D'Esterre v. City of Brooklyn

• Decision Date: 26 November 1898
• Citation: 90 F. 586
• Parties: D'ESTERRE v. CITY OF BROOKLYN et al.
• Court: U.S. District Court — Eastern District of New York

90 F. 586

D'ESTERRE v. CITY OF BROOKLYN et al.

United States Circuit Court, E.D. New York.

November 26, 1898

Henry B. B. Stapler and Frank Hiscock, for complainant.

John Whalen, Corp. Counsel, and Wm. J. Carr, for defendants.

THOMAS District Judge.

In 1894 the state of New York annexed to the city of Brooklyn the territory of the town of Gravesend, and provided for the continued obligation of such town for its existing debts, and the payment thereof, by taxation at the instance of the city of Brooklyn, which, by the Laws of 1897, became consolidated with the city of New York. During its independent existence and in January, 1894, the town of Gravesend, through its authorized and qualified officers, issued bonds to the amount of $148,000 for the purpose of raising funds to pay certain local improvement bonds maturing during that year. On January 18, 1894, these bonds were delivered by the supervisor of the town to the firm of Coffin & Stanton, brokers, doing business in the city of New York, and on the succeeding 2d day of February Coffin & Stanton pledged $24,000 of such bonds to the complainant to secure an antecedent debt of $23,040, in consideration were of the complainant surrendered to Coffin &amp Stanton certain other bonds, of the value of $24,000. The complainant, at the time of such substitution of securities had no notice or knowledge of any defect in the bonds or the proceedings for the issuing thereof, save such notice or knowledge, actual or constructive, as he received from an inspection of the bonds themselves, and from the enabling statute, which was passed in 1892, and amended in 1893. This suit is to establish the validity of such bonds, to compel the registration thereof, and to recover the interest accrued due thereon. It is urged by the defendants that the complainant should be denied such relief, upon the ground that he is not such a bona fide holder thereof as to preclude such defenses as were open to the town against Coffin &amp Stanton. That firm did not have complete title, and could not have recovered upon the bonds, for the sufficient reason that, in violation of the statute, they bought them on credit, and never paid any part of the purchase price,-- at least beyond the sum of $10,000. There is no other defect in the proceedings for issuing the bonds, or in their form, that invalidated them in the hands of Coffin & Stanton. The inquiry, then, is, can the defense of nonpayment by Coffin & Stanton be maintain against the complainant? The answer involves two inquiries, viz.: (1) Did the statute authorize the issue of the bonds in a negotiable form? (2) If so was the plaintiff a bona fide purchaser? The act prescribes a form of coupon bond containing this provision: 'This bond shall be registered as to the principal sum herein provided to be paid. ' Laws 1893, c. 171, Sec. 8. Following this statutory form of a coupon bond was this: 'In the case of registered bonds the language in the bond at the heading shall be registered instead of coupon, and the provision as to the surrendering of interest coupons shall be omitted. The bond shall also be made payable to the person to whom it is issued instead of to bearer. A certificate showing the registration of the bond shall be endorsed thereon. The bonds as they may be sold by the payees may on the dates thereof be registered in the name of the new purchasers, the new name in each case to be shown in the certificate of the registry.'

The words 'registered bonds,' as above used, refer to certain classes of bonds for which provision is made earlier in the act, where the language is, 'The (the bonds) may be either coupon or registered bonds, or coupon bonds registered as to the principal only. ' From these provisions it was contemplated, seemingly, that the bonds might be (1) coupon bonds, or coupon bonds registered as to principal only; (2) registered bonds, without coupons. The bonds in question were without coupons, and hence fell under the class designated as 'registered bonds.' On its face each bond is described as 'Local Improvement Loan Registered Bond,' and a certificate of registration is indorsed thereon. Thus it appears that by certain words of the statute a coupon bond, registered or otherwise, shall be payable to bearer, while a registered bond shall be 'made payable to the person to whom it is issued instead of to bearer. ' Each of the bonds issued provides: 'Know all men * * * that the town of Gravesend * * * acknowledges that it owes * * * the sum of one thousand dollars, * * * which sum the said town hereby engages and promises to pay, * * * with interest thereon,' etc. Hence the bonds were registered bonds, with the payee's name omitted. Such bonds, in form, are equivalent to bonds payable to the holder as bearer, and he may fill up the blank with his own name, or make them payable to himself or bearer, or to order. White v. Railroad Co., 21 How. 575. See, also, Supervisors v. Galbraith, 99 U.S. 214. If there were no other defect in issuing the bonds save the omission of the payee's name, a court of equity could not invalidate bonds. But this is not the point under inquiry, but, rather, did the statute require that registered bonds should be payable to the person to whom they were issued, with the effect of depriving them of such negotiable quality as would protect a bona fide purchaser against prior equities? If Coffin & Stanton had paid for the bonds, there would have been no equity in favor of the town on account of the omission of the payee's name; but, as Coffin & Stanton did not so pay, then the bonds were not enforceable by them, nor by their transferee, unless they were negotiable. The Revised Statutes of New York (part 2, c. 4, tit. 2) provide:

'Section 1. All notes in writing, made and signed by any person, whereby he shall promise to pay to any other person or his order, or to the order of any other person, or unto the bearer, any sum of money therein mentioned, shall be due and payable as therein expressed; and shall have the same effect, and be negotiable in like manner as inland bills of exchange, according to the custom of merchants.'

The law merchant regards instruments as negotiable, so as to be free from prior equities in the hands of bona fide purchasers when the obligation is payable to bearer, or to a designated person or his order, and exposes to the effect of such equities instruments payable to an individual. Evertson v. Bank, 66 N.Y. 14, 19; McClelland v. Railroad Co., 110 N.Y. 469, 475, 18 N.E. 237; Carnwright v. Gray, 127 N.Y. 92, 27 N.E. 835; School Dist. v. Hall, 113 U.S. 135, 139, 5 Sup.Ct. 371; Manufacturing Co. v. Bradley, 105 U.S. 175, 180; Norton, Bills, & N. 13-16. See, also, Gerard v. La Coste, 1 Dall. 194; Barriere v. Nairac, 2 Dall. 249. It is true that the bonds in the case at bar are payable in blank, and hence payable to bearer; but the question is not whether the town officers have issued a negotiable instrument, but rather whether the statute directed that the instrument should be issued in a nonnegotiable form. The fact that the officers certified that the bonds were issued pursuant to the act can only estop the town touching matters of fact, and not as to the power of the officers to make the contract. Katzenberger v. Aberdeen, 121 U.S. 172, 176, 7 Sup.Ct. 947. The purchaser is presumed to have cognizance of the statute, and to know the powers conferred thereby on the officers of the town, and it is his duty to compare the instruments which he proposes to purchase with the statute. It, upon such comparison, he finds that the power exists, he is not required, unless there be something brought to his attention by the appearance of the instruments or extrinsically, to search with a view of ascertaining whether the town officers have performed each preliminary duty devolved upon them. Farmers' & Mechanics' Bank v. Butchers' & Drovers' Bank, 16 N.Y. 142; President, etc., v. Cornen, 37 N.Y, 320. Their recital of the performance of such duty is usually, as it is in this case, sufficient. The holding in Knox Co. v. Aspinwall, 21 How. 539, has been followed through a long line of cases, and in its essential holding is of undiminished authority. Cairo v. Zane, 149 U.S. 122, 13 Sup.Ct. 803. But if the enabling statute commands certain bonds to be made in a nonnegotiable form, then the purchaser is deemed to have knowledge of such provision, and to subject his rights to the effect of such statute. Commissioners v. Bolles, 94 U.S. 104; Marcy v. Oswego Tp., 92 U.S. 637; Commissioners v. Clark, 94 U.S. 278; Barnett v. Denison, 145 U.S. 135, 12 Sup.Ct. 819. If, then, in the case at bar, the statute, by directing that 'the bond shall also be made payable to the person to whom it is issued, instead of to bearer,' intended to direct the issue of the class of bond described as 'registered bonds' only in a nonnegotiable form, the complaint must be presumed to have had knowledge thereof, and to have purchased the bonds in question knowing that they were subject to any defenses existing against Coffin & Stanton. The words above quoted, standing alone, and uninfluenced by any other provision of the statute, seem to point to such construction, by a more comprehensive consideration of the statute authorizes the conclusion that such is not its spirit and intention. It will be noticed that the statute prescribes that 'registered bonds' shall not be made payable to bearer, but does not expressly prohibit a provision for payment to the order of the person to whom they are issued. Hence, if they may be made payable to the order of such person, or if it may be gathered that the statute intended that the bonds should be negotiable, the court may ascribe to them a negotiable quality. Norton, Bills & N. 13-16. It is permissible to...