on June 20, 1870, it mortgaged its land grant to Paine, Dana and Stevens, to secure another issue of bonds to the amount of $5,000,000. About one hundred miles of the road had been completed, sixty miles remaining incomplete. All the bonds had been issued, the interest was unpaid, and the company without money or credit, when bills were filed by the trustees for a foreclosure of the mortgages. The railroad and the land grant were sold for $50,000 each, Ripley, Weld and Shattuck being the purchasers, it being understood that a new company, composed of the bondholders, would be organized. With the consent of the trustees the sales were confirmed. Shaw and Greenough filed a petition in the suit, asking a modification of the confirmation of the sales, and on the 6th July, 1875, they filed what they called a bill of review, asking that the decree be reversed and that they be placed in the same situation they would have been in had the decrees never been rendered. There was a demurrer to this bill, which was sustained, and complainants appealed.

§ 1366. A trustee in a railroad mortgage represents the bondholders. Opinion by WAITE, C. J.

We think it clear that the appellants are not entitled to the relief they ask. They were not parties to the original suits, except through their trustees, against whom they make no charges. Indeed, their counsel says in his brief, "It is probable that they [the trustees] believed that they were doing the best possible for their beneficiaries." The trustee of a railroad mortgage represents the bondholders in all legal proceedings carried on by him affecting his trust, to which they are not actual parties, and whatever binds him, if he acts in good faith, binds them. If a bondholder not a party to the suit can, under any circumstances, bring a bill of review, he can only have such relief as the trustee would be entitled to in the same form of proceeding. To avoid what the trustee has done in his behalf, he must proceed in some other way than by bill of review. All the errors complained of in these bills of review, as occurring before the confirmation of the sale, are such as affect only the railroad company injuriously. If, in fact, they are errors at all, they were in favor of the trustees and those they represent, and not against them. Of these the trustees could not complain. As no relief was granted under the amendment to the bill in the foreclosure of the railroad mortgage, the court clearly had jurisdiction of that case for the purposes of the decree as rendered.

But if the bills, as filed, are original in their character, to set aside the decrees complained of and not for review only, the appellants are in no better condition. The trustees had an undoubted right to commence these suits when they did, and it is apparent from the whole record that all their proceedings, both before and after the sale, were in the interest of their beneficiaries generally, since one hundred and eighty in number, representing in the aggregate eight million out of the $8,500,000 of bonds outstanding, accepted the result and exchanged their bonds for stock in the new corporation. To allow a small minority of bondholders, representing a comparatively insignificant amount of the mortgage debt, in the absence of any pretense even of fraud or unfairness, to defeat the wishes of such an overwhelming majority of those associated with them in the benefits of their common security, would be to ignore entirely the relation which bondholders, secured by a railroad mortgage, bear to each other. Railroad mortgages are a peculiar class of securities. The trustee represents the mortgage, and in executing his trust may exercise his own discretion within the scope of his powers. If there are differences of opinion among the bondholders as to what their interests require, it is not improper that he

should be governed by the voice of the majority, acting in good faith and without collusion, if what they ask is not inconsistent with the provisions of his trust. This company and these trustees were peculiarly situated. The road was unfinished, and the land grant, to a large extent, unearned. While the mortgages, as they stood, were first liens, there was great danger that their value would be seriously impaired unless more money could be raised. The attention of both the trustees and bondholders was called to that fact, and at first it seems to have been thought that the end might be accomplished through the instrumentality of a receiver and receiver's certificates. This necessarily contemplated the creation of a lien on the mortgaged property superior to that which then existed. Although the mortgages were separate, and on separate properties, the value of each depended, to a large extent, on the ability of the railroad company to finish its road.

§ 1367. Borrowing money on receiver's certificates ought not, in general, to be permitted.

For some reason the idea of a receiver and receiver's certificates seems to have been abandoned, and what to our minds was a much more desirable plan adopted. The power of the courts ought never to be used in enabling railroad mortgagees to protect their securities by borrowing money to complete unfinished roads, except under extraordinary circumstances. It is always better to do what was done here whenever it can be; that is to say, reorganize the enterprise 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 without asking the courts to engage in the business of railroad building. The result, so far as incumbering the mortgage security is concerned, is the same substantially in both cases, while the reorganization places the whole enterprise in the hands of those immediately interested in its successful prosecution.

1368. That trustees are bondholders does not render them incompetent. The bare fact that some of the trustees were holders of bonds secured by their trust is not sufficient of itself to make them incompetent to consent to such a decree as was rendered. From the whole case it is apparent that, from the beginning, their conduct was governed by the wishes of a very large majority of bondholders. If there was anywhere the slightest evidence of fraud or unfaithfulness, their conduct would be carefully scrutinized. The acts of trustees, when personally interested, should always be open and fair. Slight circumstances will sometimes be considered sufficient proof of wrong to justify setting aside what has been done. But when everything is honestly done, and the courts are satisfied that the rights of others have not been prejudiced to the advantage of the trustee, the simple fact of interest is not sufficient to justify the withholding of a confirmation of his acts. Here the name of Gookin, one of the trustees, appears in the list of bondholders appointing the committee to make the purchase at the sale as the holder of $200,000 of the bonds. Associated with him in the list were others representing near $6,000,000. His name openly appeared on the paper when the court was asked to confirm the sale on the conditions agreed to. Certainly this is not sufficient to defeat the plan to which he and his associates gave their consent. Atkins, another trustee, was a creditor of the company, whose debt came within the provision made in the decree for payment by the new corporation. All this was fully explained to the court when the modification of the decree in this particular - was asked for, and since no claim can now be paid except with the approval of

the court after notice to the appellants, we see no reason why what has already been done is not sufficient for the protection of all concerned.

On the whole, we see no reason for interfering with the decrees below, and they are each, therefore, affirmed.

§ 1369. Bondholders, and not their trustees, are the real parties to a foreclosure suit.When trustees foreclose a railroad mortgage, the bondholders who join are the real parties, and foreclose in behalf of their own rights, through the trustees, and the trustees do not represent the rights of any who do not join. The mortgage is incidental to the debt, which is always the principal thing. Mercantile Trust Co. v. Lamoille Valley R. Co., 16 Blatch., 324, 330.

§ 1370. The trustees hold the legal title to the mortgaged estate, but not the mortgage debt. They cannot foreclose alone, but bondholders may foreclose and have a full decree whether the trustees will or not. Ibid.

VIII. PAYMENT AND REDEMPTION.

SUMMARY - Substitution of new mortgage for old, §§ 1371, 1372.- Mortgage cannot be enlarged so as to secure an additional debt, § 1373.- Redemption statutes of Illinois do not embrace railroads, § 1374.

§ 1371. Where a new mortgage is substituted for an existing mortgage, and most of the old bondholders accept new bonds under the second mortgage, those who do not exchange their bonds are not entitled, upon a foreclosure, to be paid in full in preference to the holders of the substituted bonds. Ames v. New Orleans, etc., R. Co., §§ 1375–1378.

§ 1372. But they are not prejudiced by an increase in the number of bonds; and, consequently, they are entitled to the same proportion of the proceeds that they would have had if the second mortgage had not been executed. Ibid.

§ 1373. When the amount of a mortgage is limited to a definite sum, this cannot be enlarged either by the mortgagor, or by the trustees of the bondholders, or by a court of equity, so as to make it security for an additional sum. Vose v. Bronson, §§ 1379-1381.

§ 1374. The redemption statute of Illinois does not embrace railroad mortgages which cover as an entirety the property, rights and franchises of a railroad. There is no right of redemption from foreclosure sales under such mortgages, decreed in the United States courts. Hammock v. Loan and Trust Co., §§ 1382-1393.

[NOTES.-See §§ 1394-1401.]

AMES v. NEW ORLEANS, MOBILE & TEXAS RAILROAD COMPANY.

(Circuit Court for Louisiana: 2 Woods, 206-211. 1876.)

Opinion by WOODS, J.

STATEMENT OF FACTS.-The bill in this case was filed for the foreclosure of a mortgage executed by the principal defendant on its property and road west of the Mississippi river, in the state of Louisiana. It appears from an agreed statement of facts that on the 15th of March, 1870, the railroad corporation, then known as the New Orleans, Mobile & Chattanooga Railroad Company, conveyed by a deed of that date all its estate and property in Louisiana and Texas west of the Mississippi river, to secure bonds, to be issued at the rate of $12,500 per mile of the main line of road from New Orleans to the Sabine river, and $25,000 per mile from the Sabine to Houston, in Texas, making the entire amount that might be issued under this deed of trust to be $5,562,000, and no more. There were issued, in fact, under the deed of trust, $2,825,000 only. This deed of trust provided that no bonds whatever should be issued on branch roads till they were constructed and their tracks laid.

On the 1st of January, 1872, the railroad company, its name in the mean time having been changed by act of the legislature to the New Orleans, Mobile & Texas Railroad Company, executed a new deed of trust of that date on the

same property as that conveyed by the deed of March 15, 1870. The purpose of this deed was to change the limit of the amount of the bonds of the company to be issued under said deed of trust of March 15, 1870, so as to allow besides the bonds already issued an additional issue of $25,000 per mile of bonds for each mile of a branch road to be constructed from Brashear City to Vermillionville, but not to exceed the sum of $1,625,000. This deed of trust recited that it had been arranged and agreed that the holders of the outstanding bonds under the original mortgage and deed of trust should surrender the same for cancellation and receive in substitution therefor bonds to the like amount executed in the name of the New Orleans, Mobile & Texas Railroad Company. This project was so far carried out that all the holders of bonds, secured by the original mortgage and deed of trust of March 15, 1870, except Arphaxad Loomis, and the other petitioners, surrendered their bonds, and received in their stead new bonds issued under and secured by the original mortgage and deed of trust as modified and limited by the deed of January 1, 1872.

Loomis and the other petitioners are the holders of twenty of the original bonds. They claim to have a priority over all the new bonds issued to take up the original bonds, and pray for a decree which shall recognize this priority, and declare their bonds to be a first lien on the property conveyed by the trust deed of March 15, 1870, and that their bonds be paid by preference out of the proceeds of the sale of the railroad property when a sale is made. The theory upon which the prayer of this petition is based is, that those bonds dated January 1, 1872, issued in lieu of the original bonds dated March 15, 1870, are in no way secured by the original trust deed, but have a lien on the railroad property by virtue only of the deed of January 1, 1872. An inspection of this latter trust deed will show that this theory is not founded on fact. The trust deed of 1872 states the fact of the execution of the deed of March 15, 1870, and the inscription thereof, etc., and the purpose of the railroad company to change the limit of the amount of bonds to be issued and secured under the original trust deed; recites that the holders of the outstanding bonds issued under the original trust deed have agreed to surrender the same, "and receive in substitution therefor new bonds for a like amount, executed by the New Orleans, Mobile & Texas Railroad Company, to be issued under and secured by said mortgage or deed of trust (the deed of March 15, 1870), as the same is modified and limited by this instrument."

The deed of January 1, 1872, further declares that "the parties hereto, in consideration of the premises, etc., have covenanted, granted and agreed, and do hereby covenant, grant and agree, to and with each other, that the stipulations and provisions of the above mentioned mortgage or deed of trust of March 15, 1870, shall be and are hereby modified and limited in the manner and to the effect following, with like effect as if such mortgage or deed of trust had originally contained such modifying and limiting provisions which are herein contained," etc. The deed of January 1, 1872, further declares that "the said party of the first (the railroad company), in consideration of the premises and of $1, etc., in order to secure the payment of the principal and interest of its said first mortgage bonds to be issued in the form and of the tenor and to the effect herein above described in that behalf, according to the tenor and effect of said bonds and the accompanying coupons, and for further assurance and confirmation of the estates and interest conveyed in mortgage by the said original mortgage or trust deed of March 15, 1870, as hereby modi

fied, hath granted, bargained and sold," etc. These provisions of the deed of January 1, 1872, clearly reveal the purpose of the parties thereto, that the bondholders surrendering their original bonds for the new ones should not lose any right or estate granted by the first deed of trust, save as the same were modified by the second. It was upon this express condition, thrice repeated in the trust deed of January 1, 1872, that the bondholders consented to give up their old bonds and take the new ones.

§ 1375. The modification of a mortgage does not extinguish it.

It clearly appears that there was to be no cancellation of the mortgage of 1870; all the bonds were designed to be secured by it. The new bonds correspond with the old in amount, interest, time of payment, and only differ in date, and the name of the company, which has been changed since the old bonds were issued. The modification of the mortgage does not extinguish it, nor is its lien affected by the substitution of a new note for the old one. Watkins v. Hill, 8 Pick., 522; Pomroy a Rice, 16 id., 22; Brinkerhoff v. Lansing, 4 Johns. Ch., 65; Dana v. Binney, 7 Vt., 501; Chase v. Abbott, 20 Ia., 154; Connor v. Banks, 18 Ala., 42; Cullum v. Branch Bank at Mobile, 23 Ala., 798.

§ 1376. The law of Louisiana does not conflict with this rule.

The petitioners claim, however, that the question must be governed by the law of Louisiana, and cite the case of Bell v. Murphy, 2 La. Ann., 765, as authority to show what the jurisprudence of this state is upon the question in hand. In that case a mortgage was given to secure the mortgagee for a particular indorsement made by him for the accommodation of the mortgagor. The note thus indorsed was partly paid by the mortgagor, and a new note given for the remainder due, which the mortgagee indorsed. The court held that the mortgage did not indemnify the mortgagee for this latter indorsement. The reason given was that the mortgage was not a general one to secure the plaintiff for indorsements. It was given as security against the indorsement of a specific note, which the evidence showed had been subsequently novated and extinguished. That case differs from this in this most material particular, that in this case there was an express understanding that the original mortgage should stand for the benefit of the new bonds, and it was upon that condition that the substitution was made. The court is asked to step in between the parties and annul this contract. The law does not annul contracts made by the parties unless they are fraudulent or against public policy. No reason 'can be given why the contract made between the railroad company and its bondholders should not be enforced.

§ 1377. Bondholders refusing to accept with others a modification of a mortgage are not thereby entitled to be paid in full.

A very instructive case upon the question presented by this petition is Stevens v. Mid-Hants R'y Co., 7 Eng. Rep., 555, reported, also, in 8 Law Rep. Ch. App. Cas., 1064.

In my judgment the petitioners are not entitled to be paid the full amount of their bonds in preference to the holders of the substituted and other bonds, issued under the deed of trust of January 1, 1872.

$1378. Bondholders refusing to accept a modification of a mortgage are only entitled to claim that they shall not be injured by the change.

The most that petitioners can claim is that they shall not be prejudiced by any change made in the terms of the deed of March 15, 1870, by the deed of January 1, 1872. They are entitled to have their rights preserved under the original trust deed. This may be done by giving them such part of the pro