Court Opinion

ID: 3579716
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:31:02.235183+00
Date Added: 2024-06-11T14:07:20.251632
License: Public Domain

The only question in this case is whether the coupons which are the subject-matter of the action are upon their face negotiable instruments. I think they are, and my reasons for this conclusion stated as briefly as may be are these: It is admitted that the coupons are a part of and impressed with the same legal character as the bonds themselves from which they were detached. If the bonds are negotiable so are the coupons. I do not understand that it is seriously claimed that the fact that a fund was set apart and conveyed to a trustee to assure the payment of the bonds as they fell due affected the legal character of these obligations as negotiable instruments so long as the holders were not confined *Page 185 
or limited to that fund for payment. It is, I assume, a very common practice in the modern business world to set aside a fund or to provide for the creation of a sinking fund for the ultimate payment or redemption of bonds, but it was never supposed that this fact would affect their negotiable character. The very purpose of such financial arrangements is to give greater assurance of payment to those who purchase the bonds in the market by adding to their value and credit. The fund is a protection to the holders of the bonds and in some cases to others who may become liable for their payment in whole or in part. In this case not only the fund set apart, but all the other assets of the company as well, were pledged for the payment of the bonds, and, hence, the fund only added to their credit and financial value without affecting in the least their negotiable character.
The only question in the case as to which there is any serious dispute is, as I conceive, whether the clause on the face of the bonds which provides that "no present or future shareholder, officer, manager or trustee of the Express Company shall be personally liable as partner or otherwise in respect of these bonds or the coupons appertaining thereto" deprives them of the character of negotiable paper. The contention of the plaintiff is that this clause destroys the negotiable quality of the bonds though payable to the bearer or holder. This clause contains also the statement that the bonds "shall be paid solely out of the assets assigned and transferred to the said trust company or out of the other assets of the Express Company." So that all the property of the company issuing the bonds was and is available to the holders as the source of payment and satisfaction thereof. I do not think that the obligations of a joint stock company payable to bearer are rendered non-negotiable from the fact that the paper upon its face contains a clause which exempts the shareholders and officers from liability so long as the general assets of the company are pledged for payment. But this is the disputed question in the case, and the contrary view is supported by an argument which rests mainly, if not *Page 186 
entirely, upon the proposition that joint stock associations are partnerships, and that the obligations in question are the obligations of the individual shareholders, and that they are liable upon them, jointly and severally, the same as partners. Stating the argument in another way it comes to this: The bonds in this case are the bonds of a partnership, made in the name of the firm, and though containing a promise to pay the bearer or holder a specified sum of money in the future, upon a day certain, yet the promise is coupled with a condition that none of the partners shall ever be held liable. If the premises upon which the argument is based are correct, it would, I admit, be difficult to resist the conclusion, unless, indeed, it could be held that the conditions might be rejected as utterly inconsistent with and repugnant to the promise and, therefore, void. Adopting the theory that the bonds are the obligations of the shareholders as partners, the repugnancy is quite obvious. But I do not think that the bonds in question are in any proper or legal sense partnership obligations made by the shareholders as partners. Primarily the promise to pay the bearer or holder is not the promise of the shareholders, but of the legal entity represented by the express company as such.
A joint stock company, whatever else may be said about it, is certainly for most, if not all practical purposes, a legal entity, capable in law of acting and assuming legal obligations quite independent of the shareholders. The idea that these companies occupy some undefined and undefinable ground midway between a partnership and a corporation has practically faded away and cannot be applied to the question with which we are now concerned. It is not very important to inquire what they were in their origin, but rather what they are now, or at least were when the bonds in question were issued and sold to the public. It seems to be conceded or assumed that if the express company, at the time of issuing the bonds, had been incorporated by filing the usual certificate for that purpose, the clause exempting the shareholders from liability would not affect their negotiable character. It *Page 187 
remains only to consider what sound distinction, if any, can be made between the twelve millions of bonds issued by the express company and the other untold millions of other bonds issued by corporations. They are all negotiable in form, that is to say, payable to order or bearer, as the case may be. Assuming that the shareholders of a corporation are or may be liable for the corporate debts, and that the clause referred to would not affect the negotiable quality of its paper, what reason is there for holding that the clause destroys the negotiable quality of the bonds in question? The proposition that in the one case the bonds import a promise to pay by a corporate body and in the other the promise of individuals as partners or as a partnership firm, does not seem to me to be reasonable or tenable. The argument in support of that theory would seem to be somewhat strained. The general rules of law that govern partnerships have very little application to joint stock companies, at least so far as concerns the question now under consideration. The principle of agency which enables one partner to bind all his associates as well as the firm has no application to such companies. The death of one or more of the members of the company does not work a dissolution. The doctrine of survivorship, so important as between partners, does not exist as to such companies, and so it would be difficult to state a single general rule of partnership law that in its full extent could be applied to such companies. On the other hand, there are very few of the legal principles that apply to corporations that do not apply in some form to these companies. They are taxed and perpetuated through the shares of stock as corporations are. They are entitled to assume an artificial name, to sue and are subject to be sued. They may use a common seal and through the shares of stock they have perpetual life even in a larger sense than corporations have. Their general powers and duties to the public are practically the same and regulated in the same way as corporations. I need not pursue the comparison any further, nor enlarge upon it, since the learned opinion of my associate, Judge HISCOCK, who has referred to the various judicial *Page 188 
views on the subject, pro and con, fully covers that feature of the case.
It is very true that the shareholders of such companies are liable ultimately for the company's obligations, but that does not make such companies partnerships in the sense that their obligations are the contracts or promises of the shareholders. The shareholders of corporations are or may be liable in the same way, but such liability is not, of course, that of partners. The statutes of this state prescribing the method of procedure in suits by and against joint stock companies (Code Civ. Proc. §§ 1919 to 1924) do not qualify what has been stated concerning the legal nature of such companies. They embody the distinct idea that the liability of the shareholders is not primary, but secondary, the same as in case of corporations; and even if these statutes had never been enacted it is quite likely that the Adams Express Company could, in that artificial name, sue and be sued in the same manner as a corporation, since the State Constitution (Art. 8, § 3), while enacting that corporations have the right to sue and are subject to be sued the same as natural persons, defines joint stock companies having any of the powers and privileges not possessed by individuals or partnerships as corporations within the meaning of that section. The main purpose of these provisions of the Code would seem to be the enactment of a mode of procedure which would enable creditors of the company, or parties having a cause of action against it, to exhaust all legal remedies against the company as a legal entity before resorting to the personal liability of the shareholders analogous to similar rules applicable to corporations. It is, I think, very difficult to avoid the conclusion that these companies at this day and in this state possess substantially and practically all the attributes of corporations, and still more difficult to assign any sound reason for any distinction to be made between the negotiable character of the bonds of each when made payable to bearer. These companies are for all practical purposes quasi
corporations, and it seems to me are clearly such so far as concerns the negotiable character of its commercial paper *Page 189 
or promise to pay a specific sum of money to bearer upon a day certain.
If the bonds in their present form had been stolen from the Adams Express Company by one of its clerks or employees, or even a stranger, and they had been put in circulation and passed from hand to hand to the possession of an innocent holder who had purchased them in the market in good faith and for value, and the company had brought suit against him to recover the stolen property, as the plaintiff in this case has, we would then have the same question before us that we have now. It may be safely asserted that under such circumstances the company would and ought to fail in the action, and that it would not be permitted to impeach the holder's title to the paper by the fact that upon its face there was a condition discharging the shareholders from liability, and, hence, were not negotiable instruments. When the important powers and functions which these companies possess and exercise in the business and commercial world are considered, the close analogy between corporations and joint stock companies is made still more evident. They are not only common carriers of property with world wide connections and ramifications, but deal in money credits and exchanges in practically the same way as banks. They purchase and deliver goods upon the order of local customers in all parts of the country and even in foreign countries. They have issued millions of securities in the form of bonds payable to bearer that have been sold to the public. It seems to me that it would be at least unwise to discredit these securities by holding that in consequence of the exemption clause as to the shareholders' liability the bonds are mere contracts to pay without the quality of negotiability. Such a result, I think, would not be sanctioned by sound policy or sound law and would be contrary to the intention of every one connected with the transaction either as maker or buyer, since it cannot be supposed that a business man of any sense would have offered to sell in the market, and much less to buy, a partnership obligation payable to bearer with a condition clause *Page 190 
upon its face releasing all the partners from any obligation to pay it.
So far as concerns the question involved in this appeal, the bonds, I think, are not the bonds of the several members of the company as partners, but of a legal entity as such, with an artificial name analogous to a corporation, and they possess all the qualities of corporate bonds payable to bearer. It is quite obvious that in respect to the negotiable quality of the bonds they must be considered and treated in law either as partnership or as corporate obligations. There is no middle ground upon which to rest. The argument that the promise to pay is that of a partnership does not seem to me to be supported by any conclusive reasons, and if adopted might destroy a large class of securities held by innocent investors. The general rule, which I fully recognize, no doubt is that in order to give to commercial paper, whether in the form of bonds or promissory notes, the quality of negotiability, and the legal rights which appertain to such instruments, the promise to pay must be unconditional and all the assets of the promisor or maker must be pledged to make good the promise according to its terms. The bonds in question, in my opinion, comply with that rule, unless it can be held that the liability of the shareholders of the company can be called assets within the meaning of the rule and I think it cannot. The assets of the express company, the maker of the bonds in question, consisted of its actual, tangible property over which it had full power of disposition, dominion and control, and not the liability which the law imposes upon shareholders for the company debts in certain cases and upon certain contingencies. There is no reason that I can perceive for denying to a bona fide holder of one of these bonds any means of defending his title when attacked that the law gives to a like holder of the negotiable paper of an individual or corporation.
I think that the order appealed from is right and should be affirmed, with costs. *Page 191