BARRY v. Mrssoum, K. & T. RY. co. 7
mortgage in order to ascertain what is the obligation of the railway
company to the bondholders respecting the payment of interest, and
what are the rights of holders of coupons and of the scrip certificates.
The mortgage creates a pledge during the 35 years between its date
and the time of the maturity of the bonds of so much of the net earn-
ings of the railway company-that is, the income after paying the
expenses of operation and maintenance, and interest on the prior in-
cumbrances—as may be necessary to pay the interest upon the in-
come bonds. This interest is to be paid at specified semi-annual
periods. The promise of the bond is to pay the principal at ma-
turity, and to pay the interest semi—annually," at the rate of 6 per
centum, "from the net or surplus earnings;" but in article 6 of the
mortgage this promise is further qualified so as to expressly restrict
the obligation of the company to pay interest, "provided said net or
surplus earnings shall be sufficient therefor." Consequently, unless
within some one of the six-months periods between the date and the
maturity of the bonds net income is realized, the company is not in
default, and is under no presentpbligation to pay interest. By the
third article of the mortgage it is provided that in case, at any time,
the surplus earnings shall not be sufficient to pay the interest as it
matures, the company shall issue to the holders of interest coupons
"a scrip certificate, payable only from the net or surplus earnings of
the company," carrying interest at the rate of 6 per cent., which
shall be redeemed and paid by the company before it shall declare »
any dividend to its stockholders. This provision, as well as the
language of the bond itself reciting a pledge of the entire income of
the property to the payment of the interest on the bond, clearly indi-
catesu that although the payment of all interest not earned within
any of the interest periods is to be postponed until a future day, nev-
ertheless it is to be paid whenever there is net income applicable
thereto. It is not only to be paid when there is a fund applicable to
its payment, but it must be paid before any dividend can be declared V
by the company to the stockholders. The declaration of a dividend
would conclude the company from controverting the existence of the
fund. Under the terms of the eighth article of the mortgage the cer-
tificates, which represent interest payable but not earned, stand upon
the same footing as the principal of the bond, and are to be paid out
of the proceeds of the sale of the property, or, if the proceeds are
not sufficient for the payment in full, are to be paid pro Tata.
According to the scheme of the mortgage, as denoted by the sev-
eral provisions referred to, the surplus earnings of each interest pe-
riod belong to the holders of coupons for that period. If the earn-
ings are insufficient to pay the interest in full, the holders are entitled .
to scrip certificates for the residue; if the net earnings more than
suffice to pay the interest for the six months, the surplus falls into a
general fund for the payment of holders of scrip certificates ratably;
if there are no net earnings until an exercise of the power of sale un- ‘