Texas & Pacific Ry. Co. v. Marlor - 123 U.S. 687 (1887)
U.S. Supreme Court
Texas & Pacific Ry. Co. v. Marlor, 123 U.S. 687 (1887)
Texas & Pacific Railway Company v. Marlor
Argued December 5-6, 1887
Decided December 19, 1887
123 U.S. 687
A railroad company, in a bond issued by it, promised to pay the principal at a specified time and place,
"with interest thereon at the rate of seven percent per annum, payable annually on the 1st day of July in each year, as provided in the mortgage hereinafter mentioned."
The bond also set forth that the interest was secured by a mortgage lien on the net income of certain specified lines of road, and that
"in case such net earnings shall not in any one year be sufficient to enable the company to pay seven percent interest on the outstanding bonds, then scrip may, at the option of the company, be issued for the interest."
A certificate on the bond by the mortgage trustees stated that the bond bore "seven percent interest per annum, payable yearly." The mortgage stated that it was given to secure the payment of the principal and interest of the bonds "according to the tenor thereof." On July 1st, 1882 and 1853, the company neither paid the interest in money nor declared its election to issue scrip for the interest. Shortly after each of those days, it notified the bondholders that it was not prepared to pay interest, as the earnings of the railway were not sufficient. It took no action in reference to the issue of scrip until October, 1883. In a suit by a bondholder who refused to receive the scrip to recover the interest in money, held:
(1) If the company did not pay the interest in money by the interest day, it was bound to exercise, by that day, its option to pay it in scrip, and, if it did not, it became liable to the bondholders to pay the interest in money.
(2) No demand by a bondholder was necessary, in order to entitle him to the payment of the interest in money on the failure of the company so to exercise such option.
This was an action to recover interest alleged to be due on bonds issued by the plaintiff in error. Judgment for plaintiff, to review which defendant sued out this writ of error. The case is stated in the opinion of the court.