a con- 
 dition to take it themselves. Such purchases will be scrutinized 
 closely, but, until impeached, they must stand. ^ 
 
 § 798. Confirmation of Sale. — The sale is not final until a 
 report is made to the court by the officer appointed to conduct 
 it, and it is approved and confirmed. This report is subject to 
 objection from either party, and the purchaser himself who 
 becomes a party to the sale may appear before the court, and, 
 if any mistake has occurred, may have it corrected.* 
 
 Under the acts of Congress the power to confirm or reject a 
 sale belongs exclusively to the Circuit Courts of the United 
 States. The powers conferred on the District Courts are only 
 such as are necessary to control the ministerial duties of officers 
 in the execution of final process.^ 
 
 The court, by confirming a sale under a foreclosure decree 
 which has been made by a sheriff on a day different from that 
 designated in the decree of sale, will render the sale valid.® 
 
 1 Pennsylvania Transportation Co.'s § 3941, Sale as an entirety. Kentucky, 
 Appeal (1882), 101 Pa. St. 576. Gen. Stats. 1887, ch. 56, subd. iv., Judi- 
 
 2 Turner o. Indianapolis, B. & W. Ry. cial sales of such property. Michigan^ 
 Co. (1878), 8 Biss. 380. How. Amer. Stats., § 3351, Sales under 
 
 3 Pacific Railroad v. Ketchum (1879), power. Mississippi, Rev. Code 1880, 
 101 U. S. 289, 300. § 1038, Property and franchises salable 
 
 * Blossom V. Railroad Co. (1865), 3 under judgment. Ohio, Rev. Stats. 1890, 
 
 Wall. 196, 207. § 3400, Property need not be appraised 
 
 5 Milwaukee R. Co. v. Soutter (1866), before foreclosure sale ; upset price should 
 
 5 Wall. 660, 662. i be fixed ; §§ 3420-3424, Conduct of sale. 
 
 ' Fanners' Loan & Trust Co. et al. v. Texas, Sayle's Civ. Stats. 1888, § 4261, 
 
 Oregon Pac. Ry. Co. et al. (Oregon, 1895), Conduct of sales under deed of trust or 
 
 40 Pac. Rep. 1089. power. West Virginia, Code, ch. 54, § 72, 
 
 Statutes in some of the States relat- Sale, purchaser, 
 ing to sales : Indiana, Rev. Stats. 1888, 
 
CHAP. XXXVI. j BIGHTS OP PUBCHASEES AT SALE. 
 
 779 
 
 CHAPTER XXXVI. 
 
 EIGHTS OP PUBCHASEES AT A SALE OP THE MOETGAGED PEOPEETT. 
 
 Art. I. — Effect of Sale as eegabds 
 THE Mortgagor. 
 § 799. Corporation not dissolved by 
 Sale. 
 
 800. How far Eule affected by Stat- 
 
 utes permitting Purchasers to 
 incorporate. 
 
 801. Extent to which Liability of 
 
 Mortgagor Company ceases 
 with Foreclosure Sale. 
 
 802. Effect of Sale upon Eights of 
 
 Debtors and Creditors of 
 Mortgagor Company. 
 Art. II. — Eights of Purchasers at 
 Foreclosure Sales. 
 § 803. Purchaser bound by Decree. 
 
 804. What passes to Purchaser at 
 
 Trusteei's Sale. 
 
 805. Right to Municipal Aid does not 
 
 pass by Foreclosure Sale. 
 
 806. Purchaser's Right to Earnings 
 
 of the Road accumulated in 
 the Receiver's Hands. 
 
 807. Eight to use Lands appropriated 
 
 by Company not lost by Non- 
 use of Mortgagor Company's 
 Franchises. 
 
 808. Statutory Right to regulate 
 
 Tolls does not pass. 
 
 809. Exemption from Taxation some- 
 
 times passes to Purchaser. 
 
 810. The same Principle of Con- 
 
 struction is applied where the 
 Rights of Purchasers are de- 
 fined by Statute. 
 
 811. Vested Eights of Purchasers 
 
 cannot be impaired by Leg- 
 islation. 
 Art. III. — Liabilities of Purchasers 
 at Foreclosure Sales. 
 § 812. Generally. 
 
 (a) Purchaser takes free from 
 Subsequent Liens. 
 
 (J) Purchaser sometimes takes 
 free ■ from Liens held 
 by Persons not Actual 
 Parties. 
 
 (c) Purchaser takes free from 
 
 Liens which he had a 
 Eight to suppose dis- 
 charged, 
 
 (d) Purchaser takes free from 
 
 Tax Lien sometimes. 
 
 (e) Purchaser takes subject to 
 
 Liens absolutely para- 
 mount by Statute. 
 (/) Purchaser takes subject to 
 Statutory Obligations as 
 to Operation of Eoad. 
 (g) Purchaser takes subject to 
 Obligations and Eestric- 
 tions imposed by Mort- 
 gagor's Charter. 
 §813. Contracts of Mortgagor Com- 
 pany are not, as a General 
 Rule, binding on its Successor. 
 
 814. Trust availing against Purchaser 
 
 avails against his Assignee. 
 
 815. Purchaser takes subject to Ven- 
 
 dor's Lien sometimes. 
 
 816. Assumption of Obligations in- 
 
 ferred from Fact of Purchase 
 under a given Decree. 
 
 817. Purchaser affected with Notice 
 
 of Proceedings in Foreclosure 
 Suit. 
 
 818. Liability of Purchaser by Eea- 
 
 son of its Occupation of Land 
 acquired by Mortgagor. 
 
 819. Assumption of Obligations in- 
 
 ferred from Agreements of 
 New Company or its Trans- 
 ferrers. 
 
 820. Purchaser not generally liable 
 
 for Mortgagor's Torts in Oper- 
 ation of Road. 
 
780 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVI. 
 
 § 821. Liability of New Company for 
 Damages caused by Operation 
 of Eoad by Trustees. 
 822. Liability of Purchasers for Dam- 
 ages caused by Operation of 
 Eoad by Receiver. 
 
 § 823. No Liability attaches to Pur- 
 chasers until Sale is con- 
 firmed. 
 
 824. Purchasers organizing as a New 
 
 Company not liable for Debts 
 of Mortgagor. 
 
 825. The Right of Redemption. 
 
 Article I. — Effect op Sale as regards the Mortgagor. 
 
 § 799. Corporation not dissolved by Sale. — As was emphati- 
 cally said in Atkinson v. Marietta & Cincinnati R. Co,,i " Al- 
 though the corporation may be divested of its property, together 
 with the franchise of operating and making profit from the use of 
 its road, its corporate existence survives the wreck, and endures 
 until the State sees fit to terminate it by proper proceedings." 
 
 The foreclosure of a railroad mortgage cuts off all the rights 
 and interests of the mortgagor corporation in the mortgaged 
 property, and leaves nothing for the stockholders except the sur- 
 plus, if any, which remains after satisfying the mortgage and 
 other preferential claims.^ 
 
 But the corporation itself is not dissolved by the sale of its 
 property.^ 
 
 of the lien passed into the hands of a 
 different company. " For all the practical 
 purposes of its original creation," said the 
 court, "the corporation ceased to exist. 
 A corporation possessing neither property, 
 rights, nor franchises is scarcely conceiv- 
 able." This mode of arriving at a con- 
 clusion regarding the existence of a 
 corporation under such circumstances 
 seems rather lacking in precision. In 
 view of the general principle stated in 
 the text, the question seems to reduce 
 itself simply to the inquiry, Did the fran- 
 chise to be a corporation, as well as the 
 other franchises, pass by the sale ? If it 
 did not, it must still exist somewhere, in 
 the absence of some statute providing for 
 such a case ; and there is apparently no 
 reason why the original company should 
 not be regarded as still in possession of 
 this rather barren privilege. Even under 
 the Code of Tennessee a dissolved corpo- 
 ration may be continued in existence for 
 the purpose of prosecuting and defending 
 suits. The court, in deciding the above 
 case, was largely influenced by the section 
 of that Code (3431), declaring that "a 
 corporation is not dissolved by mere non- 
 
 1 15 Ohio St. 21 (1864). 
 
 2 Vatable v. New York, L. E. & W. R. 
 Co. (1884), 96 N. Y. 49 ; s. 0. 17 Am. & 
 Eng. R. R. Cas. 268. 
 
 « Waterman on Corp., § 432. 
 
 Gulf, Colorado, & Santa Fe Ry. Co. 
 V. Morris (1887), 67 Tex. 692. Compare 
 Memphis & Little Rock R. Co. v. Rail- 
 road Commissioners (1884), 112 U. S. 
 609, where Mr. Justice Matthews, in the 
 course of his opinion, adverted incident- 
 ally to the rule stated in the text as 
 being well established. In Rogersville & 
 Gt. Jefferson R. Co. v. Kyle (1882), 9 Lea 
 (Tenn.), 691 ; s. C. 14 Am. & Eng. R. R. 
 Cas. 576, it was, however, held that a de- 
 cree which adjudged, among other things, 
 that the lien of the State imposed by 
 statute was superior to all claims what- 
 soever ; that this lien extended to the 
 road, its rolling-stock, and other property, 
 rights, privileges, and franchises ; and that 
 upon a sale to any one but the original com- 
 pany, that company and its stockholders 
 should cease to have any right, legal or equi- 
 table, in the property, rights, or franchises 
 so sold, — had the effect of dissolving the 
 original company when the subject-matter 
 
§§ 800, 801.] EIGHTS OP PURCHASERS AT SALE. 781 
 
 § 800. How far Rule is affected by Statutes permitting Purchasers 
 to incorporate. — The charter and franchises are not an incident 
 which is annexed to and passes with a transfer of the property of 
 the corporation, even though the legislature allows the purcliasers 
 to organize themselves into a new company, with all the rights, 
 privileges, powers, and franchises of the former company. If 
 such a transfer constitutes a cause of forfeiture for non-user, the 
 forfeiture must be determined judicially to make it effectual.^ 
 
 Nor does a special act incorporating the purchasers of an insol- 
 vent railroad, and investing them with " all the rights, powers, 
 privileges, and franchises " of the former company, operate as a 
 revocation of the charter of the latter. Such an act will be con- 
 strued as a grant of only such rights, etc., as the legislature has 
 the authority to grant; and it has no such authority in respect to 
 the rights, etc., of the former company, unless they have been 
 judicially declared forfeited, or revoked by an express enactment, 
 which has that effect, and is not invalid as being repugnant to 
 the constitution.^ 
 
 Still less is the mortgagor corporation extinguished by an act 
 declaring that the purchasers of a railroad, etc., at a judicial sale 
 shall be and are thereby constituted a body politic and corporate, 
 invested with the right, title, and interest of the former corpora- 
 tion in the property purchased, and also with the franchises exist- 
 ing at the time of the sale.^ 
 
 § 801. Extent to ■which Liability of Mortgagor Company ceases 
 with Foreclosure Sale. — The mortgagor company is not liable for 
 injuries resulting from the condition of the road after a fore- 
 closure sale, and a purchase under an act declaring that the 
 corporate rights and franchises should be as fully vested in the 
 purchaser as if he had been the original corporator. Such a 
 purchaser does not become identical with the company itself, so 
 that by suit against the company his duties may be enforced. 
 This being the case, the company is relieved of liability for the 
 safety of those using the road, upon the general principle that, 
 by the sale, its power over the road has entirely ceased, and with 
 
 user or assignment to others, in whole or Co. (1861), 25 111. 353 ; Metz v. Buffalo, 
 
 in part, of its powers, franchises, and Cony, & Pittsburg R. Co. (1874), 58 N. Y. 
 
 privileges, unless all the corporate prop- 61. 
 
 erty has been appropriated to the pay- ^ Wilmington R. Co. ». Downward 
 
 ment of its debts." Apart from this (Del., 1888), 13 Centr. Eep. 284 ; s. c. 4 
 
 proviso, the case cannot be reconciled Ry. & Corp. L. J. 234. 
 with the authorities cited under the pres- ^ Commonwealth v. Central Passenger 
 
 ent section. By. Co. (1866), 52 Pa. St. 506. 
 1 Bruffett V. Great Western Railroad 
 
782 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVI. 
 
 its power its duty to keep the road in good condition has also 
 terminated.^ 
 
 The presumption is that the purchasers of a road who subse- 
 quently organize a new company are in possession of the property 
 between the date of the sale and the time of filing the certificate 
 of reorganization. The mortgagor company, therefore, is not lia- 
 ble for the operation of the road during that period, unless its 
 possession is affirmatively shown.^ 
 
 § 802. Effect of Sale upon Rights of Debtors and Creditors of 
 Mortgagor Company. — The continued existence of the corporation 
 inures to the benefit of its creditors whose debts are unpaid at tlie 
 time of the sale. Such creditors may still enforce their claims 
 against the corporation, notwithstanding the surrender or sale of 
 its corporate franchises.^ 
 
 Thus, since the creditors of a railway company are entitled to 
 consider an unconditional subscription, made by a municipality 
 to aid the work of construction, as a part of the corporate assets 
 as soon as it is granted, they may still enforce their right to the 
 fund after the property and franchises have been sold and trans- 
 ferred by the legislature to a new company. The municipality, 
 in such a case, has no power to donate a portion of the bonds 
 issued on its subscription to the new compaay, except so far as 
 the creditors of the old company will not be prejudiced by the 
 donation.* 
 
 The creditors may enforce their claims by garnishment of the 
 debtors of the corporation. Thus, when certain persons have 
 subscribed for corporate stock, and then compromised a suit for 
 the subscription by a contract to deliver cross-ties at a certain 
 price, part of which is to be paid in stock and the remainder in 
 cash, they are liable as garnishees to a judgment creditor whose 
 
 1 Wellsborough & Tioga Plank Road bus, Piqua, & Indianapolis R. Co. (1859), 
 Co. V. Griffin (186S), 57 Pa. St. 417, dis- 10 Ohio St. 372 : "After an act of dis- 
 tinguishing Commononwealth v. Central position which separates the franchise to 
 Passenger Ey. Co. (1866), 52 Pa. St. 506, maintain a railroad and make profit from 
 supra, decided with reference to another its use from the franchise of being a cor- 
 act. poration, though a judgment of dissolu- 
 
 2 Pittsburg, Cincinnati, & St. Louis tion may be authorized, yet until there be 
 Ey. Co. u. Fierst (1880), 96 Pa. St. 144 ; such judgment the rights of the corpora- 
 s. c. 9 Am. & Eng. R. R. Cas. 437. tors and of third persons may require that 
 
 8 Railroad Co. v. Howard (1868), 7 the corporation be considered as still ex- 
 Wall. 392; Jlemphis & Little Rook K. isting." 
 
 Co. V. Railroad Commissioners (1884), 112 * Morgan County v. Thomas, 76 111. 
 
 U. S. 609. In the latter case Justice 121 (1875), citing James V. 'Woodruff 
 
 Matthews refers with approval to the fol- (1845), 2 Denio, 574. 
 lowing words of the court in Coe v. Colum- 
 
§§ 803, 804.J EIGHTS OF PURCHASERS AT SALE. 783 
 
 execution against the corporate property has been returned nulla 
 bona} 
 
 But it has been held that, although the sale does not extin- 
 guish debts owing to the corporation, nor judgments of record in 
 its favor, the corporation is dormant and incapable of action in 
 regard to such debts and judgments, and is therefore incapable 
 of conveying a judgment entered in its favor after the execution 
 of the mortgage, and marked after the sale for the use of a new 
 company organized by the purchasers.^ 
 
 Article II. — Rights op Purchasers at Foreclosure Sales. 
 
 § 803. Purchaser bound by Decree. — The purchaser at a fore- 
 closure sale looks to the decree as the measure of his rights and 
 liabilities, except in those cases where his position is defined 
 by a general or special statute. The sale does not go beyond 
 the decree. The purchaser takes nothing, acquires no rights, 
 incurs no liabilities, except those which are determined and 
 prescribed by the decree.^ 
 
 Usually the decree is so worded as to make the subject-matter 
 of the sale coextensive with that of the mortgage, and in this 
 case the question, What passes to the purchaser ? is evidently 
 only another form of the question, — What does the mortgage 
 cover ? The decisions dealing with the effect of the mortgage 
 in this respect, both from the point of view of the authority of 
 the company to execute a mortgage of the thing specified, and 
 also with reference to matters of mere construction, have been 
 already discussed in a previous chapter, and need not be cited 
 again. The same remark applies where a statutory lien is 
 declared in favor of the State, and enforced by appropriate pro- 
 ceedings. The purchaser at the sale acquires the various kinds 
 of property covered by the lien, — no more, no less. For a dis- 
 cussion of the scope of those liens the practitioner is referred to 
 an earlier portion of this treatise. 
 
 § 804. "What passes to Purchaser at Trustee's Sale. — Property 
 which is mentioned neither in the decree directing, nor the ad- 
 vertisement announcing, a trustee's sale, will not pass to the 
 purchaser, although that property constitutes a part of the 
 security of the bondholders.* 
 
 1 Smith V. Gower (1865), 2 Duv. ' Simmons v. Taylor (1885), 23 Fed. 
 (Ky. ) 17. Rep. 849. See generally, as to this prln- 
 
 2 Wilmington R. Co. v. Downward ciple, Rorer on Railroads, 921. 
 
 (Del. 1888), 13 Centr. Eep. 284. * Osterber v. Union Trust Co. (1876), 
 
 93 U. S. 424. The rule was here applied 
 
784 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXTI. 
 
 A notice of sale must he reasonably specific as regards the 
 subject-matter to be disposed of, and the purchasers will acquire 
 nothing except what is described with sufficient particularity to 
 indicate the value of the property to intending bidders. A 
 covenant in favor of the mortgagor company does not pass to 
 the purchaser under a trustee's notice of sale which designates 
 the subject-matter of the sale as the "property, rights, privi- 
 leges, and franchises, things in action, and other things 
 described in the mortgage, as appears in the bill filed by the 
 complainant. " ^ 
 
 § 805. Right to Municipal Aid does not pass Foreclosure Sale. 
 — Until a company to which aid has been voted by a municipal- 
 ity occupies a position which will enable it to enforce whatever 
 right or interest it may have in the appropriation, such an 
 appropriation is not a chose in action which can be mortgaged, 
 so as to pass the right to enforce it to a purchaser at the fore- 
 closure sale.^ 
 
 § 806. Purchaser's Right to Earnings of Road accumulated in 
 Receiver's Hands. — The purchaser is not entitled to money accu- 
 mulated in the receiver's hands, as the net income of the road 
 from the date of the decree of foreclosure to the date of the sale. 
 Those earnings are the property, not of the company, but of 
 its creditors, and should be applied by the court to the payment 
 of their claims according to their priorities.^ 
 
 to funds coming into the receiver's hands ment if there was no specific and certain 
 
 from the sales of land assigned by the designation of the property offered for sale, 
 
 company to trustees. ... A sale at auction and upon notice 
 
 1 Milwaukee & St. Paul R. Co. v. Mil- implies that there is some designation 
 
 waukee & Minnesota R. Co. (1865), 20 of the thing offered to be sold, so that 
 
 Wis. 165, 174. The court said: "Is it persons whom the law invites to such 
 
 permissible that chases in action, instru- auction may be able to know where and 
 
 ments in writing, should thus be exposed what is the property they are about to 
 
 for sale and swept away in this loose and purchase." 
 
 uncertain manner ? What purchaser could ^ Board of Commrs. of Hamilton County 
 
 bid understandingly when property is thus v. State, ex rel. Cottinghara (1888), 115 
 
 offered for sale without any designation or Ind. 64 ; s. 0. 4 N. E. Rep. 589 ; 17 N. E. 
 
 description ? Obviously a bidder could not Rep. 855. 
 
 know, and would have no means of ascer- ' Strang v. Montgomery & Eufaula E. 
 
 taining, whether the choscs in action were Co. (1879), 3 Woods, 613 ; Osterber v. 
 
 worth a thousand, a hundred thousand, or Union Trust Co. (1876), 93 IT. S. 424. 
 
 a million of dollars. The mortgage being In the former case the court also held 
 
 recorded as a real-estate, and not a chattel that, even if the purchaser had a right to 
 
 mortgage, would probably not be even con- such earnings on general principles, yet 
 
 structive notice to third persons as to the he could not claim them under the decree 
 
 property covered by it. No person, there- in question, which directed a sale of the 
 
 fore, attending the sale could know what " road, franchises, right of way, depots, 
 
 price to bid or how to regulate his judg- rolling-stock, tools, and all other property 
 
§§ 807-809.] EIGHTS OF PDECHASEES AT SALE. 785 
 
 The purchasers under the foreclosure of a junior mortgage, 
 consummated while a receiver appointed at the instance of a 
 senior mortgagee is in possession, have an equity to the earnings 
 accumulated in such receiver's hands which is superior to that 
 of the stocltholders and unsecured creditors, and a bill by the 
 latter to hold the receiver to an accounting for those earnings 
 will be dismissed upon demurrer.^ 
 
 Where the property of a railroad company is sold under fore- 
 closure of a junior mortgage, subject to the rights of prior mort- 
 gagees under a mortgage of the "net income," and under its 
 provisions the trustee of the bondholders in case of default 
 foreclosed, and the property went into the possession of the same 
 receiver as in the prior suit, the purchaser at the sale acquires 
 no right to the income during the receivership. It belongs to 
 the holders of the prior mortgage bonds. ^ 
 
 § 807. Right to use Lands appropriated by Company not lost by 
 ITon-use of Mortgagor Company's Franchises. — The right of a pur- 
 chaser to use the land appropriated by the mortgagor company 
 cannot be impugned by showing that the latter had, by non-use 
 and failure to construct its road, forfeited its franchises. Such 
 a default can only be taken advantage of by the State. ^ 
 
 What passes under the word "franchises " generally, see the 
 chapter on Definitions sub voc. 
 
 So far as the answer to this question depends on the power to 
 mortgage franchises. Chapter VII. should be consulted. 
 
 § 808. statutory Right to regulate Tolls does not pass. — The 
 benefit of a statutory right to regulate tolls, conferred upon a 
 company, cannot be claimed by a purchasing company organized 
 under a statute which provides that it shall be subject to all the 
 laws of the State which apply to railroad corporations generally, 
 and there has been passed, subsequently to the enactment of the 
 statute conferring the privilege on the former company, a statute 
 prescribing what rates of toll may be charged by railroad 
 companies.* 
 
 § 809. Exemption from Taxation sometimes passes to Purchaser, 
 — Exemption from taxation will not pass to the purchaser at a 
 
 of the company, real, personal, and mixed." ^ Downs v. Farmers' Loan & Trust Co. 
 
 Such a decree does not cover any personalty (1897), 79 Fed. Eep. 215. 
 except the rolling-stock and other prop- ' Logan u. Vernon, Greensburg, & 
 
 erty placed on the road by the receiver in Kushville E. Co. (1883), 90 Ind. 652 ; 
 
 the discharge of his duty to carry on the s. c. 14 Am. & Eng. R. E. Cas. 43. 
 business of the company. * Norfolk & Western E. Co. v. Pen- 
 
 1 Lafayette Co. v. Neely (1884), 21 Fed. dleton (1890), 86 Va. 1004 ; s. c. 11 S. E. 
 
 Eep. 738 ; s. o. 17 Am. & Eng. R. R. Cas. Eep. 1062. 
 242. 
 
 50 
 
786 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVI. 
 
 sale under a decree covering all the mortgaged property of a 
 railroad company, including the "franchises."^ 
 
 Nor will the use of the word " privileges " in the mortgage 
 enlarge the rights of the purchasers in this respect. ^ 
 
 A foreclosure sale under a mortgage of the " charter " of the 
 company is equally ineffective to transfer this privilege to the 
 purchasers. ^ 
 
 So also, though the mortgage professes to transfer the charter, 
 the rights of a railroad company to have the damages for the 
 appropriation of its land assessed in a particular manner is a 
 personal privilege of the grantee, and does not pass to pur- 
 chasers incorporating under a general law which transfers to 
 it the " property and franchises " of the mortgagor. * 
 
 § 810. The same Principle of Construction is applied 'where the 
 Rights of Purchasers are defined by Statute. — " Exemption from 
 taxation," it is declared, "must be construed to have been the 
 personal privilege of the very corporation specifically referred 
 to, and to have perished with that, unless the express and clear 
 intention of the law requires the exemption to pass as a con- , 
 tinning franchise to a successor. This salutary rule of interpre- 
 tation being founded on an obvious public policy which regards 
 such exemptions as in derogation of the sovereign authority and 
 
 1 Morgan v. Louisiana (1876), 93 U. S. Co. v. Palmes (1883), 109 U. S. 244, 252 ; 
 
 217. In this case Justice Field, on page s. c. 13 Am. & Eng. R. R. Cas. 380 ; Chesa- 
 
 223, said : The term " franchises " " is peake & Ohio Ey. Co. v. Miller (1885), 114 
 
 often used as synonymous with rights, U. S. 176. 
 
 privileges, and immunities, though of a ^ Picard v. East Tenn., Va. & Ga. R. 
 
 personal and temporary character, so that Co. (1889), 130 TJ. S. 637. 
 if any one of them exists it is loosely ' Memphis & Little Rock R. Co. v. 
 
 termed a 'franchise,' and is supposed to KaUroad Commissioners (1884), 112 TJ. S. 
 
 pass upon a transfer of the franchises of 609. 
 
 the company. But the term must always * Little Rock & Fort Smith Ry. ■■. 
 he considered in connection with the cor- McGehee (1883), 41 Ark. 202 ; s. 0. 20 
 poration or property to which it is alleged Am. & Eng. R. R. Cas. 82. Compare 
 to appertain. The franchises of a railroad Dow v. Beidleman (1887), 49 Ark. 325, 
 corporation are rights or privileges which where it was held that, under such a mort- 
 are essential to the operations of the corpo- gage, a provision in the charter that the 
 ration, and without which its road and charge for carrying passengers should not 
 works would he of little value ; such as exceed five cents per mile for each pas- 
 the franchise to run cars, to take tolls, to senger, even if it could be construed as a 
 appropriate earth and gravel for the bed of contract on the part of the State that 
 its road, or water for its engines, and the passenger fare would not be reduced be- 
 like. They are positive rights or privi- low that rate, would not have the effect 
 leges, without the possession of which the of transferring the privilege to the pur- 
 road of the company could not be success- chasers, since their reorganization under 
 fully worked." See also, to the same effect, a constitution enacted since the granting 
 RailroadCo. v. County of Hamblen (1880), of the original charter created a new cor- 
 102 TJ. S. 273 ; Louisville & NaShvUle R. poration subject to legislative control. 
 
§ 810.] RIGHTS OF PURCHASERS AT SALE. 787 
 
 of common right, and therefore not to be extended beyond the 
 exact and express requirement of the grants, construed strictis- 
 simi juris." ^ 
 
 In applying this principle the courts, with one or two excep- 
 tions, have taken the position that the exemption will not pass 
 by any word which does not constitute an apt description of this 
 privilege as distinguished from others. Thus it has been held 
 by the Supreme Court of the United States that the exemption 
 will not pass by a charter granting to a railroad company all 
 the "rights, powers, and privileges " of another company. ^ 
 
 In Kentucky, also, it has been held that the purchasing com- 
 pany will not enjoy an exemption from taxation conferred on 
 the mortgagor, merely for the reason that the legislature has 
 recognized by the recitals of the statute the fact that the 
 " rights, franchises, and property " of the latter have passed by 
 the sale.^ 
 
 In Florida, on the other hand, the view is taken that the right 
 of exemption from taxation can be passed under the general 
 language "all the rights," as well as any other.* 
 
 That the use of the word " immunities " will carry an exemp- 
 tion from taxation in all cases seems to be a legitimate inference 
 from several cases. In some of these, however, the courts were 
 influenced more or less strongly by other considerations which 
 were deemed to support the inference that this was the intention 
 of the legislature. Thus it has been held that an act providing 
 for the sale of a road which the State itself has bought in fore- 
 closure proceedings to enforce its lien, and conferring on the 
 purchasers "all the rights, franchises, privileges, and immuni- 
 ties" of the defaulting corporation, will cover any exemption 
 from taxation that the latter may have possessed, providing the 
 
 1 Memphis & Little Rock K. Co. v. allegation to the contrary, presume that the 
 Railroad Commissioners (1884), 112 IT. S. sale embraced anything not covered by the 
 609. lien. The authority of Morgan v. Louisi- 
 
 2 Railroad Companies v. Gaines (1878), ana, supra, was, therefore, controlling. 
 
 97 U. S. 697 ; "Wilson •>. Gaines (1877), 9 ' Evansville, Henderson, & Nashville 
 
 Baxt. (Tenn.) 546, affirmed in Wilson o. R. Co. v. Commonwealth (1872), 9 Bush 
 
 Gaines (1880), 103 U. S. 417. This case (Ky.), 438. 
 
 came before the Supreme Court of the ^ Atlantic & Gulf R. Co. v. Allen 
 
 United States on demurrer to a bill pray- (1876), 15 Fla. 637. The words used 
 
 ing that the collection of taxe.s on the were "rights, franchises, and privileges," 
 
 property be restrained, and averring that but no stress was laid on the addition of 
 
 the sale was under the proceedings to the last two. Trask v. Maguire, infra, 
 
 enforce a statutory mortgage in favor of was cited as an authority for this doc- 
 
 the State. The court held that, as the trine ; but it is clearly not in point, for 
 
 question was presented in this manner, it the statute there construed included the 
 
 could not, in the absence of a particular significant word "immunities." 
 
T88 
 
 RAILWAY BONDS AND MORTGAGES, [CHAP. XXXTI. 
 
 legislature has the power, when the act Is passed, to exempt 
 railroad property from taxation.^ 
 
 So also in the same light the Supreme Court of the United 
 States has viewed an act incorporating a company and empower- 
 ing it to acquire by purchase all the "property, rights, privi- 
 leges, franchises, and immunities. " ^ 
 
 So, where a statute empowers a new company to take a con- 
 veyance from an old one of " all its franchises, rights, powers, 
 privileges, and immunities," the conveyance will operate as a 
 transfer of any immunity from taxation possessed by the old 
 company.^ 
 
 In Kentucky the same construction has been placed upon a 
 statute providing that the purchaser or lessee of a road should 
 be vested with all the "rights, privileges, franchises, and 
 immunities " of the mortgagor company. * 
 
 1 Trask v. Maguire (1873), 18 Wall. 
 391. In this case such an exemption was 
 held to he unconstitutional. The theory 
 adopted hy the court was that when the 
 State purchased the railroad, the immunity 
 necessarily ceased, so that the validity of 
 the grant of exemption was to he tested 
 by the constitution in force at the time 
 when the new company acquu'ed its rights. 
 That such a merger of the exemption may 
 he prevented by a clear expression of the 
 legislature to that effect has been held in 
 First Div. of St. Paul &'Pac. R. Co. v. 
 Parcher (1869), 14 Minn. 297, decided in 
 view of the contemporaneous policy of 
 encouraging railroad building in thinly 
 peopled districts. The court deemed itself 
 justified in holding, for this reason, that 
 there was no merger of the exemption 
 when the State acquired the property, 
 and that its grantees were not affected by 
 a constitutional provision forbidding such 
 exemptions whicli had been passed since 
 the rights of the first company had become 
 vested. 
 
 2 Louisville & Nashville R. Co. o. 
 Palmes (1883), 109 IT. S. 244, 252 ; s. 0. 
 13 Am. & Eng. R. R. Cas. 380. The court 
 said: " The language is comprehensive and 
 unequivocal, and the word 'immunity' is 
 apt to describe the exemption claimed." 
 In this case, however, the question was 
 whether the company, whose powers and 
 rights were thus defined by the statute, 
 could, hy a conveyance describing the 
 subject-matter of the assignment in the 
 
 same words as the statute, carry to its 
 grantee this immunity from taxation, and 
 the court, on the authority of Morgan v. 
 Louisiana, held that the conveyance had 
 no such effect. 
 
 5 Nichols, Treasurer, etc. v. New Haven 
 & Northampton Company (1875), 42 Conn. 
 103. The court pointed out that the 
 people of the State, owing to the insol- 
 vency of the first company, had not as yet 
 received the benefit from the canal which 
 had induced the legislature to grant the 
 original exemption. The inevitable infer- 
 ence, therefore, was that the intention of 
 the legislature was to continue the exemp- 
 tion in the new company in order to do 
 justice to the creditors whose money had 
 been expended in the enterprise, and to 
 induce persons to subscribe to the cash 
 capital of the corporation. And such wss 
 the import of the provision, that the new 
 corporations should have "all the immu- 
 nities of the old corporations." This lan- 
 guage could hav6 no other meaning than 
 that the immunity from taxation to he 
 enjoyed by the new company should be 
 coextensive with that enjoyed by the old. 
 Philips, .T., dissented, on the ground that 
 "the extinction of the stock of the old 
 company carried with it the extinction of 
 the privilege." 
 
 * Commonwealth v. Owensboro & Nash- 
 ville R. Co. (1884), 81 Ky. 572 ; s. c. 17 
 Am. & Eng. R. R. Cas. 428. 
 
 The court distinguished Morgan v. 
 Louisiana, but it is not very clear from 
 
§ 810.] 
 
 RIGHTS OP PURCHASERS AT SALE. 
 
 789 
 
 So also in Tennessee it has been held that, where the legis- 
 lature by a special act invested a certain chancery court with 
 exclusive jurisdiction to determine all questions arising out of 
 the foreclosure proceedings instituted to enforce the lien of the 
 State upon the railroads which had received its aid, and a 
 decree of that court adjudged, in the words of the act, that the 
 property of one of the delinquent companies, and also " all its 
 rights, franchises, privileges, and immunities," should pass to 
 the purchasing company, the latter acquires the same privilege 
 of exemption from taxation which was enjoyed by the old 
 company. ^ 
 
 The Supreme Court of Minnesota has also declared that 
 exemption from taxation passes to purchasers who, by statute, 
 are invested with the "privileges, grants, franchises, immuni- 
 ties, and advantages " of the mortgagor. Such an exemption, it 
 was said, was not distinguished from any of the other rights 
 
 the opinion what the precise ground of 
 the decision was. Neither Trask v. Ma- 
 guive nor Louisville & NashvOle R. Co. 
 V. Palmes, supra, were cited, though ex- 
 actly in point. The essence of the ruling 
 is contained iu the following sentence : 
 " We find iu this case not only legislative 
 authority to make the transfer, but, as an 
 inducement to the purchasers to make 
 their bids, it is expressly provided that 
 the injmunity from taxation shall follow 
 the road iu the hands of those who buy 
 it." The words "from taxation" are not 
 found in the statute as quoted, and we 
 are left to assume that the court regarded 
 the word "immunities" as wide enough 
 to include "immunity from taxation." 
 Yet the same court, a few years later, 
 without referring to this case, ruled that a 
 statute incorporating purchasers, and in- 
 vesting them with the "powers, rights, 
 privileges, immunities, and franchises" of 
 the mortgagor company, did not exempt 
 the new corporation from taxation, or carry 
 to it the privilege of having its stock as. 
 sessed in a peculiar manner. Kentucky 
 Central R. Co. i>. Commonwealth (1888), 
 87 Ky. 661 ; s. c. 10 S. W. Rep. 269 ; 5 
 Ry. & Corp. L. J. 293. It is not easy to 
 see how these two eases can be reconciled. 
 
 1 Knoxville & Ohio R. Co. v. Hicks 
 (1877), 9 Baxt. (Tenn. ) 442 ; s. c. 15 Am. 
 Ry. Rep. 197. In this case, however, the 
 court did not lay any special stress on the 
 
 use of the word "immunities," as it took 
 occasion to dissent from the ruling of 
 Morgan v. Louisiana, then recently de- 
 cided. The broad ground was taken that 
 the exemption was a part of the charter, 
 and could not be repealed by the legisla- 
 ture, whether the road was in the hands 
 of the original company or its successor. 
 This court adhered to its opinion in State 
 V. Nashville, Chattanooga, & St. Louis Ry. 
 Co. (1883), 12 Lea (Tenn.), 583; s. c. 17 
 Am. & Eng. R. R. Gas. 420. But in this 
 latter case express reference was made to 
 Trask v. Maguire (1873), 18 Wall. 405, as 
 an authority for the proposition that ' ' im- 
 munity" includes exemption from taxa- 
 tion, — a consideration not relied upon iu 
 the first case, but, as we venture to think, 
 the only one on which that decision can 
 be sustained. The simple question in- 
 volved in all such cases is. What was the 
 intention of the legislature ? If the pur- 
 cliasers suffer by wrongly interpreting that 
 intention, they are merely in the position 
 of any one else who is mistaken about the 
 meaning of the law. The point raised as 
 to the inability of the legislature to with- 
 draw the privilege seems quite irrelevant 
 so far as the purchasers are concerned, for 
 they take exactly what the law allows 
 them, — no more, no less. If there is any 
 impairment of the contract, that is a mat- 
 ter between the State and the original 
 company. 
 
790 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVI. 
 
 granted, and was certainly comprehended in the description 
 contained in the statute. Even if the immunity were not a 
 franchise, in the legitimate sense of the word, it was a right, a 
 contract right, to hold the property exempt from taxation until 
 the same were sold and conveyed. Not being a personal or 
 inalienable right, there was no reason why it should not pass 
 with the property, and as appendant thereto, to the purchaser. 
 When the company lost the property, it lost that right, for it 
 lost that to which the right related.^ 
 
 In South Carolina the broad ground has been taken that a 
 statutory exemption from taxation is not a mere personal privi- 
 lege which ends with the first taker, provided the property is 
 continued in the same use on account of which the exemption 
 was granted. 2 
 
 § 811. Vested Rights Of Purchasers cannot be impaired by Sub- 
 sequent Legislation. — If the purchasers at a trustees' sale acquire, 
 by virtue of the laws in force at the time of the sale, a valid 
 title to the corporate property without liability for any of its 
 debts which were not a prior lien on that property, their rights 
 cannot be taken away or impaired by subsequent legislation.^ 
 
 Article III. — Liabilities op Purchasers at Foreclosure 
 
 Sales. 
 
 § 812. Generally. — In the absence of some enactment by 
 which the purchasers at a foreclosure sale of the rights, privi- 
 leges, franchises, and other property of a railroad company 
 become, by virtue of such purchase, a corporation, they are 
 regarded merely as joint owners of the property so acquired. 
 The immunity of the members of the corporation from liability 
 for its debts beyond the amount of stock which they individually 
 hold does not pass by such a sale, and the purchasers are, there- 
 fore, subject to whatever responsibility the law attaches to the 
 joint ownership of railroad property. Thus it has been held in 
 
 1 First Dir. of St. Paul & Pacific R. 2 Hand v. Savannah & Charleston R. 
 
 Co. u. Parcher (1869), 14 Minn. 297. Co. (1881), 17 S. C. 219, 280 ; s. 0. 12 
 
 Here, it will be observed, the reasoning Am. & Eng. E.E. Cas. 495. The court, cu- 
 
 is quite general, and not made to depend riously enough, does not refer to Morgan 
 
 on any special signification of the word v. Louisiana, or any other of the cases 
 
 "immunities." The ease was decided be- previously decided in regard to this 
 
 fore Morgan v. Louisiana, as was also poiiit. 
 
 Chicago, Milwaukee, & St Paul R. Co. v. » Hatcher v. Toledo, "Wabash, & West- 
 
 Pfaender (1877), 23 Minn. 217, reiterating em B. Co. (1872), 62 111. 477. 
 the same doctrine. 
 
§ 812.J EIGHTS OP PURCHASERS AT SALE. 791 
 
 Louisiana, where the law makes obligors engaged in carrying 
 personal property for hire liable in solido, only when it is carried 
 on ships or other vessels, such stockholders of the company as 
 may become purchasers of a railroad are liable individually for 
 a proportionate share of a debt evidenced by the making of a 
 promissory note purporting to be executed as an obligation of 
 the former company. The fact that the instrument is drawn in 
 this shape does not protect them, for obligors are bound, not by 
 the style which they give to themselves, but by the consequences 
 they incur by reason of their acts. Nor can their liability be 
 modified by an act of incorporation passed after the issuance of 
 the instrument, for the rights of the holder are then vested and 
 cannot be effected by legislation.^ 
 
 (a) Purchaser takes free from Subsequent Liens. — A purchaser 
 takes the property, real and personal, free from all subsequent 
 liens and incumbrances, and his title, for the purpose of cutting 
 off such liens, will relate back to the date of the record of the 
 mortgage. 2 
 
 Thus one who purchases the property before the rendition of 
 a judgment against the latter takes it free from the lieu of such 
 judgment, although the judgment creditor obtains no part of the 
 proceeds of the sale, because of his failure to make proper appli- 
 cation to the court for payment.^ 
 
 The practical application of this principle will be determined 
 not merely by the date of the execution and registration of the 
 mortgage, but by the extent of the lien established by the after- 
 acquired property, as a lien upon property which comes under 
 the protection of that clause does not attach to that property in 
 the hands of the purchaser.* What property is covered by that 
 clause has been fully discussed in a previous chapter. 
 
 (b) Purchaser sometimes takes free from Liens held hy 
 Persons not Actual Parties. — A purchaser of railroad property 
 on foreclosure takes it discharged of all liens and interests 
 acquired pending the suit by persons charged with constructive 
 notice thereof, although they were not made parties to the suit; 
 and the latter must seek satisfaction out of the proceeds of the 
 sale.^ 
 
 1 ChafiFe v. Ludeling (1875), 27 La. Louis, & New Orleans E. Co. (1882), 34 
 Ann. 607. La. Ann. 785, where the purchaser was 
 
 2 Cooper V. Corhin (1883), 105 111. held to take property of this description 
 224 ; s. 0. 13 Am. & Eng. R. R. Cas. 394. free from the apparent incumbrance of a 
 
 8 Brockert v. Iowa Central R. Co. registered judgment lien. 
 (Iowa, 1895), 61 N. W. Rep. 405. * Stewart v. Wheeling & L. R. Ry. Co. 
 
 * See, for example. Bell o. Chicago, St. (Ohio, 1895), 41 N. E. Rep. 247. 
 
792 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVI. 
 
 (c) Purchaser takes free from Liens which he had a Right to 
 suppose discharged. — Where the trustee enters a release of the 
 trust deed, in pursuance of an arrangement by which there is to 
 be another issue of bonds in lieu of those secured by the deed, 
 the presumption is that all the former bonds are cancelled, and 
 a purchaser of the property at a subsequent assignee's sale in 
 bankruptcy will take it free from the incumbrance of a bond not 
 exchanged, unless he has notice that it was not paid and the 
 release was wrongfully executed, or knew of facts sufficient to 
 put him on inquiry.^ 
 
 (d) Purchaser takes free from Tax lAen sometimes. — In 
 Illinois, under the statute which provides that "the taxes 
 assessed upon personal property shall be a lien upon the personal 
 property of the person assessed from and after the tax books are 
 received by the collector," it has been held that. the tax lien 
 does not attach to the property, unless it belongs to the debtor 
 at the time the tax books came into the hands of the collector. 
 That lien will, therefore, be defeated by a valid mortgage or 
 sale made before that time, and proceedings to enforce it will 
 be enjoined at the instance of the person holding under such 
 mortgage or sale.^ 
 
 (e) Purchaser takes subject to Liens absolutely paramount by 
 Statute. — Where the effect of a statute conferring special rights 
 on a contractor is to give him a paramount lien on the property, 
 as long as his debt remains unsatisfied, the lien will not be 
 divested by a subsequent foreclosure sale, " subject to any law 
 claims or rights which may exist prior or paramount to the 
 mortgage. " ^ 
 
 So also the purchasers will be liabl-e for the amount of a judg- 
 ment for personal injuries which is a paramount lien by virtue 
 
 ' Burt V. Batavia Paper Mfg. Co. 105 111. 224, the same doctrine was again 
 
 (1877), 86 111. 66. It was here held that, announced, the court holding that where 
 
 even if some of the members of the new the capital stock of a railroad company, 
 
 company formed from the purchasers did at the time when the tax became a 
 
 know that one of the bonds had not been lien thereon, was already subject to the 
 
 paid when the new organization was prior lien of a mortgage, the tax lien 
 
 effected, yet if they also knew that a new would attach only to the company's 
 
 bond was issued in place of the former, equity of redemption, and that when that 
 
 and interest paid thereon after the adjudi- equity was cut off by a foreclosure sale, 
 
 cation in bankruptcy, there being nothing the purchaser took the property free from 
 
 to show but that it was paid on the new any lien from the tax. 
 bond, this was not sufficient to put the ' Fox i>. Seal (1874), 22 Wall. 424. 
 
 new company on inquiry as to the exist- The statute here under consideration was 
 
 ence of the lien of the bond. the Pennsylvania Resolution of 1843, the 
 
 2 Binkert v. Wabash Ry. Co. (1881), substance of which is given in Chapter V. 
 98 111. 205. In Cooper v. Corbin (1883), 
 
§ 813.] RIGHTS OP PURCHASERS AT SALE. 703 
 
 of a statute prohibiting railroad companies from creating mort- 
 gage liens which shall be superior to such judgments,^ or to 
 maintain highway crossings in good condition. ^ 
 
 (f) Purchaser takes subject to Statutory Obligations as to 
 Operation of Road. — Obligations imposed by statute upon every 
 company operating a railroad as a part of its duties to the State, 
 or some political division thereof, are, of course, binding on pur- 
 chasers at a foreclosure sale. Thus they are liable for the non- 
 performance of a statutory duty to keep bridges in repair.^ 
 
 (g) Purchaser takes subject to Obligations and Restrictions 
 imposed by Charter on Mortgagor Company. — A section in a 
 railroad company's charter, authorizing a purchase of its prop- 
 erty and franchises by another company, and providing that 
 the purchase thus authorized shall " in no way affect the rights 
 of the creditors of the company," is presumed to have been 
 introduced for the benefit chiefly of unsecured creditors, persons 
 to whom such a provision may be of advantage, rather than for 
 those whose claims are protected by deeds creating specific 
 liens. The effect of the provision, therefore, is to create a 
 trust in favor of the unsecured creditors which may be enforced 
 against the property, even when it has passed into the hands of 
 persons who have purchased it at a foreclosure sale, in proceed- 
 ings taken to enforce a mortgage executed by the vendors of the 
 original company.* 
 
 So also it is held that a restriction as to the right to fix tolls, 
 imposed upon the old corporation, as a condition of obtaining 
 State aid, inheres in its organic law precisely as if incorporated 
 therein, and is therefore binding upon the new corporation.^ 
 
 § 813. Contracts of Mortgagor Company are not, as a General Rule, 
 binding on its Successors. — Thus an agreement entered into by 
 the mortgagor not to build through a city so as to connect with 
 another line is a mere personal contract, and does not bind its 
 successor, or prevent it from making the connection, provided 
 it does not exceed its corporate powers in so doing. ^ 
 
 1 Frazier ». East Tennessee, V. & G. R. ^ Motile & Montgomery R. Co. v. 
 Co. (1889), 88 Tenn. 138 ; s. o. 12 S, W. Steiner (1878), 61 Ala. 559. 
 
 Rep. 537 ; 40 Am. & Eng. R. R. Cas. 358. * City of Menasha v. Milwaukee & 
 
 2 Gage w. Pontiac, Oxford, & Northern Northern R. Co. (1881), 52 Wis. 414; 
 R. Co. (1895), 105 Mich. 335 ; s. c. 63 s. c. 5 Am. & Eng. R. R. Cas. 300. 
 
 N. W. Rep. 318. For a case in which a contract of a 
 
 ' New York & Greenwood Late R. Co. somewhat complicated chai-acter was held 
 
 V. State (1888), 50 N. J. L. 303 ; s. C. 13 to be a mere personal agreement, creating 
 
 Atl. Rep. 1. no lien on the property, see Peninsular 
 
 * Montgomery & West Point R. Co. Iron Co. v. Eells (1895), 68 Fed. Rep. 24. 
 
 V. Branch (1877), 59 Ala. 139. 
 
794 RAILWAY BONDS AND MOETGAGES. [CHAP. XXXVI. 
 
 Apart from those cases in which a contract of the mortgagor 
 is assumed by the purchaser, either propria motu, or for the 
 reason that his rights are defined by a decree requiring its per- 
 formance (see post), or a trust is involved (see § 816, post), 
 such a contract is not obligatory on the purchaser, unless it 
 has either been secured by a lien,^ or runs with the land,^ or it 
 must have been adopted as to its benefits, so as to preclude the 
 purchaser from declining its burdens.** 
 
 Where the bondholders were purchasers of railroad property 
 under a reorganization scheme which gave them all the benefits 
 of the receivership at the time of the filing as well as after the 
 filing of the bill to foreclose, and it expressly stipulated in the 
 decree of sale, as well as in the decree confirming the sale, that 
 the purchasers should take the property subject to all the 
 receivership debts, such purchasers will be held liable for a 
 rental claim of a leased line, during the operation of it by the 
 receiver.* 
 
 Where the final decree in a foreclosure proceeding provides 
 that the purchasers shall pay all subsisting liens upon the 
 property which have priority to the mortgage, the purchasers 
 will be held liable for all those liens which have been recognized 
 by the court in the proceedings ; and if, under a decree of the 
 court, a sale of any of the property covered by the mortgage 
 takes place to satisfy a recognized prior lien, the same pur- 
 chasers buy it in, they will be considered as having redeemed 
 
 1 Newport & Cincinnati Bridge Co. v. company, and cannot lease that part of 
 
 Douglass (1877), 12 Bush, 673 ; s. C. 18 the road to another company so as to sur- 
 
 Am. Ry. Eep. 221. render the exclusive use thereof, and by 
 
 ^ Wiggins Ferry Co. v. Ohio & Missis- ceasing to operate it deprive such town of 
 
 sippi K. Co. (1892), 142 U. S. 396 ; s. 0. the benefits intended to be derived from 
 
 12 Sup. Ct. Eep. 188 ; 94 111. 83 (1879), such operation, when the aid was voted to 
 
 where it was held that a covenant that a the original company. This obligation 
 
 railroad company would always employ a to operate the road is more than a debt, 
 
 ferry company to transport for it all per- It inheres in the franchise, so to speak, 
 
 sons and property across the Mississippi and pertains to the right to operate the 
 
 River, was not a covenant running with road. It does not pass by an assignment 
 
 the land. proper ; it passes to the grantee as a bur- 
 
 So a covenant to pay rent is one which den or limitation upon the rights to oper- 
 
 binds the purchaser. Frank v. New York, ate the road. State v. Central Iowa Ry. 
 
 Lake Erie, & W. R. Co. (1890), 122 N. Y. Co. (1887), 71 Iowa, 410 ; s. o. 32 N. W. 
 
 197 ; s. c. 25 N. E. Eep. 332 ; 46 Am. & Eep. 409. 
 Eng. E. E. Cas. 356. s South Carolina R. Co. v. Wilming- 
 
 A railroad company that has purchased ton, Columbia, & Augusta E. Co. (1875), 
 
 at a foreclosure sale a road, a part of which 7 S. C. 410. 
 
 was constructed and put into operation * Central R. & Banking Co. of Georgia 
 
 with money raised by taxes voted by a v. Farmers' Loan & Trust Co. (1897), 79 
 
 town, assumes the obligation of the former Fed. Eep, 158. 
 
§§ 814-816.] EIGHTS OP PURCHASERS AT SALE. 795 
 
 the property in the interest of those holding recognized liens 
 upon it still unpaid ^ 
 
 § 814. Trust aTjailing against Purchaser avails against bis Assignee. 
 — A trust to which the property is subject in the hands of a 
 purchaser at the foreclosure sale will attach to the property in 
 the hands of an assignee with express or implied notice thereof. 
 Thus where the trustee has purchased the road pursuant to an 
 agreement with the majority of the bondholders that they are 
 to receive their proportion of the proceeds in the form of bonds 
 of a reorganized company to be formed to take over the property, 
 and the president of the company to which the resale is made 
 has knowledge of the trust, that company will be directed to 
 execute and deliver, within a certain period, bonds such as are 
 called for by the original plan of reorganization, and upon its 
 refusing or neglecting to do so will be ordered to pay the cestuis 
 que trust the money value of the bonds. ^ 
 
 § 815. Purchasers take subject to Vendor's Lien, -when. — The 
 purchasers take subject to a vendor's lien of which they have 
 notice, such a lien being regarded as an equitable mortgage,^ but 
 are not personally liable for the mortgage debt or the interest 
 thereon. Nor can they be held for the rents accruing prior to 
 a demand on them for the possession of the property or the 
 appointment of a receiver.* 
 
 A vendor's lien in favor of the trustees is not lost because the 
 company organized by the purchasers consolidates with another 
 company. The consolidated body is not, under such circum- 
 stances, a bona fide purchaser.* 
 
 § 816. Assumption of Obligations inferred from Fact of Purchase 
 under a given Decree. — It has been already stated that the pur- 
 chaser looks to the decree as the measure of his rights. The 
 decree is also the measure of his liabilities. So an order 
 directing possession of a railroad to be delivered by a receiver 
 to a purchaser, subject to the payment of such claims against 
 the receiver as may be established within a reasonable time, 
 before the court which appointed him, does not make the pur- 
 chaser liable for any claims that are not established in accord- 
 ance with such order.® 
 
 1 Sheffield & B. Coal, Iron, & Ry. Co. * Ibid. 
 
 i;. Newman (1896), 77 Fed. Rep. 787. ^ Sohutte v. Florida Central E. Co. 
 
 2 Indiana, Illinois, & Iowa R. Co. V. (1879), 3 Woods, 691. 
 
 Swannell (1895), 157 111. 616 ; s. o. 41 « Houston & T. C. R. Co. v. Crawford 
 
 N. E. Rep. 989. (Tex., 1895), 31 S. W. Rep. 176 ; s. c. 28 
 
 » Hall V. Mobile & Montgomery Ry. L. R. A. 761. 
 Co. (1877), 58 Ala. 10. 
 
796 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXTI. 
 
 This general principle is a protection to the purchaser in 
 those cases where an attempt is made to saddle him with the 
 payment of claims which the decree does not require him to 
 satisfy. It is held that a foreclosure sale, when confirmed by 
 the court, and its conditions met by the purchaser, creates, in 
 effect, a contract between the court and the purchaser, and that 
 the court can no more impose an additional term or condition 
 on that contract than an individual can. Hence if the decree 
 directs that the property be sold, discharged of all liens and 
 claims against the company or its receivers, the court has no 
 power to direct the purchaser to pay a claim which was adjudi- 
 cated against the receiver after the confirmation of the sale.^ 
 
 Nor can the holders of underlying mortgages which are not 
 mentioned in the decree among the preferred debts obtain an 
 order requiring the payment of their mortgages by the pur- 
 chasers, before the latter enter into possession. To grant such 
 an order would materially modify the provisions of the decree 
 under which the purchasers bought the property, thus in effect 
 compelling them to take it on terms differing from those pro- 
 posed at the time of the sale, and to do this, moreover, after the 
 contract of sale is partially executed.^ 
 
 So a lease entered into by the mortgagor pending a fore- 
 closure suit is not binding on a company which purchases under 
 a decree providing that it should be at liberty to abandon any 
 contracts made by the mortgagor after the institution of the 
 proceedings. The right of the purchaser to disclaim such a 
 lease is not affected by the fact that the receiver appointed in 
 the suit has adopted the contract and accepted rent from the 
 lessee.^ 
 
 Where the effect of the final decree in a foreclosure suit is to 
 vest in the purchaser a title free of all liens for receiver's debts, 
 it operates so as to set aside pro tanto a previous order making 
 receiver's certificates, to be issued, a paramount lien on the 
 road, and transfer the lien, if any, to the proceeds of the sale.* 
 
 The same principle also inures to the disadvantage of the 
 purchasers. After accepting their conveyance, they have no 
 standing in court for the purpose of re-litigating the liens sub- 
 ject to which they have taken their title. ^ 
 
 1 Chicago & 0. E. Co. v. McCammon ' Farmers' Loan & Trust Go. v. Chicago 
 (1894), 61 Fed. Rep. 772. & A. R. Co. (1890), 44 Fed. Rep. 653. 
 
 2 Central Trust Co. v. Wabash, St. * Mercantile Trust Co. v. Kanawha & 
 Louis, & Pac. Ry. Co. (1887), 30 Fed. 0. R. Co. (1893), 58 Fed. Rep. 6. 
 
 Rep. 332. ' Swann u. "Wright's Exrs. (1884), 110 
 
 U. S. 590. 
 
§ 816.] RIGHTS OF PURCHASERS AT SALE. 797 
 
 Thus, the purchasers cannot contest the validity of receiver's 
 certificates or the amount for which they are declared by the 
 decree to be a lien on the property.^ 
 
 So if the decree makes them liable to "pay all debts and 
 liabilities of the receivership of every kind," they are liable for 
 the death of a horse caused, during the receivership, by the 
 defective condition of the roadway which the receiver was bound 
 to keep safe for travellers.^ 
 
 The decree, however, will not operate as notice of any 
 antagonistic claims except those which are designated with 
 reasonable certainty. Thus it is very doubtful whether a clause 
 approving the deed to the purchasers, to the effect that nothing 
 therein " shall at any time be construed to affect or impair in 
 any way or manner the rights of any person or corporation 
 claiming to hold stock, whether common or preferred, in the 
 first-named (mortgagor) company, or of any person or corpora- 
 tion not a party to this suit," can be deemed to affect the pur- 
 chasers with notice of certain claims of a minority of the 
 stockholders.^ 
 
 The purchaser's liability for certain debts may also be predi- 
 cated as a necessary implication from the terms of the decree 
 without their being expressly provided for. Thus the effect of 
 a decree which provides that the creditors of the mortgagor 
 company are to receive the stock of the new company in pay- 
 ment of their claims, is that the latter company is to be liable 
 for the debts of its predecessor.* 
 
 So, if the decree contains no foreclosure of a certain junior 
 mortgage, the rights secured thereby are unaffected by the sale, 
 and the purchaser takes the property subject to the holder's 
 
 1 Swatin V. Wright's Exrs. (1883), 110 investigate the matter. Could they have 
 U. S. 590 ; Central National Bank v. ever found that the alleged ownership of 
 Hazard (1887), 30 Fed. Rep. 484 ; St. the second corporation had ever been dis- 
 Louis S. W. R. Co. V. Stark (1893), 55 puted ; that anything had been done to 
 Fed. Rep. 758. set aside the sale, or that any person or 
 
 2 Wabash K. Co. u. Stewart (1891), 41 corporation claiming to hold stock, whether 
 111. App. 640. common or preferred, in the first corpora- 
 
 8 Boston & Providence R. Corporation tion, had in any way during the twelve 
 
 w. New York &Kew England R. Co. (1881), 3'«'ars shown any dissent otherwise than 
 
 13 R. I. 260 ; s. 0. 2 Am. & Eng. R. R. by the fact that some had not taken pay 
 
 Cas. 300. The court did not pass directly for their stock ? Was there any notice 
 
 upon the sufficiency of the notice ; as, that the complainant had ever made, or 
 
 whatever was its effect, it had come too intended to make, any claim of ownership 
 
 late, bnt remarked as follows: " Assum- in the property ? " 
 
 ing that the provision in the decree was a * Wood v. Dubuque & S. C. R. Co., 1 
 
 notice, what could the purchasers have Ey. & Corp. L. J. 68 (1886), 28 Fed. Rep. 
 
 ascertained if they had undertaken to 910 ; s. o. 1 Ry. & Corp. L. J. 68. 
 
798 EAILWAT BONDS AND MORTGAGES. [CHAP. XXXTI. 
 
 right of redemption, especially when they do not allege a pur- 
 chase made in ignorance, and do not offer to surrender the 
 property to be resold for the benefit primarily of the first 
 lienholders.^ 
 
 § 817. Purchaser affected ■with Notice of Proceedings in Fore- 
 closure Suit. — A purchaser must take notice of all petitions 
 filed during the foreclosure suit by those who seek to establish 
 liens superior to the mortgage. Thus where it is decided, by 
 proceedings in intervention, that the lien of a mortgage with 
 the after-acquired clause is, as regards certain rolling-stock, 
 subordinate to the lien reserved by the vendors, the bondholders 
 cannot object either to the restoration of the case or to the 
 payment of the price from the fund in court, if that course is 
 preferred by the vendor. '•' 
 
 So also the purchaser is affected with notice of proceedings 
 to enforce a vendor's lien on real estate, whether those proceed- 
 ings are had in the same court as that in which the foreclosure 
 suit was brought, or, by the permission of that court, in another 
 tribunal.^ 
 
 § 818. Liability of Purchaser by Reason of its Occupation of 
 Land acquired by Mortgagor. — Where it is provided by the con- 
 stitution of a State that the compensation for land taken shall 
 be paid before the taking, a railroad company, with an outstand- 
 ing mortgage on its property, which occupies lands for which 
 damages have been assessed but not paid, has no interest in 
 such land for the mortgage to operate upon, and a sale under 
 the mortgage will not convey the title nor extinguish the lien 
 for damages. The right to the damages is paramount to the 
 lien of the mortgage, and until the damages are paid or secured 
 that right cannot be extinguished by a foreclosure sale.* 
 
 Such a right, therefore, is covered by a decree which directs 
 the sale to be made subject to any legal claims or rights which 
 may exist prior to or paramount to the mortgage.^ In Massa- 
 chusetts also it is held that a person whose land is taken by a 
 railroad corporation, under the right of eminent domain, has a 
 right to compensation which, if not strictly a lien, is at least 
 
 1 Simmons v. Taylor (1885), 23 Fed. York, & PhilaJelphia E.' Co. v. Harvey 
 Kep. 849. (1884), 107 Pa. St. 319 ; a. c. 26 Am. & 
 
 2 Fosdiok V. Car Co. (1879), 99 tJ. S. Eng. K. R. Cas. 642 ; White v. Nashville 
 256. & N. W. R. Co. (1872), 7 Heisk. (Tenn.) 
 
 ' Loomis V. Davenport & St. Paul R. 518. 
 Co. (1882), 3 McCrary, 489. ^ Wheeling, P. & B. R. Co. v. Warrell 
 
 ♦ Western Pennsylvania R. Co. v. Johns- (1888), 122 Pa. St. 613 ; s. c. 16 Atl. 
 
 ton (1868), 59 Pa. St. 290 ; Buffalo, New Rep. 20. 
 
§ 818.] RIGHTS OF PURCHASEES AT SALE. 799 
 
 in the nature of a lien or incumbrance on the land; and this 
 right may be enforced against a corporation which succeeds the 
 corporation taking the land.^ 
 
 The rule is otherwise where the company has given the statu- 
 tory bond for payment of the damages ultimately assessed. The 
 original owner is then relegated to his rights under the bond.^ 
 
 But until the damages assessed are paid or secured to the 
 land-owner, he can enjoin the new company from further main- 
 taining and operating its road over the right of way occupied.^ 
 
 This liability of the purchaser for the value of the land appro- 
 priated by the mortgagor is not changed by the fact that a new 
 company organized after foreclosure to operate the line of the 
 insolvent mortgagor company is not liable for the general debts 
 of the latter except those which are assumed. If a judgment 
 for the price against the old company remains unsatisfied at the 
 time of the sale, and the new company enters upon and occupies 
 the land, equity will hold it liable for the payment of the 
 price, on the principle that it has adopted and ratified the 
 original appropriation. Qui sentit commodum setitire debet et 
 onus. * 
 
 Nor does he, by suing for damages, concede that the company 
 has acquired the easement of the right of way, but merely that 
 it is entitled to that easement, upon condition that it pays 
 
 1 Di'ury V. Midland R. Co. (1879), 127 atsolutely Tvorthless, and unless the plain- 
 Mass. 571. tiff can have some relief against, at least, 
 
 2 Fries v. Southern Pennsylvania R. & the new company, either by a suit in this 
 Mining Co. (1877), 85 Pa. St. 73 ; s. o. form or by an action at law, he is entirely 
 18 Am. Ry. Rep. 375. remediless. And the fact that the old 
 
 ^ Oilman v. Sheboygan & Fond du Lac company has ceased to exist is a sufiBcient 
 
 R. Co. (1876), 40 Wis. 653 ; Drury v. answer to the objection that it shoxild 
 
 Midland R; Co. (1879), 127 Mass. 571. have been made a party defendant. We 
 
 ' Lake Erie & Western Ry. Co. v. are merely unable to perceive upon the 
 GiifEn (1883), 92 Ind. 487; Pfeifer v. facts stated any grounds for saying that 
 Sheboygan & Fond du Lac R. Co. (1864), the plaintiff has waived or lost his right 
 18 Wis. 155 ; Oilman v. Sheboygan & to payment from the defendant if it con- 
 Fond du Lac R. Co. (1876), 40 Wis. 663; tinnes to use his lands. It is true it 
 s. 0. 13 Am. Ry. Rep. 468. In the last case appears that the foreclosure sale took 
 the court said : "The right of the land- place about two years after final entry of 
 owner to compensation for his property is judgment for damages against the old 
 protected by the constitution, and must company. But the purchaser at that sale 
 prevail even as against the purchasers. It took under the purchase only such rights 
 appears from the complaint that the old as that proceeding gave him. The old 
 company is wholly insolvent, has really company had then acquired no rights to 
 ceased to exist as an organized corpora- use the land for its road, but was in pos- 
 tion, that all its franchises and property session simply as a trespasser. The plain- 
 have passed to, and are now held by, the tiffs right to compensation is paramount, 
 defendant as its successor. The judgment and not affected or destroyed by the 
 against the corporation is consequently foreclosure." 
 
800 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVI. 
 
 him such compensatory damages as may be assessed by the 
 court. ^ 
 
 When the purchasers occupy and use land which the mort- 
 gagor company had agreed to pay for by the construction of the 
 road, the fencing of the track, and the building of a crossing, 
 and the last two conditions have not been performed by either 
 company, the purchaser is liable in damages, measured by the 
 difference in the rental value of the property caused by such 
 non-performance, and the judgment for such damages consti- 
 tutes a lien on the portion of the road located on the land 
 covered by the contract.^ 
 
 Similarly the purchaser cannot claim the right to use a depot 
 under a contract made by the mortgagor after the execution of 
 the mortgage, without payment of the rental provided for in the 
 contract.^ 
 
 The liability created in such cases as the above is to be distin- 
 guished from that which results from the rendition of a judgment 
 in an action of trespass to recover damages sustained by the con- 
 struction and operation of the road on the land. Such a judgment 
 imposes no obligation on a purchaser who takes by virtue of a 
 decree declaring him to be liable for " all unpaid claims of land- 
 owners for damages for property taken, injured, or destroyed by 
 the construction," but stands on the same legal footing, as re- 
 gards him, with any other judgment against the mortgagor for a 
 tort.* (See § 820, post.') 
 
 Similai'ly, where the consideration for an agreement junior to 
 the mortgage, whereby it is sought to impose upon the land taken 
 for the right of way a burden not necessary for the proper con- 
 struction and operation of the road, is merely a claim for dam- 
 ages, such an agreement imposes no obligation upon the purchasers 
 at the foreclosure sale.^ 
 
 § 819. Assumption of ObligatioDS inferred from Agreements of 
 New Company or its Transferrers. — The general rule as to the 
 non-liability of the new company may be superseded by special 
 contract, as where it agrees to assume some or all of the general 
 debts of its predecessor.^ 
 
 1 Rio Grande & E. P. E. Co. v. Ortiz 949 ; 46 Am. & Eng. R. R. Cas. 353, dis- 
 (1890), 75 Tex. 602 ; s. c. 12 S. W. Rep. tinguishing "Western Pennsylvania Co. v. 
 1129 ; 44 Am. & Eng. R. R. Cas. 67. Johnston, 59 Pa. St. 290, mpra. 
 
 2 Varner v. St. Louis & C. R. Co. ^ Hnnter v. Burlington, C. E.. & N. E. 
 (1881), 55 Iowa, 677. Co. (1889), 76 Iowa, 490; s. o. 41 N. W. 
 
 8 St. Joseph Union Depot Cn. v. Chi- Eep. 305. 
 oago, R. I. & Pac. E. Co. (1895), 131 Mo. 6 Lake Erie & "Western Ry. Co. v. 
 
 291 ; s. C. 31 S. "W. Eep. 908. Griffin (1883), 92 Ind. 487 ; s. C. 17 Am. 
 
 < Camphell v. Pittshurgh & "W. R. Co. & Eng. R. R. Cas. 235. 
 (1890), 137 Pa. St. 574 ; s. o. 20 Atl. Rep. 
 
§ 820.] RIGHTS OP PURCHASERS AT SALE. 801 
 
 So, also, a new company which acquires title to the property 
 by a conveyance thereof from the purchasing committee in return 
 for its stock, after that committee has assented through its repre- 
 sentatives to the creation of a lien on the property, is bound by 
 the lien. It is not a purchaser for value being affected by the 
 notice imparted to the committee.^ 
 
 But an agreement which merely preserves to the old unsecured 
 creditors the right to come in as stockholders of the new company 
 will not make the latter liable for their claims.^ 
 
 Nor can the principle that the property of the old company is a 
 trust fund for its creditors operate so as to fasten a liability for 
 its debts upon the purchasing company, where the latter acquires 
 that property in adversary proceedings ; and an agreement by 
 which the stockholders of the old company are to be permitted to 
 become members of the new one is entered into after the rights 
 acquired by the purchase have fully vested.^ 
 
 Where, in a suit to foreclose two junior mortgages, the pur- 
 chasers buy the property subject to the lien of a first mortgage 
 executed to secure a county for the loan of its aid bonds, and the 
 proceeds of the sale are partly applied to redeem some of those 
 bonds which had been hypothecated, the purchasers are not enti- 
 tled to such redeemed bonds, unless they first refund to the gen- 
 eral creditors as much of the proceeds as went to redeem tliem.* 
 
 § 820. Purchaser not generally liable for Mortgagor's Torts in 
 Operation of Road. — The purchaser is not liable for damages 
 caused by the mortgagor's operation of the road, unless tliere is 
 some special stattite which produces that result (see § 812/, ante, 
 
 1 Vilas V. Page (1887), 106 N. Y. 439 ; 746. The court said : " The lien to se- 
 s. c. 13 N. E. Rep. 743. cure bonds having been expressly reserved 
 
 A party in possession under the ex- at the sale, and assumed by the purchasers, 
 
 press terms of an order of sale, and repre- their obligation as to all is the same ; that 
 
 senting all parties in interest, cannot claim is, to step into the place of the old com. 
 
 to be an absolute purchaser of the rights pany. In doing this they are not required 
 
 of a mortgagor, not subject to account to pay mure than the price they agreed to 
 
 for rents and profits. Compton v. Jesup pay. They agreed to pay the purchase 
 
 (1897), 167 U. S. 1. price, and assume the liabilities, -vvhatever 
 
 2 Smith V. Chicago & Prairie du Chien they were, as to the preferred lien, and 
 Ky. Co. (ISeS), 18 Wis. 17. this is all they have been required to do. 
 
 ' Stewart's App. (1872), 72 Pa. St. 291, Their money was used to redeem these 
 
 distinguishing Railroad Co. i>. Howard bonds, when they acquired the puiehased 
 
 (1868), 7 Wall. 392, where there was a property. The purrhase-money did rot 
 
 preliminary agreement for the benefit of belong to them. It stood in the place of 
 
 the stockholders, and their equities were the property they had purchased. Their 
 
 held to be inferior to those of the credl- agreement was to buy the property of the 
 
 tors. first company, subject to the obligations 
 
 * Washino-ton, 0. & W. R. Co. v. Lewis of the first lien, and to this alone they 
 
 (1887), 83 Va. 246 ; s. 0. 2 S. E. Rep. have been held." 
 
 51 
 
802 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVI. 
 
 for an example of such a statute), or he has assumed these debts 
 with others. Thus a company organized by the purchasers of a 
 boom company's property is not liable for injuries caused by ob- 
 structions placed in a river by the mortgagor company, unless it 
 has notice of their existence, and thus becomes itself a tort feasor 
 in not removing them.^ 
 
 Nor is the purchaser answerable for the consequences of his 
 predecessor's negligence,^ nor for a trespass committed by such 
 predecessor.^ 
 
 § 821. Liability of Nevr Company for Damages caused by Opera- 
 tion of Road by Trustees. — A claim for damages to property 
 by fire communicated by a locomotive, while passing along its 
 track at a time when the road was in possession of and operated 
 by the trustees, does not depend upon proof of malfeasance or 
 negligence, but is an incident to the running of the road, and 
 may be considered a part of the running expenses. It is, there- 
 fore, an equitable lien on the funds of the trustees ; and if they 
 convey to a new corporation, formed of the bondholders, any 
 funds subject to that lien, the new corporation will be liable iu 
 equity to the person suffering the damage.* 
 
 § 822. Liability of Purchasers for Damages caused by Operation 
 of Road by Receiver. — Where the receiver of a railroad de- 
 votes the income to permanent improvements, claims arising 
 out of the operation of the road, whether in contract or iu tort, 
 and left unpaid because of such diversion of the income, are among 
 the liabilities which the purchaser must discharge.^ 
 
 Purchasers at foreclosure sale of a railroad which has been 
 improved by the receiver by the expenditure of money out of its 
 earnings will be liable for the obligations incurred by the receiver 
 during the receivership to the extent of such improvements." 
 
 1 Neff D. Wolf River Boom Co. (1880), 949; 46 Am. & Eng. E. R. Cas. 353; 
 
 50 Wis. 585. Hammond v. Port Royal & Augusta Py. 
 
 The Nebraska statute of 1881 as to the Co. (1880), 15 S. C. 10 ; s. 0. 11 Am. & 
 
 purchase of railroads by other companies Eng. R. R. Cas. 353. 
 
 expressly provides that the purchaser * Stratton v. European & North Ameri- 
 
 " shall be subject to any and all liens, can Ry. Co. (1884), 76 Me. 269; s. c. 17 
 
 incumbrances, or indebtedness " existing Am. & Eng. R. R. Cas. 277. 
 
 against the railroad company from which ^ Houston & Texas Central R. Co. v. 
 
 the purchase is made. See Chicago, St. Crawford (1895), 88 Tex. 277 ; s. c. 28 
 
 P. M. & 0. R. Co. V. Lundstrom (1886), L. R. A. 761 ; 31 S. W. Re.p. 176 ; 
 
 16 Neb. 254 ; s. c. 20 N. W. Rep. 198 ; 21 v. Hays (1884), 62 Tex. 42 ; s. c. 23 Am. 
 
 Am. & Eng. R. R. Cas. 529. & Eng. R. R. Cas. 501. 
 
 2 Louisville & Nashville R. Co. v. Orr « Missouri, K. & T. Ry. Co. of Texas v. 
 
 (1891), 91 Ky. 109 ; s. 0. 15 S. W. Rep. Lacy et al. (Tex. Civ. App., 1896), 35 S. 
 
 8 ; 9 Ry. & Corp. L. J. 189. W. Rep. 505. 
 
 ' Campbell v. Pittsburgh & W. R. Co. Extent of purchaser's liability when 
 
 (1890), 137 Pa. St. 574 ; s. c. 20 Atl. Rep. railroad is sold under foreclosure proceed- 
 
§§ 823, 824.J RIGHTS OF PURCHASERS AT SALE. 803 
 
 Personal injuries caused by negligence of the employees of a 
 receiver operating a railroad constitute a cause of action against 
 the receiver, and a judgment in such an action will bind the 
 property in the hands of a purchaser at foreclosure sale, where 
 the order of the court confirming the sale orders such claims 
 paid ; such claims partake of the nature of operating expenses of 
 the property.^ 
 
 When a receiver, subsequent to the sale of a railroad, under a 
 decree of a federal court has made betterments upon it exceeding 
 in value all liabilities imposed upon the purchaser in the decree 
 for sale, the purchaser may be held liable to the extent of such 
 excess for negligence of the receiver occurring subsequent to the 
 sale of the property.^ 
 
 § 823. No Liability attaches to Purchaser until Sale is confirmed. 
 — Until the sale is confirmed, no liability attaches to the pur- 
 chasers for injuries caused by the operation of the road, for, until 
 the property is actually conveyed to them, they have no right to 
 intermeddle with it. Up to the time of the confirmation those 
 operating the road are in no sense their employees, or subject in 
 any way to their control.^ 
 
 § 824. Purchasers organizing as a New Company not liable for 
 Debts of Mortgagor. — The principles illustrated in the preceding 
 sections are not, as a general rule, affected by the statutes which 
 provide that the purchasers at a mortgage sale of the property 
 and franchises of an existing company may organize anew, and 
 be invested with all the rights and powers of the old company in 
 the management of the road and the business. The new compa- 
 nies are not, in the absence of some provision to that effect, or 
 some special consideration which would impose an obligation on 
 a purchaser independently of statute, liable for the debts of the 
 mortgagor.* 
 
 ings and left in the hands of receiver to Civ. App. 537 ; Chicago & Erie R. Co. »■ 
 
 he operated for torts. See Houston & Towle (1894), 10 Ind. App. 540. 
 Texas Central Ry. Co. v. Strycharski A receiver continuing to operate the 
 
 (Tex. Civ. App., 1896), 35 S. W. Rep. road after foreclosure sale and conveyance 
 
 851. to the purchaser, the latter has been held 
 
 1 St. Louis S. W. Ry. Co. v. Holbrook liable to a shipper of goods lor loss during 
 
 (1896), 73 Fed. Rep. 112. the ojieration of the road by the receiver, 
 
 ^ Houston & Texas Central Ry. Co. !'. in Houston & Tex. Central Ry. Co. v. 
 
 Kelly (Tex. Civ. App., 1896), 35 S. W. McFadden (Tex. Civ. App., 1897), 40 S. 
 
 Rep. 878. See Houston & Texas Central W. Rep. 216. 
 
 Rv. Co. V. Crawford (1895), 88 Tex. 277; ' Metz v. Buffalo, Corry, & Pittsburg 
 
 .s."c. 31 S. W. Rep. 176 ; Houston. E. R. C. (1874), 58 N. Y. 61. 
 & W. T. Ry. Co. j;. Keller (Tex. Civ. App., ' Lake Erie & W. Ry. Co. v. Griffin 
 
 1896), 36 S. W. Rep. 859 ; Houston, E. & (1883), 92 Ind. 487; Cook v. Detroit, etc. 
 
 W. T. Ry. Co. V. Keller (1894), 8 Tex. Ky. Co. (1882), 43 Mich. 349; s. c. 9 
 
804 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVI. 
 
 Such a company, unless there is some express provision to that 
 effect in the statute under which it is organized, does not acquire 
 the corporate entity of the mortgagor. A different doctrine would 
 clearly render these statutes of little utility, and entirely defeat 
 the very policy which the legislature has sought to carry out by 
 their enactment.^ 
 
 They operate not as a revival of the old corporation, but as the 
 creation of a new one.^ 
 
 Such statutes do no injustice to general creditors.^ 
 
 This is the effect even where the enabling statute authorizes 
 the purchasers to " reorganize " the former company " as a new 
 corporation " under the same name as the mortgagor.* 
 
 To make the new company liable for any claims against the 
 old one, in addition to those which are paramount to the mort- 
 gage, the act must expressly provide that the stockholders in the 
 
 Am. & Eng. R. E. Cas. 443 ; Vilas v. 
 Milwaukee & Prairie da Chien Ry. Co. 
 (1863), 17 Wis. 497. In the last case the 
 court said : " The object of the law was 
 to enable I'ailroad companies to borrow 
 money, and to mortgage their property 
 and franchises as security. To give full 
 and perfect effect to such mortgages as 
 securities was the leading idea of the law. 
 To accomplish it, the company was au- 
 thorized to mortgage its franchises ; and, 
 for the purpose of removing all doubt, it 
 was farther expressly provided that the 
 purchasers at a mortgage sale might or- 
 ganize anew, and be invested with all the 
 rights and powers of the old company in 
 the management of the road and business. 
 Without some such provision a purchase 
 of the property would be unavailing. The 
 same powers are conferred not with a view 
 to a continuation of the same corporation, 
 but to give full effect and protection to 
 rights created by the mortgage adverse to 
 those of the old corporation. To say, 
 therefore, that because the purchasers 
 have the same powers, they are in effect 
 the same corporations, would be to defeat 
 the primary object of the law, and to de- 
 stroy the interests of the mortgagee. His 
 interest, and all the proceedings to protect 
 those interested, are adverse to the origi- 
 nal corporation. And it is this adverse 
 character which excludes the idea that the 
 proceeding has no other effect than merely 
 to continue the old corporation, and which 
 
 so plainly distinguishes the case from those 
 mere changes of corporate names or pow- 
 ers, where the principle relied on by the 
 plaintiff has been held applicable, that it 
 is difficult to imagine that they could ever 
 have been confounded. The law shows 
 plainly that it was intended that such 
 mortgages should have effect like other 
 mortgages, according to their priority ; 
 and it certainly would have been idle to 
 expect to obtain loans upon such securi- 
 ties if it had been otherwi.se. Yet the 
 doctrine here coutended for would destroy 
 all priority, and the purchaser under the 
 prior mortgage could take the property 
 and franchises of the company with a lia- 
 bility to pay not only the subsequent mort- 
 gages, but all its unsecured debts." 
 
 1 Metz V. Buffalo, Corry, & Pittsburg 
 R. Co. (1874), 58 N. Y. 61, distinguishing 
 Commonwealth v. Central Pass. Ry. 
 (1866), 52 Pa. St. 506, decided with 
 reference to a statute of a different (etior, 
 and following AVellsboro & Tioga Plank 
 Road Co. V. Griffin (1868), 57 Pa. St. 
 417, decided under the law as it was be- 
 fore the passage of that statute. 
 
 2 Huff V. Winona & St. Peter R. Co. 
 (1866), 11 Minn. 180. 
 
 3 Clook V. Detroit, G. H. & M. R. Co. 
 (1882), 43 Mich. 349; s. c. 5 N. W. Rep. 
 390 ; 9 Am. & Eng. R. R. Cas. 443. 
 
 * Marshall v. Western North Carolina 
 R. Co. (1885), 92 N. C. 322 ; s. c. 20 Am. 
 & Eng. R. R. Cas. 578. 
 
§ 825.J EIGHTS OP PURCHASERS AT SALE. 805 
 
 old company shall be stockholders in the new one, or that the 
 latter shall be liable for the debts of the former,^ or use some 
 language which indicates an intention tliat the usual rule shall not 
 govern the rights of the parties. The fact that the incorporation 
 of the new company takes place under an act which uses the 
 word " reorganization " in the title does not create any privity 
 between it and its predecessors, when, by the terms of that act, 
 the new company cannot come into existence except upon the 
 contingency of the foreclosure sale.^ 
 
 In some States, as in Michigan, the purchasers are expressly 
 freed by the terms of the statute from liability for any debts 
 embraced in the foreclosure, and it is held that such a statute 
 does no injustice to general creditors. ** 
 
 Where the statute providing for reorganization expressly de- 
 clares that the new corporation formed from the purchasers of 
 the road shall not be liable for any debts except those subse- 
 quently contracted by it, and leaves all property not embraced in 
 the foreclosure sale liable for existing debts, a common-law action 
 cannot be maintained against that corporation. If any property 
 not purchased on the foreclosure is in the possession of the new 
 company, application for relief must be made to a court of equity.* 
 
 § 825. The Right of Redemption. — The right to redeem is a 
 right incident to every mortgage and every instrument or trans- 
 action intended as a security, regardless of its actual form. It is 
 a right that exists independently of agreement between parties, 
 for it is a creature of the law.^ 
 
 Speaking generally, all equitable right of redemption is barred 
 by a foreclosure sale, for " the right to foreclose means the right 
 to cut off a right to redeem given by equity, when by the condi- 
 tion of the mortgage the mortgagee's estate has become absolute 
 at law." 6 
 
 A statute which in terms destroys or impairs a right of re- 
 demption established as a vested right under the general law is 
 unconstitutional.^ 
 
 The right may be lost by laches, independently of the bar of 
 any statute of limitations.^ 
 
 1 Morgan County v. Thomas (1875), 76 ' Kerr's Supp. to Wiltsie on Mortgage 
 111. 120. Foreclosure, pp. 1495-1498. 
 
 2 Stewart'3 App. (1872), 72 Pa. St. « Holmes, J., in Sliepard v. Eichard- 
 291. son (1887), 145 Mass. 36. 
 
 ' Cook V. Detroit, G. H. & M. R. Co. ' The Ashuelot Ry. Co. ^. Elliot (1873), 
 
 (1882), 43 Mich. 349 ; s. c. 5 N. W. Rep. 52 N. H. 387. 
 390 ; 9 Am. & Eng. B. B. Ca.s. 443. ' Simmons v. Burlington, etc. Ey. Co. 
 
 4 Ibid. (1895), 159 U. S. 278. 
 
806 RAILWAY BONDS AND MORTGAGES. [CHAP. ZXXVI, 
 
 The right of redemption after sale is regulated by statute in 
 many States. The federal courts recognize these statutes as 
 controlling, and a State statute, therefore, which allows any par- 
 ticular period to redeem after foreclosure and sale is regarded and 
 treated in the federal courts as a rule of property .^ 
 
 But these statutes do not apply to railroad mortgages covering 
 all the property in different States as an entirety .^ 
 
 A mortgage is personal property, and follows its owner. 
 Wherefore a suit to redeem the land, which is the suject of the 
 mortgage, must be brought where jurisdiction in personam may 
 be had, without reference to the situs of the land.^ 
 
 A purchaser, under an execution sale, of a right to redeem a 
 portion of railroad property situated in a particular State is enti- 
 tled also to redeem the whole road, including property in another 
 State ; but, to save a forfeiture, he must pay all that is presently 
 due. Then he will be placed in the position of the mortgagors, 
 and the right of redemption will not be foreclosed. The trustees 
 of the mortgage will hold possession, but must account for the 
 earnings ; and if those earnings, together with the purchaser's 
 payment to the trustees, are sufficient to discharge the bonds, the 
 purchaser will be entitled to possession.* 
 
 In a suit to foreclose, if the decree orders a sale of the property 
 to pay the mortgage debt, an express order cutting off the equity 
 of redemption of a junior mortgagee, although a party to the suit, 
 is not necessary as an invariable rule, — certainly not, where 
 there is a prayer that he be directed to redeem, where the pri- 
 ority of the plaintiff's mortgage is found or conceded, where a 
 sale is ordered in default of payment, and where the right of the 
 debtor to redeem is declared forever barred. The junior mort- 
 gagee has, of course, a right to redeem without such order ; but 
 if he chooses not to assert it, standing by while the sale is made 
 and confirmed, he must be deemed to have waived the right.^ 
 
 The right of a junior mortgagee, who has not been made a 
 party in proceedings to foreclose a prior mortgage, to redeem the 
 mortgaged premises is barred within the period within which his 
 right to foreclose would be barred, — namely, ten years.^ 
 
 A demurrer to a bill for redemption was sustained in the Su- 
 
 1 Brine v. Ina. Co. (1877), 96 U. S. * Wood v. Goodwin (1861), 49 Me. 
 
 627. 260. 
 
 » Turner v. Indianapolis, B. & W. Ey. 6 Simmons v. Burlington, C. & R. & 
 
 Co., 8 Biss. 881. N. Ry. Co. (1895), 16 Sup. Court Reporter, 
 
 ' The Kanawha Coal Co. v. The Ka- U. S. 1. 
 nawha & Ohio Coal Co. (1870), 7 Blatch. « Gowei-w. Winchester (1871), 33 Iowa, 
 
 415. 303. 
 
§ 825.] EIGHTS OP PUECHASEBS AT SALE. 807 
 
 preme Court of Maine upon the grounds, first, of a misjoinder of 
 parties plaintiff, the court holding that stockholders should not 
 have been joined with the corporation unless fraud on the part of 
 the latter was alleged, for so long as the corporation is faithful 
 to its trust, the stockholders, as individuals, have no right or 
 standing to take action to protect the corporate interests and 
 property; second, the bill was defective in omitting to chargu 
 that the defendant in possession held the mortgage title; and, 
 third, that the bill should have averred an offer to pay such 
 amount as might be found due.^ 
 
 A judgment in a debenture-holder's action to foreclose should 
 provide that moneys accumulated in the hands of a receiver, who 
 had carried on the business of the defaulting company at a profit, 
 should be applied towards payment of the amount due.^ 
 
 1 Kennebec & Portland Ey. Co. v. Port- ^ Cumming v. Metcalfe's London Hy- 
 land & Kennebec Ey. Co. (1866), 54 Me. dro (1895), 13 Eep. 501. 
 173. 
 
808 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVII. 
 
 CHAPTER XXXVII. 
 
 REMEDIES IN CASES OF OBJECTIONS TO SALES. 
 
 Art. I. — 
 § 826. 
 
 827. 
 
 828. 
 829. 
 830. 
 
 831. 
 
 832. 
 
 Art. II. - 
 
 §833. 
 
 834. 
 835. 
 
 836. 
 
 837. 
 838. 
 
 Stat of Sales by Injunction. 
 
 When Injunction will be 
 granted. 
 
 Sale not restrained merely be- 
 cause Mortgagee had no Eight 
 to make it. 
 
 Sale not restrained if Defendant 
 capable of responding in 
 Damages. 
 
 Trustee's Sale not restrained be- 
 cause Amount of Bonds justly 
 due has not been ascertained. 
 
 Sale under Power in Mortgage 
 securing Bonds issued by Di- 
 rectors to themselves will be 
 restrained. 
 
 Sale restrained if Default caused 
 by Misconduct of Debtor's 
 Agent. 
 
 Sale when not restrained at 
 Instance of Junior Incum- 
 brances. 
 
 -Setting aside Foreclosure 
 Sales. 
 
 Methods of Procedure to vacate 
 Sales. 
 
 Who may except to Sale. 
 
 Right to Relief as affected by 
 Laches of Petitioner. 
 
 Errors in or prior to Decree not 
 reviewable on Motion to set 
 aside Sale. 
 
 Remedy by Annulment of Sale. 
 
 Declaring Purchaser a Trustee 
 equivalent to Annulment. 
 
 § 839. Confirmation of Fraudulent Sale 
 by Legislature. 
 840. Effect of declaring Sale void for 
 Fraud, 
 (a) As to Corporation itself. 
 (J) As to Bondholders and other 
 Creditors. 
 Art. III. — Grounds for vacating a 
 Sale. 
 § 841. Inadequacy of Price. 
 
 842. Actual Fraud. 
 
 843. Collusion between Trustees and 
 
 Purchasers. 
 
 844. Collusion between Trustees and 
 
 Corporate Officers. 
 
 845. Collusion between Corporate 
 
 Officers and Combinations of 
 Bondholders. 
 
 846. Surprise, Mistake, etc. 
 
 847. Breach of Professional Duties 
 
 by Attorney. 
 
 848. Sale not set aside because same 
 
 Person is Trustee under both 
 Mortgages foreclosed. 
 
 849. Extension of Benefits of Reor- 
 
 ganization to Bondholders 
 after Time for coming in has 
 passed not Ground for invali- 
 dating Sale. 
 
 850. Foreclosure before Maturity of 
 
 Principal. 
 
 851. Excessive Amount of Judg- 
 
 ments. 
 
 Article I. — Stat op Sales by Injunction. 
 
 § 826. When Injunction wiU be granted. — Whether an injunc- 
 tion against a sale shall be refused or allowed is often merely 
 another form of the question whether the mortgage is valid or 
 invalid. (See Chapter VII.) 
 
§§ 827-829.] OBJECTIONS to sales. 809 
 
 § 827. Sale not restrained merely because Mortgagee had no 
 Right to make it. — The company cannot procure an injunction to 
 stay a sale by virtue of a power in a mortgage executed to a con- 
 tractor to secure bonds issued to him in payment of construction, 
 ^7here the ground for the application is merely that the mortgagee 
 has no right to make the sale.^ 
 
 § 828. Sale not restrained if Defendant capable of responding 
 in Damages. — The fact that the guarantor of bonds who has stip- 
 ulated to complete the mortgagor's road has not performed his 
 contract, is not a sufficient reason for restraining the trustee of a 
 mortgage of indemnity, given to such guarantor to secure liim 
 against loss, when the latter is solvent and capable of responding 
 in damages, unless it appears that the default for which the sale 
 is impending will be cancelled by the amount of the bonds still 
 on deposit, added to the amount of the damages which may be 
 awarded. Especially will such an application be denied when 
 the mortgagor, though bound to keep down the interest on its 
 outstanding bonds, has failed to do so, and suffered the loss to 
 fall on the guarantor. The mortgagor, under such circumstances, 
 is not in a favorable position to complain of the guarantor's delay 
 in prosecuting the work of construction.^ 
 
 § 829. Trustee's Sale not restrained merely because Amount of 
 Bonds justly due has not been ascertained. — Where the sale is 
 being made under the power in the mortgage which makes it tlie 
 duty of the trustee to sell upon receiving a request to that effect 
 from a majority in interest of the bondholders, it lias been held 
 that the sale will not be delayed until it has been ascertained how 
 many of the bonds are justly due. Each bondholder, it is said, 
 holds his own bonds separately and independently of all the 
 others ; and when his interest remains in arrear, under the cir- 
 cumstances mentioned in the trust deed, he ought not to be de- 
 layed by a controversy as to the validity of the bonds held by 
 other persons.^ 
 
 1 York & Cumberland R. Co. v. Myers of caveat emptor has lost its force and 
 
 (1856), 4 Me. 109. The court said: "But influence." 
 
 the plaintiffs say that the deed gives him " Macon & Augusta E. Co. v. Georgia 
 
 [the defendant] no such authority. If so, Railroad & Bkg. Co. (1879), 63^Ga. 103 ; 
 
 then the defendant's deed would convey s. c. 1 Am. & Eng. R. R. Cas. 378. 
 nothing, and no injury could be by them » State v. Brown (1885), 64 Md. 199. 
 
 sustained. Again, the plaintiffs apprehend The court expressly distinguished this 
 
 that some innocent purchaser may be ru- case from proceedings in foreclosure, in 
 
 ined. It may be so, but such anticipation which it was declared to be necessary to 
 
 does not enlarge our equity powers, and it ascertain the amount of the debt, so thnt 
 
 is not to be presumed that the maxim the defendant may know how much it is 
 
810 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXTH. 
 
 § 830. Sale under Fovrer in Mortgage securing Bonds issued by 
 Directors to themselves -nriU be restrained. — An issue of bonds bj 
 the directors to themselves as a gratuity being ultra vires and 
 void, an injunction will be granted to restrain a sale under a 
 power in the mortgage securing bonds so issued and held by one 
 who knew that they were not sold to obtain a working capital, 
 or to pay a corporate debt, but as the private property of the 
 president.^ 
 
 § 831. Sale restrained if Default caused by Misconduct of Debt- 
 or's Agents. — An injunction will be granted to stay a sale for 
 arrears of interest on State-aid bonds secured by a statutory lien, 
 where it appears that the State officials have neglected the duty 
 imposed upon them of investing a previous payment made by the 
 company, and that the amount which such investment would have 
 realized exceeds the arrears due upon the bonds.^ 
 
 § 832. Sale when not restrained at Instance of Jiuiior Incum- 
 brances. — A junior mortgagee not a party to the suit cannot 
 enjoin a foreclosure sale, as it will not, under such circumstances, 
 affect his rights, and he may at any time exercise his right of 
 redemption.^ 
 
 Still less will such an injunction be granted where the sale is 
 made in a statutory proceeding, and its effect is to extinguish the 
 rights of the junior lienors entirely.* 
 
 A State in whose favor a statutory lien was declared upon a 
 railroad, as a security for a loan, cannot enjoin a sale under a 
 power in a trust deed executed to secure an issue of bonds, in 
 accordance with an act construed as evincing an intention on the 
 part of the State to subordinate its own rights to those acquired 
 under the trust deed.* 
 
 The holders of receiver's certificates, authorized during fore 
 closure proceedings, are privies to a decree on an intervention in 
 the same proceedings in favor of the holder of a mechanic's lien 
 as a first subsisting lien against the property, directing its pay- 
 necessary for him to pay in order to pre- seem that it onght not to be a sufficient 
 vent the sale. The ruling was based reason for restraining a sale also, 
 strictly upon the fact that the agreement ^ Virginia Tide-Water Coal Co. v. Mer- 
 
 of the parties, as expressed in the trust cantile Trust Co. (1890), 58 Hun, 610 
 deed, must be carried out. The question (mem.) ; s. c. 35 N. Y. St. Repr. 141 ; 
 was not considered with reference to the 12 N. Y. Supp. 529. 
 danger which the uncertainty as to the ^ Ralston v. Crittenden (1882), 13 Fed. 
 
 amount of the claims would have in de- Rep. 508. 
 
 terring bids. Such uncertainty is con- ' Searles v. Jacksonville, P. & M. R. 
 
 sidered a good ground for postponing a Co. (1873), 2 Woods, 621. 
 foreclosure sale, or a sale under power, * Ibid, 
 
 until controversies are settled. It would ^ Brown v. State (1884), 62 Md. 439. 
 
§ 833.] OBJECTIONS TO SALES. 811 
 
 ment, or in default a sale, and are not entitled to an injunction 
 restraining the carrying out of such a decree.' 
 
 Nor will a court, at the instance of the trustee of a junior mort- 
 gage, enjoin a sale to satisfy a prior statutory mortgage, or ap- 
 point a receiver to take charge of the property, and, out of the 
 earnings, reimburse the trustee, stockholders, and bondholders, in 
 case they should pay the amount of the decree, when the dispro- 
 portion between the value of the property and that amount pre- 
 cludes the. idea that any one will be permitted to purchase the 
 property discharged from a trust in favor of the liolders of stock 
 and bonds. The presumption, in such a case, is that the directo- 
 rate, whose duty it is to protect the interests of the stockholders, 
 will not incur the liability which a neglect of that duty will im- 
 pose, and if they are guilty of such neglect, the bondholders and 
 other parties in interest have the means of protecting themselves 
 from any loss. Even if the decree is not satisfied, it may be an- 
 ticipated with certainty that the property will be bought by or 
 for the company, or by or for some one or more of the holders of 
 stock or bonds. Such a decree, therefore, does not menace the 
 interests of the bondholders with any danger which warrants a 
 court in delaying the sale.^ 
 
 Article II. — Setting aside Foreclosure Sales.* 
 
 § 833. Methods of Procedure to vacate Sales. — Under the 
 equity rules of the federal courts, final decrees maybe modified 
 or set aside in one of three modes : (1) By appeal within the 
 time prescribed by law. (2) By bill of review filed within the 
 time allowed by law for an appeal charging error apparent on 
 the record. (3) By original bill charging fraud or newly dis- 
 covered evidence. Bondholders who contest the validity of a 
 final decree in a foreclosure suit by the second of these methods 
 
 ' Gordon v. Newman (1894), 62 Fed. tificates to be among the liens to he paid, 
 
 Rep. 686. In this case, the trustee of as against the mortgages. The holder of 
 
 bondholders, named in the trust deed, had certain of these certificates was granted an 
 
 instituted foreclosure proceedings. G., the injunction restraining the enforcement of 
 
 holder of a mechanic's lien upon a part of the decree in favor of 6., the holder of the 
 
 the property, intervened, and there was a mechanic's lien, in the Circuit Court, but 
 
 decree in his favor, directing the payment the injunction was dissolved on appeal 
 
 of the amount, or, in default, a sale of the in the Circuit Court of Appeals for that 
 
 property, recognizing it as a first subsist- circuit. 
 
 ing lien. Subsequent to the intervention, ^ Overton v. Memphis & Little Rock 
 
 an issue of receiver's certificates was au- R. Co. (1882), 10 Fed. Kep. 866, per 
 
 thorized. In the final decree of fore- Caldwell, D. J. 
 
 closure, a sale was ordered, subject to all ' See Rorer on Railroads, 921 ; Wood's 
 
 liens, and especially declaring these cer- Ry. Law, 1637. 
 
812 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVII. 
 
 are concluded by adverse decision of the Supreme Court, and 
 the only course open to them, if they have any right to assert, is 
 to seek relief by an independent and original proceeding; but 
 in such a proceeding they cannot assert any rights in hostility 
 to, or inconsistent with, the adjudication already had.^ 
 
 Ordinarily, where bondholders seek to annul a decree and 
 sale on the ground of the fraud of the trustees, the proper 
 practice is to file a bill in the nature of an original bill or bill 
 of review, and to apply to be made parties to the original fore- 
 closure suit, and then seek to controvert matters which were 
 errors in the proceedings.^ 
 
 Under such circumstances the proceedings to obtain relief 
 are equivalent to a bill in equity to set aside the decree on the 
 ground of fraud, and constitute a new and original proceeding.^ 
 
 But where the right to make any further orders has been 
 reserved in an order confirming the sale, a bondholder who 
 seeks relief against the sale and its confirmation should be 
 admitted by petition to the original suit, and have his objections 
 examined.* 
 
 § 834. Who may except to Sale. — ■ A stockholder,^ or any one 
 who had an interest in the subject-matter at the time of the 
 sale and its confirmation, has a standing in court to object 
 afterwards to the validity of the proceedings ; but those who had 
 no such interest cannot be permitted to disturb what the parties 
 who were interested have acquiesced in.^ 
 
 Decrees ordering sales, therefore, cannot be assailed by 
 persons who have purchased bonds after the completion of sale. 
 Such an assignment does not carry with it a right of action to 
 impeach the proceedings.^ 
 
 1 Huntington v. Little Kock & Fort time that if it was the latter, it was clearly 
 Smith Ry. Co. (1882), 16 Fed. Rep. 906 ; bad, because filed too late, and also because 
 S. C. 3 McCrary, 581. filed without the leave of the court. 
 
 2 Wetmore v. St. Paul & Pacific R. Co. » Sahlgaard v. Kennedy (1880), 2 Fed. 
 (1880), 3 Fed. Rep. 177, 182; Richter v. Rep. 295. 
 
 Jerome (1887), 123 V. S. 247 ; Meyer v. * Wetmore v. St. Paul & Pacific R.Co. 
 
 Utah & Pr. Ry. Co. (1883), 3 Utah, 280. (1880), 3 Fed. Rep. 177. 
 
 In Pacific R. Co. v. Missouri Pac. Ry. ' Graham v. Boston, Hartford, & Erie 
 
 Co. (1881), 2 McCrary, 231, stockholders R. Co. (1886), 118 U. S. 161 ; Foster v. 
 
 brought suit to have a decree set aside on Mansfield, C. & L. M. R. Co. (1888), 36 
 
 the ground that the corporate officers had Fed. Rep. 627. In the last-named case 
 
 been guilty of bad faith in the conduct of relief was refused on the ground of the 
 
 the suit. The court remarked that it was petitioner's laches. 
 
 either an original bill to impeach a decree * Ex parte Fleming (1864), 2 Wall, 
 
 for fraud, or a bill of review on newly dis- 759, 762. 
 
 covered facts and evidence ; but considered "< Sahlgaard v. Kennedy (1882), 13 
 
 it to be the former, saying at the same Fed. Eep. 249. 
 
§ 835.] OBJECTIONS TO SALES. 813 
 
 Nor will the sale be opened at the instance of a purchaser at 
 a receiver's sale, who, on the ground of the interest thereby 
 acquired, was admitted a defendant in a suit to foreclose a first 
 mortgage, with no right but that of appearing at the taking of 
 the account of the sum due on the mortgage, and of being noti- 
 fied of the taking of such account; but who, before the master's 
 report was made, had lost all his interest in the mortgaged 
 premises, by reason of a sale thereof under foreclosure of a 
 second mortgage, where the sole ground of his application is 
 that he was not notified of the taking of the account. Any 
 interest which such a person may have by reason of his owner- 
 ship of bonds secured by the mortgage foreclosed can be pro- 
 tected by proceedings to prevent injustice in the distribution 
 of the proceeds of the sale.^ 
 
 The effect of the rule that the acts of the trustees bind those 
 whom they represent, is considered in another chapter. 
 
 § 835. Right to Relief as affected by Laches of Petitioner. — 
 Want of diligence in the petitioner in seeking relief against a 
 sale will sometimes be a decisive ground for denying application. 
 
 Every case is governed chiefly by its own circumstances: 
 sometimes the analogy of the Statute of Limitations is applied ; 
 sometimes a longer period than that prescribed by the statute is 
 required ; in some cases a shorter time is sufficient ; and some- 
 times the rule is applied where there is no statutable bar. It 
 is competent for the court to apply the inherent principles of 
 its own system of jurisprudence and to decree accordingly.^ 
 
 A delay of seventeen years in moving to enforce claims 
 embodied in an agreement of a company with preferred stock- 
 holders, the corporate property having in the meantime been 
 transferred to a new company by a foreclosure sale, will fully 
 warrant the application of the rule of laches.^ 
 
 For the same reasons, where a foreclosure has become absolute 
 for seven years the court will refuse to entertain an application 
 from the stockholders to set aside the sale on the ground of 
 
 1 "Ward V. Moiitclair Ry. Co. (1875), time. Nothing can call forth this court 
 26 N. J. Eq. 260. into activity but conscience, good faith, 
 
 2 Sullivan v. Portland & Kennebec R. and reasonable diligence. Where these 
 Co. (1876), 94 IT. S. 806, citing the fol- are wanting, the court is passive, and 
 lowing familiar passage from Smith v. does nothing. Laches and neglect are 
 Clay, Ambler, 645: "A court of equity always discountenanced, and, therefore, 
 which is never active in giving relief from the beginning of this jurisdiction 
 against conscience or public convenience, there was always a limitation to suits in 
 has always refused its aid to State de- this court." 
 
 mands where a party has slept upon his ^ Sullivan v. Portland cS> Ivpnnebec R. 
 
 rights and acquiesced for a great length of Co. (1876), 94 U. S. 806. 
 
814 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVII. 
 
 fraud, where everything which was done in the proceedings 
 alleged to be fraudulent might at any time have been ascertained 
 by them, if they had seen fit to examine the records. ^ 
 
 A petition of stockholders to have a foreclosure sale set aside 
 for fraud will be dismissed where it is filed five years after the 
 s^e, and the petitioners do not allege when they discovered tbe 
 fraud, nor give a satisfactory reason why their knowledge was 
 not sooner obtained. ^ 
 
 A fortiori, where all the circumstances alleged to constitute 
 the fraud were as well known to the complainant at the time of 
 the transaction on which his rights are based as they are at the 
 time when the petition is filed, a delay of eight years in apply- 
 ing for relief, the property having been in the meantime sold, 
 will be an absolute bar to the enforcement of a claim. ^ 
 
 On the other hand the mere fact that the stockholders are 
 aware that the directors are not faithfully defending a fore- 
 closure suit will not conclude the corporation itself from seek- 
 ing redress against a decree and sale procured by such fraud, if 
 it acts promptly when freed from the control of the directors. 
 That the stockholders have fruitlessly requested the directors to 
 resign and employ other counsel, so far from throwing on tbe 
 stockholders the peril of losing the rights in which they are 
 represented by the company, if they do not personally assert 
 them in place of the directors, operates of itself, without more, 
 only to aggravate the wrong.* 
 
 A railroad company which has assented to a decree cannot, 
 after waiting fifteen months or more, and agreeing to everything 
 done, be allowed to come in, file an answer, and go back on 
 their own express assent without bringing forward good reasons 
 to account for this laches in failing to set up what it asserts to 
 be good defences.^ 
 
 A bill of review filed a few days before the sale is advertised 
 to take place, and two years after the decree of foreclosure was 
 entered, will, in the absence of some special circumstances justify- 
 ing the delay, be dismissed on the ground of laches.^ 
 
 The taking of an appeal from a decree of foreclosure and an 
 order confirming the sale, on the ground that the court has no 
 
 1 Graham v. Boston, Hartford, & Erie Co. (1884), 111 U. S. 505, overruling s. c. 
 E. Co. (1886), 118 U. S. 161. (1881), 6 Fed. Rep. 641. 
 
 2 Harwood u. Railroad Co. (1872), 17 ^ Central Trust Co. v. Texas & St. h. 
 Wall. 78. Ey. Co (1885), 23 Fed. Rep. 846. 
 
 ' Coddington v. Railroad Co. (1880), ^ Farmers' Loan & Trust Co. v. Green 
 
 103 U. S. 409. Bay & M. K. Co. (1881), 6 Fed. Rep. 
 
 * Pacific E. Co. V. Mi-ssouri Pacific Ry. 100. 
 
§§ 836, 837 
 
 OBJECTIONS TO SALES. 
 
 815 
 
 jurisdiction, and that the sale was constructively fraudulent, in 
 that the property was bought by the company's solicitor as 
 trustee, suspends the control of every coiirt except the appellate 
 court, in respect to relief on the ground of actual fraud. The 
 company, therefore, is not guilty of laches in seeking such 
 relief when it files a bill for that purpose with reasonable 
 promptitude after the dismissal of the appeal.^ 
 
 § 836. Errors in or prior to Decree not reviewable on Motion to 
 set aside Sale. — Upon an application to set aside a judicial 
 sale made pursuant to, and in full compliance with, a valid 
 decree of a court directing it, objections to the sale based on 
 errors in the decree, or committed by the court prior to its 
 rendition, cannot be considered. ^ 
 
 § 837. Remedy by Annulment of Sale. — ^ If a contractor's lien 
 extends only to a portion of the road, and the purchasers do not 
 discharge the lien in money within a reasonable time fixed for 
 that purpose, the proper remedy is not to annul the sale, even 
 if the court has power to do it, but to order a resale of the 
 entire property, or so much thereof as may be necessary to raise 
 the' amount due to the lienholders.* 
 
 1 Pacific Railroad Co. of Missouri v. 
 Missouri Pacific Ry. Co. (1884), 111 U. 
 S. 505. 
 
 2 Meyer v. Utah & Pleasant Valley By. 
 Co. (1883), 3 Utah, 280. 
 
 ' Farmers' Loan & Trust Co. v. New- 
 man (1888), 127 U. S. 649. Here the 
 court had authorized the receiver to pur- 
 chase, for the benefit of those he repre- 
 sented, any adverse liens on the property. 
 He made a contract with the owners of a 
 lien paramount to that of the mortgage, 
 whereby they were to receive for the same 
 a Slim of money secured by the proceeds 
 of the portion of the road subject to tlieir 
 lien, and were, on their part, required to 
 file a quit claim deed and certain trust- 
 deed notes in escrow. This stipulation 
 they fulfilled. Sale of the property as an 
 entirety was made, and it was ])urchased 
 for the bondholders, the price being paid 
 in bonds, without the transfer of any 
 cash. The Circuit Court decreed that 
 these lienors were entitled to the amount 
 contracted to be paid them, and that if it 
 was not paid within a certain time the 
 sale should be set aside, and the receiver 
 resume possession. The Supreme Court 
 held that, as the prior lien of these parties 
 
 by the contract entitled them to the pro- 
 ceeds of the sale of this particular portion 
 of the road, that agreement imposed upon 
 the receiver and the bondholders the duty 
 of obtaining from the court a modification 
 of the decree of sale which would have 
 enabled the court and the parties to know 
 how much was realized from a sale of that 
 part of the road upon which this prior 
 lien rested, and that the sale of the mort- 
 gaged property as an entirety, without 
 having obtained such modification, should, 
 under the circumstances, be deemed an 
 election upon the part of the trustees and 
 those whom they represented, not to have 
 the mortgaged property sold in parts or 
 subject to this prior lien, and not to 
 restrict this lien to that portion of the 
 road embraced by the trust deed under 
 which it was held. The lienors, therefore, 
 had acquired a right to be paid first out of 
 the aggregate proceeds of the sale of the 
 entire line. This right was not to be de- 
 feated by the fact that the purchase-money 
 was paid in bonds. If the purchasers 
 failed to pay this claim, the property 
 would have to be sold as an entirety, or a 
 sufliciency of it to meet this prior lien, 
 without annulling the former sale or con- 
 
816 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXTII. 
 
 § 838. Declaring Purchaser a Trustee equivalent to Annulment. — 
 
 To declare the purchaser a trustee of the property bought is 
 practically an annulment of the sale, so far as the applicant is 
 concerned. The relief given against a fraudulent sale often 
 takes this form, especially where the fraud complained of is that 
 of the directors,^ or of the directors and purchasers jointly. ^ So 
 also, where a director purchases the property of the company 
 without actual fraud, his fiduciary position renders the transac- 
 tion a constructive fraud on the company, which may maintain 
 a suit against him, or, after his death, against his representa- 
 tives, to enforce a trust in its favor, and have the property 
 reconveyed. The surrender is, of course, conditional upon the 
 company's paying the director or his representatives the amount 
 of his bid, and recouping him for his expenditures in operating 
 the road; and the company will also be required to comply with 
 the terms imposed by the court upon the director, as purchaser.' 
 
 But where a director is himself a bondholder, and becomes 
 the purchaser upon foreclosure, an action cannot be maintained 
 to impress a trust upon the property for the benefit of the stock- 
 holders, because of fraudulent conduct on the part of the 
 directors in procuring the default, unless, at least, he is paid or 
 tendered the amount of his bonds. The equity of the stock- 
 holders, if any, is only in the surplus after paying the bonded 
 debt, and the action would be in effect a bill to redeem.* 
 
 Nor will the mere fact that the property is purchased by the 
 president in his individual right raise a trust relation between 
 him and a bondholder which will entitle the latter to treat him 
 as a trustee for the property so purchased. ^ 
 
 § 839. Confirmation of Fraudulent Sale by Legislature. — The 
 confirmation of a fraudulent sale by the legislature is no bar to 
 a suit by the stockholders to vacate it on the ground of fraud. 
 To validate a fraudulent sale as against those prejudiced by it is 
 beyond the power of any legislature.^ 
 
 But such a ratification may work an estoppel as regards the 
 
 firmation, and without withdrawing or ^ Covington & Lexington E. Co. v. 
 
 cancelling the deed, as that sale was sub- Bowler's Heirs (1872), 9 Bush(Ky.), 468. 
 
 ject to the power reserved to protect and * Harpending v. Miinson (1883), 91 
 
 enforce by subsequent orders any claim N. Y. 650 ; s. c. 12 Am. & Eng. R. K. 
 
 or lien then pending, either in court or Cas. 448. 
 
 by its leave, in a State court. * Credit Co. o. Arkansas Central E. 
 
 1 Harpending v. Mnn.son (1883), 91 Co. (1882), 15 Fed. Rep. 46. 
 
 N. Y. 650 ; s. o. 12 Am. & Eng. E. E. 6 white Mountains R. Co. v. White 
 
 Cas. 408. Mountains (N. H.) R. Co. (1870), 50 N. 
 
 2 Di-ury V. Cross (1868), 7 Wall. 299. H. 50 ; s. o. 1 Am. Ry. Eep. 146. 
 
§ 840.] OBJECTIOXS TO SALES. 817 
 
 State itself. Thus where the State, after foreclosing its statu- 
 tory lien upon a railroad, brings suit to rescind the sale, on the 
 ground that there has been a fraudulent collusion between the 
 purchasers and the commissioners appointed to hold the sale, 
 and that the transferee of those purchasers acquired the property 
 with knowledge of the fraud, the fact that the legislature con- 
 firms the title of the transferee constitutes a bar to the part of 
 the petition which demands a reconveyance of the property to 
 the State, but will not prevent the court from retaining juris- 
 diction of the cause for the purpose of compelling the commis- 
 sioners and all who confederated with them to refund whatever 
 profits they may have corruptly made out of the transaction. ^ 
 
 § 840. Effect of declaring a Sale void for Fraud. — (a) A.S to Cor- 
 poration itself. — The provisions of a statute declaring that a 
 corporation shall be dissolved by a sale of its franchises have 
 no application where the sale is a fraudulent and illegal one. 
 The existence of the corporation still continues in spite of the 
 sale, and a suit brought by it for a restoration of its property 
 cannot be objected to by a new corporation which has purchased 
 the franchises on the ground that such restoration will cause 
 a dissolution of the defendant corporation. ^ 
 
 But the property will not be restored to the old corporation 
 where it has actually consented to the sale, and the fraud 
 alleged is that the purchasers induced it to withdraw its oppo- 
 sition to an application by the trustee for an order of sale, in 
 consideration of their agreement to account for the property at 
 its real value, and thereafter, by bribing the trustee, acquired 
 such property at a price much lower than what it would have 
 brought at an honestly conducted sale.^ 
 
 (b) As to Bondholders and other Creditors. — When a fore- 
 closure sale at which the property is bought in for the benefit of 
 the bondholders is declared fraudulent and void as against cer- 
 tain judgment creditors, the mortgage is not thereby revived as 
 to those bondholders who voluntarily take stock in a new com- 
 pany organized by them. The sale remains valid except so far 
 as it prejudices the rights of the creditors who filed the bill to 
 set it aside, and those bondholders, if any, who have not come 
 
 1 State of Missouri v. McKay (1869), Mountains (N. H.) R. Co. (1870), 50 N". 
 
 43 Mo. 594. H. 50; s. c. 1 Am. Ry. Rep. 146. This 
 
 ^ White Mountains R. Co. v. White case was decided on demurrer, and the 
 
 Mountains (N. H.) R. Co. (1870), 50 N. appellate court did not determine what 
 
 H. 50 ; s. c. 1 Am. Ry. Rep. 146. precise form the relief should take. See 
 
 ' White Mountains R. Co. v. White above. 
 
 52 
 
318 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVn. 
 
 into the reorganization scheme and converted their bonds into 
 stock. Hence the reorganizing bondholders cannot maintain a 
 bill for the foreclosure of the mortgage on the theory that it is 
 still in force as to them.^ 
 
 By satisfying the judgment creditors they can keep the 
 property, and their title is good against all the world. The 
 legal effect of the decree avoiding the sale is that, by reason of 
 the frauds perpetrated in such sale, the property is subject to 
 the claims of the creditors. Hence they cannot maintain an 
 action to recover back the purchase-money, for, when they paid 
 it into court, they were, in fact, paying off an incumbrance on 
 their own property.^ 
 
 Nor can they be subrogated to, and obtain the benefit of, the 
 decree of foreclosure, upon which the money was paid. ^ 
 
 Nor can they recover back the purchase-money on the ground 
 that it was paid under a mistake of fact. The mistake, if any, 
 in such a case is a mistake of law.* 
 
 If a judgment creditor whose lien is subsequent to that of a 
 trust deed becomes the purchaser of the property at the fore- 
 closure sale, and enters satisfaction of his judgments, solely for 
 the purpose of clearing the title, and without receiving any con- 
 sideration therefor, and the sale is afterwards set aside for 
 causes not implicating him, he may maintain a bill to annul the 
 cancellation of his judgments, and re-establish their lien.^ 
 
 Article III. — Grounds for vacating a Sale. 
 
 § 841. Inadequacy of Price. — To induce a court to set aside a 
 foreclosure sale on the mere ground of the inadequacy of the 
 price, it is not sufficient to show that the property has not 
 realized its full value.® 
 
 The price must be so inadequate as to show that it is not the 
 result of fair dealing and an honest purchase.^ 
 
 Or, as it is sometimes put, the inadequacy must be such as 
 
 1 Barnes v. Chicago, M. & St. Paul E. * Railroad Co. v. Soutter (1871), 13 
 Co. (1879), 8 Bias. 514. Wall. 517, 526 (Field, J., dissenting). 
 
 2 Railroad Co. v. Soutter (1871), 13 <• Hay v. Wasliington & Alexandria R 
 Wall. 517 ; followed in Barnes t'. Chicago, Co. (1881), i Hughes, 327. See note to 
 M. & St. Paul Ry. Co. (1887), 122 U. S. this case, 1 Am. & Eng. R. R. Cas. 517. 
 
 1 ; 8. 0. 7 Sup. Ct. Rep. 1043. « Sahlgaard v. Kennedy (1882), 13 
 
 » Railroad Co. v. Soutter (1871), 13 Fed. Rep. 242, 248. 
 Wall. 517. ^ Turner v. Indianapolis, B. & W. Ry. 
 
 Co. (1878), 8 Biss. 350. 
 
§ 842.] 
 
 OBJECTIONS TO SALES. 
 
 819 
 
 will shock the conscience, and amount in itself to conclusive and 
 decisive evidence of fraud. ^ 
 
 Or the inadequacy of price must be combined with additional 
 circumstances against the fairness of the sale, growing out of 
 fraud, accident, or some trust relation of the parties.^ 
 
 No sale will be set aside for inadequacy of price, when the 
 sum obtained exceeds the "upset price " fixed by the court. ^ 
 
 A sale of personal property under a decree of foreclosure 
 may be set aside for an advance of price, before the same is 
 confirmed.* 
 
 § 842. Actual Fraud. — Suspicious circumstances calling for 
 explanations are not to be viewed in the light of after events 
 for a correct interpretation. All the facts and circumstances 
 must be considered as they existed with respect to the property 
 involved at the time action was had with regard thereto.® 
 
 1 Peck V. New Jersey & New York R. 
 Co. (1880), 22 Hun, 129 ; Fidelity Trust 
 Co. V. Mobile Street Ey. Co. (1893), 54 
 Fed. Rep. 26. 
 
 2 Fidelity Trust Co. v. Mobile Street 
 Ry. Co. (1893), 54 Fed. Rep. 26, where 
 it was held that the fact that the bond- 
 holders were known to have authorized a 
 committee to bid up to $400,000, and that 
 this deterred others from bidding, was 
 not a, sufficient ground for setting aside 
 the sale. 
 
 ' KrophoUer v. St. Paul & Pacific Ry. 
 Co. (1880), 2 Fed. Rep. 302 ; Wetmore v. 
 St. Paul & Pacific R, Co. (1880), 5 Dill. 
 531 ; s. 0. 3 Fed. Rep. 177. The court 
 said in the latter case : " Of coarse the 
 court, in fixing an 'upset price,' in- 
 tended to say that it was better that it 
 should sell at that price than not to sell 
 at all, and the court had taken the neces- 
 sary means to get all the information on 
 the subject possible as the case stood at 
 that time. It is wrong to suppose that 
 the same court will now set aside the sale, 
 which brings a million and a half dollars, 
 because of the objection that now, in the 
 light of a year or two after that, in the 
 improved circumstances and the prosper- 
 ous times, in the value attaching to that 
 road, growing out of the connections 
 newly made, we are now to consider the 
 thing as of the present time in relation to 
 its value at the time the sale was made. 
 This is one of those constant every-day 
 
 events of people who have let things slip 
 out of their hands, coming back after- 
 wards to endeavor to secure the value 
 which they failed to recognize or secure 
 at the time." 
 
 An elaborate review of the proper prac- 
 tice when an advance bid is tendered after 
 the sale and before its confirmation will 
 be found in the opinion of Judge Ham- 
 mond in Blackburn v. Selma R. Co. 
 (1880), 3 Fed. Rep. 689. 
 
 See also Tui-ner v. Indianapolis, B. & 
 "W. Ry. Co. (1878), 8 Biss. 380, where it 
 was said that, if parties desire to have the 
 sale of railroad property set aside for the 
 inadequacy of the bid, they must show 
 that some person who is responsible will 
 make an advance bid. In Allen v. Mont- 
 gomery & "West Point R. Co. (1847), 11 
 Ala. 437, it was said by the court to be 
 very questionable whether a judgment 
 creditor could, upon the allegation that 
 the sale had been made for an inadequate 
 price, have the biddings opened, unless he 
 offered to bid a larger sum. But the 
 point was not directly ruled upon. 
 
 * Blackburn v. Selma R. Co. (1880), 3 
 Fed. Rep. 689. 
 
 6 Sahlgaavd v. Kennedy (1882), 13 
 Fed. Rep. 248. In this case the court 
 declined to rule that the circumstances 
 showed fraud, thus summarizing the posi- 
 tion of affairs at the time of the fore- 
 closure : " The foreclosure suits had been 
 long pending. All parties concerned knew 
 
820 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVII. 
 
 S 843. Collusion between Trustees and Purchasers. — The par- 
 ticipation of the trustee in a scheme by which a purchasing 
 syndicate acquires the property in such a manner as to defraud 
 the rest of the bondholders of their rights is an actual, not a 
 constructive, fraud. ^ 
 
 A bill filed by a bondholder to set aside a sale is therefore not 
 demurrable when it contains allegations tending to show that 
 one of the trustees under the mortgage combined with the pur- 
 chasing bondholders at the sale to bid in the property at a sacri- 
 fice of the interests of the rest of the bondholders, of whom the 
 complainant is one, and that the trustee permitted the property 
 to pass into the hands of such purchasers.^ 
 
 Nor is a bill filed by the mortgagor company for a like pur- 
 pose demurrable which alleges that such mortgagor, in con- 
 sideration of an agreement by the combination of bondholders 
 who were to purchase the property that their debts would be 
 credited to the full value of the property, whatever the price 
 actually realized at the sale might be, withdrew its opposition 
 to a sale by the trustee; that the sale was made to this combi- 
 nation of bondholders, who, by bribing the trustee, obtained the 
 property at a low price; and that the mortgagor's debts were 
 credited only with the price which the purchasers had bid at 
 the sale. If the mortgagor, upon ascertaining, several years 
 afterwards, the fact of the bribery, and the failure of the pur- 
 chasers to comply with their agreement to account for the 
 property at its real value, applies for relief against the title 
 thus fraudulently obtained to its property, it is entitled to relief 
 in some form. The property will not be restored to it, since it 
 consented to the order to sell; but whether the auction sale 
 should be annulled, and a resale ordered, or the purchasers 
 compelled to account for the property at a fair price, or in 
 what precise form the relief should be granted, was not deter- 
 that, without relief from some unknown holders to appear, if they chose to incur 
 quarter, decrees and sales would eventu- the needed responsibility for averting the 
 ally foUow. The bondholders, represented catastrophe. They did not choose to move 
 by their trustees, were urging such de- in the matter, although invited so to do. 
 crees and sales. In the meantime the Where, then, is the actual fraud ? Kone 
 depreciated bonds were on the market, appears. Mere inadequacy of considera- 
 subject to the outcome of pending litiga- tion at a judicial sale does not establish 
 tion. The majority resolved on the course a fraud." 
 
 deemed best for the interests of all, and i Sahlgaardi). Kennedy (1882), 13 Fed. 
 urged all to join them. The known end Eep. 242, 249. 
 
 was reached, ample opportunity for rescue ^ Sahlgaard u. Kennedy (1880), 2 Fed. 
 having been given to the minority bond- Kep. 295. 
 
,§§ 844, 845.] OBJECTIONS to sales. 821 
 
 mined by the court in overruling the demurrer to the bill in 
 question. 1 
 
 § 844. Collusion hetween Trustee and Corporate Officers. — A 
 trustee sold a railroad, under the power conferred by the mort- 
 gage, acting as auctioneer himself. In the notice of sale it was 
 stated that the mortgage amounted to $2,000,000, and that the 
 interest in default was 170,000. The trustee purchased it for 
 the directors, and organized a new company, which went into 
 possession of the property. The notice of sale was a gross 
 misstatement of the real position of the company's estate. As 
 a matter of fact, less than $200,000 of the bonds had passed into 
 the hands of bona fide purchasers, and a large number had been 
 cancelled. Besides this, a considerable amount had been placed 
 by the directors to secure small loans, their object being to pur- 
 chase the pledged bonds at a low price. This they did, buying 
 them for five cents on the dollar; and by this device they 
 obtained control of the great bulk of the bonds for what was 
 practically no consideration. The notice of sale was therefore 
 such a misrepresentation regarding the amount due as would 
 preclude the possibility of any fair bidding, and indeed to 
 e.tclude from the purchase every one except those engaged in 
 the perpetration of the fraud. Upon this state of facts it was 
 held by the Supreme Court of the United States, reversing the 
 judgment of the Circuit Court, that the decree should be set 
 aside, and the new railroad company perpetually enjoined from 
 setting up any right or title imder it, the mortgage to remain 
 as security for the bonds held by bona fide purchasers.^ 
 
 § 845. Collusion between Corporate Officers and Combinations of 
 Bondholders. — Where . a minority of bondholders contrive with 
 officers of the company in a fraudulent manner to sell the 
 property at an immense sacrifice and to buy it in themselves, 
 such sale will be set aside at the instance of the rest of the 
 bondholders and the lien of the mortgage declared still to exist, 
 and a resale will be ordered in the same suit for the benefit of 
 all concerned. In another case the directors of a railroad com- 
 pany had become liable as indorsers for $21,000, on a contract 
 for iron rails furnished for the road, and had given, as col- 
 lateral, $42,000 of an issue of bonds to the vendor. Similar 
 bonds to the amount of 1280, 000, which had never been issued, 
 were placed in the hands of a firm, not to be issued until the 
 
 1 White Mountains R. Co. v. White " James v. Bailroad Co. (1867), 6 WaU. 
 Mountains (N. H.) R. Co. (1870), 50 752. 
 N. H. 60 ; 8. 0. 1 Am. Ry. Rep. 146. 
 
822 EAILWAT BONDS AND MOETGAGES. [CHAP. XXXTII. 
 
 first-named debt had been paid and twenty-seven miles of road- 
 way constructed. When pressed as indorsers to pay this debt, 
 they conceived a plan to have this debt bought in by other 
 parties at a large discount, and to have a foreclosure of the mort- 
 gage on the few miles of road, franchises, outfits, etc., that 
 these parties might buy it in. It was foreseen that, if the 
 property should be sold for this small amount of bonds, there 
 could probably be an active competition in the bids, and in 
 order to deter bidders it was arranged to have the $280, 000 of 
 bonds on deposit which could never be issued legally, as the 
 matter stood, forced pro forma upon the first-named creditor, 
 though he did not ask it as additional collateral, and have a 
 sale of them as pledged bonds, with the understanding that the 
 other party to the fraudulent arrangement should bid them in 
 at a nominal sum. They then allowed the sale for the whole 
 amount of the bonds, and their confederates purchased the 
 property for less than its value. The vendors of certain loco- 
 motives which had been sold under this foreclosure obtained 
 judgment for the amount due them against the company, and 
 filed their bill to set aside the decree and sale as fraudulent. 
 The Circuit Court dismissed the bill, but on appeal the Supreme 
 Court remanded the cause with directions to the court below 
 to hold these purchasers as trustees to the complainant creditors 
 for the full value of the property, from which they were to be 
 allowed to retain the amount due at the day of sale on the 
 judgment against the directors. ^ 
 
 That the directors were actuated by corrupt motives in suffer- 
 ing a default is no ground for setting aside the sale, even if the 
 trustee is aware of the existence of such motives, unless it is also 
 shown that there was also some collusion between them and him.^ 
 
 An agreement between creditors to combine and purchase the 
 property will not of itself render the sale fraudulent.^ 
 
 1 Drury v. Cross (1868), 7 Wall. 299. • syndicate,' as it was called ; they were 
 
 2 Harpending v. Munson (1883), 91 at liberty to bid; they were at liberty to 
 N. Y. 650 ; s. c. 12 Am. & Eng. E. R. come in and make themselves parties. 
 Cas. 408. They did nothing of the kind. Were the 
 
 8 Kropholler v. St. Paul & Pacific K. bondholders who purchased the road to be 
 
 Co. (1880), 2 Fed. Rep. 302 ; Wetmore v. put into the condition of a single man who 
 
 St. Paul & Pacific R. Co. (1880), 5 Dill, owned twelve millions out of fifteen mil- 
 
 531. In the latter case the court said : lions of bonds? I can see no reason why 
 
 " Because the men co-operated and put they should not take steps to have the 
 
 themselves into condition to buy the road, road sold, and buy it as cheap as they 
 
 it does not seem that they were therefore could get it, provided th«y cheated or 
 
 acting in any fraudulent manner. They hindered nobody in the matter." See also 
 
 deprived none of the petitioners of their chapter on leorganization. 
 rights. They were at liberty to join the 
 
§§ 846-849.] OBJECTIONS to sales. 823 
 
 § 846. Surprise, Mistake, etc. — A case for relief on the ground 
 of surprise is made out by a showing that the petitioner did 
 not know that a larger amount than that mentioned in the com- 
 plaint in the foreclosure suit had been found due until two days 
 before the sale ; that he thereupon took ex parte proceedings to 
 set aside the judgment and stay the sale; and that the order 
 staying the sale was set aside as irregular on the day of the 
 sale, too late to enable him to take other proceedings or to 
 attend the sale to protect his rights.^ 
 
 § 847. Breach of Professional Duty by Attorney. — An attorney 
 is not guilty of such a breach of professional duty as will require 
 the sale to be vacated, when, after appearing for a railroad 
 company to contest a motion made by a single petitioning 
 creditor for the appointment of a receiver, he acts as counsel 
 for the trustees of the bondholders in foreclosure proceedings 
 against the same company. There is no such conflict of duties 
 caused by assuming these positions successively as to make the 
 two appearances an anomaly in chancery practice so great as to 
 vitiate the decree.^ 
 
 § 848. Sale not set aside because same Person is Trustee under 
 both Mortgages foreclosed. — The fact that the same person was 
 the trustee both of a first and a second mortgage foreclosed in 
 the same suit is no ground for invalidating the sale at the 
 instance of second-mortgage bondholders where no evidence of 
 collusion is offered, and the complainant bondholders had full 
 knowledge of the situation of affairs, and full opportunity to 
 intervene as parties to the suit.^ 
 
 § 849. Extension of Benefits of Reorganization to Bondholders 
 after Time for coming in has passed not Ground for invalidating Sale. 
 — The extension of the benefits of a reorganization agreement 
 to bondholders after the time for coming in has passed is not a 
 ground upon which one of the bondholders who joined the com- 
 bination of purchasers before that time can have the sale annulled. 
 Agreements of this kind are apt to operate to the disadvantage 
 of the poorer and more helpless bondholders, and the extension 
 of their privilege to all the bondholders, regardless of the time 
 at which they express their adhesion to the scheme, will be 
 regarded by a court of equity with complacency, at least, — cer- 
 
 1 Peck V. New York & New Jersey Ry. say whether the petitioner should or should 
 
 Co. (1881), 85 N. Y. 246 ; s. c. 7 Am. & not be relieved. 
 Eng. R. R. Cas. 422. But the court, upon = ^hnyr v. Bill (1876), 95 U. S. 10. 
 review of all the facts, held that it was ^ Robinson v. Iron Ry. Co. (1889), 135 
 
 within the discretion of the trial court to XT. S. 522 ; s. c. 10 Sup. Ct. Rep. 907. 
 
824 RAILWAY BONDS AND MORTGAaES. [CHAP. XXXTII. 
 
 tainly not with disfavor. An application to exclude from par- 
 ticipation in the benefits of such agreement, solely on the ground 
 that they have come in after the time limited, lacks the essen- 
 tial elements of equity.^ 
 
 § 850. Foreclosure before Maturity of Principal. — A sale not 
 tainted with fraud, and consummated by the consent of the 
 creditors and the company, in pursuance of a plan of reorgani- 
 zation, will not be set aside at the suit of some of the stock- 
 holders, merely because the principal of one of the mortgages 
 was not yet due, when it appears that the sums due for interest 
 thereon, for floating indebtedness, and on other mortgages then 
 due, was so great as to render foreclosure inevitable, especially 
 when the complainants do not offer to do equity by paying the 
 floating debt, and have not been diligent in opposing the plan 
 of reorganization and in attaching the decree objected to.^ 
 
 § 851. Excessive Amount of Judgments. — The provision of the 
 New York Code (§1207), providing that, "where there is no 
 answer, the judgment shall not be more favorable to the plaintiff 
 than that demanded in the complaint, " is intended for the bene- 
 fit of defendants who suffer default, and cannot be invoked in 
 an attack upon a judgpaent by one not a defendant or interested 
 in the defence of the action. Hence when the complaint in a 
 foreclosure suit states the amount of outstanding bonds at a less 
 figure than that found by the referee who was ordered to find the 
 amount due, this provision is not available to a bondholder 
 moving to set aside the judgment entered on the report and the 
 sale thereunder.' 
 
 1 Walker v. Montclair & Greenwood ' Peck v. New York & New Jersey Ey. 
 Lake Ry. Co. (1879), 30 N. .1. Eq. 525. Co. (1881), 85 N. Y. 246 ; s. 0. 7 Am. & 
 
 2 Gary v. Houston & T. C. Ky. Co. Eng. E. E. Cas. 422. 
 (1892), 52 Fed. Eep. 671. 
 
§ 852.] 
 
 APPEALS IN FORECLOSURE SUITS. 
 
 825 
 
 CHAPTER XXXVIII. 
 
 APPEALS PROM DECREES AND ORDERS IN FORECLOSURE SUITS. 
 
 Art. I. — JUBISDIOTION AND PaKTIBS TO 
 
 Appeals. 
 
 Jurisdiction in general. 
 
 Jurisdiction of Supreme Court of 
 United States as dependent 
 on Amount involved. 
 
 Supersedeas Bonds. 
 
 Who may appeal in general. 
 
 Who cannot appeal in general. 
 
 Purchaser at Foreclosure Sale as 
 Appellant. 
 
 Appeals from Decrees against 
 Receivers. 
 
 Junior incumbrancers as Appel- 
 lants. 
 
 Stockholders as Appellants. 
 
 Company as Party to Appeal. 
 
 Trustee as Party to Appeal. 
 — Appealable Decrees and 
 Orders. 
 
 Consent Decrees. 
 
 Discretionary Orders. 
 
 Final Decrees in general. 
 
 Decree dismissing Cross-hill 
 not final. 
 
 §862. 
 853. 
 
 8f4. 
 855. 
 856. 
 857. 
 
 858. 
 
 859. 
 
 860. 
 
 861. 
 
 862. 
 
 Art. II. 
 
 864. 
 865. 
 
 § 867. Foreclosure Decree final. 
 
 868. Decrees final on Confirmation of 
 
 Sale. 
 
 869. Decrees setting aside Sales not 
 
 final. 
 
 870. Finality of Decrees providing 
 
 for Reference to Master. 
 
 871. Appealability of Interlocutory 
 
 Orders. 
 
 872. Appeal from one of several 
 
 Decrees. 
 Art. III. — What Appeal brings vf foe 
 Review and Effect. 
 § 873. What Rulings of Lower Court 
 reviewable. 
 
 874. Rulings not prejudicial to Ap- 
 
 pellant not reviewable. 
 
 875. Objections not presented to 
 
 Lower Court not reviewable 
 on Appeal. 
 
 876. Effect of Appeal on Control of 
 
 Property. 
 
 877. Decree for Deficiency, when not 
 
 appealable. 
 
 Article I. — Jurisdiction and Parties to Appeals. 
 
 § 852. Jurisdiction in general. — For purposes of appeal to 
 United States Supreme Court, it is not necessary to inquire 
 when Circuit Court first obtained jurisdiction of suit. It is 
 sufficient if it had jurisdiction when decree appealed from was 
 rendered. ^ 
 
 The appellate jurisdiction of courts is ordinarily, of course, 
 fixed without reference to any particular case; but it has been 
 held that the legislature has power to confer upon a court of 
 appeals already in existence the right to hear appeals in special 
 
 1 Pacific KaUroad v. Ketchum (1879), 101 U. S. 289. 
 
826 EAILWAT BONDS AND MOETGAGES. [CHAP. XXXTIII. 
 
 cases. Such a law, however, is not constitutional, unless it 
 leaves the judicial functions untrammelled. The mere enumera- 
 tion therein of the questions referred to the court — those ques- 
 tions being all necessarily involved in the decision appealed 
 from — neither enlarges nor restricts the powers of the court, 
 nor invests it with original jurisdiction.^ 
 
 § 853. Jurisdiction of Supreme Court of TTuited States as 
 dependent on Amount involved. — The matter in dispute on which 
 the jurisdiction of the Supreme Court of the United States 
 depends is "the matter which is directly in dispute in the 
 particular cause in which the judgment or decree sought to be 
 reviewed is rendered," and it is not allowable, for the purpose 
 of determining its value, to estimate its collateral effect in a 
 subsequent suit between the same or other parties. Thus a 
 decree in a foreclosure suit brought by some of the bondholders 
 to enforce the payment of interest amounting in the aggregate 
 to less than S5,000 is not appealable, the only matter directly 
 involved being the right of the complainants to have the mort- 
 gaged property sold to pay the several amounts due to them 
 respectively on their bonds. ^ 
 
 Where parties severally assert in the same suit a separate 
 course of action, the decrees which are rendered in favor of the 
 complainants cannot be joined to render the amount sufficient 
 to give the Supreme Court jurisdiction.^ If some of the decrees 
 in such a case are for more than 15,000, and some for less, the 
 appeal will be retained as to the former, and dismissed as to 
 the latter.* 
 
 If a bondholder sues in the first place for interest amounting 
 to more than i5,000, and after amending his complaint by per- 
 mission of court obtains judgment for less than $5,000, the 
 result as regards the jurisdiction of the Supreme Court is the 
 same as though he had originally brought suit for an amount 
 below jurisdictional limit. ^ 
 
 1 State of Maryland v. Korthern Cen- » Farmers' Loan & Trust Co. v. 'Water- 
 tral Ry. Co. (1861), 18 Md. 193. man (1882), 106 U. S. 265. 
 
 Upon » question of priority of judg- * Hassell, Trustee, v. Wilcox (1885), 
 
 ment liens, an objection to the jurisdie- 115 U. S. 598. 
 
 tion of the court to appoint receivers for ^ Opelilca City v. Daniel (1883), 109 
 
 a corporation, to include other property U. S. 108. 
 
 than that upon which the complaining An appeal to the Court of Appeals of 
 
 creditors claim a, lien is waived, unless Kentucky may be taken from a judgment 
 
 taken in limine. Temple a. Glasgow placing a railroad in the hands of a re- 
 
 (1897), 80 Fed. Eep. 441. eeiver, without regard to the amount in 
 
 2 Bruce o. Manchester & Keene Rail- controversy. Nashville, C. & St. L. By. Co. 
 road (1885), 117 U. S. 514. v. Mattingly (1897), 40 S. "W. Eep. 673. 
 
§§ 854, 855.] APPEALS IN FORECLOSURE SUITS. 827 
 
 § 854. Supersedeas Bonds. — A supersedeas bond should not 
 be exacted by a federal court from a receiver who appeals in 
 good faith from judgment against him in action brought in 
 State court under authority of United States law permitting him 
 to be sued in that court. ^ 
 
 Appeal from a decree in favor of an appellant suspends execu- 
 tion of decree. A supersedeas bond to suspend a decree is 
 required only in cases from an adverse decree. Where the 
 defendant files a cross-appeal, he need not file a supersedeas 
 bond if there has also been an appeal by complainant, for the 
 appeal of the latter from the decree in his favor has already 
 effected a stay of its execution.^ 
 
 A supersedeas in connection with an appeal is a statutory rem- 
 edy. To obtain it, the required conditions must be strictly com- 
 plied with. Time is an essential element in the proceedings, 
 which can be disregarded by neither court nor judges. There 
 was held to be no supersedeas as to the decree in case cited below, 
 as the application and bond for it were filed more than sixty 
 days after the decree, the parties filing it having been guilty of 
 the delay themselves. A court cannot enter a nunc pro tunc 
 order to cure the defect, unless the delay has been caused by the 
 court itself for its convenience.^ 
 
 § 855. Who may appeal in general. — Any one who is adversely 
 affected by a decree may, where the matter in dispute involves 
 a sufficient amount, appeal.* 
 
 A bondholder coming into a reorganization scheme which 
 includes the issue of a new mortgage after the sale, and an 
 application of part of the proceeds of such mortgage to the pay- 
 ment of expenses of trustees, has a right to intervene and be 
 heard in regard to the amount of the compensation to be allowed, 
 and to appeal from an adverse decision. Where a purchasing 
 committee of bondholders has been formed to carry out the 
 reorganization scheme, the right of appeal may be exercised by 
 that body in behalf of all the bondholders.^ 
 
 This privilege of appeal may sometimes be asserted by bond- 
 holders who are allowed to intervene as defendants in a fore- 
 closure suit, subsequently to the bill's being taken pro confesso 
 and a decree entered accordingly, and, as defendant interveners, 
 
 1 Central Trust Co. v. St. Louis, A. & * Ex parte Railroad Company (1877), 
 T. By. Co. (1870), 41 Fed. Rep. 5.51. 95 U. S. 221. 
 
 2 Bronson v. La Crosse & Milwaukee ^ Williams v. Morgan (1883), 111 U. S. 
 R. Co. et al. (1863), 1 Wall. 405. 684. 
 
 ' Sage et al. v. Central Railroad Co. of 
 Iowa et al. (1876), 93 U. S. 417. 
 
828 RAILWAY BONDS AND MOKTGAGES. [CHAP. XXXVIII. 
 
 take exceptions to the report of a master in regard to the con- 
 firmation of that decree. In such a case leave to appeal from 
 injurious parts of decree cannot be refused on ground that bill 
 has been taken pro oonfesso, when decree entered thereupon 
 does not end the case, the final decree being only rendered after 
 a number of orders, references, and reports have been made, 
 and at a time when the petitioners for leave to appeal have 
 become actual parties.^ The right of the bondholders to prose- 
 cute an appeal from a foreclosure decree through the trustees is 
 not affected by the fact that, after the rendition of that decree, 
 certain lien creditors, who are joined as parties defendant, file a 
 cross-bill, seeking to invalidate a prior lien set up by another 
 defendant. Such a proceeding cannot in any wise abridge the 
 right of trustees to enforce the mortgage, and has no bearing 
 upon questions presented for consideration by the bill asking 
 for foreclosure. 2 
 
 Where a decree, for instance, on a petition in intervention by 
 the holder of a judgment for personal injuries against a railroad 
 company, under § 1528, Gen. St. S. C. 1882, in a foreclosure suit, 
 claiming priority of lien to the mortgage, adjudicates priority to 
 the judgment, finds the amount due, and decrees that the priority 
 must be secured in any order of sale of the railroad thereafter 
 made, an appeal will lie from that decree, though the main 
 suit may not have reached a final decree.^ 
 
 § 856. Who cannot appeal in general. — One who is neither an 
 original party to the suit nor an intervener, whether in his 
 individual capacity or by representation, cannot appeal.* 
 
 Under this rule no appeal can be taken by one whose petition 
 to be allowed to intervene to protect an alleged interest in the 
 bonds which are the subject of the suit is denied.^ 
 
 The principle that no one but an actual party to the suit can 
 appeal, involves the corollary that the administrator of one 
 who was not a party cannot acquire the right to prosecute an 
 appeal already in progress simply by filing letters testamentary. 
 He must first be admitted as a party in the lower court. ^ 
 
 1 Ex parte Jordan (1876), 94 U. S. 578 ; Guion v. Liverpool, London, & Globe 
 248. Ins. Co. (1883), 109 U. S. 173 ; Farmers' 
 
 2 Bronson v. ha. Crosse E. Co. (1863), Loan & Trust Co. v. Waterman (1882), 106 
 2 Black, 528. U. S. 269. 
 
 " Central Trust Co. of New York v. ' Indiana Southern E. Co. v. Liver- 
 Madden (1895), 70 Fed. Rep. 451 ; s. c. pool, London, & Globe Ins. Co. (1883), 
 17 C. C. A. 31. 109 U. S. 168. 
 
 * Ex parte Cutting (1876), 94 U. S. « State u. Florida Central K. Co. (1876), 
 
 14; Ex parte Cockcroft (1881), 104 U. S. 15 Fla. 690. 
 
§ 856. J APPEALS IN FORECLOSUEE SUITS. 829 
 
 Nor can an appeal be taken from a decree by one who, though 
 a party, is in no way affected by what is decreed. Thus a 
 trustee who has sold the mortgaged property pursuant to a 
 decree, providing that the purchasers shall pay such back claims 
 as may finally be adjudged proper, has no interest in the contro- 
 versy afterwards conducted between the holders of those claims 
 and the purchasers, and cannot be a party to an appeal from the 
 decree determining that controversy.^ 
 
 Nor can one who is a party merely in a representative capac- 
 ity appeal, unless he appeals for the whole body of those whom 
 he represents. A petition by a trustee to be allowed to take an 
 appeal for a small minority of the bondholders, against the 
 interests of a large majority who had agreed upon the decree, 
 may be properly denied." 
 
 The representative character of the trustee need not be stated 
 expressly in the order to the clerk to enter the appeal. In a 
 case in which this objection was raised the court said : " [The 
 trustee] in his character as trustee, was a party to the proceed- 
 ings, and it was against him in that character that the decree 
 appealed for was made. It would be hypercritical to construe 
 the order to the clerk to enter the appeal as having been intended 
 to assert the right of appeal in any other character or relation 
 than that in which he was party to the case, and, as such, 
 entitled to take the appeal. 
 
 " The order should be fairly construed with reference to the 
 relation of the appellant to the proceeding, and the nature of 
 the decree against him. Construing the order thus, he is here 
 on the appeal, as trustee, representing the first-mortgage bond- 
 holders. " ^ The only party who can assign as error the refusal 
 of the court to dismiss a bill for failure to reply to a plea to the 
 jurisdiction is the party who submits the plea. Hence, when 
 one defendant pleads to the jurisdiction and another answers 
 setting up an independent controversy, and a final decree is 
 entered sustaining the rights set up in the answer, no notice 
 having been taken, while the suit was in progress, of the plea 
 to the jurisdiction, the complainant cannot have his bill dis- 
 missed for failure to reply to that plea, especially after an appeal 
 
 1 Farmers' Loan & Trust Co. v. Water- view to appealing in their own names from 
 man (1882), 106 U. S. 269. the decree, and such an appeal was consid- 
 
 2 Sage V. Central R. Co. of Iowa (1876), ered properly taken. 
 
 93 U. S. 417. In this case these minority ' Tome v. King (1885), 64 Md. 166 ; 
 hondholders were allowed afterwards to be s. c. 21 Atl. Eep. 279. 
 made parties to the proceedings, with a 
 
830 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVIII. 
 
 has been taken and the defendant who submitted the plea is not 
 a party thereto. ^ 
 
 § 857. Purchaser at Foreclosure Sale as Appellant. — A pur- 
 chaser at a foreclosure sale, although not a party to the suit, 
 will in some cases be allowed to appeal from decree, upon prin- 
 ciple that, as he subjects himself by his purchase to the juris- 
 diction of the court, in so far as the purchase itself is concerned, 
 and can be compelled to perform his agreement specifically, he 
 acquires a right to appear and claim such relief as he is entitled 
 to by the rules of equity procedure.^ 
 
 § 858. Appeal from Decrees against Receivers. — A receiver 
 cannot, as a general rule, question a decree rendered for or 
 against him by the court which appointed him, but a person 
 aggrieved by such a decree may appeal, in a proper case,- to a 
 higher court. ^ 
 
 An appeal by the receiver himself is allowable whenever he 
 occupies the position of a real party in interest with regard to 
 the subject-matter of the decree. He may appeal from a decree 
 rendered after the sale of the premises, directing him to pay 
 into court a certain sum of money, the balance found to be due 
 from him on the settlement of his accounts.* 
 
 If a person is not only receiver, but also a bondholder, and in 
 the latter capacity will be obliged, as the result of the decree 
 fixing the amount of the commissions of the several receivers 
 and trustees, to pay his co-receivers and the trustees a large 
 
 1 Chirago & Alton R. Co. v. Union Sureties signing appeal bonds, stay bonds, 
 
 Rolling Mill Co. (1884), 109 U. S. 702. delivery bonds, and receipts under writ of 
 
 ^ Blossom V. The Milwaukee, etc. Kail- attachment, become quasi parties to the 
 
 road Co. (1863), 1 Wall. 655. In the course proceedings, and .subject themselves to the 
 
 of the argument leading up to the prin- jurisdiction of the court, so that summary 
 
 ciple enunciated in the text, the court judgments may be rendered on their bonds 
 
 used the following language; "He can- or recognisances. So in case of a creditor's 
 
 not appeal from the original decree of bill or other suit by which a fund is to be 
 
 foreclosure, nor from any other order or distributed to parties, some of which are 
 
 decree of the court made prior to his bid. not before the court ; these are at liberty 
 
 It, however, seems to be well settled that to come before the master after the de- 
 
 after a decree adjudicating certain rights crees, and establish their claims to share 
 
 between the parties to a suit, other per- in the distributions." To the same effect 
 
 sons having no previous interest in the liti- is Central Trust Co. o. Grant Locomotive 
 
 gation may become connected with the case Works (1890), 135 U. S. 207; s. c. 43 
 
 in the course of the subsequent proceed- Am. & Eng. R. B. Cas. 504. 
 ings in such a manner as to subject them ' Melandy v. Barbour (1884), 78 Va. 
 
 to the jurisdiction of the court and render 544; s. c. 25 Am. & Eng. R. R. Cas, 
 
 them liable to its order ; and that they 622. 
 
 may in like manner acquire rights in re- * Hinckley v. Oilman, Clinton, & 
 
 gard to the subjeefc-matter of the litiga- Springfield K. Co. (1876), 94 U. S. 467. 
 tion, which the court is bound to protect. 
 
§§ 859-862.] APPEALS IN FORECLOSURE SUITS. 831 
 
 sum above what he is entitled to as a receiver, he is entitled to 
 appeal. 1 
 
 § 859. Junior Incumbrancers as Appellants. — A junior incum- 
 brancer cannot contest the propriety of a judgment against the 
 foreclosing mortgagor who did not appeal, without showing that 
 he was or might be aggrieved by it, if allowed to stand. But 
 where it appears from the complaint that the mortgagor is an 
 insolvent corporation, that executions against it are being 
 returned unsatisfied, that proceedings by sequestration and 
 creditors' bills have been instituted against it, and that the 
 creditors are struggling against each other to save themselves, 
 the court will assume that a junior incumbrancer has sufficient 
 interest in the amount of the judgment against the mortgagor to 
 enable him to contest it.^ 
 
 § 860. stockholders as Appellants. — As a corporation is an 
 artificial being representing the whole body of stockholders, 
 no individual stockholder can prosecute an appeal from a judg- 
 ment against the corporation.^ On the other hand, it has been 
 suggested by a court which denied a stockholder permission to 
 become a party defendant, and make answer and defence 
 after the rendition of the final decree in a foreclosure suit, 
 that he might possibly be made a party for the purpose of 
 appealing.* 
 
 § 861. Company as Party to Appeal. — Where the proceeds of 
 the sale are less than one-half the indebtedness, the company is 
 not a necessary party to an appeal taken, after the confirmation 
 of the sale, from a decree declaring certain receiver's certificates 
 to be a lien on such proceeds, unless, perhaps, where the law 
 makes the stockholders individually liable for a deficiency in 
 the proceeds.^ 
 
 § 862. Trustee as Party to Appeal. — If a decree is entered in 
 a State court against a railroad company and the trustees, and 
 an appeal is thereupon taken to the appellate court of the State 
 by the company alone, the trustees having no interest in the 
 
 1 Tome V. King (1885), 64 Md. 166 ; ings Bank «. Pacific Ey. Co. (1896), 47 
 s. c. 21 Atl. Eep. 279. Pac. Rep. 60. 
 
 2 Jesup V. City of Eacine (1861), 14 ^ State w. Florida Central R. Co. (1876), 
 "Wis. 331. 15 Fla. 690, 725. 
 
 An adjudication as to the rights of suh- * Ex parte Brown (1877), 58 Ala. 536 ; 
 
 sequent lienors will not he reviewed on s. c. 21 Am. Ry. Eep. 101. 
 appeal where the proceeds of a foreclosure ' Mercantile Trust Co. v. Kanawha & 
 
 sale were not more than sufficient to satisfy C. Ry. Co. (1893), 58 Fed. Eep. 6 ; s. c. 
 
 two superior liens. Illinois Trust & Sav- 7 C. C. A. 3. 
 
832 EAILWAY BONDS AND MORTGAGES. [CHAP. XXXVIII. 
 
 result, the company, upon affirmation of the decree, can bring a 
 writ of error to the Supreme Court of the United States without 
 joining the trustees as parties. ^ 
 
 Article II. — Appealable Decrees and Orders. 
 
 § 863. Consent Decrees. — A consent decree cannot, as a gen- 
 eral rule, be appealed from.^ But section 692 of the Revised 
 Statutes, providing that an appeal shall be allowed from all 
 final decrees in the Circuit Courts, when the matter in dispute 
 exceeds |5,000, and that the Supreme Court "shall receive, 
 hear, and determine such appeals," has been held to make 
 appeals, within the prescribed limits, a matter of right. The 
 Supreme Court will not consider any errors assigned which were 
 in law waived by the consent, but it must still receive and 
 decide the case. If all the errors complained of come within 
 the waiver, the decree below will be affirmed, but only after 
 hearing.* 
 
 § 864. Discretionary Orders not reviewable.^ — The action of a 
 lower court in denying relief from the sale, asked for by bond- 
 holder on ground of mistake and surprise, is not subject to 
 reversal on appeal, where it appears that the sale was duly 
 advertised; that petitioner obtained no stay; that he offered no 
 proof of value of bonds, or even that he owned them ; that the 
 property may, so far as the evidence goes, have been sold at an 
 adequate price; that petitioner did not offer any definite sum 
 which he would pay upon resale, or show that he was able to 
 bid off the property ; and, finally, that he was allowed to come 
 into a reorganization on same footing as other bondholders.* 
 
 Nor does an appeal lie from order of lower court denying 
 motion, in pending suit, to permit a person to intervene and 
 become a party ;^ nor from an order granting a stay of sale, if, 
 in view of facts before court, the order directing the sale was 
 an exercise of discretionary powers. Having the power, in the 
 exercise of its discretion, to vacate the order of sale absolutely, 
 or to modify it, the court can attach any conditions it sees fit 
 
 1 Norwich & Worcester R. Co. v. John- * Central Trnst Co. v. Grant Locomo- 
 son (1872), 15 Wall. 8. tive Works (1889), 135 IT. S. 207 ; s. c. 
 
 2 State of Tennessee v. McMinnville & 43 Am. & Eng. B, R. Cas. 503. 
 Manchester R. Co. (1880), 6 Lea (Tenn.), ^ peok v. New York & New Jersey Ry. 
 369 ; s. c. 4 Am. & Eng. R. R. Cas. 95 ; Co. (1881), 85 N. Y. 246. 
 
 Hayne on New Trial and Appeal, § 282. « Ex parte Cutting (1876), 94 U. S. 
 
 8 Pacific Railroad v. Ketchum (1879), 14. 
 101 D. S. 289. 
 
§§ 865-867.] APPEALS IN FORECLOSURE SUITS. 833 
 
 to the affirmance of the order, and can therefore grant a stay, 
 and give leave to review any application to vacate the order 
 which may previously have been rejected. ^ 
 
 The refusal of the lower court to grant leave to file a cross- 
 bill constitutes no ground of appeal, when it is discretionary. ^ 
 
 No appeal lies from order amending pleadings in an equity 
 proceeding. ^ 
 
 An order authorizing the issue of receiver's certificates is in 
 one sense a matter within the discretion of the court, but not in 
 such a sense as to prevent an appeal from the order. As such 
 action necessarily raises the question whether the court has 
 invaded established rights of the lien creditors, contrary to law, 
 the latter are entitled to take an appeal on the point whether 
 the discretionary power, if it is such, has been exercised in a 
 manner which cannot be reviewed in the appellate court.* 
 
 § 865. Pinal Decree in general. — A decree is final for the 
 purposes of appeal, when it terminates the litigation between 
 the parties on the merits, and leaves nothing to be done but to 
 enforce by execution what has been determined.^ 
 
 § 866. Decree dismissing Cross-bill not Final. — The original bill 
 and cross-bill constitute one suit. A decree dismissing a cross- 
 bill disposes of a proceeding simply incidental to the principal 
 matter in litigation, and is therefore interlocutory, and not 
 reviewable except upon appeal from final decree.^ 
 
 § 867. Foreclosure Decree. — A decree of foreclosure in the 
 ordinary form, declaring nature and extent of default, the 
 breach of condition which justifies foreclosure, and amount due 
 on account of the breach, and ordering a sale of the property in 
 the event of money not being paid at a certain date, is the final 
 decree which determines and fixes the rights of the parties, and 
 from which an appeal lies.' 
 
 1 Syracuse Savings Bank v. Syracuse Appellate Proc, § 90. See also Central 
 R. Co. (1882), 88 N. Y. 110 ; s. c. 9 Am. trust Co. v. Grant Locomotive Works 
 & Eng. R. R. Cas. 58.5. (1889), 135 U. S. 207 ; s. c. 43 Am. & 
 
 2 Southern Indiana R. Co. v. Liver- Eng. R. R. Cas. 503. 
 
 pool, London, & Globe Ins. Co. (1883), A decree, as a rale, is not regarded as 
 
 109 U. S. 168. absolutely final until the end of the term ; 
 
 » State V. Brown (1885), 64 Md. 199 ; but its finality becomes fixed before that 
 
 S. c. 1 Atl. Rep. 54 ; 6 Atl. Rep. 172 ; time, if the party against whom it is 
 
 24 Am. k Eng. R. R. Cas. 192. rendered makes a motion to rescind it, 
 
 * Farmers' Loan & Trust Co., Peti- and the motion is denied. Railroad Co. 
 
 tioner (1888), 129 U. S. 206 ; s. c. 9 Sup. v. Bradleys (1868), 7 Wall. 575. 
 
 Ct. Rep. 265. ° Ex parte Railroad Co. (1877), 95 
 
 ' St. Louis, Iron Mountain, & Southern U. S. 225. 
 
 R. Co. «. Southern Express Co. (1882), 108 ' Chicago, D. & Vinoennes R. Co. v. 
 
 U. S. 24 ; s. c. 2 Sup. Ct. Rep. 6 ; Elliot's Fosdick (1882), 106 D. S. 47, 70. 
 
 53 
 
834 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXVIII. 
 
 The merits of the controversy are then finally settled, and 
 subsequent proceedings are simply a means of executing the 
 decree. 1 
 
 For like reasons, an order made in obedience to mandate 
 from the Supreme Court, ascertaining amount of interest due on 
 the mortgage bonds, directing payment within one year, and 
 providing for an order of sale in default of payment, is a final 
 decree, to the extent that any person aggrieved by supposed 
 error in finding the amount of interest, or in court having 
 omitted to carry out the entire mandate of the Supreme Court, 
 may appeal from it.^ 
 
 A decree of sale of mortgaged premises is a final decree.^ 
 
 It is essential to the appealability of a foreclosure decree that 
 it should determine the amount of the debt which must be paid 
 in order to stop the sale, and the amount of the mortgaged 
 property which is to be sold, if that amount is not paid.* But 
 it is none the less final because the priorities of conflicting 
 liens and the amount of bonds to be paid off are left to be settled 
 by subsequent decrees,® or because, at the time of the decree, 
 there are still left undetermined some exceptions to a master's 
 report, not relating to the trustee's claim, but collateral to the 
 suit, and concerning the defendants alone. ^ 
 
 A decree dissolving a temporary injunction restraining a 
 foreclosure sale, and directing the sale to proceed, simply 
 relegates the rights of the parties to the position in which they 
 were before the injunction, and is necessarily, therefore, a final 
 decree.'' 
 
 So also a decree dissolving a temporary injunction, obtained 
 by bondholders to restrain an execution sale, no relief besides 
 the injunction being asked for, is a final decree.^ 
 
 1 Bronson v. Railroad Co. (1862), 2 257. The court said; "The only relief 
 Black, 524, 531. sought by the bill was to enjoin the sale 
 
 2 Milwaukee & Minnesota E. Co. v. of the property under the executions, and 
 Soutter (1864), 2 Wall. 440. when the defendants entered their motion 
 
 3 Whiting V. Bank of the United States to dissolve the temporary injunction, it 
 (1835), 29 Fed. Cases, 1058 ; s. 0. 1 was for the want of equity appearing on 
 McLean, 249. the face of the bill. The motion operated 
 
 * Railroad Co. v. Swasey (1874), 23 precisely as a demurrer, and by it the 
 
 Wall. 405. defendant admitted the truth of all the 
 
 6 First National Bank of Cleveland v. allegations relied upon to entitle the com- 
 
 Shedd (1886), 121 U. S. 74. plainants to an injunction. The practice 
 
 8 Bronson u. Railroad Co. (1862), 2 is to allow either a demurrer to the bill 
 
 Black, 524, 528. or a motion to dissolve the injunction, 
 
 ' Railroad Co. v. Bradleys (1868), 7 and either course has precisely the same 
 
 Wall. 575. result, so far as the injunction is concerned. 
 
 8 Titus V. Mabee (1861), 25 111. 232, On sustaining the demurrer or allowing 
 
§§ 868-870.] APPEALS IN FORECLOSURE SUITS. 835 
 
 Where the only matter before the court for consideration is 
 the accounting of the receiver, an order made and entered finally 
 disposing of that question is a final order in the nature of a 
 final judgment, and appealable.^ 
 
 § 868. Decrees on Confirmation of Sale. — A decree confirming 
 a sale made in pursuance of the order of the court is final, ^ even 
 though it contains the clause, "and the right to make any 
 further order is reserved. " ^ 
 
 § 869. Decrees setting aside Sales not final. — Except in juris- 
 dictions where appeals are allowed from interlocutory decrees, 
 a decree setting aside a judicial sale and ordering another is 
 not appealable. Such a decree is not final any more than a 
 judgment of reversal with directions for a new trial or a new 
 hearing.* 
 
 § 870. Finality of Decrees providing for a reference to Master. 
 — This rule has been thus stated by the Supreme Court of the 
 United States in a recent case: "If the court make a decree 
 fixing the rights and liabilities of the parties, and thereupon 
 refer the case to a master for a ministerial purpose only, and 
 no further proceedings are contemplated, the decree is final ; but 
 if it refer the case to him, as a subordinate court, and for a 
 judicial purpose, ■ — as to state an account between the parties, — 
 upon which a further decree is to be entered, the decree is not 
 final. "6 
 
 Thus an appeal does not lie from a decree which merely deter- 
 mines the validity of the mortgage, and, without ordering a 
 sale, directs the cause to stand continued for further order and 
 decree upon the coming in of the master's report;^ nor from 
 
 the motion the temporary injunction is in ^ McGourkey v. Toledo & Ohio Cen- 
 
 either case dissolved, and if no other re- tral Ey. Co. (1892), 146 U. S. 536, giving 
 
 lief is sought, the case is virtually at an a full review of the cases ; see p. 546. In 
 
 end. If other relief were sought by the this case a decree was held not to be final 
 
 bill, the decree dissolving the injunction which ordered a receiver to turn over 
 
 could not, however, he regarded as final." certain rolling-stock to a. car trust, but 
 
 1 Chandlfr v. Gushing- Young Shingle directed a master to determine the rental 
 Company et al. (1895), 13 Wash. 89 ; s. 0. of the same, etc., and " to determine and 
 42 Piic. Rep. 548. report upon all questions and matters of 
 
 2 Sage V. Railroad Co. (1877), 96 U. S. difference between the receiver and the 
 712. petitioner, growing out of the use and 
 
 » Wptmore v. St. Paul & Pac. R. Co. restoration of the rolling-stock." 
 (1880), 3 Fed. Rep. 181. ^ Burlington, etc. Ky. Co. v. Simmons 
 
 « Bntterfield u. Usher (1875), 91 U. S. (1887), 123 U. S. 54, following Parsons v. 
 
 246. In this case the sale had been con- Robinson (1886), 122 U. 8. 112, and dis- 
 
 firmed bv the Special Term of the Supreme tinguiahing First Nat. Bk. of Cleveland 
 
 Court of the District of Columbia, and va- v. Shedd (1886), 121 U. S. 74. 
 oiited by the General Term, the appeal 
 being taken from the latter decree. 
 
RAILWAY BONDS AND MORTGAGES. [CHAP. XXXTIII. 
 
 a decree which, while finding the amount due and ordering it to 
 be paid by a certain day, leaves certain liens and priorities to 
 be ascertained by a master, and which, while it declares the 
 intention of the court to direct a sale at a future time, leaves 
 the master to inquire into and report upon certain facts and 
 report to the court an order of sale of the mortgaged properties, 
 and a form of advertisement therefor.^ 
 
 § 871. Appealability of Interlocutory Orders. — No order is 
 final in such a sense as to constitute a final judgment unless it 
 disposes of the main case so far as there is power in the trial 
 court to decide upon the questions presented by the issues, no 
 matter how clearly and decisively the order may indicate what 
 the judgment may be.^ 
 
 Any order is appealable which, if unreversed, will have the 
 effect of finally establishing the property rights of the parties in 
 regard to ibs subject-matter. Such is the case with respect to 
 an order made after final decree of foreclosure, providing that 
 the receiver may borrow money and issue first-lien certificates.^ 
 
 When in passing the accounts of a receiver the court charges 
 or refuses to allow items, and he claims that the action of the 
 court does him wrong personally, he may appeal.* 
 
 1 Parsons v. Robinson (1886), 122 U. and subsistence of the lien, but not as 
 
 S. 112. to right of resale, holding plaintififs only 
 
 Upon the question of finality of de- remedy was to redeem. PlaintlfiF appealed 
 
 oree in railway foreclosure, the case of to Circuit Court of Appeals, and upon the 
 
 Compton iJ. Jesup (1897), 167 U. S. 1, is certificate of that court, propounding ques- 
 
 important and instructive. With a view tions concerning which instructions were 
 
 to reorganization, several foreclosure suits asked, the Supreme Court decided that a 
 
 were brought to foreclose railway mort- resale should have been allowed, as the 
 
 gages in different circuit courts of the decree under which the sale was made was 
 
 United States having jurisdiction over the "in all essential respects the final decree 
 
 respective railways composing the Wabash in the ease, the questions reserved being 
 
 system. Decrees were rendered in each merely incidental to carrying the decree 
 
 suit simultaneously, directing the sale of into full effect. And," said the court, "it 
 
 the entire system as a unit, but protecting, may well be doubted whether it was com- 
 
 by express provision, a lien upon one of petent for the Circuit Court at a subsequent 
 
 the constituent railways, existing at and term to disturb the right of Compton 
 
 prior to the consolidation, and to which (plaintiff), defined and adjudicated at a 
 
 the plaintifi' had been adjudged entitled in previous term in the final decree of 
 
 a State court. After the sale and con- sale." 
 
 firmation, it was referred to a special " Elliot on Appellate Proc, § 83 and 
 
 master to determine whether the lien con- following sections. 
 
 tinued in full force and effect. He reported ' Farmers' Loan & Trust Co., Peti- 
 
 afSrmatively, and also that plaintiff was tioner (1888), 129 U. S. 206. 
 
 entitled by the decree to a resale of the * Chicago Title & Trust Co., Receiver, 
 
 portion of the road upon which his lien etc. v. Caldwell (1894), 58 111. App. 219, 
 
 rested if the purchaser failed to pay his upon authority of Hinckley v. Oilman, 
 
 bonds, including interest, in full. The etc. R. (1876), 94 U. S. 467; How v. 
 
 court sustained the report as to the validity Jones (1882), 60 Iowa, 70. 
 
§ 872.] APPEALS IN FORECLOSUEE SUITS. 837 
 
 An order authorizing the issue of certificates by a receiver of 
 a railroad corporation, making them a lien upon the corpus of 
 the property, and the proceeds to be used in maintenance of the 
 railroad, is appealable.^ So, also, an order made upon a com- 
 plaint in intervention by preferred creditors, directing the sale of 
 the rolling-stock to satisfy their claims ; ^ an order granting a 
 petition for compensation for services out of the fund in court ; ^ 
 and also an order that all further proceedings in the cause shall 
 be stayed until the further order of the court, being equivalent 
 to injunction, within the purview of a statute allowing an appeal 
 in such cases.* 
 
 On the other hand, orders which determine no right are not 
 appealable. To this class belong orders discharging a receiver ; ^ 
 unless in those States in which proceedings as to appointment 
 and removal of receivers are held to be "special proceedings," 
 within the purview of a statute providing that an order made in 
 such proceedings, which affects a substantial right, is appealable. ^ 
 
 It has been held that the Code of Maryland, art. 5, § 21, 
 authorizes a decree from an order directing a sale, but not from 
 an order refusing to authorize a sale before final decree, or from 
 an order suspending or rescinding an interlocutory order of 
 sale.'' 
 
 § 872. Appeal from one of several Decrees. — Where several 
 decrees are rendered, the appeal is properly taken from that 
 which finally settles the matters in regard to which the opinion 
 of the appellate court is asked. If, for example, after a fore- 
 closure sale by a junior mortgagee, subject to a first mortgage, 
 an order is made allowing, as commissions to receiver and 
 trustees, an amount in excess of sum bid at sale, and then, after 
 a report of the master and a ratification of the sale, a second 
 decree is readered that the deficiency in these allowances shall 
 be made up by holders of first-mortgage bonds, an appeal against 
 the ruling of the court in regard to the commissions is properly 
 taken from the last decree. Until that decree is rendered, and 
 
 1 state ». Port Royal & A. Ry. Co. ^ Washington City & Point Lookout 
 «(«?. (S. C, 1895), 23 S. E. Rep. 380. R. Co. v. Southern Maryland R. Co. 
 
 2 Radehaugh v. Tacoma & Puyallup R. (1880), 55 Md. 153 ; Colegate v. Michigan 
 Co. (1894), 8 "Wash. 570 ; s. c. 36 Pac. & Lake Shore R. Co. (1873), 28 Mich. 
 Eep. 460. 288. 
 
 ' Trustees v. Greenough (1881), 105 « Cincinnati, S. & C. R. Co. v. Sloan 
 
 U. S. 531 ; Williams v. Morgan (1883), (1876), 31 Ohio, 1; s. c. 15 Am.Ry.Rep. 
 
 Ill U. S. 684. 376. 
 
 * Pennsylvania Co. for Ins. on Lives ' Washington City & Point Lookout 
 
 and for Granting Annuities V.Jacksonville, R. Co. v. Southern Maryland R. Co. 
 
 T. & K. W. Ry. Co. (1893), 55 Fed. 131. (1880), 55 Md. 153. 
 
838 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXYIII.* 
 
 the matter of the reimbursement thus put in shape to be enforced 
 against the parties whose rights are to be affected, there is 
 nothing definitely settled which can be the subject of appeal. ^ 
 
 Where the first decree determines, with regard to certain 
 claims, merely that they are valid and constitute a lien on the 
 property superior to that of the mortgage, and provides for a 
 reference to a master in respect to the amounts and ownership 
 of such claims, questions relating to the claims are not in a 
 position to be passed upon by an appellate court, until a second 
 decree is rendered declaring who are the owners and what are 
 the amounts of the claims. Both the existence and the priority 
 of the claims are therefore open for consideration upon the 
 appeal from the second decree.^ 
 
 Conversely, on the principle that, although an act which 
 amounts to the performance of a mere ministerial duty growing 
 out of a decree which is being carried into effect is not appeal- 
 able, an appeal will, in some cases, be allowed from an order of 
 the court, where it affects important interests or decides matters 
 not before the court, when the first decree was rendered, it is 
 held that the refusal of the court to confirm or complete the 
 sale, on the application of the purchaser, is reviewable on 
 appeal.^ 
 
 Article III. — "What Appeal brings up for Review and 
 
 Effect. 
 
 § 873. What Rulings of Lower Court reviewable. — An appeal 
 of " this cause " in general terms brings up the whole cause, as 
 far as it has progressed, and, on the appeal, orders previously 
 made in it can be considered.* 
 
 Hence, although many orders and decrees, which are made 
 in the progress of the suit, affecting materially the rights of the 
 parties, — such, for example, as the adjudications which the 
 court makes upon exceptions to the reports of masters, often 
 involving the whole matter in litigation, — are not final in the 
 sense in which that word is used in relation to decrees, the 
 court will not confine itself to the examination of the last order 
 or decree which confers the right of appeal. Any other rule 
 
 1 Tome V. King (1885), 64 Md. 166. * Central Trust Co. v. Seasongood 
 
 2 Porter v. Pittsburg Bessemer Steel (1888), 130 U. S. 482 ; s. c. 9 Sup. Ct. 
 Co. (1887), 120 U. S. 677. Eep. 575. 
 
 ' Blossom V. Milwaukee, etc. R. Co. 
 (1863), 1 Wall. 655. 
 
§§ 874-876.J APPEALS IN FOEECLOSUEE SUITS. 839 
 
 would, in many cases, deprive the appellant of the entire bene- 
 fit of his appeal. ^ 
 
 But if the appeal is taken, not from the final decree of fore- 
 closure and sale, but from an order confirming the sale merely, 
 and the record discloses no ground upon which the fairness of 
 that final decree can be impeached, objection to the mode of 
 sale cannot be considered, for such errors as exist must neces- 
 sarily inhere partly in the final decree itself and partly in the 
 interlocutory orders. The authority of the court, therefore, 
 extends no further than to the examination of the exceptions 
 filed to the report of the sale.^ 
 
 § 874. Ridings not prejudicial to Appellant not reviewable. — 
 When the only appeal taken from a decree in foreclosure is by 
 the debtor company, the appellate court will not inquire as to 
 whether the creditor should not have been awarded a larger sum 
 than that found to be due.^ 
 
 § 875. Objections not presented to Lower Court not reviewable 
 on Appeal. — The sole exception to this rule is that objections 
 to the jurisdiction of that court may be examined at any time.* 
 
 The appellate court will not review an alleged error in the 
 proof of bonds, and the allowance of amounts due holders, if no 
 objection to proof was raised below, and the evidence presented 
 to the master was not before it.* 
 
 § 876. Effect of Appeal on Control of Property. — After the 
 appeal has been allowed and perfected by the filing of the appeal 
 bond, jurisdiction as to all matters affecting the property — 
 certainly as to all matters of substance — is transferred to the 
 appellate court. Consequently the lower court has then no 
 power to take the property from the hands of the receivers and 
 place it in the hands of the trustees, to be operated in accordance 
 with the terms of the mortgage and in the interest of the 
 bondholders.® 
 
 But, on the other hand, when a receiver is appointed at the 
 
 1 Milwaukee & Minnesota R. Co. v. ' Indiana Southern K. Co. v. Liverpool, 
 
 Soutter, Survivor (1864), 2 Wall. 521. London, & Glote Ins. Co. (1883), 109 
 
 " Turner v. Farmers' Loan & Trust Co. U. S. 168. 
 (1882), 106 U. S. 557. * Elliot on Appellate Proo. § 470. 
 
 Where from the evidence it appears ^ Indiana Southern E. Co. v. Liverpool, 
 
 that the plaintiff in an ejectment suit was London, & Globe Ins. Co. (1883), 109 
 
 one of certain corporations afterwards U. S. 168. 
 
 consolidated, the objection that the new ° Morgan's La. & Tex. R. & St. Ship 
 
 corporation had succeeded to plaintilTs Co. v. Texas Central Ry. Co. (1887), 32 
 
 right may be first raised on appeal. Wig- Fed. Rep. 525. 
 gins Ferry Co. v. Illinois & St. L. R. Co. 
 (1896), 45 N. E. Rep. 285. 
 
840 RAILWAY BONDS AND M0ET&A6BS. [CHAP. XXXTIU. 
 
 request of a plaintiff for a purpose ancillary to the main object 
 of the action, and judgment is afterwards rendered in favor of 
 the defendant, an appeal by the plaintiff from th« judgment 
 does not depriye the lower court of jurisdiction to hear and 
 determine a motion made by the defendant for the discharge of 
 the receiver.^ 
 
 § 877. Decree for Deficiency, ■when not appealable. — An appeal 
 may lie from a decree in an equity court, notwithstanding it is 
 merely in execution of a prior decree in the same suit, for the 
 purpose of correcting errors which originated in it; but when 
 such decrees are dependent upon the decree to execute which 
 they were rendered, they are vacated by its reversal ; in which 
 case the appeal which brings them into review will be dismissed 
 for want of a subject-matter on which to operate. A decree in 
 personam for the amount remaining due upon a mortgage debt 
 after the execution of a decree of foreclosure and sale is of this 
 description; but when rendered in favor of other parties than 
 the complainant, it will be reversed for the same error that 
 required the reversal of the decree of foreclosure and sale.^ 
 
 1 Baughman, Petitioner, v. Superior Ct. ^ Chicago, D. & Vineennes B. Co. v. 
 
 (1887), 72 CaL 572. I'osdick(1882), 106 TJ. S. 47. 
 
CHAP. XXXIX.] RAILWAY EEOEGANIZATIONS, ETC. 
 
 841 
 
 CHAPTER XXXIX. 
 
 BAILWAT BEORGANIZATIONS, RECONSTRUCTIONS, AND COMPROMISE 
 
 AGREEMENTS. 
 
 Art. I.- 
 
 - State Statutes govekning 
 Reorganizations. 
 
 §891. 
 
 § 878. 
 
 References to General Statutes 
 governing Reorganizations. 
 
 892. 
 
 879. 
 
 Purchasers organize subject to 
 
 
 
 certain Constitutional Pro- 
 
 893. 
 
 
 visions. 
 
 
 880. 
 
 Distinction between Incorpora- 
 tion and Organization of New 
 
 894. 
 
 
 Company. 
 
 895. 
 
 881. 
 
 Existing Companies not pre- 
 
 
 
 vented by General Reorganiza- 
 
 896. 
 
 
 tion Statutes from purchasing. 
 
 
 882. 
 
 Special Statutes governing Re- 
 
 
 
 organizations. 
 
 897. 
 
 
 (a) As affected by the United 
 
 
 
 States Constitution. 
 
 
 
 (J) Rule in Countries where 
 
 898. 
 
 
 there is no Provision 
 
 
 
 against impairing the Ob- 
 
 
 
 ligation of Contracts. 
 
 899. 
 
 883. 
 
 Statutory Provisions must be 
 strictly complied with by any 
 one taking Advantage of 
 
 
 
 them. 
 
 900. 
 
 884. 
 
 Statutes prohibiting Fictitious 
 Increase of Stock. 
 
 
 885. 
 
 Statutes fixing Rate of Interest 
 on Loans. 
 
 901. 
 
 886. 
 
 Statutory Powers of a Majority 
 of Bondholders. 
 
 902. 
 
 Art. II. ■ 
 
 — Mortgage Provisions Gov- 
 erning Reorganizations. 
 
 
 §887. 
 
 Mortgage Provisions as to Dis- 
 
 
 
 tribution of Stock in New 
 
 903. 
 
 
 Company. 
 
 
 888. 
 
 Eights of Majority under Mort- 
 gage or Debenture Provisions. 
 
 
 Art. III. 
 
 — Agreements between Par- 
 ties HAVING Interests in 
 Mortgaged Property gov- 
 
 
 
 erning Reorganizations. 
 
 904. 
 
 §889. 
 
 General Considerations. 
 
 
 890. 
 
 Reorganization Agreements are 
 favorably viewed by the 
 
 905. 
 
 
 Court. 
 
 906. 
 
 Power of Majority of Bond- 
 holders under Agreement. 
 
 Subscribers to Agreement not 
 bound unless carried out sub- 
 stantially as made. 
 
 When Right to share in Benefits 
 of Scheme terminates. 
 
 Rights of Parties to Agreement, 
 when complete. 
 
 Reorganization : Trustee's Con" 
 trol of Scheme. 
 
 Power of Reorganization Com- 
 mittee to fix Date for Maturity 
 of New Issue of Bonds. 
 
 Discretioii of Reorganization 
 Trustees as to Issue of Stock 
 in New Company. 
 
 Discharge of Liens of Creditors 
 participating in Schemes, 
 when inferred. 
 
 Bondholders accepting Preferred 
 Stock in New Corporation 
 give up their Eights as 
 Creditors. 
 
 Restoration of Bondholder to his 
 Eights as Creditor, when prop- 
 erly refused. 
 
 Who estopped to object to Re- 
 organization Scheme. 
 
 Plans held Equitable, or the 
 Contrary. 
 
 (a) Bondholders. 
 
 (6) Stockholders. 
 
 (c) Unsecured Creditors. 
 
 Rights of Stockholders after Re- 
 organization. 
 
 (a) Right to take Part in the 
 Management of the Prop- 
 erty. 
 
 (6) Right to join in Division of 
 Earnings. 
 
 Effect of Reorganization upon 
 Liabilities of Old Company. 
 
 Costs in England on Reconstruc- 
 tion. 
 
 In Conclusion. 
 
842 
 
 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIX. 
 
 Article I. — State Statute Provisions governing 
 Reorganizations. 
 
 § 878. References to General Statutes governing Reorganizations. 
 — The legal diiSculties attendant upon the purchase of a railroad 
 under foreclosure sale by a number of scattered owners were at 
 first obviated by special ena.ctments conferring the legal status 
 of a corporation upon the purchasers. But in this country and 
 England this difficulty is now as a rule provided for by statutes 
 of general application, which in many instances give the stock- 
 holders and unsecured creditors an opportunity to share with 
 bondholders in the advantages and benefits of the reconstruction. 
 
 A list of these statutes will be found in the subjoined note, 
 together with a reference to some cases in which they have been 
 construed.^ 
 
 1 Alabama. — Code 1886, §§ 1596, 
 1598. Mobile & Montgomery Ey. Co. v. 
 Steiner (1878), 61 Ala. 559. 
 
 Arkansas. — Dig. of Stats. (1894), 
 §§ 6178-6187. See Shaw v. Railroad Co., 
 100 D". S. 605, 608 ; Memphis & Little 
 Eock E. Co. V. Dow (1886), 120 U. S. 287 ; 
 Memphis & Little Rock E. Co. o. Eailroad 
 Commrs. (1884), 112 U. S. 609, 614, 618. 
 
 Colorado. — Mills' Ann. Stats., 1891, 
 §§ 614, 616. 
 
 Delaware. — Wilmington E. Co. v. 
 Downward (Del., 1888), 4 Ey. & Corp. 
 L. J. 234. 
 
 Florida. — Eev. Stats. 1891 (67), 
 § 2241, subd. 10. 
 
 Georgia. — Code 1895, Subsections 11 
 and 12 of §§ 2167, 2168. 
 
 Illinois. — Rev. Stats. 1895, p. 1907, 
 ch. cxiv., § 1. 
 
 Indiana. — Statutes, 1896, Horner's 
 Annotated Ed., pp. 3946 et seq. See Lake 
 Erie & W. Ey. Co. v. Griffin, 92 Ind. 487 ; 
 17 Am. & Eng. E. R. Gas. 235 ; 107 Ind. 
 464 ; 27 Am. & Eng. R. R. Cas. 394 ; 
 Board v. State, ex rel., 115 Ind. 64. 
 
 Iowa. — Code 1880, § 1089 ; and see 
 MoLain's Annotated Code, Statutes Supple- 
 ment, 1888-1892, p. 99. 
 
 Kansas. — Gen. Stats. 1889, pp. 1277 
 et seq. 
 
 Kentucky. — Pp. 562, Kentucky Stats. 
 (1894). 
 
 Louisiana. — Mars. Index (1895), p. 
 435; Laws of 1877, ch. xxxviii., p. 48. 
 
 See Vicksbnrg, S. & P. Ey. Co. v. Elmore, 
 46 Ann. Rep. (La.) 1237; New Orleans 
 E. Co. V. Harris, 27 Miss. 517 ; 2 Am. 
 & Eng. E. K. Cas. 328. 
 
 Maine. — Eev. Stats. 1883, ch. 51, 
 §§ 93, 94, 105, 107. 
 
 Maryland. — Pub. Gen. Laws, 1888, 
 art. 23, § 187. 
 
 Massachusetts. — Acts 1886, ch. 142. 
 
 Michigan. — 1 Annot. Stats., 1882, 
 §§ 3314, 3351. See Mackintosh a. Flint 
 & P. M. Co., 32 Fed. Rep. 350 ; s. c. 34 
 Fed. Eep. 582; Dexter v. Ross, 85 Mich. 
 370. 
 
 Act No. 96 of Feb. 10, 1859 (Comp. L. 
 2373). See Cook v. Detroit Ry. Co., 43 
 Mich. 349 ; 9 Am. & Eng. R. E. Cas. 443. 
 
 Some special statutes are discussed in 
 Att.-Gen. w. Joy, 55 Mich. 94 (pp. 107, 
 108); 16 Am. & Eng. E. E. Cas. 643 (pp. 
 651, 652). 
 
 Minnesota. — Stats. 1894, pp. 2727- 
 2738. See "Wetmore v. St. Paul, etc. R. 
 Co., 3 Fed. Eep. 170 (p. 179). 
 
 Mississippi. — Thomson, Dillard, & 
 Campbell's Annotated Code, 1892, pp. 
 2566 et seq. 
 
 Nebraska. — Act of March 1, 1881, 
 Comp. Stat., ch. Ixxii., art 4. See 
 Chicago & St. Paul R. Co. v. Lindston, 16 
 Neb. 254 ; 21 Am. & Eng. R. R. Cas. 528 ; 
 Chicago Kansas E. Co. y. Hazels, 26 Neb. 
 375. 
 
 New Jersey. — Geu. Stats. 1709-1895, 
 p. 2690. See State of New Jersey v. Mont- 
 
§ 879.] 
 
 EAILWAT REORGANIZATIONS, ETC. 
 
 843 
 
 § 879. Purchasers organize subject to the Constitutional Provi- 
 sions in Force Twhen the Reorganization is efiected. — Purchasers 
 organize subject to certain constitutional provisions and not 
 merely to those provisions by which the rights of the original 
 
 olair R. Co., 43 N. J. L. 524; 13 Am. & 
 Eng. R. R. Cas. 390; Boylan v. Kelly, 9 
 Stewart, 335. 
 
 New York. — Stock Corporation Law, 
 1890, 1892, § 3, and amending acts ; Busi- 
 ness Corporation Law, 1892, par. 4, and 
 ch. 565, pars. 83, 84, Laws of 1890. For 
 rulings in these statutes, see Metz v. 
 Buffalo R. Co., 58 N. Y. 81 ; Abbott v. 
 Jewell, 25 Hun, 603; Thornton t>. Wabash 
 Ry. Co., 81 N. Y. 462; 6 Am. & Eng. 
 R. R. Cas. 602 ; Pratt v. Munson, 84 N. Y. 
 582 ; Harpending Co. v. Munson, 91 N. Y. 
 650 ; People v. Brooklyn, F. & C. I. E. Co., 
 89 N. Y. 75; Vatable v. N. Y., L. E. & 
 W. E. Co., 96 N. Y. 499 ; 9 Am. & Eng. 
 E. R. Cas. 454, reversing 11 Abb. N. C. 
 133 and 31 Hun, 316. 
 
 People V. O'Brien, 111 N. Y. 43, 47 ; 
 James v. Cowing, 82 N. Y. 449 ; 2 Am. 
 & Eng. R. R. Cas. 336. 
 
 People ex rel. Schwarz v. Cook, 110 
 N. Y. 443, affirming 47 Hun, 467 ; Conant 
 V. Nat. Ice Co., 8 J. & S. 83, 86. 
 
 The reorganization of a corporation 
 under the provLsions of chap. 691, Laws 
 of New York, 1892, known as "Business 
 Corporations' Law," "cannot be deemed 
 the formation of a new corporation, but 
 should be regarded as the continuation of 
 the existing one." Putnam, J., in the 
 matter of the application of The Consoli- 
 dated Kansas City Smelting and Refining 
 Co., etc. (1897), 13 App. Div. 50. 
 
 In Fenischild v. D. G. Yuengling 
 Brewing Co. (1896), 40 N. Y. Supp. 1119, 
 the reorganized company was held to have 
 assumed all the debts and liabilities of the 
 old company, including its bonds, upon a 
 construction of the whole agreement. 
 
 AWth Carolina. — Laws 1883, ch. 49, 
 § 1936. See Matthews v. Murcheson, 15 
 Fed. Rep. 691, p. 692. 
 
 Ohio. ^Bates' Annotated Stats., 1897, 
 HIT 3393 ct seq. McHenry v. N. Y., P. 
 &0. R. Co., 25 Fed. Rep. 65, 66 ; State 
 i». McDaniel, 22 0. S. 354. 
 
 In the absence of statutory authority a 
 corporation cannot make its preferred stock 
 
 a lien upon Its property. Continental 
 Trust Co. V. Toledo, St. L. & K. C. E. Co. 
 (1896), 1 Ohio, 7 D. 321. 
 
 The obligations of a railroad company 
 to the public cannot be discharged by a 
 transfer of its franchises to another com- 
 pany, except by legislative enactment 
 authorizing such transfer, and a release to 
 the public from the obligations of the 
 company. Fisher v. B. & 0. Ry. Co. 
 (1897), 6 Ohio Dec. 67. 
 
 Pennsylvania. — April 17, 1876 (Pam- 
 phlet L., 33), Act of March 14, 1861. See 
 Wellsborough & Plank Road Co. <;. Griffin, 
 57 Pa. St. 417; Commonwealth v. Central 
 Passenger Ry., 52 Penu. St. 606. 
 
 Act of March 24, 1865. See Pittsburg, 
 etc. Ry. Co. v. Fierst, 96 Pa. St. 144 ; 9 
 Am. & Eng. R. R. Cas. 437 ; Landis v. 
 West Pennsylvania Ry. Co., 133 Pa. St. 
 579. 
 
 Soiiih Carolina. ■ — Rev. Stats. 1893, 
 pp. 1610 et seq. ; Columbia, etc. Ry. Co. 
 V. Gibbs, 24 S. C. 70. 
 
 Tennessee. — Code 1896, pp. 1513a et 
 seq. See Mayor of the City of Knoxville 
 V. Knoxville & Ohio Ry. Co., 22 Fed. Rep. 
 758. 
 
 Tctos. — Paschal 's Dig. 1866, p. 820, 
 4912, 4916 ; Tex. Rev. Stats., art. 4260, 
 4264. See as to the constructions of this 
 statute, "Witherspoon v. Texas Pacific R. 
 Co., 48 Tex. 309 ; Carey v. Houston T. C. 
 Ry. Co., 45 Fed. Rep. 438, 441 ; Acres v. 
 Mayne, 59 Tex. 623, 625, 626 ; Houston 
 R. Co. V. Shirley, 54 Tex. 125, 139 ; 4 A. 
 & E. 443. 
 
 Utah. — 2 Corp. Laws, 1888, § 2573. 
 Fermont. — R. L. 1880, §§ 3461, 3475. 
 Statutes, 1894, Reorganization of street- 
 railway companies after foreclosure, pp. 
 3950-3976. 
 
 Virginia. — Code 1887, § 1233, amend- 
 ing acts 1891-1892, p. 623. 
 
 The provisions of the Code of Virginia, 
 § 1234, respecting reorganization, do not 
 impose on a new company any duty to 
 maintain branch roads unless the old com- 
 pany was bound so to do prior to the mort- 
 
844 
 
 RAILWAY BONUS AND MORTGAGES. [CHAP. XXXIX. 
 
 company were governed. This rule prevails even though the 
 statute authorizing the mortgage contemplates the formation of 
 a new body to exercise the franchise of the mortgagor after they 
 have been transferred by a foreclosure sale. " A statutory pro- 
 vision for becoming a corporation in futuro does not become a 
 contract in the sense of that clause of the Constitution of the 
 United States which prohibits impairing its obligation, until 
 it has become vested as a right by an actual organization under 
 it ; and then it takes effect as of that date, and subject to such 
 laws as may then be in force. The stipulation, whatever its 
 
 gage, the foreclosure whereofbrought about 
 the succession. Sherwood v. Atlantic & 
 D. R. Co. (1897), 26 S. E. Rep. 943. 
 
 West Virginia. — Code 1887, eh. 54, 
 §§ 72, 73. See Chesapeake & Ohio Ry. 
 Co. V. Miller, 114 U. S. 176. 
 
 Wisconsin. — Rev. Stats. 1878, § 1828. 
 See Smith v. Chicago & N. W. Ry. Co., 18 
 Wis. 18 ; Neff v. The Wolf River Boom 
 Co., 50 Wis. 585 ; City of Menasha v. 
 Milwaukee & North R. Co., 52 Wis. 414, 
 421 ; 5 Am. &. Eng. R. R. Cas. 300 ; 
 Gilman v. The Sheboygan, etc. K. Co. , 37 
 Wis. 317, 319. 
 
 England Joint Stock Gompwnies Arrange- 
 ment Act, 1870. — la England reorganiza- 
 tion, or as it is there tenned, reconstruction, 
 is accomplished chiefly under the provisions 
 of the above act. 
 
 Under this act, with the consent of the 
 court, a company has the same power to 
 compromise as an individual. Be Albert 
 Life Assn. Co. (1871), 6 Ch. App. 381. 
 
 A perfected scheme of reconstruction 
 under the English act of 1870 has the 
 effect of discharging the company from all 
 liability. In re London Chartered Bank 
 of Australia (1893), 3 Ch. 540. 
 
 Companies Act of 1862. — Under this 
 act, a sale of the company's assets and a 
 compromise of its debts and liabilities 
 may be effected. Re Albert Life Assn. 
 (1871), 6 Ch. App. 381 ; In re Alabama, 
 N. Y. & P. J. Ry. Co. (1891), 1 Ch. 236. 
 
 In arriving at the meaning of the word 
 " reorganization " or " reconstruction," the 
 question to be asked is whether the new 
 company is practically the same as the old 
 even though in law it is a separate cor- 
 poration. It does not include " amalgama- 
 tion." Hooper v. Western Counties Tel. 
 Co. (1892), 41 W. R. 84. 
 
 Winding-tip Proceedings. — In a wind- 
 ing-up proceeding with a view to recon- 
 struction it is not competent for a majority 
 of shareholders to give a benefit to one class 
 of shareholders over the other. Simpson v. 
 Palace Theatre, Limited (1893), W. N. 91. 
 
 Debentures become payable immedi- 
 ately upon a resolution taking effect, for a 
 voluntary winding Up, when it is condi- 
 tioned that "if the company commences 
 to be wound up otherwise than for the 
 purposes of reorganization or reconstruc- 
 tion" the principal shall become im- 
 mediately payable. Hooper v. Western 
 Counties Tel. Co. (1892), 4 W. K". 84. 
 
 A winding-up order may be limited to 
 a particular purpose, as for the collection 
 of assets, payment of debts, etc. In re 
 Western of Canada Oil Co. (1874), W. N. 
 148. 
 
 The court will discharge a winding-up 
 order where there has been a compromise 
 effected satisfactory to the large majority 
 in amount of the creditors. In re Patent 
 Automatic Knitting Co. (1882), W. N. 97. 
 
 Other Methods of Reconstruction. — Be- 
 sides the proceedings under the Arrange- 
 ment Act of 1870, reconstruction may be 
 accomplished in pursuance of the provi- 
 sions of the agreement of association ; or 
 under section 161 of the Companies Act of 
 1862. Cotton V. Imperial Agency (1892), 
 67 L. T. R. 392. 
 
 See also 30 & 31 Vict. 127 (1867), §§ 6- 
 16 ; London Financial Assn. v. Wrexham 
 Ry. Co., L. R. 18 Eq. 566; In re Devon 
 R. Co., L. R. 6 Eq. 610 & 615 ; In re 
 Bristol & N. S. Ry. Co., L. R. 6 Eq. 448 ; 
 In re Cambrian Ry. Co.'s Scheme, L. E. 3 
 Ch..278 ; Munns v. Isle of Wight Ry. Co. 
 L. R. 8 Eq. 653 ; Stevens v. Mid. Harts 
 Ry. Co., L. R. 8 Ch. 1064. 
 
§ 880.] 
 
 RAILWAY REORGANIZATIONS, ETC. 
 
 845 
 
 form, must be construed as subject and subordinate to the para- 
 mount policy of the State, and to the sovereign prerogative of 
 deciding in the mean time what shall constitute the essential 
 characteristics of corporate existence. The State does not part 
 with the franchise until it passes to the organized corporation, 
 and when it is thus imparted, it must be what the government is 
 then authorized to grant and does actually confer. " ^ 
 
 § 880. Distinction betvsreen Incorporation and Organization of 
 New Company. — Irregularities in the organization of a corpora- 
 tion under the Pennsylvania Statute of April 8, 1861, are not 
 necessarily fatal to its being. Organization is but the creation 
 of an agency by which the corporate body can act. It presup- 
 
 1 Memphis & Little Eock Ry. Co. v. 
 Railroad Commrs. (1884), 112 U. S. 609, 
 per Matthews, J. , citing with approval the 
 following passage : " The real transaction, 
 in all such cases of transfer, sale and con- 
 veyance, is nothing more or less, and 
 nothing other than a surrender or abandon- 
 ment of the old charter by the corporators 
 and a grant de novo of a similar charter to 
 the so-called transferees or purchasers. To 
 look upon it in any other light, and to re- 
 gard the transaction as a literal transfer or 
 sale of the charter, is to be deceived by a 
 mere figure or form of speech. The vital 
 part of the transaction, and that without 
 which it would be a nullity, is the law 
 under which the transfer is made. The 
 statute authorizing the transfer and de- 
 ■ daring its eflfect is the gi'ant of a new 
 charter couched in few words and to take 
 effect upon condition of the surrender or 
 abandonment of the old charter ; and the 
 deed of transfer is to be regarded as mere 
 evidenceof the surrender or abandonment." 
 State V. Sherman (1872), 22 Ohio St. 411, 
 428. In Memphis & Little Rock Ry. Co. 
 V. Railroad Commrs., supra, it was held 
 that the purchasers not having become a 
 corporate body until after the Arkansas 
 Constitution of 1874, prohibiting the legis- 
 lature from surrendering or suspending the 
 right to tax corporate property, took effect, 
 did not succeed to the privilege of immu- 
 nity from taxation enjoyed by the original 
 company. To the same effect as regards 
 the general effect of the enactment of a 
 new constitution, see Central Railroad 
 Bk. Co. u. Georgia (1875), 92 U. S. 665. 
 As to the effect of the enactment of 
 
 new constitutional provisions upon the 
 right to claim the same exemption from 
 taxation as was enjoyed by the mortgagor 
 company, see Chap. XXXIV. 
 
 A " reincorporation," to use the statu- 
 tory term, under the 4th section of the 
 Business Corporation Law of New York 
 (chap. 691, Laws of 1892), of a concern 
 incorporated originally under the general 
 manufacturing act of 1848, is not the crea- 
 tion of a new corporation liable to pay an 
 organization tax. It is a corporate act 
 effected by a vote of a majority of the stock- 
 holders, instead of the directors through 
 whom the corporation ordinarOy acts. A 
 " consolidation " under the 8th section of 
 the act of 1892 is also a corporate act, also 
 to be performed through the stockholders 
 direct. But it creates a new corporation 
 required by the provisions of chap. 668, 
 Laws of 1892, to pay an organization tax, 
 but only upon the excess of its capital 
 stock over the aggregate amount of its 
 constituent corporations. A reincorpora- 
 tion under the 4th section is but the con- 
 tinuance of an existing corporation ; a 
 consolidation under the 8th section is the 
 formation of a new company. Both, how- 
 ever, are to be distinguished from a re- 
 organization under the reorganization act 
 (chap. 430, Laws of 1874, and amending 
 acts) of a corporation to be composed of 
 new stockholders with a new capital and 
 without provision for the continuance of 
 the former corporation to whose property 
 and franchises it .succeeds. In re the Ap- 
 plication of the Consolidated Kansas City 
 Smelting & Refining Company (1897), 13 
 App. Div. 60. 
 
846 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIX. 
 
 poses the existence of the artificial person. Hence where a 
 statute declares that the purchasers of a railroad at a judicial 
 sale are by that purchase constituted a body politic and corpo- 
 rate, directions as, to subsequent organization are not conditions 
 of being, as they possibly might be if the purchasers did not 
 take by succession. The utmost effect of not following those 
 directions strictly can be no more than to work a forfeiture of 
 the franchise. It cannot entitle the State to a judgment that 
 the franchise has no existence.' 
 
 § 881. Existing Company not prevented by General Reorgani- 
 zation Statutes from purchasing. — The provisions of the New 
 York Eailroad Acts, authorizing the purchaser at foreclosure 
 sale of the property and franchises to organize a new corpora- 
 tion, are intended to meet cases where there is no corporation in 
 existence to take over the road, and do not prevent an existing 
 corporation from purchasing the property and exercising the 
 franchises which pass to purchasers.^ 
 
 § 882. Special Statutes governing Reorganizations. — (a) As 
 affected by the United States Constitution. — Minority bond- 
 holders cannot be compelled to reorganize under a special law 
 against their will. But it is competent for the legislature to 
 provide that the assent of any bondholder to a reorganization 
 scheme shall be conclusively presumed, if he fails to give notice 
 of his dissent within three months or any reasonable period. 
 The principle by which abandonment of rights is presumed after 
 a fixed period is analogous to that which underlies and upholds 
 the statutes of limitation, and in no sense is there a violation 
 of the constitutional provision respecting the impairment of 
 contractual obligations.^ 
 
 The property rights of persons holding bonds secured by a 
 mortgage on a railroad are subordinate to the right of the public 
 to have railroad property remain pledged to the public use to 
 which it has been once devoted. Accordingly, when a railroad 
 company fails and a strict foreclosure has been had under the 
 laws of Connecticut, the legislature has full power to authorize 
 the bondholders, by a vote of the majority and with equal oppor- 
 tunity to all, to reorganize as a new corporation with the rights 
 of the old corporation. The action so authorized is merely a 
 mode of securing the performance of the public trust undertaken 
 
 1 Commonwealth a. Central Passenger Coney Island Ky. Co. (1882), 89 N. Y. 
 Ry. (1866), 52 Pa. St. 606. 75 ; s. c. 9 Am. & Eng. E,. R. Cas. 454. 
 
 2 People V. Brooklyn, Flatbush, & s GilfiUan v. Union Canal Co. of Penn- 
 
 sylvania (1883), 109 U. S. 401. 
 
§ 883.J RAILWAY EEOEGANIZATIONS, ETC. 847 
 
 by the mortgagor company which is superior to the rights of the 
 bondholders.^ 
 
 (b) Rule in Countries where there is no Provision against impair- 
 ing the Obligation of Contracts. — There being no constitutional 
 prohibition in Canada against the passage of statutes impairing 
 the obligation of contracts, and Parliament having exclusive 
 legislative authority over the corporation and its bankruptcy and 
 insolvency, a statute providing schemes of reorganization, wherein 
 the minority may be bound in a reasonable way by the majority, 
 is valid. Bondholders are interested in the administration of a 
 trust created for the common benefit, and there may be legisla- 
 tive supervision for the good of all. Such regulations do not 
 deprive a person of his property without due process of law. 
 They simply require him to conduct himself for the general 
 good and not unnecessarily to injure others. International 
 comity requires that such a scheme legalized in Canada should 
 be recognized here. 
 
 Each bondholder impliedly subjects himself to such foreign 
 laws affecting the powers and obligations of the corporation 
 with which he voluntarily contracts, as the humane and estab- 
 lished policy of that government authorizes.^ 
 
 § 883. statutory Provisions must be strictly complied -ro-ith by 
 any one taking Advantage of them. — The ordinary rule is, that 
 unless some statute intervenes, the foreclosure of a railroad mort- 
 gage cuts off all the rights and interests of the mortgagor, and 
 leaves nothing for the general creditors and stockholders of the 
 company, except their interest in any surplus that may remain 
 after satisfying the mortgage. A statutory provision whereby 
 the purchasers are allowed to buy, not absolutely for themselves, 
 
 1 Gates V. Boston & New York Air Line corporation. But the decision seems to be 
 
 R. Co. (1885), 53 Conn. 333, 347. In this independent of this special consideration, 
 case the court laid some stress on the fact ^ Canada Southern Ry. Co. v. Gebhard 
 
 that in Connecticut the practice of selling (1883), 109 (J. S. 527; s. o. 14 Am. & Eng. 
 
 property on foreclosure had not been R. R. Cas. 581. The questions in this case 
 
 adopted, the effect of foreclosure being which were passed upon by the U. S. 
 
 simply to shut off the mortgagor's equity Supreme Court were (1) whether the "Ar- 
 
 of redemption, and place the mortgagee in rangement Act " was valid in Canada and 
 
 the same relation with regard to the mort- had the effect of binding non-assenting 
 
 gaged property as had previously been oc- bondholders within the dominion of the 
 
 cupied by the mortgagor. The title to the terms of the scheme, and (2) whether, if it 
 
 property, therefore, vested in the trus- did have that effect in Canada, the courts 
 
 tee in trust for the bondholders, and the of the United States .should give it the 
 
 trustee and the beneficiaries of the trust same effect as against citizens of the 
 
 continued to hold that property subject to United States whose rights accrued before 
 
 the same limitations, duties, and obliga- its passage ; and each was answered 
 
 tiona that had vested upon the original affirmatively. 
 
848 RAILWAY BONDS AND MORTGAGEg. [CHAP. XXXIX. 
 
 but in pursuance of a specified plan for the readjustment of the 
 respective interests of the mortgage creditors and stockholders, 
 does not change this principle. The property will still pass 
 absolutely, and all the proper rights of the stockholders are cut 
 oif by the sale. Such a plan has reference only to the new cor- 
 poration to be formed and to the interests therein. If the stock- 
 holders are, by the provisions of the plan, to have the right to 
 assent to it at any time within six months after the formation 
 of that corporation, it is a condition precedent to the exercise 
 of that right that he shall signify his assent within that time, 
 and equity cannot relieve him from the performance of that 
 condition.* 
 
 Neither actual notice of the terms of such a plan, nor any 
 legal proceedings, are required in order to bar the rights of the 
 stockholders after the expiration of the time fixed by the statute. 
 Nor can a provision in the plan itself, to the effect that pay- 
 ments by stockholders in respect to their stock may be made 
 "before the expiration of such time as may be lawfully limited" 
 by the promoters of the plan, be construed as meaning anything 
 more than that the time should be limited by a majority of those 
 promoters at a meeting regularly called, or be fixed with refer- 
 ence to the statutory period of six months.^ 
 
 § 884. statutes prohibiting Fictitious Increase of Stock. — The 
 common statutory or constitutional provisions prohibiting corpo- 
 rations from issuing stock or bonds, except for money or property 
 actually received or labor done, and forbidding all fictitious 
 increase of stock or indebtedness, have no application to a 
 transaction the effect of which is that purchasers at foreclosure 
 sale are to transfer to the newly organized company the rights, 
 etc., of the old company acquired by such sale, and receive 
 therefor a certain amount of the stock and mortgage bonds of 
 the new company. The reason is that the transaction is a real 
 one, based upon a present consideration, and having reference to 
 
 1 Vatable v. New York, Lake Eiie, & 1854, amending the general Railroad Act, 
 "W. R. Co. (188'4), 96 N. Y. 49 ; s. c. 17 and by the Statute of 1874, " To facilitate 
 Am. & Eng. R. R. Cas. 268, reversing 31 the organization of railroads, etc." The 
 Hun, 316. The New York Statute of latter statutes confer upon the purchaser 
 1853, in reference to the foreclosure of rights so entirely repugnant to those be- 
 mortgages providing that a stockholder stowed by the first statute upon the stock- 
 might, by paying to the purchaser a pro- holders that a repeal by implication has 
 portion of the price equal to the propor- been presumed. Pratt v. Munson (1886), 
 tion his stock bore to the entire corporate 84 N. Y. 582. 
 
 stock, acquire the same relative amount of ' Vatable v. New York, Lake Erie, & 
 
 stock or interest in the road, has been held W. R. Co. (1884), 96 N. Y. 49 ; s. o. 17 
 
 to have been repealed by the Statute of Am. & Eng. R. R. Cas. 268. 
 
§§ 885, 886.] RAILWAY REORGANIZATIONS, ETC. 849 
 
 legitimate corporate purposes and, not a mere device to evade 
 the law.^ 
 
 § 885. statutes fixing Rate of Interest on Loans. — Bonds issued 
 in a transaction of the kind mentioned in the preceding section 
 will not be invalid because made to bear a rate of interest 
 higher than that specified in an act which authorizes railroad 
 companies to borrow money and mortgage their property, etc., 
 to secure the loan. Such bonds are not executed for money 
 borrowed, but for property conveyed at an agreed price to be paid 
 for in stock and bonds. ^ 
 
 § 886. statutory Pow^ers of a Majority of Security Holders in 
 England. — This power extends to debenture-holders, although it 
 deprives them of their security.^ 
 
 This power (of the majority to bind) must be construed 
 strictly. Thus "the power to release the mortgaged premises 
 does not include a power to release the defendant company. 
 The power to modify the rights of the debenture -holders against 
 the company does not include a power to extinguish all their 
 rights.* 
 
 But it has been held that the power "to sanction any modifi- 
 cation or compromise of the rights of debenture-holders against 
 its property " authorized the issue of a new loan to take priority 
 over existing debentures.® 
 
 In England, under section 15 of the Railway Companies Act of 
 1867, a three-fourths majority is indispensable to bind a partic- 
 ular class, as debenture-holders, etc., unless the court can say as 
 a matter of law that no rights or interests of the class are preju- 
 dicially affected.^ 
 
 1 Msmphis & Little Eoek R. Co. v. In re Dominion of Canada F. & T. Co. 
 
 Dow (1887), 120 IT. S. 287, followed in (1886), 55 L. T. R. 347. 
 Mackintosh v. Flint & Pere Marquette R. A majority means of those at meeting, 
 
 Co. (1888), 34 Fed. Rep. 582 ; s. c. 36 Am. not of all creditors. In re Bessemer Steel 
 
 & Eiig. R. R. Cas. 340 ; s. P. Gnshman v. & 0. Co. (1875), 1 Ch. D. 251. 
 Benfield (1889), 36 111. App. 436. s In re Alabama N. 0., T. & P. ,T. Ry. 
 
 ' Memphis & Little Rock R. Co. v. Co. (1891), 1 Ch. 236; /n, re Dominion of 
 
 Dow (1887), 120 U. S. 287. Canada F. & T. Co. (1886), 55 L. T. Rep. 
 
 In En.i^biiid by the Joint Stock Com- 347; 7re re Empire Mining Co. (1890), 44 
 panies Arrangement Act of 1870 power is Ch. D. 409 ; In re Dynevor D. & N. A. 
 given to the majority, representing three- Colliprie.s Co. (1879), 11 Ch. D. 605. 
 fourths in value of a company's creditors * Investment & Gen. Trust Co. v. Inter- 
 to bind the minority with the consent of national Co. (1898), 1 Ch. 484, note, 
 the court. /« re Albert Life Assn. (1871), ' Follet v. Eddystone Granite Quarries 
 6 Ch. App. 381 ; la re Bes.semer S. & 0. (1892), 3 Ch. 75. 
 Co. (1875), 1 Ch. D. 251. « In re Neath & Brecon Ry. Co. (1892), 
 
 The reason of this was the difficulty of 66 L. T. 356. 
 dealing with debenture-holders as a class. 
 
 64 
 
850 EAILWAY BONDS AND MORTGAGES. [CHAP. XXXIX. 
 
 Compare by way of illustration the holding that a deed of 
 arrangement agreed to by the statutory majority of life-policy- 
 holders, whose policies have not matured, does not bind the 
 holder of a policy which matured before the date of the deed.^ 
 
 On the subject of statutory meetings of bondholders — 
 
 The court will direct separate meetings of the several classes 
 of creditors. 2 
 
 A creditor who is also a shareholder is entitled to attend a 
 creditors' meeting. ^ 
 
 To prevent fraud, the holder of debentures which pass by de- 
 livery should produce their debentures at the meeting to entitle 
 them to vote.* 
 
 Under the Arrangement Act of 1870 it is not obligatory to 
 produce written proxies.^ 
 
 For the purposes of a meeting of any particular class of per- 
 sons, proxies can only be given to and held by members of that 
 class. Accordingly proxies given to an official liquidator who 
 was not of the class were held invalid.^ 
 
 On a reconstruction under the Joint Stock Companies Arrange- 
 ment Act proxies must be in the form approved by the court.' 
 
 Aeticle it. — Mortgage Provisions governing Reorganizations. 
 
 § 887. Mortgage Provisions as to Blstribution of Stock in New 
 Company. — A mortgage executed by the New York and New 
 England Railroad Company provided that the trustees might 
 take possession, for the purpose of foreclosure, upon default in 
 payment of principal or interest of the bonds, and that, when the 
 foreclosure became absolute through the continuance of the de- 
 fault for a certain time, the bondholders might form themselves 
 into a new corporation, with a capital stock equal to the mort- 
 gage debt, at a meeting at which each bondholder should be 
 entitled to cast one vote for "every one thousand dollars prin- 
 cipal sum of such bonded debt held by him." It was also pro- 
 vided that the new corporation should consist of the holders of 
 the mortgage bonds " at the rate of ten shares for every bond 
 
 1 Sovereicrn Life Assn. Co. v. Dodd ^ In re English, Scottish, and Austra- 
 (1893), 4 R. 17. lian Chartered Bank (1893), 3 Ch. D. 
 
 2 Slater v. Darlaston Steel Co. (1877), 409. 
 
 W. N. 165. 6 In re Madras I. & C. Co. (1881), W. 
 
 ' In re Madras Irrigation & Canal Co. N, 120. 
 (1881), "W. ]Sr. 172. ' Inter-Oceanio Ey. of Mexico (1896), 3 
 
 * In re Wedgwood Coal & Iron Co. Manson, 162. 
 (1877), 6 Ch. D. 627. 
 
§ 888.] RAILWAY REORGANIZATIONS, ETC. 851 
 
 of one thousand dollars, as said bonds shall be surrendered to 
 said new corporation to be exchanged for certificates of stock at 
 the rate aforesaid." While the mortgage was in force, a con- 
 tract was entered into with another company, whereby the latter 
 agreed to pay the interest on a portion of the bonds as it 
 matured, this contract to be indorsed on those bonds. The 
 contract also provided that any interest which the guarantor 
 company was obliged to pay should be a valid lien on all the 
 property secured by the mortgage. It was held (1) that the 
 capital stock of the new corporation was to be determined by 
 the principal sum of the mortgage debt, without regard to the 
 unpaid interest ; (2) that a holder of bonds issued under the con- 
 tract with the second company, and who had received the inter- 
 est from that company, was entitled to ten shares of stock for 
 each bond ; (3) that the guarantor company was not entitled 
 to any stock, and that a person to whom the guarantor had 
 sold coupons when overdue had no greater rights than his 
 transferor. ^ 
 
 § 888. Rights of Majority under Mortgage or Debenture Provi- 
 sions. — If the majority of the bondholders are by the mortgage 
 authorized in broad words to define the "terms, conditions, and 
 limitations," under which the new company shall be organized, 
 a decree embodying the wishes of such majority and reserving a 
 controlling interest to the class of lien-holders for whose benefit 
 the reorganization is carried out, cannot be objected to on the 
 ground that it also concedes entirely subordinate interests in the 
 new corporation to junior incumbrancers and to the stockholders 
 of the old corporation. The rights of the minority are not 
 thereby sacrificed to those of other creditors or in any way inter- 
 fered with. Such concessions are generally made in reorganiza- 
 tions of railroad companies, and as they prevent the delay and 
 expenditure often ruinous, arising out of litigation between cred- 
 itors, and lessen the risk of redemptions, are regarded as benefi- 
 cial to the whole body of lien-holders.^ 
 
 1 Child V. New York & New England power, with the requisite majority, to sanc- 
 R Co. (1880), 129 Mass. 170 ; s. c. 2 Am. tion a scheme of reconstruction whereby 
 & Kng. R. R. Cas. 329 (1880). the new company should take over the 
 
 2 Sage t). Central Railroad Co. (1879), property free from the debenture charges, 
 99 U. S. 334. the debenture-holders receiving fully paid 
 
 The holders of debentures containing a shares in the new company, where this 
 
 provision that a majority of three-fourths was necessary to avoid the forfeiture of 
 
 should have power " to compromise the valuable property. Sneath v. Valley Gold, 
 
 rights of the debenture-holders against Limited (1893), 2 R. 292. 
 the property of the company " have the 
 
852 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIX. 
 
 Article III. — Agreements between Parties having Interests 
 IN Mortgaged Property governing Eeorganization. 
 
 § 889. General Considerations. — It is well settled that bond- 
 holders and stockholders may unite for the purchase of the prop- 
 erty, at a sale made in good faith, to prevent a sacrifice thereof. 
 The fact that the purchase is made in pursuance of a reorgani- 
 zation agreement entered into prior to the sale does not in itself 
 make the sale a fraud upon the rights of a non -assenting creditor, 
 nor entitle him to demand the payment of his debt by the new 
 company. 1 
 
 An agreement was entered into between stockholders, bond- 
 holders, and creditors, of an insolvent company, to unite in buy- 
 ing in the property, and to distribute the stock and bonds of the 
 new company among all those who signed the agreement accord- 
 ing to a certain scheme. It was signed by all the stockholders, 
 nearly all the bondholders, and all the creditors except the com- 
 plainant. It was held that as there was nothing hurried or 
 secret about the transaction, and the complainant had ample 
 opportunity to bid at the sale, he could not maintain a bill to 
 establish a trust as against the parties to the agreement, or 
 compel them to pay the amount of his judgment, especially 
 where he had lain by for three and a half years, and allowed the 
 new company to be organized without objection.^ 
 
 The court itself has no power to fix a basis for the common 
 action of creditors. It is the subject of mutual agreement.^ 
 
 But a reorganization decree may be treated as a contract be- 
 tween the bondholders and stockholders who are parties to it.* 
 
 The prevention of costly litigation which must ensue, if stock- 
 holders and creditors whose interests are subordinate to those of 
 bondholders persist in asserting their claims, is regarded as a 
 sufficient consideration for reorganization agreements by which 
 bondholders surrender a portion of their paramount rights in 
 the property.^ 
 
 An agreement by the stockholders to assent to the foreclosure 
 and surrender their certificates of stock is a sufficient considera- 
 tion to support a stipulation whereby they are to be given the 
 
 1 Pennsylvania Transportation Co.'s * Mackintosh v. Flint & Pere Mar- 
 Appeal (1882), 101 Pa. St. 576. quette R. Co. (1887), 32 Fed. Rep. 350. 
 
 2 Ibid. See this case in 34 Fed. Rep. 582. 
 
 8 Wabash, St. Louis, & Pacific R. Co. ^ Sage v. Central Railroad Co. (1879), 
 
 V. Central Trust Co. (1884), 22 Fed. Rep. 99 U. S. 334, per Strong, J. (p. 344). 
 138. 
 
§ 890.] RAILWAY REORGANIZATIONS, ETC. 853 
 
 standing of common stockholders in the new corporation, espe- 
 cially when the agreement provides an additional security for 
 the bondholders by the conveyance to them of certain surplus 
 land grants and land grant funds. ^ 
 
 Under a reorganization agreement where bonds secured by a 
 prior mortgage are surrendered to a committee of bondholders 
 who are authorized by the agreement to hold those bonds as an 
 additional security for those surrendering them for new bonds 
 secured by a consolidated mortgage, such a surrender of the 
 bonds will not amount to an extinguishment of them and their 
 lien, and thus give non-assenting bondholders a right to enforce 
 the first or prior lien for their benefit at once. The rule of law 
 in such a case is thus stated by Jenkins, C. J. : " When a nova- 
 tion is thus sought to be established, it must be shown that the 
 substitution of the new obligation was with design and intent 
 to extinguish the old obligation ; and as such an act would, upon 
 its face, appear to be against the interest of the holder of th<! 
 bond, such intent will not be presumed but must be clearly 
 established. A mere change in the form of the mortgaged debt, 
 such as the substitution of new bonds for those originally secured 
 by it, would not extinguish or aifect the lien. "^ 
 
 Section 1628 of the New York Code of Civil Procedure which 
 prohibits the maintenance of an action to recover the mortgage 
 debt after foreclosure, without leave of court, applies only to the 
 original obligation, not to an action based upon a reorganization 
 agreement resulting from the foreclosure. Such an action may 
 be maintained without leave of the court. ^ 
 
 Upon a resale for a less price of a railroad after a reorganiza- 
 tion committee had failed to make good its bid at a former sale, 
 the committee is bound to make up the difference in the inter- 
 ests of unsecured creditors.* 
 
 § 890. Reorganization Agreements are favorably vie'wed by the 
 Courts. — The courts favor reorganization agreements. In de- 
 
 1 Mackintosh v. Flint & Pere Mar- Ketchum «. Duncan, 96 U. S. 659. In the 
 quette R. Co. (1888), 34 Fed. Rep. 582 ; case of Union Trust Co. v. Illinois Mid. 
 s. c. 36 Am. & Eng. R. R. CdS. 340. Ry. Co., 117 U. S. 434 ; s. c. 6 Sup. Ct. 
 
 2 Mnwry v. Farmers' Loan & Trust Co. Rep. 809, there was uo contingency and 
 (1896), 76 Fed. Rep. 38, 43 ; upon au- no reservation on the part of those sur- 
 thority of Stevens v. Railway Co., L. R. rendering bonds. The surrender was for 
 8 Ch. App. 1064. See also Barry v. Mis- cancellation, and there was cancellation, 
 souri, K. & T. Railway Co. (1888), 34 That was a case of novation pure and 
 Fed. Rep. 829, 833 ; Ames v. Railway simple. 
 
 Co. (1876), 2 Woods, 207 ; s. c. Fed. Cas. « Fernschild v. D. G. Yuengling Brew- 
 No. 329 ; Fidelity Ins. Trust & Safe ing Co. (1836), 40 N. Y. Supp. 1112. 
 Deposit Co. V. Shenandoah Valley Ky. * Central Trust Co. v. Cincinnati, etc. 
 Co., 86 Va. 1 ; s. c. 9 S. E. Eep. 759 ; Ey. Co. (1892), 58 Fed. Rep. 501. 
 
854 RAILWAY BONDS AND MOETGAGES. [CHAP. XXXIX. 
 
 ciding that general mortgagees had no right to foreclose the 
 prior underlying mortgages, Judge Baxter placed his decision 
 upon the theory that the valuable protective power of a reorgani- 
 zation agreement in the case before him would be practically 
 destroyed by permitting the property to be sold as an entirety, 
 as no basis of co-operation could be reached by the several 
 mortgages.^ 
 
 Combinations between creditors, formed to reorganize insol- 
 vent corporations, ought, when legal and proper, to be promoted 
 and encouraged, inasmuch as they are often necessary to prevent 
 the corporate property from being sold at a sacrifice.^ 
 
 There is no reason why some of the bondholders should not 
 take steps to have the road sold, and to buy it as cheap as they 
 can, provided they do not cheat or hinder anybody in the 
 matter.^ 
 
 Especially is there no ground for regarding such action as 
 fraudulent, where the bondholders who co-operate with a view 
 to the purchase of the road invite all the others to join the 
 combination.* 
 
 Such an agreement does not deprive the other bondholders of 
 any of their rights. They are at liberty to join the combination, 
 or, if they decline to do this, the combination still leaves them 
 free to protect their interests by bidding at the sale.* 
 
 The pendency of a reorganization scheme looking to the 
 preservation of a whole system, as an entirety, may sometimes 
 be a reason for refusing temporarily an application of the trus- 
 tees of one of the divisional mortgages to be put in possession.^ 
 
 § 891. Power of Majority of Bondholders under Agreement.'^ — 
 The most that the non-assenting bondholders can claim is that 
 they shall not be prejudiced by the new arrangement. Thus, 
 they are entitled to be paid out of the proceeds of a sale of the 
 
 1 Wabash, St. Louis, & Pac. Ry. Co. chase of a road might tend to defeat the 
 V. Central Trust Co. (1884), 22 Fed. Rep. objects of the sale contemplated. 
 
 ] 38 ; Central Trust Co. v. U. S. Rolling ' Wetmore v. St. Paul & Pac. R. Co. 
 
 Stock Co. (1893), 56 Fed. Eep. 5. (1880), 3 Fed. Rep. 177 ; KrophoUer v. 
 
 2 Central Trust Co. v. United States St. Paul & Pac. R. Co. (1880), 2 Fed. 
 Rolling Stock Co. (1893), 56 Fed. Rep. 5 ; Rep. 302. 
 
 Robinson v. Philadelphia & Reading Ry. * Wetmore v. St. Paul & Pac. R. Co. 
 
 Co. (1886), 28 Fed. Rep. 340. ' (1880), 3 Fed. Rep. 177. 
 
 In the latter case the court declined ^ KrophoUer v. St. Paul & Pac. R. Co. 
 to grant an order to answer interrogatories (1880), 2 Fed. Rep. 302. 
 on the ground that the inquiry thus pro- ^ See Chap. XVII. (Suits for Posses- 
 posed to be made as to the private affairs sion). 
 
 of the organization formed for the pur- ' See also post as to compromise under 
 
 statute. 
 
§ 892.] RAILWAY EEOEGANIZATIONS, ETC. 855 
 
 mortgaged property such part as they would have been entitled 
 to if the new bonds and new trust deed had not been executed. ^ 
 
 Where in England under the Act of 1867 the instrument 
 defining the powers of debenture-holders provides that a major- 
 ity of three-fourths in value may compromise the rights of the 
 whole class against the company or the property, the minority 
 are not bound by the action of the majority, unless there is an 
 actual difficulty in enforcing the secured debt, which cannot 
 be got over without some arrangement, for it is only of such a 
 case that the word "compromise " can be properly used.^ 
 
 § 892. Subscribers to Agreement not bound unless it is carried 
 out substantiaUy as made. — A compromise agreement between 
 the company and its creditors, the object of which is to substi- 
 tute a new mortgage for the original ones, and thus place the 
 creditors on a common footing, is not binding on the subscrib- 
 ers, if, in carrying it out, there is any substantial departure 
 from its terms.' 
 
 Where parties enter into an agreement by which the bonds of 
 an old railway company which is insolvent are to be paid by 
 an issue of bonds of a reorganized company, and an issue of 
 stock of the latter in payment of the other obligations of the 
 old company, and the agreement is carried out in the re- 
 organization of the company with a full knowledge of all the 
 material facts as to the obligations of the old company, the new 
 company is bound to issue its stocks to a construction com- 
 pany for its full claim against the old, and will be estopped 
 
 1 Ames V. Ry. Co. (1876), 1 Fed. Cas. summoned to the meeting was fairly repre- 
 
 329. See an editorial in The Commercial sented by those who attended, and whether 
 
 & Financial Chronicle of July 3, 1897, the statutory majority who approved of 
 
 Vol. 65, p. 8, bearing upon this subject. the scheme were acting bona fide, or were 
 
 ^ Sneath v. Valley Gold (Limited), seeking to promote interests adverse to 
 
 (1893), C. A., L. R. 1 Ch. 477 ; s. c. 40 those of the class whom they professed to 
 
 Am. & Eng. Corp. Cas. 337, note. represent, and generally whether the ar- 
 
 The English Companies Act of 1870, rangement is such as a man of business 
 authorizing a three-fourths majority of a would reasonably approve. In re Ala- 
 meeting of the creditors, or of a single bama, etc. Ry. Co. (1891), C. A., L. R. 1 
 class of creditors, of a company which is Ch. 213, approving Tn re Empire Mining 
 being wound up, to agree to a compromise Co., 44 Ch. DLv. 402. 
 or arrangement which, if sanctioned by This act does not authorize a majority 
 the court, is binding on all the creditors of creditors to bind the minority as in the 
 or class of creditors, as the case may be, is case of an arrangement under the .Joint 
 applicable to holders of debentures. In Stock Companies Arrangement Act of 
 exercising its power of sanctioning a 1870. In re Albert Life Assn. (1871), 6 
 scheme of arrangement the court will not Ch. App. 381 ; In re Alabama, TJ. T. & 
 only ascertain that all the statutory con- P. J. Ry. Co. (1891), 1 Ch. 236. 
 ditions have been complied with, hut will ' Miller t'. Rutland & Washington K. 
 also consider whether the class of creditors Co. (1867), 40 Vt. 399. 
 
856 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIX. 
 
 to defend in an action to compel the performance of the agree- 
 ment, on the ground that stock in the old was issued to too great 
 an amount for the construction work done by the construction 
 company.^ 
 
 A reorganization committee of bondholders were by their 
 agreement fully empowered to adjust, compromise, etc., claims 
 against the company. The bonds of the bondholders were 
 surrendered to them; they entered into negotiations with the 
 holders of preferential claims and agreed that the latter should 
 assign their claims to the committee and receive from the com 
 pany therefor negotiable certificates for certain sums payable in 
 cash to be secured by the bonds in the hands of the committee. 
 The holders of the claims assigned them to the committee as 
 they had agreed, but the committee did not deliver the certifi- 
 cates called for by their contract. There was a foreclosure and 
 sale. This agreement between the claimants and the com- 
 mittee was held to be within the authority of the committee, and 
 was treated as a mortgage upon the bonds by the court, and the 
 claimants allowed to be paid out of the proceeds of the sale, 
 upon the principle that equity will consider that as done which 
 ought to have been done.^ 
 
 After progress in the performance of a reorganization agree- 
 ment (which provided for a first and second mortgage, the 
 second for the security of bonds with which the trustees were to 
 take up the certificates they had issued for surrendered bonds) 
 had reached the point of the formation of the new company, 
 a majority of the certificate-holders agreed to a modification of 
 the agreement by which they were to receive fifty per cent of 
 their claims in first-mortgage bonds of the new company and 
 the balance in stock. It was held in an action by a non- 
 assenting certificate-holder that the assenting certificate-holders 
 
 1 Davidson v. Mexican National R. Co. holders could not be allowed an advantage 
 (1896), 11 App. Div. 28 ; s. C. 42 N. Y. over assenting bondholders by considering 
 Supp. 1015. the latter's surrendered bonds extinguished. 
 
 2 Central Trust Co. v. Carter (1896), In the same case there was an agreement 
 78 Fed. Rep. 225. that a branch of the road should be sold, 
 
 It was held in Mowry v. Farmers' Loan and the distribution of the proceeds of the 
 & Trust Co. (1896), 76 Fed. Eep. 38, that sale left with the committee of bondhold- 
 where a committee of bondholders had ers. For the reason that certain bond- 
 provided in their plan of reorganization holders failed to assent, the road was not 
 that tlie holders of the old bonds should sold. It was held that by their action 
 surrender them and receive new bonds the lien of the assenting bondholders was 
 instead, the surrendered bonds not to be not waived in favor of the non-assenting 
 cancelled, but held by the trustee as an bondholders, 
 additional security, non-assenting bond- 
 
§ 893. J RAILWAY REORGANIZATIONS, ETC. 857 
 
 could not be compelled to receive second -mortgage bonds accord- 
 ing to the terms of the first agreement, and that plaintiff could 
 not at this stage compel a specific performance of that agree- 
 ment as to his bonds ; but the court would give him judgment 
 for the value of the bonds he was to receive.^ 
 
 § 893. When Right to share in Benefits of Scheme terminates. — 
 As a general principle it may be said that those who seek to 
 share in the benefits of a reorganization agreement must comply 
 strictly with its provisions as to the time within which they 
 must exercise their option to come into the scheme.^ 
 
 In a decree providing in terms for a purchase by the bond- 
 holders it is usual to insert a clause permitting minority bond- 
 holders to come in after the purchase within a limited time on 
 equal terms with the purchasing bondholders.^ 
 
 But the court will not revise a decree in which such a clause 
 is not inserted, when there is nothing to show why it was not 
 inserted. Under such circumstances, it will be assumed that 
 there were adequate reasons for the non-insertion.* 
 
 In an action for damages brought by a stockholder of a defunct 
 railroad company, allegations that the road had been purchased 
 by a committee of bondholders, that upon a question raised by 
 a portion of the stockholders as to the validity of the sale and of 
 the bonds, litigation ensued which was finally compromised, 
 the stockholders agreeing with the committee to withdraw all 
 opposition to the sale, in consideration of being accorded the 
 right to subscribe for stock in a new corporation to be organized 
 upon terms specified in a circular addressed to the stockholders 
 of the original corporation, and that the plaintiff had no notice 
 of the contents of such circular until long after the expiration of 
 the period fixed for the stockholders to come into the scheme, 
 held insufficient to support the action, since the agreement was 
 not made by the company or in its behalf. Nor could the plain- 
 tiff complain of the terms of the agreement, inasmuch as he was 
 not a party to it, unless he had elected to come in and ratify it 
 in its entirety and not simply the provisions favorable to him- 
 self. All the rights of the original stockholders having been 
 destroyed by the foreclosure sale, they had none except those 
 which sprang out of the agreement with the purchasing com- 
 
 1 Dutenhofer v. Adirondack Ry. Co. Kep. 242, 250; s. c. on demurrer (1880), 
 
 (1891), 14 N. Y. Supp. 558. 3 Fed. Rep. 302. 
 
 ^ The same rule governs where the * Huntington v. Little Eock & Fort 
 
 right of participation depends on a statute. Smith Ry. Co. (1 882), 16 Fed. Eep. 906 ; 
 
 See post. s. c. 3 McCrary, 581. 
 
 » Sahlgaardt). Kennedy (1882), 13 rc.[. 
 
858 RAILWAY BONDS AND MOETGAGES. [CHAP. XXXIX. 
 
 mittee, and if those rights were violated, they should have looked 
 to the parties with whom they contracted. The latter could be 
 held liable for misconduct in the execution of their trust by any 
 stockholder who had adopted the arrangement, but there is no 
 recourse in such a case against the new company itself.^ 
 
 The position of the stockholders in the old company is still 
 weaker, where the agreement between the bondholders not only 
 fixes a time for the payment of assessments on the shares in the 
 new company, but expressly provides that, in case any of those 
 stockholders neglect or refuse to pay the assessments at the time 
 appointed, the privilege of receiving the shares allotted to them 
 shall be ratably distributed among those who have paid their 
 assessments. The residuary benefits thus provided for non- 
 defaulting stockholders become vested rights, as soon as the 
 default occurs, and-cannot be thereafter disturbed in favor of a 
 stockholder who has made default. ^ 
 
 Similarly a subscriber to a reorganization agreement who 
 agrees to surrender his bonds " when he shall be required to do 
 so," and receive in lieu thereof the new bonds provided for by 
 the plan, cannot claim any benefits under it, or insist on the 
 delivery of the new bonds, if he receives notice to surrender his 
 bonds from the trustee appointed to carry out the agreement, 
 but fails to do so until after the purchase of the road and the 
 formation of the new company.^ 
 
 Where the decree in a railroad foreclosure suit instituted by 
 representative bondholders provides that in case any of the 
 holders of the bonds or coupons become purchasers, they may 
 pay the price in bonds or coupons to a trustee who shall receive 
 a conveyance for them, and such others " as may signify to him 
 their desire to become interested in said purchase, and pay him 
 their due proportion of the sum which may be bidden for the 
 same, and the costs of the suit and other expenses," and it is 
 subsequently agreed at a meeting of the bondholders that the 
 holders of three-fourths in amount of the bonds "shall have 
 power to order a sale by the trustee at such time, place, and 
 manner as they shall think proper," the contingency of a part 
 of the bondholders refusing or neglecting to come in, being thus 
 expressly provided for, the inference is that the parties intend 
 that the right to come into the agreement shall cease as soon as 
 
 1 Thornton v. Wabash Ry. Co. (1880), » Carpenter v. Catlin (1865), 44 Barb. 
 81 N. Y. 462. 75. 
 
 2 Dow V. Iowa Central By. Co. (1893), 
 70 Hun, 186. 
 
§ 894.J RAILWAY REORGANIZATIONS, ETC, 859 
 
 the sale by the trustee is consummated. This inference will pre- 
 vail even though the conveyance to the vendee is " in trust for all 
 the owners of the bonds," the effect of such a clause being lim- 
 ited by the terms of the decree and the acts of the parties. After 
 the sale is made by the trustee in accordance with the directions 
 of the requisite majority of the bondholders, a non-participating 
 bondholder is relegated to his ordinary right to share in the pro- 
 ceeds of the foreclosure sale, and cannot claim any of the stock 
 of a new company organized by the bondholders under a special 
 statute for the purpose of taiiing over the road. What each 
 bondholder has throughout the proceedings is not an absolute 
 right of property in the -new corporation, irrespective of his own 
 action, but an option to be exercised or not at his own choice, and 
 witiiin such reasonable time as will avoid prejudice to the rights 
 of others. The last moment for the exercise of such option is 
 when the deed is executed, transferring the property to the new 
 corpo ration. 1 
 
 When a reorganization committee of a railroad, by circular 
 letter, requested the bondholders to deposit their bonds with a 
 certain designated trust company on or before a specified date, a 
 bondholder who neglected so to do, but whose bond was after- 
 wards received by the secretary of the committee for which he 
 gave his individual receipt, was held, nevertheless, entitled to re- 
 lief as being a valid bondholder, and it was also held that the 
 actual holder, namely, the secretary, in his individual capacity 
 was not under tlie circumstances a necessary party.^ 
 
 § 894. Rights of Parties to Agreement, ■when complete. — The 
 acceptance of an original bond by the president and secretary of 
 a permanent committee, appointed by the projectors of a reorgan- 
 ization scheme, and held out to the public as their general agent 
 in the matter of the reorganization, binds the new company, 
 when formed, and gives the person surrendering the bond an irre- 
 vocable right to the new one which is to be substituted therefor. 
 If the secretary afterwards hands over the bond so surrendered 
 to the trust company named in the plan as the depositary of the 
 bonds, and receives therefor a certificate in his own name, the 
 bondholder is in no way responsible for his misconduct.^ 
 
 A provision in a reorganization agreement empowering a 
 
 1 Landis v. Western Pennsylvania R. ' Midland Railroad Co. of New Jersey 
 Co. (1890), 133 Pa. St. 579 ; s. u. 19 Atl. v. Hitchcock (1884), 37 N. J. Eq. 549 ; 
 Rep. 556. s. c. 14 Am. & Eng. R. R. Gas. 598. 
 
 2 Hitchcock V. Midland Ry. Co. of New 
 Jersey (1880), 33 N. J. Eq. 86. 
 
830 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIX. 
 
 majority in value of the holders of certificates issued in place of 
 the bonds and stock of the mortgagor company to modify the 
 agreement in any manner they may deem best for the interests of 
 all concerned, will not be construed so as to prolong this right of 
 the majority beyond the time when the property passes into the 
 possession of the new company, which is to consummate the 
 scheme by issuing its bonds and stock to the certificate-holders. 
 The rights and obligations of tliat company become fixed by the 
 conveyance of the property to it, and a subsequent change in the 
 scheme by which it is agreed by a mere majority of the certificate- 
 holders that one set of bonds shall be issued instead of two, as 
 contemplated by the original agreement, is illegal as to a non- 
 assenting participant in the reorganization.^ 
 
 An agreement was entered into by the creditors of a company 
 that they would receive bonds of the new company to be organ- 
 ized to be delivered within " six months " from the " foreclosure 
 sale." At the end of six months the sale had not been con- 
 firmed. The court construed that the parties agreeing to deliver 
 the bonds would be entitled to " six months " from the final con- 
 summation of the sale before they could be required to deliver 
 them ; under the circumstances of the case the court intimated 
 that any other construction of tlie agreement would be in viola- 
 tion of the principle that a construction that would forfeit a right 
 is not favored in law.'^ 
 
 § 895. Reorganization : Trustee's Control of Scheme. — A trust 
 company does not lose control of a scheme to reorganize a rail- 
 road company under which it is empowered to ascertain the float- 
 ing debt and expense of organization, and assess the amount fo 
 be paid by stockholders to entitle them to new stock, by the mere 
 fact of an unauthorized and ineffectual attempt of certain of its 
 officers to make an assessment in its name, as where their acts 
 were not ratified by the directors.^ 
 
 § 896. Power of Reorganization Committee to fix Date for Matu- 
 rity of New Issue of Bonds. — A committee to which is intrusted 
 the regulation of any " matter of detail " which might, in the 
 judgment of all or of a majority of its members, be necessary or 
 expedient for carrying out the plan, acts within the scope of its 
 authority when it causes to be inserted in certain " income 
 
 1 Dutenhofer v. Adirondack Ry. Co. ^ Gernsheimu. Central TrustCo. (1892), 
 
 (1891), 38 N. Y. St. Rep. 710; s. c. 14 40 N. Y. St. Eep. 967 ; s. o. 16 N. Y. 
 N. Y. Supp. 558. Supp. 127. 
 
 ' Houston, E. & W. T. Ry. Co. v. Keller 
 (Tex., 1896), 37 S. W. Rep. 1062. 
 
§ 897.] RAILWAY REORGANIZATIONS, ETC. 861 
 
 bonds," for which the plan provides, a clause giving the company 
 an option to pay the bonds before the date at which they are to 
 mature.^ 
 
 § 897. Discretion of Reorganization Trustees as to Issue of Stock 
 in New Company. — A road was purchased by tru.stees in behalf of 
 bondholders in pursuance of an agreement, whereby the bond- 
 holders were to surrender their bonds, and the road either sold at 
 a given price within a time named, or, in case such sale should 
 not be made, taken over by a new company to be organized by the 
 purchasers from the bondholders. In the latter event it was pro- 
 vided that " the stock of the new company should be issued to 
 and divided among the holders of the receipts for the bonds sur- 
 rendered to the trustees, in proportion to the number of bonds de- 
 posited for which the receipts were issued, upon the surrender to 
 the same trustees of such receipts." The new company was or- 
 ganized, but the trustees did not deliver the whole capital stock to 
 the bondholders. In an action against them by a bondholder for 
 an accounting it was asserted that they failed to perform their 
 duty as trustees. It appeared that the trustees were vested with 
 large discretionary powers in regard to the execution of the reor- 
 ganization agreement, and that their determination as to the 
 meaning of any provision therein was to be conclusive. It also 
 appeared that the law of the State in which the company was 
 organized limited the issue of capital stock to " the original cost 
 of the construction of the railroad, and the equipment purchased, 
 and such sum as miglit be necessary to complete the same." 
 Under these circumstances it was held that the trustees could 
 not, in the absence of proof of positive bad faith, be held liable 
 for restricting the amount of paid-up stock to what they deemed 
 the actual value of the road, although it was provided in the 
 articles of incorporation that other stock might be issued by the 
 directors and sold for money or other consideration.^ 
 
 A trust company authorized to determine the amount to be 
 paid by the stockholders of an old company to entitle them to 
 stock in the new, on the reorganization of a railroad, need not 
 notify the stockholders as to when it intends to begin the per- 
 
 1 Lehigh Coal & TTavigation Co. v. portion of the capital of a company was to 
 Central R. Co. of New Jersey (1881), 34 be returned to the shareholders was con- 
 N. J. Eq. 88. firmed by the court upon the statutory 
 
 2 White V. Wood (1892), 129 N. Y. requirements being observed, although it 
 627 ; s. 0. 29 N. E. Rep. 835 ; 51 Am. & was to be immediately borrowed on debpn- 
 Eng. R. R. Gas. 73. tares. 7)i re Nixons Navigation Co. (1897), 
 
 A scheme of reduction under which a 1 Ch. 872. 
 
862 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIX. 
 
 formance of its task. But the stockholders may demand a 
 hearing.^ 
 
 § 898. Discharge of Liens of Creditors participating in Scheme, 
 when inferred. — When a reorganization scheme to which both 
 tlie bondholders and certain judgment creditors are parties 
 plainly shows an intention that the new securities to be issued on 
 a like basis to them shall extinguish their debts, the consumma- 
 tion of the scheme operates as payment of the claims thus pro- 
 vided for, and neither the bondholders nor the judgment creditors 
 have any claim upon the proceeds of the foreclosure sale. That 
 the purchasing committee are given by the plan the most ample 
 powers in regard to the bonds deposited with them, does not, after 
 the plan is carried out, in any sense imply that the bonds are to 
 be considered as unpaid. Nor has a provision iu such plan, 
 authorizing the committee to receive the proceeds of the sale, any 
 application to the condition of affairs arising when the commit- 
 tee becomes itself the purchaser of the whole road.^ 
 
 § 899. Bondholders accepting Preferred Stock in New Corpora- 
 tion give up their Rights as Creditors. — Bondholders who Surren- 
 der their bonds in pursuance of a scheme of reorganization and 
 receive in lieu thereof preferred stock in the new company 
 under an agreement entitling them to dividends " out of the net 
 earnings of the road (if earned in the current year, but not 
 otherwise) not to exceed seven per cent, in any one year payable 
 semi-annually, after payment of mortgage interest and delayed 
 coupons in full," are to be considered as having abandoned their 
 position as creditors for that of stockholders, entitled to claim 
 only dividends declared out of the net earnings of any particular 
 year. Moreover, in the computation of those net earnings all the 
 operations and business of the company must be viewed as a unit, 
 the main line and auxiliaries to be considered with reference to 
 their interdependent necessities and with regard for the benefit of 
 all interested in the property. Rents, under leases taken after 
 the issue of the preferred stock and interest on a loan of money, 
 also borrowed after " such issue to equip the road," are, therefore, 
 properly paid before such dividends.^ 
 
 Preferred stock issued to bondholders in a reorganization 
 scheme, entitling them to " non-cumulative dividends, at the rate 
 of six per cent per annum in preference to the common stock, 
 
 1 Gernsheim v. The Central Trust Co. « St. John v. Erie Ry. Co. (1875), 22 
 (1891), 40 N. Y. State Rep. 967. Wall, 136 ; affirming s. c. 10 Blatch. 271 
 
 2 Central Trust Co. v. Cincinnati, J. & (1872). 
 M. Ry. Co. (1892), 58 Fed. Rep. 500. 
 
§ 900.] RAILWAY REORGANIZATIONS, ETC. 863 
 
 but dependent on the profits of each particular year, as declared 
 by the Board of Directors," does not operate to deprive the direc- 
 tors of the discretion with which managing agents of corporations 
 are usually invested, when distributing the earnings of property 
 committed to their hands. The words " as declared by the Board 
 of Directors" in this provision refer to "dividends," not to "pro- 
 fits," and the directors therefore have the power to devote the 
 profits of any given year to improvements of the property to the 
 exclusion of any dividend to the preferred stockholders. ^ 
 
 If income bonds are issued under a reorganization plan, 
 instead of preferred stock, the interest thereon is regarded as 
 dividends, in so far that it cannot be paid before the floating debt 
 incurred in each interest period.^ 
 
 Preferred stockholders in a reorganized company cannot claim 
 a priority of payment for their dividends, unless a specific lien is 
 shown beyond all doubt to exist in their favor, and whether or not 
 such a lien exists, must depend upon what actually occurred, and 
 upon the stipulations affecting the property which were entered 
 into by parties who had the right to encumber it, and not upon 
 what might have been in the minds of the stockholders at the time 
 these various transactions took place.^ 
 
 § 900. Restoration of Bondholder to his Rights as Creditor, ivhen 
 properly refused. — When the question is merely as to the proper 
 distribution of the proceeds of a foreclosure sale under a mortgage 
 designed to secure new bonds issued in exchange for old ones of 
 several classes, and not the settlement of general rights and 
 equities between the parties, the court will not entertain a petition 
 by a bondholder to be allowed to share in such proceeds when his 
 right to do so is placed upon the existence of a special equity in 
 his favor, the fund being insufficient to satisfy the bonds of a class 
 
 ' New York, L. E. & W. R. Co. o. stock was to be « first claim on the prop- 
 Niokals (18S6), 119 U. S. 296 ; e. O. 7 erty of the corporation after its indebted- 
 Sup. Ct. Rep. 209, referring to St. John ness, and that the holder was to receive a 
 V. Erie R. Co., supra, and Warren v. King certain rate of interest from the net earn- 
 (1883), 108 U. S. 339, and overruling the ings, before any payment of dividends on 
 decision of the lower court in Nickals v. the common stock. 
 
 N. Y., L. E. & W. R. Co. (1883), 15 Fed. It was held that the effect of the agree- 
 
 Eep. 575 ; s. c. 13 .4 m. & Eng. R. R. Cas. ment was to provide a mode by which a 
 
 139. preference should be given to a particular 
 
 ^ Lehigh Coal & Navigation Co. v. class of stockholders, and that the parties 
 
 Central R. Co. of New Jersey, 34 N. J. did not contemplate that the "indebted- 
 
 Ei]. 88. ness " refen-ed to was only that indebted- 
 
 ° Kins; v. Ohio & Mississippi R. Co. ness which existed against the company, 
 
 (1880), 2 Fed. Rep. 36. In this case the when the agreement was made, 
 certificates provided that the preferred 
 
864 RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIX. 
 
 which, by the terms of the arrangement leading to the execution 
 of the new mortgage, were to take precedence of the new ones 
 received by the petitioner.^ 
 
 § 901. Who estopped to object to Reorganization Scheme.^ — 
 Exceptions to a sale in foreclosure will not be entertained in 
 favor of a bondholder who has been made a party to a reorganiza- 
 tion scheme, and has surrendered his bonds in exchange for the 
 stock and bonds of the new company, for by so doing he elects to 
 abide by the action of the trustees.^ 
 
 So, also, a bondholder who receives the bonds of the new com- 
 pany allotted to him, and attempts to buy more, and brings suit 
 for some he claims to be his, and acts in every way as if he 
 acquiesced in the proceedings of the purchasing committee, is 
 estopped to object to the validity of the reorganization scheme on 
 the ground that his representative on the committee exceeded his 
 powers.* 
 
 The consent of bondholders required by statute in Wisconsin 
 to a sale made "in pursuance of a reorganization scheme may 
 properly be inferred from the silence during the whole of a pro- 
 tracted litigation, carried on with prior incumbrances by a corpo- 
 ration formed to take the title to the property for the benefit of 
 such bondholders.^ 
 
 § 902. Plans held equitable, or the contrary. — Tlie court will 
 strive to give effect to a fair arrangement, passing over mere 
 technical defects.* 
 
 1 Ex parte "White, In re Jesup, Wil- to object to the terms of a decree of sale, 
 mington & Manchester R. Co. (1871), 2 much less a company formed by arrange- 
 S. C. 469. ment between the parties controlling the 
 
 There the petitioner alleged, as a sale. Compton v. Jesup (1897), 167 U. 
 
 ground for receiving the relief asked for, S. 1. 
 
 that he had exchanged his old bonds for ' Crawshay v. Soutter (1867), 6 Wall, 
 
 new ones on the understanding that if all 739. 
 
 the bondholders did not come into the * Matthews v. Murchison (1882), 15 
 
 arrangement, the original securities were Fed. Rep. 691 ; s. c. 9 Am. & Eng. R. E. 
 
 to be returned to him. His demand, Cas. 693. 
 
 therefore, was that, so far as he was con- * Barnes v. Chicago, M. & St. Paul Ry. 
 
 cerned, the fund should be distributed on Co. (1886), 122 U. S. 1 ; s. o. 7 Sup. Ct. 
 
 equitable principles. The court said that Rep. 1043. 
 
 if he had n right to disturb the arrange- ' In re Dynevor, etc. Collieries Co. 
 
 ment, he had an appropriate remedy, but (1879), 11 Ch. D. 605. 
 that, as his only claim then recognizable In England a scheme conferring power 
 
 was to participate in the distribution of upon a statutory majority to make binding 
 
 the assets, it was a sufficient answer to his any compromise or arrangement which the 
 
 petition, that the question of his right in court might sanction requires the sanction 
 
 respect to the assets did not depend on of the court. Re Land Mortgage Bank of 
 
 the issue of fact raised by his allegations. Florida (1896), 3 Manson, 164. 
 
 2 An outside purchaser cannot be heard Pending an injunction and receiTer, a 
 
§ 902.] RAILWAY EEORGANIZATIONS, ETC. 865 
 
 Where it is to the interest of a railway company that the rights 
 of all bondholders of several series of mortgage bonds should be 
 cut off to enable the company to reorganize, a decree foreclosing 
 all the mortgages, entered by consent of the creditors, will not be 
 set aside at the suit of a stockholder on the ground that the 
 principal of some of the mortgages is not yet due.^ 
 
 Unsecured creditors may have a plan of reorganization set 
 aside which makes no provision for the payment of their debts, 
 and contemplates not only a complete absorption by the purchas- 
 ing committee, or its successors, of tlie entire property of the 
 company, free from all liability for its debts, but also a distribu- 
 tion of a large sum of money among the stockholders, who, under 
 the doctrine that the corporate assets are a trust fund for the 
 benefit of the creditors, hold their interest subject to the debts of 
 the company .2 
 
 It is an act of fraud for a bondholder to employ the mortgage 
 security as an instrument whereby he may obtain for himself the 
 mortgaged property at the lowest price, leaving his associate bond- 
 holders unpaid. " Community of interest involves mutual obliga- 
 tion." Nor are the managers and officers of a company, who are 
 trustees as well for stockholders as creditors, any less culpable if 
 they seek their own profit at the expense of its stockholders, or 
 even its bondholders. It is their duty in case of a sale of the 
 corporate property to secure the highest possible price obtainable.^ 
 
 The court will scrutinize the resolutions of creditors, although 
 recognizing them as the better judges oi what is to their commer- 
 cial advantage.* 
 
 Where it appears that amongst the majority were voters who 
 were not acting in good faith, the court will not sanction a 
 reconstruction.^ 
 
 corporation may take steps towards a re- ^ Railroad Company v. Howard (1868), 
 
 organization, employing agents and other- 7 Wall. 392. 
 
 wise incurring liability. Linn v. Joseph ^ Jackson v. Ludeling (1864), 21 Wall. 
 
 Dixon Crucible Co. (1896), 35 Atlantic 616. 
 
 Kep. 2. * In re English, Scottish, & Australian 
 
 A petition for confirmation of a scheme Chartered Bank (1893), 3 Ch. D. 385, 409. 
 
 between a railway company and debenture- ^ In re Wedgwood Coal & Iron Co. 
 
 holders, which included the purchase of (1877), 6 Ch. D. 627 ; In re Empire Min- 
 
 the petitioning company's undertaking un- ing Co. (1890), 44 Ch. D. 403. 
 
 der legislative authority was denied, in the But where the affairs of a company could 
 
 interests of general creditors, until a bill not be restored to their original position, a 
 
 before Parliament was actually passed. In winding-up scheme was sanctioned which 
 
 re Eastern and Midland Ey. Co. (1892), shut out from participation in the distri- 
 
 67 L. T. 711. bution of the assets the ordinary share- 
 
 1 Carey W.Houston, etc. Ey. Co. (1891), holders, notwithstanding that the day 
 
 45 Fed. Sep. 438. before their meeting a letter was written to 
 
 55 
 
RAILWAY BONDS AND MORTGAGES. [CHAP. XXXIX. 
 
 And any arrangement between the secured creditors and the 
 debtor company, as, for example, an agreement between them to 
 avoid a sale and lease the property for their own benefit, but to 
 the detriment of unsecured creditors, will be annulled at the 
 instance of the latter.^ 
 
 On the other hand the unsecured creditors cannot object to a 
 scheme which gives them, in lieu of their evidences of debt against 
 the old company, second preferred income bonds, equal to the 
 amount of the floating debt and interest thereon. Such an 
 arrangement places them in at least as advantageous a position 
 with regard to the new as they held towards the old company .^ 
 
 § 903. Rights of stockholders after Reorganization. — (a) Right 
 to take Part in the Management of the Property. — The stock- 
 holders of the old company who accept a reorganization scheme 
 which provides that they shall be entitled to become the legal 
 owners of the stock issued by the new company after the bond- 
 holders have received three annual instalments of the interest on 
 their bonds, and that in the mean time the business of the corpora- 
 tion is to be controlled by the bondholders, have no standing in 
 court to object to a lease of the road which is satisfactory to the 
 bondholders, when it appears that the liabilities of the corporation 
 are so great, as compared with its assets, that there is an ex- 
 tremely remote prospect that their legal rights as shareholders will 
 ever attach.^ 
 
 A reorganization agreement which provides for separating the 
 right to vote from the holder of the stock, and confers that right 
 upon a trustee representing the bondholders, to be exercised until 
 certain mortgage debentures issued in lieu of the original evi- 
 dences of debt held by the railroad company are paid, is not void 
 per se, as against public policy. Especially is such an agreement 
 unobjectionable when the charter of the company expressly pro- 
 vides that the votes of the stockholders " may be given in person 
 or by proxy." * 
 
 (b) Right to enjoin Diversion of Earnings. — Where the re- 
 organization scheme provides that certificates shall be issued to 
 
 induce a ratification, by a large holder of Co. (1884), 22 Fed. Rep. 130 ; s. c. 22 
 
 debentures and preference shares. Buenos Am. & Eng. R. R. Gas. 50. 
 
 Ayres Water Supply Co., In re, 66 L. T. ^ Mobile & Ohio E. Co. v. Nicholas 
 
 408. (1893), 98 Ala. 92 ; s. c. 12 St. Rep. 723 ; 
 
 1 Farmers' Loan & Trust Co. v. Mis- 57 Am. & Eng. R. R. Gas. 100. 
 
 souri, I. & N. Ry. Co. (1886), 21 Fed. Rep. As to the right to vote by proxy, and 
 
 264, 267. as to how far agreements conferring that 
 
 2 Hancock v. Toledo, Pebria, & Wabash right are affected by considerations of pub- 
 R. Co. (1882), 9 Fed. Rep. 738. lie policy or otherwise, see Mobile & Ohio 
 
 » McHenry v. New York, P. & 0. R. R. Co. v. Nicholas (1893), 98 Ala. 92. 
 
§§ 904-906.] RAILWAY REORGANIZATIONS, ETC. 867 
 
 the stockholders of the old company, -which they shall have the 
 right to exchange for common stock in the new if the earnings of 
 the road prove sufficient to defray the cost of necessary repairs 
 and improvements, and pay five consecutive annual dividends of 
 seven per cent to the preferred stockholders, the holders of the 
 certificates are entitled to prevent by injunction any plain diver- 
 sion of the earnings to their prejudice. But in the absence of 
 any showing that such a diversion is imminent, no injunction will 
 be issued until the account of the income and its application has 
 been satisfactorily adjusted.^ 
 
 § 904. Effect of Reorganization upon Liabilities of Old Company. 
 — Where the bondholders of a second mortgage reorganize after 
 foreclosure, as between the company thus formed and creditors of 
 the old company who had been secured by the first mortgage, 
 no privity exists to render the new company liable upon the cer- 
 tificates of indebtedness. The liability " did not run with the 
 property into the hands of those who acquired it by foreclosure." ^ 
 
 § 905. Costa in England on Reconstruction. — Costs were re- 
 fused to certain claimants m proceedings to reconstruct, for the 
 reason that their appearance was unnecessary, as the liquidator 
 could take care of their interests.^ 
 
 Costs were denied to dissentient debenture-holders on the ground 
 of unreasonable opposition to a scheme of reconstruction.* 
 
 § 906. In Conclusion. — The last chapter of this work deals 
 to some extent with the same subjects as those embraced in the 
 earliest chapters. The process of reorganization results in new 
 issues of securities, and the questions surrounding the creation of 
 the corporation and its original securities again arise. The litiga- 
 tions which have been passed in review constitute the legal history 
 of American railway bonds and mortgages. The evolution of the 
 law on these subjects has been largely accomplished. The next 
 ten years ought not to result in the same amount of railway liti- 
 gation irrespective of the question of commercial prosperity, and 
 its effect upon the business environment of railway companies. 
 
 1 Mackintosh v. Flint & Pere Marquette their shares are not fully paid up. In re 
 
 R. Co. (1888), 32 Fed. Rep. 350. London Chartered Bank of Australia 
 
 " Sullivan v. Portland, etc. R. Co. (1893), 3 R. 696. 
 (1876), 94 U. S. 810. 8 Be Albert L. A. Co. (1871), 6 Oh. 
 
 In England the court will preserve all App. 387. 
 rights against shareholders by requiring * In re Tunis Ey. Co. (1874), W. N. 
 
 a provision continuing their liability as 121. 
 shareholders in the old company vphile 
 
INDEX. 
 
 TSB EIGT7EE8 EErEK TO PAGES. 
 
 ACCESSION, DOCTRINE OF, 
 
 discussed, 248-252. 
 objections to, 250. 
 extension of, 248. 
 
 not applicable where mortgages on different divisions, 251. 
 repudiated in Alabama, 252. 
 ACCOMMODATION, 
 
 guaranty of bonds for, not valid, 118. 
 indorsement, assented to by stockholders, 126. 
 
 by officer, effect of, when instrument in hands of innocent purchaser, 128. 
 ACCOUNTING, 
 
 bill for, by income bondholders against company, 368. 
 by trustee, when action for, not maintainable, 313. 
 obligation to account for " moneys " to mortgagee of " income," etc., 68. 
 (See Action; Income Bonds; Rkceivbk.) 
 ACTION, 
 
 to cancel bonds, etc., 34. 
 
 maintainable by stockholders when corporation refuses to act, ib. 
 
 or where certainty that corporation will refuse, ib. 
 
 corporation must be joined as a party, ib. 
 
 usually a party defendant, ib. 
 by senior bondholder when bonds not due, ib. 
 
 when no averment of petitioner's lien upon earnings, ib. 
 
 or that corporation misusing property, ib. 
 
 or of default in payment of interest, ib. 
 to annul bonds delivered for improper purposes, ib. 
 
 to set aside security, ib. 
 
 bar of, by lapse of time, ib. 
 
 no bar, where no attempt to enforce, ib. 
 against directors to enjoin diversion of funds, 54. 
 
 who may maintain, ib. 
 creditors' action to annul directors' deed, 207. 
 by bondholder against trustee for moneys applicable to bonds, 55. 
 by bondholder against trustee after default, 310, 311. 
 for accounting against trustee in possession, for income, 316. 
 for accounting by trustee when not maintainable, 313. 
 by trustee, request to begin, from whom necessary, 477. 
 
870 INDEX. 
 
 The figures refer to pages. 
 ACTION — continued. 
 
 by trustee on request of certain proportion of bondholders, 477. 
 
 whether maintainable in exercise of discretion, request proving insuf- 
 ficient, ib. 
 by trustee to enforce right of entry, 302. 
 for an accounting, by income bondholders, scope of, 66. 
 
 computation of amount due, ib. 
 for possession, jurisdiction in equity, 388. 
 
 not maintainable by junior against senior mortgagee, ib. 
 against company for refusing to convert bonds into stock, 56. 
 
 right not assignable without assignment of bonds, 56, n. 3. 
 for breach, on refusal to accept bonds contracted for, 74. 
 
 other bonds maturing on default of interest, may be offset, ib. 
 on coupon, production of bond unnecessary, 107. 
 on guaranty of bonds, no defence that bonds void, 117. 
 
 individual holders' right to enforce guaranty, ib. 
 
 by bondholder on guaranty, 127. 
 
 assent of stockholders need not be averred, 128. 
 to have construction contract declared void, 151. 
 
 by company as against public policy, ib. 
 
 when contract partly executed, ib. 
 
 where approved and adopted by shareholders, ib. 
 
 where contract executed, ib. 
 
 by individual stockholders, 152. 
 
 by judgment creditors, ib. 
 for injuries to person against receiver of federal court, 575. 
 against receiyeT pendente lite, 691. 
 receiver appointed to wind up company, ib. 
 
 to avoid reorganization where plaintiff appeared acquiescent, 533. 
 to redeem, grounds for receiver in, 532. 
 to redeem, jurisdiction in personam necessary, 806. 
 by debenture-holder, character of, 372, n. 1. 
 by debenture-holder on behalf of himself and others, 379. 
 pendency of two suits in courts of same sovereignty, 484. 
 
 of different sovereignty, ib. 
 of warranty not based on false representations on certificates, 689. 
 (See Jukisdiction; Parties; Pledge; Receivees ; Remedies of 
 Bondholders; Removal of Causes.) 
 AFTER- ACQUIRED PERSONALTY, 
 
 specific description necessary to pass, 238. 
 
 unless acquired for railroad purposes, ib. 
 
 whether acquired for railroad purposes sometimes hard to decide, ib. 
 
 whether it must be already in use, ib. 
 materials for track and operation of road, ib. 
 
 covered as soon as acquired, ib. 
 
 decision to the contrary, 239. 
 rolling-stock, when covered by mortgage, 240. 
 
 fragments and old material, old and new rails, when covered, ib. 
 rolling-stock, when passes under mortgage of entire line, etc., ib. 
 
 when an intention must appear, 241. 
 
 when inferred, 240. 
 office furniture, when covered, 242. 
 
INDEX. 871 
 
 The figures refer to pages. 
 
 AFTER-ACQUIRED PERSONALTY — continued. 
 fuel, wheu covered, 242. 
 choses in action and stock not generally covered, 243. 
 
 unpaid subscriptions, ib. 
 income, revenues, etc., when covered, 246. 
 
 earnings, when not covered, ib. 
 
 theory of agreement between parties respecting, ib. 
 
 " net income," when understood, ib. 
 
 notes given in consideration of extending line, 243. 
 chattels used in carrying on mine, 244. 
 capital stock acquired with view to consolidate, ib. 
 contract to carry mails, 243. 
 municipal subscriptions to aid construction, ib. 
 appropriation by county, ib. 
 property bought to replace worn-out, 245. 
 to replace fixtures, ib. 
 replacements by receiver, 246. 
 
 personalty not used for railroad purposes, 226, 228, 242. 
 permanent and temporary disuse, lien not affected by, 244, 245. 
 alterations in property mortgaged does not affect lien, 245. 
 nor obliterations of means of identity, ib. 
 
 (See Apteu-acquirbd Property; Mortgage.) 
 AFTER-ACQUIRED PROPERTY, 
 
 mortgage of, general rule as to scope and binding effect, 267. 
 
 binding upon all except purchasers for value without notice, ib. 
 
 preferred to subsequent attachment or judgment lien, ib. 
 
 good against subsequent mortgagee with notice, ib. 
 
 against purchaser of road mortgaged as to after-acquired property, ib. 
 
 superior to one given to discharge government lien, 269. 
 purchaser with knowledge of, position of, 267. 
 passes cum onere, 268. 
 
 mortgage covers such interest only as mortgagor acquires, ib. 
 when inferior to vendor's lien, 270. 
 priority over contract, not to pass till paid for, 271. 
 lien of, postponed to rights reserved by vendor, 342, 345. 
 devices of vendors to secure priority over, 343, 350. 
 
 lease, or bailment for hire, 343, 346. 
 
 conditional sale, 343. 
 
 reservation of lien, ib. 
 clauses in railway mortgage covering, 215. 
 effect of, determining considerations, ib. 
 essentials necessary to bind, 216. 
 held, part of entirety of railroad and franchises, 221. 
 theory exploded, 223, 248-252. 
 mortgage of, in nature of executory contract, 221. 
 
 lien upon, attaches when contractor acquires title, ih. 
 
 valid against judgment creditors, 222. 
 
 conditions must exist, necessary to enforce executory contract, 224. 
 
 reasonable certainty of description necessary, ib. 
 
 reasonable certainty of coming into existence, ib. 
 specific description of, necessary to pass under statutory lien, 225. 
 
 different rule in Tennessee, ib. 
 
872 INDEX. 
 
 The figures refer to pages. 
 AFTER-ACQUIRED PROPERTY — continued. 
 
 interests in real estate, what sufficient description to pass, 229. 
 depends upon whether appurtenant to business of road, ib. 
 power of business corporation as to mortgaging, 182. 
 injunction to protect lien as to, 357. 
 
 against execution when claim was for " running expenses," 358. 
 (See After- ACQUIRED Personalty ; Mortgage ; Railroad Companies ; 
 
 under States.) 
 AGENCY. (See Principai. and Agent.) 
 AGREEMENT. (See Contract ; TRArric Agreement.) 
 ALABAMA, 
 
 rolling-stock, held personalty, 339. 
 
 liens upon, not displaceable by prior mortgage, ib. 
 statutory provisions as to borrowing money, 40, n. 
 constitutional restrictions upon issuing stocks and bonds, 4, n. 
 construed, ib. 
 
 upon issuing preferred stock, ib. 
 directed against fictitious debts, ib. 
 upon the consolidating of corporations, ib. 
 statutes respecting reorganization, 842, n. 1. 
 service of summons in action for damages under act of 1877, 575. 
 «'ALL OTHER PROPERTY," 
 
 eifect of phrase, 219. 
 ALTERATION, 
 
 of mortgage after execution, by officers, 205. 
 inserting power of sale, 206. 
 ANCILLARY SUITS, 
 
 citizenship of parties to, not material, though of same State, 420. 
 
 to avoid foreclosure, 416. 
 
 to determine judgment creditor's priority, ib. 
 
 sale may be decreed of entirety, in, 428. 
 
 (See Receivers.) 
 ANTECEDENT DEBT, 
 
 as a basis of a purchase for value, 96. 
 pledge to secure, ib. 
 
 when impliedly included in power to secure a debt, 166 and n. 5. 
 APPEALS, 
 
 to Supreme Court from Circuit Court, 825. 
 
 sufficient if Circuit Court had jurisdiction when decree rendered, ib. 
 legislature's power to give appellate courts right to hear special cases, ib. 
 Supreme Court's jurisdiction as dependent on amount involved, 826. 
 where parties assert in same suit, separate causes, ih. 
 where some for more and some for less than $5,000, ib. 
 where, by amendment, amount reduced below f 5,000, ib. 
 supersedeas bond, when and when not required, 827. 
 where decree in favor of appellant, ib. 
 where adverse, ib. 
 
 where defendant files cross-bill and complainant has appealed, ib. 
 where receiver appeals from State-court judgment, ib. 
 supersedeas, statutory remedy, ib. 
 conditions must be observed, ib. 
 
INDEX. 873 
 
 The flguies refer to pages. 
 
 APPEALS — conl'inued. 
 
 time au essential element, 827. 
 
 nunc pro tunc granted only when court causes delay, ib. 
 whoever adversely affected by decree may appeal, ib. 
 
 by bondholder, from matters arising out of reorganization, ib. 
 
 by purchasing committee of bondholders, ib. 
 
 by bondholder on intervention after bill ^ro confesso, ib. 
 
 bondholders' right, not affected by cross-bill filed after decree, 828. 
 from decree adjudging priorities, before main suit determined, ib. 
 who cannot appeal, ib. 
 
 one who is neither an original party nor intervener, ib. 
 
 from denial of intervener's petition to protect bonds, ib. 
 
 where one, though a party, is not affected, 829. 
 
 representative party can appeal only for body he represents, ib. 
 trustee's petition to appeal for minority bondholders, ib. 
 purchaser at foreclosure sale as appellant, 830. 
 receivers, appeals from decrees against, ib. 
 
 by receiver himself, ib. 
 
 by person aggrieved by decree, ib. 
 
 where appellant bondholder as well as receiver, ib. 
 junior incumbrancer as appellant, 831. 
 stockholders as appellants, ib. 
 company as party to appeal, ib. 
 trustee as party to appeal, ib. 
 decrees and orders appealable, 832. 
 
 consent decrees, not generally appealable, ib. 
 
 effect of Revised Statutes, ib. 
 
 discretionary orders not reviewable, ib. 
 
 order denying relief to bondholder from sale for mistake, ib 
 
 order denying petition to intervene, ib. 
 
 order granting stay of sale, ib. 
 
 order refusing leave to file cross-bill, 833. 
 
 order amending pleadings in equity proceedings, ib. 
 
 order authorizing issue of receiver's certificates, appealable, ib. 
 when decree final for purposes of appeal, ib. 
 
 decree of foreclosure in ordinary form, ib. 
 
 order made on Supreme Court mandate fixing amount of interest, 834. 
 
 decree of sale of mortgaged premises, ib. 
 
 essential to appealability of decree that amount ascertained there- 
 in, ib. 
 
 not that priorities be settled, ib. 
 
 decree dissolving injunction restraining foreclosure sale, ib. 
 
 dissolving bondholder's injunction restraining execution sale, ib. 
 
 order settling accounts of receiver, ib. 
 
 decree confirming sale, reserving right to make further order, 835. 
 decree dismissing cross-bill, not final, 833. 
 decrees setting aside sales, when not appealable, 835. 
 decree referring questions to master, when not appealable, ib. 
 interlocutory orders, when appealable, 836. 
 
 when order disposes of main case, ib. 
 
 when establishes property rights, ib. 
 
 order after final decree that receiver may issue certificates, ib. 
 
874 INDEX. 
 
 The figures refer to pages. 
 APPEALS — continued. 
 
 order authorizing certificates and making them lien on corpus, 837. 
 order directing sale of rolling-stock to pay creditors, ib. 
 
 granting compensation for services from fund in court, ih. 
 staying all further proceedings till further order, ib. 
 charging or refusing items in receiver's account, 836. 
 determining no right, not appealable, 837. 
 discharging receiver, except in certain States, ib. 
 from one of several decrees, ib. 
 what appeal brings up for review : 
 
 " this cause," an appeal of, brings up whole cause, 838. 
 
 court will review orders not in themselves appealable, ib. 
 where appeal from order merely confirming sale, 839. 
 rulings not prejudicial to appellant, not reviewable, ib. 
 objections not presented below, not reviewable, ib. 
 effect of appeal on control of property, ib. 
 when control transferred to appellate court, ii. 
 where receiver appointed ancillary to main object, ib. 
 deficiency, decree for, when not appealable, 840. 
 leave to sue, will be assumed on, 576. 
 in action to avoid foreclosure on grounds of fraud, 416. 
 APPLICATION OF MONEYS. (See Money; Trustee.) 
 APPURTENANCES, 
 
 definition of term, 254. 
 what land will pass under, 252. 
 rule, land can never be appurtenant to land, 253. 
 may be modified by intent of parties, ib, 
 broader scope of, as applied to railroads, ib. 
 land, across edge of which, track laid, when and when not, 255. 
 land to which company has no valid title, 256. 
 elevator not appurtenant to railroad of company holding stock, 253. 
 elevator not on company's property, ib. 
 hotel appurtenant, if to be used for passengers, 254. 
 not otherwise, 255. 
 what personalty passes under, 256. 
 canal-boats when and when not, ib. 
 railroad chairs never actually used, ih. 
 ARIZONA, 
 
 statutory provisions as to issuing bonds, 40, n. 
 ARKANSAS, 
 
 constitutional restrictions upon issuing stocks or bonds in, 4, n. 
 statutory provisions as to issuing bonds, 40, ii. 
 rolling-stock declared personal property liable to seizure, 4, n. 
 guaranty of bonds of connecting companies, 129, n. 3. 
 by foreign companies, ib. 
 statutes respecting reorganization, 842, n. 1. 
 ASSENT. (See Written Assent.) 
 ASSETS, 
 
 unused bonds, not, 45. 
 ATTACHMENT, 
 of income, 67. 
 by bondholder of mortgaged property, 367. 
 
INDEX. 875 
 
 The flgureB refer to pages. 
 
 ATTORNEYS AND SOLICITORS. ( See Compensation of Receivers; 
 Compensation op Trustees; Costs; Counsel Fees; Expenses 
 IN Suits, etc.) 
 
 BAILMENT FOR HIRE, 
 
 validity of, 343, 346, 348, 350. 
 
 with option of buying at fixed price, 846-351. 
 BANKERS. (See Fiduciaries.) 
 
 BIDS, 
 
 validity of sales as determined by, 774. 
 rules, same as at common law, ib. 
 when bonds receivable at par, to pay, 776. 
 English practice as to reserving bids, 774. 
 (See Sales.) 
 BONA FIDE PURCHASER. (See Purchaser.) 
 BONDHOLDERS, 
 
 relation to railroad, 46. 
 
 to each other generally, ib. 
 
 duties to each other, ib. 
 
 relative rank with preferred stockholders, 758. 
 
 when regarded as proprietors, 46. 
 
 when road of less value than bonded debt, ib. 
 
 in England, when, ib. n. 3. 
 equity recognizes right of, to control company, when, 46. 
 right to unspent portion of proceeds of bonds, 54. 
 
 where purpose of issue of bonds, impracticable, 55 and n. 1. 
 original, protected against irregularity of issue, 30, n. 2. 
 how far, may rely on prospectus, 52. 
 
 cannot follow money paid otherwise than as pi-omised in, ib. 
 
 may set up defence of prospectus as against charter, 53. 
 right of to assume regularity of bond issue, 85. 
 right to assume date of issue in bond correct, 84. 
 rights of, when bonds void, 25. 
 
 right to assume restrictions upon issue have been respected, ib. 
 entitled to assume mortgage regularly executed, 195. 
 presumed to know functions of railroads as quaxi public corporations, 157, 
 may impeach bonds other than those he holds, 27. 
 
 exception, ib. n. 2. 
 rights of as against liens acquired after recording mortgage, 84. 
 afiected with notice of duly recorded writing, 158. 
 claiming under separate agreement, rights as against others without 
 
 notice, 59. 
 bonds, guarantied by co-bondholders, priority of, 64. 
 when may attach mortgaged property, 867. 
 right of to bring action to enforce guaranty, 117. 
 action to enjoin enforcement of railroad commission law, 369. 
 action by, against trustee after default, 810, 311. 
 
 trustee must comply with request, to take possession, 810. 
 
 when trustee must proceed without request, ib. 
 
 trustee not warranted in following advice of majority of, 311. 
 
 must be regarded as a class, not as individuals, ib. 
 
876 INDEX. 
 
 The figures refer to pages. 
 
 BONDHOLDERS — continued. 
 
 request of, to trustee to take action, what amounts to, 300. 
 when may proceed in equity to enforce statutory lien, 330. 
 holding guaranty of improvement company, and statutory lien, ib. 
 when must require trustees of guaranty fuud to proceed, ib. 
 rights of cannot be altered by trustee without consent, 298. 
 trustee cannot assent on behalf of, to prefer floating debt, ib. 
 not bound by scheme of reorganization postponing mortgage, ib. 
 how scheme can be carried out, ib. 
 when knowledge of trustee of irregularity of bonds, does not bind, 305. 
 
 when does bind, ib. 
 
 instances of, 306. 
 remedy against trustee after foreclosure not confined to intervention, 316. 
 trustee in possession must account to, for income, ib. 
 claims, against trustee personally, ib. 
 right of each to proportionate share of all moneys, ib. 
 rights, when trustee has diverted moneys applicable to bonds, 55. 
 where bonds have been acquired since money received, ib. 
 rights of, in action on bond and against trustee, distinguished, 56. 
 application of, to determine validity of consolidation denied, 71. 
 right of to protect security, 44, u. 3. 
 remedies of, in case of land grants, ib. 
 
 entitled to share of proceeds of mortgaged property, when, 52. 
 Hen preserved upon surrender of bonds, when, 55. 
 scheme to surrender old for new bonds of reorganized company, 59. 
 
 rights of, after notice and default, ib. 
 non-assenting, status of, after foreclosure of subsequent mortgage, 58. 
 non-assenting, rights of, against State guarantying new issue, ib. 
 of income bonds, non-assenting, status of, on accounting, ib. 
 should not be delayed, till receiver's accounts adjusted, 562. 
 suit against receiver long after appointment, 557. 
 receiver's denial of validity of bonds, etc., ib. 
 when not bound by proceedings to enforce mechanics' liens, 278. 
 
 not obliged to intervene, 279. 
 priority between, and guarantors of interest on reorganization, 129. 
 right to earnings as against claims for labor, etc., 66. 
 liability for income tax, 77. 
 
 provision that bonds shall be paid without deduction, etc., ib. 
 when postponed to purchasers of land certificates, 267. 
 of bonds secured by mortgage direct to himself, 210. 
 may not proceed alone against company, ib. 
 of bonds negotiable under Massachusetts statute, 117. 
 when estopped as against certificate-holders, 682. 
 
 as against purchasers of negotiable securities, ib. 
 suing for himself and others not entitled to compensation, 708. 
 when entitled to counsel fee, 713. 
 
 (See Action; Default; Equity; Income Bonds; Injunction; Majok- 
 iTT AND Minority Rights; Parties; Purchasers; Remedies of 
 Bondholders; Trustee; understates.) 
 
 BONDS, 
 
 power of corporation to issue, 3. 
 
INDEX. 877 
 
 The figures refer to pages. 
 BONDS — continued. 
 
 constitutional and statutory rertrictions upon, 2, 4 and n. 1. (See various 
 
 States.) 
 right to show violation of restrictions, 25. 
 
 disparity between conditions of issue and authorizing act, 21 and n. 3. 
 exclusive mention of, in act authorizing loan, not prohibitive, 2. 
 not valid until delivery, 23. 
 pledge of, held a delivery, ib. 
 
 presumption of legal home, based on place of issue, 19. 
 not rebutted by fact that interest payable elsewhere, ib. 
 interest upon, ib. 
 
 legality of rate determined by laws of what State, ib. 
 
 when issue usurious, 20. 
 principal not due on default of interest, unless so stipulated, 73. 
 no legislative power to hasten maturity of, ib. 
 provision not to fall due until specified time elapsed, ib. 
 in what payable, 71. 
 
 interest must follow character of principal, 72. 
 
 confederate currency, ib. 
 in what payable with reference to legal tender act, ib. 
 
 claim for payment in gold must rest on contract, ib. 
 
 indorsement, changing from " lawful money " to " coin," ib. 
 binding on corporation, ib. 
 not on State, guarantying them after change, ib. 
 
 payable in coin, authority of State as to, ib. 
 when not in prescribed form, void in hands of bona fide holder, 84. 
 
 rule formulated in New Jersey, ib. 
 formalities prescribed to secure stockholders, non-observance of, 85. 
 formalities omitted by directors cannot prejudice bona fide holder, ib. and n. 
 failure of directors to submit issue to vote of stockholders, 86, n. 1. 
 informalities of issue, when company alone may object, 29. 
 bearing on face no indication of wrongful issue, 86. 
 estoppel based upon recitals in, 87. 
 payable to guarantor, when assignment of, representation of ownership, 
 
 128, n. 3. 
 payable to bearer, when, ib. 
 
 date of issue, right of bondholder to assume correct, 84. 
 statute limiting issue of, violation of, 18, 30, 84. 
 
 issued in excess of limit, postponed to those within, 89 and n. 3. 
 
 numbers as determining validity in case of over-issue, 24, n. 5. 
 
 over-issue void in dii-ectors' hands, not in innocent holders', 19. 
 
 nor where over-issue succeeds holders' title, 19. 
 void as to State indorsing, binding upon company, 31. 
 issued by one corporation, guarantied by another, 84. 
 guarantied by corporation under authority wrongfully exercised, 86. 
 issued under construction contract in which directors have interest, 147. 
 
 effect, in hands of bona fide purchaser, ib. 
 issued to be sold for cash, pledged to a creditor, 33. 
 
 by whom such a disposition may be objected to, ib. 
 absence of certificate of trustee, as affecting, 27. 
 provision inserted by president, invalid as without authority, 24. 
 tainted with fraud in their issue, 94. 
 
878 INDEX. 
 
 The figures refer to pagea, 
 BONDS — continued. 
 
 recovery upon, by innocent holder, 94. 
 to extent of work actually done, ib. 
 where trustee's certificate a forgery, no recovery, 92. 
 stolen, maker should require proof that holder innocent, 108. 
 
 in hands of honajide purchaser but lacking seal, 24. 
 validity of, onus upon those who would impeach, 25. 
 shown to have been illegally issued, burden of proof, 84. 
 put on market after maturity of one or more coupons, 105. 
 purchased at less than face value, 17, 93. 
 secret agreement as to payment for, 52. 
 issue of, to consolidate funded debt, 14, n. 
 to extend facilities of company, ih. 
 to enlarge capacity of company, ih. 
 for procurement of rails, ib. 
 
 to pay debt arising from purchase of another road, ib. (See Con- 
 solidation.) 
 for money, labor done, and property received, 146. 
 to pay debts of another company, 4, n. 
 
 void as against holder with notice, 14. 
 by two companies, to overcome restriction upon lending credit, 15 
 by consolidated company, 21. 
 
 by consolidated company for bonds of constituents, 24, n. 5. 
 by officers, who purchase as individuals, 29. 
 
 validity in hands of officers' individual creditors, ib. 
 unauthorized issue by officers may be ratified, 27. 
 by railroad to construction company having common stockholders, 28. 
 having common dii-ectors, ib. 
 statutory provisions as to issue of, 13. 
 
 implied restriction on issue, in New York statute of 1850, 14. 
 
 must be strictly complied with, 13. 
 
 the consideration for issue, ib. 
 
 when issued as security for State credit, ib. 
 
 the amount of issue, i6. 
 
 the purposes of issue, ib. 
 
 the rate of interest 13, 19. 
 
 legislative power to remove restrictions upon power to issue, 14. 
 
 where issue exceeds paid-up stock, 18. 
 
 for full value of property, in addition to stock, 28. 
 
 authority to issue under special charter, 5. (See Chartek Pko- 
 
 VISIONS.) 
 
 validity of first, not affected by later issue, 29, n. 3. 
 
 invalidity of some, does not affect mortgage, 25. 
 
 not void by reason of invalidity of mortgage, 24, 32. 
 
 nor by illegality of rate of interest, 24. 
 
 validity of as affected by relations of purchaser to company, 28. 
 
 sale to director with stockholders' approval, ib. 
 
 when sale valid except in State creating corporation, 22. 
 
 taken as bonus on stock subscriptions, rights after foreclosure, 24. 
 
 whether benefits of mortgage clear of equities pass on transfer, 99. 
 
 rule in Illinois in affirmative, ib. 
 when may be pledged, 14. 
 
INDEX. 879 
 
 The figures refer to page?. 
 BONDS — continued. 
 
 on renewal of floating debt, 14. 
 
 to secure notes given for unsecured bond, ib. 
 trustees cannot be compelled to issue, 322. 
 repurchased by company, right to reissue, 58. 
 unissued, not corporate assets, 45. 
 lien of, relates back to record of mortgage, 262. 
 when treated as equitable mortgage, 211. 
 vendor's lien, none on sale of, 46. 
 deposit of, preliminary to action, rights of trustee, 300. 
 as affected by reorganization, 4, u. p. 12. 
 contents of, as notice afiecting priority of holder, 154. 
 exchanges of, and rights thereunder, 40. 
 until all paid, trust continues, 292. 
 
 creation of fund to redeem, when does not imply right, 73. 
 suits to cancel. (See Action.) 
 issue of, enjoined, when. (See Injunction.) 
 refunding of, 36. 
 " Lloyd's Bonds," 41. 
 (See Bonds AND Mortgage; Consolidation; Conversion of Bonds and 
 Stock; Deferred Income Bonds; Exchange or Bonds; Guarantt 
 of Bonds; Income Bonds; Irredeemable Bonds; Negotiability 
 OP Bonds; Over-issue of Bonds; Purchasers; Railway Companies; 
 State-Aid Bonds; Surrender op Bonds.) 
 
 BONDS AND MORTGAGE, 
 when operative, 45. 
 
 subject to maker's control until delivery, ib. 
 mortgage not operative until delivery of bonds, 46. 
 bonds not leviable under execution until delivery, 45. 
 undelivered bonds in hands of trustee, ib. 
 
 rights of creditors as to, ib. 
 though part of bonds void, mortgage not necessarily so, 202. 
 when mortgage may be foreclosed though bonds void, 198. 
 when must be construed together, 43, 154. 
 purchaser bound to notice all contained in both, 44, 154. 
 reference in bond to mortgage, effect of, 43. 
 
 effect of, upon negotiability, 44, n. 1. 
 reference in general terms, to mortgage, 44. 
 
 effect on bondholder's rights, of restrictive provisions in mortgage, ib. 
 recital in bond secured by mortgage, effect of, 43. 
 
 right based thereon to sue regardless of mortgage, ib. 
 uniformity between New York rule and other States, discussed, 44. 
 liens of bonds, date from mortgage record, 45. 
 substitution of duplicate bonds for originals, 58. 
 
 lien of mortgage not afiected, ib. 
 pledgee, waiving lien, may levy under execution, 45. 
 
 (See Bondholders ; Bonds ; Exchange op Bonds.) 
 
 BOOK DEBTS, 
 
 power to mortgage, 178. 
 
 BORROWING, 
 
 power of corporations as to, 1 and n. 1. 
 
880 INDEX. 
 
 The figures refer to pages. 
 BORROWING — continued. 
 general rule, 1. 
 acts of, presumed valid, 1. 
 
 power to give negotiable securities, incidental to, 1, n. 1, 3. 
 English Companies Clauses Act, construction of, 2, n. 1. 
 statutory provisions as to. (See under names of States.) 
 (See Railway Companies.) 
 BREACH OF TRUST, 
 what amounts to, 290. 
 
 not every mistake or neglect, ib. 
 acts showing want of capacity and honesty, ib. 
 neglect to enforce mortgage after maturity, ib. 
 (See Trustees.) 
 BRIDGE, 
 
 agreement as to removal if not paid for, 271. 
 BURDEN OF PROOF, 
 
 in action by purchaser of stolen bonds, 95 and n. 3. 
 upon party impeaching title of bondholder, 83. 
 when bonds shown to be illegally issued, 84. 
 where bonds valid upon face, 87. 
 upon holder of income bonds, to show earnings, 71. 
 BUSINESS, 
 
 when right to conduct, passes under mortgage, 219. 
 BUSINESS CORPORATIONS, 
 
 no power to mortgage after-acquired property, 182. 
 (See New York.) 
 
 CALIFORNIA, 
 
 constitutional restrictions as to issuing stocks and bonds, 4, n. 
 statutory provisions as to borrowing money, 40, n. 
 mortgages, code sections affecting, 211, u. 1. 
 
 rolling-stock, mortgage, void unless recorded as chattel mortgage, 340. 
 liabilities arising out of franchises, preserved from effect of alienation, 4, n. 
 compensation in eminent domain proceedings assessed by jury, 576. 
 CANADA, 
 
 trustees not liable for work or material before possession, 596, n. 1. 
 CANAL COMPANY, 
 
 loan authorized to complete construction of, 676. 
 CAPITAL, 
 
 uncalled, when does not pass under pledge of undertaking, 258. 
 power to mortgage. (See Railroad Companies.) 
 CAPITAL STOCK, 
 
 not goods and chattels, under Chattel Mortgage Acts, 201. 
 (See Stock.) 
 CAR TRUST, 
 defined, 343. 
 
 typical example of agreement forming, ib. 
 whether court can authorize creation of by receiver, 354. 
 certificates of, in efiect mortgage bonds of railroad company, 347. 
 
 inferior to earlier mortgage with after-acquired property clause, ib. 
 issued under contract with directors, when a fraud on mortgagees, 
 348. 
 
INDEX. 881 
 
 The figures refer to pages. 
 
 CAR TRVST — continued. 
 
 holders' rights after default and appointment of receiver, 352. 
 rights of non-assenting holders of, 347, 352. 
 car-trust lease, lessor's rights after default and receiver, 352. 
 
 ■where lessor and mortgagor companies under same control, ib. 
 CERTIFICATE-HOLDERS. (See Holders of Certificates.) 
 CERTIFICATES, 
 
 of trustee on bonds, his liability arising therefrom, 317. 
 of public lands, when preferred to bondholders, 267. 
 car trust certificates. (See Car Trust.) 
 (See Certificates of Indebtedness; First- Lien Certificates; Land- 
 Grant Certificates.) 
 CERTIFICATES OF INDEBTEDNESS, 
 power to issue, implied, when, 15, 35. 
 issued to creditors, when, 16. 
 not binding upon company unless authorized by stockholders, 38. 
 
 or by them ratified, ib. 
 issued to creditors to facilitate funding scheme, 35. 
 
 under special statute, ib. 
 
 issue of, for interest coupons, 37. 
 
 how far affects lien of, ib. 
 
 when construed as substitution and lien preserved, 36. 
 issued for accrued interest coupons not a payment, 36, 63. 
 issued for dividends to preferred stockholders secured by mortgage, 37. 
 priority as between and claim of general creditors, 37. 
 
 and company, ib. 
 convertibility into bonds, ib. 
 
 " dividend in scrip," when taxable as, under Revenue Act, 35. 
 (See First-Lien Certificates ; Holders of Certificates.) 
 CHARTER PROVISIONS, 
 
 effect of on issuing bonds, 4, n. 
 on power to mortgage, 164. 
 
 (See Bonds; Statutory Provisions.) 
 CHATTEL MORTGAGE, 
 
 all detached personalty, proper subject of, 247. 
 when mortgage of real estate must be filed as, 201. 
 valid by lex loci contractus, valid in other States, ib. 
 unrecorded, good as against mortgagor, 200. 
 when, as against purchaser or mortgagee with notice, ib. 
 when, possession under, cures failure to record, 201. 
 change of possession, what deemed sufficient, ib. 
 mortgagee having notice of prior, 207. 
 
 railway mortgages not within purview of State acts respecting, 200. 
 CIRCULARS. (See Prospectus; Purchaser.) 
 
 representations of, effect on purchaser of bonds, 53. 
 CITIZENSHIP OF CORPORATIONS, 
 
 corporation, citizen of State creating it, 432, 433. 
 
 suit against corporation, regarded as against stockholders in federal 
 
 court, 432. 
 stockholders presumed citizens of creating State, ib. 
 consolidated company, a citizen of State where suit brought, 433. 
 
 66 
 
882 ' INDEX. 
 
 The figures refer to pages. 
 
 CITIZENSHIP OF CORPORATIONS — confmuerf. 
 
 suit against, by citizen of same State, removal of, 433. 
 whether foreign corporation a citizen where it conducts business, ib. 
 
 where right amounts to mere license to do business, ib. 
 
 where merely invested with rights of original charter, 434. 
 
 merely leasing and operating road in another State, ib. 
 
 where original charter duplicated and legislation incorporates pro 
 forma, 43-5. 
 
 purchase by foreign company of franchises and property of domestic, 
 448. 
 intent to create new corporation, how manifested, 435. 
 
 intent to incorporate under general laws of foreign State, ib. 
 
 filing certificate, but not dealing as if organized, ib. 
 
 whi'n corporation estopped to deny organization in another State, ib. 
 corporation suable in sister State by implied or express consent, 436. 
 
 deemed " an inhabitant of " and " found within " district, ib. 
 foreign construction suing foreign railroad company and citizen of State, ib. 
 where right to do business conditioned upon keeping agent in State, ib. 
 cases within act of Congress permitting service by publication, ib. 
 waiver of corporation's right to be sued in own State only, 437. 
 
 jurisdiction acquired for all purposes, ib. 
 action against federal receiver, removable despite citizenship, 439. 
 
 CITY AND TOWN LOT. (See Mortgage.) 
 
 COLORADO, 
 
 constitutional restrictions upon consolidating railroads, 4, n. 
 upon issuing stocks or bonds, 4, n. 
 
 statutory provisions as fa issuing bonds and borrowing, 40, n. 
 
 statutes respecting reorganization, 842, n. 1. 
 
 mechanics' liens in, 276. 
 
 COMMISSION. (See Compensation.) 
 
 COMMON CARRIERS, 
 
 trustees in possession liable as, 319. 
 
 liability not affected by surrender under decree, 320. 
 
 COMPANIES ACT OF 1862, 
 
 power under, in England, to mortgage future acquisitions, 181. 
 
 COMPANY, 
 
 court cannot empower any but railroad, to issue first-lien certificates, 670. 
 (See Liability of Company during Receivership.) 
 
 COMPANY IN POSSESSION, 
 
 control and disposition of mortgaged property by, 492. 
 control of corpus by, ib. 
 nsual right of, till condition broken, ib. 
 
 proper plaintiff in action to assert rights concerning mortgaged lands, ib. 
 lease by, valid till condition broken, 493. 
 
 right to mortgage property charged as ''floating security," 493. 
 mortgaged property liable to be levied on while, ib. 
 distinction where property essential to exercise of franchise, 494. 
 sale under execution of equity of redemption, ib. 
 control and disposition of income by, 495. 
 when income expressly pledged, ib. 
 
INDEX. 883 
 
 The figures refer to pages. 
 
 COMPANY IN POSSESSION — continued. 
 
 discretionary right of, as to expenditure of income, 497. 
 
 income bondholders cannot question such right, ib. 
 
 specific appropriation of income by, superior to all claims, ib. 
 
 income, subject to levy or attachment, while, 499, 500. 
 
 creditor's remedy by garnishment, 500. 
 
 after possession by trustee, 501. 
 
 application of income to dividends, when complete, 498. 
 unlawfully, after demand upon default, 500. 
 
 after demand trustee entitled to all earnings, ib. 
 
 institution of suit equivalent to demand, ib. 
 
 after default and demand or suit begun, treated as receiver, ib. 
 when mortgagee's right to income becomes complete, 501. 
 security must be given by receiver to protect earnings from levy, ib. 
 mortgagee entitled to income though company's control divested by 
 
 junior, ib. 
 not so, when divested by judgment creditor, 502. 
 rights of general, when control divested by divisional mortgagee, ib. 
 purchaser holding income in trust for prior mortgagee, ib. 
 COMPENSATION AND EXPENSES, 
 out of what funds payable, 719. 
 
 fundamental rule ^ mortgaged property must bear expenses of adminis- 
 tration, 719. 
 
 principle applicable to trustee, receiver, or oflBcer acting as, ib. 
 
 applicable whatever nature of suit, 720. 
 where counsel retained by company and continued by receiver, ib. 
 necessary charges, first lien on mortgaged property, ib. 
 trustee may retain title until compensation paid, ib. 
 right cannot be evaded, ib. 
 trustees' and receivers' reasonable expenses preferred to all other claims, 
 
 721. 
 fees for successful professional services on behalf of unsecured creditors, 
 
 720. 
 where fee iixed at half recovery, solicitor's lien on proceeds, 721. 
 mortgagor's expenses, incurred selling lands as directed by mortgage, ib. 
 lien for counsel fees, not lost by trustee's death, ib. 
 
 payable ordinarily out of general fund, 722. 
 expenses of divisional mortgagee in suit on general junior mortgage, ib. 
 rule qualified, wherever inequitable in operation, ib. 
 where judgment creditors unsuccessfully assail assignment for certain 
 
 bondholders, ib. 
 fees of successful attorneys representing inferior classes, ib. 
 trustee's counsel fees in company's action to redeem, 723. 
 costs in action deciding plaintiff's title to rolling-stock, ib. 
 liability of prior mortgagee for expenses of suit by junior, ib. 
 
 no liability, except upon unsuccessful intervention, ib. 
 trustee's expenses payable before bondholders, 724. 
 advances to attorneys and counsel should be small, 719. 
 proper time to settle at end of litigation, 724. 
 decree, referring to master to determine amount of, ib. 
 reference may be proceeded with after confirmation of sale, ib. 
 assertion of trustee's claim for, after redemption, ib. 
 
884 INDEX. 
 
 The figures refer to pages. 
 COMPENSATION AND EXPENSES — continued. 
 rehearing after remand by appellate court, 724. 
 preoiseness necessary in exceptions to master's allowances, 725. 
 (See Compensation of Receivers ; Compensation op Trustees ; Costs ; 
 Expenses in Suits, etc.) 
 
 COMPENSATION OF RECEIVERS, 
 
 preferred to receiver's certificate-claims, 703. 
 solicitors of receivers, claims of, also preferred, ib. 
 amount, how far discretionary with court, 709. 
 
 policy which guides discretion, ib. 
 governing considerations ; amount, trust, care, responsibility, time, skill, 
 
 success, ib. 
 amount held excessive, reduced, ii., n. 1. 
 
 good faith and reasonable success, protect from lack of foresight, 709. 
 residing at a distance and inactive, 710. 
 order directing, should be definite as to services and basis, ib. 
 during cessation of active management, ib. 
 
 amounts allowed, ib., n. 3. 
 Maryland rule compared with that of federal and other courts, 710. 
 additional compensation when allowed, ib. 
 acting as superintendent and attorney, ib. 
 
 working and travelling during unusual hours from necessity, ib. 
 cases where not warranted, 711. 
 amounts disallowed, ib., n. 3. 
 method of determining amount, 711. 
 
 what others would charge, irrelevant, ib. 
 
 but expert testimony admissible, ib. 
 
 divergence of, ib. 
 
 testimony of other receivers, feebleness of, ib. 
 (See Compensation and Expenses; Expenses in Suits, etc.; Costs.) 
 
 COMPENSATION OF TRUSTEES, 
 
 inferior to receiver's certificate-claims, 703. 
 
 solicitors of trustees, claims of, also inferior, ib. 
 
 none allowed in England, ib. 
 
 policy of allowing in United States, ib. 
 
 amount determined by what considerations, ib. 
 
 for what services and expenditures recoverable, 704. 
 
 expenses of suit for payment of rent, trustee has guarantied, ib. 
 
 for personal services, 70.5. 
 mortgage sometimes determines, ib. 
 percentage on par value of bonds received as cash, ib. 
 statutes sometimes expressly provide for, ib. 
 courts sometimes guided by analogous statutes, ib. 
 but will settle amount in view of all facts, 706. 
 
 where whole time not occupied in foreclosure proceedings, ib. 
 
 where services merely nominal, ib. 
 
 where amount involved large, ib., n. 1. 
 amounts held excessive, 708. 
 State-court rules as to, imperative, 707. 
 where more than one, ib. 
 
 character and extent of each one's services controlling, i5. 
 
INDEX. 885 
 
 Tlie figures refer to pages. 
 
 COMPENSATION OF TRUSTEES — continued. 
 allowances held proper and svifficient, 707. 
 distributable among number specified in mortgage, estoppel to claim 
 
 greater, 708. 
 to one discharged without his knowledge, ib. 
 to successor of deceased trustee, ib. 
 
 one not a trustee cannot claim, though performing duties of, 705, n. 1. 
 representative bondholder not entitled to, 708. 
 
 though trustee's negligence made action by him necessary, ib. 
 (See Compensation and Expenses; Costs; Expenses in Suits, etc.) 
 
 CONDITIONAL SALE, 
 
 void, when purchaser liable unconditionally for price, 345. 
 must be conditional both as to title and price, ib. 
 when claim under, not preferred, though lien respected, 620. 
 remaining instalments due on, receiver will pay, 697. 
 (See Vendor's Liens.) 
 CONDITIONS, 
 
 statutory, as affecting bond issue, 85. 
 
 (See Terms, Conditions, and Limitations.) 
 
 CONNECTICUT, 
 
 statutory provisions as to bonds and borrowing, 40, n. 
 mortgage by a corporation, manner of execution, 185. 
 
 CONSIDERATION, 
 
 of trust deed, true and apparent, 211. 
 
 for issue of stocks and bonds, 1^6. 
 
 money, labor done, and property actually received, ib, 
 
 for guaranty of bonds, 118. 
 
 "value received " imports sufficient, ib. 
 
 true, always open to explanation and variation, 125. 
 
 transfer of guaranty to creditor sufficient to cure invalidity, ib, 
 
 omission to mention guaranty on transfer, immaterial, ib. 
 
 CONSOLIDATION, 
 defined, 4, n. 
 
 purport and effect of term, 132. 
 constituent companies, 14. 
 payment of debts of constituents, ib. 
 power to mortgage after, 168, 169. 
 
 coextensive with that of constituents, 168. 
 power to issue bonds after, 21. 
 
 issue by, consolidated company for bonds of constituents, 24, n. 5. 
 right to convert bonds into stock after, 57. (See Conversion of Bonds 
 
 into Stock.) 
 validity of, how determined, 168. 
 ratification of, by different States, 169. 
 
 application to determine validity denied to income bondholder, 71. 
 illegality of, may not be raised after lapse of years, when, 22. 
 effect of, on priorities, 266. 
 
 first-lien certificates issued to maintain single division of, 476. 
 effect of, on mortgages against constituents, 229. 
 effect, rendering mortgage valid on part of road only, 202. 
 
888 INDEX. 
 
 The figures refer to pages. 
 CONSOLIDATION —conftnuerf. 
 
 system administered as entirety, 658. (See Power of Court and its 
 
 Receiver.) 
 effect on mortgage of after-acquired property, 184. 
 statute: declaring creditors' rights protected under, notice of existing 
 
 claims, 266. 
 New Jersey statutes affecting, 169. 
 
 (See under diSerent States.) 
 
 CONSTITUTIONALITY, 
 
 of State bonds, 129. 
 
 of act discriminating against claimants, receiver cannot question, 613. 
 
 CONSTITUTIONAL PROVISIONS, 
 relating to statutory liens, 329. 
 effect of, on eligibility of non-residents for trusteeship, 284. 
 
 CONSTITUTIONAL RESTRICTIONS, 
 on issue of stocks and bonds, 146. 
 " money, labor done, or property actually received," ib. 
 object of provision, ib. 
 effect of, as a result of decisions, 11, n. 
 when not applicable to debts already incurred, 192. 
 when bonds issued partly for a new debt, ib. 
 
 CONSTRUCTION COMPANY, 
 
 which floats and guaranties bonds, stockholders entitled to lien, 279. 
 
 agreement with, as to removing bridge if not paid for, 271. 
 
 having same directors and stockholders as railway company, 271-279. 
 
 CONSTRUCTION CONTRACTS, 
 
 lien of, determined by general equitable principles, 148. 
 
 not a lien on proceeds of bonds, ib. 
 
 postponed to bonds held by purchasers for value, ib. 
 
 when not a lien on constructed road, 149. 
 
 lien of, when lost by surrender of bonds issued for, 151, 
 statutory lien of, 149, 150, n. 3. 
 
 involving over-issue of bonds, invalid, 147. 
 action to have declared invalid, 151. (See Action.) 
 judgment, in action upon, for possession of road, 149, n. 1. 
 upon rescission of, when contractor's rights protected, 150. 
 bonds issued under, valid where no over-valuation, 18. 
 where road might have been constructed for less, 18. 
 (See Expenses of Construction; Profits and Construction.) 
 
 CONSTRUCTION OF INSTRUMENTS, 
 
 general rules, as to property covered by mortgage, 216. 
 intention gathered from whole instrument prevails, 219, 225. 
 
 CONTEMPT OF COURT, 
 
 interference with possession of receiver, 549, 565. 
 strikers, interference by, 549. 
 
 CONTRACT, 
 
 conflict of laws as to validity of certain contracts, 22. 
 true nature to be determined by all provisions of, 851. 
 not determined by name, 349. 
 
INDEX. 887 
 
 The figures refer to pages. 
 
 CONTRACT — continued. 
 
 statutes affecting, cannot be evaded by use of names, 350. 
 between individual bondholder and company as to security, 58. 
 of corporations, non-observance of forms intended to secure stockholders. 
 85. 
 
 effect not to invalidate, 85, n. 2. 
 fraudulent, cannot be set aside by party to, 205. 
 
 rule applicable to corporations, 205. 
 when equitable mortgage arises to extent of stipulations in, 212. 
 that subscriptions should be loans, when equitable mortgage, 213. 
 by senior bondholders, conceding priority, when equitable mortgage, ib. 
 when purchasing company takes with obligations of, 268. 
 when trustee of mortgage so takes, ib. 
 between company and landowner, for right of way, 269. 
 mortgagee of road takes subject to, ib. 
 that title to personalty not to pass till paid for, 271. 
 law of place where made controls railroad mortgages, 627. 
 execution of, where several receivers, 644. 
 exchanging bond, rescission of, when denied after decree, 650. 
 (See Construction Contracts.) 
 
 CONVERSION OF BONDS INTO STOCK, 
 not now common, 56. 
 
 " at pleasure of holder " inures to benefit of holder only, ib. 
 stock issued for dividends to one holding stock before conversion, 55. 
 right of, not affected by consolidation, 57. 
 
 exception in case of election after notice, ib. 
 right of bondholder who is stockholder assenting to consolidation, ib. 
 effect of statute authorizing consolidation upon, ib. 
 right forfeited if not exercised within specified time, ib. 
 
 effect of agreement to an extension, ib. 
 
 of simple acceptance of terms of circular, ib. 
 
 of bondholder fixing his own terms, ib. 
 right, at or before maturity, forfeited thereafter, ib. 
 
 CONVEYANCE TO TRUSTEES, 
 
 whether creates lien merely or passes all but right to redeem, 362. 
 importance of question as affecting execution sale, ib. 
 
 CORPORATION, 
 
 three essentials of, 134. 
 
 a "franchise," 134, 171, 175. 
 
 may hold other franchises, 134. 
 
 distinction between, and other franchises, 175. 
 
 rule of construction against mortgage of corporate existence, 176. 
 
 illustrative cases, 176-178. 
 presumption as to legal home of, 19. 
 cannot deny its corporate existence to avoid bonds, 31. 
 right to maintain action against directors, 54. 
 
 not estopped by fact that directors own aU stock, ib. 
 common-law powers as to alienation, 161. 
 
 implied power to mortgage, 162. 
 
 when limited by implication, 164. 
 
888 INDEX. 
 
 The- figures refer to pages. 
 CORPOEATION — continued. 
 
 when exercise of right Incompatible with objects of, 164. 
 restriction by implication of right to mortgage not countenanced, ib., 
 167. 
 
 except as to property essential to exercise of franchise, ib. 
 purpose of creation, limits right of alienation, 164. 
 property essential for exercise of franchises, ib. 
 
 not proper subject of voluntary or forced sale, ib. 
 
 unless authorized by legislature, ib. 
 
 rule confined to real estate and fixtures, 165. 
 
 road-bed and fixtures of railroad company, ib. 
 
 turnpike company, ib. 
 
 canal and appurtenances of canal company, ib. 
 
 market-house, ib. 
 
 plant of water company, ib, 
 power to issue bonds and other negotiable securities, 3, 84. 
 extent of power presumed known to public, 84. 
 
 principle applicable to bona fide purchasers, ib. 
 
 exception to rule 86, n. 1. 
 right to mortgage not restricted by statutory lien, 168. 
 bound by agent's acts within scope of authority, 157. 
 ratification of acts of agents, 187. 
 presumption that officers of, rightfully in office, ib. 
 authority of officers to execute mortgage, ib. 
 seal, may be affixed by secretary de facto, 188. 
 officers de facto, binding effect of acts of, ib. 
 when instrument executed by agent, deed of, 186. 
 
 (See Mortgage.) 
 validity of bonds issued beyond authority of, 84. ► 
 
 question whether contract usual, ib. 
 when estopped from asserting invalidity of unauthorized mortgage, 196, 
 
 204. 
 when may question validity of mortgage, 203. 
 mortgage executed to indemnify guarantor of bonds, 204. 
 right, subject to law of principal and agent, ib. 
 rule, in pari delicto, etc., applicable to, 205. 
 cannot mortgage what it cannot hold, 183. 
 power to mortgage in one State, power in others, when, 166. 
 purchaser from corporation of bonds guarantied by another corporation, 
 84. 
 
 bound to inquire into guarantor's powers, ib. 
 compromise arrangements between corporations, 125. 
 
 validity of guaranty included in, ib. 
 conveyance by. cannot be questioned by junior mortgagee, 206. 
 
 rule qualified, ib. 
 foreign, prohibition against " doing business" in State, 285. 
 acceptance of trust to be executed on contingency, ib. 
 unpaid stock subscriptions, may be assigned, not mortgaged, 163. 
 
 rule in England, 164, n. 1. 
 foreign, eligibility of, for trusteeship, 285. 
 
 States of Union, distinguished from other States and countries, ib. 
 constitutional provisions respecting rights of citizens, not applicable to, ib. 
 
INDEX. 889 
 
 The figures refer to pages. 
 
 CORPORATION— continued. 
 
 constitutionalty of act invalidating trust deeds to foreign, 285. 
 
 possession by, under scrutiny of court, 390. 
 dealt witti as trustee, ib. 
 dealt with as receiver, ib. 
 
 when trustee in possession, exempt from liability, 320. 
 
 trustee in possession stands in place of, 319. 
 
 when dissolved, right to foreclose ceases, 396. 
 
 appointment of receiver of defunct, 516. 
 
 after appointment of receiver, may continue to exercies franchises, 551. 
 
 may elect directors after receiver's sale, ib. 
 
 not dissolved by sale of property and franchises, 780. 
 
 effect of declaring sale void, on corporate existence, 817. 
 
 franchises of, power to mortgage. (See Franchises.) 
 
 (See Bonds; Borrowing; Citizenship of Corporations; Consoli- 
 dation ; Directors; Railroad Companies; Liability of Com- 
 pany DURING Receivership; Stockholders.) 
 
 CORPUS, 
 
 purport and effect of term, 133. 
 
 when unsecured debt preferred as to, 603. 
 
 control of, by company in possession, 492. 
 
 (See Company in Possession.) 
 COSTS, 
 
 as between different mortgagees, 716. 
 
 rule in England, ib. 
 where mortgagee sues for administration and sale of estate, i6. 
 where mortgagee sets up unfounded claim, 717. 
 where suit between first and third mortgagee, ib. 
 where success of unsecured creditors' suit inures to all, ib. 
 to iutervenors, 718. 
 
 sheriff fees, where execution plaintiff becomes purchaser, ib, 
 attorney and counsel fees, amount in discretion of court, ib. 
 
 amount held ample compensation, ib. 
 
 advances to attorneys and counsel, should be small, 719. 
 
 annual allowances, ib. 
 in redemption suit by junior mortgagee, 720. 
 
 where prior mortgagee intervenes to make sale, unsuccessfully, 723. 
 (See Compensation and Expenses; Compensation of Receivers- 
 Compensation OF Trustees; Counsel Fees; Expenses in Suits. 
 etc.) 
 
 COUNSEL FEES, 
 
 when preferential claims, 616. 
 
 when not, 623. 
 
 not extending to corpus of estate, 616. 
 
 counsel employed for special purposes, ib. 
 of counsel retained by company and continued by receiver, 720. 
 (See Costs; Expenses in Suits relating to Mortgaged Property.) 
 
 COUPONS, 
 
 defined, 100, 106. 
 
 often treated as independent of bond, 100. 
 
 pass as bonds under a will, ib. 
 
890 INDEX. 
 
 The figures refer to pages. 
 
 COUPONS — continued. 
 
 on distribution, equal with bonds, 754. 
 
 mere representatives of claim for interest, ib. 
 
 maturing after principal, deemed cancelled, 103. 
 
 detached, retain same character as to security as bonds, 106. 
 
 but become independent claims, ib. 
 validity of, not affected by cancellation of bonds, ib. 
 
 rule in Maine and Ohio, ib., n. 6. 
 protected by and subject to covenants in bond, 108. 
 in action upon, production of bond unnecessary, 107. 
 
 suit, the theory of form and mode of execution of, ib. 
 possession of prima facie evidence that holder holds bond, 101. 
 detached, whether covered by guaranty of bonds, 100, n. 1 ; 127, n. 2. 
 payable out of revenue, recovery where fund not shown, 384. 
 recoverable under general count in debt, 381. 
 transfer of possession, presumptively of title, 105. 
 
 does not import guaranty, ib. 
 interest coupons pass by delivery, ib. 
 
 matured coupons attached to bonds, as notice to purchaser, 95. 
 interest unpaid, not notice of bond's invalidity, 154. 
 interest upou, after default, 104. 
 
 allowed as damages, ib. 
 
 not a breach of usury laws, ib. 
 whether entitled to days of grace, ib. 
 default complete after demand, ib. 
 
 where interest runs without demand, 105. 
 right of holder to foreclose for default of interest, 405. 
 of railroad and municipal bonds, subject to same rules, 105. 
 negotiable, though not payable to particular person, 106. 
 
 containing references to mortgage, effect on negotiability, ib. 
 non-negotiable, when party rights depend on statutory construction, ib. 
 waiver of State lien for bonded debt, whether extends to coupons, ib. 
 stolen, same rules apply to, as to bonds, 108 (which see). 
 
 attached to bonds, purchaser's title to those matured, 108. 
 
 as to those not matured, ib. 
 
 consequences, of paying overdue coupons of stolen bond, ib. 
 
 stolen and non-negotiable, purchaser of, acquires no title, 109. 
 lost, right to recover, upon tendering indemnity, 109, 385. 
 whether bought or paid, 109. 
 
 matter of evidence of intention, ib. 
 
 determining question, 110. 
 
 as against company, 109. 
 
 as against bondholders who purchased supposing them paid, ib. 
 
 bought, inferred from fact that company did not receive money, 
 110, n. 1. 
 
 from declarations of transferee, ib. 
 
 where purchase asserted by agent to receive and disburse earnings, 
 111. 
 
 where earnings blended with private funds, ib. 
 
 effect of resolution at agent's instance after receipt of, ib. 
 
 lien of, once ceasing, cannot be revived by company, ib. 
 
 theory denying lender equal rights with other secured creditors, 110. 
 
INDEX. 891 
 
 The figures refer to pages. 
 COUPONS — continued. 
 
 theory strengthened as to subsequent purchasers, 111. 
 
 decisive where paid by guarantor of, ib. and n. 
 
 surrender for new, in scheme to fund interest, security not released, 
 
 112. 
 that new, are under seal immaterial, ih. 
 reissued after surrender, mere evidences of debt, 111, n. 3. 
 apparently paid, treated by court as paid, ib. 
 detached and barred by Statute of Limitation, 108. 
 funding of, under statute, 113. 
 
 binding effect upon those of same class not funded, ib. 
 statute operates upon entire obligation, ib. 
 whether holders may be made parties defendant, 475. 
 
 (See Interest ; Power of Court and its Receiver.) 
 COURTS, 
 
 non-iuterference between federal and State, 566. 
 federal courts' chancery powers, 375. 
 not affected by State legislation, ib. 
 possession by corporation under scrutiny of, 390. 
 when trustee should consult, 312, 654. 
 
 when should report to, 312. 
 (See Jurisdiction ; Power op Court and its Receiver ; Removai 
 OF Causes.) 
 CREDIT, 
 
 materials furnished on, not preferred, 619. 
 CREDITORS, 
 
 presumption in favor of unsecured, 65. 
 
 subsequent to bond and mortgage, estopped to deny validity, 26, 27. 
 not entitled to question resolution authorizing mortgage, 207. 
 nor to raise the question of notice to stockholders, 208. 
 when not entitled to question execution of mortgage, 207. 
 when executed by board they contracted with, ib. 
 may assail mortgage on ground of fraud, 208. 
 or that not registered, ib. 
 but not when they had actual notice, ib. 
 general creditors' right to file bill against collusive receivership, 471. 
 cannot compel trustees to issue bonds, 322. 
 claims of, for operating expenses upon earnings, 499. 
 " labor and supply." (See Words and Phrases.) 
 remedy by garnishment process, to reach income, 500. 
 apportionment with attaching creditor of earnings, at foreclosure, ib. 
 (See Judgment Creditors; Operating Expenses; Preferred 
 Debts; Priorities.) 
 
 DAMAGES, 
 
 resulting from maintaining railroad on street, lien for, 269. 
 (See Power of Court and Receiver.) 
 DAYS OF GRACE. (See Coupons; Default.) 
 DEBENTURE-HOLDERS. 
 
 character of action by, 372, n. 1. 
 
 injunction by, to restrain payment to bondholders, ib. 
 when but one remedy provided by special statute, 379. 
 
892 INDEX. 
 
 The figures refer to pages. 
 DEBENTURE-HOLDERS — continued. 
 
 personal judgment when recoverable by, 379. 
 
 suing on behalf of self and others, ib. 
 right to receiver, 509. 
 
 when entitled to receiver, though winding-up petition presented, 
 506, n. 1. 
 receiver and naanager appointed at suit of, when, 370, n. 
 summary method of realizing upon securities, 378. 
 
 power of sale under Conveyancing Act, ib. 
 
 under Companies Act of 1862, ib. 
 right to execution against corporate property, 384, n. 1. 
 with judgment, when not entitled to execution, 379. 
 right of foreclosure against uncalled capital and other property, 392, h. 2. 
 judgment in action to foreclose, 807. 
 provision regarding moneys in hands of receiver, ib. 
 when liquidator cannot enjoin sale by, 772. 
 entitled to recover interest as damages, when, 379. 
 when not a creditor, within meaning of Companies Act, ib. 
 preferred to subsequent creditors on winding up, 603, n. 2. 
 
 and to general creditors, ib. 
 to what extent secured by rolling-stock, 3. 
 
 of debentures giving power to majority to compromise, 851, n. 2. 
 reconstruction, power to sanction scheme of, ib. 
 majority resolutions must be consistent with rights under deed, 52. 
 on distribution, legal and equitable take equally, 753. 
 
 (See BoNDHOLDEKs; Bonds; Debentures.) 
 
 DEBENTURES, 
 
 negotiability of, 80. (See Negotiability of Bonds.) 
 
 estoppel based upon recitals in, 87. 
 
 when treated as equitable mortgage, 211. 
 
 " undertaking " pledged to secure, 257. 
 
 secured by " undertaking " of steamboat company, ib. 
 
 of railway company, ib. 
 where company cannot interfere until default, 258. 
 guaranty of, assigned to guarantor in discharge of debt, 125. 
 issued to indemnify transferrer of business against debts of, 15, n. 
 priority of only as to the " undertaking," 280, n. 2. 
 
 as between trustees of debenture deed and debenture-holders, 280. 
 on winding up of company, priority as to general creditors, ib., n. 2. 
 
 as to judgment or execution creditors, ib. 
 priority of receiver as to money raised by court's authority, ib. 
 priority of issue after default of interest, ib. 
 after appointment of receiver, 280, n. 3. 
 
 priority as between holders of different dates of issue, 280, n. 2. 
 treated as valid though irregularly issued, ib. 
 
 (See Bonds; Borrowing; Debenture-Holders; Guaranty of 
 
 Bonds.) 
 DEBTS, 
 
 private, of corporate officer, pledge to secure, 33. 
 
 DECREE, 
 
 obtained by fraud, jurisdiction as to, 420. 
 
INDEX, 893 
 
 The figures refer to pages. 
 DECREE — continued. 
 
 of State court bar to proceedings in federal, 417. 
 
 final, determines rank of certificate-holders, 680. 
 
 (See Appeals; Foreclosure Decrees.) 
 DECREES AND ORDERS, 
 
 binding effect of, in action by or against trustees, 487. 
 
 order appointing receiver and imposing conditions. (See Preferred 
 Debts.) 
 
 contents of order appointing railway receiver, 642, n. 1. 
 (See Appeals; Foreclosure Decrees.) 
 DEFAULT, 
 
 meaning of completed default, 399, 408. 
 
 non-payment concurred in by mortgagee, 399. 
 
 whether demand necessary to complete, 400, 408. 
 
 when time essence of contract, 408. 
 
 for a particular period, designated "contract grace," ib. 
 
 complete when " contract grace " expires, ib. 
 
 what amounts to, when bondholder receiving income, 401. 
 
 no relief from consequences of, without excuse, 402. 
 
 right to pay in scrip, not available after default, 403. 
 
 failure to make demand, no defence, ib. 
 
 on divisional bonds not available to consolidated mortgagee, 401. 
 
 not complete, receivership denied, 528. 
 
 decree of foreclosure reversed upon showing default waived, 431. 
 
 waiver of one, does not affect rights on others, 408. 
 
 may be taken advantage of by single bondholder, 405. 
 especially where levy prohibited by mortgage, ib. 
 bound to see all rights protected by final decree, ib. 
 
 right may be restricted by mortgage, 406. 
 DEFENCES, 
 
 available in suit against receiver, 571. 
 
 available against bondholders, available against trustees, 480. 
 
 absence of consideration, available to company, 26, n. 4. 
 not as against bona fide purchaser, ib. 
 
 no defence against bona fide holder that bonds diverted, 92. 
 
 guaranty of bonds, action on, no defence that bonds void, 117. 
 DEFERRED INCOME BONDS, 
 
 power to issue, 32. 
 
 conflict of authority as to, ib. 
 DELAWARE, 
 
 cases affecting reorganization, 842, n. 1. 
 DELIVERY, 
 
 bonds not valid until, 23. 
 
 pledge construed as, ib. 
 
 action to annul bonds for wrongful. (See Action.) 
 DEMAND, 
 
 at place designated, whether a prerequisite for suit, 401. 
 
 whether necessary to complete default, 401, 408. 
 
 what a sufficient demand, 401. 
 
 upon company after default renders its possession unlawful, 500. 
 
 suit equivalent to demand, ib 
 
 trustee entitled to all earnings after, ib. 
 
894 INDEX. 
 
 The figures refer to pages. 
 
 DEPOTS AND OTHER BUILDINGS, 
 lands acquired for. (See Moutgage.) 
 "depot," term not limited to place for passengers, 254. 
 
 DESCRIPTION OF MORTGAGED PROPERTY. (See Mortgage.) 
 specific description, necessity for when qualified by doctrine of fixtures, 
 247. 
 by doctrine that railroad an entirety, 248. 
 
 DIRECTORS, 
 
 power to borrow money, issue bonds, mortgage, etc., 188. 
 
 authority to manage property, business and affairs, 189. 
 
 may bind company by guaranty, without consent of stockholders, 116. 
 
 may ratify trust deed, differing from that authorized, 190. 
 
 certain statutes conferring powers declaratory of common law, 188. 
 
 may be reimbursed for advances by bond issue, 198. 
 
 when company estopped to contest on grounds of trust relations, 205. 
 
 when entitled to lien for advances, 346. 
 
 right of, to purchase bonds at a discount, 95. 
 
 conflict of authority on question, 94. 
 
 New York rule, 95. 
 
 Illinois and Kansas rule, 94. 
 
 where they deal with company, ib. 
 
 where with persons to whom they owe no duty, 95. 
 bonds issued to, as a bonus to induce subscription, 29. 
 sale of bonds to, at full value, 28. 
 
 having personal interest in transaction opposed to company's, 147. 
 bonds issued in pursuance of, ordered cancelled, ib. 
 car-trust certificates issued to, when void, 348. 
 meetings of, must conform to by-laws, 189. 
 
 when one, has no notice of, ib. 
 to constitute a quorum, president need not attend, ib. 
 may be elected after receiver's sale, 551. 
 
 misconduct of, aggravated by fact of stockholders protesting, 814. 
 action against, by creditor to annul deed for fraud, 207. 
 (See Fiduciaries.) 
 
 DISTRIBUTION OF PROCEEDS, 
 
 master or other distributing oflicer bound by decree, 752. 
 party affected, entitled to review or rehearing by court, 758. 
 lien creditors always preferred, ib. 
 
 exception, debts for operating expenses, ib. 
 judgment not a lien unless made so by statute, ib. 
 where vendor's lien lost by rejection of bond-consideration, ib. 
 to equitable, equally with legal, debenture-holders, ib. 
 claims of undisputed priority, at once payable, ib. 
 
 equally to bondholders of same class, ib. 
 principle regulating distribution among execution creditors, not appli- 
 
 able, ib. 
 upon sale for all bonds, on default of interest on part, 754. 
 pro rata among creditors and assignees, ib. 
 equally to pay coupons and bonds, ib. 
 principle sometimes embodied in mortgage, 755. 
 
INDEX. 895 
 
 The figures refer to pages. 
 
 DISTRIBUTION OF PROCEEDS — continued. 
 
 where fund insufficient and coupons of a class partly paid, 755. 
 
 amongst holders of detached coupons maturing before and after decree, 756. 
 
 coupons attached to bonds pledged, part of security, ib. 
 
 to pay bonds in preference to advances for coupons, ib. 
 
 where advances made on understanding that coupons not cancelled, 757. 
 
 where bondholders, whose coupons were paid, ignorant of under- 
 standing, ib. 
 priorities of persons surrendering securities, ib. 
 
 priority of coupons forfeited by exchanging for State guarantied bonds, ib. 
 surrender of senior-class bonds will not inure to junior, 758. 
 relative rank of preferred stockholders and bondholders, ib. 
 dependent upon what occurred at issue of stock, ib. 
 judgment for damages against company, not preferred debt, 759. 
 
 except under certain State statutes, 760. 
 
 which liave no extra-judicial force, ih. 
 judgments recovered against maker of mortgage foreclosed, ib. 
 builders of extension during receivership, have no priority, 761. 
 where order to build entered with consent of some, ib. 
 where operating expenses a specific lien, ib. 
 pledgee of bonds may prove for whole amount due, 762. 
 
 but may recover only advances with costs, ib. 
 
 where pledge utlra vires, ib. 
 where agent exceeds authority in negotiating bonds, ib. 
 when lien on part of road payable out of whole proceeds, 763. 
 surplus, after paying bondholders, belongs to unsecured creditors, ib. 
 compromise between bondholders and stockholders affecting, void, ib. 
 benefits intended for stockholders go to creditors, ib. 
 where bondholders in their own interest parties to arrangement, 764. 
 creditors may claim as equitable lienors superior to mortgagee, ib. 
 DIVIDENDS , 
 
 subject to paramount obligation to pay debts, 68. 
 appropriation of income to payment of, when complete, 498. 
 payable to stockholders at time of declaration, 56. 
 
 to holders of bonds converted into stock at time, ib. 
 in scrip, distinction between and bonds, 36, n. 1. 
 
 and stock certificates, ib. 
 
 EARNINGS, 
 
 diversion of, as ground for lien on corpus, 673. 
 
 use of, for permanent improvements, a diversion, 661. 
 
 diversion ofj from terms of lease, 699 
 
 restoration of, diverted during receivership, 660. 
 
 anticipated to complete unfinished lines, when, 675. 
 
 (See Incojik Bonds; Power of Court and its Receiver; Rail- 
 road Companies ; Trusteb:s ; Words and Phrases.) 
 EJECTMENT, 
 
 suit for, cari-ied on concurrently with actions for other relief, 430. 
 fSee Remedies of Bondholders.) 
 EJUSDEM GENERIS, 
 
 when general following particular words, 218. 
 
 effect of phrase " all other property," 219. 
 
896 INDEX, 
 
 The figures refer to pages. 
 
 ELECTION, 
 
 by receiver to adopt or repudiate contracts of company, 695. 
 
 reasonable time to exercise right, what is, 698. 
 by receiver to perform executory contract of company, 643. 
 
 ELEVATOR. (See Appurtenances.) 
 
 EMINENT DOMAIN. (See Removal of Causes.) 
 
 EMPLOYEES, 
 
 duties and powers of receiver as to, 560. 
 
 conclusiveness of receiver's acts, ib. 
 
 may apply to court on substantial grievance, ib. 
 
 petition for rescission of order of receiver reducing wages, ib. 
 
 receiver not interfered with unless abuses discretion, ib. 
 
 not bound by stipulations respecting discharge of, ib. 
 
 may enforce rule against union men, 550, 560. 
 
 may refuse to re-employ strikers, when, 560. 
 court will not direct receiver to contract with union men, 561. 
 receiver may not rearrange company's rules without hearing men, ib. 
 nor renounce old schedule of wages, ib. 
 when court will not approve reduction of wages, ib. 
 wages and salaries of every grade preferred claims, 615. 
 wages of, when order not violated by receiver, 645, n. 1. 
 protected from evasion of exemption laws, 577. 
 compensation for injuries to, 658. 
 liability of receiver for injuries to his own, 692. 
 receiver liable officially for torts of, 690. 
 acts of, during receivership, no liability on company, 685. 
 (See Servant and Employee.) 
 ENGLAND, 
 
 statutory restrictions as to bond issue, 2, n. 2. 
 debenture-holders, statutory powers of majority of, 849. 
 
 must be construed strictly, ib. 
 
 • power to release premises does not include company, ib. 
 ' power to modify rights does not include power to extinguish, ib. 
 when three- fourths majority necessary, ib. 
 court will direct separate meetings of classes, 850. 
 a creditor-shareholder entitled to attend meetings, ib. 
 debentures which pass by delivery should be produced, ib. 
 voting by proxy, ib. 
 Companies Act of 1870, 855, n. 2. 
 Companies Act of 1867, limiting creditor's remedy, 357. 
 
 dock company, within purview of, ib. 
 
 protection of, arises, when, 370. 
 
 tramway company, not within purview of, 370. n. 
 
 sale under J?, fa of rolling-stock prior to act, ib. 
 
 dock company held "company" within act, ib. 
 rights of creditors to levy on rolling-stock, 361. 
 remedy by injunction, 370, n. 
 when receiver and manager appointed, ih., 509. 
 winding up, receiver's power, rules and regulations, 645, n. 1. 
 liquidator's advances, priority of on winding up, 632. 
 receivers wten treated as court officers ; when as agents, 689. 
 
INDEX. 897 
 
 The flgures refer to pages. 
 ENGLAND — continued. 
 
 no compensation to trustees, 703. 
 reorganization, statutes respecting, 842, n. 1. 
 costs in, 867. 
 ENTIRETY, 
 
 doctrine of, as applied to railroads, 248. 
 
 (See Accession, Doctrine of.) 
 EQUITABLE MORTGAGE, 
 
 constituted by writing and intention, 211, 212, n. 3. 
 
 when bond treated as, 211. 
 
 when debenture treated as, i6. 
 
 contract that subscriptions should be loan, held, 213. 
 
 agreement for mortgage never executed, 151, 212. 
 
 on neglect of company to execute authorized mortgage, 21.2. 
 
 contract by prior bondholders, conceding priority to junior, ib. 
 
 agreement pledging company's property to agents, when, ib. 
 
 to extent of contract stipulations, ib. 
 
 EQUITABLE TITLE, 
 
 in lands, when covered by railroad mortgage, 235. 
 EQUITY, 
 
 general powers of,^or relief of bondholders, 372. 
 
 assumes jurisdiction of conventional trust when complication arises, 373. 
 sometimes recognizes bondholders' rights to control company, 46. 
 bondholder's scheme to get property at inadequate price, ib. 
 discovery, sufficient ground for interference of court of, 273. 
 jurisdiction of, in suits for possession, 389. 
 
 remedy at law inadequate, ib. 
 jurisdiction to appoint receiver, not dependent on statute, 509. 
 inherent authority of, extends to appointment of trustees, 288. 
 powers of federal courts, independent of State courts, 375. 
 will execute trust where State, as trustee, refuses, 469. 
 payment of coupon, conversion of, into purchase, 109. 
 will uphold mortgage in favor of an advancer of money, ib. and n. 4. 
 ESTOPPEL, 
 
 when corporation estopped to assert invalidity of mortgage, 196. 
 
 to contest mortgage to directors, 205. 
 
 to impeach bonds, of which it has used proceeds, 31. 
 
 to deny validity over issue, 91. 
 
 to deny its corporate existence to avoid bonds, 31. 
 
 to set up unconstitutionality of bond issue, 26 and n., 31. 
 
 to impeach issue of preferred stock, 31, n. 1. 
 
 to repudiate guaranty, 126. 
 
 ip repudiate indorsement, ib. 
 
 to object to receiver's appointment, 539-541. 
 
 to deny organization in another State, 435. 
 bondholder not estopped to impeach bonds, 27. 
 when junior lienor not estopped though a party, 750. 
 when bondholders estopped to assert mortgage against lenders, 634. 
 
 when estopped as against certificate-holders, 682. 
 
 as against purchasers of negotiable securities, ib. 
 creditor with superior statutory claim, estopped by decree, 742. 
 
 67 
 
898 INDEX. 
 
 The figures refer to pages. 
 
 ESTOPPEL — continued. 
 
 subsequent incumbrancers joined as parties estopped by decree, 745. 
 
 though liens misstated in pleadings, ib. 
 purchaser estopped by matters raised by cross-bill, 746. 
 transferee, how far estopped, ib. 
 how far State estopped to rescind sale, 816. 
 receiver when estopped to dispute his certificates, 682. 
 against mortgagees and bondholders, as to receivers' acts, 558. 
 priority of senior constituent mortgages lost by estoppel, 668. 
 who estopped to object to reorganization scheme, 864. 
 as against any one who sells or gives currency to bonds, 32. 
 when applied to defeat vendor's lien, 272. 
 as foundation of mortgage of after-acquired property, 223. 
 based upon recitals in English debentures, 87. 
 
 in bonds, ib. ^, 
 
 in State bonds, ib. 
 
 (See Foreclosure Decrees.) 
 EVIDENCE, 
 
 of whether coupons were bought or paid, 109. 
 
 when action against secured, and when against unsecured creditor, ib. 
 
 EXCHANGE OF BONDS, 
 
 rights thereunder, 40. 
 
 provision to retain old as security until all surrendered, 60. 
 
 new for old a sufficient consideration, ib. 
 
 (See Priorities among Bondholders.) 
 EXECUTION, 
 
 personal property always subject to sale under, 356, 359. 
 exception to rule in Minnesota, 357. 
 in England since act of 1867, ib. 
 sale of rolling-stock under, objections against, 363. 
 sale of equity of redemption under, 362. 
 rights of purchaser, ib. 
 
 sale under, not restrained at suit of mortgagor company, 367. 
 exception, where property essential to franchise, 165, 367. 
 (See Remedies of Bondholders.) 
 
 EXPENDITURE BY CREDITORS, 
 
 loans to pay interest or operating expenses not preferred generally, 629. 
 
 bondholders averting strike by advances to pay employees, 630, 
 
 loaning money to embarrassed corporation, 631. 
 
 taking assignment of embarrassing claims as security, ib. 
 
 whether lender entitled to statutory lien of claim paid, ib. 
 
 where lender a court official, 632. 
 
 claim of receiver for interest paid on bonds, ib. 
 
 England, advances made by liquidator, priority of, ib. 
 
 effect of lender taking security for loan, 633. 
 
 where money lent applied to pay bonded interest, ib. 
 efiect of fraud of trustees in concealing insolvency, ib. 
 subrogation, when lender not entitled to, ib. 
 
 when bondholder estopped to assert mortgage as against lender, 634. 
 priority of surety on appeal dependent upon claim, 635. 
 
 rule same though surety company's attorney, ib. 
 
INDEX. 899 
 
 The figures refer to pages. 
 
 EXPENDITURE BY CREDITORS — continued. 
 
 obtaining surety does not keep company a " going concern," 636. 
 
 when surety on appeal entitled to reimbursement, ib. 
 
 when surety on injunction entitled to reimbursement, ib. 
 
 when surety on replevin bond entitled to protection, ib. 
 
 subrogation of bondholder who has paid taLxes, 637. 
 
 reorganized company paying taxes, not entitled to reimbursement, ib. 
 
 EXPENSES IN SUITS RELATING TO MORTGAGED PROPERTY, 
 expenses of trustees, 713. 
 trustee's natural right to reimbursement, 712. 
 
 fees of counsel employed to defend mortgage, ib. 
 to preserve estate from waste, ib. 
 to foreclose mortgage, ib. 
 counsel fee, when justified by terms of mortgage, 713. 
 authority for insertion of terms must be shown, ib. 
 what not proper authority, ib. 
 what not proper ratification, ib. 
 disbursements in procuring evidence, 712. 
 in other ways protecting interests of cestuis que trust, ib. 
 contract fees of solicitor, where suit interrupted by war, 713. 
 expenses of receiver: 
 payments for legal services and counsel fees, 716. 
 
 included in direction to pay " laborers and employees," ib. 
 expenses of representative bondholders: 
 bondholder, suing for class, right to counsel fee, though not trustee, 
 713. 
 on principle of agency, 715. 
 representative bondholder defendant in suit to determine priorities, ib. 
 expenses of mortgagor : 
 
 salary of company's attorney postponed to liens and expenses, 716. 
 counsel fee in suit against construction company, partially successful, ib. 
 (See Compensation and Expenses ; Compensation of Receivers ; Com- 
 pensation OF Trustees; Costs.) 
 EXPENSES OF CONSTRUCTION, 
 
 under statute prohibiting issue, except for money, labor, or property, 17. 
 why not preferred like operating expenses, 595. 
 salaries of officers included in, 15, 33. 
 rent of office, 33. 
 
 EXPRESS COMPANY, 
 
 receiver's right to annul railway company's contracts with, 696. 
 
 company's contracts with which should be adopted, 697. 
 EXTINGUISHMENT OF BONDS. (See Payment.) 
 
 FALSE REPRESENTATIONS, 
 
 by president, as such, considered those of company, 53. 
 
 president not personally responsible, ib. 
 FIDUCIARIES, 
 
 trustee in possession a fiduciary, 321. (See Trustee.) 
 
 effect in this country of omitting to record their liens, 262. 
 under English Companies Act of 1862, ib. 
 
900 INDEX. 
 
 The figures refer to pages. 
 FIDUCIARIES — continued. 
 
 shareholder when not affected by omission, 262. 
 when solicitor treated as fiduciary, ii. 
 when banker not so treated, ib. 
 FIRST-LIEN CERTIFICATES, 
 
 general principles underlying power to issue, 663. 
 
 continued as a "going concern," railroad's chief value, ib. 
 
 public interest, paramount to lien-holders', ib. 
 
 creditors presumed to deal with company with regard thereto, 664. 
 prior lien on earnings and corpus, 663, 664, 667, n. 1. 
 none but railroad company can be authorized to issue, 670. 
 conditions fully justifying issue of, 667. 
 not negotiable, though payable to bearer, 679. 
 vendors' lien acquired after sale but before confirmation, 666. 
 
 when lien not transferred to proceeds of sale, ib. 
 issued for operating expenses without other lien-holders' consent, ib. 
 
 when justifiable, 667. 
 granted trustees and receiver, not assailable by company or bondholders, 
 
 666. 
 priority of senior constituent mortgages lost by estoppel, 668. 
 South Carolina rule against issuing ex parte, ib. 
 dissent of parties against issue, effect of, 669. 
 
 where minority show restoration of road unfeasible, ib. 
 bondholders' consent necessary for issue by private corporation, ib. 
 
 cannot be ordered by court, 670. 
 notice to interested persons should be given before authorized, ib. 
 
 risk to receiver and creditor from not giving notice, 671. 
 
 circumstances equivalent to notice, ib. 
 necessity for, must be clearly established, ib. 
 
 statement specifying indispensable items should be submitted, ib. 
 for creation of car-trust, to relieve earnings not authorized, 672. 
 for what purposes issuable, ib. 
 to keep road in operation and repair, ib. 
 
 for purchase of rolling-stock and other equipment, ib. 
 
 to rebuild bridge to connect adjunct mine, 673. 
 
 acquire road-bed by condemnation proceedings, 672. 
 
 to pay taxes, superior to all liens, ib. 
 
 for back claims for labor and supplies, what to prove, 673. 
 
 diversion of earnings to claimant's prejudice, ib. 
 
 necessary for consei'vation of property, ib. 
 
 mere enhancement of mortgage lien, not sufficient reason, ib. 
 
 issued to maintain single division of consolidated system, 674. 
 
 to pay for construction work generally, 675. 
 
 construction of additional lines generally beyond court's power, ib. 
 where additional lines necessary to get full benefit of security, 
 
 676. 
 where forfeiture of land-grant threatened, ib. 
 
 for completion of unfinished lines, 675, 677. 
 
 canal, loan authorized to complete construction of, 676. 
 
 for construction works, effective only with prior lienor's consent, 677. 
 
 so, where cost of repairs equals original construction, 678. 
 position of U. S. Supreme Court on subject, ib. 
 
INDEX. 901 
 
 The figures refer to pages. 
 
 FIRST-LIEN CERTIFICATES- continued. 
 
 fund, raised from net earnings after payment of receiver's expenses, 
 674. 
 
 fund available for, distributed to suit receiver, ib. 
 
 (See Certificates or Indebtedness; Holders of Certificates.) 
 FIRST-MORTGAGE BOND, 
 
 when presumption of no prior bonds, 156. 
 
 when bonds secured by junior mortgage construed to mean, 133. 
 FIXTURES, 
 
 what are, 337. 
 
 concurrence of intention and actual annexation, necessary, ib., n. 3. 
 
 when cannot retain character of personalty as to mortgagee, 271. 
 
 when opposite rule prevails, 272. 
 
 rolling-stock as, considerations supporting view, 341. 
 
 personalty made into bridges and depots, after execution of mortgage, 
 247. 
 
 mining ditch or flume, ih. 
 
 when transferable as realty, general rule, ib. 
 
 (See Mortgage ; Rolling-Stock ; Vendor's Lien.) 
 
 FLOATING DEBT, 
 
 priority of, over dividends, 68. 
 
 (See Bonds.) 
 FLORIDA, 
 
 statutory provisions as to issuing bonds, 40, n. 
 mechanics' liens in, 276. 
 
 statutory limitations of power to mortgage after-acquired property, 182. 
 statutes respecting reorganization, 842, n. 1. 
 exemption from taxation, when passes at foreclosure sale, 787. 
 FORECLOSURE AND SALE, 
 
 right belongs to each bondholder separately, 393. 
 
 inherent in mortgage, 392. 
 
 request of bondholders, when necessary to trustees' suit, 403. 
 
 when not necessary, 404. 
 bondholder, when estopped by decree, though no request made, 405. 
 right of, on default of interest, though no provision, 392, 394. 
 insertion of sijch provision, though not in resolution, 394. 
 foundation of rule, interest part of debt, 392. 
 when agreement of bondholders to forbear, no defence, 393. 
 improper motives no ground for denying relief, 395. 
 
 important exception to rule, ib. 
 claim of title paramount not to be considered, 396. 
 
 judgment creditor cannot assert want of resolution for issuing mort- 
 gage, ih. 
 unfairness of reorganization plans not to be considered, ib. 
 right not postponed by stipulation postponing right of entry, 398. 
 nor when right of entry depends on request, 399. 
 right, how far affected by agreement, 400. 
 provisions negativing trustees' right of, 394. 
 
 deed securing money raised to discharge liens and sell lands, ib. 
 purchasers cannot question validity of mortgage, 208. 
 may sometimes be prevented by purchase of plaintiff's bonds, 406. 
 
902 INDEX. 
 
 The figures refer to pages. 
 
 FORECLOSURE AND SALTS, — continued. 
 
 right of prior mortgagee of part, as against mortgage of entirety, 395. 
 mortgagee need not first resort to fund provided, 394. 
 special remedies cumulative upon, 396. 
 right of, ceases when corporation dissolved, ib. 
 
 (See Defatjlt ; Foreclosore Decrees; Jurisdiction; Strict Fore- 
 closure.) 
 FORECLOSURE DECREES, 
 
 conformity of decree to terms of mortgage, 726. 
 
 court determines method to give effect to stipulations, ib. 
 
 conformity of decree to bill, ib. 
 
 general rule — complainant awarded only what he claims, 727. 
 
 rule applicable to decree pro confesso, ib. 
 
 may determine matters not specifically presented, 728. 
 
 right of priority of classes, ib. 
 
 prayer for " such other and further relief " liberally construed, 729. 
 
 reorganization directed though specific relief sought was strict fore- 
 closure, ib. 
 
 right to object for non-conformity lost by laches, ib. 
 conformity to mandate of Appellate Court, 730. 
 construction of mandate, ib. , 
 
 provisions of ordinary decree, ib. 
 
 English practice, ib. 
 amount unpaid should be stated whether principal due or not, 731. 
 when opened for, including amount unpaid, ib. 
 in suit on general mortgage, constituents not parties, ih. 
 provision to put purchaser into possession, effect, ib. 
 judgment for money found to be due, erroneous, ib. 
 court should retain control, ib. 
 embrace parties only, ib. 
 
 foreclosing general, cannot include provisions as to divisional mort- 
 gages, ib. 
 restoration, on decree being declared null on appeal, ib. 
 
 imposing conditions and directing resale, ib. 
 judgment for deficiency, 732. 
 
 where no mortgage provision accelerating maturity of bonds, ib, 
 provisions of, where road in possession of junior mortgagee, ib. 
 provisions on foreclosure of junior mortgage, ib. 
 disputed priority of incumbrances should be settled before sale, 733. 
 where road ordered sold subject to underlying mortgages, ib. 
 when property in hands of receiver pendente lite and certificates issued, ib. 
 receiver's outstanding obligations, statement may be required, ib. 
 directing sale before settlement of controversies, ib. 
 
 when directed, free from incumbrances, 734. 
 
 effect, purchaser required to pay only amount bid, 735. 
 
 where, in such sale, right to redeem reserved, ib. 
 
 when purchaser ordered to pay enough for settled claims, ib. 
 
 essential condition, that debts paid have clear priority, 736. 
 immediate sale ordered when desired by parties interested, ib. 
 not ordered at request of small minority, ib. 
 not postponed at request of small minority, ib. 
 
 opposing considerations, ib. 
 
INDEX. 903 
 
 The figures refer to pages. 
 FORECLOSURE DECREES — continued. 
 
 common practice of court where prior liens, 733. 
 
 where some liens prior and others subsequent, 734. 
 ordering sale to satisfy part of debt overdue, 737. 
 preserving lien of unmatured portion, ih. 
 ordering sale before maturity though not authorized by deed, ib. 
 
 when proper, ib. 
 finding amount due before proof, ib. 
 decree nisi before bonds produced, 738. 
 
 when made absolute, ib. 
 decree nisi in suit seeking foreclosure for interest, ih. 
 on payment of amount due, decree suspended, ih. 
 time allowed for payment in discretion of court, ib. 
 federal court guided by express State statute, ih. 
 qualification of general rule, ib. 
 provisions reserving control of property, purpose of, 739. 
 
 not intended to give purchaser right to abandon sale, ib. 
 order confirming sale reserving right to make further order, ib. 
 final decree terminates litigation, ib. 
 
 cannot be vacated or modified after term, ib. 
 what is final decree in foreclosure, ib. 
 where two decrees may operate together as final, ib. 
 after term of entry, cannot be changed essentially, 740. 
 may be amended as to mode of execution, ib. 
 but not, long after filing, ib. 
 rule does not apply to interlocutory decrees, ib. 
 effect of generally — to cut off all rights, 741. 
 
 though sale in pursuance of plan of reorganization, ib. 
 conclusiveness as to all courts, ib. 
 
 effect on receiver's compensation after removal of cause, ib. 
 as to matters not, but which might have been, asserted, 742. 
 " barring and foreclosing " mortgage of prior date, ib. 
 barring claim of contractor, ib. 
 
 effect of, to estop creditor with superior statutory claim, ib. 
 giving priority to levy, when binding upon bondholder, 743. 
 where claims not passed upon, ib. 
 where settlement of, not involved in decision, ib. 
 rule-decree must be construed with reference to issue and prayer, 744. 
 stockholder's suit to set aside consolidated decree of Circuit Court, ib. 
 when Circuit Court decree deemed final after appeal, 745. 
 federal courts bound by State construction of State statutes, ib. 
 
 possible exception as to constitutionality, ib. 
 rendered in one federal district, not res adjudicata in another, 742, n. 1. 
 estops subsequent incumbrancers joined as parties, 745. 
 immaterial, though liens misstated in pleadings, ib. 
 purchaser when estopped as to matters raised by cross-biU, 746. 
 transferee of purchaser, how far estopped, ib. 
 in suit for benefit of all, binding upon all, ib. 
 unsecured creditors, though not parties bound by, ib. 
 not so as to specific lien-holders, ib. 
 
 ineffective as to judgment creditor, not privy thereto, 747. 
 no ground to enjoin judgment creditor from enforcing judgment, ib. 
 
904 INDEX. 
 
 The figures refer to pagea. 
 FORECLOSURE DECREES — continued. 
 
 no defence to scire facias to continue lien against debtor's successor, 747, 
 pro confesso, binding effect of, ib. 
 by consent, binding effect of, ib. 
 
 consent to sale without finding of amount due, ib. 
 consent to omit day of payment, ib. 
 that purchase-money payable by surrender of bonds, ib. 
 purporting to be by consent, has verity of record, ib. 
 ■when deemed not by consent although consent recited, 748. 
 consent renders valid decree otherwise void, 648. 
 acquiescence an implied sanction of sale, 749. 
 binding, as a result of laches, ib. 
 a reasonable time, what is, ib. 
 where consent obtained by fraud, ib. 
 
 where facts always well known to plaintiffs, ib. 
 after decree has been fully executed, 750. 
 assertion of right to avoid bid cannot be delayed, ib. 
 when does not estop junior lienor, though a party, ib. 
 when deemed to have waived right to redeem, ib. 
 when separate order barring right of redemption, unnecessary, 751. 
 rescission of contract exchanging bonds when denied after decree, 750. 
 (See FoKECLOsuRE AND Sale; Foreclosure Proceedings; Strict 
 Foreclosure.) 
 FORECLOSURE PROCEEDINGS, 
 
 statutes varying modes of, as to existing mortgages, 376. 
 ordinary methods of, ill adapted to railroad mortgages, 377. 
 validity of, as affected by conflicting State laws, 23. 
 - where part of bonds valid in both States, ib. 
 
 suit to avoid, maintainable only in court granting decree, 416. 
 (See Foreclosure and Sale ; Foreclosure Decree ; Strict 
 Foreclosure.) 
 
 FOREIGN CORPORATIONS. (See Corporations.) 
 FORFEITURE, 
 
 of charter, proceedings to enforce, 173. 
 
 on alienation of franchise, ib. 
 
 (See Conversion of Bonds into Stock; Statutory Provisions.) 
 
 FORGERY, 
 
 of trustee's certificate, no recovery on bonds, 92. 
 
 FRANCHISES, 
 
 definition of, 134. 
 
 exclusiveness a non-essential, 13. 
 
 grant of, not creative of personal confidence relation, 174. 
 
 corporation, a franchise, 175. 
 
 distinction between and other franchises, ib. 
 not recognized in England, ih., n. 3. 
 right to acquire property considered as, 249. 
 
 involving right of transferring after-acquired property, ib. 
 charter, measure of corporate powers, 174. 
 grant of, creates contract with State, ib. 
 mortgage of, as distinguished from other property, 170. 
 
INDEX. 905 
 
 Tlie figures refer to pages. 
 
 FRANCHISES — continued. 
 
 necessity of express legislative permission, 170. 
 
 Maine theory, 171. 
 
 Vermont theory, 173. 
 
 reasons for, 173, 174. 
 
 power to sell implies power to mortgage, 178. 
 
 when mortgage of, valid as to part only, 203. 
 
 corporate existence, rule of construction against mortgage of, 176. 
 
 illustrative cases, 176-178. 
 
 invalidity of mortgage, question for State, 172, n. 1. 
 
 proceedings to enforce forfeiture of, 173. 
 
 of a railway company, 184. 
 
 term when used in plural, meaning of, 135. 
 
 scope of, ib. 
 
 when not included in general transfer, 220. 
 
 exercise of, after appointment of receiver, 551. 
 
 (See Manufacturing Companies.) 
 FRAUD, 
 
 inferred from personal interest of officers in contract, 197. 
 exceptions to rule, 198. 
 
 circumstances ordinarily deemed fraudulent, not as to railroad com- 
 panies, ib. 
 
 when mortgage may be foreclosed though bonds void, ib. 
 
 when request of bondholders to foreclose, insufficient for, 800. 
 
 when bonds upon which request made, owned by competing road, ib. 
 
 scheme between trustee and syndicate to sacrifice property, 48. 
 
 bondholder using security to obtain property for himself, 865. 
 
 officers seeking profit at expense of creditors and others, ib. 
 
 acts of corrupt majority frustrated, 50, 51 and n. 
 illustrative English cases, 51 and n. 
 
 of person intrusted with negotiation of bonds, 98. 
 
 first lienor's title postponed to second's on grounds of, 63. 
 
 as a ground for receivership, 527. 
 
 (See Vendor's Lien.) 
 FUEL. (See Words and Phrases.) 
 FUTURE ADVANCES, 
 
 mortgage to secure, when valid, 201. 
 
 when made, may be tacked to mortgage, 202. 
 
 priorities of, 264, n. 8. 
 
 GARXISHEE PROCEEDINGS. (See Attachment.) 
 GAS COMPANIES, 
 
 whether subject to doctrine of preferential claims, 598, 595. 
 
 distinction between and railroad companies, 593. 
 GEORGIA, 
 
 constitutional restrictions upon acquiring stocks of other corporations, 
 4, n. 
 
 statutory provisions as to bonds and borrowing, 40, n. 
 
 statutes respecting reorganization, 842, n. 1. 
 
 rules as to receiver using leased cars, 621. 
 
 rule preferring claim for damages, caused operating road, 626. 
 
 receiver's liability for injuries to employees, 692. 
 
906 INDEX. 
 
 The figures refer to pages. 
 
 "GOING CONCERN," 
 
 public interest in railroS.^ as such, 591. 
 claims preferred, necessary to keep road, 591, 602. 
 (See Words and Phrases.) 
 GOVERNMENT LIEN, 
 
 mortgage given to discharge, inferior to one of after-acquired property, 
 269. 
 
 GUARANTY, 
 
 forming part of compromise with guarantor's debtor, 125. 
 valid, as substitute for claim against guarantor, ib. 
 invalidity of inception cured by transfer to creditor, ib. 
 by transportation company, to brevping company, 121. 
 by manufacturer of iron-work of customer's contracts, ib. 
 by dealer in goods, to manufacturer thereof, 122, n. 3. 
 by railroad company of dividends in elevator company, 120. 
 (See Guaranty of Bonds.) 
 
 GUARANTY OF BONDS, 
 
 power to guaranty and to issue bonds, coextensive, 122. 
 English view as to power of corporations, respecting, 114. 
 implied authority of corporations as to, 115. 
 
 where transaction, including guaranty, not ultra vires, ib, 
 when sustained by sufficient consideration, ib. 
 for accommodation not valid, 118. 
 consideration for, credit to obligors, ib. 
 when guaranty given before delivery of bonds, ib. 
 when after delivery, ib. 
 
 to save corporation from embarrassment, 120. 
 where benefits to obligor company merely conjectural, ib. 
 where expense has been incurred on faith of, ib. 
 officer's authority determined by usual considerations, 115 
 corporators estopped to repudiate, when, 126. 
 
 effect of formal omissions as to innocent purchasers, 127. 
 corporation precluded from setting up its own neglect, ib. 
 principle applied to prevent injunction, ib. 
 when court disposed to uphold, as against stockholders, ib. 
 statutory provisions respecting, presumed known to acceptor of, 117. 
 ratification of, where given without statutory petition, ib. 
 purchaser of, without notice of failure to petition, rights of, ib. 
 independent rights created by contract, ib. 
 defence that bonds void, not available to guarantor, ib. 
 owned by corporation, valid, 126. 
 taken by guarantor in payment of debt, ib. 
 transferred in paymdnt of debt of obligor, valid, 125. 
 presumption in favor of regularity of execution of, 128. 
 unauthorized, whether valid to bona fide holder, 122. 
 improper exercise of power as to, 128. 
 innocent purchaser, rights of not impaired, ib. 
 
 of company carrying on a business, unauthorized to guarantors, 120. 
 of " World's Peace Jubilee and International Musical Festival," by 
 
 railway company, ib. 
 for construction, by obligors of connecting road, 121. 
 
INDEX. 907 
 
 The figures refer to pages. 
 GUARANTY OF BO^DS - continued. 
 
 right of guarantors to hold obligors liable, 121. 
 of railroad company by lumber company, 122. 
 
 where railroads in two States and power granted in only one, 116, n. 1. 
 as security for lessor company's rent, 119. 
 severed coupons not within, 127, n. 2. 
 when liability upon arises, on default of interest, 127, n. 2. 
 assignment of bonds with representation as to ownership, effect, 128, n. 3. 
 when bonds payable to guarantor, ib. 
 when payable to bearer, ib. 
 
 (See Debentures; Negotiability op Guaranty; Railroad Com- 
 panies ; under different States.) 
 
 HOLDERS OF CERTIFICATES, 
 rights of, 678. 
 certificates not negotiable, ib. 
 
 merely evidence of right to amount specified, 679. 
 
 practically call loans, 683. 
 charged with notice of all circumstances attending issue, 679, 680. 
 
 of terms and contingencies contemplated in order of issue, 679. 
 
 of events prior and subsequent to purchase of certificates, ib. 
 
 that final action of court may prejudicially affect instruments, ib. 
 certificates disposed of in unauthorized way, invalid, ib. 
 in hands of subsequent purchaser, ib. 
 
 issued for materials supplied, invalid for those to be supplied, 680. 
 issued in excess of authorized number absolutely void, ib. 
 not bound to look behind order, ib. 
 when payment not limited to any fund, ib. 
 rank of as lienors, dependent, on final decree, ib. 
 lien of certificates continues while order in force, ib. 
 silence of referee's report as to certificates, when no adjudication, ib. 
 sale of certificates, a trust personal to receiver, 681. 
 
 purchaser from holder takes subject to all equities, ib. 
 trust fund not liable until receiver controls it, ib. 
 
 when rule sufiiciently complied with, ib. 
 not bound to see to application of proceeds, ib. 
 special collateral security, taking does not prejudice, ib. 
 bondholders, when estopped as against, 682. 
 receiver, when estopped to dispute validity of certificates, ib. 
 
 authorizing bank to sell and drawing checks against proceeds, ib. 
 
 immaterial that authority revoked before sale in question made, ib. 
 
 obtaining security on learning of bank's insolvency, a ratification, ib. 
 purchaser of railroad agreeing to pay invalid certificates, effect, ib. 
 
 court bound to recognize estoppel, 683. 
 when entitled to recover full face value, ib. 
 when taken within limit of court's discount, ib. 
 taken for less than lowest percentage of par, ib. 
 court not empowered to disregard laws against usury, ib. 
 need not present certificates for payment before sale, ib. 
 right to assume receiver will give notice of payment, ib. 
 HOTEL. (See Appurtenances.) 
 
908 INDEX. 
 
 The figures refer to pages. 
 
 HYPOTHECATION OP BONDS, 
 
 held to be issue, 17. (See Wisconsin.) 
 
 IDAHO, 
 
 constitutional restriction upon issuing stocks, bonds, 4, n. 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 
 efiect under constitution of consolidating home and foreign corporations, 
 
 4,n. 
 liabilities arising out of franchises preserved from effect of alienation, ib. 
 ILLINOIS, 
 
 constitutional restrictions upon issuing stocks or bonds, 4, n. 
 
 bonds issued to pay another company's debts held void, ib. 
 
 held not to interfere with usual methods of raising funds, ib. 
 constitutional restriction against consolidation, ib. 
 rolling-stock constitutionally declared personal property, ib., 339. 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 statutes respecting liens upon railroads, 628, n. 
 no statutory power to make preferred stock, lien, 758. 
 statutes respecting reorganization, 842, n. 1. 
 statute of declaring certain trusts unlawful, 286. 
 appointment of receiver must be made in term, 510. 
 unless afterwards confirmed by court, ib. 
 
 vendor's lien only retained by complying with Chattel Mortgage Act, 349. 
 sale of bonds when proceeds used in construction of road, 28. 
 issue if not restricted to meet accrued obligations, ib. 
 
 INCOME, 
 
 lien upon, acquired only in manner declared by mortgage, 497. 
 
 when passes under mortgage of after-acquired personalty, 246. (See 
 
 Mortgage.) 
 not covered by mortgage of " franchises, pledges, and rights," 247, 
 covered by term " personal property," 246. 
 subject to garnishment, when, 500. 
 
 money earned by trustee in possession not garnishable, 501. 
 subject to levy or attachment while company in possession, 499. 
 rights of creditor fixed when execution issued, ib. 
 trustee in possession must account for, 316. 
 
 INCOME AND PROFITS, 
 
 meaning of phrase. (See Income ; Words and Phrases.) 
 
 INCOME AND REVENUES, 
 
 meaning of phrase (See Words and Phrases.) 
 
 INCOME BONDHOLDERS, 
 
 bill against company for accounting, when may be maintained, 368. 
 
 injunction when granted at suit of, ib. 
 
 expenditure of earnings by company, rights of, considered, 497. 
 
 when, as to interest, only general creditors, 369. 
 (See Income Bonds.) 
 INCOME BONDS, 
 
 meaning of term, 64, 70. 
 
 security for, pledge of corporate income, 64. 
 
 what must appear upon face of, ib. 
 
INDEX. 909 
 
 The figures refer to pages, 
 INCOME BOl^BS — continued. 
 
 if cumulative, what, 64. 
 
 if payable out of future incomes, ib. 
 holders of, when entitled to lien, 65. 
 
 when corporation dissolved or disorganized, ib. 
 holders of, when entitled to accounting, ij. 
 
 when amount of interest dependent upon net earnings, ib. 
 
 scope of accounting, 66. 
 
 as well for earnings at beginning as during progress of suit, ib. 
 
 computation of amount due, ih. 
 
 regulated in interests of all concerned, ib. 
 treated as an appropriation of income, ib. 
 as against attaching creditors, ih. 
 cost of issuing not chargeable against income, ib. 
 interest upon, when default occurs, 69. 
 
 payable primarily out of income of a six months' period, ib. 
 
 when burden upon holder to show earnings, 71. 
 issue of, in payment of contract shown to be valid, 34. 
 
 rights of stockholders, ib. 
 rights, when purchaser at foreclosure fails to complete, 65. 
 exchange of, for surrendered stock, effect to create preferred stock, 68. 
 
 floating debt a prior claim to, ib. 
 rights of non-assenting holder on surrender for other bonds, 66. 
 power to execute obligations to complete road not affected by, 70. 
 power to change or extend road not affected by, 69. 
 holders of, held simply contract creditors, ib. 
 holder of, may recover in money, though bonds provide for scrip, when, 
 
 71. 
 provision in reorganization scheme to give unsecured creditors, 64. 
 
 not fraudulent, ib. 
 
 higher security than old company's stock, ib., n. 5. 
 (See Deferred Income Bonds.) 
 INDEMNITY, 
 
 right of trustee to, on being requested to take action, 300. 
 INDIANA, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 statutes respecting reorganization, 842, n. 1. 
 
 respecting liens for taxes and debts, 628, n. 
 
 declaring against eligibility of non-residents, 284. 
 no statutory power to make preferred stock, lien, 758. 
 guaranty of bonds, for benefit of guarantor, 129, n. 3. 
 " INDOOR MANAGEMENT OF COMPANY," 
 
 purchaser not obliged to take notice of, 85. 
 INJUNCTION, 
 
 against bond issue as device to increase stock, 34. 
 
 against issue of stock in conversion of fraudulently issued bonds, ib., n. 
 
 against non-resident trustee suing in federal court, 288. 
 
 not granted to trustee to restrain action for his removal, 484. 
 
 restraining levy on property covered by trust deed, 211. 
 
 not granted at suit of mortgagor company, 367. 
 
 except when property is essential to franchise, ib. 
 
910 INDEX. 
 
 The figureB refer to pages. 
 
 INJUNCTION — continued. 
 
 federal court, no iurisdiction against execution of State court, 368. 
 
 will not issue to restrain sale under power, when, 303. 
 
 at suit of receiver, 356. 
 
 against execution sales of personalty, ib., 358. 
 
 objectionable consequences of such sales, 363. 
 special equity must be shown in some courts, 359. 
 to protect lien of after-acquired property clause, 357. 
 
 such lien sufficient equity in federal courts, 360. 
 inadequacy of security whether sufficient ground, 358. 
 inadequacy of legal remedy, 363. 
 public interests in railroad, ground for, 364. 
 to restrain levy upon revenues appropriated to State loan, U>, 
 against execution sales of realty, 365. 
 
 when sale pressed by numerous creditors, ib. 
 to prevent multiplicity of suits and irreparable damage, ib. 
 to restrain sale under bondholder's levy, 367. 
 against execution when trustees in possession, 366. 
 
 application for leave of court to enforce judgment, i&. 
 against separate execution sales of property mortgaged, 770. 
 at suit of bondholder, 355. 
 
 to prevent waste by mortgagor in possession, ib. 
 
 to restrain company from taking up part of road, ib. 
 
 to restrain acts of third persons, 356. 
 
 when corporation has refused to act, ib. 
 
 to enjoin enforcement of railroad commission law, 369. 
 
 by first-mortgage bondholders against levy by second, 367. 
 
 in aid of income bondholders, 368. 
 
 when company obligated to apply surplus earnings to interest, ib. 
 not, where principal only of income bonds secured by mort- 
 gage, ib. 
 stockholder's title to or equity in stocks, as entitling him to, 33. 
 by debenture-holders to restrain payment to bondholders, 372, n. 1. 
 available in England as in America, 370, n. 
 Stat of Sales by 
 when injunction to stay will be granted, 808. 
 often dependent on validity or invalidity of mortgage, ib. 
 not merely because mortgagee without right, 809. 
 
 not, if defendant capable of responding in damages, ib. 
 not merely because amount of bonds due unascertained, ib. 
 where sale under mortgage of indemnity given to guarantor, ib. 
 where mortgage secures bonds issued by directors to themselves, 810. 
 where default caused by misconduct of debtor's agent, ib. 
 where State-aid bonds the subject, ib. 
 where injunction sought by junior mortgagee, ib. 
 where eSect is to extinguish rights of junior lienors, ib. 
 where State shows intention to subordinate its rights, ib. 
 receiver's certificate-holders as against mechanics' lienor, ib. 
 by trustee of junior mortgage against sale under prior statutory mort- 
 gage, 811. 
 disproportion between amount of decree and property's value, ib. 
 presumption that directors will act to protect bondholders, ib. 
 
INDEX. 911 
 
 The figures refer to pages. 
 
 INTEREST, 
 
 iu what payable, must follow character of principal, 72. 
 
 contract to pay in gold, not a contract to pay an increased rate, 101. 
 
 rate cannot be raised to prior, to the prejudice of subsequent lienors, ib. 
 
 rate payable to party subrogated to rights of lienor, 102. 
 
 payable after maturity, whether legal or contract rate, ib. 
 
 on bonds payable elsewhere than place of issue, 19. 
 
 statutory provisions allowing any rate, 20. (See Statutory Provisions.) 
 
 bonds not invalidated by illegality of rate, 24. 
 
 upon income bonds, 69. (See Income Bonds.) 
 
 on railroad bonds usually evidenced by coupons, 100. 
 
 rate payable after coupons in default, before judgment, 103. 
 
 after judgment, ib. 
 
 where parties contract with reference to a particular State, ib. 
 
 upon coupons after default, 104. 
 
 allowed as damages, ib. 
 
 not usurious, ib. 
 on coupons unpaid not notice of bond's defect, 154. 
 power of trustee to waive default, 301. 
 
 default of, when liability of guarantor arises upon, 127, n. 2. 
 right of recoupment as to, in action for refusing bonds contracted for, 113. 
 overdue, funding, presumption against novation, 112. 
 (See Bonds; Debentures; Default; Income Bonds; Past-due 
 Interest.) 
 INTERVENER, 
 
 not necessary he should obtain judgment, 268. 
 (See Intervention.) 
 INTERVENTION, 
 
 by bondholders in trustee's suit, what must be shown, 482. 
 
 right of, only to enforce rights under mortgage, 485. 
 
 where their and trustee's interests no longer identical, 483. 
 
 where trustee's allowance contested, ib. 
 
 where trustee of another mortgage on same property, ib. 
 
 where trustee has done or contemplates a detrimental act, ib. 
 
 where he is not responsible, ib. 
 
 where incompetent or negligent, ib. 
 
 to show trustee's unfitness to conduct suit, 484. 
 
 to raise issue of fraud in trustee's suit, 454. 
 
 by committees of several series of bondholders in trustee's action, 460. 
 
 whether, may intervene when already represented, 485. 
 
 when trustee's suit in sister State, ib. 
 
 bondholder's remedy against trustee after foreclosure, not confined 
 to, 316. 
 
 in stockholder's suit, not compellable, 429. 
 
 right of other bondholders, on foreclosure by one, 405. 
 
 by majority bondholders in foreclosure instigated by minority, 482. 
 
 by minority that specific charges may be heard, 484. 
 
 bondholder not obliged to intervene, on mechanics' lien proceed- 
 ings, 279. 
 
 may be exercised while proceeding in fieri, 485. 
 
 nevertheless due diligence must be observed, 485, 490. 
 
 after rendition of decree, to set it aside, 490. 
 
912 INDEX. 
 
 The figures refer to pages. 
 INTERVENTION — continued. 
 
 when right of, denied to bondholder after decree, 745. 
 will not be enjoined from levying, 744, n. 1, 747. 
 bondholder's right of, after appeal, in action by co-bondholders, 474. 
 by bondholders under federal order, limited to district citizens, ib. 
 appeal by bondholders on intervention after bill pro confesso, 828. 
 by trustee in bondholder's suit, 486. 
 
 when cause may continue in his name, ib. 
 receiver's right of, in foreclosure, 468. 
 
 by receiver appointed since property attached in foreign State, 427, 
 553. 
 by judgment creditor in foreclosure suit, 396. 
 claiming prior lien, right of, 470. 
 
 simple contract creditorj when has right, ih. 
 when judgment creditor denied privilege, 747. 
 
 will not be enjoined from enforcing judgment, ih. 
 by general creditors to frustrate collusive receivership, 471. 
 by rival creditors to contest priorities, 477, 478. 
 prior mortgagee not allowed to intervene, when, 464. 
 stockholder's right of where corporation fails to plead defence, 417. 
 when directors refuse to defend, 467. 
 by stockholder for stay, until own suit determined, 521. 
 by cross-bill of material-men, etc., 454. 
 right of removal of cause by intervener, 442. 
 appeal from denial of intervener's petition to protect bonds, 828. 
 order denying petition to intervene not appealable, 832. 
 English debenture-holders, when proceeds of execution sale not paid 
 
 over, 370, n. 
 costs of interveners, 717. 
 
 on general subject of, see authorities collected on page 491. 
 INVESTMENT OF TRUST FUNDS, 
 duty of trustee as to, 813. 
 
 obligatory, to follow instructions of instrument, exception, ib. 
 IOWA, 
 
 statutory provisions as to issuing bonds, 40, n. 
 
 reorganization, statutes respecting, 842, n. 1. 
 
 code provision that judgment for injury shall be lien, 687. 
 
 as to mortgaging after-acquired property, 258. 
 courts of, will restrain execution against pledged property, 361. 
 mechanics' liens in, 274, 277. 
 
 rolling-stock, held personalty, not subject to, 340. 
 fees of receiver and his attorney preferred, 712, n. 1. 
 
 not trustee's compensation or counsel fees, ib. 
 mortgage to secure bonds, held a transfer under statute of, 18. 
 IRREDEEMABLE BONDS. (See Deferred Income Bonds.) 
 
 JUDGMENT, 
 
 not a lien unless made so by statute, 753. 
 how lien of, affected by registration laws, 260. 
 
 prevails in counties where mortgage not recorded, 261. 
 
 postponed to unrecorded mortgage of which creditor has notice, ih. 
 
 assignee of, takes subject to such mortgage, ih. 
 
INDEX. 913 
 
 The figures refer to pages. 
 
 JUDGMENT — continued. 
 
 whether he has or has not notice, 261. 
 of Circuit Court where lien of, attaches, 263. 
 
 how sale of road under must be made, ib., n. 4. 
 of another court, when does not establish a preference, 604. 
 against construction company when not recognized on enforcement of 
 
 bonds, 278. 
 against receiver, when prior to mortgage, 651. 
 
 for damages when enforceable against purchaser at foreclosure sale, 627. 
 lien for personal injuries not displaced by mechanic's lien, 673. 
 against maker of mortgage foreclosed, lien cut ofi, 760. 
 not necessary that intervener should first obtain, 268. 
 application for leave of court to enforce, 366. 
 
 (See Judgment Creditor.) 
 JUDGMENT CREDITOR, 
 
 right of, to intervene in foreclosure, 396. 
 
 bill by, for a receiver, sufficiency of, 533. 
 
 sale by, of equity of redemption of company in possession, 494. 
 
 may levy upon or attach income in company's possession, 499. 
 
 lien of, on income fixed when execution issued, ib. 
 
 cannot be deprived of lien of judgment by legislation, 260. 
 
 without notice of prior lien, priority determined by registration laws, 261. 
 
 when left to common-law rights by registration laws, ib. 
 
 when treated as subsequent purchasers without notice, ib. 
 
 (See Judgment ; Setting aside Foreclosure Sales.) 
 JURISDICTION, 
 
 attaches when process served, 423. 
 
 on removal to federal court, date of original service, ib. 
 
 process of court ineffective beyond territorial jurisdiction, 552. 
 objection to, addressed to court itself, 426. 
 
 by plea in abatement, ib. 
 
 too late after answer, ib. 
 
 when must be taken in limine, 826. 
 
 not lost by dismissal of bill on demurrer, 423. 
 appearance, by non-resident corporation sued jointly with resident, ib. 
 to control re.i, whether possession necessary, conflicting views, 424. 
 established by prior control of subject-matter, how far, 412, 414. 
 
 who may assert exclusiveness of court first acquiring, 425. 
 federal, acquired in bondholder's action, prevails over trustees' State suit, 
 
 423. 
 courfe of concurrent, control of litigation by, 412. 
 
 federal and State courts, rule when concurrent, 413. 
 
 prevails though proceeding in sister court defective, ib. 
 of federal court where company citizen but plaintiff not, ib. 
 
 to decide conflicting claims, property being in its possession, ib. 
 
 when disputants citizens of same foreign State, ib. 
 exclusive, to annul or enfore court's decrees, 415. 
 federal mandamus as against State injunction, 416. 
 federal court cannot enjoin State sale under execution, 415. 
 federal attachment and State replevin, 414. 
 of court of equity to appoint receiver, 509. 
 
 to appoint receiver, primary amongst several courts, 511. 
 
 58 
 
914 INDEX. 
 
 The figures refer to pages. 
 JURISDICTION — continued. 
 
 possession of receiver not interfered with by other courts, 415. 
 
 over property illegally in receiver's possession, 549. 
 
 intervention by receiver when property attached in other State, 427. 
 
 action enjoined in one State court, maintainable in another, 414. 
 acquired by bill to foreclose, complete over subject-matter, 416, 421. 
 
 over all collateral issues, ib. 
 
 over bills to construe orders and decrees, ib. 
 
 decree of State court bar to proceeding in federal, 417. 
 of court decreeing foreclosure, to determine judgment creditor's lien, 416. 
 of federal court over creditor's bill to aid State court, ib. 
 
 federal court will not interfere after sale decreed in State, 417. 
 
 nor enforce judgment against property ordered sold by State court, ib. 
 
 State court will not interfere where matter begun in federal, ib. 
 corporation defendant cannot enjoin action in another court, ih. 
 trustee cannot be enjoined in action between officers, 419. 
 suit in co-ordinate court permissible, when, 418. 
 
 when possession of first court not disturbed, ib. 
 
 when second court may decide questions not raised, 419. 
 federal court assumes control of trust not before involved, ib. 
 as to decrees obtained by fraud in other court, ib. 
 foreclosure suits pending in State and federal courts, concurrently, ib. 
 suit against mortgagor after surrender to trustee, ib. 
 courts may decline to exercise, to avoid conflict of, 418. 
 
 and for convenience of appeal, ib. 
 acquired in equity to restrain judgments at law, 421. 
 in suits to impeach deci-ee, ib. 
 
 subsequent foreclosure of same property, ib. 
 in one federal district, exclusive over property in others, 422. 
 of State court, of property in other State, ib. 
 
 legislative assent of other State, ib. 
 compulsory process of federal court against unwilling suitor, ib. 
 
 in personam to control property beyond, ib. 
 
 to compel assignment of outside property, 423. 
 of ancillary court to decree sale of entirety, ib. 
 of court sitting in domicil of national bank plaintiff, 510. 
 pending suit as a bar to suit in other court : 
 
 pending foreclosure of second mortgage when bar to suit on first, 427. 
 State courts and federal presiding over different territory, 428. 
 pendency of suit in foreign court, not a bar, ib. 
 
 rule makes States of Union foreign to each other, ib. 
 plea of lis pendens not sustainable unless cases alike, ib. 
 
 parties, also, must be the same, 429. 
 
 suit by stockholders against company and foreclosure by bond- 
 holders, ib. 
 
 foreclosure by trustee in State court, and coupon-holder in federal, ib. 
 
 ■when trustee does not represent all bondholders, 430. 
 
 when diiferent relief is asked for, ib. 
 
 one suit on notes, another on mortgage securing them, ib. 
 
 ejectment suit concurrent with both, ib. 
 
 suit to maintain right to road and foreclosure suit, ib. 
 
 foreclosure of first mortgage in federal and second in State court, ib. 
 
INDEX. 915 
 
 The fig^ures refer to pages. 
 
 JURISDICTION — coreimued. 
 
 second suit allowed to proceed, when, 431. 
 general creditor's bill and one of less scope, 430. 
 other illustrations, ib. 
 JURY, 
 
 whether actions against receivers triable without, determined by court, 
 575. 
 
 KANSAS, 
 
 act relating to injuring stock, applies to receivers, 689. 
 
 receiver's liability for injuries to his employees, 693. 
 
 statute making judgment for damages prior to mortgage, 628. 
 
 foreclosure, statutes relating to, 409. 
 
 reorganization, statutes respecting, 842, n. 1. 
 
 guaranty or purchase of bonds, 129, n. 3. 
 KENTUCKY, 
 
 constitutional restrictions upon issuing stocks and bonds in, 4, n. 
 
 statutory provisions as to issuing bonds, 40, n. 
 
 constitutional prohibition against consolidating and pooling, 4, n. 
 
 effect, under constitution, of consolidating home and foreign corpora- 
 tions, ib. 
 
 reorganization, statutes respecting, 842, n. 1. 
 
 statute respecting future liens, 264. 
 
 rolling-stock, etc., of railways declared personalty, liable to seizure, 4, n. 
 held taxable as a fixture, 341. 
 
 cho.tes in action of railways declared subject to attachtnent, 4, n. 
 
 liabilities arising out of franchises preserved from effect of alienation, ib. 
 
 " after-acquired " clause, deemed sufficient equity for injunction, 360. 
 
 law respecting trustee empowered to sell on default, 295. 
 
 liens of employees and material-men, 628, n. 
 
 LABOR, 
 
 bonds issued for, when valid, 18, n. 
 LABOR AND SUPPLIES, 
 
 issue of first-lien certificates for, 673. 
 LABOR AND SUPPLY CREDITORS, 
 
 meaning of phrase. (See Words and Phrases.) 
 LABORER, 
 
 meaning of term. (See Words and Phrases.) 
 LACHES, 
 
 on appointment of receivers, discountenanced, 533. 
 on raising objections to, .^41. 
 
 effect of as ratification by corporation, 205. 
 LAND-GRANT CERTIFICATES, 
 
 substituted for bonds, 39. 
 
 holder's right to restrain waste, ib. 
 LANDS, 
 
 when trustee authorized to warrant title on sale of, 296. 
 
 condemned lien for damages against company superior to prior mort- 
 gages, 269. 
 (See Appurtenance; Mortgage; Railway Companies.) 
 
916 INDEX. 
 
 The figures refer to pagee. 
 
 LEASE, 
 
 by company in possession, 493. 
 
 executed by mortgagor, mortgagee cannot enforce covenants in, 237. 
 
 trustee in possession when not bound as assignee of, 318. 
 
 ■when stockholder estopped to question validity of, 205, n. 5. 
 
 of rolling-stock, right of lessor to terminate, 621. 
 
 termination of, lessor of equipment entitled to notice, 695. 
 
 right of receiver to disaffirm, 572, 
 
 whether receiver shall adopt, determined by creditors' interests, 695. 
 not compellable to carry out at a loss, 696. 
 unless conduct constitutes an election to accept, ib. 
 cannot abrogate, 698. 
 does not take as assignee of, i6. 
 
 does not adopt by operating lien where no demand, ib. 
 nor become subject to company's guaranty of interest on lessor's bonds, i6. 
 bound to disburse earnings, according to terms of, 699. 
 lessee's rights., how affected by receiver's discharge, 545. 
 withdrawal of consideration, ground for renouncing, 700. 
 
 what amounts to such withdrawal, ib. 
 car-trust lease, rights of lessor after receiver appointed, 352. 
 where in effect a mortgage though not recorded, 350. 
 (See Bailment FOR Hire; Conditional Sales; Lessor and Lessee; 
 Vendor's Liens.) 
 LEGAL SERVICES, 
 
 claims for, when and when not preferred, 617. 
 LEGAL TENDER ACT. (See Statutes.) 
 LESSOR AND LESSEE, 
 
 title of lessor paramount to mortgagee's, 346. 
 
 not if rolling-stock placed on road before lease executed, ib. 
 liability of lessee for rent where lease part of void contract, 150, n. 4. 
 (See Lease ; Railroad Companies.) 
 LIABILITY OF COMPANY DURING RECEIVERSHIP, 
 contract liabilities suspended by receiver's appointment, 684. 
 corporate existence not affected by appointment, ib. 
 
 when order constitutes directors quasi receivers, ib. 
 corporate note made during quasi receivership, effect as to fund, ib. 
 liability for tort ceases after receiver takes control, 685. 
 where property returned to company without sale after large outlay, ib. 
 company not liable for acts of employees, ib. 
 rule same though company's president, receiver, 686. 
 when partly under receivership and partly operated by lessee, ib. 
 when receiver considered company's agent, ib 
 continues, unless possession of receiver is exclusive, 685. 
 where receiver's sole duty, to receive earnings and account therefor, 686. 
 after possession restored, for claims arising during receivership, 687. 
 
 where property restored without sale, 688. 
 claims suable in State court, though receiver, federal, 687. 
 enforceable by bill to subject property to payment, when, ib. 
 
 when not, ib. 
 to shipper in action of damages, what must be proved, 688. 
 during receivership pendente lite, 691. 
 (See Liabilities op Receiver; Power op Court and its Receiver.) 
 
INDEX. 917 
 
 The figures refer to pages. 
 
 LIABILITY OF RECEIVER, 
 
 " persons owning or operating " includes receiver, 687, n. 2. 
 receiver liable as common carrier, 688. 
 
 not personally, ib. 
 
 responsible personally for faithful discharge of duties, ib. 
 protected in disposition of funds by conforming to order, ib. 
 liable for wilfully exceeding powers, 689. 
 not exempt as public officer, 690. 
 not exempt as agent or trustee, 691. 
 proceeding against him officially, proceeding in rem, ib. 
 in England, when liable as court officer ; when as agent, 688, n. 5. 
 as to property in foreign State, 690. 
 ■when liable for false representations on his certificates, 689. 
 
 warranty, action for, not based upon representations, ib. 
 liable officially for torts of employees, 690. 
 
 not personally, 689. 
 liability for injuries to his employees, 692. 
 
 where injuries caused by fellow-employee's negligence, ih. 
 
 conflict of decisions, 692, 693. 
 
 defect in road, injuries from, 692. 
 bound to exercise same care as company, 691. 
 when cause of action arose prior to appointment, ib. 
 
 when appointed pendente lite, not proper party, ih. 
 
 when appointed to wind up company, 691, 692. 
 for company's contracts, 693. 
 
 not bound to adopt them, ib. 
 
 receiver of system may renounce contract with constituent, 694. 
 complications arising, how dealt with by court, ib. 
 
 succeeds to company's right to annul, 696. 
 
 to company's right to terminate license, ib. 
 
 entitled to reasonable time to elect, 693. 
 
 interests of creditors, controlling consideration, 695. 
 ratification, from what implied, ib. 
 contracts which will be adopted, 696. 
 
 those with connecting lines for exchange of facilities, ib. 
 
 certain contracts with express companies, 697. 
 
 to pay remaining instalments due on conditional sales, ib. 
 
 to pay company's telegraph tolls, 69.5. 
 
 for work on building until he directs work to cease, ib. 
 
 for completion of building, with court's approval, ib. 
 
 those which good faith requires should be carried out, 697. 
 
 when he recognizes and acts under a pooling contract, 698. 
 
 to bear burdens when he enjoys benefits, 700. 
 receiver cannot abrogate lease, 698. 
 
 adoption of, when working line, does not operate to, ib. 
 when liable upon covenants in lease to company, 694, n. 1, 695. 
 
 to pay rent for occupation under company lease, 698. 
 
 bound to disburse earninafs as directed by lease, 699. 
 
 not where parties under samfi control, 697. 
 
 where court asked to determine, rent payable during deliberation, 699. 
 
 when court will direct no more paid out of corpus, ib. 
 ■withdrawal of consideration, ground for renouncing lease, 700. 
 
918 INDEX. 
 
 The figures refer to pages, 
 
 LIABILITY OF RECEIVER — continued. 
 what amounts to withdrawal, 700. 
 lessor of equipment entitled to notice of termination, 695. 
 cessation of liability, 700. 
 
 by consummation of foreclosure sale, ib. 
 in consequence of discharge, ib. 
 after discharge, not liable as to injuries during receivership, 701. 
 purchasers at sale not liable, ib. 
 
 purchaser's liabiUty for personal injuries, while receiver continues 
 possession, ib. 
 power of court to resume control to enforce claims, ib. 
 (See Liabilities of Company ; Power of Court and its Receiver ; 
 Receivers.) 
 LICENSE, 
 
 company's right to terminate, passes to receiver, 696. 
 LIEN, 
 
 definition of term. (See Words and Phrases.) 
 
 as determined by construction of phrase "all other property," 131. 
 
 statutory depends upon construction of statute, 137. 
 
 contract, upon terras of contract, ib. 
 
 superior to unsecured claims of earlier date, 263. 
 
 distinction between and preferred debts, 587. 
 
 of bonds, not affected by date of issue, 45. 
 
 date from mortgage record, ib. 
 
 retention of, as determining question of payment or substitution, 62. 
 
 preserved though bonds surrendered, when, 55. 
 
 when over-issue of bonds, a lien, 91. 
 of mortgage, on substitution of duplicate for old bonds, 58. 
 acquired after recording mortgage, right of bondholder as against, 84. 
 effect of fiduciary omitting to record, 262. 
 effect in England under Companies Act of 1862, ib. 
 cannot usually be displaced by mortgages, 259. 
 under construction contracts, 147. 
 
 determined by general equitable principles, 148. 
 
 statutory, of construction contract, 149, 150, n. 3. 
 statutory, subsequent legislation, effect of upon, 333. 
 established by State statute when recognized by federal courts, 263. 
 
 in favor of creditors, supplying rolling-stock declared by statute, 645. 
 
 preference of, over prior general mortgage, ib. 
 for damages for lands condemned, superior to prior mortgage, 269= 
 
 for consequential damages, ib. 
 upon earnings enforceable as an equitable charge, 67. 
 
 rule in case of mortgage upon all property, ib. 
 receiver's expenses marie first, by appointing order, 662. 
 for coansel fees, not lost by trustee's death, 721. 
 of coupons once ceasing, cannot be revived, 111. 
 of Circuit Court judgment, where attaches, 263. 
 effected before complete organization preferred to those after, 260. 
 (See After-acquired PROPEriTY; DtsTRiBUTiON op Proceeds ; First- 
 lien Certificates; Government Lien; Mechanic's Lien; 
 
 Power of Court and its Receiver; Preferred Debt; Statu- 
 tory Lien ; Vendor's Lien.) 
 
INDEX. 919 
 
 The figures refer to pages. 
 
 LIMITATION, 
 
 statutes of, action by trustee stays running of, as to bondholder, 490. 
 (See Tekms, Conditions, and Limitations.) 
 LIMITATIONS AND CONDITIONS, 
 
 in statute as affecting validity of bond issue, 85. 
 LIS PENDENS, 
 
 doctrine does not apply to purchase of bonds for value, 99. 
 LOUISIANA, 
 
 constitutional restriction upon issuing stocks and bonds, 4, n. 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 
 constitutional effect of consolidation between home and foreign corpo- 
 rations, 4, n. 
 
 reorganization, statutes respecting, 842, n. 1. 
 
 MACHINERY, 
 
 vendor's lien on sale of, 272. 
 MAINE, 
 
 statutory provisions as to bonds, 40, n. 
 statute relating to trustees of railroad companies, 322. 
 statute regulating election of trustees, 292. 
 foreclosure, statutes relating to, 409. 
 reorganization, statutes respecting, 842, n. 1. 
 
 whether injunction granted to restrain execution against rolling-stock, 361. 
 MAJORITY AND MINORITY RIGHTS, 
 
 majority cannot bind minority to a surrender of rights, 47. 
 elasticity of rule, ib. 
 
 rule under governments unrestricted from impairing contracts, 49. 
 legislation empowering majority of bondholders to reorganize, 48. 
 
 reasons for, 49, n. 
 
 effect of reorganization upon minority rights, 47. 
 constitutionality of legislation affecting, 48. 
 
 legislation limiting time for concurrence of minority of bond- 
 holders, ib. 
 coercion of minority, ib. 
 
 transactions induced by, ib. 
 
 relationship of bondholders, opposed to wishes of majority being 
 defeated, ib. 
 powers of majority under mortgage provisions, 49. 
 
 empowering three-fourths majority to " assent to any modifica- 
 tion," 50. 
 
 acts of corrupt majority frustrated, 50, 51, n. 1. 
 
 powers of majority construed strictly, 52, n. 
 under provisions for foreclosure on default of interest, 409. 
 minority bondholder's bill to foreclose when sustainable, 461. 
 
 MANUFACTURING COMPANIES, 
 
 franchises of, power to mortgage, 171. 
 
 may hold stock in corporation supplying them material, 123, n. 3. 
 (See Guaranty.) 
 MARKET-HOUSE, 
 
 of one holding market franchises, not salable under execution, 165. 
 
920 INDEX. 
 
 The figures refer to pages. 
 MARYLAND, 
 
 statutory provisions as issuing bonds and borrowing, 40, n. 
 
 reorganization, statutes respecting, 842, n. 1. 
 
 whether courts of, will restrain execution against rolling-stock, 361. 
 
 place of sale of mortgaged property, rule in, 773. 
 
 rule in, as to receiver's compensation, 710. 
 
 MASSACHUSETTS, 
 
 statutory provisions as to bonds, 40, n. 
 
 abrogation of common-law power to issue bonds, 16, 24. 
 
 powers since, much enlarged, 16, n. 2. 
 
 statute relating to trustees of railroad companies, 322. 
 
 statute of, respecting notice of meetings, 193. 
 
 reorganization, statutes respecting, 842, n. 1. 
 
 MASTER'S REPORT, 
 
 will not be set aside, without firm conviction that erroneous, 574. 
 MATERIAL-MEN. (See Mechanic's Lien.) 
 MATERIALS, 
 
 definition of term. (See Words and Phkases.) 
 MATURITY, 
 
 meaning of term. (See Words and Phrases.) 
 MAXIMS, 
 
 cuicunque aliquis quid concedit, concedere videtur, etc., 180. 
 
 " equality is equity," 753. 
 
 expressio unius, etc., 218. 
 qualification of, ib. 
 
 he who seeks equity must do equity, 584, n. 1, 589. 
 
 applied where construction contract rescinded, 150. 
 
 omnia rite acta, illustrated by English cases, 30, n. 
 
 invoked to protect original holder of bonds against irregularity of 
 issue, 30, n. 2. 
 
 omnis ratihdbitio retrotrdhitur el mandato priori cequiparatur, 28. 
 
 once a mortgage always a mortgage, 211. 
 
 qui sentit commodum sentire debet et onus, 799. 
 
 qui prior est in tempore prior est injure, 260. 
 
 vigilantibus non dormientibus equitas subvenit, 533. 
 
 MECHANIC'S LIEN, 
 
 general laws, how far applicable to railroads, 274. 
 if not applicable, effect upon labor claims, ih. 
 statutes creating, varied phraseology of, 273. 
 division of statutes into two classes, ib. 
 
 statutes creating a mere security, ib. 
 
 statutes creating an absolute priority, ib. 
 lien of mortgage not displaced by statute creating, ib. 
 
 for improvements subsequent to record of mortgage, 262, 264, n. 3. 
 
 priorities where mortgagor has option to incur future liabilities, 275. 
 
 where he binds himself so to do, ib. 
 statutes strictly construed, reason, 277. 
 
 lien must be perfected according to technical requirements, ib. 
 
 only obtainable as provided by statute, 278. 
 
 where last item of open account accrues within filing period, 277. 
 
INDEX. 921 
 
 The figures refer to pages. 
 MECHANIC'S IAE:^ — continued. 
 
 lien given to "laborers " in corporation's employ, meaning of, 277. 
 failure to sue within statutory limit of twelve months, ib. 
 in general terms, covers whole road at time of construction, 274. 
 for work on completed road, subordinate to mortgage, 275. 
 certificates issued subsequent to decree sustaining, subject to, 680. 
 for labor and material used in construction, not in operating, 274. 
 in Iowa, rolling-stock held not subject to, 310. 
 in North Carolina, 279. 
 property in receiver's hands not subject to process to enforce, 565. 
 bondholders when not bound by proceedings to enforce, 278. 
 States where sub-contractors of sub-contractors not entitled to, 277. 
 waiver of, accepting fund, constituting equitable assignment, 276. 
 acceptance of collateral security, ib. 
 
 stipulation that lienor be paid from particular fund, no waiver, ib. 
 nor security of divisional bonds where lien on whole line, 277. 
 (See under names of States.) 
 MEETINGS, 
 
 substantial compliance with statutory requii'ements as to, 191. 
 notice of, when meets requirement of Massachusetts statute, 193. 
 whether notice of given, mortgagee not bound to inquire, 196. 
 (See Directors; England.) 
 MICHIGAN, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 constitutional restriction against consolidation, 4, n. 
 reorganization, statutes respecting, 842, n. 1. 
 guaranty of bonds of other company, 129, n. 3. 
 
 MINNESOTA, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 
 reorganization, statutes respecting, 842, n. 1. 
 
 statutes respecting mortgaging after- acquired property, 258. 
 
 statutory receiver for benefit of creditors, 521. 
 
 personalty of railroad cannot be levied on separately in, 357. 
 
 MINORITY. (See Majority and Minority Rights.) 
 
 MISAPPLICATION OP PROCEEDS. (See Purchaser.) 
 
 MISFEASANCE AND MISCONDUCT, 
 when trustee liable for co-trustees, 313. 
 
 MISSISSIPPI, 
 
 statutory provisions as to bonds, 40, n. 
 
 constitutional restriction upon issuing stocks and bonds, 4, n. 
 
 constitution declares rolling-stock personalty, ih. 
 
 mortgage of future earnings subordinate to claim for operating expenses, 
 
 628, n. 632. 
 reorganization, statutes respecting, 842, u. 1. 
 
 MISSOURI, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 constitutional restriction npon issuing stocks or bonds, 4, n. 
 
 upon issuing preferred stock, ib. 
 
 upon consolidation, ib. 
 effect of consolidation between home and foreign corporations, ib. 
 
922 INDEX. 
 
 The figures refer to pages. 
 MISSOURI — continued. 
 
 rolling-stock of railways constitutionally declared personalty, i, n. 
 
 law of mechanics' liens in, 275. 
 MONEY, 
 
 protection to vendors, extended to advancers of, 346. 
 
 coming into hands of trustee, application of, 314. 
 
 should be, with view to diminish indebtedness, ib. 
 
 meaning of term. (See Words and Phrases.) 
 
 MONTANA, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 
 constitutional restriction upon issuing stocks and bonds, 4, n. 
 
 upon consolidation, ib. 
 
 effect of consolidation between home and foreign corporations, ib. 
 
 liabilities arising out of franchises preserved from effect of alienation, ib. 
 
 guaranty of bonds of connecting lines, 129, n. 3. 
 
 judgment for injuries, prior to mortgage, 628, n. 
 
 MORTGAGE, 
 
 common-law power of corporation to execute, 162. 
 
 application of rule in railway companies, ib. 
 
 power as affected by statutory provisions, 164. 
 effect as to railroad companies, ib. 
 of railroad property, validity of, when determined by charter, 216. 
 
 when by general laws, ib. 
 executed by corporate agent when corporate act, 186. 
 
 not unless executed in name of company, ib. 
 
 or purports to be deed of company, ib. 
 
 authority of corporate officers to execute must appear, 186, 187. 
 
 but may be inferred from facts and circumstances, 187. 
 may be authorized, executed, and acknowledged outside State, 193. 
 
 matter discussed, ib. 
 
 authorized by resolution passed outside State, 194. 
 
 in any State where line extends, 195. 
 where mortgagee without notice that no quorum present at execu- 
 tion, ib. 
 
 that director was not notified and absent, 196. 
 not invalidated by misapplication of proceeds of bonds, 197. 
 when not executed as directed, but directors adopt it, 196. 
 where corporation acquiesces, as by using consideration, 197. 
 unauthorized, validated by ratification of stockholders, 196. 
 
 but intervening rights not displaced by ratification, 197. 
 
 ratified only by proportion of stockholders necessary to authorize, ib. 
 void, for want of authority, does not invalidate bonds, 24, 32. 
 of corporate existence, rule of construction against, 177. 
 
 illustrative cases, 176-178. 
 of property, company not empowered to hold, invalid, 182. 
 effect of constitutional requirement as to place of business, 195. 
 circumstances rendering void ordinarily, not as to railroad companies, 198. 
 
 may be valid as to part of road only, 202. 
 
 effect, where two companies of different States consolidate, ib. 
 
 of franchises, when valid as to part only, 203. 
 
 when void only as to unauthorized provision, ib. 
 
INDEX. 923 
 
 The figurea refer to pages. 
 
 MORTGAGE — continued. 
 
 when void as to realty, but valid as to personalty, 203. 
 alteration by officers after execution, 205. 
 
 by inserting power of sale, ib. 
 validity of, as affected by circumstances of execution, 185. 
 
 necessity of witnesses to execution of, ib. 
 
 formalities of oath, not complied with, ib. 
 
 acknowledgment, formalities of, ib. 
 
 seal, necessity of affixing, ib. 
 
 delivery, when takes eifect, ib. 
 special requirements, 186. 
 vagueness of its description, efiect on validity, ib. 
 
 pledge of real and personal estate without specification, ib. 
 
 omission to state amount to be secured, ib. 
 when concurrence of stockholders unnecessary to execution of, 191. 
 validity of, when cannot be questioned by trustee, 208. 
 
 when may be questioned by company and stockholders only, 203. 
 validity of, when State estopped to dispute, 208. 
 ratification of, by legislature, 169. 
 
 inferred from acts and circumstances, ib. 
 right to, not restricted by statute declaring lien of State, 168. 
 securing bonds, objection to validity of, 12. 
 
 not affected though some bonds void, 25. 
 
 when may be foreclosed though bonds void, 198. 
 
 not operative until delivery of bonds, 46. 
 
 eifect of special act declaring valid, 13. 
 
 effect of provisions in certificate of organization, ib. 
 
 purporting to be of even date with bonds, 84. 
 
 bondholders' right to assume purport correct, ib. 
 
 bondholders' rights as against liens acquired after recording, ib. 
 
 whether benefits, clear of equities, pass with transfer of bonds, 99. 
 
 rule in Illinois in affirmative, ib. 
 of income, treated as an appropriation thereof, 66. 
 
 as against attaching creditors, ib. 
 
 when subject to attachment before possession under, 67. 
 
 rule when mortgage is upon all property, ib. 
 
 of " franchises, pledges, and rights " will not pass income, 247. 
 
 lien upon income acquired only in mode declared by, 497. 
 
 made in one State protects earnings in another, 247. 
 general rules of construction, 216. 
 
 all writings must be construed together, 217. 
 
 general words followed by particular, 218. 
 qualification of rule, ib. 
 
 particular followed by general, ib. 
 
 when refers to things ejusdem generis, ib. 
 general words with qualifying phrases, effect of, 230, 232. 
 property covered by, 216. 
 
 identified from ownership at execution of, 216, 219. 
 
 most general words sufficient to transfer, 219. 
 
 whatever necessary to enjoyment of thing granted, 220. 
 
 right to carry on business, when passes, ib. 
 
 lands not yet located or granted, 233. 
 
924 INDEX. 
 
 The figures refer to pages, 
 MORTGAGE — continued. 
 
 grants made subsequently to further construction, 233. 
 
 where company's authority limited to land for road, ib, 
 terminal facilities when covered by, 235. 
 lands acquired for depots and other buildings, 234. 
 lands acquired for right of way, ib. 
 lands held by equitable title when covered by, 285. 
 contract for sale of lands, 236. 
 
 leasehold interests, when covered, ii. 
 
 lease of a belt railroad, ib. 
 only such, used in promoting purposes of railway, passes, 227. 
 what is property used for railroad purposes, 228, 243. 
 mere convenience, not necessity, 228. 
 when it is " necessary" property, ib. 
 whether it need be " indispensable," ib. 
 
 lands, proper test as to, whether seizable under eminent domain, ib, 
 city lots designed for railroad use, but never used, 229. 
 distinction between unnecessary property and that thought necessary 
 
 but unused, 232. 
 land beyond charter limit will not pass, 231. 
 town lots must be appurtenant and indispensable, ib. 
 lands granted as inducement to erect depot, ib. 
 land us6d temporarily for an office, ib. 
 property afterwards consolidated when remains subject to lien, 
 
 229. 
 on works projected but not completed, ib. 
 fixtures, when pass as realty, general rule, 247. 
 of road, track, and franchises, includes fixtures, 247. 
 
 and future additions to fixtures, ib. 
 property not required for operating road, must be specifically de- 
 scribed, 226. 
 whether requisites of description the same as to companies and 
 
 individuals, ib. 
 after-acquired personalty when specific description necessary, 238. 
 
 when not acquired for raiboad purposes, ib. 
 when necessity for, qualified by view that railroad an entirety, 248. 
 when qualified by doctrine of fixtures, 247. 
 provisions : 
 
 that bonds shall be paid without deduction, 77. 
 
 effect of as to bondholders' liability for income tax, ib. 
 for payment of principal on default of interest, 74, 407. 
 
 right based upon, must be determined by existing conditions, 
 
 407. 
 must be in express terms, ib. 
 
 if principal due at trustees' election, election must be shown, ib. 
 when provision applies to " foreclosure " itself, not to bringing 
 
 suit, 407, n. 3. 
 provisions as affected by statute authorizing bond issue, 409. 
 that bondholder shall not foreclose till trustee refuses, 472. 
 for entry by trustee, ground against receivership, 534. 
 for request of majority to foreclose on default of interest, 76. 
 must be observed strictly, ib. 
 
INDEX. 925 
 
 The fignrea refer to pages. 
 
 MORTGAGE— continued. 
 policy of, 76. 
 
 common provisions as to maturing of principal, 75. 
 construction of , ib. 
 that bonds payable at specified time, election of bondholders on 
 
 default, ib. 
 variance judicially considered, 76. 
 
 election to treat as due, effect on future interest coupons, 75. 
 on senior mortgages, ib. 
 election to determine right to stolen bonds, ib. 
 
 provisions prevail over statute subsequently passed, 292. 
 
 power to insert provisions to enforce, implied, 168. 
 
 power to sell implied, ib. 
 
 clauses in, as affecting power of majority, 49, 51 and n. 
 
 power of sale in, on default of interest, 74. 
 
 right to prevent sale by payment of interest, ib. 
 
 power to foreclose and sell incident to power to execute, 374, 393. 
 existing, how far affected by creation of new obligations, 263. 
 
 effect of Kentucky statute respecting future liens, 264. 
 
 effect of consent to preference of new bonds, ib. 
 
 provision as to after-acquired property as affecting subsequent 
 lienors, 182. 
 priority over mechanic's lien, where optional to incur liability, 275. 
 
 where mortgagee binds himself to incur it, ib. 
 to secure future advances, when valid, 202. 
 
 priorities of, 264, n. 3. 
 priority of, as affected by legislation, 273. 
 construction, a question for the court, 617. 
 
 lex loci, ib. 
 
 of road " built and to be built," 623. 
 
 inform of trust deed, 210. 
 
 direct to bondholder, ib. 
 
 bondholder may not proceed alone against company, ib. 
 
 of real estate, when must be filed as chattel mortgage, 201. 
 in proceedings affecting lien of, trustees represent bondholders, 667. 
 
 receiver represents company, ib. 
 foreclosure of, in one, and concurrence in other federal court, 187. 
 
 res adjudicata, as to court rendering decree, ib. 
 trustee of more than one, duties of, 312. 
 
 (See After-acquired Property; Appurtenances; Bond and Mort- 
 gage; Chattel Mortgage ; Conveyance to Trustees; Equi- 
 table ^Mortgage; Fixtures; Franchises; Lien; Presumption; 
 
 Railroad Companies; Right op Way; Statutory Lien; Stock- 
 holders; Trustee; Undertaking; Vendor's Lien; names of 
 
 States.) 
 MORTGAGEE, 
 
 when entitled to income though company's control divested, 502. 
 of chattels having notice of prior mortgages, 207. 
 junior cannot question company's power to convey, 206. 
 
 qualification of rule, ib. 
 
 when cannot question prior bond issue, 26, 207. 
 
 parties standing in same position as, 207. 
 
926 INDEX. 
 
 The figures refer to pages, 
 MORTGAGEE — continued. 
 
 ■when cannot object as to stockholders' consent to prior mortgage, 206. 
 of part, as against junior mortgagee of entirety, 395. 
 action for possession not maintainable by junior against senior, 388. 
 practice, when prior mortgagee improperly made party, 464. 
 when entitled to costs, ib. 
 prior mortgagee, how made party, ib. 
 junior, not made party, his right to redeem unaffected, 465. 
 though made party, decree must cut off his lien, ib. 
 
 NATIONAL BANK, 
 
 receiver in suit by, 510. 
 
 jurisdiction of court sitting in domicil of, ib. 
 
 NEBRASKA, 
 
 statutory provisions as to bonds, 40, n. 
 
 constitutional restriction upon issuing stocks and bonds, 4, n. 
 
 upon consolidation, ib. 
 consolidation construed to mean "join" or "unite," ib. 
 statutes respecting mortgaging after-acquired property, 258. 
 reorganization, statutes respecting, 842, n. 1. 
 rolling-stock constitutionally declared personalty, 4, n. 
 guaranty of bonds of connecting line, 129, n. 3. 
 
 NEGLIGENCE, 
 
 trustee in possession, liability of, for injuries from, 319. 
 
 NEGOTIABILITY OF BONDS, 
 
 determined by law of country where action brought, 82. 
 foreign bonds when treated as negotiable, ib. 
 decisions against, not regarded as authority, 79. 
 
 policy that has established, 79, 80. 
 
 in England, 80. 
 feature determining, 80, 81, n. 1. 
 
 when no payee named, 81. 
 
 filling in name of holder, ib. 
 
 departure from common-law rule, ib. 
 
 uncertainty as to time, does not affect, when, ib. 
 as to amount, how affected by, 82. 
 effect upon, of reference to mortgage, 44, n. 1. 
 of writing, which promises security for money, as scrip, 78, n. 2. 
 (See Bonds.) 
 
 NEGOTIABILITY OF COUPONS, 
 
 when payable to order, bearer, or indorsed in blank, 105. 
 when so payable and separated from its negotiable bond, 106. 
 ■when contain references to mortgage, ib. 
 (See Coupons.) 
 
 NEGOTIABILITY OF GUARANTY, 
 indorsed upon bonds, 127. 
 purely collateral, ib. 
 
 NET EARNINGS, 
 
 when mortgage of, includes earnings going and coming, 246. 
 
INDEX. 927 
 
 The figures refer to pages. 
 
 NET EAU:^mGS — continued. 
 
 when not covered by mortgage, 246. 
 
 (See Trustee; Words and Phrases.) 
 NEVADA, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 NEW HAMPSHIRE, 
 
 statutory provisions as to bonds, 40, n. 
 
 mortgage by a corporation, formalities of execution, 185. 
 
 rolling-stock regarded as personalty, 340. 
 NEW JERSEY, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 
 rule as to bonds not in prescribed form, 84. 
 
 reorganization, statutes respecting, 842, n. 1. 
 
 statutes affecting consolidation, 169, 188. 
 
 foreclosure, statutes relating to, 409. 
 
 rolling-stock, not fixtures, 338. 
 
 Chattel Mortgage Act not applicable to, ib. 
 
 NEW MEXICO, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 
 NEW YORK, 
 
 statute restricting corporate power to mortgage, 174. 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 business corporations act, power to issue bonds under, 9. 
 
 bonds valid though in excess of half, ib. 
 
 limited personal liability of directors, 11. 
 
 consent to mortgage under, 192. 
 
 what amounts to written consent, ib. 
 
 corporation cannot vote its own shares to make up majority, ib. 
 
 consent to purchase-money mortgage unnecessary, ib. 
 
 by whom objection to mortgage may be taken, 198. 
 reorganization, statutes respecting, 842, n. 1. 
 "reorganization," "reincorporation," and "consolidation," distinction 
 
 between, 845, n. 1. 
 statute authorizing consolidation, 266. 
 
 code, section 1628, applies, not to action based on, 853. 
 appointment of receiver on dissolution of company, 509, n. 3. 
 statute relating to corporation receiver's applicability, 709, n. 1. 
 foreclosure, statutes relating to, 409. 
 rolling-stock held personalty in, 837. 
 guaranty of bonds, 129, n. 3. 
 provisions of code respecting excessive amount of judgment, ib. 
 
 NON-RESIDENTS, 
 
 eligibility for trusteeship secured by State constitutions, 284. 
 trustee becoming resident abroad, effect of, 312. 
 
 NORTH CAROLINA, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 reorganization, statutes respecting, 842, n. 1. 
 judgment for torts, priority of, over mortgages, 628. 
 
 NORTH DAKOTA, 
 
 statutory provisions as to bonds, 40, n. 
 
928 INDEX. 
 
 The figures refer to pages. 
 NORTH DAKOTA — continued. 
 
 constitutional restrictions upon issuing stocks and bonds, 4, n. 
 
 upon consolidation, ib. 
 
 foreclosure, statutes relating to, 409. 
 
 code provisions afEecting mortgages of after-acquired property, 258. 
 
 NOTICE, 
 
 under recording statutes, 158. 
 
 statutes relating to bond and mortgage, 156. 
 
 presumption statutory requirements have been complied with, ib. 
 from knowledge of extrinsic facts, 153, 155. 
 
 facts that would put a prudent man on inquiry, 155. 
 
 illustrations, 156. 
 
 corporate records, not, ib. 
 as imparted by instrument itself, 153. 
 implied from recitals in bonds, 88, 89. 
 from smallness of price, 89. 
 from years of unpaid coupons, 89, 95. 
 
 reference in bond to mortgage, notice of latter's contents, 154. 
 
 contents of bonds as of circumstances of executing mortgage, ih. 
 
 facts expressed on instrument, purchaser need not look beyond, 153. 
 exceptional instance, 153, n. 2. 
 
 change of numbers on bonds, not, 154. 
 
 nor that interest on some coupons not paid, 150. 
 as affecting priority of judgment creditor, 261. 
 as affecting creditor's assignee, ib. 
 as determining unqualified rights of bondholder, 153. 
 constructive, when affects rights of purchaser, 154. 
 to trustees in matters not arising in litigation, effect of, 304. 
 
 where held not notice to bondholders, ib. 
 
 where trustee invested with merely naked trust, 304, 306. 
 
 where trustee regarded as agent, 306. 
 doubtful state of law as to effect on bondholders, 307. 
 (See Bondholders; Creditor; Mortgage; Presumptions; Pur- 
 chaser; Trustee.) 
 NOVATION, 
 
 substitution distinguished from, 36, 62. 
 
 intention to extinguish old obligation must be shown, 853. 
 
 presumption against on funding overdue interest, 112. 
 
 overcome by clearest evidence only, ib. 
 
 NUISANCE, 
 
 trustee in possession, liability of, for injuries from, 319. 
 
 NUMBERS, 
 
 not integral part of bond, 154. 
 
 change of, not notice that bonds have been stolen, ib. 
 
 effect of on bonds to determine validity in case of over-issue, 24, n. 5. 
 
 OFFICERS, 
 
 when president empowered to create lien upon income, 190. 
 
 when upon franchises of company, ib. 
 president's implied power to stipulate as to default of interest, ib. 
 
INDEX. 929 
 
 The figures refer to pages. 
 OFFICERS — continued. 
 
 may not insert unusual terms, 190. 
 as, payment of attorney's fees, ib. 
 
 unauthorized provisions, need not vitiate others, 191. 
 subsequent approval of board, 196. 
 
 when vfithout authority to mortgage, 191. 
 
 superintendent without authority to mortgage, ib. 
 
 de facto, binding efEects of acts of, 188. 
 
 omission to execute authorized mortgage, effect of, 212. 
 OHIO, 
 
 statutory provisions as to issuing bonds, 40, n. 
 
 validity of bonds sold to a syndicate of directors, 24, n. 5. 
 
 statute respecting inortgaging after-acquired property, 180. 
 
 no statutory power to make preferred stock lien, 758. 
 
 statute relating to negotiability of instruments, 16 and n. 3. 
 
 reorganization, statutes respecting, 842, n. 1. 
 
 rule as to selling real estate of railroad, 767. 
 
 rolling-stock, whether personalty or realty doubtful, 340. 
 
 judgment for labor, supplies, and injuries, preferred to mortgage, 628, n. 
 
 order removing receiver reviewable on appeal, 537. 
 OKLAHOMA, 
 
 statutory provisions as to issue of bonds, 40, n. 
 
 statutes respecting mortgaging after-acquired property, 258. 
 
 OPERATING EXPENSES, 
 meaning of, 651. 
 
 a paramount charge on trust fund, ib. 
 what allowed as, 654. 
 
 awards as damages, against receiver for servant's acts, 762. 
 
 payable out of receiver's income only, ib. 
 
 where receiver appointed merely to pay rent from profits, ib. 
 priority of claim for, not affected by attachment, 582. 
 payable out of proceeds when specific lien, 660. 
 lien on corpus, when, ib. 
 
 advances for, a risk, without court's prior sanction, 662. 
 (See Words and Phrases.) 
 OVER-ISSUE OP BONDS, 
 
 company estopped to deny validity of, 91. 
 
 or that they fall within security, ib. 
 when subsequent mortgagee may assert invalidity of, ib. 
 when valid only to extent of consideration received, ib., n. 2. 
 rights as between holders within and without the limit, 90. 
 
 where all indorsed by State, ib. 
 when lien upon corporate property, 91. 
 priority as between, and income bonds subsequently issued, ib. 
 
 and subsequently recorded mortgage, ib. 
 OVER-VALUATION, 
 
 where railroad the consideration of issue, 17, 22. 
 
 PARTIES, 
 
 in suits relating to corporate securities, 458. 
 two classes of, ib. 
 
 59 
 
930 INDEX. 
 
 The figures refer to pages. 
 PARTIES — continued. 
 
 in action to cancel bonds, corporation necessary party, 34. 
 to foreclosure suit, who only necessary, 459. 
 who proper, but not necessary, 465. 
 
 quasi, persons of a class represented in foreclosure suit, 459. 
 may be heard in own interests, ib. 
 stockholders when suflSciently represented, 466. 
 bound by decree, when corporation defendant, ib. 
 general rule that trustee and beneficiary necessa,ry parties, 475. 
 exceptions in case of railroad mortgages, and reasons for, ib. 
 applies to ex officio trustees, as State treasurer, 476. 
 heirs or personal representatives of deceased trustee, 296. 
 
 except on death of all trustees, ib. 
 trustee proper plaintiff under ordinary circumstances, 478. 
 to foreclose mortgage, ib. 
 to maintain and defend trust fund, ib. 
 to apply for injunction against illegal proceeding, ib. 
 to bring suit to settle priorities under certain circumstances, ib. 
 to secure from company an accounting for earnings, ib. 
 trustee as party defendant generally, 480. 
 
 where stockholders seek to avoid sale under friendly foreclosure, ib. 
 trustee substituted, pending suit, without court's sanction, 481. 
 where, with consent of court, ib. 
 
 non-resident trustees as defendants, i6. 
 
 service by publication, when necessary, ib. 
 bill by or against trustee alone, not demurrable, 478. 
 when dismissed as to trustee of subsequent mortgage, 466. 
 where several trustees, one sufficient to protect rights of beneficiaries, 
 
 477, 478. 
 bondholders as plaintiff, 459. 
 
 one or more may sue on behalf of all, 472. 
 
 not where mortgage executed to bondholders by name, 473. 
 whether regard must be had to wishes of other bondholders, 459. 
 where removal of trustee, object of suit, 472. 
 
 where trustee has acquired adverse interests, ib. 
 where guilty of active misconduct, 473. 
 where non-resident and insane, ib. 
 ■where trusteeship of foreign corporation, vacant, ib. 
 necessity of showing request and refusal of trustee to sue, 459, 460. 
 request must come from bond-owners, 477. 
 
 whether trustee may continue suit, though request insufficient, ib. 
 incapacity of, when special powers conferred on trustee, 482. 
 when restrained from joining in suits against trustee, 481, 482. 
 only proper parties to compel execution of trust deed, 460. 
 differing immaterially in circumstances from complainant, ib. 
 action for specific performance on refusal of trustee, ib. 
 committees of several series of bondholders as, in trustee's action, ib. 
 declining to come in as plaintiffs, joined as defendants, 475. 
 safe, without joining in suit begun by others, 474. 
 privilege of intervention open after appeal, ib. 
 charged with utmost good faith, 472. 
 pledgor of bonds may maintain suit in interests of all, 461. 
 
INDEX. 931 
 
 The figures refer to pages. 
 
 PARTIES — continued. 
 
 but pledgee must be a party, 461. 
 so pledgee may foreclose, making owner party, ib. 
 ■when receiver not proper party in federal action, 468. 
 when proper though unnecessary in foreclosure, 467. 
 when proper in stockholder's action to cancel bonds, ib. 
 receiver pendente lite when not proper party, 691. 
 when appointed to wind up company, ib. 
 construction company directors, when necessary, 467. 
 guarantors of bonds not proper parties, when, ib. 
 persons materially interested may intervene, 470. 
 judgment creditors claiming superior lien, ib. 
 simple contract creditors, when, ib. 
 defendant, who necessary, depends on relief asked, 461. 
 usually mortgagor and all subordinate lienors, 462. 
 where mortgagor alone sufficient, 462, 466. 
 where mortgagor neither necessary nor proper, 462. 
 prior mortgagee usually not necessary party, ib. 
 especially, when prior mortgage not due, 463. 
 if due, holder may be compelled to surrender, ib. 
 when prior mortgagee a proper party, ib. 
 
 on appointment of receiver of revenues, ib. 
 when junior seeking sale of entire estate, 464. 
 grantee of trust deed to determine alleged priority, ib. 
 prior mortgagees when not allowed to intervene, on junior foreclosing, ib. 
 mortgagee of divisional mortgage, 466. 
 United States as party defendant, 470. 
 
 but where they have become parties, decree binds them, ib. 
 same rule applies to State, ib. 
 States as parties defendant, 468. 
 general rule, cannot be, ib. 
 
 distinguishable from State officers as defendants, ib. 
 but general rule cannot be evaded, ib. 
 joining as defendant one of similar interests to plaintiffs, 458. 
 consequences of omitting to join junior lienor, 465. 
 under compulsory process of federal court, 422. 
 to cause, sought to be removed, 439. 
 must be same to sustain a plea of lis pendens, 429. 
 prior mortgagee, how made a party, 464. 
 
 (See Bondholders ; Intervention; Trustees.) 
 PAYMENT, 
 
 of bonds, question of, as distinguished from substitution, 61. 
 question of, determined by terms of agreement, ib. 
 conclusion of, not warranted where lien preserved, 62. 
 effect upon security, 61. 
 
 reissue and effect of, upon security, 62. 
 certificates issued for accrued interest coupons, when not, 63. 
 (See Substitution.) 
 PENNSYLVANIA, 
 
 statutory provisions as to issuing bonds, 40, n. 
 
 constitutional restriction upon issuing stocks and bonds, 4, n.; 24, n. 5 
 upon consolidation, 4, n. 
 
932 INDEX. 
 
 The figures refer to pages. 
 
 PENNSYLVANIA — continued. 
 
 statute respecting liens of construction companies, 149. 
 
 relating to trustees of railroad companies, 322. 
 reorganization, statutes respecting, 842, n, 1. 
 rolling-stock not leviable after insolvency of road, 361. 
 equity court's jurisdiction, 373. 
 guaranty of bonds, 129, n. 8. 
 action on bond, in whose name maintainable, 385. 
 ■when no demand necessary, ih. 
 
 PERSONAL PROPERTY DETACHED, 
 when must be specifically described, 247. 
 safe, 248. 
 
 office furniture and fuel, 247. 
 planing-mill, 248. 
 
 PLEADINGS AND PRACTICE, 
 
 allegations, in action to annul bonds, 34. 
 
 in action by bondholder to rescind for fraud, 156. 
 
 in bill for redemption, 806. 
 
 sufficiency of bill by judgment creditor for receiver, 533. 
 
 omission to register mortgage must be alleged, 208. 
 bondholder's bill should allege trustee's refusal to take action, 471, n. 4. 
 averments : 
 
 that petitioner has lien, 34. 
 
 that corporation is misusing property, ib. 
 
 default of interest, ih. 
 
 of indorsement on bonds, to show defendant's liability for interest, 
 126, n. 5. 
 
 averment of election to treat bonds as due, 75. 
 
 ownership of bonds, when sufficiently alleged, 56, 449. 
 
 equitable mortgage and priority over junior lienors, 449. 
 
 single question on lienholder's demurrer to equitable mortgage fore- 
 closure, 450. 
 
 setting forth sufficient description of mortgaged property, 449. 
 
 amount secured, sum due, and conditions of mortgage, ib. 
 biU by or against trustee alone, not demurrable, 478. 
 title of trustees sufficiently alleged, when, 476. 
 whether trustee should allege reason for not joining beneficiary, 477. 
 bills held not demurrable, 450. 
 
 usual prayer in bill filed by trustee to obtain possession, 451. 
 def-ences against bondholders available against trustees, 478. 
 answer of corporation, how verified, 452. 
 omission of corporation to appear and answer, ib. 
 answer of lienholders in foreclosure of equitable mortgage, ib. 
 pleas of lis pendens not sustainable unless cases alike, 428. 
 objection to jurisdiction addressed to court, 426. 
 
 by plea in abatement, ib. 
 
 too late, to object after answer, ib. 
 dismissal of bill by complainant, when and when not allowable, 454. 
 
 usually without prejudice to bringing another suit, 455. 
 dismissing bill as to trustee of subsequent mortgagee, 466. 
 effect of not joining junior lienor, 465. 
 
INDEX. 933 
 
 The figures refer to pages. 
 PLEADINGS AND FRkCTlCE — continued. 
 cross-bills, purpose of, 452. 
 
 practical illustrations, 452. 
 
 when cross-bill may set up new matter, 453. 
 
 cross-bill falls on dismissal of original, 456. 
 
 orders made in suit will be set aside, ib. 
 
 when may be ordered by court, 453. 
 
 optional among antagonistic defendants, ib. 
 
 should be filed before rendition of decree, ib. 
 
 filed without leave of court may be avoided, 454. 
 
 when leave presumed granted, on appeal, ib. 
 
 by bondholder to raise issue of fraud, ib. 
 
 by persons not parties to original suit, ib. 
 
 by material-men, laborers, etc., ib. 
 supplemental bills, when proper and when not, 451. 
 
 order on bondholder's petition directing, i6. 
 
 right to file where facts subject of amendment, 152. 
 
 serving subpoena, 451. 
 on bringing suits, pending receivership, 565. 
 
 as to injurious orders made during, ib. 
 
 mode of enforcing claims against property in receivers' hands, 573. 
 
 when appointment of receiver an issue, order admissible in evidence, 
 572. 
 
 on removal of ancillary receiver, 553. 
 
 on review of master's report on receiver's account, 562. 
 
 how prior mortgagee made a party, 464. 
 when prior mortgagee improperly made a party, ib. 
 
 when entitled to costs, ib. 
 to bring iu unwilling suitors, 422. 
 
 PLEDGE, 
 
 of commercial paper does not carry power to sell, 96. 
 
 rule applied to sale of railroad bonds in Illinois, 97. 
 
 but corporation bonds generally excepted from rule, ib. 
 of railroad bonds, 33. 
 of railroad, 98. 
 
 of bonds issued to be sold for cash, 33. 
 by corporation may be levied upon by pledgee, 45. 
 of bonds for less than face value, amount recoverable, 93. 
 
 amount payable on redemption, 98. 
 
 to secure payment of money advanced on sham note, 96. 
 
 of antecedent debt, 17, 33, 96. 
 
 to secure private debt of officer, 33. 
 
 to secure rent and salaries, ib. 
 specific pledge, what included in, 240. 
 rights of pledgee, where no formal delivery, 23. 
 pledgee as a bona fide holder, conflict of opinion, 96. 
 where note void but debt valid, pledge valid, 33. 
 right to sell, presumable from nature of transaction, 97. 
 foreclosure and sale at small price, purchaser's title, ib. 
 sale without notice of bonds pledged, 77. 
 
 when time fixed for payment of debt, ib. 
 
934 INDEX. 
 
 The figures refer to pages. 
 PLEDGE — continued, 
 
 when given as security for acceptances, ib. 
 right to deem pledged bonds, 77. 
 on accounting, ib. 
 
 in case of assignment of pledge, ih. 
 where pledgee assigns to secure his own debt, ib. 
 
 rights of assignee on accounting after foreclosure, ib. 
 pledgee has no lien for counsel fee» when, 715. 
 
 (See Distribution op Proceeds ; Parties ; Sale.) 
 
 POSSESSION OF TRUSTEE, 
 
 right of trustee to exercise corporate franchise and operate road, 315. 
 
 surrender of, where taken to prevent foreclosure, 317. 
 
 (See Remedies op Bondholders ; Right op Entry ; Trustee.) 
 
 POST-DDE INTEREST. 
 
 (See Words and Phrases.) 
 POWER OF COURT AND ITS RECEIVER, 
 
 application for receivership, a submission to management by court, 689. 
 court has full power to direct management during receivership, 640. 
 contracts of receiver binding only when approved by court, 639, 648. 
 
 court may modify or disregard them, 643. 
 receiver's powers only such as appointing order confers, 643, 662. 
 
 where subsequent approval dispenses with prior order, 643. 
 
 contracts not within scope of appointing order, not binding, 644. 
 parties aggrieved by court's action, remedy of, 640. 
 nature and extent of powers conferred on receiver, ih. 
 
 controlling considerations, ib. 
 
 that road may be sold as a " going concern," ib. 
 
 to keep it intact, free from loss or injury, 641. 
 court unwilling to make radical changes, ib. 
 no power to build extensions with earnings, or corpus, ib. 
 court's powers subordinated to compromise extinguishing receivership, 640. 
 contract for legal services must be authorized by order, 644. 
 excess of authority, in making rebatement contract, not assumed, ib. 
 receiver without authority to make large outlays, 644, 654, 662, n. 2. 
 
 when reference to master sufficient, 644. 
 
 when receiver should apply to court direct, ib. 
 
 when he should apply in advance, ib. 
 
 allowance of claims against receiver, controlling considerations, 645. 
 
 when claimant shows good faith though contract improvident, 646. 
 
 illustrations, ib. 
 where court will not award damages but indemnify contractor, ib. 
 where court has sanctioned injurious contract, ib. 
 powers conferred on receiver by appointing order, liberally construed, 647. 
 
 principle of construction, 648. 
 
 may issue or call in corporate securities, 647. 
 
 authorized to operate road to preserve traffic and connections, 648. 
 where power of court derived from statute, ib. 
 power to cease operating section of composite system, ib. 
 receiver's right to revoke running powers granted by company, 649. 
 to take lease of another road, ib. 
 where receiver appointed for special purpose, limited powers of, ib. 
 
INDEX. 935 
 
 The figures refer to pages. 
 POWER OF COURT AND ITS RECEIVER — conftnueti. 
 
 after sale, reservation of control in order discharging receiver, 650. 
 lien on corpus in hands of purchaser, ib. 
 for price of rolling-stock, ib. 
 not for legal services, ib. 
 ■where several receivers, all need not execute contract, 644. 
 receiver need not perform executory contracts of company, 643. 
 remedy to compel election by, 643, n. 1. 
 accounting by State-court receiver on removal of cause, 640. 
 disposition of trust fund during receivership : 
 general rule — trust estate must bear expenses of administration, 650. 
 expenses of receivership first claim on income, 651. 
 when that exhausted, on proceeds of sale of property, ib. 
 operating expenses, a paramount charge, ib. 
 
 claims for, more numerous than "preferential claims," ib. 
 receiver's outlay, not justified by comparison with company's, ib. 
 when court may exceed company's limit, ib. 
 judgment against receiver, prior to mortgage, when, ib. 
 claim against receiver, judicial error to dismiss, 652. 
 receiver's power to resume possession to enforce claims, ib. 
 
 power may be reserved by court, 701. 
 company's expenses after receiver appointed not chargeable on trust 
 
 fund, 652. 
 refunding scheme, when expenses of not allowed ex parte, ib. 
 reorganization scheme, expense of when allowed receiver, ib. 
 interest on lien debts whether payment will be ordered, ib. 
 determined with reference to interests of whole estate, ib. 
 interest ordered paid at instance of subordinate creditors, 653. 
 
 not of divisional mortgage, to protect junior consolidated mort- 
 gage, 653. 
 interest, when loan ordered, to pay, ib. 
 
 priority as between loan and other expenses, ib. 
 funded coupon-bonds should be directed paid before later coupons, 654. 
 taxation of property in receiver's hands, ib. 
 receiver's duty to procure court's authority for extraordinary expenditures, 
 
 644, 654. 
 what within line of his discretion, 655, 662. 
 operating expenses, what allowed as, 654. 
 allowable expenses for supplies, 655. 
 office rent, 656. 
 
 interest on loans to keep road in operation, ib. 
 materials and chattels necessary, 654. 
 interest on bonds of subordinate road, 656. 
 expenditures usual in business with connecting roads, ib. 
 payments for moneys received from them according to custom, ib. 
 freight rebates and allowances to shippers to secure business, ib. 
 expenditure to defeat construction of rival road, disallowed, ib. 
 expense of promoting bill in Parliament, 657, n. 1. 
 corporation contracts adopted by receiver, 657. 
 rent of track of other companies, ib. 
 rent of rolling-stock, ib. 
 where rolling-stock subject to vendor's lien, ib. 
 
936 INDEX. 
 
 The figures refer to pages. 
 POWER OF COURT AND ITS UECEIVER — continued. 
 liabilities for torts during operation by receiver, 657. 
 
 footing of such claims, 658. 
 
 immaterial that claim merged in judgment, ib. 
 
 except that interest runs only from judgment, ib. 
 
 such claims, a charge on earnings of receiver, ib. 
 employees, compensation for injuries to, ib. 
 consolidated system, administered as an entirety, ib. 
 
 claims for rent of subdivisions, 659. 
 
 where road taken possession of, a leased line, ib. 
 
 where used for private purposes, rules of administration, ib. 
 
 apportionment where divisions have had general benefits, 660. 
 when divisional bondholders estopped to question apportionment, ib. 
 
 when company cannot look to subordinate for reimbursement, ib. 
 
 power of receiver for controlling company, ib. 
 receiver's power to pui-chase on credit, 657. 
 
 when authority implied, ib. 
 vendor not bound to know receiver had funds, ib. 
 restoration of earnings diverted during receivership, 660. 
 
 when effected by making operating expenses hen on corpus, ib. 
 
 back claims postponed, when made a lien on corpus, 673. 
 
 use of earnings in making permanent improvements, a diversion, 661. 
 
 when claimant for damages may recover amount diverted, ib. 
 receiver's power to raise money for expenses: 
 
 charge on fund, validity dependent upon order, 662. 
 
 advances for operating expenses without court's prior sanction, 
 risked, ib. 
 
 receiver's expenses, when a first lien by appointing order, ib. 
 
 bondholder's assent a condition of appointment, ib. 
 
 power to create debts for operating expenses until sale, 665. 
 
 composite line, expenses for part charged upon whole, 666. 
 
 where constituent company worked at loss, deficiency lien on corpus, ib. 
 
 certificates to pay back labor claims ordered on appointment, 663. 
 statutory receiver, expenses of, when cannot be lien on corpus, ib. 
 (See TiRST-LiBN Certificates; Holders of Certificates; 
 Receivers.) 
 POWER OF SALE, 
 
 sketch of law regulating, 372, n. 2. 
 
 by trustees controlled by court at suit of beneficiary, 302. 
 
 rarely exercised, ib. 
 
 effective to divest title, without foreclosure, ib. 
 
 irrevocable, ib. 
 
 POWERS, 
 
 incidental, defined, 3. 
 
 of railroad company to mortgage future earnings, 64. 
 assumption against violation of restrictions upon, 87. 
 assumption strengthened by recitals, ib. 
 estoppel based upon recitals, ib. 
 (See Borrowing; Directors; Officers; Railway Companies.) 
 PREFERRED DEBTS, 
 
 theory and propriety of preferring particular debts, 582, 583 and n. 1. 
 
INDEX. 937 
 
 The figures refer to pages. 
 
 PREFERRED DEBTS — contijiued. 
 
 court has no power to postpone liens for new claims, 582. 
 attachment does not affect preference of operating expenses, ib. 
 operating expenses of receiver appointed to represent company only, 583. 
 lien for expenses incurred shortly before appointment, ib. 
 operating expenses incurred before or after receivership, 585. 
 
 applicablity of income to payment of, 586. 
 
 whether proceeds of sale of mortgaged property ever applicable, 583. 
 substance of case Fosdick v. Schall, 584. 
 
 equities contracted to keep road alive, 587. 
 debts not liens but preferred as paramount duty, ib. 
 
 equities of, based upon peculiar natui'e of railroad business, 588. 
 
 equities discussed, 588 and n. 
 
 based upon public interest in road as a " going concern," 590. 
 whether other corporations subject to doctrine of preferential claims, 593. 
 
 holding as test, — right to exercise eminent domain, 593. 
 
 anomalies of doctrine, 595. 
 
 no good reason for favoring operating over construction expenses, ib. 
 
 theory that company in possession after default, bondholder's agent, 
 596. 
 
 a reason for preferring debts then contracted, 597. 
 
 theory insufficient as not involving an estoppel, ib. 
 
 length of possession evidencing assent, necessary, ib. 
 
 weakness of theory, 598. 
 priority of back claims : 
 
 power of court to require payment of, on appointing receivers, 599. 
 
 underlying maxim, he who seeks equity must do equity, ib. 
 
 power, not dependent upon fact that earnings diverted, 600. 
 power of court to displace vested liens, limited, ib. 
 order directing payment does not confer absolute right, 601. 
 
 court not bound by order but may question claim, ib. 
 
 order a protection to receiver principally, ib. 
 
 conditions of, binding on applicant for receivership and subsequent 
 litigants, ib. 
 
 conclusive as to particular claim, when parties accept, 602. 
 
 may direct payments of such claims as master directs, ib. 
 
 when order fails to direct payments, what claims preferable, ib. 
 claims necessary to keep road " going concern," ib, 
 
 claims do not become liens because income insufficient, 608. 
 
 debts should be paid from earnings properly chargeable against, 603. 
 ■ unless order directs, no preference against corpus, ib. 
 back claims, not ordinarily lien on corpus, 605. 
 
 appointing receiver does not change character of debt, ib. 
 
 some special equity must be shown to effect lien, 6. 
 
 diversion of earnings, basis for lien on corpus, 602, n. 4; 606. 
 on theory that earnings constitute current debt fund, 606. 
 
 restoration of earnings compelled, though mortgage gives lien, i6. 
 
 until possession taken, earnings under mortgagor's control, ib. 
 payment of interest, when not a diversion, ib. 
 
 not as regards creditor with claim not due, ib. 
 
 nor lessor whose rent is not in arrear, 607. 
 
 when mortgagee's advances more than amount paid, ib. 
 
938 INDEX. 
 
 The figures refer to pages. 
 PREFERRED DEBTS — continued. 
 
 when corporation not yet a "going concern," 607. 
 doctrine of diversion not applicable in ordinary creditor's suit, 609. 
 
 nor where credit given for materials, 622. 
 preservation of property, a ground for lien, 607. 
 assumption of floating debt by purchasers creates no lien, 608. 
 
 but gives creditors security of an additional debtor, ib. 
 debts against part of composite road, charge on whole, ib. 
 judgment of another court, when does not establish preference, 605. 
 debt not preferred on mere promise of bondholder, ib. 
 assignee of preferred debt entitled to preference, 604. 
 period beyond with back claims not preferred : 
 
 generally six months preceding receiver's appointment, 610. 
 from delivery of materials, not from date of note, 612. 
 presumption-creditors have ceased to look to earnings, 611. 
 " six months' rule " adopted as by analogy to statutes, 610. 
 
 not an absolute rule, 611. 
 three-year old claims preferred, ib. 
 items of running account antedating period fixed by order, 612. 
 
 where account not under subsisting contract, ib. 
 unsecured claims antedating order payable out of surplus earnings, ib. 
 back claims entitled to priority: 
 tests : debt operated to bondholder's advantage directly, 613. 
 payments made to preserve estate, ib. 
 
 debt necessary for ordinary administration of corporate affairs, ib. 
 claims which have and have not been preferred, 614, u. 1. 
 
 preferring receiver's fees to wages for preceding months, 610. 
 fees of attorney, ib., 617. 
 loan by receiver for carrying on business, ib. 
 debts for freight and ticket balances always allowed, 615. 
 debts incurred for transportation, ib. 
 wages and salaries of every grade of employees, ib. 
 claim for services as counsel, ib. 
 counsel employed for special purposes, 616, 617. 
 president's salary, not, 616. 
 reason, 617. 
 nor secretary's, 616. 
 
 without order at time of appointment, ib., n. 5. 
 claims for supplies and materials, preferred, 618. 
 
 whether furnished under contract with mortgagor company or 
 
 another, 619. ' 
 
 waiting-rooms and ticket-offices, treated as supplies, ib. 
 claims for materials furnished on credit, not preferred, ib. 
 
 diversion of earnings immaterial when credit given, 622. 
 rights of conditional vendors, 619, 620. 
 right of lessor of rolling-stock to terminate lease, 620. 
 claim for rental of cars during receivership, 621. 
 Georgia Supreme Court rules, ib. 
 where lessor another line, 622. 
 
 claim contracted during original construction, not allowed, ib. 
 of prior mortgagor over contractor who completes road, 623. 
 damages for breach of contract, not, 624. 
 
INDEX. 939 
 
 The figures refer to pages. 
 
 PREFERRED DEBTS — continued. 
 
 exception, where company builds road, for percentage on 
 earnings, 624. 
 damages caused by operating road, ib. 
 
 payment of, generally imposed as a condition, ib. 
 rule in Georgia, 026. 
 rule in Tennessee, ib. 
 
 where prior lien on earnings lost by acquiescence, 614. 
 (See Expenditures by Creditors.) 
 
 PREFERRED STOCK, 
 
 company issuing, estopped to impeach, when, 31, n. 1. 
 (See Words and Phrases.) 
 
 PRESENTATION. (See Demand.) 
 
 PRESUMPTIONS, 
 
 as to legal home of corporation, 19. 
 
 that corporate officers rightfully in office, 187. 
 
 that corporate acts of agent within scope of authority, ib. 
 
 of bondholder's knowledge of public functions of railways, 157. 
 
 that mortgage regularly executed, 195. 
 
 of due execution of guaranty, 128. 
 
 in foreclosure that necessary circumstances existed, 187. 
 
 that seal regularly and authoritatively affixed, ib. 
 
 not overcome by omission to show absence of directors' vote, ib. 
 that statutes relating to bond issue have been observed, 156. 
 in favor of unsecured creditors, 65. 
 that transferee of coupon bona fide holder, 83. 
 against novation in scheme to fund interest overdue, 112. 
 
 overcome by clearest evidence of intention, ib. 
 that lien reserved by State for benefit of bondholders, 329. 
 that courts of other States will construe according to common law, 217. 
 (See Bonds.) 
 PREVENTIVE REMEDIES. (See Injunction.) 
 
 PRINCIPAL, 
 
 no legislative power to accelerate maturity of, 73. 
 payable on default of interest, president may stipulate, 190. 
 not so payable unless stipulated, 73. 
 payment of on default of interest, usual clause, 74. 
 when mortgagor may prevent sale by payment of interest, ib. 
 may be offset against damages for refusing other bonds contracted for, ib. 
 power of trustee to declare due, 299. 
 
 election to treat as due on default of interest, cancels coupons, 103. 
 (See Mortgage.) 
 
 PRINCIPAL AND AGENT, 
 
 a person dealing with agent must inquire into authority, 157. 
 agent binds corporation only within scope of authority, ib. 
 contract within scope of authority presumed valid, 187. 
 when instrument executed by agent, act of corporation, 186. 
 company's right to contest mortgage subject to rules respecting, 204. 
 authority to purchase bonds, does not extend to making agreement, 98. 
 diversion by agent of principal's bonds, 54. 
 
940 INDEX. 
 
 The figures refer to pages. 
 PRINCIPAL AND AGE'ST — continued. 
 effect of subsequent agreement, 98. 
 
 (See Moktgage; Officers; Ratification.) 
 
 PRINCIPAL AND INTEREST, 
 default of, when complete, 399. 
 omission to pay, concurred in by mortgagee, ib. 
 whether demand necessary to complete default, 400. 
 (See Default ; Foreclosure and Sale ; Remedies by Bondholders ; 
 Right of Entry.) 
 
 PRIORITIES, 
 
 of debt over dividends, 68. 
 
 of debts contracted before receivership, 259, n. 1. 
 
 as between mortgage and vendor's lien, 271. 
 
 established by State statute, when recognized by federal courts, 263. 
 
 as dependent upon decree of sale, ib. 
 
 liabilities assumed at sale, follow title, ib. 
 between guarantors of interest and bondholders on reorganization, 129. 
 as between constituent and consolidated bondholders, 266. 
 
 as affected by statute declaring creditors' rights protected, ib. 
 of lien effected prior to organization of company, 260. 
 of certain claims to railroad mortgages, 259, n. L 
 
 for labor and material, ib. 
 
 of first liens, postponing, ib. 
 not disturbed by receiver's possession, 547. 
 not disturbed by consolidation, 2(36. 
 of liens cannot generally be displaced by mortgages, 259. 
 of mortgages as affected by legislation, 273. 
 of judgment creditor cannot be disturbed by legislation, 260. 
 when lost by estoppel, 265. 
 
 effect upon, of " after-acquired property" clause, 267. 
 (See After-acquired Property; Distribution of Proceeds; Eng- 
 lish Debentures; Fixtures; Operating Expenses; Preferred 
 Debts ; Priority among Bondholders ; Vendor's Lien.) 
 
 PRIORITY AMONG BONDHOLDERS, 
 contents of bonds as notice affecting, 154. 
 in case of over-issue, 90. 
 
 where all indorsed by State, ib. 
 
 as between purchaser of excess and junior mortgagee, ib. and n. 1. 
 as between bondholder and co-bondholder, guarantying his bonds, 64. 
 
 court cannot render a decree impairing guaranty, ib. 
 when mortgages on divisions and whole line of different dates, 241. 
 where old bonds exchanged for now, 58, 60. 
 depending upon express stipulations, 61. 
 
 claim of, under agreement unknown to purchaser of new bonds, ib. 
 as affected by fraud, 63. 
 
 (See OvER-issuB of Bonds.) 
 PROFITS, 
 
 (See Income and Profits.) 
 
 PROMISSORY NOTE, 
 
 though void, debt may be valid, 33. 
 
INDEX. 941 
 
 The figures refer to pages. 
 
 PROPERTY, 
 
 whether withm scope of mortgage lien, 216. 
 crucial question, particularity of description, ib. 
 company not authorized to acquire, cannot be mortgaged, 183. 
 payment for bonds in, 18 and n. 1. 
 
 (See After- ACQUIRED Property; Company in Possession; Mortgage; 
 Over-valuation; Road and Property; Words and Phrases.) 
 
 PROPERTY AND FRANCHISES, 
 
 power to mortgage after-acquired property inferable from phrase, 1 82. 
 
 PROPERTY AND INCOME, 
 
 power to mortgage, effect of, 166. 
 
 PROSPECTUS. (See Bondholder; Circular; Purchaser.) 
 
 PROTECTED. 
 
 (See Words and Phrases.) 
 PROXY, 
 
 right to vote by, 866. 
 
 (See Reorganization.) 
 PUBLIC INTEREST, 
 
 ground for injunction against execution, 364. 
 
 PUBLIC POLICY, 
 
 appointment of receiver to manage railroad, not against, 508. 
 
 PURCHASER, 
 
 bona fide, who is, 82. 
 
 a purchaser in open market, when, ib. 
 
 persons doing work or furnishing material, 88. 
 
 for value, protected when, 28, 30, n. 2. 
 
 over-issue of State bonds in hands of, 59. 
 of bonds under contract limiting issue, 89. 
 
 of surplus when all indorsed by State, 90. 
 
 priorities of, over junior mortgagor, 91. 
 of bonds secured by mortgage altered after execution, 206. 
 
 issued under construction contract in which directors have interest, 147. 
 
 in hands of company, bearing trustee's certificate, 83. 
 
 after execution of mortgage, of bonds secured by prior mortgage, ib. 
 
 issued ultra vires, 84. 
 
 not in prescribed form, ib. 
 
 guarantied under apparent authority, 86 and n. 1. 
 
 with nothing on face to show wrongful issue, 86. 
 
 issued by one corporation guarantied by another, 84. 
 
 pending foreclosure, notice of, immaterial, 99. 
 
 at less than par when restrictions omitted from prospectus, 53. 
 
 placed on market by trustee, 298. 
 
 from pledgee, may obtain clear title, 98. 
 of guaranty of bonds without notice of failure to petition 117. 
 
 whether unauthorized guaranty valid to bona fide, 122. 
 of stolen and non-negotiable coupon acquires no title, 109. 
 of commercial paper passing by delivery, 95, n. 3. 
 of land certificates when preferred to bondholders, 267. 
 bona fide without notice, from one who took with notice, 53, n. 3. 
 
 not bound by equities between original parties, 83. 
 
942 INDEX. 
 
 The figures refer to pages. 
 PURCHASER — continued. 
 
 no defence against, that bonds were diverted from statutory pur- 
 pose, 92, 197. 
 not afiected by misapplication of proceeds, 91, 197. 
 consent of original holders to misappropriation of proceeds, effect, 
 92. 
 in open market and usual course of business, 154. 
 not obliged to inquire about " indoor management of company," 56. 
 
 right of, to assume performance by directors of conditions precedent, 
 86, n. 1. 
 resolution of general meeting of company, ib. 
 innocent, protected from effect of omissions, 127. 
 recitals in instruments when notice to, 88. 
 smallness of price as notice to, 89. 
 long series of unpaid coupons, ib. 
 
 how far back puts him on inquiry, 95. 
 fraud of person intrusted with negotiation of bonds, 93. 
 bonajide, not, when aware of conditions qualifying rights, 88. 
 
 relations of to company as affecting, J5. and n. 4. 
 when takes subject to existing liens, 268. 
 when subject to obligations of contracts, ib. 
 transferee of bonajide, with notice of prior equities, 83. 
 at foreclosure when judgment for personal injuries enforceable against, 
 
 627, 701. 
 at forclosure sale, not liable for receiver's negligence, 701. 
 (See After- ACQUIRED Property; Chattel Mortgage; Foreclosure 
 Decree ; Holders op Certificates ; Notice; Purchasers' Rights 
 AT Sale.) 
 
 PURCHASERS' RIGHTS AXD LIABILITIES AT SALE, 
 effect of sale as regards mortgagor : 
 
 foreclosure cuts off all mortgagor's interests, 780. 
 
 surplus, if any, goes to stockholders, ib. 
 
 corporation not dissolved by sale of property and franchises, ib. 
 
 forfeiture of franchises for non-user must be judicially determined, 
 
 781. 
 same rule though statute permits purchasers to incorporate, ib. 
 though invests them with franchises of predecessor, ib. 
 liability of mortgagor company ceases with sale, ih. 
 presumption that purchasers in possession, ib. 
 
 company's possession must be shown by positive proof, 782. 
 creditors may continue to enforce claims, ib. 
 
 against corporation debtors by garnishment, ib. 
 incapacity of company to execute conveyance, 788. 
 rights and liabilities : 
 
 rights determined and prescribed by decree, 783. 
 
 where property mentioned neither in decree nor advertisement, ib. 
 where not described with sufficient particularity, 784. 
 when covenant in favor of mortgagor does not pass, ib. 
 when municipal appropriation does not pass, ib. 
 earnings accumulated during receiver.ship, ib. 
 during senior mortgage receivership, rights at junior sale, 785. 
 
INDEX. 943 
 
 The figures refer to pages. 
 
 PURCHASERS' RIGHTS AND LIABILITIES AT SALI^ — continued. 
 
 takes subject to prior income mortgage, 785. 
 lands not lost to purchaser by non-user, ib. 
 statutory right to regulate tolls, ib. 
 exemption from taxation, when does not pass, 786. 
 
 intention of mortgagor must be express and clear, ib. 
 
 where purchaser's rights defined by statute, same principle applies, ib. 
 
 reason of rule of strict construction, ib. 
 
 rule relaxed in Florida, 787. 
 
 whether use of word " immunities " includes exemption from taxa- 
 tion, ib. 
 
 decisions on subject reviewed, ib. 
 rights of purchaser vested at sale cannot be impaired, 790. 
 purchasers not incorporated, mere joint owners, ib. 
 
 with usual liability of joint owners of railroad property, ib. 
 immunities of corporate members does not pass, ib. 
 takes free from liens subsequent to mortgage record, 791. 
 
 liens held by persons not actual parties, ib. 
 
 persons having constructive notice, ib. 
 
 liens which purchaser had a right to suppose discharged, 792. 
 
 tax liens, when purchaser takes free from, ib. 
 liens paramount by statute, purchaser takes subject to, ib. 
 
 to statutory obligations as to operating road, 793. 
 
 to obligations and restrictions of charter, ib. 
 
 obligations to preserve creditors' rights on sale, ib. 
 
 restriction as to right to fix tolls, ib. 
 contracts of company not binding on purchaser, ib. 
 
 unless secured by lien, ib. 
 
 or where contract runs with the land, 794. 
 
 or where purchaser has adopted it as to benefits, ib. 
 when purchaser liable for rental claim of leased line, ib. 
 where decree provides for payment of liens prior to mortgage, ib. 
 trusts binding on purchaser, binding on his assignee, 795. 
 vendor's lieu, purchaser takes subject to, ib. 
 
 not lost by purchasing company consolidating, ib. 
 assumption of obligations inferred from purchase under decree, ib. 
 
 purchaser not liable beyond decree, ib. 
 confirmed sale, a contract between court and purchaser, 796. 
 court cannot direct payment of claims adjudicated after confirmation, ib. 
 decree will not be materially modified by court, ib. 
 where decree provides that purchaser may abandon all contracts, ib. 
 
 lease, may be disclaimed under such decree, ib. 
 decree vesting title free of liens for receiver's debts, ib. 
 
 effect on previous order making certificates paramount lien, ib. 
 cannot question claims subject to which he takes title, ib. 
 
 decree should state such claims with reasonable certainty, 797. 
 liability established by implication, ib. 
 
 where creditors receive stock in new company, ib. 
 
 where decree does not foreclose junior mortgage, ib. 
 purchaser affected with notice of all proceedings, 798. 
 compensation for appropriation of land, purchasers' liability for, ib. 
 
 until compensation paid new company may be enjoined, 799. 
 
944 INDEX. 
 
 The figures refer to pages. 
 PURCHASERS' RIGHTS AND LIABILITIES AT SAL'E — continued. 
 rule where company has given statutory bond, 799. 
 suing for damages, how far concession of purchaser's title, ib. 
 liability for predecessor's omission to make improvements on land, 800. 
 for rental of depot under contract made after mortgage executed, ib. 
 not liable for judgment in action for damages, ib. 
 purchasing company may assume liabilities, ib. 
 
 new company bound by liens assented to by purchasing committee, 
 801. 
 
 agreement that unsecured creditors may come in as stockholders, ib. 
 
 effect of principle that property a trust fund for creditors, ib. 
 at junior-mortgage sale when entitled to redeemed first-mortgage bonds, ib. 
 purchasing company not liable for damages resulting from mortgagor's 
 negligence, 802. 
 
 nor for predecessor's trespass, ib. 
 liability for damages caused by trustee operating road, ib. 
 claim for damages from fire caused by locomotive, ib. 
 
 considered as part of running expenses, ii. 
 
 equitable lien on funds of trustee, ib. 
 
 funds pass to new company of bondholders, subject to, ib. 
 liability for damages caused by receiver's operating, ib. 
 
 where receiver has diverted income to permanent improvements, ib. 
 
 where confirmation order directs such claims paid, 803. 
 where action arises and improvements made subsequent to sale, ib. 
 purchaser not liable until after confirmation, ib. 
 purchasers reorganizing, not liable for mortgagor's debts, ib. 
 where property not purchased, in possession of new company, ib. 
 (See FoKECLOSUKE Sales ; Fubchaser.) 
 
 RAILROAD, 
 
 not a thing indivisible, 232. 
 
 may be separated from its roUing-stock, ib. 
 
 differs from railroad company, 233. 
 considered as an entirety, 248, 251. 
 
 qualifying necessity for specific description of property, 248. 
 question of over-valuation of, when consideration bond-issue, 17, 22. 
 
 RAILROAD COMPANIES, 
 ordinary franchises of, 134. 
 term " franchises," meaning of in plural, 135. 
 powers of, express and implied, 2. 
 implied powers, to contract, 3. 
 to acquire lands, 15. 
 to borrow, 7. 
 
 whether limited by charter, ib. 
 to issue bonds, bills, and notes, 1-3. 
 
 for work done and materials furnished, 14. 
 officers, salaries of, may be paid in bonds, 15. 
 for lands acquired, ib. 
 
 such lands may be mortgaged to secure all bonds, ib. 
 authority to borrow, implies authority to mortgage, 176. 
 not its prerogative franchise, ib. 
 
INDEX, 945 
 
 The fipires refer to pages. 
 
 RAILROAD COMPANIES — continued. 
 
 right to mortgage as afiected by statute, 164. 
 
 power to mortgage, implications from express grants, 166. 
 
 express grant to mortgage " property and income," ib. 
 
 express grant for a particular purpose, 167. 
 
 whether intention to augment or declare common-law powers, i5. 
 
 power to execute " such securities in amount and kind," 164. 
 after-acquired property, power to mortgage, 178. 
 
 inferable from use of word " propeity," 179. 
 
 from use of word " personalty," ib. 
 
 stronger, from use of words "property and income," 180. 
 
 Ohio statute, respecting, ib. 
 
 implication from power to pledge franchises, ib. 
 "property and franchises," 182. 
 
 railroad not yet built and property not acquired, 181. 
 
 uncalled capital, power to mortgage in England, ib. 
 
 not inferable from power to mortgage " property," ib. 
 under Companies Act of 1862, ib. 
 
 statutory limitations of power, 182. 
 
 effect of statute limiting bonds to paid-in capital, 181. 
 
 effect of consolidation on mortgage of after- acquired property, 184. 
 may not mortgage what cannot hold, 182. 
 
 power to acquire lands " necessary and convenient " restrictive, 183. 
 
 property acquired without observing statutory conditions, ib. 
 
 when court may restrict on grounds of State policy, ib. 
 
 extensions not authorized at date of mortgage, 184. 
 
 where not authorized to accept grant from United States, ib. 
 power of, to mortgage future earnings, 64, 67. 
 unpaid stock subscriptions, power to assign, 164. 
 not to mortgage, ib. 
 
 rule in England, ib , n. 1. 
 mortgage of purchased road within chartered limits valid, 184. 
 circumstances rendering mortgage void ordinarily, not of, 198. 
 insolvent company, ib. 
 
 containing provision for retaining estate until bonds mature, ib. 
 
 provision for disposing of property not necessary for use, 199. 
 
 mortgage to secure bonds to pay debts and current expenses, ib. 
 
 where income received before foreclosure, is left with mortgagor, ib. 
 power of, to guaranty bonds of cities and counties, 118, 126, m. 2. 
 power of one to guaranty obligations of another, 123. 
 
 from what inferred, 124. 
 
 consideration for, 123, 124. 
 lessor's power to guaranty bonds issued in foreclosure proceedings, 119. 
 lessor company's rent secured by guaranty of bonds, ib. 
 guaranty of bonds of, by adjunct lumber company, 122. 
 road-bed and fixtures not salable under execution, 165. 
 
 not so, as to abandoned road-bed, 165, n. 3. 
 right to prefer creditors does not include directors, 199. 
 rights of persons dealing with, 87. 
 
 to assume restrictions upon powers have been observed, ib. 
 having same directors or stockholders as construction company, 28. 
 when not an " undertaking," 509, n. 2. 
 
 60 
 
946 INDEX. 
 
 The fignrea refer to pages. 
 
 RAILROAD COMPANIES — continued. 
 
 empowered to run steamboats, may employ those of others, 123. 
 (See Corporations ; Franchises ; Guaranty of Bonds ; Income 
 Bonds ; under different States.) 
 
 RAILWAY. (See Railroad; Words and Phrases.) 
 RATIFICATION, 
 
 by corporation of acts of agent, 187. 
 
 laches effective as, 205. 
 
 of unauthorized issue of bonds, 27. 
 
 of unauthorized mortgage, 196. 
 
 of mortgage authorizing payment of counsel fee, what insufficient, 613. 
 
 of mortgage by legislature, 169. 
 
 inferred from acts and circumstances, ib. 
 of trust deed differing from that authorized, when possible, 190. 
 
 when not, ib. 
 of guaranty when not absolutely ultra vires, 126. 
 
 applies to indorsement of bonds, ib. 
 
 where given without statutory petition, 117. 
 by receiver of company's contracts from what implied, 695. 
 
 by shareholders, otherwise void, 121 and n. 6. 
 intervening rights cannot be displaced by, 197. 
 
 resolution authorizing execution of mortgages subject to previous ones, ib. 
 proportion of stockholders necessary to authorize act ratified, ih. 
 (See Officers.) 
 RECEIVER, 
 
 appointment of, generally: 
 definition of term, 506. 
 
 appointed for benefit of all persons interested, ih. 
 appointment of special, to take charge of exceptional assets, ih., n. 1. 
 courts of equity executes its decrees through, 506. 
 appointment of, an equitable execution, ih. 
 appointment of, gives no advantage to applicant, ib. 
 may be appointed before or after decree, 507. 
 reluctance of court to appoint receiver of railroad, ib, 
 quasi public character of, a strengthening reason, ib. 
 view, that appointment of, to manage railroad, against public policy, 508. 
 contrary and accepted view, ib. 
 power of court of equity to appoint, inherent, 509. 
 
 exercisable by trial, not Appellate Court, 510. 
 jurisdiction to appoint where national bank plaintiff, ib. 
 court of primary jurisdiction amongst several State courts, ib. 
 who should be appointed, 511. 
 
 general rule as to who ineligible, 512. 
 
 how far overcome by creditors' consent, 51-3. 
 
 consent of creditors and integrity of candidate must concur, ij. 
 
 candidate's familiarity with estate a consideration, ib. 
 
 attorney for plaintiff should not be receiver's, 514. 
 
 essential personal qualities and characteristics of, ib. 
 necessity of notice to affected parties on appointment of, ib. 
 
 except when delay would cause iiTeparable injury, 515. 
 
 ex parte application for, what sufficient grounds, ih. 
 
INDEX. 947 
 
 The figures refer to pages. 
 RECEIVER — continued. 
 
 must be set forth in petition, 515. 
 
 defendant's non-residence, ground for failing to notify him, 516. 
 
 but lessee of non-resident lessor must be notified, ib. 
 
 ex parte appointment of, where corporation defunct, ib. 
 
 on ex parte application, court will not hear merits, ib. 
 
 clear right to foreclose, when must be shown, ib. 
 
 plaintiff's claim, need be only a probable right, ib. 
 defence of fraud will not affect probable right, ib. 
 but will be reserved for final hearing, 517. 
 postponement of, to make defence good, ib. 
 
 laches of defendant discountenanced, ib. 
 appointment of, precluded by full and fair denial, ib. 
 
 unless other evidence than allegations in bill, ib. 
 at whose instance appointed, ib. 
 
 when corporation may obtain appointment of, 518. 
 
 when appointed at suit of general creditors, 519. 
 
 extension of receivership in successive applications, 520. 
 when applications not in same suit, ib. 
 
 appointed at instance of bondholders of entire system, ib. 
 
 regarded as custodian of divisional interests, ib. 
 
 when general mortgagor junior to divisional, 521. 
 have no authority beyond jurisdiction of appointment, 522. 
 reappointment in other jurisdictions as matter of comity, ib. 
 circumstances under which receiver will or will not be appointed : 
 appointment of, rests in discretion of court, 523. 
 special considerations of propriety, may prevail against, ib. 
 reluctance to appoint when State officers in charge, 524. 
 principles curtailing discretionary powers, ib. 
 
 not appointed on grounds of mere convenience, 525. 
 
 if other parties should suffer injustice, ib. 
 
 if more harm than good would result, ib. 
 nor unless effectual relief will result, ib. 
 whether danger to fund exists, the test question, 526. 
 
 legal remedy inadequate, ib. 
 where no irreparable injury threatened and defendant solvent, 526, 527. 
 when railroad in hands of operating company pending suit, 526. 
 not appointed on mortgagor's default alone, 526, 535. 
 
 officers, faithful and competent, preferable to stranger, 527. 
 where default excused, ib. 
 
 not excused by large expenditure to reach commercial centre, ib. 
 where plaintiff estopped from relying on default, ib. 
 not appointed till default complete, ib. 
 
 to prevent fraud, where bonds redeemable according to numbers, ib. 
 where directors have secured themselves by mortgage, 532. 
 to prevent waste when security insufficient, 527. 
 
 though debt not yet matured, 528. 
 insolvency, hopeless and long continued, as ground for. 529. 
 
 evidences of such insolvency, 529, 530. 
 ■where current expenses have exhausted earnings continuously, 530. 
 where duties as public carrier impossible of performance, ib. 
 misapplication of revenues, as ground for, 529, 531. 
 
948 INDEX. 
 
 The figures refer to pages. 
 RECEIVER — continued. 
 
 where company fails to pay debts, though able, 530, 
 dissensions among corporate officers as ground for, ib. 
 mismanagement, endangering fund, as ground for, 531. 
 extravagant outlay by directors for political ends, ib. 
 in stockholder, bondholder, and trustee's suit against directors for em- 
 bezzlement, 532. 
 where officers of railroad and improvement company same, ib. 
 in suit to redeem, mismanagement by mortgagee only ground for, ib. 
 to prevent sales under numerous executions or attachments, ib. 
 
 where difficulty in determining property to levy on, 533. 
 judgment creditor entitled to, when, ib. 
 
 that equity discountenances laches, applicable to appointment of, iJ. 
 in action to avoid reorganization when petitioner seemed to acquiesce, ib. 
 not appointed where mortgage provides for entry by trustee, 534. 
 
 contrary, where income expressly pledged in mortgage, ib. 
 appointment, where trustee has neglected to take possession, ib. 
 where mortgagee has rightfully waived right to possession, 535. 
 appointment of, in specific performance and foreclosure, distinction, ib. 
 appointment of, after decree, 586. 
 
 grounds for, ib. 
 removal, substitution, and final discharge: 
 
 cases in which removal asked for, division of, 536. 
 court's implied power to remove, ib. 
 
 power discretionary, ib. 
 
 appellate court will not review exercise of, ib. 
 
 except where defendant's right to restoration has accrued, 537. 
 
 refusal is then judicial error, and appealable, ib. 
 
 so, when appointment without notice to defendant, ib. 
 power to remove ancillary receiver, in court appointing him, 537, 538. 
 
 extraordinary grounds for exercising power, 538. 
 questions not to be considered in application for removal, ib. 
 that appointee was an improper person, ground for removal, 539. 
 
 his relationship to parties, ib. 
 where appointed on notice concealed from company by officer, ib. 
 where, on mistaken belief, of his unanimous selection, ib. 
 where material facts were withheld when appointed, 540. 
 when appointed through collusion between applicant and company, 539. 
 
 mere desire of directors for appointment, not collusion, 540. 
 when company estopped from objecting to appointee, 539, 541. 
 removal where appointment was ex parte, 540. 
 
 on grounds of personal interest, ib. 
 
 where under agi-eement to deliver stock, ib. 
 when application made out of court to forestall attacks, 541. 
 laches, right to object to appointment of, lost by, ib. 
 removal of, for misconduct in office, ib. 
 
 allowing rebates in favor of business associates, ib. 
 
 or in favor of company in which he is stockholder, ib. 
 
 furthering interests hostile to company's, 542. 
 
 unjust discrimination amongst shippers, ib. 
 where two or more cease to act harmoniously, 543. 
 where trust in hands of different receivers of different courts, ib. 
 
INDEX. 949 
 
 The figures refer to pages. 
 
 RECEIVER — continued. 
 
 grounds held insufficient for removal of: 
 
 making misleading reports but following director's methods, 542. 
 
 fraudulent conduct of agent, himself blameless, ib. 
 
 becoming a member of reorganization scheme, ib. 
 
 or aids and encourages scheme, ib. 
 
 charging low rate for certain freight, ib. 
 
 yielding to construction of agreement adverse to company's inter- 
 ests, ib. 
 termination of receivership generally : 
 where no limit fixed on appointment, 543. 
 termination of judgment creditor's receivership, 544. 
 receivership should be closed at earliest moment, ib. 
 no formal discharge necessary, when, 545. 
 cannot be heard in opposition to his discharge, ib. 
 order discharging, duly entered, cannot be altered, ib. 
 action cannot be maintained against, after discharge, etc., ib. 
 ex parte order of State court appointing, rescinded in federal, 544. 
 - lessee's rights, how affected by discharge of, 545. 
 title and possession of, generally : 
 title vests from date of order appointing him, 547. 
 
 as also title of party ultimately prevaiUng, ib. 
 formal assignment to, unnecessary to enable him to make sale, ib. 
 
 practice on making sale, ib. 
 existing rights not changed by appointment of, ib. 
 
 enforcement of, stayed, merely, ih. 
 possession of, does not disturb priorities, ib. 
 assurnption of control by, is a sequestration of earnings, 501. 
 
 unless otherwise provided in mortgage, ib. 
 only property embraced in mortgage passes to, when, 548. 
 not earnings in hands of mortgagor before appointment, ib. 
 and only property in possession of company, at appointment, ib. 
 officer's duty to deliver corporate property to, 551. 
 possession of, not interfered with by other courts, 415. 
 interference with possession of, a contempt of court, 549. 
 
 by proceeding in co-ordinate court, 565. 
 property acquired after appointment, does not pass to, 549. 
 property illegally in custody of, subject to court's jurisdiction, t6. 
 judgment lien, on lands not embraced in mortgage, ib. 
 after appointment of, corporation may continue exercise of franchises, 551. 
 
 calling meetings and election of officers, ib. 
 possession by, not allowed to interfere with public improvements, 550. 
 territorial limits of court's jurisdiction : 
 process of court ineffective beyond territorial jurisdiction, 552. 
 receiver not entitled, as of right, to recognition beyond, ib. 
 rule extends to courts of same State, when, ib. 
 
 applies to railroad property extending into other States, 553. 
 
 control of property once assumed, though removed beyond, 552. 
 principle of comity extended by other States to, when, ib. 
 
 may sue, when not in conflict with citizens' rights, ib. 
 nor against policy of State laws, ib. 
 appointed in foreclosure suit, may sue in other States, ib. 
 
950 INDEX. 
 
 The figures refer to pages. 
 RECEIVER — continued. 
 
 intervention by, in attachment suits pending in other States, 553. 
 appointed in ancillary proceedings, removable by appointing court, i5. 
 
 practice on such removal, ib. 
 whether principal or ancillary court will enforce certain claims, 554. 
 general rule qualified by power of equity in personam, 555. 
 for entire property in several States, court may appoint, ib. 
 
 appointment effective through court's personal control of corpora- 
 tion, ib. 
 court may compel execution of assignments, ib. 
 
 practice, where property beyond jurisdiction under seizure, ib. 
 office and duties of receiver : 
 custody of property pending litigation, primary duty, 556. 
 "the hand of the court," 557. 
 distinction between, and " manager," 556, n. 1. 
 appointed for benefit of all parties in interest, 557. 
 
 no personal interest in distribution of funds, ib. 
 derives authority from court, not from parties, ib. 
 should not be a partisan, ib. 
 may aid and encourage organization schemes, ib. 
 may act as selling agent of mortgage trustees, ib. 
 defence to bondholder's suit begun years after appointment of, ib. 
 represents creditors in litigation, 558. 
 judgment against, binding on bondholders' interests, ib. 
 mortgagees and bondholders when estopped to question authority of, ib. 
 fiduciary position of, 559. 
 
 cannot use trust for private gain, ib. 
 
 precluded from making profit out of trust property, i6. 
 
 but may supply material out of own stock at fair price, i6. 
 of railroad, a common carrier, ib. 
 
 must facilitate exchange of trafiic with connecting lines, ib. 
 
 must not discriminate against any road, ib. 
 duties and powers of, as to employees, 560. 
 
 conclusiveness of receiver's acts, ib. 
 
 employees may apply to court on substantial grievances, ib. 
 
 petition for rescission of order of, reducing wages, ib. 
 
 not interfered with unless he abuses his discretion, ib. 
 
 not bound by stipulation of officers, respecting discharging em- 
 ployees, ib. 
 
 may enfoi-ce a company rule against union men, ib. 
 
 absolved from obligations to employ, preferentially, sympathetic 
 strikers, ib. 
 
 court will not direct to contract with union members, 561. 
 
 should not rearrange company's rules without hearing employees, ib. 
 
 nor renounce old schedule of wages, ib. 
 
 when coirrt wiU not approve reduction of wages, ib. 
 accounting by : 
 duty to make full report and file accounts, yearly, 562. 
 review of master's report, on account of, by court, ib. 
 
 account passed before master not subject to re-examination, ib. 
 must keep fund separate from individual account, ib. 
 cannot escape accounting by showing that judgments will absorb fund, 563. 
 
INDEX. 951 
 
 The figures refer to pages, 
 RECEIVER — continued. 
 
 or, being a State receiver, that govei-iior satisfied, 563. 
 but, mere desire for information not grounds for accounting, ib. 
 cannot be asked to account but in court appointing him, ib. 
 federal court should not order, to disregard State law, 564. 
 asking advice from court, 563. 
 ■when advice decisive, ib. 
 when not, ib. ' 
 
 advisability of referring to court in money transactions, 563, 654, 655. 
 actions, during receivership : 
 rights of action, coextensive with those whose estates they admin- 
 ister, 564. 
 may maintain action to determine validity of bonds, ib. 
 
 or to recover money due company, ib. 
 
 but cannot go into foreign court without appointing court's author- 
 ity, ib. ^ ^ 
 permission of appointing court necessary to bring suits affecting, ib. 
 interference with, by proceedings in co-ordinate court, contempt, 565. 
 permission of court to establish that mortgage invalid, when necessary, ib. 
 iniurious orders during receivership should be cancelled on motion, ib. 
 proceedings, ineffectual without control of property, subject to rule, ib. 
 property in hands of, not subject to execution or attachment, ib. 
 protection of court extended, though property not reduced to posses- 
 sion, 566. 
 permission of court, in garnishment proceedings, ib. 
 federal court will not surrender to State receiver, when, ib. 
 being already appointed, second application in co-ordinate court will be 
 
 dismissed, ib. 
 federal courts, when subject-matter in hands of State receiver, ib. 
 
 petition to have State court judgment declared paramount lien, ib. 
 fractions of day considered in determining priority of appointment of, 567. 
 court will not appoint, when property already under control of, ib. 
 
 though receiver appointed by sister court unfaithful, ib. 
 
 though questions raised, not raised before, ib. 
 
 application should be made to appointing court, ib. 
 possession of, cannot be affected save by appointing court, ib. 
 
 unless prior appointment was a nullity, 568. 
 cannot be dispossessed by assignee in bankruptcy, ib. 
 unless title subject to impeachment under bankrupt act, ib. 
 suits maintainable against, in other courts, if possession not disturbed, ib. 
 
 by bondholders in federal court to foreclose and remove, 569. 
 where only personal judgment against corporation sought, ib. 
 
 or against receivers, 570. 
 property attached before appointment of, ib. 
 
 modifying injunction to let creditor enforce judgment against, ib. 
 termination of receivership divests appointing court of exclusive jurisdic- 
 tion, ib. 
 
 ordinarily after completion of sale and final conveyance, ib. 
 jurisdiction reserved by court after discharged, purpose of, ib. 
 
 suits against receiver, proceedings in rem, ib. 
 where no reservation of jurisdiction, ib. 
 where receiver illegally deprived of property placed in his charge, 571. 
 
952 INDEX. 
 
 The figures lefer to pages. 
 RECEIVER — continued. 
 
 suits against, generally, 571. 
 
 must be prosecuted in appointing court, U). 
 
 not amenable in suit begun without leave of that court, ib. 
 
 rule applies to suits for damages for injuries, 572. 
 objection to jurisdiction must be taken by plea, 573. 
 may set up any defence in pursuance of right reserved, 571. 
 
 all defence available to company, may be pleaded, ib. 
 
 rights as to pleading Statute of Limitation, ib. 
 not permitted to do unlawful act, 572. 
 right of, to disaffirm leases, ib. 
 procedure to enforce claims against property in hands of, 573. 
 
 court may call a jury, 574. 
 of federal court, suit against, for damages for injuries, 575. 
 whether triable with or without jury, question for court, 574-576. 
 
 where party has constitutional right to jury trial, 575. 
 federal court's control of, not affected by State legislation, 579. 
 employees protected from evasion of exemption laws, 577. 
 suing without leave, receiver alone can object, ib. 
 general license to sue, in any court, ib. 
 federal act of 1887, dispenses with leave of court, 578. 
 
 applicable to suits in State courts, 578, 579. 
 where judgment in action under act of 1887, conclusive, 575. 
 of federal court, taxes levied by State against property of, 577. 
 when court will direct interest paid on arrears, 578. 
 when appointment of, equivalent to removal of trustee, 378. 
 security must be furnished by, to protect earnings from levy, 501. 
 power ot, to pay and reissue bonds, 62. 
 order appointing, when admissible in evidence, 572. 
 when estopped to dispute his certificates, 682. 
 when, may question validity of mortgage, 208. 
 when, sufficiency of consideration, ib. 
 
 cannot question constitutionality of act, discriminating against claim- 
 ants, 613. 
 whether court can authorize creation of car trust by, 354. 
 injunction at suit of, 356. 
 
 appointed to represent company only, operating expenses preferred, 583. 
 lien of expenses incurred before appointment, ib. 
 power of court on appointing, to require back claims paid, 599. 
 replacements by, of worn-out property covered by mortgage, 246. 
 (See Compensation of Receivers ; Expenses in Suits, etc. ; First- 
 Lien Certificates ; Holders of Certificates ; Liability of 
 Receiver; Power of Court and its Receiver; Receiver and 
 Manager.) 
 
 RECEIVER AND MANAGER, 
 
 of railroad company in England, 370, n., 509. 
 office and duties of, 556, n. 1. 
 
 appointment of, though debt not due, where security in danger, 506, n. 2. 
 receiver appointed manager for a limited period which has expired, ib. 
 (See Receiver.) 
 
 RECEIVERSHIP DEED. (See Debenture-holders.) 
 
INDEX. 953 
 
 The figures refer to pages. 
 
 RECITALS, 
 
 notice of, implied from, 88. 
 
 (See Bonds; Debentures; Estoppel.) 
 
 RECORDING STATUTES, 
 
 instruments duly recorded under, as notice, 158. 
 deed of trust properly so recorded, ib. 
 not unless properly executed, ib. 
 
 except where junior mortgage made subject to prior, ib. 
 or where junior mortgagee has actual notice, ib. 
 State not prejudiced by non-registration, 159. 
 
 (See Registration Laws.) 
 REDEMPTION, 
 
 equity of, in grantor of trust deed, 211. 
 
 salable under execution, ib. 
 
 agreement to create fund for, when does not imply power, 73. 
 
 of pledged bonds, 77. 
 
 after foreclosure of mortgages securing bonds, ib. 
 
 REDEMPTION, RIGHT OF, 
 
 incident to every instrument or transaction intended as security, 805. 
 
 exists independently of agreement, ib. 
 
 barred by foreclosure, generally, ib. 
 
 statute impairing, unconstitutional, -iS. 
 
 right lost by laches, ib. 
 
 State statutes regulating right after sale, ib. 
 
 federal court's recognition of, as a rule of property, ib. 
 
 not applicable to mortgage of property in different States, 806. 
 
 in suit to redeem, jurisdiction in personam, necessary, ib. 
 
 sale of, under execution, 362. 
 
 rights of purchaser, ib. 
 
 sale while company in possession, 494. 
 
 rights of purchaser at execution sale, 362, 806. 
 
 when purchaser entitled to possession, ib. 
 junior mortgagee, when his right cut off, 806. 
 
 when barred, ib. 
 
 when waived, 750. 
 in redemption suit, stockholders should not be joined with corporation, 
 
 807. 
 should appear that defendant in possession held mortgage title, ib. 
 bill should aver offer to pay, ib. 
 
 REFEREE, 
 
 appointment of, to sell, effect upon rights of trustee, 292. 
 report of silent, as to certificates when no adjudication, 680. 
 
 REFUNDING, 
 
 by means of certificates of indebtedness, 36. 
 
 as effecting substitution for old obligation, ib. 
 
 REGISTRATION LAWS, 
 
 determines priority between judgment creditors, without notice, and 
 
 others, 261. 
 which leave judgment creditors to common-law rights, ib. 
 which treat them as subsequent purchasers without notice, ib. 
 
954 INDEX. 
 
 The figures refer to pages. 
 REGISTRATION ILAMS — continued. 
 
 necessary efiect upon judgment lien attaching after mortgage recorded, 
 260. 
 
 (See Recording Statutes.) 
 
 RELATION OF TRUSTEE TO CORPORATION. (See PossBssiOir of 
 
 Trustee; Trustee.) 
 RELEASE, 
 
 of statutory lien (which see). 
 REMEDIES OF BONDHOLDERS, 
 division of, into three classes, 371. 
 
 those which they have in common with all creditors, ib. 
 
 those incident to mortgage contracts generally, ih. 
 
 those specially provided by instrument, ib. 
 several remedies may be pursued concurrently, 372. 
 
 except where Statute of Limitations bars action on bonds, ib. 
 sequestration, 374. 
 
 power of, generally inserted in State lien statutes, ib. 
 remedies peculiar to bond and to mortgage, 380. 
 action on bond by single bondholder, ib. 
 
 where bond imports absolute promise to pay, ib. 
 
 when provision for sale by trustee no defence, ib. 
 
 maintainable though mortgage void, 384. 
 
 demand whether necessary- to be shown, 38.5. 
 
 may be brought in holder's name, ih. 
 
 execution sale on judgment recovered in, 384. 
 passes companies' interest only, ib. 
 
 mortgage provisions, effect of on right, 381. 
 
 ■where restricted by bond and mortgage provisions, ib. 
 
 where only remedy is through trustee upon majority request, ib. 
 
 right not suspended by mere implication, 382. 
 illustrations, 383. 
 
 when money lent on credit of undertaking, ib. 
 
 special powers conferred on trustee not available in, 388. 
 though trustee refuses to act, ib. 
 suits for possession by trustee, 386. 
 
 where right to bring, implied, 388. 
 
 depending upon business being " unprofitable," ib. 
 
 when maintainable though principal not in default, 387. 
 
 not maintainable by junior against senior mortgage trustee, 388. 
 
 when action of ejectment may be maintained, ib. 
 provision that trustee may take possession on default, 389. 
 
 remedy at law not adequate as to railroad mortgages, ih. 
 
 what law governs in, 390. 
 by trustee of divisional mortgage after receiver of whole, 386. 
 when trustee may enter without foreclosing, ib. 
 special, cumulative upon foreclosure and sale, 396. 
 provision excluding remedies not enforceable, when, 397, n. 4. 
 after rendition of decree, 490. 
 
 action to set aside decree, ib. 
 
 by intervention for that purpose, ib. 
 (See Equity; Foreclosure; Foreclosure and Sale; Right of 
 Entry; Strict Foreclosure.) 
 
INDEX. 955 
 
 The figures refer to pages, 
 
 REMEDY, 
 
 of creditors, with claim for " running expenses," 358. 
 of bondholders to prevent sale under execution, 360. 
 special, to enforce statutory lien. (See Remedies of Bondholders; 
 Statutory Liens.) 
 REMOVAL OF CAUSES, 
 
 right must exist when suit begun and petition filed, 437. 
 jurisdiction attaches as of date of original service, 423. 
 right not affected by State legislation, 437. 
 
 statute void, which provides against it, ib. 
 " controversy " within meaning of act, what is, 438. 
 
 involving exercise by State of eminent domain, ib. 
 amount involved as ground for, 439. 
 who may remove, a question of statutory construction, ib. 
 
 right restricted to defendant by act of 1888, ib., 442. 
 when cause cannot be removed by stipulation, 438. 
 
 where binds parties as federal injunction would, ib. 
 removal is of the whole cause, 445. 
 
 though effect, to bring in controversy between co-citizeus, ib. 
 federal court when invested with full jurisdiction, ib. 
 action of State court unnecessary, ib. 
 that petition and bond filed in vacation, immaterial, ib. 
 service by publication effected in State, retained, ib. 
 after application, State-court action absolutely void, ib. 
 progress of trial in State court bars right, 446. 
 ex parte orders, as lacking bill pro confesso, no bar, ib. 
 when petition and bond must be filed, ib. 
 contents of application — not necessary to allege citizenship, when, ib. 
 
 when nature of defence must be stated, ib. 
 State court may examine whether conditions for removal exist, 447. 
 formal requisites of record and petition, ib. 
 bringing up the record, ib. 
 irregularities in removal do not vitiate, ib. 
 what secured by bond in removal cases, ib. 
 
 State court has no discretion as to bond, ib. 
 
 one surety sufficient, ib. 
 waiver of objections to removal after eighteen months, ib. 
 when citizens where suit brought should compose one side, 439. 
 
 rule not applicable to formal or unnecessary parties, 438. 
 when defendants joined merely as officers, 440. 
 corporation, when joined joro /onna, ib. 
 citizen, member of a class, suing for benefit of class, ib. 
 party wrongfully excluded treated by federal court as actual party, ib. 
 when non-resident plaintiff assignee of many joint litigants, 441. 
 where majority, citizens of State where suit brought, ib. 
 since 1875 matter in dispute ascertained and parties arranged, ib. 
 where contending sides found to be of different States, ib. 
 citizen of State suing consolidated company therein, 433. 
 where sole controversy between plaintiff and receivers, 439. 
 action against federal court receiver, ib. 
 
 when removable without regard to citizenship, ib. 
 how far trustee's refusal to act affects right, 441. 
 
956 INDEX. 
 
 The figures refer to pagea, 
 
 REMOVAL OF CAVS'ES — continued. 
 
 where complainant and trustee citizens of difEerent State, 441. 
 introduction of new party will not divest jurisdiction, ib. 
 where State party in interest merely, 442. 
 where party to the record as well, ib. 
 separable controversies, removal to Circuit Court, ib. 
 intervener's claim, when such a controversy, ib. 
 claim for professional services, 443. 
 
 proceedings to determine validity of bonds against company, ib. 
 to determine whether officers guilty of breach of trust, ib. 
 when controversy did not exist before suit, id. 
 disputes over contracts with receiver, ib. 
 creditor's bill, when not a separable controversy, ib. 
 what does not affect right to remove, ib. 
 
 collateral issues connected with property in State court, ib. 
 rights of judgment creditors in bondholder's foreclosure suit, 444. 
 fact that judgment creditor has filed cross-bill, ib. 
 that sheriff in possession of sjibject-matter, ib. 
 ■ possession by trustees in stockholder's action, as affecting bondhold- 
 er's rights ib. 
 that party acquired property for purpose of suing, ib. 
 motive not considered, ib. 
 objection that assignor, real party in interest, valid, ib. 
 contest by removing party in State court, not a. waiver, ib. 
 (See Citizenship or Corpokations.) 
 RENT, 
 
 of office a necessary expense of a railway company, 33. 
 
 may be secured by pledge, ib. 
 liability of receiver to pay for occupation, 698. 
 (See Lessor and Lessee.) 
 REORGANIZATION, 
 
 general statutes governing, 842, n. 1. 
 policy of statutes respecting, 804. 
 
 statutes operate not as a revival but a creation, ib. 
 authority to reorganize " as new corporation " under same name, ib. 
 use of term in authorizing statute creates no privity, 805. 
 statutes respecting does no injustice to general creditors, ib. 
 a mode of securing performance of public trust, 843. 
 must be subject to existing constitutional provisions, ib. 
 distinction between and " consolidation " and " reincorporation," 845, n. 1. 
 effect of statute declaring purchasers a body corporate, 846. 
 effect of omitting to follow directions as to subsequent organization, ib. 
 special statutes governing, ib. 
 
 as affected by United States Constitution, ib. 
 
 minority bondholders not compellable to come in under, ib. 
 
 conclusive presumption of assent of minority, ib. 
 
 principle underlying such presumption, ib. 
 rule where no provision against impairing obligations of contract, 847. 
 statute providing that minority may be bound, valid, ib. 
 principle underlying such legislation, ib. 
 such statutes binding upon United States citizens, ib. 
 statutoi-y provisions respecting, must be strictly complied with, ib. 
 
INDEX. 957 
 
 The figures refer to pages. 
 
 REORGANIZATION — continued. 
 
 where scheme of, provides for stockholders assenting within six months, 
 
 848. 
 statutes prohibiting fictitious increase of stock, ib. 
 
 no application to purchased rights of old company, ib. 
 statutes fixing rate of interest on loans, 849. 
 English debenture-holders, statutory powers of majority of, ib. 
 
 power construed strictly, ib. (See England.) 
 mortgage provisions governing reorganizations, 850. 
 as to distribution of stock in new company, ib. 
 effect of contract entered into while mortgage in force, 851. 
 
 on distribution of capital stock where interest guarantied, ib. 
 where mortgage authorizes majority to define conditions of reorgan- 
 ization, ib. 
 decree embodying majority's wishes, ib. 
 concession therein of subordinate interests to junior incumbrancers, ib. 
 to stockholders in old company, ib. 
 agreements governing reorganization, 852. 
 
 bondholders and stockholders uniting to purchase, ib. 
 where object is to reorganize in pursuance of scheme, ib. 
 efEect of, upon issuing bonds, 4, n. 
 
 non-assenting creditor, rights of, 852. 
 where guilty of laches, ib. 
 
 court has no power to fix basis of agreement, ib. 
 reorganization decree, treated as contract between parties, ib. 
 consideration for reorganization agreement, preventing costly liti- 
 gation deemed sufficient, ib. 
 consideration for stockholders in old, becoming such in new com- 
 pany, ib. 
 surrender of bonds for others in new company, 853. 
 not an extinguishment of lien thereof, ib. 
 agreements favorably viewed by court, ib. 
 as preventing sacrifice, 854. 
 
 no reason against bondholders causing sale to buy cheap, ib. 
 pendency of scheme, a reason for refusing possession to divisional 
 trustee, ib. 
 non-assenting creditors as to agreement, ib. 
 
 extent of rights of — not to be prejudiced, ib. 
 agreement not binding unless carried out as made, 855. 
 
 English Companies Act of 1870, ib., n. 2. 
 when right to share in benefits of scheme terminates, 857. 
 those who seek to share must come in on time, ib. 
 extending benefits of, to late comers, efiect on sale, 823. 
 usual clause permitting minority to come in after purchase, 857. 
 court will not revise decree from which clause omitted, ib. 
 standing of stockholders, not parties to scheme, ib. 
 
 where they neglect to perform conditions of receiving shares, 858. 
 agreement between stockholders and bondholders' committee not binding 
 on company, 857. 
 stockholders should look to committee, ib. 
 
 bondholder has not absolute right of property in new corporation, 859. 
 when relegated to ordinary right to share in proceeds, ib. 
 
958 INDEX. 
 
 The figures refer to pages. 
 REORGANIZATION — continued. 
 
 committee bound by acts of its secretary, 859. 
 
 rights of parties to agreement, when complete, ib. 
 
 trust company's control of scheme, 860. 
 
 not lost by unauthorized acts of officers, ib. 
 
 committee may reserve right to pay bonds before maturity, tb. 
 trustee's discretion as to issue of stock in new company, 861. 
 
 stockholders not entitled to notice of trustee's deliberations, ib. 
 discharge of liens of assenting creditors, when inferred, 862. 
 bondholders accepting preferred stock in new company, effect of, ib. 
 
 how far it affects their rights as creditors, ib. 
 when interest on income bonds regarded as dividends, 863. 
 priority of preferred stockholders' dividends based on specific lien, ib. 
 
 upon what such lien depends, ib. 
 restoration of bondholder as creditor when properly refused, ib. 
 who estopped to object to scheme, 864. 
 
 bondholders exchanging old bonds for new company's, ib. 
 
 bondholders acting as if acquiescing, ib. 
 court will further fair ari-angement, ib. 
 
 passing over mere technical defects, ib. 
 where to interest of all bondholders to reorganize, 865. 
 
 decree will not be avoided though principal not due, when, ib. 
 when unsecured creditors may have scheme set aside, ib. 
 bondholder using security to obtain property at lowest price, ib. 
 officers seeking profit at expense of creditors and others, ib. 
 officers' duty to obtain highest price for mortgaged property, ib. 
 creditors, court will scrutinize resolutions of, ib. 
 
 when court will refuse to sanction reconstruction by, ib. 
 unsecured creditors, arrangement to detriment of, when annulled, 866. 
 
 where arrangement does not tend to their detriment, ib. 
 rights of old-company stockholders after, ib. 
 agreement withdrawing voting power from stockholder, conferring it on 
 
 trustee, ib. 
 earnings, right to enjoin diversion of, ib. 
 old company liabilities, effect of reorganization upon, 867. 
 reorganized company paying taxes, not entitled to reimbursement, 637. 
 when purchasing committee must make up deficiency on resale, 853. 
 priority between bondholders and guarantors of interest, 129. 
 New York railroad acts, existing companies may purchase under, 858. 
 England, costs on reconstruction in, 867. 
 REPLEVIN, 
 
 to recover property seized under execution, held wrongful, 359, n. 1. 
 RES ADJUDICATA, 
 in foreclosure, 187. 
 
 (See Foreclosure Decrees.) 
 REVENUES, 
 
 appropriated to State loan, injunction to restrain levy upon, 364. 
 (See Income ; Ixcome and Revenue.) 
 RIGHT OF ENTRY, 
 
 without foreclosure by trustee, 386. 
 
 cannot be impaired by subsequent legislation, 301. 
 
 a property right surviving voluntary dissolution, 387. 
 
INDEX. 959 
 
 The figures refer to pages. 
 
 RIGHT OF ^■STRY — continued. 
 
 must be exercised strictly according to mortgage provisions, 387. 
 request from bondholders, when essential, ib. 
 when both default and request must concur, ib. 
 when interest has been paid but not out of profits, 388. 
 by trustee as ground against appointment of receiver, 534. 
 RIGHT OF WAY, 
 
 an easement appurtenant to railroad in its nature perpetual, 234. 
 
 position of land never sole test, ib. 
 
 when land may be outside of, ib. 
 
 not necessarily the one first located, ib. 
 
 when it will extend to substituted route, ib. 
 
 when passes under mortgage, ib. 
 
 depends upon whether acquired for railroad purposes, 235. 
 abandoned, reverts to owner and not included in mortgage, ib. 
 when may be sold on foreclosure, ib. 
 
 where company takes by agreement, mortgagee of road bound by, 269. 
 (See Mortgage.) 
 ROAD AND PROPERTY. (See Words and Phrases.) 
 ROAD-BED. (See Words and Phrases.) 
 ROLLING-STOCK, 
 
 as personalty, opposing considerations, 341. 
 
 treated as personalty for taxation purposes in certain cases, ib. 
 
 whether a fixture, authorities conflicting, 336. 
 
 doctrine of federal courts uncertain, 340. 
 
 not subject to mechanics' liens in Iowa, ib. 
 when rent or price of, becomes prior charge on corpus, 353. 
 rent for hire, included in " working expenses " under English act, 
 
 ib., n. 4. 
 instalments payable on conditional sale, when a charge upon income, 353. 
 
 inferior to mortgage debt on distribution of estate, ib. 
 vendors have no lien, unless reserved expressly, 344. 
 vendor's rights as a general creditor after reclaiming under lien, 354. 
 when passes under mortgage of after-acquired personalty, 240. 
 passing under divisional mortgages, 241. 
 
 (See FiKST-nEN Certificates; Power of Court and its Receiver; 
 names of States.) 
 
 SALE, 
 
 under power, effective to divest title without foreclosure, 302. 
 
 provision for, on default of interest, 74. 
 
 prevented by payment of interest, when may be, ib. 
 
 of entirety, may be decreed by ancillary court, 423. 
 
 bids at, assertion of right to avoid must not be delayed, 750. 
 
 receiver's certificates need not be presented for payment before, 683. 
 
 lien acquired after, but before confirmation of, 666. 
 
 of pledged bonds, when allowable, 77. 
 
 pledgee's right to buy pledged property, ib. 
 
 of bonds, no vendor's lien on, 46. 
 
 (See Bailment for Hire; Conditional Sale; Foreclosure and 
 
 Sale; Injunction; Purchaser; Purchaser's Rights at Sale; 
 
 Sales of Mortgaged Property; Setting aside Foreclosure 
 
 Sales.) 
 
960 INDEX. 
 
 The figoies refer to pages. 
 
 SALES OF MORTGAGED PROPERTY, 
 
 power and duty of court to supervise judicial sales, 765. 
 
 supervision extends to purchasers, ib. 
 court may order sale by sheriff or receiver, when, ib. 
 
 by commissioners, when, ib. 
 where cash sale for sufficient amount cannot be had, ib. 
 decree for strict foreclosure, ib. 
 sale for benefit of all who choose to participate, ib. 
 objections to both methods, 766. 
 reorganization, obviating necessity of sale, ib. 
 sale of property as entirety, ib. 
 
 considerations determining propriety of, ib. 
 
 where railroad property of extremely composite character, ib. 
 
 general rule when inortgaged as a whole, 767. 
 
 Ohio rule, ib. 
 
 where total value of entirety greater than demand, ib. 
 
 rule laid down by early cases, ib. 
 
 tendency of more recent decisions, 768. 
 
 reasons for, ib. 
 
 where no bids for, separate sales of realty and personalty, 769. 
 
 where road, partly constructed by mortgagor, completed by succes- 
 sors, ib. 
 
 sale of section partly within and without jurisdiction, 766, n. 3. 
 
 by entirety, of consolidated system, 770. 
 
 by entirety, under execution, ib. 
 
 enjoining separate execution sales and directing sale by entirety, ib. 
 postponement by court to await better times, 771. 
 where by statutory operation part cannot be sold, ib. 
 
 no postponement on appeal taken sixty days after decree, ib. 
 
 adjournment of sale in progress by officer to prevent sacrifice, i6. 
 sale under express power in mortgage, 772. 
 
 power must be strictly followed, ib., 773. 
 
 power to sell " as provided by law," ib. 
 
 rule as to selling by entirety applies, 769. 
 
 bars right to redeem, 772. 
 
 no postponement, to ascertain bonds due, ib. 
 
 distinction between, and ordinary foreclosure sale, ib. 
 debenture-holders, right of liquidator to enjoin sale by, ib., n. 1. 
 place of sale, rule in Maryland, 773. 
 advertisement of sale under power, contents of, ib. 
 where term of default and of notice are successive, ib. 
 compliance with decree as to newspapers, what sufficient, ib. 
 place of sale, sufficient description of, ib. 
 English practice as to reserving bids, 774. 
 
 not followed in United States, ib. 
 bids, validity of sale as determined by, ib. 
 
 rules, same as those at common law, ib. 
 deposits by bidders ordered as security, 775. 
 considerations determining amount, ib. 
 vendor's lien, reserving as security, ib. 
 
 where property leased to pay interest, security required, ib., n. 3. 
 liability of bidders for loss upon resale, 775. 
 
INDEX. 961 
 
 The figures refer to pages, 
 
 SALES OF MORTGAGED P^OVERTY — continued. 
 
 where bidders a reorganization committee, 775. 
 right of bondholders to pay purchase-money in bonds, 776. 
 
 when bonds receivable at par, to pay bid, ib. 
 when unnecessary to fix value, prior to confirmation, ib. 
 waiver by general creditors of exclusive right to fund, 776. 
 purchase generally by committee of bondholders, 777. 
 
 validity of such association fully recognized, ib. 
 purchase by solicitor of committee, validity of, 778. 
 stockholders, also, may combine to purchase, ib. 
 confli-niation of officer's report, ib. 
 
 right of objection of parties and purchaser, ib. 
 Circuit Court's exclusive right to confirm or reject, ib. 
 effect of confirmation to render, invalid sale, valid, ib. 
 setting aside for inadequacy of price, 775. 
 
 (See Foreclosure and Sale; Sales, Setting aside Foreclosttre 
 
 Sales.) 
 
 SCRIP, 
 
 when bondholder may recover in money though bond provide for, 71. 
 
 SECRET LIENS, 
 
 in Illinois, vendor must conform to Chattel Mortgage Act, 349. 
 name given to transactions not conclusive, ib. 
 (See Bailment for Hire; Conditional Sales; Lease.) 
 
 SEQUESTRATION, 
 
 bondholder not entitled to, though conferred on trustee, 388. 
 of earnings, effect of assumption of control by receiver, 501. 
 (See Remedies of Bondholders.) 
 
 SERVANT AND EMPLOYEE. (See Words and Phrases.) 
 
 SERVICE, 
 
 by publication under act of Congress, 436. 
 agent for service upon, of foreign corporation, ib. 
 
 SETTING ASIDE FORECLOSURE SALES, 
 under equity rules of federal courts, 811. 
 by appeal, ib. 
 
 bill of review charging error in record, ib. 
 original bill charging fraud or newly discovered evidence, ib. 
 practice where bondholders seek to annul decree for fraud, 812. 
 where right to make further orders, reserved in confirming order, ib. 
 who may except to sale, ib. 
 
 any one interested at time of sale and confirmation, ib. 
 not one who has acquired his bonds thereafter, ib. 
 one having mere right to appear at accounting, 813. 
 right as affected by laches, ib. 
 
 analogy of Statutes of Limitations, ib. 
 equitable principles apart from such statutes, ib. 
 when right, based on fraud, barred by laches, ib. 
 
 where stockholders aware of director's misconduct, no bar, 814. 
 fatal results of laches, instances of, ib. 
 assent to decree and delay, effect on company's right, ib. 
 
 61 
 
962 INDEX. 
 
 The figures refer to pages. 
 
 SETTING ASIDE FORECLOSURE SALES — continued. 
 
 bill of review, laches in filing, 814. 
 
 laches as affected by appeal, ib. 
 errors in decree not reviewable on motion, 815. 
 where proper remedy is resale, ib. 
 declaring purchaser trustee, equivalent to annulment, 816. 
 
 a frequent form of relief, ib. 
 where director-purchaser entitled to recoupment on surrender, ib. 
 where purchasing director a bondholder, bonds must be paid, ib. 
 ■where president purchases in individual name, ib. 
 fraudulent sale cannot be validated by legislature, ib. 
 how far State estopped by legislation, ib. 
 effect of declaring sale void for fraud, 817. 
 
 corporation continues though sale of franchises otherwise would dis- 
 solve, ib. 
 
 suit by, against new purchasing corporation, i6. 
 
 where old corporation has actually consented to sale, ib. 
 declaring void as to creditors, effect on mortgage, ib. 
 
 invalid as to bondholders rejecting reorganization schenie, ib. 
 
 as to attacking creditors, ib. 
 
 not as to bondholders taking stock in new company, ib. 
 
 various effects upon rights of purchasing bondholders, 818. 
 
 effect on purchasing creditor who has cancelled judgment, ib. 
 re-establishing lien of judgment, i6. 
 grounds for vacating sale : 
 inadequacy of price, when insufficient, ib. 
 must amount to conclusive evidence of fraud, ib. 
 or must combine with other circumstances of fraud, 819. 
 where price exceeds that fixed by court, ib. 
 setting aside for advance of price before confirmation, ib. 
 actual fraud, facts and circumstances constituting, how considered, ib. 
 
 collusion between trustees and purchasers, 820. 
 
 affords ground of action for actual fraud, ib. 
 
 at suit of mortgagor-company which has assented to agreement, ib. 
 Aaracter of relief, ib. 
 
 collusion between trustee and corporate officer, 821. 
 
 between corporate officers and combinations of bondholders, ib. 
 
 motives of directors immaterial where collusion with trustee not 
 shown, 822. 
 
 preventing active competition in bids, 821. 
 agreement between creditors to combine and purchase, how far ground, 
 
 822. 
 relief on ground of surprise and mistake, 823. 
 attorney, breach of duty by. as a ground, ib. 
 where same person trustee in two mortgages foreclosed, ib. 
 extending benefits of reorganization to bondholders after time passed, ib. 
 sale before principal matures, when will stand, 824. 
 SHERIFF'S FEES, 
 
 where execution plaintiff becomes purchaser, 718. 
 
 SINKING FUND. (See Words and Phrases.) 
 SIX MONTHS' RULE. (See Peeferred Debts.) 
 
INDEX. 963 
 
 The flgiires refer to pages. 
 
 SOUTH CAROLINA, 
 
 statutory provisions as to issuing bonds, 40, n. 
 action on bond, no demand necessary in, 385. 
 constitutional restriction upon consolidation, 4, n. 
 statute relating to trustees of railroad companies, 322. 
 judgment for personal injuries, when a lien, 627. 
 
 enforceable against purchaser at foreclosure, ib. 
 code provision respecting judgment for damages against corporation, 760. 
 rule against issuing first-lien certificates, ex parte, 668. 
 reorganization, statutes respecting, 842, n. 1. 
 guaranty of bonds of connecting line, 129, n. 3. 
 
 SOUTH DAKOTA, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 constitutional restriction upon issuing stocks and bonds, 4, n. 
 
 upon consolidation, ib. 
 rolling-stock constitutionally declared personalty, ib. 
 STATE, 
 
 holding majority of stock not trustee of earnings, 373. 
 authority of, to guaranty railroad bonds, 21. 
 may be trustee of railroad bonds, when, 287. 
 
 result of statutes creating liens to indemnify, ib. 
 
 acts which do not make State trustee, ib. 
 purchase by, of property securing bonds indorsed by, valid, ib. 
 statute declaring lien of, not restrictive of right to mortgage, 168. 
 when lands granted to company to raise money, included in lien of, 220. 
 corporation empowered to mortgage in one, carries power to others, when, 
 
 166. 
 power of, to order bonds paid in legal-tender notes, 72. 
 fraudulent issue of bonds in exchange for State bonds, 26, 31. 
 
 not void as to company, ib. 
 
 (See State-Aid Bonds; Statutory Liens.) 
 STATE-AID BONDS, 
 
 authority of State to indorse railroad bonds, 21. 
 remedies enforceable by State only, 39. 
 
 effect as between purchaser of road and bondholders, ib. 
 over-issue in hands of bonajide purchasers, 59. 
 subject to constitutional limitations exi.sting when act passed, 129. 
 
 governor's certification of guaranty, ineffective against rule, ib. 
 
 when act partly unconstitutional, 383. 
 
 no bar to enforcement of bondholder's lien, ib. 
 
 (See Bondholders; State; Statutory Liens.) 
 STATUTE OF FRAUDS, 
 
 delivery to receiver's agent, 647. 
 
 STATUTES, 
 
 against issue of bonds, except for money, labor, or property, 60. 
 limiting issue to paid-in stock, 84. 
 
 violation of, ib. 
 funding under provisions of, 113. 
 legal-tender statutes, unconstitutionalty of, 72. 
 void, not constructive notice of anything, 157. 
 conferring power to mortgage effective in other States, when, 166. 
 
964 INDEX. 
 
 The figures refer to pagea. 
 
 STATUTES — continued. 
 
 declaring lien of State, not restrictive of right to mortgage, 168. 
 
 of New York restricting common-law power to mortgage, 174. 
 
 authorizing mortgages of railroad property enumerated, 209. 
 
 creating liens of mechanics and material-men, varied phraseology of, 273. 
 
 two classes of, ib. 
 construction of that creating mechanics' liens, 277. 
 creating liens for operating claims, liens binding, 279. 
 creating liens to indemnify State for lending its credit, 287. 
 
 effect, to make State trustee for bondholders, ib. 
 relating to trustees of railroad companies, 322. 
 
 regulating election of trustees, 292. 
 
 cannot override provisions of deed previously executed, ib. 
 
 prescribing duties of, effect of on deed, 296. 
 
 imposing duties on companies, trustee in possession within purview 
 of, 320. 
 declaring non-residents ineligible for trusteeship, 284. 
 respecting compensation of trustees, 705. 
 affecting remedies only, constitutional, 376. 
 
 varying modes of foreclosure as to existing mortgages, ib. 
 providing that bonds not to mature for specified period, 409. 
 statutes governing reorganization, 842, n. 1. 
 of State, federal courts bound by State court's construction, 745. 
 
 possible exception as to constitutionality, ib. 
 of Congress, March 3, 1887, as to suing receivers, 578. 
 (See Mechanic's Lien; Recording Statutes; names of States.) 
 STATUTORY LIENS, 
 
 where State indorses company's bonds, 323. 
 
 where issues its own to company, ib. 
 
 provision for deposit of equal amount of company's, i6. 
 
 effect to make State guarantor or principal debtor, ib. 
 
 not deemed created without clear language, 324. 
 
 cannot be created by implication, ib. 
 
 from fact that otherwise clause merely declaratory of law, 325. 
 
 other cases, showing clear intention, must be expressed, ib. 
 direct words not necessary, mere effect of contract amounts to, 327. 
 construed like trust deeds as regards property covered, ib. 
 release, when company not entitled to, till coupons paid, 328. 
 waiver by State, what amounts to, ib. 
 
 authorizing company to issue bonds secured by mortgage, ib. 
 release, when not prevented by constitutional provisions, 329. 
 when presumed for benefit of bondholders, ib. 
 whether can be enforced by bondholders, depends on statute, 323, 332. 
 
 when bondholders may apply to be subrogated, 324. 
 
 when may not, ib. 
 
 wide signification of term as applied to, 331. 
 
 no subrogation except as to bonds indorsed by State, 332. 
 where some indorsed and others not, ib. 
 where State bonds issued to company, ib. 
 
 State principal debtor, ib. 
 
 company becomes liable as guarantor of genuineness, ib. 
 
 doctrine of subrogation not applicable, ib. 
 
INDEX. 965 
 
 The figures refer to pagea. 
 STATUTORY LIENS — continued. 
 
 remedies, special, can be used by State alone, 330. 
 bondholder may proceed in equity when State fails, 380. 
 when coexistent with guaranty of improvement company, ib. 
 
 remedy of bondholder, ib. 
 unconstitutionality of part of act authorizing, 383. 
 
 no bar to bondholder's lien, ib. 
 subsequent legislation, effect of upon, 8^4. 
 
 (See Liens ; State-Aid Bonds ; Vendor's Lien.) 
 STATUTORY PROVISIONS, 
 
 when presumed known to bondholder, 157. 
 forfeitui'e to State on default of completion, ib. 
 right of corporation to mortgage as afiected by, 164. 
 
 principle applied to railroad companies, ib. 
 as to p^ Jtion of stockholders for guaranty of bonds, 117. 
 as to meetings of stockholders, substantial compliance with, 191. 
 as to issue of bonds, 13. 
 as affecting validity of issue, 85. 
 the consideration, 13, 16. 
 
 must be money labor and property, 17. 
 not dependent on marketable value, ib. 
 complied with when issued for construction expenses, ib. 
 the purposes, 13. 
 
 by railroads under New York statute of 1850, 15. 
 the amount, 13. 
 the limit, 18. 
 
 where must not exceed capital, 17. 
 as to issue in various States, 40 and n. 
 the rate of interest, 13. 
 
 authority to borrow on terms "to be agreed upon," 20. 
 restricting rate not applicable to reorganization agreement, 21. 
 authorizing sale of bonds at price deemed expedient, 20. 
 (See Bonds; Property; Overvaluation.) 
 STEAM-HEATING COMPANIES, 
 
 power of, to mortgage franchises, 171. 
 STOCKHOLDER, 
 
 preferred relative rank with bondholders, 758. 
 
 preferred, have same privileges and liabilities, 759. 
 
 priority over creditors must be based on specific lien, 758. 
 
 common to two or more companies, 28 and n. 
 
 character of holding as entitling him to injunction, 33. 
 
 right of, to maintain action against directors, 54. 
 
 con.sent of, requisite to mortgage, 191. 
 
 charter requirement of concurrence for consolidation, as affecting 
 
 mortgage, ib. 
 substantial compliance with statute requiring two-thirds concurrence, ih. 
 two-thirds consent under New York manufacturing act, 192. 
 reauthorization by, unnecessary through company's change of estate, 191. 
 may ratify unauthorized mortgage, 196. 
 ■when may question validity of mortgage, 208. 
 when estopped to deny validity of mortgage, 205. 
 effect of laches of, ib. 
 
966 INDEX. 
 
 The fignres refer to pages. 
 STOCKHOLDER — continued. 
 
 right to intervene when corporation fails to plead defence, 417. 
 
 right when' directors refuse to defend, 467. 
 petition of, for guaranty of bonds, 117. 
 guaranty, when court disposed to uphold as against, 127. 
 assent of, to accommodation indorsement, 126. 
 of construction company, when entitled to lien, 279. 
 when not prejudiced by fiduciary omitting to record lien, 262. 
 right to question validity of consolidation after years, 22. 
 right of, to dividend, when complete, 498. 
 may combine to purchase at foreclosure sale, 778. 
 presumed citizens of State creating corporation, in federal court, 432. 
 (See Action; Constitutional Restrictions; Corporation; Income 
 Bonds; names of States.) 
 STOCKS, ,v, 
 
 issued for money, labor done, and property actually receivec 146. 
 subscriptions unpaid, held assignable, but not proper subject of mortgage, 
 164. 
 rule in England, ib., n. 1. 
 (See Conversion of Bonds into Stock; Injunction; Preferred 
 Stock; Words and Phrases.) 
 STOLEN BONDS, 
 
 title of innocent purchaser of, before maturity, 95. 
 election under mortgage, to determine title to, 75. 
 change of numbers upon, not notice of larceny, 156. 
 (See Bonds; Mortgage.) 
 STREET-RAILWAY COMPANY, 
 
 appointment of receiver of assets of, 507, n. 5. 
 
 mortgage of, covering contemplated extension, effect of transfer by 
 
 mortgagor, 229. 
 chattel mortgage on property purchased by purchaser of franchises, 241. 
 court's power to continue receiver in possession of streets, 645, n. 1. 
 receiver's right to withhold payment for paving, where no lien, 696. 
 STRICT FORECLOSURE, 
 meaning of, 410. 
 decree for, provisions of, ib. 
 statutory regulations must be complied with, ib. 
 unsuitability in case of railroad mortgages, ib. 
 STRIKERS, 
 
 interference with receiver's possession by, 549. 
 rights of, to apply to court, ib. 
 SOBROGATION, 
 
 "equality is equity," underlying principle of, 332. 
 bondholders' right to, based on natural justice, 331. 
 principle underlying bondholders' right to redeem, ib- 
 wide signification of term as applied to statutory liens, ib. 
 not affected by rule against State being party in federal- suit, ib. 
 of bondholders to State rights, 469. 
 of bondholder who has paid company's taxes, 637. 
 when lenders to pay for rolling-stock not entitled to, 633. 
 guarantors of interest not subrogated to rights of bondholders, 129. 
 (See Statutory Lien.) 
 
INDEX. 967 
 
 The figures refer to pages. 
 
 SUBSTITUTION, 
 
 as distinguished from novation, 36. 
 preserving lien of old obligation, ib., 61. 
 
 (See Payment.) 
 
 SUPERINTENDENT. (See Officers.) 
 
 SUKRENDER OF BONDS. (See Exchange of Bonds.) 
 
 TAXES, 
 
 levied by State against property in federal receiver's hands, 577. 
 when court will direct interest paid on arrears of, 578. 
 first-lieu certificates to pay, superior to all liens, 672. 
 (See Words and Phrases.) 
 TENNESSEE, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 aiding companies by purchasing bonds, 129, n. 3. 
 as to after-acquired property passing under State lien, 225. 
 rule preferring claim for damage caused operating road, 626. 
 reorganization, statutes respecting, 842, n. 1. 
 
 TERMINAL FACILITIES, 
 
 when covered by mortgage of road, 235. 
 
 TERMS, CONDITIONS, AND LIMITATIONS. (See Words and 
 Phrases.) 
 
 TEXAS, 
 
 statutory provisions'as to issuing bonds and borrowing, 40, n. 
 constitutional restriction upon issuing stocks and bonds, 4, n. 
 
 as to releasing State liens on railroads, ib. 
 
 upon consolidation, ib. 
 reorganization, statutes respecting, 842, n. 1. 
 execution against railroad personalty, statutes affecting, 357. 
 
 rolling-stock constitutionally declared personalty, 4, n. 
 
 TRAFFIC AGREEMENT, 
 
 when not a lien though so stipulated, 265. 
 
 TRANSFER OF MORTGAGED PROPERTY, 
 
 effect on mortgagee's rights, 229. 
 TRUST, 
 
 termination of, general rule, continues till bonds paid, 292. 
 devolution of, on death of trustee, 296. 
 
 on death of all trustees, ib. 
 to secure debt, validity of, under Illinois statute, 285. 
 enforceable in federal courts, 286. 
 
 (See Breach of Trust ; Trustees.) 
 
 TRUST COMPANIES, 
 
 power to act deemed to extend beyond State granting charter, 286. 
 
 TRUST DEED, 
 
 in effect, a contract between company and bondholders, 211. 
 
 true consideration of, ib. 
 effective as a rle facio mortgage, ib. 
 mortgage in form of, when deemed authorized, 210. 
 maxim, " once a mortgage always a mortgage," applicable to, 211. 
 
968 INDEX. 
 
 The figures refer to pages, 
 TRUST DEED — continued. 
 
 grantor of, has equity of redemption, 211. 
 provisions, prevail over statute subsequently passed, 292. 
 (See Mortgage; TRtraiEES.) 
 TRUST FUND. (See Investment of Trust Fund ; Trustees.) 
 TRUSTEES, 
 
 appointment, removal, and substitution of, 287. 
 inherent power of equity as to, 288. 
 
 not defeated by special legislation, ib. 
 
 by formation of new company by majority bondholders, 288, n. 3. 
 by foreclosure and sale to new corporation, iJ. 
 by creation of new debt, with new mortgage, for extension, ib. 
 delicate and onerous duties of, 282. 
 
 requiring administrative capacity and technical knowledge, 283. 
 legal capacity to be, ib. 
 
 whoever capable of taking legal title, ib. 
 mortgagee need not be designated as, 284, n. 1. 
 selection of, for railroad mortgage, 282. 
 
 trust corporations now generally selected, 283. 
 duties of railroad trustees, generally same as others, 308. 
 good faith required of, ib. 
 must guard against waste, ib. 
 against diversion of income, ib. 
 
 to take possession of trust property when necessary, ib. 
 foreign corporations, eligibility of, for trusteeship, 285. 
 
 non-resident's eligibility secured by State constitutions, 284. 
 disqualification on ground of non-residence not against public 
 poHoy, ib. 
 State, when may be, 287. 
 
 sometimes result of express language of act granting State aid, ib. 
 State as trustee, equity will execute trust, when, 469. 
 difference between eligibility for, and power to execute trust, 283. 
 not observable where trustee's domicil and property's situs the 
 
 same, ib. 
 where domicil and situs in different States, 284. 
 eligibility, acquiring bonds to effect, does not impair, ib. 
 nor will resale after election disqualify, ib. 
 grounds for removal of, 288-290. 
 becoming non-residents, 288. 
 
 may be enjoined by State court from suing in federal, ib. 
 acquisition of hostile interests, 289. 
 
 whether disqualified from representing more than one class, ib. 
 substitution for absence construed to mean permanent absence, ib. 
 discharge nf, cannot be by his own act, 287. 
 
 how effected, ib. 
 not removable from part only of trust, 288. 
 when removable though not served with process, ib., 294, n. 1. 
 when appointment of receiver equivalent to removal of, 378. 
 vacancies in office, filling, under mortgage provisions, 290. 
 notice to mortgagor when necessary and when not, 291. 
 notice that will secure full and fair representation, sufficient, ib. 
 vacancy, when may be filled by survivors, ib. 
 
INDEX. 969 
 
 The figures refer to pages. 
 TRUSTEES — continued. 
 
 acts void till filled, 291. 
 
 trustee dying after bill filed for possession, ib. 
 
 company may act on failure to fill vacancy, ib. 
 
 appointment of, by company -where power reserved, ib. 
 
 new, cannot be substituted by legislature, for mortgagee, 292. 
 on death, estate devolves on survivors, 296. 
 
 on death of all, court will execute trust, ib. 
 
 or it will devolve on personal representatives, ib. 
 
 or it will result to company, 297. 
 
 where trustee a public functionary, estate devolves on successor, ib. 
 estate, interest and powers of, 293. 
 
 where by trust deed defeasance accrues on payment only, ib. 
 scope of usual form of trust deed, ib. 
 nature of trust, what trust instrument makes it, 294. 
 
 takes an estate sufficient to execute trust, 295. 
 
 takes fee though no words of inheritance, ib. 
 deemed clothed with entire estate when empowered to convey, ib. 
 
 effect on subsequent mortgagees and creditors, ib. 
 powers of, impliedly limited to administration of trust property, 297. 
 
 not a general but a special agent, ib. 
 assumption of control by, generally left to discretion of, 283, 800. 
 duties of, owed severally as well as collectively to bondholders, 311. 
 
 not warranted in following advice of majority, ib. 
 acts of, when binding on bondholders, 487. 
 
 orders and decrees in suits by or against, ib. 
 
 discretionary acts, 489. 
 
 illustrations, ib. 
 acts of, when not binding on bondholders, ib. 
 
 application to invest trust fund, contrary to mortgage, ib. 
 
 in action against trustee alone to adjudge mortgage void, 490. 
 right to defend bond's validity personal to bondholder, ib. 
 
 cannot alter bondholders' rights, without consent, 298. 
 
 cannot bind them to scheme of reorganization postponing mortgage, ib. 
 
 cannot assent on behalf of, to prefer floating debt, ib. 
 authorized to buy at foreclosure with view to reorganization, 308. 
 
 rights of, on abandonment of purchase for faults of bondholders,, iJ. 
 authority to purchase and convey to new corporation, 299. 
 
 no power to sell at request of majority of bondholders, ib. 
 
 exceeding, may not be taken advantage of by assenting bondholder, ib. 
 release of mortgage not included in implied powers of, 298. 
 
 power conferred by instrument, must be conformed to, ib. 
 when authorized to warrant title on sale of lands, 295. 
 without authority to place bonds on market, 298. 
 
 purchaser, put upon inquiry, ib. 
 quality of estate, how affected by statute, 296. 
 
 duties prescribed by statute may be omitted from deed, ib. 
 how powers affected by appointment of referee to sell, 292. 
 power to declare principal due, 299. 
 
 power of, to waive default in interest not readily inferred, 301. 
 power of sale effective to divest title without foreclosure, 302. 
 power irrevocable, ib. 
 
970 INDEX. 
 
 The figures refer to pages. 
 
 TRUSTEES — continued. 
 
 power of, to take possession and sell " at option," effect, 302. 
 right of entry cannot be impaired by subsequent legislation, 301. 
 
 may be enforced by bill for specific performance or ejectment, 302. 
 not confined to exercise of single power, 303. 
 duties of, become active, critical, and delicate after forfeiture, 309. 
 
 through him both corporation and beneficiary deal, ib. 
 
 positive duty to resist unjust claims and unnecessary expenditures, ib. 
 on refusal to act after defaiilt, bondholder may take action, 310. 
 
 must comply with request to take possession, ib. 
 
 when may proceed without request, ib. 
 
 when must proceed without request, 311. 
 
 in case of neglect, bondholder's rights, ib. 
 
 request, from whom necessary, 477. 
 
 what amounts to, 300. 
 
 right of trustee to decide on sufficiency of bondholder's claim, 302. 
 
 whether, may continue suit based on insufficient request, 477. 
 special powers of, not available in action by bondholder, 388. 
 right to deposit of bonds and indemnity preliminary to action, 300. 
 notice to, of everything arising in litigation, binds bondholder, 303. 
 
 especially when trustee a State official, 303. 
 notice to, as to matters not arising in litigation, effect, 304. 
 
 where held, not notice to bondholdei', ib. 
 
 when invested with merely naked trust, ib. 
 
 doubtful State of law as to effect on bondholders, 307. 
 
 where held, notice to bondholders, 305. 
 
 where trust administrative and trustee regarded as agent, 306. 
 commencement of action by, stays running of limitation statutes, 590. 
 
 in favor of bondholder, ib. 
 in possession, 315. 
 
 new duties and corresponding liabilities of, 315. 
 
 right of, to exercise corporate franchise, ib. 
 
 right to operate road, ib. 
 
 must account to bondholders for income, 316. 
 
 claims of bondholders against trustee personally, ib. 
 
 right of each to proportionate share of all moneys, ib. 
 
 bondholders' remedy for accounting after foreclosure not merely 
 intervention, ib. 
 
 when not held responsible for highest skill, 317. 
 
 agent for company as well as bondholders, when, ib. 
 
 must account to company and those claiming under, ii. 
 
 must manage property with reasonable care, etc., ib. 
 
 not bound as assignee of lease, made after mortgage, 318. 
 
 liability to third persons based on his certificates on bonds, i6. 
 as common carriers, 319. 
 when liability is personal, ib. 
 when statute limits liability of, ib. 
 
 stands in place of company with same rights and liabilities, ib. 
 liability as for negligence and nuisance, ib. 
 within purview of statutes imposing duties and liabilities on 
 companies, 320. 
 
 company exempt from liability, when, ib. 
 
INDEX. 971 
 
 The figtireB refer to pages. 
 
 TRUSTEES — continued. 
 
 view that trustees are agent of company, 321. 
 fiduciary position of, ib. 
 
 both as to debtor and creditor, ib. 
 
 must not antagonize others against interests of company, ib. 
 must account for profits as to securities purchased by him, ib. 
 cannot lease road to corporation when he is director, 322. 
 cannot be compelled to issue bonds at creditor's suit, ib. 
 after possession perfected, rights of, to earnings, 500. 
 
 application of earnings in possession of, at foreclosure, ib. 
 apportionment between attaching creditor and, ib. 
 right of, to earnings of road, independent of situs, 247. 
 surrender of possession by, 318. 
 
 where possession to prevent foreclosure and company ready to 
 pay, ib. 
 when should consult court, 312. 
 when should report to court, ib. 
 investment of trust funds by, 313. 
 
 when instructions of instrument obligatory upon, ib. 
 departure from, by direction of court, ib. 
 of more than one mortgage, duties of, 312. 
 when liable for misfeasance of co-trustees, 313. 
 cannot delegate his authority, 312. 
 becoming permanent resident abroad, ib. 
 money coming into hands of, application of, 314. 
 should be made to diminish indebtedness, ib. 
 accounting by, when action for, not maintainable, 312. 
 diversion by, of moneys applicable to bonds, rights against, 55. 
 directors as trustees, 53. 
 
 diversion by, enjoined at suit of bondholders, 53, n. 3. 
 breach of trust, what amounts to, 290. 
 
 proper remedy for, removal by bondholders, ib. 
 when cannot question validity of mortgage, 208. 
 character and reputation as affecting bond sale, 282. 
 forgery of his certificate on bonds, 92. 
 duties of, not terminated by foreclosure, 292. 
 
 continue until discharged by court, or unanimous consent, 293. 
 functions cease, when property disposed of and duly applied, ib. 
 (See Compensation of Trustee; Expenses in Suits, etc. ; Fraud; 
 Parties; Remedies of Bondholders; Eight of Entry.) 
 TURNPIKE COMPANY, 
 
 road-bed and fixtures of, not salable under execution, 165. 
 
 ULTRA VIRES, 
 
 may not be pleaded by company to avoid bonds, 26, n. 29. 
 bona fide holder without protection in consequence of, 84. 
 issue may be enjoined at suit of stockholder, 33. 
 where issue beyond limit, to stockholder's knowledge, 30 and n. 2. 
 where transactions acquiesced in by stockholders, 122. 
 
 action for damage resulting from, not maintainable against officers, 
 ib., n. 1. 
 guaranty, whether valid to bona fide purchaser, 122. 
 
9T2 INDEX. 
 
 The flgares refer to pages. 
 ULTRA VIRES — continued. 
 
 by tran.sportation company to brewing company, 121. 
 by brewing company of customer's lease, 124. 
 by brewing company of hotel-keeper's rent, ib. 
 of obligations of one corporation by another, in England, 114, 121. 
 (See Guaranty of Bonds.) 
 
 UNCALLED CAPITAL. (See Capital.) 
 
 UJfDERTAKING, 
 
 English construction of use of word, 25^. 
 
 where mortgage covering, held not to entitle mortgagee to possession, 
 256. 
 
 operates as pledge of tolls and property, ib. 
 pledge, when does not pass uncalled capital, ib. 
 when rights of debenture-holders, secured by pledge, attach, 258. 
 pledge of, eSect as to English debentures thereby secured, 257. 
 ceasing to be a going concern, floating security enforceable, 258, 
 n. 1. 
 mortgage of, to secure debentures of steamboat company, 257. 
 of a railway company, ib. 
 
 USURY, 
 
 when issue of bonds is usurious, 20. 
 
 when not, ib. 
 
 court not empowered to disregard laws against, 683. 
 
 when statute repealed, bonds negotiated at less than par valid, 20. 
 
 UTAH, 
 
 statutory provisions as to issuing bonds, 40, n. 
 constitutional restrictions upon issuing stocks and bonds, 4, n. 
 
 upon consolidation, ib. 
 statutes respecting mortgaging after-acquired property, 258. 
 reorganization, statute respecting, 842, n. 1. 
 
 liabilities rising out of franchises preserved from effect of alienation, 4, n. 
 roUing-stook constitutionally declared personalty, ib. 
 
 VENDORS. (See Vendor's Lien.) 
 
 VENDOR'S LIEN, 
 
 same as when property parted with through false representations, 271. 
 
 effected either by reserving title or fixing lien, 345. 
 
 unaffected by prior general mortgage, ib. 
 
 reserving at sale of mortgaged property, 775. 
 
 mortgage lien generally postponed to rights reserved, 345. 
 
 when superior to mortgage of after-acquired property, 270. 
 
 extends to persons advancing money, 346. 
 
 director, when entitled to benefits of rule, ib. 
 as to personalty, 271. 
 
 on sale of rolling-stock no lien, unless reserved, 844. 
 
 none, on sale of bonds, 46. 
 
 priority of, where property sold is a fixture, 271. 
 
 where fixtures become part of real estate, ib. 
 
 where readily detachable, iJ. 
 on sale of machinery, 272. 
 
INDEX. 973 
 
 The figures refer to pages. 
 VENDOR'S LI'El!i — continued. " 
 when defeated by vendor's acts, ib. 
 
 where not asserted till after foreclosure, 272. 
 where vendee records deed placed in his hand by vendor, ib. 
 after-acquired property clause as afiecting, 342. 
 
 devices to secure priority over lien of clause, 343. 
 lease, ib. 
 
 conditional sale, ib. 
 reservation of lien, ib. 
 effect, where vendor turns a conditional into an absolute delivery, 273. 
 where lost by rejection of bond-consideration, 753. 
 lien declared by statute in favor of creditors, 345. 
 preference of, over prior general mortgage, ib. 
 after reclaiming property, rights of vendor remaining, 354. 
 recognized by return of property, 645. 
 by payment out of proceeds of sale of, 646. 
 acquired after sale in foreclosure, but before confirmation, 666. 
 (See First-lien Certificates.) 
 VERMONT, 
 
 statutory provisions as to issuing bonds, 40, n. 
 right of railroad to mortgage all personal property, 595, n. 5. 
 statute giving preferences over railroad chattel mortgages, 617. 
 statute relating to trustees of railroad companies, 322. 
 reorganization, statutes respecting, 842, n. 1. 
 
 non-assenting bondholder, a tenant in common with reorganized 
 company, 46, n. 3. 
 
 VIRGINIA, 
 
 statutory provisions as to issuing bonds and borrowing, 40, n. 
 reorganization, statutes respecting, 842, n. 1. 
 
 VOTING, 
 
 power should be used for advantage of all, not majority, 312. 
 by proxy. (See England.) 
 
 WAIVER, 
 
 of statutory lien by State, 328. 
 
 (See Default.) 
 WASHINGTON, 
 
 constitutional restrictions upon issuing bonds and stocks, 4, n. 
 
 guaranty of bonds, 129, n. 3. 
 
 mechanics' liens in, 276. 
 
 rolling-stock, mortgage of, void unless recorded as chattel mortgage, 340. 
 
 constitutionally declared personalty, 4, n. 
 liabilities arising out of franchises preserved from efiect of alienation, ib. 
 rule as to title paramount in foreclosure, not changed, 396. 
 
 WASTE, 
 
 to prevent, as a ground for receivership, 527. 
 mere disuse not waste, ib. 
 
 WATER COMPANIES, 
 
 whether subject to doctrine of preferential claims, 593. 
 distinction between, and railroad companies, ib. 
 
974 INDEX. 
 
 The figures refer to pages, 
 WATER COMPANIES — conZmuerf. 
 
 power of court to authorize first-lien certificates by, 670. 
 
 when plant of, salable under execution, 165. 
 WEST VIRGINIA, 
 
 statutory provisions as to issuing bonds, 40, n. 
 
 guaranty of bonds, 129, n. 3. 
 
 constitutional restriction upon consolidation, 4, n. 
 
 rolling-stock constitutionally declared personalty, i6. 
 
 reorganization, statutes respecting, 842, n. 1. 
 WINDING-UP PROCEEDING, 
 
 unpaid creditor entitled to ex debilo justitim, 459. 
 
 mortgagees may maintain, though entitled to receivership, 506, n. 2. 
 
 in England, 378, 842, n. 1. 
 
 WISCONSIN, 
 
 statutory provisions as to issuing bonds, 40, n. 
 
 hypothecation of bonds held to be an issue under statute of, 16. 
 stipulation upon, as to accounting, 17. 
 
 roUing-stock treated as personalty for taxation purposes only, 841. 
 
 reorganization, statutes respecting, 842, n. 1. 
 WORDS AND PHRASES, 
 
 " all other property," 180. 
 
 "apparatus," 131. 
 
 " appurtenances,'' ib. 
 
 " charge," ih. 
 
 "claims," 132. 
 
 "compromise," ih. 
 
 "consolidation," ib. 
 
 "corpus," 133. 
 
 "earnings," ib. 
 
 "first-mortgage bonds," ib. 
 
 "franchises," 184. 
 
 "fuel," 135. 
 
 " going concern," 136. 
 
 " income and profits," ib. 
 
 " income and revenues," ib. 
 
 " in such case," ib. 
 
 "labor and supply creditors," 137. 
 
 "laborer," ib. 
 
 " lien," ib. 
 
 "materials," 138. 
 
 "maturity," ib. 
 
 " moneys," ib. 
 
 " net earnings," ib. 
 
 " operating expenses," 140. 
 
 "past-due interest," 141. 
 
 " preferred stock," ib. 
 
 "profits used in construction," ib, 
 
 "property," 142. 
 
 "protected," ib. 
 
 "railway," ib. 
 
 "road-bed," 148. 
 
INDEX. 975 
 
 The figures reier to pages. 
 WORDS AND VRRASFjS — continued. 
 "road and property," 143. 
 " servant and employee," ib. 
 " sinking fund," 144. 
 " stock," ib. 
 "tax," ib. 
 
 " terms, conditions, and limitations, 145. 
 " written assent," ib. 
 
 WRITTEN ASSENT. (See Words and Phkabes.) 
 
 WYOMING, 
 
 statutory provisions as to issuing bonds, 40, n. 
 constitutional restriction upon consolidation, 4, n. 
 
KF 2301 S55 
 
 
 Author 
 
 Short, Edward I/yman 
 
 Vol. 
 
 Title 
 
 Copy 
 
 I^e^^Yn°€hWM!g.^°"'^^ ^ "^°^^-