656. The mortgage lien subordinate to the interest of the public in the

§657. Of the mutual obligations of bondholders.

658. Of the jurisdiction of State and federal courts.

§ €59. Of foreclosure upon a railway situated in two or more States. $660. Of parties to foreclosure proceedings.

661. The same subject continued.

§ 662. Foreclosure for interest before maturity of principal.

§663. Of entry for condition broken-"Six months' clauses"-Specific performance.

§ 664.

"Six months' clauses." continued-The principal to become due upon default in payment of interest.

§ €65. The duty of the trustees to enter or foreclose upon request of a majority of bondholders.

§ 666. The rights and duties of trustees in possession of the mortgaged

property.

§ 667. The right of a bondholder to institute suit upon the failure of the trustees to act.

§663. The right of entry not exclusive of other remedies

II.

§ 669. Of charges superior to the mortgage lien-Current expenses.

§ 670. The requisites of "current claims."

§ 671. The same subject continued.

§ 672. Of debts incurred by a receiver in operating the road.

§ 673. The same subject continued.

§ 674. The same subject continued-Expenses of a receiver a charge

upon the corpus.

675. Of statutory liens-Of equitable liens.

§ 676. Statutory liens in favor of laborers and mechanics.

8677. Of debts due the State.

§678. Of the lien of vendors of land.

$679. Of debts incurred for completing an unfinished line.

§ 680. Of rentals of leased lines-Car-trust leases-Rolling-stock, etc. Of the liens of judgment creditors.

§ 681.

§ 682.

Of claims for damages, breach of contract, etc

§ 683.

The distinction between first charges upon income and prior liens upon the corpus.

§ 684.

Cases in which priority has been refused.

§ 685.

Of advancements to pay preferred claims-No right of subrogation.

III.

§ 686.

§ 687.

Of the decree of sale-Provision for purchase by bondholders.
The decree conclusive upon all parties having notice.

§ 689.

Of the purchaser's title.

§ 690.

Of the distribution of the proceeds of sale among the bondhold

ers.

§ 691. No priority as between holders of bonds and coupons secured by the same mortgage.

§ 692. Vacation of decree.

§ 693. The same subject, continued.

§ 694. Redemption.

I.

§ 655. Introduction.. -The interpretation which the courts have put upon the contract between mortgagor and mortgagee has been so largely mcdified by modern legislation, that the practitioner will find it indispensable to consult the statutes in each case. The statutes of the various States distinguish between five modes of foreclosure procedure. These are, by simple entry, which still exists in Massachusetts, Maine, New Hampshire and Rhode Island; by advertisement, or publication, without possession, a practice authorized in Massachusetts, Maine and New Hampshire; by power of sale, as in New York, Massachusetts, Rhode Island, Illinois, Michigan, Wisconsin, Minnesota, Maryland, Missouri, California, Mississippi, Dakota and Wyoming; by the old process of bill in equity, which is still authorized by the statutes of Massachusetts,

Rhode Island, New Jersey, Illinois, Minnesota, Georgia and Michigan; and finally, by an ordinary action in a court of law and a sale of the mortgaged property for the satisfaction of the debt. This is the prevailing method in most of theuited American States. In the United States courts the old common-law and equity practice is still preserved, and a mortgagee may pursue his legal remedy by cjectment, and at the same time file a bill to foreclose the equity of redemption. The objects of the two proceedings are distinct; and it is no objection to the remedy sought in equity that the plaintiff has another remedy which he may pursue at law.2 After default demand is not necessary before action for foreclosure.3 No other or further defenses are allowed in an action to foreclose a mortgage upon a railroad company to secure negotiable bonds than would be allowed in an action at law upon other negotiable instruments of that character. The surplus after paying the mortgage debt is to be applied to the other liens upon the railway." While negotiations for the sale of an entire railway system under a general mortgage are pending, an application, made by the trustees in an underlying mortgage, to have property covered by such mortgage turned over to receivers appointed in foreclosure proceedings, will be denied."

1 Vide Stimson's Am. Stat. Law (Jan. 1, 1986), §§ 1920, 1925, where the statutes of the several States are cited and an exhaustive resume of the statutory law of the subject is given. See N. Y. Civ. Code, § 1626. In Kentucky and South Carolina foreclosure proper is abolished: Ky. Civ. Code (1876), § 375; S. C. Gen. Stat. (1882) § 22.9.

2 Hughes v. Edwards, 9 Wheat. 489.

3 Ferris v Spooner, 102 N. Y. 10.

4 Kenicott v. Wayne County, 16 Wall. 452; Carpenter v. Longan, 16 Wall. 271.

5 Railroad Co. v. Howard, 7 Wall. 302.

6 Central Trust Co. v. Wabash etc. R'y Co. 25 Fed. Rep. 693.

§ 656. The mortgage lien subordinate to the interests of the public in the railway as a "going concern."-The mortgage creditors of railway corporations cannot proceed against the property of the company in exactly the same manner as in foreclosing upon the property of a private person. For a railway company is a public servant with a public function to discharge, and to that public duty the rights of mortgage creditors must be in some degree subordinated. The large sovereign powers given by the State to railway corporations are granted and exercised only upon the theory that these public rights are to be used to promote the general welfare of the people of the commonwealth; and the people have an interest in the maintenance of the undertaking as a "going concern," which is not to be defeated by its creditors.' It is true that the real and personal property necessary to the establishment and management of a railroad is vested in the corporation, but it is held in trust for the public. The company has not the general power of disposal incident to the absolute right of property; it is obliged to use it in a particular manner and for the accomplishment of a well-defined public object. It is upon this principle that the current operating expenses of a railway, necessary to the continued performance of its duties to the public, are made a first charge upon its income, and even, in certain cases, a lien upon the property itself, superior to the claims of mortgage bon holders." And it is held that where the continuance of a railway as a "going concern" may be best secured by conferring upon its bondholders authority to form a corporation for

2

the operation of the road after a foreclosure of their mortgage, the State may, as the representative of the public, subordinate the claims of the minority of the bondholders dissenting from such an arrangement to the superior interest of the public in the continued operation of the road. In England this doctrine has been carried to such an extent, that it has there been held that debentures in terms pledging the "undertaking" for the repayment of the money borrowed, do not confer upon the ho ders a right to foreclose and sell the property of the railway, but merely pass to the holder a prior right to payment out of the net earnings of the undertaking. The American and English cases which apparently doubt these propositions, base their conclusions upon the construction of the particular charter powers and obligations of the companies in question."

5

1 Burnham v. Bowen, 111 U. S. 776, 781; Worcester v. Western R. R. Co. 4 Met. 564; Gates v. Boston etc. R. R. Co. 53 Conn 333. 343; Railroad Commissioners v. Portland etc. R. R. Co. 63 Me. 269, 278. 279; 18 Am. Rep. 208; Gardner v. London etc. R'y Co. 36 Law J. Ch 323; S. C. Law R. 2 Ch. 201; 1 Hodges on Railways (7th ed.), 127. Cf. Turness v. Caterham R'y Co. 25 Beav. C14; S. C. 27 Beav. 358; Myatt v. St. Helena R'y Co. 2 Q. B. 364.

2 Railroad Commissioners v. Portland etc. R. R. Co. 63 Me. 269, 278, 279; 18 Am. Rep. 208; quoting Worcester v. Western R. R. Co. 4 Met. 564, to the point that a railway may be compelled by mandamus to perform its duties to the public and to furnish adequate facilities therefor. See People v. Albany etc. R. R. Co. 24 N. Y. 261; 82 Am. Dec. 295; People v. Long Island etc. R. R. Co. 31 Hun, 127; State v. Hartford etc. R. R. Co. 29 Conn. 538; State v. West Wisconsin R. R. Co. 36 Wis. 466; State v. Southern Minnesota R. R. Co. 18 Minn. 40; High on Extraordinary Remedies, §§ 315, 316, 317.

3 Vide infra, § 671.

4 Gates v. Boston etc. R. R. Co. 53 Conn. 333.

5 Gardner v. London etc. R'y Co. Law R. 2 Ch. App. 201; 1 Hodges on Railways, 7th ed. 130; Browne & Theobald's Railway Law, 87.

6 Gates v. Boston etc. R. R. Co. 33 Conn. 333, 343, 344.

§ 657. Of the mutual obligations of bondholders. The courts are frequently called on to decide between the conflicting interests of bondholders