Court Opinion

ID: 5189137
Source: CourtListenerOpinion
Date Created: 2022-01-06 15:33:12.623566+00
Date Added: 2024-06-11T08:26:51.333043
License: Public Domain

Patterson, J.:
Although the more immediate subject of discussion upon this appeal related to the cause of action attempted to be set up in the complaint being on a sealed instrument and hence not barred by the Statute of Limitations, twenty years not having elapsed since the cause of action accrued, as set forth in the reply to the answer, nevertheless, the scope of the inquiry we must make is much broader and extends to the ascertainment of the sufficiency, of the complaint upon the plaintiff’s own theory of the action. It is admitted that the demurrer to the reply searches the whole record and that judgment must be rendered against the party who committed the first fault in pleading in matter of substance. The plaintiff claims, and we think correctly, that it was the intention of the pleader in drafting the complaint to declare upon a sealed instrument. There is no express covenant in terms made by the defendant, but it is apparent from the text of the instrument and the conditions indorsed upon the bond that there was an intention of the trust company to bind itself by contract under seal, to require something to be done for the protection of the bondholders before it parted with *482bonds to the mortgagor. The argument of the plaintiff seems to be that there is a covenant, if not strictly an express one with the bondholders, one arising by implication of law en forcible by them, it being for their benefit; that if there is an implied covenant, an action may be maintained (Booth v. Cleveland Mill Co., 74 N. Y. 15), that made by the trust company with the Oregon Company being regarded necessarily as made for those who should become bondholders. The action of covenant lies upon contracts under seal ■either for the non-payment of money or for not doing of forbearing some other act. (Grah. Pr. [2d ed.] 84.) It lies upon a covenant not expressed in words but which will be implied from the terms of the sealed instrument (Kent v. Welch, 7 Johns. 258 ; Booth v. Cleveland Mill Co., supra), and while there is here no direct privity in terms between the plaintiff and other bondholders and the trust company, yet, it is argued, a covenanted duty manifestly intended for their benefit may be enforced by them. ( Van Schaick v. Third Avenue R. R. Co., 49 Barb. 409 ; Coster v. Mayor, 43 N. Y. 399.) But covenants are not to be inferred in a contract under seal, unless it clearly appears • in the contract that the party against whom the implication is sought to be made has plainly intended to do the act, in respect of which a covenant is sought to be implied. (Hornbostel v. Kinney, 110 N. Y. 94.) Technically speaking, the action of covenant at common law might not be brought against the Farmers’ Loan and Trust Company on this instrument. There is no express covenant in terms made by the Farmers’ Loan and Trust Company, and an implied covenant can be raised only out of or in connection with some express promise ; but, nevertheless, the obligation assumed by the trust company to the bondholders; arises out of the. sealed instrument. It is not merely the ordinary obligation of a trustee to the persons for whose benefit a trust Is. created. It is a particular and precise obligation arising out of' specific necessary requirements of the sealed instrument; and. the practical question upon the record now before us is, what obligations-were assumed by the defendant under the terms and conditions upon which it accepted and undertook the trust created by the, Willamette^ Valley and Coast Railroad Company and the Oregon Pacific Railroad Company. Whether an action in covenant at the common, law would lie is not the question, but it is. Whether the duty and *483obligation of the Farmers’ Loan and Trust Company to those who should become purchasers of bonds is one arising out of the terms of a sealed instrument. We think it clear that they have their origin in that instrument and exist by'virtue of it and not otherwise. But the allegations of the complaint, as to the claimed nature of that duty and obligation, are controlled by the conditions and provisions-of the mortgage, and examining those conditions and provisions and giving effect to all of them, so far as may be, we conclude that an action will lie only in the event of the Farmers’ Loan and Trust Company having issued bonds to the Oregon Pacific Railroad Company without requiring the statement called for by the terms -of the mortgage as a necessary preliminary to the right of the last-named company to receive the bonds.
Express provision is made in the mortgage for disposing of the bonds in either one of two ways. The proceeds of the sale of the bonds might have been paid into the defendant’s hands and disbursed by it, in which event possibly, as the plaintiff claims,, a duty might be inferred making it incumbent upon the defendant to see that the moneys realized from the sale of the bonds were paid out not only ijOr the purposes but m the order in which the Oregon Pacific Railroad Company promised to apply them. But the Oregon Pacific Railroad Company had the right of delivery to it of the bonds in specie, in which event, as expressly stipulated in the mortgage, the defendant, the trust company, was not bound in any way to look to the application of the proceeds of the sale of the bonds. The words “ any of said bonds,” as used in the mortgage in connection with a delivery to the railroad company, must be construed as meaning all bonds from the indefinite and unlimited choice given the Oregon Company to require delivery to he made to it. Such bonds being so delivered, there could be no breach of the contract by the defendant, if it received prior to the delivery of the bonds to the Oregon Pacific Railroad Company, a statement of the purposes to which the proceeds of such bonds were to be applied. It is alleged in the complaint that immediately preceding each delivery of bonds by the defendant to the Oregon Pacific Railroad Company, a statement in a certain form was given by it to the defendant, and upon a critical examination of the terms of the mortgage we are satisfied that there béing no obligation on the part of the defendant to look to the *484application -of proceeds, such, statement' was sufficient to protect • the defendant, and, therefore,' that the plaintiff while claiming in his .complaint a breach of a particular requirement of the instrument, has, at the same time, shown á performance of it.
Our attention has been called to an opinion of the learned judge of the Circuit Court of the United States (Frishmuth v. Farmers' Loan & Trust Co., 95 Fed. Rep. 5-9), giving a general construction to the very mortgage now before us. We agree in the imain with the view taken of the duties of the trustee, as stated by that learned judge, but we do not construe particular provisions of the mortgage as he does. According to the condition of the mortgage under which these bonds were issued, there was no duty of supervision of the trustee such as would require it to see to the appropriation of the money realized by their salé. To import such an obligation is to contradict' the provision of the mortgage. Nor do we think that the statements delivered by the Oregon Pacific Railroad Company, and upon which the bonds were issued, are so vague and indefinite in their declarations as to have required the trustee to refuse to deliver the bonds upon them.
•. It is provided in the mortgage that the bonds were to oe issued fqr purposes of the railroad company. Some of the purposes ai'e expressed, others are left general and indefinite. ' By- the 4th paragraph of the conditions “ to be endorsed On bond,” incorporated in the mortgage, the express purposes are first enumerated. They include the payment of the $600,000 to secure the land grant,' the grading and construction of the line of the road, the full and complete furnishing and equipment of the road and other specified •objects, and afterwards the same clause contains the provision : “ And also for such other and further purposes as may enable the party of the first part to engage in the other enterprises and purposes for which it has been so incorporated.” Each of the statements fur.nished to the defendant before it delivered any of the bonds specifically enumerates three of the- legitimate purposes for which they might be required by the Oregon- Pacific Railroad Company. No particular form of statement was required nor is there anything which demands a detailed specification of the purposes to which the bonds are to be applied or an itemized or inventoried account .of the amounts so to be applied. It is sufficient if the statements *485show that the proceeds of the bonds are to be applied to purposes sanctioned by the provisions of the mortgage. Each of the statements furnished declares that the purposes for which the bonds are to be appropriated or used are the purchase of necessary materials, the construction of the line and the discharge of the obligations of the Oregon Company. The generality of this description of the purposes for which the proceeds of the bonds are to be appropriated does not make the statement valueless, nor show that by its acceptance the defendant committed a breach of its obligation. If the' words “ and for other proper purposes of its organization,” were not contained in the statement we do not think a question could arise. The addition of those words does not invalidate the statement so as to make it a nullity, which is, in effect, the plaintiff’s contention, for by reference to the 4th paragraph of the conditions as before stated, the bonds were to be used by the Oregon Pacific Railroad Company for specific purposes, and, in the very words of the statement;, for other and further purposes connected with the organization of the corporation.
We, therefore, are of opinion that this action cannot be maintained upon the theory of the failure of the trust company to comply with the terms of the sealed instrument, and that the judgment should be affirmed, with costs.
Rumsey, Ingraham and Hatch, JJ., concurred.