#### MARTIN MAAS and others, Respondents, *v.*THE MISSOURI, KANSAS AND TEXAS RAILWAY COMPANY and THE UNION TRUST COMPANY OF NEW YORK, Appellants.

*Liability of company, for stolen bonds —Forgery.*

Nine bonds were stolen from the T. and N. R. R. Co. At the time they were taken they were incomplete; the seal of the company, and the certificate of the Union Trust Company requisite to their validity, not having been affixed. Subsequently these were forged and affixed to the bonds, and the same were purchased by the plaintiff for value, and in good faith. In an action brought by him upon the bonds, *held,*that the company was not liable thereon.

This action was brought against the first-named defendant, which had agreed to replace the bonds of the T. and N. R. R. Co. by its own. The referee decided that it should issue new bonds for those held by plaintiff, and pay to him $3,780, the difference between the value of its bonds, when a demand for them was made, and the value at the time of the trial. *22eld,*that this was error; that, if entitled to recover at all, the plaintiff might have either the new bonds, or their market value with damages for the diminution of value from the time of the demand to the time of the decision, but that he could not have both the bonds and the damages.

Appeal from a judgment in favor of the plaintiff, entered on tbe report of a referee.

Tbe action was brought to compel defendants to issue to tbe plaintiffs first mortgage bonds of tbe Missouri, Kansas and Texas Railway Company, certified by tbe Union Trust Company of New York, in exchange for tbe surrender of certain alleged bonds of tbe Tebo and Neosho Rafiroad Company.

On tbe 1st day of June, a. d. 1810, tbe Tebo and Neosho Railroad Company executed a mortgage on its raik’oad to secure an issue of 2,000 bonds of $1,000 each, payable June 1, 1903, with interest, etc.

By tbe terms of tbe mortgage each of these bonds bad to be properly signed and sealed by tbe railroad company, and also to be certified by tbe trust company, to be one of tbe series secured by tbe mortgage before tbe bond became obligatory on tbe railroad company.

Each of tbe bonds contained tbe following clause :

*“*This bond shall not become obligatory until it shall have been *9authenticated by a certificate indorsed tbereon, duly signed by the trustee aforesaid.”

And the *testatum*clause of each bond was as follows:

“ In witness whereof the said Tebo and Neosho Railroad Company has caused its corporate name and seal to be hereunto affixed by its president and secretary on the 1st day of June, 1870.”

The railroad company had caused these 2,000 bonds to be prepared and printed, and on or before August 8, 1870, the nine bonds in question had, with other bonds, been signed by the president and secretary with the intent and for the purpose of being duly sealed with the corporate seal and then transmitted to the office of the trust company for certification.

In this condition the bonds were stolen. The corporate seal of the company never was- affixed to them, but a fabricated seal, in imitation of the genuine one, was affixed without the knowledge or order of the railroad company.

These bonds never came to the possession of the trust company, but the signature of the president of the trust company was forged to the certificate.

These nine bonds were never sold or put in circulation by the railroad company, nor did the said company ever receive any consideration for said bonds, and at the time of the making of the series of 2,000 bonds the railroad company had contracted for the building of its road, and had agreed to give to its contractors the whole of the issue of 2,000 bonds.

The persons who stole these bonds, after forging the corporate seal and the signature of the president of the trust company, put the bonds on the market and on the 13th of July, 1872, they were purchased by the plaintiffs for the sum of $8,280, being at the rate of ninety-two per cent.

On the 19th October, 1872, the Tebo and Neosho Railroad Company conveyed a large portion of its road to the Missouri, Kansas and Texas Railway Company, subject to the before-mentioned mortgage.

On the 1st of February, 1871, the Missouri, Kansas and Texas Railway Company executed to the Union Trust Company a mortgage on its railroad to secure an issue of some 14,000 bonds of $1,000 each.

*10■ This company bas also become tbe grantee of tbe railroad of a corporation known as tbe Union Pacific Railway Company, southern branch, and tbe said Union Pacific company and tbe Missouri, Kansas and Texas company bad executed mortgages on their respective roads to secure issues of bonds prior to tbe above-mentioned mortgage of February 1, 1871.

This mortgage of February 1, 1871, was intended to be a consolidated mortgage and to call in and,.take up tbe bonds of tbe three prior mortgages, respectively, *i. e.,*tbe Tebo and Neosho, tbe Union Pacific and tbe Missouri, Kansas and Texas mortgage, and to issue consolidated mortgage bonds in place thereof; and to effect that purpose it provided, that 7,345 of tbe 14,000 bonds should be reserved to call in and exchange for tbe said Tebo, Union Pacific and old Missouri, Kansas and Texas bonds.

Of these 7,345 bonds 2,000 bad been executed by tbe railway company, and delivered to tbe trust company for pmposes of exchange for Tebo and Neosho bonds, prior to tbe commencement of this action.

Since tbe commencement of this action tbe railway company bas issued and debvered to tbe Land Grant Railway and Trust Company, its contractor, nine bonds, secured by tbe mortgage of February 1, 1871, in place of tbe nine Tebo and Neosho bonds supposed to have been lost, and in order to make up tbe full 2,000 bonds that tbe construction company was to receive.

Tbe trust company bas exchanged 1,639 of tbe 2,000 Missouri, Kansas and Texas consolidated bonds appropriated for exchange for Tebo and Neosho bonds for tbe same number of Tebo and Neosho bonds, and it bas 361 left unexchanged.

On tbe 13th July, 1872, plaintiffs offered to tbe defendant railway company tbe nine bonds in suit with a request to have them exchanged for defendants’ consohdated bonds. Defendants’ secretary received and receipted for said nine bonds and they were, thereupon, put in possession of tbe trust company, where they now remain, and delivery of consohdated Missouri, Kansas and Texas bonds therefor bas been refused.

When tbe suit was commenced Tebo and Neosho bonds were worth ninety-two and tbe consolidated bonds par. At tbe time of tbe trial both bonds were worth but forty-nine per cent.

*11On these facts tbe referee gave judgment that tbe defendants issue and dehver to tbe plaintiffs nine consolidated bonds in place of tbe nine Tebo and Neosbo forged bonds, and, in addition, awarded damages against tbe defendant railway company for tbe difference between tbe price paid by plaintiffs for tbe nine bonds and tbe value of Tebo and Neosbo valid bonds at tbe time of tbe trial.

*Wheeler H. Peckham,*for tbe appellants.

The plaintiff cannot recover because tbe bonds bad never been delivered; bad never bad any legal inception. *(Lansmg*v. *Games,*2 Johns., 302, *et seq.*/ *JMorvvn*v. *JMcOullom,*20 id., 288; Edw. on Bills, 186 ; *People*v. Loomis, 4 Denio, 380-384; *Ooddirngton*v. *Gilbert,*11 N. Y., 490 ; *Whitney*v. *Smyder,*2 Bans., 4YY, 4Y8 ; *Foster*v. *JMJeKvnnon,A*L. R., C. P., Y04; *GcmlMns*v. *Whisler,*29 Iowa, 495; *Wait*v. *Pomeroy,*20 Mich., 425; *Bwnson*v. *Hwntmgton,*21 Mich., 415; *Grover*v. *Olark,*21 La. An., 56Y; *Lenheim*v. *Wilmerdi/ng,*55 Penn. St., Y3; *Hall*v. *Wilson,*16 Barb., 55; *Led/wiah*v. *JMJeJBJim,*53 N. Y., 312.)

*A. P. JDyett,*for tbe respondents.

Tbe nine first mortgage bonds of tbe Tebo and Neosbo raüroad were negotiable, and tbe plaintiffs *bona fide*holders thereof for value, as those terms are understood in tbe law merchant. *(Bramard*v. *H. Y. and H. B. P. Go.,*25 N. Y., 496; *Bank of Pome*v. *Yillage of Pome,*19 id., 20; *JMJereer Gowntry*v. *Haekett,*1 "Wall., 83; *Birdsall*v. *Bussell,*29 N. Y., 220, and eases cited by Russell; Arg., 228-230, 232 ; *Fmnegon*v. *Lee,*18 How. Pr., 186 ; *Hubbard*v. *H. Y., etc., P. P. Go.,*14 Abb., 2Y5.) Although a party be induced by fraud, or even duress, to sign an instrument, and although be never delivered or intended to deliver it, yet, if when be signed it be knew what be was signing, and intended to sign just such an instrument, tbe decisions are uniform, that in such a case be is liable to a *bona fide*bolder for value, though tbe instrument was stolen from bis possession, or otherwise fraudulently put in circulation, where there is nothing on tbe face of tbe instrument to excite tbe suspicion of ordinary men, and tbe purchaser is not required to closely or critically examine it. *(First Hat. Bk.*v. *Green,*43 N. Y., 298; *Hyer*v. *JDorehester Bank,*11 Gush., 51; *D%vnr can*v. *Scott,*1 Gamp., 100; *JDutehess Go., etc., Lns. Go.*v. *Hatehfield,*8 N. Y. S. O., 6Y5; *Wo^'eester Bank*v. *JDorehester, etc.,*10 Gush. *12488; *Sybell*v. *Hat. Currency*Bank, 54 N. Y., 288 ; *Vale*v. *Pa/rker,*6 Wend., 615, 620 ; *Putnam*y. *Sullivan,*4 Mass., 45; *Matthews*y. *Mass. Hat. Bk.,*Am. Law Reg. [March, 1875], 153; Pars, on Bills, 114, cited at pp. 314, 315,317 of *Foster*v. *McKinnon,*L. R., 4 C. P., 704; *Young*v. *Grote,*4 Bing., 253 ; Byles on Bills [6th ed.], 292, note *a*and note 1, and *Bex*v. *Pevett,*cited at p. 103 ; *Murray*v. *Ga/rdner,*2 Wall., 10; *Ingham*v. *Primrose,*28 L. J. [C. P.], 295; 7 C. B. [N. S.], 82; *Montague*v. *Perkins,*22 L. J. [C. P.], 188; S. C., Jurist, vol. 17, pt. 1; *Van Duzer*v. *Howe,*21N. Y., 531; *Avoden*y. *Dixon,*6 Exch., 869; *Magee*v. *Badger,*34 N. Y., 247; *Scholey*y. *Hams-bottom,*2 Camp., 485 ; *Bank Gom.*v. *Ou/rry,*2 Dana, 122; *Moody*y. *Tlvrehild,*13 G-a., 55; *Shipley*v? *Carroll,*45 111.; *Welsh*y. *Sage,*47 N. Y., 143,146; *Goodman*v. *Linard,*25 How. [U. S.], 343; *Briggs*v. *Ewart,*51 Miss., 245 ; *Audi*v. *Colket,*N. Y. Weekly Dig., yol. 2, p. 30; *Hekvese*y. *Hibernia Bank,*id., 517; *Qikizeni Bank*v. *Smith,*id., 147.) It is immaterial that those nine bonds were not sealed with the genuine seal of the railroad company. The mortgage under which they were given was sealed. A seal was not necessary to their validity as obligations of the company. (37 Me., 349 ; 12 Mich., 138; 3 Miss., 385; 19 Johns., 60; *Barnes*v. *Ontario Bank,*19 N. Y., 63.)

Davis, P. J.:

It is very clear from the findings of the learned referee, that at the time the nine bonds in question were stolen, they were of no force as obligations against the Tébo and Neosho Railway Company. They were in course of preparation by that company, with the design to issue them as bonds when they should be completed. The corporate seal had not been affixed, nor had the certificate of the Union Trust Company, which was a prerequisite of their validity, been made.

In that condition no person could have enforced them against the railroad company, for there is no possible ground or reason for asserting that they had become its valid obligations, and their invalidity clearly appeared upon their face. At the time they were taken from the possession of the company they were mere waste paper, into whosesoever hands they might come. The learned referee finds that after the bonds were stolen, the seal of the company was forged by *13some person, and affixed in apparent due form to each of the bonds, and tbat tbe signature of tbe president of tbe Union Trust Company was also forged to each of the certificates. This made tbem apparently vahd instruments upon then face, and tbe plaintiffs became purchasers of tbem while in tbat condition, in good faith and for value. They now seek to compel tbe defendants, tbe Missouri, Kansas and Texas Railroad Conqpany, to issue other bonds in place of tbe nine bonds in question, in pursuance of a contract of consolidation between tbat company and tbe Tebo and Neosho company,, by which they were to take up tbe outstanding bonds of tbe Tebo and Neosho company and replace tbem with their own. Tbe question is precisely as though tbe action was brought upon tbe nine bonds against tbe Tebo and Neosho Railway Company.

It is well settled law, tbat where tbe bonds of a railway company have come into tbe bands of a *bona fide*purchaser, for value, they may be enforced by such purchaser against tbe company, notwithstanding they have, in fact, been stolen from some former bolder, or from tbe. company itself. But we think, in no case has it been held tbat instruments, purporting to be bonds of a raüroad company, but which are in fact forgeries, and never bad any legal inception as obligations of tbe company, can be enforced as vahd bonds, because tbe forgery has been so skillfully performed as to deceive an innocent purchaser.

It seems to us unnecessary to enter upon an examination of tbe numerous cases bearing more or less nearly or remotely upon tbe question. It is enough, we think, to constitute a perfect defense, tbat tbe corporation is able to say, “ these are not bonds, ever made, or issued by us, but are forgeries, upon which no hability ever existed or arose against us.”

It is not shown or claimed in this case, tbat tbe bonds in question were ever issued by tbe railway company in any form, or were ever completed so as to have tbe form of apparent obligations, and while in tbat condition lost or stolen ; or tbat any consideration whatever, bad ever been received by such company for tbem, or tbat tbe company bad ever ratified or confirmed tbe instruments, or done any act to induce tbe purchase of tbem by tbe plaintiffs, which can estop tbem from asserting tbat tbe instruments are forgeries. It is not a case where a person has stolen tbe completed *14bonds of a company, which, have been issued or are ready to be issued as perfect obligations; but one in which papers inchoate and incomplete, bearing upon their face the evidence of that condition and nothing more, and which can have the semblance of perfected obligations only by means of forgery, have been stolen and by some person made to bear the appearance of validity and genuineness by criminal acts of forgery.

In such a case there is no reason, either on authority or in principle, for holding that the victim of the theft of the incomplete and valueless instruments shall compensate persons, who may have been deceived and defrauded by means of the subsequent forgery. If that shall be held, there is no reason why all forged paper shall not be adjudged valid in the hands of *bona fide*purchasers for value, against all persons whose names shall be simulated upon it. We are of opinion that the learned referee ought, upon the facts found by him, to have directed judgment for the defendants instead of for the plaintiffs.

The referee erred also, we thiuk, in awarding the- measure of damages given to the plaintiffs, and for which judgment has been entered.

The judgment requires that the defendants, the Missouri, Kansas and Texas Railway Company, deliver to the plaintiff nine bonds of $1,000 each, with semi-annual interest coupons attached thereto, payable on the first day of June, 1903, in gold, and in addition, that the company pay $3,870 — being the difference between the amount the plaintiff paid for the nine bonds of the Tebo and Neosho company on the 12th of July, 1872, and the value of the Missouri, Kansas and Texas Railway Company bonds, at the date of the referee’s decision. That this measure of damages is incorrect seems, to us, clearly apparent from a statement of its effect upon the defendants. The Missouri, Kansas and Texas Railway Company, are presumed, in the absence of evidence, to be perfectly responsible and able to pay the interest on the bonds issued, as it shall mature, and the principal when it falls due. But in addition to the $9j000 in gold and interest, which they will covenant to pay 'by the delivery of their bonds, they are required to pay presently the additional sum of $3,870, as a depreciation of the net market value between the date of the demand made by the plaintiffs for *15such bonds and the date of their delivery. This is upon the assumption that the plaintiffs will dispose of the bonds at present market value, and thereby themselves suffer that amount of loss. The assumption may be trae or false; but its truth is established by no evidence in the case. But if it were, it is still apparent that the defendants will be required to pay the full amount of these bonds at maturity, as well as the accruing interest up to that time, either to the plaintiffs or to whomsoever may then be holders of the bonds. Discharging that obligation is the performance of their whole duty, and will put the holders of the bonds in possession of all that could ever have been claimed or enforced upon them, had no question been raised as to the validity of the bonds, and all that could ever have been collected upon the original instruments in any event. But the result of the judgment is, that in addition to their paying their obligations in full, the defendants shall, also' pay the amount above named. If the market value of the bonds shall be increased to par' by a change in the market within a month or a year, no provision whatever is made by which the defendants shall have any benefit of this sum of $3,8Y0 ; nor if they are ready to pay the obligations in full at their maturity, as they will be bound to do, is any provision made by which this large amount now paid can inure to any extent to their benefit. It might well be, that if the plaintiffs were entitled to recover at all in the case, they could elect whether to have bonds actually issued to them or their market value, with damages by reason of the diminution, from the time of the demand until the time of the decision. But that they can do both, to witj be placed in a position in which they are entitled to the full par value of the bonds and all present and accruing interest, and at the same time to a purely imaginary loss, which they have not in fact sustained, but may sustain if they choose not to keep the bonds, but put them upon the present market is, we think, going beyond the measure of damages that would do exact and equal justice between the parties.

Under the rule adopted by the learned referee, if the bonds had ceased to have *anypresent*market value, the plaintiffs could recover $9,000 in gold and all the interest that has accrued thereon, and have delivered to them in addition to such recovery, nine bonds of $1,000 each, payable in gold, with semi-annual interest coupons, *16and be entitled to tbe whole amount thereof at tbe maturity of tbe bonds. Such a result could not be sound either in law or morals.

For these reasons, also, we think tbe decision of tbe learned referee cannot be upheld. Tbe judgment should be reversed and a new trial granted, with costs to abide tbe event.

Beady and Daniels, JJ., concurred.

Judgment reversed, new trial granted, costs to abide event.