C A S E S
ABGUED AND DETEBMINED
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BARRY v. Mrssoum, K. & T. BY. Co. and another.
(Oircwit Court, S. D. New York. March 22, 1886.
1. CZGXCUIT Cog1rr—Jumso1c*r1oN-C1r1zmNsmP—Tnusms: on Ixcoim Momeaem
omiur. EFENDANT.
A., the owner of certain coupons and scrip certificates of unpaid interest
· owing by a foreign railroad corporation upon bonds secured biy an income
mortgage, in behalf of himself and other owners of coupons an certificates, ·
filed a bill in the circuit court against the railroad company, and the Union
Trust Company, a citizen of the same state as himself, which was the trustee
named in the income mortgage, to compel an accounting, and for an injunc-
tion against the appropriation of the earnings of the railroad company con-
trary to the rights of the income bondholders, and for a decree for the pay-
ment of the income applicable to the interest, averring that the trust company
was made defendant because it asserted that no duty was imposed on it in re- `
spect to the matters involved in the suit, and had refused to bring suit when
requested so to do. Held, that the circuit court had jurisdiction.
2. Rnnnoao Comraur-Monreaon BONDS—“NET EARNINGS" Dmunnn.
As a general proposition, the “net earnings" of a railroad company are the
excess of the gross earnings over the expenditures defrayed in producing
therein, aside from, and exclusive of, the expenditure of capital laid out in
constructing and equipping the works themselves.
8. SAME—MORTGAGE or Mrssoum, Kansas & Tn AS RAILWAY COMPANY.
The expenses defrayed or incurred in proxducing the earnings for a given
interest period are the only charges which can enter into the income account
for that period, except the payment of interest on prior incumbrances, as
stipulated by the terms of the mortgage; and the company cannot charge
against income, for any period during the life of the mortgage, a payment or
a liability incurred on account of old indebtedness existing before the mort-
gage was created, or arising from a loss incurred by the sale of bonds issued
to pay off old indebtedness.
4. SAMn—AccoUNr1xa—INraiensr.
Where a mortgage is executed by a railway company to a trustee, condi-
tioned for the payment of interest upon the bonds secured by the mortgage
at semi-annual periods out of the surplus earnings of the company, the mort-
gagor owes a duty to the bondholder to keep such an account of its earnings
and expenses as will show the net results of each interest period, and the trus- ·
tee owes an active duty to the bondholders in the supervision of the account.
v.27F.no.1—1
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