Court Opinion

ID: 5204832
Source: CourtListenerOpinion
Date Created: 2022-01-06 15:59:23.733911+00
Date Added: 2024-06-11T08:27:16.108306
License: Public Domain

Laughlin, J. (dissenting):
As I view it, -the contract embodied in the Consolidated, mortgage is ambiguous, Whether it. be construed as claimed by the plaintiff or •as claimed by the defendant; and" the proper construction is to be ascertained by a consideration of all of its provisions. At the time the mortgage was -made,, the entire issue .of $5,000,000,. face value, first mortgage bonds, Was outstanding and it was by the second subdivision, of the seventh article of the consolidated mortgage quoted-, in part, in the prevailing opinion, expressly provided that consolidated bonds of the faqé value of ■ $5;250,00Q, should be-reserved “and used only for, the purpose of- .exchange for,, or retirement of the then outstanding issue of first mortgage bonds.. It was further therein provided that the consolidated bonds thus reserved were to be executed' from time to time and to be authenticated by the trustee “ when and as called for by the company.” The value in consolidated bonds, at which the outstanding issue, of first mortgage bonds' was to be,redeemed was. fixed at $1,050 face value.of consolidated bonds .for each. $1,000 face value of first mortgage -bonds, which would. *835make the entire issue of outstanding first mortgage bonds equal the issue of consolidated bonds reserved to be issued in exchange for or retirement thereof. At the time the parties executed the consolidated mortgage, they were presumably familiar with the provisions of the first mortgage • under which the first mortgage bonds were issued. That mortgage contained, in clause 15 thereof, a sinking fund provision by which'the plaintiff obligated itself to deposit with the trustee for the bondholders on the 1st day of January, 1903, and annually thereafter until the maturity of the bonds, the sum .of §32,000, and an additional sum equal to the interest for one year on the principal of the bonds acquired and canceled by the trustee for the sinking fund. It was provided that the trustee should apply the sinking fund toward the purchase of bonds secured thereby at the rate of $1,000 per bond, the bonds so purchased “ to be forthwith canceled by the trustee and surrendered to the company;” and to the payment and redemption at the same valuation of the principal and interest of bonds secured thereby selected for retirement as therein provided, the bonds so purchased and redeemed to be likewise canceled by the trustee and surrendered to the company. It was further provided that the payments required to be made by the company to the trustee on account of the sinking fund might be made in bonds on the basis of $1,050 arid accrued interest per bond, and that bonds thus delivered to the trustee by the company in fulfillment of the sinking fund agreement should likewise be canceled and surrendered to the company. How the parties knew that it was inevitable that under these provisions of the first mortgage large numbers of bonds would be canceled, and yet, as has been seen, they expressly provided for the exchange of- the entire issue of first mortgage bonds for consolidated bonds. This indicates that it was not intended to limit the exchange" of consolidated bonds to an exchange for live first mortgage bonds. In view of the great number of canceled first mortgage bonds that would naturally be in the hands of the plaintiff from time to time, it is, I think, reasonable to infer that if the general unqualified provisions for the exchange at the instance of the company of consolidated bonds for first mortgage bonds was to be limited to live bonds, a provision to that effect would have been inserted. The majority of the court infer *836that live bonds were intended merely, because -it is provided that ■ the 'bonds."should:' be stamped and held as security, and because, moreover, there is a general clause that, after all of the first' mortgage bonds- have been canceled and paid the plaintiff shall be entitled to the balance; if any;, of' the issue of consolidated bonds reserved to be exchanged for .first mortgage bonds. I am of opinion that such inference does not fairly follow- f rom these clauses of the mortgage. It was intended of course to have the trustee - lio'ld uncanceled as • security for the third mortgage bondholders,, any first mortgage bonds received in exchange' for consolidated bond's,, which at the time of their reception -by the trustee- were live securities, and so the provisions for stamping them and fbr holding them as security were incorporated. It is of no significance, I think, that those clauses were-not expressly limited to live bonds,.for the parties must have Understood that there would be no object in thus stamping canceled bonds which had ceased to be security, and that they could not, as against the holders of outstanding first mortgage bonds, by any declaration or agreement incorporated in the third mortgage, revive canceled bonds and give them forcé and effect as- live securities. If the parties intended that the plaintiff Was to hold this vast amount of canceled first mortgage bonds without receiving in exchange therefor consolidated bonds, andwasto .be compelled to maintain the two sinking funds,-the one under the first mortgage, and the other under' the consolidated mortgage, wliich is. quite similar but relates to the consolidated bonds,- without having the benefit of the use of the consolidated bonds, to which concededly it will he entitled after the payment of the first mortgage, until the time of such payment, then I think they would have incorporated in their agreement a provision clearly’ indicating that intent. It is manifestly the duty of the trustee to-safeguard the interests of the consolidated mortgage" bondholders. It is claimed that it is to their advantage to deprive- the plaintiff of the, right to the use of -the consolidated bonds in place of canceled first mortgage bonds until the first mortgage is jiaid in full. It is impossible to decide, upon this record, whether that be so or not. We only know that such a construction of the agreement will ■require the plaintiff to take- from its earnings more funds and appropriate (the-same to-the. maintenance of both sinking funds, that if *837it be permitted to' personally exchange canceled bonds for consolidated bonds, for if it were permitted to receive consolidated bonds in exchange for canceled as well as live first mortgage bonds, it could use the same under the provisions of the consolidated mortgage sinking fund clause in maintaining that sinking fund, or could negotiate the same and realize thereon, which would enable it to have a greater working capital or a capital that would enable it to make greater improvements for the proper development of its lines. Neither the first nor second mortgage bondholders could be afiected by the question as to whether the plaintiff shall be permitted at this time to exchange the canceled bonds for consolidated bonds, or" shall be required to wait until all first mortgage bonds are paid; and the only possible theory upon which the consolidated mortgage bondholders may be prejudiced by allowing the exchange at this timé is in the event 'of a foreclosure before the exchange would otherwise be made, and of there being a surplus for distribution among the consolidated mortgage bondholders, but insufficient to pay them in full, in which case there would be a greater number of consolidated mortgage bondholders to share in such distribution. I doubt if this possibility of injury entered into the minds of the contracting parties, and in view of the far greater injury to the plaintiff by being deprived of the present use of the bonds, 1 am of opinion that the consolidated mortgage should not be construed as depriving the plaintiff of the right to exchange the canceled first mortgage bonds for consolidated bonds until after the payment of all outstanding first mortgage bonds. The insertion of the clause in the consolidated mortgage requiring the trustee to deliver to the plaintiff any unexchanged consolidated mortgage bonds reserved to be issued in exchange for first mortgage bonds after the payment and discharge of the first mortgage is explainable upon the theory that it may have been thought that some of tlid* canceled first mortgage bonds be lost or destroyed, so that an exchange could not be made. For these reasons, therefore, I think the plaintiff should have judgment on the submission.
Judgment ordered for defendant as directed in. opinion. Settle order on notice.