Page:Federal Reporter, 1st Series, Volume 8.djvu/132

 J.18 FEBEBAL BEPOBTEB. �Claflin and others v. The South Caeolina E. Go. and others. �(Circuit Court, V. South Oarollna. 1880.) �1, Moetgagors and Moktgaqbbb. �An issue of bonds secured by a flrst mortgage and issued for the purpose of taking up others of a prier issue, was larger tlian necessary for that purpose. In a suit brouglit by holders of a second mortgage to foreclose ttieir mortgage, hdd, that such surplus bonds, wliether actually out and in the hands of bona flde holders when the second mortgage went into effeot, or issued afterwards for the first time, as collateral, to secure a debt contracted at the time they were thus pledged, — in either case, they were secured by such flrst mortgage equally with those applied to the purpose of the issue, even though, in the second case, Buch pledgee had f ull knowledge of all the facts. �2. Manneu of Issuing Bonds — Re-Issub, Rbiihbment, and CanceijLatiox cf. �Construing the language of the instrument with reference to the suri'ound- ing circumstances and the subject-raatter of the contract, held, flrst mortgage honda remaining unissued in the hands of the compan y, and those which after- wards came into their hands by purchase, witlaout the intention of retiring them, couJd be issued, sold, and transferred by the company, after the date of the second mortgage, so as to carry a lieu under llie tirat mortgage. �, 3. Second Mobtgage Construed— Application of Bonds— Liens Determined — Payment dp Priob Encumbrancbs — Uirectors as Cbeditors — Kecobd of Mobtgage — Lien of Subsequent Attachment. �A second mortgage, made to secure the payment of an issue of 6,000 bonds, of $500 each, re;:il,u(l that the proceeds thereof wero " to be applied exclusively to the extinguishment of the floating debt atid the retiromeiit of unst;cured bonds." The manncr of eilccting this extinguishment was uot provided for, fur- ther thau by authorizing the president of the company to sell the bonds at not less than 80 per cent.,. which might be for one-third cash and two-thirds in ■unsecured bonds, at pot less than 80 per cent. Ildd : �(1) In a controversy between bondholdcrs, that bonds of this issue, even if pledgeil as collateral upon an extension or renewal of th« floating debt, or to secure notes giveu in payment of unsecured bonds, were regularly issued and properly applied. �(2) Directors acting in good faith for the best interests of the company are entUled to the same rights as other creditors. �(3) Outsianding unsecured bondholders are not entitled to participate in the security of the second morlgage without first complying with the teiins dictai cd by the company. �(4) Bonds purehased by the company with the proceeds of second mortgage bonds shouJd be delivered up and canceiled. �(f)) An atta hrrn.nt regularly issued in the state of Georgia ia superior to the lien oi a mortgage defectively rccorded. �In Equity. �Mitcliell e Smith, (of Charle.ston,) Chamherlain, Carter e Horn- ■ hlower, and -IFtWicim Stone, (of New York,) for complainants. �James Courier, A. G. Magrath, Lord e Ingleshy, De Saussure e Son, S'unoHton (u Barber, II. E. Yotuig, B. II. liutledge, liiitledge e ioiiitg. ��� �