Guilford v. Minneapolis, S. Ste. M. & A. Ry. Co. , 48 Minn. 560 ( 1891 )

Yanderburgh, J.

The plaintiff is the owner and holder of a certain first mortgage bond (No. 4,028) made by the defendant for $1,000, with semiannual interest, payable to the Central Trust Company of New York or bearer, with interest coupons attached, each purporting on its face to be for six months’ interest on the first mortgage bond of the defendant No. 4,028. The bond is one of a series of bonds issued by defendant, and recites that the payment of each and all of the bonds, together with the interest thereon, is secured by a mortgage or deed of trust executed by the defendant company to the Central Trust Company of New York, conveying its railway, and all extensions, branches, equipment, property, revenues, and franchises, and that it should not be obligatory until certified by said trust company. And the bond was accordingly certified as follows: “This is one of a series of bonds issued by the Minneapolis, Sault Ste. Marie & Atlantic Eailroad Company, as authorized by the mortgage or deed of trust referred to in the within bond.” It also recites that, on six months’ default in the payment of the interest, the principal may be made due in the manner set forth in said mortgage, and, by the terms of the deed of trust referred to, it was provided that all the bonds secured thereby should be held by each and every holder, subject to the trusts and agreements declared and set forth in the deed of trust. And among the stipulations therein we find the following, in respect to proceedings to enforce the collection of such bonds in case of default: “‘If the said party of the first part, or its successors, shall make any default in the payment of any of the principal money, or in the interest of said bonds, or some of them, according to the tenor thereof, or of the coupons thereto annexed, or shall make default in the performance of some other covenant hereof, and in either such case such default shall have continued for six months after demand made for such payment or performance, then, and in either such case, upon a requisition in writing signed by the holder or holders of said bonds to an aggregate amount of not less than one fourth thereof, and a proper indemnification by such holder or holders of the said trustee against the cost and expenses to be by it incurred, it shall be the duty of the trustee to enforce the rights of the bondholders under these presents by entry, sale, or suit or suits, in equity or at law, as it, being advised by counsel learned in the law, shall deem most expedient for the holders of said bonds. It is hereby further provided and expressly agreed and made binding upon each and every holder of the bonds secured by this indenture, as a condition upon which the said bonds are to be taken and held by such holder, that no proceedings, at law or in equity, shall be taken by any bondholder or bondholders to enforce the payment of the said bonds, or to foreclose the equity of redemption under this instrument, or to procure a sale of the property covered thereby, independently of the party of the fourth part as trustee, or its successor and successors in said trust, except after a requisition shall have been made to the said trustee in manner and form as hereinbefore provided, and also until after a refusal or unreasonable delay of the said trustee to comply with said requisition according to the provisions herein made in respect thereto.’ And the court finds that none of said conditions contained in the mortgage deed have been complied with on the part of plaintiff. ”

1. The obligor covenants in the bond to pay the interest as well as the principal. The interest is evidenced by the coupons, which are each referred to in the bond, and identified as being for six months’ interest thereon, and are to be treated as a part of the bond, and subject to the same conditions as the principal, and to the terms of the trust deed. The plaintiff, as the holder of the bond and coupons, was put upon inquiry by the recitals in the bond, and charged with notice of all the terms and conditions of the trust deed, and is bound by the stipulation therein, above referred to, providing that each bond should be held subject to the agreements in such deed. When, therefore, plaintiff purchased and became the holder of the bond in question, he voluntarily became a party to such stipulations, and is bound by the contract.

2. It will be observed that the mortgage covers all the property, revenues, and franchises of the defendant; and, in case of default in the payment of the interest, a procedure for the collection thereof, by the mutual agreement of the parties, is provided for in the deed, through the enforcement of the security. Some such provisions appear to be necessary in such cases on account of the d ature of the security, number of the bondholders, and character of the business from-which the revenues are derived. Regard must be had to the interests of the bondholders, or the majority of them, as a class. Their rights, for the most part, depend upon the terms of the trust deed, and it is competent for them to agree upon the same. Plaintiff was brought “into contract relation with each and all of his co-bondholders, and his absolute rights as a bondholder are limited by the provisions of the bond and mortgage, and the peculiar nature of the security.” 2 Beach, Priv. Corp. § 769; Tayl. Corp. § 674. Hence it is the contention of the defendant that, by the terms of the trust deed accepted and agreed to by all the bondholders, the defendant is not entitled to maintain this action, because it appears that the remedy thereby provided has not been resorted to in the first instance. And this contention is, we think, warranted by the terms thereof, wherein, it will be seen, it is expressly agreed by each and all the bondholders, as a condition on which the bonds are taken and held, that no proceedings, at law or in equity, shall be taken by any bondholder to collect his bond until after a refusal or unreasonable delay on the part of the trustees to proceed as therein required. The court may undoubtedly interfere in cases of fraud or collusive mismanagement or neglect of duty on the part of the trustees, and they may be compelled to act when it is clearly their duty to proceed in order to protect the interests of the bondholders. Tayl. Corp. § 815; First Nat. Fire Ins. Co. v. Salisbury, 130 Mass. 303. This would not be inconsistent with the terms of the contract. Any appropriate remedy would undoubtedly be open to the bondholder, in case of abuse of their power, or clear neglect of duty, on the part of the trustees.

The case presents no constitutional question. The conditions under which suits by individual bondholders may be sustained upon the bonds is the subject of contract. So, also, the order in which remedies shall be pursued may be regulated by the legislature. Swift v. Fletcher, 6 Minn. 550, (Gil. 386.)

It is incident, to a contract involving joint relations, that one of several parties may not be authorized to sue alone," except upon certain conditions or in certain contingencies. It is a part of the risk of the venture. But the ordinary remedies which are provided for the protection of -parties so jointly interested, as in the ease of partners or corporations, are usually found adequate and available. The cases cited by the appellant are not in point here. The proceedings by the trustees are not there made the exclusive remedy. None of them question the doctrine that it is competent for the parties to agree to make it so in the first instance. Jones, Corp. Bonds, § 340. In Widener v. Railroad Co., 1 Wkly. Notes, Cas. 472, the terms of the deed did not prohibit a judgment, but merely the sale on execution -of the property mortgaged by the company.

Judgment affirmed.