Scott, J.:
This controversy, submitted upon an agreed case, has regard to the construction to, be given to certain clauses contained in a mortgage executed by plaintiff to the defendant-as trustee.
The plaintiff is a corporation owning certain property and fran-. cldses and operating a street railway in the city-of Havana, Cuba. It has executed three mortgages upon its property and franchises to secure three issues of bonds. The first mortgage to secure an issue of $5,000,000 of bonds was given to the United States Mortgage and Trust Company as trustee o.n-July 20,1899. The second to secure an issue of $1,600,000 of bonds was given to the Morton Trust Company as trustee on November 13, 1900. The third, concerning which this controversy has arisen, to secure $10,000,000 of bonds Was given to the "present defendant as trustee on May 10, 1902. This last- mortgage, known as "the consolidated or refunding mortgage (and here, after referred to' as the consolidated mortgage), was designed to .provide for refunding the first and second mortgages,,and to provide for meeting certain other outstanding indebtedness of the plaintiff, and to furnish funds for necessary expenditures by the company. The 7th article of the consolidated mortgage specifies the various purpoS.es for which the bonds to be.secured by it are to.- be issued, ■and the amount of such bonds to be issued for each purpose. Subdivision 2" of that article deals with the subject of refunding the first mortgage bonds, and it is as to the construction of that subdivision that we are-now called upon to pass. The first clause of that subdivision reads as follows: “ $5,250,000, face value of the bonds secured hereby shall be reserved to be-executed from time to time, [831]*831and to be authenticated by the trustee when and as called for by the company, and used only for the purpose of exchange for, or retirement of, the present outstanding first mortgage bonds of the company amounting to $5,000,000, such first mortgage bonds bearing date July 20,1899, and redeemable at $1,050 and interest for each $1,000 face value, until such first mortgage bonds shall, be paid, and the mortgage securing the same canceled.” This clause, standing by itself, merely provides for the reservation of the necessary number of bonds to provide for the exchange for or retirement of the first mortgage bonds, without stating how such exchange or retirement is to be effected, or under what terms or conditions the consolidated bonds are to be executed and issued to the plaintiff. The details are furnished by the succeeding clauses of the subdivision as follows.: “ The trustee shall authenticate and deliver such bonds to the company, for the purpose aforesaid, in the following manner : The trustee shall authenticate and deliver to the company bonds to the amount óf $1,050, face value for each $1,000 of said 5 per cent first mortgage bonds, with' all unmatured coupons attached that the company may present to it * * *■; the trustee shall immediately stamp on the first mortgage bonds so presented to it the following : ‘ This bond has been deposited with the Central Trust Company of Hew York, trustee, pursuant to the provisions of a mortgage or deed of trust, executed to it by the Havana Electric Railway Company, bearing date the tenth day of May, 1902,’ - * * * and the trustee shall hold the said first mortgage bonds so presented to it as a further security for the payment of the bonds hereby secured, until all the bonds of that issue shall be presented by the company, or until the same shall be paid, and in either event the said bonds shall thereupon be canceled, and the mortgage securing the same satisfied of record, and upon the cancellation of said mortgage the trustee shall authenticate and deliver to the company any of said $5,250,000 of said bonds hereby secured that may not have been theretofore authenticated and delivered.” Provision is- then made whereby if the company shall elect to call and redeem the first mortgage bonds, pursuant to a provision in that mortgage, and shall desire to anticipate the authentication of the consolidated'bonds, it may do so by paying to the trustee cash at the rate $1,050 for each $1,000 of bonds called, the trustee to hold and use the money to [832]*832meet and pay the called bonds when presented. This particular controversy arises over the presentation 'by plaintiff to defendant on January 18, 1907, of $120,000 face value of first mortgage bonds, which had been paid and canceled under a sinking fund provision in the first mortgage, and the refusal of defendant to accept the canceled bonds so presented, and to authenticate and deliver for them $126,000 of consolidated bonds. The sinking fund provision contained in the first mortgage and above referred to, required the railway'comp'any to pay to the trustee named in said •mortgage certain sums annually to be applied either to the purchase of, or to the payment and redemption of said first mortgage bonds, and in either case it was provided that said bonds so bought or paid, should", “ be forthwith canceled by the trustee and surrendered to the company.” The $120,000 of bonds presented to defendant for exchange had been thus canceled. The plaintiff’s contention is that, considering the scheme of refunding as a whole, and, so considering, finding that it was a part of the scheme that con-. solidated bonds should, be substituted for first mortgage bonds as the latter for any reason ceased to be' outstanding obligations of the company, the' intention of the consolidated mortgage would be carried out if consolidated bonds were to be issued as fast as, and in place of, first mortgage bonds that by the operation of the sinking fund were taken up and canceled. The defendant, on the other hand, contends that its duties and obligations, acting as. trustee for all the consolidated bondholders, are limited and defined by the terms.of the mortgage under which it acts; that if there be any real or apparent inconsistency between the general scheme of refunding and the letter of the refunding or consolidated mortgage, ■the latter must control, and that under the terms of that, mortgage it is not permitted to issue consolidated bonds in exchange for canceled first mortgage bonds, but only for live, valid and enforceable first mortgage bonds, because any other construction would defeat and impair to some extent the security provided by the mortgage for the holders of the consolidated bonds. The provisions of the consolidated mortgage from which we have already-quoted at length are very specific, not at all ambiguous, and appear to bear ,out the contention of the defendant. Indeed, these provisions are consistent only with an intention that the first mortgage bonds to be delivered [833]*833to defendant in exchange for consolidated bonds shall be live, valid, enforcible bonds, and that they shall remain such in defendant’s hands until the entire first mortgage issue shall have been exchanged or paid off. They are to be held by the trustee “ as a further security for the payment, of the (consolidated) bonds hereby secured.” , It is evident that a paid and canceled bond could furnish no “ further security ” to the holders of the consolidated bonds. Except as an evidence that it had been paid, it would have no force or effect whatever. On the other hand, a live and enforceable bond might in case of foreclosure afford valuable security to the holders of bonds secured by a third mortgage in allowing them to participate in the lien of the first mortgage to a greater or less extent.
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Scott, J.:
This controversy, submitted upon an agreed case, has regard to the construction to, be given to certain clauses contained in a mortgage executed by plaintiff to the defendant-as trustee.
The plaintiff is a corporation owning certain property and fran-. cldses and operating a street railway in the city-of Havana, Cuba. It has executed three mortgages upon its property and franchises to secure three issues of bonds. The first mortgage to secure an issue of $5,000,000 of bonds was given to the United States Mortgage and Trust Company as trustee o.n-July 20,1899. The second to secure an issue of $1,600,000 of bonds was given to the Morton Trust Company as trustee on November 13, 1900. The third, concerning which this controversy has arisen, to secure $10,000,000 of bonds Was given to the "present defendant as trustee on May 10, 1902. This last- mortgage, known as "the consolidated or refunding mortgage (and here, after referred to' as the consolidated mortgage), was designed to .provide for refunding the first and second mortgages,,and to provide for meeting certain other outstanding indebtedness of the plaintiff, and to furnish funds for necessary expenditures by the company. The 7th article of the consolidated mortgage specifies the various purpoS.es for which the bonds to be.secured by it are to.- be issued, ■and the amount of such bonds to be issued for each purpose. Subdivision 2" of that article deals with the subject of refunding the first mortgage bonds, and it is as to the construction of that subdivision that we are-now called upon to pass. The first clause of that subdivision reads as follows: “ $5,250,000, face value of the bonds secured hereby shall be reserved to be-executed from time to time, [831]*831and to be authenticated by the trustee when and as called for by the company, and used only for the purpose of exchange for, or retirement of, the present outstanding first mortgage bonds of the company amounting to $5,000,000, such first mortgage bonds bearing date July 20,1899, and redeemable at $1,050 and interest for each $1,000 face value, until such first mortgage bonds shall, be paid, and the mortgage securing the same canceled.” This clause, standing by itself, merely provides for the reservation of the necessary number of bonds to provide for the exchange for or retirement of the first mortgage bonds, without stating how such exchange or retirement is to be effected, or under what terms or conditions the consolidated bonds are to be executed and issued to the plaintiff. The details are furnished by the succeeding clauses of the subdivision as follows.: “ The trustee shall authenticate and deliver such bonds to the company, for the purpose aforesaid, in the following manner : The trustee shall authenticate and deliver to the company bonds to the amount óf $1,050, face value for each $1,000 of said 5 per cent first mortgage bonds, with' all unmatured coupons attached that the company may present to it * * *■; the trustee shall immediately stamp on the first mortgage bonds so presented to it the following : ‘ This bond has been deposited with the Central Trust Company of Hew York, trustee, pursuant to the provisions of a mortgage or deed of trust, executed to it by the Havana Electric Railway Company, bearing date the tenth day of May, 1902,’ - * * * and the trustee shall hold the said first mortgage bonds so presented to it as a further security for the payment of the bonds hereby secured, until all the bonds of that issue shall be presented by the company, or until the same shall be paid, and in either event the said bonds shall thereupon be canceled, and the mortgage securing the same satisfied of record, and upon the cancellation of said mortgage the trustee shall authenticate and deliver to the company any of said $5,250,000 of said bonds hereby secured that may not have been theretofore authenticated and delivered.” Provision is- then made whereby if the company shall elect to call and redeem the first mortgage bonds, pursuant to a provision in that mortgage, and shall desire to anticipate the authentication of the consolidated'bonds, it may do so by paying to the trustee cash at the rate $1,050 for each $1,000 of bonds called, the trustee to hold and use the money to [832]*832meet and pay the called bonds when presented. This particular controversy arises over the presentation 'by plaintiff to defendant on January 18, 1907, of $120,000 face value of first mortgage bonds, which had been paid and canceled under a sinking fund provision in the first mortgage, and the refusal of defendant to accept the canceled bonds so presented, and to authenticate and deliver for them $126,000 of consolidated bonds. The sinking fund provision contained in the first mortgage and above referred to, required the railway'comp'any to pay to the trustee named in said •mortgage certain sums annually to be applied either to the purchase of, or to the payment and redemption of said first mortgage bonds, and in either case it was provided that said bonds so bought or paid, should", “ be forthwith canceled by the trustee and surrendered to the company.” The $120,000 of bonds presented to defendant for exchange had been thus canceled. The plaintiff’s contention is that, considering the scheme of refunding as a whole, and, so considering, finding that it was a part of the scheme that con-. solidated bonds should, be substituted for first mortgage bonds as the latter for any reason ceased to be' outstanding obligations of the company, the' intention of the consolidated mortgage would be carried out if consolidated bonds were to be issued as fast as, and in place of, first mortgage bonds that by the operation of the sinking fund were taken up and canceled. The defendant, on the other hand, contends that its duties and obligations, acting as. trustee for all the consolidated bondholders, are limited and defined by the terms.of the mortgage under which it acts; that if there be any real or apparent inconsistency between the general scheme of refunding and the letter of the refunding or consolidated mortgage, ■the latter must control, and that under the terms of that, mortgage it is not permitted to issue consolidated bonds in exchange for canceled first mortgage bonds, but only for live, valid and enforceable first mortgage bonds, because any other construction would defeat and impair to some extent the security provided by the mortgage for the holders of the consolidated bonds. The provisions of the consolidated mortgage from which we have already-quoted at length are very specific, not at all ambiguous, and appear to bear ,out the contention of the defendant. Indeed, these provisions are consistent only with an intention that the first mortgage bonds to be delivered [833]*833to defendant in exchange for consolidated bonds shall be live, valid, enforcible bonds, and that they shall remain such in defendant’s hands until the entire first mortgage issue shall have been exchanged or paid off. They are to be held by the trustee “ as a further security for the payment, of the (consolidated) bonds hereby secured.” , It is evident that a paid and canceled bond could furnish no “ further security ” to the holders of the consolidated bonds. Except as an evidence that it had been paid, it would have no force or effect whatever. On the other hand, a live and enforceable bond might in case of foreclosure afford valuable security to the holders of bonds secured by a third mortgage in allowing them to participate in the lien of the first mortgage to a greater or less extent. What this additional security would amount to we cannot tell, but whatever it w'ould be, whether great or small, the consolidated bondholders are entitled by their contract to its benefit. If it be said that under this construction new bonds cannot be issued in place of first mortgage bonds paid off and canceled under the sinking fund clause, the ready answer is that this very contingency seems to have been foreseen and provided for by the consolidated mortgage. The surrendered first mortgage bonds are to be held as further security “ until all the bonds of that issue shall be presented by the company, or until the same shall l>e paid” and upon the cancellation of the first mortgage following upon either of these events the trustee is to deliver any qí said authorized issue that may not have already been authenticated and delivered. The plain meaning of these provisions is that it was contemplated that some live, enforceable first mortgage bonds • would be surrendered and exchanged for consolidated bonds; that other first mortgage bonds would be paid off and canceled but not exchanged, so that when all the first mortgage bonds had been either exchanged or paid off, there would remain to be issued consolidated bonds equivalent in amount to the first mortgage bonds that had been paid off. Furthermore the provision that all the exchanged first mortgage bonds shall be held until all of such bonds have been either presented for exchange or paid, and then camceled is quite inconsistent with a construction which would permit bonds already canceled to be presented for exchange. The provisions for exchanging first mortgage bonds for [834]*834consolidated bonds to which we have referred are the only ones contained in the- mortgage which' define the defendant’s duties. If it had been desired to provide that -consolidated bonds should be issued in place of first'.mortgage bonds paid off and canceled , by the sinking f und nothing Would have been easier than to have said so. Tlie consolidated mortgage does not say s® in terms, nor by any fair construction of its language. That the plaintiff now finds that it has assumed an onerous burden, in providing for the security of its consolidated bondholders, is no reason why -these holders -should be deprived of any part of the.security secured to them by. their contract.
We are, -therefore, of the opinion that this controversy must be determined iri favor of the defendant, and that it is entitled to a .judgment that -the plaintiff is not entitled, -under the terms of the consolidated mortgage, to demand the authentication, and delivery to it of $126,000 of consolidated mortgage bonds upon the surrender to defendant of $120,000 of canceled first mortgage bondsl
P.At.térson, P. J.,. Ingraham and Clarke, JJ.,- concurred; Laughlin, J.,. dissented.