Mortgage bond

“ The holder of this bond is entitled to the benefit of the additional security of the sinking fund provided for in said mortgage, consisting of the net proceeds of the sales of the lands aforesaid, which are to be applied from time to time to the purchase of said bonds at their market value, not exceeding par, or to their redemption, as provided in the mortgage aforesaid. This bond will also be received by the company at par and accrued interest, in payment or exchange for any of its lands covered by the mortgage aforesaid, at the current cash price of the same as fixed from time to time. ”

“ While from the investor’s viewpoint an income at a fixed rate is highly desirable, from the corporation’s point of view it may impose so great a burden as to eat up all the profits. The bond interest constitutes a fixed charge deductible before the determination of profits. In case of failure to meet the bond interest, the mortgage covering the bonds is subject to foreclosure. Upon foreclosure at forced sale values always shrink greatly, oftentimes the shareholders lose their entire interest in the company, and all the net assets may be taken to satisfy the claims of the bondholders. ”

“ The floating debt was to be retired by the sale of new securities, namely, $18,235,800 new first mortgage bonds and $6,382,530 preferred stock. These were to net $14,588,640, or sufficient to cancel a debt of $6,310,000 and car trusts of $2,369,564 and to provide a balance for miscellaneous uses. A syndicate guaranteed the sale, but holders of stock or of collateral trust 5 per cent bonds were to be allowed to subscribe up to 16 per cent of their holdings at the rate of $800 for one new mortgage bond and $350 in new stock. ”

“ The authority asked was granted, and the amount above named having been negotiated with the appellant he executed a mortgage, December 1, 1876, to secure the payment of that sum in gold coin on the 1st of December, 1883, with interest (evidenced by coupons signed by him as guardian) payable half-yearly in like coin, at the rate of 9 per cent, per annum until the principal sum was paid; the guardian giving his bond for the principal sum, and coupons for the interest. The mortgage, bonds, and coupons, having been submitted to the court, were examined and approved. ”

“ A real-estate mortgage, or a bond and mortgage, as it is sometimes called, consists essentially of two parts, a bond or promise to pay a certain sum of money at a future date with interest at a certain rate per annum, and a mortgage or trust deed transferring title and ownership in a piece of real estate, with the provision that the transfer shall be void if the interest is regularly paid and the bond redeemed at maturity. Before advancing money on the security of a mortgage it is necessary to determine whether the title to the property legally vests in the maker of the mortgage ”

“ Much stress is laid by the defendant upon the fact that the bond, on its face, is called a 'seven per cent, income and land-grant bond;' and from this the argument is deduced that the interest is payable only out of income, but the expression, 'income and land-grant bond,' is sufficiently justified and satisfied by the fact that the mortgage states that the principal and interest of the bonds are secured by a mortgage upon the land acquired, or to be acquired, by the company, under the statute specified in the mortgage, and upon the net income of the lines of its railway east of Fort Worth. ”

“ First, it is said that this debt upon a respondentia bond is of too contingent a nature to uphold a mortgage, as collateral security for the payment of it. We know of no principle or decision, that justifies such a conclusion. Mortgages may as well be given to secure future advances and contingent debts, as those which already exist, and are certain and due. The only question that properly arises in such cases is, the bona fides of the transaction. ”

“ At the present time a mortgage securing the payment of corporate bonds is usually placed in the hands of a trustee—generally some trust company—which is supposed to act in behalf of the bondholders as a unit and which is empowered by the language of the bond, in the event of the failure of the corporation to perform the obligations it assumes in said bond, to foreclose the mortgage and divide the proceeds of sale among the bondholders.—Carroll. ”

“ Terms of the mortgage are, that in case of default in payment of interest or principal of any bond, and a sale or other proceedings to coerce the same, all bonds which shall be a lien in common therewith, and the interest accrued thereon, shall be considered, and shall in fact be equally due and payable, and entitled to a pro rata dividend of the proceeds of said sale or other proceedings. Reference is made to another clause of the mortgage, where it is said that in no case shall the principal of any bond be considered due until twenty years after its date ”

“ If there is money left over it is paid to the mortgagor, whose interests in the property are then at an end.
Many people, not familiar with business methods, are inclined to regard a mortgage as something of a disgrace, when, as a matter of fact it is a most usual and honorable means of raising money for the securing of a home or the conducting of a business.
Nearly all of the great railroads of the country have been built by the sale of the mortgage bonds, which are usually renewed when due, and are sought out as a safe and sane form of investment. ”

“ A mortgage is a conveyance of property for the purpose of securing debt, with the condition that if the debt is paid the conveyance is to become void. A mortgage in form is really a deed of the land, with a special clause stating that the grant is not absolute but only for the security of the debt. It is usual for the debtor at the time of executing the mortgage to execute also a bond or promissory note in favour of the creditor for the amount of the debt. ”

“ The practice of requiring mortgages to be paid in lump was abolished, and in place thereof the loans were made repayable by annual installments running through a long period of years, and the installments were set aside for redeeming the bonds. These steps brought about a complete revolution in land credit and marked the beginning of the land-mortgage business as it is known today. The whole theory of the organization of land credit is based upon this debenture bond and system of amortization and sinking funds devised and introduced by the Landschaften. One without the other two is useless. ”

“ The general mortgage bondholders got new 4 per cent bonds, plus 12 per cent, or 2 per cent in cash, had no greater interest charges ahead of them, and without paying any assessment or making any concession, except to allow the immediate increase of the amount of their issue by $4,000,000, and thereafter by $1,500,000 per year, secured a lien on the assets of the company ”

“ Our farmers who have mortgages on their property, and who have been told that free coinage will make things exceedingly easy for them, will have some unexpected experiences. Every mortgage debt that is due will be quickly called in. The mortgagor who tries to have his bond extended will find an unwilling ear. He who seeks to borrow money in order to replace the old mortgage with a new one will be told that this is no time for loans, except, perhaps, upon exorbitant conditions. ”

“ I hope the Buriton mortgage for £8000 still holds: nothing else can be so easy or good. The remainder you will throw into the funds, and I wish we could take advantage of the present fall, but if a sure bond or neat mortgage from £2500 to £4000 should offer itself, I should be very well pleased. ”

“ Under such circumstances, it cannot be maintained, against the first mortgage bondholders, that a balance of such a running account of five years' duration represents money so applied to the current expenses of the road, or so diverted therefrom to the payment of interest on the bonds, as to carry with it a superior equity for repayment. ”

“ Many of the Railroad bonds, of which immense quantities are in the markets of the world, rest back also for their security upon Mortgages of the real estate of the corporations made over to Trustees to hold for the assurance of the holders of the bonds. The personal obligation of the corporators is thus reinforced, much as a common mortgage reinforces the note or bond, to secure which the mortgage is executed. ”

“ In the second place a bond, which is no satisfaction of another bond, cannot be deemed a satisfaction of a mortgage, which is a security of a higher nature. To render it a satisfaction, it ought to better the Plaintiff’s cafe, in point of safety, and expedite the time of payment ”

“ In bonds and mortgages on unencumbered real property situated in this state, to the extent of 60% of the value of such property. Not more than 65% of the whole amount of deposits shall be so lent or invested. If the loan is on unimproved and unproductive real property, the amount lent thereon shall not be more than 40% of its actual value. No investment in any bond and mortgage shall be made by any savings bank, except upon the report of a committee of its trustees. ”

“ Mortgages on land require consideration as affecting the manner of showing the land value. Freehold land, i.e., land held in fee simple, if afterwards mortgaged should be shown on the balance sheet at full face value with the mortgage listed among the liabilities. The liability is usually a note or other bond which in case of the deficiency of the security would be a general claim against the free assets of the concern. It is therefore best, theoretically, not to show such a mortgage as an offset to its security. ”

“ Interest and rentals must be cut down without decreasing the nominal value of the securities outstanding. To reduce interest without reducing nominal value, either the interest rate on outstanding securities must be lowered, or mortgage bonds must be replaced by income bonds or by stock. To reduce rentals annual payments may be arbitrarily cut down, or rental contracts may be funded into mortgage bonds. ”

“ The owner of land who desires to raise money on mortgage approaches the bank and requests an investigation and appraisal, the expenses of which he usually pays. If the property is shown to be unencumbered with prior claims and meets other conditions, the bank delivers to the owner the mortgage bonds in convenient denominations up to a given proportion, usually 50 per cent., of the appraised value. ”

“ Power to re-borrow money paid to redeem such bonds 4. The Company may, from time to time, re-borrow all such moneys as may be required for paying or redeeming such Equipment Mortgage Bonds No. 2 by issuing other like bonds having the same privileges, but so that the aggregate amount of the principal money secured by Equipment Mortgage Bonds No. 2 shall not at any time exceed the sum of five hundred thousand pounds sterling.
Power to convert equipment mortgage bonds No. ”

“ At the time suit was commenced the first mortgage bonds outstanding amounted to $7,054,000, drawing 6 per cent. interest; the second mortgage bonds, to $7,954,000, drawing also 6 per cent. interest. The stockholders had never received any dividends whatever upon their investment, but, on the contrary (as appears from the cross bill filed subsequently to the commencement of the suit) , they had been forced to pay a cash assessment of over a million of dollars, or about 12 per cent. ”

“ The appellants are the holders of about six per cent of the first-mortgage bonds. They are endeavoring to overturn an arrangement agreed to by a large majority of the bondholders appointed by themselves to make an arrangement for the reorganization of the debtor company,-an arrangement sanctioned by the court, which does not lessen their security or postpone them to any other bondholders, but which preserves to its fullest extent all the rights assured to them by the mortgage. They ought not to succeed without the most substantial reasons. ”

“ All such securities, railroad bonds for example, are acted on equally by changes in the value of the property which secures them. Except for the influences of money-market conditions, railroad bonds advance with an increase in the value of the property and decline with a decrease in its value. Well-selected bonds usually increase in value with time, and all such increase goes directly to the benefit of the holder. The failure of real-estate mortgages to respond similarly to changes in the value of property places the holder of a mortgage at a great disadvantage. ”

“ Upon two grounds, therefore, it would seem to be necessary that the other bondholders should be parties to this suit: 1st. The adequacy of the security of the mortgage for the payment of all the bonds purporting to be secured by it is quite doubtful. The fund is, to some extent, 'tabula in naufragio.' It is the interest of every bondholder to diminish the debt of every other bondholder. In so far as he succeeds in doing that, he adds to his own security. ”