Hamilton v. Wheeling Public Service Co.

Lynch, Judge: The notices prepared at the instance and on behalf of A. M. Hamilton, plaintiff in the first styled action, and served on Wheeling Public Service Company and City & Elm Grove Railroad Company, corporations, joint defendants therein, and at the instance and on behalf of William G. Caldwell', plaintiff in the second, on Wheeling Public Service Company, sole defendant therein, were preliminary processes or warnings of intended motions' for judgments against de-. fendants in each of the actions so begun in favor of the respective plaintiffs. They were given pursuant to the provisions of section 6, chapter. 121, Code. Their sufficiency for the purposes of the recovery of the judgments contemplated were questioned by defendants and each of them for reasons by the trial court deemed insufficient upon motions to quash. They did not demur. The rulings that court certified here for re-examination and approval or disapproval. But two questions, arise, and the trial court perhaps considered these only and no others. The first challenges the right of Caldwell to sue and recover a judgment against Wheeling Public Service Company in an action at law and the right of Hamilton to sue and recover a joint judgment against the same company and City & Elm Grove Railroad Company. The actions rest upon over-due interest coupons theretofore attached to and as parts of bond issues authorized and sold by City & Elm Grove Railroad Company, secured by a mortgage binding its property for their pay — 575 — ment both as to principal and interest, payable semi-annually on the first days of January and July of each succeeding year until the maturity of the bonds. The date of the issuance is not disclosed in the notices or elsewhere in the proceedings. The coupons, the par value of which together with interest theréon from the date of their maturity for payment, form the basis of the actions, were, as to those owned by Hamilton, due and payable January 1, 1920, and as to those owned by Caldwell, on July 1st of the same year. Sometime after the date of the mortgage Wheeling Public Service Company acquired the title to the mortgaged property, and, as may be inferred, now is the owner and operator of the utility encumbered, as well as every other species of property of the mortgagor used in connection with such operation. As part of the consideration for the transfer from one corporation to the other, Wheeling Public Service Company assumed liability for the corporate indebtedness of its grantor, including the outstanding and unliquidated bonds and the coupons annexed to them, and thereby bound itself to be prompt in the discharge of these and other obligations, pursuant to the terms and conditions of the conveyance. It is not material, according to our view, whether, at the time the notices were given, plaintiffs did or did not then own the bonds, or whether the coupons were or were not detached, although in at least one jurisdiction this difference seems to have some weight upon the second phase of this review. What is being considered now is the right of the plaintiffs to proceed to judgment in the Caldwell action against Wheeling Public Service Company, and in the Hamilton action against the same defendant and the mortgagor, City & Elm Grove Railroad Company, jointly. There can be no question as to the primary liability' of the mortgagor. The property formerly owned by City & Elm Grove Railroad Company that company encumbered to insure and protect prospective or probable purchasers in the payment of the bonds issued by it, including the semiannual payments of the interest provided for in the-mort — 576 — gage and evidenced by tbe coupons thereto attached. Upon the faith of the solvency of the security and the payability of the indebtedness secured, plaintiffs and doubtless others seeking sources of investment purchased the bonds in reliance upon the prompt payment of the coupons. The is7 suance of the bonds and the execution of the mortgage fixed-the status of the mortgagor as the debtor pledged to protect investors in the securities placed by it upon the market. That it contracted to do when the bonds were sold and the proceeds received by the mortgagor, although the purchasers were unknown on the date of the contract. Within the terms of that instrument were included the coupons as well as- the bonds themselvep. There was, therefore, in law and fact such privity between the mortgagor and the investors in the bonds as warrants the proceeding by Hamilton against City & Elm Grove Railroad Company. But it does not follow as a matter of course that there is such warrant for suing it jointly with the present owner of the property so pledged, notwithstanding assumption by the latter of the liabilities of the former in consideration of the property conveyed. If the two corporations cannot be joined in one action in a court of law, may Wheeling Public Service Company be sued alone by Caldwell? Between it and plaintiffs there is no privity of contract, at least the notices dislose none. The mere fact that it has assumed to pay the indebtness created by its grantor is not sufficient to show such privity as a court can and will recognize and act upon. Section 2, chapter 71, Code, does not sanction or authorize such procedure. Insofar as its provisions are applicable to the question now being considered, it says: “If a covenant or promise be made for the sole benefit of a peri-son with whom it is not made, or with whom it is made jointly with others, such person may maintain in his own name any action thereon which he might maintain in case it had been made with him only and the consideration had moved from him to the party making such promise or covenant.’ In Johnson v. McClung, 26 W. Va. 659, and King v. Scott, 76 W. Va. 58, this statute is construed. In the latter-case — 577 — cited the plaintiff predicated his right to a judgment against the defendant on a deed wherehy Mrs. Reed and her husband conveyed real estate owned by one of them to Scott, part of the consideration for the conveyance being his assumption of the indebtedness decreed to be liens upon the real estate conveyed. The points of the syllabus, two in number, are these: “Section 2 of chapter 71 of the Code, does not authorize one not a party to a contract made, for his benefit to sue thereon in a court of law, unless such contract was made for his sole benefit. A lien creditor of the grantor in a deed by which the land subject to the lien has been conveyed to a third person, in consideration of a certain sum in cash and his assumption of the valid liens thereon and agreement with the vendor to settle the same, cannot maintain an action at law against the grantee on such deed for recovery of the amount of his lien on the land.” Although each of the plaintiffs has a lien on the land and other property of the mortgagor as security for the prompt payment of the bonds and coupons, they are without right to recover in the first instance against 'the grantee of the mortgagor of the property encumbered. In this respect the court erred, in its ruling on the motion to quash the notice in the Caldwell action, as it did also in the Hamilton case, with this difference in the result, that in the latter it is within the power of the plaintiff to amend the notice or to prepáre and serve another, as the necessities of the case may require, while the notice in the former case apparently is not so amendable. Though somewhat technical, the rule laid down is of ancient origin and^ prevails in this state. But the parties are not remediless save in a court of law in circumstances such as these records present. It is the province of the Legislature, not of the courts, to alter, change or abrogate common law procedure or regulations relating to parties necessary or proper to be joined in such actions. Section 7, eh. 121, Code,' does not make such alteration or changa and does not purport to do so. The second question raised upon these certificates, and common to both cases, is whether the past due interest coupons — 578 — themselves bear interest from their maturity dates. 'The rule generally recognized and followed in this state undoubtedly is that interest should not bear interest. Genin v. Ingersoll, 11 W. Va. 549; Waldron v. Coal Co., 61 W. Va. 280; 7 Enc. Dig. 838. But this principle admits of certain exceptions and modifications even where ordinary obliga^ tions to pay .money are involved. Por instance, it has been held that an agreement to pay compound interest is valid if made after the interest which is to bear interest has become due and payable. Craig v. McCulloch, 20 W. Va. 148; Stansbury v. Stansbury, 24 W. Va. 634; Barbour v. Tompkins, 31 W. Va. 410. And interest on judgments and decrees may properly be awarded even where such judg-. memts and decrees themselves include the principal and interest theretofore accrued. In addition to these there are' other recognized exceptions to the general rule, but it is unnecessary to enter upon an extended discussion of their nature and the circumstances under which it is proper to enforce them. Enough has been said to show that even where ordinary obligations of -indebtedness are involved, -the rule that interest does not bear interest, though general, is not universal in its application. Coupon bonds and other commercial paper of a similar na-. ture are'not only different in form from ordinary evidences of. indebtedness, but rest upon principles which recognize their enforcibility because of their characteristic quality of negotiability by delivery. Apparently the maker of such paper intends it shall possess many of the attributes of currency, and as such pass from hand to hand until its diversified ownership extends beyond the bounds of commercial centers. To facilitate the quality of negotiability it is customary to attach to the principal obligation coupons containing promises,to pay to the bearer, at stated intervals, interest on the debt. Each coupon bears upon its face its maturtiy date, and the entire series, maturing periodically, covers and provides for the interest on the bond until its maturity. Like it these coupons themselves possess qualities of negotiability from hand to hand after detachment from the bond or other evidence of indebtedness of which they are a part. — 579 — Each coupon contains its own obligation and promise to pay. Its attachment to the parent bond has no significance except for the purpose of identification. It adds nothing to the completeness of the obligation to pay the amount stated on the coupon on the date specified. That the coupons declared on in these cases are of the class just described is clear from a reading of both notices of motions for judgment. Though the pleadings do not set them forth in extenso or describe them with particularity, yet they refer to them as “negotiable coupons” issued by the defendant City & Elm Grove Railroad Company, representing semi-annual interest at the rate of five per cent per an-num, which matured on dates stated in the pleadings, on bonds issued by the defendant company of the par value of $1,000 each. Such description is. clearly sufficient on a motion to quash to indicate that the coupons in question fall within the class described. With practical uniformity and unanimity the. judicial opinion is that such instruments are not mere incidents of the principal debt to which they are attached, but themselves represent separate and distinct contracts for the payment of money when due according to their terms, and like other promises of a similar character bear interest after default in payment. “The manifest purpose in making tbem was to increase the market value of the bonds by giving assurance of prompt payment of the interest. The intention was to give currency to them as a separate contract, which would carry • with them the usual incident of interest in case of a failure to pay at maturity. * * * They provided for the payment of the interest before the principal debt became due. They were designed to be severed from the bonds. They were intended to pass from hand to hand by delivery. They were payable in money, and at certain times designated. Their form and nature stamped them as the representatives of money. Each successive 'holder might well conclude that they were thrown on the market as negotiable paper to draw interest from maturity. * * * The purchasers and holders acquired them with that char580 aeter reasonably stamped on their face. "Why then shall they not draw interest after maturity. * * * The maker’s act fairly intended to produce such effect. Whether they were afterwards actually detached from the original bonds is unimportant. They possessed the same independent agreement to pay the sums stated, at the times specified. The company unjustly refused to pay the coupons according to the agreement. It is therefore equitable that they should draw interest.” Philadelphia etc. R. Co. v. Smith, 105 Pa. 195, 198-9. In Aurora City v. West, 7 Wall. 82, 105, the Supreme Court of the United States said: “Bonds and coupons like these, by universal usage and consent, have all the qualities of commercial paper. * * * Being written contracts for the payment of money, and negotiable because payable to bearer and passing from hand to hand as other negotiable instruments, it is quite apparent on general principles that they should draw interest after payment of the principal is unjustly neglected or refused.” See also Nesbit v. Riverside Independent District, 144 U. S. 610, 619. And in Edwards v. Bates County, 163 U. S. 269, the court held that in determining the jurisdictional amount in an action in a circuit court of the United State's to recover on a municipal bond, the interest coupons were to be treated as separable independent promises, and not as interest due upon a bond. For other authorities announcing the same principle, see 2 Daniels, Nego. Instru. (6th Ed.), § 1513; 3 Thompson on Corporations (2d Ed.), § 2325; 2 Fletcher, Cyclopedia Corporations, § 1056; 22 Cyc. 1507 Gelpcke v. Dubuque, 1 Wall. 175; Clark v. Iowa City, 20 Wall. 583; Walnut v. Wade, 103 U. S. 683; Lake County v. Linn, 29 Colo. 446; Cripple Creek v. Adams, 36 Colo. 320; Fox v. Hartford etc. R. Co., 70 Conn. 1; San Antonio v. Lane, 32 Tex. 405; First Nat. Bank. v. Mt. Tabor, 52 Vt. 87; Jefferson County v. Hawkins, 23 Fla. 223; Humphreys v. Norton, 100 Ill. 592; Rice v. Shealey, 71 S. Car. 161; Kentucky Title Co. v. English, 20 Ky. L. 2024, 50 S. W. 968; Rea v. Pennsylvania Canal Co., 249 Pa. 239; McDowell v. North Side Bridge Co., 251 Pa. 585. — 581 — Of course, if the company issuing the bonds stood ready at all times to pay the interest called for by tbe maturing coupons, it would not be just to permit a bolder to exact interest tbereon by neglecting or failing to present them for payment when due. Hence the company bound by the contract may defeat the recovery of the interest accrued upon the coupons by showing its continued readiness to pay- the principal represented by them. 3 Thompson on Corporations (2d Ed.), § 2325; Walnut v. Wade, 103 U. S. 683; Emlen v. Lehigh Coal etc. Co., 47 Pa. St. 76. In Walnut v. Wade, cited, the court said: “If the town had shown that it had money ready to pay the coupons at the time and place where they were payable, this would have been a defense to the claim for interest.” Defendant contends, however, that, following the New York rule, interest should not be collectible upon past-due coupons while they remain in the hands of the holder of the bonds,- but only, if at all, when they have been detached and become separate and independent instruments in the hands of one other than the holder of the bonds. Bailey v. County of Buchanan, 115 N. Y. 297; Williamsburgh Savings Bank v. Town of Solon, 136 N. Y. 465; Long Island L. & T. Co. v. Long Island etc. R. Co., 178 N. Y. 588, affirming 85 App. Div. 36. Such is the New York rule, and it is based upon the view that so long as the interest coupon remains in the hands of the holder of the bond, the former is a mere incident of the latter and not a principal obligation itself. But this holding seems rather to be an exception to the general rule and is not followed in other states. On the other hand, in Edwards v. Bates County, 163 U. S. 269, a case in which the plaintiff held both the bond and the coupons, the United States Supreme Court expressly states that “when the interest evidenced by a coupon has become due and payable, the demand based upon the promise contained in such coupon is no longer a mere incident of the principal indebtness represented by the bond, but becomes really a principal obligation. ’ ’ Our conclusion therefore is to reverse the ruling of the cir-, — 582 — cuit court in case No. 151, with leave, however, to plaintiff to dismiss the Wheeling Public Service Company as party defendant; and to reverse the ruling in case No. 152 for the reason that the action was instituted against the wrong party defendant. Reversed in each case.