CORPORATIONS-TRUST INDENTURE-BOND AND INDENTURE PROVISIONS GIVING NOTICE TO SECURITY HOLDERS OF LIMITATIONS UPON RIGHT TO SUE

Authors

Abstract

In a recent comment in this Review it was pointed out that many corporate bonds contain a clause referring the bondholder to the trust indenture, under which the bonds are issued, for a description of his rights with respect to the bond. The main purpose of this reference clause is to give the holder notice of the limitations upon his right to sue either at law upon the bond or in equity upon the security. These limitations, whatever they may be, are generally too numerous to reprint on the bond, and hence they are found only in the indenture. One such limitation frequently found provides that the bondholder shall have no right to bring suit, unless and until a certain percentage of bondholders have made a request to the trustee to sue, with a guaranty of the costs, and the latter has refused to do so. As was shown in the earlier comment, many courts are astute to nullify the effect of these reference clauses, and they do it by a construction of the language used. It is the purpose of this comment to supplement what was there said, by suggesting a few reference clauses that would seem to be sufficient to accomplish their intended result. To make the picture complete, there will also be suggested some model "no-action" indenture provisions.

Recommended Citation

CORPORATIONS-TRUST INDENTURE-BOND AND INDENTURE PROVISIONS GIVING NOTICE TO SECURITY HOLDERS OF LIMITATIONS UPON RIGHT TO SUE, 33 Mich. L. Rev. 1082 (1935).
Available at: https://repository.law.umich.edu/mlr/vol33/iss7/8