This was an appeal from a decree in equity, declaring certain bonds issued by the Toledo & Wabash Railway Company to be a lien upon property formerly owned by that company, and since transferred by it to the Toledo, Wabash & Western Railway Company, a corporation created by its consolidation with three other railroad corporations. 11 Biss. 510; S.C.. 15 Fed. Rep. 763. The material facts appearing by the record were as follows:
The Toledo & Wabash Railway Company, a corporation organized under the laws of the states of Ohio and Indiana, owning a railroad extending from Toledo in Ohio to Wabash in Indiana,-its property in Ohio being subject to a first mortgage for $900,000, and a second mortgage for $1,000,000, and its property in Indiana subject to a first mortgage for $2,500,000, and a second mortgage for $1,500,000,-on November 2, 1862, executed and issued for value bonds to the amount of $600,000, styled 'Equipment Bonds,' payable in New York on May 1, 1883, with coupons attached for semi-annual interest, at the yearly rate of 7 per cent.; and convertible at the option of the holder, at any time within five years, into common stock of the company at par. The company paid interest on those bonds to May 1, 1865.
On May 29, 1865, no lien of any kind then existing in favor of the equipment bonds, the Toledo & Wabash Railway Company, and three railroad corporations incorporated by the states of Indiana and Illinois, whose roads formed a continuous line from Toledo to the Mississippi river, entered into an agreement to consolidate their railroads, property, and capital stock, and to become one corporation under the name of the Toledo, Wabash & Western Railway Company, with a capital stock of $15,000,000, 'upon the basis and conditions hereinafter to be specified,' the material parts of which were as follows:
'The Toledo & Wabash Railway Company enters into said consolidation on the following basis, viz.: Its capital is $10,000,000, composed as follows first mortgage bonds, $3,400,000; second mortgage bonds, $2,500,000; convertible
The basis on which each of the three other corporations 'enters into said consolidation' was then set forth in like manner, by which the capital of the three together appeared to be $8,486,000, composed of mortgage bonds, $5,800,000, and stock, $2,686,000; and one of those corporations assigned to the consolidated company certain mortgage bonds, and agreed to pay to it in cash the sum of $780,300, required to place its road in equal condition with the Toledo & Wabash Railway.
'It is further agreed that the bonds and other debts hereinabove specified, in the manner and to the extent specified, and not otherwise provided for in this agreement, shall, as to the principal and interest thereof, as the same shall respectively fall due, be protected by the said consolidated company, according to the true meaning and effect of the instruments or bonds by which such indebtedness of the several consolidating companies may be evidenced.' 'The directors shall have power to issue any other and further bonds of said corporation to such an amount that the indebtedness of the consolidated company at any time shall not exceed the amount of the capital stock authorized by this agreement, and they may secure the bonds so issued by mortgage or other lien on the property of the consolidated company, or any specified part thereof.'
The agreement of consolidation was ratified by the directors and stockholders of all the companies, and the stockholders of the old companies became stockholders in the new one; and this company came into possession of all the railroads and property of the four old companies, and received and distributed the earnings.
On February 1, 1867, the consolidated company executed to trustees a mortgage of all its railroads, property, and franchises, to secure bonds to be issued by it, to the amount of $15,000,000, payable in 40 years, with interest at the yearly rate of 7 per cent. and convertible at the option of the holders, at any time within 10 years, into common stock of the company at par. The mortgage recited the consolidation, and also contained the following recitals: