8 & 9 VICT. c. 16, the sum of £10,000, which had been expended upon claims against the company, and in the purchase of lands. In an action brought on one of these bonds it was held that their issue was illegal, and that the company could not recover.

Irregular sealing of Lloyd's bond.

Cases in equity.

White v. Carmar

then and Cardigan Railway Co.

Rushdall v. Ford.

Form of Lloyd's bond.

Where a railway company were sued by the assignee of a Lloyd's bond given by them to their contractor, and compromised the action before judgment by a transfer of all their rolling-stock to the plaintiff as security for money advanced by him, it was held that, on the trial of an interpleader issue between the plaintiff and an execution creditor of the company, who had taken the rolling-stock in execution, no evidence was admissible to show the illegality of the bond in its inception, on the ground of its not having been given for work done: (Blackmore v. Yates, L. R. 2 Exch. 225; 36 L. J. (Exch.) 121; 15 W. R. 750.)

Where the directors of a company were by their special act empowered to make contracts under seal, and three were to be a quorum, and a Lloyd's bond had been sealed with the company's seal, with the consent of three directors given singly at different times, it was held that the seal had been affixed without lawful authority, and the company were therefore not liable on the bond: (D'Arcy v. Tamar, &c., Railway Co., 2 L. R., 2 Exch. 158; 14 W. R 968; 14 L. T. N. S. 626.)

In equity, there are two decisions of Sir W. P. Wood, V.C., bearing upon this matter.

In one case, in which Lloyd's bonds had been issued in order to meet the deposit required upon the introduction of a bill for obtaining further borrowing powers, his Honour held that the Court could not interfere, because in the first place the bonds contemplated repayment at a fixed time out of the money which would be raised under the powers to be granted by the act, which he did not consider to be a fraud upon Parliament; and in the next place, that even if the bonds were invalid, it was for the shareholders (according to the principle laid down in Foss v. Harbottle, 2 Hare, 461) to protect themselves, the Court refusing to interfere in matters appertaining to the internal arrangements of a company, although it might have prevented the transaction by injunction at an earlier period of the transaction: (White v. Carmarthen and Cardigan Railway Co., 1 H. & M. 786; 33 L. J. (Ch.) 93; 12 W. R. 68; 9 L. T. N. S. 439.)

And in another case his Honour allowed a demurrer by certain directors to a bill seeking to make them personally liable upon Lloyd's bonds issued by them, and accepted by the plaintiff, after full opportunity for him to examine into the validity of the security he was about to take for the money he was advancing. The ground of the decision was not, indeed, the validity of the issue, but merely the fact of the acceptance of the bonds by the plaintiff, who must be taken to have known the law which rendered the security in that form invalid: (Rashdall v. Ford, L. R. 2 Eq. 750; 14 L. T. N. S. 790; 14 W. R. 950.)

The following is a valid and usual form of Lloyd's bond :"The Railway Company do hereby acknowledge that they stand indebted to A. B. of, &c., Contractor for Public Works, in the sum of £

for works executed and materials provided

by the said A. B. for the said company, for the purposes of their 8 & 9 VICT. c. 16. railway, as certified by the engineer of the said company. And the said company do hereby, for themselves, their successors, and assigns, covenant with the said A. B., his executors, and administrators, to pay to him, his executors, administrators, or assigns, the said sum of £ at the expiration of years from the day of the date hereof, together with interest, at the rate of £ cent. per annum, payable half-yearly upon the said sum, or so much thereof as shall for the time being remain unpaid, until payment thereof. Given under the common seal of the company, this day of in the year of our Lord

per

L. S.

powers.

(b) Where, after the passing of the Lands Clauses Acts Amendment Rent charges to Act, 1860, (23 & 24 Vict. c. 106,) the promoters of the undertaking go in diminution of borrowing agree with any person under the powers of the Lands Clauses Act, 1845, or of that Act only, for the purchase of any lands in consideration of the payment of a rent-charge, annual feu-duty, or groundannual, the powers of the promoters of the undertaking for borrowing money shall be reduced by an amount equal to twenty years' purchase of any rent-charge, annual feu-duty, or groundannual, so for the time being payable; s. 5.

(c) There is now, since the repeal of the Usury Laws by 17 & 18 No restriction as Vict. c. 90, no restriction as to the rate of interest upon loans, unless to interest on a certain rate be provided for by act of Parliament.

loans.

As to loans by the Exchequer Loan Commissioners, under the Advances to acts empowering them to advance money for the execution of certain companies by Exchequer Loans public undertakings, see South-Eastern Railway Co. v. Jortin, 6 H. Commissioners. L. 425; 6 De G. M. & G. 270; 2 Sm. & G. 48.

gard to interest on loans.

With regard to the period during which arrears of interest are Statutes of Limirecoverable under the Statutes of Limitation, it was decided in one tations with recase, where turnpike tolls had been mortgaged, that such tolls were not within 3 & 4 Will. IV. c. 27, and that the limitation of six years therein provided did not apply: (Mellish v. Brooks, 3 Bea. 22 ; 4 Jur. 739.)

interest.

It seems that a debenture or mortgage should contain a covenant Covenant to pay to pay interest; for where, in a mortgage of the tolls of a canal, there was no such covenant, it was held that the case came under the 3 & 4 Will. IV. c. 27, s. 42, and not under 3 & 4 Will. IV. o. 42, s. 3, which applies to actions of debt only; and as there was no covenant, that provision could not apply, and the interest could be recovered for six years only: (Hodges v. Croydon Canal Co., 3 Bea. 86.)

(7) It has been held that where the mortgage or debenture charges Future calls: not the "undertaking" only, future calls not being expressly included, pass unless exdo not pass under the security: (Per Lord Cairns, L. J., in Gardner Pressly included v. London, Chatham, and Dover Railway Co., L. R. 2 Ch. App. 201, 215.

Do not pass under the words

And where the deed of settlement of an insurance company funds and proauthorised the raising of money upon the security of the "funds

perty."

8 & 9 VICT. c. 16. and property" of the company, future calls were held not to pass (Ex parte Stanley, 33 L. J. (Ch.) 535.)

"Lands, tenements, and

estate of the

Unpaid existing calls and future calls were in like manner held not to pass under a debenture charging the "lands, tenements, and company and all estate of the said company, and all their undertaking:" (King v. Marshall, 33 Bea. 565; 34 L. J. (Ch.) 163.)

their under

taking."

Surplus lands not

By a mortgage in the form given in Schedule (C.) the surplus included in mort- lands of a railway company do not pass so as to give the mortgagee gage of the un- a specific charge upon them, or the moneys produced by the sale of dertaking in the form in schedule them, nor a right to have a receiver of such sale-moneys, or of the interim rents of the lands, appointed by the Court of Chancery: (Gardner v. London, Chatham, and Dover Railway Co., L. R. 2 Ch. App. 201; 15 W. R. 325; 36 L. J. (Ch.) 323; 15 L. T. N. S. 532.)

C.

It includes the works, rails, and land;

And stations.

Debentures are

of Mortmain, un

It was held in another case that a mortgage of the "undertaking" in the same form includes the interest of the company in the works, rails, and land, as incident to the working of the railway which is authorised to be made: (Legg v. Mathieson, 2 Giff. 71; 29 L. J. (Ch.) 385.)

Station-houses were considered, in the case last cited, to form part of the works, and therefore to be comprised in the mortgage.

As to the property of railway companies which is liable to execution upon judgment debts, see the notes to ss. 42–54, post.

It seems that railway debentures would, if in the form of a prosubject to Statute missory note, involving a mere personal obligation, not fall within less in the form the scope of the Mortmain Act (9 Geo. III c. 36): (Ashton v. Lord Langdale, 4 De G. & Sm. 402; 20 L. J. (Ch.) 234; 15 Jur. 868; Myers v. Perigal, 2 De G. M. & G. 599; 16 Sim. 533; 22 L. J. (Ch.) 431.)

of a mere promissory note.

Where under

mortgaged.

But if the undertaking and tolls are mortgaged by the debenture, taking and tolls there is an immediate charge upon hereditaments-namely, the tolls and the land from which the tolls proceed, and in this case the Mortmain Act applies: (Ashton v. Lord Langdale, ubi supra; Langham's Will, 10 Hare, 446; Finch v. Squire, 10 Ves. 40.) In Walker v. Milne, (11 Bea. 507,) however, Lord Langdale held that canal bonds were not an interest in land within the statute. A contrary opinion of Vice-Chancellor Wood is to be found in the case of Langham's Will, 10 Hare, 446.

Canal bonds.

Cannot invest in railway mortgages upon a

Liability of execu- Although, if an executor or trustee find amongst the property of tors and trustees his testator securities in the nature of railway mortgages or debenfor loss by nontures, it does not seem that he would be personally liable for loss conversion of railway mort- if he left such investment unconverted, (Robinson v. Robinson, gages. 1 De G. M. & G. 247 ;) still a power to sell and invest on real securities" will not authorise an advance of money for a term of years to a railway company upon the security of the undertaking, power to invest future calls, rates, tolls, &c., since it is not (as laid down in Doe d. in "real secuMyatt v. St Helen's, &c., Railway Co., 2 Q. B. 364; 2 R. C. 756) a security which can be enforced by ejectment: (Mant v. Leith, 15 Bea. 524; 21 L. J. (Ch.) 719; 16 Jur. 302;) nor, for the same reason, will a trust to invest " upon the security by way of mortgage of any freehold, copyhold, or leasehold hereditaments in England or Wales," warrant an investment in railway mortgages or debenture 'stock: (Mortimore v. Mortimore, 4 De G. & J. 472; 28 L. J. (Ch.) 558.)

rities."

Nor upon a power to invest in "freehold, copyhold, or

leasehold hereditaments,"

Borrowing Powers-Reborrowing.

43

Debenture Stock

s. 22.

With regard to the creation of debenture stock with a preferential 8 & 9 VICT. C. 16. dividend, see the Companies Clauses Act, 1863, (26 & 27 Vict. c. 118,) Part III. ss. 22-35, whereby any company, incorporated either before Companies or after the passing of that act, authorised by its special act to Clauses Act, create debenture stock, is allowed to raise all or any part of the 1863, Part III. money which for the time being they have raised, or are authorised to raise, on mortgage or bond, by the creation and issue of stock to be called debenture stock, instead of, and to the same amount, as the whole or any part of the money which may for the time being be owing by the company on mortgage or bond, or which they may from time to time have power to raise, and may attach to the stock so created a fixed and perpetual preferential interest,* not exceeding the rate prescribed in the special act; or if no rate be prescribed, not exceeding five per cent per annum.

The debenture stock is to be a charge on the undertaking prior Other provisions. to the shares and stock of the company, and transferable and transmissible in the same manner as such stock; the interest on debentures is to have priority over all dividends on shares or stock, and to rank next to the interest payable on mortgages and bonds; a receiver may be appointed in case of arrears in payment of such interest; or an action brought to recover them. The debenture stock is to be registered; a certificate is to be given to the holder; mortgages are not to be affected by the act; holders of the debentures are not to vote; the borrowing powers are extinguished to the extent of the issue of the debentures.

By 31 Vict. c. 26, certain guaranteed Indian railway companies Indian railway are empowered to raise money by the issue of debenture stock.

debentures.

borrow.

XXXIX. If, after having borrowed any part of the Power to remoney so authorised to be borrowed on mortgage or bond, the company pay off the same, it shall be lawful for them again to borrow the amount so paid off, and so from time to time (a); but such power of reborrowing shall not be exercised without the authority of a general meeting of the company, unless the money be so reborrowed in order to pay off any existing mortgage or bond.

(a) See Fountaine v. Carmarthen Railway Co., L. R. 5 Eq. 316.

borrowing.

XL. Where by the special act the company shall be Evidence of restricted from borrowing any money on mortgage or bond Burrowfor until a definite portion of their capital shall be subscribed or paid up, or where by this or the special act the autho

By the Railway Companies Act, 1867, (30 & 31 Vict. c. 127, ss. 24 and No rate of inter25,) by the repeal of the words of s. 22 of the Companies Clauses Act, est on debentures not already 1863, from "not exceeding" down to the end of the section, it is provided issued to be that no rate of interest on debentures, not already issued, is to be deemed deemed to have to have been inserted in any special act incorporating Part III. of the Com- been inserted in panies Clauses Act 1863, already passed, or to be passed, by any railway any act incorcompany. See the Act, post.

porating Part

8 & 9 VICT. c 16. rity of a general meeting is required for such borrowing, the certificate of a Justice that such definite portion of the capital has been subscribed or paid up, and a copy of the order of a general meeting of the company authorising the borrowing of any money, certified by one of the directors or by the secretary to be a true copy, shall be sufficient evidence of the fact of the capital required to be subscribed or paid up having been so subscribed or paid up, and of the order for borrowing_money having been made; and upon production to any Justice of the books of the company, and of such other evidence as he shall think sufficient, such Justice shall grant the certificate aforesaid.

Mortgages and bonds to be stamped.

Lloyd's bonds.

Use of schedule forms not obligatory.

Rights of mortgagees.

Priority of mortde

garees and der declared by Railway Companies

Act, 1867, s. 23. Saving of rights of holders of rent charges under Land

XLI. Every mortgage or bond for securing money borrowed by the company shall be by deed under the common seal of the company, duly stamped, and wherein the consideration shall be truly stated; and every such mortgage, deed, or bond may be according to the form in the Schedule (C.) or (D.) to this act annexed, or to the like effect (a).

(a) As to bonds in which the consideration is stated to be work done or goods supplied (Lloyd's bonds), see ante, pp. 39-41.

The words of this section with regard to the employment of the forms given in Schedules (C.) and (D.) are quite discretionary, and any other form of "deed under the common seal of the company, duly stamped, and wherein the consideration shall be truly stated," might be used.

XLII. The respective mortgagees (a) shall be entitled one with another to their respective proportions of the tolls, sums, and premises comprised in such mortgages, and of the future calls, payable by the shareholders, if comprised therein, according to the respective sums in such mortgages mentioned to be advanced by such mortgagees respectively, and to be repaid the sums so advanced, with interest, without any preference one above another, by reason of priority of the date of any such mortgage, or of the meeting at which the same was authorised.

(a) The priority of mortgagees and debenture holders against the company and their property over all other claims, on account of any debts incurred or engagements entered into after the 20th day of August 1867, has been declared by the Railway Companies Act, 1867, (30 & 31 Vict. c. 127,) s. 23, which provides, however, that this priority shall not affect any claim against the company in respect of any rent-charge granted or to be granted by them under the Lands Clauses Acts of 1845 and 1860, or of any rent or sum payable under