The fact that by the terms of a railroad mortgage the trustees therein are not author ized to enter and take possession of the prop erty until six months after a default does not preclude a court of equity from enter taining a bill of foreclosure before that time, and appointing receivers, when it is found necessary for the protection of the property, and to insure the due performance of the ob ligations which the mortgagor owes to the public; State Trust Co. v. R. Co., 120 Fed. 398.
The fact that there is a right of entry and sale, on dtfault, provided for in the mort gage, does not exclude a judicial foreclosure ; Louisville & N. R. Co. v. Schmidt, 52 S. W. 835, 21 Ky. L. Rep. 556; and a provision re quiring six months default before foreclosure proceedings, may be waived by the company and such waiver is not in fraud of cred itors ; Wells v. Trust Co., 195 Ill. 288, 63 N. E. 136.
Foreclosure proceedings on a railroad mort gage are not in rem so as to bind those who are not parties ; Pardee v. Aldridge, 189 U. S. 429, 23 Sup. Ct. 514, 47 L. Ed. 883.
Demand for payment is not necessary if the mortgagor has no funds, before proceed ing for foreclosure, though a corporation could of course show that payment would have been made if demanded ; Shaw v. Bill, 95 U. S. 10, 24 L. Ed. 333.
The court having acquired jurisdiction takes control of the entire property of the corporation through its receiver, and usually in the case of a railroad, though exceptional ly in the case of other corporations, operates the property through such receiver. See RE CEI VERS.
After the receiver takes possession, sup plies, even though not covered by the mort gage, cannot be taken in execution by cred itors. Prior to such taking possession, such assets are ordinarily subject to execution, or can be reached by attachment or bill in equity. Income, such as earnings, or inter est or accounts collected subsequently to the appointment of the receiver, are taken by him and administered for the benefit of all the creditors. See RECEIVERS; OPERATING EXPENSES.
Provision is then made for ascertaining the liens, or claims, against the property and determining the liabilities of the corporation and their several priorities. This is prelim inary to a sale of the property, in order that parties interested may know what the in cumbrances upon, or claims against, the property are, and may bid intelligently, or make provision to redeem the property with out forcing it to a sale ; Grape Creek Coal Co. v. Trust Co., 63 Fed. 891, 12 C. C. A. 350.
Decrees for the sale of mortgaged prop erty usually provide that a part of the bid may be paid in bonds of the issue secured.
On the foreclosure sale of the property of a corporation, bonds should not be received in payment of a bid except for such proportion of the bid as the purchaser, on a distribution of the purchase money, is entitled to receive on account of his bonds, and the right to bid in bonds should be extended to all bondhold ers on the same terms ; American Water works Co. of Illinois v. Trust Co., 73 Fed.
956, 20 C. C. A. 133.
The receivership usually terminates in a sale under order of court, either for the pur pose of carrying out a plan of reorganization (see REORGANIZATION, or for the purpose of realizing upon the property of the corpora tion. For the form of a bill of foreclosure and decree, see Skiddy v. R. Co., 3 Hughes 320, Fed. Cas. No. 12,922.
A purchaser of real estate at a foreclosure sale is punishable as for contempt in refus ing to obey an order of the court requiring I him to complete the sale ; see Burton v. Linn, 20 App. Div. 625, 47 N. Y. Supp. 835. In : ability to pay the price will not relieve the Iparty ; Burton v. Linn, 20 App. Div. 625, 47 N. Y. Supp. 835; contra, Smith v. Smith, 92 I N. C. 304.
In equity a decree may be entered on a mortgage foreclosure for any balance that may be due over and above the proceeds of the sale ; White v. Ewing, 69 Fed. 454, 16 C. C. A. 296.
The purchaser of railroad property at a judicial sale succeeds to all the rights of the former owner and of the holders of the liens and claims foreclosed, as against an unfore closed lien, and may intervene in a suit to enforce such lien, and assert the equities and rights to which it has thus succeeded; Con nor v. R. Co., 109 Fed. 931, 48 C. C. A. 730, 54 L. R. A. 687, where it was also held that the .property of a public corporation, such as a railroad company, cannot be sold under process separately and apart from its fran chise, where such property is so indissolubly linked to the franchise and to the public functions of the corporation that without it the franchise will be rendered inoperative.
If there is collusion to cut out unsecured creditors the sale will be set aside ; Louis ville Trust Co. v. Ry. Co., 174 U. S. 674, 19 Sup. Ct. 827, 43 L. Ed. 1130.
It is to be observed that in a foreclosure it is by no means certain that the lien of the mortgage will be determined to be the first lien upon the corporate property. In many cases it develops that claims subse quent to the mortgage in time are held to be prior liens, and while for many purposes the filing of a bill or appointment of a re ceiver fixes the liabilities, it may be that claims arising even subsequent to the re ceivership' will be held to precede the claim of the mortgage bondholders.
The first payment out of the fund realized from the property is for the expenses of the litigation, always provided for from a fund under the control of a court. Included un der this head are receivers' certificates, since these were issued by order of the court. See