Case Name: Matter of the Application of John Ellard and Margaret Ellard to Require the Mount Morris Bank of New York to Pay Over Money Deposited in said Bank by said Petitioners
Court: New York Supreme Court
Jurisdiction: New York
Decision Date: 1909-02
Citations: 62 Misc. 374
Docket Number: 
Parties: Matter of the Application of John Ellard and Margaret Ellard to Require the Mount Morris Bank of New York to Pay Over Money Deposited in said Bank by said Petitioners.
Judges: 
Reporter: New York Miscellaneous Reports
Volume: 62
Pages: 374–379

Head Matter:
Matter of the Application of John Ellard and Margaret Ellard to Require the Mount Morris Bank of New York to Pay Over Money Deposited in said Bank by said Petitioners.
(Supreme Court, New York Special Term,
February, 1909.)
Banking — Deposits — Certificates of deposit — Enforcement of payment — Provisions of Banking Law unconstitutional.
Constitutional law — Obligation of contracts and vested rights — Regulation of remedies — ■ Remedies subjecting banks to double liability.
The provisions of sections 227 to 238 of the Banking Law, authorizing a person who claims to be the owner of a certificate of deposit which is alleged to have been lost or destroyed to maintain a proceeding to enforce payment thereof, are unconstitutional for the reason that the Legislature cannot cancel the rights of a bona fide holder of the certificate, as that would impair the obligation of the contract; and the statute therefore imposes upon the maker of a certificate of deposit a liability to pay the amount of the certificate under the provisions of the statute and to pay it a second time to a bona fide holder who might produce it and therefore impairs the freedom of contract of the maker of the certificate.
Nor can the constitutionality of the statute be upheld upon the ground that it affects the remedy merely since it attempts to extinguish the contract altogether as to a bona fide holder after the amount has once been paid by the maker of the certificate under the provisions of the statute.
Motion for an order requiring the Mount Morris Bank of ISTew York to pay applicants the amount with interest named in a certain certificate of deposit.
Daniel E. Cohalan, for petitioners.
Alexander & Green, for respondent.

Opinion:
Seabury, J.
The petitioners move for an order requiring the Mount Morris Bank of New York to pay them the amount, jvith interest, named in a certificate of deposit issued and delivered by the bank to them. The certificate provides as follows:
" No. 12,730.
" Mount Morris Bank of the City of New York.
"New York, January 10th, 1908.
" $26,438.03. John Ellard has deposited in this bank twenty-six thousand four hundred and thirty-eight 03-100 dollars, payable to the order of John or Margaret Ellard on the return of this certificate properly indorsed, with 3v,- per cent, interest, if held until April 1st, 1908."
" Lindley H. Hill,
" Cashier.
" William Alexander,
" Teller."
Hpon the back of this certificate was subsequently indorsed the following statement: " Interest paid to April 2d, 1908." The petitioners allege that the certificate has never been indorsed, assigned or sold, and that it was lost on or about October 6, 1908, notice of which loss was given by the petitioners to the bank on November 10, 1908. The present application for an order requiring the bank to pay to the petitioners the amount named in the certificate of deposit is made under sections 227 to 238 of the Banicing Law (Laws of 1899, chap. 451, as amd. by Laws of 1901, chaps. 171, 503). The bank, in answer to the petition, attacks the constitutionality of the statute under which the application is made. The statute referred to authorizes a person claiming to be the owner of a certificate of deposit which is alleged to have been lost or destroyed to maintain a proceeding to enforce payment of such certificate, or in the event of the petitioners having given a bond of indemnity to the bank, and having thus secured payment of the certificate of deposit, to procure an adjudication that the certificate is null and void and that the bond be discharged. This statute makes no provision for the protection of the rights of third parties in the certificate except to require notice of the application to be published in two newspapers. This statute also provides (§ 11, Laws of 1899, chap. 451, as amd. by Laws of 1901, chap. 171) that after the amount shall have been paid as directed by the order of the court " no claim thereafter made by any person having such certificate in his or her possession shall be available against such bank, and the bank shall forever thereafter be fully and entirely relieved of any liability by reason of its having issued such certificate or for the money due thereon." The establishment of lost instruments has long been a well defined ground of equitable jurisdiction (Reeves v. Morgan, 48 N. J. E. 415), and such jurisdiction can be invoked in reference to instruments which are negotiable. The general rule is that unless it appears with certainty that no loss could result, equity requires the giving of an indemnity before granting this relief. Equitable jurisdiction arose from the fact that the remedy at law was inadequate. At common law a recovery upon an instrument was allowed only when proferí was made. When the instrument was lost this remedy was necessarily unavailable. Statutory enactments have clothed courts of law with more ample authority in these cases, but such statutes generally require that indemnity shall be given. Such is the rule prevailing in an action at law in this State. Code Civ. Pro., § 1917. These rules have their origin in justice and reason, and a statutory substitute for them which will not impair private rights is not easy of creation. The crude attempt to supply a substitute revealed in the statute now before the court is open to grave Ejections. So far as this statute attempts to affect rights under certificates of deposit given before its enactment it has already been declared unconstitutional. Matter of Cook, 86 App. Div. 586. In that case the court decided only the question before it and intimated no opinion as to the constitutionality of the statute as affecting certificates of deposit issued subsequently to its enactment. The question which was left undecided in that case is the precise question presented for decision in the application now made. The constitutionality of a statute is to he tested " not by what has been done under it, but by what may' by its authority be done." Stuart v. Palmer, 74 N. Y. 183, 188. While the courts have experienced considerable difficulty in determining as to the exact legal character of certificates of deposit, yet it is now settled that such certificates may by their terms' be negotiable. The certificate which was issued to the petitioners by the Mount Morris Bank is negotiable. Being negotiable, one who has possession of it as a bona fide holder is entitled to payment. If the certificate of deposit has become the property of a bona fide holder such a holder is absolutely entitled to receive payment of the amount named in the certificate. The fact that the bank had paid the amount of the certificate to the petitioners to whom it was originally issued, would not be a defense to an action upon it by a bona fide holder. The right of a bona fide holder of a negotiable instrument to recover upon it against the maker cannot be affected by the fact that the person to whom the certificate was delivered in the first instance has recovered the amount therefor from the bank and that the bank paid such sum in the belief that the certificate was lost. Farmers' Bank v. Maxwell, 32 N. Y. 579. For can the statutory provisions, that the bank shall under these circumstances be relieved of further liability, cancel the contract upon which a bona fide holder on the production of the original certificate is absolutely entitled to recover. It is not possible to sustain the constitutionality of this statute upon the theory that the bank having contracted with knowledge of its provisions assumed on that account the risk of being compelled to pay twice the amount of its original obligation. In issuing the certificate of deposit in question the bank bound itself by its contract to pay the sum therein named to the bona fide holder of the certificate, and neither the act of the bank nor the Legislature can cancel the rights of a bona fide holder of the certificate. So far as this act assumes to defeat the right of a bona fide holder, the counsel for the petitioners seems to recognize that it is invalid. He is, therefore, obliged to assume the position that the bank may be forced to pay twice the amount of its obligation, and argues that this is just and constitutional because the bank, knowing the provisions of the statute when it issued the certificate, should have limited its liability. If we assume for a moment that this is in fact the attitude in which the bank is placed, let us consider what the effect of its position would be. If this is its position it is forbidden to issue a negotiable certificate of deposit unless it is willing to assume the hazard of being compelled to pay it twice and thus assume a double liability. If it attempts to limit its liability the instrument ceases to be negotiable. It is argued that the bank should limit its liability by providing that the certificate should be assignable only on the books of the bank. The difficulty with this suggestion is that if it was followed the certificate would be no longer negotiable. Zander v. N. Y. Security & Trust Co., 178 N. Y., 208. The bank cannot annex any provision to the certificate which would limit its li ability or protect itself against the reappearance of the certificate in the hands of a bona fide holder without destroying the negotiability of the instrument. That -the instrument shall by its terms be payable absolutely and at all events is an essential requisite to its possessing the quality of negotiability. The argument of the counsel for the petitioners leads, therefore, to this result, that to avoid the position involved in asserting that the rights of a bona fide holder would be canceled under the statute, he is forced to the position that the bank, under the statute, cannot issue a negotiable certificate unless it assumes the hazard of being compelled to pay it twice. A statute which imposes upon the maker of a certificate of deposit a liability equal to twice the amount of its contract, provided that it issues a negotiable certificate of deposit, impairs its freedom of contract. If, therefore, we view this statute either from the standpoint of the bank or of a bona fide holder other than the person to whom it was issued, we find it equally repugnant to constitutional provisions. If the attempt be made to sustain the statute upon the ground that the bank can be called upon to pay but once, as the statute itself in terms provides, then, if the instrument is in fact produced by a bona fide holder, his right to recover upon his contract is canceled and the statute impairs the obligation of his contract. If the attempt is made to sustain the statute upon the ground that the bank can only be held liable for the amount of its contract upon condition that it limit its liability, the condition annexed is equivalent to a prohibition against issuing a negotiable certificate and thus destroys the bank's freedom to contract. An effort is made to sustain the constitutionality of the statute upon the ground that it affects the remedy merely. The statute under consideration cannot be sustained upon this ground. It provides that when the bank shall have paid the amount of the certificate pursuant to the order of the court it shall be relieved of further liability. This statute does not, therefore, provide a change of remedy by which cither the bank or a bona fide holder may enforce the contract, but attempts to extinguish the contract altogether. As was said in Matter of Cook, sufra: " The statute in question offers no indemnity to the party whose rights are abrogated. It attempts to d-ivest the owner of such a certicate of his property upon a conditión not named in the contract, in clear contravention, as I think, of the rights guaranteed to him by the State and Federal Constitutions." While this criticism of the statute was directed to its being applied when the certificate was issued prior to its enactment, I cannot see that it -loses any of its cogency when applied to the facts now before the court. Having been reluctantly forced to the conclusion that the statute is clearly in contravention of the Constitution, no other alternative is possible than to so declare it and to deny the application of the petitioners. The application is denied.
Application denied.