Reinhardt v. Interstate Tel. Co.

• Decision Date: 23 February 1906
• Citation: 63 A. 1097
• Parties: REINHARDT v. INTERSTATE TELEPHONE CO.
• Court: New Jersey Court of Chancery

63 A. 1097

REINHARDT

v. INTERSTATE TELEPHONE CO.

Court of Chancery of New Jersey.

Feb. 23, 1906.

Bill by J. Thomas Reinhardt against the Interstate Telephone Company. On motion for the appointment of a receiver in Insolvency. Granted.

A. C. Wall, for complainant. F. S. Katzenbach, for defendant.

PITNEY, V. C. The complainant, Reinhardt, is the holder of 11 bonds for $1,000 each, with interest coupons annexed, dated July 16, 1901, issued by the Interstate Telephone Company, a corporation of this state, and secured by a mortgage made by that company to the Trenton Trust & Safe Deposit Company. The bonds are payable in 1931, and the coupons for the interest mature on the 1st day of January and July of each year. The mortgage provides for an issue of $5,000,000 in $1,000 bonds. Of these 1,913 have been issued. The plaintiff acquired 1 of his bonds in July, 1904, and 10 on the 14th of June, 1905. The coupons on his bonds which came due on the 1st of July, 1905, were put by him in the course of collection and paid, but by whom it does not appear; the defendant denying that they were paid by it, and, so far as appears, none others were paid of those maturing on that day. None of those maturing on the 1st of January, 1906, were paid. The complainant purchased a few shares of the stock of the company in December, 1905. On the 8th of January, 1906, he filed his bill in this court on his own behalf and that of all others who may apply to be made parties thereto, setting forth the facts hereinbefore stated and others to be stated farther on, and asking for an order of insolvency and the appointment of a receiver. An order to show cause was made, returnable on the 16th of January, and on that day was adjourned to the 23d of January. On that day the defendant appeared and filed its answer, with affidavits annexed, and the motion was argued and submitted on the affidavits annexed to the complainant's bill, and those annexed to the defendant's answer.

Several objections were made to the complainant's standing, both as a creditor and stockholder, which I will now consider. With regard to the ownership of the stock, it is alleged that the complainant purchased it on December 20, 1905, after he knew of defendant's embarrassment, and that it was so purchased for the purpose of giving him the standing of a stockholder in a suit to be brought against the company. This is, in substance, admitted by the complainant. The stock stands in the name of the broker who purchased it for the complainant, but belongs to the complainant. This is sufficient to give him a standing in this court, as held by me in O'Connor v. International Silver Co., 59 Atl. 321, and affirmed on appeal, 62 Atl. 408. With regard to his ownership of the bonds, and the holding of the unpaid coupons belonging thereto, it is argued that he is not entitled to the standing of a creditor on two grounds:

First. That an action at law under our statute will not lie for unpaid coupons, as held in Holmes v. Seashore Electric Railroad Co., 57 N. J. Law, 16, 29 Atl. 419. That case is apparently precisely in point in support of that proposition. I say "apparently" for, unless the verbiage of the bond and mortgage there involved is the same as that here involved, it may not be in point. A reading of the act whose protection is invoked shows that the bond and mortgage covered thereby was the well-known and time-honored bond and mortgage which had been, from time immemorial, in use in New Jersey, namely, a bond in a penal sum double the amount of the indebtedness, conditioned to pay the real indebtedness at the time specified. The mortgage was an ordinary common-law conveyance in fee simple, with a proviso that if the money secured in the bond should be paid according to the condition thereof, then the conveyance should be void, otherwise to remain in full force and virtue. Now, it requires no argument to sustain the position that the act in question, being in derogation of the common law, must be construed strictly. It was so held by the late Chancellor Runyon in Crater v. Smith, 42 N. J. Eq. 348, 7 Atl. 575, and his decree in that case was affirmed by the Court of Errors and Appeals in 43 N. J. Eq. 636, 12 Atl. 530, and the objects of the law explained by the same learned judge who spoke for the Supreme Court in the case cited from 57 N. J. Law, 16, 29 Atl. 419. In the absence of the printed record in that case, I must presume that the bond and mortgage therein dealt with were in form and character precisely within the language of the statute. If we look at the form of the bond in the case before us, it does not answer the description which I have given. It is a mere acknowledgment of indebtedness to the trustee and is payable to bearer, and amounts to no more than a sealed bill or promissory note under seal. Further, the mortgage must be one which the holder of the bond can foreclose at his option, for the act declares that, in all cases where a bond and mortgage had been or might thereafter be given for the same debt, all proceedings to collect the debt should be first to foreclose the mortgage, and if, after applying the proceeds of the foreclosure, there should be a deficiency, suit therefor upon the bond must be brought within six months. Now, manifestly, it could not have been the intention of the legislature to bar an action on the bond unless the holder of it had a right to foreclose the mortgage at his will and option. Here, again, it is to be remarked that the foreclosure proceedings spoken of in the statute are the well-known and time-honored proceedings by English bill, asking for a sale of the land by an officer of the court, and. after sold, a foreclosure of the equity of redemption.

Now, if we examine the mortgage here in question, we find that. In its sixth article, it expressly confines the remedies of the bondholders to affirmative action by the trustee, namely, that he shall enter and take possession, and sell and pay the proceeds to the bondholders, the process being given with considerable detail, and then follows this clause, "and it being further distinctly understood, declared and agreed, any law or usage, present or future, to the contrary notwithstanding, that the rights and remedies secured to the holders of the aforesaid bonds by this indenture, and the trust therein declared, shall as against the mortgaged premises and every part thereof, be exclusive of all others, and especially that no part of the mortgaged premises shall be levied upon, taken into execution, or sold under any judgment or decree obtained by the holder or holders of any of the said bonds against the telephone company for the payment of either principal or interest of the bonds intended to be hereby secured, unless such judgment or decree shall have been entered for the purpose of enforcing the trust, or power of entry and sale hereinbefore contained." Now, under these circumstances. I think, If it were necessary so to hold, that I should feel constrained to hold that the act does not apply to this case. But, be that as it may, the question here is not whether the complainant can lawfully bring an action at law upon his coupons (which are in the ordinary form of a simple promise to pay the bearer on the 1st day of January. 1906. at the office of the Trenton Trust & Safe Deposit Company of Trenton, N. J., $25 In gold coin, being six months' interest on its mortgage bond numbered —— and signed by the treasurer), but the question is whether the complainant is a creditor of the defendant. It seems to me the position that he is not a creditor is hardly arguable, and the case before cited of Crater v. Smith, 42 N. J. Eq. 348, 7 Atl. 575, and 43 N. J. Eq. 636, 12 Atl. 530, holds that he is a creditor. There a party held a bond and mortgage against a decedent whose estate was insolvent, and before foreclosing his mortgage he presented a sworn claim to the administrator, which was stricken out by the orphans' court on the strength of this statute, but was reinstated sand held to be valid by both the Chancellor in the prerogative court and the Court of Errors and Appeals on appeal therefrom. And it was further held that the creditor having, after presenting his claim as just stated, foreclosed his mortgage and shown a deficiency on his bond, his claim, previously presented, should stand for such deficiency without any suit being brought on the bond, and after six months had elapsed after foreclosure. Moreover, the precise question here involved was recently before Vice Chancellor Garrison and considered by him in the unreported case of Skiddy v. Lyons & Campbell Cattle Co.; and he informs me that, after consideration, he held the holder of unpaid coupons of bonds secured by a mortgage of the defendant corporation to be a creditor for the purpose of prosecuting a suit to have that defendant declared insolvent, and that he so declared it and appointed a receiver.

The next objection to the complainant's standing is based on article No. 7 contained in the mortgage, in the following language: "Article Seventh. It is agreed that no holder or holders of any less proportion than twenty-five per cent of the total amount in value of the outstanding bonds or coupons secured thereby shall have the right to institute any suit, action or proceeding in equity or at law for the foreclosure of this mortgage or the execution of the trusts thereof, or for the appointment of a receiver, or for any other remedy under this mortgage, and that no such suit, action or proceeding shall be instituted without first giving thirty days' notice in writing to the trustees of the fact that default has occurred and continued as aforesaid and fully indemnifying the trustee against all loss, costs, or damages arising from such suit." It is argued by the defendant that this suit is included within that language. I do not so construe it. The bill is an ordinary bill filed under the sixty-fifth section of the...