Source: https://caselaw.findlaw.com/us-supreme-court/212/58.html
Timestamp: 2019-04-23 11:04:52+00:00

Document:
[212 U.S. 58, 59] Mr. Thomas J. Beall for petitioner.
[212 U.S. 58, 61] Mr. Millard Patterson for respondent.
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 8 per cent 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 1/4 of 1 per cent annually would liquidate in ten years, and that the bonds should be sold only at par value. Gen. Laws (Tex.) 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. Gen. Laws (Tex.) 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. Gen. Laws (Tex.) 1885, p. 56.
The present action was brought July 26th, 1904, by the Noel-Young Bond & Stock Company, a Missouri corporation, as [212 U.S. 58, 64] holder, owner, and bearer, to recover the amount of certain bonds-numbered 90, 91, 92, 94, 95, and 96, respectively-with interest coupons attached.
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.
The county insists that although the bonds purport to have been issued by order of the county commissioners' court in virtue of certain legislative enactments referred to on the face of the bonds, and which authorizes that court to issue bonds for the erection of a courthouse or jail, or both, and although each bond is attested by the seal of the commissioners' court and the signatures of the officers who alone could attest and sign bonds issued for courthouse and jail purposes, the court [212 U.S. 58, 65] 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.
They had authority to determine whether the precedent conditions had been fully performed. When, therefore, the county, acting by the commissioners' court, did issue bonds, attested by the seal of the court and the signatures of its officers, and reciting that they were issued under the order of the court, in virtue of the statute named, and were registered,-such recitals fairly importing a compliance, in all substantial respects, with the statute giving authority to issue bonds,-a bona fide purchaser was entitled to accept the recitals as stating the truth, and the county cannot, as against such purchaser, allege the contrary. It will not be heard to say that the bonds were in excess of the amount authorized, or that they were not issued for the purposes contemplated by the statutes referred to. These principles have become firmly established, as will be seen by an examination of the adjudged cases, some of which are cited in the margin.
Coloma v. Eaves, 92 U.S. 484 , 23 L. ed. 579; Buchanan v. Litchfield, 102 U.S. 278 , 26 L. ed. 138; Independent School Dist. v. Stone, 106 U.S. 183 , 27 L. ed. 90, 1 Sup. Ct. Rep. 84; Douglas County v. Bolles, 94 U.S. 104 , 24 L. ed. 46; Anderson County v. Beal, 113 U.S. 227, 238 , 239 S., 28 L. ed. 966, 970, 5 Sup. Ct. Rep. 433; Chaffee County v. Potter, 142 U.S. 355, 364 , 35 S. L. ed. 1040, 1043, 12 Sup. Ct. Rep. 216; Gunnison County v. E. H. Rollins & Sons, 173 U.S. 255, 270 , 43 S. L. ed. 689, 696, 19 Sup. Ct. Rep. 390; Mercer County v. Hacket, 1 Wall. 83, 17 L. ed. 548; Cairo v. Zane, 149 U.S. 122 , 37 L. ed. 673, 13 Sup. Ct. Rep. 803; Venice v. Murdock. 92 U.S. 494 , 23 L. ed. 583; Marcy v. Oswego Twp. 92 U.S. 637 , 23 L. ed. 748; Wilson v. Salamanca Twp. 99 U.S. 499 , 25 L. ed. 330; Sherman County v. Simons, 109 U.S. 735, 737 , 27 S. L. ed. 1093, 1094, 3 Sup. Ct. Rep. 502; Hackett v. Ottumwa, 99 U.S. 86, 95 , 25 S. L. ed. 363, 365; Ottaway v. First Nat. Bank, 105 U.S. 342 , 26 L. ed. 1127, and authorities cited in each of the above cases. [212 U.S. 58, 66] The county, however, insists that an examination of the order of the commissioners' court of February 9th, 1886, referred to in the bonds, would have informed any purchaser (1) that that court on that day ordered only $86,000 in bonds to be issued,-$60,000 for a courthouse and $26,000 for a jail; (2) that the particular bonds now in suit, dated December 6th, 1886, and numbered 91 to 96 inclusive, were not covered by that order and therefore were in excess of the amount so ordered for courthouse and jail buildings. Assuming for the moment, but only for the moment, that the purchaser was bound to ascertain what the order of February 9th, 1886, contained, we observe that the statutes recited in the bonds did not name a specific amount beyond which the commissioners' court could not go in issuing bonds for courthouse and jail purposes. They were authorized to issue for those purposes such an amount in bonds as was necessary up to the point that no more be year. It was for the commissioners' court by a tax of 1/4 of 1 per cent for any one year. It was for the commissioners' court in the first instance to determine what amount of bonds on that basis was required. We observe, also, as did the civil court of appeals of Texas in a case to be presently referred to (27 S. W. 702, 707), that the order of February 9th, 1886, did not require that the bonds issued for courthouse and jail purposes should be numbered consecutively from 1 to 86; that the bonds in suit bore numbers above 86 was immaterial in face of the recital in them that they were issued by order of the commissioners' court and in virtue of the statutes conferring the power to issue bonds for courthouse and jail purposes; and that that order gave no information that the bonds [212 U.S. 58, 67] 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?
In the more recent case of Stanly County v. Coler, 190 U.S. 437 , 47 L. ed. 1126, 23 Sup. Ct. Rep. 811, 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 , 51 L. ed. 860, 27 Sup. Ct. Rep. 505.
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.
It is, however, contended that this principle only affords protection to bona fide purchasers for value. But clearly the plaintiff is to be taken, upon the present record, as belonging to that class; for, there was no evidence that it had knowledge or notice of any facts impeaching the validity of the bonds, or that were inconsistent with their recitals, nor was there any evidence showing that the plaintiff was not a bona fide purchaser for value of these bonds. In the absence of such proof the presumption was that the plaintiff obtained the bonds underdue, or before maturity, in good faith, for a valuable consideration, without notice of any circumstances impeaching their validity. The production of a negotiable instrument sued on, with proof of its genuineness, if its genuineness be not denied, makes a prima facie case for the holder. In other words, the possession of the bonds in this case, their genuineness not being disputed, made a prima facie case for the plaintiff. These views are in accordance with accepted doctrines of the law relating to negotiable securities.
Swift v. Tyson, 16 Pet. 1. 16, 10 L. ed. 865, 870; Murray v. Lardner, 2 Wall. 110, 121, 17 L. ed. 857, 859; Chambers County v. Clews, 21 Wall. 317, 323, 22 L. ed. 517, 519; San Antonio v. Mehaffy, 96 U.S. 312, 314 , 24 S. L. ed. 816, 817; Montclair Twp. v. Ramsdell, 107 U.S. 147, 158 , 27 S. L. ed. 431, 434, 2 Sup. Ct. Rep. 391; 2 Parsons, Bills & Notes, 9; Pinkerton v. Bailey, 8 Wend. 600; Story, Promissory Notes, 196; 1 Dan. Neg. Inst. 5th ed. 812, and the authorities there cited; Chitty, Bills, 11th [212 U.S. 58, 71] Am. ed. 69; Arbouin v. Anderson, 1 Q. B. 498, 504.
That case was taken to the supreme court of Texas, which reversed the judgment of the civil court of appeals and affirmed the judgment of the court of original jurisdiction. 88 Tex. 60-66, 29 S. W. 1042. The supreme court of Texas assumed, for the purposes of its opinion, that the county commissioners' court had the power, under the acts of the legislature, to issue bonds of the county for courthouse and jail purposes to the full amount of $96,000. Yet, it said, the order of February 9th, 1886, referred to in the bonds, showed that only $86,000 of bonds were authorized by that order to be issued for such purposes, and, therefore, that the bonds in suit were issued without any order to support them; that 'the law requires' a dealer in county bonds to know the provisions of the act of the legislature and the order of the county commissioners' court, under and by virtue of which such bonds were issued, whether referred to on the face of the bonds or not; that the facts made known by the order of February 9th, 1886, were sufficient to put a purchaser on inquiry as to whether the coupons of the bonds now in suit were in [212 U.S. 58, 73] 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, 19, 10 L. ed. 865, 871, 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, 33 , 34 S., 27 L. ed. 359, 365, 2 Sup. Ct. Rep. 10; Pana v. Bowler, 107 U.S. 529 , 27 L. ed. 424, 2 Sup. Ct. Rep. 704; and Oates v. First Nat. Bank, 100 U.S. 239, 246 , 25 S. L. ed. 580, 583, 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 atually rendered by that court in Ball v. Presidio County as matter of law, concludes the plaintiff in this suit.
In determining that question certain facts may be taken as [212 U.S. 58, 74] 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.
The argument in support of the conclusiveness of the judgment necessarily rests on the ground that the suit on the coupons created a lis pendens that prevented anyone from purchasing the bonds except subject to such judgment as might be rendered on that suit. But, clearly, the negotiability of the bonds was not destroyed by the mere bringing or pendency of the suit on the coupons, although the issue in that suit as to the validity of the coupons may have incidentally involved an inquiry as to the validity of the bonds to which they were attached. It may be that the holder of negotiable coupons sued on, being also, at the time, the holder and owner of the bonds, may be concluded, as between him and the county, in a subsequent suit on the bonds, by a previous judgment on the coupons in the suit, in which the coupons were held invalid be- [212 U.S. 58, 75] cause attached to invalid bonds. But one who became a bona fide purchaser for value of the bonds, after the institution of the suit on the coupons, not being himself a party to or having notice of that suit, will not be concluded by the judgment as to the coupons. A suit on coupons and a suit on the bonds are based on different causes of action. The coupons and bonds were capable of separate ownership and of separate suits. Judgment might be rendered on coupons without producing the bonds to which they were originally attached. In Nesbit v. Independent District, 144 U.S. 611, 618 , 36 S. L. ed. 562, 565, 12 Sup. Ct. Rep. 746, which was an action on county bonds, and in which it was a question whether a judgment in a former suit on coupons of certain bonds of the same issue barred an action on the bonds, this court said: '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, 271 , 41 S. L. ed. 155, 156, 16 Sup. Ct. Rep. 967. 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. [212 U.S. 58, 76] An instructive case on this subject is Warren County v. Marcy, 97 U.S. 96 , 24 L. ed. 977. 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.
This court, speaking by Mr. Justice Bradley, held the bonds to be valid in the hands of a bona fide purchaser for value upon these grounds, saying: '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.' On the question of lis pendens the court said: 'It is a general rule that all persons dealing with property are bound to take notice of a suit pending with regard to the title thereto, and will, on their peril, [212 U.S. 58, 77] 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,'-citing Murray v. Ballou, 1 Johns. Ch. 566; Murray v. Lylburn, 2 Johns. Ch. 441; Kieffer v. Ehler, 18 Pa 388; Winston v. Westfeldt, 22 Ala. 760 58 Am. Dec. 278; Stone v. Elliott, 11 Ohio St. 252; Mims v. West, 38 Ga. 18, 95 Am. Dec. 379; Leitch v. Wells, 48 N. Y. 585, Durant v. Iowa County, 1 Woolw. 69, Fed. Cas. No. 4,189. The court also referred to Lexington v. Butler, 14 Wall. 283, 20 L. ed. 809, saying: 'In that case irregularities had ocurred 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.' In Orleans v. Platt, 99 U.S. 676, 682 , 25 S. L. ed. 404, 405, the court said: 'The doctrine of lis pendens has no application to commercial securities.' See also Cass County v. Gillett, 100 U.S. 585, 593 , 25 S. L. ed. 585, 586; and [212 U.S. 58, 78] Carroll County v. Smith, 111 U.S. 556, 562 , 28 S. L. ed. 517, 519, 4 Sup. Ct. Rep. 539, 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.

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