Halle v. Van Sweringen Corp.

• Decision Date: 27 May 1936
• Citation: 185 A. 236,37 Del. 491
• Court: Delaware Superior Court
• Parties: HIRAM J. HALLE v. VAN SWERINGEN CORPORATION, a corporation of the State of Delaware

185 A. 236

37 Del. 491

HIRAM J. HALLE v. VAN SWERINGEN CORPORATION, a corporation of the State of Delaware

Superior Court of Delaware, Sussex County

May 27, 1936

Superior Court for Sussex County, No. 20, April Term, 1936.

Motion for refusal of judgment notwithstanding affidavit of demand.

The plaintiff filed an affidavit of demand in which he alleged as his cause of action, ten "Five Year Six Percent Promissory Gold Notes," issued by the defendant corporation, each in the principal sum of $ 1,000, bearing date May 1, 1930, and payable May 1, 1935. Attached to the affidavit were true and correct copies of the notes sued upon, and of an indenture between the defendant corporation and Guaranty Trust Company of New York, under and pursuant to which the promissory notes were issued. Demand was made in the sum of $ 10,000 with interest from November 1, 1932.

The notes contained a promise to pay to the bearer the principal amount in gold coin on the first day of May, 1935, or, if the note was registered as to principal, to the registered holder thereof, and certain stipulations, of which one was "This note is one of a duly authorized issue of notes of the Company known as its Five Year 6% Gold Notes, limited to the aggregate principal amount of thirty million dollars ($ 30,000,000) all issued under and pursuant to an Indenture dated May 1, 1930, executed by the Company, with Guaranty Trust Company of New York, as Trustee therein, called the Trustee, to which indenture reference is hereby made for a description of the terms on which such notes are issued and of the rights of the Trustee and of the holders of the notes under said Indenture."

Section 29, of the Indenture, in part, was as follows:

"No holder of any note or coupon shall have the right to institute any suit, action or proceeding at law or in equity upon or in respect of this Indenture, or for the execution of any trust or power hereof, or for any other remedy under or upon this Indenture, unless such holder shall previously have given to the Trustee written notice of an existing event of default as hereinbefore in Section 22 hereof defined, nor unless also the holders of at least twenty-five per cent. in principal amount of the notes then outstanding shall have made written request upon the Trustee after the happening and continuance of such default, and shall have afforded to it reasonable opportunity, either to proceed itself to execute the powers hereinbefore granted or to institute such action suit or proceeding in its own name, and unless the Trustee shall not have so proceeded within a reasonable time; nor unless also such holder or holders shall have tendered to the Trustee security and indemnity satisfactory to it against all costs, expenses and liabilities which may be incurred in or by reason of any such action, suit or proceeding; and such notification, request and tender of indemnity are hereby declared, in every such case, at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of this Indenture and to any action or cause of action or to the exercise of any other remedy hereunder; it being intended that no one or more holders of the notes or coupons shall have any right in any manner whatever to affect, disturb, or prejudice the rights of the holders of any other of the notes or coupons hereunder, or to enforce any right hereunder, except in the manner herein provided, and that all proceedings hereunder shall be instituted and maintained in the manner herein provided for the equal benefit of all holders of the notes and coupons; provided, however, that nothing in this Article or elsewhere in this Indenture or in the notes or in the coupons contained shall affect or impair the obligation of the Company, which is absolute and unconditional, to pay at the date of maturity therein expressed the principal of and interest on the notes to the respective holders of the notes and coupons at the times and place in the notes expressed, or affect or impair the right of action, which is also absolute and unconditional, of such holders to enforce such payment."

The defendant moved that judgment be refused notwithstanding the affidavit of demand, for the reason that it contained no averment of written notice to the trustee of an existing default on the notes, nor that twenty-five per cent. in principal amount of the notes outstanding had made written request upon the Trustee in accordance with Section 29 of the Indenture. Its contention was that the provisions of the section constituted conditions precedent to an independent action at law by a note holder.

On behalf of the plaintiff it was insisted that the suit was based upon the unconditional promise to pay at maturity contained in the notes, and not upon the Indenture held by the Trustee for the joint benefit of all the note-holders; and that the reference to the Indenture on the face of the notes ought not to be construed as a limitation upon the unconditional promise to pay at maturity, nor of the holders' right to maintain an action at law upon default, for the reason that the restrictive provisions of the Indenture refer only to an action or proceeding based thereon.

Motion to refuse judgment is denied.

Hugh M. Morris and Ivan Culbertson for plaintiff. Cravath, deGersdorf, Swain & Wood and William D. Whitney (all of New York), of counsel.

James H. Hughes, Jr., (of Ward & Gray) for defendant.

LAYTON C. J., sitting.

OPINION

LAYTON, C. J.

The notes are the principal debt. The trust indenture is the incidental security. Co-existing remedies peculiar to each exist. Philadelphia & Baltimore Central R. Co. v. Johnson, 54 Pa. 127. See Paepcke v. Paine, 253 Mich. 636, 235 N.W. 871, 75 A. L. R. 1205.

The common law right to sue upon the notes is not affected by the remedies provided in the indenture unless its provisions exclude this right by express terms or necessary implications. 6 Fletcher, Cyc. Corp., § 2751; Noble v. European Mtg. & Inv. Corp., 19 Del. Ch. 216, 165 A. 157; Manning v. Norfolk Southern R. Co. (C. C.), 29 F. 838.

There is authority for holding that a direct reference in bonds or notes to a collateral agreement under which they were issued causes the applicable provisions of the latter to become incorporated in the former as effectively as if they were written in them. Home Mortgage Co. v. Ramsey (C. C. A.), 49 F.2d 738; Moody v. Pacific S. S. Co., 174 Wash. 256, 24 P.2d 609. There is also authority for the holding that where the reference is general, and no particular provision of the collateral agreement is mentioned which modifies the unconditional promise to pay, such general reference does not make the instrument referred to a part of the promise to pay, or indicate an intention to impose any condition upon that promise. Sturgis Nat. Bank v. Harris Trust & Savings Bank, 351 Ill. 465, 184 N.E. 589; Cunningham v. Pressed Steel Car Co., 238 App. Div. 624, 265 N.Y.S. 256, affirmed 263 N.Y. 671, 189 N.E. 750.

With respect to this conflict of authority a decision is not required. See, however, Continental Guaranty Corp. v. People's Bus Line, 1 W. W. Harr. (31 Del.) 595, 117 A. 275.

There is nothing in the notes which purports to restrict or qualify the absolute right of action of the holder at maturity, nor does the trust indenture prevent an abandonment of the security afforded by it and the enforcement of payment of the notes according to their terms. On the contrary, when the trust indenture is examined, it is found that the defendant corporation itself as carefully distinguished between a remedy under the indenture, and the common law right of action upon the notes as unconditional...