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otl\er,,:ise ot; t,bem., default has no. other (!ffeft than to render the in the .pll,yment' of mterest priJiCipal' ptesently colIec'tilJre; iand the' provMon oitlie bdndsfi'±ing the rate of interest thereoru:dUl'ingltheentbe.:tet·!.tl to run con. tinnes'in dec:rooj butr,jas tq"iutel'e$ticou'ppns W1Iich have mab..;l'j, terxps, lin the of ,fJ.ny woyi&iO;J;l ophe contract , ,the tile legal will A decree tn ia S'uit; to' it/reclase a rlrllrolltlmort'gage,) which at the instance of tke' trustee· in' the mortgage' determmes: the 'IIlJmaunt' due· on tbe mort,gage daM, illclQdingintercEl!>t on. the and ;J;llatured couf1-11, pons, renders' the amount of such interest res judi\?IJFlI-,!a& , the and allothers 'rho are'6r may' thereafter be, co'mepartles the suit, lind 'cbrrechiess Of the in that respect . cannot be qHestioned In:Snpplementalproceedlngs brought thereunder..
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OF DECI{EE- IMPEAcItMEN1'. IN. SUPPLE1I;lENTAI, PJlOCEEDINGS.

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of, the. on Sullivan'&'CromweU, fol'! exceptank u. w' . to ;tbe iJ;e.pp.. 20, i18V8", ,."rJ)e::Nor!hepl N PaCific,
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ber purchaser unp.e,r t1).e decree of filed Il}.; ,lliitEfr:fOJ;p,npClpal . .. ,.d, seques n proceedings a:Q:l0lljutdue upon the cons()lidat,ed Raitrol;la Co,mPl1ny owned by clai!Ua l1 t'l by the of the, rate/ofl ;s,)iquldbe of the bonds au<l.1l'pQJ1; the c()upons, ,!lfter ve dates of 'maturitj;.;, special" m.ltster :the at, the rate of $ per JU/iists thltt Jt,should be cast at the rate of 6 per cent. per annum; and this is the contention. the two rates The difference in the amount of interest, mentioned, is $1,664,382; so that the question; 'alfhou'gh one of no great difficulty, is of moment to the claimant. The bonds in question bear date December 2, 1889, and are respectively payable on the 1st day of December, 1989, "and interest thereon in the meantime at the rate of five per cent. per annum, * * * semiannually, on the first day of June and on the first day of December in each year." Coupons were attached to each bond for the semiannual interest contracted to be paid for the entire period of 100 years. By article 16 of the trust deed securing these bonds it was provided that in case of default in the payment of any installment of interest, or of any coupon annexed to the bonds, such

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LOA" & TRU:3T CO. V. KORTHER" PAC. R. CO.

455

default continuing for the period of one' year, at t'he election of the trustee the principal of aU the bonds secured by the insfirument should become immediately due and payable. Default was made in the payment of the coupons maturing on the 1st day of June, 1893, and upon all succeeding ma.turing coupons. After December 1, 1895, the trustee duly elected that the entire principal sum of each and every of the consolidated mortgage bonds should forthwith become due and payable: The question is. whether the contract rate of into'est continued after default by the obligor and election by the trustee, or whether the legal rate of G per cent. should control. I have fOlInd, and have been referred to, no case which directly rules the que.stion involved, and must ascertain the principle which should govern from the rulings of the supreme court in cases more or less analogous. In Brewster v. Wakefield, 22 How. 118, it was ruled that a rate of interest greater than that allowed by statute, in the absence ofStipulation for a rate of interest after maturity, would nOt be allowed after maturity, and that the legul rate should govern. In C:r;omwell v. Sac Co., 96 U. S. 51, 60, it was held, under the sta,tute Of Iowa allowing the same rate of interest after maturity as tha't exwessed in the contract to be paid until maturity, that the stipulated rate attended the contract until it should, be merged in judgment. In Rolden v. Trust Co., 100 'G. S. 72, it was ruled that, under the l:;tw prevailing in the District ofColutnbia, a note payable with 10 per cent. interest only drew that rate up to its maturity, and thereafter legal rate of 6. per cent.; and the principle is there stated by Mr. Justice Swayne as follows:
"If payment: be not made When the IJ;Ioney becomes due, there is a breach of the contract, and the creditor is entitled to. damages. Where none has been agreed upon, the law fixes the amount according to the standard applied in all such cases. It is 'th{legal rate of interest where the parties have agreed upon none. If the 'partles meant that the contract rate should continue, it would have been easy to say so. .In the abs.ence of a stipu.latioil, such an intendment cannot be inferred."

The case of Ewell v. Daggs, 108 'G. S.143, 2 Sup. Ct. 408, may also be referred to, bilt it does not alter the rule declared. So that the principle would seem to be established that the legal rate of interest is to be .allowed as damages for the nonfulfillnlent of the contract, unless by the .contract itself it is manife8t that a different rate was intended to govern. Interest upon a matured debt is given by the law as damages for the improper detention of money. The rate speeified by statute is allowed only in the absence of contract stipulation upon the subject, speaking to a period subsequent to its maturity. In the One tHe obligation to pay interest after maturity arises assent of the parties; in the other, from a duty imposed by law. Here the obligorby its 'bond agreed to pay a certain sum of money on December 1, 1989, it period of 100 years from the date of its obligation, and to pa.y interest upon its debt in the meantime,-that is, llntil December 1, 1989,':-at the rate of 5 per cent. per annum. It attached to each obligation coupons representing the semiannual

FEDERAL REI"ORTER.

that rate and that period of time." Tbe stipulation which aqthorizes tM at .electWll to mature th"lf pr.incipal upon defalllt in the paynwnt of inter.;estdoes not purto abrogate the <rate 9f' which the,6pligor agreed to the stated period. of the election m,atured tbe. principal, but left. untouched for interest The rate WM agreed upon by,the partiesjo the contract, and was to continueduring a stated period of time, and that rate should govern dmingthat . period of .tiJ;ne, that 1>Y the election of dIe trustee the prinCipal was matured at an earlier date than that contract. 'If the stipulated rate was greater than the rate, could the trustee, after to mature the principal, be l\eguired to receive only the legal rate of interes.t? I think it logfOllOWS, from the principle declared by the supreme court, that in such case the contract rate would govern,' because the parties have agreed upon the rate for thepel,'iod up to the time specified in the ,contract as the date of the niaturity of the debt. And so, e converso, the trustee having exercised the election to mature the debt before the stipulated period of maNrity, no one pursuing the debtor under such election can claim other benefit than to secure present p,ayment of that which, without default .of the debtor, could not be enforced until the period stipulated in the contract. If, after default and.eJection to Illature the debt, the 'creditor should receive his interest, or it court of equity should relieve from the default, the con· tract would remain intact in all its provisions. I am satisfied that the default by the debtor and the election by the trustee did not change the stipulation of the contract with respect to the rate of intel'est, and that the contract rate continued after the debt was maturl"d by the election o,f this trustee. . The special master allowed interest upon the coupons at the like rate !of 5 per cent. If that question was not embarrassed by con· siderations to which I shall presently advert, I am free to say that the creditor was entitled to intereEt at the rate of 6 per cent. upon the coupons. The law allows interest on a coupon for interest. It is: a contract to pay a 13pecified sum on a specified day. There is no provision in them, nor in the trust deed, with respect to the pay· n}ent of interest upon coupons. Oonsequently the legal in applyrate of interest should prevail. But there is ing that 'principle to the present case: The trustee filed its bill to foreclose the trust deed. '['hat cause was consolidated with the suit of Winston to subject tpe property of the debtor to the of its debts. In the cause the trustee deof the court that it ascertain the amount due upon the mortgage, and decree for. the sale of the mortgaged property pledged for the debt A decree passed pursuant to the. reo quest . of the trustee, in which. ,he court,dBtermj.ned the amount due op these bonds, the in*ere!'t uP<?Il coupons as well as upon the I1rincipal being therein computed at. the rate of 5 per cent. per annum. .'rhis was the rate .which'the trustee asked the court to detershould govern, and it was so .determined. The bondholders,

CITY OF I.AMPASAS V. TALCOTT.

so far as they are represented by the trustee in that proceeding, are bound by that decree. If it be said that the effect of that decree was only to determine the amount which should be chargeable upon the mortgaged property, and that the assets now sought to be reached were not covered by the mortgage, it is a sufficient answer that claimant here became a purchaser under that decree, and a party to that suit, and that the bill in sequestration filed by the trustee is not an original bill, but supplemental to the bill of foreclosure, and to the bill of Winston, and that the claimant here comes in under that bill seeking relief, and that all the determinations in these proceedings from the commencement of the litigation are res judie-ata: in other words, coming in under the dee-ree, and asking for relief thereunder, the e-laimant accepts and adopts all that bas been determined, and is not entitled to relief otherwise than in pursuance of the previous decrees. I therefore think the question of the proper rate of interest to allow upon the coupons is foreclosed by the deeree of tbecourt passed at the request of tbe representative of the bondholders, and that decree cannot now be impugned for error. ' The exceptions are overruled, and the report of the master confirmed.
CITY OF LAMPASAS v. TALCOTT. (Circuit Court of Appeals, Fifth Circuit.
No. 757.

MUNrcrPAL CORPORATTONs-DE FACTO OFFICERS-VALTDITY OF BONDS.

May 9, 1899.)

The city of Lampasas was incorporated April 18, 1873, under a special charter, authorizing its mayor and and aldermen, among other things. to construct waterworks and issue bonds for public improvements. Its organization was perfected, and continued until 1876, when its officers ,re: signed, and administration of its affairs was abandoned. In 1883 "an effort was made to form a new municipality, including within its limit& the territory of the original city and a large amount of contiguous territory. Officers were elected, and the new government was organized, and continued to 'perform the functions of a municipal corporation until 1890, when quo warranto proceedings were instituted, and the officers removed, on the ground that the special act of 1818 was still in force, and that the resignation of its officers and its failure to continue the administration of its affairs did not amount to a dissolution of the eorporation. ThereafteI an election was held under the charter of 1873. and its government reorganized, and nearly all of the additional attempted to be ineluded in the new city was subsequently annexed. In 1885, while the illegal organization was in force, it issued bonds for the purpose of constructing waterworks. The waterworks were constructed and accepted by the city. Upon the dissolution of this organization, the waterworks. passed into the possession of one holding a claim for services as superintendent, and the city ceased to exercise control over the same, and paid to the person in possession monthly rates for the use of the water. Held, that the officers acting under the irregular organization were de facto officers of the city, and the bonds issued by them were valid.

In Error to the Circuit Court of the United States for the Western District of Texas.