authorities cited are such only as bear upon points of particular interest. It has not been practicable to outline all the many variations possible in such indentures, or to quote the customary phraseology of the instruments now in general use. Copies of the more recent trunk-line railroad mortgages are generally available for examination at the offices of investment bankers or at the principal offices of the mortgagor companies, if not otherwise obtainable. With such assistance, and the exercise of diligence and care, the preparation of effective and systematic corporate obligations and trust indentures should be a task much less formidable than it appeared to me when I undertook such work some thirty-five years ago.

THE FORECLOSURE OF RAILROAD MORTGAGES

IN THE UNITED STATES COURTS

Paper read February 23, 1916, before the Association of the Bar of the City of New York by James Byrne

ON January 1, 1912, the Judicial Code of the United States, under which the circuit court was abolished and the jurisdiction of the district court was enlarged, went into operation. As the almost invariable method in recent years of proceeding to foreclose a railroad mortgage has been in substance the same before and since the Code, in describing it I shall speak in the present tense as though there were no Code; and then tell the details in which the Code affects it.

I take the case of an insolvent railroad company operating in different states a railroad built up by purchases, leases and consolidations; and assume, as the fact is in all but very rare instances, that it wishes its property to be put in the hands of receivers.

The procedure is as follows:

A general creditor, at the suggestion of the railroad company, files a bill in behalf of himself and all other creditors, against the company in the proper United States Circuit Court, in which he alleges that

(a) the defendant is a corporation organized and existing under the laws, and a citizen, of the state in which the suit is brought and the complainant is a citizen of some other state;

(b) the principal operating offices of the defendant and a material portion of its railroad are in the district in which the bill is filed; (c) the defendant is indebted to the complainant;

(d) the defendant is insolvent; and, as there are many creditors whose debts have matured or are about to mature and the defendant is unable to pay them, if the court does not take the assets of the defendant into its possession, attachments will be levied, judgments

obtained and executions issued, and the railroad of the defendant thereby dismembered and its property wasted.

(e) the matter in controversy exceeds exclusive of interest and costs the sum or value of three thousand dollars.

The prayer of the bill is that the court will administer the assets of the defendant and appoint a receiver pending the suit. The company files an answer admitting the allegations and joining in the prayer of the bill.

On the pleadings the court enters an order appointing a receiver.

This bill is called the primary or principal bill; the suit the primary or principal suit; and the court in which it is brought the court of primary jurisdiction.

The creditor then files ancillary bills in every judicial district in which any part of the railroad lies or in which there is any substantial amount of other property of the railroad company. In an ancillary bill it is as necessary to allege diversity of citizenship as in the principal bill.1 Such a bill contains the same allegations as the primary bill except that it omits (b)2; and in addition it alleges that the primary bill, a copy of which is an

1 As to the necessity of a bill in one jurisdiction brought in aid of a bill in another meeting all the requirements of an original bill, see the opinion of Mr. Justice Harlan in Mercantile Trust Co. v. Kanawha & O. Ry. Co., 39 Fed., 337; 1889; and the comments upon this case of Judge Lurton in New York P. & 0. R. Co. v. New York L. E. & W. R. Co., 58 Fed., 268, 278-80; 1893. See also the statement in Coltrane v. Templeton, 106 Fed., 370, 374, C. C. A., 4th Circuit, 1901, that the bill brought in aid of the primary bill is an "auxiliary" bill and not an "ancillary" bill.

2 It may be that a portion of the railroad of the defendant is in a state of which the railroad company is not a citizen. In that case the ancillary bill changes (a) of the primary bill to an allegation that the complainant and the defendant are citizens of different states. The appearance of the defendant would in any case be a waiver of the objection that suit must be brought in the district of which either complainant or defendant is a resident; but where the property is in the district no such objection lies, as in that case a citizen of one state may bring suit against a citizen of another state, although neither of them is a resident of the district and the defendant may be served by publication. Jellinik v. Huron Copper Mining Co., 177 U. S., 1; 1900; Section 57 of the Judicial Code superseding the act of March 3, 1875, C. 137, Sec. 8, 18 Stat. at L. 472.

nexed, has been filed in the court of primary jurisdiction; that the defendant has answered it admitting all its allegations and joining in its prayer; that the court of primary jurisdiction has appointed receivers of the property of the defendant; and that some of the property of the defendant is in the district in which the ancillary suit is brought. The bill prays as in the primary bill; and in addition asks that the court will appoint as receivers under it the receivers appointed by the court of primary jurisdiction.

The defendant files answers in all the ancillary suits similar to the answer in the primary suit; and the different courts enter orders appointing as receivers the same persons named by the court of primary jurisdiction.

Some days or weeks or months later the trustee of the mortgage which is to be foreclosed files bills in the courts in which the creditor's suits are pending, and the receivers appointed under the creditor's bills are appointed receivers also under the foreclosure bills.

Why do things take this course? Why is it that the filing of a creditor's bill and the appointment of a receiver under it so almost invariably precede the foreclosure suit as practically to be a part of it?

For three reasons:

1. As a receiver under a bill to foreclose a mortgage is receiver only of the mortgaged property, it may be that, because it is unmortgaged, property useful, perhaps almost essential, to the best operation of the road will not come into his possession. Such property may be seized at law by creditors pursuing their legal remedies; and it may be claimed that the liens which they obtain by judgment, attachment or execution extend to property which the receiver claims under the mortgage. These troubles are avoided by beginning with a creditor's bill; for the receiver under that bill is, of course, receiver of all the property of the railroad company, mortgaged or un

mortgaged, and the administration of the property, its marshaling and distribution are all in the equity court.1

2. The mortgage is not always in a condition to be foreclosed. The railroad company may find itself without money to pay its bills at a time when no interest is due on the mortgage and there is no default of any kind justifying the beginning of a foreclosure suit. If a creditor's suit is not begun in the federal courts, not only may operation be interfered with by levies under attachments and executions, but a state court may appoint a receiver. State courts are in many ways not as well suited as the federal courts for the foreclosure of a mortgage of a railroad company or the administration of its assets, particularly where the railroad is in several states. Federal courts have had much greater experience in such litigation; their rules and procedure are comparatively settled and are substantially the same in all districts and circuits; their relations with one another are more intimate than those of state courts; and they accept more easily than state courts the position of ancillary courts.

3. There may be all sorts of jurisdictional difficulties in the way of a foreclosure in the federal courts. The trustee of the

1 The following method of getting all the assets of a corporation* into the possession of the court under a bill praying for the foreclosure of a mortgage, without a separate creditor's bill, was recently adopted. The trustee filed a bill setting up the clause now common in trust deeds that upon default in the payment of principal the mortgagee should be entitled to recover judgment for the amount due; alleging that in order to preserve the unity of the business and to carry it on to the best advantage a receiver should be appointed of all the property of the defendant corporation; and praying that judgment should be entered in favor of the trustee for the whole amount due, that the mortgage should be foreclosed, that the property covered by the mortgage and any remaining property should be sold in separate parcels, and that the proceeds of all such sales should be distributed among those whom the court should find to be entitled thereto. On the consent of the defendants a receiver of all its property was appointed. The bill is a combined foreclosure bill and creditor's bill. Under Rule 26 of the new equity rules the plaintiff may join in one bill as many equity causes of action as he has against the defendant.

*Not a railroad corporation. References will include cases in which the mortgages are not railroad mortgages, the principle involved in them being applicable to the subject treated in this paper.