On appeal from a judgment of the Supreme Court.
For the appellant, John E. Selser.
For the respondent, Louis Rudner.
The opinion of the court was delivered by
HEHER, J. Plaintiff sued to recover the principal of two five-year sinking fund gold notes, each in the sum of $1,000, issued by the defendant-corporation on February 1st, 1929, payable on February 1st, 1934, with interest at six per cent. in semi-annual installments, and now held by him. These notes were issued under an indenture of trust, bearing even date, made by the obligor to the National Bank of Commerce in New York (now merged in the Guaranty Trust Company of New York) as trustee. The total authorized issue was $3,000,000, and the actual issue $2,847,500 -- all maturing on the day mentioned.
The complaint was struck out on the ground that plaintiff did not, under the provisions of the trust indenture, have a
right of action enforceable directly against the obligor, and from the consequent judgment this appeal was taken.
The primary inquiry is whether the noteholder is vested, upon the normal maturity of the obligation, with a right of action at law thereon, unless and until the trustee shall refuse or neglect, as provided in section 8 of the trust indenture, to institute appropriate proceedings, by way of remedy, within a reasonable time after request made by the holders of twenty-five per centum in principal amount of the notes then outstanding.
It is suggested by appellant, in limine, that the notes express on their face an absolute and unconditional promise to pay the principal sum thereof to the holder at maturity, and that the holder is not bound by provisions of the indenture imposing a restriction upon his right to enforce the obligation on the day of maturity so expressed therein, unless notice thereof, in reasonably clear language, is contained therein. The principle that any inconsistency between the note and the indenture must be resolved in favor of the noteholder is invoked. Enoch v. Brandon, 249 N.Y. 263, 268; Rothschild v. Rio Grande and Western Railroad Co., 84 Hun. 103, 110; affirmed, 164 N.Y. 594; Cunningham v. Pressed Steel Car Co., 238 App. Div. 624. Here, it would seem, the note explicitly incorporated, by reference, the provisions of the indenture into the obligation. Aside from references to specific provisions of the indenture, relating to taxes imposed upon the holder of the note, as such, the sinking fund thereby created for the noteholders, the terms upon which the notes are callable, and the rights of the noteholders in event of a default in the performance of the contractual obligation, each note contained the declaration that it was one of an authorized issue of notes of the obligor, under the trust indenture referred to, "to which indenture reference is hereby made for the terms and conditions on and under which the notes have been or are to be issued and the nature and extent of the rights of the holders of the notes, of the company and of the trustee." Thus the holder of the obligation was clearly put upon notice that the indenture itself declares the "nature
and extent of the rights" of the noteholders, the obligor and the trustee. But it is unnecessary to pursue this inquiry. Assuming that the terms and provisions of the indenture are binding upon the noteholders, they do not restrict the right of individual action upon the obligation at the normal as distinguished from an accelerated maturity thereof.
The promise to pay the principal sum on February 1st, 1934, contained in the note, is absolute and unconditional, and the covenantor must, of necessity, respect that obligation, unless it is modified by the terms of the indenture. Defendant asserts such modification by virtue ...