
    Frederick J. Lisman, Respondent, v. The Michigan Peninsular Car Company, Appellant.
    
      Trust mortgage— the words “ any sale” (on which the principal sum was to become due) construed to refer to a sale under foreclosure and not to a sale of the mortgaged premises by the mortgagor.
    
    Where a doubt arises as to the proper construction of a trust mortgage given to secure an issue of bonds, that construction must be adopted which is most favorable to the bondholders, and which will not impair their security in any way.
    A trust mortgage provided: "Ninth. If default be made in the payment of any interest on any of the bonds secured by this mortgage, and continue for thirty days after written demand of payment, the principal of all said bonds then outstanding, with all interest accrued and unpaid thereon, shall become due at the election and upon the declaration of the holders of the majority of said-bonds, made as hereinafter provided, and filed with the trustee; and the holders, of the majority of said bonds may, at any time thereafter, until a sale of the property and franchises secured by this mortgage, and upon payment of the expenses incurred by said trustee to such time, in like manner reverse any such declaration: or such default continuing or again occurring, may again declare such principal to he due, and said principal shall cease to he due or shall become due'accordingly. But upon any sale of the property and franchises secured by this mortgage, the principal of all the bonds secured hereby and then outstanding, shall become due, if not already due, by the terms of the bonds, or by publication as herein provided.”
    
      Held, that the words “any sale,” mentioned in the last sentence, referred to a sale-in foreclosure after default in the payment of interest, and not to a voluntary sale by the mortgagor subject to the mortgage — especially as this construction was borne out by other provisions of the mortgage.
    Appeal by the defendant, The Michigan Peninsular Oar Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 28th day of December, 1899, upon the decision of the court rendered after a trial before the court without a jury at the New York Trial Term, a jury having been waived.
    
      Arthur H. Van Brunt, for the appellant.
    
      Louis Marshall, for the respondent.
   McLaughlin, J.:

This action was brought to recover upon fifty-eight coupons maturing September 1,1899, and which, when issued, were attached . to certain bonds of the defendant. Payment of the bonds and coupons was secured by a mortgage upon certain franchises and property of the defendant, executed by it to the New York Guaranty and Indemnity Company, as trustee.

The plaintiff had a judgment for the full amount claimed in the complaint, from which the defendant has appealed.

At the trial there was little or no dispute as to the facts. It there appeared that the plaintiff was the owner of the coupons in question and that they represented the interest maturing September 1, 1899, upon certain bonds of the defendant then outstanding; that on the 1st of March, 1899, the defendant sold all of the property and franchises covered by the mortgage to the American Car and Foundry Company, and on the twenty-seventh of April following its board of directors, by notice duly given, called for the payment and cancellation of all of the outstanding bonds, and for that purpose deposited with the trustee named in the mortgage, 105 per cent of the principal and ' interest accruing to June 1, 1899, of the bonds; that notice of such deposit was also given, and that the holders of $1,919,000 of the total of $2,000,000 of the bonds (but not including the holders of the bonds from which the coupons in suit were detached) had surrendered their bonds in pursuance of the call and the same had been paid. The claim was there made, and it is the same one insisted upon in this court, that the plaintiff was not entitled to recover, because under the terms and conditions of the mortgage, the principal of all the bonds secured thereby became due on the 1st of March, 1899, when the sale was made to the American Car and Foundry Company. The sole question presented, therefore, for our determination, is whether or not the defendant, under the mortgage referred to, had the right, against the objection of a bondholder, to pay the principal of the bonds held by him, notwithstanding the fact that by the terms thereof such principal did not mature iintil September 1, 1942.

The defendant insists that it had this right, and its claim in this, respect is based upon the 9tli clause of the mortgage, which reads, as follows:

“ Ni/nth. If default be made in the payment of any interest on any of the bonds secured by this mortgage, and continue for thirty days after written demand of payment, the principal of all said bonds then outstanding, with all interest accrued and unpaid thereon,, shall become due at the election and upon the declaration of the holders of the majority of said bonds, made as hereinafter provided,, and filed with the trustee; and the holders of the majority of said bonds may, at any time thereafter, until a sale of the property and franchises secured by this mortgage, and upon payment of the expenses incurred by said trustee to such time, in like manner reverse any such declaration; or such default continuing or again occurring, may again declare such principal to be due, and said principal shall cease to be due or shall become due accordingly. But upon any sale of the property and franchises secured by this mortgage, the principal of all the bonds secured hereby and then outstanding, shall become due, if not already due, by the terms of the bonds, or by publication as herein provided.”

Stress is laid upon the last sentence of the clause quoted, and particularly upon the words “ upon any sale of the property.” The i sale referred to in this clause manifestly refers, not to a voluntary sale, but to one made after default and in proceedings taken to foreclose the mortgage, a sale under the mortgage and not a sale subject to it. This is clear when the 9th clause is read in connection with the other provisions of the mortgage and especially with the 2d and 5th clauses. The 2d clause provides, among other things, that the defendant “ shall pay the principal of all the bonds duly issued under this mortgage when the principal shall become due by the terms of the bonds or by declaration as hereinafter provided, upon the surrender of the bonds.” And the 5th clause provides that “the Car Company * * * shall have the right, with the written consent of the holders of the majority of the bonds secured hereby, then outstanding, to sell or otherwise dispose of, free from any lien created by this mortgage, any real estate or other property covered by this mortgage upon certification in writing by the President of the Car Company, duly authorized by its Board of Directors, that such real estate or other property is unnecessary for the proper conduct of the Company’s business; and shall, with the written consent of the holders of all the bonds secured hereby, then outstanding, have the right to sell or otherwise' dispose of, free from any lien created by this mortgage, all of the property then covered by this mortgage, except the franchises of the Car Company, and to abandon the operation of its works on said mortgaged property upon substitution of other property therefor of equal value and the operation of other works on such other property. The trustee shall, upon the written request of the Car Company, and upon due proof of the consent hereinafter mentioned, join in the conveyance and transfer of any real estate or other property sold or otherwise disposed of with the consent of bondholders as aforesaid. All proceeds of sale of real estate or other property sold or disposed of as aforesaid shall forthwith be applied by the Car Company to the replacement of the property so sold or otherwise for the benefit of the mortgaged property. Any property acquired with the proceeds of any sale of property covered by this mortgage or substituted therefor shall be subject to the lien and provisions of this mortgage, and upon the written request of the trustee shall be conveyed by the Car Company to the trustee, to be held upon the trust hereby created.”

By the clause of the mortgage last quoted it will be observed that the right or interest of the bondholders in the proceeds derived from a sale of the whole or any part of the mortgaged property is carefully protected. A part of the mortgaged property is permitted to be sold, so long as there is no default by the mortgagor in the payment of interest, upon the express condition, however, that the proceeds derived from the sale shall — for the benefit of the bondholders ■— forthwith be applied by the mortgagor to the replacement of the property so sold ; and all of the mortgaged property can be sold by the mortgagor only upon the written consent of all of the bondholders, and upon the further condition that other property of equal value shall be substituted for the property so disposed of. In other words, nothing is to be done by the mortgagor with reference to selling or disposing of the mortgaged property which shall, prior to the maturity of the bonds, impair in any way the security of the same.

When all of the provisions of the mortgage are thus read and construed together, it is clear that it was never intended to give to the mortgagor the right by its own act to pay the principal of the bonds in advance of the time specified in them when the same would mature. Any other construction would not only be unreasonable and unfair to the bondholders, but contrary to the express provisions of the mortgage.

If there be any doubt, which we do. not think there is, as to what sale was referred to by the use of the words “ any sale ” in the 9th clause, then that construction must be adopted which is most favor-J i Able to the bondholders, and one which will not impair their security I j in any way. (1 Jones on Mortgages, § 101.) The defendant obligated itself to pay the principal secured by the bonds- on the 1st day of September, 1912, and under the mortgage securing the payment it has no right, against the objection of a single bondholder, to pay in advance of that time. The bondholders' have a right to insist that defendant shall carry out its contract; that it shall pay its bonds when it agreed to, and not before, and that in the meantime the interest shall be paid at the times stipulated. The recent case of Missouri, K. & T. R. Co. v. Union Trust Co. (156 N. Y. 592) is-in point. Judge Vann, delivering the opinion of the court in that case,, said : “ The outstanding bondholders have a right to receivetlieir debt only as provided by the contract. That right is as sacred as to receive it at all. The obligation of the debtor is to pay the-principal when it becomes due, and he has no right to compel the creditor to accept payment until it becomes due.”

It follows that the judgment appealed from is right and” must be-affirmed, with costs.

Patterson, O’Brien and Ingraham, JJ., concurred.

Judgment affirmed, with costs.  