Equitable Trust Co. v. Western Pac. Ry. Co.

244 F. 485 | S.D.N.Y. | 1917

LEARNED HAND, District Judge

(after stating the facts as above).

[1] This being a suit based upon the direct contractual obligations of the Denver Companies to the trustee and indeed having been already held to be such in Re Equitable Trust Co., 231 Fed. 571, 145 C. C. A. 457, the first question is to inquire from the contract itself what provisions create any such obligations. Both parlies agree that they are sections 4 (b) and 5 of article 2. The Denver Companies already in section 4 (a) had promised to purchase promissory notes of the Pacific Company equal in amount to the yearly deficiency of the Pacific Company’s income to meet certain charges upon that income, among which were the installments of interest and the sinking fund. Clearly the provisions of section 4 (a), at least up to the proviso with which section 4 (a) closed, required the tender of the requisite notes before the condition of the obligation was performed. Moreover, section 4 (b), so far as it was couched in the same language as section 4 (a), while it did create an obligation direct to the trustee, required as performance only the same acts as were required by the promise to the Pacific Company, and any condition upon the one obligation must have been equally a condition upon the other. Some point is made touching the change in language between section 4 (a) and section 4 (b), the first being an out and out purchase, while the second is an undertaking to pay “out of the purchase price.” Were there nothing more in the contract, I should hardly treat this difference in terms as indicating any purpose to compel the Denver Companies to pay to the trustee unconditionally. Without other language it seems to me that the promise to pay “out of the purchase price” would be conditional upon the same tender as was the promise to the Pacific Company itself. The other language in the contract, however, removes any doubt about the purposes of the parties.

The proviso of section 4 (a) itself recites that the payments made to the trustee shall be deemed to constitute payments of the purchase price of notes “to be purchased” by the Denver Companies, thus perhaps indicating that the payment in some cases will precede the delivery. Section 4 (e) with unnecessary amplitude stipulates that the delivery of the notes shall not be a condition precedent upon the obligation of the Denver Companies to make not only those payments covered by section 4 (b), but also those covered by section 4 (a). Section 4 (f) provides for the issue of stock to allow the issuance of the necessary notes. The purpose of section 4 as a whole is too clear for question. The Denver Companies were to insure the continuance of the Pacific Company as an operating railroad in return for its promissory notes. If for any reason the Pacific Company could not legally, or indeed would not (though the control over it was absolute), make and deliver the notes, it was to be no excuse, for the determining motive, as. must always be remembered, was the security of the bonds, and that security depended, as every one knew, upon the continued operation of the road. The whole purpose of the contract was to give the assurance of the Denver Companies’ credit to the proposed issue. Therefore by the most explicit language, as well as by the most obvious deduction from the general purpose of the enterprise, it appears that the delivery of the notes was in no sense a condition upon the performance of the successive promises contained in section 4 (b), and I must confess that I cannot understand how any casuistry can for a moment throw any doubt upon the conclusion.

[2] Now, in the view that I take of the default of the New Denver Company on March 1, 1915, I do not think that the question is important as to whether the delivery of the notes was a condition precedent to the payment of any particular semiannual payment, because I regard that failure, coupled as it was with the expressed purposes of the Denver Companies, to constitute a repudiation which absolved the Pacific Company from any further delivery of the notes to be purchased by it. The construction of the promises in sections 4 and 5 of article 2 does, however, involve a much more important and serious consideration than this, since the New Denver Company now claims that the conduct of the trustee and the reorganized company upon the foreclosure and sale of the property was such as to deprive the New Denver Company of rights guaranteed it under the contract, and so to disable the trustee from claimirig any future damages under the breach. Strictly speaking, this matter-affects rather the amount of the damages to which the trustee is entitled, going as it does to what took place after breach; yet, since it fits appositely into the interpretation of the contract and involves the question of whether the obligations remained in existence after a foreclosure, if, for example, there had been only a default in the payment of a single coupon, I shall take it up now.'

[3] The defendant’s theory is that section 13 of article 2 provided that in any event the property of the Pacific Company should at all times remain subject to its promises to devote the income to the purposes mentioned in section 4 of article 2, and that any successor must continue so to devote that income ahd to give promissory notes to the Denver Companies for whatever advances they might be required to make. The conduct of the trustee in ending that possibility would therefore end the obligations if they ever became the subject of future suit, and would prevent their consideration in assessing, any damages if there was a total repudiation. The defendant’s theory is further that, regardless of the question whether the successor corporation was bound by promises of the Pacific corporation, the performance of those promises was a condition upon the New Denver Company’s continued performance under sections 4 and 5 of article 2, since it is not possible that the Denver Companies meant to charge themselves with future installments of interest over an indefinite period when by no possibility could they receive the performance for which they bargained and when they must therefore be deprived, not only of the earning power of, but also- of recourse against, the Pacific ■ Company, upon which they depended. The repudiation by the successor corporation of these promises at the least, therefore, excused the Denver Companies from future performance and for the purposes of such a suit as this terminated the contract, except for existing defaults.

It is necessary first to see what possibilities were open to the trustee upon a default. Certainly it could have foreborne the exercise of its rights of foreclosure, and could have brought successive actions at law under section 4 (b) of article 2 to recover damages for each breach. Conceivably, to avoid a multiplicity of suits, by recourse to a suit in equity, it might have obtained a decree at the foot of which successive applications could have been made as each six months expired. There can, however, be no doubt that the trustee was not limited under the; contract to such remedies, because in section 14 of article 6 it is provided that in case of a default in payment of principal and interest, “whereby a right of foreclosure shall thereunder accrue/' the trustee may terminate the contract, except sections 4 and 5 of article 2, and all rights of the Denver Companies not only in the property of the Pacific Company, hut in its “income,” should cease, without releasing, however, the rights of the trustee under those sections. Not only is the language wholly unequivocal, but such a right, even if less clearly put, could have no purpose were it not to free the title from any engagements of the Pacific Company, no one of which is contained in sections 4 and 5, and there could have been no reason to free the title except that the trustee when it came to sell the property in foreclosure should have the advantage of an estate unclogged by any incumbrances. Turning to the mortgage, it is apparent that the same purpose existed there; for among the remedies of the trustee, it is specifically provided, as already set forth, that the rights arising from those sections shall survive any foreclosure. In the face of all this, it is difficult to see with what color it can be urged that the trustee foreclosed at the peril of the continued existence of those sections.

Nor, if we look at the essence of the situation, could any other result have been intended, because, if it were not so, the right of foreclosure would be substantially, and indeed altogether, destroyed. The trustee’s foreclosure would place it in the position either of abandoning the right of recourse against the Denver Companies, or of requiring any purchaser to accept a title subject to the condition of devoting all the income of the railway to the payment of the interest and the sinking fund, until the bonds were paid, and, if the income were not enough to pay interest, then to incumber the property with obligations to the Denver Companies for the balance. Indeed, all that would be accomplished by a foreclosure would in that case be to discharge the property of the principal of the debt. Now, it is, of course, the object of a foreclosure to relieve the mortgaged property from the debt, whether one regards the mortgagee’s right as a legal title or only a lien, because only so can the debt be paid. The effect of retaining a part of the lien is merely to subtract from the purchase price that which the purchaser must continue to pay; it is, in short, to constitute that part of the debt which remains a lien prior to the part which is paid — -a wholly anomalous situation. Indeed, in the last recital of contract B it is said that the Pacific Company intended the agreement to be in all respects subordinate to the mortgage and as part of its security, so that the bonds may be more advantageously sold. The suggested result contradicts both these purposes; it makes the mortgage pro tanto'subordinate to the contract, and it-would most seriously impair the value of the bonds as such. The purpose was to add to the mortgage the security of the Denver Companies’ credit; they being the parties chiefly interested in the enterprise and in absolute control of the mortgagor.

Those passages in section 13 of article 6 upon which the defendant relies do, if taken verbally, cover the contingency of a sale of the railroad in foreclosure, but their obvious purpose was of a wholly different kind, for they were intended to prevent any successor to the equity of redemption, or to the railroads, of the Denver Companies, from abandoning their obligations to the trustee. To impose them upon the trustee is to misconceive the whole plan of the transaction, and to make it a trap for unwary bondholders.

Such being the proper interpretation of the instruments, the question remains whether the trustee was limited to a foreclosure simply for coupons due, or whether it might under the provisions of the mortgage accelerate the principal and take both principal and interest out of the purchase price. It will appear upon reflection that it makes no difference in substance whether or not the principal be accelerated. By section 6 of article 5 of the mortgage it is provided that the whole of the property shall be sold, either as an entirety or in parcels, and there is no warrant for a sale of a part only, reserving the lien upon the rest. Such a provision would be absurd in the case of a railway, which must be operated as a unity. Hence, though the sale were only for one or more coupons, it must still be of all the mortgaged property, and the surplus would necessarily femain subject to the lien of the principal and future interest. Yet if, as I have shown, any sale must free the purchaser from the engagements of the mortgagor, the only means of meeting the future installments of interest would be the interest derivable from that surplus. Under any conceivable circumstances it would be to the advantage of the Denver Companies that the surplus should be at once available upon the principal of the debt, which by implication involves an acceleration of its maturity, rather than that that debt should continue to carry interest according to the tenor of the instrument, leaving as a charge upon the Denver Companies not only full interest upon so much of the principal as the surplus would not pay, but also the inevitable difference between what the surplus could earn and the 5 per cent, stipulated. Such a purpose is so far out of the range of probable expectations as to be safely disregarded, and there is therefore every reason to suppose that the provisions for acceleration stipulated in the mortgage were not intended to have any effect upon contract B, other than if the foreclosure took place only for one or more coupons.

The supposed hardship upon the Denver Companies of such a result is unreal,; they had it in their power always to prevent the termination of the Pacific Company’s earning power by performing their obligations. They were bound to the limit of their financial power to support that company, and their refusal was dictated by no more respectable consideration than a ñafie unwillingness to keep on paying their debts'. If they had indeed come to the end of their resources, it would mean that the whole enterprise was bankrupt, but they, of course, undertook, like every other promisor, to continue performance until that event: Then it would become a question of marshaling the two properties as the relative claims demanded.

I conclude, therefore, that under contract B, the trustee was entitled to exercise the remedies provided in the mortgage, and that the purchaser’s assumption of the promises of the Pacific Company was not a condition upon the promises of sections 4 and 5 of article 2, whether or not the trustee had accelerated the principal as provided in the mortgage.

[4] The next question is of the validity of the contract construed as I have construed it; was it ultra vires the Denver Companies? It may be assumed, for argument that the powers of these companies were limited to the purchase of promissory notes, and that an agreement simply to lend money to the Pacific Company for the purpose of meeting its obligations would have been ultra vires. First, it must be remembered, that the promises in sections 4 and 5 of article 2 at worst amount to no more than an engagement to pay the purchase price in advance of the delivery of the notes. Under section 4 (e) of article 2 such a contingency is distinctly provided for, and under section 4 (f) of article 2 the method by which the notes may be subsequently issued is stipulated, and the Denver Companies are committed to the necessary subscriptions. They were about to step into absolute control of the Pacific Company at the time of the contract, and certainly contemplated a continuance of that control. Had they likewise continued to perform their undertakings, they would not therefore have been called upon to do anything beyond their powers, unless the right to purchase obligations of a connecting road is limited to a purchase in which delivery is coincident with payment. That a provision like section 4 (e) of article 2 may be made the means of evading the statute is true enough, but no one asserts that it was so intended here. That provision was to insure the prompt payment of the current charges upon the Pacific Company’s income without possible delays due to the necessities of corporate action in increasing the stock, but the notes were intended in good faith always to follow, and the payment of the purchase price would, even without the stipulations of section 4 (e), have entitled the Denver Companies at any time to compel the Pacific Company to execute the necessary notes. It seems to me scarcely arguable that the advances in payment were ultra vires.

As to the question of the Old Denver’s being a “connecting” line under the Colorado statutes (Mills Annotated Statutes 1905, section 612 [a]), it is met not only by the case of Mo. Pac. R. R. Co. v. Sidell, 67 Fed. 464, 14 C. C. A. 477, but by the actual language of that section, which is that a railroad may buy the securities of any road connecting not only with itself, but with any road which shall connect directly or by means of any other line, which such company shall have the right, by contract or otherwise, when constructed, to use or operate.

However, it is urged that whatever the powers of the railroads to buy the notes of the Pacific Company while it continued to operate, if the contract continued after foreclosure, and so possibly covered a period when there was no Pacific Company properly so called at all, it was ultra vires under any theory. Now the only way in which the Pacific Company could cease to be an operating railroad, and so the only way in which the condition could arise, was for the Denver Companies to default in their own obligations, because they had in effect promised to continue its operation no matter what was its income. The argument is then pleasantly ingenuous, for it amounts to saying that the corporation was without power to make the contract, because it might refuse to keep it, and if it did, it might then have to do something else which was beyond its powers. It is the act of making the promise which is within or without the corporate powers, not the act of breaking it with its necessary consequences. The making of the promise is a valid act if it contemplates intra vires conduct; there can be no intra vires breach, and the results of any breach are the creatures of law alone. So it is quite irrelevant that the defendant, after breaking its contract, might be faced with a necessity which it could not have validly undertaken originally, quite as irrelevant as the possible necessity of submitting to a seizure of its corporate assets for breach of any other contract. The point raised thus involved a confusion of understanding of the purpose of the doctrine, and I therefore conclude that the contract was intra vires.

[5] Such being the character of the obligations, the next question is of breach. Had the New Denver Company defaulted upon one coupon only, clearly there could have been no- recovery for more than that one. This default did not, however, stand alone; it was followed by a second default on September 1, 1915, and, after the principal had been accelerated (an act in itself revocable by the trustee), by a still further default on March 1, 1916. Until the sale on June 28, 1916, the defendant had made not the slightest move to indicate that it or its creature, the Pacific Company, meant to go on with further performance. It had taken no steps to re-establish tire status quo or to put back the Pacific Company, then upon the conceded verge of financial dissolution, into a posture to operate and to earn its way. If' there had been nothing more, this alone showed an intention to abandon the whole enterprise by a permanent withdrawal of the support which had been so elaborately pledged to the bondholders.

But the defendant’s purpose was not left to inference merely, because it expressly declared what it meant to do. That declaration, the formal act of the New Denver Company, was published In the newspapers, and was directly communicated to those bankers who were known to be concerned with the interests of the bondholders. It was certainly intended to become known to the bondholders and to be the subject of their action. Obviously it was not convenient, and indeed it was impossible to tell each of them separately, and there could have been no conceivable purpose for the methods employed if it were not meant to advise the bondholders of what the New Denver Company proposed for the future.

What did it propose? Not to pay any more deficiencies of the Pacific Company unless the bondholders consented to abate their legal demands, and to that end unless they would deposit their bonds with the bankers so as to effect some compromise. To say that you will not pay as bound, unless the promisee makes some concession in his rights, is to say that you will not pay as you have promised at all. That is repudiation without even pretense of justification. When the default followed, it took its character from this preceding declaration, and gave the obligee the right to treat the contract at an end and, to sue. It is true that no direct repudiation was communicated to the trustee, but that was not necessary. The bondholders were the primary creditors, and the New Denver Company communicated as best it could to them. Their trustee could represent them in electing to accept it, and it did so when it brought suit while the repudiation remained unretracted.

Generally the mere declaration of a purpose to repudiate is enough, but here there was such an expression followed by appropriate inaction. In re Fitz George [1905] 1 K. B. 462, the creditor collected the several installments till the guarantor’s bankruptcy, and that was treated as a total breach. It did not appear that the guarantor had repudiated till then. Repudiation is, however, a more certain breach than bankruptcy; at least, it has taken longer finally to establish bankruptcy as ground of suit for entire damages. Central Trust Co. v. Chicago Auditorium Hotel, 240 U. S. 581, 36 Sup. Ct. 412, 60 L. Ed. 811, R. R. A.1917B, 580.

But it is said that such a result implied the possibility of the anticipatory breach of an obligation merely to pay money, and that the doctrine does not go so fax-. Washington Co. v. Williams, 111 Fed. 801, 49 C. C. A. 621; McCready v. Lindenborn, 172 N. Y. 400, 65 N. E. 208; Werner v. Werner, 169 App. Div. 9, 154 N. Y. Supp. 570. There are dicta to the same effect in Roehm v. Horst, 178 U. S. 1, 20 Sup, Ct. 780, 44 L. Ed. 953; Nicolls v. Scranton S. Co., 137 N. Y. 471, 33 N. E. 561; Kelly v. Security Mutual Life Ins. Co., 186 N. Y. 16, 78 N. E. 584, 9 Ann. Cas. 661; Moore v. Security Trust & Life Ins. Co., 168 Fed. 496, 93 C. C. A. 632. In these cases it is generally stated that the doctrine only applies to cases which are mutually executory, but that must be deemed authoritatively overruled by Central Trust Co. v. Chicago Auditorium, 240 U. S. 581, 36 Sup. Ct. 412, 60 L. Ed. 811, L. R. A. 1917B, 580, in which the promisee had wholly performed. In this court, at least the limitation oí mutuality cannot therefore apply. Furthermore, if perfonnance remains mutually executory, the doctrine still applies, even though the promise is only to pay money, because that is the situation in the ordinary contract of sale repudiated by the buyer, Roehm v. Horst, supra. Lovell v. St. Louis Mutual Ins Co., 111 U. S. 264, 4 Sup. Ct. 390, 28 L. Ed. 423, is another case where the promise was only to pay money. If the doctrine has any limits, they only exclude, and that arbitrarily enough, cases in which at once the promisee has wholly perfoimed, and the promise is only to pay money.

Assuming what I do not mean to admit, that it has such limits, they result because the eventual victory of the doctrine over vigorous attack (e. g., 14 Harv. Law Rev. 428; Daniels v. Newton, 114 Mass. 530, 19 Am. Rep. 384) has not left it scathless. Its basis in principle is that a promise to perform in the future by implication includes an engagement not deliberately to compromise the probability of performance. A promise is a verbal act designed as a reliance to the promisee, and so as a means to the forecast of his own conduct. Abstention from any deliberate act before the time of performance which makes impossible that reliance and that forecast ought surely to be included by implication. Such intermediate uncertainties as arise from the vicissitudes of the promisor’s affairs are, of course, a part of the risk, but it is hard to see how, except by mere verbalism, it can be supposed that the promisor may within the terms of his undertaking gratuitously add to those uncertainties by announcing his purpose to default. Even the opponents of the doctrine concede that, if there be such an implied promise, its breach may drag in the damages upon the main promise. 14 Harv. Law Rev. 434, 435.

•Whatever the lack of logic in refusing to apply the doctrine to notes or bonds or the like, there can be no valid distinction between an ordinary contract of sale or of insurance, which the buyer or the insurer repudiates, and a contract like this) because this was not a contract unconditionally to pay fixed sums at fixed intervals. Rather, as the defendant is so fond of insisting, it was, at least in form, a contract.of purchase, and no one has suggested that it makes any difference whether you buy hops or notes so far as this point goes. At least this consideration applies unconditionally to any repudiation of the New Denver Company to the Pacific Company. Not only in form was this a contract of purchase, but the Pacific Company had continuing obligations to perform while it continued. I agree that the same is not so true of the promises to the trustee which are here in suit, i. e., 4 (b) of article 2; yet I should, even if the trustee had no duties, be unwilling to make so arbitrary a cleavage in the doctrine at the expense of every consideration not only of principle, but of justice. For, if it were held that the doctrine applies as between the New Denver Company and the Pacific Company, but not between the New Denver Company and the trustee, this wo'uld be the result. Suppose that A. agrees with B. and C. to purchase a series of notes of B. and pay part of the proceeds serially to C., and he repudiates the whole enterprise .midway in its performance. B. may sue at once, and recover damages for the future installments, but C. may not, because C. is bound to no further performance. It is safe to say that the law is not so whimsically capricious as that; yet that by hypothesis is precisely this case.

However, the hypothesis does not accord with the facts, because C. of the supposititious case, who is in fact the trustee, was bound to continue performance while the contract endured; for contract B required constant co-operation between all the parties, and no one could perform independently of the others. The plan was for the Pacific Company to pay to its fiscal agents out of its income enough to pay the semiannual interest. Section 5, article 3. If this proved insufficient, the trustee was to advise the Denver Companies four days beforehand how much was lacking from the amount required from it. Section 7 of article 6. The Denver Companies were to pay this to the trustee (section 4 [b] of article 2), which was then to make it “available” to the fiscal agents of the Pacific Company, (section 8, article 6). It is true that the failure of the trustee to notify the Denver Companies was to be no excuse for performance by the Denver Companies, but it was none the less bound to give the notice, and notification was part of the interrelated machinery. To say that this involved no coordinated performance, is simply to disregard the frame of the contract; to assimilate such a contract to a bond or a note rather than to a contract of purchase is to turn away from the nearer analogy. .Tf there be any rational theory of anticipatory breach, it should cover the total repudiation of a standing arrangement of this character requiring the constant concord of all the parties.

Hence I conclude that the New Denver Company’s repudiation was a breach of the whole contract and gave an immediate right to full damages. Justice certainly accords with principle in such a result; for the repudiation was without even color of justification, an undisguised and candid disregard of the most deliberate undertaking, put forth to be relied upon by the public at large.

[6] Thus arises the question of the remedies to which the trustee is entitled, and with it the extent of the relief. The default on March 1, 1915, resulted in no more than damages for the unpaid balance of that coupon. The same is true of thé default on September 1, 1915. Before the third coupon came due the whole principal had been accelerated. The argument is that no further coupons could then become due, and that any interest upon the bonds necessarily arose thereafter by way of damages, and not according to the tenor of the instrument. In consequence it is said that contract B, which was only to pay interest upon the bonds, and not damages for failure to pay the principal on maturity, must terminate at that time. Had the obligation of the Denver Companies been until the maturity only of the bonds, this would have been a difficult question; for I cannot agree with the plaintiff’s position that those provisions of the mortgage authorizing the trustee to accelerate “the principal of the bonds” left the coupons available as separate specialties. Moreover, it is extremely doubtful, to say the most, whether an agreement to pay interest till maturity carries any obligation after maturity. Re Fitz George [1905] 1 K. B. 462, was not such a case, because the guarantor agreed, as here, to pay interest until the principal was paid, not until it was due. King v. Greenhill, 6 M. & G. 59, turned in part, anyway, upon the short period which the guaranty would cover if so construed and the improbability that the parties had so intended. Hamilton v. Van Rensselaer, 43 N. Y. 244, and Melick v. Knox, 44 N. Y. 676, are the other way and directly in point. I should tend to follow them if the question was raised in this case, but it is not. The scrivener of contract B put the matter beyond any question in sections 13 and 14 of article 6 in language which by its very explicitness seems to have raised some question of its meaning. Moreover, it is perhaps not without significance that the engagements are always to pay “interest,” and not “coupons.” Such a promise was held to cover interest after maturity in Re Fitz George, supra, and indeed, upon the guarantor’s bankruptcy, tq justify a commutation of the future payments into the unpaid balance of the principal. In the case at bar I cannot see how the purpose of the parties could be put more clearly, and it seems to me therefore irrelevant whether the principal matured in 1933 or in 1915. In either case the obligation to make up for the deficiencies of income remained what it was.

It is objected that so to construe the contract converts it into a promise to pay the whole balance due under the contract, and indeed in the outcome that is true. It was in fact the result in Re Fitz George, supra, where Lord Mersey awarded exactly that relief upon the guarantor’s insolvency, and in Central Trust Co. v. Chicago Auditorium, supra, the Supreme Court seems to have awarded the present actuarial value of the future installments under the same circumstances. It is true that there the contract was terminable in time, but I cannot see that that makes a controlling difference in principle. The only difference is that in one case the payments are determined in number by the convention of the parties, while in the other by the same rule they are indeterminate. To agree to pay such a series until a time which may never come is to agree possibly to pay them forever. The result may be serious, but it is involved in the premises, and any rule of damages which allows the present valuation of a limited series of such future installments seems by implication to allow an indefinite series. It is quite true that the creditor gets his discounted future installments now in hand, which is something other than getting the full value later, but that is a necessary concession to some present disposition of the controversy, as near a remedial approximation as the circumstances permit. It is true also that the indemnitor’s obligation is changed from a series in the future to a gross sum down, but that is a consequence not following merely from the original convention, but from his breach, which is a wrong and within his own choice. Damages sound in remedy and are by no means the equivalent of performance. Were it so, specific performance would be the only possible remedy, and even that not literally such. This is obviously the result when the indemnitor becomes insolvent, and it would be a strange rule which favored a frank repudiator over an obligor overtaken by bankruptcy.

[7] The next question is whether the sale in foreclosure injured the defendant and prevents a full recovery. I do not understand that the trustee’s conduct is challenged beyond its “sympathy” with the majority bondholders in committee. I pass injured susceptibilities. The theory is that the majority, being about to buy, tried to fix the upset price as low as they could, which is the fact. The minority opposed them, as the defendant could have opposed them by intervention, had it not chosen to let the minority bondholders fight its battle. Formally, the majority’s right to do so' was unimpeachable. The sale establishes the value, and any upset price whatever is a concession to the known uselessness of an auction in such cases. If the upset price be too low, any creditor must protect himself by bidding, a possibility practically ■more available to such a party as the defendant than to individuals. So far as it has gone, the law has devised no other way to protect against what indeed in practice amounts to a strict foreclosure, except for the upset price. That judicial sales in such cases are of small value to creditors I cannot help; it results from applying the same procedure to the sale of a quarter section and of a system of national transportation. Some form of valuing the property there must be, and we must work with what we have. Cases like Nor. Pac. Ry. v. Boyd, 228 U. S. 482, 33 Sup. Ct. 554, 57 L. Ed. 931, Kan. City Ry. v. Guardian Trust Co., 240 U. S. 166, 36 Sup. Ct. 334, 60 L. Ed. 579, and Louisville Trust Co. v. Louisville, etc., Ry., 174 U. S. 674, 19 Sup. Ct. 827, 43 L. Ed. 1130, do not help the defendant. Here no stockholders slipped in ahead of the creditors; indeed, the second mortgage bondholders were excluded.

In the contest over the upset price, what were the majority to do? The issue was a real one to them, both as against the minority and under this very contract. Must they let it go by default, even though the court might on the minority’s experts’ evidence ñx a price above any fair value? They did nothing but present their side to a court whose duty it was to decide justly. Must they assume that it would fail? It was not a case where by chilling the bids or maneuvering the time and place they prevented the realization of whatever the property could bring. All they did was to help in finding out the truth. 1 cannot see how they should have done less. When the price was fixed, if there was no other legal way to liquidate the security, the trustee was bound to sell it. If it had adopted any other way, the defendant would have challenged its propriety, because sale by foreclosure was the way indicated in the contract and in the mortgage. No other way suggests itself, except a judicial valuation of the road, which was indeed attempted, with as little satisfaction to the defendant. Therefore I conclude that the selling price of the road established its value for the purposes of contract B, and must be accepted as such.

Upon the question of the defendant’s estoppel in pais during the foreclosure I need say nothing. The trustee and the majority did not step outside their rights, and there was nothing to waive. It is of no moment whether or not the defendant should have declared its position while the foreclosure was pending.

There remains the question of damages. At the time of the published declaration in August, 1914, the defendant repudiated the contract, and the trustee was free to treat each of the indefinite series of future deficiencies as due at its then actuarial commuted value. However, the Pacific Company still held the property and had its income, and the deficiency upon no single future installment could be ascertained; it remained contingent in amount and even in existence; no damages coidd then be determined. This posture continued until July 1, 1916, the date of the master’s deed and the date upon which the purchaser became entitled to possession under the decree in foreclosure. One more coupon had fallen due meanwhile, and an installment of interest on March 1, 1916. It follows from the view I take of contract B that the maturity of the principal on December 18, 1915, did not affect the situation at all in respect of that installment; the interest continued as before. The deficiencies of March 1 and September 1, 1915, and of March 1, 1916, must be ascertained from the actual income of the road, and for that purpose the income earned by the receivers must be treated as income applicable to pay interest under section 4 (a) of article 2. Each of these three installments became due at the time stipulated; the deficiency upon each thereafter was a debt due from the defendant to the trustee as of that date.

On July 1, 1916, it became certain that there would never be any further income available on the bonds, and the future deficiencies became fixed in amount and in existence. Some of the debt was paid as of that date, but the balance remained and must remain forever unpaid. By virtue of the repudiation each deficiency of the series became due at its then commuted value, if the trustee so chose, under Re Fitz George, supra, subject to limitation in the aggregate by the unpaid balance of principal. The unpaid tialance is to be determined by deducting from the principal the purchase price realized upon the sale of the properties, $18,000,000, less such amounts as are properly chargeable in foreclosure, leaviñg a balance of $17,727,725.55. This subtracted from the principal of $50,000,000 is $32,272,274.45.

It will be asked what was the date o'f the breach, what that of the election to accept the breach, and which date counts in the ascertainment of damages. The repudiation of a contract opens to the promisee two courses of conduct, either to accept it at once as a termination and to sue for damages, or to' wait and sue as the time for performance arrives. The latter course allows the repudiator to recant and to perform, and the promisee’s delay subjects him to that possibility. The breach, however, remains the act of repudiation. The announcement in August, 1914, that the defendant would pay no more coupons therefore entitled the trustee to treat the whole contract as at an end, but for the reasons already given it would have been impossible at that time to prove any damages. The trustee did not, however, do anything upon the defendant’s repudiation until May 27, 1915, when it filed its first ancillary and dependent bill in this court upon contract B. In the bill, article 16, it recited, the power to declare the principal at once due and alleged its expected exercise of that power and of the right to sell the property for the full principal. In article 17 it alleged its inability to know the amounts due under contract B, and in the prayer for relief it asked for an accounting for the amount which should remain payable upon the principal and interest after .the sale in foreclosure.

It seems to me to make no difference practically whether the filing of the first bill or of the second on January 6, 1917, be deemed an election to'treat the conduct of the defendant as a repudiation. I shall assume that the first bill was such. At that time it is true that there could have been recovered only the unpaid balance of the coupon of March 1, 1915. If the suit had been at law, it would have been necessary to bring successive actions on September 1, 1915, March 1, 1916, and July 1, 1916, but that was not necessary in equity. By the supplemental bill it was permissible to set up the intermediate facts and the relief will be adapted to the situation disclosed at the time of the decree, Randel v. Brown, 2 How. 406, 423, 11 L. Ed. 318. Therefore the questions asked as to the time of the election are of no determining moment in the case at bar.

It is further said that the trustee had no power to elect to treat the repudiation as such, because it would result in a modification of the contract, and that could be done only as prescribed in section 14 of article 6. The objection misconceives the effect of the repudiation and of the trustee’s election. These did not constitute a modification of the contract. The repudiation was a breach of the contract, of that term in it which forbade the obligor to declare that it would be no longer bound by its stipulations. The remedy arose from that breach of suing for any future installment at once, and, if the defendant did not recant meanwhile, the right so to sue endured. Its election was no more than an expressed decision to sue, and that it evinced either on May 27, 1915, or January 6, 1917, I see no reason to decide which.

I have purposely omitted to refer to the sinking fund: First because, in the view I take of the rights arising under section 4 of article 2, the whole balance of the principal is in any case to be recovered; and, second, because by its terms it is due only out of the net earnings of the Pacific Company. Until July 1, 1916, there were no net earnings, and thereafter there could be none. It is true that it was because of the default of the defendant that this condition arose, but their wrong cannot make absolute what was otherwise contingent. There is no way of knowing when any sinking fund would become due or how much before the bonds matured in 1933.

The only other question which remains open is whether the promises under sections 4 and 5 of article 2 were liens upon the property of the Denver Company. I decline to determine this question, because no determination could be other than academic. That the payments were obligations is certain enough; they make the trustee a general creditor of the defendant, and as such they precede the rights of all stockholders. It could add nothing to their character to determine that they were liens, unless I had before me in this suit other possible lienors upon the property of the defendant. These cannot be joined without losing jurisdiction, and any expression of mine touching the priorities between such other lienors and the trustee would be brutum fulmen.

Finally the trustee asks for the instructions of this court as to what relief, short of a decree for the gross sum, it may properly accept. I have great question as to the power of this court, strictly speaking, to assume any general equitable jurisdiction over the conduct of the trust created, as well as the propriety of such an instruction in a suit inter partes, like this. However, it is quite true that this is a court of equity, and that its directions do not interfere with the disposition of a fund already within the jurisdiction of another court. In a proper case perhaps it might have the power to advise a trustee upon application by bill. The trustee must take its chances of protection under any advice I may give it, but I see no impropriety in saying that the immediate enforcement of a decree for so large a sum might well imperil the security of the decree itself. It seems to me, therefore, a reasonable exercise of that judgment which it is entitled to use to withhold process, and collect semiannually by way of interest upon the decree so much as will re-establish the relations which arose under contract B. It has certainly been suggested that the immediate enforcement of so large an amount would be impossible, and must result disastrously to the defendant. If so, it cannot be the duty of the trustee to cause the financial collapse of the debtor upon whose stability it must rely. As to further litigation designed to ascertain the priorities between the trustee’s decree and other lienors, I must leave it to its own devices.

[8] It is possible that questions will arise for determination before a decree can be determined. I can at present think of none, except the rate of interest which will accrue upon the unpaid balance of the three installments and upon the balance of the principal. In New York the rate of interest upon default is fixed at the legal rate regardless of the rate before maturity, Pryor v. City of Buffalo, 197 N. Y. 123, 90 N. E. 423, and the matter is one of state law, Ohio v. Frank, 103 U. S. 697, 26 L. Ed. 531. It seems to result, therefore, that the interest must be calculated at 6 per cent., which rate with reluctance I feel obliged to fix.

As to the sum of money impounded by injunction at the outset, the trustee may have process of execution under the eighth rule as soon as the decree passes. I can at present see no warrant for supposing it subject to the lien of engagements of the defendant. Its origin has not been disclosed, and whether or not there is a lien upon the railroad of the New Denver Company, there can hardly be said to-be any lien upon its general funds. A modification of the injunction order prior tb the entry of decree and to opportunity for execution seems hardly proper, however, as it might result in depriving the court of any means of enforcing its decree. That matter the defendant may, if it chooses, bring up upon notice.

Should it be necessary to have any extended hearing to determine the form of the decree, the matter may come on before Philip E. Miller, Esq., as special master. Otherwise the decree may be noticed for settlement at chambers on any day. The plaintiff will have its costs. So far as I am now aware, the foregoing disposes of all the questions raised.