Guardian Depositors Corp. v. David Stott Flour Mills, Inc.

I cannot agree that the reference to the clause referring the bondholder to the trust mortgage in order to ascertain the terms and conditions upon which the bonds were issued and secured is obscure or indefinite. It is inconspicuous because grouped with matters not controlling the right to sue on the bond, but it distinctly refers to the trust mortgage and the "terms and conditions on which said bonds are issued and secured." We have consistently held that reference in the bond to the mortgage for other conditions was sufficient. Morley v. University of Detroit,263 Mich. 126; Michigan Trust Co. v. Grand Rapids Hotel Co.,265 Mich. 328; Thatcher v. Detroit Trust Co., 288 Mich. 410 (122 A.L.R. 282).

It seems that similar wording in a bond that refers to a mortgage forbidding an action by an individual bondholder has been upheld by both State and Federal decisions in the numerically larger number of cases and jurisdictions where the question has arisen. On the other hand, such mere reference has been held insufficient by the courts of New York and Illinois. The two viewpoints are irreconcilable as will be shown by the large number of decisions collated in 108 A.L.R. 88. The Federal courts and probably a numerical majority of the State courts also have carried the doctrine of constructive notice to the ultimate extreme in an endeavor to enforce no-action provisions in the trust instruments. Other cases indicate such reluctance to interfere with the normal right of the bondholder to bring his action that what would be sufficient incorporation by reference in all other instances has been deemed insufficient to incorporate provisions of the mortgage restraining suit on the bonds. See 41 Yale Law Journal, p. 312; 27 Columbia Law Review, pp. 443, 448. Manifestly, both procedures are open to criticism. It seems, however, the more reasonable, ethical and business-like approach is to demand that the restriction upon the right to sue for payment of the note or bond on maturity should appear upon the face thereof. This view is stated in Cunningham v. Pressed Steel Car Co.,238 App. Div. 624 (265 N.Y. Supp. 256), affirmed in 263 N.Y. 671 (189 N.E. 750), where the court said:

"If there was to be a restriction upon defendant's obligation to pay at maturity, then the bondholder was entitled to receive notice thereof in reasonably clear language expressed in the face of the bond. The mere reference to the indenture for a statement of the rights of the holders is not enough to take away by implication, drawn from another instrument, plaintiff's right to sue upon defendant's positive acknowledgment of and unconditional promise to pay the debt."

By thus requiring express notice on the bond, we preclude repeated litigation to determine whether the referential language in any kind of bond issue is adequate or not. We eliminate once and for all the vexing problem of negotiable corporate bonds, which is not questioned in the instant case. In coming to this conclusion, we need not discuss the prohibitory language of the indenture in the instant case which is believed by some of us to be insufficient to prevent suit on the bond.

I concur in affirmance.

BUSHNELL, SHARPE, POTTER, and CHANDLER, JJ., concurred with BUTZEL, C.J.