Northampton Nat. Bank v. Kidder

• Decision Date: 07 June 1887
• Citation: 12 N.E. 577,106 N.Y. 221
• Parties: NORTHAMPTON NAT. BANK v. KIDDER and others.
• Court: New York Court of Appeals Court of Appeals

106 N.Y. 221

12 N.E. 577

NORTHAMPTON NAT. BANK

v.KIDDER and others.

Court of Appeals of New York.

June 7, 1887.

W. M. Safford, for appellants.

W. G. Peckham, for respondent.

PECKHAM, J.

In the year 1871 the Ohio & Mississippi Railroad Company issued what was termed a ‘Second Consolidated Mortgage’ to secure the payment of a large amount of its bonds. The bonds on their face were payable on the first day of April, 1911, with interest in the mean time semi-annually at the rate of 7 per cent. on the first days of April and October in each year until the principal was paid upon the presentation and surrender to the company of the coupon or interest warrant attached for each installment of interest as it became due. Each bond contained this clause: ‘In case of the non-payment of the interest for any half year when demanded, and the same remaining unpaid for six months, and likewise in case of default for six months in the stipulated contribution to the sinking fund hereinafter referred to, the principal shall, without further demand or notice, become due and payable from and after the expiration of six months from the date of such default, with interest then accrued and in arrear.’ The bonds, in referring to the mortgage which secured their payment, also contained a statement as follows: ‘And said mortgage also provides a sinking fund for the ultimate redemption of said bonds, commencing with payments into the sinking fund at the rate of twenty thousand dollars a year, and so graded and regulated as to provide for taking up the whole amount of the bonds before their maturity.’

By a written statement contained in the case, and headed ‘Facts,’ (the case containing none of the evidence given on the trial,) it appears that the plaintiff was on the twenty-sixth day of January, 1876, the owner of two $1,000 second mortgage bonds of the issue above described, and on that day they were stolen from it by masked burglars. It further appears in the statement that no interest was paid on any of the second mortgage bonds for the years 1877, 1878, and April, 1879, nor was any contribution made to the sinking fund during the period from 1876 to December, 1882, inclusive, ‘and the defaults have never been made good for any of the payments which became due from 1876 to 1882.’ A foreclosure of the second consolidated mortgage, the statement continues, ‘because of the above-mentioned defaults in the interest and sinking funds on the bonds in suit, was begun shortly before the appointment of receivers, who were appointed on the seventeenth of November, 1876.’ At the time of the trial of this action, (December, 1882,) the foreclosure suit was still pending, and had been from the time of its commencement. The defendants, on the twenty-eight of April, 1881, had orders to buy $2,000 of these bonds, and they purchased the bonds in question, and acted through brokers in their purchase. Whether they paid a valuable consideration for the bonds or not is a disputed inference from the language used in the statement of facts, and the general term held that the fact of such purchase for value did not appear, and upon that ground gave judgment for the plaintiff on a verdict directed for it at the circuit, subject to the opinion of the general term.

Whether the court was right in that construction of the meaning of the language used is not important in the view we take of the case. The bonds when they were purchased by defendants in April, 1881, were overdue, and had thus ceased to be negotiable in the sense which frees the transaction from all inquiry into the rights of antecedent holders. Vermilye v. Adams Exp. Co., 21 Wall. 138, at 145;Morgan v. U. S., 113 U. S., 476, 499, 5 Sup. Ct. Rep. 585;Hinckley v. Merchants' Nat. Bank, 131 Mass. 147. After maturity a purchaser for value is not a bona fide purchaser to the extent of being protected in his purchase, (unless he succeeds to the rights of such a holder who became such before maturity;) for the fact of non-paymentdiscredits the instrument, and deprives it of any immunity which before maturity was secured to it in favor of a bona fide purchaser for value, without actual notice of any defect either in the obligation or the title. The defendants' counsel, however, very strenuously denies the statement that the bonds were overdue when purchased. He says that no legal demand of the interest on the coupons was ever proved, and that, by the terms of the bonds, the interest must remain unpaid for six months after demand before the principal could become due. The language heretofore quoted, which was used in the statement, implies, however, that a demand was made, or that the company had done that which dispensed with its necessity.

In a legal document of such precision as a statement of facts should be and is, where the vital point of the case rests upon the language used in this regard, the word ‘defaults' would never be used to describe a mere failure to pay money as interest on coupons which had not been presented, or any demand of payment made, or any action taken by the company to dispense with such demand. The word means, as thus used, the failure or default of the company to do that which it was under a legal obligation to do, and such default may have occurred by a refusal to pay any coupons upon the presentation of a part only, and by the action of the company in publicly announcing its inability to pay and its purpose to default as to all its legal obligations of this nature. This meaning of the word is rendered still plainer when, in the same statement, there is contained the further fact that the defaults have never been made...