Lyon v. New York, Susquehanna & Western Railroad — 15 N.Y. St. Rep. 348

Majority

p. 348

Amos M. Lyon, Resp’t, v. The New York, Susquehanna and Western R. R. Co., App’lt.^[1]

(New York Court of Common Pleas, General Term,

Filed April 2, 1888.)

Headnote

1. Mortgage—Costrtjctioh of—What will hot operate as waiver oe DEFAULT IH FAYMEHT OF INTEREST.

A mortgage upon railway property provided that upon default inpayment of the coupons continuing for ninety days, the principal of the bonds to secure payment of which the mortgage was given should become due and payable at the option of the trustee, but that a majority of bondholders might waive the right to consider the principal due. Held, that this pro

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vision did not affect the right to collect the interest, and that though the bond holders might waive the right to consider the principal due, the default in payment of interest was not thereby waived.

3. Same—Construction of—What will not operate as bar to action FOR INTEREST.

A further clause of the mortgage provided that the trustee might execute the power of entry and sale of the mortgaged property in case of default and forbade the holders of bonds from taking proceedings at law, or in equity to procure a sale of the said property independently of the trustee. Reid, that this did not operate as a bar to an action for the collection of coupons. That the clause quoted meant such proceedings as had such sale for their direct object, and not actions at law, the judgment upon which should be collected by execution.

Appeal by defendant from judgment of the general term of the city court, affirming judgment in favor of plaintiff, for $2,217.93, entered upon verdict of jury.

The action was brought to recover upon coupons: eighty debenture coupons of fifteen dollars, each being six months interest on debenture bonds, payable February and August 1887; six coupons of first mortgage bonds of thirty dollars each payable January and July, 1887, and interest on debenture coupons due February and August, 1887.

Abbett & Fuller, for resp’t; Vanderpool, Green, Cuming As Goodwin, for app’lt.

Objection was made to the admission in evidence of the coupons and the bonds from which they had been detached, on the ground that they had not been proved. A reference to the pleadings shows that the due execution and issue of the bonds and coupons was admitted. In paragraph second of the complaint it is alleged that the defendant duly issued the forty bonds afterwards described, which said bonds were duly signed, certified and attested, and sold by defendant. The answer admits the allegations of the second paragraph. The issue of the other bonds and' obligations is averred and not denied.

The principal defense is that by the terms of the bonds and of the mortgage given to secure them, the plaintiff is barred from maintaining this action upon the coupons. The mortgage provides that upon default in the payment of the coupons, continuing for ninety days, the principal of the bonds shall become due and payable at the option of the trustee, but that a majority of the bondholders may waive the right to consider the principal due. This provision does not effect the right to collect the interest. _

_ The bondholders may waive the right to consider the principal due, but the default in payment of interest is not thereby waived. There was not, however, any waiver by the bondholders in the manner required by the mortgage, viz.: by an instrument in writing, nor in fact was there .any direct waiver. A majority of them surrendered their

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bonds and received bonds of a new issue at a lower rate of interest and other securities. The plaintiff did not participate in this arrangement.

Another clause of the mortgage is relied upon to defeat a recovery upon the coupons; it provides that the trustee may execute the power of entry and sale of the mortgaged property in case of default, and forbids the holders of bonds from taking proceedings at law or in equity, to foreclose or to procure a sale of the said property independently of the trustee, etc.

This provision undoubtedly applies only to proceedings such as the trustee might take, and not to actions at law to collect overdue interest, which actions he could not bring.

The proceedings at law or in equity to foreclose or procure a sale of the property covered by the mortgage, means such proceedings as have for their direct object such sale, and not an action at law, the judgment upon which is to be collected by execution. It does necessarily follow that such execution will be collected by a sale of the property covered by the mortgage.

There is no question as to the right of the holder of coupons to sue and collect at law, notwithstanding the mortgage. Jones on Railroad Secu., § 331, and cases cited.

The matters set- up in the answer are not defenses available to the company. If it be inequitable for the holder of bonds or coupons, who has recovered judgment upon them to collect them out of the mortgaged property, because such property is insufficient for the payment of the principal and interest of all the bonds, it is for the trustee or other bond holders to seek to restrain the collection of the judgment. Fish v. N. Y. W. P. P. Co., 29 N. J. Eq. R., 16.

But there is no defense at law to these coupons available to the company according to the terms of the bonds or the mortgage.

For these reasons, I think the judgment of the city court was right, and that it should be affirmed, with costs..

Van Hoesen, J., concurs.