71 N.Y.S. 51 | N.Y. App. Div. | 1901
Lead Opinion
This action was brought by the Holland Trust Company as trustee to foreclose a mortgage made by the Thomson-Houston Electric Company to secure the payment of certain coupon bonds issued by the East River Electric Light Company, the name of the said company having been subsequently changed to the Thomson-Houston Electric Company. Upon the sale under the foreclosure the mortgaged property was purchased by the appellants for the sum of $50,000. The mortgage foreclosed was dated September 1, 1889, and was to secure bonds aggregating $600,000. These bonds' were of the denomination of $1,000 each, with six per cent interest, and had semi-annual coupons attached maturing on the first days of March and September in each year. .Two hundred and ninety-three of them were issued to take up bonds secured by a prior mortgage, seven being retained by the plaintiff, an equal number of the first issue not having been presented to be exchanged. The mortgage was acknowledged by the East River Company on July 9,1890, by the Holland Trust Company (plaintiff) on July 15, 1890, and was recorded August 9,1890, and none of the bonds under it were issued until August 11, 1890. ' On that day there seem to have been issued 217 bonds, and other bonds were subsequently issued at different dates, to and including May 6, 1892, when 15 bonds were issued.
The company made default in the coupons becoming due on September 1, 1893. Three months after that default, by the terms of the mortgage, the bonds became due, and an action was commenced to foreclose the mortgage. On October 31, 1894, a judgment of foreclosure and sale was entered by which the referee was directed to sell the property. Terms of sale were prepared by the referee which were affirmed by an order of the court in this action and were executed by the purchasers of the property. These terms of sale provided that there should be paid- $1,000 in cash at the time of the sale as a part of the purchase price, “ and from time to time thereafter, such further portion of said purchase price shall be paid in cash as the court may direct in order to meet the expenses of this suit. * * * The balance of the purchase price not required to be paid in cash may either be paid in cash or the purchaser may satisfy and make good said balance of his bid, in whole or in part, by paying over or surrendering outstanding bonds secured by the mortgage of said East River Electric Light Company now being foreclosed; said bonds being received at such price and value as shall be equivalent to the amount that the holder thereof would be entitled to receive thereon in case the entire price was paid in cash.” Upon the sale the defendants became purchasers for $50,000, paid $1,000 in cash, delivered bonds of the electric light company for the remainder of the purchase price and received a deed of the property from the referee.
The present inquiry came before the court upon a motion made
■The respondent insists on this appeal that as the only defense to the granting, of this motion set up in the affidavit submitted in opposition was the allegation of payment of the coupons, that is the only question before the court, and as it is undisputed that these coupons have never been paid by the purchaser or by the company, the court properly granted the motion. We think that counsel for the respondent misapprehends the nature of what is involved in this proceeding. The case came before the court upon a motion in an action, and a question of fact appearing upon that motion, the court ordered a reference under section 1015 of the Code of Civil Pro
The mortgage was introduced in evidence. It recited that the board of trustees of the mortgagor had duly directed the issue of 600 bonds to be dated September 1, 1889, of $1,000 each, payable in gold coin, with interest at the rate of six per cent per annum, payable semi-annually, on the first days of March and September in each and every year, to be signed by its president and secretary, sealed with its corporate seal and duly certified by the trustee and having interest coupons thereto attached. A copy of the bonds was therein set forth by which it appears that the mortgagor promised to pay to the mortgagee as trustee, or bearer, $1,000, “ to pay interest on said sum in like gold coin, at the rate of six per cent per annum, on the first days of March and September in each year, at the office of said East River Electric Light Company in the City of New York, according to the tenor of the coupons hereto annexed, upon the presentation and surrender of said coupons; ” and that the bonds were secured by a first mortgage upon the corporate property of the mortgagor executed to the Holland Trust Company as trustee for the holders of said bonds, and to each of the bonds there were attached coupons which provided that the East River Electric Light Company “ will pay to the bearer Thirty Dollars in. gold coin of the United States, at the office of said company in the City of New York, oh the first day of being six months’ interest then due on its first mortgage Bond No. ,” and signed by the treasurer of the corporation.
The mortgage also contained a provision that in case a default should be made in payment of the principal or any interest thereby secured to be paid upon such bonds, and such default should con
The referee reported that. of the coupons presented by the respondent there were 393 of the No. 1 coupons which became due March 1,1890; and it is entirely clear that none of these coupons ever represented interest upon the bonds, as they were all due and payable prior to the time that the bonds were issued by the company or became its existing obligations. Upon no principle could these coupons be deemed to be secured' by the mortgage, or come within any of the provisions of the mortgage before: referred to which gave to coupons representing accrued interest a priority of payment over other indebtedness.
Ninety-three of the coupons due September 1, 1890, were upon bonds Nos. 306 to 398, which were issued on August 15, 1890. Before these bonds were issued and had become actual obligations of the mortgagor "and secured by the mortgage the coupons were detached and delivered by the mortgagor to William H. Kelley, so that they never as a fact represented interest upon the bónds secured by the mortgage. Six 'of the coupons that became due
It is not necessary to decide upon this appeal whether or not the company would be liable to Kelly or his transferee on account of these coupons. What we have to keep in mind is the distinction between any obligation of the company created by the transfer of these coupons and the right of the holder of the coupons to have them secured by the mortgage, and paid by way of priority or otherwise out of the proceeds of sale. The mortgage secured the payment of the bonds and interest thereon, with a provision that, upon the sale, of the property, the accruing interest upon the bonds represented by the coupons attached should be entitled to preference, but, these coupons only became entitled to participate in the security of the mortgage by virtue of their incident as interest upon the amount due upon the bond. They represented, when attached to the bond, n'o distinct obligation of the corporation mortgagor. When severed from the bond by the corporation, they necessarily lost their character as representing interest accruing or accrued, and detached in the. hands of the company they had. no possible relation to the bonds and represented no obligation secured by the mortgage. When these pieces of paper were transferred by the mortgagor to Kelly, whatever right of action he may have acquired as against the corporation, there was no right created in him to have these coupons secured by the mortgage. The holders of the bonds who had acquired them from the company had the
In Holland Trust Co. v. Thomson-Houston Co. (9 App. Div. 173), where we held that certain coupons there presented were entitled to be paid out of the purchase money realized upon the sale on foreclosure, it was expressly upon the ground that these coupons represented the accrued interest upon the bonds after they were issued, which, under the mortgage, were entitled to a preference, and consequently the purchaser could not escape the payment to the referee of a sufficient fund to pay them. The opinion in that case placed the decision upon the fact that these coupons represented accrued interest upon valid outstanding bonds, and that coupons representing accrued interest upon the bonds were entitled to be paid out of the purchase money. Whatever rights the holders of these coupons have against the mortgagor corporation, they had no right as against the bondholders to have the proceeds of the sale applied to their payment in preference to the amount due upon the bonds.
A great number of cases have been cited by counsel for the respective parties upon the argument of this appeal; none of them, so far as I can see, are adverse to the views before expressed.
It follows that the order appealed from should be reversed, with ten dollars costs and disbursements, and the motion denied, with ten dollars costs.
Patterson, McLaughlin and Hatch, JJ., concurred; O’Brien, J., dissented.
Dissenting Opinion
I do not concur in the views of Mr. Justice Ingraham that these coupons are not covered by the mortgage.
The mortgage which secured the bonds was dated September 1, 1889, and was acknowledged by the two companies in July, 1890,
393 coupons due March 1, 1890, before any bonds were issued and before the mortgage was acknowledged.
93 coupons due September 1, 1890, issued August 15,1890.
90 coupons due before bonds issued but after mortgage was acknowledged and recorded as follows :
6 due Sept. 1, 1890, on bonds issued Nov. 12, 1891.
10 ÍÉ 66 « u CÍ 66 May , 6, 1892.'
9 (C March 1, 1891, <( 6Í 66 Nov. 12, 1891.
14 U it « (( U ÍÍ May 6, 1892.
9 {( ■ Sept. 1, 1891, « CÍ (Í • Nov. 12, 1891.
14 (Í <6 (C í( ' 6C a Jan. 11, 1892.
14 ({ ' March 1, 1892, ■u (( ÍÍ May 6, 1892.'
14 (( Sept. 1, 6Í << Í6 May 6, 1892.
Upon the ground that all coupons in the hands of bona fide purchasers are to be regarded in the same light as promissory notes with all the attributes of negotiable paper, I think that this judgment, which holds them all to be valid claims, should be sustained. That coupons may be sued upon and recovery had without producing or being interested in the bonds from which they are attached, has been repeatedly held. (See City of Lexington v. Butler, 14 Wall. 282; Aurora City v. West, 7 id. 82.) In the latter case it
So far have the courts gone in considering the right to deal in coupons apart from the bonds that they have sustained actions upon coupons which matured after the bonds had been paid. As said in Miller v. Town of Berlin, (13 Blatchf. 245): “ Coupons are annexed to bonds in order that they may be severed and transferred by delivery and thereby carry to the purchaser the interest which they represent. It is not necessary that the purchaser should produce upon the trial the bond to which the coupon was originally annexed, and the surrender or cancellation of the bond after the coupon has been- transferred will not defeat the' action.” These principles are well summarized in Burroughs on Public Securities (p. 578) as follows : “ Such coupons have all the qualities of other negotiable paper; the holder is entitled to all the privileges and subject to all the liabilities of ordinary commercial paper by the law-merchant. The title passes by delivery ; the holder for value obtains an absolute title, although they may have been stolen from the true owner, if he has no notice of the theft. The holder takes them free from all equities attaching to them in the hands of the original parties, and he is unaffected by any mere irregularities in their issue.”
I have thus far referred to the coupons other than those due April 1,1890, on bonds issued August 15,1890. These coupons admittedly represented a valid claim, and the testimony is that they were detached as the result of an arrangement with a Mr. Peach, to whom the bonds were delivered, he agreeing to take in their stead one month’s interest. The coupons thus detached were thereafter sold. They are, at least so far as they extend over the period after the bonds were issued, as good as any other coupons and should be so recognized and paid.
I, therefore, dissent, and think that as to all the coupons the referee was right in the conclusions reached, and that the judgment appealed from should be affirmed.
Order reversed, with ten dollars costs and disbursements, 'and motion denied, with ten dollars costs.