
    St. Louis and San Francisco Railroad Company, Plaintiff, v. Guaranty Trust Company of New York, Defendant.
    First Department,
    May 12, 1911.
    Mortgage — trust mortgage to refund underlying bonds construed — provision for release of reserved bonds — failure of mortgagor to retire underlying bonds.
    A railroad corporation executed and delivered a refunding trust mortgage ■ to secure an issue of refunding bonds. It was provided that the trustee should reserve a certain number of the bonds to be issued and delivered to the mortgagor in exchange for prior underlying bonds taken up “at maturity or before maturity ” and delivered to the trustee. Fourteen different classes of underlying bonds were specifically enumerated, some of which matured before the maturity of the refunding bonds and some many years thereafter. It was further provided that reserved refunding bonds which should not have been used for refunding the underlying bonds, or which in the judgment of the mortgagor evidenced by resolution should.no longer be required to be reserved for such purpose, might be issued to the mortgagor for use in railway construction:
    Held, that the purpose of the refunding mortgage was to refund all' the underlying bonds enumerated, so that the mortgagor was not entitled " to have a portion of the reserved refunding bonds released and turned over to it for railway construction-.where it had not yet succeeded in retiring underlying bonds although they will mature long after the bonds secured by the refunding mortgage.
    Submission of a controversy upon an agreed statement' of facts, pursuant to section 1279 of the Code of Civil. Procedure.
    
      
      Morgan J. O’Brien of counsel [ John W. Dixon with him on the brief], O’Brien, Boardman & Platt, attorneys, for the plaintiff.
    
      Adrian H. Joline of counsel [Arthur H. Van Brunt and Lewis H. Freedman with him on the brief], for the defendant.
   Clarke, J.:

Plaintiff is a Missouri corporation owning and engaged in the operation of lines of railroad and other properties, franchises and rights in the States of Missouri, Kansas, Oklahoma, Arkansas, Alabama, Mississippi, Tennessee and .other States. Defendant is a New York corporation and the successor as corporate trustee to the Morton Trust Company.

Plaintiff made, executed and delivered to the Morton Trust Company and William H. Thompson, as its trustees, a refunding mortgage dated June 20, 1901, upon its railroads and railroad property, franchises and rights, to secure an issue of $85,000,000 of its refunding bonds bearing interest at the rate of four per cent per annum; $67,719,000 of the refunding bonds have been issued under said mortgage. All the refunding bonds are to mature July 1, 1951.

The - mortgage provided: •“ Second. The Trust Company shall certify the refunding bonds and deliver the same as follows: A. $51,574,000 of the refunding bonds, or such less amount thereof as shall he necessary for that purpose, shall he reserved to he issued and delivered in exchange for or to take up at maturity or before maturity the following bonds (which are hereinafter called collectively the underlying bonds), with all unmatured and unpaid coupons belonging thereto.”

Fourteen classes of bonds issued by various companies with the amounts thereof and terms thereof and when payable were enumerated. “Whenever the Eailroad Company shall tender or cause to he tendered to the Trust Company, and whether before or after the maturity thereof or the payment thereof, any of the underlying bonds, with all the unmatured coupons thereunto belonging, the Trust Company shall, in exchange therefor, certify and deliver to the Eailroad Company, or to its order, refunding bonds of a face amount equal to the face amount of the underlying bonds so received by the Trust Company. * * * Any refunding bonds which shall no longer be required to be reserved' for issue and delivery in exchange for or to take up at or before maturity the ■ underlying bonds in accordance with the preceding provisions of this subdivision, may, after all the refunding bonds reserved under the following subdivision 0 of this article shall have been issued or have been set apart, be certified^ issued and delivered in accordance with the provisions of said subdivision 0 and in addition to the bonds reserved for ssue under said subdivision.

“ B. $10,926,000 of the refunding bonds, or such less amount thereof;- as in the judgment of the Railroad Company, shall be required for that purpose, shall be certified and delivered to the Railroad Company for use, in its discretion, in the refunding of the underlying bonds, on the delivery to the Trust Company from time to time of a certified copy of a resolution of the board of directors of the Railroad Company or of the Executive Committee of said board, requesting such delivery and stating that' the bonds so delivered or their proceeds will be used by the Railroad Company only for the purposes of such refunding. Any refunding bonds which after all the refunding bonds reserved under the following subdivision C ' of this Article shall have been issued or have been set apart, shall not have been used for refunding the aforesaid indebtedness, or in the judgment of the board of directors of the Railroad Company, to be expressed by a resolution of said board, shall no longer be required to be reserved for use for such purpose, may be certified, issued and delivered in accordance with the provisions of said subdivision C.

“0. The residue of the refunding bonds shall be certified and delivered and used only for the following purposes or some one or more of them, namely: The construction or acquisition of additional side tracks, second-tracks, spur-tracks, terminals or other additions to or betterments of, or improvements upon, along or appurtenant to the lines of railroad, terminals or other properties which shall then belong- to the Railroad Company and be subject to the lien of this indenture, or which shall then belong to any of the companies the line of which shall be then operated as part of the system of the Railroad Company, or which shall then belong to any other company of whose capital stock at least two-thirds in amount shall then belong to the Eailroad Company, or be held in trust for it, and be pledged or assigned to the Trustees hereunder or to the trustee under any mortgage or deed of trust securing any of the underlying bonds,; * * * . the construction or acquisition of terminals, branches or extensions of any of such lines of railroad, or the acquisition of the capital stock and bonds and other indebtedness of any corporation owning any such terminal, branch or extension, provided two-thirds of the stock of such corporation shall have been obtainéd or shall be thereby obtained; the acquisition of additional lines of railroad or the acquisition of the capital stock and bonds and other indebtedness of any corporation owning additional lines of railroad, provided two-thirds of the stock of such corporation shall have been obtained or shall be thereby obtained;, the construction or acquisition by the Eailroad Company of additional rolling stock (in which term as used in this indenture, locomotives or other motive power shall be deemed included) which shall be made subject to the lien of this indenture; and to reimburse the Eailroad Company for any expenditures, made by it for the purposes aforesaid, or some one or more of them. * * * The refunding bonds reserved under this subdivision shall be certified and delivered by the Trust Company, from time to time, only upon delivery to the Trust Company of a copy of a resolution of the board of directors-of the Eailroad Company, certified under its corporate seal by the secretary or. assistant secretary, calling for the certification and delivery of such bonds, and stating that such bonds or their proceeds will be set aside, separate and apart from all other assets and funds of the Eailroad Company, and will be used only for the purposes authorized by this subdivision.”

Among the underlying bonds enumerated in paragraph A of the second section of the mortgage, there were $1,099,000 in amount of five per cent bonds of the St. Louis and San Francisco Eailway Company, payable October 1, 1987, being thirty-six years after the date of maturity of the refunding bonds secured by trust indenture with the Union Trust Company of New York, dated December 15,1887, and $7,831,000 in amount of four per cent bonds of the St. Louis and San Francisco Bail-way Company, secured by its consolidated mortgage, dated July 1, 1896, payable July 1, 1996, being forty-five years after the date of the maturity of the refunding bonds.

All the other underlying, bonds mentioned in subdivision A were by their terms to mature before the date of maturity of' the refunding bonds. There are no provisions in either of the indentures under which the said five per cent bonds or the said consolidated mortgage bonds were issued, whereby they could be called for redemption or be retired before the dates of their respective maturities by operation of sinking fund provisions or otherwise. Of the $51,574,000 of the underlying bonds mentioned in the refunding mortgage, the plaintiff has succeeded in retiring $38,470,000, including $660,000 of the five per cent bonds, and $6,273,000 of the consolidated bonds, leaving unexchanged $439,000' of the five per cent bonds and $1,558,000 of the consolidated mortgage bonds, or a total amount of $1,997,000 of underlying bonds which will mature many years after the maturity of the refunding bonds, and $11,107,000 of underlying bonds, which will mature prior to the maturity of the refunding bonds. There are reserved and still held $ll,107j000 of the refunding-bonds to retire the equal amount of underlying bonds which will mature prior to the maturity of the refunding bonds, and plaintiff admits the necessity of holding them for that purpose. .

The plaintiff'desires to have said $1,997,000 of refunding bonds held freed from the limitations of subdivision A, and subject to certification and' delivery under the provisions of said subdivision 0, so that said bonds may be available to provide for the cost of additional rolling stock which the company needs. Through its board of directors it adopted proper resolutions setting out the facts, and requesting the defendant to hold said- $1,997,000 of refunding bonds freed from the limita-. tions of subdivision A, to be hereafter certified and delivered under the provisions of subdivision 0, and also authorizing the execution, tender and delivery to the defendant of an agreement forfeiting and waiving the right of plaintiff tb tender to the defendant any of said five per cent bonds or any of said consolidated mortgage bonds in exchange for refunding bonds.-

Pursuant to said resolutions of its board, plaintiff made such request in writing upon the defendant, accompanied by a properly certified copy of said resolutions, and also tendered to defendant an executed agreement in accordance with the above resolutions; defendant refused to comply with the request and claims that the plaintiff can only use said $1,997,000 of refunding bonds for refunding purposes and is not entitled to have them held free from the limitations of subdivision A or hereafter certified and delivered under subdivision 0. Whereupon said controversy between the parties was submitted to this court upon an agreed statement of facts, pursuant to the provisions of sections 1279, 1280 and 1281 of the Code, of Civil Procedure.

It seems to us that the primary purpose of this refunding mortgage, emphasized by its title, was to provide for and secure the refunding of all the numerous issues of outstanding and underlying bonds so carefully enumerated in the mortgage itself and for which purpose $51,574,000 of the refunding bonds or such less amount thereof as shall be necessary for that purpose shall be reserved to. be issued and delivered in exchange for or to take up at maturity or before maturity.

The plaintiff and the draftsmen of the .mortgage knew as well at the time of the execution thereof as now that the so-called five per cent bonds and the consolidated mortgage bonds matured many years after the time fixed for the maturity of the refunding bonds. Nevertheless, they were included in the schedule and covered by the words: “At maturity or before maturity.” Eeading the whole mortgage we are of the opinion that the fixing of the definite sum of the refunding bonds to be reserved, and the precise enumeration of the underlying bonds for which said amount of refunding bonds should be.reserved, establish that the proper interpretatioh of the phrase “ any refunding bonds which shall no longer be required to be reserved for issue and delivery in exchange for or to take up at or before maturity the underlying bonds in accordance with the preceding provisions of this subdivision” is that there were required to be reserved sufficient of the refunding bonds to take up all of the existing and outstanding underlying bonds enumerated, and until they were so taken up the amount necessary for that purpose could not he released from the express limitations of the mortgage and devoted to other purposes.

If the board of directors of the plaintiff had the discretion to determine how many of the refunding bonds were required to dispose of the underlying bonds, the carefully elaborated scheme for the retirement thereof could have been disposed of at any time and purchasers of the refunding bonds, depending solely for their information in regard thereto upon the terms of the mortgage and supposing therefrom that they were receiving a high grade of security, with the preceding and underlying bonds out of the way, might have found themselves possessed of -bonds subsequent and subordinate to fourteen prior issues.

Nor does the fact that the plaintiff has not yét, by the efforts which it characterizes as reasonable, succeeded in. getting in these $1, 997,000 of outstanding underlying bonds, persuade -us that the equivalent amount of refunding bonds are no longer “ required ” for that purpose.

We think that the fair interpretation of this mortgage compels us to hold that the $1,997,000 of the refunding bonds, the subject of this controversy, áre required to be still held by the trustee and cannot be removed from the restrictions of the mortgage and applied for the general uses of the road as provided in Subdivision C, because they have not ceased to be required to be reserved for issue and.delivery in exchange for or to take up at or before maturity underlying bonds in accordance with the earlier provisions of the mortgage.

It follows that in accordance with the terms of the submission, plaintiff’s -prayer for judgment should be denied and judgment go for the defendant, without costs to either party.

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

Judgment directed for defendant, without costs to either party. Settle order on notice.  