Enoch v. Brandon

• Decision Date: 20 November 1928
• Citation: 164 N.E. 45,249 N.Y. 263
• Parties: ENOCH v. BRANDON et al.
• Court: New York Court of Appeals Court of Appeals

249 N.Y. 263

164 N.E. 45

ENOCH

v.BRANDON et al.

Court of Appeals of New York.

Nov. 20, 1928.

Action by Alexander B. Enoch against John Robert Brandon and others. From a judgment of the Appellate Division (224 App. Div. 692, 228 N. Y. S. 789), reversing as a matter of law a judgment of the Trial Term (128 Misc. Rep. 695, 220 N. Y. S. 294), which dismissed the complaint on the merits, and ordering judgment for plaintiff, defendants appeal.

Reversed, and judgment of the Trial Term affirmed.

Pound, J., dissenting.Appeal from Supreme Court, Appellate Division, Fourth department.

Charles F. Blair, of Buffalo, for appellants.

Samuel Zinman, Harold Schwarzberg and Nathan B. Bernstein, all of New York City, for Saul Solomon et al. amici curiae.

Alfred H. Martin, of Buffalo, for respondent.

Augustus L. Richards and Alanson W. Willcox, both of New York City, for Ulster & D. R. Co. amicus curiae.

ANDREWS, J.

The question before us is whether certain bonds are negotiable instruments. If so, the purchaser in due course from a thief may retain them.

The Manitoba Power Company issued a series of bonds. It promised to pay the bearer of each on November 1, 1941, a certain sum at a certain place, with interest. They are said to be ‘all equally secured by and entitled to the benefits and subject to the provisions' of a trust mortgage. They may be redeemed at 105 per cent. and interest at certain dates. The obligor must create a sinking fund to provide for their purchase or redemption and the principal may become due in advance of maturity in case of default under the mortgage, all as provided in the mortgage, ‘to which reference is hereby made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds with respect thereto, the manner in which notice may be given to such holders, and the terms and conditions upon which said bonds are issued and secured.’ The bonds may be registered in the usual way, and except where registered, ‘they are to be treated as negotiable, and all persons are invited by the company to act accordingly.’

At times this last provision might aid in the construction of doubtful clauses contained in the instrument before the court. It at least shows that the parties intended to omit anything that might impair negotiability. But no such statement will make negotiable a bond not in the form provided by our statute. Whether the result was or was not fortunate, it is too late to argue that the Legislature did not refer to bonds in its allinclusive definitions of negotiable paper. True, to become negotiable an instrument need not follow any precise language. Negotiable Instruments Law (Consol. Laws, c. 38) § 29. But it ‘must conform’ to the definition specified in section 20. In the face of a command so explicit, we must adhere to the design of the Legislature. American Nat. Bank of San Francisco v. A. G. Sommerville, Inc., 191 Cal. 364, 216 P. 376. At times contract rights may be enforced, or some theory of estoppel adopted, but no intention, no agreement may make negotiable an instrument which the statute declares to be nonnegotiable.

We turn, therefore, to the more serious question. The statute deals with the form of the instrument-with what a mere inspection of its face should disclose. It must contain an unconditional promise to pay a fixed sum on demand, or at a fixed or determinable future time, to order or to bearer. Only if it fulfills these requirements is it negotiable. If it does, no collateral agreement affects its character.

If in the bond or note anything appears requiring reference to another document to determine whether in fact the unconditional promise to pay a fixed sum at a future date is modified or subject to some contingency, then the promise is no longer unconditional. What that document may provide is immaterial. Reference to the paper itself said to be negotiable determines its character. Old Colony Trust Co. v. Stumpel, 247 N. Y. 538, 161 N. E. 173.

Provisions other than those required by section 20 may be contained in a bond or note without impairing its negotiability. There may be included, among other things, a statement of the transaction giving rise to the instrument (section 22) or a statement as to collateral security (section 24). And it may refer to a trust mortgage, or to an agreement as to the collateral which fixes the remedies of the parties with respect thereto. Chelsea Bank v. Warner, 202 App. Div. 499, 195 N. Y. S. 419.

The rule itself is not a difficult one. The trouble, as often happens, lies in its application to particular facts. There is no infallible test as to whether there is a modification of the promise. Because of differences in the words used, or in the arrangement of paragraphs, sentences, or clauses, each instrument must be interpreted by itself. Only then may we solve the question as to its character.

Three cases in this state will serve as an illustration. In McClelland v. Morfolk S. R. Co., 110 N. Y. 469, 18 N. E. 237, 1 L. R. A. 299, 6 Am. St. Rep. 397, the bond itself showed that the promise to pay was a conditional one. It was to become payable upon the terms and with the effect mentioned in the trust mortgage. In Hibbs v. Brown, 190 N. Y. 167, 82 N. E. 1108, the precise form of the bond involved does not appear in the printed case and exceptions. It did, however, contain a clause referring ‘to the deed of trust for a statement of the rights of the bondholders and of the securities and property securing the payment of the bonds,’ and we said that this clause had only to do with procedure under the trust indenture. In Old Colony Trust Co. v. Stumpel, 247 N. Y. 538, 161 N. E. 173, the note stated that it was ‘subject to the terms' of a conditional sales agreement. Here by no possibility did the clause relate to security. Necessarily it had to do with the terms of payment.

Do, then, the references in these particular bonds to the trust mortgage modify the promise to pay; do they subject it to some possible condition or contingency described elsewhere; or do th...