Page:Federal Reporter, 1st Series, Volume 8.djvu/145

CLAFLIN. ».:800T8 CABOLINA. K. CO. IS^ �of the country it seems to have been impossible to dispose of the second mortgage bond"s on favorable terms, and to gain time the ex- pedient was resorted to of extending thedebt, and pledging, the bonds as collateral. In this way it seems to have been supposed that tem- porary relief could be obtaiued until the bonds could be sold or con- verted at more satisfactory rates., In effect, the Company said to the creditor: �" Your debt is due; we have pot been able to sell our bonds, and therefore eannot pay now, but i£ you will give us time, wo will secure you witb the' bonds. If before the debt matures again we can sell the bonds, you shall have the proceeda ; but if we eannot, you will have the security, which you can sell and get your money." �It is impossible to say that this is not an application of the bonds, having for its object the extinguishment of the particular debt to which they were attached. If before the debt was due the company had itself sold the bonds, and with the proceeds paid what it owed, the application, it is conceded, would have been in exact accordance with the provisions of the mortgage, and this whether the bonds were disposed of at a greater or less price. I am unable to see any differ- ence, 80 far as the mortgage is concemed, whether the sale is made by the creditor under the authority of the company, or by the com- pany itself. In either case the proceeds of the bonds are applied to the extinguishment of the debt. As much may not have been ao- complished as was hoped for, but the application that bas been made is completely within the scope of the mortgage. �Another class of cases reported to the master shows even more pointedly the propriety of this construction. The unsecured bonds were from time to time falling due. Some of the holders were not willing, and perhaps not pecuniarily able, to accept the terms of exchange that were offered, but they were willing to surrender the obligations they held and take a note of the company for the amount due, payable at a future date, with second mortgage bonds as collat- eral. Some of these propositions were accepted, and the notes with bonds pledged are now ont. The old bonds have been retired by the use of the new. There was no actual exchange of bonds, but the new bonds were put in the way of being applied to pay for the old ones. AU this, as it seems to me, is within the scope of the mortgage. It may not have been judicious management, but it was within the discretion of the company. The only contraet with the individual bondholders is that the mortgage security shall not be diverted from its desig- nated uses. That bonds sold under a pledge to secure an old debt ��� �