Halstead v. Mayor of New-York

By the Court, Edwards, J. This action is brought Upon two warrants or drafts given by the defendants, and made payable to P. A. Cowdrey or order; one in the sum of $2661,27, the other in the sum of $300. The proof shows that the drafts, after having been duly endorsed, were received by the plaintiff, and there is no evidence that hehad any other notice of their consideration than that which is given by the instruments themselves. No objection is made either to the form in which they are drawn, or to the manner in which they are signed; but it is contended that the defendants had no authority to give them. The consideration of the draft for the larger amount consisted of taxable costs, which accrued in separate suits, brought in the name of the people of the state of New-York against eight of the supervisors of the city and county of New-York, to recover a penalty of $250, from each of them, for refusing to allow the account of one of the associate judges of the court of general sessions of the city and county of New-York, as they were required to do by the fourth section of the “act to enable the supervisors of the city and county of New-York [222] to raise money by tax,” passed May 26th, 1841. (Laws of 1841, p. 257.) The consideration of the other draft consisted of counsel fees which had accrued in the defence of the same suits. The suits were commenced in the month of September, 1841; and some years afterwards judgments were recovered against the defendants in each of them. On the 8th of May, 1847, and a few days before the drafts bear date, a resolution was passed by the common council, authorizing and directing the comptroller to pay the amounts of the several judgments, with the taxable costs and reasonable counsel fees. It was under this resolution that the drafts were drawn; and they appear to have been given for all the costs and fees which had accrued in the defence of the several suits. The first question to be considered is, whether the defendants had the corporate right and authority to give the drafts for such a purpose. The charter under which the defendants were incorporated gives them no express power in reference to suits, except that of suing and defending suits in their corporate name and capacity. The extent to which they may exercise that power is not expressly stated ; but, like every other incorporated body, they must have, by implication, and as a necessary incident to the powers expressly granted to them, the right to institute and defend suits for the purpose of protecting their own property and interests, and also for the purpose of protecting their corporate privileges and franchises. This is a right of self protection which must belong as well to artificial as to natural persons. But, as a general rule, it can only be exercised in cases where the corporation is a party to the suit. There may be cases, however, in which, as a matter of necessity, the defendants can exercise this right where they are not the actual parties to the record; as in defence of titles acquired from them, and which they are bound to defend, or in defence of persons acting by their authority, and in their behalf. The reason why the defendants would have the right to defend a suit in either of the cases last supposed is, that although not the nominal parties, they would be the real parties in interest. In cases, however, [223] in which the defendants are neither the parties to the record, nor the real parties in interest, their corporate right to institute or defend suits must cease. In the case before us it appears that the costs and fees, for which the drafts in question were given, did not accrue in any suit brought against the defendants, or against any persons who acted under their, authority and in their behalf. On the contrary, they accrued in suits against persons who acted on their own individual responsibility. The suits were brought, too, for the purpose of enforcing a claim which the defendants had no interest in resisting, and for which they were not liable. They were, in no respect whatever, the parties in interest. And although a question as to the constitutionality of the law under which the associate judges held their offices, might have arisen incidentally, the case is not altered. At the time when the suits were commenced, the act under which the associate judges were appointed had been in force for upwards of a year, and they had acted as members of the court of general sessions during the greater part of that time. No proceedings had been instituted by the defendants for the purpose of showing that their corporate franchises had been abridged or impaired by the appointment of such judges. The constitutionality of the law under which they held their offices had thus been tacitly acquiesced in, and it does not appear that the defendants, in this respect, considered it any infringement of their corporate rights and privileges. If the supervisors chose to assume a different ground, and to disobey the law which required them to allow the accounts of the associate judges, they did so at their own peril, and they should bear the consequences. The act complained of, was done on their own responsibility, and the penalty for their misconduct is entirely personal. But it was contended on the argument, that even if it should be held that the defendants had no right to give their drafts, for the consideration for which these were given, yet, that the plaintiff is entitled to recover as a bona fide holder without notice. It is not denied on the part of the defendants that the [224] drafts in question are, in their legal effect, negotiable bills of exchange, and that the plaintiff is a bona fide holder, with no other notice of their consideration than that, which appears upon the face of the drafts; but it is contended that if they were given without corporate authority on the part of the defendants, they are void, even in the hands of a bona fide holder without notice. It will be remembered that the defendants have no express power given to them by their charter to issue negotiable paper. It has, however, long been a settled doctrine in this state, that a corporation without any express power in its charter for that-purpose, may make a negotiable promissory note or bill of exchange, when not prohibited by law from doing so; provided such note or bill is given for a debt contracted in the course of its proper legitimate business. (Mott v. Hicks, 1 Cowen, 113. Barker v. Merchants' Fire Insurance Co. 3 Wend. 94. Attorney General v. Life and Fire Insurance Co. 9 Paige, 477. Moss v. Oakley, 2 Hill, 675. Kelly v. Mayor, &c. of Brooklyn, 4 id. 263.) But, as far as we are aware, the question has never been decided whether a note or bill issued by such a corporation, not in the course of its proper legitimate business, is valid in the hands of a bona fide holder without notice. In the .case of the Attorney Gen. v. Life and Fire Ins. Co. (9 Paige, 477,) in which the question arose, the chancellor declined to express any opinion, and placed his decision upon other grounds. It was contended, on the argument, that the rule of the law merchant, which protects the bona fide holder of negotiable paper, without notice, was of universal application; and that, if the defendants had a right to issue negotiable paper, such paper must, ex necessitate, be subject to the same rules as the negotiable paper of an individual. This view seems plausible; but will it bear the test of examination ? In the first place, the defendants have no general power, either express or implied, to issue negotiable paper. They have only a special and conditional implied power for that purpose; that is, it is necessary as a condition precedent to the validity of such paper that the debt which forms its consideration should be contracted in the [225] course of the proper legitimate business of the defendants. Fhe act under which they were incorporated is declared to be a public act. Every person who takes their negotiable paper is bound to know the extent of their powers, and is presumed to receive it with a full knowledge that they have only a limited and conditional power to issue it. He is thus put on his inquiry, and takes it at his peril. The circumstances, under which a bona fide holder without notice receives the negotiable paper of a natural person, or of a corporation having the general express power to issue negotiable paper, are very different. In both these instances the power to issue such paper is general and unconditional; and hence the rules which have been established by commercial policy, for the purpose of giving currency to mercantile paper, are applicable. It results from the views which have been expressed, that the drafts in question, not having been issued by the defendants in their proper and legitimate business, are void in the hands of the plaintiff, although received by him without actual notice of their consideration. Judgment must be entered for the defendants.