Japha v. Delaware Valley Utilities Co.

• Decision Date: 12 July 1940
• Citation: 40 Del. 599,15 A.2d 432
• Court: Delaware Superior Court
• Parties: ROSE JAPHA v. DELAWARE VALLEY UTILITIES COMPANY, a corporation created by and existing under the laws of the State of Delaware

15 A.2d 432

40 Del. 599

ROSE JAPHA v. DELAWARE VALLEY UTILITIES COMPANY, a corporation created by and existing under the laws of the State of Delaware

Superior Court of Delaware, Kent County

July 12, 1940

Superior Court for Kent County, Debt, No. 42, February Term 1939.

The agreed statement of facts set out that as of July 1, 1931 the defendant, a Delaware corporation, executed an indenture to Chase National Bank of New York, securing an issue of 6% Gold Debenture bonds due July 1, 1956; that of an issue of $ 1,508,900 the plaintiff is the holder of two bonds each of the par value of $ 500; that the coupons attached to said bonds were payable January 1, 1932, and semi-annually thereafter; the coupons due January 1, 1932, were duly paid and no subsequent coupon has been paid and that at the time of the institution of this suit fifteen coupons attached to each bond were in default.

It is agreed that each of said debenture bonds contained the following provision:

"This Debenture in one of an issue of Debentures authorized in the aggregate principal amount of One Million Five Hundred and Eight Thousand Nine Hundred Dollars ($ 1,508,900), issued and to be issued under and pursuant to and all equally entitled to the benefit of an Indenture dated as of July 1, 1931 (herein referred to as the 'Indenture'), duly executed and delivered by the Company to The Chase National Bank of the City of New York, as Trustee (herein referred to as the 'Trustee'), to which Indenture reference is hereby made for a statement of the rights thereunder of the holders of the Debentures and the Trustee."

The indenture executed by the company to the trustee contained inter alia, the following:

"ARTICLE VIII

"Section 1.--In order to promote and to protect the equal ratable rights of every holder of the debentures, and to avoid multiplicity of suits, it is expressly covenanted and agreed that all the debentures are subject to the condition that all rights of action thereon, or on or in respect of the coupons appurtenant to such debentures, are vested exclusively in the Trustee, under this Indenture, and that no holder of any debenture, or of any coupon appertaining thereto, shall have any right to institute any action at law or in equity upon the debentures or any of the appurtenant coupons, or growing out of any provision thereof, or of this Indenture, or for the enforcement of this Indenture, unless and until the Trustee shall refuse or neglect to institute proper proceedings by way of remedy within a reasonable time after request of the holders of forty per cent. (40%) of the principal amount of the debentures then outstanding, filed with the Trustee, with offer of indemnity satisfactory to the Trustee.

"(a) Nothing in this Article or elsewhere in this Indenture or in the debentures or in the coupons shall affect or impair the obligation of the Company, which is unconditional and absolute, to pay at the date of maturity therein expressed the principal of the debentures and of the coupons thereof to the respective holders of the debentures and coupons at the time and place in the debentures and coupons expressed, or affect or impair the right of action, which is also absolute and unconditional, of such holders to enforce such payment;

"(b) The holder of any of the debentures, without reference to or the consent of the Trustee or of the holder of any other debenture, in his own behalf and for his own benefit, may enforce, and may institute and maintain any suit, action or proceeding suitable to enforce, in case of call for redemption of his debentures, payment thereof."

It is further agreed that the plaintiff, being the holder of due and unpaid interest coupons attached to Debentures D179 and D180, has made no request to the trustee under the indenture for the trustee to institute proceedings for the collection of the due and unpaid coupons; that the holders of 40% of the debentures had not requested the trustee to institute proceedings for the collection of any due and unpaid coupons of any debenture secured by the indenture.

It is agreed that the amount of due and unpaid interest coupons on debentures held by the plaintiff at the time of the institution of this suit is $ 450 and that the sole issue of the present litigation is whether Rose Japha, the plaintiff, has a right to maintain an action against the defendant to recover the amount due on the unpaid interest coupons.

It is agreed that if the court shall be of the opinion that the said plaintiff has the right to maintain the action, then judgment shall be entered for the plaintiff for the sum of $ 450; otherwise, judgment shall be given for the defendant.

Judgment entered in favor of the plaintiff for $ 450.

Max Terry for plaintiff.

Daniel F. Wolcott for defendant.

RODNEY and SPEAKMAN, J. J., sitting.

OPINION

RODNEY, J.

It has become quite usual in corporate indentures securing bond issues to include certain clauses which are, at times, called "no action clauses" or "Limitation of Action Clauses." Reasonable restrictions on the right of an individual holder of one or more of a series of corporate bonds, either in respect to the obligation or of the security, have generally been held valid and enforceable. These reasonable restrictions are viewed as not tending to interfere with the jurisdiction of the court, but as wholesome restrictions imposed for the benefit of all bondholders, and to increase the value and salability of the bonds. The binding effect of restrictions on the right of an individual bondholder to maintain an action has been recognized in Noble v. European Mortgage & Investment Co., 19 Del. Ch. 216, 165 A. 157; Halle v Van Sweringen Corporation, 7 W. W. Harr. (37 Del.) 491, 185 A. 236, and in Tietjen v. United Post Offices Corporation, 19 Del. Ch. 343, 167 A. 846, although in the first two cited cases the purported restrictions were held not operative as preventing the actions there involved. In Delaware, however, it has been held that, being in derogation of the common-law rights of creditors, such restrictions are to be strictly construed and are effective only insofar as they are clear and reasonably free from doubt; that they are not to be extended by implication. Noble v. European...