CHICAGO, DANVILLE AND VINCENNES RAILROAD COMPANY AND JAMES W. ELWELL, Appts.,

0.

FISH.

CHICAGO, DANVILLE AND VINCENNES RAILROAD COMPANY, JAMES W. ELWELL AND R. BIDDLE ROBERTS, Appts.,

V.

5. Where, by the terms of the mortgage, the enfault to pay interest, except at the election of the trustees, as declared and notified by them to the mortgagor, the right to foreclose for the whole debt must be established by such declaration and notice. The default to pay interest alone is not sufficient.

6. The right of the mortgagee in such case, to redeem and thus prevent the sale, is preserved, on the debt, but merely of the interest then actually payment, not of the unmatured principle sum of

due and in arrears.

SON.

(See S. C., 16 Otto, 47-80.)

Foreclosure of railroad mortgage-default of interest-material error-right to redeem-when entire debt becomes due-payment of interest request of bondholders.

1. Where by the terms of a railroad mortgage, the mortgagor's right of possession terminates upon a default in the payment of interest on any of the bonds, the trustees, or on their failure to do so, any bondholder, on non-payment of any installment of interest on any bond may file a bill for the foreclosure of the mortgage and sale of the mortgaged property.

2. But unless the mortgage expressly stipulates that on the failure to pay interest the entire principal sum shall be due, the complainant has a right only to a decree which will ascertain the sum so due and give the company a reasonable time to pay it; and if the company shall pay the sum found due in the decree, no further proceeding can be had until another default of interest or of the principal. The finding of the amount due, for non-payi, according to the terms of the decree, perty is ordered to be sold, is the

tgage effect of agreement in, that all te on failure to pay any part. a mortgage may contract that the whole all become due upon failure to pay any nt. Noell v. Graves, 68 Mo., 649; Whitcher 44 Cal., 127; Ottawa, etc., Road Co. v. Mur336; Cassidy v. Caton, 47 Iowa, 22; Voorhy, 26 N. J. Eq., 434; Ackerson v. Lodi · Co., 31 N. J. Eq., 42; Beisel v. Artman, 10

arion in the mortgage that upon failure terest promptly the principal shall fall Chic., etc., R. R. Co. v. Fosdick, supra;

[Nos. 82, 173.]

Argued Dec. 8, 9, 1881. Decided Mar. 6, 1882.

APPEALS from the Circuit Court of the

United States for the Northern District of

Illinois.

in the opinion of the court. See, also, the opinThe history and facts of the case fully appear ion of this court on granting a rehearing, post, 59, and the opinion on the rehearing, post, 64.

Messrs. E. Walker and R. Biddle Roberts, for appellants.

Messrs. C. B. Lawrence, Henry Crawford and J. D. Campbell, for appellees. Mr. Melville W. Fuller, for Fosdick and Fish, trustees, appellees.

Mr. Justice Matthews delivered the opinion of the court:

These appeals bring into review decrees in the same suit. The bill was filed by Fosdick and for the foreclosure of a mortgage given by the Fish, as mortgagees in trust for holders of bonds, Chicago, Danville and Vincennes Railroad Com

Ferris v. Ferris, 28 Barb., 29; Rubens v. Prindle, 44 Barb., 336; Jester v. Stirling, 25 Hun, 344; Crane v. Ward, Clarke, Ch., 393; James v. Thomas 5 B. & Ad.,40.

An agreement in the mortgage that, upon a failure to pay taxes upon the mortgaged property, the debt secured by it shall immediately become due and payable is valid. Bldg. Asso. v. Kratz, 55 Md., 304; Stanclift v. Norton, 11 Kan., 218; Harrington v. Christie, 47 Iowa., 319; O'Connor v. Shipman, 48 How. Pr., 126.

The court will give effect to such agreements in the mortgage. O'Connor v. Shipman, 48 How. Pr., 126; Hosie v. Gray, 71 Pa. St., 198; Hale v. Gouver

pany upon its railroad, and a sale of the mortgaged premises. A decree in accordance with the prayer of the bill was rendered, and under it a sale was had and confirmed by the court. From these decrees, respectively, the present appeals are prosecuted.

The bonds secured by the mortgage in question were dated March 10, 1869, amounted to $2,500,000 in all, and were made payable on April 1, 1909, with interest at the rate of seven per cent per annum, payable semi-annually on the first day of April and October of each year, on the delivery of annexed interest warrants in the City of New York, at such place as might be designated by the Railroad Company, by advertisement published in said city.

The mortgage bears even date with the bonds, and after reciting the resolutions of the board of directors, authorizing the issue of the bonds and the execution of the mortgage, conveys to Fosdick and Fish, as trustees, and to their successors and assigns, the railroad of the Company, extending from its terminus, in Chicago, southerly through certain named counties to Danville, and thence southeasterly to a point on the state line of Indiana, connecting at that point with the Evansville, Terre Haute and Chicago Railroad, being in length about one hundred and fifty miles, "Including all the property between said terminal points, which said party of the first part now has and possesses, or may hereafter acquire," etc.

The conditions and trusts, upon which the conveyance is made, are expressed in a series of articles, nine in number, of which it is important to notice only the following:

The 5th article provides, in substance, that, in case default shall be made in the payment of any interest, or of the principal of any of said bonds, without the consent of the holder, the Railroad Company shall, within six months thereafter, the same default still continuing, on demand of the trustees, surrender to them possession of the road and mortgaged property; the trustees operating the same shall apply the net profits and income to the payment of the interest so in default until such default shall have been satisfied, when the mortgaged premises shall be surrendered to the mortgagor; but it is provided that no such demand for possession shall be made by the trustees until they shall have been required to take such possession by the holders of at least one half of all of the said issue of bonds then unpaid and outstanding.

may appoint, first having demanded of the mortgagor payment of all money then in default, and having given sixty days' notice of the time and place of sale, by advertisement, as specified; and to convey the same, when sold, to the purchaser, on payment of the purchase money, in fee simple, which conveyance, it is declared, shall be a perpetual bar, in law and equity, against the title of the mortgagor, or any other person claiming under it. The net proceeds of such sale are to be applied by the trustees to the payment of the interest on the bonds then outstanding, pro rata, until all such interest shall be paid, and afterwards to the payment of the principal, and any surplus, to the mortgagor; the payments to be made on the bonds, whether the same shall then have become due or not.

By the 7th article, it is provided that, at any sale of the mortgaged premises, made under the power contained in the deed or by judicial authority, the trustees may become purchasers of the same in behalf of the bondholders, at a price, in case the sale is of the whole property as an entirety, not exceeding the whole amount of said bonds and interest then outstanding.

The 8th article is as follows:

"8th. If default be made by the party of the first part in the payment of any half year's interest on any of said bonds, and the warrant or coupon for such interest shall have been presented, and its payment demanded, and such default shall have continued six months after such demand, without the consent of the holder of such coupon or bond; then and thereupon, the principal of all of the said bonds hereby secured shall be and become immediately due and payable, anything in such bonds to the contrary notwithstanding; and the said party of the second part may so declare the same, and notify the party of the first part thereof, and upon the written request of the holders of a majority of the said bonds then outstanding, shall proceed to collect both principal and interest of all such bonds outstanding, by foreclosure and sale of said property, or otherwise, as herein provided."

It is averred in the amended bill of Fosdick and Fish, that all the bonds described in the mortgage had been issued and were outstanding.

neur, 4 Edw. Ch., 207: Magruder v. Eggleston, 41 Miss., 284; Hunt v. Harding, 11 Ind., 245; Mooray v. Leckie, 42 Md., 474; Stillwell v. Adams, 29 Ark., 346; Savannah, etc., R. R. Co. v. Lancaster, 62 Ala., 555. Where a mortgage authorized the mortgagee upon non-payment of interest for a certain number of days after it became due to declare at his option the whole mortgage due, and the mortgagee exercised his option by declaring the whole due, he cannot afterwards be compelled to accept the interest and waive the stipulation. Malcolm v. Allen, 49 N. Y., 448; Ferris v. Ferris, 28 Barb., 29; Rubens v. Prin

March 12, 1872, the consolidated Company, to

dle, 44 Barb., 336; Wilson v. Bird, 28 N. J. Eq., 352; Bennett v. Stevenson, 53 N. Y., 508.

Bringing proceedings to foreclose for the full amount is a sufficient election. Kramer v. Rebman, 9 Iowa, 114; Hartley v. Tatham, 2 Abb. Ct. App. Dec., 333.

It has been held, in case of an election being given to the mortgagee to declare all the mortgage due upon default in the payment of an installment, that the mortgagee must give notice of that option before suing for the whole. Basse v. Gallegger, 7 Wis., 442.

It is also alleged that the Indiana Division of the road is wholly insufficient to secure the payment of the Indiana Division bonds, and that, while the Illinois Division is more than sufficient to secure the payment of the Illinois Division bonds in full, it is not sufficient in addition to pay in full the whole of the Indiana Division bonds.

The original bill was filed February 27,1875, and made no party defendant except the Railroad Company. It contained the following averments, which are not found in the amended bill:

"Your orators further show to Your Honors that they have been required by the holders of more than one half of the twenty-five hundred bonds to demand possession of the said Railroad property, franchises and appurtenances of and from the said Railroad Company, and have made such demand in pursuance of said requirement, but that said Railroad Company has not delivered the possession thereof to your orators, but so to do have wholly neglected and refused. Your orators further show unto Your Honors that they are informed and believe and, therefore, charge the fact to be, that at least ninety per cent of the said coupons which matured upon said bonds on the first day of October, 1873, have been duly presented for payment to the said Railroad Company, and payment thereof demanded from said Company, and that the same have never been paid, nor any part thereof; and that the holders of six hundred and ninety-eight of said bonds have never in any way consented to the continuance of said default; and that, in consequence of the continuance of said default, without the consent of said holders of said six hundred and ninety-eight bonds, the principal and interest of all of the said bonds have become due and payable, and that your orators, as trustees as aforesaid, under and by virtue of the provisions of said mortgage, and the authority therein conferred upon them, have declared the principal of all of said bonds to be due and payable, and have notified the said Railroad Company thereof."

On May 17, 1875, James W. Elwell, acting trustee in the mortgage of December 16, 1872, appeared and filed a cross-bill, setting out the terms of the mortgage, the issue of the bonds secured thereby, and alleging that, while the interest upon about $160,000 of the bonds had been paid by the Company, that upon the remainder was wholly unpaid. The cross-bill proceeds to set out the particulars of the agreements alleged to have been entered into between the Railroad Company and the holders of its first mortgage bonds, and continues with the following averments:

"And your orator, therefore, avers that said Corporation is not in default in the payment of interest upon its said first mortgage bonds to the amount of $1,802,000, but on the contrary your orator avers that said Company has adjusted and settled with the holders of said bonds

Your orator states that said corporation has paid to the holders of said certificates of indebtedness all interest coupons attached to said certificates as the same matured, and in accordance with the terms thereof, which had been presented before the appointment of the receiver, as hereinafter stated.

And your orator represents, upon information and belief, that the holders of the balance of said issue of twenty-five hundred bonds have acquiesced in said extension of payment of interest and excused such default, and have not demanded the payment of their interest coupons nor attempted to enforce the collection of the same.

And your orator further states that, notwithstanding said agreement of the holders of said first mortgage bonds to extend the payment of said interest warrants as herein before stated, and the payment of the interest at maturity by said Company upon said certificates of indebtedness, yet your orator is informed and believes and so charges the fact to be, that, by reason of divers persons claiming and pretending to be in the interest of a part of said first mortgage bondholders combining and confederating to wrong and injure your orator and the holders of said second or convertible mortgage bonds and other creditors of said Corporation, said Company was, by the action of the Circuit Court of Will County, in said State of Illinois, on the 22d day of February last past, wrongfully and unlawfully dispossessed of all its property so conveyed to your orator by said deed of trust; that all of said property, together with the rights, privileges and franchises of said Company, were on said 22d day of February wrongfully and fraudulently taken from the custody and control of said Company, and without the knowledge or consent of said Corporation, your orator, or of the defendants herein, placed in the charge and under the custody of strangers to said Company, and to each of said deeds of trust; that said parties still wrongfully retain the possession of said property and control the revenue and income thereof, thereby preventing said Company and your orator from providing funds for the payment of the interest warrants to mature upon the bonds secured by said trust-deed so made to your orator, thereby endangering such property and materially depreciating the value of such securities.

Your orator further states that he is advised and believes, and charges the fact to be, that the property conveyed to the defendants, Fosdick and Fish, by the trust-deed so made to them, greatly exceeds in value the amount of bonds so issued under their said deed of trust; and that the net income or revenue derived from a proper and economical use of said property is and will continue to be more than sufficient to pay all of the interest warrants as they may become due and payable on all the bonds issued under the said deed of trust.

And your orator further states, upon information and belief, that certain holders of bonds issued under the deed of trust so made to the defendants, Fosdick and Fish, trustees as aforesaid, whose names your orator will furnish if

required by this honorable court, have resolved and determined to demand and require of them that they shall without delay declare the principal of all of their said bonds presently due and payable, and that they shall prosecute said action to a speedy decree of foreclosure of said trust mortgage, and shall enforce sale of all the property and franchises of said Railroad Company under said decree, thereby rendering the security of the bonds issued under the deed to your orator utterly valueless.

And your orator avers that such action will be grossly unjust and inequitable towards the cestuis que trust of your orator and other creditors of said Company, especially as about eighty per cent of all of said bondholders have extended the payment of their said interest warrants as herein before stated, and waived and excused the default of said Company in the payment of said interest.

And your orator further represents, upon in formation and belief, that none of the holders of the bonds issued under the said trust-deed executed to the defendants, except a very inconsiderable number thereof, have presented to and demanded of said Railroad Company payment of any of the past due interest warrants or coupons of said bonds, as required by the 8th article or condition of said trust-deed and, therefore, your orator says that the said trustees, Fosdick and Fish, have no authority under said trust-deed to proceed to collect the principal of said bonds by foreclosure and sale or otherwise."

The amended bill of Fosdick and Fish, of which an abstract has already been given, was filed September 14, 1875. Its prayer for relief is, that the said Chicago, Danville and Vincennes Railroad Company, and the said James W. Elwell, whose appearance has already been ¦ entered in this cause as parties defendant thereto, may be required to answer this, your orators', amended bill, but without oath, which is hereby expressly waived, and that the said R. Biddle Roberts may be made party defendant hereto, and summoned to answer this, your orators', bill, but without oath, which is hereby expressly waived; and that the receiver heretofore appointed, upon the prayer of the original bill in this cause, may still hold the said railroad, its equipment and appurtenances, and operate the same under the order and direction of this honorable court; and that an account be taken of the amount due by the said Railroad Company upon the said Illinois Division bonds, and upon the said Indiana Division bonds separately, and that the said Railroad Company be ordered to pay the amount so found due upon said bonds, severally, within a short time, to be limited by this honorable court, and that upon default thereof the said Illinois Division of the said railroad, together with all of the franchises, equipment and appurtenances thereof, may be sold by the master in chancery of this court, for the payment, first, of the said twenty-five hundred (2,500) Illinois Division bonds; and, secondly, of the fifteen hundred (1,500) Indiana Division bonds, which are the first and second liens upon the said Illinois Division of said railroad, its equipments, franchise and property, as herein before set forth, or for such other and further relief as to Your Honors shall seem meet, and to equity shall appertain.”

On October 23, 1875, the Chicago, Danville and Vincennes Railroad Company filed a demurrer to so much of the amended bill of Fosdick and Fish as charges that it will be impossible for said Company to fulfill the conditions of the funding agreements, and that the holders of said certificates have the right to rescind said agreements; and to so much of said amended bill as charges that the principal of said bonds has become due and payable.

On the same day it also filed an answer, containing, among others, the following averments: "Said respondent says, that on the 22d day of February, A. D. 1875, one Stephen Osgood, without any notice whatever to this respondent, upon his ex parte application to the Judge of the Circuit Court of Will County, in the said State of Illinois, wrongfully and fraudulently procured the appointment of receivers of all the property, assets and income of the said respondent within the State of Illinois, and that such receivers forcibly took possession of the offices and all the property of said respondent on said 22d day of February, and by the aid of writs of assistance and other process issued by said court, or the Judge thereof, held the possession of all said property of this respondent, its earnings and income, until the first day of June, 1875, at which time said receivers were removed by the order of this honorable court, and a receiver of all such property appointed under the prayer of the complainants in the said original bill of complaint contained.

And this respondent says, that on said 22d day of February it was not in default in the payment of any of said certificate warrants that matured February first, 1875; that all of said warrants were paid as presented to this respondent prior to said 22d day of February, and that such balance of $3, 167.77 was not paid for the reason that the action of said state court had deprived this respondent of the power to meet such payments. But the said respondent denies that the said Corporation was, on said first day of February, 1875, insolvent and unable to meet the payment of said certificate warrants, as charged in said amended bill of complaint; but, on the contrary, avers and charges that at all times after the maturity of said interest, and until said 22d day of February, said respondent had the pecuniary ability and was ready and willing to pay all such interest, and did in fact pay all such interest warrants when presented.

And the said respondent further says and charges the fact to be, that the net earnings of said Company, during the year 1874, and the months of January, February, April and May, of the present year, were more than sufficient to pay all the interest accruing upon the bonds issued under the trust-deed to the complainants, and also the interest upon said certificates of indebtedness, and upon all other mortgage bonds that had been negotiated and sold by said respondent.

And the said respondent says that the said Company is not in default in the payment of any certificate interest coupons, after proper demand; and that, therefore, none of the holders of said certificates are lawfully entitled to the return from the said Fosdick, special trustee as aforesaid, of the bond interest warrants so funded and deposited with the said Fosdick.

Your respondent admits that the contracts