Claim of the complainants to the fund in controversy rests mainly upon two propositions, which present mixed questions of law and fact: 1. That they are creditors of the railroad company, as evidenced by the judgments set forth in the record. 2. That the fund in question was assets of the railroad company. Authority of the municipal corporations to issue the bonds purchased by the complainants is not denied; but the appellants contend that the railroad company had no power to guaranty their payment, and they also deny that the railroad company had any title or interest in the fund in controversy. On the contrary, they insist that it was a concession made by the holders of the mortgage bonds to the stockholders as a "gratuitous favor" to save them from a total loss, and to induce them not to interpose any obstacles in the way of a speedy foreclosure of the several mortgages. Express allegation of the bill of complaint is that the bonds issued by the municipal corporations were received by the railroad company in payment for subscriptions to the stock of the company, and that the corporation, as the holders of the same, guarantied their payment and sold them in the market, and the stipulation of the parties is that all the allegations of the bill of complaint not denied in the answer are to be considered as admitted. Apart, therefore, from the effect of the judgments, those allegations must be taken to be true, as they were not denied in the

answer.

Power to make contracts, and acquire and transfer property, is conferred upon such corporations by the laws of the state to the same extent as that enjoyed by individuals; and the record shows, to the entire satisfaction of the court, that the instrument of guaranty was executed and the bonds sold in the market as the means of raising money to construct the railroad and put it in operation. Counties and cities may issue bonds under the laws of that state in aid of such improvements; and railway companies are expressly authorized to receive such securities in payment of subscriptions to their capital stock, and to sell the bonds in the market for such discount as they think proper.

1350. Power of a railroad company to guaranty municipal bonds issued in its aid.

Abundant proof exists in this record that railway companies may issue their own bonds to raise money to carry into effect the purposes for which they were created; and it is difficult to see why they may not guaranty the payment of such bonds as they have lawfully received from cities and counties, and put them upon the market instead of their own, as the means of accomplishing the same end. Undoubtedly they may receive such bonds under the laws of the state, and if they may receive them, they may transfer them to others; and if they may transfer them to purchasers, they may, if they deem it expedient, guaranty their payment as the means of augmenting their credit in the market, and saving the corporation from the necessity of issuing their own bonds to accomplish the same purpose. Considered, therefore, as an open question, the court is of the opinion that the objection is without merit. Private corporations may borrow money or become parties to negotiable paper in the transaction of their legitimate business, unless expressly prohibited; and until the contrary is shown, the legal presumption is that their acts in that behalf were done in the regular course of their authorized business. White Water Valley Co. v. Vallette, 21 How., 424; Partridge v. Badger, 25 Barb., 146; Barry v. Merchants' Ex. Co., 1 Sandf. Ch., 280; Angell & Ames on Corp., 257; Story on Bills, § 79; Farnum v. Blackstone Canal, 1 Sumn., 46. Railroad companies are responsible in their corporate capacity for acts done by

their agents, either ex contractu or ex delicto, in the course of their business and within the scope of the agent's authority. Philadelphia, etc., R. Co. v. Quigley, 21 How., 202. Corporations as much as individuals are bound to good faith and fair dealing, and the rule is well settled that they cannot, by their acts, representations or silence, involve others in onerous engagements and then turn round and disavow their acts and defeat the just expectations which their own conduct has superinduced. Bargate v. Shortridge, 5 H. of L. Cas., 297; Zabriskie v. Cleveland, etc., R. Co., 23 How., 397; Bissell v. City of Jeffersonville, 24 id., 300. Tested by any view of the evidence, it is quite clear that the corporation possessed the power to execute the instruments of guaranty appearing on the back of the bonds, and the necessary consequence of that conclusion is that on the default of payment they became liable to the holders of the same to the same extent as the obligors. Present suit is not one against stockholders to compel them to pay a corporate debt out of their own estate, but it is a suit against the corporation and certain other parties holding or claiming assets which belong to the principal respondent to prevent that fund from being distributed among the stockholders of the corporation before the debts due to the complainants are paid. Viewed in that light it is obvious that the stockholders are precluded by the judgment from denying the validity of the instru ments of guaranty, and that the judgments are conclusive as to the indebtedness of the corporation.

§ 1351. After the discharge of a railroad mortgage the property embraced in it belongs to the corporation and is subject to its debts.

II. Second defense is that the fund in question did not belong to the corporation as contended by the appellees.

Extended discussion of that proposition is not necessary, as the evidence in the record affords the means of demonstration that it is not correct. Mortgage bondholders had a lien upon the property of the corporation embraced in their mortgages, and the corporation having neglected and refused to pay the bonds, they had a right to institute proceedings to foreclose the mortgages, but the equity of redemption remained in the corporation. Subject to their lien, the property of the railroad was in the mortgagors, and whatever interest remained after the lien of the mortgages was discharged belonged to the corporation, and as the property of the corporation when the bonds were discharged, it became a fund in trust for the benefit of their creditors. Holders of bonds secured by mortgage, as in this case, may exact the whole amount of the bonds, principal and interest, or they may, if they see fit, accept a percentage as a compromise in full discharge of their respective claims; but whenever their lien is legally discharged the property embraced in the mortgage, or whatever remains of it, belongs to the corporation.

Conceded fact is that the property and franchises of the railroad were sold for the consideration specified in the record, and that the mortgage bondholders discharged their lien for eighty-four per cent. of that amount, and that the residue of the purchase money remained in the hands of the purchaser discharged of the lien created by the mortgages, and the complainants contend that it was clear of all liens except that of the creditors. Such a corporation cannot be said to own anything separate from the stockholders, unless it be the tangible property of the company and the franchises conferred by the charter, and it is conceded by both parties that the fund in question was derived from a voluntary sale and transfer of those identical interests. They were heavily incumbered by mortgages, and our attention is called to the fact that the pro

visional arrangement was negotiated by the stockholders and bondholders; but the decisive answer to that suggestion is that the two railroad companies were parties to the subsequent contract of sale, and that they both agreed to all the terms of sale and purchase and to the mode of transferring and of perfecting" the title. Prompt payment was secured by the bondholders, and it is highly probable that they received under that arrangement a larger portion of their claims than they could have obtained in any other way.

§ 1352. Though a contract for foreclosure be unauthorized, yet if ratified. and carried into effect, it must stand.

Another suggestion of the appellants is that the contract of sale was unauthorized; but the suggestion is entitled to no weight, as the contract was ultimately carried into effect by the consent or subsequent ratification of all parties interested in the subject-matter of the sale.

§ 1353. In a creditor's suit against a corporation, the stockholders need not be individually made parties if their interests are fully represented.

Next objection is that there is such a want of parties that a court of equity cannot grant the relief as prayed. Principal suggestion in support of this proposition is that the stockholders should have been made parties, but the court is of a different opinion, because their interest is fully represented by the parties before the court. Respondents in the suit are the two railroad companies and the committee or trustees chosen and appointed by the stockholders and bondholders through whom the provisional arrangement was perfected and the contract of sale was carried into effect. Neither the stockholders nor bondholders were necessary parties under the circumstances of this case. Bagshaw v. Railway Co., 7 Hare, 131; Holyoke Bank v. Manufacturing Co., 9 Cush., 576; Hall v. Railroad, 21 Law Rep., 138; 1 Redfield on R'ys, 578; Boon v. Chiles, 8 Pet., 532; Story v. Livingston, 13 id., 359.

§ 1354. Written contracts inuring to the benefit of the bearer are not neces sarily negotiable.

Remaining objection is, that the certificates issued to the stockholders in lieu of their stock were negotiable, and that they may be in the hands of innocent holders; but the objection is entitled to no weight, because it is based upon an erroneous theory. Written contracts are not necessarily negotiable simply because by their terms they inure to the benefit of the bearer. Doubtless the certificates were assignable, and they would have been so if the word bearer had been omitted, but they were not negotiable instruments in the sense supposed by the appellants. Holders might transfer them, but the assignees took them subject to every equity in the hands of the original owner. Mechanics' Bank v. Railroad Co., 13 N. Y., 599. Particular mention is not made of the defense that the complainants have an adequate remedy at law, as it is utterly destitute of merit. Decree affirmed.

§ 1355. Preferred stock issued under agreement that interest shall be paid upon it, and that it shall be a lien taking precedence of any subsequent indebtedness, though not secured by mortgage, creates a lien as between the parties. It also has priority as against subsequent mortgagees having notice of the agreement under which it was issued. Skiddy v. Atlantic, Miss. & Ohio R. Co., 3 Hughes, 320 (§Z 1559–67).

§ 1356. Non-negotiable contract. Written contracts are not necessarily negotiable because by their terms they inure to the benefit of the bearer. A certificate by which a person acknowledges that he has received a certain number of shares of stock in a corporation, entitling the bearer to so many dollars in certain bonds to be issued, is not free, in the hands of the transferee, from the equities which would have affected it in the hands of the original holder. Railroad Co. v. Howard, 7 Wall., 392 (§ 1348-54).

§ 1357. Mortgage executed outside the state where incorporated. As against bona fide holders of bonds secured by mortgage it is no defense that the mortgage was authorized and executed beyond the limits of the state where the road is located and has its legal existence. The company is estopped to raise objection, after it has received the benefits of the transaction by sales of its bonds to persons taking them in good faith. Galveston Railroad v. Cowdrey, 11 Wall., 459 (§§ 1297-1304).

§ 1358. Bona fide holders of negotiable bonds are presumed to hold them for their full value, and their title can be impaired only by specific allegations distinctly proved. Bronson v. La Crosse & Milwaukee R. Co., 2 Wall., 283 (§§ 1460-66).

§ 1359. One holding railroad bonds as collateral security is a bona fide holder for value, and is entitled as such to enforce their payment. Allen v. Dallas & Wichita R. Co., 3 Woods, 316 SS 1502-1508).

§ 1360. Demand of payment at the place where railroad bonds are made payable is not necessary, when the corporation is insolvent and has no funds at the place designated. Shaw v. Bill, 5 Otto, 10 (§§ 1280-83).

§ 1361. Certificates issued for overdue interest do not constitute a novation of the debt unless a novation be shown to have been intended. Such interest is still a lien if the debt was originally a lien. Skiddy v. Atlantic, Miss. & Ohio R. Co., 3 Hughes, 320 (§§ 1559-67). § 1362. Interest coupons are distinct contracts, and when they become due they bear interest, and may be sued on separately from the bond. Brine v. Insurance Co., 6 Otto, 627 ($$ 800-804).

VII. RIGHTS AND DUTIES OF MORTGAge Trustees.

SUMMARY - Personal clatms of bondholders against trustees, § 1363.- Trustees represent bondholders, § 1364.

§ 1363. Personal claims by bondholders against trustees for income do not pass to subsequent holders of the bonds. Dwight v. Smith, § 1365.

§ 1364. A trustee in a railroad mortgage represents the bondholders. The mere fact that he is a holder of bonds secured by the trust does not render him incompetent to act and bind the bondholders, unless there is some evidence of fraud or unfaithfulness on his part. Shaw v. Railroad Co., §§ 1366-1368.

[NOTES.-See §§ 1369, 1370.]

DWIGHT v. SMITH.

(Circuit Court for Vermont: 9 Federal Reporter, 795–797. 1881.)

Opinion by WHEELER, D. J.

STATEMENT OF FACTS.- This cause has been heard upon a demurrer to the bill of complaint for want of equity in favor of the orators, generally, and for want of sufficient definiteness in stating the grounds for the relief claimed. The bill alone is to be looked at in determining the questions so raised. According to the bill the orators are now holders of the first mortgage bonds to a large amount, but when they became such holders is not shown. Some of the defendants are trustees in that mortgage; others are the representatives of a trustee, deceased; another defendant is the Central Vermont Railroad Company, alleged to be in possession of the mortgaged property; others are directors in the latter corporation. The trustees have both neglected and violated their duty to the first mortgage bondholders, while in possession of the mortgaged property, in not accounting to them for moneys received by them as trustees for them, and in delivering the property to the Central Vermont Railroad Company against their rights and expressed wishes. And the Central Vermont Railroad Company has received the income of the mortgaged property and not accounted for it; and its directors, made defendants, have participated in that act.

§ 1365. Personal claims by bondholders against trustees for income do not pass to subsequent holders of the bonds.

If the trustees received income from the mortgaged property belonging to the bondholders and to be distributed to them, the money would belong and be

distributed to the persons who were at that time bondholders, and the right to it would not pass to persons subsequently acquiring the bonds, unless they expressly acquired the right to it also. The claims of the bondholders against the trustees would not be upon the bonds themselves, like the claims against the obligors in the bonds, although they would be on account of the bonds, but would be claims against the trustees personally for the moneys received to the use of the bondholders, and these claims would not be assignable at law, although they might be in equity. In a suit or proceeding upon the bonds themselves, the production of the bonds and coupons, or the allegation of their ownership, might import that the holder had held them at the time of the accruing of the interest incidental to the debt, and entitle him to recover for the whole; but not so as to a claim not upon the bonds, but for money received to the use of the bondholders. The production of the bonds would not make out a cause of action or claim for relief on account of that money. More would have to be shown, and enough more to make out a cause of action or ground for relief, and that would include showing a right to the money at the time it was received. The orators fall short of showing such right. And if the orators had been holders of the bonds ever after they were issued, and had so shown in their bill, it would be incumbent on them to show that their trustees, or those holding the property in place of the trustees, did receive money belonging to them, or did so conduct themselves with the property as to make themselves accountable for money as if they had received it. The bill does not allege that the trustees received any money belonging to the bondholders prior to their appointment as receivers, nor that while they were in fact receivers they received anything more than enough to pay the Vermont & Canada rent, which was to be first paid; nor that they ceased to be receivers in fact until the making of the compromise agreement, nor then otherwise than by the force of that agreement. That agreement is annexed to the bill and made a part of it. The bill does not show that the orators are not bound and willing to stand upon that agreement. If they are, then, as to them, the income raised afterwards was to be distributed according to that agreement. Some of that income was to go to the Vermont & Canada Railroad Company for rent; how much does not appear. A gross amount of income for a term of years is stated; but whether that amount was greater than the amount of rent to be first paid is not shown or stated. The same would be true if the compromise agreement was not binding upon them. The amount to be paid before anything would remain to apply on these bonds would not appear, and consequently whether anything would be left to go to the bondholders would not in either case appear. The bill should show definitely and distinctly, not merely a right in somebody to equitable relief, but a right in the orators to equitable relief against the defendants. The demurrer is sustained.

SHAW v. RAILROAD COMPANY.

(10 Otto, 605-613. 1879.)

APPEALS from U. S. Circuit Court, Eastern District of Arkansas. STATEMENT OF FACTS.-The Little Rock & Fort Smith Railroad Company, chartered by the state of Arkansas, received from that state a grant of a portion of the lands donated to the state by congress. On the 22d December, 1869, the company mortgaged its railroad, completed and to be completed, to Paine and Dana, as trustees, to secure bonds to the amount of $3,500,000, and