Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/821

 CHAP. XVII.] LEGAL RELATIONS AMONG CREDITORS. [§ 816. § 816. The provisions contained in some trust deeds and mortgages for the benefit of bondholders go far Provisions towards organizing the bondholders into a body in railroad corporate to take the place and perform the func- mortga s es - tions of the original corporation upon the insolvency of the latter. Thus, in the mortgage of a railroad it was cove- nanted and agreed by all the parties thereto, " that in case of an}' judicial foreclosure sale, .... and the holders of a majority of the then outstanding bonds secured by this mortgage shall in writing request said trustees or their successors, they are authorized to purchase premises embraced herein for the use and benefit of the holders of the then outstanding bonds secured by this mortgage, and having so purchased said premises, the right and title thereto shall vest in said trustees, and no bondholder shall have any claim to the premises or the proceeds thereof, except for his pro rata share of the proceeds of the said purchased premises, as represented in a new com- pany or corporation to be formed for the use and benefit of the holders of the bonds secured hereby, and the said trustees may take such lawful measures as deemed for the interest of said bondholders, to organize a new company or corporation for the benefit of the holders of the bonds secured by this mortgage. Said new company or corporation shall be organized upon such terms, conditions, and limitations, and in such a manner, as the holders of a majority of the said outstanding bonds secured by this mortgage shall in writing request or direct, and said trustees so purchasing shall thereupon re-convey the premises so purchased by them to said new company or corporation." A default having been made, and a foreclosure brought, the court held that this agreement inured equally to the benefit of all covenants of warranty may buy up a prior incumbrance to protect the property from a forced sale, and will be entitled to subrogation to the security as against the company, and to be reimbursed the amount paid by tbem witb legal interest. Mem- phis and L. R. R. R. Co. v. Dow, 120 U. S. 287. Where a majority of shareholders and creditors foreclose a railroad 51 collusively, such shareholders are necessary parties to a bill to set the sale aside. Ribon v. Railroad Cos., 16 Wall. 446. But bondholders un- der a mortgage are not ordinarily necessary parties to a foreclosure suit brought by the trustees under the mortgage. Williamson v. New Jersey Southern R. R. Co., 25 N. J. Eq. 13, § 814. 801