Moody v. Pacific S.S. Co.

• Decision Date: 24 August 1933
• Docket Number: 24044.
• Citation: 174 Wash. 256,24 P.2d 609
• Parties: MOODY, Supervisor of Banking, v. PACIFIC S. S. CO.
• Court: Washington Supreme Court

24 P.2d 609

174 Wash. 256

MOODY, Supervisor of Banking, v. PACIFIC S. S. CO.

No. 24044.

Supreme Court of Washington

August 24, 1933

Department 2.

Appeal from Superior Court, King County: John A. Frater, Judge.

Action by C. S. Moody, Supervisor of Banking for the State of Washington, liquidating the Pacific Commercial Bank of Seattle, against the Pacific Steamship Company. From an adverse judgment, plaintiff appeals.

Affirmed.

Bausman Oldham, Cohen & Jarvis and Perry R. Gershon, all of Seattle for appellant.

Bogle Bogle & Gates and Edward G. Dobrin, all of Seattle, for respondent.

STEINERT, Justice.

This is an appeal from an order granting a motion to discharge a writ of garnishment.

In January, 1925, respondent issued its series of 6 1/2 per cent. gold bonds in the aggregate principal sum of $5,000,000, with interest coupons attached. To secure the bonds, a mortgage, or deed of trust, covering a fleet of vessels and their equipment, was executed by respondent. Five of the bonds, aggregating in principal amount $5,000, were purchased by Pacific Commercial Bank of Seattle, and became due and payable January 1, 1931. On October 23, 1931, after the bonds became due, the bank passed into the control of the state supervisor of banking, who commenced this action at law in February, 1932, to recover upon the bonds and upon the interest coupons maturing January 1, 1931. Upon the filing of the complaint, a writ of garnishment was issued, directed to a debtor of the respondent company. The garnishee answered that it was indebted to the respondent in the sum of $5,250. Respondent then appeared and moved to discharge the garnishment on the ground that the appellant was, by the terms of the mortgage, without right to institute an action at law on the bonds. The motion was granted and the garnishment was discharged. From the order thus made, this appeal was taken.

It is the position of the appellant that neither the bonds nor the mortgage contain any provision depriving a bondholder of the right to waive the security of the mortgage and maintain a common-law action upon the promise to pay contained in the bond. It may be conceded that, if there be no such restrictive provision, an action at law may be maintained. Fletcher Cyc. Corporations (Permanent Ed.) vol. 6, c. 30, § 2751; 14a C.J. pp. 640, 641, § 2612.

In view of appellant's contention it becomes necessary to examine those provisions of the bonds and of the mortgage which bear upon the question here involved. The bonds contain, among others, the following provisions, with immaterial portions deleted:

'Pacific Steamship Company * * * for value received, acknowledges itself indebted, and hereby promises to pay on January 1st, 19__, to bearer or * * * to the registered holder thereof, at the office of the Anglo-California Trust Company * * * or * * * The Chase National Bank * * * the sum of One Thousand Dollars; * * * and to pay interest thereon * * * upon presentation and surrender of the respective interest coupons * * * as the same * * * become due. * * *

' All of said bonds are without preference, priority or distinction of one over another, and are issued, or to be issued, under the provisions of, and the payment of each and all of them is equally secured by a First Preferred Mortgage, dated as of January 1st, 1925, * * * reference to which Mortgage is hereby made for the description of the property to be mortgaged, the nature and extent of the security, and the rights therein of the holders of the bonds issued thereunder. * * *

'In case of certain defaults specified in said Mortgage, the principal and accrued interest of this bond and of all other bonds of this issue may be declared, or may become due and payable Before the fixed maturity thereof, in the manner and with the effect provided in said Mortgage.

'This bond may be redeemed by the Company * * * upon the terms, conditions and restrictions and upon the notice prescribed in said Mortgage.

' The holder of this bond shall have no right of action thereon or under the said Mortgage, except as provided in that instrument.' (All italics ours.)

The mortgage covers fifty-three typewritten pages, according to the record, and is divided into seventeen articles, each of which, with one or two exceptions, is subdivided into sections. The instrument is too voluminous to quote verbatim. We limit ourselves, by quotation and reference, to what we consider its material portions. After a lengthy preamble and preliminary recitals, the mortgage provides:

'Now, therefore, in order to secure the payment of all of said bonds at any time issued and outstanding under this Mortgage (whether those now issued as Series 'A,' or those hereafter to be issued as hereinafter provided) * * * and to secure the performance and observance of each and every of the covenants and conditions therein and herein contained, and to declare the terms and conditions upon which said bonds * * * are issued, received and held, * * * and for and in consideration of the premises and of the acceptance of said bonds by the present and subsequent holders thereof, * * * the Company has executed and delivered this Mortgage (here follows description of property mortgaged) * * * and it is hereby expressly covenanted by and between the parties hereto that all of said bonds are to be issued, received and held and that the mortgaged property is to be held by the Trustees upon and subject to the trusts, terms, uses, covenants and conditions herein stated.' (All italics ours.)

Then follow the seventeen articles and their subdivisions.

Article II, § 3, provides that the bonds issued thereunder and secured thereby shall be negotiable. Subsequent articles deal with the form, authentication and issuance of the bonds, the replacement of security by substitution, the covenants to be performed by the company, the prepayment and redemption of the bonds, the remedies upon default, the rights of bondholders, the powers and duties of the trustees, and sundry other and minute provisions.

Article VIII, § 3, provides that in the event of default as specified, the trustees shall, upon the written request of the holders of 25 per cent. in amount of outstanding bonds, take such action for the protection of the bondholders as the trustees, being advised by counsel, shall deem most advisable and expedient in the interest of the bondholders, and likewise, upon such request, to institute and prosecute appropriate judicial proceedings for the protection of the rights of the bondholders. Section 4(4) provides that the holders of the majority in principal amount of the bonds shall have the right to direct and control all such proceedings, and may compel the trustees to disregard the notice and demand for action theretofore made by the holders of 25 per cent. in amount of such bonds. Sections 6 and 7 of article VIII, which both counsel have quoted in their briefs, we likewise quote:

'Section 6. No holder of any bond or coupon shall have any right to institute any suit, action or proceeding in equity or at law for the foreclosure of this Mortgage, or for the execution of any trust hereunder, or for the appointment of a receiver, or for any other remedy hereunder unless such holder previously shall have given to the Trustees written notice that some event of default specified in such notice has happened, nor unless also the holders of twenty-five per cent. (25%) in amount of the bonds then outstanding shall have made written request upon the Trustees, and shall have afforded to the Trustees a reasonable opportunity either to proceed to exercise the powers hereinBefore granted, or to institute such action, suit or proceeding in their own names; nor unless they shall have affered to the Trustees adequate security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustees to be conditions precedent to the execution of the powers and trusts of this Mortgage and to any action or cause of action for foreclosure or for the appointment of a receiver or for any other remedy hereunder, it being understood and intended that no one or more holders of bonds or coupons shall...