oppressive terms, that portion of the road lying between Richmond and New Castle "shall be practically cut off" from the residue of the line, " by the construction of a road from New Castle to Connersville, Indiana, by which the whole business upon the road above New Castle shall and will be diverted from the part of the road from New Castle to Richmond." And the bill charges that the defendants "are secretly aiding and encouraging the building of such road for such purpose."

§ 1210. An injunction will lie to prevent an irreparable and threatened

wrong.

The answer denies that the officers of the แ company, as such officers of said company," have made the threats charged; and it especially denies "that any threats have been made by the defendant or by any one authorized to speak in behalf of this defendant [the company]; that if the said parties represented by the complainant would not take the bonds issued under the mortgage issued by this defendant in exchange for the bonds so held by said parties, that this defendant would construct a road from New Castle to Connersville, Indiana, and practically cut off that part of the road upon which the complainant claims that the said mortgage rests;" but the answer, nevertheless, claims in substance that the company may lawfully do so if they please. Whether the company intends to do so is not stated in the answer. These denials in the answer are very carefully guarded. They look so much like a negative preg nant that they naturally raise in my mind some suspicion; and taking this circumstance together with the affidavits filed on both sides, I think it fair to conclude that the threat has been made in substance, and that the complainant has just ground to fear that it may be carried out. I shall therefore order the temporary injunction. And I do this with the less hesitation, since, if the company and its officers have no such design, the order can do them no harm, and since, in my opinion, the defendants are grossly mistaken in affirming in their answer that they have a right to do what the threat imports, if they please. To me it appears that any attempt to divert business from the road between New Castle and Richmond would, under the circumstances of this case, be most unjust and inequitable.

§1211. The power of the courts to appoint receivers is a discretionary power, to be exercised with great caution.

II. Let us next inquire how the case stands on the motion for a receiver. The power of courts of chancery to appoint receivers is a discretionary power, to be exercised with great caution. Railroad Co. v. Soutter, 2 Wall., 510. To dispossess the owner of property of its possession before a final hearing is a strong measure, not to be adopted but in a strong case. I think it should never be done unless, without it, the complainant would be in danger of suffering irreparable loss. Is the present such a case? The bill charges that no interest on the bonds in question has been paid for about ten years past; and the answer admits this allegation. This of itself is a very strong circumstance in favor of the motion. These are first mortgage bonds, and have precedence of all other liens on the company's property; and it is startling to find so long a delay to pay interest. At first blush it would raise the suspicion that the owners of the road had been very unfortunate, or very reckless, or very unmindful of their duty. The fact that the property mortgaged has changed hands once or twice since the bonds were executed does not tend to remove that suspicion. The new owners took the property cum onere, and ought, if they could, to pay the interest. In the case of Williamson v. New Albany & Salem R. Co.,

1 Biss., 198 (§§ 1514-18, infra), in October, 1857, before Judge McLean, it appeared, on a motion like the present, that the defendant had failed to pay the semi-annual interest which fell due in April, 1857. And principally, if not solely, for that single and recent failure, the chancellor, while in form he overruled the motion for a receiver, did what was nearly equivalent to appointing one, he placed the road so far under the control of the court as to require that company to make monthly reports to the court of the net income of the road and to pay a certain proportion thereof into court every month for the use of the bondholders.

Another important fact established in the case at bar is that the trustee, Varnum, as also some of the bondholders, on several occasions applied to the president of the company for leave to examine their records, with a view to the amount of the company's income and to the disposition made of it. This application the president at first evaded and finally denied. He said he would not give the bondholders a club to break his own head with, and denied that the trustee was the proper person to make the application. This response cannot be justified. Of all men, the trustee in the discharge of his duty was the proper person to make the examination asked. It was not only his right but his duty to make it; and the president's letter denying him the privilege was unjustifiable. If the company's records were honest and fair, and if they meant to deal righteously by the trustee and bondholders, and had really done so, it is difficult to see how the information sought could be a stick to break anybody's head with." To persons thus withholding necessary and proper information, courts will apply the maxim, Omnia præsumuntur contra spoliatorem.

66

The answer, too, is in some respects a little evasive. In attempting to meet the charge of threats and of attempts to decry the value of the bonds in the market, it cautiously and guardedly denies that the company's officers, "as such officers," have done these things. To do so could hardly, under any circumstances, be official acts. The attempt, in the defendant's answer and affidavits, to excuse the non-payment of the interest in question, I think is entitled to little weight. Even honest inability to pay a debt is a poor excuse when one is sued for it. But here, as it seems to me, a still poorer excuse is attempted by averments that the company have had to provide for other roads with which they have in some way consolidated, and, to effect this, have expended and must expend large sums of money,- matters with which the bondholders have nothing to do. Thus it is urged (by way of excuse, I suppose) that the company, at great expense, in 1861, had constructed an addition to their road from Logansport to Valparaiso; that to stock their road thus extending from Richmond to Valparaiso, they purchased rolling stock to the value of $370,000; that afterwards a still more important extension of the road was effected, so as to make a continuous line to Chicago by a union with other roads, at a cost of about $1,500,000; and that to equip this long road, as it must be equipped, will cost about $1,500,000 more. Here, then, is an aggregate of about $3,370,000 with which the different companies succeeding to the ownership of the New Castle & Richmond Railroad have burdened themselves. And by the answer it seems to be implied that this furnishes some excuse why the interest in question remains unpaid, or at least why a receiver should not be appointed. To my mind this is no excuse. Whatever the Air-line road did in this regard was done at its risk; and if, by assuming such burdens, it became the less able to pay the interest, this is, I think, one reason for appointing a receiver.

But the most remarkable feature in the answer, as it seems to me, is that it does not, that I can see, present any feasible scheme for paying this interest at all. Indeed, so far as appears from the answer, it does not seem that the interest will ever be paid voluntarily. A strong desire is evinced to extend the road and raise vast sums for equipping it; but no corresponding anxiety is shown to do anything for the first mortgage bondholders. The answer evidently evinces a design to postpone this matter till the very last. Under all the circumstances, I think the appointment of a receiver would be very proper, if the bill had averred that the mortgaged property was not a sufficient security for the debt; and that, without a receiver, the bondholders are in danger of irreparable injury. I suppose that in no case of a mortgage ought a court of chancery to appoint a receiver, if the mortgaged property is of such value as to render it clear that, on a foreclosure and sale, the debt could all be made. In the present case, the mortgaged property would probably not bring so much on sale.

I will therefore appoint a receiver, whose duty it shall be to examine the books and affairs of the road, to ascertain its net earnings monthly, to receive one-fourth of the net earnings of the road from Richmond to Logansport from the company every month, and to pay it into this court for the use of the bondholders. And I order that the company, its officers and agents, give to such receiver all proper facilities for examining the books and papers of the company touching the gross and net incomes and earnings of said part of said road; and that the company, by their proper officer or officers, do under oath render full and fair monthly statements to such receiver of the gross and net income and earnings of said part of said road, and pay over to him every month said fourth part of said net proceeds.

§ 1212. A railroad which has power to sell its property may mortgage it. The power to mortgage is the lesser power, and is included in the power to sell. Branch v. Atlantic & Gulf R. Co., 3 Woods. 481, 486.

§ 1213. All business corporations have an implied power to incur debts and borrow money for the purposes of the corporation. Ibid.

§ 1214. Whether a railroad may, without legislative authority, mortgage its property and franchises or not, it is clear that an act of the legislature recognizing the validity of such mortgage precludes the possibility of holding it to be contrary to public policy. Hall v. Sullivan R. Co.,* 21 Law Rep., 138.

§ 1215. A director of a corporation is a trustee for stockholders and creditors. Therefore if, by his office, he obtains for himself any advantage over other stockholders and creditors in securing, by mortgage, an existing indebtedness of the corporation to himself, equity will treat the transaction void or charge him as trustee. Corbett v. Woodward, 5 Saw., 403 (SS 641-647).

§ 1216. A corporation is estopped from pleading that a mortgage and bonds received by it are void because its directors loaned the money, when it appears that the transaction was sanctioned by a stock vote. Hotel Co. v. Wade, 7 Otto, 13 (§§ 1440-46).

II. FORM AND CONSTRUCTION OF RAILROAD MORTGAGES.

SUMMARY - Equitable charge upon proceeds of bonds, § 1217.- Statutory lien must be clearly stated, § 1218.- Release of statutory lien; constitutional provision against, § 1219.— Corporate seal; authority to affix, § 1220.- Foreclosure upon default in paying interest coupon, § 1221.— Reservation of right to company to make sales of lands, § 1222.— Power reserved to create a prior lien, §§ 1223–1225.

§ 1217. An equitable charge upon the proceeds of bonds secured by a mortgage of a railroad does not exist in favor of a contractor who has constructed a portion of the road under a contract with the corporation which does not create such a charge either directly or by necessary implication. The fact that the contractor's labor has added to the security of the bondholders does not subordinate their lien to one in his favor; neither does a provision in

the mortgage that the expenditure of all sums, realized from the sale of the bonds secured, shall be made with the approval of one of the trustees, whose assent in writing shall be necessary to all contracts made by the corporation, before the same shall be a charge upon any of the sums received from such sale, create a charge in favor of such contractor. Dillon v. Barnard, § 1226-1228.

§ 1218. A statutory lien exists only where the statute in positive terms expresses an intention to create such a lien. A statute giving a city authority to aid a railroad company, and to receive security by mortgage or by pledge of stock, creates no lien in favor of the city as against other mortgages, after the city has accepted a pledge of the company's stock as security for such aid. Cincinnati v. Morgan, §§ 1229, 1230.

§ 1219. The legislature of a state has full power to release a statutory lien in favor of the state unless it is restrained by its constitution. A provision of the constitution of Missouri, that the general assembly shall have no power, for any purpose whatever, to release the lien held by the state upon any railroad, but shall provide by law for the sale of the road and the company's franchises, does not prohibit the legislature from discharging its lien upon a railroad upon receiving its full value. In such case the legislature is necessarily the judge of such value. Murdock v. Woodson, §§ 1231-1235.

§ 1220. The fact that a mortgage deed has the seal of a corporation attached does not make it the deed of the corporation, unless the seal was placed upon it by some one duly authorized. The seal being affixed to the deed, there is a presumption that it was rightfully affixed; but this presumption may be overthrown by parol evidence to the contrary. Koehler v. Black River Falls Iron Company, §§ 1236-1240.

§ 1221. Restrictions or provisions in a statute authorizing a corporation to issue bonds secured by mortgage enter into the contract, and bind the parties to it, although the mortgage itself contains inconsistent provisions. Thus where a mortgage is made to secure bonds with interest payable semi-annually, under the authority of a statute which declares that the bonds shall not mature at an earlier period than thirty years, a provision in them that, upon a failure to pay any coupon when presented for payment, and a continued default thereon for six months, the whole sum mentioned in the bonds shall become due and payable, is void. In such case, however, the mortgage may properly provide that it shall be foreclosed upon nonpayment of interest. When a foreclosure suit is brought in consequence of such default, and the sum ascertained to be due on the coupons is paid within such reasonable time as the court shall appoint, no further proceedings in the suit can be had until there is another default. If the sum be not so paid, a sale of the property, with a foreclosure of all the rights subordinate to the mortgage, should be ordered, with a direction to bring the proceeds into court. Howell v. Western R. Co., §§ 1241, 1242.

§ 1222. Where a railroad company in a mortgage of lands reserved the right to make sales of the lands and pay over to the mortgage trustees the proceeds after deducting the expenses of executing the trust, the company had the right to retain the reasonable expenses incurred by it in making such sales, and also the legal taxes as paid upon such lands. Nickerson v. Atchison, Topeka & Santa Fe R. Co., §§ 1243, 1244.

§1223. Where a power was reserved in a mortgage by a railroad corporation to create a lien prior to such mortgage in favor of a state, in case it should make a loan to the corporation, and the state by an act of its legislature authorized the corporation to make a mortgage to secure a loan from other parties, provided the company would relinquish its claim to a loan from the state, and a mortgage was made accordingly, it was held that so far as the new mortgage did not invade any substantial or vested rights under the prior mortgage, it was valid and the substitution might be made. Campbell v. Texas & New Orleans R. Co., $1245-1250.

§ 1224. The fact that substituted bonds were made to run for a longer time was regarded as immaterial; as was also the fact that the substituted mortgage did not require a sinking fund as was the case with the bonds which were to be given to the state. Ibid.

§ 1225. But a variance in the rate of interest, a higher rate being imposed in the substituted bonds, is to the extent of the increase in such rate an invasion of the rights of bondholders under the first mortgage, and makes the bonds invalid to that extent. Ibid. [NOTES.-See §§ 1251–1261.]

DILLON v. BARNARD.

(Circuit Court for Massachusetts: 1 Holmes, 386-395. 1874.)

Opinion by SHEpley, J.

STATEMENT OF FACTS.-This case is presented on a demurrer to the bill in equity. The material averments of fact which the demurrer admits are as fol

lows: That the Boston, Hartford & Erie Railroad Company, a corporation duly existing under the laws of Massachusetts, Rhode Island, Connecticut and New York, was, prior to the 1st day of March, 1866, authorized to construct, maintain and operate a railroad in each of said states, and owned the railroad and franchises described in the bill; that, for the purpose of providing for and retiring all the existing mortgage debt and prior liens upon the line of the railroad of said corporation, and for the purpose of completing and equipping its railroad, then only partly constructed, the corporation, by a mortgage deed or indenture in trust, on the 19th day of March, 1866, conveyed to Robert H. Berdell and others, trustees, all its property then owned and after to be acquired, in trust, upon the terms and for the purposes set forth in the mortgage deed, which indenture in trust or mortgage was ratified and validated by the legislation of the several states of Massachusetts, Rhode Island, Connecticut and New York.

of

The bill alleges that, among other things, it was provided in the indenture that certain bonds or evidences of debt, to an amount named in said indenture, should be issued, sold and disposed of, as the means and for the purpose raising money to complete and equip the road; that such bonds, attested by the trustees, should be secured by said indenture, and become a lien upon the property therein described and conveyed, and also upon all the property afterwards purchased, and on the increase of value in the railroad given to it by the expenditure of the money raised by the sale of the bonds. It is also alleged that it was agreed by said indenture, and was a part of the trusts and terms under which the trustees held and were to hold the trust estate, that the expenditure of all sums of money realized from the sale of the bonds issued under the mortgage should be made with the approval of at least one of the trustees, whose assent in writing should be necessary to all contracts made by the railroad corporation for the purposes aforesaid, before the same should be a charge upon any of the sums received from such sales; and also alleges" that such contracts, to be assented to, should and would be a charge upon such sums so received and realized by or from such sales." This last averment must be understood as the allegation of what complainant claims to be the legal inference resulting from the terms of the contract, as no such provision is anywhere expressed in terms in the mortgage, which is made part of the bill and the record in the case.

Afterwards, on the 24th of October, 1867, the complainant Dillon entered into a contract with the corporation, in writing, which was approved and assented to in writing by the trustees, for the construction of a certain portion of said road. It is alleged to have been the purpose, object and intention of the corporation, the trustees and the complainant, that the sums becoming due under the construction contract should be a charge on the sums to be received from sales of the bonds; that the complainant performed work and expended large sums of money under the contract, relying for his compensation on the sums of money to be derived from sales of bonds, and upon a lien thereon, by virtue of the premises, and that his reliance thereon was well known to the corporation and the trustees; that his work under the contract was performed and accepted, and approved in accordance with the stipulations in the contract; and that a balance is due to him of $1,030,693.29, with interest. The bill alleges that instead of devoting the proceeds of the sale of the bonds to the payment of complainant, the corporation and the trustees suffered the money to be expended in acquiring new property to be held under the indenture, and