Case ID: ad_15/html/0483-01.html
Source: Caselaw Access Project
Author: {"author": "Ingraham, J.;", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John Dougan, Respondent, v. Evansville and Terre Haute Railroad Company, Appellant.
    
      Complaint—guaranty by a railroad company of the payment of the principal and interest of the bonds of another company — when it becomes liable for the principal on default in the payment of interest — a suit thereon for both principal and interest embraces but one cause of action — effect of an allegation that a contract was duly and lawfully executed—that the contract was in violation of a foreign statute must be affirmatively alleged.
    
    The complaint in an action will be deemed sufficient whenever the requisite allegations can be fairly gathered from all the averments, although the statement of them may be argumentative and the pleading deficient in logical order and in technical language.
    
      By the complaint in an action it was alleged, as the first ground of recovery, that the defendant, the Evansville and Terre Haute Railroad Company, a corporation organized under the laws of the State of Indiana, being the sole owner of the entire capital stock of the Evansville and Richmond Railroad Company, whose railroad was a part of the defendant’s general system, advanced the money with which to build such latter railroad; that the Evansville and Richmond Railroad Company thereupon executed bonds, the principal of which it promised to pay on the 1st day of September, 1938, with interest payable semi-annually; that by each of the bonds it was provided that in case of default in the payment of the principal and interest, in accordance with the tenor of said bonds, said principal and interest “might become collectible in the manner, to the extent and with the effect set forth in the deed of trust or mortgage recited in said bond;" that the deed or mortgage referred to provided that in case default should be made in the payment of the semiannual installments of interest on any of said bonds, according to the tenor of said bonds and the coupons accompanying the same, and in case any such default should continue for a period of six months after demand by the trustees, named in the mortgage, the principal of the bonds secured by the mortgage and the said accrued interest should, at the election of the said trustees, “become immediately collectible from and out of the said mortgaged premises, anything in the said bonds or in said deed of trust to the contrary notwithstanding; ” that the defendant, who sought to reimburse itself for the advances made to-the Evansville and Richmond Railroad Company, from the proceeds of the-sale of the bonds, with intent to procure credit for the said Evansville and Richmond Railroad Company veith the purchasers and holders of said bonds, . duly and lawfully subscribed and executed upon each of said bonds the-following contract of guaranty:
    “The Evansville and Terre Haute Railroad Company, for a valuable consideration, the receipt whereof is hereby acknowledged, hereby guarantees the payment of the principal and interest mentioned in the within bond, according to-the tenor and effect thereof.”
    That the plaintiff was the owner of certain of said bonds; that default had been made in the payment of interest, and that a demand in writing was duly made, by the trustees named in the mortgage, of said interest, and payment thereof refused; that such default had continued for a period of six months after such demand, and that the said trustees had duly elected, at the written request of the plaintiff, that the principal and accrued interest of all the bonds secured by the said mortgage “should be, and the same has, become immediately due and collectible, and notice of such election was duly given by the'said trustees to the Evansville and Richmond Railroad Company, and demand was duly made upon the said Evansville and Richmond Railroad Company by the said trustees for the payment of the whole debt,” and that the said company has. wholly neglected and refused to pay any part whatsoever of such principal or accrued interest. Judgment was asked for the amount of the principal of the bonds and the interest thereon, being the amount due to the plaintiff from the; defendant under the contract of guaranty.
    
      Upon the hearing on a demurrer interposed to this cause of action, it was
    
      Held, that the defendant’s liability being dependent upon a single instrument, the plaintiff’s right to recover the sum or sums due thereunder constituted but a single cause of action;
    That the fact that the amount due thereunder consisted of more than one item did not make a separate cause of action for each item, that is, one for the principal sum and one for the interest;
    That the contract of guaranty executed by the defendant not being invalid by the common law, and not being prohibited by any statute of the State of Hew York and the complaint having alleged that it was duly and lawfully executed, it must be held that the defendant’s power to execute such contract was admitted by the demurrer;
    That if, by the foreign law, the law of the State in which the defendant was incorporated, or the law of the State where the guaranty itself was executed, such guaranty was made invalid, it was an affirmative defense which must be pleaded;
    That upon the facts admitted by the demurrer, the defendant was, by the terms of its contract, liable for the interest upon the bonds.
    
      Semble, that it was not, however, liable for the principal of the bonds, as by the bonds themselves (the payment of the principal and interest of which, according to their tenor and effect, the defendant guaranteed) the obligor was not bound to pay the principal until 1928; that the provision in the mortgage referred to in the bond, that upon default the principal of the bond “ should become immediately collectible from and out of the said mortgaged premises,” did not operate to give the holder of the bond, upon default being made, a cause of action against the obligor, or to change its obligation to pay such principal before the time fixed for such payment in the bond itself.
    It appeared that the Evansville and Richmond Railroad Company also executed another series of bonds, payable on the 1st day of September, 1931, with interest payable semi-annually. Each of said bonds provided “that in case of default in the payment of the principal or any of the said interest, in accordance with the tenor of said bond, the said principal and interest might become collectible in the manner, to the extent and with the effect specified and set forth in a deed of trust or mortgage recited in said bond.” The mortgage referred to provided that in case default should be made in the payment of any installment of interest, then immediately upon the demand by the trustees named in the mortgage, or either of them, in writing, for the payment of the said moneys, the principal of the bonds secured by said mortgage and the said accrued interest should, at the election of the said trustees, become immediately due and payable.
    The defendant executed and caused to be placed upon each of such series of bonds the following:
    “For a valuable consideration, the receipt whereof is hereby acknowledged, the Evansville and Terre Haute Railroad Company hereby guarantees to the holder of the within bond, the punctual payment of the principal and interest thereof, when and as the same shall become due and payable.”
    
      
      Held, that immediately upon default "being made in the payment of the interest, the principal sum became, at the election of the trustees, at once due and payable by the obligor to the holder of the bond; and that the defendant having-guaranteed the payment of the principal and interest thereof, when the same should become due and payable, immediately became liable for such principal and interest.
    Appeal by the defendant, the Evansville and Terre Haute Railroad Company, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 19th day of December, 1896, upon the decision of the court rendered after a trial at the New York Special Term overruling its demurrer to the complaint.
    
      Thomas G. Shearman, for the appellant.
    
      Henry C. Robinson and Charles A. Boston, for the respondent.
   Ingraham, J.;

The complaint alleges two causes of action, the first, to recover the amount due upon certain bonds of the Evansville and Richmond Railroad Company, designated as first mortgage bonds on western division, Elnora to Columbus; and the second, to recover the amount due upon certain bonds of the said corporation designated as first general mortgage bonds. The liability of the defendant is based upon what is designated in the complaint as a written or printed guaranty, which, it is alleged, was placed upon each of the bonds mentioned, the form of the guaranty upon the bonds described in the first cause of action being, The Evansville and Terre Haute Railroad Company, for a valuable consideration, the receipt whereof is hereby acknowledged, hereby guarantees the payment of the principal and interest mentioned in the within bond according to the tenor and effect thereof; ” and that placed upon each of the bonds described in the second cause of action being, “ For a valuable consideration, the receipt whereof is hereby acknowledged, the Evansville and Terre Haute Railroad Company hereby guarantees to the holder of the within bond the punctual payment of the principal and interest thereof, when and as the same shall become due and payable.” The defendant demurs to the first cause of action as if it alleged two separate causes of action, and also to the first and second causes of action upon the ground that in neither are stated facts sufficient to constitute a cause of action. As to the first ground of demurrer, it is sufficient for us to say that the facts alleged in the first cause of action constitute but one cause of action, viz., to recover the amount claimed to be due to the plaintiff from the defendant upon the contract of the defendant. Whether, upon the facts alleged and proved upon the trial, the plaintiff will be entitled to a judgment for the principal of the bonds, or for the interest due at the time of the commencement of the action, is to be determined from a construction of the instrument of guaranty, and of the instruments, the payment of which was guaranteed; but whatever is due to the plaintiff is due because of the defendant’s contract, and it is to recover the amount due upon that contract of guaranty that this action is brought.

The real question presented is whether the facts alleged as constituting this first cause of action set forth a cause of action in favor of the plaintiff as against this defendant. The facts are alleged as follows: That about the 1st day of September, 1888, the Evansville and Eichmond Eailroad Company, a corporation organized and existing under the laws of the State of Indiana, executed fifteen bonds of the denomination of $1,000 each, under the seal of the corporation, signed by the president, and attested by the secretary; that in and by each of said bonds the said railroad company acknowledged itself indebted unto the Manhattan Trust Company, or the bearer thereof, in the sum of $1,000, which sum the said railroad company promised to pay to the bearer on the 1st day of September, 1928, in the city of New York, with interest thereon from the 1st day of September, 1888, payable semi-annually on the first days of March and September in each year on the presentation and surrender of the coupons annexed to the bonds; that in and by each of said bonds it was provided that, in case of default in the payment of the jirincipal and interest, in accordance with the tenor of said bonds, the said principal and interest might become collectible in the manner, to the extent and with the effect specified and set forth in a deed of trust or mortgage recited in said bond; ” and that upon each of said bonds were interest coupons for the interest thereon, maturing severally upon each first day of March and each first day of September, from the year 1889, to the date of the maturity of the said bond, which said several coupons were in general form as therein alleged.

That the defendant, the Evansville and Terre Haute Railroad Company, being the sole owner of the entire capital stock of the said Evansville and Richmond Railroad Company, whose railroad was a part of the general system of the Evansville and Terre Haute Railroad Company (the defendant), and the said defendant, having also advanced the money to build the railroad of the said Evansville and Richmond Railroad Company, with the intent to reimburse itself for its outlays as aforesaid, from the proceeds of the sale of said bonds, and with the intent to give the said Evansville and Richmond Railroad Company credit with the purchaser and holder of said bonds, by the hands of its, the defendant’s, president, duly and lawfully subscribed and executed upon each of said bonds the contract of guaranty therein set forth; that thereafter, and prior to March 1, 1894, for value received and appropriated as aforesaid by the defendant, the said bonds, certified by the trustee and bearing the contract of guaranty as aforesaid, and with the interest coupons annexed thereto, were, in the ordinary course of business, duly delivered to the several purchasers thereof; and that subsequently fifteen of said bonds were purchased by and delivered to the plaintiff with the contract of guaranty of the defendant thereon, and with the interest coupons attached thereto. That the deed of trust or mortgage recited in each of said bonds provided that in case default should be made in the payment of the semi-annual installments of interest of any of the said bonds, according to the tenor of the said bonds and the coupons accompanying the same, and in case any such default should continue for a period of six months after demand by the said trustees, the principal of the bonds secured by the said mortgage, and the said accrued interest should, at the election of the said trustees, “ become immediately collectible from and out of the said mortgaged premises, anything in the said bonds or in said deed of trust to the contrary notwithstanding.” That the interest which became payable on the 1st day of March, 1894, was not paid, and that default was also made in the payment of the interest subsequently accruing on said bonds, and that a demand in writing was duly made by the trustees for the payment of the said interest at the maturity of the interest coupons maturing March 1, 1894, and payment thereof refused, and that such default has continued for a period of six months after such demand, and still continues, and that the said trustees have duly elected, at the written request of the plaintiff, that the principal and accrued interest of each of the said bonds, and of all of the bonds secured by the said mortgage, “ should be and the same has become immediately due and collectible, and notice of such election was duly given by the said trustees to the said Evansville and Richmond Railroad Company, and demand was duly made upon the said Evansville and Richmond Railroad Company by the said trustees for the payment of the whole debt,” and that the said company has wholly neglected and refused to pay any part whatsoever of such principal or accrued interest.

It is apparent that upon this cause of action two questions are presented : First, as to the right to recover the interest upon the bonds accruing prior to the commencement of the action as represented by the several coupons remaining unpaid; and, second, as to the right to recover the principal of the bonds which by their terms did not become due until 1928. This second question, however, is not necessary for the decision of this demurrer, for if the plaintiff is entitled to recover any sum upon the cause of action alleged in the complaint, the demurrer was properly overruled.

The contention of the learned counsel for the defendant, that there are two causes of action, because upon the same state of facts the plaintiff seeks to recover the interest, and also the principal provided for by the bond itself, is manifestly unsound. The cause of action is to recover the principal and interest of the bonds, being the amount due to the plaintiff from the defendant under the contract of guaranty affixed to each particular bond, there being but one instrument upon which the defendant promises to pay anything, and under that promise, if a valid subsisting promise, the plaintiff is entitled to recover the amount due. Just what that sum is depends upon the amount which the defendant promised to ]Day by the contract of guaranty, and the fact that the amount due under the guaranty consists of more than one item, does not make a separate cause of action for each item. If, therefore, the defendant is bound to pay to the plaintiff any sum of money under the guaranty at the time the action was brought, a good cause of action is alleged.

Under our system of pleading, the complaint will be deemed sufficient whenever the requisite allegations can be-fairly gathered from all the averments, though the statement of them may be argumentative and the pleading deficient in logical order and in technical language. “ The pleading will be held to state all facts that can be implied from the allegations by reasonable and fair intendment, and facts so impliedly averred are traversable in the same manner as though directly stated.” (Sage v. Culver, 147 N. Y. 245.) To justify a demurrer it must appear upon the face of the complaint that one of the objections mentioned in section 488 of the Code exists. Does it here appear on the face of the complaint that the facts alleged as the first cause of action do not state facts sufficient to entitle the plaintiff to recover on the guaranty at all ? Several objections to the complaint are taken by the defendant. We think it quite clear that it does not appear that the defendant had not power to execute the contract of guaranty alleged to have been placed upon the bonds. There is no rule of common law with which we are familiar which prohibits a corporation from executing such a guaranty as is here alleged. The allegation is, that this corporation, being created under the laws of a foreign State, duly and lawfully executed this obligation. No law of this State makes it illegal for a foreign corporation to execute such an obligation, and the demurrer admits that the defendant duly and lawfully executed it. If the obligation was one which would be void under the law of our State as against public policy, or in violation of some rule o-f the common law, an allegation that it was lawfully executed could not be held to override the express rule of law violated by its execution. Thus, if the agreement was invalid as being in restraint of trade or as tending to establish a monopoly, we would not uphold or enforce it, although the complaint alleged and the demurrer admitted that it was lawfully executed. There is, however, no such invalidity in the contract in question. No rule of the common law is violated by the defendant’s guaranteeing the payment of these bonds. This is a contract, not invalid by the common law and not prohibited by any statute of this State, by which this foreign corporation has agreed to pay a sum of money ; and if, by reason of a foreign law, the law of the State which has incorporated the defendant, or the law of the State where the guaranty itself was executed, the contract is made invalid, it is an affirmative defense which must be pleaded by the defendant. As an illustration of this principle, it has been held that the defense of the Statute of Frauds to an agreement alleged in the complaint to have been made, but which, by that statute, is void if not in writing, to be effectual must be pleaded. (See Crane v. Powell, 139 N. Y. 319.)

It is unnecessary to follow the learned counsel for the appellant in his argument as to the illegality of the various acts alleged in the complaint as having been done by these defendants. The illegality, if any, must depend upon a foreign law of which we cannot take judicial notice. The cases cited to sustain the proposition that these acts were illegal arose upon appeals from judgments where the statute under which the corporation was organized, or the law of the State under which the corporation existed, were before the court for construction. It may be that the laws of the State of Indiana, or the charter of this defendant, expressly prohibited it from doing the acts alleged in the complaint to have been done by it. Upon that fact being proved, a question will then be presented as to the liability of the defendant, but upon the facts here conceded no such question is presented. Nothing appears upon the face of this complaint to show that this guaranty was not a legal exercise of the corporate powers, but, on the contrary, the facts here admitted by the defendant, viz., that this defendant, to complete a road which was a part of its system, advanced money for that purpose, and to reimburse itself for the money took bonds of the road, indorsed a guaranty upon them and issued them to purchasers and received the proceeds, would certainly, in the absence of any express prohibition, create a liability on behalf of the guaranteeing corporation to the extent of its guaranty. While it may be assumed that this is a New York contract, the power of the corporation to make it must depend upon the law of the State creating the corporation, unless the contract is one prohibited by law in this State; and, as before stated, no rule of the common law or statute has been called to our attention which makes such a contract illegal. Upon the facts alleged in this first cause of action, therefore, we must hold that the power of the corporation to execute the guaranty sued on is admitted by the demurrer.

The next question is, as to whether from the facts alleged the plaintiff would be entitled to judgment for either the principal or interest of tlie bonds which were held by the plaintiff at the time of the commencement of the action. The guaranty of the defendant guarantees the payment of the principal and interest mentioned in the within bond according to the tenor and effect thereof.” The promise contained in the said bond is to pay in the year 1928, in the city of New York, $1,000 in gold coin of the United States, with interest thereon at the rate of five per cent on the first days of March and September in each year, on the presentation and surrender of the coupon annexed thereto. By the coupon annexed thereto the obligor agreed to pay to the bearer on the first days of March and Sejitember in each year, twenty-five dollars in gold coin in the city of New York, being for six months’ interest on its bond; and by its guaranty the defendant guaranteed the payment of the interest mentioned in the bond according to the tenor and effect thereof. It seems to us quite clear that by this guaranty, upon the failure of an obligor to pay such interest upon the presentation of the coupon annexed to the bond, the defendant became liable for the amount of each coupon. The defendant would, therefore, upon the facts admitted by the demurrer', be liable for the several coupons alleged to be due and unpaid prior to the commencement of the action, and to that extent, at least, the plaintiff would be entitled to judgment.

The other question presented is much more serious. By the bond it is provided that, upon the default- in the payment of the interest, the principal and interest might become collectible in the manner, to the extent and with the effect specified and set forth in a deed of trust or mortgage therein recited; and by the mortgage it is provided that upon default, which should continue for six months after demand by the trustees, the /principal of the bond should, at the election of the trustees, “ become immediately collectible from and out of the said mortgaged premises.” It is argued with much force that under this provision of the bond and mortgage the default in the payment of the interest affected the time of the payment of the principal only so far as it authorized the trustees to collect the principal sum out of the mortgaged premises, leaving the promise of the obligor to pay the principal in the year 1928 unaffected by the default. There is no promise in the bond to pay the principal of this sum until the year 1928, except the obligation that upon the default in the payment of the interest the principal and interest might become collectible in the manner, to the extent and with the effect specified and set forth in the mortgage.

Now, here is no provision that the obligor will pay that amount of principal upon the default in the payment of the interest on the bonds.' There is no promise that the'obligation of the obligor will be in any manner changed in consequence of the default in the payment of the interest. The obligor is to pay the principal in 1928, with interest thereon semi-annually upon stated periods, with .a provision in the bond that if default is made in the payment of the interest the trustees may immediately proceed to enforce a lien upon property given to secure the payment of the bond and to apply the proceeds realized from the sale of such security upon the amount of such principal of the bonds; but there is nothing to give to the holder of the bond a cause of action against the obligor or to change its obligation so as to require it to pay such principal before the time fixed for the payment in the bond itself; and, as the defendant guarantees the payment of the principal and interest according to the tenor and effect of the bond, we incline to the opinion that, in the absence of any other provision in the mortgage than is alleged, there would be no obligation to pay the principal, which could be enforced by a judgment against the obligor until the time when the amount is payable by virtue of the bond itself. As, however, the plaintiff was clearly entitled to a judgment for the amount of interest, the decision of the court below in overruling the demurrer to the first cause of action was correct.

As to the second cause of action, it seems clear that the plaintiff is entitled to recover upon the facts alleged the whole amount. of principal and interest. The contract of the defendant “hereby guarantees to the holder of the within bond the punctual payment of the principal and interest thereof when and as the same shall become due and payable.” By the bond the obligor became indebted to the Farmers’ Loan and Trust Company, or bearer thereof, in the sum of $1,000, payable on the 1st day of September, 1931, at the office or agency of the said company in the city of New York, in gold coin of the United States, with interest thereon at the rate of five per centum per annum, payable semi-annually ; and by each of said bonds it was provided “ that in case of default in the payment of the principal or any of the said interest, in accordance with the tenor of said bond, the said principal and interest might become collectible in the manner, to the extent and with the effect specified and set forth in a deed of trust or mortgage recited in said bond; ” and by such mortgage it ivas provided that in case default should be made in the payment of any installments of interest of any of the said bonds, according to the tenor of the said bonds, and of the coupons accompanying the- same, then immediately after demand by said trustees, or either of them, in Avriting for the payment of the said moneys, the principal of the bonds secured by the said mortgage, and the said accrued interest, should, at the election of the said trustees, become immediately due and payable, anything in the said bonds or in said deed of trust to the contrary notwithstanding. Thus, by the guaranty the defendant guaranteed the punctual payment of the principal and interest when the same should become due and payable. By the bond it is provided that upon default in the payment of the interest the principal and interest might become collectible in the manner, to the extent and with the effect specified and set forth in the deed of trust or mortgage; and by the deed of trust it is provided that upon the default in the payment of the interest the principal of the bond secured by the mortgage should, at the election of the trustees, become immediately due and payable. Under this provision, therefore, immediately upon default being made in the payment of the interest, upon the election of the trustees the principal sum became at once due and payable by the obligor to the holder of the bond; and the defendant having guaranteed the payment of the principal and interest thereof Avhen the same shall become due and payable, and the principal having become due and payable according to the bond itself, the defendant was liable.

We think, therefore, the demurrer to both causes of action was properly overruled and that the judgment should be affirmed, with costs.

Rumsey, Patterson and O’Brien, JJ., concurred; Van Brunt, P. J., concurred in result.

Judgment affirmed, with costs.