Bliss, J.
Section 253 of the Tax Law imposes on each mortgage on real property situated within the State, recorded on or after the 1st day of July, 1906, a tax of fifty cents for each one hundred dollars and each remaining major fraction thereof of principal debt or obligation which is or under any contingency may be secured at the date of the execution thereof or any time thereafter, by such mortgage. Section 259 of the same law provides that in the case of mortgages made by corporations in trust to secure payment of bonds or obligations issued or to be issued thereafter, if the total amount of principal indebtedness which under any contingency may be advanced or accrued or which may become secured by any such mortgage has not been advanced or accrued thereon or become secured thereby before such mortgage is recorded, it may contain at the end thereof a statement of the amount which at the time of the execution and delivery thereof has been advanced or accrued thereon, or which is then secured by such mortgage; thereupon the tax payable on the recording of the mortgage shall be computed on the basis of the amount so stated to have been so advanced or accrued thereon or which is stated to be secured thereby. This section further provides: “ Whenever a further amount is to be advanced under the original mortgage, or shall accrue thereon or become secured thereby, the corporation making such mortgage shall pay the tax on such amount at or before the time when such amount is to be advanced, accrues or becomes secured * * * and the certification of any bond or bonds by the trust mortgagee shall be deemed an advance under this article.”
On December 1, 1916, the Erie Railroad Company executed and delivered to the Bankers Trust Company as trustee, its refunding and improvement mortgage for $500,000,000. From time to time thereafter it issued under this mortgage series A bonds in the aggregate amount of $15,000,000 authenticated by the trustee [270]*270and maturing in 1937 and series B bonds maturing in 1938, in the aggregate amount of $25,000,000, both bearing interest at the rate of six per cent. The railroad also filed with the recording officer statements showing that there had been advanced and certified under and secured by said mortgage, bonds in the aggregate amount of $40,000,000 consisting of $15,000,000 series A and $25,000,000 series B, on all of which the mortgage tax was paid at or before the times when said bonds were certified and delivered. $2,700,000 of the series B bonds never left the treasury of the railroad although the mortgage recording tax had been paid thereon. The remainder of the series A and series B bonds were all issued in temporary form and without interest coupons attached. They were pledged at different times by the railroad as collateral security for the payment of its notes held by various creditors. From time to time many of the bonds thus pledged were returned to the railroad, some of them subdivided into equivalent amounts of temporary bonds of smaller denominations and the temporary bonds thus returned or the temporary subdivisions thereof were either repledged with the same creditors or pledged to other creditors.
In June, 1927, the railroad issued and sold to J. P. Morgan & Co. an additional $50,000,000 series of 1927 bonds under this mortgage, which were authenticated and delivered by the trustee to the railroad and thereafter delivered by the railroad to Morgan & Co. This issue matures in 1967 and bears interest at five per cent.
At that time series A and series B bonds to the amount of $31,821,000 were in the hands of the railroad’s creditors as security for the payment of its notes totaling $21,649,450 and $8,179,000 in the railroad’s treasury. Upon the sale of the series of 1927 bonds to Morgan & Co. the proceeds of the sale were paid by the purchaser to the railroad, which then used the money to pay its notes in full. The noteholders returned to the railroad the series A and series B bonds which they held as security, and all of the series A and series B bonds were retired by the railroad. The remainder of the proceeds from the sale of the series of 1927 was used by the railroad for other corporate purposes. The railroad paid the mortgage recording tax on $10,000,000 of the series of 1927 bonds and claimed exemption of the remaining $40,000,000 from the payment of such tax. It is conceded by the respondents that no tax is due on $2,700,000 of these bonds, which is the amount of series B bonds that never left the treasury of the railroad. Our question is as to the mortgage recording tax on the remaining $37,300,000 of series of 1927 bonds,
[271]*271The series of 1927 bonds were authenticated by the trustee before their sale and delivery and a statement was filed by the railroad with the recording officer under section 259 of the Tax Law on June 2, 1927. This statement was to the effect that there had been advanced and certified under and secured by the mortgage, bonds in the aggregate amount of $40,000,000 consisting of $15,000,000 series A and $25,000,000 series B, on all of which the mortgage tax was paid when the bonds were certified and delivered and that these bonds were now to be retired and canceled and replaced by $40,000,000 of bonds series of 1927 about to be issued under such mortgage, which new bonds would be delivered to the holders of series A and series B bonds in lieu and substitution therefor and upon which no tax would be payable. Also a supplemental agreement under the original mortgage, supported by appropriate corporate resolutions, was made by the railroad in connection with the issuance of the series of 1927 bonds. ■ It provided that $40,000,000 of the series of 1927 bonds were to be exchanged or substituted for an equivalent principal amount of the series A and series B bonds. Nevertheless when it came time to dispose of the series of 1927 bonds, an offer for the purchase thereof was made by J. P. Morgan & Co., and accepted by the railroad although Morgan & Co. did not then hold any of the series A or series B bonds either as owner or pledgee. The majority of the pledged series A and series B bonds were then held by the United States of America or government agencies as security for the railroad company’s notes.
The series of 1927 bonds clearly come within and are taxable under the provision of sections 253 and 259 of the Tax Law. There was a new principal debt or obligation created by their issuance and sale and this amount was secured by the underlying mortgage. It was a further amount advanced under the original mortgage and which became secured thereby. The series of 1927 bonds were not in fact exchanged or substituted for the bonds of the previous issues and the statements to that effect by the railroad were not correct. They were sold and delivered to a new creditor under a contract of purchase and sale with such creditor and not with the creditors of the railroad who then held the previous issues as collateral. Furthermore the statute says that the certification of any bond or bonds shall be deemed an advance under this article. Such certification has been held to impose upon the trustee a personal liability for the payment of the tax. (People v. Trust Co. of America, 205 N. Y. 74; 208 id. 463.) This statute created a presumption that the 1927 issue constituted the advance of an amount secured by the mortgage (Matter of Barbour, 185 App. [272]*272Div. 445; affd., without opinion, 226 N. Y. 639) and the transaction itself admits of no other conclusion.
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Bliss, J.
Section 253 of the Tax Law imposes on each mortgage on real property situated within the State, recorded on or after the 1st day of July, 1906, a tax of fifty cents for each one hundred dollars and each remaining major fraction thereof of principal debt or obligation which is or under any contingency may be secured at the date of the execution thereof or any time thereafter, by such mortgage. Section 259 of the same law provides that in the case of mortgages made by corporations in trust to secure payment of bonds or obligations issued or to be issued thereafter, if the total amount of principal indebtedness which under any contingency may be advanced or accrued or which may become secured by any such mortgage has not been advanced or accrued thereon or become secured thereby before such mortgage is recorded, it may contain at the end thereof a statement of the amount which at the time of the execution and delivery thereof has been advanced or accrued thereon, or which is then secured by such mortgage; thereupon the tax payable on the recording of the mortgage shall be computed on the basis of the amount so stated to have been so advanced or accrued thereon or which is stated to be secured thereby. This section further provides: “ Whenever a further amount is to be advanced under the original mortgage, or shall accrue thereon or become secured thereby, the corporation making such mortgage shall pay the tax on such amount at or before the time when such amount is to be advanced, accrues or becomes secured * * * and the certification of any bond or bonds by the trust mortgagee shall be deemed an advance under this article.”
On December 1, 1916, the Erie Railroad Company executed and delivered to the Bankers Trust Company as trustee, its refunding and improvement mortgage for $500,000,000. From time to time thereafter it issued under this mortgage series A bonds in the aggregate amount of $15,000,000 authenticated by the trustee [270]*270and maturing in 1937 and series B bonds maturing in 1938, in the aggregate amount of $25,000,000, both bearing interest at the rate of six per cent. The railroad also filed with the recording officer statements showing that there had been advanced and certified under and secured by said mortgage, bonds in the aggregate amount of $40,000,000 consisting of $15,000,000 series A and $25,000,000 series B, on all of which the mortgage tax was paid at or before the times when said bonds were certified and delivered. $2,700,000 of the series B bonds never left the treasury of the railroad although the mortgage recording tax had been paid thereon. The remainder of the series A and series B bonds were all issued in temporary form and without interest coupons attached. They were pledged at different times by the railroad as collateral security for the payment of its notes held by various creditors. From time to time many of the bonds thus pledged were returned to the railroad, some of them subdivided into equivalent amounts of temporary bonds of smaller denominations and the temporary bonds thus returned or the temporary subdivisions thereof were either repledged with the same creditors or pledged to other creditors.
In June, 1927, the railroad issued and sold to J. P. Morgan & Co. an additional $50,000,000 series of 1927 bonds under this mortgage, which were authenticated and delivered by the trustee to the railroad and thereafter delivered by the railroad to Morgan & Co. This issue matures in 1967 and bears interest at five per cent.
At that time series A and series B bonds to the amount of $31,821,000 were in the hands of the railroad’s creditors as security for the payment of its notes totaling $21,649,450 and $8,179,000 in the railroad’s treasury. Upon the sale of the series of 1927 bonds to Morgan & Co. the proceeds of the sale were paid by the purchaser to the railroad, which then used the money to pay its notes in full. The noteholders returned to the railroad the series A and series B bonds which they held as security, and all of the series A and series B bonds were retired by the railroad. The remainder of the proceeds from the sale of the series of 1927 was used by the railroad for other corporate purposes. The railroad paid the mortgage recording tax on $10,000,000 of the series of 1927 bonds and claimed exemption of the remaining $40,000,000 from the payment of such tax. It is conceded by the respondents that no tax is due on $2,700,000 of these bonds, which is the amount of series B bonds that never left the treasury of the railroad. Our question is as to the mortgage recording tax on the remaining $37,300,000 of series of 1927 bonds,
[271]*271The series of 1927 bonds were authenticated by the trustee before their sale and delivery and a statement was filed by the railroad with the recording officer under section 259 of the Tax Law on June 2, 1927. This statement was to the effect that there had been advanced and certified under and secured by the mortgage, bonds in the aggregate amount of $40,000,000 consisting of $15,000,000 series A and $25,000,000 series B, on all of which the mortgage tax was paid when the bonds were certified and delivered and that these bonds were now to be retired and canceled and replaced by $40,000,000 of bonds series of 1927 about to be issued under such mortgage, which new bonds would be delivered to the holders of series A and series B bonds in lieu and substitution therefor and upon which no tax would be payable. Also a supplemental agreement under the original mortgage, supported by appropriate corporate resolutions, was made by the railroad in connection with the issuance of the series of 1927 bonds. ■ It provided that $40,000,000 of the series of 1927 bonds were to be exchanged or substituted for an equivalent principal amount of the series A and series B bonds. Nevertheless when it came time to dispose of the series of 1927 bonds, an offer for the purchase thereof was made by J. P. Morgan & Co., and accepted by the railroad although Morgan & Co. did not then hold any of the series A or series B bonds either as owner or pledgee. The majority of the pledged series A and series B bonds were then held by the United States of America or government agencies as security for the railroad company’s notes.
The series of 1927 bonds clearly come within and are taxable under the provision of sections 253 and 259 of the Tax Law. There was a new principal debt or obligation created by their issuance and sale and this amount was secured by the underlying mortgage. It was a further amount advanced under the original mortgage and which became secured thereby. The series of 1927 bonds were not in fact exchanged or substituted for the bonds of the previous issues and the statements to that effect by the railroad were not correct. They were sold and delivered to a new creditor under a contract of purchase and sale with such creditor and not with the creditors of the railroad who then held the previous issues as collateral. Furthermore the statute says that the certification of any bond or bonds shall be deemed an advance under this article. Such certification has been held to impose upon the trustee a personal liability for the payment of the tax. (People v. Trust Co. of America, 205 N. Y. 74; 208 id. 463.) This statute created a presumption that the 1927 issue constituted the advance of an amount secured by the mortgage (Matter of Barbour, 185 App. [272]*272Div. 445; affd., without opinion, 226 N. Y. 639) and the transaction itself admits of no other conclusion.
The petitioners contend that because no default had occurred in the railroad’s obligations for performance of which the series A and series B bonds had been pledged, those bonds never represented any debt. They say that at all times title was in the railroad, subject to the hens of the pledgees, and as there was no default, there was no obligation within the meaning of the statute. With this contention we are constrained to disagree.
The series A and series B bonds had actually been authenticated by the trustee and the statements filed by the railroad under section 259 admitted the previous advances and that they were secured by the mortgage. These bonds had been issued and delivered by the railroad to its creditors and were outstanding railroad obligations at the time of the issue of 1927. The bonds were none the less enforcible because in the hands of a pledgee. (Duncomb v. N. Y. H. & N. R. R. Co., 84 N. Y. 190; Bankers Trust Co. v. Denver Tramway Co., 233 id. 604; Guaranty Trust Co. of N. Y. v. Minneapolis & St. L. R. Co., 52 F. [2d] 418.)
Between November, 1917, and September, 1926, series A and B bonds were pledged by the railroad to secure payment of debts totaling over $60,000,000. Had they been mere debentures, they would have added nothing to the obligations already given. It was the underlying mortgage which made payment more certain to the pledgees. Otherwise the pledging of the bonds was just an idle gesture. We must attach to a business transaction the usual significance of business men in the practical conduct of their affairs. They took these particular bonds in pledge because through them they obtained added protection in the form of the mortgage. They could look to the property covered by the mortgage for the payment of their debts if the personal obligation proved worthless. To say that this transaction did not have such result is to deny the common understanding of business men.
“ The bonds have a twofold character and purpose: When properly sold by the railway company they become evidence of a debt oWed by the railway company to the amount indicated by the face of the bonds; second, they are evidence that the holder of the bonds has a right to share in the proceeds of the security covered by the mortgage accompanying the bonds. The trust company, in taking these bonds as collateral, did not acquire any right in them whatever as evidence of a debt owed by the railway company. They evidenced no debt, for they had not been sold. But it did acquire an interest in the bonds as evidence of a right on the part of the holder to participate in the mortgage [273]*273security. The debt owed by the railway company to the trust company was evidenced by the note in the hands of the trust company, and by that alone. The property covered by the consolidated mortgage was made the security for that note by the pledging of the bonds, and the extent to which the trust company might participate in the proceeds of that mortgaged property was determined by the amount of the bonds so held as collateral, limited, however, by the amount of the note itself.” (Mississippi Valley Trust Co. v. Railway Steel Spring Co., 258 Fed. 346, 354.)
The tax is measured by the amount of principal debt which is, or under any contingency may be secured by the mortgage. (Tax Law, § 253.) This mortgage was in fact security for the debts represented by the notes. (Easton v. German-American Bank, 127 U. S. 532.) The creditors who held the bonds as collateral might participate in distribution of the mortgaged property up to the amount of bonds pledged, but not to exceed the amount of the debts. The mortgage was security up to the face amount of the bonds pledged and upon default the note-holders would have shared in the proceeds of the mortgaged premises up to the amount of their debts. (Duncomb v. N. Y. H. & N. R. R. Co., supra; Mississippi Valley Trust Co. v. Railway Steel Spring Co., supra.) The debts owing the railroad’s creditors Were actually secured by the mortgage within the purview of section 253 of the Tax Law.
The transaction of June, 1927, does not come within the rulings of Matter of New York State Gas & Elec. Corp. v. Gilchrist (209 App. Div. 771; affd., 240 N. Y. 552) and People ex rel. Boston & Maine Railroad v. Loughman (227 App. Div. 361; affd., 254 N. Y. 513). The new bonds did not go to the old bondholders. There was a new creditor, a new loan and a new contract relationship. The old noteholders and their debts were paid and those debts extinguished. The payment of one mortgage by a new agreement is taxable even though made with the same mortgagee. (People ex rel. U. S. Title G. Co. v. Tax Comm., 230 N. Y. 102.) As there stated, “ there is a new transaction with a new tax.” The significant fact here is that there was a new debt for which the mortgage became security.
The determination of the State Tax Commission should be modified by deducting from the amount of tax $6,566.19, with interest, being the tax on $2,700,000 of principal debt or obligation secured by the mortgage, and as so modified, and in all other respects the determination should be confirmed, with fifty dollars costs and disbursements to the petitioners,
[274]*274Hill, P. J., and Crapser, J., concur; Schenck and Foster, JJ., dissent, Schenck, J., in an opinion in which Foster, J., concurs.