Mendelson v. Realty Mortg. Corp.

• Decision Date: 02 March 1932
• Docket Number: No. 120.,120.
• Citation: 241 N.W. 154,257 Mich. 442
• Parties: MENDELSON v. REALTY MORTG. CORPORATION.
• Court: Michigan Supreme Court

257 Mich. 442

241 N.W. 154

MENDELSON

v.REALTY MORTG. CORPORATION.

No. 120.

Supreme Court of Michigan.

March 2, 1932.

Appeal from Circuit Court, Wayne County; Arthur Webster, Judge.

Suit by Celia Mendelson against the Realty Mortgage Corporation. Judgment for plaintiff, and defendant appeals.

Affirmed.

Argued before the Entire Bench.James I. Ellmann, of Detroit (Henry P. Rosin, of Detroit, of counsel), for appellant.

Samuel H. Rubin, of Detroit (Henry Glicman, of Detroit, of counsel), for appellee.

FEAD, J.

Defendant reviews summary judgment at suit of a holder of bonds secured by trust mortgage on real estate. The question is whether the right to sue reposes in the trustee and is denied the bondholder.

The bond, in ordinary form payable to bearer, recites:

‘This bond is one of an issue of bonds of like date and tenor * * *, all of which bonds are equally secured by a first mortgage or deed of trust, * * * to which mortgage or deed of trust reference is hereby made for a description of said property, the nature and extent of the security and the rights of the holders of the bonds issued under the same. * * *

‘This bond shall pass by delivery unless registered in accordance with the provisions endorsed hereon, and shall not be valid or obligatory unless authenticated by the certificate of the Trustee of said mortgage endorsed hereon, and it is issued, received and held subject to all the terms and conditions of said trust mortgage. * * *’

The mortgage provides:

‘The right of action under this indenture is vested exclusively in the trustees and under no circumstances shall any bondholder have any right to institute any action or other proceedings on or under this indenture, except in the case of refusal on the part of the trustee to perform some duty imposed upon it by this indenture; and all actions and proceedings for the purpose of enforcing the provisions of this indenture shall be instituted and conducted by the trustees according to their sound discretion.’

The mortgage also provides that on sixty-day default the trustee may, and upon written request of holders of a majority of the bonds shall, declare the whole amount of principal and interest due forthwith, and that the trustee is under no obligation to recognize any person as a bondholder until he deposits the bond and indemnifies the trustee against expenses. The mortgage is not set out in the record and, except as above, we are not informed of its terms.

Counsel have briefed the case exhaustively and from many angles, but because of the veriety in form of bonds and mortgages extant and the diversity of complications and claims which may arise from them, we deem it advisable to confine decision to the specific issues and contentions before us.

Defendant, invoking the rule that instruments executed contemporaneously in a single transaction are to be construed together, contends that the bonds and mortgage are to be taken as though they were incorporated into a single form of contract. From this premise, it argues that the term ‘this indenture’ refers to the whole, the bonds as well as the mortgage, and, consequently, that the right to sue on or under either is vested exclusively in the trustee.

The rule invoked by defendant has its limitations, 3 R. C. L. 871, which need not be discussed because it is a fact, recognized alike by business and the law, that a bond and its securing mortgage have different functions, are governed by different legal principles, and, for some purposes at least, are separate contracts. Paepcke v. Paine, 253 Mich. 636, 235 N. W. 871, 75 A. L. R. 1205. If it were not so, there would be no negotiable bonds except by accident, because provisions found in practically all trust mortgages would destroy negotiability. First State Savings Bank v. Pussell, 244 Mich. 298, 221 N. W. 142.

Primarily, a bond is a contract to pay; the mortgage is a separate contract to secure payment. The provisions of the mortgage are incorporated into the bond only in so far as, by proper language, they are made part of the bond and the holder thereby is given notice of them. Guilford v. Minneapolis, S. Ste. M. & A. Ry. Co., 48 Minn. 560, 51 N. W. 658,31 Am. St. Rep. 694. The incident of negotiability in bonds necessary to enable the business of the country to be transacted and the protection of the bondholder from conditions in a mortgage which he ordinarily does not see, and which are not set out in the bond which he does see, have properly inclined the courts to a strict construction of language which attempts to modify the obligation of and rights under a bond by incorporation in it, through reference, of provisions of the mortgage. Goodjon v. United Bond & Building Corp., 226 App. Div. 137, 234 N. Y. S. 522;Mack v. American Telephone Co., 79 N. J. Law, 109, 74 A. 263;Reinhardt v....