Sears v. Greater New York Development Co.

• Decision Date: 29 June 1931
• Docket Number: No. 2535,2536.,2535
• Citation: 51 F.2d 46
• Parties: SEARS et al. v. GREATER NEW YORK DEVELOPMENT CO. GREATER NEW YORK DEVELOPMENT CO. v. SEARS et al.
• Court: U.S. Court of Appeals — First Circuit

51 F.2d 46 (1931)

SEARS et al. v. GREATER NEW YORK DEVELOPMENT CO.

GREATER NEW YORK DEVELOPMENT CO. v. SEARS et al.

Nos. 2535, 2536.

Circuit Court of Appeals, First Circuit.

June 29, 1931.

F. H. Nash, of Boston, Mass. (Richard Wait, of Boston, Mass., on the brief), for Sears and others.

Hugh D. McLellan, of Boston, Mass. (Clarence F. French, Alexander R. Smith, Jr., and French & Smith, all of Boston, Mass., on the brief), for the Development Company.

Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.

WILSON, Circuit Judge.

This is an action to recover a sum as interest on bonds after their maturity, issued by the defendant company, and on the interest coupons attached thereto after their alleged date of maturity.

In 1901 the defendant company, organized to engage in the business of buying, selling, and developing real estate in New York City, issued two series of bonds; one, and the primary or senior issue being dated June 1, 1901, in denominations of $1,000 to run for twenty years with interest at 5 per cent., payable semiannually; and a second or junior series in denominations of $500 dated June 2, 1901, and also maturing on the 1st day of June, 1921. The junior series was denominated "Five Per Cent Income Bonds" and were used as a bonus in disposing of the senior issue, one bond of the junior issue of the par value of $500 being offered with each $1,000 bond of the senior issue.

Both series of bonds with their interest coupons attached were made payable to the Old Colony Trust Company in Boston, and the plaintiffs' testatrix subscribed through a Boston broker's office for twenty-five of the senior issue and received income bonds of the aggregate par value of $12,500.

The senior issue held by the plaintiffs' testatrix has been fully paid with interest, though not on its maturity date.

The issues here arose over the construction of the provisions of the income bonds and the law as to the rate of interest to be computed on any overdue principal of the bonds, and whether the plaintiffs were entitled to interest on the overdue coupons.

The provisions of the income bonds over which the disputes arose are:

"For Value Received the Greater New York Development Company, a corporation under the laws of the State of New York, hereinafter called the Company, promises to pay to Bearer, or if registered to the registered holder, on the First day of June, 1921, at its agency in Boston, Mass., Five Hundred Dollars with interest at the rate of Five per centum per annum from December 1st, 1902 and until the principal of this bond shall become due payable on the First days of June and December in such instalments as the Board of Directors of the Company from time to time shall ascertain, determine and declare to be payable pro rata on the bonds of the series of which this is one, out of receipts from properties of the Company when and as such payments may seem safe in the judgment of the directors.

"The interest on this bond at the rate of Five per centum per annum shall be cumulative from December 1st, 1902. The respective coupons attached to this bond shall represent in the order in which they are numbered each of the corresponding instalments of interest which may be declared payable on this bond, and such instalments of interest as and when ascertained, determined and declared by the Board of Directors shall be payable to holders of the respective coupons representing such instalments, whether this bond itself be registered or not upon presentation and surrender of such coupons."

"Interest shall be declared payable in each instance at the rate of one half per centum, or a multiple of one half per centum. The determination of the Board of Directors whether any payment of interest can be safely made at any time, and as to the amount of such payment shall be conclusive and binding upon the Company and upon the holders of this bond.

"This bond is one of a series of Similar Five percent Cumulative Income 20 year Bonds dated June 2d, 1901 and amounting in the aggregate to $1,000,000, and may be drawn for payment by lot at any time before maturity and prepaid on any first day of June or December at par with interest at the rate of Five percent per annum to the date of payment, provided that notice that said bond has been drawn for payment shall have been published in some one newspaper published in said Boston, the first publication thereof to be not less than 21 days prior to the date fixed for payment.

"After the date fixed for payment interest shall cease upon this bond. The Company agrees with the holder of this bond that no dividend shall be paid on the stock of the company until this bond has been paid in full or provision made therefor.

"In case of final liquidation of the Company the 5 percent Bonds of the Company dated June 1st, 1901 shall have priority over the Bonds of this series both as to principal and interest."

Each interest coupon attached to the income bond except as to numbering reads as follows:

"Coupons

"The Greater New York Development Company

"Will pay to bearer at the office of the Old Colony Trust Company in the City of Boston, Mass. or other Agency of the Greater New York Development Company upon presentation and surrender of this coupon the First Installment of Interest on its $500 5% Cumulative Income Bond if and when such interest shall become payable in accordance with the provisions of said bond and provided that said bond shall not have been previously called for redemption as therein provided."

Interest on the senior issue was paid regularly until 1918, when the receipts of the company and business conditions did not warrant the further payment of interest at that time or the payment of the principal at maturity. No interest was paid on the income bonds until after the senior issue was fully paid with all interest due on April 15, 1924.

The first issue being paid, the defendant was then able to devote all receipts to the payment of the junior issue. In April, 1925, it had sufficient funds to warrant the passing of the following vote by its board of directors:

"Voted that the board of directors of the Greater New York Development Company does hereby ascertain, determine and declare that the first installment of interest on the 5% Cumulative Income Bonds of said Company dated June 2nd, 1901, amounting to one hundred and twelve and one-half percent (112½) and being interest from December 1, 1902, to June 1, 1925, be payable on June 1st, 1925 to holders of coupons numbered `1' originally attached to said bonds, upon presentation and surrender of said coupons at the office of the Old Colony Trust Company in Boston, Mass."

"Voted that the board of directors does hereby determine that the payment of interest, set forth in the foregoing vote, can be safely made."

On May 11, 1925, the defendant notified the plaintiff and other holders of income bonds by a circular letter of the following tenor:

"In accordance with said vote the said coupons numbered `1' for the first installment of interest on said bonds will be paid as set forth in said vote on the first day of June, 1925, at the office of the Old Colony Trust Company, 17 Court Street, Boston, Mass., as said coupons are severally presented and surrendered for cancellation."

Following these votes, other votes were passed as to coupons Nos. 2 and 3 and a vote to pay the principal of the income bonds on January 5, 1926.

A dispute immediately arose as to the amount of interest due on the income bonds. The defendant proposed to pay on June 1, 1925, 112½ per cent. of the face of the income bonds as interest from December 1, 1902, to June 1, 1925, to holders of coupon No. 1. The plaintiffs protested, but finally by agreement on January 5,...