Court Opinion

ID: 5257839
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:33:26.296184+00
Date Added: 2024-06-11T08:28:02.432228
License: Public Domain

Smith, J. (dissenting):
The Denver Tramway Company is the successor of the Denver City Tramway Company. The Bankers Trust Corn-pay is the successor of the Mercantile Trust Company, and the questions of law here arising are to be determined as if the Denver City Tramway Company was the defendant and the Mercantile Trust Company the plaintiff.
In the agreed statement of facts it appears that the defendant wanted to raise $25,000,000 upon mortgage bonds. A trust mortgage was, therefore, made to the plaintiff, and was in the usual form of a trust mortgage, transferring the property of the defendant for the purpose of securing the issue of these bonds. These bonds were to be executed by the defendant and certified by the plaintiff and then sold for the purpose of raising the moneys required. The controversy here arises over the provision as to a sinking fund and the trust company is making claim as against the defendant that more money should be paid to the trust company for the purpose of that sinking fund than the defendant is willing to pay or deems itself bound to pay under the provisions of this mortgage.
The provision for the sinking fund is provided in article 6 of the agreement and is in part as follows:
“As a Sinking Fund for the redemption of bonds secured hereby the Tramway Company covenants and agrees that it will yearly and every year beginning with the first day of November, 1914, up to and including the first day of November, *7991923, pay to the Trustee a sum in gold coin of the United States of or equal to the present standard of weight and fineness, equal to one per cent (1%) of the principal of the bonds issued hereunder and then outstanding, and on each first day of November after the year 1923 pay to the Trustee a sum in like gold coin equal to two per cent (2%) of the principal of said bonds issued hereunder and then outstanding, and on each first day of November after the year 1914 pay to the Trustee an additional sum in like gold coin which shall be equal to the annual interest upon all the bonds purchased by said Trustee or drawn as hereinafter provided in- this Article, to be applied by the Trustee, together with any other money in the hands of the Trustee derived from the sale of property covered by this mortgage which may not be otherwise used or applied under the provisions of Section 1 of Article V of this Indenture, to the redemption of said bonds; provided, however, that the Trustee shall have the right upon being furnished with funds by the Tramway Company for the purpose, to purchase bonds from time to time prior to November 1st, 1923, at a price not exceeding 105 and accrued interest, and after November 1st, 1923, at a price not exceeding 102% and accrued interest, and the bonds so purchased shall be applied by the Trustee, unless otherwise directed by the Tramway Company, on account of the requirements of the Sinking Fund.”
Before discussing this provision it may be well to note the situation under which the questions arising thereunder are presented. There has never been issued under this mortgage more than $12,000,000 of bonds. In fact, prior to the 1st day of November, 1918, the plaintiff demanded of the defendant one per cent upon $11,157,500 in bonds as issued and outstanding, five per cent upon $656,000 par value of bonds which had been purchased and deposited in the sinking fund. Of this $11,157,000 of bonds, those claimed as issued and outstanding, there were $838,500 of the bonds which were then in the custody of the plaintiff, held as custodian of the defendant. They were not outstanding bonds, because no one had any claim thereon. They had not been redeemed for the purpose of the sinking fund. They had been authorized by the defendant and certified by the plaintiff and were held by the trust *800company for temporary uses of the defendant as collateral to moneys that should be borrowed at any time, and $500 represented thereby was held as cash as the absolute property of the defendant for use whenever it should draw the same. These bonds, or part of them, had been at different times used by the defendant as security upon notes made by the defendant company, but these notes had been paid and the bonds redeemed by the company itself, and the bonds had been restored to the trust company as custodian of the defendant. I am unable to see how these bonds can be held to be issued and outstanding. If, upon any first day of November, these bonds should be held as collateral by some one, then they would be outstanding at that time, but if the notes upon which they stood as collateral had been paid by the company and the bonds restored to the plaintiff merely as custodian of the defendant, or even held by the company, it would seem to me that they stood simply as bonds authorized by the defendant certified by the plaintiff and not yet delivered. But of these bonds issued and used as collateral, $100,000 were issued and outstanding upon the 1st day of November, 1916, as they were held by the plaintiff as the depository for the Denver National Bank as collateral security for the defendant’s obligation. Although these bonds were redeemed by the company upon the nineteenth day of December subsequent, nevertheless, they were outstanding on the first day of November in that year. The plaintiff is entitled to receive from the defendant one per cent thereupon for the purpose of the sinking fund. In other words, bonds issued which had been restored by the defendant not in any way under the provisions of the sinking fund article, should alvjays be deemed under the provisions of this sinking fund article as bonds unissued except as they m'ght have been outstanding on any first day of November. In any event they are not within the terms of the article “ issued and outstanding ” so as to be subject to this one per cent tax as provided in article 6 of the trust mortgage.
Now, it is further provided where bonds are bought for this sinking fund, pursuant to article 6, that the defendant shall pay to thé plaintiff, not the one per cent specified, but five per cent, that is, the interest rate upon the par value of *801said bonds and it is claimed that even if these be not bonds then outstanding so as to be subject to the one per cent levied for the sinking fund, they are subject to. the five per cent as bonds that had been outstanding, but that had been purchased for the benefit of the sinking fund.
Referring now to article 6 of the trust mortgage, it requires, in addition to the one per cent which must be paid upon all bonds issued and outstanding for the benefit of the sinking fund, the defendant shall pay to the trustee: “ An additional sum in like gold coin which shalL be equal to the annual interest upon all the bonds purchased by said Trustee or drawn as hereinafter provided in this Article, to be applied by the Trustee, together with any other money in the hands of the Trustee derived from the sale of property covered by this mortgage which may not be otherwise used or applied under the provisions of Section 1 of Article V of this Indenture, to the redemption of said bonds.”
It is clear that this provision refers to bonds purchased by the trustee with moneys held by the trustee for the purposes of the sinking fund. Those are not only the moneys required to be contributed by the defendant for the purposes of the sinking fund, but also moneys received from the sale of property covered by the mortgage. There is no provision that this interest charge should apply to any bonds which had been redeemed by the defendant for any other purpose than is required in this sinking fund provision, and it seems to me clear that this railroad company could purchase any amount of bonds outstanding and hold them even for reissue, and if they be deposited with the trust company that they are not bonds issued and outstanding, nor are they bonds purchased by the trustee for the benefit of the sinking fund upon which the defendant is required to pay interest for the benefit of that fund. The bonds that are purchased by the trustee for the benefit of the sinking fund are required to be marked by the trustee as non-negotiable and non-transferable. In other words, they are made ineffectual as possible obligations of the company thereafter. That is not so of bonds redeemed by the company itself and not purchased for the benefit of the sinking fund. They are not required so to be marked *802and when deposited with the plaintiff for keeping they are in like position as bonds authorized by the defendant and certified by the plaintiff and not yet issued and not outstanding.
Judgment should be directed for the plaintiff for $1,000 and interest from November 1, 1916, with costs.