
    Theodore Dwight, Appellant, v. Guanajuato Consolidated Mining and Milling Company, Respondent.
    First Department,
    January 20, 1911.
    Bonds — provision that debenture bonds shall become due on execution of mortgage — guaranty construed — election — notice to obligor.
    Where debenture bonds, contain a clause giving to holders the right to declare the ■ principal due in case the, obligor executes a mortgage on its"property to secure any future issue of bonds', one who guaranteed the payment of the bonds “ at the time and in the manner therein specified ” is liable to the holders on the execution of a mortgage by the obligor and the guaranty should not be so construed as to create a liability only on the due date named in the debentures. The guaranty applies to the accelerated due date arising from the execution of the mortgage and the election of holders to declare the bonds due.
    It cannot be contended that an election to declare the debentures due was not properly executed merely because a letter notifying the defendant of the election was signed by the holder’s attorney where the letter was accepted without demurrer by the obligor, who in plain terms intimated his purpose to.pay the bonds out of the proceeds of the mortgage. ■
    Appeal by the plaintiff, Theodore Dwight, from a judgment of the Supreme Cotirt in favor of the defendant, entered in the office of the clerk of the county of New York on the 17th day of June, 1910,. upon the dismissal of the complaint by direction of the court at the close .of plaintiff’s case on a trial at the New York Trial Term.
    
      Samuel M. Richardson, for the appellant.
    
      Donald McLean, for the respondent.
   Scott, J.:

Plaintiff appeals from a judgment entered upon the dismissal of his complaint at Trial Term.

The defendant was sued as guarantor of the payment of principal and interest of certain debenture bonds of the Carmen-Guanajuato Gold Mining Company, a West Virginia corporation, owner of a mine in Mexico. The said debenture bonds were issued by the Carmen-Guanajuato Gold Mining Company in 1903 and by their terms were payable in 1923, with interest at seven per cent, payable semi-annually in January and July. The bonds as issued were payable to bearer and had annexed coupons containing a promise to pay the semi-annual interest at the company’s agency in New York city on each of the. interest days during the life of the bond.

Indorsed upon the bond and made a part of it are a series of conditions, numbered 1 to-10, providing, among other things, in subdivisions 3 and 4, for the redemption of the bonds by the company ■in whole or in part, at any time, at the company’s discretion, after January, 1904,- and, in case of such redemption, reserving to the bondholder certain rights for the conversion of his debenture bond into stock- of' the company. Subdivision 5 covered the case of the company thereafter executing a mortgage on the property of the company as security for any future issue of bonds ; and in that case it was provided that: “ The holders of. the debenture bonds herein specified shall be given the ojition : (a) To exchange their debenture bonds for an equal amount at par of the said bonds or debentures hereafter issued, or convert their said debenture bonds into the stock'of the company on the basis of 110 for debenture bonds and par for stock; or (b) To declare the principal of their debenture bonds forthwith due and prior to or simultaneously with such future issue of bonds or debenture bonds to receive payment of their debenture bonds at the price of 110, with accrued interest to the date of said payment, or convert said debenture bonds into the stock of the company on .the basis of 110 for bonds and par for stock.”

Subdivision'6 provides that no such mortgage shall he executed - without the consent of the holders of record of 70 per centum of the stock of the company then outstanding.”

Subdivision 7 provides for the non-payment of- interest coupons, in such case making the principal of the bond to become due and payable as therein provided.

Upon the bonds sued upon by the plaintiff in this action was the following guaranty by this defendant company: “For value received the Guanajuato Consolidated Mining & Milling Company hereby guarantees the punctual payment of the principal (at par) and interest upon the within bond at the time and in the manner therein specified, without recourse, however, to any director,- officer, agent or stockholder of said Guanajuato Consolidated Mining & Milling Company for. any purpose or upon any ground.”

This action was founded upon clause (b) of section 5 above mentioned. The plaintiff’s proof showed the issue of the bonds and the authenticity of the defendant’s guaranty as indorsed thereon. The issuing of a mortgage on December 1, 1908, was admitted and affirmatively set up by the answer of the defendant.

. The nonsuit at Trial Term proceeded upon the theory, urgently contended for by the respondent, that defendant’s guaranty of payment applied only to payment of the bonds on their due date in 1923, and was not applicable to an accelerated due date in consequence of the execution of the mortgage and the election of the bondholder to declare his bonds due and payable. We do not consider that this is the fair and reasonable construction of the giiar- ' anty. By its terms defendant guaranteed payment of the bonds “ at the time and in the manner therein specified.” Turning to the bonds we find that they are made payable in any event on January 1, 1923. To each bond is appended a series of conditions which are, by express terms, made a part of the bond, and among which are to be found those already quoted, by which the right is accorded to the 'bondholder, in case of the execution Of a mortgage upon the . property, “ to declare the principal of their debenture bonds forthwith due and * * * to receive payment of their debenture - bonds.” So soon, therefore, as the mortgage was executed, and the ' plaintiff elected to take payment for his bonds, the amount thereof became payable “at the time and in the manner therein specified,” and the guaranty became effective. Any other construction would be manifestly unreasonable. Although the debenture bonds were not secured by any specific lien upon- the property of the obligor, their value depended upon the value of the property of the obligor over and above any specific liens which might be placed thereon. Consequently the execution of a mortgage upon the property, which would create a specific lien thereon, would to an extent impair the security and lessen the value of the debenture bonds. It was in recognition of this consequence, and as an inducement to investors to purchase the debenture bonds, that conditions were attached to them by which their holders became entitled upon the execution of any mortgage upon the property to exchange their bonds for bonds to -be secured by the mortgage; to exchange such debenture bonds for stock, or to demand and receive payment of the bonds held by them.' The construction given to the guaranty at • Trial Term would compel a bondholder who elected to call his bonds due- to wait for a dozen years or more to enforce payment of what is due him, holding meanwhile an impaired security. It is suggested that plaintiff did not sufficiently exercise his option to declare his bonds due and payable. This objection is untenable. The election was evidenced by a letter signed not by plaintiff, but by his attorney. This was perhaps informal, but it was accepted without demur by the obligor, who in plain terms intimated its purpose to pay off plaintiff’s bonds out of the proceeds of the mortgage and thus obviated the necessity for any further or more formal notice of election. Furthérmore it is clearly shown that the attorney did in fact represent plaintiff and acted in his behalf.

The judgment appealed from must be reversed and a new trial granted, with costs to the appellant to abide the event.

Ingraham, P. J., Laughlin, Clarke and Miller, J.J., concurred.

Judgment reversed, new trial ordered, costs to appellant to abide event.  