Marlor v. Texas & P.R. Co.

• Decision Date: 26 August 1884
• Citation: 21 F. 383
• Parties: MARLOR v. TEXAS & P.R. CO.
• Court: U.S. District Court — Southern District of New York

21 F. 383

MARLOR v. TEXAS & P.R. CO.

United States Circuit Court, S.D. New York.

August 26, 1884

Dos Passos Bros., for plaintiff.

Dillon & Swayne, for defendant.

WALLACE J.

This case has been tried before the court without a jury. The plaintiff is the owner of 150 bonds of the defendant, for $1,000 each, and sues to recover two installments of interest thereon: one of $10,500, payable July 1, 1882, and one of $10,500, payable July 1, 1883. The bonds are part of an issue of 8,857 bonds created by the defendant in 1875, and known as 'Income and Land-grant Bonds.' They are secured by a mortgage, which is a first lien on 7,600,000 acres of land of the defendant, and also upon the net income arising from operating defendant's lines of railroad east of Fort Worth, after paying interest on prior mortgages thereon.

By the terms of the bond the defendant acknowledges itself to be indebted to the holder in the sum of $1,000, 'which sum the company promises to pay to . . . or assigns, at the office of the company, in the city of New York, on the first day of January, 1915, with interest thereon at the rate of 7 per cent. per annum, payable annually on the first day of July of each year, as provided in the mortgage hereinafter mentioned. ' After reciting that the payment of the bond is secured by a first mortgage of even date therewith upon the lands of the company, and also upon the net income of the company derived from operating its railway east of Fort Worth, the bond contains the following conditions:

'In case such net earnings shall not, in any one year, be sufficient to enable the company to pay 7 per cent interest on the outstanding bonds, then scrip may, at the option of the company, be issued for the interest; such scrip to be received at par and interest, the same as money, in payment for any of the company's lands, at the ordinary schedule price, or it may be converted into capital stock of the company when presented in amounts of $100 or its multiple.'

The mortgage is silent respecting payment of interest or principal, except that it authorizes the trustees to sell the mortgaged lands if default is made in the principal sum at maturity of the bond, and apply the proceeds to satisfy the amount due.

The rights and obligations of the parties in an action upon these bonds were incidentally considered by this court upon a motion in this case to strike out certain parts of the answer of defendant. 19 F. 867. Upon that motion it was intimated that the plaintiff was entitled to recover the installments of interest unpaid, unless the defendant could show that it had not made net earnings sufficient, and had exercised its option to issue scrip in lieu of paying interest in money. It was not intended, upon an interlocutory motion, to foreclose the defendant from contesting fully its liability upon the trial of the action; and accordingly it has been strenuously insisted for the defendant that the interest is not payable in money; that the bond is an income bond on which interest accumulates, but is not payable until earned; and if not earned the bond is satisfied by payment in scrip.

The elaborate argument upon the trial has not changed the opinion previously entertained, that there is nothing in the language of the mortgage which controls or qualifies the absolute promise in the bond to pay interest in money or in scrip. The mortgage deals only with the subject of the security, which is to belong to the bondholders as collateral to the obligation, and with their auxiliary rights and remedies for enforcing the promise in the bond. If the bonds are to bear the construction claimed by the defendant, the bondholders for 40 years, instead of being creditors of the company, are practically only preferred stockholders, with the privilege of exchanging their stock for the lands of the company. It would be a misnomer to call such instruments bonds. There is a...