Case Name: BENJAMIN F. BATCHELDER, Appellant v. COUNCIL GROVE WATER COMPANY, Respondent
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1891-05-04
Citations: 27 Jones & S. 262
Docket Number: 
Parties: BENJAMIN F. BATCHELDER, Appellant v. COUNCIL GROVE WATER COMPANY, Respondent.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 59
Pages: 262–271

Head Matter:
BENJAMIN F. BATCHELDER, Appellant v. COUNCIL GROVE WATER COMPANY, Respondent.
Action to recover principal and interest of certain bonds, secured by mortgage, etc.
The facts in this case are somewhat different from the facts appearing in Mallory v. The West Shore R. R. Co., 35 N. Y. Super. Ct. 174, but the difference is so unimportant as not to work any different result. On a full examination of all the instruments, that were simultaneously executed in this case, namely, the bonds, the interest coupons and the trust deed or mortgage, for the purpose of discovering the true intent and meaning of the contract thereby made, the conclusion is unavoidable that, upon default in the payment of the interest and the continuance of such default for a certain period named, the principal sum of each bond thereby became due, not absolutely, but in the manner and with the effect provided in the trust deed or mortgage.
The scheme of payment provided by the trust deed or mortgage clearly indicates that it was intended that the holders of the bonds should look to the mortgaged premises for their security in the event of default in the payment of the bonds; that the question of foreclosure and sale should be remitted to the discretion of a majority of the bondholders, and that they should share ratably in the proceeds.
Before Sedgwick, Ch. J., Freedman and McAdam, JJ.
Decided May 4, 1891.
This is an appeal from so much of a judgment entered upon the decision and by the direction of the special term of this court as by its terms “ adjudged that plaintiff is not entitled to recover of the defendant the principal of the- bonds mentioned and described in the complaint in this action,” and also from that part of such judgment which by its terms “ limited the recovery in the action to the interest upon said bonds represented by the interest warrants mentioned in the complaint; ” and also from such parts of said judgment “ as awarded costs by way of an additional allowance to said plaintiff, or by which the recovery of any sum whatever is adjudged to said defendant,” and from the order making such allowance of additional costs.
The action was for the recovery by the plaintiff of the principal and interest secured by three several bonds (with interest warrants or coupons attached) of which the plaintiff was the holder and owner, issued by the said defendant company, which bonds bore date the 1st day of July, 1887, and were numbered 43, 44 and 45 and were payable to bearer, for the sum of $1,000 each, on the 1st day of July, 1912, with interest at the rate of 6 per cent per annum, payable semi-annually, on the 1st day of July and January in each year; on the ground that such principal and such interest as remained unpaid had become due and payable by the terms of the bond. The said defendant having made default in the payment of the half-year’s interest due upon each of said bonds on the 1st day of January and July, in the year 1889, such interest having been duly demanded in manner and form as required by the condition of each of said bonds, and such default having continued for six months without the consent of the plaintiff.
The answer admits the ownership of the bonds, etc., the continuance of the default; denies the demand, and avers substantially in bar and avoidance that the remedy sought in this action could not be had (except as to the interest). That the plaintiff was confined to the remedy provided by the terms of the mortgage, and that such remedy was exclusive, and the payment of the bonds, etc., could only be enforced by the foreclosure of the mortgage in the manner provided therein.
The court found, as matter of fact, that the principal of the several bonds, as also the interest secured by the several coupons in suit, was due and payable at the time of the commencement of the action, and directed judgment for* the interest, but held “ that the plaintiff was not entitled to recover in this action the principal of said bonds.” And at the request of the plaintiff, as matter of fact, “ that the bonds mentioned in the complaint in this action did, by reason of the provisions contained therein and in said trust deed or mortgage, become due and payable by reason of the continued default of the said defendant in the payment of the interest thereon, as aforesaid, before the commencement of this action, but that the remedy of the plaintiff for the enforcement of the payments of said bonds is provided for by the terms of said trust deed or mortgage in the paragraphs thereof, above found, and is confined to the remedy so provided.”
Judgment was entered in said action on the 28th day of June, -1890, in accordance with the conclusion above cited.
The case as presented to this court is confined to the record and exceptions appearing therein under § 998, Code of Civil Procedure.
The clauses of the bond and trust deed or mortgage are as follows: The trust deed provides: “ If default be made by the said party of the first part (defendant) on _any half-year’s interest on said bonds and the warrants or coupons for such -interest shall have been presented and its payment demanded, and such default shall have continued six months after such demand without the consent of the holders of such coupon or bond, then and thereupon the principal of all of said bonds shall be and become immediately due and payable, anything in said bonds to the contrary notwithstanding, and the said party of the second part may so declare, and upon the written request of the holders of a majority of said bonds then outstanding shall proceed to collect both principal and interest of all such bonds outstanding by foreclosure and sale of said property or otherwise as therein provided.” The provision of the bond as to the effect of such default is as follows: “ And in case of the default in the payment of any of the interest coupons attached to this bond in the manner provided in the trust deed, or mortgage hereinafter mentioned, then and in that case the principal sum of this bond shall become due in the manner and with the effect provided in the said trust deed or mortgage.”
Thomas J. McKee, attorney, and Samuel J. Crooks of counsel, for appellant, on the questions considered, argued:—
I. The plaintiff’s remedy at law for the recovery of the bond debt and interest is available to him, and may be resorted to, unless by the terms of the condition in the bond and those of the mortgage so far as referred to and adopted in such condition, such remedy is denied the plaintiff by the substitution of another and exclusive remedy, (a.) “ As a matter of settled law with reference to all mortgage securities the debt is the bond obligation or note of the debtor.” It is indeed secured by a mortgage, “ but the debt can be sued as against the debtor without enforcing the mortgage.” Polhamus v. Fitchburg R. R. Co., 50 Hun, 397-398. It is said by Mr. Justice Bradley in the State of Florida v. Anderson, 91 U. S. 679: “ Of course the company giving the bonds is primarily liable to the bondholders for principal and interest as they become due, inasmuch as the bonds import on their face an absolute promise to pay; and on failure to pay suit may be instituted at once against the company.” And Mr. Justice Swathe, in Gilman v. Ill. & Miss. R. R. Co., 91 U. S. 616, uses this language: “ In the present state of the law, where there is no prohibition by statute, it is competent for the mortgagee to pursue three remedies at the same time : he may sue on the note or obligation, he may bring ejectment, and he may file a bill for foreclosure and sale” (citing Hill on Mort., 9, 62 ; Ib. 104, 111; Andrews v. Setton, 2 Bland, 665). To the same effect are the cases of Northampton Bank v. Kidder, 106 N. Y. 221 ; McClelland v. Norfolk Southern R. R. Co., 110 Ib. 469, and Mallory v. West Shore R. R., 35 Superior Court, 174.
II. It is well settled that to determine the character of the contract made resort must be had to each of the securities simultaneously executed by the defendant, viz., the mortgage, the bonds and coupons, for the purpose of discovering the intent and meaning of the contract thereby made. McClelland v. Norfolk So. R. R., supra, 474. “ The reference in the coupons to the mortgage and bonds, and in the bonds to the terms and conditions of the mortgage, clearly charge the holders of both coupons and bonds with the provisions contained in each of such instruments.” Ib. Such resort, however, is limited to the subject and object of the reference by the very nature of the case. The language used in the several securities, with reference to the effect of a continued default “in the payment of any of the interest coupons,” thus becomes a part of an entire contract, and part and parcel of the condition of the bond. Thus the provision in the bond, that in case of such continuous default “ the principal sum of this bond shall become due, in the manner and with the effect provided in the said trust deed or mortgage,” adopts and refers to the provision of the deed or mortgage upon that subject as follows: “then and thereupon the principal of all of said bonds shall be and became immediately due and payable, anything in said bond to the contrary notwithstanding.” The “effect” was, therefore, that for such continuous default in the payment of the interest upon one of such bonds, all the bonds became not only due, but payable immediately. No action was necessary on the part of either the holder of the bond or of the trustee named in the deed to produce “this effect.” The bonds in suit were therefore due and payable at the commencement of this action.
III. By the terms of the mortgage, upon the happening of such event, i. e., that “all of said bonds hereby secured, shall be and become immediately due and payable,” the trustee named in the mortgage “may so declare and notify the company (defendant), and upon the written request of the holders of a majority of the said bonds outstanding, proceed to collect both principal and interest of all such bonds then outstanding,” etc. This declaration of the trustee was in no sense necessary to produce the effect already attained; it was only necessary for him to so declare to enable the bondholders as a body to act and control his (the trustee’s) action. The plaintiff’s bonds and coupons were due and payable by force of their terms and the default which had occurred, at once. The remedy provided by the trust deed was cumulative, not exclusive. In the case of McClelland v. Norfolk So. R. R. Co., supra, a recovery of a judgment at law for the amount of several coupons was affirmed as against the company upon its primary liability, and the learned justice (Ruges, C. J.,) who delivered the opinion says (p. 480): “The fact that the mortgage in question covers all the property of the corporation, and must eventually be enforced for the ¿benefit of its beneficiaries equally, would seem to subject the motive of the plaintiff in bringing this suit to the imputation of attempting to extort payment of his coupons from the company to the detriment of his associates; but this constitutes no defence to the action. The remedy of the bondholders against such an effort (if any there is) must be found in the exercise by the trustees of the power conferred upon them by the mortgage to take possession of the property covered thereby and use its proceeds for the common .benefit of all bond and coupon holders.” The recovery of the coupons depended upon the like condition as the princi¡Dal of the bonds. “ There was but one contract, and that evidenced by the bond, which covenanted to pay the bearer the sum of $1,000 at a fixed date with semi-annual interest at the rate of six per cent. The coupon is simply a mode agreed between the parties for the convenience of the holder in collecting the interest as it becomes due.” The City v. Lampson, 9 Wall. 478. Cited McClelland v. Norfolk So. R. R., supra. The recovery upon the coupon must therefore rest with and be governed by the bond, and both being due and payable, both or neither could be recovered in the same action. The decision of this court in Mallory v. West Shore R. R. Co., supra, invoked in aid of the defendant’s contention, is distinguished from the case at bar in that the facts involved were quite different. That case in the principles enunciated by the learned justice delivering the opinion (Sedgwick, J.,) in his discussion of the case, applied to the case at bar, would sustain a recovery of the principal of the bonds in question and reverse the judgment in this action.
Isaac L. Miller, attorney and of counsel, for respondent, on the questions considered, argued:—
I. As the record contains no statement or certificate that all the evidence given, on the trial is contained therein, the facts are not before the general term for review, and the only questions that it can properly consider are those of law. The facts as found by the judge at special term must, for the purpose of an appeal, be accepted as the facts of the case, and the court will not look into the evidence even so far as it is returned for facts to reverse the judgment. Travis v. Travis, 122 N. Y. 449 ; Aldridge v. Aldridge, 120 Ib. 614; Mahoney v. Prendergast, 12 N. Y. Supplement, 869, March 12th, 1891.
II. In determining the character of the coupons in question the court is required to examine each of the securities simultaneously executed, viz.: the bonds, the coupons, and the trust deed or mortgage, for the purpose of discovering the intent and meaning of the contract thereby made. McClelland v. Norfolk R. R., 3 N. Y. State Rep. 250 ; S. C. 110 N. Y. 469, 474; Bailey v. County of Buchanan, 115 N. Y. 297, 301; Caylus v. New York K. & S. R. R., 10 Hun, 296, affd. 76 N. Y. 609; Jones on Mortgages, vol. 1, 4th ed., §76, vol. 2, 4th ed., §1179.
III. It is well settled, particularly in this court, that a party holding a bond of this nature is not entitled to recover the principal sum therein named, and cannot maintain an action thereon for the principal thereof in case of non-payment of interest, but that the provision is intended to give the trustee named in said mortgage (with whom, in trust for the bondholder the covenant was made,) a right of action upon it for the foreclosure of the mortgage, thus making the security a more complete security for the bondholder. The covenant in these bonds was with the trustee, not with each bondholder, and the cause of action is in the trustee only. Mallory v. West Shore R. R. Co., 35 Super. Ct. Rep. 174; Pennock v. Coe, 23 How. U. S. 131; McClelland v. Norfolk R. R., supra; Jones on Mortgages, vol. 2, 4th ed., § 1183 ; Jones on Corporate Bonds and Mortgages, 2d ed., § 51.
IV. It is equally well settled that a beneficiary cannot maintain an action until the trustee refuses to perform his duty in that respect, and then the trustee must be brought before the court as defendant. Western R. R. v. Nolan, 48 N. Y. 513, 517, cited and approved in Wetmore v. Porter, 92 N. Y. 76, 82. Davenport v. Dows, 18 Wallace, U. S. 637.
V. The statute of this state provides in terms that the judgment debt’s equity of redemption in real property mortgaged shall not be sold by virtue of execution issued upon a judgment to recover for the mortgage debt or any part thereof, thus expressly negativing the idea that a creditor may, by means of a money judgment obtained in a suit on the bond, sell the mortgaged premises. Code, § 1432.
VI. The whole scheme of the mortgage shows that it was clearly intended that the holders of the bonds should look to the mortgaged premises for their security in the event of default in the payment of either principal or interest; that the question of foreclosure and sale should be remitted to the discretion of a majority of the bondholders, and that the bondholders should share ratably in the proceeds. It never was supposed or intended that a bondholder could maintain an action at law and thus obtain a preference over others similarly situated with himself.

Opinion:
By the Court.—Freedman, J.
On the argument of the appeal it was conceded by the learned counsel for the appellant that, if the judgment is right, the order for the' extra allowance is unassailable, which involves that in such a case the order refusing a rehearing upon the question of an allowance is also correct. I have examined, therefore, only the question whether the judgment is right.' The facts of the case are somewhat different from the facts as they appear in Mallory v. The West Shore Hudson River R. R. Co., 35 N. Y. Superior Ct. R. 174, but the difference is so unimportant as not to work a different result. On a full and careful examination of all the instruments simultaneously executed in this case viz.: the bonds, the coupons, and the trust deed or mortgage, for the purpose of discovering the true intent and meaning of the contract thereby made, the conclusion is unavoidable that, upon default in the payment of the interest and the continuance of such default for a certain period named, the principal sum of each bond was to become due, not absolutely, but in the manner and with the effect provided in the trust deed or mortgage. The scheme of payment provided by the trust deed or mortgage shows that it was intended that the holders of the bonds should look to the mortgaged premises for their security in the event of default in the payment of the bonds; that the question of foreclosure and sale should be remitted to the discretion of a majority of- the bondholders, and that the bondholders should share ratably in the proceeds.
The judgment and orders should be affirmed, with costs.
Sedgwick, Ch. J., and McAdam, J., concurred.