
    Charleston Illuminating Company, Plaintiff, v. Knickerbocker Trust Company, as Trustee, Defendant.
    First Department,
    May 6, 1910.
    Corporation—refunding mortgage construed — reservation of bonds to be issued on cancellation of prior bonds — when mortgagor entitled to refunding bonds on tender of prior bonds canceled.
    A corporation owning property mortgaged to secure the payment of bonds executed a second mortgage styled a “ refunding and improvement mortgage,” to secure an issue of new bonds of which a certain proportion were to be reserved to be issued to the mortgagor in exchange for or to take up at maturity, or before maturity, the underlying bonds. The new mortgage provided for two methods of exchange: (1) Whenever the mortgagor tendered to the trustees whether before or after maturity any of the underlying bonds with unmatured coupons the trustees were to deliver to the mortgagor refunding bonds of an equal face value. (2) The mortgagor was entitled to sell refunding bonds to provide a means to purchase underlying bonds, in which case the trustees were to deliver the refunding bonds simultaneously with the deposit of a cash equivalent for the bonds delivered and out of such cash the trustees were to pay to the mortgagor ón the delivery of the underlying bonds “so paid or purchased” by the mortgagor a sum equivalent to the face amount of the underlying bonds “ so paid or purchased.” Whenever all the underlying bonds should have been surrendered in exchange for refunding bonds, the trustees at the request of the mortgagor were to cancel the bonds and cause the mortgage securing the same to be discharged of record.
    
      Held, that the mortgagor on paying underlying bonds at maturity out of its general fund and on canceling the same and depositing them with the trustees was entitled to the delivery of an equivalent value, in refunding bonds.
    Ingraham, P. J., dissented, with memorandum.
    Submission of a controversy upon an agreed statement of facts, pursuant to section 1279 of the Code of Civil Procedure.
    
      William M. Wherry, Jr., for the plaintiff.
    
      Charles H. Tuttle, for the defendant.
   Miller, J.:

The parties to this submitted controversy agree that it is precisely like Twin State Gas & Electric Co. v. Knickerbocker Trust Co. (135 App. Div. 467); but the defendant asserts that that case conflicts with Havana Electric R. Co. v. Central Trust Co. (122 App. Div. 829), recently affirmed by the Court of Appeals on the opinion below (197 N. Y. 534). The two cases referred to will be found upon a critical examination to be distinguishable. Therefore the plaintiff in this case should have judgment on the authority of the Twin State Gas & Electric Co. case, unless we are prepared to overrule that case. . We are persuaded, upon a re-examination of the question, that the ruling of that case was right and should be adhered to. '

It may be well to state the essential facts of this case, though that be but a restatement of the facts of the. Twin State Gas & Electric Co. case. On the 1st of March, 1900, the Charleston Light, Heat and Power Company made a mortgage to the American Trust and Savings Bank of Chicago, as trustee, to secure an issue of bonds in the sum of $60,000, to mature on different dates between September 1, 1901, and September 1, 1922. Oh the 25 th of March, 1905, the Charleston Light, Heat' and Power Company conveyed the property covered by said mortgage to the plaintiff, subject to the lien of said mortgage. On that day $53,000 par value of said bonds were outstanding and unpaid. On the same day the plaintiff executed and delivered to trustees, for whom the defendant was later substituted, a mortgage styled a “ refunding and improvement mortgage ” to secure an issue of $250,000 of bonds, styled “ refunding and improvement mortgage bonds,” $180,000 of which were to be reserved' “ to be issued and delivered in exchange for or to take up at maturity or before maturity,” (1) $53,000 face amount of the bonds hereinbefore referred to; (2) $127,000 face amount of bonds of the Charleston Gas and Electric Company, which latter we are not concerned with now, but which it may be inferred were secured by a mortgage on property acquired by the said plaintiff on or abopt said 25th of March, 1905. The mortgage provided for two methods of exchange, •(!) whenever the mortgagor tendered to the trustees, “ whether before or after the maturity thereof, any of the underlying bonds, with all the unmatured coupons thereunto belonging,” the trustees were to authenticate and. deliver to it refunding bonds of equal face amount to the underlying bonds so delivered; (2) the mortgagor might sell refunding bonds to. provide means for purchasing underlying bonds. In such case the trustees were to authenticate and deliver refunding bonds simultaneously with the deposit with them of a cash equivalent therefor, and out of such cash they were, “ on demand of the mortgagor and upon delivery to the trustees of the underlying bonds so paid or purchased by the mortgagor ” to pay to the mortgagor a sum equal to the face amount of the underlying bonds “ so paid or purchased.” The mortgage further provided, that whenever all underlying bonds, except lost' or destroyed bonds, for which satisfactory indemnity had been given, should be surrendered in exchange for refunding bonds, the trustees, “at the request of the mortgagor, shall cancel such underlying bonds and at the request of the mortgagor shall cause the mortgages or trust deeds securing the same to be canceled and discharged of record.” It also contained the following provision : “ Unless canceled in accordance with the foregoing provisions hereof, and until so canceled, all underlying bonds delivered to the trustees' shall be held by the trustees, without impairment of the lien of such underlying bonds, as additional security linder this indenture and upon the trusts herein declared.” This controversy involves two of the underlying bonds issued by the Charleston Light, Heat and Power Company, of the par value, of $1,500, which matured September 1, 1909, and were at maturity paid by the plaintiff out of its general funds, and canceled and deposited with the trustee, pursuant to the provisions of the mortgage securing them, and which were thereafter and on the 1st of December, 1909, tendered to the defendant by the plaintiff with a demand that the defendant certify and deliver in exchange therefor refunding bonds of equal value, which tender and demand were refused.

The mortgage in question differs from the. mortgage considered in the Havana, Electric Railway Co. case in several important particulars. (a) In that case, the mortgage merely provided for the. authentication and delivery of refunding bonds in exchange for underlying bonds, until such bonds should be paid and the mortgage securing the same canceled; this mortgage provides for such exchange upon the delivery of underlying bonds.“ whether before or after the maturity thereof.” (b) That mortgage referred only to “ the present outstanding first mortgage bonds; ” this mortgage expressly provides that refunding bonds shall be authenticated and delivered by the trustees in exchange for underlying bonds “ paid or purchased by the mortgagor.” (c) That mortgage provided for the. cancellation of the underlying bonds and the mortgage securing them when all of said bonds were presented to the trustee or paid,; this mortgage provides for such cancellation only upon the request of the mortgagor when all the underlying bonds except lost or destroyed bonds have been surrendered to the trustees in exchange for refunding bonds, (d) That mortgage provided for the authentication and delivery of any of the refunding bonds, not -theretofore authenticated and delivered, upon the cancellation of the underlying bonds and the mortgage securing them; this mortgage contains no provision on the subject.

It is true that both mortgages contain a provision that the underlying bonds delivered to the trustees in exchange for refunding bonds should be held by them as additional security, in this case, unless and until canceled in accordance with the provisions of the mortgage, in ■ that case “ until all the bonds of that issue shall be presented by the company, or until the same'shall be paid.” Thus, it appears that the parties in this case contemplated the delivery of all the underlying bonds in exchange for refunding bonds, while the parties in that case contemplated .that the bonds paid at maturity should not be .delivered in exchange for refunding bonds! All of the refunding bonds were to be issued in both cases, in this case as bonds purchased or paid were delivered to the trustee, in that, as live, outstanding bonds were delivered from time to time, the balance when all the underlying bonds were delivered or paid.

Ko doubt it was intended' by the provision for holding the underlying bonds as further security to prevent the holders of any underlying bonds, not delivered, from gaining an unfair advantage by the surrender and cancellation of other bonds; and the absence of such a provision in the mortgage, considered in the case of Beech Creek Coal & Coke Co. v. Knickerbocker Trust Co. (127 App. Div. 540), distinguishes that, case from this. Standing alone, that clause strongly supports the defendant’s contention that the trustee was only to surrender refunding bonds for outstanding, live, underlying bonds; but, when considered with reference to the other provisions of the mortgage in question, that clause may be given full force and effect by considering it as applicable only to the bonds purchased. The cancellation of any of the issue of bonds would of course increase the security of the outstanding bonds, but so would the payment of any of them at maturity. This mortgage plainly contemplated that the mortgagor might purchase outstanding bonds before maturity or pay them at or after maturity, from its general funds, according to the provisions of the mortgage securing them. In either event such bonds; i. e., those purchased or paid, were to be delivered to the trustee in exchange for refunding bonds. Plainly, there is no valid distinction between a paid and a canceled bond. While the defendant contends that the word “bond” of itself imports an outstanding obligation, as used in this mortgage, the word refers to the instrument itself, not to the obligation evidenced by the instrument. As was said in the Twin State Gas & Electric Co. case it was plainly the intention of the parties that the whole $250,000 of bonds provided for should ultimately be issued, $180,000 of them in substitution for that amount of outstanding obligations, $70,000 evidently to. provide money for improvements. By the express terms of the mortgage refunding bonds were to be exchanged for underlying bonds paid or purchased before or after maturity, and the mortgage securing such underlying bonds was only to be canceled when all of the bonds, so paid or purchased, were delivered to the trustee of the refunding mortgage; and by that method only could the entire amount of refunding bonds be issued. Those express provisions are not modified by the clause with- reference to the holding of the underlying bonds as further security, in view of the fact that such clause, from the nature of the case, can only refer to the bonds purchased before maturity.

. The judgment should be for the plaintiff in accordance with the terms of the stipulation".

Laughlin, Clarke and Scott, JJ., concurred; Ingraham, P. J., dissented.

Ingraham, P. J.

(dissenting):

There is no substantial difference between the mortgage upon which the question is presented in this action and that before us in Twin State Gas & Electric Co. v. Knickerbocker Trust Co. (135 App. Div. 467). I think, therefore, the question that is presented in this case is substantially the same as that presented in the Twin State Gas c& Electric Co. case, and for the reasons stated in my dissent from the judgment directed in that case I think the defendant here is entitled to judgment.

I therefore, dissent.

Judgment ordered for plaintiff. Settle order on notice.  