Statement of Facts. recitals in the mortgage securing their payment. Consequently, it was contended, the appellees were under no duty, and had no legal right as trustees, or in any other capacity, to intervene and satisfy the decree in favor of the state, or to incur liability or costs in reference to the defendant's property. The company also filed a cross-bill, setting forth the same grounds, and praying that upon final hearing the deed of May 2, 1877, and the bonds thereby secured, be declared void. The court sustained exceptions to the answer and a demurrer to the cross-bill, dismissing the latter for want of equity, and rendering a decree in accordance with the prayer of the bill. By the decree, the appellees were subrogated to all of the rights of the state under the decree of March 4, 1882; and for the amount so paid by them, with interest thereon from March 25, 1882, at the rate of eight per cent. per annum, aggregating $261,456.27, together with interest on the latter sum at the same rate, from the date of the decree herein, they were adjudged to have a lien upon the property, rights, and interests embraced by the deed of May 2, 1877, subject - the appellees having consented thereto to the lien created by that deed as well as by a deed executed May 1, 1877. A decree was also entered against the company for $29,580.87, the amount found due to the plaintiffs for services rendered in and about the trust, and for counsel fees and costs in this suit. To this provision of the decree the appellant also objected upon grounds to which reference will be hereafter made. The principal question related to the validity of the $2,600,000 issue of bonds secured by the deed of May 2, 1877. The principal facts, chronologically stated, which bore upon this and other questions in the case were as follows: The Memphis and Little Rock Railroad Company was incorporated in 1853 under the laws of Arkansas, with authority to increase its capital to a sum sufficient to complete and operate a railroad between Memphis and Little Rock, by opening books for new stock or by selling new stock, or by borrowing money secured by mortgage of its charter and stock. Its stockholders, at a meeting held February 20, 1860, adopted a resolution authorizing the board of directors, for the purpose of VOL. CXX-19 Statement of Facts. building and equipping the road, to increase the capital stock of the company to $1,300,000, by issuing coupon bonds of $1000 each, bearing eight per cent. interest, convertible at any time within ten years thereafter into shares of stock — such bonds to be secured by mortgage upon the company's road, charter, works, and real estate, or either of them. The action of the stockholders having been ratified by the directors, the company by deed of trust executed May 1, 1860, conveyed to Tate and others its franchises, property, privileges, road, roadbed, right of way, rolling stock, and works, in trust to secure its bonds, aggregating $1,300,000, payable thirty years after date, with interest at the rate of eight per cent. per annum. On the 10th of January, 1861, it placed a mortgage upon its road and rolling stock to secure the before-mentioned state loan of $100,000, with interest from that date until paid, at the rate of eight per cent. By deed of March 1, 1871, it conveyed its franchises, property, and net income, to Henry F. Vail, in trust to secure other bonds, amounting to $1,000,000, payable thirty years thereafter, with interest at the rate of eight per cent. per annum. The company having made default in the payment of interest on the latter bonds, Vail, the trustee, on the 17th day of March, 1872, sold and conveyed these properties, rights, privileges, and franchises, for $15,000 in cash, subject to all prior and superior liens, to one Stillman Witt, who purchased in behalf of the holders of bonds, secured by the deed of March 1, 1871. Subsequently, March 29, 1873, Witt executed a deed declaring the respective interests of the parties whom he represented, and conveying to each his proportionate share of the property and interests so purchased. On the 17th of November, 1873, the grantees in the latter deed conveyed the same property, rights, and franchises to the Memphis and Little Rock Railway Company-a corporation then recently organized under the laws of Arkansas, by the parties to whom Witt conveyed, subject, however, to the condition that that company should execute its bonds for $2,600,000, secured by first mortgage to the New York Guaranty and Indemnity Company-that amount, according to the estimate of the parties, being less than the principal and in Statement of Facts. terest due on the $1,300,000 mortgage of May 1, 1860, and other indebtedness theretofore incurred in the construction and equipment of the road. In conformity with that condition the railway company executed, December 1, 1873, a mortgage securing its bonds for $2,600,000. That mortgage provided among other things, that "in case of any sale, judicial or otherwise, of the premises embraced in this mortgage, and the holders of a majority in interest of the then outstanding bonds secured by this mortgage shall, in writing, request the said trustee, or its successor or successors, or his or their survivor or survivors, so to do it, they or he is authorized to purchase the premises embraced herein for the use and benefit of the holders of the then outstanding bonds and coupons secured by this mortgage. And that, having so purchased said premises, the right and title thereto shall vest in said trustee or trustees, and no bondholder shall have any claim to the premises or to the proceeds thereof, except for his pro rata share of the proceeds of said premises as represented in a new company or corporation to be formed by a majority in interest of said bondholders for the use and benefit of the holders of the bonds secured hereby. And whenever the holders of a majority of said bonds shall have organized a new company or corporation for the use and benefit of all the holders of the bonds secured by this mortgage, the said trustee, or its successor or successors, or his or their survivor or survivors, shall reconvey the premises so purchased by it, him, or them to said. new company or corporation." The New York Guaranty and Indemnity Company was succeeded in the trust by Pierson, Dow, and Matthews. The railway company having made default in meeting the interest on its bonds, and the principal, under the terms of the deed of trust, becoming thereby due, the trustees instituted a suit for foreclosure. Pending that suit, Tate and others, trustees in the mortgage of May 1, 1860, were made coplaintiffs. The bill was amended and the prayer for relief so enlarged as to include a foreclosure of the latter mortgage. Both mortgages were foreclosed by final decree of November 1, 1876, the amount found to be due on that of May 1, 1860, being $1,088, Statement of Facts. 348.80, with interest at the rate of six per cent. per annum, and the amount due on that of December 1, 1873, being $3,016,000. The decree provided, among other things, "that if said trustees shall be so requested, and shall bid for said property, they shall pay into court a sufficient sum to pay the costs of sale and this suit, including counsel fees, allowances to trustees, to the commissioner for sale, and master of this court. And for the residue, their bid to the amount due and ordered to be paid by this decree shall be accepted by said commissioner, and he shall forthwith execute a deed conveying the purchased property to said trustees for and upon the trusts expressed in said second mortgage; that is to say, upon trust that they will convey the same to such new company or corporation as may be organized by the holders of a majority in interest of said bonds upon demand thereof." At the sale under that decree, Pierson, Dow, and Matthews, as trustees in the deed of December 1, 1873, purchased the property for the holders of bonds secured by that instrument, and a deed was made to them, on April 28, 1877, in trust for such holders, "and upon the further trust that they will convey the same and all thereof to such company or corporation as may be formed by the holders of a majority of such bonds at such time and upon such terms and conditions as a majority of the holders of such bonds may require.” On the day last mentioned the majority, in value, of such bondholders entered into articles of association reorganizing the Memphis and Little Rock Railroad Company and fixing its capital stock at $1,300,000. The parties engaged in the reorganization being holders of the bonds secured by the deed of December 1, 1873, and beneficiaries under the deed of April 28, 1877, took the entire stock to themselves without paying therefor in money. The articles, after declaring that each and every share of the above-named stock was fully paid stock, and acknowledging, on behalf of the company, that one hundred dollars had been paid upon each share by the holder thereof, provided: "That we hereby require the said trustees, William S. Pierson, Watson Matthews, and R. K. Dow, to convey all and Statement of Facts. singular the property, charter, franchises, rights, privileges, and immunities, so conveyed to them by such commissioner, to the Memphis and Little Rock Railroad Company, as reorganized, upon the following terms and conditions, to wit: “1. That said railroad company, as reorganized, shall issue its two hundred and fifty bonds, payable to bearer at the office of the Central Trust Company of New York, in the city of New York, each for one thousand dollars, maturing in five equal instalments, on the first days of May, in the years 1879, 1880, 1881, 1882, and 1883, bearing interest from date at the rate of ten per centum per annum, payable semiannually at the same place, with coupons for said interest annexed; and shall secure the payment of the principal and interest thereof by a mortgage of all and singular the said property, charter, franchises, rights, privileges, and immunities, of which mortgage said Pierson, Matthews, and Dow shall be trustees, and shall deliver the same to the said Pierson, Matthews, and Dow, to be by them sold, and the proceeds applied to the payment of the liens upon the said property reserved by the decree of the said court directing the sale thereof, and to the payment of moneys borrowed by them to make the cash payment required by said decree. "2. That said Memphis and Little Rock Railroad Company, as reorganized, shall execute and deliver to said Pierson, Matthews, and Dow, its two thousand five hundred and seventyfive other bonds, each for the sum of one thousand dollars; and its one hundred other bonds, each for two hundred and fifty dollars, payable at the same place thirty years after date, bearing interest from the first day of July, 1878, and until the first day of July, 1882, at the rate of four per centum per annum, and after the last-named date at eight per centum per annum, payable at the same place, with coupons for such interest attached; and shall make provision for a sinking fund for redemption of such bonds, and shall secure payment of said bonds, interest, and sinking fund, by a mortgage of all said property, charter, franchises, rights, privileges, and immunities, of which mortgage said Pierson, Matthews, and Dow shall be trustees; such last-named bonds to be by said Pierson, |