Chaffee v. Middlesex Railroad , 146 Mass. 224 ( 1888 )

Field, J.

Before the St. of 1824, c. 130, a negotiable promissory note payable in this Commonwealth was not entitled to grace unless it was made expressly payable with grace. The St. of 3 & 4 Anne, c. 9, was never enacted here. Jones v. Fales, 4 Mass. 245. Barker v. Parker, 6 Pick. 80.

By the St. of 1824, c. 130, grace was allowed, in like manner as on foreign bills of exchange, on all bills of exchange payable at sight or at a future day certain within this State, and on all promissory negotiable notes, orders, and drafts payable at a future day certain within this State, “ in which there is not an express stipulation to the contrary.” Rev. Sts. c. 33, §§ 5, 6. Gen. Sts. c. 53, §§ 15, 16. Pub. Sts. c. 77, §§ 9, 10. It is only by virtue of this statute and its re-enactments that grace is allowed in this Commonwealth on promissory notes.

By the St. of 1852, c. 76, bonds or other obligations under seal for the payment of money issued by a corporation, or joint stock company, payable to bearer, or to some person designated or bearer, or payable to order, “ are hereby made negotiable in the same manner and to the same extent as promissory notes are now negotiable.” Gen. Sts. c. 53, § 6. Pub. Sts. e. 77, § 4. The bonds in these cases, even if it be conceded that they are bonds for the payment of money within the meaning of the statute are not entitled to grace. They are not in fact negotiable promissory notes within the meaning of the Pub. Sts. c. 77, § 9. Bonds for the payment of money at common law were not entitled to grace, and they cannot be held to have been included among the instruments described in the Pub. Sts. c. 77, § 9.

Whether these bonds are negotiable or not under the Pub. Sfs. c. 77, § 4, is immaterial in these cases. If, by reason of the stipulation that they may be converted into stock at the election of the holder, they are excluded from the provisions of the Pub. Sts. c. 77, § 4, yet an assignee can maintain a suit in equity upon them in his own name. In the first suit, the bonds axe payable “ to Knowlton S. Chaffee, or bearer,” and Chaffee is the plaintiff in the suit; in the second suit the bonds ai’e payable “ to- or bearer,” and it is found that the plaintiff became the holder and owner of them “on or prior to January 31, 1885.” See Chapin v. Vermont Massachusetts Railroad, 8 Gray, 575.

The Middlesex Railroad Company originally issued these bonds without authority of law, but the issue was subsequently ratified by the St. of 1880, c. 103, § 4. There were two series of bonds thus issued, and these bonds are a part of the first series. By this statute the holders of these bonds “ may convert them into stock as said bonds mature, unless redeemed by th'e company before maturity.” Each bond covenants that upon the “surrender of this obligation to the treasurer of the company by tbe bearer, at tbe date of maturity of any interest warrant, they will cause to be issued to said bearer or his order five shares in the capital stock of said company.” Tbe bonds were dated on February 1, 1875, and were payable on February 1,1885, “ with interest at tbe rate of eight per centum per annum, payable semiannually on the first day of August and February in each year, upon surrender of the interest warrants hereto attached as they become due.” As the first day of February, 1885, was Sunday, the bonds matured on Januax-y 31,1885. Pub. Sts. c. 77, § 8.

It is contended that the ixxterest warrants wex’e entitled to grace, and that by the terms of the bonds, although not by the terms of the statute, the holders of the bonds could convert them into stock on tbe day when the last interest warrant became due, and that therefore the offer to surrender the bonds and the demand for the stock were made in time. It is not a reasonable inference that the company issuing the bonds intended that the last interest warrants, which purport to be payable on the same day as the bonds, should be entitled to grace when the bonds were not, and it is only as holders of the bonds that the plaintiffs are entitled to stock. Interest warrants, or coupons, in form like these, when detached from the bonds, have been ^considered as having many of the qualities of negotiable promissory notes; but we are of opinion that they are not negotiable promissory notes within the meaning of the Pub. Sts. c. 77, § 9. When interest is payable on a note or bond at fixed times, no grace is allowed. The device of separate detachable interest warrants, payable to bearer, has been adopted for convenience, and courts have invested them when detached with many of the qualities of negotiable promissory notes, to carry into effect the intention of the parties apparent on the face of the contract; but they purport to be only promises to pay certain sums of money as interest on the principal obligation. They are not in common speech called promissory notes, nor have they the same history, or in all respects the same characteristics, as promissory notes, and they could not have been within the contemplation of the Legislature in passing the St. of 1824, c. 130. Although we are confined to a consideration of the construction to be given our statutes, we do not wish to imply that, either by usage or the general law merchant, days of grace should be allowed either on the bonds or the coupons. We are not satisfied with the decision in Evertson v. National Bank of Newport, 66 N. Y. 14. See Arents v. Commonwealth, 18 Gratt. 750, 773; 2 Dan. Neg. Inst. (3d ed.), §§ 1505, 1506, and notes.

The reasons why days of grace were originally allowed on foreign bills of exchange payable at sight, or at a future day certain, have little application to bonds with coupons issued by a corporation to obtain money, which usually have a long time to run, and are commonly bought and held as an investment. Such bonds and coupons do not serve the purposes of commercial paper.

By the St. of 1880, c. 103, §§ 3, 4, the Middlesex Railroad Company was authorized to increase its capital stock to an amount not exceeding one million of dollars, and three hundred and fifty thousand dollars of this stock was to be applied to the payment or redemption of the two series of bonds at or before their maturity. Before this statute, it does not appear that the corporation had any stock which it could lawfully issue in payment or redemption of these bonds. It was important that the corporation should know on or before the maturity of the bonds whether the holders elected to take stock or money, because the stock which was not taken must be applied to the payment in money of the bonds, and this could only be done by selling the stock for money; and the money must be paid on demand, at the maturity of the bonds. Time was essential, and unless the holder of the bonds on or before their maturity presented his bonds and demanded stock, or at least offered to do this, he lost all right to receive stock on the maturity of the bonds. The de-. fendant had the right to assume that all holders of bonds who desired stock would make the surrender on or before the maturity of the bonds, and to sell for money all stock not called for on or before that day. That the defendant actually sold all the stock which it could apply to the redemption of these bonds at three o’clock of the afternoon of January 31,1885, without waiting until that day expired, is immaterial in the first suit; because, if it be conceded that the plaintiff had the whole of that day to present his bonds and demand the stock, he neglected to do this, and when he presented the bonds on February 2, 1885, it was too late.

The bill brought by Chaffee Must be dismissed.

In the suit brought by the Manufacturers’ Fire and Marine Insurance Company there was evidence that, on the afternoon of January 31, 1885, between three o’clock and twenty minutes past three, Appleton, the president of the plaintiff corporation, weut to the office of the defendant, and met there the clerk and president of the corporation with two of the directors, who with the president constituted the finance committee of the company and Appleton told them that he wished to convert the fifty bonds held by the plaintiff corporation into stock. The clerk asked him if he had the bonds, and Appleton answered that he had not, that they were in the Union Safe Deposit Vaults, and that the usual hour for closing the vaults had passed. The clerk then informed him that it would be necessary to have the bonds. Appleton then asked to see the president of the railroad company, and when he came forward Appleton said to him that he wanted to convert the bonds into stock. Powers, the president, “ then told him that at three o’clock all stock which had not been taken up by the conversion of bonds had been sold and transferred to a third party, that it was too late to convert the bonds into stock, but that they would pay the bonds in cash.” Appleton then left, and returned at five minutes before four o’clock, and, finding the door of the office closed, dropped a letter through a slit in the door, in which he demanded that the bonds should be converted into stock. It is also found as a fact, that “ Appleton could and would have got his bonds and presented them on that afternoon but for Powers's telling him that it was too late, and that under these circumstances the presentation of the bonds on that afternoon at a little later time than ten minutes after three o’clock was waived by the Middlesex Railroad Company.” On February 2, 1885, the bonds were presented at the office, and the stock demanded, and by agreement of the parties the bonds were received by the company, and a check for $26,000, being the par value of the bonds with the last interest warrants, was given to the plaintiff. This check was received by the plaintiff without waiving “ its rights to the stock or its value, if it has.any,” above the par value of the bonds surrendered. The check was paid, and the plaintiff received the money, and in its bill offers to return it. The stock at that time was worth more than par. It is found as a fact, that at three o’clock on the afternoon of January 31,1885, the Middlesex Railroad Company undertook to sell and transfer to the International Trust Company “six hundred and fifty-five shares [of stock] being the balance of the fifteen hundred shares appropriated by the St. of 1880, c. 103, for the bonds which had not been converted or required by the signified option of any bondholder mentioned above ; that the price for these shares was then paid in cash, and the shares transferred.” It appeared that the whole amount of the series of bonds issued by the company in the form and of the date of those owned by the plaintiff was one hundred and fifty thousand dollars, so that all the stock which the Middlesex Company could lawfully issue and deliver in exchange for the bonds of the plaintiff was in fact issued and transferred for cash to the International Trust Company at three o’clock in the afternoon of January 31,1885.

We know of no rule of law which required the plaintiff to present the bonds for redemption at the office of the treasurer before three o’clock of the afternoon of January 31, because that happened to be the time when the business office was usually closed for the day. We think that the bonds could have been presented there at any reasonable time on that day, and that on the facts found the Middlesex Railroad Company had seasonable notice on the day of the maturity of- the bonds that the plaintiff elected, and was ready and willing, to convert them into stock.

The election to take stock in payment of a bond, however, does not make the bondholder a stockholder. His right to become a stockholder depends upon the performance of an ex-ecutory contract by the corporation, and the bondholder is not a stockholder until the contract is performed. Whether a court of equity will specifically enforce the performance of the contract depends upon a variety of considerations. Executory contracts for the sale of stock which is commonly bought and sold in the market are not specifically enforced as a matter of course. Unless there are some equitable circumstances, the remedy at law is adequate. See Pom. Eq. Jur. § 1402 and notes. If it be true that bonds of corporations like these, which may be converted into stock at the election of the holder, are usually specifically enforced against a corporation, even although the stock is commonly bought and sold in the market, on the ground that this is a right against the corporation derived from statute, and that good policy requires that corporations should specifically perform their statutory obligations, yet a court of equity could not compel a corporation to issue stock for this purpose which it was not legally authorized to issue.

The cases where corporations have issued certificates of stock to assignees on forged transfers have no application. A certificate is evidence of the ownership of stock, and a forged transfer does not convey the stockholder’s Ínteres^ and he remains a stockholder, and is entitled to his certificate and to all dividends in the same manner as if no new certificates had been issued to an assignee under a forged assignment. The difficulty courts find in dealing with bona fide holders of certificates issued on forged assignments is occasioned by the fact that the recognition of such certificates as valid would often create an over-issue of stock. The questionable practice which has sometimes been adopted of compelling the corporation to buy stock in the market, if the stock is commonly bought and sold in the market, and then of compelling a conveyance of it to the plaintiff, is in effect nothing more than compelling the corporation to pay as damages the market price of the stock at the time when the conveyance is ordered to be made. And if to this the intervening dividends are added, it is in effect assessing damages up to and as of the date of the decree, which is of the nature of specific performance.

It sufficiently appears by the i’eport, that the stock of the Middlesex Railroad Company was bought and sold in the market at the time the bonds matured. We think that it also appears by the report, that the Middlesex Railroad Company had disabled itself before the bill was filed from issuing stock in payment or redemption of these bonds, and that the plaintiff knew this. This alone is sufficient to defeat specific performance, unless the International Trust Company could be compelled to surrender some of the stock transferred to it, and the Trust Company has not been made a party to the suit. When a contract is broken before the suit is brought, and the plaintiff knows this, and specific performance is impossible, damages are usually assessed as of the date of the breach, with interest from that time. There is another fact in the case which furnishes an additional reason why damages should not be assessed as of the date of the decree. The plaintiff received before the bill was filed the par value of the bonds in money, and has had the use of this money until the present time, which is more than three years. It also inferentially appears that since the filing of the bill, which was on March 19, 1885, all the stock of the Middlesex Railroad Company has been surrendered, under articles of consolidation entered into with the Highland Street Railway Company pursuant to the St. of 1886, c. 229, whereby a new corporation has been formed, called the Boston Consolidated Street Railway Companj, which has been made a party to the suit.

It does not appear that the Boston Consolidated Railway Company has any stock which it can lawfully issue to the plain-. tiff in satisfaction of its claim. The conduct of the plaintiff in accepting $26,000, although with a reservation of its rights, is inconsistent with an absolute election on its part to take stock instead of money. The plaintiff entered into no contract to repay this money, although it offers to repay it in its bill. It could have invested the money if it saw fit in stock of the Middlesex Railroad Company, unless the statutes prohibited such an investment. It was to the extent of $25,000 in effect a payment on account, and although it is not inconsistent with a claim for the value of the stock if it exceeded $25,000, it is in a sense inconsistent with a specific allotment of stock to the plaintiff. If the plaintiff intended to elect once for all to take stock rather than money, it should at once have brought its bill against the Middlesex Railroad Company and the International Trust Company, and attempted to compel a transfer to itself of some of the stock which by statute had been appropriated to the redemption of its bonds. Having neglected to do this, and having received money on account, which it has retained, equity does not require that it should be paid more than the market value of the stock at the time it demanded it. To permit the plaintiff to receive all the advantages which have subsequently happened to accrue from the ownership of stock, while at the same time it has had the use of the money, would be to permit it to speculate upon the advantages of taking either money or stock according to the event.

The defendants cannot resist payment on the ground that the plaintiff was not authorized to invest its money in the stock of the Middlesex Railroad Company, if this be true, upon which we express no opinion. Pub. Sts. c. 119, § 55. National Bank v. Whitney, 103 U. S. 99.

By the terms of the report, an assessor is to be appointed to determine the value of 250 shares of the stock of the Middlesex Railroad Company on January 81, 1885, and the plaintiff is entitled to a decree for the amount of this value over $25,000, with interest from that day. So ordered.