148 N.E. 514 | NY | 1925
The defendant is the trustee named in a mortgage or deed of trust executed in 1904 by a corporation "Dreamland" to secure an issue of $750,000 "mortgage and income bonds" to become due on January 1, 1914. The bonds were registered bonds and under their terms were transferable by the holder thereof "only in person, or by attorney duly authorized, upon the books of the trustee." Each bond contained a term that "This bond shall not be valid or obligatory until it has been duly authenticated by the certificate of the Title Guarantee and Trust Company as such Trustee endorsed hereon." The trustee's certificate which was indorsed on each bond provided: "The undersigned *261 hereby certifies that the within is one of the Bonds described in the mortgage therein mentioned."
In March, 1915, six $500 bonds were registered upon the defendant's books in the name of Llewellyn L. Powell. At that time the plaintiff who was the president of "Dreamland" telephoned to the defendant's trust officer that he wanted to buy Powell's bonds; "that Powell had lost them and what could be done." The defendant's trust officer informed the plaintiff that "if Powell would make an affidavit showing the bonds had not been negotiated, would give a bond of indemnity running to the Dreamland Company and the Title Company as trustee; and Dreamland would duplicate the bonds, the trustee would certify them." The plaintiff procured an affidavit from Powell and an indemnity bond as suggested. Dreamland issued duplicate bonds which were signed by the plaintiff as president. The defendant certified the bonds and the plaintiff purchased them from Powell and secured their transfer upon the trustee's books to himself. The bonds themselves were marked "duplicate" and bore on the back of the cover the words: "This Bond is issued in place and stead of the original bond of the same number said to have been lost or destroyed. Dated New York City, March 31st, 1915. Title Guarantee Trust Company as Trustee."
After the "duplicate" bonds were transferred to the plaintiff on the books of the trustee, the original bonds were presented to the defendant for transfer. It appears that Powell had not lost them but had assigned them to a broker as collateral security. His affidavit upon the faith of which the "duplicate" bonds were issued was false and fraudulent. The defendant then entered the transfer of the original bonds on its books and registered them in the name of the broker. It was stipulated at the trial that thereafter the broker "became the absolute owner of said six original bonds by the purchase thereof upon an auction sale" held after Powell had failed to *262 pay the loan to the broker for which they were security. In 1920 the defendant as trustee received moneys derived from sale of the property of Dreamland covered by its corporate mortgage. The bondholders consented that this money should be distributed to them pro rata. The holder of the original bonds demanded hispro rata share and brought suit against this defendant to enforce this demand. The plaintiff successfully opposed a motion made by the defendant to interplead the plaintiff in that suit. The defendant thereupon paid the holder of the original bonds thepro rata share payable thereon and the plaintiff has brought this action as holder of the duplicate bonds.
The bonds constitute no original contractual obligation on the part of the defendant to pay any moneys to the bondholder. They are the obligations of Dreamland and any liability on the part of the defendant must be predicated upon a finding of dereliction while acting as trustee or upon a finding that by placing its certificate upon the duplicate bonds it asserted their validity and by such assertion induced the plaintiff to purchase the bonds. Upon neither theory does the evidence sustain a judgment against it.
Though a corporate bond payable to the "registered holder" and by its terms transferable by the holder only upon the books of the trustee may not be a negotiable instrument in a strict sense (Daniel on Negotiable Instruments [6th ed.], section 1501b;Scollans v. Rollins,
This right was not, in our opinion, lost by the subsequent issue of the duplicate bonds and the transfer of such duplicate bonds on the corporate books to another registered holder. After the original registered holder had pledged the bonds with the broker he certainly had no right to transfer them to another and a subsequent attempted transfer would not give the assignee the right to demand from the broker possession of the bonds. The bond itself embodied the corporate obligation and, aside from any general rule that ordinarily delivery of a bond must accompany transfer of title (Lewis v. Mason's Administrator,
That certificate was signed and the transfer made at the request of the plaintiff or the corporation of which the plaintiff was president. The certificate that "the within is one of the Bonds described in the mortgage therein mentioned" must be read in connection with the further certificate the bond "was issued in place and stead of the original bond of the same number said to have been lost or destroyed." Doubtless the plaintiff would not have paid Powell for the duplicate bonds if no such certificate had been issued. Through the making of that certificate he obtained assurance, at least, that the defendant, as trustee, would recognize him as the successor in title to any rights which Powell still retained in the bonds and that such rights as he obtained from Powell were placed in easily transferable form. In other words, the bonds show on their face that they were duplicate; that they were issued in place and stead of other bonds said to have been lost or destroyed; that the original bonds were covered by the mortgage described in the bonds; that the defendant would recognize Powell's transfer of his rights to the duplicate bonds and that plaintiff could by similar transfer dispose of the rights he received from Powell. Now it appears that Powell's rights were subject to superior equities or title and the question remains whether the defendant gave assurance against the existence *266 of such equities. There is nothing in the certificate signed by the defendant which upon a reasonable construction can be regarded as untrue. The bonds as stated were "duplicates" issued in place and stead of others "said to be lost or destroyed." Because they were duplicates and the original bonds were in fact not lost or destroyed the defendant as trustee has received no moneys applicable to their payment and has been compelled to register the transfer to another of the original bonds. Nowhere in the certificate is there any express assurance or guaranty that the original bonds will not be found in the hands of one who has a right to enforce them or that the "duplicate" bonds possess any validity other than a duplicate of the valid original might have and that they are enforcible other than as alternatives for the original. Any expression of opinion on the part of the defendant's trust officer that they were valid, enforcible obligations would of course not give rise to any cause of action against the defendant.
It is urged, however, that such assurance or guaranty should be implied from the very fact that the defendant placed its certificate upon the duplicate bond for the purpose of giving the bond circulation and that the plaintiff relied upon this fact as well as upon the language of the certificate and that the defendant required and received an indemnity bond to protect it against damages that might accrue to it by reason of its act. Doubtless, the defendant's certificate was placed upon the duplicate bonds to facilitate their transfer but facility of transfer of even a duplicate bond which would be valid only if the original was actually destroyed would have its advantages for a prospective purchaser. Possibly because of such facility of transfer an unwary purchaser might be led to accept such bonds without realizing that the original bonds might be outstanding; possibly it was negligence on the part of the defendant to put in circulation a bond through which the unwary might be trapped. We are *267 not dealing with the rights of one who by reliance on the fact that the duplicate bonds were given circulation by the mortgagor and the trustee was lured into a sense of security which kept him from examining the bonds to determine his rights thereunder. We are determining the rights acquired under the express terms of the instrument by one who knew all the circumstances which led up to the placing of the duplicate bonds in circulation and who in fact joined in placing them in circulation.
The plaintiff as president of the corporation issuing the duplicate bonds knew that the corporation received no new consideration and had no right or intention to assume a new obligation independent of the obligation assumed when the original bond was issued. In reliance upon the affidavit of the registered holder of the bond the mortgagor issued the duplicate bond signed by the plaintiff as president and the defendant signed the certificate and as a result facility of circulation was accorded to the duplicate bonds. The exaction of a surety bond to protect the corporations issuing and certifying the bonds was in any view of the transaction a prudent act for the duplicate bonds might be paid before the original bonds turned up. The plaintiff knowing that the bonds were issued only in place of the original bonds and not as independent obligations; knowing that the duplicate bonds were placed in circulation in reliance upon an affidavit that they were lost or destroyed, joined in giving circulation to the duplicates by signing the bond as president of the corporation issuing it. He was not deceived as to the existence of any fact by the certificate placed upon the bond nor by the fact that it was placed in circulation. He and perhaps the defendant may have acted under a mistake of law as to the effect of the issue of duplicate bonds or he, like the defendant, may have been deceived by the affidavit upon which the defendant acted. He was not deceived by the certificate placed upon the bonds for not only is the certificate true but *268 the plaintiff knew the facts which led up to the signing of the certificate.
The judgments should be reversed and the complaint dismissed, with costs in all courts.
HISCOCK, Ch. J., CARDOZO and POUND, JJ., concur; McLAUGHLIN, CRANE and ANDREWS, JJ., dissent.
Judgments reversed, etc.