The news & observer. [volume] (Raleigh, N.C.) 1894-current, 1897-04-03
JUDGE SlMOKTON'S OPINION
INC, F, &Y ', R, 4. PHUCHO|HGS'


Iissue2 under the consolidated mortgage
entitled to be exchanged for or to rank
funaer the consolidated mortcaap, entitled
to be exchanged for o. to rank
with the first mortgage bonds issued
under the mortgage of 1886?
The mortgage of 1886 states expressly
the purpose for which said bonds are
issued and the limit of the Issue. The
purpose IS to cover the road already
constructed and to be hereafter con-
structed,, and the road SO constructed
and to be constructed is distinctly set
forth. the branches in no way inclnded.
i The limit OF the issue OF the first 7oort-
gage bonds was $4,000 per mile OF this
road so constructed or to be construct
ed. Some of these bonds were to he is
sued at once for the constructed road,
Eothers We're to be ISSUED as the raad
was in process of construction. So, I'M
der the terms OF the mortgage. no other
| first class mortgage bonds can be issued,
without impairing the rights of the hold
Iers Of those issued for the purposes of
| the mortgage.
The mortgage of October l, 1889, pro-
yiding for consolidated grSt mortgage
bonds was executed to retire the bonds
| issued under the mortgage of 1856, and
also for the purpose of extending the
road.
This consolidated mortgage recog-
nizes distinctly the priority of the bonds
issued under the mortgage of 1856. 1t
also recognizes the rights OF the holders
of these last mentioned bonds either to
exchange their bonds for consolidated
mortgage bonds, or to require the cash
for them. 1t provides for the retention.
in the hands of the trustees, OF an a
mount Of bonds issued under the consol-
idated mortga ge equal in par value to the
amount of bonds executed under the
mortgage OF 1886, not to be issued or
sold, except to retire these bonds of 1856,
And as the last named bonds are exchang-
ed or purchased, provision is made that
they shall not be cancelled. but be held
! 1.-THE coupons excepted for the further Sc
curity of the bonds OF the consolidated
mortgage. II the equity of the consoli-
dated bonds were the same as the bonds
of 1886, the retention of the last named
bonds could not add TO the security of the
consolidated bonds. The only purpose
of this retention of the exchanged or
purchased bonds without cancellation
must have been this: If they had been
cancelled, every unsold or exchanged
first mortgage bond would increase in
value. because the number and amount
of those entitled to share in the security
would be diminished. This might not
be of any advantage to the junior lien
of the consolidated mortgage. But if the
bonds remained uncancelled the rights of
the holders of first mortgage bonds
! would not be impaired and the trustees
of the consolidated mortgage would be
subrogated or substituted to the rights OF
the bonds sold or exchanged. in which
advantage all the consolidated bonds
would share.
! There is another provision OF the con-
solidated mortgage which has signifi-
canoe. When all the first mortgage
bonds of 1886, have been exchanged or
! purchased, then they shall all be can
celled and the lien of the first mortgage
! shall be released. Evidently this is the
: means and the only means Of giving the
consolidated mortgage the first lien.
One other view may be taken of this
case. The consolidated mortgage of 1889
evidently contemplates that the trustees
under that mortgage can get possession
of bonds OF the several series, A, B and
c., only by negotiating with and con-
tracing and agreeing with the holders OF
these bonds. To effect this these
trustees are authorized either to ex-
change the bonds or to sell their own
bonds and buy the bonds of these series In
no other way is provision made for the
acquisition of these first mortgage bonds
by them or of the enjoyment by them
Iof share in their lien. The trustees of
the consolidated mortgage therefore, and
his cestuique trust, the bondholders
under that mortgage have no claim
whatever to share in the lien of the
mortgage of 1886, except such share as
represents bonds Of 1886, held by the
trustees as exchanged for consolidated
bonds or purchased with the proceeds OF
the role Of such bonds.
| The North State Improvement Com
pany and the other holders of CONSOLE
dated mortgage bonds contend that the
provisions of the mortgage of 1856, Sc
curing, in some circumstances, a role of
the railroad property by divisions is ultra
wires and void, and that this the first
mortgage.
1t may we'll be doubted if the holders
of bonds, under the consolidated mort
gage can maintain this position. They
hold and have proved their bonds and re-
~ ON their mortgage as their security.
The equities they have been seeking to
enforce, are the equities of this mort
gage. And the mortgage in express and
unequivocable language recognizes the
validity OF the mortgage of 1896, and
declares that it is subject to that mort
gage. benson VS.. La Crosse Railroad
CO., 2 Wallace, 2S2; Jerome VS.. McCar-
ter, 81 U. S., 1874; Farmers Loan and
Trust Co. VS.. American Water Works,
80 u. s., app, 572.)
1t may also well be questioned if this
mortgage be ultra wires, the objection
can be taken by these bondholders, the
State remaining silent. 10Th Thompson
on Corporations, section 6O33, and the
case Of st. Louis Drug Co. vs. Robinson,
81 Mo-, quoted by him.
What is this objection that the mort
gage is ultra wires? 1t is not that the
railroad company had no power to mort
gage its property. That power is express
ly granted. Nor is it that in mortgaging
seDarate divisions Of tho road IL violated