Opinion
Argued June 14, 1898
Decided October 4, 1898
Simon Sterne and Nathaniel A. Elsberg for appellant. Wheeler H. Peckham and Rufus W. Peckham, Jr., for respondent.
The question submitted for decision is whether it was the duty of the Union Trust Company, under the facts stated, to receive the money tendered and apply it to the redemption of the one hundred and eighty-seven bonds outstanding. Other interesting questions have been argued before us by the learned counsel for the appellant, but they were not raised by the facts stated in the record before us, and were not submitted as a part of the controversy to the General Term. That learned court had jurisdiction to decide, and we have jurisdiction to review, only the questions that were actually submitted, and which arose out of the fact stated in the record of submission. The General Term could not decide, nor can we consider, what the duty of the Union Trust Company would have been had some other sum been tendered to it, or some other request made for the application of the sum in fact tendered. Only one tender was made, and that was upon the condition that the amount thereof should be applied to the payment of the outstanding bonds, and that thereupon the mortgage should be satisfied. No other theory of duty on the part of the trustee can be considered than whether it ought to accept this sum and apply it in this way, because the record presents no such question. It may be that if the sum tendered had been accompanied by some other condition, or that the trust company had been requested to take some other action, it would have complied and no controversy would have arisen.
The sinking fund clause of the mortgage did not permit the trust company to comply with the condition upon which the tender was made. Neither the mortgagor nor the plaintiff, which stands in its shoes, had performed the contract, so far as the sinking fund was concerned, and if it had, at the time the tender and request were made in February, 1895, about one-half only of the bonds would have been redeemed. This would have left about one thousand bonds still outstanding, and the holder of each would have been entitled to refuse payment until his bond became due, according to the terms of the mortgage, or by means of the lottery provided by the mortgage.
The claim of the plaintiff that, by its dealings with individual bondholders, 1,810 of the bonds have been so disposed of that they can no longer be considered in connection with the sinking fund provision, is unsound, for the result would be that the mortgagor and a part of the bondholders could, by agreement between themselves only, change the rights of the remaining bondholders who did not assent to the arrangement. When the bonds in question were issued and negotiated, each bond had an equity represented by the chance that it might not be drawn by lot for redemption until it became payable in 1903. As the bonds drew a high rate of interest, that equity was valuable, and each bondholder had the right to insist that his bond should not be redeemed except in strict accordance with the contract contained in the mortgage. That contract has not been performed by the mortgagor or the plaintiff, and to now permit all the outstanding bonds to be called in, by suddenly, after the lapse of more than twenty years, enforcing the sinking clause provision, on the basis suggested, would enable the plaintiff to take advantage of its own wrong. The one who violates a contract habitually, for year after year, should not be allowed, by dealings with some of the bondholders, to reduce the value of the equity of the remaining bondholders. Whatever the plaintiff has done outside of the contract, by way of paying or acquiring bonds, cannot be considered as done under the contract or in any way credited upon the sinking fund clause. While we consider that clause as still in force, it cannot be enforced upon any basis less favorable to the outstanding bondholders than if the contract had been performed instead of violated. The plaintiff cannot extinguish the outstanding bonds by computation, but only by contract, and the bonds paid were not redeemed under the contract. While, if there was a drawing to-day, and all the bonds except the three already in the sinking fund were put into the hat, it would give the present bondholders an advantage, still the plaintiff cannot complain, if by its own conduct it has rendered any other method impossible without injuring those bondholders who are without fault. The bondholders are the creditors and the plaintiff stands for the debtor, and the debtor cannot buy up half of his debts and affect the rights of those who hold the remainder. We see no basis of treating bonds for redemption, now, under the sinking clause, that will be just to the outstanding bondholders unless 1,997 bonds are put into the hat, for no dealing by the plaintiff with those bondholders, who have accepted payment, can change the provision of the sinking fund clause or affect the outstanding bondholders. They have the right to have their bonds redeemed only according to the contract, and, unless they are so redeemed, to hold them and draw interest upon them until the day of payment shall arrive. It is only by putting all of the numbers but three in the hat and making one drawing up to date, and subsequent drawings on the same basis, that the 187 bonds outstanding will have their equities preserved and suffer only the chance of redemption that the sinking fund clause provides. The bonds redeemed by private contract cannot be treated as redeemed under the mortgage contract, but must take their chances in the lottery with those still outstanding. In other words, as held in Barry v. M., K. T.Ry. Co. (34 Fed. Rep. 829), purchased bonds must, for many purposes, and in this case for the purpose of the sinking fund clause, be considered as still unpaid, so far as the rights of the outstanding bondholders are concerned.
As the only question lawfully presented to the court below was the right of the plaintiff to make the tender and demand as stated, we think that judgment was properly rendered against it, for, if the agreement had been kept by it, at least 479 bonds would be outstanding to-day, of which only a limited number, to be determined by lot, could be redeemed each year. The outstanding bondholders have a right to receive their debt only as provided by the contract. That right is as sacred as to receive it at all. The obligation of the debtor is to pay the principal when it becomes due, and he has no right to compel the creditor to accept payment until it becomes due. At the time the tender was made many payments and redemptions by lot should have been made, and treating them as made, all the bonds left would be outstanding. Each of the present bondholders, therefore, has the right to have all subsequent drawings made upon that basis instead of the basis contended for by the appellant, upon the ground that it had seen fit by private contract to pay and discharge a large number of the bonds, not under the sinking fund clause, but by arrangements made otherwise than in accordance with the mortgage. The plaintiff cannot proceed upon the theory that it is indebted to the sinking fund to an amount exceeding the aggregate of the outstanding bonds, and that, hence, it has the right to pay up the sinking fund and thereby discharge all of said bonds. We are not called upon to decide what the plaintiff might have required if it had asked for it, but simply to decide whether it was right in requiring what it did. That question we decide against it, and this leaves nothing further to be considered.
The judgment of the General Term should be affirmed, with costs.
All concur, except PARKER, Ch. J., and GRAY, J., not sitting.
Judgment affirmed.