[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 169
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 170 The appellant, as the true owner of the stolen coupons of which recovery is sought, in attempting 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 non-negotiable 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 *Page 173 fund, to wit, its joint assets, and hence is non-negotiable 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 non-negotiable 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 non-negotiable and seriously impair their value *Page 174 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 non-negotiable 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 (L. 1897, ch. 612), section 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 gives rise to the instrument.
"But an order or promise to pay out of a particular fund is not unconditional."
Section 22, defining an unconditional promise to pay, embodies the rules of the common law and law merchant as they had been established before the passage of any statute upon this point and we, therefore, briefly may turn to one or two earlier decisions as casting light upon the true interpretation and meaning of the statute which we have quoted.
In Munger v. Shannon (61 N.Y. 251) it was said: "A bill is an order drawn by one person on another to pay a third a certain sum of money absolutely and at all events. Under this definition the order cannot be paid out of a particular *Page 175 fund but must be drawn on the general credit of the drawer, though it is no objection when so drawn that a particular fund is specified from which the drawee may reimburse himself. * * * The true test would seem to be whether the drawee is confined to a particular fund or whether though a specified account is mentioned he would have the power to charge the bill up to the general account of the drawer if the designated fund should turn out to be insufficient. In the final analysis of each case it must appear that the alleged bill of exchange is drawn on the general credit of the drawer."
This case cited with approval the case of Dawkes v. DeLorane (3 Wils. 207) that "the instrument or writing which constitutes a good bill of exchange is not confined to any certain form or set of words, yet it must have some essential qualities, without which it is no bill of exchange; it must carry with it a personal and certain credit given to the drawer, not confined to credit upon any thing or fund; it is upon the credit of the person's hand, as on the hand of the drawer, the indorser, or the person who negotiates it; he to whom such bill is made payable or indorsed, takes it upon no particular event or contingency, except the failure of the general personal credit of the persons drawing or negotiating the same."
It is not claimed that payment of these bonds is limited to the property pledged as security therefor with the trustee, but it is admitted that they may be collected from any and all of the general assets and property of the express company. The only respect in which they are claimed to come in conflict with the prohibition against a negotiable instrument being payable "out of a particular fund," is because of the provision that they may not be collected from the individual property of the members of the association. This subtraction, it is said, makes the remaining property from which they be collected a "particular fund."
The decisions which I have quoted state the rule that a negotiable instrument may not be made payable out of a particular fund as the equivalent of the one that it must be *Page 176 "drawn on the general credit of the drawer," and so if we fairly can say that, notwithstanding the exemption, the maker of the bonds did pledge its general credit, then it will follow that there has not been that limitation of promise of payment to a particular fund which is prohibited by the statute.
Was the general credit of the obligor pledged?
The Adams Express Company was the maker of the bonds. They were issued by it in its artificial, corporate-appearing name, under its common seal, by its authorized executive officers and for its benefit. They expressed the general promise and obligation of the company which thus issued them, and were a claim against it upon which, as we shall see hereafter, judgment might be obtained or a receiver be appointed of it, and satisfaction obtained out of any or all of its joint, business, well-understood assets and property, and which we know aggregated many millions of dollars. Payment was not limited to the pledged securities or to any other part or parcel of the property of the association which made the bonds, but was a charge against the whole thereof. Thus far, therefore, they were entirely similar to the familiar bonds issued by an ordinary corporation which are general claims against it, and which are concededly negotiable. But here it is that we come against the contention that this view of the character of the bonds however practical and desirable cannot prevail; that the exemption of the personal liability of the individual members of the association after all works a limitation upon the pledging of the general credit of the company which issued the bonds, and turns all of its assets, from which their payment may be enforced, into a special, limited fund.
As the foundation for this contention much care has been devoted to pointing out the difference between a joint stock association and a corporation, and to emphasizing the fact that the former is in effect a partnership, and that the individual liability of its members is just as essential a characteristic as it is in the case of a partnership, and that, therefore, it may not be eliminated without materially affecting the contract of the association. *Page 177
Of course there can be no doubt that a joint stock association differs from a corporation, or that in its original conception and ultimate analysis it is like a partnership in respect to the individual liability of its members. But, upon the other hand, so many of the attributes and characteristics of a corporation have been impressed upon the modern joint stock association that in my opinion, for the purposes of the question now before us, we are amply justified in regarding simply the joint, quasi corporate, entity, and in saying that an obligation issued in its name upon its general credit, and binding all of its assets, complies with the requirements for a negotiable instrument, even though the practically unimportant individual liability of members is excluded.
We may briefly refer to some of these characteristics which, as I think, have led both courts and laymen to regard joint stock associations largely as corporate creations, and in ordinary business dealings quite to ignore the feature of individual membership and liability, even though it does exist. They are, like corporations, organized under and regulated by statutes (Laws 1894, chapter 235). They have, and transact business under, an artificial name. Their capital and ownership is represented by shares of stock transferable at will, and their existence is not dissolved or affected by the death of or transfer of interest by members. They have regular officers in whose names actions may be commenced in behalf of and against the association, and upon a judgment rendered in the latter case, execution may be issued only against property belonging to the association or to all of its members jointly. Formerly action could not be brought against the individual members of the association until after judgment and execution unsatisfied against the association. Now, although an action may be brought in the first instance against the members, still if the claimant elects to bring suit against the association he must then as formerly proceed to judgment and execution unsatisfied before instituting other suit against the members. And, as illustrating the complete and separate existence of the association as between it and the *Page 178 individual members, suit may be brought by it against such members. (Code, §§ 1919-1924.)
Based upon such statutory provisions decisions have been made and opinions written emphasizing their corporate character as distinguished from the ordinary partnership wherein the individual relationship and liability of the members is universally recognized and of importance.
In Waterbury v. Merchants' Union Express Co. (50 Barb. 157), a case often cited, it was held that a receiver might be appointed of one of them, and it was said with reference to the powers conferred upon them by various statutes: "These are all attributes of a corporation, and if we look into the books for elementary definitions we shall find that corporations have no other attributes except the technical one of a common seal to distinguish them from common law partnership. On the other hand, simple partnerships have none of the attributes or qualities here mentioned. * * * Looking at the substance and nature of things it is plain that in respect to the absence of a common seal merely these joint stock associations are like partnerships. In the other and vastly more material respects mentioned they are like corporations, although they are not declared to be such by the legislative acts referred to.
In Matter of Jones (172 N.Y. 575) it was held that shares in a joint stock association constituted personal property and were subject to the transfer tax irrespective of the character of the property represented thereby, whether real or personal. The court quoted with approval the statement in Beach in his work on Private Corporations (Vol. 1, § 167) that "The powers conferred upon them by these enactments are such that for many purposes they are held to be corporations, even though they have nowhere been designated as such."
In People ex rel. Platt v. Wemple (117 N.Y. 136) it was held that the franchise or business of the United States Express Company, a joint stock association, was subject to taxation under certain statutes invoked for that purpose. The court, after referring to the powers and characteristics *Page 179 of the company not unlike those possessed by the Adams Express Company, says: "It seems obvious from these articles, that the arrangement consummated by them has little in common with a private partnership, for they provide for a permanent investment of capital, the right of succession, the transfer of property by an assignment of the certificate of ownership, and the prosecution of suits in the name of one person. The company has, therefore, the characteristics of a corporation, and, so far as it can, it assumes to itself an independent personality and asserts powers and claims privileges not possessed by individuals or partnerships."
In People ex rel. Winchester v. Coleman (133 N.Y. 279), which was a proceeding by certiorari to review the action of taxing officials in imposing an assessment upon the capital stock of the National Express Company, a joint stock association, it was said: "It is then asserted that a series of statutes, beginning with the act of 1849, has ended in the gift to joint stock associations of every essential attribute possessed by and characteristic of corporations * * *; that the lines of distinction between the two, however far apart in the beginning, have steadily converged until they have melted into each other and become identical; that every distinguishing mark and characteristic has been obliterated and no reason remains why joint stock associations should not be in all respects treated and regarded as corporations. Some of this contention is true. The case of People ex rel. Platt v. Wemple (117 N.Y. 136) shows very forcibly how almost the full measure of corporate attributes has, by legislative enactment, been bestowed upon joint stock associations until the difference, if there be one, is obscure, elusive and difficult to see and describe. * * * The two are alike, but not the same. More or less, they crowd upon and overlap each other, but without losing their identity, and so, while we cannot say that the joint stock association is a corporation, we can say as we did in Van Aernam v. Bleistein (102 N.Y. 360), that a joint stock company is a partnership with some of the powers of a corporation." *Page 180
In Oliver v. Liverpool, etc., Fire Ins. Co. (100 Mass. 531) it was held that an English joint stock association was subject to a tax assessable against "each fire * * * insurance company incorporated or associated under the laws of any government or state other than one of the United States." While there may be some slight difference between such a joint stock association and one existing under the laws of this state, what was said by the court is applicable to either. This statement was that "`Joint stock companies are not pure partnerships, for their members are recognized as an aggregate body; nor are they pure corporations, for their members are more or less liable to contribute to the debts of the collective whole. They are associations of persons intermediate between corporations known to the common law and ordinary partnerships, and partake of the nature of both.' * * * And we are all of opinion that when, by legislative authority or sanction, an association is formed capable of acting independently of the rules and principles that govern a simple partnership, it is so far clothed with corporate power that it may be treated for the purposes of taxation as an artificial body."
In State ex rel. R. W. Comm. v. Adams Express Co. (66 Minn. 271) it was held that the present joint stock association was so similar in many of its features to a corporation that it would be subject to the provisions of a statute providing for service of process upon a corporation.
Now while it is true that these statutes conferring upon joint stock associations the attributes of corporations, and the opinions discussing the similitude of the former to the latter do not destroy the element of individual liability, they do irresistibly force upon us appreciation of the fact that a great association like the Adams Express Company is very unlike an ordinary copartnership and that it has assumed for ordinary, practical purposes in its business and contractual relations the features and characteristics of a corporate creation, whereby the joint aggregate entity has been made prominent, and the individual units composing it have been overshadowed *Page 181 and obscured. Amongst other things, as we have seen, this organization in its aggregate capacity and under its artificial name which bears no relation to the identity of its members, may not only hold property, transact business and make contracts, but what is especially pertinent in this controversy those contracts may be enforced by proceedings against it which are entirely independent of any liability of individual members. In short, I do not think that we should transgress any proper limits, if we assumed that the public in dealing with the present bonds did so solely upon the faith and credit of the association, the entity which issued them, and without knowledge or thought of the individuals who composed it or their financial responsibility.
Under such circumstances we ought not to sacrifice substance to form and destroy the negotiable character of the bonds because of the exemption of individual liability unless we are compelled to, either by some controlling principle or authority, and, as I believe, there is neither which commands such a course.
The rule defining the requisites of negotiable instruments though now embodied in a statute is subject to a reasonable interpretation and construction. While we may not disregard the requirement that such an instrument must not be limited for payment to a particular fund, we may say what facts satisfy this requirement. We cannot, of course, override the terms of a statute when finally interpreted. But we can refrain from giving to those provisions too literal or impractical an interpretation which will work unexpected and undesirable results. We must accept the full test laid down at the commencement, that these bonds must not be made payable out of a particular fund or be issued otherwise than upon the general credit of the maker. But upon the proofs presented in my judgment we are not compelled to say that they are not general charges against the obligor which issued them as fairly and practically created, regulated and regarded, or that being a claim against all of its assets they are payable out of a particular fund. I think that the authorities which have been *Page 182 cited to sustain the contention that they are vulnerable in these respects, not only do not do so, but that a careful consideration of them and of other authorities in the light of the facts under consideration in each case, discloses that none of them has held an instrument to be payable out of a particular fund and hence non-negotiable upon any such proofs as appear here. In every case it will be seen that the instrument which was condemned was simply an order upon or assignment of some specific, limited fund or interest and carried no general liability of the drawer which made it a charge against his general credit and all of his assets. Under such circumstances it was held to be an assignmentpro tanto and, of course, as an assignment it was not negotiable.
It will not be possible to review any considerable proportion of the cases which have passed upon this question and, in fact, this is unnecessary, for a few of those decided by this court will sufficiently indicate the circumstances under which an instrument has been regarded as drawn upon a special fund and, therefore, a quasi assignment and not negotiable.
In Lowery v. Steward (25 N.Y. 239) the order read: "Please pay to the order of Archibald H. Lowery the sum of five hundred 00/100 dollars on account of 24 bales of cotton shipped to you, as per bill of lading, by steamer Colorado, inclosed to you in letter."
In Parker v. City of Syracuse (31 N.Y. 376) the order was drawn upon the comptroller of the city in the following terms: "Pay Parker Wright fourteen hundred and twenty dollars, on plank road and sidewalk accounts and charge to my account. A.L. Scofield."
In Alger v. Scott (54 N.Y. 14) the order was drawn by a landlord upon his tenant, reading: "Please pay Mr. John R. Glover $346.69, and charge same to me, account of rent of house No. 13 Cheever Place."
In Brill v. Tuttle (81 N.Y. 454) an order was given by defendant to plaintiffs reading as follows:
"Pay Brill Russell three hundred dollars and charge the same to our account for labor and materials performed and *Page 183 furnished in the repairs and alterations of the house in which you reside, in the village of Mohawk."
In Ehrichs v. De Mill (75 N.Y. 370) the language of the instrument was: "Please pay to F. Erichs $400 and charge the same to my account of grading and paving Lexington Avenue * * * as per contract."
It seems as if no extended comment upon these cases were necessary to point out how widely they differ from the one at bar; how clearly each instrument mentioned in them is an order upon, an assignment pro tanto of, a limited fund without any general credit or liability behind it, and how unnatural it would be upon the other hand to say that the present obligations, charges against the general, joint credit of the drawer which issued them and enforcible out of its assets, are orders upon or assignments in any sense of a particular fund even though an individual liability which is practically and equitably a secondary one has been cut off.
Some minor reasons of a somewhat technical nature are urged in support of the claim of non-negotiability. It is said that section 1919 of the Code of Civil Procedure provides that an action may be maintained against the officials of a joint stock association to recover upon any cause of action upon which the plaintiff might maintain an action against all of the associates and it is then suggested that if the holder of one of these bonds cannot bring an action against the individual members of the association, he cannot under said section bring an action against the association itself through its officers; that while an action in equity perhaps might be maintained to reach the pledged securities, no action at law can be maintained upon the bonds, and this being so, they are not negotiable. I do not regard these objections as well founded.
The section referred to is one of several prescribing the procedure by which an action may be brought against the association, as distinguished from its individual members, and the property of the association be reached. The section especially quoted is intended to define the nature and kind of actions which may be so brought, and this it does in general *Page 184 terms by defining them as all which might be brought against the individual members.
These bonds ordinarily, and except for special provision, would constitute a claim upon which might be maintained an action against the associates, and this circumstance stamps the cause of action as one which may be prosecuted against the association. It would be somewhat extraordinary to construe the section as meaning that the character and standing of the claim being thus fixed, the association might then debar the holder from bringing such an action against it by an agreement which it had procured him to make to waive the individual liability, which otherwise might be enforced, and to bring his action against the association. Of course if this agreement has not produced this result, there is no foundation for the further idea that no action at law can be maintained upon the bonds. If the holder of them has not barred himself from so doing by waiving the individual liability he may, as we have already seen, bring an action at law against the association, which is entirely independent of, and in fact temporarily at least, a bar to an action against the individuals.
The order appealed from should be affirmed and judgment absolute rendered against appellant upon his stipulation, with costs.