
    The Williamsburgh Savings Bank, Resp’t, v. The Town of Solon, App’lt.
    
    
      (Court of Appeals,
    
    
      Filed January 17, 1893.)
    
    1. Town bonds—Coupons—Interest.
    Past due coupons payable to bearer, although detached from the bonds, have, while in the hands of the holder of the bonds, no greater force or effect than the stipulation for the payment of interest contained in the bonds.
    3. Same—Res adjudicata.
    In a prior action in equity, the defendant sued the plaintiff and sought to cancel the bonds now in question as being invalid. The same points as to the invalidity of the bonds were raised in the equity action as are sought to be litigated in this action, and a final motion was made at the close of the case for a dismissal of the complaint on the ground that the bonds were valid which was granted. Held, that the town was fully estopped by the prior judgment, not only in the broad and general sense of the one issue raised, but equally so as to the specific objections involvedi
    Appeal from judgment of the supreme court, general term, second department, affirming judgment in favor of plaintiff, entered upon verdict directed by the court.
    
      Louis Marshall and B. A. Benedict, for app’lt; Edward B. Thomas and Howard D. Newton, for resp’t.
    
      
       Modifying 47 St. Rep., 496.
    
   Finch, J.

The plaintiffs brought this action to recover upon unpaid interest coupons attached to the bonds of the town of Solon, issued about twenty years earlier, in aid of the Utica, Chenango & Cortland Railroad Company. The complaint sets out in full the judgment of the county judge authorizing such issue upon the consent of the taxpayers, and the further proceedings which followed, and avers the plaintiff’s ownership of the specified bonds and the refusal of the town to pay the matured interest thereon. It further avers that in a prior action between the same parties the validity of the same bonds was put in issue, and that the judgment then rendered conclusively determined that such bonds were the valid obligations of the town. The answer admitted the'rendition of such judgment, but referred to the record on file as to its terms, and alleged that the issues raised by the pleadings in that action were other and different from those contained in the answer, and that such prior judgment was not an estoppel upon the town.

On the trial it was stipulated that either party might read from the printed case prepared on appeal in the former action, and the whole of that record was put in evidence. The defense in the present action was that the bonds sued pn were invalid and void, and not the obligations of the town, and the specific defects relied on were the following: First, that the judgment of the county-judge was void on its face because the petition was not sufficient to confer jurisdiction, and that it did not set forth that the persons signing the same were a majority of the taxpayers of the town of Solon whose names appeared on the last preceding tax list or assessment roll of said town as owning or representing a majority of the taxable property therein; second, that the Utica, Chenango & Cortland Railroad Co. was not a railroad corporation and was never legally organized, because one thousand dollars per mile had not been subscribed to its stock nor had ten per cent, thereon been paid in cash: third, that the bonds issued had upon them neither the seal of the town nor of the individual commissioners: fourth, that after their issue they were altered by affixing thereto individual seals, which was done by some person or persons unknown, but by the act or procurement of the then holders of the bonds so altered: fifth, that the'bonds did not run for thirty years because delivered to the company after their date: sixth, that after the delivery of the entire issue a portion were returned to the commissioners and exchanged for .an equal amount, but of different denominations and different place of payment, the returned bonds having been burned or destroyed, and that the coupons sued on belonged to such bonds issued in exchange: seventh, that when the petition was presented to the county judge no order was made or filed by him for the publication of the requisite notice, and eighth, that the principal of the bonds exceeded twenty per cent, of the taxable property of the town as shown by the last preceding tax list or assessment roll. I shall refer to these detailed objections by the numbers herein affixed to them and without reference to their enumeration elsewhere. It is apparent that a single issue is raised by the complaint and answer, which is the validity or invalidity of the bonds in suit. The defects pointed out or asserted are the grounds or reasons upon which the defendant maintained its side of the issue involved, but that issue is essentially one and single, and is whether the bonds are or are not the legal obligations of the town.

Turning now to the prior judgment for purposes of comparison, we observe that it was between the same parties, their positions as plaintiff and defendant being reversed, and that the subject -matter of the controversy is identical in both litigations. The same bonds, the same liability, the same general question furnish the vital ground of controversy in each. We see further, that the same material issue dominates both. The first action was in equity. The town sued the bondholders, and sought to cancel in their hands the same identical bonds on which here and now the bondholders have sued the town. In the first case the plaintiff could not recover, nor the defendant defeat the action, except by an adjudication, one way or the other, of the validity or invalidity of the bonds. It is easy to see that the plaintiff could ■> not succeed without proving them to be void, and securing a judgment of that tenor. But the same thing was true of the defendant in that action. It might have defended upon other grounds, those peculiar to equity, and independent of the main and central issue, but it did not. One such ground might have been that there was an adequate remedy at law, but that was waived because not raised by demurrer on the one hand, or by pleading the defense on the other. There was no such issue in the case, for if not pleaded, it cannot be made available. Watts v. Adler, 180 N. Y., 646; 41 St. Rep., 325; Ostrander v. Weber, 114 N. Y., 102; 22 St. Rep., 979 ; Town of Menta v. Cook, 108 N. Y, 508; 13 St. Rep., 845. The defendant submitted itself to the jurisdiction of equity by abandoning its claim to meet its enemy only in J a court of law. Another such defense might possibly have been loches, but that was not interposed, and was explicitly shut out from the decision. Instead of it, the defendant chose to use the facts by way of estoppel, a defense equally as good at law as well as in equity. On the trial, no merely equitable question was raised, save and except that if the bonds weie invalid on their face, the remedy was at law, which the court correctly overruled. The defendant’s final motion at the close of the case for a dismissal of the complaint rested upon no such ground, but wholly and entirely on the contention that the bonds were valid and the lawful obligations of the town. That, therefore, was the sole issue involved, and the sole issue ultimately decided. The plaintiff municipality deliberately close the form of equity, saying that it was afraid of the courts of law and of the multitude of suits which might follow, and especially- of some in the federal courts; and before the tribunal which it voluntary selected was bound to show, and could only succeed by showing, that the identical bonds here in controversy were void. The defendant, which might, perhaps, have shielded itself behind two equitable defenses, not touching the issue tendered, did not do so, but threw them away; incapacitated itself from having their benefit; and met its adversary squarely upon its own ground, and became bound to prove the bonds valid or submit to have them canceled. Both parties consented to try that question in equity, and neither resisted its jurisdiction. It is plain, therefore, that the parties were the same, the subject-matter of the controversy the same and the one single and material issue the same.

But let us follow that first trial into its details, even though we may not strictly be bound to do so. The first defect relied on here is that the petition was not sufficient to give the county judge jurisdiction, and precisely that objection was number one in the equity case. It was there stated in the exact and identical words contained in the present answer. Under that pleading the town, was bound to present all its objections to the jurisdiction which it. challenged. It could not pick out one for that trial and save five more for as many separate trials over the jurisdiction, for the estoppel of the resultant judgment covers not only what was, but what might have been decided under the issue raised. Tuska v- O'Brien, 68 N. Y., 449. The j urisdiction then was assailed for the use of the word “ represented,” and there was no other criticism. Nobody had then discovered that in the petition as printed the word and ” is used instead of “ as ” before the word “ owning;” still less that the use of either word made any difference in the plain and obvious meaning of the sentence. That is the criticism now made, and accompanied with the scintilla of an apology by saying that in Mentz v. Cook we went upon a point quite as narrow.

That is a mistake. I thought the point settled upon authority in that case was small, but at least it was visible to the naked eye and did not require a microscope to disclose it; and was not, as here, after two trials, raised for the first time in the general term. Post v. Manhattan R. Co., 125 N. Y., 697; 34 St. Rep., 590. But whether small or not, it might have been raised in the equity case under the objection made, and is defeated by the judgment then rendered, for the trial court found as its fourth, fifth, seventh and eleventh conclusions of law that the petition was sufficient to give the court jurisdiction, and the general term and this court each affirmed that conclusion. It is too late in this case to seek to alter that judgment.

The second defense here is that the R. R. Co. was not a corporation by reason of the non-payment of ten per cent on its subscription. The complaint in the equity suit raised the same objection, and the language of the two pleadings is again identical word for word, a fact which the appellant’s brief mistakenly disregards. Proof was given in the prior case tending to prove the facts alleged, but the court found that the railroad company did become a corporation duly organized, and as a conclusion of law that such company was at the time of such bonding a corporation duly incorporated under the railroad act of this state. There was evidence to support the finding of fact in the affidavit of the directors, Buffalo R. R. Co. v. Hatch, 20 N. Y., 161, and no proof to the contrary, since testimony that some did not pay does not show that the full payment was not made, Lake Ont. & Aub. R. R. Co. v. Mason, 16 N. Y., 451, and so on appeal the general term admitted the corporate existence, and in this court it was not deemed necessary to argue it, but it was clearly assumed.

The third objection here was that the bonds as issued were unsealed. The same objection on the same state of facts was taken in the equity case and submitted for decision. The court found as a conclusion of law that a seal was not necessary to the validity of the bonds in the hands of the defendant as against the plaintiff. The judgment entered explicitly adjudged the same thing, and in addition that the statutory mandate was merely directory for the benefit of the bondholders alone, which they might and did waive. The affirmance on appeal not only made the judgment in this respect conclusive, but the general term in its opinion distinctly said “ the bonds in controversy are not invalid because not sealed,” and cited an array of authority in this court and elsewhere not easy to resist, and the second division *of this court in a very elaborate and able opinion by Bradley, J., in which all his associates concurred except Follett, J., who did not sit because he wrote the general term opinion, said, after holding that a scroll was not a seal, “ but it does not follow that the bonds are, for that reason, invalid. There are no negative words in the statute declaring, or necessarily implying, such effect of the omission of the seal, and whether or not this requirement was directory, as held in Draper v. Springport, 104 U. S., 501, inasmuch as they were made and delivered by the commissioners in the performance of their duty and upon a full consideration, the mistake or failure to affix their seals does not defeat the enforceable validity of the bonds,” and for this doctrine five authorities were cited, three, in this and two in the Federal court. But the court went further, and, holding that it had power to do so, in effect corrected the omission made by mistake and misunderstanding, and rendered V the securities enforceable. If, in that manner also, the town lost its objection, it was as the result of its own action in the selection of a forum. It is not needed to say whether we fully agree with our brethren of the second division. It does not alter the case if we do not. They made the law for this action on the same bonds and between the same parties at all events. In Ashton v. City of Rochester, 133 N. Y., 195; 44 St. Rep. 526, we applied the rule of res judicata, although expressing a disagreement with the prior decision, and any other rule would be intolerable. Lorillard v. Clyde, 122 N. Y, 41, 48; 33 St. Rep., 303.

The fourth ground of objection asserted here was the alteration of the bonds by the addition of wafer seals after their issue. Again we find precise objection taken in the same terms in the ' equity case. Proof of such alteration was then given. The trial court found as facts, that the bonds were issued without seals; that when defendant received them there were wafer seals attached ; that neither the commissioners, the president or treasurer of the railroad company, nor the then defendant or its agent, placed them there or authorized or consented to the act. The trial court held upon the facts found, as conclusions of law, that the bonds were not invalidated by the subsequent affixing of wafer seals; that these were presumptively affixed by a stranger and not by any holder of the bonds that such affixing was not a material alteration of the instrument and was not done with a fraudulent intent on the part of any holder of the bonds, and the judgment rendered literally follows and adopts these findings. That judgment stands affirmed. The criticism now attempted of the opinions rendered on the appeal, which both parties equally cite, is that the affirmance was not necessarily conclusive, but they do not relieve the appellant It is conceded that if the wafer seals were affixed by a stranger the bonds are not harmed. The finding of fact was to that effect, and was material to the issue presented. It binds the town until reversed, but it never has been reversed. On the contrary, the affirmance fixed it beyond recall or review. What is said is that it took less evidence to support it in the equity court than it would at law because of some difference in the burden of proof. But that is the town’s sole fault. It chose to test these bonds in equity and it must submit to the conclusiveness of the finding which it failed to reverse. It was clearly material to the issue, for if found the other way it would have made the bonds void and compelled a decree for their cancellation. I may add, to avoid misapprehension, that I think the burden of proof of a fatal alteration was on the town in both forums. Where the alteration is visible on the face of the instrument the paper discredits itself and the holder should explain. But where the change simply makes the bond perfect in accordance with its own express" terms and apparent purpose there is nothing for the holder to explain. The burden falls on the adversary to prove an alteration such as will affect the instrument and he must show the facts on which he relies. That is both the reasonable and the settled rule. Wharton on Evi., vol. 1, § 629 ; U. S. v. Linn, 1 How., U. S., 104; Davis v. Jenney, 1 Met., 221; Meikel v. St. Sav’g, 36 Ind., 356.

The sixth objection here relied on grows out of the change made in the denomination and place of payment of the bonds held by the plaintiff and after the full amount had been issued to the railroad company. The claim is that the commissioners after delivery of bonds representing the entire authorized amount were functus officio and without authority to make the change. The act of 1869 permitted the commissioners to exchange the bonds for the stock of the railroad company or sell them in the market at their discretion. The act of 1870 gave them a further discretion to issue the bonds in parcels and protected them against any compulsion before the contracting company should, perform its agreement. What constitutes such an issue of -the bonds as to make the commissioners functus officio is not at all beyond reasonable doubt, but we do not need to discuss it or commit ourselves to any opinion about it. The identical question appears in the equity suit. The facts were the same and in no respect different. The trial court held as conclusions of law that the fact that the bonds in suit were issued to the railroad company in place of a like amount of other bonds delivered to but not used by such company does not invalidate the bonds owned by the defendant; that the .town was estopped from alleging such exchange by the issuing of such bonds by its commissioners and by the recitals in the bonds, and that the defendant bank was the owner of the bonds in good faith and purchased them for full value in the usual course of business. These legal conclusions were affirmed by the court of last resort, the second division holding that the town was bound by the representation of its commissioners that the bonds issued were in pursuance of the authority conferred, since the fact was one peculiarly within the knowledge of the agents acting in a case where the burden of the town was in no manner increased. I think we ourselves have endorsed that doctrine, Brownell v. Town of Greenwich, 114 N. Y., 518; 24 St. Rep., 6; Hoag v. Same, 133 N. Y., 163; 44 St. Rep., 519 ; but whether we have or not, and whether we agree or not, it settled the law between these parties and established the validity of the bonds in suit as against the objection founded on the substitution made.

Here again the learned counsel for the appellant makes the mistake of saying there was no such issue to be decided. The town had not only denied its liability upon the bonds held by the defendant in the equity suit, but had affirmatively averred that they were issued without authority and were not the valid obligations of the town. It had the right to introduce any competent evidence of that fact; it did prove the facts of the substitution, under the objection of the bondholder that they were not pleaded, which the court properly overruled. ' The facts were found and the law applicable as I have stated it; but among the conclusions of law was one to the effect that the substitution was not within the issues because not pleaded. To that the plaintiff had an exception and one perfectly valid and sufficient to reverse the judgment unless there was another and sound answer to the evidence. Both appellate courts necessarily recognized the error of saying that there was no such issue, the need of admitting that there was, and the consequent order of reversal unless there was a fair and just answer to the facts found. The second division made such answer and one so necessary and material that without it or some •other equally conclusive upon the merits of the objection a reversal instead of an affirmance of the judgment would have been inevitable. It is quite too late for the party who forced this issue to a decision to claim that it was not necessarily decided.

The three remaining defects alleged are so clearly of no consequence as to justify no waste of time over them. That no formal order of .publication of the county judge’s notice beyond its re•cital in the published notice itself was or could be found appeared by the proof in the equity suit, but was held to be a mere irregularity and immaterial defect; that the amount of the bonds issued •did not exceed twenty per cent of the aggregate values on the assessment-roll was in the same suit conceded; and the delivery of the bonds at a date later than their own date was also shown and is, obviously, a harmless fact.

It is thus apparent that the town is fully estopped by the prior judgment, not only in the broad and general sense of the one issue raised and decided, but equally so as to the specific objections involved. It is of no consequence that the judgment was in •equity, and that fact does not prevent the operation of the estoppel. Tuska v. O'Brien, supra. The town has had its day in court, a full opportunity to assail and test the bonds, a patient hearing and direct decision upon all the questions now raised. It would be hard to find a case to which the doctrine of res adjudicóla could more justly and clearly apply than this.

But there is a remaining question open for consideration, and that is the allowance of interest upon the coupons from their date. It results in an award of compound interest, which we have held not- to be recoverable, except upon some new and independent agreement, made upon sufficient consideration. Young v. Hill, 67 N. Y, 162. The inquiry here is, of course, whether the coupons sued come within that exception, and the solution of the problem depends upon their nature. We have already in this court determined what they are, and described their character and quality. In Bailey v. County of Buchanan, 115 N. Y., 297; 26 St. Rep., 128, Earl, J., said that while it was true that past due coupons payable to bearer when detached from the bonds are- for many purposes separate and independent instruments which may be negotiated and sued upon without the production of the bonds, yet such coupons always have some relation to the bonds; that until negotiated or used in some way they serve no independent purpose; that while they are in the hands of the holder they remain mere incidents of the bonds and have no greater force or effect than the stipulation for the payment of interest contained in the bonds; and that while they continue in such ownership and possession it can make no difference whether they are attached or detached, as they are then mere evidences of the indebtedness for the interest stipulated in the bonds. I think that adjudication concludes us, and. a re-examination of the question, in the light of the very full and able discussion in the present case, only strengthens the conclusion then reached, in which we all concurred. Interest, as a rule, follows the principal without becoming principal, and cannot be compounded by force merely of the contract; but that general rule has been modified somewhat by an exception growing out of the character and purpose of interest coupons. They may become separate and independent instruments. When they do, the exception is for the first time needed and for the first time applies. Until they do, the promise is merely to pay interest, and is governed by the usual rule. They do not become separate and independent instruments until they are utilized as such. Before that occurs and while they remain in the hands of the holder of the bonds the occasion for the exception has not arisen and the exception does not apply. That is plaintiff’s situation. It is true, it was prevented -from suing by an injunction, but the damages occasioned by it are awarded on its dissolution, and theoretically at least cover all losses thereby sustained.

It follows, therefore, that the judgment for the plaintiff was erroneous to the extent of its award of 'interest upon the coupons, and should be modified by deducting therefrom the sum of four thousand, two hundred and forty-four dollars and fifty-two cents, and, as modified, be affirmed, without costs to either party in this court.

All concur.  