(dissenting). In December, 1919, seven smaller railroads were consolidated with the Boston and Maine railroad. About the same time the railroad made a trust mortgage and paid a recording tax on the amount of indebtedness then existing and secured directly or contingently, to wit, $95,601,000. It was an “ open mortgage ” and among other things it provided for the issuance of “ additional bonds for the purpose of (a) paying, refunding or retiring bonds secured hereby where now outstanding or issued or to be issued hereunder.”
The bonds were issued in series designated by the letters of the alphabet. Series A fell due on July 1, 1920. Bonds of some of the smaller railroads fell due at about the same time. New bonds *367called series D were issued to refund series A. Series F and I were issued to refund the bonds of the smaller railroads. The railroad resisted the payment of a further tax. The question was determined adversely to its claim in People v. Boston & Maine Railroad (202 App. Div. 54; affd., 234 N. Y. 629).
Now other bonds have fallen due, and others will become due presently. New and further bonds aggregating $40,490,000 have been issued to refund those due and becoming due in the near future. The latter are to be delivered up and canceled. New ones are to be given to such bondholders as will accept them. Again the railroad declines to pay the recording tax claiming there has been no further amount advanced on the mortgage. The railroad relied in its position on the authority of Matter of New York State Gas & Electric Corporation v. Gilchrist (209 App. Div. 771; affd. on opinion below, 240 N. Y. 552). That case was decided in this court subsequent to the decision of People v. Boston & Maine Railroad (supra).
In view of the somewhat conflicting results in these two decisions, upon which the parties respectively rely, it is an arguable question whether a recording tax is now payable. As has been said, the decision in the first case cited involved the same trust mortgage that is now under consideration. The circumstances under which the bonds were there issued were very similar to those presented under these issues. I incline to the view that the former decision is controlling here.
If we disregard a somewhat inaccurate statement of fact inadvertently made in the opinion in the Boston & Maine case, and examine the record to learn what was actually decided, we find that there were three new issues of bonds then issued, to wit, series D, I and F. Series D bonds were issued to take up and replace an equal amount of bonds chiefly held by the Director-General of Railroads, a few being in the hands of the trustees. The new bonds were delivered to the Director-General. and the old bonds were surrendered. There was no sale except as the parties treated the transaction as a sale. There was an agreement in advance that such an exchange should be made. The old bonds were retired and canceled after the exchange. Yet it was held that under the provisions of the Tax Law, sections 253 and 259, a tax was payable.
At the same time, series I and F were issued for “ paying, refunding and retiring " underlying bonds of other railroads which had become consolidated with the Boston and Maine. How the underlying bonds falling due were refunded does not appear. It may have been by payment in cash or by substitution of the *368new issues. At any rate it was held that a tax was payable on the amount of the new issue. There was a new debt, a new debtor, and the substitution of one principal indebtedness for another.
On that appeal the argument of the railroad, as summarized in the brief of counsel, was: “ The tax having been paid upon the total amount secured by the mortgage at the time when it was recorded, a further tax accrues only if and when the aggregate amount * * * is increased.” That in effect is the argument here. Certain bond issues have matured and others are presently maturing. About two-fifths of these bonds are underlying bonds of small railroads consolidated with the Boston and Maine. These bonds were issued by another obligor and subsequently were secured only collaterally or by guaranty under the terms of the trust mortgage. Now, there are new issues of convertible bonds in series, to exchange for those due or about to become due. The structure of the obligation is changed by offering a bond convertible into preferred stock. There is a new primary debtor as to two-fifths of the bonds. The old debtor is discharged and its obligation canceled. The collateral promise under the trust mortgage is gone, and is succeeded by one primary in its character. This is not refunding by direct replacement. It is paying and retiring. As to its own bonds, in its mortgage the railroad covenanted that it would “ punctually pay or cause to be paid the principal and interest hereafter becoming due on every bond secured by this Indenture at the dates * * * mentioned therein.” The presumption is that the debtor is keeping its promise by mating payment. The trust mortgage contains no authority for such substitution without changing the character of the debt. The only substitution is that of “ one ‘ principal indebtedness ’ in place of another. * * * The old debt has been destroyed. A new one has been created.” (People v. Boston & Maine Railroad, supra, 55, 56.)
Matter of New York State Gas & Electric Corporation v. Gilchrist (supra) was an unusual case. A trust mortgage had been made and recorded and the tax paid. Bonds were issued but were delivered only to the parent company which owned the entire capital stock of the mortgagor. There had been no genuine sale, and no bonds had reached the hands of the public. It was desired to substitute another issue of bonds more attractive for sale in the place of the prior issues not yet disposed of by general sale. The trust mortgage permitted an issue for “ refunding or replacing.” The parent company and the mortgagor entered into a written. agreement in advance to exchange the issues. The Public Service Commission gave permission to make the exchange. It was held that no additional tax could be imposed, for “no ‘further amount’ was *369advanced under this mortgage.” So far as it appears no amount of money had ever been advanced on the bonds. They were in effect unissued and undelivered to any bona fide purchaser.
If we apply the doctrine in the last cited case to the ordinary refunding operation, there is no practical reason why anything but the initial recording tax should ever be paid. All that is necessary to refund a debt falling due is to gather the bonds into the hands of a few banks or brokers and “ exchange ” a new issue for the old one. This would meet the legal requirements of a “ substitution ” or “ exchange ” and would not constitute a new debt, and the payment of a tax would be evaded. There would never be a further amount advanced under the original mortgage. It is a modern example of the ancient barter of “New lamps for old ones.”
Because I believe the doctrine unsound, resulting in a violation of the spirit and purposes of the statute, and because I believe the transaction in legal effect was a sale, with a further amount advanced, I disagree with the conclusions of a majority of the court. I dissent and vote to confirm the determination.
Whitmyer, J., concurs.
Determination modified by reducing the amount of the tax to that imposed upon bonds CC, together with the penalty thereon as fixed by the Commission, and as so modified confirmed, with fifty dollars costs and disbursements to relator.