Court Opinion

ID: 6878229
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:10:52.407589+00
Date Added: 2024-06-11T16:05:32.123908
License: Public Domain

PATTERSON,
Circuit Judge (dissenting).
The right of a bondholder to bring a simple action at law on the promise of the obligor in the bond to pay him the principal amount at maturity is so absolute that to defeat the action the obligor must point to some provision in the contract which expressly or by ' necessary implication qualifies the right. “The commonlaw right of suing to judgment upon a written obligation admitted to be valid is of too high a character to be taken away by implications, especially if these are drawn from instruments other than that which is given in direct and positive acknowledgment of the debt.” Manning v. Norfolk Southern R. Co., C.C., 29 F. 838, 839. The provision relied on to qualify may be on the face of the bonds, or it may be in the mortgage and incorporated into the bonds by reference explicit enough to put the bondholder on plain notice of it; but in either case the intent to cut down the bondholder’s right to sue at law on the bond must be unmistakable: This is the law in New York, the place of performance of the covenant to pay, as well as generally elsewhere. Enoch v. Brandon, 249 N.Y. 263, 164 N.E. 45; Cunningham v. Pressed Steel Car Co., 238 App.Div. 624, 265 N.Y.S. 256, affirmed, 263 N.Y. 671, 189 N.E. 750; Manning v. Norfolk Southern R. Co., supra; McClelland and Fisher, Law of Corporate Bond Issues, pp. 136, 697.
In the present case the bonds have no language which qualifies the bondholder’s right to sue on the bonds. They do, however, contain a clause that in case of default in payment of the bond, such consequences shall ensue as are prpvided in the mortgage securing their payment. This clause, I agree, sufficed to put a bondholder on notice that his right to sue for breach of the promise to pay might be restricted by provisions in the mortgage. Batchelder v. Council Grove Water Co., 131 N.Y. 42, 29 N.E. 801. The question then is whether any such provision can be found in the mortgage. The only provision that purports to restrict suit by bondholders is this: “Every holder of the bonds secured hereby accepts the same subject to the express understanding and agreement that every right of action, whether at law or in equity, upon or under this instrument, is vested exclusively in the Trustee; and under no circumstances shall the holder of any bond or coupon,, or any number of such holders, have any right to institute any action at law upon any coupon or coupons, or otherwise, or any suit or proceedings in equity, or otherwise, for the purpose of enforcing any payment, covenant or remedy herein or in said bonds or coupons contained, or to foreclose this mortgage, except in case of .refusal on the part of the Trustee to perform any duty imposed on it by this instrument in respect of such payment, covenant, remedy or foreclosure * * * after demand * * * ”,
The first clause plainly has to do only with actions to enforce the mortgage. In the second clause there is an express restriction against bondholders in respect to actions at law on coupons and also in respect to ‘suits- in equity to enforce any payment, covenant or remedy in the bonds, coupons or mortgage. There is no express restriction against a bondholder bringing an action at law on the bond. The appellant’s argument is that the words “or otherwise”, after the words “coupon or- coupons”, must be taken as forbidding an action at law on the-bonds. The import of the words “or otherwise” is not plain. It is arguable that they were meant to restrict actions at law on the bonds; if so, the idea was most ■ awkwardly expressed. In any event, the clause contains no language expressly or by unavoidable implication restraining a bondholder from bringing action at law on the bonds. In the absence of plain language the clause may not be given the effect claimed for it by the appellant. I am of opinion that the decision of the district court was right and that the judgment should be affirmed.