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trustee having been tied in an attempt to foreclose, are the cestuis que trustent thereby deprived of their right to prosecute their foreclosure in the circuit court of the United States in another state, and one where the bulk of the property mortgaged lies? Assuredly not, and the wisdom of the rule is apparent from this case. The railroad company, having obtained the restraining order in July, 1892, in the court first appealed to, has not taken a single step towards obtaining a final decree in that case, and yet, in the absence of such a decree, or of any attempt to secure one, now sug. gests that the federal court, in which a vast amount of proofs have been taken, and a huge record presented for final decree, is powerless to afford complainants relief because of the mere pendency of the other bill. We are of opinion the circuit court originally had jurisdiction of the subject-matter of their present bill; that its jurisdiction was not ousted by the filing of a bill in the New York state court; and that under the facts peculiar to this case the complainants had the right to file this bill, and, having filed it, and all parties in interest having appeared and taken part in the case, including the railroad company, Mr. Bullis, and the trustee, our jurisdiction to foreclose the mortgage upon all the property included therein, as well that within the state of New York as that within the state of Pennsyl. vania, seems to us to be clear. Muller v. Dows, 94 U. S. 444; Massie v. Watts, 6 Cranch, 148; Bradley v. Railroad Co., 36 Pa. St. 141; Burnley v. Stevenson, 24 Ohio St. 474; McElrath v. Railroad Co., 55 Pa. St. 208.
The validity of the mortgage, however, is assailed on the ground of an unauthorized alteration. The bonds were given by the rail. road company alone. The mortgage was a joint one, in which the company mortgaged its property and franchises; and Spencer S. Bullis, who was its president, one of its large stockholders, and the owner of large bodies of timber land along its line in Pennsylvania and New York, mortgaged these lands as additional security for the company's bonds. At a meeting of the directors of the railroad held February 1, 1890, a resolution was passed, which, after reciting that Bullis was to join in the mortgage, provided that “the officers of this company are hereby authorized and directed to make, execute, and deliver said mortgage or deed of trust in such form as they may be advised by counsel, and to make, execute, and deliver under the terms thereof the bonds of said company to the number and in the amount hereinafter specified, substantially in the following form; that is to say" (then follows a copy of the bond). It would seem from the recitals in the resolution that both bonds and mortgage had been previously drawn, and it would appear the board adopted the specific form of bond, but made the form of mortgage subject to advice of counsel. While this term is general, yet, under the proofs, Frank Sullivan Smith, Esq., who was counsel for Bullis, the company, and for Newcombe & Co., the negotiating brokers, was evidently the person contemplated. The mortgage, as originally prepared, was duly signed for the company by Mr. Bullis, its president, attested
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by Lewis F. Wilson, its secretary, and its execution acknowledged and proved by them, February 27, 1890. On the same day it was executed by Bullis as an individual, his wife joining, and duly acknowledged by them. As thus executed, the mortgage provided for the reservation in Bullis of the timber, wood, lumber, and bark; also for the petroleum, gas, coal, and other minerals of the lands mortgaged. It was submitted to complainants, a firm of brokers at Portland, Me., who had been in communication for some time with the parties with a view of purchasing $125,000 of the bonds. They objected to it by telegram to Mr. Smith, and claimed there should be a forfeiture of Bullis' reserved rights to the timber in case of default. This message was forwarded to Bullis, with a note calling attention to the fact that complainants asked “that a provision be inserted in the mortgage that, in case of a default in the payment of the interest on the bonds, upon a foreclosure of the mortgage the timber land can be sold free of the reservation to you.” To this Bullis replied by letter, in which he said: “I could not, perhaps, make a change in that mortgage that would meet the point they make, inasmuch as in some cases I do not own the reservations. Whatever the mortgage covers, I, of course, expect will be subject to sale upon any default, the same as any other part of the property.” On March 4th, Mr. York, a member of complainants' firm, met Mr. Bullis in New York. He says he told the latter that the absence of the default clause was an insurmountable objection. After a conference a clause meeting York's objection was drawn by Wilson, Smith's clerk, and the secretary of the railroad, but he would not take the responsibility of inserting it in the mortgage without the consent of Smith. The latter was at Olean, N. Y., and it was arranged Bullis should take the proposed clause to him there, and submit it to him. He did so, and Smith prepared another form of it, which was afterwards inserted, and in which not only was the reserved timber which Bullis owned made subject to sale on default, but his contracts for timber also. He then sent a copy of this in a letter to Wood. bury & Moulton, in which he said, “In this I have conceded every. thing that you ask.” The testimony is that York did not know the mortgage had already been acknowledged, and Mr. Bullis further added in his letter: “Will you please examine it, and, if satisfactory, wire him (Smith) to New York, and the mortgage will then be executed in this form." He also sent a copy in a letter to Wilson, telling him he had sent a copy to Portland, and saying, "It will, of course, be satisfactory, as it is all they ask." The following day he wrote Wilson, as secretary of the road, signing himself as president, and saying, “Let me know if we must execute it here again, or whether the pages are so arranged that no further execution will be necessary.” Woodbury & Moulton having reported the clause satisfactory, Wilson, in pursuance of an arrangement made with Bullis, had the new clause printed, and inserted in the mortgage. He then had the trust company accept the trust, which it had not before done, and forwarded the com
of the consthed. The the responde
pleted mortgage to Bullis for record. This Bullis did, then came to New York, and, as president of the railroad, executed the bonds, which recited they were “secured by a first mortgage or deed of trust bearing even date herewith, duly executed by said railroad company to the Central Trust Company of New York." Thereafter $125,000 of them were delivered to complainants, for which they paid par in cash. Of the sum received from them by the trust company $110,000 was applied, as provided in the sixth provision of the mortgage, to the payment of prior bonded indebtedness of the Bradford & Corydon Railroad, a Pennsylvania corporation, one of the constituent companies of the respondent railroad, and whose debts it had assumed. The balance was applied to other indebtedness of the constituent companies.
In view of these facts we fail to see how either Bullis or the railroad can, on the ground of an unauthorized alteration, success. fully attack this mortgage. The subject-matter of the reservation concerned Bullis alone. He was a surety for the debt of the com- • pany, and the extent of the pledge he gave the mortgagee was a question solely between him and it. The inserted clause neither diminished, increased, nor affected the debt in bonds which the railroad incurred. There can be no doubt that, so far as Bullis personally was concerned, the clause was fully understood by him, was inserted with his consent, and was ratified by his placing it of record. Under these facts he is not in position to take advantage of the absence of a reacknowledgment, and this especially in view of the fact that in his letter to complainants he promised, if the clause were satisfactory, "the mortgage will then be executed in this form." Nor, if it be granted the clause affected the railroad, can it defeat the mortgage on this ground. As finally put on record, the instrument was one which the executive officers could, under the resolution, have made and executed. If they had the right to execute in that form, manifestly they had a right to waive a re-execution of it when changed to that form. The change was approved by Smith, its counsel, ratified, and accepted by its president and secretary, the only officers required to execute it, and was by them placed of record. Subsequently the bonds were executed, negotiated, and their full value applied by the trustee, the agent of the railroad, to the payment of uncontested debts. Under any view, the mortgage cannot be declared void or voidable on the ground of alteration.
But its validity is attacked for the reason that it is alleged to be part of a scheme to issue bonds and stocks in contravention to that provision of the constitution of Pennsylvania which provides: “No corporation shall issue stocks or bonds, except for money, labor done or money or property actually received; and all fictitious increase of stock or indebtedness shall be void.” This question renders necessary a summary of the somewhat complicated proceedings and agreements out of which these bonds arose. The Allegheny & Kinzua Railroad Company, the respondent mortgagor, is a consolidated corporation of New York and Pennsylvania, and was formed by merger
of the Allegheny & Kinzua Railroad Company of New York, the Allegheny & Kinzua Railroad Company of Pennsylvania, and the Bradford & Corydon Railroad Company of Pennsylvania. On October 8, 1889, Messrs. Bullis and Barse, of Olean, N. Y., who were the principal stockholders of the two constituent Pennsylvania companies, entered into an agreement with the broker firm of I. B. Newcombe & Co., of New York City, with a view to their consolidation and extension. The contract recites the two companies have a mileage of 16 miles, which it is proposed to extend to 30; that Bullis and Barse are the owners of or control 30,000 acres of valuable timber lands tributary to the roads, the product of which they desire to carry over the completed roads, and that they have applied for financial aid to Newcombe & Co. On their part, Bullis and Barse agreed to cause the roads and the 30,000 acres of land to be owned or controlled by a corporation of Pennsylvania with a capital of $250,000, and to cause
a mortgage to be given to secure $250,000 bonds to be issued by said • to be formed company. Newcombe & Co. agreed to negotiate
$210,000 of the bonds at par, and turn over the proceeds to Bullis and Barse. One hundred and twenty-five thousand of these they were not required to negotiate, except as the contemplated 14 miles of the road were completed in 5-mile sections under the directions of John Byrne, a civil engineer, connected with their house. On completion of such 5-mile sections Bullis and Barse were to receive the proceeds of five-fourteenths of the $135,000. Seventy-five thousand were to be negotiated presently; and concurrently with their sale Newcombe & Co. were to receive the remaining $40,000 of the issue for their commissions, labor, and services, of which bonds Byrne, the engineer, was to have $15,000 for services performed or to be performed. It was agreed that 1,000 acres of timber land per min or completed road-in all 16,000 acres for 16 miles—were to be under the lien of the mortgage originally; and that for every 5-mile section of the road subsequently completed for which Newcombe & Co. were required to sell bonds, 5,000 additional acres should be placed under the lien of said mortgage. Of the $250,000 stock Bullis and Barse were to give Newcombe & Co. $100,000, of which Byrne was to have $15,000; and they were to guaranty for two years a 6 per cent. dividend on $40,000. This agreement was subsequently modified by one of December 9th following, which recites that Bullis and Barse were owners of this stock of the Allegheny & Kinzua Railroad Company of New York, a line of which 10 miles were completed out of a contemplated 16; that it was desired to consolidate it with the two Pennsylvania corporations, and form a new consolidated one. By it Bullis and Barse agreed to procure such merger into a corporation with $500,000 capital, and to issue $500,000 bonds, secured by a first mortgage upon the property of the merged roads, “including 30,000 acres of timber land for the first 46 miles of railroad constructed and completed, and 16,000 acres for the additional 24 miles to be constructed and completed as aforesaid.” Newcombe & Co. agreed on their part to negotiate $260,000 of the bonds at par, and turn over the proceeds to Bullis and Barse. One hundred and thirty-five thousand of them they were not
required to negotiate, except as the contemplated 16 miles of the road were completed in 5-mile sections, as in the original contract; and on completion of such sections Bullis and Barse were to receive the proceeds of five-sixteenths of the bonds. Of the remaining bonds $125,000 were to be negotiated at once (provided 26,000 acres of timber land was placed under the mortgage), and concurrently with their negotiation Newcombe & Co. were to receive the commissions before mentioned, viz. $40,000 in bonds and $100,000 in stock. The remaining $200,000 in bonds and the like amount of stock were reserved to provide for the building of the 24 miles of additional road. It was agreed Bullis and Barse might contract with the Interior Construction & Improvement Company of New Jersey to perform their covenants under these contracts. On the same day the construction company mentioned, of which John Byrne was president and principal stockholder, entered into an agreement with the Allegheny & Kinzua Railroad Company of New York to construct its road to the Pennsylvania state line, to acquire the two Pennsylvania companies by merger or consolidation, and construct and complete the consolidated road under directions of the railroad company's engineer up to 46 miles, and, if required, to construct the remaining 24 miles, so that the consolidated company should have 70 miles of completed road at a cost not to exceed $7,000 per mile. It further agreed to pay all liens, etc., of the constituent roads, and furnish certain rolling stock. The rail. road agreed to increase its capital stock from $80,000 to $390,000, to issue $500,000 bonds secured by mortgage on its property, and that it would pay all of said bonds and stocks to the construction company for its work as above, performed or to be performed, as soon as they could be legally issued. It was further provided the consolidated company to be formed should have a capital stock of $500,000 (made up of the stock of the New York company, $390,000, and the Pennsylvania companies, $110,000), and that it should issue $500,000 in bonds, secured by mortgage on its property, and certain lands in addition, for the purpose of retiring the New York company's bonds, specified above, which bonds, as well as the stock of said company, the construction company had a right to exchange for corresponding bonds and stocks of the consolidated company. On the same day the construction company entered into an agreement with Bullis and Barse in which the foregoing contract was recited and made part thereof. By it the construction company agreed to make the following disposition of the stock and bonds of the consolidated company received by it under the preceding contract: To Newcombe & Co., $260,000 bonds, to be sold under agreements of October 8, 1889, and December 9, 1889. To Newcombe & Co., $10,000 bonds, commissions under said agreements. To Central Trust Company, $200,000 bonds, to provide for construction of 24 additional miles of road. To Bullis and Barse, $265,000 stock. To Newcombe & Co., $100,000 stock, for commis. sions under first agreements. To construction company, $135,000 stock, for its compensation. Bullis and Barse, on their part, agreed to apply the proceeds of bonds sold by Newcombe & Co. to payment of liens upon property covered by mortgage, to carry out the consolida