Fid. Mut. Life Ins. Co. v. Wilkesbarre & H. R. Co.

• Decision Date: 20 April 1923
• Docket Number: No. 79.,79.
• Citation: 120 A. 734
• Parties: FIDELITY MUT. LIFE INS. CO. v. WILKESBARRE & H. R. CO.
• Court: New Jersey Supreme Court

120 A. 734

FIDELITY MUT. LIFE INS. CO.

v. WILKESBARRE & H. R. CO.

No. 79.

Court of Errors and Appeals of New Jersey.

April 20, 1923.

Appeal from Supreme Court.

Action by the Fidelity Mutual Life Insurance Company against the Wilkes-Barre & Hazelton Railroad Company. Judgment for plaintiff, and defendant appeals. Affirmed.

Katzenbach & Hunt, of Trenton, for appellant.

Coult & Smith, of Newark, for respondent.

MINTURN, J. The appeal is from an order of a Supreme Court justice striking out an answer filed by defendant as frivolous and entering summary judgment thereon.

The defendant company, about May, 1901, executed and delivered to the Guaranty Trust Company of New York, as trustee, a mortgage or indenture of trust, covering certain bonds and shares of stock deposited with the trustee, to secure payment of an issue of bonds in the sum of $2,500,000. The plaintiff prior to May 15, 1914, became owner and holder of 25 of said bonds of the par value of $1,000 each, which contained a covenant that interest thereon at the rate of 5 per cent. per annum would be paid semiannually. The installments of interest payable were evidenced by coupons attached to the bonds. The coupons for interest, which matured on May 15, 1915, November 15, 1915. May 15, 1916, and November 15, 1916, were detached by plaintiff and presented to defendant for payment, but were not paid, and this suit was instituted to recover the amount due thereon with interest from the respective dates of maturity.

The answer of the defendant admitted these facts, but left the formal proof of ownership of the bonds and coupons to the plaintiff, as well as proof of the amount due thereon. The answer then alleged affirmatively that the trustee alone under the mortgage could enforce payment of the bonds and interest; that detached coupons could not be paid under the mortgage until all overdue coupons held with bonds be paid; that 60 per cent. of the holders of bonds had agreed to postpone payment of interest for 5 years from the maturity of coupons, and had requested the trustee to refuse to enforce payment of the mortgage or interest in the interim. It further alleged that the present action would result in conceding a preference to the plaintiff over other bond holders, who acquiesced in the nonenforcement request to the trustee, and, finally, that the lien of the mortgage was intended to secure primarily the payment of the bonds, and thereafter the payment of interest due thereon. The plaintiff moved upon affidavit to strike this pleading out as sham and frivolous, and the court, after argument, ordered that the answer be struck out as frivolous. Subsequently the court upon the same proof ordered summary judgment entered for the amount claimed, with interest from the respective due dates of the coupons. We concur in the action taken by the Supreme Court, and in the views therein expressed as a basis for its action. Brief consideration of the legal status occupied by the holder of a detached coupon in a situation of this nature will indicate the fallaciousness of the views contended for by the appellant in its answer, and again in its brief, as a basis for this appeal.

Whatever diversity of view may exist in other jurisdictions concerning the legal status of such holder, his rights have been distinctly set at rest in this state by the declaration that detached defaulted coupons form a separate and distinct indebtedness in the hands of the bona fide holder, and may be sued upon as such regardless of the mortgage provision concerning the payment of the mortgage indebtedness, as evidenced by the bond issue.

In Jones Co. v. Guttenberg, 66 N. J. Law, 666, 51 Atl. 276, this court, speaking by Mr. Justice Garretson, declared:

"The bond and the coupons are not parts of one debt, they are separate debts, and may be held by different persons, and suit on the one should not bar suit on the other."

Eight years thereafter the Supreme Court, speaking by Mr. Justice Trenchard, dealing with the same subject, and evidently following the adjudication of this court in the previous case, declared:

"A detached defaulted coupon is a separate cause of action independent of the bond." Mack v. American Telephone Co., 79 N. J. Law, 109, 74 Atl. 263.

Such we conceive to be the general trend of authority. 9 C. J. 49, and the cases cited; 3 R. C. L. 845, and cases cited; 5 Cyc. 780, and cases cited. The detached coupons being separate and distinct obligations, negotiable in character, it becomes obvious that the provisions contained in the trust mortgage relative...