Hibbs v. Brown

• Citation: 82 N.E. 1108,190 N.Y. 167
• Parties: HIBBS v. BROWN et al.
• Decision Date: 10 December 1907
• Court: New York Court of Appeals

190 N.Y. 167

82 N.E. 1108

HIBBS

v.BROWN et al.

Court of Appeals of New York.

Dec. 10, 1907.

Appeal from Supreme Court, Appellate Division, First Department.

Action by William B. Hibbs against Alexander Brown and others. From an order of the Appellate Division (112 App. Div. 214,98 N. Y. Supp. 353), reversing a judgment and order of the Appellate Term, affirming a judgment of the Municipal Court for plaintiff and ordering a new trial, he appeals. Affirmed, and judgment against plaintiff rendered.

This is an action to replevy some coupons originally attached to a bond issued by the Adams Express Company, and appellant's right to succeed turns on the question whether said bond and coupons were negotiable and acquired by respondents in due course for value.

The controlling facts may be summarized as follows: In January, 1902, the appellant owned a certain bond of the Adams Express Company, to which were attached interest coupons for $20 each, them unmatured. The bond was stolen, and on April 23, 1902, with the coupons still attached, was presented by an unknown individual at the office of respondents, who were conducting a brokerage business at Baltimore, Md., with a request that they buy it. This being declined, such person them requested that they sell it for him, and they thereupon wired Brown Bros. in New York to sell it, which was done on the floor of the Stock Exchange to brokers acting for an undisclosed principal, at the market price. Brown Bros. then notified the respondents that the sale had been made, and the latter accepted the bond and coupons, and paid the vendor thereof in cash the entire proceeds of the sale which they were to receive from Brown Bros. The respondents then forwarded the bond and coupons to Brown Bros. in New York, and they were delivered through the brokers who purchased the same to Erico Bros., the clients for whom they were purchased, and who it is conceded were innocent purchasers for full value before maturity. The appellant did not discover the loss of the bond and coupons until July, 1902, and then he notified every bank and trust company in Washington, and also the express company and the Mercantile Trust Company of New York, the trustee at whose office the coupons were payable, to stop payment of the latter, and to identify any person presenting any of them for payment. Erico Bros. presented the coupons for September, 1902, and March, 1903, for payment, and the same were paid notwithstanding the previous notice. In March, 1904, Erico Bros. also presented for payment to the trust company the conpons for September, 1903, and March, 1904, and payment was refused. They then through their brokers through whom they originally made the purchase demanded of the brokers who had sold them for Brown Bros. that they take back the bond and unpaid coupons, and refund the purchase price. Brown Bros. made a similar claim on the respondents, who, by purchasing and delivering another bond of the same issue, settled the claim and received back the bond and unpaid coupons. When the appellant ascertained these facts, he demanded the bond and coupons on the ground that they had been stolen from him; and, on defendants' refusal to deliver, he brought this action to recover three of the coupons which had been detached from the bond.

The Adams Express Company, which, as before stated, issued the bond, is an unincorporated voluntary association or joint-stock association organized under the laws of this state for the purpose of carrying on an express business, and having a president and other officers, and issuing certificates of stock which represent and whereby are transferred the rights of the respective shareholders. The bond was issued by the express company in and under its association name, and was one of an issue of $12,000,000, secured by a certain trust indenture conveying and pledging for its payment a large amount of securities and property. It bore interest coupons of the ordinary form payable to bearer, and, except for two clauses to be specifically referred to, may be assumed to have been in the usual form of a corporation negotiable bond payable to bearer or the registered holder. Of the clauses to be particularly noted, one which is especially important provides that ‘no person or future shareholder, officer, manager or trustee of the express company shall be personally liable as partner or otherwise in respect to this bond or the coupons pertaining thereto, but the same shall be payable solely out of the assets assigned and transferred to the said trust company or out of other assets of the express company.’ The other clause refers 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. Amongst the provisions of said trust indenture thus referred to and made controlling upon the bondholders are several relating to enforcement of the trust and collection of the bonds which are claimed to confer upon a certain proportion of the bondholders the right to waive default in and postpone payment of interest coupons.Herbert R. Limburg, for appellant.

Scott McLanahan, for respondents.

HISCOCK, J. (after stating the facts as above).

The appellant, as the true owner of the stolen coupons of which recovery is sought, in seeking to establish his rights of ownership against the respondents because of the character either of their possession or of the bond which they possess, bases his right to do this upon three propositions, any one of which being decided in his favor entitles him to succeed. These propositions are, first, that the respondents did not become the holders of his bond and coupons for value without notice of any defects; second, that whatever may be the character of the bond as to negotiability the coupons of which recovery is sought are independent instruments in the hands of respondents and nonnegotiable, and therefore subject to the assertion of appellant's rights, because of the clauses in the trust deed which, by enabling a certain proportion of the bondholders to waive defaults and postpone the time of payment of coupons, prevent the latter from complying with the requirement in negotiable instruments for an unconditional promise to pay on demand or at a fixed and definite time; and, third, that on account of the exemption of the individual members of the Adams Express Company from personal liability, the bond is not issued upon the general credit of the association, but is payable out of a particular fund, to wit, its joint assets, and hence is nonnegotiable and impresses this character upon the coupons. These propositions may be passed upon in the order stated. And, since the members of this court are unanimous in their opinion that we should affirm the decision appealed from upon the first two propositions, I shall not discuss them; but shall limit myself to stating our conclusions thereon.

As regards the first one, we feel entirely clear that respondents did acquire possession of the bond and coupons in suit for value, and under such circumstances as did not give them notice of or put them upon their inquiry against the outstanding rights of appellant, and that they are subject to no weakness of position in this respect.

As regards the second proposition, we think that a consideration of all of the provisions of the trust indenture demonstrates that the clauses relied upon to sustain this contention of appellant only relate to and control procedure under the trust indenture itself for the purpose of enforcing payment of coupons, and do not for any other purposes work or permit a postponement of the time of payment of the coupons, or prevent a bondholder from enforcing his ordinary and general remedies at law for the collection of such obligations.

And thus we come at once to the last proposition, and to the interesting and important question upon which we differ, whether the bonds, of which the one here involved is one, were rendered nonnegotiable because of the clause already quoted exempting members of the Adams Express Company from that personal liability thereon which would ordinarily attach to the individual members of a joint-stock association. I say important question, for certainly it will be an important, and, as it seems to me, an unfortunate, result if an obligor in that which by all of its prominent characteristics is a negotiable instrument can by inserting in some obscure manner a clause cutting off some utterly inconsequential liability secure not only such particular exemption, but, what is vastly more harmful, make apparently negotiable securities in the hands of investors nonnegotiable, and seriously impair their value and security. And it would be rash to assume that a decision effecting that result in this case would be limited to these bonds, and that there would not be many other issues heretofore offered to and accepted by investors as negotiable which now on account of some trifling exemption or limitation would be stamped as nonnegotiable with resulting impairment of character and value in the hands of the public.

We shall naturally and best start out with our inquiry by spreading before us as a guide and test the definition of negotiable instruments as now expressed in terms of statutory law so far as applicable to this question. The Negotiable Instruments Law (Laws 1897, p. 722, c. 612), § 20, provides that ‘an instrument to be negotiable must conform to the following requirements: * * * (2) Must contain an unconditional promise or order to pay a sum certain in money.’ Section 22 of the same statute describes an unconditional promise to pay as follows: ‘An unqualified order or promise to pay is unconditional within the meaning of this act, though coupled with: (1) An indication of a particular fund out of which reimbursement is to be made, or a particular account to be indebted with the amount, or (2) a statement of the transaction which...