
    Benjamin F. Batchelder, App’lt, v. The Council Grove Water Co., Resp’t.
    
      (Court of Appeals,
    
    
      Filed January 26, 1892.)
    
    Corporations—Mortgage—Foreclosure.
    Mortgage bonds were given in 1889 payable in 1912, but containing a provision that in case of default in the payment of the interest coupons * * * the principal should “become due in the manner and with the effect provided in the said trust deed or mortgage.” Said trust deed directed that upon- default in the payment of the coupons for six months after presentation the principal should become due and the trustee migjht so declare the same and upon written request of the holders of a majority of the bonds should foreclose and collect the principal and interest of the outstanding' bonds. Held, that this impliedly excluded all other methods and confined the bondholder to the remedy expressly authorized.
    (Finch and Gray, JJ., dissent.)
    Appeal from judgment of the New York superior court, general term, affirming judgment declaring that plaintiff was not entitled to recover the principal of the bonds sued upon, and limiting his recovery to the interest represented by the coupons.
    
      F. T. Moissen, for app’lt; Isaac I. Miller, for resp’t.
   Ruger, Ch. J.

This action was brought in September, 1889, to recover the principal and interest of three several mortgage bonds for $1,000 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 bond 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 the manner and with the ■effect provided in the said trust deed or mortgage.”

Default having been made in the payment of the coupons, the plaintiff claims that the bond became absolutely due ana entitled him to enforce its payment in any way available to any holder of ■a past due obligation. This claim would, undoubtedly, be sustainable, provided the 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 qualification 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 bond referred 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 enure to the best interest of the bondholders as a class. This prevents individual bondholders from pursuing an individual course of action and thus harassing their common debtor and jeopardizing the fund provided for the common benefit. The manifest equity and justice of such a proceeding indicates the intent of the parties in drafting the form of the bond.

The.plaintiff’s right of action is based solely upon the language of his contract, and if he doés 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; 18 St. Rep., 844. 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 cony 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. 
      
       Affirming 38 St. Rep., 529.
     