A railroad mortgage is made with refer ence to the law of the state in which the subject-matter of the contract is, and in which the contract is made ; and the law enters into and becomes a part of the con tract as if it were there in express terms; Southern R. Co. v. Bouknight, 70 Fed. 442, 17 C. C. A. 181, 25 U. S. App. 415, 30 L. R. A. 823.
When a corporation mortgage is made for the general purposes of the corporation and bonds are issued in the ordinary course of business, the mortgage being recorded, all the bonds are to be taken as issued as of the date of the mortgage ; Rauch v. Park Ass'n, 226 Pa. 178, 7o Atl. 202. The power given under the state law to a corporation to mortgage its franchises and privileges neces the power to bring them to sale and to make the mortgage effectual, and the purchaser acquires title thereto although the corporate right to exist may not be sold; Vicksburg v. Waterworks Co., 202 U. S. 453, 26 Sup. Ct. 660, 50 L. Ed. 1102, 6 Ann. Cas. 253.
In the absence of a provision to the con trary, all bonds secured by a mortgage have an equal lien irrespective at the time at which they were negotiated; Pittsburgh, C., C. & St. L. Ry. Co. v. Lynue, 55 Ohio St. 23, 44 N. E. 596; Appeal of Reed, 122 Pa. 565, 16 Atl. 100. First mortgage bonds are prior to second mortgage bonds, even if subsequent ly negotiated; Clain v. R. Co., 8 Fed. 118. The invalidity of some of the bonds does not invalidate the mortgage; Graham v. R. Co., 118 U. S. 161, 6 Sup. Ct. 1009, 30 L. Ed. 196.
A stipulation in a mortgage for attorney's fee is lawful ; Nelson v. Everett, 29 Ia. 184 ; Barry v. Snowden, 106 Fed. 571; Piasa Bluffs Imp. Co. v. Evers, 65 Ill. App. 205;. contra, Kittermaster v. Brossard, 105 Mich. 219, 63 N. W. 75, 55 Am. St. Rep. 437; Turn er v. Boger, 126 N. C. 300, 35 S. E. 592, 49. L. R. A. 590; Billing v. Thompson, 12 Bush (Ky.) 310. It is a penalty and the court may reduce it ; Daly v. Maitland, 88 Pa. 384, 32 Am. Rep. 457.
The negotiable character of the bonds ex tends also to the mortgage securing them, against which, the mortgagor cannot defend on grounds which it cannot set up against bona fide holders of bonds; Chicago By. Equipment Co. v. Bank, 136 U. S. 268, Sup. Ct. 999, 34 L. Ed. 349 ; Collins v. Brad bury, 64 Me. 37; Towne v. Rice, 122 Mass.
67 ; the rule in Ohio and Illinois is said be different; Baily v. Smith, 14 Ohio St. 396, 84 Am. Dee. 385 ; Chicago, D. & V. Ry. Co. v. Loewenthal, 93 Ill. 433; see Spence v. Ry. Co., 79 Ala. 587. In case of default.. an individual bondholder may sue the cor poration, but after securing judgment can not have execution on property covered by the mortgage, which is security for all the bondholders alike. As to the effect of re citals in bonds as notice, see RECITALS.
In the surrender of corporate bonds and the substitution of new bonds, the latter will retain the security of the mortgage, unless an extinguishinent was intended; Traders Nat. Bank v. Mfg. Co., 96 N. C. 298, 3 S. E. 363 (where under a reorganization plan the old bonds were deposited and were to be held by a trustee as additional security for the old bonds) ; but not where the mortgage was satisfied of record; Traders' Nat. Bank v. Mfg. Co., 96 N. C. 298, 3 S. E. 363. A mere change in the form of the mortgage debt, such as substituting new bonds for the old, will not affect the lien ; novation, especially when against the interest' of the bondholders, must be clearly proved; Mowry v. Trust Co., 76 Fed. 38, 22 C. C. A. 52 ; and the funding of overdue interest and the issue of new ev idence of indebtedness in place of the over due coupons will not constitute a novation unless there be clear proof of an intention to waive the lien; Skiddy v. R. Co., 3 Hughes 320, Fed. Cas. No. 12,922 ; Gilbert v. It. Co., 33 Gratt. (Va.) 586.
A corporate mortgage may cover property acquired by the corporation after the mort gage is given. This has been sustained upon the theory that though ineffective as a con veyance, the mortgage operates as an ex ecutory agreement attaching to the property when acquired; Grape Creek Coal Co. v. Loan & Trust Co., 63 Fed. 891, 12 C. C. A. 350. This rule, though contrary to the com mon law, has been established from neces sity in the case of railroads, public policy requiring that a railroad be preserved intact as quasi-public property. The rule will be applied only where the mortgage expressly covers the subsequently acquired property. As to after acquired property in other than corporation mortgages, see supra.