Court Opinion

ID: 3576621
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:28:35.702765+00
Date Added: 2024-06-11T07:41:09.349751
License: Public Domain

The trust deed in this case was in form and effect a tripartite agreement between the Oregon Pacific Railroad Company of the first part, the Farmers' Loan and Trust Company of the second part, and the Willamette Valley and Coast Railroad Company of the third part. By its terms the parties of the first and third parts transferred to the defendant in trust for the purposes therein mentioned all the property and franchises owned by them. The party of the first part covenanted and agreed that when the bonds provided for by such trust deed had been executed it would deposit them with the defendant to be issued and certified as the same should be sold or otherwise disposed of. The defendant was authorized to certify and issue such bonds for sale when required by the party of the first part, but the net proceeds realized therefrom were to be paid over to and remain in the hands of the defendant for the purposes set forth in that instrument. There was also an express provision therein that such proceeds should be paid out only on the written order or request of the executive committee or the board of directors of the party of the first part, such orders or requests to include a written statement of the purpose for which such proceeds were to be appropriated. It then provided for the issuing of bonds to be directly applied to the purposes of the corporation without their conversion, but required that the trustee should be furnished with a like written order and request which should include a written statement declaring the purposes for which such bonds were to be employed, and only in such case was the trustee authorized to certify, issue and deliver such bonds.
The question here presented is whether these provisions of the trust deed, which clearly imposed upon the defendant the duty of retaining the bonds executed and the net proceeds of those issued and sold until called for, for the purposes and in the manner therein stated, constituted a covenant to that *Page 539 
effect upon the part of the defendant, or whether such a covenant is necessarily implied from the provisions of that instrument. If this action is upon a covenant therein, either express or necessarily implied, then, obviously, it is upon a sealed instrument, the twenty years' Statute of Limitation applies, and the complaint should be sustained. By this deed the defendant was constituted a trustee, and signed and executed it for the purpose of signifying its acceptance of the trust therein and thereby created. The nature of the trust, which the defendant covenanted to accept and carry into effect, included the receipt and issuing of the bonds executed by the party of the first part, and the receipt and retention of the proceeds of such bonds as were sold until paid out or delivered in accordance with the express terms of the instrument by which the trust was created. It is said that while the defendant is liable to the bondholders for its misconduct in disposing of the bonds or their proceeds contrary to the provisions of the trust deed, yet that such liability arises only from its implied duty as trustee to the bondholders. The relation of trustee and cestui que trust, if it exists, arose from and was created and controlled by the provisions of the trust deed, and it appears to me that the defendant's liability is not dependent upon the general principle controlling trustees, where there are no special provisions as to the character of their duties and liabilities, but is dependent upon the particular provisions contained in the trust deed under and in pursuance of which it specifically accepted the trust thereby conferred upon it. If there was no covenant, express or implied, by the defendant to deliver the bonds and pay out the proceeds in the manner and in accordance with the requirements of the trust deed, then there was no covenant whatever to return the bonds or the proceeds, or to account therefor. I think it is quite clear that it cannot be properly held that there was no express or implied covenant on the part of the defendant to apply the bonds or their proceeds to the purposes, in the manner, and subject to the limitations contained in that instrument. Manifestly, the sole purpose of the mortgage and of the bonds to be issued was *Page 540 
to secure funds to be applied to the particular purposes specified, and to limit their application to such purposes alone. That it was the plain intent of the parties to enter into covenants whereby the bonds and the proceeds thereof should be held by the defendant in trust, under and subject to the provisions and limitations of that agreement, and that they should be so retained by it until all the provisions thereof in that respect were complied with, seems to me quite obvious from the language therein employed. If from the text of an agreement under seal, either in the body of the instrument or in the recitals or references, there is manifested a clear intention that one of the parties shall do certain acts in a particular and specified manner, a covenant to that effect will be implied, for the non-performance of which an action of covenant will lie. The meaning of a contract is to be gathered from a consideration of all its provisions, and the inferences naturally derivable therefrom, as to the intent and object of the parties in making it, and the result which they intended to accomplish by its performance. The object of the parties to the trust deed and the actual result which they intended to accomplish was to secure money or bonds to be applied to the particular purposes specified, and to prevent their use for any other purpose whatsoever. To that end it was expressly provided by the instrument itself that the property of the other parties should be transferred to the defendant, and that bonds should be executed and delivered to it, to be issued by it only upon the assurance that they or their proceeds would be thus applied. It is true that in order to imply a covenant in a contract under seal, the manifest and clear intention must appear in the contract that one of the parties shall do or omit the act in regard to which the covenant is to be performed. (Booth v.Cleveland Rolling Mill Co., 74 N.Y. 15; Mansfield v. N.Y.C. H.R.R.R. Co., 102 N.Y. 205; New Eng. Iron Co. v. GilbertEl. R.R. Co., 91 N.Y. 153; Hornbostel v. Kinney, 110 N.Y. 94;Bruce v. Fulton Nat. Bank, 79 N.Y. 154; Zorkowski v.Astor, 156 N.Y. 393.) *Page 541 
As to the rule applicable to the construction of this instrument, I agree with my brother BARTLETT, that a covenant on the part of the defendant, of the nature suggested, is not to be implied unless it was the clear intention of the parties that the defendant should not issue the bonds or pay out the proceeds except upon a full compliance with the terms of the trust deed or mortgage in that respect. It appears to me, however, that it was their plain intention, as disclosed by the language and provisions of the trust deed, that the bonds or their proceeds should be employed only for the purposes specifically mentioned therein; that to carry that intent into effect it was expressly provided that they were to be used for that purpose only, and a method of procedure to be adopted by the defendant was provided which would furnish it with information of the purposes for which they were to be employed, thus enabling it to carry out such intent. The evident purpose of these provisions was to protect the railroad company and its bondholders against any attempt on the part of its officers or others to misapply the bonds or their proceeds, and the defendant was made a party to that agreement to prevent that result. If these provisions were not intended as a covenant to bind the defendant and restrain it from delivering the bonds or paying out the proceeds thereof, except upon the conditions and only in compliance with the terms of the trust deed, they were practically meaningless and afforded no protection to the company or its bondholders. The trust imposed upon the defendant, which it in terms accepted and which, at least by implication, it covenanted to perform, was not a general one by which it was authorized to issue the bonds and transfer them or the proceeds to the party of the first part or to others whom it should designate, or to dispose of the proceeds in that manner, but it was a trust which, while it conferred upon the defendant the property of the other parties to the agreement, yet specifically restricted the defendant as to the use to be made of such bonds or proceeds, and required it to apply them only to the purposes specially enumerated, to be ascertained in the manner provided. Such being the nature of the *Page 542 
trust conferred upon the defendant, it is obvious that it was the intent of the parties that it should be carried out according to the spirit and purpose of those provisions. If that was not the intent of the defendant, but it intended to ignore or disregard the provisions of the agreement and permit the entire property of the corporation to be squandered, then it intended to commit a fraud upon the bondholders and others who were interested in the contemplated railroad. We cannot believe that such was the defendant's intent, but feel confident that the intent and purpose of the defendant, as well as the other parties to the agreement, was that these provisions should be fairly and conscientiously carried into effect. I am of the opinion that when the defendant executed the trust deed for the avowed purpose of signifying its acceptance of the trust therein and thereby created, it in effect agreed and intended to agree and bind itself to carry into effect and comply with the terms and provisions of the trust therein provided for, subject to and including all the conditions, provisions and limitations contained therein, and that a covenant to that effect is necessarily implied.
I vote for reversal.
PARKER, Ch. J., CULLEN and WERNER, JJ., concur with BARTLETT, J.; O'BRIEN and VANN, JJ., concur with MARTIN, J.
Judgment affirmed.