Dwight v. Guanajuato Consolidated Mining & Milling Co.

tions, numbered 1 to 10, providing, among other things, in subdivisions 3 and 4, for the redemption of the bonds by the company in. whole or in part, at any time, at the company’s discretion, after January, 1904, and in case of such redemption reserving to the bondholder certain rights for the conversion of his debenture bond into-stock of the company. Subdivision 5 covered the case of the company thereafter executing a mortgage on the property of the company as-security for any future issue of bonds; and in that .case it was provided that:

“Tbe holders of the debenture bonds herein specified shall be given the1 option: ‘(a) To exchange their debenture bonds for an equal amount at par of" the said bonds or debentures hereafter issued, or convert their said debenture-bonds into the stock of the company on the basis of 110 for debenture bonds and par for stock; or (b) to declare the principal of their debenture bonds-forthwith due and prior to or simultaneously with such future issue of bonds; or debenture bonds to receive payment of their debenture bonds at the price-of 110 with accrued interest to the date of said payment, or convert said debenture bonds into the stock of the company on the basis of 110 for bonds and. par for stock.’ ”

Subdivision 6 provides that no such mortgage shall be executed' “without the consent of the holders of record of 70 per centum of the-stock of the company then outstanding.”

Subdivision 7 provides for the nonpayment of interest coupons, in-such case making the principal of the bond1 to become due and payable as therein provided.

Upon the bonds sued upon by the plaintiff in this action was the following guaranty by this defendant company:

“For value received the Guanajuato Consolidated Mining & Milling Company hereby guarantees the punctual payment of the principal (at par) and" interest upon the within bond at the time and in the manner therein specified without recourse, however, to any director, officer, agent or stockholder of said Guanajuato Consolidated Mining & Milling Company for any purpose- or upon any ground.”

This action was founded upon clause “b” of section 5 above mentioned. The plaintiff’s proof showed the issue of the bonds and the-authenticity of the defendant’s guaranty as indorsed thereon. The issuing of a mortgage on December 1, 1908, was admitted and1 affirmatively set up by the answer of the defendant.

The nonsuit at Trial Term proceeded upon the theory, urgently contended for by the respondent, "that defendant’s guaranty of payment applied only to payment of the bonds on their due date in 1923, and' was not applicable to an accelerated due date in consequence of the execution of the mortgage and the election of the bondholder to declare his bonds due and payable. We do not consider that this is the-fair and reasonable construction of the guaranty. By its terms defendant guaranteed payment of the bonds “at the time and in the manner therein specified..” Turning to the bonds, we find that they are-made payable, in any event, on January 1, 1923. To each bond is appended a series of conditions which are, by express terms, made a part of the bond, and among which are to be found those already quoted, by which the right is accorded to the bondholder, in case of the execution of a mortgage upon the property, “to declare the prin--

'cipal of their debenture bonds forthwith due * * * and to receive payment of their debenture bonds.” So soon therefore as the mortgage was executed, and the plaintiff elected to take payment for his bonds, the amount thereof became payable “at the time and in the manner therein specified,” and the guaranty became effective. Any other construction would be manifestly unreasonable. Although the debenture bonds were not secured by any specific lien upon the property of the obligor, their value depended upon the value of the property of the obligor over and above any specific liens which might be placed thereon. Consequently the execution of a mortgage upon the ■property, which would create a specific lien thereon, would to an extent impair the security and lessen the value of the debenture bonds. It was in recognition of this consequence, and as an inducement to investors to purchase the debenture bonds, that conditions were attached to them by which their holders became entitled upon the execution of any mortgage upon the property to exchange their bonds for bonds to be secured by the mortgage, to exchange such debenture bonds for stock, or to demand and receive payment of the bonds held by them. The construction given to the guaranty at Trial Term would compel a bondholder, who elected to call his bonds due, to wait for a dozen years or more to enforce payment of what is due him, holding meanwhile an impaired security. It is suggested that plaintiff did not sufficiently exercise his option to declare his bonds due and payable. This objection is untenable. The election was evidenced! by a letter signed, not by plaintiff, but by his attorney. This was perhaps informal, but it was accepted without demur by the obligor, who in plain terms intimated its purpose to pay off plaintiff’s bonds out of the proceeds of the mortgage and thus obviated the necessity for any further or more formal notice of election. Furthermore it is clearly shown that the attorney did in fact represent plaintiff and acted in his behalf.

The judgment appealed from must be reversed, and a new trial granted, with costs to the appellant to abide the event. All concur.