Guaranty Trust Co of New York v. Henwood Chemical Bank Trust Co v. Same

• Citation: 59 S.Ct. 847,83 L.Ed. 1266,307 U.S. 247
• Decision Date: 22 May 1939
• Docket Number: Nos. 384,495,s. 384
• Parties: GUARANTY TRUST CO. OF NEW YORK v. HENWOOD et al. CHEMICAL BANK & TRUST CO. v. SAME. Re
• Court: United States Supreme Court

307 U.S. 247

59 S.Ct. 847

83 L.Ed. 1266

GUARANTY TRUST CO. OF NEW YORK

v HENWOOD et al.

CHEMICAL BANK & TRUST CO.

v. SAME.

Nos. 384, 495.

Reargued April 26, 27, 1939.

Decided May 22, 1939.

Messrs. John W. Davis and Ralph M. Carson, both of New York City, for Guaranty Trust Co. of New York. Mr. Alfred H. Phillips, of New York City, for Chemical Bank & Trust Co.

Messrs. A. H. Kiskaddon and Carleton S. Hadley, both of St. Louis, Mo., for respondent Henwood.

Mr. George L. Buland, of New York City, for respondent Southern Pacific Co.

[Argument of Counsel from page 248 intentionally omitted] Mr. Justice BLACK delivered the opinion of the Court.

In the bankruptcy reorganization of the St. Louis Southwestern Railway Company, a Missouri Corporation, petitioners filed claims for bondholders. They asserted a right under the bonds to be paid in Dutch guilders, and asked that their claims based upon guilder value—be allowed for $37,335,525.12. The trustee in bankruptcy contended, and the courts below held that the Joint Resolution of June 5, 1933,¹ made the bonds dischargeable by payment of current legal tender United States money,² and petitioners' claims were accordingly allowed for $21,638,000, the face amount of their bonds in dollars.

These bonds, secured by a trust mortgage, were issued and sold in the United States in 1912. Purchasers paid and the railroad received United States dollars, and until 1936 interest was regularly paid in dollars.

The asserted right to guilder payment rests upon a provision of the bonds concededly granting holders an option to elect. payment in dollars, guilders, pounds, marks, or francs. This multiple currency provision was authorized by the following terms of the mortgage securing the bonds:

'* * * the * * * Bonds may be payable, at the option of the holder, both as to principal and interest, at some one or more of the following places in addition to the City of New York, and in the moneys current at such respective places of payment, at the following rates of exchange or equivalents of $1,000, viz.: In London, England, 205.15.2 Sterling, or in Amsterdam, Holland, 2490 guilders, or in Berlin, Germany, 4200 marks, D.R.W., or in Paris, France, 5180 francs; * * *'

The bonds themselves provide:

'St. Louis Southwestern Railway Company, * * * for value received, hereby promises to pay to the bearer, or, if registered, to the registered holder, of this bond, on the first day of January, 1952, at its office or agency in the Borough of Manhattan, City and State of New York, One Thousand Dollars in gold coin of the United States of America, of or equal to the standard of weight and fineness as it existed January 1, 1912, or in London, England, 205 15s 2d, or in Amsterdam, Holland, 2490 guilders, or in Berlin, Germany, marks 4200, D.R.W., or in Paris, France, 5180 francs, and to pay interest thereon, at the rate of five per cent. per annum, from the first day of January, 1912, in said respective currencies, semi-annually * * *'

Since the parties agree that the terms of the bonds granted holders an option to elect payment in guilders, we must determine whether, despite this option, e Joint Resolution operated to make the bonds dischargeable in current United States legal tender—a dollar of legal tender to be repaid for every dollar borrowed.

Analysis of the terms of the Resolution³ discloses, first, the Congress declared certain types of contractual provisions against public policy in terms so broad as to include then existing contracts, as well as those thereafter to be made. In addition, future use of such proscribed provisions was expressly prohibited, whether actually contained in an obligation payable in money of the United States or separately 'made with respect thereto.' This proscription embraced 'every provision' purporting to give an obligee a right to require payment in (1) gold; (2) a particular kind of coin or currency of the United States; or (3) in an amount of United States money measured by gold or a particular kind of United States coin or currency.

Having thus unmistakably stamped illegality upon both outstanding and future contractual provisions designed to require payment by debtors in a frozen money value rather than in a dollar of legal tender current at date of payment, Congress—apparently to obviate any possible misunderstanding as to the breadth of its objective—added, with studied precision, a catchall second sentence sweeping in 'every obligation', existing or future, 'payable in money of the United States', irrespec- tive of 'whether or not any such provision is contained therein or made with respect thereto.' The obligations hit at by Congress were those 'payable in money of the United States.' All such obligations were declared dischargeable 'upon payment, dollar for dollar, in any coin or currency (of the United States) which at the time of payment is legal tender for public and private debts.' It results that if petitioners' claims rest upon 'obligation(s) * * * payable in money of the United States', by the terms of the Resolution they shall be discharged upon payment of current legal tender dollars equal to the number of dollars promised in gold or a particular kind of money. Decision must therefore turn upon the nature of the 'obligation(s) * * * incurred' by the railroad in its bond contracts of 1912.

These bonds provide that, 'For a description of the property and franchises mortgaged, the nature and extent of the security, the rights of the holders of said bonds under the same and the terms and conditions upon which such bonds are issued and secured, reference is made to the * * * Mortgage.' In determining the nature of the railroad's obligation, we, accordingly, look both to the mortgage and the bonds.

It appears that—

The railroad executed the mortgage in 1912 to the Guaranty Trust Company of New York as trustee, to secure forty-year mortgage bonds 'limited to an aggregate principal amount of One Hundred Million Dollars ($100,000,000.00) at any one time outstanding * * * to be payable on the first day of January, 1952, with interest at the rate of five per cent per annum payable semi-annually * * *'; the bonds are payable optionally in foreign currencies as indicated above; registration in New York is required of bonds subjected to registration; to be valid all bonds must be authenticated by the Guaranty Trust Company in New York; non-coupon bonds and coupon bonds are interchangeable upon request, but non-coupon bonds contain no option for payment in foreign currencies; the New York trustee is granted broad supervisory powers (for the benefit of the bondholders) over finances and operations of the railroad; the railroad is required to keep an office in New York where bonds and coupons can be presented for payment, but is not required to keep any foreign offices; in the event of default in payment of bonds or coupons, the New York trustee is authorized, through its agents or attorneys, to take charge of the mortgaged property, to sell under foreclosure proceedings in the United States, and to protect bondholders' interests by employment of attorneys and institution of judicial proceedings either in law or equity, 'for the equal benefit of all holders of * * * outstanding bonds and coupons'; should the Guaranty Trust Company resign as Trustee, the bondholders may designate another which, however, 'must always be a trust company having an office in the Borough of Manhattan, in the City of New York, N.Y.'

The mortgaged property is located in the United States; the trustee was required to be a New York trust company; enforcement of the trust security, collection of bonds and interest, employment of attorneys, institution of legal proceedings and distribution of assembled assets, were all responsibilities placed upon the trustee located in New York, and obviously contemplated that any necessary judicial proceedings would be had in this country under the governing law of the United States. Both the mortgage and bonds are domestic obligations, and the law of this country must determine their interpretation, their nature, and the obligations enforceable under them.⁴ The Joint Resolution thus must govern if the bonds are, within its terms, 'obligation(s) * * * payable in money of the United States.'

In their construction of the bonds, petitioners urge that each of the alternative promises to pay in a foreign currency is a separate and independent 'obligation' to pay. From this, they argue that the only 'obligation' for which enforcement is here sought is one 'payable' in guilders which must be treated as though it were an entirely separate and independent promise of the railroad. But the railroad undertook only a single obligation to repay the money it borrowed. Repayment of that money might be called for in any one, but only one, of the five different types of money. This, however, did not divide the railroad's undertaking to repay into five separate and independent obligations to repay the same loan. Payment under the contract in any one of the currencies selected by the bondholder would discharge the entire single obligation of the debtor. Payment in guilders, after payment in guilders was elected, would nonetheless discharge an obligation which prior to such election and payment was an obligation also payable in United States dollars. The language of the Joint Resolution was intended to refer to a monetary obligation its entirety. That which the Joint Resolution made dischargeable was the debt—the monetary obligation to pay. This debtor's obligation was a monetary obligation. The foreign currencies promised were not bartered for as commodities, but their function was that of money to be paid in countries in which they were legal tender and upon them interest was to be paid.⁵ Interest is not paid on commodities but on monetary obligations. And these promises in alternative currencies were not separate and independent contracts or...