are personally liable as upon a warranty of authority to borrow. So, directors who accept a bill of exchange on behalf of a company are liable if the company has no power to accept bills. Where the charter of a railroad company recited to what useз the money derived from a sale of bonds was to be put, and a trust agreement was entered upon in accordance with the terms of the charter, and the bonds were sold under a prospectus pointing out a source of inquiry as to the charter and trust, but misstating the purpose for which the money was to be used, the trustees were held not to be liable to the bondholders for using the money, in accordance with the trust agreement, instead of in the manner set out in the prospectus.5

1 McCalmont v. Philadelphia etc. R. R. Co. (N. Y. Sup. Ct. Special Term; no official report); 27 Int. Rev. Rec. 162; S. C. 3 Am. & Eng. R'y Cas. 163.

2 De Winton v. Brecon, 26 Beav. 533; S. C. 5 Jur. N. S. 882.

3 Firbank v. Humphreys, 18 Q. B. Div. 54; Chapleo v. Brunswick etc. Soc. 6 Q. B. Div. 696; Richardson v. Williamson, Law R. 6 Q. B. 276; Weeks v. Propert, Law R. 8 Com. B. 427. Cf. Rashdell v. Ford, 2 Eq. 750.

4 West London etc. Bank v. Kitson, 13 Q. B. Div. 360; Browne & Theobald's R'y Law, 86. As to the measure of damages for breach of warranty of authority, see In re National etc. Co. 24 Ch. Div. 367; Firbank v. Humphreys, 18 Q. B. Div. 54.

5 Banque Franco-Egyptienne v. Brown, 34 Fed. Rep. 162.

1

§ 612. Of the manner of executing mortgages. Mortgages of corporate property are to be executed by the directors of the company, or by an agent appointed by them, usually one of themselves, or the president of the corporation. In England every mortgage and bond for securing money borrowed by a company must be by deed under the common seal of the company, duly stamped, and the consideration is required to be truly stated therein. The mortgage deed should describe specifically and accurately the

2

3

bonds which it is given to secure. The mortgage and the bonds may be validly executed out of the State in which the railway is situated. A mortgage by a corporation chartered in one State of its realty in another State, should be executed according to the laws of the latter. For the law of the place where real property is situated, exclusively governs as to the title of parties therein, the disposition and mode of tranfer thereof, and the solemnities attending the transfer.5 But while the directors of a foreign corporation must, in giving a mortgage, comply with the law of the State wherein the land lies with respect to the forms of conveyance, yet the law of the State creating the corporation controls with respect to their authority to act. So that a statute in Massachusetts prohibiting directors from mortgaging the corporate property without authority from the stockholders, does not apply to a mortgage of property situated in Massachusetts, owned by a corporation deriving its charter from Vermont."

1 Galveston etc. R. R. Co. v. Cowdrey, 11 Wall. 459; Ohio etc. R. R. Co. v. McPherson, 35 Mo. 13; 83 Am. Dec. 128; Arms v. Conant, 35 Vt. 744; McCurdy's Appeal, 65 Pa. St. 290; Wright v. Bundy, 11 Ind. 398.

2 8 Vict. ch. 16, § 41. Construing this section, see Landowners etc. Co. V. Ashford, 16 Ch. Div. 411; In re Bagnalstown etc. Ry Co. Ir. Rep. 4 Eq. 505.

3 Butler v. Rahm, 46 Md. 541.

4 Hervey v. Illinois Midland R'y Co. 28 Fed. Rep. 169; Hadder v. Kentucky etc. R. R. Co. 7 Fed. Rep. 793.

5 Saltmarsh v. Spaulding (1883), 147 Mass. 224; 4 R'y & Corp. Law J. 151, 152

6 Saltmarsh v. Spaulding (1888) 147 Mass. 224; 4 R'y & Corp. Law J. 151, 152.

₫ 613. Of defective and informal mortgages.—

A defective mortgage deed may be reformed by a court of equity so as to carry out the evident intent

BEACH ON RAILWAYS-64

of the parties. This has been done when it was clearly intended that the trustees under the deed should take a fee, but where no words of inheritance had been employed in the instrument.1 And a defective mortgage which cannot operate as a deed has been held to be an equitable mortgage, taking precedence over a second mortgage duly executed, when the mortgagees under the latter were affected with notice. A trust deed is in legal effect a mortgage.3 Bonds issued by a corporation pledging its real and personal property for the payment of the debt and interest, and containing other corresponding stipulations, will be treated by a court of equi y as a mortgage and enforced according to the intention of the parties. And a contract for the purchase of rolling-stock by the payment of an annual rental, with a condition of forfeiture upon non-payment, is held to be a mortgage. But a sale of rolling-stock by a railway company, and a contemporaneous hire of the same stock at a rental which would repay the amount for which it was sold in five years, with a provision for a repurchase at the end of that time for a nominal price, has been held not to be a loan." Under a refunding scheme, where no new bond can be given to one of the old bondholders for a portion of the company's indebtedness to him, because no bonds are issued for so small an amount, he is nevertheless entitled to a lien for the amount due him equal to the lien of other mortgage creditors."

5

1 Coe v. New Jersey etc. R. R. Co. 31 N. J. Eq. 105; Randolph v. New Jersey etc. R. R. Co. 28 N. J. Eq. 49.

2 Miller v. Rutland etc. R. R. Co. 36 Vt. 452.

3 White Water etc. Canal Co. v. Vallette, 21 How. 414; McLane v. Placerville etc. R. R. Co. 66 Cal. 606; Coe v. McBrown, 22 Ind. 252; Coe v. Johnson, 18 Ind. 218.

4 Taylor on Corporations, §75; White Water etc. Canal Co. v. Vallette, 21 How. 414; Ketchum v. Pacific R. R. Co. 4 Dill. 78, 86; Miller v. Rutland etc. R. R. Co. 36 Vt. 452.

5 Hervey v. Rhode Island etc. Works, 93 U. S. 664; Heryfo d v. Davis, 1(2 U. S. 23; S. C. Am. & Eng. R. K. Cas. 36; Frank v. Denver etc. J'y Co 3 Fed. Rep. 123. See, also, Fosdick v. Schall, 99 U. S. 235, 251. Infra, § 6-4.

6 Yorkshire R'y Wagon Co. v. Maclure, 21 Ch. Div. 309. Acc. North Central Wagon Co v. Manchester etc. R'y Co. 35 Ch. Div. 191.

7 Blair v. St. Louis etc. R. R. 23 Fed. Rep. 521.

3

§ 614. The same subject, continued -Of bonds secured by s atutory lien.—A formal mortgage is not necessary under a statute giving authority to issue bonds, and expressly making them a lien upon the property and franchises of the railway company. In such a case there need be no writing whatever in addition to the bonds.1 But it is requisite to their operation as a lien, that the statute should be clear and explicit. When this is the case, it is not even necessary that they should make mention of the statute under which they are issued. A lin of this character covers all the proper y of the company, whether used in the construction and operation of the railway or not, and whether belonging to it at the time or afterward acquired.5 The lien may be waived by any bondholder so far as he himself is concerned," but not so as to deprive a subsequent holder of the benefit thereof. The holder of bonds made by statute a lien upon the property of a railway company, cannot avail himself thereof except by foreclosure proceedings instituted by the trustees in the manner provided by the statute.

4

1 Wilson v. Boyce, 92 U. S. 320; Woodson v. Murdock, 22 Wall. 351; Murdock v. Woodson, 2 Dill. 539; State v. Florida etc. R. R. Co. 15 Fla. 690. Cf. White Water etc. Canal Co. v. Vallette, 21 How. 414.

2 Cincinnati v. Morgan, 3 Wall. 275; Brunswick etc. R. R. Co. v. Hughes, 52 Ga. 557; Collins v. Central Bank, 1 Kelly, 435.

3 Dundas v. Desjardins etc. R'y Co. 17 Grant (Up. Can.), 27.

4 Wilson v. Boyce, £2 U. S. 320.

5 Whitehead v. Vineyard, 50 Mo. 30.

6 Ketcham v. Pacific R. R. Co. 4 Dill. 74.

7 Wood's Railway Law, 1615.

8 Florida V. Anderson, 91 U. S. 667.

615. Mortgages to be recorded.-Mortgages of railway property should be recorded in the same manner as mortgages upon the property of natural persons, in order to affect third parties with notice thereof. But an unrecorded mortgage is nevertheless valid as between the parties thereto, and has priority over the claims of other persons, extending credit to the corporation with actual knowledge thereof.1 Thus, the claimants under a second mortgage expressly declared to be subject to a first mortgage, can derive no priority from the fact that the first instrument was never recorded." A contract for the purchase of rolling-stock by the payment of an annual rental, with a condition of forfeiture upon non-payment, is deemed a mortgage, notwithstanding its being drawn in the form of a lease; but, if not recorded, it establishes no lien as against creditors proceeding by attachment and cxecution, or bona-fide purchasers from the compeny In Illinois, a contract whereby it is agreed to sell and deliver supplies, material and rollingstock to a railway company, to be paid for in installments, the title to the property to remain in the vender until the whole price be paid, is held to be in effect, so far as the chattel mortgage act of that State is concerned, the same as though a formal bill of sale had been executed and a mortgage given back to secure the price; and accordingly, if the contract be not recorded in accordance with the

3