Case Name: Richard B. Kelly and Stephen Kelly, as Executors, etc., of Richard Kelly, Deceased, Appellants, v. The Forty-second Street, Manhattanville and St. Nicholas Avenue Railway Company, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1899-02
Citations: 37 A.D. 500
Docket Number: 
Parties: Richard B. Kelly and Stephen Kelly, as Executors, etc., of Richard Kelly, Deceased, Appellants, v. The Forty-second Street, Manhattanville and St. Nicholas Avenue Railway Company, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 37
Pages: 500–510

Head Matter:
Richard B. Kelly and Stephen Kelly, as Executors, etc., of Richard Kelly, Deceased, Appellants, v. The Forty-second Street, Manhattanville and St. Nicholas Avenue Railway Company, Respondent.
Corporation — rights of the holder of coupon bonds who refuses, by direction of the corporation issuing and from whom he received them, to deliver the matured coupons-with the bonds to a party holding an order therefor—a judgment.recovered against and satisfied by him for the amount of the coupons transfers the title to him — it is binding upon the corporation which was notified of, but refused to defend, the-suit—presumption created by the possession of the coupons by the corporation — Statute of Limitations applicable to coupons attached to sealed bonds.
A person holding, as trustee, bonds of a corporation with interest coupons attached',, under an agreement requiring him to deliver such bonds to the persons whose names should be inserted in blanks left for that purpose in receipts given by him for the bonds, refused to deliver to the person presenting the receipts the interest coupons which had matured prior to the date when the demand was made, but (by direction of the corporation) detached such coupons from the bonds and delivered the coupons to the corporation, which canceled them. The-person making the demand then brought an action against the trustee for the conversion of the detached coupons, which the corporation failed to defend, although given notice to do so by the trustee. This action, upon the trial of which the-officers of the corporation appeared and testified, resulted in a judgment in favor of the plaintiff therein for the value of the bonds, of which fact the- -- corporation was given notice.
In an action brought by the trustee against the corporation to recover the amount paid in satisfaction of the judgment, and the expenses incurred in defending, the action in which it was recovered, it was
Held, that the entry and satisfaction of the judgment in the action for conversion operated to divest the plaintiff in that action of his title to the coupons, and to transfer his title to the defendant trustee, who was entitled to maintain, an action against a person legally liable for their payment;
That the corporation, being the party .claimed to be ultimately liable and having, been notified of the commencement of the action against the trustee, the judgment entered in such action was — so far as the issues actually litigated therein: were identical with the issues involved in the present action — binding upon-the corporation in the same manner as if it had been a party to the record, and was, therefore, conclusive evidence against the corporation that the plaintiff' had the title to, and the right to the possession of, the particular coupons, and that they were valid obligations of the corporation;
That while the possession of the coupons by the corporation created a presumption that the coupons had been paid, this presumption was rebutted by evidence to the contrary, and that no presumption would he indulged that they ■were surrendered to the company under any agreement which would prevent the trustee from collecting them.
Patterson, J., dissented.
Interest coupons attached to a sealed bond are considered as a part of the bond, and partake of its character as a specialty, and are governed by the twenty-year Statute of Limitations.
Appeal by the plaintiffs, Richard B. Kelly and another, as executors, etc., of Richard Kelly, deceased, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 25th day of March, 1898, upon the dismissal of the complaint by direction of the court after a trial at the New York Trial Term, and also from an order bearing date the 10th day of March, 1898, and entered in said clerk’s office, denying the plaintiff’s motion for a new trial made upon the minutes.
John M. Scribner for the appellants.
Henry L. Scheuerman, for the respondent.

Opinion:
Ingraham, J.:
The action was brought by Richard Kelly to recover the amount paid in satisfaction of a judgment obtained in favor of one Shafer against him, and the sum of $570.25, expenses incurred in defending the action in which such judgment was recovered. The complaint alleges that the defendant executed and issued certain bonds of $1,000 each, secured by a mortgage upon its property;, that said bonds were dated June 9, 1880, bearing interest at six per cent, payable semi-annually; were under seal, and had annexed certain interest warrants or coupons for $30 each, payable on the first days of March and September in each year; that the first coupon was payable on the 1st day of September, 1880; that the plaintiff received from the defendant eight of the said first mortgage bonds, with the said coupons or interest warrants annexed, to be delivered on the 1st day of January, 1881, to the persons whose names should be inserted in a blank left for that purpose in two certificates or receipts for said bonds which had been prepared by the defendant and signed by the plaintiff, bearing date the 9tli day of June, 1880, one of which certificates or receipts was for six and the other for two of said bonds; that in the month of March, 1885, one Shafer presented to the plaintiff the said certificates or receipts, signed by the plaintiff, the name of the said Shafer being inserted in said receipts or certificates, and demanded the delivery of the said eight bonds, with all the coupons attached or belonging thereto, but that the plaintiff declined and refused to deliver the coupons which had become due or payable prior to the 1st day of September, 1885; that Shafer had accepted the said eight bonds, but objected to the retention by the plaintiff of the coupons maturing prior to the 1st day of September, 1885, which, by the direction of the defendant, the plaintiff had detached from.said bonds ; that the said coupons which on their face, had matured or become payable prior to the 1st day of September, 1885, making ten coupons on each bond, or eighty coupons of $30 each, amounting in all to $2,400, were cut off and detached by Kelly from the said bonds and by him delivered to the defendant through one Conover who was then the president and managing agent of the defendant; that on or about the 13tli day of April, 1891, the said Shafer commenced an action in the Supreme Court against Kelly to recover the value of the said eighty coupons which had been detached from said bonds and delivered by Kelly to the defendant in this action ; that after the commencement of said action by Shafer against Kelly the defendant was notified of the commencement thereof and was requested to take charge of and defend the same and was notified that, if it failed to take charge of and defend the same, it would be held bound by any judgment which might be rendered in the action, but that the defendant neglected and refused to defend the action that Kelly interposed a defense,- issue was joined, the said action was brought on for trial in this court on the 20th day of February, 1894, and resulted in a verdict in favor of Shafer for the sum of $3,000, upon which judgment was entered for the sum of $3,299.88, of which fact this defendant received due notice; that an appeal- was taken from said judgment, of which notice was given to the defendant, with a request to know whether Kelly should prosecute such appeal; that the defendant made no reply to said notice, and thereafter, to wit, on or about the 24th day of April, 1894, the plaintiff settled and paid the .aforesaid judgment by paying the sum of $2,827.88, which the said Shafer accepted and received in full settlement and satisfaction; that the plaintiffs' counsel fees, costs and services of attorneys, and counsel necessarily employed by the plaintiffs for the defense of the said action, amounted. to §570.25; that the coupons, on account of which the said action or Shafer against the plaintiff was commenced and prosecuted, had never been paid by the defendant herein, but that by the judgment in the aforesaid action instituted by the said Shafer against this plaintiff, it was adjudged and determined that all of the said coupons were legal liabilities of the defendant which should have been delivered to said Shafer as part of the bonds so held in trust by the plaintiff as aforesaid; that the defendant was bound to pay said coupons, and the plaintiff, having been compelled to pay the said judgment which was obtained against him in favor of the said Shafer as aforesaid, is entitled to the payment by the defendant of the amount of the coupons, with interest thereon, or the amount paid by the plaintiff in settlement and satisfaction of the said judgment, with interest from the time of such payment, and also the expenses paid or incurred by the plaintiff for the defense of said action against this plaintiff as aforesaid.
The answer denied all the allegations of the complaint except the 1st paragraph thereof, which alleges the incorporation of the defendant and the making and issuing of the bonds, and sets up the six-year Statute of Limitations as a defense. After the commencement of this action Richard Kelly died, and the plaintiffs, as his executors, were substituted as plaintiffs. The case was brought on for trial at a Trial Term of this court, and the plaintiffs introduced in evidence the judgment roll in the action of Shafer against Richard Kelly. The complaint in that action alleged the issuing of the bonds of the defendant corporation ; that the said bonds belonged to the plaintiff, but were in the custody and possession of the defendant; that the plaintiff demanded from the defendant therein the said bonds and coupons annexed, but that the defendant refused to deliver them to the plaintiff; that the defendant offered to the plaintiff the said bonds and all the coupons, except eighty, of the denomination and value of thirty dollars each, "which had been by defendant improperly, wrongfully and unlawfully detached, cut off and removed from said bonds and retained and kept by defendant, and the defendant, after such offer, refused to deliver to the plaintiff any other bonds or coupons only as above set forth; " that the plaintiff, after such refusal by the defendant, received the said bonds and coupons from the said defendant under protest, and demanded from said defendant the said eighty coupons which were unlawfully kej>t and retained by the defendant, which was refused by the defendant; that the plaintiff, therefore, demanded judgment against the said defendant for the unlawful cutting off, detaching, keeping and detaining the said eighty coupons as aforesaid, and that he might have judgment against the defendant for damages in the sum of $3,282.50, with interest. The judgment was that the plaintiff (Shafer) recover of the said Richard Kelly the amount of the verdict ($3,000) and costs. The plaintiffs proved the notice to the railroad company of the commencement of the Shafer action ; that on the trial of the Shafer action the officers of the railroad company appeared and testified ; notice to the railroad company of the judgment that was obtained, and the settlement of the judgment against the plaintiffs' testator by the payment of the sum of money before mentioned. There was also introduced in evidence the certificate signed by Kelly, under which he held the bonds, which was as follows:
" New Yoke,--, 188 .
" This is to certify that I hold (six) 6 First Mortgage Bonds of the Forty-second street, Manhattanville and St. Nicholas Avenue Railroad Company of the denomination of one thousand dollars ($1,000) each, which bonds are owned by E. B. Shafer, and are to be delivered by me to him or his order, on the first day of January, 1881, or prior thereto, if George N. Van Nort, Daniel D. Conover, Daniel D. Wylie and William J. Nichols shall request me in writing to do so.
" New York, June 9, 1880. R. KELLY,
" Trustee."
There was a second receipt for two bonds which was identical in form. There were produced from the records of the railroad company the coupons which had been detached from the eight bonds delivered to Shafer, canceled and pasted by the railroad company in its book of canceled coupons, and evidence was offered tending to show that none of these coupons had been paid by the railroad company. IJpon this evidence the plaintiffs rested. The court dismissed the complaint, to which the plaintiffs excepted.
In the action commenced by Shafer against Kelly (plaintiffs' testator) Shafer elected to waive the right to require from Kelly the delivery of the coupons attached to the bonds, and to hold Kelly responsible for their value as for a conversion. That action was based upon the ownership by Shafer of the coupons, their possession by Kelly, and the refusal of Kelly to deliver them upon demand. Shafer's right to the possession of these coupons, at the time he demanded the delivery thereof, was the issue presented in that action, and the entry of the judgment, followed by its satisfaction by Kelly, operated to divest Shafer of the title to the coupons and to transfer his title to Kelly. (26 Am. & Eng. Ency. of Law, 815, and cases there cited.) In Marsden v. Cornell (62 N. Y. 220) it was held that where, in an action of trover for the conversion of personal property, the owner had judgment for the value of the goods which it paid, and the goods remained in the possession of the defendant, the title in the property is changed and the wrongdoer becomes the owner. In Thayer v. Manley (73 N. Y. 307) it was said : A recovery for the conversion or for the taking of a specific chattel and satisfaction of the judgment changes the property in a chattel by operation of law, on the principle that, solutio preiAi emptionis loco habetur, where the transfer by such means is considered as a complete and absolute change of title." Upon the satisfaction of the judgment obtained by Shafer against Kelly, Kelly was entitled to maintain an action against a person legally liable to pay the coupons as though Shafer had, by a former instrument, in writing, assigned them or the right of action thereon to Kelly. The title to the coupons, or the right of action to enforce payment thereof, being thus vested in Kelly by the entry of the judgment against him in favor of Shafer and its satisfaction by Kelly, he (Kelly) was entitled to maintain this action against the defendant for the coupons, and unless the defendant had shown some defense against the demand for the payment thereof, Kelly was entitled to recover.
The coupons being in the possession of the defendant, they would be presumed to have been paid. That presumption, however, was rebutted by the evidence offered on behalf of the plaintiffs, by which it appeared that the defendant had not paid the coupons ; and Kelly, being the owner of them, was entitled to collect from the defendant the amount thereof, possession of which it had obtained without payment. There can be no presumption that the company received them under any agreement which would prevent Kelly from collecting them. If any defense to the right to recover on those coupons existed, the burden was upon the defendant to allege and prove it. The plaintiffs made out a prima facie case when it appeared that these coupons had been actually issued by the company as an existing obligation; that Shafer became the owner of them; that they had not been paid by the company, and that Kelly had become the owner and entitled to enforce them.
These bonds having been delivered to Kelly and held by him under an agreement to deliver them to Shafer, upon the commencement by Shafer of the action against him for the damages sustained by the refusal to deliver the coupons which had been annexed to the bonds the question necessarily presented was whether Shafer was the owner of the coupons,- and whether the coupons were existing obligations of the defendant of which Shafer was entitled to the possession. Upon the commencement of that action against Kelly, notice was given thereof to the railroad company, and a copy of the summons and complaint delivered to it. To that notice the defendant made no reply. That action was subsequently brought on for trial, of which the defendant had notice and various of its officers appeared and testified; and after judgment against Kelly was entered, notice of the result of the trial and the judgment, and that Kelly had appealed from such judgment, was given to this defendant. The defendant having been notified of the commencement of this action against Kelly, and being the party against whom the " ultimate liability " for the payment of the coupons is claimed, it follows, that " in so far as the issues actually litigated in that case are identical with the issues involved in this, the judgment is binding upon the defendant in the same way as if it had been a party upon the record." (Carleton v. Lombard, Ayres & Co., 149 N. Y. 151.) In Castle v. Noyes (14 N. Y. 332) the court .say : " In order to theestoppel it is not necessary that the parties on the record hi both suits should be the same. An estoppel by judgment includes all parties who have a right to appear and control the action and to-appeal from the judgment, although not a party to the record.. It is by no means true that, in order to constitute an estoppel by judgment, the parties on the record must be the same. The term has a broader meaning. It includes the real and substantial parties who, although not upon the record, had a right to control the proceedings, and appeal from the judgment." The rule is, stated by the Supreme Court of the United States in Robbins v. Chicago City (4 Wall. 672) as follows: "But all who are directly interested in the suit and have knowledge of its pendency, and who-refuse or neglect to appear and avail themselves of those rights, are equally concluded by the proceedings." Judge O'Brien, in the case of The Oceanic Steam Navigation Company v. The Campania T. E. (144 N. Y. 665), thus states the rule: " It is sufficient, that the party against whom ultimate liability is claimed is fully and fairly informed of the claim, and that the action is pending with full opportunity to defend or to participate in the defense. If he then neglects or refuses to make any defense he may have, the judgment will bind him in the same way and to the same extent as if he had been made a party to the record. When a party has been served with such a notice the law entitles him to come in as a party upon the record, or to be heard at the trial, and it is not necessary that he should be required in terms to do what the law will permit him to do."
The questions involved in the suit of Shafer v. Kelly were as to, Shafer's right to these particular coupons, and as to the value of the. coupons, their value depending upon whether or. not they were-existing obligations of the defendant in this action. Within the rule thus stated, the judgment was conclusive evidence of Shafer's, title to the coupons, his right to the possession thereof, and that they were valid obligations of the defendant.
The only remaining question is as to the defense of the Statute of Limitations. The plaintiff in this action alleges that the defendant made, executed and issued certain bonds known as first mortgage bonds, which were secured by a first mortgage upon all of the defendant's corporate property and franchises; that the said bonds, were of the denomination of $1,000 each, were under seal, and that, all of said bonds bore interest at the rate of six per cent per annum,, payable semi-annually, and had annexed certain interest warrants or coupons for" $30 each, which were annexed to, and formed a part of, said bonds respectively. This allegation was admitted by the answer. The coupons were offered in evidence and were in the following form:
" The Forty-second Street, Manhattanville and St. Nicholas Avenue Railway Company
" Will Pay the Bearer
"at the office of the Union Trust Company of New York, on the 1st day of Septr., 1880,
" Thirty Dollars,
" for Six Months' interest due on that day on its Bond No. 306.
" DANL. D. WYLIE,
"Treasurers
The complaint thus alleges, and the answer admits, that the bonds were under seal. Each coupon recites, upon its face, that it was an obligation of the company for the payment of six months' interest upon a certain bond therein described.
It seems to be settled in this State that such coupons are to be considered as a part of the bond, and to partake of its character. In McClelland v. Norfolk Southern R. R. Co. (110 N. Y. 475) that question was discussed, and after a review of the authorities it was held (citing with approval the cases in the Supreme Court of the United States in which the question was considered) that the coupons did not outlaw until the statutory time had run against the bond. The same principle is affirmed in the case of Bailey v. County of Buchanan (115 N. Y. 301) where the court •say : " But the coupons, nevertheless, always have some relation to the bonds. Their force and effect and character may be determined by reference to the bonds. They are secured by the same mortgage, and although unsealed are specialties like the bonds and are governed by the same Statute of Limitations which is applicable to the bonds." This is the settled rule of the Supreme Court of the United States. (The City v. Lamson, 9 Wall. 484; City of Lexington v. Butler, 14 id. 282; Clark v. Iowa City, 20 id. 583.) As the bonds are under seal the holder of the coupons was entitled to twenty years after they became due before his claim would be barred by the statute. As these coupons became due between the 1st day of September, 1880, and the 1st day of March, 1885, the six years' Statute of Limitations did not ajiply and the right of the holder of the coupons to sue was not barred.
We think, therefore, that the plaintiffs made out a prima faoie case to recover for the amount of these coupons from the defendant and that it was error to dismiss the complaint.
The judgment should be reversed and a new trial ordered, with costs to the appellant to abide the event.
Van Brunt, P. J., O'Brien and McLaughlin, JJ., concurred j Patterson, J., dissented.