This action was brought in September, 1889, to recover the principal and interest of three several mortgage bonds for one thousand dollars each, payable July 1, 1912. It is, therefore, apparent that the action, except on the coupons for interest, was prematurely brought, unless there are other circumstances appearing in the case, showing that an earlier day for the payment of the bonds had been provided. It is claimed that these circumstances appear from a clause in the bonds, reading as follows: "In case of default in the payment of any of the interest coupons attached to this bond in the manner provided in the trust deed and mortgage hereinafter mentioned, then and in that case the principal sum of this bond shall become due in themanner and with the effect provided in the said trust deed ormortgage."
Default having been made in the payment of the coupons, the plaintiff claims that the bonds became absolutely due and entitled him to enforce their payment in any way available to any holder of a past due obligation.
This claim would, undoubtedly, be sustainable, provided each bond had stopped with the words: "the principal sum shall become due;" but it did not in fact stop there, but continued with the following qualifications of the previous sentence: "in the manner and with the effect provided in the said trust deed or mortgage."
It, therefore, becomes necessary to refer to the trust deed or mortgage to determine the extent and character of the qualifications; for it cannot be disputed but that this clause made the provisions of the trust deed an essential part of the contract between the bondholder and his obligor.
The clause in the trust deed to which the bonds referred, *Page 46 reads as follows: "If default be made by the said party of the first part in any half year's interest on any of said bonds, and the warrants or coupons for such interest shall have been presented and its payment demanded, and such default shall have continued for six months after such demand without the consent of the holders of such coupon or bond, then and thereupon the principal of all of said bonds hereby secured shall be and become immediately due and payable, anything in such bonds to the contrary notwithstanding, and the said party of the second part may so declare the same and notify the party of the first part thereof, and upon the written request of the holders of a majority of the said bonds then outstanding shall proceed to collect both principal and interest of all such bonds outstanding by foreclosure and sale of said property or otherwise as herein provided."
This clause plainly limits the effect of the provision making the principal of the bonds due upon the failure to pay semiannual interest, and it prescribes the manner in which such a breach of the contract shall be made available. It authorizes the trustee, upon the request of a majority of the bondholders, to foreclose the mortgage and distribute the proceeds realized thereby equally among the bondholders. By prescribing the effect which the clause shall have on the contract and the particular manner in which a default in the payment of interest shall be availed of, it impliedly excludes all other methods, and confines the bondholder to the remedies expressly authorized. If the method provided by the mortgage be pursued, it subjects the action to be taken by the bondholders to the will of a majority and insures that course of action, with respect to the property of the debtor, which will inure to the best interest of the bondholders as a class. This prevents individual bondholders from pursuing an individual course of action and thus harrassing their common debtor and jeopardizing the fund provided for the common benefit. The manifest equity and justice of such a proceeding indicate the intent of the parties in drafting the form of the bond. *Page 47
The plaintiff's right of action is based solely upon the language of his contract, and if he does not make out a right to recover by virtue of its terms, his action must necessarily fail. We think that the reasonable construction of the contract requires us to hold that the principal sum of the mortgage debt, upon the failure to pay interest thereon, was not intended to be made payable except in the manner specifically provided by the terms of the mortgage. (McClelland v. Norfolk Southern R.R.Co., 110 N.Y. 469.) Any other holding would authorize the individual bondholders to pursue the company and strip it of its present funds and rights of action and destroy its capacity to carry on its business and thereby protect its creditors. It is not reasonable to suppose that the bondholders, as a class, intended to make a contract which should lead to that result.
It was, of course, correct for the trial court to authorize judgment to be given for the past due coupons, as by the express terms of the contract, as manifested by the mortgage, bond and coupon, the interest was made payable unconditionally on a specified day, and this was entirely consistent with the holding that the principal sum was not due; because, by the terms of the contract, it was not made unconditionally payable on the happening of the event mentioned.
It follows, from these views, that the judgment below should be affirmed, with costs.
All concur, except FINCH and GRAY, JJ. dissenting.
Judgment affirmed. *Page 48