burden of proof upon those who seek to charge an executor or trustee with a loss arising from the default of an agent, when the propriety of employing an agent has been established. Re Brier, Brier v. Evison, 26 C. D. 238. See Rehden v. Wesley, 29 Bea. 213."

CHAPTER XI

Trustees for Bond Issues

§ 49. Preliminary. One of the most important uses of the modern trust company is where by a writing somewhat similar to an escrow agreement, but greatly more important for the trust features therein embraced, the company participates as trustee in behalf of bondholders of a mortgagor.

§ 50. Form of Instrument to Secure Bond Issues. These instruments are ordinarily called mortgage deeds of trust. They convey property in trust for the security of owners of negotiable bonds to be issued in serial number up to the amount prescribed in the writing. When such an instrument is accepted it is said that: "A trust in fact and in law, as well as in name is (was) created for the security" of such owners.'

It is further said in this case that: "In trusts of this nature, responsible, reliable and intelligent parties are commonly selected to receive them, for the purpose of assuring the creditors (that is, the future bond holders) that they will be faithfully executed for their benefit, and their interests in the property protected as far as that can be done by fidelity and attention on the part of the trustee. As to these securities, it has very properly been said that the salability of the bonds depends in no inconsiderable degree upon the character of the persons who are selected to manage the trust."

1. Merrill v. Farmers Loan & Trust Co. (1881), 24 Hun. 297.

As I have already said, it is not character so particularly that is looked to where a trust company is selected, as is the fact of its responsibility, its permanence, the supervision that the state exercises over its affairs, its segregation of its liability for its acts as trustee from that of its general liability and its holding itself out as equipped for the performance of its duties. It may never be said that a trust company may not acquire a reputation for intelligent and faithful performance of duty, because of the character of its managers and their pride in the history of the company. As a business asset, however, the reliability of a corporation is principally in the laws behind its charter.

As to the advisability of appointing trust companies as trustees for bond issues, "Palmer's Company Precedents" (British), Part III, at page 48, states: "In a good many cases, especially those in which it is likely that there will be a succession of dealings by way of sale, investment, purchase, lease, etc., it is considered preferable to appoint a trust company to be the sole trustee. Ordinary trustees cannot always be found when they are wanted; they take holidays, get ill, go abroad, and die; whereas a trust company is always ready to attend to business. If some of its directors are absent, others remain; and it has legal advice always at hand. Its business is to facilitate trust matters, and its credit depends upon its doing business in a prompt and efficient manner."

The

§ 51. Legality of Such Instruments. United States Supreme Court, in speaking of a mortgage running directly to bondholders of a corporation, said: "The frame of the mortgage now sought to be enforced differs from the ordinary trust deed or mortgage by

which the payment of railroads bonds is secured. A trustee is ordinarily named, to whom the security runs as mortgagee, and the instrument recites that the mortgage is made to him in trust to secure the bonds described to the holders thereof. Here the mortgage is made directly to the persons holding the bonds, who are named and their several interests described." This was said in 1873 and seems to show that the form therein described had obtained long enough for it to have come into general use. An early decision in New York3 shows that a trust deed to secure corporate bonds was legal and the trust therein not one under the statute of uses and trusts, but a mere mortgage. In a later supreme court case it was said: "The instrument, we think, though in form a deed of trust, was substantially a mortgage. It was delivered to the trustees and duly recorded. The bonds were sold in different markets to bona fide purchasers, and they are now outstanding.' A great many other cases might be cited where the legality of such instruments are recognized and enforced and no point was established against their validity.

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§ 52. Active Nature of Trusteeship for Bond Issues. There is something more in the trusts assumed by trust companies for the issuance of bonds by a corporation than a dry or naked agency. For example, it was conceded without objection-at least no objection appears of record-that a trust company as

2. Nashville, etc., R. R. v. Orr (1873), 85 U. S. (18 Wall) 471, 21 L. Ed. 810.

3. King v. Merchants' Exch. Co. (1851), 5 N. Y. 546.

4. See, also, Minnesota v. Duluth, etc., R. Co. (1899), 97 Fed. 353, 359.

5. Platt v. Union Pac. R. R. (1879), 99 U. S. 48, 57, 25 L. Ed. 424. See, also, McLane v. Placeville, etc., R. Co. (1885), 66 Cal. 606, 6 Pac. 748; Butler v. Rahm (1877), 46 Md. 541,

trustee for the security of the bonded indebtedness of a railroad could maintain a suit to enjoin the enforcement of a statute prescribing railroad rates. In this case, as it appeared in the Circuit Court,' it was urged that the trust company showed no right to sue and that there was collusion between it and the railroad, but the court said, speaking of several trust companies complainants in different suits consolidated for one decision, that: "The complainants here show an equitable interest in the fair earnings of the roads; they show actual ownership and possession of the mortgage securities of the roads," and that "said railways are coerced by the defendants, armed with the railroad commission act, and the directors cannot exercise their judgment and discharge their duty as they should and would but for the said coercion." In other words, the trust company had the right to intervene in behalf of bondholders and prevent waste of assets, out of which earnings to pay bonds and interest were looked for.

And where a trust company as trustee in a mortgage deed to secure the bonds of a telephone company brought suit to enjoin a city from removing its poles and wires in alleged violation of a franchise granted to the company, it was said: "The general principle is believed to be settled that the trustee, independent of the provisions of the trust deed, has the power, and it is his duty, whenever the necessity arises, to invoke the aid of a court of equity to preserve the trust estate.'

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And it has been said that: "When it is necessary

6. Reagan v. Farmers Loan & Trust Co. (1894), 154 U. S. 362, 38 L. Ed. 1014.

7. Mercantile Trust Co. v. Railroad, et al. (1892), 51 Fed. 529, 536. 8. Old Colony Trust Co. v. Wichita (1903), 123 Fed. 762; affirmed (1904) 132 Fed. 641.