trict of North Carolina. The scope and prayer of this petition is to obtain payment of this judgment out of the proceeds of sale in priority to and preference over the mortgage bonds. A petition of the same purport was filed in the circuit court of the United States for the western district of North Carolina. The district judge holding said court, following the practice now fixed, did not entertain the petition, but referred it to this court, in which the original proceedings were had. Clyde v. Railroad Co., 56 Fed. 539; Central Trust Co. v. East Tennessee, V. & G. R. Co., 30 Fed. 896.

The question, then, is, can this judgment take priority in the disbursement of the proceeds of sale over the mortgage which was foreclosed? And this question it is admitted must be determined by the law of North Carolina. The statute law of North Carolina bearing upon this question is found in the Code of North Carolina. This Code was enacted 2d March, 1883, and has force and effect as a whole, as if it were one statute enacted on the same day, without regard to the actual date of the ratification of the Code, and of the acts made a part thereof. Code N. C. § 3876. In section 685, p. 269, under the head "How Corporations May Convey by Deed; Void as to Existing Creditors," we find, after a sentence which authorizes corporations to convey lands and all other property by deed sealed with the common seal and signed by the presiding officer of the corporation and two other members in the presence of witnesses, this provision is made:

"But any conveyance of its property, whether absolutely or upon condition, in trust, or by way of mortgage executed by any corporation, shall be void and of no effect as to the creditors of said corporation, existing prior to, or at the time of the execution of said deed, and as to torts committed by such corporation, its agents or employees prior to, or at the time of the execution of said deed: provided, said creditors, or persons injured, or their representatives shall commence proceedings or actions to enforce their claims against said corporation within sixty days after their registration of said deed, as required by law."

Were this the only provision of the Code, the question would not present much difficulty. The injury was inced the 9th April, 1887. The mortgage was recorded 8th October, 1887. The action in which the judgment was recovered began October 2, 1888. This action, it is true, was brought after nonsuit, but it is entirely inde pendent of, and cannot be connected with, the first action, which is as if it never existed. Wilson v. Insurance Co., 27 Vt. 99; Riddlesbarger v. Insurance Co., 7 Wall. 386; Harris v. Dennis, 1 Serg. & R. 236; Busw. Lim. & Adv. Poss. § 362; State v. Hankins, 6 Ired. 428; Barino v. McGee, 3 McCord. 452; Best v. Town of Kinston, 106 N. C. 205, 10 S. E. 997.

But in the same Code, and enacted at the same time as part thereof, is section 1255, p. 499, which declares:

"Mortgages of incorporate companies upon the property or earnings, whether on bonds or otherwise, hereafter issued, shall not have power to exempt the property or earnings of such incorporations from execution for the satisfaction of any judgment obtained in courts of the state against such incorporation for labor performed, nor for material furnished such incorporation, nor for torts committed by such incorporation, its agents or employees, whereby

auy person is killed or any person or property injured, any clause or clauses in such mortgage to the contrary notwithstanding."

Clearly, these two sections have the same sanction, and are of equal authority. They must be reconciled, else both provisions must fail. Both became law at the same moment of time, and the positions occupied by them cannot control the validity of either. Code N. C. § 3876. Do they really conflict? There are some differences between them. Section 685 relates entirely to claims, choses in action, creditors of every description by contract or tort of all kinds. Section 1255 is confined wholly to executions upon judgments obtained in the courts of North Carolina, without qualification, "any judgment."

Section 685 applies to every class of creditors and every class of torts, provided that the creditors are in existence, or the torts be committed prior to or at the time of the registration of the deed. Section 1255 applies only to certain classes of creditors,-those for labor performed and for material furnished such corporation; and to a limited class of torts, those whereby any person is killed, or any person or property injured. Section 685 applies to deeds and conveyances of every description, and gives the artificial beingthe corporation-the right to execute them. Section 1255 is confined to mortgages. Section 685 invalidates and annuls all deeds of every kind as to those classes protected by it who fulfill the conditions of the statute; and, if they act, the deed becomes a nullity. Section 1255 does not impair the validity of the mortgage, or affect it, save and except that certain creditors and certain persons suffering from its acts may look to its earnings and its property for relief, notwithstanding the mortgage. The provisions of sec-. tion 685 manifestly are designed to prevent a fraudulent conveyance by a corporation contemplating insolvency to the detriment of its existing creditors. It recognizes the principle that the property of an insolvent corporation is a trust fund for the benefit of its creditors. Giving to this creature of the law the rights of property of a natural person, the statute in express terms protects its existing creditors from fraud in disposition of this property.

The provisions of section 1255 manifestly recognize that equity which, in the decisions of the supreme court, underlies Fosdick v. Schall, 99 U. S. 235, and the cases following it. Whoever contributes to keep a corporation a going concern by materials or labor must be provided for before mortgage creditors can claim out of the earnings; and so also all expenses incident to the keeping it a going concern, including in these expenses all damages for injuries done to life, person, or property in keeping up this life of the company, enjoy the same preference. The original act, which has been incorporated and re-enacted in the Code as section 685, was passed in 1798. At that time corporations were comparatively in their infancy. The act which came into the Code as section 1255 was passed originally in 1879. Between 1798 and 1879 corporations had largely increased in number and importance. They are used in every department of business. They control almost the entire

operation of manufacture, and they have engrossed the carrying trade. They now employ vast bodies of laborers. They create a constant demand for materials. They make use of plant and machinery dangerous to human life, persons, and property. The incur large debts, and the practice is almost universal of adding to their working capital by the issue of bonds secured by mortgage. The act was passed to meet this changed condition. The very life of corporations, their usefulness to their stockholders, and to their mortgage bondholders, who are almost as much interested in their well-being as the stockholders, require and demand the ready procurement of labor, facility in the purchase of materials, and the employment of plant and machinery involving the dangers to which allusion has been made. This last-named statute was passed to secure labor and materials, and to give ample protection against the necessary consequences of the use of plant and machinery. It has been earnestly urged that these two sections should be read in pari materia; that the limitations, or perhaps we should say the condition precedent of the replacing section 685, should also be read in connection with section 1255. But such a construction would seem to defeat the intent of this section. Its beneficial provisions would be limited to the period of 60 days from the regis tration of the mortgage, and thenceforward all debts for labor and material, and all claims for injury to life, person, and property would be subjected to the prior lien of the mortgage debt, and in many, if not in all, cases would be barred of relief.

It appears to us that this judgment and the execution thereon are protected by section 1255, and that the amount therein set out should be paid in preference to the mortgage debt. There have been no earnings. The property has been sold, and provision has been made for the payment of claims of this character. Let the claim be paid out of the proceeds of sale if these be sufficient for this purpose.

BRAWLEY, District Judge, concurs.

MERCANTILE TRUST CO. v. CHICAGO, P. & ST. L. RY. CO. et al. (Circuit Court, S. D. Illinois. December 4, 1893.)

RIGHT TO FORECLOSE TRUST DEED.

A railroad mortgage provided that, until default, the mortgagor should be permitted to remain in possession. It also provided that in case of default in the payment of interest, and such default should continue for six months, it should be the duty of the trustee to take appropriate proceedings at law or in equity to enforce the rights of the holders of bonds upon a requisition of holders of at least one-third in amount of the bonds. Held that, whatever right a bondholder has, he has the right to have the trustee enforce for his benefit, and that therefore the trustee could file a bill to foreclose, upon default in the payment of interest, although such default had not continued for six months.

This was a suit by the Mercantile Trust Company for foreclo sure of a mortgage given by the defendant the Chicago, Peoria &

St. Louis Railway Company and others, upon default in the pay ment of interest. Defendant demurred.

Article 2 of the mortgage provided that "until default shall be made by said party of the first part, its successors or assigns, in the payment of interest or principal of said bonds, or in the due observance of the covenants or agreements hereinafter contained on the part and behalf of the said party of the first part, the said party of the first part, its successors and assigns, shall be suffered and permitted to remain in the actual possession of said railway and premises, and to exercise the franchises and rights relating thereto, and to collect, receive, and use revenues and profits thereof in any manner which will not impair the lien created by these presents." Article 3 of the mortgage provided that in case default should be made in any semiannual installment of interest, when such interest should become due and be demanded, and such interest, or any part thereof, should remain unpaid and in arrears for the period of six months, or in case default should be made in the due observance and performance of the covenant of further assurance in said mortgage, or in the payment of any taxes, assessments, or other governmental charges, and either of said defaults should continue for the period of six months, or, in case default should be made in the payment of the principal of said bonds, or of any one of them, it should be lawful for the trustee to enter into and upon the railway and premises thereby granted, and the same, and all and singular the rights and franchises thereby granted, to have, hold, and enjoy, operating the same, making repairs, replacements, useful alterations and improvements, and to collect and receive the revenues and profits, and, after deducting expenses, to apply the revenues and profits in payment of overdue interest. Article 5 of the mortgage provided that in case default should be made in payment of any semiannual installment of interest, and said interest should remain unpaid and in arrears for six months, the principal of all the bonds might be declared, by the trustee or by a majority in interest of the holders of the bonds outstanding and unpaid, to be, and thereupon the same should become, due. Article 6 of said mortgage should be as follows: "Article 6. It is hereby expressly declared and agreed that in case default shall be made in payment of interest upon any of the said bonds, when such interest shall become due and be demanded, and such default shall continue for the space of six months, or in case default shall be made in the payment of the principal of any of the said bonds when the same shall become due, then, and in either and every such case of default, it shall be the duty of the trustee for the time being, under these presents, to take appropriate proceedings at law or in equity to enforce the rights of the holders of said bonds upon a requisition to that effect being made upon the said trustee, signed by holders of at least one-third in amount of the said bonds then outstanding." The bill alleged that on September 1, 1893, there became due and payable the semiannual installment of interest, amounting to the sum of $37,500; that default was made in payment thereof; that the coupons evidencing such interest were presented for payment at the place where the same were payable, and payment thereof was demanded and refused; that default was made in payment of such interest; and that such default and failure to pay the same still continues. The bill also alleged that the holders of a large amount in value of said bonds outstanding have in writing requested complainant to enforce the remedies provided in said mortgage; and that said railway company is insolvent, and unable to pay its floating debt and current and presently accruing indebtedness; that the mortgaged property is insufficient and inadequate security for the payment of the outstanding bonds secured by the said mortgage; and that there is danger that the said property may be sold under judgments; and that the property and lines of said company may be separated and broken up, and the earning capacity destroyed or impaired, by the contests of creditors for conflicting claims, and the mortgaged premises wasted and depleted.

C. B. Alexander and Peck, Miller & Starr, for complainant.

C. M. Osborne and I. L. Morrison, for defendant Chicago, P. & St. L. Ry. Co.

Bluford Wilson, for certain intervening petitioners.

Before WOODS, Circuit Judge, and ALLEN, District Judge.

WOODS, Circuit Judge (orally, after stating the facts). The sharp question presented by the demurrer is whether the sixth clause of the mortgage is a limitation on the right of the trustee to foreclose for interest which is not six months overdue. It is conceded that the mortgage is a security for that interest, and may be enforced by the beneficiaries of the trust, the bondholders; but it is insisted that the trustee has no right to sue until there has been a lapse of six months since the interest became due. That, I think, is the controlling question of the case. I do not think there is any right secured to the mortgagee which is not represented by the trustee. Whatever right a bondholder has under the mortgage, he has a right to have the trustee enforce for his benefit. It is for that purpose a trustee is chosen. It being conceded, therefore, that there is a right of foreclosure, my view is that the right is one which may be exercised by the trustee. This is therefore a good bill for foreclosure. A reference to particular provisions of the mortgage would fortify this conclusion, but it is unnecessary to go much into details. I have already, during the hearing, indicated the main thought. The second article of the mortgage, which limits the right of the mortgagor to continue in possession until default in some of the conditions named, would be made meaningless by the construction proposed; and it will not do, as has been sug gested, to say that the entire article was inserted carelessly, and should be regarded as having no force, unless, indeed, the other provisions of the instrument are such as to make it necessary to disregard this one. If there can be a reasonable interpretation put upon the whole mortgage which will give this clause significance, and otherwise it would be without meaning, that interpretation ought to be adopted. The language of the article is: "Until default shall be made," and so forth, "the mortgagor shall be entitled to remain in possession;" and, if under that provision a bondholder may terminate that possession by foreclosing the mortgage, the trustee, as already stated, may do it for him. It is claimed, and I think correctly, that the trustee's right to take possession under the third article is limited to cases where interest has been overdue for six months; and it is insisted that his right to foreclose and to procure a receiver to take possession under the order of the court is likewise limited. If that were so, then the possession of the mortgagor could not be disturbed for any default until after the lapse of six months, and the second article would be entirely nugatory; and, without the consent of the holders of two-thirds of the bonds, there could be no foreclosure, a proposition by which the minority might nullify the rights of the majority.

Now, I have not examined the cases which have been cited critically enough to undertake to say with certainty what the line of discrimination is, but I have the impression it is about here. A mortgage is a security for a debt. A failure to pay the debt, in whole or in part, when it is due, is necessarily a breach. That is an inherent or essential feature of a mortgage, and the right to enforce