Court Opinion

ID: 5257838
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:33:26.292125+00
Date Added: 2024-06-11T08:28:02.430650
License: Public Domain

Clarke, P. J.:
The Bankers Trust Company is the trustee under a mortgage or deed of trust executed by the. Denver City Tramway Company, the predecessor of the defendant, which assumed, ratified and confirmed said mortgage. The bonds authorized *795thereunder amount to $25,000,000 to be known as its “ First and Refunding Sinking Fund Mortgage, twenty-five-year, five per cent Gold Bonds,” and the mortgage or deed of trust was denominated “ First and Refunding Sinking Fund Mortgage.”
It provided:
“ Article VI. Sinking Fund. 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, 1923, pay to the Trustee a sum in gold coin of the United States of or 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.”
Immediately prior to the 1st day of November, 1916, there had been executed by the tramway company, certified by the trustee and delivered by it in pursuance of the covenants and terms of said mortgage or deed of trust, $11,800,500 principal amount of the bonds authorized and secured by said mortgage. Of said $11,800,500, there had been redeemed theretofore and held in the sinking fund $316,000, and there were outstanding *796in the hands of the public $10,646,000. The balance, to wit, $838,500, prior to said 1st day of November, 1916, had been executed by the defendant, certified by the plaintiff and after dehvery to defendant had been, as to $838,000 thereof, lodged by defendant with plaintiff, not as trustee, but simply as custodian for defendant, subject to the order of defendant and for such disposition or application as defendant might determine, and as to $500 principal amount thereof held and retained by the defendant unincumbered in its treasury. Prior to November 1, 1916, the defendant pledged $100,000 principal amount of said bonds with the Denver National Bank as collateral security for a certain demand promissory note executed and delivered by defendant and payable to the order of said Denver National Bank and notified plaintiff to hold $100,000 principal amount of said bonds for the account of said bank, whereupon plaintiff notified said defendant that as depository it held $100,000 principal amount of said bonds for the account of said bank. Subsequently, and on or about the 19th day of December, 1916, the defendant having paid said promissory note in full, said $100,000 principal amount of bonds were released from the pledge by said bank and returned to plaintiff as custodian for defendant.
During the period commencing April 1, 1918, and continuing to October 31, 1918, defendant pledged at various dates, various amounts of said bonds ranging from a minimum amount of $50,000 par value at one time to a maximum amount of $300,000 at another time to the First National Bank of Denver, Colo., and the International Trust Company, as collateral security for the payment of certain demand promissory notes executed and delivered at various times between .said dates and payable to said bank and to said company respectively, and in connection with said pledges defendant directed the plaintiff to hold various amounts of said bonds for the account of and subject to the order of said bank and company.
On May 2, 1918, out of said $838,500 principal amount of said bonds, $540,000 par value were held by plaintiff as depositary for the account of and subject to the order of the First National Bank of Denver and $298,000 were held by plaintiff as custodian for the defendant, and $500 were held by defend*797ant in its treasury. Other transactions of the same kind were had. On November 1, 1918, $500,000 par value of said bonds were held by the plaintiff as collateral security for the payment of demand notes subject to the order of the First National Bank and the International Trust Company.
The plaintiff contends that all bonds which have been executed by the defendant, delivered by defendant to plaintiff as trustee for certification, certified by plaintiff as trustee and redelivered out of the possession of the trustee either to the defendant, or upon its order, or in accordance with any duty imposed upon the trustee by other provisions of the trust indenture, together constitute bonds issued and outstanding for the purpose of the sinking fund, and has demanded of the defendant payment into the sinking fund of the amount provided in the article of the trust mortgage heretofore quoted.
The defendant refused to comply upon the ground that the said bonds amounting to $838,500 were not issued and outstanding within the meaning of.the trust deed because not in the hands of the general public.
It seems to me that when the bonds had been issued, duly certified and delivered, not to the trustee, but to a custodian for such disposition as the defendant might direct, they became “ issued and outstanding ” and so remained until canceled, retired or bought in under the sinking fund provision. They were and are at the disposition of the defendant and have been used time and again as collateral to loans, qualified title thereto, by way of lien, passing to the lenders. The fact that the money borrowed upon their security has been repaid from time to time, and the bonds so released from the specific lien, does not affect, in my opinion, the status so acquired, because the bonds could be used the next day for the like or other purposes and they have been so used. The provisions in respect to the sinking fund are intended to add to the attractiveness of the bonds for investment purposes. The scheme of the trust deed could be easily evaded by temporary return to the custodian over the one date, namely, November first, when the specified amount was payable to the trustee for the sinking fund upon issued and outstanding bonds, and immediate redelivery thereafter of the bonds as collateral. *798The clear intention was to represent to investors that a definite amount would flow into the sinking fund to provide for ultimate redemption. When the bonds have once- been issued and duly certified and delivered to a custodian subject to the orders and directions of the defendant they become and remain “ issued and outstanding ” within the meaning of the trust deed until definitely retired or bought in. It follows, therefore, that judgment should be entered for the plaintiff for the amount due under that interpretation of the trust deed, together with the costs.
Dowling and Page, JJ., concur; Smith and Greenbaum, JJ., dissent.