Court Opinion

ID: 8781951
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:21:40.058306+00
Date Added: 2024-06-11T17:02:52.666376
License: Public Domain

WARD, Circuit Judge
(concurring). December 1, 1872, the Central Park, North & East River Railroad Company made its mortgage.to the Farmers’ Loan & Trust Company to secure payment of bonds aggregating $1,200,000 and maturing December 1, 1902.
October 14, 1892, the Central Park Company leased all its property to the Metropolitan Street Railway Company for the unexpired term of its charter, some 68 years, and for any extension thereof which under the law might be perpetual. The lessee assumed the payment of the mortgage debt. This resulted as between the parties in the Metropolitan Company becoming the principal debtor and the’Central Park Company and the mortgaged premises the surety.
February 14, 1902, the Metropolitan Company leased all its properties, including the Central Park leasehold, to the Interurban, now the New York City Railway Company, for the term of 999 years, the rent being payment of all taxes and assessments, all interest payable by the Metropolitan Company and a dividend of 7 per cent, on its capital stock. March 21, 1902, the Metropolitan Company executed a mortgage to the Morton Trust Company to take effect April 1, 1902, to secure the payment of $65,000,000 of 100-year refunding bonds of which it was intended to issue $23,950,000 in payment of, and substitution for, outstanding bonds to that amount secured upon properties owned by the company and $18,820,000 to be used to acquire bonds secured upon properties leased by the company, among which were these Central Park bonds. These acquired bonds were to be'‘kept alive (the purpose being, of course, to make the refunding mortgage eventually a first lien), and were to be given to the Trust Company as additional security for the payment of the refunding bonds. When the Central Park bonds fell due, they were, in accordance with the provision of the mortgage, taken up with the moneys of the Metropolitan Company derived from- the sale of the refunding bonds and delivered to the trustee as additional security for the payment of the refunding bonds. June 12, 1908, the Metropolitan and New York City' Railway Companies having failed and the interest on the Central Park bonds held by the Morton Trust Company being in arrear, this proceeding was begun to foreclose the mortgage on the property of the Central Park Company. That company defends on the ground, first, that the bonds were paid, and, second, if not paid, that it was discharged for all liability in connection with them as surety by the dealings between the Metropolitan Company and the Morton Trust Company.
I have little difficulty in finding that the bonds were purchased and not paid as between the parties here involved. This was the scheme of the mortgage. They were delivered to the Morton Trust Company for that purpose, and were marked by it as held in trust'for the purpose of the mortgage and the Central Park Company reported the bonds to the public authorities as outstanding and held in the in*967vestment account of the Metropolitan Company in the months of June, 1904, 1905, and 1906.
Though the.mortgage debt was not technically refunded as provided in the lease, the arrangement, by which it was kept alive accomplished the same purpose, and was-acquiesced in by the parties. The question is whether the bonds were kept alive merely for the benefit of the Metropolitan Company as principal debtor or whether they were kept alive for the benefit of the Morton Trust Company, trustee of the refunding' bonds.
ft may be conceded that the Central Park Company did not know the provisions of the mortgage, and that knowledge of those provisions is not to be imputed to it. Upon this theory all we have a right to suppose that it knew is that the Metropolitan Company was keeping the bonds alive for its own purposes not inconsistent with its being the principal debtor.
If the Metropolitan Company, the owner of the bonds, were now the holder, it is quite clear that it could not foreclose because between it and the Central Park Company it is the principal debtor and the Central Park Company and the mortgaged premises surety. The theory that the land is the primary fund for the payment of a mortgage debt is true and equitable between grantor and grantee because the grantor has no interest whatever in the land and his liability as surety will be extinguished or reduced pro tanto by the sale of the laud. This is not so between landlord and tenant. If the landlord’s real estate is sold to pay the tenant’s debt, the landlord’s liability as surety is not thereby extinguished or diminished. On the contrary, lie will be paying the debt exactly as if he were the principal debtor.
The Central Park bonds were negotiable securities. When the .Morton Trust Company delivered the refunding bonds to the Metropolitan Company upon the distinct agreement that the Central Park bonds then delivered to it should be held as additional security, the Trust Company was not affected by equities existing' in favor oí the Central Park Company against the Metropolitan Company as to these bonds unless it had notice of them. No evidence of actual notice is offered and the question is whether it had constructive notice. It is sought to prove this by imputing to it as matter of law knowledge of the provisions of the lease from the Central Park Company to the Metropolitan Company of October 14, 3892, which, I think, may not be done.
I am not impressed by the argument made on one side or the other that the results pointed out from a certain construction of the documents are such as to make it impossible to believe that any sane person would have made such a contract. The draftsman was no doubt contemplating, as probably everybody in interest was contemplating, that tiiis particular adventure would be a most profitable one and continué such say for a thousand years. It is its unexpected failure within a very few years that has raised these very embarrassing questions. If the results had been foreseen, no doubt they would have been covered in the instruments. As it is, great hardship will be done to some one, however the case is decided.