Page:Federal Reporter, 1st Series, Volume 8.djvu/136

122 FEDERAL REPORTER, �The date of the second mortgage is October 1, 1872. �Upon this state of facts several questions are raised which will now be considered. And, first, it is insisted that the company could not issue under this mortgage any bonds not actually used in taking up or retiring the oid ones. The argument is, that the mortgage is in legal effect a contraet between the company and the bondholders, by whieh it was agreed that no bonds were to have the benefit of the security thus created, except such as were substantially "substituted" for the earlier issues. I am unable to discover any such contraet. The mortgage purports to be made to secure bonds of certain descrip- tions, not exceeding in the aggregate £620,000. It recites other bond indebtedness seieured by prier liens, and that the new bonds were to be substituted for the old. This may, and I think does, con- fine the lien of the new mortgage to an amount which, added to the prior specified encumbranees, shall not exceed the limit fixed, but that is all. Every bondholder can insist that the entire issue shall not exceed this sum, and every subsequent encumbrancer that the lien of the bondholders shall be correspondingly restricted. That this was the understanding of the company no one can doubt. As early as January, 1871, the treasurer, in a report to the stockholders, took occasion to refer to the surplus of these bonds, which he estimated at 1450,000, and to say that if they could be disposed of at their value the finances of the company would be greatly relieved. At this time one, at least, of the trustees named in the mortgage was a director in the company, and soon afterwards the issue of the surplus bonds, as collateral or otherwise, was commenced without objection from any one. As between the railroad company and hona fide holders of bonds certified in due form by the trustees, and purporting to be issued under the mortgage, there can be no doubt as to the lien. The company is estopped from denying that the bonds it bas actually put out are what they purport to be. None of the first mortgage bond- holders complain. So far as appears they are satisfied with the secu- rity they have got. The second mortgage covered only the equity of ' redemption which the company then had in the mortgaged property. Whatever bound the company then as to the estent of the mortgage lien within its limit of £620,000, bound the second mortgage bond- holders. It follows that to the extent the bonds were actually out, and in the hands of hona fide holders, when the second mortgage was executed, there can be no question as to their priority. �It is next claimed that the first mortgage bonds which are held in pledge as security for the notes of the company have no priority over ��� �