Source: https://supreme.justia.com/cases/federal/us/212/58/
Timestamp: 2019-04-22 20:12:50+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 212 › Presidio County v. Noel-Young Co.
the statute upon which a bona fide purchaser can rely, and the obligor cannot against such a purchaser assert the contrary. Evansville v. Dennett, 161 U. S. 434.
In the absence of evidence to the contrary the presumption is that a third party producing a genuine negotiable instrument is a bona fide purchaser for value.
The doctrine of lis pendens has no application to commercial securities. Orleans v. Platt, 99 U. S. 676, 99 U. S. 682.
In respect to the doctrine of commercial law and general jurisprudence, while courts of the United States, in questions balanced with doubt, will, for the sake of harmony, lean toward an agreement with the state court, as a general rule, they will exercise their independent judgment uncontrolled by decisions based on local statutes and usage, and so, in this instance, as the state court proceeded in part on grounds inconsistent with the decision of this Court in such cases, it decision should not be followed. Ball, Hutchings & Co. v. Presidio County, 88 Tex. 60, not followed.
Although a coupon is for interest to become due on the bond, the promise to pay are s distinct as though expressed in different instruments, and, as the bond and the coupon are capable of separate ownership, a suit on the bond and a suit on the coupon are based on different causes of action.
A bona fide purchaser for value before maturity of bonds is not precluded or affected by an adverse judgment in a suit on the coupons of those bonds to which suit he is not a party, and of which he had no notice.
The facts, which involve the validity of bonds issued by the petitioner, are stated in the opinion.
By an act of the Legislature of Texas approved February 11th, 1881, the County Commissioners' Court of every county that had no courthouse was authorized and empowered to issue county bonds, with interest coupons attached, in such amount as might be necessary to erect a suitable building for a courthouse, such bonds to run not exceeding fifteen years, redeemable at the pleasure of the county, and bearing interest at a rate not exceeding eight percent per annum. The act provided that the bonds should be signed by the county judge, countersigned by the county clerk, and registered by the county treasurer before being delivered. It also provided that the county should not issue a larger number of bonds than a tax of one-fourth of one percent annually would liquidate in ten years, and that the bonds should be sold only at par value. General Laws, Texas, 1881, p. 5.
This act was amended in 1884 at a called session of the eighteenth legislature of Texas, so as to authorize the Commissioners' Court to issue county bonds (running not exceeding fifteen years) with interest coupons attached in such amount as might be necessary to erect a suitable courthouse building or jail, or both. General Laws, Texas, 1884, p. 28.
By another act, passed March 27th, 1885, the power given by the act of 1884 to issue bonds for courthouse and jail purposes, or both, in such amount as might be necessary, was recognized, and, in addition, county bonds theretofore issued for jail purposes under the act of 1881, as amended by the act of 1884, were validated. General Laws, Texas, 1885, p. 56.
holder, owner, and bearer to recover the amount of certain bonds -- numbered 90, 91, 92, 94, 95, and 96, respectively -- with interest coupons attached.
"issued by virtue of an act of the legislature of the State of Texas entitled 'An Act to Authorize the County Commissioners' Court of the Several Counties of the state to Issue Bonds for the Erection of a Courthouse and to Levy a Tax to Pay for the Same,' approved February 11, 1881, and by virtue of the provisions of chapter 17, laws of called session of the eighteenth legislature, which said chapter has since been validated by the Act of March 27, 1885, authorizing the County Commissioners' Court of the several counties of the state to issue bonds for the erection of a county jail, and by order of the County Commissioners' Court of said County of Presidio, on the 9th day of February, 1886, and is redeemable before maturity at the pleasure of the county."
To each bond was affixed the seal of the County Commissioners' Court and was signed by the county judge, countersigned by the clerk of the county court and by the county treasurer, the latter certifying that it had been registered.
At the trial, the court instructed the jury that the suit on the coupons was barred by the Texas statute of limitations, but it directed a verdict for the amount of the bonds, with interest from December 6th, 1900. That judgment was affirmed in the circuit court of appeals, but without any opinion.
exceeded its powers in issuing the present bonds in that, by its order of February 9th, 1886, bonds to the extent of only $86,000 were authorized -- $60,000 for a courthouse and $26,000 for a jail -- whereas that amount of bonds for such purposes had in fact been issued before the bonds in suit. This contention means that the bonds in suit are to be deemed void if they were in fact in excess of the amount authorized by the order of February 9th, 1886. But that view cannot be maintained consistently with a long line of decisions.
Whether the Commissioners' Court, which had statutory authority to issue such bonds as were necessary for courthouse and jail purposes, had previously made the requisite order therefor was a matter peculiarly within the knowledge of its officers. They knew whether they had or had not directed bonds to be issued for such purposes. They knew, or ought to have known, whether the bonds ordered to be issued were in excess of the amount authorized by the legislature.
here in suit were in excess of the $86,000 in bonds directed by that order to be issued.
Apart from this view, it is pertinent to inquire whether the purchaser was bound to examine the order of February 9th, 1886, and at his peril, to know what that order contained? Was he not entitled, without special or further inquiry, to accept as true what the recitals in the bonds plainly imported -- namely, that the bonds were issued for courthouse or jail purposes by order of the County Commissioners' Court, in conformity with specified acts of the legislature? Was he not entitled to act on the belief that the bonds issued under date of December 6th, 1886, were within the limit authorized by the legislature?
"It is true that the city charter provided that"
"no stock shall be subscribed or taken by the common council in such company, unless it be on the petition of two thirds of the residents of said city, who are freeholders of the city, distinctly setting forth the company in which stock is to be taken, and the number and amount of shares to be subscribed."
not performed? If the bonds had not contained any recitals importing a performance of such conditions before the power to subscribe was exercised, then it would have been open to the city to show, even as against a bona fide purchaser, that the bonds were issued in disregard of the statute, and therefore did not impose any legal obligation upon it. Buchanan v. Litchfield, 102 U. S. 278; School District v. Stone, 106 U. S. 183, 106 U. S. 187. But the bonds issued on account of subscription to the stock of the Evansville, Henderson & Nashville Railroad Company recite that the subscription was 'made in pursuance of an act of the legislature and ordinances of the city council passed in pursuance thereof.' This imports not only compliance with the act of the legislature, but that the ordinances of the city council were in conformity with the statute. It is as if the city had declared, in terms, that all had been done that was required to be done in order that the power given might be exercised. . . . As, therefore, the recitals in the bonds import compliance with the city's charter, purchasers for value having no notice of the nonperformance of the conditions precedent were not bound to go behind the statute conferring the power to subscribe, and to ascertain, by an examination of the ordinances and records of the city council, whether those conditions had in fact been performed. With such recitals before them, they had the right to assume that the circumstances existed which authorized the city to exercise the authority given by the legislature. . . . The city having authority, under some circumstances, to put these bonds upon the market, and having issued them under the corporate seal of the city, and under the attestation of its highest officer, certifying that they were issued in payment of a subscription of stock made in pursuance of the city's charter, the principles of justice demand that the bonds, in the hands of bona fide holders for value, should be met according to their terms unless some clear, well settled rule of law stands in the way. No such obstacle exists."
"Another objection taken is that the proviso requiring a petition of two-thirds of the citizens who were freeholders of the city was not complied with. As we have seen, the bonds signed by the mayor and clerk of the city recite on the face of them that they were issued by virtue of an ordinance of the common council of the city, passed September 2, 1852. This concludes the city as to any irregularities that may have existed in carrying into execution the power granted to subscribe the stock and issue the bonds, as has been repeatedly held by this Court."
purchasers could assume that the ordinances would disclose nothing in conflict with the recitals in the bonds."
In the more recent case of Stanly County v. Coler, 190 U. S. 437, the Court reviewed many of the adjudged cases, and, in support of the conclusion there reached, cited, among other cases, that of Evansville v. Dennett. See also the recent case of Quinlan v. Green County, 205 U. S. 410.
Our conclusion on this branch of the case is that the County of Presidio is estopped by the recitals in its bonds to deny, as against a legal holder of the bonds, that they were issued conformably in all respects with the acts of legislation referred to.
Amer. ed. 69; Arbouin v. Anderson, 1 Adolph. & Ellis, New R. 498, 504.
for the issuance of a bonded debt for said purpose, in the sum of $86,000, and there is nothing in the order to indicate to the mind that there had been an overissue, or that these particular bonds were not a part of the $86,000. . . . In fact, these bonds would seem to have been prepared and issued in a manner that concealed their true character, and to mislead investors in that class of securities, and we are of opinion, on the whole case, that the county is estopped to deny its liability to the purchasers."
This last observation of the Texas civil court of appeals had, no doubt, reference to the fact (which evidence in this suit tended to establish) that, although the particular bonds in suit were issued pursuant to an order of the Commissioners' Court made December 4th, 1886, to pay for courthouse furniture, they contained recitals fairly implying that they were issued under the order of February 9th, 1886, and the statutes, for the purpose of building a courthouse and jail.
excess of the amount authorized by that order; that the burden of proof being upon Ball, Hutchins & Company to show that they were bona fide holders, it was incumbent on them, as plaintiffs, to prove that proper diligence had been used to ascertain the facts, and that, having made no such proof, they were not entitled to judgment.
It is apparent that the Supreme Court of Texas proceeded in part upon grounds inconsistent with the decisions of this Court in cases involving the rights of the holders of commercial paper. We allude here particularly to that part of its opinion holding that, whatever the import of the recitals in the bonds, a purchaser was bound to ascertain what were the provisions of the order of February 9th, 1886, under and by virtue of which the bonds purport to have been issued. In that view we do not concur, as what has been said in this opinion sufficiently indicates. Since the decision in Swift v. Tyson, 16 Pet. 1, 41 U. S. 19, it has been the accepted doctrine of this Court that, in respect of the doctrines of commercial law and general jurisprudence, the courts of the United States will exercise their own independent judgment, and, in respect to such doctrines, will not be controlled by decisions based upon local statutes or local usage, although, if the question is balanced with doubt, the courts of the United States, for the sake of harmony, "will lean to an agreement of views with the state courts." To that effect are Burgess v. Seligman, 107 U. S. 20, 107 U. S. 33-34; Pana v. Bowler, 107 U. S. 529, and Oates v. National Bank, 100 U. S. 239, 100 U. S. 246, and authorities cited in each case. But, in the present suit and upon the particular question now under consideration, it is perhaps immaterial that the learned Supreme Court of Texas did not proceed on grounds consistent with the settled doctrines of this Court on questions of commercial law, for that court having jurisdiction of the case before it, the question to be met is whether the judgment actually rendered by that court in Ball v. Presidio County, as matter of law, concludes the plaintiff in this suit.
established by the proof introduced by the county and which it deemed material, namely: 1. That the suit in the state court was upon interest coupons, and not upon the bonds to which they were attached. 2. That, on December 10th, 1886, after the bonds were issued, F. M. Ball purchased those here in suit from the contractor to whom they were delivered on account of furniture supplied for the courthouse, and, on the same day, on League purchased from Ball four of the bonds. 3. Both Ball and League purchased in good faith at par and interest, without notice of any facts impeaching the validity of the bonds. 4. That their purchases were before the action in the state court, which was not commenced until August 15th, 1902. 5. That when that suit was begun, the bonds, so far as appears from the record, belonged to Ball and League, and remained under their control during the pendency of that suit, and were not produced in court. 6. Ball, Hutchins & Company, the plaintiffs in that suit, were only the agents for the collection of the interest coupons. 7. It does not appear from the present record when the Noel-Young Bond & Stock Company, the present plaintiff, became the holder and owner of the bonds, whether during the pendency of the suit in the state court or after the final judgment on March 4th, 1895, in the Supreme Court of Texas.
"Now, the present suit is on causes of action different from those presented in the suit at Des Moines. Bonds 16, 17 and 18 were not presented or known in that suit, and while bonds 14 and 15 were presented, alleged to be the property of plaintiff, and judgment asked upon six coupons attached thereto, yet the cause of action on the six coupons is distinct and separate from that upon the bonds or the other coupons. Each matured coupon is a separable promise, and gives rise to a separate cause of action. It may be detached from the bond and sold by itself. Indeed, the title to several matured coupons of the same bond may be in as many different persons, and upon each a distinct and separate action be maintained. So, while the promises of the bond and of the coupons in the first instance are upon the same paper, and the coupons are for interest due upon the bond, yet the promise to pay the coupon is as distinct from that to pay the bond as though the two promises were placed in different instruments, upon different paper."
To the same effect is Edwards v. Bates County, 163 U. S. 269, 163 U. S. 271. A purchaser, when buying the bonds, was not bound at his peril to know of the pendency of the suit on the coupons. He could buy without being concluded by a judgment rendered on coupons involved in a suit to which he was not a party, and of the pendency of which he had no notice.
An instructive case on this subject is Warren County v. Marcy, 97 U. S. 96. That was an action on coupons attached to negotiable bonds issued by a county. The facts on which the defense was based were these: a taxpayer brought a suit against a county on behalf of himself and all other taxpayers for an injunction to prevent the county from making a subscription to the stock of a certain railroad company. A temporary injunction was granted, which was afterwards dissolved, and the bill was dismissed. The plaintiff appealed to the supreme court of the state, which reversed the judgment and a decree was ordered to be entered, and was entered, enjoining the county from making the proposed subscription. Pending the suit and after the dissolution of the temporary injunction, and while the case was pending on appeal, the county made the subscription sought to be enjoined, and issued and delivered to the railroad company the bonds to which the coupons there in suit were attached. Marcy purchased some of the bonds for value before maturity, and without any actual notice of their alleged invalidity or of any suit in relation thereto. The question in the case was whether the pendency of the equity suit to prevent the subscription and an issue of bonds was constructive notice to all persons of the invalidity of the bonds issued in payment for the subscription.
"That if a municipal body has lawful power to issue bonds or other negotiable securities, dependent only upon the adoption of certain preliminary proceedings, such as a popular election of the constituent body, the holder in good faith has a right to assume that such preliminary proceedings have taken place, if the fact be certified on the face of the bonds themselves, by the authorities whose primary duty it is to ascertain it."
purchase the same from any of the parties to the suit. But this rule is not of universal application. It does not apply to negotiable securities purchased before maturity, nor to articles of ordinary commerce sold in the usual way. This exception was suggested by Chancellor Kent in one of the leading cases on the subject in this country, and has been confirmed by many subsequent decisions,"
"In that case, irregularities had occurred in the preliminary proceedings, and the city authorities refused to issue the bonds. A mandamus was applied for by the railroad company, for whose use the bonds were intended, and judgment of mandamus was rendered to compel the city to issue them, and it issued them accordingly. Subsequently, this judgment was reversed by the Court of Appeals of Kentucky, and an injunction was obtained to prevent the railroad company from parting with the bonds. The injunction was not obeyed; the bonds were negotiated whilst proceedings were still pending, and were purchased by the plaintiff for value before maturity, without any knowledge of these circumstances. This Court held that the bonds were valid in his hands. . . . Whilst the doctrine of constructive notice arising from lis pendens, though often severe in its application, is, on the whole, a wholesome and necessary one, and founded on principles affecting the authoritative administration of justice, the exception to its application is demanded by other considerations equally important, as affecting the free operations of commerce and that confidence in the instruments by which it is carried on which is so necessary in a business community."
Carroll County v. Smith, 111 U. S. 556, 111 U. S. 562, to the same effect.
We hold that, upon the present record, the plaintiff company is to be taken as having purchased the bonds here in suit before maturity and for value, without notice of any circumstances indicating that their validity was or could be impeached; consequently, the judgment in favor of the county in the suit brought in the state court by Ball, Hutchins & Company on some of the coupons of the bonds now in suit -- in which suit the present plaintiff company was not a party and of which it is not shown to have had notice -- does not preclude a judgment in its favor against the county on the bonds.
For the reasons stated, the judgment of the Circuit Court of the United States must be affirmed.
* Coloma v. Eaves, 92 U. S. 484; Buchanan v. Litchfield, 102 U. S. 278; School District v. Stone, 106 U. S. 183; Commissioners v. Bolles, 94 U. S. 104; Anderson County Commissioners v. Beal, 113 U. S. 227, 113 U. S. 238-239; Chaffee County v. Potter, 142 U. S. 355, 142 U. S. 364; Gunnison County Commissioners v. Rollins, 173 U. S. 255, 173 U. S. 270; Mercer County v. Hacket, 1 Wall. 83; Cairo v. Zane, 149 U. S. 122; Town of Venice v. Murdock, 92 U. S. 494; Marcy v. Town of Oswego, 92 U. S. 637; Wilson v. Salamanca, 99 U. S. 499; Sherman County v. Simons, 109 U. S. 735, 109 U. S. 737; Hackett v. Ottawa, 99 U. S. 86, 99 U. S. 95; Ottawa v. National Bank, 105 U. S. 342, and authorities cited in each of the above cases.

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