
    New York Railways Company, Plaintiff, v. Guaranty Trust Company of New York, Trustee under the First Real Estate and Refunding Mortgage of New York Railways Company, Dated January 1, 1912, and The Farmers’ Loan and Trust Company, Trustee under the Adjustment Mortgage of the New York Railways Company, Dated January 1, 1912, Defendants.
    First Department,
    July 10, 1914.
    Corporation-—railroad — right of trustee under refunding mortgage to use moneys for purchase of bonds of another company.
    Provisions of a real estate and refunding mortgage of a railway company examined, and held, not to authorize the trustee thereunder to use moneys accumulated for the purchase by the mortgagor of bonds of another railway company.
    Submission of a controversy upon an agreed statement of facts pursuant to section 1279 of the Code of Civil Procedure,
    
      Richard Reid Rogers, for the plaintiff.
    
      Charles H. Russell, for the defendant Guaranty Trust Company of New York.
    
      
      Frederick Geller, for the defendant the Farmers’ Loan and Trust Company.
   McLaughlin, J.:

Submission of a controversy under section 1279 of the Code of Civil Procedure for the purpose of obtaining a construction of certain provisions of the first real estate and refunding mortgage of the plaintiff. The defendant Guaranty Trust Company of New York is the trustee under the mortgage, and the defendant Farmers’ Loan and Trust Company is trustee under another and subordinate 'mortgage of the plaintiff.

The question submitted is whether the Guaranty Trust Company, as trustee under the refunding mortgage, may use certain moneys in its hands as such trustee to pay for the acquisition by the plaintiff of $600,000 of bonds of the Metropolitan Crosstown Railway Company, hereafter called Crosstown Company. The judgment demanded by the plaintiff is that the trustee be required to permit the plaintiff to use the moneys in the manner proposed.

The plaintiff was organized for the purpose of acquiring, under a plan of reorganization, the property and franchises of the Metropolitan Street Railway Company. The property and franchises so acquired included the property and franchises of the Crosstown Company, which had been consolidated with the Metropolitan Company. Prior to the consolidation the Crosstown Company had mortgaged its property and franchises to secure an issue of $600,000 of its bonds. When the plaintiff acquired the property and franchises of the Metropolitan Company these bonds were outstanding and the mortgage securing them constituted a prior lien upon the property and franchises formerly owned by the Crosstown Company, which were of considerable value.- The first real estate and refunding mortgage made by the plaintiff to the Guaranty Trust Company, which is the mortgage now under consideration, made provision for the acquisition and retirement of the bonds of the Crosstown Company and other underlying bonds. Before the bonds of the Crosstown Company had been acquired, however, an action was commenced to foreclose the mortgage made by that company, and the plaintiff, in order to prevent the foreclosure and sale of the property covered by the mortgage, was compelled to buy the $600,000 of its bonds. Payment therefor was made by means of loans secured by a pledge of the bonds, and the loans are now represented by a note for $602,000, which will fall due on November 19, 1914, and the plaintiff is without funds to pay the same.

It is conceded that the.plaintiff might under the mortgage in question issue its bonds to raise funds to pay the note, but the trustee has in its possession under the mortgage moneys of the plaintiff more than sufficient to pay the note in full, and for various reasons it would he very advantageous to all concerned if, instead of issuing additional bonds, the note could be paid out of this money. The mortgage, however, specifically provides the way in which the money now held by the trustee may he used. The provision is that such money shall be “ held in trust by the Trustee and applied, at the request of the Company, in the manner and subject to the conditions and restrictions provided by section 5 of Article Second upon the furnishing by the Company of the resolutions, opinions, consents and certificates required by said section 5 of Article Second,” the company referred to being the plaintiff.

Article second prescribes the purpose for and manner in which bonds shall be issued. Section 2 provides that some $18,000,000 of bonds shall be immediately issued and delivered to the committee under the plan of reorganization. Section 3 provides that bonds may he issued from time to time to acquire certain underlying bonds, among those specified being the $600,000 bonds of the Crosstown Company above referred to. Section 4 provides in detail the steps which must be taken in issuing bonds for the purposes specified in section 3 and the manner in which the underlying and other bonds so acquired shall be held by the trustee. Section 5, which is the one referred to in the provision above quoted, provides that “in addition to the bonds in sections 2,. 3 and 4 of this Article Second authorized to be issued” bonds may be issued “for some one or more of the following purposes and under and subject to the following conditions and restrictions, namely: (1) To pay, or to provide funds to reimburse the Company for, sums expended by it * * * for the acquisition of additional property (to be subjected to the lien of this indenture as hereinafter provided) and for the construction, completion, extension and improvement of the facilities and properties of the Company; ” (2) for the acquisition of stock or bonds of other street railroad and allied corporations. Section 5 then provides in detail what must be done in issuing bonds under this section, which is quite different from the requirements for bonds issued for the purposes stated in section 2.

Inasmuch as by the terms of the mortgage the trustee is authorized to use the cash now in' its hands only for the purposes and under the conditions specified in section 5, it seems clear to me that it cannot be required to use this money to reimburse the plaintiff for the purchase of the Crosstown bonds. The mortgage provided for the issuance of bonds for three general purposes: (a) For delivery to the committee under the plan of reorganization as set forth in section 2; (b) for the acquisition of underlying and other specified bonds enumerated in section 3, and (c) for the acquisition of additional property, including the stock and bonds of other companies under section 5. The acquisition of the Crosstown bonds was one of the enumerated purposes for which bonds might be issued under section 3, and by providing specifically that the cash in the hands of the trustee might be applied in the manner and subject to the conditions specified in section 5, the mortgage, at least by implication, forbids the use of the money for the purposes specified in section 2. If it had been intended that the cash might also be used for the purposes specified in section 2, the mortgage would have so provided.

But it is urged that the Crosstown bonds are “additional property,” so that the money may be used for their purchase under section 5. That, of course, is true only in case bonds under the mortgage could be issued for the purchase of the Crosstown bonds under the conditions specified in section 5, as well as under the conditions specified in sections 3 and 4, which relate expressly to the purchase of the Crosstown bonds. I do not think that section 5 is susceptible of such construction. The prescribed steps for the issue of bonds under section 5 are quite different from those prescribed in section 4 for the issue of bonds for the purposes specified in section 3. If the plaintiff were now seeking to issue its own bonds to purchase the Crosstown bonds and endeavored to compel the trustee to authenticate and deliver bonds for this purpose by complying only with the conditions specified in section 5, no one, I take it, would seriously contend that the trustee could be compelled to do so. The conditions precedent to the issue of bonds for this purpose are specifically set forth in the two preceding sections. I do not think the parties intended to provide two methods for the issue of bonds for this purpose and any such intention is expressly negatived by section 5, which provides for the issue of bonds •“ in addition to the bonds in sections 2, 3 and 4 of this Article Second authorized to be issued.”

In view of the existing conditions it is unfortunate that the mortgage did not. provide for the use of the cash for the purposes 'specified in section 3. But it provides expressly for the acquisition of these bonds by the issue of plaintiff’s bonds. It also provides expressly for the use of the cash for certain specified purposes, which do not include the purchase of the Orosstown bonds.

My conclusion, therefore, is that the mortgage does not authorize the trustee to use the money in question for their purchase.

Judgment is, therefore, directed in favor of the defendants, with costs to the defendants.

Ingraham, P. J., Scott, Dowling and Hotchkiss, JJ., concurred.

Judgment directed in favor of defendants, with costs. Order to be settled on notice.  