Barner v. Missoum, K. ar r. RY. co. 3
of interest upon the bonds; (2) whether the holders of scrip certifi-
cates stand in the place of holders of coupons, and are entitled to pay-
ment from the surplus earnings; (3) whether the earnings are appli-
cable pro rata upon all the coupons unpaid, or only to such as fall
due during the period in which earnings were realized that should
have been applied to the payment of interest.
The income mortgage was created to secure a series of bonds for
the sum of $1,000 each, amounting in the aggregate to $10,000,000. ·
Each bond recites that the railway company "is indebted to the Union
Trust Company of New York, or bearer, in the sum of one thousand
dollars, which the said railway company promises to pay to bearer
on the first day of April, 1911, in the city of New York; and from
the net or surplus earnings of said railway company to pay, accord-
ing to the terms of the trust deed or mortgage hereinafter mentioned,
interest thereon semi-annually, at the rate of 6 per cent. per annum,
at its office in the city of New York, on the hrst days of April and
October in each year, upon the presentation and surrender of the
coupons hereto attached as they severally become due; and in case
of default in the payment of any of the interest coupons attached to
this bond in the manner provided in the said trust deed or mortgage,
then, and in that case, the principal sum of this bond shall become `
due in the manner and with the effect provided in the said trust deed
or mortgage." The bond then recites that "the whole series of bonds
are secured by a trust deed or mortgage conveying in trust the cor-
porate property, real and personal, land grants, and the franchises
and privileges belonging to, or hereinafter to be acquired by, the rail-
way company ;" and contin.ues as follows: "The entire income of
said property, after the payment of the expenses of operating and
keeping the said railway and property in repair, and of the interest
on the incumbrances prior hereto, which are more fully set forth in
said trust deed or mortgage, is pledged to the payment of these bonds,
and the interest thereon, in the manner set forth in said trust deed
or mortgage."
The mortgage, the terms of which are thus by reference incorpo-
rated into the bonds, enumerates in article second the prior incum-
brances upon which interest is to be paid before income applicable to
the payment of interest on the bonds is to arise. They amount in
the aggregate to $19,082,000
The third article of the mortgage recites the promise to pay as re-
cited in the bonds, with the following additional clause:
"And in case at any time the said net or surplus earnings so remaining as
aforesaid shall not be suiiicient to pay the interest on said bonds as the same _
becomes due and payable, the said party of the first part [the railway com-
pany] shall issue to the holder of the coupons or interest warrants of said
bonds a scrip certificate, payable only from the net or surplus earnings of
said party of the first part, and which, with interest thereon at the rate of
six per cent. per annum, shall be redeemed and paid by said party of the first
part before it shall declare or pay any dividend upon its capital stock."