the contract with Underwood and Green, the stockholders of the company voted to increase the capital stock to $10,000,000, and, as the contractors were to receive under their contract $6,500,000 of stock, that amount was made up of the increase of stock and the amount subscribed by Miller. The pecuniary irresponsibility of Miller cannot, therefore, as we think, affect the question, since that stock was issued in consideration of the work performed by the contractors, and was applied as so much paid on the contract The like result follows with respect to the stock issued to Underwood and Green. It was issued in payment of work done under contract, their subscription thereto in May, 1893, being merely formal, and to enable the issuing of stock to them for work done. It is urged that the value of the road constructed did not exceed $3,500,000, and that the contract was improvident, and is presumed to be fraudulent. We cannot concur in this contention. In the straitened condition of the company at the time of the contract the directors seemed to have done the best they could to procure the construction of the road upon as favorable terms as could be obtained. The contract appears to have been made in entire good faith upon their part. With $3,500,000 of stock and $812,000 of bonds outstanding, but one mile of the road had been constructed, and the company was without means to continue the enterprise. They bargained fairly with the contractors with respect to the price to be paid. That price cannot be measured by the face value of the bonds and stock to be received by the contractors. The stock was manifestly of but little, if any, value, and that purely speculative. The bonds were comparatively valueless until completion of the road, and, although disposed of by the contractors under the underwriting agreement at 90 cents on the dollar, had, after the completion of the road, a market value of but 52 cents on the dollar. If any one has lost by the transaction, it is not the complainant company, but those who, under the underwriting agreement, and for the purpose of carrying out a public enterprise, invested their money in these bonds at a price in excess of their real value. This is not, we think, a case of fictitious and speculative issue of stock without consideration, within the meaning of the constitutional provision, as construed in the cases quoted. It possibly may be better in the long run if the law should provide that all subscriptions of stock could be paid only in cash. This would doubtless prevent the floating of wild and chimerical schemes by which loss is entailed upon a community. But it must not be forgotten that men will not invest large capital in speculative and hazardous enterprises without being assured that, in case of success, they shall receive a profit corresponding relatively to the risk assumed. Whatever may be the correct solution of the problem, the law does not require payment of subscription of stock to be in cash. It may be paid for in work, labor, material, or service rendered. We sit to declare, not to make, the law, and are unable to condemn the transaction in question as within the ban of the constitutional provision. But if this were otherwise, and the constitutional provision denounces this issue of stock, the act was ultra vires the corporation, and the stock was void, not merely voidable. Bank v. Kennedy, 167 U. S. 363, 17 Sup. Ct. 831, 42 L. Ed. 198. It had no validity in the hands of a bona fide purchaser for value, without notice. The complainant has not suffered pecuniary injury by its issue, and cannot call upon Ziegler to account for what he received upon its sale, for that would be to affirm a void transaction; to both reprobate and approbate. It is further urged by the Lake Street Elevated Railroad Company that, where default has occurred in the payment of a large bonded indebtedness, and an overwhelming majority of the bondholders desire to prevent foreclosure through some scheme of reorganization or by scaling the bonds, it is competent for a court of equity, to whom the minority bondholders have applied for relief, to ascertain the interest of such minority holders in the property and secure the same to them without foreclosure and sale. We need not, in the present case, assent to or dissent from the proposition in the general terms in which it is stated, for there are several sufficient reasons which render the suggestion immaterial to the case in hand. No bondholder has here applied to the court for affirmative relief. The action is by the debtor to declare certain bonds and stock to have been improperly acquired by one of its directors. Its bill suggests no such state of facts as are involved in the proposition, and seeks relief upon no such predicate. It doubtless is true that a court of equity, taking upon itself in foreclosure proceedings the administration of a public enterprise, will view favorably, and lend all proper aid to, a plan of reorganization which is fair and just. But no such case is presented by this bill. It was broadly suggested at the bar that upon the facts disclosed the time was ripe and the occasion fit for a court of equity to take a step in advance, and to declare that it could rightly determine the propriety of a scheme of reorganization, and compel recalcitrant bondholders to comply with it. This is certainly a startling proposition, suggesting a wide departure from precedent, and a great enlargement of equity power. If the case before us were one in which the proposition could be properly considered, it might be suggested that every one interested in an enterprise must determine for himself whether he will continue in it or abandon it; that a creditor must determine for himself whether he shall abate his claim or contend for the full amount. While a court of equity will not lend a helping hand to an importunate creditor to exact an inequitable demand, it may be suggested that here we are asked by the corporation debtor to compel a minority of the bondholders to scale their bonds, and to accept but 60 per cent. of the face value of the bonds upon the same security now held for their face; the additional guaranty proposed, if not ultra vires the proposed corporation guarantor, being, upon the facts disclosed, of doubtful value, if not wholly worthless. In addition to this, the stockholders of the Lake Street Elevated Railroad Company, who proposed this scheme, and in whose interest we are asked to enforce it, designed to make no sacrifice on their part in placing the company in a position to meet its obligation. If the scheme should be assented to, and should prove successful, the bondholders would abate at least 25 per cent. of their debt, which would inure to the benefit of the stockholders. In view of the further fact that, as it is said, the assenting bonds are held or controlled by the directors of the company, we should hesitate to declare that the scheme so abounds with equity that a chancellor should delight to render it his aid and assistance if it were fit for him in any case to exercise the powers of a court of equity for the enforcement of a scheme of reorganization. This, however, is not such a scheme, but the mere proposal of a debtor to its creditors to compromise the debt. Upon the whole, we are of the opinion that the complainant's case is without merit, and that its bill should have been dismissed upon the merits. The appeal of the Lake Street Elevated Railroad Company is denied. The appeal of the defendants to the bill is sustained. The decree is reversed, and the cause is remanded to the court below, with directions to enter a decree dismissing the bill for want of equity; the costs of both appeals to be taxed against the complainant below. (99 Fed. 134.) McTIGHE v. KEYSTONE COAL CO., Limited, et al. No. 20. 1. MORTGAGE-CONSTRUCTION-FORECLOSURE-APPLICATION OF PROCEEDS. A mortgage to secure bonds and interest thereon discloses no intention that, in case of sale under general foreclosure proceedings, the interest shall be paid before the principal from the proceeds, there being no provision as to distribution thereof, though there is a provision that, in case of default in interest continuing for six months, the trustee may take possession of the property, and collect the rents and profits, and, after paying the expenses of managing it, apply the balance to payment of interest in the order in which the interest shall have become due, and turn the balance over to the mortgagor; and another provision that, in case of such a default in interest, the holders of a majority of the bonds can require the trustee to proceed to foreclose the mortgage by suing out a scire facias, and pursuing the same to judgment, with leave to take out execution for the amount of the interest, and, in case of any subsequent default, with leave to take out another execution for collection of the same. 2. SAME-PRIORITY IN DISTRIBUTION. In case of sale of property by decree under general foreclosure proceedings for payment of the overdue debt evidenced by the bonds which the mortgage was given to secure, the interest is entitled to no priority in payment, in the absence of provision in the mortgage therefor, though the interest on the bonds held by certain persons had been paid up to the time of general default of interest, while that on the bonds of others had not been paid. Appeal from the Circuit Court of the United States for the Western District of Pennsylvania. D. T. Watson, for appellant. C. C. Dickey and W. G. Guiler, for appellees. Before ACHESON, DALLAS, and GRAY, Circuit Judges. GRAY, Circuit Judge. This is an appeal from the decree of the United States for the Western district of Pennsylvania dismissing exceptions filed by James M. Bailey to the report of the master appointed to distribute a fund realized from the foreclosure of a mortgage of coal situate in Pennsylvania and West Virginia, given by the Keystone Coal Company, Limited, a limited partnership association under the laws of Pennsylvania, to secure its certain coupon bonds aggregating $275,000. The Keystone Coal Company, Limited, a joint-stock association, organized under the act of assembly of Pennsylvania approved June 2, 1874, and its several supplements, for the purpose of raising money wherewith to carry on its business of the mining, transportation, and sale of coal, sold and delivered 550 of its bonds, aggregating $275,000, dated April 1, 1879, payable April 1, 1887, bearing 6 per cent. interest, and having semiannual interest coupons attached. To secure these bonds the coal company executed a mortgage of its coal property, situate in Washington county, Pa., and Brooke county, W. Va., to the Safe-Deposit Company of the City of Pittsburg, as trustee for the bondholders. By its bonds the coal company promised to pay the principal debt on April 1, 1887, and to pay the interest semiannually on April 1st and October 1st in each year, "upon presentation and surrender of the annexed coupons as they severally fall and become due"; and it stipulated that, in the event of default in payment of any interest coupon for six months, the principal and interest might be made due and payable immediately in the manner provided by the mortgage. The mortgage provided, in effect, in article 1, that, in case default be made in the payment of any semiannual installment of interest, and the same remain unpaid for six months, or in case default be made for six months in the payment of any taxes, assessments, or other governmental charges on said premises, the lien whereof might or could be held prior to the lien of this mortgage, and in case default be made in the payment of the principal of said bonds, when due, then, in any and every such case of default, it should be lawful for the trustee for the time being, personally or by his attorneys or agents, to enter the said premises, and "to have, hold, possess, and enjoy, operating the said coal underlying said described premises, and to mine, take, and carry away the same," and to collect and receive all rents, revenues, incomes, issues, and profits of the said association, and from all coal mined out of and from said premises, and, after deducting therefrom the expenses of entering and managing said property, to apply the balance thereof, first, to the payment of all overdue interest on the said bonds, with interest thereon, in the order in which said interest shall have become due; and, second, to the payment of interest accruing after such default and entry by the trustee, and during its possession, without preference between bondholders; and, if any surplus remains after these payments, the same to be paid to the treasurer of said association. Article 2 of the mortgage provides for the issuing of a scire facias upon default in the payment of any semiannual interest which shall remain unpaid for six months after the same shall become due and be demanded, upon written demand by the bondholders, and for the prosecution of the same to judgment, with leave to take out execution for the amount of said interest, and, in case of any subsequent default, with leave to take out another execution for the collection of the same. The Keystone Coal Company, Limited, paid in full to all, except a few, of the bondholders, the semiannual interest coupons which matured in 1879, 1880, 1881, and on April 1, 1882. James M. Bailey is one of the bondholders who did not receive payment for his coupons maturing prior to the general default in October, 1882. The reason was that there was not enough money in the treasury of the company at the various interest periods to pay all coupons, and some coupon holders were paid in full in preference to the appellant and a few others. Of these unpaid coupons maturing prior to October, 1882, the appellant owns an aggregate of $14,157. Some of these coupons were detached from their bonds, and were bought by the appellant from the original holders at various times, he paying full value therefor. The trustee under the mortgage never proceeded to foreclose the same. In 1897, McTighe, a citizen of New York, and a bondholder, filed his bill in the circuit court for the Western district of Pennsylvania, praying an account, a foreclosure of the mortgage, or sale, and a receiver. The court appointed the Safe-Deposit & Trust Company (the trustee named in the mortgage) receiver of the mortgaged property, and directed it to take possession thereof. By its final decree the court ordered the trust company, as receiver and trustee, under the terms of the mortgage, and also in pursuance of the order and decree of the court, to offer the mortgaged property at public sale, and sell the same. In its said decree the court made a finding of fact that only part of the interest coupons maturing prior to April 6, 1882, were paid by the mortgagor, some such remaining unpaid, and directed an account to be stated of the amount due on account of said bonds, and appointed W. R. Blair, Esq., master, to state such account, and to determine all disputes of the holders of the various bonds and coupons, and to determine the respective rights and priorities of each to share in the purchase money derived from the sale of the property and paid into the treasury of the court. $29,750 was realized from the sale of the mortgaged property. The master found the facts as to the payment of interest coupons and the amount and classes of coupons owned by Bailey as above stated. Bailey claimed, under the terms of the bond and mortgage, to be allowed, out of the fund realized, payment in full for the unpaid interest coupons maturing prior to October 1, 1882, as above stated, prior to the allowance of any dividend on the principal of said bonds, and also prior to other coupons maturing subsequent to the said date of general default in the payment of interest coupons. The master disallowed this claim, and reported a schedule of distribution, allowing all bond and coupon holders to recover a proportionate part of said fund, based upon the aggregate amount of bonds and interest coupons owned by each, respectively, without any priority or preference in respect of coupons which matured and were unpaid prior to the general default in the payment of interest, and which were owned by Bailey and others, belonging to the various classes of which the holders of part had been paid in 39 C.C.A.-29 |