Guaranty Trust Co. v. Autosales Gum & Chocolate Co.

The defendant, a domestic corporation, having power under its charter to purchase, acquire, hold and dispose of stock, bonds and other evidences of indebtedness of any corporation, domestic or foreign, and to issue in exchange therefor its own stocks, bonds and other obligations in payment for property purchased or acquired by it or for any other objects in and about its business, acquired the business and assets of certain corporations theretofore engaged in the business of the manufacture of candy, chewing gum and other similar merchandise, and of owning and operating coin-controlled machines for the vending of merchandise, and also the majority of the shares of capital stock of other corporations engaged in similar businesses, and paid for said assets, and businesses and capital stock by the issue and delivery to the sellers thereof of stock of the defendant to an aggregate par value of $6,000,000, being its total authorized capital stock, and six per cent bonds of the aggregate par value of $3,600,000.

Simultaneously with the acts above . recited defendant executed and delivered to plaintiff as trustee a trust indenture dated May 10, 1911, to secure the issue of the $3,600,000 of bonds issued as above recited.

By said trust indenture the defendant made conveyance or assignment to the plaintiff as trustee, in the following terms:

“Now, therefore, this indenture witnesseth: That the said Autosales Gum and Chocolate Company, in consideration of the premises and of the sum of one dollar to it in hand paid by the Trustee, the receipt whereof by the Company is hereby acknowledged, and to secure the payment of the principal and interest of said bonds, has granted, bargained, sold, assigned, *417transferred and set over, and by these presents does grant, bargain, sell, assign, transfer and set over unto the Guaranty Trust Company of New York as Trustee, its successor or successors and assigns, all and singular all the trade marks and trade names now owned or hereafter acquired by the Company, and does hereby pledge, hypothecate and deliver to said Trustee the shares of stock hereinafter described in the schedule marked Schedule A/ hereto annexed as a part hereof, and also all such additional shares of stock as the Company may from time to time acquire, together with all the right, title and interest that the Company now has or may have in or to said shares of stock, or arising therefrom or connected therewith.

“ To have and to hold the said above-described shares of stock, trade marks and trade names to the Trustee, its successor or successors forever, in trust, nevertheless, for the equal pro rata benefit, security and protection of the several persons and corporations who shall from time to time own the bonds secured hereby, or any of them, and for the enforcement of the payment thereof and of the interest thereon when payable, in accordance with the true intent and meaning of the stipulations, covenants, terms and conditions of these presents and of said bonds.”

It was provided by said trust agreement that so long as there should be no default in the payment of the principal or interest of the bonds secured thereby, all interest, dividends and increase to which the shares of stock thereby pledged should from time to time become entitled should be paid over to defendant, which covenanted “that it will from time to time do or cause to be done all such acts, and will execute or cause to be executed all such instruments as shall be necessary or proper to carry into effect the purposes and intent of these presents, and will make such further transfers and assurances to the Trustee as may from time to time be necessary or proper to vest in the Trustee all of the shares of stock, trade marks and trade names, granted, assigned, pledged and mortgaged hereby or hereunder.”

Attached to the trust indenture was the Schedule “A” *418referred to therein which contained a list of eleven issues of stock of various corporations, and the number of shares of each of said issues assigned to plaintiff. Of some of these issues it is recited that the shares assigned constitute the entire issued and outstanding stock of the company issuing it. As to the majority of issues enumerated there is no such statement, and it is evident that less than the entire issue was assigned and transferred, and it is stated as an agreed fact that at the time of the execution and delivery of the trust indenture negotiations were in progress between the defendant and other holders of stock of the companies mentioned and set forth in said Schedule “ A,” looking to the acquisition by defendant of said shares of stock or a part thereof.

The present controversy arises over 750 shares of the preferred stock of the Tenney Candy Corporation acquired by defendant on or about February 1, 1914, in consideration of the assignment and transfer by defendant to said Tenney Candy Corporation of certain raw material, finished stock, tools, machinery and other personal property, no part of which had been assigned to or was held by plaintiff under the aforesaid trust indenture.

The plaintiff demands judgment that defendant be required to indorse and deliver to it as trustee under the aforesaid trust indenture the said 750 shares of the preferred stock of the Tenney Candy Corporation.

The defendant resists this demand and asks for judgment denying plaintiff’s claim.

The question turns upon the meaning of the provision in the trust indenture that the defendant does thereby ‘ ‘ pledge, hypothecate and deliver to said Trustee the shares of stock hereinafter described in the schedule marked ‘ Schedule A,’ hereto annexed as a part hereof, and also all such additional shares of stock as the Company may from time to time acquire,” etc.

The plaintiff’s contention is that under this provision it is the duty of defendant to assign and transfer to. said plaintiff, as trustee, all shares of stock of every description which it' the said defendant, may at any time acquire during the lifetime of the trust indenture.

*419The defendant on the other hand contends that the true meaning of the phrase referred to is that it will assign and transfer to plaintiff as trustee such additional shares as it may acquire of the stock issues enumerated in the schedule annexed to the indenture, which would not include the stock of the Tenney Candy Corporation.

While the language of the trust indenture which has given rise to this controversy is not so clear and precise as it might easily have been made, we are disposed to agree with the construction thereof contended for by the defendant. What was primarily assigned was the stock specified in the schedule, but it is agreed that at the time this schedule was prepared defendant was negotiating for more or “ additional ” shares of the several issues therein specified. If it was these shares which were to be brought under the operation of the trust indenture there was a certain appositeness in the use of the word “ additional,” while if it was intended that any stock of any corporation not named in the schedule should be pledged under the trust indenture other forms of expression, far more appropriate, might well have been used.

This construction gains some support from a provision contained in the 3d paragraph of the trust indenture to the following effect: “All stock dividends, if any there be, payable upon said shares, shall be transferred and delivered to the Trustee and be by it held for the benefit of the bonds secured hereby, with the same effect and subject to all the conditions and provisions hereof, as if originally pledged hereunder; so that during the entire period of this trust the Trustee shall hold, as provided in this Indenture, the entire amount of the capital stock of said companies owned by the Company, whether the same be increased or not.”

If the plaintiff’s construction were to be adopted the clause last quoted would be evident surplusage. The same remark applies to the following provision as to the disposition of the proceeds of any part of the pledged stock which may be sold as authorized by the terms of the trust indenture: “All proceeds of the sale or disposition of the shares of stock, trade marks or trade names, sold or disposed of, pursuant to this article, shall be applied by the Company to the purchase of the entire *420capital stock of any other corporation engaged in a business similar to that of the Company, or of a majority of such stock, provided the shares of stock so purchased shall be pledged and hypothecated hereunder.”

Upon a consideration of the indenture itself, as well as of the surrounding circumstances as set forth in the agreed statement of facts, we are of opinion that the claim of the defendants is the better founded, and judgment is ordered accordingly, without costs.

Ingraham, P. J., Laughlin and Dowling, JJ., concurred.

Judgment ordered for defendant, without costs. Order to be settled on notice.