Guaranty Trust Co. of N. Y. v. West Virginia Turnpike Commission

• Decision Date: 24 March 1959
• Docket Number: No. CC844,CC844
• Citation: 107 S.E.2d 792,144 W.Va. 266
• Court: West Virginia Supreme Court
• Parties: GUARANTY TRUST COMPANY OF NEW YORK v. WEST VIRGINIA TURNPIKE COMMISSION.

Page 792

107 S.E.2d 792

144 W.Va. 266

GUARANTY TRUST COMPANY OF NEW YORK v. WEST VIRGINIA TURNPIKE COMMISSION.

No. CC844.

Supreme Court of Appeals of West Virginia.

Submitted Jan. 21, 1959.

Decided March 24, 1959.

Syllabus by the Court.

1. 'The general rule is that negotiable interest coupons, attached to or detached from bonds, bear interest from and after their respective maturity dates.' Hamilton v. Wheeling Public Service Co., et al., 88 W.Va. 573, Pt. 3 Syl. [107 S.E. 401, 21 A.L.R. 433].

2. 'When the interest evidenced by such a coupon has become due and payable, the demand based upon the promise contained therein is no longer a mere incident of the principal indebtedness represented by the bond, but itself becomes a principal obligation.' Hamilton v. Wheeling Public Service Co., et al., 88 W.Va. 573, Pt. 4 Syl. [107 S.E. 401, 21 A.L.R. 433].

3. 'But the obligor may defeat recovery of the interest so compounded by showing his continued readiness and willingness to pay the sums specified in the coupons from the date of their maturity.' Hamilton v. Wheeling Public Service Co., et al., 88 W.Va. 573, Pt. 5 Syl. [107 S.E. 401, 21 A.L.R. 433].

4. A state is not liable to pay interest on its debts, unless its consent to do so has been manifested by an act of its legislature, or by a lawful contract of its executive officers.

5. By virtue of the provisions of Section 802 of the written trust agreement entered into on March 1, 1952, by and between the West Virginia Turnpike Commission and Guaranty Trust Company of New York, trustee, the failure to pay interest installments due on June 1, 1958, on the turnpike revenue bonds, or within thirty days thereafter, constitutes an 'event of default' under the provisions of said trust agreement.

6. By virtue of the provisions of Chapter 139 of the Acts of the Legislature, Regular Session, 1947, as amended, and the trust agreement entered into on March 1, 1952, by and between the West Virginia Turnpike Commission and Guaranty Trust Company of New York, trustee, it is the right, duty and obligation of said trustee to pay, or to cause to be paid (but only from moneys held by said trustee as such and available therefor) interest, at the rates specified in the turnpike revenue bonds, upon overdue installments of interest whether such installments are represented by coupons attached to or detached from the turnpike revenue bonds or by coupons in the custody of said trustee as bond registrar, from the respective due dates thereof to the respective dates fixed by said trustee for the payment thereof, whether or not presentment of any such overdue coupon or demand for payment of any overdue installment of interest is made.

7. By virtue of the provisions of the written trust agreement made and entered into on March 1, 1952, by and between the West Virginia Turnpike Commission and Guaranty Trust Company of New York, trustee, it is the right, duty and obligation of said trustee to pay overdue installments of interest on turnpike revenue bonds in the order in which such installments become due; and to determine the date for payment of each overdue installment of interest in accordance with the availability of sufficient moneys in its hands, as trustee, for that purpose.

Jackson, Kelly, Holt & O'Farrell, Robert G. Kelly, Homer A. Holt, Charleston, Davis, Polk, Wardwell, Sunderland & Kiendl, William D. Tucker, Jr., E. Deane Leonard, New York City, for plaintiff.

Wm. T. Lively, Jr., Charleston, for defendant.

CALHOUN, Judge.

This is a declaratory judgment proceeding instituted in the Circuit Court of Kanawha County by Guaranty Trust Company of New York, a corporation, against the West Virginia Turnpike Commission.

The controversy between the parties involves the question whether or not the coupons originally attached to bonds issued by the West Virginia Turnpike Commission bear interest from their respective due dates. The issue was raised by the defendant's demurrer to the petition filed by and upon behalf of the Guaranty Trust Company of New York. The lower court overruled the demurrer and held that the coupons, if not paid when due, bear interest at the rates specified in the bonds from the respective due dates thereof until paid. Thereupon, the circuit court, upon its own motion, certified to this Court its rulings upon the demurrer, in accordance with the provisions of Code, 58-5-2.

The case of Guaranty Trust Co. v. West Virginia Turnpike Commission, D.C., 109 F.Supp. 286, was a declaratory judgment proceeding involving the authority and duties of the West Virginia Turnpike Commission. In the case of Hope Natural Gas Company v. West Virginia Turnpike Commission, W.Va., 105 S.E.2d 630, this Court held that the West Virginia Turnpike Commission is not such an agency of the State as to be immune from suit under Section 35, Article VI of the Constitution of West Virginia. These two cases are referred to, not only in relation to the principles of law therein adjudicated, but also because of the portrayal therein of the legal nature of the respective parties to the instant proceeding and their rights, duties and responsibilities.

Guaranty Trust Company (which is sometimes referred to herein as 'Guaranty Trust' or 'the Trustee') is a New York Corporation, having full powers as a trust company.

The West Virginia Turnpike Commission (herein sometimes referred to as the 'Turnpike Commission' or 'the Commission') is an agency of the State of West Virginia, created and established by Chapter 139 of the Acts of the Legislature of West Virginia, Regular Session, 1947, (which is sometimes referred to herein as the 'Act' or the 'Enabling Act').

By Section 5 of the Enabling Act the Commission is authorized and empowered 'To construct, maintain, repair and operate turnpike projects', as defined by such Act, 'at such locations within the state as may be determined by the commission;' to fix and collect tolls for the use by the public of turnpike projects; and to issue turnpike revenue bonds, payable solely from turnpike revenues, for the purpose of defraying the cost of turnpike projects.

By Section 10 of the Act the Commission is authorized to secure the payment of such bonds by the execution of a trust agreement with a corporate trustee, having powers of a trust company, whether within or without the State, and to pledge or assign to such trustee the tolls and other revenues received from time to time by the Commission in order to secure the payment of such bonds. By virtue of this provision the Commission entered into an appropriate written agreement with Guaranty Trust.

On March 10, 1952, a resolution was adopted by the Commission authorizing the issuance of turnpike revenue bonds of the State of West Virginia in the principal amount of $96,000,000, bearing interest at 3 3/4%. On March 3, 1954, the Commission authorized the issuance of additional turnpike revenue bonds in the amount of $37,000,000, bearing interest at 4 1/8%. Bonds of both issues were sold and delivered to underwriters for distribution to the public. All such bonds bear interest, payable semi-annually on June 1 and December 1 of each year, such interest installments being in the form of the 'bond coupons' which form the subject of the controversy in this case. Such bonds are now widely held by owners in forty-seven of the forty-nine states and in several foreign countries.

The revenues of the Commission from the operation of the turnpike project have consistently fallen appreciably below the estimates which were made by the traffic engineers prior to the financing and construction of the turnpike project. On October 1, 1958, the Commission made payment to Guaranty Trust of an amount sufficient (when combined with moneys then in the hands of the trustee) to pay the interest installments which had previously fallen due on June 1, 1958. Moneys presently in the hands of the Trustee, coupled with anticipated revenue, will not be sufficient until approximately September 1, 1959, to enable the trustee to pay the interest installments which became due December 1, 1958.

Except for interest rates, all the bonds, of both issues, are the same and all are secured by the same trust agreement. All the bonds issued are 'coupon bonds', with provision for registration, at the election of the several owners thereof.

The trustee asserts that interest, at the bond rates, is payable on the overdue interest installments or coupons. The Commission denies that the overdue interest installments bear interest. The Commission in this connection asserts that it is such an agency of the State as to be entitled to the immunity from payment of interest which is, with some exceptions, enjoyed by a state.

Certain propositions, which are deemed helpful in this connection, are settled by the decision of this Court in the case of Hamilton v. Wheeling Public Service Co., 88 W.Va. 573, 107 S.E. 401. Points 3, 4, and 5 of the syllabus of the Hamilton case are as follows:

'The general rule is that negotiable interest coupons, attached to or detached from bonds, bear interest from and after their respective maturity dates.

'When the interest evidenced by such a coupon has become due and payable, the demand based upon the promise contained therein is no longer a mere incident of the principal indebtedness represented by the bond, but itself becomes a principal obligation.

'But the obligor may defeat recovery of the interest so compounded by showing his continued readiness and willingness to pay the sums specified in the coupons from the date of their maturity.'

Apparently recognizing the quotation immediately above as embodying sound legal principles in this jurisdiction, the Commission seeks to avoid their applicability by a reliance upon a principle of law determined in the case of United States v. North Carolina, 136 U.S. 211, 10 S.Ct. 920, 34 L.Ed. 336, and other authorities to like effect. That case involved bonds payable from ...