McClelland v. Norfolk South. R. Co.

• Decision Date: 02 October 1888
• Citation: 110 N.Y. 469,18 N.E. 237
• Parties: McCLELLAND v. NORFOLK SOUTH. R. CO.
• Court: New York Court of Appeals Court of Appeals

110 N.Y. 469

18 N.E. 237

McCLELLAND

v.NORFOLK SOUTH. R. CO.

Court of Appeals of New York.

October 2, 1888.

Appeal from common pleas of New York city and county, general term.

Action by James T. McClelland against the Norfolk Southern Railroad Company to enforce payment of certain coupons. A judgment for plaintiff, at a trial term of the New York city court, was reversed by the general term of the same court. The general term of the common pleas of New York city and county affirmed the judgment of the general term of the New York city court, and plaintiff appealed.

Albert Gallup, for appellant.

Geo. W. Wingate, for respondent.

RUGER, C. J.

The complaint counts upon 14 several interest coupons for the sum of $30 each, and alleged the liability of the defendant thereon by virtue of its assumption of the obligations of the Elizabeth & Norfolk Railroad Company, which was the maker of such coupons. The answer sets up as a defense that the time for the payment of the coupons for a period of five years, covering those in question, had, for a good consideration, been extended by a majority of the holders of bonds issued simultaneously with those from which such coupons had been detached, according to provisions contained in the bond and mortgage given as security therefor. The case was submitted to the trial court upon an agreed statement of facts, from which, among other things, it appeared that the bonds, from which such coupons were detached, formed a series of $900 for $1,000, each with coupons attached, providing for the payment of interest semi-annually issued by the Elizabeth City & Norfolk Railroad Company in 1880, and secured by a first mortgage upon its property and franchises executed and delivered to trustees for such bondholders, and that the defendant had lawfully assumed the payment of the obligations of such company. The coupons or interest warrants were in the following form: ‘On the first day of [blank month and year] the Elizabeth City & Norfolk Railroad Company will pay to the bearer, at its financial agency in the city of New York, thirty dollars in gold, ($30,) being six months' interest then due upon its first-mortgage bonds, number ___. W. G. DOMINICK, Treasurer.’ The bonds each contained a statement that ‘full payment of the principal and interest of * * * the said series of bonds is secured by a deed of trust or mortgage’ upon the property and franchises of said railroad, ‘upon the terms and conditions fully set forth in the said mortgage or deed of trust,’ and also that ‘this bond shall pass by delivery;’ and ‘in case default shall be made in the payment of any of the half-yearly installments of interest on this bond, * * * and if such interest shall remain unpaid for the period of six months, * * * the principal of this bond shall, at the option of the holder, * * * become forthwith due and payable immediately upon the terms and with the effect mentioned in said deed of trust or mortgage.’ For the purpose of securing ‘the payment of said bonds and interest coupons' the company executed a mortgage whereby it granted, bargained, and sold to the trustees therein named all of the property ‘now held, or which may hereafter be acquired, for or in connection with the construction, operation, maintenance, reparation, or replacement of the said railroad, or its several branches; * * * and also all rights, powers, privileges, and franchises now held or hereafter acquired by the said party of the first part.’ It is further provided that, ‘in case default shall be made in the payment of any of the interest warrants hereby secured to be paid, and such default continue for six months after payment shall have been duly demanded,’ then, at the option of said trustees, the whole principal sum secured to be paid shall become due and payable, and upon request of one-half in interest of the holders of said bonds it is made the duty of said trustees to declare such principal sum due as aforesaid; ‘but, nevertheless, a majority in interest of said bondholders may, in case of such default, by an instrument in writing, signed by them, instruct the said trustees to declare said principal sum due, or waive their right so to do, upon such terms and conditions as such majority shall deem proper; or may annul or reverse the election made by the trustees, anything herein contained to the contrary notwithstanding; but the action of the trustees or bondholders, in case of any default, shall not affect any subsequent default on the part of the party of the first part, or impair any right resulting therefrom.’ It was further provided that ‘it is hereby declared and agreed * * * that it shall be the duty of, and it is hereby made obligatory upon, the said trustees * * * to execute the powers of sale or entry hereby granted, or both, or to take appropriate proceedings at law or in equity to enforce the rights of bondholders under these presents upon requisition in writing, as hereinafter specified, to-wit: * * * But in every case in which the default shall be in the payment of the money hereby secured, or any part thereof, (in respect of any covenant or agreement in said bonds, or herein contained,) such duty of the said trustees, and also their power to make elections in the premises, are hereby declared to be subject to the right and power of a majority in interest of the holders of the bonds hereby secured and then outstanding, to instruct the said trustees to waive such default, or to enforce their rights thereunder; and no action of the said trustees or bondholders, in case of any default, shall affect any subsequent default or any right arising therefrom.’ Previous to the 1st day of September, 1884, more than four-fifths of said bondholders had united, by signing an instrument in writing, in requesting the trustees to postpone the pay ment of any interest accruing on the bonds during the succeeding five years, to enable the company to use the funds thereby to be acquired in the improvement of the track and rolling stock of the railroad, and requested the company to issue to the bondholders, in place of the postponed coupons, certificates for the amount of the same, payable at a future time, without interest. The trustees assented to such request, and immediately gave notice to the company to that effect, and also gave a formal extension upon all coupons which had matured up to the time of the trial after they became due, respectively. Relying upon such extension, the defendant executed and delivered its certificates for the payment to the trustees of such postponed interest, and they were distributed to and received and accepted by upwards of nine-tenths in amount of the bondholders, who thereupon delivered up their respective coupons to the trustees. The defendant also, upon the faith of such arrangement, proceeded to lay out and pledge the funds received and anticipated from this arrangement, in the improvement of its road, and the extension of its facilities for the transportation of freight and passengers.

Several questions arise upon this statement of facts, the most material of which we conceive to be those which refer to the meaning and intent of the provisions in the mortgage relating to the waiver by the trustees and bondholders of defaults in the payment of moneys secured thereby, and as to the negotiability of the coupons attached to said bonds. In determining the character of the coupons, in respect to their negotiability, the court is required, we think, to examine each of...