Court Opinion

ID: 7967351
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:51:49.797777+00
Date Added: 2024-06-11T16:34:40.859446
License: Public Domain

ON REHEARING.
March 9, 1892.
Vanderburgh, J.
Upon the original argument of this case the attention of the court was more particularly drawn to the terms of the stipulation in the trust deed in respect to the enforcement of the bonds, which it was claimed is binding upon the bondholders. The stipulation is set out in full in the foregoing opinion. The proposition is not seriously disputed that, if this stipulation had been actually incorporated into the bonds, or had been so clearly referred to by recital as to notify the bondholders of its existence, and in legal -effect import it into the bonds, the purchasers and holders would have taken and held the bonds subject thereto, and would have been bound by it. An analysis of the authorities cited will, we think, show that none of them hold a different doctrine. Thus, in McClelland v. Norfolk Southern R. Co., 110 N. Y. 469, (18 N. E. Rep. 237,) the mortgage provided: “Among other things, that in every case of default of the payment of the money thereby secured, or any part thereof, in respect of any covenant or agreement in the bonds secured thereby, -the duty of the trustees in the premises was declared -to be subject to the right and power of a majority in interest of the •holders of the bonds to instruct the said trustees to waive such default, or enforce their rights thereunder,” etc. And it was held that, *573by reason of the reference made on the face thereof to the terms and conditions of the bonds, the holders were bound by the provisions of the trust deed in respect to a waiver of defaults; and the court say,—110 N. Y. 477, (18 N. E. Rep. 241:) “If, therefore, the act of the trustees in postponing payment of the interest becoming due was authorized by the provisions of the mortgage, it must follow that the holders of coupons are bound by their action, and are not entitled to maintain actions at law upon such coupons.” All the cases agree that the coupons stand upon the same footing as the bond, and the rights of the holder are of no higher order. They are subject to the same conditions as a bond, in respect to their relation to the trust deed. McClure v. Township of Oxford, 94 U. S. 429.
The only question requiring serious consideration in this case is the sufficiency of the notice in the bonds to make them subject to the provisions in the trust deed above referred to, in the hands of bona fide holders. Upon this question the authorities are not very clear or satisfactory. In the case above cited from the court of appeals in New York the reference in the bonds was as follows: “Full payment of the principal and interest of the said series of bonds is secured by deed of trust or mortgage upon the' property and franchises of said railroad, upon the terms and conditions fully set forth in the said mortgage or deed of trust;" and, in case of default in the payment of the interest for six months, the principal was, at the option of the holder, to become due and payable immediately, upon the terms and with the effect mentioned in said deed of trust. These premises were held to be notice to the holders, so that the conditions of the deed referred to were to be read in connection with the bond as a part of the agreement by which the bondholders were bound. In the case of Manning v. Norfolk Southern R. Co., 29 Fed. Rep. 838, decided by the judge of the United States circuit court, E. D. Virginia, and which was cited on the argument of the last-mentioned case in- the court of appeals, but not followed, this question was not considered, but the court held that the provisions of the mortgage were not sufficiently clear to warrant the construction claimed for it by the defendant. In Caylus v. New York, K., etc., R. Co., 10 *574Hun, 295, the court seems to hold that the mortgage, being referred to in the bonds, became a part of them, and that a purchaser was bound by statements in the mortgage affecting his interest. The holders were not, however, in that case, bona fide holders, and the questions involved were unlike that under consideration here. The case was affirmed in 76 N. Y. 609, but this point does not seem to have been considered. In McClure v. Township of Oxford, supra, the bond was issued by a municipal corporation, and recited on its face the act which authorized its issue. Held, that the holder was bound to take notice when the statute took effect, and that the bond was by its terms prematurely issued. But the general rule is that, _ when bonds on their face import a compliance with the law under which they are issued, though that be referred to therein, bona fide purchasers are not bound to look-further for evidence of a compliance with the conditions of the grant of power. Commissioners of Knox v. Aspinwall, 21 How. 539, 545. The only matters open for inquiry in a suit by the purchaser is the bona fides of the purchase, and the statutory authority to issue the bonds. Rouede v. Mayor, etc., 18 Fed. Rep. 719, and cases. The doctrine of these and other cases shows that the duty to make inquiry may be limited by the general nature of the recital. We do not think that a mere recital that the bonds were secured by the trust deed, with only a general reference to a description of the deed, would affect the negotiability of the bond, or be sufficient to put purchasers upon inquiry, so as to constitute notice to a bona fide purchaser that they were to be enforced at law only after an attempt, to collect the same through the trustees, as provided by the deed. It is true that the bond disclosed on its face that the entire series of bonds of which this is one is secured by a mortgage which covers all the property, franchises, and revenues of the mortgagor, and the security is for the benefit of all; and equity, therefore,, would not permit one bondholder, by independent legal proceedings, to secure an unjust advantage over the other bondholders, if the revenues or property of the company were insufficient to pay all. They have a. common interest in the security, and all are equally entitled to the *575benefit of it. No one of them can be permitted to obtain an equitable preference over his associates. Pennock v. Coe, 23 How. 117, 131; Com. v. Susquehanna & D. R. R. Co., 122 Pa. St. 306, (15 Atl. Rep. 448;) Jones, Corp. Bonds, §§ 292, 293. All of the bonds stand, presumptively, upon the same footing.
Undoubtedly the peculiar provision in the trust deed under discussion was intended to protect the mortgaged property from the liability of seizure at the suit of individual bondholders; but, as it is inconsistent with the absolute obligation which the bond imports on its face, and is not suggested by anything appearing thereon, it would hardly be a fair construction of the instrument to hold that the bond was notice to the holder that his right to bring suit for the interest, when due, was qualified by anything in the trust deed. The rights of the other bondholders are not affected by the prosecution of the suit or recovery of the judgment. The question could only be raised on their behalf upon interference with their rights, actual or threatened, under attachment or execution sued out in an action at law. We do not think the notice in the bond that it is not to be obligatory until certified by the trust company or the certificate of the trust company indorsed thereon were intended to be, or are in fact, notice of the provisions of the trust deed in relation to the enforcement of the bonds. The certificate was merely the method of authentication agreed on, and was essential to their validity; but it is notice of nothing more. Jones, Corp. Bonds, § 210. It shows that the bonds were duly authorized and lawfully issued, and were genuine bonds of the class and number secured by the mortgage, and therefore entitled to the benefit of the security. But there is nothing in it to put holders upon inquiry in respect to provisions relating to personal actions upon the bonds, or reasonably calculated to suggest that the trust deed might contain provisions other than relating to the enforcement of the same as security. Bonds of this character generally refer to the mortgage or trust deed by which they are secured; and, being placed in the market as negotiable securities, to be sold to bona fide purchasers, the fair inference from the general recital in the bond that it is one of a series secured by a mortgage deed to a *576certain trustee, upon the property of the railway company whose' absolute obligation it purports to be, is that such recital is introduced into the bond to indicate the nature of the security, and add to the credit of the bond, and does not alone import into the bond special provisions not affecting the nature or enforcement of the security, and at variance with the tenor of the bond itself. The policy of the law is to hold such instruments negotiable unless there is enough on the face of the bond to suggest inquiry in respect to the existence of facts destroying their negotiability.
We conclude, therefore, that upon the evidence in the case the plaintiff is entitled to recover, and the judgment is accordingly reversed.
(Opinion published 51 N. W. Rep. 658.)