72 A.D. 539 | N.Y. App. Div. | 1902
This is an action brought -by the trustee to foreclose a mortgage made by the defendant corporation, The Crystal Water Company of Edge water, to secure bonds for $750,000, payable to trustee or bearer on July 1, 1910. The defendant’s answer is (1) that the bonds were given for no consideration or for such an inadequate consideration as amounted to bad faith; (2) that they were ultra vires the corporation; (3) that the mortgage lacked the statutory assent of the stockholders, and (4) that the principal of the mortgage had never become due. I consider the defenses in their order.
1. The learned counsel for the appellant stated on the argument that the first question involves the burden of proof- The last analysis may be so described. The bonds were negotiable instruments (McClelland v. Norfolk Southern R. R. Co., 110 N. Y. 469, 475, 476), and the holder thereof is regarded as is the holder of a bill or note of the same character. (Daniel Neg. Inst. [4th ed.] § 1502.) Upon the foreclosure of such a mortgage, as against bona fide purchasers for value, only the same defenses are permitted as might be raised in an action in a court of law upon the bonds, and the bondholders “ stand in the same position as bona fide assignees for value and before maturity of negotiable promissory notes.” (Jones Corp. Bonds & Mort. § 414, citing Kenicott v. Supervisors, 16 Wall. 452; Carpenter v. Longan, Id. 271.) If an action had been brought by the original bondholders, then as between them and the defendant, the- possession of the bonds was sufficient to raise- the presumption that attaches to the possession of a negotiable instrument, that the holder,had acquired them bona fide, for full value, and in due course.. (Kneeland v. Lawrence, 140 U. S. 209; Hotel Co. v. Wade,
We now reach a grievance of the appellant, which seems to be that it was compelled to prove a negative. The fact that an allegation' is négative in terms does not relieve one from proof thereof perforce of the rule that he has not to prove a negative. (lGreenl. Ev. [15th ed.] § 74 et seq.) Inasmuch as the action is brought by a trustee for many bondholders, whose names do not appear, the ques- - tion arises whether the defendant was entitled to treat the trustee as an original bondholder, against whom proof of no consideration would be admissible, and proceed to offer such proof without first showing that the oestuis que trustent were the original transferees, or whether in order to preclude the defendant from such proof the plaintiff must show that its oestuis que trustent were other than the original trans- . ferees. I am inclined to the opinion that the burden was upon the plaintiff if it wished to avail itself of the superior right of a subsequent transferee to show that its oestuis que trustent were not the original transferees. Daniel on Negotiable Instruments ([4th ed.] ,§ 814a) says : “ This, however, is to be observed : if the instrument be payable to bearer, and there be no indorsement upon it, there is nothing upon its face to indicate whether the holder is the original payee or a transferee by delivery. If he is the original payee, proof of want or failure of consideration is a complete defense; if a transferee, the defense of want or failure of consideration will not affect him unless he had notice. When there is nothing in the case but the production of the paper payable to bearer on the one side, and proof of want or failure of consideration on the other, what presumption arises % Is it to be presumed that the holder is the original payee, or that he is a transferee ? The general burden of proof is upon the plaintiff in all cases, and presumptions of fact are simply presumptions that certain facts have occurred as the natural and usual consequence of a fact proved. The original payee and possessor of the paper cannot be presumed to have transferred it unless it be presumed that
Mr. Kolff, an expert, testified for the defendant that the value of the realty, simply as real estate to be sold for general purposes, exclusive of improvements, was $25,000, and with the improvements something in excess of $30,000, independent, however, of its character or use in connection with the business of supplying water. The plaintiff offered evidence which tended to prove- that when $500,000 of the bonds were issued, the defendant passed a resolve for the making of an agreement with Stearns, which provided for the execution of an agreement- between him and the defendant, whereby Stearns was to. pay off the floating indebtedness of the Crystal Water Company, to cancel or to provide for the cancellation
It appears that the mortgage was assented to by all of the stockholders of record at: the time it was made, and that Mr. Detrick, to whom a single share was thereafter delivered, as president, executed the mortgage as such official, signed the bonds and caused them to be sealed. The remaining stock was issued to Mr. Stearns, who received $500,000 of the bonds. Even if the consideration paid exceeded the value of the property received, or some of the bonds were given up at less than par for cash advanced, all of the stockholders were in effect consenting and participating parties thereto. (Barr v. N. Y., L. E. & W. R. R. Co., 125 N. Y. 263, 273; Seymour v. S. F. C. Assn., 144 id. 333; Hotel Co. v. Wade, supra.)
2. The appellant also contends that the bonds were invalid because they were issued in contravention of section 8 of the Water Works
3. As to the statutory assent. It is undisputed that the seven stockholders, or, in other words, all of the existing stockholders, assented on July third, while on July sixteenth the great bulk of the stock was originally issued to Stearns. The provision requiring the assent of the stockholders is for the benefit of the stockholders, and it is “ at least doubtful ” whether the corporation can raise this defense. (Rochester Savings Bank v. Averell, 96 N. Y. 467, 473; Paulding v. Chrome Steel Co., 94 id. 334, 341; Greenpoint Sugar Co. v. Whitin, 69 id. 328.) And the latter case is also authority for the proposition that the amount actually issued and owned only should be regarded as the amount of the capital stock. Whether or not the actual stockholders had then paid for their stock is not material. When this mortgage was made, the law did not prohibit the issue of stock except in exchange for money, labor or property reasonably worth the par value of the stock. (Laws of 1873, chap. 737, § 2, referring to Laws of 1848, chap. 40, and § 6 of the latter statute. See, too, Wheeler v. Millar, 90 N. Y. 353.) The significance of the quotation made by the learned counsel for the appellant from The Lyceum v. Ellis (8 N. Y. Supp. 867) is that such assent might1 be fraudulent as to the subsequent owner of the shares who, in this case, was Mr. Stearns. But Mr. Stearns participated in the trans. action, inasmuch as he received in the first instance the large majority of the bonds. Moreover, the defendant, so long as it holds the benefit of any property acquired under the mortgage, is, I think, estopped from raising the point within the authority of Hamilton Trust Co. v. Clemes (17 App. Div. 152, 157; affd., 163 N. Y. 423).
4. The 13th allegation of the complaint is: “ More than ninety days have expired since the default and demand as aforesaid, and the option under the provisions of said mortgage to declare the principal of all the outstanding bonds secured by said mortgage due and payable, has been duly exercised, and said principal of the outstanding bonds, secured by said mortgage is now due and payable.” It is to be noted that the exercise of any option by the bondholders is not pleaded. On the motion made to dismiss at the close of the case, the learned court held that this referred to the exercise of the option vested in the trustee and not that vested in the bondholders. If this construction be right, then the beginning of the suit was sufficient evidence thereof. But in view of the other possible constructions of the allegation, the plaintiff thereafter sufficiently proved the exercise of'the option by the bondholders as provided for in the 5th paragraph of the said mortgage by evidence of the presentation of the coupons for payment, representing over $250,000, of the request of the bondholders of more than $300,000 upon the plaintiff because of continued default to exercise their right and to have foreclosure proceedings instituted, of the request of the chairman of the bondholders’ committee, representing more thin $731,000 of the bonds to the attorneys of the plaintiff to proceed to foreclose, and also of the request made on behalf of the bondholders’ committee to make demand for the principal and interest. In Farmers' L. & T. Co. v. N. Y. & N. R. Co. (150 N. Y. 410), cited by the learned counsel for the appellant, the plaintiff alleged the receipt of a written request by the bondholders, and the provision of the mortgage called for by the written request of holders of $2,000,000 in amount of said bonds. The provision in the present
The judgment and order should be affirmed, with costs.
All concurred.
Judgment affirmed, with costs.