Sherman v. Barnard , 19 Barb. 291 ( 1855 )

By the Court,

T. R. Strong, J.

The consideration of the notes of May 3d, 1852, set forth in the complaint, as is substantially alleged in both the complaint and answer, was the sale and assignment of the canal contract in the complaint mentioned, executed in behalf of the state, in pursuance of the provisions of the act of the legislature of July 10th, 1851, entitled “ An act to provide for the completion of the Brie canal enlargement and the Genesee Valley and Black River canals,” which act the court of appeals has pronounced unconstitutional and void. (Newell v. The People, 3 Selden, 9. Rodman v. Munson, referred to in that case, and reported in the supreme court in 13 Barb. 63, 188.) In those cases the court also decided that contracts executed under that act, were made on the part of the state without authority, and were therefore void.

It is urged on the part of the defendant, that the provisions of the act in relation to letting the work are constitutional, although the rest of the act may not be; that they are not connected with or dependent upon-the parts of the law which relate to the issuing of revenue certificates; that they do not essentially change the law as it existed before and at the time of the passage of the act, except as to the officers who are to execute the act on the part of the state; and hence the contract is valid. The counsel insists that this point was not raised, discussed or decided in the court of appeals in the cases referred to, and that the question which it presents is an open one. It is sufficient in regard to it to say, that there is a close and material connection between the provisions for entering into contracts for the work, and those in respect to making payments for the same; that the former are at least impliedly and substantially dependent upon the latter; that the act forms a general plan or scheme, of which the provisions for paying for the work are the principal and most important, and in reference to which all the others were made ; and that they being in conflict with the constitution, the scheme as such is unconstitutional and the entire act void.

The theory of this action is, that the canal contract is void on account of the unconstitutionality of the act referred to; that being void, the sale of it was not .a valid consideration for' the notes, which are therefore void; and that not being liable on the notes, the plaintiff is entitled to be protected against their being passed to a bona fide holder, and to have them delivered up to him and canceled; and also, to be repaid what he has paid on them.

Regarding the contract as void, which I must do under the decision of the court of appeals, and for the reason stated, the principal question to be considered is, was the sale and transfer of the contract a sufficient consideration to support the notes ? In Rodman v. Munson, it was held that a note given upon a purchase of a canal revenue certificate issued under the act, was void for want of consideration. The action was upon the note: the defense set up was, that the act was in conflict with the constitution, and void; that the certificate was for that reason unauthorized and void; and that the sale and transfer of the certificate, it being invalid, was not any consideration for the nóte. This defense was sustained in the supreme court, at special and general term, and in the court of appeals.

It does not appear that the question, whether the sale of the certificate, assuming the act under which it issued to be void, formed a valid consideration for the note in that case, was discussed by counsel in the court of appeals or examined by the court. In the supreme court, in the opinion at special term, it is said, “If the certificate is void and without pecuniary value, then the note is without consideration, and its payment cannot be enforced;” and in the opinion of one of the justices at general term, the question is adverted to, and is the subject of a few brief remarks. The point was so directly involved in the ease and the decision, that it must have received all the attention supposed to be due to it, both in the court of appeals and in the supreme court, although it is probable, judging from the reports of the case, that there was not in either court much labor or thought bestowed upon it. In both courts it appears to have been viewed and treated as free from any difficulty.

I am inclined to regard the decision in that case, as controlling authority that a sale of such a certificate, and upon the same principle a sale of such a canal contract as in the present case, without any special circumstances, is not in law a consideration for a promise to pay money. But, independent of that decision, the naked legal proposition that the sale of an absolutely void chose in action will not form any consideration for a promise, is, I think, incontrovertible. If void,, no legal obligation is created by it; and it is, in the view of the law, as if it did not exist. Void things are as no things ; and some value is essential to a valid consideration. (Story on Contracts, § 443.) The principle is the same, notwithstanding such chose in action is salable in market for even the full value that would attach to it if valid. If the law does not recognize it as having some binding force, and will not enforce it, a note given upon the sale of it will be invalid for want of consideration. It has no intrinsic, no legal value, and therefore in law no value. Although salable in market, if the sale is on credit no legal debt is thereby created ; payment may be resisted for want of consideration; and, if the sale is for cash, if the money paid cannot be recovered back it is not because a consideration was received for it, but upon the principle which precludes the recovery of money voluntarily paid, with a full knowledge of all the facts.

It is set up in the answer in this case, that at the time of the sale of the canal contract, and the execution of the notes, the question of the constitutionality of the act of the legislature, and the validity of the contracts made under it, was pending and undetermined in the court of appeals, and that the purchase of the contract was made with express reference thereto, and at the risk of the purchasers, in respect to that question and the decision; they agreeing to pay a certain sum absolutely, and a further sum in case the law should be declared valid. And it is claimed on the part of the defendant, that these facts distinguish the present case from that of Rod-man v. Munson, and bring it within the principle of the law that the compromise or purchase of a doubtful claim is a good consideration for a contract. The learned justice at special term took this view of the case, and placed his decision upon that principle.

Compromises of' doubtful claims are held by the law a sufficient consideration for a promise founded upon them, for the reason that they have for their object the prevention of litigation, which is important to the parties and the'public. (Chitty on Contracts, 4th Am. ed. 36. Story on Cont. § 440. Russell v. Cook, 3 Hill, 504. Stewart v. Ahrenfeldt, 4 Denio, 189.) But the claims must be really doubtful; if they are manifestly without foundation, a settlement of them will not support a promise.

The doctrine that a sale of a doubtful right is a good consideration, must stand upon a different foundation. It must be that the claim has some legal value ; that there is a legal possibility that it can be enforced and prove a' benefit to the purchaser. When the doubts relate to the facts, then there is such value and such a possibility.

The mere circumstance that the purchasers stipulated to take the risk as to the validity of the act of the legislature, and the contract, does not vary the law of the case. It is important as evidence that the transaction was regarded and treated as the sale and purchase of a doubtful right; but if the contract-was of no value, and the principle as to doubtful rights which is invoked is not applicable, that stipulation was without consideration and void. In all cases of sales of choses in action or possession, having any value so as to constitute a consideration for the price paid or agreed to be paid, in the absence of fraud, and warranty express or implied, and any express stipulation on the subject, the law casts on the purchaser all risks. The only doubts in relation to the contract in this case which existed were, whether the act of the legislature was in conflict with the constitution or not, and if it was, whether contracts under it were void or valid. All the facts connected with them were well understood, and the questions were purely questions of law.

No case has been cited holding that the sale of a worthless < claim is a good consideration merely because doubts were entertained as to the law in relation to it, when all the facts were known and conceded, and I have not found any such case. I am not able to assent to the position. The existence and extent of doubts on legal questions must, in fact, depend very much on the legal attainments of individuals; legal principles familiar and clear to some, are unknown or quite obscure to others; and to ascertain whether there were serious doubts in any given case, an issue must be formed and proof given upon it, or the court must speculate on the subject. I think no such inquiry can be instituted, and that the maxim of the law applies, that every man is presumed to know the law. (Broom’s Legal Maxims, 122.)

In Cabot v. Haskins, (3 Pick. 83,) the defendants erroneously supposed they were under a legal liability to the United States, arising out of facts well known to the parties, and promised to pay the plaintiffs a sum of money on their assuming the risk and agreeing to indemnify the defendants. The promise was held to be without consideration and void. Parker, Oh. J., in delivering the opinion of the court, says : “We cannot suppose that a mere ideal danger, which has no foundation in fact or in law, can form the substratum of a contract by which the one who assumes it can claim indemnity.” And again, “ There must be, as a legal foundation for a promise, either an actual danger, or a suspension or forbearance of right, or a possibility of loss, occasioned to one to whom the promise is made, to give it validity.” In Morey v. The Town of Newfane, (8 Barb. 645,) it was held that a claim against a town for damages occasioned by a highway being out of repair, being without foundation, was not a sufficient consideration for a promise made by the town, by a vote of the electors at town meeting, to pay the claim. These cases, and others of a similar character, tend to support some of the views above presented.

[Monroe General Term, March 5, 1855.

Johnson,, Welles and T. R. Strong, Justices.]

It is' made a point by the defendants’ counsel, that the answer sets up a perfect defense to the action, inasmuch as it alleges that the notes were given in consideration of the- execution and delivery of the assignment and power of attorney and the delivery of the contract at the risk of the purchasers; and also, that the contract had value. The position as to the statement of the consideration of the notes is not quite correct in fact. The answer alleges that the consideration was the sale, assignment, transfer, conveyance and delivery of the contract at the risk of the purchasers, and also the execution and delivery of the power of attorney. The substance of the transaction was a sale of the contract. In regard to the general allegation that the contract had value, it is not entitled to any weight when upon the facts stated it appears the contract had no value.

No demand of the notes before suit was necessary to the right of action; and no offer to return the contract was required, it being valueless.

In my opinion the plaintiff is entitled to some portion at least of the relief demanded, and the judgment appealed from should be reversed and a new trial granted, with costs to abide the event.