4 FEDERAL REPORTER.
The sixth article of the mortgage recites the promise to pay inter-
est in somewhat different terms from the language of the bond and
of the third article of the mortgage, and reads as follows:
"The said party of the first part hereby further agrees that it will pay, or
cause to bepaid, the said bonds issued and secured by this mortgage, and
that it will pay the interest thereon semi-annually, in lawful money, from its
net or surplus earnings: * * * provided, said net or surplus earnings
shall be suthcient therefor; and that in case its said earnings in any six
months shall be insuflicient therefor, then for any such deficit said party of
the nrst part agrees to issue a scrip certificate, redeemable, with six per cent.
interest, before any dividend shall be declared upon the stock of said com-
pany. "
The seventh article of the mortgage authorizes the trustee, in case
of the neglect of the mortgagor to pay any interest due upon the
bonds, and after such neglect shall continue for one year after the
interest has been demanded, to enter upon the property, and hold,
use, and operate the same until a sale thereof pursuant to the power
of sale contained in the mortgage, and to apply the moneys accruing,
after deducting the expenses of operating and managing the prop-
erty, to the payment of the bonds pro mtu.
· The eighth article of the mortgage contains the usual power of
sale of the property and franchises, in case of a neglect on the part
of the mortgagor to pay the interest upon the bonds, and provides
that in case of sale the proceeds shall be applied to the payment of
the principal and interest of the bonds unpaid pro rata.
It appears by the proofs in respect to the surplus earnings of the
company that during the period beginning April 1, 1876, and ending
January 1, 1885, there was charged by.the company against earn-
ings in its net income account, among others, certain disputable
items, amounting in the aggregate to $3,784,336. If these items
are not properly chargeable against the income, the result would be
that su1·plus earnings arose during that period of time to the amount
of $2,073,662, being net profits from the business of the company
applicable to the payment of the interest upon the bonds beyond the
payment of interest on prior incumbrances and the expenses of
maintaining and operating the property. Of these items, one of
$255,275 is for unpaid indebtedness which had accrued against the
company before the income mortgage was created; another of $1,593,-
665 is for the difference between the face of the income bonds and
the sum realized upon them (80 cents on the dollar) by the com-
pany; another of $1,398,935 is for interest on prior incumbrances
which the company has not paid, and which the complainant alleges
the company is under no obligation to pay; and the other items are
likewise for interest for which the complainant alleges the company
was not liable.
· Respecting the disputed items for interest, it appears by an agree-
ment forming part of the income mortgage that this mortgage was
created in order to fund unpaid interest upon existing mortgages of